Western Waterproofing Company, Inc. v. Zurich American Insurance Company

Background

The case began as an insurance-coverage dispute arising from a June 2018 construction accident in Manhattan that seriously injured two ironworkers. Western sought coverage from several insurers for potential liability in a separate action brought by BDG Gotham Residential, LLC and ZDG, LLC seeking more than $37 million for project cost overruns, property damage, and construction delays.

Earlier rulings had found that Zurich American Insurance Company, Allied World Assurance Company, the excess insurer intervenors, and American Zurich Insurance Company were not liable to defend or indemnify Western under the policies at issue. Western’s claims against Allied World Specialty Insurance Company under a builder’s risk policy remained pending, and no motion was made to dismiss those claims.

The motions decided here concerned two groups of claims. Gotham and ZDG asserted counterclaims against Western for contractual indemnification, common-law indemnification, and common-law contribution based on the separate personal-injury lawsuits brought by the injured workers. They also asserted two claims labeled “cross claims” against the excess insurers, seeking declarations concerning their duties to cooperate and provide coverage. The court noted that the Federal Rules generally require crossclaims to be included in an answer rather than filed as a separate pleading.

Counterclaims Against Western

Western moved under Rule 12(c), which permits judgment on the pleadings after the pleadings are closed. The parties relied on collateral estoppel, a rule that can prevent relitigation of an issue already decided. The court held that New York preclusion law does not bar relitigation of a pure question of law, so the earlier New York state-court decisions did not independently preclude Gotham and ZDG’s counterclaims.

The court nevertheless reached the merits of the counterclaims and held that they were barred by New York’s anti-subrogation rule. That rule generally prevents an insurer from seeking indemnification from its own insured for a loss arising from the risk covered by the insurance policy. The court concluded that Western, Gotham, and ZDG were all insureds under the Zurich general-liability policy. It also concluded that the subcontract’s indemnification obligations were covered by that policy and that the counterclaims concerned the same worker-injury risk for which Gotham and ZDG were being defended.

The court held that the anti-subrogation rule barred the contractual indemnification counterclaim. It also barred the common-law indemnification and contribution counterclaims because allowing those claims to proceed would permit the insurance arrangements to shift responsibility among insurers while avoiding the policy’s coverage for the contractual indemnification claim. The court rejected Gotham and ZDG’s argument that the rule did not apply because they asserted the claims in their own names rather than on behalf of Zurich.

Crossclaims Against the Excess Insurers

The court separately addressed the excess insurers’ motion to dismiss Gotham and ZDG’s crossclaims. It held that the claims were procedurally improper because they were filed as a separate pleading after the answer, without permission to amend the answer. But the court dismissed them for lack of subject-matter jurisdiction rather than solely because of the pleading defect.

The crossclaims arose under state-law contract theories. The Declaratory Judgment Act did not itself create federal jurisdiction, and the parties to the crossclaims were not completely diverse. The court considered whether supplemental jurisdiction could apply, but rejected that basis because the crossclaims concerned coverage for the personal-injury lawsuits, while Western’s claims in this case concerned coverage for property damage and delay losses in the separate damages-and-delay action. The court therefore concluded that the claims were not part of the same federal case or controversy.

Because amendment would be futile, the court dismissed the crossclaims without prejudice. It stated that Gotham and ZDG could reassert those claims in the forum where they were originally brought. The court did not decide the excess insurers’ other grounds for dismissal.

Disposition

Judge Colleen McMahon’s conclusion states that the Excess Insurers’ and Western’s motions to dismiss were granted. Gotham and ZDG’s crossclaims were dismissed without prejudice, while their counterclaims were dismissed with prejudice. The court directed the clerk to remove the two motions from the list of open motions.