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Read Property Group LLC v. Hamilton Insurance Co.

United States District Court, E.D. New York

March 30, 2018



          Cheryl L. Pollak United States Magistrate Judge.

         On July 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.

         On 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.


         Plaintiff 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[1] ¶ 8; Pl.'s 56.1 Stmnt[2] ¶ 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).

         The 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., [3] 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).

         On January 14, 2015, [4] 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).

         According 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 ¶ 18).

         The 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).

         In the 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).

         On June 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.”[5] (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 CONDITIONS:
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 provides that:

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).

         Defendant 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 ¶ 31).

         Although 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).

         Plaintiff 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.)

         Defendant 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).

         Defendant 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).

         During 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.[6] ¶¶ 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).

         Defendant 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).

         Plaintiff 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 Mem.[7] 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).

         Defendant 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.[8] at 3; Compl.[9] ¶ 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).

         Plaintiff 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.)

         Defendant 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 ...

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