Calocerinos & Spina v. Prudential Reinsurance Co.

• Decision Date: 08 July 1994
• Docket Number: No. 92-CV-6508T,93-CV-6055T.,92-CV-6508T
• Citation: 856 F. Supp. 775
• Parties: CALOCERINOS & SPINA CONSULTING ENGINEERS, P.C., and Continental Casualty Company, Plaintiff, v. PRUDENTIAL REINSURANCE COMPANY, Defendant. MUESER-RUTLEDGE CONSULTING ENGINEERS, f/k/a Mueser, Wentworth, Johnston & DeSimone, Plaintiff, v. PRUDENTIAL REINSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Western District of New York

856 F. Supp. 775

CALOCERINOS & SPINA CONSULTING ENGINEERS, P.C., and Continental Casualty Company, Plaintiff, v. PRUDENTIAL REINSURANCE COMPANY, Defendant.

MUESER-RUTLEDGE CONSULTING ENGINEERS, f/k/a Mueser, Wentworth, Johnston & DeSimone, Plaintiff, v. PRUDENTIAL REINSURANCE COMPANY, Defendant.

Nos. 92-CV-6508T, 93-CV-6055T.

United States District Court, W.D. New York.

July 8, 1994.

Paul J. Yesawich, III, Harris, Beach & Wilcox, Rochester, NY, for plaintiffs.

Vincent J. Vitkowsky, Steven C. Schwartz, Buchalter, Nemer, Fields & Younger, New York City, for defendant.

DECISION AND ORDER

TELESCA, Chief Judge.

Plaintiffs in these consolidated diversity actions brought suit seeking a declaration that they are covered under Prudential Reinsurance Policy PSL00001 ("the Policy"). Both plaintiffs and defendant have moved for summary judgment. For the reasons set forth below, I hold that neither plaintiff is entitled to coverage under the policy and therefore deny plaintiffs' motions for summary judgment. Defendant's motion for summary judgment, dismissing both complaints is granted.

BACKGROUND

Calocerinos & Spina Consulting Engineers ("C & S") and Mueser-Rutledge Consulting Engineers ("Mueser") are suing Prudential Reinsurance ("Prudential") seeking a determination that they should be afforded under professional liability policy number PSL00001 ("the Policy"), issued on September 15, 1982. This Policy covered professional malpractice liability for the Combined Sewer Overflow Abatement Project ("CSOAP"), a major sewer system upgrade project for the City of Rochester. C & S is listed as a named insured under the prime design professionals policy endorsement and Mueser, Wentworth, Johnston & DeSimone (a direct predecessor of plaintiff Mueser-Rutledge) is listed as a sub design professional. LST Joint Venture ("LST")¹ and H & A of New York, Geotechnical Consultants ("H & A") are also listed as named insureds on the policy.

The policy period was originally to run for six years, between September 15, 1982 and September 15, 1988, and included a discovery endorsement (Endorsement # 3), which lasted three years beyond the policy's cancellation date. By later endorsement, and in consideration for a return premium of $270,490, the policy was cancelled effective September 15, 1985. The discovery endorsement was not cancelled, however, and went into effect on that date.

In January 1984, Iacobelli Construction Co., a tunneling contractor on the CSOAP, first notified C & S that it believed the conditions that it was encountering while tunnelling a portion of the project differed materially from those indicated by the bid documents. By May 1984, Iacobelli had demanded compensation under the contract for the additional expenses it had allegedly incurred. In December 1988, Iacobelli filed suit against C & S and others claiming that C & S had negligently designed the CSOAP and failed to discover and report excessive water flows in the tunnel drilling line. Iacobelli Construction Co. v. County of Monroe, et al., 88-1398T ___ F.3d ___ (2d Cir.1994) ("Iacobelli"). C & S first notified Prudential of the suit on December 22, 1988 and demanded coverage. In February 1989, Prudential refused coverage to C & S, maintaining that its claim was not covered. In June 1992, H & A, LST, and Mueser were impleaded into Iacobelli and each promptly notified Prudential of the suit.

In July 1992, Prudential assumed the defense of both H & A and LST, although it has since reserved its rights while continuing to defend. Following Prudential's decision to defend, C & S renewed its demand for coverage and Mueser also demanded coverage. These actions followed Prudential's subsequent refusal of coverage to both plaintiffs. Because they involved common questions of fact and law, they were consolidated by stipulation and order in May 1993.

Plaintiff C & S amended its complaint in September 1993 to add Continental Casualty as a plaintiff. Continental is an insurer of C & S, and has provided a defense for C & S in Iacobelli. It claims that Prudential has the primary coverage obligation, however, and that Prudential must reimburse it for defense costs. Because Continental's rights derive from those of C & S, I refer to both as a single entity.

JURISDICTION

The basis for jurisdiction in both actions is diversity pursuant to 28 U.S.C. § 1332. Both C & S and Mueser are citizens of New York, Continental is a citizen of Illinois, and Prudential is a citizen of Delaware and New Jersey. Plaintiffs seek declaratory relief pursuant to 28 U.S.C. § 2201. The amount in controversy exceeds $50,000.

MOTIONS FOR SUMMARY JUDGMENT

1. Standard for Summary Judgment

Both Plaintiffs and Defendants have moved for summary judgment. Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. Rule 56(c). When a party that does not bear the burden of proof moves for summary judgment, it must show that no reasonable jury could find for the party with the burden of proof on at least one essential element of their claim, because "a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Cattrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The moving party is not required to produce evidence showing an absence of a genuine issue of fact, even on issues on which the non-moving party bears the burden of proof, but rather "the burden on the moving party may be discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Id. at 325, 106 S.Ct. at 2554.

2. Coverage under the Policy

Defendant seeks dismissal of both complaints. It argues that the Policy was explicitly a "claims made" policy, and applies only to claims reported to Prudential during the policy period and the three-year discovery clause period which followed. Because the Policy was cancelled on September 15, 1985, it argues that the last date of coverage under the discovery clause was September 15, 1988. Therefore, because C & S did not report the claim to Prudential until December 1988 (after Iacobelli was filed), it has no obligation to provide coverage. For similar reasons, Prudential argues that it does not have a coverage obligation to Mueser because Mueser did not report its claim until May 1992.

Plaintiffs seek a declaration that they are covered under the policy. They argue that the discovery clause of the policy, when read in context, requires only that a claim be asserted against the insureds during the term of the policy, and that any claim be reported to Prudential promptly after they are sued. Therefore, both plaintiffs maintain that they are entitled to coverage because Iacobelli had given C & S and Mueser notice of its claim during the policy period, and because both plaintiffs gave notice of the suit to Prudential within days of being served with summonses.

The starting point for determining whether coverage is appropriate is the plain meaning of the language of the contract, taking the surrounding circumstances and the apparent purpose of the parties into consideration. Cable Science Corp. v. Rochdale Village, Inc., 920 F.2d 147 (2d Cir.1990). The language of the policy supports Prudential's position. Both Plaintiffs acknowledge that the Policy is expressly a "claims made" policy, as opposed to an "occurrence" policy. These two types of policies dominate professional liability insurance. Occurrence policies cover any occurrences during the policy period (regardless of the claim date, even if the claim is made after the policy has been cancelled), while claims made policies cover claims reported against the insured within the policy period (regardless of the occurrence date, and usually even if the occurrence may have preceded the policy period).

Claims made insurance has become popular in part because it benefits both the insurer and the insured. The insurer knows that there is a date after which it will not be responsible for claims. With this knowledge, the insurer is able to compute premiums with greater certainty, because it can discount the risk of a claim filed long after the policy period has ended, with the attendant dangers of unexpected inflation, changes in application of law, and upward trends in jury awards. This greater certainty results in lower premiums for the insured.

The policy language defines a claim as, among other things, "a demand or request received by the Insured, whether written or oral, for damages, money or services arising out of an occurrence or alleged occurrence." (Policy Definitions at VA, emphasis in original). Claims made is defined as a "claim that is reported to the Company during the policy period." (Policy Definitions at VI, emphasis in original). The "policy period" section of the insuring agreements states that "Coverage applies only to claims made ... during the policy period, if claim arises during the policy period and within the policy territory." (Emphasis in original).

Two other sections of the Policy are significant to Prudential's argument. First, Item 4 of "Declarations — Coverage Part" of the policy states:

Professional Liability is on a claims made basis. Except as is provided under CONDITIONS I.A. Notice to the Company, such insurance applies to only those claims that are first reported to the Company during the policy period. Please read the policy carefully and discuss the coverage hereunder with your insurance agent, broker or representative.

(Emphasis in original). Second, Conditions I.A. states that:

In the event of a claim, the Insured immediately shall give written notice to the Company, but

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