Opinion
02 Civ. 7492 (SAS)
February 24, 2004
Arthur Bergman, Steven Siegel, Sokol, Behot and Fiorenzo Hackensack, N.J. for Third-Party Plaintiff; Ellen Nimaroff, Lustig Brown, LLP New York, N.Y. for Third-Party Defendant
OPINION AND ORDER
On November 18, 2002, One Beacon Insurance f/k/a CGU Insurance ("One Beacon") filed an action against Terra Firma Construction Management General Contracting, LLC. ("Terra") and K.A.F.C.I. Corp. ("KAFCI") to recover premiums owing under workers' compensation insurance policies. See One Beacon Complaint ("Compl."). On June 11, 2003, Terra and KAFCI filed a third-party action for indemnification, breach of contract and negligence against their insurance broker, Select Planning, LTD. ("Select"). See Third-Party Complaint ("TP Compl.").
Third-Party Defendant Select now moves for summary judgment. In support of its motion, Select submits that Terra KAFCI's breach of contract and negligence claims are barred by statutes of limitation and that Terra and KAFCI cannot state a valid claim for indemnification. For the reasons set forth below, Select's motion is granted and the Third-Party Complaint is dismissed.
Unless otherwise noted, the following facts are undisputed.
A. Parties
One Beacon is an insurance provider organized under the laws of Pennsylvania with its principal place of business in Pennsylvania. Terra and KAFCI are companies engaged in interior/drywall construction and contracting organized under the laws of New York, each with a principal place of business in New York. Select is an insurance broker organized in New York with a principal place of business in New York. One Beacon Amended Complaint ("AM Comp.") ¶¶ 2-3.
B. Insurance Contracts
Sometime prior to 1994, Terra and KAFCI hired Select to review their insurance needs and to procure workers' compensation insurance policies for their employees and operations. TP Compl. ¶ 5.
1. The First Policy
On June 15, 1996, Select helped Terra and KAFCI obtain an insurance contract from One Beacon (the "First Policy"). By the terms of that contract, Terra and KAFCI were to pay insurance premiums to One Beacon in return for one year of workers' compensation coverage. The First Policy was effective from June 15, 1996 to June 15, 1997. AM Compl. ¶ 6.
The price of the insurance premiums that Terra and KAFCI owed to One Beacon under the First Policy was subject to retrospective adjustment. Id. Under insurance policies subject to retrospective adjustment, the insured initially pays premiums at a set price. Subsequently, the price of the premiums is adjusted by the insurer to reflect updated estimates of risk for the insurance coverage ("Retrospective Adjustment"). Retrospective Adjustment can result in the insured owing additional premiums or in premiums being returned to the insured, depending on whether the price is raised or lowered. In this case, the premiums Terra and KAFCI owed to One Beacon under the First Policy were retrospectively adjusted to a higher price. See id. ¶ 11. This caused Terra and KAFCI to owe One Beacon additional premiums (the "Retrospective Premiums"), which One Beacon claims it has not received. See id.
2. The Second Policy
On June 15, 1997, Select helped Terra and KAFCI obtain a second contract from One Beacon for workers' compensation coverage (the "Second Policy"). Unlike the First Policy, the Second Policy was not subject to Retrospective Adjustment. Under that policy, Terra and KAFCI owed premiums to One Beacon at a set price. See id. ¶ 10.
C. Underlying Lawsuit
On November 18, 2002, One Beacon sued Terra and KAFCI for breach of contract. One Beacon alleged that Terra and KAFCI failed to pay the Retrospective Premiums due to One Beacon under their insurance contracts. See id. Initially, One Beacon claimed that Terra and KAFCI owed retrospective premiums under both the First Policy and the Second Policy. Compl. ¶ 3. On October 9, 2003, One Beacon amended its Complaint to retract its claim under the Second Policy. See AM Compl. ¶ 10. Because the Second Policy was not subject to Retrospective Adjustment, Terra and KAFCI could not owe retrospective premiums under that policy. See id.
D. Third-Party Lawsuit
On June 11, 2003, Terra and KAFCI filed this third-party suit against Select for negligence, breach of contract and indemnification. TP Compl. ¶¶ 15, 19. Specifically, Terra and KAFCI allege that Select inadequately advised them about how much they could potentially owe to One Beacon in retrospectively adjusted premiums. In response, Select has moved for summary judgment, asserting that Terra and KAFCI cannot state a valid claim for indemnification, and that their negligence and breach of contract claims are time-barred. See Select Memorandum in Support of Summary Judgment ("Select Mem/') at 2-3.
II. APPLICABLE LAW
A. Summary Judgment Standard
Rule 56 of the Federal Rules of Civil Procedure provides for summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.55 Fed.R.Civ.P. 56(c). See also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "An issue of fact is `genuine' if `the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Electrical Inspectors, Inc. v. Village of East Hills, 320 F.3d 110, 117 (2d Cir. 2003) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)), cert. denied sub nom. Village of Islandia v. Electrical Inspectors, Inc., 124 S.Ct. 467 (2003). A fact is material when it "`might affect the outcome of the suit under the governing law.'" Id (quoting Anderson, 477 U.S. at 248).
A party seeking summary judgment has the burden of demonstrating that no genuine issue of material fact exists. See Apex Oil Co. v. DiMauro, 822 F.2d 246, 252 (2d Cir. 1987) (citing Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970)). In turn, to defeat a motion for summary judgment, the non-moving party must raise a genuine issue of material fact. To do so, he "must show more than a `metaphysical doubt' as to material facts." Id. (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). He may not rely on conclusory allegations or unsubstantiated speculation. See Twin Labs., Inc. v. Weider Health Fitness, 900 F.2d 566, 568 (2d Cir. 1990) (holding that "[c]onclusory allegations will not suffice to create . . . a genuine issue" of material fact sufficient to overcome a motion for summary judgment); see also Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423, 428 (2d Cir. 2001). Rather, the non-moving party must produce admissible evidence that supports his pleadings. See First Nat'l Bank of Arizona v. Cities Serv. Co., 391 U.S. 253, 289-90 (1968). In this regard, "[t]he `mere existence of a scintilla of evidence' supporting the non-movant's case is also insufficient to defeat summary judgment." Niagara Mohawk Power Corp. v. Jones Chem. Inc., 315 F.3d 171, 175 (2d Cir. 2003) (quoting Anderson, 477 U.S. at 252). See also Twin Labs., 900 F.2d at 568 ("There must be more than a scintilla of evidence, and more than some metaphysical doubt as to the material facts.") (quotation marks and citations omitted).
In determining whether a genuine issue of material facts exists, the court must construe the evidence in the light most favorable to the non-moving party and draw all inferences in that party's favor. See Niagara Mohawk, 315 F.3d at 175 (citing Anderson, 477 U.S. at 252). Accordingly, the court's task is not to "weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249.
III. DISCUSSION
A. Terra and KAFCI's Breach of Contract and Negligence Claims are Barred by Statutes of Limitation
Select asserts that Terra and KAFCI's claims for breach of contract and negligence are time-barred. Select Mem. at 2-3. Pursuant to section 214 of the New York Civil Practice Law and Rules ("CPLR"), the statute of limitations for a negligence claim is three years. See also TN PLC v. Fred S. James Co. of New York, Inc., 29 F.3d 57 (2d Cir. 1994); Mauro v. Neimann Agency Inc., 303 A.D.2d 468 (2d Dep't 2003); National Life Insurance Co. v. Frank B. Hall Co., 111 A.D.2d 681 (1st Dep't 1985). Pursuant to section 213[2] of the CPLR, the statute of limitations for a breach of contract claim is six years. See also National Life Insurance, 111 A.D.2d at 682 (the applicable statute of limitations for an action arising against an insurance broker for malpractice in the performance of contractual obligations is six years) (citing Video Corp. of America v. Frederick Flatto Associates, Inc., 85 A.D.2d 448 (1st Dep't 1982)).
A claim against an insurance broker or agent accrues when the wrongdoing occurs and not when the wrongdoing is discovered. Mauro, 303 A.D.2d at 468-69; National Life Insurance, 111 A.D.2d at 682; TN PLC, 29 F.3d at 59. This is true for both negligence and breach of contract actions. See Mauro, 303 A.D.2d at 468-69 (cause of action for breach of contract accrued, and six-year limitations period began to run, when broker failed to perform its alleged undertaking with insured; cause of action for negligence accrued, and three-year limitations period began to run, when broker first issued policy).
The latest possible date of wrongdoing by Select in advising Terra and KAFCI to procure the First Policy was the date that the First Policy was procured: June 15, 1996. Thus, Terra and KAFCI's claims for negligence and breach of contract accrued no later than June 15, 1996. Pursuant to the statutes of limitation, Terra and KAFCI had three years from that date to file a negligence claim and six years to file a breach of contract claim. Terra and KAFCI did not file their Third-Party Complaint until July 11, 2003, more than six years later. See TP Compl. As such, Terra and KAFCI's claims against Select for negligence and breach of contract are time-barred.
Terra and KAFCI assert that the Court should consider both the First Policy and the Second Policy for statute of limitations purposes. However, the Second Policy is not relevant to this case. The basis for Terra and KAFCI's claims is the allegation that Select inadequately informed them about their potential liability for the Retrospective Premiums. Unlike the First Policy, the Second Policy was not subject to Retrospective Adjustment and did not cause Terra and KAFCI to be liable for retrospective premiums. See AM Compl. ¶ 10.
Terra and KAFCI argue that the accrual date was tolled by the so-called "continuous treatment" doctrine. Under New York law, however, the continuous treatment doctrine does not apply to insurance brokers and agents. See Chase Scientific Research, Inc. v. NI A Group Inc., 96 N.Y.2d 20 (2001); Video Corp., 85 A.D.2d at 456 (the foreign object rule of medical malpractice, an attempt to delay the accrual of a cause of action until the time of discovery, is inapplicable to actions against insurance brokers, as is the doctrine of continuous treatment, since the recipient of services of an insurance broker is not at a substantial disadvantage to question the actions of the provider of services); Eastman Kodak Co. v. Prometheus Funding Corp., 283 A.D.2d 216, 216 (1st Dep't 2001)("[T]he continuous representation doctrine is not applicable to insurance brokers.").
B. Terra and KAFCI Do Not State a Valid Claim for Indemnification
B. Terra and KAFCI Do Not State a Valid Claim for Indemnification
In addition to their breach of contract and negligence claims, Terra and KAFCI assert that Select is liable to them for indemnification for any Retrospective Premiums they may owe to One Beacon. In an action for indemnity, "a party held legally liable to [the] plaintiff shifts the entire loss to another." Mas v. Two Bridges Assocs., 75 N.Y.2d 680, 689 (1990). A duty to indemnify can arise in one of two ways: by express contract or by implication, "based upon the law's notion of what is fair and proper between the parties." Id.
Because Select is not a party to the First Policy, or to any other contract with Terra or KAFCI, the alleged duty to indemnify cannot be express. Thus, if Terra and KAFCI's claim is to survive, they must have an implied right to indemnification from Select.
Conceptually, implied indemnification finds its roots in the principles of equity. It is nothing short of simple fairness to recognize that a person who, in whole or in part, has discharged a duty which is owed by him but which as between himself and another should have been discharged by the other, is entitled to indemnity. To prevent unjust enrichment, courts have assumed the duty of placing the obligation where in equity it belongs. As was true with many unjust enrichment cases, the vehicle through which the law operated was the quasi contract. Thus, the rule developed that where payment by one person is compelled, which another should have made, a contract to reimburse or indemnify is implied by law.McDermott v. City of New York, 50 N.Y.2d 211, 216-17 (1980) (quotation marks, alterations, citations, and footnote omitted). However, it has long been settled law in New York that, as a matter of equity, claims of implied indemnity require a showing that the party claimed to owe indemnification breached some duty to the underlying plaintiff. See Mas, 75 N.Y.2d at 690; see also Sign Erectors Co., Inc. v. Allied Outdoor Advertising, Inc., 175 A.D.2d 761, 762 (1st Dep't 1991) ("[S]uccessful assertion of that right [of indemnification] requires that the primary obligor and the indemnitor are subject to a duty to an injured party."). "[I]ndemnification is only available where a party who is vicariously liable seeks to recover from the actual wrongdoer." Martin v. Back O'Beyond, Inc., 198 A.D.2d at 480 (2d Dep't 1993) (citations omitted). An indemnity claim does not arise where an insurance carrier sues an insured for breach of the insurance contract and does not seek to hold the insured vicariously liable for any wrong of the broker. Mount Vernon Fire Ins. Co. v. Mott, 179 A.D.2d 626 (2d Dep't 1992). See also Dormitory Auth. v. Claudill Rowlett Scott, 160 A.D.2d 179 (1st Dep't 1990); City of Rochester v. Holmsten Ice Rinks, 155 A.D.2d 939 (4th Dep't 1989); SSDW Co. v. Feldman-Misthopoulos Assocs., 151 A.D.2d 293 (1st Dep't 1989); County of Westchester v. Becket Assocs., 102 A.D.2d 34 (2d Dep't 1989); Trustees of Columbia Univ. v. Mitchell/Giurgola Assocs., 109 A.D.2d 449 (1st Dep't 1985).
Terra and KAFCI fail to allege that Select owed any duty to One Beacon. See TP Compl. Nor have Terra and KAFCI alleged that Select committed any wrong against One Beacon for which Terra and KAFCI might be held vicariously liable. Id. The only duty allegedly owed to One Beacon, and allegedly breached for the purposes of this lawsuit, is Terra and KAFCI's duty to pay the Retrospective Premiums. Compl. ¶ 3. Although Select helped Terra and KAFCI procure the First Policy, there is no suggestion that it had any duty to pay the retrospective premiums due under that policy. See TP Compl. Because Terra and KAFCI do not allege any wrong of Select against One Beacon for which One Beacon seeks to hold Select vicariously liable, they do not state a valid claim for indemnification against Select.
V. CONCLUSION
For the foregoing reasons, Select's motion for summary judgment is granted. The Clerk of the Court is directed to close this motion [#20 on the docket] and dismiss the Third-Party Complaint. A conference is scheduled for March 2, 2004, at 2:30 p.m.
SO ORDERED.