Mave Hotel Inv'rs LLC v. Certain Underwriters at Lloyd's London

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WAVE HOTEL INVESTORS LLC, Plaintiff, v. CERTAIN UNDERWRITERS AT LLOYD'S LONDON, et al., Defendants.

No. 21-CV-08743 (JSR)

United States District Court, S.D. New York

April 10, 2023

MEMORANDUM ORDER

JED S RAKOFF, U.S.D.J.

This case involves the claims of plaintiff Mave Hotel Investors ("Mave") against its property insurer Certain Underwriters at Lloyd's London ("Lloyd's") for property damage Mave contends occurred at its hotel following the termination of its contract with Acacia Network Housing ("Acacia") to house families with children. After briefing and argument on Lloyd's motion for summary judgment, the Court entered a bottom-line order on February 17, 2023 denying in large part Lloyd's motion, although granting it with respect to any claim by Mave for consequential or punitive damages. See 2/17/23 Order, Dkt. 118. This Memorandum Order sets forth the reasons for that decision.

I. Background

Mave owns a small hotel on 28th Street and Madison Avenue in Manhattan, New York with 74 guest rooms.^[1] For three years from October 2017 through October 2020, Mave was under contract with Acacia to provide temporary housing to homeless families and their children. That contract was ultimately terminated by October 2020. Mave claims that its rooms were badly damaged before the families housed under the Acacia contract left. It has separately sued Acacia in New York State court for this damage, alleging that it paid $1.4 million to make needed repairs.

Mave also submitted a claim for these repairs to Lloyd's, from which it had obtained a general property insurance policy effective from January 29, 2020 through January 28, 2021. Lloyd's denied coverage on the ground that any damage was in fact caused by ordinary wear and tear -- a category explicitly excluded from coverage under Mave's policy. Mave subsequently sued Lloyd's for its failure to provide coverage. The case was initially assigned to Judge Torres.

U.S Bank National Association ("U.S. Bank"), which contends it holds the mortgage to Mave's physical property and that it is entitled under Mave's property insurance policy to the proceeds of a claim for property damage, moved to intervene in this case, a motion which both Mave and Lloyd's opposed. Magistrate Judge Cott, to whom the matter was initially referred, recommended granting the motion, finding that U.S. Bank had adequately asserted an interest in the litigation, although not resolving the merits of its rights to any proceeds. See 8/16/22 Report and Recommendation, Dkt. 68. That recommendation was accepted by Judge Torres. See 9/22/22 Order, Dkt. 78. U.S. Bank then filed a complaint, seeking a declaratory judgment that Lloyd's is obliged to pay it under the policy and that that Lloyd's breached its contract by not paying, and a declaratory judgment for lost "business income" at Wave's hotel. U.S. Bank Compl. ¶¶ 23-37, Dkt. 82. The case was subsequently reassigned from Judge Torres to the undersigned prior to summary judgment briefing and argument.

Lloyd's moved for summary judgment on three primary grounds. First, it argued that Wave failed to adduce any evidence demonstrating that its loss occurred during the relevant policy period. Defs. Mem. Supp. SJ at 11-13, Dkt 103. Second, it argued that Wave failed to provide timely notice of its claimed damages. Id. at 13-15. Third, it argued that Mave failed to rebut Lloyd's expert testimony demonstrating that any loss was caused by ordinary wear-and-tear explicitly excluded from coverage under the policy. Although it is a close call as to Lloyd's' first and third arguments, the Court ultimately concludes that disputes of fact exist that preclude entry of summary judgment in Lloyd's' favor at this stage. However, the Court agrees that Mave cannot recover consequential or punitive damages.

I. Whether evidence exists showing that some loss occurred during the 2020 policy period.

Lloyd's first argues that Mave failed to introduce evidence demonstrating that its loss occurred in the 2020 policy period (January 29, 2020 - January 29, 2021) (the "Policy Period"). See Weintraub v. Great N. Ins. Co., No. 21-cv-07965, 2022 WL 17993903, at *2 (S.D.N.Y. Dec. 29, 2022) ("Under New York law, an insured bears the burden of demonstrating that a loss occurred during the period covered by the relevant policy."). Lloyd's cites deposition testimony from Wave's property manager, Sol Chakalo, testifying that he discovered new damage to Wave's hotel rooms throughout the entire 2017-2020 period that Acacia occupied the policy, not just in the 2020 Policy Period. See, e.g., Liebowitz Deci., Ex. L (Dkt. 99-20) (Chakalo) 73:10-13 (Q: "Every year they occupied the hotel, you notified them of alleged damages to the hotel?" A: "Yes."); Id. 72:9-11 (Q: "Did you discover damages to the hotel property from 2017 onward?" A: "Yes."). Lloyd's accordingly argues that the damage Wave is claiming -- reflected in photographs taken by Chakalo following Acacia's vacating the Wave hotel -- might reflect damages occurring before the Policy Period.

Wave responds that the damage occurred "as a matter of law" within the Policy Period. Mave Mem. Opp. SJ at 18, Dkt. 106. It relies primarily on a declaration submitted by Fred Velastegui, who asserts he was working at Mave Hotel from July 2017 through October 2020 as its director. See Velastegui Deci. ¶ 2, Dkt. 107. Valestegui claims that he and Mave's property manager Chakalo regularly received reports from the hotel's housekeeping staff about damage to hotel rooms after the hotel cleaning staff cleaned it, that the damage relevant to this lawsuit "was first reported by the housekeeping staff in late September 2020 or early October 2020," that he "had not seen any of the damage before," and that he "believe[s] that . . . all of that damage occurred in the period from early September 2020 through early October 2020." Id. ¶ 7. Mave further argues that because it performed regular repairs that were inspected by New York twice per year, it is implausible to think the relevant damage occurred outside the Policy Period. Mave Mem. at 19. Further, Mave argues that it is plausible to think that all the damage occurred immediately before Acacia vacated the hotel as families were disgruntled they would have to move. Id. Mave finally points out that Lloyd's also has not introduced evidence as to when the damage occurred. Id.

Lloyd's argues that the Court should ignore the Velestegui declaration because Velastegui was not included in Lloyd's' Rule 26(a) disclosures, even though he identifies himself in his declaration as the "Hotel Director." Velastegui Deci. ¶ 2. Mave responds that any failure to disclose Velastegui was harmless - and that, therefore, this Court should not exclude his testimony under Fed.R.Civ.P. 37 (c) - because one of the witnesses Mave did identify as a hotel manager described Velastegui in his deposition testimony as "[a] site manager" with the "same responsibilities" as him. See Liebowitz Deci., Ex. L (Chakalo) 57:2-3.

It is a close call whether this fairly brief reference was sufficient to put Lloyd's on notice of Velastegui's involvement such that consideration of his affidavit at this stage would not be prejudicial, especially since the disclosed hotel manager (Chakalo) also testified that Velestegui had "[n]ot really" "perform[ed] periodic inspections of the rooms." Id. 101:13-15. However, the Court need not decide this issue because it concludes, relying solely on Chakalo's testimony, that a genuine dispute of fact exists as to whether at least some portion of Mave's loss occurred during the policy period. Specifically, Chakalo testified that he reported incidents of damage caused by Acacia's guests "[e]very year [Acacia] occupied the hotel." Liebowitz Deci., Ex. L (Chakalo) 72:16-73:13. The implication is that while some (and perhaps most) of the damage Mave now claims may have occurred prior to the Policy Period, there were incidents of damage in 2020 that might fall under the policy. Id. Based on this testimony, the Court concludes that Mave has just barely met its burden to adduce evidence that at least some loss occurred during the 2020 Policy Period. At trial, the parties will of course be free to argue over precisely how much occurred during the Policy Period, and it will be Mave's burden to demonstrate that any claimed loss occurred during the relevant period.^[2]

II. Lloyd's' late-notice defense was waived

Lloyd's also argues that judgment should be entered in its favor because Mave failed to give it "prompt notice" of its loss as required under its policy. It is undisputed that Mave learned of at least some of the damage it is asserting in this case by September 2020, when housekeepers reported it to Hotel Property Manager Sol Chakalo. Liebowitz Deol., Ex. L (Chakalo) 81:5-13; Mave Rule 56.1 Counterstatement ¶ 60. It is likewise undisputed that Lloyd's was not notified of any damage until January 6, 2021 -- more than at least three months later. Compl. ¶¶ 16-18. New York courts routinely hold that periods shorter than this 3-month delay suffice to create grounds to deny coverage where the policy has a similar "prompt notice" requirement. See, e.g., Am. Ins. Co. v. Fairchild Indus., Inc., 56 F.3d 435, 440 (2d Cir. 1995) ("Under New York law, delays for one or two months are routinely held unreasonable."); Am. Home Assur. Co. v. Republic Ins. Co, 984 F.2d 76, 78 (2d Cir. 1993) (finding notice was untimely as a matter of law where the delay was at least 36 days, and collecting cases New York cases describing notice as late given similar delays).

Indeed both in its papers and at oral argument, Mave has largely conceded that it did not provide prompt notice as a matter of law. Instead, it argues that Lloyd's waived this...