Coverage Pointers - Volume III, No. 10
FDCC Announces Guide to Insurance Coverage Issues Related to Terrorism Losses
The FDCC Guide to Insurance Coverage Issues Related to Terrorism Losses is a special project of the Federation of Defense & Corporate Counsel (FDCC) designed to provide information culled from websites and publications addressing the role played by insurance policies and insurers in responding to terrorism losses. It is designed to assist FDCC members and others in an understanding of the unique issues confronting insureds, insurers and reinsurers as they respond to the September 11th tragedy and the bio-terrorism threats confronting the nation and the world.
The Guide will provide pleadings, motion papers and court decisions in pending terrorism coverage lawsuits, discussion of terrorism coverage under liability, property, life, health and disability, and workers’ compensation insurance policies, hot news in the field, and the responses from government and industry (including relevant legislation and policy changes). Information about seminars and programs on insurance issues relating to terrorism losses will also be available.
The Guide has been developed and is being maintained by the FDCC Terrorism Coverage Task Force chaired by Sarah J. Rhodes of Abowitz, Rhodes & Dahnke, P.C., Oklahoma City. Bruce D. Celebrezze of Celebrezze & Wesley P.C. in San Francisco is the Resource Guide Editor and Dan D. Kohane of Hurwitz & Fine, P.C. in Buffalo is the Federation’s Webmaster. The Guide can be found at the Federation's website: www.thefederation.org
11/15/01: MARKEVICS v. LIBERTY MUTUAL INS. CO.
New York Court of Appeals
Insurer Must Send Disclaimer to Injured Claimant if Based on Policy Exclusion
Plaintiff commenced an underlying action against bartender for serving liquor to a visibly intoxicated person who, after leaving the bar, drove his vehicle into a utility pole injuring the plaintiff passenger. The bar was a family enterprise owned and operated by the bartender’s parents. After commencement of the underlying action, the insured’s attorney tendered the defense to the bar owners’ homeowner’s carrier, and sent a second letter two months later after receiving no response. The carrier then disclaimed coverage approximately two months after receiving the second letter, based on a “business pursuits” exclusion in the policy. The carrier did not send a disclaimer to the injured claimant or her attorney. Plaintiff commenced this declaratory judgment action for coverage under the homeowner’s policy issued to the bartender’s parents. The Court held that timely disclaimer pursuant to Insurance Law §3420(d) is required when a claim falls within the coverage terms of a policy, but is denied based on a policy exclusion. Here, the denial of coverage was based solely on an exclusion, which required compliance with Insurance Law §3420(d). The carrier’s attempt to disclaim coverage did not meet these requirements in that the carrier did not give timely written notice of its disclaimer to the injured party. The Court rejected the carrier’s contention that no coverage was afforded because the claim did not arise on the insured premises -- under the policy, personal liability coverage applies to insured individuals without geographical limitation.
New York State Supreme Court, Appellate Division, First Department
Theft of Merchandise within Policy Exclusion for Loss Attributable to Dishonest or Criminal Act of Person to Whom Insured has Entrusted Goods
Court held that loss of insured’s merchandise due to warehousing company’s theft or dishonesty came within policy exclusion for loss attributable to the dishonest or criminal act of a person to whom the insured has entrusted its goods. The court also held that the warehousing company could not be considered a “carrier for hire” and, thus, the loss did not fall within the exception to the exclusion.
11/13/01: General Credit Corp. v. The Travelers
New York State Supreme Court, Appellate Division, First Department
Summary Judgment Dismissing Complaint Properly Granted in Absence of Proof that Covered Event Occurred
Action to recover proceeds of insurance policy for alleged theft of refrigerated trailers was properly dismissed in the absence of proof that a covered event – loss of trailers by theft – actually occurred. The mere fact that the trailers were no longer at the location originally specified at the time a security interest was given did not warrant an inference that the trailers had been lost, much less that they had been stolen.
New York State Supreme Court, Appellate Division, Second Department
“No Liability” Clause in Garage Policy Enforceable
Kandel was involved in a motor vehicle accident when she struck a pedestrian while operating a vehicle owned by defendant used auto dealership. At the time of the accident, Kandel was considering purchasing the vehicle and was driving it to a mechanic with the dealership’s permission. Kandel was insured under an automobile policy issued by State Farm, which provided the statutory minimum coverage. The State Farm policy included a provision that its coverage was excess to other insurance available for a temporary, substitute vehicle. The dealership was covered by a garage liability policy, which provided coverage in excess of the statutory minimum for the dealership as the named insured. The policy’s definition of “insured” did not include:
(d) Your customers, if your business is shown in the Declarations as an ‘auto’ dealership. However, if a customer of yours:
(i) Has no other available insurance (whether primary, excess or contingent), they are an ‘insured’ but only up to the compulsory or financial responsibility law limits where the covered ‘auto’ is principally garaged.
(ii) Has other available insurance (whether primary, excess or contingent) less than the compulsory or financial responsibility law limits where the covered ‘auto’ is principally garaged, they are an ‘insured’ only for the amount by which the compulsory or financial responsibility law limits exceed the limit of their other insurance.
The pedestrian commenced an underlying personal injury action against Kandel and the dealership, and Kandel demanded that the dealership’s insurer defend and indemnify her in that action. The dealership’s insurer disclaimed coverage under the garage liability policy on the ground that Kandel was insured by State Farm and therefore did not fall within the definition of “an insured” under its policy with the dealership. State Farm then commenced this action seeking a declaration that the dealership's garage liability carrier was required to defend and indemnify Kandel in the underlying action, and that its coverage was primary.
The court held that the dealership’s garage liability carrier was not obligated to defend and indemnify Kandel in the underlying action. First, the court rejected State Farm’s contention that the garage policy’s exclusion for a customer violates public policy. While Vehicle and Traffic Law §388 and insurance regulation 11 NYCRR 60-1.1(c) require the owner of a vehicle to provide primary insurance coverage up to the statutory minimum amount for any permissive user of the owner’s vehicle, the Court of Appeals has held that the “no liability” clause in a garage liability policy does not violate New York law or public policy and does not provide coverage to an insured driver (citing Mills v. Liberty Mut. Ins. Co., 36 AD2d 445, affd 30 NY2d 546; Davis v. DeFrank, 33 AD2d 236, affd 27 NY2d 924). The court also concluded that the Court of Appeal’s recent decision in ELRAC, Inc. v Ward, 96 NY2d 58, did not require a different result. In ELRAC v. Ward, the Court was concerned not with auto dealerships, but with the obligations of a self-insured car rental company under Vehicle and Traffic Law §§370 and 388 to provide primary coverage for its renters and to meet its financial obligation, as the owner of the vehicle, to pay any damages caused by a renter.
New York State Supreme Court, Appellate Division, First Department
Insured Loses Uninsured Motorist Benefits for Unexplained Delay in Ascertaining Existence of Insurance Covering Other Vehicle
The court held that uninsured motorist arbitration was properly stayed because respondent failed to comply with the condition precedent to coverage under the uninsured motorist endorsement requiring written notice of claim within 90 days or as soon as practicable from the date that she knew or should reasonably have known that the other driver was uninsured. The court found that respondent took no steps to determine whether the other car was insured until two months after the accident when, having received a letter of representation from the other driver’s attorney, respondent’s attorney wrote back with a request for insurance information. Although the other driver’s attorney failed to provide such information, and advised respondent’s attorney that his client was not being cooperative, respondent waited 11 months to contact the insurance authorities. Six weeks later, more than 19 months after the accident, respondent’s attorney sent petitioner a notice of claim for uninsured benefits. The unexplained delay in contacting the insurance authorities demonstrates a lack of diligence in ascertaining the existence of insurance that requires a finding that petitioner failed to give petitioner written notice of claim as soon as practicable.
11/08/01: Allstate Indemnity Co. v. Fernandez
New York State Supreme Court, Appellate Division, First Department
Petition to Stay based on Policy Cancellation must be brought within 20 Days of Arbitration Demand
The court held that an insurer’s petition to permanently stay arbitration, brought 11 months after receipt of respondents’ arbitration demand, was untimely pursuant to the 20-day time limit set forth in CPLR 7503(c). The insurer's claim that the policy was canceled two weeks prior to the accident for nonpayment of premiums “relates to whether certain conditions of the contract have been complied with and not whether the parties have agreed to arbitrate.” Therefore, it is outside the scope of the exception to CPLR 7503(c)’s 20-day limitation period.
Visit the HOT CASES section of the Federation of Defense and Corporate Counsel website for cases covering a broad range of legal issues from other jurisdictions: www.thefederation.org.
11/21/01: HADDICK v. VALOR INSURANCE
Illinois Supreme Court
Duty to Settle Arises When There is a Claim Against Insured and There is a Reasonable Probability of Excess Verdict
To survive a motion to dismiss a bad-faith claim, plaintiff must allege facts sufficient to establish the existence of the duty to settle in good faith. The duty does not arise at the time the parties enter into the insurance contract, nor does it depend on whether or not a lawsuit has been filed. The duty of an insurance provider to settle arises when a claim has been made against the insured and there is a reasonable probability of recovery in excess of policy limits and a reasonable probability of a finding of liability against the insured. Since Illinois law generally does not require an insurance provider to initiate settlement negotiations, this duty also does not arise until a third party demands settlement within policy limits. Woodley's policy provided that defendant “may make such investigation and settlement of any claim or suit as it deems expedient.” At the time of plaintiff's March 7, 1997, settlement demand for the policy limits, defendant was aware that decedent's medical bills were in excess of $80,000. This amount clearly exceeded Woodley's $20,000 liability coverage. In addition, defendant possessed the police report, which indicated that Woodley had informed an emergency room doctor that he had been driving the vehicle at the time of the accident. Defendant was further aware that Woodley owned the vehicle. Although Woodley subsequently informed a police officer that he could not remember who was driving the vehicle at the time of the accident, case must be interpreted in the light most favorable to plaintiff. Additionally, in automobile injury cases, proof of ownership raises a presumption that the owner of the vehicle was in control of the vehicle at the time of the accident. Since Woodley was unable to recall the accident at the time of plaintiff's settlement demand, he would have been unable to rebut this presumption. These facts allege a reasonable probability of recovery in excess of policy limits and a reasonable probability of a finding of liability against Woodley. Plaintiff demanded settlement on March 7, 1997. Therefore, the allegations are sufficient to allege the existence of the duty to settle in good faith on that date.
New Jersey Supreme Court
Aviation Insurance -- Where Pilot Did Not Have Requisite Flying Experience, Airline Loses Coverage for Hull Damage, Even if Pilot Experience Did Not Cause Loss
Although the Court does not adopt a per se rule holding that the absence of causality never can be the basis for disregarding an unambiguous exclusionary clause in an insurance policy, under the facts of this case, the insured, whose covered aircraft sustained damages while being operated by a pilot who lacked the necessary hours of experience to be covered by the policy, may not recover even where there was no causal connection between the accident and the pilot’s lack of experience.
Alabama Supreme Court
Shotgun Wound that Occurred when Firearm was Being Removed from Truck Arises Out of Inherent Use of Vehicle
In this case, a rifle accidentally discharged during a hunting trip as the weapon was being removed through the open window of a pickup truck to shoot a deer. Because the principal use of an automobile is transportation -- being dependent upon the operations of loading and unloading -- the act of removing the rifle was an “inherent use of the automobile as a vehicle,” rendering the pickup truck more than the mere “situs of the accident.”
AND IN DEFENSE
11/15/01: CHAPMAN v. SILBER
New York Court of Appeals
Court Addresses Evidence Necessary for Constructive Notice in Lead Paint Cases
What evidence of notice must a plaintiff-tenant in a lead paint poisoning case proffer in order to survive landlord's motion for summary judgment? Court concludes that, absent controlling legislation, a triable issue of fact is raised when a plaintiff shows that the landlord: (1) retained a right of entry to the premises and assumed a duty to make repairs; (2) knew that the apartment was constructed at a time before lead-based interior paint was banned; (3) was aware that paint was peeling on the premises; (4) knew of the hazards of lead-based paint to young children; and, (5) knew that a young child lived in the apartment.
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Cougar Sport, Inc. v. Hartford Insurance Company of the Midwest
Order, Supreme Court, New York County (Barry Cozier, J.), entered July 28, 2000, which granted defendant's motion for summary judgment dismissing the complaint, unanimously affirmed, without costs.
The motion court properly found that plaintiff insured had entrusted its merchandise to Yankee Clipper Warehousing, Inc., and thus, that the loss of plaintiff's merchandise due to Yankee's theft or dishonesty came within the exclusion to the coverage afforded by plaintiff's insurance policy with defendant for loss attributable to the dishonest or criminal act of a person to whom the insured has entrusted its goods (see, Abrams v Great Am. Ins. Co., 269 NY 90). Contrary to plaintiff's contention, it is clear as a matter of law that Yankee can not be considered a "carrier for hire", and, accordingly, that the loss occasioned by Yankee's conduct does not fall within the exception to the exclusion from coverage whose applicability has been established by defendant.
We have considered plaintiff's remaining arguments and find them unavailing.
Order, Supreme Court, New York, (Jane Solomon, J.), entered on or about April 5, 2000, which, inter alia, granted defendant's cross motion for summary judgment dismissing the complaint, unanimously affirmed, without costs.
In this action to recover insurance proceeds allegedly payable, under the subject policy issued by defendant, by reason of the purported theft of 13 refrigerated trailers in which plaintiff insured had a security interest, summary judgment dismissing the complaint was properly granted in light of plaintiff's failure to raise any triable issue as to whether the alleged covered event under the subject policy, i.e., the loss of the trailers by theft, actually occurred (see, Vasile v Hartford Acc. & Indem. Co., 213 AD2d 541). Contrary to plaintiff's contention, the mere fact that the trailers were no longer at the location originally specified at the time the security interest was given did not, under the circumstances of this case, warrant the inference that the trailers had been lost, much less that they had been stolen (cf., Moneta Dev. Corp. v Generali Ins. Co., 212 AD2d 428).
Order, Supreme Court, New York County (Paula Omansky, J.), entered on or about December 15, 2000, which granted petitioner insurer's application to stay arbitration of an uninsured motorist claim demanded by respondent insured, unanimously affirmed, without costs.
Arbitration was properly stayed since respondent did not comply with the condition precedent to coverage under the uninsured motorist endorsement requiring written notice of claim within 90 days or as soon as practicable from the date that she knew or should reasonably have known that the other driver was uninsured (cf., Matter of Metropolitan Prop. & Cas. Ins. Co. v Mancuso, 93 NY2d 487, 497). The accident occurred in December 1995 and involved another car with a Pennsylvania license plate. Respondent took no steps to determine whether the other car was insured until two months later, in February 1996, when, having received a letter of representation from the other driver's attorney, respondent's attorney wrote back with a request for insurance information. Although the other driver's attorney failed to provide such information, and indeed, in July 1996 advised respondent's attorney that his client was not being cooperative, respondent waited 11 months, until June 1997, to contact the Pennsylvania insurance authorities. Six weeks later, more than 19 months after the accident, respondent's attorney sent petitioner a notice of claim for uninsured benefits, although it was not until November 1997 that his contact with the Pennsylvania insurance authorities generated a denial of coverage from the insurer whose code number appeared on the police accident report. The unexplained delay in contacting the Pennsylvania insurance authorities demonstrates a lack of diligence in ascertaining the existence of insurance that requires a finding that petitioner failed to give petitioner written notice of claim as soon as practicable. "[A] claimant should be at least as diligent in initially endeavoring to find out whether the other car is insured as he is after discovering there is no insurance." (Matter of Kauffman [MVAIC], 25 AD2d 419; see, Matter of Acevedo [MVAIC], 56 AD2d 817). Respondent's argument that her receipt of no-fault benefits shows that petitioner had timely notice of her uninsured motorist claim is unsupported by evidence as to when she made her claim for no-fault benefits, and is otherwise of doubtful merit (see, Matter of Country-Wide Ins. Co [Park], 277 AD2d 175). We have considered and rejected respondent's other arguments.
Allstate Indemnity Co. v. Fernandez
Order, Supreme Court, New York County (Herman Cahn, J.), entered July 27, 2000, which denied the petition brought pursuant to CPLR article 75 of Allstate Indemnity Company to permanently stay arbitration of an uninsured motorist claim, dismissed the petition and denied respondents' request for sanctions, unanimously affirmed, without costs.
The insurer's petition to permanently stay arbitration, brought 11 months after receipt of respondents' arbitration demand, was untimely pursuant to the 20-day time limit set forth in CPLR 7503(c). The insurer's claim that the policy was canceled two weeks prior to the accident for nonpayment of premiums "relates to whether certain conditions of the contract have been complied with and not whether the parties have agreed to arbitrate" (Matter of Steck v State Farm Ins. Co., 89 NY2d 1082, 1084) and, as such, is outside the scope of the exception to CPLR 7503(c)'s 20-day limitation period articulated in Matter of Matarasso v Cont. Cas. Co. (56 NY2d 264, 267) (Matter of Steck, supra).
The denial of sanctions against petitioner's attorneys constituted a proper exercise of discretion (see, Arnav Indus., Inc. v Brown, Raysman, Millstein, Felder & Steiner, LLP, 281 AD2d 192).
In an action, inter alia, for a judgment declaring that the defendant John Deere Insurance Company is required to defend and indemnify its insured, Gloria Kandel, in an underlying personal injury action entitled Montanaro v Kandel, pending in the Supreme Court, Queens County, under Index No. 003697/98, the defendants appeal from an order and judgment (one paper) of the Supreme Court, Nassau County (Ort, J.), dated March 22, 2000, which, upon denying their motion for summary judgment dismissing the complaint, was in favor of the plaintiff and against them.
ORDERED that the order and judgment is reversed, on the law, with costs, the defendants' motion for summary judgment is granted, and it is declared that John Deere Insurance Company is not required to defend or indemnify Gloria Kandel in the underlying action.
The defendant Gentile Auto Repair, Inc. (hereinafter Gentile), a used car dealership, procured a garage liability policy from the defendant John Deere Insurance Company (hereinafter John Deere) which, inter alia, covered its automobiles. The policy provided coverage in excess of the statutory minimum for Gentile, as the named insured. Insofar as relevant to this appeal, the policy defined an "insured" as follows:
"1. WHO IS AN INSURED
"a. The following are 'insureds' for covered 'autos.'
"(1) You for any covered 'auto'.
"(2) Anyone else while using with your permission a covered 'auto' you own, hire or borrow except
* * *
"(d) Your customers, if your business is shown in the Declarations as an 'auto' dealership. However, if a customer of yours:
"(i) Has no other available insurance (whether primary, excess or contingent), they are an 'insured' but only up to the compulsory or financial responsibility law limits where the covered 'auto' is principally garaged.
"(ii) Has other available insurance (whether primary, excess or contingent) less than the compulsory or financial responsibility law limits where the covered 'auto' is principally garaged, they are an 'insured' only for the amount by which the compulsory or financial responsibility law limits exceed the limit of their other insurance" (emphasis supplied).
On April 30, 1997, Gloria Kandel considered purchasing a vehicle owned by Gentile and, with Gentile's permission, drove the vehicle to a mechanic. While driving the vehicle, Kandel allegedly struck a pedestrian. At the time, she was insured under an automobile policy issued by State Farm Mutual Automobile Insurance Company (hereinafter State Farm), which provided the statutory minimum coverage of $25,000/$50,000. The State Farm policy included a provision that its coverage was excess to other insurance available for a temporary, substitute car.
The pedestrian subsequently commenced the underlying action against Kandel and Gentile, and Kandel demanded that John Deere defend and indemnify her in that action. John Deere disclaimed coverage on the ground that Kandel was insured by State Farm and therefore did not fall within the definition of "an insured" under its policy with Gentile. State Farm then commenced the action at bar, seeking, inter alia, a declaration that John Deere is required to defend and indemnify Kandel in the underlying personal injury action, and that John Deere's coverage is primary. John Deere, which is providing coverage for Gentile in the underlying personal injury action, counterclaimed against State Farm for any liability imposed on Gentile pursuant to Vehicle and Traffic Law - 388 due to Kandel's negligence.
State Farm contends that John Deere's exclusion of coverage for a customer violates public policy. It contends that, pursuant to Vehicle and Traffic Law - 388 and insurance regulation 11 NYCRR 60-1.1(c), an owner of a vehicle is required to provide primary insurance coverage up to the statutory minimum amount for any permissive user of the owner's vehicle. However, the Court of Appeals has held that the "no liability" clause in a garage liability policy such as that at issue here does not violate New York law or public policy and does not provide coverage to an insured driver (see, Mills v Liberty Mut. Ins. Co., 36 AD2d 445, affd 30 NY2d 546; Davis v DeFrank, 33 AD2d 236, affd 27 NY2d 924). In its decison in Mills v Liberty Mut. Ins. Co. (supra, at 447), the Appellate Division, Fourth Department noted that the briefs submitted by insurers to the Court of Appeals in Davis v DeFrank (supra) "argued at length the invalidity of the 'no liability' clause, based upon the same contentions urged before us - viz., that the clause violates the Superintendent of Insurance's regulation 35-A (11 NYCRR 60.1[c]) and the public policy of this State. Nevertheless, the Court of Appeals affirmed the decison of this court without opinion (27 NY2d 924)". In view of the determination of the Court of Appeals, John Deere is entitled to a declaration that it is not required to defend or indemnify Gloria Kandel.
The decision in ELRAC, Inc. v Ward (96 NY2d 58), does not require a different result. In that case, the Court of Appeals was concerned with the obligations of a self-insured rental car company under Vehicle and Traffic Law - - 370 and 388 to provide primary coverage for its renters and to meet its financial obligation, as the owner of the vehicle, to pay any damages caused by a renter. The rental car company, in its application for a certificate of self insurance, had averred that it would provide primary coverage at all times. The Court of Appeals held that the company was therefore precluded from shifting to renters its obligation as the owner to provide the statutory minimum insurance to an injured third party. The question of whether the rationale in ELRAC, Inc. v Ward (supra) should be extended to auto dealerships, and its own precedents overruled, is better left to the Court of Appeals.
State Farm's contention that John Deere must, in any event, provide coverage because it failed to timely disclaim is without merit. An insurer has no obligation to timely disclaim in situations where, as here, coverage does not exist under the terms of the policy (see, Zappone v Home Ins. Co., 55 NY2d 131; Matter of State Farm Mut. Ins. Co. v Vazquez, 249 AD2d 312).
Accordingly, the judgment is reversed, and it is declared that John Deere is not obligated to defend and indemnify Gloria Kandel in the underlying action.
O'BRIEN, J.P., GOLDSTEIN, SCHMIDT and SMITH, JJ., concur.
The order of the Appellate Division should be affirmed with costs.
In this declaratory judgment action, plaintiff Alexandra Markevics claims that defendant Liberty Mutual Insurance Co. must defend and indemnify Kerry O'Brien pursuant to a homeowner's policy issued to O'Brien's parents. The carrier disclaimed coverage based on a "business pursuits" exclusion contained in the policy. In the underlying personal injury action, Markevics alleges O'Brien served liquor to a visibly intoxicated Sandro Perez during his birthday
party at O'Bie's Bar in Yonkers. After leaving the bar, Perez drove his
automobile into a utility pole, injuring Markevics, who was a passenger in the
O'Bie's Bar was a family enterprise, owned by a closely held corporation and operated by Kerry's parents. Twenty-one year old Kerry worked there as a bartender and lived at her parents' home. Liberty Mutual wrote a "deluxe" homeowner's policy for the O'Briens. In addition to coverage for the "insured premises," the policy provides personal coverage for liability claims against an insured individual. Under the policy, the carrier agrees to indemnify and defend against any claim for damages caused by an "occurrence" to which coverage applies. Among the exclusions to personal liability coverage are injuries arising out of the business pursuits of the insured. The parties do not dispute that Kerry O'Brien is an insured under the policy.
After commencement of the personal injury action, Kerry's attorney tendered her defense to Liberty Mutual in a letter dated July 23, 1997. Receiving no response, on September 23, counsel sent a second letter requesting an answer. The carrier disclaimed coverage on November 7, 1997, relying on the policy's business pursuits exclusion. The company did not, however, send a disclaimer to Markevics or her attorney. Markevics then commenced this action.
In a motion for summary judgment, defendant-carrier argued that the policy expressly excluded Kerry O'Brien's alleged business pursuits and in the alternative that the policy did not provide personal liability coverage for claims arising away from the O'Brien home. Plaintiff contended that a disclaimer was necessary and that the failure to disclaim by giving written notice directly to Markevics or her attorney violated Insurance Law @ 3420(d).
Supreme Court found that Liberty Mutual's denial of coverage was "by reason of exclusion" rather than a "lack of inclusion" and, as a result, the failure to comply with Insurance Law @ 3420(d) invalidated the attempted disclaimer (Zappone v Home Ins. Co., 55 N.Y.2d 131, 137, 447 N.Y.S.2d 911, 432 N.E.2d 783). The Appellate Division affirmed, holding that a disclaimer was required and that the attempted disclaimer was both untimely and defective in that it was not sent to the injured party. Two Justices dissented on the ground that O'Brien's alleged violation of General Obligation Law @ 11-101 (The Dram Shop Act) was not an "occurrence" within the meaning of the policy and, as a result, there was no coverage requiring a disclaimer.
On appeal to this Court, Liberty Mutual reiterates that there is no coverage because the claim did not arise on the insured premises and further adopts the Appellate Division dissent's position that no coverage exists ab initio because Kerry O'Brien's intentional act of providing alcohol to Perez was not an "occurrence" as defined in the policy. Under the policy, personal liability coverage applies to insured individuals without geographical limitation. Nothing in the terms of personal liability coverage can be read to confine coverage to the O'Brien residence. Additionally, the argument that Kerry O'Brien's alleged acts are not an "occurrence" was not made below and is not preserved for our review. Therefore we must proceed on the basis that the coverage terms of the policy apply.
A disclaimer is unnecessary when a claim does not fall within the coverage terms of an insurance policy (Worcester Ins. Co. v Bettenhauser, 95 N.Y.2d 185, 712 N.Y.S.2d 433, 734 N.E.2d 745). Conversely, a timely disclaimer pursuant to Insurance Law @ 3420(d) is required when a claim falls within the coverage terms but is denied based on a policy exclusion (id., at 188). Because denial of coverage here was based solely on an exclusion, a disclaimer in conformity with Insurance Law @ 3420(d) was required. We agree with the Appellate Division that Liberty Mutual's attempt to disclaim coverage did not meet these requirements in that the carrier did not give timely written notice of its disclaimer to the injured party. Under these circumstances, summary judgment was properly granted to plaintiff.
Chief Judge Kaye and Judges Smith, Levine, Ciparick, Wesley, Rosenblatt and Graffeo concur.
What evidence of notice must a plaintiff-tenant in a lead paint poisoning case proffer in order to survive defendant-landlord's motion for summary judgment? We conclude that, absent controlling legislation, a triable issue of fact is raised when a plaintiff shows that the landlord 1) retained a right of entry to the premises and assumed a duty to make repairs, 2) knew that the apartment was constructed at a time before lead-based interior paint was banned, 3) was aware that paint was peeling on the premises, 4) knew of the hazards of lead-based paint to young children and 5) knew that a young child lived in the apartment. Because plaintiffs in Chapman have raised an issue of fact as to defendants' notice of a high degree of risk that a dangerous lead paint hazard existed, the order of the Appellate Division dismissing the complaint should be reversed. Conversely, since plaintiff in Stover failed to raise such an issue, no question of fact precluding summary judgment exists and the order of the Appellate Division dismissing that case should be affirmed.
Chapman v Silber
In August 1994, plaintiffs James and Sallie Chapman rented the second floor apartment at 443 Myrtle Avenue in Albany from Dennis Silber, Jay Silber and Gertrude Silber. On September 23, 1994, shortly after the Chapmans moved into the apartment, Dennis and Gertrude conveyed their interests in the property to Jay and his wife, Judith Harrington. All four were named as defendants and will be collectively referred to as the "landlord."
The two-year lease between the parties states that "[t]he tenant must maintain the apartment" and that "[t]he tenant agrees, at tenant's own cost to make all repairs to the apartment * * * when the need results from the tenant's acts or neglect." The lease further provides "[t]he tenant agrees to allow the landlord to enter the leased premises at any reasonable hour to repair, inspect or work * * * and to perform such other work that the landlord may decide is necessary."
The facts as stated herein are taken from the parties' affidavits and deposition testimony. The Chapmans moved into the apartment with their three children, including one-year-old Jaquan. Before they moved in, Dennis Silber painted the apartment. Mrs. Chapman noted that the apartment had been "redone" but that the window sills appeared old and the paint on the second floor porch was chipped and peeling. In Spring 1995, the Chapmans observed that the condition of the paint on their porch had deteriorated. As the weather got warmer and the family began to open their windows more frequently, Mrs. Chapman also noticed that the paint in the window tracks was chipped and peeling and that the window sills held an accumulation of paint chips and dust. Mrs. Chapman claims that by July 1995, the condition of the paint in both areas had worsened.
Mrs. Chapman first complained about peeling paint in April or May 1995, when she told defendant Jay Silber that there were large "chunks" of peeling paint on the front porch. She again complained to him about the porch in July 1995 at which time he promised he would take care of the situation. He did so by paying James Chapman $300 to paint the porch.
In addition to these complaints, Mrs. Chapman claims that Dennis Silber, Jay Silber and Judith Harrington all were in the upstairs apartment during her tenancy and each saw the condition of the paint. Dennis came to the apartment to repair a jammed window one week after the Chapmans moved in. Jay Silber and Judith Harrington came to the apartment in October or November 1994 to take over day-to-day responsibility for the apartment and to collect the rent.
While admitting his presence in the apartment at various times, Dennis Silber denied seeing chipped or peeling paint despite the fact that he and his wife resided in that apartment prior to the Chapman tenancy. He also painted the apartment before the Chapmans rented it and claims that the front porch was scuffed, but not peeling, at the time the Chapmans moved in. Dennis knew that the building was old and was aware of the hazards of lead paint.
Jay Silber admitted visiting the apartment on several occasions while the Chapmans were living there in order to make repairs. Jay was aware that the house was built in the early 1900's but claimed not to be aware of the dangers of lead-based paint. He did admit the possibility that chipped or peeling paint could have been present in the apartment.
Judith Harrington was aware that lead paint was dangerous. She recalled receiving a call from Sallie Chapman in Summer 1995 in which Mrs. Chapman requested that something be done about chipping paint on the upstairs porch. When asked who was responsible for maintenance in the Chapman apartment, Ms. Harrington responded, "Dennis [Silber], from the point at which we rented to [the Chapmans] until he was no longer part of the partnership, then my husband Jay [Silber]." Ms. Harrington also admitted that her husband would visit the property "when something needed to be fixed."
Gertrude Silber never visited the property during the Chapman tenancy and had no knowledge of day-to-day operations. She knew, however, that lead was dangerous. About a month after moving in, a blood test performed as part of a routine physical examination indicated that Jaquan had a moderately elevated level of lead in his blood. A second test performed about two months later showed that the condition persisted. On August 15, 1995, Jaquan's blood lead level tested so high that he had to be re-tested two days later. The August 17th test showed the same high blood lead level. The City of Albany inspected the premises and detected the presence of lead paint. On August 21, 1995, another test revealed even higher levels of lead in Jaquan's blood and he was hospitalized. The family moved out of the apartment by September 1995.
James and Sallie Chapman commenced this action, in their individual capacities and as parents of Jaquan, alleging claims for common law negligence, statutory violations evidencing negligence per se, breach of warranty and nuisance. Dennis Silber moved for summary judgment dismissing the complaint against him on the grounds that he conveyed his interest in the premises prior to the injury and that he did not have actual or constructive notice of a lead-based paint condition. The other defendants cross-moved on notice grounds as well. Supreme Court denied all defendants' motions finding issues of fact as to notice. The Appellate Division reversed and granted summary judgment dismissing the complaint. We granted leave to appeal (96 NY2d 709) and now reverse.
Stover v Robilotto
On February 1, 1993, Carlisa Stover, then eight months pregnant, and her five-year-old son moved into the first floor apartment of the two-family home at 22 Judson Street in Albany. Her landlord was James O'Connor. Carlisa Stover did not enter into a written lease with Mr. O'Connor but was a month-to-month tenant. The apartment had been re-painted when Ms. Stover moved in. In the year and a half she resided there, she complained to her landlord several times about her bedroom door and toilet. Each time she reported a problem, it was repaired. She never complained about the condition of paint.
Ms. Stover's younger son, Everton Lewis, was born on March 19, 1993. At about 15 months, when Everton began to walk, both Ms. Stover and her niece observed Everton on the stairway between the upstairs and downstairs apartments removing material from holes in the wall and placing it in his mouth. In September 1994, Everton's blood lead level was so high he had to be hospitalized. When the child was discharged, Ms. Stover and her family moved into a friend's apartment and never again resided at 22 Judson Street.
Although James O'Connor did not personally perform the repairs in Ms. Stover's apartment, he had been there twice to assess the problem with the door. He claimed not to have seen chipping paint inside the apartment. Mr. O'Connor also testified at his deposition that he knew lead paint was dangerous to children. Mr. O'Connor claimed, however, that he was not aware either that Ms. Stover had a young child when she moved in or that she was pregnant at the time. Mr. O'Connor testified, however, that he later learned of the older child when the boy visited his grocery store.
Carlisa Stover commenced this action, in her individual capacity and as mother of Everton Lewis, against her landlord, alleging the same causes of action as the Chapmans. Supreme Court granted defendant's motion for summary judgment, concluding that defendant did not have notice of a hazardous lead paint condition. The Appellate Division affirmed. We granted leave to appeal (96 NY2d 709) and now affirm.
Our analysis begins with an examination of premises liability generally, and the duty imposed on landlords to maintain premises in reasonably safe condition. Historically, landlords could not be held liable for injuries caused by dangerous conditions on their premises when possession had been transferred (see, Campbell v Elsie S. Holding Co., Inc., 251 NY 446). Courts opined that conveyance of possession by lease was similar in effect to conveyance of title (see, Park West Mgt. v Mitchell, 47 NY2d 316, 322; see also, Edwards v New York & Harlem R.R. Co., 98 NY 245, 250). In time, this Court relaxed the doctrine, imposing a duty to remedy dangerous conditions on a landlord who had contractually assumed the responsibility to make repairs (see, Putnam v Stout, 38 NY2d 607, 616-617). Thus, a landlord may be found liable for failure to repair a dangerous condition, of which it has notice, on leased premises if the landlord assumes a duty to make repairs and reserves the right to enter in order to inspect or to make such repairs (Worth Distribs., Inc. v Latham, 59 NY2d 231, 238; Restatement [Second] of Torts ' 357).
Alternatively, such a duty may be imposed by statute. For example, the City of New York has enacted legislation that requires landlords to remove lead paint hazards from their premises. In Juarez v Wavecrest Mgt. Team (88 NY2d 628), we recognized that the Administrative Code created a presumption of notice and imposed a specific duty on landlords to maintain their leased premises in reasonably safe condition with respect to lead paint hazards. We further concluded that the legislation imposed a specific duty on landlords to abate lead paint hazards and impliedly granted landlords a right of entry to effectuate such repairs (Juarez, supra, 88 NY2d, at 642).
New York State has not enacted similar legislation that imposes a duty on landlords to test for or abate lead-based paint hazards absent official notification of a problem (see, Public Health Law ' 1373). We recognize, moreover, that absent explicit legislative authorization we should not hastily impose a new duty since doing so "requires a weighing of policy interests, a responsibility that rests with Federal, State and local legislative bodies" (Juarez, supra, 88 NY2d, at 641). The absence of a statutory scheme, however, is not fatal to this type of action. Where certain requisites are satisfied, a landlord still may be liable for negligence under traditional common law principles.
The decisions of the Appellate Division in Chapman and Stover focused primarily on the issue of notice. This was an appropriate inquiry since, without notice of a specific dangerous condition, an out-of-possession landlord cannot be faulted for failing to repair it (see, Juarez, supra, 88 NY2d, at 646). The Appellate Division concluded as a matter of law that neither landlord knew, or should have known, of the existence of a hazardous lead paint condition. We disagree in Chapman, and agree in Stover.
In granting summary judgment to the defendants, the Appellate Division applied the following notice principle: The fact that a landlord is aware of the presence of chipped or peeling paint in an old apartment does not raise an issue of fact as to the landlord's notice of lead in the paint. That rule leaves plaintiffs in an impossible situation. Defendant-landlords cannot be held liable for a hazardous lead paint condition unless they are actually aware that lead is present in chipping paint. Yet because lead in paint is undetectable to the senses, a landlord cannot actually know of its presence without testing. Thus, applying the Appellate Division principle, landlords who deliberately refrain from testing for lead can shield themselves from liability.
We conclude that only in Chapman is there a triable issue of fact as to whether the landlord knew or should have known of a hazardous condition on its premises. Notwithstanding the Appellate Division holding that the lease did not impose a duty on the landlord to make repairs, Ms. Harrington's uncontroverted testimony reveals that the landlord assumed that duty. Moreover, only in Chapman was the landlord aware that, due to its age, the premises probably contained lead paint and, that ingestion of lead paint chips posed a health hazard to young children. The landlord further admitted awareness that young children lived in the apartment and that there had been complaints about chipped and peeling paint. Under these circumstances, a jury could reasonably infer that the landlord, at the least, should have known of the hazardous lead paint condition.
In so holding, we are mindful of our own prior admonitions regarding the creation of a new duty where none existed before (Juarez, supra, 88 NY2d, at 641; see also, Hamilton v Beretta, 96 NY2d 222, 232-233). We decline to impose a new duty on landlords to test for the existence of lead in leased properties based solely upon the "general knowledge" of the dangers of lead based paints in older homes (cf., Antwaun A. v Heritage Mut. Ins. Co., 228 Wis 2d 44, 62). We have never held, as the Supreme Court of Wisconsin did in Antwaun A., that general knowledge of a particular type of risk creates a duty to test for, or remedy, it. We hold only that a landlord who actually knows of the existence of many conditions indicating a lead paint hazard to young children may, in the minds of the jury, also be charged constructively with notice of the hazard.
This rule is merely an application of familiar notice principles, as illustrated by Queeny v Willi (225 NY 374). There the tenant was injured when a water pipe that was improperly insulated froze and burst. Although the pipe itself was concealed from view, the tenant advised the landlord that the walls and ceiling of the bedroom were exceedingly damp. The tenant proceeded on a theory that the dampness was constructive notice of a leak or some other defective condition. This Court held that "damp walls were plain notice of something to be remedied" reasoning that, "[t]he landlord may not sit helplessly by and say that he cannot see what produces such conditions" (id., at 378-379). So too, here, the landlord having contractually retained a right of entry and having assumed a duty to make repairs may not use the invisibility of lead contained in paint to avoid liability.
Applying the foregoing principle, defendants in Chapman -- aware of the age of the building, the presence of chipped and peeling paint, the dangers of lead paint to children, and the presence of young children in the apartment -- may have an obligation to take precautions to provide a reasonably safe environment for plaintiffs. Although plaintiffs in Chapman could not show that the landlord actually knew that lead was present in the chipped and peeling paint in their apartment, they did raise an issue as to the landlord's knowledge of a high degree of risk that there was a lead paint danger in the apartment sufficient to trigger its duty to address the condition (see, e.g., Nallan v Helmsley-Spear, Inc., 50 NY2d 507, 519 [liability imposed on landowner because of actual knowledge of a "likelihood" of danger]). For that reason, the question as to whether the landlord in Chapman should have known of a lead paint condition should be presented to the trier of fact, precluding summary judgment. Plaintiffs have yet to establish the other elements of their negligence cause of action, including a negligent breach of the landlord's duty and a legally sufficient causal nexus between the alleged breach and the claimed damages.
By contrast, in Stover, there is no record evidence that the landlord was on actual or constructive notice of a chipped or peeling paint condition inside the apartment. The landlord had entered to make repairs to the bedroom door and toilet and had repaired holes in a stairway wall -- a common area of the building never identified as a source of lead contamination. The evidence is insufficient to raise an issue of fact as to whether the landlord in Stover should have known of a lead paint condition.
Accordingly, the order of the Appellate Division in Chapman should be reversed, with costs, and defendants' motions for summary judgment denied and the order of the Appellate Division in Stover should be affirmed, without costs.
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Case No. 128: Order reversed, with costs, and defendants' motions for summary judgment denied. Opinion by Judge Ciparick. Chief Judge Kaye and Judges Smith, Levine, Wesley and Rosenblatt concur. Judge Graffeo took no part.
Case No. 129: Order affirmed, without costs. Opinion by Judge Ciparick. Chief Judge Kaye and Judges Smith, Levine, Wesley and Rosenblatt concur. Judge Graffeo took no part.
Decided November 15, 2001