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May 17, 1963

Herman T. STICHMAN, Trustee, Hudson & Manhattan Railroad Company and Hudson & Manhattan Corporation, Plaintiffs,

The opinion of the court was delivered by: MCLEAN

This is an action by an insured against an insurer seeking a judgment declaring that defendant insurer is obligated by its policy to defend an action brought against plaintiff insured by one of its employees, John T. Hayes. Defendant counterclaimed for a declaration to the contrary. While the action was pending, plaintiff settled with Hayes. Plaintiff then amended and supplemented his complaint to seek recovery of the amount which he paid Hayes in settlement, plus the cost of defending the Hayes action.

Plaintiff is the trustee of Hudson & Manhattan Railroad Company, Debtor in reorganization proceedings under Chapter X of the Bankruptcy Act. Pursuant to the plan of reorganization, his rights have been assigned to Hudson & Manhattan Corporation, which is also named as a plaintiff in the supplemental complaint. Nothing in this case turns on the intricacies of the reorganization proceeding, and for simplicity, I will refer to plaintiff throughout as 'the Railroad Company.'

A question of jurisdiction arises at the outset. Jurisdiction here is based on diversity of citizenship. The question is as to the jurisdictional amount. The Hayes action sought a judgment against the Railroad Company for $ 37,482.19. That fact satisfied the jurisdictional requirement in this action for a declaratory judgment. 6 Moore Federal Practice P57.23 (2d ed. 1953).

 The Hayes action was settled by the Railroad Company for $ 1,835.10, and the amount now claimed by it in this action is only that sum plus attorneys' fees and expenses aggregating in all $ 3,000. Although the amount now involved is less than the $ 10,000 required by 28 U.S.C. § 1332, it has been held in analogous situations that jurisdiction, having once existed, continues despite the reduction in amount. Ford, Bacon & Davis, Inc. v. Volentine, 64 F.2d 800 (5th Cir., 1933); Mutual Life Ins. Co. of New York v. Rose, 294 F. 122 (E.D.Ky.1923), reversed on other grounds, 19 F.2d 280 (6th Cir., 1927).

 In accordance with that rule, I hold that this court has jurisdiction of this controversy in its present form.

 There is no real dispute as to the facts, many of which were stipulated. Defendant offered no evidence, but rested on its motion to dismiss at the end of plaintiff's case. I find the facts to be as follows:

 The policy is a workmen's compensation and employer's liability policy. It was issued by defendant to the Railroad Company in New York. It covered the period from March 27, 1956 to March 27, 1957.

 In 'Coverage A' defendant undertook 'to pay promptly when due all compensation and other benefits required of the insured by the workmen's compensation law.' In 'Coverage B' defendant agreed to 'pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury by accident * * * sustained * * * by any employee of the insured arising out of and in the course of his employment by the insured * * *.'

 Defendant further agreed to 'defend any proceeding against the insured seeking such benefits and any suit against the insured alleging such injury and seeking damages on account thereof, even if such proceeding or suit is groundless, false or fraudulent * * *.'

 The policy applied only to operations conducted at or from any 'workplace' described in Item 1 or 4 of the declarations. Item 1 of the declarations defined the 'workplaces' as including '20-52 Church St., Known as Hudson Terminal Bldgs.' Item 4 listed as covered by the policy 'Building operation -- Commercial,' and also listed 'Buildings N.O.C. *fn1" operation by owner or lessee -- including care, custody and maintenance of premises, the operation of elevators or heating, lighting or power apparatus.'

 Item 6 of the declarations states, 'This policy does not cover any railroad operations.' For some unexplained reason this was 'amended' by an 'amending endorsement' to read: 'This policy does not cover any Railroad Operations the insured being an authorized self insurer.' This is the clause which gives rise to the present controversy.

 During 1957-58, the Railroad Company was engaged in two different businesses. It operated a railroad, i.e., the 'Tube' from Hudson Terminal to New Jersey. It also operated office buildings, one of which was 50 Church Street. That building was rented entirely to tenants. The Railroad Company itself occupied no space in it. The buildings were operated by a separate division, not a subsidiary, of the Railroad Company called the Buildings Division.

 The railroad terminal is underneath 50 Church Street. The 15 elevators which serve the 50 Church Street building, however, do not extend down to any of the levels, variously known as the 'concourse level,' the 'passenger loading level,' and the 'Track level' of the subterranean terminal. All but one of the 15 elevators may be entered only from the main lobby of the building which is on the street level of Church and Fulton Streets. One elevator may be entered from a separate alley which is also on the street level. These 15 elevators exist solely to serve the tenants of the building, as in any other office building.

 Hayes was an employee of the Railroad Company in its Buildings Division. He was an elevator mechanic. For some 12 years prior to February 4, 1957, he had worked on the elevators in 50 Church Street, cleaning and repairing them. These were his only duties.

 On February 4, 1957 he was in the penthouse on the roof of that building cleaning the hoist machinery of one of the elevators. He caught his right hand in the machinery and injured his middle finger to such an extent that it was necessary to amputate its tip. Claim was made under Coverage A of defendant's policy for workmen's compensation. ...

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