Am. W. Home Ins. Co. v. Gjonaj Realty & Mgmt. Co.

Decision Date30 December 2020
Docket NumberIndex No. 60797/17,2018-03435
Citation192 A.D.3d 28,138 N.Y.S.3d 626
CourtNew York Supreme Court — Appellate Division
Parties AMERICAN WESTERN HOME INSURANCE COMPANY, respondent v. GJONAJ REALTY & MANAGEMENT CO., et al., appellants.

The Dauti Law Firm, P.C., New York, NY (Y. Albert Dauti of counsel), for appellants Gjonaj Realty & Management Co. and 28-47 Webb Avenue Associates, LLC.

Berson & Budashewitz, New York, NY (Jeffrey A. Berson of counsel), for appellant Viktor Gecaj.

Fleischner Potash, White Plains, NY (Patti F. Potash, Alexandra E. Rigney, and Jennifer F. Mindlin of counsel), for respondent.

ALAN D. SCHEINKMAN, P.J., MARK C. DILLON, COLLEEN D. DUFFY, FRANCESCA E. CONNOLLY, JJ.

OPINION & ORDER

DUFFY, J.

This action presents a novel issue of law that this Court has not yet addressed—to wit, whether an insurance company, in this case, the plaintiff, American Western Home Insurance Company (hereinafter the insurance company), may recover the costs of defending its insureds, here, the defendants Gjonaj Realty & Management Co. (hereinafter Gjonaj Realty) and 28–47 Webb Avenue Associates, LLC (hereinafter Webb and together the insureds), in an underlying personal injury action against those insureds where there has been a reservation of rights by the insurance company and a determination by the court that the insurance company has no obligation to defend and provide insurance coverage to the insureds in an underlying personal injury action commenced against them.

Although we agree with the Supreme Court that the insurance company (1) has no obligation to provide insurance coverage and no further obligation to defend the insureds in the underlying personal injury action commenced against them by the defendant Viktor Gecaj, and (2) has no obligation to pay any judgment that Gecaj may obtain against the insureds in that underlying action, for the reasons set forth herein, we find that the Supreme Court should have denied that branch of the insurance company's motion which was for summary judgment declaring that it is entitled to recover from the insureds the defense fees and costs incurred on their behalf in the underlying personal injury action from May 2, 2017, to February 22, 2018, the date of the Supreme Court order granting the insurance company summary judgment in this declaratory judgment action (hereinafter the February 2018 order).

BACKGROUND

In July 2017, the insurance company commenced this action against the insureds and Gecaj for, among other things, a judgment declaring its rights in connection with a personal injury action that was commenced against the insureds by Gecaj (hereinafter the underlying action).

Specifically, in January 2011, Gecaj commenced a personal injury action against the insureds to recover damages for injuries he alleged he sustained in May 2010 when he fell from a ladder at premises owned by Webb and managed by Gjonaj Realty. There is no dispute that, at the time of the incident, the insureds were insured under a policy of liability insurance issued by the insurance company, effective August 1, 2009, to August 1, 2010 (hereinafter the policy), and that, under the terms of the policy, upon timely notice to the insurance company of Gecaj's claim, the insureds would be entitled to be defended and insured by the insurance company. There is also no dispute that the insureds failed to notify the insurance company about Gecaj's accident until October 2014—more than four years after the incident, and after an inquest on damages had occurred and judgment in the sum of $900,000 had been entered against the insureds. Approximately one week after the insurance company received notification of Gecaj's accident, it advised the insureds that it was refusing to defend or indemnify them and was denying coverage based on their failure to comply with the terms of the policy requiring them to provide timely notice of Gecaj's accident. The insurance company also informed the insureds that if the judgment, which had been entered on default, was set aside, the insurance company would reconsider its denial of coverage. Thereafter, in December 2015, upon receipt of notice that the Supreme Court in the underlying action had vacated the default judgment, the insurance company advised the insureds that it would defend them in the underlying action and provide indemnity coverage to them. However, at that time, the insurance company also notified them that it was reserving its rights under the terms of the policy to deny any coverage as it was not then aware whether it had been prejudiced in its investigation or ability to defend the action. Approximately two months later, in February 2016, the insurance company notified the insureds that, since it had been notified that Gecaj had appealed the vacatur of the default judgment, it was reserving its rights to refuse to defend or provide indemnity coverage to the insureds in the underlying action upon any reinstatement of the default judgment (by an appellate reversal of the vacatur of the default judgment).

As is relevant to this appeal, in an order dated April 25, 2017, the Appellate Division, First Department, reversed the vacatur of the default judgment and reinstated the default against the insureds (see Gecaj v. Gjonaj Realty & Mgt. Corp., 149 A.D.3d 600, 51 N.Y.S.3d 74 ). Approximately one week after the Supreme Court's vacatur of the default judgment was reversed, the insurance company advised the insureds and Gecaj, by letter dated May 2, 2017 (hereinafter the May 2017 letter), that it was denying coverage and reserving its right to recover any fees and costs incurred in defending the insureds in the underlying action. Thereafter, the insurance company commenced this action, inter alia, for declaratory relief, and moved for summary judgment declaring that it (1) has no obligation to defend and provide insurance coverage to the insureds in the underlying action, (2) has no obligation to pay any judgment in favor of Gecaj against Gjonaj Realty and Webb arising out of that underlying action, and (3) is entitled to recover the defense fees and costs incurred on behalf of the insureds in the underlying action from May 2, 2017, to date. The insureds and Gecaj separately cross-moved for summary judgment declaring that the plaintiff must provide insurance coverage to the insureds in the underlying action and satisfy any judgment entered against them therein. In the February 2018 order, the Supreme Court granted the insurance company's motion and denied the cross motions. The insureds appeal, and Gecaj separately appeals.

NO DUTY TO INDEMNIFY

We agree with the Supreme Court's determination that the insurance company had no duty to indemnify the insureds in the underlying action. " [P]ursuant to Insurance Law § 3420(d), an insurance carrier is required to provide the insured with timely notice of its disclaimer or denial of coverage on the basis of a policy exclusion ...’ " ( Plotkin v. Republic–Franklin Ins. Co., 177 A.D.3d 790, 793, 113 N.Y.S.3d 133, quoting Halloway v. State Farm Ins. Cos., 23 A.D.3d 617, 618, 805 N.Y.S.2d 107 ). The timeliness of an insurance disclaimer is measured from the point at which it has sufficient knowledge of facts entitling it to disclaim or deny coverage, or knows that it will disclaim or deny coverage (see Plotkin v. Republic–Franklin Ins. Co., 177 A.D.3d at 793, 113 N.Y.S.3d 133 ; see e.g. First Fin. Ins. Co v. Jetco Contr. Corp., 1 N.Y.3d 64, 68–69, 769 N.Y.S.2d 459, 801 N.E.2d 835 ). An insurer may also, by timely notice, reserve its right to claim that the policy does not cover the situation at issue, while defending the action (see O'Dowd v. American Sur. Co. of N.Y., 3 N.Y.2d 347, 355, 165 N.Y.S.2d 458, 144 N.E.2d 359 ; see also General Acc. Ins. Co. v. 35 Jackson Ave. Corp., 258 A.D.2d 616, 618, 685 N.Y.S.2d 774 ).

There is no dispute that the insurance company's initial denial of coverage to the insureds—which was based on the failure by those insureds to provide the insurance company with timely notice of the claim—was timely (see Plotkin v. Republic–Franklin Ins. Co., 177 A.D.3d at 794, 113 N.Y.S.3d 133 ). Thereafter, although the insurance company represented to the insureds that it would defend and indemnify them, it nonetheless also reserved its right to deny coverage if the vacatur of the default judgment against the insureds was reversed. Subsequently, the insurance company provided timely notice to the insureds denying coverage when the order vacating the default was reversed and the default judgment was reinstated. Thus, under the particular circumstances of this case, the insurance company, given its reservation of rights, was not estopped from denying coverage to the insureds and refusing to continue to defend them in the underlying action (see General Acc. Ins. Co v. 35 Jackson Ave. Corp., 258 A.D.2d at 618, 685 N.Y.S.2d 774 ; see e.g. O'Dowd v. American Sur. Co. of N.Y., 3 N.Y.2d at 355, 165 N.Y.S.2d 458, 144 N.E.2d 359 ).

In opposition to the insurance company's prima facie showing of entitlement to judgment as a matter of law on this issue, neither Gecaj nor the insureds raised a triable issue of fact (see Zuckerman v. City of New York, 49 N.Y.2d 557, 563, 427 N.Y.S.2d 595, 404 N.E.2d 718 ).

However, we disagree with so much of the Supreme Court's determination as granted that branch of the insurance company's motion which was for summary judgment declaring that it is entitled to recover defense fees and costs it incurred in the underlying action on behalf of the insureds. Specifically, for the reasons set forth herein, the branch of the insurance company's motion seeking to recoup its defense fees and costs from the date of its May 2017 letter reserving its right to recoup such defense fees and costs through the date of the February 2018 order should have been denied.

DUTY TO DEFEND
Recovery of Defense Costs Where No Duty to Indemnify

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  • New York's Second Department Splits From First Department
    • United States
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    ...exist, resulting in a split with the First Department. In American Western Home Insurance Co. v. Gjonaj Realty & Management Co., 192 A.D.3d 28, 30, 138 N.Y.S.3d 626, 628 (2020), the Second Department had to decide whether an insurance company could recover the costs of defending its insured......
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