Frontier Ins. Co. v. State

• Decision Date: 19 December 1989
• Docket Number: No. 78288,78288
• Citation: 550 N.Y.S.2d 243,146 Misc.2d 237
• Parties: , 58 Ed. Law Rep. 248 FRONTIER INSURANCE CO., as Subrogee of Marieta G. Angtuaco, M.D., Claimant, v. The STATE of New York, Defendant.
• Court: New York Court of Claims

Page 243

550 N.Y.S.2d 243

146 Misc.2d 237, 58 Ed. Law Rep. 248

FRONTIER INSURANCE CO., as Subrogee of Marieta G. Angtuaco M.D., Claimant, v. The STATE of New York, Defendant.

Claim No. 78288 Court of Claims of New York.

Dec. 19, 1989.

Nixon, Hargrave, Devans & Doyle by William S. Brandt, for claimant.

Robert Abrams, Atty. Gen. by Donald P. Berens, Jr., Asst. Atty. Gen., for defendant.

EDWIN MARGOLIS, Judge.

Claimant insurance company, as subrogee, commenced this action for legal fees and expenses incurred in defending its insured, Dr. Marieta G. Angtuaco, in an action for medical malpractice. Claimant avers that the State was obligated under Public Officers Law § 17 to defend Dr. Angtuaco and that it wrongfully refused and failed to do so. Claimant's motion to file a late claim was granted by this court in a Memorandum-Opinion and Order filed February 1, 1989 (Motion No. M-39633).

In that Memorandum-Opinion, the court set forth the basic facts of this case as follows:

The proposed claim states that Dr. Angtuaco was employed as a full-time Assistant Professor in the Department of Obstetrics-Gynecology at the School of Medicine of the State University of New York (SUNY) at Buffalo at all times relevant to the proposed claim.

In 1985, a patient upon whom Dr. Angtuaco performed a post-partum tubal ligation commenced a medical malpractice action against her and Children's Hospital of Buffalo. The claim alleges that as part of her duties and within the scope of her employment as an Assistant Professor at SUNY Buffalo School of Medicine, Dr. Angtuaco was required to teach and explain surgical procedures to medical students and residents by having such students and residents observe or assist her in the performance of these operations.

Dr. Angtuaco contended that performing this operation, during which she was assisted by the chief resident and a third-year resident in Obstetrics-Gynecology at SUNY Buffalo School of Medicine, ¹ was an aspect of the clinical education of the residents. Therefore, since she was fulfilling her teaching responsibilities, she believed that the operation in question was within the scope of her duties as an employee of the State of New York within the meaning of Public Officers Law § 17. Accordingly, Dr. Angtuaco requested the State of New York to provide her with a defense in the malpractice action pursuant to the provisions of Public Officers Law § 17(2)(a) which requires that "the state shall provide for the defense of the employee in any civil action or proceeding in any state or federal court arising out of any alleged act or omission which occurred or is alleged in the complaint to have occurred while the employee was acting within the scope of his public employment or duties." In a letter dated February 27, 1986, an Assistant Attorney General denied Dr. Angtuaco's request for a defense on the ground that the plaintiff in the malpractice action was a patient who paid a fee through Dr. Angtuaco's practice plan and, thus, section 17 did not authorize the State to provide a defense.

Dr. Angtuaco had purchased a Medical Professional Liability Insurance Policy from claimant. This policy was issued at a reduced premium because it excluded coverage for actions arising out of services rendered within the scope of Dr. Angtuaco's employment by SUNY, actions for which (it was assumed) she would be entitled to protection under Public Officers Law § 17. The policy further provided that, whenever there was a dispute over whether the State should provide coverage under section 17, claimant would provide a defense without prejudice to any rights it might have. When the State declined to provide a defense and coverage in the instant malpractice action, Frontier considered itself obligated to and did provide a defense under this provision of its policy with Dr. Angtuaco.

Claimant now moves for summary judgment on the ground that the evidence is incontrovertible that Dr. Angtuaco was acting within the scope of her employment at SUNY when she performed the surgical procedure in question and, therefore, the State was obliged, under Public Officers Law § 17, to defend and indemnify her. In addition to opposing claimant's motion, the State cross-moves for summary judgment on the grounds that claimant either has no right to recover for services that it voluntarily provided or that it cannot be subrogated to Dr. Angtuaco's rights under Public Officers Law § 17. Since the State's cross-motion for summary judgment raises the issue of Frontier's standing to present this claim, we will deal with that question first. ²

The State's initial argument is based on the fact that the insurance policy between claimant and Dr. Angtuaco provides for claimant to become responsible for defending and indemnifying the doctor only in the event that "the insurance carrier for the State University of New York ... declines to provide insurance and or indemnity under Public Officers Law Section 17". (Emphasis supplied.) Defendant argues that since the dispute regarding coverage was with the State of New York, not its insurance carrier, claimant was not contractually required to defend Dr. Angtuaco and, therefore, did so only voluntarily. This argument can only be considered specious.

Neither Dr. Angtuaco nor claimant had any control over or knowledge of whether the State would choose to fulfill its section 17 obligations by obtaining coverage through a carrier, by acting as a self-insurer, or simply by absorbing any losses (self-retention). It is quite evident that the term "carrier", as it was used in the insurance contract, refers to the entity that would be obligated to represent and indemnify the doctor in an action to which section 17 applied. It is totally irrelevant whether this other party would be an insurance company, the State itself, or some other person or corporation that contracted to provide such services. Thus, claimant was not free to absolve itself through a hyper-technical reading of the contract language. If there is "a reasonable possibility that the insured may be held liable for some act or omission covered by the policy, then the insurer must defend". (Ruder & Finn v. Seaboard Surety Co., 52 N.Y.2d 663, 669-670, 439 N.Y.S.2d 858, 422 N.E.2d 518; see also A. Meyers & Sons Corp. v. Zurich American Insurance Group, 74 N.Y.2d 298, 302, 546 N.Y.S.2d 818, 545 N.E.2d 1206.)

The State's more substantial argument is that Frontier, as a third party, cannot not be subrogated to the statutory rights of Dr. Angtuaco. Defendant's position is that section 17 was enacted solely for the benefit of State employees and therefore only an employee may sue to vindicate personal rights thereunder.

In support of this proposition, the State cites to Sun Indemnity Co. v. Board of Education of the City of New York, 264 App.Div. 73, 34 N.Y.S.2d 475 and Zurich General Accident and Liability Ins. Co., Ltd. v. State of New York, 179 Misc. 162, 37 N.Y.S.2d 968. The court believes these cases are distinguishable from the case at bar. In Sun, the contract with a private insurance carrier had been written before the Legislature enacted the relevant indemnity statute. Therefore, there was dual primary liability coverage, and the court found that the private insurance company was obliged by the terms of its policy to assume the risk for which it had actually been paid. Here, in contrast, Frontier expressly excluded coverage for actions arising from Dr. Angtuaco's State employment and reduced its premiums accordingly. Zurich, which did not involve Public Officers Law § 17 or its progenitors, dealt with a volunteer who sought to be subrogated to another's personal right. Subrogation includes only instances where one party pays another's debt "either under compulsion or for the protection of some interest of the party making the payment" (Gerseta Corporation v. Equitable Trust Co. of New York, 241 N.Y. 418, 425-426, 150 N.E. 501) and, thus, cannot be claimed by volunteers. (See also Agricultural Insurance Co. v. A. Rothblum, Inc., 147 Misc. 865, 265 N.Y.S. 7.) As discussed above, claimant was not a volunteer in the circumstances presented here.

An additional consideration in deciding this issue is the clear language of subdivision (7) of Public Officers Law § 17.

7. The provisions of this section shall not be construed to impair, alter, limit or modify the rights and obligations of any insurer under any policy of insurance.

It is undisputed that the insurance contract provides that Frontier is to be subrogated to any of Dr. Angtuaco's rights upon assuming defense or making payment under the contract. Even if the contract did not expressly so provide, Frontier would be an equitable subrogee. (New York Board of Fire Underwriters v. Trans Urban Construction Co., Inc., 91 A.D.2d 115, 119, 458 N.Y.S.2d 216, affd. 60 N.Y.2d 912, 470 N.Y.S.2d 578, 458 N.E.2d 1255.) Inasmuch as Public Officers Law § 17 contains no language preventing a subrogee from exercising any right an employee might have in the event of the State's disclaimer of liability and, pursuant to subdivision (7), the general principles of the law of subrogation apply, we hold that claimant became subrogated to any claim Dr. Angtuaco had against the State under Public Officers Law § 17 as a result of the State's disclaimer.

Claimant's motion for summary judgment brings up the substantive merits of the claim. To place this controversy in its proper perspective, consideration must be given to some of the most basic economic and professional facts in medical education. The underlying limiting factor is that, in view of the income levels that a physician may attain in private practice, high caliber professionals cannot be recruited as full-time medical school faculty members under current salary scales. Therefore, it is the practice of most medical schools in this country to allow full time medical faculty members to also maintain a private practice. In order to...