New York State Court of Claims

New York State Court of Claims

GULF v. STATE OF NEW YORK, #2007-018-555, Claim No. 111393, Motion No. M-70962


Synopsis


Defendant’s motion is granted and the claim is DISMISSED. Claimant made payment for its obligations under its contract of insurance with Crouse Hospital as it determined or assessed its liability. As a result, Claimant has no cause of action against the State of New York

Case Information

UID:
2007-018-555
Claimant(s):
GULF INSURANCE GROUP
1 1.The Court has amended the caption sua sponte to reflect the State of New York as the only proper Defendant.
Claimant short name:
GULF
Footnote (claimant name) :

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

Third-party defendant(s):

Claim number(s):
111393
Motion number(s):
M-70962
Cross-motion number(s):

Judge:
DIANE L. FITZPATRICK
Claimant’s attorney:
DISERIO MARTIN O’CONNOR & CASTIGLIONI, LLPBy: Jonathan P. Whitcomb, Esquire
Defendant’s attorney:
ANDREW M. CUOMO
Attorney General of the State of New York
By: Maureen A. MacPherson, EsquireAssistant Attorney General
Third-party defendant’s attorney:

Signature date:
February 20, 2007
City:
Syracuse
Comments:

Official citation:

Appellate results:

See also (multicaptioned case)

.
Decision

Defendant brings a pre-answer motion to dismiss the claim pursuant to CPLR 3211,

Court of Claims Act §§ 10 and 11, Uniform Rules for the Court of Claims § 206.6 (22 NYCRR

§ 206.6), and for summary judgment pursuant to CPLR 3212.[2] Claimant opposes the motion.

Claimant filed the claim on September 20, 2005, and served a copy upon the Attorney General on September 23, 2005. The claim alleges an accrual date of June 21, 2005, and arises from, in substantive part:
2. ...the acts or omissions of the defendant. Details of said acts or omissions are as follows...Suzanne Lin, MD while acting in her capacity as an employee of State of New York and State University of New York Health Science Center, as a resident in obstetrics and gynecology at University Hospital Suny [sic] Upstate on or about March 25, 2000 and continuing thereafter to March 26, 2000, inter alia, negligently treated and failed to properly treat Mrs. Carey Lorraine then pregnant by failing to timely order and perform a cesarean section; in failing to monitor and accurately interpret available fetal monitoring equipment; in failing to timely and accurately communicate fetal monitoring data to Mrs. Lorraine’s physician; in failing to diagnose fetal distress and trauma to the fetus who suffered cerebral palsy, brain damage, seizures, spastic quadriplegia, severe developmental delay, metabolic disorders and gastrointestinal problems among other damages. The State of NY, despite notice of the lawsuit entitled “Lorraine v. Suzanne Lin et al” Onondaga County Index #2001-6285, refused to defend and indemnify its employee Lim [sic], to the detriment of Gulf, the insurer of Crouse. Gulf was forced, to its detriment to settle the action for $900,000. (Claim paragraph [2]).



The claim arises within the context of an unusual and complicated set of facts, which, with a few exceptions, are mostly undisputed. Gulf Insurance issued an excess “claims made” policy to Crouse Hospital for a policy period beginning December 1, 2000 and ending December 1, 2001. Under that policy, Gulf Insurance was obligated to pay up to its policy limits if Crouse Hospital became legally obligated to pay as a result of “injury” or “damage” caused by a “medical incident” arising from Crouse Hospital or anyone whose professional acts or omissions for which Crouse Hospital is legally responsible. (All quoted terms are specifically defined in the policy). (Defendant’s Exhibit C, Page 1 of 5 “Excess Professional Liability Coverage Part”). To be a covered claim it must be made and reported during the policy period. Gulf’s obligation to pay only arose under the policy after Crouse paid $2 million for the medical incident from its self-insured retention fund.

Suzanne Lin, M.D., was a medical resident in obstetrics and gynecology at State University of New York Health Science Center (hereinafter University Hospital), who was placed, for purposes of her residency, with Crouse Hospital. As a resident at Crouse, SUNY relinquished supervisory rights and Dr. Lin worked under the supervision of Crouse Hospital. On March 26, 2000, Carey Lorraine was admitted to Crouse Hospital and was placed on fetal monitoring equipment. At approximately 8:15 a.m. on March 26, 2000, Ms. Lorraine underwent an emergency caesarean section to deliver her baby. The postoperative diagnosis was fetal distress and acute maternal fetal hemorrhage. The infant was born with serious and permanent medical conditions, including cerebral palsy and spastic quadriplegia. An action was commenced in Supreme Court, Onondaga County by Mrs. Lorraine, individually, and on behalf of the infant, against Suzanne Lin, M.D., Nicholas Montalto, M.D., and Lisa Freedman, M.D., in or about September 2001 alleging that Dr. Lin was negligent in her care and treatment of Ms. Lorraine. Crouse Hospital was added as a Defendant to the action in September of 2003.

As part of University Hospital’s placement of its residents with Crouse Hospital and its relinquishment of supervision, it entered into an “indemnification agreement” with Crouse Hospital in 1968 and another agreement in 1986. The 1968 agreement provides that residents and interns placed with Crouse Hospital are employees of that hospital and under the supervision of that hospital, regardless of how the residents or interns are paid. “...[I]n the event that a claim or suit is instituted against State University,[3] one or several of its interns or residents, or the State of New York for any act or omission of said interns or residents while assigned or working at the Hospital,[4] the Hospital hereby agrees to hold State University, its interns or residents and the State of New York harmless from all claims, damages, losses and awards.[5]” Crouse Hospital was supposed to obtain a specific rider on any malpractice policy recognizing the relationship between Crouse and University Hospital and providing indemnification for the State University, its interns and residents, and the State of New York. No such rider was made part of the relevant policy at issue herein. The 1986 agreement provides basically the same indemnification language stating that Crouse Hospital “will provide defense and indemnification coverage for all affiliated personnel, including residents and Health Science Center[6] employees (but excluding students) while they are assigned to the [Crouse] Hospital.” Claimant disavows any knowledge of these agreements.

To further complicate matters, in 2001 Crouse Hospital declared bankruptcy. It was apparently discovered thereafter that Crouse’s self-insurance retention fund at that time was underfunded. After meeting with creditors, the trustees, and other parties, it was determined that a Medical Trust Fund would be established through contributions from Crouse, its insurers, and some of its creditors. All pre-bankruptcy or declared claims against Crouse would be paid out of the Medical Trust Fund in lieu of the amount ordinarily paid out of Crouse’s self-insured retention fund. All other claims against Crouse and its indemnitees (which included University Hospital) would be barred by operation of the Bankruptcy Court. In exchange for contributing to the Medical Trust Fund, the creditors and insurers, including University Hospital, received a “channeling injunction” enjoining claimants who were paid out of the Medical Trust Fund from seeking compensation from any other participant in the Medical Trust and the claims would be discharged on the Confirmation Date. The reorganization plan was confirmed by the Bankruptcy Court on September 11, 2003. University Hospital contributed $200,000 toward the Medical Trust Fund.

After commencement of the Supreme Court action against Dr. Lin, she sent a demand to the State for defense and indemnification by the State pursuant to Public Officers Law § 17. The demand was never formally responded to and the State did not defend or indemnify Dr. Lin. Crouse Hospital tendered a claim for insurance coverage to Gulf Insurance for the suit against Dr. Lin. According to Claimant, this was the only claim made during the applicable excess policy period.

Gulf sent a letter to Ms. Lorraine’s counsel disclaiming insurance coverage for Dr. Lin on the basis that she was not a Crouse employee, that the “Affiliation Agreement” executed between Crouse and University Hospital was never disclosed to Gulf during the underwriting process and was not part of the subject excess insurance coverage policy, and there was no timely notice provided to Gulf of the claim against Dr. Lin. Ms. Lorraine’s counsel sent a follow-up letter to Gulf indicating that Dr. Lin would be considered an employee of Crouse, as a borrowed employee, and in any event Crouse would be vicariously liable for Dr. Lin’s actions under the law of “apparent authority.” Ms. Lorraine’s counsel’s position was that Gulf would therefore be obligated to provide coverage or he would commence an independent action against the insurer once a verdict was obtained against Dr. Lin.

Gulf maintains that rather than litigating the issue, it was “compelled” to contribute $900,000 toward the settlement of the Lorraine action. Crouse Hospital paid $400,000 from the Medical Trust Fund toward the settlement.
The Arguments

Defendant’s Position
Defendant argues the claim fails to meet the specificity requirements of Court of Claims Act § 11(b) in that it fails to state the legal theories on which the claim is founded or the alleged underlying duty the State allegedly breached. According to Defendant, Claimant’s responding papers to this motion do not set forth specifically under what theory it seeks to proceed. Defendant points out that it is Claimant’s obligation to meet the statutory requirements for making a claim.

Defendant also contends that the claim failed to comply with the Uniform Rules for the Court of Claims in that each cause of action must be separately stated and numbered and set forth a schedule of each item of damages (22 NYCRR § 206.6[b]).

Defendant next argues that the claim fails to state a cause of action upon which relief can be granted. It is Defendant’s position that Claimant cannot maintain an action against the State under these set of facts for contribution, indemnity, or subrogation. Claimant concedes that it does not seek relief under a theory of contribution.

It is Defendant’s contention that Claimant is not entitled to relief based upon indemnification since indemnity is a cause of action that stems from an express or implied contract, and there is no contract between Claimant and Defendant, express or implied. The only contract for indemnification is between Defendant and Crouse Hospital and provides for Crouse to indemnify University Hospital. It is Defendant’s position that even if Claimant was not aware of the indemnification agreement between Crouse and University Hospital, Claimant would still have no right to indemnification from the State instead having only a coverage dispute with its insured.

A subrogation claim permits the insurer to stand in the place of its insured for purposes of asserting a third-party action against the party who caused the loss. Defendant argues no claim stands under that theory either. Since standing in the shoes of its insured, Crouse, would not entitle Claimant to recover from the State because of the indemnification agreement between Crouse and University Hospital.

From the State’s perspective, Crouse’s bankruptcy and the channeling injunction only solidifies its position. Defendant states that the “‘channeling injunction’ enjoined those claimants who recovered from the Medical Trust from seeking compensation from any other participant in the Medical Trust, and thus afforded SUNY protection from precisely the sort of liability proposed herein.” (MacPherson Affirmation, dated November 17, 2005, paragraph 14). Pursuant to the terms of the Medical Trust, all Pre-Petition Medical Malpractice Claims were discharged on September 11, 2003, the confirmation date. Defendant further argues that since Crouse paid only $400,000 out of the Medical Trust toward the Lorraine case, the $2 million excess coverage policy was never triggered and Claimant, for whatever reason, chose to make a voluntary payment to Ms. Lorraine of $900,000 speculated to preclude extensive further litigation. This payment, according to Defendant, could not be considered coverage for Dr. Lin, as Claimant specifically disclaimed coverage and the release papers specify only Crouse Hospital as the party on whose behalf Claimant made payment. Thus, there is no theory under which Claimant can recover the $900,000 from the State.
Claimant’s Position
Claimant argues that it is entitled to seek indemnity against the State of New York as a result of being forced to settle the Lorraine case for $900,000, and that it made the payment solely as a result of the actions of Dr. Lin, the active tortfeasor. Claimant asserts that it paid the $900,000 because it viewed the case as potentially resulting in a verdict of several million dollars with Crouse being responsible for the first $2 million and Claimant liable to pay the excess. Payment of the $900,000 was made after the filing and service of the claim in this action.

Claimant views the State as the entity that caused its loss for which it is entitled to indemnity and argues that the language of Public Officers Law § 17 explicitly provides that an insurer’s right to subrogation is not impaired, and it is entitled pursuant to the language in the insurance contract to be subrogated, or equitably subrogated to the rights of Dr. Lin who had the right of defense and indemnification by the State of New York pursuant to Public Officers Law § 17.

Claimant represents that the disclaimer letters forwarded to Dr. Lin’s and Ms. Lorraine’s counsel were standard insurance letters designed to protect the insurance company’s interest but not necessarily indicative of the company’s potential legal responsibilities. Since under Insurance Law § 3420 an injured party in New York State can bring an action directly against a Defendant’s insurance company for payment, and faced with the threat of such action, Claimant argues it was forced to pay the $900,000 toward the settlement.

Claimant further argues that after the bankruptcy any indemnification agreement, specifically the 1968 and 1986 agreements, between the State and Crouse Hospital were discharged as a matter of law. The “channeling injunction” arising from the bankruptcy does not preclude the relief Claimant seeks from the State, as Claimant is not asserting a “Pre-Petition Medical Malpractice Claim” defined in the Debtors’ Amended Plan of Reorganization as part of the bankruptcy as “any Claim alleging medical, dental, or podiatric malpractice by any of the Debtors...that accrued prior to the Petition Date.”[7] Claimant also contends that even if its claim is considered to be a “Pre-Petition Medical Malpractice Claim” it would be inequitable to preclude its cause of action against the State where the Debtors’ Amended Plan of Reorganization provides that it does not affect or impair any legal, equitable, and contractual rights of the holder of such allowed claim with respect to any insurance policy covering any debtor or any issuer of such insurance policy. Although Claimant knew about the bankruptcy and the “channeling injunction,” Claimant was not part of the Medical Trust, did not know the specifics of the Medical Trust or the “channeling injunction” and was never served with notice of the bankruptcy, the notice of claim filing deadlines, notice of the “bar date” or notice of any documentation that the bankruptcy court process purportedly compromised its claim.
Analysis
A. Court of Claims Act § 11(b)
The Court of Claims Act § 11(b) requires that the claim state: (1) the time when, and (2) the place where such claim arose, (3) the nature of the same, (4) the items of damage or injuries claimed, and (5) the total sum claimed. It is Claimant’s burden to provide this information and Defendant has no obligation to seek out what the claim is required to set forth (see Lepkowski v State of New York, 1 NY3d 201, 208). On this motion, the Court must assess whether the claim contains “a statement made with sufficient definiteness to enable the State to investigate the claim promptly and to ascertain its liability under the circumstances” (Cobin v State of New York, 234 AD2d 498, lv dismissed 90 NY2d 925). The statement must be specific enough so as not to “mislead, deceive or prejudice the rights of the State;” “[c]onclusory or general allegations of negligence that fail to adduce the manner in which the claimant was injured and how the State was negligent” do not meet the pleading requirements (Heisler v State of New York, 78 AD2d 767, 768). Here, the claim meets the minimum requirements. Although it does not set forth the specific legal theory under which Claimant seeks recovery, it provides that the State failed to defend and indemnify its employee, Dr. Lin and Gulf had to pay out $900,000 as a result. This places the State on adequate notice of the basis for the claim.

B. 22 NYCRR § 206.6

Defendant’s argument that the claim fails to comply with the Uniform Rules for the Court of Claims in that each cause of action must be separately stated and numbered and set forth a schedule of each item of damages also must fail (22 NYCRR § 206.6[b]). The Court does not find the claim violates that rule or that such a violation would warrant dismissal of the claim under these circumstances.

C. The Claim Fails to State a Cause of Action, CPLR 3211(a)(7)

On a motion to dismiss for failure to state a cause of action, the pleading is to be given a liberal construction and the facts set forth must be accepted as true, giving Claimant the

benefit of every favorable inference (Leon v Martinez, 84 NY2d 83, 87; Sanders v Winship, 57 NY2d 391, 394; Morone v Morone, 50 NY2d 481, 484). A determination must be made as to whether the facts as alleged fit within any cognizable legal theory (Leon, 84 NY2d at 88; Morone, 50 NY2d at 484). A dismissal is only warranted if the “documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law.”(Leon, 84 NY2d at 88). In considering a motion to dismiss “a court may freely consider affidavits submitted by the [claimant] to remedy any defects in the [claim] [citations omitted] and ‘the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one.’” (Id. quoting Guggenheimer v Ginzburg, 43 NY2d 268, 275; Rovello v Orofino Reality Co., 40 NY2d 633, 636).

The entire basis for Claimant’s claim stems from the alleged right or entitlement of Dr. Lin as an employee of the State of New York to a defense and indemnification by the State of New York pursuant to Public Officers Law § 17. Claimant seeks to assert a right to indemnification or subrogation against the State for the amount it paid out on the Lorraine case which it alleges should be the State’s responsibility. This case, as this Court sees it, is dependent upon what the relationship was between the State and Dr. Lin.

Public Officers Law § 17 (1)(a) provides that the term employee shall mean: “any person holding a position by election, appointment or employment in the service of the state, including clinical practice pursuant to subdivision fourteen of section two hundred six of the public health law, whether or not compensated, or a volunteer expressly authorized to participate in a state-sponsored volunteer program, but shall not include an independent contractor. The term employee shall include a former employee, his estate or judicially appointed personal representative and persons who assist the education department or the department of health as consultants or expert witnesses in the investigation or prosecution of alleged professional misconduct, licensure matters, restoration proceedings, or criminal prosecutions for unauthorized practice pursuant to title eight of the education law or title II-A of the public health law.”

Public Officers Law § 17(2) provides: that upon compliance with the provisions requiring delivery to the Attorney General of the original or copy of any summons, complaint, process, notice, demand or pleading within five days after service and complete cooperation, the State shall provide for the defense of the employee in any civil action or proceeding in any state or federal court arising out of any alleged act or omission which occurred or is alleged to have occurred while the employee was acting within the scope of his or her public employment or duties, unless the action is brought by or on behalf of the State.

Public Officers Law § 17(3) provides that the State shall indemnify and save harmless its employees in the amount of any judgment obtained against such employees in any state or federal court or in the amount of any settlement of a claim, or the State shall pay said judgment, as long as the act or omission giving rise to the judgment or settlement arose while the employee was acting withing the scope of his or her public employment or duties and did not result from intentional wrongdoing.

No documents are provided which spell out the relationship between Dr. Lin, specifically and the State of New York or Crouse Hospital. Defendant submits a copy of the 1968 Agreement between Crouse Hospital and University Hospital. In that agreement (page 2, paragraph 4) it states: “Such residents and interns shall be employees of the Hospital[8] and under the supervision of the Hospital staff during their presence or work at the Hospital, regardless of the formal payment of salary by reimbursement” (Defendant’s Notice of Motion filed November 21, 2005, Exhibit E). The 1986 “Affiliation Agreement” did not modify that language nor did that agreement supersede the 1968 agreement (Defendant’s Notice of Motion filed November 21, 2005, Exhibit F).

The excess policy of insurance issued by claimant on behalf of Crouse Hospital, provides as part of its coverage agreements in paragraph I that: “We will pay all amounts, in excess of the limits of liability of the scheduled ‘underlying insurance,’ up to our limit of liability which an ‘insured’ becomes legally obligated to pay as a result of ‘injury’ or ‘damage.’ The ‘injury’ or ‘damage’ must be caused by a ‘medical incident’ arising out of the supplying of or failure to supply ‘professional services’ by an ‘insured’ or anyone for whose professional acts or omissions the ‘insured’ is legally responsible” (Defendant’s Notice of Motion filed November 21, 2005, Exhibit C).

As this Court views those documents, it finds, based upon the clear language of each agreement and the statutory language of Public Officers Law § 17, that Dr. Lin, as she performed her residency duties with Crouse Hospital was an employee of Crouse Hospital and under that hospital’s direct supervision and control. As such, she would not be entitled to the defense and indemnification provisions of Public Officers Law § 17, which is supported by the fact that the State did not provide Dr. Lin with a defense or indemnification although Dr. Lin made a demand. As an employee of Crouse Hospital, Dr. Lin was a provider of “professional services” for whom Claimant provided insurance coverage for its insured. As such, Claimant has no rights of indemnity or subrogation against the State of New York. The bankruptcy of Crouse Hospital and the “channeling injunction” as part of the Debtors’ Amended Plan of Reorganization does not change the status of Dr. Lin as an employee of Crouse Hospital. The clear language of the agreements and contract of insurance does not warrant any other interpretation. When the parties “set down their agreement in a clear, complete document, their writing should...be enforced according to its terms” (Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475; W.W.W. Associates, Inc. v Giancontieri, 77 NY2d 157, 162-163).

Claimant’s assessment of its exposure, or the amount or timing of its payment toward the settlement of the Lorraine matter is also of no consequence. Claimant made payment for its obligations under its contract of insurance with Crouse Hospital as it determined or assessed its liability. Claimant has no cause of action against the State of New York as a result.

Defendant’s motion is granted and the claim is DISMISSED.




February 20, 2007
Syracuse, New York

HON. DIANE L. FITZPATRICK
Judge of the Court of Claims


The Court has considered the following documents in deciding this motion:


Notice of Motion...................................................................................................1


Affirmation of Maureen A. MacPherson, Esquire, Assistant Attorney General

in support, with exhibits attached thereto..................................................2


Affirmation of Jonathan P. Whitcomb, Esquire, in opposition, with

exhibits attached thereto............................................................................3


Memorandum of Law in Support of Affirmation in Opposition to

Motion to Dismiss and Motion for Summary Judgment dated

February 14, 2006......................................................................................4


Reply Affirmation of Maureen A. MacPherson, Esquire, Assistant

Attorney General in support.......................................................................5


Reply Memorandum of Law in support dated May 15, 2006.................................6


Transcript of Oral Argument on the motion held on May 18, 2006.......................7


Reply Affirmation of Jonathan P. Whitcomb, filed November 1, 2006.................8


Reply Memorandum of Law of Jonathan P. Whitcomb dated

October 31, 2006.........................................................................................9


[2]. Defendant’s argument for summary judgment was not considered, as pursuant to CPLR 3212 a summary judgment motion may only be brought after issue has been joined and Defendant brings the motion in lieu of, or before interposing, an answer (see CPLR 3212[a]).
[3].University Hospital is referred to as “State University” in the 1968 agreement with Crouse Hospital.
[4].Crouse Hospital is referred to as the “Hospital” in the 1968 and 1986 agreements.
[5].Page 2-3, 1968 Agreement between Crouse Hospital and University Hospital, Defendant’s Exhibit E.
[6].University Hospital is referred to as the “Health Science Center” in the 1986 Affiliation Agreement with Crouse Hospital.
[7].See Defendant’s Exhibit G, page 9, item #78.
[8].The name “Hospital” is in reference to Crouse Hospital.