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Liberty Mutual Fire Insurance Co. v. E.E. Cruz & Co.

February 27, 2007



Plaintiff Liberty Mutual Fire Insurance Company ("Liberty Mutual") brings this action, as subrogee of TAP Electrical Contracting Service, Inc. ("TAP"), to recover damages allegedly caused by the negligence of defendants E.E. Cruz & Co., Inc., Malcolm Pirnie, Inc., the City of New York, and the City of New York Department of Environmental Protection during the course of a construction project in Flushing, New York. Defendant the City of New York (the "City") now moves [18] to dismiss the first amended complaint ("Complaint") pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim for which relief may be granted.


Liberty Mutual brings this suit as subrogee of a City contractor seeking recovery of $2,516,355.87 it paid to its insured-TAP-for property damage sustained by TAP, under a negligence theory against the City and two other contractors at the construction site. For purposes of this motion only, the factual allegations contained in plaintiff's Complaint are assumed true.

The City is the owner of a project in Flushing, Queens, described as the "Flushing Bay Combined Sewer Overflow Retention Facility" (the "Project"). (Compl. ¶¶ 11--12.) The Project called for the underground installation of fifteen concrete sewage retention tanks, each over 200 feet long and five stories high. (Id. ¶ 13.) Defendant Malcolm Pirnie was hired to be Construction Manager for the Project. (Id. ¶ 14.) TAP was the successful prime electrical contract bidder under Contract No. CS4-4E (the "Contract") (id. ¶ 16),*fn1 and was to provide and install electrical systems and components for the Project (id. ¶ 17). Defendant Cruz was the successful prime civil contract bidder for the Project under Contract No. CS4-4G, and pursuant to that contract built most, if not all, of the Project structure. (Id. ¶ 18.)

Liberty Mutual alleges that defendants' negligence caused damages to TAP's equipment and uninstalled electrical components. Specifically, plaintiff alleges that "[d]uring the course of the project, as a direct result of the negligence of each of the Defendants, millions of gallons of sewage damaged the site causing damage to TAP's equipment and uninstalled electrical components stored at the project site prior to the loss, and electrical components installed at the project site by TAP prior to the loss." (Id. ¶ 10.) The sewage flood that damaged TAP's property was allegedly caused when defendants prematurely connected the existing sewage system to the Project site via the Diversion Chambers, which were improperly secured with temporary plywood bulkheads. (Id. ¶¶ 19--23.) As the result of a storm, the sewer filled with millions of gallons of sewage, which burst through the temporary bulkheads, filling the Diversion Chambers and then the facility at the Project site. (Id. ¶¶ 24--26.) TAP's equipment and installed and uninstalled electrical components were damaged by the flood (id. ¶ 27), and pursuant to its insurance policies with Liberty Mutual-specifically, Liberty Mutual Policy No. MS2-121-062338-514/3 (contractors' equipment policy) and Liberty Mutual Policy No. MS2-121-062338-524/1 (installation floater policy) (id. ¶ 28)-Liberty Mutual paid $2,516,355.87 to reimburse TAP for its loss (id. ¶ 29).

Pursuant to the terms and conditions of the aforementioned policies between Liberty Mutual and TAP, Liberty Mutual has become subrogated to TAP's rights and causes of action against any party responsible for the loss. (Id. ¶ 30.)

Under the terms of the Contract, TAP agreed to procure a commercial general liability insurance policy prior to commencing work at the site. The policy was to name the New York City Department of Environmental Protection as additional insured, "and endorsed to cover liability assumed by the Contractor under the indemnity provisions of [the Contract]. This insurance policy must be maintained during the life of the contract, and shall protect the City, the Contractor and its subcontractors performing work at the site from claims for property damage and/or bodily injury which may arise from operations under this contract, whether such operations are performed by the Contractor or anyone directly or indirectly employed by the Contractor." (Contract, Proshansky Decl. Ex. 2 at 245.) Pursuant to this contract provision, TAP procured from Liberty Mutual a comprehensive general liability insurance policy (Liberty Mutual Policy No. TB1-121-062338-438) (hereinafter "TAP CGL Policy")*fn2 that contained an endorsement entitled "Additional Insured -- Owners, Lessees or Contractors -- Automatic Status When Required in Construction Contract with You." The endorsement reads: "Who is insured is amended to include as an insured any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability arising out of your ongoing operations performed for that insured." (TAP CGL Policy, Proshansky Decl. Ex. 3 at LM 10056.)


A motion to dismiss pursuant to Rule 12 must be denied "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) (quoting Conley v. Gibson, 355 U.S. 41, 45--46 (1957)). "When determining the sufficiency of plaintiff['s] claim for Rule 12(b)(6) purposes, consideration is limited to the factual allegations in [the] complaint, documents attached to the complaint as an exhibit or incorporated in it by reference, matters of which judicial notice may be taken, or documents either in plaintiff['s] possession or of which plaintiff[ ] had knowledge and relied in bringing suit." Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993) (emphasis added). Therefore, when a plaintiff chooses not to attach to the complaint or incorporate by reference a [document] upon which it solely relies and which is integral to the complaint," the court may nevertheless take that document into consideration in deciding a defendant's motion to dismiss, without converting the motion into one for summary judgment. Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47--48 (2d Cir. 1991).

However, when a party submits additional evidence to the Court in connection with a motion to dismiss, beyond the scope of those allowed under, e.g., Brass and Cortec, "a district court must either 'exclude the additional material and decide the motion on the complaint alone' or 'convert the motion to one for summary judgment under Fed. R. Civ. P. 56 and afford all parties the opportunity to present supporting material.'" Friedl v. City of New York, 210 F.3d 79, 83 (2d Cir. 2000) (quoting Fonte v. Bd. of Managers of Cont'l Towers Condo., 848 F.2d 24, 25 (2d Cir. 1988)); see also Fed. R. Civ. P. 12(b);*fn3 5C Wright & Miller, Federal Practice and Procedure § 1366. "This conversion requirement is strictly enforced whenever there is a 'legitimate possibility' that the district court relied on material outside the complaint in ruling on the motion." Friedl, 210 F.3d at 83 (quoting Amaker v. Weiner, 179 F.3d 48, 50 (2d Cir. 1999)). It is therefore error to "'consider affidavits and exhibits submitted by' defendants, or rel[y] on factual allegations contained in legal briefs or memoranda," in ruling on a 12(b)(6) motion to dismiss. Id. at 83--84 (citing Kopec v. Coughlin, 922 F.2d 152, 155 (2d Cir. 1991); Fonte, 848 F.2d at 25).

The motion presently pending before the Court seeks dismissal of the Complaint against the City under New York's antisubrogation rule. It is not disputed that the resolution of this motion requires the Court to consider both the Contract between TAP and the City and the TAP CGL Policy, which together form the basis of the City's antisubrogation defense. As mentioned at supra notes 1 and 2, the Contract is mentioned in the Complaint but is neither attached nor incorporated by reference, and the TAP CGL Policy is wholly absent from plaintiff's allegations. The propriety of considering matters beyond the pleadings was specifically addressed by the parties in letters to the Court submitted after the motion was fully briefed. Plaintiff's letter, dated January 26, 2006 ("Pl.'s Letter"), attached a copy of Judge Hellerstein's opinion in In re Sept. 11 Property Damage & Business Loss Litigation, 2006 WL 62019 (S.D.N.Y. Jan. 12, 2006). In that case, Judge Hellerstein denied a defendant's motion to dismiss the complaint against it under Rule 12(b)(6) on antisubrogation grounds because the motion required him to consider documents not incorporated in the pleadings or integral to the complaint. Id. at *12. In its letter, plaintiff argues that because the City's motion relies on the Contract that-in its view-is not integral to its subrogation claim but only to the City's defense, the Court should similarly deny the City's motion. (Pl.'s Letter 2.) However, plaintiff has at no time raised any objection to the Court's consideration of the TAP CGL Policy for the purposes of this motion, and indeed addresses the City's arguments with respect to the TAP CGL Policy endorsement at great length in its opposition brief. (See generally Opp'n) In response to plaintiff's letter, the City submitted a letter dated February 1, 2006 arguing that the circumstances in the motion before Judge Hellerstein differed significantly from those at issue here, and further positing that the Contract is in fact integral to the Complaint. While whether the Contract is in fact integral to the Complaint or incorporated by reference (see Compl. ¶ 16) is perhaps a closer question, it is beyond cavil that the TAP CGL Policy, the terms of which form a substantial basis for the City's antisubrogation defense, is neither mentioned in the Complaint nor integral to plaintiff's claim, as its subrogated claim results from Liberty Mutual's payment for damages sustained by TAP under two other insurance policies (see id. ¶ 28). Therefore the resolution of this motion requires the Court to consider matters outside the pleadings, which fact in turn requires the Court to decide whether to exclude the additional material and deny the motion, or convert the motion to one for summary judgment. See Fed. R. Civ. P. 12(b).

While the Second Circuit has frequently "held that a district court ordinarily must give notice to the parties before converting a motion to dismiss pursuant to Rule 12(b)(6) into one for summary judgment and considering matters outside the pleading," Gurary v. Winehouse, 190 F.3d 37, 43 (2d Cir. 1999) (citing Kopec, 922 F.2d at 154--55), "the essential inquiry is whether the parties should reasonably have recognized the possibility that the motion might be converted or whether they were taken by surprise and deprived of reasonable opportunity to present material pertinent to a summary judgment motion," Malatesta v. Credit Lyonnais, 03 Civ. 3690 (MBM), 2004 WL 1092148, at *2 (S.D.N.Y. May 17, 2004) (citing Gurary). Having submitted the materials outside the pleadings for the Court's consideration, a conversion of the City's motion to one for summary judgment can hardly take it by surprise. Plaintiff also clearly recognized the possibility that the motion might be converted, having noted the possibility in its opposition memorandum of law (Opp'n 5 n.1),*fn4 and had an opportunity to present any material pertinent to a potential summary judgment motion when it submitted its opposition. Indeed, unless the Court finds that the terms of the Contract or Policy are ambiguous and must resort to extrinsic evidence to determine the parties' intent-which it does not-the Contract and Policy are the only materials pertinent to this motion. Because both parties have had a reasonable opportunity, therefore, to present all material pertinent to the question of whether the antisubrogation rule ought to apply in this case, and have fully addressed these issues in their briefs, the City's motion will be treated as one for summary judgment. See Tewksbury v. Ottoway Newspapers, 192 F.3d 322, 325 n.1 (2d Cir. 1999).

Summary judgment is appropriate when "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). "On a motion for summary judgment, the moving party has the burden of showing the absence of a genuine issue of material fact, and the district court's task is limited to discerning whether there are any genuine issues of material fact to be tried, not to deciding them." Kerzer v. Kingly Mfg., 156 F.3d 396, 400 (2d Cir. 1998). In ...

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