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AXA MARINE & AVIATION INS. v. SEAJET INDUS.

July 18, 1995

AXA MARINE & AVIATION INSURANCE (UK) LIMITED, and THE MARINE INSURANCE CO., LIMITED, Plaintiffs, against SEAJET INDUSTRIES, INC., SEA JET TRUCKING, INC., and A.P.A. WAREHOUSE, INC., Defendants.

Peter K. Leisure, U.S.D.J.


The opinion of the court was delivered by: PETER K. LEISURE

LEISURE, District Judge:

 This is an action brought by Axa Marine and Aviation Insurance (UK) Limited and the Marine Insurance Co., Limited ("Underwriters") against Sea-Jet Industries, Inc., Sea-Jet Trucking Corp., *fn1" and A.P.A. Warehouse, Inc. ("Insureds"). Plaintiffs seek a declaratory judgment stating that they are not required to defend and indemnify Insureds with respect to claims in an action in New York Supreme Court. *fn2"

 Defendants now move this Court for summary judgment, pursuant to Rule 56 of the Federal Rules of Civil Procedure, on their first counterclaim, requiring underwriters to defend and indemnify them in the State Action, and on their second counterclaim, holding Underwriters liable for the legal expenses that Insureds incurred in this action and the State Action. plaintiffs, in turn, cross-move for summary judgment dismissing defendants' first and second counterclaims and declaring that Underwriters are relieved of any duty to defend or indemnify Insureds in the State Action. For the reasons stated below, defendants' motion is denied and plaintiffs' motion is granted.

 BACKGROUND

 The facts relevant to the instant motion are undisputed. Insureds owned and operated a trucking company and a warehouse facility with offices and facilities in Brooklyn, New York. See Defendant Mem. at 3. In 1990, Insureds obtained from Underwriters liability insurance with respect to Insureds' operations for the 12 month period commencing March 29, 1990. Id. The insurance was placed with Underwriters through Jeffrey Coates and Associates Limited ("Coates"), Coverage Consultants, Inc. ("Coverage Consultants") and M&G Brokerage, Inc. ("M&G").

 The relevant liability insurance policy (the "Policy") provided in relevant part that Underwriters were obligated:

 
A. TO PAY ON BEHALF OF THE INSURED, all sums, subject to the limit of the Company's liability hereinafter provided, for which the Insured shall become legally obligated to pay as damages by reason of the liability imposed by law on the Insured as a Warehouseman or Bailee, because of Injury to, loss of or destruction of personal property of others whilst in the care custody or control of the Insured and which occurred during the term of this policy;
 
B. TO DEFEND, in the name and on behalf of the Insured any claim or suit against the Insured as a Warehouseman or Bailee alleging loss, damage, or destruction to personal property of others whilst in the care, custody or control of the Insured and seeking damages on account thereof, even if such is groundless, false or fraudulent, but the Company shall have the right to make such investigation, negotiation and settlement of any claim or suit as may be deemed expedient by the Company . . .

 The policy also provided:

 
E. Notice of Claim If any claim(s), whether groundless or not, be made against the Insured on account of loss of or damage to property, the Insured shall notify the Company as soon as practicable and if suit is filed against the Insured to enforce any claim(s), the Insured shall immediately forward to the Company all summons or other notice(s) served upon the Insured.

 Defendant Mem. at 3-4 (quoting the Policy).

 On December 5, 1990, an armed robbery (the "Robbery") took place at Insureds' Brooklyn facilities, and six container loads of merchandise were stolen. See Defendant Mem. at 4. Insureds notified Coverage Consultants, and Underwriters, in turn, were notified. Id. Between December 11, 1990 and December 19, 1990 an adjuster, U.S. Adjustment ("Adjuster") was retained. Id. at 5. Adjuster conducted an investigation of the Robbery and recommended retaining legal counsel. Id. at 6.

 Sometime after November 12, 1991, an action (the "Good and Plenty Action") arising from the Robbery was commenced by Good and Plenty Fashions, Inc. in New York Supreme Court against A.P.A. Warehouses, Inc. On or about February 19, 1992, another action (the "Skiva Action") arising from the Robbery was commenced by Skiva International, Inc. also in New York Supreme Court. Underwriters were notified of both of these actions and undertook the defense of both. Underwriters appointed the law firm of Marcigliano & Campise ("M&C") to represent Insureds. See Defendant Mem. at 11.

 Sometime after December 20, 1991, Insureds received a summons in an action in New York Supreme Court brought by American Motorists Insurance Company as subrogee of Cherry Stix, Ltd. (the "American Motorists Action"). "Although it would have been standard practice for the Insureds to forward such summons to Coverage Consultants (as done in the Good and Plenty and Skiva International Actions), there is no record that such summons was in fact forwarded. . . . The Insureds took no further action with respect to the American Motorists Action." Defendant Mem. at 12. On March 30, 1992, counsel for American Motorists wrote Insureds and informed them that a motion for default would be brought within thirty days. See Memorandum of Law in Support of Plaintiff's Cross-Motion for Summary Judgment ("Plaintiff Mem.") at 4. On or about July 20, 1992, American Motorists served a motion for default judgment in the amount of $ 595,032. Id. at 5.

 Insureds failed to take any action with respect to these notices and failed to notify Underwriters. On September 16, 1992, a default judgment in the sum of $ 595,032 was entered against Insureds. See Plaintiff Mem. at 5. At this point, Insureds notified Underwriters of the American Motorists Action, and Underwriters proceeded to appoint M&C, under a reservation of rights, to represent Insureds in that action. M&C successfully moved to vacate the default judgment. While the motion to vacate the default judgment was pending, however, Underwriters changed their position to an outright declination of coverage based on Insureds' failure to give notice of the claim as soon as practicable and Insureds' failure to forward suit papers.

 On or about June 26, 1993, M&C moved by order to show cause to withdraw as Insureds' counsel in the American Motorists Action. *fn3" See Defendant Mem. at 15. On December 3, 1993, the New York Supreme Court denied M&C's motion, holding that such a motion was not a proper mechanism for determining Underwriters' obligations to Insureds. Id. On or about January 18, 1994, M&C served an answer in the American Motorists Action and has continued to represent Insureds in that ...


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