Opinion
0114321/2003.
August 4, 2008.
DECISION/ORDER
This action stems from the unsuccessful attempt by plaintiff NC Venture I, L.P. ("NC Venture") to recover proceeds from an insurance policy issued by defendant Valley Forge Insurance Co. a/k/a Valley Forge Insurance Co., Inc. ("Valley Forge") relating to a property in Peekskill, New York that was destroyed by fire on or about August 13, 2002. Plaintiff is the mortgagee by assignment from First Union National Bank ("First Union"), which assignment occurred on or about December 13, 2000, of the property owned by Complete Analysis, Inc., pursuant to a written mortgage dated October 6, 1987.
On or about March 26, 2002, Complete Analysis and the defendant entered into a contract of general liability insurance, including coverage for fire loss, for the period from March 26, 2002 through March 26, 2003. Although plaintiff states that First Union was designated as an additional insured on the policy, it appears that the policy simply reflects that First Union was the mortgagee.
Plaintiff contends that since First Union was named in the insurance contract, NC Venture became entitled to the policy proceeds in the event of a loss by virtue of the assignment of the mortgage. Defendant Valley Forge, however, has refused to comply with plaintiff's demand for payment in the aftermath of the fire.
Plaintiff's Complaint seeks to recover damages by reason of defendant's alleged breach of the contract of insurance.
Defendant's Answer specifically denies most of the allegations made in plaintiff's Complaint and also asserts eighteen affirmative defenses:
(1) the Complaint fails to state a cause of action in that it does not describe how the alleged assignment of the purported mortgage it refers to conveyed any rights on plaintiff under the policy (first affirmative defense);
(2) Valley Forge is not liable to plaintiff in any manner or amount because plaintiff is not shown in the policy's declarations as a mortgage holder and is not a designated mortgagee in the policy (second affirmative defense); (3) any assignment of rights under the policy to plaintiff was null and void because defendant never provided consent to anyone, written or otherwise, to assign any rights or obligations under the policy (third affirmative defense);
(4) defendant is not liable to plaintiff because the alleged assignment of proceeds took place prior to the fire and prior to the issuance of the policy (fourth affirmative defense);
(5) plaintiff carries a separate property insurance policy for the same premises, so plaintiff was paid or is entitled to make a claim under the other insurance policy, and therefore, plaintiff may be made whole by collecting the proceeds of the other insurance policy that names plaintiff as the insured (fifth affirmative defense);
(6) to the extent plaintiff is not made whole by the other insurance policy and defendant is found liable in this action, the payment due under the policy concerned in this action will be offset by any payment plaintiff is due under the other insurance policy (sixth affirmative defense);
(7) plaintiff held or holds a mortgage on the premises, which it foreclosed, so plaintiff either received or is due payment on that mortgage, which should have made plaintiff whole for any damages sustained by the fire alleged in the complaint (seventh affirmative defense); (8) to the extent plaintiff was not made whole by the foreclosure of plaintiff's mortgage, and is found to be entitled to any payment under defendant's insurance contract, the payment due under the policy will be offset by any payments plaintiff is due, or was paid, by the foreclosure (eighth affirmative defense);
(9) the amount of damages claimed by plaintiff in its complaint (at least $500,000) is an inflated amount and, if defendant is found liable, the liability should only be in the amount of the actual damages, subject to any limits set forth in the policy (ninth affirmative defense);
(10) if it is determined that Valley Forge is liable to plaintiff for any loss or damage, defendant is not liable for any loss or damage to any property which is excluded from coverage pursuant to the policy (tenth affirmative defense);
(11) if defendant is found liable to plaintiff, that liability will be subject to the terms, conditions, provisions, clauses, endorsements, amendments and declarations of the policy (eleventh affirmative defense);
(12) if defendant is found liable to plaintiff, the liability will not exceed the various limits, sub-limits and special limits of liability set forth in the policy (twelfth affirmative defense);
(13) if defendant is found liable to plaintiff, then the liability will be governed by the applicable valuation and loss payment provisions contained in the policy (thirteenth affirmative defense); (14) if defendant is found liable to plaintiff, then the liability is subject to the "co-insurance" provisions of the policy (fourteenth affirmative defense);
(15) if defendant is found liable to plaintiff, the amount of the proceeds shall be reduced in accordance with the deductible portions contained in the policy (fifteenth affirmative defense);
(16) any alleged loss that may have been covered under the policy does not exceed the applicable deductibles (sixteenth affirmative defense);
(17) if defendant is found liable to plaintiff, then defendant will not be liable for the replacement cost of any damaged property not rebuilt, replaced or repaired in accordance with the applicable policy provisions (seventeenth affirmative defense);
(18) defendant is not liable to plaintiff because plaintiff failed to mitigate any alleged damages in accordance with the policy and applicable law (eighteenth affirmative defense).
Plaintiff now moves for summary judgment pursuant to CPLR § 3212(b) against defendant, Valley Forge, on the issue of liability and for an Order dismissing defendant's first through fifth, seventh and eighteenth affirmative defenses.
It is plaintiff's position that the affirmative defenses they seek to dismiss, which primarily challenge the assignability of the rights to the policy proceeds, are premised on the incorrect notion that plaintiff was assigned the insurance policy itself and that plaintiff seeks to recover as assignee of the insurance policy, when, in fact, plaintiff's claim is that it is the assignee of the proceeds resulting from a loss that already occurred. See Fiorito v. Northern Assurance Company, 158 NYS2d 818, 819 (Mun. Ct. of Queens 1957) which held that "[a]n assignment prior to any loss is a valid equitable assignment of the proceeds and dues not conflict with an assignment of the policy itself."
While the policy provides in paragraph K on Page 2 of 2 of Form G-20866-A (Ed. 04/94) that "[y]our rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual Named Insured," plaintiff contends that the words "you" and "your" when used in the policy refer to the Named Insured, i.e. Computer Analysis, not the loss payee/mortgagee First Union.
Since any ambiguity in an insurance policy must be construed against the insurer (see, Ace Wire Cable Co v Aetna Cas Sur Co, 60 NY2d 390, 398), plaintiff argues that this transfer prohibition directed at the policy owner cannot be stretched to cover the mortgagee. Plaintiff further argues that even if the policy provision was susceptible to a broader construction, it is well established that the purpose of such prohibitory clauses is not to shelter the insurer from making payment, but, rather, to protect the insurer from any increased risk or hazard that may stem from an assignment. According to plaintiff, the replacement of one mortgagee by another, neither of which occupied the premises, would in no way affect the insurer's exposure.
Moreover, plaintiff asserts that it is the sole claimant to the insurance proceeds and thus defendant will not have to worry about conflicting claims to the policy proceeds, such as was the case in Badillo v Tower Ins. Co. of N.Y., 92 NY2d 790 (1999); Rosario-Paolo, Inc. v CM Pizza Rest., 84 NY2d 379 (1994); mot for rearg. or reconsid. dismissed 85 NY2d 925 (1995) and Holt v Fidelity Phoenix Fire Ins. Co., 187 Misc 1043 (Sup.Ct., Albany Co. 1946), aff'd 273 AD 166 (3rd Dep't 1948), aff'd 297 NY 989 (1948).
Defendant Valley Forge opposes the motion, arguing that paragraph F.2.b on page 16 of 18 of the "Business Account Package Policy-Business Owners Special Property Coverage Form" (Form G-19340-C [Ed. 12/95]) specifically provides that "[w]e will pay for covered loss of or damage to buildings or structures to each mortgage holder shown in the Declarations in their order of precedence, as interests may appear." There is no dispute that NC Venture is not listed as a mortgage holder or ever mentioned in any capacity in the policy.
Moreover, Valley Forge argues that the policy language specifically prohibits any transfer of rights or duties under the policy without its written consent, which was never obtained here. In addition, paragraph B of Form G-20866-A (Ed. 04/94) provides as follows:
This policy contains all the agreements between you and us concerning the insurance afforded. The first Named Insured shown in the Declarations is authorized to make changes in the terms of this policy with our consent. This policy's terms can be amended or waived only by endorsement issued by us and made a part of this policy.
Defendant argues that this language is clear and unambiguous, and thus under the terms of the policy, it does not have any obligation to pay any proceeds to plaintiff NC Venture, a stranger to the policy.
In the case of Badillo v Tower Ins. Co. of N.Y., supra, the tenant-operator of a supermarket granted its landlords a security interest in connection with its lease of the premises. A fire then consumed the supermarket destroying the collateral. The insurance carrier paid the loss proceeds directly to the tenant, who was its policy holder, and the only loss payee named in the policy. The landlords sued the carrier, claiming that the carrier should have paid the loss proceeds to them rather than to the tenant, since they had filed UCC-1 financing statements that covered the collateral that was destroyed.
The Court of Appeals (Rosenblatt, J.) held that "[t]he policy behind the constructive notice provided by UCC-1 financing statements is not applicable to carriers in the context of good faith payment of loss proceeds under insurance contracts." 92 NY2d at 795. Therefore, it held that it was appropriate for the insurance carrier to have paid the policy holder.
Any other interpretation, the Court reasoned, would discourage carriers from paying claims promptly, requiring them instead to perform UCC searches that could involve multiple parties and multiple interests. As Judge Rosenblatt noted, "t]he secured party always has the conventional option of having itself named in the insurance contract as the loss payee or as an additional insured on the risk." 92 NY2d at 796.
As defendant asserts, if the landlord's filing of the UCC-1 financing statements in Badillo did not constitute constructive notice to the insurer, surely NC Venture's assignment of the mortgage cannot be deemed to be adequate notice.
While it is settled law in New York that claim proceeds may be assigned after a loss ( Ardon Constr. Corp v Firemen's Ins. Co. of Newark, N.J., 16 Misc2d 483 [Sup. Ct. Kings Co. 1959], aff'd 11 AD2d 766 [2nd Dep't 1960]), where the policy forbids assignment before a loss without the company's consent, that condition will be upheld. See, Carle Place Plaza Corp v Excelsior Ins. Co., 144 AD2d 517 (2nd Dep't 1988); Holt v Fidelity Phoenix Fire Ins. Co., supra.
Since the Valley Forge insurance policy clearly prohibited any change to the policy without its consent, and further provided that it would only pay the mortgagee or other party in interest who was listed on the Declaration Sheet, which NC Venture clearly was not, plaintiff's motion for summary judgment on liability and dismissing the defendant's first through fifth, seventh and eighteenth affirmative defenses must be denied.
This constitutes the decision and order of this Court.