Falls Lake National Insurance Company v. Nexus Builders Corp.

Background

Falls Lake National Insurance Company sued Nexus Builders Corp., Tho Binh Phan, Hip Wah Hing Realty Corporation, United King Construction Corp., Pancare Pharmacy, Inc., and Huan Da Xian Taoist Temple, Inc. Falls Lake sought declarations that its insurance policies were rescinded from the beginning and that it had no duty to defend or indemnify any party or pay any judgment or settlement connected to Phan’s injury.

Phan was injured while walking on a sidewalk near the Bowery Project. His attorney later sent a demand letter to several defendants. Hip Wah Hing’s liability insurer sent Falls Lake a letter seeking a defense and indemnification for Hip Wah Hing. Falls Lake then alleged that Nexus had made material misrepresentations in its insurance applications and that some of Nexus’s work was excluded from coverage.

Falls Lake moved for default judgment against Nexus, Tho Binh Phan, United King Construction Corp., and Huan Da Xian Taoist Temple, Inc. Those defendants had not appeared. Hip Wah Hing appeared and moved to dismiss under Rule 12(b)(1), which challenges the court’s subject-matter jurisdiction, arguing that Falls Lake’s declaratory-judgment claims were not ripe.

Ripeness of the Declaratory-Judgment Claims

The court held that the rescission claim presented a live controversy. A claim to rescind an insurance policy can be justiciable even when no underlying lawsuit against the insured is pending. Falls Lake therefore could proceed with its claim seeking rescission based on alleged material misrepresentations.

The court reached a different conclusion about the requested declarations concerning Falls Lake’s duty to defend and duty to indemnify. No lawsuit had been filed, Falls Lake was not defending any defendant, and Falls Lake had not shown a practical likelihood that Phan would file a lawsuit requiring a defense. The duty to indemnify was even more premature because it depends on a finding of liability. The court therefore found those disputes insufficiently immediate and real for decision at that time.

The court stated that Falls Lake could seek permission to refile the claims about the duties to defend and indemnify if Phan filed a lawsuit or other relevant events occurred. The opinion also stated that, even if the duty-to-defend issue were ripe, the court would decline to exercise its discretion to decide it at that stage.

Default Judgment

The court denied Falls Lake’s motion for default judgment against the nonappearing defendants, without prejudice and with leave to refile after the case against Hip Wah Hing was resolved. The court reasoned that granting default judgment could prejudice Hip Wah Hing because the requested declaratory relief might effectively decide the case for the actively litigating defendant.

Disposition

The court granted in part and denied in part Hip Wah Hing’s motion to dismiss. Falls Lake’s motion for default judgment was denied without prejudice. The parties were directed to submit a joint letter proposing next steps by April 15, 2022.