New York State Insurance Fund v. Mount Vernon Fire Insurance

09-1814-cv
U.S. Liability v. Master Duct, Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
AMENDED SUMMARY ORDER
R ULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT . C ITATION TO A SUMMARY ORDER FILED ON OR AFTER J ANUARY 1,
2007, IS PERMITTED AND IS GOVERNED BY F EDERAL R ULE OF A PPELLATE P ROCEDURE 32.1 AND THIS COURT ’ S L OCAL R ULE 32.1.1.
W HEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT , A PARTY MUST CITE EITHER THE F EDERAL A PPENDIX OR AN
ELECTRONIC DATABASE ( WITH THE NOTATION “ SUMMARY ORDER ”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL .
1 At a stated term of the United States Court of Appeals
2 for the Second Circuit, held at the Daniel Patrick Moynihan
3 United States Courthouse, 500 Pearl Street, in the City of
4 New York, on the 6 th day of April, two thousand and ten.
5
6 PRESENT: RICHARD C. WESLEY,
7 DEBRA ANN LIVINGSTON,
8 Circuit Judges,
9 RICHARD K. EATON,
10 Judge. *
11
12
13 NEW YORK STATE INSURANCE FUND,
14
15 Plaintiff-Appellee,
16
17 -v.- 09-1814-cv
18
19 MOUNT VERNON FIRE INSURANCE CO. S/H/A U.S. LIABILITY
20 INSURANCE COMPANY,
21
22 Defendant-Appellant,
23
24 MASTER DUCT, INC., PAL PAL DUCT, INC., YMC CONSTRUCTION AND
25 SERVICES, INC., AMTUES ENTERPRISES, INC., MANARK ASSOCIATES,
26 ATC MANAGEMENT, INC., 431 WEST 14TH STREET CORP., FRANK’S
27 RESTAURANT AND BAR, SKYWAY CONTRACTING CORP., YONG DONG
28 JUNG,
29
30 Defendants.
*
The Honorable Richard K. Eaton, of the United States Court of
International Trade, sitting by designation.
1
2
3 MOUNT VERNON FIRE INSURANCE CO. S/H/A U.S. LIABILITY
4 INSURANCE COMPANY,
5
6 Plaintiff-Appellant,
7
8 -v.-
9
10 MASTER DUCT, INC., PAL PAL DUCT, INC., SEUNG EIK HAN, YONG
11 HWAN CHAE, YMC CONSTRUCTION AND SERVICES, INC., AMTUES
12 ENTERPRISES, INC., MANARK ASSOCIATES, ATC MANAGEMENT, INC.,
13 431 WEST 14TH STREET CORP., FRANK’S RESTAURANT AND BAR,
14 SKYWAY CONTRACTING CORP., AND YONG DONG JUNG,
15
16 Defendants.
17
18
19 FOR APPELLANT: MICHAEL A. MIRANDA, Miranda Sambursky
20 Slone Sklarin Verveniotis LLP, Mineola,
21 NY.
22
23 FOR APPELLEE: ELIZABETH A. FITZPATRICK, Lewis Johs
24 Avallone Aviles, LLP, Melville, NY.
25
26 Appeal from the United States District Court for the
27 Southern District of New York (McKenna, J.).
28
29 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
30 AND DECREED that the judgment of said district court be
31 AFFIRMED.
32 Defendant U.S. Liability Company (“U.S. Liability”)
33 appeals from a judgment of the United States District Court
34 of the Southern District of New York (McKenna, J.) declaring
35 that plaintiff New York State Insurance Fund (“NYSIF”) is
36 entitled to receive contribution up to the full limit of
2
1 U.S. Liability’s commercial general liability policy issued
2 to its insured Master Duct Corporation (“MDC”). The dispute
3 arose out of U.S. Liability’s denial of coverage for MDC
4 with regard to a construction site accident and resulting
5 personal injury litigation in New York state court in which
6 the jury awarded $5.3 million to the plaintiff and
7 apportioned liability between NYSIF’s insured (YMC
8 Construction and Services, Inc.) and MDC and its predecessor
9 entity Pal Pal Duct (“PPD”) at 80% and 20% respectively.
10 NYSIF paid the entire amount of the judgment and commenced
11 an action in state court for contribution from U.S.
12 Liability and MDC for its equitable share of the plaintiff’s
13 judgment up to the $1 million limit of the U.S. Liability
14 policy. The case was removed to the United States District
15 Court for the Southern District of New York. Following
16 discovery and cross-motions for summary judgment (portions
17 of which were granted), the parties agreed to submit their
18 dispute to the district court on a stipulated set of facts.
19 The sum of these efforts produced a declaratory judgment in
20 favor of NYSIF directing U.S. Liability to pay the amount of
21 its policy limit to NYSIF. This appeal ensued. We presume
22 the parties’ familiarity with the underlying facts and the
3
1 procedural history of the case.
2 U.S. Liability argues that the district court erred in
3 its conclusion that its disclaimer of coverage was untimely.
4 It contends that its notice of disclaimer — delivered to its
5 insured nearly two months after the state court jury’s
6 verdict — is not subject to New York’s timely disclaimer
7 requirements as the disclaimer was in essence with respect
8 to NYSIF and not U.S. Liability’s insured. We disagree.
9 New York Insurance Law § 3420(d) 1 reads in relevant
10 part:
11 If under a liability policy issued or delivered in this
12 state, an insurer shall disclaim liability or deny
13 coverage for death or bodily injury arising out of a
14 motor vehicle accident or any other type of accident
15 occurring within this state, it shall give written
16 notice as soon as is reasonably possible of such
17 disclaimer of liability or denial of coverage to the
18 insured and the injured person or any other claimant.
19
20 N.Y. Ins. Law § 3420(d)(2). The purpose of the section "was
21 to protect the insured, the injured person, and any other
22 interested party who has a real stake in the outcome, from
23 being prejudiced by a belated denial of coverage."
24 Excelsior Ins. Co. v. Antretter Contracting Corp., 262
25 A.D.2d 124, 127 (1st Dep’t 1999) (emphasis added). Whether
1
No one contests that New York law applies in this
case; therefore, we need not reexamine the district court's
conclusion to that end.
4
1 a disclaimer under § 3420(d) is timely is generally a
2 question of fact. Continental Cas. Co. v. Stradford, 11
3 N.Y.3d 443, 449 (N.Y. 2008). However, in "exceptional"
4 cases that "present extreme circumstances," the
5 reasonableness of the delay may be decided as a matter of
6 law. Id. Examples of such exceptional circumstances
7 include when an insurer denied coverage after two months
8 with no explanation for the delay, Hartford Ins. Co. v.
9 Nassau County, 46 N.Y.2d 1028, 1029-30 (N.Y. 1979), and, in
10 a certified question from this Court, when an insurer had an
11 unexcused 48-day delay, First Fin. Ins. Co. v. Jetco
12 Contracting Corp., 1 N.Y.3d 64, 66 (N.Y. 2003) (Kaye, C.J.).
13 U.S. Liability sees the matter as an inter-insurance
14 carrier dispute and asserts that its disclaimer of its
15 coverage for MDC was not subject to the statute’s timeliness
16 requirements. It relies on Bovis Lend Lease LMB, Inc. v.
17 Royal Surplus Lines Ins. Co., 27 A.D.3d 84 (1st Dep’t 2005).
18 U.S. Liability seriously misreads Bovis. Bovis involved a
19 coverage dispute between the co-insurers of the same
20 insured. In that context, the Appellate Division held that,
21 as between the insurers, § 3420(d)(2) compliance was
22 irrelevant. More importantly, the state court also held
5
1 that as between the disclaiming co-insurer and its insured
2 the timely notice requirement remained relevant. Id. at 88-
3 89. 2
4 The present case does not involve a dispute between two
5 carriers insuring the same insured. Rather, NYSIF seeks
6 contribution from U.S. Liability for its respective share of
7 responsibility as a joint tortfeasor for the damages awarded
8 the injured party by the jury in the state court proceeding.
9 Under New York law, "[a]n insurance carrier, upon payment of
10 a loss, becomes equitably subrogated to the rights and
11 remedies of its [in]sured . . . vested with no greater or
12 different right or remedy than that possessed by its
13 subrogor." Hartford Acc. & Indem. Co. v. CNA Ins. Cos., 99
14 A.D.2d 310, 312 (1st Dep't 1984). "It is so well settled as
15 not to require discussion that an insurer who pays claims
16 against the insured for damages caused by the default or
17 wrongdoing of a third party is entitled to be subrogated to
18 the rights which the insured would have had against such
2
The New York Court of Appeals has not taken a
position on the First Department’s view of the statute in
situations similar to that presented in Bovis. We note only
that since the notice in Bovis was ineffective as to the
insureds (both additional insureds under the policies in
question), the net effect was no loss of coverage for those
insureds.
6
1 third party for its default or wrongdoing." Ocean Accident
2 & Guarantee Corp. v. Hooker Electro-Chem. Co., 240 N.Y. 37,
3 47 (N.Y. 1925). In our view, because NYSIF is YMC’s
4 subrogee, NYSIF has a “real stake in the outcome, from being
5 prejudiced by a belated denial of coverage.” Excelsior Ins.
6 Co., 262 A.D.2d at 127.
7 U.S. Liability doesn’t dispute that a carrier that pays
8 beyond its insured’s proportionate liability under a
9 negligence personal injury verdict in New York can seek
10 contribution from the co-defendant joint tortfeasor – in
11 this case MDC – for its respective share. Thus, as the
12 subrogee of YMC, NYSIF can seek contribution from MDC (a
13 named defendant in this action) and ultimately its insurer,
14 U.S. Liability. But U.S. Liability seeks to strip its
15 insured MDC of coverage under its policy by characterizing
16 the dispute as between carriers. That characterization has
17 no basis in law or fact.
18 We agree with the district court that U.S. Liability’s
19 disclaimer to its insured MDC was untimely under New York
20 law. As the court noted, "U.S. Liability did not issue a
21 disclaimer prior to providing a defense, during discovery,
22 or even during the trial in the underlying case. Instead,
7
1 it waited until July 26, 1999[,] . . . [which] was over two
2 years after U.S. Liability was notified about the case."
3 U.S. Liability had sufficient information through
4 depositions and trial to form the factual basis for the
5 disclaimer.
6 We disagree with the district court that U.S.
7 Liability’s failure to give a timely disclaimer also
8 precludes its claim that Han – the principal of MDC – made
9 material misrepresentations on MDC’s application for
10 coverage with U. S. Liability. Material misrepresentations
11 with regard to the risk to the insured void the insurance
12 policy ab initio. See Sun Ins. Co. of N.Y. v. Hercules Sec.
13 Unlimited, Inc., 195 A.D.2d 24, 30 (2d Dep’t 1993). “[I]f
14 the policy is void ab initio, the insured who is a claimant
15 cannot create coverage that would not otherwise exist by
16 relying upon the failure to provide timely notice of
17 disclaimer." Taradena v. Nationwide Mut. Ins. Co., 239
18 A.D.2d 876, 877 (4th Dep't 1997). However, though a
19 material misrepresentation voids the contract at its
20 inception, the "right to rescind must be exercised promptly
21 after the injured party learns of the wrong." N.Y. Tel. Co.
22 v. Jamestown Tel. Corp., 282 N.Y. 365, 372 (N.Y. 1940). New
8
1 York courts will deny the rescission of a policy for being
2 void ab initio if the insured can demonstrate that he was
3 prejudiced by the delay. See Precision Auto Accessories,
4 Inc. v. Utica First Ins. Co., 52 A.D.3d 1198, 1202-03 (4th
5 Dep't 2008); see also Legum v. Allstate Ins. Co., 33 A.D.3d
6 670, 670-71 (N.Y. 2006). There is certainly an adequate
7 record here to show that MDC was prejudiced by U.S.
8 Liability’s lengthy delay in its attempt to rescind the
9 insurance contract. But we need not decide whether the
10 insured was prejudiced by the delay because the carrier’s
11 argument fails at a more fundamental level — there was no
12 material misrepresentation here to render the contract void.
13 On the unique facts and procedural posture of this
14 case it is clear to us that the “misrepresentations” were
15 not material. The record does not show that Han’s use of
16 the firm names MDC and PPD represented a risk greater than
17 that for which U.S. Liability contracted to insure. The
18 stipulated facts before the court indicated that Han had one
19 business with one employee that used several names without
20 any showing that Han did so to mislead or misrepresent his
21 business endeavors to U.S. Liability. See Sun Ins., 195
22 A.D.2d at 30. The state court combined the two entities
9
1 into one for purposes of apportioning liability in obvious
2 recognition of their interchangeable nature and that
3 determination was affirmed on appeal in state court.
4 The judgment of the district court is hereby AFFIRMED
5 with costs. The pending motion to take judicial notice of
6 the public documents in Am. Guarantee & Liab. Ins. Co. v.
7 State Nat’l Ins. Co., 67 A.D.3d 488 (1st Dep’t 2009), is
8 DENIED.
9
10 FOR THE COURT:
11 Catherine O’Hagan Wolfe, Clerk
12
13
10