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PHILADELPHIA INDEMNITY INSURANCE v. EMP. INS. CO. OF WAUSAU

March 11, 2004.

PHILADELPHIA INDEMNITY INSURANCE COMPANY, Plaintiff -v- EMPLOYERS INSURANCE COMPANY OF WAUSAU, Defendant


The opinion of the court was delivered by: GERARD LYNCH, District Judge

OPINION AND ORDER

Children's Discovery Centers and Knowledge Universe ("Children's Discovery") ran a daycare center at the World Trade Center in Manhattan, which the September 11, 2001 terrorist attacks destroyed. On that date, because of a transition in insurance coverage, both plaintiff Philadelphia Indemnity Insurance Company ("Philadelphia") and defendant Employers Insurance Company of Wausau ("Wausau") insured Children's Discovery for property damage. The parties jointly paid Children's Discovery's claim, without prejudice to their legal rights, and now dispute the proper allocation of liability. Before the Court are cross-motions for summary judgment. For the reasons that follow, Wausau's motion will be granted and Philadelphia's motion denied. Page 2

  BACKGROUND

  On September 11, 2001, Children's Discovery operated a daycare center at 5 World Trade Center in Manhattan. (D. Rule 56.1 Stmt. ¶ 1.) On that date, it held two policies that insured the center for property damage and associated losses.*fn1 Wausau's policy, which covered Children's Discovery from September 15, 2000, until September 15, 2001, limited Wausau's liability to $15 million per occurrence. (Id. ¶¶ 4, 7.) Philadelphia's policy, which covered Children's Discovery from September 1, 2001, until September 1, 2002, limited Philadelphia's liability to about $250 million per occurrence. (Id. ¶¶ 9, 11.)

  Both policies included "other insurance" clauses, which made each insurer's obligation to pay a claim contingent on the insured's obligation to first exhaust other insurance that covered the same risk. (Id. ¶ 8, 12-13; P. Br. 5-6.) Wausau's "other insurance" clause provided, subject to exceptions not relevant here, that Wausau would "not pay for covered loss to covered property unless the amount of any other insurance [wa]s exhausted." (Finazzo Cert., Ex. C.) Philadelphia's "other insurance" clause provided:

  1. You may have other insurance subject to the same plan, terms, conditions and provisions as the insurance under this Coverage Part. If you do, we will pay our share of the covered loss or damage. Our share is the proportion that the applicable Limit of Insurance under this Coverage Part bears to the Limits of Insurance of all insurance covering on the same basis. Page 3

 
2. If there is other insurance covering the same loss or damage, other than that described in 1. above, we will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance, whether you can collect on it or not. But we will not pay more than the applicable Limit of Insurance.
(Id., Ex. F.)

  After the September 11, 2001 terrorist attacks destroyed its daycare center, Children's Discovery submitted claims to Philadelphia and Wausau. (D. Rule 56.1 Stmt. ¶ 3.) The insurers each made an initial advance payment of $250, 000 to Children's Discovery, without prejudice to their legal positions in potential litigation. Philadelphia then brought this action against Wausau, seeking a judgment declaring the appropriate allocation of Children's Discovery's loss. Wausau named Children's Discovery as a third-party defendant, but the insurers subsequently settled with Children's Discovery for a total of $2, 790, 000; each paid $1, 145, 000 in addition to the $250, 000 payment already made. (D. Br. 7.) The parties agree that the appropriate allocation of liability as between them is a pure question of law and therefore cross-move for summary judgment.

  DISCUSSION

 I. Standard for Summary Judgment

  Summary judgment must be granted where "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The parties do not dispute any material facts, and the interpretation of unambiguous provisions in insurance contracts is a pure question of law. Mazzuoccolo v. Cinelli, 666 N.Y.S.2d 621, 622-23 (1st Dep't 1997). Page 4

 II. Choice of Law

  In this diversity action, the choice-of-law rules of New York, the forum state, govern. Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 427 (1996); Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). In the context of "that special subset of contracts that involves insurance," New York law calls for application of "`the local law of the state which the parties understood was to be the principal location of the insured risk.'" Zurich Ins. Co. v. Shearson Lehman Button, Inc., 84 N.Y.2d 309, 318 (1994), quoting Restatement (Second) of Conflict of Laws § 6 (1971); O'Neil v. Yield House Inc., 964 F. Supp. 806, 809 (S.D.N.Y. 1997). Where, as here, the insurance policies at issue cover risks in more than one state, the Restatement suggests that a more complicated analysis may apply. See In re Payroll Express Corp., 921 F. Supp. 1121, 1125 n.6 (S.D.N.Y. 1996). The Court need not, however, decide whether New York would follow the Restatement or engage in that ...


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