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THE UNAMBIGUOUS INSURANCE POLICY DID NOT INCLUDE COVERAGE FOR LOSS OF BUSINESS INCOME AND THE POLICY MUST BE ENFORCED AS WRITTEN (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the coverage unambiguously described in an insurance policy must be enforced as written and there is no coverage for anything, here loss of business income, which is not explicitly described in the contract:

… [T]he insurance contract unambiguously does not include coverage for actual loss of business income. The contract provides coverage “as described and limited” for certain categories of loss “for which a Limit Of Insurance is shown in the Declarations.” Actual loss of business income, however, is neither described nor limited by the declarations. Thus, there is no actual loss of business income coverage “by reason of ‘lack of inclusion’ “… , and “the policy as written could not have covered the liability in question under any circumstances” … . Downstairs Cabaret, Inc. v Wesco Ins. Co., 2020 NY Slip Op 05637, Fourth Dept 10-9-20

 

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PLAINTIFF HOMEOWNERS’ ACTION AGAINST THE INSURER FOR BREACH OF CONTRACT, FRAUD AND NEGLIGENCE SHOULD HAVE BEEN DISMISSED; PLAINTIFF ACKNOWLEDGED THE HOME WAS VACANT WHEN THE POLICY WAS PURCHASED AND AT THE TIME OF THE FIRE AND THE POLICY EXCLUDED COVERAGE FOR VACANT PROPERTY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the insurer’s motion for summary judgment in this “disclaimed coverage” case should have been granted. Plaintiff homeowner acknowledged the home had been vacant and was vacant at the time of the fire. Plaintiff’s allegation that the insurance agent was aware the house was vacant when the policy was purchased was rejected because plaintiff was deemed to have read the policy (which excluded coverage for vacant property):

The defendants demonstrated, prima facie, that the policy only provided coverage if the premises were used as a residence by the plaintiffs and that the plaintiffs never resided at the premises during the policy period … . * * *

“The element of justifiable reliance is ‘essential’ to any fraud claim” … . Here, the defendants established, prima facie, that any reliance by [plaintiff] on an alleged misrepresentation made by [the insurance agent] was not justifiable since [plaintiff] testified that he received a copy of the policy when it was issued in August 2010, and again in 2011, when it was renewed … . …

The defendants made a prima facie showing of their entitlement to judgment as a matter of law dismissing [the negligence] cause of action by submitting evidence which demonstrated that [plaintiff] only made a general request for homeowner’s insurance, and did not specifically request coverage for premises that were not owner occupied … , and that no special relationship existed between the parties … . Waknin v Liberty Ins. Corp., 2020 NY Slip Op 05551, Second Dept 10-7-20

 

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PLAINTIFF WAS A THIRD-PARTY BENEFICIARY OF THE CONTRACT WITH THE ARCHITECTS; THEREFORE THE ARCHITECTURAL MALPRACTICE ACTION ACCRUED WHEN THE CONSTRUCTION WAS COMPLETE, RENDERING THE ACTION TIME-BARRED (FOURTH DEPT).

The Fourth Department determined the architectural malpractice action accrued when the construction was complete, despite the fact that plaintiff was not a party to the contract with the architects. Therefore the action was time-barred. The court noted that Supreme Court should have settled the record on appeal by including the transcript of the motion to dismiss the complaint as well as the accompanying memorandum of law to demonstrate preservation of the issues for appeal:

Before breaking ground on the project, plaintiff entered into an agreement with an engineering firm, pursuant to which the engineering firm agreed to provide professional engineering services on the project. The engineering firm, in turn, entered into a contract with defendant, pursuant to which defendant agreed to provide professional architectural services on the project.  * * *

A claim against an architect accrues upon the completion of performance … . “This rule applies ‘no matter how a claim is characterized in the complaint’ because ‘all liability’ for defective construction ‘has its genesis in the contractual relationship of the parties’ ”  … . “Even if the plaintiff is not a party to the underlying construction contract, the claim may accrue upon completion of the construction where the plaintiff is not a ‘stranger to the contract,’ and the relationship between the plaintiff and the defendant is the ‘functional equivalent of privity’ ” … .

Despite the lack of privity between plaintiff and defendant, plaintiff was “not a stranger to the contract” … . Indeed, we conclude that plaintiff was an intended third-party beneficiary of the contract … . * * *

Because plaintiff “is not a ‘stranger to the contract,’ ” its professional malpractice cause of action accrued upon completion of performance by defendant … . Town of W. Seneca v Kideney Architects, P.C., 2020 NY Slip Op 05323, Fourth Dept 10-2-20

 

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THE MERE PRESENCE OF A REINSTATEMENT CLAUSE IN THE MORTGAGE, WHICH ESSENTIALLY ALLOWS A BORROWER IN DEFAULT TO PAY THE ARREARS AND STOP THE ACCELERATION OF THE DEBT, DOES NOT AFFECT OR IMPEDE THE ACCELERATION OF THE DEBT WHEN A FORECLOSURE ACTION IS STARTED; THE DEBT HERE WAS ACCELERATED WHEN THE FIRST FORECLOSURE ACTION WAS COMMENCED IN 2009 RENDERING THE INSTANT FORECLOSURE ACTION TIME-BARRED (FOURTH DEPT).

The Fourth Department, in a full-fledged opinion by Justice Curran, agreeing with the Second Department, determined the mere presence of reinstatement clause in a mortgage, which allows a borrower who has missed payments to pay the amount of the missed payments and resume monthly payments, does not affect or impede the acceleration of the debt when a foreclosure action is brought. Therefore the foreclosure action at issue was time-barred:

The mortgage is a uniform instrument issued by Fannie Mae, among others, for use in New York State and contains several provisions that are relevant on appeal. Section 22 (acceleration provision) permits the lender to require immediate payment of the loan in full upon the borrower’s default, provided certain conditions are met. Section 19 (reinstatement provision) grants a borrower in default the right to effectively de-accelerate the maturity of the mortgage debt by paying in full the past due amount, thereby returning the loan to its pre-default status. * * *

… [W]e conclude that the mortgage’s reinstatement provision does not in any way affect or impede acceleration of the full mortgage debt. The reinstatement provision is not mentioned anywhere in the text of the mortgage’s acceleration provision, which governs when Fannie Mae could exercise its option to accelerate the full debt … . Further, the language of the reinstatement provision “indicates that [Fannie Mae’s] right to accelerate the entire debt may be exercised before the [borrower’s] rights under the reinstatement provision . . . are exercised or extinguished” … . Thus, in effect, the reinstatement provision merely “gives the borrower the contractual option to de-accelerate the mortgage when certain conditions are met” … —which presupposes that an acceleration has already occurred. Federal Natl. Mtge. Assn. v Tortora, 2020 NY Slip Op 05410, Fourth Dept 10-2-20

 

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THE RELEASE DID NOT APPLY TO THE ALLEGATIONS OF FRAUD IN THE INDUCEMENT AND THERE WAS A QUESTION OF FACT WHETHER PLAINTIFFS JUSTIFIABLY RELIED ON THE ALLEGED MISREPRESENTATIONS; THE FRAUD IN THE INDUCEMENT CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determine plaintiffs’ action for fraud in the inducement should not have been dismissed. The release did not require dismissal and there was a question of fact whether plaintiffs justifiably relied on the alleged misrepresentations:

… [D]efendants failed to meet their initial burden of establishing, as a matter of law, that the release barred plaintiffs’ claims that they were fraudulently induced to enter the liquidation agreement by misrepresentations that defendants made in violation of their obligations thereunder … . …

… [D]efendants’ own submissions establish that plaintiffs “made a significant effort to protect themselves against the possibility of false financial statements: they obtained representations and warranties to the effect that nothing in the financials was materially misleading”… , i.e., that [defendant] had no material liabilities beyond those disclosed in the financial statements and no circumstances existed that could reasonably be expected to result in such a material obligation. Thus, “[i]f plaintiffs can prove the allegations in the complaint, whether they were justified in relying on the warranties they received is a question to be resolved by the trier of fact” … . Dillon v Peak Envtl., LLC, 2020 NY Slip Op 05332, Fourth Dept 10-2-20

 

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GENERAL OBLIGATIONS LAW 17-105, NOT 17-101, APPLIES TO THE REVIVAL OF AN EXPIRED STATUTE OF LIMITATIONS FOR A MORTGAGE FORECLOSURE; THE RELEVANT DOCUMENTS HERE DID NOT MEET THE CRITERIA OF SECTION 17-105; FORECLOSURE WAS THEREFORE TIME-BARRED (FOURTH DEPT).

The Fourth Department, in a full-fledged opinion by Justice Peradotto, determined that General Obligations Law 17-105, not 17-101, applied to the revival of an expired statute of limitations for foreclosure of a mortgage and the documents in this case did not meet the criteria of section 17-105. Therefore the foreclosure action was time-barred. The court noted that Supreme Court should have issued a judgment declaring the rights of the parties pursuant to Real Property Actions and Proceedings Law 1501 and 1521:

General Obligations Law § 17-105 (1) provides, in relevant part:

“A waiver of the expiration of the time limited for commencement of an action to foreclose a mortgage of real property or a mortgage of a lease of real property, or a waiver of the time that has expired, or a promise not to plead the expiration of the time limited, or not to plead the time that has expired, or a promise to pay the mortgage debt, if made after the accrual of a right of action to foreclose the mortgage and made, either with or without consideration, by the express terms of a writing signed by the party to be charged is effective, subject to any conditions expressed in the writing, to make the time limited for commencement of the action run from the date of the waiver or promise.”

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… [T]the financial statements submitted by defendant do not meet the requirements of subdivision (1) of section 17-105 because those documents merely list the mortgage as a liability and do not constitute an express promise to pay the mortgage debt … . Batavia Townhouses, Ltd. v Council of Churches Hous. Dev. Fund Co., Inc., 2020 NY Slip Op 05331, Fourth Dept 10-2-20

 

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PLAINTIFF BANK FAILED TO SHOW COMPLIANCE WITH THE NOTICE PROVISIONS OF THE MORTGAGE AGREEMENT AND RPAPL 1304; PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff bank failed to demonstrate the notice of default was provided in accordance with the mortgage agreement, failed to demonstrate compliance with the notice requirements of RPAPL 1304 and failed to demonstrate such compliance was not required:

… [T]he plaintiff failed to demonstrate, prima facie, that it complied with a condition precedent contained in the consolidated mortgage agreement, requiring the lender to send a notice of default prior to the commencement of the action. In this respect, the unsubstantiated and conclusory statements in the affidavit of an employee of the plaintiff’s servicer, which indicated that the required notice of default was sent in accordance with the terms of the mortgage, combined with a copy of the notice of default, failed to show that the required notice was mailed by first-class mail or actually delivered to the notice address if sent by other means, as required by the consolidated mortgage agreement … .

… [T]he plaintiff failed to demonstrate, prima facie, that it properly served upon the defendant the notice required by RPAPL 1304. The mailing required under that statute “‘is established with proof of the actual mailings, such as affidavits of mailing or domestic return receipts with attendant signatures, or proof of a standard office mailing procedure designed to ensure that items are properly addressed and mailed, sworn to by someone with personal knowledge of the procedure'” … . Here, the plaintiff proffered neither evidence of the actual mailings nor evidence of a standard office mailing procedure, but rather relied upon its servicer’s conclusory and unsubstantiated affidavit averring that the notice was sent, along with a copy of the notice. This evidence failed to satisfy the plaintiff’s burden … . Moreover, contrary to the Supreme Court’s conclusion, affidavits of service pertaining to the summons and complaint as well as the defendant’s verified answer, which demonstrated that the defendant was present in the State of Florida at the time of service of those pleadings, failed to demonstrate, prima facie, that the subject property was not the defendant’s “principal dwelling,” so as to establish that compliance with RPAPL 1304 was not required … . U.S. Bank N.A. v Negrin, 2020 NY Slip Op 05253, Second Dept 9-30-20

 

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THE CHILD SUPPORT PROVISIONS OF THE STIPULATION OF SETTLEMENT IN THE DIVORCE ACTION VIOLATED THE CHILD SUPPORT STANDARDS ACT AND MUST BE VACATED; THE VACATUR SHOULD HAVE EXTENDED BACK TO THE DATE OF THE STIPULATION, NOT MERELY TO THE DATE OF THE RELATED MOTION (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court in this action on the child support provisions of a stipulation of settlement in a divorce action, determined the child support provisions violated the Child Support Standards Act and the required vacatur should extend back to the date of the stipulation:

The Child Support Standards Act (Domestic Relations Law § 240[1-b][h]; hereinafter CSSA) mandates vacatur of original child support stipulations when they fail to comply with CSSA guidelines. Here … the Supreme Court found that the parties’ failure to strictly comply with the CSSA with regard to the deviation from the statutory support obligations vitiated the child support provision of the stipulation of settlement with regard to apportionment of unreimbursed medical costs. … [T]he court improperly determined that the reimbursement of the medical costs and child care expenses was retroactive only to the filing date of the motion, relying on Luisi v Luisi (6 AD3d 398). However, in Luisi, this Court held that it was improper to award child support arrears retroactive to the date of a stipulation of settlement because the party seeking such recalculation only did so by motion in the matrimonial action rather than by plenary action … . Here, the defendant did properly commence a plenary action to vacate those provisions of the stipulation of settlement which pertained to the calculation of the medical costs and child care expenses and, upon vacatur, to recalculate the amounts owed. … Thus, the court should have granted those branches of the defendant’s motion which sought a recalculation of the arrears owed retroactive to the date of the stipulation of settlement … . Martelloni v Martelloni, 2020 NY Slip Op 05197, Second Dept 9-30-20

 

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SUPREME COURT SHOULD NOT HAVE, SUA SPONTE, DETERMINED THE PROVISION OF AN “AGREEMENT OF PURCHASE AND SALE OF STOCK” WHICH CALLED FOR RECOVERY OF DOUBLE ATTORNEYS FEES BY THE PREVAILING PARTY IN LITIGATION WAS AN UNENFORCEABLE PENALTY (SECOND DEPT).

The Second Department determined Supreme Court should not have, sua sponte, held that the provision of the “Agreement of Purchase and Sale of Stock” (PSA) which awarded double attorney’s fees if litigation resulted from a breach was an unenforceable penalty. The decision, which includes legal analysis well worth reading, is a complex discussion of the covenant not to compete and the nonsolicitation agreement which is too detailed and fact-specific to summarize here. There is an extensive dissent. With respect to the “double attorney’s fees” provision, the court wrote:

We disagree with the Supreme Court’s sua sponte determination that the provision of the PSA, which, in the event of litigation, allows for a recovery of double the amount of attorneys’ fees expended by the substantially prevailing party, is an unenforceable penalty. When parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms … . Paragraph 10.11 of the PSA clearly sets forth the intent of the parties, two sophisticated businesspeople with the benefit of counsel, that, should litigation arise out of the PSA, the “substantially prevailing party” is entitled to two times reasonable attorneys’ fees. Where, as here, “there is no deception or overreaching” in the making of such agreement, the agreement should be enforced as written … . Moreover, while each party asserted in the Supreme Court, and asserts on appeal, that he should prevail and be treated as the prevailing party for the purpose of paragraph 10.11, neither party contended in the Supreme Court that the double attorneys’ fees provision of paragraph 10.11 should not be enforced. Loughlin v Meghji, 2020 NY Slip Op 05196, Second Dept 9-30-20

 

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THE EXCESS INSURANCE CARRIER WAS NOT BARRED FROM RECOVERY OF THE AMOUNT IT CONTRIBUTED TO THE SETTLEMENT OF A PERSONAL INJURY ACTION BY THE VOLUNTARY PAYMENT DOCTRINE; THE EXCESS INSURANCE CARRIER’S BREACH-OF-THE-COVENANT-OF-GOOD-FAITH ACTION AGAINST THE PRIMARY CARRIER PROPERLY SURVIVED SUMMARY JUDGMENT (SECOND DEPT).

The Second Department determined the excess insurance carrier, MetLife, could maintain an action against the primary liability carrier, GEICO, for breach of the implied covenant of good faith and fair dealing, alleging bad faith. GEICO  unsuccessfully argued the voluntary payment doctrine barred MetLife from recovering the amount it contributed to the settlement of the personal injury action stemming from an auto accident:

“The voluntary payment doctrine ‘bars recovery of payments voluntarily made with full knowledge of the facts, and in the absence of fraud or mistake of material fact or law'” … . However, the voluntary payment doctrine does not bar an excess insurance carrier, such as MetLife, that contributed to a settlement of an underlying action from seeking to recover its settlement contribution from a primary insurance carrier, such as GEICO, based on the primary carrier’s alleged bad faith. Despite an excess insurance carrier’s decision to contribute to a settlement, an excess insurance carrier may later maintain an action against a primary insurance carrier for breaching its duty of good faith in defending and settling claims over which it exercised exclusive control, provided that the excess insurance carrier reserved its rights against the primary insurance carrier at the time of the settlement … . An insurer may be held liable for breaching its duty of good faith … , and a primary liability insurer owes an excess insurance carrier the same duty of good faith as the primary liability insurer owes its insureds … . Metropolitan Prop. & Cas. Ins. Co. v GEICO Gen. Ins. Co., 2020 NY Slip Op 05045, Second Dept 9-23-20

 

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