KENMORE v. THE STATE OF NEW YORK, #2006-030-547, Claim No. 107943, Motion Nos.
|KENMORE-TONAWANDA SCHOOL DISTRICT
1 1.The caption has been amended to reflect the only proper defendant.
Footnote (claimant name)
THE STATE OF NEW YORK
Footnote (defendant name)
The caption has been amended to reflect the only
THOMAS H. SCUCCIMARRA
BUCHANAN INGERSOLL PC
BY: PATRICK J. MAXWELL, ESQ. AND SCOTT M. PHILBIN, ESQ.
HON. ELIOT SPITZER, NEW YORK STATE ATTORNEY
BY: EIDIN BEIRNE, ASSISTANT ATTORNEY GENERAL
(For the State of New
UNDERBERG & KESSLER, LLP
BY: RUDOLPH M. KLASH, ESQ. and
RONALD G. HULL,
ESQ.(For the New York State Insurance Fund)
June 13, 2006
See also (multicaptioned
The following papers were read and considered on the respective motions by
[M-71246] and Defendant (New York State Insurance Fund) [M-71234] for summary
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
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
Defendant State Insurance Fund’s Reply Memorandum of Law in Support of the
Fund’s Motion for Summary Judgment
Letter from Eidin Beirne, Assistant Attorney General, for Defendant State of New
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)
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,NY2d
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
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
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
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
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
Practice Law and Rules §3212; 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
Accordingly, the cross-motions for summary judgment [M-71234; M-71246] filed
herein are in all respects denied.
June 13, 2006
Plains, New York
HON. THOMAS H. SCUCCIMARRA
Judge of the Court of
. See generally
Compensation Law §§76-99 as to the State Insurance Fund.
.Assuming a movant has made a prima
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).