12/26/02:            PHILLIPS v DWECK

New York State Supreme Court, Appellate Division, Third Department

Delay by Errors and Omissions Carrier in Investigating Claim Does Not Extend Statute of Limitations in Medical Malpractice Action

The proof submitted in support of defendant’s motion for summary judgment established that defendant last treated plaintiff in June 1998, and that plaintiff failed to commence this action until March 2001, approximately three months beyond the applicable statute of limitations. Hence, defendant met his initial burden of demonstrating that this action was time barred. In opposition to defendant’s motion, plaintiff argued that defendant’s malpractice carrier unreasonably delayed the investigation of her claim and, in so doing, waived the right to assert the statute of limitations as an affirmative defense. The Court held that delay by an insurance carrier in completing its investigation of a claim does not excuse a plaintiff from timely commencing the underlying action nor, does such investigative delay effect a waiver or estoppel of the statute of limitations defense.

 

12/24/02:            BROOKS v ZURICH-AMERICAN INS. GROUP

New York Appellate Division, First Department

Late Notice Under Property Policy May be Excused

Court held that compliance with an insurance policy notice provision operates as a condition precedent to coverage, although the obligation to give notice “as soon as practicable” of an occurrence that may result in a claim is measured by the yardstick of reasonableness. A delay in providing notice may reasonably be explained by a lack of necessary knowledge in that the covered party may be unaware that an occurrence triggers coverage. In this case, the court found sufficient indicia of reasonableness in connection with the delay. BHDS did not ascertain that its losses may be covered under the policies until 1990, when it discovered possible industrial sabotage by either third parties or BHDS employees. Further, the confusion as to whether the damages, if vandalism, were caused by third parties or by employees, which distinction might affect coverage, appeared to the court to have been a good faith reason for not filing an earlier claim.

 

12/12/02:            PIERRE v PROVIDENCE WASHINGTON INS. CO.

New York Court of Appeals

New York High Court Broadly Construes Truckers (MCS 90) Endorsement

Court interprets Truckers Endorsement as eliminating any conditions or limitations in the policy for purposes of compensating an injured party. The statute and regulations protect the public in the event of an accident involving vehicles owned or operated by commercial motor carriers (see National Mut. Ins. Co. v Liberty Mutual Ins. Co., 196 F2d 597 [DC Cir 1952] cert denied, 344 US 819 [1952]). They guarantee that resources will be available to pay a final judgment obtained by an injured member of the public against a carrier for injury caused by negligent operation, maintenance or use of a carrier’s vehicle, even if the policy itself does not provide coverage in the particular case, and even if the carrier is otherwise insolvent. In essence, the statute and regulations provide unencumbered coverage (coverage without preconditions or disclaimers) as long as the injured party obtains a judgment against the carrier regardless of the legal theory.

 

12/12/02:            VARRICHIO v CHICAGO INS. CO.

New York Court of Appeals

New York High Court to Consider Whether Late Notice of Suit Disclaimer Requires Showing of Prejudice

When it became apparent that an attorney was going to be sued for malpractice, he promptly notified his insurer of the potential claim.  The insurer began an investigation of the case and maintained regular contact with the attorney.  When the attorney was served with suit papers, he failed to forward them to his insurer “immediately,” as required by the policy.  The insurer issued a coverage disclaimer based on the insured’s failure to forward the suit papers, and a declaratory judgment action ensued.  On appeal, the Second Circuit rejected a variety of challenges to the carrier’s disclaimer except the insured’s claim that his insurer must demonstrate prejudice to invoke his noncompliance with the notice clause as a defense to coverage.  Instead, the court concluded that New York law was uncertain in this regard given the New York Court of Appeal’s recent decision in In Re Brandon, 97 NY2d 491 (2002).  Because application of New York’s no-prejudice rule was a recurrent issue involving important public policy considerations, the Second Circuit certified the following question to the New York Court of Appeals: Where an insured had already complied with a policy’s notice of claim requirement, did New York require the insurer to demonstrate prejudice in order to disclaim coverage based on the insured’s failure to comply with the policy’s notice of suit requirement? The New York Court of Appeals has accepted the certified question.

 

12/11/02:            CENTENNIAL INS. CO. v CASILLA

New York State Supreme Court, Appellate Division, First Department

Motor Vehicle Department Records Sufficient to Shift Burden in UM Case

In an action to permanently stay arbitration of an uninsured motorist’s claim, the UM carrier’s introduction into evidence of two Department of Motor Vehicle Registration Record Expansions indicating that American insured Faucett on the date of the accident was sufficient to establish its prima facie case. The testimony of American’s underwriter, who did not search under reverse names for Faucett or the vehicle identification number or plate number of his vehicle, and did not introduce the records of her underlying searches into evidence, was insufficient to overcome petitioner’s showing.  A stay was granted accordingly.

 

12/10/02:            NACHBAUR v AMERICAN TRANSIT INS. CO.

New York State Supreme Court, Appellate Division, First Department

Injured Party Cannot Maintain Bad Faith Action Against Liability Carrier

This action arose out of an underlying personal injury action stemming from a car accident in which plaintiff, a pedestrian, was allegedly injured. Plaintiff’s verified complaint in this action seeks recovery from the driver’s insurance company for, inter alia, bad faith breach of the driver’s insurance contract in refusing to settle for an amount above the limit set forth in the policy. The verified complaint was properly dismissed in its entirety. There was no merit to plaintiff’s cause of action for bad faith breach or his request for declaratory relief based on the same theory since, among other reasons, he was not an intended beneficiary of the driver’s policy and the insurance company offered to settle for the amount of the policy limit. Plaintiff’s interpretation of the policy limit was found to be untenable. Plaintiff’s other causes of action were similarly deemed without merit and plaintiff’s attorney was sanctioned $5000 for maintaining a frivolous lawsuit.

 

12/05/02:            TRAVELERS INS. CO. v VOLMAR CONST. CO.

New York State Supreme Court, Appellate Division, First Department

Notice Requirement Applies to Both Primary and Additional Insureds

Plaintiff subcontractor, E&Y, and its insurer brought this declaratory judgment action against the contractor, Volmar, and its insurer, AIU Insurance, for a declaration that AIU was obligated to a provide a defense and indemnification to E&Y in an underlying action. E&Y had been named an additional insured on the Volmar-AIU policy. After a fire occurred at the site of a renovation project, Volmar, and other subcontractors, contacted AIU to give it notice of the claims. Although AIU was fully aware of the circumstances surrounding the fire and the subsequent claims by some of its insureds, AIU did not receive written notice in accordance with the terms of the policy from E&Y for nineteen months. Although the trial court found in favor of E&Y, on appeal the court reversed. The court held that even though E&Y was an additional insured and AIU had notice from other insureds, a condition precedent to coverage was not fulfilled.

Prepared by Bruce Celebrezze of Celebrezze & Wesley in Los Angeles

 

12/03/02:            CHASE MANHATTAN BANK v AXA REINSURANCE UK PLC

New York State Supreme Court, Appellate Division, First Department

Personal Jurisdiction Over Reinsurer Not Obtainable in State Court Proceeding

Chase Manhattan Bank undertook to fund certain films being produced in New York. Chase purchased insurance through, among others, New Hampshire Insurance Company (NHIC) against losses related to this venture. In turn, Reinsurance Australia Corporation Limited (ReAC) reinsured 40% of the risk assumed by NHIC. The reinsurance agreement was negotiated in London through NHIC’s London affiliate AIG (Europe) UK Limited (AIG) and ReAC’s underwriting agent in London. The reinsurance agreement was executed and delivered in London. The court properly dismissed NHIC’s action against ReAC on the ground of lack of jurisdiction since, even assuming that the reinsurance agreement incorporated the choice of forum provision of the underlying insurance policy, such policy required NHIC initially to commence its action respecting the rights and obligations of the parties to the reinsurance agreement in the Southern District Court of New York. NHIC may receive all the relief it seeks in a Southern District Court action by way of a declaratory judgment that ReAC must indemnify NHIC against 40% of any loss it incurs in the instant action. The motion court properly found that Insurance Law §1213 does not confer personal jurisdiction over ReAC. Section 1213(b)(1) requires the acts necessary to confer jurisdiction to be “acts in this state, effected by mail or otherwise.” Thus, had the reinsurance agreement been mailed to NHIC into New York, the statute would have conferred jurisdiction. However, merely providing reinsurance on a New York policy does not create jurisdiction.

 

12/02/02:            MATTER OF AULL v PROGRESSIVE CAS. INS. CO.

New York Appellate Division, Second Department

Underinsured Carrier’s Failure to Disclaim Promptly When Learning of Basis for Disclaimer Results in Waiver of that Defense

An insurer is required to provide a timely notice of disclaimer of coverage pursuant to Insurance Law § 3420(d). While Progressive timely moved to stay the arbitration, this did not obviate its obligation to timely disclaim. Progressive was aware of the ground for its disclaimer -- failure of the plaintiff to forward a copy of the summons and complaint -- at least as early as March 8, 2001, when it consented to the settlement of the Tasso case. Thus, it was obligated to disclaim in writing as soon as was reasonably possible after March 8, 2001, and not simply wait until Aull made a demand for arbitration. Assuming that the petition to stay arbitration served as a notice of disclaimer, it was clearly untimely since the petition was brought on July 9, 2001, or almost four months after Progressive consented to settle the Tasso case.

 

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.

 

12/24/02:            NORTHWEST AIRLINES, INC. v ONTARIO AIRCRAFT SERV., INC.

California Court of Appeal

Insurer’s Failure to Comply With its Obligation to Inform Third Party Claimant of Statutory Time Limits Pertaining to Claim May Estop Insured from Relying on Statute of Limitations in Third-Party Claim

In 1997 an airplane towed by defendant Ontario struck and damaged plaintiff Northwest’s airplane. Northwest submitted a claim to Ontario for damages. Great American, Ontario’s insurer, admitted liability but challenged the reasonableness of the damage claim. On October 31, 2001, more than three years after its plane was damaged, Northwest filed a complaint for damages against Ontario. In its complaint, Northwest alleged that Ontario was estopped to assert the applicable three-year statute of limitation because its insurer, while acting on Ontario’s behalf, failed to give notice of the statute of limitation to Northwest. Ontario demurred to the complaint. The trial court granted the demurrer and dismissed the complaint. The California Court of Appeals reversed the trial court holding that the regulation in question and estoppel applied to third party claims as well as first party claims. The Court deemed the estoppel doctrine to apply to the insured, even though the regulation governed the conduct of the insurer, because otherwise the insurer could benefit from its own violation of the regulation. The insured is not prejudiced by this result because it is still able to defend against the claim on the merits.

Prepared by Edward H. Starr, Jr. of Troutman Sanders LLP in Richmond, Virginia

 

12/24/02:            MATTICE v MINNESOTA PROPERTY INS. PLACEMENT

Minnesota Court of Appeals

Homeowner’s Insurer Obligated to Pay Mortgagee for Fire Loss Even Though Policy Obtained by Third Party Fraud

Howard Gangestad purchased a residential property for $25,000. He then sold it to Mattice who financed the purchase with a $54,000 mortgage from Homecomings. Immediately after closing on the loan, Mattice quitclaimed the property back to Mattice. Mattice did not record the quitclaim deed in order to circumvent a mortgage provision authorizing Homecomings to call the mortgage. Gangestad then instructed his agent to get insurance on the property from defendant Minnesota Property Insurance Placement. The agent completed the application in Mattice’s name, named Mattice as the owner of the property and Homecomings as mortgagee. A short time later, the building was destroyed by arson. Thereafter, the insurer denied the property damage claim of Mattice and of Homecomings. The Minnesota Insurance Commissioner, however, ordered the insurer to pay the claim of Homecomings. The insurer appealed claiming that the insurance contract between it and Homecomings was void ab initio because it was fraudulently obtained. The Minnesota Court of Appeals affirmed the decision of the insurance commissioner on the ground that the policy in question necessarily included statutory language that protected the interest of the mortgagee against fraud by any other person.

Prepared by Edward H. Starr, Jr. of Troutman Sanders LLP in Richmond, Virginia

 

12/23/02:            HISAW v STATE FARM MUT. AUTO. INS. CO.

Arkansas Court of Appeals

UM Insurer Obligated to Cover Injuries Caused By Wrecked Vehicle Even Though Vehicle was Stationary and Wreck Occurred Two Hours Prior to Injuries

Plaintiff, a volunteer firefighter, responded to the scene of a one-vehicle accident. Plaintiff helped remove the drunk driver from his van and then returned to the van for registration information. Plaintiff was injured when the back door of the van closed suddenly on him. The UM carrier denied coverage on the ground that the plaintiff’s injuries were not caused by accident arising out of the operation, maintenance or use of an underinsured motor vehicle. The court ruled that the UM carrier did insure the injury in question because it would not have happened “but for” the use of the uninsured van.

Prepared by Edward H. Starr, Jr. of Troutman Sanders LLP in Richmond, Virginia

 

12/23/02:            TROMBLEY v LIBERTY MUT. INS. CO.

New Hampshire Supreme Court

UM Exclusion For Vehicles Designed For Use Mainly Off Public Roads Encompasses Caterpillar Integrated Toolcarrier Despite its Design to Operate on Public Roads

Plaintiff was injured when he was knocked from the back of a truck while his co-worker, operating a Caterpillar Integrated Toolcarrier (IT), misloaded a piece of steel. Plaintiff sought UM coverage claiming that his injuries were the result of the negligent operation of a motor vehicle, the IT. The UM insurer denied coverage citing an exclusion for uninsured motorists driving vehicles designed for use mainly off public roads. The trial court held that the exclusion was inapplicable because the IT was designed for uses both on and off public roads. The New Hampshire Supreme Court reversed holding that IT was designed for use mainly off public roads.

Prepared by Edward H. Starr, Jr. of Troutman Sanders LLP in Richmond, Virginia

 

12/20/02:            INSUA v SCOTTSDALE INS. CO.

California Court of Appeal

Insurance Code Section 544 and Voluntary Payments Provision Are Not Inconsistent

Plaintiff construction company was sued by a client for defective workmanship in construction and remodeling work on a client’s home. Upon tender of the underlying action, Insua Construction Co. claimed it could not locate its insurance policy with Scottsdale and proceeded to arbitrate the defective workmanship claim. Insua prevailed at arbitration and the following month, a total of about three years after the underlying action was filed, the Scottsdale policy “was mysteriously found” and Insua tendered its defense costs of about $47,000 to Scottsdale. Scottsdale denied reimbursement on the ground that the policy excluded coverage for incorrectly performed work. After a two-day bench trial, the trial court rendered judgment in favor of Scottsdale finding that, inter alia, Insua had breached the voluntary payments provision of the insurance contract. Insua argued on appeal that the voluntary payments provision is inconsistent with Insurance Code Section 554 which provides: “Delay in the presentation to an insurer of notice or proof of loss is waived . . . if [the insurer] omits to make objection promptly and specifically upon that ground.” Because Scottsdale had neglected to object to reimbursement of Insua’s defense costs on the basis of the voluntary payments provision, Insua argued, it should not be allowed to rely on that provision to deny reimbursement. Both the trial court and the Court of Appeal disagreed. The court explained that section 554 and the policy provision do not conflict. The evil that section 554 is intended to avoid – misleading the insured into inaction – does not arise in the context of a no-voluntary-payments provision as only previous voluntary payments by the insured are barred from indemnification.

Prepared by Bruce Celebrezze of Celebrezze & Wesley in Los Angeles

 

12/20/02:            COMCORP TECHNOLOGIES, INC. v CRUM & FORSTER INS.

Ohio Court of Appeals

Derivative Consortium Claims Precluded by Stop Gap Policy’s Unambiguous Exclusion for Bodily Injury That Was “Substantially Certain To Occur”

While working at plaintiff’s plant, Ms. Ohlinger died when a stack of containers fell on her as a result of another employee accidentally bumping into the stack with a forklift. Ohlinger’s husband brought suit against her employer, Comcorp, on behalf of himself, their children, and her estate. Comcorp tendered the action to its insurer, which had issued both a CGL and an Employer’s Liability (Stop Gap) policy and the insurer, U.S. Fire Insurance Co., provided a defense but refused indemnity. In this declaratory relief action, Comcorp argued that Ohio precedent requires a Stop Gap insurer to provide coverage for any derivative consortium claims. The Court of Appeals agreed but found that since the parties stipulated that plaintiff in the underlying action solely alleged that Comcorp was liable for having acted “intentionally or recklessly or heedlessly or willfully or wantonly or knowingly with substantial certainty that injury was likely to occur,” coverage was precluded by the policy’s unambiguous exclusion for bodily injury which was “substantially certain to occur.”

Prepared by Bruce Celebrezze of Celebrezze & Wesley in Los Angeles

 

12/20/02:            GREEN MACHINE CORP. v ZURICH AMERICAN INS. GROUP

Third Circuit

No Coverage for Patent Infringement Claim under Advertising Injury Coverage

Green Machine sought insurance coverage for a claim that its concrete cutting saws infringed another company’s products and methods patent. The Court of Appeals affirmed the lower court finding of no coverage. There was no misappropriation of an advertising idea because there was no allegation that Green Machine took any marketing, promotional or advertising materials or ideas. An allegation that Green Machine stole a patent method and also advertised the results of that theft does not convert the underlying theft into an “advertising injury.” Green Machine did not misappropriate a style of doing business by stealing a method of cutting concrete. Style of doing business refers to a company’s marketing approach not its production or product.

Prepared by Edward H. Starr, Jr. of Troutman Sanders LLP in Richmond, Virginia

 

12/20/02:            BELL v SLEZAK

Pennsylvania Supreme Court

Plaintiff Not Entitled to Recover Unfunded Medical Malpractice Settlement from Physician or from Pennsylvania Property And Casualty Insurance Guaranty Act

Plaintiff entered into a settlement of a medical malpractice claim, which required the physician’s insurer to fund the $200,000 settlement. The insurer became insolvent before funding the settlement and the plaintiff sought to enforce the settlement against the settling physician and the Pennsylvania Property and Casualty Insurance Guaranty Association. The Supreme Court held that the plaintiff could not recover the settlement proceeds from the doctor. The Supreme Court also held that the plaintiff could not recover the settlement amount from the Pennsylvania Guaranty Association because the Guaranty Association was entitled to offset its obligation to the plaintiff with the $200,000 payment the plaintiff received from its health insurer.

Prepared by Edward H. Starr, Jr. of Troutman Sanders LLP in Richmond, Virginia

 

12/20/02:            CHOW v ROSEN

Pennsylvania Supreme Court

The Non-Duplication of Recovery Provision in Pennsylvania Property And Casualty Insurance Guaranty Act Extinguishes Subrogation Right of Health Insurer

Independence Blue Cross sought to intervene in a medical malpractice settlement to be paid by the Pennsylvania Property and Casualty Insurance Guaranty Association in an effort to preserve the subrogation interest arising from the amount it paid the plaintiff in health insurance benefits. The Pennsylvania Supreme Court ruled that the non-duplication of recovery provision in the Pennsylvania Guaranty Act extinguished the subrogation right of Blue Cross.

Prepared by Edward H. Starr, Jr. of Troutman Sanders LLP in Richmond, Virginia

 

12/20/02:            LIBERTY MUT. INS. CO. v PENNINGTON

North Carolina Supreme Court

Notice of an Underinsured Motorist Claim Need Not Be Given Within the Limitations Period Applicable to the Underlying Claim

A North Carolina statute that requires an injured party who seeks to recover underinsured motorist benefits to give notice to his insurer of the initiation of his suit does not require that the UIM carrier be notified of the claim within the limitations period applicable to the underlying tort action. Also, the injured party’s claim for UIM coverage is not governed by the statute of limitations applicable to liabilities created by statute.

Prepared by Edward H. Starr, Jr. of Troutman Sanders LLP in Richmond, Virginia

 

12/20/02:            HILLENBRAND v INS. CO. OF NORTH AMERICA

California Court of Appeal

Carrier Liable for Compensatory and Punitive Damages for Malicious Prosecution of Declaratory Judgment Action Against its Insured

There is no support in the cases for the insurer’s notion that a declaratory relief action affords an insurer a convenient vehicle for determinations of coverage issues, limited only by a standard that the action not be frivolous. The insurer not only knew the extrinsic facts supporting potential coverage, it also was aware of the case law prohibiting an insurer from pursuing a declaratory relief action that would prejudice its insured in the third party litigation. The insurer’s contention, at the time it filed -- let alone prosecuted -- the declaratory relief action and filed its cross-complaint, that it had a tenable claim it had no duty to defend Hillenbrand, was found to be frivolous.

 

12/18/02:            GRINNELL MUT. REINS. CO. v JUNGLING.

Iowa Supreme Court

Liability Policy Covered Insured’s Fraud

Court rejected carrier’s argument that because the insured’s fraudulent actions were by design, and not accidental, the loss was not one that resulted from an “occurrence” within the meaning of an excess policy. The court found the argument to be a strained attempt to get around the absence of language clearly and expressly excluding coverage of losses arising from intentional acts. If Grinnell had intended to exclude intentional acts from the policy, it could easily have included an “intentional acts” exclusion. The court held that the public policy of freedom of contract for insurance coverage prevails here over the public policy reasons for barring coverage for the intentional act of fraud. There was no evidence that the availability of insurance coverage induced the insured to commit fraud or that such coverage would encourage others to engage in similar conduct in the future. The court concluded that compensating the insured’s innocent victim outweighed the concern that the insured would unjustly benefit from coverage.

 

12/12/02:         ST. PAUL FIRE & MARINE INS. CO. v BIERNE, MAYNARD & PARSONS, LLP

Texas Court of Appeals

“Eroding Policy’s” Reimbursement Provision’s Term “Loss” Encompasses Both Defense Costs and Indemnity

The law firm of Bierne, Maynard & Parsons, LLP was sued for malpractice and BM&P’s insurer, St. Paul, provided a defense to the action. BM&P filed a counterclaim against the underlying plaintiffs seeking recovery of past due attorneys’ fees owed it from the underlying litigation as well as recovery of the additional legal fees paid by St. Paul to the firm hired to defend BM&P in the malpractice action. BM&P prevailed and recovered about $700,000, most of which pertained to defense expenses incurred by St. Paul. BM&P then refused to reimburse St. Paul arguing, inter alia, that the “Recovering Damages from a Third Party” clause in its errors and omissions policy only required BM&P to reimburse St. Paul for any “loss” which St. Paul paid out on a liability claim as opposed to defense costs. Reversing on several grounds a grant of summary judgment in favor of the law firm, the Court of Appeals found that since the E&O policy was an “eroding policy,” in which the $5,000,000 limit was depleted by any expenditures resulting from either defense costs or recoveries, the term “loss” encompasses monies recovered for both defense costs and indemnity.

Prepared by Bruce Celebrezze and Randall Berden of Celebrezze & Wesley in Los Angeles

 

12/05/02:            TRAVELERS CAS. & SUR. CO. OF AM. v BAPTIST HEALTH SYS.

Fifth Circuit (applying Texas law)

Crime Policy Unambiguous

The contract language of a crime coverage insurance policy was unambiguous; it provided no coverage for an insured’s losses incurred through fraudulent invoices submitted by a vendor.

 

12/05/02:         UNITED STATES FIDELITY & GUARANTY CO. v JOHN DEERE INS. COMPANY

Mississippi Supreme Court

Auto Policies Do Not Prorate Despite Identical “Other Insurance” Clauses; Vehicle Owner’s Insurer is First in Line

Because longstanding Mississippi jurisprudence has provided that the insurance policy covering the owner of a vehicle involved in an accident is deemed to have primary coverage, the rule will be followed, even in light of identical pro-rata “other insurance” clauses.

 

12/05/02:            BROOKS v ALL AMERICAN INS. CO.

Ohio Court of Appeals

Anti-Stacking Exclusion Precluded UIM Coverage

After being injured in auto accident where the other driver was underinsured, plaintiff settled with her personal insurer for the UIM limits of $100,000, and then sought coverage under her husband’s employer’s commercial automobile insurance policy containing UIM limits of $500,000. Finding that plaintiff was an insured under her husband’s employer’s policy, the court held that the policy’s anti-stacking provisions precluded coverage where plaintiff had already sought coverage under another policy.

 

12/04/02:            BRZEZINEK v COVENANT INS. CO.

Connecticut Appellate Court

Carrier’s Offer to Settle Expired When Releases Not Provided Before Statute of Limitations Expired

An offer of settlement was communicated to plaintiffs’ counsel some weeks before statute of limitations expired. Though plaintiffs signed the released and returned them to their lawyer, their lawyer didn’t send them to carrier until three months later, after the statute of limitations expired on the claims. Court held that offer expired when claims expired and, therefore, insurer was not obligated to honor offer.

 

12/04/02:            GOULD & RATNER v VIGILANT INS. CO.

Illinois Appellate Division, Third Division

Doctrine of Estoppel Applies Only Where Insurer Has Duty to Defend

After defending itself and eventually settling an underlying action, insured brought action against insurer for breach of insurance contract. Insurer filed a counter complaint for declaratory judgment and filed an answer and affirmative defenses. Insured contended that insurer breached its duty to defend by neither defending insured under a reservation of rights nor filing a timely declaratory judgment action, and, as such, insurer was estopped from asserting policy defenses. Insured further asserted that insurer’s counter complaint was untimely as a matter of law. The Court of Appeal held that the doctrine of estoppel does not apply if the insurer has no duty to defend. The court declined to consider whether insurer timely filed its declaratory judgment because the insurer had no duty to defend and the doctrine of estoppel did not apply. However, the court noted that absent a clear duty to defend, the insurer has no obligation to file a declaratory judgment before the underlying suit is resolved. To hold otherwise would mean that an insurer would have to file declaratory judgment actions each time they were notified of a claim from an insured, even when there is no potential for coverage.

 

12/02/02:         COUNTY OF SAN DIEGO v ACE PROPERTY AND CASUALTY INS. CO.

California Court of Appeal

Even Under Non-Standard CGL Policy, Duty to Indemnity Doesn’t Exist Without Judgment

The County asserted that the Powerine decision by California Supreme Court, which limited duty to indemnity to amounts determined by judgment, was inapplicable because the nonstandard ACE policy, unlike a standard CGL policy, contained no clause requiring the insurer to defend the insured against “suits,” and thus the term damages in the insuring clause was not linked to a civil action. Court disagreed and limited indemnity to judgments or settlements approved by the carrier.

 

12/02/02:            THOMSON v OHIO INS. CO.

Ohio Court of Appeals

“Each Person Limit” of Professional Liability Applies to Limit Loss of Consortium Claims By Family Even If Father And Husband Dies In Subsequent Year

Dr. Thomson sought coverage from his professional liability insurer for a medical malpractice claim brought by a patient who suffered a massive stroke. The patient’s wife and son also brought loss of consortium claims against Dr. Thomson. Dr. Thomson’s policy provided coverage limits of $1,000,000 for each person, with a total liability limit of $3,000,000. One of the issues before the Court of Appeals was whether the policy’s “Each Person Limit” limited any recovery by the patient and his family to $1,000,000 under Ohio law even if the patient were to die in a subsequent year as a result of the alleged malpractice. Disagreeing with the trial court, the Court of Appeal held that any claim made for a death that occurs in a policy year other than the year in which the claim was first made is limited to the “Each Person Limit” of $1,000,000.

Prepared by Bruce Celebrezze and Randall Berdan of Celebrezze & Wesley in Los Angeles

 

11/27/02:            CONESTOGA SERVICES CORP. v EXECUTIVE RISK INDEM, INC.

Ninth Circuit (applying California law)

Exclusion for Claims Arising from Bankruptcy in Errors and Omissions Policy Does Not Apply Where There is Another Proximate Cause for the Loss

Conestoga, an insurance brokerage firm, was sued by Frontier Insurance, which had written a surety bond through Conestoga. The bond was posted for Standard Brands Paint Company as part of its workers’ compensation self-insurance plan. A few months later, the Director of the Department of Industrial Relations agreed to reduce the amount of the bond by $1,800,000. Frontier executed the one-page surety bond decrease rider and forwarded it to Conestoga with directions to forward it back to the Director. Conestoga failed to forward the executed rider. Then, about four months later, Standard filed for bankruptcy and the Director requested that Frontier cover Standard’s obligations up to the original bond amount because the rider was invalid, having never been received. Frontier sued Conestoga for breach of contract and negligence and Conestoga sued Executive Risk, its malpractice insurer, for indemnity. Executive Risk declined arguing that its policy’s exclusion for claims that “directly or indirectly arise out of or result from the bankruptcy of . . . any self-insurance plan” applied to preclude coverage. Although the district court agreed with Executive Risk, the Ninth Circuit reversed in part holding that where multiple causes result in a loss, here both Standard’s bankruptcy and Conestoga’s malpractice, a non-excluded proximate cause of a loss may trigger coverage despite the exclusion.

Prepared by Bruce Celebrezze and Randall Berdan of Celebrezze & Wesley in Los Angeles

 

AND IN DEFENSE

 

12/13/02:            SOUTHERN BAKERIES, INC. v KNIPP,

Alabama Supreme Court

Fear of Asbestosis Not Actionable in Alabama

The Supreme Court noted that Alabama has long required a manifest, present injury before a plaintiff may recover in tort. The Court noted that fear is a real phenomenon and can be debilitating, but based on the evidence presented in this case the Court concluded that Knipp and Branyon have not suffered any legally cognizable present injury. The Court concluded that opening the courts generally for compensation for fear of future disease would be a dramatic change in the law and could engender significant unforeseen and unforeseeable consequences. The Court held that Knipp and Branyon’s cause of action has not accrued because they have not proven that they suffered from mental anguish or emotional distress as a result of SBI’s conduct. The Court reversed the trial court’s order insofar as it denied SBI’s summary judgment motion.

 

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PIERRE v PROVIDENCE WASHINGTON INS. CO.GRAFFEO, J.:

 

In November 1994, plaintiff Steve Pierre was injured when his vehicle was struck by a tractor-trailer driven by Steven Harris.  Harris' employer, Preston Conquest, owned the tractor cab but the trailer was owned by Blue Hen Lines, a federally-registered motor carrier engaged in the business of transporting goods in interstate commerce.  Conquest had leased the tractor to Blue Hen and agreed to provide Blue Hen with a driver.  In turn, the lease obligated Blue Hen to obtain liability insurance coverage for any personal injury and property damage that might arise as a result of operation of the tractor-trailer.  It is undisputed that Harris was operating the vehicle in the course of Blue Hen's business when the collision occurred.

 

Blue Hen purchased a liability policy, which was in effect on the day of the accident, from defendant Providence Washington Insurance Company.  As a condition precedent to coverage, a notice of accident provision in the policy required that an insured promptly notify the insurance carrier of any accident arising from operation of the vehicle.  The parties agree that Harris and Conquest met the policy's definition of an "insured."

 

In June 1995, plaintiff sued Harris and Conquest, respectively the driver and owner of the tractor, obtaining a default judgment against them.  After an inquest, a judgment for compensatory damages was entered in the amount of $227,560.  In the course of litigation, plaintiff learned that Blue Hen owned the trailer and that Providence had issued a trucker's liability policy to Blue Hen to cover losses from motor vehicle accidents occurring in the course of Blue Hen's business.   Plaintiff forwarded the judgment to Providence and requested payment under Blue Hen's policy.  Providence immediately disclaimed coverage on the ground that Harris and Conquest breached the notice of accident condition in the policy by failing to timely inform Providence of the accident involving Pierre.  The disclaimer letter did not refer to plaintiff's failure to obtain a judgment against Blue Hen as a basis for denying coverage.

 

Plaintiff commenced this action against Providence in October 1997 seeking payment of the judgment.  After discovery, Providence moved for summary judgment dismissing the complaint on the ground that the failure of Harris and Conquest to timely notify it of the accident absolved the company of liability. 

 

Plaintiff cross-moved for summary judgment, relying on the terms of a federally-mandated policy endorsement, known as the MCS 90, attached to liability policies issued to motor carriers who transport goods in interstate commerce.  Plaintiff noted that, under federal law, motor carriers must register with the federal government and demonstrate that they have secured adequate financial resources to pay judgments arising from accidents occurring in the course of their transport business, ordinarily accomplished through purchase of a liability insurance policy with the MCS 90 endorsement.

 

As required by federal regulation (see 49 CFR 387.15), the MCS 90 endorsement provides that the insurance carrier agrees to pay any final judgment "recovered against the insured for bodily injury or death of any person," as a result of the negligent operation of any vehicle, regardless of whether the vehicle is specifically described in the policy and despite the insured's failure to comply with policy conditions.  In effect, the endorsement shifts the risk of loss for accidents occurring in the course of interstate commerce away from the public by guaranteeing that an injured party will be compensated even if the insurance carrier has a valid defense based on a condition in the policy.  The burden is then on the insurer to pursue indemnification from other parties if coverage was not warranted under the terms of the underlying policy.  In this case, plaintiff argued that the MCS 90 endorsement, which was required to be included in the liability policy Providence issued to Blue Hen, obviated the effect of the notice of accident condition in the policy, at least insofar as it obligated the insurance company to compensate plaintiff, the injured party.

 

In response to plaintiff's cross-motion, defendant claimed that an MCS 90 endorsement was not part of the insurance policy issued to Blue Hen.  Although Providence had filed a certificate of insurance with the Interstate Commerce Commission certifying that it had included the endorsement and provided Blue Hen the coverage mandated by federal law, it initially asserted in Supreme Court that the MCS 90 endorsement was not part of the policy (a position it subsequently abandoned).  In addition, Providence argued that even if the endorsement was read into the policy, it would not provide a basis for plaintiff to recover because plaintiff's judgment was against Harris and Conquest rather than Blue Hen, the named insured.

 

Supreme Court denied Providence's motion for summary judgment and granted plaintiff's cross-motion, holding that Providence was obligated to pay the judgment.  Concluding that the federal security requirement had to be read into the policy, the court reasoned that the MCS 90 endorsement eliminated the prompt notice condition as a defense in a claim brought by an injured party.  The court found that plaintiff could recover, notwithstanding his failure to obtain a judgment against Blue Hen, because Harris and Conquest met the policy's definition of an "insured" and the insurer was required under the endorsement to pay any final judgment "recovered against the insured."

 

Providence appealed and the Appellate Division affirmed, with one Justice dissenting.  The court echoed Supreme Court's rationale and emphasized that the result was consistent with the public policy considerations underlying the MCS 90 endorsement requirement: to provide a safety net to members of the public injured as a result of negligent operation of tractor-trailers used in interstate commerce.  Rather than applying the insurance policy's definition of "insured," the dissenting Justice would have relied on a definition that appears in the federal regulations, which he interpreted as more restrictive than the policy definition.  The Appellate Division granted Providence leave to appeal to this Court and we now affirm.

 

Before we interpret the MCS 90 endorsement, it is helpful to consider the purpose of the federal statutory and regulatory scheme governing the interstate trucking industry.  Congress passed the Motor Carrier Act of 1980 to update federal regulation of the national motor carrier industry "to reflect the transportation needs and realities of the 1980's" (Pub L 96-296,

§ 3).  The legislation was, in part, intended to address abuses that had arisen in the industry which threatened public safety, including the use by motor carriers of leased or borrowed vehicles to avoid financial responsibility for accidents that occurred while goods were being transported in interstate commerce (Empire Fire and Marine Ins. v Guaranty National Ins., 868 F2d 357, 362 [10th Cir 1989]).

 

The legislation imposed a "liability insurance requirement" upon each motor carrier registered to engage in interstate commerce which mandated that a motor carrier file "a bond, insurance policy, or other type of security" in an amount determined by the Secretary of Transportation and the laws of the State or States in which the motor carrier intended to operate (49 USC § 13906[a][1]; see also former 49 USC § 10927[a][1]).  The security must be sufficient to cover "each final judgment against the registrant for bodily injury to, or death of, an individual resulting from the negligent operation, maintenance, or use of motor vehicles, or for loss or damage to property" (49 USC § 13906[a][1]; see also former 49 USC § 10927[a][1]).  Congress further provided that "[f]inancial responsibility may be established under this section by any one or any combination of the following methods acceptable to the Secretary: evidence of insurance, guarantee, surety bond, or qualification as a self-insurer" and authorized the Department to "establish, by regulation, methods and procedures to assure compliance with this section" (Pub L 96-296, § 30[c]).

 

With the oversight of the Interstate Commerce Commission, the Federal Department of Transportation promulgated regulations implementing the financial security requirements set forth in section 30 of the legislation, which were intended "to create additional incentives to motor carriers to maintain and operate their vehicles in a safe manner and to assure that motor carriers maintain an appropriate level of financial responsibility for motor vehicles operated on public highways" (49 CFR 387.1).  The Department determined that the "legislative history of Section 30 indicates a congressional belief that increased financial responsibility will lead to improved safety performance as unsafe motor carriers will incur higher premiums than safe carriers, or will be unable to obtain coverage" (46 Fed Reg 30974 [1981]).  To this end, the Department concluded that section 30 was "a remedial legislative measure *** [that] should be interpreted broadly" (46 Fed Reg 30974, 30977).

 

In particular, the Department promulgated a motor carrier endorsement form known as the MCS 90 (see 49 CFR 387.15).   The endorsement was to be attached to the trucker's liability policy issued to a motor carrier "for the purpose of providing notice to the general public that all criteria of Section 30 [the financial security requirements] have been met" (46 Fed Reg 30974, 30978).  The endorsement reads, in relevant part:

 

"In consideration of the premium stated in the policy to which this endorsement is attached, the insurer (the company) agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is specifically described in the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere.  *** It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any final judgment, within the limits of liability herein described, irrespective of the financial condition, insolvency or bankruptcy of the insured" (49 CFR 387.15).

 

The endorsement also states that any policy conditions or limitations remain in effect as between the insured and the insurance carrier and the carrier may obtain reimbursement from the insured for any payment the carrier would not have been obligated to make absent the endorsement.

 

 

In this case, Providence now concedes that the MCS 90 endorsement must be read into the liability policy as if it had been attached when Providence issued the policy to Blue Hen.  The parties also agree that the endorsement modifies the terms of the policy by excusing any conditions or limitations, including the notice of accident condition on which Providence disclaimed.  It is further undisputed that Blue Hen agreed in its lease agreement with Conquest to provide liability coverage for the use of the tractor-trailer in Blue Hen's business and that this motor vehicle accident occurred in the course of Blue Hen's business.   Indeed, this is precisely the type of risk Providence agreed to cover when it issued the trucker's liability policy to Blue Hen.

 

The parties disagree, however, on what the injured party must do to be entitled to the expanded protection afforded by the MCS 90 endorsement.  The controversy focuses on the meaning of the phrase "any final judgment recovered against the insured" in the MCS 90 endorsement. 

Plaintiff notes that the term "insured" is not defined in the endorsement and argues as a result that the court must look to the definition of that term in the body of the policy.  Because Harris and Conquest fall within the policy definition of insured, plaintiff contends the final judgment against them constituted the requisite "final judgment recovered against the insured" referenced in the MCS 90 endorsement.  Providence argues that the endorsement must be viewed as distinct from the underlying policy and that its enhanced protections are triggered only if the injured party obtains a judgment against the named insured who purchased the policy, in this case Blue Hen.  Notwithstanding the definition of "insured" in the policy, Providence contends that same term has a separate meaning under the endorsement, which can be discerned only by reference to other financial security regulations.  We agree with plaintiff.

 

The MCS 90 endorsement, a creature of federal regulation, must be interpreted according to federal law.  Federal courts that have interpreted the endorsement in the context of claims brought by injured parties have consistently focused on the literal language of the endorsement and the underlying policy to determine its meaning (see Integral Ins. Co v Lawrence Fulbright Trucking, Inc., 930 F2d 258 [2d Cir 1991]).  Appellate courts have also consistently held that an insurance company may be obligated to compensate an injured party under an MCS 90 endorsement even if the motor carrier who purchased the underlying policy was not the negligent party responsible for causing the injuries (id.; see also John Deere Ins. Co. v Nueva, 229 F3d 853 [9th Cir 2000], cert denied 534 US 1127 [2002]; Campbell v Bartlett, 975 F2d 1569 [10th Cir 1992]; Lynch v Yob, 95 OhioSt3d 441 [2002] [United States Supreme Court certiorari application pending]).  In other words, the motor carrier who purchased the insurance -- the so-called "named insured" -- need not have been negligent; all that is required is that the accident resulted from negligence and that a judgment was entered implicating the coverage provisions of the policy and endorsement.

 

Three federal cases are particularly helpful in resolving the issue before us.  In each case, an insurance company was obligated to compensate an injured party under an MCS 90 endorsement even though the judgment in the personal injury action was not obtained against the named insured.

 

In John Deere Ins. Co. v Nueva (229 F3d 853), plaintiff Nueva, a bus driver, suffered personal injuries when his bus collided with a tractor-trailer driven by Garcha.  The tractor was owned by a company (Blue Star) and an individual, both uninsured.  The trailer was owned by Sahota, the named insured in a trucker's liability policy issued by John Deere Insurance Company.  Prior to the accident, Sahota had agreed to sell the trailer to Blue Star but title had not yet been transferred; the trailer was being operated by Blue Star in the course of its business when plaintiff was injured.  Plaintiff sought to recover under the MCS 90 endorsement to Sahota's liability policy.  John Deere sought a declaratory judgment that it had no duty to indemnify Sahota, Garcha or Blue Star because the trailer was not among the covered vehicles listed in the policy.  The District Court granted John Deere summary judgment but the United States Court of Appeals for the Ninth Circuit reversed and held that plaintiff could recover under the endorsement.

 

The Ninth Circuit's analysis turned on the definition of "insured" in Sahota's liability policy.  As permissive users of a vehicle not listed in the policy's schedule of covered vehicles, Garcha and Blue Star did not meet the policy definition of insured.  However, noting that the MCS 90 endorsement states that the insurer agrees to pay "regardless of whether or not each motor vehicle is specifically described in the policy," the court concluded that the endorsement negated the policy limitation which restricted coverage to accidents involving covered vehicles, thereby expanding the policy's definition of an insured to encompass Garcha and Blue Star.  The Ninth Circuit rejected John Deere's argument that the use of the word "insured" in the endorsement referred only to Sahota, the named insured, ultimately holding that John Deere was obligated to compensate plaintiff under the policy "for any judgment against Garcha and Blue Star up to the policy maximum" (John Deere Ins. Co. v Nueva, 229 F3d at 860).

 

Adams v Royal Indemnity Co. (99 F3d 964 [10th Cir 1996]) also involved an action brought by an injured plaintiff seeking to recover under an MCS 90 endorsement.  The underlying personal injury judgment was entered against the driver of the tractor-trailer rather than the named insured -- the motor carrier that leased the vehicle and purchased the trucker's liability policy.   The Court of Appeals for the Tenth Circuit held that the motor carrier's policy could be used to pay the judgment obtained against the driver of the truck, who was using the vehicle with the motor carrier's permission at the time of the accident, even though the truck was not listed as a covered vehicle in the policy.  As in John Deere, the driver did not fall within the policy definition of an insured but the court determined that the MCS 90 endorsement modified and expanded the policy definition, thereby bringing the driver within the ambit of the policy and rendering the insurance company liable for payment of the judgment.

 

In another Tenth Circuit case, Campbell v Bartlett (975 F2d 1569), the injured party secured a judgment against the trucking company that bought the liability policy and its driver employee, who had caused the accident by driving under the influence of alcohol.  In addition to a compensatory damages judgment entered against the company and the driver, a punitive damages judgment was entered against the driver alone.  The Tenth Circuit held that the insurance carrier was required to satisfy both portions of the judgment, even though the punitive damages award had not been assessed against the named insured.  The court concluded that the dispositive issue was whether the driver was an insured within the terms of the MCS 90 endorsement.  Noting that the endorsement itself does not define who is an insured, the court interpreted the term using the definition in the liability policy.  Because the driver, a permissive user of a covered vehicle, met the policy definition of an insured, the insurance carrier was responsible for payment of the judgment.

 

The pivotal factor in these cases was not which party the personal injury judgment was entered against; instead, the focus was on the coverage provisions of the liability policies to which the MCS 90 endorsements were attached.  In cases where the party responsible for the accident fell within the policy definition of an insured (as in Campbell) or was insured under the policy coverage provisions as specifically modified by the MCS 90 endorsement (as in John Deere and Adams), the injured party was entitled to payment under the endorsement, regardless of whether the responsible party happened to have been the named insured who purchased the policy.  This is the only result consistent with the public policy underpinnings of the endorsement: shifting the risk of loss in motor vehicle accidents involving tractor-trailers operated in interstate commerce by guaranteeing that an injured party will be compensated even if a condition in the liability policy would otherwise provide the insurance carrier with a valid defense.

 

The same result should obtain in this case.  Indeed, plaintiff's claim is even stronger than that of the injured parties in John Deere and Adams because it is undisputed that Harris and Conquest meet the policy's definition of an insured.   Providence disclaimed coverage based solely on the alleged failure of the defendants named in the judgment to meet the notice of accident condition in the policy.  This condition is specifically negated in the MCS 90 endorsement insofar as payment to the injured party is concerned.  Accordingly, because Providence is obligated under the endorsement to pay "any final judgment recovered against the insured," plaintiff was entitled to summary judgment directing Providence to pay the judgment against Harris and Conquest, its insureds.

 

We reject Providence's contention that the MCS 90 endorsement should not be treated as a part of the underlying trucker's liability policy but should be viewed as imposing conditions distinct from those contained in the policy.   First, we note that we are bound to interpret the endorsement according to federal law and none of the federal courts which have determined claims brought by injured parties under the MCS 90 endorsement have adopted this approach.  Rather, in each case, the courts have interpreted the endorsement by reference to the policy to which it is attached.  Second, by its literal language, the endorsement simply does not provide separate coverage.  Like most endorsements to insurance policies, it explicitly cross-references and incorporates several of the terms of the policy.

 

Most significantly, the endorsement delineates circumstances when the insurance carrier must compensate an injured party even if the policy purports to absolve the insurer of responsibility.  Had the drafters intended to use the endorsement to create contractual obligations distinct from those in the policy, they would have included separate provisions in the endorsement defining coverage, rather than merely negating exceptions included in the policy.  Under Providence's view of the endorsement, a party insured under the policy might not be covered under the endorsement.  We see nothing in the language of the endorsement indicating that coverage is being contracted in this manner; to the contrary, by its plain terms the endorsement unreservedly eliminates any conditions or limitations in the policy for purposes of compensating an injured party.

 

The dissenting Justice at the Appellate Division focused on definitions included elsewhere in the financial security regulations in concluding that the term insured as used in the endorsement has a different, more narrow meaning than the definition provided in the policy.   This approach is inconsistent with the analysis of the federal courts and does not effectuate the policy considerations underlying the financial security requirements.  In addition, the definitions relied on are themselves susceptible of multiple interpretations.  Elsewhere in the financial security regulations the terms "insured and principal" are defined as "the motor carrier named in the policy of insurance, surety bond, endorsement, or notice of cancellation, and also the fiduciary of such motor carrier" (49 CFR 387.5).  Using this definition to interpret the term "insured," the Appellate Division dissenter concluded the endorsement provided expanded coverage only when there was a final judgment against the motor carrier named in the policy of insurance, in this case Blue Hen.  However, the same regulation that defines insured contains an expansive definition of "motor carrier" which "includes, but is not limited to, a motor carrier's agent" (49 CFR 387.5 [emphasis added]).  We cannot say that Conquest, with whom Blue Hen contracted to lease the tractor and provide a driver, and Harris, who was driving the vehicle pursuant to the lease agreement in the course of Blue Hen's business, were not agents of Blue Hen for purposes of the financial security requirements, or do not otherwise meet this non-exclusive definition of motor carrier.  Indeed, the mandated lease provision giving Blue Hen the right to "direct and control" the driver would weigh heavily in an analysis of whether the driver was an agent of the motor carrier (see e.g., Maurillo v Park Slope U-Haul, 194 AD2d 142, 146 [1993]).  Therefore, even if we were to rely on these definitions instead of the policy definition of insured, the fact that plaintiff obtained a judgment against Harris and Conquest rather than Blue Hen would not necessarily lead to a holding that plaintiff was barred from recovery under the MCS 90 endorsement.

 

Finally, we are unpersuaded that our interpretation of the term "insured" is unworkable in the context of other provisions of the endorsement, including the clause which allows the carrier to seek reimbursement from the insured, in some circumstances, for proceeds paid out under the endorsement.  Providence apparently assumes that it could not pursue reimbursement from Harris and Conquest because it did not directly contract with them.  This issue is not before us and we therefore do not decide it.  We observe only that no obvious impediment appears to preclude the carrier from pursuing indemnification from the negligent parties. 

Accordingly, the order of the Appellate Division should be affirmed, with costs.  The certified question should not be answered upon the ground that it is unnecessary inasmuch as the Appellate Division order was final.         

 

WESLEY, J. DISSENTING:

 

We respectfully dissent.

 

For 67 years, Congress has required an interstate motor carrier to provide proof of financial security as a precondition to registration.  When the motor carrier satisfies this obligation by obtaining liability insurance coverage, Congress has imposed a limited federal exception (the MCS-90 endorsement) to the insurance contract -– the insurer must pay, up to the limits of liability, any judgment obtained against the motor carrier, notwithstanding any coverage preconditions or limitations in the insurance contract.1  Because this exception is a creation of federal law, one must look to the statute and regulatory scheme, not the insurance contract, to resolve this case.

 

On November 30, 1994, Steve Pierre was injured at the intersection of Eastern Parkway and St. John’s Place in Brooklyn when his 1980 Ford van was struck on the passenger side by a tractor trailer as it attempted to make a left turn across Pierre’s lane of travel.  The tractor was owned by Preston Conquest and was leased to Blue Hen (Blue Hen owned the trailer).  The tractor was operated by Stevie Dwayne Harris, an employee of Conquest.  Providence Washington Insurance Company issued a commercial motor vehicle liability policy to Blue Hen that covered the tractor and trailer.  The policy contained a prompt notice of loss clause.

 

In June of 1995, Pierre commenced an action against Harris and Conquest.2  The summons and complaint were served on the Secretary of State pursuant to section 253 of the Vehicle and Traffic Law.  Not surprisingly, neither Conquest nor Harris appeared and Pierre took a default judgment against both with an assessment of damages and costs for $227,560 following an inquest.3  In early October 1996 (well within the statute of limitations), Pierre commenced a second lawsuit.  This time, Blue Hen was the only named defendant.  Providence served a reservation of rights letter shortly thereafter while assigning counsel to represent Blue Hen.  For reasons not reflected in the record, Pierre discontinued this action.4

 

While the Blue Hen action was pending, Pierre’s attorneys notified Providence of the default in the Harris/Conquest action and demanded payment on the judgment.  Providence denied coverage based on the failure of Harris, Conquest or Blue Hen to provide timely notice of the accident as required by the policy.  Two months later, plaintiff commenced this action.  The complaint asserts that Conquest, Harris and Blue Hen are “insureds” under the policy and Providence must therefore pay the Harris and Conquest judgment pursuant to section 3420 of the Insurance Law.

 

Pierre and Providence cross-moved for summary judgment.  Supreme Court granted Pierre’s motion without reaching the merits of Providence’s late notice defense.  The court examined the MCS-90 endorsement in conjunction with the Providence policy.  The court reasoned that the MCS-90 requires Providence to pay any judgment against “the insured” within the limits of liability without regard to any contract preconditions (such as prompt notice).  Since Harris and Conquest were each an insured under the policy, Providence was ordered to pay the judgment.

The Appellate Division affirmed with one justice dissenting (see Pierre v Providence Washington Ins. Co., 286 AD2d 139 [2nd Dept. 2001]).  The court acknowledged that the MCS-90 is mandated by federal law.  However, the court asserted that federal regulations did not define “insured” and looked to the language of the policy to determine the meaning of that term as used in the MCS-90.  “The endorsement (MCS-90) must be read in conjunction with other provisions of the policy” (id., at 145).  Because Harris and Conquest were “other insureds” under the policy, the court concluded that the provisions of the MCS-90 precluding denial of liability premised on a coverage limitation or exclusion was in play.  The dissenter took the view that the clear legislative purpose of the statutorily mandated MCS-90 was to suspend limitations of coverage in commercial motor carrier policies only when a judgment is obtained against the named insured -– the registered motor carrier.  The dissenter adopted the reasoning of the Federal District Court in a similar case (see Del Real v U.S. Fire Ins. Crum & Forster, 64 F Supp 958, affd 188 F3d 512 [9th Cir 1999]).

 

In our view, the language of the MCS-90 can only be understood in the statutory and regulatory context that created the form.  The words employed are those of Congress and the Secretary of Transportation.  They were not chosen by Providence; they were imposed by the Federal government.

 

The Secretary of Transportation has regulatory authority over the transportation of goods or passengers by motor carriers in interstate commerce (see 49 USC § 13501).  No person may operate as a motor carrier subject to that jurisdiction unless registered to do so (see 49 USC § 13901).  Federal registration of a commercial motor carrier is conditioned upon the carrier’s filing with the Secretary of Transportation proof of insurance, a security bond or other security sufficient to pay, up to a prescribed limit “for each final judgment against the registrant for bodily injury” or property damage “resulting from the negligent operation, maintenance, or use of motor vehicles” (49 USC § 13906[a][1]) (emphasis added).  The focus of the statute is repeated in its implementing regulations.  “[N]o certificate or permit shall be issued to such a carrier * * * unless and until there shall have been filed with and accepted by the FMCSA [Federal Motor Carrier Safety Administration] surety bonds, certificates of insurance, proof of qualifications as self-insurer, or other securities or agreements * * * conditioned to pay any final judgment recovered against such motor carrier” (49 CFR 387.301 [a][1])(emphasis added).5  In essence, the same language is carried over to the MCS-90; however, because that form is designed to be attached to an insurance policy, the form provides that the insurer will pay “any final judgment recovered against the insured” (49 CFR 387.15) (emphasis added).

We find it very troubling that the majority view of the endorsement is broader than the enabling legislation.  If indeed the regulatory language is broader than the statute that authorizes it, one would think that a court would interpret the regulation consistent with the statute, or limit its sweep to that permitted by Congress.  Apparently the majority feels comfortable with this admitted excess.  Our view of the language of the endorsement is limited to that authorized by Congress.

 

We agree with the majority that the endorsement is a creature of federal law.  Thus, federal law governs how we must view the endorsement and its terms (see Clarendon Natl. Ins. Co. v Insurance Co. of West, 2000 US Dist. LEXIS 13920 * 13, 2000 WL 892864, * 5 [ED Cal June 30, 2000][finding federal law governs the interpretation of the federally mandated MCS-90 provision]; see also Carter v Vangilder, 803 F2d 189, 191 (5th Cir 1986) [finding that federal law applies to the operation and effect of federally-mandated endorsements]).  However, we would restrict our analysis to the traditional sources employed in examining the language of a document that is created by a regulation.  Those regulations do provide a definition of “the insured” as used in MCS-90 (see 49 CFR 387.5).  Under the regulation  “insured” is defined as “the motor carrier named in the policy of insurance, surety bond, endorsement, or notice of cancellation * * * ” (id.) (emphasis added).  In the context of the statutory and regulatory provisions the MCS-90 form is designed to implement, “the insured” can only sensibly be read to refer to the named insured to whom the underlying policy is issued – that is, the motor carrier that must obtain the policy in order to comply with federal statutory requirements.

 

The phrase “the insured” appears numerous times in the form.6  Pursuant to settled federal rules of statutory construction, where the same word or phrase is used in different parts of a statute or act, the same meaning must attach to each (see Atlantic Cleaners & Dyers, Inc. v United States, 286 US 427, 433 [1932]; see also United States v Kennedy, 233 F3d 157, 161 [2d Cir 2000]).  Consequently, an examination of the endorsement illustrates that the phrase “the insured” means the named motor carrier, Blue Hen.  For example, pursuant to the MCS-90, “[c]ancellation of the endorsement may be effected by the company or by the insured” (49 CFR 387.15).  To suggest that either Harris or Conquest could cancel Blue Hen’s policy makes no sense. Similarly, the MCS-90 is issued to “assure compliance by the insured" with federal responsibility requirements (id.).  Because neither Harris nor Conquest is a common carrier, neither is subject to federal carrier requirements and could not possibly be within the meaning of “the insured” for purposes of the endorsement.

 

Furthermore, “the ultimate criterion is the administrative interpretation [of the regulation], which becomes of controlling weight unless it is plainly erroneous or inconsistent * * * ” (Bowles Price Adm'r. v Seminole Rock & Sand Co., 325 US 410, 414 [1945]; see M/O Council of The City of New York v Pub. Serv. Commn. of the State of New York, __ NY2d __, __ 2002 NY Slip Op 07485 * 8 [October 22, 2002]["'the interpretation of a regulation by the agency which promulgated it and is responsible for its administration is entitled to deference if the determination is not irrational or unreasonable'"], quoting Matter of Gaines v Div. of Hous. & Community Renewal, 90 NY2d 545, 549 [1998]).  In conjunction with this appeal, Providence has submitted the Solicitor General’s amicus brief on a petition for a writ of certiorari to the United States Supreme Court in a case relied on by the majority, John Deere Ins. Co. v. Nueva (229 F3d 853 [9th Cir 2000], cert denied, 122 S. Ct. 1063 [2002]).  The amicus brief represents the official view of the Department of Transportation, the Federal Motor Carrier Safety Administration and the United States Department of Justice with regard to the MCS-90 and the responsibilities of an insurer of a registered motor carrier under the statute. In their view, the existing federal regulations only require a carrier’s insurer to satisfy a judgment, regardless of the coverage terms of the policy, when the judgment includes the carrier.7

 

The Solicitor General notes that limiting the obligation assumed by the insurer under the federal financial responsibility rules to judgments that include the named insured is consistent with the logic and structure of the statute. MCS-90 requires Providence to accept liability beyond that which it would normally insure in a state-regulated transaction.  The endorsement, however, also requires a corresponding concession by the insured motor carrier, Blue Hen, to reimburse the insurer for any payments the insurer makes on claims that are not covered by the underlying policy.  Consequently, the increased risk imposed on the insurer is that the carrier will be unable to satisfy the reimbursement obligation.  Because this risk can be easily assessed with regard to a prospective named-insured – but not with respect to unknown third parties – it makes sense to limit the obligation assumed by the insurer to judgments that include the named insured.8

 

The statute and regulations protect the public in the event of an accident involving vehicles owned or operated by commercial motor carriers (see National Mut. Ins. Co. v Liberty Mutual Ins. Co., 196 F2d 597 [DC Cir 1952] cert denied, 344 US 819 [1952]).  They guarantee that resources will be available to pay a final judgment obtained by an injured member of the public against a carrier for injury caused by negligent operation, maintenance or use of a carrier’s vehicle, even if the policy itself does not provide coverage in the particular case, and even if the carrier is otherwise insolvent.  In essence, the statute and regulations provide unencumbered coverage (coverage without preconditions or disclaimers) as long as the injured party obtains a judgment against the carrier regardless of the legal theory.9

 

In addition to requiring carriers to obtain liability insurance, Congress and the Secretary of Transportation have imposed “control and responsibility” obligations on the carriers.  A motor carrier subject to DOT jurisdiction is required to “have control of and be responsible for operating those [leased] motor vehicles” (49 USC § 11107[a][4]).  To enforce this provision, the DOT regulations mandate that every lease entered into by a DOT-licensed carrier contain a provision that requires the interstate carrier/lessee to “assume complete responsibility for the operation of the equipment for the duration of the lease” (49 CFR 1057.12[c]).  We cannot discern how Pierre could not have prevailed in the Blue Hen action and obtained a judgment against Blue Hen premised on the lease.  The federal financial responsibility provisions were designed to ensure the collectability of any such judgment – not to relieve the injured party from the obligation to obtain a final determination of legal liability.

Form MCS-90 is not intended, and does not purport to vary any term of the underlying coverage.  To the contrary, the form specifically preserves those terms as between the insurer and the named insured.  The endorsement requires the insurer to pay certain judgments entered against the motor carrier, whether or not the events giving rise to the judgment come within the policy’s coverage, and subject to reimbursement by the carrier if they do not.  It does not, however, modify the policy’s definition of an “insured.”

 

If an injured party obtains a judgment against the insured motor carrier, the endorsement requires the insurer to pay the judgment, without regard to coverage under the policy.  Conversely, if the injured party obtains a judgment against a defendant other than the insured motor carrier, the insurer may or may not be required to pay that judgment under the policy – for instance, if Pierre can establish that timely notice of the accident was given to Providence, then consideration of the endorsement is unnecessary.10  The policy and the endorsement while linked, impose different obligations based on different key determinants: An obligation to indemnify (i.e. pay without reimbursement) based on the policy’s coverage of a particular risk, or an obligation to make payment in the first instance, subject to possible reimbursement based on a final judgment entered against the motor carrier itself.  The majority and the cases on which it relies conflate the two.11

 

Simply put, the MCS-90 is a separate federally mandated obligation that if a third party obtains a judgment against the motor carrier, the insurer cannot disclaim coverage based on any limitation of, or precondition to, coverage.  The statute contains safeguards against a motor carrier erecting legal barriers against liability for the acts of others operating under the benefit of its interstate carrier registration.  Indeed, Pierre does not contend he could not obtain a judgment against Blue Hen, nor has the majority here or at the Appellate Division made such a claim.  The majority agrees with us that the statutory genesis of MCS-90 requires a motor carrier to obtain an insurance policy that will pay a final judgment against the registrant (Majority Opn, at 7).  Somehow, this clear legislative language is abandoned to accomplish what the majority views as the purpose of the statute through a concededly broader interpretation of MCS-90.

The sum of the majority’s efforts is an odd result.  Plaintiff contends he was injured when his vehicle was struck by a tractor trailer.  He commenced an action for personal injuries, against the non-resident driver and non-resident owner of the tractor by alternate service.  Both default.  Plaintiff then sues the named insured within the statute of limitations and although federal law supports his claim, he discontinues the action.  Plaintiff then sues the insurer on the judgment.  He now seeks to avoid the possibility that no one ever informed the carrier of the accident until after entry of the default judgment.

 

The policy concededly covers the driver and owner of the tractor.  The insurer reserved its rights under the prompt notice provision of the policy and seeks a judicial determination on that claim.  Under well-settled principles of New York law, we would give effect to the prompt notice provision in such a case if there were no issues of fact in that regard (see Security Mutual Ins. Co. of New York v Acker-Fitzsimons Corp. et al., 31 NY2d 436 [1972]).  Although the form that gives effect to the will of Congress was drafted by the Secretary of Transportation, the majority engages in a new form of statutory/regulatory construction by interpreting the language of the form not in the context of the statute that directed its creation or the regulation that gave it life, but by reference to a private insurance contract.  Thus, the language of the form is not to be understood as an expression of the intent of Congress, but as another term of the policy.  The risk for which the insurer issued the policy is redefined by a form the insurer did not draft.

The majority’s view of the MCS-90 eviscerates the policy and creates absolute liability against the insurer for anyone injured by a vehicle operating under the motor carrier’s registration who obtains a judgment against only the operator.  It substitutes its view of good policy for the express provisions chosen by Congress.  Had Congress intended such a result, it could have been easily accomplished.  It could have required that the provisions of the MCS-90 apply to a judgment not just against “the insured,” but against “any insured” as defined in the liability policy (see Wellman, 496 F2d at 139).

 

We would therefore modify the order of the Appellate Division and remit the matter to Supreme Court for consideration of the merits of defendant’s motion for summary judgment based on the late-notice provisions of the policy.

 

*   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *

 

Order affirmed, with costs.  Certified question not answered as unnecessary.  Opinion by Judge Graffeo.  Chief Judge Kaye and Judges Ciparick and Rosenblatt concur.   Judge Wesley dissents and votes to modify in an opinion in which Judges Smith and

Levine concur.

 

Decided December 12, 2002

 

VARRICHIO v CHICAGO INS. CO.

 

Certification of question by the United States Court of Appeals for the Second Circuit, pursuant to section 500.17 of this Court's Rules of Practice, accepted and the issues presented are to be considered after briefing and argument.  Chief Judge Kaye and Judges Smith, Levine, Ciparick, Wesley, Rosenblatt and Graffeo concur.

 

Decided December 12, 2002

 

CENTENNIAL INS. CO. v. CASILLA

 

Order and judgment (one paper), Supreme Court, New York County (Thomas Flaherty, J.), entered June 22, 2001, which granted the petition of Centennial Insurance Company to permanently stay arbitration and adjudged that respondent American Home Assurance Company insured respondent Richard Faucett on the accident date, unanimously affirmed, without costs.

 

Centennial's introduction into evidence of two Department of Motor Vehicle Registration Record Expansions indicating that American insured Faucett on the date of the accident was sufficient to establish its prima facie case (see Am. Tr. Ins. Co. v Glaude, 208 AD2d 376). The testimony of American's underwriter, who did not search under reverse names for Faucett or the vehicle identification number or plate number of his vehicle, and did not introduce the records of her underlying searches into evidence, was insufficient to overcome petitioner's showing (compare New York Cent. Mut. Fire Ins. Co. v Banks, 241 AD2d 368).

 

NACHBAUR v AMERICAN TRANSIT INS. CO.

 

Order, Supreme Court, New York County (Charles Ramos, J.), entered January 29, 2002, which denied plaintiff's motion for a default judgment and class certification and granted defendant's cross motion to the extent of dismissing the complaint pursuant to CPLR 3211(a)(7), enjoining plaintiff's commencement of specified new litigation, and directing that the issues of frivolous litigation practices and the amounts of sanctions to be imposed and attorneys' fees to be awarded, if any, be referred to a special referee to hear and report, and order, same court and Justice, entered May 6, 2002, which imposed a sanction in the amount of $5000 on plaintiff's attorney, unanimously affirmed, with costs. A sanction is imposed on plaintiff's attorney, Teddy I. Moore, for frivolous conduct in prosecuting this appeal, in the amount of $5000, payable to the Lawyers' Fund for Client Protection, and the matter is remanded to Supreme Court for a determination of the amount of reasonable attorneys' fees incurred in responding to this appeal and for entry of an appropriate judgment pursuant 22 NYCRR § 130-1.2.

 

This action is related to a personal injury action pending in Civil Court stemming from a car accident in which plaintiff, a pedestrian, was allegedly injured. Plaintiff's verified complaint in this action seeks recovery from the driver's insurance company for, inter alia, bad faith breach of the driver's insurance contract in refusing to settle for an amount above the limit set forth in the policy.

 

The verified complaint was properly dismissed in its entirety. There is no merit to plaintiff's cause of action for bad faith breach or his request for declaratory relief based on the same theory since, among other reasons, he was not an intended beneficiary of the driver's policy and the insurance company offered to settle for the amount of the policy limit. Plaintiff's interpretation of the policy limit is clearly untenable. Plaintiff's other causes of action are similarly without merit (see Bettan v GEICO Gen. Ins. Co., __ AD2d __, 745 NYS2d 545).

 

The branch of plaintiff's motion seeking a default judgment was properly denied since it was brought before defendant's time to answer had expired.

 

In the absence of any viable cause of action, class certification was properly denied, as well as for the additional reason that the request for such certification was made without evidentiary support (see Bettan v GEICO Gen. Ins. Co., supra; Chimenti v Am. Express Co., 97 AD2d 351, 352, appeal dismissed 61 NY2d 669) and based on the motion court's apt recognition that, in view of all that had transpired before him, neither plaintiff nor his attorney could adequately represent the proposed classes.

 

The motion court's reference of the sanctions issue constituted a proper exercise of discretion in light of plaintiff's and his attorney's repetitive and meritless motions, including, but not limited to, the improper anticipatory default motion in this action and a similar motion in the underlying personal injury action for a default for failure to appear at a deposition that was interposed before the deposition was even scheduled, the frivolousness of the verified complaint and the utterly useless motion papers submitted by plaintiff's attorney. Under the totality of the circumstances, the imposition of a separate sanction based upon a letter sent to the court insulting opposing counsel, compounded by a flimsy and misguided attempt to justify it, was also appropriate.

 

The motion court also properly exercised its discretion in granting the injunction, which we construe as limited to barring motions in this action and the commencement of future actions relating to the facts and circumstances of the underlying personal injury action and the insurance coverage and payment under the driver's policy, but not to motions in the personal injury action, since the motion court expressly declined to involve itself in the Civil Court matter.

 

We impose sanctions and award attorneys' fees for the prosecution of this frivolous appeal. The 4½- and 3½-page appellate briefs submitted by plaintiff's attorney, completely devoid of relevant discussion, are vividly reflective of the appeal's utter lack of even arguable merit. In addition, plaintiff's attorney replicates the conduct sanctioned in Supreme Court by repeating the insult directed at opposing counsel, adds to that insult with new invective, makes baseless, serious accusations against the motion court, makes unsupported accusations against defendant, seriously mischaracterizes the record and makes no reference to recent adverse authority. We note that plaintiff's attorney has a history of relentlessly pursuing meritless litigation, including frivolous appeals (see Moore v Time, Inc., 180 F3d 463, cert denied 528 US 932; Hoffman v City of New York, 172 F3d 37; M.G. Anonymous v Immigration and Naturalization Serv., 1996 US Dist LEXIS 16555 [SD NY, Nov. 7, 1996], affd 122 F3d 1055, cert denied 522 US 957), and observe that two of these cases involved proposed class actions.

 

We particularly disapprove of the failure of plaintiff's attorney to cite adverse authority. The failure is especially glaring in this case since plaintiff's attorney represented the losing appellant in Bettan (supra), a Second Department case issued a matter of weeks before plaintiff's reply brief on the instant appeal was submitted, which precisely addresses five out of six of plaintiff's causes of action as well as the issue of class certification (see Amazon Coffee Co. v Trans World Airlines, 111 AD2d 776, 778) and, unless and until overruled or disagreed with by this Court, is "controlling" authority that plaintiff's attorney was obligated to bring to the attention of this Court (see Matter of Cicio v City of New York, 98 AD2d 38; Merl v Merl, 128 AD2d 685; see also Mtn. View Coach Lines, Inc. v Storms, 102 AD2d 663, 664-665).

 

We have considered plaintiff's other contentions for affirmative relief and find them to be completely without merit.

 

Motion seeking stay denied.

 

TRAVELERS INS. CO. v VOLMAR CONSTRUCTION CO., INC.

 

Order, Supreme Court, New York County (Marilyn Shafer, J.), entered January 25, 2002, which, to the extent appealed from, granted plaintiffs' motion for summary judgment to the extent of declaring that defendant AIU Insurance Co. was obligated to defend plaintiffs in an underlying property damage action and awarded plaintiffs costs and expenses of defending said action in an amount to be determined by a Special Referee, and denied defendants' cross motion for a declaration as to their non-liability, unanimously reversed, on the law, with costs, plaintiffs' motion for summary judgment denied and defendants' cross motion for a declaration of nonliability under the policy issued by AIU granted.

 

This is a declaratory judgment action instituted by plaintiffs The Travelers Insurance Co. (Travelers) and its insured E&Y General Construction Co. (E&Y) for a declaration that defendant AIU Insurance Co. (AIU) was obligated to provide a defense and indemnification to E&Y in an underlying action. The underlying property damage action arose out of a fire that occurred during a renovation project at Prospect Heights High School (School) on January 27, 1997. Defendant Volmar Construction Co. (Volmar) was the general contractor on the project and E&Y was a subcontractor working at the site. Volmar was insured by a general liability policy issued by defendant AIU, and E&Y was named an additional insured on the policy.

 

In the underlying action commenced in September 1997, St. Paul Fire & Marine Insurance Co., as subrogee of the New York City Construction Authority (Authority), sought recovery from [*2]E&Y, the allegedly responsible party, of the amount it paid to the Authority for the property damage loss under the School's policy. E&Y forwarded the complaint to its own insurer, Travelers, who assumed the defense of E&Y. E&Y did not forward the complaint or otherwise notify AIU of the claim. However, E&Y did commence a third-party against Volmar, also insured by AIU, and AIU provided a defense to Volmar after timely notification. AIU has acknowledged that it received notice of the fire shortly after it occurred from another subcontractor at the site.

 

The AIU policy issued to Volmar required that the insured notify AIU of an "occurrence" which may give rise to a claim "as soon as practicable." It further required that if a claim or suit is brought, the insured must provide "written notice of the claim or suit as soon as practicable." AIU claims that it first received notice when E&Y demanded that AIU defend and indemnify it on May 12, 1999, 19 months after E&Y received the complaint in the underlying action. As a result, on May 26, 1999, AIU disclaimed coverage based upon E&Y's failure to timely notify it of the claim as required by the policy.

 

On March 16, 2000, Travelers and E&Y commenced the instant action seeking a declaration that AIU was required to defend and indemnify E&Y in the underlying action, or alternatively, a declaration that Volmar breached its contract with E&Y by failing to obtain insurance to protect E&Y's interests ^[FN1]. Following discovery, plaintiffs moved for summary judgment, arguing that AIU received notice of the occurrence a few days after the fire, that AIU had issued payments for losses resulting from the fire to other insureds in January 1997, and that E&Y's president had also provided oral notice to AIU's claims adjuster in March 1997. E&Y further argued that AIU's disclaimer was untimely.

 

Defendants Volmar and AIU cross-moved for summary judgment declaring that AIU was not obligated to defend or indemnify the plaintiffs. They argued that although AIU had independent knowledge of the occurrence, E&Y was obligated to provide notice in accordance with the policy provisions, and that written notice 19 months after receiving the complaint in the underlying action was untimely as a matter of law.

 

In the order appealed from, the IAS court denied the motion [*3]and cross motion with respect to the issue of indemnification, finding questions of fact both as to the reasonableness and timeliness of E&Y's notice of loss and claim, and as to the timeliness of AIU's disclaimer. However, it granted E&Y's motion to the extent of declaring that AIU had a duty to defend E&Y, and referred the issue of the amount of defense costs to a Special Referee. The court reasoned that AIU's duty to defend did not turn on the disputed issues of untimely notice and disclaimer, since AIU conceded that E&Y was an additional insured under the policy and the duty to defend is broader than the duty to indemnify.

 

On appeal, defendants Volmar and AIU argue that E&Y failed, as a matter of law, to fulfill the notice requirements of the AIU policy, a condition precedent to coverage. On the cross appeal, plaintiffs contend that their motion should have been granted in its entirety, since AIU received timely notice of the occurrence and AIU's disclaimer was untimely as a matter of law. As the record establishes that the condition precedent was not fulfilled and that the disclaimer was timely, we reverse and grant summary judgment to defendants.

 

"An insurer's obligation to cover its insured's loss is not triggered unless the insured gives timely notice of loss in accordance with the terms of the insurance contract" (Power Auth. v Westinghouse Elec. Corp., 117 AD2d 336, 339, citing Security Mut. Ins. Co. v Acker-Fitzsimons Corp., 31 NY2d 436, 440). The notice provision in the policy is a condition precedent to coverage and, absent a valid excuse, the failure to satisfy the notice requirement vitiates the policy (Security Mut. Ins. Co. v Acker-Fitzsimons Corp., 31 NY2d at 440; Paramount Ins. Co. v Rosedale Gardens, Inc., 293 AD2d 235, 239).

 

The AIU policy at issue required that notice be given "as soon as practicable," a standard provision in liability policies that has been interpreted to require notice within a reasonable time under the circumstances (Power Auth. v Westinghouse Elec. Corp., 117 AD2d at 339). "Where an excuse or explanation is offered for delay in furnishing notice, the reasonableness of the delay and the sufficiency of the excuse are matters to be determined at trial" (Hartford Accident & Indem. Co. v CNA Ins. Companies, 99 AD2d 310, 313). "However, where there is no excuse or mitigating factor, the issue poses a legal question for the court, and courts have found relatively short periods to be unreasonable as a matter of law (Deso v London & Lancashire Ind. [*4]Co., 3 NY2d 127, 130 [51 days]; Rushing v Commercial Cas. Ins. Co., 251 NY 302, 304 [22 days]; Haas Tobacco Co. v American Fid. Co., 226 NY 343, 345 [10 days])." (Hartford Accident & Indem. Co. v CNA Ins. Companies, 99 AD2d at 313).

 

In this case, E&Y has proffered no excuse for failing to provide notice in accordance with the policy provisions. This is not a case where the insured has a reasonable argument that it was unaware of the accident (see Rushing v Commercial Cas. Co., 251 NY at 304), or where the insured had a good-faith belief in its nonliability (cf., 875 Forest Ave. Corp. v Aetna Cas. & Surety Co., 37 AD2d 11, 12, affd 30 NY2d 726). E&Y may not avail itself of these arguments since the record indisputably shows that E&Y was aware of the occurrence and believed that it might be liable, as demonstrated by the fact that it had forwarded the summons and complaint in the underlying action to its other insurer, Travelers, in December 1997 (see Heydt Contr. Corp. v American Home Assurance Co., 146 AD2d 497, 499, lv dismissed 74 NY2d 651 [insured's assumption that other carriers would bear ultimate responsibility for its property loss is insufficient as a matter of law to excuse the more than four-month delay in giving notice]). Significantly, the record further establishes that E&Y's president was fully aware that E&Y was an additional insured on the AIU policy, yet E&Y failed to furnish AIU with notice of the occurrence and the pleadings in the underlying action as had been done with Travelers.

 

Instead, plaintiffs rely on the fact that AIU received notice of the occurrence from independent sources, such as its other insured, Volmar, and another subcontractor. We reject this argument. The law is clear that an insured's obligation to provide timely notice is not excused on the basis that the insurer has received notice of the underlying occurrence from an independent source (see American Mfrs. Mutual Ins. Co. v CMA Enters., 246 AD2d 373; Heydt Contr. Corp. v American Home Assurance Co., 146 AD2d at 499).

 

Plaintiffs seek to overcome this hurdle by arguing that sufficient notice of the occurrence was provided to AIU in February 1997, when E&Y's president, during an investigation into the claim, orally informed a consultant hired by AIU's retained insurance adjuster, as well as an AIU representative, of the details of the occurrence. Assuming, without deciding, that the oral responses by E&Y's president during an investigation into the claim by an independent insurance adjuster would constitute [*5]sufficient compliance with the policy provision requiring notice of an "occurrence," E&Y still failed to comply with the additional policy provision requiring "written notice of the claim or suit as soon as practicable." As noted, E&Y received the summons and complaint in the underlying action in September 1997 and did not provide written notice of the claim to AIU until May 12, 1999, 19 months later.

 

Plaintiffs further argue that because AIU received the pleadings in the underlying action in December 1998, when it undertook the defense of its primary insured Volmar in the third-party action, AIU received timely notice of the underlying claim against E&Y and AIU's disclaimer on May 26, 1999 was itself untimely. This argument is flawed because the notice requirement in this insurance policy applies equally to both primary and additional insureds (see American Manufacturers Mutual Ins. Co. v CMA Enterprises, 246 AD2d 373), and notice provided by one insured in accordance with the policy terms will not be imputed to another insured (see Roofing Consultants, Inc. v Scottsdale Ins. Co., 273 AD2d 933, lv denied 95 NY2d 770 [neither notice provided by another insured nor the insurer's actual knowledge of the claim satisfies the contractual obligation of the insured to give timely notice]). This is especially true in circumstances such as here, where the insured that has provided notice has taken a position adverse to its co-insured in the underlying litigation (see Structure Tone, Inc. v Burgess Steel Prods. Corp., 249 AD2d 144, 145; Delco Steel Fabricators v American Home Assur. Co., 40 AD2d 647, 648, affd 31 NY2d 1014).

 

Contrary to plaintiffs' argument, AIU's disclaimer 14 days after receiving plaintiff's demand that AIU provide E&Y with a defense and indemnification was timely. An insurer may not disclaim liability if it fails to give the insured timely notice of disclaimer (see Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 1029; Generali-U.S. Branch v Rothschild, 295 AD2d 236, 237). "The reasonableness of any delay in disclaiming coverage must be judged from that point in time when the insurer is aware of sufficient facts to issue a disclaimer" (Id.). On the facts present here, AIU did not become aware of facts sufficient to disclaim until plaintiffs demanded that it tender a defense and indemnification to E&Y on May 12, 1999. That AIU received notice of the occurrence shortly after it occurred, and became aware of the underlying action and third-party action in December 1998, was insufficient to trigger AIU's time to issue a disclaimer as [*6]to E&Y. As of December 1998, AIU had no reason to expect that E&Y was seeking coverage under its policy. E&Y had looked to its other insurer, Travelers, for defense and indemnification, and, further, had commenced a third-party action against Volmar, who was also insured by AIU. Given these circumstances, AIU had no basis to disclaim with respect to E&Y until it received the latter's demand for defense and indemnification (see Structure Tone, Inc. v Burgess Steel Prods. Corp., 249 AD2d 144, 145). AIU's disclaimer 14 days after receiving such demand was timely as a matter of law (see Nationwide Ins. Co. v Lukas, 264 AD2d 778).

Footnotes

 

Footnote 1:The underlying action was settled with the parties agreeing to resolve the outstanding indemnification and defense issues in the instant action.

 

CHASE MANHATTAN BANK v AXA REINSURANCE UK PLC

 

Order, Supreme Court, New York County (Ira Gammerman, J.), entered July 18, 2002, which, inter alia, granted the motion of second third-party defendant Reinsurance Australia Corporation Limited to dismiss the second third-party complaint on the ground of lack of personal jurisdiction, unanimously affirmed, with costs.

 

Plaintiff Chase Manhattan Bank undertook to fund certain films being produced in New York. Chase purchased insurance through, among others, defendant/second third-party plaintiff New Hampshire Insurance Company (NHIC) against losses related to this venture. In turn, second third-party defendant Reinsurance Australia Corporation Limited (ReAC), reinsured 40% of the risk assumed by NHIC. The reinsurance agreement was negotiated in London through NHIC's London affiliate AIG (Europe) UK Limited (AIG) and ReAC's underwriting agent in London. The reinsurance agreement was executed and delivered in London.

 

The court properly dismissed NHIC's second third-party action against ReAC on the ground of lack of jurisdiction since, assuming arguendo that the reinsurance agreement incorporated the choice of forum provision of the underlying insurance policy, such policy required NHIC initially to commence its action [*2]respecting the rights and obligations of the parties to the reinsurance agreement in the Southern District Court of New York. Although that court has declined jurisdiction as to other parties in this action, its reasons for doing so were particular to those parties and appear to furnish no ground for declining jurisdiction over the parties to the second third-party action (see Gen. Star Intl. Indem. Ltd. v Chase Manhattan Bank, 2002 US Dist LEXIS 7980 [SD NY, 2002]). NHIC may receive all the relief it seeks in a Southern District action by way of a declaratory judgment that ReAC must indemnify NHIC against 40% of any loss it incurs in the instant action.

 

The motion court properly found that Insurance Law § 1213 does not confer personal jurisdiction over ReAC. Section 1213(b)(1) requires the acts necessary to confer jurisdiction to be "acts in this state, effected by mail or otherwise." Thus, had the reinsurance agreement been mailed to NHIC into New York, the statute would have conferred jurisdiction. However, merely providing reinsurance on a New York policy does not create jurisdiction (see Matter of Cent. Mut. Ins. Co. v Johnson, 260 AD2d 638, 639, citing Birmingham Fire Ins. Co. of Pennsylvania v KOA Fire & Marine Ins. Co., 572 F Supp 962).

 

Finally, CPLR 302(a)(1) does not confer jurisdiction. A policy of reinsurance is essentially an indemnity agreement (see Birmingham Fire Ins. Co. of Pennsylvania v KOA Fire & Marine Ins. Co., 527 F Supp at 967; Reliance Ins. Co. v Aerodyne Engrs., Inc., 204 AD2d 944) and "[t]he rule in New York is clear that an indemnity agreement alone does not provide a sufficient contact with New York simply because the underlying events that trigger the indemnification occur in New York" (Media Corp. of Am. v Motif Mfg. Co., 524 F Supp 86, 87; see also Ferrante Equip. Co. v Lasker-Goldman Corp., 26 NY2d 280, 284-285).

 

Motion seeking judicial notice denied.

 

AULL v PROGRESSIVE CASUALTY INS. CO.

 

In two related proceedings pursuant to CPLR 7503, respectively, to compel underinsured motorist arbitration and, inter alia, to permanently stay the arbitration, the appeal, as limited by the brief, is from so much of an order of the Supreme Court, Richmond County (Maltese, J.), dated September 21, 2001, as granted the petition to compel the arbitration in Proceeding No. 1 and denied that branch of the petition which was to permanently stay the arbitration in Proceeding No. 2.

 

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

 

On September 20, 1999, Donald Aull was injured in an automobile accident with a vehicle owned by Jose Tasso and insured by the Allstate Insurance Company (hereinafter
Allstate). Aull commenced an action to recover damages for personal injuries against Tasso (the Tasso case). On February 13, 2001, Allstate offered to settle the Tasso case for the full amount of its policy. On March 8, 2001, Aull's insurer, the appellants (hereinafter Progressive), sent a letter to Aull's attorney consenting to the settlement. On June 25, 2001, Aull brought a petition to compel underinsured motorist benefits arbitration against Progessive. On July 9, 2001, Progressive separately petitioned, inter alia, to permanently stay the arbitration on the ground that Aull failed to supply it with a copy of the summons and complaint in the Tasso case. The Supreme Court granted Aull's petition to compel arbitration and denied that branch of Progressive's petition which was to permanently stay the arbitration. We affirm.

 

An insurer is required to provide a timely notice of disclaimer of coverage pursuant to Insurance Law § 3420(d). While Progressive timely moved to stay the arbitration (see CPLR 7503[c]), this did not obviate its obligation to timely disclaim. Progressive was aware of the ground for its disclaimer at least as early as March 8, 2001, when it consented to the settlement of the Tasso case. Thus, it was obligated to disclaim in writing as soon as was reasonably possible after March 8, 2001, and not simply wait until Aull made a demand for arbitration (see Bernstein v Allstate Ins. Co., 199 AD2d 358). Assuming arguendo that the petition to stay arbitration served as a notice of disclaimer (see e.g. Matter of Aetna Cas. & Sur., Co. v Scirica, 170 AD2d 448), it was clearly untimely since the petition was brought on July 9, 2001, or almost four months after Progressive consented to settle the Tasso case (see Bernstein v Allstate Ins. Co., supra). "[A] delay of nearly four months [in disclaiming liablity] was unreasonable as a [*2]matter of law" (Bernstein v Allstate Ins. Co., supra at 359, citing Hartford Ins. Co. v County of Nassau, 46 NY2d 1028; Matter of State Farm Mut. Ins. Co. v Del Pizzo, 185 AD2 352; see also Matter of Nationwide Ins. Co. v Steiner, 199 AD2d 507). Therefore, the Supreme Court properly granted Aull's petition to compel underinsured motorist arbitration and denied that branch of Progressive's petition which was to permanently stay the arbitration.

 

SANTUCCI, J.P., SMITH, GOLDSTEIN, H. MILLER and MASTRO, JJ., concur.

 

PHILLIPS v DWECK

 

Crew III, J.

 

Appeal from an order of the Supreme Court (Ferradino, J.), entered October 16, 2001 in Saratoga County, which granted defendant's motion for summary judgment dismissing the complaint.

 

Plaintiff commenced this dental malpractice action in March 2001 seeking to recover for injuries purportedly sustained as the result of defendant's allegedly negligent care and treatment of her in May and June 1998. Defendant answered and, shortly thereafter, moved for summary judgment dismissing the complaint contending that the action was barred by the 2½-year statute of limitations set forth in CPLR 214-a. Supreme Court granted defendant's motion, and this appeal by plaintiff ensued.

 

We affirm. The proof submitted in support of defendant's [*2]motion for summary judgment established that defendant last treated plaintiff in June 1998 and that plaintiff failed to commence this action until March 2001, approximately three months beyond the applicable statute of limitations. Hence, defendant met his initial burden of demonstrating that this action is time barred. In opposition to defendant's motion, plaintiff argued that defendant's malpractice carrier unreasonably delayed the investigation of her claim and, in so doing, waived the right to assert the statute of limitations as an affirmative defense. The case law, however, makes clear that delay by an insurance carrier in completing its investigation of the claim asserted does not excuse a plaintiff from timely commencing the underlying action (see Brown v Royal Ins. Co. of Am., 210 AD2d 279), nor does such investigative delay effect a waiver or estoppel of the statute of limitations defense (see Grumman Corp. v Travelers Indem. Co., 288 AD2d 344, 345; D.J. Rossetti, Inc. v Joseph Francese, Inc., 273 AD2d 781, 783).

 

Nor do we find merit to plaintiff's alternative argument, namely, that defendant's carrier intentionally misled plaintiff as to the status of its investigation and, as such, defendant is now equitably estopped from raising the statute of limitations defense. In order to prevail in this regard, plaintiff needed to demonstrate that she failed to commence this action in a timely fashion due to a fraud, deception or misrepresentation perpetrated by defendant (see Kiernan v Long Is. R.R., 209 AD2d 588, 589, appeal dismissed, lv denied 85 NY2d 934; Cranesville Block Co. v Niagara Mohawk Power Corp., 175 AD2d 444, 445). This she failed to do. While defendant's investigator indeed failed to respond to inquiries posed by plaintiff's counsel regarding the status of the investigation, there is absolutely nothing in the record to suggest that defendant misrepresented the status of the investigation or otherwise lulled plaintiff into inaction. Plaintiff's remaining arguments, to the extent that they are properly before us, have been examined and found to be lacking in merit.

 

Mercure, J.P., Spain, Rose and Lahtinen, JJ., concur.

 

BROOKS v ZURICH-AMERICAN INS. GROUP

 

Order, Supreme Court, New York County (Jane Solomon, J.), entered January 9, 2002, which granted reargument and, upon reargument, adhered to the prior order, same court and Justice, entered July 2, 2001, dismissing portions of the fifth cause of action for breach of contract, unanimously modified, on the law, to deny the cross motion for partial summary judgment with regard to the fifth cause of action, and to reinstate the fifth cause of action, and otherwise affirmed, without costs. Appeal from the aforesaid order entered July 2, 2001, unanimously dismissed, without costs, as academic.

 

Plaintiff Brooks is a garment designer and president of plaintiff Beverly Hills Design Studio (BHDS). BHDS used independent sewing contractors to manufacture the garments, which it then sold to retailers. Between 1987 and 1990, finished goods were shipped to the BHDS warehouse in Georgia, where BHDS quality control managers inspected, and if necessary rejected, finished garments. During this period, many garments were found to be substandard. In fact, on at least five separate occasions, from December 1988 through May 1990, BHDS inventory was found to contain thousands of completed garments that were grossly undersized, distorted and incorrectly cut and sewn. On the assumption that the problem was caused by the suppliers and that the defects in the garments were missed by the quality control managers, Brooks terminated a contract with a major supplier. In May 1990, BHDS commenced its own manufacturing operation in Georgia. However, garments manufactured at the BHDS factory were also substandard, leading Brooks to believe that sabotage, and not defects in workmanship, might be involved in a May 1990 loss. [*2]In fact, she had hired private investigators to examine the cause of the losses from 1987 to early 1990. The investigator's February 1990 report concluded that the defective products were actually the result of intentional conduct. A particular plant manager whom she came to suspect resigned in June 1990, and the apparent vandalism ceased.

 

During the 1987 through 1991 time periods, insurance coverage in the form of "All Risk" property and liability policies was provided by defendant Zurich. Three policies were then in effect, each reflecting annual renewals, and each requiring prompt notification to the carrier in the event of an insured loss. Brooks filed claims in June 1990, shortly after the plant manager quit and the apparent vandalism ceased. The claims covered losses beginning in December 1988. Brooks also filed an incident report, relating to losses between June 1, 1990 and June 19, 1990, with local police on June 20, 1990. The actual proofs of loss were not prepared until February 15, 1991.

 

In connection with renewal of the policy, defendant Zurich had inspected the BHDS facility on April 4, 1990, finding generally no reported general liability or workers' compensation claims, and noting that Brooks had advised the carrier that there had been no claims made against the product. Of course, at this time, the possibility of vandalism seemed unclear and Brooks had concluded that poor workmanship was not covered by the policies, and hence, no insurance claims had been made at that time.

 

Defendant declined the claims on October 11, 1991, 15 months after they had been filed. The letter of declination asserted that the losses arose from poor workmanship and errors during the manufacturing process, that defects in workmanship were not covered losses, and that losses incurred in the manufacturing process were expressly excluded from coverage. Moreover, defendant contended that the policy excluded losses resulting from misappropriation or infidelity by an employee, although there remains an issue whether particular renewals contained an exception from this exemption for employee vandalism. Finally, defendant contended that prompt notice had not been given to the insurer. The letter of declination specified no prejudice resulting from the delay. Plaintiffs thereafter filed the present complaint.

 

Plaintiff moved for partial summary judgment on the fifth cause of action for breach of contract, and defendant cross-moved for dismissal of the complaint. The cause of action for breach [*3]of contract is based on defendant carrier's failure to respond to plaintiff's claims for 15 months, and then taking another 16 months to review plaintiff's evidence, and then denying the claims on the basis of fraudulent and unsupported allegations. Plaintiff therein also alleged that defendant's dilatoriness and conduct effectively cost plaintiff its business. The court denied plaintiffs' motion for partial summary judgment on the fifth cause of action, and granted the cross motion to dismiss as to the first four incidents of loss, effectively dismissing the complaint except as to that portion of the fifth cause of action for loss relating to the period between May and June 1990.

 

We reinstate all aspects of the fifth cause of action. We have noted that "[i]t is well settled that compliance with an insurance policy notice provision operates as a condition
precedent to coverage" (Paramount Insurance Co. v Rosedale Gardens, Inc., 293 AD2d 235, 239), though "[t]he obligation to give notice 'as soon as practicable' of an occurrence that may result in a claim is measured by the yardstick of reasonableness" (id. at 239). A delay in providing notice may reasonably be explained by a lack of necessary knowledge (Security Mutual Insurance Co. v Acker-Fitzsimons Corp., 31 NY2d 436, 439), in that the covered party may be unaware that an occurrence triggers coverage (Cline, Davis & Mann v Travelers Insurance Co., 242 AD2d 221; Foy v D.B. Frame Shop, Inc., 210 AD2d 162). There is sufficient indicia of reasonableness in connection with the delay in this case. As noted above, BHDS did not ascertain that its losses may be covered under the policies until 1990 when it discovered possible industrial sabotage by either third parties or BHDS employees. Further, the confusion as to whether the damages, if vandalism, were caused by third parties or by employees, which distinction might well affect coverage, appears to have been a good faith reason for not filing an earlier claim. Finally, the court erred in concluding as a matter of law that the "Cause of Loss - Special Form" with its attendant exemption for acts of employee vandalism from the policy exclusion for [*4]employee criminality, was not included in the "01" renewal. Disparities in the record indicate that this remains an issue of fact.