18-2286-cv
United States Underwriters Ins. Co. v. Orion Plumbing & Heating Corp.

                            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
“SUMMARY ORDER”). A PARTY CITING TO 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
18th day of March, two thousand nineteen.

Present:
            DEBRA ANN LIVINGSTON,
            GERARD E. LYNCH,
                  Circuit Judges,
            ALISON J. NATHAN,
                  District Judge.*
_____________________________________

UNITED STATES UNDERWRITERS INSURANCE
COMPANY,

                          Plaintiff-Appellant,

                  v.                                                          18-2286-cv

ORION PLUMBING & HEATING CORPORATION,

                  Defendant-Appellee.†
_____________________________________

For Plaintiff-Appellant:                         STEVEN VERVENIOTIS, Miranda Sambursky Slone
                                                 Sklarin Verveniotis, LLP, Mineola, NY.


*
  Judge Alison J. Nathan, of the United States District Court for the Southern District of New York, sitting
by designation.
†
    The Clerk of Court is directed to amend the caption as set forth above.


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For Defendant-Appellee:                    No Appearance.

       Appeal from a July 27, 2018 order of the United States District Court for the Eastern

District of New York (Hall, J.; Reyes, M.J.).

       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the order of the district court is AFFIRMED in part and VACATED in part, and

the case REMANDED to the district court to address the merits of Plaintiff-Appellant’s rescission

claim and for further proceedings consistent with this order.

       Plaintiff-Appellant United States Underwriters Insurance Company (“US Underwriters”)

entered into an insurance contract with Defendant-Appellee Orion Plumbing & Heating

Corporation (“Orion”). US Underwriters subsequently cancelled that policy.          Nevertheless, in

order to foreclose potential obligations arising from events taking place prior to cancellation, US

Underwriters sued Orion in federal court, seeking (1) a declaration that it had no duty to pay Orion

as to claims asserted against Orion in a pending state-court lawsuit, and (2) rescission ab initio of

the policy. The magistrate judge recommended dismissing US Underwriters’ lawsuit for lack of

subject matter jurisdiction, and the district court adopted that recommendation.   US Underwriters

appealed. We assume the parties’ familiarity with the underlying facts, the procedural history of

the case, and the issues on appeal.

                                           Background

       In May 2012, US Underwriters issued an insurance policy to Orion, providing Orion with

liability insurance coverage for the following year.       In September 2012, US Underwriters

cancelled that policy, citing Orion’s failure to pay premiums.

       On June 3, 2012, prior to cancellation of Orion’s policy, a New York City firefighter named

Joseph Pomilla (“Pomilla”) sustained injuries while responding to a fire that occurred during



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renovation of a home in the Rego Park area of Queens. On February 11, 2015, Pomilla sued the

property’s owner, Arkadiy Bangiyev (“Bangiyev”), in state court, alleging that Bangiyev’s negligence

had caused the fire and, hence, Pomilla’s injuries. On December 14, 2015, Bangiyev filed a third-

party complaint against Orion, which had worked on the home. Subsequently, Bangiyev succeeded

on a motion for summary judgment. Bangiyev and Orion were then dismissed from the lawsuit, and

Orion’s motion for summary judgment was denied as moot. Pomilla has appealed the dismissal of

his claims against Bangiyev.

        On August 19, 2016, US Underwriters filed suit against Orion in the United States District

Court for the Eastern District of New York.1       US Underwriters sought (1) a declaration that it had

no duty to pay Orion as to claims asserted against Orion in Pomilla’s state-court lawsuit, and (2)

rescission ab initio of the insurance policy on the ground that Orion made material misrepresentations

when it applied for the policy. Orion did not answer US Underwriters’ complaint. On December

22, 2016, the Clerk of Court entered default against Orion.

        US Underwriters then moved for a default judgment against Orion. On April 17, 2018, the

magistrate judge recommended denying the motion and dismissing the case for lack of subject matter

jurisdiction. The magistrate judge concluded that US Underwriters’ claims failed to present a case or

controversy, noting that “an attenuated chain of contingencies” would have to occur before Orion could

claim entitlement to insurance coverage from US Underwriters. Sp. App. 4. US Underwriters did

not object to the dismissal of its claim seeking the declaration of no coverage, but did object to the

dismissal of its claim seeking rescission.




1
  US Underwriters’ initial complaint also named Pomilla, Bangiyev, and two other defendants. But the
district court dismissed these defendants, reasoning that in the absence of any contractual relationship with
US Underwriters, the latter’s claims against them failed to present a live case or controversy. The present
appeal does not implicate the dismissal of these defendants.


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       The district court overruled the objection and adopted the magistrate judge’s opinion in full,

dismissing US Underwriters’ claims without prejudice. The district court substantially adopted the

magistrate judge’s analysis, stating that “an attenuated chain of contingencies would have to occur”

before Orion could claim coverage under its insurance policy with US Underwriters and concluding

that US Underwriters’ claim for rescission was therefore “not justiciable.”       Sp. App. 10.   US

Underwriters timely appealed.

                                            Discussion

   1. Declaration of Insurance Obligations

       US Underwriters did not object to the portion of the magistrate judge’s opinion

recommending dismissal of its claim for a declaration of no coverage. “In general, ‘failure to

object timely to a magistrate’s report operates as a waiver of any further judicial review of the

magistrate’s decision.’”   Caidor v. Onondaga Cty., 517 F.3d 601 (2d Cir. 2008) (quoting Small

v. Sec’y of Health and Human Servs., 892 F.2d 15, 16 (2d Cir. 1989)).           While this court may

“excuse the default in the interests of justice,” Thomas v. Arn, 474 U.S. 140, 155 (1985), US

Underwriters has not asked us to do so.         We therefore affirm the district court’s decision

dismissing its claim for a declaration of its insurance obligations to Orion.

   2. Rescission

       US Underwriters did object to the portion of the magistrate judge’s opinion recommending

dismissal of its claim for rescission. The district court reviewed this portion of the magistrate

judge’s opinion de novo, and it dismissed US Underwriters’ claim because it failed to present a

“case or controversy” as required by Article III of the Constitution.

       We disagree. US Underwriters does indeed have a justiciable claim. We have held that

rescission claims may be justiciable even absent a pending claim. See Republic Ins. Co. v.



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Masters, Mates & Pilots Pension Plan, 77 F.3d 48, 50 (2d Cir. 1996).                In this case, US

Underwriters has adequately alleged facts establishing a live case or controversy.

       US Underwriters’ complaint alleged that its policy with Orion obligated it to defend Orion

against any suit seeking damages for claims to which its policy applied. The complaint detailed

the existence of the Pomilla lawsuit against Bangiyev.        The complaint noted that Bangiyev had

impleaded Orion in that lawsuit, “alleging that any liability faced by Bangiyev was caused by

Orion, and therefore seeking indemnification and contribution,” and that “Orion ha[d] not yet filed

an answer or otherwise appeared” in that lawsuit.         App. 22.   In stating its cause of action for

rescission, US Underwriters further alleged that Orion had made material misrepresentations about

the nature of its work when it applied for coverage from US Underwriters. The complaint alleged

that US Underwriters “would have charged a higher premium and/or had issued a different policy

[sic], or would have denied to issue the Policy [sic], if it had known that Orion performed work on

residential buildings/structures.”   App. 27–28.       It further alleged that US Underwriters “would

never have insured the Policy to Orion [sic] had it known that Orion performed such work.”       App.

28.

       The facts that US Underwriters alleged in its complaint describe an injury in fact sufficient

to establish a concrete case or controversy.   US Underwriters has alleged a reasonable likelihood

that it will face liability to Orion based, at minimum, on its duty to defend Orion under its policy.

US Underwriters could face this liability based on reinstatement of the underlying action as to

Bangiyev or any further litigation involving Orion.         Given US Underwriters’ allegations that

Orion’s misrepresentations induced it to issue the policy and the potential for rescission to

eliminate US Underwriters’ indemnity and defense obligations, US Underwriters has alleged

sufficient facts to raise an actual controversy about the appropriateness of rescission.


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                                          *      *       *

       We have considered all remaining arguments and find them to be without merit.

Accordingly, we AFFIRM the order of the district court dismissing US Underwriters’ claim for a

declaration of no coverage, but VACATE the order of the district court dismissing US

Underwriters’ claim for rescission. We REMAND the latter claim to the district court to address

its merits and for further proceedings consistent with this order.

                                                      FOR THE COURT:
                                                      Catherine O’Hagan Wolfe, Clerk




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