Harleysville Worcester Ins. Co. v. Wesco Ins. Co.

314 F.Supp.3d 534

HARLEYSVILLE WORCESTER INSURANCE COMPANY, Plaintiff,

v.WESCO INSURANCE COMPANY, INC. et al., Defendants.

16-CV-7304 (AJN)

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

Signed March 28, 2018

Jeffrey Allen Beer, Jr., Tracey Kohl Wishert, Lance Jon Kalik, Riker, Danzig, Scherer, Hyland & Perretti, LLP, Morristown, NJ, for Plaintiff.

Alan S. Russo, Russo & Toner LLP, Jacob Jonathan Palefski, Kennedys CMK LLP, Max W. Gershweir, Law Office of Max W. Gershweir, New York, NY, Josh Hugh Kardisch, Kardisch, Link & Associates, P.C., Rockville Centre, NY, for Defendants.

MEMORANDUM OPINION & ORDER

ALISON J. NATHAN, District Judge:

After a truck carrying contaminated milk further contaminated several hundred thousand pounds of milk and cheese in a cheese-making plant, litigation ensued. The transport company that delivered the contaminated milk had an insurance policy with each of the parties to this action. Plaintiff Harleysville Worcester Insurance Company ("Plaintiff" or "Harleysville") defended its insured in the underlying litigation; Defendant Wesco Insurance Company, Inc. ("Defendant" or "Wesco") disclaimed coverage. In this case, Harleysville seeks reimbursement from Wesco for the costs to defend and indemnify the transport company, including the costs of settling the underlying actions. Now before the Court is Plaintiff's motion for summary judgment and Defendant's cross-motion to withdraw any deemed admissions.

For the reasons that follow, the Court GRANTS Plaintiff's motion for summary judgment and DENIES as moot Defendant's cross-motion to withdraw any deemed admissions.

I. BACKGROUND

The following facts are undisputed except as otherwise noted.

A. The Parties and the Insurance Policies

Plaintiff Harleysville and Defendant Wesco are both insurance companies and had issued policies to Bernard Thomas Sr. and Penny Thomas, business partners and co-owners doing-business-as M & T Transport ("M & T"). See Great Lakes Cheese of New York, Inc. v. Agri-Mark, Inc., No. 14-CV-232 (GTS), 2016 WL 5717337, at *3 (N.D.N.Y. Sept. 30, 2016). M & T is a hauler of milk and milk products for various milk suppliers. Id. at *2.

Harleysville issued M & T a commercial general liability policy for the policy period from November 1, 2012 through November 1, 2013, with limits of $1 million per occurrence. Statement of Undisputed Material Facts in Support of Harleysville's Motion for Summary Judgment ("Pl. 56.1"), Dkt. No. 52, ¶ 1; Declaration of Jeffrey A. Beer Jr. ("Beer Decl."), Dkt. No. 48, Ex. A. The Harleysville policy covers "those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies," but includes an exclusion for " ‘bodily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any insured." See Beer Decl., Ex. A, at I.1.a, I.2.g. The exclusion specified that "use" includes "operation and ‘loading or unloading.’ " Id. at I.2.g.

Wesco issued a commercial business auto policy to M & T for the policy period from January 20, 2013 through January 20, 2014, with limits of $1 million per occurrence. Pl. 56.1 ¶ 2; Beer Decl., Ex. B. The Wesco policy covers "all sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto.’ " Beer Decl., Ex. B, at II.A. The policy includes an exclusion for property damage involving "property owned or transported by the ‘insured’ or in the ‘insured's’ care, custody, or control." Id. at II.B.6.

B. The Precipitating Incident and the Underlying Actions

In June 2013, one of the milk trailers belonging to M & T was damaged in a roll-over accident while hauling milk. Defendant's Statement of Additional Material Facts ("SAMF"), Dkt. No. 64, ¶ 1.¹ M & T used Blue Grass Tank & Equipment ("Blue Grass") for repairs. SAMF ¶ 2. Upon the trailer's return after its repairs, Thomas Sr. directed an M & T employee to power-wash the trailer from within to remove any debris left from the repair. SAMF ¶ 5. This employee did not pull the valves off the service lines that run from the tanks to the rear of the trailer before he performed this cleaning. SAMF ¶ 6. Thomas Sr. saw "red dirt" coming out of the discharge manifold of the trailer, which he later stated was consistent with the work Blue Grass performed. SAMF ¶ 7.

By regulation, M & T is required to wash its trailers with brushes and a chlorinated cleaner before picking up milk. SAMF ¶ 8. Dairy plants wash the trailers' interiors prior to loading product, although this service can be performed at any dairy, whether or not the trailer is picking up milk there. SAMF ¶¶ 9-10. Whenever and wherever a trailer is washed, a "wash tag" is issued without which milk may not be picked up. SAMF ¶ 11. Thomas Sr. testified that he took the trailer to Queensboro Farm Products, Inc. ("Queensboro") for a machine wash and to receive a wash tag on August 12, 2013, however Queensboro's employees testified that the trailer was never washed there and that milk haulers often take their wash tags without having their trailers washed. SAMF ¶¶ 2-15. The absence of a wash tag is sufficient grounds to reject a trailer attempting to make a pickup or delivery. SAMF ¶ 17.

On August 14, 2013, M & T used the milk trailer to transport milk for the first time since the repairs were made. Pl. 56.1 ¶ 3. Agri-Mark, Inc. ("Agri-Mark") hired M & T to travel to Agri-Mark's facility, load milk into the milk trailer, and deliver the milk to Agri-Mark's customer, Great Lakes, at its cheese plant in Adams, New York. Pl. 56.1 ¶ 4. The milk delivered by M & T was unloaded through pipes into Great Lakes' plant and was mixed with other milk at the plant. Pl. 56.1 ¶ 5.

Shortly thereafter, a Great Lakes operator disconnected the lines through which milk was being pumped and observed what appeared to be debris. SAMF ¶ 24. Upon further investigation, Great Lakes determined that the contamination spread to other parts of their plant, including an entire cheese making line. Pl. 56.1 ¶¶ 5-6; SAMF ¶¶ 23-27. Great Lakes' "milk receiver" testified that he did not check for a wash tag, and the wash tag for the trailer was never located. SAMF ¶¶ 16, 18-19. Based on the contamination incident, Great Lakes submitted a claim to its comprehensive general liability carrier (which also happens to be Harleysville) for property damage totaling $957,650.21. Def. 56.1 ¶ 7.

After the incident, Great Lakes filed two actions, one in federal court and one in state court (together, the "Underlying Actions"). Pl. 56.1 ¶ 8. In the Underlying Actions, Great Lakes claimed damages of approximately $966,000 due to loss of cheese, milk, and other products at the plant, the cost of storage of the contaminated cheese, the cost of cleaning, sanitizing and inspecting the plant, the opportunity cost of plant down-time, and the diversion of milk as a result of the contamination. Pl. 56.1 ¶ 9; Beer Decl., Exs. C (state court complaint) & G (federal court complaint). In the state court action against M & T, Great Lakes also claimed continuing damages and sought reimbursement for the cost of storage, pre-judgment interest, attorneys' fees and punitive damages. Beer Decl., Ex. C. In the federal action, Great Lakes sued Agri-Mark, who, in turn, brought a third-party complaint against M & T. See Beer Decl., Exs. G & H (third-party complaint).

C. Defending M & T in the Underlying Actions

Harleysville was first notified of the contamination incident on August 20, 2013. By letter dated December 30, 2013, Harleysville notified M & T that it was investigating the claims. Beer Decl., Ex. N. After the Underlying Actions were filed, Harleysville wrote M & T again on April 15, 2014, disclaiming its duty to indemnify M & T, but stating that it would defend M&T "for the entire complaint." Id. at HWIC00645-HWIC00646. Harleysville agreed to provide M & T a defense in the Underlying Actions under a complete reservation of rights to deny coverage. Pl. 56.1 ¶ 14.

On or about September 23, 2013, M & T notified Wesco of the contamination incident. SAMF ¶ 34. By letter dated November 6, 2013, Wesco denied coverage to M & T for any liability arising out of the incident. Def. 56.1 ¶ 12; Pl. 56.1 ¶ 13; Beer Decl., Ex. M. At the time Wesco disclaimed coverage, the Underlying Actions had not yet been filed. See Beer Decl., Ex. M, at HWIC00675. The parties dispute when Wesco received notice of the Underlying Actions, which were filed on March 3, 2014 (federal court action), April 3, 2014 (third-party federal action) and December 17, 2015 (state court action). See First Amended Complaint, Dkt. No. 44, ¶¶ 10, 15, 20. Harleysville claims to have sent a copy of the third-party complaint against M & T to Wesco on April 14, 2014. Pl. 56.1 ¶ 16 (citing Beer Decl., Ex. P). Wesco claims it was not notified of any of the actions until January 19, 2016, when M & T's personal counsel transmitted a letter demanding that Wesco immediately assume M & T's defense and indemnification in both actions. SAMF ¶ 51 (citing Declaration of Josh H. Kardisch ("Kardisch Decl."), Dkt. No. 61, Ex. Q).

Represented by counsel hired by Harleysville, M & T asserted various affirmative defenses and cross-claims in the Underlying Actions arguing that Great Lakes or other defendants were responsible for the alleged harm. SAMF ¶¶ 41, 43-44. Bluegrass and Queensboro were dismissed from the Underlying Actions by stipulation on October 8, 2015 and January 8, 2016, respectively. SAMF ¶¶ 49-50.²

On April 29, 2016, Harleysville informed Wesco that it would commence a declaratory judgment action against Wesco unless Wesco agreed to cover M & T in the Underlying Actions. Beer Decl., Ex. R. Further, on October 14, 2016, Harleysville's counsel sent Wesco a letter...