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AMERICAN ALLIANCE INS. CO. v. EAGLE INS. CO.

April 23, 1997

AMERICAN ALLIANCE INSURANCE COMPANY a/s/o MICHAEL FEIDELSON, Plaintiff, against EAGLE INSURANCE COMPANY, Defendant.


The opinion of the court was delivered by: SWEET

 Sweet, D.J.

 Defendant Eagle Insurance Company ("Eagle") has moved to stay or dismiss this action brought by American Alliance Insurance Company ("Alliance"), the subrogee of Michael Feidelson ("Feidelson"). Eagle seeks to have this Court abstain from exercising its jurisdiction under the principles of Colorado River Conservation District v. United States, 424 U.S. 800, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976) ("Colorado River "). For the reasons set forth below, the motion is granted.

 Prior Proceedings

 This action was filed on May 18, 1994, seeking to recover on an insurance policy and to enforce a default judgment obtained under somewhat complicated circumstances. After limited discovery, the default judgment was enforced for the reasons set forth in opinions of March 15, 1995 and August 31, 1995. American Alliance Ins. Co. v. Eagle Ins. Co., 1995 U.S. Dist. LEXIS 3177, No. 94 Civ. 3678, 1995 WL 117623 (S.D.N.Y. Mar. 15, 1995); American Alliance Ins. Co. v. Eagle Ins. Co., 163 F.R.D. 211 (S.D.N.Y. 1995). The Court of Appeals reversed, enunciating the standard for excusable neglect in an opinion of August 7, 1996. American Alliance Ins. Co. v. Eagle Ins. Co., 92 F.3d 57 (2d Cir. 1996).

 After remand, a discovery schedule and the date for filing the pretrial order was set by an order of October 2, 1996.

 The instant motion by Eagle was filed on November 27, 1996, and argued and considered fully submitted on January 15, 1997.

 Facts

 This action and three state court actions involve insurance policies which were written to cover losses resulting from a fire which occurred on February 14, 1991 at 537-547 West 26th Street, New York, New York.

 As pleaded by Feidelson, the premises were originally leased by Feidelson Transportation Corp. to Air Cargo Expeditors, Inc. ("Air Cargo"). The lease required the tenant to hold the landlord harmless. In 1986, the property and the rights under the lease were transferred to Feidelson. In 1988, Air Cargo and Feidelson executed an agreement to permit Air Cargo to sublet a portion of the premises to Shimoe Brake & Wheel, Inc., d/b/a King Bear, also known as Shimoe Brake & Front End, Inc., d/b/a Bear Automotive Services Centers (collectively, "Shimoe") through 1991. Air Cargo was required to provide Feidelson with a certificate of general liability insurance and the Shimoe sublease incorporated the terms of the Air Cargo lease.

 Lexington Sales, Inc. ("Lexington") and J. S. Trading Corp. ("J.S."), apparel wholesalers, were also tenants at the same premises. M.R.P. Realty managed the premises.

 Lexington and J.S. were insured by Continental Insurance Company ("Continental"). Feidelson was insured for fire damage to the building by Alliance which was apparently a wholly-owned subsidiary of Great American Insurance Company ("Great American"), both of which are part of the American Financial Group. Eagle issued a garage liability policy to Shimoe under which Feidelson was additionally insured. DCW Auto Agency, Inc. managed the Eagle policy issued to Shimoe.

 After the fire in February 1991, coverage under the insurance policies was invoked, and litigation was commenced in the Supreme Court, New York County by Continental against M.R.P. Realty and Feidelson. Continental Insurance Company a/s/o Lexington Sales and J.S. Trading v. M.R.P. Realty, Sup. Ct., N.Y. County, Index No. 15595/91 (the "Continental Action"). Alliance is defending the Continental action on behalf of Feidelson. In its amended complaint, verified September 23, 1991, Continental alleged that the February 1991 fire was electrical in nature and that M.R.P. Realty and Feidelson negligently failed to maintain the electrical system and asserted damages in the amount of $ 300,147.71.

 In January 1993, M.R.P. Realty and Feidelson, as defendants in the Continental Action, commenced a third-party action against Air Cargo and "Shitoe [sic] Brake and Front End, Inc." based upon the lease of the premises to Air Cargo and the sublease to Shimoe.

 In July 1995, the parties in the Continental Action deposed Arthur Banks, a New York City Fire Department Fire Marshall who inspected the premises after the fire and a discovery schedule was set.

 In July 1996, Eagle's present in-house counsel moved for leave to withdraw as counsel for Shimoe. Shortly thereafter, Air Cargo, as a defendant in the Alliance State Action and a third-party defendant in the Continental Action, cross-moved to consolidate the actions and for a joint trial in order to achieve a complete resolution of the issues in the damages actions without duplicating time, energy and efforts.

 By order dated September 24, 1996, the motion to withdraw as counsel for Shimoe was denied and the cross motion was granted to the extent of consolidating the Continental Action and the Alliance State Action for the purposes of discovery. The portion of the cross motion seeking a joint trial was denied without prejudice to renewal upon completion of discovery.

 In September 1992, Great American, as the subrogee of Feidelson, had commenced an action against Air Cargo and Shimoe Brake and Front End in the same court alleging that Feidelson sustained property damage in the amount of $ 45,365. The caption was later amended to change the name of the plaintiff to American Alliance, as subrogee of Feidelson. American Alliance Insurance Company a/s/o Feidelson v. Air Cargo Expeditors and Shimoe Brake & Front End, Sup. Ct., N.Y. County, Index No. 27416/92 (the "Alliance State Action").

 On September 23, 1993, counsel for Alliance wrote to Eagle advising it of Shimoe's default in the Alliance State Action. By letter dated October 5, 1993, Eagle advised Shimoe that it was disclaiming coverage with respect to Feidelson's claim because the Eagle policy had been cancelled on February 4, 1991. On February 24, 1994, Alliance obtained a default judgment against Eagle in the amount of $ 322,264, plus $ 87,011.28 in interest and $ 200 in costs.

 On May 18, 1994, Alliance commenced this action (the "Alliance Federal Action") to enforce the default judgment against Shimoe in the Alliance State Action. Alliance obtained a default judgment against Eagle due to Eagle's failure to answer the complaint. The Second Circuit vacated the default judgment on August 7, 1996. On August 29, 1996, the Second Circuit's mandate returned jurisdiction to this Court. Accordingly, Eagle served its answer to the complaint on September 5, 1996. Eagle's defense is premised upon the non-existence of coverage due to the cancellation of the policy based upon the nonpayment of premiums.

 By summons and complaint dated September 6, 1996, Feidelson commenced a declaratory judgment action in Supreme Court, New York County, against Eagle, Continental as subrogee of Lexington Sales and J.S. Trading, Air Cargo, Shimoe and DCW. Feidelson v. Eagle Insurance Company, et al., Sup. Ct., N.Y. County, Index No. 604641/96 (the "Feidelson State Action").

 There are four causes of action in the Feidelson State Action. In the second cause of action, Feidelson seeks a declaration that the Eagle policy covered him for the loss asserted by Continental. The fourth cause of action which is asserted against DCW, related tangentially to Eagle. In the fourth cause of action, Feidelson asserts that if the Eagle policy does not cover him, DCW is liable for allegedly failing to notify him of the cancellation of the policy. The first and third causes of action in the Feidelson State Action are directed to Air Cargo and Shimoe and are based upon alleged provisions of the lease agreements requiring indemnification and the procurement of insurance. Eagle ...


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