Tuesday, July 22, 2008

Fitts and Starts -- GEICO Found to Owe Liability Coverage to Parking Garage Employee Due to Untimely Disclaimer

Government Employees Ins. Co. v. Liberty Mut. Ins. Co.
(Sup. Ct., New York Co., decided 7/11/2008)

When the allegations of a personal injury complaint make it clear that a policy exclusion applies, further investigation may be deemed unnecessary and the insurer will be found to owe coverage if it has not issued a timely declination of coverage based on that exclusion.

Fitts had Smellie, an employee of Edison Parking Corporation, park her car. While doing so, Smellie struck a pedestrian in the parking garage with Fitts's car, injuring him. GEICO insured Fitts under her personal auto policy, and Liberty insured the parking garage and its employees. The pedestrian commenced a personal injury action against Fitts, Smellie and Edison.

The decision indicates that "shortly after the lawsuit began, GEICO received notification and was requested to defend all defendants." Three and a half months later, GEICO's staff defense counsel sent a letter to Smellie (the parking garage employee) indicating that “[als your attorneys, our professional obligation is to you, and we will be defending your interests in this case. We are committed to providing you with excellent service as well as excellent representation.” No letter was sent to Edison, the parking garage.

Approximately two weeks later, or a total of approximately four months from when the underlying personal injury action was filed, GEICO commenced this DJ action seeking a declaration that it was not obligated to defend or indemnify Smellie or Edison because Liberty's policy afforded primary liability coverage to them. Alternatively, GEICO argued that its coverage for Smellie and Edison was excess to the coverage available to them under Liberty's commercial liability policy.

In support of its argument that it owed no coverage to Smellie and Edison, GEICO pointed an exclusion within its policy that negated coverage for any "'insured' * * * while employed or otherwise engaged in the 'business' of * * * [p]arking vehicles designed for use mainly on public highways." Liberty argued that GEICO's failure to timely disclaim coverage to Smellie and Edison based on this exclusion violated Insurance Law § 3420(d) and precluded it from doing so.

New York Supreme Court Justice Louis York agreed, holding:
Here, neither party sets forth the specific date on which GEICO received notice of the claim - although, based on GEICO's assertions, it appears that it received the complaint in the underlying action shortly after the November 24, 2006 date on the complaint. Indeed, GEICO asserts that it took approximately 4 months - or, approximately 120 days - for it to disclaim coverage. The complaint in question, Tamarit v. Edison Parking Corp., Index 117850/2006, explains that Ms. Smellie was an employee of Edison, that she was the operator of the vehicle when it struck Mr. Tamarit, that the car belonged to Ms. Fitts - GEICO’s insured - and that the incident took place in Edison’s garage while Ms. Fitts left the car in the care of the garage. Based on GEICO’s repeated assertions that the applicability of the exclusion is clear on its face and readily ascertainable, and that this type of exclusion commonly applies to parking garages, GEICO should have realized from a quick glance at the complaint that the exclusion applied here. Where the disclaimer’s basis “was or should have been readily apparent before the onset of the delay, any explanation by the insurer . . . will be insufficient as a matter of law . . . .” Bovis Lend Lease LMB, Inc., v. Royal Surplus Lines Ins. Co., 27 A.D.3d 84, 88, 806 N.Y.S.2d 53, 56(1st Dept. 2005).
The court rejected GEICO's "conclusory statement" that “the complexities of the circumstances surrounding the underlying incident" required it to investigate further, finding that GEICO had not elaborated on a single one of the purported complexities surrounding the case and had not set forth any of the details of the alleged investigation.

The court did not reach the issues of whether Liberty’s policy excluded coverage or whether GEICO would be liable for excess coverage. Based on the lack of a counterclaim by Liberty for declaratory relief, the court also denied Liberty's cross motion for a declaration that it was not liable for excess coverage to Ms. Fitts, the vehicle's owner. Finally, the court also did not reach the issue of whether estoppel applied to preclude GEICO from denying coverage to Smellie and Edison, noting that Liberty had not adequately address all the elements necessary to show or refute an estoppel argument, and that GEICO’s argument that the letter of its staff defense counsel “merely indicated that the firm would be defending Ms. Smellie, not indemnifying him [sic],” "is, at best, strained."

Although it is not clear from the decision, in granting Liberty's cross motion for summary judgment, in part, and declaring that GEICO "must indemnify the insured parties at issue", Edison (the parking garage) presumably was found to be entitled to defense and indemnification coverage from GEICO, as well.

As one who regularly litigates insurance coverage disputes, I had to smile at footnote # 2 of the court's decision: "Liberty quotes some or all of the provisions, but does not indicate where they are located in the myriad forms and hundreds of pages that comprise its policy." Practice Pointer: Include the entire policy but be sure either the excerpt the relevant provisions in separate exhibits, identify the form/endorsement number and page of the provision, or re-paginate the entire policy and give the court a page reference. Courts like to confirm that a policy provision upon which a movant is relying is actually in the policy, but generally don't like to flip through hundreds of pages of policy forms to find it.

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