St Paul Fire and Marine v. Universal Builders, 00-CV-04634 (KMW).

• Decision Date: 31 March 2004
• Docket Number: No. 00-CV-04634 (KMW).,00-CV-04634 (KMW).
• Citation: St Paul Fire and Marine v. Universal Builders, 317 F.Supp.2d 336 (S.D. N.Y. 2004)
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY a/s/o the Durst Organization, Inc., and Four Times Square Association, L.L.C., Plaintiffs, v. UNIVERSAL BUILDERS SUPPLY and Tishman Construction Company of New York, Defendants. Universal Builders Supply, Inc., Third-Party Plaintiff, v. TIG Insurance Company, AIU Insurance Company, and Royal Insurance Company of America, Third-Party Defendants.
• Court: U.S. District Court — Southern District of New York

317 F.Supp.2d 336

ST. PAUL FIRE AND MARINE INSURANCE COMPANY a/s/o the Durst Organization, Inc., and Four Times Square Association, L.L.C., Plaintiffs, v. UNIVERSAL BUILDERS SUPPLY and Tishman Construction Company of New York, Defendants.

Universal Builders Supply, Inc., Third-Party Plaintiff, v. TIG Insurance Company, AIU Insurance Company, and Royal Insurance Company of America, Third-Party Defendants.

No. 00-CV-04634 (KMW).

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

March 31, 2004.

Chris Christofides, L'Abbate, Balkan, Colavita & Contini, LLP, New York, NY, for Plaintiffs.

Justin E. Driscoll, III, Plunkett & Jaffe, P.C., New York, NY, for Defendants and ThirdParty Plaintiff.

Eric A. Portugese, Lester, Schwab, Katz & Dwyer, L.L.P., Sherri N. Robinson, Lustig & Brown, L.L.P., New York, NY, for ThirdParty Defendants.

ORDER

KIMBA M. WOOD, District Judge.

This action arises from the collapse of a 49-story scaffolding structure on a construction site. The insurance company that issued a builder's risk policy for the site seeks to recover from the contractor responsible for the scaffolding approximately $20 million that the insurer paid to cover damages caused by the collapse. The contractor filed a third-party complaint against three of its liability insurers, seeking to have them defend and indemnify it in this action. Third-party defendants moved to dismiss the underlying complaint against the contractor and the third-party complaint.

For the reasons stated below, the Court grants all motions to dismiss.

I. Background

In 1997, the Durst Organization, Inc. ("Durst") and Four Times Square Association, L.L.C. ("FTSA") contracted with Tishman Construction Corporation of New York ("Tishman"), as construction manager, and Universal Builders Supply, Inc. ("UBS"), as head contractor, for UBS to erect a building located at Four Times Square, New York, New York. The contract contained an Insurance Rider (the "Rider") that specified the several parties' obligations for obtaining insurance coverage for the project. Durst and FTSA agreed to obtain a builder's risk insurance policy that would cover Durst, FTSA, UBS and all sub-contractors. The Rider contained a clause that waived all parties' rights of recovery against each other or third parties for any claims that would be covered by the Policy. The Rider also specified that the Policy must grant its insureds the authority to waive such a right of recovery; such a clause in an insurance policy is called a waiver of subrogation clause. Durst obtained a builder's risk policy (the "Policy") from St. Paul Fire and Marine Insurance Company ("St.Paul") that contained a waiver of subrogation clause.¹

On July 21, 1998, a 49-story temporary scaffold/hoist structure at the Four Times Square site, designed and built by UBS, collapsed, causing extensive damage to the site and surrounding area, and killing one person. St. Paul paid approximately $20 million to Durst and FTSA to satisfy claims they filed pursuant to the Policy.²

St. Paul, as Durst and FTSA's subrogee, now seeks to recover from UBS the $20 million St. Paul paid Durst and FTSA pursuant to the Policy. St. Paul alleges that UBS is liable for the losses covered by the Policy under theories of negligence, gross negligence, strict liability, professional malpractice, breach of contract, products liability and breach of warranties.³

UBS has filed a third-party complaint against the three insurance carriers that issued liability policies related to the Four Times Square project, all of which name UBS as an insured: TIG Insurance Company ("TIG"), AIU Insurance Company ("AIU"), and Royal Insurance Company ("Royal").⁴ UBS seeks a declaratory judgment ordering these companies to represent UBS in this action, and to indemnify UBS for any judgment St. Paul recovers against UBS. All three companies disclaimed coverage and refused to defend UBS.

Rather than answer the third-party complaint, TIG has moved to dismiss both the underlying complaint and the third-party complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). AIU and Royal answered the third-party complaint, and cross-moved to dismiss the underlying complaint and the third-party complaint on the pleadings.⁵ Fed.R.Civ.P. 12(c). Defendant UBS joins in support of TIG, AIU and Royal's motions to dismiss the underlying complaint against UBS.

The question presented is whether the waiver of a right of recovery in the Rider, and accompanying waiver of subrogation clause in the Policy, bar St. Paul's action.

II. Discussion

Federal courts sitting in diversity cases must apply the substantive law of the forum State, Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), including the choice of law rules of that state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 497, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). It is uncontested that New York law applies to this diversity action.⁶

When applying state law, a federal court must apply the law as determined by the highest court of that state. See Commissioner of Internal Revenue v. Bosch's Estate, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967). If the highest state court has not ruled on the precise issue in dispute, the federal court must attempt to ascertain what the highest court would do if faced with that question, giving" `proper regard' to relevant rulings of other courts of the State." Bosch, 387 U.S. at 465, 87 S.Ct. 1776; see also In re Brooklyn Navy Yard Asbestos Litigation, 971 F.2d 831 (2d Cir.1992).

A. The Motions to Dismiss St. Paul's Complaint Against UBS

TIG moves to dismiss St. Paul's complaint against UBS for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). Royal and AUI separately move to dismiss St. Paul's complaint against UBS on the pleadings. Fed.R.Civ.P. 12(c). These motions are functionally identical, see Moore's Federal Practice and Procedure § 12.38 ("any distinction between [12(b)(6) and 12(c) motions] is merely semantic because the same standard applies to motions made under either subsection"), Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 125-6 (2d Cir.2001), and are all premised on the same argument: that the waiver of a right of recovery in the Rider, and accompanying waiver of subrogation clause in the Policy, preclude St. Paul's action against UBS.

In considering a motion to dismiss for failure to state a claim upon which relief can be granted, the Court merely "determine[s] whether the complaint itself is legally sufficient," Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.1985), accepting as true its factual allegations, see Anatian v. Coutts Bank (Switzerland) Ltd., 193 F.3d 85, 88 (2d Cir.1999). All inferences are drawn in favor of the non-moving party. See Moore v. PaineWebber, Inc., 189 F.3d 165 (2d Cir.1999). The complaint should not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Cruz v. Gomez, 202 F.3d 593, 597 (2d Cir.2000) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). In making this assessment, the Court "must limit itself to the facts stated in the complaint, documents attached to the complaint as exhibits and documents incorporated by reference in the complaint." Hayden v. County of Nassau, 180 F.3d 42, 54 (2d Cir.1999).

1. St. Paul's Action Against UBS Is Barred By the Waiver of a Right of Recovery in the Insurance Rider, and the Accompanying Waiver of Subrogation Clause in the Policy

The moving parties argue that this action is barred by Durst and 4TSA having waived a right of recovery for losses covered by the Policy, and St. Paul having waived subrogation rights in the Policy. It is well-settled that waiver of subrogation clauses are valid in New York state. See Board of Education v. Valden, 46 N.Y.2d 653, 657, 416 N.Y.S.2d 202, 389 N.E.2d 798 (1979) (upheld waiver of subrogation clause in construction contract, stating that it "violate[d] neither [New York statutes] nor any other public policy"). Such clauses are particularly common in large construction projects, because they

avoid[ ] disruption and disputes among the parties to [the] project, and ... protect[ ] the contracting parties from loss by bringing all property damage under the all risks builder's property insurance.

Tokio Marine & Fire Ins. Co. Ltd. v. Employers Ins. of Wausau, 786 F.2d 101, 104 (2d Cir.1986).

New York courts, when enforcing waivers of subrogation, look to the specific terms of the waiver as executed by the parties. See Kaf-Kaf, Inc. v. Rodless Decorations, Inc., 90 N.Y.2d 654, 658, 665 N.Y.S.2d 47, 687 N.E.2d 1330 (1997).⁷ The Insurance Rider contains a comprehensive waiver of the right of recovery.⁸ The Rider also specifies that the Policy would contain a waiver of subrogation clause.⁹ St Paul's policy contains such a clause.¹⁰ These clauses demonstrate St. Paul, Durst, 4TSA and UBS's unambiguous intention to prevent actions such as this one.

The Court thus holds that this action is barred by the waiver of a right of recovery in the Rider and the waiver of subrogation in the Policy.¹¹

2. New York Public Policy Does Not Forbid Waiver of Subrogation for Claims of Gross Negligence

St. Paul argues that New York law does not permit a waiver of subrogation that would bar its claims against UBS for gross negligence. The Court holds that New York law does permit such a waiver, despite the contrary conclusions of three other federal district courts applying New York law.

Neither the New York Court of Appeals nor any lower New York state court has decided whether a waiver of subrogation clause can bar a subrogated claim for gross negligence. St. Paul argues that public policy should require any party who commits gross negligence to bear the cost of any injury incurred as a result of that conduct. Such a rule would presumably have...