Coverage Pointers - Volume II, No. 26
New York State Supreme Court, Appellate Division, Second Department
Late Petition to Stay Arbitration Entertained where Claimant Not Insured under Policy
In this action to stay arbitration for uninsured motorist benefits, insurer filed its petition beyond the statutory time period. As a result, claimant sought dismissal. Court held that an application to stay filed after the statutory time period may be entertained when it is based on the ground that the parties did not agree to arbitrate a claim for which no coverage was provided under the policy. Here, the claimant did not qualify as an insured under the policy. As such, there was no agreement between her and the carrier to arbitrate.
06/14/01: ELRAC, INC. v. MASARA
New York Court of Appeals holds that self-insured car rental company can enforce indemnification provision in rental agreement for property damage awards. Although it had recently held in ELRAC v. Ward (April 3, 2001) that such agreements were unenforceable for amounts up to minimum insurance coverage requirements for bodily injury and death, Vehicle & Traffic Law §370 specifies no minimum insurance requirement for property damage. The Court also held that the indemnification agreement was enforceable because the vehicle was driven by someone not authorized to do so in the rental agreement -- the coverage required by §370 and, thus, the prohibition against enforcement of the agreement, does not benefit a non-permissive user of the vehicle.
06/12/01: PORTER v. SPD TRUCKING
New York State Supreme Court, Appellate Division, First Department
Default Judgment Necessarily Decides “Serious Injury” Threshold Requirement
Plaintiff obtained a default judgment against the defendant. Prior to the damages inquest, defendant moved for summary judgment claiming that plaintiff did not sustain a serious injury. Plaintiff cross-moved to preclude defendants from offering any evidence at the damage inquest.
Defendant’s motion was denied. The court held that the prior order granting the default judgment necessarily decided that plaintiff sustained a “serious injury.” But plaintiff’s cross motion to preclude evidence was only partially granted. The court precluded defendant from offering evidence it obtained from a subpoena served on the no-fault carrier without notice to the plaintiff, but allowed defendant to introduce other evidence. The court concluded that a defaulting party is not entitled to disclosure on the issue of damages in preparation for the inquest by use of pretrial discovery without a court order. However, a defendant’s default does not result in a forfeiture of their right to contest plaintiff’s real damages. It would be too harsh a penalty to preclude defendants from offering other evidence that might have bearing on that issue.
06/11/01: ARCABASCIO v. SALGADO
New York State Supreme Court, Appellate Division, Second Department
Plaintiff Failure to Show Carpal Tunnel Syndrome Caused by Auto Accident Results in Dismissal
Plaintiff’s action for personal injury arising from automobile accident was dismissed when he failed to demonstrate “serious injury”, as required under Insurance Law §5102(d). The court found that evidence submitted by plaintiff failed to show that his carpal tunnel syndrome, which was first detected three years after the accident, was caused by the accident. Plaintiff also failed to demonstrate a permanent consequential limitation of the use of the left wrist or hand or that he sustained a medically determined injury that prevented him from doing his customary daily activities for 90 days out of the first 180 days.
New York State Supreme Court, Appellate Division, Second Department
Insurer’s Affidavit of Mailing Deemed Sufficient to Raise Issue of Fact on Timeliness of Denial of No-Fault Benefits
In an action to recover no-fault medical payments, plaintiff moved for summary judgment contending that the insurer did not respond to the hospital’s claim for no-fault medical benefits within 30 days as required by the 11 NYCRR 65.15(g)(3). In opposition to the motion, the insurer submitted an affidavit from an employee who asserted that a timely denial claim form was mailed to the plaintiff. The court found that the employee’s affidavit did not establish, as a matter of law, that the defendant followed office practices “geared so as to ensure the likelihood” that the denial of claim was properly addressed and mailed on the date issued. However, the court found the affidavit sufficient to raise an issue of fact as to whether defendant timely denied its claim.
New York State Supreme Court, Appellate Division, Second Department
Alcohol Exclusion Applied to Negate Coverage where Alcohol Furnished to Employees after Business Hours in Furtherance of Business Purpose
Insurer was not obligated to defend or indemnify the defendants in several underlying personal injury action arising from an automobile accident. The defendant operated a restaurant that sold food and beer. A secretary of the defendant provided champagne to underage employees who were decorating the restaurant after business hours. One employee subsequently operated a motor vehicle while in an intoxicated state resulting in a fatal accident. The court found that the alcohol exclusion in the policy applied because the alcohol was furnished to the minor in furtherance of the insured’s business purpose.
New York Supreme Court, Appellate Division, First Department
Court held that monthly loss run reports provided to insurer pursuant to endorsement to a CGL policy did not satisfy policy’s notice conditions. The endorsement, which required reports of all open claims for underwriting purposes, did not supercede, but only added to, the policy’s notice provisions. Moreover, the court concluded that loss run reports were unsuitable for this purpose -- even assuming the reports contained sufficient information about the claim, the reports listed hundreds of claims, most of which were not going to reach the policy’s SIR limit and, therefore, would never become the insurer's responsibility. Thus, claims administrator’s late notice of occurrence and failure to forward suit papers resulted in policy breach.
06/15/01: TIGHE v. COMBINED INS. CO. OF AMERICA
Nebraska Supreme Court
Self-Employment Income Calculated under Disability Policy's Reduction-of-Benefits Clause
The primary issue in this appeal is what income is considered to be self-employment income under disability policy’s reduction-of-benefits clause. Carrier argued that self-employment income consists of gross receipts, thereby reducing benefits to zero. Insured argued that income from self-employment should be gross receipts minus business expenses. Court determines that income from self-employment in reduction clause means the net income of the insured after subtracting business expenses from gross receipts and that benefits should not have been reduced.
06/14/01: MACLEAN v. HINGHAM MUT. FIRE INS. CO.
Massachusetts Appeals Court
A Vehicle with a Motor is Not Necessarily a Motor Vehicle; Homeowner's Policy Covers ATV Accidents
An all-terrain vehicle is a motorized vehicle but not a motor vehicle under Massachusetts law. Homeowner’s policy exclusion for motor vehicle accidents does not apply to accidents involving ATV’s. In common understanding and usage, certain motorized products, even those capable of speeds exceeding twelve miles per hour, such as tractors or riding lawnmowers, are not motor vehicles because they are not designed for regular use in the transportation of persons and property on the traveled part of public highways. ATVs are like tractors and riding lawnmowers in this respect. Moreover, motor vehicles, being designed for use on the traveled part of ways, are more commonplace, and typically involve more catastrophic losses, than ATVs. ATVs and other specialized recreational “vehicles” that are used off-road and pose correspondingly lower risks, are not subject to motor vehicle insurance requirements, and would fall within the purview of a homeowner’s policy.
Fifth Circuit (applying Texas law)
Where Two Employees Each Commit Separate Independent Thefts, Two Occurrences Allow Two Recoveries Under Dishonesty Policy
In arguing that there was but one “occurrence” of employee dishonesty, the insurer argued that there was only one loss, specifically, the insured’s loss of a single sum of cash. The insurer also argued that the “involving one or more employees” clause of the “occurrence” definition means that, regardless how many employees steal from the insured, there was only one loss of cash and therefore only one “occurrence.” The court concluded that the more natural reading of the policy is that the “involving” clause means a group of employees conspiring together to steal. Here, where the thefts were independent from one another, two separate occurrences allow two separate claims under the policy.
Arizona Supreme Court
Attorney Assigned by Insurer to Defend Insured has Duty to Insurer, Even if Attorney-Client Privilege Doesn't Exist
An express agreement is unnecessary to establish an attorney-client relationship. When insurer assigns defense counsel to defend insured, the lawyer has a duty to both insured and insurer, based on understanding that services are to benefit both where interests coincide. That duty exists whether or not there is an attorney-client relationship between carrier and counsel. Should defense counsel commit malpractice, counsel can be liable to insurer irrespective of whether attorney-client relationship exists.
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Order, Supreme Court, Bronx County (Jerry Crispino, J.), entered July 12, 2000, which denied defendants' motion for summary judgment dismissing the complaint on the ground that plaintiffs did not sustain serious injuries within the meaning of Insurance Law § 5102(d), and denied plaintiffs' cross motion to preclude defendants' from offering any evidence at inquest, unanimously modified, on the law and the facts, to grant the cross motion to the extent of precluding defendants from offering at inquest records that defendants obtained by way of the subpoena they served on plaintiffs' no-fault carrier, and otherwise affirmed, without costs.
Serious injury is a necessary element to plaintiffs' prima facie case that had to be pleaded in their complaint (CPLR 3016[g]). Thus, the prior order granting plaintiffs a default judgment necessarily decided that they sustained serious injuries, and, unless vacated, precludes defendants from asserting otherwise (cf., Maldonado v DePalo, 277 AD2d 21). While defendants' default did not result in a forfeiture of their right to contest plaintiffs' "real damages" (McClelland v Climax Hosiery Mills, 252 NY 347, 351), they should nevertheless be precluded from using the records that they obtained by way of the subpoena they served on plaintiffs' no-fault carrier without notice to plaintiffs. A subpoena may not be used for the purpose of discovery or to ascertain the existence of evidence (Matter of Terry D., 81 NY2d 1042, 1044). Defendants, who, as defaulting parties, are not entitled to disclosure from plaintiffs on the issue of damages in preparation for the inquest (see, Reynolds Securities V Underwriters Bank &Trust Co., 44 NY2d 568, 573; Yeboah v Gaines Serv. Leasing, 250 AD2d 453), used an unlawful, ex parte subpoena (CPLR 2103[e]; see, Matter of Weinberg, 129 AD2d 126, rearg denied 132 AD2d 190, lv dismissed sub nom. Matter of Beiny, 71 NY2d 994) in pursuit of pretrial discovery that was otherwise unavailable to them, at least absent a court order. Accordingly, defendants should not be permitted to benefit from the evidence they discovered by virtue of that subpoena, and we modify accordingly. It would be too harsh a penalty however to preclude defendants from offering other evidence they might have bearing on damages.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: JUNE 12, 2001
In a proceeding pursuant to CPLR article 75 to permanently stay arbitration of a claim for uninsured motorist benefits, Mary Mandala appeals from an amended order of the Supreme Court, Nassau County (O'Shaughnessy, J.), entered May 25, 2000, which, after a hearing, granted the petition and permanently stayed arbitration.
ORDERED that the amended order is affirmed, with costs.
The Supreme Court properly granted the petition and permanently stayed arbitration. Although the petitioner did not commence this proceeding within the statutory time period (see, CPLR 7503[c]), an application to stay arbitration filed after the statutory time period may be entertained when, as here, it is based on a contention that the parties did not agree to arbitrate a claim for which no coverage was provided under the policy (see, Matter of Matarasso [Continental Cas. Co.], 56 NY2d 264; Matter of United Community Ins. Co. v Gabriel, 229 AD2d 444). The appellant did not qualify as an insured under the policy and, therefore, no agreement to arbitrate existed between her and the petitioner (see, Matter of Aetna Cas. & Sur. Co. v Cartigiano, 178 AD2d 472).
SANTUCCI, J.P., GOLDSTEIN, H. MILLER and CRANE, JJ., concur.
In an action to recover damages for personal injuries, etc., the defendants appeal from an order of the Supreme Court, Queens County (Golar, J.), dated September 11, 2000, which denied their motion for summary judgment dismissing the complaint on the ground that the plaintiff Michael J. Arcabascio did not sustain a serious injury within the meaning of Insurance Law - 5102(d).
ORDERED that the order is reversed, on the law, with costs, the motion is granted, and the complaint is dismissed.
The defendants established a prima facie case that the plaintiff Michael J. Arcabascio did not sustain a serious injury within the meaning of Insurance Law - 5102(d) (see, Gaddy v Eyler, 79 NY2d 955). In opposition, the plaintiffs submitted, inter alia, the affirmed medical report of Arcabascio's examining physician which indicated that he suffered from carpal tunnel syndrome in his left hand but that he had a full range of motion in his left wrist and left fingers. There was no evidence that the alleged carpal tunnel syndrome, detected by this physician on April 17, 2000, was caused by the subject accident, which took place on July 8, 1997. The plaintiffs failed to demonstrate a permanent consequential limitation of use of the injured plaintiff's left wrist or hand (see, O'Reilly v Nelson, 261 AD2d 372; Jeannot v Lawrence, 245 AD2d 547; Fasulo v Lukach, 239 AD2d 462; Panisse v Jrs. Truck Rental, 239 AD2d 397).
Furthermore, the plaintiffs failed to demonstrate that the injured plaintiff had sustained a medically-determined injury or impairment of a nonpermanent nature which prevented him from performing all of the material acts which constituted his usual and customary daily activities for a period of not less than 90 days during the 180-day period immediately following the accident (see, Licari v Elliott, 57 NY2d 230; Delpilar v Browne, AD2d [2d Dept., Apr. 23, 2001]; Greene v Miranda, 272 AD2d 441; Cullum v Washington, 227 AD2d 370). Therefore, the motion for summary judgment should have been granted.
O'BRIEN, J.P., KRAUSMAN, GOLDSTEIN, SCHMIDT and CRANE, JJ., concur.
In an action to recover no-fault medical payments, the plaintiffs appeal, as limited by their brief, from so much of an order of the Supreme Court, Nassau County (Warshawsky, J.), dated November 1, 2000, as denied their motion for summary judgment on their first cause of action to recover payments for medical services rendered by the plaintiff Hospital for Joint Diseases, and granted that branch of the defendant's cross motion which was for summary judgment dismissing the first cause of action.
ORDERED that the appeals by the plaintiffs Westchester County Medical Center, New York University Hospital-Tisch Institute, and New York Presbyterian Hospital are dismissed, as those plaintiffs are not aggrieved by the portion of the order appealed from (see, CPLR 5511); and it is further,
ORDERED that the order is modified, on the law, by deleting the provision thereof granting that branch of the cross motion which was for summary judgment dismissing the first cause of action and substituting therefor a provision denying that branch of the cross motion; as so modified, the order is affirmed insofar as appealed from, with one bill of costs payable to the plaintiff Hospital for Joint Diseases.
In support of its motion for summary judgment on the first cause of action asserted in the complaint, the plaintiff Hospital for Joint Diseases (hereinafter HJD) submitted evidentiary proof that the defendant insurance company did not respond to its September 1, 1999, claim for no-fault medical benefits within 30 days as required by Insurance Law _ 5106(a) and 11 NYCRR 65.15(g)(3). In opposition to the motion, and in support of its cross motion for summary judgment dismissing the first cause of action, the defendant failed to make a prima facie showing of its entitlement to judgment as a matter of law. It submitted the affidavit of an employee who asserted that a timely denial of claim form was mailed to HJD on September 10, 1999. However, the employee had no personal knowledge that the claim form had been mailed to HJD on the date it was issued, and his conclusory allegations regarding the defendant's office practices did not establish, as a matter of law, that the defendant followed office practices "geared so as to ensure the likelihood" that denial of claim forms were always properly addressed and mailed on the date issued (see, Clark v Columbian Mut. Life Ins. Co., 221 AD2d 227; Ford Motor Credit Co. v Robco Distributors, 205 AD2d 662; Matter of Merendino v Village of Pawling, 152 AD2d 762). Since the defendant's submissions were insufficient to raise a presumption that HJD received the denial of claim (see, Nassau Ins. Co. v Murray, 46 NY2d 828), HJD's sworn allegations that it never received a response to its September 1, 1999, no-fault billing is sufficient to raise an issue of fact as to whether the defendant timely denied its claim. Accordingly, the defendant's cross motion for summary judgment dismissing the first cause of action should have been denied.
In an action for a judgment declaring that the plaintiffs are not obligated to defend or indemnify the defendants C & H Pizza Corporation and Denise LaBarbera Williams in various underlying personal injury actions, the plaintiffs appeal from (1) so much of an order of the Supreme Court, Suffolk County (Hall, J.), dated October 12, 1999, as, upon reargument, granted the motion of the defendant Denise LaBarbera Williams for summary judgment dismissing the complaint insofar as asserted against her, and (2) a judgment of the same court, entered November 24, 1999, which, inter alia, declared that the plaintiffs were obligated to defend and indemnify the defendants C & H Pizza Corporation and Denise LaBarbera Williams.
ORDERED that the appeal from the order is dismissed; and it is further,
ORDERED that the judgment is reversed, on the law, so much of the order as granted the motion of the defendant Denise LaBarbera Williams for summary judgment is vacated, that motion is denied, the plaintiffs' cross motion for summary judgment is granted, and it is declared that the plaintiffs have no duty to defend or indemnify the defendants C & H Pizza Corporation and Denise LaBarbera Williams in the underlying actions; and it is further,
ORDERED that the plaintiffs are awarded one bill of costs.
The appeal from the intermediate order must be dismissed because the right of direct appeal therefrom terminated with the entry of judgment in the action (see, Matter of Aho, 39 NY2d 241, 248). The issues raised on the appeal from the order are brought up for review and have been considered on the appeal from the judgment (see, CPLR 5501[a]).
The defendant C & H Pizza Corporation (hereinafter C & H) operated a restaurant that sold food products and beer. On December 8, 1992, the defendant Denise LaBarbera Williams, a secretary of C & H, provided champagne to underage employees, including the defendant Cynthia K. Tarana, who was decorating the restaurant after business hours for the Christmas holidays. Tarana subsequently operated a motor vehicle in an intoxicated state, resulting in a fatal car accident.
The Supreme Court erred in determining that the alcohol exclusion provision of the insurance policy the plaintiffs issued to C & H did not apply. Alcohol was furnished to a minor in furtherance of a business purpose, thus relieving the plaintiffs of any duty to defend or indemnify C & H and Denise LaBarbera Williams in the underlying personal injury actions (see, New York Mut. Underwriters v Burdick, 196 AD2d 668; Cole's Rest. v North Riv. Ins., 85 AD2d 894).
The plaintiffs' remaining contention is without merit.
ALTMAN, J.P., KRAUSMAN, LUCIANO and COZIER, JJ., concur.
Defendants Sentinel and Meadow Wood L.P. (hereinafter referred to collectively as "Sentinel") were covered, as here relevant, as the named insured and as an additional insured, respectively, under Commercial General Liability Policy No. SCO 838522900 (the "Policy") issued by Steadfast Insurance ("Steadfast"). The per-occurrence limit of commercial general liability coverage under the Policy was $1 million, with self-insured retentions ("SIR") of $25,000 per claimant, $200,000 per occurrence, and $1 million in aggregate. Sentinel engaged Scibal Associates, Inc, ("Scibal") as claims administrator to handle claims against Sentinel within the SIR under the Policy and to deal with Steadfast and other excess carriers on Sentinel's behalf.
On March 4, 1996, a certain woman named Romer, who then resided in an apartment in the Meadow Wood apartment complex in Reno, Nevada, leased to her fiancé, was sexually assaulted and otherwise physically harmed in the apartment by an unknown intruder. The next day, by letter dated March 5, 1996, George Buckle, Sentinel's Director of Insurance and Risk Management, advised Scibal of the occurrence of the incident (field reports of which were attached), directed Scibal to set a $3,500 defense reserve, and noted that "due to the nature of the allegations, a report should be sent to Steadfast Insurance Co." By letter dated March 6, 1996, Scibal acknowledged receipt of Sentinel's letter.
In August 1996, Ms. Romer commenced a personal injury suit in Nevada State court against Meadow Wood L.P., inter alia, and named Sentinel as an additional defendant. At such time, Sentinel received a copy of the initial summons and complaint in the Romer action, and forwarded those papers to Scibal under Mr. Buckle's cover letter dated August 20, 1996, in which he requested that Scibal, inter alia: "Increase the reserve to $25,000 and alert Steadfast." Mr. Buckle confirmed at his deposition that by "alert Steadfast", he meant that "[t]his claim should be reported immediately to Steadfast Insurance Company." Robert McLaughlin, the Scibal executive with responsibility for the Romer claim, testified that he so understood the August 20th letter. Thereafter, Sentinel received Romer's first amended complaint in October 1996 and her third amended complaint in January 1997 (the second amended complaint is not part of the record).
Neither Sentinel nor Scibal sent Steadfast any notice specifically addressing the Romer claim (apart from monthly "loss run" computer printouts that listed the Romer claim, among hundreds of others) until June 1997 - about 15 months after the incident occurred, and about ten months after the Romer action was commenced. Mr. Buckle of Sentinel sent Scibal a memorandum, dated June 19, 1997, stating that "our records do not reflect who at Steadfast is handling this case", and requesting that Scibal "contact Steadfast, and advise them of our intent to associate [a named attorney] to consult on this case." Thereafter, Mr. McLaughlin of Scibal sent Steadfast a letter dated June 26, 1997, advising Steadfast of the Romer claim and the Romer action and transmitting the relevant file materials. The letter states, inter alia:
This file had fallen through a crack and was mistakenly not reported when the law suit was served upon our insured [sic]. We make special exceptions [sic] and apologize accordingly.
Mr. McLaughlin sent Steadfast a follow-up facsimile, dated July 2, 1997, transmitting "additional defense attorney reports relative to our initial notice of 6/26/97." By letter to Sentinel dated July 24, 1997, Steadfast disclaimed coverage on the ground that the Policy conditions that the insurer be given notice of the occurrence within 15 days or as soon as reasonably practicable thereafter (Part IV, section 3[a]) and that all legal process be "immediately" forwarded to the insurer (Part IV, section 3[b]) had not been satisfied. The disclaimer letter noted that "[t]his claim was not tendered to Steadfast until June 1997."
After receiving Steadfast's disclaimer, Mr. Buckle of Sentinel sent David Scibal, Scibal's president and CEO, a letter dated July 28, 1997, advising Scibal to alert its errors and omissions (E&O) carrier of a potential claim by Sentinel against Scibal, noting that Sentinel intended to file a declaratory judgment action contesting Steadfast's disclaimer, and further noting that Sentinel would look to Scibal "to cover the costs of the proposed litigation [against Steadfast]" and "for defense and indemnification should our efforts fail to change the position of Steadfast Insurance Company." Thereafter, Mr. Scibal sent a letter to Scibal's E&O carrier, dated July 19, 1997, copied to Sentinel, alerting Scibal's carrier to Sentinel's potential claim. Among other things, Scibal's July 29, 1997 letter states:
Our branch manager in our Florida operation [where Sentinel was serviced], Robert McLaughlin, has advised that they failed to put Steadfast Insurance Company on notice subject to the policy guidelines as submitted herein. As a result, Steadfast has declined coverage to our customer, Sentinel . . . .
* * *
A review of the file clearly indicates that we did not prejudice Steadfast's position, but we also did not report the claim timely pursuant to the policy guidelines.
Subsequent letters from Sentinel's counsel to Scibal's E&O carrier and from Sentinel to Scibal reiterate the position Sentinel took vis-a-vis Scibal and Scibal's insurer (but not in this action) that Steadfast's disclaimer of coverage as to the Romer claim resulted entirely from Scibal's negligent failure to timely send Steadfast notice of the Romer claim and copies of the pleadings in the Romer action.
In this action, Sentinel has taken the position that Steadfast received the required notice of the Romer claim and litigation through monthly "loss run reports" for Sentinel. According to affidavits of Mr. Buckle and Mr. Scibal, Scibal sent these reports to Steadfast's office in Schaumburg, Illinois, among other locations, pursuant to Endorsement No. 4 to the Policy. Such loss run reports, which were computer printouts listing all open claims against Sentinel (including those falling entirely within the per-claimant SIR) as admitted by Sentinel, were used by the underwriter (again, this function was performed for Steadfast by Glendale Specialty Risks, a separate entity located in California) to monitor the exhaustion of Sentinel's $1 million aggregate SIR under the Policy.
The earliest loss run report that refers to the Romer claim is the one for the period ended March 31, 1996, which was printed on April 5, 1996. The brief reference in the report to the Romer claim incorrectly identified the claimant as Royal Prince, Romer's fiancé and the lessee of the apartment, describes the underlying occurrence as "female roomate [sic] sexually asslt", the state (NV) and date (3/4/96) and tersely sets forth the claim's litigation status and reserve information.
Nothing in the report states that such claim, or any of the hundreds of other claims listed, was being tendered to Steadfast. Although a portion of the report (entitled "Claims Management Exception Report") sets forth a list of "New Claims", including the Romer claim, Mr. Scibal testified at his deposition that Steadfast (unlike Glendale, the underwriter in California) did not receive the "Claims Management Exception Report" as of April 30, 1996.
Ms. Romer settled her lawsuit in January 1998, in consideration of a payment of $750,000 received from Sentinel. The funds Sentinel used to settle the Romer action, as well as the funds used to litigate the Romer action and the instant declaratory judgment action, were loaned to Sentinel by Scibal's E&O carrier, Gulf Insurance Company, which loan is repayable only to the extent Sentinel obtains a recovery against Steadfast on Sentinel's claim under the Policy. In connection with that loan, Sentinel settled its claims against Scibal, and tendered to Gulf control of Sentinel's prosecution of this action and the prosecution of its counterclaims against Steadfast.
Steadfast commenced this action in September 1997, seeking a declaration that it is not obligated to defend or indemnify Sentinel in connection with the Romer claim based on Sentinel's failure to give timely notice and to immediately forward copies of the Romer action pleadings. The basis for bringing the action in New York is the fact that Sentinel is incorporated, and has its principal place of business, in this state. Sentinel's answer asserts a counterclaim for a declaration that it is entitled to such defense and indemnity from Steadfast, and for $1 million in damages alleged (without specificity) to have been caused by Steadfast's purportedly improper disclaimer. (Sentinel also commenced a third-party action against its excess carrier, Federal Insurance Company, which third-party action has been settled and thus is not at issue on this appeal.)
After discovery was completed, Steadfast moved for summary judgment in its favor in September 1999. In opposing the motion, Sentinel took the position (in the affidavit of Mr. Buckle, its risk manager), in substance, that Endorsement No. 4 to the Policy superseded the notice conditions of the pre-printed form with which Sentinel failed to comply (Part IV, section 3[a] and [b]. According to Mr. Buckle, "[t]he terms of the Steadfast Policy which I negotiated [i.e., Endorsement No. 4] did not even require Sentinel, through Scibal, to give notice to Steadfast of a claim until the amount of the reserve reached $12,500 or suit was filed, whichever came first." Similarly, Mr. Scibal stated in his affidavit:
[Steadfast] has never accepted tender of a claim from Scibal or from Sentinel until such time as the SIR level noted in the policy at issue is reached. As such, and with respect to the Romer claim, I was not concerned about the fact that our records did not confirm that a notice letter of loss went out to Steadfast concerning this claim because, based on our prior practice with Steadfast, they never became involved in any claim, never wanted to hear about a claim, and never participated in a claim until such time as the SIR was at the level required by the policy, or the claim was in litigation and required authority for a settlement conference.
Sentinel and Scibal did not, however, identify any claim for which Steadfast ultimately took responsibility where Sentinel had failed to comply with Part IV, section 3(a) and (b), of the Policy. Sentinel also took the position that, to the extent the notice conditions had not been superseded by the endorsement, the monthly loss run reports were sufficient to satisfy such conditions.
In denying summary judgment to Steadfast, the IAS court found that the adequacy and timeliness of Sentinel's notice of the underlying personal injury claim are factual issues which cannot be resolved on papers.
In brief, however, it is plain that: Endorsement No. 4 to the Policy did not supersede, but constituted an addition to, the notice conditions with which Sentinel failed to comply; the loss run report did not satisfy the condition that Steadfast be given notice of the occurrence within 15 days or as soon as reasonably practicable thereafter (Part IV, section 3[a]); and the denial of coverage is independently justified by Sentinel's additional failure to forward to Steadfast copies of the pleadings in the Romer action "immediately" after Sentinel received them (Part IV, section 3[b]). Sentinel's separate argument, not addressed by the motion court, that this case calls for application of California or Illinois law, which would apparently require the insurer to show that it was prejudiced by the failure to comply with the notice conditions, is also unavailing, given that the Policy was issued to a New York named insured.
Under New York law, an insurer need not demonstrate that it has been prejudiced by the insured's failure to comply with the policy's notice conditions in order to disclaim coverage based on such noncompliance (the "no prejudice" rule) (Security Mut. Ins. Co. v Acker-Fitzsimons Corp., 31 NY2d 436, 440). Given the nationwide scope of Sentinel's operations, the principal location of the insured risk should be deemed to be the State where Sentinel is incorporated and has its principal place of business, from which it negotiated the special terms of the Policy, and where the Policy presumably was delivered to it (thus constituting the state where the contract was made).
As to Sentinel's argument that Endorsement No. 4 to the Policy supersedes the notice conditions of the pre-printed policy form with which Sentinel allegedly failed to comply, such argument is entirely without merit. Endorsement No. 4 expressly provides that the notice conditions "shall be amended by the addition of new paragraph (e)" set forth in the endorsement (emphasis added). Thus, the endorsement, by its terms, purports only to add to, not to supersede, the notice requirements that would exist in its absence. Where an endorsement to the Policy was intended to supersede a provision of the pre-printed policy form, the endorsement expressly provides that the relevant provision "is deleted and replaced by the following[.]"
While it could be argued that, to the extent there is any unavoidable conflict between the terms of Endorsement No. 4 and the terms of the pre-printed form, the terms of the specially negotiated endorsement should control, the rule is that "where two seemingly conflicting provisions reasonably can be reconciled, a court is required to do so and to give both effect,"(Bijan Designer For Men v Fireman's Fund Ins. Co., 264 AD2d 48, 53, quoting Proyecfin de Venezuela v Banco Indus. de Venezuela, 760 F2d 390, 395-396). Here, the notice conditions of the pre-printed policy form and the terms of Endorsement No. 4 are easily reconciled. Specifically, the endorsement should be construed to require Sentinel to give Steadfast specified information, whether or not such information relates to a claim that is entirely within Sentinel's SIR, or is otherwise outside the scope of coverage under the Policy. For example, the endorsement expressly requires that Steadfast be given notice of certain categories of claims (e.g., involving death, brain damage, and other serious injuries) "even if not covered under this policy." Moreover, the periodic loss run reports that were sent to Steadfast pursuant to the endorsement included, by Sentinel's own admission, each and every open claim against Sentinel, no matter how small, thus including numerous claims entirely within its SIR. Sentinel's position that Endorsement No. 4 supersedes the pre-printed notice conditions is further undercut by the fact that the endorsement does not set forth any time frame within which the notices it requires must be given.
In view of the express and unambiguous terms of the Policy requiring Sentinel, as a condition precedent to Steadfast's coverage obligation, to give the insurer notice of any occurrence within 15 days of learning about it, "or as soon as is reasonably practicable thereafter", the lengthy discussions in Sentinel's brief of the purported "course of dealing" under the Policy -- under which the notice conditions purportedly were dispensed with or deemed to be satisfied by the monthly loss run reports -- are entirely irrelevant. Sentinel, as noted previously, does not cite a single instance in which Steadfast accepted tender of a claim in spite of a failure by Sentinel to comply with the Policy's notice conditions, or based solely on "notice" contained in a monthly loss run report. Moreover, the contemporaneous correspondence among Sentinel, Scibal and Steadfast concerning the Romer claim appears to establish that Sentinel and Scibal both understood that the Policy required that Steadfast be given specific notice of the particular occurrence and of the commencement of litigation in accordance with Part IV, section 3(a) and (b), of the Policy. That Steadfast allegedly did not choose to become actively involved in claims until they approached the SIR limit cannot, without more, estop it from disclaiming coverage based on Sentinel's noncompliance with the Policy's express notice conditions.
Sentinel argues that, to the extent it was required to comply with the Policy's notice conditions, the Policy does not specify the form which notice must take (other than that it be written), and that, therefore, at least a triable issue exists as to whether the monthly loss run reports, which reported the Romer claim among hundreds of others, fulfilled the Policy's notice condition. Again, Mr. Scibal, the CEO of Sentinel's claim administrator, alleges that the loss run reports were sent to Steadfast's Schaumburg, Illinois office during the relevant period, an argument apparently accepted by the motion court.
Although the parties have not cited any New York authority directly on point, Steadfast cites a number of decisions from other jurisdictions which have rejected arguments similar to Sentinel's, seeking to have a reference to a claim in material submitted for purposes other than claims-handling deemed to constitute compliance with the policy's notice conditions. Sentinel's effort to distinguish these cases on the ground that the loss run reports here at issue were not part of a renewal application is not persuasive, since the undisputed fact remains that such reports were not used for purposes of claims-handling. Nor does Sentinel cite authority supporting its view that the insurer's receipt of a long list of claims - both tendered and non-tendered, covered and non-covered - submitted for purposes other than claims-handling, should be deemed to satisfy the notice condition to coverage of a specific claim listed therein.
Even if it is assumed that the loss run report contained sufficient information about the claim to comply with the Policy's notice condition, the fact that the report lists hundreds of claims, most of which were not going to reach the SIR limit and, therefore, would never become the insurer's responsibility, makes the report entirely unsuitable to be deemed to satisfy the notice condition. The report did not designate which claims Sentinel eventually intended to tender to Steadfast. Adoption of Sentinel's theory would require Steadfast to go through each loss run report and to look for claims for which no prior notice had been received, and to determine, for each of those claims, whether it merited further investigation. (In this connection, it is noted that the reserve stated for the Romer claim in the first loss run report referring to it is $4,300, well within the SIR.) The insurer should not be required to go through such a time-consuming procedure, rather than requiring the insured simply to comply with the Policy's rather straightforward notice requirement -- which Sentinel or its agent, Scibal, easily could have done, given that Sentinel gave Scibal notice of the incident one day after it occurred, and therein specifically directed Scibal to send a report to Steadfast.
Even if the loss run report could be deemed to otherwise satisfy the Policy's notice conditions, it was untimely. The earliest report referring to the Romer incident was printed on April 5, 1996, and thus would have been received by Steadfast at least one month after Sentinel learned of the incident on March 5, 1996 (if not the day before). The Policy requires that notice be given "within fifteen (15) days [after the insured learns of the incident] or as soon as is reasonably practicable thereafter." Here, Sentinel gave Scibal written notice of the incident on the day after it occurred, and nothing made it "[im]practicable" to give Steadfast notice prior to the expiration of the 15-day period thereafter. It should also be noted that, given the gravity of Ms. Romer's allegations, it would have been apparent to Sentinel and Scibal from the outset that the potential exposure arising from her claim exceeded the $25,000 SIR.
Finally, independent of the requirement of Part IV, section 3(a) of the Policy that the insurer be given prompt notice of an occurrence that may give rise to a claim, the Policy provision immediately following (Part IV, section 3[b]) requires that the insured "immediately forward" to the insurer "every demand, notice, summons or other process received" by the insured. It is undisputed that, notwithstanding this condition precedent to coverage, no papers from the Romer action were forwarded to Steadfast until June 1997, approximately ten months after the action was commenced in August 1996.
Thus, even if the loss run report could be deemed to satisfy the notice of occurrence condition, Sentinel's failure to comply with the condition that the Romer action papers be "immediately forwarded" independently justifies Steadfast's denial of coverage. As this Court has recently held, even if a question of fact existed as to whether an insured complied with its obligation to give notice of a suit "as soon as practicable", the failure to comply with the obligation to "immediately send [the insurer] copies of any legal papers received", for which no valid reason was given, independently absolved the insurer of its coverage obligations (Viles Contracting Corp. v Hartford Fire Ins. Co., 271 AD2d 349).
Accordingly, the order of the Supreme Court, New York County (Harold Tompkins, J.), entered May 17, 2000, which denied plaintiff Steadfast's motion for summary judgment, should be reversed, on the law, with costs, the motion granted and it is declared that Steadfast has no obligation under the subject commercial liability Policy to defend and indemnify defendants- respondents with respect to the underlying personal injury action brought against them in Nevada by Romer.
The order of the Appellate Division should be affirmed, with costs.
Defendant Amnodia Masara rented a car from ELRAC and signed a standard clause in the company's rental agreement promising to indemnify ELRAC for any damage caused by her use of the vehicle. When she rented the car, Masara declined to purchase insurance from ELRAC that was offered for an added fee. In addition, the rental agreement did not permit Masara to allow anyone else to drive the car.
While being driven by Masara's father, Rafael Masara, the car was involved in an accident, causing property damage to three other vehicles. ELRAC settled the property damage claims, and brought this action seeking indemnification against the Masaras under the rental agreement. Supreme Court granted summary judgment to ELRAC and awarded indemnification, and the Appellate Division affirmed.
As we recently held in ELRAC v Ward, ___ NY2d ___ (April 3, 2001), section 370 of the Vehicle and Traffic Law requires rental car companies to obtain a minimum amount of insurance for their vehicles. That minimum insurance must "inure to the benefit" of any permissive users of the vehicles, including renters (Vehicle and Traffic Law § 370[b]). Moreover, self-insured rental companies like ELRAC are required to provide the same minimum coverage to their renters. We held in ELRAC v Ward that a rental company may not enforce an indemnification agreement for amounts up to those minimum insurance coverage requirements; however, an indemnification clause, "if otherwise valid, is enforceable for amounts exceeding the statutory minimum liability requirements."
We reject defendants' argument that Vehicle and Traffic Law § 370 prohibits ELRAC from enforcing the indemnification agreement in this case. Rafael Masara was not a permissive user of the rental car, since the rental agreement did not allow him to drive it. Accordingly, the insurance coverage required by section 370 did not inure to his benefit.
Further, ELRAC seeks indemnification for property damage to the other vehicles. While section 370 requires that rental companies obtain a minimum amount of coverage for bodily injury and death, it requires only a "maximum" coverage of $10,000 for property damage (see, Vehicle and Traffic Law § 370, [b]). As we stated in ELRAC v Ward, "since section 370 specifies no minimum insurance requirement for property damage, ELRAC may seek indemnification from its renters for property damage awards to the extent otherwise legally permissible."
We decline to adopt defendants' argument that the word "maximum" in section 370 actually means "minimum." The Legislature explicitly specified "minimum" coverage amounts for other types of injury, but not for property damage. Statutory language should generally be read in its "natural and obvious sense" (1 McKinney's Cons Laws of NY, Statutes, § 232, at 392). While defendants' reading, that the Legislature meant the term "maximum liability" to establish a minimum threshold for property damage coverage, might be consistent with the purpose of section 370, that reading is contrary to its plain language. "Maximum" and "minimum" are not arcane, complex or ambiguous words; rather, they are common words of everyday usage with clear meanings. Absent a compelling reason not demonstrated here, we will not read the word "maximum" in the statute to have the exact opposite of its plain meaning. If the Legislature wished to require a minimum amount of property damage coverage, it could easily have done so.
Defendants' remaining claims are without merit.
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On review of submissions pursuant to section 500.4 of the Rules, order affirmed, with costs, in a memorandum. Chief Judge Kaye and Judges Smith, Levine, Ciparick, Wesley, Rosenblatt and Graffeo concur.