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Empire Fire and Marine Insurance. Co. v. Elrac

December 18, 2006


The opinion of the court was delivered by: Gerard E. Lynch, District Judge


This insurance case requires a clarification of the difference between being excluded from coverage and simply being uninsured. Plaintiff Empire Fire and Marine Insurance Co. ("Empire") seeks a declaratory judgment that it has not provided excess liability coverage to the defendants in an underlying negligence action in New York state court. Defendant Elrac, Inc. d/b/a Enterprise Rent-A-Car ("Elrac") moves for summary judgment on the grounds that a declaratory judgment is inappropriate, and in the alternative that Empire failed to timely disclaim liability and is therefore estopped from denying coverage. Empire cross-moves for summary judgment, contending that the defendants in the underlying action were never covered by the insurance policy in question, and that it therefore had no duty to promptly disclaim. Defendant's motion will be denied, and plaintiff's motion will be granted.


This case began on August 5, 2001, when a fourteen-year-old girl picking blueberries with other girls from her summer camp got behind the wheel of a van and attempted to drive it. Confused about how the controls worked, she swerved wildly around the parking lot, hitting one of the other campers, who was dragged under the van for some distance into the rows of blueberries. (Richman Aff. Ex. G.)

The victim of the accident, defendant Hayley B. Goldberg, along with her parents, Rhonda and Samuel Goldberg, brought a negligence action in Kings County Supreme Court on July 21, 2004. (Richman Aff. Ex. F.) The Goldbergs named a number of defendants in that underlying action, all of whom are also defendants in this declaratory judgment action. Along with the camper who caused the accident, the Goldbergs sued the summer camp that had sponsored the trip, defendant Machon Chana Women's Institute, Inc. ("Machon Chana"), and a camp counselor, defendant Chana Miriam Leider.*fn1 Leider, the Goldbergs alleged, had given the keys to the van to the underage driver.*fn2 (Richman Aff. Ex. F. ¶ 14.) The defendants deny that Leider gave the camper her keys or her permission (see Empire Mem. at 5); all of the other facts in this case are undisputed.

The Goldbergs also sued defendant Elrac, which owned the van. On July 31, 2001, the van had been rented from Elrac by defendant Kimberly Shpitsek,*fn3 a counselor at Camp Machon Chana who apparently did not go on the blueberry-picking trip. Shpitsek was the only person authorized to drive the vehicle under the rental agreement. Shpitsek claims that she "did not rent a vehicle on [her] own behalf," but "on behalf of [her] employer, Camp Machon Chana[,] and [that] this was and is clearly indicated on the rental application." (Shpitsek Aff., un-numbered attachment to Machon Chana 56.1 Stmt.) Although the rental agreement does note that the renter's employer was Camp Machon Chana, however, it identifies Shpitsek as the renter, and bears the emphatic legend, "NO OTHER DRIVER PERMITTED." Defendants have pointed to nothing in the agreement suggesting its coverage extended to other drivers. (Richman Aff. Ex. C.)

When Shpitsek rented the vehicle, she also purchased a supplemental liability insurance policy, issued by plaintiff Empire. (Richman Aff. Exs. E, F.) This was an "excess" policy; it only covered liability for bodily injury in excess of $250,000. Elrac maintained a $250,000 "Self-Insured Retention" under the policy, meaning that it would be responsible for personal injury liability up to $250,000. (P. Mem. at 2.)

Prior to the filing of this lawsuit, the only notice Empire gave to the defendants of its objections to coverage was on October 28, 2003, when Empire issued a letter reserving its rights and questioning the applicability of the policy, among other things because the driver who caused the accident was unauthorized. (Richman Aff. Ex. H.) The letter was addressed to "Citteo Moriania," apparently an interpretation of a name used to identify Kimberly Shpitsek on the the rental agreement. It was addressed to the Machon Chana camp at its summer address, but because it was sent in October, when the camp was closed for the winter, no one received it. (Machon Chana Mem. at 3.*fn4 ) The parties do not explain why Machon Chana was unable to arrange for mail forwarding during the winter months. In any event, the letter was never received and is not relevant to this summary judgment motion because Empire does not contend that it constituted a timely disclaimer of coverage.

On December 30, 2004, Empire filed this declaratory judgment action, seeking an adjudication of its obligations under the insurance agreement, and Elrac now moves for summary judgment. Defendants Machon Chana, Shpitsek and Leider (collectively, the "Machon Chana defendants") have submitted a memorandum of law in support of Elrac's motion.*fn5 Empire, in turn, cross-moves for summary judgment, asking the Court to "declar[e] that Empire does not maintain any obligation to provide insurance coverage with regard to the underlying Goldberg personal injury action." (P. Mem. 19.)


I. Declaratory Judgment Is Appropriate Here

Defendants argue that it would be inappropriate to grant a declaratory judgment on the facts of this case. The party seeking a declaratory judgment bears the burden of showing that the district court has jurisdiction. See Cardinal Chem. Co. v. Morton Int'l, Inc., 508 U.S. 83, 95 (1993). Jurisdiction exists only if there is an "actual controversy," 28 U.S.C. § 2201(a), which has been defined as one that is "'real and substantial . . . admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.'" Olin Corp. v. Consol. Aluminum Corp., 5 F.3d 10, 17 (2d Cir. 1993), quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937).

Defendants make two arguments against the availability of a declaratory judgment here. First, the Machon Chana defendants point out that the state court action has not yet proceeded to judgment, and that it is therefore possible that Empire will never face any liability whatsoever. (Machon Chana Mem. at 5-6.) It has long been well-established, however, that a liability insurer may bring an action for a declaratory judgment against the parties in an underlying lawsuit involving its insured without waiting for the underlying action to proceed to judgment. Maryland Cas. Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273-274 (1941). "Indeed, litigation over insurance coverage has become the paradigm for asserting jurisdiction despite future contingencies that will determine whether a controversy ever actually becomes real." Assoc. Indem. Corp. v. Fairchild Indus., 961 F.2d 32, 35 (2d Cir. 1992).

"That the liability may be contingent does not necessarily defeat jurisdiction of a declaratory judgment action. Rather, courts should focus on the practical likelihood that the contingencies will occur." Id. In this case, it is true that Empire is an excess insurer, but the underlying action in this case alleges that the victim and her parents suffered a total of $110 million in damages. (Richman Aff. Ex. F. ¶¶ 23, 27, 31.) Defendants do not attempt to argue that there is no "practical likelihood" of liability exceeding $250,000 in the underlying action. Given the size of the claims in the underlying action, the prospect of Empire facing liability is real enough to make this an actual case or controversy. Cf. E.R. Squibb & Sons, Inc. v. Lloyd's & Cos., 241 F.3d 154, 177-178 (2d Cir. 2001) (finding a "practical likelihood" that excess carriers' policies would be reached). "The respective interests and obligations of insured and insurers, when disputed, require ...

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