Conmed Corp. v. Fed. Ins. Co.

• Docket Number: 6:21-CV-841 (MAD/ML)
• Decision Date: 09 August 2022
• Citation: 621 F.Supp.3d 278
• Parties: CONMED CORPORATION, Plaintiff, v. FEDERAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of New York

621 F.Supp.3d 278

CONMED CORPORATION, Plaintiff, v. FEDERAL INSURANCE COMPANY, Defendant.

6:21-CV-841 (MAD/ML)

United States District Court, N.D. New York

Signed August 9, 2022

DANIEL S. JONAS, ESQ., CONMED CORPORATION, 525 French Road, Utica, New York 13502, Attorneys for Plaintiff.

ERICA LYNN VISOKEY, ESQ., CONMED CORPORATION, 1616 Long Ridge Road, Stamford, Connecticut 06903, Attorneys for Plaintiff.

JOHN G. POWERS, ESQ., MARY L. D'AGOSTINO, ESQ., HANCOCK EASTABROOK, LLP, 1800 AXA Tower I, 100 Madison Street, Syracuse, New York 13202, Attorneys for Plaintiff.

MERIDITH ELKINS, ESQ., ROBIN L. COHEN, ESQ., COHEN ZIFFER FRENCHMAN & McKENNA LLP, 1325 Avenues of the Americas - 25^th Floor, New York, New York 10019, Attorneys for the Plaintiff.

LAWRENCE KLEIN, ESQ., ROBINSON & COLE LLP, Chrysler East Building, 666 Third Avenue, 20^th Floor, New York, New York 10017, Attorneys for Defendant.

MEMORANDUM-DECISION AND ORDER

Mae A. D'Agostino, United States District Judge:

I. INTRODUCTION

Plaintiff, CONMED Corporation, initiated this lawsuit against Defendant, Federal Insurance Company, on July 26, 2021. See Dkt. No. 1. In its complaint, Plaintiff alleges that Defendant breached the terms of their insurance contract when Defendant failed to defend Plaintiff's landlord in a lawsuit in Georgia. See Dkt. No. 1 at ¶ 11. On October 22, 2022, the parties cross moved for judgment on the pleadings. See Dkt. Nos. 24, 25. For the following reasons, Plaintiff's motion is granted and Defendant's motion is denied.

II. BACKGROUND

Plaintiff, a medical technology company, operates a distribution warehouse facility in Lithia Springs, Georgia. See Dkt. No. 1 at ¶ 3. Since 2009, Plaintiff has purchased insurance policies from Defendant, which include coverage for defense costs, indemnification obligations, and other losses resulting from bodily injury. See Dkt. No. 1 at ¶ 21.

Plaintiff's medical equipment is sterilized by non-party Sterigenics by use of Ethylene Oxide ("EtO"). Id. at ¶¶ 3, 6. In May 2020, Plaintiff and Sterigenics were sued by Plaintiff's employees, alleging that they were exposed to unsafe levels of EtO. Id. at ¶ 6; Essence Alexander, et al. v. Sterigenics U.S., LLC, et al., C.A. No. 20-A-1645 (State Court of Cobb County) ("Alexander Action"). On March 10, 2022, this Court held that Defendant had an obligation to defend Plaintiff's indemnitee, Sterigenics, in the Alexander Action pursuant to the insurance policies between Plaintiff and Defendant. See CONMED Corp. v. Fed. Ins. Co., No. 6:21CV0083, 590 F.Supp.3d 463 (N.D.N.Y. Mar. 10, 2022).

On April 26, 2021, the same plaintiffs in the Alexander Action initiated a separate lawsuit against Plaintiff's landlords ("Landlord Action"). See Dkt. No. 1 at ¶ 34. Plaintiff leases its Georgia facility from Breit Industrial Canyon GA1B01 LLC ("Breit"), formerly known as Cabot IV-GA1B01 LLC ("Cabot"). Breit and Cabot retained Link Logistics Real Estate Management LLC ("Link"), which in turn retained Stream Realty Partners-Atlanta, L.P. ("Stream"), to perform property management activities at the facility. Id. at ¶ 5. The Landlord Action, similar to the Alexander Action, alleges that Plaintiff's employees were exposed to unsafe levels of EtO. Id. at ¶ 7. Specifically, the Landlord Action alleges negligence, aiding and abetting tortious conduct, fraud, wrongful death, and vicarious liability/respondeat superior against Breit, Cabot, Link, and Stream (collectively, "Landlord Defendants"). Id. at ¶ 39; Dkt. No. 1-3 at ¶¶ 60-134.

On June 30, 2021, the Landlord Defendants tendered the defense and indemnity of the Landlord Action to Plaintiff, citing the lease between the parties, which Plaintiff accepted. Id. at ¶¶ 43-44. As a result, Plaintiff is defending the Landlord Defendants in the Landlord Action. Id. at ¶ 44. On July 1, 2021, Plaintiff gave notice of the Landlord Action and the Landlord Defendants' tender to Defendant. Id. at ¶ 45. On July 23, 2021, Plaintiff alleges that Defendant did not accept the Landlord Defendants' defense, and instead sought to further delay a decision. Id. at 49. On July 26, 2021, Plaintiff initiated this suit, alleging that Defendant's failure to accept the Landlord Defendants' defense was a breach of the insurance policies. See id.

A. The Insurance Policies

Since 2009, Plaintiff has purchased insurance from Defendant. See id. at ¶ 21. The insurance policies cover consecutive year-long periods from July 16, 2009, through August 1, 2021, and are governed by New York law. Id. at ¶¶ 21, 26; see generally Dkt. No. 1-1. The insurance policies include as "insured" the "Lessors of Premises," which state as follows:

Persons or organizations from who you lease premises are insureds¹; but they are insureds only with respect to the ownership, maintenance or use of that particular part of such premises leased to you and only if you are contractually obligated to provide them with such insurance as is afforded by this contract. However, no such person or organization is an insured with respect to any:

• damages arising out of their sole negligence;

• occurrence that occurs, or offense that is committed, after you cease to be a tenant in the premises; or

• structural alteration, new alteration, new construction or demolition operations performed by or on behalf of them.

Dkt. No. 1-1 at 25 (emphasis in original). The insurance policies state that that Defendant has the "duty to defend the insured against a suit even if such suit is false, fraudulent or groundless." Id. at 21.

Plaintiff contends that the Landlord Defendants are insureds, and therefore the duty to defend is extended to them.

Alternatively, the insurance policies also provide for "damages that the insured becomes legally obligated to pay by reason of liability . . . assumed in an insured contract; for bodily injury or property damage caused by an occurrence to which this coverage applies." Id. at 20. The insurance policies define "insured contract" to include "a lease of premises." Id. at 43. Plaintiff, therefore, also contends that Defendant is required to defend the Landlord Defendants because Plaintiff assumed the liability for their defense in an insured contract.

The policy includes several exclusions. Relevant here, the insurance policies exclude coverage for liability for bodily injury assumed in a contract, unless that contract is an insured contract. Id. at 27. Additionally, the policy excludes bodily injury arising out of "the actual alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants." Id. at 35.

B. Plaintiff and the Landlord Defendants' Lease Agreement

Since 2008, Plaintiff has leased its distribution warehouse from the Landlord Defendants, pursuant to a lease agreement dated June 23, 2008, Dkt. No. 1-4, and a "Second Amendment to the Lease" dated September 20, 2019. Dkt. No. 1-5. Relevant here, the lease includes the following indemnification clause:

18.2 Tenant Indemnification. Subject to Section 11.3 above (in the event Landlord files an insurance claim), except in the event of, and to the extent of, Landlord's negligence or willful misconduct, Tenant hereby indemnifies, defends, and holds Landlord, Agent, Landlord's members and their respective affiliates, owners, partners, members, directors, officers, agents and employees (collectively, "Landlord Indemnified Parties") harmless from and against any and all Losses (defined below) arising from or in connection with any or all of: (a) the conduct or management of either or both the Property and the Premises or any business therein, or any work or Alternations done, or any condition created by any or all of Tenant and Tenant Parties in or about the Premises during the Term or during the period of time, if any, prior to the Commencement Date that Tenant has possession of, or is given access to, the Premises; (b) any act, omission or negligence of any or all of Tenant and Tenant's Parties; (c) any accident, injury or damage whatsoever occurring in, at or upon either or both of the Property and the Premises and caused by any or all of the Tenant and Tenant's Parties; (d) any breach by Tenant of any or all of its warranties, representations and covenants under this Lease that is not cured within any applicable periods of notice and cure; (e) any actions necessary to protect Landlord's interest under this Lease in a bankruptcy proceeding or other proceeding under the Bankruptcy Code; (f) the creation or existence of any Hazardous Materials in, at, on or under the Premises or the Property, if and to the extent brought to the Premises or the Property, or caused by Tenant or any party within Tenant's control; and (g) any violation or alleged violation by any or all of Tenant and Tenant's Parties of any Law (collectively, "Tenant's Indemnified Matters").

Dkt. No. 24-4 at 15 (emphasis added).

C. The Underlying Landlord Action

On April 26, 2021, the Landlord Action was brought by 53 current and former employees of Plaintiff, as well as contractors and other temporary workers, at Plaintiff's Lithia Springs distribution facility from 2007 to 2019. See Dkt. No. 1 at ¶¶ 34-35; Essence Alexander, et al. v. CABOT IV-GA1B01 LLC, et al., C.A. No. 21-SV-00368. The same plaintiffs previously brought a similar action against Plaintiff and its contractor, Sterigenics, for exposure to unsafe levels of EtO. Id. at ¶ 34. The Landlord Action separately alleges that the Landlord Defendants permitted the storage of large quantities of EtO without properly ventilating the facility, failed to properly construct and/or design the facility, failed to reduce the exposure to EtO, and caused an unsafe amount of EtO to be within the facility. Dkt. No. 1-3 at ¶¶ 46-49. Specifically, the Landlord Action alleges negligence, aiding and abetting tortious conduct, fraud, wrongful death, and vicarious liability/respondeat superior. Id. at ¶¶ 60-134. Plaintiff is not a party to the Landlord Action.

III. DISCUSSION

A. Standard of Review

Rule 12(c) of the Federal...