Summary
finding seven-month gap between completion of initial investigation and disclaimer of coverage unreasonable and rejecting defendants' assertion that it needed to review discovery produced in underlying state action
Summary of this case from U.S. Underwriters Insurance Co. v. 614 Constr. Corp.Opinion
99 Civ. 10136 (AGS)
September 29, 2000
OPINION AND ORDER
In this action, plaintiff seeks a declaratory judgment that it is not obligated to defend and indenmify defendants Roka LLC, Robert Chou, and Katherine Chou with respect to a personal injury action for damages commenced by defendant Luis Escalera in the New York Supreme Court. Currently before the Court are plaintiff's motion for summary judgment and defendants' cross- motion for summary judgment. For the reasons set forth below, plaintiff's motion is denied and defendants' cross-motion is granted.
I. Factual Background
The following facts are undisputed. Defendant Roka LLC ("Roka") is a company doing business in New York that owns, controls, and maintains premises located at 29 Seventh Avenue South in New York City (the "premises"). (Plaintiff's Statement Pursuant to Rule 56.1 ("Pl.'s 56.1") ¶ 4.) Defendants Robert Chou and Katherine Chou are principals of Roka. (Id. ¶¶ 5, 6.)
Plaintiff submitted a Statement Pursuant to Local Rule 56.1. In an answering affirmation in response to plaintiffs motion, defendants state that "[a]fter carefully scrutinizing the averments [in plaintiffs statement], [they] cannot raise any factual dispute." (Answering Affirmation of Bruce Egert dated Mar. 13, 2000 ("Egert Aff.") ¶¶ 2, 3.)
On or about May 15, 1997, plaintiff U.S. Underwriters Insurance Company ("plaintiff" or "insurer") issued to defendants Roka, Robert Chou and Katherine Chou ("insureds"), an insurance policy (the "policy") that afforded them general liability coverage for the period from May 15, 1997 to May 15, 1998. (Pl.'s 56.1 ¶ 1.) One of the policy's exclusion provisions, entitled "Exclusion of Injury to Employees, Contractors and Employees of Contractors" ("the exclusion provision") provides inter alia that the policy does not apply to:
(I) bodily injury to any employee of any insured, to any contractor hired or retained by or for any insured or to any employee of such contractor, if such claim for bodily injury arises out of and in the course of his employment or retention of such contractor by or for any insured, for which any insured may become liable in any capacity;
(ii) any obligation of any insured to indemnify or contribute with another because of damages arising out of the bodily injury [referenced above] . . .
(Id. ¶ 2; Affidavit of Thomas Enright dated Feb. 24, 2000 ("Enright Aff."), Ex. C.)
The policy further provided a host of notice provisions. In particular, the insureds "must see to it that [insurer is] notified as soon as practicable of an `occurrence' or an offense which may result in a claim." (Pl.'s 56.1 ¶ 3; Ex. C to Enright Aff., Sec. IV. 2.) The policy states that such notice shall include, "to the extent possible": (i) how, when and where the occurrence or offense took place; (ii) the names and addresses of any injured persons and witnesses; and (iii) the nature and location of any injury or damage arising out of the occurrence or offense. (Id.) Moreover, the policy provides that if a claim is made or suit is brought against the insured, the insureds must immediately record the specifics of the claim or suit and the date received, and notify the insurer as soon as practicable of such claim or suit. (Id.) Such notification involves in particular (i) sending the insurer "copies of any demands, notices, summonses or legal papers received in connection with the claim or `suit'", (ii) authorizing the insurer to "obtain records and other information," (iii) cooperating with the insurer in "the investigation, settlement or defense of the claim or `suit'"; and (iv) assisting the insurer "in the enforcement of any right against any person or organization which may be liable to the insured because of injury or damage to which the insurance may also apply." (Id.)
On or before March 23, 1998, Roka retained a contractor, Aljer Plumbing, Inc., to perform certain plumbing work at the premises. (Pl.'s 56.1 ¶ 8; Declaration of Jordan M. Sklar in Support of Motion dated Feb. 25, 2000 ("Sklar Decl.") ¶ 7.) On March 23, 1998, defendant Luis Escarela ("Escarela"), an employee of Aljer, while working on the premises on behalf of Roka, fell and sustained certain injuries. (Id. ¶¶ 10-12.) Escarela advised Robert Chou, who was then on the premises, of his fall and that he was experiencing pain in his wrist. (Id. ¶¶ 13-15.) An ambulance was called and Escarela was taken away from the premises, with the knowledge of Robert Chou and Roka. (Id. ¶¶ 16- 19.) However, none of the defendants reported the accident to plaintiff at the time that it occurred. (Id. ¶¶ 20-22.)
The term "defendants" shall hereinafter refer to the defendants collectively, that is, Roka, Robert Chou, Katherine Chou, and Escarela.
Defendants claim that Escalera suffered a fractured wrist that "has not responded to three separate surgeries," inhibiting and possibly precluding his continued work as a plumber. Egert Aff. ¶ 5.
In November 1998, Escarela commenced a lawsuit pertaining to the March 23, 1998 incident against Roka in the Supreme Court of the State of New York, Kings County (the "Escarela lawsuit").fn2 (Id. ¶ 23; Complaint dated Nov. 2, 1998, Ex. A to Enright Aff.) The lawsuit asserts four causes of action arising out of the alleged negligence of Roka in maintaining the premises. (Ex. A to Enright Aff.) On or about February 4, 1999, Roka received a letter and Summons and Complaint from Escalera's attorney, and both Roka and Robert Chou thereafter forwarded copies of these documents to its insurance broker. Plaintiff, which had not been notified of the incident before the material was forwarded to Roka's broker, was notified of the incident sometime in February 1999. (Id. ¶¶ 27-29; Enright Aff. ¶ 5.) Plaintiff thereafter hired an independent investigator, J N Investigation Claim Service, Inc. ("J N") to review the underlying incident, and J N produced a report for plaintiff dated March 4, 1999. (Enright Aff. ¶ 11, Ex. B.) Plaintiff then appointed defense counsel for Roka, and has since defended Roka in the Escalera lawsuit. (Plaintiffs Reply Memorandum of Law in Further Support of its Motion for Summary Judgment ("Pl.'s Rep.") at 5.)
Plaintiff commenced the instant action on September 30, 1999 seeking a declaratory judgment, pursuant to 28 U.S.C. § 2201, that it is not obligated to defend and indemnify defendants in the Escarela lawsuit. Cross-motions for summary judgment followed.
In an affirmation in opposition to plaintiffs motion, defendants state that "plaintiff is not entitled to summary judgment and judgement [sic] should be granted in favor of the insureds declaring that plaintiff is obligated to defend them in the underlying action and to indemnify them for any judgment awarded against them in said action . . . ." (Affirmation of Victor Bleiwas in Opposition dated Feb. 14, 2000 ("Bleiwas Aff.") at 2, 3.) The Court construes this affirmation, and the other papers submitted by defendants, as a cross-motion for summary judgment.
II. Discussion
A. Summary Judgment Standard
New York law applies to this case because it involves New York insureds and an insurance policy brokered in New York, and the incident underlying the claim occurred in New York. A district court may grant summary judgment only if it is satisfied that "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law."Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248 (1986). The burden rests on the moving party to demonstrate the absence of a genuine issue of material fact, which may be satisfied if it can point to the absence of evidence necessary to support an essential element of the non-moving party's claim. See Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). All inferences and ambiguities are resolved in favor of the party against whom summary judgment is sought. See Gallo v. Prudential Residential Servs., Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994) (citations omitted).
The parties implicitly agree that New York law applies to the instant motion by relying on New York state cases and statutes to support their respective positions.
If the moving party meets its burden, the opposing party must produce evidentiary proof in admissible form sufficient to raise a material question of fact to defeat the motion for summary judgment, or in the alternative, demonstrate an acceptable excuse for its failure to meet this requirement. See Kolp v. New York State Office of Mental Health, 15 F. Supp.2d 323, 326 (W.D.N Y 1998). When reasonable minds could not differ as to the import of the proffered evidence, then summary judgment is proper. See Anderson, supra, 477 U.S. at 250-52; Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir. 1991). Moreover, "mere conclusory allegations, speculation or conjecture will not avail a party resisting summary judgment." Cifarelli v. Village of Babylon, 93 F.3d 47, 51 (2d Cir. 1996).
In this case, plaintiff is seeking summary judgment on its claim that it does not have to defend and indemnify defendants, and defendants have cross-moved in order to establish plaintiffs continuing obligation to defend and indemnify. On cross-motions for summary judgment, the rule governing inferences and burden of proof is the same as for unilateral summary judgment motions. See Straube v. Fla. Union Free Sch. Dist., 801 F. Supp. 1164, 1174 (S.D.N.Y. 1992). That is, each cross-movant must present sufficient evidence to satisfy its burden of proof on all material facts. See Barhold v. Rodriguez, 863 F.2d 233, 236 (2d Cir. 1988) (citing Eastman Machine Co. v. United States, 841 F.2d 469, 473-74 (2d Cir. 1988)); see also Prowse v. IRS, No. 89 Civ. 2084, 1992 WL 330213, at *1 (E.D.N.Y. Sept. 9, 1992).
B. Defendants Are Entitled to Summary Judgment
Plaintiff argues that it is entitled to summary judgment because the policy's exclusion provision entitles it to deny coverage. (Enright Aff. ¶ 3; Plaintiffs Memorandum of Law in Support of its Motion for Summary Judgment ("Pl.'s Mem.") at 7- 12; Pl.'s Rep. at 1.) Plaintiff also argues that defendants' failure to give notice to plaintiff until approximately one year after the March 23, 1998 incident precludes coverage as a matter of law, because under the terms of the policy defendants were required to notify plaintiff "as soon as practicable" of an occurrence or offense that may result in a claim. (Enright Aff. ¶¶ 23-24; Pl.'s Mem. at 13-18.)
In asserting that they are entitled to summary judgment, defendants do not contest plaintiffs right, a priori, to deny coverage in this case or defendants' own failure to provide adequate notice of the claim. Rather, defendants point to New York Insurance Law Section 3420(d) ("Section 3420(d)"), which requires the insurer to provide "written notice as soon as is reasonably possible of disclaimer of liability or denial of coverage to the insured." (Memorandum of Law in Opposition to Motion for Summary Judgment ("Defs.' Mem.") at 3); Insurance Law 3420(d). Arguing that plaintiff has not provided any notice, or in any event, has not provided timely notice given the nearly seven-month delay between plaintiffs knowledge of the circumstances surrounding Escarela's claim and the filing of this action, defendants state that plaintiff can no longer legally deny coverage. (Defs.' Mem. at 3-5; Bleiwas Aff. at 2-4.)
The provision states in full:
"If under a liability policy delivered or issued for delivery in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant." (N Y Insurance Law ¶ 3420(d).)
New York courts have frequently granted summary judgment to insurer plaintiffs in declaratory judgment actions when the subject insurance policy contains an exclusion and the underlying injuries fall wholly within the exclusion. See. e.g., U.S. Underwriters Ins. Co. v. Zeugma Corp., No. 97 Civ. 8031, 1998 WL 63379, at *4 (S.D.N.Y. Sept. 15, 1998); U.S. Underwriters Ins. Co. v. Beckford, No. 93 Civ. 4272, 1998 WL 23754, at *5 (E.D.N Y Jan. 20, 1998); Mount Vernon Fire Ins. Co. v. Future Tech Constr. Corp., No. 94 Civ. 1362, 1997 WL 419997, at *2-*3 (S.D.N.Y. July 28, 1997); Mount Vernon Fire Ins. Co. v. Chios Constr. Corp., No. 94 Civ, 6107, 1996 WL 15668, at *3-*4 (S.D.N.Y. Jan. 17, 1996). When an insurer seeks to invoke an exclusionary clause in order to disclaim coverage, it has the burden of demonstrating that the exclusion applies "in clear and unmistakable language, which is subject to no other reasonable interpretation." U.S. Underwriters v. Congregation B'nai Israel, 900 F. Supp. 641, 645 (E.D.N Y 1995) (citations and internal quotations omitted). Unambiguous provisions within an insurance contract are to be given their plain and ordinary meaning. See Future Tech, supra, 1997 WL 419997, at *2 (citing Sanabria v. Am. Home Assurance Co., 68 N.Y.2d 866, 866 (1986)). In this case, plaintiff has met its burden of demonstrating that the exclusion provision is clear and unambiguous. That provision excludes coverage for bodily injuries sustained in the course of employment by an employee of a contractor retained by the insured, where the injuries resulted from operations performed by the contractor for the insured. The only injuries at issue in the underlying action were sustained by Escarela, an employee of a contractor retained by, and on behalf of Roka. Escarela's injuries were sustained during the course of employment. As such, plaintiffs decision to decline coverage is, without more, appropriate.
Moreover, under New York law, an insurer is not obliged to cover the loss of its insured unless the insured gives timely notice of loss in accordance with the terms of the insurance contract. See Mount Vernon Fire Ins. Co. v. DLRH Assoc., 967 F. Supp. 105, 107 (S.D.N.Y. 1997); B'nai Israel, supra, 900 F. Supp. at 646 (finding that an insured's compliance with a notice-of-occurrence or notice-of-claim provision in an insurance contract is a condition precedent to coverage under the policy) (citing Utica Mut. Ins. Co. v. Fireman's Fund Ins. Co., 748 F.2d 118, 121 (2d Cir. 1984); Commercial Union Ins. Co. v. Int'l Flavors Fragrances. Inc., 822 F.2d 267, 271 (2d Cir. 1987)). Without timely notice of an insured's loss, an insurer may be deprived of the opportunity to investigate the facts upon which the loss is predicated, in order to protect itself from fraudulent claims, and to adjust its books in order to maintain a proper reserve fund in light of the insured's claim. See Utica Mutual Ins., supra, 748 F.2d at 121. Accordingly, "[t]he right of an insurer to receive notice has been held to be so fundamental that the insurer need show no prejudice to be able to disclaim liability on this basis [citations omitted]." Allstate Ins. Co v. Furman, 445 N.Y.S.2d 236, 239 (2d Dep't 1981); see also Sparacino v. Pawtucket Mut. Ins. Co., 50 F.3d 141, 143 (2d Cir. 1995).
Thus, the failure of an insured to provide notice within a reasonable time may constitute a complete defense to coverage.See State of New York v. Blank, 27 F.3d 783, 793 (2d Cir. 1994). While the determination of the reasonableness of the delay is a question normally left for the factfinder, where the insured provides no excuse for the delay in notifying the insurer, and where mitigating circumstances are absent, "the issue may be disposed of as a matter of law in advance of trial." DLRH Assoc.,supra, 967 F. Supp. at 108 (citing Republic New York Corp. v. Am. Home Assurance Co., 509 N.Y.S.2d 339, 339 (1st Dep't 1986)); see also Blank, supra, 27 F.3d at 795. In such circumstances, New York courts have been intolerant of even short delays. See B'nai Israel, supra, 900 F. Supp. at 646-47 (citations omitted).
Defendants have raised no fact issues as to either of plaintiff's arguments for summary judgment. Thus, on these two points alone, this Court would be inclined to grant plaintiffs motion. However, the arguments raised by defendants lead the Court to the opposite conclusion. The two questions embraced by defendants' arguments are: (i) whether plaintiff provided proper notice of its intention to disclaim under Section 3420(d), and (ii) even if they did, was notice provided "as soon as reasonably possible" for the purposes of that section. As to the first issue, New York law is clear that plaintiff did provide proper notice. The commencement of a declaratory judgment action, seeking an affirmative declaration of non-coverage, satisfies the requirements of a proper written disclaimer under Section 3420(d). See U.S. Underwriters Insurance Co. v. Held Brothers. Inc., No. 97 Civ. 5407, 1998 WL 355425, at *3 (S.D.N.Y. June 30, 1998); Norfolk Dedham Mut. Fire Ins. Co. v. Petrizzi, 503 N.Y.S.2d 51, 53 (1st Dep't 1986).
As to the second issue, however, New York courts have held that an untimely notice of disclaimer would bar an insurer from disclaiming coverage, even where an exclusionary provision would entitle it to do so. See Held Brothers, supra, 1998 WL 355425, at *2; see also First Financial Ins. Co. v. Jetco Contracting Corp., No. 99 Civ. 8664, 2000 WL 1013945, at *4 (S.D.N.Y. July 21, 2000) (citing Hartford Ins. Co. v. County of Nassau, 416 N.Y.S.2d 539, 540 (1979)). This rule applies even when the insured fails to provide timely notice of the occurrence, because the ground for disclaiming coverage is known to the insurer when it first receives notice of the claim. See First Financial, supra, 2000 WL 1013945, at *4; Wasserheit v. New York Central Mutual Fire Ins. Co., 705 N.Y.S.2d 638, 639-40 (2d Dep't 2000). In order to discourage an insurance company from disclaiming coverage too quickly, the reasonableness of any delay in notification is measured from the time the insurer was aware of sufficient facts to disclaim. See B'nai Israel, supra, 900 F. Supp. at 647. The insurer bears the burden of establishing that its delay in disclaiming coverage was reasonable. See First Financial, supra, 2000 WL 1013945, at * 5. The determination of whether an insurer disclaimed coverage in a reasonable amount of time is usually a question for the factfinder. See id. However, when the grounds for a disclaimer are readily apparent from the notice of claim, and there is no excuse for the delay, New York courts have found short delays to be unreasonable as a matter of law. See B'nai Israel, supra, 900 F. Supp. at 647. In contrast, where the grounds for disclaimer are not readily apparent, an insurer must be given reasonable time to adequately investigate a claim in order to determine whether it wishes to disclaim coverage. Under both scenarios, a two-month delay from the point at which the insured has sufficient knowledge to disclaim coverage is the maximum that has been considered reasonable. See. e.g., Hartford Ins. Co., supra, 416 N.Y.S.2d at 541 (holding delay of more than two months unreasonable as a matter of law where no explanation was provided, but two month delay can be justified if an explanation is given by the insurer); In re Prudential Property Casualty Ins. Co., 623 N.Y.S.2d 336, 336 (2d Dep't 1995) (finding two-month delay reasonable when used to investigate the status of the insured's driver's license); Wilczak v. Ruda Capozzi. Inc., 611 N.Y.S.2d 73, 74 (4th Dep't 1994) (finding that insurer's nearly two-month delay in disclaiming coverage, following late notice of claim by insured, was not unreasonable as matter of law where insurer was investigating underlying claim); Petrizzi,supra, 503 N.Y.S.2d at 53 (finding delay of approximately two weeks after investigation reasonable as a matter of law); Held Brothers, supra, 1998 WL 355425, at *4 (stating that six-week delay "would likely be considered reasonable as a matter of law"); Wasserheit, supra, 705 N.Y.S.2d at 640 (finding delay of four months unreasonable as a matter of law where reason for disclaimer was readily apparent upon notice of claim); Matter of Colonial Penn Ins. Co. v. Pevzner, 698 N.Y.S.2d 310, 310 (2d Dep't 1999) (holding that an unexplained delay of forty-one days was unreasonable as a matter of law); Matter of Nationwide Mut. Ins. Co. v. Steiner, 605 N.Y.S.2d 391, 392-93 (2d Dep't 1993) (same); Mount Vernon Fire Ins. Co. v. City of New York, 653 N.Y.S.2d 582, 583 (1st Dep't 1997) (finding insurer's 83-day delay in disclaiming coverage could not be reasonably explained, and, thus, insurer would be obligated to defend and indemnify, where insurer knew all that it needed to know to disclaim coverage upon receipt of its investigator's report); Ward v. Corvally, 615 N.Y.S.2d 430, 432 (2d Dep't 1994) (finding unreasonable delay of more than two months from the date when insurer was aware of the facts underlying its disclaimer).
In this case, plaintiff received notice of the underlying claim when it received a copy of the Summons and Complaint in the Escalera lawsuit in February 1999. Shortly thereafter, plaintiff hired J N to investigate the matter, and on March 4, 1999, J N sent its investigation report to plaintiff. However, plaintiff did not file this declaratory judgment action until September 30, 1999, nearly seven months later.
As discussed supra, the reasonableness of any delay in notification is generally measured from the time the insurer was aware of sufficient facts to disclaim. While plaintiff may not have been in a sufficient position to disclaim coverage upon its receipt of the Escalera complaint in February 1999, the record reflects that plaintiff was in such a position upon its receipt of J N's report on March 4, 1999, or, allowing for review of the six-page document and its enclosures, very shortly thereafter. The record reflects that the report — which was significantly redacted in the submissions to this Court — confirmed plaintiffs original position that the exclusionary provision applied, and that defendants could not offer a valid excuse for their delay in giving notice of the claim because they knew about the injury when it occurred. (Enright Aff. ¶ 11 ("The investigation confirmed that Roka, LLC had, in fact, retained an independent contractor to perform certain construction work at the premises and that it was an employee of that contractor that was injured."); Report, Ex. B. to Enright Aff. at 6 ("Mr. Chou indicates he was present and aware of the alleged incident at the time it occurred" and did not report it); Sklar Decl. ¶ 6.) However, plaintiff waited almost seven months from its receipt of the report before notifying defendants of its intention to disclaim by filing the instant action. Plaintiffs proffered excuse for the delay is that the March 4, 1999 report "revealed certain information suggesting that the subject exclusions would preclude coverage." (Pl.'s Rep. at 5.) Thus, after appointing defense counsel for Roka, plaintiff sought to ascertain whether "its position was correct, by reviewing the initial discovery provided in the underlying action." (Id.)
This is not a reasonable excuse for the length of the ensuing delay. First, as noted supra, the record reflects that plaintiffs justification in disclaiming coverage was readily apparent from the March 4, 1999 report. This makes a delay of more than two months unreasonable as a matter of law, regardless of the explanation therefor. Second, even assuming arguendo that review of the "initial discovery" in the Escalera lawsuit was required, such review would be unlikely to take more than a few weeks, let alone months, given the relative paucity of facts and documents and the fact that Roka had been served with the complaint a month before the publication of the March 4, 1999 report. Moreover, plaintiff fails to describe the nature of its review of documents; specifically, it neither indicates what specifically it sought to discover through the review nor what procedure it employed. (Pl.'s Rep. at 5.) Plaintiff merely states that it should "not now be penalized for proceeding in a deliberate fashion," and that defendants "can point to no prejudice" because plaintiff has been defending it in the underlying suit since its inception. (Id.) However, the potential prejudice to defendants from the withdrawal of its defense counsel at this stage is considerable, and under the facts of this case, outweighs any "penalty" plaintiff will incur by continuing its defense of that action. Because it failed to provide reasonable notice to defendants of its decision to disclaim coverage, plaintiff must continue to defend Roka, Robert Chou, and Katherine Chou in the Escalera lawsuit, and indemnify them for any loss they incur thereto according to the terms of the policy. Accordingly, the Court grants summary judgment in favor of defendants.
III. Conclusion
For the foregoing reasons, plaintiffs motion for summary judgment is denied, and defendants' cross-motion for summary judgment is granted. The Clerk of the Court is directed to close the file in the action.
SO ORDERED.