Savik v. ITT Hartford Insurance Group , 927 N.Y.2d 634 ( 2011 )

This is an action for a judgment granting reimbursement of defense costs and declaring that defendants, plaintiffs insurers, were obligated to defend and indemnify plaintiff in an arbitration proceeding brought by Farmingdale Development Corporation (FDC). On this record, we find, as a matter or law, that Hartford and QBE did not receive timely notice of the underlying occurrence as required by their respective policies. Plaintiff is a limited liability company managed by Frank Vero, Sr. and two other managing members. In 1998, plaintiff began its work as the construction manager in the development of a shopping center pursuant to a written agreement with FDC, the owner. As to this project, plaintiff was an additional insured under standard commercial general liability policies issued by Hartford and QBE. A third carrier, defendant the Insurance Corp. of New York, is now in rehabilitation. Aurora Construction, Inc. performed construction management duties on behalf of plaintiff. Vero, who was Aurora’s president, owned its stock solely or jointly with his son at different times. Plaintiff left the job site in May 2000, three months after the project was substantially completed. As confirmed by a September 1999 letter signed by Joseph Koslow, plaintiff’s project executive, the project had been plagued by numerous ongoing roof leaks.^*

On or about May 12, 2004, FDC served plaintiff with an arbitration demand, which cited plaintiff’s failure to take action with respect to the construction of the project’s roofing system and parapets. According to the arbitration demand, extensive roof leaks occurred in all of the project’s buildings. It was not until June 4, 2004 that plaintiff notified Hartford and QBE of FDC’s claim or the occurrence. Both carriers thereupon issued reservation of rights letters and, after plaintiff commenced this action, moved for summary judgment. The grounds for summary judgment asserted by Hartford and QBE included plaintiffs purported breach of a provision in each of their policies that required plaintiff, as the insured, to notify the respective carrier, as soon as practicable, of “an ‘occurrence’ or an offense which may result in a claim.” The motion court granted summary judgment and dismissed the complaint on the ground that the underlying claim came under the work product exclusion of each of the applicable policies. Upon granting leave to reargue, the court again ruled in favor of Hartford and QBE, finding that the costs FDC sought to recover in the underlying arbitration arose out of plaintiffs work product. For reasons that follow, the judgment below should be modified on the late notice-of-occurrence ground that was asserted by Hartford and QBE but never addressed by the motion court.

“Where a policy of liability insurance requires that notice of an occurrence be given ‘as soon as practicable,’ such notice must be accorded the carrier within a reasonable period of time” (Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d 742, 743 [2005] [citation omitted]). “The insured’s failure to satisfy the notice requirement constitutes ‘a failure to comply with a condition precedent which, as a matter of law, vitiates the contract’ ” (id. [citation omitted]). Nevertheless, circumstances that give rise to an insured’s “good-faith belief of nonliability may excuse or explain a seeming failure to give timely notice” (Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d 436, 441 [1972]).

By an August 11, 2003 letter to the roofing manufacturer, John A. Buchholz, the project’s architect stated, among other things, that FDC was prepared to have the roof leaks repaired and begin litigation with plaintiff and others. The letter indicates that it was carbon copied to Vero. Plaintiff does not challenge the admissibility of the letter. Instead, plaintiff coyly asserts that there is nothing in the record to confirm that Vero received a copy of the letter. This assertion rings hollow as plaintiff has not submitted an affidavit on this or any other issue by Vero or, for that matter, either of plaintiffs other two members. To be sure, plaintiff never denied that it received Buchholz’s letter in 2003. Plaintiff skirted the issue of notice of the occurrence by submitting the affidavit of Nicholas R. Aldorisio, Aurora’s chief financial officer, who merely stated that “[t]he first actual notice to [plaintiff] of an affirmative claim by Farmingdale occurred when [plaintiff] received Farmingdale’s demand for arbitration on or about May 2004.” Aldorisio’s affidavit begs the question because it addresses plaintiffs receipt of a formal claim as opposed to its knowledge of an “ ‘occurrence’ or offense which may result in a claim.” An insured’s duty to timely report an occurrence is distinct from its duty to report a claim (American Tr. Ins. Co. v Sartor, 3 NY3d 71, 75 [2004]).

Hartford and QBE made prima facie showings of entitlement to judgment as a matter of law based upon plaintiffs 41/2-year delay in notifying them of the occurrence (see e.g. Sorbara Constr. Corp. v AIU Ins. Co., 11 NY3d 805, 806 [2008]). In opposition, plaintiff was required to demonstrate the existence of actual issues of fact by assembling and laying bare proofs in order to show that its claims are capable of being established at trial (cf. Machinery Funding Corp. v Loman Enters., 91 AD2d 528, 528 [1982]). On the basis of the construction management agreement, the dissent posits that there is an issue of fact as to whether plaintiff had a reasonable belief in its nonliability. The record does not support the dissent’s conclusion because there is no affidavit setting forth what plaintiff believed or did not believe at the time of the occurrence or thereafter. For this reason, plaintiff’s failure to submit an affidavit by any of its members is fatal. Hence, plaintiff has failed to raise a triable factual issue as to whether there was a reasonable excuse for its delay in notifying Hartford and QBE of the occurrence.

We also reject plaintiffs claim of a reasonable excuse. In Ferreira v Mereda Realty Corp. (61 AD3d 463 [2009]), we found that “the insureds could not have reasonably believed that there would be no litigation arising out of the accident,” once they acquired knowledge of the seriousness of the underlying injury. In Eveready Ins. Co. v Levine (145 AD2d 526, 528 [1988]), the Second Department found that an insured’s “bare reliance upon the fact that no one complained of any bodily injuries at the time of the accident” did not excuse the insured’s failure to notify its carrier until after suit was commenced. By contrast, in Kambousi Rest, Inc. v Burlington Ins. Co. (58 AD3d 513, 515 [2009]), we held that a good faith belief in nonliability was established by statements and actions of an injured patron and her husband that led the insured restauranteur to believe that the couple would not seek to hold the insured liable for a trip- and-fall accident. Like the insureds in Ferreira and Eveready, plaintiff appreciated the seriousness of the occurrence and its potential for liability. Indeed, as footnoted above, early on in the project, plaintiffs project executive saw fit to advise a subcontractor to notify its own carrier about the “disaster.” Unlike the insured in Kambousi, however, plaintiff offered no evidence of any representation that could have reasonably led it to believe that FDC would not seek to hold it liable.

Correspondence sent by Aurora also establishes when plaintiff acquired notice of the underlying occurrence. On or about December 4, 2003, Aurora apparently faxed a letter from Buchholz to plaintiffs counsel. The fax cover sheet reads as follows: “Attached please find a letter received from John Buchholz regarding the roof leak issue at Airport Plaza. We have written correspondence in the past detailing our position as construction manager. Please draft an appropriate response.” By way of another fax cover sheet, dated February 2, 2004, Aurora informed counsel that it appeared that the owner was blaming Aurora for the leaks. Although they are separate entities, Aurora was plaintiff’s agent. It is settled that knowledge acquired by an agent acting within the scope of its authority is presumptively imputed to its principal (Kirschner v KPMG LLP, 15 NY3d 446, 465 [2010]). Plaintiff has failed to rebut this presumption, particularly in light of its close relationship with Aurora.

“An insurer’s duty to defend is liberally construed and is broader than the duty to indemnify,” in order to ensure an adequate defense of the insured, “without regard to the insured’s ultimate likelihood of prevailing on the merits of a claim” (Fieldston Prop. Owners Assn., Inc. v Hermitage Ins. Co., Inc., 16 NY3d 257, 264 [2011]). A liability insurer has a duty to defend its insured in pending litigation if the pleadings allege a covered occurrence, even though the facts outside the four corners of those pleadings indicate that the claim may be merit-less or not covered (Fitzpatrick v American Honda Motor Co., 78 NY2d 61, 63 [1991]). Thus, timely notice of the occurrence would have required Hartford and QBE to defend plaintiff in the arbitration proceeding inasmuch as the owner’s arbitration claim included the costs of the repair of water damage and the remediation of mold conditions in various tenant spaces. Such costs would be associated with a legal liability incurred by property damage to something other than plaintiffs work product (see e.g. George A. Fuller Co. v United States Fid. & Guar. Co., 200 AD2d 255, 259 [1994], Iv denied 84 NY2d 806 [1994]). In any event, plaintiffs failure to provide Hartford and QBE with timely notice of the underlying occurrence is dispositive.

As this is an action for a declaratory judgment, the rights of the parties should have been declared (see Medical World Publ. Co. v Kaufman, 29 AD2d 859 [1968]). The mere dismissal of the complaint, as recited by the judgment the court adhered to, is not an affirmative declaration of the parties’ rights (id.). Accordingly, the rights of the parties are declared as indicated above (see e.g. 600 W. 115th St. Corp. v 600 W. 115th St. Condominium, 180 AD2d 598, 598 [1992]). Concur — Sweeny, DeGrasse and Abdus-Salaam, JJ.

* In the letter, Koslow advised the addressee, a subcontractor, to notify its insurance company of the problem, which Koslow described as an apparent “disaster on our hands” (emphasis added).