09-2794-cv
Ohio Casualty Ins. Co. v. Transcon. Ins. Co.

                           UNITED STATES COURT OF APPEALS
                               FOR THE SECOND CIRCUIT

                                      SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO
A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS
GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S
LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH
THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX 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.

       At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Daniel Patrick Moynihan Courthouse, 500 Pearl Street, in the City of New York, on the 14th day
of April, two thousand ten.

Present:
            ROBERT A. KATZMANN,
            PETER W. HALL,
                              Circuit Judges,
            JED S. RAKOFF,
                              District Judge.*
________________________________________________

OHIO CASUALTY INSURANCE COMPANY,

               Plaintiff-Appellant,

                      v.                                    No. 09-2794-cv

TRANSCONTINENTAL INSURANCE COMPANY,

               Defendant-Appellee.

________________________________________________



       *
         Judge Jed S. Rakoff, of the United States District Court for the Southern District of New
York, sitting by designation.
For Plaintiff-Appellant:      MICHAEL P. KANDLER, Callan, Koster, Brady & Brennan, LLP,
                              New York, NY

For Defendant-Appellee: JOSEPH D’AMBROSIO , (Andrew I. Mandelbaum, on the brief), Ford
                        Marrin Esposito Witmeyer & Gleser, LLP, New York, NY
________________________________________________


        Appeal from the United States District Court for the Southern District of New York
(Jones, J.).

       ON CONSIDERATION WHEREOF, it is hereby ORDERED, ADJUDGED, and

DECREED that the judgment of the District Court be and hereby is AFFIRMED.

       Plaintiff-Appellant Ohio Casualty Insurance Company (“Ohio Casualty”) appeals from an

order of the District Court for the Southern District of New York (Jones, J.), entered May 26,

2009, denying Ohio Casualty’s motion for summary judgment and granting summary judgment

to Defendant-Appellee Transcontinental Insurance Company (“Transcontinental”). Ohio

Casualty brought an action for indemnification against Transcontinental, alleging that, under the

terms of various insurance policies issued by the parties, Transcontinental was responsible for

paying the $6.07 million Ohio Casualty contributed towards settlement of a wrongful death

lawsuit. Ohio Casualty also alleged that Transcontinental breached its fiduciary duty and acted in

bad faith during the settlement negotiations. The district court found that the antisubrogation

doctrine barred Ohio Casualty’s indemnification claim and found that Ohio Casualty had not

demonstrated that Transcontinental had acted with gross disregard to Ohio Casualty’s interests

during settlement negotiations. We assume the parties’ familiarity with the underlying facts and

procedural history of the case.




                                                -2-
       This court reviews a district court’s grant of summary judgment de novo, applying the

same standards as the district court. Belfi v. Prendergast, 191 F.3d 129, 135 (2d Cir. 1999).

Summary judgment is appropriate only where the parties’ submissions “show that there is no

genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of

law.” Fed. R. Civ. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). We may

affirm the judgment of the district court on any ground appearing in the record. Shumway v.

United Parcel Serv., 118 F.3d 60, 63 (2d Cir. 1997).

       This suit arises from a June 22, 1999, incident in which Richard Wersan, an employee of

Wildman & Bernhardt Construction, Inc. (“Wildman”), sustained bodily injuries that led to his

death while working at a construction site located on the property of Downtown Development,

LLC (“Downtown”) in New York City. Wersan’s survivors brought an action (“the underlying

action”) against Downtown seeking damages for personal injury, wrongful death, and pecuniary

loss. Downtown subsequently impleaded Wildman, seeking equitable contribution, common law

indemnification, and contractual indemnification. The third-party complaint alleged that

Downtown was not negligent with respect to Wersan’s injuries and that all of the damages

claimed should be passed through to Wildman. The parties to this appeal do not contest that

liability in the underlying action rests with Wildman. Ultimately, the underlying action was

settled for $8.8 million. In funding the settlement, Transcontinental paid $1 million and Ohio

Casualty paid $6.07 million.1




       1
        The remainder of the settlement was paid on behalf of secondary defendants not
involved in the present matter.

                                                -3-
       Both Ohio Casualty and Transcontinental had issued insurance policies to Wildman,

naming Downtown as an “additional insured” on two of them. Ohio Casualty’s indemnification

claim in this case depends on its ability to “step into the shoes” of Downtown and demand

indemnification from Transcontinental as Wildman’s primary insurer. “Subrogation . . . entitles

an insurer to ‘stand in the shoes’ of its insured to seek indemnification from third parties whose

wrongdoing has caused a loss for which the insurer is bound to reimburse.” N. Star Reins. Corp.

v. Cont’l Ins. Co., 82 N.Y.2d 281, 294 (1993). The New York Court of Appeals has made clear

that “[a]n insurer, however, has no right of subrogation against its own insured for a claim arising

from the very risk for which the insured was covered.” Id. at 294.

       Ohio Casualty issued an umbrella liability insurance policy to Wildman (“the umbrella

policy”) which provides $9 million of coverage in excess of the stated limits of the primary

policies listed on its “Schedule of Underlying Policies.” That schedule includes the two policies

Transcontinental issued to Wildman, a “Commercial General Liability” policy with a $1 million

limit (“the general liability policy”), and a “Workers’ Compensation/Employers Liability”

insurance policy (“the WC/EL policy”) with a $100,000 per-occurrence limit. The employers’

liability policy provides Wildman with two types of insurance coverage: (1) for benefits it might

become obligated to pay to its employees under New York Worker’s Compensation Law and (2)

for common law contribution or indemnity claims that might be asserted against it in court as a

result of injuries suffered by employees. Downtown is listed as an “additional insured” on both

Ohio Casualty’s umbrella policy and Transcontinental’s general liability policies, but not on

Transcontinental’s WC/EL liability policy.



                                                -4-
       The question before us, then, is whether, via the umbrella policy, Ohio Casualty insured

Wildman for the risk at issue—the liability incurred as a result of Wersan’s death (“the Wersan

liability”). That question can only be answered through interpretation of an endorsement in the

umbrella policy, which states, in full, that “[a]ny reference to Workers’ Compensation or

Employers’ Liability is strictly applicable to employees who are not subject to New York

Workers’ Compensation Law.” Ohio Casualty asserts that this endorsement excludes the Wersan

liability from coverage under the umbrella policy.

       The district court, however, read the endorsement to exclude only claims “brought

pursuant to the Workers’ Compensation Law.” Ohio Cas. Ins. Co. v. Transcon. Ins. Co., No.

05-cv-6432, op. at 9 (S.D.N.Y. May 26, 2009). Thus, the district court reasoned, because

Wersan’s claims were not brought under the Workers’ Compensation Law, the

endorsement—and Ohio Casualty’s umbrella policy in general—did not exclude the Wersan

liability from coverage. Id. at 9-10. Transcontinental reiterates this interpretation in its brief to

this Court.

       We agree with the district court that the endorsement does not exclude coverage for the

Wersan liability, but on a different reading of the relevant language in the policy – a reading that

is informed by an analysis of New York law that is different from the district court’s. The

district court interpreted the New York endorsement in the umbrella policy to exclude “only

those claims that arise under the Workers’ Compensation law (those claims for which the

WC/EL Policy provides limitless primary coverage).” Id. at 9 n.6. We agree with the district

court that the New York endorsement was applicable to the coverage under the policy because of



                                                  -5-
New York’s limitless coverage requirements, and it should be interpreted in that context. As we

read the language of the endorsement, the umbrella policy does not provide coverage for

employers’ liability or workers’ compensation claims to the extent those claims: (1) would be

covered by the WC/EL policy; and (2) arise with respect to employees who are covered by the

New York Workers’ Compensation Law.

       This reading is consonant with New York law regarding insurance for

employment-related risks. Under New York law, insurers are not permitted to limit their

coverage for workers’ compensation or employers’ liability, which are distinct concepts. See

Oneida Ltd. v. Utica Mut. Ins. Co., 263 A.D.2d 825, 826 (3d Dep’t 1999) (noting that, under

New York law, a standard workers’ compensation policy “requires unlimited coverage for an

employer’s obligation to pay statutory benefits[,] [i.e., benefits under the Workers’

Compensation Law] . . . [and] ‘employer’s liability’, i.e., liability for damages imposed on an

employer by law [other than] damages under the Workers’ Compensation Law.”). Under Ohio

Casualty’s theory it is reasonable to read the endorsement in its umbrella policy as excluding

workers’ compensation and employers’ liability coverage for all employees subject to New York

Workers’ Compensation Law, because, by law, the employers’ liability policy issued by

Transcontinental provides unlimited coverage in this regard. Pl. Br. 5-6. The district court

accepted Ohio Casualty’s argument that coverage for claims under the New York Workers’

Compensation Law must be unlimited, and on that basis it interpreted the New York

endorsement in the umbrella policy as addressing such claims. What the district court did not

appreciate is that New York law requires unlimited coverage for claims arising not only for



                                                -6-
damages under the Workers’ Compensation Law but also for other “damages imposed on an

employer by law” with respect to employees who are covered by the Workers’ Compensation

Law. These latter claims include those for common law indemnification, and the third-party

complaint by Downtown against Wildman in the underlying action contained, among other

things, common law indemnification claims, which would also be excluded by the New York

endorsement’s reference to employers’ liability.

       Nonetheless, we affirm the judgment of the district court because the settlement in the

underlying action also served to settle contractual indemnification claims between Downtown

and Wildman. Damages imposed by a contractual obligation are different from “damages

imposed on an employer by law,” and because contractual indemnity claims would therefore not

be subject to New York’s limitless coverage requirement and are not covered by the WC/EL

policy, the New York endorsement in the umbrella policy does not apply to exclude them from

coverage. Any contractual indemnity claims against Wildman in excess of the $1 million

coverage provided by the general liability policy would therefore be covered only by the umbrella

policy. The resulting coverage scheme thus makes perfect sense both internally and in the

context of New York law: (1) Transcontinental’s general liability policy covers, inter alia,

contract-based claims resulting from bodily injury up to the $1 million limit, but not other claims

resulting from bodily injury; (2) Transcontinental’s WC/EL policy provides unlimited coverage

for workers’ compensation claims and for employers’ liability claims (except employers’ liability

arising from contractual obligation); and (3) Ohio Casualty’s umbrella policy provides coverage




                                                -7-
up to its $9 million limit for any liability not covered by the other two policies, including any

contractual indemnification claims not fully paid for by the general liability policy.

       As the New York Court of Appeals explained in North Star, absent the antisubrogation

rule, a “mutual insurer, as subrogee of the owner, c[ould] fashion the litigation so as to minimize

its liability.” 82 N.Y.2d at 296. Specifically, “[b]y failing to assert a contractual indemnification

claim on the owner’s behalf, the insurer c[ould] trigger coverage under other insurance policies ...

such as a workers’ compensation . . . policy.” Id. Here, the antisubrogation rule prohibits Ohio

Casualty from pursuing the present litigation as though the contractual claims between its two

insureds did not exist. This reasoning is consistent with that employed by the Appellate Division

in Maksymowicz v. New York City Bd. of Educ., 232 A.D.2d 223 (1st Dep’t 1996). In that case,

the owners’ third-party complaint against the employer was dismissed as barred by the

antisubrogation rule. Id. at 223. The owners’ insurer, attempting to subrogate through the

owners, argued that

       the antisubrogation rule does not apply since the policy excludes coverage for work-
       related claims by an employee of the employer and that indemnity against the
       employer, therefore, is not being sought for the very risk for which the employer was
       covered under the policy, but rather for a risk for which the employer was covered
       under another policy with another insurer, namely, its workers’ compensation policy.

Id. at 223-24. The Appellate Division rejected the insurer’s argument, noting that there was (just

as there is in this case) an “insured contract” clause stating that the exclusion for employees’

injuries did not apply to liability assumed through contract, and that the third-party action was an

attempt to avoid that coverage. Id. at 224; see also Morales v. City of New York, 239 A.D.2d

566, 567 (2d Dep’t 1997) (“insured contract” clause in general liability policy and “written



                                                 -8-
contract” exception to exclusion in excess policy resulted in claim for indemnification being a

claim against insurer’s own insured, and thus barred by antisubrogation rule). The

antisubrogation rule stands as a complete bar to recovery; this is true even if we view Ohio

Casualty’s claim, as it suggests, as one for equitable contribution, because New York law does

not distinguish, for purposes of the antisubrogation rule, between subrogation claims brought

directly against an insured and claims brought against a common insurer. See Washington v.

New York City Indus. Dev. Agency, 215 A.D.2d 297, 299 (1st Dep’t 1995); Avalanche Wrecking

Corp. v. New York State Ins. Fund, 211 A.D.2d 551, 552-53 (1st Dep’t 1995).

        Ohio Casualty also purports to appeal the district court’s grant of summary judgment as to

the claim for breach of fiduciary duty and bad faith. In its briefs, however, Ohio Casualty only

cites general legal propositions regarding an insurance carrier’s obligation to exercise good faith

with respect to both its insured and an excess insurer. Ohio Casualty offers no evidence that

Transcontinental has done anything more than defend its position that it was not obligated to

contribute more than $1 million to the settlement. We affirm the district court’s dismissal of this

claim as well.

        Accordingly, having considered all of the parties’ arguments, we AFFIRM the judgment

of the district court.

                                              FOR THE COURT:
                                              CATHERINE O’HAGAN WOLFE, CLERK




                                                -9-
