| Hunter Roberts Constr. Group, LLC v Arch Ins. Co. |
| 2010 NY Slip Op 05861 [75 AD3d 404] |
| July 1, 2010 |
| Appellate Division, First Department |
| Hunter Roberts Construction Group, LLC, et al.,Appellants, v Arch Insurance Company et al., Respondents. |
—[*1] Malapero & Prisco, LLP, New York (Frank J. Lombardo of counsel), forrespondents.
Order, Supreme Court, New York County (Marylin G. Diamond, J.), entered September 18,2009, which denied plaintiffs' motion for summary judgment declaring that defendant ArchInsurance Company (Arch) is obligated to defend and indemnify plaintiffs in the underlyingpersonal injury action, unanimously reversed, on the law, without costs, the motion granted, andit is declared that Arch is obligated to defend and indemnify plaintiffs in the underlying personalinjury action.
Plaintiffs, Hunter Roberts Construction Group, LLC and Hunter Roberts ConstructionGroup, LLC, doing business as Hunter Roberts Interiors (Hunter), as construction manager forthe Bear Stearns Fit Out project at 237 Park Avenue in Manhattan, subcontracted with defendantPetrocelli Electric Company (Petrocelli) to perform electrical work. The subcontract requiredPetrocelli to defend and indemnify Hunter against all claims "which arise out of" or "areconnected" with Petrocelli's work and to obtain comprehensive general liability coverage namingHunter as an additional insured.
On or about March 12, 2007, a Petrocelli employee, Robert Chevola, was working on the 7thfloor of the building when he was allegedly "caused to trip and fall upon a hole in the floor." Anaccident report states that "[e]mployee was walking back to field office to get a can of spraypaint. Employee was looking towards left at work being done when his left foot went into hole infloor causing him to trip and fall on to floor."
At the time of the accident, Petrocelli had in effect a commercial general liability policyfrom Arch which included as an additional insured:
"any person or organization for whom you are performing operations when you and suchperson or organization have agreed in writing in a contract or agreement that such person ororganization is an additional insured on your policy. Such person or organization is an additionalinsured only with respect to liability arising out of:
"i) 'your work' at the location designated."[*2]
On November 21, 2007, Chevola commenced theunderlying suit against Hunter and others. By letter dated January 7, 2008, Hunter, quoting theindemnity clause of the subcontract, advised Petrocelli and Arch that it had "recently beennotified" of Chevola's claim and asked them to "accept this tender as per the terms andconditions of the contract." Hunter added that "[i]f there is any information that we can provideto assist in the defense of this matter please don't hesitate to call." By letter dated January 8,2008, Hunter's carrier, Zurich American Insurance Company (Zurich), sent a follow-up letter toArch and Petrocelli also demanding a defense and indemnification on Hunter's behalf. Zurichasserted that Hunter was the construction manager on the project, whose primary role was tocoordinate work schedules and insure the work was being performed according to specificationsand plans; that Chevola, a Petrocelli employee, tripped and fell while working on the project;that Petrocelli was obligated to indemnify Hunter and provide primary and noncontributorycoverage "for any and all claims . . . arising out of" the subcontract; and that NewYork courts have required coverage under such a clause where the underlying plaintiff is anemployee of the named insured.
By letter dated January 25, 2008, Arch acknowledged receipt of the tender and issued areservation of rights, stating it would investigate whether Hunter was covered and whether thenotice was timely. By letter dated February 6, 2008, Arch requested the subcontract and againstated that it would undertake an investigation into the circumstances surrounding the occurrenceand the timeliness of Hunter's notice.
By letter dated April 1, 2008, Zurich responded that it had already supplied the subcontractwith its January 8, 2008 letter. Zurich quoted the subcontract's language requiring Petrocelli toname Hunter as an additional insured and asserted that "since . . . Chevola was anemployee of Petrocelli who was allegedly injured in the course of the work for Hunter, the lossplainly arises out of Petrocelli's work." Zurich also stated that it was enclosing a copy of thecontract hiring Hunter as construction manager.
By letter dated May 8, 2008, Arch, stating that it had "investigated this matter" and"developed enough information to formulate its final coverage position," disclaimed coverage.The alleged grounds for the disclaimer were that (1) the subcontract was not an "insuredcontract"; (2) Hunter breached the duty to cooperate by failing to provide statements "that wouldclarify certain details regarding the timeliness of [Hunter's] notice to Arch and the circumstancesof the incident"; (3) Hunter failed to notify Arch "as soon as practicable" of the occurrence inthat the accident occurred on March 13, 2007 and notice was given 10 months later; and (4)Chevola's injury did not "arise out of" Petrocelli's work.
By letter dated May 9, 2008, Zurich replied that it had complied with Arch's requests forproof that the subcontract required Petrocelli to name Hunter as additional insured and repeatedthat since Chevola "was an employee of Petrocelli, who was allegedly injured in the course ofthe work for Hunter, the loss plainly arises out of Petrocelli's work." This action followed.
Hunter moved for summary judgment, asserting, among other things, that Arch's disclaimerwas untimely. In opposition, Arch submitted the affirmation of counsel who alleged that theinvestigation was delayed because plaintiff did not respond to Arch's request for the contractsuntil April 1, 2008 and because two of the four Petrocelli employees who were either present oremployed in a supervisory position on the date of incident were no longer employed byPetrocelli and Arch's investigator had to find them to take statements. Arch also submitted theaffidavit of the investigator who averred that after he was retained on January 21, 2008, hecontacted Hunter twice in January 2008 and once in February 2008 by telephone to discuss the[*3]incident and ascertain when Hunter received notice. Theinvestigator allegedly asked to speak with the project manager for the Bear Stearns' project andat some later date was told that he would need to know the individual's name in order to speak tohim. The investigator then resumed his investigation with Petrocelli until such time as he wasable to find out who the project manager was. Arch also submitted the investigator's invoices.
The motion court found that the investigator's affidavit, along with the "invoices detailing hisinvestigatory work and the difficulty he experienced in locating and speaking to Petrocelliemployees, raise[ ] a triable issue of fact as to whether the notice of disclaimer was sent 'as soonas is reasonably possible.' " We now reverse.
Insofar as Arch's denial of coverage was based upon lack of coverage as an additionalinsured pursuant to the additional insured endorsement, a timely disclaimer was unnecessary(see Markevics v Liberty Mut. Ins. Co., 97 NY2d 646, 648 [2001]; Perkins v Allstate Ins. Co., 51 AD3d647, 649 [2008]). However, the denial is without merit.
"Generally, the absence of negligence, by itself, is insufficient to establish that an accidentdid not 'arise out of' an insured's operations" (Worth Constr. Co., Inc. v Admiral Ins. Co., 10 NY3d 411, 416[2008]). Rather, the focus of an "arising out of" clause is not on the precise cause of the accidentbut on the general nature of the operation in the course of which the injury was sustained (see Regal Constr. Corp. v National UnionFire Ins. Co. of Pittsburgh, Pa., 64 AD3d 461 [2009], affd 15 NY3d 34 [2010]).As the Court of Appeals explained in Regal, "We have interpreted the phrase 'arising outof' in an additional insured clause to mean originating from, incident to, or having connectionwith. It requires only that there be some causal relationship between the injury and the risk forwhich coverage is provided" (15 NY3d at 38 [internal quotation marks and citation omitted]).
Where, as here, the loss involves an employee of the named insured, who is injured whileperforming the named insured's work under the subcontract, there is a sufficient connection totrigger the additional insured "arising out of" operations' endorsement and fault is immaterial tothis determination (Tishman Constr. Corp. of N.Y. v CNA Ins. Co., 236 AD2d 211[1997]; Tishman Interiors Corp. of N.Y. v Fireman's Fund Ins. Co., 236 AD2d 385[1997]; Consolidated Edison Co. of N.Y. v Hartford Ins. Co., 203 AD2d 83 [1994]).
Worth Constr. Co., Inc. v AdmiralIns. Co. (10 NY3d 411 [2008], supra), does not require otherwise. In RegalConstr. Corp., the Court of Appeals distinguished Worth, stating: "Here, there was aconnection between the accident and Regal's work, as the injury was sustained by Regal's ownemployee while he supervised and gave instructions to a subcontractor regarding work to beperformed. That the underlying complaint alleges negligence on the part of URS and not Regal isof no consequence, as URS's potential liability for LeClair's injury 'ar[ose] out of' Regal'soperation and, thus, URS is entitled to a defense and indemnification according to the terms ofthe CGL policy" (15 NY3d at 39).
Accordingly, Hunter, which had a written subcontract with Petrocelli that obligatedPetrocelli to obtain comprehensive general liability coverage on Hunter's behalf, was anadditional insured under the Arch policy's blanket endorsement, which covered the underlyingclaim.
As to the remaining grounds for Arch's disclaimer, under Insurance Law § 3420 (d)(2), an [*4]insurer wishing to deny coverage for death or bodilyinjury must "give written notice as soon as is reasonably possible of such disclaimer of liabilityor denial of coverage." When an insurer fails to do so, it is precluded from disclaiming coveragebased upon late notice, even where the insured has in the first instance failed to provide theinsurer with timely notice of the accident (see Hartford Ins. Co. v County of Nassau, 46NY2d 1028, 1029 [1979]; DelphiRestoration Corp. v Sunshine Restoration Corp., 43 AD3d 851 [2007], lv dismissed9 NY3d 1002 [2007]).
The insurer bears the burden to explain the reasonableness of any delay in disclaimingcoverage (see Moore v Ewing, 9AD3d 484, 488 [2004]). The reasonableness of any delay is computed from the time that theinsurer becomes sufficiently aware of the facts which would support a disclaimer (see Pawley Interior Contr., Inc. vHarleysville Ins. Cos., 11 AD3d 595 [2004]). Although the timeliness of such adisclaimer generally presents a question of fact (see Continental Cas. Co. v Stradford, 11 NY3d 443, 449 [2008]),where the basis for the disclaimer was, or should have been, readily apparent before the onset ofthe delay, any explanation by the insurer for its delay will be insufficient as a matter of law (see First Fin. Ins. Co. v Jetco Contr.Corp., 1 NY3d 64, 69 [2003]; West 16th St. Tenants Corp. v Public Serv. Mut. Ins.Co., 290 AD2d 278, 279 [2002], lv denied 98 NY2d 605 [2002]). Where the basiswas not readily apparent, an unsatisfactory explanation will render the delay unreasonable as amatter of law (see Bovis Lend LeaseLMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD3d 84, 88 [2005], citing First Fin.Ins. Co., 1 NY3d at 69). If the delay allegedly results from a need to investigate the factsunderlying the proposed disclaimer, the insurer must demonstrate the necessity of conducting athorough and diligent investigation (seeQuincy Mut. Fire Ins. Co. v Uribe, 45 AD3d 661 [2007]; Schulman v Indian Harbor Ins. Co., 40AD3d 957 [2007]).
In disclaiming coverage, Arch asserted that Hunter failed to notify Arch "as soon aspracticable" of the occurrence in that the accident occurred on March 13, 2007 and notice wasgiven 10 months later. Such a reason for disclaimer would have been apparent upon examinationof Hunter's January 7, 2008 and/or Zurich's January 8, 2008 tenders. While Arch asserts thatdifficulties in its investigation of the claim caused the delay, it does not explain, given the factsmade known to it by Hunter and Zurich's submissions, why anything beyond a cursoryinvestigation was necessary to determine whether Hunter had timely notified it of the claim (see Scott McLaughlin Truck & Equip.Sales, Inc. v Selective Ins. Co. of Am., 68 AD3d 1619 [2009]). Accordingly, thefour-month delay in disclaiming on this ground was unreasonable as a matter of law (see e.g.First Fin. Ins. Co., 1 NY3d at 66; State Ins. Fund v American Hardware Mut. Ins. Co., 64 AD3d 581[2009]; Pav-Lak Indus., Inc. v Arch Ins.Co., 56 AD3d 287 [2008]; Saitta v New York City Tr. Auth., 55 AD3d 422, 423 [2008]).
Arch's disclaimer on the ground Hunter failed to cooperate is also untimely. The basis for theclaim is that when the investigator contacted Hunter by telephone twice in January 2008 andonce in February 2008 and asked to speak with the project manager, he was told he would haveto know the project manager's name. The disclaimer on this ground over two months later wasnot made as soon as reasonably practicable. In any event, the disclaimer was without merit.
An insurer seeking to disclaim for noncooperation has a heavy burden of proof and mustdemonstrate that "it acted diligently in seeking to bring about the insured's co-operation[,]. . . that the efforts employed by the insurer were reasonably calculated to obtainthe insure[d]'s co-operation . . . and that the attitude of the insured, after hisco-operation was sought, was one of 'willful and avowed obstruction' " (Thrasher v UnitedStates Liab. Ins. Co., 19 NY2d 159, 168 [1967], quoting Coleman v New AmsterdamCas. Co., 247 NY 271, 276 [1928]; see also Matter [*5]of State Farm Indem.Co. v Moore, 58 AD3d 429, 430 [2009]). "Strict scrutiny" of facts supporting thenoncooperation defense is required to protect "innocent injured parties from suffering theconsequences of a lack of coverage" (Matter of Liberty Mut. Ins. Co. v Roland-Staine, 21 AD3d 771,772 [2005]).
While the parties dispute when the subcontract was provided, the record reflects that Zurichprovided Arch with the documentation requested no later than April 1, 2008, more than a monthbefore the disclaimer. While Arch claims that Hunter impeded its investigator's progress, theinvestigator only alleges that he called Hunter's main telephone number three times and was toldhe would have to supply the name of the project manager if he wanted to speak with him. Theinvestigator does not identify whom he spoke to and the calls are not reflected in his invoices.Nor is there any indication that the investigator ever appeared at Hunter's offices in person orthat Arch ever made a specific demand that Hunter produce the project manager or any otherwitness on a date certain or that Arch ever advised Hunter that its alleged lack of cooperationwas hindering the investigation. Nor did Arch demonstrate that further reasonable attempts toelicit Hunter's cooperation would be futile (see Thrasher, 19 NY2d at 168).
Thus, Arch has not carried its "very heavy burden" of demonstrating that it acted diligentlyin seeking to bring about the insured's cooperation, that its efforts were reasonably calculated toobtain the insured's cooperation and that the attitude of the insured, after its cooperation wassought, was one of willful and avowed obstruction (see State Farm Indem. Co. v Moore,58 AD3d at 430-431; cf. Matter of NewYork Cent. Mut. Fire Ins. Co. [Salomon], 11 AD3d 315 [2004]; New York State Ins. Fund v Merchants Ins.Co. of N.H., 5 AD3d 449 [2004]).
These deficiencies are not cured by the affirmation of Arch's counsel, which lacks probativevalue (see S.J. Capelin Assoc. v Globe Mfg. Corp., 34 NY2d 338 [1974]), or by theinvestigator's invoices. The first invoice shows that during the period of January 23, 2008through February 19, 2008, the investigator received the assignment and attachments andattempted to contact Ricky Bilig, who allegedly witnessed the accident. There is no detail as towhat these attachments were. The second invoice shows that during the period of February 19,2008 through March 6, 2008, the investigator attempted to interview Bilig and visited Petrocelli,which said it would set up interviews with its employees Farrell and Eager. The third invoiceshows that during the period of April 10, 2008 to April 15, 2008, the investigator interviewedEager. The fourth invoice shows that on April 21, 2008, the investigator spoke with Farrell. Theinvoices do not reflect a lack of cooperation by Hunter nor do they establish that Arch did nothave sufficient information in its possession to determine that Hunter's notice was untimely uponor shortly after the receipt of Hunter's tender. Concur—Tom, J.P., Andrias, Friedman,Nardelli and Catterson, JJ.