         09-1814-cv
         U.S. Liability v. Master Duct, Inc.


                                   UNITED STATES COURT OF APPEALS
                                       FOR THE SECOND CIRCUIT

                                          AMENDED SUMMARY ORDER

R ULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT . C ITATION TO A SUMMARY ORDER FILED ON OR AFTER J ANUARY 1,
2007, IS PERMITTED AND IS GOVERNED BY F EDERAL R ULE OF A PPELLATE P ROCEDURE 32.1 AND THIS COURT ’ S L OCAL R ULE 32.1.1.
W HEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT , A PARTY MUST CITE EITHER THE F EDERAL A PPENDIX OR AN
ELECTRONIC DATABASE ( WITH THE NOTATION “ SUMMARY ORDER ”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL .


 1            At a stated term of the United States Court of                                      Appeals
 2       for the Second Circuit, held at the Daniel Patrick                                      Moynihan
 3       United States Courthouse, 500 Pearl Street, in the                                      City of
 4       New York, on the 6 th day of April, two thousand and                                    ten.
 5
 6       PRESENT: RICHARD C. WESLEY,
 7                DEBRA ANN LIVINGSTON,
 8                         Circuit Judges,
 9                RICHARD K. EATON,
10                         Judge. *
11
12
13       NEW YORK STATE INSURANCE FUND,
14
15                                       Plaintiff-Appellee,
16
17                       -v.-                                                   09-1814-cv
18
19       MOUNT VERNON FIRE INSURANCE CO. S/H/A U.S. LIABILITY
20       INSURANCE COMPANY,
21
22                                       Defendant-Appellant,
23
24       MASTER DUCT, INC., PAL PAL DUCT, INC., YMC CONSTRUCTION AND
25       SERVICES, INC., AMTUES ENTERPRISES, INC., MANARK ASSOCIATES,
26       ATC MANAGEMENT, INC., 431 WEST 14TH STREET CORP., FRANK’S
27       RESTAURANT AND BAR, SKYWAY CONTRACTING CORP., YONG DONG
28       JUNG,
29
30                                       Defendants.

                 *
                     The Honorable Richard K. Eaton, of the United States Court of
         International Trade, sitting by designation.
 1
 2
 3   MOUNT VERNON FIRE INSURANCE CO. S/H/A U.S. LIABILITY
 4   INSURANCE COMPANY,
 5
 6                      Plaintiff-Appellant,
 7
 8               -v.-
 9
10   MASTER DUCT, INC., PAL PAL DUCT, INC., SEUNG EIK HAN, YONG
11   HWAN CHAE, YMC CONSTRUCTION AND SERVICES, INC., AMTUES
12   ENTERPRISES, INC., MANARK ASSOCIATES, ATC MANAGEMENT, INC.,
13   431 WEST 14TH STREET CORP., FRANK’S RESTAURANT AND BAR,
14   SKYWAY CONTRACTING CORP., AND YONG DONG JUNG,
15
16                      Defendants.
17
18
19   FOR APPELLANT:     MICHAEL A. MIRANDA, Miranda Sambursky
20                      Slone Sklarin Verveniotis LLP, Mineola,
21                      NY.
22
23   FOR APPELLEE:      ELIZABETH A. FITZPATRICK, Lewis Johs
24                      Avallone Aviles, LLP, Melville, NY.
25
26        Appeal from the United States District Court for the
27   Southern District of New York (McKenna, J.).
28
29       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED

30   AND DECREED that the judgment of said district court be

31   AFFIRMED.

32       Defendant U.S. Liability Company (“U.S. Liability”)

33   appeals from a judgment of the United States District Court

34   of the Southern District of New York (McKenna, J.) declaring

35   that plaintiff New York State Insurance Fund (“NYSIF”) is

36   entitled to receive contribution up to the full limit of


                                      2
1    U.S. Liability’s commercial general liability policy issued

2    to its insured Master Duct Corporation (“MDC”).    The dispute

3    arose out of U.S. Liability’s denial of coverage for MDC

4    with regard to a construction site accident and resulting

5    personal injury litigation in New York state court in which

6    the jury awarded $5.3 million to the plaintiff and

7    apportioned liability between NYSIF’s insured (YMC

8    Construction and Services, Inc.) and MDC and its predecessor

9    entity Pal Pal Duct (“PPD”) at 80% and 20% respectively.

10   NYSIF paid the entire amount of the judgment and commenced

11   an action in state court for contribution from U.S.

12   Liability and MDC for its equitable share of the plaintiff’s

13   judgment up to the $1 million limit of the U.S. Liability

14   policy.   The case was removed to the United States District

15   Court for the Southern District of New York.   Following

16   discovery and cross-motions for summary judgment (portions

17   of which were granted), the parties agreed to submit their

18   dispute to the district court on a stipulated set of facts.

19   The sum of these efforts produced a declaratory judgment in

20   favor of NYSIF directing U.S. Liability to pay the amount of

21   its policy limit to NYSIF.   This appeal ensued.   We presume

22   the parties’ familiarity with the underlying facts and the



                                   3
1    procedural history of the case.

2        U.S. Liability argues that the district court erred in

3    its conclusion that its disclaimer of coverage was untimely.

4    It contends that its notice of disclaimer — delivered to its

5    insured nearly two months after the state court jury’s

6    verdict — is not subject to New York’s timely disclaimer

7    requirements as the disclaimer was in essence with respect

8    to NYSIF and not U.S. Liability’s insured.   We disagree.

9        New York Insurance Law § 3420(d) 1 reads in relevant

10   part:

11       If under a liability policy issued or delivered in this
12       state, an insurer shall disclaim liability or deny
13       coverage for death or bodily injury arising out of a
14       motor vehicle accident or any other type of accident
15       occurring within this state, it shall give written
16       notice as soon as is reasonably possible of such
17       disclaimer of liability or denial of coverage to the
18       insured and the injured person or any other claimant.
19
20   N.Y. Ins. Law § 3420(d)(2).   The purpose of the section "was

21   to protect the insured, the injured person, and any other

22   interested party who has a real stake in the outcome, from

23   being prejudiced by a belated denial of coverage."

24   Excelsior Ins. Co. v. Antretter Contracting Corp., 262

25   A.D.2d 124, 127 (1st Dep’t 1999) (emphasis added).   Whether

         1
           No one contests that New York law applies in this
     case; therefore, we need not reexamine the district court's
     conclusion to that end.

                                   4
1    a disclaimer under § 3420(d) is timely is generally a

2    question of fact.      Continental Cas. Co. v. Stradford, 11

3    N.Y.3d 443, 449 (N.Y. 2008).      However, in "exceptional"

4    cases that "present extreme circumstances," the

5    reasonableness of the delay may be decided as a matter of

6    law.    Id.    Examples of such exceptional circumstances

7    include when an insurer denied coverage after two months

8    with no explanation for the delay, Hartford Ins. Co. v.

9    Nassau County, 46 N.Y.2d 1028, 1029-30 (N.Y. 1979), and, in

10   a certified question from this Court, when an insurer had an

11   unexcused 48-day delay, First Fin. Ins. Co. v. Jetco

12   Contracting Corp., 1 N.Y.3d 64, 66 (N.Y. 2003) (Kaye, C.J.).

13          U.S. Liability sees the matter as an inter-insurance

14   carrier dispute and asserts that its disclaimer of its

15   coverage for MDC was not subject to the statute’s timeliness

16   requirements.      It relies on Bovis Lend Lease LMB, Inc. v.

17   Royal Surplus Lines Ins. Co., 27 A.D.3d 84 (1st Dep’t 2005).

18   U.S. Liability seriously misreads Bovis.      Bovis involved a

19   coverage dispute between the co-insurers of the same

20   insured.      In that context, the Appellate Division held that,

21   as between the insurers, § 3420(d)(2) compliance was

22   irrelevant.      More importantly, the state court also held



                                      5
1    that as between the disclaiming co-insurer and its insured

2    the timely notice requirement remained relevant.     Id. at 88-

3    89. 2

4            The present case does not involve a dispute between two

5    carriers insuring the same insured.     Rather, NYSIF seeks

6    contribution from U.S. Liability for its respective share of

7    responsibility as a joint tortfeasor for the damages awarded

8    the injured party by the jury in the state court proceeding.

9    Under New York law, "[a]n insurance carrier, upon payment of

10   a loss, becomes equitably subrogated to the rights and

11   remedies of its [in]sured . . . vested with no greater or

12   different right or remedy than that possessed by its

13   subrogor."     Hartford Acc. & Indem. Co. v. CNA Ins. Cos., 99

14   A.D.2d 310, 312 (1st Dep't 1984).     "It is so well settled as

15   not to require discussion that an insurer who pays claims

16   against the insured for damages caused by the default or

17   wrongdoing of a third party is entitled to be subrogated to

18   the rights which the insured would have had against such



             2
           The New York Court of Appeals has not taken a
     position on the First Department’s view of the statute in
     situations similar to that presented in Bovis. We note only
     that since the notice in Bovis was ineffective as to the
     insureds (both additional insureds under the policies in
     question), the net effect was no loss of coverage for those
     insureds.

                                     6
1    third party for its default or wrongdoing."     Ocean Accident

2    & Guarantee Corp. v. Hooker Electro-Chem. Co., 240 N.Y. 37,

3    47 (N.Y. 1925).    In our view, because NYSIF is YMC’s

4    subrogee, NYSIF has a “real stake in the outcome, from being

5    prejudiced by a belated denial of coverage.”     Excelsior Ins.

6    Co., 262 A.D.2d at 127.

7           U.S. Liability doesn’t dispute that a carrier that pays

8    beyond its insured’s proportionate liability under a

9    negligence personal injury verdict in New York can seek

10   contribution from the co-defendant joint tortfeasor – in

11   this case MDC – for its respective share.     Thus, as the

12   subrogee of YMC, NYSIF can seek contribution from MDC (a

13   named defendant in this action) and ultimately its insurer,

14   U.S. Liability.    But U.S. Liability seeks to strip its

15   insured MDC of coverage under its policy by characterizing

16   the dispute as between carriers.    That characterization has

17   no basis in law or fact.

18          We agree with the district court that U.S. Liability’s

19   disclaimer to its insured MDC was untimely under New York

20   law.    As the court noted, "U.S. Liability did not issue a

21   disclaimer prior to providing a defense, during discovery,

22   or even during the trial in the underlying case.     Instead,



                                    7
1    it waited until July 26, 1999[,] . . . [which] was over two

2    years after U.S. Liability was notified about the case."

3    U.S. Liability had sufficient information through

4    depositions and trial to form the factual basis for the

5    disclaimer.

6        We disagree with the district court that U.S.

7    Liability’s failure to give a timely disclaimer also

8    precludes its claim that Han – the principal of MDC – made

9    material misrepresentations on MDC’s application for

10   coverage with U. S. Liability.    Material misrepresentations

11   with regard to the risk to the insured void the insurance

12   policy ab initio.   See Sun Ins. Co. of N.Y. v. Hercules Sec.

13   Unlimited, Inc., 195 A.D.2d 24, 30 (2d Dep’t 1993).      “[I]f

14   the policy is void ab initio, the insured who is a claimant

15   cannot create coverage that would not otherwise exist by

16   relying upon the failure to provide timely notice of

17   disclaimer."   Taradena v. Nationwide Mut. Ins. Co., 239

18   A.D.2d 876, 877 (4th Dep't 1997).    However, though a

19   material misrepresentation voids the contract at its

20   inception, the "right to rescind must be exercised promptly

21   after the injured party learns of the wrong."    N.Y. Tel. Co.

22   v. Jamestown Tel. Corp., 282 N.Y. 365, 372 (N.Y. 1940).      New



                                   8
1    York courts will deny the rescission of a policy for being

2    void ab initio if the insured can demonstrate that he was

3    prejudiced by the delay.   See Precision Auto Accessories,

4    Inc. v. Utica First Ins. Co., 52 A.D.3d 1198, 1202-03 (4th

5    Dep't 2008); see also Legum v. Allstate Ins. Co., 33 A.D.3d

6    670, 670-71 (N.Y. 2006).   There is certainly an adequate

7    record here to show that MDC was prejudiced by U.S.

8    Liability’s lengthy delay in its attempt to rescind the

9    insurance contract.   But we need not decide whether the

10   insured was prejudiced by the delay because the carrier’s

11   argument fails at a more fundamental level — there was no

12   material misrepresentation here to render the contract void.

13         On the unique facts and procedural posture of this

14   case it is clear to us that the “misrepresentations” were

15   not material.   The record does not show that Han’s use of

16   the firm names MDC and PPD represented a risk greater than

17   that for which U.S. Liability contracted to insure.   The

18   stipulated facts before the court indicated that Han had one

19   business with one employee that used several names without

20   any showing that Han did so to mislead or misrepresent his

21   business endeavors to U.S. Liability.   See Sun Ins., 195

22   A.D.2d at 30.   The state court combined the two entities



                                   9
1    into one for purposes of apportioning liability in obvious

2    recognition of their interchangeable nature and that

3    determination was affirmed on appeal in state court.

4        The judgment of the district court is hereby AFFIRMED

5    with costs.   The pending motion to take judicial notice of

6    the public documents in Am. Guarantee & Liab. Ins. Co. v.

7    State Nat’l Ins. Co., 67 A.D.3d 488 (1st Dep’t 2009), is

8    DENIED.

 9
10                               FOR THE COURT:
11                               Catherine O’Hagan Wolfe, Clerk
12
13




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