Weeks Marine, Inc v. American Steamship Owners Mutual Protection and Indemnity Association, Inc et al
Filing
24
MEMORANDUM AND ORDER granting 12 Motion for Summary Judgment. (Signed by Judge Naomi Reice Buchwald on 8/24/2011) Copies Mailed By Chambers. (lmb)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------X
WEEKS MARINE, INC.,
MEMORANDUM AND ORDER
Plaintiff,
08 Civ. 9878 (NRB)
- against AMERICAN STEAMSHIP OWNERS MUTUAL
PROTECTION AND INDEMNITY
ASSOCIATION, INC., and SHIPOWNERS
CLAIMS BUREAU, INC.,
as manager of American Steamship,
Defendants.
----------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
Plaintiff
Marine”)
Weeks
brought
this
Marine,
Inc.
action
(“plaintiff”
against
defendants
or
“Weeks
American
Steamship Owners Mutual Protection and Indemnity Association,
Inc. (the “American Club”) and Shipowners Claims Bureau, Inc.
(“SCB”) (collectively, “defendants”), seeking a declaration that
it complied with the terms of its insurance contract with the
defendants, and an award of damages for the defendants’ alleged
breach
of
the
contract.
Presently
defendants’ motion for summary judgment.
forth below, the motion is granted.
before
the
court
is
For the reasons set
BACKGROUND
Factual Background1
I.
A. The Parties
The
American
Club
is
a
non-profit
mutual
insurance
association whose daily activities are conducted by its manager,
SCB.
Defs.’
indemnity
charterers.
56.1
insurance
at
¶¶
1-2.
(“P&I
It
provides
Insurance”)
Moore Aff. at ¶ 3.
for
protection
shipowners
and
and
Weeks Marine is a corporation
involved in commercial marine contracting, including dredging
operations.
Langan Decl. at ¶ 3.
B. Weeks Marine’s Membership in The American Club
Weeks Marine first became a member of the American Club on
March 31, 2002.
Moore Aff. at ¶ 4.
Membership in the American
Club is evidenced by a document called a “Certificate of Entry.”
Defs.’ 56.1 at ¶ 3.
On or about April 1, 2005, The American
Club issued Weeks Marine a Certificate of Entry to commence on
February 20, 2005 and with a renewal date of February 20, 2006.
Moore
Aff. at ¶ 4.
This Certificate of Entry covered the time
period relevant to this case.
C. Weeks Marine’s 2005-2006 Certificate of Entry
1
The following facts are drawn from the Defendants’ American Steamship Owners
Mutual Protection and Indemnity Association, Inc. and Shipowners Claims
Bureau, Inc.’s Local Civil Rule 56.1 Statement (“Defs.’ 56.1”); Plaintiff’s
Local Rule 56.1(b) Counter-Statement of Facts (“Pl.’s 56.1”); the Affidavit
of Donald R. Moore (“Moore Aff.”); and the Declaration of Thomas F. Langan,
(“Langan Decl.”).
Unless otherwise noted, the facts recited herein are not
subject to material dispute.
2
Weeks Marine’s 2005-2006 Certificate of Entry provided a
coverage limit of $3 million for liability for claims by crew or
employees, subject to a self-insured deductible of $1 million.
Thus, under the terms of the Certificate of Entry, Weeks Marine
was
responsible
claims
by
crew
for
or
$1
million
employees,
of
and
liability
the
responsible for a maximum of $2 million.
resulting
American
Club
from
was
Id. at ¶ 7; Pl.’s 56.1
at ¶ 7.
Weeks Marine’s Certificate of Entry included a “Crew Claims
Procedure,” which provided:
It is noted and agreed that Crew Claims
reads as follows with effect from inception:
Procedure
The
Insured
shall
be
responsible
for
the
investigation, settlement, defense or appeal of any
claim made or suit brought, or proceeding instituted
against the Insured and shall give prompt notice to
Shipowners Claims Bureau, upon the Insured’s Risk
Management department being notified of any of the
following:
(a) any claim, suit or proceeding that
involve indemnity by the American Club;
appears
to
(b) any
occurrence,
claim,
award
or
proceeding
judgment which exceeds 50% of the Insured’s retention
under this policy;
(c) any
occurrence
which
causes
serious
injury
(disability for a period of nine months or more) to
two or more employees;
(d) any case involving: 1. Amputation of a major
extremity, 2. Brain or spinal cord injury, 3. Death,
4. Any second or third degree burn of 50% of the body
or more;
3
(e) the reopening of any case in which further award
might involve liability to the American Club.
Defs.’ 56.1 at ¶ 9.
The
Certificate
of
Entry
(as
well
as
the
Club’s By-Laws) was governed by New York law.
American
See Moore
Aff., Ex. 1 (the “By-Laws”) at 37 (“These Rules and any
contract of insurance between the Association and a Member
shall be governed by and construed in accordance with the
law of the State of New York.”).
D. The Garza Claim
The
present
February
15,
dispute
2006
by
results
one
of
from
Weeks
an
injury
Marine’s
suffered
crew
on
members,
Maximino Garza (“Garza”), after he was struck by a lever in his
head, while wearing a hardhat.
9.
See id. at ¶ 9; Pl.’s 56.1 at ¶
After the accident, Garza went to Montet’s Occupational
Medical
Service
cervical sprain.
and
was
diagnosed
Defs.’ 56.1 at ¶
with
10.2
a
concussion
and
a
Garza returned to work
after the incident, and continued working until April 26, 2006,
the
date
on
which
his
regularly
Langan Decl. at ¶¶ 9, 12.
scheduled
rotation
ended.
Garza was supposed to return to work
on May 4, 2006 but did not show up or contact Weeks Marine to
explain his absence.
later, on May 17, 2006.
Id. at ¶ 12.
He was fired two weeks
Id.
2
While plaintiff admits that Garza was “clinically diagnosed with a mild
concussion and cervical sprain,” it contends that “[t]he evidence cited by
the [d]efendants does not support its contention.” Pl.’s 56.1 at ¶ 11.
4
On the same day that he was fired, Garza filed a lawsuit
against Weeks Marine in the 381st Judicial District Court of
Starr County, Texas.
discovery
had
Id. at ¶ 12.
ended
and
on
the
settlement demand of $850,000.
000160.
In January of 2008, after
eve
of
trial,
Garza
made
a
See Moore Aff., Ex. 4 at CLUB
Weeks Marine offered $200,000, and provided its counsel
with the authority to offer up to $300,000 to settle the case in
full.
Id.
On February 5, 2008, the state court entered a judgment in
favor of Garza for $3,715,620.36.
Pl.’s 56.1 at ¶ 13.
Two days
later -- after the American Club called Weeks Marine to ask
about a verdict against Weeks Marine in Starr County (i.e. the
Garza verdict) that it had heard about (Moore Aff. at ¶ 7) -the
American
Club
received
lawsuit for the first time.
appealed
the
verdict
in
notice
of
Garza’s
Defs.’ 56.1 at ¶ 14.
the
Garza
affirmed by the Texas Court of Appeals.
litigation,
injuries
and
Weeks Marine
but
it
was
Langan Decl. at ¶ 18.
E. The Parties’ Claims
Defendants argue that plaintiff “breached the requirement
of prompt notice in the Crew Claims Procedure by failing to
provide notice of Mr. Garza’s claim involving a brain injury to
the American Club for almost two years.” Defs.’ 56.1 at ¶ 15.
Thus, they contend, plaintiff is not entitled to indemnification
with respect to the Garza claim.
5
Plaintiff presents a number of arguments in opposition to
defendants’ motion. First, it contends that its compliance with
the Crew Claims Procedure clause in its Certificate of Entry is
not
a
condition
precedent
to
coverage
for
the
Garza
claim.
Second, it contends that, even if compliance is a condition
precedent
prejudiced
to
by
coverage,
defendants
plaintiff’s
alleged
must
show
breach
that
of
the
they
were
contract.
Third, it argues that Garza’s concussion was not a “brain or
spinal cord injury” under the terms of the contract, and that
the term “brain injury” is ambiguous.
And fourth, plaintiff
argues that there is a question of fact as to whether defendants
are estopped from denying coverage for the Garza claim on the
grounds that Weeks Marine provided late notice.
II.
Procedural History
This case was reassigned from Judge Lynch’s docket to this
Court’s docket on October 1, 2009.
On November 5, 2010, the
defendants filed their motion for summary judgment.
Plaintiff
filed its opposition brief on December 3, 2010, and defendants
filed their reply brief on December 17, 2010.
Oral argument was
held on August 9, 2011.
DISCUSSION
I.
Legal Standard for Summary Judgment
Summary judgment is appropriate when “the movant shows that
there is no genuine dispute as to any material fact and the
6
movant is entitled to judgment as a matter of law.”
Fed. R.
Civ. P. 56(a).
The “mere existence of some alleged factual
dispute
the
between
parties
will
not
defeat
an
otherwise
properly supported motion for summary judgment; the requirement
is that there be no genuine issue of material fact.”
Scott v.
Harris, 550 U.S. 372, 380 (2007) (quoting Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247-48 (1986)); see also Quarles v.
Gen. Motors Corp., 758 F.2d 839, 840 (2d Cir. 1985).
“Only
disputes over facts that might affect the outcome of the suit
under the governing law will properly preclude the entry of
summary judgment.”
Anderson, 477 U.S. at 248.
On a motion for summary judgment, the initial burden rests
with the moving party to make a prima facie showing that no
material fact issues exist for trial.
See Celotex Corp. v.
Catrett, 477 U.S. 317, 330-31 (1986).
Once this showing is
made, “[t]o defeat summary judgment, the non-movant must produce
specific facts” to rebut the movant’s showing and to establish
that there are material issues of fact requiring trial.
Wright
v. Coughlin, 132 F.3d 133, 137 (2d Cir. 1998) (citing Celotex,
477 U.S. at 322).
In determining whether a genuine issue of
material fact exists, a court must view the facts in the light
most favorable to the non-moving party and make all reasonable
inferences in that party’s favor.
See Fincher v. Depository
Trust & Clearing Corp., 604 F.3d 712, 720 (2d Cir. 2010).
7
II.
Analysis
A. New York’s “No Prejudice” Rule
“Prior
to
recent
legislative
amendments
to
New
York's
insurance law . . . the longstanding rule in New York held that
where
a
provide
rise
primary
prompt
to
insurance
notice
liability,
contract
after
requires
occurrence
absence
‘the
an
of
the
insured
potentially
timely
notice
to
giving
of
an
occurrence is a failure to comply with a condition precedent
which, as a matter of law, vitiates the contract.’” Pactrans Air
& Seas, Inc. v. New York Marine and General Ins. Co., 387 Fed.
Appx. 43, 45 (2d Cir. 2010).
Thus, a primary insurer did not
have to “show prejudice before it [could] assert the defense of
noncompliance.”
Sec. Mut. Ins. Co. v. Acker-Fitzsimons Corp.,
31
440,
N.Y.2d
905(1972).
436,
293
N.E.2d
76,
78,
340
N.Y.S.2d
902,
The “no prejudice” rule in the insurance context was
designed as an exception to the traditional rule of contract
interpretation
compliance]
precedent
that
“a
ordinarily
absent
contractual
will
clear
not
language
intended to make it a condition.”
be
duty
[requiring
construed
showing
as
that
a
the
strict
condition
parties
Rekemeyer v. State Farm Mut.
Auto Ins., 4 N.Y.3d 468, 475, 828 N.E.2d 970, 796 N.Y.S.2d 13
(2005) (quoting Unigard Sec. Ins. Co. v. North River Ins. Co.,
8
79
NY2d
576,
581,
594
N.E.2d
571,
584
N.Y.S.2d
290
(1992)(citations omitted)).
In
2010,
the
New
York
Legislature
abandoned
its
“no
prejudice” rule and enacted a new scheme under which late notice
does not invalidate an insured’s claim unless (1) an insurer
proves prejudice where notice was provided within two years, or
(2) an insured fails to prove lack of prejudice where notice was
provided after two years.
3420(c)(2)(A).
“irrebuttable
See N.Y. Ins. Law §§ 3420(a)(5),
Even under the recent amendments, however, an
presumption
of
prejudice”
applies
if,
prior
to
notice, “the insured's liability has been determined by a court
of competent jurisdiction or by binding arbitration; or if the
insured has resolved the claim or suit by settlement or other
compromise.”
While
N.Y. Ins. Law. § 3420(c)(2)(B).
Weeks
Marine
cites
to
these
recent
legislative
amendments, the amendments do not apply to insurance policies
issued and delivered before January 17, 2009.
387 Fed. Appx. at 47 n.2.
See Pactrans Air,
In addition, as the Second Circuit
noted, “[i]t appears that maritime insurance contracts are, and
have been for decades, excluded from this section of New York
insurance law.” Id. (citing N.Y. Ins. Law. § 3420(i) (crossreferencing N.Y. Ins. Law. § 2117(b)(3))).
Thus, because the
contract at issue in this case was issued and delivered before
January
17,
2009,
and
because
9
it
is
a
maritime
insurance
contract, we must analyze it under New York’s pre-amendment “no
prejudice” standard.
B. Exceptions to the “No-Prejudice” Rule
Weeks Marine contends that the Crew Claims Procedure is
“not a notice of claim provision, but rather a uniquely drafted
reporting
provision
that
confers
rights
upon
Weeks
Marine
typically reserved to a primary liability insurer — such as the
right to defend, investigate, settle, and appeal claims.”
Weeks
Marine’s Mem. of Law. in Opp’n to the Defs.’ Mot. for Summ. J.
(“Pl.’s Mem.”) at 9 (emphasis in original).
argues,
under
the
terms
of
the
Crew
Thus, Weeks Marine
Claims
Procedure,
the
American Club is effectively a reinsurer, not a primary insurer.
See id. at 9-13.
This distinction is significant because in
Unigard Sec. Ins. Co. v. North River Ins. Co., 79 N.Y.2d 576,
594 N.E.2d 571, 584 N.Y.S.2d 290 (1992), the New York Court of
Appeals held that the “no prejudice” rule does not apply to
reinsurers.
Because Weeks Marine contends that the Certificate of Entry
should
be
analyzed
under
the
Unigard
rule,
we
begin
summarizing the Court of Appeals’ decision in that case.
by
We
then consider the Court of Appeals’ decision in American Home
Assurance Co. v. International Insurance Co., 90 N.Y.2d 433, 684
N.E.2d 14, 661 N.Y.S.2d 584 (1997), which held that the Unigard
rule does not apply to excess insurers.
10
After setting forth
this
background,
we
consider
Weeks
Marine’s
claim
that
the
American Club should be required to show prejudice.
1. Unigard and American Home
In reaching its conclusion that the “no prejudice” rule
does not apply in the reinsurance context, the Court of Appeals
in Unigard first summarized the reasons for applying the “no
prejudice”
rule
in
the
primary
insurance
context.
They
included:
“[T]he insurer [must have] an opportunity to protect
itself.” Unigard, 79 N.Y.2d at 581, 594 N.E.2d at 573, 584
N.Y.S.2d at 292 (quoting Sec. Mut. Ins. Co. v. AckerFitzsimons Corp., 31 N.Y.2d at 440, 340 N.Y.S.2d at 902,
293 N.E.2d at 76 (1972)).
“[W]ithout timely notice, ‘an insurer may be deprived of
the opportunity to investigate a claim and is rendered
vulnerable to fraud.’” Id. (quoting Power Auth. v.
Westinghouse Elec. Corp., 117 A.D.2d 336, 339, 502 N.Y.S.2d
420, 422 (1st Dep’t 1986)).
“[L]ate ‘notification may . . . prevent the insurer from
providing a sufficient reserve fund.’”
Id., 79 N.Y.2d at
at 581-82, 594 N.E.2d at 573, 584 N.Y.S.2d at 292 (quoting
Power Auth., 117 A.D.2d at 339, 502 N.Y.S. at 422).
“Prompt notice permits the primary insurer to make an early
estimate of potential exposure, to investigate the claim
while witnesses and facts are available, and to take steps
to prevent fraud.”
Id., 79 N.Y.2d at 582, 594 N.E.2d at
573, 584 N.Y.S.2d at 292 (citation omitted).
“Early notice enables the insurer, inter alia, to exercise
early control over the claim and enhances the possibility
of settlement.” Id. (citation omitted).
The
Court
implementing
then
a
considered
“no
whether
prejudice”
11
rule
the
in
same
the
reasons
primary
for
insurer
context apply in the reinsurance context.
It found that they do
not, and that the “differences in the contractual undertakings
of reinsurers and primary insurers have consequences of critical
importance.”
Id., 79 N.Y.2d at 583, 594 N.E.2d at 574, 584
N.Y.S.2d at 293.
The Court began by defining reinsurance:
A certificate of reinsurance –- unlike a contract of
primary insurance –- is not a contract under which the
company agrees to indemnify the insured from losses up
to a stated limit upon the happening of specified
contingencies.
A certificate of reinsurance is a
contract between two insurance companies in which the
reinsured company agrees to cede part of its risk to
the reinsurer in return for a percentage of the
premium.
A reinsurance contract operates solely
between the reinsurer and the ceding company.
It
confers no rights on the insured. . . . [A]
reinsurer’s only obligation is to indemnify the
primary insurer.
Id., 79 N.Y.2d at 583, 594 N.E.2d at 573, 584 N.Y.S.2d at 292
(internal quotation marks and citation omitted).
listed
the
following
additional
differences
The Court then
between
primary
insurers and reinsurers that, it found, lead to the conclusion
that the “no prejudice” rule does not apply in the reinsurance
context:
“A reinsurer is not responsible for providing a defense,
for investigating the claim or for attempting to get
control of the claim in order to effect an early
settlement.” Id., 79 N.Y.2d at 583, 594 N.E.2d at 574, 584
N.Y.S.2d at 293.
“Unlike a primary insurer, it may not be held liable to the
insured for a breach of these duties.” Id.
12
“Settlements, as well as the investigation and defense of
claims are the sole responsibility of the primary insurer;
and settlements made by the primary insurer are, by express
terms of the reinsurance certificate, binding on the
reinsurer. Id.
“[T]he interests of a reinsurer and the ceding primary
insurer with respect to a pending claim are generally
identical.
The ‘follow the fortunes’ clause in most
reinsurance agreements leaves reinsurers little room to
dispute the reinsured’s conduct of the case. In addition,
the interests of both parties are furthered through the
primary insurer’s efficient investigation and defense of
the claim and through the resolution of the claim on the
best terms possible. . . . By contrast, the interests of a
primary insurer and its insured may often be adverse.” Id.
In American Home, 90 N.Y.2d 433, 684 N.E.2d 14, 661 N.Y.S.2d
584
(1997),
the
New
York
Court
of
Appeals
considered
the
application of the “no prejudice” rule in the context of excess
insurers and held that, unlike reinsurers, excess insurers are
covered by the traditional “no prejudice” rule.
The Court found
that the “rights and obligations of excess insurers are more
analogous
to
those
of
primary
insurers
than
to
those
of
reinsurers,” and that “that the Unigard rule is inapplicable to
providers of excess liability insurance.”
437, 684 N.E.2d at 15, 661 N.Y.S.2d at 585.
Id., 90 N.Y.2d at
The Court stated
that:
Apart from the fact that their coverage does not
immediately attach after an occurrence but rather
attaches only after the primary coverage for the
occurrence is exhausted, excess insurers have most of
the rights and obligations of primary insurers. They
have
the
right
to
investigate
claims
and
to
13
participate in settlement negotiations, and they have
even been held to be entitled to make their own
settlement
determinations.
Critically,
excess
policies do not contain the “follow the fortunes”
clauses that typify reinsurance contracts and leave
reinsurers “little room to dispute the reinsured’s
conduct of the case.”
Id., 90 N.Y.2d at 443, 684 N.E.2d at 18, 661 N.Y.S.2d at
588 (quoting Unigard, 79 N.Y.2d at 583, 594 N.E.2d at 574,
584 N.Y.S.2d at 293) (internal citations omitted).
2. The Crew Claims Procedure
Weeks Marine presents a number of reasons why the Crew
Claims Procedure should be analyzed under the Unigard standard
(i.e.
that
the
prejudice).
American
Club
should
be
required
to
show
First, Weeks Marine contends that because of the
provision in the Crew Claims Procedure stating that Weeks Marine
“shall be responsible for the investigation, settlement, defense
or
appeal
instituted
of
any
against
claim
made
[Weeks
or
suit
Marine].
.
brought,
.[,]”
or
it
proceeding
is
uniquely
placed in a position analogous to the reinsurers in Unigard.
Second,
Weeks
liability
Marine
insurer,
notes
but
that
rather
the
an
American
indemnity
Club
is
insurer,
not
a
again
placing it in a similar situation to the reinsurers in Unigard.
Third,
Weeks
liability
Marine
insurance
contemplates
reporting
states
that,
contract,
some
the
claims
14
unlike
a
Crew
after
typical
Claims
a
primary
Procedure
judgment.
And
fourth, Weeks Marine emphasizes that, under the terms of the
Certificate of Entry, it is responsible for both the first $1
million and any amount in excess of $3 million; thus, under the
terms of the contract, the American Club only provides a “narrow
layer of coverage.”
While
Certificate
Pl.’s Mem. at 12.
we
recognize
of
Entry
that
that
there
provide
are
Weeks
elements
Marine
of
with
the
certain
responsibilities that often belong to primary insurers, we find
that these elements do not provide a basis upon which to depart
from New York’s traditional “no prejudice” rule.
As a preliminary matter, there can be no dispute that the
American Club is not a reinsurer and the Certificate of Entry
between Weeks Marine and the American Club is not a reinsurance
contract.
First, as noted above, “a certificate of reinsurance
is a contract between two insurance companies.”
Unigard, 79
N.Y.2d at 582, 594 N.E.2d at 574, 584 N.Y.S.2d at 293.
Here,
only one insurance company is a party to the Certificate of
Entry.
Second,
in
a
reinsurance
contract,
“the
reinsured
company agrees to cede part of its risk to the reinsurer in
return for a percentage of the premium.”
Id.
Here, there is no
“reinsured company,” and the premium at issue is simply that
which Weeks Marine (the insured) paid to the American Club (the
insurer) in return for the American Club’s coverage.
Third, “a
reinsurance contract operates solely between the reinsurer and
15
the
ceding
operates
fourth,
company.”
solely
a
Id.
between
reinsurance
insured. . . .”
Here,
the
insured
contract
Id.
the
Certificate
and
“confers
of
Entry
the
insurer.
And
no
rights
the
on
Here, the essence of Weeks Marine’s
argument is that the Certificate of Entry confers significant
rights upon it.
Nevertheless,
Weeks
Marine
contends
that
the
reporting
requirements in the Crew Claims Procedure make it “analogous to
the reporting requirements in reinsurance contracts,” and thus
that the American Club should be required to show prejudice.
Pl. Mem. at 11.
appropriate
to
We disagree.
consider
Even if we assume that it is
whether
provisions
of
a
primary
insurance contract can effectively convert the contract into a
reinsurance
contract
for
purposes
of
determining
the
applicability of New York’s “no prejudice” rule, we do not find
that the Unigard rule applies in this case.
Unlike in many
reinsurance contracts, the Certificate of Entry does not include
a “follows the fortune” clause, which the New York Court of
Appeals
in
American
Home
found
to
be
a
critical
difference
between excess insurance contracts and reinsurance contracts.
American Home, 90 N.Y.2d at 443, 684 N.E.2d at 18, 661 N.Y.S.2d
at 588.
The American Home court noted that such clauses “typify
reinsurance
contracts
and
leave
16
reinsurers
little
room
to
dispute the reinsured’s conduct of the case.”
Id. (internal
quotation marks omitted).3
The lack of a “follows the fortune” clause in the contract
between Weeks Marine and The American Club makes sense, as there
may be a number of cases in which the interests of the insured
and the insurer are, at a minimum, not “generally identical.”
Unigard, 79 N.Y.2d at 583.
For example, a claim that Weeks
Marine values at between $1 million and $3 million would have
little impact on Weeks Marine (since it would be spending the
entirety of its $1 million deductable), but a significant impact
on the American Club.
Indeed, under Weeks Marine’s proposed
interpretation of the Crew Claims Procedure, it could settle a
claim against it for $3 million, and then notify the American
Club and demand $2 million in indemnification.
This would be
inconsistent with “[t]he rationale of the no-prejudice rule,”
which
the
New
applicable
to
York
a
insurance policy.”
Court
late
of
notice
Appeals
of
has
lawsuit
stated
“is
under
a
clearly
liability
Argo Corp. v. Greater New York Mut. Ins.
Co., 4 N.Y.3d 332, 340, 794 N.Y.S.2d 704, 707, 827 N.E.2d 762,
756 (2005).
“A liability insurer, which has a duty to indemnify
and often also to defend, requires timely notice of lawsuit in
order to be able to take an active, early role in the litigation
3
In Unigard, the “follows the fortune” provision of the reinsurance contract
stated, in relevant part, that “[a]ll claims covered by this reinsurance when
settled by the Company shall be binding on the Reinsurers, who shall be bound
to pay their proportion of such settlements.” Unigard, 79 N.Y.2d at 583 n.2.
17
process and in any settlement discussions and to set adequate
reserves.”
The
Id.
absence
of
a
“follows
the
fortune”
clause
in
the
Certificate of Entry relates to another meaningful distinction
between the primary insurance contract at issue in this case and
Here, even though the
the reinsurance contract in Unigard.
Certificate
of
responsibility
Entry
defend
to
provided
Weeks
Marine
and
investigate
claims,
with
it
did
the
not
eliminate certain of the American Club’s rights to control the
handling
of
claims
American
Club’s
against
By-Laws
its
members.
provided
the
Specifically,
American
Club
with
the
the
ability to control or direct the conduct of a claim by a club
Member.
regard
See By-Laws at 27-29.
to
the
handling
The American Club’s rights with
of
claims
are
substantially
more
significant than the reinsurer’s “right to associate” (i.e. “the
right
[of
the
reinsurer]
to
consult
with
and
advise
the
reinsured in its handling of a claim” (Unigard, 79 N.Y.2d at
583, 594 N.E.2d at 575, 584 N.Y.S.2d at 294), which the Unigard
court
found
insufficient
to
warrant
application
prejudice” rule in the reinsurance context.
of
the
“no
This is so for two
related reasons: first, the right to control the handling of a
claim is more meaningful than the right to provide advice with
regard to a claim.
of
the
insured
Second, as stated above, here the interests
(Weeks
Marine)
18
and
the
primary
insurer
(the
American
Club)
insurer’s
view
are
on
not
how
“generally
to
handle
identical,”
a
and
thus
the
particular
claim
is
more
likely to diverge from the view of the insured.
In sum, where there is no dispute that the Certificate of
Entry is not a reinsurance contract, and where the American Club
is not a reinsurer, and where the American Club’s coverage only
was
triggered
after
Weeks
Marine’s
$1
million
retention
was
spent, and where the Certificate of Entry did not include a
“follows the fortune” clause, we find it appropriate to apply
New York’s traditional “no prejudice” rule.
question
of
whether,
under
the
terms
We thus turn to the
of
the
Crew
Claims
Procedure, Weeks Marine was required to report the Garza claim.
C. Interpretation of the Crew Claims Procedure
1. Contract Interpretation Under New York law
The threshold issue for a court in any contract dispute is
to determine whether the language of a contract is unambiguous.
In
interpreting
objective”
of
the
contractual
court
“is
agreements,
to
determine
the
the
“fundamental
intent
of
the
contracting parties ‘as derived from the language employed in
the
contract.’”
Utilities,
426
Consolidated
F.3d
524,
527
Edison,
(2d
Inc.
Cir.
2005)
v.
Northeast
(citing
Abiele
Contracting v. N.Y. City Sch. Constr. Auth., 91 N.Y.2d 1, 9, 666
N.Y.S.2d 970, 689 N.E.2d 864 (1997)).
“Where the contract is
clear and unambiguous on its face, the courts must determine the
19
intent
of
the
instrument.”
parties
from
within
the
four
corners
of
the
Id. (quoting Meccico, v. Meccico, 76 N.Y.2d 822,
824, 559 N.Y.S.2d 974, 559 N.E.2d 668 (1990)).
However, where a
contract is ambiguous, “extrinsic evidence may be considered ‘to
ascertain the correct and intended meaning of a term’ or terms.”
Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of
N.Y., 375 F.3d 168, 178-79 (2d Cir. 2004) (quoting Alexander &
Alexander
Services,
Inc.
v.
These
Certain
Underwriters
at
Lloyd's, London, England, 136 F.3d 82, 86 (2d Cir. 1998)).
Further,
ambiguous
“[a]scertaining
is
a
question
whether
of
law
or
for
not
a
writing
the
trial
is
court.”
Morse/Diesel, Inc. v. Trinity Industries, Inc., et al., 67 F.3d
435, 443 (2d Cir. 1993) (quoting Sayers v. Rochester Telephone
Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1094 (2d
Cir.
1993)).
“Under
New
York
law
‘[c]ontract
language
is
ambiguous if it is capable of more than one meaning when viewed
objectively by a reasonably intelligent person who has examined
the
context
of
the
entire
integrated
agreement
and
who
is
cognizant of the customs, practices, usages and terminology as
generally understood in the particular trade or business.’” Id.
(quoting Sayers, 7 F.3d at 1095).
However, if the words of the
contract convey a definite and precise meaning where there is no
reasonable basis for a difference in opinion, summary judgment
may be granted.
Seiden Associates, Inc. v. ANC Holdings, Inc.,
20
959 F.2d 425, 428 (2d Cir. 1992).
that
include
differing
Arguments made by the parties
meanings
for
necessarily mean a provision is ambiguous.
a
provision
do
not
Id.
2. Weeks Marine’s Arguments
Weeks Marine presents a number of arguments as to why it
was not required to report Garza’s concussion.
First, Weeks
Marine argues that the other injuries listed in paragraph (d) of
the Crew Claims Procedure (in addition to a “brain or spinal
cord injury”)—namely, amputation of a major extremity, death,
and second degree burns—“are each indicative of severe physical
injuries of a lasting or permanent nature.”
Pl.’s Mem. at 14.
Thus, Weeks Marine contends that it “reasonably intended and
interpreted
‘[b]rain
or
spinal
cord
injury’
to
relate
to
a
physical injury to the brain, with serious permanent residual
physical or mental impairment, and not a clinical diagnosis of
an alteration of a claimant’s mental state. . . .”
Id.
Second,
Weeks Marine contends that the Certificate of Entry left the
determination of whether a particular occurrence fell within the
scope of the Crew Claims Procedure’s reporting requirements up
to Weeks Marine’s Risk Management department; and since Weeks
Marine did not view Garza’s concussion as a brain injury, it did
not violate the contract’s reporting requirement.
In
support
of
this
argument,
Weeks
Marine
Id. at 13-14.
cites
to
the
deposition of an underwriter from the American Club to argue
21
that
the
American
Club
itself
“had
no
phrase ‘[b]rain or spinal cord injury.’”
Weeks
Marine
argues
that
the
phrase
understanding
Id. at 16.
“brain
or
of
And third,
spinal
cord
Id. at
injury” is ambiguous in the context of the Garza claim.
18-21.
the
We find all three arguments unavailing.
a. The other injuries in section (d)
Viewing the Crew Claims Procedure as a whole, it is evident
that
the
reporting
section
parties
of
(c)
specifically
certain
of
the
“serious”
Crew
provided
injuries.
Claims
for
For
Procedure,
the
required
example,
Weeks
under
Marine
is
required to report “any occurrence which causes serious injury
(disability for a period of nine months or more) to two or more
employees.” (emphasis added).
some
of
the
injuries
in
Furthermore, the descriptions of
section
(d)
include
language
that
requires Weeks Marine to determine the severity of a kind of
injury, as opposed to only determining whether a kind of injury
occurred.
Thus,
Weeks
Marine
was
required
to
report
cases
involving the “[a]mputation of a major extremity” (as opposed to
any extremity) and “[a]ny second or third degree burn of 50% of
the body or more” (as opposed to a burn of any degree on any
percentage of the body).4
4
Of course, no such determination of severity would be required with regard to
cases involving death (the fourth injury listed in section (d)).
22
Weeks Marine’s proposed interpretation of section (d) of
the Crew Claims Procedure (i.e. that the phrase “brain or spinal
cord injury” describes injuries involving “a physical injury to
the brain, with serious permanent residual physical or mental
impairment. . . .”) effectively requires the addition of the
word “serious” or “major” before “brain or spinal cord injury.”
Had the parties intended to only include “severe and lasting
(id. at 15) within the category of cases that
brain injur[ies]”
required reporting, they could have done so.
The language of
the Crew Claims Procedure reflects no such intent.
See, e.g.,
ReliaStar Life Ins. Co. of N.Y. v. EMC Nat’l Life Co., 564 F.3d
81, 88 (2d Cir. 2009) (“In interpreting a contract under New
York law, words and phrases . . . should be given their plain
meaning.”) (ellipses in original and internal quotation marks
omitted).
b. Weeks Marine’s Determination of Whether There was
a Brain Injury
Weeks Marine’s contention that it was solely responsible
for the determination of whether a particular occurrence fell
within
the
scope
of
the
Crew
Claims
Procedure’s
reporting
requirements (and thus that because it did not view Garza’s
concussion as a brain injury, it did not violate the reporting
requirements) fails for a number of reasons.
provisions
in
the
Crew
Claims
23
Procedure
First, unlike the
that
required
notification when a claim “appears to involve indemnity by the
American Club” (emphasis added), or when the reopening of a case
“might
involve
liability
to
the
American
Club,”
(emphasis
added), the provision addressing a “brain or spinal cord injury”
lacks any such subjective component.
Second, and more significantly, even assuming that Weeks
Marine did not view Garza’s concussion as a “brain injury,”
Garza himself alleged that he has suffered a “brain injury.”
See Decl. of John M. Woods (“Woods Decl.”), Ex. 5 (“Plaintiff,
Maximino Garza, sustained severe and permanent injuries on or
about February 15, 2006.
In addition to a closed head injury
and brain injury as well as injuries to his body generally. . .
.”).
Thus, the Garza case was one “involving” a brain injury.
Third, to the extent that Weeks Marine argues that Garza
was not diagnosed as having a “brain injury,” that argument is
not
supported
by
the
record.
While
it
is
true
that
Garza
underwent a CT-scan after the accident and was not diagnosed
with any fractures, hemorrhages, or hematomas, the record shows
that Garza was diagnosed as having suffered a “contused cranium
with concussion.”
Fourth,
See id., Ex. 6 at 8.
Garza’s
doctors
testified
during
the
litigation that Garza had suffered a brain injury.
underlying
See, e.g.,
id., Ex. 1 at 40:16-18 (deposition testimony of Fred Perez, Jr.,
M.D.) (“[Garza] suffered a concussion, or, in other words, he’s
24
suffered a – what we call a closed head injury to the brain.”);
id., Ex. 2 at 21:23-25 (deposition testimony of Ralph B. Lilly,
M.D.) (“[Garza] had a post-traumatic headache, meaning headaches
seen after the actual trauma from the brain.”).
Finally,
Weeks
Marine’s
reliance
on
the
deposition
testimony of an American Club underwriter, Stuart J. Todd, is
unavailing.
When
asked
at
his
deposition
whether
he
has
a
“thought process” about the term “brain or spinal cord injury”,
Todd responded: “[b]rain or spinal cord injury.”
A.V.
Nicoletti
in
Opp’n
to
the
Defs.’
(“Nicoletti Decl.”), Ex. 1 at 79:12-15.
was
offering
reading.”
a
“[p]lain
Id. at 79:16-17.
reading,”
Mot.
Decl. of John
for
Summ.
J.
When asked whether he
Todd
responded
“[p]lain
While Todd stated that he did “not
have a definition for brain,” he testified that his view was
that the term “brain injury” speaks for itself.
Id. at 79:25-
80:8.
In
light
of
this
record,
Weeks
Marine
must
rely
on
an
argument that, in the context of the Crew Claims Procedure, the
phrase “brain injury” is ambiguous, and a concussion is not a
brain injury.5
We consider that argument below.
5
While defendants have only relied in their papers on the “brain or spinal
cord injury” provision of the Crew Claims Procedure, we note that plaintiff
was also required to provide prompt notice of “[a]ny occurrence, claim, award
or proceeding judgment which exceeds 50% of the Insured’s retention policy.”
Defs.’ 56.1 at ¶ 9 (Crew Claims Procedure section (b)).
As noted above
(supra p. 5), Garza made a pre-trial settlement offer of $850,000. Under a
plain reading of the terms of the Crew Claims Procedure, the settlement offer
25
c. Is a Concussion a Brain Injury?
Weeks Marine contends that it was not required to report
the Garza claim to the American Club because Garza’s injury-a
concussion-is not a brain injury.
See Pl.’s Mem. at 19.
In
support, Weeks Marine cites to an excerpt from the University of
Pittsburgh’s
Brain
Trauma
Research
Center
on
sports-related
concussions.
The excerpted passage states that “physicians and
sports medicine researchers do not even agree on the definition
of ‘concussion.’
of
concussion
Previous attempts to objectify the diagnosis
or
post-concussive
syndrome
using
multiple
concussion scales, computed tomography (CT), magnetic resonance
imaging (MRI), and EEG have been unsuccessful.”6
Aside from the fact that this article is published by a
“Brain
Trauma
passage
Research
discusses
Center,”
attempts
to
and
that
objectify
the
the
above-quoted
diagnosis
of
a
concussion, the next paragraph in the article states that “most
experts” believe that the symptoms of concussions are related to
metabolic dysfunction in the inferior parietal, prefrontal, and
cingulate cortex [i.e. parts of the brain].”
Id.
The article
further states that the symptoms “occurring after TBI [traumatic
brain
injury]
have
been
implicated
as
the
cause
for
this
of $850,000 was a claim in excess of 50% of the insured’s retention (i.e. in
excess of $500,000), and thus should have been reported.
6
University of Pittsburgh, Department of Neurological Surgery, Brain Trauma
Research Center, Sports-Related Concussion: Background and Significance,
http://www.neurosurgery.pitt.edu/trauma/concussion.html (last visited Aug.
17, 2011).
26
dysfunction.
that
“[i]t
Id.
(emphasis added).
has
also
been
Indeed, the article notes
postulated
that
metabolic
dysregulation, until fully resolved, may make the brain more
vulnerable
to
a
second
injury,
thus
explaining
the
severe
neurological dysfunction or death when a second impact occurs
before
these
abnormalities
resolve.”
Id.
If
the
brain
is
vulnerable to a “second injury,” after metabolic dysregulation,
presumably it was injured a first time.
Although
Weeks
Marine
cites
to
other
publications
in
support of its contention that the definition of a concussion is
ambiguous, none of these publications seriously question whether
a concussion is an injury to the brain.
For example, Weeks
Marine cites to the American Academy of Neurology, which states
that a “[c]oncussion is a trauma-induced alteration in mental
status that may or may not involve loss of consciousness.”7
But
the American Academy of Neurology’s description of the symptoms
of a concussion clearly states that those systems “may occur
immediately after the blow to the head or several minutes later”
and
that
“[r]epeated
concussions
can
cause
cumulative
brain
injury in an individual injured over months or years . . . .”
Id. (emphasis added).
7
American Academy of Neurology, Practice Parameter, Management of Concussion
in Sports,
http://www.aan.com/professionals/practice/guidelines/pda/concussion_sports.pd
f (last visited Aug. 17, 2011).
27
Whatever the symptoms of a concussion are, it is beyond
dispute that they are caused by trauma, and that the trauma is
to
the
brain.
Concussion
See,
(“A
e.g.,
concussion
Mayo
is
Clinic
a
Staff,
traumatic
Definition
brain
injury
of
that
alters the way your brain functions. . . . [E]very concussion
injures your brain to some extent.”) (emphasis added)8; Medic8,
Discussion
of
Mild
Head
Injury
(Concussion)
(“Concussion,
or
mild traumatic brain injury (MTBI), is the most common and least
serious type of traumatic brain injury. Concussion involves a
transient
loss
of
mental
function.
It
can
be
caused
by
acceleration or deceleration forces, or by a direct blow.”)9;
American
Associate
of
Neurological
Surgeons,
Discussion
of
Concussion (“A concussion is an injury to the brain that results
in
temporary
caused
by
loss
a
blow
of
normal
to
the
brain
head.
function.
.
.
.
The
It
is
usually
formal
medical
definition of concussion is: a clinical syndrome characterized
by immediate and transient alteration in brain function . .
.”)10. See also Harmeyer v. Dohm, No. 06-4220, 2007 WL 4294667,
at
*3
(E.D.
evidence
of
La.
a
Mar
doctor’s
7,
2007)
diagnosis
(denying
of
a
request
“cerebral
to
exclude
concussion,
Grade I” where whether plaintiff suffered a brain injury was at
8
http://www.mayoclinic.com/health/concussion/DS00320 (last visited Aug. 17,
2011).
9
http://www.medic8.com/healthguide/articles/mildheadinjury.html (last visited
Aug. 17, 2011).
10
http://www.aans.org/Patient%20Information/Conditions%20and%20Treatments/Conc
ussion.aspx (last visited Aug. 17, 2011).
28
issue); Simone v. Astrue, 08-CV-4884, 2009 WL 2992305, at *3 n.5
(E.D.N.Y. Sept. 16, 2009) (citing the Mayo Clinic and defining a
concussion as “a mild traumatic brain injury, usually occurring
after a blow to the head,” and defining post-concussion syndrome
as
“a
complex
headaches
and
disorder
in
dizziness-last
which
for
concussion
symptoms-such
weeks
sometimes
and
as
months
after the impact that caused the concussion”).
D. Estoppel
Weeks
Marine
argues
that,
even
if
it
was
required
to
provide notice of the Garza claim, there is a genuine issue of
material fact as to whether the American Club is estopped from
denying coverage for the claim as untimely.
24.
had
Pl.’s Mem. at 21-
Specifically, Weeks Marine contends that the American Club
previously
provided
coverage
for
two
claims
that
Weeks
Marine reported years after it first became aware of the claims.
Thus,
Weeks
Marine
argues
that
it
“relied
upon
the
prior
practice of the American Club’s acceptance of claims under the
Crew Claims Procedure provision after a judgment or on the eve
of trial,” and that, as a result, “the American Club should be
estopped
from
denying
notice.”
the
Garza
claim
because
of
untimely
Id. at 23.
“The purpose of equitable estoppel is to preclude a person
from asserting a right when he or she has led another to form
the reasonable belief that the right would not be asserted, and
29
loss or prejudice to the other would result if the right were
asserted.”
Shondel J. v. Mark D., 7 N.Y.3d 320, 326 853 N.E.2d
610, 613, 820 N.Y.S.2d 199, 202 (2006); see also Fundamental
Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt., L.P., 7
N.Y.3d 96, 106-07, 817 N.Y.S. 2d 606, 612 (2006)
“estoppel
is
imposed
by
law
in
the
interest
of
(noting that
fairness
to
prevent the enforcement of rights which would work fraud or
injustice upon the person against whom enforcement is sought and
who, in justifiable reliance upon the opposing party's words or
conduct, has been misled into acting upon the belief that such
enforcement
would
not
be
sought”)
(internal
Marine’s
estoppel
argument
quotations
and
fails
two
citation omitted).
Here,
reasons.
Weeks
for
First, the American Club’s By-Laws include an anti-
waiver clause, which states that:
No act, omission, course of dealing, forbearance,
delay or indulgence by the [American Club] in
enforcing any of these Rules or any contractual terms
and conditions shall prejudice or affect the rights
and remedies of the [American Club] under these Rules
or under such contracts, and no such matter shall be
treated as any evidence of waiver of the [American
Club's] rights thereunder, nor shall any waiver of a
breach by a Member of such Rules or contracts operate
as a waiver of any subsequent breach thereof. The
[American Club] shall at all times and without notice
be entitled to insist on the strict application of
these Rules and on the strict enforcement of its
contracts.
30
By-Laws at 33.
This provision preserves the American Club’s
rights and defenses and bars the assertion of an estoppel claim
in this case.
See Trident Int’l Ltd. v. American S.S. Owners
Mut. Protection and Indemnity Ass’n, 05 Civ. 3947 (PAC), Order
at 3-4 (S.D.N.Y. Feb. 4, 2009) (citing, inter alia, the American
Club’s anti-waiver provision and stating that “[p]ermitting the
application of waiver and estoppel principles would make the
terms of the Club Rules meaningless”); see
also
Fin. Techs.
Intern., Inc. v. Smith, 247 F.Supp.2d 397, 407 (S.D.N.Y. 2002)
(“Under New York law, where an agreement contains a no-waiver
provision such as this one, a party's failure to insist upon
strict compliance is not considered a waiver of his right to
demand exact compliance.”) (internal quotation marks omitted).
Second, both of the previous claims upon which Weeks Marine
relies
are
distinguishable
in
significant
ways.
As
a
preliminary matter, neither of the two previous claims involved
a brain injury.
Furthermore, one of the claims (the Gregorio
Vela claim) was reported to the American Club after plaintiff
made
a
settlement
Retention level”
demand
above
Weeks
Marine’s
“Self
Insured
(Nicoletti Decl., Ex. N), and was settled
within Weeks Marine’s deductible.
on the American Club.
Thus, a claim was never made
Reply Mem. of Law in Support of American
Steamship Owners Mutual Protection and Indemnity Ass’n, Inc. and
Shipowners Claims Bureau, Inc.’s Mot. for Summ. J., at 5 n.3.
31
While the second claim (the Jose Salinas claim) was reported to
the
American
Club
indication
(and
implicated
any
after
a
verdict
plaintiff's
prompt
do
notice
not
was
issued,
there
that
all
provision
in
is
this
the
no
claim
Crew
Claims
Procedure.
In sum,
waiver
and
provision,
concerning
prior
Weeks Marine
American Club's
where
claims
could have
where
the
does
not
By Laws
American
provide
a
contain a
Club's
basis
reasonably believed that
no-
conduct
upon
which
the American
Club would not assert its rights with regard to the Garza claim,
the American Club is not estopped from denying coverage
the
claim as untimely.
CONCLUSION
For the
reasons
sets
forth above,
the defendants'
motion
for summary judgment is granted.
New York, New York
August 24, 2011
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
32
Copies of the foregoing Order have been mailed on this date to
the following:
At
for Plaintiff:
David R. Hornig, Esq.
Nicoletti Hornig & Sweeney
88 Pine Street
7th Floor
New York, NY 10005
At
s:
John M. Woods, Esq.
Clyde & Co. US LLP (NYC)
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
33
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