07-4443-cv
General Star v. Universal Fabricators, Inc., et al.
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3 August Term, 2008
4 (Argued: September 3, 2008 Decided: November 5, 2009
5 Amended: December 28, 2009)
6
7 Docket No. 07-4443-cv
8 -------------------------------------
9 GENERAL STAR NATIONAL INSURANCE CO.,
10 Defendant-Cross-Defendant-Cross-Claimant-Appellant,
11 - v -
12 UNIVERSAL FABRICATORS, INC., MUTUAL MARINE OFFICE INC., NEW YORK
13 MARINE AND GENERAL INSURANCE COMPANY,
14 Defendants-Cross-Defendants-Cross-Claimants-Appellees,
15 AMERICAN ALTERNATIVE INSURANCE CORPORATION,
16 Defendant-Cross-Defendant-Counter-Claimant,
17 NATIONAL UNION FIRE INSURANCE COMPANY OF LOUISIANA, A1 MARINE
18 ADJUSTERS, INC., NAVIGATORS INSURANCE SERVICES OF TEXAS, INC.,
19 MARINE OFFICE OF AMERICA CORPORATION,
20 Plaintiffs-Counter-Defendants.
21 -------------------------------------
22 Before: SACK and KATZMANN, Circuit Judges, and RAKOFF, District
23 Judge.*
24 Appeal from a judgment of the United States District
25 Court for the Southern District of New York (Shira A. Scheindlin,
26 Judge). The district court granted summary judgment against the
27 appellant, General Star National Insurance Co., ruling that it
*
The Honorable Jed S. Rakoff, United States District Judge
for the Southern District of New York, sitting by designation.
1 was bound by the terms of an excess insurance policy it had
2 issued to contribute to the satisfaction of a state-court
3 judgment of liability in a personal injury action against two
4 entities for whom the insured had been a contractor at the time
5 of the injury. We conclude that the district court erred in
6 deciding that the state-court judgment established legal
7 liability against the insured. We therefore vacate the judgment
8 and remand for the district court to consider in the first
9 instance whether liability was established in some other manner
10 such that an "ultimate net loss" for which General Star was
11 liable pursuant to General Star's insurance policy arose.
12 Vacated and remanded.
13 CHRISTOPHER BRADLEY, Marshall, Conway,
14 Wright & Bradley, P.C. (Michael S.
15 Gollub, Kenneth Mauro, Mauro, Goldberg &
16 Lilling LLP, of counsel), New York, NY,
17 for Defendant-Cross-Defendant-Cross-
18 Claimant-Appellant.
19 PATRICK W. BROPHY, McMahon, Martine &
20 Gallagher, LLP, Brooklyn, NY, for
21 Defendants-Cross-Defendants-Cross-
22 Claimants-Appellees.
23 SACK, Circuit Judge:
24 Defendant-Cross-Defendant-Cross-Claimant-Appellant
25 General Star National Insurance Co. ("General Star") appeals from
26 a memorandum opinion and order dated September 14, 2007, by the
27 United States District Court for the Southern District of New
28 York (Shira A. Scheindlin, Judge) granting summary judgment for
29 Defendants-Cross-Defendants-Cross-Claimants-Appellees, the New
30 York Marine and General Insurance Company and Mutual Marine
2
1 Office, Inc. (together, "Mutual Marine"). The question presented
2 on appeal is whether General Star, an excess insurer, is required
3 to reimburse Mutual Marine for the amount Mutual Marine paid
4 above its policy limit to cover a portion of a state-court
5 personal injury judgment.
6 In answering this question in the affirmative, the
7 district court concluded that a state-court judgment against the
8 owner of and stevedore at the ship terminal where the personal
9 injury occurred -- the City of New York (the "City") and the
10 International Terminal Operating Company ("ITO"), respectively --
11 constituted an adjudication of liability against General Star's
12 insured, Universal Fabricators, Inc. ("UFI"), a contractor doing
13 work at the time and place of the injury. UFI was insured by
14 both Mutual Marine for the first million dollars of loss, and
15 General Star for four million dollars above that amount, under
16 General Star National Insurance Company umbrella policy No.
17 NUG-332963C ("GenStar Policy"). Because under the terms of the
18 GenStar Policy, an "adjudication" that established an amount that
19 the insured was legally obligated to pay constituted an "ultimate
20 net loss," which required General Star to reimburse its insured,
21 the district court decided that General Star was obligated to pay
22 Mutual Marine for the amount it had paid above its primary
23 insurance policy limit.
24 We conclude that the district court erred in deciding
25 that General Star's insured was liable for the amount at issue as
26 a result of the state court personal injury judgment. Because
3
1 neither the district court nor the parties addressed in substance
2 the issue of whether General Star's insured was legally liable
3 for some other reason, we vacate the judgment of the district
4 court and remand with instructions for the court to resolve this
5 issue and decide whether a trial with respect thereto is
6 warranted.
7 BACKGROUND
8 The New York City Passenger Ship Terminal (the
9 "Terminal") is owned by the City and operated in part by ITO. In
10 1999, ITO retained UFI to perform repair work at the Terminal.
11 The contract between ITO and UFI contained a rider which
12 provided, among other things, that UFI would (a) procure general
13 liability insurance coverage in the amount of five million
14 dollars per occurrence, with the insurance policy naming ITO and
15 the City as additional insureds, and (b) "indemnify, defend and
16 hold harmless" ITO and the City from and against all claims
17 arising from any negligent act or omission by UFI that was
18 related to the repair work. As required by the rider, UFI
19 purchased a primary general liability insurance policy in the
20 amount of one million dollars from Mutual Marine and a secondary
21 excess policy in the amount of four million dollars from General
22 Star.
23 The GenStar Policy provided that General Star would pay
24 for "ultimate net loss in excess of the retained limit because of
25 bodily injury or property damage to which the policy applies."
4
1 It also stated that: "Ultimate net loss means the total amount of
2 damages for which the Insured is legally liable. Ultimate net
3 loss may be established by adjudication, arbitration or a
4 compromise settlement to which [General Star] ha[s] previously
5 agreed in writing."
6 On February 26, 1999, Ronald Ernish, a UFI employee
7 performing repair work at the Terminal, was seriously injured
8 when he fell from a makeshift scaffold or ladder that collapsed
9 under his weight. Ernish and his wife brought suit in Supreme
10 Court, New York County, not against UFI, Mr. Ernish's employer --
11 perhaps because they would have been confined to a workers'
12 compensation claim had they sought to recover from UFI1 -- but
13 against ITO and the City (the "Ernish lawsuit"). ITO and the
14 City then filed a third-party complaint against UFI seeking
15 indemnification (the "third-party action").
16 General Star was informed of the Ernish lawsuit and the
17 third-party action against UFI. After concluding that it was
18 unlikely UFI would be exposed beyond Mutual Marine's million-
19 dollar policy limit, General Star decided to allow Mutual Marine,
1
See N.Y. Workers' Compensation Law §§ 11, 29; see also,
e.g., Fung v. Japan Airlines Co., Ltd., 9 N.Y.3d 351, 357, 880
N.E.2d 845 (2007) ("Workers' Compensation Law §§ 11 and 29(6)
restrict an employee from suing his or her employer . . . for an
accidental injury sustained in the course of employment.");
Pereira v. St. Joseph's Cemetery, 54 A.D.3d 835, 837, 864
N.Y.S.2d 491 (2d Dep't 2008) ("[A]llegations that the employer
exposed the employee to a substantial risk of injury have been
held insufficient to circumvent the exclusivity of the remedy
provided by the Workers' Compensation Law.") (internal quotation
marks omitted).
5
1 UFI's primary insurer, to defend UFI in the third-party action,
2 and so informed Mutual Marine in two notes dated May 25 and June
3 1, 2000, respectively. With regard to its conclusion that UFI
4 was unlikely to be exposed beyond Mutual Marine's million-dollar
5 policy limit, General Star instructed Mutual Marine in the first
6 note that "[s]hould future developments lead you to believe
7 otherwise, please notify us immediately."
8 Before trial began in the Ernish lawsuit against ITO
9 and the City, Mutual Marine's attorneys executed a settlement
10 agreement (the "First Agreement") with both ITO and the City,
11 purportedly on behalf of UFI, settling the third-party claim ITO
12 and the City had asserted against UFI. The First Agreement
13 provided that ITO and the City would discontinue their third-
14 party claim against UFI, and that ITO and the City would pay
15 twenty-five percent and UFI would pay seventy-five percent of
16 whatever amount was ultimately awarded to Ernish against ITO and
17 the City in the Ernish lawsuit.
18 It is not disputed that Mutual Marine knew of and
19 participated in the First Agreement. General Star, however,
20 neither knew of nor participated in it. And according to UFI and
21 General Star, Mutual Marine's counsel entered into the First
22 Agreement on UFI's behalf without UFI's consent.
23 The state trial court directed a verdict in the Ernish
24 lawsuit in favor of the plaintiffs against ITO and the City on
25 liability pursuant to N.Y. Labor Law § 240, which provides that
26 "[a]ll contractors and owners and their agents . . . shall cause
6
1 to be furnished or erected . . . scaffolding . . . which shall be
2 so constructed, placed and operated as to give proper protection
3 to a person so employed" in repairing a building or structure,
4 among other things. N.Y. Labor Law § 240; see also Ernish v.
5 City of N.Y., 2 A.D.3d 256, 257, 768 N.Y.S.2d 325 (1st Dep't
6 2003). A jury, left to decide the amount of damages, returned an
7 award of three million dollars against ITO and the City. The
8 amount apparently came as something of a surprise to the parties
9 and their insurers. On appeal to the Appellate Division, the
10 directed verdict was affirmed but the judgment was reduced to
11 $2,175,000 plus interest -- still an amount substantially
12 exceeding the parties' and insurers' initial expectations. Id.
13 ITO and the City were insured by the National Union
14 Fire Insurance Company of Louisiana, A1 Marine Adjusters, Inc.,
15 the Marine Office of America Corporation, and Navigators
16 Insurance Services of Texas, Inc. (collectively "National
17 Union"). National Union initially paid Ernish twenty-five
18 percent of the judgment to satisfy the obligation of ITO and the
19 City -- the defendants in the Ernish lawsuit -- under the First
20 Agreement. Mutual Marine, in turn, satisfied -- up to its policy
21 limit of one million dollars plus interest -- part of UFI's
22 three-quarters share of the judgment against ITO and the City
23 under the First Agreement. $650,584.19 of UFI's three-quarters
24 share under the First Agreement remained unpaid. The parties
25 looked to General Star to pay that amount under its excess
26 policy, but General Star declined, arguing that neither it nor
7
1 UFI was bound by the First Agreement, and that it therefore had
2 no liability for payment of any of UFI's 75% share of the
3 judgment, which share had been decided upon in the First
4 Agreement. See, e.g., Letter from General Star to Mutual Marine,
5 at 1 (June 19, 2002) ("What remains clear and indisputable -- in
6 fact Mutual Marine does not even argue to the contrary -- is that
7 neither General Star nor Universal Fabricators ever authorized
8 Mutual Marine to execute the so-called [First Agreement] on their
9 behalf.").
10 Because the judgment was entered against ITO and the
11 City, their insurer, National Union, then paid the remainder of
12 the judgment. National Union thereupon commenced an action for a
13 declaratory judgment against UFI, Mutual Marine, and General Star
14 to the effect that National Union was due reimbursement for the
15 money it paid in excess of the twenty-five percent share of the
16 Ernish judgment that was apportioned to ITO and the City under
17 the First Agreement. General Star removed the action, which was
18 originally filed in New York County Supreme Court, to the United
19 States District Court for the Southern District of New York on
20 the basis of diversity of citizenship.
21 After the case was removed, Mutual Marine, UFI, and
22 National Union, entered into two additional settlement
23 agreements. Mutual Marine and UFI entered into a "Settlement and
24 Cooperation Agreement" (the "Second Agreement"), under which
25 Mutual Marine agreed to indemnify and defend UFI in National
26 Union's declaratory judgment action. In exchange, UFI agreed
8
1 that "to the extent [Mutual Marine] pays any judgment or verdict
2 against UFI in the [National Union] Litigation, or pays any
3 settlement of any claim against UFI in the Litigation or for any
4 further liability under the [First Agreement], [Mutual Marine]
5 shall be subrogated to any and all rights of UFI, and/or be
6 assigned such rights by UFI, including any right to pursue claims
7 against GenStar for amounts paid and for attorneys fees and
8 costs . . . ." Second Agreement, ¶ 4.
9 Then Mutual Marine and National Union entered into a
10 "Settlement and Cooperation Agreement" (the "Third Agreement"),
11 under which Mutual Marine paid National Union $700,000 for the
12 amount National Union had paid to satisfy UFI's obligation to ITO
13 and the City under the First Agreement, and National Union
14 dismissed its suit against UFI and Mutual Marine, assigning the
15 rights it had asserted against General Star in that lawsuit to
16 Mutual Marine.
17 Following the Second and Third Agreements, then, UFI
18 has been indemnified and National Union has been paid in full.
19 Neither of those parties has an interest in the present appeal.
20 Mutual Marine maintains its suit against General Star for the
21 excess over its one-million-dollar policy limit that it paid to
22 National Union following the Third Agreement to cover UFI's
23 alleged obligation under the First Agreement.
24 Mutual Marine, as directed by the district court, filed
25 a motion for summary judgment against General Star on the limited
26 issue of whether General Star was directly obligated under the
9
1 First Agreement to pay the remainder of UFI's seventy-five
2 percent share. In an opinion and order entered July 18, 2007,
3 the district court denied summary judgment, finding that General
4 Star was not obligated to contribute to UFI's three-fourths share
5 directly pursuant to the First Agreement. Nat'l Union Fire Ins.
6 Co. of La. v. Universal Fabricators, Inc., No. 05 Civ. 3418, 2007
7 WL 2059840, at *5, 2007 U.S. Dist. LEXIS 51925, at *22-23
8 (S.D.N.Y. July 18, 2007) ("Nat'l Union I"). The court concluded
9 that because General Star was not aware of, did not take part in,
10 and was not a party to the First Agreement, it was not directly
11 bound by its terms. Id. The opinion explicitly refrained from
12 addressing whether General Star was obligated under the terms of
13 the GenStar Policy itself to pay the amount in dispute, and
14 invited General Star to move for summary judgment on that issue.
15 Nat'l Union I, 2007 WL 2059840 at *6, 2007 U.S. Dist. LEXIS 51925
16 at *26-27 ("The present motion for summary judgment was made on
17 the limited issue of whether GenStar was bound under the terms of
18 the First Agreement . . . . As a result, this Opinion does not
19 address the remaining issue of whether GenStar is bound to pay
20 under the terms of its excess insurance policy. GenStar may move
21 for summary judgment on this issue.").
22 General Star did just that. But in a memorandum
23 opinion and order entered September 14, 2007, the district court
24 denied General Star's motion and, instead, entered summary
25 judgment for Mutual Marine. The court found that although
26 General Star was not directly bound by the First Agreement, it
10
1 was nonetheless obligated to reimburse Mutual Marine under the
2 terms of the GenStar Policy. Nat'l Union Fire Ins. Co. of La. v.
3 Universal Fabricators, Inc., No. 05 Civ. 3418, 2007 WL 2701990,
4 at *2-3, 2007 U.S. Dist. LEXIS 68100, at *5-11 (S.D.N.Y. Sept.
5 14, 2007) ("Nat'l Union II").
6 The district court noted that the GenStar Policy
7 provided that General Star would pay in the event of a judgment
8 in excess of Mutual Marine's policy limit for "ultimate net
9 loss," which, the policy stated, "'may be established by
10 adjudication, arbitration or a compromise settlement to which
11 [General Star] ha[s] previously agreed in writing.'" Nat'l Union
12 II, 2007 WL 2701990 at *1, 2007 U.S. Dist. LEXIS 68100 at *2
13 (quoting GenStar Policy at ¶ 23). The court found that UFI had
14 agreed to "indemnify, defend and hold harmless ITO and the City,"
15 2007 WL 2701990 at *2, 2007 U.S. Dist. LEXIS 68100 at *5, and
16 concluded that the directed verdict by the New York Supreme Court
17 against ITO and the City was "[u]nder any definition of the
18 term, . . . an 'adjudication' of liability as to ITO and the City
19 (and ultimately, of UFI if and when called upon to indemnify ITO
20 and the City)," 2007 WL 2701990 at *2, 2007 U.S. Dist. LEXIS
21 68100 at *6.
22 The district court decided that because the
23 Ernish judgment was an adjudication with respect to ITO and the
24 City, who were named in the GenStar Policy as additional
25 insureds, and because in the district court's view the Ernish
26 judgment was also an adjudication with respect to UFI, General
11
1 Star was liable to pay the excess over Mutual Marine's policy
2 limit under the terms of the GenStar Policy, which provided that
3 an "adjudication" establishing "ultimate net loss" was a covered
4 loss. 2007 WL 2701990 at *2, 2007 U.S. Dist. LEXIS 68100 at *6.
5 Summary judgment was entered for Mutual Marine.
6 General Star appeals.
7 DISCUSSION
8 The judgment in favor of Ernish has been satisfied.
9 The question on appeal is whether Mutual Marine must bear the
10 full cost -- including a significant amount that exceeds its
11 million-dollar policy limit -- that it paid to National Union to
12 cover the share of the Ernish judgment UFI allegedly owed under
13 the terms of the First Agreement, or whether General Star is
14 obligated to reimburse Mutual Marine for that excess. The
15 district court found the latter, that General Star was obligated
16 to reimburse Mutual Marine based on the judgment against ITO and
17 the City, both because ITO and the City were additional insureds
18 under the GenStar Policy and because the district court
19 considered the judgment effectively also to be an adjudication
20 against UFI, General Star's primary insured. We conclude that
21 the district court erred in holding General Star obligated to
22 reimburse Mutual Marine on either of these grounds. Because
23 there remains a question, substantially unaddressed in the
24 district court, as to whether General Star may be obligated to
25 reimburse Mutual Marine on other grounds, i.e., whether liability
12
1 was established against UFI by means other than the judgment
2 against ITO and the City that would obligate General Star to pay
3 -- we vacate the summary judgment and remand the cause for
4 further proceedings.
5 I. Standard of Review and Applicable Substantive Law
6 "We review a district court's grant of summary judgment
7 de novo, construing the evidence in the light most favorable to
8 the non-moving party and drawing all reasonable inferences in its
9 favor." Allianz Ins. Co. v. Lerner, 416 F.3d 109, 113 (2d Cir.
10 2005). Summary judgment "should be rendered if the pleadings,
11 the discovery and disclosure materials on file, and any
12 affidavits show that there is no genuine issue as to any material
13 fact and that the movant is entitled to judgment as a matter of
14 law." Fed. R. Civ. P. 56(c); see also Roe v. City of Waterbury,
15 542 F.3d 31, 35 (2d Cir. 2008) (quoting Rule 56(c)). An issue of
16 fact is genuine if "the evidence is such that a reasonable jury
17 could return a verdict for the nonmoving party." Roe, 542 F.3d
18 at 35 (citation and internal quotation marks omitted). A fact is
19 "material" if it "might affect the outcome of the suit under the
20 governing law." Id. (citation and internal quotation marks
21 omitted).
22 Federal jurisdiction over this case is based on
23 diversity of citizenship. In the absence of any contractual
24 obligation of the parties to the contrary, we therefore apply the
13
1 substantive law of the forum state, New York. See, e.g., Omega
2 Eng'g, Inc. v. Omega, S.A., 432 F.3d 437, 443 (2d Cir. 2005).
3 II. Liability under the First Agreement Alone
4 The district court correctly decided that General Star
5 was not directly obligated to reimburse Mutual Marine under the
6 First Agreement, which settled the third-party action brought by
7 ITO and the City against UFI.1 See Nat'l Union I, 2007 WL 2059840
8 at *6, 2007 U.S. Dist. LEXIS 51925 at *26. As the district court
9 pointed out, under New York law, a settlement agreement "'is not
10 binding upon a party unless it is in a writing subscribed by him
11 or his attorney . . . .'" 2007 WL 2059840 at *5, 2007 U.S. Dist.
12 LEXIS 51925 at *18-19 (quoting New York Civil Practice Laws and
13 Rules § 2104). Because the First Agreement was not subscribed to
14 by General Star or its attorney or other agent, General Star is
15 not directly bound by its terms. See, e.g., Bonnette v. Long
16 Island College Hosp., 3 N.Y.3d 281, 286, 819 N.E.2d 206, 208-09,
17 785 N.Y.S.2d 738, 740-01 (2004).
18 III. Liability under the GenStar Policy
19 The harder question is whether General Star is bound by
20 the terms of its own policy with UFI to reimburse Mutual Marine.
21 Under the terms of the GenStar policy, General Star was obligated
1
As explained below, this finding is distinct from the
question of whether General Star may be indirectly obligated by
the First Agreement to reimburse Mutual Marine. Such would be
the case if the First Agreement established UFI's liability.
That question was not addressed in substance by the district
court.
14
1 to pay its insured for "ultimate net loss" in excess of the
2 primary insurer's limit. According to the policy:
3 Ultimate net loss means the total amount of
4 damages for which the Insured is legally
5 liable. Ultimate net loss may be established
6 by adjudication, arbitration or a compromise
7 settlement to which we have previously agreed
8 in writing.
9 GenStar Policy at ¶ 23.
10 While General Star appears to have assumed that under
11 Paragraph 23, the legal liability binding an insured could only be
12 established by an adjudication, arbitration, or compromise
13 settlement to which General Star agreed,2 that is not what the
14 provision says. It defines "ultimate net loss" as "the total
15 amount of damages for which the Insured is legally liable." It
16 then provides that "ultimate net loss," thus defined as an
17 "amount," may be established by "adjudication, arbitration or a
18 compromise settlement to which [General Star] ha[s] previously
19 agreed in writing." In other words, as Mutual Marine appears to
20 acknowledge,3 it is the amount of damages for which the insured is
21 legally liable that "may be established by adjudication,
22 arbitration or a compromise settlement to which [General Star]
2
See, e.g., Appellant's Reply Br. 4 ("[F]or coverage to
exist in the first instance, there must be damages for which UFI
became legally liable because of 'an adjudication, arbitration or
compromise settlement to which General Star previously agreed in
writing." (internal quotation marks and alterations omitted,
emphasis added)).
3
See Appellee's Br. 28 ("[N]othing in the GenStar policy
requires a final adjudication to be entered as a judgment against
the insured; only that adjudication (or arbitration or approved
settlement) establish the amount.") (emphasis added).
15
1 ha[s] previously agreed in writing," not the legal liability
2 itself. The establishment of liability is the predicate to the
3 applicability of the provision rather than being governed by it.4
4 The preliminary issue that must be addressed on this
5 appeal, then, is whether General Star's insured was legally liable
6 for any amount, which liability would trigger the provision
7 concerning the establishment of the amount of such liability. In
8 other words, only if General Star's insured was legally liable
9 does the question arise as to whether the amount of that liability
10 was established in a manner consonant with the terms of the
11 GenStar Policy.
12 A. Establishment of Liability by the Ernish Lawsuit Alone.
13 The district court decided that the Ernish lawsuit,
14 which resulted in the $2,175,000 judgment of liability against ITO
15 and the City, was an adjudication of liability as to both ITO and
16 the City and, "ultimately," as to UFI "if and when called upon to
17 indemnify ITO and the City." Nat'l Union II, 2007 WL 2701990 at
4
Indeed, General Star's interpretation of Paragraph 23 to
mean that the legal liability binding an insured, in addition to
the amount of damages for which the insured is liable, can only
be established by an adjudication, arbitration, or General Star-
approved settlement, would render extraneous several other
provisions in the GenStar Policy. For example, Section V,
Paragraph 5(d) of the policy provides that "[n]o insureds will,
except at their own cost, . . . assume any obligation . . .
without our consent." That injunction would be redundant if the
very definition of Ultimate Net Loss, set forth in Paragraph 23,
limited the universe of ways to establish UFI's liability to
adjudication, arbitration, and General Star-approved settlements.
See also GenStar Policy Section I, Coverage B, ¶ 2(a)(4)
(providing limited exclusion from coverage for liability assumed
by the insured in a contract or agreement).
16
1 *2, 2007 U.S. Dist. LEXIS 68100 at *6. The district court
2 concluded that General Star was obligated to reimburse Mutual
3 Marine based on each of these alleged adjudications of liability.
4 1. Adjudication as to ITO and the City.
5 The district court was obviously correct in finding that
6 the Ernish lawsuit was an adjudication of liability as to ITO and
7 the City, against whom the judgment was entered. It does not
8 follow, however, that General Star is obligated to reimburse
9 Mutual Marine on the basis of that adjudication.
10 Mutual Marine brought this lawsuit against General Star
11 based on UFI's rights, to which it had succeeded, not those of ITO
12 and the City. Only the seventy-five percent share ostensibly
13 apportioned to UFI in the First Agreement has ever been at issue
14 in the litigation against General Star, and not the twenty-five
15 percent share apportioned to ITO and the City. Indeed, three of
16 the five cross-claims filed by Mutual Marine against General Star
17 are based explicitly on rights belonging to UFI. See Am. Ans. to
18 Sec. Am. Compl. ¶¶ 32-64.
19 The fourth cross-claim includes mention of rights
20 allegedly belonging to ITO and the City and their insurer,
21 National Union, against General Star. See Am. Ans. to Sec. Am.
22 Compl. ¶¶ 143-57. But in its motion papers before the district
23 court, Mutual Marine explicitly disavowed the notion that it was
24 basing a claim against General Star on claims belonging to ITO and
17
1 the City.5 To the extent that the fourth cross-claim mentions any
2 rights of ITO and the City or their insurer against General Star,
3 it does so as background for its assertion that the First
4 Agreement -- which the district court has already correctly found
5 not to bind General Star directly -- was beneficial to General
6 Star. See generally Am. Ans. to Sec. Am. Compl. ¶¶ 143-157; see,
7 e.g., Am. Ans. to Sec. Am. Compl. ¶ 146 ("By virtue of the added
8 Insured status of New York City and ITO . . . the [First
9 Agreement] . . . reduced by 25% the possibility that any judgment
10 would pierce [General Star's] excess umbrella layer of
11 coverage."). Indeed, Mutual Marine's motion papers refer
12 throughout to UFI, not ITO and the City, as the "insured."
13 Finally, the fifth cross-claim asserts a nebulous
14 "independent right" against General Star allegedly belonging to
15 Mutual Marine. Am. Ans. to Sec. Am. Compl. ¶ 159. It is not
16 alleged to have ever belonged to ITO or the City.
17 Thus Mutual Marine's position throughout this litigation
18 has been that General Star is liable to it based on "its insuring
19 agreement with its insured UFI [which] obligated it to pay the
20 sums UFI became obligated to pay as a result of an unquestionably
5
See Mem. of Law in Opp'n to Mot. for Summ. J. at 20,
Nat'l Union Fire Ins. Co. of La. v. Universal Fabricators, Inc.,
et al., No. 05 Civ. 3418 (SAS) (S.D.N.Y. Aug. 29, 2007) (Doc. No.
61) ("[General Star argues] that Mutual Marine acquired no rights
against [General Star] from ITO's subrogated carriers. [That
argument] can be put aside because it is concededly correct,
since those carriers, as subrogees of the City and ITO, never had
any rights against [General Star], only against UFI."); see
also id. at 8 ("Essentially . . . Mutual Marine's rights vis-a-
vis [General Star] are those obtained through common law
subrogation from their insured, UFI.").
18
1 covered loss." Mem. of Law in Opp'n to Mot. for Summ. J. at 11.
2 That continues to be Mutual Marine's position on appeal. See
3 Appellee's Br. 35 (describing Mutual Marine as seeking
4 reimbursement for "satisfy[ing] [the] judgment . . . entered
5 against UFI Fabricators, Inc."); id. at 39 ("Mutual Marine
6 properly showed the District Court that there was no question of
7 fact but that General Star breached its duties to UFI and that
8 Mutual Marine acquired UFI's right to recover for that breach by
9 [General Star].").
10 Mutual Marine is not pursuing any rights that may or may
11 not have belonged to ITO and the City (or their insurers) based on
12 their status as additional insureds. It is therefore immaterial
13 for purposes of this lawsuit whether General Star has ever owed
14 ITO and the City anything as additional named insureds under the
15 GenStar Policy. That is not the claim that was made. The
16 material question is whether there was an adjudication of
17 liability against UFI, for which General Star would be obligated
18 under the GenStar Policy to reimburse UFI.
19 Since Mutual Marine does not assert rights in the place
20 of ITO and the City against General Star, General Star is not
21 liable to Mutual Marine on the basis of any direct obligation
22 General Star may have had to ITO and the City arising out of the
23 adjudication in the Ernish lawsuit against them.
24 2. Adjudication as to UFI.
25 The district court also concluded that the judgment
26 against ITO and the City in the Ernish lawsuit "was an
19
1 'adjudication' of liability . . . ultimately[] of UFI if and when
2 called upon to indemnify ITO and the City." Nat'l Union II, 2007
3 WL 2701990 at *2, 2007 U.S. Dist. LEXIS 68100 at *6 (parentheses
4 omitted). We disagree.
5 Following Ernish's filing of the suit against ITO and
6 the City -- as noted, he did not bring suit against UFI, his
7 employer -- ITO and the City filed a third-party action impleading
8 UFI. They claimed that they were entitled to, inter alia,
9 contractual indemnity, common law indemnity, and "added insured"
10 status. But before this third-party action was litigated to a
11 conclusion, ITO and the City reached a settlement with UFI,
12 purportedly executed on its behalf by Mutual Marine -- the First
13 Agreement -- disposing of the third-party action and dismissing
14 all claims against UFI with prejudice.6
15 By the time the Ernish suit was decided, then, UFI was
16 no longer party to it. When the state trial court directed a
17 verdict of liability against the defendants, ITO and the City, and
18 the jury thereafter awarded damages of $3 million (reduced on
19 appeal to $2,175,000), judgment was not entered against non-party
20 UFI.
6
The First Agreement provided:
[A]ll claims between UFI and ITO/City in
connection with the [Ernish] Lawsuit,
including third-party claims, indemnity
claims, contribution claims, counter-claims
and cross-claims, shall be released and
voluntarily discontinued with
prejudice . . . .
First Agreement at p. 2.
20
1 The district court thought it "puzzling" that General
2 Star would complain about the First Agreement because, in the
3 court's view, absent the First Agreement, General Star would have
4 been obligated to pay one-hundred percent of the Ernish judgment
5 in excess of Mutual Marine's policy. Nat'l Union II, 2007 WL
6 2701990 at *2, 2007 U.S. Dist. LEXIS 68100 at *7. In the Ernish
7 litigation, ITO and the City were held strictly liable for
8 Ernish's injuries under New York's scaffolding law. See N.Y.
9 Labor Law § 240(1);7 Ernish, 2 A.D.3d at 256-58, 768 N.Y.S.2d at
10 325-26. Liability pursuant to this statute is "not predicated on
11 fault: it is imputed to the owner or contractor by statute and
12 attaches irrespective of whether due care was exercised and
13 without reference to principles of negligence." Brown v. Two
14 Exch. Plaza Partners, 76 N.Y.2d 172, 179, 556 N.E.2d 430, 433, 556
15 N.Y.S.2d 991, 994 (1990) (internal citation omitted). While
16 strict liability attaches under section 240(1), "[i]t is well
17 settled that an owner or general contractor who is held strictly
7
All contractors and owners and their
agents, . . . who contract for but do not
direct or control the work, in the erection,
demolition, repairing, altering, painting,
cleaning or pointing of a building or
structure shall furnish or erect, or cause to
be furnished or erected for the performance
of such labor, scaffolding, hoists, stays,
ladders, slings, hangers, blocks, pulleys,
braces, irons, ropes, and other devices which
shall be so constructed, placed and operated
as to give proper protection to a person so
employed.
N.Y. Labor Law § 240(1).
21
1 liable under Labor Law § 240(1) is entitled to full
2 indemnification from the party actually responsible for the
3 incident." Frank v. Meadowlakes Dev. Corp., 6 N.Y.3d 687, 691,
4 849 N.E.2d 938, 940, 816 N.Y.S.2d 715 (2006) (internal quotation
5 marks and citation omitted). Thus, if UFI was "actually
6 responsible" for Ernish's injuries, it could have become liable to
7 indemnify ITO and the City for the judgment against them.
8 But that outcome was uncertain. A party seeking either
9 contractual or common law indemnity must "establish that it was
10 free from any negligence and was held liable solely by virtue of
11 the statutory liability." Correia v. Prof'l Data Mgmt., Inc., 259
12 A.D.2d 60, 65, 693 N.Y.S.2d 596, 600 (1st Dep't 1999); see also
13 Brown, 76 N.Y.2d at 180-81, 556 N.E.2d at 545, 556 N.Y.S.2d at 995
14 (explaining that New York law "prohibit[s] indemnity agreements in
15 which owners or contractors [seek] to pass along the risks for
16 their own negligent actions to other contractors or
17 subcontractors, even if the accident was caused only in part by
18 the owner's or contractor's negligence." (emphasis in original)).
19 Therefore if UFI could prove that ITO or the City were negligent
20 in connection with the incident that caused Ernish's injuries, UFI
21 would not have been obligated to indemnify ITO and the City for
22 their losses.8
8
Indeed, the district court acknowledged General Star's
argument that this uncertainty regarding ITO and the City's
ability to establish UFI's liability motivated the decision to
settle the third-party action. Nat'l Union II, 2007 WL 2701990
at *2, 2007 U.S. Dist. LEXIS 68100 at *7.
22
1 The district court found, nonetheless, and Mutual Marine
2 urges on appeal, that there was no evidence in the record of
3 negligence on the part of ITO or the City and that UFI therefore
4 would have had to indemnify them. Nat'l Union II, 2007 WL 2701990
5 at *2, 2007 U.S. Dist. LEXIS 78100 at *7. But the district court
6 was in no position to make that finding at the summary judgment
7 stage, as a matter of law. The question of any such negligence
8 was not before the district court and there was therefore no basis
9 for a belief that the record before the district court contained
10 all possible evidence of such negligence. Put another way, the
11 district court was making a finding in a lawsuit that was not
12 before it –- a hypothetical third-party action by ITO and the City
13 against UFI that was litigated to the finish.
14 Thus the Ernish adjudication was not tantamount to an
15 adjudication of "legal liability" on the part of the relevant
16 "insured" in this case, UFI. And without an establishment of
17 legal liability, "ultimate net loss" could not be established
18 either.
19 B. Establishment of Liability Pursuant to the First Agreement.
20 Although the Ernish adjudication did not establish the
21 legal liability of UFI for Ernish's judgment, the First Agreement
22 itself may have. If it was properly executed by Mutual Marine on
23 behalf of UFI and rendered UFI liable for three-quarters of the
24 judgment against ITO and the City, then the Ernish adjudication
25 would have determined not liability, but the amount for which UFI
26 was legally liable, thereby constituting an "ultimate net loss"
23
1 for which General Star was liable under its policy.9 In other
2 words, it is possible that the First Agreement, which preceded the
3 Ernish adjudication, provided that UFI was 75% liable for the
4 underlying accident at issue in the adjudication, and the
5 adjudication itself then determined the amount for which UFI was
6 legally liable.
7 At first blush, using the First Agreement to establish
8 the legal liability of UFI would appear to violate the condition
9 in the GenStar Policy that "[n]o insureds will, except at their
10 own cost, voluntarily make a payment, assume any obligation, or
11 incur any expense without our consent," GenStar Policy, Section V,
12 ¶ 5(d). But as Mutual Marine argues and General Star appears to
13 concede, General Star never issued a disclaimer to that effect, as
14 it was required to do under N.Y. Ins. Law § 3420(d)(2).10
9
The possibility that the First Agreement established the
legal liability of UFI and thereby indirectly bound General Star
to pay an ultimate net loss determined by the Ernish adjudication
is not to be confused with the argument originally proposed by
Mutual Marine and rejected by the district court in its July 18,
2007, opinion and order that General Star, a non-signatory to the
First Agreement, was directly bound by the First Agreement to
contribute to the three-fourths share of the Ernish judgment
ostensibly apportioned to UFI by the First Agreement. The
district court's rejection of that argument was correct for the
reasons set forth above.
10
N.Y. Ins. Law § 3420(d)(2) provides:
If under a liability policy issued or
delivered in this state, an insurer shall
disclaim liability or deny coverage for death
or bodily injury arising out of a motor
vehicle accident or any other type of
accident occurring within this state, it
shall give written notice as soon as is
reasonably possible of such disclaimer of
liability or denial of coverage to the
24
1 See Reyes v. Diamond State Ins. Co., 35 A.D.3d 830, 831, 827
2 N.Y.S.2d 263 (2d Dep't 2006) ("An insurer must give written notice
3 of a disclaimer of coverage as soon as is reasonably possible
4 [pursuant to N.Y. Ins. Law § 3420] after it first learns of the
5 accident or of grounds for disclaimer of liability or denial of
6 coverage. This rule applies not only to an insurer's disclaimer
7 of primary insurance coverage, but to a disclaimer of excess
8 coverage as well.") (internal quotation marks and citations
9 omitted); see also Mann v. Gulf Ins. Co., 3 A.D.3d 554, 556, 771
10 N.Y.S.2d 176 (2d Dep't 2004).
11 General Star argues that it was not required to disclaim
12 coverage because "[d]isclaimer pursuant to Insurance Law section
13 3420(d) is unnecessary when a claim falls outside the scope of the
14 policy's coverage portion." See Appellant's Reply Br. 3 (quoting
15 Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 188, 712
16 N.Y.S.2d 433, 435, 734 N.E.2d 745 (2000) (internal quotation marks
17 and alterations omitted)). But it bases this argument on the
18 notion that Section VI, Paragraph 23 of the GenStar Policy limited
19 the ways UFI's legal liability, rather than simply the amount of
20 such liability, could be established, see Appellant's Reply Br. 3-
21 4, a notion that is incorrect. As we have explained, it did not.
22 General Star does not argue that Paragraph 5(d) alone would take
23 the First Agreement "outside the scope of the policy's coverage
24 portion" such that disclaimer would be unnecessary, and such an
insured and the injured person or any other
claimant.
Id.
25
1 argument would fail because Paragraph 5(d) is a self-proclaimed
2 "policy condition" that is plainly in the nature of an exclusion,
3 for which disclaimer is required, and is not part of the "coverage
4 portion" of the GenStar Policy. See Columbia Cas. Co. v. Nat'l
5 Emergency Servs., Inc., 282 A.D.2d 346, 347, 723 N.Y.S.2d 473 (1st
6 Dep't 2001) ("It is settled that failure by the insurer to give
7 written notice of disclaimer based on an exclusion or failure to
8 comply with a policy condition as soon as is reasonably possible
9 renders the disclaimer ineffective.") (emphasis added, internal
10 citation omitted); cf. Zappone v. Home Ins. Co., 55 N.Y.2d 131,
11 134-35, 447 N.Y.S.2d 911, 432 N.E.2d 783 (1982) (concluding that
12 insurer did not have to disclaim coverage for accident involving
13 automobile that was not the subject of the insurance policies in
14 question).
15 Therefore Section V, Paragraph 5(d) of the GenStar
16 Policy does not foreclose the possibility that the First Agreement
17 established UFI's liability and thereby, in conjunction with the
18 Ernish litigation, obligated General Star to reimburse Mutual
19 Marine for the excess Mutual Marine paid over its policy limit to
20 cover UFI's share of the judgment.
21 General Star also argues, however, that it was not
22 required to issue a disclaimer because "UFI[] disavowed any
23 obligation under the first settlement agreement. As such [sic],
24 this agreement could not create any obligation to disclaim
25 coverage to UFI or Mutual Marine." Appellant's Reply Br. 6
26 (emphasis in original, internal citations omitted). In letters
26
1 sent to Mutual Marine prior to litigation in this matter, UFI
2 represented that it had never authorized Mutual Marine to execute
3 the First Agreement on its behalf. The letters, also sent on
4 behalf of General Star, state that it "remains clear and
5 indisputable -- in fact Mutual Marine does not even argue to the
6 contrary -- [] that neither General Star nor [UFI] ever authorized
7 Mutual Marine to execute the so-called [First Agreement] on their
8 behalf," Jun. 19, 2002 Letter at 1, and "neither General Star nor
9 principals of [UFI] ever gave permission or express authorization
10 for Mutual Marine to execute th[e] [First Agreement] on their
11 behalf." Letter from General Star and UFI to Mutual Marine, at 1
12 (May 10, 2002). Handwritten notes allegedly written by Mutual
13 Marine's Loss Secretary prior to the execution of the Second
14 Agreement regarding National Union's action against Mutual Marine,
15 General Star, and UFI, indicate, moreover, that Mutual Marine was
16 concerned about the availability to General Star of an argument
17 that UFI never consented to the First Agreement. According to the
18 notes, "[there is] [n]o way [UFI] will be left without insurance
19 so it[']s MMO [Mutual Marine] v. Gen[eral] Star. If Gen[eral]
20 Star get[s] [UFI] on its side, [its] position will be that [Mutual
21 Marine] took upon itself to incur exposure past its limit -
22 without properly advising [UFI]." Paul Smith Handwritten Notes,
23 May 2, 2005, Declaration of Natasha Van Der Griendt in Opp. to
24 Mot. for Summ. J., Ex. M, Nat'l Union Fire Ins. Co. of La. v.
25 Universal Fabricators, Inc., No. 05 Civ. 3418 (SAS) (S.D.N.Y. Apr.
26 27, 2007) (Doc. No. 42).
27
1 Plainly, if UFI was never bound by the First Agreement,
2 that agreement could establish no legal liability on the part of
3 UFI for which General Star would be liable under the GenStar
4 Policy. In that case, there would also be no need for General
5 Star to have disclaimed. See Zappone, 55 N.Y.2d at 138-39, 447
6 N.Y.S.2d at 911 ("[T]he Legislature in using the words 'denial of
7 coverage' did not intend to require notice when there never was
8 any insurance in effect, and intended by that phrase to cover only
9 situations in which a policy of insurance that would otherwise
10 cover the particular accident is claimed not to cover it because
11 of an exclusion in the policy."); cf. Matter of Arbitration
12 Between State Farm Mut. Auto. Ins. Co. (Merrill), 192 A.D.2d 824,
13 825, 596 N.Y.S.2d 554, 555 (3d Dep't 1993) ("It is true that an
14 insurance company is not subject to the timely disclaimer
15 provisions contained in [N.Y.] Insurance Law § 3420(d) where no
16 coverage existed under the policy.").
17 Because it granted summary judgment on the grounds of
18 the Ernish adjudication alone, the district court appears not to
19 have decided whether the First Agreement established the legal
20 liability of UFI and thereby obligated General Star to reimburse
21 Mutual Marine in this action in an amount determined by the
22 outcome of the Ernish adjudication. Inasmuch as the answer to
23 this question depends on the factual question of whether UFI was
28
1 ever bound by the First Agreement, we think it is a question best
2 left to the district court to answer in the first instance.11
3 C. Remaining Arguments
4 We have considered General Star's other arguments on
5 this issue and find them to be without merit.
6 IV. Mutual Marine as a "Volunteer"
7
8 General Star argues, as it did before the district
9 court, that it was entitled to summary judgment because Mutual
10 Marine was acting as a "volunteer" when it agreed to indemnify and
11 defend UFI, pursuant to the Second Agreement, and when it paid
12 National Union the $700,000 at issue, pursuant to the Third
13 Agreement. If the payment was indeed voluntary, then General Star
14 has no obligation to reimburse Mutual Marine for it. See Merch.
15 Mut. Ins. Group v. Travelers Ins. Co., 24 A.D.3d 1179, 1180, 806
16 N.Y.S.2d 813 (4th Dep't 2005) ("[W]hen an insurer who is not
11
In finding that General Star was not entitled to
summary judgment on the ground that Mutual Marine was acting as a
volunteer when it paid an amount in excess of its million-dollar
policy limit, the district court referred in passing to UFI's
status as "the party to the First Agreement who owed the
remainder of the seventy-five percent apportionment of the
judgment . . . ." Nat'l Union II, 2007 WL 2701990 at *3, 2007
U.S. Dist. LEXIS 68100 at *10. Because the district court had
already found that UFI owed the remainder of the seventy-five
percent because in the view of the district court the Ernish
adjudication was "ultimately" an adjudication of UFI's liability,
and because the district court did not analyze the contested
issue of whether UFI was bound by the First Agreement, we do not
understand the district court's passing reference to UFI as a
"party" to the First Agreement, in a context outside the issue of
determining UFI's liability, to constitute a finding of fact that
UFI was bound by the First Agreement. We express no opinion as
to whether UFI was bound by the First Agreement and, as indicated
in the text, we leave that finding to the district court on
remand.
29
1 acting under a mistake of material fact or law assumes the defense
2 and indemnification of an insured when there is no obligation to
3 do so, that insurer becomes 'a volunteer with no right to recover
4 the monies it paid on behalf of the insured.'" (quoting Nat'l
5 Union Fire Ins. Co. v. Ranger Ins. Co., 190 A.D.2d 395, 397, 599
6 N.Y.S.2d 347 (4th Dep't 1993)) (internal alterations omitted).
7 However, when Mutual Marine agreed to indemnify UFI, it did not do
8 so without compensation. It received in return whatever rights
9 UFI had against General Star.
10 General Star relies on the familiar proposition that "an
11 assignor 'could only assign a right that it legally possessed' and
12 an assignee's rights are no greater than those of the assignor."
13 Appellant's Br. 40 (quoting Case v. Filmtrucks, 118 A.D.2d 749,
14 752, 500 N.Y.S.2d 141 (2d Dep't 1986); citing Int'l Ribbon Mills,
15 Ltd. v. Arjan Ribbons, Inc., 36 N.Y.2d 121, 126, 365 N.Y.S.2d 808
16 (1975)). The district court found that UFI did have a claim
17 against General Star to assign to Mutual Marine, and therefore
18 Mutual Marine was not acting as a volunteer when it paid in excess
19 of its policy limit. However, the district court had already
20 determined that the Ernish adjudication was ultimately an
21 adjudication against UFI for which General Star was obligated to
22 pay, a determination with which we disagree.
23 Although the Ernish adjudication in itself did not
24 establish an "ultimate net loss" with respect to UFI such that UFI
25 had a claim against General Star that it could assign to Mutual
26 Marine, it may have done so if the legal liability of UFI was
30
1 established under the First Agreement or otherwise. Because we
2 leave it for the district court on remand to determine in the
3 first instance whether the legal liability of UFI was established
4 in any way other than by the Ernish judgment alone, the district
5 court may also resolve on remand the related factual question of
6 whether Mutual Marine was acting as a volunteer when it paid an
7 amount in excess of its policy limit.
8 V. Mutual Marine's Pleading
9 of a Claim Based on UFI's Rights
10 General Star also appears to argue that Mutual Marine
11 failed adequately to plead a cross-claim based on rights of UFI
12 that it had obtained by subrogation or assignment. But as
13 discussed above, Mutual Marine's motion papers before the district
14 court made explicit that it was asserting UFI's rights in this
15 lawsuit. In any event, Mutual Marine sought leave to re-plead its
16 cross-claims, see Mem. of Law in Opp'n to Summ. J. at 21, Nat'l
17 Union Fire Ins. Co. of La. v. UFI Fabricators, Inc., No. 05 Civ.
18 3418 (SAS) (S.D.N.Y. Aug. 29, 2007) (Doc. No. 61), a request the
19 district court did not reach because it granted summary judgment
20 in favor of Mutual Marine. On remand, the district court may
21 consider that request in the first instance if the court deems it
22 necessary or advisable to do so.
23 CONCLUSION
24 For the foregoing reasons, we vacate the district
25 court's grant of summary judgment, and remand the cause with
26 instructions for the court to decide, inter alia, whether UFI was
31
1 legally liable to Ernish such as to give rise to a liability on
2 the part of General Star.
32
General Star v. Universal Fabricators, Inc.
Combined Opinion