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Renata Wadsworth v. Allied Professionals Insurance Company

March 28, 2012

RENATA WADSWORTH, PLAINTIFF,
v.
ALLIED PROFESSIONALS INSURANCE COMPANY, A RISK RETENTION GROUP, INC., DEFENDANT.



The opinion of the court was delivered by: Hon. Norman A. Mordue, U.S. District Judge:

MEMORANDUM-DECISION AND ORDER

BACKGROUND

Plaintiff obtained a judgment for $101,175 in a state court action against John Ziegler, formerly a chiropractor, based on her claim that he touched her in a sexual manner without her consent during chiropractic treatment. Wadsworth v. Ziegler, Supreme Court Tompkins Co. Index No. 08-0033. Plaintiff then brought the instant action in state court against defendant, Ziegler's malpractice insurer, to recover $101,175 pursuant to New York's direct action statute, New York Insurance Law 3420(a)(2) ("section 3420(a)(2)"). Wadsworth v. Allied Professionals Ins. Co., A Risk Retention Group, Inc., Supreme Court Tompkins Co., Index No. 10-1224.

Defendant removed the instant action to this Court on the ground of diversity jurisdiction.

Plaintiff moves (Dkt. No. 6) to strike the following affirmative defenses interposed in the amended answer (Dkt. No. 3): first (arbitration clause); second (lack of jurisdiction due to pendency of petition to compel arbitration); third (improper venue); fourth (California law applies); fifth (lack of insurance coverage); sixth (no obligation to disclaim coverage); and eighth (failure to state a cause of action). Plaintiff also seeks summary judgment.

Defendant moves (Dkt. No. 16) for summary judgment dismissing the action on the ground that section 3420(a)(2) is preempted by the Liability Risk Retention Act ("LRRA"), 15 U.S.C. § 3901, et seq. Defendant also raises state law grounds for dismissal. Further, defendant moves (Dkt. No. 22) for sanctions.

The parties have entered into a stipulation (Dkt. No. 12) whereby defendant agrees that it will not move to compel arbitration of this dispute and confirms that its action to compel arbitration in United States District Court for the Central District of California has been dismissed. Thus, the first and second affirmative defenses in the amended answer (Dkt. No. 3) are dismissed. The stipulation further states: "Both plaintiff and defendant hereby waive any and all right to a jury trial in this action and stipulate that all issues, including all factual and legal issues, shall be determined by the Court."

As explained below, plaintiff's motion (Dkt. No. 6) for dismissal of affirmative defenses and for summary judgment is granted to the extent that the first and second affirmative defenses in the amended answer are dismissed, and is otherwise denied with leave to renew in accordance with this Memorandum-Decision and Order. Defendant's motion (Dkt. No. 16) for summary judgment is denied with leave to renew in accordance with this Memorandum-Decision and Order. Defendant's motion (Dkt. No. 22) for sanctions is denied without prejudice.

PREEMPTION

Plaintiff's complaint is based on section 3420(a)(2) of the New York Insurance Law. Section 3420(a)(2) requires all New York liability insurance policies to include a provision permitting a plaintiff who recovers judgment against the insured to maintain a direct action against the insurer if the insured does not satisfy the judgment within a specified time. It states:

(a) No policy or contract insuring against liability for injury to person... shall be issued or delivered in this state, unless it contains in substance the following provisions or provisions that are equally or more favorable to the insured and to judgment creditors ...

(2) A provision that in case judgment against the insured or the insured's personal representative in an action brought to recover damages for injury sustained or loss or damage occasioned during the life of the policy or contract shall remain unsatisfied at the expiration of thirty days from the serving of notice of entry of judgment upon the attorney for the insured, or upon the insured, and upon the insurer, then an action may, except during a stay or limited stay of execution against the insured on such judgment, be maintained against the insurer under the terms of the policy or contract for the amount of such judgment not exceeding the amount of the applicable limit of coverage under such policy or contract.

Defendant argues that section 3420(a)(2) is preempted by the Liability Risk Retention Act ("LRRA"), 15 U.S.C. § 3901, et seq. As pertinent here, the LRRA "authorizes persons or businesses with similar or related liability exposure to form ... 'risk retention groups' for the purpose of self-insuring." Insurance Co. of State of Pa. v. Corcoran, 850 F.2d 88, 89 (2d Cir. 1988) (citing 15 U.S.C. § 3901(a)(4)). It further provides that, with enumerated exceptions, "a risk retention group is exempt from any State law, rule, regulation, or order to the extent that such law, rule, regulation, or order would ... make unlawful, or regulate, directly or indirectly, the operation of a risk retention group[.]" 15 U.S.C. § 3902(a)(1) ("section 3902(a)(1)"). At issue in this case is whether section 3420(a)(2) is preempted by section 3902(a)(1).

Under the Supremacy Clause of the United States Constitution, "[w]here a state statute conflicts with, or frustrates, federal law, the former must give way." CSX Transp., Inc. v. Easterwood, 507 U.S. 658, 663 (1993) (citing U.S. Const, Art. VI, cl.2). Any conflicting state provision is "without effect." Maryland v. Louisiana, 451 U.S. 725, 746 (1981). The Supreme Court cautions: "In the interest of avoiding unintended encroachment on the authority of the States ... a court interpreting a federal statute pertaining to a subject traditionally governed by state law will be reluctant to find pre-emption." CSX Transp., 507 U.S. at 663-64 (1993). Accordingly, "pre-emption will not lie unless it is 'the clear and manifest purpose of Congress.'" Id. at 664 (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)). Moreover, due to Congress' enactment of the McCarran-Ferguson Act, "state laws enacted 'for the purpose of regulating the business of ...


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