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Rsui Indemnity Co v. Rcg Group (Usa)

July 31, 2012


The opinion of the court was delivered by: Paul A. Engelmayer, District Judge:


On March 15, 2008, a tower crane constructing a residential high-rise development at 303 East 51st Street in Manhattan collapsed, killing seven people and injuring dozens more (the "Accident"). This case involves one of the myriad insurance claims generated by the Accident. Insurer RSUI Indemnity Company ("RSUI") seeks a declaratory judgment that it owes no coverage under a policy (the "Policy") issued to defendants RCG Group, Reliance Construction, Inc. (collectively, "RCG") and East 51st Street Development Company and its affiliates ("E51" and, with RCG, "defendants") for their actions in relation to that crane collapse. RCG and E51 filed a negative-image counterclaim, seeking a declaratory judgment that the Policy covers any liability they may incur as a result of the Accident. Discovery having concluded, the parties cross-move for summary judgment on the question of whether the residential work exclusion in the Policy bars coverage. For the following reasons, the Court concludes that it does. Accordingly, RSUI's motion is granted and RCG's and E51's cross-motion is denied.

I.Undisputed Facts*fn1

RCG is a Canadian company with expertise in building offices, retail and commercial buildings, and condominiums. JSF ¶ 1. E51 is a New York corporation which owned the site, 303 East 51st Street ("303 East 51st"), at which the Accident occurred. Id. ¶ 2. RSUI is an insurance company organized under the laws of New Hampshire, but with a principal place of business in Atlanta, Georgia. Id. ¶ 5.

A.E51 and RCG Agree to Pursue the Project at 303 East 51st

On or about March 21, 2007, E51 entered into an agreement with RCG, whereby RCG would begin initial construction work at 303 East 51st. Id. ¶ 6. The agreement required RCG and its subcontractors to procure and maintain liability insurance, with a minimum limit of $1 million per occurrence and $2 million in the aggregate, and to name E51 and its affiliates as additional insureds. Id. ¶ 11. The agreement also required RCG and its contractors to procure excess coverage with limits of $25 million per occurrence, with a minimum limit of $5 million for subcontractors. Id. ¶ 12.

On January 28, 2008, RCG and East 51st signed another agreement, the construction management agreement, pursuant to which RCG would, inter alia, provide supplies and services, and supervise, direct, and control all aspects of the construction, including the hiring, supervision, and control of all subcontractors on site. Id. ¶ 21.*fn2 The construction management agreement also provided for RCG to obtain liability insurance for the project, naming E51 as an additional insured. Id. ¶ 22. RCG ultimately obtained, on July 4, 2007 for a one-year period, a primary commercial general liability policy from Interstate Fire and Casualty Company. Id. ¶¶ 57--58. That policy included an "additional insured" endorsement, providing coverage for "[a]ny person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy." Id. ¶ 60. E51 was thus included as an additional insured on RCG's primary policy.

B.RSUI Negotiates with RCG to Provide Insurance, and the Policy's "Residential Work" Exclusion

In March 2006, RSUI received, through its insurance broker, an invitation to provide an excess liability coverage quote to RCG's broker. Id. ¶ 33. Throughout the spring of 2006, RSUI and RCG, through their respective broker intermediaries, negotiated the terms of the proposed insurance. Id. ¶¶ 34--42.*fn3 At the end of those negotiations, RSUI issued a commercial excess liability policy to RCG for the policy period of July 4, 2006 to July 4, 2007. Id. ¶ 44. On or about July 10, 2006, RSUI issued to RCG a binder for the 2006 to 2007 policy. Id. ¶ 43. That policy was subsequently renewed on July 3, 2007, for the July 4, 2007 to July 4, 2008 policy year. Id. ¶ 56.

That policy provided a limit of liability in the amount of $19 million, excess of underlying insurance of $1 million for each occurrence and $2 million aggregate. Id. ¶ 44.

Important here, the binder incorporated in the policy included an attachment entitled "Exclusion -- Residential Work." Id. ¶ 43. That exclusion provides: This insurance does not apply to any liability arising out of your operations or "your work" on any "residential project." "Residential Project" shall mean apartments, single and multi family dwellings, townhouses, duplexes, condominiums, or cooperatives (including any project converted for individual or collective resident ownership), "mixed-use buildings" or any other place of domicile, and shall include appurtenant structures and common areas. "Mixed-use buildings" shall mean structures and improvements thereto, which contain both residential units and commercial space. "Your work" and "suit" shall be as defined in the "underlying insurance." However, this exclusion does not apply to your operations or "your work" that is on or in commercial space in "mixed-use buildings."

We shall have no duty or obligation to provide or pay for the investigation or defense of any loss, cost, expense, claim or "suit" excluded by this endorsement.

Id. ¶ 46 (the "Residential Work Exclusion" or "Exclusion"). The Exclusion thus contains an exception for "'your work' that is on or in commercial space in a 'mixed-use building.'" Id. (the "Exception"). In turn, the "underlying policy"-issued by Interstate-defined "your work" as follows:

"Your work" means:

a. Work or operations performed by you or on your behalf; and

b. Materials, parts, or equipment furnished in connection with such work or operations.

"Your work" includes: a. Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your work"; and

b. The providing or of failure to provide warnings or instruction.

Id. ¶ 77.

C.The Construction Project

The construction management agreement between RCG and E51 states that E51 "desires to have developed and designed and constructed" a "Project" comprised of four "Subprojects":

(1) the "high-rise residential condominium building" at 303 East 51st combined with an adjacent townhouse at 309 East 51st Street; (2) an adjacent loft condominium building at 964 Second Avenue; (3) a number of adjacent two-story commercial spaces at 968 Second Avenue, 972 Second Avenue, 974 Second Avenue, and 976 Second Avenue; and (4) a renovation of a townhouse at 304 East 52nd Street. Id. ¶ 101.

From the period before construction began to the date of the Accident, E51 retained a number of professional consultants to prepare plans, drawings, and other specifications which became incorporated into the arrangement between E51 and RCG. Id. ¶ 104. Many of these drawings and plans were submitted to governmental agencies, including the New York City Department of Buildings ("DOB"), for approval. Witnesses from both E51 and RCG have testified-and those parties do not dispute-that the building was built in accordance with those plans. Id. ¶¶ 106--09.

A central issue in this case is whether the primary building at issue-303 East 51st-was solely residential, or contained commercial space as well, such that it is fairly described at "mixed-use."

303 East 51st has been generally described by several documents and role players as a "mixed-use" building-i.e., containing both residential and commercial elements. Two letters from the project's architects, dated March 10, 2006 and June 18, 2007, both described it as a "mixed-use" project. Id. ¶ 110. Similarly, an executive of E51 stated in an affidavit that "East 51st Street did not intend and was not constructing the building to be solely residential." Id. ¶ 111. However, other contemporaneous documents are in tension with a finding that the building was "mixed-use." For example, another E51 executive who executed a personal guaranty agreement with RCG described the building in that letter agreement as a "residential" tower. Id.

ΒΆ 112. Both E51 and RCG have filed documents in New York state court, in cases arising out of the construction, which describe the building as a ...

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