Coverage Pointers - Volume I, No. 12

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New York State Supreme Court, Appellate Division, Third Department

Summary Judgment Denied Absent Proof of Agency or Theft under Named Perils Policy

The insurer issued a named perils insurance policy to plaintiff insuring certain livestock owned by plaintiff and leased to Klebs. Plaintiff purchased the policy through an insurance agency. In July 1994, plaintiff was notified that Klebs filed for bankruptcy and, at the same time, determined that cattle were missing from the farm. Plaintiff notified the insurance agency, which filed a notice of claim for the loss with the insurer six months later. The insurer immediately denied coverage. Plaintiff then filed this declaratory judgment action and moved for summary judgment, which was denied. The court affirmed, holding that issues of fact were raised whether the insurer was given timely notice of the claim. Plaintiff’s contention that his notification to the insurance agency constituted timely notice to the insurer was rejected, since plaintiff failed to adduce facts demonstrating that the agency was acting as agent for the insurer rather than as agent for the plaintiff. In addition, plaintiff failed to offer proof from which it could be concluded, as a matter of law, that a "theft" occurred under the policy, which excludes loss by conversion or embezzlement. Plaintiff submitted no facts permitting an inference that the cattle were stolen by a third person as opposed to a conversion by Klebs.


New York State Supreme Court, Appellate Division, First Department

Assault Deemed Covered "Occurrence" in Premises Liability Action Alleging Negligent Security; Expected/Intended Harm Exclusion not Raised in Disclaimer Deemed Waived

Claimant, a tenant in the insured’s building, was murdered by unknown assailants in May 1996 and a wrongful death action was later commenced against the insured building owner for negligent security. The negligence action was commenced by service of the summons and complaint on the Secretary of State on February 10, 1997. The insured did not receive actual notice of the claim until it received the papers by mail four months later, because its designated agent for service was deceased. The insured then immediately notified its broker, who filed a notice of occurrence with the "producer" of the policy. The insurer received the notice, summons and complaint on June 20, 1997. By letter dated July 23, 1997, the insurer disclaimed coverage on the grounds of late notice of occurrence and late notice of claim. The insured commenced this action for declaratory judgment on August 11, 1997, to which the insurer answered alleging breach of the insurance contract by virtue of the late notices of occurrence and claim.

Approximately one year later, the insurer moved to amend its answer to add two new affirmative defenses: (1) that there was no covered "occurrence" because the underlying claim was an intentional assault; and, (2) that the expected/intended harm exclusion applied to bar coverage for the claim. The insured opposed the motion to amend as violative of Insurance Law §3420 (d), which requires prompt notice of the grounds for disclaimer, and cross-moved for summary judgment.

The court held that Insurance Law §3420 (d) does not apply to the first affirmative defense that there was no covered "occurrence" because it is based on lack of coverage rather than a policy exclusion. Thus, the defense was not waived by the insurer’s one-year delay in asserting this ground as a defense to coverage. Nevertheless, the court dismissed the defense on the merits because, although the assault was intentional from the assailant’s standpoint, it was accidental from the standpoint of the insured building owner. The court noted its apparent inconsistency with the Court of Appeals recent decision in Mt. Vernon Fire Ins. Co. v. Creative Housing Ltd., 88 N.Y.2d 347 (1996), wherein the Court of Appeals held that an assault exclusion applied even though the insured was sued for negligent maintenance of the premises because the "operative acts", not the legal claims, govern the duty to defend. The court found Mt. Vernon distinguishable, however, because that case involved an explicit exclusion for assault which provided that "Assault and Battery shall not be deemed an accident whether or not committed by or at the direction of the insured." Therefore, "Mt. Vernon is best understood as a contractual modification of the default rule in such cases, just as a life insurance policy covering ‘accidental’ death covers death inflicted by a third party’s intentional acts unless the policy provides otherwise."

Concerning the second affirmative based on the expe

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