Law360, New York (July 20, 2016, 1:48 PM ET) — A project consultant that was denied coverage of a negligence suit related to a burst sewage pipe at John F. Kennedy International Airport told a New York federal judge Tuesday that the reasoning behind the insurer’s quick judgment bid stinks, while the insurer contended that coverage is without a doubt excluded.
JD2 Environmental Inc. and Endurance American Insurance Co. are locked in a battle over whether JD2 is covered as an additional insured under a policy its subcontractor held with Endurance during a 2011 excavation project at JFK. During the project, a sewage pipe on property leased by Avis Budget Car Rental LLC was struck, causing complaints of sewage backup by other JFK tenants and ultimately leading to an underlying Avis lawsuit.
Both JD2 and Endurance have moved for summary judgment in their coverage dispute and both filed briefs Tuesday opposing one another’s motions.
JD2 argued Tuesday that Endurance’s motion should be denied, because its denial of coverage was based on an extremely narrow interpretation of Avis’ underlying negligence allegations, which were leveled at both JD2 and subcontractor Gemstar Construction Corp., which carried the policy with Endurance. The insurer owes JD2 a defense, at least, under the policy’s “vicarious liability” endorsement, JD2 argued.
Endurance has claimed there is no possibility JD2 can be held vicariously liable for Gemstar’s conduct because “a party who has itself actually participated to some degree in the wrongdoing cannot receive the benefit of the doctrine of vicarious liability,” JD2 said, quoting Endurance’s motion. That argument presumes that JD2 has been found at fault in the underlying action, which isn’t the case yet, the company argued.
“Although the respective liability of the parties to the Avis action has not yet been finally determined, the mere possibility of JD2’s vicarious liability for Gemstar’s acts or omissions requires Endurance to defend JD2,” the company wrote Tuesday.
Endurance pointed out in its own brief Tuesday that the underlying Avis complaint does not contain a single cause of action alleging JD2 is vicariously liable through Gemstar — every claim is based on JD2’s “direct and independent acts of professional negligence.”
In fact, at one point in the underlying proceeding, JD2 moved for summary judgment against Gemstar, claiming it was being held vicariously liable for Gemstar’s conduct, and the judge struck it down, Endurance said.
“This finding is dispositive of Endurance’s duty to defend and is in complete accord with Endurance’s denial of coverage,” the insurer wrote. “JD2 is collaterally estopped in this action from trying to relitigate the vicarious liability issue it already lost in the Avis action.”
What’s more, coverage for JD2 is ultimately barred anyway by a provision in Gemstar’s policy that excludes coverage for property damage caused by the rendering or failure to render any professional services, Endurance contended.
Perhaps anticipating that line of attack, JD2 its own brief Tuesday argued that Endurance was misreading the exclusion, “which has nothing to do with JD2’s purported professional services, but instead concerns only professional services performed by Endurance’s named insured, Gemstar.”
Counsel for JD2 on Wednesday declined to comment and representatives for Endurance didn’t immediately return a request for comment.
The dispute ultimately stems from a 2011 incident in which Gemstar, while performing an excavation at JFK on Avis’ property as a subcontractor for JD2, struck an underground sewer line, causing a sewage backup around the airport. Avis ultimately sued seeking to recover damages from both parties.
According to court documents, Avis alleged in the underlying complaint that neither JD2 nor Gemstar investigated the nature of an obstruction during the course of digging, which turned out to be the pipe. The rental car agency also contended that it was JD2 that was to provide design, site plan and construction oversight services for the project. The underlying Avis action is still pending.
JD2 is represented by Joel M. Ferdinand and Joseph Schramm III of FisherBroyles LLP.
Endurance is represented by Neil L. Sambursky and Frank R. Malpigli of Miranda Sambursky Slone Sklarin Verveniotis LLP.
The case is JD2 Environmental Inc. v. Endurance American Insurance Co., case number 1:14-cv08888, in the U.S. District Court for the Southern District of New York.
–Editing by Kelly Duncan.