Kinsale Insurance v. OBMP NY, LLC

Citations: 171 F. Supp. 3d 277; 2016 WL 1169513; 2016 U.S. Dist. LEXIS 36737Docket: 14cv7792 (DLC)

Court: District Court, S.D. New York; March 22, 2016; Federal District Court

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The case stems from a shooting incident at the SUITE 135 nightclub, operated by OBMP NY, LLC, on March 31, 2014, where Edward Gaskin and Shamekka Green were injured. They have filed a negligence lawsuit against OBMP and others in New York state court, claiming that an insurance policy with Kinsale Insurance Company covers their injuries. Kinsale seeks a declaratory judgment asserting that the policy was effectively canceled at 12:01 a.m. on the same day as the incident, thus negating any duty to defend or indemnify OBMP in the lawsuit. Kinsale further argues that, if required to indemnify, its liability is capped at $25,000 per occurrence due to an assault or battery limitation in the policy.

Gaskin and Green counter that Kinsale’s cancellation was ineffective under New York law and that the applicability of the assault and battery limitation to Green’s injuries is a factual issue for a jury. The court has granted Kinsale’s motion for summary judgment. The facts include that Gaskin was shot in the hand and Green was injured while fleeing the nightclub. Kinsale issued a commercial general liability policy to OBMP, which included provisions for cancellation and stipulated that coverage for injuries was limited to the policy period from January 6, 2014, to September 11, 2014. Kinsale had the right to cancel the policy if OBMP failed to pay premiums, provided proper notice was given. An audit conducted by Kinsale earlier in January 2014 revealed that OBMP owed additional premiums.

As of March 18, 2014, OBMP had not paid the additional premiums owed to Kinsale, prompting Kinsale to send a notice of cancellation to OBMP, indicating that the insurance policy would be terminated effective March 31, 2014, at 12:01 a.m. The cancellation notice, sent to OBMP's last known address, was returned as undeliverable, although OBMP acknowledged having actual notice of the pending cancellation due to an employee's awareness of the unpaid premiums and attempts to negotiate a payment plan. Despite these efforts, no payment was made until April 9, 2014, after the policy was canceled.

Subsequently, on September 4, 2014, Gaskin and Green initiated a lawsuit against OBMP and others, alleging negligence related to inadequate security at SUITE 135, and on September 8, their counsel notified Kinsale that they believed the cancellation was ineffective, asserting that their injuries were covered by the policy. On September 25, 2014, Kinsale filed a declaratory judgment action seeking a ruling that it had no obligation to defend or indemnify OBMP in the lawsuit. Gaskin and Green counterclaimed, requesting declarations regarding the policy's effective period, Kinsale's compliance with New York Insurance Law, and other related issues.

Kinsale filed a motion for summary judgment on April 30, 2015, with Gaskin and Green opposing it on May 29, while other defendants did not oppose. The court stipulated that summary judgment could only be granted if there were no genuine disputes over material facts and that the moving party must demonstrate this absence. The opposing party must then present specific facts to show a genuine issue for trial, rather than relying solely on pleadings. The case was reassigned to a new court on January 14, 2016.

Conclusory statements, conjecture, and inadmissible evidence cannot prevent summary judgment, as established in Ridinger v. Dow Jones Co., Inc. Only disputes regarding material facts that could impact the lawsuit's outcome under applicable law can hinder summary judgment (Anderson v. Liberty Lobby, Inc.). An insurer's obligation to defend its policyholder is determined by comparing the allegations in a complaint with the insurance contract's terms (Int’l Bus. Machs. Corp. v. Liberty Mut. Ins. Co.). Courts interpret insurance contracts as a matter of law, enforcing clear and unambiguous terms. The duty to defend is broader than the duty to indemnify but is limited by the coverage purchased by the insured, who must demonstrate that a loss is covered, with ambiguities resolved in the insured's favor (MBIA Inc. v. Fed. Ins. Co.).

Kinsale cancelled its policy before the injuries claimed by Gaskin and Green, having the right to do so for non-payment of premiums. Kinsale sent a cancellation notice to OBMP's last known address on March 18, 2014, more than ten days prior to the policy's cancellation date of March 31, which was set for 12:01 a.m. on that date. Gaskin and Green's injuries occurred around 2 a.m. on March 31, two hours after the policy's cancellation, placing them outside its coverage. Consequently, Kinsale has no duty to defend or indemnify any defendants regarding these claims. Gaskin and Green's arguments against this motion lack merit; they assert that New York law mandates the policy remain effective until midnight of the cancellation day. They reference Savino v. Merchants Mut. Ins. Co., but it is distinguishable because OBMP had prior notice of the cancellation, unlike the insured in Savino.

The court in Savino affirmed that parties can specify the effective time of policy cancellation. Under the Policy's terms, Kinsale can set the cancellation date in its notice, which will terminate the Policy on that date. New York courts enforce agreed-upon cancellation times and do not default to the "midnight rule." The notice of cancellation from Kinsale is valid despite Gaskin and Green's claim that it failed to comply with New York Insurance Law §3426, which mandates a fifteen-day notice period for cancellation, as Kinsale is an excess and surplus lines insurer exempt from this requirement. Gaskin and Green also argued that Kinsale, as a risk retention group, should have included specific notice on the policy; however, this does not impact the cancellation legality under the aforementioned exemption.

Kinsale asserted that even if the Policy covered Gaskin and Green's injuries, its liability would be limited to $25,000 per occurrence. Gaskin's argument regarding the proximate cause of her injuries was rendered moot since the Policy was canceled before the injuries occurred. All of Gaskin and Green’s counterclaims were dismissed. Their first counterclaim claimed the Policy lapsed at midnight on March 31, 2014, but the Policy allowed Kinsale to determine the cancellation time. The second counterclaim regarding noncompliance with insurance law was unfounded due to Kinsale's exempt status. The third and fourth counterclaims regarding the scope of liability and causation were also moot due to the timing of the Policy cancellation. Lastly, the request for attorney’s fees was denied as Gaskin and Green's claims lacked merit. Kinsale’s motion for summary judgment was granted, relieving it of any duty to defend or indemnify in the Underlying Action, and the case was closed following the dismissal of 701 LLC as a defendant.