Insurer’s Declaratory Relief Action on Duty to Indemnify Dismissed
The court granted the insured's motion to dismiss the insurer's action for a declaratory judgment on the issue of indemnity when the underlying action was still ongoing. Utica Mut. Ins. Co. v. Crystal Curtain Wall Sys. Corp., NYLJ LEXIS 3255 (N.Y. Sup. Ct. Dec. 1, 2023).
Crystal was a subcontractor to design and install window and curtain systems as well as terrace doors and a glass parapet in the construction of two mixed use residential and commercial buildings. After unit owners took possession, a significant rainstorm allowed water infiltration, causing property damage in the building including moldy conditions. The owners sued, asserting claims against Crystal for the cost of repair or replacement of the allegedly defective curtain wall, damage to personal property, diminution in value of the units, and delay damages consisting of increasing interest and carrying costs that allegedly resulted from delays in completion of the construction work.
Crystal tendered to Utica, who agreed to defend. Utica, however, filed for a declaratory judgment seeking to define the parameters of its duty to indemnify. Crystal moved to dismiss on the grounds that Utica's indemnification obligations were not yet ripe for determination. Utica insisted that its request for a declaration that "no coverage is available for the cost of repair or replacement of the curtain wall."
The court noted that whether the damage to the curtain wall necessitating its repair or replacement stemmed from defective design or installation of the wall itself (by Crystal or its subcontractors), or instead from defective work on other components of the building carried out by other parties. Therefore, Utica's request was not justiciable.
Utica also argued the "your product" and "your work" exclusions barred coverage. The "your product" exclusion barred coverage for "property damage to 'your product' arising out of it or a part of it." The record did not (yet) establish whether the damage to the curtain wall requiring its repair or replacement "arose out of it", i.e., from defects in the wall itself or arose instead from defects in other components of the building.
The "your work" exclusion barred coverage for "'property damage' to 'your work' arising out of it or any part of it" but not if the work was performed by a subcontractor. Again, it was not yet clear how the damage to the curtain wall arose, or what part of the work on the curtain wall was performed by Crystal itself, and what part by one or more subcontractors.
Utica's declaratory judgment claims were therefore unripe and not justiciable at this time. Utica's cross-motion for partial summary judgment on its curtain-wall claim was denied and Crystal's motion to dismiss was granted without prejudice.
Crystal also moved for reimbursement of its reasonable attorney fees incurred in defending the declaratory judgment action. Utica's declaratory judgment action caste Crystal in a defensive posture. There was no New York authority on awarding fees where the insurer defended, but challenged its duty to indemnify. The court concluded that a policyholder was entitled to attorney fees when it prevailed in the defense of an action brought by an insurer to challenge only the insurer's duty to indemnify.
