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RLI Insurance Co. v. AST Engineering Corp.

United States District Court, S.D. New York

December 20, 2019

RLI INSURANCE COMPANY, Plaintiff,
v.
AST ENGINEERING CORPORATION, CORAL CRYSTAL LLC, FEDERAL INSURANCE COMPANY, MCARTHUR MORGAN, LLC, SEA BREEZE GENERAL CONSTRUCTION, INC., J.V.C. GROUP N.Y. CORP., PHILIBERT ENGINEERING, P.C., and GRAD URBAN DESIGN, INC., Defendants.

          For plaintiff: Timothy Erin Delahunt Kenney Shelton Liptak & Nowak, LLP

          For defendant AST Engineering Corp.: Robert S. Cosgrove Durkin & Durkin, LLC

          For defendant Sea Breeze General Construction, Inc.: Craig L. Rokuson Traub Liberman Straus & Shrewsberry LLP

          For defendant J.V.C. Group N.Y. Corp.: Jerry Anthony Cuomo Landman Corsi Ballaine & Ford P.C.

          OPINION AND ORDER

          DENISE COTE, UNITED STATES DISTRICT JUDGE

         RLI Insurance Company (“RLI”) issued a claims-based professional liability insurance policy (“Policy”) to AST Engineering Corporation (“AST”) in March 2013 and has defended AST in two New York State lawsuits, the first of which named AST in October 2013. In September 2016, RLI issued a reservation of rights notifying AST that it may disclaim coverage. On February 23, 2019, RLI filed this action, seeking a declaration that it has no duty to defend AST. Both parties now move for summary judgment. For the reasons that follow, AST's motion for summary judgment is granted and RLI is estopped from disclaiming coverage.

         Background

         This action arises from work AST performed in connection with a residential construction project at 133 Third Avenue in Manhattan (the “Project”). As part of its work on the Project's foundation and superstructure, J.V.C. Group N.Y. Corp. (“JVC”), a subcontractor on the Project, requested that AST create a design drawing for a one-sided form for use in pouring a concrete wall. AST provided those drawings to JVC on October 28, 2012.

         On December 5, 2012, concrete poured at the Project pressed against an adjoining building, bowing and cracking its exterior wall. As a result of damage, the owner of the adjoining building, Coral Crystal LLC (“Coral Crystal”), filed on December 10, 2012 a lawsuit in New York State Supreme Court (the “Coral Crystal Action”) against McArthur Morgan LLC (“McArthur Morgan”), the owner of the Project. On March 7, 2013, Coral Crystal added JVC and the Project's general contractor, Sea Breeze General Construction, Inc. (“Sea Breeze”), as defendants.

         Two weeks later, on March 21, 2013, AST applied to RLI for a claims-based professional liability insurance policy. Although it had been in business since 2009, AST had not carried professional liability insurance prior to that date. In its application, AST identified its five largest projects as New York-based projects. It further stated that it had no “knowledge of any incident, act, error, or omission involving professional services that could reasonably be expected to be the basis of a claim” against it.

         RLI issued the Policy to AST for the period March 22, 2013 to March 22, 2014. The Policy states that it “applies to Claim(s) arising from Professional Services rendered worldwide.” It provides a maximum of $1 million insurance per claim arising from a “Wrongful Act” committed by AST's architects and engineers subsequent to the “Retroactive Date.” The Policy identifies the “Retroactive Date” as March 22, 2013.

         The Policy states, in pertinent part:

This insurance applies to a Claim for a Wrongful Act to which this insurance applies, only if
. . .
(ii) Such Wrongful Act was committed subsequent to the Retroactive Date(s) stated in Item 6. of the Declarations; and
(iii) None of the Insured's directors, officers, principals, partners or insurance managers knew or could have reasonably expected that such Wrongful Act might give rise to a Claim, either prior to the inception date of this Policy, or the inception date of an earlier Policy, where this Policy is issued by the Insurer as a continuous renewal or replacement of such earlier policy, issued by the Insurer.

         The Policy defines “Wrongful Act” as “a negligent act, error, or omission, in the performance of Professional Services.”

         AST is a New Jersey professional engineering corporation with its principal place of business in New Jersey. The Policy lists AST's business address in Matawan, New Jersey and provides that “[n]otice to any Insureds may be given to [AST]” at that address. RLI delivered the Policy to AST at its New Jersey address and assessed a New Jersey surcharge of $36.00. At all times since the Policy was first issued to AST, RLI billed its premiums to AST in New Jersey and AST mailed payment of its premiums to RLI from its address in New Jersey.

         On October 10, 2013, JVC filed a third-party complaint against AST for common-law indemnification and contribution, breach of contract, and professional malpractice in connection with the engineering services it provided on the Project. The third-party complaint alleges, in relevant part:

6. That [Coral Crystal's] complaint for damage arises from construction at 133 Third Avenue, New York, New York, property adjacent to [Coral Crystal's] property located ...

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