M & M Elec., Inc. v. Commercial Union Ins. Co.

• Decision Date: 06 April 1998
• Citation: 241 A.D.2d 58,670 N.Y.S.2d 909
• Court: New York Supreme Court — Appellate Division
• Parties: , 1998 N.Y. Slip Op. 3165 M & M ELECTRIC, INC., Respondent, v. COMMERCIAL UNION INSURANCE COMPANY, Appellant.

Page 909

670 N.Y.S.2d 909

241 A.D.2d 58, 1998 N.Y. Slip Op. 3165

M & M ELECTRIC, INC., Respondent, v. COMMERCIAL UNION INSURANCE COMPANY, Appellant.

Supreme Court, Appellate Division,

Second Department.

April 6, 1998.

Farley, Holohan, Wagner & Doman, Mineola (Mark R. Bernstein, of counsel), for appellant.

Morris Ehrlich, P.C., New York City, for respondent.

Before BRACKEN, J.P., and O'BRIEN, SANTUCCI, FRIEDMANN and GOLDSTEIN, JJ.

BRACKEN, Justice Presiding.

The defendant Commercial Union Insurance Company (hereinafter Commercial Union) issued a contract of indemnity against legal liability to the plaintiff, M & M Electric, Inc. (hereinafter M & M). In essence, Commercial Union promised to pay, on behalf of M & M, subject to stated conditions, any amount which M & M might become "legally obligated to pay" to a third party on account of an occurrence resulting in bodily injury or property damage. We agree with Commercial Union's position that no such "legal obligation to pay" has arisen merely because a third party, claiming to have incurred property damages as the result of an occurrence, has unilaterally decided to withhold certain sums to which M & M would otherwise have been entitled. The order under review should therefore be reversed insofar as appealed from, the plaintiff's motion for summary judgment denied, the defendant's cross motion for summary judgment granted, and the complaint dismissed.

M & M is the named insured under a general liability insurance policy issued by Commercial Union for the period of time running from December 11, 1993, to December 11, 1994. The outer limits of Commercial Union's commitment to provide liability insurance coverage are set forth in the following provision of the policy:

"We will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies. We will have the right and duty to defend any 'suit' seeking those damages. We may at our discretion investigate any 'occurrence' and settle any claim or 'suit' that may result".

On February 3, 1994, M & M contracted with the Brookhaven National Laboratory (hereinafter Brookhaven) to perform certain electrical services. In connection with this contract, M & M subcontracted with Cranes for Hire to move two transformers from one part of Brookhaven's premises to another. The subcontractor placed the transformers on a truck, and the truck tipped over, causing the transformers to be damaged to the extent of $42,000. A man on the truck was injured in the truck accident, and later commenced a personal injury action against M & M.

Brookhaven sought to recoup its $42,000 in property damage by deducting that sum from the amount it paid to M & M pursuant to the contract. M & M notified Commercial Union, which conducted an investigation, and issued a letter dated September 7, 1994, stating that it concluded that the plaintiff's subcontractor, Cranes for Hire, was responsible for the loss. Because Commercial Union concluded that its insured, M & M, was not responsible for the loss, it stated that "we would not be justified in making any settlement, and we must, therefore, respectfully decline payment of this claim".

It should be noted that in the personal injury action brought by the man injured in the truck accident against the plaintiff, Commercial Union did take over the defense of its insured, M & M. However, no action has ever been commenced by Brookhaven to recover the $42,000 in damages to its property; Brookhaven merely deducted the $42,000 from the amount it paid to M & M.

M & M commenced the present action in November 1994 seeking to recover $42,000 from Commercial Union. The parties' motion and cross motion for summary judgment, as well as a subsequent motion for leave to reargue, centered on the validity of Commercial Union's argument that, pursuant to the terms of its policy, outlined above, M & M had not yet been subjected to a "legal obligation to pay". The Supreme Court disagreed with that argument, and denied Commercial Union's cross motion for summary judgment. We reverse.

While no binding New York precedent exists on the precise issue presented here, New York law does follow the general rule that " 'liability of the insurer attaches when there is a final judgment against the insured as a result of an obligation imposed by law' " (State Farm Mut. Auto. Ins. Co. v. Westlake, 35 N.Y.2d 587, 591, 364 N.Y.S.2d 482, 324 N.E.2d 137, quoting 30 N.Y. Jur., Insurance, § 1168; see also, 755 Seventh Ave. Corp. v. Carroll, 266 N.Y. 157, 161, 194 N.E. 69; Podolsky v. Devinney, 281 F.Supp. 488, 494 (S.D.N.Y.1968); 70 N.Y. Jur 2d Insurance Law § 1411; cf., Stonborough v. Preferred Accident Ins. Co. of N.Y., 292 N.Y. 154, 54 N.E.2d 342, overruling Fuchs v. London & Lancashire Indemnity Co., 258 App.Div. 603, 17 N.Y.S.2d 338; Ryan, Klimek, Ryan Partnership v. Royal Ins. Co. of America, 916 F.2d 731 (1st Cir.1990); Eberhard v. Aetna Ins. Co., 134 Misc. 386, 235 N.Y.S. 445). Because there is no indication that Brookhaven ever obtained a judgment against M & M in accordance with this rule, the contract of indemnification against liability has not been triggered, and the defendant herein has no duty to indemnify.

Several cases from other jurisdictions involve fact patterns similar to the one presented here (see, Bacon v. American Ins. Co., 131 N.J.Super. 450, 330 A.2d 389, affd. 138 N.J.Super. 550, 351 A.2d 771; Jones Masonry, Inc. v. West American Ins. Co., 768 S.W.2d 686 [TN]; Willett's Plumbing v. Northwestern Nat. Cas. Co., 261 Ark. 447, 548 S.W.2d 830; North Iowa State Bank v. Allied Mut. Ins. Co., 471 N.W.2d 824, 827 [IA]; Wichman v. Aetna Cas. & Sur. Co., 412 S.W.2d 528 [MO...