Allstate Insurance Company v. Hartford Insurance Company of the Midwest

Filing 59

OPINION AND ORDER re: 40 MOTION for Summary Judgment . filed by Allstate Insurance Company, 32 MOTION for Summary Judgment . filed by Hartford Insurance Company of the Midwest. WHP held a co-primary policy from Hartfor d that was rendered excess by its "other insurance clause." Although Hartford did not initially have a duty to defend its insured, Hartford triggered a contribution obligation by actively participating in WHP' s defense. Having express ed its intent to recover costs from Hartford in its August 12, 2016, letter, Allstate has not indicated an intent to relinquish its right to contribution. However, given its significant delay in asserting this right, Allstate may only recover legal e xpenses incurred after August 12, 2016, at a rate proportional to the primary policies' limits. Hartford's motion for summary judgment is denied, and Allstate's motion for summary judgment is granted in part and denied in part. SO ORDERED. (Signed by Judge Sidney H. Stein on 7/12/2019) (kv)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

ALLSTATE INSURANCE COMPANY,
Plaintiff,
17-Cv-7553 (SHS)

-againstHARTFORD INSURANCE COMPANY
OF THE MIDWEST,

OPINION & ORDER

Defendant.
SIDNEY H. STEIN, U.S. District Judge.
This action arises out of a dispute between two insurance companiesAllstate Insurance Company (" Allstate") and Hartford Insurance Company
of the Midwest ("Hartford")-about the payment of legal bills in a personal
injury action involving an insured of both companies. The parties have
cross-moved for summary judgment. Because Hartford was a co-primary
insurer and voluntarily participated in the defense of its insured, it is
obligated to contribute to the cost of the defense. Allstate can only recover,
however, after it first reserved its right to contribution in August 2016. For
the reasons that follow, Allstate's motion for summary judgment is granted
in part and denied in part, and Hartford's motion for summary judgment is
denied.
I.

BACKGROUND

In August 2010, a motor vehicle accident occurred between Kenneth
Couillard and April Clark. (Stipulation of Undisputed Facts ("Stip.") <]11.)
At the time of the accident, Clark was operating her mother Christine
Comparetti's car to make a delivery on behalf of her employer, Women's
Health Professionals, LLP ("WHP"). (Id.)
In September 2010, Couillard initiated a personal injury action against
Clark, her mother, and, later, her employer. (Id. c_j[ 5.) As is relevant to the
defense of the Couillard litigation, both Comparetti and WHP had active

auto insurance policies when the accident occurred. (Id. <[<[ 2-4.)
Comparetti' s policy from Allstate, for which Clark was an insured, had
liability limits of $25,000 per person and $50,000 per occurrence. (Id . <[ 2.)
WHP had two insurance policies from Hartford. (Id . <[1{ 3-4.) One policy
had a liability limit of $1 million per occurrence (the "Hartford policy"),
while the other had an umbrella liability limit of $10 million per occurrence
(the "umbrella policy") . (Id.)
Initially, the insurance companies agreed to provide defenses to their
respective insureds: Allstate to Clark and Comparetti, and Hartford to
WHP. (Id. 1{<[ 6, 8.) Yet from August 2011 to April 2012, Hartford repeatedly
sent letters tendering WHP' s defense to Allstate, arguing that WHP
qualified as an "additional insured" under the Allstate policy. (Id.111110, 12;
Exs. F, G to Stip.) On June 29, 2012, Allstate finally agreed to defend WHP,
stating in full: "This letter serves as confirmation that Allstate will provide
Women's Health Professionals a defense for the above entitled claim." (Stip.
1114; Ex. I to Stip.) During the representatives' subsequent correspondence
about where to send defense counsel's invoices, there was no mention of
any reservation of rights to reimbursement. (Exs. J, K to Stip.)
From that point forward, Allstate paid the law firm that Hartford had
hired, Lewis Johs Avallone Aviles, LLP ("Lewis Johs"), at the rates Hartford
had negotiated. (Id.<[<[ 11, 15-16, 24.) Allstate also reimbursed Hartford for
over $19,000 in defense costs that Hartford had incurred before the summer
of 2012. (Id. 1117.) During this period, Lewis Johs discussed WHP's defense
in the underlying action only with Hartford; but Allstate was in no respect
prohibited from participating in the defense and did not seek to assign the
defense to new counsel. (Id . <_II<_[ 18-20.)
Settlement talks were unsuccessful, and the ensuing jury trial resulted
in an April 2016 verdict for Couillard that exceeded $12 million. (Id . 1{<_[ 2123.) The final judgment against Clark, Comparetti, and WHP was well over
$13 million. (Id. 11 27.) In June 2017, WHP, with Hartford's separately
retained appellate counsel, appealed the underlying judgment. (Id. 11 29.)
Ultimately, the parties settled the underlying dispute in October 2017. (Id.
1130.) In total, Allstate paid $834,683.64 in legal expenses. (Id. 1131.)

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By letter dated August 12, 2016-emailed to Hartford on August 16,
2016-Allstate requested that Hartford contribute pro rata towards WHP's
past and future defense costs. (Id. ] 25; see Ex. N to Stip., at 2 ("Allstate's
payment of any defense costs on behalf of Women's Health shall not be
construed as a waiver of any right to reimbursement against Hartford.
Allstate reserves all rights in law and equity to seek reimbursement for any
past and future costs it has paid in connection with the defense of Women's
Health.").) Allstate sought for Hartford to pay 97.5% of WHP' s defense costs
based on the policies' respective limits ($25,000 for Allstate and $1 million
for Hartford). (Stip. ] 25; see Ex. N to Stip., at 2 (" Allstate requests that
Hartford reimburse Allstate for its proportionate share (by limits) of the
costs incurred to defend Women's Health, or 97.5% of the defense costs for
Women's Health of past paid amounts and incurred amounts for trial and
post-trial.").) Allstate also began to reduce its payments of Lewis Johs's
invoices to 2.5% of the value of the invoices. (Stip. ] 25.)

In October 2017-the same month that the underlying case settledAllstate filed the present action against Hartford seeking: (1) a declaratory
judgment that Hartford provided coincidental primary coverage for
purposes of the duty to defend WHP; and (2) an award of 97.5% of the
defense costs incurred, plus interest. (Compl. ]] 53, 65.) After engaging in
limited discovery, the parties have now cross-moved for summary
judgment.
II. LEGAL STANDARD

On cross-motions for summary judgment, the Court considers each
motion on its merits, drawing all reasonable inferences against the party
whose motion is under consideration to determine whether a genuine and
material fact dispute exists. Utica Mut. Ins. Co. v. Clearwater Ins. Co., 906 F.3d
12, 17 (2d Cir. 2018); Lumbermens Mut. Cas. Co. v. RGIS Inventory Specialists,
LLC, 628 F.3d 46, 51 (2d Cir. 2010). Sitting in diversity, the Court applies
New York law, which both parties treat as controlling. See Krumme v.
WestPoint Stevens Inc., 238 F.3d 133, 138 (2d Cir. 2000) ("The parties' briefs
assume that New York law controls, and such 'implied consent ... is
sufficient to establish choice of law."' (citation omitted)); see also Alphonse
Hotel Corp. v . Tran, 828 F.3d 146, 152 (2d Cir. 2016) ("Under New York

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choice-of-law rules, 'where the parties agree that [a certain jurisdiction's]
law controls, this is sufficient to establish choice of law."' (citation omitted
and alteration in original)).

Ill.

DISCUSSION

Because the parties offer competing perspectives on only legal
questions rather than factual ones, summary judgment is proper. The
primary issue at stake in the parties' cross-motions is whether Hartford
became obligated to share in WHP' s defense costs. In light of the terms of
the Hartford policy and Hartford's participation in WHP' s defense, the
company triggered a duty to contribute to WHP's legal costs. Allstate's
failure to reserve its right to contribution prior to August 2016 does not
amount to an intentional waiver of its entitlement to reimbursement. The
significant delay in reserving its right to contribution from Hartford,
however, does limit the legal expenses which Allstate can recover.

A. Hartford's policy terms and conduct triggered a duty to
contribute to WHP' s defense.
The parties' disagreement about Hartford's liability to contribute is, in
short, a priority dispute. When determining which insurance coverage takes
precedence in a priority dispute, courts first look to the policies' language
to determine if the two policies cover the same risk. Certain Underwriters v.
Ill. Nat'l Ins. Co., 99 F. Supp. 3d 400, 404 (S.D.N.Y. 2015). If they do, then the
priority or allocation of coverage turns on a comparison of the policies'
"other insurance" clauses. Emp'rs Ins. Co. of Wausau v. Harle-ysville Preferred
Ins. Co., 726 F. App'x 56, 64 (2d Cir. 2018); Certain Underwriters, 99 F. Supp.
3d at 404; see also Great N. Ins. Co. v. Mount Vernon Fire Ins. Co., 92 N.Y.2d
682, 686-87 (1999).
Where one "other insurance" clause provides for pro rata sharing of
coverage (a pro rata clause) and the other deems its coverage excess to other
valid insurance (an excess clause), the company that issued the former
policy becomes the primary insurer. Int'l Bus. Machs. Corp. v. Liberty Mut.
Fire Ins. Co., 303 F.3d 419, 429 (2d Cir. 2002). Ordinarily, the primary insurer
must pay for the insured's defense. Emp'rs Ins. Co. of Wausau v. Gen. Star
Nat'l Ins. Co., No. 03 Civ. 6575, 2004 WL 1555143, at *4 (S.D.N.Y. July 9, 2004);

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Fieldston Prop. Owners Ass'n, Inc. v. Hermitage Ins. Co., Inc., 16 N.Y.3d 257,
265 (2011). A carrier whose coverage is rendered excess via its "other
insurance" clause does not have its duty to defend triggered until the
coverage of the policy containing the pro rata clause has been exhausted.
L&B Estates, LLC v. Allstate Ins., 71 A.D.3d 834, 837 (2d Dep't 2010); Sport
Rock Int'l, Inc. v. Am. Cas. Co. of Reading, 65 A.D.3d 12, 18-19 (1st Dep't 2009);
see Liberty Mut. Fire Ins. Co. v. Nat'l Cas. Co., 90 A.D.3d 859, 860 (2d Dep't
2011) (noting that the primary carrier's duty to defend ends when the
insurance limits "have been exhausted by payment of judgments or
settlements").
The parties agree that Allstate's coverage was rendered primary
because that policy' s "other insurance" clause took a pro rata approach for
vehicles owned by the policyholder-such as the one operated by Clarkas follows :
If an insured person is using a substitute private passenger auto or
non-owned auto, our liability insurance will be excess over other
collectible insurance. If more than one policy applies to an accident
involving your insured auto, we will bear our proportionate share
with other collectible liability insurance.

(Ex. A to Stip., at 45 (emphasis in original).) Cf Sport Rock, 65 A.D.3d at 18
n.4 (citing a pro rata "other insurance" clause). In contrast, WHP' s Hartford
policy provided that its coverage would be excess to any other insurance for
accidents-like the one here - involving cars not owned by WHP:
For any covered "auto" you own, this Coverage Form provides
primary insurance. For any covered "auto" you don't own, the
insurance provided by this Coverage Form is excess over any other
collectible insurance.
(Ex. B to Stip., at 156.) Cf Sport Rock, 65 A.D.3d at 18 n.3 (citing an excess
"other insurance" clause). The parties agree that Hartford's tender of
WHP' s defense to Allstate was appropriate, since WHP did not own the
vehicle Clark was driving and thus Hartford's policy was excess to
Allstate's policy.

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Although they are under no obligation, excess insurance carriers may
choose to participate in an insured' s defense to protect their interests.
Preferred Constr., Inc. v. Ill. Nat'l Ins. Co., 494 F. App'x 162, 164- 65 (2d Cir.
2012) (citing Fieldston Prop. Owners Ass'n, 16 N.Y.3d at 265); Liberty Surplus
Ins. Corp. v. Segal Co., 420 F.3d 65, 69 (2d Cir. 2005). However, taking on this
responsibility may trigger a duty to defend. See Gen. Motors Acceptance Corp.
v. Nationwide Ins . Co., 4 N.Y.3d 451 (2005) ("GMAC").
In GMAC, a man took out a primary insurance policy from Nationwide
Insurance Company for his leased vehicle. Id. at 454. The company from
which he leased the car, GMAC, purchased two policies from Fireman's
Fund Insurance Company: a primary policy, which had similar liability
limits to the Nationwide policy, and an umbrella policy, which had much
higher limits. Id. The coverage in the non-umbrella Fireman's policy was
"excess over any other collectible insurance ... ." Id. In a lawsuit following
a collision involving the leased car, Nationwide initially provided for
GMAC's defense. Id. at454-55. However, Nationwide tendered the defense
to Fireman's because the latter carrier had greater exposure given its
umbrella policy. Id. at 455. Fireman's agreed to take over the defense,
although it reserved the right to later collect defense costs from Nationwide.
Id. After "vigorously defend[ing]" GMAC, Fireman's sued Nationwide to
recover all of its legal costs. Id.
The Court of Appeals of New York required Fireman's and Nationwide
to share-equally, due to their identical primary policy limits-the cost of
GMAC's defense. Id. at 453, 457-58. The court provided a dual-rationale.
First, the companies issued coincidental primary policies. Id. at 453, 456-57.
Although the "other insurance" clause of the Fireman's policy rendered its
responsibility to contribute to judgments or settlements excess, the limiting
language did not extend to its duty to defend. Id. at 456. Second, Fireman's
readily accepted Nationwide's tender and then provided GMAC's defense.
Id. at 453, 455, 456. The court reasoned that where "two coincidental primary
policies exist-one excess to the other by reason of competing 'other
insurance' provisions" and both insurance companies "participated in the
defense, they are both liable for the defense costs" in proportion with their
primary policy limits. Id. at 453, 456.

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Allstate contends that the decision of the New York Court of Appeals
in GMAC is dispositive here, where Hartford's non-umbrella policy was coprimary and Hartford chose to exercise exclusive control over WHP' s
defense. Hartford disputes both conclusions, as well as GMAC' s reach.

1.

GMAC controls cases such as this one.

As an initial matter, Hartford argues that GMAC' s holding is limited to
its specific facts-a proposition drawn from Sport Rock International, Inc. v.
American Casualty Co. of Reading, 65 A.D.3d 12 (1st Dep't 2009). That case
held that the primary insurance provider whose policy was rendered excess
by an "other insurance" clause could be fully reimbursed for the costs
expended in defending a mutually insured where the other primary
insurance carrier, whose policy contained a pro rata clause, refused the
tender of the defense. Id. 13, 16, 18, 29. In justifying its departure from
GMAC, the First Department panel in Sport Rock determined that the Court
of Appeals did not intend its decision to "control cases, like this one, that
present significantly different circumstances." Id. at 24. In attempting to
limit GMAC, Sport Rock took language of the Court of Appeals out of
context: while GMAC stated that its holding was "only ... under the
circumstances of this case," that discussion was specific to the court's refusal
to adopt an across-the-board rule requiring equitable allocation between
insurers. 4 N.Y.3d at 457-58. Thus, this Court properly analyzes Hartford's
non-umbrella policy and involvement in WHP's defense under the GMAC
standard.
2.

The Hartford policy provided coincidental primary insurance.

The parties disagree whether Hartford's non-umbrella policy can be
characterized as a true excess policy or a primary policy rendered excess by
an "other insurance" clause. "A true excess policy (such as the typical
umbrella policy) is conditioned on the existence of an underlying primary
policy, while a primary policy with an excess other insurance clause is a
device by which a primary insurer seeks to limit[ ] or eliminate its liability
where another primary policy covers the risk, thereby making it secondary
coverage." See Hartford Underwriters Ins. Co. v. Hanover Ins. Co., 122 F. Supp.
3d 143, 155 (S.D.N.Y. 2015), aff'd, 653 F. App'x 66 (2016) (citation omitted

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and alteration in original). While GMAC' s applicability to the latter is clear,
whether its holding can be extended to the former has not been established.
Like Fireman's in GMAC, Hartford issued two policies, only one of
which is an umbrella policy. GMAC, 4 N.Y.3d at 454. (Stip. 1[1[ 3-4.) And the
Hartford and Fireman's non-umbrella policies used nearly identical
language to discuss their primary and excess coverage of owned and nonowned automobiles, respectively. (Compare Ex. B to Stip., at 156, with Ex. A
to Deel. of Matthew C. Ronan, at 47 ("For any covered auto you own this
policy provides primary insurance. For any covered auto you don't own,
the insurance provided by this policy is excess over any other collectible
insurance.").) Hartford attempts to distinguish the primary policy at issue
in GMAC in the same way that Sport Rock did-namely, that the excess
clause at issue here has a narrower scope than the Fireman's clause at issue
in GMAC because it only applied to non-owned cars. See Sport Rock, 65
A.D.3d at 24 (finding a meaningful distinction to the Fireman's policy in
GMAC that the Sport Rock policy's "other insurance" clause only rendered
excess coverage "a particular class of risks"). Based on the fact that the
Hartford and Fireman's "other insurance" clauses are substantively
indistinguishable, this argument fails. Moreover, Hartford has admitted in
another action involving identical "other insurance" clause language that
such a policy is not a "true excess policy." Hartford Underwriters, 122 F. Supp.
3d at 155 (" According to Hartford, . .. it is undisputed that both policies at
issue here are primary, and only excess with regard to nonowned autos by
virtue of their 'other insurance' clauses, rather than 'true excess' policies, ..
. ."); see id. at 147 (quoting the Hartford policy's "other insurance" clause). 1
The Court agrees with Allstate that Hartford's policy provided coincidental
primary insurance that was rendered excess to primary coverage by its
"other insurance" clause.

Hartford Insurance Company of the Midwest and Hartford Underwriters Insurance
Company are both subsidiaries of The Hartford Financial Services Group, Inc. See Legal
Notice, THE HARTFORD (2019), available at https://www.thehartford.com/legal-notice.
(Rule 7.1 Disclosure; Ex. G to Elsa J. Schmidt Affirmation.)

1

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3.

Hartford voluntarily participated in WHP's defense through
its involvement in litigation strategy.

The second factor under GMAC is whether Hartford chose to
participate in defending WHP. Although the parties quarrel over whether
Hartford exercised exclusive "control" over the defense, there appears to be
no genuine factual dispute that-consistent with GMAC-"each
participated in the defense." 4 N.Y.3d at 456. Hartford selected WHP's
counsel, set the rates of payment, and alone played a role in WHP' s
litigation strategy. (Stip. 1111 11, 16, 19-21, 29; A££. of Joan M. Canny 11 4.)
Allstate fully paid defense counsel's bills over nearly four years, reimbursed
Hartford for earlier legal expenses, and was never excluded from
participating in the litigation on WHP's behalf. (Stip. 111117, 18, 20-21, 24;
see also Deel. of Maureen Fahey 1111 27-29.) Unlike in Sport Rock, where the
carrier only defended the insured after its tender was "rebuffed," 65 A.D.3d
at 23, both Allstate and Hartford voluntarily took part in WHP' s defense.
See Nat'l Union Fire Ins . Co. of La. v . Universal Fabricators, Inc., 713 F. Supp. 2d
206, 213-14 (S.D.N.Y. 2010) (quoting "New York law" as establishing that
an "insurer becomes a volunteer" when it unmistakably "assumes the
defense and indemnification of an insured when there is no obligation to do
so" (citation omitted)).

** *
In sum, because the Hartford policy was a primary one rendered

excess-rather than a true excess policy-and because Hartford
participated in WHP' s defense, it must share pro rata in defense costs.

B. Allstate has not waived its right to seek contribution, but it may
only recover for defense costs that were incurred after first
asserting this right.
Hartford argues that Allstate has waived any right to have Hartford
contribute to the defense costs because Allstate did not assert its right to
receive contribution until August 2016. In the insurance context, a
contractual right may be waived by knowing, voluntary, and intentional
abandonment of that right. New York v. AMRO Realty Corp., 936 F.2d 1420,
1431 (2d Cir. 1991); Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset

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Mgmt., L.P., 7 N.Y.3d 96, 104 (2006). To demonstrate waiver, a party must
marshal evidence of affirmative conduct or a failure to act that demonstrates
an intent to forgo the contractual right. Id.

In Hartford's view, Allstate's full payments to the preexisting legal team
between August 2012 and March 2016 (Stip. <j[ 24)-without qualifying that
it might later seek contribution - amounts to waiver. Yet, Allstate did
eventually state that it intended to pursue contribution. (Ex. N to Stip., at 2.)
Given this clear expression of its intent to later seek reimbursement,
Allstate's payment of defense costs, standing alone, is insufficient to
establish waiver. See N . River Ins . Co. v. Dura Dyne Nat'l Corp., 153 A.D.3d
844,847 (2d Dep't 2017) (finding no waiver despite insurers' payment in full
of defense costs for 20 years).
That there was no waiver, however, does not mean that Allstate can
recover pro rata for the entirety of the defense costs incurred over years of
silence. Allstate searches for support in GMAC, which required Nationwide
and Fireman's to split all defense costs. 4 N.Y.3d at 453. But GMAC provides
no comfort, because there, Fireman's reserved its right to seek
reimbursement at the time it accepted the tender of the insured' s defense. 4
N .Y.3d at 455, 456-57. Allstate argues that it did not need to reserve its right
until August 2016, when it realized that the equities between the two
carriers were imbalanced and that Hartford was acting in its self-interest.
Yet, Allstate had long been aware that Hartford had far greater exposure
due to the higher limits of its policies and that Hartford was the driving
force behind WHP' s defense. Because Allstate acquiesced -without any
reservation-in fully funding WHP's defense for most of the underlying
litigation, Allstate may only recover for legal expenses incurred after it first
reserved its right to contribution in its letter of August 12, 2016. Cf Liberty
Ins. Underwriters v. Arch Ins . Co., 61 A.D.3d 482, 483 (1st Dep't 2009)
("Defendants . .. are not entitled to reimbursement of defense costs incurred
before tendering the defense to plaintiff .... "); Bovis Lend Lease LMB, Inc. v.
Royal Surplus Lines Ins . Co., 27 A.D.3d 84, 94 (1st Dep't 2005) (only requiring
reimbursement for defense costs incurred after the underlying lawsuit was
tendered).

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IV. CONCLUSION

WHP held a co-primary policy from Hartford that was rendered excess
by its "other insurance clause." Although Hartford did not initially have a
duty to defend its insured, Hartford triggered a contribution obligation by
actively participating in WHP' s defense. Having expressed its intent to
recover costs from Hartford in its August 12, 2016, letter, Allstate has not
indicated an intent to relinquish its right to contribution. However, given its
significant delay in asserting this right, Allstate may only recover legal
expenses incurred after August 12, 2016, at a rate proportional to the
primary policies' limits. Hartford's motion for summary judgment is
denied, and Allstate's motion for summary judgment is granted in part and
denied in part.
Dated: New York, New York
July 12, 2019
SO ORDERED:

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