Opinion ID: 1192306
Heading Depth: 3
Heading Rank: 2

Heading: Establishment of Liability Pursuant to the First Agreement.

Text: Although the Ernish adjudication did not establish the legal liability of UFI for Ernish's judgment, the First Agreement itself may have. If it was properly executed by Mutual Marine on behalf of UFI and rendered UFI liable for three-quarters of the judgment against ITO and the City, then the Ernish adjudication would have determined not liability, but the amount for which UFI was legally liable, thereby constituting an ultimate net loss for which General Star was liable under its policy. [11] In other words, it is possible that the First Agreement, which preceded the Ernish adjudication, provided that UFI was 75% liable for the underlying accident at issue in the adjudication, and the adjudication itself then determined the amount for which UFI was legally liable. At first blush, using the First Agreement to establish the legal liability of UFI would appear to violate the condition in the GenStar Policy that [n]o insureds will, except at their own cost, voluntarily make a payment, assume any obligation, or incur any expense without our consent, GenStar Policy, Section V, ¶ 5(d). But as Mutual Marine argues and General Star appears to concede, General Star never issued a disclaimer to that effect, as it was required to do under N.Y. Ins. Law § 3420(d)(2). [12] See Reyes v. Diamond State Ins. Co., 35 A.D.3d 830, 831, 827 N.Y.S.2d 263 (2d Dep't 2006) (An insurer must give written notice of a disclaimer of coverage as soon as is reasonably possible [pursuant to N.Y. Ins. Law § 3420] after it first learns of the accident or of grounds for disclaimer of liability or denial of coverage. This rule applies not only to an insurer's disclaimer of primary insurance coverage, but to a disclaimer of excess coverage as well.) (internal quotation marks and citations omitted); see also Mann v. Gulf Ins. Co., 3 A.D.3d 554, 556, 771 N.Y.S.2d 176 (2d Dep't 2004). General Star argues that it was not required to disclaim coverage because [d]isclaimer pursuant to Insurance Law section 3420(d) is unnecessary when a claim falls outside the scope of the policy's coverage portion. See Appellant's Reply Br. 3 (quoting Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 188, 712 N.Y.S.2d 433, 435, 734 N.E.2d 745 (2000) (internal quotation marks and alterations omitted)). But it bases this argument on the notion that Section VI, Paragraph 23 of the GenStar Policy limited the ways UFI's legal liability, rather than simply the amount of such liability, could be established, see Appellant's Reply Br. 3-4, a notion that is incorrect. As we have explained, it did not. General Star does not argue that Paragraph 5(d) alone would take the First Agreement outside the scope of the policy's coverage portion such that disclaimer would be unnecessary, and such an argument would fail because Paragraph 5(d) is a self-proclaimed policy condition that is plainly in the nature of an exclusion, for which disclaimer is required, and is not part of the coverage portion of the GenStar Policy. See Columbia Cas. Co. v. Nat'l Emergency Servs., Inc., 282 A.D.2d 346, 347, 723 N.Y.S.2d 473 (1st Dep't 2001) (It is settled that failure by the insurer to give written notice of disclaimer based on an exclusion or failure to comply with a policy condition as soon as is reasonably possible renders the disclaimer ineffective.) (emphasis added, internal citation omitted); cf. Zappone v. Home Ins. Co., 55 N.Y.2d 131, 134-35, 447 N.Y.S.2d 911, 432 N.E.2d 783 (1982) (concluding that insurer did not have to disclaim coverage for accident involving automobile that was not the subject of the insurance policies in question). Therefore Section V, Paragraph 5(d) of the GenStar Policy does not foreclose the possibility that the First Agreement established UFI's liability and thereby, in conjunction with the Ernish litigation, obligated General Star to reimburse Mutual Marine for the excess Mutual Marine paid over its policy limit to cover UFI's share of the judgment. General Star also argues, however, that it was not required to issue a disclaimer because UFI[] disavowed any obligation under the first settlement agreement. As such [sic], this agreement could not create any obligation to disclaim coverage to UFI or Mutual Marine. Appellant's Reply Br. 6 (emphasis in original, internal citations omitted). In letters sent to Mutual Marine prior to litigation in this matter, UFI represented that it had never authorized Mutual Marine to execute the First Agreement on its behalf. The letters, also sent on behalf of General Star, state that it remains clear and indisputable  in fact Mutual Marine does not even argue to the contrary  [] that neither General Star nor [UFI] ever authorized Mutual Marine to execute the so-called [First Agreement] on their behalf, Jun. 19, 2002 Letter at 1, and neither General Star nor principals of [UFI] ever gave permission or express authorization for Mutual Marine to execute th[e] [First Agreement] on their behalf. Letter from General Star and UFI to Mutual Marine, at 1 (May 10, 2002). Handwritten notes allegedly written by Mutual Marine's Loss Secretary prior to the execution of the Second Agreement regarding National Union's action against Mutual Marine, General Star, and UFI, indicate, moreover, that Mutual Marine was concerned about the availability to General Star of an argument that UFI never consented to the First Agreement. According to the notes, [there is] [n]o way [UFI] will be left without insurance so it[']s MMO [Mutual Marine] v. Gen[eral] Star. If Gen[eral] Star get[s][UFI] on its side, [its] position will be that [Mutual Marine] took upon itself to incur exposure past its limit  without properly advising [UFI]. Paul Smith Handwritten Notes, May 2, 2005, Declaration of Natasha Van Der Griendt in Opp. to Mot. for Summ. J., Ex. M, Nat'l Union Fire Ins. Co. of La. v. Universal Fabricators, Inc., No. 05 Civ. 3418(SAS) (S.D.N.Y. Apr. 27, 2007) (Doc. No. 42). Plainly, if UFI was never bound by the First Agreement, that agreement could establish no legal liability on the part of UFI for which General Star would be liable under the GenStar Policy. In that case, there would also be no need for General Star to have disclaimed. See Zappone, 55 N.Y.2d at 138-39, 447 N.Y.S.2d at 911, 432 N.E.2d 783 ([T]he Legislature in using the words `denial of coverage' did not intend to require notice when there never was any insurance in effect, and intended by that phrase to cover only situations in which a policy of insurance that would otherwise cover the particular accident is claimed not to cover it because of an exclusion in the policy.); cf. Matter of Arbitration Between State Farm Mut. Auto. Ins. Co. (Merrill), 192 A.D.2d 824, 825, 596 N.Y.S.2d 554, 555 (3d Dep't 1993) (It is true that an insurance company is not subject to the timely disclaimer provisions contained in [N.Y.] Insurance Law § 3420(d) where no coverage existed under the policy.). Because it granted summary judgment on the grounds of the Ernish adjudication alone, the district court appears not to have decided whether the First Agreement established the legal liability of UFI and thereby obligated General Star to reimburse Mutual Marine in this action in an amount determined by the outcome of the Ernish adjudication. Inasmuch as the answer to this question depends on the factual question of whether UFI was ever bound by the First Agreement, we think it is a question best left to the district court to answer in the first instance. [13]