New York State Court of Claims

New York State Court of Claims

KENMORE v. THE STATE OF NEW YORK, #2006-030-547, Claim No. 107943, Motion Nos. M-71234, M-71246


Case Information

1 1.The caption has been amended to reflect the only proper defendant.
Claimant short name:
Footnote (claimant name) :

Footnote (defendant name) :
The caption has been amended to reflect the only proper defendant.
Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
Motion number(s):
M-71234, M-71246
Cross-motion number(s):

Claimant’s attorney:
Defendant’s attorney:
(For the State of New York)

RONALD G. HULL, ESQ.(For the New York State Insurance Fund)
Third-party defendant’s attorney:

Signature date:
June 13, 2006
White Plains

Official citation:

Appellate results:

See also (multicaptioned case)


The following papers were read and considered on the respective motions by Claimant

[M-71246] and Defendant (New York State Insurance Fund) [M-71234] for summary judgment:

1-3 Notice of Motion; Attorney’s Affidavit by Scott M. Philbin, attorney for Claimant and attached exhibits; Memorandum of Law

4-6 Notice of Motion; Affidavit by Rudolph M. Klash, attorney for Defendant State Insurance Fund and attached exhibits; Memorandum of Law

7,8 Attorney’s Affidavit in Opposition to New York State Insurance Fund’s Motion for Summary Judgment; Memorandum of Law in Opposition to New York State Insurance Fund’s Motion for Summary Judgment and in Further Support of Claimant’s Motion for Summary Judgment

  1. Defendant State Insurance Fund’s Memorandum of Law in Opposition to Claimant’s Motion for Summary Judgment
10,11 Reply Affidavit in Further Support of Claimant’s Motion for Summary Judgment and attached exhibit; Claimant’s Memorandum of Law in Reply to New York State Insurance Fund’s Opposing Memorandum of Law

  1. Defendant State Insurance Fund’s Reply Memorandum of Law in Support of the Fund’s Motion for Summary Judgment
  1. Letter from Eidin Beirne, Assistant Attorney General, for Defendant State of New York,
14-16 Filed Papers: Claim, Answers
As characterized by Claimant, this Claim arises over the duty of the New York State Insurance Fund (hereinafter SIF)[2] to defend and indemnify its insured, Grove Roofing Company, Inc. (hereinafter Grove). As characterized by SIF, this Claim involves an effort by the insurance companies who paid an underlying judgment, and secured a suspect third-party default judgment, to avoid New York’s State’s anti-subrogation policy and recoup such monies rather than bear the loss.

Kenmore-Tonawanda School District, the Claimant herein, is the owner of real property known as Benjamin Franklin School located on Parkhurst Boulevard in the Town of Kenmore, New York. On or about August 14, 1993, Michael Lopez, an employee of Grove, was working at a construction site at Benjamin Franklin School when he suffered injuries in an accident.

Grove, Mr. Lopez’ employer, had Workers’ Compensation insurance with SIF, under policy number 230 414-5 with a policy period of March 31, 1992 through March 31, 1994. [Attorney’s Affidavit by Scott M. Philbin, Exhibits 1-A and 2; Affidavit of Rudolph M. Klash, Exhibit B]. Grove’s general commercial liability - including liability arising under contract - was covered under a policy of insurance issued by Northern Insurance Company of N.Y., a member of The Maryland Insurance Group (hereafter Northern/Maryland). [See Affidavit of Rudolph M. Klash, Exhibit C]. In accordance with the construction contract between the School District and Grove, coverage was extended to the School District by Northern/Maryland as an additional insured. [ibid. Exhibit A]. The School District, too, was covered by a policy of insurance issued by United Community Insurance Company (hereafter UCIC). [ibid. Exhibit D].

Notice of the accident was arguably given to SIF on August 16, 1993 in the C-2 form filed pursuant to Workers’ Compensation Law §110. [Attorney’s Affidavit by Scott M. Philbin, Exhibit 3]. Workers’ Compensation benefits and medical benefits were paid by SIF to or on behalf of Mr. Lopez pursuant to its agreement with Grove “totaling more than $197,000.00.” [Affidavit of Rudolph M. Klash, ¶ 11].

In September 1993, Notice of Intent to File a Claim against the School District pursuant to the General Municipal Law was served upon the School District, [ibid. ¶ 12, and Exhibit E] and forwarded by the School District, or its agents, to Northern/Maryland, UCIC and SIF. [ibid. ¶13, Exhibits F, G, H, I]. A copy of the summons and complaint was forwarded to SIF in correspondence dated December 3, 1993. [ibid. ¶13, Exhibit I].

By letter dated January 7, 1994 the SIF acknowledged receipt of the Notice of Intent to file a claim against the School District, and disclaimed any coverage under its policy for the School District, or for any contractual obligations entered into by Grove Roofing. [ibid. ¶14, Exhibit J]. The letter was directed to the Claimant herein among others. [id.]. In addition to the disclaimer, the SIF stated:
“Apparently Grove Roofing Co. Inc. and Kenmore-Tonawanda School District are both insured under United Community Insurance Company policy number CPP3105780-01. Please note that in the event Mr. Lopez does institute an action against the School District, and said action is defended by . . . [UCIC], then that carrier may not implead Grove Roofing Co. Inc. into the action since to do so would be an improper example of a carrier subrogating against its own insured. This would be barred by the law of the State of New York as enunciated by the Court of Appeals in North Star v. Continental Insurance,[82]NY2d [281](1993).” [id.].
It is noted that this letter misidentified the insurer whose policy insured both Grove and the School District as UCIC, when it was Northern/Maryland Insurance that held the policy pertinent to both. [id.].

On April 21, 1994 Mr. Lopez and his wife commenced an action against the Claimant School District in Erie County Supreme Court, alleging various violations of the Labor Law. [Attorney’s Affidavit by Scott M. Philbin, Exhibit 1-B]. The School District was defended by Northern/Maryland, pursuant to the policy issued to Grove covering the School District as an additional insured. [Affidavit of Rudolph M. Klash, ¶ 16]. Thereafter, there was apparently a dispute between UCIC and Northern/Maryland as to whether the companies were co-insurers, or whether UCIC was the excess carrier, obligated only when the Northern/Maryland resources were exhausted. [ibid. Exhibits L, M, N]. When the judgment awarded to Mr. Lopez exceeded the policy limits with Northern/Maryland, UCIC’s obligations were triggered in any event, rendering resolution of the respective responsibilities between the carriers moot. [id.].

In the interim, the School District impleaded Grove in a third-party action seeking common law contribution and indemnity - not seeking any contractual basis for liability - on or about June 7, 1995. [Attorney’s Affidavit by Scott M. Philbin, Exhibit 1-C]. Grove did not appear with regard to the third-party complaint, although Grove appears to have been served [See ibid. Exhibit 1-D]. Notably, Northern/Maryland acknowledged receipt from Grove of the Third Party Summons and Complaint, and disclaimed coverage in a letter to Grove dated August 1, 1995. [Affidavit of Rudolph M. Klash, ¶23, Exhibit T]. Default judgment was entered against Grove on April 10, 1997. [Attorney’s Affidavit by Scott M. Philbin, Exhibit 1-E]. The School District was granted judgment against Grove for the total amount awarded to plaintiffs [Mr. Lopez and his wife] for injuries and damages sustained on August 14, 1993, in such sum as a jury may determine after trial. [id.]. The judgment provided that the School District recover attorneys’ fees, costs and disbursements incurred in connection with defending the primary lawsuit against it. [id.].

According to SIF, it first received notice of the third-party action on or about January 9, 1996, but did not respond, because the “significance of the Third-Party Summons and Complaint as an action against an insured was missed or misunderstood.” [Affidavit of Rudolph M. Klash, ¶¶24, 25 Exhibit U]. SIF also states it did not receive correspondence from Naples Claims Management Inc. - “Group Managers for Grove Roofing” - dated, respectively, February 21, 1996; June 27, 1996; October 25, 1996, all inquiring about the status of the third-party action and defense of Grove. [ibid. ¶26, Exhibit V]. SIF’s Buffalo office acknowledged in interdepartmental memoranda that it had received notice of the third-party action from Mr. Lopez’ attorney on or about July 19, 2006. [ibid. ¶27, Exhibit X]. On October 22, 1996 SIF’s Buffalo office also received a transmittal from UCIC enclosing the third-party summons and complaint. [ibid. ¶ 27, Exhibit W].

As noted above, a default judgment against Grove in the third-party action was entered on April 10, 1997. By letter dated April 17, 1997, the attorneys retained by Northern/Maryland to represent the School District served a copy of the Judgment with notice of entry on SIF. [ibid. ¶28, Exhibit Y]. Referring back to the January 7, 1994 letter [See ibid. Exhibit J] wherein SIF had responded to the Notice of Intent to file a claim in Supreme Court by indicating that a subrogation action between the School District and Grove would be prohibited because of the shared insurance, SIF wrote to Grove on May 15, 1997 unequivocally indicating that the third-party complaint had been barred in the first instance by the anti-subrogation concerns, and disclaiming any obligation to defend or indemnify Grove. [See ibid. Exhibit Z].

The SIF policy issued to Grove provides that it will pay
“. . . all sums you [Grove] must pay as damages because of bodily injury to your employees, provided the bodily injury is covered by this Employers’ Liability Insurance.

The damages we will pay, where recovery is permitted by law, include damages:
1. for which you are liable to a third party by reason of a claim or suit against you by that third party to recover the damages claimed against such third party as a result of bodily injury to your employee . . . ”

[Attorney’s Affidavit by Scott M. Philbin, Exhibit 2].

Mr. Lopez was granted summary judgment as to liability against the School District in 1996. [Affidavit of Rudolph M. Klash, ¶17]. Damages were ultimately determined in May 1999, and the judgment in the amount of $1,517,517.00 was thereafter affirmed on appeal. [id.]. Judgment against the School District in the primary lawsuit was filed in the Erie County Clerk’s Office on February 7, 2002. [Attorney’s Affidavit by Scott M. Philbin, Exhibit 1-F]. This judgment was satisfied on July 11, 2002, as evidenced by Satisfactions of Judgment filed on that date. [ibid. Exhibit 1-G]. As noted by Counsel for SIF, six different satisfactions were filed [See Affidavit of Rudolph M. Klash, ¶18, Exhibit Q], and corresponding checks were negotiated. [ibid. ¶19, Exhibit R]. On behalf of Northern/Maryland, checks totaling $1,127,861.75 were paid by Zurich American Insurance Company. [id.]. “UCIC paid at least $1,142,064.13.” [id.].

At the conclusion of the litigation between Mr. Lopez and the School District, and reflecting the total sums paid to satisfy the judgment against it, the School District obtained an amended default judgment against Grove seven months after satisfaction of the underlying judgment in the amount of Two Million Six Hundred Ninety-Seven Thousand Four Hundred Five Dollars and 25/100 ($2,697,405.25), that was filed on February 11, 2003. [Attorney’s Affidavit by Scott M. Philbin, Exhibit 1-H].

According to Claimant, and relying on Insurance Law §3420(a)(2), the Default Judgment and Amended Default Judgment, both with Notice of Entry [see ibid. Exhibits 1-I and 1-J], were served upon Grove and SIF on February 11, 2003. [ibid. Exhibit 1-K]. The judgment remained unsatisfied for more than thirty (30) days. [ibid. ¶18]. The Claim herein was commenced on or about June 27, 2003 by the School District, naming as defendants SIF and the State of New York, seeking judgment pursuant to Insurance Law §3420 based upon the default judgment entered against Grove. SIF served an answer to the claim, and the State of New York served a motion to dismiss in lieu of an answer, that was denied by this Court on or about June 4, 2004. [See ibid. Exhibit 5]. The State of New York has now served and filed an answer pursuant to stipulation, thus issue is joined relative to the present cross-motions for summary judgment.
Discussion and Conclusion
Although the Court does not intend to engage in belabored discussion of the arguments advanced by Counsel, some brief reference to some of the issues presented demonstrates why the matter does not lend itself to summary determination.

Claimant argues that there are no triable issues of fact before the Court, and that the Defendant’s affirmative defenses are without merit. Claimant asserts that to prevail on a motion for summary judgment pursuant to Insurance Law §3420(a) and (b), the movant must establish first that a judgment exists in an underlying action - here, the unpaid third-party judgment entered vis-
the School District and Grove - and second that there was an agreement of insurance between the insurer and Grove, the judgment debtor, covering Grove for the “liability merged in the judgment . . . (citation omitted).” Kleynshvag v GAN Ins. Co., 21 AD3d 999, 1003 (2d Dept 2005). Claimant argues that because SIF had an insurance policy for Grove in effect at the time of Mr. Lopez’ accident in 1993, and that the policy provided coverage for common law indemnification claims against Grove, the second of these prerequisites is met. The moving party must then show that the notice requirements of this direct action statute have been met.

As to notice, Claimant argues that SIF had notice of the underlying accident based upon the workers’ compensation form filed, and that it “is improper for SIF to disclaim coverage of the third-party action based on Grove’s alleged failure to provide timely notice of the suit where SIF had received timely notice of the accident.” [Memorandum of Law in Support of Claimant’s Motion for Summary Judgment, Page 6, ¶ 1]. Further, Claimant notes that SIF did have notice of the third-party action by virtue of having been forwarded a copy of Northern/Maryland’s letter to Grove disclaiming coverage dated August 1, 1995. Claimant cites Brooklyn Union Gas Company v North River Insurance, 124 AD2d 621 (2d Dept 1986), involving a declaratory judgment action, to support the assertion that notice of the accident alone was sufficient where there was no prejudice to the insurer’s ability to investigate. In that case, the Court held that late notice of the third-party action against the insured did not relieve the insurer of the obligation to defend and indemnify, since the insurer had received timely notice of the accident and the primary personal injury action, and thus had the opportunity to investigate, as well as the opportunity to defend in the third-party action. See also Home Ind. Co. v State Farm Mut. Auto Ins. Co., 64 AD2d 212 (3d Dept 1978).

Assuming that the notice was sufficient, Claimant then argues that any disclaimer of its duty to defend Grove by SIF was untimely. What SIF argues, however, is that even assuming that the disclaimer is as late as the May 15, 1997 letter - that is, after a default judgment was entered against Grove - the present cause of action against the State’s agent, SIF, can only be sustained if Grove had a cause of action against SIF when the claim was commenced in this Court, under principles of subrogation.

Subrogation is “[a]n equitable doctrine, [allowing] 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(1993). What kind of shoes the insurer - or here, the School District - may step in, is measured from the viewpoint of Grove, who, Defendant argues, as of the commencement of this Claim in the Court of Claims had no rights against SIF. Any action Grove may have commenced against SIF for breach of the obligation to defend and indemnify under the policy issued by SIF would have to have been brought - at the latest - by April or May 2003 - six years after the cause of action accrued - based upon, respectively the entry of the default judgment against Grove on April 10, 1997 or May 15, 1997 when SIF again advised of its disclaimer of a duty to defend. When an insurer disclaims and the insured “. . . fail[s] to challenge [the insurer’s] disclaimer of liability”, the action of the judgment creditor under Insurance Law §3420 must be dismissed “[b]ecause the plaintiffs are limited to whatever rights the insured possessed against the insurer.” Yuska v State Farm Ins. Co., 203 AD2d 560, 560-61 (2d Dept 1994).

The Court of Appeals defines the “anti-subrogation” rule 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 Reinsurance Corp. v Continental Insurance Co., supra, at 294-95.

As urged by SIF, Claimant would appear to concede that the third-party action against Grove violated the anti-subrogation rule, but Claimant asserts that the rule was relevant only to the merits of the third-party claim, and by Grove’s default, the SIF is now precluded from raising defenses going to the merits of the underlying claim. [Point III, Defendant State Insurance Fund’s Memorandum of Law in Opposition to Claimant’s Motion for Summary Judgment]. Unlike a defense meaningful in the context of the lawsuit between the School District and Grove - ie: the basis for the School District asserting it can recover; the question of whether Grove’s insurance policies were implicated - both Northern/ Maryland and SIF - was Grove’s to pursue. When the default judgment against it was entered in 1997, it did nothing to pursue coverage with SIF, and more than six (6) years after the disclaimer and entry of the judgment passed prior to the service and filing of the present claim.

Clearly, the meaning and effect to be given to the various documents exchanged is the subject of debate herein, as is whether there was adequate notice of the third-party action, whether the third-party action is void for public policy reasons - at least with respect to Northern/Maryland’s position - and whether the series of disclaimers by SIF are valid to bar the claim here, making the matter not susceptible to resolution as a matter of law. See Civil Practice Law and Rules §3212;[3] Alvarez v Prospect Hospital, 68 NY2d 320(1986). Moreover, and surprisingly, given the voluminous submissions, not all legal issues have been addressed. Whether it was incumbent upon Grove, for example, to raise anti-subrogation issues when it was sued in the third-party action, or whether SIF had some responsibility to raise the issue rather than allow the default to be entered, such as in a declaratory judgment action, would appear to be some of the questions left begging.

Accordingly, the cross-motions for summary judgment [M-71234; M-71246] filed herein are in all respects denied.

June 13, 2006
White Plains, New York

Judge of the Court of Claims

[2]. See generally Workers’ Compensation Law §§76-99 as to the State Insurance Fund.
[3].Assuming a movant has made a prima facie showing of entitlement to judgment as a matter of law by proffering sufficient evidence to eliminate any genuine, material, issues of fact, the party in opposition to the motion for summary judgment must tender evidentiary proof in admissible form to establish the existence of material issues which require a trial. Winegrad v New York University Medical Center, 64 NY2d 851 (1985); Zuckerman v City of New York, 49 NY2d 557 (1980).