UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
September 23, 1994
GENERAL CONFERENCE OF SEVENTH-DAY ADVENTISTS (RISK MANAGEMENT SERVICES), formerly known as, GENCON RISK MANAGEMENT SERVICES, ADVENTIST HEALTH SYSTEMS/U.S. and ADVENTIST HEALTH SYSTEMS/U.S. LIABILITY TRUST, Plaintiffs,
AON REINSURANCE AGENCY, INC., formerly known as COLE, BOOTH, AND POTTER, INC., formerly known as ALEXANDER & ALEXANDER OF NEW YORK, INC., formerly known as REED STENHOUSE INC. OF NEW YORK, formerly known as STEN-RE, COLE, AND ASSOCIATES, INC., RICHARD COLE and THOMAS SIMONE, Defendants.
The opinion of the court was delivered by: WILLIAM C. CONNER
OPINION AND ORDER
Plaintiffs move for reconsideration of this Court's Opinion and Order of July 22, 1994 granting summary judgment in favor of defendants. Plaintiffs contend that "the Court misapprehended the duties and responsibilities delegated amongst the parties, and misunderstood the undisputed events which took place." The motion is granted to the extent that the decision has been reconsidered but is reaffirmed.
Plaintiffs argue that we erred in granting summary judgment against AHS on its claim for implied indemnity because, contrary to the Court's finding, AHS never reviewed the St. Paul insurance policy. Rather, AHS merely reviewed the memorandum prepared by Gencon which outlined St. Paul's proposal -- not the policy itself.
As explained in our prior Opinion, there are two sets of circumstances in which a right to implied indemnification may exist: the "implied contract theory" and the "implied-in-law" theory. With respect to the implied contract theory, AHS argued that an implied contract was formed with Sten-Re because AHS delegated its duties to Gencon, and Gencon in turn delegated its duties to Sten-Re. Because we found that Gencon did not fully delegate its duties to Sten-Re, we granted summary judgment against both Gencon and AHS. Whether AHS reviewed the St. Paul insurance policy is immaterial to this holding.
Similarly, whether AHS reviewed the St. Paul policy is immaterial to our finding that AHS is not entitled to implied-in-law indemnification. In our prior Opinion we stated at page 11:
With regard to AHS, indemnity cannot be implied if it is "at least partially at fault." Knight, 675 F. Supp. 139 at 143 (quoting Hanley v. Fox, 97 A.D.2d 606, 468 N.Y.S.2d 193, 194 (1983)); see Jordan v. Madison Leasing Co., 596 F. Supp. 707, 709 (S.D.N.Y. 1984)). The facts reveal that AHS's liability was not vicarious but rather, like Gencon's, was the result of its own breach of duty to Dr. Rich. The Committee reviewed and ultimately approved the St. Paul policy; in failing to obtain the excess coverage for staff physicians such as Dr. Rich, it breached its own duty and hence was held liable for the Barenbrugge judgment.
Plaintiffs contend that this language represents a finding by the Court that AHS tortiously breached a duty to Dr. Rich, and that this finding is not only factually in error because AHS did not review the policy, but it is contrary to the Court's subsequent holding that AHS is not entitled to contribution because its liability to Dr. Rich was based on breach of contract -- not tort. While our language was perhaps misleading, plaintiffs' interpretation is mistaken.
To clarify, AHS's liability to Dr. Rich was based on its contractual obligation to provide insurance coverage to Dr. Rich. Its liability was not based on the alleged breach of any duty other than that created by contract. As previously stated by this Court, "if AHS had refused to pay the Barenbrugge judgment, Dr. Rich simply would have sued AHS to seek the benefit of her contractual bargain." Opinion at 13. This is the reason AHS is not entitled to contribution, and it is also the reason AHS is not entitled to indemnification. As explained in Knight v. H.E. Yerkes & Assoc., Inc., 675 F. Supp. 139, 143 (S.D.N.Y. 1987), the implied-in-law theory of indemnification, which applies to joint tortfeasors, does not apply if the underlying liability is based on contract rather than tort:
In a case of implied indemnity, however, 'where the party seeking indemnification is himself at least partially at fault, indemnity will not be implied.' Because the underlying action sounds in contract, not in tort, there is no possible set of facts on which it can be true that [third-party plaintiff] was not at least partially responsible for harm, for it was [third-party plaintiff] that allegedly breached the contract, not [third-party defendant]. There can therefore be no cause of action in indemnity. (citations omitted)
Hence regardless of whether AHS reviewed the actual St. Paul policy or the memorandum prepared by Gencon, it cannot obtain indemnification from Sten-Re because the basis for its liability for the Barenbrugge judgment was its contractual duty to Dr. Rich.
The Court therefore reaffirms its Opinion and Order dated July 22, 1994.
Dated: New York, New York
September 23, 1994
William C. Conners, United States District Judge