Maxum Indemnity Company v. A One Testing Laboratories, Inc. et al

Filing 49

OPINION AND ORDER: For the reasons stated above, Maxum's motion for summary judgment is GRANTED. The parties shall confer on a form of order judgment and file either a joint proposed order or competing proposed orders within twenty-one (21) days. The Clerk of Court is directed to terminate motions at Docket Nos. 29 and 32, and to terminate this action. (Signed by Judge Katherine B. Forrest on 12/10/2015) (cdo)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
MAXUM INDEMNITY COMPANY,
:
:
Plaintiff,
:
:
-v:
:
A ONE TESTING LABORATORIES, INC. aka :
A-1 TESTING LABORATORIES, INC., 610
:
WEST REALTY LLC, RIVERVIEW WEST
:
CONTRACTING LLC, B&V CONTRACTING :
ENTERPRISES, INC. and ACE INSPECTION :
AND TESTING SERVICES, INC.,
:
:
Defendants.
:
:
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KATHERINE B. FORREST, District Judge:

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: December 10, 2015

14-cv-4023 (KBF)
OPINION & ORDER

Plaintiff Maxum Indemnity Company, an insurer, seeks a declaration that it
does not owe a duty to defend or indemnify its insured, defendant A-1 Testing
Laboratories, in a lawsuit (the “Underlying Action”) that defendant 610 West Realty
LLC filed in state court against A-1 and defendants Riverview West Contracting
LLC, B&V Contracting Enterprises, Inc., and Ace Inspection and Testing Services,
Inc. (ECF No. 1.) Now before the Court is Maxum’s motion for summary judgment.
(ECF Nos. 29 & 32.) The crux of Maxum’s argument is that the general liability
policy it entered into with A-1 does not cover 610 West’s theory of liability in the
Underlying Action because 610 West does not allege an “occurrence” resulting in
“property damage” that occurred during the policy period.1

1

Maxum also alleges that certain exclusions in the policy separately bar coverage; because the Court finds that
Maxum is entitled to summary judgment on its primary theories of non-coverage, it does not reach these
alternatives.

In the Underlying Contract, 610 West has asserted breach of contract,
negligence, and fraudulent conveyance causes of action against A-1. These causes
of action stem from allegations that A-1’s faulty workmanship in performing certain
inspections required 610 to undertake repair work. As a matter of law, the general
liability insurance contract between Maxum and A-1 does not cover such
allegations, and even if it did the damage occurred outside of the policy period.
Therefore, because there is no genuine issue of material fact at issue in this case,
the motion is GRANTED.
I.

FACTUAL BACKGROUND
A.

The Policy

Maxum provided A-1 with commercial general liability coverage between
February 28, 2011 and February 28, 2012. (Pl.’s 56.12 ¶ 1; Policy3 at 7.) The
contract provided that Maxum would “pay those sums that [A-1] becomes legally
obligated to pay as ‘damages’ because of ‘bodily injury’ or ‘property damage’ to which
this insurance applies.” (Pl.’s 56.1 ¶ 2; Policy at 9.) It established that the
insurance applied “only if … [t]he ‘bodily injury’ or ‘property damage’ is caused by
an ‘occurrence’ … and … occurs during the policy period.” (Id.)

2

The notation “Pl.’s 56.1” refers to Maxum’s statement of undisputed material facts pursuant to Local Rule 56.1,
available as ECF No. 35. This opinion only relies on statements of fact that defendants did not dispute in their
counter statement, which is available as ECF No. 41.
3
The notation “Policy” refers to the contract for Policy Number GLP 6014817-01, which established the insurance
relationship between Maxum and A-1. The policy is available as ECF No. 34, Exh. A. Because the policy does not
have a single pagination scheme throughout, page numbers provided refer to the exhibit’s pagination.

2

The policy defined “occurrence” to mean “an accident, including continuous or
repeated exposure to substantially the same general harmful conditions.” (Pl.’s 56.1
¶ 3; Policy at 24.) It provided two disjunctive definitions of “property damage:”
Physical injury to tangible property, including all resulting loss of use
of that property. All such loss of use shall be deemed to occur at the
time of the physical injury that caused it; or
Loss of use of tangible property that is not physically injured. All such
loss of use shall be deemed to occur at the time of the “occurrence” that
caused it.
(Id.)
The contract further provided that Maxum would defend A-1 “against any
‘suit’ seeking those damages,” but would have no duty to defend A-1 “against any
‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this
insurance does not apply.” (Pl.’s 56.1 ¶ 2; Policy at 9.) An endorsement
incorporated into the policy specifically provided that “[t]his insurance does not
apply to any claim or ‘suit’ for breach of contract.” (Pl.’s 56.1 ¶ 9; Policy at 39.)4
B.

The Underlying Action

In June 2013, A-1, Riverview, and B&V received a “Summons with Notice”
alerting them that 610 West was suing them “to recover damages for each
Defendant’s breach of contract and negligence in connections with the construction
of a building at 608 West 149th Street, New York, NY, and for indemnity.” (Pl.’s
56.1 ¶ 11; ECF No. 34, Exh. B.)

4

As discussed in note 1, supra, Maxum argues that other portions of the contract separately establish that it is not
required to indemnify or defend A-1 in the Underlying Action. The Court’s description above only encompasses the
contractual provisions relevant to the grounds discussed in this decision.

3

In October, Maxum sent A-1 a letter explaining that “[t]he summons with
notice [gave] little information with which to establish a true evaluation of the
covered and/or uncovered damages,” and that Maxum was therefore “continu[ing] to
investigate this matter under a full reservation of rights.” (Pl.’s 56.1 ¶ 15; ECF No.
34, Exh. D, at 1.) Maxum’s letter also explained that it had retained counsel “to
secure an extension of time for A One to appear, move or otherwise act and demand
plaintiff provide more information through a formal complaint,” which would put
Maxum “in a better position to evaluate its obligations regarding defense and
indemnity for the action.” (Id.)
In November, 610 West filed its complaint in the Underlying Action (“UAC”).
(Pl.’s 56.1 ¶ 16.) The UAC alleged that 610 West was the sponsor of project to build
condominiums and in 2005 had hired Riverview as a general contractor for the
construction. (Pl.’s 56.1 ¶¶ 17-18; UAC5 ¶ 6-7.) It further alleged that Riverview
had, during 2004 and 2005, hired B&V as a subcontractor to provide drywall and
carpentry work and A-1 as a subcontractor “to perform controlled inspections in
connection with, among other things, the ‘Fire Stops.’” (Pl.’s 56.1 ¶¶ 18-19; UAC ¶¶
9-10.) According to the UAC, B&V’s work was defective, a fact that neither
Riverview nor A-1 detected or caused to be corrected, and which was only discovered
by 610 West sometime prior to June 2010. (Pl.’s 56.1 ¶ 20; UAC ¶¶ 11-14.) As a
result, the UAC alleged, 610 West was required to remediate and repair the
defective work over a number of years. (Pl.’s 56.1 ¶ 20; UAC ¶¶ 15-16.)

5

The notation “UAC” refers to the complaint in the Underlying Action, 610 West Realty LLC v. Riverview West
Contracting LLC, et al., No. 155357/13 (N.Y. Sup. Ct. 2013), which is available as ECF No. 34, Exh. E.

4

The UAC asserted separate breach of contract and negligence causes of action
against Riverview, B&V, and A-1. (UAC ¶¶ 18-46.) The two6 causes of action
asserted against A-1 mirrored each other; the breach of contract claim alleged that
A-1 “breached its duties and obligations under the A-1 Testing Subcontract by
failing to perform its controlled inspection services with reasonable care and in
accordance with accepted industry standards and practices,” while the negligence
claim alleged that A-1 “owed a duty to plaintiff to perform its controlled inspection
services with reasonable care and in accordance with accepted industry standards
and practices,” and breached that duty “by performing its controlled inspection
services in a negligent fashion and contrary to accepted industry standards and
practices.” (Pl.’s 56.1 ¶¶ 21; UAC ¶¶ 39, 43-44.)
In March 2014, Maxum’s counsel wrote to A-1 to “advise [it] of Maxum’s
coverage position based upon the allegations and information presently known.”
(Pl.’s 56.1 ¶ 25; ECF No. 34, Exh. F, at 1.) The letter explained that, in Maxum’s
view, various exclusions “bar[red] coverage for certain claims asserted in this
matter,” and that Maxum was investigating “to determine whether there are any
damages to which the [policy’s] exclusions do not apply.” (ECF No. 34, Exh. F., at
7.) The letter also advised that “[t]here may be other reasons why no coverage is
available.” (Id.)
Notwithstanding the determination of non-coverage, the letter went on to
explain that Maxum would continue defending A-1 in the Underlying Action. (Pl.’s

6

The UAC also asserts an additional four causes of action against A-1 and Ace, all for fraudulent conveyance. No
party has argued that these causes of action provide an independent basis for coverage in the instant action.

5

56.1 ¶ 26; ECF No. 34, Exh. F, at 7.) This agreement to provide defense counsel
was, however, subject to an explicit statement that Maxum did not “waive the right
… to contest the duty to defend, or indemnify or seek to recover back defense costs
paid on behalf of [A-1].” (Id.) Specifically, Maxum “reserve[d] its right to commence
a coverage action to obtain a declaration of no coverage and/or recover back defense
costs.” (Id.)
In June 2014, Maxum filed the instant action seeking a declaration of noncoverage and a determination that it was entitled to recoup defenses costs expended
in the Underlying Action. (ECF No. 1.) It filed an amended complaint in August
2015, (ECF No. 25) and moved for summary judgment in September. (ECF Nos. 29
& 32.) That motion became fully briefed on November 2, 2015. (ECF No. 46.)
II.

LEGAL PRINCIPLES
A.

Summary Judgment Standard

Summary judgment may not be granted unless a movant shows, based on
admissible evidence in the record, “that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). The moving party bears the burden of demonstrating “the absence of
a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
On summary judgment, the Court must “construe all evidence in the light most
favorable to the nonmoving party, drawing all inferences and resolving all
ambiguities in its favor.” Dickerson v. Napolitano, 604 F.3d 732, 740 (2d Cir. 2010).
The Court’s function on summary judgment is to determine whether there exist any
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genuine issues of material fact to be tried, not to resolve any factual disputes. .
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986)
Once the moving party has asserted facts showing that the nonmoving
party’s claims cannot be sustained, the opposing party must set out specific facts
showing a genuine issue of material fact for trial. Price v. Cushman & Wakefield,
Inc., 808 F. Supp. 2d 670, 685 (S.D.N.Y. 2011); see also Wright v. Goord, 554 F.3d
255, 266 (2d Cir. 2009). “[A] party may not rely on mere speculation or conjecture
as to the true nature of the facts to overcome a motion for summary judgment,”
because “[m]ere conclusory allegations or denials . . . cannot by themselves create a
genuine issue of material fact where none would otherwise exist.” Hicks v. Baines,
593 F.3d 159, 166 (2d Cir. 2010) (citations omitted); see also Price, 808 F. Supp. 2d
at 685 (“In seeking to show that there is a genuine issue of material fact for trial,
the non-moving party cannot rely on mere allegations, denials, conjectures or
conclusory statements, but must present affirmative and specific evidence showing
that there is a genuine issue for trial.”).
Only disputes relating to material facts—i.e., “facts that might affect the
outcome of the suit under the governing law”—will properly preclude the entry of
summary judgment. Anderson, 477 U.S. at 248; see also Matsushita Elec. Indus.
Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (stating that the
nonmoving party “must do more than simply show that there is some metaphysical
doubt as to the material facts”). The Court should not accept evidence presented by
the nonmoving party that is so “blatantly contradicted by the record . . . that no
7

reasonable jury could believe it.” Scott v. Harris, 550 U.S. 372, 380 (2007); see also
Zellner v. Summerlin, 494 F.3d 344, 371 (2d Cir. 2007) (“Incontrovertible evidence
relied on by the moving party . . . should be credited by the court on [a summary
judgment] motion if it so utterly discredits the opposing party’s version that no
reasonable juror could fail to believe the version advanced by the moving party.”).
B.

General Commercial Liability Insurance Coverage

Under New York law, an insurer’s duty to defend is far broader than its duty
to indemnify. Maryland Cas. Co. v. Cont’l Cas. Co., 332 F.3d 145, 160 (2d Cir. 2003)
(quoting Erdman v. Eagle Ins. Co., 658 N.Y.S. 2d 463, 466 (N.Y. App. Div. 1997)).
“An insurer must defend whenever the four corners of the complaint suggest—or
the insurer has actual knowledge of facts establishing—a reasonable possibility of
coverage.” Id. (quoting Cont’l Cas. Co. v. Rapid-Am. Corp., 609 N.E.2d 506, 509
(N.Y. 1993)). “The New York Court of Appeals has eschewed ‘wooden application of
the four corners of the complaint rule,’ in favor of ‘a rule requiring the insurer to
[also] provide a defense where, notwithstanding the complaint allegations,
underlying facts made known to the insurer create’ a reasonable possibility of
coverage.” QBE Ins. Corp. v. Adjo Contracting Corp., 997 N.Y.S. 2d 425, 440-41
(N.Y. App. Div. 2014) (quoting Fitzpatrick v. Am. Honda Motor Co., 575 N.E.2d 90,
92, 95 (N.Y. 1991)). However, “an insurer owes its insured no duty of defense ‘if it
can be concluded as a matter of law that there is no possible factual or legal basis on
which the insurer will be obligated to indemnify the insured.’” Maryland Cas. Co.,

8

332 F.3d at 160 (quoting Frontier Ins. Co. v. State, 662 N.E.2d 251, 253 (N.Y.
1995)).
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.” Law Offices of Zachary R. Greenhill
P.C. v. Liberty Ins. Underwriters, Inc., 9 N.Y.S.3d 264, 267-68 (N.Y. App. Div.
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. See, e.g., Max Specialty Ins. Co. v. WSG Investors, LLC,
No. 09-CV-5237, 2012 WL 3150579, at *8 (E.D.N.Y. April 20, 2012); Axis
Reinsurance Co. v. Bennett, No. 07 Civ. 7924, 2008 WL 2600034, at *2 (S.D.N.Y.
June 27, 2008); Gotham Ins. Co. v. GLNX, Inc., No. 92 Civ. 6415, 1993 WL 312243,
at *4 (S.D.N.Y. Aug. 6, 1993); Dupree v. Scottsdale Ins. Co., 947 N.Y.S.2d 428, 429
(N.Y. App. Div. 2012).
III.

DISCUSSION
Maxum argues that this case is governed by the principles set forth in George

A. Fuller Co. v. United States Fidelity & Guaranty Co., 613 N.Y.S.2d 152 (N.Y. App.
Div. 1994). The Court agrees.
In George A. Fuller, the insured was the general contractor and construction
manager of a building project in Manhattan. Id. at 154. The insured was sued by
its client for failing to “adequately and properly … supervise the installation of the
9

building’s wood flooring and an aluminum curtain wall with windows and store
front glazing and to provide for the installation of a code compliant water metering
system.” Id. As a result, the client alleged, “the flooring buckled and cracked,”
among other problems. Id. The client sought damages for the cost of the necessary
repairs and resulting cost overruns and asserted a number of theories, including
breach of contract and negligent breach of the duty of care. Id. The insurer
“disclaimed coverage as to the entire claim on the ground that there had been no
‘occurrence’ as defined in the policy.” Id. The definition of “occurrence” in that
contract was the same as that found in the instant policy: “an accident, including
continuous or repeated exposure to substantially the same general harmful
conditions.” Id. at 153.
The insured sued its insurer and on summary judgment the trial court
declared that the insurer was obligated to provide a defense in the underlying
action. Id. at 154-55. The insurer appealed, and the First Department reversed,
concluding that the insurer was entitled to a declaration of non-coverage. Id. at
155.
In the First Department’s view, the underlying complaint did “not allege an
‘occurrence’ resulting in ‘property damage’ as contemplated by the comprehensive
general liability policy at issue.” Id. Instead, “the allegations all relate[d] to [the
insured’s] failure to meet its contractual obligations.” Id. This was so
notwithstanding the inclusion of causes of action for negligence in the underlying
action: “A contract default under a construction contract is not transformed into an
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‘accident, including continuous or repeated exposure to substantially the same
general harmful conditions’ by the simple expedient of alleging negligent
performance or negligent construction.” Id.
Based on the requirement that covered damage result from an “occurrence,”
the First Department concluded that “[t]he was never intended to provide
contractual indemnification for economic loss to a contracting party because the
work product contracted for is defectively produced,” and that requiring the insurer
to defend “would transform [it] into a surety for the performance of [the insured’s]
work.” Id. Because such an interpretation was inconsistent with the language of
the contract, the court declared that the insurer did not owe a duty to defend.7
The George A. Fuller decision accurately captures New York law. Its holding
is consistent with those established in cases both prior to that decision, see Parkset
Plumbing & Heating Corp. v. Reliance Ins. Co., 448 N.Y.S.2d 739, 740 (N.Y. App.
Div. 1982), and subsequent to it, see Exeter Bldg. Corp. v. Scottsdale Ins. Co., 913
N.Y.S.2d 733, 735-36 (N.Y. App. Div. 2010).
There can be no doubt that the allegations 610 West includes in the UAC
bring this matter within the “no occurrence, no coverage” rule for commercial
general liability policies under New York law. The damages 610 West seeks to
recover represent the cost of repairing the allegedly defective work in order to bring
it into compliance with the underlying contracts, industry standards, and legal

7

In George A. Fuller, as in the instant matter, an exclusion from coverage for damage to the insured’s work product
provided an alternative basis for the insurer’s entitlement to a declaration of non-coverage. See George A. Fuller
Co. v. U.S. Fid. & Guar. Co., 613 N.Y.S.2d 152, 156 (N.Y. App. Div. 1994).

11

requirements. (Pl.’s 56.1 ¶ 37.) New York law is clear that the recitation of a cause
of action labeled “negligence” in the underlying complaint does not suffice to create
coverage for faulty work product under a commercial general liability insurance
policy. Indeed, the fact that the Underlying Action is solely concerned with the
economic loss allegedly caused by A-1 and others’ alleged breach of contract is even
more apparent in this case than it was in George A. Fuller, in which the underlying
action alleged “buckled and cracked” flooring and “widespread water infiltration.”
613 N.Y.S.2d at 154.
A-1’s counterargument misses the mark. A-1 argues that “facts have been
adduced establishing that A-1 did not perform fire stopping inspections, as alleged
in the [UAC].” (ECF No. 39, at 9.) Its briefing aims to establish that “the likelihood
that the allegations in the [UAC] have no merit is high.” (Id. at 12.) This may be
so, but the merits of the allegations in the underlying action have no direct
relevance to Maxum’s obligation to indemnify or defend A-1; that legal question
turns on the character of the underlying allegations. Because those allegations
relate exclusively to A-1’s alleged failure to complete its contractual duties, they do
not stem from an occurrence and do not create a reasonable possibility of coverage.
Even if the claims asserted in the Underlying Action were properly connected
to an “occurrence,” under the definitions in the policy they would have occurred
prior to the policy period and thus be excluded from coverage. As noted above,
under the contract between Maxum and A-1, “property damage” that reflects “loss
of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.” (Pl.’s
12

56.1 ¶ 3; Policy at 24.) “New York follows the ‘injury-in-fact’ test which ‘rests on
when the injury, sickness, disease or disability actually began.’” Downey v. 10
Realty Co., LLC, 911 N.Y.S.2d 67, 67 (N.Y. App. Div. 2010) (quoting Cont’l Cas. Co.
v. Employers Ins. Co. of Wausau, 871 N.Y.S.2d 48, 63 (N.Y. App. Div. 2008)). When
faulty workmanship in building materials is the gravamen of an allegation of
property damage, “under an injury-in-fact analysis, the injury may be said to occur
at the time of installation.” Stonewall Ins. Co. v. Nat’l Gypsum Co., No. 86 Civ.
9671 (JSM), 1992 WL 123144, at *14 (S.D.N.Y. May 27, 1992), aff’d in part and
rev’d in part on other grounds, 73 F.3d 1178 (2d Cir. 1995).
Even if A-1’s alleged non-performance could be said to be an “occurrence”
triggering coverage, it took place entirely before the February 2011 through
February 2012 coverage period of the policy at issue. As discussed above, the UAC
alleges that the defective work was performed circa 2005 and discovered by mid2010, at which point the repair work began. (UAC ¶¶ 11-15.) The contract between
Maxum and A-1 thus requires that any ensuing “property damage” “be deemed to
occur” at some point circa 2005, and in all events no later than mid-2010. (Pl.’s 56.1
¶ 3; Policy at 24.) Because the contract also excludes from coverage any property
damage that does not “occur[] during the policy period,” coverage does not lie. (Pl.’s
56.1 ¶ 2; Policy at 9.)
A-1 argues that because the UAC alleges that some of the repair work
occurred during the policy period, that injury constitutes “a continuous occurrence”
bringing the damage within the policy period. However, the case A-1 cites in
13

support of this proposition, Cortland Pump & Equipment, Inc. v. Firemen’s
Insurance Co. of Newark, N.J., 604 N.Y.S.2d 633 (N.Y. App. Div. 1993), is
inapposite in telling ways. In Cortland Pump, the underlying damages stemmed
from a leak “which allegedly caused or permitted gasoline to flow into the ground
and eventually into two adjoining residential properties.” Id. at 635. This on-going
source of damage fit into the policy’s definition of “occurrence,” which, like the policy
in the instant action, reached “an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.” Id. at 636. (Pl.’s
56.1 ¶ 3; Policy at 24.) The same logic has guided the Second Circuit’s
determination that, “with respect to progressive diseases, permits triggering at
various points when evidence shows injury to have occurred.” Stonewall Ins. Co. v.
Asbestos Claims Mgmt. Corp., 73 F.3d 1178, 1195 (2d Cir. 1995) (emphasis
omitted).
Unlike a gas leak or a progressive disease, A-1’s alleged failure to properly
inspect B&V’s work and recognize its deficiency is not a continuous occurrence
creating new injuries in fact at different points in time. Instead, the damage, if any,
was sustained at the time of A-1’s alleged breach. In light of the “injury-in-fact”
rule in New York law and the explicit provisions of the insurance contract that
established when certain property damage could be said to occur, it is apparent that
even if the allegations in the UAC were otherwise covered they would fall outside of
the policy period.

14

Maxum does not owe a duty to defend or indemnify A-1 in the Underlying
Action because that action does not contain allegations that create a reasonable
possibility of coverage under the commercial general liability policy between
Maxum and A-1. It is entitled to a declaration of that fact. Because Maxum has to
date provided A-1 with a defense in the Underlying Action under an express
reservation of right “to recover back defense costs,” it is further entitled to recoup
from A-1 defense costs Maxum has incurred in its defense of the Underlying Action.
IV.

CONCLUSION
For the reasons stated above, Maxum’s motion for summary judgment is

GRANTED. The parties shall confer on a form of order of judgment and file either a
joint proposed order or competing proposed orders within twenty-one (21) days. The
Clerk of Court is directed to terminate the motions at Docket Nos. 29 and 32, and to
terminate this action.

SO ORDERED.
Dated:

New York, New York
December 10, 2015

______________________________________
KATHERINE B. FORREST
United States District Judge

15