Gemini Insurance Company v. Integrity Contracting Inc.

Filing 72

OPINION & ORDER re: 65 LETTER MOTION for Oral Argument addressed to Judge Alison J. Nathan from John W. Carroll dated 5/9/2018. filed by Integrity Contracting Inc., 46 MOTION for Summary Judgment . filed by Gemini In surance Company, 51 MOTION for Summary Judgment . filed by Integrity Contracting Inc. For the foregoing reasons, Plaintiff's motion is DENIED and Defendant's motion is DENIED. This resolves Docket Numbers 46, 51, and 65. Within two weeks of the date of this Order, the parties shall confer regarding settlement and file a status letter with the Court proposing dates for a status conference. SO ORDERED. (Signed by Judge Alison J. Nathan on 3/8/2019) (kv)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

Gemini Insurance Company,
Plaintiff,
17-cv-1151 (AJN)

-vOPINION & ORDER
Integrity Contracting, Inc.,
Defendant.

ALISON J. NATHAN, District Judge:
Before the Court are Plaintiffs motion for summary judgment, Dkt. No. 46, and
Defendant's cross-motion for summary judgment, Dkt. No. 51. For the reasons set forth below,
Plaintiffs motion is denied and Defendant's motion is denied.

I.

Background
A. Factual Background
The following facts are undisputed except where specifically noted. Defendant Integrity

Contracting, Inc. ("Integrity") is a general contractor. Dkt. No. 58-1 at ,r 1. On March 26, 2016,
Defendant, through its broker, Spectrum Insurance Brokerage Services, Inc. ("Spectrum") sought
a Commercial General Liability policy for a period of June 17, 2016 through June 17, 201 7 (the
"Policy") from Plaintiff, Gemini Insurance Company ("Gemini"). Id Vela Insurance Services
("Vela") is an authorized administrator for Plaintiff. Dkt. No. 56-1 at ,r 1. Meghan Zuckerman
is an underwriter for Vela, and is tasked with determining whether to issue a policy to a potential
insured, and if so, under what terms to issue the policy. Id
When Defendant submitted its insurance application, it provided copies of: (i) an Acord
1

Commercial Insurance Application; (ii) Commercial General Liability Section; (iii) Contractors
Liability Program Supplemental Questionnaire Form ("Supplemental Questionnaire"); (iv) Loss
Run information for Integrity; and additional accompanying documentation ("Underwriting
Submissions"). Id. at ,i 4. Defendant contends that a "work on hand schedule" was also
submitted to Plaintiff, see id. at ,i 4 Response-although that document was not produced in
discovery. See Dkt. No. 58-1, at ,i 5 Response. Zuckerman then conducted a risk analysis
necessary to approve issuance of the Policy to Defendant, which included reviewing the
Underwriting Submissions. See Dkt. No. 56-1 at ,i 6.
On June 17, 2016, Vela, on behalf of Plaintiff, issued the Policy. See id. at ,i 17. On
September 14, 2016, Defendant, through its broker Spectrum, contacted Vela, seeking coverage
under the Policy for claims made by two owners of properties adjacent to a project of
Defendant's. See id. at ,i 20. Excavation and underpinning work at the project, located at 1601
Kings Highway, Brooklyn, New York (the "Project") had caused damage to the adjacent
buildings. Id. Vela conducted an investigation of the claim. Id. at ,i 21. The investigation
demonstrated that Defendant was acting as a general contractor to construct a four-to-five-story
commercial building on a vacant lot. Id. at ,i 22. The Project was a ground-up commercial
construction project including: underpinning, excavation, tunneling, underground work, earth
moving work and shoring of the building. Id. Defendant and its subcontractors were
performing exterior work at the Project. Id. Work on the Project began approximately five
months before Defendant's Underwriting Submissions were forwarded to Vela. Id. at ,i 24.
On November 9, 2016, Vela sent a letter to Defendant reserving Plaintiff's right to seek
rescission of the Policy based on, what Plaintiff alleged was Defendant's material
misrepresentations in its Underwriting Submissions about the type of work that Defendant was
2

undertaking. Id. at ,i 25. On December 15, 2016, Vela issued a follow-up letter to Defendant
stating that Plaintiff had relied on the inaccurate and false statements in Defendant's
Underwriting Submissions when it issued the Policy, and that Plaintiff would not have issued its
policy to Defendant if the correct information had been disclosed in the Underwriting
Submissions. Id. at ,i 26. Vela requested in the letter that Defendant consent to a rescission of
the Policy in return for a refund of the premium amount of $100,000, and advised that if
Defendant did not consent to the rescission, Plaintiff would commence a declaratory judgment
action against Defendant. Id. Defendant disputed, and continues to dispute, that it made
material misrepresentations in its submissions to Plaintiff. See, e.g., id. at ,i 32 Response. As a
result, Plaintiff filed this action on February 15, 2017. Id. at ,i 27.

B. Procedural Background
Plaintiff filed this declaratory judgment action seeking rescission on February 15, 2017.
Dkt. No. 1. Following discovery, Plaintiff and Defendant both filed cross-motions for summary
judgment on April 11, 2018. Dkt. Nos. 46, 51. On March 6, 2018, the Court accepted a new
case, Kingsway Realty, LLC v. Gemini Insurance Company, Case No. 18-cv-0 1700, as related to
this one. The Court declined to consolidate the cases. See Dkt. No. 70.

II.

Legal Standard
A court may not grant a motion for summary judgment unless all of the submissions

taken together "show[ ] that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter oflaw." 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
3

U.S. 242,248 (1986)). "Summary judgment is appropriate when 'the record taken as a whole
could not lead a rational trier of fact to find for the non-moving party."' Smith v. County of
Suffolk, 776 F.3d 114, 121 (2d Cir. 2015) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986)). "[I]n making that determination, the court is to draw all
factual inferences in favor of the party against whom summary judgment is sought, viewing the
factual assertions in materials such as affidavits, exhibits, and depositions in the light most
favorable to the party opposing the motion." Rodriguez v. City ofNew York, 72 F.3d 1051, 1061
(2d Cir. 1995). However, "[w]hen opposing parties tell two different stories, one of which is
blatantly contradicted by the record, so that no reasonable jury could believe it, a court should
not adopt that version of the facts for purposes of ruling on a motion for summary judgment."
Scott v. Harris, 550 U.S. 372,380 (2007).
If both sides move for summary judgment, a court is "required to assess each motion on

its own merits and to view the evidence in the light most favorable to the party opposing the
motion, drawing all reasonable inferences in favor of that party." Wachovia Bank, Nat'! Ass 'n v.
VCG Special Opportunities Master Fund, Ltd., 661 F.3d 164, 171 (2d Cir. 2011).

III.

Discussion
The parties do not dispute that New York law applies to this action. See Dkt. No. 50 at 4

n. l; Dkt. No. 52 at 5 n. l. "New York law entitles an insurer to rescind an insurance policy-and
the policy is deemed void ab initio-'if it was issued in reliance on material
misrepresentations."' Cont'! Cas. Co. v. Marshall Granger & Co., LLP, 6 F. Supp. 3d 380, 38990 (S.D.N.Y. 2014) (citing Fid. & Guar. Ins. Underwriters, Inc. v. Jasam Realty Corp., 540 F.3d
133, 139 (2d Cir. 2008); lnterboro Ins. Co. v. Fatmir, 933 N.Y.S. 2d 343, 345 (2d Dep't 2011)),
affd sub nom. Cont'! Cas. Co. v. Boughton, 695 Fed App'x. 596 (2d Cir. 2017).
4

A misrepresentation in an application for insurance is a false '"statement as to past or
present fact, made to the insurer by ... the applicant for insurance ... as an inducement to the
making thereof."' Fid. & Guar. Ins. Underwriters, 540 F.3d at 139 (quoting N.Y. Ins. Law§
3105(a)). "The insured and the beneficiary are bound by the representations made in the
application. Zachary Trading Inc. v. Northwestern Mutual Life Ins. Co., 668 F. Supp. 343,346
(S.D.N.Y 1987). The insured has "the duty to examine the policy application and correct any
incorrect or incomplete answers." Id. "An insurer seeking rescission has the burden of proving
the existence of a misrepresentation in the procurement process and the materiality of that
misrepresentation-that is, that the insurer's knowledge of the truth would have resulted in

refusal to issue the policy in the first instance." Cont'[ Cas. Co., 6 F. Supp. at 390 (emphasis
added). "If an insurer can show that it was induced to accept an application that it might
otherwise have refused it is entitled to rescind the policy." In re WorldCom, Inc. Sec. Litig., 354
F. Supp. 2d 455,465 (S.D.N.Y.2005); see Interboro, 933 N.Y.S.2d at 345 ("A misrepresentation
is material if the insurer would not have issued the policy had it known the facts
misrepresented."). "Even an innocent misrepresentation, if material, will support rescission."
WorldCom, 354 F. Supp. 2d at 465; see Vella v. Equitable Life Assurance Soc y, 887 F.2d 388,

391 (2d Cir. 1989) ("So long as a misrepresentation is material, it is no defense to an action for
rescission that the misrepresentation was innocently made.").
Under New York law, materiality is typically a question of fact for the jury. See Am. Int'[
Specialty Lines Ins. Co. v. Towers Fin. Corp., No. 94-CV-2727 (WK)(AJP), 1997 WL 906427,

at *7 (S.D.N.Y. Sept. 12, 1997). "However, where the evidence concerning the materiality is
clear and substantially uncontradicted, the matter is one oflaw for the court to determine."
Berger v. Manhattan Life Ins. Co., 805 F. Supp. 1097, 1102 (S.D.N.Y. 1992) (citing Process
5

Plants Corp. v. Beneficial Life Ins. Co., 385 N.Y.S.2d 308, 310-11 (1st Dept. 1976)). To
establish materiality as a matter of law, "the insurer must present documentation concerning its
underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar
risks, that show that it would not have issued the same policy if the correct information had been
disclosed in the application." Interboro, 933 N.Y.S.2d at 345 (2nd Dept. 2011). "Conclusory
statements by insurance company employees, unsupported by documentary evidence, are
insufficient to establish materiality as a matter of law." Curanovic v. New York Cent. Mut. Fire

Ins. Co., 307 A.D.2d 435,437 (2003).
Plaintiff argues that because material misrepresentations were made in Defendant's
Policy application submission, rescission of the Policy is required. Defendant contends that no
material misrepresentations were made by Defendant, and the Policy covers the work performed
by Defendant at the Project. The Court now separately addresses the cross-motions for summary
judgment, assessing each motion on its own merits, viewing the evidence in the light most
favorable to the party opposing the motion, and drawing all reasonable inferences in favor of the
nonmoving party. Wachovia Bank, 661 F.3d at 171. The Court denies both motions.

A. Plaintiff's Motion for Summary Judgment
Plaintiff has not demonstrated that the evidence concerning materiality is "clear and
substantially uncontradicted." Berger, 805 F. Supp. at 1102. Plaintiff, relying almost entirely on
statements in an affidavit from the underwriter for Defendant's account, argues that had Plaintiff
been aware of Defendant's work on exterior construction projects, Plaintiff would not have
issued the Policy. See Dkt. No. 50 at 13 (citing Dkt. No. 40, Zuckerman Aff.

,r 30).

However, as

discussed above, statements by insurance company employees, without additional documentary
evidence, is insufficient for a party to meet its burden on materiality at the summary judgement
6

stage. See Cont'l Cas. Co., 6 F. Supp. at 390. While Plaintiff points to an excerpt from its
Underwriting Guidelines (Dkt. No. 48-6, Zuckerman Ex. F) to argue that there is no genuine
dispute of material fact, it is not clear from the face of the document that Plaintiffs "knowledge
of the truth would have resulted" in the underwriting of a different policy. Cont 'l Cas. Co., 6 F.
Supp. at 390. The document simply provides an outline, or checklist, for the underwriter. On its
own, the document provides no useful information to the Court about the underwriter's decision
making process for granting a policy. Therefore, the statements by insurance company
employees, even coupled with the document, is not enough for Plaintiff to meet its burden at
summary judgment. See id. For all of these reasons, Plaintiffs motion is denied.

B. Defendant's Motion for Summary Judgment
Defendant has also not met its burden at summary judgment. Defendant contends that
any misrepresentations made by Defendant in the Supplemental Questionnaire or Underwriting
Submissions were not material because they were cured through other submissions to Plaintiff.

See Dkt. No. 52 at 8-10. Defendant argues, inter alia, that Plaintiff did not rely on the
Supplemental Questionnaire or Underwriting Submissions when underwriting the policy; that
Plaintiff had access to a "work on hand schedule" and an additional report (discussed in the
record as the "Heti Report") that suggests Plaintiff was aware of the exterior renovation work
Defendant was undertaking; and that the language of the Policy covers Defendant's work on the
Project. See id. at 8-10, 15-20. However, Defendant concedes that there were inaccuracies in
the Supplemental Questionnaire. See id. at 7 (citing to deposition testimony of Integrity's
President, Dkt. No. 54-2, Ex. Hat 36-39). Defendant partially relies on the "work on hand"
schedule to argue that any inaccuracies in the Supplemental Questionnaire were cured by the
additional submissions. See id. at 7-8. As noted above, however, the "work on hand" schedule
7

is not in the record and there is no evidence that Plaintiff received it. See Dkt. No. 58-1, at~ 5
Response. Therefore, there remains a genuine dispute of material fact as to whether there were
material misrepresentations in the Policy application submission.
For all of these reasons, a reasonable juror could conclude that the misrepresentations in
the submission would have caused Plaintiff to "not have issued the same policy .... " Interboro,
933 N.Y.S.2d at 345. Accordingly, Defendant's motion is also denied.

IV.

Conclusion
For the foregoing reasons, Plaintiff's motion is DENIED and Defendant's motion is

DENIED. This resolves Docket Numbers 46, 51, and 65. Within two weeks of the date of this
Order, the parties shall confer regarding settlement and file a status letter with the Court
proposing dates for a status conference.
SO ORDERED.
Dated: March_ _, 2019
New York, New York

United States District Judge

8