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HARTFORD FIRE INS. CO. v. MITLOF

December 15, 2000

HARTFORD FIRE INSURANCE COMPANY, PLAINTIFF,
V.
JOSEPH MITLOF D/B/A HUDSON VALLEY WATERWAYS, VILLAGE OF TARRYTOWN, VILLAGE OF NYACK, NYACK PARKING AUTHORITY, KEY BANK U.S.A., RIVERCREST HOMEOWNERS ASSOCIATION A/K/A RIVERCREST CORP., GARRISON YACHT CLUB AND NYACK BOAT CLUB, DEFENDANTS.



The opinion of the court was delivered by: William C. Conner, Senior District Judge.

OPINION AND ORDER

In this declaratory judgment action, plaintiff Hartford Fire Insurance Company ("Hartford") seeks, among other things, to void or deny coverage by a marine insurance policy (the "Hartford Policy") that Hartford issued to defendant Joseph Mitlof d/b/a/ Hudson Valley Waterways ("Mitlof"). By three separate motions, Susan Thorson, William Thorson, Denny Jacobson, Francis O'Brien, Elanor Budoff, Helen Gurvitch, John Russo and Kathleen O'Brien — eight passengers aboard defendant's pontoon boat who were allegedly injured when it capsized — and Steven D. Leipzig and Jack Raywid, as Executors (the "Executors") of the Estate of Milton Salkind — a passenger who drowned in the accident — (collectively, the "Passengers") now seek to intervene as defendants in this action pursuant to Rule 24 of the Federal Rules of Civil Procedure. For the reasons stated below, the Passengers's motions are denied.

BACKGROUND*fn1

Mitlof operated a water taxi service on the Hudson River serving Tarrytown, Nyack and Pierpont. Hartford issued Mitlof a marine hull protection and indemnity policy with passenger vessel amendments and warranties for a vessel named Lenape Seal, effective June 5, 1998. On July 16, 1998, Hartford agreed to insure a second vessel, Conservator, under the Hartford Policy. On August 23, 1998, the pontoon boat Conservator left Nyack carrying twenty-eight passengers and capsized. Several passengers aboard when the boat capsized brought personal injury lawsuits against Mitlof in New York State Supreme Court for Rockland County (the "State action"). (Pass. Mem. Supp. Mot. Intv. at 2.) None of these actions has yet been litigated to judgment.

Hartford investigated the accident under a reservation of rights and ultimately declined coverage because: (1) the policy was void from inception because Mitlof failed to disclose the prospective use of Conservator to carry more passengers than Lenape Seal; or, alternatively, (2) Mitlof breached an express warranty regarding the number of passengers permitted on Conservator, and (3) there was no valid Certificate of Inspection issued by the Coast Guard permitting Conservator to carry passengers for hire.

Hartford commenced the instant litigation on September 17, 1999. On April 11, 2000, Susan and William Thorson, Jacobson, Francis O'Brien, Budoff, Gurvitch and Russo moved to intervene. The Executors moved to intervene on April 28, and Kathleen O'Brien moved to intervene on June 15, 2000. By consent of all the Passengers's attorneys, the Executors and Kathleen O'Brien adopted all the factual and legal arguments set forth in the April 11 motion papers. (See Vecchio Affd. ¶ 5; Keegan Affm. ¶ 7.) The Passengers's State actions were also consolidated for the purposes of discovery and trial. (See id. ¶ 6.) Therefore, in the interest of judicial economy, the Court will consider all the motions simultaneously.

DISCUSSION

I. Choice of Law

As an initial matter, the Court notes that it previously applied New York law in Reliance pursuant to its admiralty jurisdiction, see 193 F.R.D. at 157,*fn2 and that the instant motion concerns the same Hartford Policy, a marine hull protection and indemnity ("P & I") contract. Moreover, despite the Passengers's failure to raise the argument, the Court concludes sua sponte that although Hartford brought the action under federal law by affirmatively invoking the Declaratory Judgment Act, 28 U.S.C. § 2201 ("DJA"), the Passengers's claim is governed by New York law. We adopt the reasoning in NAP, Inc. v. Shuttletex, Inc., 112 F. Supp.2d 369 (S.D.N.Y. 2000) and Richards v. Select Ins. Co., 40 F. Supp.2d 163 (S.D.N.Y. 1999), and rule that the New York Insurance Law provisions are "substantive statute[s] and that . . . invocation of the federal declaratory judgment procedure must yield to the outcome that proper application of state law would indicate." NAP, 112 F. Supp.2d at 372; see also Richards, 40 F. Supp.2d at 168 ("[T]he requirement of a judgment against the insured as a predicate to asserting a claim is best viewed as an element of the [substantive] rights created in § 3420, and not merely a procedural, or timing, control.").

In Richards, plaintiffs who were injured by an insured but who had not yet received a judgment against him brought a declaratory judgment action against his insurer after the insurer sued the insured for a denial of coverage. See id. at 165. They argued that "Insurance Law § 3420 is procedural and, therefore, inapplicable in a federal court which is guided by federal procedural rules." Id. Judge Mukasey held that the New York Insurance Laws are substantive rather than procedural, citing both State Trading Corp. v. Assuranceforeningen Skuld, 921 F.2d 409, 416 (2d Cir. 1990) (holding that Connecticut's limited direct action statute — one nearly identical to New York's — is substantive law), see Richards, 40 F. Supp.2d at 167, and the statutory history of § 3420 (noting that the legislature inserted the judgment requirement in 1918, only one year after the original statute was enacted), see id. at 168; see also NAP, 112 F. Supp.2d at 372 ("The theory and logic of § 3420 evince a legislative scheme manifestly charged with substantive purpose.").

He explained the interplay between the DJA and § 3420 as follows:

A declaratory judgment is a remedy. . . . Establishment of a case or controversy as required under [28 U.S.C. § 2201] is necessary . . . to insure that a declaratory judgment is not merely advisory. A declaratory judgment action is premature if standing to maintain such an action depends on a future event that is beyond the control of the parties and that may never occur.
Plaintiff's remedies are those provided for in § 3420. To permit an injured plaintiff to bring a declaratory judgment action before the conditions of the statute are fulfilled would bestow upon him a "further privilege" not provided for in § 3420. In addition, such a judgment would be advisory to the extent that an injured party's statutory rights are inchoate until such time as a judgment against the insured is obtained.

Id. at 169-70 (internal citations omitted); see also NAP, 112 F. Supp.2d at 374, 376 ("[W]ere the Court . . . to ignore the potential [substantive] impacts of § 3420, it would effectively create a federal cause of action and confer standing to maintain a suit where such a privilege may not exist under state law. . . . [Plaintiff's] standing to maintain this case, even though the action was brought under the [DJA], must be decided in accordance with § 3420."). Therefore, remaining consistent ...


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