The opinion of the court was delivered by: Denise Cote, District Judge.
Tokio Marine and Fire Insurance Company, Ltd. ("Tokio Marine") and Nissan-Infiniti LT ("NILT") have brought suit against Leonard Grodin ("Grodin") for common-law indemnification. Ann Blumenthal ("Blumenthal"), a pedestrian who was struck by a Nissan Pathfinder which was driven by Grodin and leased from NILT,*fn1 suffered catastrophic injuries and filed a personal injury lawsuit in state court against Grodin, NILT, Nissan Motor Acceptance Corporation, and Autotech Nissan ("State Court Action"). In settling the State Court Action, Tokio Marine, NILT's insurer, paid millions of dollars above the amount contributed by Grodin's primary insurer, GEICO Insurance Company ("Geico").
Grodin has filed a third party complaint against Geico, and Kay & Gray, a law firm to whom Geico referred Grodin's defense in the State Court Action. Grodin alleges that Geico breached its contract with Grodin by improperly failing to offer a defense to NILT in the State Court Action. Grodin's second cause of action alleges breach of contract, bad faith, and legal malpractice against Geico and Kay & Gray for their alleged failure to settle the State Court Action within Grodin's Geico policy limits. His third cause of action seeks a declaration that Geico is liable for the defense costs of the present action. Tokio Marine and NILT have moved for summary judgment on their claim for common law indemnification and Geico and Kay & Gray have moved to dismiss the claims brought against them by Grodin for failure to state a claim.*fn2
The following facts are undisputed or taken in the light most favorable to Grodin. On September 28, 2000, Grodin entered into a Lease Agreement ("Lease") with Autotech Nissan for the Pathfinder. The Lease was assigned to Nissan Motor Acceptance Corporation which, in turn, granted full power to collect and discharge obligations under the Lease to NILT. The Lease did not contain an indemnity provision. As part of the Lease, Grodin was required to secure automobile insurance that provided coverage for bodily injury liability of $100,000 per person and $300,000 per occurrence.
Grodin secured insurance from Geico, which issued him a policy covering the Pathfinder on July 29, 2002 ("Geico Policy"). The Geico Policy contains a section entitled "Losses We Will Pay For You" which states:
[W]e will pay damages which an insured becomes legally obligated to pay because of:
1. bodily injury, sustained by a person; and
2. property damage arising out of the ownership, maintenance or use (including loading or unloading) of the owned auto or a non-owned auto. We will defend any suit for damages payable under the terms of this policy even if the claim or suit is groundless. We may investigate and settle any claim or suit.
On November 24, 2002, Grodin was involved in an accident while attempting to park the Pathfinder near the intersection of Third Avenue and East 26th Street in Manhattan. Blumenthal was knocked to the ground and struck her head, suffering serious injuries.
On December 18, 2002, Geico wrote a letter to Grodin indicating that it was aware of the accident and that Grodin had no excess insurance. It asked Grodin for a copy of the Lease and advised him that NILT may have some additional rights against him in the event that it was forced to pay a monetary settlement over the limit of his underlying liability policy. Geico also informed Grodin that he might want to retain private counsel. Geico's letter stated in pertinent part:
The "lessor" may have some additional rights against you as the "lessee" in the event that they are forced to pay a monetary settlement over the limit of your underlying liability limit (of $100,000) as a result of this accident. You may be required to report this loss to them as well and, if so, you should do this now.
You may wish to obtain your own attorney at your own expense, to cooperate with the defense attorney assigned to your case (if a lawsuit is commenced against you -- but no such suit has been filed as far as we know). You need not do this, but is [sic] your right to do so under your policy contact [sic]. We assure you that if it is necessary to refer this claim to defense counsel that the attorney assigned to your case will do his/her best to protect your interests. (Emphasis supplied.) On December 26, 2002, Grodin advised Geico that he had no insurance other than its policy.
On January 10, 2003, Blumenthal filed the State Court Action against Nissan Motor Acceptance Corporation, NILT, Autotech Nissan (collectively "Nissan") and Grodin in New York Supreme Court seeking $10,000,000 in damages based on theories of negligence. By correspondence dated February 28, 2003, NILT's contingent auto liability insurer, Tokio Marine, tendered the defense of NILT in the State Court Action to Geico.
On March 3, 2003, Geico notified Tokio Marine that it would be providing a defense to Nissan through Kay & Gray. Grodin did not retain his own counsel. Kay & Gray interposed an answer on his behalf. Three days later, London Fischer LLP indicated that Nissan had made an election to be defended by London Fischer rather than Kay & Gray. London Fischer interposed an answer on behalf of ...