United States District Court, S.D. New York
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Christopher Weldon, Debra Krebs, Robert Lewis, Keidel, Weldon & Cunningham LLP, White Plains, NY, for Plaintiff Atlantic Casualty.
Timothy G. Griffin, Law Offices of Timothy G. Griffin, Bronxville, NY, for Defendant Value Waterproofing, Inc.
Donald Sweetman, Gennet, Kallmann, Antin & Robinson, P.C., New York, NY, for Defendant Greenwich Insurance Company.
Barry S. Gedan, Riverdale, NY, for Defendants Bullard Purchasing and Sales, Inc. and Kansas Fried Chicken, Inc.
OPINION & ORDER
DENISE COTE, District Judge.
This insurance coverage dispute arises out of a breach of contract and negligence lawsuit pending in the New York Supreme Court. The plaintiff Atlantic Casualty Insurance Company (" Atlantic Casualty" ) seeks a declaratory judgment that it has no duty to defend Value Waterproofing, Inc. (" Value" ) or to indemnify Value in the underlying action. Value asserts a mirror counterclaim requesting a declaration that Atlantic Casualty is required to defend Value in the underlying action and to indemnify Value for any damages it may incur therein. Value also asserts a counterclaim for breach of the insurance contract. Because Atlantic Casualty has been prejudiced by its failure to receive timely notice of the claim and because Value's work was not covered by its insurance policy, the plaintiff's request for a declaratory judgment is granted.
Atlantic Casualty filed this declaratory judgment action on October 26, 2011, against defendants Value, Greenwich Insurance Company (" Greenwich" ), Bullard Purchasing and Sales, Inc. and Kansas Fried Chicken, Inc. (" KFC" ). Atlantic Casualty is the insurer of Value, a company that performs construction work. KFC is the owner of the property at which the claimed loss was sustained and Greenwich is KFC's insurer. On January 10, 2012, defendant KFC asserted cross-claims against its insurer Greenwich. The Court has declined to exercise supplemental jurisdiction over KFC's cross-claims against Greenwich.
Fact discovery concluded in October 2012. Expert discovery was conducted thereafter. The parties submitted a Joint Pretrial Order and proposed findings of fact and conclusions of law in December 2012. The trial in this case was conducted without objection in accordance with the Court's customary practices for the conduct of non-jury proceedings, which includes the submission with the pretrial order of the direct testimony of a party's witnesses by affidavit where those witnesses are available to counsel. The parties also served copies of all the exhibits and deposition testimony that they intended to offer as evidence in chief at trial.
At trial, the plaintiff presented affidavits constituting the direct testimony of Luis Reyes (" Reyes" ), a claims investigator who performed work for Atlantic Casualty; Kim Lawrence (" Lawrence" ), an agent of the plaintiff's general managing agency Green Mountain Agency, Inc. (" Green Mountain" ); and construction expert Herbert Cannon (" Cannon" ). The plaintiff also subpoenaed Lakhwinder Kaur (" Kaur" ), an insurance broker with Value's brokerage firm NYC Guardian Brokerage Inc. (" NYC Guardian" ); and Jimmy Sadiq (" Sadiq" ), an employee of Value, to testify at trial. Each of these witnesses appeared at trial and was cross-examined. The plaintiff also offered excerpts from the deposition of Horace Bullard (" Bullard" ), the President and owner of KFC. The defendants offered counter-designations.
The defendant Greenwich presented an affidavit constituting the direct testimony of Frank Moore (" Moore" ), the defendants' roofing expert. Moore appeared at trial and was cross-examined. The parties agreed to accept portions of the report of Derrick Bartlett (" Bartlett" ), an adjuster with U.S. Adjustment Corp., Greenwich's adjuster. Bartlett did not testify at trial.
The nonjury trial was held in this action on January 9, 10, and 14, 2013. This Opinion presents the Court's findings of fact and conclusions of law. The findings of facts appear principally in the following Background section, but also appear in the remaining sections of the Opinion. This Opinion concludes that Atlantic Casualty does not have a duty to defend Value in an underlying subrogation action and does not have a duty to indemnify Value for any damages for which Value may be held liable in that action.
Atlantic Casualty is an insurance company that issued a commercial general liability insurance policy to defendant Value for the policy period from May 12, 2009 to May 12, 2010 (the " Policy" ). Defendant KFC owns non-residential property located at 685 Lenox Avenue in New York (" the Property" ). The building was a two story structure with a barrel vaulted roof.
Roof structures have a number of components. The exterior component of the roof structure is an impermeable barrier
that prevents water and other elements from penetrating the interior of the building. The barrier rests on and is attached to the roof deck. The roof deck is in turn held up by a support system of beams. In this case, the barrel vaulted roof at the Property was supported by an assembly of beams called a bow truss. The cross beam at the bottom of the bow truss is called the bottom chord. Shortly before February 26, 2010, KFC hired Value to perform work on the bottom chord of the bow truss. A piece of wood, alternately described at trial as capping, a bottom plate, or wood trim, had peeled away from the underside of the bottom chord. The bottom chord was also cracked. Sadiq and another individual inserted approximately four bolts or screws into the bottom chord. This repair work would typically be done by carpenters, but might be done by other workers as well. Sadiq considered himself a carpenter; he was not a roofer.
A major snow storm in New York City occurred on February 25 and 26, leaving approximately 20 inches of snow on the roof. On or about February 26 or 27, the roof collapsed. KFC was aware of the collapse by February 27. Carolos Martinez (" Martinez" ), the employee of KFC who had asked Sadiq to repair the bottom chord, contacted Sadiq that same day to inform him of the collapse. One or two days later, Martinez called Sadiq again to request Value's certificate of insurance. Value obtained the certificate of insurance and provided it to KFC on March 9. As Value requested, the certificate of insurance specified Bullard Purchasing and Sales, Inc., as the certificate-holder and 685-695 Lenox Avenue, NY, N.Y. as the job location. On March 1, Greenwich, KFC's insurer, also received notice of the partial collapse. The Property was inspected by U.S. Adjustment Corp, an adjuster hired by Greenwich, on March 1, 2, 5 and 12.
Following the collapse of the roof, the New York City Department of Buildings ordered the demolition of the second floor of the Property. Demolition activities began at the Property on March 3, continued on March 10, 12, and 16, and were completed on March 17, 2010. On March 18, the New York City Department of Housing Preservation confirmed that the demolition had been completed on March 17.
On September 2, Greenwich sent a letter to Atlantic Casualty notifying Atlantic Casualty of the collapse that had occurred at the Property. Atlantic Casualty received notice of the collapse on or about September 8. On September 9, a Thursday, Atlantic Casualty asked R.M.G. Investigations, Inc. (" R.M.G." ), a claims investigation company, to investigate the collapse at the Property. The following Monday, September 13, Reyes, an investigator with R.M.G., contacted counsel for Greenwich. In an email to Greenwich's counsel on the same day, Reyes requested photographs and documentation regarding the work done by Value and the subsequent loss. Reyes never received a response from Greenwich's counsel. Reyes also spoke with Value's owner on September 13 and arranged a meeting with Sadiq at his home for September 22. On September 22, Reyes visited the Property and learned that the entire roof had been removed as well as the entire second story of the building. On that day, Reyes also spoke to Sadiq about the work Value performed at the Property. Then, on October 4, Atlantic Casualty instructed R.M.G. to close its investigation; Atlantic Casualty had determined that it was going to decline coverage.
Prior to the events described above, Value had procured general commercial liability insurance. Value contacted NYC Guardian, a brokerage firm, in April 2009
to obtain an insurance policy with Atlantic Casualty. NYC Guardian filled out an Accord Commercial Insurance Application (" Accord Application" ) on behalf of Value based on information received from Value. The Accord Application, which was submitted by NYC Guardian to Green Mountain on April 24, 2009, requested coverage for 1) Painting; 2) Masonry; 3) Drywall; and 4) Tiling. Green Mountain required Value to submit a signed and dated copy of the Accord Application and a signed and dated supplemental application (" Supplemental Application" ). In the Supplemental Application, dated May 12, 2009, Value indicated that 100% of the construction work it performed was remodeling construction work; that 100% of the construction work it performed occurred inside buildings; and that 100% of the construction work it performed was residential as opposed to commercial. Both the Accord Application and the Supplemental Application were signed and dated by Value's principal, Abdul Aziz (" Aziz" ). The premiums charged to Value for the coverage were based in part on Value's representation that it engaged in only residential construction work. Had Value indicated that it engaged in construction work on premises that are categorized as commercial, the premiums for each classification covered by the Policy would have been 5-10% higher.
In June 2009, Lawrence requested an inspection on Value's account. An investigator interviewed Aziz on June 26. During the interview, Aziz confirmed that Value was engaged in 100% residential construction work. The inspection report noted, however, that Value was engaged in work on both the interior and exterior of buildings. After receiving the inspection report, Lawrence sent a letter to NYC Guardian about issues raised by the inspection. In particular, the letter mentioned that the report indicated that the insured had a part time employee, and engaged in stucco and waterproofing work. The letter requested that NYC Guardian advise whether the stucco work was exterior stucco work and what type of waterproofing Value performed. In response to this letter, Value sent Green Mountain a fax on July 10, 2009, representing that Value did not have any employees for the coverage period and did not engage in either waterproofing or stucco work.
The Policy issued to Value provides that the insurer's " determination regarding a defense obligation under this policy may be made on evidence or information extrinsic to any complaint or pleading presented to us." (Emphasis supplied.) The Policy also contains a section entitled " Commercial General Liability Coverage Declarations" in which the following classifications are listed:
Dry Wall or Wallboard ...