Mount Vernon Fire Insurance Co. v. Munoz Trucking Corp.
Docket: 13 Civ. 6268 (ER)
Court: District Court, S.D. New York; September 30, 2016; Federal District Court
Mount Vernon Fire Insurance Company seeks a declaratory judgment against multiple defendants, including Munoz Trucking Corp., Mendez Trucking Inc., and others, asserting it has no obligation to indemnify or defend them in a related lawsuit initiated by Brice Mastroluca. The underlying lawsuit claims that the defendants are liable for the death of Laurence Renard, who was struck by a dump truck driven by Diego Ulloa-Tapia. Mastroluca alleges that the defendants acted in concert and were negligent in their management of the dump truck involved in the accident.
The background of the underlying action reveals that Mastroluca filed the complaint on January 18, 2012, in New York County. The defendants, including S3 Tunnel Constructors and Skanska USA Inc., were involved in construction for the Second Avenue subway project. S3 contracted with Rebco Contracting Corp., which in turn hired Munoz and Mendez for debris removal. Munoz is reportedly the parent company of Mendez, which owned the truck involved in the incident. Ulloa-Tapia was employed by both Munoz and Mendez.
The allegations include negligence related to the ownership and operation of the dump truck, with specific claims that the trucks were required to follow designated routes, which they allegedly violated, leading to the accident. Mount Vernon’s motion for summary judgment has been granted in part and denied in part by the court.
Munoz was on actual notice regarding the transport of construction debris on prohibited one-way streets, specifically E. 90th Street, and was deemed negligent for failing to ensure compliance with designated haul routes, preventing truck travel on 90th Street between Second and First Avenues, and managing the work zone safely. These failures are alleged to be proximate causes of Renard’s death. Mount Vernon issued a commercial general liability (CGL) insurance policy to Munoz from November 11, 2010, to November 11, 2011, which covers damages for bodily injury or property damage, but excludes coverage for injuries or damages arising from the use of vehicles owned or operated by the insured (Auto Exclusion). This exclusion applies even in cases alleging negligence related to the supervision or training of others if the incident involved a vehicle owned or operated by the insured. The policy also includes provisions for additional insured coverage, applicable to those for whom Munoz is performing work under a written contract, covering liability for incidents occurring after the contract's effective date. Disputes exist regarding when Mount Vernon was notified of the accident involving Ulloa-Tapia and Renard, with Munoz's insurance broker claiming notice was given on February 4, 2011, while Mount Vernon contends it was not informed until February 9, 2011, when it received a “Claim Set Up Sheet.”
Mount Vernon initiated an investigation into a claim after February 9, 2011. On February 15, 2011, Rick Lall from Mount Vernon sought permission from Munoz's counsel, Mark Winter, to discuss the claim with Munoz’s representatives. Winter was unavailable until the end of February, and the interview took place on March 3, 2011. Subsequently, on March 15, 2011, Mount Vernon issued a disclaimer letter to Munoz and other parties, citing the Auto Exclusion as the basis for denying coverage due to the accident involving an insured vehicle. On May 11, 2011, Mount Vernon received a coverage tender from multiple parties including the New York City Transit Authority and Skanska. Mount Vernon reiterated its denial of coverage in a response on June 15, 2011. On February 3, 2012, Munoz’s broker sent a complaint related to the Underlying Action to Mount Vernon, which led to a third disclaimer issued on February 15, 2012.
Mount Vernon filed a declaratory judgment action on September 6, 2013, and moved for summary judgment on September 30, 2015. Munoz opposed the motion on November 17, 2015, and other defendants joined in the opposition on November 18, 2015. Summary judgment may be granted if there is no genuine dispute of material fact, and the court must favor the non-moving party when ruling. The interpretation of an unambiguous contract can be resolved via summary judgment. The court is tasked with determining if the Auto Exclusion applies to the underlying accident and if Mount Vernon properly disclaimed coverage.
Federal courts applying New York law follow the forum state's choice-of-law rules, which permit implicit agreements to apply New York law. The parties’ assumptions lead the court to apply New York law in this case.
Mount Vernon seeks a declaration concerning its obligations to defend and indemnify the Underlying Defendants. In New York, an insurer's duty to defend is broader than its duty to indemnify. The duty to defend is based on the allegations in the pleadings, while the duty to indemnify depends on the actual liability of the insured. To determine the existence of a defense obligation, courts assess whether the allegations, when liberally construed, fall within the policy's coverage. The insured must prove that their loss is covered by the policy. If any allegation in the complaint potentially falls within the policy's protection, the insurer must defend the entire action. This obligation persists even if external facts suggest the claim is meritless. An insurer can only avoid the duty to defend when there is no possible basis for coverage under the policy. If an exclusion is invoked to deny coverage, the insurer must prove that the allegations can only be interpreted as excluded.
Additionally, the court must identify who qualifies as additional insureds under the Mount Vernon Policy beyond the named insured, Munoz. The Policy defines additional insureds as any entity for whom Munoz performs work under a written contract that mandates their inclusion as additional insureds.
On March 11, 2015, Magistrate Judge Maas ordered any party claiming additional insured coverage under the relevant policy to submit a written request with supporting documentation to the plaintiffs' counsel by March 25, 2015. No documentation was submitted by the Underlying Defendants by this deadline, and Mount Vernon noted the absence of any written contract between the Underlying Defendants and Munoz that would grant additional insured status. Mendez, the only defendant to respond, referred to a lease agreement with Munoz dated January 3, 2011, which states that the lessee must maintain necessary insurance to protect the lessor. Mendez argued that this provision raises a factual question regarding Munoz’s obligation to provide insurance; however, the lease defines Mendez as the lessee, indicating that Munoz is not required to insure Mendez. The burden of proof for claiming additional insured status lies with the claimant, who must demonstrate entitlement to coverage, which is not granted if not explicitly named on the policy. Because the Underlying Defendants failed to provide evidence of a contract with Munoz for additional insured coverage, they did not meet their burden.
Regarding Munoz’s defense in the Underlying Action, the court determined that the policy does not cover claims arising from the ownership or operation of vehicles owned or operated by any insured. The Underlying Complaint alleges that Renard’s death resulted from the operation of a vehicle owned by Munoz, and claims negligence in its oversight and operation. While the defendants contend that Mendez owned the truck and Ulloa-Tapia was solely employed by Mendez, the court's duty to defend is based on the allegations in the Underlying Complaint. The Complaint suggests that Munoz is connected to Mendez as a principal or alter ego, thus implicating Munoz within the Auto Exclusion of the policy.
Ulloa-Tapia is claimed to be employed by Munoz, who is alleged to have owned and operated the vehicle involved in the accident, which brings the allegations under the Auto Exclusion clause. While defendants argue that some claims against Munoz relate to actions beyond vehicle use, such as failure to follow debris hauling routes, the Auto Exclusion applies broadly to any claims where the occurrence causing injury involves the ownership or operation of an automobile by the insured. New York case law supports that the act causing liability is paramount, regardless of the legal theory presented. Therefore, any liability arising from the automobile accident, even if framed under different negligence theories, falls within the Auto Exclusion, negating Munoz's defense coverage.
Regarding Mount Vernon's duty to indemnify Munoz, the court determines that this issue is not yet ripe for decision since the Underlying Action is ongoing. There is a possibility that Mendez could be found solely responsible as the employer and owner/operator of the truck, which would negate the Auto Exclusion for Munoz. However, Munoz could still be found liable for other alleged negligent actions, such as failing to enforce designated haul routes, leaving the question of indemnity unresolved for now.
An insurer may not have a duty to defend but still have a duty to indemnify, as clarified in Atlantic Cas. Ins. Co. v. Value Waterproofing and Grinnell Mut. Reinsurance Co. v. Reinke. The duty to defend is broader and is assessed based on pleadings, while the duty to indemnify depends on the actual liability of the insured, as established in Servidone. In this case, the Auto Exclusion applies to Munoz, relieving Mount Vernon of the duty to defend him in the Underlying Action. However, the determination of Mount Vernon’s duty to indemnify is not ripe until factual disputes in the Underlying Action are resolved, including ownership and employment related to the incident.
Defendants assert that Mount Vernon failed to timely disclaim coverage, which would estop it from denying coverage. For several defendants, Mount Vernon was not required to disclaim coverage timely because they were not additional insureds, allowing the denial based on lack of coverage. In contrast, Mount Vernon was required to timely disclaim coverage for Munoz, as the disclaimer was based on a policy exclusion. Under New York Insurance Law § 3420(d), an insurer must provide written notice of a disclaimer as soon as reasonably possible. Courts have ruled that unexplained delays of two months or more are unreasonable, while delays due to thorough investigations are permissible. The insurer bears the burden of proving that any delay in disclaiming coverage was reasonable.
The determination of whether a notice of disclaimer or denial of coverage was sent "as soon as is reasonably possible" is typically a factual issue influenced by the specifics of the case, such as the duration and reasons for any delay. However, in exceptional cases, this question can be resolved without a jury. In the case at hand, the court concluded that Mount Vernon's delay in disclaiming coverage to Munoz was reasonable as a matter of law, despite a factual dispute over when Mount Vernon first received notice of the claim (February 4, 2011, per Munoz, versus February 9, 2011, per Mount Vernon). After receiving the claim, Mount Vernon promptly initiated an investigation and sought to schedule an interview with Munoz's representatives, which did not occur until March 3, 2011, due to scheduling conflicts. The court found the total investigation duration of approximately forty days—including the delay for the interview—reasonable. Munoz argued that the grounds for disclaimer became clear immediately after the March 3 interview and that the subsequent twelve-day delay in issuing a disclaimer was unreasonable. However, the court ruled that this twelve-day period was also reasonable for Mount Vernon to evaluate and act upon the information gathered. Consequently, Mount Vernon's delay did not estop it from denying coverage to Munoz in the underlying action. The court granted in part and denied in part Mount Vernon's motion for summary judgment, concluding that Munoz is the only covered party under the Mount Vernon policy, that Mount Vernon has no duty to defend Munoz in the underlying action, that the question of indemnification is not yet ready for review, and that the delay in providing a disclaimer was reasonable. A status conference is scheduled for October 18, 2016. The court clerk is instructed to terminate the relevant motion.
The Court has issued an order without making any findings on the truth of the allegations in the Underlying Action. The document references Mount Vernon’s statement of undisputed material facts under Local Rule 56.1, indicating that all facts are undisputed unless noted otherwise. The auto exclusion in question includes exceptions not relevant to the current motion. Munoz's opposition to the statement of undisputed material facts is also cited.
Mount Vernon asserts subject matter jurisdiction based on diversity, being a Pennsylvania corporation with its principal place of business in Pennsylvania, while none of the Defendants are incorporated or maintain their principal places of business in Pennsylvania. The Defendants acknowledge that a written agreement is necessary to be considered an additional insured under the Policy, and Munoz concedes that its agreement with Rebco for debris removal was verbal.
The accident occurred on a street not designated as a hauling route. Munoz references cases where short delays were deemed unreasonable, but these cases are distinguished from the current situation as they involved unexplained delays or unacceptable excuses. In contrast, Mount Vernon explained its delay by citing the need for an investigation to make an informed disclaimer decision, specifically to determine the ownership of the involved truck to assess the applicability of the Policy’s Auto Exclusion.
