U.S. Liability v. Winchester Fine Arts Services, 03 Civ. 5003 VM.

Decision Date22 September 2004
Docket NumberNo. 03 Civ. 5003 VM.,03 Civ. 5003 VM.
Citation337 F.Supp.2d 435
PartiesUNITED STATES LIABILITY INSURANCE COMPANY, Plaintiff, v. WINCHESTER FINE ARTS SERVICES, INC., Utica National Insurance Group, Citi Capital Commercial Leasing Corp., Jason Denny, Lindon F. McKenzie and Michael D. Petrovich, Defendants.
CourtU.S. District Court — Southern District of New York

Alan E. Kleinberger, Steven Verveniotis, Miranda & Sokoloff, LLP, Mineola, NY, for Plaintiff.

Paul M. Schindler, Fieldman Hay & Ullman, LLP, New York City, Marisa Goetz, Faust, Goetz, Schenker & Blee, LLP, Keith Lawrence Kaplan, Block & O'Toole, New York City, for Defendants.

DECISION AND ORDER

MARRERO, District Judge.

Plaintiff United States Liability Insurance Company ("U.S. Liability") brings this diversity action against its insured, Winchester Fine Art Services, Inc. ("Winchester"); and Jason Denny and Lindon F. McKenzie (the "Claimants"). Also named as defendants are Winchester's primary insurer, Utica National Insurance Group ("Utica"); Citi Capital Commercial Leasing Corp.; and Winchester employee Michael D. Petrovich ("Petrovich"). U.S. Liability seeks a declaratory judgment to disclaim coverage for an underlying personal injury action now being litigated in New York State court that the Claimants brought against Winchester.

U.S. Liability has moved for summary judgment with respect to all of the claims and counterclaims at issue. Winchester and the Claimants oppose this motion and have responded with their respective cross-motions for summary judgment on all the claims. The crux of the parties' dispute centers on whether Winchester provided U.S. Liability with timely notice of the underlying personal injury action in accordance with the terms of Winchester's excess liability insurance policy with U.S. Liability (the "Excess Policy"). U.S. Liability asserts that notice was untimely under New York law and under the terms of the Excess Policy, and as such, it is entitled to disclaim coverage. Winchester responds that it did not provide notice sooner because it never formed a good-faith belief that the personal injury action would implicate the Excess Policy. Winchester argues that U.S. Liability was itself untimely in disclaiming coverage and should be precluded from so doing. The Claimants assert that U.S. Liability may not disclaim coverage because they (the Claimants) notified U.S. Liability of the claim after diligent efforts to discover the existence of the Excess Policy.

As discussed in greater detail below, the Court holds as a matter of law that: (1) Winchester failed to timely notify U.S. Liability of the underlying personal injury action in compliance with the terms of the Excess Policy and applicable New York law; (2) the Claimants did not cure Winchester's delay in notifying U.S. Liability; and (3) U.S. Liability properly denied coverage to both Winchester and the Claimants, and thus, did not waive its right to do so. Accordingly, the Court grants U.S. Liability's motion for summary judgment in its entirety and denies Winchester's and the Claimants' cross-motions for summary judgment in their entirety.

I. BACKGROUND1

The facts of this case are not materially in dispute. On April 9, 2001, Petrovich was driving an automobile for Winchester when he was involved in an automobile accident with the Claimants. At the time of the accident, Winchester was insured by a primary liability insurance policy issued by Utica that provided liability coverage up to $750,000. Winchester also was insured by the Excess Policy with U.S. Liability. The Excess Policy provided coverage for liability in excess of the primary policy limit, up to a maximum of $4 million. The notice provision of the Excess Policy provides as follows:

Notice of Occurrence, Claim, offense, or Suit

Whenever it appears that an occurrence, claim, offense, or suit is likely to involve payment under this policy, written notice shall be given to us or our authorized representative by you or your designated representative as soon as practicable.

(Affidavit of Mark Shockley, dated May 19, 2004, at Ex. A.) The Excess Policy also provides that U.S. Liability has the right to participate in the defense of any claim that may involve payment under the policy and that both Winchester and Utica must cooperate with U.S. Liability with regard to any such defense. (See id.)

By letter dated April 17, 2001, the Claimants notified Utica of the automobile accident and stated that they had incurred serious injuries therefrom. The letter also requested information on whether Winchester carried any excess or umbrella insurance. In a subsequent letter dated January 29, 2002, the Claimants informed Utica that they had undergone surgery for their injuries and requested that Utica produce a sworn statement with regard to whether Winchester carried excess liability insurance. The January 29 letter also provided information on a verdict in an unrelated case with similar injuries and noted that the amount of the jury's damage in the unrelated case exceeded Utica's coverage amount in this case. The letter further stated that the Claimants' injuries were serious, that Winchester was entirely liable for those injuries, and that the property damage arising from the accident was extensive.

On March 27, 2002, the Claimants initiated a personal injury action against Winchester, Citi Capital, and Petrovich in New York State Supreme Court, Bronx County for the injuries sustained in the accident (the "state court action"). In their complaint, the Claimants demanded $5 million each in compensation for their injuries.2 Utica is undertaking Winchester's defense in the state court action and has retained counsel in the matter (hereinafter "Winchester's trial counsel").

By letter dated April 17, 2002, the Claimants forwarded copies of their medical records to Utica. These records indicated that the Claimants had undergone surgery and described additional injuries sustained from the accident. For a third time, the Claimants requested that Utica provide information regarding excess insurance coverage and that if there were no such coverage, that Winchester provide a sworn statement to that effect. The letter further notified Utica of the commencement of the state court action and included a copy of the complaint. The record reflects that Utica did not respond to the Claimants' repeated requests for information regarding excess insurance coverage.

As part of discovery in the state court action, the Claimants issued a Notice To Produce to Winchester's trial counsel, dated November 13, 2002, that requested all information regarding any excess or umbrella coverage in effect at the time of the accident that may be available to satisfy all or part of any judgment that may be entered in the state court action. The Claimants also submitted a Bill of Particulars to Winchester's trial counsel on or about November 13, 2002 detailing the injuries they sustained in the accident and the concomitant surgeries that would be required.3 On or about January 24, 2003, the Claimants submitted a Supplemental Bill of Particulars that indicated that one of the Claimants' injuries would lead to osteoarthritis necessitating a knee replacement, and estimated that future medical costs for this Claimant alone would reach between $351,695 and $453,745, not including adjustments for inflation.

Following a preliminary conference in the state court action held on January 9, 2003, the state court issued a Preliminary Conference Order that erroneously indicated that Winchester had $1 million in primary insurance coverage. The Order did not indicate that Winchester owned an excess insurance policy. In response to this Order, Winchester's trial counsel later corrected the information regarding the coverage limit by indicating that the limit of its primary coverage with Utica was, in fact, $750,000. Again, Winchester's trial counsel did not mention that Winchester had an excess policy in place at the time of the accident.

By letter dated February 11, 2003, the Claimants again requested information regarding any excess insurance coverage from Winchester's trial counsel, including an affidavit if no such coverage existed. This request, like the previous requests, went unanswered. The February 11 letter also made reference to a telephone conversation the previous day between counsel for the Claimants and Winchester's trial counsel where they discussed excess coverage.

The correspondence regarding excess insurance coverage would not end there. By letter dated February 28, 2003, Frederick C. Aranki ("Aranki"), the principal trial attorney defending Winchester in the state court action, provided Utica with the last of several case status reports. In the February 28 report, Aranki stated that he was not aware of any applicable excess insurance policy carried by Winchester, and that he was in the process of preparing an affidavit from Winchester's president to so attest.4 No such affidavit is in the record. This representation regarding excess coverage was confirmed in a March 7, 2003 letter from the Claimants to Utica (with a copy to Aranki), which indicated that Aranki had informed counsel for the Claimants in a telephone conversation that there was no excess coverage in effect at the time of the accident and that an affidavit to that effect was forthcoming.5 The March 7, 2003 letter also described the extensiveness of the Claimants' injuries and the significant property damage to the vehicle.

By letter dated March 5, 2003, Winchester, through its general corporate counsel (hereinafter "Winchester's corporate counsel"), informed U.S. Liability of the state court action and forwarded copies of the Complaint and Summons.6 In this notice Winchester indicated that it had only recently been advised that the Claimants had stated that the claim would exceed the primary coverage amount, and thus, U.S. Liability was being notified "as a precaution." ...

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