The opinion of the court was delivered by: Lasker, District Judge.
This case presents issues concerning the rights of an insurer
who has honored a claim under a Marine Insurance policy when
the insured releases a third party allegedly liable for the
loss. The question presented is whether the indemnified insured
party has a duty to establish in the release that the insurer's
subrogated rights have been reserved.
On October 14, 1980, defendant, the Hawaiian Eugenia
Corporation, owner of the vessel Poet, entered into a charter
party with the Egyptian Company of Maritime Transport (the
"Charterers") agreeing to carry a shipment of corn from the
United States to Egypt. Plaintiff, Caryl Antony Vaughan Gibbs,
represents members of a syndicate at Lloyds (the
"Underwriters") who, on October 23, 1980, insured Hawaiian's
interest in the remuneration to be paid by Charterers for the
hire of the ship (the "freight").
On October 24, 1980, the Poet departed Philadelphia bound for
Alexandria. While en route to Egypt, the ship was lost at sea.
No trace of the vessel, its crew or cargo was ever found.
Subsequently, on March 13, 1981, the Underwriters settled
Hawaiian's claim for the loss of the remuneration that was to
be paid by the Charterers. The Underwriters indemnified
Hawaiian by paying in full the insured amount of $1,096,825.34.
In the meantime, Hawaiian had instituted an action for
limitation of liability on the cargo in the United States
District Court for the Eastern District of Pennsylvania.
See 1982 A.M.C. 1388 (E.D.Pa. 1982). The Charterers made a
claim against Hawaiian for $3,281,481.94 in damages for the
loss of the corn shipment. Hawaiian settled this claim by
paying $1,047,500 in damages and by delivering a general
release of the Charterers with respect to all claims Hawaiian
might have against the Charterers.
Before signing the release, Hawaiian informed the
Underwriters' counsel that Hawaiian intended to release the
Charterers from any liability for freight charges and requested
Underwriters' approval of the release. A few weeks prior to the
execution of the release, the New York attorney of the
London-based Underwriters wrote to Hawaiian asking for a copy
of the policy to assess the impact of the release. Hawaiian did
not respond to this request until after the release was
executed. The Underwriters never consented to the release of
their subrogated rights.
Underwriters have commenced this action against Hawaiian to
recover 90% of the insured amount which had been paid to
Hawaiian. Plaintiff claims that by delivering the release to
the Charterers, Hawaiian destroyed Underwriters' subrogated
rights against the Charterers. The rights allegedly destroyed
by the release are those contained in clause 32(B) of the
charter party between Hawaiian and the Charterers which
provides that the Charterers must pay 90% of the remuneration
for the hire of the Poet if the ship fails to arrive at its
destination "because of damage caused by the perils of the
The Underwriters, in Hawaiian's name, attempted to exercise
their subrogated rights by seeking a court order compelling
Charterers to arbitrate the claim under clause 32(B). However,
because of the release granted by Hawaiian to Charterers, Judge
Brieant denied the petition. In The Matter of The Arbitration
between Hawaiian Eugenia Corporation, Petitioner, and The
Egyptian Commercial and Economic Office of Washington, D.C., as
Agents for The Ministry of Supply, Cairo, Arab Republic of
Egypt, Respondents, 82 Civ. 7381 CLB, Memorandum and Order
(S.D.N.Y. Jan. 17, 1983).
In this action both the Underwriters and Hawaiian move for
summary judgment. In the alternative, Hawaiian moves for an
order dismissing the action for failure to prosecute pursuant
to Fed.R.Civ.Pro. 41(b).
Hawaiian offers two arguments in support of its position. In
the first place, it contends that the Underwriters waived any
theoretical right of subrogation they might have had. According
to Hawaiian, the Underwriters waived their subrogated rights
either by omitting to give instructions to Hawaiian regarding
the release until after it was executed or by failing to pursue
recovery against the Agency for International Development
Hawaiian's second argument is that the release did not
destroy Underwriters' subrogated rights because, even absent a
release, Hawaiian did not have a right of recovery against the
For reasons discussed below Hawaiian's motions are denied,
while the Underwriters' motion for summary judgment is granted.
Hawaiian contends that, under New York law, the Underwriters
waived their rights by failing to respond within twenty days to
Hawaiian's request for instructions regarding the release. In
support of this proposition it cites Huth v. Nationwide Ins.
Co., 148 Misc.2d 1003, 560 N.Y.S.2d 724 (Sup.Ct. 1990), which
ruled that an insurer, who has not yet indemnified the insured,
must choose, within twenty days, whether to accept the
settlement proposed by a tortfeasor and waive its subrogated
rights or reject the settlement, pay the insured and pursue its
Huth is inapplicable, however, because in the instant case
the Underwriters had already indemnified Hawaiian. Moreover,
Huth seems to be predicated particularly upon The New York
State Insurance Law covering uninsured or underinsured
motorists, the applicable provisions ...