Spoleta Constr. Corp. v Cna Ins. Co.

[*1] Spoleta Constr. Corp. v CNA Ins. Co. 2004 NY Slip Op 50804(U) Decided on May 21, 2004 Supreme Court, Monroe County 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 May 21, 2004
Supreme Court, Monroe County

SPOLETA CONSTRUCTION CORPORATION, Plaintiff,

against

CNA INSURANCE COMPANY and TRANSCONTINENTAL INSURANCE COMPANY Defendants.



2002/08918



Attorney for Plaintiff:Steven E. Laprade, Esq.

Phillips Lytle LLP

1400 First Federal Plaza

Rochester, New York 14614

Attorney for Defendants:William M. Harstad, Esq.

Ford Marrin Esposito Witmeyer & Gleser, L.L.P.

Wall Street Plaza, 23rd Floor

New York, New York 10005

Thomas A. Stander, J.

The Defendants, CNA Insurance Company and Transcontinental Insurance Company (collectively "Transcontinental" or "Insurer"), submit a motion seeking summary judgment adjudging that Transcontinental has no obligation to reimburse Spoleta Construction Corporation ("Spoleta") for the costs it incurred resulting from the allegedly defective roof installed by Spoleta's subcontractor in connection with the construction of a Hotel in Willoughby, Ohio and dismissing the complaint.

The Plaintiff, Spoleta, by letter of counsel dated November 18, 2003, "agreed to withdraw that portion of its claim which pertains to compensation for those amounts expended to repair the [*2]defective work performed by the subcontractor on the roof of the subject Hotel." The motion of the Defendants, Transcontinental, for summary judgment dismissing the Complaint is GRANTED as to Plaintiff's claim which pertains to compensation for those amounts expended to repair the defective work performed by the subcontractor on the roof of the subject Hotel.

The remaining claims of Plaintiff are for breach of contract of the insurance policy for failure to provide coverage for damages associated with expenses incurred for repairs to the collateral damages to the interior of the building caused by the water leakage. The motion of the Defendants for summary judgment on the Plaintiff's remaining claims is GRANTED.

I.FACTS

The Plaintiff, Spoleta, commenced this action alleging a cause of action against the Defendant, Transcontinental, for breach of contract consisting of breach of the obligations under an insurance policy and breach of the covenant of good faith and fair dealing implicit in the policy. The insurance policy was issued by Transcontinental and was a general liability policy.

The circumstances surrounding this case arise from a General Construction Agreement ("Contract") entered into May 7, 1998 by Spoleta with the Willoughby Hotel LLC, wherein Spoleta was the general contractor for the construction of a "Courtyard by Marriott Hotel" in Willoughby, Ohio ("Hotel"). Under the Contract Spoleta agreed to complete the construction of the Hotel in accordance with the Contract documents and in a good and workmanlike manner. Construction work began on the Hotel in June 1998.

On November 11, 1998 Spoleta contracted with St. Thomas Construction, Inc., a/k/a St. Thomas General Contracting and Excavating ("St. Thomas") to construct the roof for the Hotel. The sub-contractor St. Thomas began construction of the roof on November 12, 1998 and continued work through March 1, 1999. The completed roof leaked and allegedly caused damage to the interior structure of the newly constructed Hotel.

In February 1999 Spoleta was aware that the interior of the Hotel suffered water damage as a result of the defective roof. Prior to notification of any claim to the Insurer, Spoleta immediately began repairing the damage to the interior structure of the Hotel. Spoleta hired a different roof company to repair the defective work performed by St. Thomas. Spoleta also hired a drywall company to repair extensive damage to the interior of the Hotel caused by water damage due to the defective roof. Spoleta claims repairs to the Hotel cost $254,430.50 and replacement of the roof cost $119,595.95.

Spoleta submitted a claim for these damages to the insurance carrier for St. Thomas, St. Paul Fire & Marine Insurance ("St. Paul Fire") in early 1999. St. Paul Fire disclaimed any coverage for [*3]Spoleta's claim by letter, which was addressed to St. Thomas and copied to Spoleta [FN1], of September 21, 1999. St. Paul Fire disclaimed coverage because the alleged improper work performed by St. Thomas is not covered under the policy, as it does not qualify as an "occurrence" under the Commercial General Liability Coverage Form of the policy.[FN2]

In April or May 1999 Spoleta orally notified Reidman, Brown & Brown, the broker for the CNA/Transcontinental insurance policy, specifically Andrew Meloni, Jr., about the loss and the situation with St. Thomas. Riedman was an agent for both St. Paul Fire and Transcontinental. Spoleta allegedly informed Riedman, Brown & Brown, its agent, of the disclaimer of St. Paul Fire on September 21, 1999. There is no letter or written notice by Spoleta of a claim to Riedman, Brown & Brown ("Riedman") submitted on this motion. Riedman submitted a "General Liability Notice of Occurrence/Claim" on July 26, 2001 to Transcontinental for the occurrence at the Hotel.

Transcontinental sent Spoleta a letter of September 4, 2001 containing a reservation of rights while the insurance carrier investigated the details of Spoleta's claim in order to make a determination on coverage. Thereafter Transcontinental exchanged various communications with Spoleta and its counsel regarding information and documentation about the claim. On March 5, 2002 Counsel for Spoleta sent a letter with numerous documents indicating that these "enclosed reports complete the documentation you had requested from Spoleta." On March 14, 2002 Transcontinental issued a letter disclaiming coverage based on Spoleta settling this claim without knowledge or consent of Transcontinental, and the late reporting of the claim which prejudiced Transcontinental's rights under the policy.[FN3]

This litigation was commenced by Spoleta by Summons and Complaint filed July 29, 2002.

II.SUMMARY JUDGMENT

The Defendant, Transcontinental, seeks summary judgment dismissing the Plaintiff's claims of breach of contract of the insurance policy for failure to provide coverage. After the Plaintiff's withdrawal of claims related to roof repairs, the claims remaining are for damages associated with expenses incurred for repairs to the collateral damages to the interior of the building caused by the [*4]water leakage.

A.INSURANCE POLICY PROVISION REQUIRING CONSENT

Transcontinental issued a Commercial General Liability Policy ("Policy") to Spoleta which was in effect during the relevant time period for the issues raised in this litigation. The Policy contains the following provision: SECTION IV - COMMERCIAL GENERAL LIABILITY CONDITIONS . . .2. Duties in the Event of Occurrence, Offense, Claim Or Suit. . . .d. No insured will, except at that insured's own cost, voluntarily make a payment, assume any obligation, or incur any expenses, other than for first aid, without our consent.

(Transcontinental Insurance Policy, §IV[2][d].) This provision in the policy allows Transcontinental to be involved in making an assessment of damages and liability before any payments are made, and protects the insurance company from the insured incurring excessive expenses and costs. This term mandates that without the consent of Transcontinental, any voluntary payments made by the insured, obligations assumed by the insured or expenses paid by the insured, are at the insured's own cost.

Prior to any consent of Transcontinental, Spoleta contracted with Robert's Drywall & Remodeling ("Robert's D&R") to repair the damages to the interior of the Hotel caused by the leaking roof. The invoices of Robert's D&R shows that the repair work commenced on February 1, 1999.[FN4] The final invoice for repair to the interior of the Hotel shows that the work was complete on July 9, 1999. The total amount for the repairs to the interior was $254,430.50.

Accepting the facts most favorable to Spoleta, Transcontinental was notified of the loss when Spoleta orally notified Reidman, as the agent of Transcontinental, in April or May 1999 (see Insurance Law § 3420[a][3].) When the agent was notified, Spoleta had already assumed the obligation to pay for the repairs done by Robert's D&R and had incurred expenses for work performed by Robert's D&R since February 1, 1999, all to repair the damage to the interior of the Hotel. After verbal notice by Spoleta to the agent in April or May 1999, Spoleta continued to incur expenses and assume the obligation to pay Robert's D&R through completion of the repairs in July 1999. [*5]

The insurance policy indicates that Spoleta's decision to hire a contractor, assume the obligation to pay for the repairs or incur any expenses, without the consent of Transcontinental is done at Spoleta's own cost (Transcontinental Insurance Policy, §IV[2][d].) After the interior damages were fully repaired and expenses of $254,430.50 for such drywall repairs incurred, Spoleta made a claim for coverage under the Transcontinental policy. Although notice to Reidman may be deemed notice to Transcontinental of the claim, such notice to the agent does not bypass or terminate the specific terms of the insurance policy requiring consent of Transcontinental prior to assuming obligations or incurring expenses.

Spoleta has failed to raise any issue of fact on whether there was consent by Transcontinental for the repair work and expenses incurred from February through July 1999. The documentation shows that there was never consent by Transcontinental prior to the repair work contracted for by Spoleta and for which Spoleta was obligated to make payments. Although there is a statutory provision for notice to an agent being deemed notice to the insurance company, such "deemed notice" does not create a consent of the insurance company for the repairs as required under the contract. It was not until July 26, 2001 that the insurance company Transcontinental received information about the loss of Spoleta; when the agent, Riedman, submitted a "General Liability Notice of Occurrence/Claim" for the damages at the Hotel.

Based upon the terms of the insurance policy, any payments made for the repairs to the interior of the Hotel for water damage, any obligations incurred, or expenses incurred, were at the cost of Spoleta because there was no consent of Transcontinental as required under the policy.

B.DISCLAIMER WITHIN REASONABLE TIMEFRAME

Regardless of the failure of Spoleta to obtain consent of Transcontinental in accordance with the policy terms, Spoleta argues that the Defendant is estopped from disclaiming coverage based upon Transcontinental's failure to timely disclaim coverage under the policy. The Plaintiff's position is that even if Spoleta did not provide timely notice and did not obtain consent for the repairs, that Transcontinental's failure to timely disclaim under the policy estops the insurance company from disclaiming the claim of Spoleta.

On the issue of disclaimer, the carrier should disclaim within a reasonable timeframe after it learns of grounds for disclaimer of liability or denial of coverage, otherwise the insurance carrier is precluded from disclaiming or denying coverage (Hartford Ins. Co v County of Nassau, 46 NY2d 1028, 1029 [1979]). Transcontinental did not learn about any information or facts related to the claims of Spoleta until July 26, 2001 when the agent Reidman submitted the "General Liability Notice of Occurrence/Claim." Upon this notice, the Defendant requested certain documentation regarding the Plaintiff's claim. These requests were satisfied by correspondence of March 5, 2002. CNA disclaimed coverage by letter of March 14, 2002.

The Plaintiff asserts that the Defendant is estopped from disclaiming coverage based upon the companies failure to timely disclaim coverage. Plaintiff's position is that the carrier disclaimed [*6]approximately three years after the date of the initial "notice" to the Insurance Agent or at the latest, 8 months after the Notice of Claim was submitted. Plaintiff relies upon the Insurance Law where if, under a liability policy, "an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of an [accident], it shall give written notice as soon as is reasonably possible of such disclaimer . . ." (Ins. Law §3420[d]). By its terms this statutory provision applies only to coverage for death or bodily injury and does not apply to a claim for property damage (see Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 1029 [1979][injuries from automobile accident]; Utica Fire Ins Co. Of Oneida Co. v Spagnolo, 221 AD2d 921 [4th Dept. 1995][personal injury action]). Therefore, Insurance law §3420[d] does not apply in the instant case involving property damage.

Here there are numerous factors which justify the time period taken by the insurer in issuing the disclaimer. By statute, notice is deemed given when the agent was orally notified in April or May 1999. But no actual claim or information about the claim was submitted to Transcontinental until July 26, 2001. Thus Transcontinental did not actually learn about the existence of the claim until July 2001. Thereafter, Transcontinental sent Spoleta a letter of September 4, 2001 containing a reservation of rights while the insurance carrier investigated the details of Spoleta's claim in order to make a determination on coverage. Transcontinental exchanged various communications with Spoleta and its counsel regarding information and documentation about the claim. On March 5, 2002 Counsel for Spoleta sent a letter with numerous documents indicating that these "enclosed reports complete the documentation you had requested from Spoleta" concerning the claim. On March 14, 2002 Transcontinental issued a letter disclaiming coverage based on Spoleta settling this claim without knowledge or consent of Transcontinental, and the late reporting of the claim which prejudiced Transcontinental's rights under the policy.

Under the requirements of Insurance Law § 3420, which requires disclaimer as soon as reasonably possible for coverage for death or bodily injury, the Court has stated that this determination "is a question of fact which depends on all the facts and circumstances, especially the length of and the reason for the delay" (Hartford Ins. Co. at 1030). Although the statutory provision does not apply to a property damage case, the Court of Appeals language discussing that the length of time for a disclaimer should depend on all the facts and circumstances is relevant and applicable. Here, there was an eight month period where the parties were exchanging communications and information about the claim. Then, Transcontinental disclaimed within 9 days of receiving all the information from Spoleta concerning the claim. There is no question of fact that this is a reasonable timeframe for disclaiming coverage.

Based on the evidence presented, Transcontinental timely disclaimed coverage within a reasonable timeframe after it had received all the information relevant to the claim of Spoleta. The Plaintiff's position that Transcontinental failed to timely disclaim is unfounded and without merit. Therefore, there is no estoppel which prohibits Transcontinental from disclaiming coverage based on the terms of the Policy whereby Spoleta settled the claim without knowledge or consent of Transcontinental, and on the late reporting of the claim which prejudiced Transcontinental's rights under the policy. [*7]

C.OTHER GROUNDS ARGUED BY PARTIES

All other grounds raised by the parties in support and in opposition to this motion have been fully reviewed. All such arguments are considered moot and not reached in this Decision.

D.CONCLUSION

The insurance policy issued to Spoleta by Transcontinental requires that any payments made for repairs to the interior of the Hotel for water damage from the defective roof, any obligations incurred or expenses paid, without the consent of Transcontinental, were made at Spoleta's peril. Transcontinental timely disclaimed coverage for the claim of Spoleta, after receipt of the information advising of the claim.

Based upon all the evidence presented, the motion of the Defendants for summary judgment adjudging that Transcontinental has no obligation to reimburse Spoleta Construction Corporation for the costs it incurred resulting from the allegedly defective roof installed by its subcontractor in connection with the construction of a Hotel in Willoughby, Ohio and dismissing the Complaint is GRANTED.

O R D E R

Based upon all the papers submitted in support and in opposition to this motion, upon the above Decision, and after due deliberation, it is hereby ORDERED that the motion of the Defendants, CNA Insurance Company and Transcontinental Insurance Company, for summary judgment adjudging that Transcontinental has no obligation to reimburse Spoleta Construction Corporation for the costs it incurred resulting from the allegedly defective roof installed by Spoleta's subcontractor in connection with the construction of a Hotel in Willoughby, Ohio, and for summary judgment dismissing the complaint is GRANTED; and it is furtherORDERED that the Complaint of Spoleta Construction Corporation as against CNA Insurance Company and Transcontinental Insurance Company is DISMISSED.

Dated:May 21, 2004

Rochester, New York

__________________________________________ [*8]

Thomas A. Stander

Supreme Court Justice

C:\htformat\f5080440.txt Footnotes

Footnote 1: A copy of this disclaimer letter of September 21, 1999 was also sent to Reidman Corp.

Footnote 2: A letter of December 17, 2001 of Albert M. Mercury, an attorney at Phillips Lytle, indicates that St. Paul Fire disclaimed coverage for these claims in June 2001. However, there is no disclaimer letter of St. Paul Fire or other documentation referenced to show that the disclaimer occurred in June 2001; instead of on September 21, 1999 when the disclaimer letter was issued.

Footnote 3: The Insurer argues that by repairing the drywall and roof prior to notifying the Insurer, that Spoleta settled the claim without the knowledge or consent of Transcontinental.

Footnote 4: The first invoice of Robert's D&R is dated February 5, 1999 and indicates the terms are weekly. Each invoice is a bill for services performed during that week.