BRMed Capital, LLC v. Lexington Ins. Co.
| Decision Date | 24 March 2022 |
| Docket Number | 1:18-cv-04333 (ST) |
| Court | U.S. District Court — Eastern District of New York |
| Parties | BRMED CAPITAL, LLC, Plaintiff, v. LEXINGTON INSURANCE COMPANY, Defendants. |
This case involves a disagreement between the insurer and the insured over whether their insurance contract covers damage caused by a broken sprinkler pipe at the insured premises. The case turns on the interpretation of the term “water lines” within a protective safeguard condition in the policy. Both parties have moved for summary judgment. For the reasons enumerated below, I deny the Defendant's motion for summary judgment in its entirety and grant the Plaintiff's motion for summary judgment on liability under the insurance contract.
On or about January 9, 2018, multiple sprinkler pipes from the fire protective system froze and burst at 5205-5207 Church Avenue in Brooklyn, New York. See Def. R. 56.1 Br ¶1, ECF No. 54. Plaintiff, BRMed Capital, LLC, owned the Church Ave building, and Defendant, Lexington Insurance Company, provided vacant property insurance for the building at the time of the sprinkler failure. See Pl. Compl. ¶18, ECF No. 1; Policy, ECF No. 53-1. The burst sprinkler pipes resulted in flood damage to the property. Pl Compl. ¶18, ECF No. 1; Def. R. 56.1 Br., ¶1, ECF No. 54. The Plaintiff alleges the flood damage resulted in a loss of $1, 359, 012.50. Pl. Compl. ¶19, ECF No. 1. The cause of the freeze is disputed by the parties, with the Defendant arguing it was a result of insufficient efforts to heat the building on the part of the Plaintiff's agents and the Plaintiff arguing it was the result of an unusual extreme cold weather event. See Def. Br., 1, ECF No 55; Pl. Br., 22, ECF No. 60. The Plaintiff claims the sprinkler system failure and resultant damage is covered under the Defendant's insurance policy up to the policy limit, while the Defendant claims that Plaintiff failed to comply with a condition within the policy, and that recovery is therefore barred.
The insurance policy at issue went into effect August 18, 2017. See Policy, 14, ECF No. 53-1. The policy contained vacant property coverage which insured the building up to $1.2 million if certain conditions were met by the insured. Id. There are five sections of the insurance contract applicable to this action, Sections A, E(2)(g), E(4)(c), I, and Protective Safeguard P-9.
Section A describes the overarching coverage of the policy. It says, “[Defendant] will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” Policy, 16, § A, ECF No. 53-1. “Covered Property” under the policy includes the Plaintiff's building, which is listed under the policy as 5205-5207 Church Ave. Id. at 15. A “Covered Cause of Loss” is defined in the insurance policy as Id. at 18, § D. Though direct physical loss or the risks thereof are not defined, Defendant does not contest that sprinkler leakage and the resulting damage is a direct physical loss.
Per Section A, then, the loss at issue here would be covered by the policy, unless it is subject to some exclusion or limitation. Section E(2)(g) is one potentially applicable exclusion. It says that the Defendant “will not pay for loss or damage caused by or resulting from…water…that leaks or flows from plumbing, heating, air conditioning or other equipment (except fire protective systems) caused by or resulting from freezing unless: (1) you do your best to maintain heat in the building or structure; or (2) you drain the equipment and shut off the water supply if heat is not maintained.” Id. at 21, §E(2)(g). By the plain language of E(2)(g), fire protective systems are not subject to that exclusion. Thus, because the sprinkler pipes at issue were part of the building's fire protective system, the exclusion does not apply to Plaintiff's loss.
Another potentially applicable exclusion is Section (E)(4)(c). Section (E)(4) says, “[Defendant] will not pay for loss or damage caused by or resulting from the following, if such excluded cause of loss is shown in the Declarations, or by endorsement hereto…” One of the causes, listed in subsection (c), is, “Sprinkler leakage, meaning leakage or discharge of any substance from an ‘Automatic Sprinkler System…'” Id. By its terms, it appears this exclusion would exclude the loss at issue from coverage but only “if such excluded loss is shown in the Declarations, or by endorsement hereto…” Id.
The “Extension of Supplemental Declarations” page of the insurance policy, then, controls exclusion (E)(4)(c). It includes certain specific protective safeguards (known collectively as the “P-9” safeguards). Among those safeguards is the requirement that: “Heat must be maintained within the premises at a temperature of no less than 55 degrees Fahrenheit or water lines must be completely drained during the policy period.” Id. at 14. Nowhere within the P-9 safeguards are the words “sprinkler leakage” or “automatic sprinkler system” mentioned. Another safeguard the insurer could have chosen to include in the supplemental declarations but did not is a “P-1” protective safeguard which controls “Automatic Sprinklers.” Id.
Section I of the policy also is potentially applicable here, not as an exclusion or limitation on coverage, but as a condition on the insured or a warranty. It says, “As a condition of this insurance, you are required to maintain the protective devices or services listed below, if such safeguard is shown as applicable in the Declarations or by endorsement hereto: (1) Automatic Sprinkler System…(4) Heat must be maintained within the premises and monitored at minimum once per day, at a temperature of no less than 55 degrees Fahrenheit…We will not pay for loss or damage to Covered Property if, prior to the loss or damage, you knew of any suspension or impairment in any protective safeguard listed in the Declarations, and failed to notify us of such suspension or impairment.” Id. at 23. It appears based on the text of this requirement, that the insured would be required to maintain an automatic sprinkler system and heat at 55 degrees but only as listed in the declarations. P-9 is the only applicable provision in the declarations and requires that: “Heat must be maintained within the premises at a temperature of no less than 55 degrees Fahrenheit or water lines must be completely drained during the policy period.” Id. at 14. Therefore, Section I only makes those items listed in P-9 conditions upon the insured.
As should become apparent after the brief summation of the policy terms above, this contract is far from a model of draftsmanship. In fact, the terms are so difficult to discern that, at times, even the Defendant's agents had trouble interpreting it. In the Defendant's property claim examiner's letter disclaiming coverage, dated May 31, 2018, as reasons for disclaiming coverage she not only referenced the P-9 conditions but also the Section I conditions that do not appear in P-9 and are therefore inoperative. See Moniz Letter, ECF No. 53-7. The report prepared by the Defendant's claims investigator, appears to have made the same mistake. See York Report, 6, ECF No. 49-27. As a general matter, insurance contracts should be clear enough so that both parties may at least reasonably discern what their obligations are under the contract and what coverages are and are not provided.
It appears from the terms of the contract that the P-9 conditions govern this action. Fire protective systems, which would include a sprinkler system, are not part of the E(2)(g) exclusion. The E(4)(c) exclusion only applies insofar as its terms are stated in the Declarations, which only applicably include the P-9 terms. The Section I conditions are limited to those listed in P-9. For these reasons, the parties rightly anchor their arguments in the language of P-9, that both the condition of coverage and exclusionary clause required that, “Heat must be maintained within the premises at a temperature of no less than 55 degrees Fahrenheit or water lines must be completely drained during the policy period.” Policy, 14, ECF No. 53-1.
On this record, it is unclear whether heat was maintained at a level of 55 degrees or higher. Based on gas bills, it appears the gas meter for the building was “unlocked”, meaning gas began to be supplied to the building, on February 13, 2018. See Nat. Grid Bill, ECF No. 49-21. That would mean the gas heating system was not in operation at the time of the sprinkler failure. However, Plaintiff was heating the building with three electrical mini-split heat pumps, one electric baseboard, and electric space heaters leading up the failure. See Pl. R. 56.1 Br., ¶¶ 6, ECF No. 59. It is unclear whether that method of heating was enough to maintain the building at 55 degrees. The Plaintiff's building manager testified that he would check the six thermostats in the building weekly to ensure they were set to 60 degrees. See Lameh Dep., 49, 54-55, 70, ECF No. 49-28. He also claimed he took air temperature measurements with a handheld thermometer on some of those visits, though no records of those measurements were ever produced. Id. at 104.
Nowhere in the record does it appear Defendant's agents ever took temperature measurements inside the building.
Under the P-9 protective safeguard, if Plaintiff did not maintain a temperature of 55 degrees in the building, it could still comply with the policy if it drained all the “water lines.” Policy, 14, ECF ...
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