SPECIALTY INSURANCE COMPANY v. SMI CONSTRUCTION MANAGEMENT INC (2019)

Order, Supreme Court, New York County (Ellen M. Coin, J.), entered July 19, 2016, which denied plaintiff's motion for summary judgment declaring that it has no obligation to defend or indemnify defendant in the underlying personal injury action and awarding it reimbursement for defense costs, unanimously affirmed.

Issues of fact exist and discovery is warranted as to whether defendant performed as the construction manager on the project and therefore is subject to the insurance policy's exclusion for “Construction Management for a Fee.” “The label of construction manager versus general contractor is not necessarily determinative,” and this determination depends on the duties defendant was assigned and performed (Rodriguez v. Dormitory Auth. of the State of N.Y., 104 A.D.3d 529, 530, 962 N.Y.S.2d 102 [1st Dept. 2013], quoting Walls v. Turner Constr. Co., 4 N.Y.3d 861, 864, 798 N.Y.S.2d 351, 831 N.E.2d 408 [2005];  see also Carollo v. Tishman Constr. & Research Co., 109 Misc.2d 506, 508–509, 440 N.Y.S.2d 437 [Sup. Ct., N.Y. County 1981] ).  The relevant contract describes defendant's duties in relation to the project owner as, inter alia, supplying an adequate supply of workers and materials and performing the work.  Defendant's owner characterized defendant as both a construction manager and a general contractor, and described its work on the project as “the total supervision of ․ the construction,” the provision of some laborers, and supervision of maintenance and carpentry.  Moreover, the contract is divided into two phases—preconstruction and construction—and defendant performed services at the inception of the project, such as working with the owner, architect, and engineer, and when the work was ready to proceed, obtained permits, hired and paid the subcontractors, and allegedly acted as a general contractor.

In addition, although defendant performed for a fee, the budget attached to the contract suggests that the fee was based in part on profit.  Specifically, the fee in the contract refers to the budget attached as Exhibit A to the contract.  The budget, in turn, includes an amount of $1,042,918 payable to defendant for “profit and overhead.”  This evidence raises issues of fact as to whether defendant performed as the functional equivalent of a general contractor and whether it was being compensated on a cost-of-work-plus-profit-basis.  We note that these facts distinguish this case from Houston Cas. Co. v. Cavan Corp. of NY, Inc., 158 A.D.3d 536, 71 N.Y.S.3d 455 [1st Dept 2018], in which the third-party plaintiff was compensated by a flat fee plus reimbursement for overhead and staffing expenses.

Plaintiff failed to detail how it was prejudiced by defendant's alleged 51–day delay in providing notice of the underlying accident (see Insurance Law § 3420[a][5] ).  Its claim that, had it known that defendant was a construction manager, it would not have issued the policy, and thus coverage would be barred as a matter of law, was raised for the first time on appeal and is an unreviewable factual argument.  A determination as to primacy of coverage is premature absent a liability determination, and in any event plaintiff may still be obligated to defend under its policy.