New York State Court of Claims

New York State Court of Claims

ATLANTIC MUTUAL v. THE STATE OF NEW YORK, #2000-019-522, Claim No. 99751, Motion Nos. M-61140 , CM-61324


Synopsis


Claim dismissed based on violation of anti-subrogation rule, as well as the principal of accord and satisfaction.

Case Information

UID:
2000-019-522
Claimant(s):
ATLANTIC MUTUAL INSURANCE COMPANY
Claimant short name:
ATLANTIC MUTUAL
Footnote (claimant name) :

Defendant(s):
THE STATE OF NEW YORK
Footnote (defendant name) :
The Court has sua sponte amended the caption to reflect the State of New York as the only proper defendant.
Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
99751
Motion number(s):
M-61140
Cross-motion number(s):
CM-61324
Judge:
FERRIS D. LEBOUS
Claimant's attorney:
LUSTIG & BROWN, LLPBY: Michael L. Stonberg, Esq., of Counsel
Defendant's attorney:
HON. ELIOT SPITZER, ATTORNEY GENERAL
BY: LEAHEY & JOHNSON, P.C. Michael Cannella, Esq., of counsel
Third-party defendant's attorney:

Signature date:
June 21, 2000
City:
Binghamton
Comments:

Official citation:

Appellate results:

See also (multicaptioned case)



Decision

The parties have each moved for summary judgment pursuant to CPLR 3212. The defendant State of New York (hereinafter sometimes "State" or "State Fund"[1]) contends Claimant's action is barred by the anti-subrogation rule or, in the alternative, under the doctrine of accord and satisfaction. Claimant asserts it is entitled to reimbursement from the State, in whole or part, for its defense and indemnification of their mutual insured.


The Court has considered the following papers in connection with these motions:

  1. Claim, filed February 4, 1999.
  2. Notice of Motion No. M-61140, dated January 17, 2000 and filed January 31, 2000.
  3. Affirmation of Michael Cannella, Esq., in support of Motion No. M-61140, dated January 17, 2000, with attached exhibits.
  4. Memorandum of Law in support of Motion No. M-61140, undated.
  5. Notice of Cross-Motion No. CM-61324, undated and filed March 13, 2000.
  6. Affidavit of Michael I. Stonberg, Esq., in support of Cross-Motion No. CM-61324 and in opposition to Motion No. M-61140, undated and unsworn.
  7. Memorandum of Law in support of Cross-Motion No. CM-61324, dated March 8, 2000.
  8. Reply Affidavit of Michael L. Stonberg, Esq., in opposition to Motion No. M-61140 and in support of Cross-Motion No. CM-61324, sworn to April 18, 2000 and filed April 20, 2000.
  9. Reply Affirmation of James P. Tenney, Esq., in opposition to Cross-Motion No. CM-61324.
FACTS
The relevant facts are undisputed. On January 7, 1992, Michael Martoni ("Martoni") was employed by Bellkey Maintenance Corp. ("Bellkey"). Bellkey was a subcontractor on a construction project on a site owned by Waldbaums, Inc. ("Waldbaums"). The general contractor for the project was James A. Smith doing business as James A. Smith General Contractor ("Smith") which was insured by Home Insurance Company ("Home"). Bellkey carried its own general liability insurance policy with Atlantic Mutual Insurance Company (hereinafter sometimes "Atlantic" or "Claimant") and employer's liability insurance and workers' compensation with the State Fund. Pursuant to the terms of the construction contract, Bellkey named Smith as an additional insured on its general liability policy with Atlantic. Martoni was injured on the job and commenced litigation in supreme court against Walbaum and Smith. Smith, in turn, commenced a third-party action against Bellkey.


Atlantic requested that the State Fund assume the defense of Bellkey in the third-party action, but the State Fund refused on the grounds it would violate the anti-subrogation rule. (State Fund letters dated May 20, 1993 and November 29, 1993; and December 28, 1995, attached as Exhibits E & F, respectively, to Cannella Affirmation). Soon thereafter, Smith and Home commenced a declaratory judgment action against Atlantic to compel Atlantic to insure Smith as a named insured on Bellkey's policy with Atlantic. In a Stipulation dated April 22, 1996 (hereinafter "1996 Stipulation") Atlantic agreed to be co-insurers with Home with respect to the defense and indemnification of Smith in the underlying lawsuits. Thereafter, Bellkey moved to have the third-party action dismissed as being in violation of the anti-subrogation rule, since Atlantic was now both a co-insurer of the defendant/third-party plaintiff Smith and the third-party defendant Bellkey. In an Order dated June 25, 1996, the Hon. John W. Burke, Justice of the Supreme Court, Nassau County, [hereinafter "Judge Burke's Order"] denied the motion stating, in pertinent part, the following:
[h]ere Atlantic Mutual insures Bellkey and (as required by contract) Bellkey also purchased coverage for Smith, the general contractor from Atlantic Mutual. The policies cover the same risks.

Since Bellkey is not Home's insured, Smith is not precluded from seeking indemnification to the extent that Home may be required to pay any portion of an eventual judgment.

Under the circumstances presented, summary judgment is denied as premature because it is unclear at this time whether Home will be called upon to fund any judgment or settlement.

(Martoni v Waldbaums, Inc., et al., Sup Ct, Nassau County, June 25, 1996, Burke, J., Index No. 14843/92).



The Martoni action was settled for $585,000 and memorialized in a settlement agreement placed on the record on December 19, 1997 (hereinafter "1997 Settlement Agreement"). (Exhibit I to Cannella Affirmation). Atlantic paid $335,000 toward the Martoni settlement. The 1997 Settlement Agreement incorporated additional stipulations which included the statement that "[a]ll other parties release the State Insurance Fund and its assured from all claims, including claims for common law and contractual indemnity and contribution." (Exhibit I to Cannella Affirmation; hereinafter "Settlement Stipulations"]). Atlantic commenced this claim in the Court of Claims seeking reimbursement from the State Fund for all or part of said $335,000.

LAW
As previously indicated, the State contends Claimant's action is barred by the anti-subrogation rule or, in the alternative, under the doctrine of accord and satisfaction. Before proceeding on the merits of these arguments, it should be stated that on a motion for summary judgment, the moving party must present evidentiary facts that establish the party's right to judgment as a matter of law, while the opposing party must present evidentiary proof in admissible form that demonstrates the existence of a factual issue. (Friends of Animals v Associated Fur Mfrs., 46 NY2d 1065, 1067-1068). Both parties agree the issues presented are matters of law ripe for resolution on this motion for summary judgment.





1. Collateral Estoppel

We must first determine whether the doctrine of collateral estoppel bars a substantive review of the anti-subrogation issue.[2] The unusual aspect of this case is that both parties agree that collateral estoppel should apply, but they differ on whether the doctrine applies to a factual determination made in the course of the prior litigation or to the disposition of the motion (and its proper interpretation). In the underlying supreme court matter, Bellkey moved to dismiss the third-party action on the ground that the anti-subrogation rule barred the third-party action since Atlantic insured both parties. The motion was denied as premature because it was uncertain whether Smith could seek indemnification against Home in the event Home funded any judgment or settlement. Judge Burke's Order included his factual determination that Atlantic insured both Bellkey and Smith for the same risks. The State would have us apply the doctrine of collateral estoppel to the determination that Atlantic insured Bellkey and Smith for the same risks. Claimant contends that the Judge's denial of the motion stands for the proposition that "the anti-subrogation rule did not bar the third-party action" and that it is this ultimate disposition which is entitled to collateral estoppel treatment. (Claimant's Memorandum of Law, p. 3).


Claimant's position is without merit. In this Court's view, Claimant is mistaken in equating Judge Burke's denial of the motion with a finding that the anti-subrogation rule did not apply. Rather, Judge Burke initially ascertained that Atlantic insured both Bellkey and Smith for the same risks. However, Judge Burke found that the possibility that Smith may seek indemnification from Home if it funded a judgment prevented dismissal of the third-party action. In this Court's view, Judge Burke's Order stands for the premise, albeit without explicitly stating such, that the anti-subrogation rule barred that portion of the third-party action as between Bellkey and Smith which ultimately equates to Atlantic suing Atlantic. The fact that there was an unresolved facet of the third-party claim which prevented dismissal does not prevent this Court from accepting a material and relevant factual determination made by Judge Burke in his decision-making process. (Zabriskie v Zoloto, 22 AD2d 620, 624; see also, Siegel, NY Prac § 463, at 744 [3rd ed]).


Moreover, it is well-settled that "[t]he burden is on the party attempting to defeat the application of collateral estoppel to establish the absence of a full and fair opportunity to litigate [citation omitted]." (D'Arata v New York Cent. Mut. Fire Ins. Co., 76 NY2d 659, 664). Claimant has failed to establish that it did not have a full and fair opportunity to litigate the issues before Judge Burke.[3] Accordingly, this Court finds that Atlantic is collaterally estopped from relitigating Judge Burke's Order and, more specifically, his finding that Atlantic insured both Smith and Bellkey for the same risks. The natural consequence of this determination is that the anti-subrogation rule barred the third-party action as between Smith and Bellkey and bars this claim as well.


2. Anti-Subrogation Rule

In any event, even if this Court had determined that Judge Burke's Order was not entitled to collateral estoppel treatment, then this Court would have found for the State on the merits for the reasons set forth.


Subrogation has been described as "[a]n equitable doctrine, [entitling] an insurer to 'stand in the shoes' of its insured to seek indemnification from third parties whose wrongdoing has caused a loss for which the insurer is bound to reimburse [citations omitted]." (North Star Reins. Corp. v Continental Ins. Co., 82 NY2d 281, 294; see also, Pennsylvania Gen. Ins. Co. v Austin Powder Co., 68 NY2d 465, 471). The so-called anti-subrogation rule has been defined by the Court of Appeals as follows:
[a]n insurer, however, has no right of subrogation against its own insured for a claim arising from the very risk for which the insured was covered [citations omitted]. Public policy requires this exception to the general rule both to prevent the insurer from passing the incidence of loss to its own insured and to guard against the potential for conflict of interest that may affect the insurer's incentive to provide a vigorous defense for its insured [citation omitted].

(North Star Reins. Corp. v Continental Ins. Co., supra, 82 NY2d, at 294-295).


In support of its position of the applicability of the anti-subrogation rule, the State points to the language in Judge Burke's Order stating "[h]ere Atlantic Mutual insures Bellkey and (as required by contract) Bellkey also purchased coverage for Smith, the general contractor from Atlantic Mutual. The policies cover the same risks." (Judge Burke's Order, p. 2). The State relies on two separate First Department cases that previously addressed comparable situations, namely Avalanche Wrecking Corp. v New York State Ins. Fund, 211 AD2d 551 and Aetna Cas. & Sur. Co. v Greater N. Y. Mut. Ins. Co., 205 AD2d 433. These two cases are similar to the case at bar in that the "[l]iability insurer who insured the third-party defendant/employer, also insured the primary defendant as an additional insured under a policy obtained by [the] third-party defendant." (Cannella Affirmation, ¶ 23). Likewise here, Atlantic, as the liability insurer of both the third-party employer and third-party defendant, settled the underlying action and then sought reimbursement from the third-party defendant's workers' compensation carrier. This Court finds that the only action to which Atlantic may be subrogated is that of its insured Smith by way of a cause of action for common law indemnity against Bellkey, also its insured. (Avalanche Wrecking Corp. v New York State Ins. Fund, supra, 211 AD2d, at 552-553; Aetna Cas. & Sur. Co. v Greater N. Y. Mut. Ins. Co., 205 AD2d, at 434-435).


In opposition, Claimant argues the anti-subrogation rule does not apply and that there is a valid claim by Atlantic against the State Fund because Atlantic only covered Bellkey for contractual liability and Atlantic's payment on the settlement was in the nature of common law indemnification. Claimant's position is that the anti-subrogation rule is not violated since Atlantic was not on the same side as Bellkey in the third-party action because Atlantic's policy to Bellkey covered only contractual obligations.[4] Therefore, according to Claimant, the real parties in the third-party action were Smith (insured by Atlantic for up to 50% for all claims per the 1996 Stipulation with Home) versus Bellkey (insured by State Fund for common law contribution and indemnification). However, the weak link in Claimant's argument is the presumption that Atlantic's contractual coverage of Bellkey was negated by a finding of negligence on the part of Smith. This record contains no finding of negligence on behalf of Smith since neither the 1996 Stipulation, 1997 Settlement Agreement, or stipulations incorporated therein apportioned liability among the defendants. In short, no evidence was submitted from which this Court might conclude that there was a finding of liability of negligence on the part of Smith indicating that Bellkey (through Atlantic) could still have contractual liability to Smith (also insured by Atlantic). The Court finds Claimant's reliance on National Union Fire Ins. Co. of Pittsburgh, Pa. v State Ins. Fund, 266 AD2d 518; 699 NYS2d 111, misguided since those facts included a stipulation attributing 1% active negligence to the City of New York. In sum, that means the anti-subrogation rule bars the instant claim.


3. Accord and Satisfaction

In the alternative, the State contends Atlantic does not have standing to pursue this litigation since it was subrogated to Bellkey's position and Bellkey executed the 1997 Settlement Agreement releasing the State Fund from further liability. Claimant argues that the 1997 Settlement Agreement does not bar its suit because it has an independent right to sue since it is seeking payment as a co-insurer for a mutual insured.


Generally, "[i]n the absence of fraud, duress, illegality or mistake, a general release bars an action on any cause of action arising prior to its execution." (Mergler v Crystal Props. Assocs., 179 AD2d 177, 178). Moreover, "[w]here an insurer seeks to assert an equitable right of subrogation for pro rata contribution from a coinsurer, it is subject to any defense or claim of lack of coverage which may be raised against the assured." (Hartford Acc. & Ind. Co. v CNA Ins. Cos., 99 AD2d 310, 312). As such, the State Fund argues the 1997 Settlement Agreement in the underlying main action and third-party action forecloses the instant action.


A closer review of the 1997 Settlement Agreement reveals that the plaintiff (Martoni), defendants/third-party plaintiffs (Smith and Waldbaums) and the third-party defendant (Bellkey) in the underlying actions were represented by counsel before the Hon. Robert Roberto, Jr., Justice of the Supreme Court, Nassau County. The terms of the 1997 Settlement Agreement were placed on the record by Bellkey's counsel, Charles X. Connick, Esq., and stated, in pertinent part, the following:
The parties in this case and their insurance carriers have decided to settle any and all claims of any kind, and make a monetary resolution of this case that will require from the defendants, the third-party defendants and their carriers no further payment of any kind.

***

I have indicated to the State Insurance attorney person who has orally told me this, that as a condition precedent to the defendants' and defendants' carriers sending funds to plaintiff's attorney, that we receive...written confirmation of the fact that in fact we do have his consent, or the State Insurance Fund's consent, to issue this with a waiver of the lien, so that in no event can anyone come back to either the defendants or their carriers in this case to make claim for satisfaction of any claim or lien to the proceeds of the settlement.
The carriers do this because they want--neither the defendants nor the carriers want any other financial obligation to anyone in the world with regard to this matter.

***

...It requires the defendants, the third-party defendants and their carriers to have, along with the closing papers, a written statement from the State Insurance Fund that they consent to the terms of the settlement with a waiver of the lien.

***

...However, I am not the State Insurance Fund, and it's his writing which I want to make sure we have before the settlement can be complete.

(1997 Settlement Agreement annexed as Exhibit I to Cannella Affirmation; emphases added).

Furthermore, the terms of the 1997 Settlement Agreement included "Settlement Stipulations" which were deemed read into the record. (1997 Settlement Agreement, p. 2). The Settlement Stipulations included, among other provisions, the following statement:
  1. All other parties release the State Insurance Fund and its assured from all claims, including claims for common law and contractual indemnity and contribution.

(Settlement Stipulations, Exhibit I to Cannella Affirmation; emphasis added).


There is no language in the 1997 Settlement Agreement and/or the Settlement Stipulations containing any limitation on Bellkey's release or any reservation of rights. As raised by the State, it is well-settled that "[a]n equitable assignee or subrogee, however, is vested with no greater or different right or remedy than that possessed by its subrogor [citations omitted]." (Hartford Acc. & Ind. Co. v CNA Ins. Cos., 99 AD2d 310, 312, supra). In this Court's view, Atlantic is suing as the subrogee of Bellkey, and since Bellkey waived all future claims as part of the 1997 Settlement Agreement and Settlement Stipulations, this claim is barred. Finally, this Court finds neither, National Union Fire Ins. Co. of Pittsburgh, PA. v State Ins. Fund, 222 AD2d 369, 636 NYS2d 31, or National Union Fire Ins. Co. of Pittsburgh, Pa. v State Ins. Fund, 266 AD2d 518, 699 NYS2d 111, particularly instructive on the limited issue of accord and satisfaction.[5] In sum, this Court finds the State is also entitled to summary judgment on the basis of accord and satisfaction.


Accordingly, in light of the foregoing, it is ordered that the State's motion for summary judgment, Motion No. M-61140, is GRANTED and Claim No. 99751 is DISMISSED; and Claimant's cross-motion for summary judgment, Cross-Motion No. CM-61324, is DENIED.

June 21, 2000
Binghamton, New York

HON. FERRIS D. LEBOUS
Judge of the Court of Claims




[1]
State Insurance Fund.
[2]
The parties use the terms "collateral estoppel" and "law of the case" interchangeably, although the State believes "law of the case" is the proper doctrine. It appears that the law of the case doctrine is better suited for instances within the context of a single case prior to final judgment, whereas collateral estoppel applies in a second action, as here, after a final judgment in a prior action. (People v Evans, 94 NY2d 499). Nevertheless, be it under "collateral estoppel" or "law of the case", the question remains the same, does Judge Burke's Order bar this Court's review of the applicability of the anti-subrogation rule in this case?
[3]
In fact, although this Court has not seen the underlying motion papers from that litigation, it appears Bellkey made the motion for dismissal of the third-party action solely on the basis that the third-party action was barred by the anti-subrogation rule. Query, is not Atlantic (suing here in its own name) now asserting the opposite position?
[4]
Keep in mind that the policy underlying the anti-subrogation rule is to prevent the same insurer from insuring parties on opposite sides of litigation.
[5]
Both cases are instructive, however, on the applicability of the anti-subrogation rule. In both cases, the anti-subrogation rule was held inapplicable because the sub-contractor's general liability carrier in the third-party action was not simultaneously defending the general contractor in the main action. Parenthetically, the Court notes that at times it appears the parties may have confused these two cases which is understandable in view of their nearly identical captions. (Compare National Union Fire Ins. Co. of Pittsburgh, PA. v State Ins.Fund, 222 AD2d 369, 636 NYS2d 31, with National Union Fire Ins. Co. of Pittsburgh, Pa. v State Ins. Fund, 266 AD2d 518, 699 NYS2d 111)