To be Argued by:
MAURA MONAGHAN
(Time Requested: 30 Minutes)
APL 2015-00048
New York County Clerk’s Index No. 600920/08
Court of Appeals
of the
State of New York
MILLENNIUM HOLDINGS LLC,
Plaintiff,
– and –
THE NORTHERN ASSURANCE COMPANY OF AMERICA,
Plaintiff-Appellant,
– and –
CERTAIN UNDERWRITERS AT LLOYD’S, LONDON
and CERTAIN LONDON MARKET INSURANCE COMPANIES,
Intervenor-Appellants,
– against –
THE GLIDDEN COMPANY, n/k/a AKZO NOBEL PAINTS LLC
and AKZO NOBEL PAINTS LLC,
Defendants-Respondents.
BRIEF FOR RESPONDENTS
DEBEVOISE & PLIMPTON LLP
Attorneys for Defendants-Respondents
919 Third Avenue
New York, New York 10022
Tel.: (212) 909-6000
Fax: (212) 909-6836
Date Completed: July 8, 2015
CORPORATE DISCLOSURE STATEMENT
Defendant-Respondent Akzo Nobel Paints LLC, formerly known as
The Glidden Company, has changed its name to PPG Architectural Finishes,
Inc., which is a wholly-owned subsidiary of PPG Industries, Inc.
Dated: July 8,2015
New York, New York
Maura K. M a han
James n. ArnIer
DEBEVOISl:: & PLIMPTON LLP
919 Third Avenue
New York, NY 10022
(212) 909-6000
Attorneys for Defendants-
Respondents
TABLE OF CONTENTS
PRELIMINARY STATEMENT .................................................................... 1
QUESTIONS PRESENTED .......................................................................... 6
STATEMENT OF FACTS ............................................................................. 7
STANDARD OF APPELLATE REVIEW .................................................. 11
ARGUMENT ................................................................................................ 12
POINT I: THE FIRST DEPARTMENT’S APPLICATION OF THE
ANTI-SUBROGATION RULE WAS CORRECT AS A MATTER
OF LAW. ...................................................................................................... 13
A. The First Department’s Ruling Followed Well-Established
Precedent. .......................................................................................... 16
B. The Insurers’ Policy-Based Arguments Are Disingenuous. ............. 28
C. The Insurers’ Claim Is Not A Proper Subrogation Claim In
The First Instance. ............................................................................. 30
POINT II: THE FIRST DEPARTMENT CORRECTLY DISMISSED
THE INSURERS’ SUBROGATION CLAIM FOR A VOLUNTARY
PAYMENT. .................................................................................................. 35
POINT III: THE INSURERS’ CLAIMS SUFFER FROM A HOST
OF OTHER LEGAL DEFICIENCIES. ........................................................ 43
A. The Commercial Division Properly Found that the Insurers
Have No Claim For Equitable Subrogation Against ANP. .............. 44
B. The Insurers Have No Claim for Contractual Subrogation. ............. 45
1. Nearly All of the Subject Policies Lack a Subrogation
Clause. ...................................................................................... 45
2. Additional Significant Limitations on the Insurers’
Claims. ...................................................................................... 46
ii
CONCLUSION ............................................................................................. 48
iii
TABLE OF AUTHORITIES
CASES
Allstate Ins. Co. v. Stein,
1 N.Y.3d 416 (2004) ................................................................................ 46
Am. Cas. of Reading, Pa. v. St. Charles Hosp. & Rehab. Ctr.,
21 A.D. 3d 914 (2d Dep’t 2005) .............................................................. 46
Americas Ins. Co. v. Stolt-Nielsen, Inc., No. 97 Civ. 8018 (RCC),
2004 WL 2199497 (S.D.N.Y. Sept. 30, 2004) ....................................... 40
Bd. of Mgrs. of Alexandria Condo. v. Broadway/72nd Assocs.,
285 A.D.2d 422 (1st Dep’t 2001) ............................................................ 33
Bermuda Trust Co., Ltd. v. Ameropan Oil Corp.,
266 A.D.2d 251 (2d Dep’t 1999) ............................................................. 38
Bidnick v. Johnson,
253 A.D.2d 779 (2d Dep’t 1998) ............................................................ 11
Broadway Houston Mack Dev., LLC v. Kohl,
71 A.D.3d 937 (2d Dep’t 2010) ............................................................... 37
Cascade Trailer Ct. v. Beeson,
50 Wash. App. 678 (Wash. Ct. App. 1988) ............................................ 25
Charles H. Dauchy Co. v. Wilkinson,
251 A.D. 53 (3d Dep’t 1937) .................................................................. 40
Country Wide Ins. Co. v. Osathanugrah,
94 A.D.2d 513 (1st Dep’t 1983), aff’d, 62 N.Y.2d 815 (1984) ................ 7
D’Arata v. N.Y. Cent. Mut. Fire Ins. Co.,
76 N.Y.2d 659 (1990) .............................................................................. 7
ELRAC, Inc. v. Ward,
96 N.Y. 2d 58 (2001) ........................................................................ 28, 31
iv
Fasso v. Doerr,
12 N.Y.3d 80 (2009) ................................................................................ 44
Fields v. W. Millers Mut. Fire Ins. Co.,
290 N.Y. 209 (1943) ................................................................................ 45
Fireman’s Ins. Co. of Newark, N.J. v. Wheeler,
165 A.D.2d 141 (3d Dep’t 1991) ..................................... 15, 19, 20, 24, 25
Gen. Accident Ins. Co. v. U.S. Fid. & Guar. Ins. Co.,
193 A.D.2d 135 (3d Dep’t 1993) ...................................................... 38, 39
Gen. Ins. Co. v. Stoddard Wendle Ford Motors,
67 Wash.2d 973 (1966) ........................................................................... 25
Glidden Co. v. Lumbermens Mut. Cas. Co.,
861 N.E.2d 109, 112 (Ohio 2006) .............................................. 14, 17, 32
Hooper Assocs. v. AGS Computers, Inc.,
74 N.Y.2d 487 (1989) .............................................................................. 33
Jefferson Ins. Co. v. Travelers Indem. Co.,
92 N.Y.2d 363 (1998) ............................................................ 15, 18, 23, 27
Kaf-Kaf, Inc. v. Rodless Decorations, Inc.,
90 N.Y.2d 654 (1997) .............................................................................. 44
Kerr v. Louisville Hous., Inc.,
2 A.D.3d 924 (3d Dep’t 2003) ..................................................... 15, 19, 25
Med. Liab. Mut. Ins. Co. v. Schurig,
211 A.D.2d 518 (1st Dep’t 1995),
appeal denied, 86 N.Y.2d 703 ..................................................... 15, 19, 20
Merchants Mut. Ins. Group v. Travelers Ins. Co.,
806 N.Y.S.2d 813 (4th Dep’t 2005) .................................................. 36, 37
Mid–City Shopping Ctr. v. Consol. Mut. Ins. Co.,
35 A.D. 2d 1053 (3d Dep’t 1970) ..................................................... 39, 40
v
Millennium Holdings Inc. v. Glidden Co.,
No. 600920/2008, 2009 N.Y. Slip. Op. 31498 (U) (Trial Order),
2009 WL 1905163 (N.Y. Sup. Ct. June 24, 2009) ............................ 31, 44
Millennium Holdings LLC, et al. v. Lumbermens Mut. Cas. Co., et al.,
No. 411388 (Opinion and Order) (Cuyahoga Cnty. Oh. Aug. 8,
2013) ................................................................................ 35, 36, 38, 41, 42
N. Star Reins. Corp. v. Cont’l Ins. Co.,
82 N.Y.2d 281 (1993) .................................................................. 18, 21, 31
Nat’l Cas. Co. v. Beth Abraham Hosp.,
1999 WL 710780 (S.D.N.Y. Sept. 10, 1999) .................. 15, 19, 20, 21, 25
Nat’l Union Fire Ins. Co. v. Ranger Ins. Co.,
190 A.D.2d 395 (4th Dep’t 1993)................................................ 37, 38, 39
Nieves v. Martinez,
285 A.D.2d 410 (1st Dep’t 2001) ............................................................ 11
Parochial Bus Sys., Inc. v. Bd. of Educ.,
60 N.Y.2d 539 (1983) ............................................................................ 11
Penn. Gen. Ins. Co. v. Austin Powder Co.,
68 N.Y.2d 465 (1986) ...................................................... 16, 18, 20, 21, 24
Reliance Ins. Co. v. State Farm Mut. Auto. Ins. Co.,
243 A.D.2d 456 (2d Dep’t 1997) ............................................................ 26
Reeder v. Reeder,
217 Neb. 120 (1984) ................................................................................ 25
S. Tippecanoe Sch. Bldg. Corp. v. Shambaugh & Son, Inc.,
182 Ind. App. 350 (Ind. Ct. App. 1979) .................................................. 25
Schiller v. Cmty Tech., Inc.,
78 A.D.2d 762, 763 (4th Dep’t 1980) ..................................................... 33
St. Paul Fire & Marine Ins. Co. v. Murray Plumbing & Heating
Corp., 65 Cal. App. 3d 66 (Cal. Ct. App. 1976)................................ 22, 25
vi
Travelers Ins. Co. v. Nory Const. Co., Inc.,
708 N.Y.S.2d 252 (N.Y. Sup. 2000) ................................................ 39, 40
Weingarten v. Bd. of Trustees of New York City Teachers’ Ret. Sys.,
98 N.Y.2d 575 (2002) ............................................................................. 11
Whelan v. GTE Sylvania, Inc.,
182 A.D.2d 446 (1st Dep’t 1992) ........................................................... 11
OTHER
2 Allan D. Windt, Insurance Claims and
Disputes § 10.10 (6th ed. 2013) .................................................. 40, 42, 43
Oxford English Dictionary (2015)
available at: http://www.oxforddictionaries.com/us/
definition/american_english/insurer .......................................................... 1
Defendant-respondent Akzo Nobel Paints LLC (“ANP”), formerly known as
The Glidden Company, submits this brief in opposition to the appeal by intervenor
plaintiffs-appellants Certain Underwriters at Lloyd’s, London and Certain London
Market Insurance Companies (collectively, the “London Insurers”), and plaintiff-
appellant The Northern Assurance Company of America (“Northern”). The
London Insurers and Northern are collectively referred to as the “Insurers.”
Although the Insurers are the nominal parties to this action, they have outsourced
pursuit of this lawsuit to a third-party claims administrator, Resolute Management,
Inc. (“Resolute”).
PRELIMINARY STATEMENT
The Insurers’ appeal to this Court represents their last-ditch effort to evade
the very function of an insurer. According to the Oxford English Dictionary, an
insurer is “[a] person or company that underwrites an insurance risk; the party in
an insurance contract undertaking to pay compensation.” Oxford English
Dictionary (2015) available at: http://www.oxforddictionaries.com/us/
definition/american_english/insurer. But in this case, far from being willing to
“pay compensation” or to provide coverage for the “insurance risk” they accepted
premiums to cover, the Insurers are seeking to recoup what they paid to one
insured from the current incarnation of a business that was formerly part of the
insured entity. As the First Department unanimously held, affirming a decision of
2
the Commercial Division, New York’s well established anti-subrogation rule
prohibits the Insurers from seeking to pass the risk of loss that they expressly
contracted to cover to a business that, at the time the policies were issued and the
liability arose, was part of the insured entity.
From 1962-1970, the Insurers accepted premiums to cover property damage
caused by, among other insureds, the Glidden-Durkee division of a company called
SCM. The Glidden-Durkee Division included both a paints business and a
pigments business. In 1986, the paints business was spun off and, after several
name changes, became ANP. The pigments business remained behind and became
known as Millennium. ANP provided a contractual indemnity to Millennium for
certain liabilities that arose more than eight years after the closing of the spin-off
transaction. Millennium was sued in litigation alleging property damage resulting
from lead pigment in paint; it was largely successful in defending the litigation, but
incurred substantial costs in doing so. The Insurers paid some of Millennium’s
attorneys’ fees and also contributed to the single liability payment Millennium ever
made in connection with a lead case, in settlement of a public nuisance claim
brought by the City of Santa Clara, California (the “Santa Clara Settlement”).
The Insurers intervened, at the eleventh hour just as a settlement had been
reached, in litigation between ANP and Millennium over the reach of the
contractual indemnity. They sought to force ANP to reimburse their insurance
3
payments to Millennium. The Insurers call this a subrogation claim, but it bears no
resemblance to the paradigmatic subrogation claim. The Insurers do not, and
cannot, allege that ANP is a tortfeasor that caused the loss. Instead, they are
seeking to take advantage of ANP’s contractual indemnification of Millennium
under the guise of subrogation. The First Department correctly applied the anti-
subrogation rule to bar the Insurers’ claim. The First Department also correctly
affirmed the Commercial Division’s holding that the Insurers’ contribution to the
Santa Clara Settlement, for which they disputed coverage, was a voluntary
payment that did not give rise to a right of subrogation.
The Insurers’ appeal of the anti-subrogation portion of the First
Department’s decision boils down to a single contention: they assert that the First
Department by extending the anti-subrogation rule to a “third party” and “stranger
to the policies” has “effectively eliminated” subrogation in New York and will set
off a mass exodus of insurers from the state. But the entire premise of the Insurers’
appeal is both factually false and legally insupportable under New York law.
The Insurers’ argument that ANP is a so-called “third party stranger to the
policies” (and thus outside the anti-subrogation rule) rests entirely on the 2006
decision by the Ohio Supreme Court holding that the insurance policies were not
transferred to ANP in the 1986 spin-off transaction. But the Ohio Supreme Court
never held that ANP was a “stranger” to the policies or even mentioned
4
subrogation or the anti-subrogation rule. To the contrary, the Ohio Supreme Court
expressly recognized that prior to 1986, the Glidden-Durkee Division, including
the paints business that became ANP, was covered by the policies.
The Insurers’ argument is as devoid of legal support as it is of a factual
basis. The Insurers are unable to cite even a single case, pursuant to which an
insurer has been permitted to seek subrogation from a business that was spun off
from an insured entity. This is not surprising. Far from supporting the Insurers’
cramped interpretation of the anti-subrogation rule, an unbroken line of New York
cases holds that the anti-subrogation rule applies wherever an entity or individual
was considered an “insured” at the time the policies were issued and the liability
arose. That is exactly the case here: ANP’s paints business was an insured whose
liability the Insurers expected to cover at the relevant times. The First Department
correctly applied the anti-subrogation rule to preclude the Insurers’ efforts to
offload their insurance risk onto a business that was formerly part of the insured
entity.
The drastic scenario that the Insurers predict will result if the First
Department’s decision is affirmed is a fantasy. The First Department did not
create any novel extension of the anti-subrogation rule and did not unsettle any
expectations the Insurers had when they wrote the policies and charged their
premiums. To the contrary, at the time the insurance contracts were created, the
5
Insurers expected to cover any property damage losses caused by the pigments
business without resort to the paints business for reimbursement. They charged
premiums in line with that expectation. It is sound policy, as well as sound law, to
avoid the windfall that would result if the Insurers could pursue this subrogation
claim.
The Insurers’ argument that their contribution to the Santa Clara Settlement
was not voluntary fares no better than their attempt to evade the anti-subrogation
rule. The Insurers vehemently disputed coverage at the time of the payment;
indeed, they secured a ruling from an Ohio court after the fact that the payment
was not in fact within the policy coverage. As the Ohio court, the Commercial
Division, and the First Department all recognized, the Insurers made the Santa
Clara payment voluntarily, well aware that they had a well-founded challenge to
coverage. Under well-established New York law, an insurer that makes a
voluntary payment outside the policy coverage cannot seek subrogation for that
payment.
The Insurers’ claims suffer from numerous other fatal deficiencies, some of
which were addressed by the Commercial Division. The Court thus has a myriad of
pathways, but only one destination. As set forth below, this Court should affirm
the First Department’s well-reasoned decision and uphold the dismissal of the
Insurers’ claims.
6
QUESTIONS PRESENTED
1. Should the First Department’s unanimous decision be affirmed where it
applied clear precedent of this Court and the Appellate Division to hold that New
York’s anti-subrogation rule bars a claim for subrogation by an insurer against an
business (later spun off) that was covered by the insurance policies, both when the
policies were issued and when the liability arose, and the liability arose from the
very risk that the policies were purchased to insure?
2. Should the First Department’s unanimous decision be affirmed where it
applied clear precedent of this Court and the Appellate Division to hold that when
an insurer rejects coverage of a claim but nevertheless pays to indemnify an
insured, knowing full well that there was no obligation to make such payment and
not acting under any mistake of fact or law, and a court later rules that such
payment was in fact voluntary and not covered under the policies, an insurer is not
entitled to pursue a subrogation claim for such a voluntary payment?
7
STATEMENT OF FACTS
The Insurers’ brief includes a lengthy statement of facts, which is
inaccurately rendered in several respects. The core facts relevant to affirming the
First Department’s decision, however, are undisputed and limited.
The Insurers and ANP entered into the Joint Statement of Facts Not in
Dispute in Support of Cross-Motions for Summary Judgment in this action.
(A360-69, the “Joint Statement”.) Millennium and ANP previously have entered
into the Stipulation of Facts and Evidence detailing the relevant corporate history
of Millennium and Glidden until 2001, including the historical separation of the
pigments business from the paints business. (A370-76, the “Stipulation”.) The
Stipulation is binding on the Insurers, which step into the shoes of Millennium and
are bound by Millennium’s admissions.1
In this action, the Insurers are pursuing subrogation claims based on certain
insurance policies covering the period from 1962-1970. (A15, Commercial
Division Decision & Order (“Decision”) at 2; A363-65, Joint Statement ¶¶ 16-18,
20-25.) Each of the policies covered liability risks associated with a specific
1 See, e.g., D’Arata v. N.Y. Cent. Mut. Fire Ins. Co., 76 N.Y.2d 659, 665 (1990)
(A subrogee “is subject to whatever rules of estoppel would apply to the
insured.”); Country Wide Ins. Co. v. Osathanugrah, 94 A.D.2d 513, 515 (1st
Dep’t 1983) (An “insurer’s rights are based on and derived from its insured’s
rights and no more.”) (internal quotation omitted), aff’d, 62 N.Y.2d 815, 816
(1984).
8
corporate division of The Glidden Company (“Old Glidden”). (A15-16, 28-29, 31,
Decision at 2-3, 15-16, 18; A363-65, Joint Statement ¶¶ 16-18, 20-25.)
Old Glidden is a predecessor of both ANP and Millennium. Id. The specific
corporate division that was insured then included both the paints business and the
pigments business of Old Glidden. Id.
In 1967, Old Glidden was acquired by SCM Corporation (“Old SCM”). At
that time, all of the policies were either issued or amended to cover the Glidden-
Durkee Division of Old SCM, which then included both the paints business and the
pigments business of Old Glidden. (A15-16, 28-29, 31, Decision at 2-3, 15-16, 18;
A363-65, Joint Statement ¶¶ 16-18, 20-25; A371, Stipulation ¶¶ 7-9.)
At all times during the policy period of 1962-1970, the policies covered both
the pigments business and the paints business, which later became ANP. (A15-16,
28-29, 31, Decision at 2-3, 15-16, 18; A363-65, Joint Statement ¶¶ 16-18, 20-25.)
Under these policies, the Insurers have paid litigation defense costs for the past
three decades, and settled a single litigation, arising out of exposure caused during
1962-1970 to either (a) lead paint or (b) paint containing lead pigment (the “Lead
Litigation Cases”). (A15-16, Decision at 2-3.)
The conduct alleged in the Lead Litigation Cases that caused the insurance
losses occurred during the period the paints business was part of the insured
corporate division under the policies. (A15-16, Decision at 2-3.) For decades, the
9
Insurers collected premiums under the policies to assume the risk of this same type
of loss caused by the businesses in this corporate division. (A1061-62, Dinunzio
Dep. pp. 33, 36.)
Through a series of transactions in the mid-1980’s, the paints business of
Old SCM was spun-off and sold as a separate company in 1986. (A16-17,
Decision at 3-4; A372-73, Stipulation ¶¶ 11-20.). At the same time, the pigments
business of Old SCM was transferred to another subsidiary. Id. Following
numerous subsequent corporate transactions over the next three decades, (1) the
paints business previously spun-off was eventually renamed ANP, and (2)
Millennium became the successor to the pigments business of Old SCM. (A19,
Decision at 6; A373-74, Stipulation ¶¶ 19, 21-30; A367, Joint Statement ¶ 37.)
But for the fact that the paints business was spun-off, the Insurers could have
no claims of subrogation. (A19, Decision at 6; A39-42, Complaint, ¶¶ 14-28.) In
fact, the Insurers admit they have paid benefits under the policies to ANP to cover
ANP’s defense costs in the Lead Litigation Cases. (A1062-64, Dinunzio Dep. pp.
36-43.)
The agreement by which the paints business was spun-off in 1986 (as later
amended, the Amended Purchase Agreement (“APA”)) included certain indemnity
provisions in favor of ANP and Millennium, respectively. (A21, Decision at 8.)
Millennium and ANP sued each other for indemnification under the terms of the
10
APA. (Id.) Millennium and ANP entered into a Settlement Agreement resolving
each party’s claims and terminating all continuing and future indemnification
obligations under the agreement. (A22, Decision at 9.)
Just prior to the settlement, the Insurers intervened to assert their
subrogation claims. (Id.) In a decision and order dated November 25, 2013, the
Commercial Division granted summary judgment “to ANP on the antisubrogation
issue” and dismissed entirely the Insurers’ claims. (A15, Decision at 2.)
The Insurers appealed the decision to the First Department, which
unanimously affirmed on October 7, 2014. The Insurers moved this Court for
leave to appeal, and on February 19, 2015, this Court granted the Insurers’ motion.
11
STANDARD OF APPELLATE REVIEW
The Commercial Division correctly found that the Insurers can show no
triable issues of fact and, therefore, that ANP is entitled to judgment as a matter of
law. (A32, Decision at 19.) See Whelan v. GTE Sylvania, Inc., 182 A.D.2d 446,
448-49 (1st Dep’t 1992). The Commercial Division’s rulings that the Insurers’
subrogation claims are barred by the anti-subrogation rule and that the Insurers
may not recover for a voluntary payment were issues of law, which this Court
reviews de novo. See Weingarten v. Bd. of Trustees of New York City Teachers’
Ret. Sys., 98 N.Y.2d 575, 580 (2002) (affirming lower courts’ holding on question
of law as to method of calculating pension benefits). The First Department
reviewed these rulings de novo, and unanimously affirmed. (A1211-12, First
Dep’t Decision at 1-2.) This Court should affirm the First Department’s
unanimous decision.
This Court may affirm the First Department’s dismissal on any of the
grounds raised by ANP in their motion for summary judgment below, including
grounds that the motion court rejected or failed to reach. See, e.g., Parochial Bus
Sys., Inc. v. Bd. of Educ., 60 N.Y.2d 539, 545-46 (1983); Nieves v. Martinez, 285
A.D.2d 410, 411 (1st Dep’t 2001) (affirming dismissal on the basis of an argument
the Supreme Court had rejected); Bidnick v. Johnson, 253 A.D.2d 779, 780 (2d
12
Dep’t 1998) (affirming order granting summary judgment on the basis of argument
that had been briefed but the Supreme Court did not reach).
ARGUMENT
None of the Insurers’ arguments for reversing the First Department’s
unanimous decision has any merit as a matter of law, fact, or policy. As detailed in
Point I, New York’s anti-subrogation rule plainly applies to preclude the Insurers’
claim, because at the time the policies were issued and the liability arose, the paints
business was within the insured entity. The spin-off of the paints business decades
later may have relieved the Insurers of the obligation to continue providing
coverage to ANP, but it in no way gave the Insurers a subrogation cause of action
against ANP. The First Department’s decision poses no risk to subrogation in New
York; indeed, the Insurers’ claim does not even fit the paradigm of a true
subrogation claim under New York law. Moreover, the very contract containing
the indemnity that the Insurers seek to enforce contains express provisions that are
directly antithetical to the Insurers’ claims.
The anti-subrogation rule precludes all of the Insurers’ claims for
reimbursement, including those related to the Santa Clara Settlement. In addition,
however, as set forth in Point II, the Commercial Division and the First
Department correctly concluded that the Insurers’ voluntary contribution to the
13
settlement while contesting coverage – ultimately successfully – does not give rise
to a right of subrogation in the first instance.
Point III addresses numerous other bases in the record supporting
affirmance of the First Department. The Insurers cannot bring a claim for
equitable subrogation against ANP, which is not a wrongdoer but (at most) an
innocent contractual indemnitor of the Insurers’ policyholder. The Insurers cannot
bring a claim for contractual subrogation either with respect to the vast majority of
the policies. Those policies lack an express subrogation clause, which is a
fundamental prerequisite for a contractual subrogation claim, and the “other
insurance” clause on which the Insurers attempt to rely does not provide a
meaningful substitute for the simple reason that ANP is not a provider of “other
insurance.”
POINT I: THE FIRST DEPARTMENT’S APPLICATION OF THE ANTI-
SUBROGATION RULE WAS CORRECT AS A MATTER OF LAW.
The First Department unanimously affirmed the complete dismissal of the
Insurers’ claims as barred by the anti-subrogation rule. (A1211-12, First Dep’t
Decision at 1-2.) The First Department’s unanimous decision is squarely
supported by the precedent of this Court and the Appellate Divisions. The Insurers
fail to cite a single case that holds contrary to the dismissal of their claims. Instead,
the Insurers’ appeal rests on a single contention: that by extending the anti-
14
subrogation rule to a supposed “third-party stranger” to the policies at issue, the
First Department ruling means that subrogation “will effectively be eliminated in
New York.” (Br. at 4, 38, 39, 41, 42, n.16.) But the First Department did no such
thing, and subrogation in New York is alive and well.
First, the Insurers’ argument relies heavily on a ruling by the Ohio Supreme
Court which concluded that Hanson, the company that sold the paints business
formerly operated by SCM, did not transfer the SCM insurance policies with the
sale. (Br. at 3, 16-17, 23, 30, 36-39, 42, citing Glidden Co. v. Lumbermens Mut.
Cas. Co., 861 N.E.2d 109, 112 (Ohio 2006).) But the Ohio Supreme Court did not,
and could not, conclude that ANP was a third-party “stranger to the policies.” To
the contrary, the Ohio Supreme Court expressly recognized that the Glidden-
Durkee Division, which housed the paints business that became ANP after the
1986 spin-off, was an insured under the policies at issue up until 1986. 861 N.E.2d
at 112-13, 117. Nothing in the decision suggests that the 1986 spin-off suddenly
allowed the Insurers to seek reimbursement from ANP.
Second, the First Department did not extend the anti-subrogation rule in any
novel way. To the contrary, numerous cases from both this Court and the
Appellate Divisions have all held that the anti-subrogation rule applies to bar a
claim of subrogation against an individual or entity that was within the covered
risk at the time the policies were issued, even if that individual or entity was no
15
longer associated with the insured business at the time of the subrogation claim.
(A28-31, Decision at 15-18, citing Jefferson Ins. Co. v. Travelers Indem. Co., 92
N.Y.2d 363 (1998); Med. Liab. Mut. Ins. Co. v. Schurig, 211 A.D.2d 518 (1st
Dep’t 1995), appeal denied, 86 N.Y.2d 703; Fireman’s Ins. Co. of Newark, N.J. v.
Wheeler, 165 A.D.2d 141 (3d Dep’t 1991); Nat’l Cas. Co. v. Beth Abraham Hosp.,
1999 WL 710780, at *4 (S.D.N.Y. Sept. 10, 1999); see also Kerr v Louisville
Hous., 2 A.D.3d 924, 927 (3d Dep’t 2003).) The Insurers’ labored attempts to
distinguish some of these cases are unavailing.
Third, the Insurers’ argument that subrogation in New York will be
extinguished by the First Department ruling is, frankly, absurd. The Insurers do
not, and cannot, dispute the First Department’s conclusion that but for the 1986
spin-off transaction, they would have no subrogation claim against the paints
business. If the entity the Insurers had insured had remained a single company
instead of splitting into two, the Insurers admit they would be barred by the anti-
subrogation rule from pursuing this claim.
The Insurers are not bringing a traditional subrogation claim against a
tortfeasor that caused the loss at all. To the contrary, the company whose conduct
was at issue in the underlying lead litigation was Millennium, the entity the
Insurers acknowledge continues to be an insured under the policies. Instead, the
Insurers are trying to bootstrap a contractual indemnity that ANP provided only to
16
Millennium into a subrogation claim against the paints business they formerly
insured. Affirming the First Department and rejecting the Insurers’ attempted
claim does no violence to the doctrine of subrogation in New York.
A. The First Department’s Ruling Followed Well-Established
Precedent.
The anti-subrogation rule prohibits an insurer from “in effect, pass[ing] the
incidence of the loss . . . from itself to its own insured and thus avoid[ing] the
coverage which its insured purchased.” Penn. Gen. Ins. Co. v. Austin Powder Co.,
68 N.Y.2d 465, 471 (1986) (internal quotation omitted). The Insurers admit, as
they must, that New York law bars an insurer from seeking to recover insurance
payments from an insured under the guise of subrogation. For example, the
Insurers would admit that the anti-subrogation rule precludes them from seeking
subrogation from Millennium, even though it was Millennium’s conduct that gave
rise to the liabilities that generated the legal costs and settlement payment the
Insurers seek to recover. Indeed, the Insurers would have to admit that in the
absence of the spin-off, they would be barred by the anti-subrogation rule from
making a claim against the paints business. Instead, the Insurers’ sole contention is
that because the paints business was spun off and ANP allegedly indemnified
Millennium for liabilities arising more than eight years after the closing, the
Insurers are able to pursue a subrogation claim against ANP.
17
The linchpin of the Insurers’ argument is that the Ohio Supreme Court
concluded that ANP is not entitled to coverage under the policies at issue. (Br. at
3, 16-17, 23, 30, 36-39, 42, citing Glidden Co. v. Lumbermans Mut. Cas. Co., 861
N.E.2d 109, 112 (Ohio 2006).) They argue that ANP is therefore not an insured
for purposes of the anti-subrogation rule. But the Ohio Supreme Court’s decision
– which contains no mention at all of subrogation or the anti-subrogation rule –
was addressed exclusively to the question of whether ANP could claim insurance
coverage after 1986. The Ohio decision confirms that before 1986, the paints
business was covered under the same policies for exactly the types of liabilities for
which the Insurers are currently seeking subrogation. 861 N.E.2d at 112-13, 117.
New York law plainly recognizes that an entity can be an “insured” for
purposes of the anti-subrogation rule, while not being an insured currently entitled
to insurance coverage. The courts below thus correctly held:
ANP’s lack of coverage is irrelevant since the subject
policies covered the very risk [each Insurer] seeks
indemnification for. In other words, ANP’s liability
arose between 1962 and 1970, when the lead in SCM’s
products caused property damage. That liability was
expressly covered by the subject policies and is the exact
liability that the [Insurers] do not want to pay for.
(A31, Decision at 18.)
The First Department and Commercial Division thus recognized that ANP is
not an insured currently entitled to insurance coverage, but correctly identified the
18
relevant issue in this lawsuit not as whether ANP could seek coverage from the
insurers but whether ANP was within the purview of the anti-subrogation rule.
(A30-32, Decision at 17-19; A1211-12, First Dep’t Decision at 1-2.) Because the
paints business was covered by the policies when they were issued and at the time
Millennium’s liability arose, the Commercial Division and the First Department
correctly concluded that the anti-subrogation rule applies here. “The insurers
cannot assert a subrogation claim against ANP [because the] parties’ corporate
history demonstrates that the Resolute Plaintiffs insured the very risk at issue in the
Lead Cases.” (A32, Decision at 19.)
The Insurers’ argument is irreconcilable with an unbroken line of cases in
which this Court and the Appellate Divisions have held that the anti-subrogation
rule bars an insurer from seeking to recover its policy payments from an entity or
individual covered by an insurance policy at the time the liability arose, even if that
individual or entity is no longer an insured or associated with an insured at the time
of the subrogation claim. Courts applying New York law consistently have held
that an individual or entity whose conduct was covered by an insurance policy at
the time of the liability is not the proper subject of a subrogation claim. (A28-31,
Decision at 15-18, citing Penn. Gen., 68 N.Y.2d at 471; N. Star Reins. Corp. v.
Cont’l Ins. Co., 82 N.Y.2d 281, 294 (1993); Jefferson Ins. Co. v. Travelers Indem.
Co., 92 N.Y.2d 363 (1998).)
19
In those circumstances, the anti-subrogation rule applies even if that entity
or individual is not covered by the policy at the time a subrogation claim is
asserted. (A28-31, Decision at 15-18, citing Med. Liab. Mut. Ins. Co. v. Schurig,
211 A.D.2d 518 (1st Dep’t 1995), appeal denied, 86 N.Y.2d 703; Fireman’s Ins.
Co. of Newark, N.J. v. Wheeler, 165 A.D.2d 141 (3d Dep’t 1991); Nat’l Cas. Co. v.
Beth Abraham Hosp., 1999 WL 710780, at *4 (S.D.N.Y. Sept. 10, 1999).)
The anti-subrogation rule, as consistently applied in the case law, prohibits
subrogation against an entity that was covered at the time of the conduct that
caused the loss. See, e.g., Kerr v Louisville Hous., 2 A.D.3d 924 (anti-subrogation
rule barred insurers’ claim against a third-party indemnitor). In Kerr, the
Appellate Division barred a subrogation claim against a third-party who “[a]t the
time of the loss, … was acting as defendant’s real estate manager and, as such, was
an ‘insured’ under the terms of defendant’s policy.” Id. at 927. The court
reasoned:
[T]hat UHMC was not expressly named as an insured in
defendant’s policy with Casualty is immaterial for
purposes of the anti-subrogation rule, as UHMC clearly
qualified as an insured under the terms of that policy for
whom Casualty should have expected to pay claims.
Id. (emphasis added). The same principle applies in this case. The paints business
that became ANP was an insured for the Insurers expected to pay claims under the
terms of the policies when issued.
20
The Insurers insist that the anti-subrogation rule applies only to protect a
named insured that is covered by the policy at the time of the subrogation claim.
That proposition is demonstrably false. New York’s anti-subrogation rule also
bars “claims against [defendants] not named in the policy, because the relationship
between the [defendant] and the insured makes it reasonable to infer that the
insured paid the insurer to completely assume the risk of loss by the acts of that
[defendant].” Wheeler, 165 A.D.2d at 143-44 (citing Penn. Gen., 68 N.Y.2d 465);
see also Schurig, 211 A.D.2d 518; Beth Abraham Hosp., 1999 WL 710780, at *4.
In Wheeler, an insurer sought subrogation from the insured corporation’s
president and principal shareholder based on his alleged negligence in causing a
fire. 165 A.D.2d at 142-44. The Appellate Division held that the insurer’s claim
of subrogation failed because the insured paid the insurer to assume the risk of the
loss caused by that individual. Id. The court reasoned:
A person not named in an insurance policy is considered
an insured for purposes of preventing subrogation when,
under the circumstances, the insurer seeking subrogation
is attempting, in effect, to recover from the insured on the
risk the insurer had agreed to take upon payment of the
premium.
165 A.D.2d at 144 (emphasis added).
In Schurig, the First Department applied the same reasoning as in Wheeler.
Schurig, 211 A.D.2d at 518, citing Wheeler, 165 A.D.2d 141. The First
Department applied the anti-subrogation rule to protect a non-insured third party
21
from a claim “arising from the very risk for which the insured was covered.”
Schurig, 211 A.D.2d at 518, citing N. Star Reins. Corp., 82 N.Y.2d at 294-95.
In Beth Abraham Hospital, the hospital’s insurer sought subrogation against
a former employee doctor. The target of the subrogation claim never was insured
under the policy nor was he associated with the hospital at the time the subrogation
claim was asserted. Beth Abraham Hosp., 1999 WL 710780, at *4. Nevertheless,
the court determined that the anti-subrogation rule precluded subrogation against
this non-insured third party. Id.
The anti-subrogation rule applied in Beth Abraham Hospital because the
policy covered the risk of negligence by hospital employees and the doctor was
employed by the hospital at the time the policy was issued. Id. (citing Penn. Gen.,
68 N.Y.2d at 471). The court’s reasoning applies directly here:
[A]llowing National to seek subrogation from Dr.
Zarraga would therefore be to permit it to pass the
incidence of its loss to its own insured and thereby avoid
the coverage which its insured purchased, in violation of
the anti-subrogation rule. …
That Dr. Zarraga is no longer an employee of Beth
Abraham is immaterial. He was an employee at the time
of the alleged malpractice; based on the above reasoning,
plaintiff therefore assumed the risk of liability arising
from his acts or omissions during the policy period.
Id. at *5 (emphasis added).
It is similarly “immaterial” that ANP is not now an insured under the
Insurers’ policies. At the time the policies were issued, and throughout the
22
coverage period, Old Glidden and the Glidden-Durkee Division of Old SCM paid
premiums to the Insurers to assume the risk of liability caused by the paints
business that became ANP. The business that is now ANP was – and was intended
to be – insured under the policies, notwithstanding the fact that the division was
subsequently spun off and acquired by a third party.
To allow the Insurers to recover from ANP through subrogation merely
because the paints business was spun off from Millennium after the coverage
period had closed would result in an inequitable windfall to the Insurers. The
Insurers, having paid for the defense of Millennium as a successor to Old
Glidden/Old SCM, now “cannot, as subrogee[s], recover from another of the
parties for whose benefit the insurance was written.” St. Paul Fire & Marine Ins.
Co. v. Murray Plumbing & Heating Corp., 65 Cal. App. 3d 66, 77 (Cal. App. 2d
Dist. 1976) (applying anti-subrogation rule to bar claims against certain defendants
who were not the named insured under the policy where “it is clear that the intent
of the policy was to cover all property, regardless of ownership”).
The Insurers are unable to cite even a single case in support of their
subrogation claim: they have apparently been unable to locate any case in which a
New York court allowed an insurer to seek subrogation from a formerly-insured
business that was later spun off. Lacking any precedent in support of their
position, the Insurers instead resort to arguing that some – but not all – the cases
23
cited by ANP should be disregarded because (a) the lower courts supposedly
misread Jefferson Insurance; (b) some of the cases arose in the employment
context; and (c) the sole purpose of the anti-subrogation rule is (according to the
Insurers) to prevent conflicts of interest between insurers and insureds. (Br. at 30-
37.) None of these arguments has any merit.
The Insurers contend it was erroneous for the courts below to rely on
Jefferson Insurance, because the third-party defendant “was unquestionably a
covered entity under the policy.” (Br. at 30.) The Insurers assert that Jefferson
Insurance therefore “is not precedent for applying the [anti-subrogation] rule to a
claim against a non-insured.” (Br. at 30.)
The Insurers are fighting a straw man. Jefferson Insurance applied the anti-
subrogation rule to bar insurers’ claim against a third-party indemnitor that was not
a named insured. 92 N.Y.2d 363, 374-75 (1998). This Court held the anti-
subrogation rule applied to protect the third-party entity, whose conduct the policy
was intended to cover. Id. This Court reasoned that the anti-subrogation rule
should apply because “an insurer in explicitly providing for such coverage should
not be surprised to pay claims that it covered.” Id. Further, this Court rejected that
the anti-subrogation rule applies differently to named insureds than to other entities
deemed to have been insured at the time the liability arose. Id. The same principle
applies in this case.
24
Jefferson Insurance, and other New York cases apply the anti-subrogation
rule under “myriad circumstances,” of relationships between the defendant and
insurer. (A30-31, Decision at 17-18.) In this case, the relationship is clear: “[t]he
parties’ corporate history demonstrates that the [Insurers] insured the very risk at
issue in the Lead Cases.” (A32, Decision at 19 (emphasis added).) The Insurers
do not dispute the corporate history; they simply want to ignore it.
The Insurers also attempt to distinguish some, but not all, of the cases the
First Department relied on because they arose in the employment context. (Br. at
34-37.) But this argument misses the point. Nothing in those holdings turned on
issues of employment law. The logic employed by those courts is clearly
applicable in this case. See, e.g., Wheeler, 165 A.D.2d at 143-44 (citing Penn.
Gen., 68 N.Y.2d 465) (holding anti-subrogation rule may bar “claims against
[third-parties] not named in the policy, because the relationship between the [third-
party] and the insured makes it reasonable to infer that the insured paid the insurer
to completely assume the risk of loss by the acts of that [third-party].”).
The Insurers argue that three cases, Schurig, Wheeler, and Beth Abraham,
“have relaxed the ‘against the insured’ requirement” of the anti-subrogation rule.
(Br. at 33.) That is a mischaracterization – none of those cases discuss “relaxing” a
requirement or creating an exception for employee-employer cases. Each of the
cases applies the full requirements of the anti-subrogation rule. The cases each
25
examined the relationship among the insurer, the insured and the third-party
defendant, and determined that the defendant should be “considered an insured for
purposes of preventing subrogation.” Wheeler, 165 A.D.2d at 144. This is not the
courts’ relaxing a requirement. Rather, these decisions illuminate the crux of the
requirement, namely, that the defendant was within the scope of coverage when the
liability arose.2
The Insurers also argue at length that the same three decisions, Schurig,
Wheeler, and Beth Abraham, were solely motivated by the need to avoid conflicts
of interest between an insurer and its insured. Br. at 34-37. Even if that were the
sole principle underlying those decisions (and it is not), it would be fully
implicated here. As discussed in more detail below, Millennium has always
recognized that it was obligated to seek insurance coverage before turning to ANP
for its contractual indemnity. See, infra, I.C.
2 While they expend multiple pages attempting to distinguish certain cases, the
Insurers notably make no effort to distinguish myriad other supporting cases
cited by ANP. Notably, courts in several other states concur with the First
Department, and subrogation has not been eradicated in those states. See Kerr
v. Louisville Hous., Inc., 2 A.D.3d 924, 927 (3d Dep’t 2003); Reeder v. Reeder,
217 Neb. 120, 129 (1984); Cascade Trailer Ct. v. Beeson, 50 Wash. App. 678,
687-88 (Wash. Ct. App. 1988); S. Tippecanoe Sch. Bldg. Corp. v. Shambaugh
& Son, Inc., 182 Ind. App. 350, 371 (Ind. Ct. App. 1979); St. Paul Fire &
Marine Ins. Co. v. Murray Plumbing & Heating Corp., 65 Cal. App. 3d 66, 77
(Cal. Ct. App. 1976); Gen. Ins. Co. v. Stoddard Wendle Ford Motors, 67 Wash.
2d 973, 978-79 (1966).
26
Millennium’s Complaint against ANP expressly sought indemnity only “net
of insurance” and Millennium obligated itself on multiple occasions to cooperate
with ANP to maximize its insurance coverage for the lead liabilities. (A37-38,
Compl. ¶ 10; A531-32, Joint Statement Ex. 14, Lead Litigation Agreement § 2(b)
(Millennium shall “use [its] best efforts in seeking to maximize any and all
insurance recoveries, under the Insurance Policies.”); see also id. § 2(d) “[ANP and
Millennium] are aware that several insurance companies incorrectly have asserted
in litigation that [ANP] has no rights under the Insurance Policies [and] agree to
cooperate in vigorously contesting any and all such assertions or allegations.”)
Millennium, as its Complaint acknowledged, had a right under the APA only
to indemnity for losses that were not covered by insurance. (A37-38, Compl. ¶ 10
(Millennium seeks both a declaratory and monetary judgment that ANP is
obligated to indemnify Millennium for all fees, costs, damages, liabilities and
expenses arising from the Lead Litigation Cases “to the full extent not covered by
insurance.”) (emphasis added).) Indeed, Millennium only sued ANP when the
Insurers insisted that it do so, under threat of breaching their policies. (SA14-16,
Klatell Affirm., Ex. B at 4-6.) Plainly, the Insurers’ position is in conflict with
their insured, even if the only insured the Insurers recognize is Millennium.
More fundamentally, the Insurers attempt to wish away the paramount
motivating factor that the three cases share with this case. As the First Department
27
correctly noted, the most significant purpose of the anti-subrogation rule is the one
directly implicated here: “fundamentally, the purpose of [the anti-subrogation] rule
is to prevent an insurance company from recovering for ‘the very claim for which
the insured was covered.’” (A30, Decision at 17, quoting Jefferson Ins. Co., 92
N.Y.2d at 373.)
For decades, the Insurers accepted payments to assume the risk of loss
caused by the paints business and the pigments business of Old Glidden and Old
SCM, including the conduct of the paints business that became ANP. The
Insurers, “in explicitly providing for such coverage should not be surprised to pay
claims that [they] covered,” and are barred by the anti-subrogation rule from
attempting to transfer the risk back to ANP. Jefferson Ins. Co., 92 N.Y.2d at 375.
The Insurers argue that the First Department ignored the requirement that the
anti-subrogation rule applies to an insured and focused exclusively on whether the
payments the Insurers seek to recover were for risks covered by the policies. (Br.
at 30-33.) Not so. The First Department (and the Commercial Division) properly
examined whether ANP is considered an insured for purposes of the anti-
subrogation rule and concluded based on well-established case law that because
“the parties’ corporate history demonstrates” that the paints business was covered
at the time the liabilities at issue arose, ANP is within the scope of the anti-
subrogation rule. (A32, Decision at 19.)
28
B. The Insurers’ Policy-Based Arguments Are Disingenuous.
The Insurers argue that affirmance of the First Department’s decision will
“effectively eliminate subrogation for insurers in New York,” at least if a claim “is
related to the risk covered by the policy.” (Br. at 3-4; 40-42.) According to the
Insurers, this will cause premiums to rise, insurers to leave New York state, and
other terrible consequences. (Id.) This chimerical argument is entirely a litigation
construct: it is a sure bet that if the First Department’s decision is affirmed (as
ANP respectfully submits it should be), not only will subrogation survive in New
York, but these very Insurers and Resolute will continue to make subrogation
claims under New York law.
The decision below did not in any way preclude subrogation claims against a
third-party stranger to a policy. In fact, the Commercial Division and the First
Department affirmatively recognized that subrogation “entitles an insurer … to
seek indemnification from third parties whose wrongdoing has caused a [covered]
loss.” (A28, Decision at 15, quoting ELRAC, Inc. v. Ward, 96 N.Y. 2d 58, 75
(2001) (internal quotations omitted).) Instead, the First Department, agreeing with
the Commercial Division, concluded that because “the parties’ corporate history
demonstrates” that the paints business that was spun off was covered by the
policies at the time they were issued and the liability at issue arose, the anti-
subrogation rule applies. (A32, Decision at 19.) The decision in no way prohibits
29
subrogation claims against a true third party whose conduct causes the loss in
question.
Contrary to the Insurers’ overheated rhetoric, the First Department also did
not change the expectations of the Insurers on which the economics of the
insurance transaction was based; the First Department simply held the Insurers to
the bargain they struck. It is undisputed that at the time the policies were written,
the Insurers had no expectation that the paints business would be spun off decades
later, in a transaction that (allegedly) involved a contractual indemnity running
from the spun-off business to the insured business that remained behind.3
The spin-off transaction was not even a twinkle in SCM’s eye from 1962-
1970, the period covered by the policies. The Insurers therefore charged and
collected premiums based on the assumption that they were insuring a single,
unified business and had no third party to which to look for subrogation. Indeed,
the Insurers have already gotten a bargain. At the time they wrote their policies,
the policies covered both a paints and a pigments business. Thanks to the spin-off
transaction and the non-transferability of the policies, after 1986 their coverage
was limited to the pigments business. Far from upsetting the economic basis upon
which the policies were written, allowing the Insurers to pursue a subrogation
3 ANP vigorously disputes that the APA obligates it to indemnify for pigments-
related liabilities as opposed to paints-related liabilities, but that issue is not
before this Court on appeal. (A19, Decision at 6.)
30
claim against a formerly-insured business that was later spun off would only
provide a further windfall. Such a result would be as unsupported by any policy or
economic rationale as it is by any New York precedent.
The Insurers’ policy-based arguments ring especially hollow in the context
of this litigation. Although this lawsuit is brought in the name of the London
Insurers and Northern, the claims administrator controlling the litigation is
Resolute Management Inc. (A1054-57, Joint Statement Ex. 90, Dinunzio Dep. pp.
5-14.) Indeed, it was a Resolute employee who gave the corporate representative
deposition in the case. (Id.) In this action, Resolute seeks to improve, not
maintain, the Insurers’ economic position at the time the policies were written.
The First Department’s decision rejecting that attempt does not eliminate
subrogation and does not in any way disturb the economic assessment that led the
Insurers to set their premiums at the level that they did.
C. The Insurers’ Claim Is Not A Proper Subrogation Claim In The
First Instance.
Because the courts below concluded that the anti-subrogation rule applied to
prohibit the Insurers’ claim, they never had to address an independent infirmity
that offers a separate ground for affirmance: the Insurers’ claim is not a proper
subrogation claim in the first instance. The Insurers appear to have no response to
31
this point: they have not cited a single case in which an insurer was permitted to
pursue a claim of subrogation under these circumstances.4
“Subrogation is an equitable doctrine that ‘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.’” ELRAC, Inc. v.
Ward, 96 N.Y. 2d 58, 75 (2001), quoting N. Star Reins. Corp., 82 N.Y. 2d at 294.
Here, ANP is indisputably neither a wrongdoer nor a tortfeasor, and did not cause
Millennium’s losses. Millennium Holdings Inc. v. Glidden Co., No. 600920/2008,
2009 N.Y. Slip. Op. 31498 (U) (Trial Order), 2009 WL 1905163, at *4 (N.Y. Sup.
Ct. June 24, 2009) (finding that ANP is not a wrongdoer that caused the injuries
alleged in the Lead Litigation Cases).
Instead, the Insurers here are seeking to capitalize on a contractual
indemnity found in a contract entered into many years after the policy period. The
doctrine of subrogation is simply not implicated. But perhaps even more
fundamentally, the terms of that contract are irreconcilable with any claim by the
Insurers; even if the indemnity applied to the liabilities at issue (a proposition ANP
vigorously disputes), the Amended Purchase Agreement is crystal clear that (a) the
indemnity can be invoked only by Millennium, not its insurers; and (b) Millennium
4 In addition to the existential problem that this claim is far outside the doctrine
of subrogation under New York law, the Insurers face additional
insurmountable obstacles described, infra, at Point III.
32
can seek indemnity only after pursuing its insurance coverage to the maximum
extent possible. Subrogation does not permit the Insurers to take advantage of the
indemnity and disregard the balance of the APA.
Three provisions of the APA require Millennium to look first to any
insurance. But the benefit to ANP of requiring Millennium to first pursue
insurance would be illusory if the Insurers could then turn around and seek
subrogation against ANP for the very same amounts. These provisions would
therefore have no force or effect if the APA were read to allow the Insurers to
pursue subrogation against ANP.
First, the Side Letter Agreement to the APA provides that ANP will receive
“the benefit of any policy of insurance to the extent the same would provide cover
for liability . . .” (A454-55, Joint Statement Ex. 13, § 5.) 5 The Ohio Supreme
Court professed itself confused about the meaning of the side letter given that
Hanson, the entity that originally executed the Side Letter, did not even own the
insurance policies at issue. 861 N.E. 2d at 117. But the Side Letter assures that
ANP will receive not the policies themselves, but the benefit of Millennium’s
5 The Side Letter Agreement was novated as part of the APA, and Millennium
and ANP assumed the rights and obligations under that Agreement. (A141-44,
Compl. at Ex. 2 (presenting Side Letter Agreement as part of the 1986
Purchase Agreement); A539-41, A549, Joint Statement Ex. 14, Novation
Agreement § 1.04 & Sched. A.)
33
coverage, because Millennium will pursue insurance recoveries before looking to
any indemnity.
The APA thus unambiguously provides that ANP will not be responsible for
costs covered by Millennium’s insurers. That provision would be rendered
meaningless if ANP were required to repay the Insurers through subrogation. See
Schiller v. Cmty. Tech., Inc., 78 A.D.2d 762, 763 (4th Dep’t 1980) (reasoning that
it “is undesirable” to allow subrogation if “there would in effect be no insurance if
subrogation were permitted”). There is no way to interpret “the benefit of any
policy of insurance” to require ANP to pay the Insurers. See Hooper Assocs. v.
AGS Computers, Inc., 74 N.Y.2d 487, 493 (1989) (indemnification clause must be
construed to “afford[] a fair meaning to all of the language employed by the parties
in the contract and leave[] no provision without force and effect”).
Second, the APA expressly disclaims the creation of any third-party
beneficiary rights. (A137, APA § 10.8.) The Insurers are indisputably not parties
to the APA. They are therefore specifically precluded from asserting Millennium’s
contractual indemnification rights by the express terms of the APA. See Bd. of
Mgrs. of Alexandria Condo. v. Broadway/72nd Assocs., 285 A.D.2d 422, 424-25
(1st Dep’t 2001) (where a contract “by its own terms, expressly negates
enforcement of the contract by third parties, … that provision is controlling.”).
34
Third, by virtue of amendments incorporated into the APA, Millennium
expressly undertook to seek to maximize its insurance coverage before seeking
indemnity from ANP, and to provide ANP with the benefits of that coverage.
(A531-32, Joint Statement Ex. 14, Lead Litigation Agreement §§ 2(b), (d).) 6
These unambiguous provisions of the APA would have no value or significance if
all insurance coverage would have to be repaid by ANP because the Insurers have
brought a subrogation claim.
To allow the Insurers to assert subrogation rights against ANP based on the
indemnity obligations of the APA would be to render these three express
provisions of the APA superfluous. Millennium recognized as much, as its claims
against ANP explicitly excluded any costs reimbursed by its insurers. (A37-38,
Compl. ¶ 10.) In light of the APA’s express language that Millennium must look
first to its insurance and that no third parties can enforce the APA, the Insurers
cannot now assert a claim under the APA for ANP to reimburse them. But the
APA is the sole basis for the Insurers’ subrogation claim. The Court thus has an
entirely independent ground on which to affirm the First Department’s dismissal of
the Insurers’ claims.
6 In 2002, Millennium terminated the Lead Litigation Agreement. The
termination does not negate the clear intent of the parties to the APA that
Millennium would look first to its insurers, and Millennium and ANP did not
enter into a subsequent agreement that would imply that ANP was obligated to
reimburse Millennium’s insurers.
35
POINT II: THE FIRST DEPARTMENT CORRECTLY DISMISSED THE
INSURERS’ SUBROGATION CLAIM FOR A VOLUNTARY PAYMENT.
The Insurers also seek reversal with respect to their voluntary contribution to
the Santa Clara Settlement. They assert that the First Department’s affirmance of
dismissal of this claim is contrary to precedent and is bad public policy. To the
contrary, the First Department properly dismissed this claim because the Insurers’
settlement contribution was voluntary and cannot support a claim of subrogation.
After paying $3.2 million to fund the Santa Clara Settlement, the Insurers
asserted claims against their insured, Millennium, in Ohio state court, Millennium
Holdings LLC, et al. v. Lumbermens Mut. Cas. Co., et al., No. 411388 (Cuyahoga
Cnty. Oh. Aug. 8, 2013).7 The Insurers sought to claw back their contribution to
the Santa Clara Settlement. In that litigation, the Insurers argued they were not
obligated to contribute to the Santa Clara Settlement under the terms of the
policies. (A366, Joint Statement ¶ 33; A1068-071, Dinunzio Dep. pp. 60-71.)
The Ohio court determined that (1) the Insurers’ contribution to the Santa
Clara Settlement was not required under the relevant insurance policies, and (2) the
Insurers are not entitled to claw back the $3.2 million. (A1193-1200, 1202-03,
Ohio Ct. Opinion at 8, 10-11.) The Ohio court denied the claw back request
because the Insurers voluntarily made that contribution with full knowledge of the
7 (See A1193-1204, Opinion and Order, Court of Common Pleas, Cuyahoga
County, State of Ohio (Aug. 8, 2013) (“Ohio Ct. Opinion”).)
36
settlement’s terms and of Millennium’s intention to settle with or without their
participation. Id. The Insurers did not appeal this decision, and it is now a final
ruling. (Br. at 27.)
The First Department correctly held that, based on the Ohio Court’s ruling,
the Insurers’ Santa Clara contribution was a voluntary payment for which no
subrogation claim can lie.8 See, e.g., Broadway Houston Mack Dev., LLC v. Kohl,
71 A.D.3d 937 (2d Dep’t 2010); Merchants Mut. Ins. Group v. Travelers Ins. Co.,
806 N.Y.S.2d 813 (4th Dep’t 2005).
Using the same argument rejected by the First Department, the Insurers
again have taken the awkward position that the Santa Clara Settlement portion of
their subrogation claims was neither covered under the insurance policies, nor
voluntary. (Br. at 42-47.) The Ohio court has conclusively ruled that the Santa
Clara Settlement payment fell outside the policy coverage. Yet, the Insurers now
insist they are entitled to pursue subrogation because the Santa Clara Settlement
payment was made while coverage was being disputed. (Br. at 44.)
8 The Commercial Division properly determined that the Ohio court’s
determination that the Santa Clara contribution was voluntary warranted a
“conditional” grant of summary judgment on that ground because the Ohio
court’s ruling could have been appealed. (A29, Decision at 16, n.11.) That
decision is now final, and the lower courts’ determination is no longer
“conditional.”
37
The Insurers propose a heads-we-win/tails-you-lose approach that has no
basis under New York law. They urge that their Santa Clara payment was
“reasonable” enough to fall within a right to subrogation but just “voluntary”
enough to fall outside the anti-subrogation rule. This is nonsense. The Insurers
have no right of subrogation for their voluntary contribution. But even if they did,
their claim for that payment still would be barred by the anti-subrogation rule.
The Insurers’ appeal of the First Department’s ruling with respect to the
Santa Clara Settlement fails for several reasons:
The Insurer’s assertion that their contribution to the Santa Clara Settlement
is not a voluntary payment, (Br. at 42-46), has no basis in fact or law. New York
law is clear that an insurer has no right of subrogation to recover a voluntary
payment such as the Insurers’ contribution to the Santa Clara Settlement. See
Broadway Houston, 71 A.D.3d at 938 (subrogation not available for a voluntary
payment even if the payment was helpful to protect insurer’s interest). “[W]hen an
insurer who is not acting under a mistake of material fact or law assumes the
defense and indemnification of an insured when there is no obligation to do so, that
insurer becomes ‘a volunteer with no right to recover the monies it paid on behalf
of [the] insured.’” Merchants Mut. Ins. Group v. Travelers Ins. Co., 806 N.Y.S.2d
at 815, citing Nat’l Union Fire Ins. Co. v. Ranger Ins. Co., 190 A.D.2d 395, 397-
99 (4th Dep’t 1993).
38
The Insurers make no credible attempt to establish that their contribution to
the Santa Clara Settlement was made under mistakes of material fact or law.
Indeed, now three courts – the Ohio court, the Commercial Division, and finally
the First Department – have agreed that the Santa Clara contribution was
voluntary. The Insurers have no basis to re-litigate in this Court the clear holding
that the Insurers made a voluntary payment towards the Santa Clara Settlement and
that the payment was not necessary to protect the Insurers’ interests. (A1200,
1202-03, Ohio Ct. Order at 8, 10-11 (emphasis added).)
The Insurers do not and cannot dispute that the well-established rule in New
York is that subrogation is denied where payments are voluntarily made. See, e.g.,
Bermuda Trust Co., Ltd. v. Ameropan Oil Corp., 266 A.D.2d 251, 698 N.Y.S.2d
691 (2d Dep’t 1999); Reliance Ins. Co. v. State Farm Mut. Auto. Ins. Co., 243
A.D.2d 456, 664 N.Y.S.2d 958 (2d Dep’t 1997); Ranger Ins. Co., 190 A.D.2d 395.
In their effort to cast the First Department’s decision as in conflict with New
York law, the Insurers primarily rely upon a single Third Department case:
General Accident Insurance Co. v. U.S. Fidelity & Guaranty Insurance Co., 193
A.D.2d 135 (3d Dep’t 1993). (Br. at 43.) But nothing in the case conflicts with
the First Department’s decision here. First, this case has nothing to do with
subrogation; it involved two insurance companies disputing pro rata coverage.
Second, the case does not employ or even mention the purported “good faith”
39
standard that the Insurers have asserted in their brief. Third, the court there ruled
that the liability in question was covered under the policy. See id. at 139. See also,
e.g., Travelers Ins. Co. v. Nory Const. Co., Inc., 708 N.Y.S.2d 252, 257 (N.Y. Sup.
2000) (denying recovery and distinguishing General Accident Insurance Co.
because “the insurance companies therein were determined to be co-insurers and
there was no indication that the plaintiff paid beyond its policy limits or for a loss
it was not obligated to pay.”). Thus the insurer in General Accident Insurance Co.
was by definition not a volunteer.
Here, the Ohio court ruled the Insurers were not obligated for the Santa
Clara Settlement under their policies, and the Insurers have consistently taken the
position that they were not obligated under their policies. For this reason, the
Insurers are merely “volunteer[s] with no right to recover the monies [they] paid on
behalf of [their] insured.” Ranger Ins. Co., 190 A.D.2d at 397-99 (subrogation
denied for payments made by insurer to its insured for defense and settlement –
allegedly to avoid “a claim of bad faith” – where insurer denied that coverage was
obligated under the policy).
The Insurers also cite another much older Third Department case, Mid–City
Shopping Center v. Consolidated Mutual Ins. Co., 35 A.D. 2d 1053 (3d Dep’t
1970). At least one court has rejected that case as “unpersuasive because the
Court’s rationale utilized therein does not withstand close analysis and scrutiny.”
40
Nory Const. Co., Inc., 708 N.Y.S.2d 252, 257 (citing 35 A.D. 2d 1053 (3d Dep’t
1970)). “Clearly, the Court’s rejection of the cardinal rule that a volunteer is not
entitled to subrogation is at odds with well-established legal precedent, including a
prior decision by the same Department.” Id. (citing Charles H. Dauchy Co. v.
Wilkinson, 251 A.D. 53 (3d Dep’t 1937)). 9
The Insurers also cite a single federal court case applying New York law to
argue that “an insurer does not lose the right to recover simply because it settled
non-covered claims.” (Br. at 44, citing Americas Ins. Co. v. Stolt-Nielsen, Inc., No.
97 Civ. 8018 (RCC), 2004 WL 2199497 (S.D.N.Y. Sept. 30, 2004).) In fact, this
case supports ANP’s position regarding the Santa Clara contribution. Stolt-Nielsen
held that the non-covered claim could not give rise to subrogation. 2004 WL
2199497 at *4-5 (“This is reimbursement, not subrogation.”) The case thus
confirms that the Insurers cannot recover from ANP for the Santa Clara
contribution because suits “for losses outside of the policy between [insurers and
insureds] are not a matter of subrogation at all.” Id. at *5.
9 In support of their argument that “an insurer is not a volunteer when it settles a
claim for which coverage is disputed,” the Insurers cite only cases from outside
New York. (Br. at 44.) The Insurers similarly rely on an insurance treatise
which in turn cites only cases from outside New York. (Br. at 43, 46, 47,
citing 2 Allan D. Windt, Insurance Claims and Disputes § 10.10, at 1, n.1 (Br.
Addendum at 1, n.1.))
41
Even if the Insurers’ Santa Clara contribution were not voluntary, their
claims would still be barred by the anti-subrogation rule. The Insurers either have
no subrogation claim because their payment was voluntary, or they have a
subrogation claim that is barred by the anti-subrogation rule. See, supra, Point I.
Echoing their policy-based arguments with respect to the anti-subrogation
rule, the Insurers assert (ipse dixit) that the First Department’s decision “is bad
public policy, [because] it will discourage insurers from acting in good faith and
settling when coverage is in dispute.” (Br. at 42.) Denying subrogation for the
Insurers’ voluntary payment does not in any way create “grave policy
implications” or “force … more litigation between insurers and insureds,” as the
Insurers protest. (Br. at 46, 47.)
An insurer retains full control of its choice. On the one hand it can choose to
voluntarily pay toward a settlement and contest coverage (thereby abandoning any
subrogation rights). On the other hand, it can choose to acknowledge coverage and
pursue a subrogation claim. The Insurers’ only real complaint here is that they
cannot have their cake and eat it too, by both denying coverage and seeking
subrogation. The reasoning of the Ohio court is persuasive:
[I]f an insurer weighs its options and determines to pay
towards a settlement to cut-off defense costs, eliminate
the risk of larger adverse judgment they might have to
indemnify, and avoid the risk of a bad faith claim, then
this Court does not find it unfair or unjust to hold the
insurer to its choice.
42
(A1202, Order at 10.) The Commercial Division and the First Department both
agreed, and the Insurers have provided no basis for this Court to reverse those
decisions. The only policy goal served by the Insurers’ position is to pry open
every avenue imaginable for an insurer to avoid making payments on claims.
Finally, the Insurers assert that their subrogation claim for the voluntary
Santa Clara Payment should not be barred with respect to “policies with express
subrogation clauses.” (Br. at 47). The Insurers cite no New York case for this
assertion. This omission implicitly acknowledges that there is no basis under New
York law for the exception that Insurers attempt to carve out.
The Insurers rely solely on an insurance treatise which merely posits that an
insurer may have such an entitlement in certain states, with New York not listed
among them in the corresponding footnote. (Br. at 47, citing 2 Allan D. Windt,
Insurance Claims and Disputes § 10.10, at 1, n.1 (Br. Addendum at 1, n.1).) The
treatise goes on to describe a case barring contractual subrogation for a voluntary
payment. The insurance policy in that case had relevant language in that is
functionally identical to that found in certain of the Insurers’ policies at issue.10
10 Only the primary insurance policy for the years 1965-1968 included an express
subrogation clause, which provided, in relevant part: “Upon payment of any
claim, demand, suit or judgment covered hereby the Underwriters … shall be
subrogated…” (A364, A671, A699, Joint Statement ¶¶ 18-19, Exs. 17-18
(emphasis added).) The other insurance policies at issue contain no express
subrogation clause whatsoever. (A16, Decision at 3.) The Insurers concede
this point and further concede that 75% of their claims fall under the policies
43
(Windt at 3 (“[I]f the carrier pays the insured for a loss for which it is not actually
liable, the insurer has not made a payment that is encompassed by the subrogation
clause and is not, therefore, vested with a contractual right to subrogation.”) (Br.
Addendum at 3).) The treatise the Insurers cite thus fully supports the First
Department’s holding that the Insurers cannot seek subrogation for their voluntary
contribution to the Santa Clara Settlement.
POINT III: THE INSURERS’ CLAIMS SUFFER FROM A
HOST OF OTHER LEGAL DEFICIENCIES.
ANP demonstrated in the Commercial Division that the Insurers’ claims of
subrogation face several additional obstacles beyond the application of the anti-
subrogation rule. The Commercial Division agreed with many of these arguments;
others the court below did not need to reach. Yet the Insurers ignore these barriers
to their recovery and ask this Court to simply “reverse summary judgment and
enter judgment in appellant’s favor.” (Br. at 28.) Even if the Insurers were able to
overcome the anti-subrogation rule, their subrogation claims would still fail. The
additional fatal flaws in the Insurers’ claims offer further grounds for affirming the
First Department’s dismissal.11
without a subrogation provision. (A1117.19-.21; A1117.25-.27, Joint
Statement Ex. 96, Resp. Nos. 5 & 6, Ex. 3.)
11 At a minimum, these issues would have to be addressed on remand and
preclude the entry of judgment in the Insurers’ favor, even in the unlikely event
44
A. The Commercial Division Properly Found that the Insurers Have
No Claim For Equitable Subrogation Against ANP.
The Insurers continue to raise the baseless assertion that they are entitled to
equitable subrogation against ANP. (Br. at 43, n.17.) The Commercial Division
correctly rejected this argument. (A16, 31, Decision at 3, n.2., 18.)
The Insurers fail to acknowledge that their claim for equitable subrogation is
insupportable in light of the Commercial Division’s finding that ANP is neither a
wrongdoer nor a tortfeasor, and did not cause Millennium’s losses. Millennium
Holdings Inc. v. Glidden Co., No. 600920/2008, 2009 N.Y. Slip. Op. 31498 (U)
(Trial Order), 2009 WL 1905163, at *4 (N.Y. Sup. Ct. June 24, 2009) (finding that
ANP is not a wrongdoer that caused the injuries alleged in the Lead Litigation
Cases). The Insurers have never disputed (including on this appeal) that ANP is
neither a wrongdoer nor a tortfeasor, and did not cause Millennium’s losses.
Indeed, ANP is simply a more remote successor than Millennium to the paints
business.
The right to equitable subrogation accrues only when an insurer can
establish that it paid “for losses sustained by its insured that were occasioned by a
wrongdoer,” or a negligent third person. Fasso v. Doerr, 12 N.Y.3d 80, 86-87
(2009); see also Kaf-Kaf, Inc. v. Rodless Decorations, Inc., 90 N.Y.2d 654, 660
that this Court were to disagree with the First Department’s application of the
anti-subrogation rule and the voluntary payment doctrine.
45
(1997). Here, the Insurers have no equitable subrogation claim against ANP, who
committed no tort and did not cause the loss.
B. The Insurers Have No Claim for Contractual Subrogation.
Because ANP is not a tortfeasor, the Insurers’ only possible theory of
recovery is contractual subrogation. Yet even if the Insurers’ claim were not
barred by the anti-subrogation rule, this theory of contractual subrogation fails for
several reasons. First, as the Commercial Division correctly found, nearly all of
the subject policies lack a subrogation clause – which is a prerequisite to a
contractual subrogation claim. (A16, Decision at 3.) Second, any indemnification
obligation owed by ANP under the APA would be reduced significantly by the
statute of limitations and a set-off for environmental indemnities owed by
Millennium to ANP.
1. Nearly All of the Subject Policies Lack a
Subrogation Clause.
A prerequisite to a contractual subrogation claim is that the policy at issue
must expressly provide for subrogation. Fields v. W. Millers Mut. Fire Ins. Co.,
290 N.Y. 209, 215 (1943) (“There being no [express] right to subrogation, the
insurer, upon payment of the indemnity promised, simply performs his contract,
and that is the end of the whole thing.”) (internal quotation and citation omitted).
As the Commercial Division correctly found, nearly all of the subject policies lack
a subrogation clause; only the “policies issued between 1965-1968” contain an
46
express subrogation clause. (A16, Decision at 3.) The Insurers concede this point
and further concede that 75% of their claims fall under the policies without a
subrogation provision. (A1117.19-.21; A1117.25-.27.)
The Insurers had attempted to rely on their policies’ “other insurance clause”
as a substitute for a contractual subrogation clause, but the Commercial Division
correctly repudiated that the “other insurance” provision had any application to this
case. (A16, 31, Decision at 3, n.2., 18.) ANP is not by any stretch an “other
insurer” of Millennium. As the Commercial Division recognized, ANP is at most a
contractual indemnitor, and contractual indemnity simply is not insurance. (A31,
Decision at 18, (“When the [Insurers] argue that ANP must indemnify Millennium
before the [Insurers] are on the hook, they treat Section 9.3 as Millennium’s ‘other
insurance.’ This is wrong.”), citing Am. Cas. of Reading, Pa. v. St. Charles Hosp.
& Rehab. Ctr., 21 A.D. 3d 914, 915-16 (2d Dep’t 2005).)
2. Additional Significant Limitations on the
Insurers’ Claims.
The Insurers’ claims face other significant limitations as well.12 For
example, the Insurers’ claims are time-barred to the extent they seek to recover
12 The Insurers, as subrogees, are subject to the same defenses and counterclaims
related to this dispute as Millennium, their insured. See, e.g., Allstate Ins. Co.
v. Stein, 1 N.Y.3d 416, 420-21 (2004) (“[T]he subrogee possesses only such
rights as the subrogor possessed, with no enlargement or diminution” and
47
defense costs paid by Millennium prior to March 25, 2002. The Insurers’ claims
also are time-barred to the extent they seek to recover payments the Insurers made
to Millennium after March 16, 2011, the date of the 2011 Settlement Agreement,
which terminated the APA. Finally, the Insurers’ claims, if they ever had any,
would be subject to a set-off for the $1.235 million liability Millennium owed ANP
under the APA for unreimbursed environmental expenditures. (RA14; RA35;
A1047, Drucker Dep. pp. 71-72; A204-05, Counterclaims ¶¶ 44-47; A363, Joint
Statement ¶ 15; A568-71, 581, Order dated Nov. 30, 2010 at 18-21, 31 (holding
that the APA is a single unitary contract such that there is no right to product
liability indemnity without offset for corresponding environmental indemnity).)
subject to “all defenses that [the defendant] would have against the subrogor.”)
(internal quotation omitted).
CONCLUSION
For all of the foregoing reasons, this Court should affirm the First
Department's unanimous affirmance of the Commercial Division's entry of
judgment in favor of ANP.
Dated: July 8,2015
New York, New York
BY:Att~=-t.~~+=:::=---
Maura K. Mo an
James B. Amler
DEBEVOISE & PLIMPTON LLP
919 Third Avenue
New York, NY 10022
(212) 909-6000
Attorneys for Defendants-Respondents
48