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Coverage Pointers - Volume III, No. 17

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03/15/02:         J.R. ADIRONDACK ENTERPRISES, INC. v. HARTFORD CASUALTY INS. CO.

New York State Supreme Court, Appellate Division, Fourth Department 

Insured’s Receipt of Policy and Declarations Results in Conclusive Presumption that Insured Knew of Policy Changes

Plaintiff alleged that Hartford breached the terms of its policy by failing to pay plaintiff’s claim for business income lost as the result of an explosion and fire that damaged plaintiff’s convenience store and gas station.  Hartford argued that the complaint should have been dismissed on the ground that the policy, as renewed by plaintiff, provided that “business income and extra expense coverage is deleted”.  The court agreed, holding that plaintiff’s receipt of the declarations pages and insurance policy resulted in the conclusive presumption that plaintiff knew the terms of the renewed policy.  Nevertheless, the court concluded that plaintiff’s submissions made out an unpleaded cause of action for reformation of the policy to include the deleted coverage, which was based upon an alleged mutual mistake arising from Hartford’s failure to renew the policy according to terms agreed upon by plaintiff and Hartford’s purported agent.  Plaintiff was allowed 20 days to file an amended complaint accordingly.

 

03/15/02:         KAZMIERCZAK v. TOWN OF CLARENCE

New York State Supreme Court, Appellate Division, Fourth Department 

Mere Purchase of OCP Policy Does Not Result in Preindemnification

Plaintiff commenced this action seeking damages for injuries sustained when he fell from a ladder while performing electrical work in connection with a renovation project at Clarence Central High School.  Clarence then commenced a third-party action seeking contractual indemnification from IPL, plaintiff's employer, based on their contract with IPL for the electrical work.  IPL sought dismissal of the third-party action, contending that it was barred by the antisubrogation rule, contractual preindemnification, and the “other insurance” clauses of their respective policies.  The court rejected all three grounds for dismissal.  First, the court held that the antisubrogation rule did not bar the third-party action because Clarence and IPL were insured by different carriers and, as such, the public policy considerations underlying the antisubrogation rule were inapplicable.  The court also rejected IPL’s contention that its purchase of an OCP policy for Clarence resulted in preindemnification.  “The issue of whether the contractual requirement for an insurance policy should be construed as supplanting rather than supplementing a separate contractual requirement for indemnification is one of intent as manifested by the language in the contract”.  In this case, the contractual language did not indicate that the requirement for insurance was intended to supplant Clarence’s indemnification rights.  Finally, the court concluded that the “other insurance” clause of Clarence’s policy had nothing to say about the right of indemnification.

 

03/15/02:            CARAVEO v. NEW YORK CENTRAL MUTUAL FIRE INS. CO.

New York State Supreme Court, Appellate Division, Fourth Department 

Issues of Fact Whether Injuries Were “Expected or Intended by the Insured” Precludes Summary Judgment in Coverage Dispute

Plaintiffs sustained injuries in an altercation with the insured, who was insured under a homeowner’s policy issued by defendant to her mother.  Defendant disclaimed coverage based upon the expected/intended harm exclusion, and the insured thereafter pleaded guilty to assault in the second degree for recklessly causing serious physical injury to plaintiffs by means of a dangerous instrument. Plaintiffs commenced an underlying action against the insured and her mother to recover damages for their injuries, alleging that the insured acted “recklessly, negligently and unlawfully” in causing plaintiffs’ injuries.  Supreme Court ultimately awarded plaintiffs judgment in the amount of $525,000.  When defendant refused to satisfy the judgment, plaintiffs commenced this action pursuant to Insurance Law §3420 (b).  Defendant conceded at that it breached its duty to defend and was bound by the damages determined by the trial court.  It argued, however, that the breach of its duty to defend did not create coverage, and that the defendant was not precluded from demonstrating that the loss falls entirely within the policy exclusion.  The court held that the evidence failed to establish as a matter of law that plaintiffs’ injuries were “expected or intended by the insured”, and denied defendant’s motion for summary judgment dismissing the complaint.  

 

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.

 

03/21/02:            RIO PROPERTIES v. RIO INTERNATIONAL INTERLINK

Ninth Circuit

E-Mail Service of Process Sufficient to Establish Jurisdiction

In what appears to be a case of first impression, a circuit Court of Appeals has found that service of process by electronic mail can survive a Constitutional challenge. Here, the plaintiff sought a means of alternative personal service and when unable to come up with a more effective means to serve an offshore defendant, petitioned the court to allow service by e-mail. The Ninth Circuit noted that electronic mail had become quite popular and accepted as a means of effective communication. In upholding the effectiveness of the service, the Court noted that this method was likely to be the most effective and successful means of gaining this defendant's attention.

 

03/21/02:            WISHOLEK v. THE HEALTH CARE PLAN, INC.

New York Court of Appeals

New York High Courts Ducks Questions Related to HMO Vicarious Liability

Because co-defendant satisfied judgment, appeal by HMO on issue of its vicarious liability for doctor's professional negligence is rendered moot.

 

03/20/02:            DILULLO v. JOSEPH

Connecticut Supreme Court

Fire Insurer has No Subrogation Right Against Tenant for Negligently Causing a Fire

Without an agreement, there is no subrogation claim available by a fire insurer against a tenant in the building insured. Public policy concepts do not support a policy that would require the tenant to carry sufficient insurance coverage to replace the building.

 

03/17/02:            NATIONWIDE MUT. INS. CO. V. COATNEY

Nevada Supreme Court

Carefully Drafted Anti-Stacking Policies are Valid in Nevada to Preclude Stacking of UM-UIM Coverage

It is not against public policy in Nevada to preclude stacking of Uninsured and Underinsured Motorists policies, so long as statutory criteria are satisfied, a valid anti-stacking provision must satisfy three prerequisites under NRS 687B.145(1). “First, the limiting provision must be expressed in clear language. Second, the provision must be prominently displayed in the policy, binder or endorsement. Finally, the insured must not have purchased separate coverage on the same risk nor paid a premium calculated for full reimbursement under that coverage.” Accordingly, a limiting provision is void if it fails to comply with any of these three requirements.

 

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REPORTED DECISIONS

 

J.R. ADIRONDACK ENTERPRISES, INC. v. HARTFORD CASUALTY INS. CO. 

 

It is hereby ORDERED that the order so appealed from be and the same hereby is unanimously modified on the law by granting the cross motion and dismissing the complaint against defendant Hartford Casualty Insurance Company unless plaintiff, within 20 days of service of a copy of the order of this Court with notice of entry, files and serves an amended complaint to allege the cause of action made out in its submissions and by denying that part of plaintiff's motion seeking leave to amend the complaint to include a request for consequential damages and as modified the order is affirmed without costs.

 

Memorandum: Plaintiff commenced this action alleging that defendant Hartford Casualty Insurance Company (Hartford) breached the terms of its insurance policy by failing to pay plaintiff's claim for business income lost as the result of an explosion and fire that heavily damaged plaintiff's convenience store and gas station in January 1998. Hartford contends that Supreme Court erred in denying its cross motion seeking summary judgment dismissing the complaint against it on the ground that the policy as renewed by plaintiff in August 1997 provides that "business income and extra expense coverage is deleted". We agree with Hartford that plaintiff, having received the declarations pages and insurance policy, is conclusively presumed to know the terms of the renewed policy (see, Madhvani v  Sheehan, 234 A.D.2d 652, 654-655, 650 N.Y.S.2d 490). Nevertheless, plaintiff's submissions make out an unpleaded cause of action for reformation of the policy to include the deleted coverage. That cause of action is based upon an alleged mutual mistake arising from Hartford's failure to renew the policy according to terms agreed upon by plaintiff and defendant Burkhard-Evans Inc. (Burkhard-Evans), as the agent of Hartford. "Mutual mistake occurs when the parties have reached an oral agreement and, unknown to either, the subsequent writing does not express that agreement" (Loyalty Life Ins. Co. v Fredenberg, 214 A.D.2d 297, 299, 632 N.Y.S.2d 901). We reject the contention of Hartford that it conclusively established that Burkhard-Evans was not its agent, and thus we conclude that there is an issue of fact whether reformation is warranted ( see, Burke v Nationwide Ins. Co., 108 A.D.2d 1098, 1099-1100, 485 N.Y.S.2d 666). We therefore modify the order by granting the cross motion and dismissing the complaint against Hartford unless plaintiff, within 20 days of service of a copy of the order of this Court with notice of entry, files and serves an amended complaint to allege the cause of action made out in its submissions (see, Alvord & Swift v Muller Constr. Co., 46 N.Y.2d 276, 281, 413 N.Y.S.2d 309, 385 N.E.2d 1238).

 

Hartford further contends that the court erred in granting that part of plaintiff's motion seeking leave to amend the complaint to include a request for consequential damages. We agree. The insurance policy at issue here expressly excludes coverage for consequential losses (see, Crawford Furniture  Mfg. Corp. v Pennsylvania Lumbermens Mut. Ins. Co., 244 A.D.2d 881, 668 N.Y.S.2d 122). We therefore further modify the order accordingly.

 

KAZMIERCZAK v. TOWN OF CLARENCE

 

Appeal from an order of Supreme Court, Erie County (O'Donnell, J.), entered July 19, 2001, which, inter alia, denied the cross motion of third-party defendant for summary judgment.

 

It is hereby ORDERED that the order so appealed from be and the same hereby is unanimously affirmed without costs.

 

Memorandum: Contrary to the contention of third-party defendant, Industrial Power and Lighting Corporation (IPL), Supreme Court properly denied its cross motion seeking summary judgment dismissing the amended third-party complaint. Plaintiffs commenced an action seeking damages for injuries sustained by Melvin E. Kazmierczak (plaintiff) when he fell from a ladder while performing electrical work in connection with a renovation project at Clarence Central High School. Defendants-third-party plaintiffs, Clarence Central School District and Clarence Board of Education (collectively, Clarence), then commenced this third-party action seeking, inter alia, contractual indemnification from IPL, plaintiff's employer, based on their contract with IPL for the electrical work. Contrary to the contention of IPL, the antisubrogation rule does not bar the third-party action. Because Clarence and IPL are insured by different carriers "for the risk covered herein * * *, the public policy considerations underlying the antisubrogation rule are inapplicable" (McCreedy & Schreiber v 37 W. 46th St. Realty Corp., 228 A.D.2d 174, 644 N.Y.S.2d 3; see,  Dillion v Parade Mgt. Corp., 268 A.D.2d 554, 555-556, 702 N.Y.S.2d 368).

 

IPL further contends that the third-party action is barred by contractual preindemnification because, pursuant to the contract, it purchased an insurance policy from Transcontinental Insurance Company (CNA) providing Clarence with coverage. We reject that contention. "The issue of whether the contractual requirement for an insurance policy should be construed as supplanting rather than supplementing a separate contractual requirement for indemnification is one of intent as manifested by the language in the contract" (Mennis v  Westchester County Playland Commn., 87 A.D.2d 862, 863, 449 N.Y.S.2d 300, lv  dismissed 57 N.Y.2d 772; see, Warren v Arena Assocs., 109 A.D.2d 738, 739; see  also, North Star Reins. Corp. v Continental Ins. Co., 82 N.Y.2d 281, 292, n 1, 604 N.Y.S.2d 510, 624 N.E.2d 647). Here, the contractual language does not indicate that the requirement for insurance was intended to supplant Clarence's indemnification rights. Although IPL contends that Clarence waived their indemnification rights by accepting the CNA policy, the contract specifically provides that "no action or failure to act by the Owner * * * or Contractor shall constitute a waiver of a right or duty afforded under the Contract * * * except as may be specifically agreed in writing", and IPL has produced no evidence of such a writing.

 

We reject IPL's contention that the third-party action is barred by the "other insurance" provisions of each insurance policy for reasons stated in the decision at Supreme Court (O'Donnell, J.) concerning that issue.

 

CARAVEO v. NEW YORK CENTRAL MUTUAL FIRE INS. CO.

 

It is hereby ORDERED that the judgment so appealed from be and the same hereby is unanimously modified on the law by denying that part of plaintiffs' cross motion seeking summary judgment and granting defendant's motion to compel disclosure and as modified the judgment is affirmed without costs.

 

Memorandum: Plaintiffs sustained injuries in an altercation with Rebecca Hilbert (Hilbert), who was insured under a homeowner's policy issued by defendant to her mother. Defendant disclaimed coverage based upon an exclusion in the policy for bodily injury that "is expected or intended by the insured." Hilbert thereafter pleaded guilty to assault in the second degree for recklessly causing serious physical injury to plaintiffs by means of a dangerous instrument (see, Penal Law @ 120.05 [4]). Plaintiffs commenced an action against Hilbert and her mother to recover damages for their injuries. The complaint alleges that Hilbert acted "recklessly, negligently and unlawfully" in causing plaintiffs' injuries. Defendant denied the request of Hilbert and her mother to defend and indemnify them in the underlying personal injury action. Supreme Court granted plaintiffs' motion for partial summary judgment on liability in that action and, following an inquest on damages, awarded plaintiffs judgment in the amount of $ 525,000.

 

When defendant refused to satisfy the judgment, plaintiffs commenced the instant action pursuant to Insurance Law @ 3420 (b). The court erred in granting that part of plaintiffs' cross motion seeking summary judgment on the ground that defendant is collaterally estopped from contesting whether the loss is within the policy coverage (see, Servidone Constr. Corp. v Security Ins. Co., 64 N.Y.2d 419, 423, 488 N.Y.S.2d 139, 477 N.E.2d 441; Potter v National Grange Mut. Ins. Co. [appeal No. 3], 237 A.D.2d 889, lv denied 90 N.Y.2d 804). Defendant conceded at oral argument that it breached its duty to defend and is bound by the damages determined by the trial court, however, the breach by defendant of its duty to defend does not create coverage, and "defendant is not precluded from demonstrating that the actual basis of the insured's liability to plaintiffs is such that the loss falls entirely within the policy exclusion" ( Robbins v Michigan Millers Mut. Ins. Co., 236 A.D.2d 769, 771, 653 N.Y.S.2d 975). The evidence, however, fails to establish as a matter of law that plaintiffs' injuries were "expected or intended by the insured", and thus the court properly denied defendant's motion for summary judgment dismissing the complaint (see, Allstate Ins. Co. v Zuk, 78 N.Y.2d 41, 46, 571 N.Y.S.2d 429, 574 N.E.2d 1035; State Farm Mut. Auto. Ins. Co. v Van Dyke, 247 A.D.2d 848, 849, 668 N.Y.S.2d 821; Aetna Cas. & Sur. Co. v Gigante, 229 A.D.2d 975, 976, 645 N.Y.S.2d 386). We further conclude, however, that the court erred in denying defendant's motion to compel disclosure where, as here, plaintiffs' medical records may be probative on the issue of Hilbert's intent (see, Future Dev. Corp. v U.S. Underwriters Ins. Co., 234 A.D.2d 337, 338, 651 N.Y.S.2d 866).

 

Defendant's contention that plaintiffs failed to comply with Insurance Law @ 3420 (a) (2) before commencing this action, raised for the first time on appeal, is not properly before us (see, Catamount Enters. v Town of Lyons Assessors, 244 A.D.2d 913, 668 N.Y.S.2d 124). The court's failure to rule on that part of plaintiffs' cross motion seeking attorney's fees is deemed a denial (see, Brown v U.S. Vanadium Corp., 198 A.D.2d 863, 864, 604 N.Y.S.2d 432). Because plaintiffs did not cross-appeal from the judgment, their contention that they are entitled to attorney's fees is not properly before us (see, Oriskany Falls  Fuel v Finger Lakes Gas Co., 186 A.D.2d 1021, 1022, 590 N.Y.S.2d 824). In view of our decision, we do not address the parties' remaining contentions.

 

We therefore modify the judgment by denying that part of plaintiffs' cross motion seeking summary judgment and granting defendant's motion to compel disclosure.

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