Court Opinion

ID: 3200695
Source: CourtListenerOpinion
Date Created: 2016-05-05 13:14:20.00114+00
Date Added: 2024-06-11T14:45:37.580069
License: Public Domain

This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 38
Millennium Holdings LLC,
            Plaintiff,
The Northern Assurance Company of
America,
            Appellant,
Certain Underwriters at Lloyd's,
et al.,
    Intervenors-Appellants,
         v.
The Glidden Company, &c., et al.,
            Respondents.
          Carl S. Kravitz, for appellant.
          Maura Monaghan, for respondents.
          United Policyholders; Complex Insurance Claims
Litigation Association, amici curiae.

ABDUS-SALAAM, J.:
          In this action, appellants insurance companies seek to
be subrogated to the right of their insured, plaintiff Millennium
Holdings LLC (Millennium), to indemnification against
respondents, the Glidden Company, now known as Akzo Nobel Paints
LLC, following the insurance companies' satisfaction of
Millennium's obligations pursuant to monetary settlements reached
in certain lead paint related cases.   The courts below, applying

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                               - 2 -                         No. 38

the antisubrogation rule, held that the insurance companies could
not subrogate.   We disagree, and hold that the antisubrogation
rule does not apply in this case.

                                I.
          The complex corporate history of the parties is central
to resolving this indemnification dispute.   The Glidden company,
incorporated in Ohio in 1917, made, marketed and sold lead paint,
including, until 1958, lead pigment.   Glidden was bought by SCM
Corporation (SCM) in 1967.   SCM placed Glidden's operations in a
division entitled the Glidden-Durkee Division.   Between 1962 and
1970, primary and excess insurance policies were issued to
Glidden, and thereafter the Glidden-Durkee Division of SCM, by
the appellant insurance companies, including certain underwriters
at Lloyd's, London and certain London Market Insurance Companies
(the London Insurers), as well as the predecessor of Northern
Assurance Company of America (collectively, where appropriate,
the Insurers).   A number of the policies issued between 1963 and
1968 provide the Insurers with a right to subrogation, whereby,
after paying a claim on behalf of its insured, an insurer may
seek to enforce the insured's rights against another entity to
recover its loss (see Federal Ins. Co. v Arthur Andersen & Co.,
75 NY2d 366, 372 [1990]).
          In 1986, Hanson Trust PLC purchased SCM in a hostile

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                                 - 3 -                         No. 38

takeover.1     SCM adopted a Plan of Liquidation and Dissolution,
where it distributed its remaining assets and liabilities between
20 "fan companies," entitled HSCM 1 through 20.     SCM placed the
assets and liabilities of the Glidden paints business into
HSCM-6.     SCM memorialized this distribution in a Memorandum of
Distribution and Liquidation which expressly noted that the
insurance policies issued to Glidden and SCM were excluded from
the distribution to HSCM-6.     Thus, the insurance policies that
were issued to SCM and Glidden were not included in the assets of
the Glidden paints business which were distributed to HSCM-6.
Following the distribution of assets to HSCM-6, the stock of
HSCM-6 and all remaining undistributed assets of SCM were placed
in HSCM-20, including the insurance policies issued by the
Insurers.2
             As relevant to this appeal, the critical moment in the
corporate history of the parties occurred in 1986, when HSCM-20
entered into a purchase agreement under which it sold all the
stock in HSCM-6 to ICI American Holdings (1986 Purchase
Agreement).     Although ICI American Holdings held all the HSCM-6
stock, HSCM-20 retained the insurance policies.     The 1986
Purchase Agreement also included certain indemnity obligations,

       1
        Prior to Hanson's acquisition of SCM, SCM placed its
pigments business into a subsidiary, ABC Chemicals Inc. SCM
retained its paints business.
       2
           This distribution to HSCM-20 also included ABC Chemicals
Inc.

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                              - 4 -                         No. 38

due to successor liability concerns.   Under section 9.1 (c) of
the 1986 Purchase Agreement, HSCM-20 agreed to indemnify ICI
American Holdings for an eight-year period between 1986 and 1994
for claims arising from:
          "product safety or liability, health or
          welfare conditions or matters arising from or
          relating to acts, omissions, events or
          conditions of or relating to the Business,
          the Predecessor Business or the Former
          Business occurring or existing prior to the
          Closing or otherwise arising out of or
          relating to the conduct of the Business, the
          Predecessor Business or the Former Business
          prior to the Closing."3
          Under section 9.3 of the 1986 Purchase Agreement, ICI
American Holdings agreed to indemnify HSCM-20 after 1994,
          "from, against, and in respect of any Claims
          relating to the Business arising from or
          relating to the acts, omissions, events or
          conditions of or relating to the Business,
          the Predecessor Business or the Former
          Business occurring or existing prior to, on
          or after the Closing or otherwise arising out
          of or relating to the conduct of the
          Business, the Predecessor Business or the
          Former Business prior to, on or after the
          Closing arising against Indemnitees for
          matters referred to in Section 9.1 (b), 9.1
          (c) or 9.1 (e) to the extent that [ICI
          American Holdings] would not be entitled to

     3
        HSCM-20 and ICI American Holdings agreed that the amount
of the indemnity for this initial eight-year period would
decrease gradually, until it expired in 1994.

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                              - 5 -                          No. 38

          indemnity under Sections 9.14 and 9.2.5"
          Through a series of corporate transactions, HSCM-20
became plaintiff Millennium, and ICI American Holdings assigned
HSCM-6 to an entity that became Akzo Nobel Paints (ANP).
Accordingly, based on the 1986 Purchase Agreement, Millennium and
its predecessors were required to indemnify ANP and its
predecessors from 1986 to 1994.   In turn, ANP and its
predecessors were required to indemnify Millennium and its
predecessors from 1994 onward.6
          Commencing in 1987, a number of lawsuits were filed
across the nation against the predecessors of Millennium and ANP,
alleging either personal injury or property damage from the lead
paint they produced, or that the lead paint was a public nuisance
requiring abatement (hereinafter the Lead Cases).    Between 1987

     4
        Section 9.1 concerns the indemnification obligations of
HSCM-20, as the seller, and defines Business, Predecessor
Business, and Former Business. Those definitions are not
relevant for purposes of this appeal.
     5
        Section 9.2 outlines the periods applicable to and the
limitations upon HSCM-20's indemnification obligations.
     6
        At the same time the 1986 Purchase Agreement was entered
into, Hanson -- the purchaser of SCM -- attempted to enter into a
Side Letter Agreement, under which it purported to provide ICI
American Holdings with the benefit of the insurance policies that
had applied to SCM and Glidden. Notably, this transfer was later
invalidated by the Ohio Supreme Court in an indemnity action
between Glidden and certain comprehensive general liability
insurers. That Court held that Hanson was not a named insured in
the relevant policies and consequently could not transfer the
policies to ICI American Holdings (see Glidden Co. v Lumbermens
Mut. Cas. Co., 112 Ohio St 3d 470, 477 [Ohio 2006]).

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                                - 6 -                         No. 38

and 1994, pursuant to the 1986 Purchase Agreement's
indemnification provision, ANP's predecessors were indemnified by
Millennium's predecessors for their defense costs in the Lead
Cases.   However, when the indemnity obligation flipped in 1994,
ANP's predecessor refused to indemnify Millennium's predecessor,
claiming it was not obligated to do so under the 1986 Purchase
Agreement.    As a result, in 1994, ANP's predecessor and
Millennium's predecessor commenced actions against each other in
both New York and Ohio state courts to resolve the dispute.7
That litigation settled in 2000, and the settlement agreement
incorporated a Novation Agreement, whereby ANP acquired ICI
American Holdings's indemnity obligation under section 9.3 of the
1986 Purchase Agreement.    The parties amended the 1986 Purchase
Agreement consistent with the settlement (the Amended Purchase
Agreement).    The settlement, however, expressly left open the
parties' indemnification obligations regarding the Lead Cases.
           During pendency of the 1994 litigation, the London
Insurers agreed to pay the defense costs of both Millennium and

     7
        ANP's predecessor essentially argued that it was not
obligated to indemnify Millennium's predecessor for "pigment"
claims versus "paint" claims; in ANP's predecessor's view, since
the remnants of any of Glidden's pigments business had been
transferred to ABC Chemicals prior to ICI American Holdings's
purchase of HSCM-6, the indemnification provisions did not cover
pigment claims. Apparently, plaintiffs in the Lead Cases made
distinctions between lead-based paint and lead-pigment
manufacturers, generally pursuing lead-pigment manufacturers
rather than lead-based paint manufacturers due to difficulty in
determining the actual manufacturers for the paint at issue.

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ANP under an Interim Defense Agreement.   However, the London
Insurers terminated that funding agreement in 2000, and sought a
declaration in Ohio state court that they were not required to
provide ANP with a defense and indemnification in the Lead Cases,
based on the subject policies.    In 2006, the Ohio Supreme Court
held that ANP was not covered under the relevant policies "by
operation of law or by contract," as it was not a named insured
on any of the relevant policies and, additionally, its subsequent
purchase of HSCM-6 included an assumption of liabilities (Glidden
Co. v Lumbermens Mut. Cas. Co., 112 Ohio St 3d 470, 470, 474-475
[Ohio 2006]).8
          Thereafter, in 2008, Millennium commenced this action
seeking indemnification from ANP for fees and claims associated
with the Lead Cases.9   After procedural history not directly
relevant here, ANP asserted certain counterclaims.10   The London
Insurers filed a motion to intervene in the action.    While that
motion was pending, Millennium's settlement of a California lead

     8
        As mentioned, this decision also invalidated Hanson's
Side Letter Agreement attempting to provide ICI American Holdings
with the benefits of SCM's insurance policies.
     9
        Subsequently, in January 2009, Millennium filed for
chapter 11 bankruptcy.
     10
        Specifically, ANP counterclaimed for a declaration that
it was not obligated to indemnify Millennium for pigment-related
claims. It also alleged that Millennium had made
misrepresentations in the 1986 Purchase Agreement which entitled
it to set-off any indemnification claims. Additionally, ANP
asserted two causes of action for breach of Millennium's
contractual obligation to indemnify ANP.

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case, referred to as the Santa Clara Action, was approved by the
federal bankruptcy court for the sum of $8.5 million.   The London
Insurers contributed approximately $2.8 million and Northern
Assurance contributed approximately $370,000 (roughly $3.2
million collectively) to Millennium's satisfaction of this
settlement.   Millennium and ANP then entered into a settlement
agreement to resolve their claims in this action, under which ANP
agreed to pay Millennium $3 million in satisfaction of all claims
between them, and to terminate any obligations under the Amended
Purchase Agreement.   The settlement agreement did not impact the
Insurers' subrogation rights under the 1986 Purchase Agreement.
           Following execution of that settlement agreement,
Supreme Court granted the London Insurers' earlier motion to
intervene in this action, and thereafter Millennium and the
London Insurers filed a second amended complaint.   The London
Insurers sought a declaration that they were entitled to
subrogate (both equitably and contractually) to Millennium's
indemnification rights in the 1986 Purchase Agreement and, as a
result, recover from ANP amounts that were paid by the London
Insurers on behalf of Millennium in connection with the Lead
Cases.11   At that juncture, the London Insurers' claim against
ANP for subrogation was the only remaining claim in this action,
as ANP and Millennium's settlement resolved the claims between

     11
        The Insurers assert that they have paid over $15 million
to Millennium in connection with the Lead Cases.

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them.     Later, Northern Assurance joined this action as a
plaintiff when its separate indemnification action against ANP,
seeking its contribution to the Santa Clara Settlement, was
consolidated with this action.     The Insurers moved for partial
summary judgment on liability and ANP cross-moved for summary
judgment dismissing the complaints.12     Specifically, as relevant
here, ANP argued, and the courts below agreed, that the Insurers'
subrogation claim was barred by the exception to subrogation --
the antisubrogation rule.     Although Supreme Court determined that
under the 1986 Purchase Agreement ANP was not an insured, it
concluded that because the Insurers sought to recover for the
very risk they insured, the antisubrogation rule would prohibit
the Insurers' right of subrogation.      The Appellate Division
affirmed for the reasons stated by Supreme Court (see 121 AD3d
444 [1st Dept 2014]), and we now reverse.

     12
        Prior to oral argument on the summary judgment motions
in Supreme Court, an Ohio state trial court decided a pending
action, wherein the Insurers sought to recoup their respective
contributions to the Santa Clara Settlement from Millennium. The
court held that the Insurers' settlement payment in the Santa
Clara action was not required under the relevant policies, and
thus was a voluntary payment. The court there reasoned that
because the nuisance claim advanced by the Santa Clara plaintiffs
was for "remediation of a public health hazard" not "an action
for damages for injuries caused to plaintiffs' property,"
coverage for that claim was unavailable because the policies
issued by the Insurers covered property damage, rather than
public health hazards. Thus, the court concluded that because
the Insurers were not required to make the settlement payment,
they were not entitled to reimbursement from Millennium of their
$3.2 million contribution. The Insurers did not appeal this Ohio
court order.

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                                 II.
          Subrogation, generally, may arise either contractually
or under the doctrine of equitable subrogation.    The purpose of
subrogation is to "allocate[] responsibility for the loss to the
person who in equity and good conscience ought to pay it, in the
interest of avoiding absolution of a wrongdoer from liability
simply because the insured had the foresight to procure insurance
coverage" (North Star Reins. Corp. v Continental Ins. Co., 82
NY2d 281, 294 [1993]).    Equitable 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'" (ELRAC, Inc. v
Ward, 96 NY2d 58, 75 [2001], quoting North Star Reins. Corp., 82
NY2d 281, 294 [1993] [additional internal quotation marks
omitted]).   Subrogation rights may also be preserved by the
parties to a contract -- as is the case in some of the insurance
policies at issue here.
          However, the antisubrogation rule is an exception to
the right of subrogation (see Pennsylvania Gen. Ins. Co. v Austin
Powder Co., 68 NY2d 465, 468 [1986]).    Under that rule, "an
'insurer has no right of subrogation against its own insured for
a claim arising from the very risk for which the insured was
covered . . . even where the insured has expressly agreed to
indemnify the party from whom the insurer's rights are derived'"

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(ELRAC, Inc., 96 NY2d at 76, quoting Pennsylvania Gen. Ins. Co.,
68 NY2d at 468).   In effect, "an insurer may not step into the
shoes of its insured to sue a third-party tortfeasor . . . for
damages arising from the same risk covered by the policy" (ELRAC,
Inc., 96 NY2d at 76), even where there is an express subrogation
agreement (see Jefferson Ins. Co. of N.Y. v Travelers Indem.
Co.,92 NY2d 363, 373 [1998]).    The two primary purposes of the
antisubrogation rule are to avoid "a conflict of interest that
would undercut the insurer's incentive to provide an insured with
a vigorous defense" and "to prohibit an insurer from passing its
loss to its own insured" (id.).
          Insurers are barred under the antisubrogation rule from
seeking subrogation from a named insured or additional insureds
(see Pennsylvania Gen. Ins. Co., 68 NY2d at 471).    Conversely,
subrogation is typically permissible where the third party is not
a named or additional insured (see e.g. St. John's Univ., N.Y. v
Butler Rogers Baskett Architects, P.C., 92 AD3d 761, 764 [2d Dept
2012]; Utica Mut. Ins. Co. v Brooklyn Navy Yard Dev. Corp., 52
AD3d 821, 822-823 [2d Dept 2008]; Insurance Corp. of N.Y. v
Cohoes Realty Assoc., L.P., 50 AD3d 1228, 1230 [3d Dept    2008]).
In Jefferson Ins. Co., however, where an insurer sought
subrogation against a permissive operator of a covered vehicle,
we held that the antisubrogation rule applied even though the
permissive user was not specifically named as an insured or an
additional insured, and despite the operator's agreement to

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indemnify the named insured.   We reasoned that, although the
operator was not named on the policy, the operator qualified as
an insured because the policy covered permissive users of the
vehicle, and that the distinction between a named insured and a
permissive user was "immaterial for purposes of application of
the antisubrogation rule" (id. at 375).   Accordingly, we
concluded that application of the antisubrogation rule was
appropriate, observing that the insurer "should not [have] be[en]
surprised to pay claims that it covered" (id.).
          The antisubrogation rule, therefore, requires a showing
that the party the insurer is seeking to enforce its right of
subrogation against is its insured, an additional insured, or a
party who is intended to be covered by the insurance policy in
some other way, such as the permissive user in Jefferson.     Here,
as recognized by the courts below, ANP and its predecessor were
not insured under the relevant insurance policies.    When SCM
transferred the assets and liabilities of its paints business to
HSCM-6 (ANP's predecessor), the insurance policies that had
applied to SCM were specifically excluded from that distribution.
The insurance policies were placed in HSCM-20, a predecessor of
Millennium.   Hence, ANP was never insured by the Insurers.   Thus,
the principal element for application of the antisubrogation rule
-- that the insurer seeks to enforce its right of subrogation
against its own insured, additional insured, or a party intended
to be covered by the insurance policy -- is absent.

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                              - 13 -                         No. 38
          Despite concluding, as we do here, that ANP was not
insured by the Insurers, the courts below determined that, based
on Jefferson, the antisubrogation rule should apply.   However,
our holding in that case did not extend application of the
antisubrogation rule to non-insured parties, for in Jefferson,
the vehicle operator was insured as a permissive user because the
policy expressly covered permissive users.   In this case, ANP was
not covered by the Insurers, and thus Jefferson is
distinguishable.
          The essential element of the antisubrogation rule is
that the party to which the insurer seeks to subrogate is covered
by the relevant insurance policy.   The rule also requires that
the insurer seek to enforce its right of subrogation against that
covered party on a risk insured by the policy (see Pennsylvania
Gen. Ins. Co., 68 NY2d at 468).   If we were to extend application
of the antisubrogation rule to all non-covered third parties, an
insurer who fulfills its obligation to pay on the risks insured
by the relevant policy would essentially be foreclosed from the
ability to subrogate.   For this reason it is essential, absent a
policy reason supporting application of the antisubrogation rule,
that the third party against whom the insurer seeks to exercise
its right of subrogation is not covered by the relevant insurance
policy.
          The contexts in which courts of this state have
extended the antisubrogation rule to third parties who are not

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                               - 14 -                         No. 38
covered by the insurance policy are limited and distinguishable
from this circumstance.    The application of the antisubrogation
rule in those cases was primarily based on a policy concern --
namely, the existence of a conflict of interest, one of the
primary purposes underlying the antisubrogation rule.   Thus, the
antisubrogation rule has been applied by the Appellate Division
Departments to an insured's employee for whom the insured is
vicariously liable (see Medical Liab. Mut. Ins. Co. v Schurig,
211 AD2d 518, 518 [1st Dept 1995], lv denied 86 NY2d 703 [1995]),
an insured property owner's real estate managers (see Kerr v
Louisville Hous., 2 AD3d 924, 927 [3d Dept 2003]), and the
president and principal shareholder of a closely held corporation
(see Fireman's Ins. Co. of Newark, N.J. v Wheeler, 165 AD2d 141,
144-145 [3d Dept 1991]).   Here, however, the policy concerns
underpinning the antisubrogation rule are not implicated as no
conflict of interest arises.   Since ANP is not an insured, there
is no risk that the Insurers will shirk their obligation to one
insured in favor of the other.   There is no reason to apply the
antisubrogation rule under these facts, and the courts below
erred in granting ANP's motion for summary judgment on that
basis.
          Accordingly, the order of the Appellate Division should
be reversed, with costs, ANP's motion for summary judgment on its
antisubrogation defense is denied, and the case remitted to the
Appellate Division for consideration of issues raised but not

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determined on the appeal to that court.
*   *   *   *   *     *   *   *     *      *   *   *   *   *   *   *   *
Order reversed, with costs, motion by The Glidden Company n/k/a
Akzo Nobel Paints LLC for summary judgment on its antisubrogation
affirmative defense denied and case remitted to the Appellate
Division, First Department, for consideration of issues raised
but not determined on the appeal to that court. Opinion by Judge
Abdus-Salaam. Chief Judge DiFiore and Judges Pigott, Rivera,
Stein and Fahey concur. Judge Garcia took no part.

Decided May 5, 2016

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