State of New York
Supreme Court : County of Monroe

ANDREW V. SIRACUSE, J.

This case arises from an earlier proceeding between the plaintiffs and an individual defendant, Rebecca Hilbert, who was insured through New York Central Mutual. The plaintiffs were substantially injured at a gathering in which all three parties and others were present, when at some point Ms. Hilbert began waving a box cutter.

After being notified of the incident--for which Ms. Hilbert eventually pleaded guilty to second-degree assault--New York Central Mutual disclaimed coverage, on the theory that the injuries were intentional or "expected." Some seven months after the disclaimer the plaintiffs sued Ms. Hilbert on two theories: intentional injury and reckless conduct.

Ms. Hilbert and her parents engaged Peter Rogers, of the local firm Lacy, Katzen, Ryen & Mittleman, to represent her. Mr. Rogers attempted to secure a defense from New York Central Mutual but was unsuccessful. The liability issue was then settled by Ms. Hilbert's admission of recklessness. She had testified at the plea colloquy for her criminal conviction that she had brought the box cutter home in her work clothes and placed it in her pockets along with everything else in her work pants. At the gathering she had been drawn into a fight and fell on the ground, and in fear pulled out the box cutter and began swinging it wildly, hoping to keep others off her. She had not known of the plaintiffs' injuries until after the fighting had ended.

After an inquiry into damages the court assessed damages at $100,000 for past pain and suffering and $75,000 for future pain and suffering for plaintiff Melissa Matijiw and $200,000 and $150,000 for plaintiff Sonia Caraveo.

New York Central Mutual, insisting that their disclaimer was correct, refused to satisfy the judgment against their insured. (There was some confusion over whether or not the judgment was in fact filed, but it is now apparent that it was; contrary to Mr. Shaddock's claim, the order of May 17, 2000, did not need to be supplemented by a judgment that simply repeated its terms.) Plaintiffs then brought the present action under Insurance Law § 3420 (b). They have now moved for summary judgment. Also before the court is a discovery motion, but this, unusually, must await the resolution of the plaintiffs' motion. Their argument is that the factual questions to which discovery is directed have all been resolved in the case of Matijiw and Caraveo v Hilbert, and that New York Central Mutual cannot relitigate those findings. The court agrees. The complaint against Ms. Hilbert clearly included a cause of action that fell within the four corners of the policy. The insurer had an opportunity to defend against this claim. It failed to do so, and thus ran the risk that its insured would be found liable for covered conduct. It cannot, at this point, try the case a second time in the hopes of securing a better result.

The defendant argues that collateral estoppel does not govern the result. Its first claim on this head is the distinction drawn in many cases between contractual liability and the liability of the insured. The cited decisions, however, arise from attempts to hold one party liable in negligence for allowing another to commit an intentional act; the most recent case is Mt. Vernon Fire Ins. Co. v Creative Housing Ltd., 88 NY2d 347. In that case the insured owned and managed an apartment complex, on the grounds of which the actual plaintiff was assaulted. She sued the owners on a theory of negligent supervision, and they in turn attempted to obtain coverage and defence from their insurer. Since the policy excluded damages based on assault and battery, the Court of Appeals determined that no obligation to defend or indemnify existed on behalf of the management firm; regardless of how the plaintiff characterized the action, the defendant's liability unquestionably arose from an assault.

This is completely inapplicable to the case at bar, where the issue is not one party's liability for another's intentional tort, but the nature of the tortfeasor's conduct as found by the court. In Mt. Vernon the conduct giving rise to the litigation was clearly intentional, and the question the Court of Appeals had to decide was whether a claim for negligent supervision was separate in effect as far as the policy was concerned. Here, on the contrary, the issue was whether or not the court correctly found that Ms. Hilbert acted recklessly rather than intentionally. Put another way, Mt. Vernon and similar cases do not hold that the insurer has a right to retry a previously determined case in order to change either factual findings or the legal conclusions that flowed from them.

Similarly, the court rejects the cases that the defendant cites for the proposition that "once intentional offensive conduct has been established, the actor is liable for assault and not negligence, even when the physical injuries may have been inflicted inadvertently" (New York Cas. Ins. Co. v Ward, 139 AD2d 922, in memo at 6). This may well be the law, but here there was no finding that the offensive conduct was intentional. These cases are not on point.

The defendant also argues that it had no full opportunity to be heard, which is a prerequisite for collateral estoppel. This is simply untrue; there was ample opportunity for an appearance, but the defendant declined to make use of it. New York Central Mutual was notified of the incident in a timely manner, and was kept abreast of all proceedings; Mr. Rogers informed the insurer of the complaint and requested that the firm review its prior decision. It was not incumbent upon him or his client to sue the insurer for a defense, although this might well have been successful.

The insurer in this case is attempting to use this issue as a sword instead of a shield. Having refused to defend, it now asks the plaintiffs to return to 1998, when they filed their complaint, and begin all over again. The full implications of its position perhaps appear in its argument that it was not in privity with its insured, and thus is not bound by the prior decision. The result of this argument would be to relitigate every case where the insurance company declined coverage and the defendant was found liable. It would thus be in insurers' interest to decline coverage in every case, and sit back to await the result. If the defendant prevailed there would be no judgment to satisfy, and if the plaintiff succeeded the insurer could invoke the privity principle and retry the case. This would be an outrageous result.

The insurer also claims that there was no "occurrence" to trigger a claim because the policy defines occurrence as an accident. This of course stands or falls with the first points, because it would require a reconsideration and reversal of the earlier determination that the injuries were negligent instead of deliberate. So, too, does the argument that the injuries were expected or intended.

The final question is whether the defendant's liability is for the full amount of the judgment or is to be limited to the policy amount. To grant judgment for the full sum requires a finding of bad faith. In a case decided less than a week before this one was argued, the Fourth Department set out the standard for such a finding. Allstate Insurance Company had disclaimed on timely notice grounds, and notice had in fact been given through a broker whom the Court found might well have been held out by Allstate as an agent. The Court did not find bad faith, holding:

"[I]n order to establish a prima facie case of bad faith, the plaintiff must establish that the insurer's conduct constituted a 'gross disregard' of the insured's interest *** in other words, a bad-faith plaintiff must establish that the defendant insurer engaged in a pattern of behavior evincing a conscious or knowing indifference" to the interests of the insured. Allstate met its initial burden by establishing that it had an arguable basis on which to disclaim coverage (Bennion v Allstate Ins. Co. __AD2d__, decided June 8, 2001, Case CA 01-00174, citations omitted).

In this case the basis for the disclaimer was the legal significance of Ms. Hilbert's actions. This is a question for a court, not a matter within the purview of an insurance company. For that reason it is and has always been black-letter law that the duty to defend is determined by the complaint; if any determination whatsoever could result from the action that would fall within the policy's scope the insurer must provide a defense. The defendant's initial disclaimer may not have been unjustified, but once Mr. Rogers supplied them with a copy of the plaintiffs' complaint it was a violation of this long-established principle for them to persist in their denial of a defense. Since the complaint on its face contained allegations of negligence, the insurer's duty was clear, and its refusal cannot be interpreted in any way other than a gross disregard of its insured's interests and of the basis principles of insurance law.

The plaintiffs' motion is therefore granted, with costs, and they shall have judgment against the defendant for the full amount of damages found by the court. The defendant's discovery motion is dismissed as academic. Ms. Hutchinson should prepare the order, with notice to Mr. Shaddock.

DATED: Rochester, New York

June 19, 2001

Andrew V. Siracuse, J.S.C.

Design © 1997 Michael Steinberg. No copyright subsists in the decision texts, which are government documents.

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