Merrill Lynch/WFC/L, Inc. v Continental Cas. Co.
Annotate this CaseDecided on January 26, 2012
Supreme Court, New York County
Merrill Lynch/WFC/L, Inc. and BROOKFIELD FINANCIAL PROPERTIES, Plaintiffs,
against
Continental Casualty Company, AIU INSURANCE COMPANY, AMERICAN BUILDING MAINTENANCE CO., and ABM ENGINEERING SERVICES COMPANY, (pertaining to the action entitled Shairin Torres . Merrill Lynch/WFC/L, Inc., et al. and third party action), , Defendants.
116605/07
Appearances of Counsel:
Andre N. Poulis, Esq.
Devitt Spellman Barrett, LLP
Smithtown, NY
Counsel for Plaintiff
Jeffrey Samel & Partners
New York City
Counsel for Defendant ABM
Martin Shulman, J.
Plaintiff Merrill Lynch/WFC/L, Inc. ("Merrill") moves, pursuant to CPLR 3212, for partial summary judgment against defendant American Building Maintenance Co. ("ABM Co.") on Merrill's fourth cause of action for breach of an insurance procurement obligation.
Background
The second amended complaint (the "Complaint") alleges as follows: On August 24, 2004, Shairin Torres commenced an action against plaintiffs (the "Torres Action") to recover for personal injuries that she allegedly sustained on July 31, 2002 while in the women's bathroom on the 31st floor of the building located at 2 World Financial Center, New York, New York (the "Premises"). At the relevant time period, Brookfield Financial Properties ("Brookfield") was the [*2]owner of the Premises and Merrill was the lessee.[FN1]
Torres alleged that plaintiffs failed to maintain the Premises in a safe condition in that she was injured when she was caused to slip and fall while in the women's bathroom on the 31st floor of the Premises. She alleges that ABM Co. and ABM Engineering Services Company ("ABM Engineering") (ABM Co. and ABM Engineering are collectively referred to as "ABM" where appropriate) were responsible for creating the defective condition or permitting it to exist.
Pursuant to a written Janitorial Maintenance Service Agreement (the "Janitorial Agreement"), Merrill engaged ABM Co. to perform janitorial services at the Premises. Pursuant to a written Engineering Maintenance Agreement (the "Engineering Agreement"), Merrill engaged ABM Engineering to perform engineering services at the premises (the Janitorial Agreement and Engineering Agreement are collectively referred to as the "ABM Agreements"). Among other requirements, the ABM Agreements required ABM to purchase and maintain commercial general liability insurance for Merrill's benefit and to add Merrill as an additional insured on ABM's commercial general liability insurance policy.
The Complaint alleges that defendant Continental Casualty Company ("CNA") issued a general commercial liability insurance policy to ABM for the period November 1, 2000 to November 1, 2003 (the "CNA Policy"). The CNA Policy provides defense and indemnity coverage to Merrill as an additional insured pursuant to an additional insured endorsement and to Brookfield as Merrill's indemnitee.
The Complaint also alleges that defendant AIU Insurance Company ("AIU") issued a commercial umbrella liability insurance policy to ABM for the period November 1, 1999 to November 1, 2002 (the "AIU Policy"). The AIU Policy provides umbrella liability insurance coverage upon exhaustion of the applicable limits of the underlying CNA Policy.
The Complaint contains four causes of action. The first is against CNA for breach of contract. It alleges that CNA breached its contract with Merrill by not providing a defense and indemnification. The second cause of action seeks a declaration that, among other things, the Torres Action is covered by the CNA Policy's terms.
The third cause of action is against AIU for breach of contract. It seeks a declaration that, among other things, (1) the Torres Action is covered by the AIU Policy's terms; (2) the AIU Policy affords umbrella and indemnity coverage to Merrill as an additional insured for the Torres Action; and (3) AIU is obligated to defend and indemnify Merrill in the Torres Action.
The fourth cause of action, which is the subject of this motion, is against ABM for breach of contract. It is based upon CNA's assertions that Merrill is not an additional insured under the CNA Policy and that CNA is not required to provide a defense or indemnity coverage to Merrill under the CNA Policy until such time as a substantial deductible is satisfied. Merrill rejects CNA's asserted defense and alleges, "in the alternative," that if a court or jury should find that ABM (1) did not cause CNA or AIU to add Merrill as an additional insured to the CNA Policy or the AIU Policy, as required by Paragraph 9 of the ABM Agreements; (2) did not procure primary-layer, first dollar insurance coverage for Merrill's benefit as required by paragraphs 9.1, 9.2 and 9.3 of the ABM Agreements; and (3) otherwise acted or failed to act in a manner that [*3]prejudices Merrill's rights to coverage for the Torres Action under the CNA Policy or the AIU Policy, then ABM breached the ABM Agreements, entitling Merrill to defense and indemnity for the costs and fees paid in the Torres Action that are adjudged not to be fully covered by the CNA or AIU Policies.
Although the fourth cause of action pertains to both ABM Agreements, the moving papers are based solely on the Janitorial Agreement. In support of its motion, Merrill cites three sections from that agreement. First, it claims that under section 9.1.3, ABM, as contractor, was required to maintain the following insurance:
Comprehensive General Liability Insurance and Umbrella Liability, including coverage for Products, Completed Operations, Contractual Liability, and Contractual Liability for the services or products to be provided, and obligations undertaken by Contractor (or any subcontractor) to Customer under this Agreement. Such Comprehensive General Liability Insurance and Umbrella Liability shall provide for minimum Combined Bodily Injury and Property Damage Coverage limits of $3,000,000 - $5,000,000 per occurrence.
Second, it cites section 9.2 which provides:
Such coverage shall be primary and shall be without right of contribution under any other policies of Customer [i.e. Merrill].
Third, it cites section 9.3, which provides in relevant part:
All such policies shall name Customer . . . as additional insured as their interest may appear hereunder.
Merrill argues that the allegations in the Torres Action are directly related to the services that ABM was to provide and the obligation which it undertook in the Janitorial Agreement. In the Torres Action, ABM sought dismissal of the claim against it on the ground that it was a third-party contractor with no direct liability to Torres.
According to Merrill, the CNA Policy contains an endorsement that provides for a $500,000 deductible per occurrence, including allocated loss expenses. Legal fees, costs and expenses are deemed allocated losses under the CNA Policy (Affirmation of Andre Poulis, Esq. ¶ 22). The AIU Policy is an excess policy, and no coverage is available if coverage has not been first obtained from the first primary layer of coverage, namely $1 million (id. ¶ 23).
Merrill also maintained a commercial general liability policy with Travelers Property and Casualty Insurance ("Travelers") which, according to its deductible endorsement, the $2 million coverage provided is subject to a $2 million deductible per occurrence, essentially making it a "fronting policy" (id. ¶ 26).
Based on the foregoing, Merrill argues that ABM breached the Janitorial Agreement that required it to obtain a minimum of $3 million in commercial general liability coverage which was to name Merrill as an additional insured, and the coverage was to be primary and not contributory. Instead, allegedly, ABM obtained only a $1 million commercial general liability policy that was subject to a $500,000 deductible. It contends that the allegations in the Torres Action (a recurring water problem in the women's bathroom at the Premises where the alleged [*4]incident occurred) encompasses the services provided and obligations ABM undertook under the Janitorial Agreement. Thus, it argues, ABM breached the Janitorial Agreement.
As for damages, Merrill seeks a "conditional judgment" in the amount of $2 million based on the $2 million deductible on its general liability policy with Travelers, which amount includes legal fees, costs and expenses that Merrill has allegedly incurred in the defense of the underlying Torres Action, which it states amounts to $295,908 as of June 30, 2011, as well as any liability to Torres that Merrill would be directly obligated to pay.
In opposition, ABM makes four arguments: First, although the Janitorial Agreement obligated it to purchase insurance naming Merrill as an additional insured, there is nothing in that agreement that prohibited it from obtaining an insurance policy with a deductible.
Second, the agreement Merrill drafted gave it the right to examine the insurance policies. Thus, Merrill knew or should have known of the $500,000 deducible and it could have rectified any perceived problem by purchasing its own insurance and demanding reimbursement from ABM.
Third, by obtaining a $25 million umbrella policy, it satisfied the requirement that "Such Comprehensive General Liability Insurance and Umbrella Liability shall provide for minimum Combined Bodily Injury and Property Damage Coverage limits of $3,000,000.00 - $5,000,000.00 per occurrence" (emphasis added). Thus, ABM contends its purchase of a commercial general liability policy in the amount of $1 million is inconsequential for purposes of the motion.
Fourth, contrary to Merrill's assertion — that it is not named as an additional insured on ABM's umbrella policy — it is covered by that policy in that the umbrella policy adopts the same coverage of the primary policy. The excess policy is a "following form" policy giving it the same obligation as the primary policy. The umbrella policy becomes operative as soon as the primary insurance coverage of $1 million is reached.
Because Merrill seeks no relief against CNA in this motion, and because ABM's opposition seeks no relief against CNA, CNA asserts that it "need not make any substantive response to the arguments contained in Merrill's Motion or those in ABM's Opposition." However, it seeks to "correct" misstatements ABM made in its opposition. CNA disputes the contention that Merrill is an additional insured under an insurance policy that CNA issued to ABM and that Merrill is entitled to a defense under that policy.
As with CNA, AIU acknowledges that neither Merrill nor ABM seeks any relief against either of the defendant insurers. AIU raises two points: (1) under the clear wording of the AIU umbrella policy issued to ABM, all underlying insurance must be exhausted before AIU has any obligation to indemnify any additional insureds regarding the Torres Action; and (2) the AIU excess policy does not include any duty to defend any additional insureds in cases such as the Torres Action. Also, it contends that Merrill's status as an additional insured on the CNA and AIU policies should be reserved for a later date and the AIU excess policy does not have identical obligations to those of the CNA Policy.
DISCUSSION
As a preliminary matter, the Court accepts Merrill's Supplemental Affirmation dated November 4, 2011 which responds to CNA and AIU's submissions that were made after Merrill's Reply Affirmation was submitted.
As for the merits, Merrill seeks partial summary judgment against ABM on its fourth [*5]cause of action for breach of an insurance procurement obligation. The motion is premature in that Merrill is seeking judgment on its "alternative" claim contained in the fourth cause of action that, according to the Complaint, will come into play only if a court or jury should find that ABM: (1) did not cause CNA or AIU to add Merrill as an additional insured to the CNA Policy or the AIU Policy; (2) did not procure primary-layer, first dollar insurance coverage for Merrill's benefit; and (3) otherwise acted or failed to act in a manner that prejudices Merrill's rights to coverage for the Torres Action under the CNA Policy or the AIU Policy. Only then, the Complaint indicates, will Merrill seek a determination that ABM breached the ABM Agreements entitling Merrill to defense and indemnity for the costs and fees paid in the Torres Action that are adjudged not to be fully covered by the CNA or AIU Policies. There are issues of fact as to whether ABM or one of the insurers is liable for the defense costs in the Torres Action.[FN2]
There has been no finding of liability in the Torres Action and the only present liability in that action are defense costs. " An insurer's duty to defend is liberally construed and is broader than the duty to indemnify,' in order to ensure an adequate defense of the insured, without regard to the insured's ultimate likelihood of prevailing on the merits of a claim'" (Savik, Murray & Aurora Constr. Mgt. Co., LLC v ITT Hartford Ins. Group, 86 AD3d 490, 494 [1st Dept], lv dismissed 17 NY3d 901 [2011], quoting Fieldston Prop. Owners Assn., Inc. v Hermitage Ins. Co., Inc., 16 NY3d 257, 264 [2011]). "A liability insurer has a duty to defend its insured in pending litigation if the pleadings allege a covered occurrence, even though the facts outside the four corners of those pleadings indicate that the claim may be meritless or not covered" (Savik, Murray & Aurora Constr. Mgt. Co., LLC v ITT Hartford Ins. Group, 86 AD3d at 494).
Here, however, Merrill is not presently seeking judgment against either of the insurer defendants. Because ABM is not an insurer, "its duty to defend its contractual indemnitee is no broader than its duty to indemnify" (Inner City Redevelopment Corp. v Thyssenkrupp El. Corp., 78 AD3d 613, 613 [1st Dept 2010]; Bellefleur v Newark Beth Israel Med. Ctr., 66 AD3d 807, 809 [2d Dept 2009]). The contingent nature of the fourth cause of action would render an order requiring ABM to defend or indemnify Merrill premature (see Inner City Redevelopment Corp. v Thyssenkrupp El. Corp., 78 AD3d at 613 [because there has been no showing that defendant was negligent, any order requiring defendant to defend or indemnify it is premature]).
To be sure, where an insurance-procurement clause is "entirely independent of the indemnification provision in the parties' contract," then "liability need not await a factual determination as to whose negligence, if anyone's, caused the plaintiff's injuries" (Ribadeneyra v Gap, Inc., 287 AD2d 362, 363 [1st Dept 2001]). But here an issue remains as to whether ABM breached the insurance procurement provision as demonstrated by Merrill's own pleading, i.e. the fourth cause of action upon which it seeks judgment.
Merrill seeks a "conditional judgment" in the amount of $2 million based on the $2 million deductible on its general liability policy with Travelers, which amount includes legal fees, costs and expenses that Merrill has allegedly incurred in the defense of the underlying Torres Action, as well as any liability to Torres that Merrill would be directly obligated to pay. Merrill fails to explain why it is entitled to a conditional judgment for $2 million based on a $2 million deductible contained in its own policy. Indeed, it fails to explain the relevance of the [*6]Travelers Policy and why it obtained a "fronting policy" consisting of $2 million in coverage with a $2 million deductible.
Merrill impliedly argues that ABM has conceded that it, not CNA, has the duty to defend it. In making this argument, Merrill cites ABM's interrogatory response, dated September 24, 2010, wherein ABM stated that it "currently is providing for its own defense, subject to the terms and conditions of its commercial general liability policy with CNA" (see Exhibit "U," ¶ 8, to Reply Affirmation of Andre Poulis, Esq.). Contrary to Merrill's assertion (Poulis Reply Aff., ¶ 9), that statement, by itself, cannot be construed as an admission that ABM, not CNA, has a duty to defend Merrill.
Merrill's reliance upon Roldan v New York Univ. (81 AD3d 625 [2d Dept 2011]) is unavailing. Although the Court there found that the contractor failed to procure the specific coverage required by the contract, there were no open issues concerning the enforceability of the insurance obligations as against the insurers. Here, aside from the issue of the deductible (discussed below), there are issues as to whether the procured insurance complied with ABM's contractual obligations, including issues pertaining to validity of the umbrella policy, and whether the $25 million umbrella policy, when combined with the $1 million primary policy, satisfies ABM's contractual obligation.
Notwithstanding the foregoing, ABM's assertion that it complied with the Janitorial Agreement by obtaining insurance, albeit with a $500,000 deductible, is without merit. ABM would not be in breach if it were to concede that it (or its insurer) is obligated to indemnify for any covered liability within the deductible and to bear additional costs of defending such claims while the insurance is in effect (Hoverson v Herbert Constr. Co., Inc., 283 AD2d 237 [1st Dept 2001]; Structure Tone, Inc. v Burgess Steel Prods. Corp., 249 AD2d 144, 145 [1st Dept 1998]).
The Janitorial Agreement required ABM to obtain "Comprehensive General Liability Insurance and Umbrella Liability, including coverage for Products, Completed Operations, Contractual Liability, and Contractual Liability for the services or products to be provided, and obligations undertaken by Contractor (or any subcontractor) to Customer under this Agreement" and "for minimum Combined Bodily Injury and Property Damage Coverage limits of $3,000,000 - $5,000,000 per occurrence." To the extent that it did not do so, it would be in breach. Contrary to ABM's assertion, where the contract makes no reference to deductibles, then the party obligated to procure insurance is liable for the deductible (see Structure Tone, Inc. v Burgess Steel Prods. Corp., 249 AD2d at 145). ABM's reading of the unambiguous insurance provision would permit it to render meaningless the requirement that it purchase the specified amounts of insurance (Federated Retail Holdings, Inc. v Weatherly 39th St., LLC, 77 AD3d 573, 574 [1st Dept 2010]).
ABM also argues that if Merrill was not satisfied with the insurance that it procured, it could have obtained other insurance on its own. The implied argument, that Merrill had the right to protect itself against a breach by ABM by obtaining its own insurance, is without merit. The agreement did not contain this obligation and the court is "not at liberty to rewrite the parties' contract" (Big Apple Physical Therapy, P.C. v Fire Dept. of City of NY, 24 AD3d 168, 170 [1st Dept 2005]). As discussed above, however, although ABM is responsible for any financial costs to Merrill resulting from the deductible, there are issues of fact as to whether ABM or one of the insurers is liable for the defense costs in the Torres Action. For the foregoing reasons, it is [*7]
ORDERED that the motion is denied.
Counsel for the parties are directed to appear for a status conference in Room 325, 60 Centre Street, on February 28, 2012 at 9:30 a.m.
The foregoing constitutes this court's Decision and Order. Courtesy copies of this Decision and Order have been provided to counsel for the parties.
Dated: New York, New York
January 26, 2012
________________________________
HON. MARTIN SHULMAN, J.S.C.
Footnotes
Footnote 1: The action has been discontinued as to Brookfield (Exhibit A to Affirmation of Andre N. Poulis, Esq.).
Footnote 2: As discussed below, however, this decision disposes of the deductible issue.
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