American Transit Insurance Company failed to make an appearance in two prior petitions by another insurer to stay UM arbitration. Apparently (it is inferred but not specifically stated in this decision), because American Transit defaulted in those petitions, the court there made a ruling that American Transit owed coverage to its insured. The plaintiff here apparently then sued Americans insured and obtained a judgment on default. Plaintiff then brought this proceeding to enforce the judgment against American Transit.

Inthis action pursuant to Insurance Law 3420(a)(2) to recover the amount of an unsatisfied judgment against the defendants insureds,American Transit appealed from an order of the Supreme Court, Kings County (Vaughan, J.), which granted the plaintiffs motion for summary judgment. The Appellate Division affirmed.

It is fundamental thata default judgment bars the litigation of issues that were, or could have been, determined in the prior action. Here, orders in two prior proceedings to stay arbitration of uninsured motorist vehicle claims arising from the same accident in which the plaintiffs were injured determined that the defendant afforded insurance coverage for the offending vehicle. The defendant, who was named a party to those prior proceedings, contends that the orders determining that it afforded coverage to the offending vehicle should not be given preclusive effect because they were made upon default. However, the defendant offered no evidence that it lacked notice of the prior proceedings, or that it had taken any steps to vacate the defaults. Under these circumstances, the defendant is precluded from litigating the issue of whether it provided coverage to the offending vehicle in this action pursuant to Insurance Law 3420(a)(2) to recover the amount of an unsatisfied judgment entered against the owner and operator of the offending vehicle.

In view of the preclusive effect of the prior orders and the uncontroverted evidence of the unsatisfied judgment entered against the defendants insureds, the Supreme Court properly granted the plaintiffs motion for summary judgment, and denied the defendants motion for summary judgment.

Furthermore, since the defendant failed to offer any evidence of the limits of the subject insurance policy, the plaintiffs are entitled to recover the full amount of their unsatisfied judgment.

Comment: Notice the consequences of American Transits failure to make an appearance in the prior petitions to stay arbitrations. Not only do they lose all defenses to coverage (because the judgments issued in the petition proceedings is res judicata), but they even lose the limitation of their policy limits. This decision doesnt say how big a judgment plaintiff got, but if he got a $1 million judgment and ATs policy limits were 25/50, AT must pay $1 million.

The lesson: dont be penny-wise and pound foolish by ignoring those petitions to stay arbitration!

Gaston v American Tr. Ins. Co., 2007 NY Slip Op 03878 (Appellate Division, Second Department)