Torts, Insurance and Compensation Law Section Insurance Coverage Committee Case Review

New York State Bar Association Insurance Coverage Committee’s Quarterly Review of the Issues and Cases that Shape New York Insurance Coverage Law

In the ever-changing and evolving world of New York coverage law, the Insurance Coverage Committee will keep you informed of the decisions and trends that affect your practice with its quarterly newsletter.

If you have an item you would like to contribute to our next issue, please contact editor Joanna  Roberto at jroberto@goldbergsegalla.com 

NEW YORK SUPREME COURTS

No Coverage Where Insureds' Son Had "Urged And/Or Encouraged" Alleged Assault A lawsuit alleged that the insureds’ son had “urged and/or encouraged” others to beat two people with a bat.  After the negligence claim was dismissed, the court agreed that the insurers had no duty to defend or to indemnify the son because the policies did not cover the remaining causes of action, which, the court said, involved “intentional torts (concerted action in perpetrating an assault and aiding and abetting an assault).”  Specifically, there was no “occurrence” and the “expected or intended” exclusion operated to preclude coverage.  Although the insureds’ son had not committed the alleged assault, the court found that the alleged injuries “would not have been ‘unexpected and unintended’ from [the son’s] point of view. Travco Ins. Co v. Donaghy, No. 14846/09 (Sup Queens June 16, 2010)

NEW YORK DISTRICT COURTS

Thousands Of Claims Arising From Consumers' Use Of Contact Lens Solutions Deemed Separate Occurrences After consumers asserted thousands of claims for alleged injuries arising from their use of contact lens solutions, Bausch & Lomb argued that its umbrella insurance policies should be construed to provide that the claims arose from a single “occurrence.”  The federal district court found that there was no evidence of a problem with the manufacturing process and that, under New York’s “unfortunate events” test, it was the individual exposure to the solutions, and not their manufacture, distribution, or sale, that caused the injury and constituted the “occurrence.”  Ruling in favor of the insurer, the court added that the “occurrences” could not be combined under the provisions grouping “exposure to substantially the same general conditions” where “there is no single incident that can be identified as the event resulting in injury to the numerous claimants.”  Bausch & Lomb Inc. v. Lexington Ins. Co, 2090 U.S. Dist. LEXIS 120304 (WDNY Dec 28, 2009)

Court Holds Insurer Obligated To Continue Reimbursement Of Defense And Investigation Costs Despite Policy Limits On Indemnity For Oil Spill Claims An unmanned barge sank and released approximately 300,000 gallons of fuel oil into the river.  As a result of the accident the policyholder, as owner of the barge, was sued for the clean-up costs. The policy required the insurer to (1) indemnify the policyholder for “such amounts as it shall have become liable to pay and shall have paid for pollution response or damages” as owner or operator of the barge, and (2) reimburse the policyholder for “certain other costs and expenses” including costs associated with the discharge of oil (Coverage A), the discharge of hazardous substances (Coverage B), and investigation and defense (Coverage C). The court held that the policy language was unambiguous and that the provision, on its face, contained no temporal or quantitative limit on the reimbursement obligation. Thus, the insurer’s argument that its obligation to make payments for investigation and defense costs under Coverage C ended because payments under coverages A& B met the policy limits was deemed meritless.  American Commercial Lines LLC v. Water Quality Ins. Syndicate (SDNY, March 29, 2010)

Federal Court Finds That Independent Contractor Exclusion Is Unambiguous, And That Insurer Is Not Estopped From Maintaining Allegedly Untimely Disclaimer For Property Damage Claims Where No Prejudice A plumber working in an apartment building failed to cap a leak in a gas pipe, leading to an explosion, a tenant’s death, and the destruction of the building.  The building owners were sued, and their premises liability policy insurer filed a declaratory judgment action, arguing that it had properly disclaimed coverage based upon, among other things, a policy exclusion for work done by an independent contractor. The district court found that the independent contractor exclusion was unambiguous, valid, and applicable.  The court, however, ruled that the insurer’s disclaimer with respect to the personal injury and wrongful death claim against the building owners was untimely under Insurance Law § 3420(d).  The court added that § 3420(d) did not apply to the claims for property damage, but that disclaimers relating to such claims were subject to common law equitable estoppel.  It then found, however, that the building owner had failed to demonstrate that they had been prejudiced by the insurer’s alleged late disclaimer, as required for equitable estoppel.  Accordingly, the court concluded that the insurer was entitled to a declaration of noncoverage with respect to the property damage claims against the building owners.  US Underwriters Ins. V. Landau, 2010 US Dist Lexis 3430 (EDNY Jan 19, 2010)

Due Diligence Necessary To Prove Fraudulent Concealment Workers compensation insurer’s lack of due diligence in auditing employer’s records barred RICO claim for fraudulent concealment.  Oriska v All Staffing  (SDNY, March 11, 2010) 

Court Finds Coverage Under Group Accidental Death And Dismemberment Insurance Policy For Woman Who Died After Elective Surgery
During elective orthopedic surgery, a catheter was apparently inserted improperly into the insured’s chest, puncturing a vein and leading to her death.  After the insured’s husband submitted a claim under a group accidental death and dismemberment insurance policy, the insurer contended that the policy was “an accident only policy” and did “not cover sickness or disease.”  The insured’s husband brought suit, and the court ruled that he was entitled to benefits under the policy “for the accidental death of his wife.”  In the court’s view, the insured’s death was not caused by any sickness or disease but rather because a catheter had been improperly placed into her chest, rupturing a vein and causing internal bleeding and the entry of fluids into her chest cavity.  The court concluded that “this was an unintentional, unexpected, unusual, and unforeseen event – an accident.”  Barnes v. American Int’l Lif Assur. Co. 2010 U.S. Dist LEXIS 9503 (SDNY Feb 4, 2010)

Court Upholds Denial Of Coverage For Donor-Egg Procedures The insureds brought suit against their healthcare insurer for insurance coverage for donor-egg procedures.  The court found that the insurer had reasonably interpreted the policy term “medically necessary” to extend coverage to only those “members . . . for whom fertility would be naturally expected,” because aging was “not an illness.”  Finding support in both medical literature and the insurer’s consulting physicians’ opinions, the court granted summary judgment in favor of the insurer Doe v. Blue Cross Blue Shield of Massachusetts, 2010 U.S. Dist Lexis 37153 (SDNY Apr 12, 2010)

Appellate Division, First Department

Insurer That Could Have Moved To Vacate Default Judgment And For Leave To File Late Answer Failed To Demonstrate Prejudice, First Department Rules After allegedly being injured in a car accident, the injured party timely notified the alleged tortfeasor’s insurer of his injuries and claim.  In turn, the injured party filed an action against the alleged tortfeasor-insured and moved for default when the insured failed to answer.  The insurer disclaimed coverage, stating that its receipt of the default judgment motion was its first notification of any legal action against its insured.  The court entered a default judgment against the insured and ordered that he pay $250,000 in damages.  The insurer filed a declaratory action against the insured.  The Appellate Division, First Department, opined that the insurer could disclaim coverage for untimely notice of the underlying action only if it could show prejudice given that it had received “timely notice of claim.”  It then ruled that the insurer had not demonstrated prejudice, noting that the insurer “could have appeared, opposed the [default] motion, and filed for leave to file a late answer.”  A dissenting justice stated that the insurer should only be obligated to defend and/or to indemnify the insured if the defendant consented to vacatur of the default judgment so that the insurer could file an answer, but the majority upheld the lower court’s grant of summary judgment against the insurer. American Transit Ins. Co. v. Hashim, 2009 N.Y. Slip Op 09527 (1st Dept Dec. 22, 2009)

Excess Insurer's $10 Million Limited to $1 Million in Coverage Excess insurer issued a follow-form policy, incorporating the terms and conditions of $1 million liability policy. Court held that the liability policy’s terms, which limits additional insured coverage to the lesser of the policy limits or the amount required by the trade contracts applied.  Metropolitan Transit Auth v. Zurich Am. Ins. Co., (1st Dept, Dec 22, 2009)

Title Insurer Need Not Defend Homeowner In Adverse Possession Case Involving Allegedly Misplaced Fence Where Policy Had Specific Exclusion For Fences A complaint for adverse possession against homeowners was based upon the location of a fence that allegedly varied from the actual boundary line.  The title insurer relied upon an exclusion in the title insurance policy that excluded “fences . . . [that] vary with the record lines.”  The homeowners argued that the pre-policy “certificate of title” and the “marked title report” revealed an intention to cover claims based upon a fence that varied from the actual boundary line.  The Appellate Division, First Department rejected the homeowners’ argument, finding that any such intention “did not survive issuance of the policy.” Frydman v. Fidelity Nat’l Title Ins. Co., 2009 N.Y. Slip Op. 09530 (1st Dept Dec 22, 2009)

Broad Employee Exclusion In Insured's Policy Dooms Coverage For Suit By Contractor's Employee
After the insured, Matthew Davis Events (“MDE”), agreed to manage a party for a customer, it contracted with United Stage Service, Inc. (“Stage”) to work the event. A Stage employee who allegedly was injured brought suit against MDE, and MDE’s insurer disclaimed coverage based upon an exclusion for bodily injury to an “employee” of an insured.  The exclusion defined “employee” as including a person “hired by, liable to, leased to, contracted for, or volunteering services to the insured, whether or not paid by the insured”.  MDE argued that the employee exclusion was ambiguous as to whether Stage’s employees were included.  The Appellate Division, First Department disagreed, holding that the employee exclusion “clearly contemplate[d]” that an injury to a contractor or its employee was within the scope of the exclusion.  Nautilus Ins. Co. v. Matthew David Events, Ltd., 2010 NY Slip Op 00296 (1st Dept Jan 14, 2010)

Court Denies Insurer's Motion To Intervene In Third Party Action Against Employer Upon Finding That Contention That Its Rights Were Not Being Protected Was "Speculative"
After a construction site’s owners and general contractors were sued by a construction worker, a third party action was commenced against the construction worker’s employer.  The employer’s workers’ compensation and liability insurer moved to intervene in the third party action, arguing that its rights were not being adequately represented because the employer’s counsel, who was being paid by the insurer, faced a potential conflict if asked by the insurer to move to have the common law indemnification claims dismissed, given that that would risk the loss of coverage afforded by the employer’s liability policy.  The Appellate Division, First Department, concluded that the insurer’s theory that counsel may decide that the employer would be harmed if the common law claims against it were dismissed was “speculative,” noting that the insurer’s own moving papers indicated that other coverage was available to the employer  Severino v. Brookset Hous. Dev Fund Corp., 2010 NY Slip Op 02672 (1st  Dept March 30, 2010)

No Coverage Where Injured Party Was Employee Of Another Insured In this declaratory judgment action, the owner and tenant of an accident site sought coverage for a personal injury suit brought by an employee of another insured.  The owner, tenant and claimant’s employer were all insureds under the policy.  The Appellate Division, First Department, held that the insurer had no obligation to defend or to indemnify any of the insureds.  It explained that the “Exclusion-Cross Liability” endorsement stated that the insurance did not apply to any actual or alleged bodily injury to an employee of “any insured.”  That language excluded coverage “even where the injured party was an employee of another insured under the policy,” the appellate court ruled.  It added that neither the policy’s general “Separation of Insureds” provision, nor the separation of insureds doctrine, rendered the exclusion ambiguous.  Drk LLC v. Burlington Ins. Co, 2010 NY Slip Op 05698 (1st Dept June 29, 2010)

Bar Owner’s Five-Month Delay In Notifying Insurer Following Bar Fight Dooms Claim The owner of a bar became aware about one week after an incident that a patron of his bar had potentially assaulted another patron on his premises, but he did not notify his insurer for five months.  The Appellate Division, First Department, found that delay “unreasonable as a matter of law.”  The court also rejected the insured’s claimed belief of non-liability on the basis that none of his employees had been involved in the incident, ruling it was “not reasonable under the circumstances.  Tower Ins. Co of NY v. Miles, 2010 NY Slip Op 04635 (1st  Dept June 1, 2010)

Appellate Division, Second Department

Insurer Demonstrates Right to Rescind Life Insurance Policy Insurer granted summary judgment in an action to recover proceeds of a life insurance policy.  The court held that the insurer established its right to rescind the policy based on a material misrepresentation made by the insured Varshavskaya v. Met. Life Ins. Co. (2nd Dept. Dec. 8, 2009) 

Prejudice Rule does not Apply to Policies Issued Before January 17, 2009 Prejudice Rule does not Apply to Policies Issued Before January 17, 2009 - Insurance policy in effect from 2003-2004 was not subject to amendment to Ins. Law 3420 requiring a showing of prejudice before disclaiming for late notice.  Ponok Realty Corp. v. United Nat’l Specialty Ins. Co. (2nd Dept., Jan. 5, 2010)

Court Orders Insurer To Reimburse Additional Insured's Legal Fees After Finding Additional Insured’s Own Coverage Was Excess The insureds claimed that a storm caused a hillside on their property in the Village of Roslyn to collapse.  Thereafter, the insureds filed suit and asserted a claim under General Business Law § 349 against the insurer that had issued a deluxe homeowners’ policy to them, contending that the insurer had purposely delayed in reaching a decision on their claim to force them to bring a lawsuit against the village under a subrogation provision in the policy before the statute of limitations had expired.  The Appellate Division, Second Department, ruled that the insureds’ § 349 claim should not be dismissed.  It reasoned that the conduct the insureds complained of had a “broad impact on consumers at large” because the subrogation provision was contained in every deluxe plus homeowners’ policy the insurer issued.  It next decided that the insureds had pleaded conduct on the part of the insurer that was misleading in a material way, and that the insureds had alleged an injury (their attorney’s fees) as a result of the insurer’s allegedly deceptive act or practice.  After concluding that the reasonableness of the insureds’ belief as to their need to file suit against the village was a question to be determined by a factfinder, the court added that the insureds also were entitled to assert claims for punitive damages and attorney’s fees in connection with their § 349 claim.  Wilner v. Allstate Ins. Co., 2010 N.Y. Slip Op 00248 (2nd Dept Jan. 12, 2010)

Owner Entitled to Additional Insured Coverage for Fall on Sidewalk The tenant of certain premises obtained liability insurance containing additional insured coverage for the premises owner with respect to liability arising from the tenant’s use of the premises. The owner tendered its defense and indemnity to the tenant’s insurer after it was sued for injuries sustained in a trip-and-fall on the sidewalk in front of the leased premises.  The court held that the owner was entitled to additional insured coverage insofar as the municipality’s Administrative Code imposed liability on owners of commercial property for defects in sidewalks. It also found, however, that based on the policy language, the tenant’s policy provided excess.  L&B Estates, LLC v. Allstate Ins.   (2nd Dept., March 16, 2010) coverage 

Question of Fact As To Whether Building Owner  Covered – Even Though Not An Insured Yashi Associates owned a building that it leased to Glendale Convenience Store.  A woman allegedly fell in the parking lot and sued Glendale and Yashi.  The lease required Glendale to maintain an insurance policy that named Yashi as an additional insured, but the policy obtained by Glendale did not do so.  The insurer disclaimed coverage for Yashi, which brought suit against the insurer. The Appellate Division, Second Department, acknowledged that Yashi was not an insured.  Contrary to the policy language, however, the court opined that there was a question of fact precluding summary judgment.  The policy excluded coverage to an insured for bodily injury assumed under a contract, except this did “not apply to an incidental contract,” which included leases.  Although the court acknowledged that the provision did not “expressly” provide coverage to Yashi, it found a triable issue of fact as to whether the insurer was obligated to defend and to indemnify Yashi by operation of the policy and lease.  Majawalla v. Utica First Ins. Co, 2010 NY Slip Op 02520 (2nd Dept March 23, 2010)

No Coverage For Alleged Fall At Property Not Listed As A "Designated Premises" An individual allegedly injured at a site in Nassau County brought suit against Richner Communications, Inc.  After Richner’s insurer disclaimed on the ground that the Nassau property was not covered under the policy, Richner brought suit.  The Supreme Court, Queens County, denied the insurer’s summary judgment motion, and the insurer appealed.  The Appellate Division, Second Department, reversed.  The appellate court explained that the policy contained an endorsement that expressly limited coverage to certain “Designated Premises,” and that, at the time of the alleged accident, the Nassau property was not listed.  Given the endorsement, the appellate court rejected Richner’s contention that the policy was ambiguous because it stated that it applied to bodily injury caused by an occurrence that took place in the “coverage territory.  Richner Communications v. Tower Ins. Co, 2010 NY Slip Op 02939 (2nd Dept Apr. 6, 2010)

Appellate Court Rules Hold Harmless Agreement Did Not Require Insured To Name Owner As Additional Insured A property owner entered into a construction contract with U.S.A. Interior, LLC (“USAI”) for USAI to perform demolition work at the owner’s property.  The parties’ written agreement was a one page proposal from USAI and a hold harmless agreement.  The CGL insurance policy issued to USAI contained an additional insured endorsement that added as an insured “any entity the Named Insured is required in a written contract to name as an insured.” [Emphasis added]. The Appellate Division, Second Department, affirmed the trial court’s decision in favor of the insurer.  The appellate court explained that although USAI had agreed in writing to indemnify the owner in the hold harmless agreement, that agreement did not contain any requirement that USAI name the owner as an additional insured under the policy.  Hargob Realty v. Fireman’s Fund Ins. Co, 2010 NY Slip Op 04143 (2nd Dept May 11, 2010)

Bad Faith Action Against Insurer Failed Where There Had Been No Pre-Litigation Settlement Demand Within Policy Limits After a lawsuit against a medical diagnostic laboratory was settled for more than the limits in the laboratory’s malpractice insurance policy, the laboratory sued the insurer, arguing that it had acted in bad faith by refusing to enter into pre-litigation settlement discussions with the underlying plaintiff’s counsel. The trial court dismissed the action, and the laboratory appealed.

The Appellate Division, Second Department, affirmed. The appellate court reasoned that the laboratory’s bad faith claim could not stand, as there had been no pre-litigation settlement demand made within the policy limits.  CBLPath, Inc. v. Lexington Ins. Co., 2010 NY Slip Op 04128 (2nd Dept May 11, 2010)

Insurer's Declaratory Judgment Action Constituted Timely Notice Of Disclaimer, Second Department Decides An insurer brought an action for a judgment declaring that it was not obligated to defend or indemnify the insured in an underlying personal injury action.  The Supreme Court, Suffolk County, granted summary judgment against the insurer, and the insurer appealed.  The Appellate Division, Second Department, reversed. It found that the insurer’s commencement of the declaratory judgment action constituted timely “written notice … of disclaimer” under Insurance Law §3420(d).  Blue Ridge Ins. Co v. Empire Constr & Sales, Inc., 2010 NY Slip Op 04326 (2nd Dept. May 18, 2010)

Appellate Division, Third Department

Insurer's Demand For Sworn Proof Of Loss Sent To Homeowner's Attorney, Which Homeowner Allegedly Never Received, Deemed Insufficient A homeowner sought reimbursement from her insurer after her home was damaged by fire.  The parties settled, except for the homeowner’s claim for additional living expenses.  The insurer sent a letter to the homeowner’s attorney asking for a sworn proof of loss as to the claim for additional living expenses.  When it was not received, the insurer disclaimed coverage.  The Appellate Division, Third Department, found that although the insurer had mailed the letter to the homeowner’s attorney, the homeowner had not received it, as required by Insurance Law § 3407(a).  The court held, therefore, that the insurer’s summary judgment motion should have been denied.  Adamowicz v. North Country Ins. Co., 2009 N.Y. Slip Op. 08927 (3rd Dept Dec. 3, 2009)

Permanent Stay of Arbitration Granted Where Second Insurer Failed to Demonstrate Validity of Disclaimer Permanent Stay of Arbitration Granted Where Second Insurer Failed to Demonstrate Validity of Disclaimer - The policyholder commenced arbitration after being injured in a purse snatching incident.  The insurer commenced an action to permanently stay the arbitration and add a second insurer as a respondent.  The court granted the permanent stay finding the second insurer failed to demonstrate the validity of its disclaimer.  GEICO Indemn. Ins. Co. v.  Progressive Ins. Co.   (3rd Dept.,  December 10, 2009) 

Insurer Has Duty To Defend Town As Additional Insured After Collapse Of Town-Owned Dam Reconstructed By Named Insured After the Kubricky Construction Corp. reconstructed a town-owned dam, the dam failed.  The town was sued, and it sought a defense from Kubricky’s insurer as an “additional insured.”  The Appellate Division, Third Department, held that the town was entitled to a defense.  The court acknowledged that the additional insured coverage remained in effect only as long as Kubricky, the named insured, had ongoing operations at the project, and that major construction had ended before the dam’s failure.  However, the court concluded, inspection of the project by the engineer, which was required before Kubricky’s work was considered completed under the contract, had not yet occurred.  Town of Fort Ann v. Liberty Mut. Ins. Co., 2010 NY Slip Op 00612 (3rd Dept Jan. 28, 2010)

Court Orders Insurer To Reimburse Additional Insured's Legal Fees After Finding Additional Insured's Own Coverage Was Excess After the Village of Brewster contracted with a construction company for new water distribution and wastewater collection systems, the company obtained a comprehensive general liability (“CGL”) insurance policy from Virginia Surety Company that named the village as an additional insured; the village also had a CGL insurance policy from New York Municipal Insurance Reciprocal (“NYMIR”).  During the course of the contractor’s work, a water main broke.  Thereafter, two residents sued the village and the company for property damage.  With respect to the priority of coverage, the court explained that each policy generally provided primary coverage.  However, NYMIR’s “other insurance” clause provided that its coverage was excess where NYMIR was added as an additional insured on another policy.  Accordingly, the court found NYMIR’s coverage was excess to Virginia Surety’s coverage, and Virginia Surety had to reimburse NYMIR for the legal fees and costs it had incurred in defending the village in the underlying actions.  Village of Brewster v. Virginia Sur. Co., Inc. 2010 NY Slip Op 01411 (3rd Dept Feb 18, 2010)

Court Finds Factual Questions As To Whether Plaintiffs Had Falsely Represented They Would Occupy House Later Damaged By Fire The insureds’ home was damaged by fire weeks after they took title.  The insurer disclaimed coverage, asserting that the insureds had falsely represented that they would occupy the property.  The court acknowledged that the insureds had not yet moved into the house when the fire had occurred, but noted that they testified that they had intended to do so within 120 days of taking title.  It added that the insureds had electric and telephone service activated in the house prior to the fire and that their aunt, while living in a trailer on the property, had used the facilities.  This evidence, the court concluded, created questions of fact as to whether the insureds had made any material misrepresentations in their insurance application.  Jeune v. Peerless Ins. Co. 2010 NY Slip Op 03516 (3rd Dept Apr. 29, 2010)

Appellate Division, Fourth Department

Issues of Fact Regarding Whether Notice was Timely  Insurer’s motion for summary judgment based on the insured’s failure to provide timely notice was denied.  Court found triable issues of facts regarding whether the time the notice was given was reasonable.  Short v. Progressive Northwestern Ins. Co., (4th Dept, Feb 11, 2010) 

Farmowner's Insurance Policy Covered Accident on Public Roadway The court held the insurer had a duty to defend the insured under a farm owner’s policy for an accident between a motorcycle and pickup truck on a public roadway.  “Insured premises” included premises used in connection with the insured location.  McLaughlin v. Midrox Ins. Co. (4th Dept, Feb 11, 2010)

No Coverage From Car Dealer's Insurer For Accident Involving Loaner Car To Customer Jason Webb’s son was involved in an accident while driving a loaner vehicle Jason had obtained from a car dealer.  A lawsuit was filed and the Webbs sought coverage under a garage liability policy issued to the dealer by Harco National Insurance Company.  The Harco policy provided coverage to a customer of the dealer if the customer had “other available insurance” less than the minimal required limits.  After determining that the Webbs’ insurer was the primary insurer, the court ruled that the Webbs were excluded from coverage under the Harco policy because the liability limits in their policy exceeded the minimum statutory requirements.  [Progressive Cas. Ins. Co. v. Harco Natl. Ins. Co., 2010 N.Y. Slip Op. 01282 (4th Dep’t Feb. 11, 2010).]

Volunteer Firefighter Allegedly Injured Outside Truck While Directing Traffic At Accident Site Not Entitled to SUM Coverage A volunteer firefighter sought supplementary uninsured motorist (“SUM”) coverage for injuries he allegedly suffered when he was directing traffic away from the scene of a motor vehicle accident.  The court first found that the firefighter was not entitled to coverage as the named insured (“you”) because the fire company was the named insured.  It then ruled that the firefighter was not entitled to SUM coverage on the ground that he had been “occupying” the fire truck, concluding that his conduct in directing traffic was unrelated to the fire truck and not incidental to his exiting it. Gallaher v. Republic Franklin Ins. Co, 2010 NY Slip Op 01143 (4th Dept Feb 11, 2010)

Employee Driving His Own Leased Car While Working Is Not An Insured Under Employer’s Auto Insurance Policy While driving his own leased car to the bank to make a deposit for his employer, Regional Integrated Logistics, Michael Hale was involved in an accident.  The insurer that had issued a commercial automobile insurance policy to Regional asserted that it had no obligation to defend or to indemnify Hale, and the Appellate Division, Fourth Department, agreed.  The court explained that Hale was an insured under the policy only if he was using, with Regional’s permission, an automobile owned, hired, or borrowed by Regional.  The court found that the automobile that Hale was driving did not meet those criteria.  After noting that it was “not owned or hired by Regional,” the court declared (over the dissent of two justices) that only “an unnatural or unreasonable construction” of the policy provision supported an interpretation that Hale’s personal vehicle had been borrowed by Regional and then used by Hale with Regional’s permission.  RLI Ins. Co. v. Smiedala, 2010 NY Slip Op 02602 (4th Dept March 26, 2010)

Water Exclusion Bars Coverage For Damages From Ruptured Water Main That Ruptured Sewer Lateral In Building The rupture of a water main near an ambulatory surgical center ruptured a portion of a sewer lateral that carried wastewater from the center.  The remaining portion of the sewer lateral then served as a conduit for water that escaped from the water main and entered the center through a drain, causing damage to the center.  The commercial property insurance policy that had been issued to the center contained an exclusion for damage caused by “water” and expressly provided that the insurer “will not pay for loss or damage caused directly or indirectly” by “water” that, among other things, “backs up or overflows from a sewer, drain or sump.”  The insurer disclaimed coverage based upon, among other things, the water exclusion.  The Appellate Division, Fourth Department, agreed that the exclusion precluded coverage for the loss as it arose from “water that backs up or overflows through a sewer,” irrespective of any other concurrent or subsequent contributing cause or event  Lattimore Rd. Surgicenter v. Merchants Group, 2010 NY Slip Op 02189 (4th Dept March 19, 2010)

Appellate Court Rejects Bad Faith, Fraud, Breach Of Contract, And Punitive Damages Claims The insured brought suit against her insurer after it denied her claim for property damage to her home.  After the Supreme Court, Erie County, denied the insurer’s motion to dismiss a variety of claims, the insurer appealed.  The Appellate Division, Fourth Department, ruled that the causes of action for the insurer’s alleged bad faith in refusing to settle the claim should have been dismissed because they did not allege conduct constituting “gross disregard of the insured’s interests.”  The Fourth Department also ruled that the causes of action for fraud should have been dismissed because they merely restated the cause of action for breach of contract.  In addition, the appellate court held that the cause of action for violation of General Business Law § 349 should have been dismissed inasmuch as this was a private contractual dispute, “unique to the parties,” and § 349 “was not intended to supplant an action to recover damages for breach of contract between parties to an arm’s length contract.”  Finally, it concluded, the punitive damages claim should have been dismissed given that there was no indication that the insurer’s alleged conduct had been “activated by evil or reprehensible motives Cooper v. New York Cent Mut Fire Ins Co, 2010 NY Slip Op 03578 (4th Dept April 30, 2010)

Coverage Barred Under Homeowners' Policy Where Decedent Was An Insured A child drowned in a swimming pool at her grandparents’ home, where she lived with her mother.  The child, mother, and grandparents were insured under a homeowners’ insurance policy issued to the grandparents.  The father, as administrator of his daughter’s estate, filed a wrongful death action against the mother and grandparents, and the insurer disclaimed coverage pursuant to the policy provision excluding coverage for “bodily injury to an insured person . . . whenever any benefit of this coverage would accrue directly or indirectly to an insured person.”

In a case of apparent first impression in New York, the Appellate Division, Fourth Department, ruled that the insurer did not have to defend or to indemnify the insureds, finding that the policy excluded from coverage “any claim to recover for the injury or resultant death of an insured person.”  The appellate court rejected the father’s contention that the derivative nature of his wrongful death action rendered the policy exclusion inapplicable, concluding that a homeowners’ insurance policy was “essentially designed to indemnify the policyholders against liability for injuries sustained by non-insureds.”   Cragg v. Allstate Indem Corp., 2010 NY Slip Op 03976 (4th Dept May 7, 2010)

Bad Faith Claim Fails Where Insured Had Not Lost Opportunity To Settle After His Liability Was Clear A jury awarded damages to plaintiffs in excess of the insured’s insurance coverage.  Then, as the insured’s assignees, the plaintiffs brought suit against the insurer, seeking damages in the amount of the difference between the verdict and the policy limit.  The trial court granted judgment for the insurer, and the plaintiffs appealed.  Over a two judge dissent, the Appellate Division, Fourth Department, affirmed.  It found that the insurer had demonstrated that the insured had not lost an actual opportunity to settle the claim at a time when all serious doubts about his liability had been removed and it was clear that the potential recovery exceeded the insurance coverage.  Thus, the appellate court concluded, the insurer had not acted “with gross disregard” of the insured’s interests.  Doherty v. Merchants Mut Ins. Co., 2010 NY Slip Op 05206 (4th Dept June 11, 2010)

No Coverage Under Homeowner's Policy For Assault While Deer Hunting The insured shot the plaintiff while they were deer hunting and then pleaded guilty to assault in the third degree.  The plaintiff conceded that the shooting fell within the homeowners policy’s criminal act exclusion, but argued that the exclusion should not be applied “because the prohibited act involve[d] little culpability or seem[ed] minor relative to the consequent forfeiture of coverage.”  The Appellate Division, Fourth Department, rejected that argument, reasoning that assault in the third degree required “criminal negligence,” which was “not synonymous” with common law negligence.  Gruninger v. Nationwide Mut Ins. Co, 2010 NY Slip Op 05069 (4th Dept June 11, 2010)

Coverage Barred For Auto Accident Involving Car Owned By Insured's Daughter, A College Student The insured’s son was involved in an accident while driving his sister’s car.  After judgments against the siblings, the plaintiffs sought to recover under the insured’s automobile insurance policy.  The trial court dismissed the complaint and the Appellate Division, Fourth Department, affirmed. It explained that the sister’s car was not a covered “non-owned car” because that term excluded a car owned by a relative residing in the insured’s household.  The sister, the court concluded, was a relative of the insured who resided in the insured’s household even though she was living at college at the time of the accident.  Konstantinou v. Pheonix Ins. Co, 2010 NY Slip Op 05175 (4th Dept June 11, 2010)

UNITED STATES COURT OF APPEALS

Top New York Court Finds Construction Manager Is An Additional Insured Where Named Insured’s Employee Claimed Injury Regal Construction Corp. contracted with URS Corp., the construction manager, to work on a project at New York City’s Rikers Island.  The commercial general liability (“CGL”) insurance policy obtained by Regal covered URS as an additional insured “only with respect to liability arising out of [Regal’s] ongoing operations performed for” URS.  Regal’s project manager allegedly was injured while working at the site, and he brought suit.  In the coverage litigation that ensued, the New York Court of Appeals ruled that the liability arose out of Regal’s work for URS, so Regal’s insurer owed additional insured coverage to URS in the project manager’s bodily injury action.  The Court found that the underlying complaint’s allegation of negligence on the part of URS and not Regal was “of no consequence.”  Regal Constr Corp v. National Union Fire Ins Co. of Pittsburgh, 2010 NY Slip Op 04661 (Ct App. June 3, 2010)

UNITED STATES COURT OF APPEALS, SECOND CIRCUIT

U.S. Policy Preempts State Law Regarding Policies Obtained Before the Holocaust U.S. Policy Preempts State Law Regarding Policies Obtained Before the Holocaust - Plaintiffs sought insurance benefits under policies purchased by family members prior to the Holocaust. The court dismissed the state law claims as preempted by the United States’ foreign policy to resolve such claims in the International Commission on Holocaust Era Insurance Claims.  Weiss v. Assicurazioni General SPA, (592 F3d 113 (2nd Cir, 2010)

Failure To File Evidence Of Insurability To Qualify For A Requested Benefits Increase Precludes Life Insurance Claim The beneficiary of a group life insurance policy covering his deceased wife brought suit against the insurer after it determined that she had not qualified for increased benefits.  The district court found that the insurer had reasonably determined that the wife had been required to submit Evidence of Insurability (“EOI”) to qualify for an increase in benefits, and the U.S. Court of Appeals for the Second Circuit agreed.  The Second Circuit decided that the insurer’s interpretation of the plan to require the filing of an EOI in these circumstances – an interpretation consistent with the express notice provided on the enrollment form – was not arbitrary and capricious.  Schad v. Stamford Health System, Inc. 2009 U.S. App. LEXIS 27939 (2nd Cir, Dec 21, 2009)

Second Circuit Opines That Limitations Period Begins To Run When Insureds' Claim Against Homeowner's Insurer Accrues The insureds filed a claim with their homeowner’s insurer after their house began to collapse.  The insurer denied coverage, and the insureds sued.  The insurer maintained that the limitations period had expired, relying upon a policy provision that required suit to be commenced within two years “after the date of loss.”  A federal court agreed, and dismissed the suit.  The United States Court of Appeals for the Second Circuit vacated that decision, opining that the contractual limitations period did not begin to run until the insureds’ claim against their insurer had accrued.  It then remanded the case for the district court to consider when the insureds’ claim had accrued.  Fabozzi v. Lexington Ins. Co. 2010 US App Lexis 7040 (2nd Cir, Apr. 6, 2010)

Antisubrogation Doctrine Bars Complaint Antisubrogation Doctrine Bars Complaint - An excess insurer brought suit against a primary insurer to recover monies paid in underlying settlement. Both insured the same party. The excess insurer paid $6.1 million and the primary insurer paid $1 million. The excess insurer asserted that the primary insurer should reimburse it for the amounts that it paid pursuant to its exclusion for work related claims.  In affirming the lower courts decision, the court held that the antisubrogation doctrine barred this suit between insurers of a common insured.  Ohio Casualty Insurance Company v. Transcontinental Insurance Company (2nd Cir.(N.Y.), April 14, 2010)

Accident That Occurred While Employee Was Driving His Own Truck While Working Is Not Covered By Employer's Policy Brian Blakely was driving his pickup truck in the course of his work for Blakely Pumping, Inc., when he was involved in an accident. After a lawsuit was filed, Blakely Pumping requested a defense under its insurance policy for “Businessowners Liability Coverage,” relying upon an endorsement that extended coverage to bodily injury arising from the use of a “Hired Auto” or a “Non-Owned Auto” by the company or one of its employees.  The U.S. Court of Appeals for the Second Circuit rejected that argument, finding that those terms were defined in such a way that an employee’s or officer’s vehicle, such as Blakely’s pickup truck, could never be covered.  Moreover, the court concluded, because there was no coverage, the timely disclaimer requirement of §3420(d) of the New York Insurance Law did not apply.  NGM Ins. Co v. Blakely Pumping, Inc. 2010 U.S. App. LEXIS 2093(2d Cir,  Feb. 1, 2010)