If the insurance company invites you to the DJ party you might as well go. If you have regrets on the morning after, you will at least have joined in the dancing.
This story involves three lawsuits: (1) a personal injury action by Spencer against Zacharia ; (2) a declaratory judgment action by Tower against Spencer and Zacharia; and (3) a direct action by Spencer against Tower.
In New York, unless the insurer disclaims for late notice, an injured person cannot bring a direct action against a tortfeasor’s insurer unless she has an unsatisfied judgment against the tortfeasor (see N.Y. Insurance Law § 3420 (a)(6), (b)). Nevertheless, insurers are encouraged to seek a declaration of rights and obligations well in advance of the judgment in an underlying tort case (Lang v. Hanover Ins. Co., 3 N.Y.3d 350, 820 N.E.2d 855 (2004))*. Nothing prevents the insurer from electing to join both the insured and the allegedly injured party in the declaratory judgment action.
Tower, issuer of the homeowner’s policy in question, disclaimed because Zacharia did not reside at the premises in question.
Spencer did not respond to Tower’s DJ complaint, and got it dismissed as against her because Tower did not seek a default judgment within a year as required by CPLR 3215(c). The court ultimately declared that Tower was not obliged to defend or indemnify Zacharia, but did not make any declaration as to Spencer, finding that the earlier 3215(c) dismissal made the question moot.
Spencer then obtained a judgment against Zacahria in the tort action, and brought the direct action against Tower.
The Appellate Division, Second Department, held Spencer was collaterally estopped, or, in non-legal jargon, bound, by the result in the declaratory judgment action. The court noted that an injured person bringing direct action against the insurer acts as subrogee of the insured and has no greater rights than the insured. Furthermore, said the court, Spencer had a full and fair opportunity to litigate the issues in the DJ action.
Spencer v. Tower Insurance Group (July 8, 2015). To view the various orders and papers referred to, go to Web Civil Supreme, select Kings County, search under Index Number 504928/2013, and follow the links to view the e-filed documents.
*New York law regarding award of attorneys fees may dampen DJ enthusiasm, but that is beyond the scope of this note.