409 F.3d 73 (2nd Cir. 2005), 0004-2076, St. Paul Fire and Marine Insurance Company v. Universal Builders Supply

Docket Nº:0004-2076-CV.
Citation:409 F.3d 73
Party Name:ST. PAUL FIRE AND MARINE INSURANCE COMPANY a/s/o the Durst Organization, Inc., and Four Times Square Association, L.L.C., Plaintiffs-Appellants, v. UNIVERSAL BUILDERS SUPPLY, Defendant-Appellee, Tishman Construction Corporation of New York, Defendant. UNIVERSAL BUILDERS SUPPLY, INC., Third-Party-Plaintiff, v. TIG Insurance Company, AIU Insurance Co
Case Date:May 24, 2005
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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409 F.3d 73 (2nd Cir. 2005)

ST. PAUL FIRE AND MARINE INSURANCE COMPANY a/s/o the Durst Organization, Inc., and Four Times Square Association, L.L.C., Plaintiffs-Appellants,



Tishman Construction Corporation of New York, Defendant.



TIG Insurance Company, AIU Insurance Company, and Royal Insurance Company of America, Third-Party-Defendants-Appellees.

No. 0004-2076-CV.

United States Court of Appeals, Second Circuit

May 24, 2005

Argued: Feb. 18, 2005.

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Chris Christofides, New York, New York (James H.Rodgers, L'Abbate, Balkan, Colavita & Contini, New York, New York, Richard E. Lerner, Wilson, Elser, Moskowitz & Dicker, New York, New York, on the brief), for Plaintiffs-Appellants.

John H. Gross, New York, New York (Stephen Rackow Kaye, Seth Schafler, Michelle R. Migdon, Proskauer Rose, New York, New York, William F. Plunkett, Jr., William M. Mooney, III, John J. Loveless, Plunkett & Jaffe, New York, New York, on the brief), for Defendant-Appellee.

Louis G. Corsi, New York, New York (Stephen Jacobs, Landman Corsi Ballaine & Ford, New York, New York, on the brief), for Third-Party-Defendant-Appellee TIG Insurance Company.

Steven B. Prystowsky, New York, New York (Lester Schwab Katz & Dwyer, New York, New York, on the brief), for Third-Party-Defendant-Appellee AIU Insurance Company.

Sherri N. Robinson, New York, New York (Randolph E. Sarnacki, Lustig & Brown, New York, New York, on the brief), for Third-Party-Defendant-Appellee Royal Insurance Company of America.

Before: OAKES, KEARSE, and SACK, Circuit Judges.

KEARSE, Circuit Judge.

Plaintiffs St. Paul Fire and Marine Insurance Company ("St.Paul"), The Durst Organization, Inc. ("Durst"), and Four Times Square Association, L.L.C. ("FTSA"), appeal from a judgment of the United States District Court for the Southern District of New York, Kimba M. Wood, Judge, (a) dismissing their complaint in this diversity action seeking reimbursement from defendant Universal Builders Supply ("UBS") with respect to the collapse of scaffolding on a construction site, and (b) dismissing UBS's third-party complaint seeking a declaration that the third-party-defendant insurance companies are required to defend and indemnify UBS in this action. Pursuant to Fed.R.Civ.P. 12(b)(6) and 12(c), the district court dismissed the complaint and the third-party complaint on the ground that the claims are barred by provisions in various contracts among the parties. On appeal, plaintiffs contend that the provisions relied on by the district court either are without effect because of a contractual breach by UBS or are unenforceable as a matter of public policy. Third-party-defendants TIG Insurance Company ("TIG") et al. contend that to the extent that recovery is sought on behalf of Durst and FTSA, diversity jurisdiction is lacking, and that, in any event, plaintiffs lack standing to challenge the dismissal of UBS's third-party complaint. For the reasons that follow, we conclude (a) that diversity of citizenship is lacking, but that that defect should be cured by dropping the nondiverse plaintiffs and leaving St. Paul as the only plaintiff; (b) that St. Paul lacks standing to challenge the dismissal of the third-party complaint; and (c) that the district court properly dismissed St. Paul's complaint against UBS.

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The facts relevant to this appeal are not in dispute. The matter arises out of a 1998 accident during the construction of a 48-story building at Four Times Square in New York City. The present controversy concerns insurance obtained in connection with the construction project.

A. The Parties and the Contracts

In 1996, Durst, a New York corporation, and FTSA, a New York limited liability company (collectively the "Owner"), entered into a contract with UBS, a New York corporation, calling for UBS to be head contractor for the building's construction (the "Contract" or "Construction Contract"). UBS's responsibilities included constructing and erecting a scaffold system and hoist tower (collectively the "scaffolding") to be used in the construction.

The Contract contained an Insurance Rider (or "Rider") that specified, inter alia, the parties' obligations with respect to the procurement of insurance coverage for the project. The Rider required Durst and FTSA to obtain a "Builder's Risk policy" that would insure against risks of physical loss or damage to buildings and structures to be incorporated into the project and would cover, inter alios, Durst, FTSA, UBS, and all subcontractors as insured parties. (Rider § I.4.) The builder's risk policy was to contain a waiver-of-subrogation clause, i.e., a clause in which the insurer waives its right, with respect to a claim it pays, to seek reimbursement on the basis that it is subrogated to the rights of the insured; the Rider required that the builder's risk policy "waive the carrier's right of recovery under subrogation against ... all Contractors and Subcontractors whose interests are insured under such policy." ( Id.) In a "Subrogation and Waiver" clause, the Rider further provided that the "Owner ... waive[s] all rights" against contractors and subcontractors "for damages caused by fire or other perils to the extent covered by insurance obtained pursuant to" the builder's risk policy; that the Owner was to require contractors to execute "similar waivers ... in favor of all other parties" that executed such waivers; and that contractors were to require such waivers by all levels of subcontractors. (Rider § II.8.) That clause of the Rider also provided that "[a]ll certificates of insurance shall indicate, in the special items section, that waiver of subrogation has been endorsed to the insurance policies." ( Id.)

Pursuant to the Rider, Durst and FTSA obtained a builder's risk policy from St. Paul in 1997, insuring Durst, FTSA, UBS, and others working on the project against risks of loss or damage to project buildings or structures (the "St. Paul Policy"). The St. Paul Policy provided that Durst and FTSA were allowed to "waive [their] rights against another party in writing" prior to any loss to the covered property. (St. Paul Policy § V.G.) As indicated above, the Insurance Rider contained such a written waiver.

In addition to requiring Durst and FTSA to obtain the builder's risk policy, the Rider obligated them to obtain on-site general and excess liability policies for all third-party claims. ( See Rider § I.2.) In accordance with that requirement, Durst and FTSA obtained an excess liability insurance policy from third-party defendant TIG (the "TIG Policy") covering UBS among others, and obtained a commercial general liability policy from an insurer that is not a party to this action. The TIG Policy provided that TIG "shall be subrogated to all of [the insureds'] rights of recovery against any person or organization," and that the insured "shall do nothing after loss to prejudice such rights." (TIG Policy § IV.N.)

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The Rider required individual contractors such as UBS to obtain "Commercial General Liability insurance" with respect to " Work away from the Project Site." (Rider § II.3 (emphasis in original).) In accordance with this clause, UBS obtained from third-party defendant AIU Insurance Company ("AIU") a commercial general liability policy ("AIU Policy") and obtained from third-party defendant Royal Insurance Company ("Royal") an excess liability policy ("Royal Policy"). The AIU and Royal policies provided that "[i]f the insured has rights to recover all or part of any payment we have made under this" insurance coverage, "those rights are transferred to us. The insured must do nothing after loss to impair them." (AIU Policy § IV.8.; Royal Policy § VIII.12.).

B. The Scaffolding Collapse and the Present Action

In 1998, the 49-story temporary scaffolding in use for construction of the building collapsed, resulting in one fatality and causing extensive damage to the site and surrounding area. As a result, Durst and FTSA had some $20 million in property losses, including physical damage to real and personal property, emergency and stabilization costs, loss of rental income, and the costs of construction delay, work stoppages, and extra interest. Durst and FTSA filed claims with St. Paul under the builder's risk policy. St. Paul paid them approximately $19 million.

St. Paul, Durst, and FTSA commenced the present diversity action in 2000, describing St. Paul as subrogee of Durst and FTSA, and asserting claims against UBS for damages resulting from the scaffolding collapse. (Claims against a second named defendant were later voluntarily dismissed.) The complaint alleged that UBS was liable on theories of, inter alia, negligence, gross negligence, breach of contract, breach of warranty, and strict liability in connection with the design, construction, installation, inspection, and maintenance of the scaffolding; plaintiffs sought damages in the amount of $20 million, plus interest.

UBS filed an answer denying most of the allegations of the complaint and asserting as an affirmative defense, inter alia, that the claims asserted in the complaint were barred by the waiver-of-subrogation provisions of the Construction Contract. UBS also filed a third-party complaint against TIG, AIU, and Royal, requesting a declaratory judgment that those insurers were required to defend and indemnify UBS against St. Paul's claims.

TIG moved pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss both the UBS third-party complaint and plaintiffs' underlying complaint; AIU and Royal, after answering the UBS third-party...

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