Geiger v Hudson Excess Ins. Co.

[*1] Geiger v Hudson Excess Ins. Co. 2023 NY Slip Op 50904(U) Decided on August 25, 2023 Supreme Court, New York County Lebovits, J. 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 25, 2023
Supreme Court, New York County

Brenda Geiger, Claudia Sampedro, Jaime Edmondson-Longoria, Jessica Hinton, and Paola Canas, as Assignees of Vola Corp. D/B/A Sorry Not Sorry, Plaintiffs,

against

Hudson Excess Insurance Company and Lancer Indemnity Company, Defendants.



Index No. 655688/2020


The Casas Law Firm, P.C., New York, NY (John V. Golaszewski of counsel), for plaintiffs.

Melito & Adolfsen P.C., New York, NY (Steven I. Lewbel of counsel), for defendant Hudson Excess Insurance Company.

Gerber Ciano Kelly Brady, LLP, Buffalo, NY (Daniel W. Gerber and John R. Ewell of counsel), for defendant Lancer Indemnity Company. Gerald Lebovits, J.

The following e-filed documents, listed by NYSCEF document number (Motion 003) 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 126, 127, 128, 129, 130, 131, 132, 133, 134, 135, 136, 137, 138, 139, 140, 141, 142, 143, 144, 145, 146, 147, 148, 149, 161, 162, 163, 165 were read on this motion for SUMMARY JUDGMENT.

The following e-filed documents, listed by NYSCEF document number (Motion 004) 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 150, 151, 152, 153, 154, 155, 156, 157, 158, 159, 160, 164 were read on this motion for SUMMARY JUDGMENT.

In this breach-of-contract action, plaintiffs Brenda Geiger, Claudia Sampedro, Jaime Edmondson-Longoria, Jessica Hinton, and Paola Canas, as assignees of Vola Corp. d/b/a Sorry Not Sorry, are suing defendants Hudson Excess Insurance Company and Lancer Indemnity Company for breach of insurance contract, for a declaratory judgment that defendants owed Vola a duty to defend and indemnify in a prior action ("Vola Action"), and for payment of the judgment in the Vola Action, plus attorney fees and costs.

In motion sequence 003, plaintiffs move under CPLR 3212 for summary judgment in their favor against both Lancer and Hudson. Lancer cross-moves under CPLR 3212 for summary judgment dismissing plaintiffs' claims and dismissing Hudson's crossclaims. In motion sequence 004, Hudson moves under CPLR 3212 for summary judgment dismissing plaintiffs' claims against Hudson and for summary judgment in Hudson's favor on its counterclaim seeking rescission of the policies it issued to Vola.

Motion sequences 003 and 004 are consolidated here for disposition.

On motion sequence 003, Plaintiff's summary-judgment motion is denied as to Hudson; granted as to Lancer with respect to the duty to defend; and denied as to Lancer with respect to the duty to indemnify. The branch of Lancer's cross-motion for summary judgment dismissing Hudson's crossclaim is granted. The branch of Lancer's cross-motion for summary judgment dismissing plaintiffs' claims is denied with respect to the duty to defend; and granted with respect to the duty to indemnify. On motion sequence 004, Hudson's summary-judgment motion is granted.

BACKGROUND

In 2018, plaintiffs commenced the Vola Action in the U.S. District Court for the Eastern District of New York, alleging that Vola and its principal, Aspiotis, had misappropriated plaintiffs' images and likenesses and used them in advertisements for its nightclub, Sorry Not Sorry. Plaintiffs claimed that these acts violated the federal Lanham Act, Civil Rights Law §§ 50-51 and General Business Law § 359; and constituted common-law trademark infringement and common-law unfair competition. (NYSCEF No. 65 at 1-2.) Vola timely tendered a request for defense and indemnification to Hudson and Lancer. Both insurers disclaimed coverage and declined to defend Vola in the action.

In the course of the Vola Action, plaintiffs learned that Vola was insured during the period in which Vola was allegedly using their images in its advertising. The Lancer policy was issued to Vola for the period from March 31, 2015, through March 31, 2016. (NYSCEF No. 65 at 2.) Two Hudson policies were issued to Vola for the period from March 31, 2016, through March 31, 2018. (Id.) All policies provide for coverage for "Personal and Advertising Injury," which include oral or written publication "of material that violates a person's right of privacy." (Id. at 2-3.)

Plaintiffs and Vola (Aspiotis was voluntarily dismissed) ultimately settled the Vola Action. The settlement provided for entry of a $200,000 judgment against Vola; and also for an assignment by Vola to plaintiffs of Vola's right to prosecute the coverage claims against the insurers and to recover the amount of the judgment and defense costs from the Vola Action. (NYSCEF No. 62 [settlement agreement].)

DISCUSSION
I. Motion Sequence 003

In motion sequence 003, plaintiffs assert that because their claims in the Vola Action alleged that Vola had violated their rights of privacy, the insurers' denial of coverage and disclaimer of a defense in the Vola Action constituted a breach of the insurers' obligations under their insurance contracts. Plaintiffs seek a declaration that each insurer had an obligation to [*2]defend and indemnify Vola in the Vola Action.[FN1]

A. Lancer's Arguments on Motion Sequence 003

Lancer argues on its cross-motion that it owes no coverage for alleged acts that occurred outside the effective dates of the Lancer policy (March 31, 2015, through March 31, 2016). (NYSCEF No. 143 at ¶¶ 22-25.) Plaintiffs do not dispute this point. (See NYSCEF No. 161 at 8 n.2.) This court therefore concludes that Lancer is not obligated to cover those acts that occurred outside of its coverage period.

Lancer also asserts that Hudson's crossclaim against Lancer must be dismissed. (See NYSCEF No. 111 at 19 ¶ 7 [Hudson's answer].) Hudson's crossclaim alleges that if its policy is triggered, then Lancer's policy is primary and non-contributory, and Lancer must contribute to the defense and indemnity of Vola. But, as Lancer notes, the Hudson and Lancer policies were issued for separate and distinct policy periods, and "there is no possibility that the Lancer Policy can be primary coverage for occurrences that happened outside of its effective dates." (NYSCEF No. 149 at 2.) This court grants Lancer's request and dismisses Hudson's crossclaim against it.

In opposition to plaintiffs' motion, Lancer argues that its policy exclusions relieved it of any duty to defend and indemnify Vola. The Lancer policy provides that its insurance does not apply to personal and advertising injury (1) "caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict 'personal and advertising injury'"; and (2) "arising out of oral or written publication . . . if done by or at the direction of the insured with knowledge of its falsity." (NYSCEF No. 149 at 6-7.) Lancer asserts that because plaintiffs' complaint in the Vola Action alleges that Vola was aware that it was violating plaintiffs' rights when it used their images in its advertisements, Lancer's policy exclusions apply.

Lancer is correct that plaintiffs' complaint in the Vola Action asserted causes of action that encompassed intentional conduct by Vola, as well as negligent acts. But, as plaintiffs note, an insurer's duty to defend is not discharged merely because "the complaint against the insured asserts additional claims which fall outside the policy's general coverage or within its exclusory provisions." (Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 310 [1984] [holding that the duty to defend "rests solely on whether the complaint alleges any facts or grounds which bring the action within the protection purchased"] [emphasis added].)

Plaintiffs' summary-judgment is granted as to their claim that Lancer owed Vola a duty to defend.

With respect to the duty to indemnify, plaintiffs argue that "there was no finding in the Vola Action that Vola in fact knowingly caused or directed any action which injured Plantiffs," as would be required to bring plaintiffs' claims within the scope of the exclusion for purposes of that duty. (NYSCEF No. 161 at 3, 7 [emphasis added].) Conversely, though, there was no finding or judicial determination in the Vola Action that Vola committed conduct that would constitute "personal or advertising injury" that was within the scope of the Lancer policy but [*3]outside the scope of the policy exclusion—as needed to trigger Lancer's duty to indemnify. To the contrary, under the settlement agreement, plaintiffs expressly released Vola of any liability. (See NYSCEF No. 62 at ¶¶ 1.4 [release of liability], 4 ["no recourse" provision].) That release alone foreclosed any duty by Lancer to indemnify. (See McDonough v Dryden Mut. Ins. Co., 276 AD2d 817, 818 [3d Dept 2000] ["As an insurer's obligation to indemnify extends only to those damages the insured is legally obligated to pay, it naturally follows that a release discharging an insured from all liability relieves the insurer from the duty of indemnification because it effectively eliminates any factual or legal grounds on which the duty to indemnify may be based."].)

Plaintiff's summary-judgment motion as against Lancer is denied, and Lancer's cross-motion seeking dismissal granted, with respect to plaintiffs' claim that Lancer owed Vola a duty to indemnify.

B. Hudson's Arguments on Motion Sequence 003

In opposition to plaintiffs' motion, Hudson argues that the two policies issued to Vola are subject to rescission due to Vola's material misrepresentations on its insurance applications, in which it classified itself as a restaurant/bar when, according to Hudson, it was actually an adult-entertainment establishment. (NYSCEF No. 106 at 1.) Hudson further argues that even if the insurance policies are valid, it still does not owe a duty to defend and indemnify Vola based on the policies' endorsement entitled "Exclusion — Classification or Operations Not Listed." Hudson avers that this exclusion applies "because the Individual Plaintiffs' claims arose out of Vola's adult entertainment operations-not the restaurant activities as classified under the Hudson Excess policies." (Id.)

Hudson also asserts that it was justified in denying coverage in the Vola Action because plaintiffs did not allege bodily injury caused by an occurrence as defined in its policies. Plaintiffs do not dispute this claim. As plaintiffs note, however, bodily injury was not a prerequisite to coverage under Hudson's policies. The policies also provided for coverage for personal and advertising injury. Thus, Hudson's claim on this point is not dispositive on plaintiffs' motion, and the court proceeds to Hudson's other arguments.

1. Whether Vola made material misrepresentations on its insurance applications

Proof that an insured made material misrepresentations on its insurance applications renders the policies void ab initio. (Rutgers Cas. Ins. Co. v USA Veterans Constr. Corp., 206 AD3d 440, 441 [1st Dept 2022].) That the misrepresentation was innocently made will not preclude a court's voiding the contract. (See Tennenbaum v Insurance Corp. of Ireland, 179 AD2d 589, 592 [1st Dept 1992].) A factual misrepresentation is material "if, had it been revealed, the insurer or reinsurer would either not have issued the policy or would have only at a higher premium." (Interested Underwriters at Lloyd's v H.D.I. III Assoc., 213 AD2d 246, 247 [1st Dept 1995] [internal quotation marks omitted].) Although "materiality must be assessed as of the time the contract was entered into and is ordinarily a question of fact, where the evidence of the materiality of a misrepresentation is clear and substantially uncontradicted, the matter is one of law for the court to determine." (Id. [internal quotation marks omitted].)

Hudson asserts that on Vola's insurance applications Vola represented that Sorry Not Sorry conducted business from 12:00 p.m. to 9:00 p.m. with 70% of revenue from food sales and 30% from alcoholic beverages, and that Vola expressly denied that Sorry Not Sorry "offered adult entertainment, a dance floor, a stage, live music, exotic dancing, alcohol promotions and hookah or other communal smoking devices." (NYSCEF No. 106 at 2.) Hudson contends that [*4]contrary to these representations, Vola advertised Sorry Not Sorry on social media "as offering exotic dancing, DJ music, a hookah bar and lounge with smoking, state Vola's doors open at 10:00 p.m. with an open bar between 11:00 p.m. and 1:00 a.m. and offer $150.00 bottles of alcohol until 4:00 a.m." (Id. at 4; see NYSCEF No. 90 [Facebook posts]; NYSCEF No. 116 at 22-36 [Vola Action complaint with exhibits of social media advertisements].)

Hudson's senior underwriter affirmed in his affidavit that "[b]ut for Vola's concealments and misrepresentations, Hudson Excess would not have issued the Policies to Vola because Hudson Excess' underwriting guidelines prohibited doing so." (NYSCEF No. 121 at ¶ 51.) The underwriter further represented that not only would Vola not have qualified for these policies, but Vola would have also received annual premiums "far in excess" of those it ultimately paid. (Id. at ¶ 34.) Thus, Hudson asserts that it is entitled to rescind the policies and that this court must deny plaintiffs' motion.

In reply, plaintiffs submit the affidavit of Vola's principal, Georgios Aspiotis, in which he attests that "Sorry Not Sorry was at no time an 'adult entertainment establishment'" and that "[a]s represented on Vola's insurance applications, Sorry Not Sorry was primarily a bar, that also served food, from the time it opened." (NYSCEF No. 153 at ¶¶ 7, 9.[FN2] ) As Hudson notes, however, Aspiotis's claim that Sorry Not Sorry was primarily a bar contradicts Vola's representations on its applications.[FN3] (See NYSCEF No. 98 at 10, 14 [Vola's insurance application] [checking "Restaurant" rather than "Bar/Tavern" under the "Nature of Liquor Operations" section; representing that alcohol makes up 30% of Sorry Not Sorry's total sales].)

Plaintiffs also point to Vola's representations on its insurance application that "Last Call Time" was at 1:00 a.m. (See NYSCEF No. 98 at 11.) According to plaintiffs, this put Hudson on notice that Sorry Not Sorry stayed open past 1:00 a.m., and that, despite this, Hudson still agreed to issue the insurance. Further, plaintiffs argue that any claim that Sorry Not Sorry's use of a DJ or alcohol promotions would have caused Hudson to refuse to insure Vola fails, because "Hudson regularly provides insurance to strip clubs and nightclubs." (NYSCEF No. 150 at 3-4 [listing state and federal cases concerning what plaintiffs contend to be Hudson insurance policies for strip clubs and nightclubs].) Moreover, plaintiffs assert that to the extent that Hudson claims that Vola operated a "nightclub," it fails to prove that Sorry Not Sorry met the definition of "nightclub" as provided in Hudson's underwriting guidelines. (See NYSCEF No. 123 at 14-15.)

Plaintiffs' position on this motion is premised on the assertion that Hudson cannot prove that but for the alleged misrepresentations, it would not have issued any insurance policy to Sorry Not Sorry. But such proof is not required to establish the right to rescind an insurance policy. Rather, Hudson needs to show that but for the misrepresentations, it would not have issued the same policies. (See Lema v Tower Ins. Co. of NY, 119 AD3d 657, 658 [2d Dept 2014] [granting defendant insurer's request to rescind the insurance policy where defendant submitted an affidavit from its underwriting manager showing "that it would not have issued the same policy if the application had disclosed that the subject premises was a three-family dwelling"].) [*5]Hudson has satisfied this burden by (i) identifying those representations made by Vola in its applications that were inconsistent with the services described in Vola's advertisements for Sorry Not Sorry; and (ii) showing that but for these misrepresentations, Hudson would not have issued the same policies and that the policies would have necessitated higher premiums. The court therefore denies plaintiffs' motion for summary judgment as to Hudson.

2. Whether Hudson's policy-exclusion provisions apply

Because this court finds Hudson's first argument dispositive on this motion, it does not reach Hudson's alternative argument that the policies' classification endorsement precluded Hudson's duty to defend and indemnify.

II. Motion Sequence 004

In motion sequence 004, Hudson moves for summary judgment against plaintiffs by raising the same arguments as those it submits in opposition to plaintiffs' motion in motion sequence 003. Hudson argues that this court should rescind and void ab initio the Hudson insurance policies issued to Vola; and that its policies' classification endorsements relieved Hudson of any duty to defend and indemnify Vola or to pay the consent judgment.

Plaintiffs submit the same counterarguments as those proffered on motion sequence 003. (See NYSCEF No. 150 at 3-5.)

Hudson, in its reply, contests plaintiffs' claim that the federal cases to which they cite stand for the proposition that Hudson insures strip clubs and nightclubs, and therefore could have insured Sorry Not Sorry on that basis. Besides the fact that three of the cases concerned policies issued before Hudson's general-liability-underwriting guidelines were operative, Hudson also notes that plaintiffs do not explain how the insureds in these cases identified themselves on their applications; whether the insurance programs were like the one under which Vola applied; and what premiums were charged by Hudson. (NYSCEF No. 164 at 6-7.) Also, in terms of the last call time recorded in Vola's application, Hudson argues that the time recorded—1:00 a.m.—was materially false because Vola's advertisements promoted bottle service until 4:00 a.m. (Id. at 9.)

The court finds Hudson's arguments persuasive. The branches of Hudson's motion for summary judgment seeking rescission of the policies it issued to Vola are granted.[FN4]

Accordingly, it is

ORDERED that the branch of plaintiff's motion seeking summary judgment in plaintiffs' favor as against Hudson (mot seq 003) is denied; and it is further

ORDERED that the branch of plaintiffs' motion seeking summary judgment in plaintiff's favor against Lancer with respect to Lancer's duty to defend Vola in the Vola Action (mot seq 003) is granted, and Lancer is directed to pay plaintiffs Vola's reasonable defense costs incurred in the Vola Action; and it is further

ORDERED that branch of plaintiffs' motion seeking summary judgment in plaintiff's favor against Lancer with respect to Lancer's duty to defend Vola in the Vola Action (mot seq 003) is denied; and it is further

ORDERED that Lancer's cross-motion seeking dismissal of the crossclaims asserted [*6]against it by Hudson (mot seq 003) is granted, and those crossclaims are dismissed; and it is further

ORDERED that the branch of Lancer's cross-motion seeking dismissal of plaintiffs' claims against it with respect to Lancer's duty to defend Vola in the Vola Action (mot seq 003) is denied; and it is further

ORDERED that the branch of Lancer's cross-motion seeking dismissal of plaintiffs' claims against it with respect to Lancer's duty to indemnify Vola in the Vola Action (mot seq 003) is granted, and those claims are dismissed; and it is further

ORDERED that Hudson's motion for summary judgment dismissing plaintiffs' claims against it (mot seq 004) is granted, and the complaint is dismissed as against Hudson; and it is further

ADJUDGED AND DECLARED that Hudson's policies issued to Vola are rescinded ab initio; that Hudson has no duty to pay or satisfy any award, verdict, or judgment in the Vola Action; and that Hudson may return to Vola all premiums paid.

Dated: August 25, 2023
Hon. Gerald Lebovits
J.S.C. Footnotes

Footnote 1:Hudson and Lancer request that this court deny plaintiffs' motion for failure to annex all pleadings, as required by CPLR 3212 (b). (NYSCEF No. 109 at 4; NYSCEF No. 149 at 4.) The request is denied. This action is an e-filed case in which all pleadings are available on NYSCEF; and defendants have submitted the omitted pleadings in their opposition papers in any event. Denying plaintiffs' motion in these circumstances would be pointless formalism.

Footnote 2:Plaintiffs incorporate their arguments from their opposition papers submitted on motion sequence 004 into their reply on motion sequence 003. (See NYSCEF No. 161 at 8.)

Footnote 3:Given the court's disposition of the motion, the court does not reach Hudson's argument that the court should reject Aspiotis's affidavit as merely an attempt to create a feigned issue of fact.

Footnote 4:Because the court grants the branches of Hudson's motion seeking rescission of the insurance policies it issued to Vola, the court does not reach Hudson's alternative request for a declaration that the policies' classification-endorsement provisions precluded Hudson's duty to defend and indemnify. (See NYSCEF No. 79 at ¶ D [Hudson's notice of motion].)