11-2596-cv

Ment Bros. Iron Works Co. v. Interstate Fire & Casualty Co.

1 UNITED STATES COURT OF APPEALS

2

3 FOR THE SECOND CIRCUIT

4

5 August Term, 2012

6

7

8 (Argued: September 5, 2012 Decided: December 11, 2012)

9

10 Docket No. 11-2596

11

12 - - - - - - - - - - - - - - - - - - - -x

13

14 MENT BROS. IRON WORKS CO., INC.,

15

16 Plaintiff-Appellant,

17

18 - v.-

19

20 INTERSTATE FIRE & CASUALTY CO.,

21

22 Defendant-Appellee.

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24 - - - - - - - - - - - - - - - - - - - -x

25

26 Before: JACOBS, Chief Judge, CALABRESI and

27 CARNEY, Circuit Judges.

28

29 Ment Bros. Iron Works Co., Inc. appeals from a judgment

30 of the United States District Court for the Southern

31 District of New York (Hellerstein, J.) granting summary

32 judgment in favor of Interstate Fire & Casualty Co. in an

33 insurance dispute. Reversed. 

34 NEAL M. EISMAN, Goetz

35 Fitzpatrick LLP, New York, NY,

36 for Appellant Ment Bros. Iron

37 Works Co., Inc.

38
1 STUART M. BODOFF, Rivkin Radler

2 LLP, Uniondale, NY (Evan H.

3 Krinick, Gary D. Centola, Jay

4 Kenigsberg, Erik Lindemann, on

5 the brief), for Appellee

6 Interstate Fire & Casualty Co.

7

8 RICHARD VOLACK, Peckar &

9 Abramson, P.C., New York, NY

10 (Cesar F.F. Pereira, on the

11 brief), for Amicus Curiae Allied

12 Building Metal Industries, Inc.,

13 in support of Appellant.

14

15 DENNIS JACOBS, Chief Judge:

16

17 This declaratory judgment action disputes liability

18 insurance coverage for property damage alleged to have been

19 caused by the policyholder, a welding subcontractor, during

20 construction of a residential building at 40 Mercer Street

21 in New York City. Forty Mercer was planned and marketed by

22 the developer as a residential condominium, though no units

23 had been sold at the time the damage occurred. The general

24 commercial liability coverage (with an aggregate limit of $2

25 million) excludes property damage “arising out of the

26 construction of ‘residential properties,’ except

27 ‘apartments.’” “Residential properties” is defined to

28 include condominiums. An apartment is defined as “a unit of

29 residential real property in a multi-unit residential

30

2
1 building or project where all units are owned by and titled

2 to a single person or entity.” 

3 The policyholder, Ment Bros. Iron Works Co., Inc.

4 (“Ment”) filed suit against Interstate Fire & Casualty Co.

5 (“Interstate”) seeking a declaration that its insurer is

6 obligated to defend and indemnify. Ment appeals from the

7 judgment of the United States District Court for the

8 Southern District of New York (Hellerstein, J.) granting

9 summary judgment in favor of Interstate. The district court

10 ruled that 40 Mercer was a “residential property”

11 construction but not an “apartment” at the time the damage

12 occurred--meaning that Ment had no coverage. Because we

13 conclude that 40 Mercer was an apartment building as defined

14 in the insurance policy when the damage occurred, Ment was

15 covered by the policy. We therefore reverse. 

16

17 I

18 WXIV/Broadway Grand Realty, LLC (“WXIV/Broadway”), a

19 building owner and developer, began construction at 40

20 Mercer Street in 2005, using Pavarini McGovern, LLC

21 (“Pavarini”) as general contractor. Pavarini subcontracted

22 the welding to Ment. Ment completed its work between April

3
1 and July 2006. At the time, WXIV/Broadway was the sole fee

2 owner of the building and project at 40 Mercer.

3 Thereafter, Pavarini discovered damage to the penthouse

4 windows, allegedly caused by welding sparks. Pavarini sued

5 Ment in New York state court. See Pavarini McGovern, LLC v.

6 Ment Bros. Ironworks, Index No. 107637/09 (N.Y. Sup. Ct.

7 2011) (York, J.). Ment called on Interstate to defend the

8 suit and indemnify it. Interstate assigned counsel to

9 defend, but soon reserved its rights on the ground that the

10 damage had occurred during the construction of a

11 condominium, citing the residential construction exclusion. 

12 Interstate agreed to furnish a defense until Ment’s counsel

13 could file a motion for summary judgment. When Ment’s

14 counsel advised Interstate that such a motion was not yet

15 feasible, Interstate gave thirty days’ notice that it would

16 relinquish the defense, so that Ment could make its own

17 arrangements. 

18 Ment filed a two-count complaint in the Southern

19 District of New York seeking a declaration that Interstate

20 had duties of defense and indemnity on the underlying

21 Pavarini claim. See Ment Bros. Iron Works Co. v. Interstate

22 Fire & Cas. Co., No. 10 Civ. 3043 (Dkt. No. 1) (S.D.N.Y.

4
1 Apr. 9, 2010) (Hellerstein, J.). Cross-motions for summary

2 judgment were filed on January 18, 2011. At oral argument

3 on June 13, 2011, the district court ruled from the bench. 

4 A summary order explained that the residential construction

5 exclusion applied “[f]or the reasons provided on the

6 record,” and therefore “grant[ed] summary judgment to

7 Interstate dismissing the Complaint.” Summ. Order, at 1

8 (Dkt. No. 46) (S.D.N.Y. June 13, 2011). Ment timely filed a

9 notice of appeal.

10

11 II

12 We review an order granting summary judgment de novo,

13 drawing all factual inferences in favor of the non-moving

14 party. Costello v. City of Burlington, 632 F.3d 41, 45 (2d

15 Cir. 2011). Likewise, we review de novo the interpretation

16 of contracts, including insurance agreements. Fireman’s

17 Fund Ins. Co. v. TD Banknorth Ins. Agency Inc., 644 F.3d

18 166, 169 (2d Cir. 2011). 

19

20 III

21 The provisions at issue are contained in Endorsement

22 ICB-6002 (12/04), entitled “RESIDENTIAL CONSTRUCTION

5
1 EXCLUSION WITH APARTMENT EXCEPTION.” The fuller text is in

the margin.1 2 The critical wording of the exclusion and the

3 exception (so labeled) is set out as follows, decisive terms

4 emphasized:

5 This insurance does not apply to . . . “property

 1 This insurance does not apply to:

“Bodily injury”, “property damage” or “personal and

advertising injury” arising out of the construction of

“residential properties”, except “apartments”. In the

event any “apartment” to which coverage under this

policy applies is converted to a “condominium, townhome

or multi-family dwelling”, then coverage under this

policy is excluded for any claims for “bodily injury”,

“property damage”, “personal and advertising injury”,

arising out of, related to, caused by, or associated

with, in whole or part, the construction of said

“apartments” which occur after the conversion of the

“apartment” into a “condominium, townhome or multifamily dwelling”.

As used in this endorsement, the following terms have

the following meanings:

1. “Residential properties” include but are not

limited to single-family dwellings, “townhomes,

condominiums or multifamily dwellings”.

2. “Apartment” means a unit of residential real

property in a multi-unit residential building or

project where all units are owned by and titled to a

single person or entity.

3. “Condominium, townhome or multi-family dwelling”

means a unit of residential real property in a multiunit residential building or project where each unit is

separately owned and titled.

 

J.A. 87.

6
1 damage” . . . arising out of the construction of

2 “residential properties” [the exclusion], except

3 “apartments” [the exception].

4 

5 J.A. 87 (emphasis added). The exclusion and exception are

6 followed by qualifying language, which applies to

7 “apartments” that are converted to “condominiums”: 

8

9 In the event any “apartment” to which coverage

10 under this policy applies is converted to a

11 “condominium, . . . ”, then coverage under this

12 policy is excluded for any claims for . . .

13 “property damage” arising out of, related to,

14 caused by, or associated with, in whole or part,

15 the construction of said “apartments” which occur

16 after the conversion of the “apartment” into a

17 “condominium, townhome or multi-family dwelling”

18 [qualifying language].

19

20 Id. (emphases added).

21

22 IV

23 Under New York law, which governs this dispute, an

24 insurer bears the burden of proving that an exclusion

25 applies. See, e.g., Consol. Edison Co. of N.Y. v. Allstate

26 Ins. Co., 98 N.Y.2d 208, 218 (2002) (“Generally, it is for

27 the insured to establish coverage and for the insurer to

28 prove that an exclusion in the policy applies to defeat

29 coverage.”); 2 Allan D. Windt, Ins. Claims & Disputes § 9:1

30 (5th ed. 2010). Once the insurer establishes that an

31 exclusion applies, however, New York law has evolved to

7
1 place the burden of proof on the insured to establish the

2 applicability of an exception to the exclusion.

3 This Court has previously interpreted New York law to

4 be that the insurer retains the burden of also showing that

5 an exception to the exclusion is inapplicable. See New York

6 v. Blank, 27 F.3d 783, 789 (2d Cir. 1994) (citing Colonial

7 Tanning Corp. v. Home Indem. Co., 780 F. Supp. 906, 919

8 (N.D.N.Y. 1991)); see also Town of Union v. Travelers Indem.

9 Co., 906 F. Supp. 782, 787 (N.D.N.Y. 1995) (applying Blank). 

10 But New York law on this point has changed since 1994.

11 In Northville Industries Corp. v. National Union Fire

12 Insurance Co. of Pittsburgh, 89 N.Y.2d 621 (1997), the New

13 York Court of Appeals held that once an insurer establishes

14 that an exclusion applies, “the burden shifts to the insured

15 to demonstrate” that an exception to the exclusion applies. 

16 Id. at 634; see also Hritz v. Saco, 795 N.Y.S.2d 236, 237

17 (1st Dep’t 2005); Barry R. Ostrager & Thomas R. Newman,

18 Handbook on Insurance Coverage Disputes § 10.02[a][1] (14th

19 ed. 2008) (collecting cases applying burden-shifting rule). 

20 Several district courts in this Circuit have recognized the

21 shift in New York law. See, e.g., RSUI Indem. Co. v. RCG

22 Grp. (USA), --- F. Supp. 2d ---, 2012 WL 3100636, at *9 &

8
1 n.8 (S.D.N.Y. July 31, 2012); Mahl Bros. Oil Co. v. St. Paul

2 Fire & Marine Ins. Co., 307 F. Supp. 2d 474, 494 (W.D.N.Y.

3 2004). Because this Court has not had occasion to consider

4 this issue of New York law since Blank, we now acknowledge

5 that after an insurer establishes that a policy exclusion

6 applies, the burden shifts to the policyholder to prove that

7 an exception to that exclusion applies. 

8 Thus if Interstate can show that the residential

9 construction exclusion applied to Ment’s work on 40 Mercer,

10 then Ment must show that the apartment exception to the

11 exclusion preserved Ment’s coverage.

12

13 V

14 The exclusion forecloses coverage for “‘property

15 damage’ . . . arising out of the construction of

16 ‘residential properties.’” J.A. 87. “Residential

17 properties” are defined to “include but are not limited to

18 single-family dwellings, ‘townhomes, condominiums or

19 multifamily dwellings.’” Id. (emphasis added).

20 “The New York approach to the interpretation of

21 contracts of insurance is to give effect to the intent of

22 the parties as expressed in the clear language of the

9
1 contract.” Mount Vernon Fire Ins. Co. v. Belize NY, Inc.,

2 277 F.3d 232, 236 (2d Cir. 2002) (internal quotation marks

3 omitted). Terms in an insurance contract must be given

4 “‘their plain and ordinary meaning.’” 10 Ellicott Square

5 Court Corp. v. Mountain Valley Indem. Co., 634 F.3d 112, 119

6 (2d Cir. 2010) (quoting Essex Ins. Co. v. Laruccia Constr.,

7 Inc., 898 N.Y.S.2d 558, 559 (2d Dep’t 2010)).

8 Forty Mercer qualifies as a “residential property”

9 under the ordinary meaning of the term. Moreover, the term

10 is defined in the contract to include properties such as

11 single-family homes, townhomes, condominiums, or similar

12 properties. In any event, the parties do not dispute that

13 the 40 Mercer building was a new construction of a

14 “residential property” at the time the damage occurred.

15 The harder question is whether Ment’s coverage is

16 preserved nevertheless by the exception to the exclusion. 

17 Although coverage is excluded for “‘property

18 damage’ . . . arising out of the construction of

19 ‘residential properties,’” there is the exception for

20 “apartments,” which are defined as “a unit of residential

21 real property in a multi-unit residential building or

22 project where all units are owned by and titled to a single

10
1 person or entity.” J.A. 87 (emphasis added). An

2 “apartment” is in that respect the opposite of a

3 “condominium,” which is defined as “a unit of residential

4 real property in a multi-unit residential building or

5 project where each unit is separately owned and titled.” 

6 Id. (emphasis added). 

7 The record is clear that, in 2006, 40 Mercer was an

8 apartment building rather than a condominium. The sale deed

9 in the record shows that in 2001, the property was sold by

10 multiple owners to WXIV/Broadway alone. The documentation

11 of the mortgage obtained by WXIV/Broadway in October 2005

12 clearly shows that WXIV/Broadway was the owner of the entire

13 40 Mercer property. There is no claim or evidence that any

14 unit of the planned condominium had been transferred when

15 Ment finished performing its welding subcontract in the

16 summer of 2006.

17 Since 40 Mercer met the policy’s definition of

18 “apartment” at the relevant time, we therefore hold that

19 Ment has sustained its burden to show that the apartment

20 exception to the residential construction exclusion applies

21 and that it is entitled to coverage on this loss.

22

11
1 VI

2 Interstate seeks to elide the fact of unitary ownership

3 of the building. Instead, Interstate points to condominium

4 offering literature filed with the New York Attorney

5 General, which shows that 40 Mercer was intended from the

6 outset to be sold as condominiums, and cites New York cases

7 suggesting that the ultimate intended use of a building is

8 determinative. See, e.g., Admiral Ins. Co. v. Joy

Contractors, Inc., 917 N.Y.S.2d 168 (1st Dep’t 2011).2 9

10 We are unpersuaded. The contract wording governs. 

11 Whatever the developer’s design or marketing plan, the

12 wording of the exception to the exclusion, and the related

13 definitions, indicate that Ment was covered. Moreover, the

14 qualifying language in the policy supports the view that an

15 apartment is not a condominium until after conversion:

16 In the event any “apartment” to which coverage

17 under this policy applies is converted to a

18 “condominium, . . . ”, then coverage under this

19 policy is excluded for any claims for . . .

20 “property damage” arising out of . . . the

 2 After briefing was completed in this appeal, the New

York Court of Appeals affirmed but modified the opinion of

the First Department in Admiral Insurance Co. See Admiral

Ins. Co. v. Joy Contractors, Inc., 19 N.Y.3d 448 (2012). 

The Court of Appeals explicitly observed that a developer’s

“intent does not control whether” a policy containing a

residential construction exclusion affords coverage. Id. at

458.

12
1 construction of said “apartments” which occur

2 after the conversion of the “apartment” into a

3 “condominium, townhome or multi-family dwelling.”

4 J.A. 87 (emphases added). Interstate does not dispute that

5 at the time the damage occurred, the 40 Mercer project was

6 owned by and titled to a single owner. 

7 Although the language of the policy governs and settles

8 the dispute, Interstate’s argument regarding ultimate intent

9 is additionally unpersuasive because under New York law, a

10 building does not become a condominium until a condominium

11 declaration is filed. “A parcel of real property becomes a

12 condominium and thus is subject to the jurisdiction of the

13 Condominium Act by the filing of a declaration.” Schoninger

14 v. Yardarm Beach Homeowners’ Ass’n, 523 N.Y.S.2d 523, 527

15 (2d Dep’t 1987) (internal citations omitted); see also id.

16 at 526-27 (“In New York the creation and administration of

17 condominiums is governed by the provisions of [the

18 Condominium Act].”); 19A N.Y. Jur. 2d Condos. § 80 (2012). 

19 Without a “valid and existing condominium declaration,” a

20 condominium’s “existence is not recognized at law.” Local

21 798 Realty Corp. v. 152 W. Condo., 830 N.Y.S.2d 79, 80 (1st

22 Dep’t 2007). 

23

13
1 WXIV/Broadway did not file a condominium declaration

2 until February 9, 2007, after Ment had completed its work on

3 40 Mercer. WXIV/Broadway and everyone involved in the

4 project may have intended and anticipated that 40 Mercer

5 would become a condominium, but it was not a condominium

6 under New York law until the declaration was filed in

7 February 2007.

8 Even if the apartment exception to the residential

9 construction exclusion were ambiguous, any ambiguity must be

10 construed against Interstate as drafter of standard contract

11 wording. See Belt Painting Corp. v. TIG Ins. Co., 100

12 N.Y.2d 377, 383 (2003) (“It follows that policy exclusions

13 are given a strict and narrow construction, with any

14 ambiguity resolved against the insurer.”). The same

15 principle applies regardless of whether, as to a particular

16 clause, the burden of proof falls on the insurer or the

17 policyholder. See Nick’s Brick Oven Pizza, Inc. v.

18 Excelsior Ins. Co., 877 N.Y.S.2d 359, 361-62 (2d Dep’t 2009)

19 (construing an ambiguous term in an exception to an

20 exclusionary clause against the insurer). 

21 To the extent it matters, there would seem to be good

22 reason why an insurer would draft wording to avoid coverage

14
1 for residential units that are held by multiple owners. 

2 Although Interstate did not explain the purpose of the

3 apartment exception to the residential construction

4 exclusion, Ment suggested that its purpose is to provide

5 coverage for contractors facing liability from a single

6 building owner but not for contractors facing numerous

potential suits from various individual residential owners.3 7

8 Because we hold that the apartment exception applied to

9 Ment’s work on the 40 Mercer building, we need not consider

10 Ment’s remaining arguments on appeal regarding equitable and

11 promissory estoppel.

12 For the foregoing reasons, we reverse the judgment of

13 the district court.

 3 That explanation is consistent with one industry

publication, which attributes the rise of residential

exclusions in commercial general liability policies to the

fact that “construction defect litigation, spearheaded by

the residential sector” has “increased dramatically over the

last few years.” Patrick J. Wielinski & Marc A. Young, New

Challenges to Insurance Coverage for Defective Construction,

56 Fed’n Def. & Corp. Couns. Q. 175, 178-81 (2006)

(describing the “cost of defense of massive subdivision-wide

and homeowners association condominium claims,” as well as

difficulties associated with “insurance coverage litigation

among multiple parties and their insurers”).

15