Priority and Contributions of Commercial Auto Liability Coverages Determined

COMMERCIAL AUTO – PERMISSIVE USE – COINSURANCE – CONTRIBUTION AMONG COINSURERS – NOTICE TO EXCESS INSURER – "SAVINGS CLAUSE"
National Union Fire Ins. Co. of Pittsburgh, PA v. Connecticut Indem. Co.
(1st Dept., decided 6/10/2008)

This is a DJ action regarding the relative insurance coverage responsibilities of several insurers for a $2.4 million dollar settlement (presumably funded by National Union) in an underlying case. The underlying case involved an accident that occurred on May 3, 1999, when Howard Bailey, who was driving the insured tractor, collided with a disabled truck causing injury to a person who had stopped to assist with the disabled truck.

Associates owned the tractor that Bailey was driving. Associates insured the tractor with defendant Lumbermens. Associates leased the tractor to Conway, who subleased the vehicle to Gibson/Sunrise, which in turn, leased the vehicle and its driver Bailey, to Howard's Express. Each of these lessees/sublessees obtained insurance covering the tractor.

In MODIFYING the lower court's decision on motions, the First Department rejected Lumbermens' argument that Associates did not grant permission to Howard's Express to use the subject tractor within the meaning of the insurance policy.

In New York, proof of ownership of a motor vehicle creates a "very strong presumption" that the driver was using the vehicle with the owner's permission, express or implied, and this presumption continues "unless and until there is substantial evidence to the contrary" (Tabares v Colin Serv. Sys., 197 AD2d 571 [1993]; see Leotta v Plessinger, 8 NY2d 449, 461 [1960]). There is no such substantial evidence here.

The First Department also held that coverage under the Lumbermens policy, which stated that "[f]or any covered auto' you own, this Coverage Form provides primary insurance", was co-primary, rejecting Lumbermens argument and the lower court' s holding that a manuscript endorsement in the Lumbermens policy rendered its coverage excess.

By its plain terms, the manuscript endorsement refers to a situation "[w]hen you have other insurance for an auto' covered by this policy." You, in insurance parlance, refers to the insured (here, Associates)[.]

Lumbermens was thus responsible for reimbursing National Union $1 million, plus statutory interest.

The First Department next addressed the allocation of the remaining $454,640.15 among the excess insurers. The Legion policy could not be taken into account in making that allocation because Legion was in liquidation and therefore its limits were not "available coverage" within the meaning of the policies' respective "other insurance" provisions.

National Union and Federal provided umbrella coverage. The terms of these policies indicated that they were excess to the excess coverage that Connecticut Indemnity Company and US Fire provided.

Connecticut apparently had disclaimed excess coverage to Gibson/Sunrise based on its late notice, and Supreme Court granted summary judgment to Connecticut. The First Department disagreed that Gibson/Sunrise's notice was untimely as a matter of law and remitted the question of the timeliness of Gibson/Sunrise's notice back to Supreme Court for determination:

Under some circumstances, a five-month delay may be unreasonable, but here a question of fact exists as to whether the insured had a good-faith belief in nonliability. Where notice to an excess carrier such as Connecticut is in issue, the focus is on whether the insured reasonably should have known that the claim against it would likely exhaust its primary insurance coverage and trigger its excess coverage, and whether any delay between acquiring that knowledge and giving notice to the excess carrier was reasonable under the circumstances[.]

Finally, the First Department ruled that the "bobtail" exclusion in Connecticut's policy was void as against public policy and, in contradiction to a 2007 Second Department ruling on this issue, declined to enforce a "savings clause" in the policy that provided coverage up to the minimum amounts the financial responsibility law requires in the event the bobtail exclusion was held to be invalid.

We agree with the reasoning of those courts which hold that permitting an insurer to limit its liability even in cases where its policy exclusion is held to be invalid would render the finding on the issue of validity essentially meaningless (see Connecticut Indem. Co. v. 21st Century Transport Co., Inc., 186 F Supp 2d 264, 278 [EDNY 2002]; R.E. Turner, Inc. v. Connecticut Indemn. Co., 925 F Supp 139, 149 [WDNY 1996]; Connecticut Indem. Co. v Carela, 2007 WL 2363123 (DNJ Aug 15, 2007] [applying New York law]; but see Connecticut Indem. Co. v. Hines, 40 AD3d 903 [2d Dept 2007]). If the exclusion is void because it is against public policy, it can not be saved. Thus, the Connecticut policy must be read as affording liability up to its full limits.