Charter Oak Fire Ins. Co. v QBE Ins. Co.

[*1] Charter Oak Fire Ins. Co. v QBE Ins. Co. 2009 NY Slip Op 52157(U) [25 Misc 3d 1217(A)] Decided on October 14, 2009 Supreme Court, New York County Edmead, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on October 14, 2009
Supreme Court, New York County

The Charter Oak Fire Insurance Company and MEILMAN MANAGEMENT AND DEVELOPMENT, LLC, Plaintiffs,

against

QBE Insurance Company, G & P 418 CORP., AMERICAN SAFETY INSURANCE CO., PALENQUE, INC., JOHN PATERNO, INC., and SAMMY EL GAMAL, Defendants.



119044/06

Carol R. Edmead, J.

Motion sequence numbers 002 and 003 are consolidated for disposition.

Plaintiffs are Meilman Management and Development LLC (Meilman) and its insurer, the Charter Oak Fire Insurance Company (Charter Oak). Plaintiffs seek a declaratory judgment that defendant QBE Insurance Company (QBE) must defend and indemnify Meilman in an underlying action. In motion sequence number 002, plaintiffs move for summary judgment against QBE, the insurer of defendant G & P 418 Corp. (G & P). In motion sequence number 003, QBE moves for summary judgment dismissing all claims against it.

As owner of a building in Manhattan, Meilman leased separate parts of its basement to defendant G & P and nonparty Jedems, Inc., respectively, and part of its ground floor to defendant Palenque, Inc. G & P's lease gives the premises address as 416-418 West 14th Street (Meilman motion, Ex. K). Each of the three tenants, G & P, Palenque, and Jedems, operated establishments described as bars, lounges and/or nightclubs. G & P purchased commercial liability and liquor liability insurance from QBE. The parties' arguments in their respective motions center around the commercial liability part of the policy.

On December 21, 2005, defendant Sammy El Gamal commenced the underlying action against Meilman and the three building tenants. His complaint alleges that on December 23, 2002, while he was patronizing a nightclub at 416 West 14th Street, defendants' employees physically assaulted him (Meilman motion, Ex. F). While the complaint states that 416 is the house number of the address where the attack took place, the insurance policy states that the insured premises are at house number 418. Neither the complaint nor the subsequent bill of particulars identifies which defendant employed the attackers or in which defendant's nightclub the attack happened.

Meilman states that it had no knowledge of the incident until receiving El Gamal's [*2]summons and complaint. El Gamal served the Secretary of State of New York on January 13, 2006, and St. Paul Travelers, acting for Meilman, received the summons and complaint on January 19, 2006. On January 30, 2006, St. Paul Travelers tendered Meilman's defense to QBE. On February 15, 2006, St. Paul Travelers received a letter from Specialty Insurance, the administrator for QBE. The letter stated that St. Paul Travelers' letter was Specialty's first notice of the claim, "which occurred over three years ago" (Meilman motion, Ex. P). The claim was "being handled under a strict Reservation of Rights as we were not notified of this claim within a reasonable time after it's [sic] occurrence" (id.). Specialty Insurance further stated that the claim would be investigated to determine if the late notice had handicapped its ability to investigate and defend this claim.

On May 10, 2006, QBE wrote St. Paul Travelers that its investigation established that El Gamal was not injured at G & P's premises and that there was no evidence that G & P's operations had anything to do with the assault. "Further, we are still investigating the late notice issues. Accordingly we will not defend or indemnify your insured" (Meilman, Ex. S).

Meilman commenced the instant action in December 2006. Meilman moved to dismiss the complaint in the underlying action. The complaint alleged that the employees of the tenants in the building beat El Gamal. Meilman's moving affidavit alleged that it had nothing to do with hiring or supervising its tenants' employees, that it had no control over the tenants, and that it was not at the building on the date that the assault took place. Based on this affidavit, the underlying action was dismissed as against Meilman in April 2008. According to the moving parties, El Gamal's time to appeal the dismissal has passed. Since Meilman is no longer a party in the underlying action, it does not need to be indemnified for damages. The question is whether QBE is obligated to provide Meilman with a defense.

Meilman argues the following: 1) regardless of where the attack took place, the allegations in the underlying complaint triggered QBE's obligation to defend Meilman in that action; 2) Meilman gave QBE timely notice of the claim in the underlying action; 3) even if Meilman did not give QBE timely notice, QBE's untimely disclaimer of coverage obligates it to defend and indemnify Meilman; and 4) QBE's policy provides Meilman with primary coverage, while Charter Oak, Meilman's insurer, provides Meilman with excess coverage.

QBE contends that it is not obligated to defend Meilman because: 1) there is no coverage under the policy, because, as revealed by its investigation, the attack did not take place at the insured premises; 2) the address given in the underlying complaint as being the place of the attack is not the insured location; therefore, the facts alleged in the complaint did not raise a reasonable possibility that the action would be within the policy coverage and QBE's duty to defend was not triggered; and 3) as three years elapsed between the attack giving rise to El Gamal's claim and the date that Meilman gave QBE notice of the claim, notice was untimely.

Timeliness of Notice of Claim

QBE argues for dismissing the complaint on the basis of Meilman's delayed notice of El Gamal's claim. QBE's policy requires notice of the claim as soon as practicable, meaning notice within a reasonable period of time after the incident giving rise to the claim (Great Canal Realty Corp. v Seneca Ins. Co., 5 NY3d 742, 743 [2005]). The insured's failure to give timely notice vitiates the insurance policy and frees the insurer of its obligation to provide coverage (id.). The purpose of requiring strict compliance with the notice provisions of an insurance contract is that [*3]it protects the insurer against fraud or collusion; gives the insurer an opportunity to investigate claims while the evidence is fresh; affords the carrier time to make an early estimate of potential liability and set up adequate reserves; and provides the insurer with the chance to work towards early settlement of claims (Argo Corp. v Greater NY Mut. Ins. Co., 4 NY3d 332, 339 [2005]; Unigard Sec. Ins. Co. v North Riv. Ins. Co., 79 NY2d 576, 582 [1992]).

In his affidavit in the El Gamal case, Meilman's owner/manager states that he first learned of the alleged attack giving rise to the underlying action when he was served with the summons and complaint. He further alleges that no one from Meilman was at the building at the time of the incident, which was a Sunday, around two a.m., and that no one from Meilman would come into work on a weekend or so early in the morning. He further alleged that Meilman did not employ a super on the premises and that no servants or agents of Meilman were involved in any physical altercations on that date.

As the insured, Meilman has the burden of showing that the three-year delay in giving notice was reasonable (see White v City of New York, 81 NY2d 955, 957 [1993]). Although a delay as long as one year has been held untimely as a matter of law (RMD Produce Corp. v Hartford Cas. Ins. Co., 37 AD3d 328, 331 [1st Dept 2007]), "[t]here may be circumstances, such as lack of knowledge that an accident has occurred or a reasonable belief in nonliability, that will excuse or explain delay in giving notice" (White, 81 NY2d at 957; see also 426-428 West 46th St. Owners, Inc. v Greater NY Mut. Ins. Co., 23 AD3d 207, 207 [1st Dept 2005]). In this case, Meilman alleges that it did not know of the incident until it received El Gamal's summons and complaint. Meilman raises an issue of fact regarding the timeliness of its notice.

Duty to Defend

The insurer's duty to defend is broader than its duty to indemnify (Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 310 [1984]). "The duty to defend arises whenever the allegations in a complaint against the insured fall within the scope of the risks undertaken by the insurer, regardless of how false or groundless those allegations might be" (id.). The duty to defend does not depend on the insurer's ultimate duty to indemnify should the insured be found liable (id.). Provided that the claims, even though based on debatable or even untenable theory, may reasonably be said to fall within policy coverage, the insurer must defend, whatever may later prove to be the limits of the insurer's responsibility to pay (Schwamb v Fireman's Ins. Co. of Newark, N.J., 41 NY2d 947, 949 [1977]).

On the other hand, the insurer need not defend if the factual allegations of the underlying complaint indicate that there is no basis for recovery within the policy coverage (Allstate Ins. Co. v Mugavero, 79 NY2d 153, 159 [1992]). An insurer can be relieved of its duty to defend if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision (Allstate Ins. Co. v Zuk, 78 NY2d 41, 45 [1991]).

El Gamal's complaint states that he was injured at premises bearing house number 416. On a declarations page of QBE's policy, the named insured is "418 West 14th Street Corp. Rare" (later changed to G & P) and its address is at number 416 (Meilman, Ex. U). Another declarations sheet says that the address is at 418. The schedule of covered premises gives the address as 418 and lists Meilman as additional insured at 418. The additional insured endorsement provides that Meilman is covered "with respect to liability arising out of the [*4]ownership, maintenance or use of that part of the premises leased to [named insured]" (Meilman, Ex. U). The endorsement also provides that the premises are occupied as a lounge where alcohol is served. G & P's lease names the house address as 416-418.

QBE contends that, since the complaint does not give the correct house number of the insured premises, it could not reasonably suppose that El Gamal could have been attacked at the insured premises. The court does not agree. Whatever the correct address may be, the insured location was G & P's lounge. There is no allegation that two separate buildings are involved. There is no suggestion that G & P operated a business in any building other than the one it rented from Meilman. Nor does QBE allege that the part of the basement that G & P leased was 418, the house number named as the insured location in the policy, while another part of the basement is 416. The policy itself states that G & P is at 416, so the mention in the complaint of 416 should have alerted QBE to the possibility that the incident involved the insured premises.

Since the claim deriving from the attack could fall within the scope of risks undertaken by QBE, it was obligated to defend Meilman, assuming that coverage exists. In the event of noncoverage, QBE would not be obligated to defend.

Notice of Disclaimer

As to Meilman's argument that the notice of disclaimer was untimely, an insurance company denies a claim because the policy does not cover the claim or because the claim, although covered, falls within a policy exclusion. Insurance Law § 3420 (d) requires that an insurance company that denies a claim must give the insured notice of disclaimer as soon as is reasonably possible. This rule applies where a claim is covered by a policy and the disclaimer is based on a policy exclusion (Markevics v Liberty Mut. Ins. Co., 97 NY2d 646, 648 [2001]). Failure to give timely notice of disclaimer may result in the insurer being obligated to defend and indemnify the insured, despite a policy exclusion (Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 189 [2000]). The requirement of a timely disclaimer exists even where the insured fails to give the insurer timely notice of claim (79th Realty Co. v Wausau Ins. Cos., 7 AD3d 507, 507 [2d Dept 2004]).

On the other hand, the rule of CO907454 does not apply where the claim is not covered under the policy; in the case of noncoverage, no disclaimer is required (Markevics, 97 NY2d at 648 [2001]).

The timeliness of the disclaimer is measured from the time that the insurer first learns of the grounds for disclaimer (A.J. McNulty & Co. v Lloyds of London, 306 AD2d 211, 212 [1st Dept 2003]). A delayed notice of disclaimer can be deemed reasonable if the insurer shows that the delay was due to "a prompt, diligent and good faith investigation of the claim" (Structure Tone, Inc. v Burgess Steel Products Corp., 249 AD2d 144, 145 [1st Dept 1998]). "An insurer is not required to disclaim on timeliness grounds before conducting a prompt, reasonable investigation into other possible grounds for disclaimer; in fact, a reasonable investigation is preferable to piecemeal disclaimers'" (DiGuglielmo v Travelers Prop. Cas., 6 AD3d 344, 346 [1st Dept 2004], quoting 2540 Assoc. v Assicurazioni Generali, S.p.A., 271 AD2d 282, 284 [1st Dept 2000]).

Initially, QBE reserved its right to disclaim based on an untimely notice of claim. Then QBE assigned the case to the investigator on February 13, 2006. The investigator attempted to contact G & P's principal and discovered that she was out of the country. After the principal [*5]returned, she was interviewed on March 28, 2006. The principal told the investigator that she acted as bartender at the time that the incident allegedly took place and that she had no knowledge of any such incident. She also did not remember which other G & P employees were working on that date. On April 4, 2006, the investigator wrote the principal requesting that she search her records for the identity of employees who were working on the date and time of the incident. No response was received to this request. Also, on April 4, 2006, the investigator issued its report to Specialty Insurance, QBE's administrator, stating that if the investigator did not receive a response to its request from G & P, it would follow up with G & P's principal (QBE opposition, Ex. 10). Whether there was a follow-up is not indicated. On May 10, 2006, QBE issued its notice of disclaimer.

Over three months passed between January 30, 2006, when notice of claim was given to QBE, and the date of the notice of disclaimer. Meilman's allegation of untimely disclaimer becomes important only if the policy covered the underlying claim. QBE argues that the investigation proves noncoverage. While QBE succeeds in showing that it was justified in undertaking the investigation, it fails to establish that the investigation was conducted in a reasonably diligent fashion. That is an issue of fact. In turn, the reasonableness of the three-month delayed disclaimer depends upon the diligence question. Whether the disclaimer was timely is an issue of fact.

Primary or Excess Coverage

Each movant contends that its insurance is primary and the other's excess.

QBE's policy naming Meilman as additional insured and Charter Oak's policy naming Meilman as named insured provide the following: 4. Other Insurance.

If other valid and collectible insurance is available to the insured for a loss we cover ... our obligations are limited as follows:a. Primary Insurance.This insurance is primary except when b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then we will share with all that other insurance by the method described in c. below

(Meilman, Exs. U and W, Section IV).

Section b, referred to in the above-quoted Section 4 (a), is amended in QBE's policy via an endorsement entitled the Amendment of Other Insurance Condition, which provides, in relevant part: b. Excess Insurance.This insurance is excess over: ...(2) Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement

(Meilman, Ex. U).

This section b applies to an insured who is an additional insured in another policy. It [*6]does not apply to Meilman who is the named insured in Charter Oak's policy, not the additional insured. Under this provision, QBE does not provide excess coverage to Meilman. It provides primary coverage.

Charter Oak's policy also amends Section b via an endorsement entitled Other Insurance-Additional Insureds, which provides that the policy is "excess over any of the other insurance; whether primary, excess, contingent or on any other basis: ... that is valid and collectible insurance available to you if you are added as an additional insured under any other policy" (Meilman, Ex. W).

Meilman is an additional insured under the QBE policy. Under this endorsement, Charter Oak's coverage for Meilman is excess.

Conclusion

The proponent of summary judgment must show that it is entitled to judgment as a matter of law by eliminating any material issue of fact from the case (Pirrelli v Long Is. R.R., 226 AD2d 166, 166 [1st Dept 1996]). Both sides here fail to eliminate material issues of fact. Meilman fails to show that it gave timely notice of claim or that QBE issued an untimely notice of disclaimer. QBE fails to prove noncoverage or untimely notice of claim. Summary judgment is denied to both sides.

It is

ORDERED that the motion for summary judgment (motion sequence number 002) by plaintiffs Meilman Management and Development LLC and Charter Oak Fire Insurance Company is denied; and it is further

ORDERED that the motion for summary judgment (motion sequence number 003) by QBE Insurance Company is denied; and it is further

ORDERED that counsel for plaintiffs shall serve a copy of this order with notice of entry within twenty days of entry on all counsel.

Dated: October 14, 2009

ENTER:

_____________________

J.S.C.