Hartford Accident and Indemnity Co. v. Michigan Mutual Insurance Co., 59 N.Y.2d 569 (1983)
A primary insurer owes a duty of good faith to an excess insurer, similar to the duty owed to its own insured, when handling a claim that could trigger excess coverage.
Summary
This case addresses the duty of a primary insurer to an excess insurer when both companies insure the same entities. Michigan Mutual, the primary insurer for three affiliated companies, also provided worker’s compensation insurance. When an employee of one company sued the other two, Hartford, the excess insurer, demanded the employer be impleaded. Michigan Mutual refused, and the case settled, triggering Hartford’s excess coverage. Hartford then sued Michigan Mutual for bad faith. The New York Court of Appeals held that Michigan Mutual owed Hartford a duty of good faith and that factual questions existed regarding breach of that duty, precluding summary judgment.
Facts
DeFoe Corporation and its subsidiaries, L.A.D. Associates, Inc., and D.A.L. Construction Corporation, were insured by Michigan Mutual under a general liability policy ($1,000,000 coverage) and a worker’s compensation policy. Hartford provided excess coverage ($5,000,000) to the same companies. Davor Gobin, an employee of D.A.L., was injured on the job. Because worker’s compensation law prevented him from suing his employer, he sued DeFoe and L.A.D. Hartford, the excess carrier, demanded that Michigan Mutual implead D.A.L. in the lawsuit. Michigan Mutual refused. The Gobin action settled for $1,400,000, with Hartford paying $400,000 while reserving its rights against Michigan Mutual.
Procedural History
Hartford sued Michigan Mutual and its law firm for inducing breach of contract and bad faith. Michigan Mutual moved for summary judgment, which Special Term partially granted. The Appellate Division modified, reinstating Hartford’s individual claims, finding triable issues of fact. The Appellate Division granted Michigan Mutual leave to appeal to the Court of Appeals, certifying the question of whether its order was properly made.
Issue(s)
1. Whether the cooperation clause in Hartford’s policy obligated DeFoe and L.A.D. to implead D.A.L.?
2. Whether Michigan Mutual, as primary insurer, owed a duty of good faith to Hartford, as excess insurer?
3. Whether Hartford’s payment toward the settlement was voluntary, precluding recovery?
Holding
1. Yes, because Hartford’s policy obligated its insured to “enforce any right of contribution or indemnity against any person or organization who may be liable to the insured”.
2. Yes, because Michigan Mutual, as the primary liability insurer, owed Hartford, as the excess carrier, the same duty to act in good faith that it owed to its own insureds.
3. This issue is to be determined at trial.
Court’s Reasoning
The court distinguished American Sur. Co. v Diamond, noting that Hartford’s policy contained an explicit obligation to enforce rights of contribution or indemnity. The court rejected Michigan Mutual’s argument that an insurer cannot maintain a subrogation action against its own insured, because Michigan Mutual provided two separate policies: a general liability policy and a worker’s compensation policy. The worker’s compensation policy created a separate obligation to defend and indemnify D.A.L. if impleaded. The court emphasized the duty of good faith owed by a primary insurer to an excess insurer, stating, “Michigan Mutual as the primary liability insurer owed to Hartford as the excess carrier the same duty to act in good faith which Michigan owed to its own insureds”. The court reasoned that whether Michigan Mutual acted in good faith to protect its insureds or in its own self-interest to trigger Hartford’s excess liability without sharing in the costs was a question of fact for trial. The court also noted that the voluntary payment issue was a factual question best resolved through trial. The court affirmed the Appellate Division’s order, finding triable issues of fact existed and answering the certified question in the affirmative.