Coverage Pointers - Volume V, No. 8

11/03/03          C.C.R. REALTY OF DUTCHESS v NEW YORK CENTRAL MUT. FIRE INS. CO.

  

New York State Supreme Court, Appellate Division, Second Department

Insured’s Unexcused Failure to Give Notice of Accident to Liability Carrier for Six Months Vitiates Coverage

The evidence established that the plaintiffs should have realized there was a reasonable possibility of the policy’s involvement once they learned about the accident and its surrounding circumstances. Having failed to offer a valid excuse as to why they waited approximately six months to inform their insurance agent of the occurrence, the Supreme Court properly granted the insurer’s motion for summary judgment.

 

11/03/03          CRIMI v NATIONAL LIFE INS. CO.

New York State Supreme Court, Appellate Division, Second Department

Insurance Broker was Policyholder’s Agent, Not Insurer’s

Insurance broker convinced policyholder to cash out policy and loan money to broker. Broker then refused to pay the money back. Lawsuit against insurer dismissed. The insurance “broker” (see Insurance Law § 2101[c]), acted as the plaintiff’s agent in obtaining the insurance policy from the defendant at the outset, in submitting the surrender to the defendant on behalf of the plaintiff, and in receiving the check for delivery to the plaintiff. Accordingly, the plaintiff was bound by the action of his agent, the broker, in securing the surrender check, forging the plaintiff’s signature on the check, and converting the funds. Moreover, by assuring a representative of the defendant that the surrender transaction had worked out well, and failing to register any complaint with the defendant until approximately eight months after the check had been issued, the plaintiff ratified the actions of his agent, and accordingly, was bound by them. The defendant demonstrated its entitlement to judgment dismissing the claims for breach of contract and negligence as a matter of law, and the plaintiff failed to demonstrate the existence of a triable issue of fact.

 

10/30/03          LANG v HANOVER INS. CO.

New York State Supreme Court, Appellate Division, Third Department

Stranger to Liability Policy Does Not Have Standing to Commence Declaratory Judgment Action

Joining two other Departments (and leaving the Second Department standing alone), the Appellate Division, Third Department has ruled that an injured party does not have standing to commence a declaratory judgment action to test an insurer’s disclaimer or denial of coverage. The insured’s only option is to wait until there is a judgment against the insured in the underlying lawsuit and then bring a direct action against the carrier pursuant to the provisions of Insurance Law §3420(a)(2).

 

10/30/03          MAZZOCKI v STATE FARM FIRE & CAS. CORP.

New York State Supreme Court, Appellate Division, Third Department

In State Farm Class Action, Court Determines Contractor’s Overhead and Profit Part of Replacement Cost

The court in a previous case reasoned that since the replacement cost utilized to determine actual cash value is an estimate of all costs that would likely and reasonably be incurred by the insured in repairing or replacing the damaged property, the expense of a general contractor cannot be deducted from such an estimate unless the services are not likely to be required Applying the same logic, the court found that the term “replacement cost”—as opposed to “actual replacement cost”—can reasonably be interpreted to include profit and overhead whenever it is reasonably likely that a general contractor will be needed to repair or replace the damage. Court found no merit to argument that since such an expense may not actually be incurred, it is contingent and should not be included. It concluded instead that a replacement cost estimate is equally hypothetical or contingent as to all materials, labor and contractor services. In the court’s view, the policy language was equivocal. Accordingly, it construed the policies’ terms against defendant and held that it was obligated to include profit and overhead in replacement cost, and thereby in actual cash value, whenever a general contractor would likely be needed.

 

10/30/03          WELLER v MUNSON

New York State Supreme Court, Appellate Division, Third Department

Where Plaintiff’s Doctor’s Affidavit is Conclusory, and Fails to Mention Subsequent Accident, Motion for Summary Judgment in “Serious Injury” Case Granted

Plaintiff maintained that she submitted sufficient proof to raise factual issues under three categories of serious injury: permanent consequential limitation of use of a body organ or member; significant limitation of use of a body function or system; and a nonpermanent injury under the 90/180 category (see Insurance Law § 5102 [d]). She relied upon the affidavits of three doctors, Lohr, Johnsen and White. The court held that the affidavits were substantially deficient, since Lohr had not treated plaintiff for over three years and neither Johnsen nor White—both of whom commenced treatment of plaintiff well after the second accident—expressed any knowledge of that second accident in their short affidavits. With respect to the claim under the 90/180 day category, the record reflected that plaintiff returned to her college studies three days following the accident and traveled to India as part of a college study group approximately three months later, after she had been released by Lohr to full activity without restrictions. The proof presented by plaintiff was clearly insufficient to create a factual issue as to whether her “usual activities were curtailed ‘to a great extent rather than some slight curtailment’” Nor was there sufficient objective evidence causally relating the accident to raise a factual issue regarding the remaining two categories of serious injury. Plaintiff’s X-ray reports from 1997 and a CT scan from 1998, which were conducted after the first accident but before the second, did not reveal objective evidence of an injury. In addition to failing to mention plaintiff's second accident, Johnsen and White also failed to address these earlier tests in their affidavits and the court regarded the omission as particularly problematic since they did not treat plaintiff until after her second accident. Johnsen stated that his opinion that plaintiff suffered from “chronic post-traumatic cervical and lumbar myofascial pain syndrome” was based, in part, on the results of an electrodiagnostic test. The results of that test, however, were normal. Although White referenced an MRI conducted in 2000, he failed to indicate any knowledge of the prior tests that were negative or the second accident. His opinion that plaintiff suffered a permanent consequential limitation and a significant limitation was conclusory, merely mimicking the statutory language.

 

10/30/03          STATE FARM v PETERS

New York State Court of Appeals

NY Gives Teeth to “Intentionally Caused” Exclusion in Homeowner’s Policy

Plaintiff sustained injuries when Johnson struck him with a baseball bat. At the time of the incident, Johnson was insured under a homeowner’s policy issued to his parents by defendant. Johnson pleaded guilty to assault in the third degree for causing physical injury to plaintiff by means of a dangerous instrument with criminal negligence (see Penal Law § 120.00 [3]). On or about January 9, 1992, plaintiff commenced an action against Johnson to recover damages for his personal injuries, alleging, in part, that Johnson “while intoxicated, recklessly, carelessly, and negligently, failed to control his actions and … negligently allowed a baseball bat to come into contact with the Plaintiff.” Defendant denied coverage based upon exclusions for injury “expected or intended by an insured” or “the result of willful and malicious acts of an insured.” Johnson testified that, in order to help extricate his brother from an altercation with plaintiff, he repeatedly swung a baseball bat knowing that the bat was striking a person. The Court of Appeals affirmed the appellate court’s holding that the injuries sustained by plaintiff as a result of that conduct could only be described as “intentionally caused” as a matter of law. Thus, the carrier demonstrated as a matter of law that the policy exclusion for “bodily injury,” which is either “expected or intended by an insured” or “which is the result of willful and malicious acts of an insured,” precluded coverage of the incident.

 

Across Borders

 

Visit the HOT CASES section of the Federation of Defense and Corporate Counsel website for cases covering a broad range of legal issues from other jurisdictions.

 

11/06/03          AMERICAN HOME ASSURANCE CO. v TEXAS UNAUTHORIZED PRACTICE OF LAW COMMITTEE

Texas Court of Appeals

Use of Staff Counsel by Insurance Companies to Represent Insureds Not Akin to Unauthorized Practice of Law by Corporations

American Home Assurance Company, Inc. (American Home) and The Travelers Indemnity Company (Travelers) sought a declaratory judgment against the Unauthorized Practice of Law Committee (UPLC) that using lawyers who are employees of an insurance company to defend insureds under liability policies was not the unauthorized practice of law by the insurer. In recognizing the perceived conflict of interest which is a subject of national debate, the insurance companies argued that the use of staff attorneys is permissible because the attorneys, in addition to their primary duty to the insured, are also defending the financial interest of the insurance company because it is the entity that will pay any adverse judgment against the insured, at least up to the policy amount. The UPLC argued that it is representation of the insurance carrier's interest and the interest of the insured violates the Texas Code of Ethics because no attorney can serve two masters, the attorney cannot exercise independent judgment and there is an irreconcilable conflict between the employer insurance company and the insured. Moreover, UPLC asserted that a corporation cannot practice law, staff attorneys, whose sole client is the insured, are agents of the insurance corporation and therefore, the insurance company is engaging in the unauthorized practice of law. The Court recognized that in reality the insurance company is also a client but the insured is the primary client and that ethical choices must be resolved in favor of the insured. The Court held that there is nothing in the State Bar Act that declares the use of staff attorneys to represent insureds to be the unauthorized practice of law. The Court also held that the insurance company is not engaged in the unlicensed practice of law because the purpose behind prohibiting the unauthorized practice of law is to protect the public from the mistakes of those who are not properly trained and licensed to practice law. The record showed that the attorneys were indeed properly trained and admitted to practice law.

Michael D. Shalhoub and Denise Holzka, Heidell, Pittoni, Murphy & Bach, LLP

 

11/06/03          AMERICAN STATES INS. CO. v SYMES OF SILVERDALE, INC.

Washington Supreme Court

Bankruptcy Trustee Not Barred from Recovering under Insurance Policy Where Debtor Alleged to Have Committed Arson After Filing of Bankruptcy Petition

Symes, a restaurant, obtained an insurance policy from American States Insurance Company effective March 10, 1997 and a month later it filed a chapter 11 bankruptcy petition for reorganization. Symes renewed its insurance contract with American States Insurance effective until March 10, 1999 and increased the limitations of the policy. On June 3, 1998, a fire severely damaged Symes and it was determined by The Bureau of Alcohol, Tobacco and Firearms that the fire was caused by arson. The following day with knowledge of the fire, the bankruptcy court granted a creditor's motion to convert the matter from a chapter 11 reorganization to a chapter 7 liquidation. Symes's president, Thomas R. Lepre, filed a claim under the policy at issue. On June 9, 1998, the bankruptcy court appointed Ellis as Symes's trustee in bankruptcy. As trustee for the bankruptcy estate, Ellis took responsibility for the insurance claim with American States. In March 1999 American States denied the trustee's claim citing fraudulent proof of loss, failure to cooperate and its conclusion the fire was intentionally set by or at the behest of Symes. American States filed a declaratory judgment action to establish it properly denied the claim, where it alleged Symes's president, Thomas R. Lepre, set fire to the restaurant. The trustee asserted counterclaims for breach of contract, claims pursuant to the Consumer Protection Act and bad faith against the carrier. The Court held the trustee acquires all the rights of the debtor in an insurance policy issued to the debtor, subject to all defenses and obligations that may have existed at the time the bankruptcy estate was created. If the debtor has no authority to act on behalf of the bankruptcy estate, a debtor's intentional wrongdoing is not attributable to the trustee. Accordingly, a bankruptcy trustee is not barred from recovering under debtor's insurance policy if the debtor's principal intentionally sets fire to the debtor's premises after the debtor filed a chapter 11 petition for bankruptcy.

Michael D. Shalhoub and Denise Holzka, Heidell, Pittoni, Murphy & Bach, LLP

 

11/06/03          SMITH v SAFECO INS. CO.

Washington Supreme Court

Insurer Entitled to Summary Judgment in Bad Faith Claim if Reasonable Minds Could Not Differ that Denial of Coverage was Based upon Reasonable Grounds

Plaintiff Smith suffered serious injuries after the car she was driving was rear-ended by a car driven by the insured Linda Bryce. Bryce had $100,000 of liability insurance through Safeco. Prior to suit, Smith made several requests of Safeco to disclose the limits of Bryce's insurance policy, but Smith refused to provide any written documentation of her claim. Safeco was unable to contact Bryce until April 1999 because it no longer insured her and did not have her current address. Safeco refused to disclose her policy limits to Smith, claiming it had insufficient information to believe the value of the demand exceeded the policy limits, and Safeco did not know whether Bryce would consent or object to such disclosure. Smith filed suit against Byrce which was ultimately resolved pursuant to a settlement agreement for partial judgment entered against her in the amount of $100,000 and she assigned her rights, if any, against Safeco to Smith. The Court resolved a potential conflict concerning the standard of review for bad claims on summary judgment. Safeco argued that it is entitled to summary judgment as a matter of law if the insurer can point to any reasonable basis for its action. However, the Court held that if reasonable minds could differ that the insurer's conduct was reasonable, or if there are material issues of fact with respect to the reasonableness of the insurer's action, then summary judgment is not appropriate. The existence of some theoretical reasonable basis for the insurer's conduct does not end the inquiry in reviewing the summary judgment motions.

Michael D. Shalhoub and Denise Holzka, Heidell, Pittoni, Murphy & Bach, LLP

 

11/05/03          WESTFIELD INS. CO. v GALATIS

Ohio Supreme Court

Sanity Takes Root in Ohio as Supreme Court Overrules Scott-Pontzer

Absent specific language to the contrary, a policy of insurance that names a corporation as an insured for uninsured or underinsured motorist coverage covers a loss sustained by an employee of the corporation only if the loss occurs within the course and scope of employment. Jason Galatis died on September 24, 1994, as a passenger in a vehicle negligently operated by Shawn Butler. Galatis’s estate settled its claim against Butler for $75,000 and released him from liability on September 1, 1995. The estate next settled an underinsured motorist claim against Grange Insurance Company, Galatis’s parents’ insurer, on December 5, 1995. The matter was resurrected and the claims against Aetna were made under a master insurance policy issued to Quagliata’s Restaurants, Inc., the employer of Galatis’s mother. The estate asserted claims for coverage under the business auto and commercial general liability parts of the combined policy. The Supreme Court’s prior decision of Scott-Pontzer v. Liberty Mut. Fire Ins. Co. was limited to apply only where an employee is within the course and scope of employment. Absent specific language to the contrary, a policy of insurance that names a corporation as an insured for uninsured or underinsured motorist coverage covers a loss sustained by an employee of the corporation only if the loss occurs within the course and scope of employment. Additionally, where a policy of insurance designates a corporation as a named insured, the designation of “family members” of the named insured as “other insureds” does not extend insurance coverage to a family member of an employee of the corporation, unless that employee is also a named insured.

Michael D. Shalhoub and Denise Holzka, Heidell, Pittoni, Murphy & Bach, LLP

 

11/04/03          STATE FARM MUTUAL AUTOMOBILE INS. CO. v GREEN

Utah Supreme Court

Where Insured Does Not Obtain Insurer Consent to Settle Underlying Claim, Insurer Must Show Actual Prejudice to Avoid UM Coverage

Plaintiff settled automobile accident case with tortfeasor and made claim against plaintiff's own automobile carrier for the underinsured coverage. The underinsured carrier refused to make payment as its consent had not been obtained. The Utah Supreme Court held that the consent to settle provision was valid and enforceable. Although the plaintiff breached the consent to settle provision, the Court held that the breach must be material to vitiate coverage. Materiality can be proven by showing actual prejudice. November 4, 2003.

Michael D. Shalhoub and Denise Holzka, Heidell, Pittoni, Murphy & Bach, LLP

 

11/04/03          BLAIR v PERRY COUNTY MUT. INS. COMPANY

Missouri Supreme Court

Policy Cancellation, Even for Non-Payment of Premium, Requires Grace Period

The insurance companies are not entitled to judgment as a matter of law. Absent an equitable ground, an insurance policy may be cancelled only by mutual assent of the parties or under the terms of the policy. Here, there was no mutual assent to cancellation. To be effective, a notice of unilateral cancellation unequivocally and unmistakably must notify the insured that the policy is cancelled, not that it will be cancelled at a future date. Here, the September 14 notice did not comply strictly with the policy, which permits cancellation based on nonpayment only if nonpayment has occurred and if notice is given at least 10 days before the cancellation is to take effect. Fiedler's nonpayment occurred on October 3, 1998. The insurance company sent notice of cancellation on October 14. By the policy's terms, the earliest date cancellation can take effect is October 24, three days after Blair's injury.

 

10/29/03          PEKIN INS. CO. v PHELAN

Appellate Court of Illinois

Insurer has Duty to Defend Suit Alleging Self-Promoting Statements Intended to Lure Customers Away from Competitor

An insurance company appealed the decision of the lower court finding that the insurance company had a duty to defend a suit against its insured and her business, where the underlying suit alleged that the insured made statements intended to lure customers away from the plaintiff in the underlying suit, Imaginations on Hair, Inc., a hair salon. The insured claimed coverage from the suit under her business insurance policy underwritten by the insurance company. The insurance company argued that the underlying complaint did not allege conduct covered by the insurance policy because the insured’s statements did not disparage Imaginations. The appellate court affirmed the lower court’s decision, holding that the policy language obligated the insurance company to defend the suit. The appellate court held that the insured’s statements were about the competitor’s goods or services, were untrue and misleading, and tended to influence the public not to buy those goods or service, thus, met the three elements of disparagement. The court further held that the disparaging statements need not be negative; engaging in self-promotion was sufficient to qualify as disparaging.

Bruce Celebrezze and Teresa Hu, Celebrezze & Wesley

 

10/28/03          AMEX ASSURANCE CO. v ALLSTATE INS. CO.

California Court of Appeal, Second District, Division 6

Professional Services Exclusion Applies to Plumbing Services

A plumber installed a propane water heater at his friend’s house, which allegedly caused a fire destroying the house. The homeowner’s insurance carrier, Amex, paid more than $1.5 million to settle the homeowner’s claim and than made a claim against the plumber’s homeowner’s insurance carrier, Allstate, which Allstate denied, and Amex instituted this action alleging breach of contract and bad faith. Allstate’s policy excluded damages arising from professional services and business activities. The court recognized that the ordinary meaning of the word “professional” is no longer limited to the “learned professions,” but has a broader scope that includes skilled services such as plumbing. Recognizing that it is the type of activity, rather than actual compensation, that controls whether the professional services or business activities exclusions apply, the court found that, even though the plumber did not receive compensation for installing the water heater, the undisputed evidence showed that the plumber’s friend had sometimes paid the plumber for similar work in the past, and the plumber installed the water heater in the hope it would induce the friend to pay him for prior work. The court thus found in favor of the plumber’s homeowner’s insurance carrier because the plumber could have no reasonable expectation of coverage under these circumstances.

Bruce Celebrezze and Teresa Hu, Celebrezze & Wesley

 

10/28/03          KIRK KING, KING CONSTRUCTION, INC. v CONTINENTAL WESTERN INS. CO.

Missouri Court of Appeals

Placing of Sign Bearing Builder’s Name Next to Construction Site Constitutes “Advertising Injuries” Caused by Copyright Infringement of House Plan

Kirk King, King Construction, Inc., and American Family Mutual Insurance Company, King's previous general liability carrier, sued current insurer Continental Western Insurance Company to recover damages and expenses incurred when King was sued for copyright infringement. Continental insured King under a commercial general liability policy. In the underlying suit, King, a custom homebuilder was sued for using a copyrighted house plan as its own. The Continental policy covers “advertising injuries” caused by an offense, such as infringement of copyright, committed in the course of advertising the insured’s products. This central issue was whether the placing of a sign bearing the builder’s name next to a construction site of the builder constitutes advertising within the meaning of the insurance policy. Continental had declined to defend and indemnify King. Continental alleged that the trial court erred in concluding that it had a duty to defend and to indemnify King because there was no coverage, and as an alternative, even if it should have tendered a defense or provided indemnity, such amount should have been equally shared with American Family. The court held that the sign bearing the builder’s name next to the construction site was advertising, the copyright infringement by constructing the house was committed in the course of advertising as required by the advertising injury coverage, and American had no duty to split the indemnification and defense costs with Continental since its policy expired approximately six months before the copyright violation began.

Bruce Celebrezze and Teresa Hu, Celebrezze & Wesley

 

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Text of Reported Decisions

 

C.C.R. Realty of Dutchess, Inc. v New York Central Mutual Fire Insurance Company

 

In an action for a judgment declaring that the defendant New York Central Mutual Fire Insurance Company is obligated to defend and indemnify the plaintiffs in an underlying action entitled Springer v C.C.R. Realty of Dutchess, pending in the Supreme Court, Dutchess County, under Index No. 2348/99, the defendants Rosemary Springer and Joseph Springer appeal from an order of the Supreme Court, Dutchess County (Dolan, J.), dated September 10, 2002, which granted the motion of the defendant New York Central Mutual Fire Insurance Company for summary judgment.

 

ORDERED that the order is affirmed, with costs, and the matter is remitted to the Supreme Court, Dutchess County, for the entry of a judgment declaring that the defendant New York Central Mutual Fire Insurance Company is not obligated to defend and indemnify the plaintiffs in the underlying action.

 

Generally, the requirement that an insured provide notice of any occurrence to the insurance company within a reasonable time is considered a condition precedent to the insurer's obligation to defend or indemnify the insured (see White v City of New York, 81 NY2d 955, 957; Brooks v Zurich-American Ins. Group, 300 AD2d 176, 178; Pierre v Providence Wash. Ins. Co., 286 AD2d 139, 143, affd 99 NY2d 222; New York Cent. Mut. Fire Ins. Co. v Riley, 234 AD2d 279). Absent a showing of legal justification, the failure to comply with the notice condition vitiates coverage (see Matter of Allcity Ins. Co., 78 NY2d 1054, 1055; Matter of Interboro Mut. Indem. Ins. Co. v Napolitano, 232 AD2d 561, 562; Greater N.Y. Mut. Ins. Co. v Farrauto, 136 AD2d 598, 599). However, a failure to give notice may be excused when an insured has a reasonable belief of nonliability (see White v City of New York, supra at 957-958; Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d 436; United Talmudical Academy of Kiryas Joel v Cigna Prop. & Cas. Co., 253 AD2d 423, 424). The burden is on the insured to show the reasonableness of its belief, and whether that belief is reasonable is ordinarily a question for the trier of fact (see United Talmudical Academy of Kiryas Joel v Cigna Prop. & Cas. Co., supra; Kreger Truck Renting Co. v American Guar. & Liab. Ins. Co., 213 AD2d 453; Argentina v Otsego Mut. Fire Ins. Co., 207 AD2d 816, affd 86 NY2d 748).

 

However, the duty to give notice arises "when, from the information available relative to the accident, an insured could glean a reasonable possibility of the policy's involvement" (Paramount Ins. Co. v Rosedale Gardens, 293 AD2d 235, 239-240). Furthermore, knowledge of an occurrence obtained by an agent charged with the duty to report such matters is imputed to the principal (see White v City of New York, supra at 958).

In the present case, the evidence established that the plaintiffs should have realized that there was a reasonable possibility of the subject policy's involvement once they learned about the accident and its surrounding circumstances. Having failed to offer a valid excuse as to why they waited approximately six months to inform their insurance agent of the occurrence (see Paramount Ins. Co. v Rosedale Gardens, supra; Ciaramella v State Farm Ins. Co., 273 AD2d 831, 832), the Supreme Court properly granted the insurer's motion for summary judgment (see Sayed v Macari, 296 AD2d 396; Lukralle v Durso Supermarkets, 238 AD2d 318).

 

The appellants' remaining contention is without merit.

 

We note that since this is a declaratory judgment action, the matter must be remitted for the entry of a judgment declaring that the defendant New York Central Mutual Fire Insurance Company is not obligated to defend and indemnify the plaintiffs in the underlying action (see Lanza v Wagner, 11 NY2d 317, 334, appeal dismissed 371 US 74, cert denied 371 US 901).

 

PRUDENTI, P.J., SMITH, FRIEDMANN and H. MILLER, JJ., concur.

 

Crimi v National Life Ins. Co.

 

In an action to recover damages for breach of contract and negligence, the defendant appeals from an order of the Supreme Court, Suffolk County (Costello, J.), entered September 26, 2002, which denied its motion for summary judgment dismissing the complaint.

 

ORDERED that the order is reversed, on the law, with costs, the motion is granted, and the complaint is dismissed.

 

The plaintiff was the insured on an annuity policy issued by the defendant, National Life Insurance Company, which had been obtained by an insurance broker, Anthony Schepis, a longtime friend of the plaintiff. When Schepis requested a loan from the plaintiff, the plaintiff agreed to "cash out" his annuity policy with the defendant, valued at over $70,000, and Schepis agreed to repay the loan within 30 days. The plaintiff executed a request for a surrender of the contract in April 1997, and a check made out to the plaintiff was forwarded to the defendant's general agent for delivery to Schepis, who was, in turn, to deliver the check to the plaintiff. Schepis, however, apparently forged the plaintiff's signature on the check, deposited it into his firm's account on May 2, 1997, and failed to repay the money despite repeated assurances that he would.

 

Thereafter, the plaintiff instituted legal action against Schepis, who ultimately filed for bankruptcy. It was not until approximately eight months after the check was issued by the defendant, and two months after the plaintiff informed a representative of the defendant that the transaction has worked out well that the plaintiff first informed the defendant that Schepis had wrongfully converted the funds. The plaintiff then instituted this action, alleging that the defendant's delivery of the surrender check directly to Schepis, who, the plaintiff maintained, acted as the defendant's agent, constituted both a breach of the insurance contract and a negligent act by the defendant. The Supreme Court denied the defendant's motion for summary judgment, finding that the defendant failed to satisfy its burden. We disagree, and accordingly, reverse.

 

Schepis, the insurance "broker" (see Insurance Law § 2101[c]), acted as the plaintiff's agent in obtaining the insurance policy from the defendant at the outset, in submitting the surrender to the defendant on behalf of the plaintiff, and in receiving the check for delivery to the plaintiff (see American Motorists Ins. Co. v Salvatore, 102 AD2d 342; Jet Setting Serv. Corp. v Toomey, 91 AD2d 431). Accordingly, the plaintiff is bound by the action of his agent, Schepis, in securing the surrender check, forging the plaintiff's signature on the check, and converting the funds (see Hutzler v Hertz Corp., 39 NY2d 209; Guardian Life Ins. Co. of Amer. v Chemical Bank, 47 AD2d 608). Moreover, by assuring a representative of the defendant in November 1997 that the surrender transaction had worked out well, and failing to register any complaint with the defendant until approximately eight months after the check had been issued, the plaintiff ratified the actions of his agent, and accordingly, was bound by them (see Clark v Bristol-Myers Squibb & Co., 306 AD2d 82; Holm v C.M.P. Sheet Metal, 89 AD2d 229). The defendant demonstrated its entitlement to judgment dismissing the claims for breach of contract and negligence as a matter of law, and the plaintiff failed to demonstrate the existence of a triable issue of fact (see Zuckerman v City of New York, 49 NY2d 557).

 

ALTMAN, J.P., FLORIO, FRIEDMANN and MASTRO, JJ., concur.

 

LANG v HANOVER INS. CO.

 

Appeal from an amended order of the Supreme Court (Mulvey, J.), entered January 7, 2003 in Tompkins County, which denied defendants' motion to dismiss the complaint.

 

In April 2000, plaintiff suffered serious injuries when he was struck in the eye by a "paintball" fired by Richard Bachman. At the time, Bachman was living in the home of defendants John Durbin and Beth Durbin. The Durbins' homeowner's insurance carrier, defendant Hanover Insurance Company, disclaimed coverage for the accident on the ground that Bachman was not an insured under the terms of its policy with the Durbins. Plaintiff subsequently filed a personal injury action against Bachman, who then filed a chapter 7 bankruptcy petition to discharge his debts. During the pendency of Bachman's bankruptcy proceeding, plaintiff commenced this action seeking a declaration that Hanover is required to defend and indemnify Bachman. Defendants moved to dismiss the complaint for lack of standing and failure to join Bachman as a necessary party. Supreme Court denied the motion, prompting this appeal.

 

Plaintiff is a stranger to the subject insurance policy. This being the case, Insurance Law § 3420 (a) (2) authorizes an action by plaintiff against Hanover only after he obtains a judgment against Bachman that has gone unpaid for 30 days (see University Garden Apts. v Nationwide Mut. Ins. Co., 284 AD2d 975, 976 [2001]; Clarendon Place Corp. v Landmark Ins. Co., 182 AD2d 6, 9 [1992], appeal dismissed 80 NY2d 918 [1992]; see also State of New York v Federal Ins. Co., 189 AD2d 4, 5 n 1 [1993]; cf. Watson v Aetna Cas. & Sur. Co., 246 AD2d 57 [1998]). Plaintiff contends that this condition precedent is inapplicable here because Bachman's bankruptcy bars any recovery from him. We disagree.

 

First, we cannot tell from this record whether Bachman's liability for plaintiff's injuries was among the debts that were discharged in his bankruptcy ^[FN1]. In any event, even if this liability had been discharged, such a discharge does not absolve an insurer of liability (see Insurance Law § 3420 [a] [1]) and will not bar an action against the insured for the purpose of recovering against the insurer (see Green v Welsh, 956 F2d 30, 33-35 [1992]; Presutti v Suss, 254 AD2d 785, 785 [1998]; Lumbermens Mut. Cas. Co. v Morse Shoe Co., 218 AD2d 624, 625 [1995]; Andriani v Czmus, 153 Misc 2d 38, 41 [1992]). Since plaintiff has not yet obtained a judgment against Bachman, this action must be dismissed as premature.

 

Crew III, J.P., Peters, Spain and Lahtinen, JJ., concur.

 

ORDERED that the amended order is reversed, on the law, with costs, motion granted and complaint dismissed.

 

Footnote 1: On this appeal, we will assume, without deciding, that Bachman is an insured.

 

MAZZOCKI v STATE FARM FIRE & CAS. CORP.

 

Rose, J.

 

Appeals (l) from an order and judgment of the Supreme Court (Ferradino, J.), entered December 17, 2002 in Saratoga County, which, inter alia, granted plaintiffs' motion for partial summary judgment and class certification, (2) from an order of said court, entered December 17, 2002 in Saratoga County, which directed the manner and method of class notice, and (3) from an order of said court, entered December 17, 2002 in Saratoga County, which denied defendant's motion for leave to renew. 

 

Plaintiffs sustained storm damage to buildings on their respective properties and filed claims for the actual cash value of the damage under homeowner's insurance policies issued by defendant. When defendant excluded the profit and overhead expenses of a general contractor in calculating the actual cash value, plaintiffs commenced this class action alleging that defendant breached the terms of its policies with them and others similarly situated. Specifically, plaintiffs cited this loss settlement provision of the policies:

 

"We will pay the cost to repair or replace buildings * * * subject to the following: (1) until actual repair or replacement is completed, we will pay the actual cash value of the damage to the buildings, up to the policy limits, not to exceed the replacement cost of the damaged part of the building * * *. Any additional payment is limited to that amount you actually and necessarily spend to repair or replace the damaged buildings * * *."

 

Plaintiffs then moved for partial summary judgment as to defendant's liability, class action certification and an order describing class members. Defendant cross-moved for summary judgment dismissing the complaint on the ground that its practice of paying profit and overhead only when a general contractor is actually employed does not constitute a breach of its policies. Supreme Court held that the collateral estoppel effect of a Michigan appellate court's ruling regarding the same policy language in Salesin v State Farm Fire & Cas. Co. (229 Mich App 346, 367, 581 NW2d 781, 790 [1998], lv denied 459 Mich 934, 615 NW2d 738 [1998]) precluded defendant from contesting whether it can withhold profit and overhead of a general contractor, even if not incurred, in calculating the actual cash value of an insured's loss. Based on that alone, Supreme Court granted plaintiffs summary judgment on their breach of contract cause of action and certified the proposed class ^[FN1]. Defendant now appeals.

 

Initially, we find that collateral estoppel does not apply. The doctrine of collateral estoppel requires "that an issue in the present proceeding be identical to that necessarily decided in a prior proceeding" (Allied Chem. v Niagara Mohawk Power Corp., 72 NY2d 271, 276 [1988], cert denied 488 US 1005 [1989]; see Ryan v New York Tel. Co., 62 NY2d 494, 500 [1984]). The issue presented here, however, is not identical to that resolved in Salesin v State Farm Fire & Cas. Co. (supra). There, defendant initially included general contractor overhead and profit in its estimate of replacement cost and then deducted those items from actual cash value. Applying its interpretation of defendant's policy language to those facts, the Salesin court concluded that defendant cannot routinely deduct overhead and profit from actual cash value merely because they may not be incurred (id. at 368-369). Here, the issue is whether defendant's refusal to include overhead and profit in its estimate of replacement cost in the first instance constitutes a breach of the terms of its policies. Moreover, collateral estoppel is inapplicable because interpretation of the policy language presents a pure question of law (see American Home Assur. Co. v International Ins. Co., 90 NY2d 433, 440 [1997]; Avon Dev. Enters. Corp. v Samnick, 286 AD2d 581, 582 [2001]). Also, there are other inconsistent judicial rulings regarding defendant's policy language (see e.g. Karl v State Farm Fire & Cas. Ins. Co., US Dist Ct, Colo, March 19, 2002, No. 97-WY-2593, slip op at 11-12; Snellen v State Farm Fire & Cas. Co., 675 F Supp 1064, 1068 [US Dist Ct, WD Ky 1987]) that make it unwarranted to give Salesin preclusive effect (see Restatement [Second] of Judgments § 29 [4]; cf. Kaufman v Lilly & Co., 65 NY2d 449, 458-459 [1985]).

 

As a result, Supreme Court erred in summarily holding defendant liable to plaintiffs based solely on the ruling in Salesin. Rather, it was incumbent on Supreme Court to first interpret the policy language and then apply it to the facts presented on plaintiffs' motion for summary judgment. Although Supreme Court did not do so, we will — in the interest of judicial economy — interpret the disputed policy provision in light of the persuasive reasoning in Salesin and remit to Supreme Court only the factual issue of whether, under that interpretation, the actual cash values of plaintiffs' particular losses should have included profit and overhead.

 

Defendant's policies provide that until the damaged property is actually repaired or replaced, it will pay the actual cash value of the damage not to exceed replacement cost or the policy limits. Actual cash value is payable regardless of whether the property is eventually repaired or replaced. Under New York law, "[t]he determination of actual cash value is made under a broad rule of evidence which allows the trier of fact to consider 'every fact and circumstance which would logically tend to the formation of a correct estimate of the loss'" (Cass v Finger Lakes Coop. Ins. Co., 107 AD2d 904, 905 [1985], quoting McAnarney v Newark Fire Ins. Co., 247 NY 176, 184 [1928]). Since defendant does not dispute that the term "actual cash value" here means replacement cost minus depreciation, the issue becomes whether replacement cost includes a general contractor's profit and overhead even if not actually incurred. The term "replacement cost" itself is not defined in defendant's insurance policies.

 

The court in Salesin reasoned that since the replacement cost utilized to determine actual cash value is an estimate of all costs that would likely and reasonably be incurred by the insured in repairing or replacing the damaged property, the expense of a general contractor cannot be deducted from such an estimate unless such services are not likely to be required (see Salesin v State Farm Fire & Cas. Co., supra at 367-368, citing Gilderman v State Farm Ins. Co., 437 Pa Super 217, 226, 649 A2d 941, 945 [1994], appeal denied 541 Pa 626, 661 A2d 874 [1995]). Applying the same logic, we find that the term "replacement cost" — as opposed to "actual replacement cost" — in defendant's policies can reasonably be interpreted to include profit and overhead whenever it is reasonably likely that a general contractor will be needed to repair or replace the damage.

 

We find no merit in defendant's argument that since such an expense may not be actually incurred, it is contingent and should not be included. Like the court in Gilderman v State Farm Ins. Co. (supra at 226), we conclude that a replacement cost estimate is equally hypothetical or contingent as to all materials, labor and contractor services.

 

This reading of "replacement cost" demonstrates that defendant did not meet its burden of showing that its interpretation is the only fair construction of the policy. In our view, the policy language is at best equivocal on the subject. Accordingly, we construe the policies' terms against defendant (see Westview Assoc. v Guaranty Natl. Ins. Co., 95 NY2d 334, 340 [2000]; Charles F. Evans Co. v Zurich Ins. Co., 95 NY2d 779, 780-781 [2000]; Butler v New York Cent. Mut. Fire Ins. Co., 274 AD2d 924, 925 [2000]; Primavera v Rose & Kiernan, 248 AD2d 842, 843 [1998]; Harrington v Amica Mut. Ins. Co., 223 AD2d 222, 228 [1996], lv denied 89 NY2d 808 [1997]) and hold that it was obligated to include profit and overhead in replacement cost, and thereby in actual cash value, whenever a general contractor would likely be needed.

 

Under this interpretation, plaintiffs can establish their breach of contract claim only upon proof of the likely necessity of a general contractor's services in the repair or replacement of their damaged property. While plaintiffs' moving papers contain no allegation or proof of such necessity, a triable issue of fact on this point is nonetheless raised in the record because, in offering to pay contractor profit and overhead if incurred, defendant's written estimates of plaintiffs' losses appear to predetermine their need for a general contractor. These loss estimates, which were prepared by defendant's claims representatives, list the actual cash values proposed to be paid by defendant. Under the heading of "Maximum Additional Amounts Available If Incurred," the estimates also include percentage amounts for profit and overhead.

 

Other record evidence also suggests that these amounts were included because a general contractor was deemed necessary in the adjustment of plaintiffs' losses. At several points in his deposition testimony, defendant's senior claims consultant, Tony Prosperini, stated that it was the responsibility of defendant's claims representative, in preparing the estimate of an insured's loss, to determine whether or not a general contractor would be required in repairing or replacing the damaged property. He testified that if a claims representative estimates that a general contractor may be required, then the loss estimate would advise the insured that additional amounts for profit and overhead would be paid if actually incurred. Prosperini also testified that if the need for a general contractor were questionable, then the insured would be advised that such costs would be "considered" at a later time if actually incurred. Defendant's Operations Guide appears to confirm Prosperini's testimony and implies that the need for a general contractor was to be determined in preparing the loss estimate. Prosperini's later affidavit explaining his earlier testimony simply points out an issue of fact as to the implications of defendant's loss estimates.

 

Given this issue of fact, summary judgment is inappropriate in either party's favor. If the trier of fact were to find that defendant's estimates effectively concede that plaintiffs' losses require a general contractor, defendant then would be liable to these plaintiffs for breach of contract. Also, if such a finding were to be made, then the members of the class proposed by plaintiffs would be properly identified as comprising only those insureds whose policies included substantially similar loss settlement provisions and whose loss estimates offered additional amounts for profit and overhead. Contrary to defendant's contention, the individualized damages of the resulting class members would not preclude class certification, for the amounts of unpaid profit and overhead could readily be ascertained from each member's loss estimate (see e.g. Broder v MBNA Corp., 281 AD2d 369, 371 [2001]).

 

If, however, the trier of fact were to find that defendant's loss estimates do not concede that a general contractor would be reasonably likely, then defendant would be entitled to dismissal of plaintiffs' breach of contract cause of action inasmuch as they offered no other evidence that their own losses were reasonably likely to require the services of a general contractor. In any event, if loss estimates such as plaintiffs' fail to establish such a reasonable likelihood, then a class action would not be appropriate because defendant's liability would require proof by each insured that a general contractor would likely be needed to repair or replace his or her damaged property. This issue's resolution would be unique for each member, and it would sufficiently predominate over the common questions of fact and law so as to require denial of class certification (see Banks v Carroll & Graf Publs., 267 AD2d 68, 69 [1999]; Mitchell v Barrios-Paoli, 253 AD2d 281, 292 [1999]; Evans v City of Johnstown, 97 AD2d 1, 3 [1983]).

 

Crew III, J.P., Spain, Carpinello and Kane, JJ., concur.

 

ORDERED that the orders and judgment are modified, on the law, without costs, by reversing so much thereof as granted plaintiffs' motion for partial summary judgment as to liability, certified the class and directed the manner and method of service of class notice; said motion granted solely to the extent of declaring the meaning of the loss settlement provision of defendant's insurance policies and matter remitted to the Supreme Court for further proceedings not inconsistent with this Court's decision; and, as so modified, affirmed.

 

Footnote 1: Supreme Court defined the class members as property owners who (1) have or had homeowner's or other insurance policies issued by defendant containing loss settlement provisions substantially similar to those in plaintiffs' policies, (2) sustained covered property damage within a specified time period, (3) made claims for that damage and (4) did not receive payment for general contractor's overhead and profit.

 

WELLER v MUNSON

 

Appeals (1) from an order of the Supreme Court (Monserrate, J.), entered April 10, 2002 in Broome County, which, inter alia, granted defendant's motion for summary judgment dismissing the complaint, (2) from the judgment entered thereon, and (3) from an order of said court, entered November 26, 2002 in Broome County, which denied plaintiff's motion to renew.

 

On a Friday afternoon in late September 1997, defendant's vehicle struck the rear of plaintiff's vehicle while accelerating from a traffic light in the Town of Chenango, Broome County. Plaintiff was treated in a hospital emergency room for neck and back pain. Plaintiff testified at her examination before trial that she returned to college in Maryland the next Monday. Shortly thereafter, she sought treatment from Fredrick Lohr, whose medical records reflect that by December 1997, plaintiff had a "full range of motion of her cervical spine" and Lohr had released her to "full activity without restrictions." In October 1998, plaintiff was involved in a second accident in which her vehicle was struck from behind, again necessitating emergency room treatment. In February 1999, she commenced the current action against defendant.

 

Following disclosure, defendant moved for summary judgment dismissing the complaint upon the ground that plaintiff had not sustained a serious injury (see Insurance Law § 5102 [d]). Plaintiff cross-moved for partial summary judgment on the issue of liability. In April 2002, Supreme Court granted defendant's motion and denied plaintiff's motion as moot. Plaintiff made a motion to renew in September 2002, asserting, among other things, the existence of new medical evidence regarding the extent of her injuries. The motion to renew was denied. Plaintiff appeals.

 

In order to foster the legislative goals of the no-fault law, a plaintiff's serious injury claim must be supported by objective evidence (see Toure v Avis Rent A Car Sys., 98 NY2d 345, 350 [2002]). On a motion for summary judgment, defendant has the threshold burden of establishing that a serious injury did not occur (see Serrano v Canton, 299 AD2d 703, 705 [2002]). The proof submitted in support of defendant's motion included portions of plaintiff's medical records and a detailed affirmation from the doctor who had conducted an independent medical exam of plaintiff and concluded that there was no objective evidence of impairment of function of the cervical spine or low back attributable to the accident. Plaintiff does not contend that defendant failed to meet his initial burden and, thus, the analysis shifts to the proof produced by plaintiff in opposition to the motion.

 

Plaintiff maintains that she submitted sufficient proof to raise factual issues under three categories of serious injury: permanent consequential limitation of use of a body organ or member; significant limitation of use of a body function or system; and a nonpermanent injury under the 90/180 category (see Insurance Law § 5102 [d]). She relies primarily upon the affidavits of three doctors, Lohr, James Johnsen and Joseph White. Initially, we note that, under established precedent, these affidavits suffer substantial deficiencies since Lohr had not treated plaintiff for over three years when he executed his affidavit (see Trotter v Hart, 285 AD2d 772, 773 [2001]) and neither Johnsen nor White — both of whom commenced treatment of plaintiff well after the second accident — expressed any knowledge of that second accident in their short affidavits (see McCreesh v Hoehn, 307 AD2d 638, 638-639 [2003]; Uber v Heffron, 286 AD2d 729, 730 [2001]).

With respect to the claim under the 90/180 day category, the record reflects that plaintiff returned to her college studies three days following the accident and traveled to India as part of a college study group approximately three months later, after she had been released by Lohr to full activity without restrictions. The proof presented by plaintiff was clearly insufficient to create a factual issue as to whether her "usual activities were curtailed 'to a great extent rather than some slight curtailment'" (Bennett v Reed, 263 AD2d 800, 801 [1999], quoting Licari v Elliott, 57 NY2d 230, 236 [1982]).

 

Nor do we find ample objective evidence causally related to the accident to raise a factual issue regarding the remaining two categories of serious injury. Reports of plaintiff's X rays from 1997 and a CT scan from 1998, which were conducted after the first accident but before the second accident, did not reveal objective evidence of an injury. In addition to failing to mention plaintiff's second accident, Johnsen and White also failed to address these earlier tests in their affidavits and this omission is particularly problematic since they did not treat plaintiff until after her second accident. Johnsen stated that his opinion that plaintiff suffered from "chronic post-traumatic cervical and lumbar myofascial pain syndrome" was based, in part, on the results of an electrodiagnostic test. The results of that test, however, were normal. Although White referenced an MRI conducted in 2000, he failed to indicate any knowledge of the prior tests that were negative or the second accident. His opinion that plaintiff suffered a permanent consequential limitation and a significant limitation was conclusory, merely mimicking the statutory language (see Bennett v Reed, supra at 801). We agree with Supreme Court that plaintiff failed to submit sufficient evidence to create a factual issue regarding serious injury.

 

Plaintiff further argues that Supreme Court erred in denying her motion to renew, which was premised upon an alleged change in the law and the availability of new medical proof. Initially, we find unpersuasive plaintiff's contention that the Court of Appeals' decision in Toure v Avis Rent A Car Sys. (98 NY2d 345, supra) resulted in "a change in the law that would change [Supreme Court's] prior determination" (CPLR 2221 [e] [2]). Supreme Court's holding that plaintiff's original motion papers lacked adequate proof to defeat summary judgment rested upon a well-settled body of law that was not changed to plaintiff's benefit in Toure. Nor do we find that Supreme Court erred in determining not to grant renewal since the purportedly "new" medical evidence — appearing five years after the accident — failed to adequately address the deficiencies in proof that fatally infected plaintiff's original motion papers.

 

Crew III, J.P., Peters, Spain and Carpinello, JJ., concur.

 

ORDERED that the orders and judgment are affirmed, with costs.