Opinion ID: 758543
Heading Depth: 3
Heading Rank: 3

Heading: Direct Actions by Claimants Against Marine Indemnity Insurers

Text: 43 It is obvious for reasons previously stated that the Claimants are the only parties with an interest in the indemnification from American Club. Our holding is therefore independently supported by the doctrine of New York law that bars direct actions by claimants against marine indemnity insurers. See Ahmed, 444 F.Supp. at 572 (Under New York common law, an insurer under an indemnity insurance policy is not liable to an injured person who has obtained a judgment against the insured even though the insured is insolvent and cannot pay the judgment.). Although New York has broadly altered this common law rule by statute, the statute expressly preserves application of the common law rule to marine insurance contracts, such as P & I policies. See N.Y. Insur. Law § 3420(i) (McKinney 1985) (referencing § 2117(b)(3) which incorporates marine insurance contracts); Ahmed, 640 F.2d at 995-96. The exception was consciously made by the New York legislature to eliminate a perceived competitive disadvantage to which New York's marine insurers were placed by the direct action statute. Miller v. American Steamship Owners Mut. Protection and Indem. Co., 509 F.Supp. 1047, 1049 (S.D.N.Y.1981). 44 We have previously barred a suit by an insured's judgment creditor against a marine policy on the ground that the suit closely resembled a direct action. See Wabco Trade Co. v. S.S. Inger Skou, 663 F.2d 369, 371 (2d Cir.1981) (holding that N.Y. C.P.L.R. § 5201(a), which provides for a money judgment against any debt, affords no basis for maintaining a direct action against a marine insurer of a judgment debtor); see also Cowan v. Continental Ins. Co., 86 A.D.2d 646, 647, 446 N.Y.S.2d 412, 414 (2d Dep't 1982) (noting that judgment creditor of insured could not bring declaratory judgment against insured's insurer). We will not permit the Claimants, who are the only parties in interest, to evade this bar via an illusory transaction that is of no financial consequence or interest to Prudential as the supposed insured. 45 New York's approach to insolvent insureds under the common law rule barring direct actions is quite categorical and firm in terms of the type of actual loss required to trigger an indemnification obligation: 46 [I]f the insured was insolvent, so that the person injured or the estate of one killed was unable to satisfy the judgment against him, the insurer in effect would be released. The policy being one of indemnity against loss suffered by the principal, it followed that the insured having suffered no damage, there was no loss for the insurer to indemnify. 47 Jackson v. Citizens Cas. Co., 277 N.Y. 385, 389, 14 N.E.2d 446 (1938); see 175 East 74th Corp. v. Hartford Accident & Indem. Co., 51 N.Y.2d 585, 591, 435 N.Y.S.2d 584, 586, 416 N.E.2d 584 (1980) (The insolvency or bankruptcy of an insured, which prevented payment, necessarily relieved the insurer of any obligation to the insured and the injured party was left without a source of recovery.); see also In re F.O. Baroff Co., 555 F.2d 38, 41 (2d Cir.1977) (noting that prior to the enactment of the direct action statute, courts held that in the event of his bankruptcy, the insured, although liable to a third person, suffered no loss since he was unable to pay the one he had injured. Because the insured had not sustained a loss, the insurance company had no liability to the insured.). Thus, as the law stood under New York common law--and as it still stands in relation to marine insurance policies--the insured's lack of assets to satisfy claims against the bankrupt estate typically leaves the insured unable sustain a loss and pay the claim. This is simply one consequence of purchasing a marine policy of indemnity rather than a liability policy.