A New York federal judge has overturned an excess insurer’s denial of coverage for a plumbing company sued over a building fire, finding that both sides entered into the policy under a mutual mistake about the scope of coverage.
In a decision issued Monday, U.S. District Judge J. Paul Oetken ruled that Systems 2000 Plumbing Service and GuideOne National Insurance Co. shared an incorrect understanding that the excess policy covered residential work. Enforcing an exclusion that eliminated such coverage, he said, would render the policy illusory.
Judge Oetken found that both parties intended the policy to cover Systems 2000’s work in residential buildings and that neither side contemplated the residential work exclusion contained in the underlying primary policy issued by a Travelers unit.
“Because all of Systems 2000’s work was performed in residential buildings, enforcement of the residential work exclusion would result in no coverage for the entirety of the insured’s work,” Judge Oetken wrote. He concluded that striking the exclusion was the only way to give effect to the parties’ original intent.
The coverage dispute stems from a March 2021 fire at a Manhattan cooperative building where Systems 2000 was replacing valves in the plumbing system, according to court records.
At the time of the fire, Systems 2000 carried a $2 million primary commercial general liability policy from Travelers and a $4 million excess policy issued by GuideOne, which took effect eight days before the incident.
Judge Oetken found that although the primary policy included a residential work exclusion, Systems 2000 had only seen what he described as a “confusingly worded” reference to the exclusion in Travelers’ proposal. The company did not receive the full exclusion language until eight days after the fire.
The court noted that Travelers initially denied coverage based on the exclusion but later reformed the policy to remove it. GuideOne, however, continued to deny coverage under the excess policy.
GuideOne argued that Systems 2000 knew or should have known about the exclusion, that it should have expected the exclusion to carry over into the excess policy, and that there was no mutual mistake because there was no meeting of the minds between the parties.
Judge Oetken rejected those arguments, pointing to repeated communications describing Systems 2000’s work as residential and similar references in communications involving Travelers.
The court also cited testimony from Derek Schiavone, GuideOne’s head of excess and surplus casualty at the time the policy was issued, as well as testimony from the policy’s underwriter. Both testified that the intent was to provide excess coverage for a plumber performing work in apartment buildings.
“In short, GuideOne plainly knew that Systems 2000 did work in residential buildings in New York City and intended to insure the risk for that work,” Judge Oetken wrote. He added that there was no misrepresentation or deceptive conduct by Systems 2000 that would make reformation inequitable.
Marina Spinner of Nicoletti Spinner Ryan Gulino Pinter LLP, who represents Systems 2000, said Tuesday that the ruling was unsurprising given the evidence presented at trial.
“I felt that the position that GuideOne had taken throughout the entire litigation and at trial was shocking in light of their own underwriter’s testimony,” Spinner said in an email. She said the testimony showed GuideOne clearly intended to insure the only type of work Systems 2000 performed.
Spinner added that the excess policy will likely be fully exhausted and that the remaining issue in the case concerns attorney fees, which Systems 2000 believes it is entitled to after being forced to defend prolonged coverage litigation.
Counsel for GuideOne and representatives for Travelers did not immediately respond to requests for comment Tuesday.
GuideOne National Insurance Co. is represented by Daniel C. Rosenberg of Reiners & Rosenberg. Systems 2000 Plumbing Service is represented by Marina A. Spinner, Claire M. Rush, and Alexandra Spinner of Nicoletti Spinner Ryan Gulino Pinter LLP.
The case is GuideOne National Insurance Co. v. Systems 2000 Plumbing Service Inc. et al., Case No. 1:22-cv-05018, in the U.S. District Court for the Southern District of New York.
