Source: http://vertumnus.courts.state.ny.us/claims/html/2001-001-043.html
Timestamp: 2018-03-17 18:14:27
Document Index: 91556651

Matched Legal Cases: ['§ 17', '§ 17', '§ 17', '§ 3', '§ 17', '§ 17']

DOMINION INS. V. THE STATE OF NEW YORK, #2001-001-043, Claim No. 98352, Motion Nos. M-62954, CM-63117
Claimants' motion for summary judgment pursuant to CPLR 3212 is denied and defendant's cross motion for summary judgment is granted.
2001-001-043
M-62954
CM-63117
The following papers were read and considered on claimants' motion for summary judgment pursuant to CPLR 3212 and on defendant's cross motion for summary judgment: Notice of Motion for Summary Judgment (M-62954), dated and filed January 16, 2001;
Affirmation of Robert J. Brown, Esq., dated and filed January 16, 2001, with annexed Exhibits A-H; Affidavit of Dr. Arthur L. Rose, sworn to January 12 and filed January 16, 2001, with annexed Exhibits A-F; Affidavit of Derrick Heath, sworn to January 12 and filed January 16, 2001, with annexed Exhibits A-E; Affidavit of Dr. Mahendra Somasundaram, sworn to January 11 and filed January 16, 2001, with annexed Exhibit A; Memorandum of Law in Support of Motion, dated January 16 and received January 18, 2001, with annexed Exhibits A-C; Notice of Cross Motion for Summary Judgment (CM-63117), dated and filed February 21, 2001; Affirmation in Support of Cross Motion of Reuben Goldwaser, Esq., AAG, affirmed and filed February 21, 2001; Defendant's Memorandum of Law, dated and received February 21, 2001, with annexed Exhibit; Reply Affirmation of Robert J. Brown, Esq., dated February 27 and filed February 28, 2001; Supplemental Affidavit of Dr. Arthur L. Rose, sworn to February 27 and filed February 28, 2001, with annexed Exhibits A-C; (Defendant's) Supplemental Memorandum of Points and Authorities, dated and received May 2, 2001, with annexed Exhibits; Supplemental Affirmation of Robert J. Brown, Esq., dated May 22 and filed May 23, 2001, with annexed Exhibit A; (Claimants') Supplemental Reply Memorandum of Law, dated May 22 and received May 23, 2001.
On June 14, 1983, Dr. Arthur L. Rose ("Rose"), an Associate Professor of Neurology and Pediatrics, Director of the Division of Pediatric Neurology and Director of the Child Neurology Residency Training Program at State University of New York Downstate Medical Center ("SUNY Downstate"), was served with a summons and complaint in an action brought in New York State Supreme Court by Chana Jennifer Fink ("Fink"), by her parent and natural guardian Joshua E. Fink, and by Joshua E. Fink individually (collectively, "plaintiffs") for medical malpractice on account of an alleged failure to diagnose Fink's brain tumor during a course of treatment rendered at SUNY Downstate from January 4 through September 1, 1978, which was claimed to have caused Fink to suffer various physical and emotional injuries (Affidavit of Dr. Arthur L. Rose, sworn to January 12 and filed January 16, 2001, with annexed Exhibits A-F ["Rose Aff."], ¶¶ 2, 3, 15-20, 22). The complaint also named as defendants three other SUNY Downstate physicians and SUNY Downstate itself, which is, of course, subject to suit only in the Court of Claims.
On June 21, 1983, shortly after Rose was served in the medical malpractice lawsuit, SUNY Downstate forwarded the summons and complaint to the Attorney-General and conveyed Rose's request for representation under the provisions of Public Officers Law § 17 (Rose Aff., Exh. E). On June 30, 1983, the Attorney-General turned down the request for section 17 representation on the basis that Rose had treated Fink as a private patient, not in his capacity as an employee of the State of New York; and advised him to forward the matter to his private carrier (id., at Exh. F), which apparently was the Great Atlantic Insurance Company (id., at Exh. E). The Attorney-General likewise explicitly declined or, at the very least, failed to approve Rose's subsequent recurrent requests for defense and indemnification (Affirmation of Robert J. Brown, Esq., dated and filed January 16, 2001, with annexed Exhibits A-H ["Brown Aff."], Exh. F).
Rose's alleged act of medical malpractice was, however, covered under three insurance policies purchased by SUNY Downstate. A primary layer of comprehensive general and hospital professional liability coverage provided for per occurrence and annual aggregate limits of $500,000 and, by way of endorsement, covered full-time faculty physicians, such as Rose, for alleged acts of malpractice arising from their limited right of private practice as participants in SUNY Downstate's clinical practice plan during the relevant policy period, 12 months beginning at noon on December 16, 1977 (Brown Aff., ¶ 17; Affidavit of Derrick Heath, sworn to January 12 and filed January 16, 2001, with annexed Exhibits A-E ["Heath Aff."], Exh. A). This primary insurance was underwritten by the Great Atlantic Insurance Company, which was in liquidation and under the supervision of the Liquidation Bureau of the New York State Insurance Department ("Liquidation Bureau") (see, Articles 74 and 76 of the Insurance Law) throughout the Fink litigation (Brown Aff., ¶ 19). The Liquidation Bureau assumed the cost of Rose's defense (id., at Exh. E).[1]
The second layer of insurance, an excess malpractice liability policy, provided for per occurrence and annual aggregate limits of $500,000 in excess of the underlying primary insurance limit of $500,000 (Brown Aff., Exh. D; Heath Aff., ¶ 5). SUNY Downstate paid a premium of $375,000 for this coverage for the applicable one-year policy period (Heath Aff., Exh. B).
The third layer of insurance, an umbrella policy (London 1971), provided for per occurrence and annual aggregate limits of $5 million in excess of the underlying combined primary and excess coverage of $1 million (Brown Aff., Exh. D; Heath Aff., ¶ 6). SUNY Downstate paid a premium of $600,000 for this coverage for the applicable one-year policy period (Heath Aff., Exh. C).
These second and third layers of insurance were "London market subscription policies" underwritten by claimants Dominion Insurance Company LTD ("Dominion"); CNA Reinsurance Company LTD; Unionamerica Insurance Company, LTD ("Unionamerica"); St. Katherine's Insurance Company (UK) LTD; Yasuda Fire & Marine Insurance Company (UK) LTD; Winterthur Swiss Insurance Company (UK); and Assicurazioni General S.p.A. (UK) (collectively, "claimants") as well as by other insurance companies based in London, England (Heath Aff., ¶¶ 4-7). According to claimants, the individual and separate companies severally subscribed to shares of these policies, and assumed the percentage of the risk corresponding to an equivalent percentage of the premium paid (Heath Aff., ¶ 7-8). That is, each individual insurance company subscribing to the second and third layers of insurance was contractually bound to pay only its pro rata share of any settlement or judgment and was not obligated to make up any shortfalls created by non-payment by the primary insurer or by any other company subscribing to the excess and umbrella policies (Heath Aff., ¶¶ 8-10, 12-15).[2] Specifically, claimants Dominion and Unionamerica together subscribed to 25% of the risk on the excess policy ($500,000 x 0.25 = $125,000) for 25% of the premium ($375,000 x 0.25 = $93,750) (Heath Aff., ¶¶ 9-10); the claimants collectively subscribed to 40.3881% of the risk on the umbrella policy ($5,000,000 x 0.403881 = $2,019,405) for 40.3881% of the premium ($600,000 x 0.403881 = $242,329 [rounded]) (Heath Aff., ¶¶ 13-14).[3]
By the time the opportunity to settle the Fink litigation arose, only $51,914 was available from SUNY Downstate's primary policy (Brown Aff., ¶ 22, Exh. G; Heath Aff., ¶ 18; see also, n 2, supra). Moreover, a significant number of the London insurance companies subscribing to the excess and umbrella policies were insolvent (Brown Aff., ¶ 23; Heath Aff., ¶¶ 9-15). Claimants were evidently aware that Rose "had virtually no assets" (Supplemental Reply Memorandum of Law, dated May 22 and received May 23, 2001 ["Claimants' Supp. Reply Mem."], at 3), and so insisted on making any settlement with him contingent upon claimants' commitment to pay his full share of the settlement within 45 days (Supplemental Affirmation of Robert J. Brown, Esq., dated May 22 and filed May 23, 2001, with annexed Exhibit A ["Brown Supp. Aff."], ¶ 8; Exh. A [transcript of settlement hearing]).
When the case settled during trial on October 1, 1997 for $3.5 million (Brown Aff., Exh. G; Brown Supp. Aff., Exh. A), the settlement monies were comprised of $1.5 million contributed by the common insurer of Rose's two remaining co-defendants, a physician and the estate of a physician; and $2 million contributed on behalf of Rose,[4] of which amount the Liquidation Bureau paid the $51,914 still available under SUNY Downstate's primary policy with Great Atlantic Insurance Company and claimants paid $1,948,086 (Brown Aff., ¶ 25; Heath Aff., ¶ 19). Claimants, however, contend that they had no contractual duty to pay more than $709,854.42 ($125,000 on the excess policy [claimants Dominion's and Unionamerica's combined pro rata share (25%) of the excess policy's limit ($500,000)] plus $584,854.42 on the umbrella policy [the claimants' collective pro rata share (40.3881%) of the portion of the $2 million settlement remaining after application of the monies paid by the Liquidation Bureau on the primary policy ($51,914) and the monies in fact paid by claimants Dominion and Unionamerica on the excess policy ($500,000, the policy's limits); i.e., $2,000,000 (settlement amount) - $551,914 (total amount paid by the Liquidation Bureau on the primary policy and by Dominion and Unionamerica on the excess policy) = 1,448,086 x 0.403881 = $584,854.42])[5] (Reply Affirmation of Robert J. Brown, Esq., dated February 27 and filed February 28, 2001, ¶ 12; Heath Aff., ¶¶ 42-43), but agreed to pay $1,948,086 in exchange for Rose's assignment to them of his rights under Public Officers Law § 17 (Heath Aff., ¶ 45; Brown Aff., ¶ 24; Brown Supp. Aff., Exh. A, at 7-8).
Subsequently, by claim filed May 21, 1998, claimants, as Rose's subrogees, sought indemnification from defendant State of New York ("defendant" or "the State") pursuant to Public Officers Law § 17 in the amount of $1,238,262[6] plus interest from November 20, 1997, the date they paid the settlement monies (Brown Aff., Exh. A [claim, dated May 20 and filed May 21, 1998 ("claim")]). Claimants characterize the reimbursement sought ($1,238,262) as so much of their settlement payment ($1,948,086) as exceeds their contractual obligations under the excess and umbrella policies ($709,824)[7] (claim, ¶¶ 73-74, 77-78; Claimants' Supp. Reply Mem., at 7-8). Claimants now move for summary judgment for this amount; the State cross-moves for summary judgment to dismiss the claim.
Claimants contend that the undisputed dispositive question on the motion is whether Rose was acting within the scope of his employment with SUNY Downstate when the medical malpractice claim accrued, and that he clearly was (Memorandum of Law in Support of Motion, dated January 16 and received January 18, 2001 ["Claimants' Mem. Of Law"], at 9-15). Among other things, claimants refer to an excerpt from a "Handbook for Academic and Professional Employees of Downstate" to argue that because Rose's participation in SUNY Downstate's clinical practice plan was mandatory, all treatment arising out of this plan, such as Rose's treatment of Fink, was rendered within the scope of his State employment (Claimants' Mem. Of Law, at 10; Rose Aff., ¶¶ 7-14). Claimants also argue that Rose's treatment of Fink satisfies the well-established tests for determining whether the alleged malpractice falls within the scope of Rose's State employment as set forth in a line of allegedly analogous cases referred to as the Frontier litigation (see, e.g., Frontier Ins. Co. [Angtuaco] v State of New York, 146 Misc 2d 237, affd 172 AD2d 13; Frontier Ins. Co. [Scalea] v State of New York, 197 AD2d 177, affd 87 NY2d 864).
In opposition to claimants' motion and in support of its cross motion for summary judgment, the State takes the position that since Rose admittedly "has no independent recollection regarding the presence or absence of medical students during any of [Fink's] visits to his office," claimants can never satisfy the burden of proving that the alleged acts of malpractice occurred within the scope of Rose's State employment (Defendant's Memorandum of Law, dated and received February 21, 2001; Affirmation in Support of Cross Motion of Reuben Goldwaser, Esq., AAG, affirmed and filed February 21, 2001). As an afterthought, the State also argues that claimants have no right of subrogation because they voluntarily paid amounts "which are above [their] policy limits of $709,854.42" ([Defendant's] Supplemental Memorandum of Points and Authorities, dated and received May 2, 2001, Point I, citing Travelers Ins. Co. v Nory Const. Co., Inc., 184 Misc 2d 366 [plaintiff insurer could not obtain indemnification from defendant construction company for amounts that plaintiff insists were paid in excess of policy limits because defendant was not liable for plaintiff's voluntary payments]). Claimants, of course, dispute both points.
I. Discusssion
Subrogation is an equitable doctrine that functions to "afford a person who pays a debt that is owed primarily by someone else every opportunity to be reimbursed in full" (Chemical Bank v Meltzer, 93 NY2d 296, 304). In the insurance context, the equitable doctrine of subrogation "entitles an insurer to ‘stand in the shoes' of its insured to seek indemnification from third parties whose wrongdoing has caused a loss for which the insurer is bound to reimburse" (North Star Reins. Corp. v Continental Ins. Co., 82 NY2d 281, 294; see also, Appleman, Insurance Law and Practice 2d § 3.1, at 334). More specifically, and in the context of this case, claimant insurers insist that they may step into the shoes of the insured doctor (Rose) and pursue indemnification from the State pursuant to Public Officers Law § 17 as Rose's equitable subrogee, and habitually refer to the State as a co-insurer of Rose (e.g., "As a co-insurer, and the one with full responsibility to protect its employee from all personal exposure in a case such as this, the State should be directed to pay the Claimant Insurers the amount which the Insurers paid over and above their contractual obligation" [Heath Aff., ¶ 47; see also, id., at ¶¶ 42-43 and 45]; "The Claimants do not seek full reimbursement for all shares paid in settlement, but only of that portion of the settlement which should have been borne by the State in the first instance as a co-insurer" [Brown Reply Aff., ¶ 11; see also, Brown Aff., ¶ 28]). In fact, the State and claimants did not co-insure Rose; rather, the State is claimants' insured: Rose was covered for the alleged acts of malpractice under endorsements to policies (Heath Aff., Exh. A; Brown Aff., Exh. D) purchased by SUNY Downstate--which is to say, by the State. As a result, the anti-subrogation rule comes into play to bar claimants' recovery.
An insurer has no right of subrogation against its own insured for any claim arising from the very risk for which the insurer contracted to provide coverage since, by definition, subrogation arises only with respect to rights of the insured against third persons to whom the insurer owes no duty under the insurance policy (Pennsylvania General Ins. Co. v Austin Powder Co., 68 NY2d 465). Sound public policy considerations inform the anti-subrogation rule; chiefly, "[t]o allow the insurer's subrogation right to extend beyond third parties and to reach its own insured would permit an insurer, in effect, ‘to pass the incidence of loss * * * from itself to its own insured and thus avoid the coverage which its insured purchased' " (id., supra, at 471, quoting Home Ins. Co. v Pinski Bros., Inc., 160 Mont. 219, 226; accord, Jones Lang Wootton USA v LeBoeuf, Lamb, Greene & McRae, lv dismissed 92 NY2d 962). In addition, the anti-subrogation rule eliminates the otherwise present risk that a conflict of interest "may affect the insurer's incentive to provide a vigorous defense for its insured" (North Star Reins. Corp. v Continental Ins. Co., 82 NY2d 281, supra, at 295).
During the currency of the excess and umbrellas policies for the period December 16, 1977-1978, the State paid these claimants $336,079 ($93,750 on the excess policy + $242,329 [rounded] on the umbrella policy) in premiums for a maximum of $2,144,405 in coverage ($125,000 on the excess policy + $2,019,405 on the umbrella policy) by claimants' own reckoning. In 1997, nearly twenty years later, claimants paid out $1,948,086--or less than their acknowledged collective maximum contractual obligation of $2,144,405[8]--to settle the Fink litigation. Claimants may not recover $1,238,262 of the $1,948,086 from their insured, the State, just because they individually and collectively paid a higher percentage of a $2 million settlement than would have been the case had more monies been available from the primary policy and had the other insurance companies subscribing to the excess and umbrella policies remained solvent and able to contribute their pro rata shares. In light of the circumstances, claimants paid no more than they bargained for when they underwrote these policies. In any event, as the First Department observed in Chrysler Leasing Corp. v Public Adm'r, New York County (85 AD2d 410, 416), "the rule is firmly established that an insurance company may not be subrogated to the claim of one insured against another insured even where the amount sought to be recovered is in excess of the coverage provided" (see also, Travelers Ins. Co. v Nory Const. Co., Inc., 184 Misc 2d 366, supra).
One final matter merits very brief comment: the facts of this case in no relevant respect resemble the Frontier litigation. Most notably, the Frontier litigation involved the claimant insurer's right to seek indemnification from the State pursuant to Public Officers Law § 17 as an equitable subrogee of physicians whom claimant insurer had defended and indemnified under malpractice policies purchased by and issued to the physicians. The State was not an additional insured or in any way covered by these malpractice policies.
Based on the foregoing, the Court finds that the anti-subrogation rule applies under these facts to preclude claimants' recovery. Accordingly, the Court denies claimants' motion for summary judgment; grants the State's cross motion for summary judgment; and dismisses Claim Number 98352.
[1]As noted in the text, Rose apparently had also purchased individual malpractice insurance from the Great Atlantic Insurance Company (see, Rose Aff., Exh. E).
[2]The Court accepts claimants' description of their obligations under the excess and umbrella policies, which defendant has not contested, as true for purposes of this motion. The Court notes, however, that it is not self-evident from the language of the policies (Brown Aff., Exh. D) that claimants under the circumstances presented had no obligation to "drop down" to take the place of an underlying insurer, at least to the extent of replacing so much of the aggregate of the primary policy as was reduced or exhausted by payment of losses (id., para. II [Limit of Liability]), or to "drop over" to fill the void in coverage created by the bankruptcy of the other insurers subscribing to the excess and umbrella policies. In the former regard, the Court further notes that claimants specifically attributed the limited availability of funds under the primary policy to the "settlement of several other actions" (emphasis added) (Brown Aff., ¶ 22; see also, Heath Aff., ¶ 18), not to the primary insurer's insolvency. Such issues are, as indicated, not for the Court to decide on the motion and, in any event, are irrelevant to the motion's outcome no matter how resolved, as will later appear.
[3]For purposes of this motion, the Court uses 40.3881% as the figure representing claimants' collective pro rata share of both the premium and the risk on the umbrella policy for the relevant policy year (but cf., Heath Aff., ¶ 15 [claimants' collective pro rata share expressed as 40.3381%, presumably a typographical error]; and id., at ¶¶ 21, 24, 26, 29, 33, 36 and 39 [specific percentages given for each of the claimants, which add up to 40.386%).
[4]Although claimants express confidence that continuing with the trial would have produced a judgment against Rose much larger than $2 million (Claimants' Supp. Reply Mem., at 3; Brown Aff., Exh. G), Rose's defense counsel noted at the settlement hearing that no experts had testified against Rose before settlement was reached (Brown Supp. Aff., Exh. A, at 14); that the settlement did not "constitute an admission of liability . . . or inference of liability" (id., at 9); and that Rose was prepared to defend the malpractice action (id., at 14).
[5]For purposes of this motion, the Court accepts $584,854.42 as claimants' pro rata share of a $2 million settlement under the terms of the umbrella policy and the facts of this case, although the methodology applied to arrive at this figure seems inconsistent with claimants' explanation of the nature of their contractual obligations under this policy. In any event, whether this figure is accurate or not is irrelevant to the motion's outcome.
[6]In papers submitted in support of this motion, claimants specify a slightly lower sum; namely, $1,238,231.58 (see, Brown Aff., ¶ 32; Heath Aff., ¶ 44).
[7]As discussed in the text, in papers submitted in support of this motion, claimants specify a slightly higher sum as their contractual obligation; namely, $709,854.42.
[8]The Court assumes that this entire sum remained available at the time of the settlement since claimants do not allege that the aggregate for either the excess or the umbrella policy had been reduced or exhausted by payments of other losses occurring during the policy period. The Court further notes that the Fink litigation represented the "lone remaining claim under the policy year" (Brown Aff., Exh. G) at the time of the settlement.