The Rogak Report: 02 June 2009 ** DJ Actions - Full Faith And Credit **
NEW JERSEY JUDGMENT IN DJ ACTION, OBTAINED ON DEFAULT, IS TRUMPED BY NEW YORK JUDGMENT FINDING COVERAGE
Giovanielli v. Certain Underwriters at Lloyds, London, 2009 NY Slip Op 31181 (Supreme Court, Queens County) (Judge: Howard G. Lane)
Edited by Lawrence N. Rogak
This action was brought pursuant to Insurance Law § 3420 to require defendant insurance company Lloyds to pay to plaintiffs the amount of a money judgment entered on September 19, 2007, against Eduardo Rivera, in an underlying action entitled Giovanielli v. Rivera for money damages for personal injuries arising out of a motor vehicle accident. That judgment was based upon an inquest held on June 14, 2007, after the Appellate Division, Second Department, decided November 28, 2005 that defendant Eduardo Rivera was in default in the underlying action.
Thereafter, plaintiffs demanded an uninsured motorist arbitration against plaintiff, Joanne Giovanielli's own insurer American International Insurance Company, but in a related uninsured motorists arbitration Article 75 petition entitled American International Insurance Company v. Joanne Giovanielli, that insurer on or about February 26, 2007 petitioned this Court to stay the arbitration on the ground that Eduardo Rivera was insured by Lloyds. Lloyds, which was joined as additional respondent in the proceeding to stay arbitration, appeared and participated in the proceeding. On April 6, 2008, the Supreme Court, Queens County conducted a framed issue hearing on the issue of Lloyds' duty to defend and indemnify its insured Rivera. As a result of the hearing, an order (the "NY Judgment") was issued which ordered that Lloyds shall defend and indemnify Eduardo Rivera for the loss Giovanielli v. Rivera.
On September 3, 2008, Lloyds filed a Notice of Appeal with the Appellate Division, Second Department, appealing the NY Judgment.
In or about February 7, 2007, Lloyds filed a declaratory judgment action in Superior Court of New Jersey, Hudson County against Eduardo Rivera, and necessary parties Joanne Giovanielli and Edward Callahan (the defendant and the plaintiffs, respectfully, in the underlying action) seeking a declaration that Lloyds is not obligated to defend or indemnify Eduardo Rivera in the underlying action. In that action, although Rivera defaulted in appearing, on or about November 2, 2007, the complaint against Joanne Giovanielli and Edward Callahan was dismissed with prejudice for lack of personal jurisdiction.
On or about September 3, 2008, Lloyds made a motion for a default judgment against Rivera and for a declaration that Lloyds is not obligated to defend or indemnify Rivera in the underlying action.
On September 30, 2008, the motion was heard and an order (hereinafter referred to as the "NJ Judgment") was issued ordering, inter alia, that a default judgment be entered against defendant, Rivera, that Lloyds "is not obligated to defend Eduardo Rivera for any allegations contained in the Complaint in Giovanielli v. Rivera, Index No. 13865/04 pending in Queens County New York" and that Lloyds "is not obligated to pay any judgment entered against Eduardo Rivera in the Complaint in Giovanielli v. Rivera, Index No. 13865/04 pending in Queens County New York."
Plaintiffs commenced this Insurance Law § 3420 action against defendant Lloyds to enforce a money judgment. The complaint alleged that at the time of the motor vehicle accident, the subject of the underlying action, Lloyds had a valid insurance agreement in place to defend and/or indemnify the insured motorist Rivera. On September 19, 2007, a money judgment in the amount of $1,037,500.00, plus costs and interest was entered against Rivera. On September 19, 2007, Lloyds was notified of the judgment against Rivera, Lloyds' insured motorist. The complaint further alleged that Lloyds has been in possession of the judgment for more than thirty days and had not paid. Lloyds answered the complaint and asserted as an affirmative defense that the insured Rivera was not covered under the policy of insurance.
Plaintiffs then moved for summary judgment. Plaintiffs contended that the policy agreement with Rivera, the tortfeasor motorist in the underlying action, was in full force and effect as of the day of the accident. Plaintiffs argued that the NY Judgment ordering Lloyds to defend and indemnify for the subject loss, was conclusive on the issue of Lloyds liability to plaintiffs.
Lloyds opposed the motion essentially arguing that the NJ Judgment for declaratory judgment obtained on default from the New Jersey Superior Court has decided its obligation under the insurance agreement and therefore, Lloyds is not liable to plaintiff. In the alternative, Lloyds argued that this Court should not grant summary judgment as there is currently an appeal pending from the NY Judgment.
"Insurance Law § 3420 grants an injured plaintiff the right to sue a tortfeasor's insurance company to satisfy a judgment obtained against the tortfeasor (Lang v. Hanover Ins. Co., 3 NY3d 350, 352 ). A plaintiff must obtain a valid and enforceable judgment obtained against a tortfeasor, serve the insurance company with a copy of the judgment and await payment for 30 days (see, Insurance Law § 3420[a]; see also, Creinis v. Hanover Ins. Co., 872 NYS2d 544 [2d Dept 2009]). Compliance with these requirements is a condition precedent to a direct action against the insurer (Lang v. Hanover Ins. Co., 3 NY3d at 355 ). Once the statutory prerequisites are met, the injured party steps into the shoes of the tortfeasor and can assert any right of the tortfeasor-insured against the insurance company."
"In an action brought by an injured party to seek payment pursuant to Insurance Law § 3420, an insurance company that disclaims coverage, and declines to defend the underlying lawsuit without seeking a declaratory judgment concerning its duty to defend or indemnify the purported insured, may litigate only the validity of its disclaimer and cannot challenge the liability or damages determination underlying the judgment (Lang v. Hanover Ins. Co., 3 NY3d at 356 )."
"The plaintiffs made a prima facie showing of entitlement to judgment as a matter of law under Insurance Law § 3420(a)(2) Defendant does not dispute and plaintiffs have proved the existence of an unsatisfied judgment in plaintiffs' favor in the underlying action to recover damages for personal injuries. Plaintiffs have also demonstrated and it is undisputed by defendant that the requisite 30-day waiting period after the service upon defendant of the judgment with notice of entry has expired without the judgment being satisfied."
"In this case, Lloyds disclaimed coverage, unsuccessfully defended the underlying action, as well as sought a declaratory judgment from a New Jersey Court concerning its duty to defend or indemnify the purported insured Rivera. In a prior Article 75 proceeding, in which the insurer Lloyds was a party, the Supreme Court, Queens County, determined that Lloyds had a duty to defend and indemnify the insured Eduardo Rivera."
"Accordingly, as Lloyds participated in and defended the underlying lawsuit, in this action brought by plaintiffs seeking payment pursuant to Insurance Law § 3420, Lloyds cannot challenge the liability or damages determination underlying the money judgment (Lang v. Hanover Ins. Co., 3 NY3d 350 )."
"Lloyds' opposition papers do not dispute the essential facts asserted by plaintiffs, but instead, Lloyds rests its opposition on two arguments. First, Lloyds does not challenge the money judgment, instead, it argues that the NJ Judgment specifically orders that Lloyds is not obligated to defend Eduardo Rivera for any allegations contained in the Complaint in the underlying action or to pay any judgment entered against Rivera in the matter of Giovanielli v. Rivera, Index No. 13865/04 pending in Supreme Court, Queens County, New York."
"Lloyds argues that the NJ Judgement, issued subsequent to all of the New York orders and judgments in this case, is conclusive on the issue that it is not liable to plaintiffs in this case."
"Second, Lloyds argues that summary judgment is 'inappropriate' as the NY Judgment which ordered that Lloyds 'shall defend and indemnify' Rivera in the underlying action and upon which plaintiffs rely to support their instant Insurance Law 3420 action is currently under appeal."
"Here the Court is confronted with the issue of deciding between facially conflicting judgments, one entered in New Jersey in favor of the insurance carrier and one entered in New York against the insurance carrier on the identical issue of coverage, i.e., whether Lloyds is obligated to defend and indemnify Eduardo Rivera. For the reason set forth below, the Court determines that the NJ Judgment obtained on default is invalid and unenforceable as against plaintiffs, and is not entitled to full faith and credit by this Court. Therefore, the NY Judgment controls the outcome of this action."
"Generally, a judgment by a court of a sister State is accorded the same credit, validity, and effect, in every other court of the United States, which it had in the state where it was pronounced (Hampton v. M'Connel, 3 Wheat [16 US] 234; All Terrain Properties, Inc. v. Hoy, 265 AD2d 87, 92 [1st Dept 2000])."
"CPLR 5401 provides in pertinent part that: 'foreign judgment' means any judgment, decree, or order of a court of the United States or of any other court which is entitled to full faith and credit in this state, except one obtained by default in appearance... (see, CPLR 5401). New York courts do not accord full faith and credit to a default judgment because it is not regarded as a disposition on the merits. (All Terrain Props., Inc. v. Hoy, 265 AD2d 87,92 [1st Dept 2000])."
"It is the preference of the courts that cases be decided on the merits rather than on default. Where jurisdiction over the person is not obtained, the ensuing judgment is ineffective and voidable unless the defendant waives the issue."
"Furthermore, both New York and New Jersey courts require persons who might be inequitably affected by a judgment or whose ability to protect their interest might be impaired by a judgment to be joined as necessary parties (see, CPLR 1001 and NJ Court Rules R4:28-1)."
"In the present case, it is undisputed that the NJ Judgment was obtained on default due to the non-appearance of Eduardo Rivera. However, although plaintiffs Giovanielli and Callahan were necessary parties whose rights were affected by the judgment, they were not parties to the New Jersey action."
"Indeed, they were dismissed from the action by the New Jersey court as personal jurisdiction had not been obtained against them by Lloyds. There is no evidence to show that plaintiffs waived their right to personal jurisdiction in the New Jersey action."
"It is undisputed that the NY Judgment arose out of a proceeding in which all interested parties, including Lloyds and plaintiffs, had a fair opportunity to fully litigate the issue of the insurance carrier's disclaimer of coverage. The Queens County, Supreme Court's determination that Lloyds was obligated to defend and indemnify the insured Eduardo Rivera was made on the merits after a thorough consideration of all relevant facts and circumstances surrounding the case, including the terms and conditions of the insurance agreement and circumstances present at the time of the accident. On the other hand, the NJ Judgment was rendered on default, and without affording plaintiffs a fair opportunity to participate in the proceeding. In light of these considerations, the judgment by the New York court is more in keeping with New York's public policy of preferring judgments onthe merits."
"In addition, the law is well settled that it is an abuse of discretion for a court to entertain jurisdiction where another action is pending between identical parties, especially a proceeding which encompasses all issues (Latham & Co. v. Mayflower Indus., 278 App Div 90). In reviewing the papers submitted to the New Jersey court which defendant has attached as exhibits to its opposition papers, it appears that defendant did not disclose to the New Jersey court that there was another active, prior proceeding between identical parties in a New York court that arose out the same subject matter automobile accident, that encompassed the identical issue of Lloyds' obligation to defend and indemnify Eduardo Rivera."
"Being fully aware of the Article 75 proceeding in New York and in order to avoid duplicative litigation and inconsistent results, defendant should have notified the New Jersey court of the New York arbitration proceedings and of the final decision dated July 14, 2008. Not only were the proceedings related to the accident instituted in New York prior in time to the New Jersey action, the NY Judgment was issued on July 14, 2008 (and entered on August 5, 2008), some 78 days prior to the issuance of the New Jersey order on September 30, 2008."
"Therefore, for all the aforementioned reasons, the Court decides, that the NJ Judgment obtained on default in appearance by Rivera and without having obtained personal jurisdiction over him.
"Since the Supreme Court, Queens County has determined in the proceeding to stay arbitration that Lloyds insured the offending vehicle, Lloyds is collaterally estopped from litigating the issue of coverage at this juncture, since the question was already determined adversely to it in the proceeding to stay arbitration- a proceeding in which it had a full and fair opportunity to appear and litigate the issue. The preclusive effect of this determination satisfies plaintiffs' burden of demonstrating their entitlement to summary judgment pursuant to Insurance Law § 3420(a)(2). Defendant's submissions are insufficient to raise triable issue of fact or law."
"Accordingly, plaintiffs' motion for summary judgment is granted."
Comment: Lloyds did not obtain a stay pending their appeal, and so nothing stops the enforcement of the judgment.