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Coverage Pointers - Volume II, No. 19

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03/12/01:         GE CAPITAL AUTO LEASE, INC. v. ALLSTATE INS. CO.

New York State Supreme Court, Appellate Division, Second Department

Vehicle Lessor Entitled to Coverage under Lessee’s Auto Policy

Plaintiff in an underlying action was injured in an auto accident while operating a vehicle leased by defendant Caruso through G.E. Capital Auto Lease, Inc.  Caruso had leased the vehicle for a period of two years and had obtained an auto policy from Allstate, which was in effect at the time of the accident. G.E. Capital commenced this action for judgment declaring that it was entitled to defense and indemnification in the underlying action after Allstate denied coverage on the ground that G.E. Capital was not an insured under Caruso’s policy.  The court held that Allstate was obligated to defend and indemnify G.E. Capital.  As a lessee under a lease for a period greater than 30 days, Caruso was an owner of the vehicle (Vehicle and Traffic Law § 128) and, as such, the insurance regulations (11 NYCRR 60-1.1) were applicable.  Any attempt to disclaim coverage under a limiting provision in the policy was unenforceable as against public policy.

 

03/12/01:         KLEINMAN v. KLEINMAN

New York State Supreme Court, Appellate Division, Second Department

Evidence that Insured Trusted Defendant to use Life Insurance Proceeds for Benefit of Insured’s Children Deemed Insufficient to Impose Constructive Trust

In 1994, the insured obtained a life insurance policy from William Penn Life Insurance Company of New York, which named his brother (defendant) as sole beneficiary. The insured died in 1998, and his children (plaintiffs) commenced this action for the imposition of a constructive trust on the proceeds of the policy.  Plaintiffs claimed that the insured named defendant as the sole beneficiary in reliance on the defendant's promise to use the proceeds exclusively for their benefit.  The court held that summary judgment dismissing the claim was proper because plaintiffs failed to demonstrate they would be able to establish the elements of a constructive trust.  The defendant was the only surviving party to the alleged promise to use the insurance proceeds exclusively for plaintiffs’ benefit, and he denied that the insured elicited such a promise in exchange for naming him the sole beneficiary.  Rather, the defendant claimed that the insured asked him simply to handle the proceeds of the policy without any restrictions or conditions.  Plaintiffs also failed to present sufficient evidence that distribution of the insurance proceeds to defendant would constitute unjust enrichment.  Evidence that the insured trusted defendant to use the proceeds for the benefit of the plaintiffs, while imposing a moral obligation on the defendant, is insufficient to meet the legal requirements for the imposition of a constructive trust.

 

03/08/01:         METROPOLITAN PROPERTY AND CASUALTY INS. CO. v. BARRIGA

New York State, Appellate Division, First Department

Insurer Entitled to Offset Liability under SUM Endorsement by Amount Claimant Received from Tortfeasor

In this action to stay arbitration of a SUM claim, the court held that the insurer was entitled to offset any liability under the SUM endorsement by the amount claimant received from the tortfeasor’s insurer.  Here, the limits of claimant’s policy did not exceed the amount received by the tortfeasor.  Therefore, the claimant was not entitled to recover under the SUM endorsement.

 

03/08/01:         MAKASTCHIAN v. OXFORD HEALTH PLANS, INC.

New York State Supreme Court, Appellate Division, First Department

Retroactive Notice of Termination of Health Insurance Coverage deemed proper with Prior Notice

In this class action to recover for alleged wrongful termination of health insurance coverage, the court held that plaintiffs’ motion to enjoin insurers from retroactively terminating health insurance coverage for non-payment of premiums and to amend the complaint to add a claim for punitive damages, was properly denied.  While insurers’ prior practice of retroactive termination without advance notice was contrary to the terms of the parties’ contract and violative of General Business Law § 349, notice provided in their billing statements, which included a clear explanation of the right to remit overdue payments during the 30-day grace period or that coverage would be terminated retroactively to the end of the day before the premium due date, is not the sort of deceptive act that is “likely to mislead a reasonable consumer acting reasonably under the circumstances”.  The court held that individualized notice of termination sent only after default is not required, nor does the contract or law prohibit retroactive termination. While Insurance Law § 3216(d)(1)(C) requires that coverage remain in effect during any grace period to pay premiums, here it is only after the grace period expires and premiums have not been paid that coverage terminates retroactively to the end of last month for which the subscriber did pay.

 

03/05/01:         TRAVELERS INDEMNITY COMPANY v. WORTHY

New York State Supreme Court, Appellate Division, Second Department

Insured Loses Coverage for Failure to Provide Timely Notice of Occurrence and Claim

Court held that the insured was not entitled to defense and indemnification under policy where the insured failed to provide timely notice of an occurrence and notice of the claim.  “Where an insurance policy . . . requires an insured to provide notice of an accident or loss as soon as practicable, such notice must be provided within a reasonable time in view of all of the facts and circumstances.  Providing an insurer with timely notice of a potential claim is a condition precedent, and thus ‘[a]bsent a valid excuse, a failure to satisfy the notice requirement vitiates the policy’. While a good-faith belief of nonliability may excuse or explain a failure to give timely notice, the insured bears the burden of demonstrating that the delay in giving notice was reasonable.”  Here, the insureds’ proffered excuses for a one-year and three-month delay were unavailing.  There was no evidence of a good-faith belief in nonliability.  Moreover, the insureds’ good-faith belief that the loss was not covered under the policy, that notification to their insurance agent was notification to the insurer, and their mistaken belief that their attorney had communicated with the attorney for the injured party, were insufficient as a matter of law to excuse the delay.  The court also found that the injured party did not provide the insurer with written notice of the claim under Insurance Law § 3420(a)(3), and held that the insurer was not required to cite the injured party's failure to notify it in its disclaimer letter.

 

ACROSS BORDERS

 

3/12/00:           NEWPORT NEWS SHIPPING & DRYDOCK CO v. STILLEY

Fourth Circuit

Last Maritime Employer” Responsible for Entire Asbestos Claim Even Though Subsequent Exposure to Asbestos with Non-Maritime Exposure

Lyman Stilley's disability and (in part) his death were caused by mesothelioma, an asbestos-related lung disease. His widow was awarded benefits under the Longshore and Harbor Workers' Compensation Act (LHWCA) against Newport News Shipbuilding and Dry Dock Company (Newport News) because of Stilley's exposure to injurious doses of asbestos as a company employee. Newport News disclaimed liability because Stilley had also been exposed to asbestos at subsequent, non-maritime employment with the National Aeronautics and Space Administration (NASA). The ALJ nevertheless assigned full LHWCA liability to Newport News under the "last maritime employer rule," and the Benefits Review Board affirmed. Under this rule the last employer covered by the LHWCA who causes or contributes to an occupational injury is fully liable for compensation benefits. Newport News petitions for review, asking that the Court reject or substantially modify the last maritime employer rule. Because the present rule is consistent with the Act and passes constitutional muster, the Circuit Court denies the employer's petition.

 

03/08/01:         SONOCCO PRODUCTS COMPANY, INC. v. LEXINGTON INS. CO.

New Jersey Appellate Division

Umbrella Carrier with Following Form has Coverage because Underlying Carrier's Exclusion Violates Statute; "Other Insurance" Clauses of Two Excess Policies Compared

Excess carrier's policy agreed to follow coverage of primary.  Primary carrier had an exclusion which court found was void as against public policy and statute.  Accordingly, court held that excess carrier is on the risk since the scope of its coverage was dictated by primary policy.  Moreover, the only apparent difference between two excess policies, each with “other insurance clauses” is that the U.S. Fire policy contained a parenthetical, in which “other collectible insurance” was defined to encompass “primary, contributing, excess or contingent [insurance]” whereas no similar parenthetical or definition attempting to enlarge the scope of the phrase “other valid and collectible insurance” was contained in the Lexington policy. For all intents and purposes, the policies are identical in all other respects.  Court refused to conclude that this other insurance clause was an “escape clause” and held both carriers equally responsible.

 

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REPORTED DECISIONS

METROPOLITAN PROPERTY & CASUALTY INS. CO. v. BARRIGA 

Judgment, Supreme Court, New York County (Sheila Abdus-Salaam, J.), entered February 7, 2000, which granted the petition of Metropolitan Property and Casualty Insurance Company to permanently stay the arbitration demanded by respondents pursuant to a supplementary uninsured/underinsured motorist (SUM) provision in the policy issued by petitioner to respondents, unanimously affirmed, without costs.

Supreme Court correctly held that, pursuant to the parties' policy of insurance, petitioner was entitled to offset any liability under the subject policy's SUM endorsement by the amount received by respondents from the tortfeasor's insurer (see, Matter of Allstate Ins. Co. [Stolarz], 81 NY2d 219), and since the limits of respondents ' policy do not exceed the amount received by respondents from the tortfeasor's carrier, which paid the full amount of the tortfeasor's liability coverage, respondents are not entitled to recover pursuant to their policy's SUM endorsement. Having so determined, we need not and do not consider the issue of whether respondents secured petitioner's permission prior to settling with the tortfeasor's carrier. We have considered respondents' remaining claims and find them unavailing.

MAKASTCHIAN v. OXFORD HEALTH PLANS, INC.

Orders, Supreme Court, New York County (Stephen Crane, J.), entered on or about July 27, 2000, March 1, 2000 and October 17, 2000, which, in this class action to recover for alleged wrongful termination of health insurance coverage, to the extent appealed from as limited by the brief, denied plaintiffs' motions to enjoin defendant insurers from retroactively terminating health insurance coverage of class members for non-payment of premiums based on a general notice sent out with billing statements prior to default, and to amend the complaint to add a claim for punitive damages, unanimously affirmed, without costs.

While defendants' prior practice of retroactive termination without advance notice was contrary to the terms of the parties' contract and violative of General Business Law (GBL) § 349 (see, Makastchian v Oxford Health Plans, Inc., 270 AD2d 25), the IAS court properly exercised its discretion in denying plaintiffs' request for injunctive relief with respect to defendants' revised procedures (see, id.). Although we have found that advance notice is required, defendants now provide such notice with their billing statements. Included in this notice is a clear explanation of the subscriber's right to remit any overdue payment during the ensuing 30-day grace period and of the circumstance that, if such payment is not received, coverage will be terminated retroactively to the end of the day before the premium due date. This notice is not the sort of deceptive act that is "likely to mislead a reasonable consumer acting reasonably under the circumstances" (Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, N.A., 85 NY2d 20, 26).

Individualized notice of termination sent only after default is not required, nor is retroactive termination prohibited by the contract or law. While Insurance Law § 3216(d)(1)(C) requires that coverage remain in effect during any grace period to pay premiums, here it is only after grace period expires and premiums have not been paid that coverage terminates retroactively to the end of last month for which the subscriber did pay (see, Zaitschek v Empire Blue Cross & Blue Shield, 166 Misc 2d 161, affd 172 Misc 2d 864). In addition, the New York State Department of Insurance 's determination that retroactive termination of coverage back to the last day for which premium was paid is permitted when premium is not received during the grace period, although not binding upon the court, is entitled to deference (see, Matter of Brown v Wing, 93 NY2d 517, 524; Matter of Black Radio Network, Inc. v Public Serv. Commission of the State of New York, 253 AD2d 22, 25) .

Also proper was the IAS court's denial of plaintiffs' motion to add a claim for punitive damages . Punitive damages may not be sought for those of plaintiffs' causes of action that have been dismissed , which were grounded on the failure to provide advance notice (see, Omansky v 64 N. Moore Assocs., 269 AD2d 336, 337), or, since this is a class action, in connection with plaintiffs' GBL § 349 claim (see, CPLR 901[b]; Ridge Meadows Homeowners' Assn., Inc. v Tara Dev. Co., 2 42 AD2d 947). As to plaintiffs' purportedly new evidence in support of their proposed claims for punitive damages, while plaintiffs may have demonstrated that termination of coverage could have devastating results , their assertions of reckless procedures on the part of defendants are essentially claims that defendants failed to deal with them and the other members of the plaintiff class in good faith. Such claims are insufficient to allege a separate tort, independent from plaintiffs' breach of contract claim, upon which a claim for punitive damages might be based (see, New York Univ. v Cont. Ins. Co., 87 NY2d 308, 315; Logan v Empire Blue Cross & Blue Shield, __ AD2d ___, 714 NYS2d 119).

We have considered plaintiffs' remaining arguments and find them unavailing.

GE CAPITAL AUTO LEASE, INC. v. ALLSTATE INS. CO. 

In an action , in effect, for a judgment declaring that the defendant Allstate Insurance Company is obligated to indemnify the plaintiff, GE Capital Auto Lease, Inc., in an underlying personal injury action entitled Connors v Caruso, pending in the Supreme Court, Queens County, under Index No. 2202/97, the defendant Allstate Insurance Company appeals, as limited by its brief, from so much of an order of the Supreme Court, Queens County (Kitzes, J.), dated August 6, 1999, as granted the plaintiff's cross motion for summary judgment on the complaint.

ORDERED that the order is affirmed insofar as appealed from, with costs, and the matter is remitted to the Supreme Court, Queens County, for the entry of a judgment declaring that the defendant Allstate Insurance Company is obligated to defend and indemnify the plaintiff in the underlying personal injury action.

The defendant Nicole Caruso was involved in an automobile accident while operating a vehicle leased by the defendant John J. Caruso, through the plaintiff, G.E. Capital Auto Lease, Inc. (hereinafter GECAL). John J. Caruso leased the vehicle for a period of two years, and had procured an automobile insurance policy from the defendant Allstate Insurance Company (hereinafter Allstate), which policy was in effect at the time of the accident. GECAL commenced this action seeking, in effect, a judgment declaring that it is entitled to receive a defense and indemnification up to the limits of the policy issued by Allstate. Allstate had denied coverage, contending that GECAL was not an insured under the provisions of the policy.

Contrary to Allstate's contention, the Supreme Court properly granted GECAL's cross motion for summary judgment. As a lessee under a lease for a period greater than 30 days, John J. Caruso is an owner of the vehicle (see, Vehicle and Traffic Law § 128). As such, the insurance regulations set forth in 11 NYCRR 60-1.1 are applicable . Any attempt by Allstate to disclaim coverage through the language of a limiting provision in the policy is unenforceable as against public policy (see, Morris v Snappy Car Rental, 84 NY2d 21; Government Empls . Ins. Co. v Chysler Ins. Co., 256 AD2d 1212; see also, Vehicle and Traffic Law § 388).

Since this is an action, in effect, for a declaratory judgment, the matter is remitted for the entry of a judgment declaring that the defendant Allstate is obligated to defend and indemnify GECAL in the underlying personal injury action (see, Lanza v Wagner , 11 NY2d 317, 334, appeal dismissed 371 US 74, cert denied 371 US 901).

SANTUCCI, J.P., KRAUSMAN , S. MILLER and SMITH, JJ., concur.

KLEINMAN v. KLEINMAN

In an action, inter alia, to impose a constructive trust on the proceeds of a life insurance policy, the plaintiffs appeal, as limited by their brief, from so much of an order of the Supreme Court, Nassau County (O'Connell, J.), entered April 3, 2000, as granted that branch of the motion of the defendant Mitchell Kleinman pursuant to CPLR 3211(c) which was for summary judgment dismissing the first cause of action to impose a constructive trust insofar as asserted against him.

ORDERED that the order is affirmed insofar as appealed from, with costs.

In 1994 Daniel Kleinman obtained a life insurance policy from William Penn Life Insurance Company of New York which named his brother Mitchell Kleinman (hereinafter the defendant) as the sole beneficiary. Daniel Kleinman died in 1998. His children, the plaintiffs, Rachel Kleinman and Charles Kleinman, commenced this action for the imposition of a constructive trust on the proceeds of the policy and to recover damages based on the breach of an alleged agreement between their father and the defendant. The plaintiffs contend that their father named the defendant as the sole beneficiary in reliance on the defendant's promise to use the proceeds exclusively for their benefit.

The Supreme Court granted the defendant's motion and dismissed the complaint. On appeal, the plaintiffs have abandoned their breach of contract claim and argue that they sufficiently established the elements of a constructive trust to defeat the defendant's motion.

Contrary to the plaintiffs' contention, the Supreme Court properly treated the motion as one for summary judgment. The defendant moved in the alternative for relief under CPLR 3211(a)(7) and CPLR 3211(c), and the plaintiffs cross-moved for summary judgment pursuant to CPLR 3211(c). Accordingly, the plaintiffs cannot claim that they lacked notice that the issue of summary judgment was before the court (see, TST/Impreso, Inc. v Cosmos Forms, 202 AD2d 493).

The plaintiffs failed to demonstrate that they will be able to establish the elements of a constructive trust (see, Sharp v Kosmalski, 40 NY2d 119, 121). Of the parties to the alleged promise to use the insurance proceeds exclusively for the benefit of the plaintiffs, only the defendant survives , and he denied that Daniel elicited such a promise in exchange for naming him the sole beneficiary. Rather, the defendant denied any knowledge that he was the sole beneficiary until shortly before Daniel 's death, and he claimed that Daniel asked him simply to handle the proceeds of his policy, without imposing any restrictions or conditions. The plaintiffs failed to produce evidence sufficient to raise a triable issue of fact as to their claim that Daniel transferred property to the defendant in reliance on a promise (see, Bankers Security Life Ins. Soc. v Shakerdge, 49 NY2d 939). The plaintiffs' reliance on Markwica v Davis (64 NY2d 38) is misplaced, as in that case a promise to name the decedent's children as beneficiaries of his life insurance policy was contained in a separation agreement.

The plaintiffs failed to present sufficient evidence that the distribution of the insurance proceeds to the defendant would constitute unjust enrichment under the circumstances of this case. Daniel Kleinman was a practicing attorney and undoubtedly understood his options to name his children as beneficiaries of his insurance policy or to establish a trust for their benefit. Evidence that Daniel trusted the defendant to use the proceeds for the benefit of the plaintiffs, while imposing a moral obligation on the defendant, is insufficient to meet the legal requirements for the imposition of a constructive trust.

O'BRIEN, J.P., SANTUCCI, FLORIO and SCHMIDT, JJ. , concur.

TRAVELERS INDEMNITY COMPANY v. WORTHY

In an action for a judgment declaring, inter alia, that the plaintiff is not obligated to defend and indemnify the defendants John Worthy III, Patricia Worthy, and Michael Worthy in an underlying action entitled McDonald v Excellent, pending in the Supreme Court, Queens County, under Index No. 3667/95, the plaintiff appeals, as limited by its brief, from so much of an order of the Supreme Court, Nassau County (Lally, J.), dated September 21, 1999, as denied its cross motion for summary judgment declaring that it is not obligated to defend and indemnify the Worthy defendants in the underlying action.

ORDERED that the order is reversed insofar as appealed from, on the law, with costs, the cross motion is granted, and the matter is remitted to the Supreme Court, Nassau County, for the entry of a judgment declaring that the plaintiff is not obligated to defend and indemnify the Worthy defendants in the underlying action.

Where an insurance policy, such as the one in this case, requires an insured to provide notice of an accident or loss as soon as practicable, such notice must be provided within a reasonable time in view of all of the facts and circumstances (see, Merchants Mut. Ins. Co. v Hoffman, 56 NY2d 799). Providing an insurer with timely notice of a potential claim is a condition precedent, and thus "[a]bsent a valid excuse, a failure to satisfy the notice requirement vitiates the policy" (Security Mut. Ins. v Acker-Fitzsimons, 31 NY2d 436, 440). While a good-faith belief of nonliability may excuse or explain a failure to give timely notice, the insured bears the burden of demonstrating that the delay in giving notice was reasonable (see, Interboro Mut. Indem. Ins. Co. v Mendez, 253 AD2d 790).

The plaintiff established, prima facie, its entitlement to judgment as a matter of law. In opposition, the excuses offered by the plaintiff's insureds, John Worthy III, Patricia Worthy, and Michael Worthy (hereinafter the insureds), failed to raise a triable issue of fact as to whether the one-year and three-month delay in notifying the plaintiff was reasonable. There was no evidence of a good-faith belief in nonliability (cf., Merchants Mut. Ins. Co. v Hoffman, supra). Further, the excuses asserted to explain the insureds' failure to notify the plaintiff, namely, a good-faith belief that the loss was not covered under the terms of the insurance policy, that notification of their insurance agent was notification of the insurer, and their mistaken belief that their attorney had communicated with the attorney for the injured party, were insufficient as a matter of law to excuse the delay (see, Serravillo v Sterling Ins. Co., 261 AD2d 384; Horowitz v Transamerica Ins. Co., 257 AD2d 560).

Further, the injured party did not provide the plaintiff with written notice of the claim (see, Insurance Law § 3420[a][3]; Eveready Ins. Co. v Chavis, 150 AD2d 332). The plaintiff was not required to cite the injured party's failure to notify it in its disclaimer letter (see, Agway Ins. v Alvarez, 258 AD2d 487).

Accordingly, the plaintiff is entitled to summary judgment, and the matter is remitted for the entry of a judgment declaring that the plaintiff is not obligated to defend or indemnify its insureds in the underlying action (see, Lanza v Wagner, 11 NY2d 317, 334, appeal dismissed 371 US 74, cert denied 371 US 901).

O'BRIEN, J.P. , FRIEDMANN, GOLDSTEIN and H. MILLER, JJ.,

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