Clarke v. Fidelity & Cas. Co. of New York

• Decision Date: 30 September 1967
• Citation: 285 N.Y.S.2d 503,55 Misc.2d 327
• Parties: Gilmore D. CLARKE and Michael Rapuano, doing business under the firm name and style of Clarke and Rapuano, Plaintiffs, v. The FIDELITY AND CASUALTY COMPANY OF NEW YORK, Defendant.
• Court: New York Supreme Court

Page 503

285 N.Y.S.2d 503

55 Misc.2d 327

Gilmore D. CLARKE and Michael Rapuano, doing business under the firm name and style of Clarke and Rapuano, Plaintiffs, v. The FIDELITY AND CASUALTY COMPANY OF NEW YORK, Defendant.

Supreme Court, Trial Term, New York County, Part III.

Sept. 30, 1967.

Lord, Day & Lord, New York City (Leonard S. Leaman, New York City, of counsel), for plaintiffs.

Scapolito & Solinger, Mount Vernon (Walter B. Solinger, Mount Vernon, of counsel), for defendant.

MATTHEW M. LEVY, Justice.

This is an action to recover the sum of $65,000, expenses incurred for the services rendered by the law firm of Lord, Day & Lord at the request and on behalf of the plaintiffs, in consequence of a disclaimer ¹ by the defendant of a Professional Engineers' Liability Policy. Therein the defendant insured the plaintiffs against any acts of their negligence in an amount not exceeding $500,000 and the defendant further undertook to defend the plaintiffs with respect to any suit against the plaintiffs in which damages were sought on account of their alleged negligence during the policy period.

It is this latter aspect, commonly characterized as the insurance company's 'duty to defend', that is the substantive gravamen of the instant litigation. The basic question is, Was there such a duty here in respect of each of the several separate phases of the controversy? And, as a corollary, at and to what point of time were the assured legally justified in retaining counsel to protect their interests, and in charging the cost thereof to the insurance company? And, further, what effect, if any, on the right and measure of recovery, if any, was the fact that the services involved were also rendered by the attorneys to defend the insurance company's action to rescind the policy? There is no question in this case as to the defendant's obligation under the policy to pay the sums that might have been recovered against the plaintiffs by those whose person or property was damaged as a result of the plaintiffs' operations.

The critical provisions of the insurance contract involved follow:

'II Defense, Settlement, Supplementary Payments

'With respect to such insurance as is afforded by this policy, the company shall:

'(a) defend any suit or arbitration proceeding against the insured which alleges any act of negligence, error, mistake or omission and seeks damages on account thereof, even if such suit is groundless, false or fraudulent; * * *' '(4) reimburse the insured for all rasonable expenses * * * incurred at the company's request; * * *'

Condition 3 of the policy provides that:

'If claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative.'

An examination of the factual developments leading to the instant action is now in order.

Sometime during the year of 1953, the plaintiffs, a firm of consulting engineers and landscape architects, entered into an agreement with the State of New York, through the Department of Public Works, whereunder they prepared plans and specifications covering the construction of a section of the Sprain Brook Parkway in the City of Yonkers, New York. Thereafter, in December, 1958, a further agreement was executed with the State in which the plaintiffs undertook to supervise construction of the parkway. Both of these agreements contained provisions wherein the plaintiffs stipulated to 'indemnify and save harmless the State' from any damage resulting from the plaintiffs' negligence. The construction work was awarded by the State to Poirier & McLane Corporation poration as general contractors, who, in turn, subcontracted the pile driving operation to Raymond International, Inc.

Commencing on July 24, 1959, and ending on September 27, 1960, Bronxville Palmer, Ltd., an owner of a building in the City of Yonkers known as the Winchester Apartments, filed in the Court of Claims a series of seven claims for damages against the State of New York and the Taconic State Park Commission, grounded on appropriation, trespass, negligence and water damage alleged to have been caused in connection with the construction of the parkway. Bronxville demanded damages aggregating some $24,000,000, resulting from the driving of piles into its land and in close proximity to its building.

By letter of February 20, 1961, the Attorney General of the State, on behalf of the State, wrote the plaintiffs that

'* * * We will expect you to indemnify and reimburse the State and Park Commission for any liability arising by virtue of any error or omission in design, inspection or supervision and hereby formally call upon you to do so.

'We therefore enclose a copy of each of the above claims to vouch in your firm and invite you to defend them, or such portions as you may desire.'

Upon receiving this communication, the plaintiffs advised the defendant of its contents, delivered a copy thereof to the defendant, together with copies of the documents referred to, and requested the defendant to represent the plaintiffs and to defend their interests in connection with the matters encompassed therein. Having 'heard rumblings' that the defendant would repudiate the policy, the plaintiffs conferred with their own counsel, Messrs. Lord, Day & Lord, who were formally retained on March 23, 1961. The defendant requested of the plaintiffs time within which to study the matter and to evaluate its obligation in this regard under the contract of insurance. Finally, on June 30, 1961, the defendant advised the plaintiffs that it disclaimed all obligations under the policy, and that it had instructed its attorneys to commence an action to rescind the same, upon the ground, as asserted by the defendant, that there was fraud by the plaintiffs in inducing the defendant to issue the policy. The defendant did not refuse to protect the plaintiffs upon the basis that no 'suit' had been commenced against them in the Court of Claims.

The defendant alleged in the rescission suit that, in applying for the insurance, the plaintiffs were required to answer the following question:

'Question 10--Is the applicant aware of any circumstances which may result in any claim against him, his predecessors in business, or any of the present or past partners or officers? If so, please give full particulars.'

The plaintiffs answered in the negative. The insurer contended that the fact was that the plaintiffs had knowledge and notice that Bronxville had complained of vibration damage to its building; that thereafter Bronxville instituted its claims in the Court of Claims (wherein the plaintiffs were subsequently 'vouched in'); and, as next set forth, commenced the action in the Supreme Court, Westchester County (wherein the plaintiffs were subsequently impleaded). Thus it is that, as contended by the defendant herein, the basis for the plaintiffs' defense against the suits in both courts was, in important respects, the same as the basis for the plaintiffs' defense to the action against them for rescission.

In the meanwhile and in March, 1960, Bronxville had commenced an action in the Supreme Court, County of Westchester, against Poirier, the prime contractor, and against Raymond, the pile-driving subcontractor, seeking damages in the amount of $12,400,000. On July 31, 1961, Poirier impleaded the plaintiffs in that action as third-party defendants. On August 3, 1961, the plaintiffs requested the defendant to represent them and to defend their interests as third-party defendants in that Supreme Court action, which, again, they declined to do. At about that time, the defendant instituted a suit in the Supreme Court to rescind the contract of insurance. This rescission action was later dismissed on the merits after trial; judgment accordingly was entered in favor of the defendants therein (the plaintiffs herein) on July 19, 1963; and thereafter there was affirmance thereof in Fidelity & Cas. Co. of N.Y. v. Clarke, 22 A.D.2d 761, 254 N.Y.S.2d 86, and leave to appeal to the Court of Appeals was denied (15 N.Y.2d 484, 258 N.Y.S.2d 1025, 206 N.E.2d 363).

(A)

Vouching-In as a General Technique Compared to Impleader.

As I view the basic issue involved in the first aspect of this case--whether the plaintiffs were entitled to the defensive protection provided for in the policy in the event there were a 'suit' against them--I do not see that it makes a vital difference whether there was a true 'vouching-in' of them by the State or whether there was not. Nevertheless, I find it necessary, in order to clarify the issue, to discuss the nature and meaning of the process of vouching-in. I shall, therefore, consider first the effect of the letter of February 20, 1961, from the Attorney General to the plaintiffs--i.e., does it actually vouch them into the actions against the State instituted by Bronxville in the Court of Claims? And second, if that be so or not, whether it is tantamount to a 'suit' against the plaintiffs which the defendant was obligated to defend under the terms of the policy?

The essentials of vouching in were thus succinctly stated by the Court of Appeals in Hartford Accident and Indemnity Company v. First National Bank and Trust Company of Hudson, 281 N.Y. 162, 168, 22 N.E.2d 324, 326, 123 A.L.R. 1149: 'A named defendant who would have another (not yet a party) bound by judgment in an action must by proper notice offer to him control of the defense of the litigation'; and, also in Hartford Accident, the Court expressed 'A generally accepted statement of the rule', as 'abridged', in the following fashion (pp. 167--168 of 281 N.Y. 162, 22 N.E.2d p. 326):

'When a person is responsible over to another, either by operation by law or by express contract * * * and he is duly notified of the pendency of the suit and requested to take upon him the defense of it, he is no longer regarded as a stranger, because he has the right to...