Stoncor Group, Inc. v. Peerless Insurance Company

Background

Stoncor Group, Inc. manufactured the flooring system installed at the Grand Hyatt Hotel in Manhattan. Surfacesys, Inc. installed the flooring and was insured under a commercial general liability policy issued by Peerless Insurance Company. Under a Master Installation Agreement, Surfacesys was required to maintain insurance, list Stoncor as an insured, and provide Stoncor with insurance certificates.

A Grand Hyatt employee, Cesar Arias, later sued parties including Stoncor and Surfacesys in New York state court after slipping and falling on the flooring. The complaint alleged defective design and negligent installation. In 2008, Stoncor asked Peerless to defend it under Surfacesys’s policy. Peerless acknowledged the request but did not provide a defense. First Continental Insurance Co., Stoncor’s insurer, paid for the defense instead.

Stoncor initially sued Peerless for a declaration that Peerless had to defend and indemnify it and for reimbursement of defense costs. The court later dismissed Stoncor’s claims by agreement, and First Continental proceeded against Peerless on an equitable contribution theory—meaning a claim by one insurer seeking payment from another insurer for costs the first insurer paid. The opinion addressed liability after a bench trial; the amount of damages was reserved for a later proceeding.

Issues

The court considered whether Stoncor was an additional insured under Surfacesys’s Peerless policy, whether the allegations in the Arias lawsuit triggered Peerless’s duty to defend, whether policy provisions concerning ongoing or completed operations and intended use excluded coverage, and whether Peerless could rely on the equitable defense of laches.

Court’s Analysis

The policy’s additional-insured endorsement covered an organization that Surfacesys agreed in writing to add to the policy, for liability arising from Surfacesys’s ongoing operations or from premises or facilities it owned or used. The court found that the Master Agreement satisfied this requirement before the accident. Although Jeffrey Caswell testified that he did not personally sign the copy of the agreement, he did not recall whether he authorized someone else to sign it. The court also relied on the parties’ conduct, Surfacesys’s use of the agreement in connection with the Hyatt project, and the insurance certificates issued for Stoncor. The court concluded that Stoncor was an additional insured under a fully executed written agreement.

Under New York law, an insurer’s duty to defend is broad. The court generally examines the policy and the allegations in the underlying complaint to determine whether the allegations present a reasonable possibility of coverage. The Arias complaint and related bill of particulars alleged that Stoncor was negligent in installing the kitchen floor. Those allegations were rationally related to the policy’s coverage, so Peerless had to defend the entire action even if the allegations ultimately proved meritless.

The court rejected Peerless’s attempt to rely on information developed outside the Arias complaint, including later factual assertions about the installation work and Arias’s theory of the accident. The court stated that those materials could not justify refusing to defend when the complaint itself alleged a potentially covered claim.

The court treated the completed-operations and intended-use provisions as exclusions rather than as definitions of coverage. Peerless therefore had the burden to show that the exclusions had no other reasonable interpretation and that there was no possible factual or legal basis for eventual indemnity. The Arias pleadings did not establish that all Surfacesys work had been completed or that the floor had been put to its intended use in a way that wholly eliminated coverage. The court also found that Peerless could not establish the exclusions by relying on outside evidence tied to the merits of the underlying tort case.

Finally, the court rejected Peerless’s laches defense. Laches is an equitable defense based on an unjustified delay that prejudices the opposing party. The court found that Peerless had actual notice of Stoncor’s demand at least as early as May 2008 and that Peerless had not shown prejudice. The court therefore would not bar First Continental’s recovery on that ground.

Disposition

The court found Peerless liable to First Continental for the legal fees, expenses, and costs of defending Stoncor in the Arias action. The damages issue had been separated from liability, so the case was referred back to the magistrate judge for a report and recommendation on the proper damages amount.