In litigating declaratory judgment actions in New York, an insurer is often faced with the important strategic issue of whether to name all of the underlying litigants as parties to that DJ action. Likewise, the named parties also have the choice of litigating the substantive coverage issues or sitting on the sidelines. That issue was recently at the forefront of Hermitage Ins. Co. v. 186-190 Lenox Rd., LLC.
On January 30, 2009, Smith was injured in a slip and fall on property owned by 186-190 Lenox Road, was insured by Hermitage, but Hermitage received its first notice of the accident on June 11, 2012. As such, Hermitage disclaimed coverage on late notice grounds and commenced a declaratory judgment action, naming both Lenox and Smith as defendants.
Hermitage moved for a default judgment against Lenox and Smith. Smith opposed the motion, arguing that she was not properly served, and even if she was, the action against her should be dismissed as abandoned because Hermitage did not move for a default judgment within one year of her failure to answer. Smith did not oppose Hermitage’s request for a default judgment against Lenox, and Lenox did not answer or oppose the motion. The trial court granted the motion for a default judgment against Lenox and found that there was no duty for Hermitage to defend or indemnify Lenox against the claims made by Smith. It also awarded Smith the procedural relief she sought, severing and dismissing the complaint against Smith as abandoned.
On Appeal, Smith sought to challenge the judgment that Hermitage had no duty to defend Lenox, but the Appellate Division, First Department found that Smith lacked standing to appeal from the order granting a default judgment against Lenox. Smith, as a named party, could have opposed Hermitage’s coverage position but instead only sought dismissal on procedural grounds. Thus, Smith was not aggrieved by that portion of the order that declared that Hermitage was not obligated to defend and indemnify Lenox in the underlying action.
Thanks to Jorgelina Foglietta for her contribution to this post and please write to Mike Bono for more information.