Allianz Ins. Co. v. Lerner

• Decision Date: 02 August 2005
• Docket Number: Docket No. 04-2240-CV.
• Citation: 416 F.3d 109
• Parties: ALLIANZ INSURANCE COMPANY, as Subrogee of Mercedes Benz Credit Corporation, Plaintiff-Appellee, v. Regina LERNER, Isabella Lerner and Dimitry Lerner, Defendants-Third-Party Plaintiffs-Counter-Claimants-Appellants, Robert Tusa, Frank V. Merlino and Allstate Insurance Company, Third-Party Defendants-Counter-Claimants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

Page 109

416 F.3d 109

ALLIANZ INSURANCE COMPANY, as Subrogee of Mercedes Benz Credit Corporation, Plaintiff-Appellee, v. Regina LERNER, Isabella Lerner and Dimitry Lerner, Defendants-Third-Party Plaintiffs-Counter-Claimants-Appellants, Robert Tusa, Frank V. Merlino and Allstate Insurance Company, Third-Party Defendants-Counter-Claimants-Appellees.

Docket No. 04-2240-CV.

United States Court of Appeals, Second Circuit.

Argued: February 8, 2005.

Decided: August 2, 2005.

David Ginsberg, Ginsberg, Becker & Weaver, LLP, New York, NY, for Plaintiff-Appellee.

Josh H. Kardisch, Kardisch, Link & Associates, P.C., Rockville Centre, NY, Alan Jay Martin, New York, NY, for Defendants-Third-Party Plaintiffs-Counter-Claimants-Appellants.

Michael G. Kruzynski, Lewis Johs Avallone Aviles & Kaufman, LLP, Melville, NY, for Third-Party Defendants-Counter-Claimants-Appellees.

Before: McLAUGHLIN, HALL, and GIBSON,¹ Circuit Judges.

McLAUGHLIN, Circuit Judge.

This complex multi-party action arises out of a car accident in New York involving a leased vehicle. It highlights the various liability issues that often arise among a lessor, a lessee, and their respective insurers. These issues include: the vicarious liability of a lessor for the negligence of its lessee; the concomitant right of a lessor to seek indemnification from its lessee; and the separate duties of a lessee's insurer to defend and indemnify its insured.

Regina Lerner ("Lerner"), Isabella Lerner ("Isabella"), and Dimitry Lerner ("Dimitry") (collectively, "defendants") appeal from a judgment of the United States District Court for the Eastern District of New York (Wexler, J.), granting summary judgment to Allianz Insurance Company ("Allianz"). Allianz Ins. Co. v. Lerner, 296 F.Supp.2d 417 (E.D.N.Y.2003) ("Allianz I"). Lerner separately appeals from the entry of summary judgment in favor of Allstate Insurance Company ("Allstate") and her former attorneys Robert Tusa and Frank V. Merlino (together, "Attorneys"), dismissing her third-party complaint against those third-party defendants. Allianz Ins. Co. v. Lerner, 305 F.Supp.2d 191 (E.D.N.Y.2004) ("Allianz II").

For the reasons that follow:

(1) We affirm the award of summary judgment to Allianz in the original action and to the Attorneys in the third-party action;

(2) We reverse, in part, the award of summary judgment to Allstate; and

(3) We remand to the district court with instructions: (a) to enter partial summary judgment for Lerner on her claim for breach of the duty to defend; and (b) to conduct further proceedings consistent with this opinion.

BACKGROUND

I. Facts

In May 1998, Lerner leased a new car from Mercedes Benz Credit Corporation ("MBCC"). To protect itself from damages arising out of the use of the leased car, MBCC maintained insurance coverage with Allianz. Isabella signed the lease agreement ("Lease") as a co-lessee; Dimitry agreed to be the guarantor. The Lease required the lessees to obtain liability insurance for the vehicle in the amount of at least $100,000 per person and $300,000 per occurrence for bodily injury and death.

The Lease also contained an indemnity provision, stating that if MBCC is "subjected to any claims, losses, injuries, expenses, or costs related to the use, maintenance or condition of the vehicle," the lessees "will pay all of [MBCC's] resulting costs and expenses, including attorneys' fees."

As required by the Lease, Lerner obtained the $100,000 per person minimum amount of liability insurance from Allstate, her insurer. The Allstate insurance policy provides:

Allstate will pay for all damages a person insured is legally obligated to pay—because of bodily injury or property damage....

Under these coverages, your policy protects a person insured from claims for accidents arising out of the ownership, maintenance or use, loading or unloading of the auto we insure.

We will defend a person insured if sued as the result of a covered auto accident. This defense will be supplied even if the suit is groundless, false or fraudulent. We will defend that person at our own expense, with counsel of our choice and, may settle any claim or suit if we feel this is appropriate.

In June 1998, Lerner drove through a red light in New York and collided with a car owned and operated by Robert Baron. Robert Baron's twelve-year-old son, Andrew, was a passenger and he sustained injuries.

II. State Court Action

In September 1998, Andrew Baron's mother commenced a personal injury action on Andrew's behalf in the New York Supreme Court, Nassau County ("State Court Action"). The defendants included Robert Baron, Lerner, and MBCC. Robert Baron and Lerner were named as negligent drivers; MBCC was sued as the owner of the Mercedes Benz.²

Initially, Lerner and MBCC were both represented by attorneys Merlino and Tusa, who were selected by Allstate. It soon became apparent that Lerner's $100,000 policy might not be sufficient to cover a potential damage award. MBCC thus retained its own counsel, Alfredo Alvarado. MBCC then cross-claimed against Lerner for contractual indemnity. MBCC asserted that, if Andrew Baron recovered a judgment against MBCC, then MBCC would be entitled to indemnity from Lerner under the Lease.

In May 2001, the State Court Action was settled for $495,000 and the parties entered an Infant Compromise Order. The liability was apportioned as follows: (1) Robert Baron paid $55,000; (2) Allstate paid $100,000 on behalf of Lerner; and (3) MBCC, through its insurer, Allianz, paid the remaining $340,000. The $100,000 payment by Allstate represented the total coverage limit under its policy with Lerner. Settling the State Court Action, Andrew Baron provided three separate stipulations of discontinuance, one to each of the three defendants. Notably and significantly, Lerner did not obtain a general release or stipulation discontinuing MBCC's cross-claim.

III. Federal Court Action

Ten months later, Allianz, as subrogee of MBCC, commenced this diversity action against Lerner, Isabella, and Dimitry in the United States District Court for the Eastern District of New York (Wexler, J.). Suing for breach of contract, Allianz alleged that the defendants breached the Lease by failing to indemnify MBCC for the $340,000 Allianz spent to settle the State Court Action. Allianz sought the $340,000 plus at least $110,000 in attorneys' fees incurred by and on behalf of MBCC.

Responding to Allianz, the defendants impleaded Allstate as well as Tusa and Merlino, the attorneys from the State Court Action. The third-party complaint alleged that: (1) Allstate breached its duty to defend and indemnify Lerner against MBCC's and Allianz's claims; and (2) the Attorneys committed legal malpractice by failing to get a release from MBCC concerning its cross-claim against Lerner. Subsequently, Isabella and Dimitry, while remaining defendants in the original action, discontinued their third-party claims, leaving Lerner as the sole third-party plaintiff.

In June 2003, the defendants and Allianz cross-moved for summary judgment. The defendants moved to dismiss Allianz's claim on the ground that it was barred by res judicata. They argued that Allianz's subrogor, MBCC, asserted an identical claim for contractual indemnification against Lerner in the State Court Action and that the settlement and discontinuances of the State Court Action barred the present action. Allianz's cross-motion sought summary judgment on its contractual indemnification claim.

In December 2003, the district court denied the defendants' motion and granted Allianz's cross-motion for summary judgment. Allianz I, 296 F.Supp.2d at 423. In denying the defendants' motion, the court held that MBCC's contractual claim was not barred by res judicata because it "was neither expressly nor impliedly disposed of by the stipulations settling plaintiff's personal injury claims against the defendants." Id. at 422. In granting Allianz's cross-motion for summary judgment, the court rejected the defendants' "sole" argument about an alleged ambiguity in the Lease. Id. at 422-23. The court thus found "no question of fact" as to the Lease's enforceability. Id. at 423.

In January 2004, the third-party defendants (Allstate and the Attorneys) moved for summary judgment, arguing that: (1) Allstate had no duty to defend or indemnify Lerner in the federal breach of contract action commenced by Allianz; (2) the Attorneys were not negligent in representing Lerner; and (3) Lerner could not prove that their negligence proximately caused her damages.

In February 2004, the district court granted Allstate's and the Attorneys' motions and dismissed the third-party complaint. Allianz II, 305 F.Supp.2d at 198.

In analyzing Lerner's third-party claim against Allstate, the court held that Allianz's claim against Lerner was "not within the scope of the automobile insurance policy issued by Allstate to Lerner." Id. at 197. The court reasoned that Allstate's policy covered bodily injury or property damage claims arising out of an accident involving use of the car, whereas Allianz's claim against Lerner sought "contractual money damages sustained by MBCC as a result of Lerner's use of the Vehicle." See id. at 196-97.

In analyzing Lerner's third-party claim against the Attorneys, the court held that Lerner failed to create an issue of fact as to the element of proximate cause. Id. at 197-98. The court concluded that Lerner could not prove that if the Attorneys had indeed asked MBCC to release Lerner from the indemnity clause in the Lease, MBCC would have done so. Id. In reaching this conclusion, the court relied on the affidavit of Alfredo Alvarado, the attorney who represented MBCC in the State Court Action (after MBCC retained separate counsel from those defending Lerner). In his affidavit, Alvarado states that "at all times it was [my] intention to reserve the indemnification rights of MBCC and of its insurance company." Id. at 198 (internal quotation marks omitted).

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