SCOTTSDALE INSURANCE COMPANY v. MT HAWLEY INSURANCE COMPANY (2023)

Order, Supreme Court, New York County (Arthur Engoron, J.), entered on or about September 20, 2021, which granted defendants Mt. Hawley Insurance Company's (Mt. Hawley) and Certain Underwriters at Lloyd's, London Subscribing to Policy Number ARSV120194's (Lloyd's) motions for summary judgment dismissing the complaint as against them and denied plaintiff Scottsdale Insurance Company's (Scottsdale) cross motion for summary judgment on its claims for contribution, indemnification, and a judgment declaring, among other things, that Scottsdale is entitled to recover $1,000,000 from Lloyd's and $398,076.80 from Mt. Hawley for contributions to Scottsdale's settlement of an underlying action, unanimously modified, on the law, with costs, solely to declare in defendants’ favor on the claim for a declaratory judgment, and otherwise affirmed, without costs.

In this insurance coverage dispute, plaintiff Scottsdale seeks reimbursement, from defendants Mt. Hawley and Lloyd's, for a $2 million payment Scottdale contributed to settle an underlying personal injury suit.  The court correctly determined that Lloyd's and Mt. Hawley were not obligated to contribute to Scottsdale's settlement of the underlying action.  While New York's horizontal exhaustion rule mandates that all primary policies be exhausted before excess coverage is triggered (see Tishman Const. Corp. of N.Y. v. Great Am. Ins. Co., 53 A.D.3d 416, 419, 861 N.Y.S.2d 38 [1st Dept. 2008];  Bovis Lend Lease LMB, Inc. v. Great Am. Ins. Co., 53 A.D.3d 140, 855 N.Y.S.2d 459 [1st Dept. 2008]), the rules governing priority of coverage are inapplicable here.  Since the owner (175 Broadway Hospitality) was entitled to contractual indemnification from the general contractor (Dome) due to a complete pass-through of liability, the excess policy issued to Dome must respond before the primary and excess policies issued to 175 Broadway Hospitality (see Arch Ins. Co. v. Nationwide Prop. & Cas. Ins. Co., 175 A.D.3d 437, 438, 108 N.Y.S.3d 124 [1st Dept. 2019];  Indemnity Ins. Co. of N. Am. v. St. Paul Mercury Ins. Co., 74 A.D.3d 21, 26, 900 N.Y.S.2d 24 [1st Dept. 2010]).

Additionally, Scottsdale is not entitled to recovery because its right to subrogation has been waived.  Dome agreed in its contract with 175 Broadway to “waive[ ] any right of recovery or subrogation it may have against the Indemnified Parties [175 Broadway] with respect to any injury ․ arising out of this Contract,” and Dome's primary policy contained an endorsement “waiv[ing] any right of recovery” against 175 Broadway.  Such endorsements are applicable to excess policies that follow form, as did Scottsdale's policy (see Tishman Constr. Corp. of N.Y. v. Great Am. Ins. Co., 96 A.D.3d 494, 495, 949 N.Y.S.2d 344 [1st Dept. 2012]).

Because the declaratory action was resolved on the merits, the proper course was not to dismiss the complaint but to declare in favor of defendants (see Maurizzio v. Lumbermens Mut. Cas. Co., 73 N.Y.2d 951, 954, 540 N.Y.S.2d 982, 538 N.E.2d 334 [1989]).

We have considered Scottdale's remaining arguments and find them unavailing.