Coverage Pointers - Volume III, No. 3

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07/23/01:         MORTILLARO v. PUBLIC SERVICE MUTUAL INS. CO.

New York State Supreme Court, Appellate Division, Second Department

Plaintiffs Entitled to Challenge Disclaimer Prior to Obtaining Judgment against Insured

In an action for a judgment declaring that insurer was obligated to defend and indemnify plaintiffs in an underlying action, court held that the insurer’s motion to dismiss should not have been granted. Plaintiffs, who were not in privity with the insurers, nevertheless stood to benefit from the professional liability policy issued by the insurer to plaintiffs’ insurance broker.  Thus, plaintiffs were entitled to challenge the insurer’s disclaimer of coverage prior to obtaining a judgment against the broker.

 

07/19/01:         SLAYKO v. SECURITY MUTUAL INS. CO.

New York State Supreme Court, Appellate Division, Third Department

Blanket Criminal Activity Exclusion Unenforceable

Plaintiff commenced this action seeking a declaration that defendant had a duty to defend and indemnify its insured under a homeowner’s policy in an action for injuries sustained to his left arm when the insured picked up a 20-gauge shotgun, cocked it, aimed it in plaintiff's vicinity and pulled the trigger.  The insured was apparently unaware that the gun was loaded and insisted that the shooting was accidental. Thereafter, the insured pleaded guilty to assault in the second degree admitting that he recklessly caused serious physical injury by means of a deadly weapon or a dangerous instrument in violation of Penal Law § 120.05 [4].  In opposing the claim, defendant argued that the “intentional acts” and “criminal activity” exclusions barred coverage.  First, the court concluded that the intentional acts exclusion did not apply,  “The critical issue is not whether the cause of the injury was accidental or intentional, but whether the harm that resulted to the victim was expected or intended by the [insured].”  Here, the insured intentionally pulled the trigger, but there was no evidence that he intended to injure plaintiff or was aware that the gun was loaded prior to its discharge.  The court also held that the “criminal activity” exclusion was unenforceable.  The exclusion provided that “[t]his policy does not apply to liability arising directly or indirectly out of instances, occurrences or allegations of criminal activity by the insured or by employees of the insured named in this policy.”  The court concluded that the exclusion was against public policy because the language employed was so overbroad it rendered coverage illusory and would “reduce indemnity to a mere façade”.

 

ACROSS BORDERS

 

08/02/01:         O'LEARY-ALLISON v. METROPOLITAN PROPERTY AND CASUALTY INS. COMPANY

Massachusetts Appeals Court

An Insurer's Good Faith, But Mistaken, Valuation of Damages Does Not Constitute a Violation of Consumer Protection Statutes

Resolution of a G. L. c. 93A claim, including the issue of bad faith, depends on a factual determination of the defendant’s knowledge and intent. The court will not disturb a judge’s ultimate finding in a c. 93A claim unless the finding is clearly erroneous or inconsistent with the relevant legal standards. An insurer's duty to settle arises when “liability has become reasonably clear.”

 

07/30/01:         OADE v. JACKSON NATIONAL LIFE INS. CO. OF MICHIGAN

Michigan Supreme Court

Life Insurance Applicant's Failure to Provide Updated Health and Treatment Information between Date Application Signed and Date Policy Issued Leads Allows Insurer to Void Contract

In this life insurance dispute, plaintiffs, Jeffrey Lee Oade and Sheilah Chouinard, seek to recover benefits from a Jackson National Life insurance policy issued and delivered to Gary Oade. Plaintiffs, the son and friend of Mr. Oade, respectively, are the named beneficiaries of the insurance policy. Defendant claims that the policy never became effective because Mr. Oade failed, as required by the terms of the insurance application, to provide updated information about his health and medical treatment between the date he signed the application and the day the policy was issued. Leave was granted to address the applicability of the statutory requirement under MCL 500.2218(1), that a misrepresentation in an application of insurance be material in order to make the insurance policy avoidable. Because Mr. Oade had an explicit, contractual continuing duty to ensure that the answers in his insurance application remained true until the effective date of the policy, it holds that Mr. Oade’s failure to supplement his medical history rendered his original answers false, making them “misrepresentations” within the meaning of MCL 500.2218(2). However, contrary to the Court of Appeals decision, the Court concludes that these misrepresentations were material, and that defendant was therefore entitled to avoid the contract. Accordingly, it reverses the Court of Appeals decision and reinstates summary disposition in favor of defendant.

 

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REPORTED DECISIONS

 

SLAYKO v. SECURITY MUTUAL INSURANCE COMPANY

 

Cardona, P.J.

 

Appeal from an order of the Supreme Court (Demarest, J.), entered March 7, 2000 in St. Lawrence County, which, inter alia, granted plaintiff's motion for summary judgment.

 

Plaintiff commenced this action seeking, inter alia, a declaration that defendant Security Mutual Insurance Company (hereinafter defendant) has a duty to defend and indemnify its insured, defendant Joseph France, in a personal injury action arising out of an incident occurring on May 13, 1996, at premises owned by France's grandmother, with whom he was living at the time. On that day, plaintiff, a friend of France, sustained serious injuries to his left arm when France picked up a 20‑gauge shotgun, cocked it, aimed it in plaintiff's vicinity and pulled the trigger, resulting in plaintiff's injuries.[1] France was apparently unaware that the gun was loaded and insisted that the shooting was accidental. Thereafter, France pleaded guilty to assault in the second degree admitting that he recklessly "cause[d] serious physical injury to [plaintiff] by means of a deadly weapon or a dangerous instrument" (Penal Law § 120.05 [4]).

 

In opposing plaintiff's claim under the homeowner's general liability insurance policy held by France's grandmother and another individual, defendant's disclaimer asserted that the shooting was not an "occurrence" within the meaning of the policy and the injury arose out of "criminal activity" by an insured. Following discovery, plaintiff and defendant each moved for summary judgment. Supreme Court granted plaintiff's motion and defendant appeals.

 

Initially, defendant maintains that Supreme Court erred in granting summary judgment to plaintiff concerning the policy exclusion for "intentional acts". In that regard, defendant argues that because France intended to pull the trigger, the incident was not an accident, i.e., "occurrence" as defined by the policy and coverage should be denied. The policy exclusion for "intentional acts" in the subject policy provides that "[t]his policy does not apply to liability * * * caused intentionally by or at the direction of any insured". Additionally, the policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially similar conditions". Notably, in construing issues such as this in order to determine whether an occurrence under the policy exists, it is permissible to find "that the resulting damage was unintended although the original act or acts leading to the damage was intentional" (McGroarty v Great Am. Ins. Co., 36 NY2d 358, 364; see, Allegany Co-op Ins. Co. v Kohorst, 254 AD2d 744). "[T]he critical issue is not whether [the cause of the injury] was accidental or intentional, but whether the harm that resulted to the victim * * * was 'expected or intended by the protected person'" (Jubin v St. Paul Fire & Mar. Ins. Co., 236 AD2d 712, 713, quoting Pistolesi v Nationwide Mut. Fire Ins. Co., 223 AD2d 94, 95, lv denied 88 NY2d 816).

 

Here, while it certainly appears that France intentionally pulled the trigger, the fact remains that the record is devoid of evidence that he intended to injure plaintiff or was aware that the gun was loaded prior to its discharge. Significantly, the personal injury complaint, as well as the deposition testimony of plaintiff and France, consistently maintain that France negligently or accidentally caused injury to plaintiff (cf., Town of Massena v Healthcare Underwriters Mut. Ins. Co., ___ AD2d ___, ___, 724 NYS2d 107, 111). This conclusion is not altered by evidence that, prior to discharging the weapon near plaintiff, France first squeezed the trigger and "pumped" the shotgun to eject an empty shell. Defendant failed to present any evidence disputing France's description of the incident, wherein he stated that he first discharged the empty shell and then pulled the trigger again because he wanted to "hear it click". After plaintiff was hit, France exclaimed, "Oh, my god, I shot you" and acted immediately to obtain medical attention for plaintiff. Since defendant has failed to raise a question of fact as to whether France intended the harm to plaintiff, Supreme Court correctly granted summary judgment to plaintiff and concluded that the policy exclusion for "intentional acts" did not apply.

 

Next, we turn to the more problematic issue of the effect that should be given to the blanket exclusion for "criminal activity" in the policy herein. The provision states that "[t]his policy does not apply to liability arising directly or indirectly out of instances, occurrences or allegations of criminal activity by the insured or by employees of the insured named in this policy" (emphasis supplied).[2] The policy further sets forth that this particular exclusion applies regardless of whether the claims are advanced as "sounding in negligence or breach of contract". Significantly, exclusions from coverage are not favored and will be strictly construed (see, De Paolo v Leatherstocking Coop. Ins. Co., 256 AD2d 879). Nevertheless, in interpreting an insurance policy "unambiguous provisions must be given their plain and ordinary meanings" (Demopoulous v New York Cent. Mut. Fire Ins. Co., 280 AD2d 855, 856), but any uncertainty or ambiguity in the meaning of particular provisions must be resolved against the insurance company responsible for drafting the language (see, Butler v New York Cent. Mut. Fire Ins. Co., 274 AD2d 924, 925). "The test for determining whether an insurance provision is ambiguous 'focuses on the reasonable expectations of the average insured upon reading the policy'" (id., at 925-926, quoting Matter of Mostow v State Farm Ins. Cos., 88 NY2d 321, 326‑327).

 

The homeowner's policy drafted by defendant does not define the phrase "criminal activity", however, defendant urges that, unlike policy provisions excluding coverage for damages reasonably expected to result from criminal acts such as the one interpreted in Allstate Ins. Co. v Zuk (78 NY2d 41), the meaning herein is clear and criminal activity of any kind or degree, even if only alleged, is excluded regardless of whether the resulting harm was intended. Significantly, Supreme Court determined that, on its face, the exclusion language in this policy unambiguously shielded defendant from liability. Nevertheless, the court found the language employed in defendant's policy so overbroad that it rendered coverage illusory, thus, "foreclos[ing] an insured from coverage for precisely the damages he reasonably thought himself insured".

 

We agree with Supreme Court that the provision is against public policy since it would, literally construed, "reduce indemnity to a mere facade" (Sledge v Continental Cas. Co., 639 So 2d 805, 812 [La]). While there are certainly competing public policy concerns prohibiting the insured from being indemnified for his or her own criminal acts, it is also true that:

 

The mere fact that an act may have penal consequences does not necessarily mean that insurance coverage for civil liability arising from the same act is precluded by public policy. * * * Whether such coverage is permissible depends upon whether the insured, in committing his criminal act, intended to cause injury. One who intentionally injures another may not be indemnified for any civil liability thus incurred. However, one whose intentional act causes an unintended injury may be so indemnified * * * (Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392, 399 [citations omitted]).

 

Furthermore, the Court of Appeals in Allstate Ins. Co. v Zuk (supra) reaffirmed these underlying public policy concerns. Accordingly, we conclude that since the blanket criminal activity exclusion clearly defies the reasonable expectations of the insured, it was properly struck by Supreme Court as unenforceable (see, Tower Ins. Co. v Judge, 840 F Supp 679, 692-693; see also, Graham v Jackson Assocs., 84 NC App 427, 352 SE2d 878).

 

Mercure, Crew III, Mugglin and Rose, JJ., concur.

 

ORDERED that the order is affirmed, with costs.

 

MORTILLARO v PUBLIC SERVICE MUTUAL INSURANCE COMPANY

 

In an action for a judgment declaring, inter alia, that the defendant American International Specialty Lines Insurance Company is obligated to defend and indemnify the plaintiffs in an action entitled Scagnelli v Stella's Diner, pending in the Supreme Court, Queens County, under Index No. 23748/98, the plaintiffs appeal, as limited by their brief, from so much of an order of the Supreme Court, Kings County (Steinhardt, J.), dated May 4, 2000, as granted the motion of the defendant American International Specialty Lines Insurance Company pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted against it.

 

ORDERED that the order is reversed insofar as appealed from, on the law, with costs, the motion is denied, and the complaint is reinstated insofar as asserted against the respondent.

 

A plaintiff need not be privy to an insurance contract to commence a declaratory judgment action to determine the rights and obligations of the respective parties, so long as the plaintiff stands to benefit from the policy (see, Watson v Aetna Cas. & Sur. Co., 246 AD2d 57; Tepedino v Zurich-American Ins. Group, 220 AD2d 579; Costa v Colonial Penn Ins. Co., 204 AD2d 591). Here, the plaintiffs clearly stand to benefit from the professional liability policy issued by the defendant American International Specialty Lines Insurance Company (hereinafter AISL), to the plaintiffs' insurance broker, the defendant Romania Insurance Brokerage, Inc. (hereinafter Romania). Accordingly, the plaintiffs are entitled to challenge the disclaimer of coverage issued by AISL prior to obtaining a judgment against Romania, and the Supreme Court erred in granting the motion to dismiss the complaint insofar as asserted against AISL.

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