Bleecker St. Health & Beauty Aids, Inc. v Granite State Ins. Co.
Annotate this CaseDecided on March 3, 2006
Supreme Court, New York County
Bleecker Street Health & Beauty Aids, Inc., Plaintiff,
against
Granite State Insurance Company, THE PRINICPE AGENCY and STEVEN PRINCIPE, Individually, Defendants. STEVEN PRINCIPE d/b/a THE PRINCIPE AGENCY,Third-Party Third Party Plaintiff, STERLING & STERLING, INC., OF WOODBURY, NY, and LA MARGARITA, Third Party Defendants.
590248/04
Karla Moskowitz, J.
After a fire in its store, Bleecker Street Health & Beauty Aids, Inc. ("Bleecker") sued its insurance company, Granite State Insurance Company ("Granite"); retail insurance broker, The Principe Agency ("Principe"), and insurance agent, Steven Principe, for breach of contract and negligence for reimbursement for losses from the fire. Steven Principe doing business as Principe ("Steven Principe d/b/a Principe") instituted a third-party action for indemnification or contribution against Granite's wholesaler insurance broker, Sterling & Sterling, Inc. of Woodbury, NY ("Sterling"), La Margarita Associates, Ltd. ("La Margarita"), a restaurant located above Bleecker and Bleecker's property manager/owner, Thurcon Properties ("Thurcon"). The causes of action in the first third-party action are also for negligence and breach of contract.
Steven Principe d/b/a Principe also instituted a second third-party action for indemnification and/or contribution against the owner of the building that sustained the fire, Columbia 184 Thompson, LLC and the building's managing agent, Greystar Manhattan Management LLC incorrectly identified as Greystar Prime and Greystar Real Estate Advisors, LLC (collectively, "second third-party defendants").
By this motion (sequence number 001): (1) third-party defendant Sterling moves for summary judgment dismissing Steven Principe d/b/a Principe's third-party complaint and [*2]third-party defendant Thurcon's cross-claim; (2) defendant Granite cross moves for summary judgment dismissing Bleecker's complaint; (3) plaintiff Bleecker cross moves against defendants Granite, Principe and Steven Principe for summary judgment; (4) third-party defendant Thurcon cross moves for summary judgment dismissing the third-party complaint, or in the alternative, severing the third-party action from the main action and (5) second third-party defendants cross move to sever the second third-party action from the main action.
After oral argument on September 29, 2005, the court issued an Interim Order granting Thurcon's cross-motion, without opposition, dismissing the third party complaint against Thurcon and severing and continuing the third party action against Sterling and La Margarita. Thus, Thurcon's cross-claims against Sterling are also out of the action and that part of Sterling's motion is moot. The court also granted the second third-party defendants' cross-motion and severed the second third-party action from the main action and first third-party action. (See Interim Order, dated September 29, 2005).
FACTS
Bleecker is a retail store at 148 Bleecker Street in Manhattan. Steve Gadanken is Bleecker's Chairman and he and his wife are the owners. Edison Lim ("Lim") is Bleecker's President. Lim handled all insurance matters for Bleecker. Third-party defendant La Margarita was a restaurant that had been upstairs from Bleecker in the same building for approximately 13 to 16 years.
Sterling was the "producer," or wholesale broker of Bleecker's insurance policy. On March 6, 2002 at approximately 12:51pm, Sterling forwarded an insurance application to Principe, Bleecker's retail insurance broker. The correspondence stated, "please complete + forward." The insurance application included the following question as number 10:
"[i]s there any use of grills or deep fat frying in your business operations or in any other businesses in your building? (i.e. restaurant in the same building)."
(See Frederick Klein's Affirm., dated May 25, 2005, Exh. S). The answer "NO" is filled in on the insurance application, but Lim, Principe and Sterling deny completing the insurance application. Thus, it is not clear who placed the "x" in the "NO" box. According to Lim, Principe supplied him with only the two signature pages from the insurance application and told him to "sign at the X." (Klein Affirm., Exh. M). Lim did not ask Principe to see other pages of the application besides the signature pages. (Id.). The same day, at 2:01pm, Bleecker faxed the signature pages back to Principe. At 3:15pm, Principe faxed the signature pages to Sterling. On March 7, 2002, Sterling faxed the signed application to Granite. Granite then subsequently issued the insurance policy to Bleecker.
The policy insured Bleecker against multiple casualties, including those related to fires, for the period of March 1, 2002 to March 1, 2004. The policy provided coverage for "Business Personal Property" up to $269,850 and for "Business Income and Extra Expense" up to "12 Months Actual Loss Sustained." (Klein Affirm., Exh. Q). The policy states,
[t]his policy is void in any case of fraud by you as it relates to this policy at any time. It is also void if you or any other insured, at any time, intentionally conceal or misrepresent a material fact [*3]concerning:1. This policy;2. The Covered Property;3. Your interest in the Covered Property; or4. A claim under this policy
(Id.). It further states that,
[b]y accepting this policy, you agree that:a. The statements in the Declarations are accurate and complete;b. Those statements are based upon representations you made to us in the Application and any supplementary materials; and; [sic]c. We have issued this policy in reliance upon your representations.d. Any and all coverage provisions under this policy may be voided by "us" in any case of fraud, intentional concealment, or misrepresentation of a material fact by "you".
(Id.).
On June 24, 2003, while the insurance policy was in full force and in effect, Bleecker sustained a fire that originated in La Margarita. The landlord of the building told Mr. Gadanken that the fire started because Margarita employees threw cigarette butts into a garbage pail at the restaurant. Bleecker was able to open partially for business a week after the fire. Shortly thereafter, Bleecker submitted a claim to Granite for indemnification for damages to Bleecker's personal property and loss of inventory from the fire.
On December 19, 2003, AIG Claims Service ("AIG"), Granite's claims manager, advised Bleecker that Granite had declared the policy void. AIG advised Bleecker that AIG, on behalf of Granite, voided the policy because Bleecker violated the policy conditions by making a misrepresentation on the insurance application. AIG claimed the misrepresentation was Bleecker's "NO" response to question number 10 that asked whether there was any use of grills or deep fat frying in the applicant's business operations or in any other businesses in the building because La Margarita did in fact have a deep fat fryer.
The First-Party Action
On January 9, 2004, Bleecker commenced this law suit against Granite, Steven Principe and Principe. Bleecker alleges that Granite breached the insurance contract because it failed to indemnify Bleecker. Bleecker asserts causes of action for negligence against Principe and Steven Principe, alleging that both were responsible for any alleged misrepresentations in the insurance application that they completed on Bleecker's behalf.
The Third-Party Action
On March 9, 2004, Steven Principe d/b/a Principe commenced a third-party action against Sterling, La Margarita and Thurcon. Steven Principe d/b/a Principe alleges that, "if there were misrepresentations in the applications sufficient to deny coverage or void the policy, it was as a result of the negligence of Sterling" and that Sterling "knew or should have known there was a restaurant [La Margarita] on the premises." (Third-Party Complaint, ¶¶ 15-16). Steven Principe [*4]d/b/a Principe also alleges breach of contract against Sterling because "[Principe], as broker for [Bleecker], contracted with Sterling to obtain coverage on behalf of [Bleecker]" and that Sterling's misrepresentation breached the contract. (Third-Party Complaint, ¶ 21).
The third-party action also contains causes of action against La Margarita and Thurcon for negligence and breach of contract. In response, Thurcon asserted a cross-claim against Sterling and Margarita for indemnification and contribution. (Klein Affirm., Exh. H). The court has dismissed the third-party action as against Thurcon.
DISCUSSION
The court's role on a motion for summary judgment is "merely issue finding, not issue determination." (Rose v Da Ecib USA, 259 AD2d 258, 259 [1st Dept 1999]). Summary judgment is appropriate where there are no disputed issues of fact requiring a trial. The movant has the initial burden of proving the absence of any material issue of fact and entitlement to judgment as a matter of law. The non-moving party must then come forward with sufficient evidence to show there are material factual issues in dispute. (Giuffrida v Citibank Corp., 100 NY2d 72, 81 [2003]).
I. Bleecker's Cross-Motion for Summary Judgment / Granite's Cross-Motion for Summary Judgment
In its first cause of action, Bleecker contends it performed all the conditions precedent to insurance coverage and that Granite breached the insurance contract by failing to indemnify Bleecker for damages to its personal property and loss of inventory. (Complaint, ¶¶ 9-13). In its second cause of action, Bleecker alleges that Granite breached the insurance contract by failing to indemnify Bleecker for lost income damages. (Complaint, ¶¶ 14-18). Bleecker also argues that the materiality of the answer to question number 10 in the insurance application presents an issue of fact.
Granite takes the position that there was a material misrepresentation as a matter of law in the answer to question number 10 and that, but for that misrepresentation, Granite would not have issued the policy. Further, because the misrepresentation voided the coverage, Granite argues it owes no coverage to Bleecker and thus did not breach the insurance contract.
An insurer may avoid an insurance contract if: (1) the insured made a false statement of fact as an inducement to making the contract and (2) the misrepresentation was material. (Curanovic v New York Central Mutual Fire Ins. Co., 307 AD2d 435, 436 [1st Dept 2003]; see also Republic Ins. Co. v Masters, Mates & Pilots Pension Plan, 77 F3d 48 [2d Cir 1996]). Rescission is an available remedy for the insurer even if the material misrepresentation was innocent or unintentional. (Curanovic, 307 AD2d at 436 [citing Nationwide Mut. Fire Ins. Co. v Pascarella, 993 F Supp 134, 136 (1998)]). To establish materiality as a matter of law, "the insurer must present documentation concerning its underwriting policies such as underwriting manuals, bulletins or rules pertaining to similar risks, to establish that it would not have issued the same policy if the correct information had been disclosed in the application." (Id.; see also Insurance Law 3105[c]; Iacovangelo v Allstate Life Ins. Co. of NY, 300 AD2d 1132, 1133 [2002]). Insurance company employees' unsupported conclusory statements are insufficient to establish materiality. (Curanovic, 307 AD2d at 436).
Granite has established as a matter of law that Bleecker's answer to question number 10 [*5]was a false statement of fact that induced Granite into providing insurance coverage to Bleecker. First, the answer "no" to question number 10 was a false statement because in fact there was a restaurant in the building, La Margarita, that apparently had a deep fat fryer. If Bleecker did not actually know, as it contends, whether there was a deep fat fryer in that restaurant, Bleecker should have provided the answer "do not know" rather than "no." Bleecker knew there had been a restaurant in the building for at least 13 years. Whether Bleecker actually knew of the deep fat fryer is also irrelevant because actual knowledge is not a requirement in determining whether a statement of fact is false as a matter of law. (See Tennenbaum v Ins. Corp. of Ireland, Limited, 179 AD2d 589 [1st Dept 1992] [cancellation of insurance contract valid even where insured's answer on the insurance application that building was in "good" condition was an innocent mistake]; Curanovic, 307 AD2d at 436-437 ["rescission is available even if the material misrepresentation was innocently or unintentionally made"]; Meagher v Executive Life Ins. Co. of New York, 200 AD2d 720, 720 [2d Dept 1996] [failure of insured to reveal prior hospitalizations although insured believed tumors to be benign, was a material misrepresentation.]).
Granite has also established that the false statement induced Granite to issue the policy. According to Susan Fontaine, the Vice President of AIG's Small Business Division,
had question No. 10 on the application been answered truthfully by checking off yes,' [AIG] would have had the opportunity to consider Bleecker's material misrepresentation that a restaurant risk existed. Upon review, [AIG] would have then refused to enter into the insurance contract due to the fact that the La Margarita' restaurant was located directly above Bleecker's store and/or appeared to prepare fried foods.
(Jonathan Chernow's Affirm., dated July 8, 2005, Exh. 1). Bleecker does not present any evidence to rebut Fontaine's statements.
Finally, Granite establishes that the misrepresentation was material as a matter of law. In Fontaine's affidavit, she refers to AIG's underwriting policies to prove that AIG would not have issued the policy if the answer to question 10 was "YES." Fontaine states that because the insurance application contained the answer "NO" to question 10, AIG had "no opportunity to review the restaurant risk, which would have resulted in a refusal to contract with Bleecker." (Id.). Further, Granite provides documentary evidence of AIG's underwriting guidelines and system logic to support Fontaine's statement that, under its policies, Granite would have denied coverage to Bleecker if the answer to question number 10 was "YES". (Chernow Affirm., Exh.A and Exh. C). Consequently, Granite has met its initial burden that it would not have entered into the insurance contract with Bleecker had Bleecker not answered question 10 with a "NO." Bleecker does not present evidence otherwise to create an issue of fact. Thus, Granite has established that the information it requested in the insurance application was material to its determination to issue the policy.
As discussed previously, Granite's policy conditions deemed the policy void if the insured "misrepresent[ed] a material fact concerning [the] policy [or] a claim under the policy." (Chernow Affirm, Exh. F). In addition, when Bleecker accepted the policy, it agreed that, "the [*6]statements in the Declaration [were] accurate and complete" and "[Granite] issued [the] policy in reliance upon [Bleecker's] representations." (Id.). Thus, Bleecker's failure to provide Granite with an accurate answer to question number 10 was not only a material misrepresentation, but a violation of Granite's insurance policy conditions.
Further, individuals applying for insurance coverage have a duty to review the application and correct an incomplete or incorrect answer. (Curanovic, 307 AD2d at 437; North Atlantic Life Ins. Co. of America v Katz, 163 AD2d 283, 284 [1990]). Even if the insured signs an application containing innocent misrepresentations, "the signer of a contract is conclusively bound by it regardless of whether he or she actually read it." (Curanovic, 307 AD2d at 437). Finally, an insurance broker is an agent of the insured and as such, the insured is "bound . . . by knowledge acquired by the agent." (Ribacoff v Chubb Group of Ins. Co., 2 AD3d 153, 154-155 [1st Dept 2003]).
Here, Lim signed the application indicating that all of the information was correct. Lim admitted in his deposition that he neither asked nor told Principe that he wanted to review or see any documents that would be submitted to Granite. (Chernow Affirm., Exh. 3). Bleecker admits that it "fully and reasonably relied on Principe to submit accurate insurance applications to the various carriers and procure insurance on its behalf." (Jeffrey Schulman's Affirm., dated August 7, 2005, ¶ 38). Whether Bleecker knew of the misrepresentation is therefore irrelevant because Lim swore to the accuracy by signing the application, and the answers Bleecker provided in the application bound it.
Bleecker has failed to raise any material issues of fact to preclude summary judgment. Contrary to Bleecker's assertions, there are no issues of fact as to the ambiguity of question number 10, because Lim admits he never saw the question or the rest of the application (besides the signature pages). Thus, any alleged ambiguous wording could not have misled him. There is also no dispute that question number 10 contains the answer "NO." As a matter of law, this constitutes a material misrepresentation in the insurance application. (See Kroski v Long Island Savings Bank FSB, 261 AD2d 136 [1st Dept 1999]; McLaughlin v Nationwide Mutual Fire Ins. Co., 8 AD3d 739 [3d Dept 2004]; Kulikowski v Roslyn Savings Bank, 121 AD2d 603 [2d Dept 1986]). Thus, Granite's denial of coverage does not constitute a breach of contract. Accordingly, the court grants Granite's cross-motion for summary judgment dismissing Bleecker's claims against it.
Alternatively, in its complaint, Bleecker seeks damages from Principe for negligence. Bleecker alleges that, "Principe, as an insurance brokerage agency, was responsible for any alleged material misrepresentation made within the insurance application which it completed on behalf of [Bleecker]," "the failure to . . . recognize that one or more of the statements were allegedly materially incorrect . . . constitutes the proximate cause of [Bleecker's] failure to be covered" and Principe failed to exercise a reasonable degree of care. (Complaint, ¶¶ 21-24). Bleecker also alleges that Steven Principe failed to exhibit the reasonable care of an insurance agent and that his "failure to either recognize that one or more of the statements were or are allegedly materially incorrect or his failure to set forth accurate information, alternatively, constitutes the proximate cause of [Bleecker's] failure to be covered and reimbursed for its losses." (Complaint, ¶¶ 29-30).
Genuine issues of material fact exist that preclude summary judgment against Principe [*7]and Steven Principe for negligence. First, there is an issue as to whether Bleecker ever received the full insurance application. In his deposition, Lim states that he only received the last two pages of the application. (Klein Affirm., Exh. M). However, Steven Principe states in his deposition that he transmitted the entire application to Bleecker. (Nancy Koba Affirm., dated Sept. 7, 2005, Exh A). Steven Principe does not refer to any document to prove he faxed the entire application to Lim. Because the negligence cause of action involves the issue of whether Bleecker or Principe, or both, were negligent in their review or completion of the insurance application, it is premature to grant summary judgment to either at this juncture. Accordingly, the court denies Bleecker's cross-motion for summary judgment against the Principe defendants.
II. Sterling's Motion For Summary Judgment
Sterling has moved to dismiss the negligence and breach of contract causes of action that Steven Principe d/b/a Principe asserts against it in the third party action.
A. Negligence
Steven Principe d/b/a Principe argues that any liability it may have to Bleecker is entirely the result of Sterling's negligence in completing the inaccurate application. In seeking dismissal, Sterling argues that it asked Principe to "complete + forward" the application and that, as Bleecker's insurance broker, Steven Principe d/b/a Principe should have ensured the accuracy of the application. Sterling argues that its own acts were not the proximate cause of Bleecker's loss and therefore Steven Principe d/b/a Principe cannot maintain a cause of action for negligence. Sterling does not argue that it did not owe a duty to Steven Principe d/b/a Principe.
Although Steven Principe d/b/a Principe casts its first cause of action against Sterling in negligence, Steven Principe d/b/a Principe admittedly seeks indemnification or contribution. (Transcript of Hearing, p. 15). However, Steven Principe d/b/a Principe cannot as a matter of law seek indemnification. Common law indemnification is "predicated on vicarious liability, without actual fault" by the party seeking indemnity. (Edge Mgmt. Consulting v Blank, __ {25 AD3d 364} NYS2d ___, 2006 WL 44178 [1st Dept 2006]). Further, "a party who has itself actually participated to some degree in the wrongdoing cannot receive the benefits of the doctrine." (Id.). Because any of Principe's liability in the first party action would be based on Steven Principe d/b/a Principe's own negligence, it would consequently share in the blame. Thus, Steven Principe d/b/a Principe may not seek indemnity in its first cause of action against Sterling.
Where there is a "breach of a duty that runs from the contributor to the defendant who has been held liable," (Trump Village Sec. 3, Inc. v New York State Hous. Fin. Agency, 307 AD2d 891, 896 [1st Dept 2003]), a contribution claim is viable against a third party, even though the third party has no duty to the injured plaintiff. (See Garrett v Holiday Inns, Inc., 58 NY2d 253 [1983]). The contributing party's breach of duty must have "had a part in causing or augmenting the injury for which contribution is sought." (Trump Village, 307 AD2d at 896).
Here, Steven Principe d/b/a Principe contends that Sterling breached its duty to Steven Principe d/b/a Principe to procure the insurance policy, prepare an accurate insurance application and issue the policy. Steven Principe d/b/a Principe also alleges that the breach caused injury to Bleecker because AIG declared the policy void. Thus, Steven Principe d/b/a Principe has sufficiently alleged facts that could give rise to a contribution claim. [*8]
The court now turns to whether there are issues of fact that preclude granting summary judgment to Sterling on the negligence cause of action. It is true that New York courts have recognized a broker's cause of action for negligence against another broker. (See Levine v American Federal Group, Ltd., 180 AD2d 575 [1st 1992]). New York courts have also held that, as a general rule, "the question of proximate cause is to be decided by the finder of fact." (Derdiarian v Felix Contracting Corp., 51 NY2d 308, 316 [1980]; Litts v Best Kingston General Rental, 7 AD3d 949, 951 [3d Dept 2004]). Here, there remain issues of fact as to who completed the application, whether Sterling filled out the entire application before faxing it to Principe and whether either provided the answer "NO" to question number 10. In his affidavit, Steven Principe swears he did not fill out the application and that he provided Sterling with information sufficient to complete the insurance application. (Principe Aff., Exh. A). To rebut, Sterling submits an attorney affirmation annexing pleadings, documentary evidence and deposition testimony to argue that Principe completed the application. For instance, Lim indicates in his deposition that he believed Principe prepared the insurance application. (Klein Affirm., ¶ 15; Exh. M). These questions of fact preclude summary judgment because the court cannot determine as a matter of law whether either Sterling or Steven Principe d/b/a Principe is responsible for the mistake in the application. Accordingly, the court denies summary judgment on the first cause of action in Steven Principe d/b/a Principe's third-party complaint.
Next, Sterling contends that the court should dismiss Steven Principe d/b/a Principe's second cause of action for breach of contract because Steven Principe d/b/a Principe pled it improperly. Steven Principe d/b/a Principe does not respond directly to this argument. Rather, Steven Principe d/b/a Principe makes the general argument that summary judgment is inappropriate because issues of fact and discovery remain.
To assert a cause of action for breach of contract, a party must allege the breach of a specific contractual provision. (Kraus v Visa Intl. Serv. Assn., 304 AD2d 408 [1st Dept 2003]). Here, Principe alleges that "[Principe], as broker for [Bleecker], contracted with Sterling to obtain coverage on behalf of [Bleecker]," (Third-Party Complaint, ¶ 21) but that Sterling failed to obtain that coverage. Although Principe has not described what evidence in the record supports the contract claim, discovery is incomplete. Outstanding discovery may reveal further evidence of the alleged contract between the parties. (See CPLR 3212[f]). Accordingly, the court denies that part of Sterling's motion for summary judgment on the second cause of action with leave to renew at the close of discovery.
Finally, Sterling moves to sever and dismiss Thurcon's cross-claims. As discussed previously, the court granted Thurcon's motion to dismiss and sever the claims against it in the third-party action at oral argument on September 29, 2005. (See Interim Order). Thus Thurcon's cross-claims also fall and Sterling's motion is moot.
Accordingly it is
ORDERED that the motion of third-party defendant Sterling & Sterling, Inc., s/h/a Sterling & Sterling, Inc. of Woodbury, NY for summary judgment is granted to the extent that it seeks to dismiss Steven Principe d/b/a The Principe Agency's claim for indemnification and is otherwise denied; and it is further
ORDERED that third-party plaintiff Steven Principe d/b/a The Principe Agency's claim for indemnification against Sterling & Sterling, Inc. of Woodbury, NY is dismissed; and it is [*9]further
ORDERED that the motion of third-party defendant Sterling & Sterling, Inc., s/h/a Sterling & Sterling, Inc. of Woodbury, NY to sever and dismiss third-party defendant Thurcon Properties' cross-claims is denied as moot; and it is further
ORDERED that the cross-motion of defendant Granite State Insurance Company for summary judgment is granted and the action against it is dismissed and the remainder of the first party action is severed and continues; and it is further
ORDERED, ADJUDGED and DECLARED that Granite State Insurance Company's insurance policy does not cover the plaintiff's alleged losses from the June 24, 2003 fire; and it is further
ORDERED that the cross-motion of plaintiff Bleecker Street Health & Beauty Aids, Inc. for summary judgment is denied.
Dated: March __, 2006
ENTER:
_______________________ J.S.C.
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