Arch Insurance Company v. Harleysville Worcester Insurance et al
Filing
96
OPINION & ORDER.... Erie's April 15 motion to dismiss the amended counterclaim and amended third-party complaint is denied. (Signed by Judge Denise L. Cote on 10/28/2014) (gr)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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ARCH INSURANCE COMPANY,
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Plaintiff,
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-v:
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HARLEYSVILLE WORCESTER INSURANCE
:
COMPANY and ILLINOIS UNION INSURANCE
:
COMPANY,
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Defendants.
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HARLEYSVILLE WORCESTER INSURANCE
:
COMPANY,
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Third-Party Plaintiff,
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-v:
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ERIE AND MAINTENANCE, INC.,
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Third-Party Defendant.
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13cv7350 (DLC)
OPINION & ORDER
APPERANCES:
For Defendant Harleysville Worcester Insurance Company
Lance J. Kalik
Tracey K. Wishert
Riker Danzig Scherer Hyland & Perretti, LLP
Headquarters Plaza
One Speedwell Avenue
Morristown, NJ 07962
For Third-Party Defendant Erie Painting Management
Richard Scott Atwater
Gross Shuman Brizdle & Gilfillan, P.C.
465 Main Street, Suite 600
Buffalo, NY 14203
DENISE COTE, District Judge:
This motion arises out of an insurance dispute.
Plaintiff
Arch Insurance Company (“Arch”) initially sought indemnification
from Illinois Union Insurance Company (“Illinois Union”) and
Harleysville Worcester Insurance Company (“Harleysville”) for
payments Arch made to settle a claim for personal injuries
brought by Enio Antonio Rodrigues (“Rodrigues”), an employee of
Erie & Maintenance, Inc. (“Erie”).
Rodrigues sustained injuries
when he fell from a trailer while performing work under a
contract between Erie and the New York State Thruway Authority
(“Authority”) (“Rodrigues Incident”).
This Opinion addresses a motion brought by Erie to dismiss
claims Harleysville has brought against Erie.
Harleysville has
filed a counterclaim naming Arch and Erie, seeking a declaration
that it was not required to defend or indemnify the Authority in
connection to the Rodrigues incident or a separate incident
involving another Erie employee, Dimitrios Dovas (“Dovas”)
(“Dovas Incident”).
Harleysville also seeks a declaration that
it is entitled to reimbursement for money spent settling these
claims.
Harleysville has also filed, and later amended, a third-
party complaint against Erie seeking a declaratory judgment
relating to both incidents.
Erie has moved to dismiss
Harleysville’s amended third-party complaint and amended
counterclaim.
For the following reasons, the motion is denied.
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BACKGROUND
Harleysville asserts the following in its amended
counterclaim and amended third party complaint.
with the Authority to perform painting work.
Erie contracted
Among other things,
Erie’s contract with the Authority required Erie to defend and
indemnify the Authority for any accident or injuries arising out
of work performed.
See New York State Thruway Authority v. Erie
and Maintenance, Inc., No. 27722/11 (Sup. Ct. June 17, 2013).
At
the time of the Dovas and Rodrigues Incidents, the Authority was
insured by Arch under a New York Owners and Contractors
Protective Liability Policy (the “Arch OCPL Policy”).
The Arch
OCPL Policy was procured for the Authority’s benefit by Erie
pursuant to a requirement in Erie’s contract with the Authority.
The second relevant policy in place at the time of the
Rodrigues and Dovas Incidents is a Commercial General Liability
policy issued by Illinois Union to Erie (“Illinois Union CGL
Policy”).
The policy period associated with that policy ran from
September 1, 2009 through September 1, 2010.
The Illinois Union
CGL Policy provides for two million dollars of general liability
insurance to Erie.
The Illinois Union CGL Policy contains an
“auto” exclusion provision.
The third relevant policy in place at the time of the
Rodrigues and Dovas Incidents was a Commercial Automobile Policy
issued by Harleysville to Erie (“Harleysville Policy”).
policy covered the period from September 1, 2008 through
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The
September 1, 2010.
Erie was also required to name the Authority
as an additional insured on both of its liability policies.
The Rodrigues Incident
On November 18, 2009, Rodrigues was working for Erie
painting bridges along a New York highway when he fell off of a
trailer.
Following the incident, Rodrigues sued the Authority in
the New York Court of Claims seeking damages for his injuries.
On April 22, 2011, Harleysville agreed to defend Erie in the
Rodrigues action under a full reservation of rights.
Harleysville also notified Erie that the allegations of the
Rodrigues claim did not appear to trigger the Harleysville Policy
because Rodrigues’s injuries did not result from the use or
operation of an automobile as an automobile.
In July 2013,
Harleysville and Arch entered into a Funding and Reservation of
Rights Agreement pursuant to which Arch paid $500,000 and
Harleysville paid $250,000 to settle the Rodrigues claim.
The Dovas Incident
On September 18, 2008, Dovas was performing bridge painting
work for Erie.
When Dovas observed a hole in the tube of the
equipment he was using for the work, he attempted to repair the
tube.
While he was attempting to repair the tube, he fell from
the top of the vacuum truck where the equipment was attached and
was injured.
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Dovas filed an action against the State of New York and the
Authority seeking damages on December 8, 2008.
Harleysville
agreed to defend Erie under a full reservation of rights by
letter of August 31, 2012.
In July 2013, Arch, Harleysville, and
Illinois Union entered into a Funding and Reservation of Rights
Agreement pursuant to which Arch agreed to pay $375,000,
Harleysville paid $187,500, and Illinois Union paid $187,500 to
Dovas.
PROCEDURAL HISTORY
On November 30, 2012, Harleysville commenced a declaratory
judgment action against Erie in the Eastern District of New York.
Harleysville sought a declaration that the Harleysville Policy
does not provide coverage to Erie for either the Rodrigues or the
Dovas claims (“EDNY Action”).
Arch filed this lawsuit on October 18, 2013 in the Southern
District of New York (“SDNY Action”), and amended the complaint
on November 19, seeking contribution from Illinois Union and
Harleysville for payments relating to the Rodrigues Incident.
Harleysville responded to the amended complaint on January 27,
2014, and brought a third-party complaint against Erie, a
crossclaim against Illinois Union, and a counterclaim against
Arch.
All of the Harleysville claims seek a declaration that its
policies do not provide coverage for either the Rodrigues or
Dovas Incidents, and that it is entitled to reimbursement for
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payments made towards the settlement of these claims.
Illinois
Union filed a crossclaim against Harleysville on February 28,
seeking a declaration that it was entitled to reimbursement for
payments made to settle the Dovas claims.
Having been sued in the SDNY Action, Harleysville sought
dismissal of the EDNY Action it had filed against Erie.
On
December 19, 2013, Harleysville emailed a stipulation of
dismissal to Erie for the EDNY Action.
On December 26,
Harleysville sent a letter to Magistrate Judge Azrack stating
that it wished to dismiss the EDNY Action in favor litigation in
the SDNY Action.
Erie has not agreed to dismissal of the EDNY
Action.
On March 3, 2014, Erie moved to dismiss Harleysville’s
third-party complaint in the SDNY Action.
A scheduling order was
issued the same day, stating that any amendment to the thirdparty complaint was due on March 21.
again on March 18.
Arch amended its complaint
On March 21, Harleysville amended the third-
party complaint and added Erie as a party to the counterclaim
initially brought on January 27, 2014 against Arch.
On March 28, 2014, Illinois Union moved to dismiss Arch’s
second amended complaint.
granted on July 7.
Illinois Union’s motion to dismiss was
Arch Ins. Co. v. Harleysville Worcester Ins.
Co., 13cv7350 (DLC), 2014 WL 3377124 (S.D.N.Y. July 7, 2014)
On April 15, Erie filed the instant motion.
It seeks
dismissal the amended third-party complaint and the amended
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counterclaim filed against it by Harleysville on a number of
procedural grounds and on the basis that New York’s
antisubrogation rule bars Harleysville’s claims against Erie.
Erie also requested attorneys’ fees.
The motion was fully
briefed on May 2.
DISCUSSION
When deciding a motion to dismiss under Rule 12(b)(6), Fed.
R. Civ. P., a court must “accept all allegations in the complaint
as true and draw all inferences in the non-moving party’s favor.”
LaFaro v. New York Cardiothoracic Group, PLLC, 570 F.3d 471, 475
(2d Cir. 2009).
To survive a motion to dismiss, “a complaint
must contain sufficient factual matter, accepted as true, to
state a claim to relief that is plausible on its face.”
v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted).
Ashcroft
A
complaint must do more, however, than offer “naked assertions
devoid of further factual enhancement.” Id. (citation omitted).
A court is “not bound to accept as true a legal conclusion
couched as a factual allegation.”
Id.
In a case grounded in diversity jurisdiction, a federal
court “must apply the choice of law analysis of the forum state.”
GlobalNet Financial.Com, Inc. v. Frank Crystal & Co., Inc., 449
F.3d 377, 382 (2d Cir. 2006); see generally Erie R. Co. v.
Tompkins, 304 U.S. 64, 78-80 (1938).
The parties all assume that
New York law governs all substantive issues.
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“Under New York
choice of law rules . . . where the parties agree that New York
law controls, this is sufficient to establish choice of law.”
Fed. Ins. Co. v. Am. Home Assurance Co., 639 F.3d 557, 566 (2d
Cir. 2011).
Such agreement can be implicit.
York law will be applied.
Id.
Therefore, New
Federal law, however, governs the
procedural questions raised in this motion.
Erie moves to dismiss both the amended counterclaim and the
amended third-party complaint filed by Harleysville under the
antisubrogation doctrine.
Erie also cites a number of procedural
grounds in support of its motion to dismiss and requests
attorneys’ fees.
These arguments will be addressed in turn.
I. Antisubrogation as a Basis for Dismissal
Erie contends that New York’s antisubrogation rule bars
Harleysville’s claims against it.
It does not.
“Subrogation is
an equitable doctrine that 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.”
ELRAC, Inc. v. Ward, 96 N.Y.2d 58, 75 (2001)
(citation omitted).
The antisubrogation rule is an “exception”
to the right of subrogation.
Id.
Under the rule:
[A]n insurer has no right of subrogation against its
own insured for a claim arising from the very risk for
which the insured was covered even where the insured
has expressly agreed to indemnify the party from whom
the insurer's rights are derived. 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
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policy. This rule applies even if the third-party
tortfeasor has expressly agreed to indemnify the
insured for the loss.
Id. (citation omitted).
See also N. Star Reinsurance Corp. v.
Continental Ins. Co., 82 N.Y.2d 281, 294-295 (1993); Pa. Gen.
Ins. Co. v. Austin Powder Co., 68 N.Y.2d 465, 471 (1986).
The
antisubrogation doctrine applies to situations where an insurer
seeks recovery from its insured for the “same risk covered by its
policy.”
ERLAC, 96 N.Y.2d at 75 (emphasis added).
The purpose
is to prevent the insurer from passing on the loss to its own
insured, and thus avoiding the coverage which the insured
purchased.
Pa. Gen. Ins., 68 N.Y.2d at 471.
Here, Erie agreed to indemnify the Authority for any loss
due to injury suffered by Erie’s employees while working on the
Authority’s projects.
The Harleysville Policy was issued to Erie
and to the Authority as an additional insured.
Harleysville paid
$250,000 and $187,500 to settle the Rodrigues and Dovas actions,
respectively.
Harleysville seeks a declaration that its policy
did not require it to provide coverage for either incident, and
seeks a declaration that it is entitled to reimbursement from
Arch, Illinois Union, and/or Erie for the amounts it has paid to
settle the two claims.
The antisubrogation rule does not bar such claims by
Harleysville.
Harleysville is not seeking indemnification from
Erie for a “covered risk.”
Instead, Harleysville seeks a
declaration that the policy provided to Erie did not cover these
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incidents. 1
The antisubrogation doctrine is not implicated when
the insurer asserts its own rights rather than the rights of its
insured.
Provided that an insurer has properly reserved its
rights in tendering a defense and settlement payments, an insurer
may seek reimbursement from an insured on the ground that the
policy does not cover the loss.
See Gen. Star Nat’l Ins. v.
Niagara Frontier Transit Metro., 918 N.Y.S.2d 923, 923 (App. Div.
4th Dept. 2011).
Indemnity Ins. Co. of N. Am. v. St. Paul Mercury Ins. Co.,
900 N.Y.S.2d 24 (1st Dept. 2010), cited by Erie in support of
its antisubrogation argument, does not change this analysis.
In
Indemnity Insurance, the insurer sought reimbursement from its
insured, a subcontractor, for payments made to settle claims
against New York City because the subcontractor was contractually
obligated to indemnify the City.
Id. at 28-29.
barred by antisubrogation doctrine.
Such a claim was
Therefore, Indemnity
Insurance sheds no light on the viability of a request for a
declaration that an underlying incident is not covered by the
insurance policy.
II. Procedural Grounds for Dismissal
Erie presents essentially four separate procedural
grounds to dismiss the Harleysville claims against Erie.
The parties dispute whether Harleysville made payments on
Erie’s behalf or on the Authority’s behalf. This issue need not
be resolved at this time and, in any event, would be resolved in
Harleysville’s favor for the purposes of this motion.
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1
None of them has merit.
The Simultaneous EDNY Action
Erie contends that both the amended counterclaim and the
amended third-party complaint must be dismissed because there is
a pending action in the Eastern District of New York between
Harleysville and Erie seeking virtually the same relief.
Dismissal is not warranted on this basis.
The SDNY Action is the only pending action where Arch,
Illinois Union, Harleysville, and Erie are all joined and thus
presents the most complete opportunity to litigate fully the
rights and responsibilities of the respective parties.
Furthermore, Harleysville has offered to dismiss the EDNY Action
in favor of the SDNY Action.
Only Erie’s refusal to consent to
the dismissal keeps the EDNY Action active.
Timeliness of the Amendment to the Counterclaim
Erie also contends that the amended counterclaim must be
dismissed as it is untimely by two days.
Erie argues that
Harleysville’s amendment adding Erie to its counterclaim against
Arch was due March 19, but was not filed until March 21.
Assuming it was untimely by two days, the counterclaim will not
be dismissed on this ground.
In responding to Erie’s motion to dismiss, Harleysville
requests that leave be given for the amendment.
Under Rule
15(a), Fed. R. Civ. P., leave should be freely given.
Rule 15
“reflects two of the most important principles behind the Federal
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Rules: pleadings are to serve the limited role of providing the
opposing party with notice of the claim or defense to be
litigated, and mere technicalities should not prevent cases from
being decided on the merits.”
Monahan v. New York City Dep’t of
Corr., 214 F.3d 275, 283 (2d Cir. 2000) (citation omitted).
“Thus, absent evidence of undue delay, bad faith or dilatory
motive on the part of the movant, undue prejudice to the opposing
party, or futility,” leave should be granted.
Id.
There is no evidence of undue delay, bad faith, or dilatory
motive.
Furthermore, because the amended counterclaim seeks
virtually the same relief as the third-party complaint,
originally filed on January 27, Erie has not been prejudiced by
the two-day delay.
Joinder of Erie to the Counterclaim
Erie argues that the amended counterclaim must fail because
the elements for a counterclaim under Rule 13, Fed. R. Civ. P.,
are not met.
Specifically, Erie asserts that it is not an
opposing party under Rule 13(a) or (b), Fed. R. Civ. P., and
cannot be subject to a counterclaim under Rule 13(h) because
joinder is inappropriate under Rule 19 or 20, Fed. R. Civ. P.
This argument fails because Erie may be joined as a party to the
counterclaim.
Rule 13 states that:
(a) Compulsory Counterclaim.
(1) In General. A pleading must state as a
counterclaim any claim that -- at the time of its
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service -- the pleader has against an opposing party
if the claim:
(A) arises out of the transaction or occurrence
that is the subject matter of the opposing party's
claim; and
(B) does not require adding another party over
whom the court cannot acquire jurisdiction.
. . .
(b) Permissive Counterclaim. A pleading may state as a
counterclaim against an opposing party any claim that
is not compulsory.
. . .
(h) Joining Additional Parties. Rules 19 and 20 govern
the addition of a person as a party to a counterclaim
or crossclaim.
Fed. R. Civ. P. 13.
Under Rule 13(a) and (b), a counterclaim can only be brought
against an “opposing party.”
There is no dispute in this case
that Erie is not an “opposing party” for the purposes of Rule
13(a) or (b).
Rather, Harleysville contends that Erie may be
joined to the counterclaim against Arch under Rule 13(h).
Under
Rule 13(h), Rules 19 (necessary joinder) and 20 (permissive
joinder) govern the addition of nonparties to a counterclaim.
Rule 20 permits joinder when the relief sought arises out of
the same transaction, occurrence, or series of transactions or
occurrences, and there is a common question of law or fact.
Permissive joinder of Erie to the counterclaim is appropriate in
this case.
Here, Harleysville seeks a declaration as to the
respective rights and responsibilities of Arch, Harleysville,
Illinois Union, and Erie regarding the Rodrigues and Dovas
payments.
The claim against Erie arises out of the same series
of events underlying both incidents.
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Resolution of the
counterclaim will necessarily involve common questions of law and
fact.
Because permissive joinder of Erie to the amended
counterclaim is proper under Rule 20, the Court need not consider
whether Erie is also a necessary party under Rule 19.
The Requirements for Impleader
Erie next contends that the amended third-party complaint
must be dismissed because the requirements of Rule 14, Fed. R.
Civ. P., are not met.
Rule 14 states: “A defending party may, as
third-party plaintiff, serve a summons and complaint on a
nonparty who is or may be liable to it for all or part of the
claim against it.”
Fed. R. Civ. P. 14.
Rule 14 is a rule of
judicial economy:
The general purpose of the rule [is] to avoid two
actions which should be tried together to save the time
and cost of a reduplication of evidence, to obtain
consistent results from identical or similar evidence,
and to do away with the serious handicap to a defendant
of a time difference between a judgment against him and
a judgment [in] his favor against the third-party
defendant.
Dery v. Wyer, 265 F.2d 804, 806-07 (2d Cir. 1959) (citation
omitted).
Impleader may not be used when the third-party
complaint is a separate claim.
The question whether a defendant’s demand presents
an appropriate occasion for the use of impleader or
else constitutes a separate claim has been resolved
consistently by permitting impleader only in cases
where the third party’s liability was in some way
derivative of the outcome of the main claim. In most
such cases it has been held that for impleader to be
available the third party defendant must be liable
secondarily to the original defendant in the event that
the latter is held liable to the plaintiff.
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United States v. Joe Grasso & Son, Inc., 380 F.2d 749, 751 (5th
Cir. 1967).
Harleysville’s claim against Erie is entirely derivative of
Arch’s and Illinois Union’s claims against Harleysville, and may
thus be brought as a third-party complaint.
All claims in this
case seek declaratory judgments as to the respective liabilities
of the parties.
The claims against Erie will be resolved in part
by the resolution of the primary claim.
Erie argues that, because Arch seeks a declaratory judgment
rather than damages, it will be impossible for Erie to be “liable
. . . for all or part of the claim” against Harleysville, as
required by Rule 14.
The word “claim,” however, is interpreted
more broadly than the words “cause of action” and can extend, in
the context of impleader, to any action that is derivative of the
main claim brought by Arch. 2
Dery, 265 F.2d at 807.
Harleysville’s claim against Erie is derivative of the main
claim.
Furthermore, given that there remains a counterclaim
against Erie for the same relief, dismissing the amended thirdparty complaint on this ground serves little purpose. 3
The Arch claims were dismissed after Erie filed this motion.
Despite that dismissal, Harleysville continues to have claims
against Arch, Illinois Union, and Erie, and this third-party
claim against Erie remains an appropriate vehicle to resolve the
parties’ rights.
2
3
Because this motion is denied, it is unnecessary to reach
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CONCLUSION
Erie’s April 15 motion to dismiss the amended counterclaim
and amended third-party complaint is denied.
Dated:
New York, New York
October 28, 2014
____________________________
DENISE COTE
United States District Judge
Erie’s request for attorneys’ fees.
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