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Cohen Brothers Realty Corp. v. RLI Insurance Co.

Supreme Court of New York, First Department

June 13, 2017

Cohen Brothers Realty Corp., Plaintiff-Respondent,
RLI Insurance Company, Defendant-Appellant, American Guarantee & Liability Insurance Company, et al., Defendants.

          Kenney Shelton Liptak Nowak LLP, Buffalo (Timothy E. Delahunt of counsel), for appellant.

          Harwood Reiff LLC, New York (Simon W. Reiff of counsel), for respondent.

          Acosta, P.J., Renwick, Manzanet-Daniels, Kapnick, Webber, JJ.

         Order, Supreme Court, New York County (Robert D. Kalish, J.), entered August 8, 2016, which granted plaintiff's motion for summary judgment declaring that defendant RLI Insurance Company (RLI) is required to indemnify it for its damages and pay any outstanding reasonable attorneys' fees and defense costs it incurred in defending an underlying action in excess of those legal fees and costs already paid by nonparty New York State Insurance Fund (SIF), and denied RLI's cross motion for summary judgment, affirmed, without costs.

         Plaintiff is the managing agent of a commercial office building located at 622 Third Avenue. Defendant RLI is plaintiff's primary commercial general liability (CGL) insurance carrier.

         On October 3, 2008, nonparty engineer David Vasquez fell and fatally hit his head while replacing tile in the drop ceiling of the building's loading dock. On the date of the accident, plaintiff's vice president of management contacted plaintiff's insurance broker for the CGL policy. She was advised by the broker that the accident was a work-related fatality, and thus, a workers' compensation matter. She was assured that the CGL policy was inapplicable and that "nothing further needs to be done." (The CGL policy expressly excluded from coverage "[a]ny obligation of the insured under a workers' compensation, disability benefits or unemployment compensation law or any similar law, " as well as bodily injury to "[a]n employee of the insured arising out of and in the course of: (a) [e]mployment by the insured; or (b) [p]erforming duties related to the conduct of the insured's business.") Neither the broker nor plaintiff notified RLI of the incident.

         Plaintiff promptly notified its workers' compensation carrier, the State Insurance Fund (SIF). SIF agreed to defend and indemnify plaintiff.

         On March 6, 2009, the decedent's administratrix obtained an order to show cause to conduct discovery for the purposes of "framing a complaint" against plaintiff sounding in negligence and violations of the Labor Law. Plaintiff gave notice to RLI.

         By letter dated April 1, 2009, RLI denied coverage on grounds of late notice and Vasquez's status as an "employee" at the time of the accident.

         In May 2009, the decedent's administratrix commenced an action against plaintiff. SIF defended plaintiff in the underlying lawsuit, and paid workers' compensation benefits to Vasquez's estate. Plaintiff chose to retain its own counsel instead of SIF's law firm. SIF contributed $150 per hour toward payment of Greenberg Traurig's rate, with plaintiff paying the difference.

         Following this Court's decision in Vasquez v Cohen Bros. Realty Corp. (105 A.D.3d 595');">105 A.D.3d 595');">105 A.D.3d 595');">105 A.D.3d 595 [1st Dept 2013]), holding that issues of fact required trial of Cohen Brothers' "special employer" defense, the Vasquez litigation was settled for $2.5 million. Plaintiff paid $1 million; its excess insurer paid the remaining $1.5 million.

         Plaintiff commenced this declaratory judgment insurance coverage action against its broker and RLI on or about July 26, 2011. The motion court granted plaintiff's motion for a declaration that RLI was obligated to defend and indemnify it in the Vasquez litigation, and we now affirm.

         Plaintiff's delay in notifying RLI was due to a reasonable, good faith belief that Vasquez's work-related fatality was outside the scope of the CGL policy, excusing the late notice (see Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 N.Y.3d 742');">5 N.Y.3d 742 [2005]). [1]

         In Tesler v Paramount Ins. Co. (220 A.D.2d 334, 334 [1st Dept 1995]), this Court held that the insureds demonstrated a "good-faith and reasonable belief" in their nonliability where the belief had been predicated upon the incorrect advice of their insurance agent. RLI's argument that Tesler is no longer good law is unpersuasive. National Union Fire Ins. Co. of Pittsburgh, Pa. v Great Am. E & S Ins. Co. (86 A.D.3d 425');">86 A.D.3d 425 [1st Dept 2011]) explicitly distinguished Tesler on the ground that in Tesler "the insurance agent specifically advised the insured that there was no indication a claim could be brought against it, " whereas in National Union "there was no evidence that [the insured] was advised by any insurance agent as to nonliability" (id. at 427). Similarly, Macro Enters., Ltd. v QBE Ins. Corp. (43 A.D.3d 728');">43 A.D.3d 728 [1st Dept 2007]) did not involve a situation where an insured's failure to timely ...

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