| State of N.Y. Ins. Dept., Liquidation Bur. v Generali Ins. Co. |
| 2007 NY Slip Op 07767 [44 AD3d 469] |
| October 16, 2007 |
| Appellate Division, First Department |
| State of New York Insurance Department, Liquidation Bureau,Respondent, v Generali Insurance Company, Appellant, et al.,Defendant. |
—[*1] Armienti, DeBellis & Whiten, LLP, New York City (Vanessa Corchia of counsel), forrespondent.
Order, Supreme Court, New York County (Shirley Werner Kornreich, J.), entered on orabout April 12, 2006, which, in this action seeking contribution for plaintiff's defense andsettlement of the underlying personal injury claim, to the extent appealed from, granted plaintiff'scross motion for summary judgment as against defendant Generali Insurance Company anddirected that judgment be entered against Generali in the amounts of $23,302.42 and$210,191.08, plus interest, affirmed, without costs.
In 1993, two children and their mother instituted an action to recover damages caused bytheir exposure to lead paint. Rosan Realty Corp., an owner of the premises where the allegedexposure occurred, was named as a defendant. During Rosan's ownership of the premises, it wasinsured for the risk at issue by Generali for 5.5 months, and by Transtate Insurance Company for10.2 months. The coverage provided by the two insurers was discontinuous, and for much of therisk period at issue in the lawsuit there was no coverage. Following the lawsuit's commencement,Transtate notified Generali of the claim(s) against the insured, but Generali disclaimed anydefense or indemnification obligation under its policy and, accordingly, did not participate in thelitigation or its settlement. Inasmuch as Transtate had become insolvent, plaintiff LiquidationBureau, acting through Transtate on behalf of the now-defunct Rosan, paid both the entire cost ofthe defense and Rosan's share of the settlement. It thereafter brought this action, seeking partialreimbursement of the defense and indemnification costs it had borne from Generali. The motioncourt determined that Generali should reimburse plaintiff for half of the defense costs and that,although the insurers' respective indemnification obligations should be prorated according to thelength of time each covered the risk, the insurers should, according to their respective rates ofproration, together bear responsibility for that portion of the settlement covering the period whenthere was no insurance coverage. Generali takes issue with these allocations, urging that both itsdefense and indemnification obligation should have been [*2]prorated according to its time on the risk, and that the insuredshould bear its own defense and indemnification costs, on a prorated basis, for the period duringwhich the risk at issue went uninsured.
We reject Generali's proposed defense cost allocation as inequitable. It is now undisputedthat Generali was in fact obligated to defend its insured. Having unjustifiably disclaimed thatobligation and left plaintiff to absorb all of the defense costs, Generali may not now have itsdefense obligation finely tailored to its "time on the risk," particularly where the insured isdefunct and there is no reasonable possibility that it will bear any share of the defense costs.Under the circumstances, we see no reason to disturb the motion court's determination to allocatethe defense costs equally between plaintiff and Generali.
With respect to indemnification, although it is true that "time-on-the-risk" has been employedto prorate insurers' respective obligations (see Consolidated Edison Co. of N.Y. v Allstate Ins.Co., 98 NY2d 208 [2002]; Serio v Public Serv. Mut. Ins. Co., 304 AD2d 167, 168[2003]), the cited cases do not involve settlements pertaining to risks extending over uninsuredperiods, and, indeed, no authority is advanced supporting the utilization of the kind of strictproration advocated by Generali in a situation where there are lapses in insurance coverage andthe insured is not a viable entity. Significantly, the Court of Appeals stated in ConsolidatedEdison (supra) that its reliance on "time-on-the-risk" proration in that case did "notforeclose pro rata allocation among insurers by other methods" and that "this is not the last wordon proration" (98 NY2d at 225). Under the particular circumstances presented, in which plaintiff,in the face of Generali's unjustified refusal to honor its obligations, bore nearly the entire costs ofdefending and settling the underlying claim against the defunct insured, covering lengthy periodsfor which there was no applicable coverage, the proration formula employed by the motion courtwas manifestly fair and should stand.
Generali's remaining arguments are unavailing. Concur—Mazzarelli, J.P., Andrias andGonzalez, JJ.
Catterson and Malone, JJ., dissent in a memorandum by Catterson, J., as follows:In 1993, the underlying personal injury action was instituted on behalf of two infants to recoverdamages caused by their exposure to lead paint. Rosan Realty Corp. (hereinafter referred to asRosan), an owner of the premises where the alleged exposure occurred, was named as adefendant. Two insurers, Generali Insurance Company (hereinafter referred to as Generali) andTranstate Insurance Company (hereinafter referred to as Transtate) covered the premises duringRosan's ownership from March 1988 to July 1992, when Rosan's interest was extinguished byforeclosure. The corporation itself was dissolved in 1994.
Following the lawsuit's commencement, Transtate notified Generali of the claim against theinsured but Generali disclaimed any defense or indemnification obligation under its policy and,accordingly, did not participate in the litigation or its settlement. Inasmuch as Transtate hadbecome insolvent, plaintiff Liquidation Bureau, acting through Transtate on behalf of thenow-[*3]defunct Rosan, paid both the entire cost of the defenseand Rosan's share of the settlement of $600,000.
Subsequently, Transtate brought this action against Generali seeking partial reimbursementof the defense costs of $46,604.84, and the indemnification costs it had borne. The motion courtestablished that of the 50.7 months of total period of risk that Rosan had owned the premises, theproperty had been insured for 15.7 months, of which Generali was the insurer for 5.5 months andTranstate for 10.2 months. The motion court also found that the property was uninsured for 35months.
The motion court determined that Generali should reimburse plaintiff for half of the defensecosts and that, although the insurers' respective indemnification obligations should be proratedaccording to the length of time each covered the risk, the insurers should, according to theirrespective rates of proration, together bear responsibility for that portion of the settlementcovering the period when there was no insurance coverage. It thus determined that Generali'sshare of the defense costs was 50% or $23,302.42 on the grounds of the overarching duty todefend. It also calculated Generali's pro rata share of the settlement at $210,191.08.
In effect, the court used plaintiff's formula for the ratio of time on the risk (in Generali's case,5.5 months) to the time the premises had been insured overall (15.7 months) and not as a ratio tothe total time that Rosan had owned the property (50.7 months), which would have amounted to$65,088.76 as Generali's pro rata share.
On appeal, Generali takes issue with these allocations, urging that both its defense andindemnification obligations should have been prorated according to its straight time on the risk,and that the insured should bear its own defense and indemnification costs, on a prorated basis,for the period during which the risk at issue went uninsured.
As to the defense cost allocation, we reject Generali's proposal as inequitable. It is nowundisputed that Generali was in fact obligated to defend its insured. Having disclaimed thatobligation and left plaintiff to absorb all of the defense costs, Generali may not now have itsdefense obligation finely tailored to its "time-on-the-risk," particularly where the insured isdefunct and there is no reasonable possibility that it will bear any share of the defense costs.Under the circumstances, we see no reason to disturb the motion court's determination to allocatethe defense costs equally between plaintiff and Generali.
With respect to indemnification, however, a strict "time-on-the-risk" standard has beenemployed to prorate insurers' respective obligations. (See Consolidated Edison Co. of N.Y. vAllstate Ins. Co., 98 NY2d 208 [2002]; Serio v Public Serv. Mut. Ins. Co., 304 AD2d167, 168 [2003]). While the cited cases do not involve settlements pertaining to risks extendingover uninsured periods, and, while the motion court may be accurate in characterizing the instantcase as one of first impression in the state courts, nevertheless, similar issues determined in thefederal courts offer useful guidance. For example, in Stonewall Ins. Co. v Asbestos ClaimsMgt. Corp. (73 F3d 1178, 1203 [2nd Cir 1995]), the court, addressing the issue of allocationbetween an insured and its carriers with respect to periods of exposure where there was noinsurance, held that: "a fair method of allocation appears to be one that is related both to time onthe risk and the degree of risk assumed. When periods of no insurance reflect a decision by anactor to assume or retain a risk, as opposed to periods when coverage for a risk is not available,to expect the risk-bearer to share in the allocation is reasonable." (Citations omitted.)[*4]
In United States Fid. & Guar. Co. v TreadwellCorp. (58 F Supp 2d 77 [SD NY 1999]), the court, citing Stonewall, applied the"proration to the insured" approach to the "time-on-the-risk" method of allocating liability forindemnity and defense costs between an asbestos installer and its liability insurance carriers. Thecourt held that liability for continuous asbestos-related injuries would be allocated betweencomprehensive general liability insurers and the insured, as a self-insurer, during the periods ithad no insurance, on a pro rata basis, according to the years on the risk, reasoning as follows:
"Treadwell made a decision to go without insurance for the years prior to 1967, and thisdecision should have consequences. Otherwise, Treadwell would receive the same treatment asan identically situated company that chose to purchase insurance for the fullperiod. . . .
"Accordingly, Treadwell is obligated to contribute toward payment of the Asbestos Claimsbased on the number of years it was uninsured." (Id. at 104-105.)
In the instant case, appellant contends that, since the record reveals that Rosan was uninsuredduring the bulk of the period of risk, the compelling inference is that its decision to carry noinsurance was a conscious one. The argument is persuasive, especially as Transtate does notpoint to any evidence in the record suggesting otherwise or that Rosan was unable to obtaincoverage. Likewise, plaintiff's assertion that the foregoing federal cases did not involve insuredswho were no longer viable entities is a weak attempt to distinguish them. As appellant contends,Rosan was still a viable corporation at the time of the commencement of the action, andremained so for another fourteen months. Generali, thus, asserts that Transtate had ampleopportunity to seek contribution from Rosan.
In any event, the viewpoint that to rule in Generali's favor would simply encourage insurersto disclaim coverage and sit on the sidelines is less compelling than the viewpoint that to prorateGenerali's share of the settlement to cover the uninsured portion of the risk period will encourageentities like Rosan to be even less diligent about insurance coverage.