Servidone Const. Corp. v. Security Ins. Co. of Hartford

• Decision Date: 30 July 1980
• Citation: 430 N.Y.S.2d 991,106 Misc.2d 118
• Parties: SERVIDONE CONSTRUCTION CORP., Plaintiff, v. SECURITY INSURANCE COMPANY OF HARTFORD and Continental Casualty Company, Defendants.
• Court: New York Supreme Court

Page 991

430 N.Y.S.2d 991

106 Misc.2d 118

SERVIDONE CONSTRUCTION CORP., Plaintiff, v. SECURITY INSURANCE COMPANY OF HARTFORD and Continental Casualty Company, Defendants.

Supreme Court, Special Term, Rensselaer County.

July 30, 1980.

Maney & McConville, East Greenbush, for plaintiff.

Rein, Mound & Cotton, New York City, for defendant Security Ins. Co. of Hartford.

Pemberton, Buchyn & O'Hare, Schenectady, for defendant Continental Cas. Co.

LEONARD A. WEISS, Justice.

I. Introduction and Background

Plaintiff, Servidone Construction Corporation (herein "Plaintiff," "Servidone," or "Insured") moves under CPLR Rule 3212 and Section 3001 for summary judgment declaring defendants Security Insurance Company of Hartford (herein "Security" or "Primary Insurer") and Continental Casualty Company (herein "Continental" or "Excess Insurer") liable under their insurance contracts and common law for all expenses and damages plaintiff incurs and may become liable for as a result of litigation arising from a work related accident in which one of plaintiff's employees sustained serious injuries.

Defendants Security and Continental cross-move for summary judgment dismissing plaintiff's complaint alleging the absence of triable issues of fact and presence of legal defenses which show that neither defendant breached its obligations to plaintiff under either their respective contract of insurance or principles of common law.

The facts of the underlying action are not disputed. On or about June 22, 1970, plaintiff, a general contractor, entered into a written contract with the United States of America through the U.S. Army Engineer District, New York, Corps of Engineers, to perform closure, beach erosion, and hurricane project work under specifications entitled "Closure Work, Keansburg, New Jersey" for the consideration of $4,711,352.00. (All evidentiary references are to Exhibits attached to the affidavit of Patrick Maney sworn to May 17, 1980 (Exhibit C )). This work is apparently commonly called a flood control project. Among plaintiff's employees was one John Cuttino, who in the course of his employment, fell from a tower under construction on or about March 4, 1972 sustaining serious bodily injuries which allegedly has left him a paraplegic. Mr. Cuttino apparently was covered under plaintiff's workmen's compensation policy and in addition he commenced a lawsuit against the United States in the United States District Court, District of New Jersey, alleging liability couched in negligence in which the ad damnum clause seeks recovery of $1,000,000.00. On July 12, 1977, The United States of America commenced a third-party action in said suit against Servidone Construction Corporation, the plaintiff herein, seeking recovery over against Servidone in the form of indemnity based upon the allegations that (1) any negligence which caused Cuttino's injuries was primarily attributable to Servidone, and (2) Servidone breached express and implied warranties of the (aforesaid) contract by failing to provide a safe place for its employees to work. The allegations of negligence and breach of contract are repeated in the third-party complaint.

It further appears Servidone purchased a policy of insurance from Security Mutual Insurance Company of Hartford (Security) to provide workmen's compensation and employer's liability coverage (Exhibit A ) and a policy from Continental Casualty Company (Continental) to provide umbrella excess liability insurance coverage. When process in Cuttino's action was served on the United States, it forwarded the summons and complaint to Servidone (Exhibit F ) with a demand that Servidone undertake defense of the action pursuant to its contractual obligation to indemnify the United States of America for all damages incurred in the performance of the contract. Servidone in turn forwarded the process to Security for defense but Security disclaimed coverage under its policy (Exhibit F-1 ) on the theory contractual coverage was not included nor was the United States of America named as an insured party in the policy. By September 6, 1977, the third-party action had been commenced and Servidone forwarded this process to Security (Exhibit G ) and to Continental for defense. On October 5, 1977, attorneys for Security notified Servidone's attorney it would provide defense to the third-party action (Exhibit H ) insofar as common law liability claims were concerned and would only provide Servidone with a gratuitous defense to complaint allegations against Servidone based upon contractual indemnification, again expressing a disclaimer under the policy of such cause of action. Security's attorneys further afforded Servidone the opportunity to be represented by its own counsel in its defense of the cause of action based on contractual indemnification. Servidone's attorney on October 18, 1977 forwarded the third-party complaint to Continental demanding its answer as to whether it would defend the action and pay any verdict (Exhibit I ). On October 31, 1977 Servidone accepted the offer of Security to provide the gratuitous defense, reserving its rights to further claim against Security under the policy (Exhibit J ).

On February 21, 1978, a pretrial order (Exhibit M ) was entered in the United States District Court based upon certain stipulations agreed upon by attorneys for Cuttino, the USA and Servidone (the latter being attorneys engaged by Security) wherein Security alleges the position of the USA in its third-party action against Servidone was changed to reflect it "had formally abandoned any claim against Servidone for common law indemnification" and continued its action solely upon its contractual indemnification claim. Security hastened to withdraw its attorneys from the case (Exhibits N and O ) leaving Servidone to defend itself.

II. Parties' Contentions

The insured urges Security is liable because: (1) Security's initial refusal by letter dated April 27, 1977 to afford coverage and/or protect its insured's interests when the United States government "vouched in" Servidone by sending it a copy of the pleadings, was a breach of Security's obligations to defend and to indemnify imposed by contract and common law, (2) Security's "take it or leave it" offer to defend Servidone in the third-party action brought by the United States only against the common law indemnity cause of action and not on the contractual indemnity cause of action constituted a breach of Security's obligations to defend and to afford coverage making Security liable to Servidone for any damages Servidone may have incurred as a result of Security's breach, (3) the primary insurer's undertaking defense of the third-party action by the United States government and (a) failing to advise Servidone's counsel in advance of all proceedings which might affect Servidone's interests, (b) failing to give Servidone its choice of counsel to represent its interests in that action, and (c) attempting to withdraw Servidone's defense to the common law indemnification cause of action when the federal government did not unequivocally abandon its claim, were individually and collectively breaches of Security's contractual and common law obligations to its insured and, (4) Security's obligation to defend the federal government's claim based upon Servidone's common law liability is specifically covered as an exception to the exclusions in Security's policy with Servidone, Coverage B Employer's Liability.

Security suggests it is not liable as Servidone's primary insurer because (1) it had no legal obligation to defend Servidone against contractually assumed liability which was one theory asserted by the federal government against Servidone in the third-party action and, (2) it acted properly under New Jersey law (which does not allow recovery against an employer in a third-party action once workmen's compensation benefits are paid to the injured employee) by attempting to abandon Servidone's defense to the common law indemnity cause of action asserted by the federal government. For these reasons, Security cross-moves to dismiss on the grounds Servidone's complaint fails to state a cause of action.

The insured urges Continental is liable because (1) Continental failed to acknowledge plaintiff's requests to defend or indemnify in violation of Continental's common law and Insurance Law section 167 subd. (8) obligations and (2) by implication Continental authorized or was a party to Security's breaches of contract and/or trust.

Continental suggests it has no liability to defend under its excess liability contract because (1) an impending settlement in the underlying action of $50,000.00 is within the coverage limits of the primary insurer, (2) the primary insurer had the obligation to provide Servidone with counsel absolving Continental from any liability for Servidone's defense costs and, (3) Insurance Law § 167 subd. (8) is not applicable to the underlying action because it only applies to accidents ". . . occurring within the state" not in New Jersey.

III. Decision

This court, in a declaratory judgment action, has been asked to decide two legal issues: (1) is a primary insurer liable under the Employers' Liability portion of its insurance contract to its insured because of the primary insurer's initial failure to provide a defense and subsequent failure to protect its insured's interests? and, (2) is an excess liability insurer obligated to an insured for its failure to acknowledge the insured's requests to defend and indemnify under its insurance contract?

A. New York Jurisdiction and the Propriety of Declaratory Judgment

No party has objected to this court's entertaining this declaratory judgment action. Because plaintiff is a domestic corporation and the defendants did business in New York and wrote the subject insurance policies in New York, it appears that the New York courts have jurisdiction to determine the parties' rights under their insurance...