Lang v. Hanover Ins. Co.
| Decision Date | 18 November 2004 |
| Citation | 787 N.Y.S.2d 211,820 N.E.2d 855,3 N.Y.3d 350 |
| Parties | DAVID LANG, Appellant, v. HANOVER INSURANCE COMPANY et al., Respondents. |
| Court | New York Court of Appeals Court of Appeals |
Greene & Reid, LLP, Syracuse (Jeffrey G. Pomeroy of counsel), for appellant.
Roe, Shantz & Iacono, Liverpool (Frederick F. Shantz of counsel), for respondents.
Ohrenstein & Brown, LLP, New York City (Michael D. Brown
of counsel), for CCC Insurance Company, Ltd. and another, amici curiae.
Insurance Law § 3420 grants an injured plaintiff the right to sue a tortfeasor's insurance company to satisfy a judgment obtained against the tortfeasor. The issue presented in this appeal is whether the injured party may bring a declaratory judgment action against the insurance company before securing a judgment against the tortfeasor. We hold that a judgment is a statutory condition precedent to a direct suit against the tortfeasor's insurer.
Plaintiff David Lang was injured when he was struck in the eye while playing "paintball" at the home of John and Elizabeth Durbin. The paintball shot that hit plaintiff was fired by Richard Bachman, a houseguest of the Durbins. When notified of the incident, defendant Hanover Insurance Company, the Durbins' homeowners' liability insurance carrier, promptly disclaimed coverage for Bachman's acts on the ground that Bachman was not an insured party under the terms of the policy.
A year after the incident, plaintiff commenced a personal injury action against Bachman seeking damages for his alleged negligent conduct. After serving the complaint, plaintiff learned that Bachman had filed a chapter 7 bankruptcy petition. A bankruptcy discharge was issued in April 2002.
While the personal injury case was pending, plaintiff also initiated this declaratory judgment action against Hanover challenging the disclaimer of coverage. Plaintiff sought a declaration that Bachman was an insured under the Durbin policy and that Hanover was therefore obligated to compensate Lang for the injuries Bachman negligently caused. Hanover answered and moved to dismiss the complaint. Among other arguments, Hanover asserted that plaintiff lacked standing to sue Hanover directly because plaintiff had not yet obtained a judgment against Bachman, Hanover's purported insured.
Supreme Court denied the motion to dismiss. On appeal, the Appellate Division reversed and dismissed the declaratory judgment action on the ground that Insurance Law § 3420 precludes a direct action by an injured party against a tortfeasor's insurance company until a judgment has been secured against the tortfeasor and that judgment has been served on the insurance company but has remained unpaid for 30 days. We affirm.
There is no dispute that parties to an insurance contract — the issuer, a named insured or a person claiming to be an insured under the policy — may bring a declaratory judgment action against each other when an actual controversy develops concerning the extent of coverage, the duty to defend, or other issues arising from the insurance contract. The question presented in this case is whether, and under what circumstances, a stranger to the policy — an injured party who has sued a tortfeasor — can bring a direct action against the tortfeasor's insurance company for a determination of coverage issues.
Under the common law, "an injured person possessed no cause of action against the insurer of the tort feasor" (Jackson v Citizens Cas. Co., 277 NY 385, 389 [1938]). When a plaintiff acquired a judgment against the insured and the insured failed to satisfy the judgment due to insolvency, the plaintiff could not sue the insurance company directly because there was no privity of contract between plaintiff and the insurance carrier (Burke v London Guar. & Acc. Co., 47 Misc 171 [Kings County 1905], affd 126 App Div 933 [2d Dept 1908], affd 199 NY 557 [1910]). A direct suit by an injured party against the tortfeasor's insurer was thus unknown to the common law (Thrasher v United States Liab. Ins. Co., 19 NY2d 159, 166 [1967]).
As a result, even when a tortfeasor had coverage under an existing insurance policy, the common-law rule created a hardship for an injured party who lacked the means to sue the insolvent tortfeasor's insurance company directly and was therefore unable to gain access to available insurance proceeds. (Jackson v Citizens Cas. Co., 277 NY at 389). Insurance companies thus were able to avoid paying judgments for losses that would have been covered under policies issued to their insureds.
In 1917, the Legislature remedied this inequity by creating a limited statutory cause of action on behalf of injured parties directly against insurers (Coleman v New Amsterdam Cas. Co., 247 NY 271, 275 [1928]). That statutory right, presently codified at Insurance Law § 3420, requires that every insurance policy issued in New York contain a provision "that the insolvency or bankruptcy of the person insured, or the insolvency of his estate, shall not release the insurer from the payment of damages for injury sustained or loss occasioned during the life of and within the coverage of such policy or contract" (Insurance Law § 3420 [a] [1]).
Section 3420 (b) (1) authorizes "any person who . . . has obtained a judgment against the insured . . . for damages for injury sustained or loss or damage occasioned during the life of the policy or contract" to maintain an action against the insurer "[s]ubject to the limitations and conditions of paragraph two of subsection (a) hereof." Subsection (a) (2) states: "in case judgment against the insured . . . shall remain...
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