PRELIMINARY STATEMENT

Motion Sequence 043

Archstone-Smith Operating Trust, Archstone Westbury, LP, f/k/a Tishman Speyer Archstone-Smith Westbury, L.P., f/k/a ASN Roosevelt Center LLC, Archstone Multifamily Series I Trust, f/k/a Archstone-Smith Trust, Archstone Communities, LLC, f/k/a Archstone Smity Communities, LLC (collectively "Archstone") moves for an order granting them partial summary judgment against Erie Insurance Exchange ("Erie") determining that Erie has breached its contract with Archstone and directing Erie to pay all of the defense costs incurred by Archstone-Smith Operating Trust and ASN Roosevelt Center, LLC in connection with the Hunter action.^[FN1] Archstone relies on the prior Order of this Court of April 5, 2011, and its clarification on reargument by Order dated April 7, 2011, whereby the Court determined that Archstone was an additional insured under policies sold by Erie Insurance Exchange ("Erie") to Mid-Atlantic Stone, Inc.; that Erie had a duty to defend ASOT and ASN Roosevelt in the Consolidated Tenant Action, including the individual actions that were consolidated into the Consolidated Tenant Action; and to defend ASN Roosevelt in the Hunter action.

Erie opposes the motion, asserting that the April 5, 2011 Decision and Order explicitly excluded from consideration issues regarding the allocation of defense costs and Archstone's actual damages from the Second Third-party Defendants' failure to defend. They also contend that the case upon which Archstone relies is factually distinguishable and inapplicable to the facts of this action.^[FN2] They assert that the Court in J.H. France never intended to give an insured unfettered choice as to which of multiple carriers were to be totally responsible for defense costs.

Motion Sequence 044

Archstone moves pursuant to CPLR § 3025 (b) for leave to amend its Second Third-party

Amended Complaint in order to add a claim against Erie Insurance Exchange ("Erie") for bad faith for its failure to provide defense coverage and its refusal to reimburse Archstone for its costs of defense in the face of this Court's determination that Archstone Smith Operating Trust ("ASOT") and ASN Roosevelt Center, LLC ("ASN Roosevelt") were additional insureds under Erie's polocies issued to Mid-Atlantic Stone, Inc. And that Erie had a duty to defend ASOT and [*2]ASN Roosevelt in the Consolidated Class Action and to defend ASN Roosevelt in the Hunter action.

Erie opposes the motion as seeking relief which is contrary to the language and intent of the Court's April 5, 2011 Order. It takes the position that the Decision did not impose an obligation upon Erie to "adjust" or otherwise pay the entirety of Archstone's defense costs in the tenant actions. While New York law permits liberal amendment of pleadings, it should not be permitted in this case, since it would constitute an act of futility. The refusal of Erie to pay the entirety of Archstone's defense costs does not constitute bad faith under the laws of New York or Pennsylvania. Erie acknowledges that the parties agree that the laws of Pennsylvania should apply to the determination of Erie's defense, but claims it is unclear if the Pennsylvania law of bad faith applies to allegations involving Erie's conduct during the course of New York litigation.

Archstone is a defendant in actions filed by former tenants of the Archstone Westbury Complex, referred to as the "tenant actions". In November 2008 Archstone requested coverage as an additional insured under Erie policies issued to Mid-Atlantic Stone. Erie did not respond to the request. In November 2009, Archstone commenced a second third-party action against Erie and other insurers, seeking a judgment that Erie was obligated to pay defense costs and expenses associated with their defense against lawsuits that have been or may be brought against Archstone arising out of the Archstone Westbury Complex. The action also asserts that Erie is obligated under the policies issued to Mid-Atlantic Stone to indemnify Archstone for its defense in the tenant actions, subject to the limits of liability, along with damages and post and pre-trial interest, fees, costs, and expenses incurred by Archstone as a result of Erie's breach, or anticipatory breach, of the contract of insurance. Erie served its answer to the second third-party complaint on November 13, 2009, in which it disclaimed coverage and set forth its coverage defenses.

In August 2010 Archstone moved for partial summary judgment on the duty to defend. Briefing on the motion concluded in March 2011, and the Court heard oral argument on February 8, and March 4, 2011. On April 5, 2011 the Court granted in part and denied in part Archstone's motion. By Order dated June 7, 2011 and entered on June 15, 2011, the Court concluded that Archstone Smith Operating Trust ("ASOT") and ASN Roosevelt were additional insureds under the Erie policies and that Erie owed them a duty to defend in the In re Archstone Westbury Tenant Litigation, Index No. 21135/2007 ("Consolidated Actions") as well as the underlying actions that were consolidated into the Consolidated Action; and owed ASN Roosevelt a duty to defend in Hunter, et al. v. ASN Roosevelt Center, LLC d/b/a Archstone Westbury, Index No. 004856/2008 ("Hunter Action").

By letter dated April 20, 2011, Archstone demanded that Erie pay in excess of $7 million in costs which it had incurred in defending the Consolidated Action and the Hunter Action. Erie rejected the demand by letter dated May 11, 2011, contending that the demand was "premature". Archstone replied by letter dated May 25, 2011, reiterating their demand for payment. Erie responded by repeating its refusal to make payment, partly because several of the third-party defendants have appealed the prior Orders of the Court, and that there was a substantial likelihood of reversal.

Erie also provided coverage to ASN Roosevelt, LLC as an additional insured. The complaint in Hunter alleges negligent construction and the Crewdson letter identifies numerous defects in the installation of the Eldorado Stone product. Those claims, as well as the more specific references to the "exterior product" alerted Erie that some of the water intrusion at the Archstone Westbury complex was attributable, or arose out of Mid Atlantic work.

The Court made no determination as to allocation of defense costs, nor did it make any award of such defense costs. Archstone now moves against Erie to determine whether Archstone may require Erie to reimburse past and future defense costs under the concept of joint and several liability, irrespective of the amount, without apportionment or pro rationing.

Archstone relies on a decision of the highest court of Pennsylvania^[FN3] to assert that Erie's liability for its failure to defend Archstone is joint and several, and that they are entitled to recover all of their costs from Erie, who then must proceed against the other insurers who are also jointly and severally liable.

J.H. France is frequently cited for two different holdings. The first of those deals with when a tort occurs so as to trigger coverage under a particular policy. Most general commercial ("GCL") policies define coverage in terms of damages which accrue as a result of "bodily injury" or "property damage" as a result of an "occurrence". Occurrence is generally defined as a type of accident or condition that results in property damage or bodily injury.^[FN4] J.H. France involved personal injury as a result of exposure to asbestos, and the court was required to determine during what periods of coverage the exposure occurred so as to determine which policies covered particular injured claimants.

The Court adopted a "multiple trigger" theory of determining liability of the insurers, by deciding that liability results if any one of the following occurred during the time the insurer was on the risk: exposure to asbestos or silica; progression of the pathology; or manifestation of the disease. The Court adopted the determination of the Superior Court that exposure to asbestos causes immediate "bodily injury", thus triggering the insurer's duty to indemnify. "Bodily injury" also encompasses the progression of the disease throughout and after the period of exposure, until ultimately, the manifestation of recognizable incapacitation constitutes the final "injury". These stages of the pathogenesis of asbestos and silica related diseases also trigger the [*4]liability of J.H. France's insurance carriers.^[FN5] This multiple trigger approach imposed an obligation to indemnify J. H. France upon each carrier on the risk at any stage of the development of the claimant's asbestos-related disease.

The second question which the Court in J.H. France confronted, and the issue which is relevant to this motion, is "how to allocate the liability of each insurer when, as is commonly the case, more than one insurer was on the risk at one time or another during the development of the claimant's disease".^[FN6] The Superior Court had developed an apportionment of the obligation to indemnify on a pro rata basis, depending upon the amount of time each policy was in effect, including an obligation of J.H. France for the periods during which it was self-insured. The Court rejected this approach for several stated reasons.

First, under the terms of any given policy, an insurer contracts to pay all sums which the insured becomes legally obligated to pay, not some pro rata portion of them. There is no provision for a reduction in the insurer's liability if an injury occurs only in part during the policy period. Secondly, apportionment of liability on a temporal basis, attractive because of its measurability, assumes a linearity of disease progression which the medical evidence in the case did not support.

The Third objection was the treatment of J.H. France as if it were an insurer during the periods during which it was uninsured. But there is no "self-insurance policy" with specified provisions, and there is no judicial authority to fabricate additional insurance policies.^[FN7] The Fourth consideration was that the definition of an "occurrence" which constitutes a risk against which the insurance was provided, led the Court to reject the pro rata allocation adopted by the Superior Court. They determined that the definition "suggests that any insurance policy triggered under the multiple trigger' concept with respect to any specific claim is potentially liable for the entire amount of any judgment or settlement of that claim".^[FN8] The Court further noted that this determination did not affect the rules of contribution or the "other insurance" provisions of the applicable policies.

The Third Circuit Court of Appeals, applying Pennsylvania law, has determined that J.H. France was controlling precedent regarding the allocation of costs where multiple policies provided coverage.^[FN9] In a subsequent case, the Third Circuit adopted J.H. France for the proposition that "the insurers whose coverage has been triggered were jointly and severally liable for the full amount of the claim up to policy limits . . . .^[FN10] [*5]

Air Products did not analyze whether J.H. France should be "extended" to apply to the case; rather, it found that J.H. France was controlling wherever multiple policies had been triggered, and the issue was only one of allocation. Air Products involved bodily injury from workplace exposure to fumes and gases emitted from welding rod material sold by Air Products, among others. Two different Aetna policies provided coverage, between which the Court was required to apportion costs.

In Koppers, an environmental damage case, the Third Circuit examined whether the Pennsylvania Supreme Court would extend the holding of J.H. France to the facts of the case. The Court predicted that the Supreme Court would extend J.H. France by analyzing the decision's reasoning. They noted that the Pennsylvania Supreme Court relied heavily upon the fact that the literal understanding of the policies' language provided for coverage of all sums which an insured was obligated to pay.^[FN11]

Erie cites cases which have distinguished J.H. France.^[FN12] In Wausau Underwriters, the Court was confronted with determining "when injuries caused by defective stone fascia first manifested themselves".^[FN13] The Court was not applying the "multiple trigger" approach from J.H. France to determine coverage according to the time that claimants were exposed to the harmful condition. The Court quoted Pennsylvania law for the proposition that "(a)n occurrence happens when the injurious effects of the negligent act first manifest themselves in a way that would put a reasonable person on notice of injury".^[FN14]

Wausau Underwriters does not support Erie's position on the critical issue of joint and several responsibility for all amounts for which the insured is responsible. Wausau had provided two policies which were in effect between 1996 and 2005, when injuries caused by the allegedly defective stone fascia manifested themselves. Wausau was already defending defendant Schuylkill under a complete reservation of rights, and the Court concluded that "either of the Wausau policies may provide coverage".^[FN15]

West American involved a class action by homeowners against Scarborough, a developer and builder of homes, and Lindepuu, a subcontractor of Scarborough who installed doors and windows. The action asserted that the quality of the doors and windows had been misrepresented, and had been negligently installed by Lillepuu. The only issue of allocation was which of the West American policies provided coverage; whether it was the policies in effect when the doors and windows were installed, or when injury to the plaintiffs became apparent. [*6]The Court determined that there was no basis to apply the multiple trigger approach, and concluded that it would only look to when the plaintiffs alleged they suffered injury.

Similarly, the Court in City of Erie declined to use the multiple trigger approach of J.H. France to determine when the alleged damages from the tort of malicious prosecution occurred, relying instead on the general rule that such damages occur when they first manifest themselves, because the tort was a single act rather than a progressive and continuous condition.

Archstone's motion does not discuss the trigger for coverage, relying instead on the Court's April 5, 2011 Memorandum Decision, which determined that various insurers owed a duty to defend Archstone on the ground that the various class actions claimed damages beginning February 10, 2003 through November 2007. The Court was not called upon to determine which policies from the various insurers which covered Archstone during that period were triggered. Practically speaking, determining when a particular tenant or claimant in the class action suffered damage or injury which first became apparent, is a difficult, if not impossible task. For the purpose of determining a duty to defend, it is sufficient that the Court can glean from the complaint that at least one of the members of the class suffered bodily injury or property damage throughout the entire span of the time when members of the class suffered injuries.

Erie argues that the exclusion for mold damage, which may arguably produce a progressive disease, makes the application of the multiple trigger approach of J.H. France inappropriate. They argue that property damage is divisible and the costs for indemnification of such damages may readily be apportioned, depending upon when the damages were first manifested. This is not, however, a determination which the Court can readily make based upon a reading of the complaints. Rather, the process of water intrusion, retention and subsequent damage is an ongoing condition, which the Court believes would result in the application of the multiple trigger approach under Pennsylvania law.

What is significant is that the cases cited by Erie do not distinguish J.H. France's holding with respect to joint and several liability, once it is determined that multiple policies of insurance provide coverage for certain damages. While Erie claims that the joint and several liability holding of J.H. France should be rejected on policy grounds, it is clearly not against the policy of Pennsylvania, whose law both sides agree is applicable.

Whether or not it contravenes New York policy has not been established, or even argued. There are cases interpreting New York law which have rejected both the "multiple trigger" and "first manifestation" theories.^[FN16] Instead, the Second Circuit adopted an "injury in fact" approach, based upon medical and other evidence. Nor is it clear whether New York has adopted a pro rata allocation of coverage as a general rule, though it has been approved multiple times. The Court of Appeals has applied a time-on-the-risk pro-rata allocation of coverage for successive ( as opposed to concurrent policies in this case), and rejected joint and several liability for damages from toxic substance contamination of soil and groundwater which extended over many years.^[FN17]

The Second Department has applied a pro-rata allocation for damages from lead [*7]poisoning for successive policies.^[FN18] The Court does not believe, however, that these decisions constitute a statement of public policy by New York which would be sufficient to obviate the application of Pennsylvania law, which quite clearly supports the application of joint and several liability against concurrent insurers. The proponent of a public policy bar to enforcement of foreign law would have to "establish that to enforce the foreign law would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal' expressed in them".^[FN19] By virtue of J.H. France, Pennsylvania has determined that multiple carriers are jointly and severally liable. While this may be contrary to the applicable rule in New York, it is not repugnant or offensive to New York's public policy.

For the foregoing reasons, Archstone's Motion Sequence No. 43, for partial summary judgment alleging breach of contract against Erie Insurance Exchange is granted. Archstone's Motion Sequence No. 44 for leave to amend the second third-party complaint to assert a claim for bad faith based upon Erie's refusal to reimburse Archstone for its defense costs and to pay defense costs is also granted.

This constitutes the Decision and Order of the Court.

Dated: October 26, 2011______________________________

J.S.C.