American Home Assur. Co. v. Port Authority of New York and New Jersey

• Decision Date: 25 January 1979
• Citation: 412 N.Y.S.2d 605,66 A.D.2d 269
• Parties: The AMERICAN HOME ASSURANCE COMPANY, Plaintiff-Respondent, v. The PORT AUTHORITY OF NEW YORK AND NEW JERSEY and 22 Cortlandt Realty Company, Defendants-Appellants.
• Court: New York Supreme Court — Appellate Division

Page 605

412 N.Y.S.2d 605

66 A.D.2d 269

The AMERICAN HOME ASSURANCE COMPANY, Plaintiff-Respondent, v. The PORT AUTHORITY OF NEW YORK AND NEW JERSEY and 22

Cortlandt Realty Company, Defendants-Appellants.

Supreme Court, Appellate Division, First Department.

Jan. 25, 1979.

Sholem Friedman, New York City, of counsel (Milton H. Pachter and Arthur P. Berg, New York City, with him on brief; Patrick J. Falvey, New York City) for defendant-appellant The Port Authority of New York and New Jersey.

Debra M. Evenson, New York City, of counsel (Stephen Greiner, New York City, with her on brief; Willkie Farr & Gallagher, New York City) for defendant-appellant 22 Cortlandt Realty Co.

Benjamin Vinar, New York City, of counsel (Thomas R. Newman, New York City, with him on brief; Bower & Gardner, New York City) for plaintiff-respondent.

Before BIRNS, J. P., and FEIN, LANE, LYNCH and SANDLER, JJ.

FEIN, Justice:

Defendants Port Authority of New York and New Jersey (Port Authority) and 22 Cortlandt Realty Company (Cortlandt) appeal from an order which denied the Port Authority's motion to dismiss the complaint and which granted plaintiff's cross-motion for summary judgment.

The action seeks a declaration of the rights of the parties under an insurance policy issued by American Home to the Port Authority furnishing liability coverage with respect to the construction of The World Trade Center. The underlying action which prompted the institution of this declaratory judgment action was brought by Cortlandt to recover from the Port Authority, the owner and party allegedly responsible for the construction and operation of The World Trade Center, upon allegations that "the construction and placement of the Twin Towers had created and continues to create an artificial wind condition by which winds blowing from a westerly direction through the aperture between the Twin Towers are greatly increased in velocity thereby causing unusual, increased and unnatural wind pressures to bear upon 22 Cortlandt Street", resulting in Cortlandt's building becoming "subject to abnormal rotating and swaying movements which cause stress on the building". Cortlandt alleges resulting physical damage to and impairment of the value of the building, claiming that the increased wind pressures will require certain structural repairs and alterations to secure the building in the future.

The complaint in that action contains six separate causes of action, premised upon six different legal theories. The first cause is predicated upon absolute liability, resulting from the construction and placement of the Twin Towers in relation to other buildings in the area. The second and third causes charge the Port Authority with negligence in failing to (1) modify the Twin Towers so as to eliminate the artificial wind condition; (2) notify other owners of real property in the area so as to afford them sufficient opportunity to make necessary structural changes to protect their respective buildings; and (3) determine that the construction and placement of the Twin Towers would create an artificial wind condition which would cause unusual, increased and unnatural wind pressures, resulting in substantial damage to nearby structures. The fourth cause is predicated upon the assertion that The World Trade Center constitutes a nuisance, injurious to 22 Cortlandt Street. The fifth cause sounds in continuing trespass, resulting from the increased wind pressures created by the construction and placement of the Twin Towers, while the sixth is premised upon the assertion that these wind pressures resulted in a taking by the Port Authority of Cortlandt's property without just compensation.

On January 25, 1977, American Home disclaimed coverage under its general liability policy and refused to defend the Port Authority in the underlying action, relying upon Exclusion (k) of the policy, which excludes from coverage property damage "due solely to errors in design by the Authority, or its consulting engineers". Plaintiff thereafter brought this action for a judgment declaring that, as insurer, it was under no duty to defend or indemnify the Port Authority in the underlying action and that its disclaimer of coverage under the policy was proper.

We note as a preliminary matter, that the order appealed from did not appropriately declare the rights of the respective parties as is required. We recently had occasion to observe in this connection in Bacon v. Bacon, 61 A.D.2d 969, 403 N.Y.S.2d 262, "Since this was an action for declaratory judgment, the complaint should not have been dismissed . . . The court at Special Term, instead of dismissing the complaint, should have made an appropriate declaration of the rights of the parties with respect to the subject matter of the litigation (Sweeney v. Cannon, 30 N.Y.2d 633, 331 N.Y.S.2d 444, 282 N.E.2d 332; Lanza v. Wagner, 11 N.Y.2d 317, 334, 229 N.Y.S.2d 380, 393, 183 N.E.2d 670, 679, app. dsmd., 371 U.S. 74, 83 S.Ct. 177, 9 L.Ed.2d 163, cert. den., 371 U.S. 901, 83 S.Ct. 205, 9 L.Ed.2d 164; Fhagen v. Miller, 36 A.D.2d 926, 321 N.Y.S.2d 61, affd., 29 N.Y.2d 348, 328 N.Y.S.2d 393, 278 N.E.2d 615, cert. den., 409 U.S. 845, 93 S.Ct. 47, 34 L.Ed.2d 85; Todaro v. New York City Employees' Retirement System, 42 A.D.2d 887, 347 N.Y.S.2d 361)." The failure of Special Term to declare the rights of the parties was error. Nevertheless, the error is neither dispositive nor controlling here, since we also disagree with Special Term's determination on the merits.

Special Term upheld the propriety of plaintiff's disclaimer, finding that the complaint in the underlying action was "bottomed" solely upon "errors in design", specifically excluded from coverage under the terms of the policy. The court construed each cause of action, albeit based upon different legal theories, as seeking recovery for "error in design and nothing else" in the design and/or construction of the Twin Towers.

In granting the insurer's cross-motion for summary judgment, Special Term found inapplicable the principle expressed by the Court of Appeals in Prashker v. United States Guar. Co., 1 N.Y.2d 584, 154 N.Y.S.2d 910, 136 N.E.2d 871. The Court there held that determination of the issue of obligation to pay must await the outcome of the underlying liability action, since the dispositive issues in the declaratory judgment action were so interrelated with the liability issues as to preclude disposition of the former before there had been a final resolution of the latter. Under such circumstances, a declaratory judgment action to establish liability to pay was held to be premature in advance of final disposition of the liability action. Such a result follows where some grounds of liability are asserted which would invoke the coverage of the policy, while others relied upon are without the scope of coverage. This was the very situation which confronted the Court of Appeals in Prashker, supra, the Court there concluding that it could not ascertain prior to the trial of the negligence action which of the bases of liability would be adjudicated against the assureds. Therefore, any declaratory judgment action to establish the extent of insurance coverage was premature, pending resolution of the liability issues in the case. Judge Van Voorhis, writing for the unanimous Court in Prashker, supra, observed in this connection (1 N.Y.2d at 590-591, 154 N.Y.S.2d at 915-916, 136 N.E.2d at 874-875):

"Manifestly it cannot be ascertained in advance of the trial of these negligence actions which of these grounds of liability, if any of them, will be adjudicated against these assureds. Consequently it cannot be known in advance of the determination of those actions whether the estate of the pilot and the owner of the plane are indemnified by this policy against whatever judgments for damages which may be entered against them. If the existence or absence of liability on the part of this insurance carrier is to be declared under any and all contingencies in advance of the trial of the primary negligence actions, it may well be that the insurance company will be held or exonerated on this declaratory judgment action on a different factual basis from that which will later be established in the negligence actions. It is only the latter which can be controlling.

". . . This policy is one of indemnification; it is clear that the liability of the insurance company depends upon the basis for liability which is adjudicated against the assureds in the main actions. Unless the insurance company would be liable under the policy on the facts underlying each theory of liability pleaded against the assureds in the complaints in the pending negligence actions, it would be premature to entertain jurisdiction of a declaratory judgment action before it can be known whether or not the loss would be covered by the policy."

The principle is firmly established and has been repeatedly followed in this State (Cordial Greens Country Club, Inc. v. Aetna Casualty and Surety Company, 41 N.Y.2d 996, 395 N.Y.S.2d 443, 363 N.E.2d 1178; Everlast Sporting Goods Mfg. Co., Inc. v. Aetna Insurance Co., 23 A.D.2d 641, 256 N.Y.S.2d 991; Aetna Cas. & Sur. v. Lauria, 54 A.D.2d 183, 388 N.Y.S.2d 432; Exchange Mutual Insurance Company v. Blazey, 19 A.D.2d 682, 241 N.Y.S.2d 602).

Special Term, although it took cognizance of the principle, found the Prashker doctrine to be inapplicable here. We disagree. The complaint in the underlying action may well be construed as alleging a claim for relief based upon error in design in connection with the construction of The World Trade Center, thereby creating the increased wind condition which allegedly resulted in damage to Cortlandt's building. This, however, is an issue to be disposed of in the underlying action. If liability is adjudicated upon that basis, a determination would then be required as to the propriety of the insurer's disclaimer under the exclusion for property damage "due solely to...