ABCNY, Inc. v. Axis Surplus Insurance Company

Background

ABCNY, Inc. owns Hotel Artel 535 and alleged that it had an insurable interest in the hotel. Axis Surplus Insurance Company, Landmark American Insurance Company, and StarStone Specialty Insurance Company issued three materially identical insurance policies to ABCNY. The policies covered losses including fire damage, but each included a $250,000 “Shelter Deductible” if the insured location “is or becomes a shelter during the term” of the policy. The policies did not define “shelter” or “hotel.”

In January 2023, ABCNY entered an agreement with the New York City Department of Homeless Services and HANYC Foundation, Inc. The agreement provided that the hotel would be used in the Sanctuary Hotel Program to provide temporary housing to homeless individuals and families seeking asylum in New York City. ABCNY agreed to reserve 147 rooms, keep them available for program clients, avoid extended vacancies, and provide services including housekeeping, linens, toiletries, and trash removal. The agreement stated that the asylum seekers’ housing was regulated by New York social-services law and shelter regulations. It also stated that the hotel was not licensed for use as a homeless shelter and that the City would obtain any necessary permits or licenses.

A fire occurred at the hotel on or about January 7, 2023. ABCNY submitted claims under all three policies. The insurers declined to pay on the ground that the shelter deductible applied. ABCNY did not allege that its damages and losses exceeded $250,000, although a footnote noted that the amended complaint contained a conclusory allegation that the damages were believed to exceed that amount.

Arguments and Legal Standard

The insurers moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. The court treated the complaint’s factual allegations and the incorporated agreement as true for purposes of the motion. Under New York law, a breach-of-contract claim requires an agreement, the claimant’s adequate performance, a breach, and damages. The court explained that an unambiguous contract may be interpreted and applied on a motion to dismiss.

Court’s Analysis

The court held that “shelter” was unambiguous in the policies. After considering dictionary definitions, it identified the term’s common meaning as providing temporary housing to people in need of refuge. The court distinguished a shelter from a hotel: a hotel generally provides lodging to the public, while a shelter provides lodging to people in need, such as homeless individuals.

The court then applied that meaning to the agreement and ABCNY’s allegations. The agreement described the rooms as temporary housing for homeless people seeking asylum, subjected the residents to shelter regulations, and provided that residents could not choose their own shelter or use a housing court to transfer accommodations. The court concluded that the hotel provided refuge, temporary lodging, and protection to otherwise homeless asylum seekers through the City’s emergency program. The hotel therefore became a shelter under the policies, making the $250,000 deductible applicable.

The court rejected ABCNY’s argument that the term was ambiguous because the policies did not define it or because dictionaries contained somewhat different definitions. It also rejected ABCNY’s hypothetical examples involving hotel rooms rented for friends, business acquaintances, cowboys, or students, explaining that possible uncertainty at the edges did not create ambiguity in the circumstances alleged here.

The court further rejected ABCNY’s reliance on the hotel’s housekeeping services, linens, toiletries, and other hotel-like features. Those services were required by the government agreement and did not prevent the arrangement from being a shelter. The court also held that the hotel’s lack of a shelter license did not matter because the deductible applied when the location was “a shelter,” not when it was a licensed shelter. The court read the agreement’s licensing language as recognizing that the hotel could operate as a shelter for the emergency program even if additional approvals were needed.

Disposition

The court held that the shelter deductible applied and that ABCNY’s breach-of-contract claims failed as a matter of law. Judge Jesse M. Furman granted the defendants’ motion to dismiss and dismissed ABCNY’s claims. The court declined to grant ABCNY leave to amend, citing the substantive nature of the problems, ABCNY’s failure to request amendment or identify facts that would cure the problems, and the prior warning that ABCNY would not receive another opportunity to amend. The Clerk was directed to enter judgment for the defendants and close the case.