Aspen Specialty Ins. Co. v. 4 NYP Ventures LLC

162 F.Supp.3d 337

Aspen Specialty Insurance Company and Landmark American Insurance Company, Plaintiffs,

v.4 NYP Ventures LLC, Defendant.

13 Civ. 3367 (PAC)

United States District Court, S.D. New York.

Signed February 25, 2016

Daniel Markewich, Deanna Marie Manzo, Emilie Bakal, Jeffrey Steven Weinstein, Mound Cotton Wollan & Greengrass, New York, NY, for Plaintiffs.

Frederick Arthur Brodie, Anne Catharine Lefever, Matthew Francis Putorti, Matthew David Stockwell, Pillsbury Winthrop Shaw Pittman, LLP, New York, NY, Eric Gold, Geoffrey J. Greeves, James P. Bobotek, Peter M. Gillon, Pillsbury Winthrop Shaw Pittman LLP, Washington, DC, for Defendant.

OPINION & ORDER

HONORABLE PAUL A. CROTTY, United States District Judge:

In May 2012, Plaintiffs Aspen Specialty Insurance Company (“Aspen”) and Landmark American Insurance Company (“Landmark”) sold $40 million in excess flood loss coverage to Defendant 4 NYP Ventures LLC (“4 NYP”) in conjunction with Defendant's acquisition of an office building at 4 New York Plaza in flood-prone lower Manhattan. At the same time, Defendant procured $20 million in primary flood loss coverage by joining a preexisting master insurance policy issued by Factory Mutual Insurance Company (“FM”).

On October 29, 2012, Hurricane Sandy struck New York City, causing substantial damage to 4 New York Plaza. As of September 2014, Defendant claimed around $ 146 million in losses. Plaintiffs adjusted the claim to around $79 million. Plaintiffs have made partial payments on their $40 million in coverage; Defendant seeks the full amount.

The present motion is limited to one discrete issue: What is the applicable deductible for flood coverage under the FM master insurance policy and, as a result, the threshold level of losses at which Plaintiffs are liable under their excess policies? Plaintiffs seek a declaration that, since FM added the property to a list of “High Hazard Flood Locations,” a deductible of five percent of the property's value (here $19.2 million) applies. Defendant disagrees and counterclaims, seeking a declaration that the deductible is at most $100,000.

The parties cross-move for summary judgment. The Court holds that the applicable flood coverage deductible is $19.2 million, as Plaintiffs contend. The Court dismisses Defendant's First Affirmative Defense, which asserts that the deductible is $100,000; and Defendant's Fourth Affirmative Defense, which asserts that that a $19.2 million deductible would render coverage illusory. Plaintiffs' motion is GRANTED; Defendant's motion is DENIED.

BACKGROUND

I. 4 NYP acquires $20 million in flood coverage under the FM Master Policy

On May 22, 2012, Defendant acquired 4 New York Plaza (hereinafter “the property”). Def. 56.1 Stmt., Dkt. 87 ¶ 1. Prior to the date of acquisition, Defendant hired CBRE Group, Inc, (“CBRE”) to manage the property and Edge Financial Advisors (“Edge”) to procure property insurance. Id. 2; Pl. 56.1 Stmt., Dkt. 88 ¶ 16. Defendant's lender required $100 million in flood loss coverage for the property. Def. 56.1 Stmt. ¶ 3. To that end, Defendant directed Edge to initiate procedures to add the property as an insured location under CBRE's preexisting master property insurance policy with FM (the “FM Master Policy”), which covered hundreds of CBRE-managed properties. Id. ; Pl. 56.1 Stmt. ¶¶ 2, 5. The FM Master Policy contains the following deductible provision for flood coverage:

Exceptions to Policy Deductible(s)

* * *

E. Flood

USD100,000 for Property Damage and Time Element combined, per Occurrence except as respects Locations as described in Appendix F, the following will apply:

a) Property Damage—5% of the value, per the VALUATION clause of the LOSS ADJUSTMENT AND SETTLEMENT section, of the property insured at the Location where the physical damage occurred, per Location.

b) Time Element—5% of the full Time Element values that would have been earned in the 12 month period following the Occurrence by use of the facilities at the Location where the physical damage occurred and that proportion of the full Time Element values at all other Locations where TIME ELEMENT loss ensues that was directly affected by use of such facilities and that would have been earned in the 12 month period following the Occurrence, per Location.

c) The above Flood deductibles are subject to a minimum deductible of USD100, 000 for Property Damage and Time Element combined, per Location.

Dkt. 91, Ex. 4 at 16, 19.

On April 26, 2012, approximately four weeks before Defendant's acquisition, Edge sent an email to CBRE requesting that the property be added to the FM Master Policy. Pl. 56.1 Stmt. ¶ 18. CBRE referred the request to Aon Risk Services Northeast (“Aon”); thereafter Aon communicated directly with Edge. Id. ¶ 22. On May 14, 2012, Aon sent a quote to Edge stating that FM was willing to provide $20 million in flood coverage, rather than the $100 million it usually provided to CBRE buildings under the FM Master Policy. Dkt. 86, Ex. 11. The quote also provided: “Please note the deductibles for Flood Insurance. If property is located within the high hazard Flood zone the deductible is 5% of the property's replacement cost value subject to a $100,000 minimum deductible.” Id. at 3. The next day, Aon sent a revised quote, which set the property value at $384.2 million, consisting of $355.2 million in replacement value and $29 million in 12–month income, Dkt. 91, Ex. 17.

Edge (on Defendant's behalf) accepted the quoted terms and, on May 17, 2012, Aon sent Edge a certificate of insurance, confirming that the property was added to the FM Master Policy, effective May 22, 2012. Dkt. 85, Ex. E; Dkt. 86, Ex. 18. Defendant did not receive (and did not request) a copy of the FM Master Policy until after Hurricane Sandy. Pl. 56.1 Stmt. ¶ 75.

II. 4 NYP acquires $80 million in excess flood coverage

Since FM was willing to provide only $20 million in flood coverage, Edge sought to purchase an additional $80 million in flood coverage to satisfy the $100 million requirement set by Defendant's lender. Edge asked Aon to assist it in making these purchases. Def. 56.1 Stmt. ¶ 9. Aon obtained $30 million in flood coverage, in excess of the FM Master Policy coverage, from several non-party insurers (the “First–Layer Excess Insurers”). Id. ¶ 12. Aon obtained the final $50 million in flood coverage, in excess of the FM Master Policy and First–Layer Excess Insurers' coverage, from Aspen, Landmark and non-party Lloyds (the “Second–Layer Excess Insurers”); Aspen's policy covers $15 million, Landmark's policy covers $25 million, and Lloyds' policy covers $10 million. Id. ¶¶ 13, 14.

On May 21, 2012, the day before the acquisition, and prior to purchasing the excess flood coverage, Aon sent Edge authorizations of property insurance from the excess insurers, including Aspen and Landmark. Dkt. 86, Ex. 34. The authorizations state that the excess policies follow form to the primary FM Master Policy, unless otherwise provided. Def. 56.1 Stmt. ¶ 19. As to the applicable deductible under the FM Master Policy, some of the excess insurer authorizations simply refer back to the FM Master Policy itself. Dkt. 86, Ex. 34 at 9, 14, 26, 37. But others are more specific. The Landmark authorization provides: “This excess policy will require the primary to have at a minimum the following: 5.00% Per Occurrence (Property Damage & Time Element).” Id. at 43. The Lloyds authorization provides that the FM Master Policy deductible is “5% or $19,200,000.” Id. at 19. And the authorization for one of the First–Layer Excess Insurer provides for “primary deductibles of 5%.” Id. at 33.

The same day, Edge notified Aon to “bind as of May 22, 2012.” Dkt. 86, Ex. 35. The excess insurance policies were issued, effective May 22, 2012. Id. Defendant did not receive (and did not request) the excess insurance policies (including Plaintiffs' policies) until after Hurricane Sandy. Pl. 56.1 Stmt. ¶ 75.

III. FM issues General Change Endorsement No. 4

On occasion, FM issues endorsements to its FM Master Policy with backdated effective dates to, among other things, add or remove properties from the policy's Schedule of Locations and Appendix F for “High Hazard Flood Locations.” For example, on May 15, 2012, FM issued General Change Endorsement No. 1, which added 19 properties and removed 46 properties from the Schedule of Locations, and added one property to Appendix F. Dkt. 91, Ex. 4 at 106–12. On May 18, 2012, FM issued a similar General Change Endorsement No. 2. Id. at 113–14.

On August 17, 2012, FM issued General Change Endorsements Nos. 3 and 4. General Change Endorsement No. 4 (hereinafter “GCE 4”) added 4 New York Plaza to the Schedule of Locations, effective May 22, 2012, along with ten other properties. Id. at 117. It also added 4 New York Plaza to Appendix F and provided that the flood coverage limit for the property was $20 million (both effective May 22, 2012). Id. at 118–19. The same day, FM sent a copy of GCE 4 to Aon. Dkt. 86, Ex. 20. FM did not send or provide notice of GCE 4 to CBRE, Defendant, or Plaintiffs prior to Hurricane Sandy.

IV. Defendant's Hurricane Sandy claim

On October 30, 2012, Defendant notified CBRE and Aon of its Hurricane Sandy claim. Pl. 56.1 Stmt. ¶ 77. As of September 12, 2014, Defendant claimed $146,609,202 in losses. Id. ¶ 78. In August 2013, Plaintiffs prepared an adjusted claim of $79,515,518. Id. ¶ 79.

To date, Defendant has collected $79.5 million. FM paid $20 million, its limit under the FM Master Policy. Id. ¶ 80. The First–Layer Excess Insurers paid $30 million, their limit under the First–Layer Excess policies. Id. ¶ 81. The Second–Layer Excess Insurers, including Plaintiffs, paid $29.5 million of their $50 million in coverage. Id. ¶ 82. Defendant seeks the remaining $20.5 million from the Second–Layer Excess Insurers. Id.

DISCUSSION

I. Applicable Law

Summary judgment is appropriate where “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a...