The Wentworth Grp. v. Evanston Ins. Co.
| Decision Date | 08 July 2021 |
| Docket Number | 20-CV-6711 (GBD) (JLC) |
| Parties | THE WENTWORTH GROUP INC., FS PROJECT MANAGEMENT, LLC and FIRSTSERVICE RESIDENTIAL NEW YORK, INC., Plaintiffs, v. EVANSTON INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Southern District of New York |
REPORT & RECOMMENDATION
Plaintiffs The Wentworth Group Inc., FS Project Management, LLC, and FirstService Residential New York, Inc. (collectively “Plaintiffs”) brought this insurance coverage action against Defendant Evanston Insurance Company (“Evanston”) seeking a declaration that Evanston has a duty to defend and indemnify Plaintiffs in an action pending in New York State court, and that their claim is covered under an insurance policy issued by Evanston.
The parties have cross-moved for summary judgment under Rule 56 of the Federal Rules of Civil Procedure on the issues of (1) whether Evanston waived its right to disclaim coverage as a matter of law; (2) whether Evanston has a duty to defend Plaintiffs; and (3) whether Evanston has a duty to indemnify Plaintiffs. For the reasons that follow, I recommend granting Plaintiffs' motion in part and denying Evanston's cross-motion in its entirety.
The following facts are drawn from the parties' Local Rule 56.1 statements and summary judgment briefing and are undisputed unless otherwise noted.
Plaintiffs provided property management and project management services to the Board of Managers (“the Board”) of 325 Fifth Avenue Condominium in Manhattan (“the Condominium”). Defendant's Response to Plaintiff's Rule 56.1 Statement ( ), Dkt. No. 34, ¶¶ 2, 3. In or about 2006, the Condominium's sponsor contracted with and designated FirstService Residential New York, Inc. (“FSR”) as the managing agent, and FSR continued to manage the Condominium until 2015. Plaintiffs' Memorandum of Law in Support of Summary Judgment (“Pl. Mem.”), Dkt. No. 24, at 2; Declaration of Bernice K. Leber dated January 4, 2021 (“Leber Decl.”), Dkt. No. 22, Ex. B ¶ 72. Plaintiff FS Project Management provided project management services to the Board during a portion of the time FSR served as the managing agent. Def's Resp. Rule 56.1 ¶ 3; Leber Decl., Ex. B ¶ 4.
In 2012, the Board filed suit in New York State Supreme Court, New York County against the Condominium's sponsor due to persistent construction and design defects in the Condominium building. Def.'s Resp. Rule 56.1 ¶ 5. On May 1, 2015, the Board filed another suit in New York State Supreme Court, New York County against FSR and FS Project Management, along with 26 other professionals and contractors who had performed services for the Condominium (the “Underlying Action”). Id.; see also Leber Decl., Ex. B. In its complaint (the “State Court Complaint”), the Board asserted nine causes of action against Plaintiffs for fraud, breach of fiduciary duty, constructive fraud, aiding and abetting, civil conspiracy, and breach of contract. Leber Decl., Ex. B ¶¶ 117-206. The Board alleged that between 2007 and 2009, the Condominium sponsor retained FS Project Management to determine the cause of defects in the glass panels installed at the balcony rails that resulted in their falling and shattering. Id. at ¶¶ 7, 82. The Board further alleged that in 2011, upon the recommendation of FS Project Management, the sponsor contracted with Candido Basonas Construction Corp. (“Basonas”) to repair the glass panels, but that Basonas' repairs were improper and exacerbated the existing defects. Id. at ¶¶ 9, 91. The Board also alleged that FSR concealed construction and design defects and failed to properly bill tenants, pay contractors, order supplies, and advise the Board about maintenance of common areas in the Condominium. Id. at ¶¶ 107-08; 169-70. In October 2015, Basonas brought crossclaims against all defendants in the Underlying Action and alleged that they were jointly and severally liable for any damages incurred by the Board. Leber Decl., Ex. C ¶ 57.
Evanston issued Real Estate Services and Property Management Services Professional Liability Insurance to The Wentworth Group Inc. (“Wentworth”) covering the period from July 17, 2014 to July 17, 2015 (“the Evanston Policy” or “the Policy”).[1] Defendant's Memorandum of Law in Support of its Cross-Motion for Summary Judgment and in Opposition to Plaintiffs' Motion for Summary Judgment (“Def. Mem.”), Dkt. No. 33, at 6; Leber Decl. Ex. A, at 3.[2] FSR and FS Project Management are Additional Named Insureds under the Evanston Policy. Leber Decl., Ex. A at 7. The Evanston Policy provides coverage for “[d]amages as a result of a Claim first made against the Insured . . . by reason of . . . a Wrongful Act . . . in the performance of Real Estate Services or Property Management Services.” Leber Decl., Ex. A at 20. A “Wrongful Act” is defined as a “negligent act, error or omission in Real Estate Services or Property Management Services.” Leber Decl., Ex. A at 24. Moreover, under the policy, Evanston “shall have the right and duty to defend . . . any Claim to which coverage under this policy applies” and “shall pay on behalf of the Insured all sums . . . which the Insured shall become legally obligated to pay as Damages as a result of a Claim first made against the Insured during the Policy Period . . . by reason of a Wrongful Act . . . .” Id. at 20, 28.
Shortly after the Board filed the Underlying Action, Plaintiffs submitted a claim under the Policy to Evanston. Def. Resp. Rule 56.1 ¶ 14; Leber Decl., Ex. F. After conducting a three-month investigation of Plaintiffs' claim, Evanston issued a Coverage Letter on August 3, 2015. Def. Resp. Rule 56.1 ¶¶ 14-15, Leber Decl., Ex. D. In the Coverage Letter, Evanston acknowledged that the claims alleged in the Underlying Action constituted “Wrongful Acts” under the Evanston Policy, and thus triggered coverage. Leber Decl., Ex. D at 13. Evanston also approved Plaintiffs' selection of the Gordon & Rees law firm to defend the Underlying Action. Def. Resp. Rule 56.1 ¶ 19; Leber Decl., Ex. H.
For the next five years, Evanston paid 50% of the costs Plaintiffs incurred while defending the Underlying Action. Def. Resp. Rule 56.1 ¶ 21.[3] In August 2015, shortly after receiving confirmation of coverage from Evanston, Plaintiffs moved to dismiss seven of the Board's claims as well as Basonas' crossclaims. Id. at ¶¶ 23-24; see also Leber Decl., Ex. J. In 2016, the Supreme Court granted Plaintiffs' motion to dismiss in part but declined to dismiss the Board's eighth cause of action (aiding and abetting) and Basonas' crossclaims. Leber Decl., Ex. L at 17- 18. In April 2017, the New York Appellate Division, First Department, affirmed the Supreme Court's dismissal of the six causes of action against Plaintiffs. Leber Decl., Ex. M. In August 2017, Plaintiffs and the Board then entered into a Stipulation of Discontinuance, which dismissed the aiding and abetting cause of action with prejudice, leaving only the two breach of contract claims (against FSR and FS Project Management). Leber Decl., Ex. N. In May 2019, Evanston representatives participated in efforts to settle the remaining claims, including preparing for and attending a mediation session, which was unsuccessful. Def. Resp. Rule 56.1 ¶ 30.
On June 10, 2020, Evanston informed Plaintiffs that it was disclaiming coverage and would no longer contribute to Plaintiffs' defense in the Underlying Action. Id. at ¶ 31; see also Leber Decl., Ex. R. According to Evanston, the remaining breach of contract claims allege intentional conduct, and therefore do not arise from a “wrongful act” as defined in the Evanston Policy. Leber Decl., Ex. R at 10-11. On June 24, 2020, Evanston advised Plaintiffs that it was disclaiming coverage with respect to Basonas' crossclaim as well. Leber Decl., Ex. S.
Plaintiffs filed this action on August 20, 2020 seeking a declaratory judgment that (1) Plaintiffs continue to be covered by the Evanston Policy; (2) Evanston has a duty to defend Plaintiffs in the Underlying Action; and (3) Evanston has a duty to indemnify Plaintiffs for all amounts which Plaintiffs become legally obligated to pay as damages in the Underlying Action. Complaint, Dkt. No. 1, ¶¶ 47-58. Plaintiffs also allege that Evanston's disclaimer of coverage breaches the policy terms and seek attorneys' fees, costs, and the expenses incurred in bringing this lawsuit. Id. at ¶¶ 59-66; Pl. Mem. at 22-23.
Summary judgment is appropriate where “there is no genuine issue as to any material fact” and “the moving party is entitled to a judgment as a matter of law.” Cortes v. MTA New York City Transit, 802 F.3d 226, 230 (2d Cir. 2015) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986)) (internal quotation marks omitted); see also Fed. R. Civ. P. 56(a). Material facts are facts that may affect the outcome of the case. Anderson, 477 U.S. at 248. An issue of fact is “genuine” when a reasonable fact finder can render a verdict in the nonmoving party's favor. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) () (internal quotation marks omitted). “[T]he court's responsibility is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party.” Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986).
“The party seeking summary judgment has the burden...
To continue reading
Request your trial