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GARFIELD SLOPE HOUS. CORP. v. PUBLIC SERV. MUT. IN

August 5, 1997

GARFIELD SLOPE HOUSING CORP., Plaintiff,
v.
PUBLIC SERVICE MUTUAL INSURANCE CO., Defendant.



The opinion of the court was delivered by: KORMAN

 KORMAN, J.

 This is an insurance coverage dispute. Plaintiff ("Garfield" hereinafter) owns and manages two, cooperative apartment buildings. In September 1991, Garfield decided to install new carpet in the hallways of both buildings. At the time, Garfield's board of directors, which makes all management and maintenance decisions for Garfield, was headed by Rhonda Zwillinger, who owned an apartment in one of the buildings, 162 Garfield Place. Zwillinger warned the board that new carpet released chemical fumes that posed certain health risks for persons like her, who are "chemically sensitive." The board nonetheless decided to proceed with the carpeting project, although it acceded to Zwillinger's request to have the installer use a special type of adhesive to contain the new-carpet fumes.

 The carpet was installed on or about October 10, 1991. Carella Aff. P7. At the next board meeting on October 13, 1991, Zwillinger complained about the effect the new-carpet fumes were having on her, she requested removal of the carpet, and she resigned from her post as president of the board. Zwillinger sent a handwritten letter to Garfield's shareholders, dated October 29, 1991, which asked for the immediate removal of the carpet and offered to contribute $ 600.00 to replace it with linoleum. Lalande Aff. Exh. J. She also threatened a lawsuit for "quiet enjoyment" if Garfield did not remove the carpet by November 10, 1991. Id. Garfield subsequently had the carpet removed from Zwillinger's building before that date.

 Zwillinger did not mention the matter again. The following year, she sold her apartment and ultimately relocated to Arizona. In August 1994, some two years and nine months after the carpet was removed, Zwillinger filed suit against Garfield and the carpet's manufacturer, installer, distributor, etc., alleging a variety of negligence claims and asserting that she developed "Multiple Chemical Sensitivity" as a result of her 1991 exposure to the carpet fumes at 162 Garfield Place. See Zwillinger v. Garfield Slope Housing Corp., et al., No. 94-CV-4009 (removed to the Eastern District from Supreme Court of New York, Kings County, on August 24, 1994). When Garfield received the complaint and summons for this action, it immediately forwarded the papers to its insurance broker, who promptly forwarded them to defendant ("Public Service" hereinafter), Garfield's general liability insurer for the period June 15, 1991 through June 15, 1992. See Carella Aff. P11; Goldman Aff. Exh. E.

 On September 13, 1994, Public Service notified Garfield that it was disclaiming coverage under the 1991 liability policy. Goldman Aff. Exh. H. Garfield then filed the instant third-party complaint, seeking a declaratory judgment that Public Service is obligated to defend and indemnify Garfield with respect to the Zwillinger action. Public Service now moves for dismissal of Garfield's action on jurisdictional grounds, or, in the alternative, for summary judgment in its favor. Garfield opposes this motion and cross-moves to implead Public Service into the Zwillinger action.

 DISCUSSION

 1. Jurisdiction

 Public Service correctly observes that the parties here are not diverse; thus subject matter jurisdiction has not been independently established for Garfield's declaratory judgment action pursuant to 28 U.S.C. § 1332 (1996). Contrary to Public Service's contentions, however, the absence of diversity jurisdiction does not compel dismissal of Garfield's action, for ancillary jurisdiction over this third-party complaint has been established pursuant to 28 U.S.C. § 1367(b) (1996). A third-party complainant, such as Garfield, is not required to establish an independent jurisdictional basis for its action in order to implead a third-party defendant, such as Public Service, into another action for which jurisdiction has already been established. See Agrashell, Inc. v. Bernard Sirotta Co., 344 F.2d 583, 585 (2d Cir. 1965)("Even without diversity of citizenship between the [third] parties, Sirotta [the third-party plaintiff] would have been permitted to implead Hammons [a non-diverse, third-party defendant] in the federal courts, so long as there was subject matter jurisdiction of Agrashell's [original plaintiff's] suit against Sirotta [original defendant]."); 6 Charles Alan Wright, Arthur R. Miller, & Mark Kay Kane, Federal Practice and Procedure § 1444, at 321-22 (2d ed. 1990)("It is well settled that there need be no independent jurisdictional basis for such a [third-party] claim if diversity of citizenship exists between the original parties.").

 2. Timely Notice of "Occurrences"

 Public Service contends that the 1991 Zwillinger incident was an "occurrence" and that Garfield's failure timely to notify Public Service of this incident entitles Public Service to summary judgment. The liability policy defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Goldman Aff. Exh. E, Commercial General Liability Form § V ("Definitions"), P9, at 8. Pursuant to this policy, Garfield "must see to it that we [Public Service] are notified as soon as practicable of an 'occurrence' or offense which may result in a claim." Id. at § IV, P2(a), at 6.

 "Compliance with the notice provisions in an insurance contract is a condition precedent to an insurer's liability." American Ins. Co. v. Fairchild Indus., Inc., 56 F.3d 435, 438 (2d Cir. 1995); accord Sparacino v. Pawtucket Mut. Ins. Co., 50 F.3d 141, 143 (2d Cir. 1995). The reasons for this are several:

 
[These provisions] enable insurers to make a timely investigation of relevant events and exercise early control over a claim. Early control may lead to a settlement before litigation and enable insurers to take steps to eliminate the risk of similar occurrences in the future. When insurers have timely notice of relevant occurrences, they can establish more accurate renewal premiums and maintain adequate reserves.

 Commercial Union Ins. Co. v. International Flavors & Fragrances, Inc., 822 F.2d 267, 271 (2d Cir. 1987). Thus, failure timely to notify an insurer of an "occurrence" can "constitute[] a complete defense to a third-party complaint by the insured to compel the insurer to bear the costs of defense in the underlying action." State of New York v. Blank, 27 F.3d 783, 793 (2d Cir. 1994). A finding of prejudice to the insurer, resulting from unreasonable delay in notifying it of an "occurrence," is not required for an insurer to successfully assert this defense. See AXA Marine & Aviation Ins. Ltd. v. Seajet Indus., Inc., 84 F.3d 622, 624 (2d Cir. 1996)(holding that no-prejudice rule applies to untimely notice of both an "occurrence" and "claim"), Blank, 27 F.3d at 797; Sparacino, 50 F.3d at 143 (citing for support Security Mut. Ins. Co. v. Acker-Fitzsimons Corp., 31 N.Y.2d 436, 340 N.Y.S.2d 902, 905, 293 N.E.2d 76 (Ct. App. 1972)).

 In fixing the date upon which an insured becomes obligated to notify its insurer of an "occurrence," all relevant facts known to the insured on the date in question must be evaluated. Christiania Gen. Ins. v. Great Am. Ins., 979 F.2d 268, 275 (2d Cir. 1992). The standard is one of objective reasonableness:

 
The insured's knowledge of events that create only a very distant possibility of a claim may not trigger a notice of occurrence provision so long as the insured has a good faith and reasonable belief that no liability covered by the policy will result. . . . A notice of occurrence provision thus focuses on the insured's knowledge of events and reasonable conclusions based on that knowledge. . . . As we noted in Blank, "if insureds were required to notify insurers of every incident that poses even a remote possibility of liability, insurers would soon be swamped with notice of minor incidents that pose little danger [of liability]."

 American Ins., 56 F.3d at 439 (quoting Blank, 27 F.3d at 795)(citations omitted); accord Christiana Gen. Ins., 979 F.2d at 275-76. The burden of demonstrating the reasonableness of an insured's good faith belief that a particular incident is either not covered by its liability policy or could not reasonably be expected to give rise to liability on its part rests with the insured, White v. City of New York, 81 N.Y.2d 955, 598 N.Y.S.2d 759, 760, 615 N.E.2d 216 (Ct. App. 1993). "The existence of . . . [such] a 'good-faith belief', as well as the question of whether the belief was reasonable, are ordinarily questions of fact for the factfinder[.]" Argentina v. Otsego Mut. Fire Ins. Co., 86 N.Y.2d 748, 631 N.Y.S.2d 125, 126, 655 N.E.2d 166 (Ct. App. 1995).

 Garfield plausibly contends that bodily injury resulting from exposure to malodorous carpet was plainly a "remote contingency far removed from the particular [liability] policy in question," Christiana Gen. Ins., 979 F.2d at 275, and thus under the policy, Garfield was not obligated to notify Public Service "as soon as practicable" of Zwillinger's 1991 grumblings. See Merchants Mut. Ins. Co. v. Hoffman, 56 N.Y.2d 799, 452 N.Y.S.2d 398, 399, 437 N.E.2d 1155 (Ct. App. 1982)("When the facts of an occurrence are such that the insured acting in good faith would not reasonably believe that liability on his part will result, notice of occurrence given by the insured to the insurer is given 'as soon as practicable' if given promptly after the insured receives notice that a claim against him will in fact be made."); Sparacino, 50 F.3d at 143 (delay in notifying an insurer of an "occurrence" may be excused "by proof that the insured either lacked knowledge of the occurrence or had a reasonable belief of nonliability."). Indeed, it is arguable whether the brief period in which Zwillinger was exposed to malodorous carpet fumes constitutes "an accident, including continuous or repeated exposure to substantially the same general harmful conditions" -- which is the definition of the term "occurrence" contained in the liability policy. See Goldman Aff. Exh. E, Commercial General Liability Form § V ("Definitions"), P9, at 8.

 Garfield also alleges that it did not believe the 1991 Zwillinger incident implicated its liability policy. Carella Aff. P10. This allegation is consistent with the fact that Garfield apparently did not seek to recover carpet removal costs from any of its liability insurers. Moreover, the kind of injuries to which a reasonable insured might expect smelly carpet to give rise -- i.e., aggravation, inconvenience, annoyance, etc. -- are plainly not those that would typically implicate a liability policy. Thus, Garfield also contends that its reasonable, good faith belief that Zwillinger's 1991 complaints were not covered by its Public Service policy also excuses any delay in reporting the incident to Public Service. See Mighty Midgets v. Centennial Ins. Co., 47 N.Y.2d 12, 416 N.Y.S.2d 559, 389 N.E.2d 1080 (Ct. App. 1979)(holding that good faith, reasonable belief that incident was not covered by liability policy could excuse delay in reporting occurrence); Avondale Indus., Inc. v. Travelers Indem. Co., 774 F. Supp. ...


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