Nationwide Mutual Insurance Company v. Vaage, 66 Civ. 2978

• Decision Date: 17 March 1967
• Docket Number: 66 Civ. 3389.,No. 66 Civ. 2978,66 Civ. 2978
• Parties: NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff, v. Lars VAAGE, Clinton James Lewis, Clinton A. Lewis, Josephine Monaco and Felix N. Monaco, individually, and as parents of Michelle Monaco, an infant of the age of 14 years, Samuel C. Williams and Arthur Williams, John J. McCloskey, Sheriff of the City of New York, William J. Rice, Jr., Sheriff of the County of Albany, George F. Spike, Sheriff of the County of Yates, Nelson A. Rockefeller, Governor and Louis J. Lefkowitz, Attorney General, respectively, of the State of New York, as representatives of the Sheriffs of all other counties in the State of New York, and Henry Root Stern, Jr., Superintendent of Insurance of the State of New York, Defendants. AMERICAN INTERNATIONAL UNDERWRITERS CORPORATION and the Hanover Insurance Co. of New York, Plaintiffs, v. Carl S. VICTOR, Lyon Associates, Inc. and John J. McCloskey, Sheriff of the City of New York, Defendants.
• Court: U.S. District Court — Southern District of New York

265 F. Supp. 556

NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff, v. Lars VAAGE, Clinton James Lewis, Clinton A. Lewis, Josephine Monaco and Felix N. Monaco, individually, and as parents of Michelle Monaco, an infant of the age of 14 years, Samuel C. Williams and Arthur Williams, John J. McCloskey, Sheriff of the City of New York, William J. Rice, Jr., Sheriff of the County of Albany, George F. Spike, Sheriff of the County of Yates, Nelson A. Rockefeller, Governor and Louis J. Lefkowitz, Attorney General, respectively, of the State of New York, as representatives of the Sheriffs of all other counties in the State of New York, and Henry Root Stern, Jr., Superintendent of Insurance of the State of New York, Defendants.

AMERICAN INTERNATIONAL UNDERWRITERS CORPORATION and the Hanover Insurance Co. of New York, Plaintiffs, v. Carl S. VICTOR, Lyon Associates, Inc. and John J. McCloskey, Sheriff of the City of New York, Defendants.

Nos. 66 Civ. 2978, 66 Civ. 3389.

United States District Court S. D. New York.

March 17, 1967.

Dunnington, Bartholow & Miller, by Charles G. Pillon, and William M. Bradner, New York City, for plaintiff Nationwide Mutual Ins. Co.

Lee, Mulderig & Celentano, by Peter J. Malloy, Jr., New York City, for plaintiffs American International Underwriters Corp. and Hanover Ins. Co.

Louis J. Lefkowitz, Atty. Gen. of New York, by Philip Kahaner, Asst. Atty. Gen. (Joel Lewittes, Asst. Atty. Gen., on the brief), for defendants Hon. Nelson A. Rockefeller, Hon. Louis J. Lefkowitz, Hon. Henry R. Stern, Jr.

Sidney Posner, New York City, for defendant John J. McCloskey, Sheriff of the City of New York.

Raymond D. Gage, Geneva, N. Y., for defendants Monaco.

Stanley Lieberman, by Schwartz, Levitt & Sommer, Brooklyn, N. Y. (Arthur Blitz, Brooklyn, N. Y., on the brief), for defendant Vaage.

Gair & Gair, by Herman Schmertz, New York City, for defendant Victor.

Doman, Dunn & Zuckerman, New York City, for amicus curiae American Foreign Insurance Ass'n.

Watters & Donovan, New York City, for amicus curiae American Insurance Association.

Bond, Schoeneck & King, Syracuse, N. Y., for amicus curiae American Mutual Insurance Alliance.

Aranow, Brodsky, Bohlinger, Einhorn & Dann, New York City, for amicus curiae National Association of Independent Insurers.

Before HAYS, Circuit Judge, and TYLER and TENNEY, District Judges.

OPINION

TYLER, District Judge.

This is a motion by plaintiff insurance companies¹ (hereinafter sometimes referred to as the "companies") for interlocutory injunctions against attachment and garnishment of the proceeds of insurance policies issued by the companies to certain non-resident policyholders.

Although the companies have their home offices elsewhere, they are qualified to do business in the State of New York. The defendants in Action No. 1 are the sheriffs of three counties in New York State, the Governor, the Attorney General and the Superintendent of Insurance of the State of New York, and the parties litigant in two personal injury actions which were commenced against various defendants who are insured by plaintiff Nationwide Mutual Insurance Company ("Nationwide"). The defendants in Action No. 2 are the parties litigant in a third personal injury action now pending in the New York courts and the Sheriff of the City of New York.

By their pleadings and other papers, the parties concede that the New York courts have ordered attachments of the insurance policies issued by plaintiffs, pursuant to the relevant New York attachment statutes, Civil Practice Law and Rules ("CPLR") Sections 5201 and 6202,² and that levies have been made by the defendant-sheriffs pursuant to these orders of attachment. Such attachments and resultant levies have occurred, it is agreed, as a result of a recent construction of the aforesaid statutes in relation to casualty insurance policies by the Court of Appeals of New York in a case entitled Seider v. Roth, 17 N.Y.2d 111, 269 N.Y.S.2d 99, 216 N.E.2d 312 (1966). The companies argue strenuously that such application of the New York attachment statutes to the policies written by them is repugnant to their rights under Article I, Section 10 (impairment of contracts) and the Fourteenth Amendment (deprivation of property without due process of law) of the Constitution.³

On October 26, 1967, a single judge of this court denied the companies' application for a temporary restraining order but, considering plaintiffs' constitutional arguments not entirely free from doubt, convened a three-judge court as prayed. 28 U.S.C. § 2281. The cases came on for hearing before the statutory court on January 27, 1967.

In their complaints, the companies allege that in all three personal injury actions, the complainants seek damages in excess of the applicable policy limits. Further, it is stated that the defendant policyholders have notified the companies that no steps should be taken by the latter to subject the former to in personam jurisdiction of the courts of the State of New York. In the view of the companies, these circumstances impose various obligations upon them either not contemplated by the insurance contracts or not permitted by their terms. It is also asserted that the levies by the defendant-sheriffs have brought into play the provisions of CPLR Section 6214,⁴ which, according to counsel for the companies, prohibit the insurers from "taking any action to retain counsel for (their policyholders) or from incurring any obligation for (the policyholders') defense".

In their complaints and motion papers, plaintiffs seek interesting and drastic relief, the nature of which warrants summarization, particularly in relation to our view of this case to be discussed hereinafter. Essentially, the companies pray for:

1. A declaratory judgment "settling and declaring" the rights and obligations under the insurance contracts;

2. A declaratory judgment that the relevant New York attachment statutes as applied by the Court of Appeals in Seider v. Roth, supra, and CPLR Rule 320,⁵ dealing with the nature and effects of appearances by parties litigant in New York courts, are unconstitutional with respect to casualty insurance policies such as those issued by the companies;

3. Alternatively, in the event that this court believes that the New York statutes as construed and applied by the Seider court are constitutional, a declaratory judgment that the companies are authorized to enter general appearances in the courts of New York on behalf of their non-resident policyholders;

4. An order enjoining the companies' policyholders from taking any other and independent action in respect to the personal injury claims asserted against them; and

5. An order enjoining the defendant-sheriffs from taking any further action respecting the policies here in issue and from levying upon any attachment of any other policy issued by the companies to a non-resident of the State of New York.

As already indicated, the companies bottom their claims for relief upon a number of constitutional arguments, which can be fairly described in somewhat more detail as follows: First, it is said that each attachment "impounds" the contractual right and duty of the insurer to defend the policyholder and thus either deprives the issuing company of a hearing on the question of liability or subjects it to possible double payment of the cost of defense. Second, it is claimed that the attachments constitute direct actions by the plaintiffs in the personal injury suits against the companies in plain contravention of the policy terms. Finally, we are told that the companies are denied due process of law in that their policyholders are permitted to default at the companies' expense in derogation of the policy provisions.

To understand the companies' arguments and to foreshadow the reasons why this court concludes that the cases before us must be dismissed, it may be helpful to outline the status and procedural history of the three personal injury actions which are the subjects of the complaints.

The Vaage Action: On December 31, 1963, an auto owned by defendant Clinton A. Lewis and driven by codefendant Clinton James Lewis, his son, allegedly struck and injured Lars Vaage, a citizen and resident of Norway, in North Carolina. The Lewis defendants, both residents of North Carolina, were insured under a policy issued by Nationwide in that state. The policy limits are $5,000 for property damages, $10,000 for injuries or death of any one individual and a maximum of $20,000 for injury or death of all individuals involved in a single accident. In August, 1965, Vaage filed a summons and complaint in the Supreme Court of New York, Queens County, against the Lewis defendants, alleging damages of $100,000. An order of attachment was issued by that court and served upon Nationwide in the City of New York. Personal service was thereafter effected upon the Lewises in North Carolina. The sheriff having jurisdiction levied pursuant to the attachment, and Nationwide made a prompt motion in the New York court to vacate the order of attachment. This motion was denied by an order entered on November 18, 1965. An appeal from that order is presently pending in the Appellate Division, Second Department. Further proceedings under the order of attachment, however, were stayed by the New York appellate court pending resolution of the appeal.⁶ In September, 1966, the Lewis defendants instructed Nationwide to take no action on their behalf which would subject them to in personam jurisdiction of the New York courts.

The Monaco Action: In September, 1964, Mr. and Mrs. Monaco and their daughter were injured in an automobile collision in Pennsylvania. Involved in the collision was an automobile owned by defendant Samuel C. Williams and operated by defendant Arthur Williams. The Monacos are residents of the State of New York. The Williams defendants are residents of the State of Pennsylvania. An insurance policy had been issued by Nationwide...