INDIAN HARBOR INSURANCE COMPANY v. Cristobal Tomala–Campoverde, Defendant. (2018)

Order, Supreme Court, New York County (Manuel J. Mendez, J.), entered August 10, 2017, which granted defendants Alma Tower, LLC and Vordonia Contracting & Supplies Corp.'s motion for summary judgment, inter alia, declaring that plaintiff is obligated to defend them in the underlying personal injury action, and denied plaintiff's cross motion for a stay pending resolution of an action seeking rescission of the subject insurance contract, unanimously affirmed, without costs.

Defendants Alma Tower and Vordonia demonstrated that plaintiff had actual knowledge of facts establishing a reasonable possibility of coverage and is therefore obligated to defend them in the underlying personal injury action (see Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61, 67, 571 N.Y.S.2d 672, 575 N.E.2d 90 [1991] ).  Shortly after the underlying action was commenced, asserting claims of common-law negligence and Labor Law violations against Alma Tower and Vordonia in connection with injuries sustained by the injured party while he was working on the property for subcontractor S & S HVAC Corp., Alma Tower and Vordonia commenced third-party actions against S & S alleging negligence and seeking indemnification and contribution.  Alma Tower and Vordonia also wrote to plaintiff seeking coverage pursuant to the insurer's duty to defend.  Thus, plaintiff had actual knowledge that S & S may have proximately caused the underlying injury and that therefore Alma Tower and Vordonia may be vicariously liable to the injured party.

Because there is a reasonable possibility that S & S proximately caused the injury, neither Burlington Ins. Co. v. N.Y.C. Tr. Auth., 29 N.Y.3d 313, 57 N.Y.S.3d 85, 79 N.E.3d 477 (2017) nor Hanover Ins. Co. v. Philadelphia Indem. Ins. Co., 159 A.D.3d 587, 73 N.Y.S.3d 549 (1st Dept. 2018) is applicable here.

As the underlying personal injury action was filed when the insurance policy was in effect, and plaintiff has a duty to defend, plaintiff is legally obligated at this time to pay Alma Tower and Vordonia's defense costs in the underlying action.  Once a policy goes into effect and a claim has been made, the status quo is changed, and a defense of rescission may not be asserted until there is a judicial determination.  The trial court properly denied a stay while plaintiff awaits a judicial determination in the separate rescission action (see Federal Ins. Co. v. Kozlowski, 18 A.D.3d 33, 39–40, 792 N.Y.S.2d 397 [1st Dept. 2005];  Kiss Constr. N.Y., Inc. v. Rutgers Cas. Ins. Co., 61 A.D.3d 412, 414–415, 877 N.Y.S.2d 253 [1st Dept. 2009] ).

Supreme Court providently exercised its discretion in considering the sur-reply letters submitted by Alma Tower and Vordonia (see CPLR 2214[c];  U.S. Bank Trust, N.A. v. Rudick, 156 A.D.3d 841, 842, 67 N.Y.S.3d 646 [2d Dept. 2017] ).