Coverage Pointers - Volume IV, No. 20
New York Appellate Division, Third Department
Claim by Med Mal Carriers Paid on Behalf of State-Employed Doc Seeking Reimbursement from State under Public Officers Law Barred by Anti-Subrogation Rule
Excess carriers settled claims on behalf of physician-insured, paying more than their equitable shares. They then brought action against co-insured, State of New York, seeking indemnity on behalf of doctor under state Public Officers Law. Court holds that antisubrogation rules bar that action. Claimants' contention that they fall within the exception to the antisubrogation rule, since they paid more than their individual proportionate shares under the two excess policies, must fail. Subrogation is an equitable doctrine which “entitles an insurer to ‘stand in the shoes’ of its insured to seek indemnification from third parties whose wrongdoing has caused a loss for which the insurer is bound to reimburse”. A third party is “one to whom the insurer owes no duty under the insurance policy through which its loss was incurred”. The emergence of the antisubrogation rule, the exception to the right of subrogation, precludes an insurer from “be[ing] subrogated to a claim against its own insured, at least when the claim arises from an incident for which the insurer's policy covers that insured”. Here, it was undisputed that defendant, through SUNY-Downstate, was the insured under both policies, and that one of the risks covered by those policies was the risk of malpractice by a SUNY-Downstate physician. Since claimants are seeking subrogation from defendant — one of their own insured — for a claim arising from the very risk for which they provided coverage, court found that the claim was barred.
05/02/03: PENN-AMERICA GROUP, INC. v ZOOBAR, INC.
New York State Supreme Court, Appellate Division, Fourth Department
Insurer Precluded from Relying on Assault and Battery Exclusion for Failure to Timely Disclaim
Court held that liability carrier was obligated to defend and indemnify bar in an underlying action to recover for injuries sustained when, following an altercation in the bar, claimant was thrown or dropped to the sidewalk by a bouncer employed by the insured bar owner. The incident fell within the policy’s general coverage for claims arising out of an accidental occurrence, and, although the incident also fell within the assault and battery exclusion of the policy, the insurer failed to timely disclaim coverage as required under Insurance Law 3420(d). Failure to comply with section 3420(d) precludes denial of coverage based on a policy exclusion. Here, the insurer never disclaimed or gave notice of its intent to disclaim in writing at any time prior to its commencement of the declaratory judgment action, which was three years after it first received notice of the incident.
05/01/03: VARRICHIO AND ASSOC. v CHICAGO INS. CO.
New York Court of Appeals
New York’s High Court Not to Consider Whether Late Notice of Suit Disclaimer Requires Showing of Prejudice; Certified Question Withdrawn
In our December 27, 2002, issue we reported that New York’s Court of Appeals had accepted the following question from the Second Circuit for review: 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? Recently, that issue has been withdrawn. The Court of Appeals marked the certified question withdrawn upon notification that the parties had entered into a settlement agreement conditioned on dismissal of the appeal, and after the Second Circuit withdrew certification and dismissed the appeal. See also Varrichio v Chicago Ins. Co., 312 F.3d 544 (2nd Cir. 2003).
New York State Supreme Court, Appellate Division, First Department
Claim Arising form Construction Contract Default Not Covered by Liability Policy
Court held that claim arising from damages to waterproofing, caulking and expansion joint work, caused by the “volumetric expansion and contraction” of concrete components installed by plaintiff, were excluded from coverage because the work was attributable to an operation performed by a “subcontractor working directly or indirectly on [plaintiff general contractor’s] behalf” within the meaning of exclusion j of the policy. Also excluded from coverage were damages to “impaired property,” since they arose from defective work by the general contractor, within the scope of exclusion m(1). The claims were excluded under m(1) even if the damages sustained were attributable to plaintiff’s subcontractor. As general contractor, plaintiff was responsible for the entire project and all work done by plaintiff’s subcontractor was done on plaintiff’s behalf. The court also held the claim was essentially for breach of contract and, as such, was not an “accident, including continuous or repeated exposure to substantially the same general harmful conditions” under the subject policies.
New York State Supreme Court, Appellate Division, First Department
Fraud and Breach of Warranty Claims Not Covered by CGL Policy
Court considered whether an insurer had a duty under a CGL policy held by a nationwide chain of automobile parts and service stores to defend and indemnify it in a class action alleging the insured sold used and old car batteries as new ones to unsuspecting consumers. Court held that, under Pennsylvania law, the insurer had no such duty. The complaint alleged “[the insured] developed a scheme to promote, offer, and sell old, used and ‘out of warranty’ automobile batteries to unsuspecting consumers as if the batteries were new,” repackaged used and out-of-warranty batteries as new, and “represented to consumers that the … batteries being sold to them were new and fresh.” The complaint asserted causes of action sounding in fraud and deceit, negligent misrepresentation, breach of contract, violation of Pennsylvania Unfair Trade Practices and Consumer Protection Law and other state consumer protection statutes, and the necessity for equitable examination and/or testing of plaintiffs’ batteries. The court held that the policy did not afford coverage. The complaint did not allege physical injury to tangible property or loss of use of non-injured tangible property, nor did it allege that the batteries were physically injured or that the plaintiffs lost the use of them. Instead, the complaint alleged that plaintiffs thought they were purchasing new batteries but received old or used ones, which offered poorer performance and were less valuable. Court held that these allegations did not constitute “property damage”. The court also held that the complaint did not allege an “occurrence.” “The purpose and intent of [a general liability] insurance policy is to protect the insured from liability for essentially accidental injury to the person or property of another rather than coverage for disputes between parties to a contractual undertaking.” Therefore, under Pennsylvania law, a breach of contract is not an accident or occurrence, and this is so even if the complaint alleges negligence. “If the ‘gist’ of the underlying claim sounds in contract, it does not trigger coverage, even if negligence concepts were employed in the underlying Complaint”. In alleging that defendant passed off old batteries as new ones, the action alleged fraud and breach of warranty. As such, it was not the type of suit that CGL policies are intended to cover. “To allow indemnification under the facts presented here would have the effect of making the insurer a sort of silent business partner subject to great risk in the economic venture without any prospects of sharing in the economic benefit”.
05/06/03: UNITED FIRE & CAS. INS. CO. v GARVEY
Eight Circuit (applying Missouri law)
Failure to Disclose Relationship Allows Carrier to Avoid Insurance Contract
Under Missouri law, an insurer may avoid a contract of insurance if the person requesting issuance of the policy failed to disclose he is acting as an agent for the party with the insurable interest. Genuine issue exists whether the party taking out the policy made such disclosure to the insurance agent.
Wisconsin Supreme Court
Liability Carrier has Obligation to Defend Lanham Act -- Trademark Infringement -- Case
Here, the court considered whether the insurer had a duty to defend under the advertising injury provisions of its CGL policies. Court held that it had such a duty. Allegations of unfair competition in violation of the federal Lanham Act gave rise to the possibility of coverage. The complaint arguably made a claim for trade dress infringement that fell within the advertising injury’s “infringement of trademark” provision. The complaint also alleged an injury--consumer confusion--that was arguably caused by the insured’s advertising of products that included misappropriated designs.
Massachusetts Appeals Court
Late Notice to Carrier and Prejudice Leads to Loss of Environmental Coverage
Court held it is well-settled that “the fact that the insured has a reasonable and bona fide doubt as to the existence of any injury or of any liability, cannot be used to deprive the insurer of his contractual right to have an immediate notice of the occurrence of an accident, regardless of the damages that may be claimed to flow from that accident.” This is because “the consequences of the insured’s unilateral decision not to report an occurrence of an accident at the time it occurs (irrespective of any good faith belief as to the existence of any liability or injury) are to deny the insurer of the opportunity to investigate the cause and nature of a claim or occurrence while the facts are still fresh in the minds of the parties and while the physical evidence of the occurrence is still fresh.” Here, plaintiffs did not dispute that they had actual knowledge of the fires occurring from September 1977 through May 1985, and that the fires had burned several million pounds of rubber. Also, it knew that VOCs and volatile hydrocarbons were present in the groundwater at the property. The plaintiffs’ duty to notify Maryland of an occurrence arose at least at that time, because the plaintiffs were then aware or, upon reasonable inquiry, would have been aware both that contamination had occurred at the property and that the fires were a likely source of that contamination. It was irrelevant that plaintiffs might have believed in good faith that the VOCs did not pose a threat to public health or safety, or would not lead to a claim against it. Maryland satisfied its burden under G. L. c. 175, § 112, of showing that it suffered actual prejudice from the late notice. The undisputed facts established that Robert was president and largest shareholder of EPC throughout the relevant period; he was likely to have the most knowledge of the fires and of other possible causes for the contamination occurring at the site; and that Robert died in June 1986, approximately six months after the plaintiffs’ duty to provide notice to Maryland “as soon as practicable” had arisen. (EPA destroyed all of its correspondence and business records.) The loss of these likely sources of critical information regarding the origins of the fires and other possible causes of the contamination existing at the property constituted prejudice to Maryland as matter of law.
No Duty to Defend Where Allegations Consistently Couched in Terms of Intentional Conduct
Under Illinois law, the underlying complaint’s allegations, that the defendant purposefully engaged in a scheme to defraud its customers, were clearly not the kind of wrongdoing covered by its insurance policy, thus the insurer had no duty to defend. Even though the plaintiffs could have asserted a negligence claim under the Illinois Consumer Fraud Act, the allegations in the complaint were consistently couched in terms of intentional deception and fraud. It is the actual complaint, not a hypothetical one, which is analyzed in determining whether there is a duty to defend.
Submitted by Bruce D. Celebrezze and Joseph E. Pelochino of Celebrezze & Wesley in San Francisco
Massachusetts Supreme Judicial Court
UM Benefits Available if Vehicle, Not Driver, is Uninsured
The issue in this case was whether an injured party is entitled to UM benefits under his automobile insurance policy when the vehicle that caused the accident is insured by the owner, but the operator of that vehicle is not separately insured. The policy at issue was the standard policy; therefore, its language is controlled by the Commissioner of Insurance. Thus, the UM provision is not construed against the insurance company, but in conformity with the statute, G. L. c. 175, § 113L, which dictates its content. Both the statute and the Safety policy contemplate that UM benefits apply only when the motor vehicle is uninsured. Under the statute, UM benefits must be provided when (1) the insured is legally entitled to recover damages for certain injuries from the owner or operator of a motor vehicle and (2) the motor vehicle responsible for the accident is uninsured.
05/01/03: ABRAMS v GENERAL STAR INDEM. CO.
Oregon Supreme Court
Oregon Finds Duty to Defend Causes of Action for Excluded Acts Where Liability Could Be Proven Through Finding of Covered Conduct
General Star moved for summary judgment in an action against it for failing to defend and indemnify its insured in an action for conversion where the complaint alleged that the insured acted with the subjective intent to cause harm. Analogizing to criminal law and lesser included offenses, the court found that, because the plaintiff could have recovered against the insured under ordinary conversion, a covered tort, without amending the complaint, the complaint implicitly stated a cause of action for covered conduct and General Star had a duty to defend the action.
Submitted by Bruce D. Celebrezze and Joseph E. Pelochino of Celebrezze & Wesley in San Francisco
Texas Court of Appeals
Prior Lawsuit (Over Different Insurance Claim) Settled with Excess Carrier is Not Res Judicata on Issue of Exhaustion of Primary Coverage
The insured brought a declaratory action to establish excess coverage for asbestos liability, arguing that, because the insured had settled a previous lawsuit for coverage (which arose out of different events) with the excess carrier, it was established that the primary coverage was exhausted. Like the excess insurers in the previous action, the excess carrier here argued that the previous lawsuit was based on fraud causes of action and therefore was not within the coverage of the primary policy and so did not appropriately exhaust the primary policy limits. The court ruled that the previous coverage action did not act as res judicata on the issue of whether the previous claim was a covered claim. Although the issue of coverage was before court in the first action, because the excess insurer in the first action settled with the insured, the issue of exhaustion was not resolved in the insured’s favor. As well, noting that, in order to prove exhaustion of the underlying insurance coverage, the insured had to prove in both cases that its losses were appropriately covered under the policies, the court found that the facts of coverage in the two cases were different and so the causes of action originated from different facts and different transactions. Thus, the excess carrier was free to argue that the prior lawsuit did not fall within the coverage of the policy.
Submitted by Bruce D. Celebrezze and Joseph E. Pelochino of Celebrezze & Wesley in San Francisco
AND IN DEFENSE
05/06/03: JACKSON v MATEUS
Plaintiff Loses in Meow Mix
Utah Supreme Court
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This appeal requires us to determine whether plaintiff insurer has a duty under the commercial general liability insurance policy held by defendant operator of a nationwide chain of automobile parts and service stores to defend and indemnify defendant in an action alleging that defendant sold used and old car batteries as new ones to unsuspecting consumers. We hold, upon analysis of the scope of the coverage of the policy, construed under Pennsylvania law, and of the allegations in the underlying complaint, that plaintiff has no such duty. Accordingly, we reverse the order granting defendant's motion for summary judgment dismissing plaintiff's declaratory action and denying plaintiff's cross motion and we grant judgment declaring that plaintiff has no duty to defend or indemnify defendant in the underlying action.
In May 1996, Brian Lee and other plaintiffs brought an action against defendant in Alabama (the Alabama Action) seeking to certify a class consisting of "[a]ll persons and entities in the United States that have purchased automotive batteries from Pep Boys at any time during the period May 5, 1990 to the present." The complaint alleged that defendant "developed a scheme to promote, offer, and sell old, used and 'out of warranty' automobile batteries to unsuspecting consumers as if the batteries were new." The Lee plaintiffs alleged, inter alia, that in implementation of the scheme defendant repackaged used and out-of-warranty batteries as new and "represented to consumers that the used, old and/or out-of-warranty Pep Boys batteries being sold to them were new and fresh." The complaint asserted six causes of action: fraud and deceit, negligent misrepresentation, breach of contract, violation of Pennsylvania Unfair Trade Practices and Consumer Protection Law and other state consumer protection statutes, and the necessity for equitable examination and/or testing of plaintiffs' batteries.
Defendant timely notified plaintiff National Union Fire Insurance Company, which provided defendant with commercial general liability insurance from June 30, 1989 through June 30, 1995, of the Alabama Action. Plaintiff refused to defend and [*3]subsequently brought this action, seeking a declaration that it was not obligated to defend or indemnify defendant in the Alabama Action. The Alabama Action then was dismissed upon defendant's motion. Defendant argued that the Lee plaintiffs "do not allege anywhere in the Complaint that they even purchased 'old, used and/or out-of-warranty automotive batter[ies]' from Pep Boys, let alone that they actually suffered any injury." Defendant, however, expended approximately $356,000 to defend the Alabama Action.
The parties agree that Pennsylvania law governs interpretation of their insurance contract. Under Pennsylvania law, similar to New York law in this regard (see Town of Massena v Healthcare Underwriters Mutual Ins. Co., 98 NY2d 435, 443-444), "[a]n insurer's obligation to defend does not arise every time an insured is sued, but only when the underlying lawsuit falls 'within the coverage of the policy'" (Philadelphia Contributionship Ins. Co. v Shapiro, 798 A2d 781, 786, 2002 Pa Super 139, P26 [citation omitted]). Whether the Lee complaint alleged a cause of action that falls within the coverage of the insurance policy issued to defendant by plaintiff is determined solely by the terms of the policy and the factual averments of the complaint (see e.g. Scopel v Donegal Mut. Ins. Co., 698 A2d 602, 605 [Pa]). For the following reasons, we find that the Lee complaint did not present a claim that triggered plaintiff's duty to defend defendant.
The policy provides that plaintiff "will pay those sums that the insured [i.e., defendant] becomes legally obligated to pay as damages because of ... 'property damage' to which this insurance applies." The policy states, "This insurance applies to ... 'property damage' only if [t]he ... 'property damage' is caused by an 'occurrence' ..." "Property damage" is defined as "[p]hysical injury to tangible property, including all resulting loss of use of that property" or "[l]oss of use of tangible property that is not physically injured." "Occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."
The complaint in the Alabama Action, however, did not allege physical injury to tangible property or loss of use of non-[*4]injured tangible property. It did not allege that the old, used and/or out-of-warranty batteries were physically injured or that the plaintiffs lost the use of such batteries. The complaint alleged that the Lee plaintiffs thought they were purchasing new batteries but instead received old, used or out-of-warranty batteries, which offered poorer performance and were less valuable. This type of loss does not constitute "property damage" (see e.g. U.S. Fidelity & Guar. Co. v Barron Indus., Inc., 809 F Supp 355, 360 ["economic losses ... are intangible and thus, outside the 'property damage' definition"]; Philadelphia Contributionship, 798 A2d at 787, 2002 PA Super 139, P30 ["Back pay, front pay and benefits do not constitute 'tangible assets' under the policy, and therefore any damage or loss thereto is not 'property damage'"]; Kline v Kemper Group, 826 F Supp 123, 130 , affd 22 F3d 301 [lost pay and employment opportunities are "plainly not encompassed by the policy definition of property damage, which defines such damage as the injury to or destruction of tangible property"]).
In their claim under the Pennsylvania Unfair Trade Practices and Consumer Protection Law, the Lee plaintiffs alleged that they "and members of the Class have been damaged by defendant's practices described herein because they have suffered an ascertainable loss of money or property as a result of defendant's unlawful methods, acts or practices." However, "the particular cause of action that a complainant pleads is not determinative of whether coverage has been triggered. Instead it is necessary to look at the factual allegations contained in the complaint" (Mutual Benefit Insurance Co. v Haver, 555 Pa 534, 538-539, 725 A2d 743, 745). While the allegation of "loss of money or property" may have satisfied the requirements of the Unfair Trade Practices and Consumer Protection Law (see Pa Stat Ann tit 73, § 201-9.2[a] ["Any person who purchases ... goods ... primarily for personal, family or household purposes and thereby suffers any ascertainable loss of money or property ... as a result of ... a method, act or practice declared unlawful by section 3 of this act, may bring a private action ..."]), it did not offer facts that demonstrate property damage (see Mutual Benefit, 555 Pa at 539). The Lee plaintiffs' allegation that [*5]their claims "are typical of the claims of the Class because each plaintiff and all other members of the Class have sustained or will likely sustain damages and injuries arising out of their purchase of old, used and/or out-of-warranty automotive batteries" was similarly insufficient (see Mutual Benefit, supra, and the cases cited therein).
The complaint also did not allege that the damage was caused by an "occurrence." While defendant does not argue that fraud is an "occurrence" as defined in the policy (see e.g. Philadelphia Contributionship, 798 A2d at 787, 2002 Pa Super 139, P32 ["Pennsylvania courts have held that an intentional act ... can never be deemed an 'accident,' including for purposes of an insurance policy"]), it contends that breach of contract, negligent misrepresentation, and violation of state consumer protection statutes do constitute occurrences. However, "[t]he purpose and intent of [a general liability] insurance policy is to protect the insured from liability for essentially accidental injury to the person or property of another rather than coverage for disputes between parties to a contractual undertaking" (Redevelopment Auth. of Cambria County v International Ins. Co., 454 Pa Super 374, 391, 685 A2d 581, 589, allocatur denied 548 Pa 649, 695 A2d 787; see also Jerry Davis, Inc. v Maryland Ins. Co., 38 F Supp 2d 387, 390 ["Contract claims are not covered by the policy"]; Commerce & Indus. Ins. Co. v Snow Envtl. Servs., Inc., 1996 US Dist LEXIS 19453, *11 n1 [A commercial general liability policy "is not designed to provide coverage for breach of contract liability"]). Hence, under Pennsylvania law, a breach of contract is not an accident or occurrence covered by a commercial general liability insurance policy (Redevelopment Auth., 454 Pa Super at 390-91, 685 A2d at 589).
Moreover, courts applying Pennsylvania law have held that, "if the 'gist' of the underlying claim sounds in contract, it does not trigger coverage, even if negligence concepts were employed in the underlying Complaint" (Berg Chilling Sys. Inc. v Hull Corp., 2002 US Dist LEXIS 12281, *8-*9 [citing cases]). In alleging that defendant passed off old batteries as new ones, the Alabama Action basically alleged fraud and breach of warranty. The Lee plaintiffs did not allege that defendant's product [*6]injured any other property, such as their cars, or that defendant's product caused any bodily injury. The Alabama Action simply was not the type of suit that commercial general liability insurance policies are intended to cover (see Redevelopment Auth., 454 Pa Super at 392-93, 685 A2d at 590 ["'To allow indemnification under the facts presented here would have the effect of making the insurer a sort of silent business partner subject to great risk in the economic venture without any prospects of sharing in the economic benefit'"] [citation omitted]).
Defendant points out that causes of action for negligent misrepresentation and consumer fraud do not require proof of intent to misrepresent or to deceive, respectively (see e.g. Bortz v Noon, 556 Pa 489, 500-501, 729 A2d 555, 561; Commonwealth ex rel Zimmerman v Nickel, 26 Pa D & C 3d 115, 120), and that the Lee plaintiffs alleged that defendant acted negligently and/or recklessly as well as fraudulently, intentionally and maliciously. However, as indicated, it is the facts alleged in the complaint that determine whether an insurer must defend (see Mutual Benefit, 555 Pa at 538-539, 725 A2d at 745; see also Jerry Davis, 38 F Supp 2d at 391 ["The courts must look past the nominal title of the allegations to the actual basis of the cause of action"]). The complaint in the Alabama Action alleged that defendant developed a scheme to sell old batteries as new ones and implemented the scheme by repackaging old and/or used batteries and representing that they were new. These are not unintentional acts and hence did not trigger plaintiff's duty to defend (see e.g. Scopel, 698 A2d at 605-06 [while assault can be reckless as well as intentional, no duty to defend where factual allegations of complaint showed that assault was intentional]; State Farm Fire & Cas. Co. v Dalrymple, 153 F Supp 2d 624, 628 [no duty to defend where claims labeled "negligence" merely allege same facts as alleged in assault and battery and intentional infliction of emotional distress claims, which facts "sound convincingly in intentional conduct"); Agora Syndicate, Inc. v Levin, 977 F Supp 713, 715 ["if the factual allegations of the complaint sound in intentional tort, arbitrary use of the word 'negligence' will not trigger an insurer's duty to [*7]defend"]).
Accordingly, the order of the Supreme Court, New York County (Walter Tolub, J.), entered October 18, 2001, which granted defendant's motion for summary judgment dismissing the declaratory action and denied plaintiff's cross motion for summary judgment, should be reversed, on the law, with costs, defendant's motion denied, plaintiff's cross motion granted, and judgment granted declaring that plaintiff has no duty to defend or indemnify defendant in the underlying class action. The Clerk is directed to enter judgment accordingly.
Order, Supreme Court, New York County (Ira Gammerman, J.), entered May 15, 2001, which, in this action for a declaration that defendant insurers are obligated to pay defense costs and indemnify plaintiff in connection with claims raised in an arbitration proceeding, inter alia, declared in various defendants' favor and granted defendants' motions pursuant to CPLR 3211 or 3212 to dismiss the complaint, unanimously affirmed, with costs.
The policy exclusions relied upon by the primary insurers were applicable and excused the insurers from defending and indemnifying in the underlying arbitration proceeding. The damages to waterproofing, caulking and expansion joint work were said to be caused by the "volumetric expansion and contraction" of concrete components installed by plaintiff Blakeslee, and were thus attributable to an operation performed by a "subcontractor working directly or indirectly on [plaintiff general contractor Pavarini's] behalf" and, as such, excluded from coverage pursuant to exclusion j(5) of the subject policies. Also excluded from coverage were damages to "impaired property," such as the leak-prone parking garage, since they were said to arise out of defective work by Pavarini, and thus fell within the scope of exclusion m(1) of the subject policies. While Pavarini claims that the damages sustained by its client were not attributable to its work but rather that of its subcontractor, Blakeslee, the [*2]claim, even if factually accurate, is without significance respecting the applicability of exclusion m(1). As general contractor, Pavarini was responsible for the entire project and all work done by Pavarini's subcontractor was done on Pavarini's behalf (see Basil Dev. Corp. v Gen. Acc. Ins. Co., 89 NY2d 1057).
Finally, Pavarini's contention that its client's damages arose from "continuous or repeated exposure to substantially the same harmful conditions" and thus resulted from an "occurrence" not within the scope of the cited exclusions, must be rejected. The claim of Pavarini's client in the arbitration was essentially for breach of contract and, as we have observed, a contract default under a construction contract is not to be equated with an "accident, including continuous or repeated exposure to substantially the same general harmful conditions" under the subject policies (see George A. Fuller Co. v United States Fid. & Guar., 200 AD2d 255, 259-260, lv denied 84 NY2d 806).
We have considered plaintiffs' remaining contentions and find them unavailing.
It is hereby ORDERED that the judgment so appealed from be and the same hereby is unanimously modified on the law by denying the cross motion of plaintiff, granting the motion of defendant Zoobar, Inc. in part and the cross motions of defendants Zoobar, Inc. and Lynn Spoly in their entirety and granting judgment as follows: It is ADJUDGED and DECLARED that plaintiff must defend and indemnify defendant Zoobar, Inc. in the Spoly action and as modified the judgment is affirmed without costs.
Memorandum: Defendant Lynn Spoly commenced an underlying action to recover for injuries that she sustained when, following an altercation in a bar, she was thrown or dropped to the sidewalk outside the bar by a bouncer employed by defendant Zoobar, Inc. (Zoobar), the bar owner. Plaintiff, Penn-America Group, Inc. (Penn-America), Zoobar's liability insurance carrier, initially undertook the defense of Zoobar in the Spoly action but thereafter commenced this action seeking a judgment declaring that it has no duty to defend [*2]or indemnify Zoobar in the Spoly action, based on an assault and battery exclusion contained in the insurance policy. Zoobar initially moved for summary judgment declaring that Penn-America must defend Zoobar in the Spoly action, and further seeking to dismiss or stay as "premature" that part of the complaint that concerned the duty of indemnification. Penn-America cross-moved for summary judgment declaring that there is no coverage for the incident at issue, and Zoobar and Spoly each cross-moved for summary judgment declaring that Penn-America must defend and indemnify Zoobar in the Spoly action.
Supreme Court erred in granting Penn-America's cross motion. Instead, the court should have granted that part of the initial motion of Zoobar seeking a declaration that Penn-America must defend it in the Spoly action and should have granted the cross motions of Zoobar and Spoly in their entirety, based on Penn-America's failure to give written notice disclaiming coverage under the assault and battery exclusion "as soon as *** reasonably possible," as required by Insurance Law § 3420 (d).
The insurance policy generally affords coverage for claims of bodily injury "caused by an 'occurrence,'" defined as "an accident." Under the policy, bodily or personal injury "resulting from assault and battery or physical altercations that occur in, on, or near the insured's premises" are excluded from the foregoing coverage. Here, as conceded by Zoobar, the underlying incident falls within the assault and battery exclusion of the policy (see Mt. Vernon Fire Ins. Co. v Creative Hous., 88 NY2d 347, 351-353; U.S. Underwriters Ins. Co. v Val-Blue Corp., 85 NY2d 821, 823; Mark McNichol Enters. v First Fin. Ins. Co., 284 AD2d 964, 965; Sphere Drake Ins. Co. v Block 7206 Corp., 265 AD2d 78, 81-82). Nonetheless, we note that the incident likewise falls within the policy's general coverage for claims of personal injury arising out of an accidental occurrence (see Agoado Realty Corp. v United Intl. Ins. Co., 95 NY2d 141, 145-146; Blake v Daily Bus & Truck Rental, 299 AD2d 441, 442; Liberty Mut. Ins. Co. v Ho, 289 AD2d 1051, 1052; Sphere Drake Ins. Co., 265 AD2d at 81-82; Park Terrace Arms Corp. v Nationwide Ins. Co., 268 AD2d 297). "[D]isclaimer pursuant to [Insurance Law § ] 3420 (d) is necessary when denial of coverage is based on a policy exclusion without which the claim would be covered" (Matter of Worcester Ins. Co. v Bettenhauser,95 NY2d 185, 188-189; see Zappone v Home Ins. Co., 55 NY2d 131, 134, 138; see also Handelsman v Sea Ins. Co., 85 NY2d 96, 102, rearg denied 85 NY2d 924). "Failure to comply with section 3420 (d) precludes denial of coverage based on a policy exclusion" (Worcester Ins. Co., 95 NY2d at 189).
We note that, in concluding that no notice of disclaimer was required, Supreme Court understandably relied on this Court's decision in Crouse W. Holding Corp. v Sphere Drake Ins. Co. (248 AD2d 932, affd 92 NY2d 1017). However, to the extent that our decision therein may be read to hold that compliance with Insurance Law § 3420 (d) is not required in these circumstances, it is no longer to be followed (see generally Worcester Ins. Co., 95 NY2d at 188-189; Sphere Drake Ins. Co., 265 AD2d at 82-83).
Here, Penn-America never disclaimed or gave notice of its intent to disclaim in writing at any time prior to its commencement of this declaratory judgment action in November 2000. This action was commenced three years after Penn-America first received notice of the incident and of the particular fact that it involved an assault by a bouncer against a bar patron. Such an unexplained delay in disclaiming coverage is unreasonable as a matter of law (see Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 1029-1030, rearg denied 47 NY2d 951; Buttenschon v State Farm Mut. Auto. Ins. Co., 291 AD2d 864, 865; Nuzzo v Griffin Tech., 222 AD2d 184, 188, lv dismissed 89 NY2d 981, lv denied 91 NY2d 802; see also Faas v New York Cent. Mut. Fire Ins. Co., 281 AD2d 586, 587; Matter of Nationwide Mut. Ins. Co. v Steiner, 199 AD2d 507).
We therefore modify the judgment by denying the cross motion of Penn-America, granting the motion of Zoobar in part and the cross motions of Zoobar and Spoly in their entirety, and granting judgment declaring that Penn-America must defend and indemnify Zoobar in the Spoly action.
Pursuant to the April 22, 2003 order of the United States
Court of Appeals for the Second Circuit withdrawing its certification of a
question accepted by this Court on December 12, 2002, certified question marked
withdrawn. Chief Judge Kaye and Judges Smith, Ciparick, Wesley, Rosenblatt,
Graffeo and Read concur.
Decided May 1, 2003
Appeal from an order of the Court of Claims (Read, P.J.), entered December 19, 2001, which granted defendant's cross motion for summary judgment dismissing the claim.
Arthur Rose was employed by defendant as a physician and associate professor at the State University of New York Downstate Medical Center (hereinafter SUNY-Downstate). In addition to teaching, Rose maintained a clinical practice at that location where he met with then three-year-old Chana Fink in 1978. After Fink's admission to the hospital at SUNY-Downstate and upon completion of various neurological tests, Rose changed his original diagnosis of peripheral facial nerve palsy to that of a [*2]brain tumor.
Fink and her parents commenced a negligence action against Rose, SUNY-Downstate and three other physicians as a result of this misdiagnosis. Rose sought legal representation pursuant to the provisions of Public Officers Law § 17, which defendant denied by contending that Rose had treated Fink as a private patient and not in his capacity as an employee of defendant. However, SUNY-Downstate had purchased a malpractice insurance policy from Great Atlantic Insurance Company (hereinafter Great Atlantic), which provided $500,000 worth of primary coverage to SUNY-Downstate and its physicians. As Great Atlantic was being liquidated at such time, a defense was provided by the Liquidation Bureau of the Department of Insurance. Two excess malpractice insurance policies had also been purchased by SUNY-Downstate for itself and its physicians. One provided excess coverage of $500,000 over the amount provided by the Great Atlantic policy, while the second provided $5,000,000 in excess of the other two. Both of these excess policies were "London market subscription" policies [FN1].
Fink's medical malpractice action was ultimately settled for a total of $3.5 million, $2 million of which was attributable to the claim against Rose. By the time the settlement was reached, Great Atlantic had only $51,914 to satisfy its obligation under the primary policy, thereby triggering the two excess insurance policies. Although various insurance companies subscribed to different proportionate shares of the first excess policy, with Bercanus Insurance Company assuming 75% of the whole, at the time of settlement it was insolvent, leaving only 25% of the $500,000 excess policy available. Under the second excess policy, proportionate shares held by insurance companies which were now insolvent relegated only 40% of that policy available.
In an attempt to protect Rose from personal liability and avoid a potential bad faith cause of action, claimants, the solvent insurance companies holding a proportionate share under the excess policies, agreed to pay their individual shares, as well as the shares of the insolvent subscribers, in exchange for the right to pursue Rose's claim against defendant. Notably, [*3]even with such payment, the amount did not exceed the outer limits of the excess policies.
Claimants brought the instant subrogation action seeking to recover the amounts paid in excess of their respective shares. They moved and defendant cross-moved for summary judgment, both focusing on the issue of whether Rose was acting within the scope of his employment so that recovery could be claimed pursuant to Public Officers Law § 17. The Court of Claims, however, granted defendant's cross motion by finding that claimants' subrogation claim was barred by the antisubrogation rule and that claimants voluntarily made the payments in excess of their proportionate shares. These findings were reaffirmed on reargument, and claimants appeal.
Claimants' contention that they fall within the exception to the antisubrogation rule since they paid more than their individual proportionate shares under the two excess policies must fail. Subrogation is an equitable doctrine which "entitles an insurer to 'stand in the shoes' of its insured to seek indemnification from third parties whose wrongdoing has caused a loss for which the insurer is bound to reimburse" (North Star Reins. Corp. v Continental Ins. Co., 82 NY2d 281, 294 ; see Layaw v Maquire Ford Lincoln-Mercury, 219 AD2d 73, 75 ). A third party is "one to whom the insurer owes no duty under the insurance policy through which its loss was incurred" (Pennsylvania Gen. Ins. Co. v Austin Powder Co., 68 NY2d 465, 471 ). The emergence of the antisubrogation rule, the exception to the right of subrogation, precludes an insurer from "be[ing] subrogated to a claim against its own insured, at least when the claim arises from an incident for which the insurer's policy covers that insured" (id. at 471; see North Star Reins. Corp. v Continental Ins. Co., supra at 294).
Here, it is undisputed that defendant, through SUNY-Downstate, was the insured under both policies and that one of the risks covered by those policies was the risk of malpractice by a SUNY-Downstate physician. Since claimants are seeking subrogation from defendant — one of their own insured — for a claim arising from the very risk for which they provided coverage, we find that the Court of Claims correctly determined that the claim is barred by the antisubrogation rule (see Pennsylvania Gen. Ins. Co. v Austin Powder Co., supra at 471-472), and that no exception thereto applies. [*4]
Nor do we find any equitable considerations which would occasion a departure from this determination, including the contention that the payments were made to obviate a potential bad faith claim. With claimants not "'lawfully answerable for the claim paid'" (National Union Fire Ins. Co. v Ranger Ins. Co., 190 AD2d 395, 397 , quoting Koehler v Hughes, 148 NY 507, 511 ), they had no right to recovery.
Crew III, J.P., Lahtinen and Kane, JJ., concur.
ORDERED that the order is affirmed, without costs.
Footnote 1: Wholly separate insurance companies subscribe to several shares of the policies in exchange for a percentage of the premiums; they are severally liable for a determined percentage of a loss yet have no joint liability.