Opinion
01 Civ. 9352 (CSH)
July 9, 2002
MEMORANDUM OPINION AND ORDER
This case arises out of a collision on November II, 1998, between a taxicab in which plaintiff Morris Shoretz was a passenger and a tow truck operated by Citywide Towing Inc. ("Citywide"). Shoretz obtained a default judgment in the amount of $406,410.00 against Citywide in New York Supreme Court on July 11, 2001, and seeks in the present action to recover that amount from Citywide's insurer, defendant Nationwide Mutual Insurance Company ("Nationwide"). Federal subject matter jurisdiction is alleged to exist based on diversity of citizenship under 28 U.S.C. § 1332. This Opinion resolves a motion by Nationwide, pursuant to Rule 37 of the Rules of Civil Procedure, to compel Shoretz to respond to Nationwide's discovery demands relating to the reasonableness of the judgment amount in the underlying suit.
Shoretz sued Nationwide under the name "Nationwide Insurance Company" in this action.
New York Insurance Law § 3420(b) permits an injured person to sue an insurance company to recover the amount of a judgment obtained against a person insured by that company. The exact language of the statute is as follows:
Subject to the limitations and conditions of paragraph two of subsection (a) hereof, an action may be maintained by the following persons against the insurer upon any policy or contract of liability insurance which is governed by such paragraph, to recover the amount of a judgment against the insured or his personal representative: (1) any person who, or the personal representative of any person who, has obtained a judgment against the insured or his personal representative, for damages for injury sustained or loss or damage occasioned during the life of the policy or contract .
N.Y. Ins. Law § 3420(b) (McKinney 2002). The injured person can recover against the insurance company to the same extent that the insured person would be entitled to recover under the terms of the policy; therefore, the issue to be determined in the suit against the insurance company is whether the insured person is covered by the policy. 70A N.Y. Jur.2d Insurance §§ 1971, 1972 (2002).
The insurance policy issued by Nationwide to Citywide which is the subject of this case states:
A. WE WILL PAY.
1. We will pay all sums the insured legally must pay as damages because of bodily injury or property damage to which this insurance applies, caused by an accident and resulting from the ownership, maintenance or use of a covered auto.
2. We have the right and duty to defend any suit asking for these damages. . . .
Business Auto Policy at 2, Ex. A to Aff. of Melisande Hill dated May 29, 2002. The policy further states:
The insurance provided by this policy is subject to the following conditions:
A. YOUR DUTIES AFTER ACCIDENT OR LOSS.
1. You must promptly notify us or our agent of any accident or loss....
2. Additionally, you and other involved insureds must: . . . .
b. Immediately send us copies of any notices or legal papers received in connection with the accident or loss.
Id. at 5.
Shoretz asserts that the default judgment is an amount that Citywide "legally must pay as damages because of bodily injury . . . caused by an accident and resulting from the ownership, maintenance or use of a covered auto" and therefore that it is covered by Citywide's insurance policy with Nationwide. Shoretz resists Nationwide's efforts to obtain discovery on the merits of Shoretz's claim against Citywide.
Nationwide contends that it should be permitted to conduct discovery on the merits of Shoretz's claim against Citywide in order that Nationwide may challenge the "reasonableness" of the default judgment entered against Citywide. Nationwide cites several cases dealing with settlements and holding that an insurance company is obligated to indemnify its insured only for reasonable settlements. E.g., K. Bell Assoc., Inc. v. Lloyd's Underwriters, No. 92 Civ. 5249, 1995 WL 169013, at *7 (S.D.N.Y. April 10, 1995), vacated on other grounds, 97 E.3d 632 (2d Cir. 1996).
Counsel for Nationwide recently made the very same argument in this court, without success. See Perez v. Nationwide Mut. Fire Ins. Co., No. 01 Civ. 2135, 2001 WL 716924 (S.D.N.Y. June 25, 2001) (granting in part and denying in part motion by Andrew J. Shaw on behalf of Nationwide Mutual Fire Insurance Company). In Perez, Magistrate Judge Freeman stated:
Nationwide, however, is not entitled to discovery regarding the reasonableness of the amount of the default judgment entered in state court.
First, Insurance Law § 3420(a)(2) provides that a claimant who has obtained a default judgment against an insured may step into the shoes of the insured to seek from the insurer "the amount of such judgment." N.Y. Ins. § 3420(a)(2). There is no provision in the law to seek some amount less than the amount of the judgment, except where the amount of the judgment exceeds the policy limit. See id.; see also Cohen v. Transcontimental Ins. Co., 262 A.D.2d 189, 191, 693 N.Y.S.2d 529, 531 (1st Dep't 1999) ("Insurance Law § 3420(a)(2) provides no mechanism for collateral attack on specific provisions of the judgment.").
Second, Nationwide's reliance on cases involving insureds' settlement of claims is misplaced.
Id. at *3. In making its motion in this case, Nationwide fails to cite Perez or any other case dealing with default judgments.
The present case involves a default judgment, not a settlement. New York courts have made it clear that a judgment entered against an insured person in an underlying suit is binding on the insurance company, and the insurance company cannot contest the merits of the plaintiffs claim in a subsequent suit under Insurance Law § 3420. Robbins v. Mich. Millers Miii. Ins. Co., 653 N.Y.S.2d 975, 2Z36 A.D.2d 769, 771 (App.Div. 1997); Ajatychak v. Sec. Mut. Ins. Co., 581 N.Y.S.2d 453, 455 (App.Div. 1992); Manard v. Hardware Mut. Cas. Co., 207 N.Y.S.2d 807, 12 A.D.2d 29, 31 (App.Div. 1960); 70A N.Y. Jur.2d Insurance § 1974. Even a judgment entered by default is binding and therefore conclusive of the amount of liability. Robbins, 236 A.D.2d at 771; Matychak, 581 N.Y.S.2d at 455; Manard, 12 A.D.2d at 31; 70A N.Y. Jur.2d Insurance § 1976. An insurance company may contest the scope of coverage under the policy and, in particular, may be able to disclaim coverage on the ground that it was not given proper notice of the underlying suit as required by the policy and therefore was not able to exercise its right to defend against the suit and prevent the entry of default. Fisher v. Hanover Ins. Co., 733 N.Y.S.2d 761, 762 (App.Div. 2001); Fusco v. Am. Colonial Ins. Co., 633 N.Y.S.2d 316, 317 (App.Div. 1995); 70A N.Y. Jur.2d Insurance § 1981. But there is no avthority for the proposition than an insurance company .can contest the merits of the injured person's claim against the insured person after a court has entered judgment against the insured.
Nationwide also argues that it should not be bound by the amount of the default judgment because Citywide failed to give Nationwide prompt notice of the suit, depriving Nationwide of an adequate opportunity to defend the suit on Citywide's behalf. Shoretz effected service on Citywide via the Secretary of State on May 27, 1999, but Citywide had failed to update its registered address with the Secretary of State; consequently, Nationwide did not receive notice of the suit until eleven months later, on April 27, 2000, when Citywide forwarded to Nationwide papers relating to the motion for default judgment. Decl. of Andrew J. Shaw dated Apr. 26, 2002, at 2; Def. Reply Brief at 7 n. 1; Decl. of Melisande Hill dated May 13, 2002, at 3 and Ex. D. Nationwide and Shoretz dispute whether the date that the Secretary of State was served or the date that Citywide actually learned of the lawsuit should be deemed the date that Citywide "received" legal papers, giving rise to a duty under the insurance policy to notify Nationwide immediately. They also dispute whether Nationwide may disclaim coverage even if it was not prejudiced by the delayed notice.
parties seem to agree upon the foregoing chronology. Nevertheless, I do not undertake to determine these facts conclusively at this stage of the case.
Regardless of whether Nationwide received prompt notice of the underlying suit as required by the insurance policy, there is no need for Nationwide to obtain discovery on the merits of Shoretz's claim against Citywide. If Nationwide is entitled to disclaim coverage based on Citywide's failure to give adequate notice of the suit, then Nationwide will not be liable to Shoretz for the judgment against Citywide. On the other hand, if Nationwide is not entitled to disclaim coverage, then Nationwide will be liable under Insurance Law § 3420(b) for "the amount of [the] judgment against the insured." Nationwide has not shown any basis in statutory or case law upon which Nationwide may relitigate in this Court the amount of the underlying judgment. But cf Gordon v. St. Paul Fire Marine Ins. Co., No. 98-CV-5347, 2001 WL 1661708 (E.D.N.Y. Dec. 21, 2001) (granting insurance company relief from default entered against insured by same court). The issue whether Nationwide is entitled to disclaim coverage under the insurance policy need not be decided to resolve the present dispute and in any event is not properly presented for judicial determination in the context of this discovery motion.
Finally, Nationwide contends that it is entitled to discovery on the merits of plaintiff's claim against Citywide because the underlying judgment was not timely entered and therefore is void. New York C.P.L.R. § 3215 provides:
(c) Default not entered within one year. If the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed. . . .
C.P.L.R. § 3215(c) (McKinney's 2002). Plaintiff made his motion for a default judgment on October 27, 1999, and the court granted the motion on May 1, 2000, within a year of Citywide's default, but the court did not enter the final judgment setting the amount of damages until July 11, 2001. Hill Decl. at 2-3 and Exs. C, E, F; Shaw Decl. at 2 and Ex. B. The parties dispute whether § 3215 requires that a plaintiff file a motion for default judgment within one year of a defendant's default or whether it requires the court to enter a default judgment within one year of a defendant's default.
Plaintiffs counsel states that the order granting the motion was entered on May 18, 2000, but the order, a copy of which is attached to counsel's affidavit, is dated May 1, 2000. Hill Decl. at 2 and Ex. E.
Again, regardless of whether the underlying default judgment was validly entered, there is no need for Nationwide to obtain discovery on the merits of Shoretz's claim against Citywide. If the default judgment is void and not binding on Citywide, then Nationwide will not be liable to Shoretz for the amount of that judgment. Insurance Law § 3420(b) provides for suit against an insurance company only to recover the amount of a judgment obtained against an insured person. The parties do not cite any provision of New York law which would permit, in the absence of a valid judgment against the insured, a direct suit against an insurance company with a trial on the underlying issues of liability and damages. On the other hand, if the default judgment is valid and binding on Citywide, then it is also binding on Nationwide. There is no basis upon which Nationwide may litigate the merits of Shoretz's claim against Citywide.
For the above reasons, I deny Nationwide's motion to compel Shoretz to respond to Nationwide's discovery demands relating to the reasonableness of the judgment amount entered against Citywide in the underlying suit. I do not decide at this juncture whether that judgment is valid nor do I decide whether Nationwide is entitled to disclaim coverage under the insurance policy.