Cunningham v. Insurance Co. of North America

• Decision Date: 31 August 2006
• Docket Number: No. 04 CV 2997(RJD)(VVP).,04 CV 2997(RJD)(VVP).
• Parties: Joseph N. CUNNINGHAM, Jr., M.D., Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA and Christi Insurance Group, Inc., Defendants.
• Court: U.S. District Court — Eastern District of New York

Page 166

521 F.Supp.2d 166

Joseph N. CUNNINGHAM, Jr., M.D., Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA and Christi Insurance Group, Inc., Defendants.

No. 04 CV 2997(RJD)(VVP).

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

August 31, 2006.

Opinion on Reconsideration September 28, 2007.

COPYRIGHT MATERIAL OMITTED

Barry Glenn Saretsky, Allen Leonard Sheridan, Saretsky Katz Dranoff & Glass LLP, New York, NY, for Plaintiff.

Matthew Tracy, Winget, Spadafora & Schwartzberg, LLP, New York, NY, for Defendants.

MEMORANDUM & ORDER

DEARIE, District Judge.

Plaintiff Joseph Cunningham sues Insurance Company of North America (INA) for failing to compensate him after his fifty-foot fishing vessel was destroyed by fire. Plaintiff also sues his insurance broker, Christi Insurance Group, for malpractice, negligence, and breach of contract. Defendants move for summary judgment. The Court referred the motion to Magistrate Judge Pohorelsky for a Report and Recommendation pursuant to 28 U.S.C. § 636(b)(1)(B). On April 27, 2006, Judge Pohorelsky recommended that both summary judgment motions be granted. For the following reasons, the Court grants INA's motion for summary judgment but on somewhat different grounds than stated in the Report. The Court also agrees with Judge Pohorelsky that Christi is entitled to summary judgment on plaintiff's breach of contract claim.¹ Christi's motion for summary judgment on plaintiff's negligence claim, however, is denied.

BACKGROUND

The following facts are not in dispute. Defendant Christi Insurance Group obtained insurance for plaintiffs fishing vessel from INA. The policy became effective on April 17, 1998, and was renewed each year until April 17, 2004. Id. ¶ 18. On March 11, 2004, the vessel was destroyed by fire. INA denied coverage because it claimed plaintiff had failed to lay up his vessel ashore from December to April as required by the policy. The policy states that "[i]f the ... Lay-Up Warranty [is] breached voluntary [sic] there shall be no coverage under this policy without both prior notice to us and approval by us." Policy at 7; Mercante Aff. Ex. 2.

Plaintiff filed this action on July 15, 2004. He alleges that INA breached its contract by denying his insurance claim, or that, in the alternative, Christi is liable for failing to procure an adequate policy. Magistrate Judge Pohorelsky concluded that because plaintiff repeatedly violated the lay-up warranty he was not entitled to coverage under the INA policy. Judge Pohorelsky also determined that plaintiffs claims against Christi are barred by the applicable statutes of limitation.

DISCUSSION

A. Standard for Summary Judgment

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions `on file, together with the affidavits ... show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "Only when no reasonable trier of fact could find in favor of the nonmoving party should summary judgment be granted." White v. ABCO Eng'g Corp., 221 F.3d 293, 300 (2d Cir. 2000) (quoting Taggart v. Time, Inc., 924 F.2d 43, 46 (2d Cir.1991)). The court must draw all inferences from the underlying affidavits, exhibits, and depositions "in the light most favorable to the party opposing the motion." Cronin v. Aetna Life Ins. Co., 46 F.3d 196, 202 (2d Cir.1995). If, after drawing such inferences, the court finds that an issue of material fact remains, the motion for summary judgment must be denied.

B. Claims Against INA

Magistrate Judge Pohorelsky did not reach the question of whether plaintiff was in breach of the lay-up warranty at the time of the fire. Instead, Judge Pohorelsky ruled that because plaintiff unquestionably and frequently violated the lay-up warranty before the date of the fire, he forfeited coverage under the insurance policy. The New York Court of Appeals and the Second Circuit have made clear, however, that insurers must explicitly and clearly indicate that a breach permanently ends coverage if that is their intention. See Henjes v. Aetna Ins. Co., 132 F.2d 715, 719 (2d Cir.1943) (explaining that had the defendant insurers intended a breach to end coverage "they should have made that convincingly clear"); Smith v. Northwestern Fire & Marine Ins. Co., 246 N.Y. 349, 361, 159 N.E. 87 (1927) (noting that if an insurer intends a breach to trigger more than a mere suspension of the policy, "there must be an express provision that the effect of any breach shall be to end the policy forever.").

Defendant's policy contains no such explicit language. It states that if the lay-up warranty is breached there "shall be no coverage under this policy without both prior notice to us and approval by us." Policy at 7; Mercante Aff. Ex. 2. At a minimum, this provision means that during a breach of the lay-up warranty, plaintiff would not be covered for any damage to the boat, but it does not clearly state that a breach results in a permanent loss of coverage. Indeed, in its response to plaintiffs objections, defendant INA primarily contends that plaintiff was in breach of the lay-up warranty at the time of the fire. See Def. Resp. at 3.

The key question then is whether plaintiffs vessel was in breach of the lay-up warranty when the fire occurred. Plaintiff was required to lay up his vessel "ashore" from December to April.² It is undisputed that the vessel was in the water at the time of the fire, but plaintiff asserts that the term "ashore" does not necessarily require the vessel to be on land. It is true that "ashore" can sometimes mean "to or toward the water", but this directional definition makes no sense in the context of laying up a vessel. The word, as it is used in the contract, unambiguously means "on land" or the opposite of "afloat." Otherwise, there would be no point in specifying that the boat needed to be "ashore" when it was laid up. See Alexander & Alexander Servs. v. These Certain Underwriters at Lloyd's, 136 F.3d 82, 86 (2d Cir.1998) ("An ambiguity exists where the terms of a contract could suggest more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.") (internal quotation marks omitted).

Indeed, plaintiff even indicated at his deposition that he understands "ashore" to mean out of the water:

Q ... The loss occurred when you were in the water, correct?

A Right.

Q So we can agree it wasn't ashore?

A Right.

Cunningham Dep. at 71; Mercante Aff. Ex. 9. In addition, plaintiff asserts in the complaint that the yacht club where his vessel was docked "did not have the facilities or equipment necessary to remove ... the Vessel from the water to be laid up ashore." Am. Compl. ¶ 15. Plaintiffs present argument that he satisfied the ashore requirement by merely having his vessel close to the shore is therefore disingenuous. Plaintiff was in breach of the lay-up warranty at the time of the fire.

Plaintiff argues that even if he was in breach of the warranty, his breach was not material to the loss of the boat. New York courts, however, have long held that breaches of marine insurance contracts — even ones relating to lay-up or docking requirements — need not be material in order for the insurer to disclaim coverage. The Second Circuit in Gelb v. Automobile Ins. Co., 168 F.2d 774 (2d Cir.1948), for example, addressed a contract provision requiring that plaintiffs yacht be "laid up and out of commission" for certain months. Id. at 775. The court held that under New York law "proof of a causal relation is not required where there has been such a breach of a warranty in a marine policy." Id. at 76; see also Jarvis Towing & Transp. Corp. v. Aetna Ins. Co., 298 N.Y. 280, 282, 82 N.E.2d 577 (1948) (holding that a provision requiring a watchman to examine a vessel when it was moored was an "express promissory warranty, which must be literally complied with, and that noncompliance forbids recovery, regardless of whether the omission had causal relation to the loss").

In addition, New York Insurance Law § 3106(c) exempts marine insurance contracts from the general rule that a breach of a warranty must be material in order for the insurer to disclaim coverage. See Commercial Union Ins. Co. v. Flagship Marine Servs., 190 F.3d 26, 32 (2d Cir. 1999). Plaintiff argues that § 3106(c) is inapplicable because the lay-up warranty does not pertain to "risks or perils of navigation, transit, or transportation." Pl. Mem at 50. However, the purpose of the lay-up warranty is to avoid the risks of transit during the winter months. See N.H. Ins. Co. v. Dagnone, 394 F.Supp.2d 480, 486 (D.R.I.2005) ("The Lay-Up Warranty ... is a warranty in a marine insurance policy that pertains to a risk of navigation, transit or transportation. Consequently, New York law forecloses any coverage ... if [plaintiff] was in breach of the Lay-Up Warranty at the time of the accident, irrespective of the relation between the breach and the damage."). INA's motion for summary judgment is granted.

C. Claims Against Christi Insurance Group, Inc.

The Court agrees with Judge Pohorelsky's determination that plaintiff's breach of contract claim is barred by the applicable statute of limitations, but it concludes that plaintiff's negligence claim is timely.

1. Plaintiff's Breach of Contract Claim

Insurance agents and brokers are not professionals under CPLR 214(6), see Chase Scientific Research, Inc. v. NIA Group, Inc., 96 N.Y.2d 20, 31, 725 N.Y.S.2d 592, 749 N.E.2d 161 (2001); therefore, under CPLR 213(2), a six-year statute of limitations applies to plaintiff's breach of contract actions, see Price v. J & H Marsh & McLennan, Inc., No. 03 CV 292, 2003 WL 24334430, **3-4, 2004 U.S. Dist LEXIS 12601, at *9 (D.Vt.2004)...