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State of New York, Ex Rel. Tony Seiden, et al v. Utica First Insurance Company

April 24, 2012


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

State of New York, ex rel. Seiden v Utica First Ins. Co.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on April 24, 2012


David B. Saxe,J.P. John W. Sweeny, Jr. Karla Moskowitz Sallie Manzanet-Daniels Nelson S. Roman, JJ. 114881/09

Defendant Utica First Insurance Company appeals from the order of the Supreme Court, New York County (Joan A. Madden, J.), entered on or about April 12, 2011, which denied its motion to dismiss the amended complaint as against it.


While we agree that reverse false claims are viable under the New York False Claims Act (State Finance Law § 187 et seq.) (NYFCA), we do not agree that plaintiff has stated one. We therefore reverse and dismiss the amended complaint as against defendant Utica First Insurance Company (Utica).

Defendant Utica is an insurance company that issued "artisan policies" to defendant contractors and others. It is undisputed that artisan policies provide coverage for small contractors, such as carpenters, plumbers and roofers. Artisan policies do not generally cover activities on commercial construction projects, such as excavation, underpinning, new concrete piers or additions. According to plaintiffs, artisan policies also do not cover the claims of third parties, such as plaintiffs, who are the owner and manager of two properties that sustained damage as the result of defendant contractors' work on adjacent buildings.

In New York City, general commercial construction activities require permits from the New York City Department of Buildings (DOB). It is undisputed that, as of February 2009, DOB required contractors performing this type of construction to have general liability insurance meeting specific coverage requirements. Artisan policies do not meet those requirements. DOB charges contractors a permit fee based on the total cost of a job. The total cost of the job includes the premium for insurance coverage.

Because artisan policies are more limited in their coverage, they are significantly less expensive than insurance for general construction work. Thus, according to plaintiffs, "to reduce their insurance costs, Defendant Contractors preferred these Artisan Policies, even if they did not cover the claims of third parties." Because DOB calculated the price of the construction permit on the total cost for the job, including insurance premiums, the lower cost for the artisan policy had the added benefit of reducing the permit fee. Plaintiffs claim that Utica issued and renewed artisan policies to defendant contractors knowing that these contractors used Utica's policies to register with the DOB and receive permits to work. Specifically, plaintiffs claim, Utica issued Association for Cooperative Research and Development (ACORD) Form 25 certificates of insurance to defendant contractors. This form can accompany almost any insurance policy and has approval from the Department of Insurance. An ACORD form is quite limited. It only states the level and type of coverage. There is nothing on the form about compliance with DOB rules and plaintiffs do not allege that the ACORD 25 form itself was false [*fn1]. Instead, plaintiffs take issue with the way defendant contractors used the ACORD 25 form to obtain DOB permits. Because the form describes the artisan policy as providing "general liability" coverage, as opposed to automobile liability or workers' compensation coverage (the only two other types of coverage the ACORD form in the record lists), plaintiffs claim defendant contractors would use the ACORD form as part of their application to show proof of adequate general liability insurance. However, it is undisputed that artisan policies do provide a type of general liability coverage. Moreover, plaintiffs admit that "[t]hese ACORD 25 forms, issued by Utica to the Contractors, are all identical, do not reference the specific policy used by the insurer, nor do they state whether the Contractors are in compliance with all the Codes and Rules."[*fn2]

According to the amended complaint, plaintiff Seiden is the president of Rockwell Development Corp. Rockwell owns a residential building adjacent to a building where Oriental Construction, one of the defendant contractors, was performing general construction work. The building allegedly sustained damage as a result of Oriental's construction activities. Also, a building that Seiden's mother owned became damaged during defendant contractor Kessler's work on adjacent property. Both Kessler and Oriental maintained artisan policies with Utica and both had used those policies to obtain a DOB permit. Plaintiff Groppi is the property manager for Rockwell. Although he attempted to report to Utica about the damage that Oriental's activities had caused, he discovered that the artisan policy did not cover any earth moving work, including the excavation and underpinning work that had caused damage to Seiden's building. Groppi received a similar response with respect to the other property, but Utica nevertheless sent an inspector to investigate the site. Plaintiffs reported to DOB, as well as the District Attorney's Office and the Department of Insurance, that contractors were using Utica's artisan policies to obtain permits from DOB. As of February 15, 2010, DOB no longer accepts artisan policies when licensing the type of work that Oriental and Kessler performed.

Plaintiffs commenced this qui tam action under section 189(1)(g) of the NYFCA in 2009. As required under section 190, plaintiffs gave the State of New York notice and opportunity to intervene. However, on January 6, 2010, the Attorney General for the State of New York ...

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