Opinion
454P01
Decided April 5, 2005.
In this accounting proceeding, the mother and guardian of the infant plaintiff (the plaintiff) in a negligence action commenced in the Supreme Court, Bronx County, seeks a reserve pursuant to SCPA 1804 to insure that estate funds will be available to pay at least a portion of the recovery that she envisions obtaining in the negligence action. The executrix and the guardian of the property of the infant beneficiary of the testamentary residuary trust (the respondents) oppose the application.
The decedent died on June 2, 2001. The decedent's residuary estate is bequeathed in trust for the benefit of his son who was born on October 27, 1987. Although an account has been filed, the financial picture is not clear because two parcels of real property had not been sold when the account was filed. Since the account was filed, both parcels were sold to the highest bidder at an auction conducted before the court. However, the account has not been updated to reflect these sales. The plaintiff estimates that the gross estate has a value of approximately $951,000. and that, even absent a reserve for the plaintiff's claim, the amount available for distribution to the testamentary trust for the decedent's son would be approximately $313,000.
Although the plaintiff's lawsuit was not commenced until March 2004, the complaint alleges that she suffered severe injuries as a result of her exposure to peeling, chipped and deteriorated lead based paint from 1991 to 1994 while residing in an apartment owned by the decedent. The plaintiff contends that, as a result of her exposure to the lead based paint, "she suffered a blood lead level of 24 micrograms per deciliter" and that the recovery she is likely to obtain will exceed the value of the entire estate. To date, no one has been able to locate an insurance policy owned by the decedent which would provide coverage for the plaintiff's alleged injury. The plaintiff's amended request for relief is for the entire estate to be retained as a reserve and that it be held until the negligence case is either settled or determined.
The respondents note that the plaintiff's claim is not only contingent and unliquidated but also that she has failed to establish that she cannot collect any recovery that she obtains from the three other co-defendants who are alleged to be jointly and severally liable. They also argue that the plaintiff's application should be denied because the estate was prejudiced by the fact that the plaintiff permitted a period of 10 years to elapse from the accrual of the cause of action in 1994 to its commencement in 2004. The alleged prejudice is that the decedent is no longer available to assist in finding any applicable insurance policy or in defending against the allegations in the complaint. Their other contentions are that the allegations in support of the claim are conclusory in nature and that the infant beneficiary of the estate would obviously be prejudiced by a prolonged delay in the distribution of any assets for his benefit.
SCPA 1804(1) provides in pertinent part that "whenever at the death of any person there shall be a contingent or unliquidated claim against the decedent's estate . . . a claimant . . . shall have the right to file with the fiduciary an affidavit showing the facts upon which the contingent or unliquidated liability is based and the probable amount thereof, and there shall be no distribution without reservation of such estate assets as the court . . . shall determine to be adequate to pay the contingent or unliquidated claim when the amount thereof shall become due and payable."
The seminal case of Matter of Biel, 103 AD2d 287 (1984), holds 1) that actions arising out of the decedent's alleged negligence are "contingent or unliquidated claims" falling within the purview of SCPA 1804 (the court noted that prior to its determination the trial courts were divided between those holding that SCPA 1804 did not apply to negligence actions because of the pragmatic problem in determining both the amount to be held in reserve and the time within which the negligence action would be concluded and those holding to the contrary, based upon the public policy consideration that the death of the tortfeasor should not result in the injured party being deprived of collecting any judgment obtained because the fiduciary had already distributed the decedent's assets to his beneficiaries); 2) that a reservation of at least some estate assets is mandatory under SCPA 1804 when a negligence action is pending against the decedent unless the applicable insurance is sufficient to satisfy the claim; and 3) that the Surrogate, based upon "an evaluation of all pertinent criteria" has "extensive discretion" with respect to both the amount to be held in reserve and its duration.
Biel instructs that the five factors to be considered in determining the amount to be retained are 1) the probable value of the negligence recovery and the likelihood that any applicable insurance will be sufficient to pay the recovery; 2) in the event that the reserve is insufficient to pay the recovery, the plaintiff's chances under Article 12 of the EPTL of obtaining a recovery from the beneficiaries, individually, of any sums that they received from the estate; 3) the percentage of the estate assets for which the reserve is sought; 4) the needs of the beneficiaries who were dependent upon the decedent; and 5) any other factors that might be probative in a particular case.
The Biel factors to be considered in determining the length of time that the assets should be retained are 1) the period that has elapsed between the date of the decedent's death and the accounting proceeding in which the claim is being considered; 2) the period that has elapsed between the accrual of the cause of action and the commencement of the negligence lawsuit; 3) the plaintiff's diligence in prosecuting the negligence action; and 4) the time-frame within which the negligence action is likely to be concluded, based upon its position on the calendar or the likelihood of obtaining a preference.
Biel provides a helpful road map for the trial courts. Nevertheless, it presents forks in the road, leaving it to the court's discretion to find the equitable path in a particular case. For example, the greater the needs of the decedent's surviving spouse or minor children, militating in favor of a greater distribution to them, the greater the probability that the plaintiff would not be able to obtain any recovery from them, militating against a distribution to the beneficiaries. Furthermore, where, as here, the estate has a substantial number of claims that have been liquidated or can be determined expeditiously, Biel offers no guidance as to how to balance the respective rights of liquidated claimants and the plaintiffs in a negligence action. Where it has been projected that the negligence recovery will exceed the entire estate, there can be no distribution to liquidated creditors who, under SCPA 1811, do not have priority over the plaintiff in the negligence action because the amount of the pro rata distribution to each claimant cannot be ascertained until the amount of the negligence recovery is known (see SCPA 1811 providing that a debt due and payable shall not be entitled to a preference over debts not due).
Here, since the court has been presented only with the plaintiff's version of the negligence lawsuit, it is difficult to gauge the probability of success and even more difficult to prognosticate with respect to the amount of any judgment that might ultimately be obtained. Notwithstanding these difficulties, the plaintiff's claim appears to be viable and there is a realistic chance that the recovery will be more than nominal. The fact that the plaintiff is an infant whose "life-choices" may have been severely limited as a result of the decedent's alleged negligence is a factor in favor of granting the plaintiff's application. Furthermore, if, as it appears at present, the decedent failed to obtain any insurance to cover the operation of the apartment building that he owned, this displayed a gambler's willingness to forfeit all of his assets should ladyluck result in a substantial judgment being obtained against him arising from the operation of the building. Unfortunately for the beneficiary of the decedent's estate, he must stand in the decedent's shoes. This is counterbalanced, at least to some extent, by the fact that the decedent's son is 17 years of age and that he might very well have significant educational expenses in the near future. Another significant factor is that the plaintiff might be able to recover at least a portion of any judgment that she obtains from the other defendants who she alleges are jointly and severally liable. The fact that the decedent's son is not entitled to any distribution unless all known allowed claims are paid or there is a reserve for them presents a practical, circular problem because even if a distribution were to be made to the son's trust and a reserve was established for the full value of all known allowed claims not entitled to a priority under SCPA 1811, these claimants would not be paid in full should the recovery in the negligence action result in a pro rata distribution to the claimants. On the other hand, if all liquidated claims not entitled to a priority under SCPA 1811 are paid in full at this time, it will prejudice the plaintiff should her judgment exceed the retained estate assets.
With respect to the duration of the reserve, the court is aware that the plaintiff is an infant and she cannot be blamed for the actions, or lack thereof, of others. The court is also aware that the injuries suffered from the exposure to lead paint are not always noticeable within a short period of time. On the other side of the equation, it would not be fair to the decedent's infant son to ignore either that 10 years have elapsed between the accrual of the plaintiff's cause of action and its commencement or that the trust for his benefit has not received any distribution since the decedent's death almost four years ago.
Based upon an evaluation of the criteria set forth in Matter of Biel, supra, including the particular facts of this case, the court, in the exercise of its discretion, directs that a reserve of all of the assets of the estate not required to pay funeral or administration expenses or claims entitled to a priority under SCPA 1811 is to be held until February 28, 2006 and in the event that the plaintiff's claim is not resolved by that date, a reduced reserve in the sum of $75,000 shall be retained until June 30, 2006.
Settle order.