Richards v. Select Ins. Co., Inc.

• Citation: 40 F.Supp.2d 163
• Decision Date: 11 March 1999
• Docket Number: No. 97 Civ. 7260 MBM.,97 Civ. 7260 MBM.
• Parties: Arthur RICHARDS and Charlotte Richards, Plaintiffs, v. SELECT INSURANCE COMPANY, INC., Barco Auto Leasing Corp., Carlos E. Ortiz and Naomi Tanaka, Defendants.
• Court: U.S. District Court — Southern District of New York

40 F.Supp.2d 163

Arthur RICHARDS and Charlotte Richards, Plaintiffs, v. SELECT INSURANCE COMPANY, INC., Barco Auto Leasing Corp., Carlos E. Ortiz and Naomi Tanaka, Defendants.

No. 97 Civ. 7260 MBM.

United States District Court, S.D. New York.

March 11, 1999.

Sherri L. Plotkin, Barton & Zasky, New York City, for plaintiffs.

Brendan F. Gallagher, Congdon, Flaherty, O'Callaghan, Reid, Donlon, Travis & Fishlinger, Garden City, N.Y., for defendant Select Insurance Company, Inc.

OPINION AND ORDER

MUKASEY, District Judge.

Plaintiffs Arthur Richards and Charlotte Richards bring this action for declaratory relief pursuant to 28 U.S.C. § 2201 (1984). Plaintiffs allege that defendant, Select Insurance Company, Inc. ("Select") breached an insurance contract by refusing to defend and indemnify its insured, Barco Auto Leasing, Inc. ("Barco") for plaintiffs' personal injury claims resulting from an accident with a vehicle leased by Barco. Select moves to dismiss on the ground that plaintiffs, as the injured parties and not the named insured, have no standing to seek a declaratory judgment. In the alternative, Select moves for abstention in favor of an existing state court action brought by Barco seeking, inter alia, indemnification in plaintiffs' personal injury action. For the reasons set forth below, Select's motion to dismiss is granted.

I.

This action arises out of a personal injury suit filed in this court on February 21 1997, by plaintiffs against Barco, Carlos Ortiz and Naomi Tanaka. See Richards v. Ortiz, No. 97 Civ. 1233 (S.D.N.Y. filed Feb. 21, 1997). In that diversity action, plaintiffs sued defendants for damages resulting from an alleged accident where Arthur Richards was hit by a motor vehicle leased by Barco. (Compl. ¶ 12)¹ Upon receiving the summons and complaint from plaintiffs, Barco notified Select of the accident and the pending action. (Barco Compl. ¶ 72) Select declined to indemnify or represent Barco, claiming that Barco failed to notify Select of the Richards' claim in the manner required by the terms of Barco's insurance policy (the "Barco Policy"). (Id. ¶ 74) In response, Barco filed an action in Supreme Court, Nassau County, on or about September 2, 1997, against Select and the previous owners of the Barco Policy. See Barco Auto Leasing Inc. v. Gulf Ins. Co., No. 97-25466 (Sup.Ct. Nassau County filed Sept. 2, 1997). In that action, Barco sought a declaration of its rights and Select's liabilities in regard, inter alia, to plaintiffs' tort action. (Barco Compl. ¶¶ 18-76)

Unaware of the pending state court action, plaintiffs filed this complaint seeking a declaration that Select has a duty to defend and indemnify Barco in the current tort action. (Compl. ¶ 28) Select now moves to dismiss this action on the ground that plaintiffs lack standing.

II.

As a threshold matter, it is useful at least to consider the proper procedural basis for Select's motion. It is unclear whether Select filed its answer to plaintiffs' complaint before or after filing a motion to dismiss on the pleadings. If this motion was filed before the answer, it would be properly construed as a motion for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c). If it was filed after, it would be a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6). The difference, however, is largely academic because the standard under Rule 12(c) is the same as the standard under Rule 12(b)(6): Accepting the non-moving party's allegations as true and viewing the facts in the light most favorable to that party, judgment on the pleadings or dismissal for failure to state a claim should be granted if the moving party "is entitled to judgment as a matter of law." Burns Int'l Sec. Servs., Inc. v. International Union, 47 F.3d 14, 16 (2d Cir.1995) (per curiam): see Narvarte v. Chase Manhattan Bank, N.A., 969 F.Supp. 10, 11 (S.D.N.Y.1997) (stating that the standard for a Rule 12(c) motion is the same as for a Rule 12(b)(6) motion, and citing cases).

III.

Select claims that because plaintiffs sue on a contract to which they are not parties, their standing depends on the statutory rights granted third parties under New York Insurance Law § 3420, N.Y.Ins. Law § 3420 (McKinney 1985 & Supp. 1998), which permits a judgment creditor to sue an insurer directly on an unpaid judgment. Select contends that an unpaid judgment is a condition precedent to any action, and because plaintiffs have no such judgment, plaintiffs' complaint must be dismissed.

Plaintiffs counter that Insurance Law § 3420 is procedural and, therefore, inapplicable in a federal court which is guided by federal procedural rules; or, alternatively, plaintiffs argue that although § 3420 bars an injured party from bringing a direct action for money damages, it does not bar that party from bringing a declaratory judgement action.

There is no dispute that plaintiffs have no common law or contractual rights in the Barco Policy. Therefore, plaintiffs' right to maintain the present cause of action against Select rests exclusively on the statutory rights created by Insurance Law § 3420. That law provides, in relevant part:

(a) No policy or contract against liability for injury to person ... shall be issued or delivered in this state, unless it contains in substance the following provisions or provisions which are equally or more favorable to the insured and to judgment creditors so far as such provisions relate to judgment creditors:

....

(2) A provision that in case judgment against the insured ... shall remain unsatisfied at the expiration of thirty days from the serving of notice of entry of judgment ... upon the insurer, then an action may ... be maintained against the insurer under the terms of the policy or contract for the amount of such judgment not exceeding the amount of the applicable limit of coverage under such policy or contract.

....

(b) ... [A]n action may be maintained by the following persons against the insurer ... to recover the amount of a judgment against the insured ...

(1) any person who, or the personal representative of any person who, has obtained a judgment against the insured....

Id. (emphases added).

In this case, plaintiffs do not yet have a judgment, let alone an unsatisfied judgment, against Barco. There seems no doubt, therefore, that if plaintiffs were to file a complaint in state court seeking money damages from Select, that complaint would be dismissed. See Thrasher v. United States Liab. Ins. Co., 19 N.Y.2d 159, 166, 278 N.Y.S.2d 793, 798, 225 N.E.2d 503 (1967) (holding that a judgment creditor who failed to give an insurer notice of the entry of judgment had failed to establish one of the elements of a direct cause of action); Manshul Constr. Corp. v. State Ins. Fund, 118 A.D.2d 983, 984, 500 N.Y.S.2d 87, 88 (3d Dep't 1986) (holding that the specifics of the direct action statute must be complied with to state a viable cause of action); McNamara v. Allstate Ins. Co., 3 A.D.2d 295, 299, 160 N.Y.S.2d 51, 55 (4th Dep't 1957) (holding that notice of entry of a judgment is mandatory and a condition precedent to the validity of a determination under the direct action statute).

In the face of this New York jurisprudence, plaintiffs contend that a declaratory judgment action is properly maintained in a federal court because Insurance Law § 3420 is merely procedural and, therefore, by operation of the Erie doctrine their declaratory action is proper pursuant to Fed.R.Civ.P. 18(b). See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) (establishing that a federal court sitting in diversity may apply federal procedural law but must apply the substantive law of the state in which it sits). In support, plaintiffs cite Abigail deBruyne v. Clay, No. 94 Civ. 4704, 1997 WL 471039, at *4 (S.D.N.Y. Aug. 18, 1997), where the Court found New York's direct action statute to be procedural, rather than substantive.

In deBruyne, two trust beneficiaries sued in federal court for damages stemming from a breach of fiduciary duty allegedly committed by a trustee. See id. at *1. Subsequently, the trustee's insurer sued in state court seeking a declaration of its obligations with respect to its insured. See id. The injured plaintiffs, who were not parties to the state action, asked the deBruyne Court for leave to amend their complaint to permit a federal declaratory judgment action against the trustee's insurer. See id. After granting plaintiffs' request, the deBruyne Court then enjoined the state declaratory action and found two bases for permitting a federal declaratory action to proceed: (1) Insurance Law § 3420, which governed, was procedural and therefore not binding on a federal court sitting in diversity, and (2) New York courts would allow an injured party to bring a declaratory judgment action against an insurer that had itself instituted a declaratory judgment action with respect to coverage issues relating to that party's claims against one of its insureds. See id. at *3. In support of the first finding, the Court cited Hanna v. Plumer, 380 U.S. 460, 467-68, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965), where "procedure" was generally defined as the "judicial process for enforcing rights and duties recognized by substantive law." Id. The deBruyne Court reasoned that direct claims are recognized by state law and, therefore, the statute merely controls the process, or timing, for such claims. See deBruyne, 1997 WL 471039, at *4 ("This is not a case where the state law prohibits entirely actions against an insurer. Rather, the statute limits procedurally when such actions can be initiated.").

I am not persuaded by this analysis. There is little doubt that § 3420 has a procedural effect, but it does not provide merely the process for enforcing rights; rather, it creates the rights and duties to be enforced. To be sure, concentrating primarily on procedural effects, courts other than the ...