Coverage Pointers - Volume III, No. 16

New Page 1

 

03/05/02:            GOLDMAN v. GEICO

New York State Supreme Court, Appellate Division, First Department

SUM Carrier’s Right to Enforce Offset Language Upheld by Appellate Court

Insured argued that she was entitled to recover the full amount of her policy’s SUM limit, and her insurance carrier was not entitled to reduce the full SUM coverage by the amounts she recovered from the tortfeasor.  The insured argued that the carrier was precluded from applying the offset due to its failure to include the offset language required by 11 N.Y.C.R.R. 60-2.3(a)(2) on a declarations page that it issued to correct erroneous information about the insured’s vehicle contained on the declarations page previously issued as part of a new or renewal policy.  The Appellate Court held that 11 N.Y.C.R.R. 60-2.3(a)(2) applies to declarations pages of new or renewal policies.  In this case, the insured did not dispute that the declarations page previously issued as part of the new or renewal policy did contain the requisite language, and the insured also did not dispute that the declarations page issued to correct the erroneous information was not issued as part of a new or renewal policy.  Thus, the Appellate Court upheld the insurance carrier’s right to apply as an offset the sums the insured recovered from the tortfeasor.

 

03/04/02:            MID-HUDSON CASTLE, LTD. v. P.J. EXTERIORS, INC.

New York State Supreme Court, Appellate Division, Second Department

CGL Policy Does Not Cover Breach of Contract Claims

In 1992, P.J. Exteriors repaired and replaced the roof of a building, and issued a 10-year guarantee of the labor and materials. In 1997, Mid-Hudson Castle commenced this action against P.J. to recover damages for breach of contract and negligence as a result of the roof repair and replacement project. In its complaint, Mid-Castle alleged that in 1996 it discovered that the roof had been leaking.  P.J. commenced a third-party action against its insurers, Royal and Charter Oak, seeking a declaration that they were required to defend and indemnify it in the main action. Royal insured P. J. at the time of the roof replacement project. Charter Oak issued a commercial general liability policy to P.J. covering the period from March 1994 to March 1997.  The lower court had previously granted Royal’s motion for summary judgment, but denied Charter Oak’s motion for the same relief without prejudice to renew on proper papers.  Thereafter, Charter Oak renewed its motion, and argued that the CGL policy did not cover claims grounded on breach of contract.   The lower court denied the renewed motion for summary judgment, finding that Charter Oak failed to demonstrate that the subject claims were excluded under the terms of the policy.  The appellate court reversed, holding that a CGL policy does not afford coverage for breach of contract.  All of the claims asserted in the main action arose out of the insured’s performance under the contract, which was not an “occurrence” under the policy.

 

02/25/02:            PHYSICIANS’ RECIPROCAL INSURERS v. LOEB

New York State Supreme Court, Appellate Division, Second Department

Physician’s Malpractice Policy Does Not Cover Intentional Sexual Misconduct

An underlying action was commenced against the defendant, a physician, alleging he committed intentional and reckless acts of a sexual nature against his patient/employee.  Specifically, the complaint alleged that the patient/employee was terminated when she refused to tolerate the physician’s sexual advances and engage in sexual conduct. The complaint sought damages for lost wages and employment benefits, mental anguish, assault and battery, false imprisonment, and negligence, carelessness, and recklessness. The complaint did not contain a specific cause of action charging the insured with medical malpractice.  In this coverage dispute, the court held that the physician’s insurer was not obligated to defend or indemnify the physician or his practice in the underlying action.  First, the court rejected the contention that a cause of action in the complaint alleging negligence was in fact a claim of medical malpractice.  That issue had been decided by a prior order that was not appealed and, as such, was barred by the doctrine of collateral estoppel.  Furthermore, the policy clearly excluded coverage for any claim that resulted from sexual intimacy, sexual molestation, sexual harassment, sexual exploitation, or sexual assault, as well as willful, fraudulent, or malicious civil or criminal acts, and claims of false imprisonment.  Because the factual allegations in the underlying complaint concern the insured’s intentional sexual conduct, and the operative acts giving rise to any recovery were the alleged sexual assaults by the insured, the court concluded there was no basis to direct the insurer to defend or indemnify its insured.

 

02/20/02:         APPELLATE COURT GRANTS TEMPORARY STAY OF IMPLEMENTATION OF NEW REGULATION 68, WHICH SHORTENS TIME TO FILE NO-FAULT CLAIMS

We previously advised that Justice Wetzel found on February 19, 2002 that all of the petitioner’s challenges to shorten time frames proposed in the New Regulation 68 to be without merit.  On February 20, 2002, the Appellate Court granted the petitioner’s motion to temporarily stay the implementation of the new Regulation 68 pending its decision on the petitioner’s motion for a permanent stay of the Regulation.  Accordingly, the new Regulation 68 is not in effect at this time.

 

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.

 

03/08/02:            AMERICAN SIMMENTAL ASS'N v. COREGIS INS. CO.

Eighth Circuit (applying Nebraska law)

Insured Entitled to Prejudgment Interest on Defense Costs Since Amounts were "Sufficiently Certain and Calculable"

In an insurance coverage dispute, insurer’s claim that some defense costs were unreasonable served only to reduce the principal amount owed the insured, and, because the insured’s defense costs were sufficiently certain and calculable, the court should have awarded the insured prejudgment interest.

 

03/07/02:            HAMILTON v. MARYLAND CAS. CO.

California Supreme Court

Can’t Stick Insurer With Settlement to which it did Not Agree

A defending insurer cannot be bound to a settlement to which it has not agreed and in which it has not participated, even where the settlement has been approved under Code of Civil Procedure section 877.6.

 

03/07/02:         UNITED STATES MINERAL PRODUCTS CO. v. AMERICAN INS. COMPANY

New Jersey Appellate Division

Does an Extension of an Excess Policy for a Shortened Period Less Than the Original Policy Period Create an Additional Set of Aggregate Policy Limits?

In this declaratory judgment action between a manufacturer of asbestos-containing products and its insurers, the court examines the issue of whether an extension of an excess-coverage insurance policy for a shortened period less than the original policy period creates an additional set of aggregate policy limits.  It also considers the question of whether that policy provides a single per occurrence limit regardless of the number of aggregate limits provided.  At the request of plaintiff, United States Mineral Products Company (USM), defendant, Twin City Fire Insurance Company (Twin City), issued an endorsement to its existing excess-coverage policy extending coverage for a two-week period, with all other terms of the existing policy to remain the same, in return for a prorated premium, to allow USM’s excess-coverage insurance program to coincide with expiration of USM’s underlying primary-coverage policies.  In the absence of unambiguous policy language to the contrary, an insured who pays a prorated premium for insurance coverage for an additional period with all other terms of the policy to remain the same would reasonably expect that such a prorated premium reflects only the insurer’s reduced time on the risk, not a reduction in the policy's aggregate coverage limits.  Accordingly, the two-week short- term policy extension issued here is construed as containing the same aggregate coverage limit as provided in the original excess-coverage insurance policy.  In accordance with the reasoning set forth in Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437 (1994) and Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312 (1998), the subject Twin City excess-coverage policy provides a separate per occurrence limit for each of the policy’s aggregate periods.

 

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REPORTED DECISIONS

 

PHYSICIANS’ RECIPROCAL INSURERS v. LOEB

 

In an action for a judgment declaring that the plaintiff is not obligated to defend or indemnify the defendants Thomas W. Loeb and Thomas W. Loeb, M.D., P.C., in an underlying action entitled Sabia v Loeb, pending in the Supreme Court, New York County, under Index No. 114210/1999, the plaintiff appeals from an order of the Supreme Court, Nassau County (De Maro, J.), dated October 2, 2000, which denied its motion for summary judgment.

 

ORDERED that the order is reversed, on the law, with costs, the motion is granted, and the matter is remitted to the Supreme Court, Nassau County,  [*2] for the entry of a judgment declaring that the plaintiff, Physicians' Reciprocal Insurers, is not obligated to defend or indemnify the defendants Thomas W. Loeb and Thomas W. Loeb, M.D., P.C., in the underlying action entitled Sabia v Loeb, pending in the Supreme Court, New York County, under Index No. 114210/1999.

 

The Supreme Court erred in denying the motion of the plaintiff, Physicians' Reciprocal Insurer (hereinafter PRI), for summary judgment declaring that it had no duty to defend or indemnify the defendants Thomas W. Loeb and Thomas W. Loeb, M.D., P.C. (hereinafter collectively Dr. Loeb), in the underlying action. The duty of an insurer to defend its insured arises whenever the allegations within the four corners of the underlying complaint potentially give rise to a covered claim, or where the insurer "has actual knowledge of facts establishing a reasonable possibility of coverage" (Fitzpatrick v American Honda Motor Co., 78 N.Y.2d 61, 65-67, 571 N.Y.S.2d 672, 575 N.E.2d 90; see, Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 N.Y.2d 169, 175, 667 N.Y.S.2d 982, 690 N.E.2d 866). To be relieved of its duty to defend on the basis of a policy [*3] exclusion, the insurer bears the heavy burden of demonstrating that the allegations of the complaint in the underlying action cast the pleadings wholly within that exclusion, that the exclusion is subject to no other reasonable interpretation, and that there is no possible factual or legal basis upon which the insurer may eventually be held obligated to indemnify the insured under any policy provision (see, Continental Cas. Co. v Rapid-Am. Corp., 80 N.Y.2d 640, 652, 593 N.Y.S.2d 966, 609 N.E.2d 506; Allstate Ins. Co. v Zuk, 78 N.Y.2d 41, 45, 571 N.Y.S.2d 429, 574 N.E.2d 1035). If any of the claims against the insured arguably arise from covered events, the insurer is required to defend the entire action (see, Seaboard Sur. Co. v Gillette Co., 64 N.Y.2d 304, 311, 486 N.Y.S.2d 873, 476 N.E.2d 272).

 

PRI sustained its burden of demonstrating, in the first instance, that "the allegations of the complaint [in the underlying action] cast that pleading solely and entirely within the policy exclusions, and further, that the allegations, in toto, are subject to no other interpretation" (International Paper Co. v Continental Cas. Co., 35 N.Y.2d 322, 325, 361 N.Y.S.2d 873, 320 N.E.2d 619; [*4]  see, Allstate Ins. Co. v Mugavero, 79 N.Y.2d 153, 159, 581 N.Y.S.2d 142, 589 N.E.2d 365). PRI also established that there was no possible factual or legal basis upon which it may eventually be obligated to indemnify the insured under any policy provision (see, Fitzpatrick v American Honda Motor Co., 78 N.Y.2d at 65-67).

 

The complaint in the underlying action alleges that Dr. Loeb committed intentional and reckless acts of a sexual nature. During all of the conduct the alleged victim was both Dr. Loeb's patient and his employee. The alleged victim claims that she was terminated from her employment with Dr. Loeb when she refused to tolerate his sexual advances and engage in sexual conduct with him. The complaint seeks damages, inter alia, for lost wages and employment benefits, mental anguish, assault and battery, false imprisonment, and negligence, carelessness, and recklessness. The complaint contains no specific cause of action charging Dr. Loeb with medical malpractice.

 

Dr. Loeb moved, inter alia, to dismiss the fourth cause of action in the complaint in the underlying action. He argued that to the extent that the complaint attempted to plead a cause of [*5]  action to recover damages for medical malpractice, it was deficient. Dr. Loeb also asserted that the alleged victim could not convert her cause of action based on negligence into a medical malpractice claim. The alleged victim argued in opposition that the fourth cause of action alleging negligence arose out of the parties' physician-patient relationship and that Dr. Loeb committed medical malpractice (see, Sabia v Loeb, Sup Ct, New York County, Feb. 4, 2000, Bransten, J., Index No. 114210/1999). After reviewing the pleadings and the papers submitted in support of and in opposition to the motion, the Supreme Court, New York County, determined that the cause of action based on negligence was not connected to the alleged victim's medical treatment by Dr. Loeb, and, therefore, the complaint did not allege a cause of action to recover damages for medical malpractice (see, Sabia v Loeb, supra). The order was not appealed.

 

In the instant action both Dr. Leob and the alleged victim argue that the underlying action involves causes of action based on medical malpractice. Their arguments, however, are barred by the doctrine of collateral estoppel. This doctrine of issue preclusion conserves [*6]  judicial resources; it prevents repetitive litigation and potentially inconsistent judgments by providing, in general, that once a particular question of fact has been decided in one judicial forum, that same question of fact may not be reopened for further litigation in the context of a subsequent judicial proceeding (see, Ryan v New York Tel. Co., 62 N.Y.2d 494, 499-500, 478 N.Y.S.2d 823, 467 N.E.2d 487; Gramatan Home Investors Corp. v Lopez, 46 N.Y.2d 481, 485, 414 N.Y.S.2d 308, 386 N.E.2d 1328; Sun Ins. Co. of N.Y. v Hercules Sec. Unlimited, 195 A.D.2d 24, 31, 605 N.Y.S.2d 767). This doctrine may only be applied in the subsequent proceeding to the detriment of a party who in the prior proceeding, "had a full and fair opportunity to contest the dispositive decision, or was in privity with one who did" (Continental Cas. Co. v Rapid-Am. Corp., 80 N.Y.2d at 649, see, Gramatan Home Investors Corp. v Lopez, 46 N.Y.2d 485-486; D'Arata v New York Cent. Mut. Fire Ins. Co., 76 N.Y.2d 659, 665-666, 563 N.Y.S.2d 24, 564 N.E.2d 634).

 

Here, both Dr. Loeb and the alleged victim had a full and fair opportunity to litigate [*7]  whether the pleadings in the underlying action asserted a cause of action to recover damages for medical malpractice. Dr. Loeb succeeded in eliminating any such cause of action and he cannot now take a contrary position. The issue of whether the underlying action contains a cause of action based on medical malpractice has been foreclosed by the order of the Supreme Court, New York County. Thus, no claim exists in the underlying action which establishes a reasonable possibility of coverage (cf., Fitzpatrick v American Honda Motor Co., 78 N.Y.2d at 65-67).

 

The insurance policy issued by the plaintiff to Dr. Loeb provides coverage for claims arising from rendering or failing to render professional services, but clearly excludes coverage for any claim that results from sexual intimacy, sexual molestation, sexual harassment, sexual exploitation, or sexual assault, as well as willful, fraudulent, or malicious civil or criminal acts, and claims of false imprisonment.

 

In opposition to PRI's prima facie showing of entitlement to judgment as a matter of law, the defendants failed to raise a triable issue of fact as to whether the underlying action includes a cause of action based [*8]  on medical malpractice or otherwise seeks damages as a result of Dr. Loeb's surgical and medical treatment of the alleged victim. Because the factual allegations in the underlying complaint concern Dr. Loeb's intentional sexual conduct, and the operative acts giving rise to any recovery are the alleged sexual assaults by Dr. Loeb, none of which are covered by the insurance policy, there is no basis to direct PRI to defend or indemnify Dr. Loeb (see, Allstate Ins. Co. v Mugavaro, 76 N.Y.2d at 163; Technicon Elecs. Corp. v American Home Assur. Co., 74 N.Y.2d 66, 73-74, 544 N.Y.S.2d 531, 542 N.E.2d 1048; Sanabria v American Home Assur. Co., 68 N.Y.2d 866, 868, 508 N.Y.S.2d 416, 501 N.E.2d 24; General Acc. Ins. Co. v 35 Jackson Ave. Corp., 258 A.D.2d 616, 617, 685 N.Y.S.2d 774; Physicians' Reciprocal Insurers v Blank, 258 A.D.2d 573, 573-574, 686 N.Y.S.2d 449; Tasso v Aetna Ins. Co., 247 A.D.2d 376, 668 N.Y.S.2d 644).

 

Accordingly, PRI is entitled to a judgment declaring that it is not obligated to defend or indemnify the defendants Thomas W. Loeb and Thomas W. Loeb, M.D., P.C., in the underlying action entitled Sabia v Loeb, pending in the Supreme [*9]  Court, New York County, under Index No. 114210/1999.

 

The appellants' remaining contentions are without merit.

 

RITTER, J.P., FEUERSTEIN, FRIEDMANN and CRANE, JJ., concur.

 

MID-HUDSON CASTLE, LTD. v. P.J. EXTERIORS, INC.

 

In an action to recover damages for breach of contract and negligence, in which the defendant brought a third-party action for a judgment declaring, inter alia, that the third-party defendant Charter Oak Fire Insurance Company is obligated to defend and/or indemnify it in the main action, the third-party defendant Charter Oak Fire Insurance Company appeals from an order of the Supreme Court, Dutchess County (Hillery J.), dated March 8, 2001, which denied its renewed motion, in effect, for summary judgment on the third-party complaint.

 

ORDERED that the order is reversed, on the law, with costs, the renewed motion is granted, and the [*2]  matter is remitted to the Supreme Court, Dutchess County, for the entry of a judgment declaring that the third-party defendant Charter Oak Fire Insurance Company is not obligated to defend or indemnify the defendant third-party plaintiff in the main action.

 

In March 1992 the defendant third-party plaintiff, P.J. Exteriors, Inc. (hereinafter P.J.), repaired and replaced the roof of a building for the sum of $ 50,000, and issued a 10-year guarantee of the labor and materials used. In May 1997 Mid-Hudson Castle, Ltd. (hereinafter Mid-Castle), commenced this action against P.J. to recover damages for breach of contract and negligence as a result of the 1992 roof repair and replacement project. In its complaint, Mid-Castle alleged, inter alia, that in January 1996 it discovered that the roof had been leaking.

 

P.J. then commenced this third-party action against the third-party defendants, Royal Indemnity Company (hereinafter Royal) and Charter Oak Fire Insurance Company (hereinafter Charter Oak), seeking a declaration that the third-party defendants were required to defend and indemnify it in the main action. Royal insured P. J. at the time of the roof replacement project. Charter Oak [*3]  issued a commercial general liability policy to P.J. covering the period from March 15, 1994, through March 15, 1997.

 

In March 2000 Royal and Charter Oak separately moved for summary judgment on the third-party complaint. The Supreme Court granted the motion by Royal and denied the motion by Charter Oak without prejudice to renew on proper papers. In October 2000, Charter Oak renewed its motion, and argued that the subject policy did not cover claims grounded on breach of contract as asserted against P.J. The Supreme Court denied the renewed motion for summary judgment, finding that Charter Oak failed to demonstrate that the subject claims were excluded under the terms of the policy. We reverse.

 

The general rule is that a commercial general liability insurance policy does not afford coverage for breach of contract, but rather for bodily injury and property damage (see, Structural Bldg. Prods. Corp. v Business Ins. Agency, 281 A.D.2d 617, 722 N.Y.S.2d 559; Zandri Constr. Co. v Firemen's Ins. Co. of Newark, 81 A.D.2d 106, 440 N.Y.S.2d 353, affd sub nom Zandri Constr Co. v Stanley H. Calkins, Inc., 54 N.Y.2d 999, 446 N.Y.S.2d 45, 430 N.E.2d 922; [*4]  Parkset Plumbing & Heating Corp. v Reliance Ins. Co., 87 A.D.2d 646, 448 N.Y.S.2d 739).

 

All of the claims asserted against P.J. in the main action arise out of its performance under the contract. The subject policy was applicable only to claims for bodily injury and property damage caused by an "occurrence", which was defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions". As such, the claims against P.J. are not covered under the terms of the policy.

 

Further, the claims against P.J. in the main action were specifically excluded under the express terms of the policy.

 

SMITH, J.P., KRAUSMAN, SCHMIDT and COZIER, JJ., concur.

 

GOLDMAN v. GEICO

 

Order, Supreme Court, New York County (Franklin Weissberg, J.), entered on or about January 18, 2001, which, upon the parties' respective motions for summary judgment, declared in favor of defendant insurer that the maximum amount payable under the subject policy's supplementary uninsured/underinsured motorist insurance coverage ("SUM") is the policy's SUM limit reduced and thus offset by the amount plaintiff insured recovered from the tortfeasor, and dismissed plaintiff's cause of action under General Business Law @ 349 for deceptive business practices, unanimously affirmed, without costs.

 

The motion court correctly held that the insurer's enforcement of the policy's SUM coverage offset was not affected by the insurer's failure to include the SUM coverage offset language required by 11 NYCRR 60-2.3(a)(2) on a declarations page that it issued not as part of a new or renewal motor vehicle [*2]  liability insurance policy, but rather to correct erroneous information about the insured's vehicle contained on the declarations page that was issued as part of a new or renewal policy several months earlier. By its terms the regulation applies only to declarations pages of new or renewal policies, and the insured does not dispute that the later page was not issued as part of a new or renewal policy, that the earlier page was issued as part of a new or renewal policy, and that the earlier page contained the requisite language. Nor is there merit to the insured's General Business Law @ 349 claim based on the insurer's having forwarded to the arbitrator, at the latter's request, what purported to be a copy of the corrected declarations page containing the offset language. As the motion court stated, since the insurer had sent the original corrected declarations page to the insured, the inaccuracy could not possibly have been an attempt to deceive the arbitrator, but rather, as explained by the insurer's underwriter, a faulty reconstruction of a document that the insurer does not normally retain under the inaccurate assumption that the offset language normally [*3]  included in such a document was included in this one as well. In any event, the insurer's act of submitting an incorrect declarations page to the arbitrator does not constitute consumer-oriented conduct having a broad impact on consumers at large, and accordingly is not within the ambit of the statute (see, New York Univ. v Continental Ins. Co., 87 N.Y.2d 308, 320, 639 N.Y.S.2d 283, 662 N.E.2d 763). We have considered plaintiff's other arguments and find them unavailing.

 

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