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Indemnity Insurance Co. of North America v. St. Paul Mercury Insurance Co.

April 22, 2010

INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, PLAINTIFF-APPELLANT,
v.
ST. PAUL MERCURY INSURANCE COMPANY, ET AL., DEFENDANTS-RESPONDENTS. [AND OTHER ACTIONS]



Plaintiff appeals from an order of the Supreme Court, New York County (Marylin G. Diamond, J.), entered February 21, 2008, which denied its cross motions for summary judgment against St. Paul Mercury Insurance Company and Yonkers Contracting Company, Inc. and granted St. Paul's and Yonkers's motions for summary judgment dismissing the complaint.

The opinion of the court was delivered by: Richter, 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., Angela M. Mazzarelli, John W. Sweeny, Jr., Dianne T. Renwick Rosalyn T. Richter, JJ.

102500/06, 590363/06, 591031/06

In this insurance coverage dispute, plaintiff Insurance Indemnity Company of North America (IICNA) seeks reimbursement from defendants St. Paul Mercury Insurance Company (St. Paul) and Yonkers Contracting Company, Inc. (Yonkers) for a $2 million payment IICNA made to settle an underlying personal injury suit. In the underlying action, Eugene Flood, an employee of Yonkers, was performing restoration work on the Manhattan Bridge when he was injured. Yonkers was retained by the City of New York as the general contractor on the restoration project. As part of this project, Yonkers hired subcontractor Romano Enterprises of New York, Inc. (Romano) to paint certain portions of the bridge. In painting the bridge, Romano had draped a series of steel cables along the sides of the bridge to serve as supports from which to hang scaffolding.

Two days before Flood's accident, Ronald Taylor, a Yonkers superintendent, spotted a cable left on the bridge by Romano that would interfere with Yonkers's work. Taylor asked John Graham, a Romano foreman, to remove the cable. Flood also told Graham that the cable had to be removed. Graham assured both men that he would make sure the cable was taken down, but failed to do so. On the day of the accident, Yonkers workers attempted to hoist a five-ton iron beam horizontally through the bridge's lattices and suspension cables. Halfway through the process, the beam became stuck on the cable left by Romano. Flood climbed onto the beam to investigate and walked along its length looking for the obstruction. As he reached the end of the beam, the beam tilted and Romano's cable snapped, hitting Flood in the ankle and injuring him.

Under its subcontract with Yonkers, Romano agreed to (1) indemnify and hold harmless the City and Yonkers from any claims arising from or in connection with any acts or omissions in the performance of Romano's work and (2) procure all necessary and adequate insurance naming the City and Yonkers as additional insureds. In accordance with the subcontract, Romano obtained a policy with nonparty Royal Insurance Company of America (Royal), which provided for $1 million in primary general liability coverage. Romano's excess insurer, IICNA, supplied umbrella excess liability coverage in the amount of $10 million. The City and Yonkers were additional insureds under both the Royal and IICNA policies. St. Paul insured Yonkers, and the City as an additional insured, under a commercial policy with general liability coverage of $1 million and umbrella coverage of $5 million.

In January 2001, Flood commenced the underlying action against the City and Romano, asserting claims under the Labor Law as well as under principles of common-law negligence*fn1. The City tendered its defense to St. Paul, which then assigned counsel to represent the City. Romano was represented by counsel assigned by its carrier, Royal. Several months later, St. Paul asked Romano to assume the City's defense and indemnification pursuant to the indemnification clause in the Yonkers-Romano subcontract. Romano agreed that its indemnification obligation to the City was clear and recommended that Royal accept tender of the City's defense. In response, Royal agreed to indemnify and defend the City without reservation or qualification.

Trial of Flood's personal injury action began in February 2003. Soon thereafter, Royal tendered the defense of the City and Romano to IICNA since it appeared that Flood's claim would exceed Royal's policy limits. After opening statements, the court granted Flood's motion for a directed verdict against the City as to liability on his Labor Law § 240(1) claim, finding the City vicariously liable as the owner of the bridge.

On February 10, 2003, after Flood's case rested on the remaining issues, IICNA settled the case for $3 million. IICNA negotiated the settlement whereby Royal would pay $1 million and IICNA the $2 million balance. Flood's counsel stated on the record that the settlement was made with respect to Flood's claim against the City and that his client's claims against Romano would be discontinued with prejudice. However, the general release stated that the settlement amount was paid on behalf of both the City and Romano. St. Paul did not participate in the settlement agreement, having concluded that Romano was ultimately liable as a result of its agreement to indemnify the City, a position that Romano had previously agreed with.

IICNA subsequently commenced this action against St. Paul and Yonkers, seeking to recoup the $2 million it had paid to settle the underlying action. In the first cause of action, brought against St. Paul, IICNA maintained that the St. Paul policy covering the City was the primary insurance covering the loss at issue. IICNA sought a declaration that the IICNA policy is excess to the St. Paul policy, thus obligating St. Paul to reimburse IICNA the $2 million it paid to Flood. In the second cause of action, sounding in subrogation, IICNA sought a judgment against Yonkers in the amount of $2 million. IICNA contended that Yonkers was contractually obligated to indemnify the City and thus was responsible for reimbursing IICNA for the payment IICNA made purportedly on the City's behalf. The motion court denied IICNA's cross motions for summary judgment as against Yonkers and St. Paul and granted St. Paul's and Yonkers's motions for summary judgment dismissing the complaint.

We conclude that IICNA is not entitled to reimbursement from St. Paul because St. Paul neither participated in the settlement negotiations nor agreed to the amount of the settlement. In AIU Ins. Co. v Valley Forge Ins. Co. (303 AD2d 325 [2003]), this Court found that where the insurer did not take part in settlement negotiations or agree to the settlement of an underlying personal injury action, it was not required to contribute to that settlement. Similarly here, IICNA, which orchestrated the underlying settlement, did not have the authority to bind St. Paul. We also note that the St. Paul insurance policy prohibited the City from assuming any financial obligation without St. Paul's consent (see Royal Zenith Corp. v New York Mar. Mgrs, 192 AD2d 390 [1993]). Since it is undisputed that St. Paul did not consent to the settlement, IICNA may not seek reimbursement from St. Paul.

There is no merit to IICNA's claim that St. Paul abandoned its insured, the City. In fact, St. Paul tendered the City's defense to Romano pursuant to Romano's contractual obligation to indemnify the City. Upon such tender, Romano and its insurer, Royal, unconditionally and without reservation agreed to defend and indemnify the City. Under these circumstances, it cannot be said that St. Paul abandoned its insured. Nor, as IICNA argues, did St. Paul take an improper coverage position when it declined to participate in the settlement. St. Paul correctly determined that the City, whose liability was purely statutory, was entitled to ...


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