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X MCI LLC v. Rutgers Casualty Insurance Co.

August 13, 2007


The opinion of the court was delivered by: Theodore H. Katz, United States Magistrate Judge


This action arises from a July 2, 2003 incident in which Pelcrete Construction, Inc. ("Pelcrete") severed two underground fiber-optic telecommunication cables in the Bronx, New York. Plaintiffs MCI LLC, d/b/a Verizon Business and Sprint Communications Company, L.P. ("Plaintiffs"),*fn1 the owner and lessee of the cables respectively, sued Pelcrete on September 15, 2004, alleging trespass and negligence. Pelcrete failed to respond to the Complaint, and, on August 18, 2005, the court (Mukasey, J.) granted Plaintiffs' motion for entry of default judgment against Pelcrete. An inquest on damages was held, and, on May 8, 2006, the court awarded Verizon Business $1,421,648.86, and Sprint $591,615.88, as well as prejudgment and post-judgment interest. See MCI Worldcom Network Servs., Inc., Sprint Commc'ns Co., No. 04 Civ. 7378 (MBM), 2006 WL 1388490, at *1 (S.D.N.Y. May 8, 2006).

Plaintiffs subsequently brought the instant action, pursuant to New York Insurance Law §§ 3420(a)(2) and 3420(b)(1), against Pelcrete's insurer, Defendant Rutgers Casualty Insurance Company ("Rutgers"), for the amount of the Pelcrete judgment, up to the $1,000,000 limit of coverage in Pelcrete's insurance policy with Rutgers.*fn2 The Court's jurisdiction is based on the parties' diversity of citizenship, pursuant to 28 U.S.C. § 1332.

Presently before the Court are the parties' cross-motions for summary judgment, pursuant to Rule 56 of the Federal Rules of Civil Procedure. Plaintiffs also have moved to strike, in whole or in part, several of Rutgers' submissions. (See Plaintiffs' Motion to Strike Portions of Defendant's Statement of Material Facts, filed Mar. 30, 2007; Plaintiffs' Motion to Strike Portions of Defendant's Summary Judgment Affidavits, filed Mar. 30, 2007; Plaintiffs' Motion to Strike Certain of Defendant's Summary Judgment Exhibits, filed Mar. 30, 2007; Plaintiffs' Motion to Strike Defendant's Reply Affirmation and/or For Leave to File a Sur-Reply, filed May 1, 2007.)*fn3

For the following reasons, Plaintiffs' motion for summary judgment is granted and Defendant's motion is denied.


The Policy

In 2002, Rutgers issued Commercial General Liability Insurance Policy No. SKP 3103105 10 to Pelcrete. The policy was effective from December 9, 2002 through December 9, 2003, and provided coverage of $1,000,000 per occurrence. (See Pls.' 56.1 Stmt. ¶ 6.) The Incident

On July 2, 2003, Pelcrete, working under a construction contract with the New York City Housing Authority ("NYCHA"), was excavating with mechanized equipment at 1402 Webster Avenue in the Bronx. (See Pls.' 56.1 Stmt. ¶ 12.) During excavation, Pelcrete struck and severed two underground fiber-optic telecommunications cables belonging to Plaintiffs. See id.

Pelcrete never notified Rutgers of the occurrence. (See Rutgers' Statement of Material Facts As to Which There is No Genuine Issue of Fact, dated Mar. 8, 2007 ("Def.'s 56.1 Stmt."), ¶ 14.) On July 3, 2003, Plaintiffs attempted to obtain information concerning, among other things, the identity of Pelcrete's insurer. Pelcrete refused to provide this information. (See Pls.' 56.1 Stmt. ¶ 17.)

On September 15, 2004, Plaintiffs sued Pelcrete in this Court. On January 5, 2005, Plaintiffs issued a subpoena to the NYCHA seeking, inter alia, documents relating to any insurance policies issued to Pelcrete for the work on Webster Avenue in the Bronx "on or around May 2002 through August 2003." (See Pls.' 56.1 Stmt. ¶ 19; Subpoena to New York City Housing Authority, dated Jan. 5, 2005, attached as Exhibit ("Ex.") 13 to Pls.' 56.1 Stmt.) On January 24, 2005, the NYCHA provided documents which included information indicating that Rutgers was Pelcrete's insurer. (See id. ¶ 20.)

On January 27, 2005, Plaintiffs' counsel had a telephone conversation with a representative of The Heffner Agency, Rutgers' insurance agent at that time. (See Pls.' 56.1 Stmt. ¶ 21.) In that conversation, Plaintiffs' counsel informed the agent of the July 2, 2003 occurrence and of the then-pending claims against Pelcrete. (See id.) On February 10, 2005, Plaintiffs provided written notice to Heffner and Rutgers of the occurrence and of the pendency of the Pelcrete suit. (See Letter of James J. Proszek, Esq. to The Heffner Agency and Rutgers Casualty Insurance Company, dated Feb. 10, 2005 ("Feb. 10 Ltr."), attached as Ex. 14 to Pls.' 56.1 Stmt.) Included in that notice were copies of the complaint and other pertinent pleadings and orders from the litigation. (See Pls.' 56.1 Stmt. ¶ 22.)

In separate letters to Pelcrete and to Plaintiffs' counsel, both dated February 16, 2005, Rutgers acknowledged receipt of the notice advising of the pending claims against Pelcrete. (See Letter of David Johnson to Pelcrete Construction, dated Feb. 16, 2005 ("Pelcrete Ltr."), attached as Ex. 15 to Pls.' 56.1 Stmt.; Letter of David Johnson to James J. Proszek, Esq., dated Feb. 16, 2005 ("Plaintiffs' Ltr."), attached as Ex. 16 to Pls.' 56.1 Stmt.) In the letter to Pelcrete, Rutgers stated:

It is important that you understand that any claim presented must fall within the parameters of what is covered under your policy with Rutgers Casualty. Hence, a claim made or suit brought for damages must flow from an occurrence to which this policy applies, otherwise there is no coverage.

It is the position of Rutgers Casualty Insurance Company that a condition of your policy has been breached. . . .

[Y]ou are required to "see to it that we are notified as soon as practicable of an 'occurrence' or an offense, which may result in a claim." The "occurrence" outlined in the subject case occurred on July 2, 2003, yet Pelcrete Construction, Inc. never provided notice of this matter to Rutgers Casualty. . . . This is a clear violation and obvious breach of your duties under the Conditions Section of the subject policy.

As a result of this late notice, please understand Rutgers Casualty Insurance Company is constrained to deny coverage for the above-cited claim. This means that we will not be affording you coverage for this matter. This also means that we will neither appear on your behalf nor will we defend you against the lawsuit that has been filed in regard to this claim as our duty to defend has not be[en] triggered. Further, the Company will not indemnify you in the event damages are awarded in connection with this particular situation. . . .

Last, any subject policy terms and/or conditions not referenced herein [are] not to be construed as a waiver of any of those terms and conditions. In fact, by sending this letter the Company expressly reserves the right to rely on those terms and conditions in deciding whether or not coverage is or is not afforded under the policy in the future. (See Pelcrete Ltr., at 3-4.) In its letter to Plaintiffs, Rutgers stated that, pursuant to New York Insurance Law Section 3420(d)*fn5, Rutgers was informing Plaintiffs that it "has denied coverage to Pelcrete Construction, Inc. as well as any and all insured under this policy, on the grounds that coverage is excluded for this loss for the reasons set forth [in the February 16 letter to Pelcrete]." (See Plaintiffs' Ltr., at 1.) A copy of the February 16 letter was attached to Plaintiffs' letter. (See id.)

Rutgers did not defend Pelcrete in the underlying negligence action, and on May 8, 2006, the Court entered final judgment in favor of Plaintiffs against Pelcrete. See MCI Worldcom Network Servs., 2006 WL 1388490, at *1.

Post-Judgment Proceedings

On May 10, 2006, pursuant to New York Insurance Law § 3420(a)(2)*fn6 , Plaintiffs provided written notice of the judgment to Pelcrete and to Rutgers. (See Letters of James J. Proszek, Esq. to Pelcrete Construction and to Rutgers Casualty Insurance, dated May 10, 2006, attached as Exs. 17 and 18 to Pls.' 56.1 Stmt.) After the passage of thirty days, Plaintiffs filed this action against Rutgers seeking judgment in the amount of $1,000,000, the limit of liability in Pelcrete's policy with Rutgers. (See Complaint, filed June 12, 2006 ("Compl.").)

In its Answer, Rutgers asserted several affirmative defenses, including that recovery was barred: (1) "by [Plaintiffs'] independent failure to timely notify Rutgers of the alleged incident;" (2) by Pelcrete's "failure to time notify Rutgers of the incident;" (3) "by the material misrepresentation made by [Pelcrete] . . . regarding the true nature and scope of its work in connection to the work it performed at [the subject site]"; and (4) because the policy "only provided coverage . . . for interior painting work." (See Answer, dated Aug. 10, 2006, ¶¶ 15-28.)*fn7

Cross-Motions for Summary Judgment Plaintiffs claim that Rutgers' February 16, 2005 letters to Pelcrete and to Plaintiffs disclaim coverage solely only on the ground of untimely notice by Pelcrete, a ground which does not apply to Plaintiffs. Thus, Plaintiffs contend, Rutgers has waived any and all other affirmative defenses in this action. (See Plaintiffs' Reply in Support of Plaintiffs' Motion for Summary Judgment and Response to Defendant's Cross-Motion for Summary Judgment, filed Mar. 30, 2007 ("Pls.' Reply"), at 6-10.) Alternatively, Plaintiffs argue, if the waiver doctrine does not apply, Defendants should be estopped from asserting any other defenses because "on reliance on Rutgers' failure to provide any basis for disclaiming coverage other than Pelcrete's failure to provide timely notice of the occurrence, [Plaintiffs] incurred the expense of continuing to prosecute the Pelcrete Suit and pursuing this action against Rutgers." (See id. at 17.)

Rutgers counters that the waiver doctrine is inapplicable because it had no duty to provide a written disclaimer to Plaintiffs, and that, in any event, the February 2005 letters clearly disclaimed coverage to both Pelcrete and Plaintiffs on the ground of untimely notice. (See Def.'s Mem., at 18-20.) Rutgers also contends that when it issued the policy to Pelcrete it relied on false material facts given by Pelcrete in its application for insurance, which vitiated the policy ab initio, thus making irrelevant whether Rutgers issued a timely disclaimer or whether all of the grounds for disclaimer were initially asserted. (See id. at 23.) Defendant further argues that the Pelcrete policy does not cover excavation work, and that New York law does not require a carrier to disclaim if the loss falls outside the scope of coverage. (See id. at 29.)


I. Standard for Summary Judgment

Summary judgment is appropriate only when the submissions of the parties, taken together, "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 moving party has the burden of showing an absence of evidence to support the non-moving party's case. See Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554 (1986).

Once a properly supported motion for summary judgment has been made, the burden shifts to the nonmoving party to put forth "specific facts showing that there is a genuine issue for trial," Fed. R. Civ. P. 56(e), or the essential elements of that party's case on which it bears the burden of proof at trial. See Peck v. Pub. Serv. Mut. Ins. Co., 326 F.3d 330, 337 (2d Cir. 2003) (citing Celotex, 477 U.S. at 323, 106 S.Ct. at 2552). A summary judgment "opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356 (1986). The non-moving party may not rest on its pleadings and rely on mere allegations, denials, conclusory statements, or conjecture to create a genuine issue for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 2514 (1986); Trinidad v. N.Y. City Dep't of Corr., 423 F. Supp. 2d 151, 161 (S.D.N.Y. 2006). Moreover, "[a] party opposing a motion for summary judgment simply cannot make a secret of his evidence until the trial for in doing so he risks the possibility that there will be no trial." Meiri v. Dacon, 759 F.2d 989, 998 (2d Cir. 1985) (quoting Donnelly v. Guion, 467 F.2d 290, 293 (2d Cir. 1972)).

In deciding a motion for summary judgment, a court may not resolve factual disputes, but merely determine whether "there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson, 477 U.S. at 250, 106 S.Ct. at 2511. A court "must resolve all ambiguities and draw all factual inferences in favor of the nonmoving party." McClellan v. Smith, 439 F.3d 137, 144 (2d Cir. 2006) (citing Anderson, 477 U.S. at 255, 106 S.Ct. at 2513).

II. Defendant's Affirmative Defenses

A. Pelcrete's Failure to Timely Notify

The Court can easily dispense with Rutgers' first affirmative defense: that recovery by Plaintiffs is barred because Pelcrete failed to timely notify Rutgers of the July 2003 incident. New York insurance law allows an injured party to give independent notice to an insurer of an occurrence involving one of its insureds. See N.Y. Ins. Law § 3420(a)(3); General Accident Ins. Group v. Cirucci, 46 N.Y.2d 862, 863-64, 414 N.Y.S.2d 512, 514 (1979); Seneca Ins. Co. v. W.S. Distrib., Inc., 40 A.D.3d 1068, 1069-70, 838 N.Y.S.2d 99, 101 (2d Dep't 2007); Becker v. Colonial Co-op. Ins. Co., 24 A.D.3d 702, 704, 806 N.Y.S.2d 720, 723 (2d Dep't 2005); Lauritano v. Am. Fid. Fire Ins. Co., 3 A.D.2d 564, 567-68, 162 N.Y.S.2d 553, 556 (1st Dep't 1957). Because an injured party enjoys an independent right to give notice and to recover from an insurer, recovery is not barred because of an insured's late notice of an occurrence covered by an insurance policy. See Mount Vernon Fire Ins. Co. v. Harris, 193 F. Supp. 2d 674, 678 (E.D.N.Y. 2002) ("Under New York law, even if the insured failed to give the insurance carrier timely notice of the accident, a third party claimant, . . . has an independent right to notify and seek recovery from an insurer, which is unaffected by any delay on the part of the insured.") (citing General Accident Ins. Group, 46 N.Y.2d at 863-64, 414 N.Y.S.2d at 514). Accordingly, Rutgers cannot now assert Pelcrete's failure to report the incident as an affirmative defense against Plaintiffs' claim.

B. Untimely Notice by Plaintiffs

Rutgers next contends that Plaintiffs should be denied recovery under the Pelcrete policy because Plaintiffs' notice of the incident was untimely. Rutgers asserts that the February 16 letter to Plaintiffs, which denied coverage to "any and all insured under this policy, on the grounds that coverage is excluded for this loss for the reasons set forth [in the February 16 letter to Pelcrete]" (see Plaintiffs' Ltr.), "clearly encompasses both Plaintiffs" (see Def.'s Mem., at 20). Rutgers further argues that it sent the February 16 letters to Plaintiffs as "an added measure of precaution to ensure that Plaintiffs understood that Rutgers was disclaiming coverage to 'any and all insureds'." (See id. at 22.) Plaintiffs counter that there is no basis for Plaintiffs to be ...

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