Hough v. Margulies (In re Margulies)
541 B.R. 156
| Bankr. S.D.N.Y. | 2015Background
- On Aug. 3, 2000, Joshua Margulies, driving north on one-way Sixth Avenue, was stopped by flagman Dennis Hough; after delays Margulies signaled he would proceed, then rolled his car slowly (1–2 mph) toward Hough, who backed into his lane and stood in front of the car; Margulies continued and struck Hough, then left for a meeting.
- Margulies later pled guilty to misdemeanor assault in the third degree (reckless physical injury). Hough obtained a $4.8 million default judgment against Margulies in state court; USAA (Margulies’ insurer) had declined to defend.
- Hough sued Margulies’ bankruptcy estate seeking a § 523(a)(6) determination that the judgment is nondischargeable for willful and malicious injury, and brought a direct indemnity claim against USAA under N.Y. Ins. Law § 3420 claiming the incident was an “accident” covered by the policies.
- The Bankruptcy Court originally found the debt nondischargeable and no coverage; the District Court vacated some findings and remanded to apply a subjective substantial-certainty test for willfulness and to resolve related coverage questions.
- On remand the Bankruptcy Court found (1) Margulies was subjectively substantially certain his conduct would injure Hough and thus acted willfully, (2) his conduct was malicious (implied malice), and (3) the incident was not an “accident” under New York insurance law, so USAA owes no indemnity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether judgment debt is nondischargeable under 11 U.S.C. § 523(a)(6) (willful and malicious injury) | Hough: Margulies acted willfully and maliciously; debt not dischargeable | Margulies: contested willfulness/malice; argued abandonment of claim and economic motive | Held: Debt is nondischargeable — Margulies acted willfully and maliciously. |
| Standard for willfulness: subjective substantial-certainty or objective? | Hough: subjective substantial-certainty applies and is met | Margulies: earlier court applied objective standard; contested subjective finding | Held: Subjective substantial-certainty standard applies and Margulies was substantially certain injury would occur. |
| Malice and whether economic motive (get to meeting) negates malice | Hough: implied malice from conduct (driving at pedestrian) | Margulies: economic justification/pretext for malice; lack of ill-will | Held: Malice is implied given conduct and Reckless plea; economic motive does not excuse driving into pedestrian. |
| Whether the incident is an "accident" under N.Y. Ins. Law § 3420 (coverage) | Hough: injury was accidental and therefore covered; USAA breached duty to defend so exclusions inapplicable | USAA: conduct was intentional/inherently intentional; injury flowed directly and immediately from act; no coverage | Held: Incident was not an accident or fortuitous from insured’s perspective; no coverage — USAA not liable. |
| Whether res judicata bars USAA from contesting intent/coverage | Hough: underlying judgment precludes USAA from relitigating intent/coverage | USAA: may litigate coverage and intent; prior courts rejected preclusion | Held: Res judicata argument rejected — USAA may litigate coverage; prior rulings and Appellate Division decisions support that intent was not litigated in underlying negligence action. |
Key Cases Cited
- Kawaauhau v. Geiger, 523 U.S. 57 (U.S. 1998) (willful means deliberate or substantially certain injury under § 523(a)(6))
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (creditor bears preponderance burden to prove nondischargeability)
- Navistar Fin. Corp. v. Stelluti, 94 F.3d 84 (2d Cir. 1996) (malice may be implied from conduct contrary to commonly accepted duties)
- Brooklyn Law School v. Aetna Cas. & Sur. Co., 849 F.2d 788 (2d Cir. 1988) (coverage inquiry: whether injury was direct and immediate result of intentional act)
- Nat’l Union Fire Ins. Co. v. Stroh Cos., 265 F.3d 97 (2d Cir. 2001) (damages that flow directly from intentional act are not fortuitous)
- K2 Inv. Grp., LLC v. Am. Guar. & Liab. Ins. Co., 22 N.Y.3d 578 (N.Y. 2014) (breaching insurer may assert exclusions or other coverage defenses in subsequent indemnity action)