The opinion of the court was delivered by: VICTOR MARRERO, District Judge
Plaintiff United States Liability Insurance Company ("U.S.
Liability") brings this diversity action against its insured,
Winchester Fine Art Services, Inc. ("Winchester"); and Jason
Denny and Lindon F. McKenzie (the "Claimants"). Also named as
defendants are Winchester's primary insurer, Utica National
Insurance Group ("Utica"); Citi Capital Commercial Leasing Corp.;
and Winchester employee Michael D. Petrovich ("Petrovich"). U.S.
Liability seeks a declaratory judgment to disclaim coverage for
an underlying personal injury action now being litigated in New
York State court that the Claimants brought against Winchester.
U.S. Liability has moved for summary judgment with respect to
all of the claims and counterclaims at issue. Winchester and the Claimants oppose this motion and have
responded with their respective cross-motions for summary
judgment on all the claims. The crux of the parties' dispute
centers on whether Winchester provided U.S. Liability with timely
notice of the underlying personal injury action in accordance
with the terms of Winchester's excess liability insurance policy
with U.S. Liability (the "Excess Policy"). U.S. Liability asserts
that notice was untimely under New York law and under the terms
of the Excess Policy, and as such, it is entitled to disclaim
coverage. Winchester responds that it did not provide notice
sooner because it never formed a good-faith belief that the
personal injury action would implicate the Excess Policy.
Winchester argues that U.S. Liability was itself untimely in
disclaiming coverage and should be precluded from so doing. The
Claimants assert that U.S. Liability may not disclaim coverage
because they (the Claimants) notified U.S. Liability of the claim
after diligent efforts to discover the existence of the Excess
As discussed in greater detail below, the Court holds as a
matter of law that: (1) Winchester failed to timely notify U.S.
Liability of the underlying personal injury action in compliance
with the terms of the Excess Policy and applicable New York law; (2) the Claimants did not cure
Winchester's delay in notifying U.S. Liability; and (3) U.S.
Liability properly denied coverage to both Winchester and the
Claimants, and thus, did not waive its right to do so.
Accordingly, the Court grants U.S. Liability's motion for summary
judgment in its entirety and denies Winchester's and the
Claimants' cross-motions for summary judgment in their entirety.
The facts of this case are not materially in dispute. On April
9, 2001, Petrovich was driving an automobile for Winchester when
he was involved in an automobile accident with the Claimants. At
the time of the accident, Winchester was insured by a primary
liability insurance policy issued by Utica that provided
liability coverage up to $750,000. Winchester also was insured by
the Excess Policy with U.S. Liability. The Excess Policy provided
coverage for liability in excess of the primary policy limit, up
to a maximum of $4 million. The notice provision of the Excess
Policy provides as follows: Notice of Occurrence, Claim, offense, or Suit
Whenever it appears that an occurrence, claim,
offense, or suit is likely to involve payment under
this policy, written notice shall be given to us or
our authorized representative by you or your
designated representative as soon as practicable.
(Affidavit of Mark Shockley, dated May 19, 2004, at Ex. A.) The
Excess Policy also provides that U.S. Liability has the right to
participate in the defense of any claim that may involve payment
under the policy and that both Winchester and Utica must
cooperate with U.S. Liability with regard to any such defense.
By letter dated April 17, 2001, the Claimants notified Utica of
the automobile accident and stated that they had incurred serious
injuries therefrom. The letter also requested information on
whether Winchester carried any excess or umbrella insurance. In a
subsequent letter dated January 29, 2002, the Claimants informed
Utica that they had undergone surgery for their injuries and
requested that Utica produce a sworn statement with regard to
whether Winchester carried excess liability insurance. The
January 29 letter also provided information on a verdict in an
unrelated case with similar injuries and noted that the amount of
the jury's damage in the unrelated case exceeded Utica's coverage
amount in this case. The letter further stated that the Claimants' injuries were serious, that Winchester
was entirely liable for those injuries, and that the property
damage arising from the accident was extensive.
On March 27, 2002, the Claimants initiated a personal injury
action against Winchester, Citi Capital, and Petrovich in New
York State Supreme Court, Bronx County for the injuries sustained
in the accident (the "state court action"). In their complaint,
the Claimants demanded $5 million each in compensation for their
injuries.*fn2 Utica is undertaking Winchester's defense in
the state court action and has retained counsel in the matter
(hereinafter "Winchester's trial counsel").
By letter dated April 17, 2002, the Claimants forwarded copies
of their medical records to Utica. These records indicated that
the Claimants had undergone surgery and described additional
injuries sustained from the accident. For a third time, the
Claimants requested that Utica provide information regarding
excess insurance coverage and that if there were no such
coverage, that Winchester provide a sworn statement to that
effect. The letter further notified Utica of the commencement of
the state court action and included a copy of the complaint. The
record reflects that Utica did not respond to the Claimants' repeated requests for information
regarding excess insurance coverage.
As part of discovery in the state court action, the Claimants
issued a Notice To Produce to Winchester's trial counsel, dated
November 13, 2002, that requested all information regarding any
excess or umbrella coverage in effect at the time of the accident
that may be available to satisfy all or part of any judgment that
may be entered in the state court action. The Claimants also
submitted a Bill of Particulars to Winchester's trial counsel on
or about November 13, 2002 detailing the injuries they sustained
in the accident and the concomitant surgeries that would be
required.*fn3 On or about January 24, 2003, the Claimants
submitted a Supplemental Bill of Particulars that indicated that
one of the Claimants' injuries would lead to osteoarthritis
necessitating a knee replacement, and estimated that future
medical costs for this Claimant alone would reach between
$351,695 and $453,745, not including adjustments for inflation. Following a preliminary conference in the state court action
held on January 9, 2003, the state court issued a Preliminary
Conference Order that erroneously indicated that Winchester had
$1 million in primary insurance coverage. The Order did not
indicate that Winchester owned an excess insurance policy. In
response to this Order, Winchester's trial counsel later
corrected the information regarding the coverage limit by
indicating that the limit of its primary coverage with Utica was,
in fact, $750,000. Again, Winchester's trial counsel did not
mention that Winchester had an excess policy in place at the time
of the accident.
By letter dated February 11, 2003, the Claimants again
requested information regarding any excess insurance coverage
from Winchester's trial counsel, including an affidavit if no
such coverage existed. This request, like the previous requests,
went unanswered. The February 11 letter also made reference to a
telephone conversation the previous day between counsel for the
Claimants and Winchester's trial counsel where they discussed
The correspondence regarding excess insurance coverage would
not end there. By letter dated February 28, 2003, Frederick C.
Aranki ("Aranki"), the principal trial attorney defending Winchester in the state court action, provided Utica
with the last of several case status reports. In the February 28
report, Aranki stated that he was not aware of any applicable
excess insurance policy carried by Winchester, and that he was in
the process of preparing an affidavit from Winchester's president
to so attest.*fn4 No such affidavit is in the record. This
representation regarding excess coverage was confirmed in a March
7, 2003 letter from the Claimants to Utica (with a copy to
Aranki), which indicated that Aranki had informed counsel for the
Claimants in a telephone conversation that there was no excess
coverage in effect at the time of the accident and that an
affidavit to that effect was forthcoming.*fn5 The March 7,
2003 letter also described the extensiveness of the Claimants'
injuries and the significant property damage to the vehicle.
By letter dated March 5, 2003, Winchester, through its general
corporate counsel (hereinafter "Winchester's corporate counsel"),
informed U.S. Liability of the state court action and forwarded
copies of the Complaint and Summons.*fn6 In this notice, Winchester indicated that it
had only recently been advised that the Claimants had stated that
the claim would exceed the primary coverage amount, and thus,
U.S. Liability was being notified "as a precaution."
Approximately one week later, U.S. Liability requested relevant
documents pertaining to the state court action, including the
pleadings, Bills of Particulars, and the various status reports
that Winchester's trial counsel prepared for Utica as part of its
defense of Winchester. U.S. Liability received these documents
from Winchester's trial counsel on or about April 2, 2003. The
cover letter to U.S. Liability suggested that Winchester was
construing U.S. Liability's request for these documents as a
tacit acknowledgment from U.S. Liability that it would be
providing excess insurance coverage in the state court action. By
letter dated April 1, 2003, Winchester first informed the
Claimants of the existence of the Excess Policy.
On or about April 14, 2003, approximately two weeks after
receiving the documents, U.S. Liability informed Winchester and
the Claimants' counsel by letter (with copies to all the other
parties in the state court action) that it was disclaiming coverage for Winchester's failure to comply with
the notice provision of the Excess Policy.*fn7 This notice
further informed the Claimants that they had failed to cure
Winchester's untimely notice because the Claimants were not the
first to notify U.S. Liability of the state court action.
Notwithstanding U.S. Liability's disclaimer, the Claimants
notified U.S. Liability by letter dated May 20, 2003, of their
intent to avail themselves of the excess coverage.
U.S. Liability thereafter initiated the instant action seeking
a declaration by this Court that it is not obligated to defend or
indemnify Winchester for the state court action due to
Winchester's untimely notice. Pending before the Court is U.S.
Liability's motion for summary judgment on this claim pursuant to
Federal Rule of Civil Procedure 56. Both Winchester and the
Claimants oppose U.S. Liability's motion and have each
cross-moved for summary judgment asserting that U.S. Liability
received timely notice of the state court action and did not
timely disclaim coverage. Thus, Winchester and the Claimants
claim that U.S. Liability is required to defend and indemnify
Winchester under the terms of the Excess Policy. II. DISCUSSION
A. STANDARD FOR SUMMARY JUDGMENT
The Court may grant summary judgment only "if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law." Fed.R. Civ. P.
56(c). The Court ascertains which facts are material by
considering the substantive law of the action, for only those
"facts that might affect the outcome of the suit under the
governing law will properly preclude the entry of summary
judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). Even if a dispute of the material facts exists, summary
judgment will be granted unless the dispute is "genuine," i.e.,
"there is sufficient evidence favoring the nonmoving party for a
jury to return a verdict for that party." Id. at 249.
The initial burden rests with the moving party to demonstrate
the absence of any genuine issues of material fact. See
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the
moving party satisfies its burden, the non-moving party must
provide "specific facts showing that there is a genuine issue for trial" in order to survive the motion for
summary judgment. Fed.R. Civ. P. 56(e); see also Matsushita
Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586
(1986); Shannon v. New York City Transit Auth., 332 F.3d 95,
98-99 (2d Cir. 2003). The Second Circuit has granted summary
judgment where a party failed to show any dispute over the facts
that would entitle her to equitable tolling of the time
requirements for her Title VII claim. See Boos v. Runyon,
201 F.3d 178, 185 (2d Cir. 2000). In considering a motion for summary
judgment, the Court must view the evidence in a light that is
favorable to the non-moving party and draw all reasonable
inferences in favor of that party. See Williams v. R.H.
Donnelley, Corp., 368 F.3d 123, 126 (2d Cir. 2004). However, the
Court must refrain from weighing the evidence and restrict its
inquiry to whether there are triable issues of material fact.
See Anderson, 477 U.S. at 249. Against this standard, the Court
considers the issues raised by the parties' arguments in their
respective moving papers.
B. WINCHESTER'S NOTICE OF THE CLAIM
The first question raised by the pending motions for summary
judgment is whether as a matter of law, Winchester provided
timely notice of the state court action to U.S. Liability under the terms of the Excess Policy. U.S. Liability
argues that Winchester's notice was untimely and thus, Winchester
did not fulfill a condition precedent to coverage. On this issue,
U.S. Liability asserts that Winchester had mounting indications
that damages in the state court action were "likely to involve
payment" under the Excess Policy well before March 5, 2003, the
date it ultimately provided notice of the action. First, U.S.
Liability points to the ad damnum clause of the complaint in
the state court action, which alleges $5 million in damages for
each of the two Claimants.
Second, U.S. Liability cites to the earlier status reports, in
particular, to the reports dated September 9, 2002 and December
9, 2002; and to the Bills of Particulars, all of which discussed
the extent of the Claimants' injuries and expressed the opinion
that Winchester would likely be liable for those injuries. U.S.
Liability claims that these documents, and other documents
exchanged during discovery, provided Winchester with a clear
basis upon which to conclude that the Excess Policy would likely
be implicated months before Winchester actually provided notice
of the potential claim. In response, Winchester argues that it never formed a
good-faith belief that the damages in the state court action
would exceed the primary coverage amount, and thus, it was not
required to provide notice to U.S. Liability under the Excess
Policy. Winchester's President, Frank Sapeinza ("Sapeinza"),
attests that although he received notice of the accident the day
it occurred, he did not believe that the resulting injuries were
serious based on Petrovich's account. (See Affidavit of Frank
Sapeinza, dated June 8, 2004, at ¶¶ 4-8.) Sapeinza further
attests that Winchester first received actual notice of the state
court action in or about May 2002, about two months after the
action was filed. (See id. at ¶ 9.)
Winchester places heavy reliance on the advice of its trial
counsel during the progression of the state court action.
Specifically, Winchester cites to other portions of the status
reports where its trial counsel opined that the Claimants'
injuries were not serious and were likely not extensive in terms
of monetary damages. According to Winchester, the first time it
had any indication that the Claimants' counsel believed that the
damages in the state court action would exceed $750,000 was after
receipt of the last of these status reports. This report, dated
February 28, 2003, discussed the Supplemental Bill of Particulars received
by Winchester's trial counsel about a month earlier. Based on the
revised Bill of Particulars, the report approximated the upper
limit of the damages for one of the two Claimants to be in excess
of $450,000. Nevertheless, Winchester's trial counsel opined in
the February 28 report (as he did in the previous reports) that
the damages would not exceed the primary coverage limit.
According to Winchester, it nevertheless provided U.S. ...