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United States Underwriters Ins. Co. v. Kum Gang Inc.

July 28, 2006


The opinion of the court was delivered by: Glasser, United States District Judge



This insurance coverage dispute arises from an accident in which an employee of the Kum Gang restaurant ("Kum Gang" or "Restaurant"), a Mr. Jung Hwan Lee ("Lee" or "Valet") was parking the car owned by a Restaurant patron Young Bok Park ("Park" or "Insured")*fn1 when it struck and caused serious injury to Jun Zhi Yuan ("Yuan," "Underlying Plaintiff," or "Injured"). The insurer of Young Bok Park is Charter Oak Fire Insurance Company ("Charter Oak").*fn2 Kum Gang's commercial insurer is United States Underwriters ("Underwriters" or "Plaintiff").

As of the date of the filing of this action in federal court, an underlying personal injury action in state court was ongoing (Index No. 9614/03, Jun Zhi Yuan v. Kum Gang Inc., Jung Hwan Lee and Young Bok Park). Underwriters now moves this Court to declare (a) that Underwriters is not obligated to defend Kum Gang in the underlying action because of "automobile exclusion" and "premises limitation endorsement" provisions in their policy; (b) that Charter Oak is the primary insurer of Lee and Kum Gang and has a duty to defend them in the underlying action; and (c) that in the event Underwriters does not obtain the aforementioned declarations, it is only obligated to pay for coverage in excess of the Charter Oak policy.

Defendant Charter Oak cross-moves for summary judgment. It seeks declarations (a) that Charter Oak's insurance policy does not afford coverage to defendants Kum Gang and Lee because of an "auto business exclusion" and a timely disclaimer; (b) that Underwriters is the primary insurer for Lee and Kum Gang; (c) that Underwriters is obligated to defend Kum Gang and Lee in the underlying personal injury action; and (d) that in the event coverage is concurrent, liability should be apportioned on a pro rata basis pursuant to the Charter Oak policy.

For the following reasons, Plaintiff's motion is denied and the defendants' cross-motion is granted in part and denied in part.


The relevant facts are essentially undisputed. On March 15, 2003, Park, the owner of a Toyota with license plate number AMG 2114, drove his car up the Kum Gang driveway and relinquished control of the vehicle to Lee, who was working at that time as a "valet parker" for the Kum Gang Restaurant, which offered valet service ancillary to its business. (Yoo Dep., 5:18-6:11, Oct. 07, 2004). (See also, Defs. 56.1 Stmt. ¶ 1); (Kleinberg Decl., Ex. 12 Young Bok Park Dep. "Park Dep." 6:6-16, Oct. 07, 2004).*fn3

For the purpose of parking the car in a nearby parking lot (the "YMCA" lot) used by the Restaurant, Lee exited the Kum Gang driveway onto Northern Boulevard and, roughly two car lengths from the mouth of the driveway, struck pedestrian Yuan. (Ex. 14, Jun Hwan Lee Dep. "Lee Dep." 15:21-23, Oct. 07, 2004).

The Kum Gang Restaurant is located at 138-28 Northern Boulevard and the YMCA lot is located at 138-46 Northern Boulevard. In order to arrive at the YMCA lot from the Kum Gang driveway, a driver must exit the Restaurant driveway and go around the block to Bowne Street. (Yoo Dep., 114:10-16, Oct. 07, 2004).

Shortly after the accident, on March 18, 2003, a letter was sent by Yuan's counsel to the Parks. This letter requested that they notify their insurer of Yuan's claim and that it "forward an Application for No-Fault Form, forthwith." (Ex. 8). Charter Oak created a claim file for the incident. (Ex. 9). The file indicates that Charter Oak was aware that Lee was an employee of Kum Gang and was driving the insured vehicle when the accident occurred. (Plt. 56.1 Stmt. ¶ 18) (Exs. 8, 9).

Subsequently, sometime between March 28 and 31 of 2003, Underwriters was notified of the accident by its agent, Morstan General Agency. (Defs. 56.1 Stmt. ¶ 35; Plt. Rep. 56.1 Stmt. ¶ 7).*fn4 On April 3, 2003, Underwriters began an investigation of the claim. While the investigation was ongoing, on April 11, 2003, Yuan brought suit in New York state court against the Parks, Lee, and Kum Gang. (Plt. 56.1 Stmt. ¶ 5); (Ex. 5). On May 14, 2003, Underwriters issued a written disclaimer of coverage to Kum Gang. (Defs. 56.1 Stmt. ¶ 7) (Ex. 6E). That letter disclaimed coverage based on policy exclusions discussed below. Although Underwriters declined coverage to Kum Gang in May, it did not send a letter to Charter Oak requesting it to provide coverage or a defense to Kum Gang and Lee until December 16, 2003. (Defs. 56.1 Stmt. ¶ 11). (Exs. 5, 10). There is no record, in fact, that either Lee or Kum Gang or anyone acting on their behalf requested Charter Oak to defend them prior to receiving the December 16 letter. In reply, Charter Oak determined that it was not obligated to insure Kum Gang, and notified Underwriters of its disclaimer on December 23, 2003. (Defs. 56.1 Stmt. ¶ 12). Coverage was disclaimed because it asserted that: 1) the "Auto business" exception precluded its obligation to defend; and 2) there was a breach of the requirements of timely notification of the claim by Kum Gang and Lee. (Ex. 11).

On June 24, 2004, Underwriters filed this summary judgment motion seeking declaratory relief. (Plt. 56.1 Stmt. ¶ 1). The present motion and cross-motion were fully briefed by August of 2005. The record does not reflect that the underlying action has been adjudicated, settled, or otherwise disposed of.

I. Declaratory Relief

A. 28 U.S.C. § 2201

In relevant part, the Declaratory Judgment Act (DJA) provides that "any court of the United States...may declare the rights and other legal relations of any interested party seeking such a declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a).

Actions for declaratory judgment must meet "case or controversy" requirements. A court cannot adjudicate conjectural or hypothetical cases or controversies. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). A controversy cannot be a mere possibility or probability that a person may be adversely affected in the future. Dawson v. Dep't of Transp., 480 F.Supp. 351, 352 (W.D. Okla. 1979). A controversy "must be sufficiently real and immediate, allowing specific and conclusive relief... it must also be ripe for adjudication." Dow Jones & Co., Inc. v. Harrods Ltd., 237 F.Supp.2d 394, 406 (citing Pub. Serv. Cmm'n v. Wycoff Co., Inc., 344 U.S. 237, 244, 73 S.Ct. 236 (1952)). Importantly, "[t]he disagreement...must have taken a fixed and final shape so that a court can see what legal issues it is deciding, what effect its decision will have on its adversaries, and some useful purpose to be achieved in deciding them." Pub. Serv. Com'n of Utah v. Wycoff Co., Inc., 344 U.S. 237, 244 (1952).

To maintain jurisdiction for declaratory relief, plaintiffs must show that they meet the above prerequisites at the time the case is heard. Golden v. Zwickler, 394 U.S. 103, 108, 89 S.Ct. 956 (1969). See also Ford v. Reynolds, 326 F.Supp.2d 392, 404 (E.D.N.Y. July 23, 2004) (citing Cardinal Chem. Co. v. Morton Int'l, Inc., 508 U.S. 83, 95-96, 113 S.Ct. 1967, 124 L.Ed.2d 1 (1993).

The DJA expressly confers discretion upon the district court to decide whether it will entertain jurisdiction over the action. Apotex Inc. v. Sanofi-Synthelabo et al., 386 F.Supp.2d 549, 551 (S.D.N.Y. 2005) (citing Dow Jones & Co., Inc. v. Harrods Ltd., 346 F.3d 357, 359 (2d Cir. 2003)). When exercising its discretion, the Court considers the litigation as a whole. Gianni Sport Ltd. v. Metallica, 2000 WL 1773511, *4 (S.D.N.Y. 2000). In this consideration "practicality and wise judicial administration predominate." Wilton v. Seven Falls Co., 515 U.S. 277, 288, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). The DJA does not expand the jurisdiction of the Court, it only provides an additional form of relief which the Court may provide if there is an independent basis for jurisdiction over the claim. Paulsen v. Lehman, 839 F.Supp. 147 (E.D.N.Y. 1993).

Finally, courts should be wary of entering declaratory judgments when the suit interferes with an action already filed. Apotex, 386 F.Supp.2d at 551 (citing Farrell Lines Inc. v. Columbus Cello-Poly Corp., 32 F.Supp.2d 118, 124 (S.D.N.Y. 1997)). Declaratory relief should not be ordered if it will interfere with an orderly and comprehensive disposition of the litigation in state court. Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 62 S.Ct. 1173 (1942). Courts should also be wary of requests for declaratory relief which involve either "procedural fencing" or a "race to res judicata." Dow Jones, 346 F.3d at 359-60. "The anticipation of defenses is not ordinarily a proper use of the declaratory judgment procedure." 28 U.S.C.A. § 2201 n. 613, 182 (1994) (citing Hanes Corp. v. Millard, 531 F.2d 585 (D.C. Cir. 1976) rev'd on other grounds, Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, (1987).

B. Application of 28 U.S.C. § 2201

The two insurers in this action, Underwriters and Charter Oak, both disclaim liability based on particular policy provisions and each asserts that the other is liable for the defense of Kum Gang and Lee. Both parties also seek determinations of contribution priorities should the underlying plaintiff obtain a favorable judgment against the underlying defendant-insureds.

Because neither insurer is a party in the underlying litigation (Ex. 5), it is apparent that the issues of coverage cannot properly be litigated in the tort action, making two suits necessary. 10B Wright Miller Cooper, Federal Practice and Procedure, § 2760, p. 566. When a determination of the duty to defend can be made and thus clarify the insurer's obligations in the underlying tort action, the DJA is properly invoked. (See, e.g., Metropolitan Property & Liability Ins. Co., v. Kirkwood, 729 F.2d 61, 63 (1st Cir.1984) (deciding whether a policy required the insurer to defend the tort action would prevent a potential conflict of interest between the insurer and the estate of the deceased's defendant that would otherwise arise).

Here, the questions of whether there is a duty to defend in the underlying action as well as whether or not the insurers are liable or have issued valid disclaimers are ripe for adjudication. It is therefore proper to consider the coverage provided by the policies, whether the insurer is required to defend an action, and other questions regarding the rights and duties of the insurer and the insured in the ongoing suit. See Coregis Ins. Co. v. McCollum, 955 F.Supp. 120 (M.D.Fl. 1997) ("plaintiff [insurer] has a right to know whether it is bound under its contract to defend its insured and whether or not it would be liable under the coverage of its policy in the event the state court renders a judgment against it"); County of Wyoming, New York v. Erie Lackawanna Ry. Co., 360 F.Supp. 1212, 1217 (W.D.N.Y. 1973) (despite cases pending in another federal court, district court could decide which insurer had a duty to defend an insured in an underlying action).

Although it is proper to consider the insurers' rights and obligations in the underlying action, it would be premature to prospectively determine their relative financial obligations to the plaintiff in the underlying action when no judgment has yet been obtained. Actions between insurers for liability priorities on underlying claims "should not be entertained until there has been judgment against the insured." 10B Federal Practice and Procedure, § 2760, p. 570, n. 16.

In American Fidelity and Cas. Co., Inc. v. Penn. Threshermen & Farmers' Mut. Cas. Ins. Co., 280 F.2d 453 (5th Cir.1960), the Fifth Circuit reviewed the propriety of entering declaratory judgments between insurers where the underlying dispute had not been resolved. In that case, there was an ongoing underlying tort action in the Southern District of Georgia against two defendant companies, "Clay" and "Britt." Clay was insured by "American" and Britt by "Pennsylvania." Both companies owned fleets of tractor-trailer units. To haul a particular load of tobacco, Britt leased a trailer unit and driver from Clay. That vehicle was subsequently involved in an accident with a passenger car whose occupants were seriously injured. American disclaimed coverage, arguing that Pennsylvania and Britt had the duty to defend Clay based upon an "other insurance" clause in American's contract.*fn5 In addition to the question of defense, there was also the issue of whether or not Pennsylvania had to contribute to any potential judgment that might be obtained in the underlying litigation.

Although the Fifth Circuit found it proper to decide the question of the duty to defend the suit, it held that the question of apportionment of liability was premature, and might depend upon the determination of facts in the underlying action. As that court stated:

There was one real problem presented: did American own [sic] Clay a defense?... We have spelled it out in no uncertain terms. To this extent the trial court's action and our affirmance is an effective declaration of right and duty....The rest of the asserted controversy may never be, but when it is or what it is when it is, a proper court can then resolve those tangible controversies as the case might require. The District Court was careful to make his dismissal without prejudice to those further rights, and it was well within its considered judicial discretion to decline to express legal opinions on academic theoreticals which might never come to pass. (Id., at 461).

Similar to American Fidelity, the present declaratory action seeks consideration of both the duty to defend and of liability, as well as the subsequent question of apportionment of liability. At this point, a determination of the insurers' respective liability exposure is nothing more than theoretical. Such a determination might be made moot by a finding of non-liability in the state court action. See Bellefonte Reinsurance Company v. Aetna Casualty and Surety Co., 590 F.Supp. 187 (S.D.N.Y. 1984) (where adjudication of issues by court could become moot on account of decision in underlying action, case was highly speculative and theoretical, and opinion would be nothing more than advisory). See also, Certain Underwriters at Lloyd's, London v. St. Joe Minerals Corp., 90 F.3d 671 (2d Cir.1996) (dismissing for lack of case or controversy a declaratory judgment action by an excess insurer where the underlying liability of the insured and the sufficiency of the primary insurer's funds had not yet been determined); SR Int'l Bus. Ins. Co., Ltd. v. World Trade Center Properties, LLC, 2005 WL 827074 (S.D.N.Y., Feb 15, 2005) (citing Bellefonte with approval).

As noted in American Fidelity, "[t]he mandatory obligation of a District Court to accept and determine a suit for declaratory relief is not commensurate with the full scope of a 'case or controversy' within the constitutional sense." (Id., at 461) (citations omitted). Therefore, the Court declines to exercise jurisdiction over both Underwriters' and Charter Oak's requests for declarations regarding primary and excess coverage and ratable contribution to any potential loss payable should the underlying plaintiff prevail.

II. Summary Judgment

Here, the facts of the matter are largely undisputed--what is contested is the applicable law. Nevertheless, the parties' requests for declaratory judgment must be evaluated by the oft-rehearsed rules of summary judgment.

Federal Rule of Civil Procedure 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits... 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." One of the principal purposes of summary judgment is to "isolate and ...

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