Rosato v. Karl Koch Erecting Co., Inc.

• Decision Date: 20 July 1994
• Docket Number: No. CV 92 5076 (RJD) (MDG).,CV 92 5076 (RJD) (MDG).
• Citation: 865 F. Supp. 104
• Parties: John ROSATO, et ano., Plaintiffs, v. KARL KOCH ERECTING CO., INC., Third-Party Plaintiff, and Defendant, v. THUNDERBIRD CONSTRUCTORS, INC., Third-Party Defendant. THUNDERBIRD CONSTRUCTORS, INC., Fourth-Party Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY, et ano., Fourth-Party Defendants.
• Court: U.S. District Court — Eastern District of New York

865 F. Supp. 104

John ROSATO, et ano., Plaintiffs, v. KARL KOCH ERECTING CO., INC., Third-Party Plaintiff, and Defendant, v. THUNDERBIRD CONSTRUCTORS, INC., Third-Party Defendant.

THUNDERBIRD CONSTRUCTORS, INC., Fourth-Party Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY, et ano., Fourth-Party Defendants.

No. CV 92 5076 (RJD) (MDG).

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

July 20, 1994.

Frederick B. Simpson, Ahmuty, Demers & McManus, Albertson, NY, for third-party plaintiff.

Henry Stanziale, Brooklyn, NY, for third-party defendant.

MEMORANDUM DECISION AND ORDER

GO, United States Magistrate Judge:

This is a diversity action to recover damages for work-related injuries. Although the primary claim is one for personal injuries, virtually all of the pretrial activity, including the instant motion for summary judgment, has revolved around disputes in two third-party actions over which insurance carrier will ultimately be responsible for payment of plaintiff's damages (if any) and the costs of litigation. Pursuant to 28 U.S.C. § 636(c), the third parties Karl Koch Erecting Co. and Thunderbird Constructors, Inc. have consented to have this motion determined by me.

BACKGROUND

There are no material facts in dispute since the parties agree on the existence and contents of the two insurance policies and the contracts giving rise to this third party action.

Karl Koch Erecting Co., Inc. ("Koch" or the "Contractor"), the defendant and third-party plaintiff, is a general contractor. Koch entered into a contract with the New York State Department of Transportation (the "Owner") dated March 20, 1989 (the "Construction Contract") to perform certain reconstruction work on the West 207th Street bridge. Koch later subcontracted some of the work to Thunderbird Constructors, Inc. ("Thunderbird" or the "Subcontractor"), the third-party defendant, pursuant to a contract dated May 25, 1990 (the "Subcontract").

Section 7 of the Subcontract specifies that Thunderbird is responsible for injuries or damages resulting from its work and imposes on Thunderbird the obligation to indemnify Koch for such loss.¹ It also requires Thunderbird to maintain at its own expense all insurance specified in the Construction Contract, including workmen's compensation insurance, owner's liability and property insurance, and contractual liability and contingent liability insurance, indemnifying the Owner and Contractor.

The Insurance Policies

As required by the Subcontract, Thunderbird purchased a general liability insurance policy dated September 24, 1990 issued by National Union Fire Insurance Company ("National Union") with limits of $1,000,000 per occurrence. Although the policy generally covers damages due to bodily injury and property damage, it also enumerates a number of exclusions from coverage, including one for bodily injury to an employee. This exclusion is set forth in an endorsement for Employee Bodily Injury Exclusion attached to the policy. This endorsement states that the policy does not apply to:

(e) "Bodily injury" to:

(1) an employee of the insured arising out of and in the course of employment by the insured; ...

(3) any relative or member of the family of that past, present, or prospective employee as a consequence of (1) or (2) above.

This exclusion applies:

(1) whether the insured is or may be held liable as an employer or in any other capacity; and

(2) to any obligation to share damages with or repay someone else who must pay damages because of the injury.

The National Union policy also extends blanket insurance coverage to other persons to whom Thunderbird is contractually obligated to obtain insurance, as set forth in Endorsement MS # 7:

Blanket Additional Insured

Any person or organization, to whom or to which the named insured is obligated by virtue of a written contract or written agreement to provide insurance such as is afforded by this policy is included as an additional insured under this policy. But only as respects liability for bodily injury and or property damage arising from an occurrence, and caused by operations performed by or on behalf of the named insured for such entity or entities.

Since the Subcontract obligates Thunderbird to insure Koch, Koch is an additional insured under the National Union policy. A certificate of insurance evidencing coverage is annexed as Exhibit A to Koch's Statement of Undisputed Facts.

In accordance with the Subcontract, Thunderbird also acquired worker's compensation and employer's liability insurance from the State Insurance Fund with $100,000 limits per accident. The policies from both National Union and the State Insurance Fund were effective for one year beginning September 24, 1990.

This Action

Plaintiff John Rosato ("Rosato"), an employee of Thunderbird, alleges in his complaint that he fell while working on the West 207th Street bridge on May 13, 1991. He and his wife commenced this action against Koch, citing a failure to provide a ladder and other protective devices.

Koch, in turn, brought a third party action against Thunderbird, alleging, inter alia, that Thunderbird was negligent and failed to provide a safe work place for Rosato. Koch also asserted as its second and third causes of action claims under the Subcontract for breach of contract and for indemnification.

National Union initially refused to defend either Koch or Thunderbird, in reliance on the employee bodily injury exclusion. As a result, Thunderbird brought a third-party declaratory judgment action against National Union and American International Group, Inc. ("AIG") seeking to compel them to defend and indemnify Koch as an additional insured under the National Union policy. Thunderbird also sought to declare the employee exclusion in the National Union policy void and to require these third-party defendants to defend Thunderbird. By letter dated January 7, 1994, National Union agreed to defend Koch under Thunderbird's policy. Thunderbird, National Union and AIG then entered into a stipulation of dismissal of that third-party complaint.²

Thunderbird has moved for summary judgment against Koch to dismiss the third-party complaint or, in the alternative, to dismiss the second and third claims for relief.

DISCUSSION

Summary judgment is appropriate pursuant to Fed.R.Civ.P. 56 when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Citizens Bank of Clearwater v. Hunt, 927 F.2d 707, 710 (2d Cir.1991) (citations omitted). The moving party bears the initial burden of demonstrating an absence of disputed material facts. Once it has done so, the burden shifts to the non-moving party. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). In determining whether there is a genuine issue of material fact, the court must resolve ambiguities and draw inferences in favor of the non-moving party. Celotex, 477 U.S. at 322-323, 106 S.Ct. at 2552-53 (1986); Capital Imaging Associates, P.C. v. Mohawk Valley Medical Associates, Inc., 996 F.2d 537, 542 (2d Cir.1993).

Thunderbird argues that Koch's claims are barred because of public policies limiting an insurer's right to subrogation against its insured. Since the real parties in interest in this action are National Union and the State Insurance Fund — the insurers defending Koch's and Thunderbird's respective interests under policies obtained and paid for by Thunderbird — the specific question presented is whether National Union is precluded from asserting a claim for contractual indemnification against Thunderbird to reach the employer's liability insurance policy issued by the State Insurance Fund.

The rule in New York³ is that an insurer has no right of subrogation against its own insured with respect to claims arising from the very risk for which the insured was covered. Pennsylvania General Insurance Company v. Austin Powder Company, 68 N.Y.2d 465, 472, 510 N.Y.S.2d 67, 68, 502 N.E.2d 982, 983 (1986). This is the case even if the insured has contractually agreed to indemnify the party whose rights have been subrogated to the insured. Id. Underlying this rule are two public policy concerns: first, an insurer should not be able to pass its loss to its own insured who paid for the coverage, and second, an insurer should not be placed in situations with a potential for conflict of interest where it would have little incentive to defend one of its insured. Id. at 471-72, 510 N.Y.S.2d at 70-71, 502 N.E.2d at 985-86. In Pennsylvania General, the New York Court of Appeals thus refused to permit an insurer, which had settled an action on behalf of an owner of a truck, to assert a claim for contractual indemnification against the renter of the truck. The court found that the insurer had breached its obligation to defend the renter, who was an additional insured under the same insurance policy as the owner's.

Pennsylvania General involved one automobile policy insuring the owner and renter of a single vehicle. When confronted with similar issues of vicarious owner liability in situations involving two insurance policies, lower courts have extended the rationale of Pennsylvania General to bar subrogated claims for indemnification.

Proponents argued for this result under the doctrine of "preindemnification"—i.e., that the obligation to procure insurance effectively waived a party's right to common-law indemnification. In North Star Reinsurance Corp. v. Continental Ins. Co., 82 N.Y.2d 281, 287, 604 N.Y.S.2d 510, 512, 624 N.E.2d 647, 649 (1993), the New York Court of Appeals expressly rejected the "preindemnification" doctrine "in favor of common-law indemnification principles" and adopted "the independent, narrower, antisubrogation rule."

The Court found that "preindemnification" represented a departure from both...