The opinion of the court was delivered by: SCHEINDLIN
SHIRA A. SCHEINDLIN, U.S.D.J.:
Plaintiff Yonkers Construction Company ("Yonkers") brings this action to recover under liability insurance policies issued separately by defendants Admiral Insurance Company ("Admiral") and General Star National Insurance Company ("Gen Star"). The Complaint makes claims for breach of defendants' contractual obligation to defend and indemnify plaintiff in a lawsuit between Yonkers and an employee of one of its subcontractors. Plaintiff seeks declaratory relief and indemnification for damages caused by defendants' breach. Admiral now moves, pursuant to Fed. R. Civ. P. 12(b)(6), to dismiss the Complaint for failure to state a legally cognizable claim. Defendant Gen Star also moves to dismiss, pursuant to Fed. R. Civ. P. 12(b)(1), based on mootness. For the following reasons, Admiral's motion to dismiss is granted and Gen Star's motion to dismiss is denied.
A. The Insurance Contracts
For the purposes of this motion, the following facts as stated in the Complaint are assumed to be true. On November 22, 1989, Yonkers entered into a contract with the City of New York to rehabilitate a viaduct on Interstate 495. First Amended Complaint for Declaratory Relief ("Amen. Cpt.") at P 6. Pursuant to the agreement, Yonkers was obligated to obtain insurance coverage with respect to the rehabilitation project. Id. at P 7. To fulfill this requirement, Yonkers employed St. Paul Fire and Marine Insurance Company ("St. Paul") as its primary insurer and Landmark Insurance Company ("Landmark") as an excess insurer.
On or about April 6, 1990, Yonkers entered into a sub-contract with Rice Mohawk U.S. Construction Company, Ltd. ("Rice Mohawk") for the replacement of steel structures in connection with the rehabilitation project. Id. at P 8. The Yonkers-Rice Mohawk contract contained two provisions particularly relevant to the present dispute. First, the contract required Rice Mohawk to hold harmless and indemnify Yonkers for all claims of injury arising out of Rice Mohawk's work. Id. at P 9. Second, the contract obligated Rice Mohawk to obtain insurance affording coverage to Yonkers for any claims of injury arising out of Rice Mohawk's work. Id. at P 9. Accordingly, Rice Mohawk secured insurance from Admiral that provided general primary liability protection, limited to $ 1,000,000 of coverage for each occurrence.
Id. at P 10. Under the terms of the contract between Rice Mohawk and Admiral, Yonkers qualified as an additional insured. Id. at P 13. In addition, Rice Mohawk obtained an excess liability insurance policy from Gen Star which issued a limit of liability in excess of the primary insurer up to $ 5,000,000.
Id. at PP 14, 17. Yonkers was insured under this policy as well.
On or about July 15, 1992, Robert Pierce, an employee of Rice Mohawk, was injured when he fell to the ground from the boom of a crane located on Yonkers' construction site. Id. at P 19. In November of the same year, Pierce commenced a lawsuit against Yonkers alleging that its negligence had caused Pierce's injury. Id. at P 20. Yonkers tendered its defense to this action to Admiral, as an additional insured under Rice Mohawk's policy, by letter dated January 20, 1993. Id. at P 21, Exhibit E. On January 28, 1993, Admiral assumed Yonkers' defense, subject to the policy limit of $ 1,000,000.
Id. at PP 22, 23, Exhibit F. Admiral also agreed to control Yonkers' defense during the dispute.
C. The Insurance Disputes and Settlement
Having failed to reach a settlement within policy limits, Admiral tendered its policy to Gen Star by letter dated November 30, 1995. Id. at P 25, Exhibit H. In its letter, Admiral informed Gen Star that Pierce's settlement demand far exceeded Admiral's policy limit. Id. Accordingly, Admiral made its $ 1,000,000 limit available to Gen Star for the purpose of negotiating a settlement. Id. By letter dated December 12, 1995, Admiral reiterated its tender to Gen Star and expressed its concern that Gen Star had done nothing in furtherance of the matter.
See id., Exhibit I. On December 14, 1995, Yonkers joined Admiral in its demand that Gen Star immediately make a good faith effort to resolve the Pierce dispute. Id. at P 30, Exhibit J. Specifically, Yonkers told Gen Star,
... you have been on notice of Admiral's representation of Yonkers Contracting for more than two years and ... you have received all substantive reports advising of the progress of the case ... Notwithstanding in excess of two years notice of Admiral's representation of Yonkers Contracting under the additional insured endorsement, General Star has never taken a position adverse to full and unconditional coverage and has never reserved any right under the excess policy. ... On behalf of Yonkers Contracting, demand is hereby made that good faith efforts be made to settle this matter within the primary and excess policy limits. Apparently, plaintiff's counsel is willing to settle for less than $ 2,000,000.
Following the letter, Yonkers and Gen Star held a telephone conversation on December 15, 1995. See id., Exhibit K. During this conversation, Yonkers claims that Gen Star articulated, for the first time, that its excess policy would only be available to Yonkers after all other insurance had been exhausted. Id. Yonkers followed this conversation with a letter to Gen Star dated December 19, 1995 in which Yonkers expressed its ...