Coverage Pointers - Volume VII, No. 4

Conflicts of Interest and the Right to Choose Counsel

 

The leading case in this week’s edition is one to which you should pay very close attention.  It’s the Third Department’s decision in Elacqua v Physicians’ Reciprocal Insurers decided yesterday.

You know that weird uncle you have that nobody wants to talk about at the Thanksgiving table?  The family members knows he’s out there but, following the “ostrich” approach to life, prefer to bury their collective heads in the sand and pretend he doesn’t exist…  Every so often he shows up at a family reunion and you have to explain him away to the kids… 

He exists in the world of New York insurance coverage as well.  In that world, it’s the “insured’s right to select counsel when a conflict exists” - known more notoriously in California (and around the country) as the insured’s right to select Cumis counsel (see: San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. 162 Cal.App.3d 358, 208 Cal.Rptr. 494, 50 A.L.R.4^th 913 (1984).

New York has such a rule as well, and it had its most famous iteration in a case involving Dr. Goldfarb, a dentist sued for molesting his patients. Goldfarb had a policy of professional liability insurance in place that covered him for claims of “undue familiarity.”  I’ve often wondered if you can purchase a policy covering “due familiarity,” but that’s an entirely different question for another day.

Anyway, when sued for sexual abuse of a patient (he had been convicted of Sexual Abuse under the criminal laws), he turned the civil suit papers over to his E & O carrier for defense and indemnity.  The case worked its way up to the Court of Appeals and the high court held that, indeed, Dr. Goldfarb was entitled to a defense under the policy because of the “undue familiarity” coverage.  However, any finding that he intentionally assaulted his patient – which could give rise to punitive damages - would not be covered by the policy because coverage for assault would be against public policy.

The Court went on to hold (three years before the California Court of Appeal rendered its decision in Cumis) that there was a potential conflict of interest in having insurance company-assigned defense counsel defend Dr. Goldfarb because that counsel might somehow (unethically, of course) steer the defense of the case into non-covered causes of action. 

[Actually, the Court first suggested this solution back in 1956 in its landmark decision in Prashker v. United States Guarantee Company, 1 N.Y.2d 584; 136 N.E.2d 871; 154 N.Y.S.2d 910 for the many among you who are students of insurance history.]

The Court went on to hold that this potential conflict of interest gave Dr. Goldfarb the right to designate defense counsel of his choice, rather than accept the insurer’s designated defense counsel, whose reasonable fees are to be paid by the insurer.  The Court reasoned:

 

We note also that although the insurer need not indemnify Dr. Goldfarb for any liability for punitive damages, it must, nonetheless, defend him in the pending lawsuit because it is a claim within the stated coverage. Moreover, inasmuch as the insurer’s interest in defending the lawsuit is in conflict with the defendant’s interest—the insurer being liable only upon some, but not all, of the grounds for recovery asserted—defendant Goldfarb is entitled to defense by an attorney of his own choosing, whose reasonable fee is to be paid by the insurer.*

In one of the most famous footnotes in modern insurance coverage history, the Court outlined the approach that needs to be taken when deciding whether or not the insured is entitled to select his, her or its own counsel:

      - - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -

*That is not to say that a conflict of interest requiring retention of separate counsel will arise in every case where multiple claims are made. Independent counsel is only necessary in cases where the defense attorney’s duty to the insured would require that he or she defeat liability on any ground and his or her duty to the insurer would require that he defeat liability only upon grounds which would render the insurer liable. When such a conflict is apparent, the insured must be free to choose his own counsel whose reasonable fee is to be paid by the insurer. On the other hand, where multiple claims present no conflict—for example, where the insurance contract provides liability coverage only for personal injuries and the claim against the insured seeks recovery for property damage as well as for personal injuries—no threat of divided loyalty is present and there is no need for retention of separate counsel. This is so because in such a situation the question of insurance coverage is not intertwined with the question of the insured’s liability.
Public Service Mutual Insurance Company v. Goldfarb, 53 N.Y.2d 392, 442 N.Y.S.2d 422 (1981).

 

So… there it is… where there is a threat of so-called divided loyalty, the insured can select his, her or its own counsel, and the insurer must pay the “reasonable fees” of the selected counsel.

Perhaps that was too much background discussion for some, so let me now segue to the Third Department’s decision in Elacqua.

After Prashker and Goldfarb, carriers recognized that they could be forced to turn over the defense of lawsuits to lawyers and law firms with whom they had no previous relationship (and perhaps, lawyers and law firms that had absolutely no idea how to defend a civil lawsuit). 

The right to select counsel was the “weird uncle” in the equation.  Carriers knew that right existed and knew that, from time to time, it would appear, without invitation, at the family picnic, when an insured would write the letter, raising the conflict and insisting on the right to select counsel.  But unless it appeared in that way, carriers wouldn’t talk about it and, for the most part, the right to designate counsel was ignored.

Fortunately for insurers and insureds (who might otherwise be saddled with lawyers they knew and liked but were inexperienced), the Court of Appeals did not instruct the insurance industry that carriers had an obligation to notify the insureds of either the potential conflicts (as defined by the Court) or the right to select counsel.

And, equally as surprising, in the half-century since Prashker and the quarter-century since Goldfarb, with the exception of a few scattered lower court decisions, the courts have not, until yesterday, directed that insurers so notify insureds of the right to select counsel when a conflict exists.

Tucked away at the end of the Elacqua decision yesterday, the Appellate Division, Third Department, directed otherwise:

As previously observed, counsel for plaintiffs [the insureds] correctly discerned that there existed a conflict of interest in his representation of all three plaintiffs inasmuch as defendant took the position that some of the underlying malpractice claims were covered under the policy while others were not … In such case, plaintiffs were entitled “to defense by an attorney of [their] own choosing,” whose fees were to be paid by defendant (Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392, 401 [1981]). While Supreme Court correctly recognized such entitlement, it held that it was constrained by Sumo Container Sta. v Evans, Orr, Pacelli, Norton & Laffan (278 AD2d 169 [2000], supra) to conclude that defendant had no obligation to advise plaintiffs of this right.

We decline to follow that part of the Sumo decision.  If defendant was obligated to defend plaintiffs in the underlying action and, as the decision in Public Serv. Mut. Ins. Co. v Goldfarb (supra) makes clear, provide them independent counsel of their own choosing, it follows that defendant was required to advise them of that right. To hold otherwise would seriously erode the protection afforded.

Those are compelling words from the Third Department.  All kinds of questions need to be answered in the near future:

·       What is the penalty for a carrier that does not notify the insured of its right to select counsel when a potential conflict exists? 

·       Will other Departments follow suit with a similar instruction?

·       Will the Court of Appeals speak on the subject?

·       When will the Court of Appeals realize that skilled and ethical defense lawyers selected by insurers would never try to steer cases into non-covered areas because we are bound by the Canons of Ethics to properly represent our clients when selected to so do?

Whatever answers may come to these questions (and about a dozen others I have), one thing is certain: in the Third Department, we seem to have a new rule to be followed and the rest of the state needs to sit up and take notice.

---

8/26/05            Elacqua v. Physicians Reciprocal Insurance
Appellate Division, Third Department
Court Equates Limitation with Exclusion.  Moreover, Court Requires Liability Carrier to Notify Insured of Conflict of Interest and Right of Insured to Select for Separate Counsel
This one’s worth reading closely on three separate points, the final one worth reading two or three times.

Physicians Reciprocal Insurance (PRI) assigns the defense of a medical malpractice lawsuit to defense counsel.  It takes the position that the partnership in which the physicians who are sued are associated is provided with limited coverage, not as broad as that provided to the physicians, based on a Limitation of Liability clause in policy (not based on a policy exclusion).  Court holds that the clause is “kind of like” an exclusion so a failure to raise it in a timely method can lead to a waiver of that limitation, like it would an exclusion.  Editors Note: Court surely appears to be stretching the insurance law to reach THAT conclusion.

In any event, PRI alleges that it timely sent out notice of that limitation in a coverage letter sent by certified mail but could not find or produce the return receipts on the certified mail.  Court held that failure to produce the return receipts raises a question of fact as to whether these letters were sent.  Editors Note:  Who says you need to send out by certified mail, anyway?  Not the Insurance Law.

Finally, the Court held that there was a potential conflict between the interests of the insured and the insurer which gave rise to the insured’s right to select counsel at the carrier’s expense.  That’s not an unusual finding.  However, the Court held, contrary to long established case law, that when such a potential conflict exists, the carrier must NOTIFY the insured of its right to select counsel, whose reasonable fees are to be paid by the carrier. 

If this decision because the law of the land, it is now the law in the Third Department, it will require a wholesale change in the way disclaimer and reservation of rights letters are crafted in the future. Courts have not required carriers to notify insured of this right, which exists when there is a potential of a conflict between the coverage interests of the insured and the carrier.

Watch this space for further developments!

8/25/05            Evanston Insurance Company v.  Po Wing Hong Food Market
Appellate Division, First Department
Broker Binds Insured to Additional Premium

Evanston issued a policy through a third party broker to the plaintiff where an initial policy premium was paid and then a premium audit would be conducted at the end of the policy term to calculate any additional premium due (based upon gross receipts of the company).  The audit revealed an additional $38,572.00 due and the plaintiff refused to pay claiming the broker obtained the wrong policy.  The insured did not dispute that he relied on his insurance broker to obtain coverage on its behalf, and the broker conceded that the policy relied on by Evanston is the policy it obtained for defendant. Therefore, the insured was bound by the broker’s actions in obtaining the policy on its behalf and the additional premium must be paid. 

8/22/05            Jenkins v. State Farm Insurance Company
Appellate Division, Second Department
UM Claim Barred By Six Year Statute of Limitations

This is an action to recover UM benefits pursuant to a contract of insurance.  The Lower Court denied State Farm’s motion to dismiss the complaint as time-barred.  The Second Department reverses.   Claims made under the uninsured motorist endorsement of automobile insurance policies are governed by the six-year statute of limitations applicable to contract actions. The claim accrues either when the accident occurred or when the allegedly offending vehicle thereafter becomes uninsured. The more than 10-year time lapse between the date of the accident and the plaintiff's assertion of a claim in this action for uninsured motorist benefits is prima facie evidence that the action was untimely. 

8/22/05            Fryar v. First Student, Inc
Appellate Division, Second Department
Failure to Submit Medical Affidavit and Sworn Medical Records Fatal to Plaintiff on Serious Injury Threshold Motion

The affirmation of the defendants' physician established that the subject accidents neither caused nor exacerbated the condition of the plaintiff's neck or lumbar spine, and that her shoulder condition was degenerative in nature. Furthermore, the plaintiff's emergency room records, submitted by the defendants, demonstrated that she fractured neither a rib nor her thumb.  The plaintiff failed to submit a medical affidavit or affirmation substantiating her claims.  The remainder of the plaintiff's submissions consisted of unsworn medical records, which, even if they had been considered, failed to demonstrate that she had sustained a serious injury in any of the alleged accidents.

8/22/05            Parmar v. Hermitage Insurance Company
Appellate Division, Second Department
Issues of Fact Whether Notice Was Timely and Whether Misrepresentation by Insured was Material in Order to Disclaim Coverage

Hermitage denied coverage on the grounds that notice was untimely under the policy and that the insured made a material misrepresentation in the insurance application.  The court found triable issues of fact as to when the insured acquired knowledge that an infant was injured on the premises and when the defendant was first notified of the accident. Hermitage also failed to demonstrate its entitlement to summary judgment based on a material misrepresentation by the insured – Hermitage claimed the rental of the basement as a third-family dwelling violated the "Classification Limitation" of the policy and it issued the policy in reliance on the insured’s representation that the premises was a two-family dwelling.   The court holds that the conclusory statement by the Hermitage underwriter that it would not have issued the policy had it known that the premises included a third apartment, located in the basement, was insufficient to establish materiality as a matter of law. 

8/18/05:           Stevens v. Homiak Transport, Inc
The “One-Two” (Toure-Pommels) Punch Knocks Out Another Case on “Serious Injury”
Appellate Division, First Department
OK, so we continue to pat ourselves on the proverbial back, as we watch the post-Toure and post-Pommels decisions proving us right. We weren’t kidding when we predicted a sea-change in the way the courts will deal with “Serious Injury” threshold motions, and we’re seeing it.

What happened here?  The usual kind of soft tissue injury leads to a motion to dismiss by defense counsel, who offered sufficient medical evidence to shift the burden to the plaintiff.  Plaintiffs’ doctor opines with respect to two plaintiffs: "Both of their conditions persist as the inability to move their necks and lower backs to the full range of what is normal, continues and, with age, and the normal degenerative process attendant thereto, can only expect to worsen as a direct result, with a reasonable degree of medical certainty, causally related to this accident, they cannot fully use their necks and lower backs as a normal person could, and their conditions are therefore permanent. Definite significant and permanent injuries to their cervical spines and lumbosacral spines, continue to this day and will naturally, with age worsen."

“Not enough to defeat the motion,” sayeth the court.  The plaintiff’s doc “failed to provide any foundation or objective medical basis for his conclusion that plaintiffs were significantly and permanently injured as a result of the accident.”  Vague references to exams and report suggesting a ”marked restriction of motion of the cervical and lumbar spines and other injuries set forth therein" didn’t cut it as plaintiffs' subjective complaints are not sufficient to satisfy the statutory threshold with a cite to Toure v Avis Rent A Car Sys., 98 NY2d 345, 350 [2002]).  Even the objective measurements in range of motion were not correlated to any limitations in plaintiff’s activities.  Then with a nod to Pommells v Perez, __ NY3d __, 2005 WL 975859, 2005 NY LEXIS 1041 [Apr. 28, 2005], the court noted that the plaintiff’s doctor failed to explain a four year gap in treatment.  Case dismissed.

8/18/05            Travelers Casualty & Surety Co. v. Gerling Global Reinsurance Corp.
Second Circuit Court of Appeals
Second Circuit Reverses District Court and Upholds Cedent's One Occurrence Allocation of Asbestos Settlement

The Second Circuit upheld the applicability of the follow-the-fortunes doctrine in post-settlement allocation situations. In reversing the District Court and granting summary judgment to the cedent, the court relied on its holding in North River Insurance Co. v. ACE American Reinsurance Co., 361 F.3d 134 (2d Cir. 2004) as controlling. The court held that "a cedent's post-settlement allocation is subject to follow-the-fortunes, regardless of any pre-settlement position taken by the cedent, whether that position is articulated in a pre-settlement risk analysis, or implicit in the settlement with the underlying insured." As long as the cedent's allocation meets the typical follow-the-fortunes requirements of good faith, reasonableness, and within the applicable policies, the follow-the-fortunes doctrine extends to a cedent's post-settlement allocation decisions. Here, the reinsurer could raise no triable issues of fact that would preclude summary judgment against the reinsurer.

Submitted by: Larry P. Schiffer, LeBoeuf, Lamb, Greene & MacRae LLP

8/15/05            Metropolitan Casualty Insurance Company v. Travelers Insurance Company
Appellate Division, Second Department
Insured has Obligation to Give Notice to Excess Carrier When Complaint Seeks Damages that Reach Excess Layer;  Excess Carrier has No Obligation to Deny Coverage Until it is Advised that Excess Layer May be Reached

Excess carrier successfully denies coverage based on late notice. Here, on 10/4/01, Metropolitan, the primary carrier, faxed a note to the excess carrier, Travelers, but only indicated date of accident and fact that an excess policy existed.  In fact, in February of 2000, insured was served with Summons and Complaint alleging damages that easily reached the excess layer. In accordance with the terms of its policy, Travelers was entitled to notice as soon as reasonably practicable after the insured became aware that the accident was likely to be a covered occurrence under Travelers' policy. The insured became so aware when the summons and complaint seeking damages in excess of two million dollars was served in February 2000. However, the October 4, 2001, fax to Travelers only set forth the accident date and that an excess policy existed. Travelers was not apprised of the date that the insured became aware of possible damages in excess of the primary policy limits until it received a copy of the summons and complaint on October 29, 2001. Consequently, the timeliness of the November 6, 2001, disclaimer by Travelers should have been measured from October 29, 2001, and not from the October 4, 2001, fax date.

8/12/ 2005       Bernard v. Mumuni
Issue of Fact Arose as to Whether Father had Given his Son Implied Consent to Operate a Car After Leaving the Keys on the Kitchen Table
Appellate Division, First Department
This personal injury action arose after the plaintiff was involved in an accident with a minivan owned by the defendant. At the time of the accident the defendant had entrusted the minivan to a friend and the friend's son had taken the minivan without permission. The Appellate Division affirmed the denial of the defendant's motion for summary judgment after finding there was an issue of fact as to whether the father had given the son implied consent to use the minivan by leaving the keys on the kitchen table.  Editor’s Note:  Excellent discussion, in majority opinion, and dissent, about rules relating to implied permission to drive a car.

Submitted by: Michael A. Tanenbaum & Zachary Barth [Sedgwick, Detert, Moran & Arnold LLP] -

 

Audrey’s Angle on No-Fault
 

In this 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.

8/22/05            In the Matter of the Arbitration between the Applicant and Respondent
Eligible Injured Person’s Violation of Policy Conditions By Failing to Submit To An IME and EUO Is Imputed To Assignee – Medical Services Provider.
Arbitrator Maria G. Schuchmann, Esq.

The Angle:    

I recently had an attorney argue at a no-fault arbitration demanded by the eligible injured person that a provider’s failure to comply with the requisite timeframe for filing a proof of claim, which was the basis for the denial of medical services, could not be imputed onto the eligible injured person.  I, of course, took the position that if the eligible injured person sought to arbitrate the denials and obtained the appropriate release of assignment of benefits then he bore the burden of establishing that the provider did not violate the policy.  This arbitration decision, as I view it, supports my argument – If an Applicant is going to arbitrate a denial that was based upon a provider or an eligible injured person violating a policy condition that Applicant bears the burden of establishing that the policy was not violated.  The fact that the applicant was not the individual who failed to appear for the IME or EUO, or failed to timely submit his proof of claim is of no consequence.  The Applicant steps into the shoes of the assignor and must establish that the policy was not violated.

The Analysis:

The eligible injured person was injured in a February 12, 2004, motor vehicle accident which precipitated the prescription of medical supplies from Applicant’s company on February 19, 2004 and March 25, 2004.  The insurer denied payment of the supplies based upon the eligible injured person’s failure to attend IMEs and an EUO.  The insurer submitted in support of its position, the relevant IME and EUO notices that were properly sent to the eligible injured person.  The Applicant did not submit any evidence in the form of an affidavit or testimony from the eligible injured person providing a reason as to why he did not meet his obligations under the policy.

Arbitrator Schuchmann held that the eligible injured person’s failure to attend the requested examination deprived the insurer of its verification right thereby violating the condition precedent to coverage under the policy.  More importantly, Applicant as the assignee “was dependent on Claimant’s [eligible injured person] compliance with the terms of the policy.  Unfortunately, Claimant violated the policy and Applicant is bound by Claimant’s actions and subject to the denial of all benefits.”

8/16/05            Governor Pataki Vetoes Bill To Amend Insurance Law to Permit Payment to Health Care Providers for Emergency Services Rendered To Intoxicated Motor Vehicle Operators

The New York State Assembly delivered a Bill to Gov. Pataki, which was vetoed, that would amend the Insurance Law §5103(1)(b) by adding a new paragraph 2-a to permit payment, under the no-fault system, to health care providers for emergency services rendered to intoxicated motor vehicle operators.  If signed into law, the amendment to the Insurance Law would require no-fault insurers to reimburse health care providers for any necessary medical services rendered to an intoxicated, injured driver arriving at a hospital for emergency medical treatment or to provide medical screening and stabilizing treatment for emergency medical conditions.  The Bill did not specify a time limitation for the treatment.  A similar Bill was vetoed by the Governor in 2001. 

Gov. Pataki’s veto message explained that the Bill was vetoed based upon the overbroad scope of coverage that would be provided and the unclear magnitude of the problem of lack of payment to health care providers for services of intoxicated drivers.  Also, Gov. Pataki emphasized that this Bill fails to include any comprehensive legislative reforms to the no-fault system that his administration has long advocated.  Despite this, Gov. Pataki ended the message by directing his staff to work with the Bill’s sponsors, as well as the affected stakeholders, to explore the magnitude of the problem and devise alternatives for assisting doctors, hospitals, and other health care providers in coping with the economic burden drunk drivers create. 
 

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.

8/23/05            Pham v. Hartford Insurance Company
Fourth Circuit Court of Appeals
On-assignment Employee Driving Drunk on Weekend not “Insured” under Business Auto Policy

Employee on temporary out-of-town assignment carousing with co-workers on weekend in own car was not using auto “in your business or your personal affairs” so as to be considered an insured under business auto insurance policy.

Submitted by: Tom Hird, Richards & Connor

8/19/05            McKinley v. XL Specialty Insurance Company
California Appellate Court
Insurance company did not act in bad faith by bringing subrogation action against plaintiff, where plaintiff was not an insured under the policy at issue.

The issue in this appeal was whether plaintiff was insured under defendant's insurance policy for damages to a rental aircraft. Plaintiff claimed that she was an insured under the policy and that the defendant should therefore have defended and indemnified her for the damages incurred rather than sued her for subrogation. After undertaking an independent review of the insurance policy, the appellate court agreed with the court below that McKinley was not insured under the policy for the damages in question. In reaching that determination, the court gave significant weight to a clause urging the purchase of outside insurance by the renter of the rental aircraft.

Submitted by: Submitted by: Michael A. Tanenbaum & Ross Marlin [Sedgwick, Detert, Moran & Arnold LLP]

8/16/05            Siemens Power Transmission & Distribution, Inc. v. Norfolk Southern Railway Co.
Eleventh Circuit Court of Appeals
Notice of Claim to Rail Carrier Need not State Damages with Specificity

Plaintiff had purchased an electrical transformer and arranged for rail shipment with Defendant. The transformer was damaged in transit and Plaintiff placed Defendant on notice of the damage but did not specify the exact amount of damages claimed. Plaintiff filed suit and on Defendant's motion for summary judgment the District Court dismissed the claim for Plaintiff's failure to adhere to Interstate Commerce Commission (now the Surface Transportation Board) regulation 49 CFR § 1005.2(b) which requires a notice of claim to a rail carrier to have a specific and determinable amount of damages. The Eleventh Circuit reversed finding that the purpose behind the regulation was to provide the carrier with adequate notice of the claim so that it could investigate the damage, not to relieve the carrier of liability.

Submitted by: Michael A. Tanenbaum & Zachary Barth [Sedgwick, Detert, Moran & Arnold LLP] -

  

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***** v. MetLife Auto & Home Insurance Company

 

Cocca & Pepe, LLP, New York (Matthew C. Cocca of counsel),
for appellants.
Rivkin Radler LLP, Uniondale (Merril S. Biscone of counsel),
for respondents.

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]).

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.


Laura & Matarrese, Esqs., Staten Island (Gregory P. Matarrese
of counsel), for appellant.
Hammill, O'Brien, Croutier, Dempsey & Pender, P.C.,
Mineola (Anton Piotroski of counsel), for respondent.




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.

Metropolitan Casualty Insurance Company v. Travelers Insurance Company

Michael Majewski (Anita Nissan Yehuda, Roslyn Heights, N.Y.,
of counsel), for appellant.
Morris, Duffy, Alonso & Faley, LLP, New York, N.Y. (Pauline
E. Glaser of counsel), for respondent.

In an action, inter alia, for a judgment declaring that the defendant is obligated to defend and indemnify the defendants in an underlying personal injury action entitled Gordy v Dubrow, pending in the Supreme Court, Suffolk County, under Index No. 3632/00, under an excess liability policy of insurance, the defendant appeals from an order of the Supreme Court, Nassau County (Mahon, J.), dated August 18, 2004, which granted the plaintiff's motion for summary judgment and denied its cross motion for summary judgment.

ORDERED that the order is reversed, on the law, with costs, the motion is denied, the cross motion is granted, and the matter is remitted to the Supreme Court, Nassau County, for the entry of a judgment declaring that the defendant, Travelers Insurance Company, is not obligated to defend and indemnify the defendants in the underlying personal injury action entitled Gordy v Dubrow, pending in Supreme Court, Suffolk County, under Index No. 3632/00, under the subject excess liability policy of insurance.

In February 1999 a vehicle owned and operated by Scott Gordy was involved in an accident with a vehicle owned by Eric Dubrow and operated by Delicia Dubrow. At the time of the accident, Eric Dubrow was insured under a primary liability policy, issued by the plaintiff Metropolitan Insurance Company (hereinafter Metropolitan), with policy limits of $250,000/$300,000, and an excess liability insurance policy issued by the defendant Travelers Insurance Company (hereinafter Travelers), with a policy limit of $2,000,000. In February 2000 the underlying personal injury action was commenced against the Dubrows, seeking damages in excess [*2]of $2,000,000. Travelers did not receive any notice of the accident or the action until October 4, 2001, when Metropolitan faxed to Travelers a copy of a letter which Metropolitan had received from the attorney for the plaintiffs in the underlying action. On November 6, 2001, Travelers disclaimed coverage.

The October 4, 2001, fax from Metropolitan did not constitute sufficient notice to Travelers. In accordance with the terms of its policy, Travelers was entitled to notice as soon as reasonably practicable after the insured became aware that the accident was likely to be a covered occurrence under Travelers' policy. The insured became so aware when the summons and complaint seeking damages in excess of two million dollars was served in February 2000. However, the October 4, 2001, fax to Travelers only set forth the accident date and that an excess policy existed. Travelers was not apprised of the date that the insured became aware of possible damages in excess of the primary policy limits until it received a copy of the summons and complaint on October 29, 2001. Consequently, the timeliness of the November 6, 2001, disclaimer by Travelers should have been measured from October 29, 2001, and not from the October 4, 2001, fax date.

Accordingly, the Supreme Court erred in concluding that the November 6, 2001, disclaimer was untimely as matter of law. Under the circumstances, and since there are no other issues of fact regarding the validity of the disclaimer, Travelers' cross motion for summary judgment should have been granted (see Insurance Law § 3420[d]; First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64; Matter of American Express Prop. Cas. Co. v Vinci, 18 AD3d 655; St. Charles Hosp. v Royal Globe Ins. Co., 18 AD3d 735; New York Cent. Mut. Fire Ins. Co. v Majid, 5 AD3d 447; see also Sayed v Macari, 296 AD2d 396; 1700 Assocs. v Public Serv. Mut. Ins. Co., 256 AD2d 456).

In light of our determination, we deem it unnecessary to reach Travelers' remaining contentions.

Since this is a declaratory judgment action, the matter must be remitted to the Supreme Court, Nassau County, for the entry of a judgment declaring that the defendant, Travelers Insurance Company, is not obligated to defend or indemnify the defendants under the subject excess policy in connection with the underlying personal injury action entitled Gordy v Dubrow, pending in Supreme Court, Suffolk County, under Index No. 3632/00 (see Lanza v Wagner, 11 NY2d 317, 334, appeal dismissed 371 US 74, cert denied 371 US 901).
SCHMIDT, J.P., S. MILLER, SANTUCCI and SKELOS, JJ., concur.

Bernard v. Mumuni

 

Defendant Musah Mumuni appeals from an order of the Supreme Court, Bronx County (Janice L. Bowman, J.), entered December 24, 2003, which denied his motion for summary judgment dismissing the complaint and all cross claims as against him.


Kelly, Rode & Kelly, LLP, Mineola (Eric B.
Betron of counsel), for appellant.
Gersowitz, Libo & Korek, P.C., New York (Andrew L.
Libo and Jeff S. Korek of counsel), for Bernard respondents.
Martin, Fallon & Mullé, Huntington (Larry M. Shaw
of counsel), [*2]for Saday Allhassan, respondent.




FRIEDMAN, J.

Plaintiff was injured in an accident involving a minivan owned by defendant Musah Mumuni. Prior to the accident, Mumuni had entrusted the minivan to his friend Osmanu Allhassan; at the time of the accident, the vehicle was being driven by Osmanu Allhassan's son, defendant Saday Allhassan, who did not hold a valid driver's license. As more fully discussed below, prior decisions that have applied Vehicle & Traffic Law § 388 in similar situations establish that the evidence in this case raises an issue of fact as to whether Saday Allhassan operated the minivan with Mumuni's implied consent. Accordingly, Mumuni's motion for summary judgment was properly denied.

Given his undisputed ownership of the vehicle, Mumuni is required to come forward with substantial evidence to rebut the strong presumption that Saday Allhassan drove the minivan with Mumuni's consent (see Murdza v Zimmerman, 99 NY2d 375, 380 [2003]). While there may be some uncertainty in the law as to whether the presumption of the owner's consent, by itself, suffices to raise an issue of fact as to consent where the owner's evidence rebutting the presumption is uncontradicted (see Country Wide Ins. Co. v National R.R. Passenger Corp., 407 F3d 84 [2d Cir, 2005] [certifying questions to the New York Court of
Appeals]; Country Wide Ins. Co. v National R.R. Passenger Corp., __ NY3d __, 2005 WL 1346637, 2005 NY LEXIS 1169 [June 7, 2005] [accepting such certified questions]), that issue need not detain us here. In this case, the record contains evidence from which a trier of fact could reasonably infer that Saday Allhassan had Mumuni's implied consent to drive the minivan.

To begin, there is a stark disagreement between Mumuni and Osmanu Allhassan as to the directions, if any, Mumuni gave Osmanu Allhassan about the use of the minivan upon entrusting it to him. Mumuni has testified that he specifically instructed Osmanu Allhassan not to drive the vehicle while it was entrusted to him. Osmanu Allhassan, however, has stated under oath: "Mr. Mumuni never advised me not to operate the subject vehicle. He gave me no instructions with respect to the use thereof." Plainly, Osmanu Allhassan's testimony that Mumuni entrusted the minivan to him without imposing any restrictions on its use raises an issue of fact as to whether Mumuni gave his implied consent to Osmanu Allhassan's operation of the minivan (see Tabares v Colin Serv. Sys., Inc., 197 AD2d 571, 572 [1993] [issue of fact as to permissive use arose from conflicting testimony concerning what restrictions, if any, employer placed on employee's use of a company vehicle]). True, Mumuni may argue at trial that his purpose in entrusting the minivan to Osmanu Allhassan (to allow the vehicle to be transferred to a new owner while he was out of the country) weighs against a finding of implied consent. That purpose, however, cannot be said to negate implied consent as a matter of law.

Of course, in order to prevail against Mumuni, plaintiff must prove not only that Mumuni implicitly consented to Osmanu Allhassan's use of the minivan, but also that such implicit consent extended to Saday Allhassan. The record contains sufficient evidence to support such a finding. In the event the trier of fact credits Osmanu Allhassan's testimony that Mumuni did not impose any restrictions on use of the minivan during the entrustment, Mumuni's implied consent to use of the vehicle could reasonably be found to extend to any person Osmanu Allhassan [*3]permitted to drive the minivan, either expressly or impliedly. It is well established that, when the owner of a vehicle places it under the unrestricted control of a second person, the owner's consent to use of the vehicle may reasonably be found to extend to a third person whom the second person permits to drive it (see May v Heiney, 12 NY2d 683 [1962]; Jackson v Brown & Kleinhenz, Inc., 273 NY 365, 369 [1937]; Tabares v Colin Serv. Sys., 197 AD2d 571, supra; Schrader v Carney, 180 AD2d 200, 210 [1992]; Lovetere v Stackhouse, 25 AD2d 628 [1966]; Comstock v Beeman, 24 AD2d 931 [1965], affd 18 NY2d 772 [1966];
Brindely v Krizsan, 18 AD2d 971 [1963], affd 13 NY2d 976 [1963]; Clarke v Mason Au & Magenheimer Confectionery Mfg. Co., 240 App Div 1001 [1933], affd 264 NY 661 [1934]). As the Court of Appeals stated in one of the cases cited above: "[The owner] having thus relinquished its immediate control over the automobile and having vested the control in another [Brown & Kleinhenz, Inc.] without limitation of authority must not now be heard to question the finding that the consent given by Brown & Kleinhenz, Inc. to [the driver] was impliedly its [the owner's] consent" (Jackson v Brown & Kleinhenz, Inc., 273 NY at 369).^[FN1]

While there is no evidence that Osmanu Allhassan gave Saday Allhassan express permission to use the minivan, the record does contain sufficient evidence to give rise to an inference of implied permission. Specifically, Osmanu Allhassan left the keys to the minivan on a table in his house, where Saday Allhassan found them on the day of the accident. Saday Allhassan, who was unaware of Mumuni's entrustment of the minivan to his father, assumed the keys belonged to the vehicle his father had said he would purchase for him. He therefore took the keys, located the minivan, and drove it on a personal errand, during which the subject accident occurred. In our view, a trier of fact could reasonably infer from the totality of these circumstances — the fact that Osmanu Allhassan and Saday Allhassan, a father and son, were members of the same household; the availability of the keys on a table in the house; and Saday Allhassan's knowledge that his father intended to give him a car — that Saday Allhassan reasonably believed that he had his father's permission to drive the minivan (see Matter of Travelers Prop. Cas. Corp. v Maxwill-Singleton, 300 AD2d 225, 226 [2002] [evidence that owner of a car parked it behind his shop and left the keys with his employee was sufficient to support a finding that employee drove the car with owner's consent, notwithstanding owner's testimony that he never gave anyone permission to drive the car]).

The dissent and Mumuni, in propounding their view that the trier of fact could not reasonably infer implicit consent by Mumuni to Saday Allhassan's use of the minivan, rely heavily on the fact that Saday Allhassan did not hold a driver's license, but only a learner's [*4]permit, at the relevant time. The argument seems to be that an owner who entrusts his or her vehicle to a friend, even if the owner does so without articulating any restrictions on the vehicle's use, should not be deemed to consent to the friend's allowing an unlicensed person to drive the vehicle. The short answer to this argument is that it has already been rejected by the Court of Appeals. In Brindley v Krizsan (supra), the Court of Appeals affirmed (13 NY2d 976) this Court's affirmance (18 AD2d 971) of a judgment against a car owner, notwithstanding that the unlicensed driver had been given control of the car, not by the owner himself, but by an intermediary to whom the owner had entrusted the car. In affirming the judgment, we explained (18 AD2d at 972 [emphasis added; citations omitted]):

"Here, there is support for the finding of the trial court that the owner vested his friend Zsombok with general control of the car without limitation of authority. Under these circumstances, a driver to whom Zsombok loaned the car was properly found to be driving it with the implied consent of the owner, and the fact that such driver was unlicensed does not affect the statutory responsibility of the owner."

The result in Brindley is readily explained as required by the policy animating Vehicle and Traffic Law § 388, namely, "that one injured by the negligent operation of a motor vehicle should have recourse to a financially responsible defendant" (Murdza v Zimmerman, 99 NY2d at 379, quoting Continental Auto Lease Corp. v Campbell, 19 NY2d 350, 352 [1967]). Where the owner of a vehicle entrusts it to another person without setting forth any express restrictions as to the vehicle's use, and the person entrusted with the vehicle permits an unlicensed third person to drive it, the financial burden of an accident caused by the unlicensed driver's negligence should fall on the owner, who put in motion the chain of events leading to the accident. That burden should not fall on an innocent stranger, such as plaintiff in this action, who happens to be injured in the accident. In order to give full effect to the policy of Vehicle and Traffic Law § 388, the driver's lack of a license should not preclude a finding that he or she operated the vehicle with the owner's implied consent (see Carter v Travelers Ins. Co., 113 AD2d 178, 181-182 [1985] [to effectuate the policy of § 388, owner who left his car at an attended parking lot was deemed to have consented to the operation of the car by an unlicensed parking lot attendant]).

The dissent attempts to distinguish Brindley from the instant case on the ground that the driver in Brindley "had the express permission of the person to whom the car had been entrusted." The dissent overlooks the fact that Vehicle & Traffic Law § 388 provides that permission giving rise to liability under the statute may be either "express or implied." As previously discussed, while it is undisputed that Saday Allhassan did not have his father's express permission to drive the minivan, the facts appearing in the record raise an issue of fact as to whether the son had the father's implied permission to use the vehicle. Contrary to the dissent's assertion, nowhere in Osmanu Allhassan's affidavit does he "concede[] that he did not give permission, express or implied, to his son to operate the vehicle." To the contrary, the father's affidavit is not only consistent with a finding of implied permission, it sets forth [*5]sufficient facts to support such a finding. And, under the authorities previously cited, the father's implied permission, if found by the trier of fact, is imputable to Mumuni, the owner, to the extent the trier of fact credits the father's testimony that Mumuni entrusted the vehicle to him without providing any instructions as to its use. Thus, the present record contains sufficient evidence to support imposing statutory liability on Mumuni.

Ultimately, the dissent's position that plaintiff has no cause of action against Mumuni — notwithstanding the evidence plainly supporting a finding that Mumuni gave unfettered control of the minivan to Osmanu Allhassan — rests on the claim that "a connection" between Osmanu Allhassan and his son, Saday Allhassan, is somehow "lack[ing]." In making this assertion, the dissent disregards the aforementioned facts appearing in the record that give rise to a fair inference that the father gave his implied consent to the son's use of the vehicle. Whether such an inference should be drawn is a question for the trier of fact, not for this Court. We therefore affirm the order denying Mumuni's motion for summary judgment.

Accordingly, the order of the Supreme Court, Bronx County (Janice L. Bowman, J.), entered December 24, 2003, which denied Mumuni's motion for summary judgment dismissing the complaint and all cross claims as against him, should be affirmed, without costs.

All concur except Tom, J.P. and Sweeny, J. who dissent in an Opinion by Sweeny, J.

SWEENY, J. (dissenting)

Mumuni's motion for summary judgement should have been granted. There is no proof that Saday Allhassan drove Mumuni's car with his express or implied permission.

This is a personal injury action where plaintiff was a passenger in a car involved in an accident with a minivan owned by defendant Mumuni and operated by defendant Saday Allhassan. Mumuni had arranged to sell his minivan but was going to be out of the country before the sale was completed. On or before February 19, 2002, he left the minivan and the signed title with his friend, Osmanu Allhassan, who was to turn the vehicle and title over to the purchaser and collect the money for Mumuni.

On March 2, 2002, Allhassan's son, Saday, who was living at college, came home to do some errands. There was no one at home and, letting himself in, he saw the minivan keys on a table. Saday testified at his deposition that he did not know who owned the minivan and no one had given him permission to drive it, that his father owned no vehicle except for a taxi cab he used for business and had never let him use any vehicle in the past, and that he presumed the minivan was his because his father had previously told him that he would buy him a car. However, Saday conceded that his father never actually told him that the minivan was his and in fact never told him that he had purchased a car for him. Furthermore, Saday had not even spoken to his father for two weeks preceding the accident. Based on this testimony, it appears that Saday never received permission from his father to use the vehicle. Rather, on his own, he took the [*6]keys and drove off. And if Saday did not have permission from his father, he would not have had it from Mumuni.

It is well settled that Vehicle and Traffic Law § 388 creates a strong presumption that the use of a vehicle is with the permission of the owner and that this presumption is rebuttable only by substantial evidence to the contrary (Leotta v Plessinger, 8 NY2d 449, 461 [1960]; Blunt v Zinni, 32 AD2d 882, [1969], affd 27 NY2d 521 [1970]). Substantial evidence was presented here. No one claims that Mumuni gave Saday express permission to drive the van. As for implied permission,
plaintiff argues that although Osmanu Allhassan understood that Mumuni gave him the van for the purpose of transferring it to the new owner, Mumuni did not impose any restrictions on its use. Such circumstances do not tend to show Mumuni's implied permission for Saday to drive the van when Saday only had a learner's permit, not a valid New York State driver's license, and there is no evidence that Mumuni ever impliedly gave permission for an unlicensed operator to drive his van.

The majority places great reliance on Brindley v Krizsan (18 AD2d 971 [1963], affd 13 NY2d 976 [1963]) for the proposition that liability can attach even where the operator was unlicensed. However, the majority's reliance is belied by the fact that the operator of the vehicle in Brindley had the express permission of the person to whom the car had been entrusted ^[FN1]. In this case, even Osmanu Allhassan concedes that he did not give permission, express or implied, to his son to operate the vehicle. In his affidavit, Osmanu avers that his son mistakenly thought the keys on the table were to the vehicle he had discussed purchasing. This lack of a connection between Saday and his father is fatal to plaintiff's case.

"[A] finding of constructive consent and its attendant liability under section 388 requires a consensual link between the negligent operator and one whose possession of the vehicle is authorized. Otherwise, implied consent under section 388(1) would amount to strict liability - a result clearly at odds with the section and its purposes" (Murdza v Zimmerman, 99 NY2d 375 [2003]).

Notwithstanding the laudatory intent of Vehicle and Traffic Law § 388(1), the facts must support the liability. Mumuni adduced substantial evidence that Saday Allhassan operated the minivan without his permission, express or implied, and plaintiff failed to adduce any facts tending to show the contrary, other than Osmanu's disputed testimony that Mumuni entrusted the van to him without any express restrictions on its use. Such testimony, if credited, is insufficient [*7]to raise an issue of fact as to whether Mumuni impliedly agreed to permit Osmanu's unlicensed family member operate the van. Therefore, Mumuni's motion for summary judgment should have been granted and the complaint dismissed as against Mumuni.

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

ENTERED: AUGUST 18, 2005

CLERK

Footnotes

Footnote 1:The dissent's efforts to distinguish certain of the above-cited cases from the instant case are misplaced, since the cases are not cited on the premise that each is factually identical to the instant case. Rather, we cite the cases as illustrations of the general principle under which Mumuni's implied consent to Osmanu Allhassan's operation of the minivan (if found to have been given) may be found to extend to Saday Allhassan.

Footnote 1:It should be noted that each of the other cases cited by the majority are distinguished by crucial facts glaringly absent in our case, e.g., permission given on previous occasions (Comstock, 24 AD2d 931 [1965], affd 18 NY2d 772 [1966]); evidence of express permission given to driver (Schrader, 180 AD2d 200 [1992]).

 

Stevens v. Homiak Transport, Inc

 

Order, Supreme Court, New York County (Milton A. Tingling, J.), entered August 19, 2004, which denied defendants-appellants' motion for summary judgment dismissing the complaint on the ground that plaintiffs failed to meet the serious injury threshold of Insurance Law § 5102(d), unanimously reversed, on the law, without costs, the motion granted and the complaint dismissed. The Clerk is directed to enter judgment in favor of defendants-appellants dismissing the complaint as against them.

Plaintiffs' submissions in response to defendants' motion for summary judgment are insufficient to raise a triable issue of fact as to whether either plaintiff suffered, as claimed, "significant limitation of use of a body function or system," or "a medically determined injury or impairment of a non-permanent nature which prevents the injured person from performing substantially all of the material acts which constitute such person's usual and customary daily activities for not less than ninety days during the one hundred eighty days immediately following the occurrence of the injury or impairment" (Insurance Law § 5102[d]).

Both plaintiffs saw Dr. Samuel Melamed soon after the November 1999 accident. Plaintiff Stevens was referred for MRI testing and a course of physical therapy. He testified that he was given an elastic back support device, which he used for two or three weeks, and a similar neck brace, which he wore for a week. His therapy consisted of sitting under a sun lamp and performing back-stretching exercises. He underwent this therapy for a month and a half or two months, after which he said he felt better, although his back stiffens up about once a month or so, and he never saw Dr. Melamed again or sought any further medical care for the injuries he sustained in the accident. He missed four days of work following the accident.

Plaintiff Hiciano also was referred for a course of physical therapy. She missed between 10 days and three weeks of work following the accident.

In February 2000, Dr. Melamed referred both plaintiffs to Dr. Daniel J. Feuer for neurological evaluation. As to plaintiff Stevens, Dr. Feuer reported that the cervical spine was nontender, with no spasm, that there was "full" range of motion vertically and horizontally, that [*2]the lumbosacral spine showed mild bilateral paraspinal tenderness, but no spasm, and that straight leg raising was negative bilaterally. Dr. Feuer diagnosed lumbosacral sprain but, in view of his findings, advised "no further neurodiagnostic evaluation at this point in time."

As to plaintiff Hiciano, Dr. Feuer reported that she complained of headaches with mild dizziness and severe neck pain. Upon examination of her cervical spine, Dr. Feuer found restricted range of motion in the horizontal and vertical plane. He diagnosed cerebral concussion and cervical sprain and referred plaintiff for an MRI of the brain. The MRI conducted on March 6, 2000, was, according to the report, "[u]nremarkable." Plaintiff was examined on March 10, 2000 by Dr. Kenneth Falvo, an orthopedic surgeon, whose diagnosis was, "Cervical sprain, resolved. Low back sprain, resolved." Dr. Falvo concluded, "No further causally related treatment, physical therapy, testing or follow up in my specialty is necessary for the neck and back."

In support of their motion for summary judgment with respect to plaintiff Stevens, defendants submitted, inter alia, not only Dr. Feuer's report but also the report of Dr. Andrew Ivanson, a neurologist, who examined Stevens in July 2003 and reported that his cervical spine revealed full range of motion in flexion, extension, right and left lateral bending and right and left rotation with no paraspinal muscle spasm or tenderness, that the lumbar spine revealed full active range of motion in flexion, extension and lateral flexion with no paraspinal muscle spasm or tenderness, and that straight leg raise testing was negative bilaterally. Dr. Ivanson concluded that plaintiff "has recovered from any injuries he may have sustained," that the injury to the lumbar spine was a sprain/strain-type injury and "certainly there will be no permanency as a result of this injury," and that "[d]espite his subjective complaints, there were no objective neurologic findings to substantiate them."

Defendants further submitted a report regarding Stevens by Dr. Robert J. Orlandi, an orthopedist who examined Stevens in January 2003. Dr. Orlandi reported full painless range of motion of the shoulders and scapulothoracic joints and, in the lumbar spine, "excellent forward flexion to 85 degrees and 30 degrees of extension," with lateral bend to the left and to the right of 30 degrees, and negative straight leg raising test, sitting and supine. Dr. Orlandi stated that an MRI of plaintiff's lumbar spine taken on October 8, 2002 was interpreted as showing mild pre-existent discogenic degenerative change at L5/S1 and lumbar straightening, and he concluded that the lumbar MRI scan is "unremarkable for any causally related abnormalities. There were no disc herniations, nerve root or foraminal impingement." Dr. Orlandi also stated that an MRI performed in December 1999 showed lumbar straightening and a bulging disc only at L5/S1, and, citing the New England Journal of Medicine, he observed that "[o]ne or more bulging lumbar discs are present in over 50% of the asymptomatic population." Dr. Orlandi's diagnosis was, "Lumbar strain resolved. Normal cervical spine examination." He stated that plaintiff's low back examination is "entirely normal," and that 85 degrees of forward flexion "in fact is likely 5 degrees more than one would expect for his age group." Dr. Orlandi concluded that his orthopedic examination "does not document the presence of permanent residuals or a musculoskeletal disability," there is no need for further orthopedic care, including physical therapy, and plaintiff "is capable of a full level of activities of daily living and full work activities, without restriction."

As to plaintiff Hiciano, defendants again relied upon the reports of plaintiffs' experts rendered in 2000 and the report of an examination in May 2003 by Dr. Andrew Ivanson, who conducted a neurological evaluation and found that the cervical spine showed full range of [*3]motion in flexion, extension, right and left lateral bending and right and left rotation, with no paraspinal muscle spasm or tenderness, and that the lumbar spine showed full active range of motion in flexion, extension and lateral flexion, with no paraspinal muscle spasm, although there was a complaint of mild tenderness on palpation. Straight leg raise testing was negative bilaterally. Her cranial nerves, senses, reflexes, station and gait were all normal. Dr. Ivanson's impression was, "Cervical and lumbar sprain, resolved. History of migraine headaches. Normal neurologic examination." He stated that he believed plaintiff's injuries were causally related to the November 1999 accident, but that the migraine headaches were not causally related to the accident.

Further, Dr. Robert J. Orlandi conducted an orthopedic evaluation of plaintiff Hiciano in January 2003, and reported that his examination of her cervical spine and low back was "unremarkable." She had excellent range of motion in the cervical spine and both shoulders and scapulothoracic joints, and a "very minor restriction" of forward flexion to 75 degrees in the lumbar spine, which he observed was "not compatible" with the straight leg raising test, which was negative to 90 degrees, both seated and supine. Dr. Orlandi concluded that his examination "does not document the presence of permanent residuals or a musculoskeletal disability," that there was no need for further orthopedic care, including physical therapy, and that plaintiff "is capable of a full level of activities of daily living and full work activities, without restriction."

In response to defendants' evidentiary showing, plaintiffs submitted an affirmation of Dr. Melamed, who treated them after the November 1999 accident and next saw them again in May 2004 in connection with defendants' motion for summary judgment. Dr. Melamed concluded, "Both of their conditions persist as the inability to move their necks and lower backs to the full range of what is normal, continues and, with age, and the normal degenerative process attendant thereto, can only expect to worsen as a direct result, with a reasonable degree of medical certainty, causally related to this accident, they cannot fully use their necks and lower backs as a normal person could, and their conditions are therefore permanent. Definite significant and permanent injuries to their cervical spines and lumbosacral spines, continue to this day and will naturally, with age worsen."

However, Dr. Melamed failed to provide "any foundation or objective medical basis" for his conclusion that plaintiffs were significantly and permanently injured as a result of the accident (Franchini v Palmieri, 1 NY3d 536, 537 [2003]). He stated, for example, that his affirmation was based upon a review of his January 2000 reports and his May 2004 chart notes and examinations of plaintiffs, but he neither attached the earlier reports to his affirmation nor described their contents, except to say, vaguely, that the reports "and history demonstrate marked restriction of motion of the cervical and lumbar spines and other injuries set forth therein." He also stated that his diagnoses of plaintiffs' conditions "all . . . correlate to the complaints that [they] relayed to me in the visits to my office and the complaints in [their] visit[s] on May 14 [and 15], 2004." But plaintiffs' subjective complaints are not sufficient to satisfy the statutory threshold (see Toure v Avis Rent A Car Sys., 98 NY2d 345, 350 [2002]).

While Dr. Melamed did set forth his objective measurements of the ranges of motion in plaintiffs' cervical and lumbar spines in 2004 (id.), he did not correlate these limitations in range of motion to any limitations in plaintiffs' activities. Morever, since, as indicated, he failed to set forth for comparison a numeric expression of the range of motion findings he may have made after the accident, the only evidence in the record of plaintiffs' ranges of motion between November 1999 and May 2004 is the reports of the physicians who evaluated them in those [*4]years, and these reports, the latest of which date from mid-2003, state that the ranges of motion were normal and that plaintiffs' accident-related conditions had "resolved" (see Pommells v Perez, __ NY3d __, 2005 WL 975859, 2005 NY LEXIS 1041, *10-*11 [Apr. 28, 2005]). Dr. Melamed also failed to explain the cessation of any treatment of plaintiffs for four years before he made his findings in 2004, and plaintiff Stevens himself testified that he felt better after his two months of physical therapy (id. at *10).

 

 

Jenkins v. State Farm Insurance Company

 

In an action to recover uninsured motorist benefits pursuant to a contract of insurance, the defendant appeals from an order of the Supreme Court, Richmond County (Gigante, J.), dated June 8, 2004, which denied its motion to dismiss the complaint as time-barred.

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

On February 26, 1993, a car driven by the plaintiff was involved in an accident with a car owned by Adel Abdelgaied (hereinafter the Abdelgaied car). By letter dated November 18, 1993, the plaintiff's attorney asked the defendant, State Farm Insurance Company (hereinafter State Farm), the plaintiff's insurance carrier, to open an uninsured motorist claim. Thereafter, by letter dated December 7, 1993, the plaintiff's attorney again wrote to State Farm, stating that he was enclosing a copy of the denial of coverage as to the Abdelgaied car. On December 9, 1994, he again wrote to State Farm, stating that he was enclosing copies of a Notice of Termination and a Cancellation Certificate as to the Abdelgaied car. Thereafter, in February 2003, the plaintiff commenced this action to recover damages under the uninsured motorist endorsement of the State Farm insurance policy. In its answer, State Farm asserted, inter alia, that the action was time-barred by the six-year statute of limitations for actions to recover damages for breach of contract (see CPLR 213). The Supreme Court denied its motion to dismiss the complaint as time-barred. We reverse.

Claims made under the uninsured motorist endorsement of automobile insurance policies are governed by the six-year statute of limitations applicable to contract actions (see Matter [*2]of De Luca, 17 NY2d 76, 78). The claim accrues either when the accident occurred or when the allegedly offending vehicle thereafter becomes uninsured (see Matter of Allstate Ins. Co. v Giordano, 108 AD2d 910, affd on opinion below 66 NY2d 810; Matter of Allstate Ins. Co. v Torrales, 186 AD2d 647; Matter of Allstate Ins. Co. v Morrison, 267 AD2d 381). The more than 10-year time lapse between the date of the accident and the plaintiff's assertion of a claim in this action for uninsured motorist benefits is prima facie evidence that the action is untimely (see Matter of Allstate Insurance Co. v Torrales, supra; Matter of State Farm Mut. Auto. Ins. Co. v Avena, 133 AD2d 159, 161). In such circumstances, the plaintiff has the burden of showing that a later accrual date than the date of the accident is applicable (see Matter of Allstate Ins. Co. v Morrison, supra). Since the plaintiff's proof showed that her attorney was aware of the Abdelgaied's car's uninsured status at the latest by December 9, 1994, this action is time-barred by the applicable statute of limitations and State Farm's motion should have been granted.
PRUDENTI, P.J., FLORIO, COZIER and LIFSON, JJ., concur.

ENTER:

James Edward Pelzer

Fryar v. First Student, Inc

 

In an action to recover damages for personal injuries, the plaintiff appeals from (1) an order of the Supreme Court, Dutchess County (Sproat, J.), dated March 2, 2004, which granted the defendants' motions for summary judgment dismissing the complaint on the ground that she did not sustain a serious injury within the meaning of Insurance Law § 5102(d), (2) a judgment of the same court entered March 19, 2004, which, upon the order, dismissed the complaint, and (3) an order of the same court dated June 21, 2004, which denied her motion for leave to renew and/or reargue the prior motions for summary judgment. [*2]

ORDERED that the appeal from the order dated March 2, 2004, is dismissed; and it is further,

ORDERED that the appeal from so much of the order dated June 21, 2004, as denied that branch of the plaintiff's motion which was for leave to reargue is dismissed, as no appeal lies from an order denying leave to reargue; and it is further,

ORDERED that the judgment is affirmed; and it is further,

ORDERED that the order dated June 21, 2004, is affirmed insofar as reviewed; and it is further,

ORDERED that one bill of costs is awarded to the defendants.

The appeal from the order dated March 2, 2004, 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). The issues raised on the appeal from that order are brought up for review and have been considered on appeal from the judgment (see CPLR 5501[a][1]).

The defendants made a prima facie showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject motor vehicle accidents (see Toure v Avis Rent A Car Sys., 98 NY2d 345; Gaddy v Eyler, 79 NY2d 955). The affirmation of the defendants' physician established that the subject accidents neither caused nor exacerbated the condition of the plaintiff's neck or lumbar spine, and that her shoulder condition was degenerative in nature. Furthermore, the plaintiff's emergency room records, submitted by the defendants, demonstrated that she fractured neither a rib nor her thumb (see Hodges v Jones, 238 AD2d 962).

In opposition, the plaintiff failed to come forward with sufficient evidence to raise a triable issue of fact. As the Supreme Court correctly observed, the plaintiff failed to submit a medical affidavit or affirmation substantiating her claims (cf. Baron v Murray, 268 AD2d 495). The remainder of the plaintiff's submissions consisted of unsworn medical records, which, even if they had been considered, failed to demonstrate that she had sustained a serious injury in any of the alleged accidents.

The Supreme Court properly denied that branch of the plaintiff's motion which was for leave to renew, since she did not offer a reasonable explanation for her failure to present the purportedly new facts on the prior motion (see Apicella v Estate of Apicella, 305 AD2d 622; Williams v Fitzsimmons, 295 AD2d 342).
FLORIO, J.P., KRAUSMAN, CRANE, RIVERA and FISHER, JJ., concur.

ENTER:

 

Parmar v. Hermitage Insurance Company

In an action, inter alia, for a judgment declaring that the defendant is obligated to defend and indemnify the plaintiffs in an underlying action entitled Rivera v Parmar, pending in the Supreme Court, Richmond County, under Index No. 11011/00, the defendant appeals from an order of the Supreme Court, Richmond County (Solomon, J.), dated March 29, 2004, which denied its motion for summary judgment dismissing the complaint.

ORDERED that the order is modified, on the law, by deleting the provision thereof denying that branch of the defendant's motion which was for summary judgment dismissing the claim for punitive damages and substituting therefor a provision granting that branch of the motion; as so modified, the order is affirmed, with costs.

The plaintiffs owned and managed a multi-family residence (hereinafter the Premises) for which the defendant issued a General Liability Policy (hereinafter the Policy), insuring the Premises as a "two family dwelling." In September 1999, Eduardo Rivera, an infant (hereinafter the infant), allegedly sustained injuries in the basement of the Premises, where he lived with his family. The infant's father claimed that he told the plaintiffs about the accident the following day. The plaintiffs, however, alleged that they first received notice of the accident and the potential claim against them by letter dated December 21, 1999, from the infant's attorney. They immediately forwarded the letter to their insurance broker. The broker, in turn, asserted that in January 2000 he [*2]faxed this information to the wholesale broker, the Morstan Agency (hereinafter Morstan), an agent of the defendant. Both Morstan and the defendant deny receipt of this notice, and maintain that their first notice of any claim came by way of the summons and complaint in the underlying action served on Morstan in April 2000.

The defendant denied coverage on the grounds that the notice was untimely under the Policy provision requiring an insured to provide notice "as soon as practicable," and that the plaintiffs made a material misrepresentation in the insurance application. The defendant, inter alia, sought rescission of the Policy based on this material misrepresentation, claiming that the rental of the basement as a third-family dwelling violated the "Classification Limitation" of the Policy, which the defendant issued in reliance on the plaintiffs' representation that the Premises was a two-family dwelling.

The requirement that an insured notify its liability insurance carrier of a potential claim "as soon as practicable" operates as a condition precedent to coverage (White v City of New York, 81 NY2d 955, 957). The defendant maintains that the plaintiffs had knowledge of the potential claim weeks, if not months, before their receipt of the December 1999 letter from the infant's attorney. In the alternative, the defendant argues that, assuming the plaintiffs did not know about the accident until December 1999, the failure to notify it of the accident until April 2000 was unreasonable as a matter of law. However, the record reveals the existence of triable issues of fact as to when the plaintiffs acquired knowledge that the infant was injured on the Premises and when the defendant was first notified of the accident. Thus, the defendant was not entitled to summary judgment based upon late notice of the accident.
The defendant also failed to demonstrate its entitlement to summary judgment based on a material misrepresentation by the plaintiffs (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853). "[T]o establish its right to rescind an insurance policy, an insurer must demonstrate that the insured made a material misrepresentation. A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented" (Zilkha v Mutual Life Ins. Co. of N.Y., 287 AD2d 713, 714; cf. Gorra v New York Life Ins. Co., 276 AD2d 469, 470; see Insurance Law § 3105[b]). The issue of materiality is generally a question of fact for the jury (see Process Plants Corp. v Beneficial Nat. Life Ins. Co., 53 AD2d 214, 216, affd 42 NY2d 928). To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, which show that it would not have issued the same policy if the correct information had been disclosed in the application (see Insurance Law § 3105[c]; Curanovic v New York Cent. Mut. Fire Ins. Co., 307 AD2d 435, 437; Tuminelli v First Unum Life Ins. Co., 232 AD2d 547; Shapiro v Allstate Life Ins. Co. of N.Y., 202 AD2d 659, 660). Conclusory statements by insurance company employees, unsupported by documentary evidence, are insufficient to establish materiality as a matter of law (see Curanovic v New York Cent. Mut. Fire Ins. Co., supra; Tuminelli v First Unum Life Ins. Co., supra).

Assuming that the plaintiffs made the misrepresentations complained of, the conclusory statement by the defendant's underwriter to the effect that it would not have issued the Policy had it known that the Premises included a third apartment, located in the basement, was insufficient to establish materiality as a matter of law (see Curanovic v New York Cent. Mut. Fire Ins. Co., supra; Tuminelli v First Unum Life Ins. Co., supra).

However, the claim for punitive damages should have been dismissed (see Rocanova [*3]v Equitable Life Assur. Socy. of U.S., 83 NY2d 603, 613-614; Fulton v Allstate Ins. Co., 14 AD3d 380, 381).
PRUDENTI, P.J., GOLDSTEIN, CRANE and MASTRO, JJ., concur.

ENTER:

James Edward Pelzer
        Clerk of the Court

ELACQUA v. PHYSICIANS' RECIPROCAL INSURERS

 

MEMORANDUM AND ORDER

Calendar Date: March 28, 2005
Before: Cardona, P.J., Crew III, Spain, Lahtinen and Kane, JJ.


Bartlett, McDonough, Bastone & Monaghan L.L.P.,
White Plains (Edward J. Guardaro Jr. of counsel), for appellant-
respondent.
Gleason, Dunn, Walsh & O'Shea, Albany (Thomas F.
Gleason of counsel), for respondents-appellants.




Lahtinen, J.

Cross appeals from a judgment of the Supreme Court (Malone Jr., J.), entered July 9, 2004 in Albany County, which, inter alia, granted a motion by plaintiff OB/GYN Health Center Associates, LLP for partial summary judgment and declared that defendant was required to indemnify it in an underlying action.

Issues regarding the coverage and construction of a medical malpractice insurance policy are implicated in this appeal. Plaintiffs Mary S. Elacqua and William Hennessey, both licensed physicians, are members of plaintiff OB/GYN Health Center Associates, LLP (hereinafter the partnership). Elacqua and Hennessey each had malpractice insurance policies with defendant, and the partnership was named as an additional insured on such policies ^[FN1]. In June 1994, Kim Hytko sought medical attention at the partnership and was seen and treated by [*2]Jane Szary, a nurse practitioner employed by the partnership ^[FN2]. In November 1994, Hytko succumbed to cancer and, thereafter, her husband commenced a malpractice action against plaintiffs and Szary. Shortly before the trial of that action, the attorney retained by defendant to defend plaintiffs sought an adjournment because he perceived a conflict in his representation. As a consequence, defendant retained individual counsel for each physician and the case proceeded to trial ^[FN3]. At the conclusion of Hytko's case, Elacqua and Hennessey successfully sought dismissal of Hytko's complaint as against them. However, a verdict of nearly $2,000,000 was rendered against the partnership based upon Szary's negligence.

Defendant refused to provide any indemnification to plaintiffs as it took the position that its policy did not afford coverage since the only liability of the partnership was vicarious through its employee, Szary. Plaintiffs commenced the instant action seeking money damages for breach of contract based upon defendant's alleged failure to properly defend and failure to indemnify and also seeking a declaration that defendant is required to indemnify plaintiffs as to the underlying verdict. Plaintiffs moved for partial summary judgment declaring that defendant is liable for the judgment rendered in the underlying malpractice action. Supreme Court granted summary judgment in favor of the partnership finding coverage for the partnership under the policy and, moreover, that defendant failed as a matter of law to timely disclaim coverage as required by Insurance Law § 3420 (d). Defendant appeals from this holding. Plaintiffs cross-appeal from that portion of Supreme Court's judgment that "[r]eluctantly" declared, upon constraint of language in Sumo Container Sta. v Evans, Orr, Pacelli, Norton & Laffan (278 AD2d 169 [1st Dept 2000]), that defendant had no obligation to advise plaintiffs of their right to counsel of their own choosing.

We turn first to defendant's argument that its policy provides no coverage for the claim against the partnership and, accordingly, that it had no obligation to disclaim. While it is well settled that a "[d]isclaimer pursuant to [Insurance Law § ] 3420 (d) is unnecessary when a claim falls outside the scope of the policy's coverage portion" (Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188 [2000]), we are unpersuaded that this claim fell outside the scope of the policy's coverage.

Defendant's argument that there is no coverage is premised upon its contention that certain provisions in the "Limits of Liability" part of the policy provide a map which, by careful navigation, sets forth a path precluding any coverage by it under the narrow circumstances of this case (i.e., physicians found not negligent, nurse practitioner found negligent, nurse practitioner had separate insurance with another carrier, and the partnership was vicariously liable for the negligence of the nurse practitioner)^[FN4]. The labels placed on the relevant policy language by the [*3]insurer, however, do not control and, accordingly, even though falling under a category called "limiting language" rather than "exclusion," the language may nevertheless "amount[] to an exclusion" (Planet Ins. Co. v Bright Bay Classic Vehs., 75 NY2d 394, 400 [1990]). When coverage is afforded to an entity in a policy's "Insuring Agreement," an attempt to deny coverage should generally be viewed as the exercise of an exclusion (see Matter of Worcester Ins. Co. v Bettenhauser, supra at 190). If the issue is not "whether coverage existed under any circumstances, but instead the nature and extent of coverage," then an effort by the insurer to limit coverage is tantamount to "exercis[ing] a policy exclusion" (Jefferson Ins. Co. of N.Y. v Travelers Indem. Co., 92 NY2d 363, 371 [1998]). "[W]here some ambiguity is present regarding the extent of coverage or any possible exclusions, the insurer must timely disclaim" (id. at 370; see Matter of Worcester Ins. Co. v Bettenhauser, supra at 188-189; Greater N.Y. Mut. Ins. Co. v Clark, 205 AD2d 857, 858 [1994], lv denied 84 NY2d 807 [1994]).

Here, the policy was divided into two sections, each with numerous parts. The definitions were contained in Section II, Part 11 and the first three parts of Section I were, respectively, labeled as (1) "Insuring Agreements," (2) "[Defendant's] Limits of Liability" and (3) "What this Policy Does Not Insure (Exclusions)." We agree with Supreme Court that Section I, Part 1, pertaining to "Insuring Agreements," was phrased broadly enough particularly when read in conjunction with the policy's definitions to initially implicate coverage for the partnership ^[FN5]. It is clear that the partnership was provided with coverage in many situations under [*4]the policy. Morever, the partnership was specifically named as an additional insured in the policy (cf. Pecker Iron Works of N.Y. v Traveler's Ins. Co., 99 NY2d 391, 393 [2003] [observing that "the well-understood meaning of the term (additional insured) is an entity enjoying the same protection as the named insured"]). It is certainly not a stretch to conclude that the typical physician purchasing insurance individually and for his or her partnership "could reasonably expect" coverage for that partnership under the circumstances of this case (see Jefferson Ins. Co. of N.Y. v Travelers Indem. Co., supra at 371). Hence, we find that the language under which defendant is attempting to avoid any obligation to plaintiffs should be construed as an exclusion.

Having found the relevant policy language upon which defendant relies is an exclusion from coverage, we turn to whether the record establishes that defendant failed to comply with Insurance Law § 3420 (d) as a matter of law. The failure to satisfy that statute's requirements precludes an insurer from denying coverage based on a policy exclusion (see Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188-189 [2000], supra). We find merit in defendant's assertion that the record reveals factual issues as to whether defendant complied with the statute.

Defendant claims that it sent notices in February 1997 disclaiming vicarious liability of the partnership for the acts of the nurse practitioner. Defendant included an affidavit from an individual who described the typical office practices and asserted that the procedure for sending notices by certified mail, return receipt requested, had been put in motion. However, defendant was unable to produce any of the return receipts. The physician plaintiffs set forth affidavits contending that no such notices were received by them until April 2002, only days before the trial on the underlying malpractice action was set to commence. There is also a contention that the notices were sent to three other individuals in February 1997 and, while one acknowledged receiving a notice, two others denied receiving such notice. Under these circumstances, a triable issue exists regarding whether defendant gave adequate and timely notice of its effort to deny coverage (see e.g. Nassau Ins. Co. v Murray, 46 NY2d 828, 829-830 [1978]; Matter of State Farm Mut. Auto. Ins. Co. [Celebucki], 13 AD3d 1023, 1024 [2004]).

We next address plaintiffs' cross appeal. As previously observed, counsel for plaintiffs correctly discerned that there existed a conflict of interest in his representation of all three plaintiffs inasmuch as defendant took the position that some of the underlying malpractice claims were covered under the policy while others were not (see Nelson Elec. Contr. Corp. v Transcontinental Ins. Co., 231 AD2d 207, 208-210 [1997], lv denied 91 NY2d 802 [1997]). In such case, plaintiffs were entitled "to defense by an attorney of [their] own choosing," whose fees were to be paid by defendant (Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392, 401 [1981]). While Supreme Court correctly recognized such entitlement, it held that it was constrained by Sumo Container Sta. v Evans, Orr, Pacelli, Norton & Laffan (278 AD2d 169 [2000], supra) to conclude that defendant had no obligation to advise plaintiffs of this right. We decline to follow that part of the Sumo decision. If defendant was obligated to defend plaintiffs in the underlying action and, as the decision in Public Serv. Mut. Ins. Co. v Goldfarb (supra) makes clear, provide them independent counsel of their own choosing, it follows that defendant was required to advise them of that right. To hold otherwise would seriously erode the protection afforded.

Cardona, P.J., Spain and Kane, JJ., concur. [*5]


Crew III, J. (concurring in part and dissenting in part).

Although I agree with the majority that defendant had an obligation to advise plaintiffs of their right to select independent counsel of their choosing, I respectfully dissent as to the issue of coverage. To be sure, as the majority points out, an "additional insured" traditionally enjoys the same coverage and protection as the named insured, and there admittedly are many situations under the policy at issue for which the partnership would be afforded coverage. In my view, however, the inquiry here focuses on whether the policy at issue extends coverage to the partnership in one particular situation, i.e., vicarious liability for Jane Szary's alleged negligence, and that query, in turn, is answered not by reference to the language found in the "Insuring Agreements" section of the policy but, rather, by analysis of the language contained in the relevant endorsement amending the original policy provisions. In that regard, the relevant provisions of the "Claims Made" endorsement are as follows:

"In consideration of the payment of the premium, it is agreed that, notwithstanding any other contrary provision of the policy, the policy is amended to provide as follows.

. . .

In addition to the coverage this policy provides to the physician, the policy will also provide coverage equal to the limits of liability of this policy to the physician's ENTITY under the following circumstances and subject to the following limitations:

. . .

b. A claim is made against the ENTITY based on the conduct of a physician insured by [defendant] or the conduct of AN ADDITIONAL NAMED INSURED or an ADDITIONAL INSURED for whom such ENTITY is responsible; and

c. The CLAIM IS OTHERWISE covered under this policy."

The foregoing language, in my view, in no way "excludes" coverage under the policy but, rather, defines the circumstances under which additional coverage may be provided to the partnership namely, where an individual seeks to hold the partnership liable for the conduct of an additional named insured or an additional insured. Inasmuch as Szary is neither an additional named insured nor an additional insured under the policy, the policy simply does not provide coverage to the partnership for her negligent conduct, and the general provisions of the policy, no matter how expansively construed, cannot override the effect of the "Claims Made" endorsement. That said, it necessarily follows that defendant cannot be compelled to satisfy the underlying judgment upon a claim of untimely notice of disclaimer.

ORDERED that the judgment is modified, on the law, without costs, by reversing so much thereof as granted the motion of plaintiff OB/GYN Health Center Associates, LLP for partial summary judgment and as declared that defendant had no obligation to advise plaintiffs of their right to counsel of their own choosing; motion denied to said extent and matter remitted to the Supreme Court for further proceedings not inconsistent with this Court's decision; and, as so [*6]modified, affirmed.

Footnotes

Footnote 1: The policies are identical and are referred to herein singularly as the "policy."

Footnote 2: Szary had her own policy of insurance issued by the Granite State Insurance Company.

Footnote 3: Szary reportedly settled with Hytko for $65,000 prior to trial, but remained in the action as a third-party defendant.

Footnote 4: The policy provisions (with amendments) upon which defendant relies include: "THE LIMITS OF LIABILITY APPLICABLE TO YOU As a person or ENTITY, you are insured under this Section, and have a PER-CLAIM LIMIT OF LIABILITY and ANNUAL AGGREGATE LIMIT OF LIABILITY to the extent set forth below.

. . .

2. In addition to the coverage this policy provides to the physician, the policy will also provide coverage equal to the limits of liability of this policy to the physician's ENTITY under the following circumstances and subject to the following limitations:

. . .

b. A claim is made against the ENTITY based on the conduct of a physician insured by [defendant] for the conduct of an ADDITIONAL NAMED INSURED or an ADDITIONAL INSURED for whom [defendant] is responsible . . . " Under the definitions section of the policy, an "additional insured" is defined as one who "is employed by the NAMED INSURED or by an ADDITIONAL NAMED INSURED and is listed by position as an ADDITIONAL INSURED on the Declarations Page." Szary was not named on the declarations page.

Footnote 5: As is relevant here, Section I, Part 1 ("Insuring Agreements") states that defendant would pay "all sums which you become legally obligated to pay for a claim" provided, among other things, that "the CLAIM arises from your rendering or failing to render PROFESSIONAL SERVICES." The definition of "Claim" includes a "lawsuit . . . which alleges disability, sickness, disease or death to a patient arising from your rendering or failing to render PROFESSIONAL SERVICES." "Professional Services" is defined as "the rendering or failing to render of medical or surgical treatment, diagnosis, opinion or advice."

 

Evanston Insurance Company v.  Po Wing Hong Food Market

 

Order, Supreme Court, New York County (Edward H. Lehner, J.), entered July 27, 2004, which, to the extent appealed from, denied plaintiff's motion for summary judgment, unanimously reversed, on the law, without costs, and the motion granted. The Clerk is directed to enter judgment in favor of plaintiff in the amount of $38,572.00, with statutory interest from December 21, 2002.

Plaintiff made a prima facie showing of its entitlement to summary judgment as a matter of law by submitting the subject insurance policy, the audit statement and an affidavit from its vice president, which demonstrated that defendant owed it an additional $38,572.00 pursuant to the audit conducted after expiration of the policy in accordance with the terms of the policy.

Contrary to the motion court's finding, defendant's submissions fail to raise a triable issue of fact as to whether the policy was obtained at defendant's request and what payments were actually made thereon. In his affidavit, defendant's president does not dispute that he relied on his insurance broker, third-party defendant Sterling & Sterling, to obtain coverage on defendant's behalf, and Sterling concedes that the policy relied on by plaintiff is the policy it obtained for defendant. Defendant is bound by Sterling's actions in obtaining the policy on defendant's behalf (see Crimi v National Life Ins. Co., 1 AD3d 309, 310 [2003]). The insurance binder on which defendant relies pre-dates both the Notice of Nonrenewal of Insurance sent to defendant by plaintiff on October 19, 2001 and the policy subsequently issued by plaintiff. The policy is the controlling document (see Ford Motor Credit Co. v Atlantic Mut. Ins. Co., 294 AD2d 206 [2002]). [*2]

The claim of defendant's president that he believed he had purchased a policy with a $38,000.00 premium for estimated sales of $15,000,000 is belied by the evidence of the terms of the policy defendant obtained from Markel Insurance Company the previous year. The Markel policy, like the policy obtained from plaintiff, was issued based upon estimated gross receipts of $9,100,000.00, with a premium audit to be conducted after expiration of the policy. It is undisputed that that audit revealed gross receipts of $17,347,987.00, resulting in a "gross earned premium" of $66,790.00, and a balance, after crediting defendant for its payment of the initial premium, of $25,455.00, which was paid by defendant through a finance company arranged for by Sterling.

The record indicates that the initial $49,049.00 premium for the instant policy was paid by the finance company on defendant's behalf, and that the premium audit revealed actual gross receipts of $16,256,268.00, resulting in a gross earned premium of $87,621.00 and a balance, after crediting defendant for its payment of the initial premium, of $38,572.00. By paying the initial premium and permitting plaintiff to conduct the audit, which defendant's president does not deny, defendant ratified Sterling's actions in obtaining the policy (see Paramount Ins. Co. v Brown, 205 AD2d 464, 465 [1994]).

M-1962 - Evanston Insurance Co. v Po Wing Hong

Food Market, Inc.
Motion seeking leave to strike brief denied.

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

ENTERED: AUGUST 25, 2005

CLERK

Metropolitan Casualty Insurance Company v. Travelers Insurance Company

In an action, inter alia, for a judgment declaring that the defendant is obligated to defend and indemnify the defendants in an underlying personal injury action entitled Gordy v Dubrow, pending in the Supreme Court, Suffolk County, under Index No. 3632/00, under an excess liability policy of insurance, the defendant appeals from an order of the Supreme Court, Nassau County (Mahon, J.), dated August 18, 2004, which granted the plaintiff's motion for summary judgment and denied its cross motion for summary judgment.

ORDERED that the order is reversed, on the law, with costs, the motion is denied, the cross motion is granted, and the matter is remitted to the Supreme Court, Nassau County, for the entry of a judgment declaring that the defendant, Travelers Insurance Company, is not obligated to defend and indemnify the defendants in the underlying personal injury action entitled Gordy v Dubrow, pending in Supreme Court, Suffolk County, under Index No. 3632/00, under the subject excess liability policy of insurance.

In February 1999 a vehicle owned and operated by Scott Gordy was involved in an accident with a vehicle owned by Eric Dubrow and operated by Delicia Dubrow. At the time of the accident, Eric Dubrow was insured under a primary liability policy, issued by the plaintiff Metropolitan Insurance Company (hereinafter Metropolitan), with policy limits of $250,000/$300,000, and an excess liability insurance policy issued by the defendant Travelers Insurance Company (hereinafter Travelers), with a policy limit of $2,000,000. In February 2000 the underlying personal injury action was commenced against the Dubrows, seeking damages in excess [*2]of $2,000,000. Travelers did not receive any notice of the accident or the action until October 4, 2001, when Metropolitan faxed to Travelers a copy of a letter which Metropolitan had received from the attorney for the plaintiffs in the underlying action. On November 6, 2001, Travelers disclaimed coverage.

The October 4, 2001, fax from Metropolitan did not constitute sufficient notice to Travelers. In accordance with the terms of its policy, Travelers was entitled to notice as soon as reasonably practicable after the insured became aware that the accident was likely to be a covered occurrence under Travelers' policy. The insured became so aware when the summons and complaint seeking damages in excess of two million dollars was served in February 2000. However, the October 4, 2001, fax to Travelers only set forth the accident date and that an excess policy existed. Travelers was not apprised of the date that the insured became aware of possible damages in excess of the primary policy limits until it received a copy of the summons and complaint on October 29, 2001. Consequently, the timeliness of the November 6, 2001, disclaimer by Travelers should have been measured from October 29, 2001, and not from the October 4, 2001, fax date.

Accordingly, the Supreme Court erred in concluding that the November 6, 2001, disclaimer was untimely as matter of law. Under the circumstances, and since there are no other issues of fact regarding the validity of the disclaimer, Travelers' cross motion for summary judgment should have been granted (see Insurance Law § 3420[d]; First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64; Matter of American Express Prop. Cas. Co. v Vinci, 18 AD3d 655; St. Charles Hosp. v Royal Globe Ins. Co., 18 AD3d 735; New York Cent. Mut. Fire Ins. Co. v Majid, 5 AD3d 447; see also Sayed v Macari, 296 AD2d 396; 1700 Assocs. v Public Serv. Mut. Ins. Co., 256 AD2d 456).

In light of our determination, we deem it unnecessary to reach Travelers' remaining contentions.

Since this is a declaratory judgment action, the matter must be remitted to the Supreme Court, Nassau County, for the entry of a judgment declaring that the defendant, Travelers Insurance Company, is not obligated to defend or indemnify the defendants under the subject excess policy in connection with the underlying personal injury action entitled Gordy v Dubrow, pending in Supreme Court, Suffolk County, under Index No. 3632/00 (see Lanza v Wagner, 11 NY2d 317, 334, appeal dismissed 371 US 74, cert denied 371 US 901).
SCHMIDT, J.P., S. MILLER, SANTUCCI and SKELOS, JJ., concur.

ENTER:

James Edward Pelzer

Clerk of the Court