Seneca Insurance v. Certified Moving Storage

Full title: SENECA INSURANCE COMPANY, INC., Plaintiff, v. CERTIFIED MOVING STORAGE…

Court: Supreme Court of the State of New York, New York County

Date published: Feb 17, 2009

2009 N.Y. Slip Op. 30348 (N.Y. Sup. Ct. 2009)

Opinion

601817/05.

February 17, 2009.

DECISION AND ORDER

JOAN A. MADDEN, J.

Third-party defendant Frenkel Co., Inc. ("Frenkel") moves for order dismissing of, in the alternative, staying the third-party action. Plaintiff Seneca Insurance Company, Inc., ("Seneca") supports Frankel's motion, and defendants Certified Moving Storage Co., LLC and Certified Installation Services, LLC, (collectively, "Certified") oppose it. For the reasons below, the motion is denied.

Background

From January 2002 through January 2005, ¹ Seneca agreed to provide commercial property and commercial general liability insurance coverage to both of the Certified companies. The advance premium for the initial policy was based on the information that Certified supplied in its application for insurance. The common policy declarations and the commercial general liability declarations of the policy state, "IN RETURN FOR THE PAYMENT OF THE PREMIUM, AND SUBJECT TO ALL THE TERMS OF THIS POLICY, WE AGREE WITH YOU TO PROVIDE THE INSURANCE AS STATED IN THIS POLICY." (Emphasis in the original). Seneca maintains that the premium is based on the payroll for each category of the insured's employees and that it sets the rate applicable to each category of employees annually and files these rates with the New York State Insurance Department in accordance with Sections 2303-2304 of the Insurance Law.

1 January 2002-January 2003, Initial Policy Period; January 2003-January 2004, First Renewal; January 2004-January 2005, Second Renewal.

According to policy, the amount of the premium is computed "in accordance with our [Seneca's] rules and rates." An endorsement to the policy, titled "New York Changes-Premium Audit" states:

(b) Premium Audit

Premium shown in this coverage part as advance premium is a deposit premium only. At the close of each audit period we will compute the earned premium for that period. An audit to determine the final premium due or to be refunded will be completed within 180 days after the expiration date of the policy.

* * *

Audit premiums are due and payable on notice to the first Named Insured.

Section IV, paragraph 5 (c) gives Seneca the right to review the insured's records for each policy period in order to verify the information upon which the premium is computed.

In March 2003, pursuant to the terms of the policy, Seneca requested a physical audit of defendant's books and records to verify the accuracy of the payroll information for the January 2002-January 2003 premium. Based on that audit, Seneca determined that Certified owed it $2,354.00 in premiums for the 2002-2003 policy year, which despite due demand, Certified has failed to pay the additional premium that it allegedly owed.

In January 2004, Seneca requested a physical audit of defendant's books and records to verify the payroll information upon which the 2003-2004 premium was based. Seneca alleges that it first discovered that something was amiss as a result of the April, 2004 audit when Certified provided the auditor with three sets of payroll records for Certified Moving but allegedly refused provide any payroll records for Certified Installation. Based on that audit, Seneca determined that Consolidated owed $71,502 in premium for the 2003-2004 policy period.

Seneca alleges that after the April, 2004 audit, Certified refused to produce any payroll records for the co-insured Certified Installation, but instead, in July, 2004, Certified's insurance broker, third-party defendant, Frankel, sent Seneca a single sheet of paper entitled "Certified Payroll" that revealed that the Certified's employees had earned a payroll in a far greater amount than Certified had previously disclosed. However, according to Seneca, Certified continued to stonewall Seneca's efforts to conduct a proper audit of both of the insureds.

Thereafter, Seneca refused Certified's request for a further policy renewal because, based on its prior audits, Seneca determined that Certified owed more that $600,000 in premium for 2002-2005.²

2 Seneca claims that during discovery, Certified produced wage and tax statements for the relevant policy years which reveal that, Certified owes $1,223,670.00 in premium for the three years covered by the policy, not the $600,000 originally demanded in the complaint.

On May 19, 2005, Seneca commenced this action alleging, inter alia, that Certified breached its contract with Seneca by failing to pay additional premiums, and that Certified made false and misleading representations and omissions on its application for the insurance policy which caused Seneca to underestimate the amount of premiums due under the policy from Certified, and resulted in damage to Seneca.

Certified answered and asserted the following nine affirmative defenses: (1) failure to state a cause of action; (2) waiver and release; (3) failure to allege fraud in sufficient detail; (4) statute of limitations; (5) defendants did not conceal or misrepresent information; (6) documentary evidence; (7) failure to correctly compute the premium due; (8) misrepresentation of the method of computing premiums and (9) failure to notify the defendants of the method of computing premiums.

After certain discovery was conducted, but before depositions were taken, Seneca moved pursuant to CPLR 3025(c), 3212 and 3211(b): (1) to conform the pleadings to the proof; (2) for partial summary judgment on the first, second and third causes of action in the complaint and (3) for an order dismissing Certified's affirmative defenses. Certified cross moved pursuant to CPLR 3212(f) for an order granting it a continuance to conduct further discovery.

By decision and order dated June 26, 2008, this court denied Seneca's motion for partial summary judgment and granted Certified's cross motion only to the extent of permitting limited discovery to determine Seneca's rules and filed rates regarding premium computation and whether Seneca properly applied those rules and rates when it computed the premium allegedly owed by Certified. The court denied Certified's demand for discovery concerning an alleged oral understanding between the parties about how the premium would be computed based on a merger clause in the policy.

The court also granted Seneca's motion to dismiss Certified's first, second, third and fourth affirmative defenses, but held in abeyance that part of the motion seeking to dismiss the fifth, sixth, seventh, eighth and ninth affirmative defenses pending completion of the limited discovery regarding Seneca's rules and rates, finding that the merit of those affirmative defenses was dependent on the rules and rates regarding the computation of premium.

On August 7, 2008, a preliminary conference was held. The preliminary conference order requires the parties to: (1) respond to any demands for discovery and inspection by September 5, 2008; and (2) complete all depositions by October 17, 2008. It also requires that any party be impleaded within 60 days of completion of depositions.

In the meantime, on the day before the preliminary conference, Certified filed its third-party action against Frenkel seeking indemnification and/or contribution from Frenkel for its breach of contractual obligations, negligence and misrepresentations. The third-party complaint alleges that Frenkel, as Certified's insurance broker, advised Certified that the premiums would be calculated solely based on two employee classifications, Truckers and Warehouse Workers and since these classifications were listed solely on the payroll of Certified Moving (and not on the payroll of Certified Installation) that only the payroll on Certified Moving (and not on the payroll of Certified Installation) would be used to calculate the amount of premiums owed.

On September 11, 2008, the parties agreed to extend the time to complete depositions from October 17, 2008 to December 15, 2008. On September 18, 2008, Seneca and Certified agreed to extend Frenkel's time to answer, move or otherwise respond to the third-party complaint to September 24, 2008.

Frenkel now moves to dismiss or stay the third-party action as premature, arguing that claims for contribution and indemnification cannot be asserted until the underlying litigation has been resolved. Frankel alternatively argues that the third-party action should be stayed or severed pursuant to CPLR 1010 since it will be prejudiced if it is required to defend itself against premature claims, and to comply with the discovery schedule in the main action. In support of Frenkel's motion, Seneca asserts that it will be prejudiced by the belated addition of the third-party action which will unduly delay the resolution of the underlying action. Seneca points out that the court previously dismissed all affirmative defenses based on the alleged oral representations made by Frankel and asserts that the third-party action is being used by Certified to circumvent the limited discovery permitted by the court's decision and order dated June 26, 2008.

In opposition, Certified asserts that its third-party action for indemnification is not premature and that considerations of judicial economy militate in favor against severing the third-party action.

While this motion was pending, a status conference was held on January 29, 2009. An order issued in connection with that conference provided that the deposition of a remaining witness should be completed by February 27, 2009, that document discovery should be completed on or before March 30, 2009, and that note of issue was to be filed by March 31, 2009.

Discussion

A cause of action for indemnity or contribution accrues on the date that payment is made by the party seeking indemnity or contribution.Bay Ridge Air Rights v. State of New York, 44 NY2d 49, 54 (1978). That being said, however, a defendant seeking indemnification or contribution may implead a third-party defendant in accordance with CPLR 1007, even though it has not yet paid the claim on which the third-party liability is predicated. Id.; McDermott v. City of New York, 50 NY2d 211, 218, n. 3 (1980); Alside, Inc. v. Spancrete Northeast, Inc., 84 AD2d 616, 617 (3d Dept 1981).

Moreover, the cases relied on by Frenkel are not to the contrary as none of them involve third-party actions but instead concern separate actions for indemnification or contribution. See e.g. Schmutz v. Fleet Bank, N.A., 278 AD2d 19 (1^st Dept 2000) (holding that independent action for contribution must be dismissed as premature); Alside Inc. v. Spanerete Northeast, Inc., 84 AD2d at 617 (first cause of action by plaintiff in separate action for indemnification must be dismissed as premature). In addition, AIU Insurance v. American Motorist Insurance Co., 292 AD2d 277 (1^st Dept 2002), does not support Frankel's position, since in that case, the claim for indemnification was not dismissed as premature but simply found to be not ripe for resolution since the underlying action had not yet been tried. Accordingly, Frenkel's motion to dismiss the third-party action as premature is denied.

The next issue is whether the third-party action should be severed from the main action. The court has broad discretion in determining whether a third-party action should be severed from a main action. Abreo v. Baez, 29 AD3d 833 (2d Dept 2006). In exercising this discretion, the court examines the reason for the delay in commencing the third-party action, whether the delay in commencement of the third-party action will prejudice the plaintiff by delaying the trial of the main action, and whether such prejudice to the plaintiff would exceed any prejudice to defendant resulting from the severance. See CPLR 1010; Soto v. Rosen, 215 AD2d 226 (1^st Dept 1995); Erbach Finance Corp. v. Royal Bank of Canada, 203 AD2d 80 (1^st Dept 1994).

Here, while discovery in the third-party action may potentially delay for a short period the trial of the main action, as the main action is not yet on the trial calendar and discovery is proceeding, the prejudice to the plaintiff is not outweighed by the prejudice to defendant resulting from severance. In reaching this conclusion, the court notes that the third-party action was commenced the day before the issuance of the preliminary conference order which permits impleader within 60 days of completion of the depositions. Moreover, any delay caused by the additional discovery in the third-party action can be minimized by requiring that discovery be conducted expeditiously. In addition, while the court recognizes that the issues raised in the third-party action regarding Frankel's alleged oral representation are not relevant to the resolution of the claims in the main action, the facts underlying the two actions are sufficiently related to warrant their joint resolution.

Finally, insofar as Frenkel claims it will be prejudiced by being required to comply with discovery deadlines set by the court for the parties in the main action, the discovery schedule can be modified if necessary to ensure that Frankel obtains the discovery it needs to defend against the third-party claims while not unnecessarily delaying the plaintiff's prosecution of the main action.

Accordingly, Frenkel's motion to dismiss and or to stay the third-party action is denied.

Conclusion

In view of the above, it is

ORDERED that Frenkel's motion for an order dismissing or, in the alternative, staying the third-party action is denied; and it is further

ORDERED that parties shall appear in Part 11, room 351, 60 Centre Street on February 19, 2009, for a discovery conference to schedule discovery in the third-party action.