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INSURANCE CO. OF NORTH AMERICA v. HISTORIC COHOES

February 13, 1995

INSURANCE COMPANY OF NORTH AMERICA, Plaintiff, against HISTORIC COHOES II, et al., Defendants.


The opinion of the court was delivered by: DENNY CHIN

 CHIN, D.J. *fn1"

 The following motions are before the Court:

 Insurance Company of North America ("INA") moves for summary judgment on its claim for a declaratory judgment that it has no obligation under the insurance policy at issue in this case to make any payments upon the alleged loss in question.

 The Department of Housing and Urban Development ("HUD") moves for summary judgment dismissing the claims asserted against it by Beltrone Construction Co., Inc. ("Beltrone"), Continental Casualty Company ("Continental"), Boston Architectural Team, Inc. ("BAT"), A. Ritz Demolition and Wrecking Inc. ("Ritz") and Wayne L. Weaver ("Weaver").

 St. Paul Fire and Marine Insurance Company ("St. Paul") has moved for summary judgment dismissing the third-party claims brought against it by Historic Cohoes II (the "Owner") and HUD. St. Paul has also moved for dismissal of cross-claims asserted against it by BAT, Beltrone, Continental and Ritz.

 Beltrone and Continental move for partial summary judgment dismissing all tort, contribution and common law indemnification claims brought against them.

 Ritz moves for partial summary judgment dismissing the tort, contribution and common law indemnification claims brought against it.

 Background

 The Victor-Carrybag buildings, which are the subject of this litigation, were built in 1894 in Cohoes, New York. For many years they were used as textile mills and factories; they were abandoned in the late 1960's.

 In approximately 1982, the Owner purchased the buildings and renovated them for purposes of providing HUD Section 8 housing for the elderly and disabled. See Section 8 of the Housing Community Development Act of 1974, 42 U.S.C. ยง 1437. The project contemplated the creation of over 100 rent-subsidized housing units for senior citizens and disabled individuals.

 BAT was hired to provide architectural services. Beltrone was hired as general contractor, and it executed a performance bond issued by Continental. Beltrone in turn hired Ritz as a subcontractor to do the demolition work. Weaver was hired as structural engineer. Basser Builders served as construction consultant.

 St. Paul issued a $ 5,280,000 Contractor's and Owner's Property Protection policy on the project for the period from August 29, 1983 through August 29, 1984. Coverage was subsequently extended until November 1, 1984.

 Renovation of the project was completed and occupancy began in October 1984. The total cost of renovation exceeded $ 4,500,000, and Bank One of Columbus, N.A. ("Bank One") provided the Owner with financing, secured by a mortgage, in the principal amount of $ 4,838,800. HUD guaranteed repayment of the loan.

 The Owner obtained a comprehensive all risk insurance policy from INA for the period from November 1, 1984 through November 1, 1985. The policy was renewed as of November 1, 1985 for another year. Both Bank One and HUD were named in the loss payee clause.

 Some time after occupancy of the buildings began, reports began to surface of soft or sinking floors. Tests revealed extensive rotting in the wood in the buildings, and it was eventually determined that the structural integrity of the buildings had been compromised because of a fungal growth in the wood. On November 19, 1985, INA was notified by the Owner of a potential loss under the policy, following which INA conducted its own investigation into the matter.

 On November 26, 1985, following a determination that the buildings were in danger of collapsing, the project was evacuated. The project has remained vacant ever since.

 The Owner defaulted on its mortgage, and HUD was required to honor its guarantee by making payment on behalf of the Owner to Bank One. In July 1986, Bank One assigned its rights to HUD.

 On October 2, 1986, INA rejected the Owner's claim. One day later, INA filed the instant lawsuit, seeking a declaratory judgment that it is not liable under its policy.

 Discussion

 1. INA's Motion

 INA argues that it is entitled to summary judgment because the alleged loss falls within one or more of the following specific exclusions contained in the policy: damage resulting from wet or dry rot, latent defect or inherent vice, wear and tear (including deterioration, settling and changes in temperature or humidity), and faulty design, workmanship and material. INA also contends that the losses in question are barred by the principle of "lack of fortuity" and by the Owner's purported failure to submit a timely written notice of loss and to commence suit in a timely manner.

 The leading case in the Second Circuit on the interpretation of "all risk" policies is Pan American World Airways, Inc. v. Aetna Casualty & Surety Co., 505 F.2d 989 (2d Cir. 1974). There, the Court held that an insured under an all risks policy establishes a prima fade case for recovery merely by showing the existence of the policy and a loss with respect to covered property. 505 F.2d at 999. Once a prima facie case is made, to avoid liability under the policy the insurer must prove that the cause of the loss falls within one of the terms of exclusion. Id.

 To show that a loss falls within an exclusion, the insurer "must demonstrate that an interpretation favoring [the insurer] is the only reasonable reading of at least one of the relevant terms of exclusion." Pan American, 505 F.2d at 1000 (citations omitted). Accord Westchester Resco Co. v. New England Reinsurance Corp, 818 F.2d 2, 3 (2d Cir. 1987) (per curiam) (under New York law, "general rule" is that "ambiguities in an insurance policy are to be construed strictly against the insurer"). A court may infer from an insurer's reliance on a large number of exclusions that the insurer ...


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