Coverage Pointers - Volume VI, No. 9

New Page 1

 

12/23/04          Blake v. Neighborhood Housing Services of New York City

New York State Court of Appeals

As a Companion to the Cahill Case Reported In Our December 21st Special Edition of Coverage Pointers, the New York Court of Appeals Issues Another Pro-Defendant 240(1) Decision

At trial, plaintiff conceded that he could not identify a defect in the ladder, that it was stable and there was no reason to have it steadied during use.  At the close of the case, the court asked the jury to indicate on the verdict sheet whether NHS had "the authority to direct, supervise and control Mr. Blake's work" at the residence.  The jury answered yes.  In response to the second inquiry ("Was the ladder used by plaintiff Rupert Blake so constructed, operated as to give proper protection to plaintiff?"), the jury again said yes, leading to the inescapable conclusion that the accident happened not because the ladder malfunctioned or was defective or improperly placed, but solely because of plaintiff's own negligence in the way he used it.  Plaintiff asserted in his post-trial motion that despite the jury's findings he was entitled to recover because Labor Law ' 240 (1) provides for strict (or absolute) liability.  The Appellate Division affirmed the denial of the plaintiff’s motion, and the Court of Appeals affirms.  In the decision, the Court distances the Labor Law ' 240 (1) cases from traditional strict liability causes of action:

 

Given the varying meanings of strict (or absolute) liability in these different settings, it is not surprising that the concept has generated a good deal of litigation under Labor Law ' 240 (1).  The terms may have given rise to the mistaken belief that a fall from a scaffold or ladder, in and of itself, results in an award of damages to the injured party.  That is not the law, and we have never held or suggested otherwise. 

 

 

12/30/04          Fahrenholz v. Security Mutual Insurance  

Appellate Division, Fourth Department

Loan Does Not Violate Judiciary Law When Made Subsequent to Commencement

A fire destroyed a commercial property owned by plaintiff and insured under a Security Mutual policy. Thereafter, plaintiff retained the National Fire Adjustment Company (NFA) to negotiate a settlement of his claim under the policy.  Unable to reach an agreement on the loss amount, suit was commenced.  While the action was pending, NFA made loans totaling $45,000 to plaintiff on condition that plaintiff provide NFA with an assignment of insurance proceeds for that amount.  NFA agreed that if the loss settled for less, the balance of the loan would be forgiven. Security Mutual sought to dismiss the first $45,000 of plaintiff’s claim on the ground that the  transaction between plaintiff and NFA violated Judiciary Law § 489 (1) (the section codifies the ancient doctrine of champerty, prohibiting anyone engaged in the adjustment of claims and any corporation from "buy[ing] or tak[ing] an assignment of ... any claim ... with the intent and for the purpose of bringing an action or proceeding thereon.").

The Court reverses the Supreme Court and holds that the loans were made after the action was commenced and pending, and thus were not made "with the intent and for the purpose of bringing an action.

 

 

12/30/04          In Re State Farm Insurance and Celebucki

Appellate Division, Third Department

Unsubstantiated Assertion of Timely Notice Results In Permanent Stay

State Farm disclaimed coverage of this SUM claim on the ground that the insured failed to provide notice until almost 3½ years after the date of the accident. The insured alleged notice was provided much prior to that date and demanded arbitration.  The Supreme Court’s grant of a permanent stay of arbitration is affirmed by the Third Department.  The Court finds no evidence in the record, “apart from the unsubstantiated assertion of respondents' counsel that he ’did cause to execute and forward’ “ the notice to validate respondents' claim. Notably, respondents failed to offer any proof of regular mailing procedures and office practices "geared to ensure the proper addressing or mailing of this letter," thus they were not entitled to a rebuttable presumption of receipt by petitioner.

 

                 

12/28/04          Bruce v. Millers Mutual Insurance Company

Appellate Division, Fourth Department

For Purposes Of Coverage, Fort Drum Soldier Resides Back Home

Plaintiff commenced a declaratory judgment action following an automobile accident between two vehicles, one operated by plaintiff and the other by Travis Niles. Supreme Court granted the motion and the appellate division affirms. The Court finds that Travis Niles was a resident of defendant Sharon A. Niles’ home under the terms of the insurance policy that Sharon Niles had with the insurance Company. Although at the time of the accident Travis Niles was serving in the United States Army and stationed at Fort Drum, his driver’s license listed his residence as Peterboro Road (the address of Sharon Niles), he possessed keys to that residence, he visited the residence while on military leave, he had mail sent to the residence while at Fort Drum and continued to use the address for mailing purposes, and he could identify no other address as his “residence”.

 

 

12/28/03          Gulf Insurance Company v. Transatlantic Reinsurance Company, et al.

Appellate Division, First Department
Access to Records Provisions in Standard Reinsurance Agreements, are Not Intended to act as a Per Se Waiver of the Attorney-Client or Attorney Work Product Privileges
Plaintiff, after issuing a Vehicle Residual Value Protection Policy to First Union Corporation, entered into Quota Reinsurance Agreements with defendants and their predecessors. The pertinent provisions of the reinsurance agreements provided that any loss settlement made by the plaintiff shall be "unconditionally binding upon the Reinsurer in proportion to its participation." Moreover, plaintiff retained "absolute discretion" in the settlement of any claims. Finally, the agreements contained a boilerplate Access to Records clause which provided: "the Reinsurers . . . will have the right to inspect . . . all records of the Company [i.e. plaintiff] that pertain in any way to this Agreement." After insurer settled case, reinsurer sort broad access to insurer’s records.  Reinsurer was not entitled to access and review communications between counsel and insurer.  Access to records provisions in standard reinsurance agreements, no matter how broadly phrased, are not intended to act as a per se waiver of the attorney-client or attorney work product privileges. To hold otherwise would render these privileges meaningless.

 

 

12/28/04          Kimberly Toulson v. Young Han Pae

Appellate Division, First Department

Plaintiff Fails To Meet Threshold With Inadmissable and Non-Contamporaneous Proof

The denial of defendant’s motion on serious injury is reversed by the Appellate Division for  failure to meet the threshold Insurance Law § 5102(d).  Plaintiffs' submissions with respect to their claims of spinal range-of-motion limitations suffered from the lack of any contemporaneous qualitative evidence of such restriction.  The plaintiff was seen and examined a few days after the accident by a physician and found to have range-of-motion restrictions but the opposition papers of the plaintiff did not quantify those limitations.   In fact, the plaintiff did not submit the medical reports or the reports were unsworn, and thus hearsay. Given the absence of admissible contemporaneous evidence of a serious injury, plaintiffs' proof was insufficient to show a serious injury and the mere determination of  bulging and herniated discs, by itself did not establish a prima facie case of serious injury. 

 

12/28/04          Michael Katz v.  American Mayflower Life Insurance Company

Appellate Division, First Department

Unambiguous Terms of the Life Insurance Policy Get Insured Less Than One Year Coverage

Plaintiff had two payment options for the purchase of his life insurance policy: pay the initial premium due upon delivery of the policy (COD); or pay the initial premium due with the submission of his application and receive temporary coverage under a conditional receipt. Plaintiff chose the C.O.D. option and thereafter alleged that as a result of choosing to pay upon delivery, the insurer charged him a premium for a period of time before he was covered.  The Court finds that the policy explicitly provided that the due date for premiums were determined solely by reference to the policy date set forth in the policy, not the date of policy delivery or first premium payment.  The argument that plaintiff did not appreciate that the first premium would purchase less than 365 days of coverage failed as a matter of law under the well-settled principle that an insured has an obligation to read his or her policy and is presumed to have consented to its terms.  The suggestion that the reasonable policyholder who purchases a pursuant to the C.O.D. option expects that payment of the first premium would provide a year's worth of coverage, or in plaintiff's case, a quarter of a year's coverage since he was paying the annual premium on a quarterly basis, was contradicted by the unambiguous terms of the policy.

 

 

12/27/04          Kleynshvag v. GAN Insurance Company, d/b/a Western Continental Insurance Company
Appellate Division, Second Department
In “Direct Action” Lawsuit, Insurer That Fails to Establish It Did Not Issue a Policy, is Liable to Pay the Entire Judgment

Now this is a scary one for insurers.  Insurer took the position that it never issued a policy to the owner of the car.  Injured party filed an uninsured motorist claim and UM carrier filed and application to stay, contending that GAN, in fact, insured the car.  GAN refused to participate in framed hearing and Court determined that GAN, in fact, insured the car.  Injured party then took judgment against driver and sought to enforce it against GAN under “direct action” provisions of Insurance Law §3420(1).  GAN again argued that it didn’t insure the car.  Court held that GAN’s proof that it didn’t insure the car was insufficient (since there was no index by Vehicle Identification Number) and held that GAN was responsible to pay the $125,000 judgment injured party took against “insured”. “It was GAN's burden to prove any limitation on the plaintiff's right to recover.”  Word of advice – don’t “refuse to participate” in proceeding and anger the Court!

 

 

12/27/04          Pepsico, Inc v Winterthur International America Insurance Company

Appellate Division, Second Department

Contaminated? No Just Tastes Bad, So Coverage Available For Pepsico

Pepsico purchased an all-risk first-party property insurance policy.  During the policy period, Pepsico experienced a series of losses in connection with two of its soft drink products, Mountain Dew and Diet Pepsi, when Pepsico used faulty raw ingredients supplied by third-party suppliers- the faulty ingredients resulted in the finished product having an off-taste, not harmful to soft drinkers, but rendering the products unmerchantable and necessitated their destruction, resulting in alleged catastrophic losses to Pepsico. The carrier disclaimed coverage alleging that the contamination exclusion contained in the policy applied to product contamination based on the plain meaning of the word "contaminate," which is to make inferior or impure by mixture.  The Court disagreed citing the principle that “(a)n insurance policy should be read "in light of 'common speech' and the reasonable expectations of a businessperson" (Belt Painting Corp. v TIG Ins. Co).   The Court held that the contamination exclusion provided that the policy "does not insure against loss, damage, costs or expenses in connection with any kind or description of seepage and/or pollution and/or contamination, direct or indirect, arising from any cause whatsoever," and so did not apply to exclude the alleged losses claimed by Pepsico, which are non-environmental in nature.  Furthermore, the Court found that the meaning of the term "contamination," as used in the policy was ambiguous and so must be construed in favor of the insured.

 

 

12/27/04          In the Matter of Allstate Insurance Company v Russell

Appellate Division, Second Department

Arbitration Permanently Stayed When SUM Coverage Exhausted

As long as it does not act in bad faith, an insurer has no duty to pay out claims ratably and/or consolidate them. Allstate demonstrated its entitlement to a permanent stay of the SUM arbitration by showing that it had exhausted its policy limits under the SUM provision of the relevant insurance policy by payments to two other injured passengers.  Since the respondent failed to show, or even allege, that Allstate acted in bad faith, Allstate was entitled to the stay.

 

 

12/27/04          Halmar Builders of New York, Inc. v. Team Star Contractors, Inc.
Appellate Division, Second Department
Certificate of Insurance Does Not Confer Coverage
Coverage is not established by production of a Certificate of Insurance listing the purported insured and a policy number.  A Certificate of Insurance does not confer or confirm coverage.

 

 

12/27/04          In the Matter of Liberty Mutual Insurance Company v. Doherty and Melton

Appellate Division, Second Department

UM Coverage Available Without Exhaustion of the Coverage Limits of Responsible Party’s Policy

The underinsured motorist benefits provision of the petitioner's policy was triggered when the petitioner's insured exhausted, through a settlement, the bodily injury policy limits under the policy of the offending vehicle -less than the liability coverage provided under the petitioner's policy (Insurance Law § 3420[f][2]). The petitioner's insured was not also required to exhaust the liability coverage limits under a separate policy for the operator of the offending vehicle prior to pursuing a claim for underinsured motorist benefits.

 

 

 


12/2704           Kemal Ilgar Peker v Allstate Insurance Company

Appellate Division, Second Department                                                                       

Wife Had No Insurable Interest When She Did Not Own or Possess the Insured Vehicle

The defendant issued an insurance policy to the plaintiff Dawn Peker for a vehicle registered and owned by her husband, the plaintiff Kemal Ilgar Peker (hereinafter the husband). The vehicle was listed on the policy declaration page, and the husband was also listed on such page as a driver.  When the vehicle was stolen, the husband filed a claim with the defendant. The defendant forwarded a written disclaimer to the wife maintaining that she did not have an insurable interest in the subject vehicle. Further, the defendant argued that the husband did not have standing to commence this action since there was no privity of contract between him and the defendant. The Court found that the defendant established its prima facie entitlement to summary judgment dismissing the claim asserted by the wife. The wife did not have an insurable interest, as she did not own or possess the insured vehicle (citing Insurance Law § 3401 defines an "insurable interest" as "any lawful and substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary damage”).  But, the Court found that the husband was an insured person under the terms of the subject policy.  The vehicle was an "insured auto," within the meaning of the policy, as it was listed on the declaration page. Further, the husband paid insurance premiums, was listed on the declarations page as a driver, and used the vehicle with the wife's permission.

 

12/21/04          Great Canal Realty Corp. v. Seneca Ins. Co., Inc.,
Appellate Division, First Department
An Insurer Must Demonstrate Prejudice In Order To Disclaim Coverage Based Upon An Insured’s Late Notice Of The Occurrence (Not Quite the “Law of the Land”)
On December 21, 2004 two Justices of the Appellate Division, First Department, concurred in finding that. Although there is no majority decision on this issue, and the case is therefore not controlling, this decision is the latest step towards, what might be, the abolition of New York’s "no-prejudice" rule.

Plaintiff commenced suit on August 14, 2002, alleging violations of New York’s Labor Law after falling from a ladder in the course of his work. Although the accident occurred on May 7, 2002, the insured did not notify its insurer until September 10, 2002, four (4) months after occurrence but shortly after being served with process. The insurer disclaimed coverage and the insured commenced a declaratory judgment action seeking a declaration that the insurer was required to defend. The insurer moved for summary judgment based upon the insured’s failure to provide timely notice of occurrence. In opposition to the insurer’s motion for summary judgment, the insured argued that it had a reasonable belief in non liability because it did not know how the accident happened or the nature of the injury prior to being served with process. The trial court denied the insurer’s motion, holding that triable issues of fact existed as to whether the insured had a valid excuse for the delay in providing notice.

In affirming the trial’s court's denial of the insurer’s motion for summary judgment, two First Department justices (Catterson and Ellerin), relying heavily upon the Court of Appeals’ decision in Brandon v. Nationwide Mutual Ins. Co., 97 N.Y.2d 491, 743 N.Y.S.2d 53 (2002), sharply criticized New York's "minority" position in adhering to the "draconian" "no-prejudice" rule and the "inequities" such rule creates by virtue of its "conclusive presumption of prejudice in derogation of fundamental principles of the law of contracts." Justices Catterson and Ellerin "see no reason to extend the ‘no-prejudice’ exception to allow insurers to disclaim coverage on the basis of late notice of claim where ‘lateness’ is an arbitrary temporal standard applied to a lapse between occurrence and notice, and where contractual rights favor just one party, the insurer." Thus, the two justices affirmed the denial of summary judgment on the ground that a triable issue of fact existed as to whether the insurer was prejudiced by the insured’s notice four months after the date of the injury in the underlying action.

It bears noting that prior to his appointment to the Appellate Division, Justice Catterson was the author of the decision in St. Charles Hospital and Rehabilitation Center v. Royal Globe Insurance Company, No. 29155-98 (April 28, 2004), wherein the Suffolk County Supreme Court held that an insurance company is required to demonstrate that it was prejudiced by its policyholder's untimely notice of claim before it could deny coverage on that basis.

Although Justice Lerner also concurs in affirming the trial court’s finding, his decision is based upon his determination that a question of fact exists as to whether the insured had a good faith belief in non-liability. Justice Lerner does not suggest that the "no-prejudice" rule should be abandoned and, in fact, states that "absent a valid excuse, the insured’s failure to notify the insurer vitiates the policy."

Significantly, the decision includes a strong dissent from Justices Marlow and Tom, wherein the dissent reiterates the "well settled" propositions that compliance with an insurance policy provision is a condition precedent to coverage and the duty to give timely notice of an occurrence as defined by the terms of an insurance policy is measured by a reasonableness standard. The dissent "cannot find, as a matter of law, that [the insured’s] belief of non-liability was reasonable in view of all the facts and circumstances." Moreover, the dissent perceives no circumstances which would justify a time period more than a brief number of days to notify the insurer. In responding to the plurality which advocates the abandonment of the no-prejudice rule in favor of the trend in the majority of jurisdictions, the dissent believes that it is inappropriate for an intermediate appellate court (such as the First Department) to made such a decision in the face of longstanding, clear and contrary decisional authority from the State’s highest court. Any "antipathy" expressed by the Court of Appeals toward the "no-prejudice" rule thus far is, according to the dissent, dicta which does not, with any precision, inform us whether the court will, or might, change an important policy.
Submitted by Richard K. Traub and Rob Leff  (Traub Eglin)

 

12/20/04          Ashley Z. Huertero v. Blue Ridge Insurance Company

Appellate Division, First Department

Notice of Lead Paint Violations to the Landlord Does Not Trigger Duty To Notify Insurer

Blue Ridge disclaimed coverage on a claim for lead poisoning alleged to have occurred at the apartment of the landlord/insured.  The insured notified the carrier in April 1999 soon after receiving the plaintiffs' motion for leave to enter a default judgment based on his purported failure to timely serve an answer. Although the insured maintained that he never received the summons and complaint in the underlying action and was unaware of the action until his receipt of the motion papers, Blue Ridge disclaimed coverage on the ground that he failed to timely notify it of an "occurrence" as required under the terms of the subject policy.  Blue Ridge argued that the insured’s duty to notify was triggered in January 1996 when he was first served notice of lead-paint violations in the subject apartment.  But, as the notice did not indicate that the violations resulted in injury to the infant plaintiff or that the elevated blood-lead level of the infant plaintiff was caused by exposure to conditions in the subject apartment, the insurer failed to prove as a matter of law that timely notice was not given by its insured.



 

 

Across Borders

 

Visit the Hot Cases section of the Federation of Defense & Corporate Counsel website, www.thefederation.org recently ranked among the top five legal research websites in an article published in the January 2004 issue of Litigation News, a publication of the Litigation Section of the American Bar Association. Dan Kohane serves as the FDCC’s Website Editor.

 

 

 


12/24/04          American States Ins. Co. v. Capital Associates of Jackson County

Seventh Circuit Court of Appeals

Junk Faxes Do Not Fall Under The Purview Of Advertising Injury Or Property Damage Coverage In A CGL Policy
Insurer filed a declaratory relief action against its insured, seeking a declaration that it does not have a duty to defend nor indemnify the insured for its faxing of an unsolicited/junk advertisement to a business, thereby triggering the underlying lawsuit. The court held that the insurer had no duty to defend nor indemnify because a claim arising from the insured’s sending of junk faxes does not invade a right of privacy. Therefore, it does not trigger “advertising injury” coverage as that term is defined under the policy. Similarly, although junk faxes consume a recipient’s ink and paper and could therefore, potentially trigger property damage coverage, such an argument is equally unavailing because the “expected or intended exclusion” would apply to preclude such coverage.

Submitted by: Bruce D. Celebrezze and Betty Homer (Sedgwick, Detert, Moran & Arnold LLP)


12/22/04          The Guardian Life Insurance Company of America v. Finch

Fifth Circuit Court of Appeals

Spouse May Waive Rights to Proceeds of ERISA Life Insurance Policy in Final Divorce Decree
The Guardian Life Insurance Company of America filed an interpleader action in order to determine who should receive the proceeds of a life insurance plan governed by ERISA. The administrator of the decedent’s estate claimed that the estate should receive the proceeds because the named beneficiary and the decedent’s ex-wife, waived her rights to them when she and the decedent divorced. The magistrate judge granted summary judgment for the administrator, finding that the named beneficiary had waived her rights under the plan. The beneficiary appealed, arguing that a federal district court must look to the text of ERISA itself, not to federal common law, when identifying the beneficiary of a plan governed by ERISA. The Court of Appeals affirmed the magistrate's decision, stating that when ERISA preempts state law, courts apply federal common law to determine whether a beneficiary has effected a waiver. Such a waiver must be explicit, voluntary and made in good faith. The Court held that the beneficiary had waived her right to the proceeds by entering into the Agreed Final Decree of Divorce in which she gave up all right, title, interest and claim in and to the decedent's life insurance policies. Thus, the Agreement divested the beneficiary of her interest in any such policies.

Submitted by: Steve Farrar and Rebecca Zabel (Leatherwood Walker Todd & Mann, P.C.)

 

 


12/21/04          Production Systems, Inc. v. Amerisure Ins. Co.

North Carolina Court of Appeals

No Duty to Defend or Indemnify Where the Subject Damage Does Not Fall Under a Policy’s Definition of “Property Damage,” as that Term Is Interpreted by Case Law
The insured, which manufactured oven feed line systems, brought a declaratory relief action against its insurers, seeking a declaration that under its CGL policies, the insurers had a duty to defend and indemnify the insured in an underlying lawsuit with the insured’s customer. The lower court granted the insurer’s summary judgment motion which the insured appealed. In affirming the lower court’s decision, the appellate court reviewed the policies’ respective definitions of “property damage,” which were similarly defined as “Physical injury to tangible property, including all resulting loss of use of that property....” The court interpreted the term "property damage" to mean “damage to property that was previously undamaged, and not the expense of repairing property or completing a project that was not done correctly or according to contract in the first instance...‘property damage’ does not refer to repairs to property necessitated by an insured's failure to properly construct the property to begin with.” Accordingly, the court concluded that “there was no ‘property damage’ to the oven feed line systems because the only ‘damage’ was repair of defects in, or caused by, the faulty workmanship in the initial construction.” As such, because the damage to the oven feed line systems was not covered under either policy, the insurers did not have a duty to defend or to indemnify the insured.

Submitted by: Bruce D. Celebrezze and Betty Homer (Sedgwick, Detert, Moran & Arnold LLP)

 


12/20/04         
Utica Mut. Ins. Co. v. Vigo Coal Co
Seventh Circuit Court of Appeals

A Novation To A Contract Exists Where Proof Of It Is “Clear And Definite” Or “Clear And Satisfactory”
In a suit for breach of a suretyship contract involving a novation, under Indiana law, a court may find a novation where proof of it is “clear and definite” or “clear and satisfactory.” Additionally, where an integration clause is omitted from a contract, the parties can ask a judge to initially examine extrinsic evidence to determine whether the subject contract is actually integrated. If the judge decides that the contract is not integrated, extrinsic evidence may be used to determine the contract's meaning. Alternatively, a judge may only use objective evidence (not dependent upon a party’s credibility) to determine the existence of an ambiguity. Also, Indiana law does not allow for an award of attorney’s fees as a matter of course in a breach of contract suit. Further, a suretyship contract is not a credit agreement so that Ind. Code Sections 32-3-1.5-2, -3 do not apply. Finally, the doctrine of “mend the hold” precludes a contract party (especially an insurance co.) to change its position on a contract’s meaning while embroiled in litigation.

Submitted by: Bruce D. Celebrezze and Betty Homer (Sedgwick, Detert, Moran & Arnold LLP)

 

 

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Great Canal Realty Corp v Seneca Insurance Company, Inc.






Tese & Milner, New York (Michael M. Milner of counsel), for
appellant.
Alexander J. Wulwick, New York, for respondent.

Order, Supreme Court, New York County (Debra A. James, J.), entered January 7, 2004, which denied defendant's motion for summary judgment dismissing the complaint, affirmed, without costs.

Ellerin and Catterson, JJ. concur in a memorandum by Catterson, J. as follows:


CATTERSON, J. (concurring)

In this declaratory judgment action, the Court is confronted with the validity of the no-prejudice exception in New York whereby an insurer can disclaim coverage without demonstrating prejudice when its disclaimer is based on late notice of an occurrence.

The underlying action in this case involves an accident that occurred on May 7, 2002. Song Thor Chong sustained injuries when he fell from a ladder during the course of renovation work on a property owned by plaintiff, Great Canal Realty Corp. (hereinafter referred to as "Great Canal"). Great Canal's President, Ms. Dunnie Lai, was informed about the accident a few weeks later by Norman Law, foreman of the general contractor, Welldone Enterprises, which was hired by Great Canal to perform the renovations. Law told Ms. Lai that Chong, an employee of an air conditioning subcontractor, had fallen from a ladder in the course of his work. Law additionally told her that the problem would be taken care of under Welldone's insurance which covered Great Canal as an additional insured.

On or about August 14, 2002, Chong commenced an action against Great Canal alleging violations of Labor Law §§ 200, 240 and 241, seeking five million dollars in damages for his injuries. Great Canal was served with the summons and complaint in that action approximately four months after the accident, in September 2002. Ms. Lai notified Great Canal's insurance carrier, Seneca Insurance Company (hereinafter referred to as "Seneca") of the lawsuit on September 10, 2002. Seneca disclaimed coverage on the basis of late notice. The primary commercial liability insurance policy which covered Great Canal for the period from January 20, 2002 to January 30, 2003 provided, in part: "you must see to it that we are notified as soon as [*2]practicable of an occurrence or an offense which may result in a claim."[FN1]

On or about January 6, 2003, Great Canal commenced this declaratory judgment action seeking a declaration that Seneca is required to defend and indemnify Great Canal. Great Canal also sought recovery of defense and indemnity costs arising out of Seneca's disclaimer of coverage. Subsequently, Seneca moved for summary judgment on the grounds that Great Canal, through Ms. Lai, was aware of the occurrence for four months before it notified the insurer. Seneca contended that Great Canal therefore failed to give timely notice, a condition precedent to coverage under the policy. Great Canal, in opposition, argued that it had notified Seneca promptly on receipt of the summons and complaint, but had not notified Seneca earlier because of its belief that Workers' Compensation was the sole and exclusive remedy available to the injured party, and such compensation was available through the general contractor's insurance policy. In addition, Great Canal argued that its belief of non-liability was reasonable since Ms. Lai did not know much more than the basic fact of the accident, and had no knowledge of how the accident happened, or the nature of the injury. The trial court denied Seneca's motion, holding that triable issues of fact exist as to whether Great Canal had a valid excuse for the delay in notice, given the information provided to Ms. Lai.

We would affirm the denial of summary judgment but for the reasons set forth below.

In 1921, Judge Cardozo authored the landmark contract law decision of Jacob & Youngs, Incorporated v. Kent, 230 N.Y. 239, 129 N.E. 889 (1921). In that case, Cardozo discussed the measure of damages for a trivial breach of a contract term. The overriding import of his prose guides our decision today: "There will be no assumption of a purpose to visit venial faults with oppressive retribution." 230 N.Y. at 242, 1299 N.E. at 891. Cardozo went on to hold that:

Those who think more of symmetry and logic in the development of legal rules than of practical adaption to the attainment of a just result will be troubled by a classification where the lines of division are so wavering and blurred. Something, doubtless, may be said on the score of consistency and certainty in favor of a stricter standard. The courts have balanced such considerations against those of equity and fairness, and found the latter to be the weightier. The decisions in this state commit us to the liberal view, which is making its way, nowadays, in jurisdictions slow to welcome it. (Dakin & Co. v. Lee, 1916, 1 K. B. 566, 579).[FN2]

 

This Court recognizes that contrary to the Court of Appeals' philosophy in Jacob & Youngs, it is now the well-settled law in New York that where an insurance policy requires an insured to provide notice "as soon as practicable" after an occurrence, such notice must be provided within a reasonable time under all the facts and circumstances of each case. Heydt v. American Home Assurance, 146 A.D.2d 497, 498, 536 N.Y.S.2d 770, 772 (1st Dept. 1989), lv dismissed 74 N.Y.2d 651, 542 N.Y.S.2d 520, 540 N.E.2d 715, citing Security Mutual Insurance Co. v. Acker-Fitzsimons Corp., 31 N.Y.2d 436, 441, 340 N.Y.S.2d 902, 906, 293 N.E.2d 76, 79 (1972). The insured's delay or failure to give timely notice may be excused where the insured had a reasonable belief that it
would not be liable for the accident. Paramount Insurance Co. v. Rosedale Gardens, Inc., 293 A.D.2d 235, 239, 743 N.Y.S.2d 59, 62 (1st Dept. 2002), citing Forest Ave. Corp. v. Aetna Casualty & Surety Co., 37 A.D.2d 11, 12, 322 N.Y.S.2d 53, 55 (1st Dept. 1971), aff'd 30 N.Y.2d 726, 332 N.Y.S.2d 896, 283 N.E.2d 768 (1972). At issue is not whether an insured believes that he will ultimately be found liable for the injury but whether he has a reasonable basis for a belief that no claim will be asserted against him. SSBSS Realty v. Public Service Mutual Insurance Co., 253 A.D.2d 583, 584, 677 N.Y.S.2d 136, 138 (1st Dept. 1998), citing White v. New York, 81 N.Y.2d 955, 957, 598 N.Y.S.2d 759, 759, 615 N.E.2d 216, 216 (1993). It is generally held that questions as to whether there exists a good-faith belief that an injured party will not seek to hold the insured liable and whether the belief is reasonable under the circumstances are questions of fact reserved for the fact finder. Argentina v. Otsego Mutual Fire Insurance Co., 86 N.Y.2d 748, 750, 631 N.Y.S.2d 125, 126, 655 N.E.2d 166, 167 (1995). Absent a valid excuse, however, such a failure to notify the insurer vitiates the policy and the insurer need not show prejudice before it can assert the defense of non-compliance. Security Mutual Insurance Co. v. Acker-Fitzsimons Corp., 31 N.Y.2d 436, 440, 340 N.Y.S.2d 902, 905, 293 N.E.2d 76, 78 (1972).

On appeal, Seneca argues that, as a matter of law, Great Canal's belief was unreasonable because the very reasons given for the belief have been rejected by this Court, and so are not a legally cognizable excuse. See Heydt v. American Home Assurance,146 A.D.2d at 499, 536 N.Y.S.2d at 772 (plaintiff's assumption that others will bear ultimate responsibility for its loss is insufficient as a matter of law); see also Paramount v. Rosedale Gardens, Inc., 293 A.D.2d at 240, 743 N.Y.S.2d at 63 (insurer should not give up advantages of prompt notice when liability assessment is made by one not trained, or even knowledgeable in such matter, etc.). Nevertheless, whether an insured has a reasonable basis for his or her belief as to whether a claim may arise, and therefore whether he or she has a duty to give prompt notice to the insurer of the occurrence, are questions which are particularly fact sensitive. Indeed, New York courts have wrestled with the question in numerous decisions. At one end of the spectrum is the view that "[i]n today's litigious society, it seems that a lawsuit is reasonably foreseeable whenever an injury occurs." Vradenburg v. Prudential Property and Casualty Insurance Co., 212 A.D.2d 913, 914, 622 N.Y.S.2d 623, 624, (3d Dept. 1995). At the other end, is the view of this Court in Kelly v. Nationwide Mutual Insurance Co., that "'not every trivial mishap [requires] notice [to] be given immediately to the insurance company, even though it may prove afterwards to result in serious injury.'" 174 A.D.2d 481, 483, 571 N.Y.S.2d 258, 259 (1st Dept. 1991).

It is clear that under the current state of the law, Great Canal, as the insured, has the burden of proving that it had a valid excuse for the delay in notifying its insurance carrier. In those jurisdictions that adhere to what is commonly known as the "prejudice standard" the insurer, generally, must show that the notice provision was breached, and that the insurer was [*4]prejudiced by the breach. Id.

The Court of Appeals has recognized that New York's "no-prejudice" standard is an exception to the well-established principle of general contract law that a non-breaching party must show that a breach was material, or that it was prejudiced by the breach, before being relieved of its obligations to perform under a contract. Brandon v. Nationwide Mutual Insurance Co., 97 N.Y.2d 491, 496, 743 N.Y.S.2d 53, 56 769 N.E.2d 810, 813 (2002) (Kaye, Ch.J.), citing Unigard Security Insurance Co. v. North River Insurance Co., 79 N.Y.2d 576, 581, 584 N.Y.S.2d 290, 292, 594 N.E.2d 571, 573 (1992). In adhering to the "no-prejudice" exception, New York now finds itself in the minority of jurisdictions justifying their positions by holding that the right to timely notice is fundamental because of the insurer's need "to protect itself from fraud by investigating claims soon after the underlying events; to set reserves; and to take an active, early role in settlement discussions." Brandon v. Nationwide Mutual Insurance Co., 97 N.Y.2d at 496, 743 N.Y.S.2d at 56. In other words, the insurer has been granted, wholly through judicial largess, the benefit of a conclusive presumption of prejudice. Almost three decades ago, Pennsylvania's intermediate appellate court departed from precedent and ruled that the presumption of prejudice may be overcome by the claimant. The Court observed that: "[A]rguably unconscionable results may arise in the situation where the passage of time (between injury and notice) creates a conclusive presumption of prejudice to relieve the insurer from liability." Brakeman v. Potomac Insurance Co., 344 A.2d 555, 557 (Pa. Super. Ct. 1975), aff'd 371 A.2d 193 (Pa. 1977).

Our concern in the instant case, where the time lapse between injury and notice was just four months, prompts us to examine the inequities inherent in granting insurers the benefit of a conclusive presumption of prejudice in derogation of fundamental principles of the law of contracts. Initially, we need not look much further than the antipathy demonstrated by the Court of Appeals in characterizing the "no-prejudice" exception as one that "allow[s] insurers to avoid their obligations to premium-paying clients." Brandon v. Nationwide, 97 N.Y.2d at 496, 743 N.Y.S.2d at 56. In particular, the Brandon Court appeared to applaud two jurisdictions, Colorado and Tennessee, that had recently moved to a prejudice standard after acknowledging that the true inequity of a presumption of prejudice lies in the "severity of forfeiting one's insurance benefits based on the technical violation of a notice provision." Clementi v. Nationwide Mutual Fire Insurance Co., 16 P.3d 223, 230 (Colo. 2001), citing Brakeman v. Potomac Insurance Co., 371 A.2d at 198 ("allowing an insurance company, which has collected full premiums for coverage, to refuse compensation to an accident victim or insured on the ground of late notice, where it is not shown timely notice would have put the company in a more favorable position, is unduly severe and inequitable").

In acknowledging the draconian character of forfeiture, jurisdictions moving to a prejudice standard have generally agreed that the condition of timely notice "should not be given greater scope than required to fulfill its purpose." Great American Insurance Co. v. C.G. Tate Const., 279 S.E.2d 769, 774 (N.C. 1981). In other words, since notice requirements are designed to protect the insurer from prejudice, "[i]n the absence of prejudice, regardless of the reasons for the delayed notice, there is no justification for excusing the insurer from its obligations." Weaver Brothers Inc. v. Chappell, 684 P.2d 123, 125 (Alaska, 1984), see also Miller v. Marcantel, 221 So.2d 557, 559 (La. App. 1969) ("[t]he function of notice requirements is simply to prevent the insurer from being prejudiced not to provide a technical escape-hatch"); Cooperative Fire Insurance Association of Vermont v. White Caps, Inc., 694 A.2d 34, 38 (Vt. 1997) ("where a late [*5]notice does not harm the insurer's interests, . . . forfeiture . . . [is] invidious [and] damaging to both an unwary insured and an innocent injured" [citation omitted]).

In the case at bar, Great Canal was paying more than $25,000 annually in premiums for both Seneca policies. There was no suggestion at the time of the disclaimer that the premiums had not been paid. Seneca stated that the reason for disclaiming coverage was the failure to give timely notice of the accident which "constitutes a breach of the terms of the policy, and thus relieves the insurer of its duties under the policy." Seneca did not explain why it deemed the four-month period between the occurrence and notice of the lawsuit untimely. Indeed, since in this jurisdiction the insurer does not need to show prejudice, any lapse whatsoever may be deemed untimely and thus a breach of the notice provision. To adopt a currently, much-quoted phrase, Seneca may well have disclaimed coverage just "because it could." Such inequitable arbitrariness is particularly evident in a handful of cases where insurers have disclaimed coverage, and courts in New York have upheld the disclaimers, for delays defined in terms of days rather than months. Haas Tobacco Co. v. American Fidelity Co., 226 N.Y. 343, 123 N.E. 755 (1919) (insurer was notified ten days after accident); see also Gullo v. Commercial Casualty Insurance Co., 226 A.D. 429, 235 N.Y.S. 584 (4th Dept. 1929) (disclaimer upheld when notice given thirteen days after occurrence); Power Authority v. Westinghouse, 117 A.D.2d 336, 502 N.Y.S.2d 420 (1st Dept. 1986) (notice given fifty-three days after occurrence, and disclaimer upheld).[FN3]

The dissent urges strict adherence to precedent. Cardozo once observed that, "The power of precedent, when analyzed, is the power of the beaten track." Cardozo went on to point out that when there appears to be competing precedents,

A choice must be made, in order that it may be made intelligently, two things must be known. Given a problem whether the directive force of a principle or a rule or a precedent is to be exerted along this path or

along that, we must know how the principle or the rule or the precedent is functioning, and what is the end which ought to be attained.


Cardozo, The Nature of the Judicial Process, page 80. In the instant case, the precedent of discounting trivial breaches of contract runs afoul of the precedent protecting the freedom of contract for the insurance interests throughout the State.

We are aware that there is a historical reluctance in this jurisdiction to "inhibit the freedom of contract by finding insurance policy clauses violative of public policy." Slayko v. Security Mutual Insurance, 98 N.Y.2d 289, 295, 746 N.Y.S.2d 444, 448, 774 N.E.2d 208, 212 (2002). Nevertheless, the time has come for this Court to look at, "the end which ought to be attained" and acknowledge that freedom of contract is a fiction when applied to insurance policies. In the words of the Brakeman Court, "[a]n insurance contract is not a negotiated [*6]agreement; rather its conditions are by and large dictated by the insurance company to the insured. The only aspect of the contract over which the insured can 'bargain' is the monetary amount of coverage." Brakeman v. Potomac Insurance Co., 371 A.2d at 196. Additionally, the Court noted that "an insured is not able to choose among a variety of insurance policies materially different with respect to notice requirements." Id. More recently, Kentucky's Supreme Court characterized standard form insurance policies as contracts of adhesion because "they are not negotiated; [but] are offered to the insurance consumer on essentially a 'take it or leave it' basis without affording the consumer a realistic opportunity to bargain." Jones v. Bituminous Casualty Corp., 821 S.W.2d 798, 801 (1991). In its analysis, the Court concluded that since insurance policies are contracts of adhesion "'if the contract language is ambiguous, it must be liberally construed [...] in favor of the insured.'" Id. at 802, citing Wolford v. Wolford, et al., 662 S.W.2d 835, 838 (1984).

In interpreting notice provisions to require automatic forfeiture in the event of non-compliance, New York law ignores that precept. In the instant case, Great Canal's policy stated: "You must see to it that we are notified as soon as practicable of an occurrence [...] which may result in a claim." But there is no guidance as to the parameters of "as soon as practicable." Nor is there any specific mention that failure to comply with this provision will mean automatic forfeiture. Thus, the "no-prejudice" exception additionally violates the established principle of contract law that "contractual duty ordinarily will not be construed as a condition precedent absent clear language showing that the parties intended to make it a condition."
Unigard Security Insurance Co. v. North River Co., 79 N.Y.2d at 581, 584 N.Y.S.2d at 292; see Jones v. Bituminous Casualty Corp., 821 S.W.2d at 802 ("[w]hile recognizing that the policy language clearly imposes a duty on the insured to promptly notify the company, by failing to define prompt notice or to warn of forfeiture, this result falls beyond the reasonable expectations of the ordinary insurance consumer").

In the absence of a definition from insurers, the Court of Appeals in 1979 concluded that the phrase "as soon as practicable" is an elastic one, and that "soon" is expressly qualified by the word "practicable." Mighty Midgets v. Centennial Insurance Co., 47 N.Y.2d 12, 19, 416 N.Y.S.2d 559, 563, 389 N.E.2d 1080, 1083 (1979). In holding that a delay in notice of seven-and-a-half months fell within the parameters of the phrase, the Court observed that, among other facts "[t]here [was] nothing to indicate that [the insured] had a motive for not complying [with the notice provision]." 47 N.Y.2d at 20, 411 N.Y.S.2d at 563. This Court, too, has concluded in a number of cases that seemingly lengthy delays between injury and notice to the insurer may nevertheless be notice "as soon as practicable." Thus, insurers have been ordered to indemnify the insured in situations where notice was given as long as three years after an
accident with the owner's machinery. Greater New York Mutual Insurance Co. v. I Kalfus Co. Inc., 45 A.D.2d 574, 360 N.Y.S.2d 28 (1st Dept. 1974), aff'd 37 N.Y.2d 820, 376 N.Y.S.2d 923, 339 N.E.2d 621 (1975); see also Forest Avenue v. Aetna Casualty & Surety Co., 37 A.D.2d 11, 322 N.Y.S.2d 53 (1st Dept. 1971),
aff'd 30 N.Y.2d 726, 332 N.Y.S.2d 896, 283 N.E.2d 768 (1972) (disclaimer invalid although notice given fourteen months after a fatal fall from an apartment window); Kelly v. Nationwide Mutual Insurance Co., 174 A.D.2d 481, 571 N.Y.S.2d 258 (1st Dept. 1991) (disclaimer invalidated for insured who reported an accident nearly one year later).

Setting aside the confusion that is produced by decisions disparate enough to hold that a delay of ten days is untimely but a delay of three years is not, there is a more interesting [*7]observation to be made about lengthy delays which are adjudicated as "prompt" or "as soon as practicable." The only possible explanation is that jurists and juries alike will go to great lengths to find extenuating circumstances or, in New York, a valid excuse for alleged delays because of the abhorrence of the law for forfeitures. Brakeman v. Potomac Insurance Co., 344 A.2d 559-560 (Cercone J. concurring). Indeed, the Court of Appeals has demonstrated its aversion for forfeiture of coverage by carefully scrutinizing the application of the "no-prejudice" exception. For example, by holding that insurers must demonstrate prejudice before disclaiming for late notice of legal action, the Brandon Court made very clear that the "no-prejudice" exception is to be applied narrowly and only in circumstances which support its raison d'etre. Brandon v. Nationwide Mutual Insurance Co., 97 N.Y.2d at 497, 743 N.Y.S.2d at 56; see also Unigard Security Insurance Co. v. North River Insurance Co., 79 N.Y.2d 576, 584 N.Y.S.2d 290 ("no-prejudice" exception does not apply in the reinsurance context).

While the Brandon Court was not dealing with the precise issue before us, its rationale in concluding that the no-prejudice exception should not apply to disclaimers of late service of legal papers, militates equally toward moving to a "prejudice" standard as to the initial notice requirements. The Court noted the three public policy concerns that are implicated: the adhesive nature of insurance contracts, the public policy objective of compensating tort victims, and the inequity of the insurer's receiving a windfall due to a technicality. Brandon v. Nationwide Mutual Insurance Co., 97 N.Y.2d at 496 n.3, 743 N.Y.S.2d at 56 n.3. Thus, the Brandon decision is the clearest signal yet of the Court's acknowledgment of the soundness of the principle followed by the majority of other states, namely, that the egregious imbalance between insurer and insured needs to be corrected. It would appear that the time has come for New York, too, to adopt that principle in furtherance of the foregoing positive public policy goals.

More than a century ago, Oliver Wendell Holmes described the evolutionary nature of the common law:

The life of the law has not been logic: it has been experience. The felt necessities of the time, the prevalent moral and political theories, intuitions of public policy, avowed or unconscious, even the prejudices which judges share with their fellow-men, have had a good deal more to do than the syllogism in determining the rules by which men should be governed. The law embodies the story of a nation's development through many centuries, and it cannot be dealt with as if it contained only the axioms and corollaries of a book of mathematics. In order to know what it is, we must know what it has been, and what it tends to become.


Holmes, The Common Law, (Little Brown and Co. 1923 Ed.) page 1, lecture I.

Ultimately, we see no reason to extend the "no-prejudice" exception to allow insurers to disclaim coverage on the basis of late notice of claim where "lateness" is an arbitrary temporal standard applied to a lapse between occurrence and notice, and where contractual rights favor just one party, the insurer. In any event, in jurisdictions which have struck down the no-prejudice exception the insurer may still prevail by demonstrating it was prejudiced by the late notice [FN4]. [*8]

Thus, we would affirm denial of summary judgment on the ground that a triable issue of fact exists as to whether Seneca was prejudiced by Great Canal's notice four months after the date of the injury in the underlying action.

Lerner, J. concurs in a separate memorandum as follows:


LERNER, J. (concurring)

I concur in affirming the order of the IAS court only to the extent of finding the existence of triable issues of fact as to whether plaintiff's delay in notifying defendant of Song Thor Chong's underlying claim was timely under the circumstances and whether plaintiff demonstrated the existence of a reasonable and good-faith belief in its non-liability (see Genova v Regal Marine Indus., 309 AD2d 733 [2003]).

On May 7, 2002, Chong fell from a ladder in the course of a renovation project at the premises owned by plaintiff. At the time of the incident, Chong was working as an employee of an air conditioning subcontractor retained by the project's general contractor, Welldone Enterprises. Dunnie Lai, plaintiff's president, stated that she had no personal knowledge of the incident, but was notified of it a few days later by Welldone's foreman, who informed her that one of its subcontractor's employees had fallen and the "problem" would be resolved through Welldone's insurance company. Accordingly, Lai did not report the incident to defendants believing that Welldone, not plaintiff, would bear ultimate liability for Chong's claim. Upon receipt of a summons and complaint in Chong's personal injury
action against plaintiff, however, Lai immediately notified defendant of the underlying claim on September 10, 2002, approximately four months after the incident. Defendant subsequently declined coverage, claiming untimely notice.

It is well settled that where an insurance policy requires an insured to provide immediate or prompt notice of an occurrence, such notice must be provided within a reasonable time under all the facts and circumstances of the case (see Argentina v Otsego Mut. Fire Ins. Co., 86 NY2d 748, [1995]; Paramount Ins. Co. v Rosedale Gardens, 293 AD2d 235, 239-240 [2002]). The insured's failure to give timely notice may be excused, however, where the insured had a reasonable belief that it would not be liable for an accident (id.). Whether there existed a good-faith belief that an injured party would not seek to hold an insured liable, and whether that belief was reasonable under the circumstances, are questions for the finder of facts (see Argentina v Otsego Mut. Fire Ins. Co., supra, 86 NY2d at 750). Absent a valid excuse, however, such a failure to notify the insurer vitiates the policy (Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimmons Corp., 31 NY2d 436, 440 [1972]).

As indicated, such questions of fact exist in this matter as to whether plaintiff's delay was timely and whether plaintiff demonstrated a reasonable belief in its non-liability, thus precluding [*9]summary relief.

Tom, J.P. and Marlow, J. dissent in a memorandum by Marlow, J. as follows:


MARLOW, J. (dissenting)

I dissent.

Plaintiff Great Canal Realty Corp. hired Welldone Enterprises, Inc. (Welldone), a general contractor, to renovate certain commercial premises plaintiff owned in lower Manhattan. On May 7, 2002, Song Thor Chong, an employee of a subcontractor retained by Welldone, fell from a ladder while working at plaintiff's premises. Thereafter, in August 2002, Chung commenced the underlying personal injury action against Great Canal Realty Corp., alleging Labor Law violations. Upon being served in the underlying action in September 2002, plaintiff notified defendant Seneca Insurance Company of Chong's accident. Defendant declined coverage based on plaintiff's failure to give timely notice pursuant to the terms of the relevant insurance policies.

Thereafter, plaintiff commenced this action seeking a declaration that defendant was required to defend and indemnify it in the underlying action. After joinder of issue, defendant moved for summary judgment claiming plaintiff had been aware of the occurrence for four months before giving it notice. Plaintiff contended that it had notified defendant promptly upon receipt of the summons and complaint in the underlying action, but did not earlier notify defendant because Welldone had verbally told plaintiff that Welldone's insurance would cover the accident. The court denied defendant's motion finding that issues of fact existed as to whether plaintiff, in failing to provide defendant with timely notice, acted upon a reasonable belief that it would not be held liable for Chung's injuries.

I respectfully disagree that there are questions of fact regarding the reasonableness of plaintiff's belief of non-liability and would therefore reverse the order of the Supreme Court and dismiss the complaint. It is well settled that compliance with an insurance policy provision is a condition precedent to coverage (see American Transit Ins. Co. v Sartor, 3 NY3d 71 [2004]; White v City of New York, 81 NY2d 955 [1993])[FN1]. The duty to give timely notice of an occurrence as defined by the terms of an insurance policy is measured by a reasonableness standard (see 875 Forest Ave. Corp. v Aetna Cas. & Sur. Co., 37 AD2d 11 [1971], affd 30 NY2d 726 [1972]). While a reasonable and good-faith belief of non-liability may excuse a failure to give timely notice to one's insurance carrier (see White, supra; Security Mut. Ins. Co. of New York v Acker-Fitzsimons Corp., 31 NY2d 436 [1972]), I cannot find, as a matter of law, that [*10]plaintiff's belief of non-liability was reasonable in view of all the facts and circumstances (see Paramount Ins. Co. v Rosedale Gardens, Inc., 293 AD2d 235 [2002]; Heydt Contracting Corp. v American Home Assurance Co., 146 AD2d 497 [1989], lv dismissed 74 NY2d 651 [1989]).

Plaintiff, a commercial property owner, through its corporate president, knew its subcontractor's employee fell on plaintiff's property from a ladder incurring an injury in a work-
related accident. Even though plaintiff's president claimed she did not know the extent of his injuries, it can hardly be disputed that she, a principal of a corporate owner of real property, was, at the very least, on notice that there was a potential for serious injury when a person falls off a ladder. Furthermore, while an employee of Welldone may have conveyed a belief to plaintiff's principal that Welldone's insurance would cover the accident, plaintiff's principal had absolutely no reasonable basis to rely on that "assurance," particularly when Welldone was in no position to speak for its insurance carrier, and, moreover, where plaintiff's potential liability is absolute under Labor Law § 240(1) when plaintiff is allegedly injured in an elevation-related fall (see Zadrima v PSM Ins. Co., 208 AD2d 529 [1994], lv denied 85 NY2d 807 [1995];[FN2] see also Metropolitan New York Coordinating Council on Jewish Poverty v National Union Ins. Co. of Pittsburgh, PA, 222 AD2d 420 [1995] [reasonable and prudent corporate employer could not have believed itself free from liability where, even though not originally named in lawsuit, injuries were allegedly caused by the negligence of its employee]). Thus, where a reasonable person could envision liability, that person has a duty to make some inquiry (see White, supra). Here, plaintiff made none.

Once plaintiff's president was charged with knowledge of the accident and had no reasonable basis to rely on the subcontractor's false representation that it would cover the underlying accident, she was required to give notice as defined by the policies' terms. The plurality writing contends that a disclaimer based on lateness is subject to an "arbitrary temporal standard." However, the terms as defined by these policies are elastic and inure to the benefit of the insured by allowing flexibility which would not be available if the cutoff date were defined by a specific number of days. Thus, if an insured proffers a valid excuse for the delay, the delay may be found to be reasonable, an option unavailable with a specific temporal standard.

Based on this record, I perceive no circumstances which would justify a time period more than a brief number of days to notify the insurer. Indeed, no matter how "as soon as practicable" or "reasonable" is defined, all plaintiff's president needed was a day or two, with relatively little effort, to consult with a reasonable resource to determine whether she was obligated to notify her insurance carrier of the underlying accident. A mere phone call to her attorney, a call to her insurance broker, or a review of the insurance policies would have been enough for her to realize that notice was required based on a potential claim.

I therefore find, on these particular facts, that plaintiff did not meet its burden of demonstrating that the delay in giving notice was reasonable (see White, supra; Security Mut., supra). To find otherwise would, in my judgment, make it far too easy for insureds to circumvent the timely notice requirements set forth in applicable insurance policies simply by claiming, or perhaps, even inventing a reasonable and good-faith belief of non-liability.

Finally, the plurality writing advocates that we abandon our own precedent and recognize [*11]the trend in the majority of jurisdictions where any delay of notice is irrelevant unless the insurer can show that it was prejudiced by such delay. The plurality seems to believe that an insurer's disclaimer of coverage is arbitrary and draconian, regardless of the reason for the insured's delayed notice, unless the insurer can demonstrate prejudice. Whether that view should be adopted as the law of this State is, in my judgment, a decision which I believe inappropriate for this court to make in face of the longstanding, clear and contrary decisional authority from our State's highest court.

The plurality writing maintains that the Court of Appeals has expressed its "antipathy" toward the no-prejudice exception. Regardless, "it is settled law in New York that '[a]bsent a valid excuse, a failure to satisfy the notice requirement vitiates the policy * * * and the insurer need not show prejudice before it can assert the defense of noncompliance'" (American Home Assurance, 90 NY2d at 440, quoting Security Mut., 31 NY2d at 440). Moreover, the Court of Appeals, as recently as 2002, left for another day the issue of whether to continue this longstanding rule, enunciated as it was, with crystal clarity in Security Mutual, that an insurer, in order to validly disclaim coverage, need not prove prejudice after it receives a delayed notice of claim from its insured. Indeed, we have consistently and appropriately followed that high court rule ourselves as we are required to do (see e.g. Paramount Insurance Co. and Heydt, supra).

I also note that the United States Court of Appeals, in Varrichio v Chicago Ins. Co. (312 F3d 544 [2002], certified question withdrawn and appeal dismissed 328 F3d 50 [2003], certified question withdrawn 100 NY2d 527 [2003]), recently expressed some doubt about whether, on the Varrichio facts, New York would still adhere to this longstanding policy. There, the case involved allegations of legal malpractice wherein the insured, an attorney, promptly notified his insurer when "it became apparent that . . . [he] was going to be sued" (id. at 545), but, a few months later, he failed to notify his malpractice carrier promptly when he was served with the anticipated summons and complaint. During that intervening period, the malpractice insurer investigated and analyzed the potential claim and had "regular contact" with the insured. The Second Circuit's doubt arose from certain language the New York Court of Appeals used in Matter of Brandon [Nationwide Mutual Ins. Co.] (97 NY2d 491 [2002]), wherein it noted that New York is among a minority of states that still adheres to the no-prejudice exception [FN3]. However, the Varrichio court, considering it "prudent," chose to ask New York's highest court whether a shift away from the no-prejudice exception "is under way in New York," instead of "seeking to adjudge the issue ourselves" (312 F3d at 549)[FN4]. The Appellate Division, Second Department, has similarly, and I believe appropriately, declined to adjudicate this issue finding that "whether such precedent should be overruled is a matter for the Court of Appeals" (Blue Ridge Ins. Co. v Jiminez, 7 AD3d 652, 654 [2004]). [*12]

It is my strong view that, as an intermediate appellate court, we must follow the clear and longstanding rule which our highest court laid down decades ago (see Security Mut., supra) and has recently reaffirmed (see e.g. American Home Assurance and Matter of Brandon, supra; see also Uniguard Security Ins. Co., Inc. v North River Ins. Co., 79 NY2d 576 [1992] [re-affirming no-prejudice rule with respect to primary liability insurance but
finding rule not applicable to reinsurance contracts]; Green Door Realty Corp. v TIG Insurance Co., 329 F3d 282 [2003] [applying New York's no-prejudice rule]; Cade & Saunders v Chicago Ins. Co., __ F Supp 2d __, 2004 WL 1922042 [applying New York's no-prejudice rule] [2004]).

Contrary to the plurality writing, I believe we ought not act prematurely to change such a fixed precept, simply based on dicta which does not, with any precision, inform us whether the court will, or might, change an important policy, whether any possible rule change will be a change in whole or in part, or further, whether any change will impose a burden on the insurer to prove prejudice or on the insured to prove its absence (see Adolfsen and Melito, New York Law Insurance Law's Late Notice is Alive and Well, NYLJ, Oct. 28, 2004, at 4, col. 3).

This is not a situation where our high court has made an ambiguous statement about the precise nature of a declared rule or about exactly when or how it must be applied. Rather, this is merely a matter where the Court of Appeals has, intentionally or not, left a lingering doubt about whether, or in what form, or for how long it will permit this longstanding and clear policy to survive, either in whole or in part. Surely, it is not for us to attempt to read the high court judges' minds and, thus, to presume or to foretell that someday they will modify or overrule that clear policy.

As we are clearly bound by Security Mutual, whose holding, to date at least, remains intact in the context of facts like those sub judice and as I find plaintiff's belief of non-liability unreasonable as a matter of law, I would reverse the order on appeal, grant summary judgment, and dismiss the complaint.

THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: DECEMBER 21, 2004

CLERK

Footnotes



Footnote 1:Seneca also issued Great Canal an umbrella insurance policy for the same period, which was excess to the primary policy and provided: "When an occurrence takes place which is reasonably likely to involve the insurance afforded hereunder written notice shall be given by the insured [. . .] as soon as practicable."

Footnote 2:It is the height of irony that Cardozo characterized his standard of "equity and fairness" as the "liberal view" embraced by the courts of New York in 1921, when, as shown below, the courts of New York have consistently worked to erode those pronouncements in the ensuing eighty years of precedent involving insurance contracts.

Footnote 3:The arbitrariness is further underscored by the notice one insurer distributes to its claims managers advising them to use their discretion and waive notices which are late by six months to a year "if there is no prejudice." Eugene R. Anderson, Richard G. Tuttle, Susannah Crego, Draconian Forfeitures of Insurance: Commonplace, Indefensible, and Unnecessary, 65 Ford.L. Rev. 825, 841-842 (1996).

Footnote 4:The issue of whether the burden should be on the insurer to show prejudice or as in some jurisdictions on the claimant to show the insurer has suffered no prejudice need not be reached in view of the fact that the Brandon Court has already indicated its preference for placing "the burden of proving prejudice on the insurer because it has the relevant information about its own claims - handling procedures and because the alternative approach would saddle the policyholder with the task of proving a negative." Brandon v. Nationwide, 97 N.Y.2d at 498, 743 N.Y.S.2d at 58.

Footnote 1:Most liability insurance contracts contain provisions which require prompt notification of an occurrence which implicates coverage. "Under traditional contract-law principles, the breach of such a contractual condition would excuse the aggrieved party's performance only if that party [were] actually prejudiced by the delay" (American Home Assurance Co. v International Insurance Co.,90 NY2d 433, 440 [1997]). However, the Court of Appeals has carved out a "limited exception" to this general rule (see Unigard Security Ins. Co., Inc. v North River Insurance Co., 79 NY2d 576, 581 [1992]). Now, it is well settled in New York that an insurer need not show prejudice where the insured has failed to give prompt notification (see discussion, infra).

Footnote 2:The term "absolute," as used in the context of Labor Law tort cases is explained in Blake v Neighborhood Hous. Services of New York City, Inc. (1 NY3d 280, 286-291 [2003]).

Footnote 3:There are at least a dozen states which adhere to the no-prejudice exception under similar circumstances. For a detailed survey and chart of where the individual states stand on this issue see Ostager and Newman, Insurance Coverage Disputes § 4.04 (12th ed.).

Footnote 4:The case was subsequently settled, the certification withdrawn and the appeal dismissed (see Varrichio v Chicago Ins. Co., 328 F3d 50 [2003]).

 

 

Rupert Blake v. Neighborhood Housing Services

 

 

 

Gail S. Kelner, for appellants.

Carol R. Finocchio, for respondent.

Defense Association of New York, Inc.; New York Trial Lawyers Association, amici curiae.

 

 

 

ROSENBLATT, J.:

 

We are presented with the question whether a plaintiff who was injured while using a ladder may prevail in a Labor Law ' 240 (1) action even when a jury finds that the ladder was so constructed and operated as to give him proper protection and he was the sole cause of his injury.  In deciding the appeal, it is necessary for us to address the concept of strict (or absolute) liability and the predicates for its application under Labor Law ' 240 (1).


 

At the time of the injury, plaintiff operated his own contracting company, and was working alone on a renovation job at a two-family house in the Bronx.  Defendant Neighborhood Housing Services of New York City (NHS), a not-for-profit lender, provided low-interest financing to facilitate the project.  Acting on the homeowner's application, NHS dispatched a rehabilitation specialist to the premises to assess the scope of the work and the amount of the loan.  NHS prepared a work estimate and gave the homeowner a list of contractors, from which she chose plaintiff.  At the job site, plaintiff set up an extension ladder, which he owned and used frequently.  He acknowledged that the ladder was steady, had rubber shoes and was in proper working condition.  When plaintiff began scraping rust from a window, however, the upper portion of the ladder retracted and he suffered an ankle injury.


 

  Plaintiff sued the homeowner and NHS alleging a violation of Labor Law ' 240 (1).  All parties moved for summary judgment.  Plaintiff contended that NHS was strictly liable as a statutory agent under the section for having failed to provide a proper workplace and mandated safety equipment.  In his deposition, however, plaintiff stated that the ladder was securely placed and not broken or defective.  He also said there was no need to have anyone hold the ladder while he was using or ascending it.  NHS cross-moved, asserting it could not be liable because it was not a general contractor or agent within the meaning of the Labor Law and did not direct, control or supervise the method or manner of plaintiff's work.  It challenged plaintiff's section 240 (1) claim as conclusory, citing the lack of any evidence as to the alleged deficiency of the ladder or work site.  NHS also claimed that plaintiff's actions alone caused the injury.  Owing to the statutory exclusion,[1] Supreme Court granted the homeowner's motion but denied NHS summary judgment, concluding there were questions of fact as to whether NHS directed or controlled the work.  The court also denied plaintiff's motion as to liability under Labor Law ' 240 (1).  The Appellate Division affirmed (262 AD2d 244 [1st Dept 1999]).


 

         At trial, plaintiff again conceded that he could not identify a defect in the ladder, that it was stable and there was no reason to have it steadied during use.  He also revealed that he was not sure if he had locked the extension clips in place before ascending the rungs.  At the close of the case, the court asked the jury to indicate on the verdict sheet whether NHS had "the authority to direct, supervise and control Mr. Blake's work" at the residence.  The jury answered yes.  In response to the second inquiry ("Was the ladder used by plaintiff Rupert Blake so constructed, operated as to give proper protection to plaintiff?"), the jury again said yes, leading to the inescapable conclusion that the accident happened not because the ladder malfunctioned or was defective or improperly placed, but solely because of plaintiff's own negligence in the way he used it.  

The trial court denied plaintiff's motion to vacate the jury's verdict and direct one in his favor.  The Appellate Division affirmed, stating that "a factual issue was posed as to whether plaintiff's injury was caused by some inadequacy of the ladder or was solely attributable to the manner in which plaintiff used the ladder" and that there were no grounds to disturb the jury's factual determinations.  We affirm.

Plaintiff claims that Labor Law ' 240 (1) is a strict (or absolute) liability statute and that the court should have set aside the jury's verdict.  In reviewing our scaffold law jurisprudence, several themes are relevant to this case, including the statute's history and purpose and plaintiff's claims relating to strict or absolute liability.  We also address the issue of plaintiff's actions being the sole proximate cause of the accident and whether NHS can be held liable as an agent under the statute.

 

A. THE HISTORY AND PURPOSE OF LABOR LAW ' 240 (1)


 

The first scaffold law, an ancestor of our Labor Law ' 240 (1), was enacted 118 years ago, in response to the Legislature's concern over unsafe conditions that beset employees who worked at heights (see L 1885, ch 214).  In promulgating the statute, the lawmakers reacted to widespread accounts of deaths and injuries in the construction trades.  Newspapers carried articles attesting to the frequency of injuries caused by rickety and defective scaffolds.  In 1885 alone, there were several articles detailing both the extent of these accidents and the legislation directed at the problem.[2] 


 

The lawmakers enacted the 1885 statute when personal injury suits of this type were based on common law duties of a master to a servant (see e.g. Vosburg v Lake Shore & M.S. Ry. Co., 94 NY 374 [1884]; Devlin v Smith, 89 NY 470 [1882]).  For that reason, the Legislature aimed this first scaffold law ("AN ACT for the protection of life and limb"), at "a person employing or directing another."  Although the statute's wording has evolved, the original, core language is still with us.  The Legislature eventually added other devices,[3] but the first statute contained the very words "scaffolding, hoists, stays, ladders" still found in Labor Law ' 240 (1).  Moreover, the law covered, as it does today, "erection, repairing, altering or painting" of structures.  Most tellingly, the lawmakers fashioned this pioneer legislation to "give proper protection" to the worker.  Those words are at the heart of the statute and have endured through every amendment.


 

Even though the first scaffold law exposed violators to civil and criminal responsibility, it fell short of the mark because the employer could escape liability by blaming the employee's co-workers (see e.g. Kimmer v Weber, 151 NY 417, 421 [1897]; Butler v Townsend, 126 NY 105, 111 [1891]).  This was changed with an 1897 amendment to the scaffold law, as part of a larger Labor Law initiative dealing with factories, bakeries, tenement-made articles, and the employment of women and children (see L 1897, ch 415).[4]  The amendment did two things: it placed the onus directly on the employer, and it prompted our Court to interpret the law as creating a presumption of employer liability when a scaffold (or ladder) collapses.  We recognized that sound scaffolds and ladders do not simply break apart (see Stewart v Ferguson, 164 NY 553 [1900]).   The Legislature looked to employers (and later, contractors and owners) as the entities best able to control the workplace and provide for its safety, casting them in liability for their failure to obey the law.[5]  The objective was -- and still is -- to force owners and contractors to provide a safe workplace, under pain of damages.

The 1897 statute[6] was a giant step forward, but it still left employers free to invoke the plaintiff's contributory negligence (see Gombert v McKay, 201 NY 27, 31 [1911]; see also L 1910, ch 352).  Indeed, throughout all the scaffold law's amendments, including the present section 240 (1), the statutory language has never explicitly barred contributory negligence as a defense.  Our Court, however, did so in 1948, reasoning that the statute should be interpreted that way if it is to meet its objective (see Koenig v Patrick Constr. Corp., 298 NY 313, 316-317).  Since then we have steadfastly held that contributory negligence will not exonerate a defendant who has violated the statute and proximately caused a plaintiff's injury (see e.g. Zimmer v Chemung County Performing Arts, Inc., 65 NY2d 513, 521 [1985]; Stolt v General Foods Corp., 81 NY2d 918 [1993]).  At no time, however, did the Court or the Legislature ever suggest that a defendant should be treated as an insurer after having furnished a safe workplace.  The point of Labor Law ' 240 (1) is to compel contractors and owners to comply with the law, not to penalize them when they have done so.


 

B. STRICT (OR ABSOLUTE) LIABILITY

Plaintiff asserts, in essence, that despite the jury's findings he is entitled to recover because Labor Law ' 240 (1) provides for strict (or absolute) liability.  In addressing this contention, we note that the words strict or absolute liability do not appear in Labor Law ' 240 (1) or any of its predecessors.  Indeed, it was the Court -- and not the Legislature -- that began to use this terminology in 1923 (under an earlier version of the statute [see L 1921, ch 50]), holding that employers had an "absolute duty" to furnish safe scaffolding and would be liable when they failed to do so and injury resulted (Maleeny v Standard Shipbuilding Corp., 237 NY 250, 253 [1923]; see also Amberg v Kinley, 214 NY 531, 545 [1915] [Collin, J., dissenting]).  We used a similar phrase 25 years later in Koenig (298 NY at 318 [a duty "absolutely imposed"]).  In Connors v Boorstein (4 NY2d 172, 175 [1958]) the Court, for the first time, worded the concept as "absolute liability" under section 240 (1).  We did so again in Major v Waverly & Ogden, Inc. (7 NY2d 332, 336 [1960] ["absolute statutory liability"]) and Duda v Rouse (32 NY2d 405, 408 [1973] ["absolute liability"]). 


 

The Court has also described liability under Labor Law ' 240 (1) as "absolute" in the sense that owners or contractors not actually involved in construction can be held liable (see Haimes v New York Telephone Co., 46 NY2d 132, 136 [1978]), regardless of whether they exercise supervision or control over the work (see Ross v Curtis-Palmer Hydro-Electric Co., 81 NY2d 494, 500 [1993]).  Intending the same meaning as absolute liability in Labor Law ' 240 (1) contexts, the Court in 1990 introduced the term "strict liability" (Cannon v Putnam, 76 NY2d 644, 649) and from that point on used the terms interchangeably. 

Throughout our section 240 (1) jurisprudence we have stressed two points in applying the doctrine of strict (or absolute) liability.  First, that liability is contingent on a statutory violation and proximate cause.  As we said in Duda (32 NY2d at 410),  "[v]iolation of the statute alone is not enough; plaintiff [is] obligated to show that the violation was a contributing cause of his fall,"[7] and second, that when those elements are established, contributory negligence cannot defeat the plaintiff's claim.  Section 240 (1) is, therefore, an exception to CPLR 1411, which recognizes contributory negligence as a defense in personal injury actions (see Mullen v Zoebe, Inc., 86 NY2d 135, 143 [1995]; Bland v Manocherian, 66 NY2d 452, 461 [1985]).


 

It is imperative, therefore, to recognize that the phrase "strict (or absolute) liability" in the Labor Law ' 240 (1) context is different from the use of the term elsewhere.  Often, the term means "liability without fault" (see generally 3 Harper, James and Gray, The Law of Torts ' 14 [2d ed 1986]), as where a person is held automatically liable for causing injury even though the activity violates no law and is carried out with the utmost care.  Illustrations include blasting activities (see Spano v Perini Corp., 25 NY2d 11, 15 [1969]), keeping wild animals (see Arbegast v Board of Education, 65 NY2d 161, 164 [1985]) and discharging waste (see Navigation Law ' 181 (1); White v Long, 85 NY2d 564, 568 [1995]; State v Green, 96 NY2d 403, 405 [2001]) (see generally Prosser and Keeton on Torts ' 78 [5th Ed 1984]).  We also refer to strict liability when discussing products liability arising out of a defective design or the failure to warn (see Sukljian v Charles Ross & Son Co., 69 NY2d 89, 94 [1986]; Sage v Fairchild-Swearingen, 70 NY2d 579, 585 [1987]).  In these instances, manufacturers of defective products may be held "strictly liable" for injury caused by those products, regardless of privity, foreseeability or reasonable care (see Sprung v MTR Ravensburg Inc., 99 NY2d 468, 472 [2003]).     Courts also speak of strict liability in commercial settings, as where the Uniform Commercial Code fastens "strict liability" on a bank that charges against its customer's account any "item" that is not "properly payable" (UCC 4-401; Monreal v Fleet Bank, 95 NY2d 204, 207 [2000]), and in the check clearing process when a payor bank fails to return an item by midnight of the day following its receipt (see UCC 4-302[a]; Hanna v First Nat'l Bank, 87 NY2d 107, 120 [1995]).


 

Given the varying meanings of strict (or absolute) liability in these different settings, it is not surprising that the concept has generated a good deal of litigation under Labor Law ' 240 (1).  The terms may have given rise to the mistaken belief that a fall from a scaffold or ladder, in and of itself, results in an award of damages to the injured party.  That is not the law, and we have never held or suggested otherwise.  As we stated in Narducci v Manhasset Bay Assoc. (96 NY2d 259, 267 [2001]), "[n]ot every worker who falls at a construction site, and not any object that falls on a worker, gives rise to the extraordinary protections of Labor Law ' 240 (1)."  Also, the Appellate Division had recognized as much in Beesimer v Albany Avenue/Route 9 Realty, Inc. (216 AD2d 853, 854 [3d Dept 1995]), stating: "the mere fact that [a plaintiff] fell off the scaffolding surface is insufficient, in and of itself, to establish that the device did not provide proper protection" (see also Alava v City of New York, 246 AD2d 614, 615 [2d Dept 1997] ["a fall from a scaffold does not establish, in and of itself, that proper protection was not provided"]).[8]


 

 


 

Put differently, an accident alone does not establish a Labor Law ' 240 (1) violation or causation.  This Court has repeatedly explained that "strict" or "absolute" liability is necessarily contingent on a violation of section 240 (1).  In Melber v 6333 Main Street, Inc. (91 NY2d 759, 762 [1998]), we noted that "we have held that the statute establishes absolute liability for a breach which proximately causes an injury."  In Zimmer (65 NY2d at 522), we found that "a violation of section 240(1) * * * creates absolute liability" and that "[t]he failure to provide any safety devices is such a violation."  Moreover, causation must also be established.  As the Court held in Duda (32 NY2d at 410 [1973]), the "plaintiff was obligated to show that the violation [of section 240 (1)] was a contributing cause of his fall."       Here, plaintiff has shown no violation of Labor Law ' 240 (1). 

In support of his claim, plaintiff argues that comparative negligence is not a defense to absolute liability under the statute.  This is true (see Raquet v Braun, 90 NY2d 177, 184 [1997]; Bland v Manocherian, 66 NY2d 452, 461 [1985]).  But we are not dealing here with comparative fault, by which a culpable defendant is able to reduce its responsibility upon a finding that the plaintiff was also at fault.  That would be impermissible under section 240 (1).  Here, there is no comparative culpability.  As the jury implicitly found, the fault was entirely plaintiff's.  The ladder afforded him proper protection.  Plaintiff's conduct (here, his negligence) was the sole proximate cause of the accident.

 

C. PLAINTIFF'S CONDUCT AS THE ACCIDENT'S SOLE PROXIMATE CAUSE


 

Plaintiff argues that he is entitled to recover in the face of a record that shows no violation and reveals that he was entirely responsible for his own injuries.  There is no basis for this argument.  Even when a worker is not "recalcitrant,"[9] we have held that there can be no liability under section 240 (1) when there is no violation and the worker's actions (here, his negligence) are the "sole proximate cause" of the accident.  Extending the statute to impose liability in such a case would be inconsistent with statutory goals since the accident was not caused by the absence of (or defect in) any safety device, or in the way the safety device was placed. 


 

In Weininger v Hagedorn & Co. (91 NY2d 958, 960 [1998]), we held that "Supreme Court erred * * * in directing a verdict in favor of plaintiff, at the close of his own case, on the issue of proximate cause" where "a reasonable jury could have concluded that plaintiff's actions were the sole proximate cause of his injuries, and consequently that liability under [section 240(1)] did not attach."  Contrary to plaintiff's claim, the Appellate Division has held (both before and after Weininger) that a defendant is not liable under Labor Law ' 240 (1) where there is no evidence of violation and the proof reveals that the plaintiff's own negligence was the sole proximate cause of the accident.  Under Labor Law ' 240 (1) it is conceptually impossible for a statutory violation (which serves as a proximate cause for a plaintiff's injury) to occupy the same ground as a plaintiff's sole proximate cause for the injury.  Thus, if a statutory violation is a proximate cause of an injury, the plaintiff cannot be solely to blame for it.  Conversely, if the plaintiff is solely to blame for the injury, it necessarily means that there has been no statutory violation.  That is what we held in Weininger, a holding the Appellate Division has consistently understood and applied.[10]  The Pattern Jury Instructions reflect a like-minded interpretation of Weininger (see PJI3d 2:217 [2003])[11].  We reaffirm that holding today.

                        As in Weininger, the record now before us fully supports the jury's findings that there was no statutory violation and that plaintiff alone, by negligently using the ladder with the extension clips unlocked, was fully responsible for his injury.


 

Plaintiff relies heavily on Bland v Manocherian (66 NY2d at 457).  There, the jury found that the ladder in question was not "placed so as to give proper protection to the plaintiff" and that "improper placement of the ladder [was] a proximate cause of the accident" (id.).  We held that "[t]he jury was clearly entitled to find that, under the circumstances, defendants failed to satisfy the responsibilities imposed by section 240 (1) in that they had not 'erected' or 'placed' the ladder from which plaintiff fell in such a manner, or with such safeguards, as necessary to provide plaintiff with 'proper protection' while he was working on defendants' building" (id. at 460). 

In reaching this conclusion, we noted the nature of the work the plaintiff had to perform while on the ladder and the conditions at the work site.  "[P]ressure would have to be applied to the sashes and, at the same time, the windows forcibly twisted loose, all while plaintiff was standing on a ladder" (id. at 460).  Further, and also in contrast to the case before us, there was testimony that "the floor upon which the ladder was placed was bare, highly polished and shiny" and that "no safety equipment, safety belts, hard hats, scaffolding or anything else, was used to protect plaintiff from falling through the fourth floor window or to secure the ladder to insure that it remained steady and erect while plaintiff was applying pressure to that window" (id.). 


 

Bland, then, does not support plaintiff's position or stand for the proposition that regardless of the facts every ladder injury leads ineluctably to liability under section 240 (1).  In Bland, there were affirmed findings of fact, supported by the evidence, from which the jury could find that defendants had failed to satisfy their section 240 (1) responsibilities.  Here, in contrast, the affirmed findings of fact were supported by the record, enabling the jury to conclude that there was no violation of the Labor Law.  The record in Bland fairly suggested that better safety devices could have prevented the accident.  In our case, the ladder was undisputedly in proper working order, and no further devices were necessary.


 

To be sure, we have long held that "this statute is one for the protection of [workers] from injury and undoubtedly is to be construed as liberally as may be for the accomplishment of the purpose for which it was thus framed" (Quigley v Thatcher, 207 NY 66, 68 [1912]).  But to impose liability for a ladder injury even though all the proper safety precautions were met would not further the Legislature's purpose.  It would, instead, be a sweeping and dramatic turnabout that the statute neither permits nor contemplates.  As we recognized in a related context, the language of Labor Law ' 240 (1) "must not be strained" to accomplish what the Legislature did not intend (Martinez v City of New York, 93 NY2d 322, 326 [1999]).  If liability were to attach even though the proper safety devices were entirely sound and in place, the Legislature would have simply said so, or made owners and contractors into insurers.  Instead, the Legislature has enacted no-fault workers' compensation to address workplace injuries where, as here, the worker is entirely at fault and there has been no Labor Law violation shown.

 

D. AGENCY UNDER SECTION 240 (1)

Lastly, this case presents the question whether defendant NHS could be liable as an agent of the owner under Labor Law ' 240 (1).  That section imposes liability only on contractors, owners or their agents.  NHS is clearly not a contractor or an owner.  An agency relationship for purposes of section 240 (1) arises only when work is delegated to a third party who obtains the authority to supervise and control the job.  Where responsibility for the activity surrounding an injury was not delegated to the third party, there is no agency liability under the statute (Rusin v Picciano & Sons, 54 NY2d 311, 318 [1981]). 

NHS lacked the requisite indicia of agency.  Although defendant here coordinated home repair work, it did not involve itself with the details of how individual contractors would perform their jobs.  Instead, NHS acted as a lender: it is a non-profit organization that provides low-interest loans.  The homeowner retained primary control over decisions on how the renovation project would proceed.  NHS did not supervise the contractor; it never instructed workers on how to undertake repairs, and it took only a de minimis role in ensuring that the contractor would complete the financed repairs. 


 

Accordingly, the order of the Appellate Division should be affirmed, with costs.

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

Order affirmed, with costs.  Opinion by Judge Rosenblatt.  Chief Judge Kaye and Judges Smith, Ciparick, Graffeo and Read concur.

 

 

Decided December 23, 2003

 

 

 

Ashley Z. Huertero v. Blue Ridge Insurance Company

Kardisch, Link & Associates, P.C., Rockville Centre, N.Y.
(Beth L. Rogoff of counsel), for appellant.
Mirman, Markovits & Landau, P.C. (Ephrem Wertenteil, New
York, N.Y. of counsel), for
respondents.

In an action for a judgment declaring that the defendant Blue Ridge Insurance Company is obligated to defend and/or indemnify the defendant Baruch Bluzenstein in an underlying action entitled Huertero v Bluzenstein, pending in the Supreme Court, Kings County, under Index No. 32560/98, the defendant Blue Ridge Insurance Company appeals from an order of the Supreme Court, Kings County (Douglass, J.), dated December 4, 2002, which denied its motion for summary judgment.

ORDERED that the order is affirmed, with costs.

In September 1998 the plaintiffs, who resided in an apartment owned by the defendant Baruch Bluzenstein, commenced an action against him to recover damages for lead poisoning allegedly suffered by the infant plaintiff, Ashley Z. Huertero. Bluzenstein notified his insurer, the defendant Blue Ridge Insurance Company (hereinafter Blue Ridge), of the action in April 1999 soon after receiving the plaintiffs' motion for leave to enter a default judgment based on his purported failure to timely serve an answer. Although Bluzenstein maintained that he never received the summons and complaint in the underlying action and was unaware of the action until his receipt of the motion papers, Blue Ridge disclaimed coverage on the ground that he failed to timely notify it [*2]of an "occurrence" as required under the terms of the subject policy. Blue Ridge argued, inter alia, that Bluzenstein's duty to notify it of an "occurrence" was triggered in January 1996 upon his initial receipt from the Department of Health of an "Order to Abate Nuisance," notifying him of lead-paint violations in the subject apartment. After the plaintiffs commenced this action for a judgment declaring that Blue Ridge was obligated to defend and/or indemnify Bluzenstein in the underlying action, Blue Ridge moved for summary judgment.

Although Blue Ridge argued, inter alia, that Bluzenstein's duty to notify it of the occurrence was triggered in January 1996 when he was first notified of lead-paint violations in the subject apartment, the notice did not indicate that the violations resulted in injury to the infant plaintiff (see Public Serv. Mut. Ins. Co. v AYFAS Realty Corp., 234 AD2d 226, 227) or that the elevated blood-lead level of the infant plaintiff was caused by exposure to conditions in the subject apartment (see id. at 227; see also Mount Vernon Fire Ins. Co. v East Side Renaissance Assocs., 893 F Supp 242, 248). As Blue Ridge failed to demonstrate its prima facie entitlement to judgment as a matter of law by establishing that Bluzenstein failed to timely notify it of the occurrence, the denial of the motion for summary judgment was proper.

Blue Ridge's remaining contentions are unpreserved for appellate review.
FLORIO, J.P., SCHMIDT, ADAMS and COZIER, JJ., concur.

ENTER:

James Edward Pelzer

Gulf Insurance Company v. Transatlantic Reinsurance Company, et al.

Order, Supreme Court, New York County (Richard B. Lowe III, J.), entered May 26, 2004, insofar as it granted defendants-respondents' motion to compel plaintiff to produce privileged documents, unanimously reversed, on the law, with costs, and the motion to compel denied.

This appeal involves the question of whether a standard access to records clause in a contract waives any claim of privilege with respect to those documents. We hold that it does not.

Plaintiff, after issuing a Vehicle Residual Value Protection Policy to nonparty First Union Corporation, entered into Quota Reinsurance Agreements with defendants and their predecessors. The pertinent provisions of the reinsurance agreements provided that any loss settlement made by the plaintiff shall be "unconditionally binding upon the Reinsurer in proportion to its participation." Moreover, plaintiff retained "absolute discretion" in the settlement of any claims. Finally, the agreements contained a boilerplate Access to Records clause which provided: "the Reinsurers . . . will have the right to inspect
. . . all records of the Company [i.e. plaintiff] that pertain in any way to this Agreement."

In March 2000, First Union sued plaintiff herein. Periodically, plaintiff sent updates on the litigation to the defendants. This litigation was settled on February 25, 2003 for $226 million. On March 10, 2003, plaintiff asked defendants to contribute their share of the settlement. Defendants invoked the access to records clause in the agreement and demanded to inspect plaintiff's files, including the files of in-house and outside counsel. Plaintiff produced 22 banker's boxes of documents but refused to produce the files of counsel, claiming these were privileged documents and not subject to the access to records clause. As a result of plaintiff's [*2]failure to produce all the documents demanded, defendants refused to pay their share of the First Union settlement. Plaintiff then commenced this lawsuit.

Defendants commenced a separate lawsuit for rescission of the Reinsurance Agreements. They also claimed the First Union settlement was unreasonable, in bad faith and ex gratia. Both lawsuits were consolidated. During the course of those suits, defendants served document demands on plaintiff which sought documents that normally would be clearly privileged, involving litigation strategy in the First Union action, counsel opinions and communications between plaintiff and its counsel. Plaintiff objected to these demands and defendants moved to strike those objections and compel discovery. The IAS court granted the motion to compel discovery, holding that the access to records clause "is an extremely expansive clause without any limitation." This appeal ensued.

Initially, we note that plaintiff correctly argues that a de novo standard of review applies because the IAS court interpreted a contract provision (i.e., the access to records clause) as a matter of law (see Gregoris Motors, Inc. v Nissan Motor Corp., 80 AD2d 631 [1981], affd 54 NY2d 634 [1981]). Further, contrary to plaintiff's contention, defendants may seek rescission and damages in the same action (CPLR 3002[e]).

Access to records provisions in standard reinsurance agreements, no matter how broadly phrased, are not intended to act as a per se waiver of the attorney-client or attorney work product privileges. To hold otherwise would render these privileges meaningless (North River Insurance Co. v Philadelphia Reinsurance Corp., 797 F Supp 363 [D NJ 1992]).

The court in North River was presented with a cooperation clause which provided that the insurer would provide to the reinsurer "any of its records relating to this reinsurance or claims in connection therewith" (id. at 368). When the insurer refused to provide documents which it argued were within the purview of the attorney-client privilege, the reinsurer made a motion to compel production of those documents. The court held that so long as the insurer produced all documents in its possession relevant to the underlying claim, its duty under the cooperation clause was fulfilled. It further held that the reinsurer is not entitled under a cooperation clause to learn of any and all legal advice that may have been obtained "with a reasonable expectation of confidentiality" (id. at 369). In short, the court determined that a standard document production clause, does not, without more, constitute a waiver of the attorney-client privilege.

Indeed, the court also found that there was no automatic waiver of the attorney-client privilege merely because the parties had a common interest in the outcome of the underlying litigation. Production of documents under those circumstances does not prevent the assertion of privilege of similar documents in an adversary situation. Given the present dispute between the parties, the "attorney-client privilege was not waived by the promise of open 'records' alone" (U.S. Fire Insurance Co. v Phoenix Assur. Co., Sup Ct, NY County, Aug. 18, 1992, Moskowitz, J., Index No. 7712/91, affd 193 AD2d 559 [1993]).

That is not to say that the defendants are precluded from challenging the assertion of privilege made with respect to any documents sought to be produced, or that a court is bound by counsel's characterization of a document as being privileged (see Aetna Cas. and Sur. Co. v Certain Underwriters at Lloyd's London, 263 AD2d 367 [1999], lv dismissed 94 NY2d 875 [2000]. The party asserting the privilege has the burden of proving each element of the privilege claimed (see Priest v Hennessy, 51 NY2d 62 [1980]). While a court may determine certain documents to be outside the purview of privileged documents, it cannot be said that the contract provision here constituted a blanket waiver of those privileges under all circumstances.

 

 

Michael Katz v.  American Mayflower Life Insurance Company of New York,

 

 

 

Plaintiff appeals from an order of the Supreme Court, New York County (Herman Cahn, J.), entered January 30, 2003, which granted defendant's motion to dismiss the complaint.


Wechsler Harwood LLP, New York (William R. Weinstein and
Robert I. Harwood of counsel), for appellant.
Sonnenschein Nath & Rosenthal, LLP, New York
(Reid L. Ashinoff, Sandra D. Hauser and Michael S. Gugig of
counsel), for respondent.

SULLIVAN, J.

On or about July 11, 1997, plaintiff, a real estate attorney, signed an application for a $1 million term life insurance policy, premiums to be paid on a quarterly basis, with defendant American Mayflower Life Insurance Company of New York. As plaintiff must concede, the [*2]application, which is explicitly made part and parcel of the policy, expressly provides that coverage would commence when the policy is delivered and his initial premium paid by stating immediately above the signature line:

[E]xcept as provided in the Conditional Receipt, if issued, with the same number as this application, no insurance will take effect unless: (a)the policy is delivered to the Owner; (b) the first modal premium is paid; and (c) there has been no change since the date of this application in the insurability of all persons proposed for insurance or in any of the answers to the questions on this application.

Plaintiff had two payment options for the purchase of his life insurance policy: to pay the initial premium due upon delivery of the policy, the so-called "C.O.D." payment option, or to pay the initial premium due with the submission of his application and receive temporary coverage under a conditional receipt. Plaintiff chose the C.O.D. payment option and now alleges that as a result of choosing to pay upon delivery of the policy, American Mayflower charged him a premium for a period of time before he was covered. It is undisputed that although plaintiff's policy had a "Policy Date" and "Date of Issue" of September 2, 1997, coverage did not become effective until on or about September 24, 1997.

The policy specifically informed plaintiff when subsequent premiums would become due and owing. The "Policy Date" section of the policy states, in relevant part:

Policy Date: Policy anniversaries, policy years, policy months, and Premium Due Dates are measured from the Policy Date. The first policy year begins on the Policy Date. Subsequent policy years begin on the same date each year thereafter. A policy anniversary occurs at the beginning of each policy year after the first policy year.


Thus, the policy explicitly provided that the due date for premiums after the first are determined solely by reference to the policy date set forth in the policy, not the date of policy delivery or first premium payment. Since plaintiff chose to pay his premiums on a quarterly basis, the policy also sets forth the due dates for subsequent quarterly premium payments, which dates are based on the policy's September 2, 1997 policy date.

The policy's cover page also advised plaintiff that he was not compelled to keep the policy after it was delivered; it expressly provided a 20-day "free look" period during which he could have returned the policy for any or no reason at all and received a full refund of premiums paid:

The Owner may return this Policy within 20 days after its delivery by taking it or mailing it to the Company or to any agent of the Company. Immediately upon delivery or mailing, this Policy will be deemed void from the beginning. Any premium paid will be returned.

Plaintiff elected to keep the policy and paid premiums for more than four years before [*3]commencing this putative class action in Supreme Court, asserting claims of breach of contract and unjust enrichment. The essence of the complaint is that defendant breached the life insurance policy by failing to provide a year's worth of coverage in exchange for an "annual premium." Thus, his entire claim is essentially that American Mayflower set different dates for the commencement of coverage and the premium due dates.

American Mayflower moved, pre-answer, to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7). While the motion was sub judice, a motion to dismiss a virtually identical case, Franco v The Guardian Life Ins. Co. of America, (Sup. Ct. NY County, Jan. 28, 2003, Cahn, J., Index No. 604302/01), was granted. In the instant matter, the motion court found that the issues were substantially similar to those raised in Franco and dismissed the complaint "for the reasons set forth in [Franco]." After examining the policy language, the Franco court held, "[T]he language of the policy, including the application, which is incorporated therein, is not ambiguous, since the various payment options are described in detail." The court further held that, in the context of the policy, the phrase "annual," as used in conjunction with premium, "describes the length of time between premium payments." The court in Franco dismissed the unjust enrichment claim because "the parties' rights and liabilities are governed by the terms of an express contract."

Plaintiff's breach of contract claim fails. The first year period of coverage is determined by the policyholder's choice to pay upon application or to pay upon delivery of the policy. Plaintiff's American Mayflower life insurance application, expressly made part of the policy, plainly states that coverage will not become effective unless "the policy is delivered to the Owner [and] the first modal premium is paid." It is undisputed that coverage has continued since delivery of the policy and payment of the first premium. Nothing in the application or the policy ultimately delivered stated or suggested that, having chosen the C.O.D. payment option, plaintiff would have coverage between the policy date and the delivery and payment date. Thus, since plaintiff is receiving all of the policy benefits he purchased, Supreme Court properly dismissed his breach of contract claim. While the dissent accords great weight to the fact that the policyholder would not be aware until after the policy was delivered that American Mayflower was affording less than one year's coverage for the first annual premium, the "free look" period entitling the policyholder to a full refund of any premium paid renders this fact insignificant. Plaintiff has not, and cannot, identify any contractual provision that has been breached.

That, due to plaintiff's selection of the C.O.D. payment option, American Mayflower set different dates for the commencement of coverage and the premium due dates does not constitute a breach of contract since they are, as plaintiff concedes, part of the contract. Thus, any claim that plaintiff paid a premium for a period of time before coverage commenced is contradicted by the express terms of the contract.

The argument that plaintiff did not appreciate that the first premium would purchase less than 365 days of coverage necessarily fails as a matter of law. It is a well-settled principle of law in this state that an insured has an obligation to read his or her policy and is presumed to have consented to
its terms (Minsker v John Hancock Mut. Life Ins. Co., 254 NY 333, 338 [1930]; Ciaramella v [*4]State Farm Ins. Co., 273 AD2d 831, 832 [2000]; British West Indies Guar. Trust Co., Ltd. v Banque Internationale A Luxembourg, 172 AD2d 234 [1991]). Recognizing the clear language of his application and the policy, and the import of recent directly applicable New York appellate decisions, Dougherty v William Penn Life Ins. Co. of NY (3 AD3d 469 [2d Dept 2004], lv denied 2 NY3d 704 [2004]) and Randazzo v Gerber Life Ins. Co. (3 AD3d 485 [2d Dept 2004], lv denied 2 NY3d 704 [2004]), decided together, which rejected the same argument as is made here, holding that "the policy clearly states when coverage is to begin and when premiums are due" (id. at 486), plaintiff has departed from the allegations of his complaint and now hinges his breach of contract claim on a purported ambiguity between the clear contract provision governing the commencement of coverage and the policy's use of the term "annual premium." This is the position the dissent advances.

The argument is without merit. Plaintiff's claim of ambiguity is belied by the policy's clear distinction between the "initial premium," which, when paid, triggers coverage in the first instance, and "subsequent current annual and maximum annual premiums," that, according to the policy, are due on September 2 of each following year, the anniversary of the "Policy Date" of September 2, 1997. Specifically, the policy clearly and unambiguously provides that the quarterly "Total Initial Premium" is $447.20, that coverage does not commence until payment of the Total Initial Premium, that, given plaintiff's election to pay the annual premium on a quarterly basis, premiums were due on the 2nd of March, June, September and December and that due dates for subsequent quarterly premium payments were determined by reference to the "Policy Date" — September 2, 1997, not the date of delivery of the policy. Significantly, the policy's general provisions explicitly provide, "Policy anniversaries, policy years, policy months and Premium Due Dates are measured from the Policy Date."

Plaintiff paid his premium upon the policy's delivery. As he expressly agreed, coverage did not commence until the policy was delivered and the quarterly initial premium paid. The policy clearly described when all subsequent quarterly premium payments were due, including the due date, December 2, 1997, of his next quarterly premium. While it is true that plaintiff's initial premium payment did not provide him with a full calendar quarter of coverage because he made that initial premium payment after the Policy Date, this fact was clearly disclosed in the policy application, which, as noted, is expressly incorporated into the policy.

The suggestion that the reasonable policyholder who purchases a life insurance policy, C.O.D., expects that payment of the first premium would provide a year's worth of coverage, or in plaintiff's case, a quarter of a year's coverage since he was paying the annual premium on a quarterly basis, is contradicted by the unambiguous terms of the policy. Each policyholder is afforded the option of receiving a full year of coverage, or, as here, a quarter of a year's coverage for the initial premium payment if he or she chooses to pay upon application, or pay upon delivery and acceptance of the policy and receive coverage from the later date of delivery and payment. If the policyholder chooses to pay upon application, there is no delay in coverage. If the choice is to pay upon delivery, coverage commences upon payment. In either case, the policyholder will pay the same initial premium.

Moreover, plaintiff has never claimed that he was actually confused and that he expected [*5]to be covered for any period prior to his payment of the initial premium. As an attorney, he would be hard pressed to assert such a claim. Nor does he claim, much less suggest, how he might prove that he has not received or will not receive all the benefits for which he has paid. Even were the policyholder a layperson, not, as is plaintiff, a lawyer, there is no justification for engaging, as does the dissent, in a contra proferentem analysis of how the average person would construe the policy language. Where, as here, the policy's terms are clear and unambiguous, the court should enforce its plain meaning and may not consider extrinsic evidence of the parties' understanding or intent (see Chimart Assocs. v Paul, 66 NY2d 570 [1986]; Crane Co. v Coltec Indus. Inc., 171 F3d 733, 737 [2d Cir 1999]).

As noted, the Second Department has affirmed dismissals pursuant to CPLR 3211 of identical breach of contract claims in Dougherty v William Penn Life Ins. Co., supra and Randazzo v Gerber Life Ins. Co., supra and, more recently, in Topel v Reliastar Life Ins. Co. (6 AD3d 608 [2004]), it reversed the denial of a CPLR 3211 motion to dismiss a complaint making allegations virtually identical to those made herein. We cannot discern any difference between the facts here and those in Dougherty, Randazzo and Topel. Nor can plaintiff distinguish the dismissal of another virtually identical breach of contract claim in Miller v The Equitable Life Assur. Socy. of the United States, (US Dist. Ct., SD NY, Rakoff, J., 02 Civ 5362 [2002]), holding that there was no "material ambiguity" in the policy at issue, and that "the only reasonable objective reading of the plain language of the policy" informed the plaintiff that upon payment of his initial premium coverage would be provided until the next "register date," i.e., policy date. The decision in Miller is also in accord with several cases involving the same issue decided pursuant to the laws of other states (see e.g. Hawa v Metropolitan Life Ins. Co., No. 07-03-0068-CV, 2004 Tex App LEXIS 1179 [Tex App 2004]) [affirming the grant of the insurer's motion for summary judgment and holding that the insured agreed to pay the same premium for the first year of coverage as for successive years even though coverage did not commence until eleven days after the policy date, the date on which the first premium was due]; Bogard v Inter-State Assur. Co., 263 Ga App 767, 770, 589 SE2d 317, 319 [2003] [Ga Ct App 2003] [affirming dismissal of breach of contract claim because "the policy terms are unambiguous and [the plaintiff] agreed to be bound by them"]; Johnson v First Penn-Pacific Life Ins. Co., case No. 02 CV 6638 [Colo Dis Ct 2003] [dismissal on the pleadings of breach of contract claim]).

Nor does Semler v First Colony Life Ins. Co., (case No. 984902 [Cal Super Ct 1999]) support plaintiff's claims. That decision is based on a directly applicable California statute, Insurance Code § 480, which prohibits insurance companies doing business in California "from collecting a premium for the period before coverage commences." New York has no statute or regulation remotely similar to this particular statute
(see also Rubin v Indianapolis Life Ins. Co., case No. 02 CH 003376 2002 [Ill Cir Ct] [grant of motion dismissing breach of contract claim, court holding that, unlike California, Illinois did not prohibit the charging of "gap premiums"]).

As the dissent concedes, there is no merit to plaintiff's unjust enrichment claim. New York law is clear and well settled:

The existence of a valid and enforceable written contract governing [*6]a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter [citations omitted]. A "quasi contract" only applies in the absence of an express agreement, and is not really a contract at all, but rather a legal obligation imposed in order to prevent a party's unjust enrichment. Clark-Fitzpatrick, Inc. v Long Island R.R. Co., 70 NY2d 382, 388 [1987]; see Metropolitan Life Ins. Co. v Noble Lowndes Int'l, 192 AD2d 83, 89 [1993], affd 84 NY2d 430 [1994].

Plaintiff alleges the existence of a valid, enforceable contract, which, by its very terms, addresses whether coverage would be provided during the period of time between the signing of the application and the delivery of and payment of the policy. Under such circumstances, plaintiff's unjust enrichment claim cannot survive (see Clark-Fitzpatrick, Inc. v Long Island R.R. Co., 70 NY2d at 388-389).

We have examined plaintiff's other arguments and find that they are without merit.

Accordingly, the order of the Supreme Court, New York County (Herman Cahn, J.), entered January 30, 2003, which granted defendant's motion to dismiss the complaint, should be affirmed, without costs or disbursements.

All concur except Tom, J. who dissents in an Opinion.
TOM, J. (dissenting)

The issue raised on this appeal is simply stated: What period of life insurance coverage is an insurer required to provide in return for the payment of an "annual" premium? On its face, the question appears no more challenging than, "Who is buried in Grant's Tomb?" or, "How many pounds are there in a hundredweight?" Its apparent triviality notwithstanding, the answer for plaintiff insured, Michael Katz, was a not-so-obvious 343 days.

On July 11, 1997, plaintiff submitted an application to defendant American Mayflower Life Insurance Co. for term life insurance coverage in the amount of $1 million. The company offers the applicant two payment options: Pay the premium upon submission of the application or pay upon delivery of the policy. If the applicant chooses to pay immediately, American Mayflower provides temporary insurance coverage pursuant to a "Conditional Receipt." If the consumer chooses the second option and pays the first premium after his application has been accepted by American Mayflower and the policy delivered, no coverage is provided until the first premium is paid.
The application provides:

"(1) the entire contract will consist of this application and the policy issued in response to it;

* * *

"(3) except as provided in the Conditional Receipt, if issued, with the same number as this application, no insurance will take effect unless: (a) the policy is delivered to the Owner; (b) the first modal [*7]premium is paid; and (c) there has been no change since the date of this application in the insurability of all persons proposed for insurance or in any of the answers to the questions on this application."


Plaintiff did not purchase the preliminary insurance coverage provided by the Conditional Receipt — or "binder," as it is commonly known (see Springer v Allstate Ins. Co., 94 NY2d 645, 649-650 [2000]).

On September 2, 1997, American Mayflower issued a policy to plaintiff with a policy date of September 2, 1997. The policy was delivered to plaintiff on September 24, 1997, at which time, he paid the first "annual" premium and coverage became effective.

The policy states that plaintiff will be charged $1,720 as an "annual premium" for the initial premium period of ten years. The table of premiums delineates the beginning of each policy year as September 2, including the initial year. A general provision in the policy, entitled "Policy Date," provides, "Policy year, policy months and policy anniversaries are measured from the policy date. The first policy year begins on the Policy Date. Subsequent policy years begin on the same date each year thereafter." The schedule indicates that the "policy date" is identical to the date of issue, September 2, 1997.

Plaintiff commenced this putative class action seeking to recover "compensatory and/or actual damages" or, in the alternative, "disgorgement and/or restitution," on behalf of himself and other, similarly situated policyholders. The substance of the complaint, which asserts causes of action for breach of contract and unjust enrichment, is that while plaintiff paid a full annual premium at the time the policy was delivered, the insurer failed to provide a full year of life insurance coverage during the first policy year. That is, although coverage was not effective until the delivery date (September 24), the annual premium was applied to the period beginning with the policy date (September 2). Thus, plaintiff was charged a premium for 22 days for which he received no coverage. The complaint alleges that "[t]his practice is not disclosed in defendant's policies and applications" and that the insurer "unilaterally controls how long it takes between the time a policy is approved and the time the policy is issued and actually sent to its agent for delivery to and acceptance by the owner." The complaint charges that "American Mayflower's unlawful practices permit it to obtain money wrongfully from unsuspecting consumers." It adds, "Plaintiff, and thousands of deceived consumers like him, reasonably believed American Mayflower would only charge premiums for periods of time for which it was under a reciprocal obligation to pay death benefits under the policy."

Defendant responded by bringing this pre-answer motion to dismiss the complaint based upon the documentary evidence, specifically, its life insurance policy, and for failure to state a cause of action (CPLR 3211[a][1] & [7]). Defendant argued that it cannot be held in breach of the insurance contract because it provided precisely the life insurance coverage specified in its policy. It noted that the life insurance contract contains a schedule that "shows the policy years during which premiums are payable." The "table of premiums" lists the "current annual premium" for each "Policy Yr Beginning SEPTEMBER 2." Read together with the sections [*8]entitled "Policy Date" and "Premium Provisions," the application and the printed policy establish that the initial "year" of coverage runs from the date coverage became effective (the delivery date of September 24th) to the next anniversary of the policy date (September 2nd). Since this is understandable from reading the policy, defendant contended, it performed in accordance with the contract of insurance. Furthermore, defendant noted that the contract gives the insured 20 days during which he could return the policy for a full refund. Finally, the insurer argued that plaintiff's retention of the policy constitutes acceptance and his continued payment of premiums reflects his ratification of its terms.

In opposition to the motion, plaintiff noted that while he does not dispute defendant's right to commence coverage upon delivery and payment, he received less than a year of coverage for his initial "annual" premium payment. Contrary to the position taken by defendant, plaintiff argued that the insurer's peculiar use of the term is misleading and inconsistent with its common meaning, thereby creating an ambiguity that the courts are required to resolve against the insurer. Therefore, he asserted his entitlement to a refund for the period of time preceding delivery of the policy, during which no life insurance coverage was provided.

Supreme Court granted defendant's motion and dismissed the complaint, holding that this matter is governed by its previous decision in Franco v The Guardian Life Ins. Co. (Sup Ct, NY County, Jan. 28, 2003, Cahn, J., Index No. 604302/01), affirmed herewith (__ AD3d __, Appeal No. 3290). In that case, the court held that the word "annual," when read "in the context of the application and policy in their entirety," does not mean that "the premium will afford insurance coverage for twelve full months" but "clearly describes the length of time between premium payments." The court therefore dismissed plaintiff's first cause of action for breach of contract. The court dismissed the second cause of action for unjust enrichment on the ground that this matter is governed by the terms of an express contract.

On appeal, plaintiff argues that the term "annual" is ambiguous, and that any ambiguity in an insurance policy must be resolved in favor of the insured. Plaintiff contends that the use of the term "annual" is internally inconsistent with the provision, "no insurance effective until delivery." He asserts that further ambiguity arises from the use of the term "annual premium" to refer to periods of coverage of dissimilar duration. Defendant responds that its policy is clear and unambiguous, that it performed in accordance with the policy provisions and that plaintiff both accepted the policy and ratified its terms.

Because of the obvious disparity in bargaining power between the insured and the insurance company, defendant's contentions concerning acceptance and ratification are uncompelling. The subject policy provides a 20-day examination period [FN1]. However, the only available alternatives are to either accept coverage on the terms extended by the insurer or to return the policy and forgo any coverage at all. In addition, life insurance obtained from a [*9]competitor may well impose the same conditions precedent to the effectiveness of coverage, as the Franco case aptly illustrates. In this regard, the life insurance policy is a classic example of a contract of adhesion (see Henningsen v Bloomfield Motors, 32 NJ 358 [1960]).

Because the insured generally lacks the power to bargain for more favorable contract terms, the insurer is subject to the doctrine of contra proferentem (see Mostow v State Farm Ins. Cos., 88 NY2d 321, 326-327 [1996]). Therefore, to obtain a construction of its policy favorable to its interests, an insurer is required to demonstrate that the interpretation sought to be accorded to the terms of the insurance contract "is the only construction which may fairly be placed on them" (Lachs v Fidelity & Cas. Co., 306 NY 357, 365 [1954]; see Bronx Sav. Bank v Weigandt, 1 NY2d 545, 551 [1956]).

The provisions of an insurance policy are normally construed "by giving the words their plain meaning" (United States Fid. & Guar. Co. v Annunziata, 67 NY2d 229, 233 [1986]), but this is only feasible "if they are clear and unambiguous" (Hartol Prods. Corp. v Prudential Ins Co., 290 NY 44, 47 [1943]). While courts often look to the dictionary to determine the ordinary meaning of a disputed term (see Mazzola v County of Suffolk, 143 AD2d 734, 735 [1988]), that course is unavailing because the word "annual" is itself the source of ambiguity. As pertinent to this dispute, "annual" is subject to two different meanings: the first is "covering the period of a year," as plaintiff proposes, and the second is "occurring or happening every year or once a year," as defendant suggests (Merriam-Webster's Collegiate Dictionary [10th ed]). To illustrate, a corporation produces an annual report; the document covers corporate operations for the year. The corporation also holds an annual meeting; while the meeting occurs once a year, it is not necessarily held on the same date.

The words "annual premium" are certainly amenable to the interpretation advanced by defendant — that is, a sum that although payable once a year, does not necessarily purchase a full year of insurance coverage. However, this is not "the only construction which may fairly be placed on them" (Lachs, 306 NY at 365) so as to render the phrase unambiguous as a matter of law.

The term "annual premium" is widely used in the insurance area, and it has therefore attained the status of a term of art. Where a term has acquired a technical meaning, the technical construction is preferred over the common meaning except when "another intention is established, as where there is a non-technical meaning and one party is a layperson" (Calamari and Perillo, Contracts § 3.13, at 159 [5th ed]).

The problem in resolving the ambiguity issue is one of context. If the term "annual premium" is construed solely with reference to the life insurance policy, then a comparison of four different provisions — those of the policy governing the policy date, premium payment and the table of premiums,[FN2] together with the conditions for effectiveness of coverage contained in [*10]the insurance application — reveal that, in the first year, the period of coverage is less than the full policy year. However, if the operative question is what period of coverage the insured should reasonably expect to receive in return for the payment of an annual premium, the obvious ambiguity arises. The common practice throughout the insurance industry is to calculate premiums on a yearly basis (e.g. Holmes Protection of New York v National Union Fire Ins. Co., 152 AD2d 496 [1989] [one-year period]; Matter of Ideal Mut. Ins. Co., 231 AD2d 59, 62 [1997] [12 months]). Even the subject life insurance contract lists the "current annual premium" for each policy year, and only in the first year does the annual premium afford less than a full year's coverage. Therefore, if one were to ask the hypothetical reasonable person how much insurance coverage will be received in return for payment of an "annual" premium, it would be eminently reasonable to expect the answer to be, "One year."

A party who assigns a narrower interpretation to a commonly understood term bears the burden to prove that the parties accepted that interpretation as controlling (see Frigaliment Importing Co. v B.N.S. Intl. Sales Co., 190 F Supp 116, 121 [SD NY 1960]). Any ambiguity in an insurance policy is construed against the insurer in favor of the interpretation that would be placed upon the term by the average person (Mostow, 88 NY2d at 326-327). As noted by the Court of Appeals in Hartol Prods. Corp. v Prudential Ins. Co. (290 NY at 50):

"insurance contracts, above all others, should be clear and explicit in their terms. They should not be couched in language as to the construction of which lawyers and courts may honestly differ. In a word, they should be so plain and unambiguous that men of average intelligence who invest in these contracts may know and understand their meaning and import" (quoting Janneck v Metropolitan Life Ins. Co., 162 NY 574, 577-578 [1900]).


Defendant's contract offends this general rule of drafting. While defendant places great emphasis on the peculiar terms of its policy defining the coverage afforded in the first year, significantly, it does not go so far as to argue that a reasonable person would expect to receive less than 365 days of insurance coverage in return for the payment of an annual premium. Defendant's indiscriminate use of the term "annual" to describe all premium payments due under the policy is misleading in the absence of a clear explanation that the initial premium payment does not purchase a full year of coverage if the consumer elects to make payment at the time the policy is delivered.
[*11]The use of the term "annual premium" in the subject life insurance policy is consistent with neither its common meaning nor its general use within the insurance industry. Moreover, its peculiar meaning is not readily discernible from a reading of the policy. As stated by the Ohio Court of Appeals in Margulies v Guardian Life Ins. Co. (2003 Ohio 1959 [Ohio Ct App 2003], appeal denied 99 Ohio St 3d 1545, 795 NE2d 683 [2003]), "[r]equiring an insured to read four distinct sections, contained in two separate documents comprising an insurance contract, to gain an understanding of something as basic as the length of the initial coverage term renders this contract ambiguous." Confronted with the similarly convoluted contract language of this policy, plaintiff should be afforded the opportunity to demonstrate that he received materially less under defendant's life insurance policy than he was reasonably given to expect.
Plaintiff, a lawyer, is hardly a paradigm of the typical life insurance policyholder and, therefore, not the best representative of the putative class. However, even holding plaintiff to the standard of contract interpretation expected of an attorney, it still would have been impossible for him to make an informed election between the two available payment methods based on the information available at the time, which was limited to the life insurance application. While the application makes it clear that coverage will not take effect until the policy is delivered and the initial premium paid, it does not disclose that, under this option, the initial premium will apply to a period of time for which no coverage is provided. Only after delivery of the policy (and payment "on or before policy delivery") would it be apparent, to the well-versed reader, that defendant was collecting an unearned premium. Defendant offers no excuse for its failure to make this disclosure in its application.

Finally, defendant does not state any reason why it charged its insured for a period of time when no insurance coverage was provided. The annual premium for the first year is the same premium charged for each succeeding year during the initial 10-year policy term. Plaintiff's policy lists annual premium charges of $1720 for each "policy year" beginning September 2nd. In the first year, however, the policy year encompasses the period prior to effective date of the policy, from the date of issuance on September 2nd to the date of delivery on September 24th.
In the procedural posture of a motion to dismiss directed at the pleadings pursuant to CPLR 3211, "the allegations of a complaint, supplemented by a plaintiff's additional submissions, if any, must be given their most favorable intendment" (Arrington v New York Times Co., 55 NY2d 433, 442 [1982], cert denied 459 US 1146 [1983]; see Dulberg v Mock, l NY2d 54, 56 [1956]). So read, the complaint suggests that the insurer, without economic justification, routinely employed inadequate disclosure, obtuse contract language contained in multiple provisions in two separate writings, the unusual use of a term of art and inequality of bargaining power to exact unearned premiums from its policyholders. Under these circumstances, it is inappropriate to grant summary dismissal to defendant based on the very contract used to accomplish this end.

Plaintiff's cause of action for unjust enrichment was properly dismissed. The general rule, as stated by this Court in Hohenberg Co. v Iwai New York (6 AD2d 575, 578 [1958]), is that "where there is an express contract no recovery can be had on a theory of implied contract." "Without in some manner removing the express contract from the picture in the normal fashion [*12](rescission, abandonment, etc.) it is not possible to ignore it and proceed in quantum meruit" (La Rose v Backer, 11 AD2d 314, 320 [1960], amended 11 AD2d 969 [1960], affd 11 NY2d 760 [1962]). Since this dispute is governed by the terms of a written contract, the cause of action for unjust enrichment is not viable.

Accordingly, the order granting defendant's motion to dismiss the complaint should be modified to reinstate the cause of action for breach of contract.

THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: DECEMBER 28, 2004

CLERK

Footnotes



Footnote 1: A statutory period of at least 30 days is now provided during which the insured may examine the policy and elect to cancel (Insurance Law § 3209[b][1]), eff January 1, 1998 for individual life insurance policies (Insurance Law § 3209[n][1]).

Footnote 2: The insurance policy provides, "The consideration for this Policy is the application and payment of the Total Initial Premium shown in the Schedule on or before delivery." The schedule indicates that the "policy date" is identical to the date of issue, September 2, 1997. The table of premiums states, "The current Annual Premium is that premium which the Company anticipates will be payable on the date shown." The table lists the "Current Annual Premium" for each "Policy Yr Beginning SEPTEMBER 2." The section entitled "Policy Date" recites, "Policy anniversaries, policy years, policy months and Premium Due Dates are measured from the Policy Date. The first policy year begins on the Policy Date."

 

 

 

 

 

 

 

 

Kimberly Toulson v. Young Han Pae






Cheven, Keely & Hatzis, Esqs., New York (William B. Stock of
counsel), for appellants.
Michael D. Hassin, Rockville Centre (Randall A. Sorscher of
counsel), for respondents.

Order, Supreme Court, Bronx County (Dianne T. Renwick, J.), entered January 29, 2004, which denied defendants' motion for summary judgment dismissing the complaint for failure to meet the serious injury threshold requirement of Insurance Law § 5102(d), unanimously reversed, on the law, without costs or disbursements, and the motion granted. The Clerk is directed to enter judgment in favor of defendants dismissing the complaint.

This personal injury action arises out of a December 15, 2000 automobile accident. Plaintiff Toulson, the operator of a motor vehicle, and her passengers, plaintiffs Wade and Hicks, were rear-ended by a vehicle owned and operated by defendants. The only issue before us on appeal is whether each of the plaintiffs has made a sufficient showing of sustaining a serious injury. All three plaintiffs were seen a few days after the accident in the office of Superior Medical Services and, after examination, were found to have range-of-motion restrictions. According to their proofs, Toulson sustained disc herniations at C5-6 and L4-5 and disc bulges at C6-7 and L3-4, with accompanying neurological sequelae and restriction of motion. Wade sustained disc herniations at C4-5, C5-6 and L5-S1 with disc bulges at C3-4, L3-4 and L4-5 and accompanying neurological sequelae in the cervical and lumbar spine and extremities. Hicks sustained disc bulges from L2-3 through L5-S1 with neurological sequelae and grade II "signal" in the posterior horn of the right medial meniscus, along with patellar chondromalacia.

In support of their motion for summary judgment dismissing the complaint, defendants annexed affirmations from their examining orthopedist and neurologist, as well as an affirmation from a radiologist who reviewed MRI films of Toulson and Hicks. Dr. Weiss, an orthopedist, examined each of the plaintiffs on behalf of defendants, reviewed their medical records and conducted an orthopedic examination. In Toulson's case, she claimed injury to her neck, back, right shoulder and left leg and the loss of two days of work. After testing her range of motion of neck and head by observing her mobility in extension and forward flexion as well as right and left lateral bending and rotation, Dr. Weiss found no restriction of motion or accompanying discomfort. In the case of Hicks, who claimed to have lost a day or two of work and complained of pain in the right knee that hurts "everyday," Weiss found a full range of motion of the right knee and straight leg raising that could be easily carried out to 90º without discomfort. Each plaintiff was diagnosed with sprains from which he or she had recovered. On a review of [*2]Toulson's cervical and lumbar spine MRIs, the radiologist confirmed a small disc herniation at C5-6 without impingement. The disc's desiccation, however, suggested that it was of degenerative origin. As to Hicks, the radiologist's findings were normal.

In opposition, plaintiffs submitted the affidavits of a specialist in the field of physical and rehabilitation medicine, Dr. Bash, of Superior Medical Services, as well as a letter report and affidavits from a radiologist attesting to the injuries, as noted. Supreme Court, in denying the motion, found that all three plaintiffs raised triable issues of fact. We reverse.

Plaintiffs' submissions with respect to their claims of spinal range-of-motion limitations suffer from the lack of any contemporaneous qualitative evidence of such restriction. Although each plaintiff was seen and examined a few days after the accident by a physician at Superior Medical Services and found to have range-of-motion restrictions, nowhere in Dr. Bash's affidavits is there any quantification of those limitations. Dr. Bash's affidavit speaks of a range-of-motion limitation for Toulson in the context of her July 24, 2003 consultation, 2½ years after the accident. The first quantification by Dr. Bash of a range-of-motion limitation for Wade's lumbar and cervical spine comes from an examination by Dr. Morgenstern of Dr. Bash's office on May 7, 2001, six months after the accident. The same occurred with respect to Hicks. These results, based on unattached and unsworn reports, are hearsay. Given the absence of admissible contemporaneous evidence of a serious injury, plaintiffs' proof is insufficient to show a serious injury (see Pommells v Perez, 4 AD3d 101 [2004]). In this connection, we also note that a finding of bulging and herniated discs, by itself, does not establish a prima facie case of serious injury (Noble v Ackerman, 252 AD2d 392, 394 [1998]).

Moreover, Superior Medical Services' testing and treatment of plaintiffs terminated in mid-2001. None of the plaintiffs was again seen at that office until July 24, 2003, after the instant motion for summary judgment was brought, when all three were examined. This two-year gap in treatment, nowhere explained or justified, is a factor that goes well beyond the question of the weight of the evidence and further supports dismissal of the complaint.

THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: DECEMBER 28, 2004

CLERK

Halmar Builders of New York, Inc. v. Team Star Contractors, Inc.






McDonnell Adels & Goodstein, P.C. (Anita Nissan Yehuda, Roslyn
Heights, N.Y., of counsel), for appellant.
Malapero & Prisco, LLP, New York, N.Y. (Joseph J. Prisco of
counsel), for respondents.

In an action, inter alia, for a judgment declaring that the defendant All City Insurance Company has a duty to defend and indemnify the plaintiffs in an underlying action to recover damages for property damage, the defendant All City Insurance Company appeals, as limited by its brief, from so much of an order of the Supreme Court, Queens County (Taylor, J.), dated August 13, 2002, as denied that branch of its motion which was for summary judgment.

ORDERED that the order is reversed insofar as appealed from, on the law, with costs, that branch of the motion of the defendant All City Insurance Company which was for summary judgment is granted and the matter is remitted to the Supreme Court, Queens County, for the entry of a judgment, inter alia, declaring that the defendant All City Insurance Company does not have a duty to defend and indemnify the plaintiffs in the underlying action.

The defendant All City Insurance Company (hereinafter All City) established prima facie entitlement to judgment as a matter of law by submitting the affidavit of Hector L. Tirado, Underwriting Director of the Mid-Market Division of Empire Insurance Company, its holding company, stating that the insurance policy on which the plaintiff Halmar Builders of New York, Inc. [*2](hereinafter Halmar), was listed as an additional insured had been canceled before the date of the alleged loss. All City also submitted a cancellation request to this effect, as well as the subsequent policy, which did not list Halmar as an additional insured (see generally Zuckerman v City of New York, 49 NY2d 557, 562).

In opposition, the plaintiffs relied on a certificate of insurance, which listed All City as an insurer of Halmar under a different policy number. The certificate of insurance stated: "THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER." Such a certificate was insufficient to raise an issue of fact as to the existence of the alleged insurance coverage (see Trapani v 10 Arial Way Assoc., 301 AD2d 644, 647; American Ref-Fuel Co. of Hempstead v Resource Recycling, 248 AD2d 420, 423). Therefore, that branch of All City's motion which was for summary judgment should have been granted.

The parties' remaining contentions either are unpreserved for appellate review or without merit.

Kleynshvag v. GAN Insurance Company, d/b/a Western Continental Insurance Company
 

In an action pursuant to Insurance Law § 3420(a)(2) to recover an unsatisfied judgment against the defendant's insured, the plaintiff appeals, as limited by his brief, from so much of an order of the Supreme Court, Kings County (Belen, J.), dated September 30, 2003, as, upon a decision of the same court dated September 9, 2003, granted his motion for summary judgment to the extent of awarding him the principal sum of only $25,000, and the defendant cross-appeals from the same order, which granted the plaintiff's motion for summary judgment and awarded the plaintiff the principal sum of $25,000, and denied its cross motion for summary judgment dismissing the complaint.

ORDERED that the order is modified, on the law, by deleting the provision thereof awarding the plaintiff the principal sum of $25,000, and substituting therefor a provision awarding the plaintiff the principal sum of $125,000; as so modified, the order is affirmed insofar as appealed and cross-appealed from, with costs to the plaintiff.

The plaintiff, while driving his own vehicle, was struck by a vehicle driven by Emad S. Abdelmonen and owned by Samir Abdelminen. Although it was joined as a party respondent to a subsequent proceeding brought to stay the plaintiff's arbitration of a claim for uninsured motorist benefits, the defendant GAN Insurance Company, d/b/a Western Continental Insurance Company (hereinafter GAN), did not appear in the framed-issue hearing that was held in that proceeding. By [*2]order and judgment dated May 7, 1997, which was served upon GAN on May 23, 1997, the Supreme Court, Nassau County (Trainor, R.), noted that GAN had notice of the proceeding, and permanently stayed the arbitration on the ground that GAN insured the offending vehicle.

In January 1998 the plaintiff commenced an action against Samir Abdelminen (hereinafter Samir) and Emad S. Abdelmonen (hereinafter Emad) in the Supreme Court, Kings County, to recover damages for his personal injuries. The record shows that GAN refused to accept service of the summons and complaint; GAN claimed that it did not insure either Samir or Emad.

Ultimately, the complaint was dismissed insofar as asserted against Samir for reasons that do not appear in the record. By order dated November 23, 1998, the Supreme Court, Kings County (Belen, J.), granted the plaintiff's motion for leave to enter a judgment against Emad upon his default. An inquest on damages was held on December 7, 2001. Emad did not appear, and by judgment entered February 13, 2002, the Supreme Court awarded the plaintiff the principal sum of $125,000. On February 19, 2002, the judgment was served with notice of entry on, among others, Samir, Emad, and GAN. On April 5, 2002, a second copy of the judgment with notice of entry was served upon GAN.

On May 13, 2002, the plaintiff commenced this action against GAN to recover the amount of the still-unsatisfied judgment pursuant to Insurance Law § 3420(a)(2). GAN answered the complaint and asserted as an affirmative defense, inter alia, that this action was "barred" because it did not issue an insurance policy covering the "accident." Following joinder of issue, the parties moved and cross-moved for summary judgment. The plaintiff argued that GAN knew about the underlying action to recover damages for personal injuries and chose not to participate in it. Further, GAN was served with the ensuing default judgment, which had remained unsatisfied for over 30 days. In support of its cross motion, GAN argued, inter alia, that it did not issue an insurance policy covering Samir or Emad; however, the GAN officer who submitted a supporting affidavit conceded that GAN's record search was done by name, reverse name, and address. He conceded that GAN's records were not maintained in a fashion that would allow a search by vehicle identification number or state registration number.

While the summary judgment motion and cross motion were pending in this action, GAN moved in the Supreme Court, Nassau County - over five years later - to vacate the May 7, 1997, order and judgment entered in the proceeding to stay the arbitration for uninsured motorist benefits. By order dated October 3, 2002, the Supreme Court denied the motion.

In this action, the Supreme Court granted the plaintiff's motion for summary judgment, and denied GAN's cross motion for summary judgment dismissing the complaint. However, although the principal amount of the judgment in the underlying personal injury action was $125,000, the Supreme Court limited GAN's liability to $25,000. In its memorandum decision, the Supreme Court explained that it was "constrained" by the earlier proceedings in the Supreme Court, Nassau County, to find there was a GAN insurance policy covering the offending vehicle in effect at the relevant time. Nevertheless, at the same time, the Supreme Court was faced with the task of "ascertain[ing] the terms of a policy which, in fact, does not appear to exist." Accordingly, the Supreme Court limited GAN's liability to the statutory minimum automobile liability policy limit set forth in Vehicle and Traffic Law § 311(4)(a) which, as noted above, was $25,000. The parties now appeal and cross-appeal from the Supreme Court's order. We modify the order to increase the principal amount of the award to the plaintiff to $125,000, the full amount of the underlying [*3]judgment he obtained in his action to recover damages for personal injuries.

Insurance Law § 3420(a)(2) permits the holder of an unsatisfied judgment in an action to recover damages for personal injuries against an insured to maintain an action against the latter's insurer to collect the judgment. Such an action is permitted following a 30-day waiting period after service upon the insurer of notice of entry of the judgment, assuming the insurer does not satisfy the judgment in the interim. The statute permits the injured party to collect "under the terms of the [insurance] policy" for the amount of the judgment. However, the recovery may not exceed the applicable policy limit.

Here, the plaintiff made a prima facie showing of entitlement to judgment as a matter of law under Insurance Law § 3420(a)(2) (see Alvarez v Prospect Hosp., 68 NY2d 320). He proved the existence of the judgment in his underlying action to recover damages for personal injuries (see Lang v Hanover Ins. Co., NY3d [Nov. 18, 2004]). He also "establish[ed] that, at the time of the accident, there was in full force and effect an agreement of insurance between the insurer and the judgment debtor covering the latter for the liability merged in the judgment" (Holmes v Allstate Ins. Co., 33 AD2d 96, 98). The plaintiff established the latter element of his claim by showing that GAN was made a party respondent to the proceeding brought to stay the arbitration for uninsured motorist benefits, and knowingly chose not to participate therein. As a result, the Supreme Court, Nassau County, determined, upon GAN's default, that GAN insured the offending vehicle. Further, GAN chose not to seek to vacate that default for some five years, and evidently only after it was faced with the instant action. The latter motion was denied, and the resulting order was not appealed. Accordingly, under the circumstances of this case, we conclude that GAN is collaterally estopped from litigating the issue of coverage, even though that issue was initially determined on its default in the arbitration (see Chai Props. Corp. v Carb, Luria, Glassner, Cook & Kufeld, 288 AD2d 44; Harris v Stein, 207 AD2d 382). In doing so, we perceive no unfairness to GAN, in light of the procedural course, outlined above, that it knowingly followed.

In any event, we note that GAN admitted that its records were not maintained in such a way as would permit a search by vehicle identification or state registration number. Thus, in opposition to the plaintiff's prima facie showing of entitlement to judgment as a matter of law, GAN failed to raise a triable issue of fact. Accordingly, the plaintiff was properly awarded summary judgment.

There remains the issue of the plaintiff's damages. We conclude that the plaintiff's recovery should not have been limited to the statutory minimum of $25,000, but instead should have been allowed to the full extent of the judgment in the underlying action to recover damages for personal injuries. First, having ignored every step in the judicial processes leading to this action, one which may have been unnecessary had GAN chosen to participate earlier, GAN should not be heard to complain now that it is called upon to satisfy a judgment that was entered following its calculated decision to ignore the earlier stages of the plaintiff's claim. It was GAN's burden to prove any limitation on the plaintiff's right to recover. In an analogous context, where an insurer seeks to avoid liability to the injured party altogether by claiming that the insured failed to cooperate with the insurer in violation of a policy provision, the Insurance Law explicitly places the burden upon the insurer to prove the alleged failure or refusal to cooperate (see Insurance Law § 3420[c]). As the Court of Appeals has observed, this defense "penalizes the plaintiff for the action of the insured over [which] he has no control, and . . . the defense frustrates the policy of this State that innocent victims [*4]of motor vehicle accidents be recompensed for the injuries inflicted upon them" (Thrasher v United States Liab. Ins. Co., 19 NY2d 159, 168). Since a limitation on an insurer's liability similarly may frustrate the policy of this State that victims of motor vehicle accidents receive compensation for their injuries, we conclude that GAN carries the burden of proving the limit of the relevant coverage. GAN argues that it did not issue an insurance policy at all; thus, any liability on its part arose by operation of law, and should be limited to the statutory minimum in effect at the time of the accident, which it argues was $10,000. However, GAN never demonstrated that it did not issue a policy. As noted, its record search was limited to one by name and address. It admitted that its records were not kept in such a way as would permit a search by vehicle identification or state registration number. In sum, GAN did not carry its burden of showing that its liability should be limited to any amount less than the full amount of the plaintiff's judgment.

 

 

Kemal Ilgar Peker v Allstate Insurance Company






Bruno, Gerbino & Soriano, LLP, Melville, N.Y. (Charles W.
Benton of counsel), for appellant.
Feldman, Kramer & Monaco, P.C., Hauppauge, N.Y. (William
J. Monaco of counsel), for
respondents.

In an action, inter alia, to recover on an automobile insurance policy, the defendant appeals (1), as limited by its brief, from so much of an order of the Supreme Court, Suffolk County (Lifson, J.), dated March 12, 2003, as denied that branch of its motion which was for summary judgment dismissing the first cause of action and granted that branch of the plaintiffs' cross motion which was for summary judgment on that cause of action, and (2) from a judgment of the same court entered June 5, 2003, which, upon the order, is in favor of the plaintiffs and against it in the principal sum of $15,000.

ORDERED that the appeal from the order is dismissed; and it is further,

ORDERED that the judgment is modified, on the law, by deleting the provision thereof in favor of the plaintiffs and against the defendant in the principal sum of $15,000, and substituting therefor a provision in favor of the plaintiff Kemal Ilgar Peker and against the defendant in the principal sum of $15,000; as so modified, the judgment is affirmed, with costs to the plaintiff Kemal Ilgar Peker, that branch of the defendant's motion which was for summary judgment dismissing the first cause of action insofar as asserted by the plaintiff Dawn Peker is granted, that branch of the plaintiffs' cross motion which was for summary judgment on the first cause of action insofar as asserted by the plaintiff Dawn Peker is denied, and the order is modified accordingly. [*2]
The appeal from the intermediate order must be dismissed because the right of direct appeal therefrom terminated with the entry of judgment in the action (see Matter of Aho, 39 NY2d 241, 248). The issues raised on appeal from the order are brought up for review and have been considered on the appeal from the judgment (see CPLR 5501[a][1]).

The defendant issued an insurance policy to the plaintiff Dawn Peker (hereinafter the wife), inter alia, for a 1990 Infiniti that was registered and owned by her husband, the plaintiff Kemal Ilgar Peker (hereinafter the husband). The 1990 Infiniti was listed on the policy declaration page, and the husband was also listed on such page as a driver. The policy defined an insured person, inter alia, as:

(1) [w]hile using your insured auto:

(a) you,

(b) any resident, and

(c) any other person using it with your permission.

An insured auto was defined, inter alia, as "any auto described on the declarations page."
In August 1996, the Infiniti was stolen and the husband filed a claim with the defendant. The defendant forwarded a written disclaimer to the wife maintaining that she did not have an insurable interest in the subject vehicle. Further, the defendant argued, inter alia, that the husband did not have standing to commence this action since there was no privity of contract between him and the defendant.

Insurance Law § 3401 defines an "insurable interest" as "any lawful and substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary damage."

The defendant established its prima facie entitlement to summary judgment dismissing the first cause of action insofar as asserted by the wife. The wife did not have an insurable interest, as she did not own or possess the insured vehicle (see Silberman v Royal Ins. Co., 184 AD2d 562). The plaintiffs failed to raise a triable issue of fact as to the wife. Therefore, the Supreme Court incorrectly denied that branch of the defendant's motion which was for summary judgment dismissing the first cause of action insofar as asserted by the wife, and incorrectly granted that branch of the plaintiffs' cross motion which was for summary judgment on the first cause of action insofar as asserted by the wife.

However, the Supreme Court correctly denied that branch of the defendant's motion which was for summary judgment dismissing the first cause of action insofar as asserted by the husband, and correctly granted that branch the plaintiffs' cross motion which was for summary judgment on the first cause of action insofar as asserted by the husband. The defendant failed to establish its prima facie entitlement to summary judgment dismissing the first cause of action insofar as asserted by the husband since the husband was an insured person under the terms of the subject policy. The 1990 Infiniti was an "insured auto," within the meaning of the policy, as it was listed on the declaration page. Further, the husband paid insurance premiums, was listed on the declarations page as a driver, and used the vehicle with the wife's permission. [*3]

The defendant cites for the first time a separate provision under the policy in support of its argument that the husband is not covered under the terms of the policy. However, this argument is not properly before this court, as the defendant failed to raise such policy provision before the Supreme Court (see Miller v Village of Wappinger Falls, 289 AD2d 209, 210).

The parties' remaining contentions either are academic or without merit.
H. MILLER, J.P., GOLDSTEIN, COZIER and MASTRO, JJ., concur.

ENTER:

James Edward Pelzer

Clerk of the Court

Pepsico, Inc v Winterthur International America Insurance Company


Mound Cotton Wollan & Greengrass, New York, N.Y. (John
Mezzacappa and William C. Kolb of counsel), for appellant-
respondent.
Jones Day, New York, N.Y. (J.W. Montgomery III, pro hac
vice, Thomas H. Sear, and Dawn E.
McFadden of counsel), for
respondents-appellants.

In an action, inter alia, to recover damages for breach of contract, the defendant Winterthur International America Insurance Company appeals from so much of an order of the Supreme Court, Westchester County (Rudolph, J.), entered October 29, 2003, as denied its motion for summary judgment dismissing the first cause of action, and the plaintiffs cross-appeal from so much of the same order as denied their cross motion for summary judgment dismissing the third and sixth affirmative defenses of the defendant Winterthur International America Insurance Company.

ORDERED that the order is modified, on the law, by deleting the provision thereof denying that branch of the cross motion which was for summary judgment dismissing the third affirmative defense and substituting therefor a provision granting that branch of the cross motion; as so modified, the order is affirmed insofar as appealed and cross-appealed from, with one bill of costs to the plaintiffs payable by the defendant Winterthur International America Insurance Company.

The plaintiffs Pepsico, Inc., Pepsi Bottling Group, Inc., and Frito Lay, Inc. (hereinafter collectively Pepsico), purchased an all-risk first-party property insurance policy from the defendant Winterthur International America Insurance Company (hereinafter Winterthur). During the policy period, Pepsico experienced a series of losses in connection with two of its soft [*2]drink products, Mountain Dew and Diet Pepsi, when Pepsico used faulty raw ingredients supplied by third-party suppliers. In each instance, the faulty ingredients resulted in the finished product having an off-taste. While not harmful to customers, the off-taste rendered the products unmerchantable and necessitated their destruction, resulting in alleged catastrophic losses to Pepsico. Winterthur disclaimed coverage, inter alia, on the basis of the "seepage and/or pollution and/or contamination" exclusion contained in the policy, claiming that this provision applied to product contamination based on the plain meaning of the word "contaminate," which is to make inferior or impure by mixture.

An insurance policy should be read "in light of 'common speech' and the reasonable expectations of a businessperson" (Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377, 383; see MDW Enters. v CNA Ins. Co., 4 AD3d 338). Moreover, to "'negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case'" (Belt Painting Corp. v TIG Ins. Co., supra at 383, quoting Continental Cas. Co. v Rapid-Am. Corp., 80 NY2d 640,652; see MDW Enters. v CNA Ins. Co., supra; Village Mall at Hillcrest Condominium v Merrimack Mut. Fire Ins. Co., 309 AD2d 857). The burden, a heavy one, is on the insurer (see Continental Cas. Co. v Rapid-Am. Corp., supra at 654), and "[i]f the language of the policy is doubtful or uncertain in its meaning, any ambiguity must be resolved in favor of the insured and against the insurer" (Westview Assocs. v Guaranty Natl. Ins. Co., 95 NY2d 334, 340; see Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 311; Village Mall at Hillcrest Condominium v Merrimack Mut. Fire Ins. Co., supra).

We agree with the Supreme Court that the "Seepage and/or Pollution and/or Contamination Exclusion" in this policy, which provides that "[e]xcept as provided for in Section VII, clauses 7. and 8., this policy does not insure against loss, damage, costs or expenses in connection with any kind or description of seepage and/or pollution and/or contamination, direct or indirect, arising from any cause whatsoever," does not apply to exclude the alleged losses claimed by Pepsico, which are non-environmental in nature (see Belt Painting Corp. v TIG Ins. Co., supra; Westview Assocs. v Guaranty Natl. Ins. Co., supra; Continental Cas. Co. v Rapid-Am. Corp., supra; Roofers' Joint Training, Apprentice and Educ. Comm. of W. N.Y., 275 AD2d 90; Cepeda v Varveris, 234 AD2d 497; GA Ins. Co. of N.Y. v Naimberg Realty Assocs., 233 AD2d 363; see also Enron Oil Trading & Transp. Co. v Walbrook Ins. Co., Ltd., 132 F3d 526; Stoney Run Co. v Prudential-LMI Commercial Ins. Co., 47 F3d 34). To accept Winterthur's interpretation would require that the term "contamination" be read literally, whereas New York courts, in construing terms in pollution exclusions, favor a common-sense approach over a literal approach (see Westview Assocs. v Guaranty Natl. Ins. Co., supra; Belt Painting Corp. v TIG Ins. Co., 293 AD2d 206, 209, affd 100 NY2d 377). Winterthur's reading also ignores the general purpose of pollution exclusions, which is to exclude coverage for environmental pollution (see Belt Painting Corp. v TIG Ins. Co., supra at 384; Roofers' Joint Training, Apprentice and Educ. Comm. of W. N.Y., supra at 92; Stoney Run Co. v Prudential-LMI Commercial Ins. Co., supra at 37).

Furthermore, provisions in the policy speak of decontamination and debris removal in the context of removing pollutants from the land and water. Such language, and the references to governmental fines, unmistakably is directed to environmental pollution, and not product contamination. At best, there being more than one reasonable interpretation to the meaning of the term "contamination," the exclusion is ambiguous. Since it is ambiguous, the exclusion must be construed in favor of the insured (see Westview Assocs. v Guaranty Natl. Ins. Co., supra; [*3]Continental Cas. Co. v Rapid-Am. Corp., supra at 654; Seaboard Sur. Co. v Gillette Co., supra; Village Mall at Hillcrest Condominium v Merrimack Mut. Fire Ins. Co., supra; Roofers' Joint Training, Apprentice and Educ. Comm. of W. N.Y., supra). To accept Winterthur's reading would also contradict the "common speech" and "reasonable expectations of a businessperson" who has come to understand standard pollution exclusions as exclusions addressing environmental-type harms (see Belt Painting Corp. v TIG Ins. Co., supra).

Accordingly, the Supreme Court properly denied Winterthur's motion for summary judgment. The Supreme Court should, however, have granted that branch of Pepsico's cross motion which sought the dismissal of the sixth affirmative defense which pleaded the "seepage and/or pollution and/or contamination" exclusion.

The parties' remaining contentions are without merit.
SANTUCCI, J.P., H. MILLER, SPOLZINO and SKELOS, JJ., concur.

ENTER:

James Edward Pelzer

Clerk of the Court

 

In the Matter of Allstate Insurance Company v Russell


In a proceeding pursuant to CPLR article 75 to permanently stay arbitration of a claim for uninsured motorist benefits, the petitioner appeals from an order of the Supreme Court, Queens County (Thomas, J.), dated September 19, 2003, which denied the petition.

ORDERED that the order is reversed on the law, with costs, the petition is granted, and the arbitration is permanently stayed.

On May 21, 2000, the respondent Keon Russell was driving a car insured by the petitioner Allstate Insurance Company (hereinafter Allstate) and was involved in an accident with an allegedly uninsured vehicle. Allstate's insurance policy provided, inter alia, supplemental uninsured/underinsured motorist coverage (hereinafter SUM coverage) with policy limits of $25,000 per person, and $50,000 per occurrence.

By certified mail dated June 16, 2000, Russell notified Allstate that he intended to make a claim under the SUM provision of the policy. He subsequently served Allstate with a Demand for Arbitration dated April 30, 2002. The record does not contain copies of any other communication, correspondence or otherwise, between Allstate and Russell from June 2000 through [*2]April 30, 2002. However, sometime before April 30, 2002, Allstate exhausted the SUM limits of the policy in question by paying out the entire amount of the policy limits to two other individuals who were in the vehicle driven by Russell and who were also injured in the accident.

Thereafter, Allstate initiated this proceeding to permanently stay the arbitration on the ground that it had exhausted its policy limits. The Supreme Court denied the petition, determining that to avoid awards in excess of the policy, Allstate was required to consolidate the claims. This was error.

As long as it does not act in bad faith, an insurer has no duty to pay out claims ratably and/or consolidate them. Allstate demonstrated its entitlement to the relief requested by showing that it had exhausted its policy limits under the SUM provision of the relevant insurance policy by payments to two other injured passengers. Since the respondent failed to show, or even allege, that Allstate acted in bad faith, Allstate was entitled to a stay of the arbitration (see Levit v Allstate Ins. Co., 9 AD3d 417; Duprey v Security Mut. Cas. Co., 22 AD2d 544; see also STV Group v American Cont. Props., 234 AD2d 50; cf. Matter of Aetna Cas. and Sur. Co. v Cebularz, 191 AD2d 690; Matter of Belizaire v Aetna Cas. and Sur. Co., 171 Misc 2d 473).

The respondent's remaining contentions are improperly raised for the first time on appeal.
FLORIO, J.P., ADAMS, COZIER and MASTRO, JJ., concur.

ENTER:

James Edward Pelzer

In the Matter of Liberty Mutual Insurance Company v. Doherty and Melton


Troy & Troy, Lake Ronkonkoma, N.Y. (Patrick J. Morganelli of
counsel), for petitioner-appellant and Michele A. Vitali, East
Elmhurst, N.Y. (Michael A. Zarkower and John C. Buratti of counsel),
for proposed additional respondents-appellants (one brief filed).
Scott Baron & Associates, P.C., Howard Beach, N.Y. (Stephen
Orsetti and Thomas G. Panettiere of
counsel), for respondent.

In a proceeding pursuant to CPLR article 75 to permanently stay arbitration of a claim for underinsured motorist benefits, Liberty Mutual Insurance Company appeals, and Robert S. Melton and Progressive Northern Insurance Company, s/h/a Progressive Casualty Company, also appeals, from an order of the Supreme Court, Queens County (Hart, J.), dated February 13, 2004, which denied the petition and dismissed the proceeding.

ORDERED that the order is affirmed, with one bill of costs.

Contrary to the appellants' contention, the underinsured motorist benefits provision of the petitioner's policy was triggered when the petitioner's insured exhausted, through a settlement, the bodily injury policy limits under the policy of the offending vehicle, which was less than the liability coverage provided under the petitioner's policy (see Insurance Law § 3420[f][2]; S'Dao v National Grange Mut. Ins. Co., 87 NY2d 853). The petitioner's insured was not also required to exhaust the liability coverage limits under a separate policy for the operator of the offending vehicle prior to pursuing a claim for underinsured motorist benefits (see S'Dao v National Grange Mut. Ins. [*2]Co., supra; Matter of Polesky v GEICO Ins. Co., 241 AD2d 551, 552). Accordingly, the Supreme Court properly denied the petition to permanently stay arbitration of the subject underinsured motorist benefits claim and dismissed the proceeding.

The appellants' remaining contention is without merit.
FLORIO, J.P., ADAMS, COZIER and MASTRO, JJ., concur.

ENTER:

James Edward Pelzer

Clerk of the Court

 

 

 

 

 

AMY L. BRUCE v. MILLERS MUTUAL INSURANCE COMPANY,

 

 

Appeal from a judgment (denominated order) of the Supreme Court, Lewis County (Joseph D. McGuire, J.), entered January 9, 2004 in a declaratory judgment action. The judgment granted plaintiff’s motion for summary judgment and declared that Travis Niles is a resident of

defendant Sharon A. Niles’ home for insurance purposes.

 

It is hereby ORDERED that the judgment so appealed from be and the same hereby is  unanimously modified on the law by granting the cross motion in part and dismissing the complaint against defendants Carl J. Niles and Sharon A. Niles and as modified the judgment is

affirmed without costs.

 

Memorandum: Plaintiff commenced this declaratory judgment action following an automobile accident between two vehicles, one operated by plaintiff and the other by Travis Niles. Supreme Court properly granted the motion of plaintiff for summary judgment declaring that Travis Niles is a resident of defendant Sharon A. Niles’ home under the terms of the insurance policy that Sharon Niles had with defendant Michigan Millers Mutual Insurance Company. Although at the time of the accident Travis Niles was serving in the United States Army and stationed at Fort Drum, his driver’s license listed his residence as Peterboro Road (the address of Sharon Niles), he possessed keys to that residence, he visited the residence while on military leave, he had mail sent to the residence while at Fort Drum and continued to use the address for mailing purposes, and he could identify no other address as his “residence” (see New York Cent. Mut. Fire Ins. Co. v Peckey, 298 AD2d 970, 971, lv denied 99 NY2d 505).

 

The court erred, however, in failing to address that part of defendants’ cross motion seeking summary judgment dismissing the complaint against defendants Sharon Niles and Carl J. Niles. The record establishes that the declaratory relief sought in this action is inappropriate with respect to those defendants, and plaintiff takes no position on that issue. We therefore modify the judgment by granting that part of the cross motion seeking dismissal of the complaint against those defendants, and we otherwise affirm.

 

 

 

 

 

Fahrenholz v. Security Mutual Insurance 




Appeals from an order of the Supreme Court, Erie County (Eugene M. Fahey, J.), entered October 24, 2003. The order granted that part of defendants' motions for summary judgment dismissing the complaint with respect to the first $45,000 of plaintiff's claim.



It is hereby ORDERED that the order so appealed from be and the same hereby is unanimously reversed on the law without costs and the motions are denied in their entirety.

Memorandum: In March 1999, fire destroyed a commercial rental property owned by plaintiff and insured under a policy issued by defendant Security Mutual Insurance Company (Security Mutual) through its agent, defendant The Kreiner Company, Inc. (Kreiner). Shortly after the fire, plaintiff retained National Fire Adjustment Company, Inc. (NFA) to represent him in negotiating a settlement of his claim under the policy. Plaintiff and Security Mutual were unable to reach an agreement on the amount of the loss, and plaintiff commenced this action in May 2000 alleging, inter alia, breach of contract. In August 2000 and October 2001, while the action was pending, NFA made loans totaling $45,000 to plaintiff on condition that plaintiff provide NFA with an assignment of insurance proceeds in that amount. NFA agreed that, if plaintiff's loss was settled for less than $45,000, the difference between the settlement amount and the loan amount would be forgiven.

Supreme Court erred in granting that part of the motions of Security Mutual and Kreiner [*2]seeking summary judgment dismissing the complaint with respect to the first $45,000 of plaintiff's claim on the ground that the transaction between plaintiff and NFA violates Judiciary Law § 489 (1). That section, which codifies the ancient doctrine of champerty, prohibits anyone engaged in the adjustment of claims and any corporation from "buy[ing] or tak[ing] an assignment of ... any claim ... with the intent and for the purpose of bringing an action or proceeding thereon." Here, the loans were made after the action was commenced and pending, and thus were not made "with the intent and for the purpose of bringing an action" (id.; see Wetmore v Hegeman, 88 NY 69, 73; Rosenkrantz v Berlin, 65 Misc 2d 320, 321; Sygma Photo News v Globe Intl., 616 F Supp 1153, 1157; see also Bellarno Intl. v Irving Trust Co., 165 AD2d 809; Coopers & Lybrand v Levitt, 52 AD2d 493, 498). Further, plaintiff did not assign his claim against defendants to NFA, but merely assigned to NFA an interest in the proceeds of the policy (see generally Williams v Ingersoll, 89 NY 508; Sierra v Garcia, 168 AD2d 277, 278; Grossman v Schlosser, 19 AD2d 893). In addition, plaintiff did not cede control of the litigation to NFA or add any further claims against defendants following the loan transactions (cf. Richbell Info. Servs. v Jupiter Partners, 280 AD2d 208, 211-214; Ehrlich v Rebco Ins. Exch., 225 AD2d 75, 77-78, lv dismissed 89 NY2d 1029). We therefore conclude that the loans made by NFA to plaintiff did not violate Judiciary Law § 489. We reject the contention of defendants that they are entitled to summary judgment on the alternative ground that the conduct of NFA constitutes the unauthorized practice of law by a corporation (see § 495).

Finally, the court properly denied Security Mutual's cross motion to disqualify and remove Duke, Holzman, Yaeger & Photiadis LLP as counsel for plaintiff based upon an alleged conflict of interest between plaintiff and NFA (see Bison Plumbing City v Benderson, 281 AD2d 955).
Entered: December 30, 2004
JoAnn M. Wahl
Clerk of the Court

In Re State Farm Insurance and Celebucki

 

MEMORANDUM AND ORDER



Mercure, J.P.

Appeal from an order of the Supreme Court (Reilly Jr., J.), entered December 5, 2003 in Schenectady County, which granted petitioner's application pursuant to CPLR 7503 to stay arbitration between the parties.

After allegedly sustaining injuries in a May 1998 automobile accident, respondent Geraldine Celebucki filed a claim for no-fault insurance benefits with petitioner in July 1998. Celebucki thereafter notified petitioner of her intent to file an additional claim for supplementary underinsured motorist (hereinafter SUM) coverage pursuant to the terms of her existing automobile insurance policy with petitioner. In February 2002, petitioner disclaimed coverage of the SUM claim on the ground that Celebucki had failed to notify it of her intent to seek such benefits until November 2001, approximately 3½ years after the date of the accident. Contending that petitioner had actually received such notice in August 1998, respondents filed a demand for arbitration. Supreme Court granted petitioner's subsequent CPLR 7503 petition to permanently stay arbitration, prompting this appeal.

We affirm. In our view, Supreme Court properly held that Celebucki failed to provide petitioner with notice of her SUM claim "[a]s soon as practicable," a requirement of her SUM [*2]policy (see generally Matter of Metropolitan Prop. & Cas. Ins. Co. v Mancuso, 93 NY2d 487 [1999]). Although respondents contend that such notice was provided by letter from respondents' counsel in August 1998, petitioner presented the affidavits of a claims representative who stated that no such letter was located in Celebucki's file. Indeed, there is no evidence in the record, apart from the unsubstantiated assertion of respondents' counsel that he "did cause to execute and forward" said letter, to validate respondents' claim. Notably, respondents failed to offer any proof of regular mailing procedures and office practices "geared to ensure the proper addressing or mailing of this letter," thus entitling them to a rebuttable presumption of receipt by petitioner (Matter of Phoenix Ins. Co. v Tasch, 306 AD2d 288, 288 [2003]; see Nassau Ins. Co. v Murray, 46 NY2d 829, 829-830 [1978]). Accordingly, we agree with Supreme Court that timely written notice of the SUM claim was never provided and arbitration was properly stayed.

Spain, Mugglin, Lahtinen and Kane, JJ., concur.

ORDERED that the order is affirmed, without costs.

 


 

[1]In 1980, the Legislature amended Labor Law ' 240 (1) by excepting "owners of one and two family dwellings who contract for but do not direct or control the work" (L. 1980 ch. 670; see generally Bartoo v Buell (87 NY2d 362 [1996]); Mandelos v Karavasidis (86 NY2d 767 [1995]).

[2]See generally Provisions of the Bills which have Now Become Law, New York Times, May 26, 1885, at 5; Under the New Law, New York Times, July 2, 1885, at 8; The Employer Held Responsible, New York Times, July 7, 1885, at 8; Three Men Killed, New York Times, July 15, 1885, p. 3; Carried Down with the Scaffold, New York Times, Sept. 1, 1885, at 8; Maimed by a Breaking Scaffold, New York Times, Nov. 29, 1885, at 3.

[3]See L 1921, ch 50.

[4]In the interim, the Legislature enacted additional requirements for scaffolds more than 20 feet from the ground (see L 1891, ch 214), and authorized police to inspect scaffolding, with misdemeanor consequences for violating the scaffold laws (see L 1892, ch 517).

[5]In 1969, the Legislature amended section 240 (1) to place the responsibility on "all contractors and owners and their agents" in place of "a person employing or directing another to perform labor of any kind" (L 1969, ch 1108).

[6]Later reconstituted in L 1909, ch 36; L 1911, ch 693; and as Labor Law ' 240 (1) by virtue of L 1921, ch 50, followed by L 1947, ch 683.

[7]See also Panek (99 NY2d at 456 ["the section imposes absolute liability on owners, contractors and their agents for any breach of the statutory duty that proximately causes a plaintiff's injury"]).

[8]In cases involving ladders or scaffolds that collapse or malfunction for no apparent reason, we have (ever since Steward v Ferguson, 164 NY at 553, supra) continued to aid plaintiffs with a presumption that the ladder or scaffolding device was not good enough to afford proper protection.  See Panek v County of Albany (99 NY2d 452, 458 [2003] [summary judgment appropriate for the plaintiff where it was uncontroverted that a ladder collapsed beneath him, causing the fall]); Styer v Walter Vita Constr. Corp. (174 AD2d 662 [2d Dept 1991]); Olson v Pyramid Crossgates Co. (291 AD2d 706 [3d Dept 2002]).  Once the plaintiff makes a prima facie showing the burden then shifts to the defendant, who may defeat plaintiff's motion for summary judgment only if there is a plausible view of the evidence -- enough to raise a fact question -- that there was no statutory violation and that plaintiff's own acts or omissions were the sole cause of the accident.  If defendant's assertions in response fail to raise a fact question as to these issues, the plaintiff must be accorded summary judgment (see Klein v City of New York (89 NY2d 833, 835 [1996]).  On the other hand, defendant may be granted summary judgment if the record establishes conclusively that no Labor Law ' 240 (1) violation was shown to have been a proximate cause of the accident and that the accident was therefore caused solely by plaintiff's conduct (see e.g. Stark v Eastman Kodak Co., 256 AD2d 1134 [4th Dept 1998]; Custer v Cortland Housing Authority, 266 AD2d 619, 621 [3d Dept 1999]).  Given the procedural posture of the case before us, we address neither the propriety of Supreme Court's denial of plaintiff's motion for summary judgment nor whether defendant should have been granted summary judgment or a directed verdict.

[9]Labor Law ' 240 (1) does not extend to a "recalcitrant worker," meaning one whose refusal to use available safety devices results in injury (see Hagins v State, 81 NY2d 921, 923 [1993]).  Plaintiff was not a recalcitrant worker.

[10]See Meade v Rock-McGraw, Inc. (307 AD2d 156, 159 [1st Dept 2003] ["That the ladder was inadequately secured was due to plaintiff's improper use of it, which would not give rise to a Labor Law violation"]); Heffernan v Bais Corp. (294 AD2d 401, 403 [2d Dept 2002] [defendant raised a question of fact as to whether scaffold failure resulted solely from plaintiff's negligence]); Musselman v Charles A. Gaetano Constr. Corp. (277 AD2d 691 [3d Dept 2000] ["although contributory negligence is not a defense to a valid Labor Law ' 240(1) claim * * * liability will not attach if the worker's action were the sole proximate cause of his or her injuries"]); Gomes v State (272 AD2d 440 [2d Dept. 2000] [affirming Court of Claims' dismissal after crediting the State's expert testimony that plaintiff's misuse of an extension ladder was responsible for his accident in which his arm became caught between the rungs when the ladder retracted downward]); Bahrman v Holtsville Fire District (270 AD2d 438, 439 [2d Dept 2000] [question of fact as to whether plaintiff's fall occurred due to his own misuse of a safety device and whether such conduct was the sole proximate cause of his injuries]); Stark v Eastman Kodak Co. (256 AD2d 1134 [4th Dept 1998] [where ladder was not defective and did not move, plaintiff's actions were the sole proximate cause of his injury thus making summary judgment appropriate in favor of defendant, not plaintiff]); Vencebi v Waldorf Astoria Hotel Corp. (143 AD2d 1004, 1005 [2d Dept 1988] [jury question whether accident occurred because scaffold moved or because of plaintiff's method of climbing onto it]).

[11]"If you conclude that the plaintiff's action was the only substantial factor in bringing about the injury, you will find for the defendant on [section 240 (1) liability]."

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