Zurich, Caitlin, Starr other insurers win Wall Street water damage case

A federal court has ruled on a complex insurance dispute concerning water damage at a construction project at 99 Wall Street in New York. The case revolved around whether multiple insurance companies were obligated to defend or indemnify the project’s construction manager, Consigli & Associates, LLC, in a lawsuit over alleged damages caused by subcontractors. After reviewing multiple motions for summary judgment, the court ruled largely in favor of the insurers, relieving several of them of coverage obligations while maintaining Harleysville Worcester Insurance Company’s duty to defend.

Background of the case

The case originated from a lawsuit filed by 99 Wall Development Inc. against Consigli & Associates, alleging that two major water damage incidents in 2016 resulted from the negligence of subcontractors Domestic Plumbing Corp. and Hig Services Inc. The incidents included:

• July 2016 Incident: Hig drilled a hole in an elevator room on the building’s roof, leading to water intrusion from rain, causing extensive property damage.
• October 2016 Incident: A water tank switch installed by Domestic failed, leading to water leakage down 27 floors, further damaging the project.

Consigli had insurance coverage from multiple providers, including Harleysville, Zurich American Insurance Company, Catlin Insurance Company, and Starr Indemnity & Liability Company. Harleysville, which had been providing a defense for Consigli, sought a court ruling that it had no further duty to defend or indemnify. Alternatively, it argued that if its coverage remained in place, other insurers should share in the costs of defending Consigli.

Court’s findings and reasoning

The United States District Court for the Southern District of New York, presided over by Judge Margaret M. Garnett, analyzed the case based on policy language, notice provisions, and contractual obligations, ultimately granting summary judgment in favor of several insurers while maintaining Harleysville’s coverage obligations.

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Harleysville’s continuing duty to defend

The court denied Harleysville’s motion to withdraw from defending Consigli, ruling that its insurance policies obligated it to continue providing a defense. The judge reasoned that:

1. Allegations triggered coverage: The lawsuit alleged that Hig and Domestic’s actions caused the damages, meaning Harleysville’s additional insured endorsements covering subcontractors were applicable.
2. Occurrence vs. faulty workmanship: Harleysville argued that the incidents were a result of faulty workmanship, which general liability policies typically exclude. However, the court determined that since the allegations involved third-party property damage and unintended consequences of subcontractor actions, they could qualify as covered occurrences.
3. No clear exclusion applied: Harleysville pointed to business risk exclusions in its policy, but the court found that these did not unambiguously preclude coverage under New York insurance law.

The court emphasized that under New York law, an insurer’s duty to defend is broader than its duty to indemnify and must be provided whenever allegations even potentially fall within the scope of coverage.

Zurich, Catlin, and Starr relieved of coverage obligations

The court granted summary judgment in favor of Zurich, Catlin, and Starr, ruling that they had no duty to defend or indemnify Consigli due to specific policy provisions:

• Zurich successfully argued that it was not liable due to Consigli’s failure to provide timely notice. Under New York law, insurers may deny coverage when late notice prejudices their ability to investigate or defend a claim. The court found that Consigli waited more than four years to notify Zurich of the incidents, well beyond what was reasonably practicable. The court deemed this delay prejudicial, barring Zurich from any coverage obligations.

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• Catlin and Starr were relieved from contributing because their policies contained explicit cross-claims exclusions, which barred coverage for lawsuits filed by one named insured (99 Wall) against another named insured (Consigli). The court found that the clear and unambiguous language of these policies excluded coverage for the claims at issue.

National Union’s role remains unresolved

The court denied National Union Fire Insurance Company’s motion for summary judgment, ruling that it could still be responsible for coverage depending on the outcome of the underlying lawsuit. National Union had issued an excess policy, which the court found could become relevant if Harleysville’s coverage limits were exhausted. The court left this matter open for further proceedings.

Default judgment request against subcontractors denied

Harleysville also sought a default judgment against Domestic Plumbing Corp. and Hig Services Inc., arguing that their failure to respond to the lawsuit warranted a declaration that Harleysville had no duty to defend them. The court denied this request, citing concerns about potential inconsistencies in rulings and the need to resolve factual issues regarding the subcontractors’ role in the damage.

Legal implications

This ruling underscores the importance of timely notice provisions, policy exclusions, and the broad scope of an insurer’s duty to defend in construction-related disputes. The court’s decision reaffirms that insurers may be relieved of obligations when policyholders fail to comply with procedural requirements, such as providing notice within a reasonable time.

Moving forward, Harleysville remains responsible for defending Consigli, while Zurich, Catlin, and Starr successfully avoided liability based on clear contractual terms. The remaining issues in the case, particularly regarding National Union’s potential obligations, will be determined as the underlying state court case progresses.

The parties have been directed to submit a joint status report by March 24, 2025, outlining the next steps in both the insurance dispute and the underlying lawsuit regarding the water damage claims.