Insurance Defense

The New York Court of Appeals on "Maintenance"

IGavel2 n Guishard v General Sec. Ins. Co., 2007 NY Slip Op 06581, the NY Court of Appeals issued a decision in a declaratory judgment action wherein the Petitioner sought an Order declaring that the Respondent insurance company was obligated to defend and indemnify the Petitioner in the underlying personal injury aciton.  The plaintiff in the underlying action was riveting metal when he injured his eye while converting a van into a "Mr. Softee" ice cream truck.

The policy at issue excluded coverage for bodily injury "arising out of the ownership, maintenance, use or entrustment to others of any . . . 'auto' . . . owned or operated by or rented or loaned to any insured." The insurer moved for summary judgment on the grounds that it was not obligated to defend or indemnify plaintiffs because the conversion work performed by the injured party constituted "maintenance."

The Court disagreed and concluded that:

The work performed by the injured plaintiff did not constitute "maintenance" of an auto. "Maintenance," as that term is used in an insurance policy, means performance of work on "an intrinsic part of the mechanism of the car and its overall function" (Farmers Fire Ins. Co. v Kingsbury, 105 AD2d 519, 520 [3d Dept 1984] [removing tire from rim constitutes maintenance] [citation omitted], lv denied 64 NY2d 607 [1985]; see Pennsylvania Millers Mut. Ins. Co. v Manco, 63 NY2d 940, 942 [1984] [changing a tire constitutes maintenance]). Riveting metal to a van in furtherance of its conversion to an ice cream truck aids in transforming the auto's function, an activity distinct from "maintenance."

Seems to me a fairly obvious conclusion, which leads me to wonder whether the record on appeal reveal other thorny issues not revealed in this short decision.

Was Delay in Notifying Insurer Reasonable?

GavelAt issue in Philadelphia Indem. Ins. Co. v Genesee Val. Improvement Corp., 2007 NY Slip Op 03389, was whether the defendant, GVIC, had failed to timely provide notice to its insured, the plaintiff, of an injured worker's Labor Law s. 200,  240(1) and 241(6) claims.

The worker was injured on September 24, 2001 and commenced suit against GVIC on June 4, 2002.  On June 21, 2002, the plaintiff insurer received notice from the GVIC of the pending lawsuit.  The insurer disclaimed based upon GVIC's 9 month delay in providing notice of the worker's accident.

The Fourth Department concluded that plaintiff insurer was not obligated to defend and indemnify  GVIC since GVIC could not have reasonably believed that it was immune from potential liability.   

In reaching its determination, the Court set forth the relevant law:

Although a good-faith belief in nonliability may excuse a failure to give timely notice...[a]t issue under the policy provision [in this case] is not whether [GVIC had] a good-faith belief in nonliability, but whether [it] should have anticipated a claim... [T]he insured's belief must be reasonable under all the circumstances, and it may be relevant on the issue of reasonableness, whether and to what extent, the insured has inquired into the circumstances of the accident or occurrence...

Ultimately, the determination turns on whether an ordinary prudent person could have reasonably believed himself to be immune from potential civil liability under the circumstances...(Internal citations and quotations omitted).

The Court then noted that GVIC was aware of the accident when it occurred, but failed to conduct an investigation.  Accordingly, the Court held that GVIC's explanation for its failure to promptly notify its insurer of the accident due to its belief that other parties would bear ultimate responsibility for the worker's injuries was insufficient since the belief in immunity from liability was unreasonable as a matter of law.

These types of determinations are always very fact specific, but without fail, the lesson to be learned from each and every decision relating to late notice is that the safe practice is to notify your insurer of an accident, even if you think that you're not at fault.  It's better to be safe than sorry.

Was Insured's Delay In Notifying Insurer Reasonable?

In a recent Third Department decision, Klersy Bldg. Corp. v Harleysville Worcester Ins. Co., 2007 NY Slip Op 00360, the Court concluded that, at the very least, there was an issue of fact as to whether the insured's delay in notifying the insurer of a claim was reasonable.

In Klersy, the employee of a sub-contractor fell and was injured while working on a project for which the plaintiff was the general contractor.  Although the plaintiff's president was informed of the fall on the day of the accident, the plaintiff did not notify its insurer of the claim until 4 months later, when it was served with a Summons and Complaint.  Shortly thereafter, the plaintiff's insurer denied coverage on the grounds that the plaintiff had failed to notify it of the occurrence "as soon as practicable."  The plaintiff then commenced a declaratory judgement action seeking to compel its insurer to defend and indemnify it in the underlying lawsuit.

The Court began its analysis by stating the applicable law:

Where a policy of liability insurance requires that notice of an occurrence be given 'as soon as practicable,' such notice must be accorded the carrier within a reasonable period of time...Failure to comply with the notice requirement vitiates the contract of insurance and, under such circumstances, the insurer is not required to demonstrate actual prejudice from the delay in order to successfully disclaim coverage...However, omitting to provide timely notice may be excused in certain situations, such as where the insured has 'a good-faith belief of nonliability,' provided that belief is reasonable...Although the insured bears the burden of proving that there was a reasonable excuse for a delay, the question of such reasonableness is generally a question of fact for a jury...(Internal citations and quotations omitted).

The Court then considered the plaintiff's explanation for the delay.  In support of its claim that the delay in notifying its insurer was reasonable, the plaintiff alleged that it:

(D)id not immediately contact defendant because Clegg was employed by Donato, Donato was supervising Clegg when the accident occurred, and Donato had provided plaintiff with proof of both liability and workers' compensation coverage prior to the construction project...(and) any potential claim would be covered by Donato's insurance...(D)uring the company's nearly 50 years in business, it had minimal experience with job site accidents that resulted in claims...

The Court concluded that the issue of reasonableness was for the jury to decide in light of the particular facts of this case and thus upheld the trial court's denial of the insurer's motion for summary judgment.

I think the Court made the correct decision in this case.  But, I also think that the insured was awfully lucky.  Having been in business for nearly 50 years, the plaintiff should have known to immediately notify its insurer of the fall, even if the company hadn't had much experience with claims.  I've been involved in cases where the insured had far better excuses for a late notice of claim than the plaintiff had in this case and yet was unable to persuade the judge of the reasonableness of the excuse.   After all, like beauty, reasonableness is in the eye of the beholder! 

"Platonic" Roommates Out of Luck

In an interesting case handed down last week,  Matter of Erie Ins. Co. v. Williams, 2006 NY Slip Op 06716, the Fourth Department considered the issue of whether the cancellation of an automobile insurance policy as to one insured, Tiffany Luterak,operated to effectively cancel the insurance as to the other insured, Bill Williams. 

Apparently Bill and Tiffany shared the costs of maintaining and insuring their cars.  Erie Insurance  canceled Tiffany's automobile insurance policy and thereafter Bill was involved in an accident with that vehicle.  He then commenced a supplementary uninsured motorist claim against Erie and Erie then sought to stay the arbitration on the grounds that no insurance was in effect at the time of the accident since Bill was "a member of (Tiffany's) household" at the time of the cancellation.

The Fourth Department concluded that Bill and Tiffany did in fact reside together, but as "platonic roommates":

We conclude, instead, that respondent on the date of cancellation "actually resided in the insured['s] household with some degree of permanence and with the intention to remain for an indefinite period of time" (Matter of Biundo v New York Cent. Mut., 14 AD3d 559, 560). The record establishes that, although respondent and Luterek were platonic roommates, they were living as members of a single household and indeed were sharing the costs of maintaining their vehicles and the insurance thereon. We thus conclude that the policy was not in effect at the time of the accident. Under the circumstances, petitioner had no obligation to disclaim liability or to deny coverage (see generally Insurance Law § 3420 [d]; Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188-190; Zappone v Home Ins. Co., 55 NY2d 131, 137-138).

The holding makes perfect sense to me.  It's the alleged facts that I have a problem with.  I smell a rat. 

I'm thinking Bill and Tiffany pulled the wool over the Court's eyes.  It sounds as if Bill and Tiffany, "platonic" roommates, each owned a car, so why didn't they each pay for and insure their own car?  Why bother combining costs, unless one person was paying more than their fair share?  And why would a "platonic" friend do that?  I've had a number of good friends in my life, but none of them ever paid for my car insurance.   Must be I've got the wrong kind of friends.

But, I digress.  Platonic relationship or not, it wouldn't have changed the holding.  Nevertheless, Bill and Tiffany--you're not fooling me.

Second Department Holds Insurance Company Out of Luck

In New York Univ. Hosp. Rusk Inst. v. Hartford Acc. & Indem. Co., 2006 NY Slip Op 06223, an individual sustained personal injury in an auto accident and sought medical treatment for his injuries at the plaintiff's hospital.  The plaintiff sent the defendants a hospital facility form (N-F5) and a UB-92 form, demanding payment of its $18,145.76 bill.  The defendant's ultimately denied a portion of the claim in letter form rather than the the prescribed denial of claim form (N-F10). 

At issue in this appeal was whether the defendants properly denied the claim.  The Court held that:

Contrary to the hospital's contention, [a] letter of disclaimer is permissible, provided that it is approved by the New York State Department of Insurance, issued in duplicate, and contains substantially the same information as the prescribed form which is relevant to the claim denied...Here, the defendants' September 28, 2004, letter adequately conveyed the information mandated by the prescribed form including, but not limited to, the precise ground on which the partial denial was predicated. However, the defendants failed to establish that the letter had been issued in duplicate and approved by the Department of Insurance (see 11 NYCRR 65-3.8[c][1], supra). Accordingly, having failed to pay or properly deny that portion of the hospital's claim within the statutory time frame, the defendants were precluded from interposing a defense. (Internal citations and quotations omitted).

Ouch!  That holding has to hurt, given that the disputed amount was $10,385.08.  It would seem that the safest way to issue a denial would be to simply use the proscribed form. 

I've learned that in the practice of law, taking a short cut is almost always a bad idea.  This case was no exception.

NY Court of Appeals--Insurer Must Indemnify Insured In Wrongful Death Action

In Automobile Ins. Co. of Hartford v. Cook, 2006 NY Slip Op 04456, the Court of Appeals held that an insurer had the duty of defend its policyholder under his homeowner's insurance policy in an underlying wrongful death action resulting from a shooting committed by the insured in self defense.  The issue of indemnification was left to the finder of fact.

The Court framed the issues as follows: 

Our inquiry is two-fold: whether an "occurrence" is involved that gives rise to policy coverage and, if so, whether it falls within the "expected or intended" injury policy exclusion. As relevant here, the insurance policy defines an "occurrence" as "an accident . . . which results, during the policy period, in . . . bodily injury." The policy also contains an exclusion for bodily injury "which is expected or intended by any insured."

The Court then set forth the relevant law:

It is well settled that an insurance company's duty to defend is broader than its duty to indemnify...

Thus, an insurer may be required to defend under the contract even though it may not be required to pay once the litigation has run its course....

When an insurer seeks to disclaim coverage on the further basis of an exclusion, as it does here, the insurer will be required to "provide a defense unless it can 'demonstrate that the allegations of the complaint cast that pleading solely and entirely within the policy exclusions, and, further, that the allegations, in toto, are subject to no other interpretation' " ...In addition, exclusions are subject to strict construction and must be read narrowly... (Citations omitted).

The Court then concluded that the negligent conduct alleged in the Complaint fell within the definition of "occurrence" as set forth in the policy and that the exclusion was inapplicable since the insurer "failed to demonstrate that the allegations of the complaint are subject to no other interpretation than that (insured) 'expected or intended' the harm to (the victim)."

I loved this case.  In part because of the unusual fact pattern (make sure to read the lengthy recitation of the facts in the decision).  And, in part because I was involved in a successful declaratory judgment action against an insurer a few years back on behalf of our client who sought defense and indemnification in an underlying negligence suit with an equally strange fact pattern.  As a result, I find these types of opinions to be of particular interest.

And, this case didn't disappoint--it was certainly interesting.

Fourth Department Finds Insurance Policy Ambiguous...

In Topor v Erie Ins. Co., 2006 NYSlipOp 03324, the Fourth Department concluded that an insurance policy provision was ambiguous, but nevertheless found in favor of the defendant.  In Topor, the plaintiffs sought to recover for a loss that occurred when the parapet of a building collapsed.  The defendant alleged that the policy excluding damage caused by rotting, and that the parapet collapsed due to rotted mortar joints in the brick wall.  The plaintiff countered that the "rotting" provision only applied only to wood.

The Court set forth the relevant law in regard to interpreting insurance contracts:

(I)t is well established that [a]n exclusion from policy coverage must be specific and clear in order to be enforced; the exclusion must be set forth in clear and unmistakable language'. . . . The burden is on the insurer to demonstrate that the exclusion applies in the particular case and that the policy language relied upon by the insurer in support of the exclusion is subject to no other reasonable interpretation. The construction and effect of a contract of insurance is a question of law to be determined by the court where[, as here,] there is no occasion to resort to extrinsic proof... Any ambiguity in the insurance policy must be resolved against the insurer, its drafter. (Internal citations and quotations omitted.)

The Court applied these principles and determined that the policy was ambiguous in regard to the application of the "rotting" provision, but nevertheless concluded that the plaintiffs failed to establish that the loss fell within the policy terms:

The evidence submitted by plaintiffs in support of their motion established that the collapse was caused by both the deterioration and loosening of the mortar joints in the brick wall based on water infiltration and the freezing and thawing of that water, and by the rotting of the wooden portion of the supporting structure of the parapet. On the record before us, plaintiffs conceded in opposing defendant's cross motion that the policy excludes damage caused by the rotting of wood, and plaintiffs submitted evidence in support of their motion establishing that the loss may have been caused at least in part by the rotting of wood. We thus conclude on the record before us that plaintiffs failed to meet their burden of establishing that the loss was covered under the policy as a matter of law.  (Emphasis added).

Oops.  I suppose that the lesson to be learned is to never concede anything.  Or maybe the lesson is to make sure that your concessions don't undermine your position.  Or perhaps to think before you speak. 

I'm not entirely sure.  But there's a lesson in there somewhere.  And, it's an important one.

Did the Insurer Fail to Disclaim in a Timely Manner?

Last week, the New York Court of Appeals handed down its decision in Matter of New York Cent. Mut. Fire Ins. Co. v. Aguirre, 2006 NY Slip Op 04749.

In this case, the insureds' attorney sent a letter to NY Central on August 15, 2002 advising that a SUM claim would be made relative to an accident that had occurred.  On September 3, 2002, NY Central sent a letter acknowledging receipt of the letter and directing the "immediate completion and return of the enclosed Notice of Intention to Make Claim forms."  The insureds never filled out the forms, and instead, in May of 2003, served a request for uninsured motorist arbitration.  NY Central moved to stay the arbitration on the ground that the insureds had failed to complete the requested forms, which was a condition precedent in the policy for which timely disclaimer was not required. The Court of Appeals disagreed. 

The Court noted that the requirement that the insureds fill out the proof of claim form was an exclusion or condition of coverage, and thus the issue to be determined was whether NY Central Mutual Insurance Company timely disclaimed or dnied SUM coverage as soon as was reasonably possible within the meaning of Insurance Law s. 3420(d).

The Court stated that:

An "insurer's failure to provide notice as soon as is reasonably possible precludes effective disclaimer, even [where] the policyholder's own notice of the incident to its insurer is untimely" (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 67 [2003]). The "timeliness of an insurer's disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage" (id. at 68-69 [internal quotation marks omitted]). When "the basis for denying coverage was or should have been readily apparent before the onset of the delay [of disclaimer]," the insurer's explanation is insufficient as a matter of law (id. at 69). In Jetco, we held that an insurer's unexcused 48-day delay in notifying an insured of denial of coverage was unreasonable as a matter of law.

Accordingly, the Court concluded that by using the word "immediate" in its request for the return of the completed forms, NY Central became aware of the basis for denying coverage based upon the failure to return the completed forms well before June 19, 2003, when it moved to stay the arbitration.  The Court stated:

That completed forms were never returned or that the letter did not set a precise deadline for their return does not extend the insurer's time to disclaim or deny coverage, or excuse its delay in doing so.

Judge Smith dissented:

The Court today holds, in substance, that this requirement was nullified because the insurance company did not, as soon as possible after as soon as practicable, send claimants a notice that they had failed to send a notice. The Catch-22 quality of this holding is too much for me, and I dissent...

Insurance Law § 3420 (d) requires an insurance company to give written notice of a disclaimer of coverage "as soon as is reasonably possible." I would hold that, where the disclaimer is based on a claimant's failure to submit a document in timely fashion, and there is no fixed deadline for the claimant's submission, the time to disclaim does not start running at least until the belated submission arrives. To hold otherwise, it seems to me, places an unreasonable and unnecessary burden on the insurance company.

I'm leaning towards the dissent's position in this case.  While I find provisions of this sort to be tedious and unnecessary, in that insurers require special forms to be filled out, even when the insurer already has sufficient information to investigate, they are valid provisions of an insurance contract.  And, these provisions serve to trigger other events to occur, once the requirements of the provisions are met.  It seems unfair and burdensome to require insurers to proactively disclaim coverage, even though the insured has not yet provided the forms required by the contract.

Perhaps a positive outcome of this holding will be that insurers will remove the  unnecessarily specific (and annoying)  requirements of this nature from insurance contracts, and instead simply require that their insureds provide them with the appropriate information in any number of acceptable ways, be it by letter, pre-printed form, or otherwise.

Usually, But Not Always, I Know It When I See It

In Country Wide Ins. Co. v. National R.R. Passenger Corp., 2006 N.Y. Slip Op. 01112, the Court of Appeals considered the issue of whether summary judgment is appropriately granted where there are uncontradicted statements from both the owner and the driver of a vehicle that indicate that the driver was operating the vehicle without the owner's permission. 

The issue came before the Court of Appeals as a result of the United States Court of Appeals for the Second Circuit certifying certain questions relating Vehicle and Traffic Law s. 388(1), which provides in relevant part:

Every owner of a vehicle used or operated in this state shall be liable and responsible for death or injuries to person or property resulting from negligence in the use or operation of such vehicle, in the business of such owner or otherwise, by any person using or operating the same with the permission, express or implied, of such owner. . .

The Court concluded that in most circumstances, including the case at issue, summary judgment is appropriate where there are  uncontradicted statements from both the owner and the driver regarding the lack of permission granted to the driver.  However, the Court also stated that:

(D)isavowals by both the owner and the driver, without more, should not automatically result in summary judgment for the owner. Where the disavowals are arguably suspect, as where there is evidence suggesting implausibility, collusion or implied permission, the issue of consent should go to a jury...In short, whether summary judgment is warranted depends on the strength and plausibility of the disavowals, and whether they leave room for doubts that are best left for the jury.

In other words, the Court stated that "(u)sually, but not always," uncontradicted statements by the owner and the driver indicating that the driver was driving the vehicle without permission will warrant summary judgment.

It appears to me that the Court of Appeals has blurred the line between a legal and a factual determination.  In holding that the lower court judge is to determine the "strength and plausibility of the disavowals" the Court seems to imply that the judge may make factual determinations when considering whether to grant a summary judgment motion despite the fact that it is the province of the jury to assess the veracity of a witness. 

Additionally, the "usually, but not always"  language seems deliberately vague.  It strikes me as very similar to Justice Potter Stewart's famous definition of obscenity:  "I know it when I see it."  Both statements constitute ambiguity at its best!

For a less ambiguous holding from the Court of Appeals, see the New York Civil Law blog's analysis of Harris v. Niagara Falls Board of Educ., in which the Court considered the issue of whether the plaintiff properly commenced a special proceeding.

UPDATE: The New York Civil Law blog also has its own analysis of Country Wide Ins. Co., which can be found here.