Tuesday, April 14, 2009

General Obligations Law § 15-108 Applies Only to Joint Tortfeasors, Not Co-Insurers

Scotts Co., LLC v. Pacific Employers Ins. Co.

(1st Dept., decided 4/9/2009)

New York General Obligations Law § 15-108 provides:
Release or covenant not to sue.  (a) Effect of release of or covenant not to sue tortfeasors. When a release or a covenant not to sue or not to enforce a judgment is given to one of two or more persons liable or claimed to be liable in tort for the same injury, or the same wrongful death, it does not discharge any of the other tortfeasors from liability for the injury or wrongful death unless its terms expressly so provide, but it reduces the claim of the releasor against the other tortfeasors to the extent of any amount stipulated by the release or the covenant, or in the amount of the consideration paid for it, or in the amount of the released tortfeasor's equitable share of the damages under article fourteen of the civil practice law and rules, whichever is the greatest. 

(b)  Release of tortfeasor. A release given in good faith by the injured person to one tortfeasor as provided in subdivision (a) relieves him from liability to any other person for contribution as provided in article fourteen of the civil practice law and rules. 

(c)  Waiver of contribution. A tortfeasor who has obtained his own release from liability shall not be entitled to contribution from any other person. 

(d)  Releases and covenants within the scope of this section. A release or a covenant not to sue between a plaintiff or claimant and a person who is liable or claimed to be liable in tort shall be deemed a release or covenant for the purposes of this section only if: 
(1) the plaintiff or claimant receives, as part of the agreement, monetary consideration greater than one dollar; 

(2) the release or covenant completely or substantially terminates the dispute between the plaintiff or claimant and the person who was claimed to be liable; and 

(3) such release or covenant is provided prior to entry of judgment.
Does GOL § 15-108 apply to coinsurance claims among co-insurers?  No, says the First Department in this case.

In 2000, the insured Scotts Company and one of its GL insurers, Pacific Employers Insurance Company (PEIC), entered into a settlement and release resolving DJ litigation over liability coverage for asbestos-related claims. In relation to a 2003 action brought in California state court, Scotts commenced this action and unsuccessfully moved to set rescind and void that release, and the First Department affirmed.  Under the terms of that release, PEIC agreed to pay less than 3% of Scotts' past defense costs and none of Scotts' future defense costs.

The release, in paragraph 15, entitled "Waiver of Rights Against Other Settling Insurers," provided that PEIC waived its right to "seek contribution ... from any of Scotts' other insurers that has a written agreement with Scotts that waives such rights against the ACE Companies."  However, that section went on to provide that:
[a]s against any other company, the ACE Companies will not initiate any action to seek contribution against any such company. In the event any such other company initiates an action against the ACE Companies for contribution or indemnity, the ACE Companies preserve their rights to assert counterclaims for contribution or indemnity from any such company.
In the California action, another one of Scotts' insurers, Wausau, cross-claimed against PEIC, asserting that it was required equitably contribute to the costs of defending asbestos claims against Scotts. In December, 2006, a California state court judge granted Wausau summary judgment, finding that PEIC had such a duty, and that PEIC must reimburse Wausau for 87.4% of past defense costs for the asbestos claims. The Court of Appeals in California denied review of the order in 2007.

PEIC then moved to amend its third-party complaint in this action, in effect, to preclude Scotts' other insurers, including Wausau, from obtaining coinsurance contribution from PEIC.  PEIC based its proposed amended third-party complaint on GOL § 15-108, arguing that that statute immunized PEIC from the co-insurers' contribution claims.  New York Supreme denied PEIC's motion to amend, and PEIC appealed. 

In AFFIRMING the denial of PEIC's motion to amend its third-party complaint, the First Department held:
The court properly denied appellant's motion to amend the third-party complaint since the proposed amendment did not state a viable claim for relief. The amendment sought to enjoin appellant's co-insurers from proceeding against appellant for contribution based upon appellant's settlement agreement with the insured and upon General Obligations Law § 15-108. The court correctly found that the settlement agreement's express contemplation of contribution claims by the co-insurers was a waiver of § 15-108's protections (see Mitchell v New York Hosp., 61 NY2d 208, 213 [1984]). Moreover, § 15-108 applies only to joint tortfeasors, not to co-insurers (HRH Constr. Corp. v Commerical Underwriters Ins. Co., 11 AD3d 321, 323 [2004]).
If insurance coverage litigation can be ironic, this might be an instance.  Although Scotts failed in its attempt to have the release set aside -- memorializing a settlement that had PEIC paying $325,000 to release $80 million in coverage -- Wausau succeeded in recovering 87.4% of Scotts' past defense costs back from PEIC, notwithstanding PEIC's release with Scotts, by which it had paid less than 3% of those past defense costs.  The result in this matter should not be all that surprising.  In settling separately with an insured, it is difficult to provide for and extinguish coinsurance claims of co-insurers.  Perhaps PEIC contemplated later raising GOL § 15-108 to defend against such coinsurance claims at the time it entered into the release with Scotts, which expressly provided that it was to be governed by New York law.  

Consider this text from the motion court's decision:
[I]t has been repeatedly, and long held, that unless public policy is thwarted, parties to a civil dispute are generally free to chart their own litigation course, choose the law to be applied (or, indeed, not applied), and may stipulate away statutory, and even constitutional rights. See e.g. Mitchell v New York Hosp., 61 NY2d at 214 (1984); T. W. Oil v Consolidated Edison Co. of NY, 57 NY2d 574, 579-580 (1982); Rector, Church Wardens & Vestrymen of St. Bartholomew's Church v Committee to Preserve St. Bartholomew's Church, 56 NY2d 71, 76 (1982); Martin v City of Cohoes, 37 NY2d 162, 165 (1975); Matter of New York, Lackawanna & Western R. R. Co., 98 NY 447, 453 (1885). It is also worthy of note that GOL §15-108(c) has specifically been deemed waivable by the Court of Appeals. Mitchell v New York Hosp., 61 NY2d at 214.

1 comment:

DLev said...

The result is not surprising at all. I find it a bit surprising that the courts traveled down the waiver path rather than relying on the fact that co-insurers are not liable in tort, either to their insured or to an injured party. Absent bad faith, an insurers obligation to pay is purely a creature of contract. The statutory language simply does not apply to co-insurers. I would like to know what PEIC had to say in its briefs about why the statute should apply to co-insurers. It seems to me the argument is a non-starter. Does anyone who reads this board know what PEIC argued?