Defendant, Those Certain Underwriters at Lloyd's of London, Subscribing to Certificate Number 34655, move, pursuant to CPLR 3001 and 3212, for an order declaring that a policy of insurance issued by defendant to plaintiff, BW Sportswear, Inc., is void, and granting it summary judgment dismissing the complaint.

Plaintiff, cross-moves, pursuant to CPLR 3212, for an order granting it partial summary judgment.

Plaintiff is a clothing retailer located at 2339 8th Avenue in Manhattan (the "insured location"). On or about April 1, 2008, plaintiff submitted a commercial insurance application (the "application") through its insurance broker, Hanlon Agency, for commercial insurance for the insured location. The application was submitted to defendant's cover holder, Braishfield Associates, Inc. ("Braishfield") for review and consideration. [*2]The application's "Loss History" section required plaintiff to "[e]nter all claims or losses (regardless of fault and whether or not insured) or occurrences that may give rise to claims for the prior 5 years (3 years in KS & NY)" (Moving Papers, Ex. A). Plaintiff checked off "none" (Id.).

In April 2008, defendant issued plaintiff an insurance policy (the "policy") effective April 3, 2008 through April 3, 2009 (Moving Papers, Ex. C). The policy provided the insured location with insurance coverage against perils, including water damage.

On July 6, 2008, plaintiff's principal, Hassan Deiabes, found that water had entered the insured location damaging plaintiff's inventory. Plaintiff reported the property damage claim to defendant by filing a property loss notice on July 7, 2008 (Moving Papers, Ex. D). By letter, dated October 13, 2009, defendant notified plaintiff that the policy was void on the grounds that plaintiff had made material misrepresentations on the application and provided false documents, false testimony, and a fraudulent sworn statement in its proof of loss (Moving Papers, Ex. G).

Defendant claims that plaintiff misrepresented material facts in its application for insurance, and, as a result, the policy was void from its inception date. In that regard, during its investigation of plaintiff's claim, defendant learned that at the time plaintiff submitted its insurance application, the premises plaintiff rented was actually known as "2337-2339 Frederick Douglas Boulevard" which includes "2339 8th Avenue", the address plaintiff used on the application. Further, that there were three previous water damage losses or occurrences at the insured location on or about March 5, 2005, October 28, 2006, and July 15, 2007. Defendant alleges that these previous losses occurred at the time Deiabes was running a retail clothing business at the insured location called "City High, Inc." ("City High"). City High's existence was not disclosed in plaintiff's application for insurance, and, instead, plaintiff represented that its retail clothing store was a "new venture" (Moving Papers, Ex. A). Defendant argues that in light of Deiabes' history of losses at 2337-2339 Frederick Douglas Boulevard under the City High corporate name Deiabes incorporated a new entity on February 20, 2008, and used the address of 2339 8th Avenue to avoid detection so as to obtain insurance.

Defendant claims that plaintiff's failure to provide it with a truthful answer in the "loss history section" constitutes a misrepresentation in the procurement of the policy and is a breach of subsections 1 and 2 of the "Concealment, Misrepresentation or Fraud" section of the policy's Commercial [*3]Property Conditions (Moving Papers, Ex. 2C, CP 00 90 07 88). Defendant contends that under Braishfield's practices and procedures as cover holder for defendant Braishfield needed to know about prior losses or occurrences of the same risk or at the same premises before issuing a policy. Plaintiff's claim of "none" in response to the application's question of "all claims or losses (regardless of fault and whether or not insured) or occurrences that may give rise to claims", despite the fact that there had been three prior water damage losses at the same premises, constitutes a material misrepresentation on plaintiff's part in its insurance application.

Plaintiff points out that the application did not seek to ascertain whether any losses had occurred at the insured location. Plaintiff argues that it was not the insured entity that suffered the prior three losses. Instead, those losses were suffered by City High. Plaintiff also points out that nowhere in the application did defendant request that the applicant provide a list of losses that occurred to any business entity formed or operated by the individual executing the application on behalf of the insured. And, had defendant included such questions in its application, plaintiff would have advised defendant of the prior losses sustained by City High.

Plaintiff further argues that even if it had a duty to disclose the prior losses suffered by City High the application requires New York applicants to provide all claims for the prior three years. As such, since the application was completed for a proposed date of April 3, 2008, only two losses would have been required to be listed — October 28, 2006 and July 15, 2007 — and plaintiff would not have been required to list the March 5, 2005 loss because it falls outside the three year time period. As stated in the affidavit of Roland Null, vice president of Braishfield, the underwriting guidelines require that "any risk or premises which had sustained more than two prior losses or occurrences due to water damage was not eligible for coverage" (Null Aff., 7/7/10, ¶ 4). Thus, plaintiff argues, the insurance policy would have been issued to plaintiff since only two prior water losses were suffered.

For an insurer to be entitled to rescind a policy ab initio, it must show that the applicant made a material misrepresentation (Kiss Construction NY, Inc. v Rutgers Casualty Insurance Co., 61 AD3d 412 [1st Dept 2009]). "No misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such a contract" (Insurance Law § 3105[b]). The materiality of a misrepresentation is ordinarily a jury question, however, it becomes a matter of law for the court's determination when the evidence concerning materiality is clear and substantially uncontradicted (Kiss Construction NY, Inc. v Rutgers Casualty [*4]Insurance Co., 61 AD3d 412, supra). In order to establish materiality as a matter of law, the insurer must present documentation demonstrating its underwriting practices, such as underwriting manuals, bulletins, or rules relating to similar risks, that show that it would not have issued the same policy if the correct information had been disclosed in the application (Varshavskaya v Metropolitan Life Insurance Company, 68 AD3d 855 [2nd Dept 2009]

Assuming arguendo that plaintiff was required to report the prior losses on the application and made a misrepresentation by claiming "none", defendant does not meet its burden of providing clear and uncontradicted evidence of the materiality of the misrepresentation. Mr. Null's affidavit provides that the underwriting guidelines require that "any risk or premises which had sustained more than two prior losses or occurrences due to water damage was not eligible for coverage" (Null Aff., 7/7/10, ¶ 4 [emphasis added]). As previously noted, the application directed plaintiff to provide claims, losses, or occurrences for the prior three years. Thus, if plaintiff had provided the prior water damage occurrences on the application, it would have only had to include two out of the three prior water damage occurrences because the third occurrence fell outside the relevant time period.

Further, Mr. Null's second affidavit, submitted with defendant's opposition and reply, also does not provide clear and uncontradicted evidence of materiality. Mr. Null avers that plaintiff's failure to disclose "the October 28, 2006 and July 15, 2007 water damage losses ... prevented Braishfield and [defendant] from undertaking a complete evaluation of the risk by inquiring with [plaintiff] as to the nature of these losses" and that "such an inquiry would have certainly been material to Braishfield's and [defendant's] decision whether to underwrite the risk" (Null Aff., 10/27/10, ¶ 6). These statements alone do not constitute clear and uncontradicted evidence of materiality. Indeed, Mr. Null does not state that defendant would not have provided the policy had plaintiff disclosed the two prior occurrences. Nor does defendant provide any information on Braishfield's underwriting guidelines concerning this type of scenario. In that regard, defendant provides no evidence, or even discussion, of Braishfield's underwriting practices pertaining to similar risks or any documentation corroborating Null's statements in his affidavit (see Sirius American Insurance Co. v Burlington Insurance Co., 81 AD3d 562 [1st Dept 2011]; Kiss Construction NY, Inc. v Rutgers Casualty Insurance Co., 61 AD3d 412, supra; Schirmer v Penkert, 41 AD3d 688 [2nd Dept 2007]). As such, defendant fails to make a prima facie showing that the misrepresentation was material and that it would not have issued the same policy if plaintiff had disclosed the prior two [*5]occurrences.

Defendant next asserts that based upon its investigation of plaintiff's claim it found that plaintiff submitted false invoices and documents, and swore falsely by submitting the following to defendant: i) an estimate from a company called Bronto Construction ("Bronto"), dated July 22, 2008, for repair of the interior of the loss location; ii) invoices from a company call Atib Construction ("Atib"), dated February 15, 2008, with respect to improvements plaintiff allegedly made to the interior of the loss location; iii) alleged invoices from a company called Jeanette Andral ("Andral") with respect to clothing that plaintiff had allegedly purchased from Andral on May 5, May 15, June 2, and June 15 of 2008 for a total of $186,328; and iv) an alleged agreement dated September 27, 2006 with Giscombe Henderson, Inc. ("Henderson") to extend plaintiff's predecessor's lease at the loss location for a period of five years commencing on October 1, 2006 ("lease extension").

As for these submissions, defendant alleges that based on its investigation it found that no listing for Bronto existed. Defendant further argues that at Deiabes' Examination Under Oath ("EUO") he testified that he told defendant that he would provide Bronto's phone number, but later claimed that he was unable to obtain Bronto's address or phone number.

As for Atib, defendant's investigator could not find a listing for such an entity through a corporate records search and the phone number listed on the invoice was not in service.

Concerning the lease extension, Eugene Giscombe of Henderson advised defendant's investigator that the lease extension had been falsified by plaintiff.

In connection with its investigation into the Andral invoices from May and June 2008, defendant proffers the affidavit of Stephen G. Ward, president of Trademark Associates of NY, Ltd. ("Trademark"). Defendant retained Trademark to investigate plaintiff's insurance claims for clothing and other merchandise items. Mr. Ward states that the Andral invoices are false (Ward Aff., 10/27/10, ¶ 3). In support of this assertion, Ward points out that Andral was dissolved in 2006, and had not been at the purported location for several years prior to May 2008 (Id.)

In addition, defendant proffer the affidavit of its private investigator, Edward J. McEntee, hired to investigate the veracity of certain documents that plaintiff had submitted. McEntee claims he spoke to Deiabes' contact at Andral, "Jack", and that Jack told him that he had sold approximately $25,000 in merchandise to plaintiff, and not $186,328 worth of merchandise claimed by plaintiff, that plaintiff owed approximately $14,000, and that sales were billed by an entity called "Y Enterprises" (McEntee Aff, 7/7/10, ¶ 7).

Based on its investigation, defendant concluded that [*6]plaintiff breached the policy's Concealment, Misrepresentation or Fraud clause.

In opposition, plaintiff argues that the Bronto and Atib estimates and invoices have no connection with plaintiff's claim for loss. Plaintiff submitted a claim to defendant for damage to its inventory. The Bronto and Atib estimates and invoices are for betterments and improvements to the insured location.

As for defendant's argument relating to the extension of the lease, as with the Atib and Bronto documents, the lease extension with Henderson has no relevance to plaintiff's claim for loss and no bearing on defendant's investigation of plaintiff's claim for damage to its inventory.

As for the Andral invoices, plaintiff argues that merely because Andral dissolved in 2006 does not mean that the invoices are false. Deiabes claims that he had a business relationship with someone named "Jack" for several years who sold him inventory while he was employed with Andral (Deiabes Aff., ¶ 12). Later, when "Jack" began working for an entity named "Y Enterprises", Deiabes maintained his relationship with Jack and continued to purchase inventory from "Jack" at Y Enterprises (Deiabes Aff., ¶ 12). While Deiabes would receive invoices from "Jack" through both Y Enterprises and Andral, he had no reason to question the invoices since he had received the merchandise he had ordered (Deiabes Aff., ¶ 12).

Plaintiff points out that defendant fails to provide an affidavit from "Jack." Thus, defendant's investigator's claim that he had a conversation with Jack who advised him that Y Enterprises sold only $25,000 of goods to plaintiff, and not the amount of $186,328 as claimed by plaintiff, is self-serving and hearsay. Further, none of the alleged conversations that defendant's investigator had with "Jack" detract from Deiabes' claim that he considered Y Enterprises and Andral the same entity. Nowhere does defendant make the claim that Jack was not employed by Andral or that "Jack" never sold inventory to plaintiff using invoices from Andral. Indeed, if the Andral invoices were false, then the inventory would not exist. Upon defendant's examination of the damaged inventory, however, it was able to cross-reference the inventory against the Andral invoices.

As for defendant's allegations that plaintiff submitted false invoices and documents as part of its claim to defendant, these allegations merely raise issues of fact as to whether plaintiff breached the policy's "Concealment, Misrepresentation or Fraud" clause. While Messrs. Ward and McEntee make some compelling claims, they are not sufficient to demonstrate defendant's entitlement to summary judgment pursuant to the policy's Concealment, Misrepresentation or Fraud clause. Mr. Ward's affidavit raises triable factual issues as to the validity [*7]of the invoices, but is not prima facie evidence that plaintiff committed fraud or intentionally concealed or misrepresented a material fact. In addition, defendant does not provide an affidavit from "Jack" confirming McEntee's conversation with him and the representations he purportedly made to McEntee.

Lastly, defendant argues that the sworn statement of proof of loss, executed by Deiabes on November 6, 2008, is fraudulent. In the proof of loss statement, plaintiff claimed that the actual cash value of its property at the time of the loss was $360,110 and that the property was new at the time (Moving Papers, Ex. 8). Defendant claims, however, that as a result of its investigation it determined that a significant portion of plaintiff's merchandise was inauthentic or counterfeit (Ward Aff., 7/9/10, ¶ 3). Thus, pursuant to the policy's "Building and Personal Property Coverage" section, contraband, or property in the course of illegal transportation or trade, is not covered under the policy (Moving Papers, Ex. C, p. 2). Further, defendant claims that Trademark determined that a significant minority of plaintiff's merchandise consisted of older goods not currently sold on the market (Ward Aff., 7/9/10, ¶ 8). As such, plaintiff swore to an actual cash value of its merchandise that was based on goods that were at least 33% counterfeit or contraband, and 20% older merchandise (Chernow Affirm., 7/12/10, ¶ 61). Defendant argues that this causes the entire proof of loss to be overvalued and thus renders it fraudulent and voids any coverage for the claim.

As for defendant's claims regarding counterfeit merchandise, plaintiff asserts that it did not knowingly or intentionally have counterfeit goods in its inventory, thus, it could not have intentionally inflated its claim. Further, defendant's argument regarding "older goods not currently sold on the market" fails since defendant offers no proof besides its investigator's affidavit wherein he characterizes the goods as such. The investigator, however, does not state how he was able to determine that the goods were not new.

The question of whether plaintiff knowingly or intentionally inflated the value of its merchandise, which implicates the policy's "Concealment, Misrepresentation or Fraud" clause, involves issues of credibility that cannot be determined on this motion for summary judgment. In addition, as to any determination as to merchandise not covered by the policy, such issues go to plaintiff's damages.

Accordingly, it is

ORDERED that branch of defendant's motion for a declaratory judgment that the insurance policy at issue is void ab initio is denied; and it is further

ORDERED that branch of defendant's motion for summary judgment dismissing the complaint is denied; and it is further [*8]

ORDERED that plaintiff's cross-motion for partial summary judgment declaring that the relevant insurance policy is not void and that plaintiff is entitled to coverage is denied; and it is further

ORDERED that the parties are directed to call the Clerk of Part 48, at 646-386-3265, to schedule a status conference.

This memorandum opinion constitutes the decision and order of the Court.

Dated: 8/8/2011

____________________________

HON. JEFFREY K. OING, J.S.C.