Magistrate's Report Affirmed

Multi-Unit Construction Exclusion Eliminates Coverage

Midvale Indemnity Company (“Midvale”) sued Arevalos Construction Corp. (“Arevalos”), Victor Siguenza Zuniga (“Zuniga”), 625 Halsey LLC (“Halsey”), D&G Construction NY Inc. (“D&G”), and RM Construction and Development Corp. (“RM”) seeking a declaratory judgment relating to a commercial general liability insurance policy Midvale issued to Arevalos and an underlying lawsuit in New York state court, captioned Victor Siguenza Zuniga v. 625 Halsey LLC, Index No. 525911/2018 (the “Underlying Action”).

In Midvale Indemnity Company v. Arevalos Construction Corp., et al, No. 22-CV-97 (FB) (RML), United States District Court, E.D. New York (July 5, 2023) was asked to overturn the report and recommendations of the Magistrate Judge to acknowledge the default and order no coverage for defense or indemnity of anyone named in the Underlying action.

FACTS

D&G and Zuniga timely objected to the report of the Magistrate judge. These objections triggered the US District Judge's de novo review.

D&G, a subcontractor of Arevalos claiming coverage and a right to indemnification by Arevalos' insurer Midvale, and Zuniga, the injured tort claimant in the Underlying Action, has been named as defendants in this declaratory action by Midvale. D&G and Zuniga object to the Magistrate's finding that none of the named defendants was owed coverage under the policy.

DISCUSSION

D&G and Zuniga object to the conclusion that they lack standing to oppose Midvale's motion, its finding that none of the named defendants were entitled to coverage, and the scope of its declaratory relief.

The Magistrate recommended finding that D&G's subcontractor agreement with Arevalos imposed no duty on Midvale, a “stranger to that contract,” to D&G. He also found that “D&G does not claim to be a third-party beneficiary of the Policy,” that “the Policy does not indicate an intent to confer a benefit upon D&G or any other individual or entity other than Arevalos,” and that “Zuniga is not a named insured or third-party beneficiary under the Policy.”

In New York, a non-party to a contract generally lacks standing to enforce the agreement in the absence of terms that clearly evidence an intent to permit enforcement by the third party in question unless it establishes:

the existence of a valid and binding contract between other parties,
that the contract was intended for his benefit and
that the benefit to him is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate him if the benefit is lost.

The US District Judge concluded that the Magistrate did not err. He found that Arevalos was not entitled to coverage because of the policy's Multi-Unit and Tract Housing Residential Exclusion, which “excludes coverage for ‘[b]odily injury' arising out of any ‘construction operations' that involve a ‘housing tract' or ‘multi-unit residential building.'”

Since the Underlying Action seeks damages for a construction project falling under this exclusion: specifically, one for a four-story building with ten residential units the exclusion clearly applied. This scope of relief is proper because it is what Midvale requested in its Complaint, and because the Magistrate rightly found Midvale entitled to a default judgment. The Court adopted the relief recommended by the Magistrate but noted that it is only binding against the defaulting parties.

The Court overrules D&G and Zuniga's objections, adopts the Magistrate’s recommendation and directs the Clerk to enter a judgment granting Midvale's motion for a default judgment against Arevalos and RM and declaring that Midvale has no duty to defend or indemnify any party with respect to the Underlying Action.

ZALMA OPINION

Every defendant in a law suit wants it resolved with other peoples money and even if they did not buy insurance to protect themselves will seek the benefits of insurance available to others. Claiming a benefit to an insurance contract as a result of a construction contract can be effective if the policy provided coverage. In this case there was no coverage because of a clear and unambiguous exclusion the insurer had no obligation to provide defense or indemnity to anyone. It pays to read the insurance policy before making a claim and filing a suit.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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