MIC General Insurance Corporation v. Cabrera

Background

MIC General issued Cabrera a homeowner’s insurance policy for a residential property in Corona, New York, effective from February 22, 2019, to February 22, 2020. Cabrera owned and rented the property, which had two family units. He received rental income, reported the property and related income and expenses on his tax returns, advertised rooms for rent, and performed maintenance, including clearing snow and ice.

On March 5, 2019, Cruz, a tenant, said he slipped on black ice on the sidewalk next to the property while taking garbage to the building’s garbage containers and broke his leg. Cruz later sued Cabrera for negligence in New York State Court, alleging that Cabrera failed to remove the ice and safely maintain the property.

Cabrera tendered the lawsuit to MIC General. MIC General disclaimed coverage, citing several reasons, including the policy’s Business Pursuits Exclusion and Rental Exclusion. It nevertheless agreed to provide Cabrera a courtesy defense until a court determined whether its disclaimer was valid. MIC General then filed this federal action seeking a declaration that it had no duty to defend or indemnify Cabrera and could stop defending him.

Summary-Judgment Standard

Summary judgment is appropriate when the evidence shows there is no genuine dispute about a fact that could affect the outcome and the moving party is entitled to judgment under the law. The court must view disputed facts in the nonmoving party’s favor, but the opposing party must identify admissible evidence creating a real factual dispute.

Under New York law, an insurer’s duty to defend is generally determined by comparing the allegations in the underlying complaint with the insurance policy. The duty to defend is broader than the duty to indemnify, but an insurer may refuse to defend if it establishes as a matter of law that there is no possible factual or legal basis for coverage. The court held that the coverage issues here were ready for decision after discovery because they could be resolved separately from Cruz’s liability and causation issues.

Business Pursuits Exclusion

The Business Pursuits Exclusion barred coverage for bodily injury arising out of or connected with a business engaged in by an insured. The policy defined “business” as a trade, profession, or occupation.

The court identified three questions: whether Cabrera operated the property as a business; whether he owed Cruz a sidewalk-safety duty because of that business; and whether Cruz’s injury arose from Cabrera’s alleged failure to perform that duty.

The court held that Cabrera operated the property as a business. His ownership and rental of the property continued from 2006 onward, and he sought rental income and claimed related expenses on his tax returns. The court found that the continuity and profit-motive requirements were satisfied. Cabrera’s other sources of income did not change that conclusion.

The court also held that Cabrera owed Cruz a duty to keep common areas, including the sidewalk used by tenants, reasonably safe. Under New York law, that duty arose from Cabrera’s role as a landlord. The court further held that the New York City rule requiring owners to maintain adjoining sidewalks in a reasonably safe condition applied here because the property was not used exclusively for residential purposes from Cabrera’s perspective; he also used it to obtain rental income. The court said either the common-law landlord duty, the statutory duty, or both satisfied the policy’s requirement that the duty arise because of the nature of the business.

Finally, Cruz’s underlying complaint alleged that Cabrera controlled and maintained the sidewalk, owed a duty to keep it safe, failed to remove the ice, and thereby caused Cruz’s fall and injury. The court held that these allegations showed that Cruz’s injury arose out of or was connected with Cabrera’s failure to perform a business-related duty. It therefore granted MIC General summary judgment based on the Business Pursuits Exclusion.

Rental Exclusion

The Rental Exclusion barred coverage for bodily injury arising out of renting or holding any part of the property for rent. The exclusion contained an exception for property used partly as a residence, unless a single-family unit was intended to house more than two roomers or boarders.

The parties agreed that Cruz’s injury arose out of the rental activity and that the property was partly used as a residence. They also agreed that each floor was a single-family unit and that more than two tenants occupied each unit. They disputed whether the tenants were “roomers or boarders” under the policy.

The court used the ordinary meaning of “roomer,” which includes a person who occupies a rented room in another person’s house. It rejected defendants’ proposed narrower definition, which would have excluded people who cooked on the property, because that definition came from a 1945 zoning case and was not shown to be part of the insurance policy’s meaning. The court held that the property’s tenants, other than Cabrera, were roomers. Because up to 19 people were roomers when Cruz was injured, the policy’s condition was met and the Rental Exclusion applied. This independently supported summary judgment for MIC General.

Timeliness of the Disclaimer

Defendants argued that MIC General’s disclaimer was untimely under New York Insurance Law § 3420(d), which requires written notice disclaiming liability or denying coverage for bodily injury as soon as reasonably possible. MIC General responded that defendants had raised this argument too late.

The court found the parties’ competing timeliness arguments immaterial because MIC General’s disclaimer expressly referred to both the Business Pursuits Exclusion and the Rental Exclusion. The court held that the disclaimer gave fair notice of the grounds for denying coverage and was not limited to MIC General’s separate argument that the property was not an insured location.

Disposition

Judge Engelmayer granted in full MIC General’s motion for summary judgment. The court issued a declaratory judgment that MIC General’s policy did not cover Cabrera in the underlying action brought by Cruz and that MIC General was entitled to cease providing Cabrera a defense. The court directed the clerk to terminate the motion and close the federal case. The opinion did not resolve whether Cabrera was negligent or whether Cruz would prevail in the underlying state-court action.