Maxum Indemnity Company v. VLK Construction Inc. et al

Filing 46

MEMORANDUM, ORDER AND JUDGMENT: granting 45 Motion for Summary Judgment: For the reasons stated in the attached written Order, it is hereby ORDERED, ADJUDGED AND DECREED 1) that Maxum had no duty to defend VLK, Mocal, or Masterpiece in the underl ying action; 2) that Maxum's motion for summary judgment against Arriaga is granted, and Maxum shall not be held liable for any damages owed to Arriaga; 3) that Maxum's motion for default judgment against VLK is granted, and Maxum shall ta ke from VLK the total amount of $12,289.12, representing costs that Maxum is entitled to recoup from VLK in connection with defending VLK in the underlying action. The Clerk of Court is directed to send a copy of this Memorandum, Order and Judgment to VLK, and close the case.. Ordered by Judge Roslynn R. Mauskopf on 9/8/2016. (Mauskopf, Roslynn)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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MAXUM INDEMNITY COMPANY,
Plaintiff,
MEMORANDUM, ORDER AND
JUDGMENT
14-CV-1616 (RRM) (LB)

- against VLK CONSTRUCTION, INC., EDWIN ARRIAGA,
MASTERPIECE U.S., INC., and MOCAL
ENTERPRISES, INC.,
Defendants.
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ROSLYNN R. MAUSKOPF, United States District Judge.

Maxum Indemnity Company (“Maxum”) commenced this action against defendants VLK
Construction, Inc. (“VLK”), Edwin Arriaga, Masterpiece U.S., Inc. (“Masterpiece”), and Mocal
Enterprises, Inc. (“Mocal”), seeking declaratory relief concerning the prospective rights and
obligations of the parties under an insurance policy it issued to VLK. (Compl. (Doc. No. 1).)
Arriaga, Masterpiece, and Mocal filed answers, while the Clerk of Court entered default against
VLK. Maxum now moves for summary judgment against Arriaga and default judgment against
VLK. (Mot. (Doc. No. 45).) For the reasons below, Maxum’s motions are granted.
BACKGROUND1
Maxum, a specialty insurance company, issued an insurance policy to VLK for the period of
September 7, 2012 to September 7, 2013 (the “Policy”). (Policy No. BDG0068230-01 (Doc. No.
45-4).) The Policy states as follows:
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 inured against

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The following facts – drawn from Maxum’s Local Rule 56.1 statement and the submissions filed in connection with
this motion – are undisputed.

any “suit: seeking damages for “bodily injury” or “property damage” to which this
insurance does not apply.
(Id. at 27 (ECF pagination).)
The Policy also includes an endorsement entitled “EXCLUSION – INJURY TO
EMPLOYEES, WORKERS OR CONTRACTED PERSONS OF INSUREDS OR CONTRACTED
ORGANIZATIONS.” (Endorsement (Doc. No. 45-4) at 71–72 (ECF pagination) (hereinafter
“Employer’s Liability Exclusion”).) Under the Employer’s Liability Exclusion:
This insurance does not apply to “bodily injury” to:
1. Any person who is an “employee”, “leased worker”, “temporary worker”, or
“volunteer worker” of you or any insured arising out of and in the course of:
(a) Employment by you or any insured; or
(b) Performing duties related to the conduct of your or any insured’s
business;
2. Any person who contracted with you or with any insured for services arising out
of and in the course of performing duties related to the conduct of your or any
insured’s business;
3. Any person performing work that you have the authority to control or supervise,
whether that person is an “employee”, “leased worker”, “temporary worker”, or
“volunteer worker” of you or any other person or organization;
4. Any person who is employed by, is leased to or contracted with any organization
that:
(a) Contracted with you or with any insured for services; or
(b) Contracted with others on your behalf for services;
Arising out of and in the course of employment by that organization or
performing duties related to the conduct of that organization’s business;
or
5. The spouse, child, parent, brother or sister of any of those persons as a
consequence of the “bodily injury” described in Paragraph 1, 2, 3, or 4 above.
For the purposes of this exclusion, contracted with includes with an oral or written
contract.
This exclusion applies:
1. Whether the insured may be liable as an employer or in any other capacity; and
2. Whether the insured may have any obligation to share damages with or repay
someone else who must pay damages.
(Id.)

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I.

The Underlying Action2
On December 31, 2012, Arriaga, a VLK employee, was injured while working on a

construction project during the course of his employment. The project site was owned by Mocal,
who had hired Masterpiece as the general contractor. (Underlying Action Compl. (Doc. No. 45-5)
at ¶¶ 6, 12–13.) Arriaga brought a personal injury action against Mocal and Masterpiece in the
Supreme Court of the State of New York, Kings County. (Id. at 1.) Mocal and Masterpiece then
initiated a third-party action against VLK for common-law indemnity, contractual indemnity,
contribution, and breach of contract. (Underlying Action Notice of Impleader (Doc. No. 45-6);
Underlying Action Third Party Compl. (Doc. No. 45-6) at 7–11 (ECF pagination).)
On January 21, 2014, VLK requested Maxum defend it against the third-party action.
(1/21/14 Ltr. (Doc. No. 45-7).) On January 30, 2014, Maxum denied coverage due to the
Employer’s Liability Exclusion, but offered VLK a courtesy defense in the third-party action
pending the resolution of the present action before the undersigned. (1/30/14 Ltr. (Doc. No. 45-8).)
II.

The Present Action
On March 11, 2014, Maxum filed the present action seeking a declaration that Maxum has

no obligation to defend and indemnify VLK, Mocal, or Masterpiece in connection with the
underlying action. (Compl.) Mocal and Masterpiece counterclaimed against Maxum, claiming
their right to additional insured coverage. (Defs.’ Counterclaims (Doc. Nos. 11, 22).) VLK failed
to respond to the complaint and its default was noted on the docket. (Clerk’s Entry of Default (Doc.
No. 17).) On November 5, 2015, after the completion of discovery, Mocal and Masterpiece
stipulated that they were withdrawing their counterclaims, acknowledging that the Policy did not
cover them as additional insured. (Pl.’s 56.1 (Doc. No. 45-1) at ¶ 19; Stipulation (Doc. No. 44).)

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The underlying action, Arriaga v. Mocal Enterprises, Inc. et al., Index No. 504266/13, was initiated in the Supreme
Court of the State of New York, Kings County.

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On November 9, 2015, Maxum moved for summary judgment against Arriaga and default
judgment against VLK. As an initial matter, Maxum seeks a declaratory judgment that the
Employer’s Liability Exclusion bars coverage of the underlying action. From there, Maxum seeks
summary judgment against Arriaga because it is not liable for any damages that may be awarded to
Arriaga in the underlying action as “third-party claims against VLK are predicated on its
employer’s liability, which is excluded from coverage under the Policy.” (Pl.’s Mem. L. (Doc. No.
45-2) at 7.) Arriaga “has no position on any contractual or coverage issues.” (5/15/15 Arriaga Ltr.
(Doc. No. 41) at 1.) Maxum also seeks default judgment against VLK “to recoup the $12,289.12
incurred in defending VLK in the third-party action despite there being no contractual obligation to
do so” because “the Policy provides no coverage for the matters alleged against VLK in the thirdparty action.” (Pl.’s Mem. L. at 6.)
STANDARD OF REVIEW
I.

Summary Judgment Standard
Summary judgment is appropriate when the pleadings, depositions, interrogatories,

admissions, and affidavits demonstrate that there are no genuine issues of material fact in dispute
and that one party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986). A genuine issue of material fact exists “if the evidence
is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986).
In determining whether a genuine issue of material fact exists, the evidence of the nonmovant “is to be believed” and the Court must draw all “justifiable” or “reasonable” inferences in
favor of the non-moving party. Id. at 255 (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 158–
59 (1970)); see also Brosseau v. Haugen, 543 U.S. 194, 195 n.2 (2004). Nevertheless, once the
moving party has shown that there is no genuine issue as to any material fact and that it is entitled to
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a judgment as a matter of law, “the nonmoving party must come forward with ‘specific facts
showing that there is a genuine issue for trial,’” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986) (quoting Fed. R. Civ. P. 56(e)), and “may not rely on conclusory
allegations or unsubstantiated speculation,” Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998)
(collecting cases). In other words, the nonmovant must offer “concrete evidence from which a
reasonable juror could return a verdict in his favor.” Anderson, 477 U.S. at 256. Where “the
nonmoving party bears the burden of proof at trial, summary judgment is warranted if the
nonmovant fails to make a showing sufficient to establish the existence of an element essential to
[its] case.” Nebraska v. Wyoming, 507 U.S. 584, 590 (1993) (quoting Celotex, 477 U.S. at 322)
(internal quotation marks omitted) (alteration in original). Thus, “[a] defendant moving for
summary judgment must prevail if the plaintiff fails to come forward with enough evidence to
create a genuine factual issue to be tried with respect to an element essential to its case.” Allen v.
Cuomo, 100 F.3d 253, 258 (2d Cir. 1996) (citing Anderson, 477 U.S. at 247–48).
II.

Default Judgment Standard
Rule 55(a) of the Federal Rules of Civil Procedure provides that, “[w]hen a party against

whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that
failure is shown by affidavit or otherwise, the clerk must enter the party’s default.” Fed. R. Civ. P.
55(a). Rule 55 sets forth a two-step process for entry of a default judgment. See Enron Oil Corp. v.
Diakuhara, 10 F.3d 90, 95–96 (2d Cir. 1993). First, the Clerk of Court enters the default pursuant
to Rule 55(a) by notating the party’s default on the docket. See id. Second, after the Clerk of Court
enters a default against a party, the moving party may then make an application for entry of default
judgment, and if the defaulting party fails to appear or otherwise move to set aside the default
pursuant to Rule 55(c), the Court may enter a default judgment. See Fed. R. Civ. P. 55(b).

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“A default constitutes an admission of all well-pleaded factual allegations in the complaint
and the allegations pertaining to liability are deemed true,” Gesualdi v. Blue Jay Estates Dev.
Corp., No. 13-CV-6171 (ADS), 2015 WL 1247079, at *4 (E.D.N.Y. March 18, 2015) (citing Fed.
R. Civ. P. 8(b)(6)) (collecting cases), except those allegations relating to damages. See Au Bon Pain
Corp., 653 F.2d at 65. “Allegations are not well pleaded if they are ‘made indefinite or erroneous
by other allegations in the same complaint[,] . . . are contrary to facts of which the court will take
judicial notice, . . . are not susceptible of proof by legitimate evidence, or . . . are contrary to
uncontroverted material in the file of the case.’” AW Indus., Inc. v. Sleepingwell Mattress Inc., No.
10-CV-4439 (NGG) (RER), 2011 WL 4404029, at *4 (E.D.N.Y. Aug. 31, 2011) report and
recommendation adopted, 2011 WL 4406329 (E.D.N.Y. Sept. 21, 2011) (quoting Trans World
Airlines, Inc. v. Hughes, 449 F.2d 51, 63 (2d Cir. 1971), rev’d on other grounds, 409 U.S. 363, 93
(1973)). Likewise, “conclusory allegations based on information and belief” will not suffice to
support a finding of default-based liability. J & J Sports Prods., Inc. v. Daley, No. 06-CV-238
(ERK), 2007 WL 7135707, at *3–4 (E.D.N.Y. Feb. 15, 2007).
The burden is on the plaintiff to establish his entitlement to recovery. See Greyhound
ExhibitGroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992). Thus, even if a
plaintiff’s claims are deemed admitted, a plaintiff must nonetheless demonstrate that the allegations
set forth in the complaint state valid claims. See Krevat v. Burgers to Go, Inc., No. 13-CV-6258
(JS), 2014 WL 4638844, at *7 (E.D.N.Y. Sept. 6, 2014). The Court must “consider whether the
unchallenged facts constitute a legitimate cause of action, since a party in default does not admit
conclusions of law.” Balady, Inc. v. Elhindi, No. 14-CV-855 (SJ), 2014 WL 7342867, at *3
(E.D.N.Y. Dec. 23, 2014) (internal quotation marks and citation omitted). The party moving for
default is “entitled to all reasonable inferences from the evidence offered.” Finkel v. Romanowicz,
577 F.3d 79, 84 (2d Cir. 2009) (quoting Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (1981)).
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DISCUSSION
As discussed more fully below, the undisputed facts show that the Employer’s Liability
Exclusion in the Policy bars coverage of VLK, and any additional insured, in the underlying action
initiated by Arriaga against Mocal and Masterpiece. Further Mocal and Masterpiece have stipulated
that they were not additional insured under the Policy. Accordingly, Maxum is entitled to summary
judgment against Arriaga as it may not be held liable for any damages awarded to Arriaga in the
underlying action. Additionally, Maxum is entitled to default judgment against VLK in the amount
of its costs incurred in defending VLK in the underlying action. Arriaga “has no position on any
contractual or coverage issues” and does not oppose the motion or raise any disputes of fact. (See
5/15/15 Arriaga Ltr.) As such, there are no factual disputes and, as discussed below, Maxum has
shown that it is entitled to judgment as a matter of law because the Policy bars coverage in the
underlying action, Masterpiece and Mocal were not insured under the Policy, and Maxum timely
notified the parties that the Policy barred coverage of the underlying action. See Fed. R. Civ. P.
56(c).
I.

The Employer’s Liability Exclusion Bars Coverage in the Underlying Action
The Policy’s Employer’s Liability Exclusion on its face to bars coverage in the underlying

action. The Employer’s Liability Exclusion explicitly excludes bodily injury to employees of the
insured that occur in the course of the employment:
This insurance does not apply to “bodily injury” to:
1. Any person who is an “employee”, “leased worker”, “temporary worker”, or
“volunteer worker” of you or any insured arising out of and in the course of:
(a) Employment by you or any insured; or
(b) Performing duties related to the conduct of your or any insured’s
business;
(Employer’s Liability Exclusion at 71 (ECF pagination).)
In the underlying action, it is specifically alleged that Arriaga was an employee of VLK, the
named insured or “you” in the Policy and all endorsements, including the Employer’s Liability
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Exclusion quoted above. (Policy at 27 (ECF pagination) (“[T]he words ‘you’ and ‘your’ refer to the
Named Insured.”).) It is further specifically alleged that Arriaga was injured in the course of his
employment with VLK. As such, the Exclusion applies on its face to bar coverage to VLK (“you”)
for injuries sustained by Arriaga (“an ‘employee’ . . . of you”) in the course of his employment by
VLK (“Employment by you”). (See Employer’s Liability Exclusion at 71 (ECF pagination).)
Moreover, “New York courts have held that employee exclusionary clauses containing the
same or similar language are plain and unambiguous . . . .” Lake Carmel Fire Dep’t v. Utica First
Ins. Co., 784 N.Y.S.2d 921 (Sup. Ct. 2004) (quoting Moleon v. Kreisler Borg Florman Gen. Const.
Co., 304 A.D.2d 337, 340 (1st Dep’t 2003)). Accordingly, the Exclusion applies on its face to bar
coverage of VLK in the underlying action.
a. Masterpiece and Mocal Were Not Additional Insureds Under the Policy
It is undisputed that there was no additional insured coverage under the Policy. Not only is
there no additional insured endorsement attached to the Policy, but Masterpiece and Mocal have
stipulated as much. Specifically, Masterpiece and Mocal have stipulated “that there is no Insurance
coverage for Masterpiece and Mocal under the Maxum insurance policy issued to VLK
Construction, Inc. (“VLK”) at issue in the captioned action.” (Stipulation at 1.)
Moreover, even had the policy included an additional insured endorsement, the Employer’s
Liability Exclusion would still bar coverage in the underlying action as it was initiated by an
employee of the named insured. (See Employer’s Liability Exception.) See Soho Plaza Corp. v.
Birnbaum, 108 A.D.3d 518, 521 (2d Dep’t 2013) (holding that the plain meaning of a similar
exclusion “was that the Utica policy did not provide coverage for damages arising out of bodily
injury sustained by an employee of any insured in the course of his or her employment” regardless
of the “additional insured endorsement”); Moleon, 304 A.D.2d at 340 (holding that a similarly
worded exception “applies to exclude coverage to an additional insured where, as here, the main
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action is brought against such additional insured by the employee of a named insured”); see also
Bassuk Bros. v. Utica First Ins. Co., 1 A.D.3d 470, 471 (2d Dep’t 2003) (holding that the plain
meaning of a similar exclusion “was to relieve Utica of liability when an insured or additional
insured was sued or contribution was requested for damages arising out of bodily injury to an
employee sustained in the course of employment.”); Lake Carmel Fire Dep’t, 784 N.Y.S.2d 921
(“The employee exclusion clauses contained in the policy issued by defendant Utica operate to
preclude coverage for both Fire Department and NAK for the injuries suffered by Palacios during
the course of his employment for NAK.”).
b. Timely Disclaimer
The undisputed facts also show that Maxum gave timely notice to the parties in the
underlying action that it would not provide coverage. Under New York Insurance Law, if “an
insurer shall disclaim liability or deny coverage for . . . bodily injury arising out of . . . 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. L. § 3420(d)(2). “The obligation to give notice of disclaimer of
liability ‘as soon as is reasonably possible’ ‘is measured from the point in time when the insurer
first learns of the grounds for disclaimer of liability or denial of coverage.’” Century Sur. Co. v.
Franchise Contractors, LLC, No. 14-CV-277 (NRB), 2016 WL 1030134, at *5 (S.D.N.Y. Mar. 10,
2016) (quoting First Fin. Ins. Co. v. Jetco Contracting Corp., 1 N.Y.3d 64, 68–69 (2003)).
Generally, this timely disclaimer “is considered a condition precedent to the insurer’s obligation to
defend or indemnify the insured.” Temple Const. Corp. v. Sirius Am. Ins. Co., 40 A.D.3d 1109,
1111 (2007) (internal citation omitted).
Here, Maxum was informed of the underlying action on January 22, 2014. Eight days later,
on January 30, 2014, Maxum disclaimed coverage. Under the circumstances of this case,
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disclaimer within eight days is reasonable. See id. at 1112 (“Sirius disclaimed as to Temple within
a period of approximately eight days, which, as a matter of law, cannot be deemed unreasonable.”).
Accordingly, Maxum complied with the timely disclaimer requirement.
II.

Maxum is Entitled to Summary Judgment Against Arriaga
Maxum has established that it is entitled to summary judgment against Arriaga because it

may not be held liable for any damages owed to Arriaga by Mocal, Masterpiece, or VLK. As
discussed above, pursuant to the Employer’s Liability Exclusion, the Policy excludes coverage for
actions brought by employees of the named insured injured in the course of employment. As such,
Maxum would not be liable for any recovery owed by VLK. Maxum would additionally not be
liable for any recovery owed by Mocal or Masterpiece because they were not covered by the Policy
and, even if they were, the Employer’s Liability Exclusion would still bar coverage. As such,
Maxum has established that it is entitled to summary judgment against Arriaga.
III.

Maxum is Entitled to Default Judgment Against VLK
Maxum has also established that it is entitled to default judgment against VLK in the amount

of $12,289.12, its costs incurred in defending VLK in the underlying action. VLK has failed to
appear in this case and the Clerk of Court entered a notice of default on the record on May 16, 2014.
(Clerk’s Entry of Default.) As analyzed above, Maxum has established that the facts in the
complaint, as supported by the undisputed, authenticated documentary evidence submitted with the
Suben Declaration, entitle it to the relief requested.
The well-pleaded factual allegations in the complaint demonstrate that Maxum was not
required to cover VLK in the underlying action based on the Employer’s Liability Exclusion.
Further, Maxum not only provided notice to VLK that it reserved its right to recoup its costs
defending VLK in the underlying action before the costs were incurred, but it also clearly pleaded
its claim for relief in the complaint, served on VLK in accordance with New York law. (1/30/14
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Ltr.; Aff. of Service (Doc. No. 4).) As such, and for the reasons that follow, default judgment is
warranted.
a. Maxum is Entitled to Recoup its Costs Defending VLK in the Underlying Action
“Generally, New York law provides that where coverage is disputed and a liability policy
includes the payment of defense costs, ‘insurers are required to make contemporaneous interim
advances of defense expenses . . . , subject to recoupment in the event it is ultimately determined no
coverage was afforded.’” Axis Reinsurance Co. v. Bennett, No. 07-CV-10302 (GEL), 2008 WL
2600034, at *2 (S.D.N.Y. June 27, 2008) (quoting Nat’l Union Fire Ins. Co. of Pittsburgh, PA. v.
Ambassador Grp., Inc., 157 A.D.2d 293, 299 (1st Dep’t 1990)). “In order to be entitled to
reimbursement of defense costs, the insurer must explicitly advise the named insured that it was
reserving its right to seek reimbursement against the named insured in the event it is determined the
insurer had no defense obligation, and the insured must not object to the reservation.” Century Sur.
Co. v. Franchise Contractors, LLC, No. 14-CV-277 (NRB), 2016 WL 1030134, at *5 (S.D.N.Y.
Mar. 10, 2016).
In its January 30, 2014 letter, Maxum informed VLK that it “as a courtesy, will appoint
defense counsel to defend VLK in the third-party action,” but that it “reserves all of its rights to
withdraw the defense upon a declaration of non-coverage and to recoup defense costs incurred in
defending the third-party action despite there being no contractual obligation to do so.” (1/30/14
Ltr. at 1.) VLK never objected to the reservation. Accordingly, Maxum has established that it is
entitled to recoup its defense costs from VLK in the amount of $12,289.12. (Bill Analysis Report
(Doc. No. 45-23).) See Am. Family Home Ins. Co. v. Delia, No. 12-CV-5380 (ADS) (WDW), 2013
WL 6061937, at *6 (E.D.N.Y. Nov. 15, 2013) (“Because American had no obligation to defend
Delia, it is entitled to reimbursement of the monies it spent on that defense, and the invoices

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reflecting defense costs in the third party action show the amount owing to be as stated,
$41,227.95.”)
CONCLUSION
For the foregoing reasons, it is hereby ORDERED, ADJUDGED AND DECREED
1) that Maxum had no duty to defend VLK, Mocal, or Masterpiece in the underlying action;
2) that Maxum’s motion for summary judgment against Arriaga is granted, and Maxum shall
not be held liable for any damages owed to Arriaga;
3) that Maxum’s motion for default judgment against VLK is granted, and Maxum shall take
from VLK the total amount of $12,289.12, representing costs that Maxum is entitled to
recoup from VLK in connection with defending VLK in the underlying action.
The Clerk of Court is directed to send a copy of this Memorandum, Order and Judgment to
VLK, and close the case.
SO ORDERED.
Roslynn R. Mauskopf
Dated: Brooklyn, New York
September 8, 2016

____________________________________
ROSLYNN R. MAUSKOPF
United States District Judge

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