GUTIERREZ v. THE STATE OF NEW YORK_ _2007-029-021_ Claim No by pengxuebo


									GUTIERREZ v. THE STATE OF NEW YORK, #2007-029-021, Claim No. 110205,
Motion Nos. M-71948, M-73016, CM-72229


Insurer relieved of duty to provide a defense to State as the result of State’s failure to provide
timely notice of the claim, as required by the contract.

                                         Case Information

UID:                                   2007-029-021
Claimant(s):                           MARIA GUTIERREZ

Claimant short name:                   GUTIERREZ
Footnote (claimant name) :
Defendant(s):                          THE STATE OF NEW YORK

Footnote (defendant name) :
Third-party claimant(s):               THE STATE OF NEW YORK

Third-party defendant(s):              COMPASS GROUP USA, INC., CHARTWELLS

Claim number(s):                       110205

Motion number(s):                      M-71948, M-73016

Cross-motion number(s):                CM-72229

Judge:                                 STEPHEN J. MIGNANO

Claimant’s attorney:                   No Appearance
Defendant’s attorney:                  ANDREW M. CUOMO, ATTORNEY GENERAL
                                       By: Judith C. McCarthy, Assistant Attorney General
Third-party defendant’s attorney:      GORDON & SILBER, P.C.
                                       By: Jon D. Lichtenstein, Esq.
                                       For Third-Party Defendant Compass Group USA, Inc.,

Signature date:                        August 22, 2007

City:                                  White Plains


Official citation:
Appellate results:
See also (multicaptioned case)

         This is defendant’s motion for a declaratory judgment that Compass Group USA, Inc.,
Chartwells (“Compass”) is obligated to provide it with a defense in the underlying personal
injury action and Compass’ cross-motion for dismissal of the third-party claim. In a prior
decision and order (UID No. 2006-029-605, December 19, 2006), the court determined it had
jurisdiction pursuant to Court of Claims Act § 9(9-a) to determine the respective rights and
obligations of the parties and that all issues relating to indemnification were premature. The
court directed further submissions from defendant and Compass relating to the questions of
whether defendant provided timely notice to Compass and the effect that the notice issue has on
Compass’ obligation to provide defendant with a defense in this claim. Compass moves for
reargument of that order. Additionally, both Compass and defendant have provided the further
submissions directed by the court.
         After review of the additional submissions, the Court now determines and declares,
pursuant to § 9 (9-a), that Compass has no duty to provide defendant with a defense herein. 1
         Compass’ obligations arise from and are defined and circumscribed by the terms of the
Food Services Agreement entered into with the Purchase College Association, Inc. (“PCA”); in
particular Article 19, titled Insurance and Indemnification. Section 19.3 obligated Compass to
provide “Primary Liability Coverage of $1,000,000 per occurrence and $3,000,000 aggregate.”
As is fully discussed in the court’s prior decision and order, although the contract required such
insurance to be obtained from a carrier licensed and approved by the New York State Insurance
Department, Compass elected to satisfy its obligation, in part, by procuring insurance from
Zurich American Insurance Company that was subject to a $1,000,000 Self Insurance Retention
(SIR) endorsement, thereby making Compass the primary insurer for the first $1 million of
         Nevertheless, Compass’ obligations under Article 19 are limited by section 19.2,
                 “Notification of an event giving rise to an indemnification claim
                 (“Notice”) must be received by the indemnifying party within 30 days
                 following receipt of such claim and shall include a brief factual summary
                 of the damage and cause thereof. An indemnification claim is expressly
                 subject to and conditioned upon compliance with the Notice provisions
The court finds that the State’s failure to provide timely notice to Compass relieves it of any
obligation to provide the State with a defense to this claim.
        It has long been the law in this State that where an insurer’s duty to defend and indemnify
is conditioned on timely notice to the insurer, “a failure to satisfy the notice requirement vitiates
the policy . . . and the insurer need not show prejudice before it can assert the defense of
noncompliance” (Security Mut Ins. Co of N. Y. v Acker-Fitzsimmons Corp., 31 NY2d 436, 440
[1972]). While the Second Department has noted that “[r]ecently, there has been a shift away
from the no-prejudice rule” (Matter of New York Cent. Mut. Fire Ins. Co v Ward, 38 AD3d 898,
900 [2d Dept 2007]), that shift has occurred in factual contexts not analogous to the
circumstances present here. For example, in Unigard Sec. Ins. Co. v North Riv. Ins. Co. (79
NY2d 576 [1992]), the Court held that the no-prejudice rule 2 had no application to contracts of
reinsurance, because the reasons for adoption of the rule are not present. 3 And in Matter of
Brandon (Nationwide Mut. Ins. Co.), 97 NY2d 491 [2002]), the Court, characterizing the issue as
“whether late notice of legal action should be given the same preclusive effect as late notice of
claim” (id., at 496), declined to apply the no-prejudice rule, holding that where timely notice that
an accident had occurred and that a claim was being made had been provided, the mere failure to
give timely notice of commencement of the action did not warrant application of the no-prejudice
        In Rekemeyer v State Farm Mut. Automobile Ins. Co. (4 NY3d 468 [2005]), the Court,
expanding on the holding of Matter of Brandon, declined to apply the no-prejudice rule in the
context of a supplementary uninsured/underinsured motorist (SUM) claim, despite finding that
the insured failed to give timely notice of the claim, where the only notice the insurer had
received was notice of a claim for no-fault benefits by its insured. The Court held that such
notice was sufficient to prevent application of the no-prejudice rule, finding that “[a]bsent a
showing of prejudice, State Farm should not be entitled to a windfall” and that “where an insured
previously gives timely notice of the accident, the carrier must establish that it is prejudiced by a
late notice of SUM claim before it may properly disclaim coverage” (id., at 476).
        In Argo Corp. v Greater N. Y. Mut. Life Ins. Co. (4 NY3d 332, 339-340 [2005]), a
decision issued the same day as Rekemeyer, the Court nevertheless reaffirmed the continuing
viability of the no-prejudice rule:
                 “Brandon did not abrogate the no-prejudice rule and should not be
                 extended to cases where the carrier received unreasonably late notice of a
                 claim. The facts here, where no notice of claim was filed and the first
                 notice filed was a notice of lawsuit, are distinguishable from Brandon
                 where a timely notice of claim was filed, followed by a late notice of
                 lawsuit, and distinguishable from Rekemeyer, where an insured gave
                 timely notice of the accident, but late notice of a SUM claim. Argo was
                 notified of the lawsuit against it in February 2000 but did not notify GNY
                 until May 2001. The burden of establishing that the delay was not
                 unreasonable falls on the insured [citation omitted].”
        This case does not involve an insurance policy, but rather a contract provision requiring
Compass to provide the State with a defense and indemnification under certain circumstances.
Nevertheless, the considerations underlying the no-prejudice rule provide relevant analytic
framework for the issues to be decided on these motions.
        The pertinent facts of this case are as follows. Claimant, a Compass employee, was
allegedly injured on July 14, 2004 when she slipped on a wet floor in a rest room in a SUNY
Purchase dining hall, allegedly the result of leaky plumbing. She immediately informed her
supervisor, an incident report was completed, and she filed a claim for workers’ compensation
benefits. On October 8, 2004, claimant’s counsel served a document titled “Notice of Claim” on
defendant. That document alleged that claimant was injured as the result of defendant’s
negligence, as owner of the premises, and stated it was “hereby presented for adjustment and
payment” and that if such did not occur, claimant intended to commence an action for damages
against the State of New York (as well as an action against Westchester County, an entity that is
beyond the jurisdiction of this court and, in any event, does not appear to have any connection
with SUNY Purchase or claimant’s alleged cause of action).
        Apparently, counsel was proceeding under the mistaken assumption that civil actions
against the State of New York are governed by the provisions of the General Municipal Law
rather than the provisions of the Court of Claims Act. Nevertheless, the “Notice of Claim” has
been treated appropriately by the parties as a Notice of Intention to File a Claim, since it
contained all the information required of such a document and was served within the 90-day time
period required by the Court of Claims Act. Thus, claimant’s deadline for commencing an
action against the State was extended to two years from accrual (Court of Claims Act § 10[3]).
        Counsel’s confusion continued. On December 8, 2004, claimant served on the Attorney
General a Summons and Complaint, bearing a Supreme Court, Westchester County caption,
naming as defendants the State of New York as well as Westchester County. Two days later,
claimant filed a copy of this Summons and Complaint with the Court of Claims. The Clerk of
the Court treated the Summons and Complaint as a claim and assigned it Claim No. 110205.
The Assistant Attorney General advises that upon receipt of this Summons and Complaint, she
immediately informed claimant’s counsel that the Supreme Court had no jurisdiction over actions
seeking damages against the State and he agreed to execute a stipulation of discontinuance of the
purported Supreme Court action, without prejudice. The stipulation was executed on January
13, 2005. It was not filed with the Court of Claims.
        On March 17, 2005, claimant filed a second Summons and Complaint, naming the State
as well as Westchester County, with the Clerk of the Court of Claims. These documents were
served on defendant on March 24, 2005. These documents reflect counsel’s continuing
confusion as to practice in the Court of Claims (e.g., there are no documents called a summons or
a complaint in the Court of Claims; the appropriate document is denominated a “Claim”). The
Clerk of the Court treated this Summons and Complaint as an Amended Claim, part of the file in
Claim No. 110205. The Attorney General treated the documents as the initial service of a
Claim, and for the first time interposed an Answer.
        By letter dated April 5, 2005, defendant notified Compass that it had been served with a
claim, alleged that Compass had agreed to “save harmless” the State, SUNY and Purchase
College Association, and stated that the purpose of the letter was to give Compass the
“opportunity to come in and defend” the Claim. 4 According to the Assistant Attorney General,
there was no response from Compass until November 10, 2005, when a letter was received from
Compass’ counsel stating that Compass would not defend or indemnify the State in this action. 5
        Compass’ position is that its contractual obligation to defend and indemnify the State,
contained in Article 19 of the Food Services Agreement, is expressly conditioned on compliance
with section 19.2 of the Agreement, requiring that it receive notice of “an event giving rise to an
indemnification claim . . . within 30 days following receipt of such claim.” Compass alleges
that defendant’s conceded receipt of claimant’s Notice of Claim on October 8, 2004 triggered the
commencement of the 30-day period, and defendant’s conceded failure to provide Compass with
notice of the claim until April 5, 2005 negates any obligation it may have had to provide the State
with a defense herein. Compass maintains that the contract language, negotiated at arms-length
between parties of equal bargaining power, is clear and unambiguous.
        Defendant raises four arguments in opposition to Compass’ position: (1) that the State
was not a party to the contract; (2) that it complied with section 19.2 because the Notice of Claim
did not trigger any obligation to notify and it in fact notified Compass within 30 days of the filing
of the Amended Claim with the Clerk of the Court 6; (3) that the test used to determine whether
late notice entitles an insurer to disclaim is an “elastic” one and that the six month delay from the
service of the Notice of Claim (assuming that date is relevant) and the notification letter to
Compass was reasonable; and (4) that Compass failed to timely disclaim pursuant to Insurance
Law § 3420(d).
        The fact that the Food Services Agreement was executed by the Purchase College
Association (PCA) rather than the State of New York is irrelevant to a determination of
Compass’ obligations under the contract, which clearly sets forth Compass’ duty to defend and
indemnify the State, SUNY and the PCA, and just as clearly states that “notice must be received”
by Compass within 30 days following receipt of a claim and that Compass’ duty is “expressly
subject to and conditioned upon compliance” with the notice requirement. The agreement does
not require that notice be given by any particular entity, whether a party to the contract or not.
Defendant’s contention that only PCA was required to give notice under section 19.2, because
only PCA was a party to the contract, and that the contractually-required notice is irrelevant to
Compass’ duty to defend the State, is contrary to the express terms of the contract, which require
that Compass receive timely notice as a condition precedent to any obligation to defend the State,
SUNY or PCA and do not specify who must provide that notice. 7
        Next, defendant argues that because a notice of intention to file a claim does not
commence an action, is not a document that is properly filed with the court and does not require a
response, its service did not trigger commencement of the 30-day notice period set forth in the
contract. Defendant’s analysis is misguided. The issue here is not the sometimes arcane
question of whether a notice of intention to file a claim is a “pleading,” 8 but rather whether the
service of the “Notice of Claim” (treated by defendant as a notice of intention to file a claim) on
defendant was an “event giving rise to an indemnification claim” within the meaning of Article
19.2 of the Food Services Agreement The court finds that this question must be answered in
accordance with Compass’ position.
        The clear purpose of the 30-day notice requirement was to allow Compass the timely
opportunity to investigate claims it might be responsible to defend or provide indemnification.
The Court of Claims Act requires a tort claimant to provide timely notice to the State within 90
days of the accrual of the claim, either by serving and filing a claim (i.e., commencing an action)
or by serving a notice of intention to file a claim, which extends the time for commencement of
the action until two years following accrual. The General Municipal Law, applicable to actions
against municipalities, also requires notice to the defendant within 90 days of accrual. While
claimant’s counsel was obviously mistaken in thinking that the General Municipal Law
procedure applied to actions against the State, since he served a document called “Notice of
Claim” rather than a claim or a notice of intention, that document served the same purpose that a
notice of intention would have served – providing notice within 90 days so the State could
conduct a prompt investigation. The State’s position herein is that Compass should be
responsible for defense of the claim rather than the Attorney General. Under these
circumstances, the court finds no merit to the contentions that service of the Notice of Claim did
not constitute “an event giving rise to an indemnification claim” within the meaning of the
contract, and that the State was entitled to say nothing to Compass about such service – while at
the same time, discussing the matter with claimant’s counsel and advising that claimant was
proceeding incorrectly – until actual commencement of the action. 9 It was apparent to the
Attorney General that claimant was attempting to commence an action by serving what her
counsel thought was a necessary predicate to such an action. Whether the document served by
claimant actually commenced the action and the fact that it was not filed with the court are not
relevant to the contractual requirement conditioning Compass’ duties to defend and indemnify on
providing timely notice.
        Defendant next argues that the test applied in determining whether an insurer may
disclaim based on late notice of a lawsuit is an “elastic” one. However, the cases cited in
support of this proposition relate to insurance policies that required notice “as soon as
practicable” 10 or similar non-specific language, and most involved situations where the
insurance company had received notice of the underlying action or accident, either orally or
through an insurance agent or from a party other than the insured.
        Here, in contrast, there is no interpretation of non-specific contract language to determine
what was practicable or reasonable. Compass agreed to provide the State with a defense,
provided it was given notice of the claim “within 30 days following receipt of such claim.”
There is absolutely no ambiguity. 11 Moreover, it appears that the sole notice received by
Compass, prior to the April 5, 2005 letter, was notice of a workers’ compensation claim by its
employee, a claim that implicates entirely different issues (whether claimant was injured and
whether such occurred in the course of her employment) than those raised in the instant claim
(the State’s potential liability in negligence as property owner; i.e., fault for the incident)
(Nationwide Ins. Co. v Empire Ins. Group, 294 AD2d 546 [2d Dept 2002]; 57th Street
Management Corp. v Zurich Ins. Co., 208 AD2d 801 [2d Dept 1994]). Manifestly, notice of a
workers’ compensation claim was not the equivalent of, and cannot be deemed an adequate
substitute for, the notice required by section 19.2 of the Food Services Agreement; i.e., notice of
a claim for which Compass would have the obligation to provide a defense and potential
indemnification and which it was entitled to timely investigate.
        Finally, defendant maintains that, even if it is determined that it failed to provide timely
notice, such does not entitle Compass to disclaim coverage since it failed to provide written
notice of such disclaimer as soon as reasonably possible as required by Insurance Law § 3420(d).
However, that provision governs disclaimers of liability by an insurer “under a liability policy”
and is patently inapplicable to the situation currently before the court, which involves
enforcement of the terms of the Food Services Agreement, not any insurance policy. In the
court’s prior order, all that was determined was that under the extant circumstances –
specifically, that Compass had agreed to defend and indemnify the State and to maintain liability
insurance covering $1 million per occurrence and $3 million aggregate, and that Compass had
elected to satisfy its contractual obligation by obtaining a liability policy providing that Compass
would self-insure the first $1 million in liability – Compass was subject to the court’s jurisdiction
pursuant to Court of Claims Act § 9(9-a) to issue a declaratory judgment with respect to its
obligation to defend or indemnify the State. Such holding does not make Compass an
insurance company, nor does it convert the Food Services Agreement into an insurance policy,
thereby making all of the statutory requirements governing insurance policies issued by insurance
companies inapplicable and irrelevant. This was an agreement between a subsidiary of the State
University of New York and a corporation in the business of providing food services at
universities. It specifically provided that the obligation to provide a defense was “expressly
subject to and conditioned upon compliance with the [30-day] Notice provisions hereunder.”
This language could not be more clear, and indeed is antithetical to any contention that Compass
had some obligation to advise the State within some particular time period that the failure to
comply with the express condition precedent had the effect of negating any duty that would have
otherwise existed to provide the State with a defense. No such obligation is set forth, or
implied, in the contract and Insurance Law § 3420(d), on its face, does not apply.
        The court is cognizant of the fact that its decision in this case may well provide the basis
for a breach of contract action against Compass based on the provision in the Food Services
Agreement that required it to obtain an insurance policy from a carrier licensed and approved by
the Insurance Department. However, such an action would be beyond the jurisdiction of the
Court of Claims, which is limited to issuing a declaratory judgment with respect to the obligation
of an insurer to defend and indemnify the State and which expressly does not include the
authority to enter a money judgment against an insurer. This conclusion is not affected by the
court’s prior determination that its jurisdiction for declaratory judgment purposes extended to
Compass, as a self-insurer.
        For the foregoing reasons, the court hereby finds and declares that Compass has no duty
to provide the State of New York with a defense in this action. The motion seeking reargument
of the court’s prior decision and order is denied.
                                                                                    August 22, 2007
                                                                              White Plains, New York

                                                                        HON. STEPHEN J. MIGNANO
                                                                         Judge of the Court of Claims

1.In addition to the papers enumerated in the court’s prior order, the court received and
considered defendant’s Supplemental Affirmation, with annexed Exhibits A through M,
Compass’s Affirmation in Further Support of Motion for Summary Judgment, with annexed
Exhibit A, Compass’s Reply Affirmation and defendant’s Reply Affirmation with annexed
Exhibits A through D. On the motion for leave to reargue (M-73016), the court received and
considered the Notice of Motion to Reargue and Affirmation, the Affirmation in Opposition and
Exhibit and the Reply Affirmation.

2.Although commonly referred to as the “no-prejudice rule,” the Court explained that it is
actually a limited exception to two basic rules of contract law: (1) that ordinarily a party seeking
to escape a contractual obligation must show a material breach or prejudice, and (2) that a
contractual duty will not be construed as a condition precedent absent clear language that such
was intended (Unigard, supra, at 581).

3.“A reinsurer is not responsible for providing a defense, for investigating the claim or for
attempting to get control of the claim in order to effect an early settlement. Unlike a primary
insurer, it may not be held liable to the insured for a breach of these duties. Settlements, as well
as the investigation and defense of claims are the sole responsibility of the primary insurer; and
settlements made by the primary insurer are, by express terms of the reinsurance certificate,
binding on the reinsurer. Thus, failure to give the required prompt notice is of substantially less
significance for a reinsurer than for a primary insurer” (Unigard, supra, at 583).

4.Exhibit J to defendant’s Supplemental Affirmation.

5.Exhibit S to defendant’s Notice of Motion, a letter stating that “[a]s has been previously
communicated to your office,” Compass would not assume the defense in this action.

6.Defense counsel refers to the March, 2005 filing as initiating a Claim in this court; however,
the Claim (or at least the Summons and Complaint, treated by the Clerk of the Court as a Claim)
was filed in December, 2004, and the March filing was treated by the Clerk as an Amended
Claim, since the Stipulation of Discontinuance, which defense counsel apparently thought
addressed the December Court of Claims filing as well as the Supreme Court filing, had not been
filed with the Court of Claims.

7.The precise relationship between the State and the Purchase College Association is unclear.
SUNY Purchase is owned and operated by the State. The Food Services Agreement describes
the Purchase College Association as a not-for-profit corporation that is a “licensee” of the State,
authorized to provide food services for students, faculty and staff at SUNY Purchase. Whatever
the reason for the existence of the Purchase College Association, it is irrelevant to the State’s
obligations as owner and operator of SUNY Purchase, obligations which form the basis of
claimant’s allegations herein.

8.As defendant notes, service of a notice of intention does not commence an action, it merely
provides prompt notice to the State of the possibility of an action and extends the time for
commencing an action, in the case of personal injury claims, from 90 days following accrual to
two years following accrual. It allows a person who is considering filing an action against the
State to provide the prompt notice required by statute, the purpose of which is to allow the State
to conduct a prompt investigation to determine its potential liability, and at the same time
continue to investigate and consider whether he or she wants to actually commence an action.
While it does not commence an action, Court of Claims Act § 11(a) requires that a claim or
notice of intention be verified “in the same manner as a complaint” in a supreme court action,
and the Court of Appeals has determined that the requirements set forth in CPLR 3022 applicable
to a “defectively verified pleading” apply equally to defectively verified claims and defectively
verified notices of intention (Lepkowski v State of New York, 1 NY3d 201, 209). Thus, whether
a notice of intention is a “pleading” or not depends on the context in which the inquiry is made.

9.Defendant cites two Court of Claims decisions in support of the contention that service of the
Notice of Claim was irrelevant to the 30-day notice period of the Food Services Agreement: Rose
v State of New York (Ct Cl, Silverman, J. Claim No. 94522, Motion Nos. M-57159, CM-57260,
7/24/88) and Turner v State of New York (Ct Cl, Patti, J., 13 Misc 3d 252 [2006]). The facts of
those cases are significantly different from the facts here and involved interpretation of language
of insurance policies different than the language of the contract in question here. The court does
not agree that either decision intended to hold that service of a notice of intention can never
trigger a contractual condition precedent to the duty to provide a defense or indemnification.

10.E.g., Mighty Midgets v Centennial Ins. Co. (47 NY2d 12 [1979]).

11.Defense counsel is fully familiar with this type of condition precedent since it mimics §11 of
the Court of Claims Act.

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