Cohen Bros. Realty Corp. v. RLI Insurance Co.

Order, Supreme Court, New York County (Robert D. Kalish, J.), entered August 8, 2016, which granted plaintiff’s motion for summary judgment declaring that defendant RLI Insurance Company (RLI) is required to indemnify it for its damages and pay any outstanding reasonable attorneys’ fees and defense costs it incurred in defending an underlying action in excess of those legal fees and costs already paid by nonparty New York State Insurance Fund (SIF), and denied RLI’s cross motion for summary judgment, affirmed, without costs.

Plaintiff is the managing agent of a commercial office building located at 622 Third Avenue. Defendant RLI is plaintiff’s primary commercial general liability (CGL) insurance carrier.

On October 3, 2008, nonparty engineer David Vasquez fell and fatally hit his head while replacing tile in the drop ceiling of the building’s loading dock. On the date of the accident, plaintiff’^ vic-e president of management contacted plaintiff’s insurance broker for the CGL policy. She was advised by the broker that ¿he accident was a work-related fatality, and thus, a workers’/compensation matter. She was assured that the CGL policy was inapplicable and that “nothing further needs to be done.” (The CGL policy expressly excluded from coverage “[a]ny obligation of the insured under a workers’ compensation, disability benefits or unemployment compensation law or any similar law,” as well as bodily injury to “[a]n employee of the insured arising out of and in the course of: [a] [ejmployment by the insured; or [b] [p]erforming duties related to the conduct of the insured’s business.”) Neither the broker nor plaintiff notified RLI of the incident.

Plaintiff promptly notified its workers’ compensation carrier, the State Insurance Fund (SIF). SIF agreed to defend and indemnify plaintiff.

On March 6, 2009, the decedent’s administratrix obtained an order to show cause to conduct discovery for the purposes of “framing a complaint” against plaintiff sounding in negligence and violations of the Labor Law. Plaintiff gave notice to RLI.

By letter dated April 1, 2009, RLI denied coverage on grounds of late notice and Vasquez’s status as an “employee” at the time of the accident.

In May 2009, the decedent’s administratrix commenced an action against plaintiff. SIF defended plaintiff in the underlying lawsuit, and paid workers’ compensation benefits to Vasquez’s, estate. Plaintiff chose to retain its own counsel instead of SIF’s law firm. SIF contributed $150 per hour toward payment of Greenberg Traurig’s rate, with plaintiff paying the difference.

Following this Court’s decision in Vasquez v Cohen Bros. Realty Corp. (105 AD3d 595 [1st Dept 2013]), holding that issues of fact required trial of Cohen Brothers’ “special employer” defense, the Vasquez litigation was settled for $2.5 million. Plaintiff paid $1 million; its excess insurer paid the remaining $1.5 million. -

Plaintiff commenced this declaratory judgment insurance coverage action against its broker and RLI on or about July 26, 2011. The motion court granted plaintiff’s motion for a declaration that RLI was obligated to defend and indemnify it in the Vasquez litigation, and we now affirm.

Plaintiff’s delay in notifying RLI was due to a reasonable, good faith belief that Vasquez’s work-related fatality was outside the scope of the CGL policy, excusing the late notice (see Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d 742 [2005]).¹

In Tesler v Paramount Ins. Co. (220 AD2d 334, 334 [1st Dept 1995]), this Court held that the insureds demonstrated a “good-faith and reasonable belief” in their nonliability where the belief had been predicated upon the incorrect advice of their insurance agent. RLI’s argument that Tester is no longer good law is unpersuasive. National Union Fire Ins. Co. of Pittsburgh, Pa. v Great Am. E&S Ins. Co. (86 AD3d 425 [1st Dept 2011] ) explicitly distinguished Tester on the ground that in Tester “the insurance agent specifically advised the insured that there was no indication a claim could be brought against it,” whereas in National Union “there was no evidence that [the insured] was advised by any insurance agent as to nonliability” (id. at 427). Similarly, Macro Enters., Ltd. v QBE Ins. Corp. (43 AD3d 728 [1st Dept 2007]) did not involve a situation where an insured’s failure to timely notify an insurer was based on the incorrect advice of an insurance agent. The fact that National Union distinguished Tester confirms that it is “good law,” albeit inapplicable on the National Union facts.

RLI’s argument that the voluntary payment doctrine bars recovery of amounts paid to Greenberg Traurig in defense of the underlying claim is without merit. Having chosen to deny coverage and not participate in the defense, RLI “excluded itself from any aspect of the [p]laintiffs defense in the Vasquez estate’s action,” including the negotiation of attorneys’ fees and the selection of attorneys, as so found by the motion court, and cannot now be heard to complain. Plaintiff is entitled to recover attorneys’ fees incurred in defense of the underlying action as “damages which are the natural and probable consequence of the breach” by RLI of the contract of insurance (see e.g. Estate of Coppersmith v Blue Cross & Blue Shield of Greater N.Y., 177 AD2d 373, 374 [1st Dept 1991] [internal quotation marks omitted]).²

We reject defendant’s argument that the $150 per hour contributed by SIF acts as a ceiling on fees (see Sabre, Inc. v Insurance Co. of the State of Pa., 149 AD3d 589 [1st Dept 2017]). Any agreement between SIF and plaintiff as to fees has no bearing on RLI’s responsibility to provide a defense, save as it pertains to any eventual allocation of defense costs as between the two carriers (see generally General Motors Acceptance Corp. v Nationwide Ins. Co., 4 NY3d 451 [2005]). The record does not contain a copy of the SIF policy, so we are unable to make any determination as to whether the carriers share the costs of defense in equal parts as primary carriers, or whether defendant RLI is solely responsible. It may be noted that under RLI’s policy, competing primary insurers are to contribute on an equal basis.

Concur — Acosta, P.J., Renwick, Manzanet-Daniels and Webber, JJ.

1 . By amendment to the Insurance Law, effective January 17, 2009, applicable only to policies issued or delivered on or after that date, to deny coverage on the basis of untimely notice it is now necessary for the insurer to show that it was prejudiced as a result of the late notice (see Insurance Law § 3420 [a] [5]). The parties agree that this case falls under the former law.

2 . Indeed, in many jurisdictions an insured who is forced to bring a declaratory judgment action against its insurer is entitled to the legal costs associated with that action as well as the costs associated with the defense of the underlying action.