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NEW YORK BUS OPERATORS COMPENSATION TRUST, Plaintiff, v. AMERICAN HOME ASSURANCE CO., Defendant.
It is ORDERED that the motion by the defendant for an order dismissing the complaint is granted; and it is further
ORDERED that the cross motion by the plaintiff for summary judgment is denied.
The plaintiff, New York Bus Operators Compensation Trust (the “Trust”), was formed in 1993 to provide self-insurance to its members, i.e., school-bus and charter-bus companies, for their statutory workers' compensation liabilities. The plaintiff hedged against self-insurance of those liabilities by obtaining an excess-of-loss insurance policy from the defendant, American Home Assurance Company (“AIG”), for losses over $150,000 (the self-insured retention or “SIR”). The policy required the plaintiff to give prompt written notice to AIG of any claim that “appears to involve indemnity by the Insurer” or “appears reasonably likely that there will be a disability of more than one year.”
Pursuant to a written agreement dated January 1, 2000, the plaintiff retained Arthur J. Gallagher & Co. (“Arthur Gallagher”) to serve as the Trust's insurance broker and administrator. The plaintiff also retained third-party claim administrators to adjust and manage the claims for workers' compensation benefits made by its member-company employees. Network Adjusters, Inc. (“Network Adjusters”) was the third-party claim administrator between 1996 and 2006. Network Adjusters was followed by Risk Management Planning Group, Inc. (“RMPG”), from January 1, 2007, through December 31, 2010, and Gallagher Basset Services, Inc. (“GBS”), from January 1, 2011, through December 31, 2015. Triad Group, LLC (“Triad”), replaced GBS on January 1, 2016.
On October 20, 1999, Dolores Guerra-Henrich, a bus driver and employee of one of the Trust's member companies, suffered neck and back injuries while driving a bus. She received workers' compensation benefits for her injuries and returned to work on November 9, 1999. She remained capable of performing her duties for several years thereafter, but her injuries ultimately required surgery on July 13, 2005. After the surgery, she was unable to return to work and was classified as having a permanent, partial disability. Her disability reached the one-year mark on July 13, 2006, and the workers' compensation benefits paid to her exceeded the $150,000 mark on April 17, 2007. Network Adjusters was the third-party claim administrator when Guerra-Henrich was injured in 1999. It managed her claim until December 31, 2006, when RMPG took over as the claim administrator.
Guerra-Henrich's injuries were first reported to AIG by GBS on February 27, 2012. By then, the Trust had already paid out workers' compensation benefits in the amount of $363,320.78, far in excess of the $150,000 self-insured retention. By a letter to GBS dated May 18, 2012, AIG denied coverage on the ground that it first received notice of Guerra-Henrich's injuries more than 12 years after the accident, “long after the time when it was known that this matter involved a disability of more than one year and long after the time when it was known that this claim involved indemnity by the Insurer.”
The Trust first became aware of Guerra-Henrich's claim and AIG's denial of coverage in August 2016, at a meeting attended by the trustees of the Trust, Triad, and Arthur Gallagher. In August 2017, the Trust commenced an action in this court against Arthur Gallagher, GBS, and RMPG (Index No. 615531-17). The gravamen of the complaint was that the defendants had breached their obligations to the Trust by failing to report Guerra-Henrich's claim to AIG or the Trust in a timely manner, which caused AIG to deny coverage and the Trust to incur substantial damages. RMPG, Arthur Gallagher, and GBS moved to dismiss the complaint. By orders dated April 24, 2018, and September 12, 2018, the motions were granted to the extent of dismissing all but the fourth, fifth, and sixth causes of action for breach of contract.
In 2020, the Trust commenced this action against AIG. The first cause of action is for a judgment declaring, inter alia, that the Guerra-Henrich claim is covered by the terms of the policy issued by AIG. The second cause of action is to recover damages for AIG's purported breach of its contractual indemnification obligations to the Trust. The defendant moves to dismiss the complaint, and the plaintiff cross moves for summary judgment.
Preliminarily, the court notes that the plaintiff's cross motion is procedurally improper. A motion for summary judgment is a post-answer device (Higgitt, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR 3211:9). It may not be made before issue is joined (CPLR 3212 [a]), and the requirement is strictly adhered to (City of Rochester v. Chiarella, 65 N.Y.2d 92, 101, 479 N.E.2d 810). While CPLR 3211 (c) permits the court, on notice to the parties, to treat a motion to dismiss as a motion for summary judgment before issue is joined, the Court of Appeals has noted that the unilateral actions of a party in seeking summary judgment on a CPLR 3211 (a) (7) motion cannot constitute “adequate notice” to the other party in compliance with the requirement of CPLR 3211 (c) (Mihlovan v. Grozavu, 72 N.Y.2d 506, 508, 534 N.Y.S.2d 656, 531 N.E.2d 288 n). Moreover, the defendant's objection indicates that the parties have not charted a summary judgment course (see, Wadsworth Ventura Assoc. 367 LLC v. Frias, 101 A.D.3d 474, 475, 955 N.Y.S.2d 337). Accordingly, the cross motion is denied. The court will, however, consider the plaintiff's arguments in support of the cross motion in opposition to the defendant's motion to dismiss.
As a general rule, a court should not entertain an action for declaratory judgment when there is no necessity for doing so (Holtzman v. Supreme Court of the State of New York, 152 A.D.2d 724, 725, 545 N.Y.S.2d 40). A declaratory judgment action is generally appropriate only when a conventional form of remedy is not available (Bartley v. Walentas, 78 A.D.2d 310, 312, 434 N.Y.S.2d 379). When alternative conventional forms of remedy are available, resort to an action for declaratory relief is generally unnecessary and should not be encouraged (Id.). It is unnecessary when an action at law for damages is available (Olsen v. New York State Dept. of Envtl. Conservation, 307 A.D.2d 595, 596, 762 N.Y.S.2d 538).
The second cause of action seeks damages for the defendants' failure to honor the Guerra-Henrich claim. Thus, the declaratory relief sought by the plaintiff is merely incidental to the monetary relief requested in the second cause of action (Id.). Accordingly, the first cause of action for a declaratory judgment is dismissed.
The second cause of action is time-barred. The statute of limitations on a contractual obligation is six years (CPLR 213 ), which begins to run upon the defendant's breach (Continental Cas. Co. v. Stronghold Ins. Co., Ltd., 866 F. Supp. 143, 145 [S.D.N.Y] affd 77 F.3d 16). New York treats insurance contracts similarly to other contracts in that the plaintiff's claim accrues, in the absence of any provision regarding accrual in the contract of insurance, upon the breach (Id.). In the context of insurance contracts, a “breach” does not occur until an insured party makes a demand upon the insurer and the insurer refuses to pay (Id.). It is only when an insurer declines to pay a covered loss for which the insured has requested payment that the insurer has breached the insurance agreement by failing to perform its contractual obligations (Id.). It is undisputed that the defendant denied coverage of the Guerra-Henrich claim on May 18, 2012, more than six years prior to the commencement of this action in 2020.
The plaintiff contends that the statute of limitations is not a bar because the parties' agreement provided for continuing performance over a period of time. The plaintiff is invoking the continuing-wrong doctrine, which tolls the running of the statute of limitations to the date of the commission of the last wrongful act when there is a series of continuing wrongs (Shelton v. Elite Model Mgt., Inc., 11 Misc. 3d 345, 360-361, 812 N.Y.S.2d 745, abrogated on other grounds Rhodes v. Herz, 84 A.D.3d 1, 920 N.Y.S.2d 11). In contract actions, it is applied to extend the statute of limitations when the contract imposes a continuing duty on the breaching party (Hudson v. Delta Kew Holding Corp., 43 Misc. 3d 1223(A) at * 8, 2014 WL 1924324 [and cases cited therein]). It is an exception to the general rule that the statute of limitations for breach of contract runs from the time of the breach though no damage occurs until later (Id., citing Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402, 599 N.Y.S.2d 501, 615 N.E.2d 985). As in tort actions, the doctrine is predicated on continuing wrongful acts and not on the continuing effects of earlier wrongful conduct (Id.). The distinction is between a single wrong that has continuing effects and a series of independent, distinct wrongs (Sanchez de Hernandez v. Bank of Nova Scotia, Sup. Ct., N.Y. County, August 4, 2009, Lowe, J., at 4 [2009 WL 7231229], affd 76 A.D.3d 929, 908 N.Y.S.2d 45). Contrary to the plaintiff's contentions, the Trust's allegations amount only to claims of continuing damages arising from the defendant's denial of coverage on May 18, 2012, and not to continuing breaches of the defendant's contractual indemnification obligations. Accordingly, they are insufficient to invoke the continuing-wrong doctrine.
The plaintiff seeks to avoid the statute of limitations by characterizing the parties' agreement as a contract of indemnity rather than a contract of insurance. Excess-of-loss insurance is a type of reinsurance (see generally, Haig, Commercial Litigation in NY State Courts§ 91.7 at 851-852 [5th ed 2020]) that has been used, as here, by self-insured employers to satisfy certain state workers-compensation insurance requirements (Staring & Hansell, Law of Reinsurance§ 2:9 [April 2020 Update]). Reinsurance is simply an insurance policy issued to an insurer (Continental Cas. Co. v. Stronghold Ins. Co., Ltd., supra) or, in this case, a self-insurer. It is another form of insurance whereby an insurance company (the cedent) cedes to others part or all of certain insurance risks it has assumed (Id.; see also, Haig § 91.4 at 839). A defining characteristic of reinsurance is that it is a contract of indemnity, rather than a contract of liability, meaning that reinsurers generally have no obligation to reimburse the cedent for covered losses or expenses until the cedent has first paid the loss or expense (Id.). In determining when a cause of action for breach of a reinsurance contract accrues, reinsurance agreements are treated like ordinary insurance contracts (Continental Cas. Co., supra). In the absence of any contractual provision to the contrary, the six-year limitations period set forth in CPLR 213 (2) begins to run at the moment the reinsurer declines to pay the cedent's claim under the reinsurance contract (Id. at 145-146). Thus, even accepting the plaintiff's characterization of the parties' agreement as a contract of indemnity, it does not affect the outcome of the defendant's motion.
The plaintiff contends that the defendant's letter dated May 18, 2012, denying coverage failed to comply with Insurance Law § 3420 (d) (2) in that it was unreasonably delayed (80 days) and it was not sent to the Trust. (It was sent to GBS.) The plaintiff contends that the failure to comply with Insurance Law § 3420 (d) (2) renders the defendant's denial of coverage ineffective. It, therefore, cannot be used to commence the running of the statute of limitations. Insurance Law § 3420 (d) (2) provides as follows:
“If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.”
The plaintiff's reliance on Insurance Law § 3420 (d) (2) is misplaced. As previously discussed, the parties' agreement is an excess-of-loss insurance policy. Excess-of-loss insurance is a type of reinsurance, which is a contract of indemnity rather than a contract of liability. Insurance Law § 3420 (d) (2) applies to “liability polic[ies] issued or delivered in this state.” Insurance Law § 3420 (d) (2) is, therefore, inapplicable. Moreover, the plaintiff has failed to establish that the common-law principles of waiver and estoppel apply (see, Provencal, LLC v. Tower Ins. Co. of NY, 138 A.D.3d 732, 734, 30 N.Y.S.3d 138). Accordingly, the motion is granted, and the cross motion is denied.
Elizabeth H. Emerson, J.
Response sent, thank you
Docket No: 613776-20
Decided: March 03, 2021
Court: Supreme Court, Suffolk County, New York.
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