02/20/03: CARDINELL v ALLSTATE INS. CO.
New York State Supreme Court, Appellate Division, Third Department
Interest on APIP Award Should be Calculated Before Setoffs Applied
Supreme Court found the defendant no-fault carrier owed plaintiff lost wage benefits, plus interest at the rate of 2% per month compounded as a result of the carrier’s failure to comply with the applicable regulatory requirements in processing the plaintiff’s claim for lost wage benefits under the Additional Personal Injury Protection (APIP) endorsement to the policy. Court also concluded that carrier was entitled to a $50,000 set off because plaintiff had settled his underlying personal injury action without preserving the no-fault carrier’s subrogation rights. The no-fault carrier appealed that decision, and the carrier argued on appeal that the lower court improperly calculated the plaintiff’s award. Specifically, the no-fault carrier argued that the $50,000 set off should have been applied before the calculation of interest. In support of decision that interest should be calculated before the setoff is applied, the Appellate Division stated that the objective of the no-fault statute and Insurance Regulations is to ensure prompt and full payment of economic claims. The Court further stated that the statute and regulation ‘are punitive, with severe penalties, to encourage prompt adjustments of claims’. More important, the Court found that if the set off was applied before calculating interest, it would eliminate any recovery to the plaintiff and it would frustrate the essential purpose of the no-fault statute.
02/18/03: MURDZA v ZIMMERMAN
New York Court of Appeals
Employer Not Liable as Owner of Vehicle if Employee Lends Vehicle in Derogation of Rules in Employee Handbook
In New York, NY vehicle lessors are liable for the use of a vehicle by drivers other than the one to whom the vehicles was leased. For example, if a car rental agency rents a vehicle to driver X, who then allows drive Y to use the car, the leasing company will be liable for any injury caused by the negligence of driver Y. That would be the case even if the rental agreement instructed that nobody other than the person renting the car is allowed to drive it. The courts have reasoned that restrictions by car rental agencies implicate more serious concerns as they affect the use of a large number of vehicles on roads over potentially long time periods (and the rental companies are in the business of having others drive their cars). In this case, the Court of Appeals refused to extend the same rule to employers whose employees are using company cars. The high court held that restrictions in employee handbooks, for example, that prohibit others from driving company cars are enforceable. “While it is foreseeable that a rented vehicle would come into the hands of any number of operators by the very nature of the quasi-ownership relationship created by a lease, the bailment of a vehicle to an employee spawns a markedly different relationship with its own set of expectations. Indeed, an at-will employment relationship and the frequent contact between an employee and employer demand compliance with restrictions on vehicle operation placed on the employee. As a result of this relationship, it is reasonable for an employer to expect employees to comply with its use restrictions.”
02/18/03: HASSAN v MONTUORI
New York Court of Appeals
New York Vehicle & Traffic Law Provision Imposing Liability on Owners Also Applies to Claims by Other Owners
Plaintiff was employed by Hendel, and was provided with a company vehicle for business and personal use. The vehicle was leased from First Union Auto Finance, Inc. Two years later, plaintiff was a passenger in the vehicle, which was driven by her husband. Hendel and First Auto did not dispute that plaintiff’s husband had their permission to drive the car. While he was driving, the car collided with a truck at an intersection. Plaintiff’s husband was killed and plaintiff was severely injured. Plaintiff brought an action pursuant to Vehicle & Traffic Law §388 against First Union and Hendel, as owners of the vehicle. Hendel and First Union moved for summary judgment, asserting that plaintiff, as a co-owner of the vehicle, was ineligible to collect damages from them. A divided Appellate Division granted summary judgment to Hendel and First Union, concluding that plaintiff was a statutory owner of the vehicle due to her exclusive possession of the car for two years, and that, as such, she could not maintain an action against co-owners under V&T Law §388. The Court of Appeals reversed. Assuming without deciding that plaintiff is a statutory owner, the Court held that she was not precluded from bringing a claim against other statutory owners under V&T Law §388. Focusing on the language of the statute, the Court held there is no limitation of the class of possible plaintiffs to non-owners. The statute simply says “every owner” shall be liable for injuries “to person or property” resulting from the negligence of any person using the vehicle with the permission of such owner. Hendel and First Union were owners. Thus, regardless of whether plaintiff was also an “owner,” the fact that her husband operated the vehicle with the consent of Hendel and First Union was sufficient to bring her within the protection of the statute.
New York State Supreme Court, Appellate Division, First Department
Even Without Cooperation Clause, Insured Must Cooperate With Disability Carrier
Even in the absence of an explicit cooperation clause, the insured owed the insurer a duty of good faith, and was prohibited from refusing to comply with a requirement expressly set forth in the subject policies that mandated the submission directly to the insurer or its agents, on request, of unredacted federal tax returns for the entire period sought. Throughout the seven years since this dispute began, insured has never complied with that obligation, but has chosen instead to press meritless claims. In light of insured's conduct, the motion court correctly found that there was no factual issue preventing it from declaring in insurer's favor and dismissing insured's affirmative defenses and counterclaims.
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Eighth Circuit (applying Arkansas law)
Coverage, But Not Bad Faith, in Helicopter Damage Case
Evidence was sufficient to support jury finding of insurance coverage in a case involving damage to plaintiff's helicopter, and insurer was entitled to summary judgment on a bad faith claim as evidence did not show the kind of hatred, ill will or spirit of revenge required to support a recovery for bad faith under Arkansas law.
Minnesota Supreme Court
Insured Tendered Defense to the Insurer By Providing Notice of Claim and Giving an Opportunity to Defend, Even Though It Did Not Expressly Request a Defense
The court addressed the issue of what constitutes a legal “tender of defense” sufficient to trigger an insurer’s duty to defend. The insured sent the third-party complaint to its insurer. The insurer reviewed the file and determined there was no coverage under the policy. In a subsequent action by a co-insurer for defense costs, the insurer claimed it did not owe any defense costs because the insured never gave a “formal tender of defense.” The Court held that if an insured provides notice of a suit, thus giving the insurer the opportunity to defend, he has sufficiently tendered the defense to the insurer. No express request for a defense is needed. The court reasoned that the insured’s ignorance regarding the language the insured must use to invoke the coverage should not negate the insurer’s promise to defend the insured for covered claims.
Prepared by Bruce Celebrezze and Steve Bermudez of Celebrezze & Wesley in Los Angeles
02/25/03: CARROL v ALLSTATE INS. CO.
Connecticut Supreme Court
Insurer Not Liable for Intentional Infliction of Emotional Distress As a Result of Its Incomplete and Ill-Reasoned Investigation of a Claim
Plaintiff homeowner sued his property insurance carrier for intentional and negligent infliction of emotional distress and breach of contract for failure to indemnify his loss. Defendant insurer investigated a fire at plaintiff’s home and determined that the cause of the fire was arson, and accordingly denied his claim. The trial court found the defendant liable for intentional and negligent infliction of emotional distress based on its hasty, incomplete and ill-reasoned investigation of the fire. In addition, there was some evidence that the insurer’s determination may have been influenced by racial stereotypes. The Supreme Court upheld the verdict for negligent infliction of emotional distress, but held that the insurer’s actions were not so atrocious as to trigger liability for intentional infliction of emotional distress. The court found that the insurer’s shoddy investigation could have created an unreasonable risk of causing the plaintiff’s emotional distress and that such distress was foreseeable, thus supporting the negligence infliction claim. On the other hand, the insurer’s actions were not “extreme and outrageous” and therefore there was not enough evidence to support the intentional infliction claim.
Prepared by Bruce Celebrezze and Steve Bermudez of Celebrezze & Wesley in Los Angeles
Colorado Supreme Court
Colorado Expands Breadth of Compensatory Damages Awardable for Wrongful Refusal to Pay Insurance Benefits
When an insurer has wrongfully refused to pay benefits to an insured, the insured may, under certain circumstances, seek remedies under contract law, tort law, and the Colorado Auto Accident Reparations Act ("No Fault Act" or "Act"). §§ 10-4-701 et seq., 3 C.R.S. (2002). In this case, Gioacchino (Jack) Giampapa filed all three types of actions against the American Family Mutual Insurance Company and a jury awarded Giampapa damages under all claims. Under the contract claim specifically, the jury awarded Giampapa $900,000 in economic and non-economic "special damages" for American Family’s willful-and- wanton breach of contract. This award did not duplicate any of Giampapa’s tort or statutory damages. On appeal is the issue of whether Giampapa may recover complete non-economic damages under his common law contract claim. Court holds that a complete range of non- economic damages is available when an insurer has willfully and wantonly breached its contract with an insured, so long as the damages are foreseeable at the time of contracting and the damages are a natural and probable result of the breach.
California Court of Appeal
Insurer Not Required to Indemnify Settlement Costs Outside of Litigation Since Obligation Only Extends to “Damages,” Which Is Money Ordered by a Court
The insurer issued a nonstandard third party liability policy to the County of San Diego. Under the terms of the policy, the insurer was required to indemnify the County “for all sums which the insured is obligated to pay by reason of liability imposed by law or assumed under contract or agreement,” arising from “damages.” The trial court held that the insurer’s duty of indemnity was limited to sums imposed by a court of law. Since the County had settled the third- party claims by the property owners without any litigation, the trial court granted summary judgment for the insurer finding no duty to indemnify. The court of appeal affirmed the trial court’s holding, relying on a prior Supreme Court determination that the term “damages” necessarily refers to “money ordered by a court.” Despite the fact that the policy did not contain a provision requiring the duty to defend “suits,” the court still found that the insurer had no obligation to indemnify the insured’s settlement costs.
Prepared by Bruce Celebrezze and Steve Bermudez of Celebrezze & Wesley in Los Angeles
02/19/03: ADMIRAL INS. CO. v FEIT MANAGEMENT CO.
To Revive Coverage under Pollution Exclusion's Exception For Injury Caused by Fumes From Building's Heating Equipment, Fumes Must Originate From or be Produced by Heating Equipment
Carbon monoxide fumes, originating from an improperly vented water heater in an apartment complex, flowed into the attic space and then through the HVAC system of the apartments, and into individual apartments, causing death and serious injury to a number of residents. Admiral issued a liability policy to the company that managed the apartments. The policy excluded bodily injury or property damage arising out of the “discharge, dispersal, seepage, migration, release or escape of pollutants.” Excepted from the exclusion, however, was “injury or damage sustained within a building and caused by smoke, fumes, vapor or soot from equipment used to heat that building.” There was no dispute that, absent the exception, the pollution exclusion barred coverage for the claim. The management company argued the exception applied because carbon monoxide fumes entered the apartments from “equipment used to heat that building” -- the fumes came from (meaning “through” or “by way of”) each apartment’s air handler, which is part of the heating system. Admiral contended that the exception did not apply because the toxic fumes came from (meaning originating in) the hot water heater, which was not part of the “equipment used to heat that building.” Thus, the issue for the court was the meaning of “from” as used in the exception to the exclusion. The court concluded that the pollution exclusion’s exception was meant to resurrect coverage for injuries caused by pollutants “originating” in or “produced” by the heating equipment. The exception makes clear that it intends to provide coverage only for fumes and vapors that originate in the equipment used to heat the building, and not all fumes, whatever the source. The court reasoned that if toxic fumes escaping from anywhere - not just the building’s heating equipment - were covered so long as they somehow make their way into a building’s heating and air conditioning ducts, then virtually all incidents involving fumes and vapors would be covered since it would be the rare case in which such pollutants did not make their way into the building's ventilation system.
Submitted by Darrel M. Seife
02/19/03: WEEKS v CO-OPERATIVE INSURANCE COMPANIES
New Hampshire Supreme Court
“Faulty Workmanship” Exclusion Applies to Deny Coverage
Here, there was no subsequent ensuing cause of loss separate and independent from the initial excluded cause of loss, i.e., the faulty workmanship. Therefore, the exception to the exclusion for faulty workmanship did not apply. Court held that plaintiff’s interpretation of the policy’s language was not reasonable given its context. He argued that any damage caused by faulty workmanship is covered under the policy. Interpreting the policy in this way contravenes the explicit language of the policy and renders the negligent work exclusion meaningless. Therefore, the provisions at issue were not ambiguous.
02/19/03: KERNS v CSE INS
California Court of Appeal
“Illegal Act” Exclusion in Homeowner’s Policy Unenforceable; Stabbing by Mentally Deranged Insured and Subsequent Plea of "No Contest" to Murder Doesn't Conclusively Determine Acts Were Intentional
California courts again find “illegal act” exclusion in liability policy unenforceable as ambiguous. Insured was deranged at time of her stabbing of plaintiff’s decedent. She pled no contest to murder charge. Plea of no contest is not a plea of guilt and the carrier’s obligation to defend cannot be eliminated simply because of the plea.
02/19/03: TWIN CITY FIRE INS. CO. v BURKE
Arizona Supreme Court
Excess Carrier Does Not Waive Attorney-Client Privilege With Monitoring Counsel by Bringing Bad Faith Action Against Primary Carrier
The very nature of this bad faith action militates against a finding that Twin City’s mental state or conduct was at issue. An excess insurer’s right to bring an action for bad faith refusal to settle is premised on the notion that the “excess insurer should not have to pay a judgment if the primary insurer caused the excess judgment by a bad faith failure to settle within primary limits. The “excess carrier is subrogated to the rights of the insured and has a cause of action against the primary insurer for bad faith failure to settle within policy limits.” To prove a bad faith claim based on the failure to settle, a plaintiff must demonstrate “that in the investigation, evaluation, and processing of the claim, the insurer acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable.” An insurer may defend those claims that can be characterized as “fairly debatable,” but in doing so, it “must exercise reasonable care and good faith.” An insurer owes its insured “some duties of a fiduciary nature,’ including ‘[e]qual consideration, fairness and honesty.” Thus, until the primary carrier’s policy limit is exhausted, the excess carrier’s conduct during the course of an underlying action against the insured is generally irrelevant to a determination of the core issue of the primary carrier’s good faith, absent a policy provision to the contrary.
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Can a company that leases a car for one of its employees forbid others to drive the car? If someone else drives the car, will the employer – the company that leased the vehicle -- be responsible for the accident?
One fine day, Victor Anderson rented a car from Discount Rent-a-Car (Discount) for the ultimate purpose of driving the Sills family to a funeral, However, duty called at work and Anderson, after renting the car, found that he could not attend the event. He authorized his friend Ronald Sills to drive the family instead.
The rental agreement Anderson had signed contained a clause that made it quite clear that Mr. Anderson, the renter, was permitted to allow adult members of his family to drive the rental car, he was not allowed to permit anybody else to drive the car without the express permission of Discount. Needless to say, Anderson did not contact Discount to obtain its permission before allowing Sills (not an adult member of his family) to use the car that day.
As fate would have it (for without fate, there would be no lawsuits) Sills had an accident while driving the rental car causing injury to a passenger in the car, one Hazel McMillan. McMillan sued Sills, the driver, and Discount, the owner. Discount’s insurance company, Continental Insurance, provided insurance coverage to Discount, assigning it a lawyer to defend it in the McMillan lawsuit. However Continental refused to provide insurance company to Sills, taking the position that Sills did not have Discount’s permission to drive the rental vehicle since Sills’ use of the car was in violation of the private rental agreement between Discount and Anderson.
The issue that eventually confronted the New York State Court of Appeals, the state’s highest court, when the case reach it in 1974 was a simple one: were the restrictions in the car rental agreement enforceable? Can a car rental company restrict a renter’s ability to allow others to drive the rental car?
The outcome of the case would have a significant impact on the ability of the injured person to recover money damages. If the restriction in the lease were upheld, Discount (and other car rental companies) would be able to establish that the use of the car by others (in breach of the lease) was a “non-permissive” use. New York Vehicle and Traffic Law Section 388 provides that an owner of a car who gives permission, express or implied, to a driver to use the car is responsible for any negligence caused by that driver. Consent is presumed under the statute but the presumption can be rebutted. If the driver was “non permissive,” the owner (Discount, in this case) would not be responsible and thus there would be fewer assets available to compensate the injured victim.
The Court of Appeals ruled against Continental and Discount’s position, holding that the restrictions in the rental agreement violated public policy. “Daily, car rental agencies rent large numbers of vehicles to the general public for profit. They are not in the same position as the private car owner who loans his car to a friend or relative for a limited purpose and, unlike the short span of a friendly individual loan, restrictions in rental agreements affect the use of a large number of vehicles, these arrangements sometimes continuing over long periods of time.” Continental’s lease restrictions violate the public policy of this State. A slight deviation from such a restrictive lease could render an injured victim devoid of adequate protection.
The Court went on to hold that the lessor and Continental knew or should have known that the probabilities of the car coming into the hands of another person were exceedingly great and in these circumstances they are to be charged with constructive consent. Any other interpretation, the Court said, would be placing an unreasonable limitation on the "permission" contemplated by the Vehicle and Traffic law. This decision has led to other rental company lease restrictions being ruled unenforceable, including restrictions dealing with the age of permissive drivers.
Fast-forward to February 18, 2003 when the same Court faced similar question in Murdza v. Peterson Trust. In this case, a van owned by Peterson Trust (a leasing company) was leased to Brown & Williamson Tobacco Company. Under New York law, Brown & Williamson was considered an owner because those who enter into lease agreements (greater than 30 days) are considered “owners” under the Vehicle & Traffic Law.
Brown & Williamson provided the car to one of its sales representatives, Margaret. Margaret’s boyfriend Robert was using the van, although there was a real question as to whether she had given him permission. As fate would have it (and you understand what “fate” does in these cases already), Robert had an accident, running down a pedestrian, one Stanley Murdza. Similar to the Discount lease in the 1974 case that tried to restrict the “permissive users,” Brown & Williamson also wanted to limit the “permissive users”. They did so under an employee handbook provision that restricted use of company cars to the employee and her or his licensed spouse.
Did the employee handbook restriction rebut the presumption of consent that the Vehicle and Traffic law recognized? In other words, could an employer be free from a finding of legal responsibility as a vehicle owner by restricting permission in an employee handbook. If such a restriction were valid and enforceable, would that restriction also apply to free the leasing company from responsibility as an owner?
The Court of Appeals reviewed its almost 30-year old Continental decision and commented that the “linchpin” of its holding was a finding of “constructive consent”. That is, legal responsibility as an owner of a vehicle, under the Vehicle and Traffic Law provision is based on a strong presumption of consent. While Discount, in that case, did not give “actual” consent, by virtue of its car rental business, it was giving “constructive” consent to anyone its renter allowed to use the car. It found, however, that when considering permission given by an employer for use of a company car, the same rules did not apply.
Brown & Williamson, the Court held, “stands in a very different position than a car rental agency, which rent large numbers of vehicles to the general public for profit. “While it is foreseeable that a rented vehicle would come into the hands of any number of operators by the very nature of the … lease,” allowing an employee to use a company car presents a different “set of expectations”. The employment relationship and the frequent contact between employer and employee “demand compliance with restrictions on vehicle operation placed on the employee”.
As a result of this relationship, the Court found it “reasonable for an employer to expect employees to comply with its use restrictions”. Accordingly, an employer may restrict those who can use company cars and, at the same time, limiting its legal responsibility for the use of those cars. Thus, even if Margaret, the employee had consented to her boyfriend’s use of the van, Brown & Williamsons’ employee handbook explicitly restricted those who may operate its vehicles. The presumption of permission was rebutted and Brown & Williamson would not be responsible for the accident as the owner of the vehicle.
Of course, the holding in Continental led to a different result for Peterson Trust. As a company that regularly leases vans, it fell “squarely within the public policy considerations” announced by the Court in that earlier decision. As such, the leasing company could not benefit from restrictions adopted by their lessee, restrictions which the leasing company could not itself use to limit its ownership liability under section 388.
Since there was a real question about whether Margaret had given Robert permission to use the van, the Court sent that issue back for a finding of fact. If Robert did have permission to use the van, Peterson Trust would be held responsible, just as Discount was found liable three decades earlier.
The counseling point is clear. Employers can restrict the use of company cars – whether they be owned or leased -- by clear communications with their employees. If done right, an employer can be free from responsibility if a driver, who was not given permission by the employer, has an accident. Car rental agencies and leasing companies will be held to have given permission to anyone driving he car with the permission of the person to whom the vehicle is leased.
CARDINELL v ALLSTATE INSURANCE COMPANY
Cross appeals from an order and judgment of the Supreme Court (Nicandri, J.), entered October 19, 2001 in St. Lawrence County, upon a decision of the court in favor of plaintiff.
A detailed factual rendition of the instant controversy is set forth in a prior decision of this Court (258 AD2d 853) and thus will not be repeated at length. Briefly, in February 1992, plaintiff, who had been injured in an April 1989 automobile accident and who had been receiving no fault benefits from the company insuring the vehicle in which he was a passenger, made a claim for lost wage benefits under an additional personal injury protection provision of his own automobile policy with defendant. On July 16, 1992, defendant issued a written disclaimer denying benefits on various grounds.
After a nonjury trial, Supreme Court determined that, because defendant failed to comply with the applicable regulatory requirements in processing plaintiff's claim for additional personal injury protection benefits, plaintiff was entitled to such benefits in the amount of $41,150, plus interest at the rate of 2% per month compounded (see Insurance Law § 5106 [a]; 11 NYCRR 65.15 [h] ). The court also concluded, however, that defendant was entitled to a $50,000 setoff because plaintiff had settled the underlying personal injury action for this amount without preserving its subrogation rights. In calculating the amount due plaintiff, Supreme Court first applied the statutory rate of interest to the lost wage award and then applied the setoff, resulting in a net recovery to plaintiff in the amount of $389,434.48. Both sides appeal.
We first reject defendant's claim that Supreme Court improperly calculated plaintiff's weekly wages to be $788 and the period of disability to be April 19, 1989 through May 19, 1992. Sufficient testimonial and documentary proof in the record supports each of these findings. In addition, despite defendant's attempts to suggest otherwise, the $41,150 lost wage award does take into account plaintiff's sporadic periods of employment and his receipt of unemployment insurance benefits during the disability period.
We turn next to the manner in which Supreme Court calculated the judgment. While defendant obviously does not take issue with Supreme Court's finding that it is entitled to a $50,000 setoff, it does take issue with the manner in which the court applied same, arguing that the setoff should have been applied to the lost wage award of $41,150 before the calculation of interest [FN1]. Not surprisingly, plaintiff agrees with the manner in which Supreme Court calculated the judgment [FN2]. Plainly, [*3]resolution of this issue is not without significance, as adopting defendant's position would result in no recovery at all to plaintiff, as opposed to the nearly $400,000 judgment ordered by Supreme Court.
In our view, both the language of Insurance Law § 5106 (a) and 11 NYCRR 65.15 (h) (1) and the underlying rationale behind same compel the conclusion that Supreme Court appropriately applied the setoff after calculating interest. First, under the express terms of the statute, the failure to pay benefits within 30 days renders benefits "overdue" and all overdue payments incur interest at the rate of 2% per month (see Insurance Law § 5106 [a]; see also Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d 274, 278). Moreover, the 2% per month is to be compounded (see 11 NYCRR 65.15 [h] ) and the interest penalty cannot be included in an insurer's rate-making calculations (see 11 NYCRR 65.15 [h] ). Nor can an insurer "suggest that the interest due be waived" (11 NYCRR 65.15 [h] ). Thus, defendant's obligation to pay interest accrued before plaintiff settled the underlying action.
More importantly, the objective of the statute and regulation is to assure prompt and full payment of economic claims (see e.g. Montgomery v Daniels, 38 NY2d 41, 55-56; Matter of Berkowitz v Government Empls. Ins. Co., 72 AD2d 794), and the designated interest rate is designed to inflict an economic sanction or penalty on those insurers who do not comply (see e.g. Dermatossian v New York City Tr. Auth., 67 NY2d 219, 224; Aetna Cas. & Sur. Co. v Whitestone Gen. Hosp., 142 Misc 2d 67, 71). Said differently, the statute and regulation "are punitive, with severe penalties, to encourage prompt adjustments of claims" (Barnes v Maryland Cas. Co., 124 Misc 2d 942, 944). Here, applying the setoff before calculating interest, thereby eliminating any recovery whatsoever to plaintiff, would frustrate this essential purpose. Thus, we find no error in Supreme Court's calculation of the judgment.
Defendant's remaining contentions have been reviewed and rejected.Cardona, P.J., Peters, Spain and Kane, JJ., concur.
ORDERED that the order and judgment is affirmed, without [*4]costs.
Footnote 1: Notably, defendant does not challenge Supreme Court's finding that it failed to respond to plaintiff's claim in a timely manner.
Footnote 2: To the extent that plaintiff continues to assert that defendant is not entitled to a setoff, we simply note that the propriety of Supreme Court's decision to grant defendant this setoff was raised in the prior appeal and resolved against plaintiff (258 AD2d 853, supra). Thus, we will not revisit it, particularly since plaintiff's present contentions, although more thoroughly developed here, are essentially the same as those previously raised and found to be unpersuasive.
Stanley Murdza, a Canadian resident, was injured when struck by a van as he walked across an intersection in Ellicottville, New York. The van, operated by Robert Zimmerman, had been entrusted to his girlfriend Margaret Scicchitano by her employer, Brown and Williamson Tobacco Corporation ("B&W"). The van was leased to B&W by its owners, D.L. Peterson Trust ("the Trust") and PHH Fleet America Corporation ("PHH"). Although B&W's employee handbook specifically restricted use of company [*2]vehicles to employees and their licensed spouses,[FN1] the agreement leasing the vehicle to B&W contained no use restrictions.
Murdza commenced a negligence action in United States District Court against Zimmerman, B&W, the Trust and PHH and eventually moved for summary judgment (see Murdza v Zimmerman, 2000 WL 1887823, 2000 U.S. Dist. LEXIS 18768 [WD NY, Dec. 4, 2000]). The court granted that part of Murdza's motion against Zimmerman asserting his negligent operation of the B&W vehicle. In his motion, Murdza also argued that B&W, the Trust and PHH were owners of the van, as defined by the Vehicle and Traffic Law, and were therefore liable for Zimmerman's negligent operation of the vehicle (see Vehicle and Traffic Law §§ 128, 388). The corporate defendants countered with cross-motions for summary judgment. B&W asserted that the restrictions on vehicle use in its employee handbook established that Zimmerman drove the van without B&W's consent. PHH and the Trust argued that, although its lease contained no use limitations, the restriction set forth in B&W's handbook also precluded liability on their part.
The District Court granted the corporate defendants' motion and dismissed the complaint against them. On appeal, the Second Circuit noted that "[s]ection 388(1) [of the Vehicle and Traffic Law] establishes a rebuttable presumption that a vehicle is operated with the owner's consent" (Murdza v D.L. Peterson Trust, 292 F3d 328, 330 [2d Cir. 2002]). Finding, however, that "sources of New York law do not provide clear answers" as to whether the restrictions in B&W's employee handbook fully rebutted this presumption of consent as to B&W, PHH and the Trust, the Circuit Court certified the following questions to us:
"(1) Did the lessee Brown and Williamson effectively rebut the presumption of consent of the owner, so as to make it immune as a matter of law from imposition of owner's liability under Section 388(1) in these circumstances by reason of the restrictive provision in [*3]its employee manual?
(2) Were the lessors PHH and the Trust immune as a matter of law from imposition of owner's liability under Section 388(1) in these circumstances by reason of the restrictive provision in Brown & Williamson's employee manual?"
(id. at 330, 333)
We accepted certification (98 NY2d 686 ) and now answer the first question in the affirmative and the second in the negative.
Vehicle and Traffic Law § 388(1) makes every owner of a vehicle liable for injuries resulting from negligence "in the use or operation of such vehicle * * * by any person using or operating the same with the permission, express or implied, of such owner."[FN2] The statute altered the common law rule that a vehicle owner could only be held liable for the negligence of a permissive driver under agency or respondeat superior theories (see Morris v Snappy Car Rental, Inc., 84 NY2d 21, 27 ).
Public policy concerns surrounding the enactment of section 388 have long informed its application. We have acknowledged that this section "expresses the policy that one injured by the negligent operation of a motor vehicle should have recourse to a financially responsible defendant" (Continental Auto Lease Corp. v Campbell, 19 NY2d 350, 352 ). Indeed, section 388 was designed to "remove the hardship which the common-law rule visited upon innocent persons by preventing 'an owner from escaping liability by saying that his car was being used without authority or not in his business'" (Morris, 84 NY2d at 27, quoting Mills v Gabriel, 259 App Div 60, 61-62 [2d Dept 1940]).
An equally important policy reflected in section 388 is the heightened degree of care owners are encouraged to exercise when selecting and supervising drivers permitted to operate their vehicles [FN3]. Thus, section 388 simultaneously increases the [*4]likelihood of compensation for those injured in motor vehicle accidents and decreases the probability of such accidents by encouraging an owner's prudent selection of drivers.
Proof of consent can, however, often depend on the testimony of a hostile party — the owner. Recognizing this, we have held that "proof of ownership of a motor vehicle creates a rebuttable presumption that the driver was using the vehicle with the owner's permission, express or implied" (Leotta v Plessinger, 8 NY2d 449, 461 ). Once the plaintiff meets its initial burden of establishing ownership, "a logical inference of lawful operation with the owner's consent may be drawn from the possession of the operator" (see St. Andrassy v Mooney, 262 NY 368, 371 ). This presumption may be rebutted, however, by substantial evidence sufficient to show that a vehicle was not operated with the owner's consent (see Leotta, 8 NY2d at 461). In this context, we have noted that where "substantial evidence established that permission was conditioned upon driving in a certain locality only or conditioned upon instructions not to allow any riders, the owner was exonerated from liability when an accident occurred subsequent to a breach of the restriction" (id. [citations omitted]).
As the Circuit Court noted, our resolution of the questions before us requires us to examine the reach of Motor Vehicle Acc. Ind. Corp. v Continental Nat. Amer. Group Co. (35 NY2d 260 ). There, we deemed a car rental agency to have "constructively" consented to a third-party driver's operation of its rental vehicle despite a lease provision restricting use of the vehicle to the lessee and his immediate family. Because [*5]there was constructive consent, we held the car rental agency was subject to statutory liability under section 388 for permissive use of the vehicle.
Our finding of constructive consent — despite the owner's restrictions — rested, in part, on the public policy concerns surrounding the large number of vehicles placed on the road by businesses that rent cars to others for profit, and the inevitability that these vehicles will "become involved in their fair share of accidents" (id. at 263). Unlike restrictions placed on the use of an individual's vehicle by a friend, we reasoned that restrictions by car rental agencies implicate more serious concerns as they affect the use of a large number of vehicles on our roads over potentially long time periods. Noting that any departure from such lease restrictions could leave an injured victim without the "recourse to a financially responsible defendant" contemplated by section 388, we found that "[t]he restrictions sought to be imposed by [the insurer] violate the public policy of this State" (id. at 264). Thus, the agency "knew or should have known that the probabilities of the car coming into the hands of another person were exceedingly great and in these circumstances they are to be charged with constructive consent, which satisfies the requirements of section 388 of the Vehicle and Traffic Law" (id. [emphasis added]). Constructive consent is an attempt to balance the policy goals of the statute and the realities of an automobile-based society.
The linchpin to our finding of constructive consent in Motor Vehicle was the third-party driver's permissive use vis-a-vis the lessee. Only because the lessee "gave his consent to [the third-party driver] to operate the rental vehicle [did] we find that he was operating it with the constructive consent of the [lessor] and, perforce, with the 'permission' envisioned by the provisions of section 388" (id. at 265). Absent the lessee's consent, the third-party's operation would have been that of a thief — the antithesis of a permissive user. Indeed, Motor Vehicle sensibly recognized that none of the public policy concerns surrounding section 388 mandate absolute liability on the part of a car rental agency for operators who do so without the permission of any party in the chain of lawful possession. Thus, Motor Vehicle teaches us that a finding of constructive consent and its attendant liability under section 388 requires a consensual link between the negligent operator and one whose possession of the vehicle is authorized. Otherwise, implied [*6]consent under section 388(1) would amount to strict liability — a result clearly at odds with the section and its purposes.
Here, by permitting an employee's use of its vehicle, B&W stands in a very different position than a car rental agency, which "rent[s] large numbers of vehicles to the general public for profit" (Motor Vehicle, 35 NY2d at 264). While it is foreseeable that a rented vehicle would come into the hands of any number of operators by the very nature of the quasi-ownership relationship created by a lease, the bailment of a vehicle to an employee spawns a markedly different relationship with its own set of expectations. Indeed, an at-will employment relationship and the frequent contact between an employee and employer demand compliance with restrictions on vehicle operation placed on the employee. As a result of this relationship, it is reasonable for an employer to expect employees to comply with its use restrictions. Thus, allowing an employer explicitly to restrict those who may operate its vehicles, while simultaneously restricting its liability as an owner under Vehicle and Traffic Law § 388, encourages careful selection of operators — the curative policy underpinning of the section. Even if Scicchitano had consented to Zimmerman's use of the van, B&W's employee handbook explicitly restricted those who may operate its vehicles and thereby rebutted the presumption of liability under Vehicle and Traffic Law § 388(1).
Unlike B&W's role as a bailor-employer, however, PHH and the Trust are lessors of the van and therefore fall squarely within the public policy considerations discussed in Motor Vehicle. As such, they may not benefit as a matter of law from restrictions adopted by their lessee that they themselves could not use to limit their ownership liability under section 388. As noted above, lessor status is only half of the constructive consent equation in Motor Vehicle. As Murdza correctly points out, there exists a question of fact as to whether Zimmerman operated the vehicle with Scicchitano's permission [FN4]. Whether PHH and the Trust constructively consented to Zimmerman's use of the [*7]van depends not on the restrictions in B&W's employee handbook, but on his status as either a thief or a permissive user.
Accordingly, certified question No. 1 should be answered in the affirmative and certified question No. 2 in the negative.
Following certification of questions by the United States Court of Appeals for the Second Circuit and acceptance of the questions by this Court pursuant to section 500.17 of the Rules of Practice of the New York State Court of Appeals, and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified question No. 1 answered in the affirmative and certified question No. 2 answered in the negative. Opinion by Judge Wesley. Chief Judge Kaye and Judges Smith, Ciparick, Rosenblatt, Graffeo and Read concur.
Footnote 1: B&W's employee handbook states: Brown & Williamson authorizes only you [the employee] and your licensed spouse to use the Company vehicle for personal purposes * * * during off-duty hours, normal weekend driving, holidays and vacations provided these spouses submitted a form SA-5248, "Indemnification."
Footnote 2: None of the corporate defendants dispute the District Court's determination that they are "owners" of the van as that term is defined in Vehicle and Traffic Law § 128.
Footnote 3: In support of what is now section 388, the Commissioner of the State Tax Department wrote, in a letter to the Governor's counsel, that "[i]t is thought the enactment of this statute will cause owners to exercise great care in the selection of drivers and prompt them to exercise greater diligence in the supervision of such drivers when so employed" (L 1924, ch 534 at 13). The City of New York Police Department also wrote to the Governor's counsel that "this bill, if it becomes law, will have a tendency to make the owners of motor vehicles exercise some degree of care in respect to the persons employed by them to operate such motor vehicles * * * This law should tend to make the owner of any motor vehicle closely investigate the character and habits of persons employed as chauffeurs, if not out of humane reasons then at least to protect his selfish interests" (L 1924, ch 534 at 12).
Footnote 4: Murdza testified to the following telephone conversation: [Scicchitano] went on to tell me she would like to meet, possibly settle any damages without insurance, involving the insurance company, because if the company found out she had loaned her vehicle to her boyfriend, she would lose her job (emphasis added).
Plaintiff, Marianne Hassan, was employed by Hendel Products, Inc. Pursuant to that employment, Hendel provided her with a company vehicle, leased from First Union Auto Finance, Inc., for business and personal use. Plaintiff used the vehicle for approximately two years prior to the accident that gives rise to this lawsuit.
On May 25, 1997, plaintiff was a passenger in the vehicle which was driven by her husband. Hendel and First Auto do not dispute that plaintiff's husband had their permission to drive the car. While he was driving, the car collided with a truck at an intersection in Merrick, New York. Plaintiff's husband was killed and plaintiff was severely injured.
Plaintiff brought an action pursuant to Vehicle & Traffic Law § 388 against First Union and Hendel as owners of the vehicle in which she was a passenger [FN1]. Hendel and First Union moved for summary judgment, asserting that plaintiff as a co-owner of the vehicle was ineligible to collect damages from them. Supreme Court denied the motion. A divided Appellate Division modified the trial court's order and granted summary judgment in favor of both Hendel and First Union, concluding that plaintiff was a statutory owner of the vehicle due to her exclusive possession of the car for two years, and that, as such, she could not maintain an action against co-owners under Vehicle & Traffic Law § 388. We granted leave and now reverse.
Vehicle & Traffic Law § 388 provides:
"Every owner of a vehicle used or operated in this state shall be liable and responsible for death or injuries to person or property resulting from negligence in the use or operation of such vehicle, in the business of such owner or otherwise, by any person using or operating the same with the permission, express or implied, of such owner."
Under Vehicle & Traffic Law § 128, the applicable definition of "owner" includes "any lessee or bailee of a motor vehicle or vessel having the exclusive use thereof, under a lease or otherwise, for a period greater than thirty days."
Vehicle & Traffic Law § 388 was enacted to "ensure access by injured persons to a financially responsible [party] against whom to recover for injuries" and "to change th[e] common-law rule and to impose liability upon the owner of a vehicle 'for the negligence of a person legally operating the car [*3]with the permission, express or implied, of the owner'***" (Morris v Snappy Car Rental, Inc., 84 NY2d 21, 27  [citation omitted]).
Assuming without deciding that plaintiff is a statutory owner, we hold that she is not precluded from bringing a section 388 claim against other statutory owners. Focusing on the language of the statute, there is no limitation of the class of possible plaintiffs to non-owners. The statute simply says "every owner" shall be liable for injuries "to person or property" resulting from the negligence of any person using the vehicle with the permission of such owner. Defendants Hendel and First Union are owners who do not dispute that they permitted the person whose alleged negligence caused plaintiff's injury to drive their vehicle. Thus, regardless of whether plaintiff is also an "owner," the fact that her husband operated the vehicle with the consent of Hendel and First Union is sufficient to bring her within the protection of the statute.
Accordingly, the order of the Appellate Division, insofar as appealed from, should be reversed, with costs, the motion by the defendant First Union Auto Finance, Inc. for summary judgment denied, that branch of the motion of the defendant Hendel Products, Inc. for summary judgment dismissing the complaint denied and the certified question answered in the negative.
Order, insofar as appealed from, reversed, with costs, motion by defendant First Union Auto Finance, Inc. for summary judgment denied, that branch of the motion of defendant Hendel Products, Inc. for summary judgment dismissing the complaint denied and certified question answered in the negative. Opinion by Judge Smith. Chief Judge Kaye and Judges Ciparick, Wesley, Rosenblatt, Graffeo and Read concur.
Footnote 1: Plaintiff also brought suit against the driver of the truck, alleging that he was intoxicated at the time of the accident, against the bar that served him, and against two property owners and their landscaper, claiming that their hedges obscured the view of the operators of the vehicles involved in the accident.
Order, Supreme Court, New York County (Paula Omansky, J.), entered on or about July 10, 2001, which, inter alia, granted insurer's motion for summary judgment declaring that its obligation to pay partial disability benefits to insured ceased subsequent to October 1995, and striking all counterclaims and affirmative defenses, and all claims from a complaint formerly pending in Broome County, unanimously affirmed, without costs.
Even in the absence of an explicit cooperation clause, the insured owed the insurer a duty of good faith, and was prohibited from refusing to comply with a requirement expressly set forth in the subject policies (see Structure Tone v Burgess Steel Prods. Corp., 249 AD2d 144) that mandated the submission directly to the insurer or its agents, on request, of unredacted federal tax returns for the entire period sought. Throughout the seven years since this dispute began, insured has never complied with that obligation, but has chosen instead to press meritless claims (see e.g. DiPasquale v Sec. Mut. Life Ins. Co. of New York, 293 AD2d 394). In light of insured's conduct, the motion court correctly found that there was no factual issue preventing it from declaring in insurer's favor and dismissing insured's affirmative defenses and counterclaims, as well as the causes of action still pending after the insured's action in Broome County was removed to this jurisdiction and consolidated with insurer's New York County action (see Sec. Mut. Life Ins. Co. v DiPasquale, 271 AD2d [*2]268; and see DiPasquale v Sec. Mut. Life Ins. Co., 273 AD2d 621). We have considered all of the insured's other arguments and find them unavailing.