HDI-Gerling American Insurance Company et al v. Navigators Insurance Company
Filing
70
Judge F. Dennis Saylor, IV: ORDER entered denying 53 Motion for Partial Summary Judgment; denying 54 Motion for Partial Summary Judgment. (Cox, Spencer)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
__________________________________________
)
HDI-GERLING AMERICA INSURANCE
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COMPANY, individually and as assignee
)
and/or subrogee of Feeney Brothers Excavation )
LLC, Mohawk Power Corporation d/b/a
)
National Grid, and Kelly L. Melvin-Feeney
)
(individually and as personal representative of )
the estate of Gary Thomas Feeney),
)
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Plaintiff/Counterclaim Defendant,
)
)
v.
)
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NAVIGATORS INSURANCE COMPANY,
)
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Defendant/Counterclaim Plaintiff.
)
__________________________________________)
Civil Action No.
15-10338-FDS
MEMORANDUM AND ORDER ON
CROSS-MOTIONS FOR SUMMARY JUDGMENT
SAYLOR, J.
This action arises out of an insurance coverage dispute between a primary insurer and an
excess insurer following the settlement of a wrongful death claim. Plaintiff HDI-Gerling
America Insurance Company has filed suit against defendant Navigators Insurance Company
seeking declaratory relief and alleging claims for breach of contract, breach of the implied
covenant of good faith and fair dealing, and violation of Mass. Gen. Laws ch. 93A. Navigators
has filed counterclaims against HDI-Gerling, alleging bad faith and violation of Mass. Gen.
Laws ch. 93A. Jurisdiction is based on diversity of citizenship.
The parties agreed that the potential application of the anti-subrogation rule under New
York law is a threshold issue, and each party has submitted a motion for partial summary
judgment on that issue. For the following reasons, the parties’ cross-motions will be denied.
I.
Background
A.
Factual Background
Feeney Brothers Excavation, LLC is a construction company. In 2013, HDI-Gerling
America Insurance Company issued two insurance policies to Feeney Brothers. (Def. SMF ¶¶ 6,
14). The first policy was a general liability policy with a limit of insurance of $1 million per
occurrence (the “General Liability Policy”). (Id. ¶¶ 6-7). National Grid (more precisely,
Mohawk Power Corporation, doing business as National Grid) was an additional insured under
the General Liability Policy. (Pl. SMF ¶ 8).
The second policy issued to Feeney Brothers was a workers’ compensation and
employer’s liability policy (the “Employer Liability Policy”). (Def. SMF ¶ 14). The policy
provided two types of coverage: workers’ compensation coverage (Part A) and employer’s
liability coverage (Part B). (Id. ¶ 15). Although the policy generally provided limits of liability
of $1 million per accident, under a New York Limit of Liability Endorsement, HDI-Gerling’s
liability under the Employer Liability Policy was unlimited if the underlying claim involved
bodily injury that would be compensable under New York workers’ compensation law. (Id.
¶ 22; Pl. SMF ¶ 6).1 National Grid was not an additional insured under the Employer Liability
Policy. (Def. SMF ¶ 20).
Navigators Insurance Company also issued an insurance policy to Feeney Brothers. That
1
The New York Limit of Liability Endorsement appended to the Employer Liability Policy states as
follows:
This endorsement applies only to the insurance provided by [the HDI-Gerling
Employer’s Liability coverage] because New York is shown in Item 3.A. of the Information Page.
We may not limit our liability to pay damages for which we become legally liable to pay
because of bodily injury to your employees if the bodily injury arises out of and in the course of
employment that is subject to and is compensable under the Workers’ Compensation Law of New
York.
(Def. SMF ¶ 23).
2
policy was a commercial excess insurance policy with limits of insurance of $10 million per
occurrence and $10 million general aggregate (the “Navigators Excess Policy”). (Id. ¶¶ 24-25).
National Grid was an additional insured under the excess policy. (Id. ¶ 27). The Navigators
Excess Policy identified both the General Liability Policy and the Employer Liability Policy as
underlying insurance policies. (Id. ¶ 28).2
Gary Thomas Feeney was an employee of Feeney Brothers Excavation LLC. On April
13, 2013, Feeney was killed in a workplace accident in New York. (Pl. SMF ¶ 2). Although
there is little evidence concerning that accident in the record, it appears that he was helping to
unload a 40-foot pipe from a tractor-trailer when the pipe fell on him. (Def. SMF Ex. 6). At the
time of the accident, Feeney was employed by Feeney Brothers on a job it was performing under
a contract with National Grid. (Pl. SMF ¶ 2).
On November 8, 2013, Kelly Melvin-Feeney, individually and as representative of Gary
Feeney’s estate, filed suit against National Grid in the Supreme Court of New York (the “Feeney
Action”). (Def. SMF ¶ 1). The suit alleged that National Grid negligently caused the accident
and Gary Feeney’s death. (Id. ¶ 2). National Grid sought coverage as an additional insured
under the General Liability Policy and the Navigators Excess Policy. (Id. ¶ 5). HDI-Gerling
agreed to defend and indemnify National Grid under the General Liability Policy. (Pl. SMF
¶ 17).
HDI-Gerling eventually negotiated a global settlement of the Feeney Action that included
a settlement of the wrongful-death action for a total $1,500,000 and a workers’ compensation
claim payment of $250,000. (Pl. SMF ¶ 20; Def. SMF ¶ 40). The settlement was structured so
that $1,500,000 would be paid under the General Liability Policy, and $250,000 would be paid
2
It appears that the workers’ compensation coverage portion of the HDI-Gerling Employer Liability
Policy was not included as an underlying policy.
3
under the workers’ compensation coverage portion of the Employer Liability Policy. (Pl. SMF
¶¶ 20-21).3 Because the General Liability Policy had a coverage limit of $1,000,000, HDIGerling now seeks to recover the $500,000 “shortfall” from Navigators under the terms of the
Navigators Excess Policy, which Navigators has refused to pay.
B.
Procedural Background
On February 11, 2015, HDI-Gerling filed a complaint against Navigators. It filed the
complaint both individually and as assignee and/or subrogee of Feeney Brothers Excavation
LLC, Mohawk Power Corporation doing business as National Grid, and Kelly L. Melvin-Feeney
(individually and as personal representative of the estate of Gary Thomas Feeney). The
complaint contains claims for (1) declaratory relief, (2) breach of contract, (3) breach of the
implied covenant of good faith and fair dealing, and (4) violation of Mass. Gen. Laws ch. 93A.
In substance, HDI-Gerling seeks recovery of $500,000 that it alleges Navigators owes as the
issuer of the excess policy.
Navigators filed an answer that asserted five counterclaims: (1) bad faith; (2) equitable
subrogation; (3) breach of the implied covenant of good faith and fair dealing; (4) violation of
Mass. Gen. Laws ch. 93A; and (5) declaratory relief. The counterclaims for equitable
subrogation and breach of the implied covenant of good faith and fair dealing have been
dismissed, leaving only the counterclaims for bad faith, violation of Mass. Gen. Laws ch. 93A,
and declaratory judgment.
II.
Legal Standard
The role of summary judgment is to “pierce the pleadings and to assess the proof in order
3
Navigators contends that HDI-Gerling acted inequitably in intentionally allocating only $250,000 of the
settlement to the workers’ compensation policy and the remaining $1,500,000 to the general liability policy so as to
trigger the excess insurance policy. HDI-Gerling does not appear to dispute the allocation of the settlement, but
does dispute that its conduct was unfair, in bad faith, or was otherwise inequitable.
4
to see whether there is a genuine need for trial.” Mesnick v. General Elec. Co., 950 F.2d 816,
822 (1st Cir. 1991) (internal quotation marks omitted). Summary judgment is appropriate when
the moving party shows that “there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “Essentially, Rule 56[]
mandates the entry of summary judgment ‘against a party who fails to make a showing sufficient
to establish the existence of an element essential to that party’s case, and on which that party will
bear the burden of proof at trial.’” Coll v. PB Diagnostic Sys., 50 F.3d 1115, 1121 (1st Cir.
1995) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)). In making that
determination, the court must view “the record in the light most favorable to the nonmovant,
drawing reasonable inferences in his favor.” Noonan v. Staples, Inc., 556 F.3d 20, 25 (1st Cir.
2009). When “a properly supported motion for summary judgment is made, the adverse party
must set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 250 (1986) (internal quotations omitted). The non-moving party may
not simply “rest upon mere allegation or denials of his pleading,” but instead must “present
affirmative evidence.” Id. at 256-57.
III.
Analysis
A.
The Anti-Subrogation Rule
Subrogation “entitles an insurer to ‘stand in the shoes’ of its insured to seek
indemnification from third parties whose wrongdoing has caused a loss for which the insurer is
bound to reimburse.” North Star Reinsurance Corp. v. Continental Ins. Co., 82 N.Y.2d 281, 294
(1993) (citing Pennsylvania Gen. Ins. Co. v. Austin Powder Co., 68 N.Y.2d 465, 471 (1986)).
“The insurer's right of subrogation [has been] long recognized as a matter of equity.”
Pennsylvania Gen., 68 N.Y.2d at 471 (listing cases).
5
Under the “anti-subrogation rule,” however, an insurer “has no right of subrogation
against its own insured for a claim arising from the very risk for which the insured was covered.”
North Star, 82 N.Y.2d at 294 (citing Pennsylvania Gen., 68 N.Y.2d at 468). “In other words, an
insurer may not step into the shoes of its insured to sue a third-party tortfeasor—if that third
party also qualifies as an insured under the same policy—for damages arising from the same risk
covered by the policy.” ELRAC, Inc. v. Ward, 96 N.Y.2d 58, 76 (2001).
There are at least two purposes of the anti-subrogation rule. First, the rule “prevent[s] an
insurer from using the right of subrogation to avoid paying coverage that is due under the
policy.” Id. In addition, the rule “limits the instances in which an insurer and its insured have
adverse interests, which might undercut an insurer’s incentive to provide a vigorous defense to
its insured.” Id.
The most basic application of the anti-subrogation rule involves a single insurance policy
with a single insured. See, e.g., Chrysler Leasing Corp. v. Public Adm’r, N.Y. County, 448
N.Y.S.2d 181 (N.Y. App. Div. 1982). A slight variation exists when a dispute involves one
insurance policy covering two different insured parties, one of whom has sustained a loss due to
the alleged negligence of the other. See, e.g., Pennsylvania Gen., 68 N.Y.2d 465.
The application of the rule becomes more complex when the facts presented involve
more than one policy and more than one insured. In Hartford Accident & Indemnity Co. v.
Michigan Mutual Insurance Co., 61 N.Y.2d 569, 573-74 (1984), the Court of Appeals had
declined to find the anti-subrogation rule applicable in a case involving multiple policies and
insureds. There, Michigan Mutual insured three entities—DeFoe, L.A.D., and D.A.L.—under a
general liability policy and the same three entities under a workers’ compensation policy. Id. at
572. Hartford insured all three companies under an excess liability policy. Id. An employee of
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D.A.L. named Gobin filed a negligence action against DeFoe and L.A.D. Id. In defending
DeFoe and L.A.D., Michigan Mutual chose not to assert a claim against Gobin’s employer,
D.A.L. Id. at 573.
The primary issue in Hartford was whether Michigan Mutual acted in bad faith by
refusing to implead D.A.L. The court rejected Michigan Mutual’s defense to that claim to the
extent that it was based on the anti-subrogation rule:
Michigan’s reliance on the rule that an insurer may not maintain a subrogation
action against its own insured is . . . misplaced[,] for that rule speaks to an insured
under the same policy. Here Michigan Mutual provided two policies, one a
general liability policy and the second a compensation policy which covered not
only D.A.L.’s obligations under the Workers’ Compensation Law, but also under
paragraph I(B) of the standard policy required Michigan to “pay on behalf of the
insured all sums which the insured shall become legally obligated to pay as
damages because of bodily injury by accident * * * by any employee of the
insured arising out of and in the course of his employment by the insured”
Michigan Mutual would, therefore, under its compensation policy, be obligated to
defend D.A.L. had it been impleaded in the Gobin action and to indemnify D.A.L.
against payment of damages on the impleaded cause of action should it be held
liable. That obligation would arise, however, not under the liability policy under
which it was defending DeFoe and L.A.D., but under the separate compensation
coverage of D.A.L.
Hartford, 61 N.Y.2d at 573-74 (citation omitted).
However, in the later case of North Star, the New York Court of Appeals found that the
anti-subrogation rule applied in a case involving two policies, each naming a different insured.
82 N.Y.2d at 296. Although the policies were nominally separate policies, the court found that
the rule applied because the two policies were purchased by the same entity, issued
simultaneously by the same insurer, and covered the same risk. Id. Application of the antisubrogation rule was proper because “the two policies [were] integrally related and
indistinguishable from a single policy in any relevant way.” Id.
B.
Application of the Rule
Here, HDI-Gerling paid the entire global settlement of $1.75 million. It contends that the
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$500,000 difference between the $1 million limit of the General Liability Policy and the $1.5
million of the settlement should be paid from the Navigators Excess Policy. (Compl. ¶¶ 53-60).
Navigators, however, contends that HDI-Gerling should have asserted claims for contractual
indemnity, common-law indemnity, and contribution against Feeney Brothers, which would have
triggered the coverage of the Employer Liability Policy. (Countercl. ¶ 12). In response, HDIGerling asserts that under the anti-subrogation rule, it was precluded from asserting third-party
claims on behalf of National Grid against Feeney Brothers.
The parties have agreed that the potential application of the anti-subrogation rule is a
threshold question to resolving the dispute. Accordingly, the limited question before the Court
on the parties’ cross-motions is whether, under New York law, the anti-subrogation rule
precluded HDI-Gerling from filing a third-party action against Feeney Brothers on behalf of
National Grid for contribution and indemnity.4
HDI-Gerling’s position is straightforward. It contends that because National Grid and
Feeney Brothers were both co-insureds under the General Liability Policy, it could not assert a
third-party claim against Feeney Brothers on National Grid’s behalf, notwithstanding the fact
that such a claim would have also implicated the Employer’s Liability Policy that HDI-Gerling
had issued to Feeney Brothers.
Navigators contends that the present case is similar to Hartford, which found that the
anti-subrogation rule did not preclude a third-party claim. The Court agrees that the facts
presented here are somewhat similar to those described in Hartford. Both here and in that case,
an insurer covered an owner and an employer under a general liability policy. In both cases, the
same insurer covered the employer under a combination workers’ compensation and employer’s
4
The parties agree that New York law applies for the purposes of this motion. See D. 49.
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liability policy. The Hartford court found that notwithstanding the fact that both parties were
insured under a general liability policy, the anti-subrogation rule did not preclude the insurer
from asserting (on behalf of the owner) a third-party action against the employer that would have
implicated the separate liability policy. Its rationale was that the insurer’s obligation to defend
the employer arose “not under the liability policy under which it was defending [the owner], but
under the separate compensation coverage of [the employer].” Hartford, 61 N.Y.2d at 574
(citation omitted).
Read broadly, Hartford would seem to indicate that the anti-subrogation rule does not bar
an insurer from impleading a co-insured where the insurer’s obligation to the co-insured arises
under a different policy—even where both insured parties are also covered under the separate,
original policy that gave rise to the insurer’s obligation to defend the first-party action. In
Pennsylvania General and North Star, however, the New York Court of Appeals may have
questioned or potentially limited Hartford in two respects. First, in Pennsylvania General, the
court appears to have cast doubt on the applicability of Hartford to the doctrine of antisubrogation by noting that Hartford “alluded to” but did not “formally address[]” the principle
that an insurer may be subrogated to a claim against its own insured arising from the policy that
covers the insured. Pennsylvania Gen., 68 N.Y.2d at 471. Although it is true that the Hartford
court did not use the word “anti-subrogation,” that statement is curious because the Hartford
court did, in fact, explicitly refer to “the rule that an insurer may not maintain a subrogation
action against its own insured.” Hartford, 61 N.Y.2d at 573. And in North Star, the court
described the holding of Hartford as a case in which the impleaded insured “would have been
covered only under a separate . . . policy also issued by [the same insurer].” 82 N.Y.2d at 295
n.4. In Hartford, however, it appears that the employer was in fact covered under both the
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general liability policy and the compensation/employer’s liability policy that would have been
implicated by a third-party action. Hartford, 61 N.Y.2d at 572.5
Regardless, both North Star and Hartford suggest that, at a minimum, the antisubrogation rule does not bar a third-party claim by an insurer on behalf of one co-insured
against another when the impleaded co-insured is not actually covered by the common policy.
The question here then becomes whether the General Liability Policy actually covered the
Feeney claim, such that Feeney Brothers and National Grid were co-insureds.
C.
Whether an Exclusion Applies
Navigators contends that the co-insureds (Feeney Brothers and National Grid) were not
covered by the common policy (the General Liability Policy) as to the claims brought in the
Feeney Action. According to Navigators, the General Liability Policy contained several
exclusions for coverage that arguably were implicated by the underlying Feeney Action. As one
example, Navigators points to an exclusion in the General Liability Policy for bodily injury
arising out of the use of an automobile, including “loading or unloading.” (Def. SMF Ex. 3,
General Liability Policy Section I.2.g). Navigators contends that the exclusion may have
applied to exclude coverage under the policy. If so, under North Star and Hartford, the antisubrogation rule would not have precluded HDI-Gerling from impleading Feeney Brothers in the
course of its defense of National Grid, because Feeney Brothers would have been covered only
under the Employer’s Liability Policy.
There is almost no evidence currently before the Court as to whether that exclusion (or
any other exclusion) was, in fact, implicated by the facts of the underlying accident. There is,
however, at a minimum, evidence that HDI-Gerling at least initially believed the exclusion might
5
The employer would not have been covered under an excess policy. See Hartford Acc. & Indem. Co. v.
Michigan Mut. Ins. Co., 462 N.Y.S.2d 175, 177 (1983), aff'd, 61 N.Y.2d 569 (1984).
10
apply before it later conceded that coverage applied. (See Def. SMF Ex. 6, May 2, 2013 Letter
from HDI-Gerling to Feeney Brothers) (noting HDI-Gerling’s position that an investigation
“suggests that the accident arose during the ‘loading and unloading’” of the pipe from a fortyfoot trailer “such that it qualifies as ‘arising out of the use . . . of any “auto.”’”).
On cross-motions for summary judgment, a court must determine “whether either of the
parties deserves judgment as a matter of law on facts that are not disputed.” Adria Int’l Grp.,
Inc. v. Ferre Dev., Inc., 241 F.3d 103, 107 (1st Cir. 2001). Because of the state of the evidence,
the Court cannot conclude whether the exclusion applied to bar coverage under the General
Liability Policy. Accordingly, the Court cannot, as a matter of law, resolve the question whether
Feeney Brothers and National Grid were co-insureds under the General Liability Policy, and
therefore whether the anti-subrogation rule would have barred HDI-Gerling from bringing a
third-party action against Feeney Brothers. If no exclusions apply, the court will have to answer
a more difficult question, but that is not an issue that need be resolved here.6
D.
Equitable Considerations
Furthermore, and in any event, the applicability of a coverage exclusion is not the only
unresolved issue that may be relevant.
The right of subrogation is “a matter of equity.” Pennsylvania Gen., 68 N.Y.2d at 471;
North Star, 82 N.Y.2d at 295. Accordingly, as an exception to normal subrogation principles,
the anti-subrogation rule is also equitable in nature. Navigators contends that because the antisubrogation rule is an equitable doctrine, it should not apply based on HDI-Gerling’s allegedly
inequitable conduct.
6
In its briefing, HDI-Gerling asks the Court to assume that no coverage exclusions apply, and then to
decide whether, in that case, the anti-subrogation rule would have barred it from impleading Feeney Brothers as part
of its defense of National Grid. The Court declines to issue what would amount to a ruling that is, in effect,
contingent on the future resolution of a disputed issue of material fact.
11
It is “well-established that a litigant who seeks equity must do equity.” In re U.S. Lines,
Inc., 318 F.3d 432, 436 (2d Cir. 2003); Grosch v. Kessler, 256 N.Y. 477, 478 (1931) (“The
plaintiff seeks the aid of equity, and must submit to the condition that he do equity himself.”).
That requirement “closes the doors of a court of equity to one tainted with inequitableness or bad
faith relative to the matter in which he seeks relief . . . .” Precision Instrument Mfg. Co. v. Auto.
Maint. Mach. Co., 324 U.S. 806, 814 (1945) (a party seeking equitable remedies must “come
with clean hands”).
Navigators has submitted a number of e-mails detailing at least some of the discussions
and strategy that it contends played a part in HDI-Gerling’s orchestration of the Feeney Action
settlement. Without recounting the details of each communication, it is sufficient to note that
when taken in the light most favorable to Navigators, those e-mails tend to show that HDIGerling deliberately allocated the settlement in such a manner as to force Navigators to cover the
excess amount at issue here.7
If so, application of the anti-subrogation rule would, in effect, reward HDI-Gerling for
acting inequitably, not prevent it from doing so as the rule is intended. Nor would application of
the anti-subrogation rule to such facts further the policy justifications of the rule. In substance,
instead of preventing HDI-Gerling from avoiding coverage under a policy or passing liability on
to its insured, the anti-subrogation rule here would in fact facilitate HDI-Gerling’s avoidance of
coverage under the Employer Liability Policy. The rule is also meant to “guard against the
potential for conflict of interest that may affect the insurer’s incentive to provide a vigorous
defense for its insured.” North Star, 82 N.Y.2d at 295 (citing Pennsylvania Gen., 68 N.Y.2d at
471-72). Taking the facts in the light most favorable to Navigators, it could be argued that
7
Among other things, Navigators challenges HDI-Gerling’s decision to allocate only $250,000 of the
global settlement of the Feeney Action to the underlying workers’ compensation claim.
12
instead of defending Feeney Brothers, HDI-Gerling conceded coverage under the General
Liability Policy so that it could cap its liability at $1,000,000 and avoid its responsibility for
unlimited coverage under the Employer Liability Policy.
Thus, even assuming that no exclusions applied under the General Liability Policy,
material disputed issues of fact remain with respect to HDI-Gerling’s conduct in arranging and
allocating the settlement in the Feeney Action.8 Accordingly, the Court cannot ascertain whether
HDI-Gerling is entitled to an equitable remedy.
V.
Conclusion
At a minimum, disputed issues of material fact remain with respect to the applicability of
any coverage exclusions contained in the General Liability Policy, as well as with respect to
HDI-Gerling’s conduct in negotiating and finalizing the settlement of the underlying Feeney
Action. For the foregoing reasons, the parties’ cross-motions for summary judgment are
DENIED.
So Ordered.
/s/ F. Dennis Saylor
F. Dennis Saylor IV
United States District Judge
Dated: August 4, 2016
8
To be clear, although the two issues may overlap to some extent, the Court notes that a finding that HDIGerling acted inequitably would not necessarily also lead to a finding in Navigators’ favor on its bad-faith claim
under New York law.
13
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