Margulies v. Hough (In re Margulies), 566 B.R. 318

On Aug. 3, 2000 Margulies slowly drove a car toward flagman Hough on Manhattan’s Sixth Avenue; when Hough backed into Margulies’s lane and could not escape, Margulies did not brake and struck him. Margulies later pleaded guilty to misdemeanor reckless assault.
Hough obtained a $4.8 million default judgment in state court against Margulies; Hough then sued Margulies’s insurer USAA under N.Y. Ins. Law § 3420 after USAA failed to defend.
Margulies filed Chapter 7; Hough initiated an adversary proceeding seeking (i) a determination that the judgment was nondischargeable under 11 U.S.C. § 523(a)(6) and (ii) indemnification from USAA under § 3420.
The Bankruptcy Court initially entered judgment; this Court vacated and remanded for additional factual findings about (a) whether Margulies was substantially certain injury would occur and (b) whether the incident was an “accident”/fortuitous under NY law.
On remand the Bankruptcy Court found Margulies became substantially certain he would injure Hough, acted willfully and maliciously, and therefore the debt was nondischargeable; it also found the incident was not an “accident” or fortuitous and dismissed the § 3420 claim.
The District Court affirmed the Bankruptcy Court’s November 16, 2015 judgment and denied both Margulies’s appeal and Hough’s cross-appeal.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Margulies’s debt is nondischargeable under 11 U.S.C. § 523(a)(6) (willful and malicious injury)	Hough: Margulies was substantially certain his conduct would injure Hough; thus willful and malicious.	Margulies: His conduct was at most reckless; intent to cause the severe injuries was lacking; the incident must be viewed as a whole.	Court: Affirmed — Margulies reached a point of substantial certainty he would injure Hough, and implied malice existed; debt is nondischargeable.
Whether USAA must indemnify Hough under N.Y. Ins. Law § 3420 (was the incident an “accident”/fortuitous)	Hough: The incident was accidental/fortuitous and hence covered; alternatively, res judicata precludes USAA from disputing coverage.	USAA: Margulies’s conduct was intentional (not an accident) and therefore not covered; res judicata fails because the underlying suit alleged negligence, not intentional conduct.	Court: Affirmed — because Margulies was substantially certain he would injure Hough, the injury flowed directly and immediately from an intentional act and was not fortuitous; res judicata fails on the merits.

Kawaauhau v. Geiger, 523 U.S. 57 (Sup. Ct. 1998) (“willful” in § 523(a)(6) requires deliberate or intentional injury; substantial-certainty formulation)
Ball v. A.O. Smith Corp., 451 F.3d 66 (2d Cir. 2006) (reciting § 523(a)(6) dischargeability standard)
Brooklyn Law School v. Aetna Cas. & Sur. Co., 849 F.2d 788 (2d Cir. 1988) (distinguishing damages flowing directly from intended acts from those arising from subsequent unforeseeable events for accident/coverage analysis)
Progressive N. Ins. Co. v. Rafferty, 17 A.D.3d 888 (N.Y. App. Div. 2005) (application of inherently intentional doctrine where driving forward with person close enough to be struck)
Hough v. Margulies (In re Margulies), 517 B.R. 441 (S.D.N.Y. 2014) (district court opinion remanding for findings on substantial-certainty and accident/fortuity issues)
Hough v. Margulies (In re Margulies), 541 B.R. 156 (Bankr. S.D.N.Y. 2015) (post-remand memorandum finding willful and malicious conduct and no coverage under policies)