American Empire Surplus Lines Insurance Company v. J.R. Contracting &…

Background

American Empire Surplus Lines Insurance Company sued J.R. Contracting & Environmental Consulting, Inc. for breach of an insurance policy. The policy covered the period from July 23, 2021, through July 23, 2022. It required J.R. to pay an advance premium that could be adjusted after the policy expired or was canceled. The policy stated that the final premium would be calculated using American’s rates and rating basis, but it did not define “gross receipts” or explain how that term should be calculated.

J.R. paid an advance premium of $594,000. That amount was based on estimated gross receipts of $4.5 million and a rate of $132 per $1,000 of gross receipts. J.R.’s president testified that J.R. calculated the estimate using receipts from work covered by the policy, excluding receipts from work covered by policy exclusions, including certain asbestos-related work.

The Audit and the Parties’ Positions

After the policy period ended, Matson Driscoll & Damico LLP audited J.R.’s financial records for American. The audit calculated J.R.’s actual gross receipts at $8,192,315.14. Using the policy rate, American determined that J.R. owed an additional $487,386, which J.R. did not pay.

American argued that the policy, audit report, and affidavit from one of its senior vice presidents established its entitlement to the additional premium as a matter of law. American also argued that “gross receipts” should be understood using the Internal Revenue Service’s definition, which includes amounts received from all sources without subtracting costs or expenses.

J.R. argued that the audit was defective because it counted receipts from work excluded by the policy. J.R. submitted its own audit, which calculated actual gross receipts at $1,832,119 and a final premium of $241,840—less than the $594,000 advance premium. J.R. argued that, under that calculation, it owed American nothing further.

Court’s Analysis

The court applied New York contract law. It explained that an insurer seeking unpaid premiums must provide evidence showing that the audit complied with the policy and that the additional premium was properly calculated. Summary judgment is available only when there is no genuine dispute about a material fact and the party requesting judgment is entitled to win under the law without a trial.

The court found that American had not made the required showing. The policy mentioned “gross receipts” only in connection with J.R.’s initial estimate and did not define the term or refer to the Internal Revenue Service’s definition. American understood the term to include receipts from all of J.R.’s work, while J.R. understood it to include only receipts from policy-covered work. Because both interpretations were reasonably possible, the meaning of the term presented a genuine dispute of material fact.

The court also declined to adopt J.R.’s alternative audit at the summary-judgment stage. Whether an audit should count only receipts from policy-covered operations, and whether either audit was accurate, were questions for a jury.

Disposition

The court denied American’s motion for summary judgment and denied J.R.’s cross-motion for summary judgment. The order did not resolve the amount of any additional premium or decide which interpretation of “gross receipts” will ultimately prevail. The court directed the parties to address whether they wanted a settlement conference or intended to proceed to trial.