Source: http://nycoveragecounsel.blogspot.com/2018/07/res-judicata-does-not-bar-injured.html
Timestamp: 2019-08-25 15:50:00
Document Index: 2622757

Matched Legal Cases: ['§ 3420', '§ 3420', '§ 3420', '§ 3420', '§ 3420', '§ 3420', '§ 3420', '§ 3420', '§ 3420', '§ 3420', '§ 3420', '§ 3420', '§ 3420', '§ 3420']

Coverage Counsel: Injured Party/Judgment Creditor Who Obtains Assignment of Insureds' Bad Faith Claim After Conclusion of Direct Action May Bring Second Action Against Liability Insurer
Injured Party/Judgment Creditor Who Obtains Assignment of Insureds' Bad Faith Claim After Conclusion of Direct Action May Bring Second Action Against Liability Insurer
HOMEOWNERS – LIABILITY – EXCESS JUDGMENT – STANDING – BAD FAITH – INSURANCE LAW 3420(A)(2) & (B)(1)
Corle v. Allstate Ins. Co.
(4th Dept., 6/8/2018)
Sometimes called New York's direct action statute, New York Insurance Law § 3420(b)(1) states:
(1) any person who, or the personal representative of any person who, has obtained a judgment against the insured or the insured's personal representative, for damages for injury sustained or loss or damage occasioned during the life of the policy or contract[.]
Teeter accidentally shoots Corle, and Corle sues Teeter. Allstate disclaims coverage to Teeter, asserting that the accidental shooting was not a covered loss under the policy. Corle proceeds with his personal injury action against Teeter and obtains a judgment of over $350,000 against him.
Corle then sues Allstate as a judgment creditor under Insurance Law § 3420 (a) (2) and (b) (1), and Supreme Court grants Corle's motion for summary judgment, holding that the shooting was a covered loss under Teeter's parents' homeowners insurance policy with Allstate, awarding Corle the policy's $50,000 limit.
This is not that action, however. This is Corle's second action against Allstate, commenced after the Teeters assigned their rights and claims against Allstate to Corle, who then sued Allstate for disclaiming coverage in bad faith.
Allstate moved to dismiss this action, arguing primarily that Corle should have taken the assignment and included his bad faith claim in his first action under Insurance Law § 3420(b)(1) against Allstate -- that Corle's judgment in that action for $50,000 was res judicata, barring any additional recovery against Allstate.
The Appellate Division, Fourth Department, disagreed:
Contrary to defendant's contention, we conclude that the failure of James [Corle] to litigate the bad faith claim in the earlier Insurance Law § 3420 (a) (2) action does not bar litigation of that claim in the instant action. "Under the doctrine of res judicata, a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter. The rule applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation . . . Additionally, under New York's transactional analysis approach to res judicata, once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy' " (Matter of Hunter, 4 NY3d 260, 269 [2005]; see O'Brien v City of Syracuse, 54 NY2d 353, 357 [1981]).
Insurance Law § 3420 (b) (1) provides that, "[s]ubject to the limitations and conditions of paragraph two of subsection (a) of this section, . . . any person who . . . has obtained a judgment against the insured or the insured's personal representative[] for damages for injury sustained . . . during the life of the policy or contract" may maintain an action against the insurer "to recover the amount of a judgment against the insured or his personal representative." Such 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" (§ 3420 [a] [2]).
We conclude that, under Insurance Law § 3420 (a) (2) and (b) (1), an injured party's standing to bring an action against an insurer is limited to recovering only the policy limits of the insured's insurance policy. Contrary to defendant's contention, we conclude that, if an injured party/judgment creditor seeks to recover from the insurer an amount above the insured's policy limits on a theory of liability beyond that created by Insurance Law § 3420 (a) (2), the statute does not confer standing to do so. However, if the insured assigns his or her rights under the insurance contract to the injured party/judgment creditor, then the injured party/judgment creditor may simultaneously bring a direct action against the insurer pursuant to Insurance Law § 3420 (a) (2) along with any other appropriate claim, including a bad faith claim, seeking a judgment in a total amount beyond the insured's policy limits.
Here, when James [Corle] commenced the prior action pursuant to Insurance Law § 3420 (a) (2) individually and on behalf of [his injured son,] Colin, the Teeters had not yet assigned their rights under the insurance contract to James and Colin. As a result, James did not have standing to bring a bad faith claim against defendant (cf. Bennion v Allstate Ins. Co., 284 AD2d 924, 924-926 [4th Dept 2001]). Thus, because James lacked standing to bring a bad faith claim against defendant at the time he brought the Insurance Law § 3420 (a) (2) action, we conclude that the doctrine of res judicata does not bar this action (see generally Hunter, 4 NY3d at 269; Summer v Marine Midland Bank, 227 AD2d 932, 934 [4th Dept 1996]), and defendant's motion insofar as it sought to dismiss the complaint pursuant to CPLR 3211 (a) (5) was properly denied.
In so holding, the Fourth Department declined to follow the holding on similar facts of the First Department in a 2010 case:
We recognize that the First Department held otherwise on similar facts in Cirone v Tower Ins. Co. of N.Y. (76 AD3d 883 [1st Dept 2010], lv denied 16 NY3d 708 [2011]). To the extent that the First Department in Cirone concluded that an injured person/judgment creditor who commenced an action against the insurer pursuant to Insurance Law § 3420 (a) (2) had standing to assert a bad faith settlement practices claim in that action in the absence of an assignment from the insured, we disagree with that conclusion and decline to follow Cirone.
The Fourth Department also concluded that. contrary to Allstate's argument, Corle's complaint in this action sufficiently stated a cause of action for insurer bad faith:
We reject defendant's further contention that the court erred in denying its motion insofar as it sought to dismiss the complaint under CPLR 3211 (a) (7), for failure to state a cause of action. Viewing the facts as alleged by plaintiffs in the light most favorable to them and affording plaintiffs all favorable inferences (see generally Whitebox Concentrated Convertible Arbitrage Partners, L.P. v Superior Well Servs., Inc., 20 NY3d 59, 63 [2012]), we conclude that plaintiffs sufficiently stated a cause of action for bad faith against defendant.
With the apparent split in appellate authority on res judicata issue, it remains to be seen whether Allstate will seek leave to appeal this decision to the New York Court of Appeals.
Posted by Roy A. Mura at 2:06 PM
Labels: Bad Faith, Direct Action, Homeowners, Insurance Law § 3420(a)(2), Insurance Law § 3420(b)(1), Res Judicata, Standing