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HIT FACTORY, INC. v. ROYAL INSURANCE COMPANY OF AMERICA

August 24, 2005.

THE HIT FACTORY, INC. f/k/a THE HIT FACTORY OF FLORIDA, Plaintiff,
v.
ROYAL INSURANCE COMPANY OF AMERICA, Defendant.



The opinion of the court was delivered by: DEBORAH BATTS, District Judge

MEMORANDUM & ORDER

The Court has before it Defendant Royal Insurance Company of America's ("Royal Insurance" or "Defendant") Motion for Summary Judgment in favor of Defendant on the grounds that Defendant has already fulfilled its obligations to Plaintiff Hit Factory, Inc. ("Hit Factory") under the terms and conditions of an insurance policy issued by Defendant. Plaintiff argues that the insurance policy and the claim for coverage by Plaintiff raises genuine issues of material fact which preclude summary judgment.

For the reasons that follow, Defendant's Motion for Summary Judgment is DENIED.

  I. BACKGROUND

  This diversity action stems from a dispute concerning the extent of coverage provided by an insurance policy issued by Defendant Royal Insurance to Plaintiff Hit Factory. Plaintiff is a corporation organized under the laws of Florida, with its principal place of business in New York, New York. Defendant Royal Insurance is incorporated and maintains its principal place of business in Illinois. Defendant is licensed and authorized to issue policies of insurance in New York State. (Compl. ¶¶ 1-3.)

  Plaintiff rented the premises located at 1755 Northeast 149th Street, Miami, Florida from an entity known as 327 Holding.*fn1 Prior to October 3, 2000, Defendant issued an insurance policy to Plaintiff ("Policy") with effective dates of coverage from February 1, 2000 to February 1, 2001. This Policy insured the premises at 1755 N.E. 149th Street, which is the subject matter of this litigation ("Insured Property"). The Policy contains a $1,000,000 sub-limit for "loss or damage by `flood'" and a $1,000,000 sub-limit for "loss or damage caused by water that backs up from sewer(s) or drain(s)." (Silverberg Aff. Ex. 5 at R-00414.) The Policy also contains a $25,000 per occurrence deductible for flood and a $25,000 per occurrence deductible for backup of sewers and drains. (Id. at R-00415.)

  The Policy defines "flood" as including: "Surface water, waves, or tidal water and the rising (including the overflow or breaking of boundaries) of lakes, ponds, reservoirs, rivers, harbors, streams, or similar bodies of water, whether driven by wind or not; . . . Mud slide or mud flow." (Id. at R-0047.) The Policy does not provide a definition for loss or damage caused by backup of sewers or drains.

  In addition, the Policy contains a provision entitled "Insurance Under Two or More Coverages" which provides that "If two or more of this policy's coverages apply to the same loss or damage, we will not pay more than the actual amount of the loss or damages." (Id. at R-00016.)

  On October 3, 2000, the Miami area was hit by heavy rains, which caused a buildup of surface water to enter the Insured Property; as a result, a portion of the building and other business and personal property were damaged. Water also backed up through the bathroom drains located in one or more of the first-floor bathrooms of the Insured Property. Defendant characterizes this water as "rainwater" which Plaintiff disputes. (Def.'s 56.1 Stmt. ¶ 4; Pl.'s Resp. to Def.'s 56.1 Stmt. ¶ 4.)

  No investigation was conducted to determine the reason for the backup of the bathroom drains. Stanton Miller, Chief Technician for Plaintiff, testified that "he had no reason to believe that the backup water in the bathroom drains was caused by anything other than excessive rainwater." (Def.'s 56.1 Stmt. ¶ 6.) No repairs were made to the bathroom drains after October 3, 2003.

  Sometime after October 3, 2003, Plaintiff submitted a claim to Defendant, seeking indemnification for the damages it sustained. By April 10, 2001, Defendant paid $1,000,000 to Plaintiff in accordance with the flood sub-limit contained in the Policy. On February 21, 2002, Plaintiff submitted to Defendant another Sworn Statement in Proof of Loss, signed and dated by Robert Lanier, Vice President and Chief Operating Officer of Hit Factory which stated that Hit Factory sustained the following monetary losses: physical damage to the building in the amount of $1,005,150; loss of business income and loss rents in the amount of $262,809; and loss of business income — extra expense in the amount of $220,460. In that Sworn Statement, Plaintiff acknowledges the receipt of the $1,000,000 from Defendant and that its loss was subject to a $25,000 deductible. Annexed to the Sworn Statement were invoices supporting Plaintiff's insurance claim. Defendant and Plaintiff disagree on the actual amount supported by the provided documentation.

  Defendant claims that Plaintiff is seeking an additional $463,420; Plaintiff claims that it is seeking $303,800.55. (Def.'s 56.1 Stmt. ¶ 18; Pl.'s Resp. to Def.'s 56.1 Stmt. ¶ 18.) Plaintiff contends that it is entitled to this additional amount because both the $1,000,000 sub-limit for flood and the $1,000,000 sub-limit for backup of sewers and drains apply to Plaintiff's damages.

  Defendant has refused to indemnify Plaintiff under the $1,000,000 sub-limit for backup of sewers and drains and for the additional expenses.

  Plaintiff brought this lawsuit alleging breach of contract against Defendant Royal Insurance in the Southern District of New York on May 30, 2002 and seeks damages of $460,992.50.*fn2 Plaintiff also requests that the Policy be reformed to reflect Hit Factory Criteria, Inc. as named insured because Hit ...


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