In re Vanderveer Estates Holding, LLC

• Decision Date: 20 July 2005
• Docket Number: Bankruptcy No. 01-20348-608.,Adversary No. 04-1202-608.
• Citation: 328 B.R. 18
• Parties: In re: VANDERVEER ESTATES HOLDING, LLC, Debtor. American Safety Indemnity Company, Plaintiff, v. Vanderveer Estates Holding, LLC; Vanderveer Realty Group, Inc.; Asha Greenidge, as mother of infant Jahniya McLennan and Asha Greendidge, Individually; Adina Babb; Jaqueline Pineda; Marie Solon; and Chanel Poitier, as Administratrix of the Estate of Gerard Poitier; Foster Apartment Group, LP and Abraham Weider Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of New York

328 B.R. 18

In re: VANDERVEER ESTATES HOLDING, LLC, Debtor American Safety Indemnity Company, Plaintiff, v. Vanderveer Estates Holding, LLC; Vanderveer Realty Group, Inc.; Asha Greenidge, as mother of infant Jahniya McLennan and Asha Greendidge, Individually; Adina Babb; Jaqueline Pineda; Marie Solon; and Chanel Poitier, as Administratrix of the Estate of Gerard Poitier; Foster Apartment Group, LP and Abraham Weider Defendants.

Bankruptcy No. 01-20348-608.

Adversary No. 04-1202-608.

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

July 20, 2005.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Jonathan Polonsky, Martin Bunin, Peter Marchetti, Thelen Reid & Priest, New York, NY, for the Official Committee of Unsecured Creditors.

Mark L. Antin, William E. Marsala, Gennet Kallmann Antin & Robinson PC, New York, NY, for the Plaintiff.

DECISION

CARLA E. CRAIG, Bankruptcy Judge.

This matter comes before this Court on the motion of the Official Committee of Unsecured Creditors (the "Committee") of Vanderveer Estates Holding, LLC (the "Debtor" or "Vanderveer"), seeking summary judgment in this adversary proceeding. Plaintiff American Safety Indemnity Company ("ASIC") has filed a cross-motion for summary judgment.

On April 13, 2004, the Committee removed this action, then pending in Supreme Court, Kings County, to this Court. This action was brought by ASIC seeking a declaratory judgment that ASIC has no obligation to defend or indemnify Vanderveer pursuant to an insurance contract, dated December 29, 2000, between ASIC and Vanderveer (the "Insurance Policy") because Vanderveer breached its obligations under the Insurance Policy by failing to pay the self-insured retention of $25,000 per claim reserved to Vanderveer thereunder.

On December 22, 2004, the Committee moved for summary judgment, seeking a determination that ASIC must provide coverage to the plaintiffs in certain personal injury actions currently pending against Vanderveer, to the extent that the claims exceed the Debtor's self-insured retention under the Insurance Policy. On January 14, 2005, ASIC cross-moved for summary judgment, and also requested that summary judgment be denied to the Committee because of ASIC's need for additional discovery.

For the reasons set forth below, summary judgment is granted to the Committee.

Jurisdiction

This Court has jurisdiction over this core proceeding pursuant to 11 U.S.C. §§ 1334(b) and 157(b)(2)(O) and the Eastern District of New York standing order of reference dated August 28, 1986. This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Federal Rule of Bankruptcy Procedure 7052.

Facts

The following facts are not in dispute. On December 29, 2000, ASIC issued the Insurance Policy to Vanderveer, which was to expire by its terms on December 21, 2001. The Insurance Policy had a liability limit of $1,000,000 per occurrence and $2,000,000 in the aggregate. At the time the Insurance Policy was issued, Vanderveer paid ASIC the premium in advance for the full policy year.

Section IV, subsection 16 of the Insurance Policy provided that "[t]his policy, and all disputes relating to the parties' obligations under this policy, shall be interpreted, construed, governed by and enforced in accordance with the laws of the State of Illinois, except for that body of law known as Conflicts of Law." Accordingly, this Court has interpreted the provisions of the Insurance Policy according to Illinois law.

The Insurance Policy provides Vanderveer with excess insurance. Excess insurance is "coverage whereby, under the terms of the policy, liability attaches only after a predetermined amount of primary coverage has been exhausted. A second insurer thus greatly reduces his risk of loss. This reduced risk is reflected in the cost of the policy." Missouri Pacific Railroad v. International Ins. Co., 288 Ill.App.3d 69, 81, 223 Ill.Dec. 350, 679 N.E.2d 801 (1997).

The Insurance Policy contains a self-insured retention endorsement ("SIR Endorsement") that requires the Debtor to pay the first $25,000 of defense costs, legal fees, and the costs of any settlement or judgment before any coverage will be provided under the policy. The SIR Endorsement states that, in the event of a conflict with any other provisions in the Insurance Policy, the terms of the SIR Endorsement apply. The SIR Endorsement further states that "the fulfillment of the obligations under this Endorsement is a condition precedent to the performance of [ASIC's] obligations under the policy."

On August 8, 2001, the Debtor filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Insurance Policy was cancelled pursuant to a Notice of Cancellation, effective September 7, 2001, issued by ASIC, and the remaining premium was returned to the Debtor.

Eleven personal injury actions have been commenced alleging injuries occurring on the Debtor's property that would be subject to coverage by the Insurance Policy. Two additional actions are included in ASIC's complaint that appear to result from accidents occurring subsequent to the September 7, 2001 cancellation date. ASIC has appointed counsel to defend all of these personal injury actions. Each of the tort claimants at issue in this case has waived any claims against the estate and has agreed to obtain payment solely from ASIC.

On July 31, 2003, a plan of reorganization (the "Plan") proposed jointly by the Committee and Vanderveer's secured creditor was confirmed. The confirmation order provided for the sale of substantially all of the Debtor's assets to Gateway Sherman, Inc.; however, this Court retained jurisdiction to determine, among other things, whether the Insurance Policy was an executory contract. (Doc. 416, ¶¶ 8, 23.)¹

Under the Plan, Class 6 Claims consist of claims against the Debtor covered by any insurance policy. The Plan states that the Committee would "reserve $25,000 per Allowed Insured Claim to pay ... for the cost of either the deductible or the self-insured retention required by the insurance policy." (Doc. 416, Ex. A at § 3.8.) These amounts have not been paid because the Committee believes that such payment is not required as a condition to ASIC's obligation to make payment under the Insurance Policy, and would result in ASIC, alone among unsecured creditors, receiving full payment of its unsecured claim — a result contrary to the terms of the Plan and applicable bankruptcy law.

Standard for Summary Judgment

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Bankr.P. 7056(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The court's function is not to resolve disputed issues of fact, but only to determine whether there is a genuine issue to be tried. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). No genuine issue exists "unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50, 106 S.Ct. 2505.

"If, as to the issue on which summary judgment is sought, there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party, summary judgment is improper." Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir.1994) (citation omitted). If the movant meets this initial burden, the nonmoving party must set forth specific facts that show triable issues and cannot rely on pleadings containing mere allegations or denials. Fed. R. Bankr.P. 7056(e); In re Jarrell, 251 B.R. 448, 450-451 (Bankr.S.D.N.Y.2000), citing Matsushita Elec. Indus., Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The non-moving party must show that there is more than a metaphysical doubt regarding the material fact. In re Jarrell, 251 B.R. at 450-451 (Bankr.S.D.N.Y.2000), citing Matsushita, 475 U.S. at 586-587, 106 S.Ct. 1348.

Here, the material facts, as outlined above, are not in dispute.

Discussion

ASIC's declaratory judgment complaint is based on the premise that, as a matter of law, an excess insurance carrier is not required to "drop down" to defend or indemnify a bankrupt insured when the excess insurance coverage is contingent upon payment of a self-insured retention by the insured. (Doc. 1, Complaint ¶¶ 34-35, 48.)² ASIC asserts that Vanderveer must exhaust its primary insurance (i.e., the self-insured retentions) before it can reach the excess insurance provided by ASIC. ASIC contends that the failure of the Debtor to pay the self-insured retention amount is a breach of the Insurance Policy that "now and forever relieves [ASIC] from any obligation to Vanderveer or the other defendants" under the policy. (Doc. 1, Complaint ¶ 31, 33-37; Doc. 18, ¶ 2, 24.)

To support this contention, ASIC relies upon Missouri Pacific, 288 Ill.App.3d at 82, 223 Ill.Dec. 350, 679 N.E.2d 801, in which an Illinois appellate court held that, under Illinois law, "SIRs constitute primary coverage and thus [an insured] must exhaust the SIRs before looking to the insurers for coverage." Accord Illinois Emcasco Insurance Co. v. Continental Casualty Co., 139 Ill.App.3d 130, 133, 93 Ill.Dec. 666, 487 N.E.2d 110 (1985). While this general proposition is correct, the insured in Missouri Pacific and Illinois Emcasco was not in bankruptcy, and therefore the facts are inapposite and those cases are not controlling here.

ASIC's position in this case is contrary to the Insurance Policy, as well as relevant Illinois state law and bankruptcy law. The Illinois Insurance Code, Chapter...