Ruttura & Sons Construction Company, Inc., Proto Construction & Development Corp., First Women's Fire Systems Corp., and Morrell Brown Corporation appeal from an order of the Supreme Court, New York County (Herman Cahn, J.), entered July 25, 2008, which denied their motions for summary judgment dismissing the third-party and second third-party complaints.
The opinion of the court was delivered by: Nardelli, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Luis A. Gonzalez, P.J., Eugene Nardelli, James M. Catterson, Karla Moskowitz, Dianne T. Renwick, JJ.
601404/04, 5910810/04, 590431/05
The issue presented concerns the applicability of the volunteer doctrine when an insurer settles a claim against its insured, and seeks to proceed as subrogee against other parties who also allegedly bear responsibility for the underlying loss.
In August of 1998, plaintiff NYP Holdings, Inc. retained defendant McClier Corporation, a professional architectural firm, to provide certain design services related to the construction of a new printing plant in the Bronx. McClier thereupon produced a design for the contemplated premises, after which it hired various subcontractors, including the various third-party defendants, to perform the actual physical construction. NYP subsequently became dissatisfied with the quality of the work done on the project, and commenced this lawsuit, asserting causes of action for professional errors and omissions, malpractice, fraud, overbilling, delay damages and construction defects.
After being served, McClier instituted third-party actions against various entities, including appellants Ruttura & Sons Construction Company, Inc., Proto Construction & Development, First Women's Fire Systems Corp. and Morrell Brown Corporation (collectively referred to as Ruttura or appellants), who were involved in some phase of the construction. The third-party complaints advanced claims predicated upon contractual and common-law indemnification, negligence, strict liability and breach of contract. The claims asserted by plaintiff aggregated over $100,000,000. During the course of the litigation, McClier settled its dispute with NYP by a payment in the total amount of $23,900,000. McClier paid $750,000, which constituted the aggregate of its deductible along with the balance on its self-insured retention. The remainder of the settlement, $23,150,000, was paid by McClier's insurer, Lloyd's of London. The settlement did not apportion damages between design defects, for which McClier would be responsible, and construction defects, for which the third-party defendants would be responsible.
The Lloyd's policy provided coverage for professional liability for architects and engineers, but not for construction work. As a result of its settlement payment, Lloyd's became subrogated to McClier's claims, although McClier remains the nominal party. McClier seeks indemnification for the sums paid to NYP in settlement of the main lawsuit. The Ruttura entities moved for summary judgment against McClier, arguing that Lloyd's was a volunteer whose payment to NYP was outside of its contractual responsibility and, thus, the settlement could not form the basis for a subrogation claim. McClier opposed the motion on the ground that the law of California, the domicile of McClier's parent company, to which the policy was issued, is controlling, and that under California law Lloyd's was not a volunteer when it made the payment. Therefore, McClier claimed, it would be entitled to pursue its subrogation claim.
The motion court found that New York law governed the dispute since McClier had an office in Manhattan, and that New York, which does preclude claims by volunteers, was the state where the risk was located.
Although the court found that the Ruttura entities had met their burden, as the moving party, of establishing that Lloyd's paid the settlement amount when there was no obligation for Lloyd's to do so, it ultimately concluded that McClier had come forward with evidence that by virtue of the settlement payment, Lloyd's avoided exposure for significantly greater damages in the main action. The court also observed that it was not clear what percentage of the potential damages could be attributable to design errors and what percentage was attributable to construction defects.
The court reasoned that there was thus a question of fact as to Lloyd's status as a volunteer, and denied the motion for summary judgment. It specifically stated:
"The argument that a settling insurer is a volunteer' and thus barred from making a subrogation claim should not be used without careful consideration. Its widespread use would discourage settlement, and might well require a separate action within an action' on the issue of the insurer's liability whenever it is raised."
The third-party defendants have appealed, arguing that there are no issues of fact, and that Lloyd's has not shown that it paid ...