United States District Court, E.D. New York
MEMORANDUM AND ORDER
L. Pollak United States Magistrate Judge.
14, 2016, plaintiff Read Property Group LLC
(“Read”) commenced this action in New York
Supreme Court, Kings County, against Hamilton Insurance
Company, a/k/a Hamilton Specialty Insurance Company
(“Hamilton”), alleging breach of contract and
seeking insurance coverage for losses incurred at 3 Oakwood
Drive, Parlin, New Jersey (the “Property”). The
case was removed to this Court on August 10, 2016, based on
diversity of citizenship pursuant to 28 U.S.C. § 1332.
The parties have consented to this Court's jurisdiction
for all purposes pursuant to 28 U.S.C. § 636.
August 4, 2017, defendant filed a motion for summary
judgment; plaintiff filed its cross-motion for summary
judgment on September 6, 2017. The Court heard oral argument
on March 12, 2018. As explained in detail below, the
parties' insurance contract unambiguously excludes
coverage for the loss at issue, and the Court therefore
grants defendant's motion for summary judgment and denies
plaintiff's cross-motion for summary judgment.
Read is a limited liability company operating in New York,
and having its principal place of business located at 4706
18th Avenue, Brooklyn, New York. (Def.'s 56.1
Stmnt ¶ 8; Pl.'s 56.1
Stmnt ¶ 8). Defendant Hamilton is a
corporation incorporated in Bermuda with its principal place
of business located at 600 College Road East, Suite 3500,
Princeton, New Jersey. (Def.'s 56.1 Stmnt ¶ 9;
see also Pl.'s 56.1 Stmnt ¶ 9 (conceding
that the insurance policy lists defendant's place of
business as New Jersey)). According to defendant, Hamilton is
in the business of writing and issuing insurance policies.
(Def.'s 56.1 Stmnt ¶ 9).
parties agree that Hamilton issued a Commercial Property
insurance policy to Read, effective from December 4, 2015
through December 4, 2016 (the “Policy”).
(Id. ¶ 10; Pl.'s 56.1 Stmnt ¶ 10). The
Policy, bearing policy number WKHSPR-00386-01, was to provide
coverage to Read for any damages sustained at the Property as
well as at 361 other properties. (Def.'s 56.1 Stmnt
¶¶ 10, 12; Pl.'s 56.1 Stmnt ¶¶ 10,
12; see also Lager Decl.,  Ex. E). The Declaration page
of the Policy identifies the “Business
Description” of Read, the named insured, as
“Apartment Building Operators.” (Def.'s 56.1
Stmnt ¶ 11; Pl.'s 56.1 Stmnt ¶ 11).
January 14, 2015,  plaintiff submitted a Property Loss Notice
to defendant, identifying the loss at the Property as
“water damage due to bathroom pipe break at the above
location” that occurred on January 9, 2016. (Def.'s
56.1 Stmnt ¶ 13; Pl.'s 56.1 Stmnt ¶ 13; see
also Lager Decl., Ex. F). Defendant retained York Risk
Services Group (“York”), a third-party
administrator, to handle the claim submitted by plaintiff for
the loss on January 9, 2016. (Def.'s 56.1 Stmnt ¶
14; Pl.'s 56.1 Stmnt ¶ 14).
to defendant, York was first notified of the claim on January
15, 2016 when the claim was opened and Robert Sargent was
assigned to administer the claim. (Def.'s 56.1 Stmnt
¶ 15; see also Pl.'s 56.1 Stmnt
¶¶ 15, 16; Lager Decl., Ex. H). Sargent testified
that on January 15, 2016, he made an initial evaluation of
the claim by reviewing the Accord and the Policy and
comparing them to determine coverage. (Def.'s 56.1 Stmnt
¶ 16; Lager Decl., Ex. H, at 24, 39-40). In his initial
coverage memorandum, Sargent concluded that the Policy
covered broken pipes. (Def.'s 56.1 Stmnt ¶ 17;
Pl.'s 56.1 Stmnt ¶ 17; Lager Decl., Ex. I at 39-40).
Defendant asserts that Sargent retained the services of a
field adjuster to go to the Property and evaluate the loss
and then prepare a report as to the cause of the loss.
(Def.'s 56.1 Stmnt ¶ 18). Plaintiff concedes that
the services provided by York included the evaluation by a
“field adjuster” but plaintiff disputes the claim
that Sargent “hired” the field adjuster and that
the field adjuster was required to prepare a report as to
“the cause of the loss.” (Pl.'s 56.1 Stmnt
field adjuster assigned to the claim, Robert Herb, was hired
by York, and Mr. Herb drafted a number of reports for York
which Sargent relied upon in making his ultimate coverage
determination as to the loss to the Property. (Def.'s
56.1 Stmnt ¶¶ 19, 20; Pl.'s 56.1 Stmnt
¶¶ 19, 20). Mr. Herb's first report, dated
February 3, 2016, identified the cause of the loss as furnace
failure which caused the temperature in the house to fall
below freezing, causing the pipes to freeze and burst.
(Def.'s 56.1 Stmnt ¶ 21; Pl.'s 56.1 Stmnt ¶
21; Lager Decl., Ex. J). In his second report, dated March
25, 2016, Mr. Herb confirmed, after further investigation,
that the cause of the loss was that the water pipes froze and
burst due to the failure of both furnaces in the house.
(Def.'s 56.1 Stmnt ¶ 22; Pl.'s 56.1 Stmnt ¶
22; Lager Decl., Ex. K). Also in his second report, Mr. Herb
stated that “it appears that heat was not maintained in
accordance with endorsement for WK CP 02 11 08 Protective
Safeguards - Heat Maintained.” (Def.'s 56.1 Stmnt
¶ 23; Pl.'s 56.1 Stmnt ¶ 23; Lager Decl., Ex.
K). Mr. Herb indicated in his second report that he requested
permission from the public adjuster to inspect the burst pipe
and that he would also attempt to obtain the electric and gas
bills to determine if the heat was properly maintained in the
building. (Def.'s 56.1 Stmnt ¶ 24; Pl.'s 56.1
Stmnt ¶ 24; Lager Decl., Ex. K).
third report, issued by Mr. Herb on May 23, 2016, he
indicated that he was still attempting to secure the damaged
pipes for inspection and he was trying to obtain the utility
and heating bills. (Def.'s 56.1 Stmnt ¶ 25;
Pl.'s 56.1 Stmnt ¶ 25; Lager Decl., Ex. L). In his
fourth report, dated August 28, 2016, Mr. Herb reported that
he had still been unable to secure the pipes for inspection
and he had not received the utility bills for review.
(Def.'s 56.1 Stmnt ¶ 26; Pl.'s 56.1 Stmnt ¶
26: Lager Decl., Ex. M).
21, 2016, defendant sent plaintiff a declination letter,
denying coverage for the claim. (Def.'s 56.1 Stmnt ¶
27; Pl.'s 56.1 Stmnt ¶ 27; Lager Decl., Ex. N). The
declination letter indicated that the denial of coverage was
based on the Policy endorsement requiring that heat be
maintained at an “ambient temperature of not less than
50 degrees Fahrenheit.” (Def.'s 56.1 Stmnt
¶¶ 28, 29; Pl.'s 56.1 Stmnt ¶¶ 28,
29; Lager Decl., Ex. N). The Policy endorsement, Protective
Safeguards - Heat Maintained, Form WK CP 02 11 08 (the
“Endorsement”), warns in all capital letters that
“THIS ENDORSEMENT CHANGES THE POLICY - PLEASE READ IT
CAREFULLY.” (Lager Decl., Ex. O). It then provides:
1. The following is added to the COMMERCIAL PROPERTY
As a condition of this insurance, you are required to
maintain an ambient temperature of not less than 50°
Fahrenheit at all times throughout any building identified in
the Schedule by use of a gas-fired, coal-fired, electric or
similar heating system.
(Lager Decl., Ex. O ¶ 1). The Endorsement further
2. The following is added to the EXCLUSIONS section of
[various parts of the policy]:
We will not pay for loss or damage at any building identified
in the Schedule caused by or resulting from the following
causes of loss, if covered under this policy, unless the
ambient temperature throughout the premises at the time of
loss or damage is not less than 50° Fahrenheit:
a. Sprinkler leakage;
b. Weight of snow, ice or sleet; or
c. Water damage.
(Lager Decl., Ex. O ¶ 2).
contends that the endorsement language is promulgated by the
insurance industry standard organization (“ISO”)
and has been used since 2008. (Def.'s 56.1 Stmnt ¶
30). Plaintiff disputes that the endorsement is identical to
any ISO form and notes that, having searched LEXIS Advance
which has access to all ISO forms for the country,
plaintiff's counsel was unable to find such an
endorsement that matches the endorsement set forth in Exhibit
O to the Lager Declaration. (Pl.'s 56.1 Stmnt ¶ 30).
However, the plaintiff concedes that the Policy excludes
coverage for water damage resulting from pipes freezing due
to a failure to maintain heat in the premises. (Pl.'s
56.1 Stmnt ¶ 31; see Def.'s 56.1 Stmnt
the parties agree that the water damage was the result of a
frozen pipe that burst (Def.'s 56.1 Stmnt ¶ 32;
Pl.'s 56.1 Stmnt ¶ 32), the parties disagree as to
whether the freezing was due to the failure to maintain the
heat at 50 degrees. (Compare Def.'s 56.1 Stmnt
¶ 33, with Pl.'s 56.1 Stmnt ¶ 33).
Defendant draws the conclusion that “if the pipes
froze, the property could not have been maintained at 50
[degrees] Fahrenheit at all times pursuant to the terms of
the protective safeguard” because “freezing does
not occur unless the temperature of the pipes dropped to 32
[degrees] Fahrenheit or below.” (Def.'s 56.1 Stmnt
¶¶ 33, 34).
disputes this conclusion and cites the testimony of
plaintiff's property manager and real estate agent,
Michael Novik, who testified that he visited the Property
every two to three weeks, “to make sure everything is
in proper order.” (Pl.'s 56.1 Stmnt ¶ 33;
Lager Decl., Ex. T at 7-8, 11, 20, 22-23). According to the
property manager's testimony, when he visited the
Property, he would inspect each floor and “make sure
the heat is on if it's the winter time, ” and that
“no pipes were leaking.” (Lager Decl., Ex. T at
7-8, 11, 20, 22-23). Mr. Novik testified that he visited the
Property within 30 days of the loss and made sure that the
temperature was maintained at 55 degrees. (Id.)
Thus, plaintiff contends that the pipes froze despite
plaintiff's reasonable efforts to maintain the heat at 50
degrees in compliance with the endorsement. (Pl.'s 56.1
Stmnt ¶ 33). Plaintiff argues that even though the
freezing point is 32 degrees Fahrenheit, none of the other
pipes froze so this calls into question why a particular pipe
froze and the others did not. (Id.)
points out that Mr. Novik is a real estate broker,
responsible for buying and selling properties for Read and
for maintaining the Property. (Def.'s 56.1 Stmnt ¶
36; Pl.'s 56.1 Stmnt ¶ 36). According to defendant,
although Mr. Novik testified that he visited the Property
every two to three weeks and that he was there in December
2015, he could not recall the specific date that he was last
at the Property prior to January 9, 2016. (Def.'s 56.1
Stmnt ¶¶ 37-39; Pl.'s 56.1 Stmnt ¶¶
37-39). Plaintiff disagrees with the inference that defendant
seeks to draw and notes that Mr. Novik “specifically
testified that prior to January 9, 2016, he did observe that
the furnaces were in working order.” (Pl.'s 56.1
Stmnt ¶ 39).
notes that Mr. Novik never received invoices for the gas,
electric or other utilities; these were handled directly by
Read. (Def.'s 56.1 Stmnt ¶ 40). Plaintiff does not
dispute this. (Pl.'s 56.1 Stmnt ¶ 40; Lager Decl.,
Ex. Q at 27-28). Although the parties dispute the extent of
Mr. Novik's knowledge of the business and ownership of
Read, the parties agree that he was not involved with the
purchase of the insurance for the Property. (Def.'s 56.1
Stmnt ¶¶ 41-43; Pl.'s 56.1 Stmnt ¶¶
41-43; Lager Decl., Ex. Q at 9-10, 24, 60).
the course of discovery in this case, plaintiff disclosed
heating bills for the Property for the months of October,
November, and December 2015. (Def.'s 56.1 Stmnt ¶
44; Pl.'s 56.1 Stmnt ¶ 44; Lager Decl., Ex. R). Mr.
Herb reviewed the bills and concluded that they were not
complete in that they did not include the bill for January
2016 when the loss occurred; therefore, they do not
demonstrate that the heat was maintained. (Def.'s 56.1
Stmnt ¶ 45; Lager Decl., Ex. R; Herb Aff. ¶¶
16-18). Indeed, according to Mr. Herb, the bills provided by
plaintiff show that while the gas was on in the Property in
October 2015, the gas usage for November and December
registered at zero. (Herb Aff. ¶¶ 16-18).
further notes that these records do not demonstrate that the
heat was on at the time of the loss and that despite Mr.
Herb's requests during his eight month investigation, he
never received these records. (Def.'s 56.1 Stmnt
¶¶ 46, 47; Herb Aff. ¶¶ 14-15; Lager
Decl., Exs. J, K, L, M). Defendant asserts that
“[t]here is no dispute that the heat was not working at
the time of the loss as confirmed by the invoices reflecting
that the furnace was not in working order at the time of the
loss.” (Def.'s 56.1 Stmnt ¶ 48; Herb Aff.
¶¶ 10-13; Lager Decl., Ex. S). Specifically,
defendant has presented a copy of an invoice for payment for
repairs to furnace, dated January 23, 2016. (Lager Decl., Ex.
S). Defendant contends that Mr. Novik was never told at what
temperature to set the thermostat and that he only learned of
the loss when another broker visited the Property for a
showing. (Def.'s 56.1 Stmnt ¶¶ 49-51).
admits that these records do not show the gas usage at the
Property from December 2015 through January 2016, but
plaintiff disputes that the records are “incomplete,
” noting that “Defendant never served any request
for documents upon Plaintiff whatsoever.” (Pl.'s
56.1 Stmnt ¶¶ 45, 46). Plaintiff also disputes
defendant's characterization of the evidence, arguing
that there is “no evidence to suggest that the furnaces
at the subject premises broke down before the pipe freeze or
that the heat was not working at the time.” (Pl.'s
56.1 Stmnt ¶ 48; but see Pl.'s
at 5 (stating that “[t]here is no dispute that the
cause of loss was a furnace failure, which caused the subject
pipe to freeze and burst resulting in extensive water
damage”)). Plaintiff does concede that Mr. Novik
learned of the loss from another broker and that he was not
specifically instructed as to the temperature at which to set
the thermostats in the Property, but he testified that he
knew what was expected from prior experience with the
plaintiff. (Id. ¶¶ 49-51). The parties
dispute whether the claim was properly denied.
(Compare Def.'s 56.1 Stmnt ¶ 52,
with Pl.'s 56.1 Stmnt ¶ 52).
moves for summary judgment on the only claim in
plaintiff's Complaint, which is a claim for breach of
contract based on defendant's failure to indemnify
plaintiff for the loss sustained by a “covered peril,
” which plaintiff claims was insured by the defendant.
(Def.'s Mem. at 3; Compl. ¶ 6). Plaintiff claims that
although all of the conditions of the Policy had been
satisfied, defendant breached the agreement and owes
plaintiff damages in the amount of at least $171, 167.85.
(Def.'s Mem. at 3; Compl. ¶¶ 6-7). Defendant
takes the position that its disclaimer of coverage was
appropriate based on the unambiguous language of the Policy
and the circumstances of the loss; and that there is no
factual dispute that plaintiff failed to maintain the ambient
temperature of not less than 50 degrees Fahrenheit.
(Def.'s Mem. at 3-10; 11-12).
has cross-moved for summary judgment conceding that there is
no dispute that the cause of loss was a furnace failure.
(Pl.'s Mem. at 5; but see Pl.'s 56.1 Stmnt
¶ 48). Instead, plaintiff argues: 1) that the word
“maintain” in the endorsement is undefined and
ambiguous; 2) the defendant's interpretation of the
endorsement/exclusion is against public policy; and 3) the
undisputed facts show that plaintiff took reasonable steps to
maintain the heat in the premises. (Pl.'s Mem.)
contends that the term “maintain” is unambiguous
and even if it were not, plaintiff failed to take reasonable
efforts to comply with the endorsement's ...