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

Heading: Liability under the GenStar Policy

Text: The harder question is whether General Star is bound by the terms of its own policy with UFI to reimburse Mutual Marine. Under the terms of the GenStar policy, General Star was obligated to pay its insured for ultimate net loss in excess of the primary insurer's limit. According to the policy: Ultimate net loss means the total amount of damages for which the Insured is legally liable. Ultimate net loss may be established by adjudication, arbitration or a compromise settlement to which we have previously agreed in writing. GenStar Policy at ¶ 23. While General Star appears to have assumed that under Paragraph 23, the legal liability binding an insured could only be established by an adjudication, arbitration, or compromise settlement to which General Star agreed, [3] that is not what the provision says. It defines ultimate net loss as the total amount of damages for which the Insured is legally liable. It then provides that ultimate net loss, thus defined as an amount, may be established by adjudication, arbitration or a compromise settlement to which [General Star] ha[s] previously agreed in writing. In other words, as Mutual Marine appears to acknowledge, [4] it is the amount of damages for which the insured is legally liable that may be established by adjudication, arbitration or a compromise settlement to which [General Star] ha[s] previously agreed in writing, not the legal liability itself. The establishment of liability is the predicate to the applicability of the provision rather than being governed by it. [5] The preliminary issue that must be addressed on this appeal, then, is whether General Star's insured was legally liable for any amount, which liability would trigger the provision concerning the establishment of the amount of such liability. In other words, only if General Star's insured was legally liable does the question arise as to whether the amount of that liability was established in a manner consonant with the terms of the GenStar Policy.
The district court decided that the Ernish lawsuit, which resulted in the $2,175,000 judgment of liability against ITO and the City, was an adjudication of liability as to both ITO and the City and, ultimately, as to UFI if and when called upon to indemnify ITO and the City. Nat'l Union II, 2007 WL 2701990 at , 2007 U.S. Dist. LEXIS 68100 at . The district court concluded that General Star was obligated to reimburse Mutual Marine based on each of these alleged adjudications of liability.
The district court was obviously correct in finding that the Ernish lawsuit was an adjudication of liability as to ITO and the City, against whom the judgment was entered. It does not follow, however, that General Star is obligated to reimburse Mutual Marine on the basis of that adjudication. Mutual Marine brought this lawsuit against General Star based on UFI's rights, to which it had succeeded, not those of ITO and the City. Only the seventy-five percent share ostensibly apportioned to UFI in the First Agreement has ever been at issue in the litigation against General Star, and not the twenty-five percent share apportioned to ITO and the City. Indeed, three of the five cross-claims filed by Mutual Marine against General Star are based explicitly on rights belonging to UFI. See Am. Ans. to Sec. Am. Compl. ¶¶ 32-64. The fourth cross-claim includes mention of rights allegedly belonging to ITO and the City and their insurer, National Union, against General Star. See Am. Ans. to Sec. Am. Compl. ¶¶ 143-57. But in its motion papers before the district court, Mutual Marine explicitly disavowed the notion that it was basing a claim against General Star on claims belonging to ITO and the City. [6] To the extent that the fourth cross-claim mentions any rights of ITO and the City or their insurer against General Star, it does so as background for its assertion that the First Agreement  which the district court has already correctly found not to bind General Star directly  was beneficial to General Star. See generally Am. Ans. to Sec. Am. Compl. ¶¶ 143-157; see, e.g., Am. Ans. to Sec. Am. Compl. ¶ 146 (By virtue of the added Insured status of New York City and ITO . . . the [First Agreement]. . . reduced by 25% the possibility that any judgment would pierce [General Star's] excess umbrella layer of coverage.). Indeed, Mutual Marine's motion papers refer throughout to UFI, not ITO and the City, as the insured. Finally, the fifth cross-claim asserts a nebulous independent right against General Star allegedly belonging to Mutual Marine. Am. Ans. to Sec. Am. Compl. ¶ 159. It is not alleged to have ever belonged to ITO or the City. Thus Mutual Marine's position throughout this litigation has been that General Star is liable to it based on its insuring agreement with its insured UFI [which] obligated it to pay the sums UFI became obligated to pay as a result of an unquestionably covered loss. Mem. of Law in Opp'n to Mot. for Summ. J. at 11. That continues to be Mutual Marine's position on appeal. See Appellee's Br. 35 (describing Mutual Marine as seeking reimbursement for satisfy[ing][the] judgment . . . entered against UFI Fabricators, Inc.); id. at 39 (Mutual Marine properly showed the District Court that there was no question of fact but that General Star breached its duties to UFI and that Mutual Marine acquired UFI's right to recover for that breach by [General Star].). Mutual Marine is not pursuing any rights that may or may not have belonged to ITO and the City (or their insurers) based on their status as additional insureds. It is therefore immaterial for purposes of this lawsuit whether General Star has ever owed ITO and the City anything as additional named insureds under the GenStar Policy. That is not the claim that was made. The material question is whether there was an adjudication of liability against UFI, for which General Star would be obligated under the GenStar Policy to reimburse UFI. Since Mutual Marine does not assert rights in the place of ITO and the City against General Star, General Star is not liable to Mutual Marine on the basis of any direct obligation General Star may have had to ITO and the City arising out of the adjudication in the Ernish lawsuit against them.
The district court also concluded that the judgment against ITO and the City in the Ernish lawsuit was an `adjudication' of liability . . . ultimately[] of UFI if and when called upon to indemnify ITO and the City. Nat'l Union II, 2007 WL 2701990 at , 2007 U.S. Dist. LEXIS 68100 at  (parentheses omitted). We disagree. Following Ernish's filing of the suit against ITO and the City  as noted, he did not bring suit against UFI, his employer  ITO and the City filed a third-party action impleading UFI. They claimed that they were entitled to, inter alia, contractual indemnity, common law indemnity, and added insured status. But before this third-party action was litigated to a conclusion, ITO and the City reached a settlement with UFI, purportedly executed on its behalf by Mutual Marine  the First Agreement  disposing of the third-party action and dismissing all claims against UFI with prejudice. [7] By the time the Ernish suit was decided, then, UFI was no longer party to it. When the state trial court directed a verdict of liability against the defendants, ITO and the City, and the jury thereafter awarded damages of $3 million (reduced on appeal to $2,175,000), judgment was not entered against non-party UFI. The district court thought it puzzling that General Star would complain about the First Agreement because, in the court's view, absent the First Agreement, General Star would have been obligated to pay one-hundred percent of the Ernish judgment in excess of Mutual Marine's policy. Nat'l Union II, 2007 WL 2701990 at , 2007 U.S. Dist. LEXIS 68100 at . In the Ernish litigation, ITO and the City were held strictly liable for Ernish's injuries under New York's scaffolding law. See N.Y. Labor Law § 240(1); [8] Ernish, 2 A.D.3d at 256-58, 768 N.Y.S.2d at 325-26. Liability pursuant to this statute is not predicated on fault: it is imputed to the owner or contractor by statute and attaches irrespective of whether due care was exercised and without reference to principles of negligence. Brown v. Two Exch. Plaza Partners, 76 N.Y.2d 172, 179, 556 N.E.2d 430, 433, 556 N.Y.S.2d 991, 994 (1990) (internal citation omitted). While strict liability attaches under section 240(1), [i]t is well settled that an owner or general contractor who is held strictly liable under Labor Law § 240(1) is entitled to full indemnification from the party actually responsible for the incident. Frank v. Meadowlakes Dev. Corp., 6 N.Y.3d 687, 691, 849 N.E.2d 938, 940, 816 N.Y.S.2d 715 (2006) (internal quotation marks and citation omitted). Thus, if UFI was actually responsible for Ernish's injuries, it could have become liable to indemnify ITO and the City for the judgment against them. But that outcome was uncertain. A party seeking either contractual or common law indemnity must establish that it was free from any negligence and was held liable solely by virtue of the statutory liability. Correia v. Prof'l Data Mgmt., Inc., 259 A.D.2d 60, 65, 693 N.Y.S.2d 596, 600 (1st Dep't 1999); see also Brown, 76 N.Y.2d at 180-81, 556 N.E.2d 430, 556 N.Y.S.2d at 995 (discussing contractual indemnification). The district court properly acknowledged that under the GenStar Policy, if UFI could prove that ITO or the City were negligent in connection with the incident that caused Ernish's injuries, UFI would not have been obligated to indemnify ITO and the City for their losses. [9] Nat'l Union II, 2007 WL 2701990 at , 2007 U.S. Dist. LEXIS 68100 at . The terms of the GenStar Policy support that conclusion. [10] The district court found, nonetheless, and Mutual Marine urges on appeal, that there was no evidence in the record of negligence on the part of ITO or the City and that UFI therefore would not have been able to receive indemnification from them. Id. But the district court was in no position to make that finding at the summary judgment stage, as a matter of law. The question of any such negligence was not before the district court and there was therefore no basis for a belief that the record before the district court contained all possible evidence of such negligence. Put another way, the district court was making a finding in a lawsuit that was not before it  a hypothetical third-party action by ITO and the City against UFI that was litigated to the finish. Thus the Ernish adjudication was not tantamount to an adjudication of legal liability on the part of the relevant insured in this case, UFI. And without an establishment of legal liability, ultimate net loss could not be established either.
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]
We have considered General Star's other arguments on this issue and find them to be without merit.