New York State Court of Claims

New York State Court of Claims

NAT. UNION FIRE INS. CO. v. THE STATE OF NEW YORK, #2008-036-336, Claim No. 106936, Motion Nos. M-75392, M-75421


Synopsis



Case Information

UID:
2008-036-336
Claimant(s):
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.
Claimant short name:
NAT. UNION FIRE INS. CO.
Footnote (claimant name) :

Defendant(s):
THE STATE OF NEW YORK
Footnote (defendant name) :

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
106936
Motion number(s):
M-75392, M-75421
Cross-motion number(s):

Judge:
MELVIN L. SCHWEITZER
Claimant’s attorney:
LESTER SCHWAB KATZ & DWYER, LLPBy: Ellen M. Spindler, Esq.
Defendant’s attorney:
HERZFELD & RUBIN, P.C.By: Howard S. Edinburgh, Esq.
Third-party defendant’s attorney:

Signature date:
November 14, 2008
City:
New York
Comments:

Official citation:

Appellate results:

See also (multicaptioned case)



Decision


In this dispute over which insurer should pay the loss arising out of a construction accident personal injury litigation, at the close of discovery both parties move for summary judgment.[1] Claimant, National Union Fire Insurance Company of Pittsburgh, PA (“National Union” or “claimant”) has brought this action against the New York State Insurance Fund (“SIF”) seeking to recover $2,286,000, plus interest, it paid to settle a 1994 personal injury action brought by an injured construction worker, Alberto Sousa, and his wife, against Chase Manhattan Bank, NA (“Chase”) and Morse Diesel International (“MDI”), the owner and construction manager, respectively. See Ex. A to Affirmation of Ellen M. Spindler, dated July 15, 2008, in Support of Claimant National Union Fire Insurance Company of Pittsburgh, P. A.’s Summary Judgment Motion (“Claimant’s Moving Affirmation”). On March 29, 1993, Mr. Sousa, an employee of subcontractor Red Ball Demolition, Inc. (“Red Ball”), was injured when he fell two stories at a construction site in lower Manhattan. On October 24, 1994, Mr. Sousa, and his wife, sued Chase and MDI in Supreme Court, New York County (the “Sousa” action). National Union provided Comprehensive General Liability (“CGL”) coverage to Red Ball in a renewal policy in effect at the time of the accident with coverage of $1 million per occurrence, plus umbrella coverage of $5 million per occurrence. Exs. H and I to Claimant’s Moving Affirmation. Chase and MDI claimed they were “additional insureds” on the Red Ball CGL policy. SIF provided Red Ball with workers’ compensation coverage and “unlimited liability coverage.” Ex. J to Claimant’s Moving Affirmation.

On October 31, 1995, National Union accepted Chase/MDI’s tender based on their contention that they were “additional insureds” under the Red Ball CGL policy with National Union, which just prior to acceptance of that tender had disclaimed all coverage as to Red Ball on the basis of late notice. After National Union agreed to indemnify Chase and MDI in the Sousa action and assumed control of their defense, a pending third-party action against Red Ball was discontinued without prejudice. On April 1, 1996, National Union, acting on behalf of Chase/MDI, commenced a new third-party action against Red Ball in the Sousa action. Red Ball failed to appear, and on November 13, 1997, National Union obtained an order for a default judgment against Red Ball. The order provided for holding an inquest to determine the amount of damages suffered by Chase/MDI. On October 3, 1997 through November 18, 1997, National Union (through its claims service agent AIGCS) exchanged letters and had phone conversations relating to National Union’s demand that SIF pay any settlement or judgment in the Sousa action for Chase/MDI because Red Ball was in default. On October 8, 1997, SIF disclaimed coverage as against Red Ball on the basis that since National Union insured Red Ball SIF could not be responsible for National Union’s taking a default against its own insured. Ex. JJ to Affidavit of Howard S. Edinburgh, sworn to on July 11, 2008 (“Defendant’s Moving Affidavit”). On December 22, 1997, SIF sent an additional letter disclaiming coverage on the basis of late notice. Ex. MM to Defendant’s Moving Affidavit. On August 25, 1997, plaintiffs in the Sousa action obtained summary judgment on liability against Chase/MDI on their Labor Law § 240 [1] cause of action (Ex. BB to Defendant’s Moving Affidavit); and on June 2, 1999, Chase/MDI settled with the Sousas in exchange for a payment of $2,286,000, which was paid by National Union on Chase/MDI’s behalf on June 8, 1999. Ex. P to Defendant’s Moving Affidavit.

On August 29, 2001, National Union moved for leave to file a late claim for indemnification against SIF, which the court granted. National Union’s amended verified claim seeks a “judicial declaration of the rights, obligations, and other legal relationships by and between claimant and defendant concerning their respective duties to fund [the Sousa settlement] and reimbursement of settlement costs” in the amount of $2,286,000, plus interest at 9% per annum from June 8, 1999. See Amended Verified Complaint, Ex. A to Claimant’s Moving Affirmation.

SIF moves for summary judgment on a number of grounds: (i) New York Insurance Law § 1108 (c) prohibits claimant from commencing a direct action against SIF under Insurance Law § 3420 (a) and (b); (ii) claimant has no claim against SIF because Chase/MDI never obtained a default judgment against Red Ball establishing Red Ball’s actual negligence; (iii) National Union settled the Sousa action as a “volunteer”; (iv) the default against Red Ball is not binding and has no preclusive effect on SIF; and (v) SIF timely and effectively disclaimed because Red Ball did not timely notify SIF of the third-party action brought by National Union as obligated under SIF’s policy insuring Red Ball. Defendant’s Moving Affidavit at ¶¶ 11-74.

National Union moves for summary judgment under the provision of the SIF policy insuring Red Ball which obligates SIF to pay damages for which Red Ball is liable to a third party “as a result of injury to your employee” (Ex. J to Claimant’s Moving Affirmation at Part 2, ¶ B (1)), arguing there is no genuine issue of material fact that (i) National Union’s disclaimer of coverage to Red Ball for late notice was effective in providing National Union with a defense to any claim for insurance coverage by Red Ball, and (ii) National Union’s CGL policy insuring Red Ball excludes coverage of an employee so anti-subrogation does not bar National Union’s claim for reimbursement for the settlement monies National Union paid in the Sousa action. National Union also argues that SIF’s October 8, 1997 disclaimer was ineffective and its December 22, 1997 disclaimer was untimely. SIF opposes National Union’s motion for summary judgment contending that notice of Chase/MDI’s initial third-party action against Red Ball was of no consequence and because it was not given timely notice of Chase/MDI’s second third-party claim against Red Ball it cannot be liable to National Union; and, in any event, National Union’s action is barred by the “rule of anti-subrogation which bars an insurer such as NU from favoring one insured (here Chase and Morse Diesel or MDI) over another (Red Ball).” (Defendant’s Opposition Affidavit at ¶¶ 3-6).

On a summary judgment motion, movant must make a prima facie showing of entitlement to judgment as matter of law, tendering sufficient evidence in admissible form to demonstrate the absence of any material issue of fact (Alvarez v Prospect Hosp., 68 NY2d 320 [1986]; Friends of Animals, Inc. v Associated Fur Mfrs. Inc., 46 NY2d 1065 [1979]). When the movant has made out a prima facie case, the burden of going forward shifts to the party opposing the motion to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact (Zuckerman v City of New York, 49 NY2d 557 [1980]). Summary judgment should be denied if there is a doubt as to whether a material issue of fact exists. (Phillips v Joseph Kantor & Co., 31 NY2d 307, 311 [1972]; Glick & Dolleck, Inc. v Tri-Pac Export Corp., 22 NY2d 439, 441 [1968]). Summary judgment is a drastic remedy which requires that the party opposing the motion be accorded every favorable inference and issues of credibility may not be determined on the motion but must await the trial (Westhill Exports, Ltd. v Pope, 12 NY2d 491 [1963]). The papers submitted on a summary judgment application are always scrutinized in a light most favorable to the party opposing the motion (Robinson v Strong Mem. Hosp., 98 AD2d 976 [1983]).

The court concludes SIF is entitled to summary judgment, and, accordingly, National Union’s motion for summary judgment is moot.

SIF, citing Kenmore-Tonawanda School District v State of New York, 38 AD3d 203 [1st Dept 2007], lv. denied, 10 NY3d 702 [2008], argues it is immune from a direct action against it under Insurance Law § 3420 by virtue of the provision in Insurance Law § 1108 (c) exempting SIF “from licensing and other requirements imposed by the provisions of the chapter.” Defendant State of New York’s Memorandum of Law in Support of its Motion for Summary Judgment (“SIF Moving Brief”) at pp 7-9.

Insurance Law § 3420 (a) and (b) provides in relevant part:
(a) No policy or contract insuring against liability for injury to person . . . shall be issued or delivered in this state, unless it contains in substance the following provisions or provisions which are equally or more favorable to the insured and to judgment creditors so far as such provisions relate to judgment creditors:

* * *
(2) A provision that in case judgment against the insured or his personal representative in an action brought to recover damages for injury sustained or loss or damage occasioned during the life of the policy or contract shall remain unsatisfied at the expiration of thirty days from the serving of notice of entry of judgment upon the attorney for the insured, or upon the insured, and upon the insurer, then an action may, except during a stay or limited stay of execution against the insured on such judgment, be maintained against the insurer under the terms of the policy or contract for the amount of the judgment not exceeding the amount of the applicable limit of coverage under such policy or contract. . .

(b) Subject to the limitations and conditions of paragraph two of subsection (a) hereof, an action may be maintained by the following persons against the insurer upon any policy or contract of liability insurance which is governed by such paragraph, to recover the amount of a judgment against the insured or his personal representative.

* * *
(2) any person who, or the personal representative of any person who, has obtained a judgment against the insured or his personal representative to enforce a right of contribution or indemnity, or any person subrogated to the judgment creditor’s rights under such judgment.


In Kenmore the claimant school district brought an action in the Court of Claims against the State Insurance Fund, “the insurer of a company against whom claimant had obtained a judgment, pursuant to Insurance Law § 3420 (a) and (b).” In granting summary judgment to the State Fund and directing the Court of Claims to enter judgment dismissing the complaint, the Appellate Division held: “[T]he State Insurance Fund is exempt from the requirements of Insurance Law § 3420 (a) and (b) (Insurance Law § 1108).” Section 1108 of the Insurance Law provides: “The following insurers ... shall be exempt from licensing and other requirements imposed by the provisions of this chapter . . . to the extent specified below: . . . (c) The state insurance fund of this state . . .” (emphasis added). Without specifically saying so, the Appellate Division in Kenmore ruled that the “other requirements” provision of section 1108 exempts the State Insurance Fund from an action under section 3420 (a) and (b).

National Union counters with an argument that it is not bringing a “direct action” against SIF, but a declaratory judgment action that “is based on the principles of equitable subrogation because National Union stands in the shoes of its insured [Chase/MDI] as a result of the negotiated settlement.” National Union’s Memorandum of Law in Opposition to Defendant SIF’s Motion for Summary Judgment (“National Union Opposition Memorandum”) at p. 14. The court does not find merit in National Union’s argument. National Union’s amended verified claim seeks “reimbursement from SIF for $2,286,000,” i.e., the amount it paid to settle the Sousa action. (See Ex. A to Claimant’s Moving Affirmation at ¶ 32). Section 3420 (a) and (b) does not use the term “direct action” but speaks in terms of an “action” by any person or his personal representative against the wrongdoer’s insurance company when a judgment against that insured has not been paid. While in insurance parlance this is known as a “direct action” against an insurer as opposed to an action against the insured, in the context of this statute which allows an action directly against the insurer, the court sees no validity to a supposed distinction between a “direct action” and a purported “action for equitable subrogation”as a basis for distinguishing the Appellate Division’s decision in Kenmore. The fact that the named claimant in Kenmore was the school district while here it is the subrogated insurer, National Union, is irrelevant in that National Union is seeking monetary damages from SIF just as the insurers did in Kenmore, albeit in the name of the school district.[2] There the school district’s insurance companies paid a judgment on its behalf and brought an action against SIF as insurer of the employer of the injured plaintiff who, like Red Ball, had defaulted in the third-party action brought against it, to be reimbursed for the amount they paid the plaintiff to satisfy the judgment against the school district. National Union, as Chase/MDI’s subrogee having no more rights than Chase/MDI (Hartford Accident & Indemnity Co. v CNA Insurance Company, 99 AD2d 310 [1st Dept 1984]) and thus Kenmore insurers are functionally equivalent.[3] Subsections (b) (1) and (2) of Insurance Law § 3420 expressly contemplate an action both by any person “who has obtained a judgment against the insured” and by “any person subrogated to the judgment creditor’s rights,” respectively. Regardless of whether the action is referred to as a “direct action” or an “action for equitable subrogation,” the Appellate Division’s decision in Kenmore thus precludes such a claim under Insurance Law § 3420 (a) and (b).[4]


Accordingly, the court grants SIF summary judgment dismissing National Union’s amended verified claim and denies National Union’s motion for summary as moot.


November 14, 2008
New York, New York
HON. MELVIN L. SCHWEITZER
Judge of the Court of Claims




[1]. In connection with this motion, the court reviewed the following papers. Papers submitted on behalf of claimant: Notice of Motion for Summary Judgment, dated July 15, 2008; Statement of Material Facts, dated July 15, 2008; Affirmation in Support of Claimant National Union Fire Insurance Company of Pittsburgh, Pa.. Summary Judgment Motion, dated July 15, 2008, together with Exhibits A through K annexed thereto; Memorandum of Law, dated July 15, 2008; National Union’s Memorandum of Law in Opposition to Defendant SIF’s Motion for Summary Judgment, dated August 25, 2008; Affirmation of Ellen M. Spindler in Reply to the State of New York’s Opposition to National Union’s Motion for Summary Judgment, dated September 26, 2008, together with Exhibit A annexed thereto; Affidavit of Robert Lasowski, sworn to September 17, 2008, together with Exhibits A through C; Amended Statement of Material Facts, dated September 26, 2008; Claimant’s Response to Reply Affidavit; Sur-Reply Affidavit in Further Support of Claimant’s Motion for Summary Judgment, dated October 7, 2008, together with Exhibits A and B annexed thereto; and Counter-Statement of Material Facts as to Which There Are No Genuine Issues to be Tried, dated October 14, 2008, with Exhibit A annexed thereto; and letter to the court from Ellen M. Spindler, dated November 11, 2008. Papers submitted on behalf of defendant: Notice of Motion for Summary Judgment, dated July 11, 2008; Affidavit in Support of defendant’s Motion for Summary Judgment, sworn to July 11, 2008; Defendant State of New York’s Memorandum of Law in Support of its Motion for Summary Judgment, dated July 11, 2008; Affidavit in Opposition to Claimant’s Motion for Summary Judgment, sworn to August 28, 2008 (“Defendant’s Opposition Affidavit”), together with Exhibit A; Reply Affidavit in further Support of Defendant’s Motion for Summary Judgment, sworn to September 25, 2008 (“Defendant’s Reply Affidavit”), together with Exhibits A through J; Statement of Material Facts as to Which There Are No Genuine Issues to be Tried, dated September 25, 2008 (as amended by letter to court dated October 1, 2008); Counter-Statement of Material Facts as to Which There Are No Genuine Issues to be Tried, dated September 29, 2008; Sur-Reply Affidavit in Support of Defendant’s Motion for Summary Judgment and in Further Opposition to Claimant’s Motion for Summary Judgment, sworn to October 1, 2008; letter to the court from Howard S. Edinburgh, dated October 15, 2008; and letter to the court from Howard S. Edinburgh, dated November 10, 2008.
[2]. Indeed, if National Union were seeking solely equitable relief, as opposed to a declaration that it is entitled to money damages, this court would lack jurisdiction. (See e.g. Guy v State of New York, 18 AD3d 936 [3d Dept 2005]).
[3]. SIF vigorously disputes that Chase/MDI were additional insureds on the National Union policy insuring Red Ball, and, thus argues that any payment made by National Union on behalf of Chase/MDI was made as a “volunteer,” possibly in an effort to avoid responsibility as an insurer of Red Ball by trying to improperly foist liability onto SIF by circumventing the anti-subrogation rule. Defendant’s Opposition Affidavit at ¶¶ 32-47 and Defendant’s Reply Affidavit at ¶¶ 21-28. The court, having held that SIF is entitled to summary judgment because it is exempt under Insurance Law ¶ 3420 (a) and (b), need not address SIF’s other such grounds for seeking summary judgment.

[4]. Apart from being exempt from an action under Insurance Law § 3420 (a) and (b), there also is no dispute that Chase/MDI (National Union’s subrogor) did not obtain a judgment against Red Ball, SIF’s alleged insured, which is an essential prerequisite to an action under § 3420 (a) and (b). Section 3420 (a) (2) provides that “in case a judgment against the insured” shall remain unsatisfied then after “thirty days from the serving of notice of entry of judgment” upon the insured and the insurer, then an action may be brought against the insurer and § 3420 (b) (2) provides that “subject to limitations and conditions of [§ 3420 (a) (2)] . . . any person subrogated to the judgment creditor’s rights under such judgment” may maintain an action against the insurer. (emphasis added). On November 13, 1997 Chase/MDI obtained an order allowing a default judgment to be entered against Red Ball. Ex. M to Defendant’s Moving Affidavit. The order directed that an inquest for assessment of damages be conducted. That was never done and no judgment ever was entered against Red Ball. (Guayara v Hudson Insurance Company, 48 AD3d 628 [2d Dept 2008] [“[A]n injured party may only sue the tortfeasor’s insurance company directly if the injured party first obtains a judgment against the tortfeasor, and then serves the insured . . . and the insurance company, with a copy of the unsatisfied judgment and notice of entry of the unsatisfied judgment . . . Compliance with the requirements of CPLR 3420 [a] [2] is a condition precedent to a direct action . . . against the insurance company”) (emphasis deleted)]; Berger v American Transit Insurance Company, 3 Misc 3d 130(A) [App Term 2d Dept 2004] [“In order to maintain a direct action against an insurer, there must be a valid judgment to be satisfied as against the corporate defendant. . . . plaintiff may not recover on the unsatisfied judgment in the underlying action . . . since a condition precedent to the maintenance of said action, pursuant to Insurance Law § 3420 (a) (2), is lacking.” (citations omitted)]).