Insurance Defense

Court Holds Issue of Fact Exists as to Definition of "Household" in Automobile Liability Insurance Policy

In Rohlin v. Nationwide Mut. Ins. Co., 2006 N.Y. Slip Op. 00731, decided on February 3, 2006, the Fourth Department considered the issue of whether the defendant was obligated to provide coverage to the plaintiff under her automobile liability insurance policy.

The facts, as described by the Court were as follows:

Plaintiff was operating a vehicle owned by Sharol L. Mortensen when the vehicle allegedly encountered rough road and flipped over. Plaintiff's daughter, Tracy M. Rohlin (defendant), was a passenger in the vehicle. Defendant commenced an action against plaintiff and Mortensen seeking damages for injuries she allegedly sustained in the accident. Plaintiff sought coverage from defendant Nationwide Mutual Insurance Company (Nationwide) under separate automobile liability insurance policies issued by Nationwide to her and Mortensen. Although Nationwide agreed to provide coverage under the policy issued to Mortensen, it denied coverage under the policy issued to plaintiff on the ground that Mortensen is a member of plaintiff's household and coverage extends to plaintiff only if plaintiff was operating "a motor vehicle owned by a non-member of [plaintiff's] household."

The Court first noted that the definition of "household" in insurance policies is ambiguous and any ambiguous provision in an insurance policy should be interpreted in a manner favoring coverage. 

The Court then stated that the interpretation of the term "household" should be based upon the intent of the parties, which is an issue of fact, rather than one of law and concluded that:

(T)hat issue is best resolved by the trier of fact, "taking into account the reasonable expectations of the average person purchasing [automobile liability] insurance, as well as the particular circumstances of [this] case."

Amusement Activity Covered by Policy

In Kramarik v. Travelers, 2006 N.Y. Slip Op. 00278, the Third Department considered the issue of whether a disc jockey/entertainment company's liability insurance policy covered injuries, including  fractured vertebrae, sustained by a customer when she fell while attempting to enter a "foam pit."  A foam pit is apparently a vinyl dance floor with 2 and 1/2 foot inflateable sides that is filled with a bubble foam liquid.

The policy provision at issue excluded coverage for injuries arising from the use of "amusement devices operated by [plaintiff,] including but not limited to [the] aerotrim cross trainer device or similar devices. "

The insurer noted that the insured advertised the "amusement device" at issue, the foam pit dance party, as "a whacky, wild and wet fun-filled event" and "the most fun you can have with your clothes on."

The Court concluded that:

In our view, it cannot be said that the policy was clearly and unmistakably intended to exclude injuries arising from the tools of plaintiff's entertainment trade, such as vinyl dance floors (see Belt Painting Corp. v TIG Ins. Co., supra at 387). We note that a vinyl dance floor bears no resemblance to the only example of an amusement device listed, the "aerotrim cross trainer," a mechanical gyro device in which the participant's arms and legs are extended and bound inside a sphere that spins in all directions. Moreover, adoption of an interpretation that excluded coverage for the tools of plaintiff's trade would contradict his reasonable expectations as a businessperson seeking insurance coverage for injuries resulting from the operation of his entertainment business (see id. at 383).

Although I normally comment on the court's decision, I feel obliged to depart from that custom this time around given that I have a much stronger opinion regarding another aspect of this case.  I find myself in vehement disagreement with the the insured's description of the "foam pit dance party."

I'm not sure about you, but I can think of any number of things that I'd rather do than step into a vinyl pit filled with some sort of gooey foam substance and bunch of strangers with questionable bathing habits.  Personally, I wouldn't describe that particular past time as "the most fun you can have with your clothes on."  But, then again, maybe I'm just getting old.

Third Department Holds "Proof of Claim" Is Not a Necessary Prerequisite to Pursuing SUM Claim

In Matter of Nationwide Mut. Ins. Co. v. Mackley, the insurer disclaimed its insureds' SUM claim on the grounds that the insureds had failed to provide a "proof of claim" pursuant to the terms of the insurance contract. 

The underlying automobile accident occurred on June 8, 2003 and the insureds' attorney sent the insurer a letter dated July 1, 2003 in which he notified the insurer of the no-fault claim and of a "potential uninsured/ underinsured motorist claim."   The insureds' attorney sent another letter dated July 15, 2003 and enclosed a police report which indicated that no other coverage existed for any other policy in the household or from the vehicle involved in the accident.

In January 2004, the insureds' attorney notified the insured that a SUM claim would be pursued, and the insurer then sent a letter enclosing a "proof of claim" form, which was not returned until April 14, 2004.  In the meantime, the insureds' attorney sent medical records to the insurer in February 2004, and the insurer disclaimed coverage on March 29, 2004 due to the insureds' failure to provide the "proof of claim" form.

The Court noted that:

The Court of Appeals has recently held that "where an insured previously gives timely notice of the accident, the carrier must establish that it is prejudiced by a late notice of SUM claim before it may properly disclaim coverage" (Rekemeyer v State Farm Mut. Auto Ins. Co., 4 NY3d 468, 476 [2005]; see Matter of Brandon [Nationwide Mut. Ins. Co.], 97 NY2d 491, 496-497 [2002]; cf. Argo Corp. v Greater N.Y. Mut. Ins. Co., 4 NY3d 332, 339-340 [2005]). The rationale in Rekemeyer applies here...

The Court concluded that since the insurer had failed to establish prejudice as a result of the insureds' failure to provide the "proof of claim" in a timely manner, that it should not be allowed to disclaim coverage.

It would seem that the lesson to be learned is that form over function isn't always the rule. 

Court Concludes No Fiduciary Duty Owed By Insurance Broker to Customer

There is an interesting post at New York Civil Law  today entitled Court Refuses to Breach of Fidcuiary Duty Between Insured and Broker Irrespective of Creative Agreement.  In this post, Matt Lerner analyzes the Nassau County Supreme Court's decision in Scotto Princeton, LLC v. Felsen Associates, Inc., 2005 N.Y. Slip Op.  25560. 

In Scotto, the Court considered whether the third cause of action, in which the plaintiff, a customer of the defendant insurance broker, alleged a breach of fiduciary duty by the defendant, was subject to dismissal pursuant to the defendant broker's motion to dismiss.

The Court concluded that:

Permitting a customer of an insurance broker to sue for breach of fiduciary duty when the broker inaccurately or negligently advises the client of the unavailability of such insurance coverage would "open flood gates of even more complicated and undesirable litigation."

Fourth Department Considers Insurance Defense and Indemnifaction Issues.

In Merchants Mutual v. Travelers Insurance, 2005 N.Y. Slip Op. 09816, the Fourth Department considered the issue of whether the defendant insurance company was obligated to defend and indemnify the plaintiff insurance company.

In this case an employee of Finnefrock Excavating and Paving (hereinafter "F") was injured during the course of his employment while working on land owned by Springcreek Associates and Home Properties of New York, Inc. (hereinafter "S").  F was insured by the plaintiff in this action, Merchants Mutual Insurance Group (hereinafter "Company F") and S was insured by the defendant, Automobile Insurance Company of Hartford (hereinafter "Company S"), which was incorrectly sued as Travelers Insurance Company.

The employee commenced a lawsuit in June 1997 against S, and in November 1997, Company S tendered the defense and indemnification of the action to Company F, which assumed the defense and indemnification in January 1998.  Four years later, in January 2002, Company F attempted to retender the defense and indemnification to Company S by alleging mistakes of fact and law.  Company S refused and Company F then commenced this declaratory judgment action and moved for summary judgment.

The Fourth Department first considered whether the voluntary payment doctrine applied with respect to Company F's defense of the action prior to January 18, 2002.  The Court noted that pursuant to the voluntary payment doctrine, if an insurer that assumes the defense and indemnification of an insured when there is no obligation to do so and is not acting under mistake of fact or law, said insurer is a volunteer with no right to recover monies paid on behalf of the insured.  The Court applied that doctrine to this case and concluded that Company F acted as a volunteer for the time period in question. 

The Court then considered the issue of whether the doctrine of estoppel precluded Company F from disclaiming coverage when it attempted to retender defense to Company S.  The Court stated that: 

Once an insurance company that has voluntarily assumed the defense in an action attempts to retender the defense to the appropriate party, the insurance company is no longer a volunteer, unless that insurance company is estopped from denying or disclaiming coverage.  Although Merchants is correct that estoppel will not apply to create coverage "[w]here there is no coverage ... because the policy was not in existence at the time of the accident" , estoppel may apply if an insurance company seeks to deny or disclaim coverage based on a defense or an exclusion. (Internal citations omitted).

The Court noted that the doctrine of estoppel precludes disclaimer if the proper defending party relied to its detriment on the coverage and was prejudiced by the delay based on the loss of the right to control its own defense.  The Court held that the defendant, Company S,  had failed to establish that it lost its right to control its defense beginning on January 18, 2002, when Company F attempted to retender defense to Company S, and thus estoppel did not apply from that point on.  Accordingly, the Court concluded that Company S was not obligated to contribute toward the defense on behalf of S prior to January 18, 2002, but that there were issues of fact that precluded entitlement to judgment as a matter of law regarding the time frame following January 18, 2002.

All in all, this is an interesting and fairly in depth case, if you're inclined to wade through it.  I think that the lesson to be learned from this case is that if you are an insurer and have any doubt as to whether coverage is applicable in a given case, don't think twice about calling your lawyer prior to undertaking defense and indemnification.  It might cost a small amount of money up front, but could save a lot of money in the long run.  In this case, the monies paid by Company F in the mistaken defense of S from January 1998  through January 2002 will likely never be recovered.

Discovery of Insurer Reserve Information

Marc Mayerson has a great discussion  (which is continued in the comments that follow his post) on the issue of the discovery of insurer reserve information at the Insurance Scrawl blog.  In the comments section of his post, he references an article on this topic from that may also be of interest entitled:  Insurance Reserves Discoverable in Bad Faith Case.

His discussion begins as follows:

Discovery of Insurer Reserve Information: Implied Admission of Coverage or Attorney Work Product ? Or Both?

One common area of discovery disputes in insurance-coverage cases concerns reserve information from carriers. The policyholder-side thinking goes that it is inconsistent with the insurer’s flat denial of coverage for it to accrue a reserve on the claim, especially a reserve at close to full value. There is some logical and emotional appeal to this “putting your money where your mouth is” discovery, that is, requiring that what the carrier says to the jury be consistent with where it is putting its money.

Of course, a reserve accrued on the claim doesn’t prove conclusively there is coverage: carriers argue that reserves simply reflect litigation risk or that statutory requirements re solvency compel the accrual of reserves – points that go to the weight of the evidence. Carriers are concerned that reserve evidence is prejudicial to their coverage denial in the eyes of jurors (because a reserve seems to be an implied admission of coverage or at least the reasonable possibility of coverage), and so carriers tend to fight assiduously to prevent reserve information from coming to light.

He then goes on to discuss a recent decision on this issue from the Supreme Court of West Virginia.

This is an interesting discussion from a blog that I highly recommend to insurance defense practitioners and plaintiff's counsel alike.

"Work" is in the eye of the beholder.

In Gascoyne v. Occidental Chem. Corp., 2005 N.Y. Slip Op. 08384, the Fourth Department held that an insurer was obligated to defend and indemnify its insured, the employer, in a lawsuit commenced as a result of injuries sustained by the plaintiff, an employee.  The plaintiff was injured when she slipped and fell on an icy road while walking toward the worksite after she had signed in at the guard gate.

The owner of the work site commenced a third-party action against the plaintiff's employer and its insurer seeking defense and indemnification pursuant to policy language which stated that employees were covered for "acts within the scope of their employment...or while performing duties related to the conduct...of business."

The Fourth Department cited Daily News, LP v. OCS Security, Inc., 280 A.D.2d 576, 577, and concluded that the employer's insurer was obligated to defend and indemnify the employer because the plaintiff's work required her to use the road to reach and leave her workplace and thus "the underlying action arose out of the work [within the meaning of the policy language]".

The Fourth Department's decision is consistent with its precedent, but I'm not sure that I agree with  this line of cases.  Based upon the specific language of the policy at issue in this case, coverage was applicable only for acts conducted within the scope of employment or for duties performed in relation to the conduct of business.  It seems fairly clear to me that the plaintiff was not conducting business as she walked toward the work site, so the Court must have relied upon the first clause in reaching its decision. 

In this line of cases, the Court's interpretation of the concept of "scope of employment" is, in my mind, unduly expansive in that it contemplates any actions taken by an employee while on the job, regardless of whether the act occurred while in the process of actually performing work.  (For example, in Daily News, the employee was a security guard on his lunch break and the Court held that the policy at issue covered his actions.)

Accordingly, it would seem that insurers would be wise to include more specific provisions in their policies as to which actions by an employee are deemed to be within the scope of employment.