Vexations in a veterinary clinic: Allegations of flooding, sewage, and other events within the policy period trigger duty to defend and reimburse

New York Marine and General Insurance Company v. Eastman Cooke & Associates et al., 152612/2014 (Sup.Ct. New York Cty. July 10, 2020)

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A New York court has rejected an insurer's claim that it had no duty to defend its insured in an underlying action because of evidence in deposition testimony and allegations in a Bill of Particulars that placed damage outside of the insurers' policy period.

The insurer's action concerned insurance coverage for an underlying action in which a veterinary clinic and its owner/operator alleged that they sustained property damage and business interruption in a series of events relating to a construction project in a commercial space located above the premises they rented. The veterinarians sought compensatory damages, and other relief, from the owners of the building who, in turn, impleaded others involved in the construction of a medical facility for another tenant in the building.

The insurer (NYM) sued its insured, a contractor that worked at the premises, and one of the contractor's other general liability insurers, seeking a declaratory judgment that it had no duty to defend or indemnify the contractor in the veterinarians' action. NYM argued that there was no coverage for property damage under the policy because the evidence in the veterinarians' action showed only property damage that occurred before the inception, and after the expiration, of the NYM policy. NYM also argued that claims for Constructive Eviction and Breach of Contract are not covered under its policy. Defendants sought a declaration that NYM must defend its insured in the veterinarians' action, and must reimburse the defendant insurer on a 50/50 basis. Defendants contended that the allegations of the underlying Complaint, in themselves, created a duty to defend, and that none of NYM's purported defenses to coverage were sufficient to eliminate any possibility of coverage. The parties conducted discovery while veterinarians' action went forward but, eventually, made opposing motions for summary judgment.

In its motion, NYM contended that there was no property damage within the NYM policy period (4/15/11 to 4/15/12), based upon several items of evidence and admissions by the veterinarians. It pointed to responses to demands for Bills of Particulars; deposition testimony on two occasions; and a Damage Claim list setting for damages reimbursed by the veterinarians' first party property insurer. Also, NYM contended that the property insurer paid claims for damages within the relevant period, so that no property damages for the period are recoverable in the underlying action. NYM contended that the alleged property damage that is asserted falls outside (after) its period and within the policy period that follows. Defendants moved contending that there was a broad duty to defend based upon the allegations of the Complaint.

In a decision by Justice Francis A. Kahn, III, the Court agreed that the allegations of the Complaint created a duty to defend, and plaintiff did not show that the claims were outside of coverage, or had been paid by insurance. Though not extensively discussed in the Decision, the Complaint in the underlying veterinarians' action alleged a set of events beginning in June 2011 referred to as the "Later 2011 Devastation". Among other things, the veterinarians alleged that, in late June and early July 2011, there was flooding into the veterinarians' space from a leak in the pipe flowing from the toilet in the second floor bathroom. They informed the building owners about the leak and requested that a second floor bathroom be immediately blocked off so that the workmen could not use it. Alternatively, they asked the building owners to immediately have the pipe fixed. The owners allegedly insisted that there was no problem with the pipe and refused to close off the bathroom. The Complaint further alleged that, the veterinarians' kitchen area, back office and oxygen closet were flooded with human waste from the second floor bathroom. They alleged additional flooding that occurred on or about July 18, 2011, and two floods that occurred in August 2011. Flooding allegedly occurred in multiple areas of the premises, including the treatment room, the prep room and the back office. By November, 2011, the Complaint alleged, the problem included sewage bubbling up through the drains in the sinks and the dishwasher. It was further alleged that, "On November 5, 2011, fecal matter poured out of the sinks and dishwasher, in the Premises, flooding the floor. In addition, there was no heat in the Premises. [Plaintiffs] had been telling the super about this problem for a week. [They were] forced to call Rotorooter and pay for it [themselves] because [they] couldn't operate the Hospital. All week [they were] using Draino and mopping up waste and replacing fly tapes. ... Rotorooter snaked the second floor bathroom 50 feet down and put a camera down and found an object that was several inches wide and was clogging the line. [They] had to pay the bill and replace the dishwasher and clean up the mess [themselves]. [They] could not see any appointments when this was happening." The veterinarians' Complaint further alleged that due to this sewage issue, the premises was infested by sewage flies beginning in July 2011. The Later 2011 Devastation also included damage to a new floor installed in the premises during the repairs the leaking sewage pipe. They alleged that their phone and computer were rendered inoperative in this period due to work done above the premises. Other allegations included power outages and obstruction of the entrance to of the premises due to the Defendant's workmen tearing up the sidewalks with jackhammers. The veterinarians alleged they lost clients and business income as a result of the Later 2011 Devastation. On or about March 28, 2013, a Third-Party Action was commenced against NYM's insured. The Third-party Complaint asserts claims for common law contribution or indemnification, contractual indemnity, and breach of contract for failure to procure insurance. The Third-party Complaint alleged that NYM's insured was engaged to act as general contractor or construction manager to perform construction / renovation work at the premises. The Third-party Complaint alleged that if Plaintiffs sustained damages other than through their own conduct, "such damages were caused in whole or in part by and due to negligence, carelessness and/or culpable conduct of [the insured], its agents, servants and/or employees".

The Court granted the defendant insurer's motion to the extent that it declared that NYM is required to defend the insured in the veterinarians' action, to contribute to costs equally, and to reimburse the defendant insurer for fees and costs incurred to date. The Court also rejected NYM's argument that the veterinarians' claims for constructive eviction and breach of contract are not covered. It found allegations of property damage as defined by the NYM policy, and, to the extent that loss of use was alleged only after the policy period, the policy deems loss of use to occur at the time the physical injury that caused it occurred. The Court agreed that the competing Other Insurance clauses render the policies co-primary, with responsibility to share fees and costs.

The Court denied that part of the defendants' motion for a declaration concerning the duty to indemnify. The Court would not grant that relief due to the unresolved state of the veterinarians' action, and remaining issues of fact.

AGF&J partner Thomas R. Maeglin represented the defendant insurer and briefed its motion for summary judgment.


Thomas R. Maeglin

Practice Areas

Insurance Coverage