United Specialty Insuance Company v. Lux Maintenance & Ren. Corp.

Background

United Specialty Insurance Company (USIC) brought a declaratory-judgment action against Lux Maintenance & Ren. Corp. (Lux), Cornell University, Rockefeller University, The Society of the New York Hospital, Memorial Hospital for Cancer and Allied Diseases, and Manhattan Eye Ear & Throat Hospital. USIC sought a ruling that it had no duty to defend or indemnify the Hospital Defendants in two underlying New York personal-injury actions, or Lux in a related third-party action.

The Hospital Defendants and a nonparty owner each held part of the legal title to a property known as Sutton Terrace. A Staff House Agreement stated that the institutions would collectively be known as “Sutton House Associated.” The opinion also states that the Hospital Defendants had allegedly done business interchangeably as “Sutton House Associates” and “Sutton Terrace Associates.”

Brend Renovation Corp. agreed to perform balcony and façade repairs at the property and agreed to indemnify and defend the owner and related parties. Brend later subcontracted work to Lux. The Subcontractor Agreement required Lux to obtain insurance for Brend, entities Brend was required to indemnify, the owner, and others. The agreement identified the owner as “Sutton Terrace Associates, Inc.”

USIC issued Lux a commercial general liability policy effective from August 14, 2015, to August 14, 2016. The policy covered bodily injury or property damage caused by an occurrence and imposed a duty to defend suits seeking covered damages. It excluded injuries to employees but provided an exception for liability assumed under an “insured contract.” The policy also provided coverage and a defense to additional insureds when required by written contract.

Two personal-injury lawsuits arose from accidents during the façade renovations. The injured people were working at the property, and some Hospital Defendants were named as defendants. The Hospital Defendants demanded defense and indemnity from Lux and requested coverage. They later filed a third-party action against Lux in one of the underlying lawsuits. USIC denied coverage. Lux did not answer or appear in this federal action.

The parties’ arguments

USIC argued that the agreements clearly limited the term “Owner” to “Sutton House Associated” or “Sutton Terrace Associates, Inc.,” so the Hospital Defendants could not qualify as additional insureds or receive coverage for liability assumed by Lux.

The Hospital Defendants argued that they were the owners because they held parts of the property’s legal title and that the names in the agreements were trade names they used. They also argued, alternatively, that they qualified as affiliates under the agreements.

Coverage for the Hospital Defendants

The court applied New York law. It explained that a court ordinarily determines the meaning of an unambiguous contract from the written agreement and generally may not use outside evidence to rewrite clear terms. But New York law allows a court to reform a contract for mutual mistake when the writing does not accurately reflect the parties’ agreement and the mistake is shown with the required level of proof.

The court ruled that the policy provided coverage for additional insureds when a written contract required it. USIC acknowledged that the Subcontractor Agreement required insurance for the “Owner” and that the agreement was an insured contract. The rider required Lux’s insurance to include contractual-liability and additional-insured coverage for the Contractor, the Owner, and anyone else the Owner was required to name.

The court found that the agreements were intended to cover risks connected with ownership of the property arising from Lux’s work. The Hospital Defendants offered the Staff House Agreement and other evidence showing their connection to the name “Sutton House Associated,” as well as their legal ownership of the property. USIC offered no evidence that a separate business entity named “Sutton House Associated” or “Sutton Terrace Associates, Inc.” owned the property or could claim coverage. A search of the New York State Division of Corporations database found no such entity under the names searched.

The court concluded that the mistaken use of “Sutton House Associated” or “Sutton Terrace Associates, Inc.” to identify the owner should be treated as a mutual mistake. It therefore ruled that USIC had to provide coverage to the Hospital Defendants as additional insureds, including the corresponding duty to defend.

Coverage for Lux

USIC also sought summary judgment against Lux. It argued that Lux was in default and, alternatively, that the third-party complaint did not allege bodily injury caused in whole or in part by Lux.

The court ruled that the Hospital Defendants could contest USIC’s coverage position concerning Lux because they had filed the third-party action against Lux and both the Hospital Defendants and Lux were parties to this declaratory-judgment action. The court further held that the policy covered contractual liability for bodily-injury damages assumed by Lux under the Subcontractor Agreement if the injury was caused in whole or in part by Lux.

The court rejected USIC’s request for a ruling that it had no duty to defend or indemnify Lux. The underlying complaint alleged that the injured person was hurt while working at the property as a Lux employee, and the third-party complaint alleged that any injury was caused solely by Lux’s carelessness, recklessness, negligence, or acts or omissions. Because the record did not establish as a matter of law that Lux could not have caused all or part of the injury, the court denied USIC’s motion against Lux. The court stated that the issue of what caused the injury was more properly left to the court in the underlying action.

Attorneys’ fees

Under New York law, an insured generally cannot recover legal expenses incurred in a coverage dispute with its insurer. The court recognized an exception when an insurer’s legal action places the insured in a defensive position, the insured prevails on the merits, and the action seeks to avoid the insurer’s duty to defend and indemnify.

The court held that this exception applied because USIC initiated the declaratory action to deny its duty to defend and indemnify, and the Hospital Defendants prevailed on their cross-motion for summary judgment. The court therefore granted the Hospital Defendants’ request for their legal expenses. It directed them to submit contemporaneous time records and other competent evidence supporting their attorneys’ fee application by December 19, 2019.

Disposition

Judge Edgardo Ramos granted the Hospital Defendants’ motion for summary judgment, including their request for attorneys’ fees, and denied USIC’s motion for summary judgment. The opinion does not state the amount of attorneys’ fees awarded.