Opinion
01 Civ. 0115 (CBM).
May 11, 2005
MEMORANDUM OPINION AND ORDER
This case involves a dispute over who is liable to an insured for expenses stemming from an accident at a construction site that resulted in injury. Plaintiff Tudor Insurance Company seeks a declaration that it is not obligated to defend or indemnify its insured, McKenna Associates, with respect to a lawsuit brought in connection with the aforementioned accident. McKenna Associates in turn seeks indemnification from its insurance broker, Hood-Connors-Jackson Agency, Inc, in the event that McKenna Associates is held liable to plaintiff.
Now before this court are the summary judgment motions filed by plaintiff Tudor and third-party defendant Hood-Connors-Jackson Agency, Inc.
For the reasons set forth below, the court GRANTS summary judgment to third party defendant, Hood-Connors-Jackson Agency, Inc., and DENIES plaintiff Tudor's motion for summary judgment.
I. BACKGROUND
A. Procedural History
Edward Joyce ("Joyce") was injured while doing construction work for subcontractor BJ Lang, on a job for which McKenna Associates ("McKenna") was the general contractor. Joyce commenced a negligence action against McKenna on March 29, 2000 in the Supreme Court of the State of New York, Westchester County, based on the injury Joyce sustained on December 3, 1997.Joyce v. McKenna Associates, Inc., Index Number 04393/00.
Tudor Insurance Company ("Tudor") ultimately declined coverage to McKenna, its insured, on the ground that McKenna and Joyce failed to provide timely notice of the accident. On November 17, 2000, Tudor commenced a declaratory judgment action seeking a declaration that it is not obligated to defend and indemnify McKenna with respect to the suit brought on behalf of defendant Joyce, and naming McKenna and Joyce as defendants. Tudor Insurance Co. v. McKenna Associates, et al., 00 Civ. 8770 (S.D.N.Y. 2003). By order of Judge Kaplan, dated December 13, 2000, this action was dismissed on procedural grounds. Tudor thereafter commenced the instant action on January 8, 2001. Joyce answered the complaint on February 16, 2001, and McKenna filed its answer and a counterclaim against Tudor on March 13, 2001 asking the court to find that Tudor must indemnify and defend McKenna in the underlying action.
On April 10, 2001, McKenna filed a third-party complaint against its insurance broker, Hood-Connors-Jackson Agency, Inc. ("HCJ"), claiming that HCJ was obligated to notify Tudor of the accident. HCJ answered the third-party complaint on June 4, 2001, counterclaiming against McKenna on two grounds: first, that if HCJ is found to be negligent as to plaintiff, HCJ will be entitled to contribution and indemnification for that portion of damages that were caused by McKenna's negligence; second, that McKenna failed to comply with the Tudor policy provisions relating to notice and therefore HCJ is entitled to a judgment declaring that HCJ is not obligated to indemnify or defend McKenna with respect to the claims in the underlying action. HCJ also asserted a cross-claim against Tudor, claiming HCJ is owed contribution and indemnification from Tudor for its breach of contractual obligations to McKenna and HCJ.
HCJ moved for summary judgment on November 26, 2003, requesting an order dismissing the complaint and the third party complaint. Tudor moved for summary judgment on December 1, 2003, seeking a declaration that Tudor is not obligated to defend and indemnify McKenna.
B. Facts
Tudor issued a policy of insurance numbered NGL 678094 that provided McKenna comprehensive liability insurance coverage for the period May 13, 1997 through May 13, 1998. (Third-party Def.'s 56.1 Stmt. ¶ 6). The policy was obtained by McKenna through its insurance broker, HCJ. (Third-party Def.'s 56.1 Stmt. ¶ 7).
The underlying injury giving rise to the instant litigation occurred on December 3, 1997, when Joyce was injured while doing construction work in Armonk, New York, for subcontractor BJ Lang. McKenna was the general contractor on the job. (McKenna Dep. at 46). As set forth above, based on this injury, Joyce commenced a negligence action against McKenna on March 29, 2000. Tudor eventually declined coverage to McKenna, claiming McKenna and Joyce failed to provide timely notice of the accident, and subsequently filed a declaratory judgment action asking that the court find that it is not obligated to defend or indemnify McKenna.
Kevin McKenna, vice president of McKenna Associates, learned of Joyce's accident the afternoon of December 3, 1997 from his brother, Gregory McKenna, president of McKenna Associates, who had called Kevin McKenna approximately thirty minutes after the accident occurred. (McKenna Dep. at 11, 47-48).
Kevin McKenna testified that Gregory McKenna, based on a conversation with John Lang, Jr., who was apparently an employee of subcontractor BJ Lang, which was owned by John Lang, Sr. (See McKenna Dep. at 57-63; Third-party def.'s Rule 56.1 Stmt., Exhibit I) indicated to Kevin McKenna that Joyce's condition "didn't appear to be much of an injury." (Id. at 48-49). McKenna testified that after the accident John Lang Jr. indicated that Joyce was "in good shape" and that Joyce "was going to be okay." (Id. at 55-56). This belief was strengthened upon McKenna seeing Joyce "back working a week or two later." (Id. at 55).
It is not clear precisely when, but some time after the original Joyce accident on December 3, 1997, John Lang, Jr. told McKenna that Joyce appeared to have been injured again. (Id. at 57). Based on this communication, which indicated to McKenna that Joyce would not be returning to work for some time, McKenna notified HCJ, on the belief that Joyce may have had a Workers' Compensation claim naming McKenna. (Connors Dep. at 11; McKenna Dep. at 57).
Although McKenna testified that he did not know the exact date of his communication to HCJ regarding Joyce's new injury, he stated that it was "about a month," and upon further questioning, "[c]ertainly, within three months," after the original accident. (Id. at 57-58).
BJ Lang did not have compensation coverage on December 3, 1997. (McKenna Dep. at 51; Third-party def.'s 56.1 Stmt., Exhibit I). Lang apprised McKenna of this fact approximately one week after the December 3, 1997 accident. (McKenna Dep. at 51). Then, on March 23, 1998, McKenna received a letter from DP Brokerage, BJ Lang's insurance company, addressed to the State of New York Workers' Compensation Board and copying McKenna, which noted the enclosure of a C-2 form completed by John Lang. (McKenna Dep. at 65; Third-party def.'s 56.1 Stmt., Exhibit I). The DP Brokerage letter maintains that since Lang did not have compensation coverage at the time of the accident, he gave the C-2 form to the general contractor, McKenna. (Id.). According to Kevin McKenna, the DP Brokerage letter signified to him "[t]hat Mr. Lang's lack of insurance was going to cost [McKenna] as far as the State Insurance Fund was concerned." (McKenna Dep. at 75).
A C-2 form is a workers' compensation claim form. (Connors Dep. at 10).
State Insurance Fund was McKenna's compensation carrier. (McKenna Dep. at 71).
Kevin McKenna spoke further about the Joyce matter with Dennis Connors of HCJ during the summer of 1998. (Third-party def.'s 56.1 Stmt. ¶ 37). HCJ claims that McKenna and Connors spoke only of Joyce's workers' compensation claims against the McKenna policy, while McKenna avers that the conversations were not limited to only workers' compensation claims. (Id.; Def.'s 56.1 Stmt. ¶ 6).
II. DISCUSSION
A. Standard on Summary Judgment
Under Fed.R.Civ.P. 56(c), summary judgment "shall be rendered forthwith" if it is shown that "there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 323 n. 4, 106 S.Ct. 2548, 2552 n. 4 (1986). "[G]enuineness runs to whether disputed factual issues can reasonably be resolved in favor of either party, [while] materiality runs to whether the dispute matters, i.e., whether it concerns facts that can affect the outcome under the applicable substantive law." Mitchell v. Washingtonville Cent. Sch. Dist., 190 F.3d 1, 5 (2d Cir. 1999) (internal quotations and citations omitted). In order to prove that a genuine issue of material fact exists, a plaintiff "may not rest upon the mere allegations or denials of the pleading[s]," but must by affidavit or otherwise "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). "Conclusory statements, conjecture or speculation by the party resisting the motion will not defeat summary judgment." Kulak v. City of New York, 88 F. 3d 63, 71 (2d Cir. 1996).
Courts must resolve all ambiguities and draw all reasonable factual inferences in favor of the non-moving party. See Nora Beverages, Inc. v. Perrier Group of Am., Inc., 164 F.3d 736, 742 (2d Cir. 1998). The moving party bears the initial burden of demonstrating an absence of genuine issues of material fact.See Schwapp v. Town of Avon, 118 F.3d 106, 110 (2d Cir. 1997). If the initial burden is met, the non-moving party "must produce specific facts indicating that a genuine issue of fact exists. If the evidence [presented by the non-moving party] is merely colorable, or is not significantly probative, summary judgment may be granted." Scotto Almenas, 143 F.3d 105, 114 (2d Cir. 1998) (internal quotations and citations omitted) (alteration in original).
The court considers cross-motions for summary judgment separately, and views the facts of each in the light most favorable to the nonmoving party. U.S. v. An Antique Platter of Gold, 991 F.Supp. 222, 227 (S.D.N.Y. 1997) (citing Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993)).
B. HCJ
HCJ argues on summary judgment that Tudor did not timely disclaim coverage to McKenna, and is therefore obligated to defend and indemnify McKenna Associates in the underlying action. McKenna concurs with this submission. (Def.'s Mem. at p. 6).
Tudor argues that HCJ has no standing to move the court as it has. Tudor argues that because New York law dictates that only an insured has a cause of action against the insurer and a right to sue under the policy, Tillman v. Firemans' Fund Ins. Co., 590 F.Supp. 246, 249 (S.D.N.Y. 1984), HCJ lacks standing to move for summary judgment. Tillman does stand for this proposition, however here HCJ is not suing under the policy. Tudor's argument also runs contrary to civil procedure rules. Summary judgment motions by defending parties are authorized by Rule 56(b). A party against whom a claim, counterclaim, or cross-claim is asserted or a declaratory judgment is sought may move for summary judgment. Fed.R.Civ.P. 56(b). HCJ is such a party and so has standing to bring the instant motion.
New York State Insurance Law § 3420(d) states:
(d) If under a liability policy delivered or issued for delivery in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.
N.Y. INS. LAW § 34209(d) (Consol. 2005). The New York Court of Appeals has stated the rule as follows: "A failure by the insurer to give such notice as soon as is reasonably possible after it first learns of the accident or of grounds for disclaimer of liability or denial of coverage, precludes effective disclaimer or denial." Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028, 1029, 416 N.Y.S.2d 539, 540, 389 N.E.2d 1061, 1062 (1982). "[W]here the grounds for disclaimer are not readily apparent," however, "courts consistently hold that an insurer must be given reasonable time to adequately investigate a claim in order to determine whether it wishes to disclaim coverage." U.S. Underwriters Ins. Co. v. Held Bros., 1998 U.S. Dist. LEXIS 9694, *7-8 (S.D.N.Y. 1998). "The reasonableness of any delay in notification is measured from the time the insurer was aware of sufficient facts to disclaim." Held Bros., 1998 U.S. Dist. LEXIS 9694 at *9.
Tudor received its first notice of the Joyce claim on October 27, 2000 (Pl.'s Mem. Opp. Summ. J. at 6; Third-party Def.'s Mem. Supp. Summ. J. at 15). Steve Niehaus, claims consultant for Tudor's parent company, Western World Insurance Group, was handling claims for Tudor at the time of the events in question. (Niehaus Dep. at 6-7). Niehaus testified that at the latest, by November 2, 2000, there was no doubt in his mind that Tudor had received late notice of the Joyce claim. (Niehaus Dep. at 58). Niehaus based his conclusion on two facts known to him: (1) that the incident occurred "almost three years before [Tudor's] first notice of loss;" and (2) the existence of "notes about Workers' Compensation claims" that led Niehaus to believe that McKenna had notice "long before [Tudor] received [the] first notice of claim." (Niehaus Dep. at 23). Niehaus claims these facts became known to him by the motion for default judgment he received regarding the Joyce v. McKenna matter. (Niehaus Dep. at 15). Therefore, according to Tudor it had sufficient facts to disclaim on November 2, 2000, and any delay in notification of the insured will be measured from that date. See Held Bros., 1998 U.S. Dist. LEXIS 9694 at *910.
2. The Niehaus Letter
HCJ argues that a letter from Niehaus addressed to McKenna, dated November 2, 2000, is not a disclaimer letter, but a letter indicating a reservation of Tudor's rights. (HCJ's Mot. Summ. J., Exhibit H). Tudor argues that the letter operates as a disclaimer, pointing to language in the letter that states, "In disclaiming coverage, the Company neither intends to waive or invalidate any other rights under this or any other policy." (Tudor's Reply Mem. Opp. Summ J. at 7). HCJ, on the other hand, highlights several instances in the same letter where Tudor "reserves its right to disclaim." (HCJ's Reply Mem. at 8-9; Niehaus Letter). Specifically, the letter states on page 2 that "there has been a breach of the policy provisions regarding notice of occurrence and the Company reserves its right to disclaim coverage in that regard." (HCJ's Mot. Summ. J., Exhibit H). The next paragraph states that "[t]here has been a breach of the policy provisions regarding notice of suit and the Company reserves its right to disclaim coverage in that regard." (Id.). The following paragraph states, "As noted above, the Company reserves its right to disclaim coverage to you for the subject loss." (Id.). The next paragraph states, "The Company hereby reserves all of its rights and remedies. . . ." (Id.). Finally, in the penultimate paragraph of the letter, Tudor states, "The Company specifically reserves all such rights and defense. . . ." (Id.).
Courts considering the question of whether a letter to an insured is a disclaimer of coverage or a reservation of rights have held that sufficiently definite language must be used in order for the communication to constitute a disclaimer. U.S. Underwriters Ins. Co. v. Falcon Const. Corp., 2005 WL 497792, *1 (S.D.N.Y. 2005); U.S. Fidelity Guaranty Co. v. Treadwell Corp., 58 F.Supp.2d 77, 90 (S.D.N.Y. 1999) (a notice of disclaimer should be "'unequivocal, unambiguous written notice, properly served.'") (quoting Norfolk Dedham Mut. Fire Ins. Co. v. Petrizzi, 121 A.D.2d 276, 277, 503 N.Y.S.2d 51, 53 (1st Dept. 1986)). In United States Underwriters Ins. Co. v. Klimashevsky, 21 Fed. Appx. 47, 50 (2d Cir. 2001), the court stated that "[a]lthough [plaintiff] contends that its May 1999 letter constituted a disclaimer, that letter expressly states, '[plaintiff] reserves its rights to issue a disclaimer of coverage.' At no point does the letter purport to exercise those rights." Id. The court contrasted a later letter the insurer had issued that plainly declared that "in view of this violation, [plaintiff insurer] also disclaims coverage." Id. The instant case presents a similar situation. The Niehaus Letter does not purport to exercise its right to disclaim coverage. As stated above, Tudor clearly states on several occasions throughout the Niehaus Letter, that "[t]he Company hereby reserves all of its rights and remedies. . . ." (See HCJ's Mot. Summ. J., Exhibit H). The Niehaus Letter does not communicate the required unequivocal, unambiguous written notice required by the relevant case law, and is therefore not a disclaimer of coverage. See Falcon Const., 2005 WL at *1; U.S. Fidelity Guaranty Co., 58 F.Supp. 2d at 90.
Since a "reservation of rights letter has no relevance to the question whether the insurer has timely sent a notice of disclaimer of liability or denial of coverage," the Niehaus Letter has no bearing on whether Tudor timely disclaimed under New York State Insurance Law § 3420(d). Hartford Ins. Co., 46 N.Y.2d at 1029 (1979) (citing Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, 269 (1970)).
3. Tudor's Initial Action
Based on the above finding, the question of when Tudor disclaimed now centers on whether the initial action, filed by Tudor on November 17, 2000, suffices as a disclaimer. HCJ alleges that the initial action should not suffice as the first disclaimer because the action was dismissed on December 13, 2000. (HCJ's Mem. Opp. Summ. J. at 15). Tudor argues that the November 17, 2000 complaint suffices as proper notice of disclaimer. A similar question arose in U.S. Underwriters Ins. Co. v. Held Bros., 1998 U.S. Dist. LEXIS 9694, *7-8 (S.D.N.Y. 1998). Addressing the question of when notice of disclaimer was properly provided, the court stated that a notice of disclaimer "may be accomplished by service of a complaint for a declaratory judgment that the insurer has no duty to defend or indemnify." Held Bros., 1998 U.S. Dist. LEXIS 9694, 10-11 (S.D.N.Y. 1998) (citingU.S. Underwriters Ins. Co. v. Congregation B'Nai Isr., 900 F. Supp. 641, 648 (S.D.N.Y. 1995); Travelers Ins. Co. v. Monpere, 1996 U.S. Dist. LEXIS 19638, No. 93 Civ. 0127E(F), 1997 WL 9792, at *7 (W.D.N.Y. Jan. 2, 1997); Norfolk Dedham Mut. Fire Ins. Co. v. Petrizzi, 121 A.D.2d 276, 277, 503 N.Y.S.2d 51 (1st Dep't 1986)). Therefore, service of the November 17, 2000 complaint, if properly effected, will suffice as notice of disclaimer.
An affidavit of service filed by Tudor states that its process server served one Lee McKenna on December 6, 2000, "[knowing] said individual to be the GENERAL AGENT [of McKenna]." (HCJ's Rule 56.1(b) Stmt., Exhibit D). However, Kevin McKenna, by affidavit filed December 24, 2003, states that "[t]here is no Lee McKenna in the employ of McKenna and there is no individual named Lee McKenna who is currently, or has ever been a general agent or employee of McKenna." (McKenna Aff. at 4, ¶ 20). Tudor has not refuted this statement. Therefore, service was not effectuated upon McKenna on December 6, 2000, or December 12, 2000 (the date Tudor alleges it served McKenna by mail). See Fed.R.Civ.P. 4. McKenna asserts that it was notified of Tudor's disclaimer of coverage on about February 13, 2001, which yields a 113 day delay from November 2, 2000. This delay, if unexplained, is unreasonable under New York law. See Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028, 1029, 416 N.Y.S.2d 539, 540, 389 N.E.2d 1061, 1062 (1982).
In dealing with a two month delay in notification of disclaimer, the New York Court of Appeals in Hartford Ins. Co. held that where there is "absolutely no explanation for the delay provided by the insurer, a delay of two months is, as a matter of law, unreasonable." Id. at 1030. New York law further holds that "investigation into issues affecting an insurer's decision whether to disclaim coverage" may excuse delay. First Fin. Ins. Co. v. Jetco Contr. Corp., 1 N.Y.3d 64, 69 (2003). Here, HCJ claims there was "no investigation or action taken after November 2, 2000." (HCJ's Mem. Supp. Summ. J. at 16). Tudor's justification that it "acted as expeditiously as practicable to apprise McKenna of its coverage position" does not constitute investigation into issues affecting an insurer's decision whether to disclaim. (Tudor's Reply Mem. Opp. Summ. J. at 8). Indeed, Tudor asserts that it had sufficient knowledge to deny coverage by November 2, 2000, and maintains that it disclaimed as of November 2, 2000, based on this knowledge. (Niehaus Dep. at 58);see New York University v. First Fin. Ins. Co., et. al, 322 F.3d 750, 2003 U.S. App. LEXIS 4918, 2003 WL 1227575, *4 (2d Cir. 2003) ("Courts have deemed insurers' explanations for delayed notification insufficient where the basis for denying coverage was or should have been readily apparent to the insurer even before the onset of the delay."); see also First Fin. Ins. Co. v. Jetco Contr. Corp., 1 N.Y.3d 64, 69 (2003) (collecting cases).
The present matter is slightly distinguishable from Hartford because the delay is not wholly unexplained. However, the proffered explanation, that Tudor "looked into the claim, obtained and reviewed documents, consulted with counsel, drafted the November 2nd letter, arranged for the commencement of legal proceedings including drafting and filing a complaint and effectuating personal service" (Pl.'s Reply Mem. Supp. Summ. J. at 9), is not satisfactory. In First Fin. Ins. Co., the insurer failed to notify the policyholder of its decision to deny coverage until 48 days later while it investigated other sources of insurance for the policyholder. 1 N.Y.3d at 66-67. The Court held that investigation into other possible sources of insurance was not an acceptable reason for delayed disclaimer, and that a 48 day delay was unreasonable as a matter of law under § 3420(d) where the delay was based on an unsatisfactory explanation. Id. at 69-70. Discussing the reasonableness of the delay, the Court stated that there was "no material difference between a delay that is unexplained and a delay that is unexcused, meaning the explanation was unsatisfactory." First Fin. Ins. Co., 1 N.Y.3d at 70. Tudor attempts to explain its delay by stating that it "looked into the claim, obtained and reviewed documents, consulted with counsel, drafted the November 2nd letter, arranged for the commencement of legal proceedings including drafting and filing a complaint and effectuating personal service." (Pl.'s Reply Mem. Supp. Summ. J. at 9). The actions of "look[ing] into the claim," and obtaining documents are vague and were presumably undertaken prior to November 2, 2000, in order to inform the decision made on that date. Likewise, Tudor's consultation with counsel consisted of Neihaus calling coverage counsel in reference to the motion for default judgment at about the time it was received. (Neihaus Dep. at 17). Indeed, coverage counsel drafted the Neihaus Letter. (Neihaus Dep. at 35). Moreover, "arrang[ing] for the commencement of legal proceedings" and drafting the complaint and service of process do not indicate investigation into issues affecting the decision of whether to disclaim, especially considering that Tudor's assertion that it disclaimed in the November 2, 2000 letter would vitiate any necessity for further investigation. See W. 16th St. Tenants Corp. v. Pub. Serv. Mut. Ins. Co., 290 A.D.2d 278, 279 (1st Dep't 2002). Accordingly, on the facts in the matter at hand, Tudor's delay in providing notice to its insured was unreasonable as a matter of law and Tudor is precluded from disclaiming coverage to McKenna.See Hartford Ins. Co., 46 N.Y.2d 1028.
Therefore, HCJ's motion for summary judgment dismissing the complaint is GRANTED.
C. Tudor
Tudor's motion for summary judgment requests that the court order that Tudor is not obligated to defend or indemnify McKenna with respect to the underlying action.
1. McKenna's Notice
Tudor argues in its motion for summary judgment that because McKenna provided late notice of the underlying loss or ensuing litigation, coverage is vitiated. However, the court need not reach the issue of McKenna's notice because the "insurer's failure to disclaim coverage within a reasonable time render[s] irrelevant the insured's failure to provide timely notice."Webster v. Mount Vernon Fire Ins. Co., 368 F.3d 209, 214 (2d Cir. 2004) (citing AllCity Ins. Co. v. Pioneer Ins. Co., 194 A.D.2d 424, 599 N.Y.S.2d 245 (1st Dep't 1993).
2. Employee Exclusion
Here Tudor argues that a provision in the policy it issued to McKenna excluding claims for injuries to employees applies because Joyce was employed by McKenna. Tudor's argument based on employee exclusion is without merit. Because Tudor did not timely disclaim liability, as set forth above, Tudor lost its right to disclaim on that basis. See Squires v. Islip, 697 F.2d 66, 69 (2d Cir. 1982) (holding in part that "the insurer must either promptly disclaim liability based upon a policy exclusion or else forfeit the right to rely on that exclusion." Id.) (citingHartford Insurance Co. v. County of Nassau, 46 N.Y.2d 1028, 416 N.Y.S.2d 539, 389 N.E.2d 1061 (1979) Squires v. Islip, 697 F.2d 66, 69 (2d Cir. 1982)).
Accordingly, Tudor's motion for summary judgment requesting an order that it is not obligated to defend and indemnify McKenna is DENIED.
III. CONCLUSION
For the foregoing reasons, HCJ's motion for summary judgment is hereby GRANTED, and Tudor's complaint is dismissed. Tudor's motion for summary judgment is DENIED. Because the court finds that Tudor is obligated to defend and indemnify McKenna in the underlying action, the third party complaint by McKenna against HCJ is accordingly dismissed.
SO ORDERED.