State Insurance Fund Is Not Subject to Direct Suit Pursuant to Insurance Law §§ 3420(A)(2) & (B)(1)

CGL – EMPLOYERS' LIABILITY – INSURANCE LAW § 3420(A)(2) ACTION
National Union Fire Insurance Co. of Pittsburgh, PA. v. State of New York
(1st Dept., decided 4/29/2010)

In Lang v Hanover Ins. Co., 3 NY3d 350 (Ct. Apps. 2004), the New York Court of Appeals held that without contractual privity, an injured party may not bring a direct suit against an alleged tortfeasor's liability insurer before the injured party obtains a money judgment against the tortfeasor.  The Court noted that

Insurance Law § 3420(b)(1) ... grants an injured party a right to sue the tortfeasor's insurer, but only under limited circumstances—the injured party must first obtain a judgment against the tortfeasor, serve the insurance company with a copy of the judgment [pursuant to Insurance Law § 3420(a)(2)] and await payment for 30 days. Compliance with these requirements is a condition precedent to a direct action against the insurance company.

National Union brought this action in the New York Court of Claims as subrogee of its insureds, Chase Manhattan Bank and Morse Diesel International, against the State Insurance Fund, which insured Red Ball Interior Demolition Corporation.  Although National Union argued that this action was not brought under Insurance Law §§ 3420(a)(2) and (b)(1), National Union's initiatory pleadings relied on Insurance Law § 3420(a)(2).  Both parties moved for summary judgment, and the Court of Claims granted the State Insurance Fund's motion. 

In AFFIRMING the lower court's order granting summary judgment to the State Insurance Fund, the Appellate Division, First Department, held:

1. the State Insurance Fund is exempt from actions brought pursuant to Insurance Law §§ 3420(a)(2) and (b)(1) due to Insurance Law § 1108(c); and
   
   
2. even if the State Insurance Fund could be sued directly pursuant to those statutes, National Union's subrogors had not obtained a money judgment against the State Insurance Fund's insured, the alleged wrongdoer.  The Court of Appeals' ruling in Lang v. Hanover applies to actions commenced both before and after that 2004 decision. 

Contrary to claimant's contention, this is an action under Insurance Law § 3420. In both its motion for leave to file a late notice of claim and its amended claim, claimant relied on Insurance Law § 3420(a)(2). Furthermore, "the subrogee possesses only such rights as the subrogor possessed, with no enlargement or diminution" (Allstate Ins. Co. v Stein, 1 NY3d 416, 421 [2004] [internal quotation marks and citation omitted]). Under the common law, the subrogors (Chase Manhattan Bank and Morse Diesel International) would have been able to sue Red Ball Interior Demolition Corp. (the alleged wrongdoer), but they would not have been able to sue the State Insurance Fund (Red Ball's insurer), with whom they had no contractual relationship (see Lang v Hanover Ins. Co., 3 NY3d 350, 353 [2004]). Like claimant, Chase and Morse Diesel would have had to use Insurance Law § 3420 to sue the State Insurance Fund. However, "the State Insurance Fund is exempt from the requirements of Insurance Law § 3420(a) and (b)" due to Insurance Law § 1108(c) (see Kenmore-Tonawanda School Dist. v State of New York, 38 AD3d 203, 203 [2007], lv denied 10 NY3d 702 [2008]), and we decline to depart from this precedent, which the Court of Appeals chose not to review.

Even if, arguendo, Insurance Law § 3420 applied to the State Insurance Fund, Chase and Morse Diesel did not obtain a judgment against Red Ball, which is a condition precedent to a direct suit against Red Ball's insurer (see Lang, 3 NY3d at 352, 354). Contrary to claimant's contention, Lang is applicable even though the claim was filed before Lang was decided (see Weierheiser v Hermitage Ins. Co., 17 AD3d 1133, 1134 [2005]; see also Geissler v Liberty Mut. Ins. Co., 23 AD3d 432, 433 [2005]). Furthermore, we decline to consider claimant's argument, made for the first time in its reply brief on appeal, that we should hold this appeal in abeyance while it attempts to obtain a money judgment. Although orders are sometimes treated as judgments (see Matter of New York State Crime Victims Bd. v Gordon, 66 AD3d 1213, 1214 [2009]), the kind of order that Gordon permitted to be treated as a judgment was one directing the payment of money (id. at 1214-1215). By contrast, the order obtained by Chase and Morse Diesel set the matter down for an inquest, which never occurred.