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17‐3441

SPARTA Insurance Company v. Technology Insurance Company, Inc.

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A

SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY

FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.

WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST

CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION

ASUMMARY ORDER@). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON

ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second

Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley

Square, in the City of New York, on the 21st day of September, two thousand

eighteen.

PRESENT:   JON O. NEWMAN,   

DENNIS JACOBS,

    ROSEMARY S. POOLER,

Circuit Judges.

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SPARTA INSURANCE COMPANY,   

Plaintiff‐Appellant,

  ‐v.‐            17‐3441

TECHNOLOGY INSURANCE COMPANY,

INC.,   

Defendant‐Appellee.

‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐X
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FOR APPELLANT: John D. McKenna, L’Abbate, Balkan,

Colavita & Contini, L.L.P., Garden

City, NY.

FOR APPELLEE: Judy C. Selmeci, Wilson Elser

Moskowitz Edelman & Dicker LLP,

New York, NY.   

Appeal from a judgment of the United States District Court for the

Southern District of New York (Daniels, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED AND DECREED that the judgment of the district court be

AFFIRMED.

While repaving a parking lot, a worker was injured falling into a drywell.   

Two insurers, Plaintiff SPARTA Insurance Company (“SPARTA”) and Defendant

Technology Insurance Company, Inc. (“Technology”), now dispute their

respective responsibility for liability and defense in the ensuing tort suit.    We

assume the parties’ familiarity with the underlying facts, the procedural history,

and the issues presented for review.

South Nassau Communities Hospital (the “property owner”) hired Stasi

Brothers Asphalt Corp. (the “general contractor”) for the repaving job, and the

general contractor hired Roadwork Ahead, Inc. (the “subcontractor”).    The

agreement between the general contractor and the subcontractor provides that

the subcontractor will indemnify the general contractor and property owner

“from any and all claims and liability for . . . personal injury . . . arising out of . . .

the execution of the work.”    Joint App’x at 59.    SPARTA issued an insurance

policy to the subcontractor, and Technology issued an insurance policy to the

general contractor that provided additional coverage to the property owner.

The injured worker‐‐an employee of the subcontractor‐‐ sued the property

owner and general contractor for damages, alleging their negligence caused his

injuries. The property owner and the general contractor requested, pursuant to
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the indemnification clause in the agreement between the general contractor and

subcontractor, that SPARTA undertake their defense and indemnify them.   

SPARTA agreed to do so.

In later correspondence, however, SPARTA adopted the position that its

undertaking was made subject to a reservation of rights limiting its coverage to

the terms and conditions of the policy it issued to the subcontractor.    The

undertaking did not spell what terms and conditions might bear on its obligation.   

SPARTA ultimately argued that it was not required to indemnify the property

owner because the property owner allegedly caused the worker’s injury through

its negligence, and that Technology should pay half the defense costs and

indemnification of the general contractor because the policy issued by

Technology constituted other insurance under SPARTA’s other insurance clause.   

The general contractor and property owner objected on the ground, inter alia, that

SPARTA had undertaken the defense and indemnification without any

reservation of rights.

In this diversity suit, SPARTA seeks declarations that Technology provides

coverage for the defense and indemnification of the general contractor and

property owner, and that Technology owes reimbursement to SPARTA for all

past and accruing costs to defend the general contractor and property owner.   

Both parties moved for summary judgment, and the district court granted

Technology’s motion in part, ruling that “Technology has no obligation to

reimburse SPARTA for past and accruing costs to defend [the general contractor]

and [the property owner] in” the underlying tort suit.    Joint App’x at 527.    On

appeal, SPARTA argues that the district court erred in determining that SPARTA

is estopped from seeking reimbursement of defense costs from Technology, and

in entering summary judgment for Technology on that ground.

We review a grant of summary judgment de novo, “view[ing] the evidence

in the light most favorable to the party opposing summary judgment, . . .

draw[ing] all reasonable inferences in favor of that party, and . . . eschew[ing]

credibility assessments.”    Amnesty Am. v. Town of W. Hartford, 361 F.3d 113,

122 (2d Cir. 2004) (internal quotation marks omitted).    “Summary judgment is

appropriate only if the moving party shows that there are no genuine issues of
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material fact and that the moving party is entitled to judgment as a matter of

law.”    Miller v. Wolpoff & Abramson, L.L.P., 321 F.3d 292, 300 (2d Cir. 2003).

Potentially complicated coverage issues are obviated by the district court’s

sound ruling that SPARTA waived the rights it invokes in this litigation.    An

insurer “who undertakes the defense of an insured, may be estopped from

asserting a defense to coverage, no matter how valid, if the insurer unreasonably

delays in disclaiming coverage and the insured suffers prejudice as a result of that

delay.”    Bluestein & Sander v. Chicago Ins. Co., 276 F.3d 119, 122 (2d Cir. 2002).   

Prejudice “may be presumed ‘where an insurer, though in fact not obligated to

provide coverage, without asserting policy defenses or reserving the privilege to

do so, undertakes the defense of the case, in reliance on which the insured suffers

the detriment of losing the right to control its own defense.’”    Id. (quoting Albert

J. Schiff Assocs. Inc. v. Flack, 51 N.Y.2d 692, 699 (1980)).    “In such cases, ‘though

coverage as such does not exist, the insurer will not be heard to say so.’”    Id.   

These principles apply to coverage allocation disputes between insurers as well as

to coverage disputes between insurers and insureds.    Liberty Ins. Underwriters,

Inc. v. Arch Ins. Co., 61 A.D.3d 482, 482 (1st Dep’t 2009).

SPARTA undertook the defense and indemnification of the general

contractor and property owner without asserting policy defenses or reserving the

privilege to do so.    Specifically, SPARTA’s May 29, 2013 email to the attorney for

the general contractor and to Technology’s representative agrees to “pick up the

defense and indemnification . . . pursuant to the contract and policy.”    Joint

App’x at 71.    SPARTA’s July 9, 2013 letter to the property owner advised that it

would “defend and indemnify” the general contractor and property owner as

additional insureds under the commercial general liability policy that SPARTA

issued to the subcontractor.    Joint App’x at 73.    These communications did not

suggest that SPARTA planned to assert policy defenses to its coverage of the

defense and indemnification, or that it was reserving the right to do so later.

Notably, a May 29, 2013 email to SPARTA’s representative, from defense

counsel in the underlying tort suit, referred to SPARTA’s agreement to undertake

the defense and indemnification “without reservation,” and gave notice that

counsel planned to “close our file for Technology and open one for Sparta.”    Joint
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App’x at 514.    SPARTA did not object to its counsel’s understanding of

SPARTA’s undertaking or take any other action to suggest that it had reserved (or

would reserve) the right to assert defenses to coverage.   

SPARTA’s assertion of defenses to coverage for the defense and

indemnification came after an unreasonable delay.    “The reasonableness of any

delay is ‘judged from the time that the insurer is aware of sufficient facts to issue a

disclaimer.’”    Bluestein, 276 F.3d at 122 (quoting Mount Vernon Fire Ins. Co. v.

Unjar, 177 A.D.2d 480, 481 (2d Dep’t 1991)).    As the district court observed,

SPARTA’s arguments regarding its coverage obligations are based on the terms of

SPARTA’s own policy issued to the subcontractor and the contract between the

general contractor and subcontractor, facts known to SPARTA at the time it

agreed to undertake the defense and indemnification.    Yet SPARTA failed to

assert that it had reserved its rights‐‐let alone reach its ultimate conclusion

regarding the extent of its coverage‐‐until April 28, 2014, more than nine months

later.    As this Court ruled in Bluestein, a nine‐month delay is “plainly

unreasonable” under New York law.    276 F.3d at 122.

Finally, allowing SPARTA to assert defenses to complete coverage would

prejudice the general contractor and Technology.    In reliance on SPARTA’s

undertaking of the defense and indemnification, the general contractor chose to

forgo filing a third‐party complaint against the subcontractor for indemnification

in the underlying tort suit.    Because that suit has been readied for trial during

SPARTA’s control of the defense, the general contractor and Technology have lost

the opportunity to pursue third‐party claims against the subcontractor.    The

general contractor and Technology would therefore face actual prejudice from

SPARTA’s assertion of defenses to coverage after an unreasonable delay.    See

Bluestein, 276 F.3d at 122‐23.

SPARTA is therefore estopped from seeking reimbursement of past and

accruing defense costs in the underlying tort suit.    See id.
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We have considered SPARTA’s remaining arguments and conclude they

are without merit.    The judgment of the district court is therefore AFFIRMED.

FOR THE COURT:

CATHERINE O’HAGAN WOLFE, CLERK