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Nationwide Mutual Insurance Co. v. U.S. Underwriters Insurance Co.

Supreme Court of New York, First Department

June 13, 2017

Nationwide Mutual Insurance Company as subrogee of Artimus Construction Corp., Inc., et al., Plaintiffs-Appellants,
v.
U.S. Underwriters Insurance Company, Defendant-Respondent.

          Ahmuty, Demers & McManus, Albertson (William J. Mitchell of counsel), for appellants.

          Miranda Sambursky Slone Sklarin Verveniotis LLP, Mineola (Steven Verveniotis of counsel), for respondent.

          Acosta, P.J., Sweeny, Moskowitz, Kapnick, Kahn, JJ.

         Order, Supreme Court, New York County (Robert R. Reed, J.), entered November 19, 2015, which granted defendant's motion to dismiss the complaint, affirmed, without costs.

         Our dissenting colleague has accurately related the facts of this case and the general principles of collateral estoppel and res judicata, and they need not be repeated here. We differ only in how those principles apply to the facts of this case.

         There is no dispute that plaintiff Artimus is the subrogee of nonparty Armadillo's rights and thus is in privity with Armadillo. As the subrogee of Artimus, plaintiff Nationwide is in privity with Artimus. Neither Artimus nor Nationwide can have any greater rights than their subrogors possessed. It is therefore appropriate at this point to review the legal concepts of subrogation and privity.

         "Subrogation, an equitable doctrine, allows an insurer to stand in the shoes of its insured and seek indemnification from third parties whose wrongdoing has caused a loss for which the insurer is bound to reimburse" (Kaf-Kaf, Inc. v Rodless Decorations, 90 N.Y.2d 654, 660 [1997]). "The insurer's rights against a third party are derivative and limited to the rights the insured would have against that third party" (Westport Ins. Co. v Altertec Energy Conservation, LLC 82 A.D.3d 1207, 1209 [2d Dept 2011], citing Humbach v Goldstein, 229 A.D.2d 64, 67 [2d Dept 1997]). "Therefore, [an] insurer can only recover if the insured could have recovered and its claim as subrogee is subject to whatever defenses the third party might have asserted against its insured'" (id., quoting Humbach at 67).

         "Privity, it has been observed, is an amorphous concept not easy of application. Generally, a nonparty to a prior litigation may be collaterally estopped by a determination in that litigation by having a relationship with a party to the prior litigation such that his own rights or obligations in the subsequent proceeding are conditioned in one way or another on, or derivative of, the rights of the party to the prior litigation" (D'Arata v New York Cent. Mut. Fire Ins. Co., 76 N.Y.2d 659, 664 [1990])[citation omitted]).

         Artimus, as subrogee of Armadillo, and Nationwide, as Artimus's subrogee, are therefore subject to whatever rules of collateral estoppel would be applicable to Armadillo.

         The motion court correctly determined that the insurance coverage issues involved in this case were decided in Nationwide's prior action. The parties were the same in both cases and had a full and fair opportunity to be heard on the coverage issues. The doctrine of res judicata "applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation" (Matter of Hunter, 4 N.Y.3d 260, 269 [2005]). We agree with the dissent that a "transactional analysis" is to be used in analyzing the appropriateness of applying the doctrine of res judicata. This approach has been stated as follows: " [O]nce a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy'" (id., quoting O'Brien v City of Syracuse, 54 N.Y.2d 353, 357 [1981]).

         The issues raised here were addressed in the prior action. The court in that action held that U.S. Underwriters had no obligation to provide insurance coverage in the personal injury action because the employer liability exclusion provision in its policy was applicable. In fact, documentary evidence establishes that plaintiffs in this case had a full and fair opportunity to litigate this issue in the prior action, where Nationwide's subrogor, Artimus, was a plaintiff, and Artimus' subrogor, Armadillo, was a named defendant. U.S. Underwriters served its pre-answer motion on Nationwide, Artimus and Armadillo. Nationwide and Artimus submitted opposition; Armadillo chose not to appear or oppose the motion. Neither Nationwide nor Artimus appealed from the prior order. Under New York's transactional approach, any claims Armadillo had could have, and should have, been brought at that time (Matter of Hunter, 4 N.Y.3d at 269). Indeed, "a party to a lawsuit cannot sit by idly while a contract, to which [it] is also a party, is judicially construed without being precluded by the result" (see Buechel v Bain, 97 N.Y.2d 295, 305 [2001], cert denied 535 U.S. 1096');">535 U.S. 1096 [2002]). To do so would be to reward a defaulting party for its inaction.

         Cicero v Great Am. Ins. Co. (53 A.D.3d 461');">53 A.D.3d 461');">53 A.D.3d 461');">53 A.D.3d 461 [1st Dept 2008], lv dismissed in part, denied in part, 11 N.Y.3d 912');">11 N.Y.3d 912');">11 N.Y.3d 912');">11 N.Y.3d 912 [2009]) is not to the contrary. In Cicero, the prior declaratory judgment action did not involve coverage issues raised in that action. We determined that coverage was not the same issue as in the prior action, which involved a question of timely notice. Here, by contrast, the issues involved both claims of untimely notice and whether the underlying personal injury action within a policy exclusion.

         Thus, in this case, the parties were afforded a full and fair opportunity to litigate the insurance coverage issues in the prior action. Nationwide is therefore collaterally estopped from litigating the same issues already decided against its subrogor, Artimus, who in turn is estopped from litigating the same issues decided against its subrogor, Armadillo, as a subrogee of the insured.

         Moreover, the principles of res judicata favor defendants herein. Nationwide and Artimus seek to enforce the judgment that they were awarded against Armadillo in the third-party personal injury action. However, as noted above, in the prior action the court found that the coverage exclusion with respect to the personal injury action in U.S. Underwriters policy was applicable. By bringing this action as subrogees of Artimus and Armadillo under Insurance Law § 3420, Nationwide and Artimus are essentially seeking to relitigate Artimus's claims for coverage. "Res judicata is designed to provide finality in the resolution of disputes, recognizing that [c]onsiderations of judicial economy as well as fairness to the parties mandate, at some point, an end to ...


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