Opinion
1:20-cv-10381 (JGLC) (SDA)
02-24-2024
The Burlington Insurance Company, Plaintiff, v. PCGNY Corp., et al., Defendants.
TO THE HONORABLE JESSICA G.L. CLARKE, UNITED STATES DISTRICT JUDGE:
REPORT AND RECOMMENDATION
STEWART D. AARON, UNITED STATES MAGISTRATE JUDGE.
This is a declaratory judgment action that was removed from New York state court in which The Burlington Insurance Company (“TBIC”) seeks a declaration of its rights under two Commercial General Liability (“CGL”) policies it issued to PCGNY Corp. (“PCGNY”), with respect to a lawsuit styled Affiliated FM Insurance Company, as subrogee of Dayton Beach Park No. I Corp. v. Skyline Restoration, Inc., Index No. 712831/2016 (N.Y. Sup. Ct.), pending in the Supreme Court of the State of New York, Queens County (the “Underlying Action”). (Compl., ECF No. 1-1, ¶ 1.) In this action, TBIC seeks a declaration that: (1) TBIC has no duty to defend and/or indemnify PCGNY and/or Skyline Restoration, Inc. (“Skyline”) under its policies in connection with the claims in the Underlying Action; (2) TBIC is permitted to withdraw from the defense it is currently providing PCGNY in the Underlying Action under the policy numbered HGL0032266; (3) TBIC is entitled to reimbursement of all costs expended in providing a courtesy defense to PCGNY under the policy numbered HGL0032266 in the Underlying Action; (4) TBIC has no duty to reimburse Affiliated FM Insurance Company (“Affiliated”) for the sums allegedly incurred by it in connection with the Underlying Action; and (5) coverage provided under insurance policies issued by American Empire Surplus Lines Insurance Company (“AESLIC”) and Navigators Insurance Company (“Navigators”) to Skyline is primary to any coverage obligation TBIC may have. (Id. ¶ 2.)
Before the Court are three motions: (1) a motion by TBIC, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for summary judgment seeking the relief requested in its Complaint (TBIC Not. of Mot., ECF No. 115); (2) a joint motion by AESLIC and Navigators, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for summary judgment dismissing all claims against them in this action, including the cross-claims by Skyline (AESLIC/Navigators Not. of Mot., ECF No. 104); and (3) a motion by Affiliated, pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, for judgment on the pleadings or, in the alternative, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for summary judgment dismissing all claims against it in this action. (Affiliated Not. of Mot., ECF No. 110.)
For the reasons set forth below, I respectfully recommend that TBIC's motion be GRANTED IN PART and DENIED IN PART, that AESLIC's and Navigators' motion be GRANTED and that Affiliated's motion be DENIED.
RELEVANT FACTS
I. Facts Relating To The Underlying Action
Affiliated, as subrogee of Dayton Beach Park No. I Corp. (“Dayton”),commenced the Underlying Action by suing Skyline in connection with damage caused during Superstorm Sandy to the roofs of apartment buildings located at 8100, 8200, 8600 and 8800 Shore Front Parkway in Rockaway Beach, New York (the “Apartment Complex”). (PCGNY/Skyline 56.1 Response to TBIC, ECF No. 133, ¶ 1; Affiliated 56.1 Response to TBIC, ECF No. 128, ¶ 1; AESLIC 56.1 Response to TBIC, ECF No. 124, ¶ 1; Navigators 56.1 Response to TBIC, ECF No. 130, ¶ 1.) The complaint in the Underlying Action (the “Underlying Action Complaint”) alleges that Dayton, the owner of the Apartment Complex, issued Invitations to Bid to various contractors, including Skyline, for a project to remove and replace the roofs at the Apartment Complex. (PCGNY/Skyline 56.1 Response to TBIC ¶ 3; Affiliated 56.1 Response to TBIC ¶ 3; AESLIC 56.1 Response to TBIC ¶ 3; Navigators 56.1 Response to TBIC ¶ 3; Underlying Action Compl., ECF No. 118-1, ¶ 8.) According to the Underlying Action Complaint, Skyline submitted a written bid in response to the Invitation to Bid, which Dayton accepted. (Underlying Action Compl. ¶ 12.)
“Subrogation ‘simply means substitution of one person for another; that is, one person is allowed to stand in the shoes of another and assert that person's rights against the defendant.'” JPMorgan Chase Bank v. Cook, 318 F.Supp.2d 159, 165 (S.D.N.Y. 2004) (quoting Black's Law Dictionary 1440 (7th ed.1999)). “In short, one party known as the subrogee is substituted for and succeeds to the rights of another party, known as the subrogor.” Id. (quoting Allstate Insurance Co. v. Mazzola, 175 F.3d 255, 258 (2d Cir. 1999)).
In or around January 2010, Dayton entered into a contract with Skyline requiring Skyline to remove and replace the roofs. (PCGNY/Skyline 56.1 Response to TBIC ¶ 2; Affiliated 56.1 Response to TBIC ¶ 2; AESLIC 56.1 Response to TBIC ¶ 2; Navigators 56.1 Response to TBIC ¶ 2.) The Underlying Action Complaint alleges that, in or about April 2010, Skyline commenced the work at the Apartment Complex, pursuant to the contract. (Underlying Action Compl. ¶ 14.)
On or about April 26, 2010, Skyline entered into a subcontract agreement (the “Subcontract Agreement”) with PCGNY for PCGNY to perform certain work, labor and services, and provide goods, materials and equipment to install remedial roofs and replace railings on the rooftops. (PCGNY/Skyline 56.1 Response to TBIC ¶ 4; Affiliated 56.1 Response to TBIC ¶ 4; AESLIC 56.1 Response to TBIC ¶ 4; Navigators 56.1 Response to TBIC ¶ 4.) The Subcontract Agreement contained an indemnification provision, which provided, as follows:
To the fullest extent permitted by law, the Subcontractor shall indemnify and hold harmless the Owner, Contractor, Architect, Architect's consultants, and agents, servants, assigns, officers, directors, members, shareholders, and employees of any of them from and against claims, damages, losses and expenses, including but not limited to reasonable attorney's fees (of Contractor's choosing), arising out of or resulting from performance of the Subcontractor's Work under this Subcontract, provided that any such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Subcontractor, the Subcontractor's Subsubcontractors, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or otherwise reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Section 4.6.(Subcontract Agmt., ECF No. 118-2, § 4.6.1.) In addition, in the Subcontract Agreement, PCGNY agreed to include Skyline “as additional insured on its general liability policy.” (Id. § 13.4.)
PCGNY began working in or about April 2010 and completed its work at the Apartment Complex in or about January 2011. (See PCGNY/Skyline 56.1 Response to TBIC ¶ 5; Affiliated 56.1 Response to TBIC ¶ 5;AESLIC 56.1 Response to TBIC ¶ 5; Navigators 56.1 Response to TBIC ¶ 5.)
PCGNY and Skyline contend that the work commenced in or about June 2010. (PCGNY/Skyline 56.1 Response to TBIC ¶¶ 5, 41.)
Affiliated contends that Skyline subcontracted most, but not all, of the work to PCGNY. (Affiliated 56.1 Response to TBIC ¶ 5.)
Navigators contends that PCGNY was not the only entity to perform work on the roofs. (Navigators 56.1 Response to TBIC ¶ 5.)
The Underlying Action Complaint alleges that, after the work at the Apartment Complex was completed in or about January 2011, Skyline issued to Dayton a “Five Year Limited Guarantee for Project Workmanship” in which Skyline warranted that its work in removing and replacing the roofs at the Apartment Complex would be free from defects and other problems related to faulty workmanship for a period of five years from the date of completion of Skyline's work. (See Underlying Action Compl. ¶¶ 15-17.)
On or about October 29, 2012, Superstorm Sandy struck New York and four of the five roofs at the Apartment Complex failed. (PCGNY/Skyline 56.1 Response to TBIC ¶ 6; Affiliated 56.1 Response to TBIC ¶ 6; AESLIC 56.1 Response to TBIC ¶ 6; Navigators 56.1 Response to TBIC ¶ 6.) In the Underlying Action Complaint, Affiliated alleges that, in accordance with the terms of its insurance policy, Affiliated (which was the first-party property insurance carrier for Dayton) made payments to Dayton for the cost of replacing the four defective roofs installed by Skyline at the Apartment Complex that were damaged and for related damages and costs. (See Underlying Action Compl. ¶ 23; see also PCGNY/Skyline 56.1 Response to TBIC ¶ 7; Affiliated 56.1 Response to TBIC ¶ 7; AESLIC 56.1 Response to TBIC ¶ 7; Navigators 56.1 Response to TBIC ¶ 7.)
In the Underlying Action Complaint, which was filed on October 26, 2016, Affiliated, as subrogee of Dayton, alleged two causes of action against Skyline: (1) breach of express warranty, and (2) breach of contract. (PCGNY/Skyline 56.1 Response to TBIC ¶ 8; Affiliated 56.1 Response to TBIC ¶ 8; AESLIC 56.1 Response to TBIC ¶ 8; Navigators 56.1 Response to TBIC ¶ 8; Underlying Action Compl. at p. 6.) In the Underlying Action Complaint, Affiliated alleged that Skyline was contractually obligated to comply with certain construction requirements, and that Skyline's failure to do so caused significant damage to the roofs during the storm. (PCGNY/Skyline 56.1 Response to TBIC ¶ 9; Affiliated 56.1 Response to TBIC ¶ 9; AESLIC 56.1 Response to TBIC ¶ 9; Navigators 56.1 Response to TBIC ¶ 9.) Affiliated further alleged that Skyline breached the Five-Year Warranty. (PCGNY/Skyline 56.1 Response to TBIC ¶ 10; Affiliated 56.1 Response to TBIC ¶ 10; AESLIC 56.1 Response to TBIC ¶ 10; Navigators 56.1 Response to TBIC ¶ 10.) Affiliated's breach of warranty claim is based upon Skyline allegedly installing the roofs in a defective, faulty and unworkmanlike manner. (Underlying Action Compl. ¶ 26.) Affiliated's breach of contract claim is based upon Skyline's alleged defective, faulty and unworkmanlike removal and replacement of the roofs. (Id. ¶ 29.)
On February 2, 2017, Skyline filed a Third-Party Complaint against PCGNY in the Underlying Action, seeking contractual and common law indemnification for any of Skyline's liabilities. (PCGNY/Skyline 56.1 Response to TBIC ¶ 12; Affiliated 56.1 Response to TBIC ¶ 12; AESLIC 56.1 Response to TBIC ¶ 12; Navigators 56.1 Response to TBIC ¶ 12; Skyline Third-Party Compl., ECF No. 118-3, at PDF pp. 6-13.)
All proceedings in the Underlying Action currently are stayed per a stipulation and order in PCGNY's bankruptcy proceeding in the United States Bankruptcy Court for the Southern District of New York, and is pending a final, non-appealable order in this action. (See Procedural History, infra, footnote 5.)
II. The TBIC Policies
TBIC issued PCGNY the CGL Policy numbered HGL0032266 (the “First TBIC Policy”), which was in effect from September 22, 2012 through September 22, 2013. (PCGNY/Skyline 56.1 Response to TBIC ¶ 13; Affiliated 56.1 Response to TBIC ¶ 13; AESLIC 56.1 Response to TBIC ¶ 13; Navigators 56.1 Response to TBIC ¶ 13.) TBIC issued PCGNY the CGL Policy numbered HGL0035925 (the “Second TBIC Policy” and, together with the First TBIC Policy, the “TBIC Policies”), which was in effect from September 22, 2013 through September 22, 2014. (PCGNY/Skyline 56.1 Response to TBIC ¶ 14; Affiliated 56.1 Response to TBIC ¶ 14; AESLIC 56.1 Response to TBIC ¶ 14; Navigators 56.1 Response to TBIC ¶ 14.)
The TBIC Policies contain the following provisions regarding coverage:
SECTION I - COVERAGES
COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any ‘suit' seeking damages for “bodily injury” or “property damage” to which this insurance does not apply....
b. This insurance applies to ‘bodily injury' and ‘property damage' only if:
(1) The “bodily injury” or the “property damage” is caused by an “occurrence” that takes place in the “coverage territory”; [and]
(2) The “bodily injury” or the “property damage” occurs during the policy period[.]”(First TBIC Policy, ECF No. 118-4, § I.1., at PDF p. 16; Second TBIC Policy, ECF No. 118-5, § I.1., at PDF p. 14.) Both of the TBIC Policies define “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (First TBIC Policy § V.13, at PDF p. 29; Second TBIC Policy § V.13, at PDF p. 27.)
The TBIC Policies contain an exclusion which provides as follows:
2. Exclusions
This insurance does not apply to:
...
l. Damage To Your Work
“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard.”
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor. (First TBIC Policy § I.2.l, at PDF pp. 17, 20; Second TBIC Policy § I.2.l, at PDF pp. 15, 18.)
The TBIC Policies identify the following as “additional insured[s]”:
the person(s) or organization(s) shown in the Schedule, but only with respect to liability for “bodily injury” or “property damage” caused, in whole or in party, by “your work” at the location designated and described in the schedule of this endorsement performed for that additional insured and included in the “products-completed operations hazard.(First TBIC Policy, Add. Ins. End., at PDF p. 32; Second TBIC Policy, Add. Ins. End., at PDF p. 30.)
The Schedule of additional insureds provides, as follows:
Any owner, lessee or contractor with whom you have agreed, in a written contract, that such person or organization should be added as an additional insured on your policy, provided such written contract is fully executed prior to an “occurrence” in which coverage is sought under this policy.(Id.) And, the “Location and Description of Completed Operations” states, “Any and all of your completed operations.” (Id.)
III. AESLIC And Navigators Policies
AESLIC issued a CGL policy numbered 12CG69574 to Skyline with a policy period June 26, 2012 through June 26, 2013 (the “AESLIC CGL Policy”), as well as an umbrella policy numbered 12CU11784 (the “AESLIC Umbrella Policy” and, together with the AESLIC CGL Policy, the “AESLIC Policies”). (PCGNY/Skyline 56.1 Response to TBIC ¶ 26; Affiliated 56.1 Response to TBIC ¶ 26; AESLIC 56.1 Response to TBIC ¶ 26; Navigators 56.1 Response to TBIC ¶ 26.)
The AESLIC CGL Policy contains the following provisions:
SECTION I - COVERAGES
COVERAGE A - BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply....
b. This insurance applies to “bodily injury” and “property damage” only if:
(1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”[.](AESLIC CGL Policy, ECF No. 107-1, at ¶ 000005.) The AESLIC CGL Policy defines “occurrence” to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Id. at ¶ 000018.)
The AESLIC CGL Policy contains an exclusion which provides as follows:
2. Exclusions . . .
This insurance does not apply to:
...
l. Damage To Your Work
“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”.
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.(AESLIC CGL Policy at ¶ 000006, 000009.)
In its insuring agreement, the AESLIC Umbrella Policy provides as follows:
I. COVERAGE
a. We will pay those sums that the “Insured” becomes legally obligated to pay as damages in excess of the “Retained Limit” because of “bodily injury”, “property damage”, or “personal and advertising injury” that takes place during the Policy Period and is caused by an “occurrence” that takes place in the “coverage territory”....(AESLIC Umbrella Policy, ECF No. 107-2, at ¶ 000060.) The AESLIC Umbrella Policy defines “occurrence” with respect to “bodily injury” or “property damage,” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Id. at AE 000070.)
The AESLIC Umbrella Policy contains the following exclusion:
IV. EXCLUSIONS
This insurance does not apply to:
...
H. “Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”.
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.(AESLIC Excess Policy at ¶ 000062-63.)
On December 28, 2016, AESLIC disclaimed coverage to Skyline and reiterated its disclaimer on January 26, 2017. (PCGNY/Skyline 56.1 Response to TBIC ¶ 27; Affiliated 56.1
Response to TBIC ¶ 27; AESLIC 56.1 Response to TBIC ¶ 27; Navigators 56.1 Response to TBIC ¶ 27.) AESLIC continues to refuse to defend or indemnify Skyline in connection with the Underlying Action. (PCGNY/Skyline 56.1 Response to TBIC ¶ 28; Affiliated 56.1 Response to TBIC ¶ 28; AESLIC 56.1 Response to TBIC ¶ 28; Navigators 56.1 Response to TBIC ¶ 28.)
Navigators issued an excess policy numbered NY12EXC757303IV to Skyline with a policy period of June 26, 2012 through June 26, 2013 (the “Navigators Policy”). (PCGNY/Skyline 56.1 Response to TBIC ¶ 29; Affiliated 56.1 Response to TBIC ¶ 29; AESLIC 56.1 Response to TBIC ¶ 29; Navigators 56.1 Response to TBIC ¶ 29.)
The Navigators Policy provides as follows:
SECTION I - COVERAGE
1. Insuring Agreement
A. Excess Liability
1. We will pay on behalf of the insured and in excess of “underlying limits” those sums the insured becomes legally obligated to pay as damages for “loss” to which this insurance applies. This insurance applies only if:
a. the “loss” is caused by an “event” that takes place in the coverage territory;
b. the “loss” occurs during the “policy period;” and c. the “controlling underlying insurance” applies to the “loss.”(Navigators Policy, ECF No. 108-6, at ¶ 00003.)
The Navigators Policy defines “loss” to mean “bodily injury, personal and advertising injury or other loss defined by and to which the ‘controlling underlying insurance' applies.” (Navigators Policy at ¶ 00009.) The Navigators Policy identifies the “controlling underlying insurance” as the AESLIC Umbrella Policy. (Id. at ¶ 00008.)
Skyline tendered coverage to Navigators, which disclaimed coverage on or around June 17, 2017. (PCGNY/Skyline 56.1 Response to TBIC ¶ 30; Affiliated 56.1 Response to TBIC ¶ 30; AESLIC 56.1 Response to TBIC ¶ 30; Navigators 56.1 Response to TBIC ¶ 30.) Navigators has refused to defend or indemnify Skyline in connection with the Underlying Action. (PCGNY/Skyline 56.1 Response to TBIC ¶ 31; Affiliated 56.1 Response to TBIC ¶ 31; AESLIC 56.1 Response to TBIC ¶ 31; Navigators 56.1 Response to TBIC ¶ 31.)
IV. Relevant Coverage-Related Correspondence With TBIC
On March 19, 2018, PCGNY provided notice to TBIC for the first time. (PCGNY/Skyline 56.1 Response to TBIC ¶ 32; Affiliated 56.1 Response to TBIC ¶ 32; AESLIC 56.1 Response to TBIC ¶ 32; Navigators 56.1 Response to TBIC ¶ 32.) On April 18, 2018, TBIC provided PCGNY a reservation of rights letter. (PCGNY/Skyline 56.1 Response to TBIC ¶ 33; Affiliated 56.1 Response to TBIC ¶ 33; AESLIC 56.1 Response to TBIC ¶ 33; Navigators 56.1 Response to TBIC ¶ 33.) On June 12, 2020, TBIC sent a supplemental correspondence to PCGNY disclaiming coverage under both TBIC Policies. (PCGNY/Skyline 56.1 Response to TBIC ¶ 34; Affiliated 56.1 Response to TBIC ¶ 34; AESLIC 56.1 Response to TBIC ¶ 34; Navigators 56.1 Response to TBIC ¶ 34.) In its June 12, 2020 correspondence, TBIC advised PCGNY that it would continue to provide a courtesy defense to PCGNY in the Underlying Action, but reserved the right to withdraw funding for the defense at any time. (PCGNY/Skyline 56.1 Response to TBIC ¶ 35; Affiliated 56.1 Response to TBIC ¶ 35; AESLIC 56.1 Response to TBIC ¶ 35; Navigators 56.1 Response to TBIC ¶ 35.)
On August 17, 2020, Skyline sent a letter to TBIC stating that Skyline was entitled to defense and indemnity under the First TBIC Policy. (8/17/20 Skyline Ltr., ECF No. 118-9.) On October 20, 2020, TBIC responded to the August 17, 2020 letter advising that no coverage was available under the TBIC Policies for the Underlying Action. (10/20/20 TBIC Ltr., ECF No. 118-10.)
PROCEDURAL HISTORY
On November 9, 2020, TBIC filed a Summons and Complaint in the Supreme Court of the State of New York, County of New York, bearing Index Number 656129/2020. (See Not. of Removal, ECF No. 1, ¶ 1.) The Complaint named as Defendants PCGNY, Skyline, Affiliated, AESLIC and Navigators. (Compl. ¶¶ 7-11.) The Complaint asserts a cause of action against PCGNY and Skyline for late notice (First Cause of Action); a cause of action against PCGNY and Skyline seeking a declaration of no coverage under the Second TBIC Policy due to preexisting damage (Second Cause of Action); a cause of action against PCGNY and Skyline seeking a declaration of no coverage due to the insuring agreement (Third Cause of Action); causes of action against PCGNY and Skyline for a declaration of no coverage due to certain exclusions (Fourth through Sixth Causes of Action); a cause of action against PCGNY for recoupment (Seventh Cause of Action); a cause of action against PCGNY seeking a declaration that TBIC is entitled to withdraw its defense of PCGNY in the Underlying Action (Eighth Cause of Action); a cause of action against Affiliated seeking a declaration that TBIC has no duty to reimburse or pay Affiliated for the sums incurred by Affiliated in connection with the Underlying Action (Ninth Cause of Action); and a cause of action against AESLIC and Navigators seeking a declaration regarding the priority of coverage (Tenth Cause of Action). (Compl. ¶¶ 34-95.)
On December 9, 2020, Skyline filed a notice of removal, thereby removing the case to this Court. (See Not. of Removal.) On January 7, 2021, Skyline filed its Answer in this action. (Skyline Answer, ECF No. 22.) In its Answer, Skyline asserts cross-claims against AESLIC for breach of contract for failure to defend Skyline in the Underlying Action pursuant to the AESLIC CGL Policy, and for declaratory judgment that AESLIC is obligated to defend and indemnify Skyline in connection with the Underlying Action. (Id. at pp. 15-16.) Skyline also asserts cross-claims against Navigators for breach of contract for failure to defend Skyline in the Underlying Action pursuant to the Navigators Policy, and for a declaratory judgment that Navigators is obligated to defend and indemnify Skyline in connection with the Underlying Action. (Id. at pp. 17-18.)
On April 13, 2021, PCGNY filed a petition in bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. (Bankr. Pet., No. 21-10707 ECF No. 1 (S.D.N.Y. Bankr. Ct.).) On April 15, 2021, all claims against PCGNY in this action were stayed. (4/15/21 Order, ECF No. 41.) On May 27, 2021, this action was stayed, upon consent of the parties, pending a decision by the Bankruptcy Court on a motion for relief from the bankruptcy stay. (5/27/21 Order, ECF No. 44.) On November 18, 2021, the Bankruptcy Court entered an Order granting relief from the automatic stay, so as to allow this action to proceed. (11/18/21 Order, No. 21-10707 ECF No. 40 (S.D.N.Y. Bankr. Ct.).) On November 19, 2021, the stay entered in this action was lifted. (11/19/21 Order, ECF No. 53.)
On December 14, 2021, a Case Management Plan was entered by the Court (Case Mgt. Plan, ECF No. 57), and discovery proceeded.On April 28, 2022, an Amended Case Management Plan was entered extending the discovery deadlines. (Am. Case Mgt. Plan, ECF No. 66.)
On April 22, 2022, a Stipulation and Order was entered in the PCGNY bankruptcy case, which provides that the automatic stay of the Underlying Action was to remain in place until a final, non-appealable order is entered in this action. (4/22/22 Stip. & Order, No. 21-10707 ECF No. 49, ¶ 1(a) (S.D.N.Y. Bankr. Ct.).) The Stipulation and Order further provides that, if the final, non-appealable order in this action determines that there is no duty to defend or indemnify PCGNY or Skyline in the Underlying Action, the automatic stay of the Underlying Action is to be lifted and Skyline is to dismiss with prejudice its Third-Party Complaint against PCGNY. (Id. ¶ 1(b).) In addition, the Stipulation and Order provides that, if the final, non-appealable order in this action determines that there is a duty to defend or indemnify PCGNY with respect to the Underlying Action under the TBIC Policies, the automatic stay of the Underlying Action is to be lifted and Skyline can proceed with its Third-Party Complaint against PCGNY, provided that any recovery against PCGNY was to be limited to the amount of available insurance proceeds under the TBIC Policies. (Id. ¶ 1(c).)
On October 10, 2023, the three motions that currently are pending before the Court were filed. (See TBIC Not. of Mot.; AESLIC/Navigators Not. of Mot.; Affiliated Not. of Mot.) Briefing on the three motions was closed on January 5, 2024, with the filing of reply memoranda. (See TBIC Reply, ECF No. 139; Affiliated Reply, ECF No. 140; AESLIC/Navigators Reply, ECF No. 141.)
On February 1, 2024, the three motions were referred to the undersigned for a report and recommendation. (Order of Ref., ECF No. 143.)
SUMMARY JUDGMENT LEGAL STANDARD
Although one of the three motions before the Court, i.e., Affiliated's motion filed at ECF No. 110, is styled as a motion for judgment on the pleadings, or, alternatively, for summary judgment, the Court is treating such motion as a motion for summary judgment since the parties have presented matters outside the pleadings which the Court has considered. See Fed.R.Civ.P. 12(d) (“If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56.”).
Summary judgment is appropriate where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-50 (1986). The moving party has the initial burden of demonstrating the absence of a disputed issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A dispute concerning material fact is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Aldrich v. Randolph Cent. Sch. Dist., 963 F.2d 520, 523 (2d Cir. 1992) (quoting Anderson, 477 U.S. at 248) (internal citations omitted). In making its determination, the court must resolve all ambiguities and draw all inferences in favor of the non-movant. See Anderson, 477 U.S. at 255. “If there are cross motions for summary judgment, the Court must assess each of the motions and determine whether [any] party is entitled to judgement as a matter of law.” Admiral Indem. Co. v. Travelers Cas. & Sur. Co. of Am., 881 F.Supp.2d 570, 574 (S.D.N.Y. 2012) (citing Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993)).
If there are no genuine issues of material fact, the question of whether insurance coverage exists “is appropriately decided on a motion for summary judgment.” Wentworth Grp. Inc. v. Evanston Ins. Co., No. 20-CV-06711 (GBD) (JLC), 2021 WL 2828838, at *3 (S.D.N.Y. July 8, 2021) (quoting Roberts v. Liberty Mut. Fire Ins. Co., 264 F.Supp.3d 394, 403 (D. Conn. 2017)); see also Steadfast Ins. Co. v. Portsmouth JV, 629 F.Supp.3d 154, 161 (S.D.N.Y. 2022) (“Under New York law, the interpretation of an insurance policy is a question of law appropriately decided on a motion for summary judgment.” (citation and quotation marks omitted)); Constitution Reinsurance Corp. v. Stonewall Ins. Co., 980 F.Supp. 124, 127 (S.D.N.Y. 1997) (“Summary judgment is particularly appropriate in resolving insurance coverage disputes, because the interpretation of an insurance policy presents a question of law.”).
DISCUSSION
The Court will address, in turn, TBIC's motion, the joint motion by AESLIC and Navigators and Affiliated's motion.
I. TBIC's Motion
In its memorandum of law in support of its summary judgment motion, TBIC raises various arguments in seeking the declaratory relief requested in its Complaint. (See TBIC 10/10/23 Mem., ECF No. 117, at 6-16.) As set forth below, the Court finds that there was no covered “occurrence” under the TBIC Policies, thus entitling TBIC to certain of the declarations it seeks.
A. TBIC's Duty To Indemnify Under the TBIC Policies
In order to determine if TBIC has a duty to indemnify Skyline and/or PCGNY under the TBIC Policies, the Court must consider whether the TBIC Policies provide coverage.
1. Lack Of Covered “Occurrence”
TBIC contends that the Underlying Action does not allege an “occurrence” covered under the TBIC Policies. (TBIC 10/10/23 Mem. at 9-12.) The Court agrees.
The TBIC Policies, which are CGL policies, provide coverage for “property damage” that is caused by an “occurrence.” (First TBIC Policy § I.1.b(1), at PDF p. 16; Second TBIC Policy § I.1.b(1), at PDF p. 14.) The TBIC Policies define “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (First TBIC Policy § V.13, at PDF p. 29; Second TBIC Policy § V.13, at PDF p. 27.)
“Property damage” is defined as “[p]hysical injury to tangible property[.]” (First TBIC Policy § V.17.a, at PDF p. 30; Second TBIC Policy § V.17.a, at PDF p. 28.)
Under New York law, the “purpose of a commercial general liability policy . . . is to provide coverage for tort liability for physical damage to others and not for contractual liability of the insured for economic loss because the product . . . is not what the damaged [party] bargained for[.]” Bonded Concrete, Inc. v. Transcontinental Ins. Co., 12 A.D.3d 761, 762 (3d Dep't 2004) (quoting Hartford Acc. & Indem. Co. v. Reale & Sons, 228 A.D.2d 935, 936 (3d Dep't 1996)). A CGL policy is not “a surety for the performance of” the insured's work and does not guarantee an insured's work product or compliance with the insured's own contractual obligations. See George A. Fuller Co. v United States Fid. & Guar. Co., 200 A.D.2d 255, 260 (1st Dep't 1994) (hereinafter cited as Fuller).
Courts in New York have determined that “[d]amage to an insured's own work or product does not constitute ‘property damage' caused by an ‘occurrence' within the meaning of” CGL policies containing substantially similar definitions of the term “occurrence” that are provided in the CGL policies at issue in this case. See Eurotech Constr. Corp. v. QBE Ins. Corp., 137 A.D.3d 605, 606 (1st Dep't 2016) (citing Fuller, 200 A.D.2d at 259, and Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Turner Constr. Co., 119 A.D.3d 103, 105 (1st Dep't 2014)). Under New York law, “a CGL policy [does] not provide coverage for a claim against an insured for the repair of faulty workmanship that damaged only the resulting work product.” J.Z.G. Res., Inc. v. King, 987 F.2d 98, 102 (2d Cir. 1993); see also W. Waterproofing Co., Inc. v. Zurich Am. Ins. Co., No. 20-CV-03199 (AJN), 2022 WL 329225, at *9 (S.D.N.Y. Feb. 3, 2022) (citations omitted) (“All parties agree that the costs of faulty workmanship-that is, for example, the cost to replace [the insured's] improperly installed facade panels-fall outside the scope of the [insurer's] CGL Policy as a matter of long-standing New York law.”).
In Fuller, “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” See Fuller, 200 A.D.2d at 256-57. In Turner Construction, “occurrence” was defined as “an accident, event, or happening, including continuous or repeated exposure to substantially the same general harmful conditions.” Turner Const. Co., 119 A.D.3d at 105. In the TBIC Policies, “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (First TBIC Policy § V.13, at PDF p. 29; Second TBIC Policy § V.13, at PDF p. 27.) In the AESLIC CGL Policy, “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (AESLIC CGL Policy at ¶ 000008.) In the AESLIC Umbrella Policy, “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (AESLIC Umbrella Policy at ¶ 000070.) The Navigators Policy follows the AESLIC Umbrella Policy. (Navigators Policy N00008.)
In the present case, the insured under the TBIC Policies was PCGNY and Skyline was an additional insured since, in the Subcontract Agreement (§ 13.4), PCGNY agreed to include Skyline as an additional insured in its CGL policy. (See First TBIC Policy, Add. Ins. End., at PDF p. 32; Second TBIC Policy, Add. Ins. End., at PDF p. 30.) However, PCGNY and Skyline have not shown that the damages in the Underlying Lawsuit for which coverage is being sought were the result of an “occurrence.” Instead, the damages that Affiliated is seeking against Skyline in the Underlying Lawsuit (and against PCGNY by way of Skyline's third-party claims) are based upon Skyline (and PCGNY) allegedly installing defective roofs. (Underlying Action Compl. ¶¶ 20-21; PCGNY Third-Party Compl. ¶¶ 10, 12, 16.)
The Underlying Action Complaint contains two Counts against Skyline - one for breach of express warranty and one for breach of contract. (Underlying Action Compl. ¶¶ 25-30.) In each, Affiliated, as subrogee of Dayton, seeks to recover from Skyline the damages incurred by Dayton “to remove and replace th[e] roofs [at the Apartment Complex] in an amount in excess of $4.5 million.” (Id. ¶¶ 27, 30.) The Third-Party Complaint by Skyline against PCGNY alleges in three causes of action that, if Skyline is held liable in the Underlying Action, such liability will have arisen out of the negligence, breach of contract, breach of warranty and/or strict liability on the part of PCGNY, its agents, servants and/or employees.(Skyline Third-Party Compl. ¶¶ 1- 16.)
The Third-Party Complaint also contains two causes of action relating to PCGNY's failure to obtain insurance. (Skyline Third-Party Compl. ¶¶ 17-26.)
Thus, it is clear that the claims in the Underlying Action arising from breach of contract and breach of warranty, which are the only claims alleged in the Underlying Action (and from which the third-party claims arise), seek damages based upon faulty workmanship by Skyline and/or PCGNY, which required replacement of the defective roofs at the Apartment Complex.
Such claims are not covered by the TBIC Policies because there was no “occurrence” as required under New York law. See Fuller, 200 A.D.2d at 260.
Skyline and PCGNY principally rely upon Black & Veatch Corp. v. Aspen Ins. (Uk) Ltd, 882 F.3d 952, 970 (10th Cir.), cert denied sub nom. Aspen Ins. (UK) Ltd. v Black & Veatch Corp., 139 S.Ct. 151 (2018), a 2-to-1 panel decision by the U.S. Court of Appeals for the Tenth Circuit, applying New York law, to contend that “property damage” resulting from a subcontractor's faulty work constitutes a “covered occurrence.” (See Skyline/PCGNY 12/8/23 Opp. Mem. to TBIC Mem., ECF No. 132, at 17-18; Skyline 12/8/23 Opp. Mem. to AESLIC/Navigators Mot., ECF No. 135, at 12-15.) In Black & Veatch, the panel majority, reversing a grant of summary judgment by the district court finding that there was no covered “occurrence,” held that “the property damages at issue [which were caused by a subcontractor's work] were caused by an ‘occurrence,' as that term [was] defined in the [p]olicy,” in circumstances where, as here, the policy provision excluding coverage for property damage to the insured's own work (a “Your Work Exclusion”) contained an exception for work done by a subcontractor (a “Subcontractor Exception”). See Black & Veatch, 882 F.3d at 962-65.
In Black & Veatch, “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions, that results in ‘Bodily Injury' or ‘Property Damage' that is not expected or not intended by the ‘Insured.'” Black & Veatch, 882 F.3d at 955.
As noted in Relevant Facts Sections II and III, supra, the relevant policies in the present case, as in Black & Veatch, contain Your Work Exclusions, and also contain Subcontractor Exceptions to such exclusions.
The dissent in Black & Veatch, relying upon the New York Appellate Division's decision in Fuller, agreed with the district court's conclusion that there was no covered “occurrence.” See Black & Veatch, 882 F.3d at 971-72 (dissent). Notably, the dissent stated that “[New York] intermediate state appellate decisions have held that even when a subcontractor caused the damage, an insured general contractor cannot be covered for damage to its own work product because it is ‘responsible for the entire project[,] and all work done by [any] subcontractor was done on' behalf of the general contractor.” Id. at 972 (quoting Pavarini Constr. Co. v. Cont'l Ins. Co., 304 A.D.2d 501 (1st Dep't 2003) (alterations in original)).
In their submissions, PCGNY and Skyline do not cite to any New York case law that follows the Tenth Circuit's decision in Black & Veatch, and the Court has found none. However, in RD Rice Const., Inc. v. RLI Ins. Co., No. 651185/2015, 2020 WL 2332871, at *7 (N.Y. Sup. Ct. May 07, 2020), the New York Supreme Court expressly declined to follow Black & Veatch, and instead followed the Appellate Division's decision in Fuller, holding that, although the CGL policy in question contained a Subcontractor Exception to the Your Work Exclusion, defective workmanship claims were not covered “occurrences” under New York law, “unless the defective workmanship causes damages to property that is that is outside of the scope of the insured's construction project.” Id. at *5-7.
Apparently recognizing that the insurers for Skyline and PCGNY in this case are entitled to the declaratory reliefthey seek based upon the current state of New York law, Skyline and PCGNY ask this Court to “expect that the New York Court of Appeals would determine as a matter of first impression that . . . the [relevant policies] provide coverage for the Underlying Action because the alleged ‘property damage' resulted from an ‘occurrence' ....” (Skyline 12/8/23 Opp. Mem. to AESLIC/Navigators Mot., ECF No. 135, at 18; see also Skyline/PCGNY 12/8/23 Opp. Mem. to TBIC Mem., ECF No. 132, at 18.) The Court declines to do so.
Since the New York Court of Appeals has not spoken on the relevant issue, this Court must apply the law as interpreted by the Appellate Division of the New York Supreme Court, unless the Court is persuaded that the Court of Appeals would rule differently if presented with the same issue. See Zaretsky v. William Goldberg Diamond Corp., 820 F.3d 513, 521 (2d Cir. 2016).
Given the settled nature of the law, the Court finds, as other judges in this District have as well, that the “Fuller decision [an Appellate Division decision cited and relied upon above] accurately captures New York law.” Maxum Indem. Co. v. A One Testing Lab'ys, Inc., 150 F.Supp.3d 278, 285 (S.D.N.Y. 2015) (Fuller's “holding is consistent with those established in cases both prior to that decision, . . . and subsequent to it.” (citations omitted)); see also W. Waterproofing Co., 2022 WL 329225, at *9 (citing Maxum Indem. Co., 150 F.Supp.3d at 285) (following Fuller, agreeing that “faulty workmanship . . . fall[s] outside the scope of the [policy] as a matter of longstanding New York law”); 589 7th St LLC v. Certain Underwriters at Lloyd's, No. 653089/2021, 2021 WL 6063821, at *3 (N.Y. Sup. Ct. Dec. 21, 2021) (following Fuller). Further, as noted by the dissent in Black & Veatch (882 F.3d at 972), the Appellate Division, applying Fuller, has held that, even when a subcontractor caused the damages, damages to an insured general contractor's own work product did not result from an “occurrence.” See Pavarini, 304 A.D.2d at 502 (“The claim of [the insured's] client in the arbitration was essentially for breach of contract and, as we have observed, a contract default under a construction contract is not to be equated with an ‘accident, including continuous or repeated exposure to substantially the same general harmful conditions' under the subject policies[.]” (citing Fuller)). Accordingly, this Court is not persuaded that the New York Court of Appeals would rule differently than the Appellate Division and find that there is a covered “occurrence” in this case.
The fact that the Your Work Exclusions contained in the relevant policies may not be applicable in this case due to the Subcontractor Exceptions is of no consequence. Because the Court finds that Skyline and PCGNY have not “established [their] initial entitlement to coverage,” the Court “need not consider what consequences for that coverage might have arisen from [any] exclusion[s].” See Kim-Chee LLC v. Phila. Indem. Ins. Co., No. 21-1082, 2022 WL 258569, at *2 (2d Cir. Jan. 28, 2022) (citation omitted).
In an effort to avoid summary judgment from being granted against them, Skyline and PCGNY, citing Fuller, argue that coverage is available under the TBIC Policies for “property damage to something other than the work product” of Skyline and PCGNY. (See Skyline/PCGNY 12/8/23 Mem., ECF No. 132, at 19 (citing Fuller, 200 A.D.2d at 259).) Referring to Affiliated's Amended Bill of Particulars in the Underlying Action and an Affiliated Loss Memo, Skyline and PCGNY note that water entered through the damaged roofs and caused damage to “the interior corridors of the buildings, the boiler room roofs and concrete on the roofs.” (See id. (citing Affiliated Am. Bill of Particulars, ECF No. 118-12, ¶ 17, at PDF p. 23).) Skyline and PCGNY thus argue that “Skyline and PCGNY reasonably may be found liable for property damage caused by their faulty workmanship.” (Id. at 20.)
A careful review of Affiliated's Amended Bill of Particulars, however, demonstrates that the only damages that Affiliated is seeking in the Underlying Action are damages to Skyline's and PCGNY's own work. In response to paragraph 17, which requests Affiliated to “[s]tate the nature and extent of any and all monetary injuries claimed to have resulted from the occurrence,” Affiliated stated, as follows:
As the result of the roofs' failures caused by their improper installation and other damage sustained to the buildings on or about October 29, 2012, Plaintiff issued payments to Dayton Beach totaling $4,950,000. The total payments included several items that were not related to the improper installation and failure of the roofs, such as repairs to the interior corridors of the buildings, the boiler room roofs and concrete on the roofs, as well as asbestos testing. After deducting the
payments for these unrelated items, Plaintiff's payments in connection with Dayton Beach's replacement of the roofs on the buildings located at 8100, 8200, 8400 and 8800 Shore Front Parkway and repairs to the roof of the building located at 8600 Shore Front Parkway totaled approximately $4,665,905.(Affiliated Am. Bill of Particulars ¶ 17, at PDF p. 23.) Contrary to the suggestion made by Skyline and PCGNY, the only damages for which Skyline and PCGNY can be liable in the Underlying Action relate to the replacement and repair of the roofs, which were their work product. The other unrelated items (i.e., “repairs to the interior corridors of the buildings, the boiler room roofs and concrete on the roofs”), to which Skyline and PCGNY refer in their opposition memorandum, were deducted from the amounts sought in the Underlying Action.
Accordingly, I recommend that TBIC's motion for summary judgment be granted since there is no covered “occurrence” and that TBIC be granted a declaration that TBIC has no duty to indemnify PCGNY and/or Skyline under the TBIC Policies in connection with the claims in the Underlying Action.
TBIC also asserts that certain exclusions in the TBIC Policies separately bar coverage; because the Court finds that TBIC is entitled to summary judgment on its primary theory of non-coverage, it does not reach the exclusions. See Michael Cetta, Inc. v. Admiral Indem. Co., 506 F.Supp.3d 168, 185 n.5 (S.D.N.Y. 2020) (“Because the Court concludes that [insured] fails to establish entitlement to coverage under the Policy, it need not reach the question of whether the[] various exclusions would apply.”). The Court also does not reach the issue of the purported late notice provided to TBIC, except to note that, on the present record, there appear to be issues of fact concerning whether PCGNY's or Skyline's purported failure to timely provide notice to TBIC materially impaired the ability of TBIC to investigate or defend the claims, as required by New York law. See N.Y. Ins. Law § 3420(c)(2)(C).
2. “ Occurrence” Falling Outside Policy Period For Second TBIC Policy
TBIC also contends that the there is no coverage under the Second TBIC Policy since the losses occurred outside the policy period. (TBIC 10/10/23 Mem. at 12.) The Court agrees.
“Under New York law, an insured bears the burden of demonstrating that a loss occurred during the period covered by the relevant policy.” Weintraub v. Great N. Ins. Co., 648 F.Supp.3d 472, 475 (S.D.N.Y. 2022) (citations omitted). In the present case, the Second TBIC Policy was in effect between September 22, 2013 and September 22, 2014. (PCGNY/Skyline 56.1 Response to TBIC ¶ 14; Affiliated 56.1 Response to TBIC ¶ 14; AESLIC 56.1 Response to TBIC ¶ 14; Navigators 56.1 Response to TBIC ¶ 14.) The Second TBIC Policy provides that the “insurance applies to ‘bodily injury' and ‘property damage' only if . . . [t]he ‘bodily injury' or the ‘property damage' occurs during the policy period[.]” (Second TBIC Policy § I.1.b.2, at PDF p. 14.) Superstorm Sandy struck New York on or about October 29, 2012, and four of the five roofs at the Apartment Complex failed. (PCGNY/Skyline 56.1 Response to TBIC ¶ 6; Affiliated 56.1 Response to TBIC ¶ 6; AESLIC 56.1 Response to TBIC ¶ 6; Navigators 56.1 Response to TBIC ¶ 6.) Thus, TBIC has shown that the property damage at issue in this case occurred before the policy period under the Second TBIC Policy, which is an independent ground for finding that there is no coverage under the Second TBIC Policy.
Accordingly, the Court recommends that TBIC be granted a declaration that TBIC has no duty to indemnify Skyline and/or PCGNY under the TBIC Policies.
B. TBIC's Duty To Defend
TBIC contends that, in addition to not having a duty to indemnify PCGNY or Skyline, TBIC also has no duty to defend. (TBIC 10/10/23 Mem. at 1.) The duty to defend under New York law has been described by the Second Circuit in the summary judgment context, as follows:
An insurer's duty to defend claims made against its policyholder is ordinarily ascertained by comparing the allegations of a complaint with the wording of the insurance contract.... “[T]he initial interpretation of a contract is a matter of law for the courts to decide,” . . ., and if the wording on the duty to defend is clear and
unambiguous, it will be enforced according to its terms. The goal is always to give effect to the intent of the parties, as embodied in their written agreement.... In reading the text, a potent background principle is that the duty to defend is broader than the duty to indemnify.... The duty is to defend any action, regardless of its merit, that seeks damages potentially within the indemnity coverage....
At the same time, an insurer's duty to defend is limited absolutely by the scope of the coverage purchased.... If there is no legal or factual circumstance that could trigger the duty to indemnify against a claim, then there is no duty to defend against it.... Furthermore, an insurer may withdraw from an ongoing defense if it becomes clear that the claim is wholly outside the indemnification agreement. Any ambiguity as to the insurer's duty to defend is resolved in favor of the insured....Int'l Bus. Machines Corp. v. Liberty Mut. Ins. Co., 363 F.3d 137, 144 (2d Cir. 2004) (emphasis in original) (citations and footnotes omitted).
“If, liberally construed, the claim is within the embrace of the policy, the insurer must come forward to defend its insured no matter how groundless, false or baseless the suit may be.” Century 21, Inc. v. Diamond State Ins. Co., 442 F.3d 79, 83 (2d Cir. 2006) (citation omitted). “If any of the claims against [an] insured arguably arise from covered events, the insurer is required to defend the entire action.” Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 98 N.Y.2d 435, 443 (2002) (citation omitted). The “standard for determining whether an additional named insured is entitled to a defense is the same standard that is used to determine if a named insured is entitled to a defense.” BP Air Conditioning Corp. v. One Beacon Ins. Grp., 8 N.Y.3d 708, 715 (2007).
For the reasons set forth in Discussion Section I.A., supra, the Court finds that TBIC has met its heavy burden. Because “[t]here can be no doubt that the allegations [Affiliated] includes in the [Underlying Action Complaint] bring this matter within the ‘no occurrence, no coverage' rule for commercial general liability policies under New York law,” A One Testing Lab'ys, Inc., 150 F.Supp.3d at 285, TBIC has no duty to defend. Accordingly, I recommend that TBIC be granted a declaration that TBIC has no duty to defend PCGNY and/or Skyline under the TBIC Policies in connection with the claims in the Underlying Action, as well as a declaration that TBIC is permitted to withdraw from the defense it currently is providing to PCGNY in the Underlying Action.
C. Reimbursement Of TBIC's Defense Costs For PCGNY
In its motion, TBIC seeks a declaration that it is entitled to reimbursement of all costs expended in providing a courtesy defense to PCGNY under the First TBIC Policy in the Underlying Action. (See TBIC Not. of Mot. at 1.) “New York law permits insurers to provide their insureds with a defense subject to ‘a reservation of rights to, among other things, later recoup their defense costs upon a determination of non-coverage.'” A One Testing Lab'ys, Inc., 150 F.Supp.3d at 283-84 (quoting Law Offices of Zachary R. Greenhill P.C. v. Liberty Ins. Underwriters, Inc., 128 A.D.3d 556, 560 (1st Dep't 2015)). “Courts have consistently determined that insurers are entitled to reimbursement of defense costs upon a determination of non-coverage so long as the reservation was communicated to the insured, who did not expressly refuse to consent to the reservation.” Id. (citations omitted).
In the present case, it is undisputed that, in the June 2020 correspondence, “TBIC advised PCGNY that it would continue to provide a courtesy defense to PCGNY in the Underlying Action, but reserved the right to withdraw funding for the defense at any time.” (PCGNY/Skyline 56.1 Response to TBIC ¶ 35; Affiliated 56.1 Response to TBIC ¶ 35; AESLIC 56.1 Response to TBIC ¶ 35; Navigators 56.1 Response to TBIC ¶ 35.) However, there are no undisputed facts in the record before the Court that TBIC communicated to PCGNY is reservation of its right to later recoup TBIC's defense costs upon a determination of non-coverage, or facts regarding PCGNY's response. (See generally TBIC 56.1, ECF No. 116.) Thus, I recommend that TBIC's motion for summary judgment declaring that it is entitled to reimbursement of all costs expended in providing a courtesy defense to PCGNY under the First TBIC Policy in the Underlying Action be denied without prejudice.
D. Other Issues Are Rendered Moot
Based upon the Court's recommendations above, the remainder of TBIC's motion is rendered moot and thus should be denied. Specifically, because TBIC owes no coverage under the TBIC Policies (and because, as discussed below, AESLIC and Navigators owe no coverage under their policies), the Court need not decide priority of coverage as between the TBIC Policies, on the one hand, and the AESLIC Policies and the Navigators Policy, on the other.
II. Joint Motion By AESLIC And Navigators
In their joint motion, AESLIC and Navigators seek summary judgment on similar grounds as TBIC. AESLIC and Navigators contend that “the underlying claims for faulty workmanship in the [Underlying] Action do not involve the ‘property damage' caused by an ‘occurrence' necessary to implicate coverage under the AESLIC Policies and the Navigators Policy.” (AESLIC/Navigators 10/10/23 Mem., ECF No. 109, at 14.) The Court agrees. For the same reasons articulated with respect to TBIC's motion, as set forth in Discussion Sections I.A.1., supra, I recommend that the joint motion by AESLIC and Navigators be granted. Accordingly, because AESLIC and Navigators have no coverage obligations with respect to the Underlying Action, their motion to dismiss all claims against them in this action, including Skyline's cross-claims, should be granted.
III. Affiliated's Motion
In support of dismissal of the Complaint in this action, Affiliated argues that the Ninth Cause of Action (the only claim asserted against Affiliated) does not plausibly state a claim against Affiliated and that, even if it does, such claim should be dismissed. (Affiliated 10/10/23 Mem., ECF No. 112, at 5-7.) In the Ninth Cause of Action, TBIC “seeks a declaration that it has no duty to reimburse or pay Affiliated for the sums allegedly incurred by it in connection with the Underlying Action” allegedly “[b]ecause there is no coverage under the [TBIC] Policies for both PCGNY and Skyline for the claims in the Underlying Action.” (Compl. ¶ 87.)
This action was commenced in New York state court seeking a declaratory judgment under New York law, but later was removed to this Court. Federal courts sitting in diversity apply federal procedural law and state substantive law. See Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996). Thus, a state court declaratory action that is removed is treated as invoking the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 (the “DJA”). See Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co., 736 F.3d 255, 261 n.3 (4th Cir. 2013) (citing Gasperini v. Ctr. For Humanities, Inc., 518 U.S. 415, 427 (1996)); see also Allstate Ins. Co. v. Martinez, No. 11-CV-00574 (VLB), 2012 WL 1379666, at *8 (D. Conn. Apr. 20, 2012) (“Since the DJA ‘is procedural in nature, under the Erie doctrine, it governs actions for declaratory judgments in diversity suits in federal court ....'” (citation omitted)).
Section 2201(a) of the DJA provides, in relevant part:
In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.28 U.S.C. § 2201(a). Accordingly, district courts have statutory authority to adjudicate a declaratory judgment action where, as here, an “actual controversy” exists. 28 U.S.C. § 2201(a); see also E.R. Squibb & Sons, Inc. v. Lloyd's & Cos., 241 F.3d 154, 177 (2d Cir. 2001). “It has long been well-established . . . that a liability insurer may bring an action for a declaratory judgment against the parties in an underlying lawsuit involving its insured without waiting for the underlying action to proceed to judgment.” Empire Fire & Marine Ins. Co. v. Elrac, Inc., No. 04-CV-10315 (GEL), 2006 WL 3734308, at *2 (S.D.N.Y. Dec. 18, 2006).
In the present case, Affiliated is named as a defendant in its capacity as subrogee of Dayton. (See Compl. at p. 1 (caption).) It is in that same capacity that Affiliated is suing as plaintiff in the Underlying Action. (See Underlying Action Compl. at p. 1 (caption).) Thus, as in Elrac, supra, a declaratory judgment action against the parties in the Underlying Action, which include Affiliated, is entirely appropriate.
As here, the defendants in the declaratory judgment action in Elrac included the plaintiffs in the underlying lawsuit who were suing the insureds in question. See Elrac, Inc., 2006 WL 3734308 (caption)).
Affiliated's argument that it is not seeking reimbursement or payment under the TBIC Policies (Affiliated 10/10/23 Mem. at 7) is disingenuous. In the Underlying Lawsuit, Affiliated is seeking to recover damages from Skyline, which is an additional insured under the TBIC Policies (see Underlying Action Compl. ¶¶ 27, 30), and Skyline, in turn, is seeking to be indemnified by PCGNY. (See Skyline Third-Party Compl. ¶¶ 1-16.) Thus, if Affiliated prevails in the Underlying Action, Skyline and/or PCGNY will be seeking coverage under the TBIC Policies. Because the Underlying Action does not allege an occurrence covered under the TBIC Policies (see Discussion Section I.A., supra), TBIC is entitled to a declaration that it has no duty to reimburse Affiliated for the sums incurred by it in connection with the Underlying Action.
CONCLUSION
For the foregoing reasons, I respectfully recommend that TBIC's motion be GRANTED IN PART and DENIED IN PART. Specifically, I recommend that TBIC is entitled to a declaration that: (1) TBIC has no duty to defend and/or indemnify PCGNY and/or Skyline under the TBIC Policies in connection with the claims in the Underlying Action; (2) TBIC is permitted to withdraw from the defense it is currently providing PCGNY in the Underlying Action under the First TBIC Policy; and (3) TBIC has no duty to reimburse Affiliated for the sums incurred by it in connection with the Underlying Action.
I further recommend that the joint motion by AESLIC and Navigators be GRANTED and that Affiliated's motion be DENIED.
NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
The parties shall have fourteen (14) days (including weekends and holidays) from service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed.R.Civ.P. 6(a), (d) (adding three additional days when service is made under Fed.R.Civ.P. 5(b)(2)(C), (D) or (F)). A party may respond to another party's objections within fourteen days after being served with a copy. Fed.R.Civ.P. 72(b)(2). Such objections, and any response to objections, shall be filed with the Clerk of the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Clarke.
FAILURE TO OBJECT WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).