T Juniors, Inc. v Utica Mut. Ins. Co.

[*1] T Juniors, Inc. v Utica Mut. Ins. Co. 2005 NY Slip Op 52082(U) [10 Misc 3d 1063(A)] Decided on September 22, 2005 Supreme Court, New York County Fried, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 22, 2005
Supreme Court, New York County

T Juniors, Inc., Plaintiff,

against

Utica Mutual Insurance Co., UTICA NATIONAL ASSURANCE CO. and GRAPHIC ARTS MUTUAL INSURANCE CO., Defendants.



601965/04

Justice Bernard J. Fried, J.

In this declaratory judgment action for insurance coverage, I previously: (a) granted a motion by plaintiff T Juniors, Inc. (T Juniors) for partial summary judgment declaring that, under the respective policies issued to T Juniors by defendants Utica National Assurance Co. (Utica National) and Graphic Arts Mutual Insurance Co. (Graphic Arts), defendants have a duty to defend T Juniors in an action pending in the United States District Court for the Southern District of New York, entitled Jovani Fashions, Ltd. v Bon Marche, et al. (Including T Juniors), No. 03 CV 8884 (DLC) (DFE) (Federal Action); and (b) denied defendants' cross motion for a declaration that no coverage is afforded to T Juniors under said policies (order dated March 31, 2005 [the Order]).

Defendants now move for an order, pursuant to CPLR 2221, granting reargument, modification and/or clarification of the Order, solely to the extent that the Order should contain a direction that a hearing be conducted regarding the reasonableness of the attorneys' fees and defense costs incurred by or on behalf of T Juniors with respect to the Federal Action.

T Juniors opposes defendants' motion, and cross-moves for an order, pursuant to CPLR 3212, granting summary judgment in T Juniors' favor, and against defendants, declaring that defendants have a duty, under said policies, to pay T Juniors the total sum of $558,559.94, plus prejudgment interest, comprised of: (a) the defense costs incurred by T Juniors in connection with the Federal Action in the amount of $178,559.94; and (b) the sum paid by T Juniors to Jovani to settle the Federal Action in the amount of $360,000.

Since granting T Juniors' motion for partial summary judgment declaring that defendants have a duty to defend T Juniors in the Federal Action, the Federal Action has been resolved. Under the settlement, T Juniors settled Jovani's claims for $360,000. T Junior represents here that its defense costs relating to the defense of Jovani's claims amounted to $178,559.94. T Juniors submits invoices and other evidence to corroborate said expenditures.

As set forth in the affidavit of T Juniors' attorney, William C. Heck, Esq., sworn to May 18, 2005, and not denied by defendants, defendants were given advance written notification of the settlement conference, and were invited to attend and participate therein, but chose not to do so. Counsel for T Juniors further alleges that, subsequent to the settlement, defendants were notified in writing of the terms of the settlement as well as the amount of T Juniors' legal fees and defense [*2]costs. In the same correspondence, defendants were provided with copies of the invoices detailing T Juniors' expenditures as well as a spreadsheet listing each of the invoiced amounts. According to T Juniors, defendants' counsel did not voice any objection whatsoever to T Juniors' settlement of the Federal Action or the defense costs, and responded only that the matter would be forwarded to the carrier for review and consideration.

Defendants' motion to reargue is very narrow. It is limited to defendants' contention that I should have ordered a hearing regarding the reasonableness of the defense costs and attorneys' fees incurred by T Juniors with respect to the Federal Action. Defendants do not seek reargument of any other aspect of the Order, including the determination that defendants owe T Juniors a defense in the Federal Action.

The motion is denied. Pursuant to CPLR 2221(d), a motion for leave to reargue shall "be based upon matters of fact or law allegedly overlooked or misapprehended by the court in determining the prior motion. . . ." Defendants have failed to demonstrate that I overlooked any material fact, misapprehended the law, or, for any other reason, mistakenly arrived at any determination in the Order. The direction of a hearing is not germane to a determination that an insurer owes a duty to defend its insured in another action. I therefore reject defendants' argument that I somehow erred in not ordering a hearing with respect to the reasonableness of T Juniors' attorneys' fees. In any event, the motion is now moot since, as set forth below, the issue of the amount of T Juniors' legal fees is being referred to a Special Referee in conjunction with T Juniors' cross motion for summary judgment.

With respect to T Juniors' cross motion, T Juniors contends that, based on the conclusions of law contained in the Order - - to wit, that defendants each have a duty to defend T Juniors in the Federal Action because the allegations of the complaint in the Federal Action fall within the scope of coverage of defendants' policies - - and its showing that the settlement amount agreed upon and paid by T Juniors and the legal fees/ defense costs incurred by it are reasonable, T Juniors is entitled to an order granting summary judgment against defendants for the sum of $558,559.94, plus prejudgment interest (from September 2004 with respect to the defense costs, and from August 2005 with respect to the settlement sum).

Regarding T Juniors' claim for indemnification of the $360,000 it paid to Jovani to settle the Federal Action, defendants submit that the cross motion should be denied. Defendants argue that, although there has been a legal determination that defendants have a duty to defend T Juniors in the Federal Action, there has been no determination that the settlement represents losses that fall within the ambit of the policies, and thus, there has been no determination that defendants owe a duty to indemnify T Juniors for the settlement sum.

Defendants are correct that, to date there has not been a determination of coverage, and that such a determination is necessary. They, however, are incorrect in asserting that such a determination is not warranted here.

Based on the evidence presented in connection with both the prior motion and this motion, including the settlement documents themselves, I am satisfied that the losses represented by the settlement fall within the scope of the policies' coverage.

Nothing presented by defendants refutes that showing. Indeed, many of the arguments relied upon by defendants in opposition to T Juniors' cross motion were previously asserted by defendants, and rejected by me, in the Order. As I held there, and I hold now, defendants failed to carry the burden of demonstrating the applicability of any claimed exclusion [*3]or exception to coverage (see e.g. Seaboard Surety Co. v Gillette Co., 64 NY2d 304, 311 [1984]). No new evidence or argument has been presented this time around to call the above conclusion into doubt. Similarly unavailing is defendants' claim that the damages sought in the Federal Action are not compensatory and not insurable losses under New York law. That argument was rejected by me in the Order, and is likewise rejected now.

Therefore, based on a review of the evidence before me, and for the reasons discussed in the Order, I hold that the claims asserted against T Juniors in the Federal Action fall within the scope of coverage under defendants' policies.

Defendants argue that, even if the subject settlement was for a covered loss which falls within the ambit of coverage under the policies, T Juniors still must show that the settlement was reasonable in order for T Juniors to be entitled to reimbursement from defendants. In this regard, defendants argue that T Juniors has not submitted sufficient evidence showing the reasonableness of the settlement as compared to the size of the possible recovery, and the degree of probability of Jovani's success against T Juniors in the Federal Action.

This argument is unpersuasive. T Juniors advised defendants of the settlement conference, and invited defendants to send a representative to attend and participate. Defendants instead disclaimed coverage, and declined to send a representative to the conference. Under these circumstances, defendants are not in a position to question the reasonableness of the settlement amount (see Serio v Public Service Mutual Ins. Co., 7 AD3d 277 [1st Dept 2004]; see also, Chelsea Assoc., LLC v Laquila-Pinnacle, AD3d, 2005 WL 2155241 [1st Dept, September 8, 2005]). As the First Department explained in Serio: [Defendant Insurer's] assertion that it was entitled to a hearing as to the reasonableness of the underlying settlement is unavailing, since it never challenged on that ground in the proceedings before the Supreme Court despite raising numerous other objections (see Tishman Constr. Corp. of NY v American Mfrs. Mut. Ins. Co., 303 AD2d 323, 324 [2003]). Nor would there appear to be any basis on which to hold such a hearing in any event, since [the Insurer] had ample opportunity to participate in the underlying litigation but opted not to (cf. Lumbermens Mut. Ins. Co. of Kemper Group of Ins. Cos. v Lumber Mut. Ins. Co., 148 AD2d 328 [1989]).

(7 AD3d, at 278).

Here, as in Serio, defendants, having been given an ample opportunity to participate in the Federal Action, including the settlement thereof, and having opted not to participate, cannot be heard to question the reasonableness of the settlement (id.).

Furthermore, although T Juniors is not required to establish the reasonableness of the settlement, I hold that it has done so.

Accordingly, T Juniors is entitled to summary judgment with respect to the settlement sum, together with pre-judgment interest from the date the settlement was paid.

With respect to T Juniors' legal fees, it bears noting that defendants refused to provide a defense to T Juniors in the Federal Action, and, consequently, T Juniors had to defend itself in the Federal Action. Having previously determined that defendants owe T Juniors a defense in the Federal Action, T Juniors is now entitled to reimbursement for the legal fees and defense costs it incurred with respect to the defense of Jovani's claims (see Serio v Public Service Mutual Ins. Co., [*4]supra). This issue is properly referable to a referee to report on the extent of these costs (id.).[FN1]

It is ORDERED that the motion by defendants Utica Mutual Insurance Co., Utica National Assurance Co. and Graphic Arts Mutual Insurance Co. to reargue the March 31, 2005 order is denied; and it is further

ORDERED that the cross motion by plaintiff T Juniors, Inc. for summary judgment is granted to the extent that it is determined that coverage for T Juniors, Inc.'s claim herein exists under the subject policies, and that T Juniors, Inc. is entitled to judgment as against defendants in the amount of the settlement sum, i.e., $360,000, with pre-judgment interest from August 31, 2005, and that T Juniors, Inc. is entitled to recover its defense costs/legal fees with respect to its defense of the Federal Action in an amount to be determined in a reference ; and it is further

ORDERED that the issues enunciated above are referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issue; and it is further

ORDERED that the aspect of T Juniors' cross motion for summary judgment pertaining to recovery of its legal fees/defense costs is held in abeyance pending receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403 or receipt of the determination of the Special Referee or the designated referee; and it is further

ORDERED that a copy of this order with notice of entry shall be served on the Clerk of the Judicial Support Office (Room 311) to arrange a date for the reference.

Dated: September 22, 2005 ENTER:

_______________________ J.S.C. [*5] Footnotes

Footnote 1: At oral argument, defendants were granted leave to submit T Juniors' legal bills to their expert for review. It was hoped that said review would result in the resolution of the matter. Apparently resolution was not forthcoming, and defendants instead submitted an affidavit by Kathrine K. Davidson, Esq. disputing many of the invoices. T Juniors responded with an affidavit by Atul R. Singh, Esq. who, in turn, explained the alleged basis and reasonableness of each such invoice. These affidavits, together with the other evidence shall be made available to the Referee to whom this matter is referred to hear and report on the sole issue of legal fees/defense costs.