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THE “FOLLOW THE SETTLEMENTS” DOCTRINE DOES NOT APPLY TO A REINSURER WHERE THE PAYMENTS MADE BY THE PRIMARY INSURER WERE CLEARLY BEYOND THE SCOPE OF THE ORIGINAL POLICY (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the defendant reinsurer was not required to indemnify the plaintiff primary insurer because the primary insurer was not obligated to make the pay-out under its umbrella policy. The so-called “follow the settlements” doctrine did not apply because the payments made by the plaintiff were clearly beyond the scope of the original policy:

Where it applies, the follow-the-settlements doctrine “ordinarily bars challenge by a reinsurer to the decision of [the cedent] to settle a case for a particular amount” … . Specifically, under that doctrine, “a reinsurer is required to indemnify for payments reasonably within the terms of the original policy, even if technically not covered by it. A reinsurer cannot second guess the good faith liability determinations made by its reinsured . . . The rationale behind this doctrine is two-fold: first, it meets the goal of maximizing coverage and settlement and second, it streamlines the reimbursement process and reduces litigation” …  There are, however, limitations to the doctrine. The follow-the-settlements doctrine “insulates a reinsured’s liability determinations from challenge by a reinsurer unless they are fraudulent, in bad faith, or the payments are clearly beyond the scope of the original policy or in excess of [the reinsurer’s] agreed-to exposure” … . Utica Mut. Ins. Co. v Abeille Gen. Ins. Co., 2022 NY Slip Op 03815, Fourth Dept 6-9-22

Practice Point: Here the “follow the settlements” doctrine did not apply to a reinsurer who refused to cover payments made by the primary insurer because those payments were clearly beyond the scope of the original policy.

 

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ALTHOUGH THE PLAINTIFFS’ $96,000, CONSTITUTING TWO MONTHS’ RENT AND A SECURITY DEPOSIT, WAS TRANSFERRED TO DEFENDANT FROM AN ATTORNEY’S IOLA ACCOUNT, THE $96,000 CONSTITUTED AN “IDENTIFIABLE FUND” WHICH DEFENDANT “CONVERTED” WHEN IT WAS NOT RETURNED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Rodriguez, over a two-justice dissent, determined the $96,000 transferred from an attorney’s IOLA account to defendant landlord was an “identifiable fund” which was a proper subject of this conversion action. The fund was for two months rent and a security deposit on a lease. But the lease was never signed. By keeping the $96,000 defendant had converted the “identified fund.” One of the points in the opinion was that the transfer of funds to an attorney’s IOLA account does not necessarily render the funds incapable of being “identified:”

… [W]e now clarify that our prior decision in SH575 Holdings [195 AD3d 429], which found that funds were not specifically identifiable by virtue of being transferred into the IOLA account of an attorney involved in a Ponzi scheme, should not be read to preclude a cause of action for conversion when funds at issue have been commingled to any extent. Here, notwithstanding the funds’ transmission through plaintiffs’ attorney’s IOLA account, the funds’ temporary presence in that account did not constitute commingling under any measure pertinent to this cause of action. While the funds were in plaintiffs’ attorneys’ IOLA account, they remained plaintiffs’ funds. Consequently, this conclusion is not at odds with this Court’s holding in SH575 Holdings. Family Health Mgt., LLC v Rohan Devs., LLC, 2022 NY Slip Op 03796, First Dept 6-9-22

Practice Point: Here the plaintiffs’ security deposit and two-months rent amounting to $96,000 were transferred to defendant landlord from an attorney’s IOLA account. However the lease was never signed and defendant did not return the money. Despite the fact that the money was deposited in the IOLA account, it remained an “identifiable fund” and was therefore a proper subject for this conversion action.

 

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THE WIFE RAISED QUESTIONS OF FACT ABOUT (1) THE FAIRNESS OF THE NEGOTIATIONS FOR THE PRENUPTIAL AGREEMENT, (2) WHETHER HER ATTORNEY, CHOSEN FOR HER, ENGAGED IN MEANINGFUL NEGOTIATIONS, (3) WHETHER SHE RATIFIED THE AGREEMENT, AND (4) WHETHER SHE WAS ENTITLED TO TEMPORARY MAINTENANCE (THIRD DEPT).

The Third Department, reversing Supreme Court, determined the wife raised questions of fact about the fairness of the prenuptial agreement negotiations and whether she ratified the agreement. The wife alleged her husband chose the attorney who represented her merely to ensure she understood the agreement and not to negotiate its terms. In addition, Supreme Court should not have denied the wife’s motion for temporary maintenance:

On the last day of negotiations between counsel, the wife averred that she was preparing to travel to Florida with the parties’ children. While the communications submitted by the husband in support of his motion indicate that counsel for the parties continued discussing potential changes to the agreement, there is conflicting evidence establishing the extent that the wife was meaningfully involved in those discussions. The wife further averred that the first opportunity she had to review the agreement was in Florida, at which point it was already in its final form. We find that the foregoing facts, if established, raise issues concerning whether the wife was meaningfully represented during the abbreviated negotiations, and also raise an inference that the husband did not intend on engaging in a good faith negotiation of the agreement from the outset, which, if true, would be sufficient to establish overreaching on his part … . …

We further … the husband’s contention that the wife ratified the agreement and is therefore foreclosed from challenging its validity. … [I]t is clear that the wife did not begin receiving benefits under the agreement until the husband commenced this divorce action, and she took sufficiently prompt action to challenge the validity of the agreement in the context of this litigation … . …

… Supreme Court improperly denied the wife’s cross motion for temporary maintenance. To this end, the wife argues that the maintenance provision of the agreement must be invalidated for failing to comply with the requirements of Domestic Relations Law former § 236 (B) (5-a) (f). We agree. Spiegel v Spiegel, 2022 NY Slip Op 03778, Third Dept 6-9-22

Practice Point: Here in this divorce action there were questions of fact whether the wife was meaningfully represented in the prenuptial-agreement negotiations and whether she ratified the agreement. In addition, pursuant to the Domestic Relation Law, Supreme Court should have awarded temporary maintenance.

 

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THE MANNER IN WHICH THE FIREFIGHTER’S GENERAL MUNICIPAL LAW 207-A INJURY CLAIM SHOULD BE PROCESSED IS ARBITRABLE BECAUSE THE ISSUE IS ADDRESSED IN THE COLLECTIVE BARGANING AGREEMENT (CBA); THE PETITION TO STAY ARBITRATION SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the petition to stay arbitration in this General Municipal Law 207-a injury claim by a firefighter should not have been granted. The manner in which a section 207-a claim is processed is an arbitrable matter:

… [T]he union filed a grievance alleging, inter alia, that the City was in violation of the CBA [collective bargaining agreement] and the negotiated General Municipal Law § 207-a policy by failing to adhere to the required procedures in processing a claim by one of the union’s members for General Municipal Law § 207-a benefits. . …

It is undisputed that there is no constitutional, statutory, or public policy provision prohibiting the arbitration of the dispute at issue in this matter…. [G]iven the breadth of the arbitration clause in this case, the dispute regarding the City’s processing of claims for General Municipal Law § 207-a benefits bore a reasonable relationship to the general subject matter of the CBA, since Article 10 of the CBA expressly refers to the negotiated policy for the provision of such benefits … . “[T]he question of the scope of the substantive provisions of the CBA is a matter of contract interpretation and application reserved for the arbitrator” … . Matter of City of New Rochelle v Uniformed Fire Fighters Assn., Inc., 2022 NY Slip Op 03722, Second Dept 6-8-22

Practice Point: Here the issue (how a firefighter’s General Municipal Law 207-a injury claim should be processed) was addressed in the collective bargaining agreement (CBA) was therefore arbitrable. The petition to stay arbitration should not have been granted.

 

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DEFENDANT DID NOT FILE A NOTICE OF CLAIM AGAINST PLAINTIFF VILLAGE IN THIS CONTRACT ACTION AS REQUIRED BY CPLR 9802; THEREFORE DEFENDANT’S ANTICIPATORY-REPUDIATION COUNTERCLAIM SHOULD HAVE BEEN DISMISSED; THE VILLAGE’S PARTICIPATION IN DISCOVERY WAS NOT DESIGNED TO MISLEAD THE DEFENDANT AND DID NOT TRIGGER THE ESTOPPEL DOCTRINE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the defendant’s failure to file a notice of claim required dismissal of its counterclaim (anticipatory repudiation of contract) against the village:

Pursuant to CPLR 9802, “no action shall be maintained against the village upon or arising out of a contract of the village . . . unless a written verified claim shall have been filed with the village clerk within one year after the cause of action shall have accrued.” “‘[S]tatutory requirements conditioning suit [against a governmental entity] must be strictly construed'” … . This is true even when the municipality “‘had actual knowledge of the claim or failed to demonstrate actual prejudice'” … .  …

… [T]he plaintiff’s exchanging of discovery and participation in the depositions of witnesses did not estop it from raising a defense pursuant to CPLR 9802, as mere participation in litigation does not constitute action calculated to mislead or discourage the defendant from filing a notice of claim … . Incorporated Vil. of Freeport v Freeport Plaza W., LLC, 2022 NY Slip Op 03713, Second Dept 6-8-22

Practice Point: In a contract action against a municipality, here an anticipatory-repudiation-of-contract counterclaim, a notice of claim must be filed (CPLR 9802). No notice of claim was filed here and the counterclaim should have been dismissed. The fact that the municipality participated in discovery did not give rise to the estoppel doctrine because there was no intent to mislead the defendant with respect to the notice-of-claim requirement.

 

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PLAINTIFF’S EMPLOYER’S MOTIONS FOR SUMMARY JUDGMENT ON DEFENDANT’S CONTRACTUAL INDEMNITY, COMMON-LAW INDEMNITY AND CONTRIBUTION CAUSES OF ACTION SHOULD HAVE BEEN GRANTED; CRITERIA EXPLAINED (THIRD DEPT).

The Third Department, reversing Supreme Court, determined defendant property-owner’s indemnity claims against plaintiff’s employer (Sodexo) in this slip and fall case should have been dismissed. Defendant, as the property-owner, was responsible for the structural maintenance of the stairwell where plaintiff fell. The fall was not caused by debris on the stairwell, which was Sodexo’s only responsibility under its contract with defendant:

While defendant argued … that Sodexo’s responsibility to “provide basic housekeeping to all areas of operation during the course of the operating day” included the subject stairs, it is clear from the incident report and post incident/accident root cause analysis form that the staircase was clear of obstructions, objects, substances and debris of any sort. Accordingly, defendant failed to raise a triable issue of fact regarding whether [the] accident was caused by Sodexo’s sole negligence, so Sodexo was entitled to summary judgment dismissing defendant’s cause of action for contractual indemnity. * * *

Defendant has not alleged any scenario under which it could be held vicariously or statutorily liable for any negligence of Sodexo. Accordingly, Sodexo was entitled to summary judgment dismissing defendant’s cause of action for common-law indemnification … .

… Inasmuch as defendant failed to raise an issue of fact as to Sodexo’s negligence, defendant is not entitled to contribution from Sodexo, and Sodexo’s motion for summary judgment dismissing defendant’s contribution cause of action should have been granted. O’Toole v Marist Coll., 2022 NY Slip Op 03560, Third Dept 6-2-22

Practice Point: Defendant property owner’s actions against plaintiff’s employer for contractual and common law indemnity and contribution should have been dismissed because plaintiff’s slip and fall was not the result of any act or omission on plaintiff’s employer’s part. The criteria for indemnity and contribution causes of action are explained.

 

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PLAINTIFF’S CLAIM FOR PUNITIVE DAMAGES IN THIS BREACH OF AN INSURANCE CONTRACT ACTION SHOULD HAVE BEEN DISMISSED, CRITERIA EXPLAINED (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the punitive damages claim against defendant insurer should have been dismissed. Plaintiff was struck by a vehicle when she was in a cross-walk. She settled with the driver’s insurer, with her insurer’s consent, for $25,000. She the brought this breach of contract action against defendant insurer for $225,000, plus punitive damages for a bad-faith breach of the insurance contract:

The elements required to state a claim for punitive damages when the claim arises from a breach of contract are: (1) the defendant’s conduct must be actionable as an independent tort; (2) the tortious conduct must be of the egregious nature set forth in Walker v Sheldon [10 NY2d 401]; (3) the egregious conduct must be directed to the plaintiff; and (4) it must be part of a pattern directed at the public generally. Where a lawsuit has its genesis in the contractual relationship between the parties, the threshold task for a court considering a defendant’s motion to dismiss a demand for punitive damages is to identify a tort independent of the contract … .

… [T]he plaintiff failed to allege an independent tort. There is no separate tort for bad faith refusal to comply with an insurance contract … . While an insurer may be held liable for damages to its insured for the bad faith refusal of a settlement offer … , the plaintiff here failed to state such a cause of action. …

The plaintiff has not alleged any facts from which an inference can be drawn that the defendant’s conduct constituted a gross disregard of the plaintiff’s interests. …

The plaintiff failed to allege any facts from which an inference can be drawn that the defendant’s conduct was of an egregious nature as set forth in Walker v Sheldon, such that it was morally reprehensible and of such wanton dishonesty as to imply a criminal indifference to civil obligations … . Schlusselberg v New York Cent. Mut. Fire Ins. Co., 2022 NY Slip Op 03539, Second Dept 6-1-22

Practice Point: The criteria for punitive damages for breach of contract are difficult to meet. The defendant’s conduct must amount to an independent tort, be morally reprehensible, wantonly dishonest, and criminally indifferent to civil obligations. Here, those criteria were not met by the allegations of breach of an insurance contract.

 

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THE INDEMNIFICATION CLAUSE IN THIS LADDER-FALL CASE STATED THAT THE CONTRACTOR FOR WHOM THE INJURED PLAINTIFF WORKED WOULD HOLD THE “OWNER’S AGENT” HARMLESS AND DID NOT MENTION THE PROPERTY OWNER; THE CONTRACT MUST BE STRICTLY CONSTRUED; THE PROPERTY OWNER’S INDEMNIFICATION ACTION AGAINST THE CONTRACTOR SHOULD HAVE BEEN DISMISSED (FIRST DEPT). ​

The First Department, reversing Supreme Court, determined the indemnification clause in the ladder-fall case must be strictly construed. The clause stated that the contractor for whom plaintiff worked, Collins, would hold harmless the “owner’s agent” but did not mention the property owner, LIC. Therefore LIC’s indemnification action against Collins should have been dismissed:

Plaintiff alleged common-law negligence, including failure to provide her with a safe ladder, and violations of Labor Law §§ 200, 202, 240(1)-(3), and 241(6). * * *

LIC commenced this third-party action against Collins asserting that “Collins was obligated to provide plaintiff, its employee, with the necessary equipment to enable her to properly and safely perform her cleaning related duties” at the premises, and that plaintiff’s injuries were due to Collins’ failure to perform its duties under the contract and provide her with the proper tools, equipment, supervision, direction, and control. The third-party complaint also asserted that Collins agreed to indemnify LIC from any accidents, injuries, claims, or lawsuits arising out of the cleaning related services Collins provided at the premises. …

The indemnification provision states that Collins shall “hold harmless the OWNER’S AGENT from all claims by Tenants or others whose personnel or property may be damaged by [Collins], its operators, and including but not limited to the use of any of the required equipment or material.” Tishman is designated as the “owner’s agent” in the contract. LIC is neither identified nor included under the indemnification provision and the indemnification provision must be “strictly construed” … . Tavarez v LIC Dev. Owner, L.P., 2022 NY Slip Op 03339, First Dept 5-19-22

Practice Point: Indemnification clauses in contracts must be strictly construed. Here the contract said the contractor for whom the injured plaintiff worked would hold harmless the “owner’s agent” and did not mention the owner. Therefore the owner’s action against the contractor for indemnification should have been dismissed.

 

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PLAINTIFF ALLEGED DEFENDANTS-ATTORNEYS DID NOT ADVISE IT OF AN AMENDMENT TO THE COMMERCIAL LEASE WHICH EFFECTIVELY ELIMINATED THE OPTION FOR PLAINTIFF TO PURCHASE THE PROPERTY FOR $11.4 MILLION IF THE LANDLORD RECEIVES A BONA FIDE PURCHASE OFFER; THE LANDLORD IN FACT RECEIVED SUCH AN OFFER AND PLAINITFF EXERCISED ITS OPTION, BUT PAID $14.5 MILLION (FIRST DEPT). ​

The First Department, reversing Supreme Court, determined defendants-attorneys’ motion for summary judgment in this legal malpractice action should not have been granted. Plaintiff alleged defendants-attorneys did not advise it of an amendment to the commercial lease. The lease included an option to purchase the property for $11.4 million. The amendment extinguished the option to purchase for $11.4 million upon purchase of the property. The landlord received a bona fide purchase offer and plaintiff exercised its option, but paid $14.5 million:

Defendants’ email attaching a marked-up copy of the relevant lease section does not establish as a matter of law that defendants advised plaintiff as to the meaning of the amendment, and the parties dispute the oral advice that was provided by defendants. … [T]he fact that plaintiff’s agent read the amendment does not establish as a matter of law that defendants were not negligent … . Any evidence that plaintiff’s agent, a sophisticated businessman, knew or should have known that the amendment was substantive despite defendants’ advice that it was “housekeeping” does not disprove defendants’ negligence but is evidence that can be offered in mitigation of damages … .

… The fact that plaintiff sent the signed lease to the landlord without defendants’ knowledge does not as a matter of law refute causation. Alrose Steinway, LLC v Jaspan Schlesinger, LLP, 2022 NY Slip Op 03310, First Dept 5-19-22

Purchase Point: Here the attorneys’ alleged failure to advise the plaintiff of the significance of an amendment to a commercial lease raised a question of fact in this legal malpractice action. The amendment eliminated plaintiff’s option to purchase the property for $11.4 million if the landlord received a bona fide purchase offer. The landlord received such an offer and plaintiff exercised its option to purchase, but paid $14.5 million.

 

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THE DIVORCE STIPULATION OF SETTLEMENT REQUIRED DEFENDANT TO PAY THE CHILDREN’S COLLEGE EXPENSES FOR FOUR YEARS AND DID NOT MENTION AN AGE CUT-OFF; SUPREME COURT SHOULD NOT HAVE DETERMINED DEFENDANT’S OBLIGATION CEASED AT AGE 21 (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the stipulation of settlement in the divorce stated that defendant would pay the children’s college expenses for four years with no mention of a cut-off at age 21. Supreme Court should not have ruled that the obligation ceased when the child turned 21:

… [T]he stipulation clearly and unambiguously required the defendant to pay 50% of the costs and expenses for each child’s college education for a total of four years, though his obligation to contribute to room and board expenses would be offset by any child support payments he made during that time. Contrary to the defendant’s contention, no age limitation or restriction was placed on his obligation to pay his share of these costs and expenses, and the stipulation cannot be fairly interpreted to provide that this obligation terminated upon the child’s emancipation … . Pape v Pape, 2022 NY Slip Op 03246, Second Dept 5-18-22

Practice Point: Here the divorce stipulation of settlement clearly stated defendant was obligated to pay the children’s college expenses for four years. Supreme Court should not have ruled the obligation ceased at age 21.

 

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