Short Form Order

NEW YORK SUPREME COURT - QUEENS COUNTY

Present:        HONORABLE  THOMAS V. POLIZZI   IA Part 14
Justice

______________________________
                                                       x                             Index
ALAN DAVIDE                                                            Number 10045 1996

                                                                                      Motion
                          - against -                                              Date   May 25, 1999

ELRAC, INC., et al.                                                        Motion
                                                                                       Cal. Number 21

                                                         x

The following papers numbered 1 to 18 read on this motion by defendant/third-party plaintiff Elrac, Inc. ("Elrac") for summary judgment in its favor on its third-party claims for contractual indemnity and cross motion by defendant Joann DiMarino and third-party defendant Charles DiMarino for a stay of this motion pending a determination in a related declaratory judgment action.

                                                                             Papers
                                                                             Numbered

Notice of Motion - Affidavits - Exhibits ......... 1 - 4
Notice of Cross Motion - Affidavits - Exhibits ... 5 - 7
Answering Affidavits - Exhibits .................. 8 - 15
Reply Affidavits ................................. 16 - 17
Other ............................................ 18

Upon the foregoing papers it is ordered that the motion and cross motion are determined as follows:

This action arises out of a motor accident which occurred on November 19, 1994, when a vehicle rented by Charles DiMarino from Elrac d/b/a Enterprise Rent-A-Car struck plaintiff Alan Davide, a pedestrian. The vehicle was driven by Mr. DiMarino's wife, Joann DiMarino. Plaintiff is suing Elrac and Joann DiMarino for negligence. In turn, Elrac has commenced a third-party action against Charles DiMarino for contribution or contractual indemnity.

Elrac now seeks summary judgment on its third-party claims against Mr. DiMarino for contractual indemnification. Defendant Joann DiMarino and third-party defendant Charles DiMarino cross-move to stay the third-party action until after determination of the summary judgment motions pending in a related declaratory judgment action in Supreme Court, New York County.

Elrac is a self-insured car rental company. The rental agreement between Elrac and Mr. DiMarino states that Elrac does not provide bodily injury or property damage liability insurance to renters and that the renter's insurance applies. The agreement also states that Mr. DiMarino, as renter of the vehicle, agrees to defend and indemnify Elrac for all sums expended by it for any liability incurred as a result of Mr. DiMarino's use or operation of the rental vehicle. Notwithstanding the foregoing terms of Elrac's rental agreement, it offers vehicle renters the option of purchasing insurance protection from Elrac. Mr. DiMarino purchased personal accident insurance which, under the terms of the agreement, does not cover third parties for damages or injuries. Joann DiMarino was listed in the agreement as an additional driver.

The DiMarinos purchased an automobile insurance policy with U.S. Capital Insurance Company ("U.S. Capital") which went into effect on November 17, 1994, two days prior to the subject accident. The DiMarinos had previously purchased a policy with Worldwide Insurance Company ("Worldwide") which was effective until September 14, 1995. By letter dated December 10, 1994, the DiMarinos notified Worldwide that they wished to withdraw their policy with it. Upon receiving service of process in this action in 1996, Ms. DiMarino sent both U.S. Capital and Worldwide Insurance Company copies of the summons and complaint and requested that they defend her. Both insurance companies retained counsel to represent Ms. DiMarino. Ms. DiMarino also notified Elrac of the present action whereupon it refused to defend her, claiming that the rental agreement did not provide insurance and that the primary insurer of the rented automobile was either U.S. Capital or Worldwide Insurance Company.

To resolve the anticipated dispute between the insurance companies, Worldwide Insurance commenced a declaratory judgment action in Supreme Court, Nassau County seeking a declaration that Elrac is required to defend and indemnify Ms. DiMarino up to the minimum liability limits required by law. It also sought a declaration that its policy with the DiMarinos was effectively canceled prior to the accident and that, in the absence of coverage by Elrac, U.S. Capital is obligated to defend and indemnify Ms. DiMarino. Elrac cross-claimed for a declaration that, pursuant to the express terms of the rental agreement, it is entitled to contractual indemnification from Mr. DiMarino for the costs of defending itself in the present action.

Meanwhile, on August 21, 1997, an Order of Rehabilitation was issued by the Supreme Court, New York County which appointed the New York State Superintendent of Insurance as the rehabilitator of U.S. Capital and enjoined any accident or proceeding against the company. The rehabilitation proceeding was later converted to a liquidation proceeding supervised by a Judge in the Supreme Court, New York County. As a result of the order of rehabilitation, the Supreme Court, Nassau County declined to resolve the parties' dispute and, by order issued June 26, 1998, transferred the declaratory judgment action to New York County.

In the declaratory judgment action, Worldwide moved for summary judgment in its favor declaring that Elrac is responsible for defending and indemnifying Joann DiMarino in the present action and that U.S. Capital is so responsible if Elrac is not. U.S. Capital cross-moved for summary judgment to the same effect except that it sought a declaration that Worldwide is responsible if Elrac is not. Elrac also cross-moved for summary judgment seeking a declaration that Mr. DiMarino is contractually obligated to indemnify it for any expenses it incurs in this action.

The Supreme Court, New York County determined the parties' rights, in pertinent part, as follows: "[A] car rental agency is precluded from enforcing an agreement which denies insurance coverage to the renter to indemnify the company for liability which falls within the statutory amount ... Because Elrac is therefore required, as a self-insured company, to provide minimum coverage for those who rent its automobiles, the provisions in its rental agreement which preclude the lessee from all coverage and which impose on the lessee an absolute obligation to indemnify the company are valid only to the extent that they apply to liability which exceeds the amount for which vehicle owners are required to be insured under VTL '' 388 and 370. Otherwise, the provisions are invalid ... Having reached this conclusion, the court nevertheless finds that the provisions at issue in this action are unenforceable [because] the provisions at issue contain type which is less than the requisite size [under CPLR 4544] ... Accordingly, Worldwide's motion and U.S. Capital's cross motion are granted to the extent that it is hereby declared that Elrac is obligated to indemnify Joann DiMarino for any liability and expenses which she incurs in the Davide action. Elrac's cross motion is denied and it is hereby declared that Charles DiMarino is not contractually obligated to indemnify Elrac for the expenses which it incurs in the Davide action."

Elrac's present request for summary judgment on its claim for contractual indemnity is denied due to the clear collateral estoppel effect of the foregoing decision of the Supreme Court, New York County in the prior declaratory judgment action.

"Collateral estoppel ... is based upon the general notion that a party, or one in privity with a party, should not be permitted to relitigate an issue decided against it." (D'Arata v New York Central Mutual Fire Insurance Company, 76 NY2d 659.) The doctrine "applies when the issue in the subsequent action is identical to the issue in the prior action and was necessarily decided on the merits, and the parties had a full and fair opportunity to contest the issue in the prior action." (VOR Associates v Ontario Aircraft Sales and Leasing, 198 AD2d 638.) Since the issue of contractual indemnification arising out of the agreement between Elrac and Mr. DiMarino was fully litigated in the prior declaratory judgment action in New York County, the New York County Supreme Court's determination that Mr. DiMarino is not contractually obligated to indemnify Elrac for the expenses it incurs in this action may not be disturbed by this court.

The cross motion for a stay of this motion pending determination of the motions in the New York County declaratory judgment action is denied as moot.

Dated: October 18, 1999 ______________________________

J.S.C.