Opinion
99 Civ. 0682 (RWS)
August 22, 2001
MARK BRADLEY ROTH, ESQ., Attorney for Amtex Electrical Corp. Attorney for Defendant/Second Fourth-Party Plaintiff.
AIDAN M. MCCORMACK, ESQ., HODGSON RUSS LLP, Attorneys for Nationwide Mutual Insurance Company and Nationwide Insurance Company Attorneys for Second Fourth-Party Defendants.
MEMORANDUM OPINION
Second fourth-party defendants Nationwide Mutual Insurance Company and Nationwide Insurance Company (collectively "Nationwide") have moved pursuant to Rules 12(a)(4), 14(a) and 42(b) of the Federal Rules of Civil Procedure to strike or sever the insurance coverage complaint that second fourth-party plaintiff Amtex Electrical Corp. ("Amtex") has filed against them in this action relating to a 1998 fire at New York City's Central Synagogue. For the foregoing reasons, the motion is denied.
Background
The facts giving rise to this multiparty action have been set forth in several prior opinions, familiarity with which is assumed. See Wausau Business Ins. Co. v. Turner Construction Co., No. 99 Civ. 682(RWS), 2001 WL 460928 (S.D.N.Y. May 2, 2001).
See also Wausau Business Ins. Co. v. Turner Construction Co., ___ F. Supp.2d ___, 2001 WL 815584 (S.D.N.Y. June 19, 2001) (denying Turner's motion for leave to file interlocutory appeal from liability phase rulings); Wausau Business Ins. Co. v. Turner Construction Co., No. 99 Civ. 682(RWS), 2001 WL 604188 (S.D.N Y June 4, 2001) (declining to order mistrial due to secret settlement agreement between Wausau and Trident);Wausau Business Ins. Co. v. Turner Construction Co., 143 F. Supp.2d 336 (S.D.N.Y. 2001) (denying Turner's motion for summary judgment); Wausau Business Ins. Co. v. Turner Construction Co., 141 F. Supp.2d 412 (S.D.N.Y. 2001) (declining to grant summary judgment for Trident);Central Synagogue v. Turner Const. Co., 64 F. Supp.2d 347 (S.D.N.Y. 1999) (ordering remand of Central Synagogue action).
After being named as a third-party defendant in the Amended Third-Party Complaint filed by defendant Turner Construction Co. ("Turner") on February 8, 2001, Amtex was granted leave to file a fourth-party action against Nationwide, which it did on April 26, 2001. Both the third- and fourth-party Amtex actions were severed from the main action on May 2, 2001 due to the late joinder of Amtex and imminent trial date for the liability phase of the main action. Id.
On June 13, 2001, Nationwide filed this motion to strike the fourth-party complaint without prejudice to Amtex's right to refile a separate declaratory judgment action, or, in the alternative, to sever the fourth-party insurance action from the third-party tort action. Amtex opposed the motion in a brief filed on June 26, 2001. The motion was deemed fully submitted on July 11, 2001, after Nationwide filed its reply.
I. Discussion
Nationwide seeks to strike or sever the action against it on the grounds that proceeding with the tort and insurance claims in a single action would confuse the jury, waste judicial resources, and cause the parties undue expense. Specifically, Nationwide cites numerous New York decisions severing insurance coverage suits from tort actions because "[t]he injection of the issue of insurance in the negligence case . . . is inherently prejudicial and should be avoided." Krieger v. Ins. Co. of N. America, 66 A.D.2d 1025, 411 N.Y.S.2d 730, 731 (N.Y.App.Div. 1978);see also Kelly v. Yanotti, 4 N.Y.2d 603, 176 N.Y.S.2d 637 (N.Y. 1958); Schorr Bros. Dev. Corp. v. Continental Ins. Co., 174 A.D.2d 722, 573 N.Y.S.2d 874 (N.Y.App.Div. 1991); D'Apice v. Tishman 919 Corp., 43 A.D.2d 925, 352 N.Y.S.2d 472 (N.Y.App.Div. 1982).
The leading New York case in support of Nationwide's argument, Kelly v. Yanotti, 4 N.Y.2d 603, 176 N.Y.S.2d 637 (N Y 1958), arose in the context of New York procedural law, which then encouraged severance of claims against impleaded parties "whenever it can be done without prejudice to a substantial right.'" Id. at 606-07 (quoting section 96 of the then-applicable New York Civil Practice Act, which was repealed in 1981 by N Y C.P.L.R. § 10001). In contrast, the Federal courts view severance as a "procedural device to be employed only in exceptional circumstances." Marisol A. by Next Friend Forbes v. Giuliani, 929 F. Supp. 662, 693 (S.D.N.Y. 1996). Unlike New York courts, federal district courts have broad discretion under the Federal Rules of Civil Procedure to determine whether the circumstances of a case are sufficiently exceptional to warrant severance. See New York v. Hendrickson Bros., Inc., 840 F.2d 1065 (2d Cir.), cert. denied, 488 U.S. 848, 109 S.Ct. 128, 102 L.Ed.2d 101(1988); Katsaros v. Cody, 744 F.2d 270, 278 (2d Cir. 1984).
Currently applicable New York law of severance provides that "[i]n furtherance of convenience or to avoid prejudice the court may order a severance of claims, or may order a separate trial of any claim, or of any separate issue. The court may order the trial of any claim or issue prior to the trial of the others." N.Y. C.P.L.R. § 603 (McKinney's 2001). None of the aforementioned published cases cited by Nationwide acknowledge that Kelly and its progeny relied on statutory language encouraging severance that is no longer in effect.
In addition, the cases Nationwide has cited involve procedural rather than substantive state law, and therefore are not dispositive of the severance issue in this diversity action. See Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 427, 116 S.Ct. 2211, 135 L.Ed.2d 659(1996) ("Under the Erie doctrine, federal courts sitting in diversity apply state substantive law and federal procedural law."); Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188(1938) (establishing rule that federal courts with diversity jurisdiction must apply state substantive law); Hatfield v. Herz, 9 F. Supp.2d 368, 373 (S.D.N.Y. 1998) ("Severance is a 'procedural device'").
In addition to the cases cited above, Nationwide has also submitted numerous unpublished orders from the New York Supreme Court in support of its motion. Each of these orders deals summarily with the severance question and, to the extent that they rely on case law, cite only cases deriving from Kelly (McCormack Decl. Exs. C-T; McCormack Reply Decl. Exs. A, B.)
Instead, severance must be determined with reference to the applicable Federal Rules of Civil Procedure. Rule 21 allows for the severance of "any claims," and Rule 42 provides that a trial court may order a separate trial of any claim "in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy," Fed.R.Civ.P. 42(a). Rule 14(a) allows "[a]ny party . . . [to] move to strike the third-party claim, or for its severance or separate trial."
In exercising the discretion to sever claims, district courts must consider "(1) whether the claims arise out of the same transaction or occurrence; (2) whether the claims present some common questions of law or fact; (3) whether settlement of the claims or judicial economy would be facilitated; (4) whether prejudice would be avoided if severance were granted; and (5) whether different witnesses and documentary proof are required for the separate claims." Morris v. Northrup Grumman Corp., 37 F. Supp.2d 556, 580 (E.D.N.Y. 1999); see also German v. Federal Home Loan Mortgage Corp., 896 F. Supp. 1385, 1400 (S.D.N Y 1995).
A. Comonality
Both the third-party action against Amtex and the fourth-party action against Nationwide arise out of the electrical work conducted by an Amtex employee at the Central Synagogue which is alleged to have caused a fire on August 28, 1998. Amtex is before this Court in its capacity as the principal of its agent-electrician and pursuant to a contract with the Central Synagogue, and Nationwide appears here pursuant to a contract with Amtex that is alleged to provide insurance to cover Amtex's liability in connection with the fire. Should Amtex be found liable, the extent of damages to the Synagogue will have a bearing on Nationwide's insurance liability. As such, some common factual questions will arise in both the Amtex action and the Nationwide action.
Some unique issues are raised by the insurance coverage action, as well. For example, Nationwide contends that its contract with Amtex provides coverage only in excess of any other available insurance, and denies coverage if given late notice of the claim. (Nationwide Br. at 7.) These issues certainly would not arise in the Amtex action if it were to be tried alone. Yet these insurance coverage-related questions will not confuse the jury, because they are largely matters of contract construction which may properly be determined by the Court as a matter of law. See Morgan Stanley Group Inc. v. New England Ins. Co., 225 F.3d 270, 275 (2d Cir. 2000) (insurance contract "'is a matter of law for the court to decide.'") (quoting K. Bell Assocs. v. Lloyd's Underwriters, 97 F.3d 632, 637 (2d Cir. 1996) (citation omitted)); Lugo v. AIG Life Ins. Co., 852 F. Supp. 187, 194 (S.D.N.Y. 1994) ("Absent some excuse or mitigating circumstance, the court, rather than a jury, is to decide the question whether prompt notice of claim has been given to insurer by insured."). In any event, the verdict in the multiparty Turner action — which found the Synagogue's own negligence to have contributed 5% to the fire — is a prime example of the ability of a lay jury dispassionately to untangle numerous claims, cross claims, and distinct bodies of law.
B. Judicial Economy
Given the current procedural posture of this extended Central Synagogue action, preserving the Nationwide action with the Amtex action will facilitate the coordination of discovery and the timely adjudication of both claims.
C. Prejudice
Defending the insurance coverage action in the contract/tort action will not unduly prejudice Nationwide, particularly in light of the fact that at least some questions will be determined by the Court rather than a jury. As the former Chief Judge Meyers of the Eastern District of New York stated more than thirty years ago, "[i]n this day and generation, nearly every [juror] knows that the average negligence case is being defended by an insurance company." B-Amused Company v. Millrose Sporting Club, Inc., 168 F. Supp. 709, 710 (E.D.N Y 1958). See also Schevling v. Johnson, 122 F. Supp. 87, 89-90 (D. Conn. 1953) ("Justice does not require that law suits shall be torn from their context in contemporary life and be tried in an artificially produced vacuum . . . "[O]nly undue cynicism will support the thesis that knowledge of the presence of an insurer's interest will necessarily distort a juror's judgment."), aff'd sub nom., Schevling v. Toohey, 213 F.2d 959 (2d Cir. 1954).
Moreover, Nationwide does not explain how it will avoid such prejudice in defending a severed action against Amtex, where it will still face the possibility of bias toward the insurance industry. See Strickland v. Transamerica Insurance Company, 481 F.2d 138, 147-48 (5th Cir. 1973) (no abuse of discretion in not severing insurance coverage action from liability action in bifurcated liability/damages trial because "the issue of liability on the part of the insurance company and on the part of [defendant] involved many of the same witnesses . . . Indeed the prejudice to [insurer], if any, was certainly no greater than if [it] had been sued alone. . . ."), reh'g denied, 481 F.2d 1404 (5th Cir. 1973).
The Court will certainly explore options short of severance to ensure that Nationwide receives a fair trial, including bifurcation of theAmtex/Nationwide action into liability and damages phases (as in theTurner action), voir dire, and appropriate jury instructions.
Conclusion
For the aforementioned reasons, the motion to strike or sever is denied.
It is so ordered.