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United States District Court, Southern District of New York

August 27, 2003


The opinion of the court was delivered by: Laura Taylor Swain, District Judge


This action arises out of a state court dispute among the Defendants. Ana Flores brought an action in the Supreme Court, Bronx County against the New York City Housing Authority ("NYCHA") for personal injuries caused by a fall in the vestibule of a NYCHA apartment building that had been renovated by Falcon Construction Corporation ("Falcon"). NYCHA then filed a third-party complaint against Falcon. Plaintiff U.S. Underwriters Insurance Company ("U.S. Underwriters"), the liability insurer for Falcon and NYCHA in connection with the renovation in question, then commenced this action, seeking a declaration that it has no duty to defend or indemnify NYCHA or Falcon with respect to the Flores state court action. U.S. Underwriters now moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure.*fn1

The Court has jurisdiction of this matter pursuant to 28 U.S.C. § 1332 and 2201. For the following reasons, Plaintiff's motion is denied.


The following material facts are undisputed unless characterized otherwise. [ Page 2]

Defendant Falcon contracted with NYCHA to provide, inter alia, new entrances with electromagnetic locks and the removal and replacement of flooring material at a housing development known as the Patterson Houses in the Bronx, New York. (Rai Aff. ¶ 4.) In connection with the contract, Falcon and NYCHA obtained general commercial liability insurance and owners and contractors protection insurance; Plaintiff issued both policies. (Id. ¶ 6.) The general liability insurance policy, identified as CL 3033659 (the "GCL policy"), named NYCHA as an additional insured; NYCHA was the named insured on the owners and contractors policy identified as CL 3036360 (the "OCP policy"). (Myrtetus Aff. ¶ 3; Hazard Aff. ¶ 3.) The GCL policy provided that

Any person(s) or organization(s) (hereinafter called `Additional Insured') with whom you agree in a written construction contract to name as an insured is an insured with respect to liability arising out of your ongoing operations for the Additional Insured on the project specified in the construction contract, including acts or omissions of the Additional Insured in connection with the general supervision of `your work.'
(GCL Policy, Ex. C to Verveniotis Decl., no pagination.) The GCL policy also contained various exclusions; those at issue are listed in relevant part below:

Contractual Liability

Bodily injury or `property damage' for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages . . . [t]hat the insured would have in the absence of the contract or agreement; or Assumed [(sic)] in a contract or agreement that is an `insured contract'. . . .
Independent Contractors Exclusion

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 in connection with his general supervision of such operations.
(Myrtetus Aff. ¶¶ 16, 23 and evidence cited therein.) The GCL policy further provided that coverage under the policy is limited to the classification codes listed in the policy; those codes are "Carpentry-Interior" and "Plumbing Residential." See GCL Policy. No definitions of those codes have been provided. [ Page 3]

Both the GCL and the OCP policies contain, with immaterial variations, the following "Duties in The Event of Occurrence, Claim, or Suit" provision:

a. You must see to it that we are notified as soon as practicable of an `occurrence' which may result in a claim. To the extent possible, notice should include
(1) How, when and where the "occurrence" took place;
(2) The names and addresses of any injured persons and witnesses; and
(3) The nature and location of any injury or damage arising out of the `occurrence[.]'
b. If a claim is made or `suit' is brought against any insured, you must
(1) Immediately record the specifics of the claim or "suit" and the date received; and
(2) Notify us as soon as practicable.

You must see to it that we receive written notice of the claim or "suit" as soon as practicable.
c. You and any other involved insured must:

(1) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or `suit[.]'
See GCL Policy Coverage Form § IV.2, Ex. A to Myrtetus Aff., at 8-9; OCP Policy Coverage Form § IV.4, Ex. C to Verveniotis Suppl. Decl., at 5 (of numbered coverage section).

Both the GCL and the OCP policies provide that Plaintiff has the duty to defend the insured against any suit seeking damages covered by the policy. See GCL Coverage Form § I.1, Ex. A to Myrtetus Aff., at 1; OCP Policy Coverage Form § I.1, Ex. C to Verveniotis Suppl. Decl., at 1 (of numbered coverage section).

On February 9, 2000, defendant Ana Flores filed a notice of claim with NYCHA, alleging that she had tripped and fallen in the vestibule of 314 East 143rd Street in the Bronx, part of the Patterson Houses, on January 9, 2000. See Notice of Claim, Ex. A to Statement of Undisputed Facts and Exhibits ("Stat. Undisp. Facts"). On or about April 13, 2000, Flores filed suit against NYCHA in state court in connection with the January 9th incident. See Summons and Compl., Ex. A to Mitchell Decl. [ Page 4]

On February 11, 2000, NYCHA retained the firm of Robert J. Trobe, C.P.P., to investigate Ms. Flores' fall. (Trobe Aff., attached to Mitchell Decl., ¶ 2.) The firm issued a report in April 2000 indicating that none of the NYCHA employees interviewed at the site of the accident could identify the contractor that had worked on the vestibule. (Id. ¶¶ 3, 8.) By May 2000, the Trobe firm had determined which contract covered repair of the site, and requested a copy of the files and insurance policies for the contract. (Id. ¶¶ 5-6.) The contract had been closed, and a search of the Long Island Record Retention Facility was necessary to find the relevant file. (Id. ¶ 8; Beinerman Aff., attached to Mitchell Decl., ¶ 4.) Trobe received information identifying Falcon as the relevant contractor on or about January 16, 2001. The files on the contract did not reference the U.S. Underwriter policies at issue, but instead policies issued by a different carrier. (Trobe Aff. ¶ 7.) Trobe informed NYCHA that Falcon was the relevant contractor by February 5, 2001. (Id.)

By letter dated February 26, 2001, counsel for NYCHA in the Flores action provided Falcon with a copy of Flores' Notice of Claim and Summons and Complaint, and requested that Falcon forward those documents to its insurance carrier so that the carrier could assume NYCHA's defense. (Mitchell Decl. ¶ 8 and evidence cited therein.) On or about February 27, 2001, NYCHA filed a third-party complaint against Falcon in the Flores action. See Ex. B to Verveniotis Decl.

Falcon forwarded NYCHA's February 26th letter and the Flores Notice of Claim and Summons and Complaint to a U.S. Underwriters broker, who in turn faxed the documents to Plaintiff on March 9, 2001. (Rai Aff. ¶ 10 and evidence cited therein.) The subject heading of the cover page of the fax from the agent to Plaintiff contains the lines "Falcon Construction Corp." and "#CL3036359." (Ex. D to Rai Aff.)

By letter dated March 12, 2001 to NYCHA's counsel in the Flores action, U.S. Underwriters acknowledged receipt of the February 26th letter "tendering defense of [NYCHA] to [ Page 5]

Falcon's insurance carrier," and advised counsel that Plaintiff would not "accept the tender of NYCHA's defense" on the grounds of late notice and the policy exclusion for contractual liability. See Ex. E to Mitchell Decl. Plaintiff's March 12, 2001 letter identifies the relevant policy as CL3036359, the GCL policy. (Id.)

On March 22, 2001, Plaintiff received a fax from a broker transmitting a copy of the third-party complaint, with a subject heading including the lines "Falcon Construction #CL3036359" and "NYC Housing #CL3038419." By letter to NYCHA's counsel in the Flores action dated April 11, 2001, Plaintiff disclaimed coverage under policy CL 3036360, the OCP policy, as to the Flores accident, on the ground of late notice. See Ex. J to Mitchell Decl.

Plaintiff asserts that it "immediately" assigned a claims investigator to the Flores-related claims, who informed Plaintiff in April 2002 that Falcon's subcontractor KZ&V Construction had performed construction work at the vestibule before Flores' injury. (Myrtetus Aff. ¶ 22.) Plaintiff asserts that Falcon's contract with NYCHA was for asbestos removal, and that Falcon subcontracted that work to KZ&V. (Verveniotis Decl. ¶¶ 28, 29, 34 and evidence cited therein.) Falcon asserts that the contract with NYCHA was for the "construction of barrier free accessibility entrances with electric magnetic locks, removal of old flooring, and preparation of flooring for finishing and replacement of flooring material," and that Falcon itself performed construction work on the Patterson Houses contract. (Rai Aff. ¶¶ 4, 8.)

In connection with the instant motion, Plaintiff has submitted two documents it contends comprise the Patterson Houses contract between Falcon and NYCHA, and the contract between Falcon and KZ&V. See Verveniotis Decl. ¶¶ 24, 28 and evidence cited therein. The copy of the Patterson Houses contract submitted, however, contains only a "Letter of Award" from NYCHA to Falcon and a section of the contract addressing procedures and regulations concerning [ Page 6]

"Abestos Abatement Of Composition Floor Tiles." See Ex. G to Verveniotis Decl. The Letter of Award indicates that the Patterson Houses contract is for "Entrances With Electromagnetic Locks and Barrier Free Accessibility," and that the bid accepted was $3,295,000. Id. "Barrier Free Accessiblilty Entrance Replacement" appears at the top of every page of the abestos abatement section. Id.

The Falcon/KZ&V documents submitted include a subcontract between Falcon and KZ&V for the removal of asbestos roofing material and floor tiles in the Patterson Houses hallway, and a letter from NYCHA approving the subcontract for $67,500 for what is described as the abestos abatement/floor tiles "phase of work." See Ex. H to Verveniotis Decl.

By letter to Falcon dated May 1, 2002, Plaintiff disclaimed coverage of Falcon under the GCL policy as to the Flores claim on the grounds that 1) Falcon had performed work outside the "Carpentry-Interior" and "Plumbing-Residential" classifications in the policy, and 2) Falcon's employment of a subcontractor placed it within the policy's independent contractors exclusion. See Ex. C to Rai Aff.

On November 20, 2002, the jury in the Flores state court action made the following unanimous findings: 1) that a defect in the floor was a substantial factor in Flores' fall; 2) that Flores' fall arose out of the work of either Falcon or Falcon's subcontractor; 3) that Falcon was negligent; 4) that Falcon's negligence was not a substantial factor in causing Flores' fall. See Jury Sheet, Ex. E to Mitchell Decl.


Summary judgment shall be granted in favor of a moving party where the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, [ Page 7]

show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the burden of establishing the absence of any genuine issue of material fact, and "the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255-56 (1986).

Before addressing the merits of the instant motion, the Court must decide what law to apply. The parties having presumed that New York law governs this action, the Court will follow the principle that "implied consent to use a forum's law is sufficient to establish choice of law" and will apply New York law in rendering its decision. Tehran-Berkeley Civil Environmental Engineers v. Tippetts-Abbett-McCarthy-Stratton, 888 F.2d 239, 242 (2d Cir.1989).

Jury Findings in the Third-Party Action

In its reply papers, Plaintiff contends that, because the jury in the state court action found that Falcon's negligence was not the "proximate" cause of Flores' injuries, the claims at issue have been removed from coverage under the GCL and OCP policies. Plaintiff's argument depends at best on a faulty interpretation of the policies, and at worst on willful ignorance of their actual terms. As to NYCHA, both policies provide that NYCHA will be covered for liability "arising out" of Falcon's operations and NYCHA's own acts or omissions in connection with the general supervision of those operations. See GCL Policy; "OCP Policy," Ex. C to Verveniotis Suppl. Decl. As noted above, the Bronx County jury did find that Flores' accident "arose out of" the work of either Falcon or Falcon's subcontractor. Furthermore, Flores' complaint against NYCHA alleged that NYCHA had been negligent in the maintenance of the vestibule. Consequently, the jury findings on Falcon's liability are not determinative of the question of NYCHA's coverage under [ Page 8]

either policy. As to Falcon, the GCL policy provides that Plaintiff will cover those sums that Falcon becomes legally obligated to pay as damages, and that Plaintiff has the duty to defend Falcon against any suit seeking those damages. Even a jury finding of no liability as to Falcon does not absolve Plaintiff of its duty to defend Falcon against the third-party suit if the claim is otherwise within the scope of the policy. Accordingly, the jury findings do not provide a basis for granting Plaintiff's motion as to NYCHA or Falcon.

U.S. Underwriters' Disclaimer as to NYCHA

Plaintiff argues that NYCHA is precluded from coverage under both policies at issue because NYCHA failed to satisfy the notice condition precedent, and under the GCL policy because NYCHA's demand falls within the exclusion of contractual liability.

Timeliness of NYCHA's Notice

An insurer's duty to cover the losses of its insured is not triggered "unless the insured gives timely notice of loss in accordance with the terms of the insurance contract. A notice provision in an insurance policy is a condition precedent to coverage and, absent a valid excuse, the failure to satisfy the notice requirement vitiates the policy." Travelers Ins. Co. v. Volmar Construction Co., 75 N.Y.S.2d 286, 288 (1st Dept. 2002) (internal quotation marks and citations omitted). The notice requirement in an insurance policy applies to both primary and additional insureds, and "notice provided by one insured in accordance with the policy terms will not be imputed to another insured." Id. at 289-90. See also American Manufacturers Mutual Ins. Co. v. CMA Enterprises, 667 N.Y.S.2d 724, 725 (1st Dept. 1998) (since plaintiff, an additional insured, had an independent obligation to give timely written notice, it was irrelevant whether insurer learned of occurrence from primary insured). [ Page 9]

Under New York law, the question of whether notice was given within a reasonable time may be decided as a matter of law when (1) the facts bearing on the delay in providing notice are undisputed and (2) the insured has not offered a valid excuse for the delay. U.S. Underwriters Ins. Co. v. A&D Maja Construction, Inc., 160 F. Supp.2d 565, 568-69 (S.D.N.Y. 2001) (citing State of New York v. Blank, 27 F.3d 783, 795 (2d Cir. 1994)).

Both the GCL and the OCP policies required NYCHA to notify U.S. Underwriters "as soon as practicable" of an "occurrence" that could give rise to a claim or suit against the insured. Plaintiff argues that NYCHA failed to satisfy this condition for two reasons: 1) NYCHA never independently notified Plaintiff of the claim; and 2) NYCHA's notice was untimely.

Plaintiff has not shown that NYCHA failed to satisfy its independent duty of notification under the GCL and OCP policies. Under either policy, NYCHA's duty was to "see to it that we are notified as soon as practicable of an `occurrence'. . . . [and] to see to it that we receive written notice of the claim or `suit' as soon as practicable." See GCL Policy Coverage Form § IV.2, Ex. A to Myrtetus Aff., at 8-9; OCP Policy Coverage Form § IV.4, Ex. C to Verveniotis Suppl. Decl., at 5 (of numbered coverage section). It is undisputed that Plaintiff acknowledged receipt of written notice of the Flores accident in two separate letters to NYCHA's counsel in the Flores action. See Exs. E & J to Mitchell Decl. Neither policy at issue required written notice to come directly from NYCHA's fax machine; each simply required that NYCHA "see to it" that Plaintiff received written notice. Unlike those cases where an additional insured failed to satisfy an independent duty of notice such as Volmar Construction Co. or CMA Enterprises, supra, the additional insured here does not contend that its notice to Falcon or Falcon's notice to Plaintiff constitutes NYCHA's written notice to Plaintiff. Rather, NYCHA sent its own written notice to Plaintiff through Falcon, and Plaintiff has not shown that such a method of delivery cannot satisfy [ Page 10]

the notification conditions in question.

As to the timeliness of NYCHA's notice, NYCHA has proffered evidence that the time required to identify the relevant contract for the vestibule and then to locate the file for that contract with the appropriate insurance policy information accounts for the delay in notifying Plaintiff of the incident. Plaintiff has not shown that such an excuse is unreasonable as a matter of law. Accordingly, determination of the reasonableness of NYCHA's notice on the current record is inappropriate, and Plaintiff's motion is denied to the extent it seeks a judgment that it has no duty to defend or indemnify NYCHA on the basis of NYCHA's failure to satisfy the notice provision of either policy.

Contractual Liability Exclusion

Plaintiff disclaimed liability to NYCHA under the GCL policy on the basis of a provision that excludes from coverage bodily injury "for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement," except for liability that the insured would have in the absence of the contract or agreement. (Ex. C to Myrtetus Aff; OCP Policy.) Contractual liability exclusion clauses "deny the coverage generally assumed by a liability policy in cases in which the insured in a contract with a third party agrees to hold harmless or indemnify such third party." Lee R. Russ, 9 Couch on Insurance § 129:30 (3rd ed. 2003), available in WESTLAW, COUCH database.

Plaintiff has failed to demonstrate the relevance of this exclusion to the instant controversy. Each of Falcon and NYCHA was an insured under the policy, and neither appears to have asserted a claim against Plaintiff other than in the capacity of an insured, for defense costs and potential liability in connection with claims asserted against it as owner or contractor. Flores' claims against NYCHA are not premised on any contractual undertaking of liability to a third party. [ Page 11]

Furthermore, although Plaintiff alleges that NYCHA asserted "contractual" liability against Falcon in its third-party action in state court, Plaintiff acknowledges that NYCHA asserted that Falcon was liable to it on the basis of negligence as well. Contractual liability exclusions are inapposite where there is a basis for liability independent of a contractual indemnity provision. See Lumbermens Mutual Casualty Co. v. Town of Pound Ridge, 362 F.2d 430, 434 (2d Cir. 1966) (contractual liability exclusion not applicable where liability asserted against insured did not depend on contract, but arose from insured's own acts); Modern Scaffold Co. v. Karell Realty Corp., 279 N.Y.S.2d 436, 439 (3rd Dept. 1967) ("it is possible that the insured will be held responsible on the basis of liability which exists at law and without regard to the express agreement, in which event the [contractual liability] exclusion clause would be inoperative and coverage possible"). See also Morse Diesel Int'l v. Olympic Plumbing & Heating Corp., 750 N.Y.S.2d 72, 74 (1st Dept. 2002) ("any ambiguity [under the contractual liability exclusion] that exists with respect to coverage for those damages that the [ ] insured might be obligated to pay by operation of law must be resolved against the insurer as the party that drafted the provision"). See also GCL Coverage Form § I.2(b)(1) (contractual liability exclusion "does not apply to liability for damages . . . [t]hat the insured would have in the absence of the contract or agreement"). Accordingly, Plaintiff is not entitled to judgment as a matter of law on the basis of its contractual liability disclaimer.

Grounds for Disclaimer as to Falcon

Classification of Work Performed

Plaintiff argues that it does not have to defend or indemnify Falcon because the vestibule contract involved asbestos removal, and the GCL policy limits coverage to the classification codes specified in the policy, namely, "Carpentry-Interior" and "Plumbing-residential." [ Page 12]

The Court must look to the allegations in the complaints in the Flores action to determine whether or not Plaintiff has a duty to defend Falcon. See Incorporated Village of Cedarhurst v. Hanover Insurance Co., 89 N.Y.2d 293, 298 (1996) ("If the complaint contains any facts or allegations which bring the claim even potentially within the protection purchased, the insurer is obligated to defend.") Furthermore, in order to avoid its obligation to defend an insured on the basis of a policy exclusion, an insurer must demonstrate that "`the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case.'" Id.

Plaintiff has not shown that Falcon's claim for defense and indemnification falls entirely outside the carpentry and plumbing classifications. Flores alleged that her injury was caused by a "foot trap" at the top of the vestibule stairway, and NYCHA has alleged that Falcon was negligent in its renovation work in the vestibule, including the area at the top of the stairway. Falcon has also offered evidence that its work at the Patterson Houses included removing old doors, framing doorways, and preparing flooring for finishing. (Rai Aff. ¶ 8.) Furthermore, Plaintiff's own evidence raises issues of fact as to the scope of work performed by Falcon on the Patterson Houses contract. As discussed above, the Patterson Houses contract was labeled as one for the construction of "Entrances With Electromagnetic Locks and Barrier Free Accessibility." (Ex. G to Verveniotis Decl.) Plaintiff has submitted only one section of the contract, which deals with regulatory and safety issues in connection with what NYCHA referred to as the abestos abatement/floor tiles "phase of work." (Exs. G, H to Verveniotis Decl.) Indeed, the contract cost of the abestos abatement was only $67,500 out of a total contract amount of $3.295 million. Plaintiff has thus at best established that abestos removal was one part of the work to be performed under the Patterson Houses contract. [ Page 13]

Plaintiff has not shown that "Carpentry-Interior" has been defined, either in the GCL policy or in customary usage, in such a way that doorway and floor renovation should not be considered carpentry, even if asbestos removal was a part of the renovation. Moreover, the allegations in the state court complaints do not attribute Flores' injuries to asbestos-related causes but, rather, to defects in the construction of the vestibule. Cf. Incorporated Village of Cedarhurst, 89 N.Y.2d at 299 (applicability of exclusion depends on nature of injury alleged). Plaintiff has failed to establish that the classification exclusion applies to the work allegedly responsible for Flores' injuries nor can it be said that the underlying complaints do not contain allegations that bring Falcon's claim "even potentially within the protection purchased." Therefore, Plaintiff has not shown that it is entitled to judgment as a matter of law on the basis of the GCL policy's work classifications.

Independent Contractor Exclusion

Plaintiff also contends that the GCL policy exclusion for bodily injury arising out of operations performed by an independent contractor precludes Falcon's claim relating to the Flores incident because an independent contractor performed work on the vestibule. NYCHA alleges negligence in Falcon's own performance, however, in the renovation of the vestibule. In addition, Falcon has offered evidence that Falcon itself was performing renovation work at the Patterson Houses. (Rai Aff. ¶ 8.) Again, even Plaintiff's own evidence raises questions of fact on this issue: the KZ&V subcontract was for the abestos removal phase of a broader contract and represented less than 5% of the total contract cost. Accordingly, Plaintiff has not shown that the allegations within the underlying complaints fall entirely within the independent contractor exclusion, and the instant motion is denied to the extent Plaintiff seeks judgment that it has no duty to defend or indemnify Falcon on the basis of that exclusion. Cf. U.S. Underwriters Ins. Co. v. 203-211 West 145th St. [ Page 14]

Realty Corp., No. 99 Civ. 8880, 2001 WL 604060, at *4 (S.D.N.Y. May 31, 2001) ("to defeat coverage, an insurer must demonstrate that the allegations of the underlying complaint are `solely and entirely' within the `clear and unmistakable' language of the exclusion and that the allegations, taken as a whole, `are subject to no other interpretation.'")

Timeliness of Disclaimers and Request to Strike Plaintiff's Affirmative Defenses

Defendants argue further that Plaintiff failed timely to disclaim coverage as required by New York Insurance Law, Section 3410(d); NYCHA requests in its brief that the Court strike Plaintiff's affirmative defenses relating to the disclaimers. Because the Court is denying Plaintiff's summary judgment motion, Plaintiff has raised issues of fact as to the reasonableness of its delay in disclaiming, and Defendants did not in any event raise the request to strike in a procedurally appropriate manner the Court is not addressing these issues.


For the foregoing reasons, Plaintiff's motion is denied in its entirety.

The next pre-trial conference in this case is scheduled for Friday, August 29, 2003 at 3:00 p.m.


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