211 v. First Mercury Insurance Company, Defendant. (2026)

This is an insurance-coverage action, brought by plaintiff, 211 West 14th Property Owner, L.L.C. (Owner), against defendant, First Mercury Insurance Company, under a policy issued by First Mercury to Owner. Owner seeks payment by First Mercury of litigation costs in an underlying special proceeding brought by Owner (and ensuing related litigation). First Mercury now moves under CPLR 3211 (a) (7) and CPLR 3001 to dismiss and for a declaration in its favor.. The motion is granted.

BACKGROUND

In 2015 Owner brought a proceeding under Real Property Actions and Proceedings Law (RPAPL) 881 against nonparty 207 West 14th Realty LLC, seeking access to 207 West's property to enable Owner to safely engage in foundation and support-of-excavation work on Owner's property (the SOE work). (See Matter of 211 W. 14th Prop. Owner v 207 W. 14th Realty LLC, Index No. 151000/2015 [Sup Ct, NY County, Edmead, J.].) Owner was granted access. (See Index No. 151000/2015, NYSCEF Nos. 40, 41.) Owner then purchased the two insurance policies from First Mercury that are at issue here: a commercial-general-liability (CGL) policy and an excess policy. (See NYSCEF No. 30 at ¶ 4.) It is undisputed that the excess policy follows form to the CGL policy. (See NYSCEF No. 3 at 5 [excess policy].) This court therefore refers here for concision only to the "First Mercury policy."

During performance of the SOE work, Owner detected movement of the walls on the adjacent property. (See NYSCEF No. 30 at ¶ 13.) In January 2016, Owner notified First Mercury of a potential claim against it arising from the SOE work. (Id. at ¶ 16; NYSCEF No. 78 at 7.) On May 23, 2016, the adjacent property owner filed a proposed order to show cause in the RPAPL 881 proceeding, seeking to enjoin Owner from conducting any further construction work until further safety measures were undertaken and until "appropriate and proper tenant protections and relocation arrangements are made for and provided to Respondent's tenants"; and asking the court to schedule a hearing "damages, fees and costs incurred as a result of [Owner's] construction activities." (NYSCEF No. 44 [reproducing proposed order to show cause filed in RPAPL 881 proceeding].)

On May 25, 2016, the court in the § 881 proceeding held a hearing on the proposed OSC. (See NYSCEF No. 73 [so-ordered transcript of proceedings].) At the hearing, Owner's counsel told the court that the New York City Department of Buildings (DOB) had imposed a stop-work order on construction due to damage to the adjoining property; that a condition of lifting the stop-work order was Owner's undertaking structural repairs (and other repairs) to the building on the adjoining property. (Id. at Tr. 6-7.) Owner's counsel further represented to the court that after extensive conversations with DOB and the adjoining-property owner, Owner had agreed to undertake the necessary repairs, to relocate some of the adjoining-property tenants during those repairs, and to pay the necessary relocation costs. (See id. at Tr. 7, 9-10, 12-14.) At the hearing, the court ordered Owner to relocate the adjacent-property tenants by June 3, 3016, and to pay the relocation costs. (See id. at Tr. 23-24.) And the court signed the OSC and set a briefing schedule. (See Index No. 151000/2015, NYSCEF No. 78 [signed OSC].)

On May 27, 2016, Owner notified First Mercury of the May 25 order in the RPAPL 881 proceeding. (See NYSCEF No. 40 at ¶ 10.) On June 2, 2016, First Mercury sent Owner a reservation of rights letter. (See id. at ¶ 15; NYSCEF No. 45.) On June 6, 2016, and on June 24, 2016, Owner entered into relocation-related settlements with two of the adjacent-property tenants. (See NYSCEF Nos. 46, 47.) In November 2016, First Mercury disclaimed coverage for the repair and relocation costs incurred to date (see NYSCEF No. 49); and First Mercury reaffirmed that disclaimer in March 2017 (see NYSCEF No. 50).

In August 2017, Owner brought this action, asserting claims for declaratory relief and damages against First Mercury for failing to indemnify Owner for the relocation/repair costs that Owner had to pay due to the damage to the Adjacent Property. (See NYSCEF No. 1 at 4-5.)

Also in August 2017, Owner sued the contractor it had retained to perform the SOE work (Sordoni Construction Company), along with Sordoni's designers and subcontractors, seeking to recover the same repair/relocation costs for which Owner brought this action against First Mercury. (See 211 W. 14th Prop. Owner, L.L.C. v Sordoni Constr. Co., Index No. 655381/2017 [Sup Ct, NY County], NYSCEF No. 1.) The parties here agreed to stay this action pending the resolution of Owner's action against the Sordoni defendants. (NYSCEF No. 14 [so-ordered stipulation].)

The Sordoni action ultimately settled. (See NYSCEF No. 19 at ¶¶ 5-6.) This court then lifted the stay of this action. (See NYSCEF No. 21.) After the stay was lifted, Owner amended its complaint in this action, with leave of court (see NYSCEF No. 38), to seek also the litigation expenses (attorney fees and costs) that Owner incurred in the Sordoni action. (See NYSCEF 30 at ¶¶ 21-26.)

First Mercury now moves under CPLR 3211 (a) (7) to dismiss Owner's damages claims. First Mercury moves under CPLR 3001 for a coverage-related declaration in its favor. The motion is granted.

DISCUSSION

On a motion to dismiss under CPLR 3211 (a) (7), the facts as alleged must be considered as true, and the court must accord a plaintiff the benefit of "every favorable inference." (Leon v Martinez, 84 NY2d 83, 87 [1994]). When, as here, the court has considered evidentiary material submitted by the plaintiff, the question is "whether the proponent of the pleading has a cause of action, not whether he has stated one." (Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977].)

Owner claims that First Mercury breached the terms of the policy by refusing either to indemnify Owner for its repair/relocation costs arising from the adjacent-property proceeding or to cover Owner's litigation-related expenses in bringing and resolving the Sordoni action. In moving to dismiss (and seeking a favorable coverage declaration), First Mercury argues that (i) neither set of costs is within the scope of coverage under the policy (see NYSCEF No. 61 at 16-18); and (ii) that Owner is not entitled to recover those costs under the policy because Owner breached policy preconditions to payment (see id. at 18-21).¹

This court considers first the branch of First Mercury's motion directed toward Owner's claims related to the adjacent-property proceeding, then the branch of the motion directed toward Owner's claims related to the Sordoni action.²

I. Owner's Claims for Damages Stemming from the Adjacent-Property Proceeding

In November 2016, First Mercury disclaimed coverage for the repair and relocation costs that Owner undertook with respect to the adjacent property. (See NYSCEF No. 49.) In March 2017, First Mercury sent Owner's counsel a supplemental coverage disclaimer, rejecting a request by Owner to reconsider the November 2016 disclaimer. (See NYSCEF No. 50). Those disclaimers identified several grounds for First Mercury's coverage determination. One of those grounds was that Owner had voluntarily assumed obligations, made payments, and promised future payments without First Mercury's consent, in violation of an express condition in the policy. (See NYSCEF No. 49 at 18; NYSCEF No. 50 at 4.)

The First Mercury policy at issue provides that "[n]o insured will, except at that insureds own cost voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without . . . consent." (NYSCEF No. 2 at 15.) Compliance with this type of consent-to-settle policy requirement is a "condition precedent to coverage." (Ralex Servs., Inc. v Southwest Mar. & Gen. Ins. Co., 155 AD3d 800, 802 [2d Dept 2017] [internal quotation marks omitted].) Thus, if Owner voluntarily made payments or assumed obligations without First Mercury's consent, and that consent was not excused, Owner is not entitled to coverage. (See id.; cf. State Farm Auto. Ins. Co. v Blanco, 208 AD2d 933, 934 [2d Dept 1994] [holding, in context of automobile insurance policy, that failure to comply with the policy's consent-to-settle requirement bars the insured's recovery under the policy, absent a showing that the insurer waived the requirement "by its conduct, silence, or unreasonable delay"].)

In moving to dismiss Owner's damage claim relating to the adjacent-property proceeding, First Mercury argues that Owner breached the consent-to-settle requirement of the First Mercury policy. This court agrees.

Owner has submitted on this motion the so-ordered transcript of the May 25, 2016, hearing in the RPAPL 881 proceeding, concerning the proposed order to show cause filed by the adjacent property owner. (See NYSCEF No. 73.) That transcript reflects that in the May 25 hearing, Owner's counsel told the § 881 court that Owner had already agreed to undertake repairs to the building on the adjacent property and to relocate at Owner's expense the tenants in that building during the repair process. (See id. at Tr. 6-7, 9-10, 12-14, 22, 27, 34-35.) Crucially, the May 25 hearing occurred two days before Owner provided notice to First Mercury of the adjacent-property-damage claims against Owner that had arisen in the RPAPL 881 proceeding. (See NYSCEF No. 40 at ¶ 10 [party affidavit]; NYSCEF No. 45 at 4 [June 2, 2016, reservation of rights letter, discussing timing of Owner's notice to First Mercury].)

Thus, on the representations of Owner's § 881 counsel, Owner assumed the obligations (and agreed to incur the expenses) for which it now seeks coverage without having notified First Mercury and obtained its consent—as the policy requires. (See NYSCEF No. 79 at 4-6 [reply mem. of law].) Neither the complaint nor Owner's affiant on this motion make factual allegations or representations that differ from, or otherwise complicate, what Owner's § 881 counsel told the court in the May 25, 2016, hearing. The complaint and Owner's opposition papers also do not identify repair or relocation-related commitments that Owner undertook only after it provided notice to First Mercury on May 27, 2016.

At most, Owner asserts in a memorandum of law that it "gave notice of the Adjacent Property Action to First Mercury prior to any settlement discussions and settlement occurred after the issuance of a related Court Order."³ (NYSCEF No. 78 at 16 n 2.) This statement by counsel, though, lacks a supporting record citation (whether to the record in this action or in the § 881 proceeding). To the extent that counsel is relying on relocation-related agreements that Owner executed in June 2016 (see NYSCEF Nos. 46, 47), that reliance is misplaced. The transcript of the May 25, 2016 hearing makes clear that those agreements merely formalized and reduced to writing obligations that Owner had agreed to assume during (and before) that hearing—before First Mercury was even notified that those potential obligations might exist.

To the extent Owner is suggesting that First Mercury waived its right to consent by failing to act after being notified in January 2016 of a potential claim against Owner (see NYSCEF No. 78 at 18), the suggestion is unpersuasive. The January 2016 email and appended documents, sent by Owner's agent to First Mercury, put First Mercury on notice that a loss had occurred that might lead to a later claim against Owner (for which Owner might be entitled to a defense under the policy). (See NYSCEF No. 76 at 2.) The email did not, however, indicate that a claim had been made or was about to be made; nor provide any information to First Mercury. (See id.) And that makes sense: The policy requires insureds to provide First Mercury both notice of occurrence and notice of claim (see NYSCEF No. 41 at 14-15); but only the latter would potentially trigger the duty to defend.

Additionally, even if First Mercury should have done more than it did in January 2016, Owner does not allege or otherwise represent that it was prejudiced by any failure to act by First Mercury between the date of the notice of occurrence (January 11, 2016) and the date of the adjacent-property-owner's proposed OSC seeking damages against Owner (May 23, 2016). The record also reflects that Owner held extensive discussions and negotiations with DOB and the adjacent property-owner in the weeks preceding the filing of that proposed OSC. (See e.g. NYSCEF No. 73 at Tr. 6-7 [Owner's § 881 counsel describing negotiations over repairs among Owner, DOB, and the adjacent property-owner].) Yet Owner does not allege that it ever sought to involve First Mercury in those conversations, or alert it to the increasing likelihood that a repairs-related claim would be brought against Owner—further undermining any prejudice argument relating to the January 2016 notice.⁴

Owner also contends in its memorandum of law that it suffered prejudice from the delay between First Mercury's sending a reservation-of-rights letter in June 2016 and its sending the coverage disclaimer in November 2016. Owner asserts that this delay forced it to "make payments and incur costs in connection with the Adjacent Property Action" to "protect itself." (NYSCEF No. 78 at 18.) This assertion cannot be reconciled with the record.

Again, the May 25, 2016, transcript from the § 881 proceeding—which Owner has submitted on this motion—indicates that Owner's payments and costs between June and November 2016 stemmed from commitments that Owner chose to make to DOB, to the adjacent property-owner, and to the RPAPL 881 court before Owner ever notified First Mercury of a claim in the § 881 proceeding. Indeed, although Owner asserts that it "was forced to pay the damages ordered by the Relocation Order because First Mercury failed to defend the Owner in the Adjacent Property Action" (id. at 19), the transcript of the May 25, 2016, hearing in the § 881 proceeding shows that Owner's § 881 counsel had already agreed that those costs would need to be paid, and told the court as much. (See NYSCEF No. 73 at Tr. 9-10, 12-15, 16-18 [discussing Owner's plans to relocate adjacent-property tenants as needed during the course of repairs].) Owner does not allege (or represent on this motion) that the repair/relocation costs that it incurred between June and November 2016 were higher than expected; or that the amount of those costs could have been decreased had First Mercury actively participated in the § 881 proceeding.⁵ In these circumstances, any undue delay by First Mercury in disclaiming coverage did not defeat the right to disclaim.⁶ (See Fairmont Funding, Ltd. v Utica Mut. Ins. Co., 264 AD2d 581, 581-582 [1st Dept 1999] ["Under the common-law rule, delay in giving notice of disclaimer of coverage, even if unreasonable, will not estop the insurer to disclaim unless the insured has suffered prejudice from the delay."].)

In short, First Mercury has established at the pleading stage that Owner lacks a cause of action with respect to the claimed damages stemming from the adjacent-property proceeding, due to Owner's failure to satisfy a contractual condition precedent.⁷ First Mercury's request to dismiss that aspect of Owner's breach-of-contract claim, and for a corresponding no-coverage declaration, is granted.

II. Owner's Claims for Damages Stemming from the Adjacent-Property Proceeding

Owner has also alleged that in "pursuing and achieving settlement in the Sordoni Action," it incurred "significant costs and expenses that constitute a covered loss under the Policies," for which it is assertedly entitled to (but has not received) reimbursement from First Mercury. (NYSCEF No. 30 at ¶¶ 25-26.) In seeking dismissal, First Mercury argues that Owner's litigation costs from the Sordoni Action are not covered under the policy. This court agrees.

The policy at issue provides that First Mercury has "the right and duty to defend the insured against any 'suit' " that seeks damages for covered property damage. (NYSCEF No. 2 at 5.) "Suit" for these purposes includes both judicial and arbitral proceedings. (See id. at 19.)

Here, Owner brought the claims at issue in the Sordoni action, rather than having to defend them. Owner does not explain how its litigation costs in that action nonetheless come within this policy language. Instead, Owner argues that First Mercury is responsible for paying those costs because it was First Mercury's fault that Owner had to commence the Sordoni action. That is, Owner says, the costs incurred in the "Sordoni Litigation [were] purely a product of First Mercury's breach of the Polic[y]," because if First Mercury "properly defended . . . Owner" in the RPAPL 881 proceeding as assertedly required under the policy, Owner "would not have had to attempt to recoup" from Sordoni the damages Owner sustained in the § 881 proceeding. (NYSCEF No. 78 at 19; see id. at 20.)

The problem with this argument is that Owner's breach-of-contract and declaratory-judgment claims in this action are premised on the First Mercury policy, in particular. The language of that policy covers only defense costs. It does not encompass all litigation costs that might have some kind of causal relationship to property damage for which Owner is responsible. Nor does Owner identify (or provide authority for) another theory in contract or in tort by which First Mercury might be held liable for these costs.

Owner's litigation costs in the Sordoni action are not covered losses under the First Mercury policy. First Mercury is entitled to dismissal of that aspect of Owner's breach-of-contract claim based on the Sordoni action; and is entitled to a no-coverage declaration in its favor with respect to the Sordoni action.⁸

Accordingly, it is

ORDERED that the branch of First Mercury's motion seeking dismissal of Owner's breach-of-contract claim against it is granted, and that claim is dismissed; and it is further

ORDERED that the branch of First Mercury's motion seeking a declaration in First Mercury's favor on Owner's declaratory-judgment claim is granted; and it is further

ORDERED, ADJUDGED, and DECLARED that First Mercury has no obligation to reimburse Owner for the damages, expenses, and other costs that Owner incurred in the adjacent-property proceeding, Matter of 211 W. 14th Prop. Owner v 207 W. 14th Realty LLC (Index No. 151000/2015 [Sup Ct, NY County]); and it is further

ORDERED, ADJUDGED, AND DECLARED that First Mercury has no obligation to reimburse Owner for the litigation costs that Owner incurred in the Sordoni action, 211 W. 14th Prop. Owner, L.L.C. v Sordoni Constr. Co. (Index No. 655381/2017 [Sup Ct, NY County]); and it is further

ORDERED that First Mercury serve a copy of this order with notice of its entry on Owner; and on the office of the County Clerk (using the NYSCEF filing event "Notice to the County Clerk - CPLR § 8019 (c)"), which shall enter judgment accordingly.

DATE 5/18/2026

FOOTNOTES

1.   In other words, First Mercury is contending that its refusal to make payments to Owner under the policy was not a breach of the policy, because Owner lacks a contractual entitlement to the claimed payments. For this reason, Owner's contention that First Mercury does not contest whether it has "sufficiently pled . . . the breach of the contract" is unpersuasive. (NYSCEF No. 78 at 14.) Even assuming that First Mercury does not dispute that the breach allegations in the amended complaint might state a cause of action, First Mercury plainly does argue that Owner does not have a cause of action for breach of contract due to the absence of any breach.

2.   First Mercury does not argue on this motion that Owner's damages related to the adjacent-property proceeding (if any) must be offset by the amount of the Sordoni settlement. Given the court's resolution of the motion, the court need not consider the issue.

3.   This court understands the "related Court Order" in this sentence of the memorandum of law to be referring to the May 25, 2016, order to show cause, and the associated so-ordered transcript of the hearing about that OSC.

4.   For that matter, Owner does not attempt to explain why it said nothing to First Mercury between January and May 2016 as the likelihood of a claim against owner increased.

5.   Owner also does not allege or otherwise represent that any of the repair/relocation obligations for which it now seeks recoupment from First Mercury did not accrue until after the November 2016 disclaimer—as opposed to obligations undertaken before the disclaimer and were liquidated post-disclaimer into specific amounts for particular steps in the repair/relocation process. (Cf. AJ Contr. Co. v Forest Datacom Servs., 309 AD2d 616, 617-618 [1st Dept 2003] ["CIGNA's disclaimer of coverage excused AJ from complying with the term of the policy obligating it to obtain the insurer's consent before settlement of any matter."].)

6.   Because the underlying claims arise from damage to property, First Mercury was not subject to Insurance Law § 3420 (d)'s more-demanding timing for coverage disclaimers with respect to insurance claims based on death or bodily injury. (See KeySpan Gas E. Corp. v Munich Rein. Am., Inc., 23 NY3d 583, 590-591 [2014] [noting this distinction].)

7.   The court is somewhat skeptical of First Mercury's alternative coverage arguments—e.g., that Owner's damages were not within the scope of coverage because they did not stem from an "occurrence" and were not sought from Owner in a "suit"—largely for the reasons set forth in Owner's papers. (See NYSCEF No. 78 at 14-16; P.J.P. Mech. Corp. v Commerce & Indus. Ins. Co., 65 AD3d 195, 199-200 [1st Dept 2009] [holding, in interpreting similar policy language, that a request for affirmative monetary relief made by a defendant against a plaintiff will qualify as a "suit" against the plaintiff that the insurer must defend]; I.J. White Corp. v Columbia Cas. Co., 105 AD3d 531, 532 [1st Dept 2013] [holding that the insured's claimed damages stemmed from an "occurrence" within the meaning of the policy when the alleged faulty workmanship at issue did not merely harm the insured's own property, but also caused damage to the property of a third party].) But given this court's conclusion that Owner breached the consent-to-settle requirement of the First Mercury policy, this court need not, and does not, definitively resolve these scope-of-coverage issues here.

8.   This court therefore does not reach First Mercury's argument that Owner's litigation costs in the Sordoni action are not covered because Owner settled the Sordoni action in a way that breached conditions of the First Mercury policy.

Gerald Lebovits, J.