ATLANTIC MUTUAL v. THE STATE OF NEW YORK, #2000-019-522, Claim No. 99751, Motion
Nos. M-61140 , CM-61324
Claim dismissed based on violation of anti-subrogation rule, as well as the
principal of accord and satisfaction.
ATLANTIC MUTUAL INSURANCE COMPANY
Footnote (claimant name)
THE STATE OF NEW YORK
Footnote (defendant name)
FERRIS D. LEBOUS
LUSTIG & BROWN, LLPBY: Michael L. Stonberg, Esq., of Counsel
HON. ELIOT SPITZER, ATTORNEY GENERAL
BY: LEAHEY & JOHNSON, P.C. Michael Cannella, Esq., of counsel
June 21, 2000
See also (multicaptioned
The parties have each moved for summary judgment pursuant to CPLR 3212. The
defendant State of New York (hereinafter sometimes "State" or "State
) 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
The Court has considered the following papers in connection with these
Claim, filed February 4, 1999.
Notice of Motion No. M-61140, dated January 17, 2000 and filed January 31,
Affirmation of Michael Cannella, Esq., in support of Motion No. M-61140, dated
January 17, 2000, with attached exhibits.
Memorandum of Law in support of Motion No. M-61140, undated.
Notice of Cross-Motion No. CM-61324, undated and filed March 13, 2000.
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.
Memorandum of Law in support of Cross-Motion No. CM-61324, dated March 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.
Reply Affirmation of James P. Tenney, Esq., in opposition to Cross-Motion No.
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
[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
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.
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
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.
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
(North Star Reins. Corp. v Continental Ins. Co., supra, 82 NY2d,
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
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
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
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
...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;
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:
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
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.
, 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
In sum, this Court finds the
State is also entitled to summary judgment on the basis of accord and
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
HON. FERRIS D. LEBOUS
Judge of the Court of Claims
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?
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?
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.
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
AD2d 518, 699 NYS2d 111)