Coverage Pointers - Volume III, No. 7
New York State Supreme Court, Appellate Division, Fourth Department
Business Pursuits Exclusion Applies where Structure Used to Record Music; Deemed Ambiguous where Structure Used to Store Business Items
In an action for coverage under a homeowner’s policy arising out of the collapse of the insured’s carriage barn, the court held that the parties’ respective motions for summary judgment were properly denied. An issue of fact was raised whether the insured recorded music in the barn as part of his music recording business and thus whether the barn was “used in whole or in part for business purposes”, a use that would exclude coverage. However, the same exclusion could not be relied upon to deny coverage for the insured’s use of the barn to store business items. The court held that the phrase “used in whole or in part for business purposes” is ambiguous in the absence of any qualifying language. Summary judgment dismissing claims against the insured’s agent for negligence in procuring a homeowner’s rather than a commercial policy was also properly denied where the insured presented evidence that insurance covering a specific type of loss had been requested.
09/26/01: STATE FARM v. MALLELA
United States District Court, Eastern District of New York
Insurance Carrier’s Claim To Recover No-Fault Benefits Paid to Illegally Structured Medical Businesses Denied
State Farm commenced an action against numerous medical practices seeking the return of no-fault benefits paid to corporations it believed were illegally structured under New York’s Business Corporation Law. Under New York’s Business Corporation Law §1508, a person may not serve as an officer or director of a medical care corporation unless he/she is licensed to practice in the same profession as the corporation itself. State Farm alleged that the defendant medical care corporations filed certificates of incorporation with the State of New York asserting that they were engaged in the practice medicine and that licensed physicians were shareholders, directors or officers of these companies. The crux of State Farm’s claim was its assertion that the defendant medical business corporations listed physicians as sham shareholders of these companies when in fact these individuals had no real ownership or control over the businesses which were engaged in the practice of medicine. The court ruled that New York’s Insurance Regulations do not permit an insurance carrier to deny a claim based upon the corporate structure of the business. The court dismissed without prejudice State Farms’ claim for fraud, fraudulent concealment and unjust enrichment. State Farm is entitled to amend its complaint to properly assert valid claims under these theories. This ruling stands in stark contrast to an earlier decision by New York State Supreme Court in a lawsuit brought by approximately seventeen insurance companies.
New York State Supreme Court, Appellate Division, First Department
Policy Provisions, Not Insurance Procurement Provisions of Subcontract, Control Determination Whether Policies are Excess or Contributing
Court held that defendant could not seek contribution from plaintiff’s excess policy, where plaintiff’s policy was expressly excess over all other coverages, and defendant’s policy was excess only as against primary coverage. In reaching this conclusion, the court held that provisions of the subcontract for construction were not entitled to any evidentiary weight, since it is the policy provisions that control and not the provisions of the subcontract.
09/17/01: COHN v NATIONWIDE MUTUAL INSURANCE CO.
New York State Supreme Court, Appellate Division, Second Department
Opening of Door to Exit Vehicle Constitutes “Use and Operation” of Vehicle Under V&T Law §388
Court held that insurer of taxicab was obligated to provide liability coverage in underlying action for injuries sustained by plaintiff when passengers opened the taxicab door into her path and struck her. The passengers’ act of opening the taxicab door in order to exit the vehicle constituted “use and operation” of a vehicle pursuant to Vehicle and Traffic Law §388.
09/17/01: HAZEN v OTSEGO MUTUAL FIRE INSURANCE CO.
New York State Supreme Court, Appellate Division, Second Department
Disclaimer based on Insured’s Late Notice Deemed Ineffective Against Injured Party
In an action pursuant to Insurance Law §3420 to recover an unsatisfied judgment against the defendant’s insureds, the court held the insurer was estopped from relying on injured party’s alleged late notice as ground for disclaiming coverage. The insurer’s disclaimer was based only on insured’s failure to notify it of the claim, not the injured party’s late notice.
Illinois Supreme Court
Illinois Adopts "Injury-in-Fact" Approach to Property Damage Under CGL Policies
The issue in this consolidated appeal was to determine when indemnity coverage for “property damage” under excess comprehensive general liability insurance policies issued by various insurers between 1979 and 1990 by various insurance companies were triggered. The insurers filed four declaratory judgment actions in the Circuit Court of Cook County, seeking a declaration with respect to the insurers’ obligations to indemnify the policyholders in thousands of underlying product liability claims filed by individuals alleging property damage arising out of the failure of the "Qest Qick/Sert II" (Qest) residential plumbing system. The Qest system was manufactured and sold by policyholders, and was installed in buildings throughout the country during the policy periods. The insurers’ duty to indemnify the policyholders for underlying “property damage” claims is triggered only when an actual leak in a Qest plumbing system occurs during the policy period. Overruling prior case law, the court held that there must be physical injury to tangible property for there to be an occurrence. The court rejected the argument advanced by the policyholders that “property damage” covered under the insurers’ policies occurred during the policy period in which the Qest plumbing system was installed into a residence.
09/20/01: STATE FARM v. SMITH
Illinois Supreme Court
“Automobile Business” Exclusion in Auto Policy Rules Violative of State Law
In a previous decision the court concluded that section 7-601(a), together with section 7-317(b)(2), mandates that “a liability insurance policy issued to the owner of a vehicle must cover the named insured and any other person using the vehicle with the named insured’s permission.” On the basis of section 7-317(b)(2), defendants argued that an automobile business exclusion in State Farm’s insurance policy violates the public policy of Illinois. They argued that when a vehicle owner gives his vehicle to a person engaged in an automobile business -- a business whose purpose it is to sell, lease, repair, service, transport, store or park land motor vehicles or trailers -- the owner is giving that person express or implied permission to use the vehicle. The automobile business exclusion thus violates Illinois’ requirement that a vehicle owner’s liability insurance policy cover any person using the owner’s vehicle with the express or implied permission of the owner. The high court agrees that the automobile business exclusion in State Farm's insurance policy violates the public policy of Illinois as stated in the Illinois Vehicle Code.
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Order and judgment (one paper), Supreme Court, New York County (Franklin Weissberg, J.), entered July 6, 2000, which granted plaintiffs' motion for summary judgment and declared that defendant must indemnify its insured for payment of any amount above plaintiff insurer's primary policy limit and within the limits of defendant's policy necessary to satisfy a judgment in the underlying action, and declared that the policy limits of defendant's excess policy must be exhausted before plaintiff insurer will be obligated under its excess policy, unanimously affirmed, with costs.
The excess insurance policy issued by plaintiff insurer is expressly excess as against all other coverage, including other excess coverage. Defendant's policy is expressly excess only as against primary coverage. The motion court therefore properly concluded that defendant cannot seek contribution from plaintiff via its excess policy (see, State Farm Fire & Cas. Co. v. LiMauro, 65 NY2d 369, 375-376). In reaching this conclusion, the motion court properly declined to give evidentiary weight to the insurance procurement provisions of the subcontract between plaintiff general contractor and the injured party's employer, since it is the policy provisions that control and not the provisions of the subcontract (see, United States Fidelity & Guar. Co. v. CNA Ins. Cos., 208 AD2d 1163, 1165).
This constitutes the decision and order of the Supreme Court, Appellate Division, First Department.
In an action for a judgment declaring that the defendants American Transit Insurance Company and Nationwide Mutual Insurance Company are required to indemnify the plaintiff for injuries sustained as a result of an accident which occurred on October 7, 1996, the plaintiff appeals from an order of the Supreme Court, Queens County (Thomas, J.), dated May 15, 2000, which granted the motion of the defendant American Transit Insurance Company for summary judgment declaring that it is not required to defend the defendants Reid Hoeg and Joyce Rawlins with respect to the accident, and denied her cross motion for summary judgment declaring that American Transit Insurance Company is required to provide liability insurance protection to its insured pursuant to Vehicle and Traffic Law - 388 for any injuries caused to the plaintiff as a result of the use of the taxicab it insured by passengers, and the defendants Reid Hoeg and Joyce Rawlins, and the defendant Nationwide Mutual Insurance Company, separately cross-appeal, as limited by their respective briefs, from so much of the same order as granted the motion of the defendant American Transit Insurance Company for summary judgment.
ORDERED that the order is modified, on the law, by deleting the provision thereof denying the cross motion and substituting therefor a provision granting the cross motion to the extent that American Transit Insurance Company is required to provide liability insurance protection to its insured pursuant to Vehicle and Traffic Law - 388 for any injuries sustained by the plaintiff as a result of the negligent use of the insured taxicab by the defendants Reid Hoeg and Joyce Rawlins; as so modified, the order is affirmed, with one bill of costs payable by the defendant American Transit Insurance Company to the appellant-respondent and the respondents-appellants appearing separately and filing separate briefs, and the matter is remitted to the Supreme Court, Queens County, for the entry of a judgment declaring that the defendant American Transit Insurance Company must provide liability insurance protection to its insured pursuant to Vehicle and Traffic Law - 388 for any injuries sustained by the plaintiff as a result of the negligent use of the insured taxicab by the defendants Reid Hoeg and Joyce Rawlins on October 7, 1996.
On October 7, 1996, the defendants Reid Hoeg and Joyce Rawlins were passengers in a taxicab owned by the defendant Sigalit Taxi Cab Corp. (hereinafter Sigalit) and insured by the defendant American Transit Insurance Company (hereinafter ATIC). The plaintiff was allegedly injured while riding a bicycle when Hoeg and Rawlins opened the taxicab door into her path and struck her.
The Supreme Court properly granted ATIC's motion for summary judgment declaring that it was not required to defend the passengers in connection with any action by the plaintiff to recover damages for personal injuries (see, Swee v Vals Trans, 225 AD2d 113).
However, the plaintiff's cross motion for summary judgment declaring that ATIC is required to provide liability insurance protection to its insured pursuant to Vehicle and Traffic Law - 388 for any injuries caused to her by the use of the taxicab it insured as a result of the use of said vehicle by the passengers, should have been granted to the extent that ATIC is required to provide liability insurance protection to its insured pursuant to Vehicle and Traffic Law - 388 for any injuries sustained by the plaintiff as a result of the passengers' negligent use of the insured taxicab. The passengers' act of opening the taxicab door in order to exit the vehicle constitutes "use and operation" of a vehicle pursuant to Vehicle and Traffic Law - 388, and accordingly, Sigalit, as owner of the taxicab, would be liable for the plaintiff's injuries, provided that the passengers' "use and operation" of the taxicab was negligent (see generally, Argentina v Emery World Wide Delivery Corp., 93 NY2d 554; see also, Vehicle and Traffic Law - 388).
Pursuant to the policy issued to Sigalit by ATIC, ATIC is required to provide coverage to Sigalit under such circumstances.
We note that since this is a declaratory judgment action, the matter must be remitted to the Supreme Court for the entry of a judgment declaring that ATIC is required to provide liability insurance protection to its insured pursuant to Vehicle and Traffic Law - 388 for any injuries sustained by the plaintiff as a result of the negligent use of the insured taxicab by Hoeg and Rawlins (see, Lanza v Wagner, 11 NY2d 317, 334, appeal dismissed 371 US 74, cert denied 371 US 901).
KRAUSMAN, J.P., McGINITY, SCHMIDT and ADAMS, JJ., concur.
In an action pursuant to Insurance Law - 3420 to recover an unsatisfied judgment against the defendant's insureds, the defendant appeals from an order of the Supreme Court, Richmond County (Minardo, J.), dated July 6, 2000, which granted the plaintiffs' motion for summary judgment.
ORDERED that the order is affirmed, with costs.
Insurance Law - 3420(a)(3) provides that a notice of claim to an insurer may be made by the insured, the injured person, or any other claimant. Insurance Law - 3420(d) provides that an insurer may disclaim coverage by giving a written notice of the disclaimer as soon as reasonably possible. However, when an insurer disclaims coverage, "the notice of disclaimer must promptly apprise the claimant with a high degree of specificity of the ground or grounds on which the disclaimer is predicated" (General Acc. Ins. Group v Cirucci, 46 NY2d 862, 864). The defendant's disclaimer of coverage was based only on its insured's failure to notify it of the claim. The disclaimer, therefore, was not effective against the plaintiffs, the injured parties, who gave notice of the claim, and the defendant is now estopped from raising the plaintiffs' allegedly late notice in the instant action as a ground for disclaiming coverage (see, Legion Ins. Co. v Weiss, 282 AD2d 576; Utica Mut. Ins. Co. v Gath, 265 AD2d 805; Eagle Ins. Co. v Ortega, 251 AD2d 282).
Order and judgment unanimously modified on the law and as modified affirmed without costs in accordance with the following Memorandum: Plaintiffs commenced this action after defendant Nationwide Mutual Fire Insurance Co. (Nationwide) denied their claim under their homeowner's policy. The claim arose from the collapse of a “carriage” barn located on plaintiffs' property and covered under the “other structures” portion of the policy. Supreme Court properly denied that part of the motion of Nationwide and defendant Marylou Gallego, Nationwide’s insurance agent, and the cross motion of plaintiffs seeking partial summary judgment on the issue of coverage under the policy. There is an issue of fact whether during the policy period plaintiff J. Daniel Roland recorded music in the barn as part of his music recording business and thus whether the barn was “used in whole or in part for business purposes", a use that would exclude coverage under the policy. We further conclude, however, that Nationwide may not deny coverage based upon the use of the barn for the storage of business items. The phrase "used in whole or in part for business purposes" is ambiguous in the absence of any qualifying language (cf., Kennedy v Lumbermen’s Mut. Cas. Co., 190 AD2d 1053) and therefore must be construed in favor of the insureds (see, Boggs v Commercial Mut. Ins. Co., 220 AD2d 973, 974-975).
The court erred, however, in granting that part of the motion of Nationwide and Gallego seeking summary judgment dismissing the complaint against Gallego. Even assuming, arguendo, that Gallego met her initial burden, we conclude that plaintiffs raised an issue of fact whether Gallego was negligent in procuring a homeowner's policy of insurance for them rather than a commercial policy (see, Mullare v Edelman, 133 AD2d 1003, 1004). In opposition to the motion of Gallego, plaintiffs presented evidence that they requested insurance covering a specific type of loss, yet Gallego procured insurance that would not cover such loss (cf., Brownstein v Travelers Cos., 235 AD2d 811, 813). We therefore modify the order and judgment by denying in part the motion of Nationwide and Gallego and reinstating the complaint against Gallego. (Appeals from Order and Judgment of Supreme Court, Erie County, NeMoyer, J. - Summary Judgment.) PRESENT: PIGOTT, JR., P. J., HAYES, HURLBUTT, BURNS AND GORSKI, JJ.