Groat v. Global Hawk Ins. Co., 1:11–CV–1412.

890 F.Supp.2d 194

Warren A. GROAT and Victoria Groat, Plaintiffs,

v.GLOBAL HAWK INSURANCE COMPANY (RRG), Defendant.

No. 1:11–CV–1412.

United States District Court, N.D. New York.

Sept. 12, 2012.

James E. Hacker, Esq., Thomas J. Higgs, Esq., Hacker Murphy, LLP, Latham, NY, for Plaintiffs.

Joseph Donato, Esq., Morgan Melhuish Abrutyn, New York, NY, for Defendant.

MEMORANDUM–DECISION and ORDER

DAVID N. HURD, District Judge.

I. INTRODUCTION

Plaintiffs Warren Groat and his wife (collectively “plaintiffs” or “Groats”) brought this action seeking a judgment for $611,325.60 plus interest pursuant to the Motor Carrier Act of 1980, as amended, 49 U.S.C. §§ 13101–14901, and for breach of an arbitration contract executed in the course of underlying personal injury litigation. Jurisdiction exists pursuant to 28 U.S.C. § 1332, as the parties have diverse citizenship.

Plaintiffs moved for summary judgment. Defendant opposed and cross-moved for summary judgment. Plaintiffs replied. Oral argument was heard in Utica, New York, on September 7, 2012.

II. BACKGROUND

Defendant Global Hawk Insurance Company (“Global Hawk”) issued a commercial motor vehicle insurance policy to non-party R–Man Logistics, Inc. (“R–Man”) to be effective October 26, 2007, to October 26, 2008. The policy included an MCS–90 endorsement, as required by the federal Motor Carrier Act for truckers operating in interstate commerce. In part, the MCS–90 endorsement provided, in keeping with the purpose of the Motor Carrier Act, that essentially nothing would relieve Global Hawk from liability if a judgment was obtained against the insured, R–Man, for public liability relating to operation of covered motor vehicles. The MCS–90 endorsement states:

It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any final judgment within the limits of liability herein described, irrespective of the financial condition, insolvency or bankruptcy of the insured.

Compl. Ex. A at 9–10 ¹ (“MCS–90”). The policy required R–Man to provide driver data to Global Hawk, which must approve the drivers. The policy listed current drivers. In addition, R–Man submitted driver data for additional drivers, on February 8, 2008, and July 17, 2008.

R–Man added Carlos Victoria (“Victoria”) as a driver. However, R–Man never submitted driving record data for him as the insurance policy requires.

According to Global Hawk, it would not have approved Victoria as an added driver ² because of his poor driving record. He had prior accidents, had his commercial driver's license suspended, and received at least three convictions for driving with a suspended driver's license.

On July 28, 2008, Victoria, while driving an R–Man truck, was involved in an accident with Warren Groat. Plaintiffs brought an action in New York State Supreme Court, Columbia County for negligence and loss of consortium, against R–Man and Victoria. Global Hawk sent a reservation of rights letter to R–Man dated August 8, 2008, but defended the lawsuit. According to Global Hawk, R–Man and Victoria did not participate in the defense of the suit as is required by the policy.

The state Supreme Court granted partial summary judgment on liability in favor of the Groats on August 24, 2010. The damages award was determined by an arbitrator, pursuant to a contract entered into between the Groats and Global Hawk (by defense counsel), then confirmed by the state court on November 4, 2011. On November 8, 2011, Global Hawk denied coverage on two grounds: (1) because it was not informed of and did not approve Victoria as a driver, the policy was void ab initio; and (2) R–Man and Victoria failed to aid in the defense of the suit as the policy required. Meanwhile, Global Hawk filed a declaratory judgment action seeking rescission of the policy in California state court on October 26, 2011. Bains Decl. Ex. G (Dkt. No. 9–9). The basis upon which Global Hawk sought rescission in the California case was failure of R–Man and Victoria to aid in defense of the Groats' negligence suit (without mentioning failure to obtain approval of Victoria as a driver). Id. On November 29, 2011, the New York state court filed a judgment against R–Man and Victoria, and in favor of plaintiffs, in the amount of $611,325.60. Global Hawk has declined to satisfy the judgment for the above-stated reasons. This action followed.

III. DISCUSSIONA. Summary Judgment Standard

Summary judgment must be granted when the pleadings, depositions, answers to interrogatories, admissions and affidavits show that there is no genuine issue as to any material fact, and that the moving party is entitled to summary judgment as a matter of law. Fed.R.Civ.P. 56; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509–10, 91 L.Ed.2d 202 (1986). The moving party carries the initial burden of demonstrating an absence of a genuine issue of material fact. Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Facts, inferences therefrom, and ambiguities must be viewed in a light most favorable to the nonmovant. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

When the moving party has met the burden, the nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Id. at 586, 106 S.Ct. at 1356. At that point, the nonmoving party “must set forth specific facts showing that there is a genuine issue for trial.” Fed.R.Civ.P. 56; Liberty Lobby, Inc., 477 U.S. at 250, 106 S.Ct. at 2511;Matsushita Elec. Indus. Co., 475 U.S. at 587, 106 S.Ct. at 1356. To withstand a summary judgment motion, sufficient evidence must exist upon which a reasonable jury could return a verdict for the nonmovant. Liberty Lobby, Inc., 477 U.S. at 248–49, 106 S.Ct. at 2510;Matsushita Elec. Indus. Co., 475 U.S. at 587, 106 S.Ct. at 1356.

B. Analysis

Plaintiffs contend that Global Hawk is obligated to pay the state court judgment based upon the MCS–90 endorsement which nullifies any conditions or limitations in the policy. Defendant, in disclaiming coverage, relies upon R–Man's failure to designate drivers (specifically Victoria) for Global Hawk's approval and failure to cooperate in defense of the negligence action. Defendant's argument is that R–Man's failure to designate Victoria as a driver was a material misrepresentation permitting it to rescind the policy (and accompanying MCS–90 endorsement) under California Insurance Code § 331. ³

The plain language of the MCS–90 endorsement provides that Global Hawk will pay “any final judgment recovered against [R–Man] for public liability resulting from negligence in the operation” of its insured vehicles subject to the Motor Carrier Act. MCS–90 at 9. The MCS–90 endorsement also explicitly negates any condition or limitation in the policy that would (absent the endorsement) permit Global Hawk to disclaim liability.

Federal law is applicable to the MCS–90 endorsement. Pierre v. Providence Washington Ins. Co., 99 N.Y.2d 222, 231, 754 N.Y.S.2d 179, 784 N.E.2d 52 (2002); Global Hawk Ins. Co. v. Century–Nat'l Ins. Co., 203 Cal.App.4th 1458, 1464, 138 Cal.Rptr.3d 363 (Cal.Ct.App.2012). In order to recover under an MCS–90 endorsement, an injured party need only prove that the injury resulted from an accident caused by negligence and that “a judgment was entered implicating the coverage provisions of the policy and [MCS–90] endorsement.” Pierre, 99 N.Y.2d at 231, 754 N.Y.S.2d 179, 784 N.E.2d 52;Green v. Royal Indem. Co., No. 93Civ4335, 1994 WL 267749, at *4 (S.D.N.Y. June 15, 1994) (noting that only a judgment and negligence must be shown to impose liability). Moreover, it need only be shown that someone was negligent; it is not necessary that the insured was negligent. Pierre, 99 N.Y.2d at 231, 754 N.Y.S.2d 179, 784 N.E.2d 52;Green, 1994 WL 267749, at *4.

The parties agree that Global Hawk issued the insurance policy with the MCS–90 endorsement to R–Man. Further, it is undisputed that plaintiffs received a judgment against R–Man and Victoria to compensate them for injuries suffered in an accident caused by Victoria's negligence. Accordingly, the Groats are entitled to payment from Global Hawk of the final judgment recovered from R–Man and Victoria, see MCS–90 at 9, unless some other provision of law precludes such entitlement.

Global Hawk contends, in support of its cross motion for summary judgment, that under California law, it is entitled to rescind the policy ab initio (and along with it the MCS–90 endorsement) because of a material misrepresentation made by R–Man; that is, failure to submit Victoria as a driver as required by the policy. Plaintiffs acquiesce to application of California law to the policy.

Under California law, concealment entitles an insurer to rescind a policy of insurance, whether the concealment is intentional or unintentional. Cal. Ins.Code § 331 (West 2005). In the making of a contract, if a false misrepresentation as to a material point was made, the contract may be rescinded “from the time the representation becomes false.” Id. § 359. Materiality is subjective, depending only upon the effect the misrepresentations had on the insurer. Imperial Cas. & Indem. Co. v. Sogomonian, 198 Cal.App.3d 169, 179, 243 Cal.Rptr. 639 (Cal.Ct.App.1988) (citing Cal. Ins.Code § 334). Additionally, asking specific questions on an application “is in itself usually sufficient to establish materiality as a matter of law.” Id. Thus, an insurance policy rescinded for material misrepresentations on the application “will avoid liability even on pending claims.” Id. at 182, 243 Cal.Rptr. 639. In sum, “an insurer may rescind the contract of insurance ab initio for a material misrepresentation” regardless of intent....