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Coverage Pointers - Volume III, No. 11

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12/03/01:            GIBBONS v. DEWITT STERN GROUP, INC.

New York State Supreme Court, Appellate Division, Second Department

Public Adjuster’s Payment of Referral Fee to Insured’s Brokers Did Not Violate Insurance Law §2119(c)(1)

The plaintiffs obtained a homeowner's insurance policy through the services of the broker defendants.  When the plaintiffs’ home was destroyed by fire, they filed a claim with their insurer, and sought assistance from their brokers to adjust the claim. The brokers were allegedly unable to do so, and referred the plaintiffs to a public adjuster, who entered into an agreement with the plaintiffs for a 6% commission on the insurance proceeds recovered. Ultimately, the plaintiffs recovered and the public adjuster received a commission. Unbeknownst to the plaintiffs, the public adjuster then gave the brokers a referral fee. In this action to recover damages for breach of fiduciary duty, plaintiffs alleged that the brokers’ receipt of a referral fee violated Insurance Law  §2119(c)(1), which provides:

 

“No insurance broker may receive any compensation . . . from any insured or prospective insured for or on account of the negotiation or procurement of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance polices or contracts, including adjustment of claims arising therefrom, unless such compensation is based upon a written memorandum, signed by the party to be charged, and specifying or clearly defining the amount or extent of such compensation”.

 

The court held that the statute did not apply.  Here, the brokers did not charge the plaintiffs a hidden or additional fee. Rather, the plaintiffs agreed to pay the public adjuster a 6% commission, which the public adjuster chose to share with the brokers. This practice is expressly permitted by the rules of the New York State Insurance Department (11 NYCRR 25.3).

 

11/29/01:         POWERHOUSE SHEET METAL CO. INC. v. HANOVER INS. CO.

New York State Supreme Court, Appellate Division, First Department

Summary Judgment Denied Where Issue of fact Raised Whether Indemnification Agreement Existed Before Accident by Reason of Parties’ Course of Dealing

Plaintiff was a sub-subcontractor at a job site at which one of its employees was injured.  The employee sued the subcontractor that contracted with plaintiff, and the subcontractor instituted a third-party action against plaintiff seeking contractual indemnification. Although the plaintiff had commenced work on the project before the accident, it did not actually sign a written contract with the subcontractor until sometime after the accident. In that contract, plaintiff agreed to indemnify subcontractor for liabilities arising out of accidents at the job site due to plaintiff’s negligence.  Plaintiff’s insurer disclaimed coverage for the claim on the ground that the subcontract was not signed until after the accident.  Plaintiff responded that the policy did not require that a written contract be in existence at the time of the accident, and that it had a long course of dealing with the subcontractor pursuant to which it would commence work before signing a contract. The court held that plaintiff’s motion for summary judgment was properly denied.  An issue of fact existed whether a contract requiring plaintiff to indemnify the subcontractor existed prior to the accident by reason of the course of dealing between them.  Under the policy, the insurer would have no duty to either defend or indemnify plaintiff unless a contract requiring the plaintiff to indemnify the subcontractor, oral or written, was in existence at the time of the accident.  The court also rejected the insurer’s request to search the record and declare in its favor that it is not obligated to defend and indemnify plaintiff. The policy covered “insured contracts”, but only if “executed” before the occurrence of the claim. “Since the terms ‘executed’, ‘contract’ and ‘agreement’ are not defined in the policy, and the definition of ‘insured contract’ does not require that such be in writing, the policy language does not establish, as a matter of law, that a contract to indemnify is not covered unless in writing.”

 

11/29/01:            HESLIN v. METROPOLITAN LIFE INS. CO.

New York State Supreme Court, Appellate Division, Third Department

“Vanishing Premium” Case Dismissed – Claims Fail to State Cause of Action

Plaintiff’s alleged they were induced into purchasing whole or universal life insurance policies based on deceptive illustrations and false representations that their policy premiums would “vanish” after a certain period of time (“vanishing premiums”).  At issue on this appeal was whether the lower court had properly dismissed the complaint, which alleged causes of action for breach of fiduciary duty, fraud, fraudulent inducement, negligent supervision, conspiracy to commit fraud and violations of General Business Law § 349 and Insurance Law §§ 2123 and 4226, for failure to state a cause of action.  The court held dismissal was proper.  Citing Gaidon v. Guardian Life Ins. Co. of Am., 255 AD2d 101, mod 94 NY2d 330, and other recent decisions, plaintiffs’ causes of action sounding in breach of fiduciary duty, fraud, fraudulent inducement, negligent supervision and Insurance Law §§ 2123 and 4226 violations were properly dismissed for failure to state a cause of action.  The conspiracy to commit fraud claim was also properly dismissed, as civil conspiracy does not exist as an independent cause of action.  Finally, defendants’ alleged violation of General Business Law § 349 required dismissal, as that claim was premature.  Relying on Gaidon v Guardian Life Ins. Co. of Am. 96 NY2d 201, the court held that the claim accrues when the owner of a “vanishing premium” life insurance policy is first called upon to pay an additional premium.  In this case, there was no allegation that any plaintiff reached the “vanish” date or has been called upon by defendants to pay an additional premium on the policies.

 

11/29/01:            FISHER v. HANOVER INS. CO.

New York State Supreme Court, Appellate Division, Third Department

Insured’s Failure to Satisfy Policy’s Notice Requirement Vitiates Coverage

Plaintiff commenced an action against defendant’s insured for injuries sustained in a motor vehicle accident and obtained a default judgment when the insured failed to appear in the action.  Plaintiff then commenced this action against the insurer under Insurance Law § 3420(b)(1).  The insurer first received notice of the underlying action during discovery in this action and,  therefore, disclaimed coverage based on the insured’s failure to comply with the insurance policy’s requirement that he immediately forward the pleadings in the underlying action.  The court held that the disclaimer was proper.  New York courts have long held that “[a]bsent a valid excuse, failure to satisfy an insurance policy notice requirement vitiates coverage.”  The requirement is a condition precedent to the insurer’s liability on a judgment recovered against an insured.  The court also held that pre-suit settlement discussions between the insurance carrier and plaintiff's counsel might establish that the carrier had notice of the accident, but neither those contacts nor plaintiff's letter to defendant alleging that service had been obtained was sufficient to cure the insured’s breach of the policy provision requiring the prompt forwarding of legal papers, and that breach justified the carrier’s disclaimer.

 

11/19/01:            PROGRESSIVE NORTHEASTERN INS. CO. v. MOTORS INS. CO.

New York State Supreme Court, Appellate Division, Second Department

“No Liability” Clause in Garage Policy Enforceable

It was alleged in an underlying personal injury action that the insured auto dealer’s customer was test-driving one of its vehicles when he was involved in a motor vehicle accident. At the time of the accident, the driver had a personal automobile insurance policy with the plaintiff.  The auto dealership had a garage policy with the defendant; however, that policy had a “no liability” clause, which excluded coverage if other valid automobile insurance existed.  In this action to determine the rights and obligations of the carriers to provide a defense and indemnification to the driver in the underlying action, the court held that the “no liability” clause of the garage policy did not extend coverage once it was determined that the driver was insured under another valid policy of automobile insurance.  The court rejected the argument that the Court of Appeal’s recent decision in ELRAC, Inc. v Ward overruled the Court’s earlier decisions enforcing the “no liability” clause.

 

11/19/01:            GRUMMAN CORP. v. TRAVELERS INDEMNITY CO.

New York State Supreme Court, Appellate Division, Second Department

Two-Year Limitation Period in Policy Bars Suit Absent Proof of Waiver or Estoppel

In this action to recover the proceeds of an insurance policy, the court held that summary judgment dismissing the complaint was proper where the insured failed to offer sufficient evidence that the insurer waived or was estopped from enforcing the policy’s two-year limitation period.  Here, the insurer continued to investigate the plaintiff’s claim under a full reservation of rights, and offered its insured $100,000 to settle it (an offer the insured rejected) after the policy’s two-year limitation period expired.  The court held that an insured is bound by the terms of the contract and can protect itself by “either beginning an action before expiration of the limitation period or obtaining from the carrier a waiver or extension”.  Investigation of a claim by an insurance company does not constitute a waiver of its limitations defense, nor do the facts here show that the defendant, by its conduct, otherwise lulled the plaintiff into sleeping on its rights under the insurance policy because it offered to settle the claim. “Evidence of communications or settlement negotiations between an insured and its insurer” before or after expiration of the limitations period set forth in a policy, standing alone, is not sufficient evidence to establish estoppel.

 

11/19/01:            REILLY v. PROGRESSIVE INS. CO.

New York State Supreme Court, Appellate Division, Second Department

Summary Judgment Denied Where Issues of Fact Raised Whether Agent Breached Obligation to Obtain Requested Coverage and Whether Requested Policy was Available

The plaintiffs owned and restored an automobile which they believed to be worth approximately $ 40,000, and allegedly instructed their insurance agent to obtain a $ 40,000 stated amount policy that would pay that amount in the event the vehicle was stolen or destroyed. The agent did procure a stated amount policy; however, the policy insured the vehicle for the lesser amount of $40,000 or its actual cash value.  When the vehicle was stolen and burned, the insurer offered $14,000 in full satisfaction of the loss.  In this action to recover damages for negligence and breach of contract, the court held that insurance agents and brokers have a common-law duty to obtain requested coverage for their clients within a reasonable time, or to inform the client of their inability to do so.  A broker may be held liable for neglect in failing to procure the requested insurance where an insured demonstrates that the broker failed to discharge the duties imposed by the agreement, either by proof that the broker breached the agreement or that it failed to exercise due care in the transaction.  In this case, the uncontroverted evidence established that plaintiffs did make an explicit request for specific coverage – a policy that would pay $40,000 for the loss.  Whether the agent breached its obligation to honor the request and whether such a policy was available were unresolved factual issues that precluded summary judgment.  The court also held that the mere fact plaintiffs had ample time yet failed to read the policy to discern the actual liability limit of the lesser of the stated amount or actual cash value of the car, was not a superseding cause precluding liability as a matter of law.

 

11/09/01:            MATTER OF NATIONWIDE v. BELLRENG

New York State Supreme Court, Appellate Division, Fourth Department

Accident Originating in Collision with Unidentified Vehicle Satisfies “Physical Contact” Requirement in SUM endorsement

Respondent was injured in a hit-and-run accident while spraying water on asbestos as part of his employment.  The accident occurred when respondent was using a hose that was stretched across a road, and a taxicab driven by an unidentified driver made contact with the hose, pulling respondent into a utility pole.  In this proceeding to permanently stay arbitration of respondent’s claim for supplemental uninsured motorist benefits (SUM), the court held that the requisite “physical contact” necessary to trigger the coverage occurred where, as here, “the accident originate[d] in [a] collision with an unidentified vehicle, or an integral part of an unidentified vehicle”.  The court also held that respondent provided notice of his SUM claim “as soon as practicable”, as required by the SUM endorsement.   Although notice was provided five months after the accident, it was supplied within 17 days of receipt of a specialist’s report, which was the first indication that respondent’s injury “was more significant than originally determined”.  Respondent’s failure to commence an arbitration proceeding with the American Arbitration Association in accordance with the terms of the insurance policy was not fatal to respondent’s demand for arbitration.

 

11/09/01:            PROGRESSIVE INS. CO. v. ZURICH INSURANCE

New York State Supreme Court, Appellate Division, Fourth Department

Allegations that Claim Arose Out of Use of Motor Vehicle and Negligent Supervision Trigger Defense Obligation under Auto and Homeowner’s Policies

An underlying action wrongful death action was commenced against plaintiff’s insured after a vehicle struck the insured’s granddaughter as she crossed the street.  It was alleged that the insured pulled into the right-hand parking lane of the road, where his granddaughter had to cross in front of his vehicle and then cross two lanes of traffic to reach her home.  At the time of the accident, the insured maintained an automobile insurance policy with plaintiff and a homeowner’s policy with defendant.  At issue in this action was which of the two carriers was obligated to defend their insured in the underlying action.  The court held that the allegations gave rise to coverage under both policies.  Contrary to the lower court’s finding, the court concluded that the accident did not arise solely from the insured’s use and operation of a motor vehicle, but also from the insured’s alleged negligent supervision, thus triggering both policies.

 

ACROSS BORDERS

 

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.

 

12/07/01:            SPETH v. STATE FARM FIRE & CASUALTY CO.

Kansas Supreme Court

The Term "Vacant" in Property Policy is Unambiguous

In a case filed by the plaintiff executor for damages resulting from vandalism to a home and submitted to the district court on stipulated facts, the record is examined and it is held: (1) Resolution of this controversy presents a question of law requiring appellate court interpretation of a homeowner's insurance policy, (2) the undefined word "vacant" appearing in the exclusionary clause of the homeowner's insurance policy is not ambiguous, and (3) the district court did not err in granting summary judgment under facts showing that the home was unoccupied and empty of all contents except a stove and refrigerator for more than 30 consecutive days before the vandalism occurred.

 

12/06/01:            LOCKWOOD INT'L, B.V. v. VOLM BAG CO., INC.

Seventh Circuit (applying Wisconsin law)

Liability Carrier Can't Pay Plaintiff to Plead Himself Out of Coverage

Under Wisconsin law, a liability insurer, asked to defend a suit against its insured that contains some covered claims and some uncovered claims, cannot limit its responsibility to defend by paying the plaintiff in the liability suit to replead the covered claims as uncovered claims.

 

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REPORTED DECISIONS

 

POWERHOUSE SHEET METAL CO. INC. v. HANOVER INS. CO.

 

Order, Supreme Court, New York County (Barbara Kapnick, J.), entered August 15, 2000, which denied the motion of plaintiff insured Powerhouse for summary judgment declaring that defendant insurer Hanover is obligated to defend and indemnify Powerhouse in an underlying third-party action, unanimously affirmed, with costs.

 

Powerhouse was a sub-subcontractor at a job site at which one of its employees was injured on September 7, 1994. The employee sued the subcontractor that contracted with Powerhouse, ARA Plumbing and Heating, and ARA instituted a third-party action against Powerhouse seeking contractual indemnification. Although Powerhouse had commenced work on the project prior to September 7, 1994, it did not actually sign a written contract with ARA until September 30, 1994. In that contract, Powerhouse agreed to indemnify ARA for liabilities arising out of accidents at the job site due to Powerhouse's acts or omissions. Hanover disclaimed on the ground that the subcontract was not signed until after the accident; Powerhouse responded that the policy does not require that a written contract be in existence at the time of the underlying accident, and that it had a long course of dealing with ARA pursuant to which it would commence work before signing a subcontract. The motion court denied Powerhouse's motion for summary judgment on the ground that an issue of fact exists as to whether a contract requiring Powerhouse to indemnify ARA existed prior to the accident by reason of a course of dealing between them. That finding was correct. Regardless of the allegations in the third-party complaint, and regardless of the coverage actually afforded by the policy, Hanover would have no duty to either defend or indemnify Powerhouse unless a contract requiring Powerhouse to indemnify ARA, oral if not written, was in existence at the time of the accident. The existence of such a contract is not established as against Hanover simply because ARA alleges it in its third-party complaint and Powerhouse does not deny it.

 

We also reject Hanover's request to search the record and declare in its favor that it is not obligated to defend and indemnify Powerhouse. The policy covers "insured contracts", which is to say either "a contract or agreement" to indemnify, but only if "executed" before the occurrence of the underlying bodily injury or property damage. Since the terms "executed", "contract" and "agreement" are not defined in the policy, and the definition of "insured contract" does not require that such be in writing, the policy language does not establish, as a matter of law, that a contract to indemnify is not covered unless in writing.

 

HESLIN v. METROPOLITAN LIFE INS. CO.

 

Carpinello, J.

 

Appeal from an order of the Supreme Court (Teresi, J.), entered October 30, 2000 in Albany County, which granted defendants' motion to dismiss the second amended complaint for failure to state a cause of action.

 

The instant action was commenced by former and present police officers of the City of Cohoes, Albany County, and certain members of their families[1] against defendant Metropolitan Life Insurance Company and its agent, defendant Jeffrey Roberts, and is one of many lawsuits commenced by purchasers of life insurance policies who were allegedly lured into such sales by a marketing ploy commonly referred to as the "vanishing premium" (see, e.g., Cole v Equitable Life Assur. Socy. of U.S., 271 AD2d 271; Furey v Guardian Life Ins. Co., 261 AD2d 355, lv denied 93 NY2d 811; Goldberg v Manufacturers Life Ins. Co., 242 AD2d 175, lv dismissed, lv denied 92 NY2d 1000; De Arman v Liberty Natl. Life Ins. Co., 786 So 2d 1090 [Ala]; Banks v New York Life Ins. Co., 737 So 2d 1275 [La], cert denied 528 US 1158; Koehler v Merrill Lynch & Co., 706 So 2d 1370 [Fla]; Kortebein v American Mut. Life Ins. Co., 49 SW3d 79 [Tex]; Varacallo v Massachusetts Mut. Life Ins. Co., 332 NJ Super 31, 752 A2d 807; Romig v Jefferson-Pilot Life Ins. Co., 132 NC App 682, 513 SE2d 598, affd 351 NC 349; Kuebler v Equitable Life Assur. Socy. of U.S., 219 Mich App 1, 555 NW2d 496). In their second amended complaint, which contains eight causes of action (breach of fiduciary duty, fraud, fraudulent inducement, negligent supervision, conspiracy to commit fraud and violations of General Business Law § 349 and Insurance Law §§ 2123 and 4226), plaintiffs allege that they were induced into purchasing whole or universal life insurance policies based on deceptive illustrations and false representations that their policy premiums would "vanish" after a certain period of time.

 

At issue on appeal is the propriety of Supreme Court's decision dismissing the complaint for failure to state a cause of action. The allegations in the subject complaint make this case nearly indistinguishable from other cases that have made their way through the court system in this State in recent years, including two separate appeals to the Court of Appeals (see, Gaidon v Guardian Life Ins. Co. of Am., 96 NY2d 201; Gaidon v Guardian Life Ins. Co. of Am., 94 NY2d 330). Based upon our review of these cases, we conclude that dismissal of all eight causes of action was warranted and, accordingly, affirm.

 

Gaidon v Guardian Life Ins. Co. of Am. (255 AD2d 101, mod 94 NY2d 330), as here, was an action arising out of the defendants' sale of life insurance policies utilizing the "vanishing premium" concept and a preanswer motion to dismiss such action for failure to state a cause of action. The First Department concluded that the plaintiffs could not state a cause of action for, inter alia, fraud, fraudulent inducement, breach of fiduciary duty, negligent supervision or General Business Law § 349 and Insurance Law §§ 2123 and 4226 violations (id., at 101-102). Similarly, in Goshen v Mutual Life Ins. Co. of N.Y. (Sup Ct, NY County, Oct. 21, 1997, Shainswit, J., affd 259 AD2d 360, mod 94 NY2d 330), the trial court found that the plaintiffs, also purchasers of life insurance policies marketed under the vanishing premium scheme, failed to state a cause of action for, inter alia, fraud, fraudulent inducement, negligent supervision, breach of fiduciary duty or General Business Law § 349 and Insurance Law § 4226 violations, and this decision was affirmed on appeal to the First Department. The First Department's decisions in Gaidon and Goshen were companion cases in Gaidon v Guardian Life Ins. Co. of Am., (94 NY2d 330, supra [hereinafter Gaidon I]) and each was affirmed by the Court of Appeals in all respects but one, namely, the Court determined that the plaintiffs in each case had stated a cause of action under General Business Law § 349.

 

Thus, under the strength of the First Department decisions in Gaidon and Goshen, as affirmed by the Court of Appeals in Gaidon I, plaintiffs' causes of action here sounding in breach of fiduciary duty, fraud, fraudulent inducement, negligent supervision and Insurance Law §§ 2123 and 4226 violations were properly dismissed for failure to state a cause of action (see, Batas v Prudential Ins. Co. of Am., 281 AD2d 260; see generally, Cole v Equitable Life Assur. Socy. of U.S., 271 AD2d 271, supra; Furey v Guardian Life Ins. Co., 261 AD2d 355, supra). Moreover, since civil conspiracy does not exist as an independent cause of action, the conspiracy to commit fraud claim was also properly dismissed (see, Pappas v Passias, 271 AD2d 420, 421).

 

The remaining cause of action -- defendants' alleged violation of General Business Law § 349 -- requires an analysis of the Court of Appeals' decision in Gaidon v Guardian Life Ins. Co. of Am. (96 NY2d 201, supra [hereinafer Gaidon II]). Pursuant to Gaidon II, it has been established that the Statute of Limitations for a General Business Law § 349 cause of action is three years and accrues when the owner of a "vanishing premium" life insurance policy is first called upon to pay an additional premium (id., at 210-212). Here, even liberally construing the amended complaint, there is no allegation that any plaintiff has reached the "vanish" date or has yet been called upon by either defendant to pay an additional premium on the subject policies. Thus, no plaintiff has sufficiently pleaded an injury. Being unpersuaded by plaintiffs' attempt to distinguish their claim from that at issue in Gaidon II, we find that the General Business Law § 349 claim was properly dismissed by Supreme Court as premature.[2]

 

Mercure, J.P., Peters, Spain and Rose, JJ., concur.

 

ORDERED that the order is affirmed, with costs.

 

[1] We agree with defendants' claim that plaintiffs Carol Meaker, Theresa Iachetta and Brenda Enfield do not have standing to commence this action as none purchased any of the subject policies (see, Gaidon v Guardian Life Ins. Co. of Am., 272 AD2d 60, affd 96 NY2d 201).

 

[2] Given a January 28, 2000 guarantee by Metropolitan Life to plaintiffs' attorney that no plaintiff will be required to make any additional cash premium payments beyond the "vanish date" of the respective life insurance policies so long as the "premiums are paid to the alleged 'vanish date' and if dividend values are left with the policy and available to be applied to future premium payments", it is doubtful that this claim will ever actually accrue.

 

FISHER v. HANOVER INS. CO.

 

Appeal from an order of the Supreme Court (Kramer, J.), entered November 29, 2000 in Schenectady County, which denied defendant's motion for summary judgment dismissing the complaint.

 

In January 1999 plaintiff commenced an action against James Seidel, defendant's insured, and others for injuries she sustained in a motor vehicle accident in August 1995. When Seidel failed to answer, the trial court granted plaintiff's motion for a default judgment, resulting in entry of a judgment for $35,000 against Seidel. Plaintiff then commenced the present action against defendant pursuant to Insurance Law § 3420 (b) (1). When defendant's motion for summary judgment was denied by Supreme Court, this appeal ensued.

 

We reverse. Defendant's disclaimer of coverage based on the insured's failure to comply with the insurance policy's requirement that he immediately forward the pleadings in the underlying action was proper and precludes plaintiff's direct action because defendant did not receive the summons and complaint in the underlying action until discovery occurred in the present action. New York courts have long held that "'[a]bsent a valid excuse, failure to satisfy an insurance policy notice requirement vitiates coverage'" (Centennial Ins. Co. v Hoffman, 265 AD2d 629, 630, quoting Matter of Allcity Ins. Co. [Jimenez], 78 NY2d 1054, 1055-1056). The requirement of an automobile liability policy that the insured give notice to the insurer of the commencement of an action is a condition precedent to the insurer's liability on a judgment recovered against an insured (see, Centennial Ins. Co. v Hoffman, supra, at 630; Tennant v Farm Bur. Mut. Auto. Ins. Co., 286 App Div 117, 120).

 

As applied here, the effect of the undisputed failure of either Seidel or plaintiff to promptly forward the pleadings in the underlying action to defendant is that plaintiff now stands in the shoes of the insured and cannot recover because of the insured's breach of the terms of the policy (see, Tennant v Farm Bur. Mut. Auto. Ins. Co., supra, at 120-121). While the precommencement settlement discussions between defendant and plaintiff's counsel may establish that defendant had notice of the accident and plaintiff's claim under Insurance Law § 3420 (a) (3), neither those contacts nor plaintiff's letter to defendant alleging that service had been obtained is sufficient to cure Seidel's breach of the specific policy provision requiring the prompt forwarding of legal papers, and that breach justifies defendant's disclaimer (see, Centennial Ins. Co. v Hoffman, supra, at 630).

 

Although we also find merit in defendant's argument that the complaint should be dismissed because plaintiff failed to properly commence the present action pursuant to Insurance Law § 3420 (a) (2) (see, Manshul Constr. Corp. v State Ins. Fund, 118 AD2d 983, 984), we need not further address this issue in light of our finding that defendant established other grounds entitling it to dismissal.

 

Cardona, P.J., Crew III, Mugglin and Lahtinen, JJ., concur.

 

ORDERED that the order is reversed, on the law, with costs, motion granted and complaint dismissed.

 

MATTER OF NATIONWIDE INS. CO. v. BELLRENG

 

Order unanimously reversed on the law without costs, petition dismissed and cross petition granted. Memorandum: Supreme Court erred in granting the petition seeking a permanent stay of arbitration. Respondent was injured in a hit-and-run accident while spraying water on asbestos as part of his employment. Respondent was using a hose that was stretched across a road, and a taxicab driven by an unidentified driver made contact with the hose, pulling respondent into a utility pole. Contrary to petitioner's contention, the requisite "physical contact" occurred where, as here, "the accident originate[d] in [a] collision with an unidentified vehicle, or an integral part of an unidentified vehicle" (Matter of Allstate Ins. Co. v Killakey, 78 NY2d 325, 329; see also, Matter of Aetna Cas. & Sur. Co. v Loy, 108 AD2d 709, 710).

 

Also contrary to petitioner's contention, we conclude that respondent provided notice of his supplemental uninsured motorist (SUM) claim "as soon as practicable". The accident occurred on May 11, 1999, and X rays ordered by respondent's family physician were unremarkable. Respondent thereafter saw an orthopedic specialist in late September, and that specialist indicated in a report dated October 8, 1999 that respondent had a torn rotator cuff. That report provided the first indication that respondent's injury "was more significant than originally determined", and respondent provided written notice of his SUM claim within 17 days of that report (Matter of New York Cent. Mut. Fire Ins. Co. [Benson], 277 AD2d 920, 921; see also, Matter of Allstate Ins. Co. [Earl] v State Farm Ins. Co., 284 AD2d 1002). Finally, although we agree with petitioner that respondent failed to commence an arbitration proceeding with the American Arbitration Association in accordance with the terms of the insurance policy at issue, that failure is not fatal to respondent's demand for arbitration. (Appeal from Order of Supreme Court, Erie County, Whelan, J. - Arbitration.) PRESENT: GREEN, J. P., HAYES, SCUDDER, KEHOE AND BURNS, JJ. (Filed Nov. 9, 2001.)

 

PROGRESSIVE INS. CO. v. ZURICH INSURANCE

 

Judgment unanimously modified on the law and as modified affirmed without costs in accordance with the following Memorandum: Plaintiff, Progressive Insurance Company (Progressive), commenced this action seeking, inter alia, a declaration that defendant Zurich Insurance (Zurich) and not Progressive must defend and indemnify Christopher Loder, Sr. (Loder) in the underlying wrongful death action. Loder's granddaughter had just left Loder's vehicle when she was struck by a vehicle driven by defendant Michael Greco and owned by defendant Airborne Freight Corp. (Airborne). Both Greco and Airborne were named as defendants in the underlying action. Loder had pulled into the right-hand parking lane of the road, and his granddaughter had to cross in front of his vehicle and then cross two lanes of traffic in order to reach her home. She was struck as she crossed the street. At the time of the accident, Loder maintained an automobile insurance policy with Progressive and a homeowner's policy with Zurich.

 

Supreme Court erred in granting in its entirety the motion of Zurich and the cross motion of Greco and Airborne and declaring that Progressive and not Zurich had a duty to defend and indemnify Loder in the underlying action, which has not yet been tried. The court determined that the accident arose solely from Loder's use and operation of a motor vehicle and did not arise from Loder's alleged negligent supervision. The court thus concluded that only Progressive, which issued the automobile insurance policy, was obligated to defend and indemnify Loder. We disagree. "[T]he duty to defend is triggered when 'the complaint alleges any facts or grounds which bring the action within the protection purchased'" (State Farm Mut. Auto. Ins. Co. v Van Dyke, 247 AD2d 848, quoting Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 310), and we conclude here that the allegations in the underlying complaint give rise to coverage under both policies. We therefore modify the judgment by denying in part the motion of Zurich and the cross motion of Greco and Airborne and declaring that both Progressive and Zurich have a duty to defend Loder in the underlying action. The issue of indemnification "should await the outcome of the underlying action" (State Farm Mut. Auto. Ins. Co. v Van Dyke, supra, at 849). In view of our determination, we do not address the remaining contentions of the parties. (Appeals from Judgment of Supreme Court, Erie County, Mahoney, J. - Declaratory Judgment.) PRESENT: PINE, J. P., SCUDDER, BURNS, GORSKI AND LAWTON, JJ. (Filed Nov. 9, 2001.)

 

PROGRESSIVE NORTHEASTERN INS. CO. v. MOTORS INS. CO.

 

In an action, inter alia, for a judgment declaring that the defendant Motors Insurance Company is obligated to defend and indemnify Joseph Vargas in an underlying personal injury action entitled Young v Vargas, pending in the Supreme Court, Suffolk County, under Index No. 00578/00, the plaintiff appeals from (1) an order of the Supreme Court, Nassau County (Winick, J.), entered January 8, 2001, which denied its motion for summary judgment and granted the cross motion of the defendants Motors Insurance Company and Thomas Dodge Corp. of New York for summary judgment, and (2) a judgment of the same court, entered January 31, 2001, which, upon the order, declared that the defendant Motors Insurance Company is not obligated to defend and indemnify Joseph Vargas in the underlying personal injury action.

 

ORDERED that the appeal from the order is dismissed; and it is further,

 

ORDERED that the judgment is affirmed; and it is further,

 

ORDERED that the respondents 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 the judgment in the action (see, Matter of Aho, 39 N.Y.2d 241, 248, 383 N.Y.S.2d 285, 347 N.E.2d 647). The issues raised on appeal from the order are brought up for review and have been considered on the appeal from the judgment (see, CPLR 5501[a][1]).

 

In the underlying personal injury action, Joseph Vargas, a customer of the defendant Thomas Dodge Corp. of New York (hereinafter Dodge), was test-driving one of Dodge's vehicles when he was involved in a motor vehicle accident with Sharon Young. At the time of the accident, Vargas had a personal automobile insurance policy with the plaintiff, Progressive Northeastern Insurance Company (hereinafter Progressive). Dodge had a garage policy with the defendant Motors Insurance Company (hereinafter Motors), however, that policy had a "no liability" clause which excluded coverage if other valid automobile insurance exists.

 

Progressive brought the instant action to determine the rights and obligations of Progressive and Motors to provide a defense and indemnification to Vargas in the underlying personal injury action. The Supreme Court correctly granted summary judgment to the defendants Dodge and Motors. The "no liability" clause of the garage policy did not extend coverage once it was determined that Vargas was insured under another valid policy of automobile insurance (see, Mills v Liberty Mut. Ins. Co., 30 N.Y.2d 546, 330 N.Y.S.2d 609, 281 N.E.2d 554; Davis v De Frank, 33 A.D.2d 236, 306 N.Y.S.2d 827, affd without opinion 27 N.Y.2d 924).

 

We reject the plaintiff's argument that ELRAC, Inc. v Ward (96 N.Y.2d 58, 724 N.Y.S.2d 692, 748 N.E.2d 1) overruled Davis v De Frank (supra).

 

SANTUCCI, J.P., ALTMAN, TOWNES and CRANE, JJ., concur.

 

GRUMMAN CORP. v. TRAVELERS INDEMNITY CO.

 

In an action to recover damages for breach of contract, the plaintiff appeals from an order of the Supreme Court, Nassau County (Phelan, J.), entered May 12, 2000, which granted the defendant's motion for summary judgment dismissing the complaint.

 

ORDERED that the order is affirmed, with costs.

 

The defendant established prima facie that the action was barred by the two-year limitation period contained in the insurance policy issued to the plaintiff (see, Gongolewski v Travelers Ins. Co., 252 A.D.2d 569). The plaintiff did not meet its burden of demonstrating the existence of any triable issue of fact. Subsequent to the expiration of the contractual limitation period, the defendant continued to investigate the plaintiff's claim. Eventually, the plaintiff was offered $ 100,000 to settle the claim, an offer it rejected. The defendant set forth its full reservation of rights throughout its investigation of the claim.

 

An insured is bound by the terms of the contract and can protect itself by "either beginning an action before expiration of the limitation period or obtaining from the carrier a waiver or extension" (Blitman Constr. Corp. v Insurance Co. of N. Am., 66 N.Y.2d 820, 822, 498 N.Y.S.2d 349, 489 N.E.2d 236).

 

However, investigation of a claim by an insurance company does not constitute a waiver of its limitations defense (see, Blitman Constr. Corp. v Insurance Co. of N. Am., supra, at 822). Nor do the facts here show that the defendant, by its conduct, otherwise lulled the plaintiff into sleeping on its rights under the insurance policy because it offered to settle the claim. "Evidence of

 communications or settlement negotiations between an insured and its insurer" before or after expiration of the limitations period set forth in a policy, standing alone, is not sufficient evidence to establish estoppel (Gilbert Frank Corp. v Federal Ins. Co., 70 N.Y.2d 966, 968, 525 N.Y.S.2d 793, 520 N.E.2d 512).

 

The plaintiff's remaining contentions are without merit.

 

O'BRIEN, J.P., FRIEDMANN, SCHMIDT and TOWNES, JJ., concur.

 

REILLY v. PROGRESSIVE INS. CO.

 

In an action, inter alia, to recover damages for negligence and breach of contract, the defendant Old Colonial Associates appeals from so much of an order of the Supreme Court, Suffolk County (Underwood, J.), entered December 6, 2000, as denied its motion for summary judgment dismissing the complaint insofar as asserted against it.

 

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

 

The plaintiffs owned and restored a 1979 Porsche 911SC automobile which they believed to be worth approximately $ 40,000. The plaintiffs allegedly instructed their insurance agent, the appellant Old Colonial Associates, to obtain a $ 40,000 stated amount policy, that would pay that amount in the event the Porsche was stolen or destroyed. The appellant did procure a stated amount policy from the defendant Progressive Insurance Company (hereinafter Progressive). However, pursuant to its express terms, the policy insured the Porsche for the lesser amount of $ 40,000 or the actual cash value thereof. It is uncontroverted that the plaintiffs never had the Porsche appraised, and when it was stolen and burned, Progressive offered approximately $ 14,000 in full satisfaction of the plaintiffs' loss.

 

As a general rule, insurance agents and brokers have a common-law duty to obtain requested coverage for their clients within a reasonable time, or to inform the client of their inability to do so. A broker may be held liable for neglect in failing to procure the requested insurance. An insured must show that the broker failed to discharge the duties imposed by the agreement to obtain insurance, either by proof that the broker breached the agreement or that it failed to exercise due care in the transaction (see, Santaniello v Interboro Mut. Indem. Ins. Co., 267 A.D.2d 372; Storybook Farms v Ruchman Associates, Inc., 284 A.D.2d 450).

 

In this case, the appellant invokes the rule that, "absent a specific request for coverage not already provided in a client's policy, there is no common-law duty of an insurance company or its agency to advise a client to procure additional coverage" (Chaim v Benedict, 216 A.D.2d 347, 628 N.Y.S.2d 356; see, Hesse v Speece, 278 A.D.2d 368, 717 N.Y.S.2d 649). However, the appellant failed to demonstrate its prima facie entitlement to summary judgment, as the uncontroverted evidence in the record establishes that the plaintiffs did make an explicit request for specific coverage; they asked the appellant to procure a stated amount policy that would pay $ 40,000 for the loss of their Porsche. Whether the appellant breached its obligation to honor the plaintiffs' request (see, Mets Donuts v Dairyland Ins. Co., 166 A.D.2d 508, 560 N.Y.S.2d 790), or whether, inter alia, such a policy was available without an appraisal, are unresolved factual issues that preclude an award of summary judgment.

 

Contrary to the appellant's contentions, in a case such as this, where the insureds allegedly made an explicit request for a specific amount of coverage, the mere fact that the plaintiffs had ample time yet failed to read the policy to discern the actual liability limit of the lesser of the stated amount or actual cash value of the car, is not a superseding cause precluding liability as a matter of law (cf., Busker on Roof Ltd. Partnership Co. v Warrington, 283 A.D.2d 376; Chase's Cigar Store v Stam Agency, 281 A.D.2d 911, 722 N.Y.S.2d 320; Kyes v Northbrook Prop. and Cas. Ins. Co., 278 A.D.2d 736, 717 N.Y.S.2d 757; Nicholas J. Masterpol, Inc. v Travelers Ins. Cos., 273 A.D.2d 817, 711 N.Y.S.2d 88).

 

The appellant's remaining contentions are without merit.

 

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

 

GIBBONS v. DEWITT STERN GROUP, INC.

 

DECISION & ORDER

In an action, inter alia, to recover damages for breach of fiduciary duty, the plaintiffs appeal from a judgment of the Supreme Court, Putnam County (Sweeny, J.), dated August 2, 2000, which, upon an order of the same court dated February 29, 2000, granting that branch of the motion of the defendants DeWitt Stern Group, Inc., and Stanley Levine which was to dismiss the first, second, third, and fourth causes of action insofar as asserted against them, and upon an order of the same court dated July 3, 2000, which, upon reargument, granted that branch of the motion of those defendants which was to dismiss the fifth cause of action insofar as asserted against [*2]  them, dismissed the complaint insofar as asserted against those defendants.

 

ORDERED that the judgment is affirmed, with costs.

 

The plaintiffs obtained a homeowner's insurance policy through the services of the defendants DeWitt Stern Group, Inc., and Stanley Levine (hereinafter collectively referred to as the broker defendants). When the plaintiffs' home was destroyed by fire, they filed a timely claim with their insurer, and sought the assistance of the broker defendants to adjust the claim. The broker defendants were allegedly unable to do so, and referred the plaintiffs to the defendant GSA, Inc. (hereinafter the public adjuster).

 

The plaintiffs entered into an agreement with the public adjuster, pursuant to which it was to receive a 6% commission on the insurance proceeds recovered by the plaintiffs in exchange for the performance of its services. Ultimately the plaintiffs recovered $ 549,740, from which the public adjuster received a commission of approximately $ 33,000. Unbeknownst to the plaintiffs, the public adjuster then gave the broker defendants a referral fee of approximately $ 16,000. The plaintiffs alleged, inter alia, that the broker defendants' receipt of a referral [*3]  fee violated Insurance Law @ 2119(c)(1). The Supreme Court granted that branch of the broker defendants' motion which was to dismiss the first, second, third, and fourth causes of action insofar as asserted against them, and, upon reargument, that branch of their motion which was to dismiss the fifth cause of action insofar as asserted against them. As a result, the complaint was dismissed insofar as asserted against the broker defendants. We affirm.

 

In pertinent part, Insurance Law @ 2119(c)(1) provides:

 

"No insurance broker may receive any compensation * * * from any insured or prospective insured for or on account of the negotiation or procurement of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance polices or contracts, including adjustment of claims arising therefrom, unless such compensation is based upon a written memorandum, signed by the party to be charged, and specifying or clearly defining the amount or extent of such compensation" (emphasis supplied).

 

This statute, which was intended to regulate fees other [*4]  than commissions (see, McKinnon v International Fid. Ins. Co., 182 Misc 2d 517, 704 N.Y.S.2d 774), protects insureds from unscrupulous insurance brokers who could otherwise charge additional fees without the insured's knowledge (see, Metz v National Adj. Co., 89 Misc 2d 1067, 393 N.Y.S.2d 527; Aeropulse, Inc. v Armstrong & Brooks, 740 F. Supp. 938). Pursuant to the statute, an insurance broker may not charge for additional services without the express written consent of the insured. An insurance broker is not precluded from earning an additional fee from the insured if it is contemplated by a written agreement between them (see, Matter of Country-Wide Brokerage v Harnett, 58 A.D.2d 517, 395 N.Y.S.2d 178).

 

Given the purpose of the statute, it has no application to this case (see, Metz v National Adj. Co., supra; Srein v Soft Drink Workers Union, Local 812, 93 F.3d 1088). Indeed, the plaintiffs were charged no hidden or additional fees by the broker defendants (cf., Evvtex Co. v Hartley Cooper Assocs., 911 F. Supp. 732, affd 102 F.3d 1327). Rather, the plaintiffs agreed to pay the [*5]  public adjuster a 6% commission, which the public adjuster chose to share with the broker defendants. This is a practice expressly permitted by the rules of the New York State Insurance Department (see, 11 NYCRR 25.3), and it was not to the plaintiffs' detriment. As the referral fee was not prohibited by the Insurance Law, the causes of action predicated upon the alleged violation thereof which were asserted against the broker defendants were correctly dismissed.

 

The plaintiffs' remaining contentions are without merit.

 

S. MILLER, J.P., LUCIANO, SCHMIDT and SMITH, JJ., concur.

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