Watchhill Consultants, LLC v. ACE USE Ins. Co.

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WATCHHILL CONSULTANTS, LLC, the estate of MARTIN ROTHMAN, AARON SELIGSON, MARC WOLFE, and MEHRAN BASSALI, Plaintiffs, v. ACE USE INSURANCE COMPANY, ASPEN SPECIALTY INSURANCE COMPANY, THE BURLINGTON INSURANCE COMPANY, CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON SUBSCRIBING TO CERTIFICATE NOS. GL2015C0000002-040946 & GL2016C0000003-040946, CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON SUBSCRIBING TO CERTIFICATE NO. GL2016C0000003-040947, LEXINGTON INSURANCE COMPANY, ALLIED WORLD ASSURANCE COMPANY, JAMES RIVER INSURANCE COMPANY, and PRAETORIAN INSURANCE COMPANY, Defendants.

No. CV 21-2512 (DG)(AYS)

United States District Court, E.D. New York

February 15, 2023

REPORT AND RECOMMENDATION

Anne Y. Shields United States Magistrate Judge

Before the Court, on referral from the Honorable Diane Gujarati, is Defendant James River Insurance Company's motion to dismiss Plaintiffs' Complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiffs oppose the motion. For the following reasons, this Court respectfully recommends that Defendant's motion be granted in part and denied in part.

BACKGROUND

The facts set forth below are drawn from Plaintiffs' Complaint and the attachments thereto. They are construed, as required in the context of the present motion, in Plaintiffs' favor.

This action arises out of the filing of a putative class-action lawsuit commenced in July 2019 in State of Connecticut Superior Court, Case No. HHD-CV-19-6115255-S (the “Underlying Action”) in which the putative lead plaintiffs allege, inter alia, that they suffered bodily injury at a four-building housing complex, known as Barbour Gardens (the “Premises”), located in Hartford, Connecticut. (Compl. ¶ 2.) Adar Hartford Realty (“Adar”) and certain of its members, including Plaintiffs herein, were named as defendants in the Underlying Action. (Id. ¶¶ 1-2.)

The Defendant insurance companies herein (the “Insurers” or “Defendants”) all issued various commercial general liability, excess and umbrella insurance policies to Adar, providing coverage to Adar subject to each policy's terms. (Id. ¶ 25.) Each of the insurance policies provides coverage for Adar as the named insured and each of the members of Adar qualify as an insured under each policy. (Id. ¶¶ 26-27.) Each of the policies issued covers among other things, those sums that an insured is legally obligated to pay as damages because of “bodily injury” or “property damage,” as those terms are defined in each policy. (Id. ¶ 28.) Each of the policies require the respective defendant Insurer issuing the policy to defend its insureds in connection with claims that are potentially covered under each policy. (Id. ¶ 29.) Specific to the within motion James River Insurance Company (“James River”) first issued Commercial General Liability Policy Number 00077921-0 to Adar, effective from June 20, 2017 to June 20, 2018. (Def. Not. of Mot. Ex. C.) James River also issued Commercial General Liability Policy Number 00092830-3 to Adar, effective June 17, 2019 to September 17, 2019. (Def. Not. of Mot. Ex. B.) The Court will refer to the two James River insurance policies herein as the “Policies.”

On or about July 23, 2019, Plaintiffs herein were named as defendants in the Underlying Action. (Id. ¶ 30.) The Underlying Action alleges that Plaintiffs herein are liable for injuries incurred by residents at the Premises, including, but not limited to, physical injuries, emotional distress, and loss of use of property. (Id. ¶¶ 32-33.) Specifically, the complaint in the Underlying Action (the “Class Action Complaint”) alleges as follows:

• Barbour Gardens is a “project-based Section 8” complex intended to provide safe, decent, and sanitary housing to low-income families;

• ADAR is a domestic limited liability company, made up of Plaintiffs herein as well as other unnamed individuals and entities, who purchased Barbour Gardens in 2004;

• Since its purchase, ADAR and its members have ignored their legal obligation to maintain the Premises, allowing conditions to deteriorate into a public health emergency;

• The conditions at Barbour Gardens include electrical problems, heat problems, ceiling leaks, broken and leaking kitchen and bathroom fixtures, broken and malfunctioning windows, soft and rotting flooring, moisture incursion, sewage backup, hazardous air quality, and infestations of toxigenic mold species, bacteria, fungi, dust mites, mice and bedbugs such that the Premises are defective, dangerous and hazardous to their health and safety;

• Due to the unlivable conditions at the Premises, the residents were directed to find new places to live;

• Injuries and damages alleged to have occurred include:

o Physical injuries from the effects of living in housing polluted by fungi, mold, dust, mildew, dust mites, and bacterial exposure;

o Emotional distress from living in unsafe and unlivable conditions;

o Loss of families' household belongings as a result of water damage; and,

o Constructive eviction.

(Class Action Complaint, annexed to Compl. at Ex. A, and 2d Am. Class Action Complaint, annexed to Def. Not. of Mot. at Ex. D.)

Plaintiffs herein provided notice of the Underlying Action to all defendant Insurers. (Compl. ¶ 34.) The Insurers have not and are not providing defenses for Plaintiffs in the Underlying Action. (Id. ¶ 35.)

Plaintiffs commenced the within action on May 5, 2021, alleging claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Plaintiffs seek a declaratory judgment that Defendants are obligated to defend and indemnify them in connection with the Underlying Action, as well as damages. Certain Defendants - Lexington Insurance Company, Allied World Assurance Company, and Praetorian Insurance Company - have been terminated from this action by voluntary dismissal. (Docket Entry (“DE”) [68], [70], [81].) The remaining Defendants, with the exception of James River, have all filed Answers to Plaintiffs' Complaint. (DE [55], [60], [67], [104].) James River now seeks to dismiss Plaintiffs' Complaint, as alleged against it, for failure to state a claim upon which relief may be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiffs oppose the motion.

DISCUSSION

I. Legal Standard

“To survive a motion to dismiss [pursuant to Rule 12(b)(6)], a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “Facial plausibility” is achieved when “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable of the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). As a general rule, the Court is required to accept all of the factual allegations in the Complaint as true and to draw all reasonable inferences in the plaintiff's favor. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Town of Babylon v. Fed. Hous. Fin. Agency, 699 F.3d 221, 227 (2d Cir. 2012).

“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements . . . are not entitled to the assumption of truth.” Iqbal, 556 U.S. at 678-79 (citation omitted); see also Twombly, 555 U.S. at 555 (stating that a court is “not bound to accept as true a legal conclusion couched as a factual allegation”). “While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations,” which state a claim for relief. Iqbal, 556 U.S. at 679. A complaint that “tenders ‘naked assertion[s]' devoid of ‘further factual enhancement'” will not suffice. Iqbal, 556 U.S. at 678 (quoting Twombly, 555 U.S. at 557).

While the facts to consider in the context of a Rule 12 motion to dismiss are generally limited to those set forth in the pleadings, a court may consider matters outside of the pleadings under certain circumstances. Specifically, in the context of a Rule 12(b)(6) motion, a court may consider: (1) documents attached to the complaint as exhibits or incorporated by reference therein; (2) matters of which judicial notice may be taken; or (3) documents upon the terms and effect of which the complaint “relies heavily” and which are, thus, rendered “integral” to the complaint. Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002); see also Int'l Audiotext Network, Inc. v. Am. Tel. and Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995). Applying these principles here, the Court has considered the documents annexed to Plaintiff's Complaint and Defendant's motion to dismiss in rendering this Report and Recommendation.

II. New York Insurance Law Principles^[1]

“Under New York law, ‘an insurance contract is interpreted to give effect to the intent of the parties as expressed in the clear language of the contract.'” RSUI Indemn Co. v. RCG Grp. (USA), 890 F.Supp.2d 315, 323 (S.D.N.Y. 2012) (quoting Parks Real Estate Purchasing Grp. v. St. Paul Fire & Marine Ins. Co., 472 F.3d 33, 42 (2d Cir. 2006)) (additional citations omitted). “Where, as here, an insurer ‘claims that an exclusion in the policy applies to an otherwise covered loss,' the ‘insurer bears the burden of proof' to demonstrate that the exclusion applies.” RSUI, 890 F.Supp.2d at 325 (quoting Morgan Stanley Grp., Inc. v. New England Ins. Co., 225 F.3d 270, 276 n.1 (2d Cir. 2000)). To do so, the insurer “must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case.” RSUI, 890 F.Supp.2d at 325 (quoting Inc. Vill. of Cedarhurst v. Hanover Ins. Co., 89 N.Y.2d 293, 298 (1996)). “Policy exclusions ‘are not to be extended by...