Vigilant Ins. Co. v. Travelers Prop. Cas. Co. of Am.

• Decision Date: 21 March 2017
• Docket Number: 15 Civ. 144 (KPF)
• Parties: VIGILANT INSURANCE CO., Plaintiff, v. TRAVELERS PROPERTY CASUALTY CO. OF AMERICA, Defendant.
• Court: U.S. District Court — Southern District of New York

243 F.Supp.3d 405

VIGILANT INSURANCE CO., Plaintiff,

v.TRAVELERS PROPERTY CASUALTY CO. OF AMERICA, Defendant.

15 Civ. 144 (KPF)

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

Signed March 21, 2017

Judith Feinberg Goodman, Lester Chanin, Goodman & Jacobs LLP, New York, NY, for Plaintiff.

Elsa Johanna Schmidt, Judith Treger Shelton, Kenney Shelton Liptak & Nowak, LLP, Buffalo, NY, for Defendant.

OPINION AND ORDER

KATHERINE POLK FAILLA, United States District Judge

The underlying personal injury action that begat this coverage lawsuit was settled some two and one-half years ago; the settlement included, in relevant part, contributions totaling $5.3 million from various insurers, including both parties to this litigation. Contemporaneous with that settlement, Plaintiff Vigilant Insurance Co. ("Vigilant") advised Defendant Travelers Property Casualty Company of America ("Travelers") that it would seek to recover, through equitable subrogation, the $650,000 that Vigilant had paid towards that settlement (the "Payment"). Vigilant made good on its promise in filing this action, and the parties have now filed cross-motions for summary judgment. In brief, Vigilant seeks recovery of the Payment on the grounds that it contributed to the settlement only because of Travelers' improper refusal to acknowledge priority of coverage, while Travelers retorts that Vigilant overreacted and made a voluntary, unreasonable payment for which there is no basis for recovery. For the reasons set forth in the remainder of this Opinion, the Court grants in part and denies in part the motions; it finds that the Payment was not voluntarily made, and that it was not an obligation for which Vigilant was liable, but also finds a genuine dispute as to whether the settlement was reasonable.

BACKGROUND¹

A. Factual Background

1. The Accident at the Buffalo Zoo

In October 2006, the Zoological Society of Buffalo (the "Zoo") entered into a General Construction Contract (the "Contract") with a general contractor, Manning Squires Hennig Co., Inc. ("MSH"), for the construction of a South American Rainforest Exhibit (the "Project") at the Zoo. (Pl. 56.1 ¶ 6; Def. 56.1 ¶¶ 2–3, 7). Of note, the Contract required MSH to indemnify and hold the Zoo harmless "[t]o the fullest extent permitted by law" for, among other things, bodily injury caused in whole or in part by any negligent act or omission of MSH or one of its subcontractors. (Schmidt Decl., Ex. D, § 3.18). The Contract further obligated MSH to procure insurance for the project, specifically, (i) an Owners and Contractors Protective Liability ("OCP") Policy in the name of the Zoo; as well as (ii) a Commercial General Liability ("CGL" or "GL") policy and (iii) an Umbrella/Excess Liability policy in the name of MSH that provided coverage to the Zoo as an additional insured on a primary and non-contributory basis. (Pl. 56.1 ¶¶ 8–11; Def. 56.1 ¶ 7).

MSH engaged CarvedRock LLC ("CarvedRock"), a specialty concrete company, as a subcontractor on the project in December 2006. (Def. 56.1 ¶ 8). The subcontract contained, in relevant part, an indemnification provision in favor of both MSH and the Zoo. (Id. ; see also Schmidt Decl., Ex. E, ¶ 21). It further required CarvedRock to add MSH and the Zoo to CarvedRock's liability insurance policies as additional insureds on a primary and non- contributory basis. (Schmidt Decl., Ex. E, ¶ 22).

On April 16, 2008, a laborer on the Project, David Oldread, was seriously injured when he fell from a scaffold while working. (Pl. 56.1 ¶ 2; Def. 56.1 ¶ 9). According to a report circulated in April 2014 by Oldread's counsel, the April 16 accident (the "Accident") caused severe injuries to Oldread's neck, mid-back, lower back, left shoulder, and left side; required numerous medical procedures; and left him totally disabled. (Swift Decl., Ex. F).

On April 23, 2009, Oldread commenced an action in New York State Supreme Court, Erie County, captioned David Oldread and Laura Oldread v. CarvedRock, LLC and Zoological Society of Buffalo, Inc. , Index No. 4772/2009 (the "Oldread Action"). (Pl. 56.1 ¶¶ 1–2; Def. 56.1 ¶¶ 5, 9–11). The complaint in the Oldread Action (the "Oldread Complaint") asserted causes of action for negligence and for violations of the New York Labor Law (the "NYLL"). (Pl. 56.1 ¶¶ 2–3; Def. 56.1 ¶ 11).²

2. The Zoo's Potential Sources of Coverage

At the time of the Accident, the Zoo arguably had coverage under a number of insurance policies issued in favor of entities involved in the Project. These included:

• An OCP Policy issued by Travelers to the Zoo (the "Travelers OCP Policy"), covering the policy period from October 2, 2007, to October 2, 2008, with a limit of $2 million per occurrence for bodily injury liability coverage (Def. 56.1 ¶ 14);

• A CGL Policy issued by Travelers to MSH (the "Travelers GL Policy"), on which the Zoo was listed as an additional insured, covering the policy period from October 1, 2007, to October 1, 2008, with a limit of $1 million per occurrence for bodily injury liability coverage (Pl. 56.1 ¶ 9; Def. 56.1 ¶¶ 16, 17);

• A Customarq Series Museums and Cultural Institutions Policy issued by Vigilant to the Zoo (the "Vigilant Policy"), covering the policy period from May 23, 2007, to May 23, 2008, with a limit of $1 million per occurrence and $2 million in the aggregate for bodily injury liability coverage (Pl. 56.1 ¶ 12; Def. 56.1 ¶ 18);³

• An Umbrella Prime Commercial Liability Policy issued by National Union Fire Insurance Company of Pittsburgh, PA (a division of the American International Group, or "AIG") to MSH (the "AIG–MSH Umbrella Policy") covering the policy period from October 1, 2007, to October 1, 2008, with a limit of $10 million per occurrence for bodily injury liability coverage (Def. 56.1 ¶ 22; see also Pl. 56.1 Opp. ¶ 22 (noting AIG's subsequent disclaimer of coverage));⁴

• A Commercial Excess and Umbrella Policy issued by Federal Insurance Company to the Zoo (the "Federal Excess Policy"), covering the period from May 21, 2007, to May 21, 2008, with a limit of $4 million per occurrence (Def. 56.1 ¶ 29);⁵

• A CGL Policy issued by The Burlington Insurance Company ("Burlington") to CarvedRock (the "Burlington CGL Policy"), covering the period from September 26, 2007, to September 26, 2008, with a limit of $1 million per occurrence and $2 million in the aggregate for bodily injury liability coverage (Def. 56.1 ¶ 31); and

• A Prime Express Commercial Excess Liability Policy issued by AIG to CarvedRock (the "AIG–CarvedRock Excess Policy"), covering the period from September 27, 2007, to September 27, 2008, with a limit of $5 million per occurrence. (Def. 56.1 ¶ 32).

In May 2009, after receiving notice of the Oldread Action, Vigilant tendered a claim on behalf of the Zoo to Travelers under both of the Travelers policies. (Pl. 56.1 ¶ 19 (stating a May 5, 2009 tender date); Def. 56.1 Opp. ¶ 19 (stating a May 15, 2009 tender date)). On May 20, 2009, Travelers agreed to defend and indemnify the Zoo under the Travelers OCP Policy. (Pl. 56.1 ¶ 20; see also Schmidt Decl., Ex. P at 15 ("We have received tender for Chubb as [the Zoo]'s carrier and we have accepted their tender providing coverage under the OCP policy on this file.")). Vigilant closed its claim file after Travelers accepted the tender, and did not pay substantive attention to the matter for the next five years. (Pl. 56.1 ¶ 21).

3. The Western District of New York Coverage Action

As it happened, Travelers' involvement in the matter predated the Zoo's May 2009 tender. MSH was also insured by Travelers, and had advised Travelers of the Accident on or about April 22, 2008. (See Schmidt Decl., Ex. P at 2 (Travelers claim notes); id. , Ex. NNN (May 15, 2009 email from Chubb to Travelers referencing Travelers' prior acceptance of defense and indemnification of the Zoo under the Travelers CGL Policy); cf. Swift Decl., Ex. H at V731 (Chubb claim note reflecting that MSH "picked up the [defense and indemnification] of [the Zoo]")). Early on, Travelers assessed the Accident thusly:

This file is for GL exposure of MSH and any direct claim should be barred by [workers' compensation] as we will argue that MSH is general employer. The real exposure on this claim is that which the owner [i.e., the Zoo] faces and we do know (from a different file) that we do have OCP policy for the owner.

(See, e.g. , Schmidt Decl., Ex. P at 11 (emphasis and alterations added); see also id. at 4–5). Subsequently, Travelers appointed staff counsel, Gary O'Donnell of the Law Offices of John Wallace (and formerly of the Law Office of Laurie G. Ogden), to represent the Zoo. (Id. at 15).

Travelers evaluated other possible sources of insurance coverage, especially policies issued to the subcontractor CarvedRock. In April, June, and August of 2008, Travelers tendered a claim for the defense and indemnification of the Accident to Burlington, the issuer of the CarvedRock CGL Policy. (See, e.g. , Schmidt Decl., Ex. F (correspondence from Burlington in 2008 and 2009 regarding coverage)). When Burlington disclaimed coverage, the Zoo brought a declaratory judgment action on January 14, 2010, against CarvedRock and Burlington in the United States District Court for the Western District of New York, seeking coverage under the Burlington CGL Policy. See Zoological Soc'y of Buffalo, Inc. v. CarvedRock, LLC , No. 10 Civ. 35 (RJA) (HKS) (the "WDNY Coverage Action").⁶

The Zoo contended that CarvedRock's subcontract with MSH required CarvedRock to name the Zoo as an additional insured on the Burlington CGL policy, and thus that the Zoo was covered under that policy. (WDNY Dkt. # 1).⁷ For its part, Burlington disclaimed coverage based on the absence of any written agreement naming the Zoo as an additional insured on its CGL Policy. (WDNY Dkt. # 1, 6). Burlington also opposed what it perceived to be the Zoo's efforts to "re-write the policy to extend coverage not only to those 'with whom ' CarvedRock agreed, but also to those 'for whom ' CarvedRock...