Coverage Pointers - Volume II, No. 2

Visit the HOT CASES section of the Federation of Insurance and Corporate Counsel website for cases covering a broad range of legal issues from other jurisdictions:


As reported in the January 21, 2000 issue of Coverage Pointers (Volume I, No. 15), recent amendments to the New York State No-Fault Regulations were to go in effect on February 1, 2000. On July 14, 2000, the First Department ruled that the old rules allowing motorists 90 days to file no-fault insurance claims will remain in effect pending a State Insurance Department appeal. The Insurance Department is appealing a ruling voiding rule changes that would have cut the filing time to 30 days.

New York Supreme Court, Appellate Division, First Department
No Collateral Estoppel on Fraud Issue Where Not Addressed in Prior Ruling by Federal Magistrate
The plaintiff, an ophthalmologist, was solicited by an agent to purchase a disability policy from Northwestern Mutual Life Insurance Co. The plaintiff requested disability insurance that would provide benefits if he were disabled as an ophthalmic surgeon even if he were not otherwise disabled as an ophthalmologist. Allegedly, his existing policy provided such benefits. Based on the agent’s advice, plaintiff then surrendered his old policy and purchased the Northwestern policy. Plaintiff was later injured in a skiing accident and received benefits from Northwestern, but was sued in federal court by Northwestern to recover the benefits paid because he was not totally disabled from practicing ophthalmology. During discovery in the federal action, the plaintiff learned of an agreement that restricted the agent from selling non-Northwestern policies and sought to amend his answer to implead the agent and the agency. The Magistrate denied the request. In this action against the agent and his agency for fraud and for violations of General Business Law §349, the court held that plaintiff was not collaterally estopped from asserting the claims based on the earlier federal court decision. The plaintiff had not been allowed to raise the issues and was not given a full and fair opportunity to litigate them.

New York Supreme Court, Appellate Division, First Department
Ambiguous Certificates of Surety Issued to Induce Prospective Policyholders Deemed Enforceable
In an effort to ease concerns of Galaxy Insurance’s prospective insureds, the defendant issued certificates of surety to policyholders providing that it would assume Galaxy’s liabilities in the event Galaxy became insolvent. When Galaxy was placed into liquidation, this action was commenced by the liquidator to enforce the obligations created by the certificates. The defendant sought dismissal of the action claiming that liability under the certificate was contingent upon receiving assignments or evidences of subrogation by the insureds. The court rejected defendant’s argument finding that the certificates were plainly made to induce prospective insureds to enter into contracts with Galaxy. Moreover, any ambiguity in this regard should be resolved against the defendant who issued the endorsement. Since the defendant failed to honor its contractual obligation, it was not entitled to a dismissal of the action.


From time to time we highlight significant cases of interest from other jurisdictions. This week we offer a decision from Nebraska:

Nebraska Supreme Court
Car Rental Company's Insurer had Primary Obligation to Defend Renter
Billings rented an automobile from Cheeper’s and executed a Cheeper’s rental agreement, which provided that Cheeper’s auto liability is secondary to the renter’s liability insurance. At the time Billings rented the car, Cheeper’s was aware that Billings was an insured on a State Farm automobile insurance policy, which policy provided that when Billings rented a vehicle, the liability coverage was excess to the rental company’s "insurance or self-insurance." Thereafter, Billings was involved in an automobile accident while driving the Cheeper’s rental car. State Farm filed this declaratory judgment action against Cheeper’s alleging that the terms of Cheeper’s rental agreement with Billings conflict as to which entity has the primary obligation to defend and indemnify Billings. The court held that when controversies arise regarding insurance coverage because the applicable documents contain "mutually repugnant language intended to restrict or escape liability for a particular risk in the event there exists other insurance, . . . the owner’s policy . . . provide[s] primary coverage and the driver’s policy . . . provide[s] excess coverage." Thus, the court concluded that, given the mutually repugnant language of Billings’ insurance policy and Cheeper’s rental car agreement, Cheeper’s as the owner of the automobile had the primary liability in this case. The court declined to comment on the issue of priority where the owner of a rental car is self-insured and such fact is disclosed in the operative rental agreement. Finally, the court rejected Cheeper’s claim that Billings had an obligation to indemnify it either contractually or in equity. The rental agreement contained no provisions regarding Billings’ purported obligation to indemnify Cheeper’s.

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Order, Supreme Court, New York County (Elliott Wilk, J.), entered September 3, 1999, which , insofar as appealed by plaintiff insured (Wender), granted the motion of defendant insurance agent (Balberg) to dismiss the complaint as against him to the extent it asserts common-law fraud, and, insofar as appealed by defendants insurance agency and its principal (Gilberg) and by Balberg, denied their motions to dismiss the remainder of the complaint, unanimously modified, on the law, to reinstate the complaint to the extent it asserts fraud as against Balberg, and otherwise affirmed, without costs.

Plaintiff alleges that Balberg, an insurance agent working for The Gilberg Agency, solicited him to buy a disability insurance policy from Northwestern Mutual Life Insurance Co. Wender advised Balberg that he wanted disability insurance that would provide benefits if he were disabled as an ophthalmic surgeon even if he were not otherwise disabled as an ophthalmologist. Wender had obtained a disability policy from Mutual Benefit Life Insurance Co. on his own, but surrendered that policy in order to purchase the Northwestern policy because Balberg advised him that the Northwestern policy was superior. The gist of the alleged fraud is that defendants did not disclose to Wender that Gilberg’s contract with Northwestern prohibited Gilberg and its agents from selling non-Northwestern policies. Not long after purchasing the Northwestern policy , Wender was injured in a water skiing accident, and sought and received disability benefits from Northwestern . Subsequently, however, Northwestern sued Wender in Federal court to recover the benefits paid on the ground that he was not totally disabled from practicing ophthalmology. Allegedly, the Mutual Benefit policy would have paid plaintiff the benefits he claims.

During the course of discovery in the Federal action, Wender became aware of the agreement that restricted Balberg from selling non-Northwestern policies, and sought to amend his answer therein to implead the Gilberg defendants and Balberg. The Magistrate to whom the matter had been referred for discovery supervision denied the request, which was not made by notice of motion but only by letter, and which did not include a copy of the proposed amended pleading. The Magistrate opined that the alleged fraud did not cause Wender any harm since Wender had received various policies and obtained advice from different sources in seeking disability insurance, but, tellingly, the Magistrate also noted that adding new parties would involve additional depositions and discovery, and denied the request as futile "and in view of the late stage of discovery".

Wender then instituted this action alleging fraud and violation of Insurance Law § 2123 in the first cause of action and violation of General Business Law § 349 in the second cause of action. Defendants moved to dismiss on the grounds of, inter alia, collateral estoppel and the Statute of Limitations. The IAS court dismissed so much of the first cause of action as asserts fraud on the ground of collateral estoppel, finding that the Federal court had addressed such claim and rejected it. While the Magistrate touched upon the merits of the fraud claim with his observations about the lack of causation, the request to amend came as the discovery deadline was approaching, and the Magistrate was not inclined to extend discovery to bring in new parties. In addition, before the request to amend was made, the only issue in the Federal action was whether Northwestern had been defrauded by Wender, not whether any of Northwestern’s agents had committed fraud in failing to advise Wender of the restrictions in its agency relationship with Gilberg. It therefore appears that Wender, in the Federal action, was not allowed to raise the fraud claim he makes in this action, let alone given a full and fair opportunity to litigate it (see, Matter of Juan C. v Cortines, 89 NY2d 659, 667). Accordingly, we find that the fraud claim is not barred by collateral estoppel.

The limitations period on the fraud claim is two years measured from the date that Wender discovered, or could with reasonable diligence have discovered, the restriction against Balberg’s selling of non-Northwestern policies (CPLR 213[8]; 203[ g]). Defendants failed to establish that the action was not commenced within such two-year period.

The complaint alleges sufficient consumer-oriented conduct to state a cause of action under General Business Law § 349. Wender’s education and ostensible sophistication in insurance matters does not make his situation analogous to the plaintiff in New York Univ. v Continental Ins. Co. (87 NY2d 308), a large institution that purchased a "unique" policy tailored to meet its special requirements, unlike here, where Wender received a standard policy.


Order, Supreme Court, New York County (Sheila Abdus -Salaam, J.), entered October 16, 1998, which granted the motion of defendant Acceleration National Insurance Company (ANIC) to dismiss the complaint pursuant to CPLR 3211(a)(7), unanimously reversed, on the law , without costs, the motion denied, and the complaint reinstated.

In this action, plaintiff alleges that defendant, in an attempt to assuage the concerns of prospective insureds of Galaxy Insurance Company (which was in financial distress), issued certain certificates of suretyship to Galaxy policy holders. These certificates provided that if Galaxy should become insolvent, defendant would assume Galaxy’s liabilities.

Subsequently, Galaxy was placed into liquidation by the New York State Insurance Department, and plaintiff, as liquidator, commenced this action against defendant to enforce the obligations created by the various certificates. Seeking to dismiss the complaint, defendant alleged that, pursuant to the terms of the certificates, its liability was contingent upon it receiving " ;assignments or evidences of subrogation" by the insureds. As plaintiff failed to allege that it complied with this condition precedent in its complaint, defendant argued that dismissal was required . Supreme Court, agreeing with defendant, granted the motion. This was error.

The endorsements at issue were plainly made to induce prospective insureds to enter into insurance contracts with Galaxy . Having achieved its objective, ANIC thereafter failed to honor its contractual obligation to defend and indemnify Galaxy policy holders as it agreed. Accordingly, dismissal of the complaint was inappropriate . To the extent there is any ambiguity in the endorsements, i.e., whether Galaxy insureds were required to provide evidence of assignment or subrogation as a condition precedent to ANIC’s contractual obligations , such ambiguity should be resolved against ANIC, which issued the endorsements (cf., Austrian , Jr. v. Equitable Life Assur. Socy. of the United States, 39 NY2d 477, 479). In view of this, any obligation on the part of Galaxy insureds to provide evidence of assignment and subrogation was not a condition precedent to ANIC’s duty to assume Galaxy’s liabilities.

We have examined defendant ’s remaining contentions and find them to be without merit.

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