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Guideone Specialty Mutual Insurance Co. v. Yereim

January 15, 2009

GUIDEONE SPECIALTY MUTUAL INSURANCE COMPANY, PLAINTIFF,
v.
CONGREGATION ADAS YEREIM, DELI PLUS, INC., LUTHERAN MEDICAL CENTER, JOHN WERDYKER, RUCHEL HESCHEL, INDIVIDUALLY AND AS ADMINISTRATRIX OF THE ESTATE OF SYSCHE M. HESCHEL, DEFENDANTS.



The opinion of the court was delivered by: VITALIANO, D.J.

MEMORANDUM AND ORDER

Plaintiff GuideOne Specialty Mutual Insurance Company ("GuideOne") brought this action for declaratory judgment, pursuant to 28 U.S.C. §§ 1332 and 2201, on December 6, 2004, seeking relief from insurance contracts it had entered into with defendant Congregation Adas Yereim ("Adas Yereim"). The original complaint sought to disclaim coverage for any liability attributable to Adas Yereim stemming from a December 14, 2003 accident (the "accident"). The disclaimer was grounded upon the insured's alleged breach of the cooperation clauses in the contracts. On May 27, 2005, GuideOne amended its complaint to disclaim coverage on the additional ground that Adas Yereim had failed to disclose during the insurance application process a leasing arrangement the congregation had with Deli Plus, Inc. ("Deli Plus"). Seven months later, GuideOne amended its complaint again, on December 9, 2005, now asking the Court, alternatively, to declare Adas Yereim's insurance policies void ab initio because of the same alleged failure to disclose in the application process. Pursuant to Rule 56 of the Federal Rules of Civil Procedure, GuideOne has moved for summary judgment in the form of an order either granting a disclaimer of coverage for the accident or rescission. Defendants Adas Yereim, Ruchel Heschel, Deli Plus and John Werdyker have opposed GuideOne's motion and have filed cross-motions for summary judgment on the counterclaim of Adas Yereim seeking a declaration establishing GuideOne's coverage obligations for the accident. Adas Yereim also seeks summary dismissal of the complaint. Defendant Lutheran Medical Center ("Lutheran Medical") has neither opposed GuideOne's motion, nor filed its own motion for summary judgment. For the reasons set forth below, GuideOne's motion is denied and the defendants' cross-motions are granted. Since dueling summary judgment motions have been filed and the interests of Lutheran Medical are aligned with those of the other defendants, the Court will exercise its authority to search the record, see First Fin. Ins. Co. v. AllState Interior Demolition Corp., 193 F.3d 109, 114-115 (2d Cir. 1993), and grant summary relief in favor of nonmoving defendant Lutheran Medical as well.

BACKGROUND

Adas Yereim is the spiritual and cultural center of an Orthodox Jewish community whose members reside primarily in the Williamsburg and Boro Park sections of Brooklyn. Adas Yereim is comprised of various service entities, including synagogues, religious schools, nursing and rehabilitation facilities, as well as summer camps. The main Adas Yereim synagogue is located in Williamsburg, and a second facility is located at 1350-1358 50th Street ("50th Street") in Boro Park. The 50th Street facility houses a synagogue and religious school. It also houses a social hall, known as "Adas Terrace", which occupies approximately 2400 square feet and is accessible through its own side entrance.

In the mid-1990s, elders of the 50th Street synagogue entered into a "verbal understanding" with a caterer, Deli Plus, which granted the caterer the exclusive right to book and cater functions at Adas Terrace. Deli Plus was fully responsible for booking, organizing, and catering parties and was not required to seek approval for or to give notice of any booking. Many of these social events were attended only by guests unaffiliated with Adas Yereim. Deli Plus had its own keys to Adas Terrace and was responsible for cleaning and kitchen maintenance. In exchange for use of Adas Terrace, Deli Plus paid between $20,000 and $24,000 annually to the 50th Street synagogue.

II. Adas Yereim's Insurance Application Process

During the relevant time period, Israel A. Framovitz ("Framovitz"), who had been Adas Yereim's secretary-treasurer since the early 1980s, was responsible for procuring the congregation's commercial general liability ("CGL") and umbrella ("UMB") insurance policies. He was a congregant of Adas Yereim's main Williamsburg synagogue. In July 2001, Framowitz met with Zev Goldstein ("Goldstein"), an insurance broker and independent GuideOne agent who specialized in selling insurance policies to churches, synagogues, and schools, about obtaining coverage for the Adas Yereim facilities. As part of this process, Framovitz claims that Goldstein asked for a copy of Adas Yereim's then-current insurance policy with another company, advising that he would make any necessary inspections before returning with a quote for coverage. Framovitz alleges that Goldstein assumed full responsibility for completing the insurance application and necessary paperwork, as well as inspecting Adas Yereim's facilities. Goldstein denies responsibility for conducting such inspections, but admits that he completed the necessary forms and avers he did so based on responses from Framowitz to his requests. See Goldstein Aff., Jun. 7, 2006, ¶ 11.

Although lacking specific questions concerning catering operations or social events, the CGL policy application did provide a space labeled "nature of business/description of operation by premise(s)." In this space, the Adas Yereim application listed "School and Camp Operation" for the 50th Street location. An attached schedule to the application describes the 50th Street facility as an elementary school.*fn1 Against Goldstein's contrary recollection, Framovitz claims that Goldstein never specifically asked him about the type of operations that took place at each of Adas Yereim's facilities. On the other hand, Goldstein admits he never asked specific questions about a catering operation, though he insists that he did ask Framowitz about any social functions Adas Yereim may have intended to hold. In turn, while claiming that he did not know the specifics of the arrangement with Deli Plus,*fn2 Framovitz admits that he never volunteered any information about the catering operation at 50th Street during his meeting with Goldstein. What is clear, however, is that both sides agree Goldstein did not learn of Adas Yereim's arrangement with Deli Plus during this meeting and he did not undertake an inspection of the 50th Street facility before submitting the application.

In any event, GuideOne issued both the CGL and UMB policies to Adas Yereim, effective August 1, 2001, insuring 21 separate premises in a geographical territory stretching from Brooklyn to Philadelphia, Pennsylvania. The CGL policy contained the following provision:

G. UNINTENTIONAL ERRORS OR OMISSIONS Failure by you [the named insured] to disclose all hazards as of the inception date of the policy shall not prejudice you with respect to the coverage afforded by this policy, provided such failure or any omission is not intentional.

CGL Policy § 4(6). Furthermore, both the CGL and UMB policies contained the following provision:

a. The statements in the Declarations are accurate and complete;

b. Those statements are based upon representations you made to us; and

c. We have issued this policy in reliance upon you [sic] representations Id. at § 7(3). The CGL policy was renewed annually three times and the UMB policy was renewed annually twice. Adas Yereim paid total premiums of $262,729.07 over the four year life of the policies.

III. Loss Control Inspection

GuideOne gathers information concerning an insured's risks initially through its sales agent and subsequently through loss control inspections and risk presentations. On January 16, 2003, William Savage ("Savage"), a GuideOne inspector, performed a loss control inspection at the 50th Street property. He met with Israel Stern ("Stern"), an administrator at the 50th Street school, who had been designated as Adas Yereim's "contact man" for the inspection, since he was the congregant who typically met with fire, health, and sanitary inspectors on behalf of Adas Yereim.

Savage testified that, at loss control inspections, he would give a risk management presentation, ask questions about the property's operations, and then do a walk-through survey. He would explain the need for the insured to obtain certificates of insurance from entities operating on their premises, such as contractors. Explained Savage:

The whole premise of the 45 minutes in the beginning is there are things that can happen by doing this, that you should have safeguards. If it was disclosed that, yes, we have this or that, I would have to dig, delve, further into this, because my job, as being there, is to make sure the policyholder is insulated from the risk of the potential things you talk about.

Savage Dep. at 57:18-58:3. He recalled asking Stern, in substance, "[d]o you loan, lease, sublet, anything like that to other organizations." Id. at 62:12-14. Savage testified that

This question has to be answered, and that's one of the reasons I was there in the first place -- I'm there to give information about risk potential from the outside world. By having outside groups use your facilities, you're allowing an outside group to have control over facilities that you're not supervising. Therefore, it presents risks. That's why this whole thing came up with certificates of insurance, so that's why the question comes up, is the facility loaned, leased, or sublet to others, period.

Id. at 65:19-66:6.

In response, Stern told Savage that a state-licensed head start program with approximately 15 students leased one room at 50th Street. Stern acknowledges that he did not inform Savage about the Deli Plus arrangement, but insists that he normally informs anyone inspecting the premises that he is unable to answer any questions about the facility and that any questions should be referred to the appropriate authority.*fn3 There is no dispute, though, that ...


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