New Hampshire Ins. Co. v Zurich Ins, Co.

[*1] New Hampshire Ins. Co. v Zurich Ins. Co. 2004 NY Slip Op 51052(U) Decided on July 14, 2004 Supreme Court, Nassau 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 14, 2004
Supreme Court, Nassau County

NEW HAMPSHIRE INSURANCE COMPANY, ATC MANAGEMENT, CHERYL COHEN, IRWIN B. COHEN, THE FACTORY LLP and McFACTORY CORP., Plaintiffs,

against

ZURICH INS. CO., THE HOME INS. CO., NEW YORK CITY OFF-TRACK BETTING CORP. and JOSE FIGUEROA, Defendants.



7903/02

Stephen A. Bucaria, J.

This motion, by plaintiffs, for an order pursuant to CPLR Section 3212 granting summary judgment in favor of New Hampshire Insurance Company, ATC Management, Cheryl Cohen, Irwin B. Cohen, The Factory LLP and McFactory Corp., thereby declaring Zurich is obligated to provide insurance coverage to the plaintiffs and thereby must reimburse the plaintiffs for the defense and indemnity of the underlying Figueroa action, and/or that New York City Off-Track Betting Corp. be declared in breach of contract and be obligated to reimburse the plaintiffs for the defense and indemnity of the underlying Figueroa action, thereby dismissing all claims and cross-claims asserted or that could be asserted as against New Hampshire Insurance Company, ATC Management, Cheryl Cohen, Irwin B. Cohen, The Factory LLP and McFactory Corp., and for such other and further relief as this Court deems just and proper; and a motion, by defendant Zurich Ins. Co., for an order pursuant to CPLR §3212, granting summary judgment and declaring that (1) Zurich is not obligated to provide a defense and indemnification to plaintiffs for the underlying action on the grounds that plaintiffs are not additional insureds of the Zurich Policy; alternatively (2) plaintiffs are not entitled to a defense and indemnification [*2]from Zurich due to their failure to timely notify Zurich of the underlying claim and/or suit and tender the defense of same; or alternatively (3) in the event the Court finds that plaintiffs are entitled to a defense and indemnification from Zurich, that the New Hampshire policy provides co-insurance to the Zurich Policy and must share in the defense and indemnification of plaintiffs on a 50-50 basis; together with such other and further relief as this Court may deem just and proper; and a cross-motion, by defendant New York City Off-Track Betting Corp., for an order granting summary judgment, pursuant to CPLR §3212, dismissing the complaint, all claims and counterclaims against OTB in their entirety; and for such other and further relief as to this Court seems just and proper, are all determined as hereinafter set forth.

FACTS

Pursuant to the settlement agreement of a lawsuit brought by one Jose Figueroa for injuries sustained in the scope of his employment with New York City Off-Track Betting Corp. ("OTB"), the co-plaintiff New Hampshire Ins. Co. ("New Hampshire") paid Mr. Figueroa and now seeks from the co-defendants reimbursement for the defense and indemnity for the settlement payment.

OTB rented space from 474431 Associates pursuant to a lease dated February 26, 1986. Under the lease, OTB was 1) required to hold harmless and indemnify the landlord for all injuries arising from the conduct and operating of OTB's business or caused by actions of the tenant, its agents, servants and contractors, and 2) required to maintain liability insurance, in the amount of three million dollars per occurrence, with contractual liability endorsement covering the aforesaid indemnity of the landlord. On May 31, 1992, 474431 Associates and OTB executed a Lease Modification Agreement altering the dimensions of the demised premises.

Subsequently, The Factory, L.P. ("Factory"), through the management of ATC Management, undertook a ground lease from 474431 Associates and, as the successor-in-interest, and executed a Lease Modification Agreement with OTB dated June 14 1995. Under the Lease Modification Agreement, additional space, including loading docks, was leased to OTB located on the 30th Place side of the building and some space on the 31st Street side was eliminated.

Zurich Ins. Co. ("Zurich") issued an insurance policy to OTB effective from June 30, 1995 to June 30, 1996, providing coverage for bodily injury claims in the amount of one million dollars per occurrence and five million dollars general aggregate, and naming "managers or lessors of premises" as additional insureds. New Hampshire issued an insurance policy effective from February 1, 1995 to February 1, 1996, providing coverage for bodily injury claims in the amount of one million dollars per occurrence and two million dollars general aggregate.

As alleged by the plaintiff in the underlying action, Mr. Figueroa had sustained his injury in the parking area of Loading Zone #4 on October 2, 1995. The underlying action settled for [*3]$400,000, with co-defendant OTB paying $200,000 and New Hampshire paying $200,000 on behalf of the plaintiffs. Subsequently, AIGCS, the claims representative of New Hampshire, sent OTB a notice of tender on behalf of the plaintiffs of a claim for coverage by letter dated August 11, 1997. REM, the authorized representative of Zurich responded by letter dated October 3, 1997, requesting additional information to make a decision regarding the tender received from New Hampshire. AIGS responded by letter dated October 16, 1997. By letter dated December 1, 1997, Zurich, through REM, disclaimed coverage due to late notice. The plaintiffs then commenced this declaratory action on May 10, 2002.

PLAINTIFFS' MOTION

The plaintiffs seek summary judgment from co-defendant Zurich and/or co-defendant OTB, arguing 1) that Zurich is obligated to provide insurance coverage for the plaintiffs since the Zurich policy names "managers or lessors of premises" as additional insureds; 2) that Zurich failed to disclaim coverage as soon as is reasonably possible and therefore is estopped from denying coverage as a matter of law; and 3) that OTB breached its lease.

The plaintiffs highlight the "use" portion of the additional insured endorsement, stressing that the accident occurred while the employee was working for OTB in an area directly in front of its leased loading dock. They further urge that, even if the accident is found to have occurred outside of the leased premises, liability would still arise since it is the general nature of the accident that controls such endorsement, not the precise cause of an accident. Finally, Zurich cites the provision within the lease that makes the tenant responsible for the sidewalk and curb areas. Regarding the failure-to-disclaim argument, the plaintiffs submit the dated correspondence of the parties to support their assertion that Zurich's disclaimer was sent 111 days after notice by the plaintiffs, and that Zurich offered no explanation for the delay. The plaintiffs counter the co-defendant's claim of delay due to investigating the claim by establishing through the correspondence that Zurich's letter disclaiming coverage was sent fifty eight days after receiving the requested additional documents. Either delay, 111 days or fifty eight days, the plaintiffs urge, is unreasonable, especially considering the co-defendant's never started an investigation until fifty three days elapsed following notice.

The plaintiffs also argue that OTB breached its lease, which required that OTB indemnify the landlord for all injuries arising from the conduct and operating of OTB's business or caused by actions of the tenant, its agents, servants and contractors, and that OTB maintain liability insurance, in the amount of three million dollars per occurrence, with contractual liability endorsement covering the landlord. The plaintiffs cite Zurich's refusal to acknowledge their obligation to the plaintiffs as evidence of OTB's failure to procure the insurance required by the lease.

DEFENDANT ZURICH CROSS MOTION

[*4]The co-defendant Zurich seeks summary judgment, arguing that 1) it is not obligated to provide a defense and indemnification to the plaintiffs for the underlying action on the grounds that plaintiffs are not additional insureds of the Zurich policy; 2) in the alternative, the plaintiffs are not entitled to a defense and indemnification due to their failure to timely notify Zurich of the underlying claim and/or suit and tender the defense of the same; and 3) the co-primary coverage requires that the plaintiffs share in any defense or indemnity costs.

The co-defendant Zurich invokes the Bill of Particulars from the underlying action, which alleges the employee fell in the parking area of loading zone #4, to support its argument that the plaintiffs are not additional insureds of the Zurich policy since the underlying accident occurred outside of that part of the premises leased by OTB. Citing the original lease agreement and both subsequent modifications, Zurich argues that the sidewalk and exterior of the building were not contemplated as part of the demised premises, and that the landlord had the responsibility to maintain and repair the exterior and public portions of the building. Zurich further asserts that the courts have continually refused to extend coverage for accidents occurring outside of the premises leased by the named insured, where the policy expressly limits coverage to liability arising out of that part of the premises leased. Derivatively, the co-defendant argues that Zurich is not estopped from denying coverage since the accident fell outside the scope of coverage.

In response to the plaintiffs' late-disclaimer claim, Zurich asserts that its disclaimer was indeed timely, arguing that the correspondence trail evidences the fact that Zurich issued its disclaimer as soon as it had sufficient facts. Further, the co-defendant contends that had the plaintiffs been additional insureds of the Zurich Policy, they breached the terms and conditions of the Zurich Policy by not giving notice to Zurich of an occurrence and claims against them as soon as practicable, and by not immediately forwarding Zurich any notices regarding the claims. Through the correspondence of the parties, the co-defendant shows that the accident occurred on October 2, 1995, that the plaintiffs had been placed on notice of the occurrence and claim in early 1996, and that the plaintiffs did not attempt to notify Zurich of the claim until August 11, 1997. Moreover, the co-defendant points out that at no time did the plaintiffs offer an excuse for the failure to notify Zurich of the claim.

Additionally, the co-defendant Zurich argues that should the court find that the plaintiffs are additional insureds of the Zurich policy, it must necessarily find that the "other insurance" clauses of both the Zurich policy and the New Hampshire policy each provide co-insurance and require each insurer to contribute on a fifty-fifty basis to the plaintiffs' defense and indemnification.

.

[*5]DEFENDANT OTB CROSS MOTION

In seeking summary judgment, the co-defendant OTB argues that it performed all its obligations under the lease agreement, noting that its liability is limited to that which occurs on the leased premises. In the alternative, OTB asserts that if the court finds it was in breach of its lease, the damages are limited to loss actually suffered.

PLAINTIFFS' OPPOSITION / REPLY

The plaintiffs assert that the lease language requiring the tenant to be responsible for the sidewalk and curb areas, which are located outside the building, negates the argument that OTB was to be responsible only for the interior portions of the premises.

In response to the co-defendant Zurich's claim, that the plaintiffs breach the policy by not giving prompt notice, the plaintiffs assert that the co-defendant's late disclaimer nullifies any late notice defense that may have existed.

The plaintiffs counter the co-defendant OTB's argument that the lease only required insurance pertaining to the leased area by citing the lease language stating that the tenant maintain liability insurance, "insuring the Landlord and Tenant against all claims, demand or action for personal injury or death or property damage arising from, related to, or connected with the conduct and operating of Tenant's business in the demised premises."

The plaintiffs also respond to the co-defendant Zurich's co-insurance argument by proffering that the tenant, by agreeing to list the landlord as an additional insured on its policy, agreed that its own carrier would provide the landlord with primary coverage.

DECISION

The rule in motions for summary judgment has been succinctly re-stated by the Appellate Division, Second Dept., in (Stewart Title Insurance Company, Inc. v Equitable Land Services, Inc., 207 AD2d 880, 616 NYS2d 650, 651, 1994):

"It is well established that a party moving for summary

judgment must make a prima facie showing of entitlement

as a matter of law, offering sufficient evidence to demonstrate

the absence of any material issues of fact (Winegrad v New

York Univ. Med. Center, 64 NY2d 851, 853, 487 NYS2d

316, 476 NE2d 642; Zuckerman v City of New York, 49 [*6]

NY2d 557, 562, 427 NYS2d 595, 404 NE2d 718). Of course,

summary judgment is a drastic remedy and should not be

granted where there is any doubt as to the existence of a

triable issue (State Bank of Albany v McAuliffe, 97 AD2d

607, 467 NYS2d 944), but once a prima facie showing has

been made, the burden shifts to the party opposing the motion

for summary judgment to produce evidentiary proof in

admissible form sufficient to establish material issues of fact

which require a trial of the action (Alvarez v Prospect Hosp.,

68 NY2d 320, 324, 508 NYS2d 923, 501 NE2d 572;

Zuckerman v City of New York, supra, 49 NY2d at 562,

427 NYS2d 595, 404 NE2d 718)".

I.

When an additional insured endorsement limits coverage to liability arising out of the leased premises, the ambiguous "additional insured" endorsement should be construed to encompass the actual contractual relationship between the parties. (See ZKZ Associates LP v. CAN Insurance Company, 89 N.Y.2d 990, 657 N.Y.S.2d 390, 1997). The additional insured endorsement to the Zurich policy provides coverage for "liability arising out of the ownership, maintenance or use of that part of the premises leased to [OTB]." To determine the extent of the leased premises, it is necessary to examine the underlying lease agreements.

The clear and unambiguous terms in a lease should be interpreted in their plain, ordinary, and nontechnical sense, and circumstances extrinsic to the agreement should not be considered when the intention of the parties can be ascertained from the four corners of the instrument. (New York Overnight Partners v. Gordon, 217 A.D.2d 20, 633 N.Y.S.2d 288, 1st Dept., 1995).

As highlighted by the co-defendant Zurich, the lease, as well as the modifications, continually indicate that the "owner shall maintain and repair the exterior of and the public portions of the building," and that the tenant shall "take good care of the demised premises and the fixtures and appurtenances therein." The floor plans accompanying the lease agreements demarcate the demised premises as being within the walls of the building. The provisions as well as the floor plans survived two modifications to the original lease agreement without alteration, reinforcing the notion that the tenant was understood not to be responsible for the exterior of the building.

The plaintiffs' contention, that the lease makes OTB responsible for the sidewalk and curb areas, constitutes an egregiously broad interpretation of the first paragraph of the Rules and Regulations within the lease. The provision requires the tenant to "keep the sidewalk and curb in [*7]front of said premises clean and free from ice, snow, dirt and rubbish." The alleged injury did not involve ice, snow, dirt, or rubbish, nor did it take place on the sidewalk or curb. Thus, this language cannot be interpreted to include responsibility for defects in the pavement of the parking area adjacent to the loading docks, which allegedly caused the injury to the plaintiff in the underlying action.

In citing Consolidated Edison Co. v. Hartford Ins. Co., (203 A.D.2d 83, 610 N.Y.S.2d 219, 1st Dept., 1994), the plaintiffs argue that liability would arise even if the accident is found to have occurred outside of the leased premises. This interpretation is misguided. In Consolidated, the additional insured policy arises out of a contract to perform insulation work, where the general contractor's insurance policy lists the party for whom the work is being performed as an additional insured. In rejecting the defendant's argument that the additional insured endorsement contained an exclusion, the appellate court stated: "for an insurer to negate coverage through an exclusion, it must establish that the exclusion is set forth in clear and unmistakable language, that it is subject to no other reasonable interpretation, and that it applies to the facts of the particular case." (Id., 203 A.D.2d at 84).

Here, the language of the additional insured endorsement clearly and unambiguously provides coverage for "liability arising out of the ownership, maintenance or use of that part of the premises leased to [OTB]." As such, it is proper to look to the actual contractual relationship to determine "that part of the premises leased." (See ZKZ, 89 N.Y.2d at 990). The lease provides no evidence of charging the tenant, OTB, with any responsibilities regarding the exterior beyond the removal of ice, snow, dirt, or rubbish from the sidewalk or curb. Thus, the plaintiffs do not fall within the scope of the additional insured endorsement appurtenant to the Zurich policy, and are therefore denied summary judgment to the extent that they do not fall within that which is covered by Zurich.

II.

Disclaimer pursuant to section 3420 (d) is unnecessary

when a claim falls outside the scope of the policy's coverage

portion. Under those circumstances, the insurance policy

does not contemplate coverage in the first instance, and

requiring payment of a claim upon failure to timely disclaim

would create coverage where it never existed. By contrast,

disclaimer pursuant to section 3420 (d) is necessary when

denial of coverage is based on a policy exclusion without

which the claim would be covered. [*8]

(In re Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 712 N.Y.S.2d 433, 2000).

In Worcester, the court acknowledges the difficulty in drawing the line between a lack of coverage in the first instance (requiring no disclaimer) and a lack of coverage based on an exclusion (requiring timely disclaimer). The court distinguishes situations, where coverage clauses at the outset condition liability so that the parties never establish a contractual relationship, from situations where a claim would be covered but for a specific policy exclusion. The contractual relationship that exists in the latter situation demands the insurer provide a timely disclaimer so as to not mislead the insured to his or her detriment. (See id., 95 N.Y.2d at 189; see also, Zappone v. Home Ins. Co., 55 N.Y.2d 135, 447 N.Y.S.2d 911, 1982).

Here, co-defendant Zurich argues that it is not estopped from denying coverage on the grounds that the plaintiffs are not additional insureds of the Zurich policy. The plaintiffs were covered as "managers or lessor of premises" under the additional insured endorsement to the Zurich policy, subject to the limitation that liability must arise "out of the ownership, maintenance or use of that part of the premises leased to [OTB]." Thus, the plaintiffs would be covered but for the injury occurring outside the leased premises. The additional insured endorsement evidences that the parties contemplated that the plaintiffs would be covered subject to the specific exclusion. It therefore follows that from such contemplation arose a contractual relationship sufficient to require the insurer to timely disclaim coverage, as exemplified in Worcester.

The next issue is whether Zurich provided the plaintiffs with a timely disclaimer. It is well established that an insurance carrier will be estopped from disclaiming coverage based on a policy exclusion when it has delayed unreasonably in issuing its disclaimer. (In re Allstate Ins. Co. v. Ferrone, 232 A.D.2d 479, 648 N.Y.S.2d 936, 2nd Dept., 1996). Normally the question whether a notice of disclaimer of liability or denial of coverage has been sent as soon as is reasonably possible is a question of fact which depends on all the facts and circumstances, especially the length of and the reason for the delay; where no explanation is offered for the delay in disclaiming liability or denying coverage, a delay of two months is unreasonable as a matter of law. (Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028, 416 N.Y.S.2d 539, 1979; see also, In re Firemen's Fund Ins. Co. of Newark v. Hopkins, 88 N.Y.2d 836, 644 N.Y.S.2d 481, 1996). The reasonableness of any delay in disclaiming coverage must be judged from the time that the carrier is aware of sufficient facts to issue a disclaimer. (Ferrone, 232 A.D.2d at 480). A thirty-day delay is unreasonable as a matter of law where the sole ground on which coverage is disclaimed is obvious from the face of the notice of claim and the accompanying complaint, and there existed no need to conduct an investigation before determining whether to disclaim. (W. 16th St.Tenants Corp. v. Pub. Serv. Mut. Ins. Co., 290 A.D.2d 278, 736 N.Y.S.2d 34, 1st Dept., 2002).

Here, the co-defendant's disclaimer was on the grounds of late notice. Such a reason for disclaimer would have been apparent upon examination of either the original notice or the requested additional documents. Thus, there existed no need to conduct an investigation to arrive at the conclusion upon which the co-defendant based its disclaimer. The courts have recognized that a delay where the basis for disclaimer was readily apparent renders such delay unreasonable as a matter of law.

The co-defendant offered the alternative argument, in the event that the court found the plaintiff to be covered under the additional insured endorsement, which it did not, that the plaintiffs breached the Zurich policy by their late notice. The court need not reach such an argument since there can be no breach by the plaintiffs of a notice provision when the policy containing the notice provision does not provide coverage to the plaintiffs. Furthermore, the unreasonable delay as a matter of law renders the co-defendant estopped from disclaiming coverage. To the extent that the co-defendant Zurich failed to disclaim its coverage on the basis of late notice, as it did, the plaintiffs are granted summary judgment as against co-defendant Zurich.

III.

The clear and unambiguous terms in a lease should be interpreted in their plain, ordinary, and nontechnical sense and circumstances extrinsic to the agreement should not be considered when the intention of the parties can be ascertained from the four corners of the instrument. (New York Overnight Partners v. Gordon, 217 A.D.2d 20, 633 N.Y.S.2d 288, 1st Dept., 1995).

The co-defendant OTB's argument, that its liability is limited to that which occurs on the leased premises, is not supported by the language of the lease. The language requires that the tenant procure a policy "insuring the Landlord and Tenant against all claims, demand or action for personal injury or death or property damage arising from, related to, or connected with the conduct and operating of Tenant's business in the demised premises." Thus, the tenant OTB was required to insure all activity associated with its business in the demised premises. This includes customers, and other people, coming and going from the premises, and, as in this case, includes injuries sustained by the tenant's employees around the perimeter of the business.

As determined hereinbefore, the policy procured by OTB was limited, by an exclusion to the additional insured endorsement to the Zurich policy, to that which occurs within the demised premises. The co-defendant OTB, therefore, did not procure insurance to the extent required by its lease, and thereby breached its lease. For these reasons, the plaintiffs' motion for summary judgment, on the grounds of breach of contract (lease), as against co-defendant OTB is granted.

IV.

The co-defendant Zurich's argues that should the court find the plaintiffs are additional insureds of the Zurich policy it must necessarily find a co-insurance situation. This court does not find the plaintiffs to be additional insureds in regards to the particular underlying case. [*10]Instead, the court grants summary judgment for reasons that Zurich is estopped from denying coverage due to its unreasonably late disclaimer on the grounds of late notice. Furthermore, the court contemporaneously grants summary judgment as against co-defendant OTB. The court therefore does not at this time reach any issues regarding apportionment of costs, reserving those issues for a trial determining damages. Similarly, the court does not now reach the co-defendant's argument that any damages owed due to breach of its lease should be limited to loss actually suffered. The granting of plaintiffs' motions for summary judgment as against co-defendants OTB and Zurich will be held over for a trial on damages, at which time these issues may be addressed.

This Court, in correcting the memorandum decision of June 30, 2004, now notes a clerical error.

Accordingly, in order to be consistent with the rationale set forth in that decision, summary judgment is granted in favor of the plaintiffs as against the defendant Zurich as hereinbefore stated; summary judgment is denied as to the defendant OTB as hereinbefore stated; and the motion by the plaintiffs, for summary judgment in their favor, is granted as against OTB; the cross-motion, by defendant Zurich for summary judgment is denied, and this Court declares the rights and obligations of the parties are as hereinbefore set forth.

Settle order on notice.

Dated July 14, 2004

J.S.C.

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