Coverage Pointers - Volume II, No. 21

New Page 1

 

04/10/01:         AIU INSURANCE CO. v. UNICOVER MANAGERS, INC.

New York State Supreme Court, Appellate Division, First Department

Insurer not bound by the Acts of its Managing General Underwriter Where Evidence shows that MGU Lacked Authority to Bind

Plaintiff sought a declaration that defendant ReliaStar became bound to reinsure AIG for certain worker's compensation risks based on reinsurance confirmation slips signed only by defendant Unicover, ReliaStar's managing general underwriter in the relevant transactions. The complaint was dismissed on the ground that the parties' correspondence and course of conduct, evidenced by contemporaneous documents, established, as a matter of law, that the parties did not intend for the reinsurance to become bound until the slips were signed by ReliaStar itself and returned to AIG or its agent.  There was also undisputed evidence of AIG's sustained efforts to obtain slips signed by ReliaStar and its position that premiums would not be paid until such signed slips were received; this evidence negated any inference that Unicover had actual or apparent authority to bind ReliaStar, or that ReliaStar ratified any purported binding of the reinsurance by Unicover on ReliaStar's behalf.

 

04/09/01:         SCHLEGEL v. AETNA CASUALTY & SURETY CO.

New York State Supreme Court, Appellate Division, Second Department

Insured Awarded Damages for Breach where Insurer Failed to Show that the Insured Intentionally Set Property on Fire

Insured sued insurer to recover damages for breach of a homeowner's insurance policy.  The insurer disclaimed coverage alleging that the insured intentionally set fire to his property.  The Appellate Court granted the insured's motion for summary judgment finding that he established a prima facie case in his favor.  The defendant insurer failed to raise an issue of fact as to whether the insured intentionally set the fire.  The insurer submitted no evidence of motive -- while the insured was attempting to sell the property he was current on all mortgage and tax payments.  Further, the forensic chemist's report found no residue of an accelerant at the scene.

 

04/02/01:         MATTER OF ALLSTATE INSURANCE CO. v. HERNANDEZ

New York State Supreme Court, Appellate Division, Second Department

Termination Effective despite Failure to File Notice of Termination with Commissioner where Law at Time did not require such Filing 

Action by insurer to permanently stay arbitration for uninsured motorist claims.  Petition denied by Appellate Court with one judge dissenting.  The claimant was a bicyclist who was injured by a vehicle driven by respondent Daniels.  At the time of the accident Hernandez was insured through Allstate. Claimant made a claim for uninsured benefits after learning that Daniels had no insurance. Daniels was insured by Colonial Penn under an assigned risk program but the policy was cancelled for no-payment of premiums prior to the date of the accident.  Allstate argued that Colonial Penn's termination was ineffective because it failed to file a notice of termination of its coverage with the New York State DMV.  In interpreting the statutes, the majority held that, since the policy had been in effect for more than six months, Colonial Penn was not required to notify the Commissioner of the non-renewal. The Court relied on VTL §313(2)(a), which was in effect at the time of the policy termination, but has since been repealed. Under that section, a non-renewal of a policy that had been in force for at least six months was not to be considered a cancellation or termination and an insurer was not required to notify the Commissioner.  (VTL §313 now requires notice of cancellation or other termination be filed by the insurer with the commissioner within 30 days following the effective date of cancellation.)

 

04/02/01:         MATTER OF NEW YORK SURETY CO.

Recovery under Bond Limited to Principal Sum of the Bond
New York State Supreme Court, Appellate Division, Second Department

In a liquidation proceeding pursuant to Insurance Law Article 74, a judgment was entered in favor of New York Economic Development Corporation against New York Surety Company for $150,000, representing the amount of the principal sum of a bid bond.  By issuance of that bond, New York Surety Company obligated itself to pay up to $150,000 in the event that the bid offered by a contractor in connection with a certain library project was accepted and in the event that the contractor was unable to enter into the contract.  The judgment also awarded sums for costs and interest. New York Surety Company appealed that part of the judgment that awarded costs and interests.  The Appellate Court held that, under Insurance Law §7608(c), the claimant is not entitled to receive an award of interest on the penal sum of the bond.  The contract bid bond expressly limited the liability of the New York Surety Company to the principal sum of the bond.

 

ACROSS BORDERS

 

04/12/01:         CERTAIN UNDERWRITERS AT LLOYD’S OF LONDON v. KNOSTMAN

Mississippi Supreme Court

Where Party and Carrier Settle Tort Claims, They Lose Rights to Enforce Indemnity Agreements Against Others

In order for an indemnitee to recover, he must allege and prove he was legally liable to the injured party and paid under compulsion. Where a party voluntarily settles rather than faces a judgment, it fails to establish its legal compulsion to pay.

 

04/11/01:         DICKE v. SAFECO INS. CO.          

Ohio Supreme Court
Hard to Imagine -- Insurers Win One in Ohio

Homeowner’s insurance policy that provides limited liability coverage for vehicles not subject to motor vehicle registration is not a motor vehicle liability policy and is not subject to the requirement of former R.C. 3937.18 to offer uninsured and underinsured motorist coverage.

 

04/10/01:         DUTTA v. STATE FARM INS. CO.

Maryland Court of Appeals

Insured Entitled to Recover from PIP Coverage even though Medical Expenses Covered by HMO Policy

After receiving treatment for injuries sustained in an automobile accident, the treatment was paid for by the insured’s HMO. He then sued the third party, and received compensation for the treatment. Under the subrogation terms of the HMO policy, the insured repaid the HMO, and also tendered a claim to his automobile insurance carrier under PIP coverage, which was refused. The Court found that the terms of the policy and the legislative intent required the auto carrier to pay for the medical treatment under the PIP policy.

 

04/09/01:         GEORGE v. EMPIRE FIRE & MARINE INS. CO.

South Carolina Supreme Court

Mutual Mistake Requires Reformation of Auto Policy to Provide $1 Million in Coverage to Permissive User

An auto dealer provided a loaner car to a customer who drove negligently causing a fatal collision. The dealer’s insurance policy purported to exclude permissive users. The dealer claimed that the insurance broker, an agent of the insurance carrier, had promised to obtain coverage for permissive users up to the full $1 million limits of the policy, and the insurance broker agreed that was what was intended. However, the policy was written with two limits, one for the statutory liability, and the other for an excess policy of $1 million. The Court found the purported exclusion to be invalid, and found that the policy was mistakenly written so as to contravene the intent of the contracting parties, and reformed the contract to provide the permissive user with $1 million in coverage.

 

04/06/01:         YORK INSURANCE v. WILLIAMS SEAFOOD

Eleventh Circuit

Building Collapse Coverage Trumps Flood Exclusion

Policy excluded flood damage but included building collapse coverage. Insured property damaged in flood then disappeared into sinkhole. Relying on Georgia Supreme Court answer to a certified question of first impression, the Eleventh Circuit held policy covered sinkhole building collapse precipitated by a flood.

 

Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York.


Newsletter Editor
Kevin T. Merriman
[email protected]

 

Insurance Coverage Team
Dan D. Kohane, Team Leader
[email protected]
Sheldon Hurwitz
Carolyn M. Henry
Kevin T. Merriman

 

Fire, First Party & Subrogation Team

James D. Gauthier, Team Leader
[email protected]
Donna L. Burden
Andrea Schillaci
Jody E. Briandi

 

© COPYRIGHT 2000 Hurwitz & Fine, P.C., ALL RIGHTS RESERVED.

 

REPORTED DECISIONS

 

AUI INS. CO. v. UNICOVER MANAGERS, INC.

 

Judgment, Supreme Court, New York County (Barry Cozier, J.), entered July 26, 2000, which dismissed the complaint and third-party complaint pursuant to an order, same court and Justice, entered July 19, 2000, which granted the motion by defendant ReliaStar Life Insurance Company (ReliaStar) for summary judgment dismissing the complaint as against ReliaStar, sua sponte rendered summary judgment dismissing the remaining cause of action against defendant Unicover Managers, Inc. (Unicover), and sua sponte dismissed ReliaStar 's third-party complaint against E.W. Blanch Company (Blanch) as moot, unanimously modified, on the law , to clarify that defendants ReliaStar's and Unicover's respective cross claims, and third-party defendant Blanch's counterclaim and cross claims, are also dismissed, and otherwise affirmed, without costs. Appeal from aforesaid order, unanimously dismissed, without costs.

 

In this action, plaintiff insurance companies (collectively, AIG) seek, inter alia, a declaration that defendant ReliaStar became bound to reinsure AIG for certain worker's compensation risks based on reinsurance confirmation slips signed only by defendant Unicover, which acted as ReliaStar's managing general underwriter (MGU ) in the relevant transactions. We affirm the grant of summary judgment dismissing the complaint on the ground that the parties' correspondence and course of conduct, evidenced by contemporaneous documents , establishes, as a matter of law, that the parties did not intend for the reinsurance to become bound until the slips were signed by ReliaStar itself and returned to AIG or Blanch, its agent (see, Scheck v Francis, 26 NY2d 466, 469-470; Dratfield v Gibson Greetings, 269 AD2d 294, 295 ; Chatterjee Fund Mgt. v Dimensional Media Assocs., 260 AD2d 159). Such evidence, including undisputed evidence of AIG's sustained efforts to obtain slips signed by ReliaStar and its position that premiums would not be paid until such signed slips were forthcoming, negates any inference that might otherwise be drawn that Unicover had actual or apparent authority to bind ReliaStar, or that ReliaStar ratified any purported binding of the reinsurance by Unicover on ReliaStar's behalf. We note that the security letters AIG proffered to ReliaStar in October 1998, which, if effective, purported to bind ReliaStar to honor any commitments made on its behalf by Unicover, were never countersigned or returned to AIG by ReliaStar, and AIG had expressly rejected an earlier letter of similar import that ReliaStar had countersigned and returned with an amendment unacceptable to AIG.

 

The motion court properly granted summary judgment dismissing AIG's estoppel and misrepresentation claims against ReliaStar, based on the same facts as the contractual claims, since the totality of the evidence is inconsistent with any finding that ReliaStar made a material misrepresentation of fact on which AIG relied to its detriment. For the same reason, AIG would have been unable to prevail on its remaining cause of action against Unicover, for misrepresentation, and, under the circumstances, we deem the grant of summary judgment in favor of Unicover to have been authorized by CPLR 3212(b). The present record establishes that Blanch's counterclaim against ReliaStar and cross claims against Unicover, based on the same transactions, are similarly without merit, and we modify the judgment to make explicit the motion court's implicit dismissal of such claims , also as authorized, under these circumstances, by CPLR 3212(b). Finally, we further modify the judgment to expressly dismiss ReliaStar's and Unicover's respective claims for contribution and indemnification , which are now moot.

 

THIS CONSTITUTES THE DECISION AND ORDER

OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

 
SCHLEGEL v AETNA CASUALTY & SURETY COMPANY

 

In an action to recover damages for breach of a homeowner's insurance policy , the plaintiff Robert G. Schlegel appeals, as limited by his brief, from so much of an order of the Supreme Court, Dutchess County (LaCava, J.), dated January 13, 2000, as granted the defendant's motion for leave to renew and, upon renewal, granted its prior motion to change the venue of the action from Dutchess County to Delaware County, which was denied by an order of the same court dated September 8, 1999, and denied that branch of his cross motion which was for summary judgment in his favor on the issue of liability.

 

ORDERED that the order dated January 13, 2000, is reversed insofar as appealed from, on the law and as a matter of discretion, with costs, the motion for leave to renew is denied, the order dated September 8, 1999, is reinstated, and that branch of the cross motion which was for summary judgment in favor of the appellant on the issue of liability is granted.

 

The plaintiff Robert G. Schlegel made out a prima facie case for summary judgment in his favor on the issue of liability. In opposition, the defendant, Aetna Casualty & Surety Company (hereinafter Aetna ), did not raise an issue of fact as to whether Schlegel intentionally set the fire which caused the loss. Aetna submitted no evidence that Schlegel had any financial problems. Although Schlegel was attempting to sell the property, he was current on all mortgage and tax payments. He owned other property, including his primary residence and certain income-producing property, and he had paid in full the mortgage on his primary residence. Accordingly, evidence of motive was lacking (see, Murray v North Country Ins. Co., 277 AD2d 847; Chenango Mut . Ins. Co. v Charles, 235 AD2d 667).

 

Further, the forensic chemist's report prepared for Aetna established that no residue of an accelerant was found at the scene. Accordingly, in opposition to Schlegel's prima

facie case for summary judgment, Aetna failed to raise an issue of fact as to whether the fire was the result of arson. Aetna's argument on that issue was based upon pure conjecture and surmise (see, Murray v North Country Ins. Co., supra).

 

The motion for leave to renew was improperly granted. No newly-discovered evidence was submitted to merit renewal (see, Harrell v Koppers Co., 154 AD2d 340).

 

BRACKEN, P.J., GOLDSTEIN, H. MILLER and FEUERSTEIN, JJ., concur.

 

MATTER OF ALLSTATE INSURANCE COMPANY v HERNANDEZ

 

In a proceeding pursuant to CPLR 7503 to permanently stay arbitration of an uninsured motorist claim, Colonial Penn Insurance Company appeals from an order of the Supreme Court, Kings County (Kramer, J.H.O.), dated December 21, 1999, which, after a hearing, granted the petition.

ORDERED that the order is reversed, on the law, with costs , the petition is denied, the proceeding is dismissed on the merits, and the parties are directed to proceed to arbitration.

The instant proceeding arises out of an accident involving a bicyclist, the respondent Leslie Hernandez, and a vehicle owned by the additional respondent Elsie C. Daniels, which occurred on July 23, 1996. At the time of the accident Hernandez was covered by a policy of automobile insurance issued by the petitioner, Allstate Insurance Company (hereinafter Allstate ). Daniels was insured by the appellant Colonial Penn Insurance Company (hereinafter Colonial Penn) through the assigned risk program covering the period July 6, 1995, to July 5, 1996. On June 15, 199 6, Colonial Penn issued a "notice of cancellation" to Daniels, advising her that her policy would be cancelled for nonpayment of the premium if the premium was not received by the date of cancellation, July 6, 1996. Daniels did not pay the premium and the policy was cancelled effective July 6, 1996. After the accident, Hernandez made a claim for uninsured motorist benefits from Allstate, and upon its refusal to provide those benefits, filed a demand for arbitration. Allstate commenced the instant proceeding to permanently stay arbitration of Hernandez's uninsured motorist claim on the ground that the Daniels vehicle was insured at the time of the accident by Colonial Penn. Colonial Penn opposed the petition , claiming that it had cancelled the policy for nonpayment of premium before the date of the accident . After a hearing, the Supreme Court granted the petition and permanently stayed arbitration, concluding that Colonial Penn's cancellation of the policy had been ineffective because it had failed to file a notice of termination of its coverage with the Commissioner of the New York State Department of Motor Vehicles (hereinafter the Commissioner).

 

The provisions of the New York Automobile Insurance Plan (hereinafter the Plan) govern the termination of an insurance policy under the circumstances presented in this case. The insurance carriers' responsibility to provide notice is contained in Section 14 of the Plan. Section 14B(1) and (2) set forth the notice an insurance carrier is required to send to its insured prior to renewal of a policy under the Plan. Section 14B, Note 1 of the Plan states:

 

"[I]f the renewal premium * * * is not received by the 20th day prior to the expiration date of the policy, the insurer shall issue a notice of termination in compliance with the Vehicle and Traffic Law".

 

Former Vehicle and Traffic Law § 313(2)(a) governed the notice of termination to be sent to the Commissioner at the time the Daniels policy was cancelled. That section provided:

 

"[U]pon the termination of an owner's policy of liability insurance, * * * at the request of the insured or by cancellation by the insurer, the insurer shall file a notice of termination * * * with the commissioner not later than thirty days following the effective date of such cancellation or other termination.

 

"For the purposes of this subdivision, the non-renewal of a policy which has been in force for less than six months shall be considered a cancellation or termination. The non-renewal of a policy which has been in force for at least six months shall not be considered a cancellation or termination. An insurer shall not file a notice of termination with the commissioner except as required by this subdivision" (former Vehicle and Traffic Law § 313[2][a] [emphasis added]).

 

The policy in question had been in force for more than six months. Therefore, Colonial Penn was not required to notify the Commissioner of the nonrenewal (see, Badagliacca v GEICO Gen. Ins. Co., 255 AD2d 536; Fitzsimmons v Auto Ins. Co., 221 AD2d 500; see also, 15 NYCRR 342[r]).

Contrary to the opinion of our dissenting colleague, Note 1 of Section 14B refers only to subsections 1 and 2 of Section 14B which directly address notices relating to renewal, and the insured's duty to make timely premium payments. The dissent relies on Section 14(B)(3) which reads:

 

"A renewal policy will not be issued for the reason the applicant is not entitled to insurance under the plan".

 

Finally, section 14(B) provides:

 

"A copy of such notice, referred to above, shall be filed with the producer of record. In the event the insurer will not issue a renewal policy, a statement of the reasons therefore, together with a copy of said notice, shall be filed with the Superintendent of Insurance of the State and the Plan" (emphasis added).

 

We conclude that Section 14(B)(3) applies only where "the applicant is not entitled to insurance under the Plan". There are myriad reasons why an insured is not entitled to a renewal policy under the Plan, such as illegal conduct or the failure to provide accurate information on the application for insurance. This section is clearly designed to ensure that the Superintendent of the Plan is made aware of the particulars of the nonrenewal to ensure that only qualified applicants receive insurance under the Plan. Here, Daniels was otherwise entitled to insurance under the Plan, but she simply failed to pay her premium.

 

Contrary to the determination of the Supreme Court, Colonial Penn was under no duty to file a notice of termination of Daniel's policy with either the Commissioner or the Superintendent of the Plan. Accordingly, the order is reversed, and the petition to permanently stay arbitration is denied, and the proceeding is dismissed.

 

O'BRIEN , J.P., FRIEDMANN and SMITH, JJ., concur.

GOLDSTEIN, J., dissents and votes to affirm the order appealed from, with the following memorandum:

 

From July 1995 until July 1996, Elsie C. Daniels was covered by an Assigned Risk Policy issued under the New York Automobile Insurance Plan (hereinafter the assigned-risk plan). The rules of the assigned-risk plan constitute "a comprehesive regulatory scheme which supplants the rights and liabilities of parties to an ordinary insurance contract" (Matter of Bowley Assocs. v State of New York Ins. Dept., 98 AD2d 521, affd 63 NY2d 982). Assigned-risk plan contracts are special relationships subject to immediate oversight and supervision by the Superintendent of Insurance (see, Coling Ambulette Serv. v Empire Ins. Co., 262 AD2d 187).

 

Under the assigned-risk plan, an insured is assigned to a designated insurance carrier for three consecutive years (see, New York Automobile Insurance Plan § 13). The insured receives an initial one-year policy, renewable for two one-year periods. If the renewal premium is not received by the 20th day prior to the expiration of the first or second year , the rules of the assigned-risk plan state that "the insurer shall issue a notice of termination in compliance with the Vehicle and Traffic Law" (New York Automobile Insurance Plan § 14[B], Note 1 ). The rules further provide:

 

"In the event the insurer will not issue a renewal policy, a statement of the specific reasons therefore, together with a copy of said notice , shall be filed with the Superintendent of Insurance of the state and the Plan" (New York Automobile Insurance Plan § 14[B]).

 

When Daniels 's assigned risk policy was due for its first renewal in July 1996, she failed to pay the premium, and coverage was terminated. However, the insurance carrier Colonial Penn Insurance Company (hereinafter Colonial Penn) failed to file a notice of termination with the Commissioner of Motor Vehicles, nor did it notify the Superintendent of Insurance or the assigned-risk plan.

 

Failure to file a notice of termination with the Commissioner of Motor Vehicles when one is required renders the attempted termination ineffective with respect to third parties (see, Matter of Liberty Mut. Ins. Co. v Vidale, 207 AD2d 489; Matter of Eveready Ins. Co. v Wilson, 180 AD2d 796).

 

Colonial Penn claims that filing of the notice of termination with the Commissioner of Motor Vehicles was not required, citing Vehicle and Traffic Law former § ; 313(2)(a). Vehicle and Traffic Law former § 313(2)(a) provided that "the nonrenewal of a policy which has been in force for at least six months shall not be considered cancellation or termination". That provision was added by Laws of 1983, chapter 781, § 3, to address concerns that the computer system of the New York State Department of Motor Vehicles could not accurately keep track of "all policy additions and terminations" (1983 Legis Ann. 334-335), and was repealed in 1998 because more accurate record-keeping was possible (1998 Legis Ann. 321, L 1998, ch 509).

 

Colonial Penn further claims that there is no case law stating that it is required to notify the assigned-risk plan in the event that it decides not to issue a renewal policy. However, the rules of the assigned-risk plan clearly state that it is required to provide this notice.

 

The Supreme Court determined that Colonial Penn was required to both file the notice of termination with the Commissioner of Motor Vehicles, and notify the assigned-risk plan of the nonrenewal of the Daniels policy. The Supreme Court noted that an insured's assignment by the assigned-risk plan to a designated insurer is for three consecutive years, including "the initial issuance of the policy, plus two renewal periods" (New York Automobile Insurance Plan § 13). The court found that both the Commissioner of Motor Vehicles and the assigned -risk plan would want to know "whether this vehicle is being insured, or whether it had been terminated ". Indeed, it is apparent that denial of renewal of an assigned-risk policy would generally mean, not that coverage was replaced, but rather, that coverage was terminated.

 

This court has held that requirements for cancellation of an assigned-risk policy within the three-year period must be strictly complied with (see, Matter of Eveready Ins. Co. v Hadzovic, 182 AD2d 818). In this case, Colonial Penn failed to comply with the rules of the assigned-risk plan. The rule that requires that termination notices be issued in compliance with the Vehicle and Traffic Law refers to the form and content of the notice, not who must be notified. To hold otherwise would render significant portions of the rules of the assigned-risk plan meaningless. It is well settled that provisions of a regulatory scheme or contract should be interpreted to give effect to all language employed, to render all parts consistent with each other (see, Wallace v 600 Partners Co., 86 NY2d 543; Ferrin v New York State Dept. of Corr. Serv., 71 NY2d 42). Colonial Penn's interpretation of the rules of the assigned risk plan would render entire provisions meaningless .

 

In the instant case, there was a complete failure to comply with the notification provisions of the assigned-risk plan. Accordingly, the termination of insurance was ineffective.

MATTER OF NEW YORK SURETY COMPANY

 

In a liquidation proceeding pursuant to Insurance Law article 74, the Superintendent of Insurance of the State of New York, as Liquidator of the New York Surety Company, appeals from so much of an order of the Supreme Court, Nassau County (Phelan, J.) dated September 28, 1999, as (1) denied that branch of his motion which was to disallow that portion of the claim of the New York City Economic Development Corporation which was to recover $53,852.05 in interest and $700 in costs due on bid bond number 41562B, and (2) granted that branch of the cross motion of the respondent New York City Economic Development Corporation which was to direct him to pay those sums.

 

ORDERED that the order is reversed insofar as appealed from , on the law, with costs, that branch of the motion which was to disallow that portion of the claim of the respondent New York City Economic Development Corporation which was to recover $53,852.05 in interest and $700 in costs due on bid bond number 41562B is granted, and that branch of the cross motion which was to direct the appellant pay those sums is denied.

 

On June 18, 1998, a judgment was entered in the Supreme Court, New York County, in favor of the respondent New York City Economic Development Corporation and against New York Surety Company in the principal sum of $150,000, representing the amount of the principal sum of bid bond number 41562B. By issuance of that bond, New York Surety Company obligated itself to pay up to $150,000 in the event that the bid offered by a contractor in connection with a certain library project was accepted, and in the event that contractor was unable to enter into the contract. The judgment also awarded the sums of $700 costs and $53,852.05 in interest, calculated at a rate of 9% from June 23, 1994.

 

We agree with the appellant that pursuant to the clear and unambiguous terms of Insurance Law § 7608(c), the claimant is not entitled to receive an award of interest on the penal sum of the bond. We are not persuaded by the argument that an award of interest is warranted pursuant to Matter of Union Indem. Ins. Co. of N.Y. v Royal Bank & Trust Co. (92 NY2d 107). The contract bid bond under review in the present case, unlike the financial surety guaranty bonds in Royal Bank, expressly limits the liability of New York Surety Company to the principal sum of the bond.

 

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

Newsletter Sign-up

Fill in the form to register to receive any of our free electronic newsletters: