Harleysville’s Uncertain Future After Court Ruling in 99 Wall Street Insurance Dispute
By Matthew Sellars
March 5, 2025
A recent federal court decision has brought the spotlight onto a complex insurance dispute concerning water damage at a construction site located at 99 Wall Street in New York City. The court’s ruling, which has significant implications for several insurance companies, clarifies the obligations to defend and indemnify the project’s construction manager, Consigli & Associates, LLC, in response to a lawsuit regarding alleged damages caused by subcontractors.
After reviewing multiple motions for summary judgment, the United States District Court for the Southern District of New York, presided over by Judge Margaret M. Garnett, largely sided with the insurers. This relieved several of them of their coverage obligations while upholding Harleysville Worcester Insurance Company’s duty to defend Consigli. The outcome underscores the importance of policy specifics, timely notice provisions, and exclusions within insurance contracts.
Background of the Case: Water Damage and Insurance Coverage
The case originated from a lawsuit launched by 99 Wall Development Inc. against Consigli & Associates. The suit claimed that two significant water damage incidents in 2016 were caused by the negligence of subcontractors: Domestic Plumbing Corp. and Hig Services Inc.
- July 2016 Incident: A hole drilled by Hig in an elevator room on the building’s roof led to water intrusion from rain, resulting in substantial property damage.
- October 2016 Incident: A faulty water tank switch installed by Domestic led to water leakage across 27 floors, further damaging the project.
Consigli held insurance coverage from a number of providers, including Harleysville, Zurich American Insurance Company, Catlin Insurance Company, and Starr Indemnity & Liability Company. Harleysville, which had initially provided a defense for Consigli, sought a court ruling that it no longer had a duty to defend or indemnify. In the alternative, it argued that if its coverage remained in place, other insurers should share the costs of defending Consigli.
Court Findings: Obligations and Exonerations
After consideration of policy language, notification stipulations, and contractual obligations, the court granted summary judgment in favor of several insurers in the case while maintaining Harleysville’s coverage obligations.
Harleysville’s Continuing Duty to Defend
The court denied Harleysville’s motion to be relieved of its duty to defend Consigli, stating that its insurance policies obligated the company to continue providing a defense. The judge’s reasoning included:
- Coverage Triggered by Allegations: The lawsuit’s allegations against Hig and Domestic, which claimed their actions caused project damages, meant Harleysville’s additional insured endorsements, which covered subcontractors, were applicable.
- Occurrence vs. Faulty Workmanship: While Harleysville argued the incidents resulted from faulty workmanship, typically excluded by general liability policies, the court decided the allegations involved third-party property damage and unintended consequences of subcontractor actions, thus potentially qualifying as covered occurrences.
- Lack of Clear Exclusion: Harleysville pointed to business risk exclusions within its policy, but the court determined that these did not unambiguously preclude coverage according to New York insurance law. The court underscored that under New York law, an insurer’s duty to defend is wider than its duty to indemnify and needs to be provided whenever allegations potentially fall within coverage scope.
Zurich, Catlin, and Starr Relieved of Obligations
The court ruled that Zurich, Catlin, and Starr were not obligated to defend or indemnify Consigli, given specific policy provisions.
- Zurich: Zurich successfully argued that it was not liable because Consigli failed to provide timely notice. Under New York law, insurers can deny coverage if 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, which exceeded a reasonable timeframe. The court deemed the delay prejudicial, thus barring Zurich from coverage obligations.
- Catlin and Starr: These insurers were relieved from contributing due to their policies’ explicit cross-claims exclusions, which barred coverage for lawsuits filed by one named insured (99 Wall) against another (Consigli). The court determined that the policies’ clear and unambiguous language excluded coverage for the claims at issue.
National Union’s Unresolved Role
The court denied National Union Fire Insurance Company’s motion for summary judgment. Because National Union issued an excess policy, the court found that it could become relevant if Harleysville’s coverage limits were exhausted, so National Union’s responsibilities will depend on the ultimate outcome of the underlying lawsuit. The court left this matter open for further proceedings.
Default Judgment Request Denied
Harleysville also requested a default judgment against Domestic Plumbing Corp. and Hig Services Inc., believing that their failure to respond to the lawsuit should warrant 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 and Practical Ramifications
This ruling underscores the critical nature of timely notice provisions, policy exclusions, and the extensive scope of an insurer’s duty to defend in construction-related disputes. The court’s decision reaffirms that insurers could be relieved of their obligations when policyholders fail to comply with procedural requirements like providing notice within a reasonable time.
Moving forward, Harleysville remains responsible for Consigli’s defense. Meanwhile, Zurich, Catlin, and Starr successfully avoided liability based on explicit contractual terms and conditions. Issues remaining in the case, particularly concerning National Union’s potential obligations, are dependent on the progression of the underlying state court case with the water damage claims. The parties have been instructed to submit a joint status report by March 24, 2025, providing an outline of the impending steps related to both the insurance dispute and the underlying lawsuit.
