Osowski v. Amec Constr. Mgt.

• Decision Date: 08 October 2009
• Docket Number: 5359A.,5359,5358
• Parties: FRANK OSOWSKI et al., Plaintiffs, v. AMEC CONSTRUCTION MANAGEMENT, INC., et al., Defendants/Third-Party Plaintiffs-Appellants. DCM ERECTORS, INC., Third-Party Defendant Respondent.
• Court: New York Supreme Court — Appellate Division

69 A.D.3d 99

887 N.Y.S.2d 11

FRANK OSOWSKI et al., Plaintiffs, v. AMEC CONSTRUCTION MANAGEMENT, INC., et al., Defendants/Third-Party Plaintiffs-Appellants.

DCM ERECTORS, INC., Third-Party Defendant Respondent.

5358

5359

5359A.

Appellate Division of the Supreme Court of New York, First Department.

Decided October 8, 2009.

Shaub Ahmuty Citrin & Spratt, LLP, Lake Success (Steven J. Ahmuty, Jr., of counsel), for appellants.

Mauro Goldberg & Lilling LLP, Great Neck (Kenneth Mauro, Matthew W. Naparty and Anthony F. DeStafano of counsel), for respondent.

OPINION OF THE COURT

CATTERSON, J.

This action arises out of an accident that occurred during the construction of the New York Times Building in Midtown Manhattan. On May 13, 2005, the plaintiff Frank Osowski was seriously injured when a four-ton steel beam fell on him while he was unloading a truck at the construction project. As a result of the accident, Osowski's left leg and multiple toes on his right foot were amputated.

Prior to commencing construction on the project, on January 22, 2004, the New York Times Building, LLC (hereinafter referred to as NYTB), the owner of the building, entered into an agreement with AMEC Construction Management, Inc. (hereinafter referred to as AMEC) for construction management services for the project. Thereafter, on February 23, 2005, AMEC entered into a subcontract with DCM Erectors, Inc. (hereinafter referred to as DCM), Osowski's employer, for structural steel work at the project.

Both AMEC and DCM were enrolled in the Owner-Controlled Insurance Program (hereinafter referred to as OCIP) that NYTB had procured and implemented for the project.¹ The OCIP provided, inter alia, commercial general liability insurance workers' compensation and employers liability insurance, and excess insurance to NYTB, AMEC and all enrolled contractors, including DCM. The OCIP contained a waiver of subrogation provision which provided that "[t]he Owner and Contractor hereby waive all rights against each other and any of their Subcontractors . . . as to claims and damages covered by insurance obtained by the Owner under its OCIP program" (emphasis added).

On May 19, 2005, Osowski and his wife commenced an action against AMEC/NYTB (hereinafter referred to as the main action). Nearly 2½ years later, on October 22, 2007, American International Speciality Lines Insurance Corp. (hereinafter referred to as AIG), the first-layer excess insurer, issued a written denial of coverage to AMEC/NYTB in the main action. Its ground for denial was that, inter alia, its excess policy excluded coverage for bodily injury arising out of the loading or unloading of a vehicle.

On November 21, 2007, following AIG's disclaimer of coverage, AMEC/NYTB commenced an action against DCM, for common-law contractual indemnification and contribution (hereinafter referred to as the third-party action). Notably, absent AIG's disclaimer of coverage, the third-party action would have been prohibited by the "waiver of subrogation" provision in the OCIP, as well as by the antisubrogation rule.

On December 3, 2007, AMEC/NYTB commenced an insurance coverage declaratory judgment action against AIG. DCM was permitted to intervene in the declaratory judgment action to challenge AIG's denial of coverage. On January 9, 2008, the trial court granted the Osowskis' motion for summary judgment on the issue of AMEC/NYTB's liability under sections 240 (1) and 241 (6) of the Labor Law (2008 NY Slip Op 30043[U]).

On May 20, 2008, during the damages trial in the main action, a "Confidential Settlement and Release Agreement" was made between the Osowskis, NYTB and AMEC. Pursuant to the agreement, AMEC and NYTB agreed to secure funding in the amount of $12 million payable to the Osowskis, as follows: (1) a $2 million payment from Travelers, and (2) a $10 million irrevocable, unconditional letter of credit. In exchange for the $12 million settlement, the Osowskis released AMEC/NYTB from all claims relating to the events giving rise to the main action.

The following day, on May 21, 2008, counsel for the Osowskis announced, in open court, that the main action had been settled pursuant to a confidential settlement agreement with AMEC/NYTB. Immediately thereafter, DCM informed the court that DCM had not been made privy to the details of the settlement.

At that point, DCM was still a party to the two other actions involving the Osowski accident pending before the same court (i.e., the declaratory judgment action and the third-party action brought by AMEC/NYTB). The court, acknowledging the fact that DCM was preparing for a trial in the third-party action, inquired of AMEC/NYTB's counsel, Steve Palley, as to whose interests the confidentiality clause was designed to protect.² Palley responded, "I can fairly say that the confidentiality provision[s] are for the benefit of all parties involved to offset the arguments we will have closing argument in front of the jury."

The proceeding concluded with counsel for DCM stating on the record that she intended to make an application for full disclosure of the settlement terms and conditions. The matter adjourned for trial in the third-party action on June 3, 2008.

In the meantime, on May 30, 2008, DCM moved to compel disclosure of the settlement agreement and all related documents. DCM asserted that without disclosure, neither DCM nor the court could determine whether the waiver of subrogation provisions were applicable, and thus, whether dismissal of the third-party action was required. DCM noted that it was unaware whether settlement had been made on behalf of one or both defendants (i.e., AMEC/NYTB and DCM), and whether the plaintiff had filed releases in favor of one, or both of them. DCM further noted that in the third-party action AMEC/NYTB would be required to demonstrate that the amount paid in settlement was reasonable. Finally, DCM asserted that statements or representations in the settlement agreement could impact on credibility issues at the time of trial.

On June 2, 2008, AMEC/NYTB filed a cross motion for a protective order barring the disclosure sought by DCM. AMEC/NYTB asserted that DCM was not entitled to disclosure of the contents of the settlement agreement, except for the amount paid in settlement, which it represented was $12 million. AMEC/NYTB argued, inter alia, that since AIG had disclaimed coverage for claims in the main action, the waiver of subrogation provision did not bar AMEC/NYTB's third-party action against DCM seeking to recoup the settlement amounts in excess of the $2 million primary coverage.

Later that day, with both parties before it, the court reviewed the "Confidential Settlement and Release Agreement." Subsequently, the court directed AMEC/NYTB to turn over the agreement to counsel for DCM.

After reviewing the "Confidential Settlement and Release Agreement," DCM noted that the agreement stated only that AMEC/NYTB would "provide" the Osowskis with a $10 million letter of credit, but did not state that AMEC/NYTB would fund the letter of credit. DCM indicated to the court that the balance of the agreements must be disclosed because if it were determined that AIG was funding the settlement then the contractual waiver of subrogation provision would be triggered. The court found this argument persuasive.

On June 3rd, AMEC/NYTB was ordered to disclose the related settlement agreements. Thereupon, DCM learned the details of the related confidential "Settlement and Release Agreement" among AMEC, NYTB and AIG. DCM discovered that: (1) AIG agreed to provide AMEC/NYTB with an irrevocable letter of credit in the amount of $10 million designating the Osowskis as intended beneficiaries, (2) AMEC/NYTB agreed to dismiss the declaratory judgment action, with prejudice, and to release all claims and actions against AIG for any matters connected to the Osowski action, (3) AMEC/NYTB agreed to assign to AIG any and all claims it had against any person or entity arising out of or in connection with the Osowski action, including but not limited to the claims in the third-party action,³ and (4) AMEC/NYTB agreed that settlement was without prejudice to AIG's disclaimer of coverage with respect to the third-party action, and that such disclaimer "remain[ed] in full force and effect."

Consequently, DCM made an oral motion to dismiss the third-party action. AMEC/NYTB's counsel objected to the oral motion asserting that DCM's motion was one for summary judgment and, thus, should be made on papers. The court then granted a continuance to June 5, 2008 for "an offer of proof in the trial."

After the parties reconvened on June 5, DCM made an offer to support its previously articulated motion to dismiss. DCM concluded that by virtue of the confidential settlement agreement and associated documents:

"there was, in fact, insurance that covered the loss; that there has been a promise and payment of those damages and, therefore, based upon the provisions in the contract that are now in evidence, the waiver of subrogation provision bars completely the pursuit of the third-party claim against DCM."

AMEC/NYTB countered that AIG had not rescinded its disclaimer, and nothing in the confidential settlement agreement and associated documents stated or implied otherwise. AMEC/NYTB concluded, "it's [DCM's] position that this set of agreements constitutes insurance. We disagree."

The trial court dismissed the third-party complaint on the ground that NYTB had not sustained any damages that would trigger a common-law right of indemnification against DCM. The court interpreted the settlement documents as the legal equivalent of insurance because "[AMEC/NYTB] will [never] be out-of-pocket a penny." Thereafter, the trial court severed the third-party action from the main action, ordered the entry of a judgment dismissing AMEC/NYTB's third-party...