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MCI LLC v. Rutgers Casualty Insurance Co.

December 4, 2007

MCI LLC, D/B/A VERIZON BUSINESS,: AND SPRINT COMMUNICATIONS COMPANY LP, PLAINTIFFS,
v.
RUTGERS CASUALTY INSURANCE COMPANY, DEFENDANT.



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

MEMORANDUM OPINION AND ORDER

On August 13, 2007, this Court entered a Memorandum Opinion and Order ("Opinion"), which granted Plaintiffs MCI LLC, d/b/a Verizon Business, and Sprint Communications Company, L.P.'s Motion for Summary Judgment and denied Defendant Rutgers Casualty Insurance Company's ("Rutgers") Motion for Summary Judgment.*fn1 See MCI LLC v. Rutgers Cas. Ins. Co., No. 06 Civ. 4412 (THK), 2006 WL 2325867 (S.D.N.Y. Aug. 13, 2007). On August 14, 2007, judgment was entered, on behalf of Plaintiffs and against Rutgers, in the amount of $1,000,000 ("Judgment"). Presently before the Court is Plaintiffs' Motion to Amend Judgment To Add Pre-Judgment Interest ("Motion to Amend"), pursuant to Federal Rule of Civil Procedure 59(e) ("Rule 59(e)"), in which Plaintiffs request that the Court amend the Judgment to add $486,625.88 in pre-judgment interest.*fn2

For the following reasons, Plaintiffs' Motion To Amend is denied.

DISCUSSION

I. Factual Background

The Opinion contains a detailed recitation of the facts, with which the Court assumes familiarity. The facts set forth herein, citations for which can be found in the Opinion, are those that are germane to Plaintiffs' Motion to Amend.

In 2002, Rutgers issued Commercial General Liability Insurance Policy No. SKP 3103105 10 to Pelcrete Construction, Inc. ("Pelcrete"). The policy was effective from December 9, 2002 through December 9, 2003, and provided coverage of $1,000,000 per occurrence. On July 2, 2003, Pelcrete severed two underground fiber-optic telecommunication cables while doing excavation work in the Bronx, New York. Pelcrete never notified Rutgers of the occurrence. On July 3, 2003, Plaintiffs, the owner and lessee of the cables respectively, attempted to obtain information concerning, among other things, the identity of Pelcrete's insurer. Pelcrete refused to provide this information.

Plaintiffs sued Pelcrete on September 15, 2004, alleging trespass and negligence ("Pelcrete Suit"). On January 5, 2005, Plaintiffs issued a subpoena to the New York City Housing Authority ("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." On January 24, 2005, the NYCHA provided documents which included information indicating that Rutgers was Pelcrete's insurer.

On January 27, 2005, Plaintiffs' counsel had a telephone conversation with a representative of The Heffner Agency, Rutgers' insurance agent at that time. In that conversation, Plaintiffs' counsel informed the agent of the July 2, 2003 occurrence and of the then-pending claims against Pelcrete. On February 10, 2005, Plaintiffs provided written notice to Heffner and Rutgers of the occurrence and of the pendency of the Pelcrete Suit. Included in that notice were copies of the complaint and other pertinent pleadings and orders from the Pelcrete Suit.

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. In its letter to Plaintiffs, Rutgers stated that, pursuant to New York Insurance Law Section 3420(d), Rutgers was denying "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]." A copy of the February 16 letter to Pelcrete was attached to Plaintiffs' letter, and it explained that Rutgers was "constrained to deny coverage" based on a breach of the Conditions Section of the Policy, which required Pelcrete to "see to it that [Rutgers was] notified as soon as practicable of an 'occurrence' or an offense, which may result in a claim." (See Response at Ex. B, p. 4.)

In the Pelcrete Suit, Pelcrete ultimately failed to respond to the complaint and Rutgers never defended Pelcrete. On August 18, 2005, the court (Mukasey, J.) granted Plaintiffs' motion for entry of a default judgment against Pelcrete 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.

On May 10, 2006, pursuant to New York Insurance Law § 3420(a)(2), Plaintiffs provided written notice of the Judgment to Pelcrete and to Rutgers. 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.

In its answer to Plaintiff's complaint, Rutgers asserted several affirmative defenses. In their Motion for Summary Judgment, however, Plaintiffs contended that Rutgers had waived its defenses because Rutgers' February 16, 2005 letters to Pelcrete and to Plaintiffs disclaimed coverage solely only on the ground of untimely notice by Pelcrete, a ground which does not apply to Plaintiffs. Plaintiffs also argued that if the waiver doctrine did not apply, Rutgers should be estopped from asserting any other defenses. In its Cross-Motion for Summary Judgment, Rutgers countered 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 16, 2005 letters clearly disclaimed coverage to both Pelcrete and Plaintiffs on the ground of untimely notice. Rutgers also contended 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. Rutgers further argued 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.

In the Opinion that followed, this Court held that Rutgers had waived all of its defenses to Plaintiffs' claims by virtue of the fact that it had only disclaimed coverage on the basis of Pelcrete's untimely notice -- not Plaintiffs' notice -- and that, in all events, it was estopped from asserting any other defenses. This Court also rejected Rutgers' arguments that the Pelcrete policy did not cover excavation work and that its reservation of rights allowed it to assert defenses other than the lone defense contained in its February 16, 2005 disclaimer letter. This Court, therefore, granted Plaintiffs' Motion for Summary Judgment, denied Rutgers' Motion for Summary Judgment, and awarded Plaintiffs damages in "the amount of the $1,000,000 limit of Pelcrete's insurance policy with Rutgers, in partial satisfaction of the default judgment entered against Pelcrete." MCI LLC, 2006 WL 2325867 at *18.

II. Plaintiffs' Motion to Amend: Summary of Arguments

On August 24, 2007, Plaintiffs filed their Motion to Amend, in which they ask this Court to add approximately $500,000 of prejudgment interest to the Judgment they obtained against Rutgers. The issues presented by Plaintiffs' Motion to Amend are, ultimately, rather narrow.

Plaintiffs bring the Motion to Amend under Rule 59(e) and, because, in this diversity action, state law determines whether and to what extent Plaintiffs are entitled to pre-judgment interest, under New York Civil Practice Law & Rules ("NYCPLR") 5001(a), which provides for pre-judgment interest upon a breach of contract. Rutgers does not challenge Plaintiffs' ability to bring the motion pursuant to Rule 59(e), and admits that NYCPLR 5001(a) "authorizes an award of pre-judgment interest 'upon a sum awarded because of a breach of performance of the contract.'" (Response at 2 (quoting Royal Indemnity Co. v. Providence Washington Ins. Co., 966 F. Supp. 149 (N.D.N.Y. 1997).) Rutgers, however, contends that "such an award is contingent upon the terms and conditions of the policy of insurance." (Id. (quoting Mann v. Gulf Ins., Co., 300 A.D.2d 452, 751 N.Y.S.2d 557 (2002).) And, still in agreement with each other, Plaintiffs do not dispute that proposition.

The parties, however, disagree on the applicability of the specific provision in the Policy which authorizes pre-judgment interest in certain situations. The provision states, in pertinent part:

1. We will pay, with respect to any claim that we investigate or settle, or any "suit" against an insured we defend:

f. Prejudgment interest awarded against the insured on that part of the judgment we pay. If we make an offer to pay the applicable limit of insurance, we will not pay any prejudgment ...


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