Summary
finding insured's claim that "it lacked subjective knowledge" that prior events might lead to a claim unpersuasive where an objectively reasonable insured would have expected a claim
Summary of this case from ChemTreat, Inc. v. Certain Underwriters At Lloyd's of London Subscribing to Policy No. B0509FINPS1700245Opinion
18-CV-01480 (LDH) (RER)
2019-09-30
B FIVE STUDIO LLP, Plaintiff, v. GREAT AMERICAN INSURANCE COMPANY, Defendant.
Steven A. Coploff, Steinberg & Cavaliere, LLP, White Plains, NY, for Plaintiff. Bonnie J. Thompson, Pro Hac Vice, Kimberly Ashmore, Pro Hac Vice, Richard A. Simpson, Pro Hac Vice, Todd A. Bromberg, Wiley Rein LLP, Washington, DC, for Defendant.
Steven A. Coploff, Steinberg & Cavaliere, LLP, White Plains, NY, for Plaintiff.
Bonnie J. Thompson, Pro Hac Vice, Kimberly Ashmore, Pro Hac Vice, Richard A. Simpson, Pro Hac Vice, Todd A. Bromberg, Wiley Rein LLP, Washington, DC, for Defendant.
MEMORANDUM AND ORDER
LaSHANN DeARCY HALL United States District Judge
Plaintiff B Five Studio, LLC ("B Five") brings the instant action against its insurance provider Great American Insurance Company ("Great American") for (1) breach of insurance coverage and (2) breach of implied covenant of good faith and fair dealing. (Compl., ECF No. 1.) Great American pursues counterclaims for declaratory judgment. (Answer Compl. & Counterclaim Declaratory J., ECF No. 8.) Specifically, Great American seek the following declarations, argued in the alternative, that no coverage is available for the claim at issue: (1) because the claim was not first made and reported during the policy period and therefore does not trigger the policy's insuring agreement; (2) based on the prior-knowledge condition; (3) based on the application's exclusionary language; (4) because Exclusion D applies, which precludes claims based on or arising out of the cost to repair or replace faulty workmanship; and (5) because Exclusion E applies, which precludes claims involving a pollution incident as defined by the policy. (Id. ¶¶ 62-93.) The parties have filed cross-motions pursuant to Federal Rule of Civil Procedure 56 for summary judgment. (ECF Nos. 21, 22.)
Additionally, Defendant moves to strike Plaintiff's cross-motion for summary judgment on the ground that Plaintiff did not seek leave of Court by first filing a request for a pre-motion conference. (Great Am. Ins. Co.'s Notice Mot. Strike B Five Studio LLP's Purported Cross-Mot. Summ. J. & Aff. Supp., ECF No. 24.) Defendant argues that Plaintiff improperly filed an affidavit in support of its cross-motion when the parties previously informed the Court that summary judgment would be based on the parties' joint Rule 56.1 statement. (Great Am. Ins. Co.'s Mem. Law Supp. Mot. Strike B Five Studio LLP's Purported Cross-Mot. Summ. J. & Aff. Supp. ¶ 8, ECF No. 24-1.) However, Rule 12(f) allows a court to strike only pleadings, not motion papers. See Dekom v. New York , No. 12-CV-1318, 2013 WL 3095010, at *6 (E.D.N.Y. June 18, 2013) (denying motion to strike where Plaintiff was seeking to strike legal briefs rather than pleadings); see also Fed. R. Civ. P. 7(a), (b) (distinguishing "pleadings" from "motions and other papers"). As such, Defendant's motion to strike Plaintiff's cross-motion is denied.
BACKGROUND B Five was hired to provide design services in connection with a condominium conversion project ("Kimball Street Project") located at 2101 Kimball Street in Philadelphia, Pennsylvania (the "Property"). (Joint Rule 56.1 Statement of Stipulated Facts ("Joint 56.1") ¶ 4, ECF No. 18-1.) The owner and developer of the Property was 2101 Kimball Street LLC ("the LLC"). (Id. ¶ 6.) The LLC operated the Condo Owners Association (the "COA") for the Property until October 12, 2012. (Id. ¶ 9.) On March 10, 2016, an attorney for the COA sent a demand letter to Joseph Morrison, project manager for the Kimball Street Project, regarding certain design defects on the property ("Demand Letter"). (Id. ¶¶ 7, 10.) The Demand Letter indicated that the condominium units suffered extreme leak problems due to defective design. (Id. Ex. 2 ("Demand Letter") at 1, ECF No. 18-3.) B Five partners Charles Capaldi and Ronald Bentley read the Demand Letter on or before May 9, 2016. (Joint 56.1 ¶ 13.)
The following facts are taken from the parties' joint 56.1 statement and are therefore undisputed.
Mr. Capaldi and Mr. Bentley were partners of B Five at the time of the Kimball Street Project, and Joseph Morrison was employed as a B Five project manager. (Joint 56.1 ¶ 7.) Specifically, Mr. Capaldi was the architect of record on the Kimball Street Project. (Id. ) At the time of the Kimball Street Project, Mr. Capaldi and Mr. Morrison were also members of the LLC. (Id. ¶ 8.)
At the time Mr. Morrison received the Demand Letter, B Five did not have a policy in effect with Great American. (Id. ¶ 14.) On or about May 9, 2016, B Five applied for insurance coverage with Great American. (Id. ¶ 16.) B Five did not report the Demand Letter under the third-party policy in place at the time of its application. (Id. ¶ 15.) The policy incepted on May 11, 2016 ("Policy"). (Id. ¶ 17.) Under the terms of the Policy, among other things, Great American was required to insure B Five for all sums, provided that, "prior to the inception date of the first Policy issued by the Company, and continuously renewed, no Principal Insured had a basis to believe that any such Wrongful Act ... might reasonably be expected to be the basis of a Claim." (Id. Ex. 1 § I(2), ECF No. 21-4.)
Approximately three months after the Policy incepted, on or about August 18, 2016, B Five reported a claim to Great American arising out of the Kimball Street Project (the "Kimball Claim"). (Id. ¶¶ 5, 18.) On August 24, 2016, Great American denied coverage for the Kimball Claim. (Id. ¶ 19.) On or about August 25, 2017, the COA commenced an action in the Philadelphia Court of Common Pleas, naming B Five, among other entities and individuals involved in the Kimball Street Project, as a defendant. (Id. ¶ 20.) On January 8, 2018, the COA filed a complaint in that lawsuit alleging defective design and construction involving the Kimball Street Project. (Id. Ex. 4, ECF No. 21-7.)
STANDARD OF REVIEW
Summary judgment must be granted when there is "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see also Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A genuine dispute of material fact exists when the evidence as to a fact that might affect the suit's outcome is such that a reasonable jury could find in favor of the non-movant at trial. Anderson , 477 U.S. at 248, 106 S.Ct. 2505. At summary judgment, the movant bears the initial burden of demonstrating the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; see also Feingold v. New York , 366 F.3d 138, 148 (2d Cir. 2004). Once the movant meets that burden, the non-movant may defeat summary judgment only by adducing evidence of specific facts that raise a genuine issue for trial. See Fed. R. Civ. P. 56(c) ; see also Anderson , 477 U.S. at 248, 106 S.Ct. 2505 ; Davis v. New York , 316 F.3d 93, 100 (2d Cir. 2002). The Court is to view all such facts in the light most favorable to the non-movant, drawing all reasonable inferences in its favor. Anderson , 477 U.S. at 255, 106 S.Ct. 2505. Still, to survive summary judgment, a non-movant must present concrete evidence and may not rely on mere conclusory or speculative claims or denials. Quinn v. Syracuse Model Neighborhood Corp. , 613 F.2d 438, 445 (2d Cir. 1980) ("The litigant opposing summary judgment, therefore, ‘may not rest upon mere conclusory allegations or denials’ as a vehicle for obtaining a trial." (quoting SEC v. Research Automation Corp. , 585 F.2d 31, 33 (2d Cir. 1978) )).
DISCUSSION
Defendant seeks to disclaim coverage to B Five related to the Kimball Claim on a number of grounds, including, Plaintiff's failure to satisfy the Policy's prior-knowledge condition. (Mem. Supp. Great Am. Ins. Co.'s Mot. Summ. J. ("Def.'s Mot.") at 7, ECF No. 21-1.) This ground alone provides ample basis for Defendant to disclaim coverage.
Under the terms of the Policy, coverage is available provided that, "prior to the inception date of the first Policy issued by the Company, and continuously renewed, no Principal Insured had a basis to believe that any such Wrongful Act ... might reasonably be expected to be the basis of a Claim." (Joint 56.1 Ex. 1 § I(2).) "The New York approach to the interpretation of contracts of insurance is to give effect to the intent of the parties as expressed in the clear language of the contract." Ment Bros. Iron Works Co. v. Interstate Fire & Cas. Co. , 702 F.3d 118, 122 (2d Cir. 2012) (quoting Mt. Vernon Fire Ins. Co. v. Belize NY, Inc. , 277 F.3d 232, 236 (2d Cir. 2002) ). The prior-knowledge condition of the Policy is clear and unambiguous. Thus, in determining the applicability of the condition, the Court need only consider "the insured's knowledge of the relevant facts and [make] an objective determination of whether a reasonable person in the insured's position should have expected such facts to be the basis of a claim." Ulster Cty. v. CSI, Inc. , 95 A.D.3d 1634, 945 N.Y.S.2d 480, 482 (2012) (citing Liberty Ins. Underwriters Inc. v. Corpina Piergrossi Overzat & Klar LLP , 78 A.D.3d 602, 913 N.Y.S.2d 31, 33 (2010) ). That is the insurer must demonstrate "the insured's knowledge of the relevant facts prior to the policy's effective date, and ... that a reasonable attorney might expect such facts to be the basis of a claim." Id. (citations omitted).
B Five argues that it could not have expected a claim to be asserted against it based solely on the Demand Letter because the letter did not mention B Five. (Mem. Law Supp. Pl.'s Cross-Mot. Summ. J. ("Pl.'s Opp.") at 6, ECF No. 22-1.) Hence, B Five maintains it lacked subjective knowledge. B Five's argument misses the mark in that the standard does not demand the certitude B Five suggests. The question is not whether B Five would have "expected a claim." Rather, the question is whether B Five was aware of the "relevant facts." In this case, the obvious answer is "yes." The Demand Letter complained of damage to the Property resulting from "defective design and construction." (Demand Letter at 1 (emphasis added).) Although the letter was addressed to Mr. Morrison in his capacity as a member of the LLC, he served a dual role. Mr. Morrison was also the project manager employed by B Five in connection with the Kimball Street Project. (Joint 56.1 ¶ 7.) B Five provided design services for the Kimball Street Project. (Id. ¶ 4.) These are the relevant facts. Mr. Morrison was aware of these facts. So too were Mr. Bentley and Mr. Capaldi, who read the Demand Letter prior to the Policy's inception date. (Id. ¶ 13.)
It also cannot be said that B Five lacked the objective understanding of a reasonable businessperson that B Five may be subject to a claim. First , the Demand Letter attributes at least some of the damage to the Property's defective design. (Demand letter at 1.) Among other things, the Demand Letter indicates that the Property suffer[ed] "water intrusion from ... defective design and construction." (Id. ) Second , the Demand Letter, again while addressed to Mr. Morrison, threatened litigation against "[him], [his] companies and its subcontractors ." (Id. (emphasis added).) Even if B Five was not specifically named in the letter, it is undisputed that B Five was a subcontractor of the LLC. (See Joint 56.1 ¶¶ 4, 6.) A reasonable businessperson the position of Mr. Morrison, Mr. Bentley, and Mr. Capaldi would have readily understood that B Five, as subcontractor for the Kimball Street Project, could be implicated. That B Five investigated the source of the leaks suggests its own reasonable concerns that the issues raised in the Demand Letter could have been attributable to its conduct, subjecting it to liability. Taken together, the facts in this case establish that B Five had both the subjective and objective knowledge of a potential claim, rendering coverage unavailable to it under the prior-knowledge provision of the Policy. See CPA Mut. Ins. Co. of Am. Risk Retention Grp. v. Weiss & Co. , 80 A.D.3d 431, 915 N.Y.S.2d 57, 57-58 (2011) (finding insured had subjective knowledge of facts pertaining to a fraudulent scheme undertaken by their clients, which involved or implicated the insured and therefore it was unreasonable for the insured to have failed to foresee that these facts might form the basis of a claim against them); Quanta Lines Ins. Co. v. Inv. Capital Corp. , 2009 WL 4884096, at *3, 15-18 (E.D.N.Y. Dec. 17, 2009) (finding the demand letter at issue, which implicated fraudulent investments conducted by an individual "under the supervision of" the insured, was deemed a claim first made prior to the inception of the policies rendering coverage not available), aff'd on other grounds , 403 F. App'x 530 (2d Cir. 2010) (summary order).
B Five's protestation that at on some unspecified date, B Five and its principals "learned that the claims related to leaks that seemed to be coming from either the solar collector or the green-roof installation – both of which were installed after B Five was out of the project" does not change the Court's conclusion. (Pl.'s Opp. at 6.) It is noteworthy that the statement is impressively speculative. Moreover, even if these speculative conclusions could be borne out as true, they would have operated as defenses to a claim – they would not have prevented one from being asserted in the first instance.
Based on the foregoing, B Five had prior knowledge of the basis for the claim and therefore the prior knowledge exclusion applies. As such, there is no coverage available for this claim and Defendant is entitled to summary judgment.
CONCLUSION
For the foregoing reasons, Defendant's motion for summary judgment is GRANTED and Plaintiff's cross-motion for summary judgment is DENIED. The Court declares that there is no coverage available to B Five for the Kimball Claim under the Policy because it is a Claim first made prior to the claims made and reported under the Policy Period.
SO ORDERED: