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Whiteface Real Estate Development and Construction, LLC v. Selective Insurance Co. of America

June 14, 2010


The opinion of the court was delivered by: Gary L. Sharpe District Court Judge


I. Introduction

Plaintiff Whiteface Real Estate Development and Construction, LLC brought this action against defendant Selective Insurance Company of America, alleging that Selective is obligated to provide coverage for a fire loss and breached the builder's risk policy by disclaiming coverage. (See Am. Compl., Dkt. No. 29.)*fn1 Pending are Whiteface and Selective's vying motions for summary judgment. (Dkt. Nos. 56, 66.) For the reasons that follow, Whiteface's motion is denied, and Selective's motion is granted in part and denied in part.

II. Background

Plaintiff Whiteface, a company that builds and develops residential property, had a builder's risk insurance policy with defendant Selective for the period of January 29, 2007, to January 29, 2008. (See Pl. SMF ¶¶ 2-3, Dkt. No. 59.) The policy covered a job site where Whiteface was building residences on Whiteface Inn Road, Lake Placid, New York. (See id. at ¶¶ 5-6.) Included in these buildings was a two-home building, or duplex, that contained two dwellings, Unit 7 and Unit 8. (See id.) As a duplex, Units 7 and 8 share a common wall, fire wall, roof, and foundation. (See id. at ¶ 31; see also Def. SMF ¶ 15, Dkt. No. 66:3.) However, Units 7 and 8 have separate deeds, titles, tax identification numbers, addresses, entrances, and utilities, and were built on separately deeded lots. (See Pl. SMF ¶¶ 32, 34, Dkt. No. 59.) Additionally, separate building permits and certificates of occupancy were required for each unit. (See id. at ¶ 33.)

On March 7, 2007, a fire that began in Unit 7 destroyed Unit 7 and Unit 8. (See id. at ¶¶ 7, 49.) On the date of the fire, Unit 7 was owned by Alan Rosenblum. (See id. at ¶ 9.) While the parties dispute whether Unit 7 was occupied at the time, a certificate of occupancy was issued for Unit 7 in January 2007. (See id. at ¶ 10.) In addition, Rosenblum had obtained a homeowner's policy for Unit 7 issued by Atlantic Mutual Insurance Company, which covered Rosenblum's claims for the fire loss to Unit 7 and for the consequent loss of rental income. (See id. at ¶ 13.) Rosenblum, seeking compensation for his uninsured loss, and Atlantic Mutual, as subrogee of Rosenblum, subsequently commenced actions against Whiteface. (See id. at ¶ 14.) Pursuant to Whiteface's commercial liability insurance coverage, Selective defended, covered, and settled these claims. (See id. at ¶ 15.)

As to Unit 8, Whiteface gave notice of the incident to Northern Insuring Agency on March 7, who in turn notified Selective of the claim on March 8. (See Sperling Aff. ¶ 7, Dkt. No. 60; see also Mead Aff., Ex. RR, Dkt. No. 57:77.) And although Whiteface was continuing construction on Unit 8, Selective denied coverage for Unit 8 on the ground that coverage for the building ceased when part of the building, Unit 7, became occupied by Rosenblum. (See Pl. SMF. ¶ 25, Dkt. No. 59.) Specifically, Selective disclaimed coverage under section E(2)(d) of the policy's Builders Risk Coverage Form (CM 71 05 11 91), which stipulates that coverage will end when one of the following conditions first occurs:

(1) This policy expires or is cancelled;

(2) The property is accepted by the owner;

(3) Your interest in the property ceases;

(4) You abandon the construction with no intention to complete it; or

(5) Unless we specify otherwise in writing ... (b) [w]hen any Covered Property is: (1) [o]ccupied in whole or in part ....

(Mead Aff., Ex. K2, pt. 4 at 28, Dkt. No. 57:22.) The term "covered property" is defined as "[b]uildings and structures while in the course of construction, erection or fabrication at the 'job site' described in the Declarations." (Id. at 25.) However, the policy does not define "building" or "occupied."

Under the sale and construction contract between Whiteface and Rosenblum, Whiteface bore the risk of loss for any damage to Units 7 or 8 until title and ownership passed to Rosenblum. (See Mead Aff., Ex. F2, Dkt. No. 57:8.) Whiteface was also obligated under the contract to obtain builder's risk insurance to cover Units 7 and 8 during the construction. (See id.) As a result of the fire, which was a total loss, Whiteface incurred costs in cleaning up the debris and rebuilding Unit 8 in accordance with its contractual obligations. (See Pl. SMF ΒΆΒΆ 49-50, Dkt. ...

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