In litigation, a judgment is only as good as a plaintiff’s ability to collect it. When a defendant has insurance, this is usually a less difficult process that does not require freezing bank accounts, garnishing wages, or attaching assets. The plaintiff gets a judgment, the defendant’s insurer pays the judgment. But what about when a defendant has insurance, but the insurance company refuses to provide the defendant with a defense or, even worse for the plaintiff, refuses to provide them with indemnification (meaning they refuse to pay a judgment)? Can the plaintiff sue the insurer directly? The answer is yes, but as highlighted in a recent decision by the New York Appellate Division, Second Department, it must be done properly, and at the right time.
In Sizova v. Union Mutual Fire Ins. Co., the plaintiff brought an action against the defendant-insurer seeking a determination that it was required to provide a defense and indemnification to its insured in a personal injury action commenced by Sizova after a piece of granite had been dropped on her foot. The trial court denied the defendant-insurer’s motion to dismiss on the grounds that the plaintiff lacked standing to bring the suit against it. The Appellate Court reversed and dismissed the action.
The Court held that the injured party can only sue the insurance company which insured the tortfeasor (the party that injured the plaintiff) after it has first obtained a judgment against the tortfeasor, has provided a copy to the insurer, and the insurer failed to pay within 30 days. Because the plaintiff sued while her action against the tortfeasors was still ongoing, the Court determined that the action against the insurer was premature, and the action was dismissed for a lack of standing. This can be frustrating to a plaintiff dealing with an insurer that has refused to provide a defense and indemnity particularly because the involvement of an insurer increases the likelihood of a settlement.
However, the decision is undoubtedly correct, in part because an insurer’s duty to indemnify the insured can often only be determined after the trial is completed. If a plaintiff asserts multiple theories of recovery (such as both intentional conduct and negligence or breach of contract and negligence), an insurer’s duty to indemnify might apply to certain theories (negligence) and not others (intentional conduct or breach of contract). In that case, the fact that a defendant-tortfeasor is liable is not enough; the insurer must know WHY the insured is liable before it can determine its obligations.
The lesson of the case is that generally, a plaintiff will have to wait to obtain a judgment before suing the defendant’s insurance company directly. However, there are other steps the plaintiff can try in the interim. For instance, the plaintiff is entitled to receive a copy of the defendant’s insurance policy. The plaintiff’s attorney should review it to understand whether the plaintiff’s claims are covered. If they are covered, the plaintiff’s attorney can discuss the matter with the defendant’s attorney and possibly cooperate, as both sides are equally motivated to have the insurance company get involved in the litigation. It is usually in the defendant’s interest to have the insurer participate in the case because the insurer may have to indemnify the defendant after judgment. The insurer may also provide or pay for the defendant’s attorney.
It is critical to work with an experienced litigator who can explore different options to help you both win the case and recover any damages that have been awarded. If you are involved in a lawsuit, contact one of our attorneys for a consultation.