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Coverage Pointers - Volume III, No. 19

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04/15/02:         GLENS FALLS INS. CO. v. CITY OF NEW YORK

New York State Supreme Court, Appellate Division, Second Department

No Coverage Afforded Landlord by Tenant’s Policy Where Liability Coverage Not Implicated and Landlord Not Named Additional Insured under Property Coverage; Claim for Breach of Contract to Procure Insurance Dismissed

A fire at the Brooklyn Navy Yard destroyed premises leased by New York Modular, Inc. (“tenant”) and owned by the City of New York and Brooklyn Navy Yard Development Corp. (“landlords”). The fire destroyed the entire building, including the leased premises. Pursuant to a requirement in the lease that tenant procure insurance for the benefit of the landlords, the tenant added the landlords as additional insureds to its commercial liability coverage, but not to its property damage coverage. The liability coverage was limited to liability arising from the tenant’s operations or premises rented to the tenant. The fire did not start in the tenant’s premises, nor was it a result of the tenant’s operations. Therefore, the tenant’s liability insurance did not cover the loss. The tenant’s insurance carriers also insured the tenant for property damage. Because the fire loss constituted property damage to the tenant, the tenant’s carriers compensated the tenant for the loss. In this action, the tenant and its carriers sought subrogation against the landlords. First, the court held that the action was not barred by the antisubrogation rule.  The tenant’s liability insurance did not cover the loss, and the landlords were not added to the tenant’s property insurance as additional insureds. For the same reason, the court also dismissed the landlords’ counterclaims for defense and indemnification under the tenant’s policy.  Finally, the court dismissed the landlords’ affirmative defense that the tenant had breached its obligation to obtain insurance for the landlord. The court held that a landlord couldn’t avoid the application of General Obligations Law §5-321 (which renders void and unenforceable agreements exempting lessors from liability for their negligence) merely by inserting into the lease a requirement that the tenant obtain insurance.

 

04/15/02:         NEW YORK HOSPITAL MEDICAL CENTER OF QUEENS v. STATE FARM MUT. AUTO. INS. CO.

New York State Supreme Court, Appellate Division, Second Department

No-Fault Carrier Entitled to Request Verification of No-Fault Claim and Request Sent to Hospital’s Attorney Deemed Sufficient to Toll 30-Day Time Period to Raise Exclusion

Court rejects the hospital’s argument that State Farm’s timely requests for claimant’s hospital records were ineffective to toll its time to pay or deny the claim because they were made by letter, rather than by prescribed form. Further, since the No-Fault forms sent to State Farm by the hospital stated that all inquiries should be directed to its attorney’s office, the hospital’s attorney was its authorized representative for the purpose of receiving and responding to requests for further verification of the claim. Finally, even if State Farm’s request for the records should have been sent directly to the hospital, its attorney, upon receiving the requests, should have contacted State Farm and communicated that requirement, or forwarded State Farm’s requests to the hospital himself. Since the hospital does not argue that the intoxication exclusion in the insurance policy is not applicable, State Farm is entitled to summary judgment dismissing the complaint.

 

04/08/02:            J&J v. TWIN CITY FIRE INS. CO.

New York State Supreme Court, Appellate Division, Second Department

Property Insured Lost Coverage for Materially Increasing Risk

The policy issued by defendants contained warranties requiring, among other things, that the vacant portion of the premises be kept locked and secured against unauthorized entry. A fire that broke out on the third and fourth floors damaged the property. After conducting an investigation, the defendant denied coverage for the loss on the ground that plaintiff had breached the warranty requiring it to keep the premises locked and secured, specifically, that the building was open and accessible to unauthorized persons and was occupied by squatters. Contrary to plaintiff's contention, the affidavits and admissible portions of the New York City Fire Department and New York City Fire Marshal reports submitted by the defendant established that the plaintiff breached the warranty in the policy (see Insurance Law § 3106[a], [b]). The evidence proffered by defendant also demonstrated that the breach materially increased the risk of loss, damage, or injury within the coverage of the policy, thereby defeating plaintiff's right to recovery.

 

04/08/02:            TAYLOR v. DORAL INN

New York State Supreme Court, Appellate Division, Second Department

Contractor is Liable for All Out-of-Pocket Expenses for its Failure to Procure Insurance

Taylor was allegedly injured in a construction accident at the premises of Doral Inn. Structure Tone, Inc., the general contractor, was performing the construction work in question. Structure Tone hired React Industries, Inc., to perform certain work, and React hired Taylor’s employer, OMC, Inc. The defendants/third-party plaintiffs moved, inter alia, for summary judgment on their causes of action alleging that React breached its contractual agreement to procure liability insurance naming them as additional insureds. In opposition to the motion, React failed to raise a triable issue of fact regarding its compliance with its contractual obligation to procure liability insurance naming the defendants/third-party plaintiffs as additional insureds. Thus, React was liable to them for all out-of-pocket damages caused by the breach.

 

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.

 

04/17/02:            KRONBERG v. NEW HAMPSHIRE INS. CO.

Connecticut Appellate Court

Underinsured Coverage -- Defining Exhaustion

Plaintiff must exhaust available liability policies before being allowed to file a claim for UIM benefits. Plaintiff cannot alone decide that pursuing a claim against the tortfeasor would be futile because of exclusion in the policy -- that requires a legal determination.

 

04/16/02:            HOWARD v. OREGON MUT. INS. CO

Idaho Supreme Court

Court Upholds Offset Provision In UIM Policy

The insured motorist was injured when a car drove across the centerline and struck his car. The other driver’s insurance company paid its policy limits of $50,000, but the insured claimed he suffered more than $100,000 in damages and sought coverage from his own insurer pursuant to the uninsured/underinsured motorists provision of his policy. The insurer, Oregon Mutual, argued that the UIM provision’s $50,000 limit should be offset by the other insurer’s payment of $50,000, as provided in the insurer’s policy. The Supreme Court of Idaho agreed and found that the insurer’s liability to its insured was therefore zero.

 

04/12/02:            TRADEWINDS ESCROW INC. v. TRUCK INS. EXCHANGE

California Court of Appeal

Professional Services Claim Not Covered by CGL Policy

Under business owners policy exclusion, insurer does not have duty to defend claim against insured for failing to render professional services. Action against insured arose out of failed sale of a home and policy excluded claims for “escrow services”.

 

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REPORTED DECISIONS

 

New York Hospital Medical Center of Queens v. State Farm Mut. Automobile Ins. Co.

 

In an action to recover no-fault medical payments under an automobile insurance policy, the defendant appeals from (1) an order of the Supreme Court, Rockland County (Nelson, J.), dated January 19, 2001, which granted the plaintiff's motion for summary judgment and denied its cross motion for summary judgment dismissing the complaint, and (2) a judgment of the same court, dated January 23, 2001, which is in favor of the plaintiff and against it in the principal sum of $7,828.56.

 

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

 

ORDERED that the judgment is reversed, on the law, the order is vacated, the motion is denied, the cross motion is granted, and the complaint is dismissed; and it is further,

 

ORDERED that the defendant is awarded one bill of costs.

 

The appeal from the intermediate order must be dismissed because the right of direct appeal therefrom terminated with the entry of judgment in the action (see Matter of Aho, 39 NY2d 241, 248). The issues raised on the appeal from the order are brought up for review and have been considered on the appeal from the judgment (see CPLR 5501[a][1]).

 

On February 21, 2000, George Varghese was hospitalized at Nyack Hospital (hereinafter the hospital) after being injured in an automobile accident. He had been driving a vehicle insured by State Farm Mutual Automobile Insurance Company (hereinafter State Farm). On March 9, 2000, the hospital, as Varghese's assignee, sent NF-5 and UB-92 forms to State Farm seeking payment of Varghese's hospital bill, pursuant to the no-fault law. State Farm received the forms on March 13, 2000, and on March 21, 2000, sent a letter to the hospital's attorney, requesting Varghese's hospital records. The records were not forwarded, and on April 21, 2000, State Farm sent a follow-up request to the hospital's attorney.

 

The hospital then commenced this action for payment of its bill, and moved for summary judgment alleging that State Farm was precluded from defending against the claim due to its failure to either pay or deny it within 30 days of receiving the NF-5 and UB-92 forms. State Farm opposed the hospital's motion, and cross-moved for summary judgment, arguing that the 30-day period in which to pay or deny the claim was tolled by its requests for additional verification, which went unanswered by the hospital. Annexed to State Farm's cross motion were copies of Varghese's hospital records, which had been received in the course of this litigation, and which established that Varghese was intoxicated upon his admission to the hospital immediately after the accident. State Farm also submitted proof that Varghese was convicted of driving while intoxicated as a felony in connection with the accident. On August 2, 2000, two days after State Farm received Varghese's hospital records, it sent the hospital a denial of the claim, based upon the intoxication exclusion in the policy issued to its insured.

 

"With certain exceptions not relevant here, an insurance company has 30 days from receipt of a completed application to pay or deny in whole or in part a claim for no-fault insurance benefits (see 11 NYCRR 65.15[g]). This period may be extended by, inter alia, a timely demand by the insurance company for further verification of a claim (see 11 NYCRR 65.15[d][1]; [e]) * * * If the demanded verification is not received within 30 days, the insurance company must issue a follow-up letter within 10 days of the insured's failure to respond (see 11 NYCRR 65.15[e][2])" (Westchester County Med. Ctr. v New York Cent. Mut. Fire Ins. Co., 262 AD2d 553, 554).

 

Here, the hospital does not dispute that State Farm sent a timely request for further verification of the claim, and a timely follow-up request. Rather, the hospital argues that State Farm's requests for additional verification did not toll the 30-day period in which to pay or deny the claim, because they were not made on prescribed forms, and were addressed to the hospital's attorney, instead of directly to the hospital.

 

Pursuant to 11 NYCRR 65.15(g)(7), "if an insurer has reason to believe that the applicant was operating a motor vehicle while intoxicated * * * and such intoxication * * * was a contributing cause of the automobile accident, the insurer shall be entitled to all available information relating to the applicant's condition at the time of the accident. Proof of a claim shall not be complete until the information which has been requested, pursuant to paragraph (d)(1) or (2) of this section, has been furnished to the insurer by the applicant or the [applicant's] authorized representative."

 

We reject the hospital's argument that State Farm's timely requests for Varghese's hospital records were ineffective to toll its time to pay or deny the claim because they were made by letter, rather than by prescribed form (see New York & Presbyt. Hosp. v American Trans. Ins. Co., 287 AD2d 699; Westchester County Med. Ctr. v New York Cent. Mut. Fire Ins. Co., supra). Further, since the NF-5 and UB-92 forms sent to State Farm by the hospital stated that all inquiries should be directed to its attorney's office, the hospital's attorney was its authorized representative for the purposes of receiving and responding to requests for further verification of the claim. Finally, even if State Farm's request for the hospital records should have been sent directly to the hospital, its attorney, upon receiving the requests, should have contacted State Farm and communicated that requirement, or forwarded State Farm's requests to the hospital himself (see Westchester County Med. Ctr. v New York Cent. Fire Ins. Co., supra).

 

Since the hospital does not argue that the intoxication exclusion in the insurance policy is not applicable, State Farm is entitled to summary judgment dismissing the complaint.

 

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

 

J&J, LLC v. Twin City Fire Ins. Co.

 

In an action, inter alia, to recover damages for breach of an insurance policy, the plaintiff appeals from an order of the Supreme Court, Kings County (Held, J.), dated December 18, 2000, which granted the defendant's motion for summary judgment dismissing the complaint.

 

ORDERED that the order is affirmed, with costs.

 

The plaintiff obtained a property insurance policy from the defendant for a four-story building located on Flatbush Avenue in Brooklyn. In its application for the policy, the plaintiff indicated that some retail space on the first floor of the building was occupied, but the apartments on the second, third, and fourth floors were vacant. Consequently, the policy issued by the defendants contained warranties requiring, among other things, that the vacant portion of the premises be kept locked and secured against unauthorized entry. The property was damaged by a fire which broke out on the third and fourth floors. After conducting an investigation, the defendant denied coverage for the loss on the ground that the plaintiff had breached the warranty requiring it to keep the premises locked and secured, specifically, that the building was open and accessible to unauthorized persons and was occupied by squatters. The plaintiff then commenced this action, inter alia, to recover the proceeds of the policy. The Supreme Court granted the defendant's motion for summary judgment dismissing the complaint.

 

Contrary to the plaintiff's contention, the affidavits and admissible portions of the New York City Fire Department and New York City Fire Marshal reports submitted by the defendant established that the plaintiff breached the warranty in the policy (see Insurance Law § 3106[a], [b]). The evidence proffered by the defendant also demonstrated that the breach materially increased the risk of loss, damage, or injury within the coverage of the policy, thereby defeating the plaintiff's right to recovery (see M. Fabrikant & Sons v Overton & Co. Customs Brokers, 209 AD2d 206; Insurance Law § 3106[b]). In opposition to the motion, the plaintiff failed to establish the existence of a triable issue of fact.

 

The plaintiff's remaining contention is without merit.

 

SANTUCCI, J.P., ALTMAN, FLORIO and FEUERSTEIN, JJ., concur.

 

Taylor v. Doral Inn

 

In an action to recover damages for personal injuries, the defendant third-party defendant React Industries, Inc., appeals from so much of an order of the Supreme Court, Kings County (Schmidt, J.), dated April 4, 2001, as granted that branch of the motion of the defendants third-party plaintiffs, the defendant-respondent SLC Operating Limited Partnership, and Starlex, LLC, for summary judgment on the causes of action in the third-party complaint to recover damages for breach of contract.

 

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

 

The plaintiff Robert Taylor allegedly was injured in a construction accident at the premises of the defendant third-party plaintiff Doral Inn. The defendant third-party plaintiff Structure Tone, Inc. (hereinafter Structure Tone), was the general contractor performing the construction work in question. Structure Tone hired the defendant third-party defendant React Industries, Inc. (hereinafter React), to perform certain work, and React hired Taylor's employer, the third-party defendant OMC, Inc. (hereinafter OMC). The defendants third-party plaintiffs moved, inter alia, for summary judgment on their causes of action alleging that React breached its contractual agreement to procure liability insurance naming them as additional insureds. The Supreme Court granted summary judgment and we affirm.

 

In opposition to the defendants third-party plaintiffs' prima facie demonstration of entitlement to judgment as a matter of law, React failed to raise a triable issue of fact regarding its compliance with its contractual obligation to procure liability insurance naming the defendants third-party plaintiffs as additional insureds. Thus, React is liable to the defendants third-party plaintiffs for all out-of-pocket damages caused by the breach (see Inchaustegui v 666 5th Ave. Ltd. Partnership, 96 NY2d 111, 114; Kinney v Lisk Co., 76 NY2d 215; cf. Reynolds v County of Westchester, 270 AD2d 473, 474).

 

React's remaining contentions are without merit.

 

RITTER, J.P., O'BRIEN, KRAUSMAN and ADAMS, JJ., concur.

 

Glens Falls Ins. Co. v. City of New York

 

In an action to recover for property damage and for subrogation, the plaintiffs appeal (1), as limited by their brief, from so much of an order of the Supreme Court, Kings County (Hutcherson, J.), entered August 16, 1999, as granted those branches of the separate motions of the defendants City of New York and Brooklyn Navy Yard Development Corp. which were for leave to amend their answers to assert counterclaims alleging that the plaintiff Glens Falls Insurance Company was obligated to defend and possibly indemnify them in the instant action and related actions arising from a fire which occurred on October 30, 1992, and denied their cross motion for summary judgment dismissing the fifth, sixth, and seventh affirmative defenses asserted by the defendants City of New York and Brooklyn Navy Yard Development Corp., and (2) from so much of an order of the same court, entered December 15, 2000, as granted those branches of the motion of the defendant Brooklyn Navy Yard Development Corp. and the cross motion of the defendant City of New York which were for summary judgment on the counterclaims asserting that the plaintiff Glens Falls Insurance Company was obligated to defend and possibly indemnify them, and Brooklyn Navy Yard Development Corp. cross-appeals from so much of the order entered August 16, 1999, as denied its cross motion for summary judgment dismissing the complaint based upon the fifth, sixth, and seventh affirmative defenses.

 

ORDERED that the order entered August 16, 1999, is reversed insofar as appealed from, on the law, by (1) deleting the provision thereof granting those branches of the motions of the defendants City of New York and Brooklyn Navy Yard Development Corp. which were for leave to amend their answers to assert counterclaims, and substituting therefor a provision denying those branches of the motions, and (2) deleting the provision thereof which denied those branches of the plaintiffs' cross motion which were to dismiss the fifth, sixth, and seventh affirmative defenses of the defendants Brooklyn Navy Yard Development Corp. and the City of New York, and substituting therefor a provision granting those branches of the cross motion; and it is further,

 

ORDERED that the order entered August 16, 1999, is affirmed insofar as cross-appealed from; and it is further,

 

ORDERED that the order entered December 15, 2000, is vacated; and it is further,

 

ORDERED that the appeal from the order entered December 15, 2000, is dismissed as academic in light of our determination on the appeal from the order entered August 16, 1999; and it is further,

 

ORDERED that the plaintiffs are awarded one bill of costs.

 

On October 30, 1992, a fire at the Brooklyn Navy Yard destroyed the leased premises of the plaintiff New York Modular, Inc. (hereinafter the tenant). The tenant leased the space from the defendants City of New York and Brooklyn Navy Yard Development Corp. (hereinafter the landlords).

 

Pursuant to a provision in the lease which required the tenant to procure insurance for the benefit of the landlords, the tenant added the landlords as additional insureds to its commercial liability coverage, but not to its property damage coverage. Liability coverage was limited to liability arising from the tenant's operations or premises rented to the tenant. The fire destroyed the entire building, including the tenant's premises. The fire did not start in the tenant's premises, nor was it a result of the tenant's operations. Therefore, the tenant's liability insurance did not cover the loss.

 

The tenant's insurance carriers also insured the tenant for property damage. The fire loss constituted property damage to the tenant. Therefore, the tenant's insurance carriers compensated the tenant for its loss. In the instant action, the tenant and its insurance carriers seek subrogation against the landlords for the loss.

 

Since the tenant's liability insurance did not cover the loss, and the landlords were not added to the tenant's property insurance as additional insureds, the tenant's policy does not cover the landlords with respect to the loss. Thus, the antisubrogation rule does not apply (see McGurran v Dicanio Planned Dev. Corp., 216 AD2d 538; Commerce & Indus. Ins. Co. v Admon Realty, 168 AD2d 321).

 

The landlords' counterclaims, which asserted that the tenant's insurance carrier, Glens Falls Insurance Company, must defend and possibly indemnify the landlords, were plainly without merit. Glens Falls Insurance Company does not cover the landlords with respect to the loss, and has no duty to defend them (see Federal Ins. Co. v Commerce & Indus. Ins. Co., 187 AD2d 278). Similarly, the defendants' fifth affirmative defense asserting the antisubrogation rule should be dismissed.

 

The defendants' sixth affirmative defense asserts that in the lease, the tenant waived all claims against the landlords for damages to goods, wares, and merchandise. Pursuant to General Obligations Law § 5-321, a lease provision purporting to hold the landlord harmless for injury to the tenant's property resulting from the landlord's own negligence is unenforceable (see A to Z Applique Die Cutting v 319 McKibbin St. Corp., 232 AD2d 512, 513). Therefore, this affirmative defense should be dismissed.

 

Similarly, the seventh affirmative defense, which asserts that the tenant breached its obligation to obtain insurance for the landlord, should be dismissed. A landlord cannot avoid the application of General Obligations Law § 5-321 merely by inserting into the lease a requirement that the tenant obtain insurance (see A to Z Applique Die Cutting v 319 McKibbin St. Corp., supra, at 513-514).

 

SANTUCCI, J.P., SMITH, GOLDSTEIN and FRIEDMANN, JJ., concur.

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