Arcade Cleaning Contractors, Inc. v. Superintendent of Ins., 59 N.Y.2d 331 (1983)
The New York State Property and Liability Insurance Security Fund does not cover an insured’s claim against its insolvent liability insurer for contractual or common-law indemnity to a third party held liable for injury to the insured’s employee.
Summary
Arcade Cleaning Contractors sought reimbursement from the New York State Property and Liability Insurance Security Fund after its insurer, Consolidated Mutual Insurance Company, became insolvent. Arcade had a contract to indemnify the Daily News for injuries, including those to Arcade’s employees. An Arcade employee sued the Daily News, who then sought indemnification from Arcade. Consolidated initially defended Arcade, but after insolvency, the Insurance Department denied Security Fund coverage for any judgment against Arcade. The court held that the Security Fund, as defined by Insurance Law § 334, does not cover claims related to employer liability for employee injuries, whether based on common law, statute, or contract, as these fall under Insurance Law § 46(15), which is excluded from Security Fund coverage.
Facts
Arcade Cleaning Contractors had a contract with the New York Daily News to perform cleaning work, which included an indemnification clause holding the Daily News harmless from liability for injuries arising out of the contract, including injuries to Arcade’s employees. Jeanne Gerard, an Arcade employee, sued the Daily News for injuries sustained on their premises. The Daily News sought indemnification from Arcade based on both the contract and common-law principles. Arcade’s insurer, Consolidated Mutual Insurance Company, initially defended Arcade but became insolvent.
Procedural History
After Consolidated’s insolvency, the Insurance Department’s Liquidation Bureau took over the defense but notified Arcade that the Security Fund would not cover any potential judgment. The Gerard action was settled, with Arcade paying $1,500 without prejudice to its claim against the Security Fund. Supreme Court referred Arcade’s claim to a referee, who recommended disallowance. Supreme Court reversed, allowing the claim, but the Appellate Division reversed again, denying coverage.
Issue(s)
Whether the New York State Property and Liability Insurance Security Fund, established under Insurance Law § 334, covers an insured’s claim against its insolvent liability insurer resulting from the insured’s contractual or common-law obligation to indemnify a third party held responsible for injury to the insured’s employee.
Holding
No, because Insurance Law § 334 excludes coverage for claims related to employer liability for employee injuries, as defined in Insurance Law § 46(15), from the Security Fund.
Court’s Reasoning
The court reasoned that while Insurance Law § 46(13) defines personal injury liability insurance broadly enough to include claims for contribution or indemnification, it expressly excludes insurance specified in § 46(15). Section 46(15), defining worker’s compensation and employer’s liability insurance, includes liability imposed by common law, statute, or contract for employee injuries. The court noted that the Superintendent of Insurance’s interpretation, which excludes § 46(15) claims from the Security Fund, is neither irrational nor unreasonable, considering the legislative intent and the overall structure of the Insurance Law and Workers’ Compensation Law. The court emphasized that “claims within subdivision 15 were not intended to be paid from the Security Fund” and there is no “irreconcilable inconsistency between subdivisions 13 and 15 of section 46.” Furthermore, the court rejected arguments that the legislative history mandated broader coverage, finding inconsistencies between the stated intent and the actual statutory language. The court stated, “at most we are dealing with a legislative omission that should not be supplied by us”.