Opinion
105077/09.
May 10, 2011.
This is an insurance coverage dispute in which plaintiffs seeks defense and indemnification in a personal injury action captioned Sclafani v Brother Jimmy's BBQ, Inc., Index No. 115551/08 (Sup Ct, NY County) (hereinafter, the underlying action). Defendant Illinois National Insurance Company (Illinois National) now moves, pursuant to CPLR 3212, for summary judgment dismissing the complaint. Plaintiffs cross-move, pursuant to CPLR 3212, for summary judgment declaring that: (1) the commercial umbrella policy issued by Illinois National affords coverage to plaintiffs in the underlying action; (2) Illinois National is obligated to defend and indemnify them in the underlying action; and (3) Illinois National is obligated to reimburse them for attorneys' fees expended in connection with this action and the underlying action.
By decision and order dated May 18, 2010 the amended complaint was dismissed as against American International Group, Inc. and AIG Domestic Claims, Inc.
BACKGROUND
Illinois National issued a commercial umbrella policy (policy no. EBU 8685976) to Brother Jimmy's NYC Restaurant Holdings, LLC, Third Avenue Brother Jimmy's, LLC, and Amsterdam Avenue Brother Jimmy's, LLC for the period March 7, 2007 through May 12, 2008 (Lahr Affirm. in Support, Exh. 4). The policy provides general liability coverage of $5,000,000 per occurrence, excess of $1,000,000 ( id.).
Section I, Insuring Agreement, provides as follows:
"A. We will pay on behalf of the Insured those items in excess of the Retained Limit that the Insured becomes legally obligated to pay as damages by reason of liability imposed by law because of Bodily Injury, Property Damage or Personal Injury and Advertising Injury to which this Insurance applies or because of Bodily Injury to which this insurance applies assumed by the Insured under an Insured Contract"
( id.).
Section VI, entitled "Conditions," includes the following conditions of coverage:
"G. Duties in the Event of an Occurrence, Claim or Suit
1. You must see to it that we are notified as soon as practicable of an Occurrence that may result in a claim or Suit under this policy . . .
* * *
2. If a claim is made or Suit is brought against any Insured which is reasonably likely to involve this policy, you must notify us in writing as soon as practicable. . . .
"L. Other Insurance
If other valid and collectible insurance applies to damages that are also covered by this policy, this policy will apply excess of the Other Insurance. However, this provision will not apply if the Other Insurance is specifically written to be excess of this policy"
( id. [all bold print in original]).
Plaintiffs Brother Jimmy's BBQ, Inc., Brother Jimmy's NYC Restaurant Holdings, LLC, Brother Jimmy's Franchising, LLC (collectively, Brother Jimmy's), Josh Leibowitz, Michael DaQuino, and Kevin Bulla are defendants in the underlying action ( id., Exh. 1). The plaintiff, Lauren Sclafani (Sclafani), alleges that she was injured at a Brother Jimmy's restaurant located at 428 Amsterdam Avenue on March 29, 2008, when a bartender poured Bacardi 151 onto the surface of the bar and lit it on fire, at which point the alcohol combusted and exploded and engulfed her in flames ( id., ¶ 22). She alleges that the accident resulted from the knowing, intentional, wanton, reckless, grossly negligent, and careless misconduct by defendants with respect to their ownership, operation, management, maintenance, supervision, and control of the premises ( id., ¶ 23). Sclafani also alleges that she suffered second and third degree burns, scarring, and disfigurement as a result of the accident ( id., ¶ 24). Sclafani seeks compensatory damages in addition to punitive damages from Brother Jimmy's ( id., ¶ 63).
Brother Jimmy's provided notice of the accident to its primary insurer, Praetorian Insurance Company (Praetorian), on April 2, 2008, four days after the accident ( id., Exh. 5). Praetorian issued a commercial general liability policy to Brother Jimmy's NYC Restaurant Holdings, LLC for the policy period from March 7, 2007 through May 12, 2008 ( id., Exh. 6). The primary policy provides general liability coverage for bodily injury of $1,000,000 per occurrence ( id.).
It appears that Praetorian thereafter assigned the loss to its third-party administrator, York Claims Services, Inc. (York) (Catapano Aff., Exh. 3). Nora Cretter at York commenced an investigation of the claim on April 3, 2008 ( id.). ADM Information Services, LLC (ADM) was apparently retained to perform this investigation (Lahr Affirm. in Support, Exh. 7). By letter dated May 29, 2008, ADM informed Cretter that Kevin Bulla, the bartender, was arrested and criminally charged as a result of the accident ( id., Exh. 8). On June 9, 2008, ADM informed Cretter about the severity of the assault charges against Bulla, and that Sclafani, who had spent about four weeks in the Cornell Burn Center, would be "retaining an attorney to pursue the matter aggressively" ( id., Exh. 3).
On November 21, 2008, York learned that Sclafani had filed the underlying action through an article published in the New York Post that day (Catapano Aff., Exh. 3). Cretter advised Dara Holzman at Global Coverage, Inc. to provide notice of the claim to Illinois National ( id.). On December 2, 2008, Holzman sent the summons and complaint and a general liability notice of occurrence/claim to Innovative Coverage Concepts, LLC, which were subsequently forwarded to Illinois National that same day ( id., Exh. 1).
On December 4, 2008, a segmentation technician employed by Illinois National's claims administrator, Chartis Claims, Inc., was assigned to investigate the claim (Catapano Aff., ¶¶ 1, 5). The technician, Audrey Catapano, states that the documents provided "did not indicate when Brother Jimmy's became aware of the accident and/or the alleged seriousness of the injuries suffered by [] Sclafani" ( id., ¶ 6). Catapano avers that she commenced an investigation into whether the excess policy was potentially implicated, and as of what date Brother Jimmy's knew that there was potential exposure to the excess layer ( id., ¶ 8). On December 16, 2008, Catapano spoke with Cretter at York about Sclafani's claim, who sent her e-mail, newspaper, and internet articles regarding the claim ( id., ¶ 10-12). Cretter also informed her that Sclafani sustained second and third degree burns on her face and hands, and that she was in the burn unit for three weeks ( id., ¶ 12). On December 22, 2008, Catapano contacted Brother Jimmy's defense counsel, who advised her that Sclafani's claim may have a very high verdict, and that the outcome of the criminal case against the bartender may be admissible in the underlying action ( id., ¶ 13). On December 29, 2008, Catapano recommended that the claim be transferred to the Complex Unit for further investigation and handling ( id., ¶ 15).
On January 9, 2009, AIG Domestic Claims, Inc., as claims administrator for Illinois National, sent a letter to Brother Jimmy's disclaiming coverage for the following reason:
"Based on the information presently available to us, this incident occurred on 03/29/08. The primary carrier was placed on notice 04/02/08. However, Illinois National received no notice of this claim until 12/02/08, over eight months after the subject accident.
"Condition G, sections 1-3, of the Illinois National policy requires an insured to notify Illinois National of any occurrence, claim or suit [as] soon as practicable. Further, if a claim is made or suit is brought against the insured that is reasonably likely to involve this policy, the insured must notify Illinois National reasonably likely to involve this policy, the insured must notify Illinois National in writing as soon as practicable. Finally, the policy provides that the insured must immediately send Illinois National copies of any demands, notices, summonses or legal papers received in connection with the claim or suit.
"Accordingly, coverage is precluded for this loss on the basis that the insured failed to notify us of the claim or suit until on or about 12/02/08, roughly eight months after the accident or occurrence. We have no information in the file at this time that explains the 8 months [sic] delay in reporting this claim to Illinois National."
Initially, Illinois National also disclaimed coverage because the accident fell outside the policy period (Lahr Affirm, in Support, Exh. 9). However, by letter dated March 26, 2009, Illinois conceded that the occurrence took place during the policy period because the policy was extended to May 12, 2008, pursuant to Endorsement No. 17 (Rothman Affirm. in Support, Exh. 2).
(Catapano Aff., Exh. 5).
Illinois National moves for summary judgment, contending that coverage is vitiated by Brother Jimmy's failure to provide timely notice of the accident. Illinois National asserts that Brother Jimmy's did not notify it of the claim until December 2, 2008, over eight months after the accident. Illinois National further argues that its disclaimer was timely as a matter of law, since its defense of late notice was not readily apparent when it received initial notice of the claim. According to Illinois National, the facts forming the basis of its late notice defense only became apparent when it conducted an investigation into the seriousness of the claim.
In opposing Illinois National's motion, and in cross-moving for summary judgment, plaintiffs contend that Illinois National's 38-day delay in disclaiming coverage was untimely as a matter of law. Alternatively, plaintiffs maintain that there are issues of fact as to whether they had a good-faith belief in non-liability, because they reasonably believed that the value of Sclafani's claim would not trigger excess coverage.
Sclafani also submitted a memorandum of law in support of plaintiffs' cross motion for summary judgment and in opposition to Illinois National's motion for summary judgment. Plaintiffs adopt these arguments (Rothman Affirm. in Reply, ¶ 5).
DISCUSSION
'"[T]he proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact'" ( Admiral Indem. Co. v Sudan, 82 AD3d 656 [1st Dept 2011], quoting Alvarez v Prospect Hosp., 68 NY2d 320, 324). The burden then shifts to the party opposing the motion to "present evidentiary facts in admissible form sufficient to raise a genuine, triable issue of fact" ( Mazurek v Metropolitan Museum of Art, 27 AD3d 227, 228 [1st Dept 2006], citing Zuckerman v City of New York, 49 NY2d 557, 562). The court's function on a motion for summary judgment is only to determine whether any triable issues of fact exist, not to determine the merits of any such issues ( Sheehan v Gong, 2 AD3d 166, 168 [1st Dept 2003]).
Illinois National claims that Brother Jimmy's failure to provide notice of the accident "as soon as practicable" vitiates the umbrella policy. "Where a liability insurance policy requires that notice of an occurrence be given 'as soon as practicable,' such notice must be accorded the carrier within a reasonable period of time" ( Tower Ins. Co. of N. Y. v Lin Hsin Long Co., 50 AD3d 305, 307 [1st Dept 2008], quoting Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d 742, 743). The failure to provide notice may be excused where the insured has a reasonable "good-faith belief of nonliability" ( Great Canal Realty Corp., 5 NY3d at 743). The issue of reasonableness is ordinarily an issue for the jury ( McGovern-Barbash Assoc., LLC v Everest Natl. Ins. Co., 79 AD3d 981, 983 [2d Dept 2010]). Where an excess policy is at issue, the focus is on whether the insured reasonably should have known that the claim against it would exhaust its primary coverage and implicate its excess coverage ( National Union Fire Ins. Co. of Pittsburgh, Pa. v Connecticut Indem. Co., 52 AD3d 274, 276 [1st Dept 2008]; Morris Park Contr. Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 33 AD3d 763, 765 [2d Dept 2006]).
However, the court need not determine whether Brother Jimmy's notice to Illinois National was untimely as a matter of law, if Illinois National's disclaimer was untimely. Under Insurance Law § 3420 (d), an insurer wishing to disclaim liability or deny coverage under a liability insurance policy must "give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage." An insurer's failure to do so '"precludes effective disclaimer, even [where] the policyholder's own notice of the incident to its insurer is untimely'" ( Matter of New York Cent. Mut. Fire Ins. Co. v Aguirre, 7 NY3d 772, 774, quoting First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 67). The purpose of the statute is "to protect the insured, the injured person, and any other interested [person] who has a real stake in the outcome, from being prejudiced by a belated denial of coverage" ( Excelsior Ins. Co. v Antretter Contr. Corp., 262 AD2d 124, 127 [1st Dept 1999]).
Insurance Law § 3420 (d) (2) provides that "[i]f under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant." Subsection (d) was amended by the Laws of 2008, Chapter 388, § 5 ( id.). Illinois National, in footnote in its memorandum of law, makes a feeble attempt to question the applicability of Insurance Law § 3420 (d) (2), based on Matter of All city Ins. Co. [Sioukas], 51 AD2d 525 [1st Dept 1976], affd, 41 NY2d 872 [1977]). However, that case is inapposite because there, the plaintiff did not timely notify the primary carrier, and as a result, the excess carrier's policy, which afforded coverage upon exhaustion of the primary coverage, was never triggered.
The insurer has the burden of justifying any delay in disclaiming ( Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 1030, rearg denied 47 NY2d 951 [1979]). The '"timeliness of an insurer's disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage'" ( First Fin. Ins. Co., 1 NY3d at 68-69, quoting Matter of Allcity Ins. Co. [Jimenez], 78 NY2d 1054, 1056, rearg denied 79 NY2d 823 ). While generally the reasonableness of the delay is a question of fact requiring consideration of all relevant circumstances surrounding a particular disclaimer ( Continental Cas. Co. v Stradford, 11 NY3d 443, 449), "an insurer's explanation is insufficient as a matter of law where the basis for denying coverage was or should have been readily apparent before the onset of the delay" ( First Fin. Ins. Co., 1 NY3d at 69). Where the ground for disclaimer was not readily apparent, an unsatisfactory explanation will render the delay unreasonable as a matter of law ( Hunter Roberts Constr. Group, LLC v Arch Ins. Co., 75 AD3d 404, 409 [1st Dept 2010]). However, an insurer's delay in notifying the insured of a disclaimer may be excused when the insurer conducts an "investigation into issues affecting [its] decision whether to disclaim coverage" ( First Fin. Ins. Co., 1 NY3d at 69).
Thus, courts have found delays of about 38 days to be unreasonable as a matter of law where the basis for disclaimer was readily apparent from the insured's notice of claim ( see Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 44 AD3d 307 [1st Dept 2007] [37 days]; 2833 Third Ave. Realty Assoc. v Marcus, 12 AD3d 329 [1st Dept 2004] [37 days]; West 16 th St. Tenants Corp. v Public Serv. Mut. Ins. Co., 290 AD2d 278, 279 [1st Dept 2002], lv denied 98 NY2d 605 [30 days]). By contrast, similar delays have been found to be reasonable where the insurer was presented with circumstances which required further investigation, including the insured's late notice to the insurer ( Tully Constr. Co., Inc. v TIG Ins. Co., 43 AD3d 1150, 1153 [2d Dept 2007]; Ace Packing Co., Inc. v Campbell Solberg Assoc., Inc., 41 AD3d 12, 15 [1st Dept 2007]; DeSantis Bros. v Allstate Ins. Co., 244 AD2d 183, 184 [1st Dept 1997], lv denied 91 NY2d 808).
In Tully Constr. Co., Inc., ( 43 AD3d at 1153, supra), the insurer first received notice of a claim in June 2004 arising out of a November 2000 accident ( id.). The insurer disclaimed 42 days later, in August 2004 ( id.). However, there was evidence that the insured's broker had given prior notice to the insurer ( id.). The insurer requested copies of the summonses and complaints, pretrial reports, and documentation of the alleged prior notice to the insurer ( id.). Thus, the Court concluded that the insurer met its burden of demonstrating that the delay was reasonably related to its completion of a thorough and diligent investigation into whether it had grounds for a disclaimer based on late notice ( id.).
In Ace Packing Co., Inc. ( 41 AD3d at 14, supra), after first receiving notice of the claim, the insurer's adjuster sought to interview the plaintiff about "the circumstances surrounding the accident and what plaintiff did when it first received notice of the claim and the resulting lawsuit." The plaintiff refused to cooperate with the adjuster for 30 days ( id.). Thus, the Court held that the 38-day delay was "due entirely to plaintiff's refusal to cooperate with the adjuster in its investigation" ( id. at 15). When the insurer first received notice of the claim, it did not know when "plaintiff first learned of either the accident or the lawsuit" ( id.).
Here, the court concludes that the ground for disclaimer (late notice) was readily apparent before the onset of the delay from the documents submitted to Illinois National, including the summons and complaint in the underlying action. The complaint indicates that the accident occurred at a Brother Jimmy's establishment on March 29, 2008, more than 8 months before Illinois National received notice of the claim on December 2, 2008 (Catapano Aff., ¶ 3, Exh. 1; Lahr Affirm. in Support, Exh. 1 [Complaint in Sclafani v Brother Jimmy 's BBQ, Inc., Index No. 115551/08, ¶ 22). Additionally, the general liability notice of occurrence/claim states that Sclafani was injured on March 28, 2008 at a Brother Jimmy's restaurant (Catapano Aff., Exh. 1). Although Illinois National asserts that the delay was attributable to an investigation into potential exposure to the excess layer and the seriousness of Sclafani's injuries, there was no need for an investigation because the ground for disclaimer was evident from the notice of claim ( see Hunter Roberts Constr. Group, LLC, 75 AD3d at 409 [insurer's delay in disclaiming was unreasonable where it did not explain why anything more than a "cursory investigation" was necessary to determine whether additional insured had timely notified it of the claim]; Pav-Lak Indus., Inc. v Arch Ins. Co., 56 AD3d 287, 287-288 [1st Dept 2008] [delay in disclaiming coverage was unreasonable because there was no need for an investigation because the basis for disclaimer was readily apparent from information available to insurer]; Schulman v Indian Harbor Ins. Co., 40 AD3d 957, 958 [2d Dept 2007] [complaint in underlying action and circumstances surrounding initial inquiry by claims analyst provided sufficient indicia that insured may have breached applicable notice requirement]). There is no merit to Illinois National's claim that "[o]nly after Illinois National undertook an investigation of the seriousness of the claim did the facts forming the basis for its late notice defense become apparent" (Defendant Memo of Law at 20) when,. as specified in the disclaimer notice "coverage is precluded for this loss on the basis that the insured failed to notify us of the claim or suit until on or about 12/02/08, roughly eight months after the accident or occurrence. We have no information in the file at this time that explains the 8 months [sic] delay in reporting this claim to Illinois National." Therefore, Illinois National's 38-day delay in disclaiming coverage was unreasonable as a matter of law.
It is well settled that "[a]n insurer's duty to defend its insured is exceedingly broad, [and that] [a]n insurer will be called upon to provide a defense whenever the allegations of the complaint suggest . . . a reasonable possibility of coverage" ( Regal Constr. Corp. v National Union Fire Ins. Co. of Pittsburgh, PA, 15 NY3d 34, 37 [internal quotation marks and citations omitted]). A primary insurer "has a duty to defend without any entitlement to contribution from an excess insurer" ( General Motors Acceptance Corp. v Nationwide Ins. Co., 4 NY3d 451, 456 [internal quotation marks omitted]). The narrower duty to indemnify arises only if the claim for which the insured has been judged liable lies within the policy's coverage ( see Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 NY2d 419, 424; Westchester Fire Ins. Co. v Utica First Ins. Co., 40 AD3d 978, 980 [2d Dept 2007] [when insurers agree to pay all sums which an insured becomes legally obligated to pay as damages, there must be an establishment of legal liability for payment of damages to trigger the insurers' duty to indemnify the insured]). Illinois National's 38-day delay in issuing its disclaimer was unreasonable as a matter of law under Insurance Law § 3420 (d), and that its disclaimer was therefore ineffective. Pursuant to the "other insurance" clause in the umbrella policy, the umbrella policy is excess over "Other Insurance" (Lahr Affirm. in Support, Exh. 4, VI-Conditions [L]). Thus, Illinois National is obligated to take over the defense when Praetorian's coverage has been exhausted ( see Sport Rock Intl., Inc. v American Cas. Co. of Reading, Pa., 65 AD3d 12, 29 [1st Dept 2009] [excess insurer does not have duty to defend until primary coverage is exhausted or otherwise terminated]), and, if necessary, indemnify plaintiffs for damages incurred in the underlying action.
The court denies the branch of plaintiffs' cross motion seeking reimbursement of legal fees incurred in this action. It '"is well established that an insured may not recover the expenses incurred in bringing an affirmative action against an insurer to settle its rights under the policy'" ( Silva v F.R. Real Estate Dev. Corp., 58 AD3d 449, 450 [1st Dept 2009], quoting New York Univ. v Continental Ins. Co., 87 NY2d 308, 324; see also West 56 th St. Assoc. v Greater N. Y. Mut. Ins. Co., 250 AD2d 109, 114 [1st Dept 1998]). Nevertheless, an insured may recover attorneys' fees when the insured "has been cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations" ( Mighty Midgets v Centennial Ins. Co., 47 NY2d 12, 21). Here, plaintiffs commenced a declaratory judgment action against Illinois National seeking a determination of their rights under the umbrella policy. Thus, plaintiffs are not entitled to legal fees incurred in connection with this action ( see e.g. Ebasco Constructors v Aetna Ins. Co., 260 AD2d 287, 291 [1st Dept 1999] [general contractor was not entitled to attorneys' fees in declaratory judgment action filed against insurer for defense and indemnification]). Attorneys fees may also be recovered where the insurer acts in bad faith ( Bi-Economy Market, Inc. v Harleysville, 10 NY3d 187), but that not alleged to be the case here.
Plaintiffs' request for reimbursement of attorneys' fees incurred in defending the underlying action is similarly denied. Where an insurer breaches its duty to defend its insured, the insurer is liable for reasonable attorneys' fees incurred in defending the underlying action ( Urban Resource Inst. v Nationwide Mut. Ins. Co., 191 AD2d 261, 262 [1st Dept], lv dismissed and denied in part 82 NY2d 704). Plaintiffs have not shown that Illinois National breached its duty to defend. As noted above, Illinois National's duty to defend is triggered only upon exhaustion of the primary policy.
CONCLUSION
Accordingly, it is
ORDERED that the motion (sequence number 007) by defendant Illinois National Insurance Company for summary judgment is denied; and it is further
ORDERED that the cross motion by plaintiffs Brother Jimmy's BBQ, Inc., Brother Jimmy's NYC Restaurant Holdings, LLC, Brother Jimmy's Franchising, LLC, Josh Leibowitz, Michael DaQuino and Kevin Bulla for summary judgment declaring that they are entitled to a defense and indemnification from defendant Illinois National Insurance Company in the underlying action Sclafani v Brother Jimmy's BBQ, Inc., Index No. 115551/08 (Sup Ct, NY County), is granted in part, and is otherwise denied; and it is further
ADJUDGED and DECLARED that defendant Illinois National Insurance Company is obligated to provide a defense to plaintiffs in the underlying action Sclafani v Brother Jimmy's BBQ, Inc., Index No. 115551/08 (Sup Ct, NY County) upon exhaustion of the $1,000,000 limit of the insurance policy issued by Praetorian Insurance Company; and it is further
ORDERED that so much of the complaint that seeks indemnification from defendant Illinois National Insurance Company is severed and continued.
This Constitutes the Decision, Order and Judgment of the Court.