The City Of New York , et al v. Liberty Mutual Insurance Company

Filing 42

MEMORANDUM & ORDER granting 29 Motion for Summary Judgment; denying 34 Motion for Summary Judgment. The Court grants the Plaintiffs' motion for partial summary judgment in its entirety, denies the Defendant's cross-motion in its entir ety, but reserves on the question of the precise amount of reimbursement and damages owed for Liberty's breach. This resolves docket numbers 29 and 34. Within one week of the date of this order, the parties shall propose a briefing schedule to determine the amount of damages owed to Plaintiffs, and as further set forth herein. (Signed by Judge Alison J. Nathan on 9/28/2017) (ras)

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Plaintiffs,
15 Civ. 8220 (AJN)

-vLiberty Mutual Insurance Company,

MEMORANDUM &
ORDER

Defendant.

ALISON J. NATHAN, District Judge:
On September 17, 2015, the City ofNew York (the "City") and the Board of Education
of the City School District of the City of New York (the "DOE") (the "Plaintiffs") filed an action
in New York State Supreme Court against the Defendant, Liberty Mutual Insurance Company
("Liberty"), seeking declarations that Liberty must defend the Plaintiffs in five underlying
actions, as well as seeking reimbursement for the costs associated with the Plaintiffs' defense in
those actions thus far. See Dkt. No. 1, Ex. 1 ("Compl."). On October 19, 2015, Liberty removed
this case to federal court based on diversity jurisdiction. Dkt. No. 1.
Now before the Court are the Plaintiffs' motion for partial summary judgment as to six of
the causes of action in this case (relating to three of the underlying actions) and the Defendants'
cross-motion for summary judgment as to those same causes of action. 1 See Dkt. No. 29
(Plaintiffs' notice of motion); Dkt. No. 34 (Defendant's notice of motion). For the reasons that

1
Plaintiffs do not seek summary judgment as to the remaining four causes of action pertaining to two other
underlying suits.

'• "" -

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follow, the Court GRANTS the Plaintiffs' motion in its entirety and DENIES the Defendant's
cross-motion.

Background 2

I.

A.

The Insurance Policy

The New York City School Construction Authority (the "Authority") is a public benefit
corporation organized under the laws of New York State, charged with overseeing the design,
construction, reconstruction, rehabilitation, improvement, furnishing, equipping, and repair of
public schools in New York City. Pl. 56.1 ill; Def. Resp. 56.1

i! 1.

Prior to 2011, the Authority obtained a commercial general liability policy (the "Policy")
from the Defendant, Liberty. Pl. 56.1
under the Policy. Pl. 56.1

i! 2; Def. Resp. 56.1 i! 2.

i! 3; Def. Resp. 56.1 i! 3.

The Authority is a named insured

The Policy provides for a limit of $5,000,000

per occurrence, subject to a $2,000,000 deductible. Def. 56.1

i! 1; Pl. Resp. 56.1 il 1.

Of

significance to the present action, the Policy includes both a right of indemnification and a right
of defense as follows:
We [Liberty] 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 even if the allegations of the "suit" are
groundless, false, or fraudulent. However, we will have no duty to defend the
insured against any "suit" seeking damages for "bodily injury" or "property
damage" to which this insurance does not apply. 3
Pl. 56.1

2

i! 4; Def. Resp. 56.1 i! 4; Dkt. No. 32-5 at 69 (hereafter the "Policy").

Unless otherwise noted, these facts are undisputed.

3

The Policy states that the insurance applies only to '"bodily injury' and 'property damage"' if, among
other requirements, the injury or damage "is caused by an 'occurrence' that takes place in the 'coverage territory"'
and the injury or damage "occurs during the policy period." Policy at 102.

2

Section II of the policy includes a section denominated "who is an insured." Policy at
110. By virtue of an endorsement to the Policy, Section II includes as additional insureds the
Plaintiffs in this case, the City and the DOE. Policy at 93; Pl. Rule 56.1

~

8; Def. Resp. 56.1

~

8.

That endorsement states as follows:
Section II - Who is an insured is amended to include as an additional insured the
person(s) or organization(s) shown in the Schedule, but only with respect to
liability for "bodily injury," "property damage," or "personal and advertising
injury" caused, in whole or in part, by your acts or omissions or the acts or
omissions of those acting on your behalf:
A. In the performance ofyour ongoing operations; or
B. In connection with premises owned by or rented to you.
Pl. 56.1

~

9; Def. Resp. 56.1

B.

~

9; Policy at 93 (emphases added).

The Three Underlying Actions

As noted, this case stems from the Defendant's refusal to defend the Plaintiffs, as
additional insureds under the Policy, against three underlying actions: the "James" action, the
"Mertz" action, and the "Guarnaccia" action. As the parties debate the precise contours of the
allegations in these complaints, as well as the meaning and import of evidence extrinsic to the
complaints, the Court describes both in detail.

1.

The "James" Action

On April 30, 2014, Patricia James filed a verified complaint in New York State Supreme
Court, naming the Authority, the City, and the DOE as Defendants. See Patricia James v. New

York City School Construction Authority, New York City Department of Education, and City of
New York, Index No. 021897/2014 (N.Y. Sup. Ct. Apr. 30, 2014) (Dkt. No. 32-6) (hereafter
"James Complaint").

3

In her Complaint, James alleges that on February 14, 2013, she was injured when she
tripped, slipped, or fell on the sidewalk abutting Public School 111, located at 3740 Baychester
Avenue, Bronx, New York ("P.S. 111"). Pl.

56.1~10;

Def.

Resp.~

1. She also alleges, inter

alia, that on February 14, 2013 (the date of her accident), the Authority "own[ed]," "was a lessee
of," "was a general contractor at," "operated," "maintained," "managed," "controlled," and
"supervised," "the premises known as P .S. 111 .... [i]nclusive of the abutting sidewalk
(hereinafter referred to as the 'Aforesaid Premises.')." James

Complaint~~

25 - 33. She further

alleges that "[o]n or before February 14, 2013," the Authority "repaired," "inspected,"
"constructed," and "designed" said premises, and that, again on February 14, 2013, "the
[Authority had a] duty ... to maintain the Aforesaid Premises in a reasonably safe and suitable
condition and in good repair." Id.

~~

34-38. Turning to the substance of her injury, James alleges

that she "was caused to trip, slip, and/or fall on the Aforesaid Premises due to a defective
sidewalk."

Id.~

68. She alleges that "[t]he aforesaid occurrence and resulting injuries to [her]

were caused solely by the negligence, carelessness and recklessness of the defendants, in the
ownership, leasing, operation, maintenance, management, control, supervision, construction,
demolition[,] alteration, repair and/or inspection of the Aforesaid Premises." Id.

~

70.

In support of its motion for summary judgment, Liberty also cites to evidence extrinsic to
the James Complaint that it claims is relevant to these motions. It is undisputed that,
notwithstanding the Complaint's allegations, the Authority neither owned nor leased P.S. 111 on
February 14, 2013. Def.

56.1~7;

Pl. Resp.

56.1~7.

It is further undisputed that, at the time of

the accident, no written contract existed between the Authority, on the one hand, and the City or
DOE, on the other, obligating the Authority to maintain, operate, repair, manage, or control P.S.
111 or the abutting sidewalk, and that the Plaintiffs are unaware of any oral contract imposing

4

such an obligation. Def. 56.1 ~ 8; Pl. Resp. 56. l ~ 8. Additionally, a search of Department of
Transportation records from February 14, 2011, through February 14, 2013 turned up no permits
issued to the Authority to perform any construction or repair work on the sidewalk, and turned
up no contract with the Authority to do the same. Def. 56.l

~

13; Def. Ex. H. Shephard Jaffess,

a senior project officer for the Authority, also submitted an affidavit as part of the James action
in support of the Authority's motion to dismiss that action. Def. Ex. F. In that affidavit, he
represents that, at the time of the James accident, the Authority "was not involved in any ongoing
projects at the school, and likewise, did not retain a general contractor or construction manager
to oversee construction and/or renovation at or near the premises of P.S. 111." Id.

~

6.

Additionally, the Defendant provided excerpts of a deposition of James taken at a
municipal hearing conducted just prior to when she filed her complaint, where she was examined
by the Corporation Counsel of New York. See Def. Ex. G; see also N.Y. Gen. Mun. Law§ 50h(l )("Wherever a notice of claim is filed against a city, county, town, village, fire district,
ambulance district or school district the city, county, town, village, fire district, ambulance
district or school district shall have the right to demand an examination of the claimant relative to
the occurrence and extent of the injuries or damages for which claim is made."). 4 James testified
at that proceeding that she fell when her "right foot got caught in the uneven sidewalk." Ex. G.
at 31. She further testified that, on the date of her accident, she did not notice "anyone doing any
construction work in the vicinity." Id. at 33.

4

The Plaintiffs argue that Defendants may not rely on testimony from the § 50-h proceedings in support of
their motion for summary judgment, as such testimony is hearsay. See Pl. Reply at 9. The court need not resolve
this objection, as the Court concludes, infra, that the evidence does not, in any case, defeat the duty to defend.

5

2.

The "Mertz" Action

On April 21, 2014, Kathleen Mertz filed an action in New York State Supreme Court,
naming the Authority, the City, and the DOE as Defendants. Kathleen Mertz v. The City of New

York, the New York City Department of Education, and New York City School Construction
Authority, Index No. 006209/2014 (N.Y. Sup. Ct. Apr. 21, 2014) (Dkt. No. 32-7) (hereafter
"Mertz Complaint"). 5
Mertz alleges, in her Complaint, that on May 8, 2013, she was injured when she fell
while descending an exterior stairway (the "Transportable") at a public school known as A.C.E.
Academy at P256, located at 160 Beach 29th Street, Queens, New York ("A.C.E. Academy"). Pl.
56.1

ii 17; Def. Resp. ii 17.

She further alleges that the Authority was "the owner of the

Transportable," that it "operated the ... Transportable," that the Transportable was under the
Authority's "control," and that the Authority, "its agents, servants, and/or employees,
maintained" and "supervised the ... Transportable." Mertz Complaint at 4-6. The Complaint
also alleges that it was the duty of the Authority "to have and keep the ... Transportable in a safe
and proper manner," that "prior to May 8, 2013, [the Authority] performed certain work on the
transportable at the aforesaid school premises," and that the Authority "designed," "installed,"
and "repaired" the Transportable. Id. at 6-7. As to her fall, specifically, Mertz alleges that she
slipped and/or fell while descending the Transportable's steps "as a result of the defective,
irregular, deteriorated, warped, unpainted, rotting, moss/mold covered, slimy, wet, slippery,
dangerous, hazardous and unsafe condition of the ... stairway," and that such slip and/or fall
resulted, inter alia, from "the negligence, carelessness and recklessness of the defendants ... in

5
The numbering for the allegations in the Mertz Complaint is inconsistent, with numbers appearing out of
order and frequently repeated. The Court thus cites to the page numbers, and not the paragraph numbers, of that
complaint.

6

the ownership, operation, management, maintenance, supervision and control of the aforesaid
school and/or the work performed at the school and/or transportable stairway and/or steps at the
aforesaid location." Id. at 7-8.
As with the James action, the Defendant points to additional evidence extrinsic to the
Mertz Complaint as relevant to this action. First, it is undisputed that on May 8, 2013, the date
of Mertz's accident, the Authority did not own or lease P.S. 43 or the Transportable. Def. 56.1
18; Pl. Resp. 56.1

~

~

18. It is further undisputed that no written contract between the Authority

and the City or DOE obligated the Authority to maintain, operate, repair, manage, or control P.S.
43 or the Transportable at the time of the accident. Def. 56.1

~~

19-20; Pl. Reply 56.1

~~

19-20.

In an affidavit submitted as part of the underlying action, again in support of the Authority's
motion to dismiss that action, Gordon Tung, a senior director at the Authority, averred that the
Authority was "not involved in any construction and/or renovation projects at A.C.E. Academy"
at the time of the accident. Def. Ex. K ~ 6.
The Defendant also provided testimony Mertz gave at a municipal hearing prior to filing
her complaint. Mertz testified that she believed that the Authority had set up the Transportable,
which had been there for approximately 15 years. Def. Ex. J. at 11. She further testified that she
slipped on a particular step, which was covered in moss, that she had been told that others had
been injured on the stairs, and that she was uncertain whether the steps had been "repaired at all
prior to [her] accident." Id. at 17-22. Finally, Mertz testified that there was no "construction or
work being done in the area of the accident on the day of the accident." Id. at 49.

3.

The "Guarnaccia" Action

On June 21, 2014, Mary Anne Guarnaccia filed an action in New York State Supreme
Court, naming the Authority, the City, and the DOE as Defendants. Mary Anne V Guarnaccia v.
7

The City of New York, the New York City School Construction Authority, and the New York City
Department of Education, Index No. 505355/2014 (N.Y. Sup. Ct. June 21, 2014) (Dkt. No. 32-8)
(hereafter "Guarnaccia Complaint").
Guarnaccia alleges, in her Complaint, that on September 17, 2013, she was injured while
walking on the sidewalk in front of Intermediate School 234, located at 1875 East 17th Street,
Brooklyn, New York ("LS. 234"). Pl. 56.1

~

26; Def. Resp. 56.1

~

26. She alleges, inter alia,

that the Authority was "the owner of the premises denominated as LS. 234," and that the
Authority "maintained," "controlled," "operated," "was the lessor of," and "was the lessee of' of
these premises. Guarnaccia Complaint~~ 28-33. More specifically, she alleges that the
Authority owned "the sidewalk" where she fell, and that it "maintained," "controlled,''
"operated," "was the lessor of,'' and "was the lessee of' the "accident location." Id.

~~

34-39.

She alleges that her accident was a result of the negligence of the Authority in "the maintenance,
control, operation and supervision of the premises, sidewalk and subject accident location." Id. ~
40. She also alleges that the Authority "caus [ed], permit[ted], and allow[ ed] a hazardous and
trap like and tripping condition to develop at the [accident] location (including but not limited to
allowing defective and dangerous conditions such as uprooted tree roots to extend out into its
sidewalk and to cause and create the cement sidewalk to be and become cracked, uneven and
trap like"). Id.

~

41.

As with the James and Mertz actions, the Defendant cites to additional extrinsic evidence.
First, it is undisputed that the Authority did not own or lease LS. 234 at the time of Guarnaccia's
accident. Def. 56.1

~

30; Pl. Resp.

~

30. Further, no written contract obligated the Authority to

maintain, operate, repair, manage, or control LS.
occurred. Def. 56.1

~

31; Pl. Resp.

~

23~

or the abutting sidewalk where the accident

31. On the other hand, it is not subject to reasonable

8

dispute that the Authority was under contract to perform construction work on the roof of I.S.
234, as well as to the facades, windows, and parapets of the building. Def. 56.l
56.l

~

~

33; Pl. Resp.

33; Def. Ex. 0 (bid and contract agreement).
At a municipal hearing prior to the filing of her complaint, Guarnaccia testified that the

area of the sidewalk where she tripped was close to scaffolding erected as a result of this
construction work. See Def. Ex. N at 19 (in which, when asked "[w ]here in relation to your
accident location was the scaffolding," Guarnaccia testified "[i]t's to the left and to the right. It's
to the fence, left, and to the right to the curb."). Guarnaccia further testified that there was a tree
at the accident location, and that she had walked past it "[m]any times." Id. at 22. The tree was
also flanked by scaffolding. See id. Asked whether she knew if "any particular construction
workers had been working at that location or construction companies," Guarnaccia replied that
"[t]hey've been working there for four years." Id. As to her accident more specifically,
Guarnaccia testified that she "tripped on a crack," id. at 23, which was "jutting out of a box"
containing the tree, Ex. Q at 20. She testified that there was no "construction material in the
vicinity of where [she] tripped," but also noted that the scaffolding at that location was "three or
four feet away." EX.Nat 30-31. Asked whether the "roofing work that was being performed on
the school at the time of [her] accident" had "any bearing on [her] accident," Guarnaccia
responded "[n]ot that [she] kn[ e]w of." Ex. Q at 66. Instead, she testified that she believed
Hurricane "Sandy blew the trees around," "uplifted the roots," and caused the crack. Ex. Rat 69.
Asked why she had sued the Authority, Guarnaccia testified "[i]t was because of the
scaffolding." Id. at 76. She also testified, however, that she had no "personal knowledge why a
suit was brought against the [Authority]." Id.

C.

The Tender and the Response

9

On June 5, 2014, the New York City Law Department, on behalf of the Plaintiffs,
notified Liberty of the Plaintiffs' receipt of the James Complaint by letter. Pl. 56.l ~ 15; Def.
Resp.~

15. In that letter, the Plaintiffs provided a copy of the James Complaint, and demanded

Liberty provide a defense pursuant to the terms of the Policy. Pl. 56.1

~

15; Def. Resp.

~

15.

The Law Department sent similar tender letters containing the Mertz Complaint and the
Guarnaccia Complaint on June 12, 2014, and July 24, 2014, respectively. Pl. 56.1
Def.

Resp.~~

~~

24, 31;

24, 31.

By letter dated August 6, 2015 (well over a year after receiving the tenders), Liberty
responded. See Pl. 56.l

~

33; Def. Resp.

56.1~33;

Dkt. No. 32-9 (Aug. 6, 2015 Letter). In that

letter, Liberty denied any obligation to defend as to all three actions. As to the James Complaint,
Liberty stated that "[ o]ur investigation has revealed that the [Authority] did not own, manage, or
maintain P.S. 11 and was not performing work at this school at the time of the accident." Id. at 2
As to the Mertz Complaint, Liberty again explained that its investigation "has revealed that [the
Authority] did not own, manage, or maintain the ACE Academy, that the [Authority] has not
performed work on the portable staircase, and that the [Authority] completed its work on an
unrelated portion of the premises in November 2012." Id. at 3. Finally, as to the Guarnaccia
Complaint, Liberty affirmed that its investigation "revealed that the [Authority] did not own,
manage, or maintain P.S. 234 [where Ms. Guarnaccia's alleged fall occurred in 2013], and was
not performing work at this location at the time of the accident." Id. at 3.
Liberty then summarized its decision as to all of the actions follows: it noted that, under
the Additional Insured portion of the Policy, the City and the DOE did not qualify as additional
insureds "unless the bodily injury [alleged] was caused, in whole or in part, by [either] (a) the
[Authority's] ongoing operations or (b) in connection with premises owned or rented by the

10

[Authority]." Id. at 6. "Based on [Liberty's] review of the Complaints" in the three actions
stated above, it concluded that the alleged injuries "were not caused, in whole or in part, by the
[Authority's] ongoing operations or in connection with premises owned or rented by the
[Authority],'' and thus that there was no duty to defend. Id.
On August 13, 2015, the Law Department responded in a letter. Dkt. No. 32-10. In that
letter, the Department stated, first, that the qualifications built into the Additional Insured
endorsement adding the City and the DOE to the policy were exclusions, and that Liberty's delay
in responding to the initial tender letter waived its right to invoke those exclusions. Id. at 2. The
letter further argued that the allegations in the complaints triggered Liberty's duty to defend,
regardless of the results of Liberty's investigation of the objective facts. Id. at 4-6.
On September 2, 2015, Liberty responded, maintaining its position that it had no duty to
defend on the basis that "the [alleged] accidents were not caused by the acts or omissions of the
the [Authority] or the acts or omissions [of] those acting on [its] behalf in the performance of
ongoing operations." Pl. 56.1

if 45; Def. Reply 56. l if 45.

This action followed.

II.

Legal Standard
The Court may award summary judgment to a moving party if, after reviewing the

parties' submissions in the light most favorable to the non-moving party, "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). A fact is "material" if it "might affect the outcome of the suit under the

governing law," and is genuinely in dispute if "the evidence is such that a reasonable jury could
return a verdict for the nonmoving party." Roe v. City of Waterbury, 542 F.3d 31, 35 (2d Cir.
2008) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). As a general matter,
11

"whether an insurer has an obligation to defend is a question of law for the courts." Burt Rigid
Box Inc. v. Travelers Prop. Cas. Corp., 126 F. Supp. 2d 596, 634 (W.D.N.Y. 2001), ajfd in part,
rev'd in part on the grounds, 302 F.3d 83 (2d Cir. 2002) ("Burt 1").

III.

Discussion
It is well-settled that, under New York Law, "[a]n insurer's duty to defend its insured is

exceedingly broad." Regal Constr. Corp. v Nat'! Un. Fire Ins. Co. o.f Pittsburgh, PA, 15 N.Y.3d
34, 37 (N.Y. 2010) (internal quotation marks omitted). As the Second Circuit, interpreting New
York law, has held, this "duty ... is broader than [the insurer's] duty to indemnify." Burt Rigid
Box, Inc. v. Travelers Property Cas. Corp., 302 F.3d 83, 97 (2d Cir. 2002) ("Burt 2"). Thus,
although the duty to indemnify is generally not adjudicated until the end of a proceeding and
may turn on the outcome of that proceeding, an "insurer will be called upon to provide a defense
whenever the allegations of the complaint suggest a reasonable possibility of coverage." Regal,
15 N. Y.3d at 37 (internal quotation marks and alteration omitted).
Relying on these settled principles, the Plaintiffs argue that the Defendant had a duty to
defend them in each of the underlying actions, and that Liberty's failure to do so breached its
obligations under its insurance contract. See generally Dkt. No. 31 ("Pl. Mem."). Specifically,
Plaintiffs argue, first, that the allegations in each of the complaints "suggested ... a reasonable
possibility" of coverage under the indemnity provisions; and second, that, assuming the
allegations suggested such a possibility, extrinsic evidence showing that the Authority's ongoing
operations did not, in fact, cause the underlying plaintiffs' injuries is irrelevant. See id. Third,
and in the alternative, Plaintiffs argue that the ongoing operations requirement in the insurance
policy is an exclusion, and that Liberty's failure to timely disclaim coverage "bar[s it] from
disclaiming coverage based upon [that] exclusion" pursuant to New York Insurance Law §
12

3420(d). The Allen-Stevenson Sch. v Burlington Ins. Co., Index No. 0603036/2006, 2008 N.Y.
Misc. LEXIS 10587, at* 10 (N.Y. Sup. Ct. Mar. 31, 2008); see also 492 Kings Realty, LLC v 506
Kings, LLC, 88 A.D.3d 941, 943, (N.Y. App. Div. 2d Dep't 2011) ("Insurance provisions that

cover only ongoing operations or, conversely, do not cover completed operations, have routinely
been treated as policy exclusions").
The Defendant disputes that any duty to defend ever existed as to the underlying actions
or exists now. See Dkt. No. 36 ("Def. Mem."). To that end, it argues, first, that the underlying
complaints failed to allege that the Authority's ongoing operations caused the underlying
plaintiffs' injuries; and second, that, even if the complaints did so allege, extrinsic evidence
presented in this litigation establishes as a matter of law that the injuries were not caused by the
ongoing operations of the Authority and thus terminates any duty to defend. See Allstate Ins. Co.
v. Zuk, 78 N.Y.2d 41, 45 (N.Y. 1991) (holding that, if an insurer demonstrates that "as a matter

oflaw[,] there is no possible factual or legal basis on which [the insurer] might eventually be
obligated to indemnify its insured under any policy provision," the duty to defend terminates).
Last, addressing the Plaintiffs' alternative argument that Liberty's disclaimer was untimely, the
Defendant argues that the ongoing operations restriction is not a policy exclusion, but a
necessary element of coverage, and thus that timely disclaimer was not required under New York
law. See Def. Mem. at 25 (citing Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 188 (N.Y.
2000) ("Disclaimer pursuant to section 3420(d) is unnecessary when a claim falls outside the
scope of the policy's coverage portion.")).
Addressing these arguments in detail below, the Court holds as follows. First, the Court
agrees with the Plaintiffs that the underlying complaints "contain[] ... allegations which bring
the claim[s] ... potentially within the protection purchased," and thus holds that, according to

13

New York insurance law, receipt of these complaints triggered Liberty's duty to defend. Regal,
15 N.Y.3d at 37 (internal quotation marks omitted). Second, the Court holds that, under the
circumstances of this case, the Defendant's extrinsic evidence does not terminate or affect that
duty. On this basis, the Court grants summary judgment to the Plaintiffs on all of their claims,
and denies summary judgment to the Defendant. Having resolved the issue on the basis of the
Plaintiffs' primary arguments, the Court does not address the Plaintiffs' alternative argument as
to the timeliness of disclaimer.

A.

The Allegations in the Underlying Complaints Triggered the Duty to Defend

The Court first holds that, because the allegations in each of the three underlying
complaints "suggest a reasonable possibility of coverage," the Plaintiffs' tender of these
complaints to the Defendant triggered Liberty's duty to defend. Regal, 15 N.Y.3d at 37 (internal
quotation marks and alteration omitted).
As noted, under New York law, "[t]he duty of an insurer to defend its insured arises
whenever the allegations within the four corners of the underlying complaint potentially give rise
to a covered claim, or where the insurer has actual knowledge of facts establishing a reasonable
possibility of coverage." Frontier Insulation Contractors, Inc. v. Merchants Mut. Ins. Co., 91
N.Y.2d 169, 175 (N.Y. 1997) (internal quotation marks omitted). As the Second Circuit has
stated, "[i]fthe allegations of the complaint are even potentially within the language of the
insurance policy, there is a duty to defend." CGS Indus., Inc. v. Charter Oak Fire Ins. Co., 720
F.3d 71, 82-83 (2d Cir. 2013) (quoting Town of Massena v. Healthcare Underwriters Mut. Ins.

Co., 98 N.Y.2d 435, 443 (N.Y. 2002)) (emphasis added); see also Avondale Indus., Inc. v.
Travelers Indem. Co., 774 F. Supp. 1416, 1424 (S.D.N.Y. 1991) (noting that, only "if an insurer
can demonstrate as a matter of law that the allegations of the underlying complaint do not bring
14

the claim within the coverage afforded by the policy," will "the insurer [have] no duty to
defend").
It is generally not relevant to the duty to defend whether the allegations in a complaint

are, objectively, true. See Goldberg v. Lumber Mut. Cas. Ins. Co., of N. Y, 297 N.Y. 148, 152
(N. Y. 1948) (noting, in a case addressing the contours of a contractual duty to defend nearly
identical to the one in this case, that "the insurer obligated itself to handle the defense of actions
against the insured whenever the complaint served upon him alleged a state of facts covered by
the policy, regardless of whether such allegations squared with objective truth or were utterly
false and groundless"); accord Kincaid v Simmons, 66 A.D.2d 428, 431 (N.Y. App Div. 4th
Dep't 1979). Courts addressing the contours of the duty to defend thus ask what the complaint
alleges, not what the objective state of reality is. 6
As is suggested by the above legal standard, allegations in a complaint need not clearly
bring the complaint within the insurance contract's indemnity provision to trigger a duty to
defend. Instead, courts - including the Second Circuit (interpreting New York law), have
repeatedly held that, if a complaint is ambiguous as to a fact material to coverage, the ambiguity
must be resolved in favor of the insured. See Suburban Bindery Equip. Corp. v. Boston Old

Colony Ins. Co., 150 A.D.2d 767, 767 (N.Y. App. Div. 2d Dep't 1989) ("Any doubt as to
whether the allegations state a claim covered by the policy must be resolved in favor of the
insured."); Int'! Bus. Machs. Corp. v. Liberty Mut. Fire Ins. Co., 303 F.3d 419, 424-25 (2d Cir.
2002) ("IBM 1");Lee v. Aetna Casualty & Surety Co., 178 F.2d 750, 753 (2d Cir. 1949)
(Opinion of Learned Hand) (acknowledging that a complaint appeared to allege multiple,
mutually exclusive factual theories, only some of which would trigger the duty to indemnify, and

6

The Court addresses the relevance of extrinsic evidence to this inquiry, infra. See Part III.B.

15

concluding that "[ w]hen ... [a] complaint comprehends an injury which may be within the
policy, we hold that the promise to defend includes it" (emphasis added)).
Finally, "[i]f any of the claims against the insured arguably arise from covered events, the
insurer is required to defend the entire action." Frontier, 91 N.Y.2d at 175 (emphasis added).
In the instant case, the question is whether the allegations in the three underlying
complaints even potentially suggest injuries "caused, in whole or in part, by [the Authority's]
acts or omissions or the acts or omissions of those acting on [its] behalf ... [i]n the performance
of [the Authority's] ongoing operations." Policy at 93. The Court holds - as to each complaint that the allegations do so.
As an initial matter, the Court notes that the nature of the ongoing operations limitation as a policy exclusion or as a precondition to liability - is relevant to the Court's determination of
whether the allegations in these complaints triggered the duty to defend. 7 As noted, it is
generally the case that a complaint's allegations need only "potentially" be "within the language
of the insurance policy" to trigger that duty. CGS Indus., Inc. 720 F.3d at 82-83 (internal
quotation marks omitted). Notwithstanding this already lenient standard, the New York Court of
Appeals has held that, when an insurer seeks to show that the allegations in a complaint "cast the
pleadings wholly within [a policy] exclusion," the insurer bears an even heavier burden to
demonstrate the absence of a duty to defend. Frontier, 91 N.Y.2d at 175. "To be relieved of its
duty to defend on the basis of a policy exclusion, the insurer ... [must demonstrate] that the
allegations of the complaint cast the pleadings wholly within that exclusion, that the exclusion is
subject to no other reasonable interpretation, and that there is no possible factual or legal basis

7

As already noted, the Court need not, and does not, reach the question of whether the
ongoing operations limitation is formally an exclusion for purposes of the timeliness of a
disclaimer under § 3420.
16

upon which the insurer may eventually be held obligated to indemnify the insured under any
policy provision." Id. The Plaintiffs correctly observe that several New York courts have held
that an ongoing operations limitation counts as an exclusion, at least for purposes of the instant
analysis. See 492 Kings Realty, LLC, 88 A.D.3d at 943 (stating, in the context of an ongoing
operations limitation in an additional ensured endorsement, that "[i]nsurance provisions that
cover only ongoing operations or, conversely, do not cover completed operations, have routinely
been treated as policy exclusions" (collecting cases)). The Plaintiffs thus argue that the
Defendant bears a "heavy burden" if it seeks to show that the allegations in the underlying
complaints allege only completed operations. Frontier, 91 N.Y.2d at 175.
In response, the Defendant makes no compelling argument why the Court should not treat
the ongoing operations limitation as an exclusion for purposes of the Court's analysis of the duty
to defend. In opposing the Plaintiffs distinct argument that Liberty's disclaimer was untimely
under§ 3420, the Defendant argues that the ongoing operations limitation is not an exclusion for
purposes of that statute. Def. Mem., at 25. But its explanation of why that is the case all but
concedes that the ongoing operations provision should be treated as an exclusion for purposes of
the instant analysis of the complaints' allegations. The Defendant, seeking to show that it had no
duty to timely disclaim, distinguishes 492 Kings on the ground that that case did not address §
3420(d), and held only that an ongoing operations restriction is "similar to an exclusion" for
purposes of the duty to defend. Id. (citing 492 Kings Realty, 88 A.D.3d at 943). The Defendant
nowhere argues, however, that 492 Kings incorrectly treated the ongoing operations limitation as
an exclusion for purposes of analyzing that duty. Treating the ongoing operations limitation as
an exdusion for purposes of the instant analysis, the1e is no question that the Defendant cannot
meet its "heavy burden of demonstrating that the allegations of the complaint cast the pleadings

17

wholly within" that exclusion. Frontier, 91 N.Y.2d at 175. On this basis alone, the Court finds
that the complaints allege potentially covered injuries.
In any event, even were the Court to assume, arguendo, that the ongoing operations
provision is not an exclusion, analysis of the allegations in the underlying complaints makes
clear that they "potentially give rise to ... covered claim[s]." Frontier, 91 N.Y.2d at 175.
Under New York law, "[t]he term 'ongoing operations' is interpreted broadly." Town of

Fort Ann v. Liberty Mut. Ins. Co., 69 A.D.3d 1261, 1262-63 (N.Y. App. Div. 3d Dep't 2010).
New York courts have thus found operations to be ongoing for purposes of insurance policies
when "major construction ... had ended one to two months before" an accident, "[but] inspection
of the project .. ., which was required before [the construction] work was considered completed
under the contract, had not yet occurred," id. at 1263; as well as where, after a contractor had
already replaced radiator valves, "the tests designed to assure proper performance remained
undone," Perez v. N. Y.C. Hous. Auth., 302 A.D.2d 222, 222 (N.Y. App. Div. 1st Dep't 2003).
The phrase "caused, in whole or in part," requires that an action be the proximate cause of an
injury. See Burlington Ins. Co. v. NYC Transit Auth., 79 N.E.3d 477, 483 (N.Y. 2017). Thus,
the question in this case is whether the complaints potentially alleged that the Authority's
ongoing operations were the proximate cause of the underlying plaintiffs' injuries. Before
turning to the complaints' allegations, the Court addresses other cases that have assessed the
sufficiency of parallel allegations.
Several courts have addressed what a complaint must allege to suggest that an injury was
potentially caused by the insured's ongoing operations. In 492 Kings Realty, the insurer
presented extrinsic evidence suggesting that operations at a construction site had ceased prior to
an accident, and thus that the underlying claim was not covered. See 492 Kings Realty, LLC, 88

18

A.D.3d at 943. The court (although treating the ongoing operations provision as an exclusion),
held that an "allegation by [the underlying plaintiff! that the property damage arose out of the
defendants' negligence in 'conducting' the construction project was broad enough to encompass
a claim under the policy ... , thus triggering a duty to defend." Id.
In Kincaid, the insured informed the insurance company that he had completed his
operations at the relevant premises prior to the date of the alleged accident. 66 A.D.2d at 42930. The court held that the allegations in the complaint nevertheless triggered the duty to defend
because the "plaintiffs' broadly framed complaint state[ d] that each defendant engaged in the
construction of the structure [and] alleged negligence on the part of each defendant in
supervising, maintaining and exercising control pertaining to premises then under construction."

Id. at 430-31.
In City of New York v. Endurance Am. Ins. Co., the First Department held that a
complaint's allegations gave "rise to the reasonable possibility ofrecovery under the policy"
because the "underlying complaint allege[ d] that the plaintiffs injuries arose out of the
negligence of [the underlying defendants] in maintaining the 'traffic and pedestrian control
devices' at the intersection where the plaintiff was struck by a car." 98 A.D.3d 900, 901 (N.Y.
App. Div. 1st Dep't 2012). 8
Finally, in Employers Insurance Company of Wausau v. Northfield Insurance Company,
Judge Weinstein addressed an insurance policy stating that coverage terminated when a given
door had been "put to its intended use by any person" other than the contractor. 150 F. Supp. 3d

8
As in 492 Kings and Kincaid, the insurer in Endurance argued that record evidence "establish[ed] that
[the] operations at the subject intersection had been completed and thus were no longer ongoing at the time of the
accident," although, unlike in those cases, the court appeared to dismiss that contention not because it was irrelevant,
but because the court found it was not true. Id

19

196, 201 (E.D.N.Y. 2015). The complaint alleged that the underlying plaintiff had used the door
- an allegation Judge Weinstein concluded indicated that the construction "work had been
completed and the Policy was no longer applicable." Id. Nevertheless, Judge Weinstein noted
that the underlying complaint also alleged that "[the construction] work included 'manag[ing]
and controll[ing]' the door in question." Id. On the basis of these latter allegations, and
notwithstanding the former allegation, he held that there was a duty to defend. Id. 9
Applying general principles of New York insurance law, and comparing the complaints
to the allegations in the above cases, the Court finds that each of the underlying complaints
alleged claims "potentially within the language of the insurance policy." CGS Indus., Inc., 720
F.3d at 82 (internal quotation marks omitted). The Court addresses each complaint in turn.

1.

The James Complaint Alleges an Injury Potentially within the Language of
the Insurance Policy

First, the James Complaint's allegations suggest a potentially covered injury. As noted,
James alleges that she was injured when she tripped, slipped, or fell on a defective sidewalk
abutting P.S. 111. See generally James Complaint. Specifically, she alleges that on February 14,
2013 (the date of her accident), the Authority "own[ed]," "was a lessee of," "was a general
contractor at," "operated," "maintained," "managed," "controlled," and "supervised," "the
premises known as P.S. 111 .... [i]nclusive of the abutting sidewalk." Id.
~~

~~

25-33; see also id.

34-37 (alleging that "[o]n or before February 14, 2013," the Authority "repaired,"

"inspected," "constructed," and "designed" said premises). James further alleges that her injury

9

In some of these cases, the respective court treated the ongoing operations requirement as an exclusion.
See, e.g., 492 Kings Realty, LLC, 88 A.D.3d at 943. In others, the court did not appear to do so. See, e.g.,
Endurance Am. Ins. Co., 98 A.D.3d at 900. As noted, the Court holds that, for purposes of the instant burdenshifting analysis, the ongoing operations limitation should be treated as an exclusion. It reiterates, however, that
even assuming, arguendo, that that higher burden does not apply, the complaints' allegations still suggest an injury
"potentially within the language of the insurance policy." CGS' Indus., Inc., 720 F.3d at 82. The Court observes that
the holdings in cases that treat the ongoing operations requirement as an exclusion are relevant to the Court's inquiry
under this still-lenient standard.

20

"was caused solely by the negligence, carelessness and recklessness of the defendants [including
the Authority], in the ownership, leasing, operation, maintenance, management, control,
supervision, construction, demolition[,] alteration, repair and/or inspection of the Aforesaid
Premises." Id.

ii 70.

These allegations, read together, suggest that the Authority was responsible

for a defect in the sidewalk - whether by creating it or by failing in its alleged responsibility to
maintain the premises. They further at least potentially suggest that the defect in the sidewalk
was caused by the Authority's ongoing operations - whether those operations constituted
construction at the site (either on February 14, 2013, or shortly before, with operations
continuing in even a minimal capacity), maintenance of the sidewalk, management of the area, or
any of the numerous other theories of liability alleged. The allegations thus triggered the duty to
defend.
2.

The Mertz Complaint Alleges an Injury Potentially within the Language of
the Insurance Policy

Similarly, the allegations in the Mertz Complaint - although broadly framed - suggest an
injury that "may be within the [P]olicy." Lee, 178 F.2d at 752. Mertz alleges that she was
injured when she fell while descending an exterior stairway (the "Transportable") at A.C.E.
Academy. See generally Mertz Complaint. As to that injury, she alleges that the Authority was
"the owner of the Transportable," that it "operated the ... Transportable," that the Transportable
was under the Authority's "control," and that the Authority, "its agents, servants, and/or
employees, maintained" and "supervised the ... Transportable." Id. at 4-6. The Mertz
Complaint also alleges that it was the duty of the Authority "to have and keep the ...
Transportable in a safe and proper manner," that "prior to May 8, 2013, [the Authority]
performed certain work on the transportable at the aforesaid school premises," and that the
Authority "designed," "installed," and "repaired," the Transportable. Id. at 6-7. As to her fall,

21

specifically, Mertz alleges that the unsafe condition of the Transportable was caused by "the
negligence, carelessness and recklessness of the defendants ... in the ownership, operation,
management, maintenance, supervision and control of the aforesaid school and/or the work
performed at the school and/or transportable stairway and/or steps at the aforesaid location." Id.
at 8.
It is true that the Complaint specifically alleges that the Authority performed work "prior
to" to the accident date, id. at 6, which the Defendant suggests indicates that any such work was
necessarily completed, Def. Mem. at 11. But this allegation - coupled with the general
allegations that the Authority maintained the staircase - suggests the reasonable possibility that,
even if such work had in a primary sense concluded, maintenance, supervision, or testing could
have been ongoing. See Town of Fort Ann, 69 A.D.3d at 1262 (holding that, under New York
law, "the term 'ongoing operations' is interpreted broadly"). In short, the complaint alleges that
the Authority was responsible for the staircase, had performed construction work on it, and had
an ongoing obligation to maintain it. These allegations thus triggered Liberty's duty to defend.
3.

The Guarnaccia Complaint Alleges an Injury Potentially within the
Language of the Insurance Policy

Finally, the Guarnaccia complaint also alleges a potentially covered injury. Guarnaccia
alleges that she was injured while walking on the sidewalk in front of I.S. 234. See generally
Guarnaccia Complaint. She alleges that her accident was a result of the negligence of the
Authority in "the maintenance, control, operation and supervision of the premises, sidewalk and
subject accident location." Id

~

40. She also alleges that the Authority "caus[ed], permit[ted],

and allow[ed] a hazardous and trap like and tripping condition to develop at the [accident]
location (including but not limited to allowing defective and dangerous conditions such as
uprooted tree roots to extend out into its sidewalk and to cause and create the cement sidewalk to

22

be and become cracked, uneven and trap like)." Id.

~

41 (emphasis added). These allegations

suggest that the Authority may have maintained the sidewalk itself, and at minimum suggest that
it maintained the surrounding premises. Guarnaccia's complaint thus alleges that her injury was
potentially caused by the Authority's ongoing operations. These allegations, as with those in the
other complaints, triggered the Defendant's duty to defend.
The Court further notes that extrinsic evidence available at the time that Liberty
disclaimed also and independently triggered the duty to defend as to the Guarnaccia action.
Although evidence available at that time did not conclusively establish that Guarnaccia's
accident was caused by the Authority's construction, it did indicate both that there was
construction in the vicinity of her accident and that she potentially brought her claim against the
Authority for that reason. See Dkt. No. 32-10 (in which the Plaintiffs highlighted some of this
evidence for the Defendant in a letter arguing entitlement to a defense); Ex.Rat 76 (in which,
asked why she had sued the Authority, Guarnaccia initially testified "[i]t was because of the
scaffolding"). This evidence, viewed in light of the allegations in the complaint, independently
triggered a duty to defend. See Fitzpatrick, 78 N.Y.2d at 67 (holding that an insurer must
"provide a defense where, notwithstanding the complaint allegations, underlying facts made
known to the insurer create a reasonable possibility that the insured may be held liable for some
act or omission covered by the policy" (internal quotation marks omitted)).
Each of the complaints, then (as well as extrinsic evidence in the Guarnaccia action)
triggered Liberty's duty to defend.

4.

The Defendant's Counterarguments Are Unavailing

Notwithstanding the broadly-worded allegations in these complaints, the Defendant
argues that they fail to even potentially allege covered injuries. The Defendant correctly
23

observes that none of the complaints contain clear, specific allegations expressly alleging
ongoing operations. See Def. Mem. at 11. It thus argues that the "shotgun allegations" are
insufficient to allege covered injuries. Def. Mem. at 9 (quoting Atlantic Mut. Ins. Co. v Terk

Tech. Corp., 309 A.D.2d 22, 29 (N.Y. App. Div. 1st Dep't 2003)). Not so.
The Defendant is right that the complaints are broadly worded, and that they leave some
ambiguity as to the precise role of the Authority in the causation of the alleged injuries.
Nevertheless, the fact that the complaints are broadly worded or ambiguous as to facts material
to indemnity does not change the outcome of this analysis. Each complaint alleges that the
Authority was responsible for the accidents in question, that it had the responsibility to maintain
the areas in question, and that it had engaged in construction or repair work at that location whether on the day in question or at some unspecified previous time. Because the complaints
"comprehend[] ... injur[ies] within the policy," they triggered the duty to defend notwithstanding any ambiguities. Lee, 178 F.2d at 752; Kincaid, 66 A.D.2d at 429-30.
In sum, the allegations in these complaints at least suggest claims "potentially within the
language of the insurance policy," and the tender of them to Liberty triggered its duty to defend
as to each action. CGS Industries, Inc., 720 F.3d at 82.

B.

Extrinsic Evidence Does Not, Under the Circumstances, Defeat or Terminate
the Duty to Defend

Even assuming the allegations in the complaints allege potentially covered injuries,
Liberty argues that it has no duty to defend. According to Liberty, the evidence it has introduced
in this litigation conclusively establishes that the Authority had no ongoing operations in
proximity to the James and Mertz accidents, and that the Authority's construction project near
the site of the Guarnaccia accident - although an ongoing operation - was not the proximate

24

cause of her injury. Because this evidence (extrinsic to the allegations in the complaints)
establishes "as a matter of law that there is no possible factual or legal basis on which [Liberty]
might eventually be obligated to indemnify its insured under any policy provision," Liberty
argues that it terminates Liberty's duty to defend. Burt, 302 F.3d at 97 (Burt 2) (quoting Zuk, 78
N.Y.2d at 45). Although the Court agrees that there is some ambiguity as to the precise contours
of the extrinsic evidence rule under New York insurance law, the Court holds that extrinsic
evidence does not affect Liberty's duty to defend in this case.
The question of when facts extrinsic to a complaint may either prevent the attachment of
a duty to defend or terminate that duty (at a subsequent date, by judicial decree) remains
somewhat unclear under New York law. See Stein v. N Assur. Co. ofAm., 617 F. App'x 28, 31
n.4 (2d Cir. 2015) (summary order) ("We have previously recognized that New York law is
'unclear' regarding the circumstances in which a court may consider extrinsic evidence in
making coverage determinations." (quoting Int'l Bus. Machs. Corp. v. Liberty Mut. Ins. Co., 363
F.3d 137, 148 n.4 (2d Cir. 2004) ("IBM 2"); Int'! Bus. Machs. Corp., 303 F.3d at 426 (IBM 1)
("[T]here is no consistent rule from New York's lower courts [as to] whether New York law
allows reference to extrinsic evidence in determining the duty to defend."). Notwithstanding this
lack of clarity, the Second Circuit - even as it has disclaimed insight into the precise contours of
New York law on this question - has suggested that extrinsic evidence may terminate the duty to
defend in certain circumstances. See Int 'l Bus. Machs, 363 F.3d at 148 (IBM 2) ("[T]he general
rule in determining whether an insurer has a duty to defend is to compare the allegations of the
complaint with the operative insurance policy. A narrow, but widely recognized exception to the
rule allows an insurer to refuse or withdraw a defense if evidence extrinsic to those sources and
'unrelated to the merits of plaintiff's action[,] plainly take the case outside the policy coverage."'

25

(quoting Allan D. Windt, Insurance Claims and Disputes, § 4:4 at pp. 293-94 (West 2001));
Burt, 302 F.3d at 97 (Burt 2) ("New York courts have, in appropriate cases, considered extrinsic
evidence where that evidence may conclusively establish that an insurer faces no possible
liability." (citing Avondale Indus., 774 F. Supp. at 1424-25) (collecting cases)).
The Court assumes, arguendo, that under New York law, extrinsic evidence may, in
certain cases, either justify an insurer in refusing to defend, or form the basis of a later and
successful motion for termination of that duty. Nevertheless, the Court holds that the extrinsic
evidence in this case has no such effect, for two reasons. First, even assuming extrinsic evidence
may be relevant to the duty to defend, it is only the rarest case where such evidence may justify
an insurer in refusing to defend in the first instance (rather than forming the basis for the insurer
to file a subsequent motion to terminate that duty). As the Court explicates below, this is not
such a case. Second, and independently, the extrinsic evidence the Defendant has presented goes
to an issue relevant to the merits of the underlying complaints. Under clearly established New
York law, then, such evidence cannot justify Liberty's refusal to defend or provide a basis, in a
collateral proceeding, for a declaration terminating that duty.

1.

Even if Extrinsic Evidence Could Terminate Liberty's Duty to Defend, it
Had No Basis to Refuse to Interpose a Defense in the First Instance

First, the Court holds that, even if the evidence presented herein could form a basis for a
motion to terminate Liberty's duty to defend, the Defendant had no basis relying on this evidence
to refuse to interpose a defense in the first instance. An analysis of New York cases addressing
the duty to defend explains this conclusion.
Although various decisions interpreting New York law have suggested that extrinsic
evidence may end a duty to defend, such cases have generally held only that the presentation of
such evidence to a court may entitle an insurer to a declaration terminating the duty as a

26

prospective matter, not that an insurer may refuse to defend as an initial matter based on its own
investigation. See, e.g., Burt Rigid Box, 126 F. Supp. 2d at 635 (Burt 1) ('"[W]here a court can
determine conclusively that there is no genuine dispute as to an extrinsic fact which when
applied to the underlying allegations limits them to a claim not covered by the policy, the insurer
no longer need defend' ... Nevertheless, the insurer remains liable for the defense costs incurred
in defending the claims asserted in the underlying action until a judicial determination that it is
not required to defend such claims." (quoting Avondale Indus., 775 F. Supp. at 1324 (emphasis
added)); Colon v Aetna Life & Cas. Ins. Co., 66 N.Y.2d 6, 10 (N.Y. 1985) (holding that, where
an insurer conducted its own investigation and concluded that a driver had been operating a
vehicle without the owner's consent, but the underlying complaint alleged such consent, the
insurer was not permitted to rely on its own investigation to refuse a defense - instead, the
insurer should have assumed the defense of the action and sought a "prompt judicial
determination, whether by summary judgment, declaratory judgment or otherwise that, contrary
to the allegations of the personal injury plaintiffs complaint, the driver actually did lack
permission of the insured, and that the insurer is not obligated by its contract of insurance to
furnish a defense to the driver") 10 ; Maryland Cas. Co. v. Pearson, 194 F.2d 284, 287 (2d Cir.
1952) ("While we agree that, since [the underlying plaintiff] was determined to be an employee
of [the insured] and entitled to workmen's compensation under the New York law, the [insurance
company] was not liable to defend the suit [the underlying plaintiff] brought, it does not
necessarily follow that the appellee could refuse to defend prior to that determination .... [I]f the

10

The Comi of Appeals, in language relevant to this case, observed that such an approach was preferable to
a rule that would permit the insurer to simply refuse coverage, as "a contrary holding ... might encourage refusals to
defend where the circumstances were less clear, because there \VOuld be little risk in doing so. If the person denied a
defense were subsequently found to have been operating the vehicle without consent, the insurer would have
incurred no cost, and if consent were found the insurer would merely reimburse the attorneys' fees it would have
incurred anyway." Id

27

complaint in the suit brought alleged, or at least, did not exclude, a basis for recovery for which
the insurer would be liable, the insurer was obliged to defend the suit 'until it could confine the
claim to a recovery that the policy did not cover.' This was not done until the judgment herein
below was entered and, consequently, the appellee did have an obligation to defend the suit until
that time." (quoting Lee, 178 F.2d at 753)).
Courts addressing the duty to defend have, further, made clear that, if the allegations in a
complaint trigger the duty to defend, the insurer's duty continues until a judicial decree
terminating it. In other words, a subsequent decree terminating the duty on the basis of extrinsic
evidence does not retroactively eliminate the duty that initially arose. See Hugo Boss Fashions,

Inc. v. Fed. Ins. Co., 252 F.3d 608, 622-23 (2d Cir. 2001) (finding that, where there was
uncertainty as to whether, under the law, indemnity was possible, "[i]t was, ... incumbent upon
[the insurer] to undertake a defense ... until the uncertainty surrounding ... was resolved"
(emphasis added)); id. ("Had [the insurer] sought a declaratory judgment immediately upon [the
insured' s] filing of its insurance claim, a court might have eliminated this uncertainty ... before
[the insurer] expended a great deal of money putting up a defense .... But until such a ruling
issued, the question of whether [the insurer] might be held liable to indemnify [the insured] was
in doubt. And, given this doubt, [the insurer's] failure to provide a defense for [its insured] in
the infringement suit was a violation of its contractual duties."); accord Maryland Cas. Co., 194
F.2d at 287; Burt Rigid Box, 126 F. Supp. 2d at 635 (Burt 1).
It is true that, in rare circumstances, New York courts have granted declaratory relief to

insurers affirming their refusal to offer a defense in the first instance on the basis of extrinsic
evidence. See, e.g., Town of Moreau v. Orkin Exterminating Co., 165 A.D.2d 415, 418, (N.Y.
App. Div. 3d Dep't 1991). But such cases often rest on estoppel principles (such that a judicial

28

decree has already established that there is no duty to indemnify). See, e.g., id. ("Accordingly,
applying the principle of collateral estoppel, [the New York] Supreme Court properly considered
[the insured's] criminal convictions ... and determined that the convictions precluded defendants
from contending that the burial of pesticides was unintentional.").
In any case, even if it may be appropriate to refuse coverage in certain other cases on the
basis of extrinsic evidence absent a prospective judicial decree, there is no question that this case
would not be one of them. Liberty's evidence in this action arises from the procedural history of
the underlying actions, and in many cases post-dates the dates on which Plaintiffs provided their
tender letter. Compare, e.g., Def. Ex. K. (providing an April 15, 2015, affidavit of Gordon Tung
created in the Mertz action); with Pl. 56.1

if 24 (describing the June 12, 2014, tender letter as to

the Mertz action). The Second Circuit has expressed its "doubt" that under New York law an
insurer may - years after an action began - retroactively terminate its duty to defend on the basis
of evidence that arose after the date of tender. See Int'l Bus. Machs. Corp., 303 F.3d at 426-27
(IBM 1) ("We doubt that New York courts would reward Liberty Mutual by considering
extrinsic evidence flushed out as a result of its unwillingness to take a position regarding the
[underlying] claim for over three years. To sanction this would undermine the 'well established'
principle 'that a liability insurer has a duty to defend its insured in a pending lawsuit if the
pleadings allege a covered occurrence, even though facts outside the four corners of those
pleadings indicate that the claim may be meritless or not covered."' (quoting Fitzpatrick, 78
N.Y.2d at 63)); see also id. at 426 n.3 ("In each of the [New York] cases Liberty Mutual cites
where extrinsic evidence was used by an insurer to evade the duty to defend, the extrinsic
evidence in question was available at the time the insurer was given the complaint.").

29

In short, even if, relying on the extrinsic evidence in this action, Liberty could seek a
prospective decree terminating its duty to defend, there is no basis for holding that Liberty could
rely on this evidence to refuse to defend in the first place. On this basis alone, the Court may
grant summary judgment to the Plaintiffs on their claims for defense costs in the underlying,
actions.

2.

Liberty Cannot Rely on Facts Related to the Merits of the Underlying
Actions to Defeat or Terminate its Duty to Defend

As noted, the Court's holding that this is not the rare case where an insurer can refuse to
interpose a defense based upon extrinsic evidence requires the Court, at a minimum, to grant
summary judgment to the Plaintiff on its claims seeking defense costs thus far accrued.
Nevertheless, on the basis of an independent argument, the Court finds that the Plaintiffs are
entitled to summary judgment as to all of their claims. That is because, under well-established
principles of New York law, Liberty cannot rely on extrinsic evidence in a collateral proceeding
to defeat or terminate its duty to defend when the facts it seeks to establish are related to the
merits of the underlying action.
As Liberty concedes, it is a "settled rule [under New York law] that extrinsic evidence
can[ not] be used to defeat the duty to defend ... [unless it is] 'unrelated to the merits of [the
underlying] plaintiffs action."' Def. Mem. at 18 (quoting Int 'l Bus. Machs. Corp., 363 F .3d at
148 (IBM 2)); see also Allstate Ins. Co. v Santiago, 98 A.D.2d 608, 608-09 (N.Y. App. Div. 1st
Dep't 1983) ("[T]he policy in this State has been to deny the declaratory judgment where the
matter in dispute can be determined in the basic negligence action but to permit the action when
the dispute is such that it depends on matters outside of the negligence action or will not arise in
the negligence action as a part of the lawsuit." (internal quotation marks omitted)); cf Avondale

30

Indus, 774 F. Supp. at 1425 ("While as a general rule, such a determination [that extrinsic
evidence terminates a duty to defend] is made only by the court hearing the underlying action
itself, where the factual issue central to the insurance coverage dispute is collateral to the
underlying action, so that it is irrelevant to the underlying action and will not be addressed there,
the court which has jurisdiction over the declaratory coverage action may make the
determination."); accord Am. Home Prods. Corp. v. Liberty Mut. Ins. Co., 565 F. Supp. 1485,
1500 (S.D.N.Y. 1983), a.ff. 748 F.2d 760 (2d Cir. 1984).
When an insurer believes that undisputed facts relevant to the merits of the underlying
action prove that the alleged injuries do not fall within the indemnification provisions, then its
recourse is not to seek a declaratory judgment that it has no duty to defend. Instead, it must
defend the action and seek to prove, in that action, the existence of the facts - at which point, it
may withdraw its defense. See Greenwich Ins. Co. v. City of NY, 997 N.Y.S.2d 32, 34 (N.Y.
App. Div. 1st Dep't. 2014) ("Because the underlying complaints pleaded claims that were
potentially within the scope of coverage, plaintiff is obligated to defend the underlying actions.
Whether plaintiff might ultimately be able to establish that its insured did not cause the injuries
alleged in the underlying actions involves questions of fact yet to be resolved; it is not an issue
that can be determined as a matter of law by examination of the insurance contract. Thus, it does
not afford a basis to relieve plaintiff of its duty to provide a defense."); accord Lee, 178 F.2d at
753. Such a rule follows from the basic structure of the duty to defend. That duty, which is
broader than the duty to indemnify, includes the duty to defend against meritless suits. See Burt
Rigid Box, 302 F.3d at 97 (Burt 2). If an insurer could defeat its duty by proving, in a collateral
action, the existence of a fact that is relevant to the merits of the underlying suit, it would follow
that the insurer could subvert its obligation to defend against meritless suits. Worse, such a

31

posture would place the insured in an untenable position: the insured would have to argue, in the
declaratory action, that the fact in question is disputed, even as the insured made the opposite
argument in the underlying action to try and defeat its own liability. Such an outcome would be
clearly contrary to New York law. See Cont'! Cas. Co. v. JBS Const. Mgmt., Inc., No. 09 CIV.
6697 (JSR), 2010 WL 2834898, at *3 (S.D.N.Y. July 1, 2010) ("To permit the insurer to
withdraw its defense whenever it becomes clear that the underlying lawsuit is meritless would
wholly undermine the well-established function of the duty to defend to serve as 'litigation
insurance."').
Applying this well-settled principle, the Court concludes that Liberty cannot defeat its
duty to defend with extrinsic evidence here. That is because the three factual questions Liberty
seeks to have this Court settle - whether the Authority had any ongoing operations in the vicinity
of the James and Mertz accidents, and whether the Authority's undisputed ongoing construction
activities near the site of the Guarnaccia accident contributed to that accident - are questions
relevant to the merits of the underlying actions. 11 A simple examination of the filings in those
cases makes this conclusion evident. 12

11

The Defendant does not argue that, if a given fact is material only to the Authority's liability for the
underlying plaintiffs' injuries - but not to the liability of either the City or the DOE- then the fact is not relevant to
the underlying actions. To the contrary, Liberty explicitly states that it "does not seek a declaration that would
relieve the [Authority] of liability in the Underlying Actions." Def. Mem. at 19. The Court thus assumes that if a
fact is relevant to the Authority's liability, it may not be resolved in this collateral proceeding, even though the
Authority is not itself a Plaintiff in this action.
12
Some of these filings have been provided by the parties. See, e.g., Def. Ex. K. (declaration of Gordon
Tung in support of the Authority's motion to dismiss the Mertz action). The Court takes judicial notice of the
others. See Glob. Network Commc 'ns Inc. v. City ofN. Y., 458 F.3d 150, 157 (2d Cir. 2006) ("A court may take
judicial notice of a document filed in another court not for the truth of the matters asserted in the other litigation, but
rather to establish the fact of such litigation and related filings." (internal quotation marks omitted)); accord Kramer
v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991); U.S. ex rel. Geisler v. Walters, 510 F.2d 887, 890 n.4 (3d
Cir. 1975) (taking judicial notice of the content of filings in a habeas case - not for the truth of the matters asserted,
but to determine what arguments were made).

32

i.

The Procedural History of the James Action Shows that the Existence of
Ongoing Operations Is Relevant to the Merits of that Action

First, the procedural history of the James action makes evident that the question of
whether James' injuries were caused by the Authority's ongoing operations is relevant to the
merits of James' claims.
The James action, as already noted, began with the filing of the James Complaint on or
around April 30, 2014. See James Complaint. On April 15, 2015, the Authority filed a motion
to dismiss the James Complaint or, in the alternative, for summary judgment. See Notice of
Motion, Patricia James v. New York City School Construction Authority, New York City
Department of Education, and City of New York, Index No. 021897/2014 (N.Y. Sup. Ct. Apr. 15,
2015). As support for this motion, the Authority cited, inter alia, to the affidavit of Shephard
Jaffess. Def. Ex. F. Jaffess stated in his affidavit that "[a]t the time of the [accident] ... the
[Authority] was not involved in any ongoing projects at the school, and likewise, did not retain a
general contractor or construction manager to oversee construction and/or renovation at or near
the premises." Id.

if 6.

In arguing for dismissal, the Authority cited to this affidavit, and to the

absence of ongoing operations, as proof that it did not owe a duty of care to James, and that she
could not succeed on the merits of her claim against the Authority. See Reply Affirmation,
Patricia James v. New York City School Construction Authority, New York City Department of
Education, and City of New York, Index No. 021897/2014 at 4-5 (N.Y. Sup. Ct. July 20, 2015)
(citing both to the Jaffess affidavit and to James' own testimony that she did not see any
construction near the accident site); id. at 5 (arguing that "[a]s a general proposition under New
York law, liability for a dangerous condition on real property must be predicated upon a
defendant's Ownership, occupancy, control or special use of said property.").

33

In opposition to the Authority's motion to dismiss or for summary judgment, James
argued that the Jaffess affidavit was self-serving and unsupported. Affirmation in Opposition,
Patricia James v. New York City School Construction Authority, New York City Department of
Education, and City of New York, Index No. 021897/2014 at 3-4 (N.Y. Sup. Ct. June 30, 2015).
James also cited evidence that she claimed suggested that, as of the date of the accident, the DOE
had assigned "management jurisdiction" to the Authority over the accident site. Id. at 4. In sum,
James argued that the Authority had not submitted sufficient evidence to show, inter alia, that it
had no ownership or responsibility of the subject premises on the date of the accident. See id. at
8 ("Plaintiff should be given an opportunity to explore these issues given defendants' exclusive
knowledge of the nature, extent, and time of the construction, repair, and maintenance work
performed on the subject sidewalk.").
The New York State Supreme Court denied the Authority's motion on July 23, 2015,
stating that the materials it had submitted were insufficient and that discovery had not yet been
completed. See Short Form Order, Patricia James v. New York City School Construction
Authority, New York City Department of Education, and City of New York, Index No.
021897/2014 (N.Y. Sup. Ct. July 23, 2015). The Authority appealed on September 14, 2015.
Notice of Appeal, Patricia James v. New York City School Construction Authority, New York
City Department of Education, and City of New York, Index No. 021897/2014 (N.Y. Sup. Ct.
Sept. 14, 2015). The most recent activity on the public electronic docket is an August 8, 2017,
discovery order. See Compliance Conference Order, Patricia James v. New York City School
Construction Authority, New York City Department of Education, and City of New York, Index
No. 021897/2014 (N.Y. Sup. Ct. Aug. 8, 2015).

34

In short, a review of the docket in the James action makes clear that the precise factual
question presented to the Court by Liberty is also a significant part of the Authority's defense in
the underlying case. Liberty therefore may not avoid its duty to defend by arguing that extrinsic
evidence establishes the absence of ongoing operations in the James action.
ii.

The Procedural History of the Mertz Action Similarly Shows that the
Existence of Ongoing Operations Is Relevant to the Merits of that Action

Analysis of the procedural history in the Mertz action leads to the same conclusion. On
May 13, 2015, the Authority moved to dismiss, and submitted the Tung affidavit as support. See
Def. Ex. K. In that affirmation, Tung represented that "[a]t the time of the alleged incident, the
[Authority] was not involved in any construction and/or renovation projects [at the premises]."
Id.~

6. On September 17, 2015, the New York State Supreme Court denied the motion. See

Short-Form Order, Kathleen Mertz v. The City of New York, the New York City Department of
Education, and New York City School Construction Authority, Index No. 006209/2014 (N.Y.
Sup. Ct. Sept. 17, 2015). The court summarized the Authority's argument as follows: "In
support of the motion, defendant submits inter alia the affidavit of Gordon Tung ... that the
[Authority] did not own, operate, manage, or maintain the premises where the accident occurred
and that the [Authority] was not involved in any construction and or renovation projects at the
subject location at the time of the accident." Id. at 2 (emphasis added)). The court denied the
motion, however, stating that the Tung affidavit was "vague and conclusory" and not based on
either personal knowledge or a review of documents, and that discovery was incomplete. See id.
at 2-3.
On December 22, 2016, the New York State Supreme Court granted the Authority's
motion for summary judgment. See Short-Form Order, Kathleen Mertz v. The City of New York,
the New York City Department of Education, and New York City School Construction Authority,

35

Index No. 006209/2014 (Dec. 22, 2016). Its reasoning stated as follows: first, it noted that, to be
liable, the Authority had to have actual or constructive notice of the relevant hazard. Id. at 2.
Then it stated: "Moving defendant ... established that [the Authority] does not own, operate,
maintain, or manage the subject premises, and that the [Authority] was not involved in any
construction or renovation projects at the accident location at the time of the accident.
Accordingly, movant established a prima facie case." Id.
In short, in the Mertz action, the issue of ongoing operations was a material question as to
the Authority's liability, and the court ultimately dismissed the action as against the Authority
(although not as against the other defendants) by finding the precise fact Liberty wants this court
to now find: that there is no evidence of such operations. Liberty may not avoid its duty to
defend in the Mertz action, then, by arguing that extrinsic evidence establishes the absence of
ongoing operations as a matter of law.

iii.

The Procedural History of the Guarnaccia Action Shows that Whether the
Authority's Ongoing Operations Caused Guarnaccia's Injury Is Relevant to
the Merits of that Action

Finally, in the Guarnaccia action, Liberty argues that the evidence is clear that the
Authority's ongoing construction project did not cause the underlying plaintiffs injury. See Def.
Mem. at 22-25. The procedural history of that action makes evident, however, that the question
of whether the Authority's ongoing operations caused Guarnaccia's injury is relevant to the
merits of Guarnaccia's claim.
On July 27, 2017, the Authority moved for summary judgment in the Guarnaccia action.

See Affirmation in Support, Mary Anne V Guarnaccia v. The City of New York, the New York
City School Construction Authority, and the New York City Department of Education, Index No.
505355/2014 (N.Y. Sup. Ct. July 27, 2017). In that motion (currently pending before the state
court), the Authority argues that neither the Authority nor its contractor owed the Plaintiff a duty
36

or were responsible for the accident, because the ongoing construction did not cause that
accident - Superstorm Sandy did. See id. at 2-3 (noting, inter alia, that the Authority "did not
perform any physical work to the sidewalk at issue," that the scaffolding "in no way impacted
the alleged defective condition," and that even plaintiff "does not believe that the sidewalk shed
impacted the sidewalk, as she specifically testified the sidewalk had been raised/cracked by tree
roots following Superstorm Sandy."). In other words, the Authority is presently attempting to
have the New York State Supreme Court find, as a matter of law, the same fact on which Liberty
here relies to defeat its duty to defend. The issue of causation is plainly relevant to the merits of
the underlying action, and Liberty may not rely on it to defeat its duty to defend.

iv.

Liberty's Counter-arguments Are Unavailing

In arguing that the facts it seeks to prove are unrelated to the merits of the underlying
actions, Liberty suggests that the plaintiffs in the James and Mertz actions can succeed without
proving ongoing operations - as long as they show that there were operations in the past. See
Def. Opp. at 19 ("The [Authority's] liability in the Underlying Actions does not tum on whether
its work was ongoing, but on whether its negligence, prior to the accident, was a proximate
cause."). It also argues, without citation to any actual briefing in the Guamaccia action, that
Guamaccia argues not that the construction project of the Authority caused the defective
sidewalk, but that the Plaintiffs and Authority may have breached a duty to manage city tree
wells. Id. at 24. To the degree not otherwise belied by the above citations to the actual issues in
dispute in the underlying actions, these arguments miss the point. Liberty seems to suggest that,
if a factual issue material to indemnification and defense is not dispositive of the underlying
actions - i.e. if a plaintiff in those actions might succeed even without showing that fact - then
the fact is not relevant to those actions. But this argument misstates the relevant standard. There
37

is no question that the plaintiffs in the underlying actions alleged ongoing operations, and that
proving such operations would be one way of securing a judgment against the Authority - just as
proving the absence of such operations is a core pmi of the Authority's defense. The fact that the
plaintiffs might have alternative theories of causation - i.e. that they can win without proving
these facts - does not render the facts "unrelated to the merits of [the] plaintiff[s'] action[s]."

Int'l Bus. Machs. Corp., 363 F.3d at 148 (IBM 2) (internal quotation marks omitted) (emphasis
added); cf CGS Indus., Inc., 720 F.3d at 83 ("[W]here several claims arise from the same set of
facts, if any of the claims are covered by the policy, the insurer consequently has a duty to
defend the entire action brought under any of the ... policies." (internal quotation marks
omitted)).
In sum, Liberty asks this Court to terminate its duty to defend on the basis of evidence
relevant to the underlying actions - evidence that the Authority itself produced in those actions
as part of its defense. New York law does not permit termination under such circumstances. Cf

Int'l Bus. Machs. Corp., 303 F.3d at 426-27 (IBM 1) ("We doubt that New York courts would
reward Liberty Mutual by considering extrinsic evidence flushed out as a result of its
unwillingness to take a position regarding the [underlying] claim for over three years."). If
Liberty seeks to terminate its duty, it may assist the Plaintiffs, and the Authority, in making the
precise arguments the Authority has been making, and if successful, Liberty may seek
declarations from the underlying courts that its duty is at end. It may not, however, terminate its
duty to defend in this proceeding.
The Court thus grants summary judgment to the Plaintiffs as to all of its claims on this
independent ground, and denies the Defendant's cross-motion for the same reason.

C.

The Plaintiffs' Motion for Costs and Fees
38

Finally, the Plaintiffs argue that they are entitled to costs and fees spent in the underlying
defense. See Pl. Mem. at 24-25. The Court agrees, for the above reasons, that Plaintiffs are
entitled to damages for Liberty's breach of its duty to defend. Plaintiffs also ask, however, that
this Court hold that specific rates of compensation for the Plaintiffs' attorneys are reasonable,
notwithstanding the fact that they have not yet submitted papers seeking to establish the precise
amount of damages to which they are entitled. Id. The Court declines to determine what is a
reasonable rate at this time. Instead, within one week of this order, the parties are ordered to
propose a briefing schedule to determine the amount of damages owed to Plaintiffs as a result of
Liberty's breach of its duty to defend. The Court will resolve all damages issues, including the
relevant lodestar for the Plaintiffs' attorneys, in resolving the issues raised in that briefing.

IV.

Conclusion
In conclusion, the Court grants the Plaintiffs' motion for partial summary judgment in its

entirety, denies the Defendant's cross-motion in its entirety, but reserves on the question of the
precise amount ofreimbursement and damages owed for Liberty's breach. This resolves docket
numbers 29 and 34. Within one week of the date of this order, the parties shall propose a
briefing schedule to determine the amount of damages owed to Plaintiffs.

SO ORDERED.

1
Dated: September':).g, 2017
New York, New York

United States District Judge
39