Rosenberg Diamond Development Corp. v. Wausau Ins.

• Decision Date: 16 June 2004
• Docket Number: No. 03 Civ. 3000(PKC).,03 Civ. 3000(PKC).
• Citation: 326 F.Supp.2d 472
• Parties: ROSENBERG DIAMOND DEVELOPMENT CORP., Plaintiff, v. WAUSAU INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

Page 472

326 F.Supp.2d 472

ROSENBERG DIAMOND DEVELOPMENT CORP., Plaintiff, v. WAUSAU INSURANCE COMPANY, Defendant.

No. 03 Civ. 3000(PKC).

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

June 16, 2004.

John D. D'Ercole, Robinson, Brog, Leinwand, Greene, Genovese & Gluck, P.C., New York, NY, for plaintiff.

Sean H. Higgins, Marshall T. Potashner, Brian J. Weiss, Jaffe & Asher LLP, New York, NY, for defendants.

MEMORANDUM AND ORDER

CASTEL, District Judge.

This is an action by Rosenberg Diamond Development Corporation ("Rosenberg") against Employers Insurance Company of Wausau, sued herein as Wausau Insurance Company ("Wausau") seeking recovery of indemnity and defense costs for two lawsuits that it alleges are covered under a Comprehensive General Liability ("CGL") policy issued by Wausau to Rosenberg providing coverage for "bodily injury" and "property damage" (identified in the policy as "Coverage A") (Policy, I, p. 1-6) and "personal injury" ("Coverage B") (Policy, I, p. 6-7). Rosenberg seeks partial summary judgment against Wausau who, in turn, seeks summary judgment dismissing all claims against it.

Because both the language of the policy and New York public policy precludes recovery of defense and indemnity costs for a claim against Rosenberg for intentional racial discrimination, I grant summary judgment to Wausau on the Coverage A claim. Construing the language of Coverage B consistent with New York public policy, I find that there is no defense or indemnity obligation for a claim by a prospective tenant nor for a claim by an existing tenant that is premised upon refusing to rent to a prospective tenant on racially discriminatory grounds. Because Rosenberg did not provide timely notice to Wausau with respect to a counterclaim for defamation in a suit which Rosenberg had brought, I also grant summary judgment to Wausau on this claim.

The Fair Housing Suit

Before turning to the language of the policy and New York's public policy concerns, it is first useful to understand the nature of the first of the two claims for which Rosenberg seeks coverage. On May 8, 2001, Rosenberg, an owner and operator of rental units in the South Bronx, was sued in this district by a group known as Association of Community Organizations for Reform Now ("ACORN") and two individuals, Association of Cmty. Organizations for Reform Now, et al. v. Rosenberg Diamond Dev. Corp., 01 Civ. 3876(LTS) (the "Fair Housing Suit"). The suit alleged that Rosenberg "systematically [was] engaging in racial discrimination" in violation of Title VIII of the Civil Rights Act of 1968, 42 U.S.C. § 3604, et. seq. (2003) (the "Fair Housing Act"), and parallel state statute and city code provision, N.Y. Human Rights Law § 296(5)(a)(1) (Consol.1995) and N.Y.C. Administrative Code § 8-107(5)(a)(1)-(2) (1996). More specifically, the complaint in the Fair Housing Suit alleged that between August 2000 and March 2001, ACORN employed twenty-two "testers" who presented themselves to Rosenberg as prospective tenants but did not specify in which Bronx neighborhood they were interested in living. The pleading alleged that depending on the color of their skin, prospective tenants were "steered" to a Rosenberg property in the South Bronx or a rental agency in the North Bronx.

Within one day of the filing of suit, Rosenberg, through its insurance agent, put Wausau on notice of the claim. By letter dated May 24, 2001, Wausau wrote to Rosenberg disclaiming coverage because, it asserted, there had been no "occurrence" which the policy defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." It noted the existence of "[p]ersonal injury" coverage but concluded that "[n]one of the other coverages ... relate to the allegations." By agreement dated November 19, 2002, the Fair Housing Suit was settled with Rosenberg agreeing to pay $81,000 and agreeing to certain corrective actions designed to prevent racial steering in the future.

Rule 56 and the Interpretation of Policy Coverage and Exclusion Issues

Summary judgment "shall be rendered forthwith 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 a judgment as a matter of law." Rule 56(c), Fed.R.Civ.P. A fact is material if it "might affect the outcome of the suit under the governing law...." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). An issue of fact is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id. The Court must "view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in its favor, and may grant summary judgment only when no reasonable trier of fact could find in favor of the nonmoving party." Allen v. Coughlin, 64 F.3d 77, 79 (2d Cir.1995) (citation and quotation marks omitted); accord Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). The opposing party must "set forth specific facts showing that there is a genuine issue for trial," and cannot rest on "mere allegations or denials" of the facts asserted by the movant. Rule 56(e).

"When the sole question presented on a motion for summary judgment is the interpretation of a clear and unambiguous written agreement, the issue is one of law for the court." Sidney Frank Importing Co., Inc. v. Farmington Cas. Co., 1999 WL 173263 at *3 (S.D.N.Y. Mar.26, 1999), citing Pantone, Inc. v. Esselte Letraset, Ltd., 878 F.2d 601 (2d Cir.1989). This rule applies with equal force to policies of insurance. See Jakobson Shipyard, Inc. v. Aetna Cas. & Sur. Co., 775 F.Supp. 606, 609 (S.D.N.Y.1991).

Indisputably, the policy at issue imposes both the "right and duty to defend" covered claims. (Policy, Coverage A, ¶ 1(a), p. 1) The duty to defend is broader than the separate and distinct duty to indemnify. See Avondale Indus., Inc. v. The Travelers Indem. Co., 887 F.2d 1200, 1204 (2d Cir.1989), citing Technicon Elec. Corp. v. American Home Assur. Co., 74 N.Y.2d 66, 73, 544 N.Y.S.2d 531, 542 N.E.2d 1048 (1989), cert. denied, 496 U.S. 906, 110 S.Ct. 2588, 110 L.Ed.2d 269 (1990). If any allegations in the underlying action "arguably or potentially" bring the action within the scope of coverage, then there is a duty to defend. Id. at 1204, citing Technicon, 74 N.Y.2d at 73, 544 N.Y.S.2d 531, 542 N.E.2d 1048. The duty to defend is triggered if the claims "may rationally be said to fall within policy coverage...." Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 310-11, 486 N.Y.S.2d 873, 476 N.E.2d 272 (1984), quoting Schwamb v. Fireman's Ins Co., 41 N.Y.2d 947, 949, 394 N.Y.S.2d 632, 363 N.E.2d 356 (1977).

Under New York law, an insurer seeking to avoid its duty to defend bears a heavy burden. See Avondale Indus., 887 F.2d at 1204. "[B]efore an insurance company is permitted to avoid policy coverage, it must ... establish [ ] that the exclusions or exemptions apply in the particular case, and that they are subject to no other reasonable interpretation." Seaboard, 64 N.Y.2d at 311, 486 N.Y.S.2d 873, 476 N.E.2d 272 (citation omitted). The insurer must demonstrate, as a matter of law, that the claims and allegations in the underlying suit are "solely and entirely" within specific and unambiguous exclusions from the policy's coverage. Avondale Industries, 887 F.2d at 1204-05, citing International Paper v. Continental Cas. Co., 35 N.Y.2d 322, 325, 361 N.Y.S.2d 873, 320 N.E.2d 619 (1974).

Coverage A: Bodily Injury and Property Damage

Wausau issued a policy to Rosenberg covering the period May 18, 1999 to May 18, 2001. The Policy provided commercial general liability coverage, as well as an array of other coverage. Specifically it covered "bodily injury" or "property damage" caused by an "occurrence" taking place in the "coverage territory." (Policy, V, pp. 15-19) There is no dispute that the event took place within the covered territory, which includes the United States. (Policy, V ¶ 4, p. 15) "Bodily injury" is defined to include "bodily injury, sickness or disease...." (Policy at ¶ 3, p. 13) The Fair Housing Suit alleges that the plaintiffs suffered "humiliation, mental anguish and emotional distress," (FHS Complaint ¶ 49) and defendant does not dispute that the bodily injury requirement has been satisfied.

The parties dispute whether the definition of "occurrence" has been met in this case. The term is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Policy, V ¶ 12, p. 18) Defendant argues that because the FHS Complaint alleges conduct that is intentional in nature, it is not "an accident."

Here, the underlying suit was specific in its allegations. It asserted that Rosenberg steered white "testers" who had not specified a neighborhood of interest to an unaffiliated real estate agency where they would be directed to apartments in the North Bronx. Those who were black or Latino were invited to complete an application for a Rosenberg apartment in the South Bronx. See FHS Complaint ¶¶ 4-7. Of course, the question in this case is not whether the plaintiffs in the Fair Housing Suit alleged a viable claim or a factually meritorious claim. Rather, it is whether they alleged a covered claim.

Under the Fair Housing Act, a violation may be found on either a theory of disparate impact or disparate treatment. See LeBlanc-Sternberg v. Fletcher, 67 F.3d 412, 425 (2d Cir.1995). Rosenberg has tried to recast the Fair Housing Suit as asserting a disparate impact claim — a claim that a policy that is facially neutral has a disproportionate impact on one group. But there was nothing neutral on the face of the rental policy alleged. The Fair Housing Suit did not allege that...