Coverage Pointers - Volume VII, No. 3

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8/10/05            H.R.3

President Signs Transportation Equity Act (H.R.3) Freeing Leasing and Vehicle Rental Companies from Vicarious Liability

This federal legislation causes the most significant change to New York motor vehicle law in many years.  Background for those who are not as familiar with the peculiar New York rules:

 

Section 388 of the NY Vehicle and Traffic Law makes an “owner” of a motor vehicle liable for injuries caused to the victim of an automobile accident if the vehicle was being operated with the permission of the “owner,” express or implied.  This law imposes responsibility on all “owners,” even absentee “owners,” even those who had no control over the driver, so long as the driver was considered a permissive user (and “permission” was difficult to disprove).  Known as the “vicarious liability” rule, the owner was responsible merely by his, her or its status as an “owner”.

 

So, who is an “owner” under New York law?  Anyone on the title was considered an owner as well as anyone who rented or leased a vehicle for 30 days or more.  Accordingly, if someone leased a car from GMAC for three years, the leasing party would be considered an “owner” for the purposes of Section 388 “vicarious liability.”  However, the fact that the lessee became an “owner” under the Section 128 of the Vehicle and Traffic Law, did not remove the leasing company as an owner.  It remained in title and therefore, was as responsible for an accident caused by a permissive driver as was the leasing company.

 

For years, there was a battle between the plaintiff’s bar (lead, in large part, by the New York State Trial Lawyers Association) to keep, and the auto dealers and manufacturers to either keep or change, the law with respect to leasing and rental car companies.   Many of the leasing companies stopped leasing cars in New York, thus denying consumers the same rights afforded to citizens in other states.

 

Now Congress has stepped in with a federal statute (that is bound to be challenged on a number of grounds in lawsuits to come).  With the August 10th signing of the Transportation Equity Act, Congress had determined that “an owner of a motor vehicle that rents or leases the vehicle to a person … shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle … for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if  (1) the owner is engaged in the trade or business of renting or leasing motor vehicles and (2) there is no negligence or criminal wrongdoing.

 

So, now, leasing companies and rental car companies are no longer vicariously liable for injuries caused by those who lease or rent vehicles and will not be liable for those injuries unless there is negligence on the part of the leasing or rental company.  New York law does require all car owners to provide insurance at minimum limits ($25,000/$50,000/$10,000) and those insurance requirements are not changed by this federal statute.

 

This statute may also apply to car dealers, who loan vehicles to customers under “rental agreements.”

 

However, there will be a sea change in the way cases involving rented and leased cars are handled, because no longer will the plaintiff refuse to settle, hoping for a “jackpot” verdict against a defendant with virtually unlimited assets.  In cases where for those that represent or insure rental or lease companies we recommend an affirmative defense referencing the federal statute.

 

The law affects any lawsuit commenced after August 10th even if the accident was earlier.  Accordingly, there was a flurry of activity in the weeks leading up to the President’s signature on the bill and don’t be surprised if you see an up tick in case inventory.

 

8/11/05            ****** v. MetLife Auto & Home

Appellate Division, First Department

Questions of Fact as to Whether Alleged Defamation Was an Occurrence or Intentional That Would Support Disclaimer

The son of the insured distributed flyers in the neighborhood where former employees of his father’s bar resided, which stated the women had been arrested for prostitution and sex crimes involving minors, and were suspected of drug abuse.  The employees sued the father and son, alleging causes of action based on sexual discrimination and, as to the son, defamation.  In his defense, the son argued that he did not know the contents of the flyer, and finally taking the time to read one of them, stopped distribution.  MetLife disclaimed coverage refusing to defend and indemnify on the grounds that the claims asserted did not constitute an "occurrence" as defined in the policy, the nature of the damages sought did not fall within the policy definitions of either "bodily injury" or "property damage," and that the policy excluded coverage for intentional acts, where the resultant harm was inherent in the nature of the alleged acts.  The court holds that “accident” was not defined in the policy; however, an accident may be considered "an event which is unanticipated and the product of thoughtlessness rather than willfulness".  As such plaintiffs raised a question of fact as to whether the dissemination was an occurrence under the policy.  Inquiry should be made to determine whether the son was free of ill-will, as he claimed, before determining whether the distribution of the flyers was an occurrence.  Then, if it is ascertained that the son "reasonably expected or intended" to defame the waitresses, he would not be entitled to the costs of his defense, or to indemnity.

 

8/11/05            Utica Mutual Insurance Company v. Reid

Appellate Division, First Department

SUM Coverage Not Available For Motorcycle Insured under Separate Policy

Reid attempted to recover under the SUM endorsement of his policy.  At the time of the accident, he was driving a 1999 Honda motorcycle that was insured not by Utica, but rather under a policy issued by Progressive Northeastern Insurance Company. Reid also owned a 1998 Dodge Caravan insured by Utica. The Utica policy had the relevant SUM Endorsement.  He made the claim at issue for SUM benefits under the Utica policy on his 1998 Dodge Caravan. In so doing, he filed a notice of claim in which he fraudulently misstated the vehicle he was driving at the time of the accident as the Dodge and not the motorcycle.  Utica eventually discovered the fraud six months after receipt of the claim and disclaimed coverage based on an exclusion in the SUM endorsement as the injuries he sustained occurred while operating the motorcycle – a vehicle that was not insured under the Utica policy.  The delay in disclaiming coverage was not fatal to Utica’s case due to the continued misrepresentation by the insured as to the vehicle operated at the time of the accident.

 

8/11/05            Cassadei v. Nationwide Mutual Fire Insurance Company

Appellate Division, Third Department

Once Property Interest Deemed Void, No Insurable Interest Was Held By Claimant

Plaintiff, in his capacity as attorney-in-fact for his mother, executed a deed purporting to convey the property from his mother to himself.  After his parents’ death, plaintiff obtained a homeowner’s insurance policy from Nationwide covering the property. However, based on a deed executed by plaintiff's mother, plaintiff's sister asserted title to the property and commenced an action to quiet title.  This action declared plaintiff's deed to be null and void given plaintiff's failure to rebut the presumption of impropriety and self-dealing inherent in such a transaction and recognized plaintiff's sister as the rightful owner of the property.  Nationwide denied coverage on the ground that plaintiff had no insurable interest in the property. Appellate Division held that Nationwide met its initial burden of establishing a prima facie entitlement to summary judgment by asserting plaintiff's adjudicated lack of title ownership, compounded by his misrepresentation to Supreme Court of this fact through a sworn statement where he declared himself the fee owner of the property. 

 

 

8/8/05              Hughes v. Hoffman

Appellate Division, First Department

Quantification of Limitations and Explanation for Treatment Gap Sufficient to Resist Motion on Serious Injury

The plaintiff submitted objective evidence sufficient to raise a triable issue of fact on the threshold serious injury question. Plaintiff's treating physician quantified persistent range of motion limitations that he characterized as significant and recounted results of several diagnostic tests, including positive straight leg raising tests coupled with abnormal MRI and nerve conduction studies.  Finally, there was sufficient explanation in the record for the gaps in plaintiff's course of treatment.

 

8/5/05              Tangney v Burke

Appellate Division, Second Department

In This Cliff Hanger, the Altercation Was Not an Occurrence under the Homeowner’s Policy

In the course of a physical altercation between Tangney and Burke, Tangney fell about 20 to 25 feet from a ledge and sustained injuries (of course, they were fighting one foot from the ledge). Burke thereafter notified his parents' homeowner's insurer, Charter Oak, of the main action and requested that it defend and indemnify him. Charter Oak disclaimed coverage based upon untimely notice, and because the incident was not an accident or occurrence under the policy and resulted in bodily injury excluded as "expected or intended" by the insured.  The Appellate Division affirms the Lower Court holding the injuries Tangney allegedly sustained were inherent in the activity Burke engaged in, and Burke's assault cannot be construed as an accident within the definition of "occurrence" for which Charter Oak's policy affords coverage.  Were there coverage under the definition of "occurrence" in the policy, this intentional act would be excluded.

 

8/5/05              Hospital for Joint Diseases v. Allstate Insurance Company

Appellate Division, Second Department

Defense of Failure to Promptly Submit Claim Waived Amidst Lack of Proof Carrier Sent Denial of Claim Form

This was an action to recover unpaid no-fault benefits where the Lower Court concluded plaintiff lacked standing to bring the action absent proof of a valid assignment from each claimant. The Appellate Division reverses finding that the hospital facility forms submitted on behalf of the respective patients indicated that the signature of each patient/assignor was "on file." There was no allegation or evidence that the defendant timely objected to the completeness of the forms or sought verification of the assignments as required by 11 NYCRR 65.15(d). Accordingly, the defendant waived those defenses.  The Court further holds that the defendant's failure to assert this statutory- exclusion defense within 30 days of the receipt of the no-fault claim constituted a waiver. While the defendant offered a denial of claim form dated December 30, 2002, to that effect, there was no affidavit of service to establish that the form was, in fact, mailed to the plaintiff within 30 days of receipt of the claim.  Regardless, "[s]trict compliance with the time requirements of both the statute and regulations may be obviated and the preclusion remedy rendered unavailable when denial of claims is premised on a lack of coverage. Here, a triable issue of fact existed as to whether coverage existed at the time of the accident at issue. 


8/2/05              Allianz Insurance Co. v. Lerner

U.S. Court of Appeals, Second Circuit

Duty to Defend is Broader than the Duty to Indemnify and Carrier Must Defend Even After Exhausting Policy Limits
Action arose out of a car accident in New York involving a leased vehicle and involves issues that arise among a lessor, lessee and their respective insurers. Plaintiff leased a car from Mercedes Benz Credit Corporation (MBCC). Pursuant to the terms of the lease, plaintiff obtained a liability insurance policy from Allstate. To protect itself from the use of the leased car, MBCC maintained insurance coverage with Allianz Insurance Company. Plaintiff was involved in a car accident in which she struck a car while driving through a red light at an intersection and injured the 12 year old passenger of the car she struck. The injured party filed action in state court against plaintiff and MBCC, among others. A settlement was entered in the state court action under which Allstate paid $100,000 on behalf of plaintiff, and Allianz, on behalf of MBCC, paid $340,000. Thereafter, Allianz, as a subrogee of MBCC, filed a suit against plaintiff, among others, for breach of contract for failing to indemnify MBCC for the $340,000 Allianz spent to settle the state court action. In response, plaintiff and others impleaded Allstate, among others, and alleged that Allstate breach its duty to defend and indemnify plaintiff against MBCC’s and Allianz’s claim. The state court granted summary judgment in favor of Allstate, finding no duty to defend or indemnify plaintiff. The Second Circuit determined that Allstate had breached its duty to defend, but not its duty to indemnify plaintiff. The Second Circuit stated that the issue was whether plaintiff was sued by MBCC and Allianz “as the result of “the accident. The Second Circuit concluded that the MBCC’s and Allianz’s claims against plaintiff were a “consequence” or “result” of the covered accident. Because MBCC’s and Allianz’s claims against plaintiff arose directly out of the same car accident, it was reasonable for plaintiff to expect that Allstate would defend, and perhaps even indemnify her against, the allegations brought by Allianz and MBCC. While Allstate’s payment of its $100,000 policy limit discharged its duty to indemnify, it did not discharge its duty to defend.

 

Submitted by: Bruce D. Celebrezze & Michelle M. Hancharik [Sedgwick, Detert, Moran & Arnold LLP]

 

8/1/05              Duratech Industries, Inc. v. Continental Insurance Company

Appellate Division, Second Department

Carriers Get Dismissal on Proof and Agent Owes No Duty to Monitor outside Enforceable Contract

CNA met their initial burden of establishing their entitlement to judgment as a matter of law by demonstrating, with legally sufficient evidence, that the insured failed to provide prompt notice of covered losses under the subject insurance policies as required and that the subject losses were not covered by the policies or specifically excluded from coverage.  Peerless met its initial burden of establishing its entitlement to judgment as a matter of law by demonstrating, with legally sufficient evidence that Duratech failed to prove covered losses under the subject policy within the policy period.  Finally as to the insurance agent and whether it breached an agreement to continually monitor Duratech's risks, make insurance changes when needed and provide insurance adequate to protect its trade secrets (the subject of the claimed losses), the court holds that an insurance agent does not owe a common-law continuing duty to advise, guide, or direct its client in terms of proper insurance coverage, absent some kind of special relationship of trust and confidence.  Furthermore, there was no proof of consideration to render the alleged agreement enforceable.

 

7/28/05            Dillon v. Otis Elevator Co., et al.
Appellate Division,  First Department

Carrier Cannot Test Disclaimer by Having its Defense Counsel Move to Withdraw as Counsel, but that Doesn’t Stop Defense Counsel from Making Appropriate Motion to Withdraw as Counsel in Certain Cases
It is has been said many times by NY courts that an insurance carrier cannot test the validity of a disclaimer by having its defense counsel move to withdraw as counsel, once defense is undertaken.  So, for example, if the insured fails to cooperate in the defense of the matter and the liability carrier raises non-cooperation as a ground for disclaimer, the only way the insurer can be free of its obligation to continue defending the insured is to commence a declaratory judgment action, by separate counsel, to secure that determination.  It cannot direct its defense counsel to move to withdraw from the defense.  In this case, however, the defense counsel could not get the cooperation of its client, the insured, in defending the lawsuit.  It moved to be relieved as defense counsel and the plaintiff complained that such a move was an improper attempt to deny coverage for lack of cooperation.  The court held that any lawyer, whether hired directed by a party or by an insurer, can move to withdraw as counsel if the client refuses to cooperate in the defense of the lawsuit and allowed the defense counsel to be relieved of its duty to defend.  However, the Court pointed out that such a withdrawal does not test the disclaimer and if a default is entered, for example, against the insured because of the withdrawal of counsel and the insurer may be stuck with the judgment because its duty to defend and indemnify have not been resolved by the defense counsel’s exit.  The counseling point is an important one: the carrier is no better off if its defense counsel moves to withdraw as counsel because the court has not determined that the carrier is relieved of its obligation to defend.  Bring the DJ action.

 

Audrey’s Angle on No-Fault

 

In our newest feature to the newsletter, we highlight recent no-fault arbitration awards.   The compilation and publication of these awards is not at the same level as traditional reported case law.  There is no single source to conduct comprehensive research in the area.  This feature seeks out notable current awards and judicial determinations and provides them to our subscribers.

 

We encourage the submission of no-fault awards, including Master Arbitration awards that address interesting issues.  These can be submitted to Audrey Seeley at [email protected].   With all submissions, we ask that you forward a redacted version of the award omitting the parties’ names and that the document be in PDF format.  For copies of these decisions, contact Audrey.

 

8/9/05  In the Matter of the Arbitration between the Applicant and Respondent

Arbitrator Walter R. Winning, Esq.

Carrier Must Timely Pay or Deny All Claims Submitted Even If A Prior General Denial Was Issued And Failure To Do So Precludes Defense Of Lack of Medical Necessity.

 

Here is the Angle:     The carrier must timely pay or deny every claim submitted under 11 NYCRR §65-3.8(a).  The fact that the carrier issued a general denial for all benefits does not obviate the carrier’s requirement to pay or deny every claim submitted after the general denial.  Ultimately, it is far easier to take the time to issue a timely denial based upon a negative IME, which was most likely the basis for the general denial, than to proceed into arbitration where the arbitrator will rule that failure to timely deny precludes the carrier from asserting a defense, such as lack of medical necessity.

 

The Analysis:

 

The carrier issued an October 14, 2004, general denial of all no-fault benefits based upon an independent medical examination (“IME”).  The carrier received additional claims for 15 sessions of acupuncture treatment for which it timely issued three more denials.  However, the carrier failed to timely issue any denial claims for 22 initial sessions acupuncture treatment on the basis that it was not obligated to issue a denial due to the October 14, 2004, general denial of all no-fault benefits.

 

The Arbitrator ruled that under 11 NYCRR §65-3.8(a) claims must be paid or denied within 30 days after proof of claim is received.  Moreover, the Arbitrator referred to a prior no-fault arbitration award and an opinion letter from the New York State Insurance Department, Office of the General Counsel which provided that every bill must be either paid or denial irrespective of a prior denial.  Moreover, the Arbitrator noted that once the general denial of all no-fault benefits is issued it is a simple task for the carrier to timely issue a denial thereafter based upon a negative IME.

 

In addition, it is generally known that even though a denial is found to be untimely does not warrant an award in applicant’s favor as the applicant still bears the burden of establishing a prima facie case of medical necessity.  Here, the Arbitrator noted that the applicant’s submission of evidence to establish medical necessity was “hardly overwhelming” but since none of the carrier’s evidence regarding lack of medical necessity could be considered due to failure to timely deny there was no basis to deny the claim.

 

Another interesting issue presented was the proper rate under Insurance Law §5108 for acupuncture services.  The Workers’ Compensation Fee Schedule only provides a set fee for acupuncture services provided by either a physician or licensed chiropractor.  There is no set fee for acupuncture services for an individual only licensed to provide acupuncture treatment.  Ultimately, the Arbitrator ruled that an acupuncturist who is only licensed to provide acupuncture treatment should be compensated at the rate set for acupuncture services provided by a licensed chiropractor.

 

 

 

 

8/8/05  In the Matter of the Arbitration between the Applicant and Respondent

Arbitrator Walter P. Higgins, Esq.

Applicant’s Admission in No-Fault Application Regarding Being In Course of Employment At The Time of The Accident Precludes Arbitrator From Determining Merits of Claim

 

Here is the Angle:     If there is evidence, i.e., an admission in a no-fault application, that the eligible injured person was in the course of his employment at the time of the accident then the no-fault arbitration must be dismissed without prejudice for the Workers’ Compensation Board to make such a determination.

 

The Analysis:

 

At the time of the motor vehicle accident the eligible injured person was operating a vehicle owned by Lindy’s Taxi when it was rear ended by a Suffolk County Police patrol car.  The insurer denied payment of medical bills on the basis that, inter alia, they should be covered by workers’ compensation.  The evidence submitted revealed a no-fault application wherein the eligible injured person admitted that the accident occurred while in the course of his employment.  The Arbitrator ruled that the Court of Appeals has held that mixed questions of law and fact regarding whether someone was in their course of employment at the time of an accident must be resolved by the Workers’ Compensation Board.  More importantly, the Arbitrator ruled that there was more than just an allegation of the eligible injured person being in the course of his employment - there was an admission on the no-fault application.  Thus, the claim was dismissed without prejudice, to be resolved by the Workers’ Compensation Board.

 

5/19/05            New Law Enacted Amending the Insurance Law To Direct The Superintendent of Insurance To Promulgate Regulations Addressing The Inability of Certain Health Service Providers From Receiving Payment For Services.

 

The Insurance Law has been amended to add a new section – 5109 that will permit the Superintendent of Insurance to promulgate regulations, in consultation with the Commissioner of Health and the Commissioner of Education, for standards and procedures for investigating and suspending or removing the authorization for health care service providers from demanding or requesting payment for health care services under the no-fault provisions of the Insurance Law.

 

The Commissioners of Health and Education will comply a list of health service providers who, after a reasonable investigation, are not authorized to demand or request payment for medical services in connection with any claim under Article 51 of the Insurance Law because the provider:

 

1.         is guilty of professional or other misconduct or incompetency in relation to medical services rendered;

 

2.         exceeds the professional competence limit in rendering medical care or knowingly made a false statement or representation as to a material fact in a medical report;

 

3.         solicited or employed someone else to solicit for herself or another professional treatment, examination, or care of an injured person;

 

4.         refused to appear before or answer any legal questions or produce any relevant information regarding conduct in rendering medical services of the Health Commissioner, Insurance Superintendent or any duly authorized State officer; or

 

5.         engaged in a pattern of billing for services that were not provided.

 

More importantly, this law prohibits a health service provider from treating for payment, as a private patient, anyone seeking medical treatment pursuant to Article 52 of the Insurance Law if the provider has been prohibited for demanding or requesting payment.  The injured person treated or examined can raise the provider’s prohibition under this new section as a defense in an action by the health service provider for payment of the treatment rendered.

 

 

Across Borders

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

 


8/5/05              Sikirica v. Nationwide Insurance Company

U.S. Court of Appeals, Third
Circuit

Thirty Day Removal Period Began When The Complaint Was Filed
The bankruptcy trustee for Pittsburgh Beauty Academy (PBA) brought this action against Nationwide for bad faith and breach of contract. A customer filed a class action against PBA when the customer determined that PBA fraudulently overcharged their customers by $2.09. The Court of Appeals affirmed the judgment of the District Court. The court held that the thirty day limit to remove a case from state to federal court began with the filing of the complaint rather than the service of summons and "other papers". Additionally, the court held that the statute of limitations ran out on the plaintiff's bad faith claim. The statute started when Nationwide wrote a letter to the plaintiff refusing to defend and indemnify the plaintiff in a class action. The court also concluded that the defendant did not breach their contract with the plaintiff because the insurance contract did not cover intentional conduct that was alleged in the customers’ complaint against the PBA.

 

Submitted by: Dan Boho (Hinshaw & Culbertson LLP)


8/4/05              Reynolds v. Hartford Financial Services Group, Inc.

U.S. Court of Appeals, Ninth Circuit

Notice Requirements for Insurance Companies Under the Fair Credit Reporting Act
Under the Fair Credit Reporting Act (FCRA), insurance companies are required to send adverse action notices to consumers whenever they increase the rates for insurance on the basis of information contained in consumer credit reports. The principal question at issue in this matter was whether the FCRA’s adverse action requirement applied to the rate first charged in an initial policy of insurance. With respect to this issue, the Ninth Circuit held that, yes, the FCRA requires that an insurance company send the consumer an adverse action notice whenever a higher rate is charged because of credit information it obtains, regardless of whether the rate is contained in an initial policy or an extension or renewal of a policy and regardless of whether the company has previously charged the consumer a lower rate.

 

Submitted by: Bruce D. Celebrezze & Michelle M. Hancharik [Sedgwick, Detert, Moran & Arnold LLP]


8/2/05              Craven v. Demidovich

North Carolina Court of Appeals

Third-Party Beneficiary Must Establish Liability of an Insurer’s Insured Prior to Bringing an Action Against Insurer
Plaintiff, a passenger in a car driven by defendant, sustained serious and permanent injuries when defendant’s car was involved in an automobile collision. At the time of the accident, defendant was covered by an automobile liability insurance policy provided by GEICO. Plaintiff made a demand on GEICO for payment under defendant’s policy on July 1, 2002. GEICO paid plaintiff $2,000 for medical payments under the policy on November 20, 2003. On December 3, 2003, plaintiff filed an action against GEICO, which included causes of action for unfair and deceptive trade practices and bad faith refusal to timely adjust plaintiff’s claim. GEICO filed a motion to dismiss plaintiff’s action pursuant to Rule 12(b) (6). The lower court granted GEICO’s motion and dismissed plaintiff’s action, and plaintiff appealed the decision. The appellate court affirmed the lower court’s decision. The appellate court stated that North Carolina does not recognize a cause of action for third-party claimants against the insurance company of an adverse party based on unfair and deceptive trade practices. Nothing in plaintiff’s complaint asserted any kind of privity between plaintiff and GEICO. Plaintiff further argued that he was an intended third-party beneficiary under defendant’s policy. In response, the appellate court, citing to established precedent, advised that a third-party beneficiary may only maintain an action against an insurance company where the third-party beneficiary has already obtained a judgment against the insurance company’s insured. Here, plaintiff had brought his action prior to the establishing defendant’s liability. As such, the appellate court held that, because plaintiff’s claims against GEICO were not recognized in North Carolina prior to a judicial determination of the insured’s liability, plaintiff’s complaint demonstrated that no set of facts was established which would entitle plaintiff to relief for either unfair and deceptive practices claims or bad faith.

 

Submitted by: Bruce D. Celebrezze & Michelle M. Hancharik [Sedgwick, Detert, Moran & Arnold LLP]

 

 

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Dillon v. Otis Elevator Co., et al.,

 

Plaintiff appeals from an order of the Supreme Court, Bronx County (Anne E. Targum, J.), entered May 6, 2004, insofar as it granted the motion of nonparty respondent White Fleischner & Fino, LLP to withdraw as counsel for defendant Bush Elevator Corp.


Noreen M. Giusti, Kew Gardens, Susan A. Mancuso, New
York, and Raskin & Kremins, LLP, New York, for appellant.
White Fleischner & Fino, LLP, New York (Alisa Dultz
and Nancy Lyness of counsel), for respondent. [*2]




SULLIVAN, J.

This case presents a challenge to the applicability of the oft-repeated principle that withdrawal of counsel retained by a liability insurer to represent a defendant in a third-party action is an inappropriate vehicle for testing the insurer's disclaimer of coverage.

The law firm of White Fleischner & Fino, LLP (WF&F), attorneys of record for defendant/third-party plaintiff Bush Elevator Corp., having been assigned to represent Bush by its liability insurer, CNA/Continental Casualty Company (CNA), moved to withdraw as Bush's attorneys based on the latter's allegedly flagrant refusal to cooperate in the defense of this personal injury action against it. This lack of cooperation had led CNA, just one week before WF&F's motion, to notify Bush of its disclaimer of coverage based on a failure to cooperate.

In moving to be relieved, WF&F noted that Bush's lack of cooperation had already resulted in the entry of an order of preclusion barring Bush from offering as a witness Nathan Glick, its principal and signatory to the elevator service contract that gave rise to the underlying claims against Bush. Bush was also precluded from offering documents that were the subject of unsatisfied discovery demands. As the record shows, Glick had flouted a court order compelling his appearance for deposition, and Bush had failed to respond to requests for elevator inspection reports and work tickets. In fact, the Bush employee's last words to WF&F's investigator, who made repeated attempts to obtain Bush's cooperation, were to "get the hell out" of Bush's office. This was coupled with a denial that Glick even existed.

While Bush did not oppose the motion, plaintiff did, arguing that the Court of Appeals, in Brothers v Burt (27 NY2d 905 [1970]), had precluded withdrawal of counsel as a matter of law on the basis of the insurer's disclaimer of coverage. Conceding that a motion to withdraw as counsel is an improper vehicle for testing the propriety of a disclaimer, WF&F argued that withdrawal was appropriate given Bush's repeated and intentional refusal to cooperate with counsel. It stressed that it was acting on its own and not at CNA's behest in seeking withdrawal. Supreme Court granted the motion without explanation. Plaintiff appeals. The order should be affirmed.

Contrary to plaintiff's argument, Brothers v Burt did not enunciate a bright line rule that the withdrawal of counsel in circumstances as these should be denied as an inappropriate vehicle for testing the propriety of an insurer's disclaimer of coverage. In the Court of Appeals' view, the nisi prius court's denial of the motion to withdraw was based on "an exercise of discretion in the management of the litigation" and did not constitute an abuse of discretion as a matter of law (id. at 906). Such determination is a far cry from setting forth a rule of law. Furthermore, the affirmed order in Brothers was based "on the recognition, as the parties concede, that a motion to withdraw as counsel is a poor vehicle to test an insurer's right to disclaim liability or deny coverage" (id.). That is not the case here at all.

As a review of the facts clearly shows, WF&F's motion to withdraw was not an attempt to support or litigate CNA's disclaimer of coverage. CNA has, in fact, commenced a declaratory judgment action against Bush, currently pending (Continental Casualty Co. v Bush Elevator Corp., Sup. Ct. N.Y. County, Index No. 101363/05), to determine the propriety of its disclaimer. [*3]Rather, WF&F's motion was based on Bush's absolute refusal to communicate with it and to cooperate with its efforts to defend it in this action. Merely repeating the refrain that a motion to withdraw is an inappropriate vehicle for testing the propriety of an insurer's disclaimer of coverage (see e.g. Pryer v DeMatteis Orgs., Inc., 259 AD2d 476 [1999]) is insufficient to establish the applicability of that principle to this case. Here, Bush refused to communicate or cooperate with its own lawyers in its defense. Thus, WF&F's motion to withdraw stands on its own merits, whatever impact it might have on CNA's disclaimer of coverage. Unlike Brothers v Burt, where the issues of the insurer's right to disclaim liability or deny coverage were complex and "not completely reachable" on the withdrawal motion (27 NY2d at 906), here there exists the discrete issue of Bush's adamant refusal to cooperate with WF&F in its defense, which can be resolved on this motion and should be disposed of on the merits.

For that reason, plaintiff's reliance on Monaghan v Meade (91 AD2d 1014 [1983]) is misplaced. There, counsel had sought to withdraw because the insurer had disclaimed coverage and had directed the law firm to withdraw (id. at 1015); here, WF&F acted on its own because of its inability to defend Bush, given the latter's non-cooperation. Under controlling law, Bush's conduct in frustrating WF&F's ability to defend it effectively constitutes good cause for granting counsel's motion to withdraw (see e.g. Bok v Werner, 9 AD3d 318 [2004]).

This Court's decision in Flans v Martini (136 AD2d 498 [1988]) demonstrates the difference between the circumstances that permit a withdrawal and those that do not. There, the insurer advised its insured that it was disclaiming coverage because of his lack of cooperation and directed the defendant's attorneys to withdraw from their representation of the defendant. The attorneys based their motion to withdraw on the insurer's disclaimer and its instruction to the lawyers to seek withdrawal. There was no evidence in the record as to how the insured's cooperation was sought or any description of the insured's obstruction. As noted, that is not the case here.

In attempting to justify reversal of Supreme Court's grant of withdrawal, plaintiff repeatedly invokes the mantra that a motion to withdraw is an inappropriate vehicle to test an insurer's disclaimer of coverage. Plaintiff's argument for a rule that provides a blanket rejection of a lawyer's right to withdraw where its client has manifested a wholesale refusal to cooperate or communicate with the attorney runs afoul of Disciplinary Rule 2-110, which allows a lawyer to withdraw from representing a client if the client, by his or her conduct, "renders it unreasonably difficult for the lawyer to carry out employment effectively" (22 NYCRR 1200.15[c][1][iv]).

The courts of this state routinely grant motions to withdraw as counsel on this ground (see e.g. McCormack v Kamalian, 10 AD3d 679 [2004]; Walker v Mount Vernon Hosp., 5 AD3d 590 [2004]; Galvano v Galvano, 193 AD2d 779 [1993]). This Court's decision in Bok v Werner (9 AD3d 318), supra) is instructive. There, in moving to withdraw, counsel established that its client's conduct — specifically, his failure to respond to any of counsel's communications — made it unreasonably difficult for counsel to represent him effectively. In reversing, we held that "the denial of permission to withdraw amounted to improvident exercise of discretion" (id.).

What plaintiff's argument ignores is that the blanket rule it advocates compels an attorney [*4]to continue representing a client who refuses to cooperate or assist or even communicate with the attorney. Attorneys should not be placed in such a trap (see Bok v Werner, 9 AD3d 318, supra; McCormack v Kamalian, 10 AD3d 679, supra; DR2-110[c][1][iv]).

Finally, it should be noted that CNA gains no tactical or strategic advantage by WF&F's withdrawal. In fact, if CNA is unsuccessful in its declaratory judgment action and Bush, as expected, does not defend itself in the event of WF&F's withdrawal, CNA would be subject to a potential liability that it has forfeited its right to contest.

Accordingly, the order of the Supreme Court, Bronx County (Anne E. Targum, J.), entered May 6, 2004, insofar as it granted the motion of nonparty respondent White Fleischner & Fino, LLP to
withdraw as counsel for defendant Bush Elevator Corp., should be affirmed, without costs or disbursements.

All concur.

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

ENTERED: JULY 28, 2005

CLERK

Duratech Industries, Inc. v. Continental Insurance Company



 

In an action, inter alia, to recover damages for breach of contract, (1) the defendants Continental Insurance Company, Kansas City Fire and Marine Insurance Company, and Valley Forge Insurance Company appeal, as limited by their brief, from so much of an order of the Supreme Court, Suffolk County (Underwood, J.), dated May 12, 2003, as denied those branches of their motion which were for summary judgment dismissing the second and third causes of action and all cross claims insofar as asserted against them, the defendant Peerless Insurance Company separately appeals, as limited by its brief, from so much of the same order as denied those branches of its motion which were for summary judgment dismissing the fourth cause of action and all cross claims insofar as asserted against it, the plaintiff Duratech Industries, Inc., cross-appeals from stated portions of the same order which, inter alia, granted those branches of the motions of the defendants Peerless Insurance Company, Continental Insurance Company, Kansas City Fire and Marine Insurance Company, and Valley Forge Insurance Company, which were for summary judgment dismissing so much of the fifth cause of action as sought to recover consequential damages, and (2) [*2]the defendant Vollmer-Adair Agency, Inc., appeals from so much of an order of the same court dated June 11, 2003, as denied that branch of its cross motion which was for summary judgment dismissing the sixth cause of action, and, upon granting that branch of its motion which was for summary judgment dismissing the eighth cause of action, granted the plaintiff leave to serve an amended complaint as to the eighth cause of action.

ORDERED that the order dated May 12, 2003, is modified, on the law, by (1) deleting the provision thereof denying those branches of the motion of the defendants Continental Insurance Company, Kansas City Fire and Marine Insurance Company and, Valley Forge Insurance Company, which were for summary judgment dismissing the second and third causes of action and all cross claims insofar as asserted against them, and substituting therefor a provision granting those branches of the motion, and (2) deleting the provision thereof denying those branches of the motion of the defendant Peerless Insurance Company which were for summary judgment dismissing the fourth cause of action and all cross claims insofar as asserted against it, and substituting therefor a provision granting those branches of the motion; as so modified, the order is affirmed insofar as appealed and cross-appealed from; and it is further,

ORDERED that the order dated June 11, 2003, is reversed insofar as appealed from, on the law, that branch of the cross motion by the defendant Vollmer-Adair Agency, Inc., which was for summary judgment dismissing the sixth cause of action is granted; and it is further,

ORDERED that one bill of costs is awarded to the defendants appearing separately and filing separate briefs.

Those branches of the motion of the defendants Continental Insurance Company, Kansas City Fire and Marine Insurance Company, and Valley Forge Insurance Company (hereinafter together the CNA defendants), which were for summary judgment dismissing the second and third causes of action and all cross claims insofar as asserted against them were erroneously denied by the Supreme Court. The CNA defendants met their initial burden of establishing their entitlement to judgment as a matter of law by demonstrating, with legally sufficient evidence, that the plaintiff insured, Duratech Industries, Inc. (hereafter Duratech), failed to provide prompt notice of covered losses under the subject insurance policies as required, and, in any event, that the subject losses were not covered by the policies, or were specifically excluded from coverage (see Alvarez v Prospect Hosp., 68 NY2d 320, 324; Kay Bee Bldrs. v Merchant's Mut. Ins. Co., 10 AD3d 631; Garson Mgt. Co. v Travelers Indem. Co. of Ill., 300 AD2d 538; Paramount Ins. Co. v Rosedale Gardens, 293 AD2d 235; Prudential Prop. & Cas. Ins. v Persaud, 256 AD2d 502; Howard Stores Corp. v Foremost Ins. Co., 82 AD2d 398, affd 56 NY2d 991). Contrary to the Supreme Court's determination, Duratech failed to raise a triable issue of fact (see Commodore Intl. v National Union Fire Ins. Co. of Pittsburgh, Pa., 184 AD2d 19; Gongolewski v Travelers Ins. Co., 252 AD2d 569).

The Supreme Court also erred in denying those branches of the motion of the defendant Peerless Insurance Company (hereafter Peerless) which were for summary judgment dismissing the fourth cause of action and all cross claims insofar as asserted against it. Peerless met its initial burden of establishing its entitlement to judgment as a matter of law by demonstrating, with legally sufficient evidence, that Duratech failed to prove covered losses under the subject policy within the policy period (see Alvarez v Prospect Hosp., supra; Kay Bee Bldrs., Inc. v Merchant's Mut. Ins. Co., supra; Garson Mgt. Co. v Travelers Indem. Co. of Ill., supra; Paramount Ins. Co. v Rosedale Gardens, supra; Prudential Prop. & Cas. Ins. v Persaud, supra; Howard Stores Corp. v [*3]Foremost Ins. Co., supra; Avery Dennison Corp. v Allendale Mut. Ins. Co., 310 F3d 1114). In opposition, Duratech failed to raise a triable issue of fact (see Gongolewski v Travelers Ins. Co., supra; Commodore Intl. v National Union Fire Ins. Co. of Pittsburgh, Pa., supra).

The defendant Vollmer-Adair Agency, Inc. (hereafter Vollmer), was the insurance agent that sold the subject insurance policies to Duratech. The Supreme Court denied that branch of Vollmer's motion which was for summary judgment dismissing the sixth cause of action alleging breach of contract, upon finding the existence of a triable issue of fact as to whether Vollmer breached an agreement to continually monitor Duratech's risks and make insurance changes and whether it failed, among other things, to provide insurance adequate to protect its trade secrets that were the subject of the claimed losses. However, an insurance agent does not owe a common-law continuing duty to advise, guide, or direct its client in terms of proper insurance coverage, absent some kind of special relationship of trust and confidence (see Murphy v Kuhn, 90 NY2d 266; Lynch v McQueen, 309 AD2d 790). Furthermore, there is no proof of consideration to render the alleged agreement enforceable (see Cohn v Levy, 284 AD2d 293). Accordingly, the sixth cause of action should have been dismissed.

It was error for the Supreme Court to grant leave to amend the eighth cause of action against Vollmer sounding in misrepresentation, to allow the plaintiff to replead it as a claim alleging fraudulent inducement to contract. Duratech "failed to sufficiently allege that [Vollmer], with scienter, misrepresented material fact in order to induce [its] reliance and that [it] reasonably relied on the representations to [its] detriment" (Scott v Bell Atl. Corp., 282 AD2d 180, 185, mod on other grounds 98 NY2d 314).

Duratech's claim that the Supreme Court improperly dismissed that branch of its fifth cause of action which was to recover consequential damages is without merit. The insurance policies at issue either specifically exclude claims seeking to recover consequential damages or do not specifically provide coverage for them (see High Fashions Hair Cutters v Commercial Union Ins. Co., 145 AD2d 465).

Duratech's remaining claims are either without merit or not properly before this court.
FLORIO, J.P., ADAMS, S. MILLER and GOLDSTEIN, JJ., concur.

ENTER:

James Edward Pelzer

Clerk of the C

 

Hospital for Joint Diseases v. Allstate Insurance Company






Joseph Henig, P.C., Bellmore, N.Y., for appellant.
McDonnell & Adels, P.C., Garden City, N.Y. (Martha S. Henley
of counsel), for respondent.

In an action to recover unpaid no-fault benefits, the plaintiff appeals from an order of the Supreme Court, Nassau County (Mahon, J.), dated November 17, 2003, which denied its motion for summary judgment on the first and second causes of action and granted the defendant's cross motion for summary judgment dismissing those causes of action.

ORDERED that the order is modified, on the law, by deleting the provisions thereof granting those branches of the cross motion which were for summary judgment dismissing the first and second causes of action and denying that branch of the motion which was for summary judgment on the first cause of action and substituting therefor provisions denying those branches of the cross motion, reinstating the first and second causes of action, and granting that branch of the motion which was for summary judgment on the first cause of action; as so modified, the order is affirmed insofar as appealed from, without costs or disbursements.

The Supreme Court erred in concluding that the plaintiff lacked standing to bring the action absent proof of a valid assignment from each claimant. The hospital facility forms submitted on behalf of the respective patients indicated that the signature of each patient/assignor was "on file." There was no allegation or evidence that the defendant timely objected to the completeness of the forms or sought verification of the assignments as required by 11 NYCRR 65.15(d). Accordingly, the defendant waived any defenses based thereon (see Nyack Hosp. v Metropolitan Prop. & Cas. Ins. Co., 16 AD3d 564; New York Hosp. Med. Ctr. of Queens v New York Cent. Mut. Fire Ins. Co., 8 AD3d 640, 641; New York Hosp. Med. Ctr. of Queens v AIU Ins. Co., 8 AD3d 456). [*2]

With regard to the first cause of action, after the plaintiff made out a prima facie case for summary judgment, the defendant failed to raise a triable issue of fact as to whether the insured's 2002 medical expenses "were for injuries for which expenses for treatment had not been submitted to it within one year of [his] accident" (Stanavich v General Acc. Ins. Co. of Am., 229 AD2d 872, 873; see 11 NYCRR 65.15[o][1][iii]). In any event, the defendant's failure to assert this statutory- exclusion defense within 30 days of the receipt of the no-fault claim constituted a waiver (see Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d 274, 286; Westchester Med. Ctr. v American Tr. Ins. Co., 17 AD3d 581). Accordingly the plaintiff was entitled to summary judgment on the first cause of action.

With regard to the second cause of action, the defendant asserted that no policy of insurance was in effect covering the injured party on the date of the accident. While the defendant offered a denial of claim form dated December 30, 2002, to that effect, there was no affidavit of service to establish that the form was, in fact, mailed to the plaintiff within 30 days of receipt of the claim (see Nyack Hospital v Metropolitan Prop. & Cas. Ins. Co., supra). Regardless, "[s]trict compliance with the time requirements of both the statute and regulations may be obviated and the preclusion remedy rendered unavailable when denial of claims is premised on a lack of coverage" (Central Gen. Hosp. v Chubb Group of Ins. Cos., 90 NY2d 195, 199; see Westchester County Med. Ctr. v Allstate Ins. Co., 283 AD2d 488, 489). Here, a triable issue of fact exists as to whether coverage existed at the time of the accident at issue. Accordingly, neither party was entitled to summary judgment on this cause of action.
H. MILLER, J.P., RITTER, GOLDSTEIN and SKELOS, JJ., concur.

ENTER:

James Edward Pelzer

Clerk of the Court

 

Tangney v Burke


In an action to recover damages for personal injuries, and a third-party action for a judgment declaring that the third-party defendant is obligated to defend and indemnify the defendant in the main action, the defendant third-party plaintiff appeals from a judgment of the Supreme Court, Westchester County (Lefkowitz, J.), dated January 13, 2004, which, upon an order of the same court granting the motion of the third-party defendant for summary judgment, dismissed the third-party complaint and declared that the third-party defendant is not obligated to defend or indemnify it in the main action.

ORDERED that the judgment is affirmed, with costs.

On May 9, 2001, in the course of a physical altercation between the plaintiff Nicholas Tangney, and the defendant third-party plaintiff, Andrew J. Burke, Tangney fell about 20 to 25 feet from a ledge and sustained injuries. The fight took place approximately one foot away from this ledge. Tangney commenced an action against Burke to recover damages for his injuries.

On February 25, 2002, Burke notified his parents' homeowner's insurer, the third-party defendant, Charter Oak Fire Insurance Co. (hereinafter Charter Oak), of the main action and requested that it defend and indemnify him. Charter Oak disclaimed coverage on March 20, 2002, based upon untimely notice, and because the incident was not an accident or occurrence under the [*2]policy and resulted in bodily injury excluded as "expected or intended" by the insured. Thereafter, Burke impleaded Charter Oak and sought a declaration that it was obligated to defend and indemnify him in the main action. Charter Oak later moved for summary judgment. The Supreme Court granted the motion on the ground that Burke's conduct constituted an assault which was not an "occurrence" covered by the policy. We affirm.

Summary judgment was properly granted to Charter Oak since it met its prima facie burden of demonstrating its entitlement to judgment as a matter of law, and, in opposition, the defendant third-party plaintiff failed to raise a triable issue of fact (see Alvarez v Prospect Hosp., 68 NY2d 320, 324).

The injuries Tangney allegedly sustained were inherent in the activity Burke engaged in, and Burke's assault cannot be construed as an accident within the definition of "occurrence" for which Charter Oak's policy affords coverage (see Allstate Ins. Co. v Mugavero, 79 NY2d 153, 161; Utica Fire Ins. Co. of Oneida County, N.Y. v Shelton, 226 AD2d 705, 706; Pistolesi v Nationwide Mut. Fire Ins. Co., 223 AD2d 94, 97; Salimbene v Merchants Mut. Ins. Co., 217 AD2d 991, 993-994; Mary & Alice Ford Nursing Home Co. v Fireman's Ins. Co. of Newark N.J., 86 AD2d 736, 737, affd 57 NY2d 656). Were there coverage under the definition of "occurrence" in Charter Oak's policy, then an exclusion would apply for bodily injury "which is expected or intended by any insured," including Burke (see Doyle v Allstate Ins. Co., 255 AD2d 795, 796; Monter v CNA Ins. Cos, 202 AD2d 405, 406).

Accordingly, the Supreme Court correctly declared that Charter Oak is not obligated to defend or indemnify Burke in the main action. In view of the foregoing it is unnecessary to reach Burke's remaining contention concerning the timeliness of his notice to Charter Oak of this incident.
RITTER, J.P., GOLDSTEIN, LUCIANO and CRANE, JJ., concur.

ENTER:

James Edward Pelzer

Clerk of the Court

Hughes v. Hoffman

 

Defendants appeal from an order of the Civil Court of the City of New York, Bronx County, entered March 15, 2004 (Mary Ann Brigantti-Hughes, J.) which denied their motion for summary judgment dismissing the complaint.

 

PER CURIAM:

Order entered March 15, 2004 (Mary Ann Brigantti-Hughes, J.) affirmed, with $10 costs.

Defendants met their initial burden to present competent evidence that plaintiff did not sustain a "serious injury" (Insurance Law § 5102[d]). Defendants' medical experts, while acknowledging MRI reports revealing bulging discs, concluded that plaintiff had no orthopedic or neurological disability (see Toure v Avis Rent-A-Car, 98 NY2d 345 [2002]; Brown v Achy, 9 AD3d 30 [2004]).

In response, plaintiff submitted objective evidence sufficient to raise a triable issue of fact on the threshold serious injury question. Plaintiff's treating physician quantified [*2]persistent range of motion limitations that he characterized as significant (see Toure v Avis Rent-A-Car Systems, supra), and recounted results of several diagnostic tests, including positive straight leg raising tests coupled with abnormal MRI and nerve conduction studies (see Brown v Achy, supra). There is sufficient explanation in the record for the gaps in plaintiff's course of treatment (Id.).

This constitutes the decision and order of the court.
Decision Date: August 08, 2005

H.R.3

SAFETEA-LU (Enrolled as Agreed to or Passed by Both House and Senate)


SEC. 10208. RENTED OR LEASED MOTOR VEHICLES.

(a) In General- Subchapter I of chapter 301 of title 49, United States Code, is amended by adding at the end the following:

 

`Sec. 30106. Rented or leased motor vehicle safety and responsibility

 

(a) In General- An owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate of the owner) shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle (or an affiliate of the owner), for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if--

(1) the owner (or an affiliate of the owner) is engaged in the trade or business of renting or leasing motor vehicles; and

(2) there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner).

 

(b) Financial Responsibility Laws- Nothing in this section supersedes the law of any State or political subdivision thereof--

(1) imposing financial responsibility or insurance standards on the owner of a motor vehicle for the privilege of registering and operating a motor vehicle; or

(2) imposing liability on business entities engaged in the trade or business of renting or leasing motor vehicles for failure to meet the financial responsibility or liability insurance requirements under State law.

 

(c) Applicability and Effective Date- Notwithstanding any other provision of law, this section shall apply with respect to any action commenced on or after the date of enactment of this section without regard to whether the harm that is the subject of the action, or the conduct that caused the harm, occurred before such date of enactment.

 

(d) Definitions- In this section, the following definitions apply:

(1) AFFILIATE- The term `affiliate' means a person other than the owner that directly or indirectly controls, is controlled by, or is under common control with the owner. In the preceding sentence, the term `control' means the power to direct the management and policies of a person whether through ownership of voting securities or otherwise.

(2) OWNER- The term `owner' means a person who is--

(A) a record or beneficial owner, holder of title, lessor, or lessee of a motor vehicle;

(B) entitled to the use and possession of a motor vehicle subject to a security interest in another person; or

(C) a lessor, lessee, or a bailee of a motor vehicle, in the trade or business of renting or leasing motor vehicles, having the use or possession thereof, under a lease, bailment, or otherwise.

(3) PERSON- The term `person' means any individual, corporation, company, limited liability company, trust, association, firm, partnership, society, joint stock company, or any other entity.'.

 

(b) Clerical Amendment- The analysis for such chapter is amended by inserting after the item relating to section 30105 the following:

 

30106. Rented or leased motor vehicle safety and responsibility.

 

\

 

***** v. MetLife Auto & Home


 Order, Supreme Court, New York County (Paul G. Feinman, J.), entered March 24, 2004, which granted defendants' motion for summary judgment dismissing the complaint and denied plaintiffs' cross motion for partial summary judgment, unanimously modified, on the law, to the extent of reinstating the first cause of action for a declaratory judgment and the second cause of action for money damages arising from breach of contract, and otherwise affirmed, without costs.

Matthew ***** is the son of the policyholders, and was employed part-time at a bar known as "Le Bar Bat" as a banquet assistant. Six former female employees of the bar brought a federal lawsuit alleging sexually and, in some cases, racially discriminatory treatment by the bar and various of its employees. Four of the eleven causes of action alleged in the federal complaint were asserted against Matthew. However, the District Court dismissed three of those causes, leaving only the one alleging defamation and libel per se. Specifically, Matthew was alleged to have distributed flyers in the neighborhood where the former employees resided, which stated the women had been arrested for prostitution and sex crimes involving minors, and were suspected of drug abuse. Matthew's affidavit in opposition to defendants' motion for summary judgment claimed he distributed the flyers at the behest of his boss (a codefendant in the federal action) and that he was not told the content of the flyers. He further claims that after distributing some flyers, he took the time to read one, at which point he stopped distributing them and threw away the rest in his possession. After receipt of the summons and complaint in the federal action, the *****s made a claim to Metropolitan requesting that it provide a defense in the lawsuit. Metropolitan disclaimed in a letter stating that the claims asserted did not constitute an "occurrence" as defined in the policy, the nature of the damages sought did not fall within the policy definitions of either "bodily injury" or "property damage," and that the policy excluded coverage for intentional acts, where the resultant harm was inherent in the nature of the alleged acts. The *****s retained an attorney to defend Matthew at their own expense. Subsequently, he elected to proceed pro se.

Four of the federal plaintiffs brought an action in Supreme Court, New York County, against various of the federal defendants, including Matthew, for violation of New York State and New York City Human Rights Laws. Matthew represented himself and the actions were [*2]settled for $30,000.

Plaintiffs thereafter brought this action seeking a declaration that Metropolitan breached its policy of insurance by refusing to provide a defense and indemnity. They also sought monetary damages. The complaint also alleged that Metropolitan had violated the Insurance Law and the General Business Law because of deceptive business practices. Metropolitan moved for summary judgment dismissing the complaint on the ground that Matthew's actions did not meet the definition of an "occurrence" under the policy. It also argued that the policy contained an exclusion for intentional acts of the insured. Unlike its disclaimer letter, however, Metropolitan did not assert that the nature of the damages sought do not fall within the definitions of "bodily injury." Although it did not make a declaration in Metropolitan's favor, the IAS court granted the motion, holding the underlying federal complaint set forth allegations of intentional actions that are not accidental in nature, thus falling within the policy's exclusion of coverage. It also dismissed the causes of action claiming deceptive business practices.

A liability insurer is obligated to defend its insured in a pending lawsuit if the pleadings allege a covered occurrence, even though facts outside the pleadings indicate that the claim is not covered (Fitzpatrick v American Honda Motor Corp., 78 NY2d 61, 63 [1991]). This duty to defend is broader than an insurer's duty to indemnify and should be "liberally construed . . . regardless of the insured's ultimate likelihood of success on the merits" (General Motors Acceptance Corp. v Nationwide Ins. Co., 4 NY3d 451, 456 [2005]). "[A]n insurer can be relieved of its duty to defend if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision" (Allstate Ins. Co. v Zuk, 78 NY2d 41, 45 [1991]).

Where a policy provides coverage for "bodily injury," such coverage encompasses a claim for "purely emotional distress" (see Lavanant v General Acc. Ins. Co. of Am., 79 NY2d 623, 630-631 [1992]). Thus, if the policy is otherwise found to provide coverage for Matthew's conduct, the fact that the injuries suffered were emotional rather than physical is not a ground for disclaimer.

The policy requires that Metropolitan provide a defense where there has been an occurrence, i.e., an accident that results in bodily injury. Exactly what constitutes an accident is not defined in the policy. However, an accident may be considered "an event which is unanticipated and the product of thoughtlessness rather than willfulness" (McGroarty v Great Am. Ins. Co., 36 NY2d 358, 363 [1975]). Indeed, "No all-inclusive definition of 'accident' is possible, nor any formulation of a test applicable in every case, for the word has been employed in a number of senses and given varying meanings depending upon the relevant context" (Matter of Croshier v Levitt, 5 NY2d 259, 262 [1959]).

An intentional act may, but need not necessarily, result in intended consequences. "Clearly more than a causal connection between the intentional act and the resultant harm is required to prove that the harm was intended" (Allstate Ins. Co. v Mugavero, 79 NY2d 153, 160 [1992]).

Here, Matthew claims he distributed the defamatory flyers without knowledge of their falsity and without intent to cause harm. The policy in question does not exclude claims for defamation. Since the waitresses were not public figures, in order to recover on their cause of action for defamation they
would have had to make "a showing of common-law malice, or ill-will" (Town of Massena v Healthcare Underwriters Mut. Ins. Co., 98 NY2d 435, 445 [2002]). Although the act of [*3]distributing the flyers was obviously intentional, the present record does not yet support a conclusion that the consequence, i.e., the defamation, was. There are questions concerning Matthew's knowledge and state of mind at the time of the incident that require further development. While Matthew's claim that he did not read the flyers may present an issue of credibility, it is not so incredible that it must be rejected as a matter of law.

Therefore, plaintiffs have raised a question of fact as to whether the dissemination was an occurrence. Inquiry should be made to determine whether Matthew was free of ill-will, as he claims, before determining whether the distribution of the flyers was an occurrence.

The same reasoning applies to Metropolitan's claim that the policy excludes coverage for bodily injury resulting from the insured's intentional acts. If it is ascertained that Matthew "reasonably expected or intended" to defame the waitresses, he would not be entitled to the costs of his defense, or to indemnity. Unlike the request for coverage in the first instance, the burden of demonstrating that the exclusion applies lies with the insurer (see Frontier Insulation Contrs., Inc. v Merchants Mut. Ins. Co., 91 NY2d 169, 175 [1997]).

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

ENTERED: AUGUST 11, 2005

CLERK

 

Utica Mutual Insurance Company v. Reid

 

Respondent appeals from an order and judgment (one paper) of the Supreme Court, New York County (Marcy Friedman, J.), entered June 16, 2004, which, upon reargument, granted the insurer's application to stay arbitration of an underinsured motorist claim.


MAZZARELLI, J.

This is a case where coverage for a claim was denied under a specific provision of the [*2]Supplemental Uninsured/Underinsured Motorists Endorsement (SUM Endorsement) of the policy under which respondent-appellant seeks to recover.

At the time of the accident, respondent Reid was driving a 1999 Honda motorcycle that was insured not by petitioner Utica Mutual Insurance Company, but rather under a policy issued by Progressive Northeastern Insurance Company. Reid also owned a 1998 Dodge Caravan insured by Utica. The Utica policy had the relevant SUM Endorsement. In the accident, Reid collided with a 1999 Plymouth, and he recovered the full amount of its policy, $25,000, on his third-party liability claim. Reid apparently suffered a broken leg and ankle, and he sought additional underinsured benefits. He made the claim at issue for SUM benefits under the Utica policy on his 1998 Dodge Caravan. In so doing, he filed a notice of claim in which he fraudulently misstated the vehicle he was driving at the time of the accident as the Dodge and not the motorcycle.

Utica raised no immediate objection to the claim and asked for relevant medical information. Eventually, Utica uncovered Reid's misrepresentation. Some six months after the claim was filed, it disclaimed coverage in a February 12, 2002 letter, based upon an exclusion in the SUM Endorsement. Notably, Reid did not correct his misrepresentation at any time prior to February 12, 2002.

There are two parts to the Utica policy which are at issue, one dealing with liability coverage and the other being the SUM Endorsement. The SUM Endorsement is drafted to operate, essentially, as a discrete insurance agreement within the larger liability policy. It affords specific protection to an insured in the event, inter alia, that a tortfeasor has a liability limit inadequate to compensate the claimant for his injuries. Reid made his claim under the SUM Endorsement, not under the liability portion of the policy, since he is not a third-party claimant as against Utica. The SUM Endorsement contains a number of conditions and exclusions. These include, under "CONDITIONS" that,

1. Policy Provisions. None of the Insuring Agreements, Exclusions or Conditions of the policy shall apply to this SUM coverage except: "Duties After An Accident or Loss"; "Fraud"; and "Termination" if applicable (emphasis supplied).


Thus, the "Exclusion" in the liability section of the Utica policy excludes coverage for the ownership or use of "Any motorized vehicle having fewer than four wheels," is inapplicable to the SUM Endorsement and to this case.

However, the SUM Endorsement has its own set of exclusions. They include the following:

EXCLUSIONS

This SUM coverage does not apply:

. . . (2) To bodily injury to an insured incurred while occupying a motor vehicle owned by that insured, if such motor vehicle is not insured for SUM coverage by the policy under which a claim is made [emphasis supplied].

[*3]

It is conceded that Reid was riding the motorcycle when he was injured and that the vehicle covered by the Utica policy was a Dodge Caravan. As noted, Reid had an entirely separate policy for the motorcycle from Progressive Northeastern Insurance Company. Thus, Reid cannot recover SUM benefits for injuries he sustained while operating his 1999 Honda motorcycle because, pursuant to the exclusion in the SUM Endorsement, the motorcycle is not insured for additional coverage under the Utica policy.

As the claim is being denied based upon a SUM exclusion, the question of whether the disclaimer was effective must be answered (see Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185 [2000]). Insurance Law § 3420(d), which requires an insurer disclaiming coverage under the policy to "give written notice as
soon as is reasonably possible of such disclaimer of liability or denial of coverage," is inapplicable to these facts. Unlike the Worcester case, where there was no evidence of chicanery, here Reid made his claim for SUM benefits based upon a fraudulent misrepresentation of a critical fact: the claim form, on page one, misstates that Vehicle #1 (Reid's vehicle in the accident) was a 1998 Dodge Caravan. This was a material misrepresentation that Reid never attempted to correct until Utica discovered it and disclaimed coverage. Thus, the concerns articulated in Worcester regarding prejudice to a claimant (id. at 190), based upon the timing of the disclaimer, are not implicated here.

Rather, fatal to Reid's claim was his continued failure to disclose a material fact that it was the motorcycle, not the 1998 Dodge Caravan, that was involved in the accident (see Central Gen. Hosp. v Chubb Group of Ins. Cos., 90 NY2d 195 [1997]; Matter of Metro Med. Diagnostics v Eagle Ins. Co., 293 AD2d 751 [2002]). Utica's actions were thus proper, and its disclaimer valid.

Accordingly, the order and judgment (one paper) of the Supreme Court, New York County (Marcy Friedman, J.), entered June 16, 2004, which, upon reargument, granted the insurer's
application to stay arbitration of an underinsured motorist claim should be affirmed, without costs.

All concur.

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

ENTERED: AUGUST 11, 2005

CLERK

 

Cassadei v. Nationwide Mutual Fire Insurance Company

 



Spain, J.

Appeal from an order of the Supreme Court (Catena, J.), entered September 30, 2004 in Schenectady County, which, inter alia, granted defendant's motion for summary judgment dismissing the complaint.

This litigation involves a piece of residential real property formerly the home of plaintiff's late parents located at 1309 4th Street in the City of Schenectady, Schenectady County. Plaintiff, in his capacity as attorney-in-fact for his mother, executed a deed in 1987 purporting to convey the property from his mother to himself. Plaintiff's mother died in 1995 and his father died in 1998. In November 1999, plaintiff obtained a homeowners insurance policy from defendant covering the property. However, based on a deed executed by plaintiff's mother in 1987, plaintiff's sister asserted title to the property and commenced an action to quiet title (see RPAPL art 15). By order entered on December 22, 2000, Supreme Court (Lynch, J.) declared plaintiff's deed to be null and void given plaintiff's failure to rebut the presumption of impropriety and self-dealing inherent in such a transaction and recognized plaintiff's sister as the rightful owner of the property. Plaintiff apparently did not appeal that order, but nonetheless continued to make insurance premium payments to defendant through January 2001.

In late November and early December 2000, at a time when the property was not occupied, it was vandalized and sustained significant water damage, prompting plaintiff to file a [*2]claim with defendant on December 3, 2000. Soon thereafter, Supreme Court rendered its decision which established that plaintiff did not own the property. Defendant's investigation of the claim revealed that decision, as well as the fact that plaintiff's sister maintained insurance on the property through another carrier. In April 2001, defendant denied coverage on the ground, among others, that plaintiff had no insurable interest in the property (see Insurance Law § 3104). Plaintiff then commenced the instant action, alleging breach of contract and unjust enrichment. On cross motions by the parties for summary judgment, Supreme Court (Catena, J.) granted summary judgment to defendant and dismissed the complaint. On plaintiff's appeal, we affirm.

In New York, "[n]o contract or policy of insurance on property made or issued in this state, . . . shall be enforceable except for the benefit of some person having an insurable interest in the property insured" and an "insurable interest" is "any lawful and substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary damage" (Insurance Law § 3401). Defendant met its initial burden of establishing a prima facie entitlement to summary judgment by asserting plaintiff's adjudicated lack of title ownership, compounded by his misrepresentation to Supreme Court of this fact as late as March 2001 when, in his "Sworn Statement in Proof of Loss," he declared himself the fee owner of the property. Thus, the burden shifted to plaintiff to present a material question of fact as to whether he is "'so situated as to be liable to loss if [the property is] destroyed by the peril insured against'" or that his interest in the property is "'connected with its safety and situation as will cause the insured to sustain direct loss from its destruction'" (Scarola v Insurance Co. of N. Am., 31 NY2d 411, 412-413 [1972], quoting National Filtering Oil Co. v Citizens' Ins. Co. of Missouri, 106 NY 535, 541 [1887]; see Insurance Law § 3401).

It has been finally established that the deed executed by plaintiff was a nullity, thus plaintiff never had any ownership interest in the property. Although ownership is not necessary to create an insurable interest (see Scarola v Insurance Co. of N. Am., supra at 412-413), plaintiff failed to present evidence to establish that he had any right to possession [FN1]. At best, he enjoyed a license to use the property at the time of the loss. He kept certain personal possessions at the property, but his claim was limited to damage to the property itself and not to those personal items in which he might have an insurable interest. Accordingly, Supreme Court properly found that plaintiff failed to raise a material question of fact precluding summary judgment (see Judge v Travelers Ins. Co., 262 AD2d 983, 984 [1999]; National Superlease v Reliance Ins. Co. of N.Y., 123 AD2d 608, 608-609 [1986], lv denied 69 NY2d 611 [1987]; cf. Etterle v Excelsior Ins. Co. of N.Y., 74 AD2d 436, 440 [1980]).

We deem plaintiff's equitable claim based on unjust enrichment which Supreme Court rejected in light of plaintiff's "self-dealing" abandoned by his failure to assert the argument in his brief on appeal (see Gibeault v Home Ins. Co., 221 AD2d 826, 827 n 2 [1995]). Finally, in [*3]light of our holding that plaintiff had no insurable interest in the property, we need not address the parties' arguments regarding the applicability of the various policy exclusions asserted by defendant.

Cardona, P.J., Peters, Carpinello and Mugglin, JJ., concur.

ORDERED that the order is affirmed, with costs.

Footnotes



Footnote 1: At oral argument plaintiff asserted, for the first time, that he had a viable adverse possession claim to the property at the time of the loss. Inasmuch as this argument was not raised before Supreme Court, it is not preserved for appellate review. In any event, we note that the property was occupied by at least one of plaintiff's parents until October 1998. Accordingly, plaintiff would not be able to establish possession "exclusive of any other right" during the applicable 10-year statutory period (see RPAPL 511).


 

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