New York City Tr. Auth. v Clarendon Natl. Ins. Co.

[*1] New York City Tr. Auth. v Clarendon Natl. Ins. Co. 2009 NY Slip Op 50400(U) [22 Misc 3d 1131(A)] Decided on March 9, 2009 Supreme Court, Kings County Knipel, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 March 9, 2009
Supreme Court, Kings County

New York City Transit Authority, Plaintiff,

against

Clarendon National Insurance Company, Defendant.



12060/08



Attorneys for Plaintiff

Joel M. Simon, Esq.

Smith Mazure Director Wilkins Young & Yagerman, P.C.

111 John Street - 20th Fl.

New York, NY 10038-3198

(212) 964-7400

Attorneys for Defendant

Jeanine Davanzo, Esq.

Morris Duffy Alonzo & Faley

Two Rector Street - 22nd Fl.

New York, NY 10006

(212) 766-1888

Lawrence S. Knipel, J.

Defendant Clarendon National Insurance Company (Clarendon) moves for an order, pursuant to CPLR 3211 (a) (5) and 3211 (a) (7), dismissing the complaint of plaintiff New York City Transit Authority (NYCTA) in this declaratory judgment action to declare NYCTA an additional insured under Clarendon's policy.

Background Facts and Procedural History

On or about April 14, 2000, Errol R. Alexander commenced a personal injury action against NYCTA under Kings Supreme Index No. 13180/00 (the underlying action) as the [*2]result of a January 21, 1999 construction-site accident.[FN1] Prior to the accident, NYCTA contracted Alexander's employer, L.A. Wenger Contracting Co., Inc. (Wenger) to perform the subject construction work. The contract between NYCTA and Wenger contained a provision whereby Wenger was obligated to defend and indemnify NYCTA for all personal injury claims arising out of the contract. The contract also required that Wenger obtain liability insurance which listed NYCTA as an additional insured. Moreover, certificates of insurance were presented to NYCTA which indicated that NYCTA was an additional insured under a liability policy issued to Wenger by Clarendon. In a correspondence dated June 27, 2000, NYCTA made a tender of coverage demanding that Clarendon defend and indemnify it in the underlying action inasmuch as NYCTA was an additional insured under Wenger's policy with Clarendon. However, Clarendon failed to respond to this demand and, up until the commencement of the instant action nearly eight years later, NYCTA failed to take action to enforce any alleged rights it had against Clarendon.

On or about March 7, 2001, NYCTA commenced a third-party action against Wenger seeking common-law indemnification, contractual indemnification, and damages for breach of contract to procure liability insurance (the underlying third-party action). Thereafter, the underlying actions proceeded to the discover phase.

On December 3, 2002, this court granted NYCTA's motion to preclude Alexander from offering evidence at trial due to repeated failures to comply with court-ordered discovery. Thereafter, in or about April 2003, Wenger moved to dismiss the underlying action as well as the underlying third-party action based upon this preclusion order. NYCTA then cross-moved to dismiss the underlying action but opposed Wenger's motion to dismiss its third-party claims. NYCTA further cross-moved for an order compelling Wenger to pay the defense costs NYCTA incurred in the underlying action.

On the July 15, 2003 return date for these motions, the court heard oral argument and resolved the motions by granting the motions to dismiss the underlying action, granting Wenger's motion to dismiss the underlying third-party action, and denying NYCTA's cross motion for costs and attorneys' fees. In accordance with this ruling, the court directed the parties to settle an order on notice. Thereafter, both NYCTA and Wenger settled proposed orders on notice to all parties. NYCTA's proposed order included an award of attorneys' fees in its favor and against Wenger despite the court's denial of NYCTA's request for attorneys' fees.

On September 4, 2003, the court signed Wenger's settled order, which excluded attorneys' fees. NYCTA did not oppose the signing of this order or appeal the order. Indeed, on July 9, 2004, NYCTA filed a judgment with the Kings County Clerk's Office dismissing both the underlying action and the underlying third-party action based upon Wenger's settled order. The judgment made no provision for the payment of defense costs to NYCTA. On [*3]September 3, 2004, NYCTA served a copy of the judgment order upon Alexander and Wenger.

On April 25, 2005, NYCTA moved to vacate the judgment pursuant to CPLR 5015 (a). Specifically, NYCTA argued that due to an "oversight," the court failed to consider NYCTA's proposed settled order which provided for defense costs. NYCTA further argued that this led to an error in the judgment inasmuch as the judgment did not allow for the recovery of NYCTA's costs and attorneys' fees in the underlying action. In an order dated January 6, 2006, this court denied NYCTA's motion to vacate the judgment and NYCTA appealed this ruling. In a decision dated December 26, 2006, the Appellate Division, Second Department affirmed this court's January 6, 2006 order (see Alexander v New York City Transit Auth., 35 AD3d 772 [2006]). Specifically, the Appellate Division ruled that "[t]he arguments advanced by [NYCTA] did not constitute grounds for relief under either CPLR 5015 (a) or pursuant to the Supreme Court's inherent discretionary power to exercise control over its own judgments (Alexander at772). The Appellate Division further noted that NYCTA had "inexplicably failed to appeal from the judgment and from a prior order dated September 4, 2003 [i.e., Wenger's settled order]" (id.).[FN2]

By summons and complaint dated April 14, 2008, NYCTA commenced the present action against Clarendon. The complaint alleges that Clarendon breached its contractual duty under the insurance contract to defend and indemnify NYCTA in the underlying action. The complaint further seeks a judgment declaring that: (1) the underlying action is covered under Clarendon's liability policy; (2) Clarendon breached its contractual duty to defend and indemnify NYCTA in the underlying action; and (3) declaring that Clarendon is required to reimburse NYCTA for its attorneys' fees, costs and expenses incurred for the defense of the underlying action.[FN3] The complaint further seeks an order awarding a money judgment to NYCTA in an amount to be determined as compensation for the costs and disbursements of the present action. Clarendon now moves to dismiss NYCTA's complaint under CPLR 3211 (a) (7) for failure to state a cause of action within the statute of limitations and/or under CPLR 3211 (a) (5) on the grounds that the action is barred by principles of res judicata and collateral estoppel.

Statute of Limitations

Clarendon argues that the applicable statute of limitations for NYCTA's claims is six years as set forth in CPLR 213 (2) because this action is based on a contractual obligation [*4]or liability. It further alleges that this six-year statute of limitations governing NYCTA's claims has expired because the underlying action was commenced over eight-years ago, NYCTA tendered its demand that Clarendon defend and indemnify it almost eight years ago, and NYCTA retained and paid its own counsel to defend it in the underlying action more than six years prior to the commencement of the instant action. Accordingly, Clarendon maintains that NYCTA's claims against it are untimely as they accrued more than six years prior to the commencement of this action.

In opposition to this argument, NYCTA initially contends that the six-year statute of limitations for breach of contract claims does not apply since this is a declaratory judgment action. At the same time however, NYCTA concedes that declaratory judgment actions are covered under the six-year "catch all" statute of limitations provision set forth in CPLR 213. Nevertheless, NYCTA contends that the statute of limitations governing its claims has not expired. In fact, NYCTA argues that its claim against Clarendon has yet to accrue inasmuch as Clarendon never denied coverage. In the alternative, NYCTA argues that the statute of limitations accrued when the underlying action was dismissed in July or September of 2003, thus removing the possibility of a defense within the action. In either case, NYCTA maintains that its action is timely.

Initially, the court finds that NYCTA's claims against Clarendon are governed by the six-year statute of limitations for breach of contract claims. Irrespective of the fact that NYCTA's action seeks a declaratory judgment, the gravamen of NYCTA's claim against Clarendon is that the insurer breached its duty under the insurance contract to defend NYCTA in the underlying action. NYCTA cannot avoid this statute of limitations by framing the controversy before the court as a declaratory judgment action rather than a straight-forward breach of contract claim any more than a plaintiff can seek a judgment declaring a defendant negligent four years after an underlying personal injury claim accrued. [FN4] In any event, as NYCTA itself concedes, declaratory judgment actions are governed by an identical six-year statute of limitations.

The real issue before the court is when NYCTA's claim against Clarendon accrued. The Appellate Division, Second Department has held that "[a] cause of action based on an insurer's alleged breach of a contractual duty to defend accrues only when the underlying litigation brought against the insured has been finally terminated and the insurer can no longer defend the insured even if it chooses to do so" (Ghaly v First American Title Ins. Co. of NY, 228 AD2d 551 [1996]; see also Roldan v Allstate Ins. Co., 149 AD2d 20, 29 [1989]). Here, the underlying action was finally terminated no earlier than July 15, 2003, when the [*5]court orally dismissed Alexander's action and directed the parties to settle an order on notice.[FN5] This was less than six years before NYCTA commenced the present action against Clarendon. Consequently, Clarendon's argument that this action is time-barred is without merit.

Collateral Estoppel

Clarendon also argues that NYCTA is collaterally estopped from relitigating the same issues already determined by the trial and appellate courts in the third-party action. It maintains that the subject of NYCTA's complaint costs and attorneys' fees has already been the subject of two motions, numerous court conferences, a judgment, and an appeal, which collectively show that NYCTA had more than a full and fair opportunity to contest the prior decision.

In opposition to this argument, NYCTA maintains that the present action involves the issue of whether Clarendon must provide coverage to NYCTA as an additional insured under the insurance contract. According to NYCTA, this is entirely different from the issue previously litigated in the underlying third-party action, which involved the question of whether Wenger was obligated to defend NYCTA pursuant to an indemnification clause in the construction contract between NYCTA and Wenger.

Collateral estoppel precludes a party from relitigating an issue decided in a prior proceeding where that party had a full and fair opportunity to litigate the issue (see Kaufman v Eli Lilly & Co., 65 NY2d 449, 455 [1985]). It is an equitable device intended to reduce litigation, conserve the resources of the court and litigants, and should not be mechanically applied (id.; see D'Arata v New York Cent. Mut. Fire Ins. Co., 76 NY2d 659, 664 [1990]; Matter of Halyalkar v Board of Regents of State of NY, 72 NY2d 261, 268-69 [1988]). A collateral estoppel proponent must establish identity between the particular issue in the latter action and the issue in the prior action, and show that the identical issue was necessarily decided in a prior action decisive of the present action (see Jeffreys v Griffin, 1 NY3d 34, 39 [2003]; D'Arata, 76 NY2d at 664; Parker v Blauvelt Volunteer Fire Co., 93 NY2d 343, 349 [1999]; Schwartz v Public Adm'r of County of Bronx, 24 NY2d 65, 71 [1969]; D'Angelo v State Ins. Fund, 48 AD3d 400, 401 [2008]; Altegra Credit Co. v Tin Chu, 29 AD3d 718, 719 [2006]). The party attempting to defeat collateral estoppel's application has the burden of establishing the absence of a full and fair opportunity to litigate the issue in the prior action (see D'Arata, 76 NY2d at 664; D'Angelo, 48 AD3d at 401).

The relief that is ultimately being sought by NYCTA in the present action is reimbursement for the attorneys' fees and costs it incurred in defending itself in the underlying action. This is the same result that NYCTA sought in the previous third-party litigation against Wenger. However, although the end result might be the same, the basis [*6]upon which NYCTA seeks this relief, as well as the parties against which it seeks the relief, are entirely separate and distinct.

In particular, in the underlying third-party action, NYCTA sought, among other things, costs and attorneys' fees against Alexander's employer (Wenger) based upon language in an indemnification clause within the construction contract between these parties. This court ruled that, on this basis, NYCTA was not entitled to this relief and NYCTA's attempt on appeal to overturn the court's determination was unsuccessful. However, in the present action, NYCTA seeks to recoup these same attorneys' fees and costs (albeit using the roundabout method of a declaratory judgment action) against a different party (Clarendon) using a different basis, namely NYCTA's alleged status as an additional insured under an insurance contract. Given these distinctions, there is no identity of issues between NYCTA's previous claim for costs and attorneys' fees against Wenger and the present claim for costs and attorneys' fees against Clarendon. Moreover, the court's previous determination did not "necessarily decide" the question of NYCTA's rights against Clarendon under the insurance contract. Indeed, the court lacked jurisdiction to entertain this issue inasmuch as Clarendon was not a party to the underlying third-party action and no relief was sought against Clarendon in that prior action. Accordingly, NYCTA is not collaterally estopped from maintaining the present action.

Summary

In summary, Clarendon's motion to dismiss NYCTA's complaint is denied.

This constitutes the decision and order of the court.

ENTER,

J. S. C.

Footnotes

Footnote 1:Alexander's wife, Cynthia Alexander, asserted a derivative claim against NYCTA.

Footnote 2:Thus, the Appellate Division never reached the merits of NYCTA's claim that it was entitled to costs and attorneys' fees against Wenger.

Footnote 3:The complaint also seeks a judgment declaring that Clarendon is obligated to indemnify NYCTA for any judgment or settlement in the underlying action to the full extent of the policy limits. However, this would appear to be a moot issue inasmuch as the underlying action was dismissed with prejudice back in 2003.

Footnote 4:Indeed, given the fact that the underlying action has long since been terminated, as well as the fact that whatever rights NYCTA has against Clarendon would be covered by an ordinary breach of contract claim, it is unclear why NYCTA has chosen to seek a declaratory judgment.

Footnote 5:In fact, a strong argument can be made that the underlying action was not finally terminated until the settled order or judgment was signed and entered. In any event, this is a moot point since all of these events occurred less than six years prior to the commencement of the present action.