Opinion
8522/04.
Decided March 28, 2006.
This court has been petitioned for dual relief in the form of severance and dismissal.
Third-party defendant, DKM INSURANCE GROUP, INC. (hereinafter DKM), joined by third-party defendants, ALLEN FREEMAN, FREEMAN ASSOCIATES, MT HAWLEY INSURANCE CO., and RLI INSURANCE COMPANY, has moved this court for an order, pursuant to CPLR 603, to sever the third-party action from the underlying action on the grounds that continued joinder of the actions will be prejudicial to DKM's defense, and there exist no common questions of law or fact between said matters. The third-party action alleges breach of contract, negligence, and seeks a declaratory judgment that third-party plaintiff, MRC II CONTRACTING, INC. (hereinafter MRC II), is entitled to insurance coverage. More to the point, it is alleged that DKM represented that MRC was an additional insured on the insurance policy issued by third-party defendant, NOVA CASUALTY COMPANY (hereinafter Nova) to third-party defendant PJ CONTRACTING CORP. [PJ], but that DKM failed to produce the said insurance. In addition, third-party defendants, MT. HAWLEY INSURANCE CO., (hereinafter Mt. Hawley) and its parent company, RLI INSURANCE COMPANY have been sued for breach of contract for refusing to provide MRC with a defense in SARACO GLASS CORP.'s (hereinafter Saraco) underlying action. The underlying action asserts damage to plaintiff Saraco's property caused by construction on defendant YELED V'YALDA EARLY CHILDHOOD CENTER, INC.'s (hereinafter Yeled) adjacent property, negligence, and an injunction. The defendant WCH-FIMOR CONSTRUCTION CORP. (hereinafter Fimor) was a general contractor and MRC was a subcontractor on the project. As a point of digression, it is to be noted that on January 27, 2006, the third-party suit against Freeman and Freeman Associates was dismissed by this court, whereupon their cross-claims were withdrawn.
DKM maintains that "[i]t is well settled that where there is a third-party action seeking resolution of questions of insurance coverage for a party in an underlying property damage action, the third-party action must be severed to avoid undue prejudice [knowledge that insurance was involved in the case] to the third-party defendant from whom insurance coverage is sought." (citing, Kelly v. Yannotti, 4 NY2d 603, 176 NYS2d 637 (1958); Schorr Brothers Dev. Corp. v. Continental Ins. Co., 174 AD2d 722, 573 NYS2d 874 (2nd Dept., 1991); Transamerica Ins. Co. v. Tolis Inn, Inc., 129 AD2d 512, 514 NYS2d 351 (1st Dept., 1987); Kress v. Northeast Ins. Co., 98 AD2d 762, 469 NYS2d 472 (2nd Dept., 1983); Dreisen v. Morris I. Stoler, Inc., 98 AD2d 759, 469 NYS2d 471 (2nd Dept., 1983); and Christensen v. Weeks, 15 AD3d 330, 790 NYS2d 153 [2nd Dept., 2005]). In addition, DKM asserts that "[t]he determination of the facts surrounding Saraco's loss, and the relative culpability of the defendants in the underlying property damage action are irrelevant to the resolution of the issues in the third-party action. There is a complete lack of commonality of questions of law or fact between the property damage action and the litigation between MRC and DKM." (No citations furnished).
MRC II opposes the foregoing on the ground that "insurance brokers and agents are not entitled to severance of third-party insurance coverage actions from first-party property damage cases." (citing, Harris v. Manos, 181 AD2d 967, 581 NYS2d 473 (3rd Dept., 1992); and Bridger v. Donaldson, 36 AD2d 915, 321 NYS2d 243 (1st Dept.), aff'd 29 NY2d 769, 326 NYS2d 565 [1971]). In addition, MRC II, in opposition to Mt. Hawley and RLI's affirmations in support of DKM request for severance, argues that ". . . common questions of law and fact exist in both actions. Furthermore, DKM will not be prejudiced if its motion for severance is denied. Issues of negligence, not insurance coverage, permeate MRC II's third-party action against DKM and the main action."
DKM, in reply to the just stated, points out that the Bridger case was decided twenty one years before the Appellate Division, 1st Dept.'s decision in. Hoffman v. Kew Gardens Hills Assocs., 187 AD2d 379, 590 NYS2d 99 (1992), where it specifically found that insurance brokers and agents were entitled to said severance. In addition, the third Department in Harris found that no insurance company was involved in its case. In any event, DKM notes that the instant third-party action does involve insurance companies MT HAWLEY and RLI.
Nova has requested that the third-party summons and complaint and cross-claims against it be dismissed, pursuant to CPLR 3211 (a) 1 and 7, inasmuch as its policy to third-party defendant PJ does not include MRC as an insured, an additional insured, and/or an intended beneficiary, or alternatively that it be granted summary judgment, pursuant to CPLR 3212, as a result of MRC's failure to have provided timely notice to Nova with regards to the plaintiff's underlying suit. With regards to the point first raised, Nova disputes MRC's contention that a certificate of insurance, dated April 4, 2003, and issued by broker DKM on behalf of PJ to MRC as certificate holder, stating that MRC is an additional insured, binds Nova to providing liability insurance coverage for MRC. Nova notes that neither the certificate nor any request to add MRC as an additional insured was received by Nova. More to the point, Nova asserts that although a limited agency agreement existed between it and DKM providing limited agency authority to the latter to bind insurance, the agreement specifically excluded any authority of DKM to add additional insureds to the policy, and required that an endorsement be obtained from Nova in order to add an additional insured to the policy, which was not done. In short, Nova argues that "the certificate of insurance naming [claimant] as an additional insured is not, by itself, sufficient to raise a factual issue as to the existence of coverage." (citing, Ins. Corp. of NY v. US Underwriters Ins. Co., 782 NYS2d 432 {11 AD3d 235} [1st Dept., 2004]; and, Buccini v. 1568 Broadway Assocs., 250 AD2d 466 [1st Dept., 1998]). Put another way, "the certificate, standing alone, is insufficient evidence that the insurance was in fact procured." (citing, McGill v. Polytechnic University, 235 AD2d 400 [2nd Dept., 1997]; American Ref-Fuel, Hempstead v. Resource R., 248 AD2d 420 [2nd Dept., 1998]; and Trapani v. 10 Arial Way Assocs., 301 AD2d 644 [2nd Dept., 2003]). The plain fact is that Nova did not issue or approve of the certificate as it had no knowledge of the same. In addition, the certificate contained an express caveat [limitation/disclaimer]; to wit, that "this certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend, or alter the coverage afforded by the policies below."
Nova also maintains that even if the issue of coverage were not so thoroughly refuted as hereinabove set forth, the fact remains that it was not timely notified of the underlying claim. In support of that contention, Nova notes that, 1. Saraco's claim for damages arose as early as January 23, 2004 when it received two notices of violation from the Building's Department with respect to the hazardous conditions to its walls and foundation arising from the defendant's construction of the Yeled building; 2. Correspondence between Mt. Hawley to Nova indicates that the plaintiff and defendants were discussing Saraco's claim for damages as early as February of 2004; 3. MRC definitely knew of the claim upon service of the third-party complaint on March 11, 2004; and, 4. MRC's first notice to it of Saraco's suit was by way of Mt. Hawley's letter, on behalf of MRC, dated July 16, 2004 and received July 20, 2004 [four to six months later]. In addition, Nova highlights the fact that MRC failed to adhere to two pertinent requirements of its policy to PJ; to wit, that "in the case of an occurrence,' or if an insured' becomes aware of anything that indicates that there may be a claim under the Commercial Liability Coverage, you' must arrange for prompt notice to be given to us . . ." and, that "if a claim is made or suit is brought, the insured' must promptly send to us copies of all legal papers, demands, and notices . . ." Nova adds that "[t]he courts have repeatedly held that the notice provision contained in the policy is a condition precedent to obtaining coverage for a claim and that the unexplained failure of the insured to comply with this condition vitiates coverage under the policy." (citing Mutual Ins. Co. v. Acker-Fitzsimmons Corp., 31 NY2d 436 [1972]; the Appellate Division, 2nd Dept.'s decision upholding this court's finding in Brennan Bros. Co. v. Lumbermen's Mutual Cas. Co., 14 AD3d 525 (2nd Dept, 2005); and, Matter of National Union Fire Ins. v. Leong, 250 AD2d 687 [2nd Dept., 1998]). Nova asserts that it is incumbent on the insured to explain any delay in having provided notice, as "[t]he courts have held that the unexplained failure of the insured to provide notice within relatively short periods of time may result in the forfeiture of coverage." (citing, inter alias, Power Authority v. Westinghouse Electric Corp., 117 AD2d 336 (1st Dept., 1986) [53 days delay]; Viles Contracting v. Hartford Fire Ins., 271 AD2d 349 (1st Dept., 2000) [2 months delay]; Quality Investors v. Lloyd's London, 11 AD3d 443 [2nd Dept., 2004]). So too, the failure to timely forward legal papers with respect to a claim has been upheld as a complete defense to coverage. (citing, Kahn v. Allstate Ins. Co., 17 AD3d 408, 793 NYS2d 120 (2nd Dept., 2005) [74 days]; Viles Contracting, supra, etc.). Finally, Nova stresses ". . . that it is not necessary for the disclaiming insurer to establish prejudice having been incurred in order to possess a meritorious defense based upon late notice." (citing, Argo Corp. v. Greater NY Mutual Ins. Co., 3 NY3d 602 (2004).
DKM has cross-moved this court, by way of a Second Amended Notice of Cross-Motion, for an order dismissing MRC's claim as against it for failure to state a cause of action and since it is entitled to judgment as a matter of law, and for severance and dismissal of the cross-claims for contribution and/or indemnification asserted against it by PJ, Freeman, and Freeman Associates. It is DKM's position that it procured a commercial general liability policy for the period 4/1/03 to 4/1/04 for PJ which was issued by Nova, and did not indicate that any other persons or entities are additional insureds. DKM acknowledges and confirms the caveat, notice requirements, and the chronology of events advanced by Nova as aforenoted, including Nova's respective disclaimers to Mt. Hawley and PJ on August 10 and 11, 2004 vis-a-vis coverage and notice. Despite the foregoing, DKM argues that since "[i]t is axiomatic that liability for negligence will not attach absent proof that the negligence was the proximate cause of the harm sued upon," it can have no liability herein given that . . . it was the failure of MRC and/or PJ to comply with Nova's policy provisions concerning timely notice that was the cause of any loss allegedly suffered by MRC, not any act or omission on the part of DKM. Even if MRC had been named as an additional insured on the Nova policy, the late notice by MRC and PJ to Nova would have barred coverage under that policy." (Citing, Woodbury Transp., Inc. v. Associated Brokerage Ctr., Inc., 289 AD2d 401, 734 NYS2d 898 (2nd Dept.), 2001); Weissberg v. Royal Ins. Co., 240 AD2d 733, 659 NYS2d 505 (2nd Dept., 1997); Resource Fin. Co. v. National Cas. Co., 219 AD2d 627, 631 NYS2d 411 [2nd Dept., 1995]). DKM also notes that as an insurance agent or broker, it had a duty only to its customer, not to additional insureds, to procure insurance; hence, there exists no privity between it and MRC which would create standing for the third-party action. (Citing, Federal Ins. Co. v. Spectrum Ins. Brokerage Servs., Inc., 304 AD2d 316, 758 NYS2d 21 (1st Dept., 2003); American Ref-Fuel Co. of Hempstead v. Resource Recycling, 248 AD2d 420, 671 NYS2d 93 (2nd Dept., 1998); Benjaumin Shapiro Realty Co. v. Kemper Nat'l Ins. Cos., 303 AD2d 245, 756 NYS2d 45 (1st Dept., 2003), Arrendodo v. City of NY, 6AD3d 328, 775 NYS2d 150 [1st Dept., 2004], etc.). Likewise, DKM maintains that PJ and Freeman would not be entitled to contribution or indemnification from it since ". . . no act or omission by DKM caused MRC's alleged loss . . ." and their claims flow through MRC. DKM's final argument is that ". . . MRC cannot assert an action against it for negligence, negligent representation, or failure to procure insurance based on the Certificate of Insurance,[since it] included disclaimers advising its holder that it was for information only, that it conferred no rights on the holder, that it did not amend, extend, or alter the coverage provided by the policy, and that it was subject to all the terms, exclusions, and conditions of the policy." (Citing, St. George v. W.J. Barney Corp., 270 AD2d 171, 706 NYS2d 24, 1st Dept., 2000; Benjaumin Shapiro, supra).
Under the doctrine of indemnification, DKM notes that a party can only recover thereunder where its liability is vicarious, and not based upon its own acts or omissions. Therefore, since Nova's denial of coverage is based on late notice from MRC and no notice from PJ, and Freeman was sued for having failed to deliver, or cause to be delivered, a copy of the Mt. Hawley policy to MRC; i.e., their own acts, they are per-se not entitled to any indemnification. (Citing, Trump Village Sec. 3, Inc. v. NYS Hous. Fin. Agency, 307 AD2d 891, 764 NYS2d 17 (1st Dept.); Consolidated Rail Corp. v. Hunts Pt. Terminal Produce Coop. Ass'n, 11 AD3d 341, 783 NYS2d 30 [1st Dept., 2004]).
Contribution is a remedy whereby joint tortfeasors share in responsibility for an injury. The critical requirement is that "the breach of duty by the contributing party must have had a part in causing or augmenting the injury for which contribution is sought." (See CPLR § 1401, and Raquet v. Braun, 90 NY2d 177, 659 NYS2d 237). Alternatively, recovery could be had on the corollary rule that where the proposed contributor has no duty to the injured party, a proposed contributee may seek contribution based on a duty owed to the contributee. Here, however, DKM asserts that since it had no duty to MRC, Freeman, PJ, or Saraco, it cannot share in any responsibility for any injury caused by or to any of them. (See Trump Village, supra).
MRC II opposes Nova and DKM's respective motions for dismissal and summary judgment. It argues that ". . . even though it is not named an additional insured on Nova's policy, Nova should be estopped from denying coverage because MRC justifiably relied on the Certificate of Insurance issued by Nova's agent, DKM [citing a number of third Department cases]. . . . It is fundamental to the principal/agent relationship that an insurance company is liable to a third-person for the wrongful, negligent acts and misrepresentations of its agent when made within the general or apparent scope of the agent's authority, although the acts or statements exceeded the agent's actual authority or disobeyed the principal's general or express instructions to the agent. Only when the agent is acting for his own purposes is the general rule of vicarious liability inapplicable." (Citing, Gleason v. Temple Hill Assoc., et al, 159 AD2d 682, 553 NYS2d 430 (2nd Dept., 1990); Neil Plumbing Heating Constr. Corp. v. Providence Washington Ins. Co., 125 AD2d 295, 508 NYS2d 580 [2nd Dept., 1986]). In addition, MRC argues that it should not be deprived of coverage on the basis of late notice of claim and suit when it was diligent in requesting that PJ timely notify Nova of the same. MRC notes that "compliance with notice of claim and suit provisions of an insurance policy is a condition precedent to the insurance company's liability under the subject policy. However, the determination as to whether the notice of claim and suit were (sic) made within a reasonable time under the circumstances is a question of fact to be decided at trial." In the matter sub judice, MRC contends that issues of fact certainly exist as a consequence of the fact that on March 23, 2004, it had sent Fimor a letter informing it of MRC's receipt of Saraco's complaint, and that it was putting PJ on notice requesting that its insurance carrier, Nova, indemnify and hold MRC harmless as was its obligation to do (Citing, Kaliandasani v. Ostego Mut. Fire Ins. Co., 256 AD2d 310, 681 NYS2d 323 (2nd Dept., 1998); Kim v. Maher, 226 AD2d 350, 640 NYS2d 579 [2nd Dept., 1996]). MRC also stresses that "on a motion to dismiss under CPLR § 3211(a) (1), the documentary evidence must utterly refute plaintiff's factual allegations, conclusively establishing a defense as a matter of law'." (Citing, Goshen v. Mut. Life Ins. Co. of NY, 98 NY2d 314, 746 NYS2d 858). Finally, MRC asserts that since it has not yet received discovery to which it is entitled from the third-party defendants regarding the issuance of the certificate of insurance and notice of the Saraco claim and suit, dismissal at this early stage would be premature (Citing, CPLR § 3212(f); Sarjoo v. NY City Health and Hospitals Corp., 252 AD2d 449, 675 NYS2d 595 (1st Dept., 1998; Schwartz v. Roberts, 230 AD2d 601, 646 NYS2d 7 [1st Dept., 1996]).
Nova replied to the foregoing by noting that the Appellate Division, Second Department, in the matter of Guzov v. Manor Lodging Corp., 13 AD3d 482, 785 NYS2d 84, deemed that affidavits and documentary evidence were sufficient underpinnings for the granting of CPLR 3211 and 3212 dismissal motions. In addition, Nova asserts that additional discovery will not alter the facts and/or documents hereinabove discussed. Furthermore, on the issue of notice, Nova points out that MRC's March 23, 2004 letter to PJ was never forwarded to it. Its first inkling came via Mt. Hawley's correspondence of July 20, 2004. Insofar as the certificate of insurance is concerned, it neither authored the same nor did MRC contradict the limitations/disclaimers thereof to the effect that it was informational and non-binding. The simple fact is that DMK was not an additional insured. DKM, in turn, submitted a reply which merely reiterated its earlier arguments and established no additional grounds for consideration of the issues herein presented.The Court of Appeals in Kelly v. Yannotti, supra, recognized the general rule favoring severance of a third-party action against an insurer for a judgment declaring an obligation to defend and indemnify from the underlying action in which the defendant claims entitlement to coverage from the third-party defendant insurer. The Appellate Division, Second Department, in Christensen, et al v. Weeks, et al, 15 AD3d 330, 790 NYS2d 153 (NY Slip Op. 00967), specifically rejected the Westchester Supreme Court's reasoning that ". . . since the plaintiff in Action No. 2 is an insurance company suing as its insured's subrogee, the fact of insurance is already in the case'." In addition, it found that "it is generally recognized that, even where common facts exist, it is prejudicial to insurers to have the issue of insurance coverage tried before the jury that considers the underlying liability claims'." (Citing. Schorr Bros. Dev. Corp. v. Continental Ins. Co., supra; Medick v. Millers Livestock Mkt., 248 AD2d 864, 669 NYS2d 776; Schwartz v. Woodner and Co., 40 AD2d 1027, 339 NYS2d 145).
On the basis of the foregoing, it is clear that precedence and fairness require the granting of the third-party defendants' motion, pursuant to CPLR 603, to sever the third-party action from the underlying action on the grounds that continued joinder of the actions will be prejudicial to DKM's defense. The issue of severance having been decided, this court will now consider the application for dismissal.
"A party seeking summary judgment 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" (Ayotte v. Grevasioi, 81 NY2d 1062, 601 NYS2d 463; Alvarez v. Prospect Hosp., 68 NY2d 320, 508 NYS2d 923). Once a prima facie showing has been made, the burden shifts to the opposing party to produce evidentiary proof in admissible form sufficient to establish the existence of material questions of fact (see Alvarez v. Prospect Hosp., supra). On the facts herein presented it has been conclusively established that MRC was never named as an additional insured. The certificate of insurance contains a clear limitation/disclaimer. In addition, the record is devoid of any purchase order, its terms and conditions, or the business practices of the insurer and its agents. Absent those items, it would appear that additional discovery would be warranted, especially as pertains to the issue of estoppel. However, assuming arguendo that coverage could be deemed to exist, it is irrefutable that the additional factor of "timely notice" is dispositive of the third-party action vis-a-vis Nova and the other third-party defendants.
In Paramount Ins. Co. v. Rosedale Gardens, Inc., 5/3/02 NYLJ p. 17, col. 3., the Appellate Division, 1st Department, aptly noted that "it is well settled that compliance with an insurance policy notice provision operates as a condition precedent to coverage (cting White v. City of New York, 81 NY2d 955 and Security Mut. Ins. Co. v. Acker-Fitzsimmons Corp., 31 NY2d 436). Absent a showing of legal justification, the failure to comply with the notice condition vitiates coverage (Citing Matter of Allcity Ins. Co. [Jiminez], 78 NY2d 1054). The obligation to give notice as soon as practicable' of an occurrence that may result in a claim is measured by the yardstick of reasonableness [and] it has generally been held that a failure to give notice may be excused when an insured, acting as a reasonable and prudent person, believes that he is not liable for the accident. (Citing 875 Forest Avenue Corp. v. Aetana Cas. Surety Co., 37 AD2d 11). In addition, the court noted that "the duty to give notice arises when, from the information available relative to the accident, an insured could glean a reasonable possibility of the policy's involvement (Citing Security Mut. Ins. Co. v. Acker-Fitzsimmons Corp., supra, 31 NY2d at 441-43; Haas Tobacco Co. v. American Fidelity Co., 226 NY 43; Woolverton v. Fidelity Cas. Co., 190 NY 41). Moreover, knowledge of an occurrence obtained by an agent charged with the duty to report such matters is imputed to the principal (Citing White v. City of New York, supra, 81 NY2d 958). It also bears noting that the insured bears the burden of proving, under all the circumstances, the reasonableness of any delay in the giving of notice (Citing Argentina v. Otsego Mut. Fire Ins. Co., 86 NY2d 748)." The court further noted that [the fact that] a particular occurrence may not in the end result in a ripened claim does not relieve the insured from advising the carrier of that event (citing Heydt Contracting Corp. v. American Home Assur. Co., 146 AD2d 497); [that] "a provision requiring notice when it appears likely' that a claim will or may involve a policy . . . does not require a probability much less a certainty that the policy at issue will be involved.' [The Second Circuit] held that a reasonable possibility such that may exist even though there are some factors that tend to suggest the opposite' of the policy's involvement is sufficient to trigger the duty ( citing Christiana General Ins. Corp. v. Great American Ins. Co., 979 F2d 268). . . . [t]he notice requirement does not exempt occurrences, which, in the insured's estimation, does not portend probable liability on its part. . . ." Finally, the Paramount court took note of several instances in which courts have concluded that extenuating circumstances existed to warrant an insured acted reasonably in believing that liability would not result; to wit, "Argentina v. Otsego Mut. Fire Ins. Co., supra, 86 NY2d 748 [close familial relationship between accident victim and insured and lack of knowledge of permanent injury]; D'Aloia v. Travelers Ins. Co. ( 85 NY2d 825 [injured party's parents declined the insured's offer to pay medical expenses], and Merchants Mut. Ins. Co. v. Hoffman ( 56 NY2d 799) [action by foster child against foster parents after former reached majority where child's medical bills had been paid by Department of Social Services]." (See Brennan Bros. v. Lumbermens, Index No. 11266/01, I. Grace v. Brennan Bros., et. al. Index #75306/01, decided September 22, 2003, Aff'd 14 AD3d 525 [2nd Dept, 2005]). None of the foregoing or any like situations can be said to exist in this case. What is inexplicable is why there was no notification of any potential loss/claim as of January 23, 2004 when Saraco received two notices of violation from the Building's Department with respect to the hazardous conditions to its walls and foundation arising from the defendant's construction of the Yeled building, or in February 2004, when correspondence between Mt. Hawley to Nova indicated that the plaintiff and defendants were discussing Saraco's claim for damages, or on March 11, 2004, when MRC was served with the third-party complaint. In the absence of a reasonable explanation therefor, the failure to have given notice until July 16, 2004 (received July 20, 2004) warrants dismissal of third-party action and cross claims as to Nova.
Any claims for contractual indemnification and/or contribution would be contingent on the particular agreements, if any, between the respective parties. (See American Ref-Fuel company of Hempstead v. Resource Recycling, supra). This court has not been furnished with the contents of any such contracts sufficient to establish entitlement to such relief, much less any privity. Hence, PJ and DKM's cross-claims against each other for contribution and/or indemnification are denied. In addition, DKM's cross-claim against MRC to dismiss for failure to state a cause of action is granted. The request for severance vis-a-vis the insurance and underlying negligence actions as previously mentioned is granted. This constitutes the decision and order of this court.