Georgitsi Realty, LLC, Appellant,v.Penn-Star Insurance Company, Respondent.BriefN.Y.September 10, 2013JACKs. DWECK CHRISTOPHER FRASER of Counsel Dated: May 13, 2013 To be Argued by: JACK s. DWECK TIME REQUESTED: 20 MINUTES Qlnurt nf Appeals STATE OF NEW YORK GEORGITSI REALTY, LLC, -against- PENN-STAR INSURANCE COMPANY, REPLY BRIEF FOR APPELLANT THE DWEcK LAw FIRM LLP Attorneys for Appellant Appellant, Respondent. 75 Rockefeller Plaza, 16th Floor New York, New York 10019 (212) 687-8200 (212) 697-2521 Facsimile Press of Fremont Payne, Inc. • 55 Broad Street, Third Floor, New York, NY 10004 · (212) 966-6570 TABLE OF CONTENTS TABLE OF AUTHORITIES PRELIMINARY STATEMENT . ARGUMENT . POINT III THE V&MM COVERAGE APPLIES REGARDLESS OF WHETHER THE DAMAGE WAS INFLICTED UPON THE INSURED'S PROPERTY DIRECTLY OR EMANATES FROM OTHER PROPERTY OR ii . . 2 3 CAUSES. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 POINT IV Respondent Wrongfully Argues That There is No Basis to Find Willful or Malicious Conduct Because the Construction and Excavation on the Adjacent Property Was Not Engaged in For The Purpose of Damaging the Appellant's Property ....•. . . .. . . . . . . . . 12 CONCLUSION . . . . . . . . . . . . . . . . . . . . . 16 i TABLE OF AUTHORITIES Alliance v. World Far.m Inc., 300 A.D.2d 22 (1st Dept. 2002) 6 City of Johnstown v. Bankers Standard Ins. Co., 877 F.2d 1146 (2d 1989) . . • . . . . . . . . . • . • . . . . 9 Cresthill Industries Inc. v. Providence Washington Insurance Company, 53 A.D.2d 488 (2nd Dept. 1976); . . . . 11 Lamb v. Cheney & Son, 227 N.Y. 418 (1920) . 6 Louisville and.Jefferson County Metropolitan Sewer District. v. Travelers Ins. Co., 753 F.2d 533 (6~ Cir. 1985) . 4 Quaker City Gun Club v. St. Paul Fire & Marine Ins. Co., 19 8 6 WL 3 5 61 ( E • D • P a . 19 8 6 ) • • • • • • • • 8 Romahych v. Liverpool and London & Globe Insurance Co., Ltd., 8 Misc.2d 269 (Franklin Co. 1957) . . . . . , 6 ii COURT OF APPEALS STATE OF NEW YORK ------------------------------------------x GEORGITSI REALTY, LLC, Plaintiff-Appellant, -against- PENN-STAR INSURANCE COMPANY, Defendant-Respondent. ------------------------------------------x PLAINTIFF-APPELLANT'S REPLY BRIEF PRELIMINARY STATEMENT This Brief will focus upon the legal effect of the arguments of the Respondent. The Appellant will demonstrate that the Respondent has failed to address the questions certified to this Court by the Second Circuit Court of Appeals ("CCA"), and has been unable to logically distinguish the precedents which prompted the CCA to refer the novel issues to this Court. The CCA recognized that the interpretation and applicability of the Vandalism and Malicious Mischief clause ("V&MM") to the facts of this case have never been adjudicated by the New York Courts. The Respondent has fallen back upon, and merely repeated the positions of the United States Magistrate and District Judges. The District Court failed to take cognizance of the out-of-state precedents in the respective recommendations and decision. They did not examine the conduct of the adjacent owner and its excavator that gave rise to the claims in this action. Their activities revealed an intentional and callous disregard of the law, an oblivious attitude towards the safety of the adjacent property owners with the resultant damage directly to the Appellant's property. Argument There are two components of the certified question from the CCA: the primary issue concerns conduct and the subsidiary one concerns the actors' mental states. With respect to the primary question, Appellant relies upon the arguments advanced its Brief dated March 14, 2013, which demonstrate that malicious damage may result from an act not directed specifically at the covered property. Appellant now addresses the subsidiary question concerning state of mind. POINT III THE V&MM COVERAGE APPLIES REGARDLESS OF WHETHER THE DAMAGE WAS INFLICTED UPON THE INSURED'S PROPERTY DIRECTLY OR EMANATES FROM OTHER PROPERTY OR CAUSES. The Respondent has suggested indirectly on page 22 of its Brief, that the Second Circuit has ignored the plain meaning of the wording of the Appellant's insurance policy. The policy, written by the Respondent, provides Broad Form Coverage for losses sustained from listed perils. This includes damage to property of the insured from Vandalism and Malicious Mischief. The essence of whether the Appellant has a covered loss is whether conduct which takes place on property other than the property of the insured, which causes damage to the insured's property, is a covered loss within the V&MM provision. While it is recognized that there are no precedents in New York on this question, decisions from other courts have ruled on this specific issue. This has been discussed in the Appellant's Brief with a citation to the United States Court of Appeals for the Sixth Circuit in Louisville and Jefferson County Metropolitan Sewer District v. Travelers Ins. Co. , 7 53 F. 2d 533 (6th Cir. 198 5) . There is no magic to the logic used in the Louisville decision which held the insurance company liable under the V&MM clause. Respondent's efforts to distinguish the Louisville decision are unavailing for the following reason: Respondent argues that the intentional conduct of the adjacent owner towards his own property, which resulted in damage to the Appellant's property, does not constitute willful and malicious damage to Georgitsi's property. The response is that if the intentional and malicious conduct took place on property other than the insured's property, but directly caused damage to the insured's property, it is a covered peril. The language of the policy reads simplistically "Vandalism, meaning willful and malicious damage to, or destruction of, the described property." It does not say inflicted directly on the 4 insured's property. That statement of coverage is broadly worded. It just says "damage to, or destruction of, the described property." There is no modifying language which can be read into this wording to limit it, such as a limitation that the damage must be inflicted directly to the insured property itself. Absent any such limitation, if the property is damaged from whatever source or origin, it is a covered loss as long as it is the product of willful and malicious conduct. With this scenario, we must assess and evaluate the conclusions to be drawn from sixteen separate guilty pleas, by the adjacent owner and its excavators, which constitute a continuous course of conduct. The question is then presented, what is the state of mind of the adjacent property owner who pleads guilty to sixteen such Summonses issued over a period of months and pays the fines levied from these continued violations? The answer and conclusion are apparent. Such a person knowingly, intentionally and consciously engaged in a predetermined course of illegal conduct. This would be done with the expectation that, whatever the consequences, he knowingly made a choice and was prepared to face the penalty under the law. That is a classic case of intentional conduct! When you have repeat after repeat of this same conduct with damage inflicted upon, or suffered by, the victim, you have intent, wilfulness and maliciousness. constitutes V&MM and is compensable under te V&MM coverage. 5 This Georgi tsi is a victim of this intentional and malicious conduct. The adjacent owner and its excavator engaged in excavation with a singular objective of uninterrupted digging on their property to a depth of sixty feet below the surface. They did not care about the Summonses which directed that work be stopped. Nor did they pay heed to the Temporary Restraining Order ("TRO") issued by a Justice of the Supreme Court to stop all work. There is no question that the continued excavation was intentional. That conclusion is inescapable! Simply stated, if one pleads guilty to a violation of law, the guilty plea has the effect of an admission of the wrongful or unlawful conduct as charged; Lamb v. Cheney & Son, 227 N.Y. 418 (1920); Romanych v. Liverpool and London & Globe Insurance Co., Ltd., 8 Misc.2d 269 (Franklin Co. 1957). This is compounded and reinforced by the fact that the adjacent property owner and its excavator pleaded guilty to sixteen separate Summonses. We need only to be reminded of the questions asked during an allocution, when a defendant pleads guilty to a crime. In such a case, there is an admission to the commission of the crime. That admission must acknowledge the intentional conduct of criminal conduct; Alliance v. World Farm Inc., 300 A.D.2d 22 (1st Dept. 2002) To really reinforce the Appellant's position, twelve of the summonses served, upon the adjacent owner and the excavator, document their repeated failure to stop work. These Summonses were 6 specifically issued due to the failure of the adjacent owner to specifically safeguard the Appellant's property, which was directly affected by its construction operations and excavation (A.209, 320, 327, 332, 335, 340, 343, 344, 358, 361, 367 and 371) 1 • In addition, the TRO which was signed by Justice Sylvia 0. Hinds-Radix of the Supreme Court, Kings County, ordered that all construction and/or excavation work at the property of the adjacent owner be stopped. The adjacent owner was also enjoined and restrained from taking any further action to endanger the Appellant's Building from collapse or causing cracks in the walls, ceilings and foundations (A.214). The TRO was similarly ignored by the adjacent owner and its excavator. Such a brazen disobedience of Court and administrative mandates, for months on end, is intentional! To suggest otherwise would be illogical and unrealistic. The state of mind of the adjacent owner and excavator is conclusively determined from the sixteen pleas of guilty. Ultimately, it was the direction from a Supreme Court Justice, to erect a steel support, that the adjacent owner was required to do, in order to avoid further damage to the Appellant's property. The conscious decision to disregard the Stop Work Orders and the TRO, reflects the state of mind these perpetrators, to do as they 1The numbers in parentheses preceded by the letter "A" refer to the page numbers in the Appendix. 7 pleased, regardless of the damage to the Appellant's property. They had a singular objective of continuing with the excavation, no matter what! They were aware from an economic standpoint that, it was less expensive to plead guilty and pay the fines for disobeying the Stop Work Orders, and subjecting themselves to liability for damages, than to idle their workers and hold up the construction. This is overwhelming evidence of malicious conduct! The Respondent has recourse against the adjacent owner and the excavator through subrogation, but first it must be held to honor the Appellant's claim under the insurance policy. Respondent admits on page 4 of its Brief that the proximate cause of Appellant's property damage was the excavation work on the adjacent property. What Respondent does argue is that the excavation was not done in conscious or intentional disregard of the Appellant's rights. This argument fails since courts in this State have "liberally interpret[ed] vandalism and malicious mischief coverage. This includes losses proximately caused by an act that was in conscious or intentional disregard of the rights of another." Quaker City Gun Club v. St. Paul Fire & Marine Ins. Co., 1986 WL 3561 (E.D.Pa. 1986), held that "recovery may be available under a vandalism or malicious mischief policy even if the vandal did not specifically intend to bring about the particular damage actually caused. Even if the vandal did not act out of ill will toward anyone in committing the wrongful act that ultimately caused 8 the damage." There is still coverage. The rule simply requires that "in order to imply malice, there must be some wrongful or unlawful act that caused the damage." Quaker City, supra, at page 4 of the decision. In the instant action, malice can be found from the conduct of the adjacent property owner and its excavator. They acted unlawfully, intentionally, and in knowing disregard of Appellant's property rights. The conduct was unlawful because it was performed in violation of multiple criminal summonses and Stop Work Orders issued by the NYC Department of Buildings for "immediately hazardous conditions" on the adjacent property. See Section 28- 201.2.1 of the New York City Construction Code (any violation of a Stop Work Order constitutes an immediately hazardous condition). The conduct was also unlawful because it was in violation of a TRO issued by a Supreme Court Justice. In pleading guilty to these violations the adjacent property owner and excavator have admitted that their conduct was unlawful. The conduct was intentional because it was continued despite the issuance of sixteen summonses. Respondent argues that the conduct was not intentional and cites City of Johnstown v. Bankers Standard Ins. Co., 877 F.2d 1146 (2d 1989), which is unavailing. City of Johnstown is distinguishable from the instant action on several grounds, all of which support Appellant's claim that the conduct was intentional. First, City of Johnstown concerned the 9 city's entitlement to coverage under a "comprehensive general liability policy,n which excluded coverage only when damages were expected or intended by the city. As Respondent admits in its own Brief at page 5, Appellant's policy is a "named-perils policyn and the intentional conduct at issue is not that of the insured, as was the case in City of Johnstown, but that of the adjacent property owner and excavator. The very nature of V&MM coverage concerns the conduct of third parties. Second, in City of Johnstown, the court expressly stated that it was not ruling on whether the insured was entitled to indemnification. In judgment, the court denying the insurer's motion for summary explained that to "exclude all losses or damages which might in some way have been expected by the insured, could expand the field of exclusion until virtually no recovery could be had on insurance.n The decision in City of Johnstown followed the general proposition that insurance contracts are to be construed so as to afford coverage to the insured. However, the most important distinguishing ~actor is that in City of Johnstown, the evidence offered by the insurer to demonstrate that the city expected or intended the damages, pale in comparison to the evidence in this case. In City of Johnstown the court refused to accept the insurer's claim that the damages were "intended" by the city because it only had notice of potential groundwater contamination without conclusively establishing the source, or 10 receiving any directives, that the landfill potentially causing the contamination, be closed. Instead, the city's failure to act was premised on inconclusive reports and recommendations. These facts stand in stark contrast to the instant action in which the adjacent property owner and excavator were ordered to cease all work for the express purpose of protecting Appellant's property. The DOB violation notices and Stop Work Orders specifically state that they were issued for "failure to protect adjoining structures during excavation," (A-348), and "failure to safeguard public and property affected by construction operations." (A-343). The Stop Work Orders and the TRO were unequivocal mandates from the NYC Department of Buildings and the New York Supreme Court. Their purpose was to protect Appellant's property which had already sustained damages as direct result of the excavation work on the adjacent property. The totality of this evidence demonstrates that the work was performed with knowing disregard of Appellant's property rights, and constitutes malice. Since the parties have conceded2 that the Appellant's damage was caused by the construction and excavation by the adjacent owner, the Appellant has met the burden of showing malicious conduct. This carries with it the entitlement to recovery on its policy with the Respondent. The case law in New York supports this conclusion; Lamb v. Cheney & Son, supra; Cresthill 2The Respondent concedes the damages on page 4 of its Brief. 11 Industries Inc. v. Providence Washington Insurance Company, 53 A.D.2d 488 (2nd Dept. 1976); Romanych v. The Liverpool and London and Globe Insurance Company, Ltd., supra. Thus, the argument presented above fully and affirmatively addresses the issue of the state of mind of the perpetrators which was malicious and intentional. They engaged in conduct which caused the damage to the Appellant and is thus within the policy provisions. POINT IV A. Respondent Wrongfully Argues That There is No Basis to Find Willful or Malicious Conduct Because the Construction and Excavation on the Adjacent Property Was Not Engaged in For The Purpose of Damaging the Appellant's Property. A conclusion of willful and malicious conduct is properly drawn from the sixteen guilty pleas by the adjacent owner and its excavator. With the citation of the authorities which hold that the sixteen guilty pleas constitute a course of intentional and willful conduct by the adjacent owner, and such conduct having caused damage to the Appellant's property, the liability of the Insurance Company is confirmed. The adjacent owner was aware that the construction and excavation was causing damage to the Appellant's building. The Summonses specifically identified the danger to the Appellant's Building, which is why the multiple Stop Work Orders and the TRO 12 were issued (A.209, 320, 327, 332, 335, 340, 343, 344, 358, 361, 367, 371). The continuation of the excavation in derogation of these Stop Work Orders is proof positive of the neighbor be damned attitude by the adjacent property owner and its excavator. There was no need to show any animosity against the Appellant. It was sufficient to show that the cavalier attitude, and continued excavation, by the adjacent owner was willful since the summonses and Stop Work Orders were ignored; Louisville, supra. Nothing more is needed to demonstrate coverage under the Appellant's policy. In the interests of justice, a fair reading of the policy language in conjunction with the Sixth Circuit decision in Louisville, supra, is conclusive. This Court should find in favor of coverage under the V&MM clause. B. The Respondent's argument that the damage to the Sewer Plant in the Louisville case was "the intended and direct result of the dumping" fails, since it incorrectly claims the excavation in this case was not intended to damage the Appellant's property. The adjacent owner knew from the Summonses and Stop Work Orders that continued excavation seriously endangered the Appellant's property. This was the actual wording of the Summonses and Stop Work Orders (A.332, 335, 336, 341, 348, 350 and 373). This is further confirmed by the affidavit of the independent engineer, George Gennakakis (A.238, A.245), who gave his opinion as an expert that the damage to the Appellant's 13 property was caused directly by the excavation on the adjacent property. The Appellant is constrained to address several inaccuracies in Respondent's Brief. Respondent argues that Louisville and Jefferson County Metropolitan Sewer District v. Travelers Ins. Co., 753 F.2d 533 (6th Cir. 1985) is "starkly distinguishable from the case at bar" because the vandalism and damage "both occurred on the same property upon which the wrongful act was directed, i.e. the treatment plant." (Respondent Brief at 32). This statement is inaccurate. In Louisville, supra, the plaintiff ("MSD") was a political subdivision of the State of Kentucky, which maintained and operated a network of sewer lines that collected and conducted wastewater to a treatment plant near the Ohio River. The Plaintiff's treatment plant (the insured property) sustained significant damage when a person dumped large quantities of toxic waste materials into the sewer system through a manhole cover located three miles 3 from the treatment plant/insured property. Respondent further attempts to manipulate the holding in Louisville by arguing that damage to the treatment plant "was the intended result of the dumping." This was not the holding in Louisville, although the insurance company in that case unsuccessfully having argued this. The Sixth Circuit determined 3underlining supplied. 14 that the damage occurred some distance from the point of the dumping which was immaterial, since "there is no requirement that the loss be 'immediate' or 'expected'" in order for the vandalism provision to apply. Louisville, at 537. The Appellant has demonstrated that the excavation by the adjacent owner was intentional because it disregarded the Stop Work Orders. The Appellant has demonstrated the state of mind of the adjacent owner as having willfully and intentionally continued the excavation in violation of the Stop Work Orders and the TRO. The Louisville decision and those which followed have provided ample precedent that damage to the insured property is a covered loss under the V&MM coverage. This is based upon intentional conduct which reflects the state of mind of the perpetrator. With this in mind, the Appellant, has furnished the necessary legal authority that coverage for V&MM was recognized, even though it did not result from conduct directly to the insured property. Under the circumstances and with courts having ruled on the issues referred to this Court by the CCA, both questions certified to this Court should be answered affirmatively. This will settle the law in this respect within the State of New York. 15 CONCLUSION THIS COURT SHOULD FIND IN FAVOR OF THE APPELLANT ON THE CERTIFIED QUESTIONS. submitted, Attorneys for Plaintiff- ppellant 75 Rockefeller Plaza, 16th Fl. New York, New York 10019 (212) 687-8200 5:\Secretary 2\Client Docs\Georgitsi-Penn-Star\Appeal - State of NY\Appellant Reply Brief 6th dr JSDeg 5-13-13.wpd 16