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U.S. UNDERWRITERS INS. CO. v. WEATHERIZATION

August 4, 1998

U.S. UNDERWRITERS INSURANCE COMPANY, Plaintiff, against WEATHERIZATION, INC., CARLINE VICTORIN, VAIJ REALTY ASSOCIATES, GARTH ORGANIZATION and RAFI FASHIONS, INC., Defendants.


The opinion of the court was delivered by: WOOD

ORDER

 WOOD, U.S.D.J.:

 In a Report and Recommendation dated April 30, 1998 (the "Report"), with which familiarity is assumed, Magistrate Judge Sharon E. Grubin recommended that defendants Vaij Realty Associates and Garth Organization's ("Vaij" and "Garth") motion for summary judgment on their counterclaims be granted in part and denied in part. Because no further relief was sought by any of the parties, Magistrate Judge Grubin further recommended that the Court dismiss this action, and keep it open only for a determination of the amounts to be awarded to Vaij and Garth on their counterclaim as specified in the Report. Plaintiff has filed timely objections to the Report. Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the Court reviews de novo those aspects of the Report to which plaintiff objects. Because the Court concludes that the Report is correct in all respects, the Court adopts the Report and its recommendations in their entirety. For the reasons set forth below as well as those stated in the Report, the Court grants in part and denies in part defendants Vaij and Garth's motion for summary judgment.

 I. Discussion

 Plaintiff makes four objections to the Report. First, plaintiff argues that the Report errs in concluding that the Independent Contractors Exclusion in its commercial liability insurance policy was not applicable in the suit by Rafi Fashions against all the other defendants in this action ("the underlying state action") even though the complaint in that action ("the state complaint") made individual allegations against Vaij and Garth. Second, plaintiff argues that the Court should examine the evidence extrinsic to the state complaint that plaintiff provided. Third, plaintiff argues that whether it is obliged to defend and indemnify Vaij and Garth in connection with the underlying state action was rendered moot by the settlement in the underlying state action. Fourth, plaintiff contends that if it is not required to defend and indemnify Vaij and Garth in connection with the underlying state action, these defendants are not entitled to recover fees in connection with either the underlying state action or the instant action. The Court will address these objections in turn.

 A. Independent Contractors Exclusion

 Plaintiff argues that the state complaint's only allegations against Vaij and Garth revolve around their role in approving Carline Victorin's hiring of the independent contractor, Weatherization. Plaintiff then contends that the fact that the state complaint contains allegations against Vaij and Garth individually is immaterial because the substance of the allegations of the state complaint are excluded from coverage by Independent Contractor Exclusion of the policy. That clause provides:

 
It is agreed that this policy shall not apply to Bodily Injury, Personal Injury or Property Damage arising out of operations performed for any insured by independent contractors or acts or omissions of any insured in connection with his general supervision of such operations.

 (Report at 4.)

 For the insurer to meet the burden of establishing that allegations in the complaint are excluded from coverage in an insurance policy, the insurer must show that the allegations of the complaint are "solely and entirely within the policy exclusion." International Paper Co. v. Continental Cas. Co., 35 N.Y.2d 322, 325, 320 N.E.2d 619, 361 N.Y.S.2d 873, 875 (1974). The principal authority upon which plaintiff relies, Allstate Ins. Co. v. Mugavero, 79 N.Y.2d 153, 589 N.E.2d 365, 581 N.Y.S.2d 142 (1992), is not to the contrary; indeed, the Court of Appeals in Allstate explicitly stated that this rule of International Paper is the well settled law of New York. See Allstate, 79 N.Y.2d at 162, 581 N.Y.S.2d at 147. Nor does Allstate, in which the New York Court of Appeals held that the homeowner's insurance policy excluded coverage for acts of child abuse by the insured while the children were within the insured's care -- support the general proposition that Court should look to the primary allegations of a complaint, not those against each individual defendant.

 Here, as the Report correctly notes, the state complaint includes allegations that fall outside the Independent Contractors Exclusion. (See Report at 9-10.) The state complaint not only alleges that the resulting damages were due solely to the carelessness, recklessness and negligence of defendants, individually and acting in concert, but further that this breach of defendants' duties was in relation to the "maintenance, management, control, supervision, inspection, alternation, renovation and/or repair of the third floor of the premises." (Report at 10, 3.) Because these allegations clearly fall outside the Independent Contract Exclusion, the Court rejects plaintiff's argument that this exclusion applies. The rejection of this argument in the Report is correct in all respects.

 B. Evidence Extrinsic to the Complaint

 Relying on Avondale Indus., Inc. v. Travelers Indem. Co., 774 F. Supp. 1416, 1424 (S.D.N.Y. 1991), and decisions upon which Avondale relies, plaintiff next argues that the Report should have considered the evidence extrinsic to the complaint that plaintiff submitted to determine coverage. However, the instant case does not present the sort of "exceptional circumstances" described in Avondale and the cases upon which it relies, where the Court will look to evidence extrinsic to the complaint to determine whether there is coverage.

 "While it is true that a court should be hesitant to leave the boundaries of the complaint in making its determination on an insured's duty to defend, it need not ignore positive proof, extrinsic to the complaint, that assists in clarifying an ambiguous allegation." Avondale, 774 F. Supp. at 1424 (quoting Moreau v. Orkin Exterminating, 165 A.D.2d 415, 418, 568 N.Y.S.2d 466, 468 (N.Y. App. Div. 3d Dep't 1991)). There is no reason to move beyond the boundaries of the complaint in the instant case, because the allegations requiring coverage are not ambiguous. But even if the Court were to consider the evidence external to the complaint that plaintiff submits, the Court agrees with the assessment of the Report that this evidence has numerous infirmities. (See Report 12-13.) This evidence certainly does not "show[] unequivocally that the damages alleged would not be covered by the policy." Avondale, 774 F. Supp. at 1424 (quoting Sturges Mfg. Co. v. Utica Mut. Ins. Co., 37 N.Y.2d 69, 74, 332 N.E.2d 319, 322, 371 N.Y.S.2d ...


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