Lee v. Union Mut. Fire Ins. Co.

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FRED LEE and ANN LEE, Plaintiffs, v. UNION MUTUAL FIRE INSURANCE COMPANY, Defendant.

No. 20-CV-3191 (MKB)

United States District Court, E.D. New York

August 15, 2022

MEMORANDUM & ORDER

MARGO K. BRODIE, UNITED STATES DISTRICT JUDGE

Plaintiffs Fred and Aim Lee commenced this action against Defendant Union Mutual Fire Insurance Company on June 5, 2020, bringing claims for breach of contract and violation of section 349 of the New York General Business Law (“GBL”). (Compl. ¶¶ 61-81, annexed to Notice of Removal as Ex. A, Docket Entry No. 1-1.) Plaintiffs allege that Defendant wrongfully refused to cover fire damage at Plaintiffs' property after concluding from a “sham investigation!]” of the property that Plaintiffs had lied in their application for insurance. (Id. at ¶¶ 10, 14, 74.)

Plaintiffs move for summary judgment on their breach of contract claim^[1] and Defendant moves for summary judgment as to both claims.^[2] For the reasons set forth below, the Court grants Plaintiffs' motion for summary judgment on their breach of contract claim and denies Defendant's motion for summary judgment on Plaintiffs' breach of contract claim. The Court also grants Defendant's motion for summary judgment as to Plaintiffs' claim under section 349 of the GBL.

I. Background

Plaintiff Fred Lee has owned the property located at 39-11 27th Sheet Long Island City, New York (“the Property”) since July of 2013 and at all times pertinent to this action. (Pls.' Resp. to Def,s 56.1 Stmt. (“Pls.' 56.1 Resp.”) ¶ 15, annexed to Def.'s Mot., Docket Entry No. 36-20.) The Property has a two-bedroom apartment on the first floor, a two-bedroom apartment on the second floor and a finished basement. (Id. at ¶¶ 14 16-17.) The basement can be accessed directly from outside the building. (Id. at ¶ 22.)

a. Relevant insurance policies

On June 27, 2017, Plaintiffs completed an application for commercial insurance and submitted the application to Defendant. (Id. at ¶¶ 23-24; Def.'s Resp. to Pls.' 56.1 Stmt. (“Def.'s 56.1 Resp.”) ¶ 4, annexed to Pls.' Mot. as Ex. 17, Docket Entry No. 34-17.) Plaintiffs indicated on the application that the Property contained only two apartment units. (Pls.' 56.1 Resp. ¶¶ 25-26; Def.'s 56.1 Resp. ¶¶ 5-6.) Defendant issued the requested policy, covering the period from July 8, 2017 to July 8, 2018 (the “First Policy”). (Pls.' 56.1 Resp. ¶ 23.) It later issued a renewal insurance policy to Plaintiffs for the period from July 8, 2018 to July 8, 2019 (the “Second Policy”),^[3] (id. at ¶ 28), and a second renewal policy covering the period from July 8, 2019 to July 8, 2020 (“the Third Policy”), (id. at ¶ 30). Plaintiffs again represented on the second renewal application that the Property only contained two apartment units. (Id. at ¶ 31.) All three policies include the following language:

By accepting this policy, you agree:

a. The statements in the Declarations are accurate and complete;

b. Those statements are based upon representations you made to us; and

c. We have issued this policy in reliance upon your representations.

(First Policy 78, annexed to Aff. of James Lambert (“Lambert Aff”) as Ex. 1, Docket Entry No. 36-9; Second Policy 76, annexed to Lambert Aff. as Ex. 2, Docket Entry No. 36-10; Third Policy 76, annexed to Lambert Aff. as Ex. 3, Docket Entry No. 36-11.)^[4]

Roundhill Express, LLC (“Roundhill”), “acting as an agent of [Defendant], binds insurance policies on behalf of' Defendant. (Defs.' 56.1 Resp. ¶ 3.) Roundhill's underwriting guidelines state that “[e]ach new policy will undergo an inspection within [sixty] days of its effective date.” (Underwriting Guidelines 2, annexed to Pls.' Mot. as Ex. M, Docket Entry No. 34-16.) On July 11, 2017, Frederick Harper inspected the Property. (Def's 56.1 Resp. ¶¶ 1415; Lambert Aff. ¶ 77, annexed to Def's Mot., Docket Entry No. 36-8; Def's 56.1 ¶ 51.) Harper's report from the inspection includes photos of the outside of the building; the stairway; the electric and gas meters; and the building's heating source. (Inspection Report, annexed to Pls.' Mot. as Ex. F, Docket Entry No. 34-9; Lambert Aff. ¶¶ 81-82; Pls.' 56.1 Resp. ¶ 49; Defs.' 56.1 Resp. ¶ 17.)

b. Fire notification, inspection and cancellation of policies

On March 2, 2020, Plaintiffs' agent notified Defendant through Roundhill that a fire had occurred and a claim was being made under the Third Policy. (Pls.' 56.1 Resp. ¶ 6.) Roundhill hired Beltrani Consultants, Inc. (“BCI”) to assist in its investigation of the fire. (Id. at ¶¶ 7-8.) BCI produced a report signed by Harry Beltrani that stated that in addition to the apartments occupied by tenants on the first and second floors, the Property also had “a full finished basement [with] a separate entrance” that included “a living area, bedroom with a full bath and kitchen area.” (BCI Preliminary Report (“Beltrani Report”) 3, annexed to Lambert Aff. as Ex. 5, Docket Entry No. 36-13.)^[5] On April 15, 2020, BCI again inspected the Property. (Pls.' 56.1 Resp. ¶ 12.) hi the report it produced after this second inspection, BCI stated that it had established after its first inspection that there was “a full furnished apartment located in the basement area.” (BCI Proposed Adjustment Report (“Second Beltrani Report”) 3, annexed to Lambert Aff. as Ex. 6, Docket Entry No. 36-14.) The basement apartment was “not occupied at this time” but it was “clear that at minimal cost, the apartment can be tenant[-]occupied at any time.” (Id.) The report included a signed statement by Fred Lee, stating that he had owned the building for seven years, that no one had ever lived in the basement, and that he had “never made a structural change to the building or basement.” (Id. at 4.)

By correspondence dated May 19, 2020, Roundhill, on behalf of Defendant, disclaimed coverage for the March 2, 2020 fire loss and rescinded Plaintiffs' policy. (Disclaimer of Coverage/Notice of Rescission (“Rescission Letter”), annexed to Lambert Aff. as Ex. 8, Docket Entry No. 36-16.) The Rescission Letter stated that Plaintiffs had represented on their insurance application and both renewal applications that the Property “contained only two apartment units.” (Id. at 3.) However, the investigator had determined that there was also “a frill basement apartment that has a bedroom, living room, kitchen, bathroom, and separate entrance.” (Id.) Thus, Plaintiffs' statement that the Property only had two apartment units was “false and constitute[d] a material misrepresentation, which [was] a violation of [Plaintiffs'] policy terms.” (Id. at 3-4.) Tire letter further stated that Defendant “would not have issued this same policy to [Plaintiffs] had it known that the [Property] had three apartment units and not two.” (Id. at 4.) Defendant therefore “rescind[ed] the current policy of insurance and [Plaintiffs'] two prior policies ab initio.” (Id.)

c. Supreme court action and removal to the Eastern District of New York

On June 5, 2020, Plaintiffs fried suit in the Supreme Court of the State of New York, Queens County, alleging that Defendant had “wrongfully denied coverage, refused to make payment and rescinded the commercial policy in bad faith.” (Compl. ¶ 14.) Plaintiffs brought two causes of action, breach of contract and violation of section 349 of the GBL, and sought damages “believed to be in excess of five hundred thousand dollars ... along with consequential damages” for each cause of action. (Id. at ¶¶ 61-81.) On July 16, 2020, Defendant removed the action to the Eastern District of New York under diversity jurisdiction. (Notice of Removal, Docket Entry No. 1.)

d. James Lambert's deposition and subsequent affidavit

Plaintiffs deposed James Lambert, President of Roundhill Express, LLC, (Lambert Aff. ¶ 1), on May 4, 2021, (Dep. of James Lambert (“Lambert Dep.”), annexed to Pls.' Mot. as Ex. D, Docket Entry No. 34-7). He testified that Defendant and Roundhill do not have “guidelines ... which relate to the definition of an apartment unit as the term is utilized in an application for insurance” and that Roundhill does “not draw a distinction between legal or illegal units.” (Id. at 33:15-34:11.) Mr. Lambert was asked what “constitutes the definition of an apartment.” (Id. at 34:12-13.) He replied: “Do you want my definition; do you want the most recent court decision definition? I mean my definition doesn't really matter here.” (Id. at 34:15-17.) He testified that Roundhill “do[es not] have a definition” of “apartment” but rather “ask[s] how many apartments are there.” (Id. at 34:21-22.) Mr. Lambert stated that he personally “considers] places in which people reside to be apartments,” but added that his “personal definition is not material here, it's how courts define apartments.” (Id. at 34:25-35:4.) He then clarified that “[i]f it's capable of someone residing there, it's an apartment.” (Id. at 35:8-11.) Mr. Lambert testified that Roundhill does not “interpret the question” about apartment units, “we simply ask the question,” (id. at 36:13-14), and added that he believed that the number of apartment units in the building is “a fairly clear question,” (id. at 37:4-6).

In a subsequent affidavit dated October 22, 2021, Mr. Lambert claimed that “[h]ad Roundhill been accurately advised on the [Plaintiffs' applications that the [Property]... actually contained three apartment units, rather than two apartment units. Roundhill would not have issued” the policies that it did to Plaintiffs. (Lambert Aff. ¶ 69.) Instead, “[h]igher premiums would have been charged to insure a three-apartment building than the premiums that were assessed.” (Id. at ¶ 70.)

On December 3, 2021, Plaintiff moved for summary judgment on its breach of contract claim. (Pls.' Mot.) On December 8 2021, Defendant moved for summary...