In motion sequence 001, defendant First Financial Insurance Company ("FFIC") pursuant to CPLR 3211(a) moves to dismiss the complaint for indemnification and insurance coverage related to an underlying personal injury settlement.^[FN1] FFIC requests that the Court treat its motion as one for summary judgment pursuant to CPLR 3211(c). Plaintiffs Apartment Recycle Company of Manhattan ("ARCM"), Twin City Fire Insurance Company ("Twin"), Empire City Iron Works ("Empire"), and Commercial Underwriters Insurance Company ("CUIC") cross-move for summary judgment pursuant to CPLR 3213 and declaration of additional insured coverage and/or contractual indemnity with regard to defendant FFIC. Plaintiffs likewise cross-move for summary judgment and declaration of contractual indemnity and additional insured coverage with regard to defendants McGuire Services Corporation ("McGuire") and Pennsylvania General Insurance Company of New York ("PGIC") (collectively, "the McGuire defendants"). The McGuire defendants cross-move for summary judgment pursuant to CPLR 3212.

In February of 1997, ARCM entered into an agreement with Empire (the "Empire Agreement") under which Empire would perform iron work as a subcontractor at the John Street [*2]site. In accordance with the agreement's conditions, Empire procured a general liability insurance policy through CUIC, naming ARCM as an "additional insured" under the policy. The Empire Agreement also contained a provision under which Empire agreed to indemnify ARCM for liability "arising out of or resulting from the performance of the Work."

Empire in turn engaged LDM to provide iron work at the John Street site under an additional subcontract (the "LDM Agreement") signed on April 1, 1997, prior to the signing of the Empire Agreement. In addition to specifications germane to the ironwork at issue, the LDM agreement incorporated the terms of the Empire Agreement, advising the signing party that "all terms and conditions. . .as contained in our contract with Apartment Recycle Co. of Manhattan Inc. will become a part of this agreement between [LDM] and [Empire]." Under the incorporated terms of the Empire Agreement, LDM agreed to indemnify ARCM for liability "arising under. . .the Work," and to procure insurance coverage naming ARCM as an "additional insured."

In order to comply with the agreement's terms, LDM engaged the Schaefer Agency ("Schaefer") to broker an appropriate general liability policy. Through negotiations with insurance broker Corieri and Associates, Inc. ("Corieri")^[FN2], Schaefer arranged a policy underwritten by FFIC. Under the authority of an agency agreement executed with Corieri, Schaefer issued an insurance certificate to LDM on August 21, 1997, indicating a year-long policy effective May 22, 1997. While the insurance certificate named ARCM as an additional insured in accord with the LDM agreement, the certified policy statement subsequently issued by FFIC named no additional insureds. Schaefer additionally brokered a premium financing agreement for the policy through First Premium Services ("First"). Under the terms of the premium financing agreement, LDM remitted all premium payments to First rather than FFIC.

Also prior to June 6, 1997, ARCM entered into a contract with McGuire (the McGuire Agreement) pursuant to which McGuire agreed to perform work at the John Street site. Containing terms and conditions identical to those of the Empire Agreement, the McGuire Agreement included both an indemnity clause and a provision requiring procurement of insurance on ARCM's behalf. Complying with the contract's mandates, McGuire purchased a general liability insurance policy from PGIC, naming ARCM as an additional insured.

In April of 1997, LDM fell behind in payments due to First on the FFIC policy. In response to the delinquency of LDM's account, First sent a standard Notice of Intent to Cancel to LDM's insurance coverage. The notice stated that LDM's FFIC policy would be cancelled on May 1, 1997 unless LDM remitted to First the amount past due on its account. While LDM produced a partial payment on April 22, it failed to bring the First account current prior to the scheduled cancellation date. Accordingly, First sent LDM a Notice of Cancellation, effective May 1, 1997. The notice indicated that despite the cancellation of the FFIC policy, LDM remained liable to First for the financing of the policy premiums, that only FFIC had authority reinstate LDM's policy, and that future payment to First would not effect reinstatement. Corieri, general agent for FFIC, subsequently issued an endorsement reflecting the cancellation, effective May 18, 1997.^[FN3]

LDM brought the First account up to date on June 26, 1997 after the aforementioned [*3]cancellation notifications. First responded to LDM's zero balance by sending a Request for Reinstatement of Insurance Coverage (dated June 27, 1997) to both FFIC and LDM. The request contained a bracketed, boldface notice to the insured indicating that First's Request for Reinstatement in no way guaranteed policy reinstatement. The request additionally directs the insurance carrier, FFIC, to deliver either a notice of reinstatement or denial of reinstatement to the named insured. On July 3, 1997, Corieri sent a memo refusing reinstatement to both First and Schaefer. Corieri's memo attached a copy of First's reinstatement request with the phrase "will remain cancelled" circled.

On July 17, 1997, Schaefer submitted to Corieri its own request that the LDM policy be rewritten. Corieri again refused to reinstate the LDM policy, noting in a fax to Schaefer that "cancellation remains effective as of 5/18/97."

Upon receipt of FFIC's July 3rd denial of reinstatement, First's automated computer system produced a second Notice of Intent to Cancel the LDM policy (dated July 17, 1997) and a second Notice of Cancellation (dated July 31, 1997). While otherwise identical to First's original notices, both the Notice of Intent to Cancel and the Notice of Cancellation designated their issuing dates as the effective cancellation date. In accordance with the company's typical operating procedures, First continued to send billing notices and account statements to LDM following the policy's May termination. Corieri remitted LDM's unearned premium of $14,380.02 to the Schaefer Agency on August 18, 1997; a total returned premium of $15,978.00 was credited by First on October 30, 1997.

On June 6, 1997, following the initial cancellation of LDM's insurance policy, Thomas Sullivan, an LDM employee, sustained an injury to his foot while performing work on the twenty-sixth floor of the John Street site. On January 5, 2000, Mr. Sullivan filed a personal injury action in the New York State Supreme Court, New York County (the "Sullivan Action," Index No. 100935/00), naming ARCM, Empire, and McGuire (and others) as defendants. According to the Sullivan plaintiff's allegations, Mr. Sullivan's injuries resulted when the wheel of a dolly transporting materials fell into a hole on the site's 26th floor, causing an 800-pound iron beam to slide off the dolly and onto Mr. Sullivan's foot. In an order dated May 1, 2003, the New York Supreme Court dismissed plaintiffs' complaint and all additional cross-claims against McGuire. Subsequently, on May 14, 2003, the parties to the Sullivan Action reached an agreement according to which ARCM and Empire's insurers, Twin and CUIC respectively, paid Mr. Sullivan equal portions of a settlement totaling $235,000.

Under the terms of the settlement, the plaintiffs in the current action reserved the right to litigate issues related to indemnity and insurance coverage against additional parties. Accordingly, on June 21, 2004 plaintiffs filed the current action against subcontractors on the John Street project and their insurance carriers. Among the nine causes of action asserted in plaintiffs' Verified Complaint, only the following are germane to the current motions: (1) a claim for a judgment declaring that plaintiffs are entitled to be defended and indemnified by LDM and FFIC with regard to the Sullivan Action (2) a claim for a judgment declaring that plaintiffs are entitled to be defended and indemnified by McGuire and PGIC with regard to the Sullivan Action, (3) claims against LDM and McGuire for breach of contract and failure to obtain and provide insurance, and (4) a declaration that all defendants are liable to plaintiffs for all attorneys' fees, costs, and expenses incurred in the Sullivan Action.

Plaintiffs in their cross motion for summary judgment against Mcguire and PGIC assert that the facts of the Sullivan accident trigger the identical indemnity provisions of McGuire's contract with ARCM. Plaintiffs argue that a previous Order of the Justice Walter B. Tolub dated May 1, 2003 which held that all cross claims against McGuire should be dismissed concerns common law claims, not contractual indemnity claims.

The McGuire defendants, in their motion for summary judgment, contend that plaintiff's cross motion should be denied based upon the theory of res judicata or in the alternative collateral estoppel. Additionally, the McGuire defendants contend that, even if the current contractual indemnity claims are not barred from re-consideration, plaintiffs have failed to [*4]establish that Sullivan's accident "arose out of" McGuire's work under the ARCM contract.

Plaintiffs oppose defendant's motion and assert in their summary judgement motion that the facts surrounding the Sullivan accident trigger the indemnification provisions in ARCM's contract with Empire, as incorporated into Empire's contract with LDM.

At the core of plaintiffs' opposition lies the contention that issues of material facts remain regarding the LDM policy's effective cancellation date. Additionally, plaintiffs assert that the agency agreement executed between Corieri and Schaefer afforded Schaefer the authority to bind coverage and issue an insurance certificate for the LDM policy. In plaintiffs' view, identification of ARCM as an "additional insured" on the insurance certificate is sufficient to establish that LDM's coverage was intended to extend to ARCM.

Still further, plaintiffs maintain that FFIC failed to return LDM's unearned premium within the 60-day statutory limit pursuant to Bank Law §576, rendering the initial cancellation ineffective. Finally, plaintiffs call attention to procedural defects in the filing of FFIC's moving papers. Plaintiffs point out that FFIC used its reply papers of April 13, 2005, to assert new arguments, in violation of well-established New York law.

FFIC, pursuant to 3211(a)(7), submitted a Memorandum of Law in support of its motion to dismiss the complaint arguing that the cause of action asserted against FFIC has no merit. However, FFIC requests that the Court treat its motion as one of summary judgement pursuant to CPLR 3211(c) because, in their view, no question of material fact has been presented. CPLR 3211(c) permits a court, after adequate notice to the parties, to treat a motion to dismiss pursuant to CPLR 3211(a) as a motion for summary judgment. Village of Webster, v Monroe County water Auth., 269 AD2d 781, 782 (4th Dep't 2000). In the absence of such notice, the court may treat a motion to dismiss as a motion for summary judgment when the parties have otherwise received adequate notice by expressly seeking summary judgment or submitting facts and arguments clearly indicating that they were deliberately charting a summary judgment course. Id. While plaintiff has briefly argued that defendant's motion is confusingly styled, plaintiff has in turn crossed moved for summary judgment thereby allowing the Court to treat defendant's pleading as a motion for summary judgment.

FFIC's reply papers are properly before this Court. In the current action, FFIC initially submitted only documentary evidence in support of its March 7, 2005 Notice of Motion. Following plaintiffs' affirmation in opposition to the motion, dated March 25th, FFIC submitted a second round of documents on April 13, including an additional attorney affirmation and affidavits from representatives of Corieri and First. On April 26th, plaintiffs' counsel subsequently filed an additional affirmation in opposition to the FFIC motion, both noting FFIC's improper introduction of new claims in its reply and opposing FFIC's new arguments.

Under New York law, "[t]he function of reply papers is to address arguments made in opposition to the position taken by the movant and not to permit the movant to introduce new arguments in support of, or new grounds for the motion". Dannasch v Bifulco, 184 AD2d 415, 417 (1st Dep't 1992). Consequently, courts have often refused to consider arguments asserted for the first time in a movant's reply papers. Lumbermens Mut. Cas. Co. v Morse Shoe Co., 218 AD2d 624, 625 (1st Dep't 1995). The First Department, however, has carved out a narrow exception to the maxim excluding arguments advanced in a movant's reply papers: where the opposing party "availed themselves of an opportunity to oppose the claims in their surreply," the [*5]movant's arguments may be considered on their merits. Fiore v Oakwood Plaza Shopping Center, Inc., 164 AD2d 737, 739 (1st Dep't), affirmed, 78 NY2d 572 (1991), cert denied, 506 US 823 (1992). A party opposing improperly asserted claims through their own surreply cannot properly claim prejudice or interference with the right to answer. Id at 739.

While FFIC does appear to have exploited reply papers for the purpose of extending and developing arguments in support of its motion, plaintiffs, having submitted a responsive surreply, cannot claim either prejudice or interference with their right to answer. Applying the standards articulated in Fiore, this Court will treat all of FFIC's moving papers as properly before the court, and will decide the asserted claims on their merits.

FFIC's cancellation of the LDM policy remained in effect after the tender of partial payment. When an insured remits partial payment of its premium after a notice of cancellation is received, but prior to the actual cancellation, the insurer is not entitled to additional coverage beyond the cancellation date. Michaels v Travelers Indemnity Co, 257 AD2d 828 (3rd Dep't 1999). Although it may appear from the record that FFIC's history with defendants included a series of policy cancellations beginning on May 1, 1997, such history, standing alone, is insufficient to raise a question of fact given the plain language of the policy cancellation and the correspondence following thereafter. It is undisputed that in accordance with the Premium Finance Agreement, a Notice of Intent to cancel was sent to LDM on April 17, 1997 alerting plaintiff to pay the outstanding balance due on their account. LDM failed to bring its account up to date prior to the cancellation date and thus received Notice of Cancellation effective May 1st, 1997, one on May 17, 1997 and one on July 31, 1997.

There is no ambiguity in the meaning of the language used in the notices. The three documents clearly stated that coverage was cancelled. Additionally, assuming arguendo that the request for reinstatement awakened doubt in plaintiff's mind as to the effective date of cancellation, even though it specifically stated that the policy was cancelled until the insurance company notifies LDM otherwise, Corieri denied the aforementioned request and specified that "the policy remained cancelled" as of May 18, 1997. No matter the discrepancy in dates, all notices were clear: LDM was not covered by FFIC after their failure to pay the full amount of their past due balance by the required date.

While plaintiffs maintain that the continued payments to FIRST after forfeiture and the alleged confusingly-phrased disclaimers on FIRST's reinstatement request could have suggested that the policy remained effective, the record is bereft of any evidence to suggest a question of fact. Moreover, plaintiffs have not shown, by their words or actions following the issuance of the policy cancellations notice on May 1, 18 or July 31, 1997 that partial payment would be sufficient to keep the subject policy in full force and effect.

No issues of material fact remain with regard to FFIC's compliance with the provisions of BL §576. ARCM entered into a premium finance agreement with FIRST which granted the power of attorney to cancel the policy if ARCM failed to make payments or otherwise defaulted under the agreement. Where payment of premiums on an insurance policy is managed through a premium financing agency, the policy's cancellation is strictly governed by the provisions of Banking Law §576. Elrac, Inc. v White, 299 AD2d 546 (2nd Dep't 2002). According to those provisions of §576 relevant to cancellation initiated by the premium finance agency:

1. When a premium finance agreement contains a power of attorney or other authority enabling the premium finance agency to cancel any insurance contract or contracts listed in the agreement, the insurance contract or contracts shall not be cancelled unless such cancellation is effectuated in accordance with the following provisions:

(f) The insurer or insurers within a reasonable time not to exceed sixty days after the effective date of cancellation, shall return whatever gross unearned premiums are due under the insurance contract or contracts on a pro rata basis to the premium finance agency for the benefit of the insured or insureds.

Under New York law, "[t]here must be compliance with the statutory requirements of these sections or the purported cancellation will be deemed a nullity." Lumbermens Mut. Casualty Co., 74 AD2d at 498. Courts have reasoned, however, that under BL §576(f) an insurer is required only to return unearned premiums to the premium financing agency, and is not liable for the financing agency's subsequent disbursement to the insured. Premins Co., Inc. v Travelers Indem. Co., 8 Misc 3rd 299, 4 (App Term, 1st Dep't 2005).

In light of the First Department's interpretation of BL §576, plaintiffs' claim that FFIC did not comply with Banking Laws must fail. First, FFIC's Rule 19(a) Statement of Material Facts asserts, uncontested, that FFIC returned the policy's unearned premium to Schaefer, LDM's broker for the premium finance agreement, on August 18, 1997. Under the standards set out in the Lumbermens decisions, FIRST's failure to credit LDM for the returned premium until October 30, 1997, does not constitute a violation of §576(f), whose requirements apply only to the transaction between the insurance company and the premium financing agency. Plaintiff's error stems in part from a repeated failure—despite the clarification provided by FFIC's Rule 19(a) Statement—to make the necessary distinction between FFIC ("First Financial Insurance Company") and FIRST ("First Premium Services"). While the argument that FIRST's failure to credit LDM in a timely fashion may be valid, the claim could not arise out of BL §576(f), nor is it relevant to the current action, where plaintiffs have not named FIRST as a party. On the basis of the submitted evidence, no issues of material fact remain with regard to FFIC's compliance with the provisions of BL §576. Therefore, the cancellation is not rendered ineffective because of FFIC's delay in returning unearned premiums.

Plaintiffs also maintain that the insurance certificate issued by Schaefer indicates ARCM's coverage as an additional insured under the LDM policy. ARCM was not an additional insured under the LDM policy. A certificate of insurance by itself is insufficient to raise a factual issue as to the existence of coverage. Glynn v United House of Prayer, 292 AD2d 319, (1st Dep't 2002).

It has long been settled in this State that an insurance binder is a temporary or interim policy until a formal policy is issued. A binder provides interim insurance, usually effective as of the date of application, which terminates when a policy is either issued or refused. A binder does not constitute part of an insurance policy, nor does it create any rights for the insured other than during its effective period. Thus, a binder is limited in time until an assessment of risk is completed by the carrier. Springer v Allstate Life Ins. Co., 94 NY2d 645, 649 (2000). [internal citations omitted].

Insurance certificates containing explicit disclaimers as "for information only" or "not extending coverage provided by the policy" have been sharply distinguished from subsequently issued insurance contracts. St. George v W.J. Barney Corp., 270 AD2d 171, 172 (1st Dep't 2000).

An insurance certificate naming a party as an additional insured provides insufficient proof of coverage where the formal policy contradicts the certificate, and the certificate purports to "confer no rights upon the certificate holder." Moleon v Kreisler Borg Florman Gen. Constr. Co., 304 AD2d 337, 339 (1st Dep't 2003).

In the current action, plaintiffs' insistence that Schaefer possessed requisite authority to bind the policy is misplaced. Under Springer, Schaefer's theoretical authority to bind the policy is not equivalent to authority to issue a finalized policy, or to dictate that policy's ultimate terms and conditions. The certificate on its face states that it is issued "as a matter of information and confers no rights upon the certificate holder. [It] does not amend, extend or alter the coverage afforded by the policies below." The certificate thus issued is, as in Springer, a temporary document, superseded by FFIC's final policy which does not name ARCM as an additional insured. Plaintiffs submit no evidence establishing the invalidity of the final policy, and have [*7]raised no additional issues of material fact beyond ARCM's inclusion in the terms of the certificate. Absent ARCM's inclusion as an additional insured on the official policy documents, FFIC cannot become liable to plaintiffs for defense or insurance coverage related to the Sullivan Action.^[FN4] The indemnity provisions and insurance coverage responsibilities created by the Empire Agreement cannot devolve upon FFIC absent ARCM's inclusion on the policy as an additional insured.

Collateral Estoppel and Res Judicata bar Plaintiff's contractual indemnity claim against the McGuire defendants. "Under res judicata, or claim preclusion, a valid final judgment bars future actions between the same parties on the same cause of action." Parker v Blauvelt Volunteer Fire Co., 93 NY2d 343, 348 (1999). Collateral estoppel or "issue preclusion," on the other hand, is a narrower doctrine than res judicata, and "precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same." Ryan v New York Tel. Co., 62 NY2d 494, 500 (1984).

The central question in the application of collateral estoppel is whether a party has enjoyed a full and fair opportunity to be heard. Gilberg v Barbieri, 53 NY2d 285, 292 (1981). The courts have split the burden of invoking collateral estoppel between the parties, requiring "the proponent of collateral estoppel to demonstrate the identicality and decisiveness of the issue, while the burden rests upon the opponent to establish the absence of a full and fair opportunity to litigate the issue in prior action or proceeding." Ryan, 62 NY2d at 501. Among the factors relevant to the court's assessment of the party's opportunity to be heard are

the size of the claim, the forum of the prior litigation, the use of initiative, the extent of the litigation, the competence and experience of counsel, the availability of new evidence, indications of a compromised verdict, differences in the applicable law, and foreseeability of future litigation.

In the current action, the Tolub decision plainly granted McGuire's Service Corp.'s summary judgment motion and dismissed plaintiffs' complaint and all cross-claims as against that defendant. (Tolub order, pg. 13). ARCM's cross-claim for contractual indemnification against McGuire, before the court at the time of Judge Tolub's decision ^[FN5], is included in the dismissal of "all cross-claims" against McGuire.

Pursuant to the Court's findings, plaintiff's current contractual indemnity claims are barred under either the doctrine of res judicata or collateral estoppel. Plaintiffs' additionally maintain that the current defense and insurance coverage claims were not before the court in the Sullivan action and thus escape the collateral estoppel or res judicata bars. While plaintiffs are correct, the argument overlooks the well-established necessity to determine liability as a predicate to ordering indemnification. Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169, 178 (1997). Plaintiffs in opposition to defendant's summary judgement motion in the underlying action argue, again, that defendant had an obligation to patch the hole prior to Sullivan's accident. This had already been decided. In reaching his decision Judge Tolub explicitly found that "none of the proffered evidence shows that McGuire was contractually [*8]obligated to fill the particular hole prior to the date of plaintiff's accident" (Tolub order, pg. 6). Beyond bare assertions that the contractual indemnity claim was not encompassed by Judge Tolub's dismissal of the cross-claims against McGuire, plaintiffs advance no arguments to meet their burden in establishing lack of full and fair opportunity to litigate.

Plaintiffs have not established McGuire's liability under the indemnity clause. Under New York law, contractual language in general, and contractual indemnification provisions in particular, are to be strictly construed. Hooper Associates, Ltd. v AGS Computers, Inc., 74 NY2d 487, 491-492 (1989). Where a contract fails to define terminology susceptible to multiple interpretations, resulting ambiguities must be construed against the drafter. Guardian Life Ins. Co. v Schaefer, 70 NY2d 888, 890 (1987); see also Hooper, 74 NY2d at 492 ("when a party is under no legal duty to indemnify, a contract assuming that obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed"). Further, courts have refused to find contractual indemnification where the parties executed the contract only after the date of the accident in question. Beckford v City of New York, 261 AD2d 158 (1st Dep't 1999).

Perhaps most critically, New York courts have consistently refused to decide indemnity—contractual or common law indemnity— as a matter of law where a claimant fails to establish that the accident was caused by an act or omission breaching duties imposed by the work contract. Autera v Arlen Realty & Dev. Corp., 54 NY2d 938, 940-941 (1981) (refusing indemnification for damages caused by a falling sign where defendant's service contract required response to service calls, but not routine maintenance visits).

As a preliminary matter, the contract between ARCM and McGuire is dated July 7, 1997, one month after the accident at the John Street site. While "Rider A" to the contract indicates that McGuire's work at the site would begin "within 72 hours notice by the General Contractor anytime after 4/22/97," the rider states that its own revision occurred on 7/1/97— again well after Sullivan was injured. Absent evidence to the contrary, ARCM's claim for contractual indemnity appears to run afoul of the refusal of indemnification for accidents occurring before the parties' formal agreement to contractual indemnification.

Moreover, the McGuire contract's ambiguity derives not from the "arising under" language of the indemnity provision, as plaintiffs argue, but from the ambiguity of the larger contract's definition of "the Work." While plaintiffs have definitively established that patching holes in the site's cement floors constituted one of McGuire's contractual responsibilities, plaintiffs nonetheless fail to demonstrate a specific contractual duty requiring McGuire to fill the offending hole on the 26th Floor prior to Mr. Sullivan's accident. The contract itself does not express a detailed work schedule; nor do the Project Super's Daily Reports from May 6, 1997 through June 6, 1997 indicate that either McGuire or LDM (and by extension, Mr. Sullivan) were to complete work of any sort on the John Street site's 26th floor. Plaintiffs have not met their burden of demonstrating that McGuire's liability can be decided as a matter of law.

ORDERED that defendant FFIC's motion to dismiss the complaint pursuant to 3211 is granted; and it is further

ORDERED that defendant, McGuire's motion for summary judgement pursuant to 3212 is granted; and it is further

ORDERED that plaintiff's motion for summary judgement pursuant to 3212 and declaratory judgement against FFIC, McGuire and PGIC is denied.

Dated: October 17, 2005

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J.S.C. [*9]