THE COURT OF APPEALS HAS RULED THAT INSURANCE LAW ' 3420 REQUIRES ONE INJURED TO OBTAIN A  JUDGMENT AGAINST A TORTFEASOR BEFORE A DECLARATORY JUDGMENT ACTION CAN BE COMMENCED AGAINST A LIABILITY INSURANCE CARRIER

 In the recent Court of Appeals case of David Lang v. Hanover Insurance Company, (2004 WL 2607764 (N.Y.), 2004 N.Y. Slip Op. 08259), the plaintiff, Lang was injured while he was playing paintball at the home of John and Beth Dubin.  Lang sustained injuries when he was struck in the eye by a paintball fired by Richard Bachman, who was a guest of the Dubins.

Coverage as to Bachman was disclaimed by the Dubin=s homeowners insurance carrier, defendant, Hanover Insurance Company, arguing that Bachman was not an Ainsured@ as the term is defined within the policy.  Lang thereafter filed a personal injury action against Bachman.  Before the merits of the case were adjudicated, Bachman filed for Chapter 7 bankruptcy.  

Lang subsequently filed a declaratory judgment action against Hanover challenging its disclaimer of coverage. Lang sought a judgment from the Court declaring Bachman an insured under the policy and requiring Hanover to defend and indemnify Bachman. In response, Hanover argued that Lang lacked standing to sue pursuant to Insurance Law ' 3420 and moved for an order dismissing the complaint.  

Insurance Law ' 3420 allows an injured party to bring an action directly against an insurance carrier for the purpose of satisfying a judgment that was obtained against the tortfeasor.  Based on this provision, Hanover argued that Lang=s declaratory judgment action was premature due to Lang=s  failure to first obtain a judgment against Bachman. Lang responded that because bankruptcy precludes recovery from the tortfeasor, Bachman=s bankruptcy filing should create an equitable exception to the statutory condition that a judgment be obtained.

The Trial Court disagreed with Hanover=s position and denied its motion to dismiss the complaint. However, in an unanimous decision rendered by the Appellate Division, Third Department, 309 A.D.2d 1123, 766 N.Y.S.2d 915,(3rd Dept.  2003) Lang=s complaint against Hanover was dismissed.

Upon further appeal, the Court of Appeals affirmed the Third Department=s decision thereby agreeing with Hanover=s analysis of Insurance Law ' 3420. The Court ruled that Lang=s declaratory judgment action against Hanover was premature for failure to first obtain a judgment against Bachman. The Court disagreed with Lang=s argument that the filing of bankruptcy by Bachman creates an exception to the letter of Insurance Law ' 3420 requiring that a judgment be obtained.  In doing so, the Court noted that federal courts permit a plaintiff in a personal injury action to obtain a judgment against the bankrupt tortfeasor for the distinct purpose of commencing an action against the insurance carrier in accordance with the requirement of Insurance Law ' 3420.

The Court further commented that if an insurance carrier disclaims liability and requires   the claimant to utilize the mechanics of Insurance Law ' 3420, the carrier will be precluded from relitigating the issues of liability and damages that were adjudicated in the underlying action against the tortfeasor.  Consequently, the carrier will be limited to litigating only the validity of its disclaimer. The Court therefore suggested that a carrier initiate a declaratory judgment action affirming its disclaimer of coverage to afford itself an opportunity to defend its insured should the disclaimer be ruled improper.

Michele L. Laski