Alcon Bldrs. Group, Inc. v U.S. Underwriters Ins. Co. (2008 NY Slip Op 51357(U))

Supreme Court, New York County

602584/06

Attorneys for Plaintiff Alcon Builders Group, Inc.

Finger & Finger

158 Grand Street

White Plains, New York 10601

(914) 949-0308

By: Daniel S. Finger, Esq.

Attorneys for Defendant National Union Fire Insurance Company of Pittsburgh, PA

Sedgwick, Detert, Moran & Arnold

125 Broad Street, 39th Floor

New York, New York 10004

(212) 422-0202

By: Lawrence Klein, Esq.

Attorneys for Defendant/Third-Party Plaintiff U.S. Underwriters Insurance Company

Miranda Sokoloff Sambursky Slone Verveniotis LLP

240 Mineola Boulevard

Mineola, New York 11501

(516) 741-7676

By: Steven Verveniotis, Esq. and Todd M. Hellman, Esq.

Attorneys for Third Party Defendant Moklam Enterprises, Inc.

Dwyer & Brennan, Esq.

7 Dey Street, Suite 1401

New York, New York 10007

(212) 571-4067

By: Gerald Dwyer, Esq.

Attorneys for Third Party Defendant Andrzej Konieczny

Perecman & Fanning, PLLC

250 West 57th Street, Suite 401

New York, New York 10107

(212) 977-7033

By: Mariusz Sniarowski, Esq.

Helen E. Freedman, J.

This is an insurance declaratory judgment action arising out of a worker’s accident at a Manhattan construction site. Defendant/third-party plaintiff U.S. Underwriters Insurance Company (“Underwriters”) moves for summary judgment (CPLR 3212) dismissing the complaint and declaring that it does not have a duty to defend or indemnify plaintiff Alcon Builders Group, Inc. (“Alcon”) in connection with a personal injury action entitled Andrzej Konieczny v Moklam Enterprises, Inc., Alcon Building Group, Inc. Rockstar Games, Inc. and Take 2 Interactive, Inc., (New York County Index No. 111640/05)(the “Konieczny Action”).^[FN1] [*2]Alcon cross-moves for summary judgment declaring that Underwriters and defendant National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) must defend and indemnify it in the Konieczny Action. National Union cross-moves to dismiss the complaint.

Facts/Background

The following facts are taken from the pleading, affidavits and documentary evidence submitted with the motion papers, and are undisputed except as otherwise indicated. In the underlying Konieczny Action, Andrzej Konieczny (“Konieczny”) alleges that on March 30, 2004, he was injured while working at a construction site at 622 Broadway, New York, New York, in a building was owned by third-party defendant Moklam. Konieczny was an employee of Michael Schondorf, Inc., (“Schondorf”), an electrical subcontractor retained by Alcon. Alcon was the general contractor at the site, having been retained to build an audio post production suite by non-party Janson Design Group LLC.

Underwriters issued Alcon a commercial general liability policy, CL 305375A (the “Primary Policy”), effective June 17, 2003 to June 17, 2004, with a $1,000,000 per occurrence limit. The main body of the Primary Policy set forth various exclusions, lettered “A” through “O” with subparts. Additional exclusions were contained in the separate endorsement pages supplementing the policy, including one entitled “Exclusion of Injury to Employees, Contractors and Employees of Contractors.” That section provided, in pertinent part, as follows:

This policy does not apply to:

* * *

(ii) “Bodily injury” to any contractor or any

“employee” of any contractor arising out ofor in the course of the rendering orperforming services of any kind or naturewhatsoever by such contractor or “employee”of such contractor for which any insured maybecome liable in any capacity . . . .

Alcon also obtained a commercial umbrella policy, No. EBU 7288966 (the “Umbrella Policy”) from National Union, a subsidiary of American International Group, Inc. (“AIG”). The Umbrella Policy was effective April 3, 2003 to April 3, 2004 and had a $4,000,000 per occurrence limit. The coverage was excess to the “Insured’s Retained Limited,” which was defined as “[t]he total of the applicable limits of the underlying polices listed in the Schedule of Underlying Insurance and the applicable limits of any other underlying insurance providing coverage to the Insured.” The Umbrella Policy also provided that National Union would undertake the duty to defend when “[d]amages are sought for Bodily Injury . . . covered by this policy but not covered by any underlying insurance listed in the Schedule of Underlying Insurance or any other underlying insurance providing coverage to the Insured.”

The Schedule of Underlying Insurance indicated that there was a general liability policy and an employer’s liability policy in effect. However, the schedule did not provide specific information about the policies, other than their dollar liability limits. In the space provided to identify the insurer, policy number and policy period, only dates appeared. The significance of [*3]the dates is not clear. If they were intended to indicate a policy period, it would be a period of zero years — 12/31/99 to 12/31/99.

The main body of the Umbrella Policy set forth a variety of coverage exclusions, lettered “A” through “T” with subparts. The exclusions included Alcon’s obligations under various laws (workers compensation, unemployment and disability benefits, ERISA, no-fault, uninsured and underinsured motorist) and damages to property owned, rented, occupied or used by Alcon. Also excluded was coverage for bodily injury or property damage caused or arising out of specified circumstances, e.g., use of watercraft, pollution, war. However, in at least three instances (injuries caused by fellow employees, watercraft and

intoxication), the relevant exclusion was qualified by the following language:

[I]f insurance for such Bodily Injury or Property Damage is provided by a policy listed in the Schedule of Underlying Insurance:

1. This exclusion shall not apply; and

2. The insurance provided by our policy

will not be broader than the insurance

coverage provided by the policy listed

in the Schedule of Underlying Insurance.

Numerous additional exclusions were set forth in the separate endorsements annexed to the Umbrella Policy. However, neither the body of the Umbrella Policy nor the endorsements contained an exclusion for bodily injury to a contractor’s employee.

The record indicates that the Umbrella Policy was procured through an application completed by a broker with the Brooks Insurance Agency, Inc. (“Brooks”). The application was completed electronically through an “e-Excess broker-interfacing underwriting platform” maintained by AIG Small Business (“AIGSB”), a member company of AIG. The application identified Underwriters as the underlying carrier, and in response to the question whether the Primary Policy was an “ISO Form with no manuscripted endorsements,” the broker responded “yes.” In response to the question whether there were “[a]ny exclusionary Endorsements attached to GL policy,” the broker answered “no.”

The Konieczny Action was commenced on by filing on August 19, 2005. The pleadings were served on the New York Secretary of State on September 6, 2005, which forwarded them to Alcon on September 13, 2005. The pleadings were provided to Underwriters by Alcon’s broker on September 14, 2005, and to National Union on September 15, 2005.

By letter dated September 15, 2005, Underwriters disclaimed coverage on the ground that Konieczny was the employee of a contractor and thus subject to the policy exclusion for such employees. Underwriters also disclaimed on the ground that Alcon failed to give notice of the accident until more than a year after its occurrence. After seeking additional information about the claim, National Union issued a disclaimer letter on March 3, 2006. In it, National Union cited late notice of the claim and asserted that it was also investigating whether it was entitled to rescind the policy based upon Alcon’s alleged misrepresentations regarding the existence of endorsements and exclusions in the Primary Policy. This action followed. [*4]

Discussion

For the following reasons, Underwriters’ motion is granted in its entirety and plaintiff’s motion cross motion as against Underwriters’ is denied. Plaintiff’s and National Union’s cross motions regarding the Umbrella Policy are both denied without prejudice to renewal following discovery on the issues of notice and the existence of other primary coverage.

Underwriters’ Motion for Summary Judgment

Underwriters’ motion for a declaration that it has no duty

to defend or indemnify Alcon under the Primary Policy is granted in its entirety. Although there may be questions of fact regarding whether Underwriters’ received timely notice of the claim (see discussion below in connection with the Umbrella Policy), coverage is defeated by the exclusion for bodily injury to contractors and their employees. The relevant language of Underwriters’ policy has repeatedly been held to be clear, unambiguous and enforceable (see, U.S. Underwriters Ins. Co. v 614 Constr. Corp., 142 F Supp 2d 491, 494-95 [SD NY 2001]; U.S. Underwriters Ins. Co. v Roka LLC, 2000 WL 1473607, at *4 [SD NY 2000]; U.S. Underwriters Ins. Co. v Zabar, 1999 WL 441472, at *3 [ED NY 1999]; U.S. Underwriters Ins. Co. v Beckford, 1998 WL 23754, at *3-4 [ED NY 1998]). Plaintiff’s argument that Konieczny does not fall within the exclusion because he was the employee of a “subcontractor” rather than a “contractor” has also been considered, and rejected, by the courts (see, Beckford, 1998 WL 23754, at 4 [“it is clear that the term contractor’ is a generic one, encompassing both general contractors and subcontractors; U.S. Underwriters Ins. Co. v Congregation Kollel Tisereth, Tzvi, 2004 WL 2191051, at *7 (ED NY 2004)]).

Without reference to this clear line of authority, Alcon attempts to distinguish this case on the ground that the Primary Policy itself gives separate, independent meanings to the terms “contractor” and subcontractor.” However, the only example provided by plaintiff is the policy’s use of the word “subcontractor” in an endorsement, where it appears in the heading of an amendment to an exclusion (“DAMAGE TO WORK PERFORMED BY SUBCONTRACTORS ON YOUR BEHALF”). The example only further weakens plaintiff’s argument, as the effect of the amendment is to remove a paragraph containing a reference to “subcontactors” from the main body of the policy.

Accordingly, Underwriters has no obligation to defend or indemnify Alcon in the Konieczny Action. Pursuant to the parties’ stipulation, the court will also issue a similar declaration regarding Underwriters’ obligations to Moklam.

Alcon’s and National Union’s Cross Motions For Summary Judgment

The cross motions of Alcon and National Union for summary judgment on the Umbrella Policy are both denied without prejudice. Although National Union’s attempt to disclaim on the ground that it was misled as to the nature of the primary coverage must be rejected, the record is not sufficiently developed to support a determination on whether the excess insurer received timely notice of the claim.

With regard to the misrepresentation defense, “[t]o establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, which show that it would not have issued the same policy if the correct information had been disclosed in the application” (Roudneva v Bankers Life Ins. Co. of NY,

35 AD3d 580 [2d Dept 2006]); see, Insurance Law § 3105[c]).In arguing that Alcon [*5]made a material misrepresentation regarding the scope of the Underwriters’ policy, National Union

points out that the e-Excess application incorrectly denied that the Underwriters’ policy was supplemented by manuscripted or exclusionary endorsements. To explain the materiality of this alleged misrepresentation, National Union has submitted an affidavit from an AIGSB assistant vice president, Patricia S. Fargis (“Fargis”), who asserts that it was the practice of AIGSB’s Excess Casualty Division to “match” all exclusions and endorsements in the underlying policies. Thus, Fargis claims that if the application had correctly admitted that the underlying policy contained exclusions and endorsements, it would have been referred to an AIGSB underwriter for review to insure that the Umbrella Policy contained identical ones, including the exclusion for bodily injury to contractors and employees. Fargis states that because no endorsements were indicated, no underwriter review was triggered and the policy was simply issued by an administrative employee, Sara Chazin (“Chazin”).

The Fargis affidavit is problematic in a number of regards. For example, it admits that “AIGSB did not maintain any written guidelines regarding its practice of matching all exclusions and endorsements.” Furthermore, Fargis’ assertion as to whether and how Chazin processed the application is made upon information and belief, and Chazin identified as an “underwriter” rather than an administrative employee on the “Underwriting Checklist” supplied by National Union. There is also some question as to whether the Brooks agency was acting as agent for the insurer or the insured, and thus whether the alleged misrepresentations are chargeable to Alcon at all.

These issues need not be further explored, however, because information gleaned from the policies themselves belie National Union’s claim that the terms of the Primary Policy were material to its decision to insure or that it acted in reliance on any misrepresentations. First, it is undisputed that the Umbrella Policy was issued in April 2003, several months before the Primary Policy was issued. National Union’s policy thus could not have been issued in reliance upon anything contained in or annexed to the later-issued Primary Policy.

Second, the Schedule of Underlying Insurance in the Umbrella Policy does not meaningfully identify any underlying policy. Even if it is assumed that a predecessor policy to the Primary Policy was in effect when the Umbrella Policy was issued in April 2003 (and that the alleged misrepresentations were made in connection with the predecessor policy), that predecessor policy was not identified in the Schedule either. As noted, the Schedule merely refers to a “general liability” policy with a 12/31/99 to 12/31/99 term. Accordingly, the Umbrella Policy confirms that National Union did not issue it in reliance upon the terms of any underlying policy.

Third, Fargis’ claim that National Union’s had a mandatory “matching” policy with respect to exclusions and endorsements is refuted by a comparison of the Primary and Umbrella Policies. The multi-part exclusions set forth in the main body of the Primary Policy are not identical to those in the Umbrella Policy. Moreover, some of the exclusions the Umbrella Policy provided that they would be applicable if underlying policy provided coverage, while other exclusions applied regardless of underlying coverage. The Umbrella Policy was also supplemented by a series of endorsements containing exclusions not found in the Primary Policy.

Finally, the Umbrella Policy specifically anticipated that circumstances might exist where National Union’s coverage obligations would be broader that the underlying insurer. As [*6]noted, National Union obligated itself to defend bodily injury claims which were “covered by this policy but not covered by any underlying insurance.” While excess insurers do often issue policies which “follow form” and adopt only the language of the underlying policy (see, Matter of the Liquidation of Midland Insurance Co., ___ NYS2d ___, 2008 WL 1989667 [Sup Ct NY Co 2008]; Appleman on Insurance 2d § 145.1 at 6 [2003]), the Umbrella Policy at issue is not such a policy. Indeed, no effort was made by National Union to even examine the underlying policy, with or without endorsements.

Notwithstanding that the Umbrella Policy may provide coverage to plaintiff, the timeliness of plaintiff’s notice to National Union must first be resolved. That determination cannot be made on the present record. Although the nearly eighteen-month delay between the accident and notice to National Union would ordinarily defeat coverage (see, Those Certain Underwriters at Lloyds, London v Gray, 49 AD3d 1 [1st Dept 2007]; Deso v London & Lancashire Indem. Co. of Am., 3 NY2d 127 [1957]), such a lapse may be excused where the insured lacked knowledge of the accident (see, White by White v City of NY, 81 NY2d 955, 957 [1993]; Security Mut. Ins. Co. of New York v Acker-Fitzsimons,

31 NY2d 436, 441 [1972]). Here, plaintiff alleges that it was not aware of the accident until it was served with the complaint, an assertion supported by an affidavit from a corporate officer who states that he questioned plaintiff’s employees upon receipt of the pleadings and determined that no one was aware of the incident. Defendant is, of course, entitled to investigate the lack of knowledge claim by deposing plaintiff’s officers, employees and the injured worker, and seeking whatever documentary or other evidence may exist regarding the accident and whether it was reported. Accordingly, the motions of Alcon and National Union for declarations regarding the coverage issue are denied without prejudice pending the completion of such discovery.

Accordingly, it is

ORDERED, that the motion of defendant U.S. Underwriters Insurance Company for summary judgment is granted in its entirety, and it is further

ADJUDGED and DECLARED that defendant U.S. Underwriters Insurance Company is not obligated to defend or indemnity plaintiff Alcon Builders Group, Inc. or third-party defendant Moklam Enterprises, Inc. in the action entitled Andrzej Konieczny v. Moklam Enterprises, Inc., Alcon Building Group, Inc. Rockstar Games, Inc. and Take 2 Interactive, Inc.,(New York County Index No. 111640/05) and it is further

ORDERED, that the cross motions of plaintiff and defendant National Union National Union Fire Insurance Company of Pittsburgh, PA for summary judgment are denied without prejudice to renewal upon completion of discovery on the issue of timely notice of claim to the National Union, and it is further

ORDERED, that the Clerk shall enter judgment accordingly.

Dated: July 1, 2008

ENTER:

Helen E. Freedman, J.S.C.

Appearances

Attorneys for Plaintiff Alcon Builders Group, Inc.

Finger & Finger

158 Grand Street

White Plains, New York 10601

(914) 949-0308

By: Daniel S. Finger, Esq.

Attorneys for Defendant National Union Fire Insurance Company of Pittsburgh, PA

Sedgwick, Detert, Moran & Arnold

125 Broad Street, 39th Floor

New York, New York 10004

(212) 422-0202

By: Lawrence Klein, Esq.

Attorneys for Defendant/Third-Party Plaintiff U.S. Underwriters Insurance Company

Miranda Sokoloff Sambursky Slone Verveniotis LLP

240 Mineola Boulevard

Mineola, New York 11501

(516) 741-7676

By: Steven Verveniotis, Esq. and Todd M. Hellman, Esq.

Attorneys for Third Party Defendant Moklam Enterprises, Inc.

Dwyer & Brennan, Esq.

7 Dey Street, Suite 1401

New York, New York 10007

(212) 571-4067

By: Gerald Dwyer, Esq.

Attorneys for Third Party Defendant Andrzej Konieczny

Perecman & Fanning, PLLC

250 West 57th Street, Suite 401

New York, New York 10107 [*7]

(212) 977-7033

By: Mariusz Sniarowski, Esq.

Footnotes

Footnote 1: That branch of Underwriters’ motion which sought a declaration that it was not obligated to defend or indemnify third party defendant Moklam Enterprises, Inc. in the Konieczny Acton was resolved by stipulation dated October 8, 2007, in which Moklam agreed that it was not covered and stated that it did not oppose the declaration.