DENISE COTE, District Judge:
This complex litigation arises out of the construction of a 785,000 square-foot vertical campus (the "Building") for Baruch College ("Baruch"), part of the City University of New York ("CUNY"), between 1998 and 2002.
The instant litigation has already been the subject of numerous Opinions by this Court, including, among others, Travelers Cas. & Sur. Co. v. Dormitory Auth., No. 07 Civ. 6915(DLC), 2008 WL 1882714 (S.D.N.Y. Apr. 25, 2008); Travelers Cas. & Sur. Co. v. Dormitory Auth., No. 07 Civ. 6915(DLC), 2008 WL 2567784 (S.D.N.Y. June 25, 2008); and In re G.M. Crocetti, Inc., No. 08 Civ. 6239(DLC), 2008 WL 4601278 (S.D.N.Y. Oct. 15, 2008). Familiarity with all prior proceedings is assumed, and only the facts relevant to the pending motions are outlined herein. These facts, taken from the parties' evidentiary submissions on summary judgment, are undisputed or construed in the light most favorable to Travelers.
Defendant Dormitory Authority-State of New York ("DASNY") acted on CUNY's behalf as "owner" of the construction project ("the Project").
In order to carry out its work under its two prime contracts, Trataros entered into subcontracts with numerous entities, including G.M. Crocetti Inc. ("Crocetti"). On September 18, 1998, Trataros contracted with Crocetti for the latter to install, among other things, some portion of the epoxy terrazzo flooring. This epoxy terrazzo was to be installed on top of the concrete subfloor previously installed by another prime contractor, Shroid Construction Inc.
Due to design or construction errors, some portions of the concrete subfloor were insufficiently level to allow for the installation of the epoxy terrazzo flooring directly on the concrete subfloor. Accordingly, and with approval from TDX, DASNY issued Change Order No. GC2-028 on or about April 16, 2000 to compensate Trataros for the additional cost of installing a "`self-leveling' floor fill" (the "Underlayment") on top of the concrete subfloor on the third through fourteenth floors of the Building. The purpose of the Underlayment was to level the concrete subfloor and render it suitable for Crocetti to install the epoxy terrazzo flooring. Together, the concrete subfloor, Underlayment, and epoxy terrazzo constitute the epoxy terrazzo flooring system (the "Flooring System").
On May 8, 2000, Bartec submitted a written proposal to Trataros to furnish and install the Underlayment in the Building. On May 12, Trataros accepted Bartec's bid and issued Purchase Order No. 16780 (the "Purchase Order") directing Bartec to "furnish and install `self leveling' floor fill from the 3rd floor through the 14th floor in accordance with [the May 8] Bartec Industries, Inc. proposal."
Bartec began installing the Underlayment in or about July 2000. The primary material used by Bartec was "Conflow,"
By January 2001, problems with the completed Flooring System began to manifest in the Building. Hollow spots were detected in the Underlayment, and the epoxy terrazzo was not properly binding to the Underlayment. On January 26, 2001, Crocetti's Terrazzo Manager sent a letter advising Trataros of certain problems that Crocetti had discovered with the Underlayment (the "January 26 Letter"). The January 26 Letter states, in pertinent part:
On February 28, 2001, TDX sent a letter to Trataros ("the February 28 Letter") noting that TDX had observed, on specific floors, "areas where the terrazzo flooring installation has separated from the substrates" and "areas of delamination of the layers of the conflow floor fill." The February 28 Letter directed Trataros to provide TDX with, inter alia, "[a] survey of the entire terrazzo installation for any other areas of uplift"; "[a] survey of the remaining exposed conflow installation for delamination"; and the results of a "core sample[]" test that Trataros had just performed. The February 28 Letter further directed that Trataros should "[a]dvise [TDX] as to the reason for the separation of the terrazzo and the delamination of the conflow"; "[a]dvise [TDX] as to the planned steps to be taken for remediation"; and conduct all remediation "in accordance with manufacturers authorization and A/E [architect's/engineer's] approval."
In late February 2001, a Conspec representative visited the Building to inspect the problems with the Flooring System (the "Flooring Failure"). In a letter from Conspec to Trataros dated March 1, 2001 ("the March 1 Letter"), Conspec referenced two "area[s] of concern" based on its site visits. First, Conspec identified problems in a "small portion of the lobby area" on the Building's thirteenth floor, where it observed that the "terrazzo flooring has come loose" and that "[t]he area of Conflow that is now exposed exhibits a powdery, loose surface not suitable for any type of flooring material." The March 1 Letter speculated that "some type of contamination, foreign substance, or environmental condition affected the floor after the material application, thereby compromising the surface," and recommended that "the area be ground back to a solid surface before proceeding with a reapplication of the flooring system."
The "second area of concern" identified by Conspec was "the overall depth to which Conflow can be installed." Conspec advised that "[its] literature calls for a maximum depth per lift 1 [inch]," while "[s]everal areas on the project will need material installed at a depth many times
Throughout February, March, and April 2001, large areas of the Flooring System were repaired. According to repair tickets submitted by the parties, the areas repaired during this time were on the 5th, 6th, 8th, 11th, and 13th floors. During these repairs, loose Underlayment and terrazzo were removed, and new Underlayment and terrazzo were installed.
The upper floors of the Building opened for use by Baruch on or about August 27, 2001. Nonetheless, repairs to the Flooring System continued to be made from about November 2001 to about February 2002. In or about January 2002, Bartec finally completed its installation of the Underlayment at the Project.
Various parties to this litigation have produced expert reports regarding the nature, extent, and potential causes of the Flooring Failure. The experts' findings are inconsistent, and questions of material fact remain for trial regarding the extent of the alleged damage as well as who is responsible for that damage. Although the question of insurance coverage is a matter of law suitable for review on summary judgment, the coverage inquiry depends in part on the nature and extent of the damage for which coverage is sought. Therefore, without crediting the testimony of any particular expert(s), the expert reports are considered for their general descriptions of the Flooring Failure that allegedly occurred.
DASNY's expert report, prepared by Simpson Gumpertz & Heger on March 20, 2009 (the "SGH Report"), contains an extensive description of the Flooring Failure. The SGH Report observes, in part:
The SGH Report concludes:
The SGH Report also observes, with respect to "[coring] sample B3" taken from the Building, that "[s]ome concrete residue is retained on the bottom side of the [epoxy] membrane," while "the top surface of the concrete either has a thin layer of underlayment in some areas or has been lightly abraded." Bartec's expert report, prepared by CTLGroup (the "CTL Report"), similarly concludes that "[d]ebonding of the epoxy terrazzo system is widespread, occurring on all floor levels of the building, and is occurring at locations with and without underlayment."
The two expert reports submitted by Travelers—one prepared by Cashin Spinelli & Ferretti, LLC (the "CSF Report"), and the other prepared by Hichborn Consulting Group (the "HCG Report")—each criticize the SGH Report as potentially overstating the extent of the Flooring Failure. Nevertheless, for the purpose of the instant motions, the more extensive findings of Flooring Failure made by the SGH Report will be assumed true for the purposes of determining whether any insurance coverage may potentially be obtained.
On August 1, 2007, Travelers commenced this action asserting breach-of-contract and subcontractor pass-through claims against DASNY and claims of negligence against TDX and KPF.
These defects are alleged to have been "caused by defective workmanship and inappropriate materials provided by Trataros and its subcontractors and suppliers, who, among other things," failed to follow the installation procedures prescribed by the contract documents and by Conspec, the Conflow manufacturer. The Third-Party Complaint asserts that "remediation of the defective epoxy terrazzo" will cost at least $13 million and that Trataros is "contractually
After several waves of pleadings, on April 8, 2008, Travelers filed an amended fourth-party complaint against a subcontractor, two material suppliers, and almost a dozen insurance companies, including the Insurers (the "Fourth-Party Complaint"). Travelers' fourth-party claim against the Insurers seeks "declaratory relief that coverage exists as to [DASNY's and TDX's] claims" as well as "complete indemnification and/or compensatory damages, to the full extent of such coverage, together with counsel fees and costs."
After being impleaded in the fourth-party action, the Insurers each moved for summary judgment on the grounds that Trataros had failed to comply with contractual notice-of-claim deadlines, thereby relieving the Insurers of any obligation to provide coverage. In a series of separate Orders, the Court determined that the CGL policies issued to Bartec by Harleysville, Ohio Casualty, and Assurance were governed by New Jersey law. Because New Jersey law requires a showing of prejudice before an insurance company may deny coverage on late-notice grounds, the Insurers' motions for summary judgment were denied.
On February 19, 2010, Harleysville, Ohio Casualty, and Assurance each again moved for summary judgment, this time asserting that Trataros is not entitled to insurance coverage on various other grounds. These motions became fully submitted on April 2, 2010.
Summary judgment may not be granted unless all of the submissions taken together "show that there is no genuine issue as to any material fact and that the movant is
Once the moving party has asserted facts showing that the non-movant's claims cannot be sustained, the opposing party must "set out specific facts showing a genuine issue for trial," and cannot "rely merely on allegations or denials" contained in the pleadings. Fed.R.Civ.P. 56(e); see also Wright v. Goord, 554 F.3d 255, 266 (2d Cir.2009). "A party may not rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment," as "[m]ere conclusory allegations or denials cannot by themselves create a genuine issue of material fact where none would otherwise exist." Hicks v. Baines, 593 F.3d 159, 166 (2d Cir.2010) (citation omitted). Only disputes over material facts—"facts that might affect the outcome of the suit under the governing law"—will properly preclude the entry of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (stating that the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts").
Each of these three motions concerns the interpretation of insurance policies governed by New Jersey law. "An insurance policy is a contract that will be enforced as written when its terms are clear in order that the expectations of the parties will be fulfilled." Flomerfelt v. Cardiello, 202 N.J. 432, 441, 997 A.2d 991 (2010) ("Flomerfelt"). "In considering the meaning of an insurance policy," the court must "interpret the language according to its plain and ordinary meaning." Id. (citation omitted). "If the terms are not clear, but instead are ambiguous, they are construed against the insurer and in favor of the insured, in order to give effect to the insured's reasonable expectations." Id. at 996; see also Royal Ins. Co. of Am. v. KSI Trading Corp., 563 F.3d 68, 73-74 (3d Cir.2009) ("KSI") (describing New Jersey law on interpreting ambiguities in insurance contracts); President v. Jenkins, 180 N.J. 550, 563, 853 A.2d 247 (2004) (noting that the reasonable-expectations doctrine "applie[s] to all forms of insurance contracts," including commercial liability policies).
Where the terms of an insurance policy are ambiguous, the presumption in favor of the insured applies "even if a close reading might yield a different outcome or if a painstaking analysis would have alerted the insured that there would be no coverage." Flomerfelt, 997 A.2d at 996 (citation omitted).
Harleysville issued Contractors Business Owners Policy No. CB-8E8397 to Bartec for consecutive one-year policy periods beginning in May 26, 2002 (the "Harleysville Policy"). Included with the Harleysville Policy is Additional Insured Endorsement Form # CG-7167 (ed. 01/95) (the "Harleysville Endorsement"). The Harleysville Endorsement provides, in pertinent part:
(Emphasis added). Harleysville moves for summary judgment on the basis that, inter alia, Trataros does not qualify as an "additional insured" under Bartec's policy because no certificate of insurance showing Trataros as an additional insured was issued and received by Harleysville prior to the date of loss.
Trataros has failed to adduce any evidence that would satisfy this contractual condition precedent. Indeed, it is undisputed that no certificate of insurance was ever issued to Trataros or received by Harleysville.
Travelers makes two arguments for why Harleysville should provide coverage notwithstanding the fact that no certificate of insurance was issued. First, Travelers asserts that because "Harleysville has fully participated in the litigation since early 2005" and "has been fully able to investigate and study the floor" at the Building, Harleysville has suffered no prejudice from Trataros's failure to proffer a certificate of insurance. This argument is without merit. Travelers has cited no authority for the proposition that this type of condition precedent in an insurance contract may be disregarded under New Jersey law simply on the grounds the insurance company was given the opportunity to participate in "discovery and depositions."
Second, Travelers asserts that the Harleysville Endorsement is ambiguous and therefore must be construed strictly against Harleysville. Although it does not explain why it believes the Harleysville Endorsement is ambiguous, it cites a New York case, Erie Ins. Group v. Nat'l Grange Mut. Ins. Co., 63 A.D.3d 1412, 883 N.Y.S.2d 601 (3d Dep't 2009) ("Erie"), in which the Appellate Division concluded in dicta that a similarly phrased policy was ambiguous.
The Harleysville Endorsement is not ambiguous. The only natural construction of the Endorsement is to regard "written or oral construction contract or agreement" as a single unit of meaning, not as two separate units comprising "written or
Further, Travelers' reliance on the doctrine of strict construction against the insurer is misplaced. A court may not engage in semantic gymnastics in order to create ambiguity and construe a policy against the insurer. "New Jersey caselaw does not require that [the court] credit every conceivable deconstruction of contractual language, but rather instructs that the doctrine of ambiguity should be invoked only to resolve genuine ambiguities, not artificial ambiguities created by semantical ingenuity." KSI, 563 F.3d at 73 (citation omitted); see also Flomerfelt, 997 A.2d at 996 (noting that "a court should not engage in a strained construction to support the imposition of liability" on an insurer (citation omitted)); Villa v. Short, 195 N.J. 15, 26, 947 A.2d 1217 (2008) ("We will not search for ambiguities where there are none."); Polarome Int'l, Inc. v. Greenwich Ins. Co., 404 N.J.Super. 241, 259, 961 A.2d 29 (App.Div.2008) ("Polarome") ("[A]n ambiguity does not arise simply because the parties have offered two conflicting interpretations.").
Even if Trataros qualified as an "additional insured," however, it would still not be entitled to coverage under the Harleysville Policy. The Harleysville Endorsement provides, in pertinent part:
(Emphasis added). Bartec ceased its work installing the Underlayment on Trataros' behalf no later than January 2002, some four months before the Harleysville Policy took effect. While Travelers argues that the "continuous trigger" doctrine should
Ohio Casualty issued two policies to Bartec, each of which was valid between May 26, 2001 and May 26, 2002: a primary "contractors liability" insurance policy (No. BHO 52849621) and a "commercial umbrella" policy (No. BXO 52849621) (jointly, the "Ohio Casualty Policy"). The Ohio Casualty Policy is accompanied by an endorsement entitled "General Liability Master Pak for Artisan Contractors," Form CG 84 15 07 99 (07/99), which includes a "blanket additional insured" provision (the "Ohio Casualty Endorsement").
In moving for summary judgment, Ohio Casualty asserts, inter alia, that the damage for which Travelers seeks coverage was "known" by Trataros prior to the policy period and is thereby excluded from coverage by a known-injury-or-damage amendment accompanying the Ohio Casualty Policy (the "Known-Injury Amendment"). The Known-Injury Amendment provides, in pertinent part:
(Emphasis added). It follows from the foregoing policy provisions that, if an insured party became aware by "any ... means" that "property damage" had "occurred or ha[d] begun to occur" prior to the inception of the "policy period," then that insured may not seek coverage for that property damage, even if such damage "continu[es], change[s] or resum[es]" during the policy period.
Because Trataros became aware prior to the beginning of the policy period that damage to the Flooring System had occurred or had begun to occur, Trataros cannot seek coverage for the Flooring Failure under the terms of the Ohio Casualty Policy. The undisputed facts reveal that Trataros was put on formal written notice of this damage through the February 28 Letter in which TDX advised Trataros of "areas where the terrazzo flooring installation has separated from the substrates" and "areas of delamination of layers of the conflow floor fill."
Travelers makes three arguments in opposition. First, it argues that the Known-Injury Amendment relates only to what Bartec, not Trataros, knew, because any references to "you" in the Ohio Casualty Policy refer to the named insured (Bartec) rather than to the additional insureds. This argument cannot succeed. The Known-Injury Amendment indicates that coverage is provided only if "no insured listed under Paragraph 1. of Section II— Who is an Insured" knew of the property damage. Section II, in turn, was amended to include Trataros pursuant to the "blanket additional insured" provision contained within the Ohio Casualty Endorsement.
Second, Travelers argues that the Known-Injury Amendment in the Ohio Casualty Policy should be construed in accordance with the "known-risk" or "known-loss" doctrine under New Jersey
This argument, too, cannot succeed. As discussed and construed in Columbus Farmers Market, LLC, the known-loss doctrine is a "common law concept" that courts read into insurance policies in order to prevent an insured from recovering for loss or damage that the insured already knew about at the time it procured insurance. Id. The doctrine reflects, in essence, a public policy judgment that a party should not be able to purchase insurance to cover losses that one has already incurred. The known-loss doctrine applies in the absence of a known-injury-or-damage provision in the contract itself. The Ohio Casualty Policy, by contrast, contains an explicit known-injury-or-damage endorsement. As such, the known-loss doctrine does not apply here, and at any rate, cannot be used to defeat the unambiguous contrary intent of the parties as reflected in the policy language itself.
Third, Travelers argues that the Known-Injury Amendment is an "unlawful attempt to abrogate the `continuous trigger' doctrine" and should be struck from the Ohio Casualty Policy. Travelers relies on Spaulding Composites Co., Inc. v. Aetna Casualty & Insurance Co., 176 N.J. 25, 819 A.2d 410 (2003) ("Spaulding"), a case in which the New Jersey Supreme Court refused to enforce a "non-cumulation clause" in an insurance contract on the grounds that it was repugnant to public policy. Id. at 42-44, 819 A.2d 410. The struck clause, however, was not a known-injury-or-damage exclusion, but rather, a "limit of liability" clause providing that the insurer would construe "all personal injury and property damage arising out of continuous or repeated exposure to substantially the same general conditions" as "arising out of one occurrence." Id. at 29, 819 A.2d 410. The Known-Injury Amendment contained in the Ohio Casualty Policy, by contrast, deals not with the determination of when or how many "occurrences" have happened, but rather, the insureds' knowledge at the time the insurance policy was purchased. As such, Spaulding does not support Travelers' argument.
Assurance was Bartec's CGL insurer for six consecutive annual periods between May 26, 1995 and May 26, 2001. The
The Assurance Policy further provides:
It is undisputed that Trataros became an "insured" within the meaning of the Assurance Policy on June 28, 2000, when the Purchase Order became fully executed. Therefore, in order for Travelers to recover from Assurance, the claimed damage would have to have occurred between June 28, 2000 and May 26, 2001, the date that the Assurance Policy expired.
Like the other two Insurers, Assurance moves for summary judgment on various grounds, including, inter alia, that certain exclusions contained in the Assurance Policy bar coverage. Assuming without deciding that claims of defective workmanship may constitute an "occurrence" resulting in "property damage,"
"Exclusionary clauses are presumptively valid and are enforced if they are specific, plain, clear, prominent, and not contrary to public policy." Flomerfelt, 997 A.2d at 996 (citation omitted); see also Nav-Its, Inc. v. Selective Ins. Co. of Am., 183 N.J. 110, 119, 869 A.2d 929 (2005). Exclusions "must be narrowly construed," and "the burden is on the insurer to bring the case within the exclusion." Flomerfelt, 997 A.2d at 997 (citation omitted). "[I]f there is more than one possible interpretation" of the policy exclusion, "courts apply the meaning that supports coverage rather than the one that limits it." Id. Nevertheless, "courts must be careful not to disregard the clear import and intent of a policy's exclusion," id. (citation omitted), and "far-fetched interpretation[s] of a policy exclusion will [not] be sufficient to create an ambiguity requiring coverage." Id. (citation omitted). Ultimately, "courts must evaluate whether, utilizing a fair interpretation of the language, [the policy exclusion] is ambiguous." Id.
Assurance asserts that three exclusions—Exclusion j(5), Exclusion j(6), and Exclusion m—combine to bar coverage. The terms of these exclusions, as provided in the Assurance Policy, are as follows:
These exclusions include various terms defined in Section V of the Assurance Policy. "Property damage" includes both "[p]hysical injury to tangible property, including all resulting loss of use of that property" and "loss of use of tangible property that is not physically injured." "Your work" is defined as including, in pertinent part, "[w]ork or operations performed by you or on your behalf" and "[m]aterials, parts or equipment furnished in connection with such work or operations." "Impaired property" is "tangible property, other than `your product' or `your work', that cannot be used or is less useful because," inter alia, "[i]t incorporates `your product' or `your work' that is known or thought to be defective, deficient, inadequate or dangerous," provided that "such property can be restored to use by [][t]he repair, replacement, adjustment or removal of `your product' or `your work.'"
The first two exclusions, Exclusions j(5) and j(6), relate to property damage arising out of the named insured's work but occurring before the named insured has completed its work. Exclusion j(5) bars coverage only for damage to real property occurring during "ongoing operations,"
These three exclusions, jointly read, are fatal to Travelers' coverage claim. Travelers seeks coverage for alleged "property damage" to "that particular part" of property which (1) Bartec was then "performing operations" upon, and/or which (2) "must be restored, repaired, or replaced" because Bartec's work was "incorrectly performed on it." The alleged damage to the concrete subfloor, Underlayment, and epoxy terrazzo on the third through fourteenth floors where Bartec worked falls squarely within the meaning of "property damage" to "[t]hat particular part" of the Building.
Travelers argues in opposition that, at a minimum, there exists a genuine issue of material fact regarding the scope of the business-risk exclusions because the defective installation of the Conflow may have also damaged either the concrete subfloor or the epoxy terrazzo. This argument is without merit for reasons already discussed above. Exclusion j(5) excludes "property damage" not merely to the Underlayment, but rather, to "that particular part of real property" on which Bartec was contemporaneously performing operations: the Flooring System. Likewise, Exclusion j(6) excludes "property damage" to "that particular part of any property" that must be "restored, repaired, or replaced" because Bartec's work was "incorrectly performed on it." Exclusion m excludes "property damage" to any "impaired property" arising out of "defect[s], deficienc[ies], inadequac[ies], or dangerous condition[s]" in Bartec's work. In sum, these provisions exclude not only damage to Bartec's work, but also many kinds of closely related damage, including all of the damages alleged in the Third-Party Complaint for which Travelers seeks coverage, defense, and/or indemnification. As such, Travelers' claims against Assurance must be dismissed.
The February 19, 2010 motions for summary judgment by Harleysville, Assurance, and Ohio Casualty are granted. Harleysville, Assurance, and Ohio Casualty are dismissed as parties from this litigation.
SO ORDERED.
883 N.Y.S.2d at 603. The court concluded, however, that the insured was not entitled to coverage under either interpretation. As such, the court did not resort to the rule of strict construction against the insurer, and the above discussion is dicta.
