Colony Insurance Company v. Hudson Insurance Company

Background

Unity Construction Services, Inc. was the general contractor at a construction project in Flushing, New York. Unity subcontracted framing and related work to Blink Contracting Inc. and electrical and alarm work to Wiretech Electric Corporation. The subcontracts required the subcontractors to obtain commercial general liability insurance, name Unity as an additional insured, and provide primary, non-contributory coverage. They also contained a provision requiring disputes related to the subcontracts to be litigated in New Jersey Superior Court.

Colony Insurance Company insured Unity, Hudson Excess Insurance Company insured Blink, and Merchants Mutual Insurance Company insured Wiretech. The Hudson policy covered Unity as an additional insured for bodily injury caused in whole or in part by Blink’s acts or omissions, or by acts or omissions of people acting for Blink, in Blink’s ongoing operations for Unity. The Merchants policy also provided additional-insured coverage and made its insurance primary and non-contributory when the relevant contract required it.

Carlo Ramirez sued various parties in New York state court after allegedly suffering injuries at the worksite when an electrical panel exploded. The amended complaint named Unity and Blink as defendants, and Unity later brought in Wiretech. Ramirez alleged that the defendants, including Unity and Blink, were responsible for his injuries. The parties disputed whether Blink’s carpentry work, Wiretech’s electrical work, or both caused the explosion.

The plaintiffs tendered the underlying lawsuit to Hudson and Merchants seeking coverage for Unity. Hudson did not agree to defend Unity. Merchants later agreed to defend Unity while reserving rights, including the right to deny coverage and argue that Hudson had a duty to defend. Neither Hudson nor Merchants agreed that it had a duty to indemnify Unity, and the underlying lawsuit remained ongoing.

Hudson’s jurisdictional dismissal motion

Hudson moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that the subcontract’s New Jersey forum-selection provision required the plaintiffs to bring the action in New Jersey state court. The court denied that motion. A forum-selection clause does not eliminate a federal court’s subject-matter jurisdiction. A clause selecting a state forum must instead be enforced, if at all, through dismissal based on the doctrine of forum non conveniens or through a venue motion. Hudson had not made either of those motions.

The court also concluded that the forum-selection provision should not be enforced against the plaintiffs or Merchants. The provision was reasonably communicated to Unity, which signed the Blink subcontract, but was not reasonably and timely communicated to Colony or Merchants. Although the provision was mandatory as written, Hudson was not sufficiently closely related to Blink to enforce it against the plaintiffs or Merchants. Hudson had not played an active role in the subcontract or in Blink, was not a third-party beneficiary of the subcontract, and the case did not involve subrogation. Hudson’s Rule 12(b)(1) motion was therefore denied.

Duty to defend

Under New York law, an insurer’s duty to defend is broad. The duty is triggered when the allegations in the underlying complaint suggest a reasonable possibility of coverage. An insurer avoids that duty only by establishing that there is no possible factual or legal basis on which it could eventually have to indemnify the insured.

The court held that Hudson had a duty to defend Unity. The underlying complaint alleged that Blink was responsible for Ramirez’s injuries, and those allegations fell within the potential additional-insured coverage in the Hudson policy. Hudson relied on inconsistencies in Ramirez’s deposition testimony and argued that Blink could not ultimately be found responsible. The court held that this uncertainty did not eliminate the possibility of coverage and did not excuse Hudson’s duty to defend. Hudson therefore had to defend Unity in the Ramirez Action.

Merchants asked the court to declare that Hudson and Merchants shared an equal duty to defend Unity. The court granted that relief. Both policies provided primary and non-contributory coverage when required by the applicable subcontract, and the Hudson policy provided for equal-share allocation where other applicable policies permitted contribution by equal share. The court concluded that Hudson and Merchants had to apportion Unity’s defense costs equally.

The plaintiffs also sought a declaration that Merchants owed a duty to defend Unity. The court denied that request as moot because Merchants had already agreed to defend Unity, subject to its reservation of rights.

Reimbursement of defense costs

The plaintiffs sought summary judgment on liability for reimbursement of post-tender defense costs, without specifying the amount of costs incurred. Because Hudson and Merchants shared an equal duty to defend, the court held that both insurers had to reimburse Colony for qualifying post-tender defense costs.

Merchants admitted that the Ramirez Action was tendered on March 18, 2020. Merchants therefore had to reimburse Colony for reasonable attorneys’ fees and litigation expenses incurred after that date. Hudson disputed the exact date on which the action was tendered to Hudson and disputed whether Colony’s fees and expenses were reasonable. The court held that those disputes limited the scope of relief but did not prevent summary judgment on liability. Hudson had to reimburse Colony for reasonable post-tender defense costs incurred after the plaintiffs tendered the action to Hudson. For the period after that tender, Hudson and Merchants shared equal responsibility for reimbursement.

Disposition

The court granted the plaintiffs’ motion for partial summary judgment in part, granted Merchants’ motion for partial summary judgment, denied Hudson’s motion for partial summary judgment, and denied Hudson’s motion to dismiss for lack of subject-matter jurisdiction. The court directed the parties to submit a joint status report within fourteen days and directed the Clerk to close all pending motions.