Sirius Am. Ins. Co. v Burlington Ins. Co.
Annotate this CaseDecided on October 26, 2007
Supreme Court, New York County
Sirius America Insurance Company and Artimus Construction, Inc., Plaintiffs,
against
Burlington Insurance Company, K.J.S. Construction Inc., Norman Simmons, The City of New York and Manhattan Townhouse Equities, LLC, Defendants.
600785/04
Eileen A. Rakower, J.
Plaintiffs bring this action (Action 2) seeking indemnification and declaratory relief affecting their appearance in another action (Action 1). Norman Simmons brought Action 1 for personal injuries allegedly sustained while he was working on a construction site owned by the City of New York (City). Simmons alleged in Action 1 that he was working for K.J.S. Construction, Inc. (KJS) doing demolition work at the time of his accident. KJS had been hired by Artimus Construction, Inc. (Artimus), the general contractor at the site. Artimus had a general liability insurance policy, issued by Sirius America Insurance Company (Sirius). Pursuant to the contract Artimus entered into with KJS, Artimus claims that KJS was to indemnify Artimus and name Artimus as an additional insured on KJS's insurance policy. KJS was insured by Burlington Insurance Company (Burlington).
Simmons, on August 1, 2003, was assigned to an area where wood beams were being discarded onto a pile. Simmons was working at the pile and was struck in the head by one of the beams. Simmons brought Action 1 against Manhattan Townhouse Equities, LLC, Artimus and City. Artimus brought a third party complaint against KJS. KJS failed to appear, and Artimus obtained a judgment as to liability only against KJS. Plaintiffs now move for summary judgment pursuant to Insurance Law §§3420(a)(2)and (b)(2), seeking to enforce [*2]against Burlington the judgment obtained against KJS. Further, plaintiffs seek the declaration of this court that Burlington shall defend and indemnify Artimus in Action 1. Burlington cross moves for a declaration of this court stating that Burlington has no obligation to defend or indemnify Artimus in Action 1, declaring that the Burlington policy issued to KJS is void ab initio, and dismissing any causes of action as against Burlington.
Plaintiffs, in support of their motion, provide their amended complaint in Action 2, Burlington's answer, the policy Sirius issued to Artimus in effect at the time of Simmons' accident, the policy Burlington issued to KJS allegedly in effect at the time of Simmons' accident, the agreement between Artimus and KJS, the summons and complaint in Action 1, the notice of entry of a default judgment in favor of Artimus and against KJS, a January 24, 2007 letter from Burlington to KJS rescinding its policy and returning the premium paid for that policy, a copy of the KJS application for insurance dated May 29, 2003, the deposition of Shamsuddin Riza on behalf of KJS, Burlington's response to discovery dated April 26, 2004, portions of the deposition of Lee Costelloe, an insurance policy modification, a letter from UTC Risk Management Services, Inc. (UTC) demanding that Burlington take over the handing of the underlying matter, a further demand by UTC, as representative of Sirius, addressed to Burlington, and finally, a communication from Burlington to KJS regarding Action 2 dated April 12, 2004.
Defendant Burlington provides excerpts from the deposition of KJS President Shamsuddin Riza, license agreements between Artimus and The City of New York dated August 19, 2002 and August 11, 2003, excerpts from the deposition of Lee Costelloe, the claims agent for Sirius, a letter from UTC to Artimus dated January 21, 2004, the complaint filed by Sirius and Artimus against Burlington on March 17, 2004, Burlington's answer, containing counterclaim and cross claim dated April 16, 2004, subpoenas served upon KJS, an Order for Contempt issued November 28, 2006, a warrant for the arrest of Riza dated November 28, 2006, excerpts from the deposition of Derrick Walker of Thru-Way Insurance Brokers, excerpts from the deposition of Ken Haron of Artimus, and Burlington's Class Table Rater.
KJS applied for insurance by application dated May 29, 2003 through Thruway Insurance. The application contains a section on page 2 entitled General Information, with 20 questions all left blank. Included in these questions is "any [*3]demolition exposure contemplated?" This application was signed by a Thruway representative as well as Mr. Riza for KJS, was submitted in its incomplete form, and a policy was issued. Mr. Riza testified that he informed his Thruway broker that he was doing demolition work, and that he simply assumed "that when they say general contractor,' that demolition' will fall under the general contractor." The proposed effective dates for the general liability insurance through Burlington were July 1, 2003 until July 1, 2004. A section in the application identifying additional parties insured under the proposed policy was also left blank. A document dated September 3, 2003 labeled an "accord" was provided to Artimus. It was signed by a representative of Thruway and describes additional insureds to include Artimus. It cautions that it is for information only, and confers no rights upon the certificate holder. Nor does it amend, extend or alter the coverage afforded under the original policy. This policy was cancelled by Burlington in October of 2003.
Artimus, through a claims manager for Sirius, notified Burlington on August 22, 2003, that an accident occurred on August 1, 2003 and that it was demanding indemnification and insurance coverage. Again, on January 21, 2004, Artimus sent a written tender of defense, advising that it had received a summons and complaint in an action brought by Simmons. Burlington, by letter to Artimus dated April 12, 2004, acknowledged issuing the above policy, but denied that Artimus was listed as an additional insured. Burlington also denied coverage based on its policy's employee exclusion (Simmons, the injured party in Action 1, was an employee of the insured, KJS).
Long after Burlington was made aware of the specifics of the underlying claim in Action 1, it sought to rescind its policy issued to KJS. Burlington attempted to tender paid premiums back to Mr. Riza at his 2007 deposition to confirm rescission of the policy, but Riza refused to accept it. Burlington cited various reasons to rescind and disclaim on coverage for the accident sued for in Action 1, including KJS's failure to fully complete its application, KJS's failure to disclose the full scope of its work as extending to demolition, KJS's failure to list Artimus as an additional insured and its policy's employee exclusion clause.
Plaintiffs assert that Burlington ratified the above policy, cannot rescind it, cannot rescind it ab initio, and the policy must be declared valid and in effect at the time of the underlying accident which caused injury to Mr. Simmons. Ultimately, whether that policy was in effect August 1, 2003, whether it covered KJS for [*4]demolition work, and to whom the coverage extended are the questions before this court.
The parties have provided the application, albeit incomplete, prepared to procure the subject insurance policy. It does not name additional insured parties. Assuming Burlington accepted this application and issued a policy relying on this application, the policy does not extend coverage to any party other than KJS. The "accord" certificate tendered by Thruway to Artimus, by its very terms, does not confer rights upon Artimus, nor does it amend the policy already in effect. Thus, the certificate does not confer upon Artimus coverage as an additional insured. (See, Moleon v. Kreisler Borg Florman General Construction Co., Inc., 304 AD2d 337 [1st Dept. 2000]).
Burlington argues that were the policy in effect at the time of the accident, it would not apply because of the employee exclusion section of the policy. To negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case. (Hotel de Artistes, Inc. v. General ACC, 9 AD3d 181 [1st Dept. 2004]). Section 1(2)(b) of the commercial liability coverage form of the subject policy states:
This insurance does not apply to . . .(b)Contractual Liability "Bodily injury" . . . for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement . . . (e) Employer's Liability "Bodily injury" to (1) An "employee" of the insured arising out of and in the course of (a) Employment by the insured; or (b) Performing duties related to the conduct of the insured's business.
While section 1(2)(b) of the policy is clear and would appear to be applicable to the Simmons accident, to take advantage of a policy exclusion an Insurance company is required to timely disclaim. (Worcester Insurance Co. v. Bettenhauser, 95 NY2d 185[2000]). Insurance Law § 3420(d) was enacted "to protect the insured and injured person or other claimant against the risk, posed by a delay in learning the insurer's position, of expending energy and resources in an ultimately futile attempt to recover damages from an insurer or foregoing alternative methods for recovering damages until it is too late to pursue them successfully." (Bovis Lend Lease LMB, Inc. Vv. Royal Surplus Lines Ins., 27 AD3d 82, 92 [1st Dept. 2005]). "[A]n insurer's explanation is insufficient as a matter of [*5]law where the basis for denying coverage was or should have been readily apparent before the onset or the delay." (First Financial Insurance Co. v. Jetco Contracting Corp., 1 NY3d 64 [2003]).
Instead, having failed to timely disclaim, (Hartford Insurance Co. v. County of Nassau, 46 NY2d 1028 [1979]), Burlington canceled its policy with KJS in October, 2003, two months after it was informed of the accident and coverage was demanded. In addition, it attempted to rescind the policy with KJS. The initial burden of demonstrating valid cancellation of policy is on the insurance company that disclaims coverage. (York v. Allstate Indem. Co., 8 AD3d 663[2nd Dept. 2004]). Burlington's policy with KJS states that it may cancel with written notice of cancellation "30 days before the effective date of the cancellation" if the policy is cancelled for any reason other than nonpayment of premium. Here, Burlington did not seek to either cancel or rescind the policy until after it became aware that a claim was made against it. Indeed, in its papers, Burlington agrees with Artimus's claims agent that "Burlington would not have any coverage obligation to Artimus absent Burlington's alleged waiver due to untimely disclaimer."
Burlington also hopes to avoid coverage by stating that the policy did not cover demolition work. KJS's Riza claims that demolition work is contemplated by the use of the term general contractor. Burlington asserts that it covered KJS as a painting and drywall general contractor and demolition is an entirely different area of work for which it does not use the same rates for insurance as for demolition. Indeed, a broker for Thruway stated at his deposition that he would not even attempt to place a contractor involved in demolition work with Burlington. However, this broker only has knowledge of Thruway's business after November 14, 2005. Sirius claims that exclusions exist in the industry, a sample of which it attaches to its papers, which would have clarified that KJS's policy did not cover demolition. This exclusion was not appended to the KJS policy with Burlington. Burlington's silence in this regard must be construed in favor of the insured. (Bodewes v. Ulisco Casualty Co., 336 FSupp 2d 263 [US Dist Ct, WD NY]).
Additionally, any questions left blank on the insurance application submitted by the Thruway broker were met with acceptance of the premium and issuance of the policy with other documented exclusions. Thus, the belated attempt to return the premiums years after Burlington was notified of the Simmons claim, cannot [*6]constitute a proper rescission of the policy. The lack of "prompt and diligent investigation" renders this extensive delay inexcusable. (R.C. Dolner, Inc. v. My-Way Contracting Corp., 41 AD3d 185 [1st Dept. 2007]). Moreover, such rescission was without proper notice as required under the policy.
Sirius and Artimus seek to enforce Artimus's judgment obtained against KJS in requesting the order of this court that KJS's insurer, Burlington, defend and indemnify them pursuant to Insurance Law §§3420 (a)(2), (b)(2). However, §§3420 (a)(2), (b)(2) pertains to a litigant's right to recover on an unsatisfied money judgment. At this juncture, plaintiffs only have a default judgment as against KJS on the issue of liability. Additionally, Burlington's obligation to defend does not extend to plaintiffs who are not named insureds or additional insureds under its policy with KJS. ( Seavey v. James Kendrick Trucking, Inc., 4 AD3d 119 [1st Dept. 2004]). Wherefore it is hereby
ORDERED that plaintiffs' motion for summary judgment pursuant to Insurance Law §§3420(a)(2)and (b)(2) seeking to enforce against Burlington the default judgment obtained against KJS, for which an assessment of damages is to take place at the time of trial of Action 1, is denied; and it is further
ADJUDGED and DECLARED that plaintiffs' motion for a declaration of this court that Burlington shall defend and indemnify Artimus in Action 1 is denied; and it is further
ADJUDGED and DECLARED that Burlington's cross motion for a declaration of this court stating that it has no obligation to defend or indemnify Artimus in Action 1 is granted; and it is further
ADJUDGED and DECLARED that Burlington's motion seeking a declaration of this court stating that the insurance policy it issued to KJS is void ab initio is denied; and it is further
ADJUDGED and DECLARED that Burlington's disclaimer of coverage for the Simmons accident under any of the claimed exclusions in the policy was [*7]untimely, as a matter of law; and it is further
ADJUDGED and DECLARED that plaintiffs' application for a declaration from the court that the insurance policy that Burlington issued to KJS was in effect at the time of Simmons alleged accident on August 1, 2003 is granted; and it is further
ORDERED defendants cross motion to dismiss any causes of action as against Burlington is denied; and it is further
ORDERED that all other relief requested is denied.
This constitutes the decision and order of the court.
DATED:October 26, 2007_____________________________
Eileen A. Rakower, J.S.C.
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