North Star Reinsurance Corp. v. Continental Ins. Co.
| Decision Date | 16 November 1993 |
| Citation | 82 N.Y.2d 281,624 N.E.2d 647,604 N.Y.S.2d 510 |
| Parties | , 624 N.E.2d 647 NORTH STAR REINSURANCE CORPORATION, Respondent-Appellant, v. CONTINENTAL INSURANCE COMPANY, Respondent, and U.S. Fire Insurance Company, Appellant-Respondent. Flora VALENTIN, as Administratrix Ad Prosequendum of the Estate of Julio Feliciano, Deceased, Respondent, v. CITY OF NEW YORK et al., Appellants and Third-Party Plaintiffs-Appellants. EMD Construction Corp., Third-Party Defendant-Respondent. Donald M. PRINCE et al., Plaintiffs, v. CITY OF NEW YORK, Defendant and Third-Party Plaintiff-Appellant. Slattery-Argrett Joint Venture Co., Third-Party Defendant-Respondent. |
| Court | New York Court of Appeals Court of Appeals |
Stock, Tinari, Paar, Matthews, O'Connell & Osborn, Mineola (Thomas J. Stock, Thomas A. Osborn and James F. Matthews, of counsel), for appellant-respondent in the first above-entitled action.
Quirk and Bakalor, P.C., New York City (Richard Bakalor, of counsel), for respondent-appellant in the first above-entitled action.
Alio, Caiati & McDonough, New York City (John J. McDonough and Kevin A. Jones, of counsel), for respondent in the first above-entitled action.
Ohrenstein & Brown, New York City (Mark J. Bunim and Jon D. Lichtenstein, of counsel), for appellants and third-party plaintiffs-appellants in the second above-entitled action.
Herzfeld & Rubin, P.C., New York City (David B. Hamm, Herbert Rubin and Linda M. Brown, of counsel), and Raymond C. Green, for third-party defendant-respondent in the second above-entitled action.
Morris, Duffy, Alonso & Marulli, New York City (Irwin H. Haut, of counsel), for defendant and third-party plaintiff-appellant in the third above-entitled action.
Ahmuty, Demers and McManus, Albertson (Frederick B. Simpson, of counsel), for third-party defendant-respondent in the third above-entitled action.
These cases, which originated as damages claims for employees' work site injuries, are today solely contests among insurance carriers over which insurance policy should bear the loss. The novel issue presented is whether this Court will recognize the doctrine of "preindemnification" asserted by insurers for the employer-contractors (the primary wrongdoers) to put the insurance coverage of the construction site owners (who are only vicariously liable) ahead of their own insurance. Having procured the separate insurance for the owners, as required by their agreements, the contractors argue that they have automatically "preindemnified" the owners for losses up to the limits of the owners' policy. We reject that doctrine in favor of common-law indemnification principles, but further conclude that the insurers' claims in Prince and Valentin are precluded by the independent, narrower, antisubrogation rule.
These three appeals present a common fact pattern: in each, the agreement between the contractor and the owner (the City or State) specifies that the contractor will hold the owner harmless against any claims resulting from the contractor's performance, and additionally requires the contractor to procure separate liability insurance for the owner. The contractor now points to the owner's policy as preindemnification (up to the policy limits) for any losses sustained by the owner as a result of the contractor's negligence, and argues that the owner's policy should apply ahead of its own insurance. In all three appeals, more fully described below, common-law--not contractual--indemnification claims are the focus of the parties' arguments.
In July 1988, EMD Construction Corporation was awarded a contract by the New York City Board of Education for construction and repair work at Louis D. Brandeis High School in Manhattan. The agreement obligated the contractor to maintain owners' contractors' protective (OCP) insurance naming the Board and the City (collectively "the City") as insureds, general contractors' liability (GCL) insurance, insurance against loss or damage to the work site, and workers' compensation insurance. Additionally, the contract provided that the City's right to indemnification would in no way be diminished "by the exercise of any other remedy provided for by contract or by law," and that "[i]f the persons or property of others sustain loss, damage or injury resulting directly or indirectly from the work of [EMD] in their performance of this contract * * * [EMD] shall indemnify and hold the board and the city harmless for any and all claims and judgments for damages."
As required by contract, EMD purchased an OCP policy from National Union Fire Insurance Company, naming only the City as insured, which afforded the City coverage for bodily injury in the amount of $3 million per occurrence. EMD paid a $3,000 premium for the City's coverage. EMD purchased a separate GCL policy from National Union, which provided coverage for bodily injury of $1 million per occurrence, at a premium of $72,682. EMD also procured a $5 million excess policy from the North River Insurance Company and workers' compensation coverage from the State Insurance Fund.
In November 1988, an EMD employee died of injuries sustained in a fall from the roof of the high school. His administrator brought suit for wrongful death against the City, as the owner of the work site, seeking $12 million in damages, and the City in turn brought a third-party action seeking common-law indemnification on the ground that the contractor's negligence had been the sole cause of the loss.
The trial court granted EMD's motion to dismiss the third-party action on the ground that EMD had preindemnified the City by maintaining the OCP insurance policy, and that the third-party action was, in effect, an improper attempt by an insurer to recover from its own insured. The Appellate Division reinstated the claim to the extent that any judgment exceeded the face amount of the policy, holding that "by requiring the acquisition of insurance on their behalf, third-party plaintiffs have waived any right of common-law indemnity up to the limit of the subject policy" and that the third-party plaintiffs "would be compelling National Union to demand subrogation from its own insured, EMD, for exactly the sort of claim for which EMD purchased the policy in the first place." (187 A.D.2d 343, 344, 590 N.Y.S.2d 84.) This appeal is before us by the Appellate Division's grant of leave to the City. The Appellate Division certified the following question: "Was the order of this Court, which modified the order of the Supreme Court, properly made?"
In March 1983, the City of New York engaged Slattery-Argrett Joint Venture Company as general contractor on a construction project at the North River Water Pollution Control Project. Pursuant to contract, Slattery purchased an OCP insurance policy from CNA (naming only the City as insured), which afforded coverage for bodily injury and property damage in the amount of $1 million per occurrence, for which it paid a $3,700 premium. For itself, the contractor purchased a separate GCL policy from CNA providing similar coverage for a $74,000 premium, a $1 million excess insurance policy from the Hartford Accident and Indemnity Company, and workers' compensation coverage from Amerisure.
A Slattery employee injured when he fell from a ladder at the work site sued the owner and the contractor. The City cross-claimed against Slattery for indemnification on the ground that the contractor's negligence caused the injuries. The trial court dismissed the employee's direct action against the contractor and deemed the City's cross claim to be a third-party complaint. After denial of the contractor's motion for summary judgment dismissing the third-party action, the jury fixed damages at $335,000, and the trial court directed a verdict in favor of the City on its indemnification claim.
The Appellate Division reversed and dismissed the third-party action, holding that "[p]ermitting the indemnification claim to go forward would involve CNA in an obvious conflict of interest given its obligation to defend Slattery on the same claim that it asserts on behalf of the City." (189 A.D.2d 33, 37, 594 N.Y.S.2d 235.) The Appellate Division granted leave to appeal to this Court on the following certified question: "Was the order of this Court, which reversed the order of the Supreme Court, properly made?"
North Star Reins. Corp. v. Continental Ins. Co.
In July 1984, the State of New York contracted with Fresh Meadows Painting Corporation to clean and paint 20 Suffolk County bridges. As required by contract, Fresh Meadows purchased an OCP insurance policy, naming the State as the only insured, which afforded coverage for bodily injury in the amount of $1 million per occurrence and other coverage, for which Fresh Meadows paid a $1,772 premium. Fresh Meadows also purchased a separate GCL policy from the same insurer, Continental, for a $1,304 premium, which provided coverage for bodily injury and property damage of $500,000 per occurrence, subject to several exclusions, a $2 million excess insurance policy from North Star Reinsurance Corporation, and workers' compensation coverage from U.S. Fire Insurance Company.
Two Fresh Meadows employees injured while painting a railroad overpass sued the State, as owner of the work site, and the State in turn brought a third-party action for common-law indemnification on the ground that the contractor's negligence caused the injuries. Just prior to trial, the employees settled the action for $3 million, funded $750,000 by Continental, $750,000 by North Star and $1,500,000 by U.S. Fire pursuant to stipulation by which the insurers agreed to have their respective liability determined in a declaratory judgment action.
In that action, the various insurers sought summary judgment against one another which the trial court denied. The Appellate Division, however, granted Continental's motion, holding that the...
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