New York State Court of Claims

New York State Court of Claims

NATIONAL UNION v. THE STATE OF NEW YORK , #2002-016-089, Claim No. None, Motion No. M-64186


Court granted motion for permission to file a late claim seeking money damages for State Insurance Fund's failure to defend and indemnify employer in connection with personal injury lawsuit brought by employee.

Case Information

Claimant short name:
Footnote (claimant name) :

Footnote (defendant name) :

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
Motion number(s):
Cross-motion number(s):

Alan C. Marin
Claimant's attorney:
Lester Schwab Katz & Dwyer, LLPBy: Joshua Zimring, Esq.
Defendant's attorney:
Eliot Spitzer, Attorney GeneralBy: Dennis Drucker, Esq., Counsel for the State Insurance Fund
Third-party defendant's attorney:

Signature date:
September 23, 2002
New York

Official citation:

Appellate results:

See also (multicaptioned case)


This is the motion of National Union Fire Insurance Company of Pittsburgh, PA ("National Union") for permission to file a late claim pursuant to §10.6 of the Court of Claims Act (the "Act"), which motion is opposed by defendant.

In the proposed claim, National Union seeks money damages based on the failure of the State Insurance Fund (the "SIF") to defend and indemnify Red Ball Interior Demolition ("Red Ball") in connection with a personal injury lawsuit brought by Abilio Sousa ("Sousa"), an employee of Red Ball. As set forth below, National Union funded the settlement of such litigation on behalf of other defendants named in the lawsuit.

On March 29, 1993, Sousa allegedly became injured while in the course of his employment for Red Ball, when he fell from the 43rd to the 41st floor of a work site at the building known as One New York Plaza in Manhattan. Chase Manhattan, N.A. ("Chase") and Morse Diesel International ("Morse Diesel") were the owner and general contractor at the site, respectively.

Subsequent to Sousa's accident, he and his wife sued Chase and Morse Diesel, alleging, inter alia, violations of Labor Law §§240 and 241. On or about April 1, 1996, Chase and Morse Diesel commenced a third-party action against Red Ball.[1] Thereafter, Chase and Morse Diesel moved for a default judgment against Red Ball for failing to answer the third-party complaint and such motion was granted in an order of Hon. Sheila Abdus-Salaam filed December 15, 1997. See Exhibit K to the August 29, 2001 affirmation of Joshua Zimring (the "Zimring Aff.").

Both National Union and the SIF had issued Red Ball insurance policies which were in effect on the date of Sousa's accident: National Union had issued a commercial general liability policy and an umbrella policy as to which Chase and Morse Diesel were additional insureds. The SIF had issued a workers' compensation and employers' liability policy to Red Ball.

National Union disclaimed coverage to Red Ball on the ground that Red Ball had breached a condition precedent, specifically that Red Ball had not reported the underlying Sousa incident or claim to National Union or tendered the suit papers; according to National Union, its first notice was by receipt of a default judgment from Chase and Morse Diesel. A further basis for disclaimer was that the policy contained an "absolute bodily injury exclusion removing coverage from the policy for injuries to Red Ball's employees." See ¶13 of the Zimring Aff.

While National Union disclaimed coverage as to Red Ball, it did provide coverage as to the additional insureds on Red Ball's policy, to wit, Chase and Morse Diesel "as [they] fully complied with the notice provisions on the policy . . ." See ¶14 of the Zimring Aff.

As to the SIF, it maintains that "[b]y letter dated November 29, 1995, SIF was informed for the first time of the existence of the Sousa lawsuit." See ¶9 of the Drucker Aff. and exhibit 3 thereto. The SIF also contends that the first time it learned that a third-party action had been commenced against Red Ball was in a letter dated October 3, 1997, sent by AIG Claim Services, Inc. on behalf of Chase and Morse Diesel, which enclosed the third party summons and complaint against Red Ball. The letter noted that Chase and Morse Diesel were moving to enter a default judgment against Red Ball and "that the plaintiff's motion against Chase . . . and Morse Diesel had been granted. All that remained was an inquest on damages." The letter demanded that the SIF assume the defense and indemnity of Chase and Morse Diesel See 18 of the Drucker Aff.

At that point, according to the SIF, it wrote an October 8, 1997 letter disclaiming coverage to Chase and Morse Diesel for the reasons that SIF "cannot be held responsible for a default motion taken by National Union's staff counsel against its own insured." See id. at ¶19 and exhibit 7 thereto.[2]

The SIF asserts that it was served a copy of the notice of entry of the default judgment against Red Ball on or about December 12, 1997 and on December 22, 1997, the SIF sent a letter to Red Ball, disclaiming coverage because of Red Ball's failure to furnish SIF with any of the Sousa suit pleadings. See ¶¶22-23 of the Drucker Aff. and exhibit 10 thereto.

According to National Union, on June 7, 1999, the Sousa action was settled for $2,286,000 plus one-half waiver of the workers' compensation lien, or $36,000 and such settlement was funded entirely by National Union on behalf of Chase and Morse Diesel. National Union argues that the SIF's refusal to defend Red Ball and fund the settlement "is a breach of . . . [the SIF] workers' compensation and employers' liability policy" and that as a result of this breach, National Union incurred expenses and liabilities . . . which were properly the responsibility of Red Ball and the SIF to fund." See ¶¶17-19 of the Zimring Aff.
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In determining whether to grant this motion, six factors enumerated in the Act must be considered: whether (1) defendant had notice of the essential facts constituting the claim; (2) defendant had an opportunity to investigate the circumstances underlying the claim; (3) the defendant was substantially prejudiced; (4) the claimant has any other available remedy; (5) the delay was excusable and (6) the claim appears to be meritorious. The factors are not necessarily exhaustive, nor is the presence or absence of any particular factor controlling.[3]
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The first, second and third factors – whether the defendant had notice of the essential facts, had an opportunity to investigate or would be prejudiced by the granting of this motion are intertwined and may be considered together. See Brewer v State of New York, 176 Misc 2d 337, 342, 672 NYS2d 650, 655 (Ct Cl 1998). In this case, National Union argues that the SIF "had timely notice of this incident from March 29, 1993 and timely notice of the third-party claim." See ¶38 of the Zimring Aff. According to National Union, on March 29, 1993 – the date of Sousa's accident, the SIF "opened and maintained a file on this claim" and "through period status reports and [follow-up] meetings, the SIF investigated the underlying facts and the circumstance from which Sousa's injuries arose." See ¶¶39-40 of the Zimring Aff. The SIF maintains that it is irrelevant that it had notice of Sousa's injury, pointing out that it was not forwarded the "revived third party complaint in a timely fashion." See ¶27 of the Drucker Aff.

In any event, it is clear that the SIF had notice prior to National Union's funding of the settlement and this is not a case involving a transitory physical condition, but rather one involving detailed documentation which is still in existence. Moreover, the SIF has not identified any prejudice it would suffer should this motion be granted.

As to an alternate remedy, National Union contends that it has no other forum in which to seek relief, which the SIF does not dispute. As to excuse, National Union avers that "by the time National Union even knew that the SIF failed to represent Red Ball in the third-party action, the time to file an action against the SIF for failing to defend its insured provided by Court of Claims Act 10(4) had lapsed." See ¶22 of the Zimring Aff. As the SIF points out, however, National Union filed this motion on September 28, 2001, almost two and one-half years after its funding of the settlement in May of 1999. No excuse sufficient for the purposes of the Act has been articulated.

The final factor to be considered is merit. National Union asserts that by virtue of its payments on behalf of Chase and Morse Diesel toward the settlement of the Sousa action, it is now subrogated to the rights of Chase and Morse Diesel – who have a default judgment against Red Ball – arguing that "[a]n equitable right of action arises in favor of an insurer that pays a loss that is due by other insurers. Moreover, upon payment of a loss, an insurer is equitably subrogated to the rights and remedies of its insured to proceed against a primarily liable party." See ¶26 of the Zimring Aff.

The SIF argues that "[t]here is absolutely no merit to the proposed claim, because it is based squarely on the type of conflict of interest and flagrant violation of the anti-subrogation rule condemned in Northstar Reinsurance Corp. v Continental Ins. Co., 82 NY2d 281, 294-95, 604 NYS2d 510, 516 (1993), which holds that an insurer "has no right of subrogation against its own insured for a claim arising from the very risk for which the insured was covered. . . 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."

National Union argues that antisubrogation is not implicated because its defense duties to Red Ball were never invoked since it disclaimed coverage and did not control or direct Red Ball's course of litigation. In that regard, see, e.g., National Union Fire Ins. Co. of Pittsburgh, Pa. v State Ins. Fund, 266 AD2d 518, 699 NYS2d 111 (2d Dept 1999), in which it was held that the antisubrogation rule was not violated where the insurer had disclaimed coverage on untimely notification grounds; Franklin v Stillwater Hydro Partners L.P., 255 AD2d 998, 679 NYS2d 494 (4th Dept 1998) and Larson v City of New York, 214 AD2d 413, 625 NYS2d 898 (1st Dept 1995), in which the antisubrogation rule was held inapplicable where coverage was denied on grounds of a policy exclusion.

The SIF also argues that it rightly refused to defend Red Ball because it did not receive timely notice of the revived third-party action. However, National Union argues that the SIF did receive timely notice and in any event, did not timely disclaim coverage to Red Ball in compliance with Insurance Law §3420(d), which provides in relevant part that:
If under a liability policy delivered or issued for delivery in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.

National Union points out that the SIF concedes it received notice of the third-party action on October 3, 1997 (see the Drucker aff. at ¶18, and exhibit 6 thereto), but it failed to disclaim coverage until December 22, 1997 – 80 days later. See the Drucker aff. at ¶¶18 and 23 and exhibit 10 thereto.

The test for whether a disclaimer is timely is whether the insurer's explanation for delay is reasonable. See, e.g., Stabules v Aetna Life & Cas. Co, 226 AD2d 138, 639 NYS2d 824 (1st Dept 1996). A two month delay has been found reasonable. See, e.g., Norfolk & Dedham Mutual Fire Ins. Co. v Petrizzi, 121 AD2d 276, 503 NYS2d 51 (1st Dept 1986). But a two month delay has also been held unreasonable as a matter of law where there was no explanation. See Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 416 NYS2d 539 (1979). In this case, the SIF has provided no explanation as to the 80 day delay.

I find that National Union meets the standard set forth in Matter of Santana v NYS Thruway Authority, 92 Misc 2d 1, 11, 399 NYS2d 395, 402-03 (Ct Cl 1977) for the appearance of merit: (i) the claim "must not be patently groundless, frivolous or legally defective" and (ii) upon consideration of the entire record, including the proposed claim and any exhibits or affidavits, "there is reasonable cause to believe that a valid cause of action exists."

For the foregoing reasons, having reviewed the parties' submissions[4], IT IS ORDERED that motion no. M-64186 be granted. Within forty-five (45) days of the filing of this Decision and Order, claimant shall serve and file its claim and otherwise comply with §§11 and 11-a of the Court of Claims Act.

September 23, 2002
New York, New York

Judge of the Court of Claims

  1. [1]Chase Manhattan alone had apparently previously served a third-party complaint against Redball on June 23, 1995 and had moved for a default judgment, which motion was withdrawn without prejudice. After National Union took over the defense of Chase and Morse Diesel, new attorneys were substituted for such parties and the April 1, 1996 third-party action was commenced. See ¶¶6-8 and 15-16 of the February 11, 2002 affirmation of Dennis Drucker (the "Drucker Aff.").
  2. [2]The letter actually said "can" rather than "cannot," which was a typographical error according to the SIF. In any event, the SIF's position was clarified in subsequent correspondence referring to the error. See ¶21 of the Drucker Aff. and exhibit 9 thereto.
  3. [3]See Bay Terrace Coop. Section IV, Inc. v New York State Employees' Retirement Sys. Policemen's and Firemen's Retirement Sys., 55 NY2d 979, 449 NYS2d 185 (1982); Scarver v State of New York, 233 AD2d 858, 649 NYS2d 280 (4th Dept 1996).
  4. [4]The following were reviewed: claimant's notice of motion with affidavit in support and exhibits A-M; defendant's affirmation in opposition with exhibits 1-10; and claimant's reply affirmation with exhibit A.