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Great American Insurance Co. v. Zelik

United States District Court, S.D. New York

January 3, 2020

JOSEPH ZELIK, Defendant/Counter-Plaintiff/Third-Party Plaintiff.


          JED S. RAKOFF, U.S.D.J.

         I. Overview

         This case involves a dispute over whether an umbrella-policy insurance carrier, Great American Insurance Co. ("GAIC"), must cover losses arising from an individual named Kim Hodges tripping and falling in front of a vacant lot (the "Hodges incident") owned by Joseph Zelik, a real estate investor. Zelik had an umbrella insurance policy (the "Umbrella Insurance Policy") issued by GAIC covering the lot at the time of the incident. Zelik obtained this policy through Secure Insure ("Secure"), an insurance broker.

         GAIC sues for rescission or reformation of the Umbrella Insurance policy based on alleged material misrepresentations on Zelik's insurance application. In the alternative, GAIC seeks a decision from the Court finding that the policy as written does not cover the Hodges incident. Zelik counter-claims for breach of contract and a declaratory judgment that GAIC must cover the Hodges incident. Zelik has also filed a third-party complaint against Secure for negligence.

         Now before the Court are GAIC's and Zelik's cross-motions for summary judgment, and Secure's motion for summary judgment against Zelik. For the reasons below, the Court denies summary judgment on all but one claim.

         II. Undisputed Material Facts

         Defendant/Counter-Plaintiff/Third-Party Plaintiff, Joseph Zelik is a real estate investor, broker, and manager. In 2011, Zelik first began insuring some of his properties under a commercial real estate umbrella liability insurance program for which Plaintiff/Counter-Defendant Great American Insurance Company was the lead insurer. Zelik obtained this umbrella insurance coverage through Third-Party Defendant Secure Insure Brokerage, Inc., an insurance brokerage firm.

         As part of the application process for the umbrella insurance policy that Secure obtained for Zelik, Zelik sent Secure a spreadsheet of twenty-seven properties Zelik wanted insured under the policy. Zelik's Resp. to Secure's Local Rule 56.1 Statement of Material Facts ("Zelik Resp. Secure SMF") ¶ 18. The spreadsheet included descriptions of the properties as well as the underlying carrier and policy No. per location. JA Exh. 59-60. Secure provided GAIC with the same spreadsheet. Zelik Resp. Secure SMF ¶ 29. The spreadsheet indicated that the underlying carrier for a No. of these properties was "Allstate." JA Exh. 60. All properties for which the underlying insurance policy was listed as "Allstate" had an underlying homeowner's insurance policy. JA Exh. 53.

         The initial umbrella insurance application, which was signed by Secure on Zelik's behalf, checked a box in the affirmative next to the following statement: "I acknowledge that I have read the above and agree that all primary insurance either currently comply or will be placed and/or amended to be in compliance with the underlying requirements prior to binding the Umbrella Insurance." Joint App'x in Support of the Parties' Respective Summary Judgment Motions ("JA") Exh. 16 at GAIC 114, ECF No. 41-43. The application earlier states that it "require[s] all underlying insurance" to have underlying "Commercial General Liability" ("CGL") insurance with a limit of no less than $1, 000, 000 per occurrence, $2, 000, 000 general aggregate per location, and $1, 000, 000 personal and advertising injury. Id. Exh. 7 at GAIC 114. Neither Zelik nor Secure altered the Allstate homeowner's insurance underlying some of the properties before binding the Umbrella Insurance Policy in September 2011.

         Shortly after the insurance policy was bound, GAIC issued a Certificate of Coverage and provided Zelik with $5 million of commercial umbrella coverage under the Umbrella Insurance Policy. Zelik Resp. Secure SMF ¶ 67-68. The policy listed all properties listed in the spreadsheet, including those covered under the Allstate homeowner's policy. The 2011 Certificate of, Coverage was repeatedly and continuously renewed through September 22, 2019. Zelik's Resp. to GAIC's Local Rule 56.1 Statement of Undisputed Material Facts ("Zelik Resp. GAIC SMF") ¶ 71, ECF No. 48. As part of these renewals, Secure submitted renewal applications on behalf of Zelik that contained the same affirmation of underlying insurance as the first application. Id. ¶¶ 74-75.

         One of the properties listed as covered in the Umbrella Insurance Policy was a vacant lot at 467 Bushwick Avenue. This vacant lot had the Allstate homeowner's insurance policy as its underlying insurance coverage. In 2019, an individual named Kim Hodges tripped and fell in front of this vacant lot, incurring significant injuries. Allstate provided Zelik with defense in a personal injury lawsuit Hodges subsequently filed against him in New York State court. Zelik Resp. GAIC SMF ¶ 88. Allstate notified GAIC of the lawsuit in April 2018. Id. ¶ 92. On January 17, 2019, Allstate requested that GAIC participate in the lawsuit. Id. ¶ 92. On January 18, 2019, Allstate advised GAIC that it had tendered the one million dollar limit of its primary policy to settle the Hodges lawsuit, for which the settlement demand was in excess of the one million dollar primary limit. Id. ¶ 93.

         Around January 25, 2019 GAIC began investigating this insurance claim, during which time it alleges that it first learned that the underlying primary policy for 467 Bushwick Avenue was a homeowner's policy. Id. ¶ 95. In February, GAIC advised Zelik that based on material misrepresentations made in application for the Umbrella Insurance Policy, GAIC would be seeking to rescind the policy. Id. ¶ 97. GAIC then filed this lawsuit against Zelik. Zelik filed a counter-claim and filed a third-party complaint against Secure.

         III. Summary Judgment Standard

         "Summary judgment is proper when, after drawing all reasonable inferences in favor of a non-movant, no reasonable trier of fact could find in favor of that party." Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993); see also Fed.R.Civ.P. 56(a) ("The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."). "A fact is 'material' for these purposes if it 'might affect the outcome of the suit under the governing law.'" Holtz v. Rockefeller & Co., Inc., 258 F.3d 62, 69 (2d Cir. 2001) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). "An issue of fact is 'genuine' if 'the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Id. "Genuine issues of fact are not created by conclusory allegations." Heublein, 996 F.2d at 1461.

         IV. Summary Judgment Motions on Claims Between Zelik and GAIC

         GAIC moves for summary judgment seeking rescission of the Umbrella Insurance Policy, reformation of the policy, or a ruling that there can be no coverage for Zelik under the 2014-2015 Umbrella Insurance Policy as written for the lawsuit filed by Kim Hodges against him. Zelik cross-moves for summary judgment against GAIC on its rescission and reformation claims. Further, Zelik seeks a ruling that the Umbrella Insurance Policy covers the Hodges incident and that GAIC must pay the reasonable attorneys' fees Zelik incurred while litigating this action. Secure, as a third-party defendant, briefed a No. of arguments in support of Zelik's summary judgment motion.

         a. Rescission

         GAIC first argues that the Court should partially rescind each GAIC Umbrella Insurance Policy as to the locations where Zelik had an underlying homeowner's insurance policy. Zelik and Secure assert numerous arguments about why this claim fails as a matter of law, and why the Court should instead grant summary judgment against GAIC. Under New York law, "an insurer may rescind an insurance policy if it was issued in reliance on material misrepresentations." Fid. & Guar. Ins. Underwriters, Inc. v. Jasam Realty Corp., 540 F.3d 133, 139 (2d Cir. 2008). Because a material dispute remains as to whether Zelik's misrepresentation was material, the Court denies all motions for summary judgment on this question.

         i. Material Misrepresentation

         The parties first dispute whether the fact that Secure, on behalf of Zelik, checked a box on the insurance application stating that "I acknowledge that I have read the above and agree that all primary insurance either currently comply or will be placed and/or amended to be in compliance with the underlying requirements prior to binding the Umbrella Insurance" constitutes a material misrepresentation. "Whether there has been a misrepresentation and the materiality of that misrepresentation are usually questions of fact for the jury; however, where the evidence concerning a material misrepresentation 'is clear and substantially uncontradicted, the matter is one of law for the court to determine." Mutual Benefit Life Ins. Co. v. Morley, 722 F.Supp. 1048, 1051 (S.D.N.Y.1989). Here, the evidence is not clear and substantially uncontradicted on the question of materiality, so it remains a question for the jury.

         As an initial matter, there is clear and substantially uncontradicted evidence that Zelik made a misrepresentation. New York courts have long recognized that an uncontradicted false answer on an application for insurance is a misrepresentation. Travelers' Ins. Co. v. Pomerantz, 246 N.Y. 63, 66-67, 158 N.E. 21 (1927). By checking a box through Secure stating that he had insurance in compliance with underlying requirements of the Umbrella Insurance Policy, Zelik made such an uncontradicted false answer. The affirmation specifically indicated that Zelik needed underlying "Commercial General Liability" insurance, JA Ex. 16, GAIC 114, and Zelik had only homeowners' insurance.

         Zelik fails to effectively dispute this evidence that he made a misrepresentation. First, he argues that he did not make a misrepresentation because the text of the Umbrella Insurance Policy only required "general liability" coverage, and that Zelik in fact had such coverage through Allstate. Zelik's Mem. of Law in Opp. To Pl. GAICs Mot. for Summary Judgment ("Zelik Opp. GAIC Mem.") 11, ECF No. 47. Zelik, however, only points to a part of the Allstate policy that indicates he has "Family Liability" protection, which does not mention "general liability." Zelik fails to explain how "family liability" insurance is equivalent to CGL insurance. Second, Zelik argues that because GAIC knew that Zelik's primary coverage was through Allstate, which primarily provides homeowner's insurance, it could have raised the misrepresentation with Zelik at the time. Id. at 10. This claim, however, does not make the representation any less false.

         However, even though there is clear and substantially uncontroverted evidence of a misrepresentation, it is not clear whether this misrepresentation was material. "A fact is material so as to void ab initio an insurance contract if, had it been revealed, the insurer or reinsurer would either not have issued the policy or would have only at a higher premium." Christiania Gen'l Ins. Corp. v. Great Am. Ins. Co., 979 F.2d 268, 278 (2d Cir. 1992). In other words, the "insurer need not prove that it would not have issued any policy at all, but that the policy in question would not have been issued." Aetna Cas. & Sur. Co. v. Retail Local 906, 921 F.Supp. 122, 131 (E.D.N.Y. 1996), aff'd, 106 F.3d 34 (2d Cir. 1997).

         Here, both parties have adduced evidence sufficient to raise a dispute as to whether the misrepresentation was material. The very fact that GAIC required an affirmation that the underlying insurance policy was in compliance constitutes evidence that the nature of the underlying insurance policy was material. Further a representative of GAIC testified that such affirmations are important to its decision whether to issue a policy, JA, Ex. 7, 131. Zelik, however, has adduced evidence suggesting that the misrepresentation was not material. For example, Zelik points to a clause in the Umbrella Insurance Policy stating that if an insured fails to maintain compliant underlying coverage, GAIC "will only be liable to the same extent that [it] would have been had [the insured] fully complied with" the policy requirements. 2014 Umbrella Policy, J. Ex. 29, at GAIC 1344, ...

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