Coverage Pointers - Volume I, No. 6

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New York State Supreme Court, Appellate Division, First Department
Insurance Agents and Brokers are Not Professionals Under Statute of Limitations Applicable to Professional Malpractice

In an action against an insurance broker, the court determined the applicable statute of limitations was the six-year period for contract actions (CPLR 213), not the three-year period for professional malpractice (CPLR 214(6)). Insurance brokers and agents are not capable of committing professional malpractice because they are not professionals held the court. It defined a "profession" as an "occupation generally associated with long-term educational requirements leading to an advanced degree, licensure evidencing qualifications met prior to engaging in the occupation, and control of the occupation by adherence to standards of conduct, ethics and malpractice liability." For purposes of CPLR 214(6), the field has traditionally been limited to such "learned professions" as law, architecture, and engineering.

New York State Supreme Court, Appellate Division, First Department
Prompt Notice of Disclaimer Requirements of Insurance Law §3420(d) Apply Only to Death and Bodily Injury Cases; Common Law Estoppel Applies Only Where Delay in Giving Notice Results in Prejudice

Plaintiff obtained judgment for economic injury arising from the notarizing of a forged power of attorney by an employee of the insured. Plaintiff then brought this action against the defendant insurer for payment of the judgment under an error and omissions policy issued by defendant to the insured company. The court found Insurance Law §3420(d) (requiring prompt disclaimer of coverage) inapplicable to insurance claims not based on death or bodily injury. The court also concluded that, under the common-law, unreasonable delay in giving notice of disclaimer will not estop the insurer’s disclaimer unless the insured has suffered prejudice from the delay. The court found that while the defendant insured did unreasonably delay in disclaiming coverage of the insured, plaintiff made no showing of prejudice and the complaint was dismissed accordingly.


From time to time we highlight significant cases of interest from other jurisdictions. This week, we offer two from Massachusetts.

Massachusetts Appeals Court
Teenager Dies in Car While Having Sex With Married Woman; Women Drives Corpse to Boy's Home and Dumps It In Front of His Mom's House; Mom's Nervous Breakdown Found Not To Be Bodily Injury Under Homeowner's Policy

Seventeen year old Shannon, who was involved in a covert liaison with Jeanne, a married woman with children, suddenly died while having sexual relations with her in her automobile. After failing to revive Shannon, Jeanne sat in her car for a time, then dressed, pulled up Shannon's pants, and drove to Shannon's house, where he lived with his family. There she sat in her car at the curb for perhaps ten minutes trying to decide what to do, including whether to call an ambulance, get Shannon's mother, or take Shannon to the hospital. She finally decided that she "didn't know what to do," opened the passenger door of her car, said "I'm sorry," and pushed Shannon's body out into the gutter in front of his house. As she did so, she "thought about . . . the effect it [the fact that Shannon's body had been so discarded] would have on the people that loved him." Upon learning of the circumstances of the discovery of her son's body (apparently by her landlord) the plaintiff, Shannon's mother, suffered a nervous breakdown. In an action against Jeanne, Shannon's mother argued that there were two occurrences, one for the death of her son and one for the emotional distress caused by tossing the body out of the car. The carrier argued that there was only one occurrence, the entire claim arising out of the death. In any event, Jeanne should have expected the mother's adverse emotional distress caused by the disposal of the body in that manner and thus the emotional distress was caused by excluded "expected" conduct. The Massachusetts Appeals Court decides neither of those issues, but instead concludes that emotional distress is not a "bodily injury" as defined in the homeowner's policy.


United States Court of Appeals for the First District

Carrier Had Right To Rescind Property Policy Based on Misrepresentations in Policy Application With Respect to Presence of Sprinklers
In its June 1995 renewal application of a fire insurance policy, the insureds warranted that the premises was sprinklered. This warranty was explicitly made a part of the insurance contract. Despite the presence in its files of a June 1994 inspection report indicating the absence of sprinklers at the premises, the insurer was justified in issuing the policy renewal on the basis of the insureds' new warranty without conducting an inspection of the premises. When the carrier discovered that the premises was not in fact sprinklered in violation of the policy, and contrary to the representation of the insureds, it took timely action to rescind the policy. The First Circuit, applying Massachusetts law, affirms a grant of summary judgment for the carrier in a recession action.





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Fairmont Funding, Ltd. v. Utica Mutual Insurance Company

Nardelli, J.P., Williams, Tom, Lerner, JJ.

Monte E. Sokol

Judgment, Supreme Court, New York County (Ira Gammerman, J.), entered January 20, 1999, in an action by plaintiff Fairmont Funding Ltd. for a satisfaction of a judgment in plaintiff's favor against an insured of defendant insurer, in favor of plaintiff against defendant in the sum of $398,382.67, and bringing up for review an order, same court and Justice, entered on or about December 24, 1998, which granted the motion by plaintiff for reargument of the parties' motion and cross motion for summary judgment and, upon reargument granted plaintiff's motion for summary judgment, denied defendant's cross motion for summary judgment dismissing the complaint and directed entry of judgment, unanimously reversed, with costs, judgment vacated, plaintiff's motion for summary judgment denied, defendant insurer's cross motion for summary judgment granted and the complaint dismissed. The Clerk is directed to enter judgment in favor of defendant-appellant dismissing the complaint. Appeal from the order, unanimously dismissed, without costs, as subsumed within the appeal from the judgment.

Insurance Law §3420(d) is inapplicable to insurance claims not based on "death or bodily injury" (Inc. Vil. of Pleasantville v Calvert Ins. Co., 204 AD2d 689, 690; Kamyr, Inc. v St. Paul Surplus Lines Ins. Co., 152 AD2d 62, 67). The underlying judgment which plaintiff seeks to require defendant insurer to satisfy is for economic injury allegedly arising from misfeasance, consisting of notarizing a forged power of attorney, an employee of a company that was the named insured under an "errors and omissions" policy issued by defendant insurer. Clearly, plaintiff's claim is not related to any "death or bodily injury" within the scope of Insurance Law §3420(d) and it was error for the motion court to grant plaintiff summary judgment.

Under the common-law rule, delay in giving notice of disclaimer of coverage, even if unreasonable, will not estop the insurer to disclaim unless the insured has suffered prejudice from the delay (O'Dowd v Am. Sur. Co. of New York, 3 NY2d 347, 355; Inc. Vil. of Pleasantville, 204 AD2d, supra, at 690; Kamyr, Inc., 152 AD2d, supra, at 67). Here, defendant insurer unreasonably delayed in disclaiming coverage of the insured judgment-debtor. However, plaintiff makes no showing of any prejudice to the insured resulting from such delay.




Santiago v. 1370 Broadway Associates, L.P.

Order, Supreme Court, Bronx County (Jerry Crispino, J.), entered March 2, 1998, which, to the extent appealed from, granted third-party defendant Essential Coverage Corp.’s motion for summary judgment dismissing this particular third-party complaint as time-barred, unanimously reversed, on the law, without costs, and the third-party complaint reinstated.

Malpractice is the negligence of a professional toward a person for whom a service is rendered (1 Weinstein-Korn-Miller, NY Civ Prac & 214.24). A "profession" is an occupation generally associated with long-term educational requirements leading to an advanced degree, licensure evidencing qualifications met prior to engaging in the occupation, and control of the occupation by adherence to standards of conduct, ethics and malpractice liability (see, Matter of Rosenbloom v State Tax Commn., 44 AD2d 69, 71, lv denied 34 NY2d 518). For purposes of the three-year Statute of Limitations for malpractice (CPLR 214[6]), this field has traditionally been limited to such "learned professions" as law (Weiss v Manfredi, 83 NY2d 974), accountancy (Meinhard-Commercial Corp. v Sydney, 109 AD2d 678), architecture (Board of Mgrs. of Yardarm Beach Condominium v Vector Yardarm Corp., 109 AD2d 684, appeal dismissed 65 NY2d 998) and engineering (Tambrands, Inc. v Lockwood Greene Engrs., 178 AD2d 406). An insurance broker or agent, on the other hand, does not fit within this pattern (see, Port Auth. of N.Y. & N.J. v Evergreen Intl. Aviation, 179 Misc 2d 674).

The applicable Statute of Limitations here is six years (CPLR 213), based upon the contractual relationship between the parties in this third-party action (National Life Ins. Co. v Frank B. Hall & Co., 67 NY2d 1021; see, AJ Contr. Co. v Trident Mgrs., 234 AD2d 195). To the extent that our opinion in AJ Contr. Co. might be read to include insurance brokers as "professionals" for purpose of the non-medical professional malpractice Statute of Limitations, we now disavow such an implication. An insurance broker is not capable of committing "professional malpractice" in accordance with CPLR 214(6).

The Statute began to run upon the insured’s receipt of the certificate of insurance (Hennessey v Gen. Acc. Ins. Co. of Am., -- AD2d --, 683 NYS2d 342). Accordingly, there should be a factual determination as to whether this action was timely commenced within six years of such receipt.

Motion to strike brief denied.




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