Trans World Maintenance Services, Inc. v. Accident Prevention Brokerage Corp.

• Citation: 560 N.Y.S.2d 914,148 Misc.2d 518
• Parties: TRANS WORLD MAINTENANCE SERVICES, INC., Plaintiff, v. ACCIDENT PREVENTION BROKERAGE CORP., Defendant.
• Decision Date: 03 November 1989
• Court: United States State Supreme Court (New York)

Page 914

560 N.Y.S.2d 914

148 Misc.2d 518

TRANS WORLD MAINTENANCE SERVICES, INC., Plaintiff, v. ACCIDENT PREVENTION BROKERAGE CORP., Defendant.

Supreme Court, New York County IAS, Part 11.

Nov. 3, 1989.

Silfen & Glasser, P.C. (Martin E. Silfen & Jeanne A. Glasser, of counsel), New York City, for plaintiff Trans World.

Mulholland, Minion & Roe (Michael J. Roe, of counsel), Williston Park, for defendant Acc. Prevention.

HAROLD BAER, Jr., Justice.

Plaintiff moves, pursuant to CPLR § 4401, for a directed verdict with respect to the impleader action, and, pursuant to CPLR § 4404, to set aside the verdict and for the entry of a verdict in plaintiff's favor as a matter of law, or, in the alternative, for a new trial of the impleader action. ¹

Plaintiff, through defendant--an insurance broker, obtained a policy of liability insurance coverage from the Mount Vernon Insurance Company ("Mount Vernon"). The policy was bound on or about September 7, 1985 to cover a one-year period and continued through the end of February 1986, when it was canceled by plaintiff. In 1986, Mount Vernon sued plaintiff to recover almost $853,000 (after the deduction of $56,214 paid by plaintiff) for premiums due on the policy for six months. Plaintiff concluded that it had no defense to the Mount Vernon lawsuit and settled it by agreeing to pay Mount Vernon $210,000 pursuant to a stipulation entered into in September 1987. In this impleader action, plaintiff seeks indemnification from the defendant broker for the amount of the settlement, attorney's fees in the Mount Vernon action, interest and costs. Plaintiff argues that its responsibility to Mount Vernon was caused entirely by defendant.

In the amended third-party complaint in this case, plaintiff alleged that defendant undertook to obtain certain coverage for plaintiff. Plaintiff claimed that defendant represented that it had obtained coverage comparable to earlier coverage; that the coverage actually obtained was considerably more costly than prior coverage and contained a certain exclusion (for floor-waxing activities); and that plaintiff relied upon and was misled by defendant's intentionally false representation about the coverage. Plaintiff also charged defendant with negligence for having bound plaintiff to such coverage. After a trial, however, a jury concluded that defendant was not obligated to indemnify plaintiff.

Plaintiff argues that it was error for the Court to have submitted anything to the jury. Plaintiff contends that since the Court took from the jury the two aspects of what came to be called the Codling test, there was nothing left for the jury to decide.

Though plaintiff has identified the standard with Codling v. Paglia, 38 A.D.2d 154, 327 N.Y.S.2d 978 (3d Dep't 1972), aff'd, 32 N.Y.2d 330, 345 N.Y.S.2d 461, 298 N.E.2d 622 (1973), in fact the standard long antedates that case. The Court of Appeals articulated the principles in Dunn v. Uvalde Asphalt Paving Co., 175 N.Y. 214, 67 N.E. 439 (1903). There the Court said (id. at 218, 67 N.E. 439) that one who is liable because of the wrong of another may settle with the party suing him and proceed against the wrongdoer "but, in that event, [the innocent party] undoubtedly assumes the risk of being able to prove the actionable facts upon which his liability depends as well as the reasonableness of the amount which he pays." See also, e.g., Trojcak v. Wrynn, 45 A.D.2d 770, 357 N.Y.S.2d 32 (2d Dep't 1974). Plaintiff argues that it was required to show only that it was liable to Mount Vernon in the main action and that its settlement for $210,000 was reasonable.

I took "the liability aspect," as I put it, away from the jury, "if in fact it was ever there at all," and found that the plaintiff "has established liability." (Tr. 5, 42-43.) I later indicated that I would not put the question of the reasonableness of the settlement to the jury. ² Rather, I submitted to the jury the question of whether or not plaintiff had been damaged by the wrong allegedly done by defendant, leaving to myself the question of reasonableness. (Tr. 6, 1-4) I do not believe, however, that the Codling test as plaintiff reads it is all that there is to this case. Put another way, plaintiff and this Court differ in our understandings of what the Court did in taking "the liability aspect" away from the jury.

In some cases, indemnity will follow as the night the day where, for instance, the settling plaintiff proves that he would have been liable in the main case. If the plaintiff seeking indemnity is a master whose liability in the main case would have been purely vicarious, his establishment that he would have been liable necessarily will prove that the agent is liable to him for negligence. All that will remain then is the reasonableness issue. In this case, however, Trans World's liability in the main action was contractual. In taking "the liability aspect" away from the jury, I was finding that indeed, as plaintiff claimed, it had had no defense to Mount Vernon's demand for the unpaid premiums. In contrast with the master in the hypothetical, the fact that plaintiff owed these sums did not mean, though, that it necessarily owed them because of a wrong done by defendant. It was still essential for plaintiff to prove that its liability on the policy was not the result of a decision of its own that it now regretted, but of a wrong done to it by its agent, the broker. In other words, plaintiff needed to "establish actionable facts which impose liability upon the third-party defendant...." D'Arcangelo v. Burnett, 78 Misc.2d 118, 355 N.Y.S.2d 996, 998 (Sup.Ct.1974). I did not take this issue away from the jury; there were questions of fact that needed resolution--namely whether plaintiff owed money on the policy to Mount Vernon because of the fraudulent conduct or negligence of the defendant. Notwithstanding the Codling couplet, I conclude that there was something that remained for submission to the jury.

Plaintiff also disagreed at trial with this Court's submission of these questions to the jury on the ground that defendant admitted its wrongful conduct. Accident's counsel, says plaintiff (Post-trial Brief, p. 9) "admitted to the misconduct of his client" in his summation. I do not agree with the full reach of plaintiff's argument. As I understand it, the position of defense counsel was that he did not agree with or condone the conduct of agents of defendants concerning the understatement of plaintiff's payroll made to Mount Vernon. In his view, however, that fact alone did not constitute a basis for a finding of liability to plaintiff. Had that not been so, it is hard to see why counsel would have made such exertions in the defense of this case. Instead, the defendant's position was that it could not be held liable for having defrauded plaintiff because officials of plaintiff had been aware of the understatement of the payroll and had at least accepted it. There were, therefore, questions for the jury on both the fraud and negligence theories, one of which plaintiff needed to establish in order to prove that its damages were the result of defendant's wrong, thereby entitling plaintiff to indemnification.

Plaintiff also finds fault with the Court's charge in a number of respects. One of plaintiff's major points is that defendant's principal line of defense was incorrectly handled by the Court. As noted, that defense was that plaintiff was precluded from recovering because it had been aware of and had participated in the fraud of which it complained. Plaintiff has consistently argued that defendant could not present this line of defense because it had failed affirmatively to plead the defense--whether called fraud, connivance, condonation or the like--in its answer.

CPLR § 3018(b) requires that a party plead "all matters which if not pleaded would be likely to take the adverse party by surprise or would raise issues of fact not appearing on the face of a prior pleading," including fraud. CPLR § 3016 provides that in a defense based on misrepresentation or fraud, the circumstances constituting the wrong shall be stated with particularity. Defendant Accident's answer contained an affirmative defense that if the plaintiff was injured as claimed, such injury was caused "by reasons of the carelessness, negligence, want of care, culpable conduct and/or breach of contract on the party of the third-party plaintiff...." Defendant's defense, in other words, consisted of the standard language used to support arguments of contributory negligence or assumption of the risk. This defense did not unequivocally include a claim of fraudulent conduct on the plaintiff's part. On the face of the pleadings, then, plaintiff's argument was not wholly unfounded.

Defendant's position was that it was not required to present an affirmative defense. As defendant puts it on this motion (Roe Affirmation, p. 5), "there was nothing in the way of an affirmative defense relied upon by the Third Party Defendant"; rather, "the only defense urged by the Third Party Defendant was truth...." Defendant did not and does not now elaborate on this position, but, as I understand it now and during trial, it gives rise to the following argument. Plaintiff here based part of its case on a claim of misrepresentation. Plaintiff thus had the burden of proving that defendant made (1) a statement of material fact, (2) that was false, (3) was known by defendant to be false, and that (4) plaintiff justifiably relied upon said misunderstatement, (5) to its damage. Jo Ann Homes at Bellmore, Inc. v. Dworetz, 25 N.Y.2d 112, 119, 302 N.Y.S.2d 799, 803, 250 N.E.2d 214, 218 (1969). Since plaintiff had to prove justifiable reliance, defendant, by a denial, could put plaintiff to its proof on this score and could argue to the jury that plaintiff could not have justifiably relied because it was aware (or worse) of the misstatement. In other words, in view of the burden of proof in a...