Illinois Union Ins. Co. v Grandview Palace Condominiums Assn. Corp.

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Illinois Union Ins. Co. v Grandview Palace Condominiums Assn. Corp. 2016 NY Slip Op 32421(U) December 9, 2016 Supreme Court, New York County Docket Number: 155113/2012 Judge: Jeffrey K. Oing Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [* 1] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: IAS PART 48 -------------------~--------~-----------x ILLINOIS UNION INSURANCE COMPANY and GREAT AMERICAN INSURANCE COMPANY OF NEW YORK, Index No.: 155113/2012 Mtn Seq. No. 010 & 011 Plaintiffs, DECISION AND ORDER -againstGRANDVIEW PALACE CONDOMINIUMS ASSOCIATION CORPORATION a/k/a GRANDVIEW PALACE OF NEW YORK CONDOMINIUM, Defendant. ---------------~-------------------------x WESTERN HERITAGE INSURANCE COMPANY, Plaintiff, ....:againstGRANDVIEW PALACE OF NEW YORK CONDOMINIUM, Defendant. ---------------------------------~------7X . NATIONAL SURETY CORP., Plaintiff, -againstGRANDVIEW PALACE CONDOMINIUMS ASSOCIATION CORP. a/k/a GRANDVIEW PALACE OF NEW YORK CONDOMINIUMS, Defendants. --------------------------------~--------x GRANDVIEW PALACE OF NEW YORK CONDOMINIUMS, Index No.: 650748/2014 Plaintiff, •'i 2 of 17 [* 2] Page 2 of Index No.: 155113/2012 Mtn Seq. Nos. 010 & 011 c (. -againstOTT INSURANCE AGENCY, Defendant. -----------------------------------------x JEFFREY K. OING, J. : These foui consolidated insurance coverage declaratory judgment actions arise out of a fire that occurred on April 14, 2012 (the "fire"), causing the near-complete destruction of the approximately 400-unit Grandview Palace condominium complex in (. Liberty, New York ("Grandview Palace") owned by defendant Grandview Palace Condominiums Association, Inc. ("Grandview"). Motion sequence numbers 010 and 011, which seek summary judgment and partial summary judgment, respectively, are addressed only to the first action and are consolidated -for disposition herein. Background The fire originated in the old boiler room in the basement of the partially sprinkled "C" building within Grandview Palace and rapidly spread, eventually causing damage to every building within the property (Silverberg Affirm., Ex. 11, pp. 72-75; Ex. 18; Ex. 6). The fire completely destroyed nine buildingB. Grandview estimates that the cost of repairing or replacing the 3 of 17 16 [* 3] \. Page 3 of Index No.: 155113/2012 Mtn Seq. Nos. 010 & 011 16 damaged buildings would be approximately $47 million (Silverberg Affirm., Ex. 6). ·one of the primary bases for plaintiff insurers' refusal to pay Grandview's claim is Grandview's alleged breach of a Protective Safeguards Endorsement (the "PSE"), which provides a warranty regarding sprinkler coverage at Grandview Palace (Farrell Affirm., Ex. A, pp. 556-557). The PSE is contained in } the policy issued by plaintiff Illinois Union Insurance Company ' ("Illinois Union") to Grandview that was in effect at the time of the fire (the "Illinois Union Policy") (Farrell Affirm., Ex. A) . The PSE warrants the existence and maintenance of sprinklers, fire alarms, central station monitoring, and fire and building code compliance. The Illinois Union Policy; number D37389717001, was effective September 9, 2011 through May 12, 2012, and I provided $10 million in primary coverage to Grandview. Plaintiff Great American Insurance Company of New York ("Great American") issued an excess policy, number CPP 8-63-5909-02 (the "Great American .Policy") to Grandview, which provided $20 million in excess coverage (Farrell Affirm.~ Ex. F). The. Great American-excess policy was initially the excess poli'cy to the primary policy issued by Aspen American Insurance Company for the period May 21, 2011 to May 21, 2012 (Id., Endt. 1). When Aspen cancelled that policy mid-term and Illinois Union became 4 of 17 [* 4] Page 4 of Index No.: 155113/2012 Mtn Seq. Nos. 010 & 011 16 the primary carrier for the period beginning September 9, 2011 and ending May 21, 2011, Great American issued a new endorsement listing Illinois Union as the primary policy (Id., Endt. 3). Aspen policy did not contain a PSE. The When Illinois Union replaced Aspen as the primary insurer, adding a PSE, Great American did not return any premium to Grandview to reflect the presumably narrower coverage, nor did Great American notify Grandview that it was narrowing its cqverage mid-term. Illinois Union claims that whether or not the primary policy contained a PSE is not relevant because it simply incorporated the terms of the primary s~t policy as its policy, relying on the primary irisurer to the applicable terms and c~nditions. The Illinois Uni9n Policy includes the Illinois standard form PSE endorsement (IL04150498), providing, a~ pertinent, that: "[a]s a condition of this insurance, you are required to maintain [an] Automatic Spiinkler System; including related supervisory services" (Farrell Affirm., Ex. A, Silverberg Affirm., Ex. 4, § § / A(l)-(2); A(l)-(2), "GA Underwriting 000056''). The PSE defines an "automatic sprinkler system" .as: I a. Any automatic fire protective or extinguishing system, including connected: (1) (2) (3) (4) sprinklers and discharge nozzles; ducts, pipes, valves and fittings; tanks, their component parts and supp~rts; an~ pumps and private fire protection mains. \ ) 5 of 17 [* 5] Page 5 of Index No.: 155113/2012 Mtn Seq. Nos. 010 & 011 16 [AND/OR] b. When supplied from an automatic fire protective system: (1) non-automatic fire protective systems; ·and (2) hydrants, standpipes and outlets (Id., § A(2) (a)- (b)). Section B of the PSE provides: We will not pay for loss or damage caused by or resulting from fire if, prior to the fire, you: 1. Knew of any suspension or impairment in any protective safeguard listed in the schedule above and failed to notify us of that fact; or 2. Failed to maintain any protective safeguard in the Schedule above [i.e!, the automatic sprinkler system], and over which you had control, in complete working order j (Id., §B(l)-(2)). Section E of .the Condominium·Association Coverage _form of the Illinois Union Policy provides an additional condition that ·the plaintiff 1nsurers allege Grandview breached. Section E(3)·, ( captioned "Duties in the Event of.Loss or Damage," subdivision (6), provides: "[a]s often as may be reasonably required, permit , us to inspect the property ... [and] ·take samples of damaged and undamaged property for inspection cand testing" (Id., § E (3) (a) (6), GA Underwriting 0000572). According to the complaint, in the course of their investigation of the fire, plaintiffs discovered that the representations by Grandview as to the existence and extent of 6 of 17 [* 6] Page 6 of Index No.: 155113/2012 Mtn Seq. Nos. 010 & 011 16 protective safeguards were materially false and that, in fact, Grandview Palace was not covered by operable sprinklers and had a / host of fire· safety code violations, as discussed below. ; Plaintiffs denied coverage to Grandview on this basis. As noted above, Illinriis,Union was also Grandview's primary ' property insurer for the May 21, 2010 to May 21, 2011 policy period, but was replaced by non-party Aspen American Insurance Company ("Aspen") as Grandview's primary property insurer the ( next year, until_ Aspen cancelled mid-term. Illinois Union's '\ original quote for the 2010-2011 policy include~ the PSE .. However, when pressed by Grandview's broker, Illinois Union agreed to waive the PSE (Farrell Affirm., Ex. B). / Thus, the ' first 2010-2011 Illinois Union policy was issued with no PSE (Farrell Affirm., Ex. C). Illinois Union added the PSE to the 2011-2012 policy that replaced the Aspen policy, which also had no PSE (Farrell Affirm., Ex. D). The Motions Mtn Seq. No. 010 Illinois Union and Great American move for summary judgment seeking a judgment: (i) declaring that Grandview's claim for insurance coverage is barred based on the "Exclusions and Conditions" contained in the PSE; and (ii) dismissing Grandview's counterclaims. The·counterclaims se~k 7 of 17 damages, including [* 7] Page 7 of Index No.: 155113/2012 Mtn Seq. Nos .. 010 & 011 16 litigation costs, based on an alleged breach of contract and bad faith, as well as a declaration o~ ' Grandview's rights .under the policies. Mtn Seq. No. 011 Grandview moves .for partial summary judgment seeking · dismissal of plaintiffs' claims that either arise out of the PSE, or are based on alleged misrepresentations by Grandview. Grandview argues that the PSE is illegal ,because it provides less coverage than the coverage mandated by the standard fire' policy set forth in Insurance Law§ 3404(e). Alternatively, Grandview argues that it was in compliance with the PSE; that there were no code violations under what Grandview contends were the applicable codes; and that, in, any event, the insurers accepted premiums with knowledge that there were code violations and non-compliance with the PSE; raising defenses of waiver and ~stoppel. Grandview also argues that plaintiffs' motion should be de'nied because discovery has not been completed. Discussion Indisputably, by its plain language, the PSE required Grandview to maintain an Automatic Sprinkler System, including related supervisory services, in "ALL" buildings (Silverberg Affirm., Ex. 4, Endorsement, :GA Underwriting 0000556). In addition, the PSE amended the Exclusions section of the policy to 8 of 17 / [* 8] Page 8 of Index No.: 155113/2012 Mtn Seq. Nos. 010 & 011 16 bar coverage for loss by fire if Grandview either: · (1) failed to maintain an Automatic Sprinkler System over which it had control "in complete working order;" or (2) but failed to notify the Insurers knew the system was impaired (Id., § B(l)-(2), GA Underwriting.0000557). The record demonstrates that several of the interconnected buildings in Grandview Palace lacked any sprinkler system whatsoever at the time of loss pp. 45-46). (~, In denying coverage, Silverberg Affirm., Ex. 11, plain~iff insurers contend that the requirement to maintain a sprinkler system in "ALL" buildings obligated Grandview to install such a system in any building that ' may never have had one. ' Even putting aside the requirement that a sprinkler system was required to be maintained in "ALL" buildings, loss by fire is also excluded from coverage if the Automatic Sprinkler System is not maintained in "complete working order" (Silverberg Affirm., Ex. 4, Endorsement). Plaintiffs argue that the spiinkler system that was present on the date of loss was not even close in "complete woiking order." to being Specifically, plaintiffs point to a number of sprinkler heads that were impaired by virtue of them being blocked by drop-ceiiings, painted over, taped over or corroded (~, Gasser Aff., <][<JI 20-21; Matarese Aff., <][<][ 5-8). In addition; the system provided only 9 of 17 parti~l coverage in many [* 9] Page 9 of Index No.: 155113/2012 Mtn Seq. Nos. 010 & 011 16 buildings and part of the system that monitored the sprinklers operation was inoperable (Gasser Aff., !! 18-19; Isackson Aff., ! 8; Kaufman Aff., ! 19). Plaintiffs claim that, as a result, loss of fire is excluded because of the defects in the Automatic Sprinkler System. In opposition and in support of its own partial summary judgment motion, .Grandview argues that this Court should not consider the provisions of the PSE because it' violates New York Insurance Law § 3404,. which mandates that any property in~urance policy covering the peril of fire must provide for at least as { much coverage as the New York State standard fire policy,· which , is set forth in § 3404 (e) I (the "Standard Policy"). - All fire insurance policies issued for property in the State of New York must, with exceptions not appli6able here, "conform as to all provisions, stipulations, agreements, and conditions" with the Standard Policy (Insurance Law§ 3404[b] [1]). "The standard policy is the minimum level of coverage permissible for an insurance company to issue" (Lane v Security Mut. Ins. Co., 96 NY2d 1, 5 (2001]). An insurer ~ay "offer policy terms more favorable to the insured than those contained in the standard policy," however, a policy that contains a term less favorable to the insured than the Standard Policy is only "enforceable as if r' it conformed with the statutory standard" (1303 Webster Avenue 10 of 17 [* 10] Page 10 of - 16 Index No.: 155113/2012 Mtn Seq. Nos. 010 ·& 011 / Realty Coro. v Great Am. Surplus Lines Ins. cc:., 63 NY2d 227, 231 [ 1984]) . - Thus, if any term. in a fire insurance poi icy is less ' favorable to ~he insured than the Standard Policy would be, that " f , • •• f policy is reformed to confor_m with the Standard Policy ( G.E. Capital Mtge. Servs.v Daskal, 211 AD2d 613, 615 [2d Debt 1995]). ' - By way of ekample, in 1303 Webster Avenue Realty Corp, supr~, a fire policy requiring that. suit be brought within one year was enforced as if it contained the two-yea~ limitation ccintained·in the Standard Policy because the one-year provision provided less coveiage than that mandated by the Standard Policy (63 NY2d 227). Grandview urges that i~surance polici~s that violate the Standard Policy must be enforced as if the offending provision did not exist citing NY Insurance Law § 3404 (f) (1) (A). In this instance, .Grandview argues that because nothing in the Standard· Policy requires·an_insilred to have sprinklers, the policy requirement that Grandview maintain an automatic sp_rinkler system ,- must be stricken from its policy. Grandview, however, proffers no legal support for its proposition and, indeed,·· independent research has not reveaJ.,ed any -leg·al ailthori ty supporting such a conc~usion, on analogous facts. The cases -that are cited by Grandview are distingu~shable in that they either: · ( 1) do not address additional' conditions· ,~ contained in a ~SE, or (20 contr~dict 11 of 17 ) requirements explicitly [* 11] Page 11 of Index No.: 155113/2012 Mtn Seq. Nos. 010 & 011 contained in the Standard Policy. 16 For instance, Lane v Security Mut. Ins. Co. held that an insurer could not deny coverage to an innocent insured for fire intentionally set by her ~on, who was defined as "an insured" pursuant to the definition of insured r contained iri the, subject policy (96 NY2d 1 [2001]). The Court of Appeals held that, "the subject exclusion impermissibly restrict[ed] the coverage mandated by statute and afforded the innocent insured" pursuant to Insurance Law §. 34 04 (Id. at 5) . The Court explained that: Any policy that insures against the peril of-fire must incorporate "terms and provisions no less favorable to the insured than those contained· in the [standard fire policyf (Insurance Law 3404[f] [1] [A]). 'The standard policy exclusion provision entitled "Conditions· suspending or restricting insurance," states that damages will be disclaimed "for loss occurring ... while the hazard is increased by any means within the control or knowledge of the insured" (emphasis added). The standard policy is'the minimum level of coverage permissible for an1insurance company to issue. (Id.). The Court reasoned that by broadening the definition of "the insured" the pol~cy at issue impermissibly provided for less coverage tha~ the mini~um permitted by the Standard Policy, which only allows damages to be disclaimed for losses occurring as a result of "the hazard [] increased by any means within the control or knowledge of the insured" (Id.; Ins. Law§ 3404). Plainly, the hazard that result~ from a fire is increased by a property's lack of sprinklers and the failure to fix same is 12 of 17 [* 12] Page 12 of Index No.: 155113/2012 Mtn Seq. Nos.- 010 & 011 within the control or knowledge of the-insured. 16 This fact is in stark contrast to Lane, where the insured was den;Led cove:;:-age for ) actions taken by "an insured" who was not within her control. As such, Lane does not. support Grandview's interpretation of the Standard Policy. Grandview also relies on Tag 380, LLC v Commet 380, Inc. NY3d507 [2008)). (10 In that case, the \:ourt\ of Appeals held that a policy violated Insurance Law § 3404 where it excluded coverage in the event that ter+orism caused fire damage to a bui-lding (Id. at 514). Tag is also distinguishable from the instant case because here the policy does not ex6lude coverage for fire that results from a specifically named peril -- it simply requires that the insured maintain additional protection as a precondition to coverage. - 1 This requirement is no different from t imposing a higher premium based on a higher likelihood of risk. Contrary to Gran_dview' s arg_ument, by including the PSE, 1 plaintiff insurers did not provide-less than the mandated coverage und~r Insurance Law § 3404. Grandview's argument is -~- based on the stand~rd ab~ence policy. the '165 lines' of lang0age pertaining to sprinklers in th& It argues that because "[t]here is nothing in [of the standard policy] which authorizes insurers tb require such a· warranty as a condition of coverage," ( it therefore follows that, "[t]he PSE clearly reduces coverage, 13 of 17 [* 13] Page 13 of Index No.: 155113/2012 Mtn Seq. Nos. 010 & 011 16 I imposing on Grandview duties not found in the Standard.Fire I Policy: (1) ·to 'maintain' 'in complete working order' sprinklers throughout the Grandv,iew complex; and (2) to notify Plaintiffs of. any 'suspension or impairment' of those sprinklers" (Def. Memo. in Sup. ~f Partial Sum. Judg., p. 10). As noted, supra, Grandview cites no legal authority to sypport .its novel contention. Were that argument accepted, however, an anomalous resu1 t for insureds would produced: without the abil-ity to require that an insured mitigate certain high risk by installing, ~' sprinklers, insurers would either charge substantially ' ' higher premiums of insureds like plaintiff who pbssess a substantially higher risk of fire due to theis construction or decline cov~rage altogether. Although the result Grandview advocates may benefit itself in this instance, that position would produce a detrimental result for insureds as a whole, which would be at odds with what the Standard Fire Policy was enacted to accomplish. For all the foregoing reasons, Grandview's argument that the Standard Fire Policy precludes the plaintiff insurers from enforcing the PSE is withovt merit. To prevail on their summary judgment motion, however, plaintiffs must show that Gra.ndview indisputably breached the PSE, and that there are no triable issues of fact to preclude summary judgment.' Plaintiffs have failed to do so. 14 of 17 Plaintiffs [* 14] Page 14 of Index No.: 155113/2012 .Mtn Seq. Nos. 010 & 011 submit evidence in th~ 16 form of lay and expert affidavits as well as depo'si tion .transcripts, in support of their contention ·that Grandview breached the PSE in that all of the insured buildings of the Grandview were not 100% covered by sprinklers, as allegedly warranted; that th~re were inoperable fire sprinklers, non-funcitioning fire. alarms, fire and safety code violations, buildings without 100% sprinkler coverage, and buildings without any sprinklers; that there was no ~entral fire monitoring st~tion; and that there were fire safety code violations. ' Grandview, in turn, submits the March 9, 2011 ACORD application, which states··that a 16,048 square foot be insured is of fram~ buil~ing to construction and had zero percent sprinkler coverage (Breene 7/15/15 Affirm., Ex. E). Thi~ document raises an issue of fact as to whether Illinois Union tendered the policy with the knowledge that at least one of the buildings was ~ot sprinklered. The ACORD app~ication also conflicts with a spreadsheet of disputed authorship that shows that all buildings had 100% ~prinkl~r coverage, raising further questions as to what information the insurers relied on in providing coverage (Id.<, Ex. D). In addition, among other issues, as Grandview points out, there is conflicting evidence in the record as to which buildings in the complex were fully sprinklered at the time of the fire. 15 of 17 [* 15] Page 15 of Index No.: 155113/2012 Mtn Seq. Nos. 010 & 011 16 Plaintiff insurers include the S and J buildings in their description of "Grandview buildings" whereas those buildings were not insured under the policies, nor included in any insurance application. others. Neither building was connected to any of the Further, David Mallory, Grandview's head of security testified that at least three "I" buildings had no sprinklers in the individual units and only limited sprinklers in the common areas (Mallory EBT, 46-49, Silve:i;-berg Affirm., Ex. 11), and John McAuley, Grandview's Head of Maintenance, testified that there were sprinklers in the commons areas and the residential units in the I-A,B, and C, H, G;. and M Buildings, as well as in the ramps connecting the E and F buildings and the I and G buildings (McAuley EBT, 70-78, 127, 130). Issues of fact also exist as to whether Illinois Union had knowledge of the defects in sprinkler coverage prior to the fire and/or should have inspected the property to ascertain its condition. With respect to the excess policy with Great American, there is arr additional factual issue as to whether that policy may be in effect irrespective of whether Grandview violated the PSE contained in the primary Illinois Union policy. As set forth, ' supra, the Great American policy was initially an excess policy to the Aspen policy, which contained no PSE requiring automatic sprinkler coverage. When the Aspen policy was replaced mid-term 16 of 17 [* 16] Page 16 of Index No.: 155113/2012 Mtn Seq. Nos. 010 & 011 16 by the Illinois Unioff policy, Great American simply issued a new endorsement wi tho.ut notifying Grandview of the change in the scope of coverage ~nd without any reduction in premiums despite the reduction in the scope of coverage. Based on the. foregoing, summary judgment at this juncture .in favor of either plaintiffs or defendant is not warranted. Acc0rdingly, it is ORDERED that the plaintiffs' motion for summary judgment (mtn seq. no. 010) is denied, and it is further ORDERED that defendant's motion for partial summary judgment (mtn seq. no. ,011) is' denied, and it is further ORDERED that counsel shall appear in Part 4~ for a status conference .on January 12, 2017 at 11 a.m. This memorandum opinion~constitutes the decision and order of the Court. Dated: HON. J FREY K. OING, J.s.c. " : EffREY K. .OINQ '"""'''•' ,.,... .J.s.c. 17 of 17

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