XL INSURANCE AMERICA INC RSUI v. TURNER CONSTRUCTION COMPANY NYU (2022)

The following e-filed documents, listed by NYSCEF document number (Motion 003) 29, 30, 31, 32, 33, 34, 35, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 88, 89, 90, 91 were read on this motion to/for DISMISS.

The following e-filed documents, listed by NYSCEF document number (Motion 004) 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 92, 93 were read on this motion to/for DISMISS.

New York University (University) and NYU Hospitals Center's (Hospitals, together with University, hereinafter, collectively, NYU) motion to dismiss (Mtn. Seq. No. 004) must be granted as to the substantive claims asserted against them. The lawsuit is not however dismissed in its entirety against NYU because NYU is a proper nominal defendant to the declaratory judgment causes of action.

The breach of contract cause of action (Count IV) based on the Waiver of Claims (hereinafter defined) provision must be dismissed. The Appellate Division has already held that the Waiver of Claims contained in the Policy (hereinafter defined) does not apply to the claims asserted in the Underlying Action (hereinafter defined) because the project site does not include damages that occurred at the adjacent building (New York Univ. v Turner Constr. Co., 163 AD3d 416, 417-418 [1st Dept 2018]). The breach of contract claim asserted against NYU is also ripe for dismissal because it is duplicative of the causes of action seeking a declaration that Turner does not have coverage under the Policy for the claims asserted in the Underlying Action.

The declaratory judgment causes of action asserted against NYU fail because NYU has not asserted a claim against the Plaintiffs under the insurance policies. Thus, there is no actual justiciable controversy between NYU and the Plaintiffs as to whether coverage exists. NYU is however a proper nominal defendant to the declaratory judgment relief causes of action asserted against Turner because its rights may well be affected by a declaration as to whether coverage exists under the Policy (see, e.g., Mt. McKinley Ins. Co. v Corning Inc., 33 AD3d 51, 57 [1st Dept 2006]).

Turner is not entitled to dismissal. The claims asserted against them are not untimely. In fact, the statute of limitations has not yet begun to run because a cause of action for coercive relief has not yet accrued (Charney v North Jersey Trading Corp., 172 AD2d 390, 390 [1st Dept 1991]). Dismissal is equally inappropriate based on the doctrine of laches.

For the reasons set forth below, the Plaintiffs' cross-motions for partial summary judgment pursuant to CPLR 3211(c) are denied.

The Relevant Facts and Circumstances

Reference is made to a case captioned New York Univ. v Turner Constr. Co. (the Underlying Action, Index No. 653535/2015) that is scheduled to begin trial on April 10, 2023. The facts in the Underlying Action are set forth in the numerous decisions issued in that case. Familiarity is presumed.

Briefly, Turner was the General Contractor for a construction project to construct a new Energy Building (the Energy Building Project) on the Langone Medical Campus. The Energy Building Project was one of a series of construction projects that NYU planned over the course of eight years (NYSCEF Doc. No. 2, ¶ 2). In connection with this series of construction projects, NYU procured a three-part insurance program (id.) which included various Builder's Risk insurance policies to cover each worksite (e.g., the Energy Building Project's worksite [id.]) and $202 million in Commercial General Liability (CGL) through an Owner-Controlled Insurance Program (OCIP) (id.). The Plaintiffs, along with non-parties New Hampshire Insurance Company (New Hampshire) and National Union Fire Insurance Company of Pittsburgh, PA (National Union), each issued insurance policies comprising the OCIP tower (id.). New Hampshire issued the primary policy (the Policy), and the Plaintiffs and National Union each issued a follow form excess policy (the follow form excess policies, together with the Policy, hereinafter, collectively, the OCIP Policies).

As part of the Energy Building Project, Turner removed a ramp leading to a loading dock for an adjacent building and exposed a ventilation shaft for a generator in the cellar of the adjacent building (NYSCEF Doc. No. 2, ¶ 3). When Superstorm Sandy arrived, 11 million gallons of water entered through the ventilation shaft allegedly causing over $1.2 billion in damages. Significantly, for clarity, the damages asserted in the Underlying Lawsuit is not to the Energy Building or resulting from damage to the Energy Building or otherwise from operations.

Pursuant to a letter (NYU's Notice of Claim), dated December 21, 2012, NYU served notice of claim. The notice of claim provides:

We recently learned of certain latent faulty workmanship, material, construction and/or design that have caused significant damage and losses to NYUMC. Although our investigation is continuing, we have to date identified the following faulty workmanship, material, construction or design: improper design and/or installation of the Smilow generator fuel tank vent, improperly sealed conduits in the Smilow cellar, improperly installed and sealed electrical in the Tisch Hospital cellar, and faulty workmanship, material, construction or design associated with protection measures at the Energy Building site and the Medical Science Building.

We understand that your company was responsible for some or all of the aforementioned faulty workmanship, material, construction or design giving rise to the damages at NYUMC. Accordingly, we demand that you immediately place your insurance carrier(s) on notice of circumstances that may give rise to a claim. Kindly acknowledge receipt of this notice and provide us with copies of your insurance policies at your earliest possible convenience (NYSCEF Doc. No. 30).

Pursuant to a letter (Turner's Notice of Claim), dated May 19, 2014, Turner notified its insurance carriers of NYU's claims. The letter provides:

We are writing to place you on notice of a potential claim for property damage, business interruption, and other, unspecified damages allegedly sustained by New York University Langone Medical Center (“NYULMC”) on or about 10/29/12 as a result of Super Storm Sandy. As set forth in the enclosed correspondence, NYULMC is claiming an unspecified portion of their damages are due, in part, to the alleged negligence of Turner Construction Co. (“Turner”).

Two of the above reference projects (Langone Kimmel Enabling and Energy Building) were insured for general liability via the NYULMC OCIP program. We previously noticed National Union Fire Insurance Co. of Pittsburgh, PA under the primary OCIP GL policy. However, NYULMC has recently informed Turner that total damages are approximately $1.2 Billion; well above the primary layer limits. Therefore, while this alleged damage figure has not been formally conveyed in writing nor documented nor substantiated in any way, Turner believes it is prudent to give notice to XL Insurance America, Inc. of NYULMC's claim.

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In light of the above, we ask that you please immediately establish a claim file and advise Turner of the file number and adjuster's name and contact information. Upon confirmation of the claim information, we will provide the pertinent documentation we presently possess in regard to this matter (id. [emphasis added]).

The Underlying Action was commenced by summons and complaint dated October 23, 2015 (Index No. 653535/2015, NYSCEF Doc. Nos. 1-2). NYU asserted causes of action for (i) breach of contract (first cause of action) and (ii) negligence (second cause of action).

Turner moved to dismiss arguing that (i) NYU mandated that Turner enroll in the OCIP program pursuant to which NYU waived any and all claims against Turner for property damage, (ii) the parties' agreements contain express and specific waiver provisions, and (iii) NYU's property insurance waived claims against Turner for damages arising from floods and ensuing loss from defective work. The court (Ramos, J.) granted Turner's motion.

On appeal, the Appellate Division reinstated the Underlying Action holding that the waiver in the Builder's Risk Endorsement (hereinafter defined) should be interpreted as consistent with the Waiver of Claims covered by the Builder's Risk Policy (hereinafter defined) under Section 11.4.1 and 11.4.2 of the Energy Building Contract and that the work site did not include the damaged adjacent buildings such that the Waiver of Claims would apply:

Defendant's argument that the FM Global policy covering adjacent properties was procured pursuant to section 11.4.1 of the 2011 Energy Building Contract and therefore claims against defendant for losses covered by it were waived pursuant to section 11.4.2, is unavailing insofar as the work site did not include the damaged adjacent buildings. Section 11.4.1 only required NYU/NYU School of Medicine to procure “necessary[ ] insurance for the Project ․ upon the entire Work at the site.”

Defendant's contention that plaintiffs' claims were barred by the waiver of claims in the Owner-Controlled Insurance Program (OCIP), procured pursuant to the 2011 Energy Building contract, is unavailing. The OCIP is not part of the 2011 Energy Building contract or contract documents, which contain a merger clause. Plaintiffs' interpretation of the OCIP waiver is consistent with the coverage provided by the OCIP and the waiver of claims covered by the Builder's Risk policy under sections 11.4.1 and 11.4.2 of the 2011 Energy Building contract, whereas defendant's interpretation of the OCIP waiver conflicts with the contract documents which state that the OCIP would not relieve defendant of any obligation to the owner. (New York Univ., 163 AD3d at 417-418 [emphasis added]).

Subsequently, during discovery in the Underlying Action, NYU alleges that it learned that notwithstanding the fact that Turner was aware of the substantial damage that could result from failing to provide adequate protection to the ventilation shaft at one of the adjacent buildings (i.e., the building with the exposed ventilation shaft), Turner ignored specific instructions from NYU as to how to protect the ventilation shaft. Based on the foregoing, this Court granted leave to file the amended complaint adding the claim sounding in gross negligence (Index No. 653535/2015, NYSCEF Doc. No. 311). Although notice of appeal was filed, the appeal has been withdrawn (Index No. 653535/2015, NYSCEF Doc. No. 495).

Pursuant to a General Liability insurance policy (the Builder's Risk Policy; NYSCEF Doc. No. 40) issued by New Hampshire to Hospitals for the period from December 6, 2011, to December 6, 2012, New Hampshire, as the lead OCIP provider, agreed to defend Turner in the Underlying Action under a full and complete reservation of rights (id.).

The Policy contained an exclusion from Endorsement (the Builder's Risk Endorsement) consisting of two relevant provisions. The first is a replacement of the Policy's Commercial General Liability Coverage Form, Section I—Coverages, Coverage A.—Bodily Injury and Property Damages Liability, 2.—Exclusions, j.—Damage to Property, paragraph (5) (the Amended J(5) Exclusion). The Amended J(5) Exclusion provided that the Policy does not apply to:

[A]ny real property at, in or on the project site (including all land, structure, fixtures, attached equipment, and integrated equipment) arising out of the ongoing operations of you, any subcontractor, or any other contractors working directly or indirectly on their behalf. Paragraph (5) of this exclusion does not apply to “property damage” included in the “products-completed operations hazard.”

(NYSCEF Doc. No. 40, at 75). The second provision is an addition to Section IV — Commercial General Liability Conditions: Waiver of Claims and Subrogation Rights (the Waiver of Claims Provision). The Waiver of Claims Provision provided that:

With respect to any “property damage” to the project site and any and all resultant “property damage” arising out of the ongoing operations of you, any subcontractor, or any other contractors working directly or indirectly on their beach, each Insured, including the Named Insured, agree to waive any and all a) claims against any other Insured and b) subrogation rights against us (id. [emphasis in original]).

As discussed above, in interpreting the Builder's Risk Endorsement in the Underlying Action, the Appellate Division held that the project site ¹ as defined in the Policy does not include the adjacent buildings where the loss occurred such that the Waiver of Claims Provision contained in the OCIP applied and otherwise barred NYU's claim (New York Univ., 163 AD3d at 417-418).

In light of the imminent trial, the parties engaged in settlement discussions.

This action was subsequently commenced by summons and complaint dated April 21, 2022 (NYSCEF Doc. Nos. 1-2) asserting causes of action for (i) a declaratory judgment that the Amended J(5) Exclusion bars indemnity coverage for Turner (Count I), (ii) a declaratory judgment that the Waiver of Claims Provision bars indemnity coverage for Turner (Count II), (iii) a declaratory judgment that (x) the Named Insured endorsement (hereinafter defined) and (y) Limitation of Coverage to Designated Project endorsement (hereinafter defined) bar indemnity coverage for Turner (Count III), (iv) breach of contract for breach of the Waiver of Claims Provision (Count IV), and (v) a declaratory judgment that the OCIP Policies' maximum coverage for damages and interest is the applicable policy limit (Count V).

Discussion

On a motion to dismiss, the Court must afford the pleading a liberal construction and accept the facts as alleged as true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory (Leon v Martinez, 84 NY2d 83, 87-88 [1994]).

I. The Cross-Motions Are Denied

Pursuant to CPLR 3211(c), whether or not issue has been joined, the Court may, upon adequate notice to the parties, treat the motion as a motion for summary judgment. Such notice is not required where (i) there are no issues of fact, (ii) both sides specifically request that the motion be treated as a CPLR 3211(c) motion, or (iii) where both sides make it unequivocally clear that they are laying bare their proof and are deliberately charting a summary judgment course (Wiesen v New York University, 304 AD2d 459, 460 [1st Dept 2003], see Four Seasons Hotels Ltd. v Vinnik, 127 AD2d 310, 320-321 [1st Dept 1987]).

It is undisputed that there has not been adequate notice to the parties by the Court that it would treat the cross-motions as motions for summary judgment and both sides have not requested that the cross-motions be treated as summary judgment motions. To date, as discussed below, Turner has only filed a motion to dismiss incorrectly arguing that this lawsuit is untimely. Thus, the Plaintiffs' cross-motions are denied.

II. NYU is a proper nominal defendant but the claims against NYU otherwise fail

The gravamen of the breach of contract claim leveled against NYU is that NYU breached the Waiver of Claims provision in the Policy by suing Turner. Simply put, the claim fails.

As discussed above, the Waiver of Claims provision simply does not apply to the claims asserted in the Underlying Action. It does not matter that Plaintiffs' counsel disagrees with the Appellate Division's decision (tr at 32: lines 17-21, at 33-34: lines 23-2), the project site as defined in the Waiver of Claims does not include the adjacent buildings where the damage in the Underlying Action is alleged to have occurred. Nor can it be said that the Appellate Division was merely interpreting the Waiver of Claims provision between NYU and its contractor such that it would not apply to the contractor's insurer. It also can not be said that the damage results from any damage from the project site. The damage simply did not occur at the Energy Building, resulting from damage that occurred at the Energy Building or resulting from any ongoing operations at the Energy Building (NYSCEF Doc. No. 40, at 75). NYU is also not judicially estopped from arguing otherwise. This is the argument that the Appellate Division adopted (Divine Capital, LLC v Legado Inv. Grp. LLC, 2019 WL782998, * 5 [Sup Ct, NY County 2019] citing Stewart v Chautauqua Cnty. Bd. of Elections, 14 NY3d 139, 149-150 [2010]). Equally significant, the cause of action levelled against NYU sounding in breach of contract must be dismissed as duplicative of the declaratory cause of action. To wit, the damages that the Plaintiffs seek are monies that it will have to pay to NYU if NYU is successful in the Underlying Action:

177. By filing and continuing to prosecute its lawsuit against Turner, NYU has materially breached and remains in material breach of that agreement.

178. NYU's breach has caused and will further cause damages to Plaintiffs.

179. Specifically, Plaintiffs are entitled to damages in the amount of any loss and/or expense caused by NYU's breach, including the full amount of any defense or indemnity payments that have been or may be made on Turner's behalf.

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183. Accordingly, Plaintiffs respectfully request a declaration that NYU has breached and remains in breach of its contract with Plaintiffs, and an award of monetary damages in the amount of any loss and/or expense that has been or may be caused by that breach, including the full amount of any defense costs and/or indemnity payments that have been or may be made on behalf of Turner, together with all court costs incurred in relation thereto and statutory interest thereon.

(NYSCEF Doc. No. 2, ¶¶ 177-179 and 183).

This amounts to little more than a thinly veiled attempt to prematurely ² seek a declaration that it owes no money to NYU under the Policy. Putting aside that the complaint is clear, Plaintiff's counsel confirmed the same (tr at 52, lines 5-23). As such, it (Count IV) must be dismissed.³

The declaratory judgment causes of action asserted against NYU also fail. NYU has not asserted (and can not assert) a claim for coverage against the Plaintiffs. In support of this argument, NYU relies on the well-established proposition that an injured party does not have standing to sue a tortfeasor's insurer until a judgment has been issued (see, e.g., Lang v Hanover Ins. Co., 3 NY3d 350 [2004]; Mount Vernon Fire Ins. Co. v NIBA Constr. Inc., 195 AD2d 425 [1st Dept 1993]). Until a judgment is issued, an injured third party is a stranger to the insurance contracts at issue (Mount Vernon Fire Ins. Co., 195 AD2d at 425). Putting aside that NYU is not merely a third party to the Policy, although the Plaintiffs file no opposition to this argument, NYU is an appropriate nominal defendant. Undeniably, NYU is an interested party to the declaratory judgment causes of action asserted against Turner and, as such, dismissal of the lawsuit in its entirety is not appropriate as against NYU.

III. The Claims are not dismissed as untimely or based on laches

Turner argues that the claims asserted against it must be dismissed as untimely. Turner argues that the claims asserted first accrued when it filed Turner's Notice of Claim in 2014 and therefore became untimely in 2020. As a fall back position, Turner secondarily argues that even if the Court were to consider the claims as having accrued when NYU commenced the Underlying Action in October, 2015 and Turner sent the complaint to the Plaintiffs in November, 2015, and taking into account the Governor of the State of New York's various Executive Orders tolling the statute of limitations and all tolling agreements between the parties, the claims became untimely as of January, 2022—four months before this lawsuit was filed. Thus, Turner argues, the lawsuit must be dismissed as untimely. The argument fails.

A cause of action for a declaratory judgment pursuant to CPLR 3001 accrues when there is a bona fide, justiciable controversy between the parties (Zwarycz v Marnia Const., Inc., 102 AD3d 774, 776 [2d Dept 2013]). A justiciable controversy must involve a present, rather than hypothetical, contingent or remote prejudice to the plaintiff, and the dispute must be real, definite, substantial, and sufficiently mature so as to be ripe for judicial determination (id.). A dispute matures into a justiciable controversy when the plaintiff receives direct, definitive notice that the defendant is repudiating his or her rights (id., citing Stein v Garfield Regency Condominium, 65 AD3d 1126 [2d Dept 2009]). This occurs when a cause of action for coercive relief accrues (Charney, 172 AD2d at 390). The fact that a disagreement may exist as to whether coverage exists does not trigger the statute of limitations:

To hold that the existence of disagreement triggers the statute of limitations would be unwise because it would encourage litigation which could prove unnecessary with the passage of time (id.).

As discussed above, the Plaintiffs are excess carriers and the cause of action for coercive relief accrues when, as, and if, there is an exhaustion of the primary coverage and a demand made for the excess coverage. On the record before this Court, this has not occurred.

Indeed, typically, this occurs, if at all, when there has been a judgment against a tortfeasor and the amount of the judgment exceeds the primary coverage. Sometimes it occurs in the context of a settlement, when the primary coverage is tendered and there is a need for the excess coverage to resolve the dispute. Although the parties indicate that there have been certain settlement discussions, no one asserts that this has occurred and that from the time that this occurred, the statute of limitations has expired making this claim untimely. Put another way, the statute of limitations has not begun to run on the claims asserted in this lawsuit and nothing compels the excess carrier to bring this lawsuit at this time. The fact that they can does not mean that they must. And, the fact that they were aware of the claims asserted in the Underlying Action years ago (perhaps as early as 2012) does not mean that they were obligated to commence suit with the clocking ticking on the statute of limitations. In fact, the Plaintiffs could simply have waited until resolution of the Underlying Action and see whether any judgment reached against Turner would necessarily implicate their exposure and whether an action for coercive relief accrued. It does not matter that they received Turner's Notice of Claim, that they may have previously received NYU's Notice of Claim, that they could have investigated, or, if NYU or Turner had not yet notified them of the potential claim or otherwise let them perform their own inspection of the area where the loss occurred, that they might raise concerns related to the failure to preserve evidence for inspection. As such, the branch of the motion seeking dismissal based on the claims being untimely must be denied.

Turner is also not entitled to dismissal based on the doctrine of laches. An essential element of laches is unreasonable and inexcusable delay by plaintiffs in undertaking to enforce their rights (Nassau County v Metropolitan Transp. Authority, 99 AD3d 617, 617 [1st Dept 2012]). This element is simply absent. Turner has made no showing that the Plaintiffs have unreasonably or inexcusably delayed bringing their claims or that Turner has been in any way prejudiced. It is simply false to say that Turner has been reasonably operating under the assumption that insurance coverage would exist. Although New Hampshire, the primary carrier, is defending Turner in the Underlying Action, they have done so while reserving their rights. Additionally, the Plaintiffs have also sent reservation of rights letters (NYSCEF Doc. No. 30). The policy articulated by the Charney court discussed above highlights why the doctrine of laches is not a bar to the claims asserted in this action.

The Court has considered the parties remaining arguments and finds them unavailing.

It is hereby ORDERED that NYU's motion to dismiss (Mtn. Seq. No. 004) is granted to the extent that the cause of action for breach of contract is dismissed and the causes of action for declaratory judgment are not dismissed solely to the extent that NYU is a proper nominal defendant; and it is further

ORDERED that Turner's motion to dismiss (Mtn. Seq. No. 003) is denied in its entirety; and it is further

ORDERED that the Plaintiffs' cross-motions for summary judgment are denied; and it is further

ORDERED that Turner shall file an answer within 20 days of the date of this order.

FOOTNOTES

1.   Although the Appellate Division used the term work site as opposed to project site, the distinction is without significance. The point is that, for the purpose of the Waiver of Claims and the Amended J(5) Exclusion, the site means the Energy Building and the OCIP did not relieve the contractor of any obligations to the Owner. As the contractor's insurer, the Plaintiff is also bound by this determination.

2.   As discussed below, NYU does not have standing to assert a claim against its alleged tortfeasor's insured (the Plaintiff) and NYU has not made a claim against the Plaintiff.

3.   NYU also argues that the claims are untimely but for the reasons discussed below, this argument fails.

Andrew Borrok, J.