E. Paul Kanefsky and Nicholas A. Secara ()
Insurance carriers and their counsel should strongly consider intervening in underlying litigations involving their insureds in order to assist in the resolution of insurance coverage issues. Strategic intervention is an advantageous, but underutilized, litigation device that might enable counsel to forestall months or even years of delay in resolving coverage disputes between policyholders and insurers. By intervening for limited purposes, counsel can seek to submit declarations, special interrogatories or verdict forms, as well as participate in proceedings and hearings that will ultimately determine what evidence will be presented to the trier of fact.
Although federal and state courts do not allow insurers to intervene in all scenarios and without limitations, if utilized appropriately, strategic intervention can result in differentiated verdicts that will assist courts in allocating liability in any subsequent coverage litigation. Many courts look favorably upon strategic intervention, reasoning that an insurer’s limited involvement generally results in judicial economy by preventing inconsistent verdicts and reducing litigation costs.
The first section of this article establishes the federal intervention rule and identifies additional elements that federal courts consider. The second section analyzes federal cases in which intervention to aid in the resolution of insurance coverage disputes was, to varying degrees, granted. The third section explores intervention under New York state law.
Federal Intervention Rule
Federal Rule of Civil Procedure 24 provides for both intervention as of right and permissive intervention:
(a) Intervention of Right. On timely motion, the court must permit anyone to intervene who:
(1) is given an unconditional right to intervene by a federal statute; or
(2) claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant’s ability to protect its interest, unless existing parties adequately represent that interest.
(1) In General. On timely motion, the court may permit anyone to intervene who:
(A) is given a conditional right to intervene by a federal statute; or
(B) has a claim or defense that shares with the main action a common question of law or fact.
Rule 24(b) further provides:
(3) Delay or Prejudice. In exercising its discretion, the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties’ rights.
Most federal courts recognize that intervention should be liberally construed as its primary purpose is to prevent multiplicity of lawsuits where appropriate. A liberal predilection notwithstanding, the U.S. Court of Appeals for the Second Circuit has ruled that an applicant seeking to intervene as of right under Rule 24(a) must satisfy the following four criteria: (1) file a timely motion; (2) demonstrate an interest in the litigation; (3) demonstrate that its interest may be impaired by the disposition of the action; and (4) demonstrate that its interest is not adequately protected by the parties to the action. See D’Amato v. Deutsche Bank, 236 F.3d 78, 84 (2d Cir. 2001). Failure to fulfill any one of the four requirements constitutes sufficient grounds for denying intervention as of right.
In general, federal courts have broader discretion when considering a request for permissive intervention under Rule 24(b). An applicant may be permitted to intervene when the applicant’s claim or defense and the main action merely share a common question of law or fact. New York federal courts, however, do not equate liberality with the right to indiscriminate permissive intervention. The principal concern is whether intervention will unduly delay adjudication of the underlying litigation or prejudice the parties.
New York. New York federal courts have been receptive to insurance carriers seeking to intervene in actions involving their insureds and third parties. Although they have not specifically delineated which particular litigation devices intervening insurers may utilize, New York federal courts have permitted the submission of declarations that seek to define the scope of insurance policy coverage obligations.
In Hartford Fire Ins. Co. v. Mitlof, 193 F.R.D. 154 (S.D.N.Y. 2000), a marine insurer sought a declaratory judgment voiding a marine insurance policy that it had issued to defendant Joseph Mitlof. Defendants Village of Nyack and Nyack Parking Authority (collectively, the Nyack defendants) were additional named insureds under the policy. Reliance Insurance Company, which had issued a commercial general liability policy to the Nyack defendants and was providing the Nyack defendants with a defense under a reservation of rights, moved to intervene in the declaratory judgment action under Rule 24(a) and (b).
The district court granted Reliance’s motion, finding that the motion was timely; Reliance had a sufficient interest in the action; and Reliance’s interests would be sufficiently impaired by a judgment in favor of the marine insurer. The court noted that the scope of the declaratory judgment action would not be “radically altered” if Reliance subsequently asserted a counterclaim against the marine insurer seeking a declaration that (1) the marine insurer was legally obligated to provide the Nyack defendants with a defense for any litigation that was or might be brought against the Nyack defendants, and (2) the marine insurer’s defense obligation to the Nyack defendants was primary to any defense obligations that Reliance might owe.
Similarly, in Maryland Casualty v. W.R. Grace & Co., No. 88 Civ. 4337 (JSM), 1996 WL 34154 (S.D.N.Y. Jan. 30, 1996), a primary insurer (Maryland Casualty) brought an action seeking a declaration that it was not liable for environmental cleanup costs under the policies it had issued to its insured (W.R. Grace). W.R. Grace then filed counterclaims and cross-claims implicating several additional insurers and seeking a declaration that the additional insurers were obligated to defend and indemnify it. Thereafter, a group of excess insurers moved to intervene under Rule 24(a) as a cross-claim defendant to seek a declaration defining the scope of their policy coverage obligations. The court ultimately granted the excess insurers’ motion and allowed their declaration, noting that it was certainly more efficient to allow intervention at that time than to encourage a separate subsequent action.
Outside Jurisdictions. Federal jurisdictions outside of New York have ruled that intervening insurers can utilize specific litigation tools to resolve insurance coverage disputes, including submitting special interrogatories or verdict forms, and participating in hearings and other proceedings that determine the questions presented to the trier of fact. Federal courts, however, narrowly limit usage of these legal devices and do not always grant applications to intervene.
In Plough, v. Int’l Flavors & Fragrances, 96 F.R.D. 136 (W.D. Tenn. 1982), a company sued a manufacturer (IFF) that had sold it certain fragrances, alleging breach of warranty, products liability and misrepresentation. The insurer for IFF (Commercial Union) provided a defense subject to a reservation of rights, but later brought a separate action for a declaration of coverage. As a result, IFF assumed its own defense in the underlying action.
Commercial Union subsequently moved to intervene under Rule 24(b) for the limited purposes of requesting that (1) if the action were tried, it could submit written interrogatories to the jury, and (2) if the action settled, the parties be required to allocate damages with specificity. Underscoring judicial economy, the district court permitted intervention, but emphasized that it reserved judgment as to whether special interrogatories or verdict forms would actually be submitted to the jury, and what effect, if any, the jury’s answers would receive.
Thomas v. Henderson, 297 F.Supp.2d 1311 (S.D. Ala. 2003) involved a purchaser of a personal aircraft who sued its seller and inspector, alleging that the aircraft was unsafe and not airworthy. The insurance carrier (Old Republic), which had issued an airport liability policy for two additional defendants, moved to intervene under Rule 24(b). Concerned that a general damages award would preclude it and its insureds from identifying which award components were covered under the policy, Old Republic sought to intervene for the limited purpose of submitting special interrogatories and a special verdict form to the jury. Old Republic stressed that it would neither participate in the trial nor inform the jury of its intervention or the existence of its insurance policy, and that its intervention would not require additional discovery or delay litigation.
The district court permitted intervention because Old Republic’s claim shared common questions of fact with the main action and there was no evidence that permitting intervention would delay litigation or prejudice the parties. The court noted that without an itemized jury verdict, resolution of coverage issues in Old Republic’s separate declaratory judgment action would be complicated considerably, and parties would likely need to relitigate the same issues. The court, nonetheless, limited intervention to specific purposes to ensure that the insured would not be prejudiced.
New York State Law
The New York state intervention statutes were originally modeled after Rule 24 and thus should be interpreted liberally to promote judicial economy and fairness. Section 1012 of the New York Civil Practice Law and Rules (CPLR) provides three narrow grounds for intervention as of right, and CPLR 1013 allows for permissive intervention where the applicant’s claim or defense shares a common question of law or fact with the main action. The Appellate Divisions, moreover, have declared that there is little difference between intervention as of right and permissive intervention; therefore applicants should move to intervene under both statutes.
A successful intervention application, however, is not guaranteed. New York state courts have denied intervention where the subrogation claim of the insurer is deemed premature; the interests of the insurer are adequately protected; the insurer has alternative adequate options available; or the insurer’s involvement would prejudice the parties or create an impermissible conflict of interest. Furthermore, even if intervention is allowed, courts often impose limitations, including waivers of additional discovery or motion practice.
For instance, in Nossoughi v. Federated Dept. Stores, 175 Misc.2d 585 (N.Y. Sup. Ct. 1998), a health insurer, Oxford Health Plans—which paid hospital and medical expenses for its insured who had been injured at defendant’s department store—sought to intervene in the insured’s personal injury action. Oxford moved to intervene under both CPLR 1012 and 1013 to assert its equitable subrogation right. The Supreme Court granted intervention under both statutes but limited Oxford’s participation to receiving all notices, prohibited Oxford from participating in the pretrial phase of litigation, and left Oxford’s participation at trial to the judge’s discretion.
New York state courts also are divided on whether health insurers should be permitted under CPLR 1013 to intervene in their insureds’ personal injury actions to protect their subrogation rights. Having determined that intervention would be prejudicial and delay litigation, the First, Second and Third Departments generally have prohibited intervention. The Fourth Department disagrees. The Court of Appeals has not settled this issue, but the New York State Legislature adopted General Obligation Law Section 5-335, which eliminates an insurer’s right to subrogation after a settlement is reached between its insured and a third-party tortfeasor. This statute, nonetheless, should not deter health insurers from seeking to intervene prior to settlement.
Insurance carriers and their counsel should consider strategic intervention as a useful litigation device that might forestall months or even years of delay in resolving insurance coverage disputes. Federal courts in New York are amenable to limited intervention, having allowed intervening insurers to submit declarations that seek to define the scope of their coverage obligations.
Other federal jurisdictions, moreover, have specifically ruled that intervening insurers may submit special interrogatories or verdict forms as well as participate in proceedings and hearings that determine what evidence will be presented to the trier of fact. New York state courts, however, appear less inclined to allow insurers to intervene. Ultimately whether, and to what extent, intervention will be granted depends on the facts and procedural posture of each case, as well as the jurisdiction.
E. Paul Kanefsky is a partner and Nicholas A. Secara is an associate in the New York office of Edwards Wildman Palmer.