Insurance Corp. of New York v. Monroe Bus Corp.

• Decision Date: 14 June 2007
• Docket Number: No. 06 Civ. 3427(DC).,06 Civ. 3427(DC).
• Citation: 491 F.Supp.2d 430
• Parties: INSURANCE CORPORATION OF NEW YORK, Plaintiff, v. MONROE BUS CORP. and Monroe Bus Service Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

491 F.Supp.2d 430

INSURANCE CORPORATION OF NEW YORK, Plaintiff, v. MONROE BUS CORP. and Monroe Bus Service Inc., Defendants.

No. 06 Civ. 3427(DC).

United States District Court, S.D. New York.

June 14, 2007.

Smith Mazure Director Wilkins Young & Yagerman, P.C. by Joel M. Simon, Esq., New York, NY, for Plaintiff.

Butler & Butler LLP by Michael W. Butler, Esq., Massapequa, NY, for Defendants.

MEMORANDUM DECISION

CHIN, District Judge.

In this case, plaintiff Insurance Corporation of New York ("InsCorp") seeks reimbursement from its insureds, defendants Monroe Bus Corporation and Monroe Bus Service, Incorporated (together, "Monroe"), for amounts paid by InsCorp on a judgment entered against Monroe in an underlying state court action. Before the Court are Monroe's motion for summary judgment and InsCorp's motion for partial summary judgment. For the reasons set forth below, both motions are denied.

BACKGROUND

A. Facts

Except as stated below, the principal facts are not in dispute and may be summarized as follows:

1. The Underlying State Action

On or about June 21, 2002, Gabor Simon Hirsch was allegedly injured on a bus owned and operated by Monroe. (Compl.¶ 9).¹ In 2003, Hirsch sued Monroe in the Supreme Court of New York Kings County, in a case entitled Hirsch v. Monroe Bus Corp. & Monroe Bus Serv., Inc., Index No. 12356/03. (See Compl. ¶ 9). Monroe failed to answer or otherwise appear and a default judgment was entered against it for $493,611. Monroe moved to vacate the default, but the trial court denied the motion on December 10, 2003. On appeal, the Second Department affirmed, concluding that Monroe had failed to offer a "reasonable excuse" for its default. See Hirsch v. Monroe Bus Corp., 13 A.D.3d 486, 786 N.Y.S.2d 311 (2d Dep't 2004). (See also Butler 11/2/06 Affirm. at 2).

2. The Policy

InsCorp issued a commercial auto insurance policy (the "Policy") to Monroe for the period from November 28, 2001 through November 28, 2002. (Compl.¶ 8). The Policy provided in part:

We have no duty to provide coverage under this [P]olicy unless there has been full compliance with the following duties:

a. In the event of "accident," claim, "suit" or "loss," you must give us or our authorized representative prompt notice of the "accident" or "loss." ...

b. Additionally, you and any other involved "insured" must: ...

[i]mmediately send us copies of any request, demand, order, notice, summons or legal paper received concerning the claim or "suit." ...

(Policy, Form CA 00 01 07 97, at 7).

The Policy also contained an endorsement, form MCS-90B (the "Endorsement"), which was required by federal law. (Simon 10/24/06 Aff. ¶ 8 & Ex. D). The Endorsement is entitled:

ENDORSEMENT FOR MOTOR CARRIER POLICIES OF INSURANCE FOR PUBLIC LIABILITY UNDER SECTION 18 OF THE BUS REGULATORY REFORM ACT OF 1982.

The Endorsement provided that the Policy was amended to comply with federal law:

The insurance policy to which this endorsement is attached provides automobile liability insurance and is amended to assure compliance by the insured, within the limits stated herein, as a for-hire motor carrier of passengers with Section 18 of the Bus Regulatory Reform Act of 1982 and rules and regulations of the Federal Highway Administration (FHWA) and the Interstate Commerce Commission.

(Endorsement at 1).² The Endorsement also provided that the insurance company was liable for the payment of any final judgment against the insured "for public liability resulting from negligence in the operation, maintenance or use of motor vehicles" subject to the financial requirements of the Bus Regulatory Reform Act of 1982. (Id.).

The Endorsement further provided that:

no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any final judgment, within the limits of liability herein described, irrespective of the financial condition, insolvency or bankruptcy of the insured. However, all terms, conditions, and limitations in the policy to which this endorsement is attached shall remain in full force and effect as binding between the insured and the company.

(Endorsement at 1).

Finally, the Endorsement provided that: The insured agrees to reimburse the company for any payment made by the company on account of any accident, claim, or suit involving a breach of the terms of the policy, and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement.

(Endorsement at 1).

3. InsCorp's Involvement in the Hirsch Action

InsCorp purportedly did not receive notice of the Hirsch action until on or about September 3, 2003, after Monroe had already been held in default. (Compl. ¶ 10; see Butler 11/2/06 Affirm at 2). In accordance with its obligations under the Endorsement, InsCorp paid Hirsch $493,611.00 on the default judgment. (Compl.¶ 14). InsCorp alleges that it also expended $34,688.58 in costs and fees in defense of the Hirsch action. (Simon 10/24/06 Aff. ¶ 10).

By its counsel's letter dated May 2, 2005, InsCorp advised Monroe that it would be seeking reimbursement for funds paid and costs incurred in connection with the Hirsch case. (Def. Not. of Mot., Ex. 2).³ The letter stated that although the date of loss was June 21, 2002, InsCorp was not given notice of the loss until September 2, 2003, after the matter was already in default. (Id.). The letter further stated that, absent the Endorsement, no coverage would have been provided because of Monroe's failure to provide notice of the loss itself or the lawsuit. (Id.).

B. Prior Proceedings

InsCorp commenced this action on May 4, 2006, seeking a declaration that (1) Monroe was not entitled to coverage under the Policy for the Hirsch, matter and (2) Monroe was obligated to reimburse InsCorp for the amounts expended in connection with Hirsch. (Compl. at 7-8). Subject matter jurisdiction is alleged to exist under the Declaratory Judgment Act, 28 U.S.C. § 2201, and also because the case purportedly "arises under" federal law, section 18 of the Bus Regulatory Reform Act of 1982, 49 U.S.C. § 31138. See 28 U.S.C. § 1331. (Compl.¶¶ 4, 5). The parties are not diverse, as InsCorp and Monroe are New York entities. (See Compl. ¶¶ 2, 3).

These motions followed.

DISCUSSION

In seeking relief, InsCorp makes a three-part argument: (1) it was obligated to pay the Hirsch judgment by virtue of the Endorsement, (2) it would not otherwise have been obligated to pay the judgment because Monroe had failed to provide timely notice of the loss, claim, or suit as required by the Policy, and (3) it therefore is entitled to reimbursement from Monroe under the reimbursement provision of the Endorsement. (Pl. Mem. at 1-6).

Monroe does not seriously contest InsCorp's first assertion, reserves its right to later dispute the second assertion, and denies that it is obligated to reimburse InsCorp. Monroe contends principally that the Endorsement did not relieve InsCorp of its duty, pursuant to New York Insurance Law § 3420(d) ("Section 3420(d) or § 3420(d)"), to disclaim insurance coverage "as soon as is reasonably possible," and it contends further that InsCorp failed to comply with that duty because it waited some twenty months to disclaim coverage. (Defs. Mem. at 6-7).

Monroe seeks summary judgment dismissing the complaint on the ground that the Endorsement does not relieve InsCorp of its duty to timely disclaim coverage as required by § 3420(d). InsCorp seeks partial summary judgment on its contention that § 3420(d) is inapplicable to this case and that therefore it has not waived its right to seek reimbursement under the Endorsement. I discuss the issue of subject matter jurisdiction first before turning to the merits.

A. Subject Matter Jurisdiction

Although the parties do not dispute the existence of subject matter jurisdiction, I consider the issue sua sponte to insure that I have the power to adjudicate this dispute⁴ See Travelers Ins. Co. v. Carpenter, 411 F.3d 323, 328 (2d Cir.2005).

InsCorp alleges subject matter jurisdiction based on two grounds: the Declaratory Judgment Act and the existence of a federal question under the Bus Regulatory Reform Act. InsCorp's reliance on the Declaratory Judgment Act is misplaced, for it is well-settled that the Declaratory Judgment Act is not itself an independent basis for subject matter jurisdiction. See Niagara Mohawk Power Corp. v. Tonawanda Band of Seneca Indians, 94 F.3d 747, 752 (2d Cir.1996). I agree, however, that InsCorp has shown the existence of a federal question under the Bus Regulatory Reform Act and the regulations promulgated thereunder.

1. Applicable Law

Federal courts have jurisdiction over actions "arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. As the Supreme Court recently reiterated, "a case `aris[es] under' federal law within the meaning of § 1331 ... if `a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law.'" Empire Healthchoice Assur., Inc. v. McVeigh, ___ U.S. ___, ___, 126 S.Ct. 2121, 2131, 165 L.Ed.2d 131 (2006) (citation omitted).

While the "vast majority" of cases involving federal question jurisdiction are cases where "federal law creates the cause of action," jurisdiction may also exist where the resolution of a state claim necessarily turns on the construction of federal law. Merrell Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 808, 813-14, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986) (citations omitted). The "mere presence" of a federal issue does not, however, create federal question jurisdiction over a state cause of action. Id. at 813, 106 S.Ct. 3229. Where state law creates the cause of action, the...