Nadkos, Inc. v. Preferred Contractors Ins. Co., 6329

Citation162 A.D.3d 7,76 N.Y.S.3d 528
Decision Date03 May 2018
Docket Number6329,Index 651556/16
Parties NADKOS, INC., Plaintiff–Appellant, v. PREFERRED CONTRACTORS INSURANCE COMPANY RISK RETENTION GROUP LLC, Defendant–Respondent, Chesakl Enterprises, Inc., Defendant.
CourtNew York Supreme Court Appellate Division

162 A.D.3d 7
76 N.Y.S.3d 528

NADKOS, INC., Plaintiff–Appellant,
v.
PREFERRED CONTRACTORS INSURANCE COMPANY RISK RETENTION GROUP LLC, Defendant–Respondent, Chesakl Enterprises, Inc., Defendant.

6329
Index 651556/16

Supreme Court, Appellate Division, First Department, New York.

ENTERED: MAY 3, 2018


Melito & Adolfsen P.C., New York (S. Dwight Stephens and Ignatius John Melito of counsel), for appellant.

Diane Bucci, New York, for respondent.

Acosta, P.J., Manzanet–Daniels, Tom, Oing, Singh, JJ.

SINGH, J.

76 N.Y.S.3d 530

The issue on this appeal, and one of first impression for this Court, is whether a risk retention group's (RRG)1 failure to comply with the provision of Insurance Law § 3420(d)(2), requiring a timely notice of disclaimer, constitutes an unfair claim settlement procedure, prohibition of which is permitted under the federal Liability Risk Retention Act of 1986 (LRRA) ( 15 USC § 3901, et seq. ). We agree with Supreme Court that a foreign RRG, such as defendant Preferred Contractors Insurance Company Risk Retention Group LLC (PCIC), does not need to comply with Insurance Law § 3420(d)(2) because it is preempted by the LRRA.

This insurance coverage declaratory judgment action arises out of an accident that occurred on May 27, 2015 during a construction project in Brooklyn owned by 596 E19 Partners, LLC, which hired plaintiff Nadkos, Inc. as general contractor. Nadkos entered into a subcontract with defendant Chesakl Enterprises, Inc. to perform the structural steel work. Chesakl hired Mirkamel Vafaev as a subcontractor; he allegedly fell and was injured while performing work under his subcontract.

Pursuant to its subcontract with Nadkos, Chesakl obtained general liability insurance from PCIC, a RRG, naming 596 and Nadkos as additional insureds.

In July 2015, Vafaev commenced the underlying personal injury action in Kings County, against 596, Nadkos, Chesakl, and Oleksandr Nad, allegedly a principal of Nadkos, alleging negligence and violations of Labor Law §§ 200 and 241(6).

On August 25, 2015, Colony Insurance Company, the commercial general liability insurer of Nadkos, tendered the underlying lawsuit to Chesakl and PCIC for defense and indemnification. On September 1, 2015, PCIC denied coverage to Chesakl on the basis of several policy exclusions. On November 16, 2017, PCIC disclaimed coverage to Nadkos based on the same exclusions.

On November 17, 2015, Colony advised PCIC that it had not timely disclaimed as required by Insurance Law § 3420, and therefore PCIC had waived any coverage defenses as to Nadkos under its policy. Later that day, PCIC responded that it is a RRG organized under the laws of Montana, with a Montana choice of law provision in the policy that renders New York Insurance Law § 3420 inapplicable. PCIC further maintained that its policy is excess, with no duty to defend.

Nadkos commenced this action in Supreme Court, seeking a declaration that PCIC is obligated to defend and indemnify it, in addition to seeking reimbursement for incurred costs of defense and any indemnity payments made. PCIC moved for summary judgment declaring that it is not obligated to defend or indemnify Nadkos. Nadkos cross-moved for summary judgment declaring that PCIC must defend

76 N.Y.S.3d 531

and indemnify it. Supreme Court granted PCIC's motion for summary judgment, finding that the LRRA preempted New York Insurance Law § 3420(d)(2), and denied Nadkos' cross motion for summary judgment. Nadkos appeals.

The LRRA is not a comprehensive federal regulation of RRGs but, rather, is a "reticulated structure under which risk retention groups are subject to a tripartite scheme of concurrent federal and state regulation" ( Wadsworth v. Allied Professionals Ins. Co., 748 F.3d 100, 103 [2d Cir.2014] ). As it relates to state regulation, the LRRA permits the chartering state to regulate the formation and operation of RRGs and preempts most ordinary forms of regulation by the nondomiciliary states ( 15 USC § 3902 [a][1], [4] ). Therefore, the LRRA "sharply limits the secondary regulatory authority of nondomiciliary states over risk retention groups to specified, if significant, spheres" ( Wadsworth, 748 F.3d at 104 ).

One of the "significant spheres" that the LRRA permits non-domiciliary states to regulate is compliance with unfair claim settlement practices of that state (see 15 USC § 3902 [a][1][A] ).2 New York Insurance Law § 5904(d), which closely mirrors the LRRA, expressly requires foreign RRGs to "comply with the unfair claims settlement practices provisions as set forth in [ Insurance Law § 2601 ]."

Insurance Law § 2601 provides seven types of acts that, "if committed without just cause and performed with such frequency as to...

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2 cases
  • U.S. Underwriters Ins. Co. v. Image By J&K, LLC
    • United States
    • U.S. District Court — Eastern District of New York
    • August 14, 2018
    ...as in waiver, or on prejudice to the insured as in estoppel." Nadkos, Inc. v. Preferred Contractors Ins. Co. Risk Retention Grp. LLC , 162 A.D.3d 7, 12, 6 N.Y.S.3d 528 (2018) (quoting KeySpan Gas E. Corp. v. Munich Reinsurance Am., Inc. , 23 N.Y.3d 583, 590, 992 N.Y.S.2d 185, 15 N.E.3d 1194......
  • Nadkos, Inc. v. Preferred Contractors Ins. Co.
    • United States
    • New York Court of Appeals
    • June 11, 2019
    ...therefore section 3420(d)(2) does not apply to nondomiciliary PCIC ( Nadkos, Inc. v. Preferred Contrs. Ins. Co. Risk Retention Group LLC, 162 A.D.3d 7, 11–12, 76 N.Y.S.3d 528 [1st Dept. 2018] ). We granted Nadkos leave to appeal ( 32 N.Y.3d 905, 2018 WL 4440635 [2018] ).2 108 N.Y.S.3d 37713......

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