Colony Insurance Company v. AIG Specialty Company
Filing
62
OPINION & ORDER: re: 45 FIRST MOTION for Summary Judgment . filed by Colony Insurance Company, 36 MOTION for Summary Judgment . filed by AIG Specialty Company. For the foregoing reasons AIG's motion for summary ju dgment, (Doc. 36), is GRANTED, Colony's motion, (Doc. 45), is DENIED, and this case is DISMISSED. The Clerk of Court is respectfully directed to enter judgment for AIG and close this case. SO ORDERED. (Signed by Judge Vernon S. Broderick on 3/26/2018) (rj)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------------------------------- X
:
COLONY INSURANCE COMPANY,
:
:
Plaintiff,
:
:
- against :
:
AIG SPECIALTY INSURANCE COMPANY, :
:
Defendant. :
:
--------------------------------------------------------- X
3/26/2018
15-CV-3896 (VSB)
OPINION & ORDER
Appearances:
James Walsh
London Fischer, LLP
New York, New York
Nancy Tordai
Peters & Nye, LLP
South Barrington, Illinois
Counsel for Plaintiff
Robert Novack
Bressler, Amery & Ross, PC
New York, New York
Jordan E. Mintz
Michael D. Margulies
Bressler, Amery & Ross, PC
Florham Park, New Jersey
Counsel for Defendant
VERNON S. BRODERICK, United States District Judge:
Plaintiff Colony Insurance Company (“Colony”) initiated this action on May 20, 2015
against AIG Specialty Insurance Company (“AIG”), alleging that AIG failed to honor its
obligations under the Insurance Company Professional Liability Insurance Policy No. 01-42448-29 (the “Policy”). Before me are the motions for summary judgment of AIG, (Doc. 36), and
Colony, (Doc. 45). For the following reasons, Defendant’s motion is GRANTED and Plaintiff’s
motion is DENIED. Additionally, because I find oral argument unnecessary for decision on
these motions, Colony’s request for oral argument, (Doc. 42), is DENIED.
Background1
A.
The Policy
AIG issued the Policy—under which Colony is an insured—to Argo Group International
Holdings, Ltd. (Def.’s 56.1 ¶¶ 2–3.)2 The Policy provides coverage for damages resulting from
a claim for a “Wrongful Act” in the rendering of, or failure to render, Professional Services,
when that claim is made against Colony and reported to AIG during the October 1, 2013 through
October 1, 2014 coverage period, and promises payment of “Defenses Costs, Charges, and
Expenses” on Colony’s behalf. (Id. ¶ 4; Pl.’s 56.1 ¶¶ 2, 4.)3 Specifically, the Policy states that
AIG agrees:
To Pay on behalf of the Insured all sums which the Insured shall become
legally obligated to pay as damages resulting from any claim or claims first
made against the Insured and reported to the Company during the Policy
Period for any Wrongful Act of the Insured or of any other person for whose
actions the Insured is legally responsible, but only if such Wrongful Act
occurs prior to the end of the Policy Period and occurs solely in the
rendering of or failure to render Professional Service.
(Policy, Endorsement #25; see also id. at 1 ¶ 1.)4 The Policy further states, with respect to
“Defense Costs, Charges and Expenses” that:
With respect to any such Wrongful Act for which insurance is afforded by
1
The facts in the Background section, which are based on Defendant’s Rule 56.1 Statement, (Doc. 38), Plaintiff’s
Counter-Statement thereto, (Doc. 51), and Defendant’s Response to Plaintiff’s Counter-Statement, (Doc. 56);
Plaintiff’s Rule 56.1 Statement, (Doc. 41) and Defendant’s Counter-Statement thereto, (Doc. 53); and supporting
materials, are undisputed unless otherwise noted.
2
“Def.’s 56.1” refers to Defendant’s Rule 56.1 Statement of Undisputed Material Facts in Support of its CrossMotion for Summary Judgment, filed January 23, 2017. (Doc. 38.)
3
“Pl.’s 56.1” refers to Colony Insurance Company’s Rule 56.1 Statement of Material Undisputed Facts in Support
of its Motion for Summary Judgment, filed January 23, 2017. (Doc. 41.)
4
“Policy” refers to the Policy, attached as Exhibit A to the Affidavit of R. Wade Vandiver Submitted in Support of
Colony’s Motion for Summary Judgement. (Doc. 47-1.)
2
this policy under Insuring Agreement 1. above, the Company shall, as part
of and subject to the limit of liability, pay on behalf of the Insured Defense
Costs, Charges and Expenses.
(Policy 1 ¶ 2.) “Professional Services” is defined as “services rendered or required to be
rendered solely in the conduct of the Insured’s claims handling and adjusting, risk management,
safety engineering,” and the like, and “Wrongful Act” is defined as “any breach of duty, neglect,
error, misstatement, misleading statement, omission or other act done or wrongfully attempted.”
(Id. at 2 ¶¶ 5, 7; see also id., Endorsement #11.) The term “claim” is not defined in the Policy.
(Pl.’s 56.1 ¶ 8.)
Because the Policy is a claims-made policy, it expressly limits liability as follows:
EXCEPT TO SUCH EXTENT AS MAY OTHERWISE BE PROVIDED
HEREIN, THE COVERAGE OF THIS POLICY IS LIMITED
GENERALLY TO LIABILITY FOR ONLY THOSE CLAIMS THAT
ARE FIRST MADE AGAINST THE INSURED AND REPORTED IN
WRITING TO THE COMPANY WHILE THE POLICY IS IN FORCE.
(Policy 1.) The Policy also contains certain exclusions. For example, the Policy does not apply
to Colony’s contractual obligation to pay policy proceeds owed under insurance policies that are
issued by Colony. (See Pl.’s 56.1 ¶¶ 9–10; Policy 4, Exclusion (u) (“This policy does not apply
. . . to . . . (3) any liability or obligation, whether real or alleged, assumed by the Insured as an
insurer or reinsurer under any policy, binder, certificate, contract, cover note, agreement or treaty
of insurance, reinsurance, suretyship, annuity, or endowment . . . .”).)
Additionally, in connection with claim reporting, the Policy provides that:
The Insureds shall, as a condition precedent to the obligations of the
Company under this policy, give written notice to the Company of a claim
as soon as practicable after the claim is reported to or first becomes known
by the entity named . . . .
(Pl.’s 56.1 ¶ 11; Policy, Endorsement #14.) Separately, the Policy provides a special reporting
clause for situations where the Insured becomes aware of any occurrence that may “reasonably
3
be expected to give rise to a claim.” (Policy 5 ¶ 4.) The Policy further provides that “[n]o action
shall lie against the Company unless, as a condition precedent thereto, there shall have been full
compliance with all terms of this policy.” (Id. at 6 ¶ 4.)
B.
The Schlup Actions
Colony issued a commercial general liability policy to Schlup Investment, Inc.
(“Schlup”), with an effective coverage period of December 24, 2003 through June 22, 2004 and a
$2 million limit of liability. (Pl.’s 56.1 ¶ 12.) On October 13, 2009, Plaza Gardens on the Lake
Condominium Association (“Plaza Gardens”) filed a construction defect lawsuit against Schlup
and Michael Schlup (the “Schlup Insureds”) and other defendants (the “2009 Lawsuit”). (Id.
¶ 13.) Colony received a copy of the Second Amended Petition in the 2009 Lawsuit on February
15, 2013, received the Third Amended Complaint on August 8, 2013, and informed the Schlup
Insureds that no coverage existed on August 9, 2013. (Id. ¶¶ 14, 15.)
On September 13, 2013, Thomas Dickerson, counsel for the Schlup Insureds, forwarded a
September 13, 2013 letter that he received from Plaza Gardens that outlined the combined policy
limits and stated that $7 million of the $9 million settlement demand had already been tendered
by three other insurers. (Id. ¶¶ 16–17.) In bolded and underlined language, Dickerson’s
September 13, 2013 letter (the “September 2013 Demand Letter”) stated as follows:
We received the attached letter from Plaintiffs’ counsel offering to
settle this matter for Colony’s aggregate policy limits of $2,000,000.00
(Exhibit A attached). My clients hereby demand that Colony offer and
pay its aggregate policy limits of $2,000,000.00 on this claim to Plaintiffs
to fully and finally resolve the claim against its insured. . . . If Colony
fails to offer and pay its aggregate policy limits, my client will proceed
with resolving this case with Plaintiffs and proceeding with a lawsuit
along with Plaintiffs to collect any excess judgment rendered at trial,
which we fully expect to be in excess of $15,000,000.00.
4
(September 2013 Demand Letter 1 (emphasis in original).)5 The letter further detailed the
attempts to follow up with Colony with regard to Schlup’s claim, which were purportedly
ignored by Colony. (Id. at 1–2.) The letter then asserted:
[I]t is apparent . . . from the manner in which this matter has been handled,
the correspondence that I have received, and the lack of prior
communication on this claim, that Colony has not fully investigated this
loss, has failed to timely communicate with its insured regarding the loss,
has failed to timely provide requested documents . . ., has ignored an order
of the Court to attend mediation, and has repeatedly ignored requests for
status updates on the investigation.
(Id. at 2.) After describing Colony’s alleged wrongdoing, the letter stated that “[i]f Colony fails
to meet the Plaintiffs’ policy limits demand, I have no doubt that discovery will reveal even more
evidence that Colony has acted in bad faith in the handling of my client’s claim.” (Id.)
Dickerson then went on to describe in the letter the damages that Plaza Gardens would
introduce at trial, and reminded Colony of its fiduciary duty and contended that “[w]here an
insurer wrongfully breaches this duty and refuses to settle within policy limits, the insurer may
be held liable for resulting losses to the insured.” (Id.) The letter pointed out that Colony was
the only insurance company out of four carriers that refused to pay its aggregate limits, that the
other carriers, by paying, have “insulated themselves from a subsequent bad faith lawsuit,” and
that if Colony refused to pay its limits, this “will be the entire reason why this matter is not
settled.” (Id. at 3.) Dickerson warned that if Colony fails to fulfill its duties and pay the policy
limits on the claim, the Schlup Insureds “will be forced to enter into an agreement with Plaintiffs
to protect [themselves] from an excess judgment, and restrict collection of any judgment to
proceeds from a lawsuit against Colony for bad faith and equitable garnishment.” (Id.)
5
“September 2013 Demand Letter” refers to the September 13, 2013 Letter from The Dickerson Law Firm to Mike
Weinstein at Colony, attached as Exhibit C to the Affidavit of R. Wade Vandiver Submitted in Support of Colony
Insurance Company’s Motion for Summary Judgment. (Doc. 47-3.)
5
On September 17, 2013, Dickerson sent another letter to Colony, in which he referenced
a telephone call from earlier that day, stated that he had been “completely ignored until
recently,” responded to some of Colony’s “concerns,” and renewed the “demand that Colony
offer and pay its aggregate policy limits” while noting again that “[i]f Colony fails to offer
and pay its aggregate policy limits, [the Schlup Insureds would] proceed with resolving
[the] case with Plaintiffs and proceed[] with a lawsuit along with Plaintiffs to collect any
excess judgment rendered at trial, which we fully expect to be in excess of $15,000,000.00.”
(Doc. 47-4 (emphasis in original).) Colony responded by email dated September 19, 2013,
stating its view that Dickerson’s letter had not substantiated any of the points discussed and that
Colony’s position would “remain as outlined in our coverage position letter dated 8/7/13.” (Doc.
47-5.) Dickerson then responded on September 19, 2013, with his final letter to Colony. (Doc.
47-6.) That letter renewed the prior demand, detailed “the way in which [the] claim was
handled,” contended that Colony had engaged in “a rushed coverage determination literally
conducted in one morning,” and addressed Colony’s concerns. (Id.) Colony did not receive any
further communication from Dickerson on behalf of the Schlup Insureds, and closed its file with
respect to the 2009 Lawsuit on November 19, 2013. (Pl.’s 56.1 ¶ 20.)
The Schlup Insureds entered into a settlement agreement with Plaza Gardens on October
1, 2013, which, among other things, dismissed Schlup without prejudice (the “Schlup Settlement
Agreement”). (Def.’s 56.1 ¶ 27; Doc. 39-11.) The Schlup Settlement Agreement set forth Plaza
Gardens and the Schlup Insureds’ beliefs that Colony “unfairly, and inaccurately denied
coverage” and that Colony’s refusal to provide coverage was “unfounded, unreasonable, in
violation of the Colony Policy, and in bad faith.” (Doc. 39-11, at 1, 2.) It also assigned to
plaintiffs in the 2009 Lawsuit any action or claim Schlup had or may have against Colony “for
6
breach of contract, bad faith, or any other causes of action arising out of the refusal by Colony to
defend and settle the claims.” (Id. at 4.)
On January 9, 2014, Plaza Gardens commenced a second lawsuit against Schlup (the
“2014 Lawsuit”). (Def.’s 56.1 ¶ 33.) Consistent with the Schlup Settlement Agreement, Schlup
did not defend itself in the 2014 Lawsuit. (Id. ¶ 34.) Although Colony acknowledges that the
2014 Lawsuit identified the construction defects set forth in the 2009 Lawsuit, it maintains that
the 2014 lawsuit made new, additional, and different factual allegations. (Def.’s Counter 56.1
¶ 23.)6 AIG disputes Colony’s characterization of the 2014 Lawsuit, and contends that the 2009
Lawsuit and 2014 Lawsuit arise out of the same factual circumstances. (Id.) In any event, on
January 23, 2014, counsel for the Schlup Insureds put Colony on notice of the 2014 Lawsuit and
demanded defense and indemnity. (Pl.’s 56.1 ¶ 22.) On April 4, 2014, Colony informed Schlup
that no coverage existed for the 2014 Lawsuit. (Id. ¶ 24.) Within days of sending this letter,
Colony filed a separate lawsuit for declaratory relief on April 14, 2014 against Michael Schlup,
Schlup, Plaza Gardens, and other unknown persons or entities, requesting that the court declare
that Colony had no duty to provide indemnification for either the 2009 or 2014 Lawsuits. (Id.
¶ 25.) The Schlup Insureds moved to stay the lawsuit to avoid adjudication of the same facts at
issue in the 2014 Lawsuit. (Id. ¶ 27.) The 2014 Lawsuit proceeded to a bench trial on July 15,
2014, which resulted in Plaza Gardens obtaining a judgment against Schlup for $20,153,878.87
plus interest. (Def.’s 56.1 ¶ 35.) Schlup did not object to the damages award. (Id. ¶ 36.)
On July 28, 2014, Colony’s counsel received a July 23, 2014 letter from Schlup’s counsel
demanding that Colony pay the $20,153,878.87 judgment. (Pl.’s 56.1 ¶ 28.) A few days later,
6
“Def.’s Counter 56.1” refers to Defendant’s Response to Plaintiff’s Rule 56.1 Statement of Undisputed Material
Facts, filed February 17, 2017. (Doc. 53.)
7
on July 31, 2014, Colony received a copy of Plaza Gardens’ motion to dismiss Colony’s
declaratory judgment lawsuit, which included a copy of an unfiled garnishment complaint that
Plaza Gardens stated had already been filed. (Id. ¶ 30.) On August 4, 2014, Plaza Gardens and
Schlup sued Colony for equitable garnishment, bad faith, and breach of fiduciary duty (the
“Garnishment Action”). (Doc. 39-15.) The Garnishment Action sought to recover
$20,153,878.87 plus interest. (Def.’s 56.1 ¶ 38.) In addition, the complaint in the Garnishment
Action alleged that the $20,153,878.87 judgment Plaza Gardens and Schlup sought to recover
was the result of Colony’s bad faith refusal to defend and settle the 2009 Lawsuit and its bad
faith denial of coverage and defense for the 2014 Lawsuit. (Pl.’s 56.1 ¶ 31.) The Garnishment
Action was settled for $5 million on March 16, 2015, which included the uninsured $2 million of
the Schlup policy. (Def.’s 56.1 ¶ 40; Pl.’s 56.1 ¶ 51.) The parties dispute whether the
Garnishment Action, the 2014 Lawsuit, and the 2009 Lawsuit were treated by Colony as a single
claim; however, Colony does not dispute that file for the 2009 Lawsuit was reopened upon
receipt of the 2014 Lawsuit because the lawsuits involved the same construction project. (Pl.’s
Counter 56.1 ¶ 42)7 In addition, while Colony maintains that it assigned separate file numbers to
the Garnishment Action, the 2014 Lawsuit, and the 2009 Lawsuit, (id.), Colony’s claim notes
indicate that it entered notes with respect to the September 2013 Demand Letter, the 2014
Lawsuit, and the Garnishment Action under the same claim number, (Novack Decl. Ex. G).8
7
“Pl.’s Counter 56.1” refers to Colony’s Rule 56.1 Response to AIG’s Rule 56.1 Statement of Material Undisputed
Facts and Colony’s Rule 56.1 Statement of Additional Undisputed Facts Requiring the Denial of AIG’s Motion for
Summary Judgment, filed February 17, 2017. (Doc. 51.)
8
“Novack Decl.” refers to the Declaration of Robert Novack, filed on January 23, 2017. (Doc. 39.)
8
C.
AIG’s Denial of Colony’s Claim
The July 23, 2014 demand was first reported to Colony’s Complex Claims Litigation
Director on August 1, 2014, and Colony notified AIG of the July 23, 2014 demand on August
20, 2014. (Pl.’s 56.1 ¶¶ 36–37.) A copy of the complaint in the Garnishment Action was
subsequently provided to AIG. (Id. ¶ 38.) Colony’s “extra-contractual” claim, related to the
2014 demand, concerns alleged wrongful acts by Colony in providing, or failing to provide,
professional services. (Id. ¶ 39; see also id. ¶ 33.) On September 15, 2014, AIG reserved its
rights with respect to coverage and requested information from Colony. (Id. ¶ 40.) On April 6,
2015, Colony demanded that AIG pay the settlement and defense costs that were above the
Policy’s retention amount, and AIG refused to pay. (Id. ¶¶ 54–55.)
Procedural History
On May 20, 2015, Plaintiff commenced this action by filing its complaint. (Doc. 1.)
Defendant submitted its answer on July 17, 2015, (Doc. 12), and after granting an adjournment
request, I held an initial pretrial conference on September 10, 2015, (see Doc. 16). The parties
requested multiple extensions of the discovery deadlines and, on October 13, 2016, Plaintiff filed
a pre-motion letter requesting a pre-motion conference concerning its anticipated motion for
summary judgment, (Doc. 29), to which Defendant responded on October 18, 2016, noting that it
was “in complete agreement that the facts material to the determination of coverage are
undisputed” and requesting to file a cross-motion for summary judgment, (Doc. 30). Therefore,
on December 22, 2016, I held a pre-motion conference regarding the parties’ anticipated crossmotions for summary judgment. (See Dkt. Entry Dec. 22, 2016.)
In accordance with the deadlines set at the pre-motion conference, Plaintiff filed its
motion for summary judgment on January 20, 2017, (Docs. 34, 45–48), as did Defendant, (Docs.
9
35, 36–39). Plaintiff and Defendant filed their oppositions on February 17, 2017, (Docs. 49–51,
52–53), and their replies on March 3, 2017, (Doc. 55, 58). Plaintiff further requested leave to
file a sur-reply in connection with Defendant’s cross-motion for summary judgment, (Doc. 59),
and on March 15, 2017, I denied Plaintiff’s request, (Doc. 61).
Legal Standard
Summary judgment is appropriate when “the parties’ submissions show that there is no
genuine issue as to any material fact and the moving party is entitled to judgment as a matter of
law.” Fay v. Oxford Health Plan, 287 F.3d 96, 103 (2d Cir. 2002); see Fed. R. Civ. P. 56(a).
“[T]he dispute about a material fact is ‘genuine[]’ . . . 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). A fact is “material” if it “might affect the outcome of the suit under the
governing law,” and “[f]actual disputes that are irrelevant or unnecessary will not be counted.”
Id.
On a motion for summary judgment, the moving party bears the initial burden of
establishing that no genuine factual dispute exists, and, if satisfied, the burden shifts to the
nonmoving party to “set forth specific facts showing that there is a genuine issue for trial,” id. at
256, and to present such evidence that would allow a jury to find in his favor, see Graham v.
Long Island R.R., 230 F.3d 34, 38 (2d Cir. 2000). “The same standard applies where, as here,
the parties file[] cross-motions for summary judgment . . . .” Morales v. Quintel Entm’t, Inc.,
249 F.3d 115, 121 (2d Cir. 2001). “[W]hen both parties move for summary judgment, asserting
the absence of any genuine issues of material fact, a court need not enter judgment for either
party. Rather, each party’s motion must be examined on its own merits, and in each case all
reasonable inference must be drawn against the party whose motion is under consideration.” Id.
10
(citations omitted.)
To defeat a summary judgment motion, the nonmoving party “must do more than simply
show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). “A party asserting that a fact cannot be or is
genuinely disputed must support the assertion by . . . citing to particular parts of materials in the
record, including depositions, documents, electronically stored information, affidavits or
declarations, stipulations (including those made for purposes of the motion only), admissions,
interrogatory answers, or other materials . . . .” Fed. R. Civ. P. 56(c)(1). In the event that “a
party fails . . . to properly address another party’s assertion of fact as required by Rule 56(c), the
court may,” among other things, “consider the fact undisputed for purposes of the motion” or
“grant summary judgment if the motion and supporting materials—including the facts
considered undisputed—show that the movant is entitled to it.” Fed. R. Civ. P. 56(e)(2), (3).
Additionally, in considering a summary judgment motion, the Court must “view the
evidence in the light most favorable to the non-moving party and draw all reasonable inferences
in its favor, and may grant summary judgment only when no reasonable trier of fact could find in
favor of the nonmoving party.” Allen v. Coughlin, 64 F.3d 77, 79 (2d Cir. 1995) (citations and
internal quotation marks omitted); see also Matsushita, 475 U.S. at 587. “[I]f there is any
evidence in the record that could reasonably support a jury’s verdict for the non-moving party,”
summary judgment must be denied. Marvel Characters, Inc. v. Simon, 310 F.3d 280, 286
(2d Cir. 2002).
11
Discussion
A.
Choice of Law
As subject matter jurisdiction in this case is premised upon the diversity of citizenship of
the parties, I must determine which substantive state law governs the analysis. Here, Plaintiff
and Defendant both cite primarily to New York law, with Plaintiff even criticizing Defendant’s
citation to non-New York law, (see Pl.’s Opp. 15),9 and Plaintiff asserts that New York law
applies to the interpretation of the Policy, (Pl.’s Mem. 10).10 Therefore, I apply New York law to
interpret the Policy. See Checkrite Ltd. v. Ill. Nat’l Ins. Co., 95 F. Supp. 2d 180, 188 (S.D.N.Y.
2000) (applying New York law based upon the parties’ implicit consent thereto).
B.
Interpretation of Insurance Policies
Insurance policies are contracts and as such “must be construed to effectuate the intent of
the parties as derived from the plain meaning of the policy’s terms.” Andy Warhol Found. for
the Visual Arts, Inc. v. Fed. Ins. Co., 189 F.3d 208, 215 (2d Cir. 1999) (citation omitted). Thus,
so long as the policy’s language is unambiguous with respect to the issue raised by the parties,
the policy is applied according to its terms. Id. However, “[a]n insurance contract is ambiguous
where its terms ‘could suggest more than one meaning when viewed objectively by a reasonably
intelligent person who has examined the context of the entire integrated agreement and who is
cognizant of the customs, practices, usages and terminology as generally understood in the
particular trade or business.’” Quanta Lines Ins. Co. v. Inv’rs Capital Corp., No. 06 Civ.
4624(PKL), 2009 WL 4884096, at *9 (S.D.N.Y. Dec. 17, 2009) (quoting Int’l Multifoods Corp.
9
“Pl.’s Opp.” refers to Colony’s Memorandum of Law in Opposition to AIG’s Motion for Summary Judgment, filed
February 17, 2017. (Doc. 49.)
10
“Pl.’s Mem.” refers to Colony’s Memorandum of Law in Support of Motion for Summary Judgment, filed
January 24, 2017. (Doc. 46.)
12
v. Commercial Union Ins. Co., 309 F.3d 76, 83 (2d Cir. 2002)), aff’d sub nom. Quanta Specialty
Lines Ins. Co. v. Inv’rs Capital Corp., 403 F. App’x 530 (2d Cir. 2010). “The language of a
contract is not made ambiguous simply because the parties urge different interpretations.” Id.
(quoting Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992)). If the
language is ambiguous, a court may look outside the policy to extrinsic evidence demonstrating
the parties’ intent and, if that fails, apply other rules of contract construction, including the rule
of contra proferentum, which provides for ambiguities to be construed in favor of the insured.
See id. (citing Morgan Stanley Grp. Inc. v. New Eng. Ins. Co., 225 F.3d 270, 276 (2d Cir. 2000)).
“If the ambiguities can be resolved through a legal construction of the policy terms, rather than a
factual one, summary judgment may be appropriate even where the policy is ambiguous.”
Checkrite, 95 F. Supp. 2d at 189 (citing Andy Warhol, 189 F.3d at 215).
C.
Defining “Claim” in the Policy
The parties here do not contend that the Policy is ambiguous with respect to when a claim
is being made, but rather focus on the proper definition of the term “claim” as used in the Policy.
Indeed, according to Colony, the term “claim,” as used in liability insurance policies under New
York law, is “unambiguous.” (Pl.’s Mem. 12.) When addressing the meaning of the term
“claim” in the context of an insurance policy where the term is not defined in the policy itself,
courts in the Second Circuit have considered the question of when a claim was made to be
ambiguous, but have nevertheless deemed the matter appropriately resolved on summary
judgment by applying the definition of “claim” gleaned from the case law. See, e.g., Andy
Warhol, 189 F.3d at 215; Checkrite, 95 F. Supp. 2d at 190; Home Ins. Co. v. Spectrum Info.
Techs., Inc., 930 F. Supp. 825, 846 (E.D.N.Y. 1996) (“Courts have found that the term ‘claim’ as
used in liability insurance policies is unambiguous and generally means a demand by a third
13
party against the insured for money damages or other relief owed.”); but see In re Ancillary
Receivership of Reliance Ins. Co., 863 N.Y.S.2d 415, 418 (1st Dep’t 2008) (finding the failure of
the policy to provide a definition of the term “claim” to present an ambiguity), aff’d, 12 N.Y.3d
725 (N.Y. 2009).
“[U]nder New York law, a claim is an assertion by a third party that in the opinion of that
party the insured may be liable to it for damages within the risks covered by the policy.”
Travelers Indem. Co. v. Northrop Grumman Corp., 677 F. App’x 701, 705 (2d Cir. 2017)
(internal quotation marks omitted) (summary order); see also Rockland Exposition, Inc. v. Great
Am. Assurance Co., 746 F. Supp. 2d 528, 541–42 (S.D.N.Y. 2010) (“[A] ‘claim’ is simply ‘an
assertion by a third party that in the opinion of that party the insured may be liable to it.’”
(quoting Am. Ins. Co. v. Fairchild Indus., Inc., 56 F.3d 435, 439 (2d Cir. 1995))), aff’d, 445 F.
App’x 387 (2d Cir. 2011); Checkrite, 95 F. Supp. 2d at 190 (“The term ‘claim’ as used in
liability insurance policies has generally been found by courts to be an unambiguous term that
means a demand by a third party against the insured for money damages or other relief owed.”).
According to some courts, a claim must also “relate to an assertion of legally cognizable damage,
and must be a type of demand that can be defended, settled and paid by the insurer.” Travelers
Indem., 677 F. App’x at 705 (quoting Fairchild, 56 F.3d at 439).11
11
AIG disputes whether the more restrictive definition of “claim” tied to “demands” that “can be defended, settled
and paid by the insurer,” is applicable, (Def.’s Opp. 1), although it contends that the September 13 Demand Letter
constitutes a claim even under the more restrictive definition, (Def.’s Reply 3–9). Notably, the Second Circuit in its
summary order in Travelers Indemnity. did not appear to definitively adopt the more restrictive definition, but
instead used this language when citing case law where the term “claim” had actually been defined in the policy at
issue to include such language. See Travelers Indem., 677 F. App’x at 705 (quoting Fairchild, 56 F.3d at 439). At
the same time, the Second Circuit has at least recognized that “[c]aselaw [outside of Vermont] indicates that the
plain and ordinary meaning of ‘claim’ is ‘a demand for specific relief owed because of alleged wrongdoing.’”
Windham Solid Waste Mgmt. Dist. v. Nat’l Cas. Co., 146 F.3d 131, 133–34 (2d Cir. 1998) (quoting In re
Ambassador Grp., Inc. Litig., 830 F. Supp. 147, 155 (E.D.N.Y. 1993)). Although I find the case law inconclusive
with respect to whether New York law includes the contested language as part of its definition of the term “claim”
when the term is not defined in the insurance policy at issue, I note that the application of this more restrictive
14
Still, “[a] claim may be made without the institution of a formal proceeding.” Id.
(quoting Fairchild, 56 F.3d 439). In fact, a notice of claim provision in an insurance policy
“may be triggered by an unreasonable—even sanctionable—assertion of liability.” Travelers
Cas. & Sur. Co. v. Dormitory Auth.-State of N.Y., No. 07 Civ. 6915(DLC), 2008 WL 2567784, at
*5 (S.D.N.Y. June 25, 2008) (quoting Fairchild, 56 F.3d at 439). As such, “‘virtually any
assertion of an exposure to liability within the risks covered by an insurance policy is a claim’
triggering the duty to provide notice.” Id. (quoting Fairchild, 56 F.3d at 439). However, “an
accusation that wrongdoing occurred is not by itself a claim; nor is a threat of a future lawsuit; or
a request for information or an explanation.” Windham, 146 F.3d at 134 (citations omitted)
(addressing New York law after determining that Vermont law has not defined the term
“claim”). Rather, a claim must be a “specific demand for relief.” Id. (quoting In re Ambassador
Grp., 830 F. Supp. at 155); see also Weaver v. Axis Surplus Ins. Co., 639 F. App’x 764, 766
(2d Cir. 2016) (summary order) (noting, where policy defined claim as a demand, that “under
New York law, ‘a demand requires an imperative solicitation for that which is legally owed,’ as
distinguished from a request carrying no legal consequences” (quoting Gil Enters., Inc. v. Delvy,
79 F.3d 241, 246 (2d Cir. 1996))).
Here, Colony argues that the September 2013 Demand Letter only demanded the $2
million policy limit and did not demand “extra-contractual” damages beyond that amount; as
such, Colony contends that the other statements in the September 2013 Demand Letter
constituted a mere threat of a future claim. (Pl.’s Mem. 2.) However, the September 2013
definition of “claim” does not alter the outcome here.
“Def.’s Opp.” refers to the Memorandum of Law in Opposition to Plaintiff’s Motion for Summary Judgment, filed
February 17, 2017. (Doc. 52.) “Def.’s Reply” refers to the Reply Memorandum of Law in Further Support of
Defendant’s Motion for Summary Judgment, filed March 3, 2017. (Doc. 55.)
15
Demand Letter contains language and assertions that support a finding that the letter made a
demand for damages beyond the policy limit. For example, in the September 2013 Demand
Letter, Dickerson, counsel for the Schlup Insureds, unequivocally (1) stated that if Colony
persisted with its prior rejection of Schlup’s request that it pay the $2 million policy limit, Schlup
would affirmatively proceed with a lawsuit “to collect any excess judgment rendered at trial,
which we fully expect to be in excess of $15,000,000.00;” (2) stated that the lawsuit would be for
bad faith and equitable garnishment; (3) detailed the damages that would be shown by Plaza
Gardens at a trial to support that expectation; (4) described the facts and circumstances that
caused Schlup to conclude that Colony’s actions were taken in bad faith; and (5) outlined the
legal justification for the intended bad faith lawsuit. (See generally September 2013 Demand
Letter.) Colony argues that these statements amount to a threat of litigation.
Colony is wrong. It is clear upon examining the September 2013 Demand Letter and the
context in which it was written that it constituted an attempt to give Colony one final chance
before actions and decisions already made by Colony—namely its August 9, 2013 denial of
coverage—warranted the specific legal consequences described by Dickerson in that letter. The
demands in the September 2013 Demand Letter were made after the plaintiffs in the underlying
action had sent a letter to Dickerson that outlined the combined policy limits and stated that $7
million of the $9 million settlement demand had already been tendered by three other insurers.
(Def.’s 56.1 ¶¶ 16–17.) In other words, settlement was essentially a fait accompli. To
emphasize this point, Dickerson provided a copy of the settlement letter along with the
September 2013 Demand Letter to Colony. (Id. ¶ 18.) Therefore, the September 2013 Demand
Letter was written at a time when three other insurers had already made the determination, based
upon the claims in the underlying litigation, to tender their policy limits to settle with the
16
underlying plaintiffs. This context, combined with the language of the September 2013 Demand
Letter, demonstrates that the letter was not a threat of litigation but a road map for what was
going to happen if Colony did not tender the policy limits.
In addition, as AIG notes, (see Def.’s Opp. 7; Def.’s Mem. 14),12 the essence of the letter
is the stated causes of action for bad faith and equitable garnishment, for which Schlup gave
precise factual and legal justification. As a result, the September 2013 Demand Letter is a clear
statement by Schlup that Colony “may be liable to it,” Travelers Indem., 677 F. App’x at 705
(quoting Fairchild, 56 F.3d at 439), and satisfies the definition of a “claim” under New York
law, see, e.g., Windham, 146 F.3d at 135 (finding that letters stating party was responsible for
cost of remediation, whatever the cost would be, and demonstrating that the question was not
whether there would be any relief sought, but what would ultimately be the relief, satisfied the
definition of a “claim”).13
Although Colony urges that the Policy’s distinction between a “claim” and an
“occurrence” renders AIG’s approach untenable, (see Pl.’s Opp. 13–14), I find otherwise. “[A]s
the Second Circuit has explained, ‘a notice of occurrence requirement is treated differently under
New York law from a notice of claim requirement,’ because ‘the term occurrence leaves room
for differences of opinion as to whether a particular event is likely to lead to liability.’”
Rockland Exposition, 746 F. Supp. 2d at 541 (quoting Fairchild, 56 F.3d at 439). Here, the
chances that Colony would incur some liability for the actions described in the September 2013
12
“Def.’s Mem.” refers to the Memorandum of Law in Support of Defendant’s Cross-Motion for Summary
Judgment, filed January 23, 2017. (Doc. 37.)
13
Colony argues that AIG’s interpretation of the term “claim” would have “broad-reaching implications on
insurance company operations,” as it will burden every policyholder with providing notice on every policy limit
settlement demand. (Pl.’s Opp. 19.) As an initial matter, the facts as outlined above are unique and do not equate to
a garden variety policy limit settlement demand. In any event, as explained in greater detail above, I do not find that
the September 2013 Demand Letter is a mere settlement demand for the insurance policy limit and, as such, do not
find Colony’s policy argument convincing.
17
Demand Letter was “not a ‘remote possibility,’ but a realistic possibility,” id. (citation omitted)
(quoting Fairchild, 56 F.3d at 439), further supporting the conclusion that the September 2013
Demand Letter falls properly within the definition of a “claim.”
D.
Relationship Between the September 2013 Claim and the July 2014
Claims
“To establish that a prior Claim is interrelated with a subsequent Claim, the Claims must
share a ‘sufficient factual nexus.’” Quanta Lines Ins. Co., 2009 WL 4884096, at *14 (citing case
law). There is a “sufficient factual nexus” between two claims where those claims “‘are neither
factually nor legally distinct, but instead arise from common facts’ and where the ‘logically
connected facts and circumstances demonstrate a factual nexus’” between the claims. Id.
(quoting Seneca Ins. Co. v. Kemper Ins. Co., No. 02 Civ. 10088(PKL), 2004 WL 1145830, at *9
(S.D.N.Y. May 21, 2004), aff’d, 133 F. App’x 770 (2d Cir. 2005)).
Here, Colony describes the July 2014 Claims as consisting of Schlup’s July 23, 2014
demand that Colony pay the approximately $20 million judgment that was entered against it in
the 2014 Lawsuit, as well as Colony’s receipt of the garnishment complaint. (See Pl.’s Mem.
2–3.) As previously noted, Colony does not dispute that the 2009 Lawsuit and 2014 Lawsuit
involved the same construction project. (Pl.’s Counter 56.1 ¶ 42.) Although Colony maintains
that it treated the 2009 Lawsuit, the 2014 Lawsuit, and the Garnishment Action as separate
actions with separate file numbers, (id.), Colony’s claims notes indicate that it entered notes with
respect to the September 2013 Demand Letter, the 2014 Lawsuit, and the Garnishment Action
under claim number 222380, (Novack Decl. Ex. G). Colony’s only basis for its assertion that it
assigned separate file numbers to each action is an affidavit of R. Wade Vandiver, an Assistant
Vice President for Complex Claims Litigation for Argo Group US, Inc., who handled the
Garnishment Action. (Pl.’s Counter 56.1 ¶ 42.) However, Mr. Vandiver’s affidavit is not
18
supported by any documentary evidence. (Doc. 50 ¶¶ 6–9.) In addition, Mr. Vandiver’s
affidavit asserts that the separate file numbers for each action were 222380, C222380, and
EC222380. (Id.) Even if I accept that as true, each file number appears to be based on the same
underlying file, suggesting that Colony viewed them as related.
Regardless of how Colony treated the actions internally, it is clear that the later actions
were outlined and foreshadowed in the September 2013 Demand Letter, and that they were based
on the same nexus of facts. For these reasons, the July 2014 claims are based on, or arise out of,
the “Wrongful Acts” alleged in the September 2013 Demand Letter, such that the later claims are
“deemed . . . Claim[s] first made prior to the inception of the” Policy.14 Quanta Lines Ins. Co.,
2009 WL 4884096, at *15. Accordingly, I grant summary judgment in favor of AIG.
Conclusion
For the foregoing reasons AIG’s motion for summary judgment, (Doc. 36), is
GRANTED, Colony’s motion, (Doc. 45), is DENIED, and this case is DISMISSED. The Clerk
of Court is respectfully directed to enter judgment for AIG and close this case.
SO ORDERED.
Dated: March 26, 2018
New York, New York
______________________
Vernon S. Broderick
United States District Judge
14
Colony further refers to an exclusion in the Policy that was later deleted, which stated that the Policy did not apply
“to any claim arising out of any Wrongful Act occurring prior to the inception date of the first Insurance Company’s
Professional Liability Insurance policy . . . if on such first inception date any Insured knew or could have reasonably
foreseen that such Wrongful Act could lead to a claim or suit.” (Pl.’s Mem. 19–20 & n.5.) Plaintiff contends that
the deletion of this exclusion necessarily means that the Policy extends coverage to “claims” that arise out of
Wrongful Acts committed before the Policy incepted, even if Colony could have foreseen that this would leave to a
claim or suit. (Id.) This argument is irrelevant, as I have found that the September 2013 Demand Letter was a claim
that arose before the inception date of the Policy, not simply a Wrongful Act that later resulted in a claim.
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