Southwest Mar. & Gen. Ins. Co. v Preferred Contrs. Ins. Co.
Annotate this CaseDecided on December 20, 2016
Supreme Court, New York County
Southwest Marine and General Insurance Company, SOILSOLUTION INDUSTRIES, INC., EXXONMOBIL CORPORATION, and ROUX ASSOCIATES, INC., Plaintiffs,
against
Preferred Contractors Insurance Company and GILMAR DESIGN CORPORATION, Defendants.
153861/2014
For Plaintiff:
Carrol McNulty & Kull
570 Lexington Avenue 8th Floor
New York, NY 10022
By: Ann Odelson, Esq.
For Defendant:
Traub Liberman Straus & Shrewsberry LLP,
Seven Skyline Drive
Mid-Westchester Executive Park
Hawthorne, New York 10532
By: Eric D. Suben, Esq.
Robert R. Reed, J.
This is an action for a declaratory judgment and damages in which the plaintiffs, Southwest Marine and General Insurance Company (Southwest Marine), SoilSolution Industries, Inc. (SoilSolution), ExxonMobil Corporation (ExxonMobil) and Roux Associates, Inc. (Roux), seek a declaration regarding the obligations of defendant Preferred Contractors Insurance Company (PCIC) under an insurance policy PCIC issued to defendant Gilmar Design Corporation (Gilmar) in connection with a personal injury lawsuit brought by nonparty Voloaymyr Vengrenyuk (Vengrenyuk), an employee of Gilmar.
PCIC now moves to dismiss the fourth, fifth and sixth causes of action of the amended complaint, pursuant to CPLR 3211 (a) (1) and (7), or, in the alternative, for summary judgment pursuant to CPLR 3211 (c) and 3212, contending that plaintiffs lack standing to assert such [*2]claims and that plaintiffs cannot establish statutory or common-law waiver or estoppel as a matter of law.
FACTUAL ALLEGATIONS
This matter arises out of an underlying personal injury action captioned Vengrenyuk v ExxonMobil Oil Corp., et al., Index No. 30488/10, venued in Kings County Supreme Court. The complaint in the underlying action alleges that Vengrenyuk fell from a scaffold and injured himself on November 2, 2009 while working for Gilmar at premises located at 28-38 Varick Street in Brooklyn, New York. ExxonMobil was the owner of the premises where Vengrenyuk was allegedly injured. Nonparty I'll Go, Inc. was hired by ExxonMobil to act as the general contractor at the site. Roux and SoilSolution were hired as subcontractors by I'll Go, Inc. to perform work and services at the site, and SoilSolution allegedly subcontracted with Gilmar to perform certain masonry work.
On or about December 2, 2010, Vengrenyuk sued ExxonMobil, Roux and SoilSolution. ExxonMobil and Roux impleaded Gilmar on or about January 12, 2012. A second third-party action against Gilmar was commenced by SoilSolution in June 2012. In the third-party actions, ExxonMobil, Roux and SoilSolution sought common-law and contractual indemnification and contribution from Gilmar, and asserted a breach of contract claim for failure to procure insurance on their behalf. Gilmar failed to appear. These plaintiffs moved for a default judgment on liability against Gilmar, which motions were granted by Kings County Supreme Court Justice Yvonne Lewis in separate orders dated September 14, 2012 and June 14, 2013. Justice Lewis ruled that the inquest would take place at the time of trial. A motion to vacate the default was denied by that court on April 17, 2015, and that order was affirmed on appeal to the Second Department on November 2, 2016.
PCIC issued a Commercial General Liability Policy, number PC71043-MA, to Barat Gilmar/Gilmar Design Group for the period February 25, 2009 to February 25, 2010 (the PCIC policy).[FN1] Plaintiffs ExxonMobil, Roux and SoilSolution contend in this lawsuit that they are entitled to coverage under the PCIC policy as additional insureds. On July 17, 2014, PCIC moved to dismiss the complaint on the ground that the plaintiffs were not additional insureds under the PCIC policy. Plaintiffs cross-moved for summary judgment in their favor on this issue. By memorandum decisions and orders dated April 13, 2015 and November 25, 2015, this court denied both motions, finding that issues of fact existed regarding the additional insured status of the plaintiffs. The Appellate Division unanimously affirmed this court's determination on October 20, 2016.
On March 16, 2016, plaintiffs filed an amended complaint adding two claims. The new fourth cause of action, entitled "Breach of Contract — Contractual Liability," purports to sue PCIC directly to recover compensatory and consequential damages due to the insurer's refusal to provide Gilmar with contractual liability coverage in accordance with the PCIC policy and the Gilmar subcontract (Am. Cmplt., ¶¶ 70-79). The new fifth cause of action is entitled "NY Insurance Law § 3420." ExxonMobil, Roux and SoilSolution allege that they are entitled to [*3]recover as against PCIC under the default judgments they obtained against Gilmar in the underlying action (id., ¶¶ 81-84). Plaintiffs' sixth cause of action, entitled "Waiver and Estoppel," repleads the original fourth cause of action, but now alleges that, not only did ExxonMobil, Roux and SoilSolution timely and effectively tender to PCIC their claim for defense and indemnity as additional insureds under the PCIC policy, but that Gilmar also timely and effectively tendered its claim for contractual liability coverage in favor of ExxonMobil, Roux and SoilSolution under the PCIC policy (id., ¶¶ 86-87). As a result of PCIC's alleged unreasonable delay in accepting and/or responding to these tenders, plaintiffs' new sixth cause of action contends, PCIC has waived and/or is estopped from asserting any coverage defenses that may have otherwise applied (id., ¶ 88) and plaintiffs are entitled to a judgment requiring PCIC to provide primary insurance coverage to, and in favor of, ExxonMobil, Roux and SoilSolution for the claims in the underlying action (id., ¶ 90).
DISCUSSION
Plaintiffs allege that they have standing to prosecute the fourth and fifth causes of action due to their status as additional insureds under the PCIC policy. In addition, they contend that having obtained default judgments against Gilmar, which remain unsatisfied, ExxonMobil, Roux and SoilSolution "step into the shoes" of Gilmar pursuant to Insurance Law § 3420 and are able to assert any defenses to coverage that Gilmar could assert. PCIC argues, however, that plaintiffs have failed to establish as a matter of law that they are additional insureds under the PCIC policy, and that, even if they were, they still lack standing at common law to seek a declaration of Gilmar's rights under the PCIC policy. PCIC further contends that the statutory exception to New York's common-law bar against direct actions by anyone other than the insured found in Insurance Law § 3420 (a) (2) does not apply, because plaintiffs are not judgment creditors of Gilmar and because the direct action statute does not apply to a foreign risk retention group such as PCIC.
Plaintiffs have standing as potential named additional insureds under the PCIC policy to seek a declaration of Gilmar's rights under the PCIC policy. As the Court of Appeals has ruled:
"[P]arties to an insurance contract—the issuer, a named insured or a person claiming to be an insured under the policy—may bring a declaratory judgment action against each other when an actual controversy develops concerning the extent of coverage, the duty to defend, or other issues arising from the insurance contract"(Lang v Hanover Ins. Co., 3 NY3d 350, 353 [2004]). The fact that ExxonMobil, Roux and SoilSolution have not yet established their status as named additional insureds does not serve as a sufficient basis to dismiss the fourth cause of action on a motion to dismiss the complaint, since the court must, in deciding such a motion accept all of the factual averments as true (Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 414 [2001]). Thus, there is no basis to dismiss the fourth cause of action.
The fifth cause of action is based on Insurance Law § 3420 (a) (2). This statute provides that all liability insurance policies issued or delivered in New York State include the following provision:
"(2) A provision that in case judgment against the insured or the insured's personal representative in an action brought to recover damages for injury sustained or loss or [*4]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 . . . be maintained against the insurer under the terms of the policy or contract for the amount of such judgment not exceeding the amount of the applicable limit of coverage under such policy or contract."Thus, a statutory prerequisite to plaintiffs "stepping into the shoes of Gilmar" in order to directly sue PCIC is the existence of an unsatisfied money judgment against PCIC's insured (see Lang v Hanover Ins. Co., 3 NY3d at 354). The orders granting the plaintiffs' motions seeking a judgment of default on liability that were obtained by ExxonMobil, Roux and SoilSolution against Gilmar are not money judgments (accord National Union Fire Ins. Co. of Pittsburgh, Pa. v State of New York, 72 AD3d 620, 621 [1st Dept 2010] [order setting matter down for an inquest on damages is not a money judgment]).
PCIC also argues that New York's direct action statute does not apply to PCIC, because it is a foreign risk retention group within the meaning of the Liability Risk Retention Act (LRRA) (15 USC § 3901 et seq.). The Second Circuit Court of Appeals has held that the LRRA preempts application of Insurance Law § 3420 to non-domiciliary risk retention groups, i.e., risk retention groups not chartered in New York (Wadsworth v Allied Professionals Ins. Co., 748 F3d 100, 109 [2d Cir 2014] ["[A]ny construction of NY Ins. Law § 3420(a)(2) that permits its application to risk retention groups chartered in another state is preempted by the LRRA"]; see also Garcia v National Contrs. Ins. Co., 2015 WL 7016968, *2, 2015 US Dist LEXIS 153205, *6 [ED NY 2015] [following Wadsworth and ruling that an injured worker's direct action against a foreign risk retention group pursuant to Insurance Law § 3420 (a) (2) was preempted by the LRRA]). Plaintiffs make two opposing arguments. First, they contend that PCIC has failed to carry its evidentiary burden of establishing that it is, in fact, a foreign risk retention group under the LRRA. Second, they contend that Wadsworth should not be followed, and that courts in other jurisdictions have rejected Wadsworth as being an "overly broad interpretation of the LRRA" (see e.g. Zeigler v Housing Auth. of New Orleans, 192 So 3d 175, 179 [La Ct App, 4th Cir 2016]).
There is no triable issue of fact regarding PCIC's status as a non-domiciliary risk retention group (see Suben affirmation, Exs. J and K; Am. Cmplt. ¶ 8; see also http: www.dfs.ny.gov/insurance/insurers/property/RRGregistered.pdf). The PCIC policy itself, which identifies the insurer as "Preferred Contractors Insurance Company Risk Retention Group," located in Billings, Montana, states in bold on the very first page:
"THIS POLICY IS ISSUED BY YOUR RISK RETENTION GROUP. YOUR RISK RETENTION GROUP MAY NOT BE SUBJECT TO ALL OF THE INSURANCE LAWS AND REGULATIONS OF YOUR STATE"(Odelson affirmation, Ex. N).
This court holds that Wadsworth is persuasive and compelling authority that is directly on point. The Second Circuit's holding is consistent with the manner in which New York regulates foreign risk retention groups. Article 59 of the New York Insurance Law expressly recognizes the limits imposed by the LRRA, noting that its purpose is to regulate the formation and/or [*5]operation of risk retention groups formed pursuant to the provisions of the LRRA, but only "to the extent permitted by such law" (Insurance Law § 5901). As the Second Circuit noted,
"[i]n keeping with those limits, New York cleanly [sic] distinguishes between the broad regulatory authority it exercises over those risk retention groups that seek to be chartered in New York, and the more limited regulations it is permitted to adopt with respect to nondomiciliary risk retention groups" (Wadsworth, 748 F3d at 104). Thus, while Insurance Law § 5903 provides that domestic risk retention groups "shall comply with all of the laws, regulations and orders applicable to property/casualty insurers organized and licensed in this state (emphasis added)," in contrast, Insurance Law § 5904, applicable to foreign risk retention groups, requires that such groups "comply with the laws of [New York]" set out in 10 subsequent subsections, largely tracking the powers reserved to non-domiciliary states by 15 USC § 3902 (a) (1) (A) - (I). None of these subsections include any of the provisions of Insurance Law § 3420. For these reasons, the motion to dismiss the fifth cause of action is granted.
In the sixth cause of action, plaintiffs contend that, as a result of PCIC's alleged unreasonable delay in accepting and/or responding to the tenders by ExxonMobil, Roux, SoilSolution and Gilmar, PCIC has waived and/or is estopped from asserting any coverage defenses that may have otherwise applied. PCIC seeks dismissal of this claim as a matter of law, arguing that any statutory estoppel claim based on Insurance Law § 3420 (d) is pre-empted by the LRRA and that there is no basis to find any common law waiver or estoppel since PCIC, at all times, provided a defense to Gilmar subject to a reservation of rights.
For the reasons cited above, the sixth cause of action is dismissed to the extent that plaintiffs are alleging that PCIC failed to comply with the requirements of Insurance Law § 3420 (d), which mandates a prompt written disclaimer by an insurer to the insured, the injured party and any other claimant, since PCIC is a foreign risk retention group (Wadsworth, 748 F3d at 109). However, the sixth cause of action is also predicated on common-law waiver and estoppel.
Unlike traditional common-law waiver and estoppel defenses, Insurance Law § 3420 (d) (2) "creates a heightened standard for disclaimer that 'depends merely on the passage of time rather than on the insurer's manifested intention to release a right as in waiver, or on prejudice to the insured as in estoppel'" (KeySpan Gas E. Corp. v Munich Reins. Am., Inc., 23 NY3d 583, 590 [2014], quoting Allstate Ins. Co. v. Gross, 27 NY2d 263, 269 [1970]). Waiver "is a voluntary and intentional relinquishment of a known right" (Albert J. Schiff Assoc., Inc. v Flack, 51 NY2d 692, 698 [1980]).
"'The doctrine of [equitable] estoppel precludes an insurance company from denying or disclaiming coverage where the proper defending party relied to its detriment on that coverage and was prejudiced by the delay of the insurance company in denying or disclaiming coverage based on the loss of the right to control its own defense'"(Liberty Ins. Underwriters, Inc. v Arch Ins. Co., 61 AD3d 482, 482 [1st Dept 2009], quoting Merchants Mut. Ins. Group v Travelers Ins. Co., 24 AD3d 1179, 1182 [4th Dept 2005]; Utica Mut. Ins. Co. v 215 W. 91st St. Corp., 283 AD2d 421, 422-423 [2d Dept 2001]).
As to ExxonMobil, Roux and SoilSolution, since PCIC never provided them with insurance coverage or controlled their defense in the underlying action, there can be no waiver or estoppel as a matter of law. As to Gilmar, PCIC argues that the documentary evidence [*6]established that PCIC, at all times, reserved its rights to deny coverage. In letters dated February 28, 2014 and March 12, 2014, PCIC's third-party administrator, Network Adjusters, advised Gilmar that PCIC would appoint defense counsel to attempt to vacate the order granting SoilSolution's motion for a default judgment against Gilmar (Odelson affirmation, Exs. E & H). However, these letters advised that, since Vengrenyuk was Gilmar's employee, Endorsement No. 23 applied, which provides that the applicable limit of liability was only $10,000, which is eroded by costs incurred in defending the third-party claims. The letters further advised that PCIC was reserving its right to deny coverage based on late notice of the third-party action by Gilmar, contending that the first notice PCIC received concerning the third-party action was a letter from SoilSolution's counsel dated October 16, 2013.
Plaintiffs argue that a waiver occurred, because in a subsequent coverage position letter issued on June 23, 2014 by a different claims adjuster for PCIC (see Odelson affirmation, Ex. L), SoilSolution's counsel and Gilmar were informed that PCIC would defend and conditionally indemnify Gimlar subject only to Gilmar paying the $5,000 policy deductible. Contending that this was the only coverage defense that was raised in the June 23rd letter, plaintiffs argue that PCIC showed its intent to abandon any other coverage defenses. Plaintiffs further contend that PCIC must be estopped from denying coverage to Gilmar, because it did not offer Gilmar counsel of its own choosing. Neither of these arguments is persuasive.
On multiple occasions prior to June 23, 2014, PCIC clearly set forth its coverage position, at all times reserving its rights to deny coverage based on numerous policy provisions. The June 23, 2014 letter bears the prominent capitalized heading "RESERVATION OF RIGHTS" on the first page. In the following 41 pages, PCIC informed SoilSolution's counsel that it would defend and conditionally indemnify Gilmar subject to prompt payment of the $5,000 deductible, but also advised that defense costs reduced the limits of the policy pursuant to Endorsement No. 01 (id. at 31). In addition, PCIC further advised that: (1) the policy required prompt notice of an occurrence, claim or lawsuit by its insured (id. at 26-27); and (2) coverage was subject to Endorsement No. 23, which provided that $10,000 was the most PCIC will pay as damages for any and all claims, including any claim for contractual indemnification, arising from or related to any bodily injury sustained by an employee of Gilmar injured in the scope of such employment (id. at 36). Finally, the letter concludes by stating: "by setting forth the above, PCIC does not intend to waive any of the terms, conditions or defenses available to it under the above referenced policies of insurance, or defenses available under the law" (id. at 40). As a matter of law, an insurer is not estopped from denying coverage when it provides a defense subject to an explicit reservation of rights (see Federated Dept. Stores, Inc. v Twin City Fire Ins. Co., 28 AD3d 32, 37 [1st Dept 2006]).
Finally, PCIC is not estopped from denying coverage because it did not offer Gilmar counsel of its own choosing. An insured's right to independent counsel does not establish an affirmative duty on the insurance company's part to advise its insured of that right (Tower Ins. Co. of NY v Sanita Constr. Co., 129 AD3d 430, 431 [1st Dept 2015]).
The sixth cause of action is, therefore, dismissed, pursuant to CPLR 3211 (a) (1) and (7).
CONCLUSION AND ORDER
For the foregoing reasons, it is hereby
ORDERED that defendants' motion (seq. no. 005) to dismiss the fourth, fifth and sixth [*7]causes of action of the amended complaint is granted only to the extent of dismissing the fifth and sixth causes of action, and the motion is denied in all other respects; and it is further
ORDERED that defendants are directed to serve and file an answer to the amended complaint within twenty (20) days of service of a copy of this order with notice of entry; and it is further
ORDERED that counsel for each of the parties are directed to appear for a preliminary conference in Part 43, Room 581, at 111 Centre Street, New York, New York, at 9:30 a.m. on February 2, 2017.
Dated: December 20, 2016
ENTER:
______________________________
J.S.C. Footnotes
Footnote 1: Although sued herein as "Preferred Contractors Insurance Company," the full name appearing on the PCIC policy is "Preferred Contractors Insurance Company Risk Retention Group" (see Odelson affirmation, Ex. N).
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