In Re: St. James Mechanical Inc.
| Decision Date | 09 August 2010 |
| Docket Number | Adv. Proc. No.: 09-08136-reg,Case No.: 09-70124-reg |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
| Parties | In re: St. James Mechanical, Inc., Debtor. St. James Mechanical, Inc., Plaintiff, v. Royal & Sun Alliance, Defendant. |
Before the Court are cross-motions for summary judgment filed by the Plaintiff and the Defendant in this adversary proceeding. The Debtor, St. James Mechanical, Inc. (the "Debtor" or "Plaintiff) commenced this adversary proceeding seeking indemnification from its insurance carrier, Royal & Sun Alliance ("Defendant")1 for claims arising from a personal injury suit commenced by Joseph Freehill ("Freehill") against the Debtor, a heating and air conditioning contractor, and ITT Sheraton Corporation ("ITT"), owners of the accident site. A judgment was entered finding the Debtor liable to ITT for Freehill's injuries pursuant to the terms of acontractual indemnification obligation. The Debtor then submitted a claim for payment to the Defendant under its insurance policy. The Defendant denied coverage for the claim based on the Debtor's failure to satisfy its obligations under the policy resulting in the Debtor failing to give timely notice of the claim at the time of the accident. Alternatively, the Defendant argues the Debtor failed to give timely notice of the commencement of a lawsuit against the Debtor. In the motions before the Court, each party seeks judgment as a matter of law on the issue of whether the Debtor had a good faith belief in non-liability sufficient to excuse the Debtor's failure to give timely notice of the accident to the Defendant. In addition, the Defendant seeks judgment as a matter of law that the Debtor did not give timely notice of the commencement of the lawsuit.
For the reasons stated herein, the Court finds that as a matter of law, based on the undisputed facts, the Debtor cannot be found to have had a reasonable good faith belief that a claim would not be asserted against it as a result of the injuries sustained by Freehill. Therefore as a matter of law the Debtor cannot be excused from satisfying its obligation to provide the Defendant with timely notice as required under the Contract. Summary judgment will enter in favor of the Defendant.
On May 10, 1996, the Debtor entered into a contract (the "Contract") with Sheraton New York Hotel and Tower d/b/a Sheraton Hudson Corporation ("Sheraton Hudson"), to install an air conditioning and exhaust system in the laundry area of the hotel (the "work site"). At all relevant times, ITT was the fee owner of the hotel, and Sheraton Hudson was the entity operating the hotel. The Contract was executed by Sheraton Hudson and the Debtor, by James Sostarich ("Sostarich"), Vice-President of the Debtor. The Contract provided for the Debtor to indemnifyand hold Sheraton Hudson harmless "from and against all claims, losses and damages... caused by, arising out of or resulting from the performance of the Work... and is caused in whole or in part by any negligent act or omission of Contractor, any Subcontractor... any person or organization directly or indirectly employed by any of them to perform or furnish any of the Work...." (Contract, General Conditions at 28, Defs Ex. B2). The supplementary conditions of the Contract included similar provisions obligating the Debtor to indemnify and hold Sheraton Hudson harmless. (Contract, Supplementary Conditions at 3, Defs Ex. B3). The Contract required the Debtor to obtain liability insurance naming Sheraton Hudson as an additional insured for claims for damages for bodily injury of any person other than the Debtor's employees. (Contract, General Conditions at 21, Defs Ex. B2). The Debtor also was "responsible for initiating, maintaining and supervising all safety precautions and programs in connection with the Work" and to providing "the necessary protection to prevent damage, injury or loss to all persons on the Work site...." (Contract, General Conditions at 26, Defs Ex. B2).
Freehill, the injured worker, was employed by Budd Contracting ("Budd") at the time of the accident. The Debtor argues that Budd was the hotel's "in house" contractor and the hotel requested that any outside contractor use Budd's services. Testimony by a representative of Budd, Susan Jorgensen ("Jorgensen"), supports the Debtor's characterization of Budd's relationship with the hotel. According to Jorgensen, Budd was the "preferred contractor" for the hotel and in the event of any emergency, where time did not allow for bids to be solicited for work, the hotel would call Budd to perform the work. (Jorgensen Depo. at 33, Pl's Ex. D). Jorgensen testified that she believed that the hotel might have requested to a contractor that Budd be used on a project because of Budd's knowledge of the building. (Jorgensen Depo. at 37, Pl's Ex. D).
The Debtor admits that it "hired Budd... to make openings in cement walls so [the Debtor] could pass the duct work through." (Sostarich Written Statement at A 0001, Pl's Ex. B). Moreover, in a statement attached as Exhibit B to the Debtor's motion papers, Sostarich, in a recorded interview conducted by the Defendant, stated: (Sostarich Recorded Statement at A 0004, Pl's Ex. B). Later in that same statement, Sostarich restated its relationship with Budd: "Once again, they were a sub-contractor of St. James Mechanical an[d] we had all their insurance information on file." (Sostarich Recorded Statement at A 0005, Pl's Ex. B). It is undisputed there was no contract between Budd and the Debtor. The work Budd performed for the Debtor at the work site was documented through individual purchase orders. (Jorgensen Depo. at 9, Pl's Ex. D).
On the evening of July 25, 1996, Freehill, was performing demolition work for Budd at the work site. (Freehill Depo. at 11, Defs Ex. E). Freehill's task was to remove a "curtain wall" and ceiling tiles near the entrance ramp of the hotel's parking garage so as to permit the Debtor to run duct work for the HVAC system. (Jorgensen Depo. at 12, 13, Pl's Ex. D). Freehill placed a ladder, given to him by the engineering department of Sheraton Hudson, atop a scaffold provided and owned by Budd. (Freehill Depo. at 11, 30, 35, Defs Ex. E). The Debtor did not provide Freehill with instructions as to how the work was to be performed and, according to Jorgensen, the placement of the ladder atop the scaffold was contrary to any instruction given to Freehill by Budd. (Jorgensen Depo. at 35, Pl's Ex. D). While cutting a section of the wall, apiece swung down and knocked Freehill off the ladder and scaffold. (Jorgensen Depo. at 13, Pl's Ex. D). The police and an ambulance responded to the accident at which time Freehill was placed on a stretcher and taken to the hospital. (Freehill Depo. at 44, 46, 47, Def's Ex. E).
On July 26, 1996, the day after the accident, Sostarich arrived at the work site and saw that the work to be performed by Budd was not completed. (Sostarich Depo. at 26-28, Defs Ex. M). Sostarich spoke with Jorgensen concerning the uncompleted work at which point Jorgensen informed Sostarich that one of Budd's employees fell off a scaffold the night before while attempting to complete the work at the work site. (Sostarich Depo. at 25, Defs Ex. M). Jorgensen informed Sostarich that Freehill had fallen off the scaffold and had been taken to the hospital but the extent of the injuries were not known. (Sostarich Depo. at 25, Defs Ex. M; Jorgensen Depo. at 64, Pl's Ex. D). Several days later Sostarich spoke to Jorgensen, who informed him that Freehill was out of work and on disability. (Sostarich Depo. at 31, 32, Defs Ex. M). Sostarich and Jorgensen spoke several times about matters concerning the work under the Contract at which times Sostarich inquired about Freehill's status. (Sostarich Depo. at 31, 33, Defs Ex. M). Sostarich was not given any information regarding Freehill's condition or the extent of his injuries. (Sostarich Depo. at 31, Defs Ex. M). Neither Sostarich, nor the Debtor, made a request for any accident reports or the identity of the injured employee, nor did they make any written request for information regarding the accident or Freehill's condition. (Sostarich Depo. at 30, 32, 33, Defs Ex. M; Cavanaugh Depo at 38, 45, Defs Ex. N). Sostarich did not inquire, of Budd or Sheraton Hudson, whether the injured employee was going to file claims arising out of the accident. (Sostarich Depo. at 34, Def's Ex. M).
On October 14, 1997, Freehill commenced a personal injury action against ITT resulting from the accident that occurred on July 25, 1996. On August 6, 1998, Freehill filed an amendedcomplaint adding the Debtor as a defendant. (Complaint, Defs Ex. C). On August 18, 1998, the Debtor was served with the summons and complaint via the Secretary of State. (Affidavits of Service, Defs Ex. D). Forty four days later, September 24, 1998, the Defendant received its first notice of the incident and the lawsuit. .
On September 28, 1998, the Defendant sent a letter to the Debtor stating that it had received notice of the summons and complaint concerning the Freehill litigation and reserved the right to disclaim coverage upon further investigation. (Arrowood September 28, 1998 Letter, Defs Ex. A3). The Defendant's letter stated that the accident giving rise to the referenced claim occurred almost two years prior to the Defendant receiving any notice. The letter cited to Section IV of the insurance policy which states that ...
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