Macklin v. Lexington Insurance Company

Background

Macklin brought this action against Sparta Insurance Company to collect the unpaid portion of a judgment arising from injuries she suffered in a May 5, 2014 school-bus accident. A jury found the defendants in the underlying case 85% at fault, and the court entered a judgment of $6,031,475 after a high-low agreement limited Macklin’s recovery to $6 million. All Star Bus Service Co., LLC and Happy Child Transportation LLC assigned Macklin certain insurance-related claims.

Macklin alleged that Sparta owed coverage under an insurance policy issued to Happy Child and had acted improperly by declining to participate in the underlying litigation. Sparta denied liability and asserted defenses involving, among other things, notice, policy coverage, employment-related exclusions, standing, the assignment, and alleged misrepresentations. Sparta also issued subpoenas to entities and law firms connected to the accident, the underlying case, employment issues, and other insurance coverage.

Motion to Strike

Macklin moved under Federal Rule of Civil Procedure 12(f) to strike various factual denials and affirmative defenses. The court explained that motions to strike are generally disfavored and ordinarily should not be granted unless there is no factual or legal possibility that the defense could succeed and the defense prejudices the moving party.

The court denied Macklin’s request to strike the defenses challenging her standing to pursue bad-faith claims on behalf of Levander Polk and Altfest Auto Leasing Inc. The court found a substantial legal question because New York appellate departments disagree about whether New York Insurance Law section 3420 independently gives an injured person standing to bring a bad-faith claim. The court also found unresolved factual questions about whether Macklin’s assignment gave her rights connected to Polk or Altfest. The assignment was signed by Happy Child and All Star, but not by Polk or Altfest.

The court also denied Macklin’s request to strike Sparta’s factual denials. It found that Federal Rule of Civil Procedure 12(f) provides a method for challenging insufficient defenses, not a demonstrated method for striking denials in an answer. The court stated that disputes about the underlying facts were better addressed through discovery.

The court denied Macklin’s request to strike Sparta’s defenses concerning its disclaimer of coverage. The court identified unresolved questions about whether the 2014 letters and later telephone calls notified Sparta of the relevant claims, whether they notified Sparta of the CGL coverage, whether Gallagher’s statements were disclaimers or repudiations, and whether Gallagher had authority to act for Sparta. The court also found that the policy required the insured to send legal papers concerning a claim or suit as soon as reasonably possible, and that Sparta did not receive notice of the underlying lawsuit until shortly before trial.

The court separately denied requests to strike defenses based on late notice, the employer exclusions, and laches. It found that Sparta had raised a plausible claim of prejudice from the late notice, particularly because the underlying court had entered a preclusion order preventing the underlying defendants from testifying or submitting affidavits. It also found that discovery had not resolved whether Macklin was employed by Happy Child or whether the employer exclusions applied. Finally, the court found that Sparta’s laches defense was plausible because Sparta claimed it was not notified of the underlying litigation until shortly before trial and therefore lacked an earlier opportunity to investigate or participate in the defense.

Motion to Quash

Macklin also moved to quash, meaning block or cancel, subpoenas issued to third parties. The court explained that a subpoena may be quashed when it requires disclosure of privileged information or imposes an undue burden, but the party seeking discovery must first show that the requested information is relevant and material.

The court held that Macklin had standing to challenge subpoenas directed to her lawyers and to Tri-State Employment Services, which she claimed was her employer at the time of the accident. Because Macklin was the assignee of Happy Child and All Star, the court also held that she could object to subpoenas directed to those entities and to Donohue, the law firm that represented them in the underlying case. Macklin did not establish that she was Altfest’s assignee or identify specific privilege or privacy interests supporting her objection to the Altfest subpoena, so the court would not quash that subpoena.

The court found that the remaining subpoenas sought information that could be relevant to the dispute. The information could bear on Macklin’s employment status, the application of policy exclusions, whether another insurer covered the school bus, what Capacity told Gallagher, and whether Gallagher had authority to make statements about coverage. The court did not issue an opinion on the proposed subpoena to Capacity because the record did not show that it had been served.

Disposition

Judge Edgardo Ramos denied Macklin’s motion to strike and motion to quash. The court directed the parties to meet and confer to narrow the subpoenas and to notify the court within 30 days if they could not reach an agreement. The court also directed Macklin to withdraw and resubmit one exhibit with confidential information redacted. The opinion did not finally decide whether Sparta owed coverage or whether its defenses would ultimately succeed.