07-4443-cv General Star v. Universal Fabricators, Inc., et al.

1 UNITED STATES COURT OF APPEALS

2 FOR THE SECOND CIRCUIT

3 August Term, 2008

4 (Argued: September 3, 2008 Decided: November 5, 2009 5 Amended: December 28, 2009) 6 7 Docket No. 07-4443-cv

8 -------------------------------------

9 GENERAL STAR NATIONAL INSURANCE CO.,

10 Defendant-Cross-Defendant-Cross-Claimant-Appellant,

11 - v -

12 UNIVERSAL FABRICATORS, INC., MUTUAL MARINE OFFICE INC., NEW YORK 13 MARINE AND GENERAL INSURANCE COMPANY,

14 Defendants-Cross-Defendants-Cross-Claimants-Appellees,

15 AMERICAN ALTERNATIVE INSURANCE CORPORATION,

16 Defendant-Cross-Defendant-Counter-Claimant,

17 NATIONAL UNION FIRE INSURANCE COMPANY OF LOUISIANA, A1 MARINE 18 ADJUSTERS, INC., NAVIGATORS INSURANCE SERVICES OF TEXAS, INC., 19 MARINE OFFICE OF AMERICA CORPORATION,

20 Plaintiffs-Counter-Defendants.

21 -------------------------------------

22 Before: SACK and KATZMANN, Circuit Judges, and RAKOFF, District 23 Judge.*

24 Appeal from a judgment of the United States District

25 Court for the Southern District of New York (Shira A. Scheindlin,

26 Judge). The district court granted summary judgment against the

27 appellant, General Star National Insurance Co., ruling that it

* The Honorable Jed S. Rakoff, United States District Judge for the Southern District of New York, sitting by designation. 1 was bound by the terms of an excess insurance policy it had

2 issued to contribute to the satisfaction of a state-court

3 judgment of liability in a personal injury action against two

4 entities for whom the insured had been a contractor at the time

5 of the injury. We conclude that the district court erred in

6 deciding that the state-court judgment established legal

7 liability against the insured. We therefore vacate the judgment

8 and remand for the district court to consider in the first

9 instance whether liability was established in some other manner

10 such that an "ultimate net loss" for which General Star was

11 liable pursuant to General Star's insurance policy arose.

12 Vacated and remanded.

13 CHRISTOPHER BRADLEY, Marshall, Conway, 14 Wright & Bradley, P.C. (Michael S. 15 Gollub, Kenneth Mauro, Mauro, Goldberg & 16 Lilling LLP, of counsel), New York, NY, 17 for Defendant-Cross-Defendant-Cross- 18 Claimant-Appellant.

19 PATRICK W. BROPHY, McMahon, Martine & 20 Gallagher, LLP, Brooklyn, NY, for 21 Defendants-Cross-Defendants-Cross- 22 Claimants-Appellees.

23 SACK, Circuit Judge:

24 Defendant-Cross-Defendant-Cross-Claimant-Appellant

25 General Star National Insurance Co. ("General Star") appeals from

26 a memorandum opinion and order dated September 14, 2007, by the

27 United States District Court for the Southern District of New

28 York (Shira A. Scheindlin, Judge) granting summary judgment for

29 Defendants-Cross-Defendants-Cross-Claimants-Appellees, the New

30 York Marine and General Insurance Company and Mutual Marine

2 1 Office, Inc. (together, "Mutual Marine"). The question presented

2 on appeal is whether General Star, an excess insurer, is required

3 to reimburse Mutual Marine for the amount Mutual Marine paid

4 above its policy limit to cover a portion of a state-court

5 personal injury judgment.

6 In answering this question in the affirmative, the

7 district court concluded that a state-court judgment against the

8 owner of and stevedore at the ship terminal where the personal

9 injury occurred -- the City of New York (the "City") and the

10 International Terminal Operating Company ("ITO"), respectively --

11 constituted an adjudication of liability against General Star's

12 insured, Universal Fabricators, Inc. ("UFI"), a contractor doing

13 work at the time and place of the injury. UFI was insured by

14 both Mutual Marine for the first million dollars of loss, and

15 General Star for four million dollars above that amount, under

16 General Star National Insurance Company umbrella policy No.

17 NUG-332963C ("GenStar Policy"). Because under the terms of the

18 GenStar Policy, an "adjudication" that established an amount that

19 the insured was legally obligated to pay constituted an "ultimate

20 net loss," which required General Star to reimburse its insured,

21 the district court decided that General Star was obligated to pay

22 Mutual Marine for the amount it had paid above its primary

23 insurance policy limit.

24 We conclude that the district court erred in deciding

25 that General Star's insured was liable for the amount at issue as

26 a result of the state court personal injury judgment. Because

3 1 neither the district court nor the parties addressed in substance

2 the issue of whether General Star's insured was legally liable

3 for some other reason, we vacate the judgment of the district

4 court and remand with instructions for the court to resolve this

5 issue and decide whether a trial with respect thereto is

6 warranted.

7 BACKGROUND

8 The New York City Passenger Ship Terminal (the

9 "Terminal") is owned by the City and operated in part by ITO. In

10 1999, ITO retained UFI to perform repair work at the Terminal.

11 The contract between ITO and UFI contained a rider which

12 provided, among other things, that UFI would (a) procure general

13 liability insurance coverage in the amount of five million

14 dollars per occurrence, with the insurance policy naming ITO and

15 the City as additional insureds, and (b) "indemnify, defend and

16 hold harmless" ITO and the City from and against all claims

17 arising from any negligent act or omission by UFI that was

18 related to the repair work. As required by the rider, UFI

19 purchased a primary general liability insurance policy in the

20 amount of one million dollars from Mutual Marine and a secondary

21 excess policy in the amount of four million dollars from General

22 Star.

23 The GenStar Policy provided that General Star would pay

24 for "ultimate net loss in excess of the retained limit because of

25 bodily injury or property damage to which the policy applies."

4 1 It also stated that: "Ultimate net loss means the total amount of

2 damages for which the Insured is legally liable. Ultimate net

3 loss may be established by adjudication, arbitration or a

4 compromise settlement to which [General Star] ha[s] previously

5 agreed in writing."

6 On February 26, 1999, Ronald Ernish, a UFI employee

7 performing repair work at the Terminal, was seriously injured

8 when he fell from a makeshift scaffold or ladder that collapsed

9 under his weight. Ernish and his wife brought suit in Supreme

10 Court, New York County, not against UFI, Mr. Ernish's employer --

11 perhaps because they would have been confined to a workers'

12 compensation claim had they sought to recover from UFI1 -- but

13 against ITO and the City (the "Ernish lawsuit"). ITO and the

14 City then filed a third-party complaint against UFI seeking

15 indemnification (the "third-party action").

16 General Star was informed of the Ernish lawsuit and the

17 third-party action against UFI. After concluding that it was

18 unlikely UFI would be exposed beyond Mutual Marine's million-

19 dollar policy limit, General Star decided to allow Mutual Marine,

1 See

, 29; see also, e.g., Fung v. Japan Airlines Co., Ltd.,

,

(2007) ("Workers' Compensation Law §§ 11 and 29(6) restrict an employee from suing his or her employer . . . for an accidental injury sustained in the course of employment."); Pereira v. St. Joseph's Cemetery,

,

(2d Dep't 2008) ("[A]llegations that the employer exposed the employee to a substantial risk of injury have been held insufficient to circumvent the exclusivity of the remedy provided by the Workers' Compensation Law.") (internal quotation marks omitted). 5 1 UFI's primary insurer, to defend UFI in the third-party action,

2 and so informed Mutual Marine in two notes dated May 25 and June

3 1, 2000, respectively. With regard to its conclusion that UFI

4 was unlikely to be exposed beyond Mutual Marine's million-dollar

5 policy limit, General Star instructed Mutual Marine in the first

6 note that "[s]hould future developments lead you to believe

7 otherwise, please notify us immediately."

8 Before trial began in the Ernish lawsuit against ITO

9 and the City, Mutual Marine's attorneys executed a settlement

10 agreement (the "First Agreement") with both ITO and the City,

11 purportedly on behalf of UFI, settling the third-party claim ITO

12 and the City had asserted against UFI. The First Agreement

13 provided that ITO and the City would discontinue their third-

14 party claim against UFI, and that ITO and the City would pay

15 twenty-five percent and UFI would pay seventy-five percent of

16 whatever amount was ultimately awarded to Ernish against ITO and

17 the City in the Ernish lawsuit.

18 It is not disputed that Mutual Marine knew of and

19 participated in the First Agreement. General Star, however,

20 neither knew of nor participated in it. And according to UFI and

21 General Star, Mutual Marine's counsel entered into the First

22 Agreement on UFI's behalf without UFI's consent.

23 The state trial court directed a verdict in the Ernish

24 lawsuit in favor of the plaintiffs against ITO and the City on

25 liability pursuant to

, which provides that

26 "[a]ll contractors and owners and their agents . . . shall cause 6 1 to be furnished or erected . . . scaffolding . . . which shall be

2 so constructed, placed and operated as to give proper protection

3 to a person so employed" in repairing a building or structure,

4 among other things.

; see also Ernish v.

5 City of N.Y.,

,

(1st Dep't

6 2003). A jury, left to decide the amount of damages, returned an

7 award of three million dollars against ITO and the City. The

8 amount apparently came as something of a surprise to the parties

9 and their insurers. On appeal to the Appellate Division, the

10 directed verdict was affirmed but the judgment was reduced to

11 $2,175,000 plus interest -- still an amount substantially

12 exceeding the parties' and insurers' initial expectations.

13 ITO and the City were insured by the National Union

14 Fire Insurance Company of Louisiana, A1 Marine Adjusters, Inc.,

15 the Marine Office of America Corporation, and Navigators

16 Insurance Services of Texas, Inc. (collectively "National

17 Union"). National Union initially paid Ernish twenty-five

18 percent of the judgment to satisfy the obligation of ITO and the

19 City -- the defendants in the Ernish lawsuit -- under the First

20 Agreement. Mutual Marine, in turn, satisfied -- up to its policy

21 limit of one million dollars plus interest -- part of UFI's

22 three-quarters share of the judgment against ITO and the City

23 under the First Agreement. $650,584.19 of UFI's three-quarters

24 share under the First Agreement remained unpaid. The parties

25 looked to General Star to pay that amount under its excess

26 policy, but General Star declined, arguing that neither it nor 7 1 UFI was bound by the First Agreement, and that it therefore had

2 no liability for payment of any of UFI's 75% share of the

3 judgment, which share had been decided upon in the First

4 Agreement. See, e.g., Letter from General Star to Mutual Marine,

5 at 1 (June 19, 2002) ("What remains clear and indisputable -- in

6 fact Mutual Marine does not even argue to the contrary -- is that

7 neither General Star nor Universal Fabricators ever authorized

8 Mutual Marine to execute the so-called [First Agreement] on their

9 behalf.").

10 Because the judgment was entered against ITO and the

11 City, their insurer, National Union, then paid the remainder of

12 the judgment. National Union thereupon commenced an action for a

13 declaratory judgment against UFI, Mutual Marine, and General Star

14 to the effect that National Union was due reimbursement for the

15 money it paid in excess of the twenty-five percent share of the

16 Ernish judgment that was apportioned to ITO and the City under

17 the First Agreement. General Star removed the action, which was

18 originally filed in New York County Supreme Court, to the United

19 States District Court for the Southern District of New York on

20 the basis of diversity of citizenship.

21 After the case was removed, Mutual Marine, UFI, and

22 National Union, entered into two additional settlement

23 agreements. Mutual Marine and UFI entered into a "Settlement and

24 Cooperation Agreement" (the "Second Agreement"), under which

25 Mutual Marine agreed to indemnify and defend UFI in National

26 Union's declaratory judgment action. In exchange, UFI agreed

8 1 that "to the extent [Mutual Marine] pays any judgment or verdict

2 against UFI in the [National Union] Litigation, or pays any

3 settlement of any claim against UFI in the Litigation or for any

4 further liability under the [First Agreement], [Mutual Marine]

5 shall be subrogated to any and all rights of UFI, and/or be

6 assigned such rights by UFI, including any right to pursue claims

7 against GenStar for amounts paid and for attorneys fees and

8 costs . . . ." Second Agreement, ¶ 4.

9 Then Mutual Marine and National Union entered into a

10 "Settlement and Cooperation Agreement" (the "Third Agreement"),

11 under which Mutual Marine paid National Union $700,000 for the

12 amount National Union had paid to satisfy UFI's obligation to ITO

13 and the City under the First Agreement, and National Union

14 dismissed its suit against UFI and Mutual Marine, assigning the

15 rights it had asserted against General Star in that lawsuit to

16 Mutual Marine.

17 Following the Second and Third Agreements, then, UFI

18 has been indemnified and National Union has been paid in full.

19 Neither of those parties has an interest in the present appeal.

20 Mutual Marine maintains its suit against General Star for the

21 excess over its one-million-dollar policy limit that it paid to

22 National Union following the Third Agreement to cover UFI's

23 alleged obligation under the First Agreement.

24 Mutual Marine, as directed by the district court, filed

25 a motion for summary judgment against General Star on the limited

26 issue of whether General Star was directly obligated under the

9 1 First Agreement to pay the remainder of UFI's seventy-five

2 percent share. In an opinion and order entered July 18, 2007,

3 the district court denied summary judgment, finding that General

4 Star was not obligated to contribute to UFI's three-fourths share

5 directly pursuant to the First Agreement. Nat'l Union Fire Ins.

6 Co. of La. v. Universal Fabricators, Inc., No. 05 Civ. 3418, 2007

, at *5,

, at *22-23

8 (S.D.N.Y. July 18, 2007) ("Nat'l Union I"). The court concluded

9 that because General Star was not aware of, did not take part in,

10 and was not a party to the First Agreement, it was not directly

11 bound by its terms.

The opinion explicitly refrained from

12 addressing whether General Star was obligated under the terms of

13 the GenStar Policy itself to pay the amount in dispute, and

14 invited General Star to move for summary judgment on that issue.

15 Nat'l Union I,

at *6,

16 at *26-27 ("The present motion for summary judgment was made on

17 the limited issue of whether GenStar was bound under the terms of

18 the First Agreement . . . . As a result, this Opinion does not

19 address the remaining issue of whether GenStar is bound to pay

20 under the terms of its excess insurance policy. GenStar may move

21 for summary judgment on this issue.").

22 General Star did just that. But in a memorandum

23 opinion and order entered September 14, 2007, the district court

24 denied General Star's motion and, instead, entered summary

25 judgment for Mutual Marine. The court found that although

26 General Star was not directly bound by the First Agreement, it

10 1 was nonetheless obligated to reimburse Mutual Marine under the

2 terms of the GenStar Policy. Nat'l Union Fire Ins. Co. of La. v.

3 Universal Fabricators, Inc., No. 05 Civ. 3418,

,

4 at *2-3,

, at *5-11 (S.D.N.Y. Sept.

5 14, 2007) ("Nat'l Union II").

6 The district court noted that the GenStar Policy

7 provided that General Star would pay in the event of a judgment

8 in excess of Mutual Marine's policy limit for "ultimate net

9 loss," which, the policy stated, "'may be established by

10 adjudication, arbitration or a compromise settlement to which

11 [General Star] ha[s] previously agreed in writing.'" Nat'l Union

12 II,

at *1,

at *2

13 (quoting GenStar Policy at ¶ 23). The court found that UFI had

14 agreed to "indemnify, defend and hold harmless ITO and the City,"

15

at *2,

at *5, and

16 concluded that the directed verdict by the New York Supreme Court

17 against ITO and the City was "[u]nder any definition of the

18 term, . . . an 'adjudication' of liability as to ITO and the City

19 (and ultimately, of UFI if and when called upon to indemnify ITO

20 and the City),"

at *2,

68100 at *6.

22 The district court decided that because the

23 Ernish judgment was an adjudication with respect to ITO and the

24 City, who were named in the GenStar Policy as additional

25 insureds, and because in the district court's view the Ernish

26 judgment was also an adjudication with respect to UFI, General

11 1 Star was liable to pay the excess over Mutual Marine's policy

2 limit under the terms of the GenStar Policy, which provided that

3 an "adjudication" establishing "ultimate net loss" was a covered

4 loss.

at *2,

at *6.

5 Summary judgment was entered for Mutual Marine.

6 General Star appeals.

7 DISCUSSION

8 The judgment in favor of Ernish has been satisfied.

9 The question on appeal is whether Mutual Marine must bear the

10 full cost -- including a significant amount that exceeds its

11 million-dollar policy limit -- that it paid to National Union to

12 cover the share of the Ernish judgment UFI allegedly owed under

13 the terms of the First Agreement, or whether General Star is

14 obligated to reimburse Mutual Marine for that excess. The

15 district court found the latter, that General Star was obligated

16 to reimburse Mutual Marine based on the judgment against ITO and

17 the City, both because ITO and the City were additional insureds

18 under the GenStar Policy and because the district court

19 considered the judgment effectively also to be an adjudication

20 against UFI, General Star's primary insured. We conclude that

21 the district court erred in holding General Star obligated to

22 reimburse Mutual Marine on either of these grounds. Because

23 there remains a question, substantially unaddressed in the

24 district court, as to whether General Star may be obligated to

25 reimburse Mutual Marine on other grounds, i.e., whether liability

12 1 was established against UFI by means other than the judgment

2 against ITO and the City that would obligate General Star to pay

3 -- we vacate the summary judgment and remand the cause for

4 further proceedings.

5 I. Standard of Review and Applicable Substantive Law

6 "We review a district court's grant of summary judgment

7 de novo, construing the evidence in the light most favorable to

8 the non-moving party and drawing all reasonable inferences in its

9 favor." Allianz Ins. Co. v. Lerner,

(2d Cir.

10 2005). Summary judgment "should be rendered if the pleadings,

11 the discovery and disclosure materials on file, and any

12 affidavits show that there is no genuine issue as to any material

13 fact and that the movant is entitled to judgment as a matter of

14 law." Fed. R. Civ. P. 56(c); see also Roe v. City of Waterbury,

15

(2d Cir. 2008) (quoting Rule 56(c)). An issue of

16 fact is genuine if "the evidence is such that a reasonable jury

17 could return a verdict for the nonmoving party." Roe,

at 35 (citation and internal quotation marks omitted). A fact is

19 "material" if it "might affect the outcome of the suit under the

20 governing law." Id. (citation and internal quotation marks

21 omitted).

22 Federal jurisdiction over this case is based on

23 diversity of citizenship. In the absence of any contractual

24 obligation of the parties to the contrary, we therefore apply the

13 1 substantive law of the forum state, New York. See, e.g., Omega

2 Eng'g, Inc. v. Omega, S.A.,

(2d Cir. 2005).

3 II. Liability under the First Agreement Alone

4 The district court correctly decided that General Star

5 was not directly obligated to reimburse Mutual Marine under the

6 First Agreement, which settled the third-party action brought by

7 ITO and the City against UFI.1 See Nat'l Union I,

8 at *6,

at *26. As the district court

9 pointed out, under New York law, a settlement agreement "'is not

10 binding upon a party unless it is in a writing subscribed by him

11 or his attorney . . . .'"

at *5, 2007 U.S. Dist.

at *18-19 (quoting New York Civil Practice Laws and

13 Rules § 2104). Because the First Agreement was not subscribed to

14 by General Star or its attorney or other agent, General Star is

15 not directly bound by its terms. See, e.g., Bonnette v. Long

16 Island College Hosp.,

,

,

17

(2004).

18 III. Liability under the GenStar Policy

19 The harder question is whether General Star is bound by

20 the terms of its own policy with UFI to reimburse Mutual Marine.

21 Under the terms of the GenStar policy, General Star was obligated

1 As explained below, this finding is distinct from the question of whether General Star may be indirectly obligated by the First Agreement to reimburse Mutual Marine. Such would be the case if the First Agreement established UFI's liability. That question was not addressed in substance by the district court. 14 1 to pay its insured for "ultimate net loss" in excess of the

2 primary insurer's limit. According to the policy:

3 Ultimate net loss means the total amount of 4 damages for which the Insured is legally 5 liable. Ultimate net loss may be established 6 by adjudication, arbitration or a compromise 7 settlement to which we have previously agreed 8 in writing.

9 GenStar Policy at ¶ 23.

10 While General Star appears to have assumed that under

11 Paragraph 23, the legal liability binding an insured could only be

12 established by an adjudication, arbitration, or compromise

13 settlement to which General Star agreed,2 that is not what the

14 provision says. It defines "ultimate net loss" as "the total

15 amount of damages for which the Insured is legally liable." It

16 then provides that "ultimate net loss," thus defined as an

17 "amount," may be established by "adjudication, arbitration or a

18 compromise settlement to which [General Star] ha[s] previously

19 agreed in writing." In other words, as Mutual Marine appears to

20 acknowledge,3 it is the amount of damages for which the insured is

21 legally liable that "may be established by adjudication,

22 arbitration or a compromise settlement to which [General Star]

2 See, e.g., Appellant's Reply Br. 4 ("[F]or coverage to exist in the first instance, there must be damages for which UFI became legally liable because of 'an adjudication, arbitration or compromise settlement to which General Star previously agreed in writing." (internal quotation marks and alterations omitted, emphasis added)). 3 See Appellee's Br. 28 ("[N]othing in the GenStar policy requires a final adjudication to be entered as a judgment against the insured; only that adjudication (or arbitration or approved settlement) establish the amount.") (emphasis added). 15 1 ha[s] previously agreed in writing," not the legal liability

2 itself. The establishment of liability is the predicate to the

3 applicability of the provision rather than being governed by it.4

4 The preliminary issue that must be addressed on this

5 appeal, then, is whether General Star's insured was legally liable

6 for any amount, which liability would trigger the provision

7 concerning the establishment of the amount of such liability. In

8 other words, only if General Star's insured was legally liable

9 does the question arise as to whether the amount of that liability

10 was established in a manner consonant with the terms of the

11 GenStar Policy.

12 A. Establishment of Liability by the Ernish Lawsuit Alone.

13 The district court decided that the Ernish lawsuit,

14 which resulted in the $2,175,000 judgment of liability against ITO

15 and the City, was an adjudication of liability as to both ITO and

16 the City and, "ultimately," as to UFI "if and when called upon to

17 indemnify ITO and the City." Nat'l Union II,

at

4 Indeed, General Star's interpretation of Paragraph 23 to mean that the legal liability binding an insured, in addition to the amount of damages for which the insured is liable, can only be established by an adjudication, arbitration, or General Star- approved settlement, would render extraneous several other provisions in the GenStar Policy. For example, Section V, Paragraph 5(d) of the policy provides that "[n]o insureds will, except at their own cost, . . . assume any obligation . . . without our consent." That injunction would be redundant if the very definition of Ultimate Net Loss, set forth in Paragraph 23, limited the universe of ways to establish UFI's liability to adjudication, arbitration, and General Star-approved settlements. See also GenStar Policy Section I, Coverage B, ¶ 2(a)(4) (providing limited exclusion from coverage for liability assumed by the insured in a contract or agreement). 16 1 *2,

at *6. The district court

2 concluded that General Star was obligated to reimburse Mutual

3 Marine based on each of these alleged adjudications of liability.

4 1. Adjudication as to ITO and the City.

5 The district court was obviously correct in finding that

6 the Ernish lawsuit was an adjudication of liability as to ITO and

7 the City, against whom the judgment was entered. It does not

8 follow, however, that General Star is obligated to reimburse

9 Mutual Marine on the basis of that adjudication.

10 Mutual Marine brought this lawsuit against General Star

11 based on UFI's rights, to which it had succeeded, not those of ITO

12 and the City. Only the seventy-five percent share ostensibly

13 apportioned to UFI in the First Agreement has ever been at issue

14 in the litigation against General Star, and not the twenty-five

15 percent share apportioned to ITO and the City. Indeed, three of

16 the five cross-claims filed by Mutual Marine against General Star

17 are based explicitly on rights belonging to UFI. See Am. Ans. to

18 Sec. Am. Compl. ¶¶ 32-64.

19 The fourth cross-claim includes mention of rights

20 allegedly belonging to ITO and the City and their insurer,

21 National Union, against General Star. See Am. Ans. to Sec. Am.

22 Compl. ¶¶ 143-57. But in its motion papers before the district

23 court, Mutual Marine explicitly disavowed the notion that it was

24 basing a claim against General Star on claims belonging to ITO and

17 1 the City.5 To the extent that the fourth cross-claim mentions any

2 rights of ITO and the City or their insurer against General Star,

3 it does so as background for its assertion that the First

4 Agreement -- which the district court has already correctly found

5 not to bind General Star directly -- was beneficial to General

6 Star. See generally Am. Ans. to Sec. Am. Compl. ¶¶ 143-157; see,

7 e.g., Am. Ans. to Sec. Am. Compl. ¶ 146 ("By virtue of the added

8 Insured status of New York City and ITO . . . the [First

9 Agreement] . . . reduced by 25% the possibility that any judgment

10 would pierce [General Star's] excess umbrella layer of

11 coverage."). Indeed, Mutual Marine's motion papers refer

12 throughout to UFI, not ITO and the City, as the "insured."

13 Finally, the fifth cross-claim asserts a nebulous

14 "independent right" against General Star allegedly belonging to

15 Mutual Marine. Am. Ans. to Sec. Am. Compl. ¶ 159. It is not

16 alleged to have ever belonged to ITO or the City.

17 Thus Mutual Marine's position throughout this litigation

18 has been that General Star is liable to it based on "its insuring

19 agreement with its insured UFI [which] obligated it to pay the

20 sums UFI became obligated to pay as a result of an unquestionably

5 See Mem. of Law in Opp'n to Mot. for Summ. J. at 20, Nat'l Union Fire Ins. Co. of La. v. Universal Fabricators, Inc., et al., No. 05 Civ. 3418 (SAS) (S.D.N.Y. Aug. 29, 2007) (Doc. No. 61) ("[General Star argues] that Mutual Marine acquired no rights against [General Star] from ITO's subrogated carriers. [That argument] can be put aside because it is concededly correct, since those carriers, as subrogees of the City and ITO, never had any rights against [General Star], only against UFI."); see also

("Essentially . . . Mutual Marine's rights vis-a- vis [General Star] are those obtained through common law subrogation from their insured, UFI."). 18 1 covered loss." Mem. of Law in Opp'n to Mot. for Summ. J. at 11.

2 That continues to be Mutual Marine's position on appeal. See

3 Appellee's Br. 35 (describing Mutual Marine as seeking

4 reimbursement for "satisfy[ing] [the] judgment . . . entered

5 against UFI Fabricators, Inc.");

("Mutual Marine

6 properly showed the District Court that there was no question of

7 fact but that General Star breached its duties to UFI and that

8 Mutual Marine acquired UFI's right to recover for that breach by

9 [General Star].").

10 Mutual Marine is not pursuing any rights that may or may

11 not have belonged to ITO and the City (or their insurers) based on

12 their status as additional insureds. It is therefore immaterial

13 for purposes of this lawsuit whether General Star has ever owed

14 ITO and the City anything as additional named insureds under the

15 GenStar Policy. That is not the claim that was made. The

16 material question is whether there was an adjudication of

17 liability against UFI, for which General Star would be obligated

18 under the GenStar Policy to reimburse UFI.

19 Since Mutual Marine does not assert rights in the place

20 of ITO and the City against General Star, General Star is not

21 liable to Mutual Marine on the basis of any direct obligation

22 General Star may have had to ITO and the City arising out of the

23 adjudication in the Ernish lawsuit against them.

24 2. Adjudication as to UFI.

25 The district court also concluded that the judgment

26 against ITO and the City in the Ernish lawsuit "was an

19 1 'adjudication' of liability . . . ultimately[] of UFI if and when

2 called upon to indemnify ITO and the City." Nat'l Union II, 2007

at *2,

at *6 (parentheses

4 omitted). We disagree.

5 Following Ernish's filing of the suit against ITO and

6 the City -- as noted, he did not bring suit against UFI, his

7 employer -- ITO and the City filed a third-party action impleading

8 UFI. They claimed that they were entitled to, inter alia,

9 contractual indemnity, common law indemnity, and "added insured"

10 status. But before this third-party action was litigated to a

11 conclusion, ITO and the City reached a settlement with UFI,

12 purportedly executed on its behalf by Mutual Marine -- the First

13 Agreement -- disposing of the third-party action and dismissing

14 all claims against UFI with prejudice.6

15 By the time the Ernish suit was decided, then, UFI was

16 no longer party to it. When the state trial court directed a

17 verdict of liability against the defendants, ITO and the City, and

18 the jury thereafter awarded damages of $3 million (reduced on

19 appeal to $2,175,000), judgment was not entered against non-party

20 UFI.

6 The First Agreement provided: [A]ll claims between UFI and ITO/City in connection with the [Ernish] Lawsuit, including third-party claims, indemnity claims, contribution claims, counter-claims and cross-claims, shall be released and voluntarily discontinued with prejudice . . . . First Agreement at p. 2. 20 1 The district court thought it "puzzling" that General

2 Star would complain about the First Agreement because, in the

3 court's view, absent the First Agreement, General Star would have

4 been obligated to pay one-hundred percent of the Ernish judgment

5 in excess of Mutual Marine's policy. Nat'l Union II,

2701990 at *2,

at *7. In the Ernish

7 litigation, ITO and the City were held strictly liable for

8 Ernish's injuries under New York's scaffolding law. See N.Y.

9 Labor Law § 240(1);7 Ernish,

,

325-26. Liability pursuant to this statute is "not predicated on

11 fault: it is imputed to the owner or contractor by statute and

12 attaches irrespective of whether due care was exercised and

13 without reference to principles of negligence." Brown v. Two

14 Exch. Plaza Partners,

,

, 556

, 994 (1990) (internal citation omitted). While

16 strict liability attaches under section 240(1), "[i]t is well

17 settled that an owner or general contractor who is held strictly

7

All contractors and owners and their agents, . . . who contract for but do not direct or control the work, in the erection, demolition, repairing, altering, painting, cleaning or pointing of a building or structure shall furnish or erect, or cause to be furnished or erected for the performance of such labor, scaffolding, hoists, stays, ladders, slings, hangers, blocks, pulleys, braces, irons, ropes, and other devices which shall be so constructed, placed and operated as to give proper protection to a person so employed.

(1). 21 1 liable under Labor Law § 240(1) is entitled to full

2 indemnification from the party actually responsible for the

3 incident." Frank v. Meadowlakes Dev. Corp.,

,

4

,

(2006) (internal quotation

5 marks and citation omitted). Thus, if UFI was "actually

6 responsible" for Ernish's injuries, it could have become liable to

7 indemnify ITO and the City for the judgment against them.

8 But that outcome was uncertain. A party seeking either

9 contractual or common law indemnity must "establish that it was

10 free from any negligence and was held liable solely by virtue of

11 the statutory liability." Correia v. Prof'l Data Mgmt., Inc., 259

,

(1st Dep't 1999); see also

13 Brown,

,

,

14 (explaining that New York law "prohibit[s] indemnity agreements in

15 which owners or contractors [seek] to pass along the risks for

16 their own negligent actions to other contractors or

17 subcontractors, even if the accident was caused only in part by

18 the owner's or contractor's negligence." (emphasis in original)).

19 Therefore if UFI could prove that ITO or the City were negligent

20 in connection with the incident that caused Ernish's injuries, UFI

21 would not have been obligated to indemnify ITO and the City for

22 their losses.8

8 Indeed, the district court acknowledged General Star's argument that this uncertainty regarding ITO and the City's ability to establish UFI's liability motivated the decision to settle the third-party action. Nat'l Union II,

at *2,

at *7. 22 1 The district court found, nonetheless, and Mutual Marine

2 urges on appeal, that there was no evidence in the record of

3 negligence on the part of ITO or the City and that UFI therefore

4 would have had to indemnify them. Nat'l Union II,

5 at *2,

at *7. But the district court

6 was in no position to make that finding at the summary judgment

7 stage, as a matter of law. The question of any such negligence

8 was not before the district court and there was therefore no basis

9 for a belief that the record before the district court contained

10 all possible evidence of such negligence. Put another way, the

11 district court was making a finding in a lawsuit that was not

12 before it –- a hypothetical third-party action by ITO and the City

13 against UFI that was litigated to the finish.

14 Thus the Ernish adjudication was not tantamount to an

15 adjudication of "legal liability" on the part of the relevant

16 "insured" in this case, UFI. And without an establishment of

17 legal liability, "ultimate net loss" could not be established

18 either.

19 B. Establishment of Liability Pursuant to the First Agreement.

20 Although the Ernish adjudication did not establish the

21 legal liability of UFI for Ernish's judgment, the First Agreement

22 itself may have. If it was properly executed by Mutual Marine on

23 behalf of UFI and rendered UFI liable for three-quarters of the

24 judgment against ITO and the City, then the Ernish adjudication

25 would have determined not liability, but the amount for which UFI

26 was legally liable, thereby constituting an "ultimate net loss"

23 1 for which General Star was liable under its policy.9 In other

2 words, it is possible that the First Agreement, which preceded the

3 Ernish adjudication, provided that UFI was 75% liable for the

4 underlying accident at issue in the adjudication, and the

5 adjudication itself then determined the amount for which UFI was

6 legally liable.

7 At first blush, using the First Agreement to establish

8 the legal liability of UFI would appear to violate the condition

9 in the GenStar Policy that "[n]o insureds will, except at their

10 own cost, voluntarily make a payment, assume any obligation, or

11 incur any expense without our consent," GenStar Policy, Section V,

12 ¶ 5(d). But as Mutual Marine argues and General Star appears to

13 concede, General Star never issued a disclaimer to that effect, as

14 it was required to do under

(d)(2).10

9 The possibility that the First Agreement established the legal liability of UFI and thereby indirectly bound General Star to pay an ultimate net loss determined by the Ernish adjudication is not to be confused with the argument originally proposed by Mutual Marine and rejected by the district court in its July 18, 2007, opinion and order that General Star, a non-signatory to the First Agreement, was directly bound by the First Agreement to contribute to the three-fourths share of the Ernish judgment ostensibly apportioned to UFI by the First Agreement. The district court's rejection of that argument was correct for the reasons set forth above. 10

(d)(2) provides:

If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the 24 1 See Reyes v. Diamond State Ins. Co.,

, 827

(2d Dep't 2006) ("An insurer must give written notice

3 of a disclaimer of coverage as soon as is reasonably possible

4 [pursuant to

] after it first learns of the

5 accident or of grounds for disclaimer of liability or denial of

6 coverage. This rule applies not only to an insurer's disclaimer

7 of primary insurance coverage, but to a disclaimer of excess

8 coverage as well.") (internal quotation marks and citations

9 omitted); see also Mann v. Gulf Ins. Co.,

, 771

(2d Dep't 2004).

11 General Star argues that it was not required to disclaim

12 coverage because "[d]isclaimer pursuant to Insurance Law section

13 3420(d) is unnecessary when a claim falls outside the scope of the

14 policy's coverage portion." See Appellant's Reply Br. 3 (quoting

15 Worcester Ins. Co. v. Bettenhauser,

, 712

, 435,

(2000) (internal quotation marks

17 and alterations omitted)). But it bases this argument on the

18 notion that Section VI, Paragraph 23 of the GenStar Policy limited

19 the ways UFI's legal liability, rather than simply the amount of

20 such liability, could be established, see Appellant's Reply Br. 3-

21 4, a notion that is incorrect. As we have explained, it did not.

22 General Star does not argue that Paragraph 5(d) alone would take

23 the First Agreement "outside the scope of the policy's coverage

24 portion" such that disclaimer would be unnecessary, and such an

insured and the injured person or any other claimant.

25 1 argument would fail because Paragraph 5(d) is a self-proclaimed

2 "policy condition" that is plainly in the nature of an exclusion,

3 for which disclaimer is required, and is not part of the "coverage

4 portion" of the GenStar Policy. See Columbia Cas. Co. v. Nat'l

5 Emergency Servs., Inc.,

,

(1st

6 Dep't 2001) ("It is settled that failure by the insurer to give

7 written notice of disclaimer based on an exclusion or failure to

8 comply with a policy condition as soon as is reasonably possible

9 renders the disclaimer ineffective.") (emphasis added, internal

10 citation omitted); cf. Zappone v. Home Ins. Co.,

,

11 134-35,

,

(1982) (concluding that

12 insurer did not have to disclaim coverage for accident involving

13 automobile that was not the subject of the insurance policies in

14 question).

15 Therefore Section V, Paragraph 5(d) of the GenStar

16 Policy does not foreclose the possibility that the First Agreement

17 established UFI's liability and thereby, in conjunction with the

18 Ernish litigation, obligated General Star to reimburse Mutual

19 Marine for the excess Mutual Marine paid over its policy limit to

20 cover UFI's share of the judgment.

21 General Star also argues, however, that it was not

22 required to issue a disclaimer because "UFI[] disavowed any

23 obligation under the first settlement agreement. As such [sic],

24 this agreement could not create any obligation to disclaim

25 coverage to UFI or Mutual Marine." Appellant's Reply Br. 6

26 (emphasis in original, internal citations omitted). In letters

26 1 sent to Mutual Marine prior to litigation in this matter, UFI

2 represented that it had never authorized Mutual Marine to execute

3 the First Agreement on its behalf. The letters, also sent on

4 behalf of General Star, state that it "remains clear and

5 indisputable -- in fact Mutual Marine does not even argue to the

6 contrary -- [] that neither General Star nor [UFI] ever authorized

7 Mutual Marine to execute the so-called [First Agreement] on their

8 behalf," Jun. 19, 2002 Letter at 1, and "neither General Star nor

9 principals of [UFI] ever gave permission or express authorization

10 for Mutual Marine to execute th[e] [First Agreement] on their

11 behalf." Letter from General Star and UFI to Mutual Marine, at 1

12 (May 10, 2002). Handwritten notes allegedly written by Mutual

13 Marine's Loss Secretary prior to the execution of the Second

14 Agreement regarding National Union's action against Mutual Marine,

15 General Star, and UFI, indicate, moreover, that Mutual Marine was

16 concerned about the availability to General Star of an argument

17 that UFI never consented to the First Agreement. According to the

18 notes, "[there is] [n]o way [UFI] will be left without insurance

19 so it[']s MMO [Mutual Marine] v. Gen[eral] Star. If Gen[eral]

20 Star get[s] [UFI] on its side, [its] position will be that [Mutual

21 Marine] took upon itself to incur exposure past its limit -

22 without properly advising [UFI]." Paul Smith Handwritten Notes,

23 May 2, 2005, Declaration of Natasha Van Der Griendt in Opp. to

24 Mot. for Summ. J., Ex. M, Nat'l Union Fire Ins. Co. of La. v.

25 Universal Fabricators, Inc., No. 05 Civ. 3418 (SAS) (S.D.N.Y. Apr.

26 27, 2007) (Doc. No. 42).

27 1 Plainly, if UFI was never bound by the First Agreement,

2 that agreement could establish no legal liability on the part of

3 UFI for which General Star would be liable under the GenStar

4 Policy. In that case, there would also be no need for General

5 Star to have disclaimed. See Zappone,

, 447

6 N.Y.S.2d at 911 ("[T]he Legislature in using the words 'denial of

7 coverage' did not intend to require notice when there never was

8 any insurance in effect, and intended by that phrase to cover only

9 situations in which a policy of insurance that would otherwise

10 cover the particular accident is claimed not to cover it because

11 of an exclusion in the policy."); cf. Matter of Arbitration

12 Between State Farm Mut. Auto. Ins. Co. (Merrill),

,

13 825,

(3d Dep't 1993) ("It is true that an

14 insurance company is not subject to the timely disclaimer

15 provisions contained in [N.Y.] Insurance Law § 3420(d) where no

16 coverage existed under the policy.").

17 Because it granted summary judgment on the grounds of

18 the Ernish adjudication alone, the district court appears not to

19 have decided whether the First Agreement established the legal

20 liability of UFI and thereby obligated General Star to reimburse

21 Mutual Marine in this action in an amount determined by the

22 outcome of the Ernish adjudication. Inasmuch as the answer to

23 this question depends on the factual question of whether UFI was

28 1 ever bound by the First Agreement, we think it is a question best

2 left to the district court to answer in the first instance.11

3 C. Remaining Arguments

4 We have considered General Star's other arguments on

5 this issue and find them to be without merit.

6 IV. Mutual Marine as a "Volunteer" 7 8 General Star argues, as it did before the district

9 court, that it was entitled to summary judgment because Mutual

10 Marine was acting as a "volunteer" when it agreed to indemnify and

11 defend UFI, pursuant to the Second Agreement, and when it paid

12 National Union the $700,000 at issue, pursuant to the Third

13 Agreement. If the payment was indeed voluntary, then General Star

14 has no obligation to reimburse Mutual Marine for it. See Merch.

15 Mut. Ins. Group v. Travelers Ins. Co.,

, 806

(4th Dep't 2005) ("[W]hen an insurer who is not

11 In finding that General Star was not entitled to summary judgment on the ground that Mutual Marine was acting as a volunteer when it paid an amount in excess of its million-dollar policy limit, the district court referred in passing to UFI's status as "the party to the First Agreement who owed the remainder of the seventy-five percent apportionment of the judgment . . . ." Nat'l Union II,

at *3,

at *10. Because the district court had already found that UFI owed the remainder of the seventy-five percent because in the view of the district court the Ernish adjudication was "ultimately" an adjudication of UFI's liability, and because the district court did not analyze the contested issue of whether UFI was bound by the First Agreement, we do not understand the district court's passing reference to UFI as a "party" to the First Agreement, in a context outside the issue of determining UFI's liability, to constitute a finding of fact that UFI was bound by the First Agreement. We express no opinion as to whether UFI was bound by the First Agreement and, as indicated in the text, we leave that finding to the district court on remand. 29 1 acting under a mistake of material fact or law assumes the defense

2 and indemnification of an insured when there is no obligation to

3 do so, that insurer becomes 'a volunteer with no right to recover

4 the monies it paid on behalf of the insured.'" (quoting Nat'l

5 Union Fire Ins. Co. v. Ranger Ins. Co.,

, 599

6

(4th Dep't 1993)) (internal alterations omitted).

7 However, when Mutual Marine agreed to indemnify UFI, it did not do

8 so without compensation. It received in return whatever rights

9 UFI had against General Star.

10 General Star relies on the familiar proposition that "an

11 assignor 'could only assign a right that it legally possessed' and

12 an assignee's rights are no greater than those of the assignor."

13 Appellant's Br. 40 (quoting Case v. Filmtrucks,

,

14 752,

(2d Dep't 1986); citing Int'l Ribbon Mills,

15 Ltd. v. Arjan Ribbons, Inc.,

,

(1975)). The district court found that UFI did have a claim

17 against General Star to assign to Mutual Marine, and therefore

18 Mutual Marine was not acting as a volunteer when it paid in excess

19 of its policy limit. However, the district court had already

20 determined that the Ernish adjudication was ultimately an

21 adjudication against UFI for which General Star was obligated to

22 pay, a determination with which we disagree.

23 Although the Ernish adjudication in itself did not

24 establish an "ultimate net loss" with respect to UFI such that UFI

25 had a claim against General Star that it could assign to Mutual

26 Marine, it may have done so if the legal liability of UFI was

30 1 established under the First Agreement or otherwise. Because we

2 leave it for the district court on remand to determine in the

3 first instance whether the legal liability of UFI was established

4 in any way other than by the Ernish judgment alone, the district

5 court may also resolve on remand the related factual question of

6 whether Mutual Marine was acting as a volunteer when it paid an

7 amount in excess of its policy limit.

8 V. Mutual Marine's Pleading 9 of a Claim Based on UFI's Rights

10 General Star also appears to argue that Mutual Marine

11 failed adequately to plead a cross-claim based on rights of UFI

12 that it had obtained by subrogation or assignment. But as

13 discussed above, Mutual Marine's motion papers before the district

14 court made explicit that it was asserting UFI's rights in this

15 lawsuit. In any event, Mutual Marine sought leave to re-plead its

16 cross-claims, see Mem. of Law in Opp'n to Summ. J. at 21, Nat'l

17 Union Fire Ins. Co. of La. v. UFI Fabricators, Inc., No. 05 Civ.

18 3418 (SAS) (S.D.N.Y. Aug. 29, 2007) (Doc. No. 61), a request the

19 district court did not reach because it granted summary judgment

20 in favor of Mutual Marine. On remand, the district court may

21 consider that request in the first instance if the court deems it

22 necessary or advisable to do so.

23 CONCLUSION

24 For the foregoing reasons, we vacate the district

25 court's grant of summary judgment, and remand the cause with

26 instructions for the court to decide, inter alia, whether UFI was

31 1 legally liable to Ernish such as to give rise to a liability on

2 the part of General Star.

32