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Global Aerospace, Inc. v. Hartford Fire Insurance Co.

January 13, 2009

GLOBAL AEROSPACE, INC., F/K/A ASSOCIATED AVIATION UNDERWRITERS, INC. AND FEDERAL INSURANCE COMPANY, PLAINTIFFS,
v.
HARTFORD FIRE INSURANCE COMPANY AND HARTFORD ACCIDENT AND INDEMNITY COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Lewis A. Kaplan, District Judge

MEMORANDUM OPINION

This action arises out of a dispute between primary and excess insurance carriers over the primary carrier's handling of a workers' compensation claim.

Defendants ("Hartford") were the workers' compensation carrier for the Flying Tiger Line, Inc. ("Flying Tiger") under a policy with a $300,000 limit on liability. Plaintiffs (hereinafter "Global") insured for losses in excess of Hartford's $300,000 of coverage. Global's central claim is that Hartford breached an agreement between the parties by accelerating and increasing Global's payment obligations to workers' compensation claimant William Bond.

Global originally asserted claims against Hartford for (1) declaratory judgment, (2) breach of contract, (3) breach of fiduciary duty, (4) negligent misrepresentation and (5) promissory estoppel. Hartford moved for summary judgment dismissing each claim. On the same day, Global moved to amend its complaint to add claims for equitable subgrogation and implied indemnity and to seek reimbursement of all workers' compensation payments made by Global to Bond. It contends that the amendment is warranted by information revealed during discovery. Both motions are now before the Court.

Facts

On March 10, 1986, Flying Tiger pilot William Bond a sustained an injury while descending a Boeing 747.*fn1 Flying Tiger had workers' compensation coverage under a United States Aviation Underwriters Workers Compensation and Employers Liability Policy issued by Hartford, a United States Aviation Underwriters member company.

A collective bargaining agreement ("CBA") between Flying Tiger and the Airline Pilots Association governed certain terms of Bond's employment. The pertinent section of provides:

"Section 16 -- International Workers' Compensation Benefits The Company will provide Workers' Compensation Benefits for pilots in International operations in amounts not less than those prescribed by the Longshoremen's and Harbor Worker's Compensation Act, as amended, or the Workers' Compensation Law of the State of California, whichever act provides the higher benefits."*fn2 In addition to workers' compensation, the Hartford Policy provided $300,000 of coverage under an Excess Voluntary Compensation Endorsement (the "Endorsement") to fulfill Flying Tiger's contractual obligation to compensate injured pilots at rates exceeding those available under the New York Workers' Compensation Law. The Endorsement provides:

"We will pay the difference between the amount the employee receives under the benefits of the workers compensation law and the benefits the employee would have received had the claim fallen under the jurisdiction and benefits of the 'United States Longshoreman's and Harbor Workers' Compensation Act.' However, under no circumstances shall we pay more than $300,000 for any one accident regardless of the number of employees injured."*fn3 Paragraph E of the Endorsement provided that "[i]f the persons entitled to the benefits of this insurance make a recovery from others, they must reimburse us for benefits we paid them."*fn4

Global provided Flying Tiger with excess insurance coverage for amounts over $300,000 that Flying Tiger might be required to pay pursuant to Section 16 of the CBA. Thus, Hartford was liable for the first $300,000 of voluntary compensation and Global for any amount above that.

Bond's Worker's Compensation Claim

After his injury, Bond brought a worker's compensation claim before the New York Workers' Compensation Board. Hartford, as primary insurer, represented Flying Tiger. Hartford began making payments to Bond for the period beginning March 10, 1986, the date of his accident. The payments had two components: what Bond was entitled to under the New York Workers' Compensation Law and what he was entitled to under Flying Tiger's contractual obligation to pay him at the higher rate set by the LHWCA.*fn5

The Boeing Settlement and Hartford's Letters

Bond brought also a personal injury action against the Boeing Company, which he ultimately settled in 1989 for $650,000,*fn6 contingent upon Hartford's waiver of its workers' compensation lien.*fn7 By the time of the settlement, Hartford had paid Bond $94,047.92 in total benefits, $55,197.92 of which represented voluntary supplemental compensation payments. That meant that Hartford remained obligated to pay Bond $244,802.08 of the $300,000 worth of voluntary supplemental coverage before Global's excess coverage obligation would kick in.

In exchange for waiving its lien, Hartford sought to suspend payments to Bond in order to get a credit for the amount it had paid him already. While the parties disagree over their precise nature, discussions took place among Hartford, Global and Bond concerning that issue and the scheduling of future compensation payments to Bond once that Hartford's credit for past payments was exhausted.

On March 31, 1989, Hartford's attorney, Martin Krutzel, wrote two letters to Bond's attorney, Steven C. Marks, summarizing what the parties had worked out. The first informed Marks that Hartford would suspend compensation payments to Bond from March 20, 1989 for approximately 12.79 because of the credit to which Hartford claimed it was entitled by virtue of Bond's recovery from the Boeing settlement.*fn8 Krutzel wrote that Hartford would recommence payments to Bond at the rate of $595.24 per week after the 12.79 years elapsed. Those benefits would continue for as long as Bond was entitled.*fn9 The second letter provided Hartford's consent to Bond's settlement with Boeing.*fn10

Also on March 31, 1989, Krutzel wrote a letter to Global's attorney, Robert Hirsch, (the "Insurers' Letter Agreement") enclosing copies of the two letters Krutzel sent to Bond's attorney that same day.*fn11 Krutzel informed Hirsch that "[the] purpose of this correspondence is to memorialize the agreement between USAU [Hartford], the primary Workers' Compensation carrier and AAU, responsible for the payment of excess benefits."*fn12 Krutzel then laid out Hartford's calculations of the future payments to Bond in the following manner:

"Assuming that no further compensation payments are made to Captain Bond subsequent to March 20, 1989, after the recommencement of payments in 12.79 years, the Hartford Insurance Co. will continue to pay the claimant $595.24 per week for an additional 10.54 years. Thereafter the Hartford's rate will be reduced to the New York statutory maximum of $150.00 and it is our understanding with you that the AAU will at that point commence payment to the claimant in the amount of $445.24 per week, representing that portion of the overall rate of $595.24 consisting of voluntary excess benefits."*fn13

Bond's Request for COLA

In July 1998 a dispute arose between Bond and Hartford. Although the New York State Workers' Compensation Board classified Bond as permanently partially disabled,*fn14 the Social Security Administration ("SSA") subsequently classified Bond as permanently totally disabled.*fn15

In light of the SSA classification, Bond claimed that he was entitled to a retroactive and continuing cost of living adjustment ("COLA") to his weekly $594.24 payment under the LHWCA. Bond claimed also that, given these retroactive payments, Hartford should have recommenced ...


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