United States District Court, S.D. New York
February 24, 2004.
ONE BEACON INSURANCE f/k/a CGU INSURANCE, Plaintiff, -against- TERRA FIRMA CONSTRUCTION MANAGEMENT & GENERAL CONTRACTING, LLC and KAFCI CORPORATION, Defendants; TERRA FIRMA CONSTRUCTION MANAGEMENT & GENERAL CONTRACTING, LLC and KAFCI CORPORATION, Third-Party Plaintiff's, -against- SELECT PLANNING, LTD, Third-Party Defendant
The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge
OPINION AND ORDER
On November 18, 2002, One Beacon Insurance f/k/a CGU Insurance ("One
Beacon") filed an action against Terra Firma Construction Management
General Contracting, LLC. ("Terra") and K.A.F.C.I. Corp. ("KAFCI")
to recover premiums owing under workers' compensation insurance policies.
See One Beacon Complaint ("Compl."). On June 11, 2003, Terra and
KAFCI filed a third-party action for indemnification, breach of contract
and negligence against their insurance broker, Select Planning, LTD.
("Select"). See Third-Party Complaint ("TP Compl.").
Third-Party Defendant Select now moves for summary judgment. In support
of its motion, Select submits that Terra & KAFCI's breach of contract
and negligence claims are barred by statutes of limitation and that Terra
and KAFCI cannot state a valid claim for indemnification. For the reasons
set forth below, Select's motion is granted and the Third-Party Complaint
One Beacon is an insurance provider organized under the laws of
Pennsylvania with its principal place of business in Pennsylvania. Terra
and KAFCI are companies engaged in interior/drywall construction and
contracting organized under the laws of New York, each with a principal
place of business in New York. Select is an insurance broker organized in
New York with a principal
place of business in New York. One Beacon Amended Complaint ("AM
Comp.") ¶¶ 2-3.
B. Insurance Contracts
Sometime prior to 1994, Terra and KAFCI hired Select to review their
insurance needs and to procure workers' compensation insurance policies
for their employees and operations. TP Compl. ¶ 5.
1. The First Policy
On June 15, 1996, Select helped Terra and KAFCI obtain an insurance
contract from One Beacon (the "First Policy"). By the terms of that
contract, Terra and KAFCI were to pay insurance premiums to One Beacon in
return for one year of workers' compensation coverage. The First Policy
was effective from June 15, 1996 to June 15, 1997. AM Compl. ¶ 6.
The price of the insurance premiums that Terra and KAFCI owed to One
Beacon under the First Policy was subject to retrospective adjustment.
Id. Under insurance policies subject to retrospective
adjustment, the insured initially pays premiums at a set price.
Subsequently, the price of the premiums is adjusted by the insurer to
reflect updated estimates of risk for the insurance coverage
("Retrospective Adjustment"). Retrospective Adjustment can result in the
insured owing additional premiums or in premiums being returned to the
depending on whether the price is raised or lowered. In this case,
the premiums Terra and KAFCI owed to One Beacon under the First Policy
were retrospectively adjusted to a higher price. See id. ¶
11. This caused Terra and KAFCI to owe One Beacon additional premiums
(the "Retrospective Premiums"), which One Beacon claims it has not
received. See id.
2. The Second Policy
On June 15, 1997, Select helped Terra and KAFCI obtain a second
contract from One Beacon for workers' compensation coverage (the "Second
Policy"). Unlike the First Policy, the Second Policy was not subject to
Retrospective Adjustment. Under that policy, Terra and KAFCI owed
premiums to One Beacon at a set price. See id. ¶ 10.
C. Underlying Lawsuit
On November 18, 2002, One Beacon sued Terra and KAFCI for breach of
contract. One Beacon alleged that Terra and KAFCI failed to pay the
Retrospective Premiums due to One Beacon under their insurance contracts.
See id. Initially, One Beacon claimed that Terra and KAFCI owed
retrospective premiums under both the First Policy and the Second Policy.
Compl. ¶ 3. On October 9, 2003, One Beacon amended its Complaint to
retract its claim under the Second Policy. See AM Compl. ¶
10. Because the Second Policy was not subject
to Retrospective Adjustment, Terra and KAFCI could not owe
retrospective premiums under that policy. See id.
D. Third-Party Lawsuit
On June 11, 2003, Terra and KAFCI filed this third-party suit against
Select for negligence, breach of contract and indemnification. TP Compl.
¶¶ 15, 19. Specifically, Terra and KAFCI allege that Select
inadequately advised them about how much they could potentially owe to
One Beacon in retrospectively adjusted premiums. In response, Select has
moved for summary judgment, asserting that Terra and KAFCI cannot state a
valid claim for indemnification, and that their negligence and breach of
contract claims are time-barred. See Select Memorandum in
Support of Summary Judgment ("Select Mem/') at 2-3.
II. APPLICABLE LAW
A. Summary Judgment Standard
Rule 56 of the Federal Rules of Civil Procedure provides for summary
judgment "if the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law.55 Fed.R.Civ.P. 56(c). See
also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "An issue
of fact is `genuine' if `the evidence
is such that a reasonable jury could return a verdict for the
nonmoving party.'" Electrical Inspectors, Inc. v. Village of East
Hills, 320 F.3d 110, 117 (2d Cir. 2003) (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)), cert.
denied sub nom. Village of Islandia v. Electrical Inspectors,
Inc., 124 S.Ct. 467 (2003). A fact is material when it "`might
affect the outcome of the suit under the governing law.'" Id
(quoting Anderson, 477 U.S. at 248).
A party seeking summary judgment has the burden of demonstrating that
no genuine issue of material fact exists. See Apex Oil Co. v.
DiMauro, 822 F.2d 246, 252 (2d Cir. 1987) (citing Adickes v.
S.H. Kress & Co., 398 U.S. 144, 157 (1970)). In turn, to defeat
a motion for summary judgment, the non-moving party must raise a genuine
issue of material fact. To do so, he "must show more than a `metaphysical
doubt' as to material facts." Id. (quoting Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). He may
not rely on conclusory allegations or unsubstantiated speculation.
See Twin Labs., Inc. v. Weider Health & Fitness,
900 F.2d 566, 568 (2d Cir. 1990) (holding that "[c]onclusory
allegations will not suffice to create . . . a genuine issue" of material
fact sufficient to overcome a motion for summary judgment); see also
Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423,
428 (2d Cir. 2001). Rather, the non-moving party must produce admissible
evidence that supports his pleadings. See
First Nat'l Bank of Arizona v. Cities Serv. Co.,
391 U.S. 253, 289-90 (1968). In this regard, "[t]he `mere existence
of a scintilla of evidence' supporting the non-movant's case is also
insufficient to defeat summary judgment." Niagara Mohawk Power Corp. v.
Jones Chem. Inc., 315 F.3d 171, 175 (2d Cir. 2003)
(quoting Anderson, 477 U.S. at 252). See also Twin Labs.,
900 F.2d at 568 ("There must be more than a scintilla of evidence, and
more than some metaphysical doubt as to the material facts.") (quotation
marks and citations omitted).
In determining whether a genuine issue of material facts exists, the
court must construe the evidence in the light most favorable to the
non-moving party and draw all inferences in that party's favor. See
Niagara Mohawk, 315 F.3d at 175 (citing Anderson, 477 U.S.
at 252). Accordingly, the court's task is not to "weigh the evidence and
determine the truth of the matter but to determine whether there is a
genuine issue for trial." Anderson, 477 U.S. at 249.
A. Terra and KAFCI's Breach of Contract and Negligence Claims
are Barred by Statutes of Limitation
Select asserts that Terra and KAFCI's claims for breach of contract and
negligence are time-barred. Select Mem. at 2-3. Pursuant to section 214
of the New York Civil Practice Law and Rules ("CPLR"), the statute of
limitations for a negligence claim is three years. See also T&N
PLC v. Fred S. James & Co.
of New York, Inc., 29 F.3d 57 (2d Cir. 1994); Mauro v.
Neimann Agency Inc., 303 A.D.2d 468 (2d Dep't 2003); National
Life Insurance Co. v. Frank B. Hall & Co., 111 A.D.2d 681 (1st
Dep't 1985). Pursuant to section 213 of the CPLR, the statute of
limitations for a breach of contract claim is six years. See also
National Life Insurance, 111 A.D.2d at 682 (the applicable statute
of limitations for an action arising against an insurance broker for
malpractice in the performance of contractual obligations is six
years)(citing Video Corp. of America v. Frederick Flatto Associates,
Inc., 85 A.D.2d 448 (1st Dep't 1982)).
A claim against an insurance broker or agent accrues when the
wrongdoing occurs and not when the wrongdoing is discovered.
Mauro, 303 A.D.2d at 468-69; National Life Insurance,
111 A.D.2d at 682; T&N PLC, 29 F.3d at 59. This is true for
both negligence and breach of contract actions. See Mauro, 303
A.D.2d at 468-69 (cause of action for breach of contract accrued, and
six-year limitations period began to run, when broker failed to perform
its alleged undertaking with insured; cause of action for negligence
accrued, and three-year limitations period began to run, when broker
first issued policy).
The latest possible date of wrongdoing by Select in advising Terra and
KAFCI to procure the First Policy was the date that the First Policy was
procured: June 15, 1996.*fn2 Thus, Terra and KAFCI's claims for
negligence and breach of contract accrued no later than June 15,
1996.*fn3 Pursuant to the statutes of limitation, Terra and KAFCI had
three years from that date to file a negligence claim and six years to
file a breach of contract claim. Terra and KAFCI did not file their
Third-Party Complaint until July 11, 2003, more than six years later.
See TP Compl. As such, Terra and KAFCI's claims against Select
for negligence and breach of contract are time-barred.
B. Terra and KAFCI Do Not State a Valid Claim for
B. Terra and KAFCI Do Not State a Valid Claim for
In addition to their breach of contract and negligence claims, Terra
and KAFCI assert that Select is liable to them for indemnification for
any Retrospective Premiums they may owe to One Beacon. In an action for
indemnity, "a party held legally liable to [the] plaintiff shifts the
entire loss to another." Mas v. Two Bridges Assocs., 75 N.Y.2d 680,
689 (1990). A duty to indemnify can arise in one of two ways: by
express contract or by implication, "based upon the law's notion of what
is fair and proper between the parties." Id.
Because Select is not a party to the First Policy, or to any other
contract with Terra or KAFCI, the alleged duty to indemnify cannot be
express. Thus, if Terra and KAFCI's claim is to survive, they must have
an implied right to indemnification from Select.
Conceptually, implied indemnification finds its
roots in the principles of equity. It is nothing
short of simple fairness to recognize that a
person who, in whole or in part, has discharged a
duty which is owed by him but which as between
himself and another should have been discharged by
the other, is entitled to indemnity. To prevent
unjust enrichment, courts have assumed the duty of
placing the obligation where in equity it belongs.
As was true with many unjust enrichment cases, the
vehicle through which the law operated was the
quasi contract. Thus, the rule developed that
where payment by one person is compelled, which
another should have made, a contract to reimburse
or indemnify is implied by law.
McDermott v. City of New York, 50 N.Y.2d 211, 216-17 (1980)
(quotation marks, alterations, citations, and footnote omitted). However,
it has long been settled law in New York that, as a matter of equity,
claims of implied indemnity require a showing that the party claimed to
owe indemnification breached some duty to the underlying plaintiff.
See Mas, 75 N.Y.2d at 690; see also Sign Erectors Co., Inc.
v. Allied Outdoor Advertising, Inc., 175 A.D.2d 761, 762 (1st Dep't
1991) ("[S]uccessful assertion of that right [of indemnification]
requires that the primary obligor and the indemnitor are subject to a
duty to an injured party."). "[I]ndemnification is only available where a
party who is vicariously liable seeks to recover from the actual
wrongdoer." Martin v. Back O'Beyond, Inc., 198 A.D.2d at 480 (2d
Dep't 1993)(citations omitted). An indemnity claim does not arise where
an insurance carrier sues an insured for breach of the insurance contract
and does not seek to hold the insured vicariously liable for any wrong of
the broker. Mount Vernon Fire Ins. Co. v. Mott, 179 A.D.2d 626
(2d Dep't 1992). See also Dormitory Auth. v. Claudill Rowlett
Scott, 160 A.D.2d 179 (1st Dep't 1990); City of Rochester v.
Holmsten Ice Rinks, 155 A.D.2d 939 (4th Dep't 1989); SSDW Co. v.
Feldman-Misthopoulos Assocs., 151 A.D.2d 293 (1st Dep't 1989);
County of Westchester v. Becket Assocs., 102 A.D.2d 34 (2d Dep't
1989); Trustees of Columbia Univ. v. Mitchell/Giurgola Assocs.,
109 A.D.2d 449 (1st Dep't 1985).
Terra and KAFCI fail to allege that Select owed any duty to One
Beacon. See TP Compl. Nor have Terra and KAFCI alleged that
Select committed any wrong against One Beacon for which Terra and KAFCI
might be held vicariously liable. Id. The only duty allegedly
owed to One Beacon, and allegedly breached for the purposes of this
lawsuit, is Terra and KAFCI's duty to pay the Retrospective Premiums.
Compl. ¶ 3. Although Select helped Terra and KAFCI procure the First
Policy, there is no suggestion that it had any duty to pay the
retrospective premiums due under that policy. See TP Compl.
Because Terra and KAFCI do not allege any wrong of Select against One
Beacon for which One Beacon seeks to hold Select vicariously liable, they
do not state a valid claim for indemnification against Select.
For the foregoing reasons, Select's motion for summary
judgment is granted. The Clerk of the Court is directed to close
this motion [#20 on the docket] and dismiss the Third-Party Complaint. A
conference is scheduled for March 2, 2004, at 2:30 p.m.