GuideOne National Insurance Company v. Systems 2000 Plumbing Service, Inc.

Background

GuideOne, an excess insurer, brought a diversity action seeking a declaration that it did not have to reimburse Systems 2000 for losses arising from a March 23, 2021, fire at a cooperative apartment building. At the time of the fire, Systems 2000 had a primary policy issued by The Travelers Indemnity Company of Connecticut and an excess policy issued by GuideOne. BNC Insurance Agency, Inc. was the broker that prepared Systems 2000’s insurance submission.

The primary policy originally excluded work in certain residential buildings. GuideOne’s excess policy generally followed the primary policy but reserved GuideOne’s right not to follow later changes to the underlying insurance. After the fire, Travelers first denied coverage, then changed the primary policy to remove the residential-work exclusion and agreed to pay up to the primary policy’s $2 million limit. GuideOne later denied excess coverage, treating Travelers’ action as a change it did not have to follow.

Motions and legal standard

Systems 2000 moved for summary judgment, seeking declarations that GuideOne was liable for losses above Travelers’ coverage, that Travelers and BNC were negligent for losses not covered by GuideOne, and that GuideOne owed costs and fees. BNC and GuideOne filed cross-motions for summary judgment. Travelers opposed Systems 2000’s motion but did not file its own summary-judgment motion. Summary judgment is appropriate only when no genuine dispute of material fact exists and the moving party is entitled to judgment under the law.

GuideOne’s coverage dispute

The court rejected Systems 2000’s and BNC’s argument that GuideOne lost the right to deny coverage because it delayed giving formal notice. New York Insurance Law § 3420(d)(2)’s strict disclaimer-notice rule applies to claims involving death or bodily injury from an accident, not this property-damage claim.

The court concluded that GuideOne was correct that the excess policy did not necessarily require it to follow Travelers’ action. The policy’s language could reasonably be read to treat Travelers’ voluntary retroactive alteration of the primary policy as a change. The court also explained that Travelers’ action was not a true court-ordered reformation; it was a voluntary agreement to alter the policy’s meaning. Therefore, Systems 2000 could not obtain summary judgment by arguing that GuideOne was automatically required to follow Travelers’ action.

GuideOne nevertheless could not obtain summary judgment. Systems 2000 argued that the excess policy resulted from a mutual mistake because Systems 2000 sought coverage for residential work and GuideOne may have known that fact when it issued the policy. Under New York law, a contract may be reformed when clear and convincing evidence shows a mutual mistake, but not for a unilateral mistake alone. The court found factual disputes about how much residential work Systems 2000 performed, whether a policy excluding that work would make the coverage effectively meaningless, and whether GuideOne knew the relevant facts. Those questions involved fact-finding and witness credibility that could not be resolved on summary judgment.

Claims against BNC

Systems 2000 formally asserted negligence, malpractice, and breach-of-contract claims against BNC, but its summary-judgment briefing addressed only negligence. The court treated the malpractice and breach-of-contract claims as abandoned. It denied both Systems 2000’s and BNC’s motions concerning the negligence claim because factual disputes remained about whether BNC adequately told Travelers that Systems 2000 performed residential work, whether Travelers obscured the exclusion in the proposal, and whether BNC acted diligently.

Claims against Travelers and fees

The court denied Systems 2000’s motion for summary judgment on its claims against Travelers. Material factual disputes remained about whether Travelers improperly included the residential-work exclusion and whether it adequately communicated its later policy change to GuideOne. Because Systems 2000 was not entitled to summary judgment, the court did not reach its arguments seeking costs and fees.

Disposition

The court’s conclusion states that all parties’ motions for summary judgment were denied. It directed the clerk to close the identified motions and directed the parties to file a joint status letter addressing proposed trial dates, trial length, whether claims would be tried to a jury or the court, and settlement negotiations.