When You Is an It

AUTO – UM COVERAGE – "INSURED" – STAY OF UM ARBITRATION

State Farm Mut. Auto. Ins. Co. v. Sanchez
(Sup. Ct., NY Co., 8/3/2020)

State Farm issued an auto policy to "Profit General Contractor & Contracting, LLC", a limited liability company having one member (owner),  Alexandro Sanchez.  While riding his bicycle, Mr. Sanchez was hit by an uninsured vehicle, sustaining injuries.  He made a claim under his LLC's auto policy with State Farm for UM coverage, which State Farm denied on the basis that Sanchez did not qualify as an "insured" under the LLC's policy, which was defined as:

(1) you, as the named insured and, while residents of the same household, your spouse and the relatives of either you or your spouse; 

(2) any person while acting in the scope of that person's duties for you, except with respect to the use and operation by such person of a motor vehicle not covered under this policy, where such person is: 

(i) your employee and you are a fire department; 

(ii) your member and you are a company, as defined in General Municipal Law section 100; 

(iii) your employee and you are an ambulance service, as defined in Public Health Law section 3001; or

(iv) your member and you are a voluntary ambulance service as defined in Public Health Law section 3001; 

(3) any other person while occupying: 

(i) a motor vehicle insured for SUM under this policy; or 

(ii) any other motor vehicle being operated by you or your spouse ; and 

(4) any person, with respect to damages such person is entitled to recover, because of bodily injury to which this coverage applies sustained by an insured under paragraph (1), (2), or (3) above.

Sanchez demanded arbitration of his UM claim and State Farm commenced this special proceeding to stay that arbitration.  

In ruling in favor of Sanchez and dismissing State Farm's petition, the court, after noting that "the burden rests on the party seeking the stay to establish the existence of evidentiary facts, sufficient to conclude that there is a genuine preliminary issue", held that because the policy was issued to an LLC and afforded coverage options for the named insured's "spouse"  and a discount for the named insured having taking an accident prevention course, the policy afforded UM coverage to him: 

Factually, the facts of the instant matter have even more in common with with those of Morette. In Morette, Anthony Morette, the sole owner of policyholder A.T. Morette Electric LLC, allegedly was struck by an unidentified motor vehicle while he was jogging. Ultimately, Mr. Morette's wife and daughter sought a declaratory judgment that the insurer, Merchants Mutual Insurance Company, was liable for SUM coverage (Morette, supra, 35 Misc. 3d at 201-202). The court denied the insurers' motion for summary judgment, rejecting Merchants' argument that because the LLC was the named insured, SUM coverage was unavailable. In reaching such conclusion, the court relied on a few key provisions, including the option to pay a premium for spousal liability coverage (id. at 206). It further noted that the exclusions page did not exclude the member of the LLC from injuries that were relevant to the facts at hand. Here, too, the option to purchase spousal liability coverage existed, and coverage for a bike accident was not excluded. In addition, the exclusions page indicates that petitioner had the discretion to provide coverage to the surviving spouse if the insured was deceased (NYSCEF Doc. No. 5, at 000029). Further, as respondent points out, petitioner provided a discount to the LLC because respondent took an accident prevention course, and this also weighs in favor of treating him as individually covered under the policy.

LLCs don't have spouses and can't take an accident prevention course, but they can be treated as a carbon-based life form for purposes of UM (and SUM) coverage under an automobile insurance policy.

PerSONa Non Grata Not a Household Resident and Therefore Not an Insured Under the Father's Farmowners Policy

FARMOWNERS – "HOUSEHOLD" – RESIDENT RELATIVE – INSURED STATUS
Farm Family Cas. Ins. Co. v Nason
(4th Dept., decided 11/10/2011) 

If your adult son stayed sometimes on your property in a separate but uninsured trailer and sometimes off premises with his girlfriend, did not reside with other members of your family, and was not welcome in your home, could he be considered a member of your household for purposes of qualifying as an insured under your homeowners or farmowners insurance policy?  No, says the Appellate Division, Fourth Department.

Farm Family insured property on which Gerald Nason, Sr., had his home and a dairy business.  Under the terms of that policy, Nason's relatives were insureds only if they were residents of his "household."  Eric Pommerenck died as the result of injuries that he sustained on farm property owned by Nason while examining a hay elevator that had been offered for sale by Nason's son, Gerald R. Nason, Jr., the defendant in this declaratory judgment.  Nason Jr. did not reside exclusively on his father's residence property but also resided at times with his girlfriend at another location.  Pommerenck's estate commenced a wrongful death action against, among others, Nason Sr. and Nason Jr., and Farm Family commenced this action seeking a declaration that it owed no duty to defend or indemnify Nason Jr. in the underlying action on the ground that he was not an insured under its policy. Supreme Court, Erie County (Sedita, J.) denied Farm Family's motion for summary judgment and it appealed.

In REVERSING the lower court's order and declaring that Farm Family was not obligated to defend or indemnify Nason Jr. in the underlying wrongful death action, the Appellate Division, Fourth Department, while noting that the undefined term "household" has been characterized as being ambiguous, found that Farm Family has submitted sufficient evidence to support the conclusion that Nason Jr. was not a member of his father's household, and thus did not qualify as an "insured" under his policy with Farm Family at the time of the underlying accident:

"The term household has been characterized as ambiguous or devoid of any fixed meaning in similar contexts . . . and, as such, its interpretation requires an inquiry into the intent of the parties . . . The interpretation must reflect the reasonable expectation and purpose of the ordinary business [person] when making an insurance contract . . . and the meaning which would be given it by the average [person] . . . Moreover, the circumstances particular to each case must be considered in construing the meaning of the term" (General Assur. Co. v Schmitt, 265 AD2d 299, 300 [internal quotation marks omitted]). In addition, "the term should . . . be interpreted in a manner favoring coverage, as should any ambiguous language in an insurance policy" (Rohlin v Nationwide Mut. Ins. Co., 26 AD3d 749, 750). 

Here, plaintiff established that Nason did not consider defendant to be a member of his household, nor would he have anticipated that defendant would be afforded coverage under his insurance policy inasmuch as defendant lived separately from Nason, either in a trailer on the subject property or with a girlfriend. The trailer was not listed in the policy as an alternate residence. Furthermore, members of the Nason family testified at their respective depositions that defendant did not reside with the other members of the family and, indeed, was not welcome in the family home. Consequently, plaintiff established as a matter of law that defendant was not a member of Nason's household within the meaning of the policy (see Matter of Hartford Ins. Co. of Midwest v Casella, 278 AD2d 417, 418, lv denied 96 NY2d 710; Walburn v State Farm Fire & Cas. Co., 215 AD2d 837; cf. Korson v Preferred Mut. Ins. Co., 55 AD3d 879, 880-881), and defendants failed to raise a triable issue of fact (see generally Zuckerman v City of New York, 49 NY2d 557, 562).

Not a Named Insured? Not Entitled to Coverage.

CGL – NAMED INSURED STATUS – REFORMATION – MUTUAL MISTAKE
South Hylan, LLC v CNA Ins. Co.
(2nd Dept., decided 11/1/2011) 

A person or entity can be entitled to coverage under a liability policy in one of three ways: (1) as a named insured; (2) as an additional insured; or (3) as an omnibus insured, qualifying as an insured by virtue of a provision in the "Who is an Insured" or other omnibus insured clause of the policy.

Plaintiffs sought defense and indemnification coverage from National Fire Insurance Company of Hartford (NFICH) for an underlying personal injury action.  NFICH declined based on the fact that plaintiffs were not named insureds on the policy under which they sought coverage (and presumably were not additional insureds or omnibus insureds either).  Plaintiffs commenced this declaratory judgment action and, among other things, sought to reform (re-write) the policy to add themselves as named insureds based on the parties' alleged mutual mistake in procuring and issuing the policy.  Supreme Court, Richmond County (Ajello, J.H.O.), denied NFICH's motion and granted plaintiffs' cross motion for summary judgment and NFICH appealed.

In REVERSING the lower court's order, the Appellate Division, Second Department, found that NFICH had demonstrated its prima facie entitlement to summary judgment by establishing that plaintiffs were not named insureds in the subject insurance policy.  The appellate court also found that plaintiffs had failed in opposition to NFICH's motion to raise a triable issue of fact as to whether reformation of the subject insurance policy was appropriate because a mutual mistake had been made as to the identity of the actual insureds.

You know what a claim like this one means, don't you?  A companion agent E&O claim.  Looks like that action is heading to trial next month. 

Questions of Fact Found to Preclude Summary Judgment For or Against Condo Board Member on CGL Coverage For Injuring Condo's Security Guard in Fight

CGL "INSURED" – EMPLOYMENT-RELATED PRACTICES EXCLUSION
Kelleher v. Admiral Indem. Co.
(Sup. Ct., New York Co., decided 7/28/2010)

So if you're a member of the board of directors of your condominium and you get into a bit of a tussle with the security guard of your building while returning from Christmas shopping with packages in hand and family in tow, will the condo's CGL policy respond to defend and indemnify you in relation to the guard's inevitable personal injury suit against you?

Maybe. 

On Christmas Eve, 2005, Denis Kelleher, who was a member of the board of directors of the Northmoore Condominiums, returned to the Northmoore accompanied by his wife and two young children.  As he approached the building, Kelleher observed through the glass lobby doors Abraham Baawuah (“Baawuah”), an employee of an independent security contractor, sitting behind the lobby desk and speaking on the telephone.  Kelleher and his wife were carrying their children and Christmas packages and were unable to easily open the doors to the building.  Baawuah did not assist the Kelleher family in entering the lobby. After entering the building, Kelleher "rebuked" Baawuah for not having opened the lobby doors.  Thereafter, Kelleher and Baawuah began arguing over whether opening the doors was part of Baawuah’s duties.

During that argument, Kelleher announced that he was going to call the board president to report Baawuah.  While Kelleher was dialing his cellular phone, Baawuah approached Kelleher, slapped his cellular phone from his hand, grabbed Kelleher by the coat, and pulled him toward the front doors.  Kelleher allegedly responded by pushing Baawuah away from him in self-defense, and Baawuah fell to the ground between the two entrance doors.  Kelleher called the police who, after responding to the call, initially suggested that Kelleher and Baawuah drop the matter.  However, the police later returned to the Northmoore and arrested Kelleher, charging him with criminal assault.  The criminal charge was later dismissed.

Less than a month later (of course), Baawuah filed an action against Kelleher in Bronx County Supreme Court, alleging causes of action for intentional assault and battery, intentional infliction of emotional distress, and negligence.  That action was subsequently settled.

Kelleher gave notice to the condo's CGL insurer, Admiral, of the underlying action and requested that Admiral defend and indemnify him.  Kelleher based his request for coverage on his contention that he qualified as an "insured" under the policy, which provided:

WHO IS AN INSURED

(l)  If you are designated in the Declarations as:

(d)  An organization other than a partnership, a joint venture or limited liability company, you are an insured. Your “executive officers” and directors are insureds, only with respect to their duties as your officers or directors.

Kelleher argued that he qualified as an insured because he was operating within the scope of his duties as a Northmoore board member by reporting Baawuah’s failure to perform doorman service to the board president.

In response to Kelleher's request for coverage, Admiral denied coverage on several grounds, including the asserted applicability of the policy's Employment-Related Practices Exclusion (ERPE), which provided in relevant part:

This insurance does not apply to:

“Bodily Injury” to:

(1) A person arising out of any:

(a)  Refusal to employ that person;

(b)  Termination of that person’s employment; or

(c)  Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed at that person[.]

* * * * * .

This exclusion applies:

(1)  Whether the insured may be liable as an employer or in any other capacity (emphasis added)[.]

Kelleher commenced this declaratory judgment action to compel Admiral to defend and indemnify him in the underlying personal injury action, alleging that because he was acting within the scope of his duties as a member of the condo's board of directors, Admiral was required to provide him with coverage under the condo's CGL policy.  Admiral moved for summary judgment, contending:  (1) the ERPE applied to negate coverage because the bodily injury to Baawuah arose from Kelleher’s discipline of Baawuah during the course of Baawuah’s employment at the Northmoore; (2) the clause in the ERPE stating that coverage is excluded whether the insured is liable “as an employer or in any other capacity” indicates that the injured party need not be an employee of the insured in order for coverage of the incident to be excluded under the policy; and (3) as a threshold matter, Kelleher did not qualify as an "insured" under the policy because he was not acting within the scope of his duties as a board member when the altercation occurred.  Kelleher cross-moved for partial summary.

In denying both parties' motions for summary judgment, New York County Supreme Court Justice Saliann Scarpulla ruled that although Baawuah’s injuries arose from the type of employment-related practice contemplated by the ERPE, the ERPE weas ambiguous as to whether it applied to independent contractors:

Although Admiral has established that Baawuah’s injury arose from the type of employment-related practices described in the ERPE, it has not shown that the ERPE clearly and unambiguously applies even if the injured party was not a current, former, or potential employee of the insured.  Here, the term “person” (rather than “employee”) is used in the ERPE to describe the injured individual, but “person” is not expressly defined to include independent contractors.  Both the title of the ERPE and the list of practices enumerated therein - actions commonly associated with those of an employer interacting with an employee - suggest that it is reasonable to interpret the ERPE as being inapplicable to injuries suffered by independent contractors.  

In so holding, the court noted that the policy's BI to employees exclusion also used the "or in any other capacity" language, but clearly applied only to employees of the insured:

Admiral acknowledged in its motion papers that the “Employer’s Liability” exclusion pertained only to injuries to employees of the insured, despite the exclusion’s “or in any other capacity” language. Yet, Admiral also argued that the “or in any other capacity” clause in the ERPE should be interpreted, as a matter of law, in the exact opposite manner, i.e., to encompass non-employees.   

 Justice Scarpulla also denied plaintiff's cross motion for summary judgment:

Here, there are remaining factual determinations to be made that preclude summary disposition of the applicability of the ERPE and require denial of Kelleher’s motion for partial summary judgment.  In particular, Baawuah’s occupational status with respect to the Northmoore is an unresolved issue affecting whether the ERPE applies.  It is undisputed that Baawuah was an employee of an independent security contractor, but there is an issue of fact as to the authority the Northmoore exercised with respect to Baawuah’s employment at the condominium.  Admiral asserts that Baawuah was an “indirect employee” of the Northmoore; the April 4, 2006 letter disclaiming coverage to Kelleher posits that Baawuah might have been a “special employee.” Such a determination could place Baawuah within the narrow interpretation of the ERPE posited by Kelleher. * * *  Kelleher’s argument with Baawuah and his attempt to report Baawuah’s actions to the board president suggest that the Northmoore may have maintained a degree of influence over Baawuah’s employment status.  The parties did not fully brief this issue and submitted insufficient evidence on these motions with respect to Baawuah’s occupational relationship to the Northmoore.  Moreover, because “a person’s categorization as a special employee is usually a question of fact,” Thompson, 78 N.Y.2d at 557, the resolution of this issue is inappropriate for determination as a matter of law.

Finally, with respect to the question of whether Kelleher qualified as an "insured" in the first place under the policy, the court ruled that plaintiff had not affirmatively established that he was an insured:

“The party claiming insurance coverage bears the burden of proving entitlement, and is not entitled to coverage if not named as an insured or an additional insured on the face of the policy.” Nat’l Abatement Corp. v. Nat’l Union Fire Ins. Co., 33 A.D.3d 570, 571 (1st Dep’t 2006) (internal citations omitted).  Here, Kelleher asserts that he is covered as an insured under the Policy because he was acting within the scope of his duties as a member of the Northmoore board of directors.  However, Kelleher has not submitted any by-laws, corporate documents, or an affidavit showing that Kelleher’s duties as a board member encompassed either rebuking Baawuah or reporting Baawuah’s alleged dereliction to the board president.  Because of the lack of admissible evidence as to Kelleher’s board duties, there is a question of fact as to whether Kelleher qualified as an insured under the Policy. See generally Sekulow, 193 A.D.2d at 396.

Volunteer Firefighter Responding to Emergency Call in His Own Vehicle Found Entitled to SUM Coverage Under Department's Business Auto Policy

SUM – DEFINITION OF "INSURED" – BUSINESS USE OF PERSONAL AUTO
Matter of American Alternative Ins. Corp. v. Pelszynski
(Sup. Ct., Suffolk Co., decided 1/27/2010)

Respondent, a volunteer firefighter, was injured in an auto accident while responding to an emergency call in his own vehicle.  He settled a personal injury action against the driver of the other vehicle and made a claim for supplementary uninsured motorists (SUM) or underinsured coverage benefits against petitioner, his fire department's business auto insurer.  AAIC declined SUM coverage and respondent demanded arbitration, prompting this special proceeding to stay that arbitration.

In denying AAIC's petition for a stay and granting respondent's cross motion to compel arbitration, Suffolk County Supreme Court Justice Mark Cohen found that respondent qualified as an "insured" for SUM coverage under the business auto policy, even though he was operating his own vehicle.

At the conference, the parties assisted the Court in clearly indicating that the Petitioner's vehicle would not be a covered auto.²  The focus is on the New York Supplementary Uninsured/Underinsured Motorists Endorsement, which defines insured:

1.  Definitions:  For purposes of this SUM endorsement, the following terms have the following meanings:

     a.  Insured.  The unqualified term "insured" means:

         (1) you, as the named insured and, while residents of the same household, your spouse and relatives of either you or your spouse;

         (2) any other person while occupying:

              (a) a motor vehicle insured for SUM under this policy; or

              (b) any other motor vehicle while being operated by you or your spouse

The Respondent notes, and the Petitioner concedes, that the New York State Insurance Department issued an informal opinion, dated February 8, 2002, which interpreted the SUM language. The opinion found that an employee of the business operating their own vehicle during the course of employment and while acting within the scope of their duty would be covered under the SUM endorsement. Although the informal opinion does not demand stare decisis adherence, courts may defer to the government agency charged with the responsibility for administration of the particular statute, "[w]here the interpretation of a statute or its application involves knowledge and understanding of underlying operational practices or entails an evaluation of factual data and inferences to be drawn therefrom ..." Kurcsics v. Merchants Mut. Ins. Co., 49 N.Y.2d 451, 459. The analysis seems to be the reasonable construction of the policy language. Moreover, as the Respondent notes, SUM coverage was to apply to individuals, herein volunteers, of the named insured, since only individuals can have a spouse or a relative. Alternatively, an "insured" is "a person occupying ...any other motor vehicle while being operated by you." The phrase "other motor vehicle," would have to mean a non-covered vehicle and for a volunteer, would be his or her own vehicle while acting within the scope of his or her employment.³

Footnote #2 of the court's decision is especially important. AAIC apparently did not timely assert one of the exclusions that is found in the prescribed UM/SUM endorsement that would otherwise negate coverage for employees or volunteers of a named insured injured while using their own motor vehicles if those vehicles are not specifically insured for SUM coverage under their employers' or principals' business auto policy:

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, or is not a newly acquired or replacement motor vehicle covered under the terms of this policy.

The "insured" as used in that exclusion would be the church employee in the OGC opinion letter and the volunteer firefighter in this case.

Oddly, on its face, this exclusion seemingly would not apply if the employee or volunteer of the named insured were using someone else's vehicle, i.e., a non-owned vehicle. I guess the underwriting intent is to not provide SUM coverage for the use of owned vehicles that employees or volunteers regularly use. Nonetheless, the implied requirement that the employee or volunteer be acting within the scope of his or her "employment" by the named insured at the time of the accident remains, regardless of the vehicle's ownership.

So, an employees who is injured in the course of his employment while driving someone else's car may be entitled to SUM coverage under his employer's business auto policy if it includes SUM coverage? Under this decision, it appears so.

H/t to Eric Turkewitz of the New York Personal Injury Blog for the heads up on this decision.

Note: The Fourth Department, Appellate Division, issued a decision on February 11, 2010 that calls this decision into question.  See this blog's post regarding the Gallaher v. Republic Franklin Ins. Co. case. 

Second Department Affirms Summary Judgment to Landlord & Landlord's Insurer in Declaratory Judgment Action by Tenant

CGL – QUALIFICATION AS INSURED – FAILURE TO PROCURE INSURANCE – DELAYED MOTION FOR LEAVE TO AMEND COMPLAINT
American Cleaners, Inc. v. American Intl. Specialty Lines Ins. Co.
(2nd Dept., decided 12/8/2009)

American Cleaners leased premises from Koncal Associates Limited Partnership, an entity related to Konover & Associates, Inc.  The plaintiff's name and mention of New York's Navigation Law in this decision imply that there may have been some type of outdoor pollution event impacting groundwater.  American Cleaners presumably sought coverage from Konover & Associates' commercial liability insurer, American International Specialty Lines Insurance Company, and brought this declaratory judgment action against AISLIC and the Konover defendants for liability coverage.

AISLIC and the Konover defendants moved for summary judgment and "on the eve of trial", American Cleaners cross-moved to amend its complaint to assert causes of action sounding in breach of contract, common-law indemnification, and indemnification under New York's Navigation Law.  Orange Supreme granted the defendants' motions for summary judgment and denied plaintiff's cross motion.

In AFFIRMING summary judgment to AISLIC, the Second Department held:

The Supreme Court properly granted the motion of the defendant American International Specialty Lines Insurance Company (hereinafter American International) for summary judgment. "The four corners of an insurance agreement govern who is covered and the extent of coverage" (Sixty Sutton Corp. v Illinois Union Ins. Co., 34 AD3d 386, 388; see Stainless, Inc. v Employers Fire Ins. Co., 69 AD2d 27, 33, affd 49 NY2d 924). Moreover, where a third party seeks the benefit of coverage, the terms of the policy must clearly evince such intent (see Stainless, Inc. v Employers Fire Ins. Co., 69 AD2d at 33). Here, by submitting the subject policy of insurance, which lists the defendant Konover & Associates, Inc., as the only named insured, American International demonstrated, prima facie, that the plaintiff was not entitled to a declaration of coverage. In opposition, the plaintiff failed to raise a triable issue of fact (see Zuckerman v City of New York, 49 NY2d 557).

Also agreeing that the lower court had properly granted the Konover defendants' motion for summary judgment, the Second Department ruled:

The Konover defendants demonstrated their prima facie entitlement to judgment as a matter of law by submitting a lease executed by Koncal Associates Limited Partnership, as landlord, and the plaintiff, as tenant, which did not obligate them to name the plaintiff as an additional insured. In opposition to this showing, the plaintiff failed to raise a triable issue of fact.

Finally, the Second Department concluded that the trial court had "providently" exercised its discretion in denying the plaintiff's eve-of-trial cross motion for leave to amend its complaint to assert additional causes of action:

Furthermore, the court providently exercised its discretion in denying the plaintiff's cross motion, made on the eve of trial, for leave to amend the complaint to add causes of action sounding in breach of contract, common-law indemnification, and indemnification under the Navigation Law. "Generally, [i]n the absence of prejudice or surprise to the opposing party, leave to amend a pleading should be freely granted unless the proposed amendment is palpably insufficient or patently devoid of merit'" (Morris v Queens Long Is. Med. Group, P.C., 49 AD3d 827, quoting G.K. Alan Assoc., Inc. v Lazzari, 44 AD3d 95, 99, affd 10 NY3d 941; see CPLR 3025[b]; Sampson v Contillo, 55 AD3d 591; Lucido v Mancuso, 49 AD3d 220; Trataros Constr., Inc. v New York City School Constr. Auth., 46 AD3d 874, 874). "However, where the application for leave to amend is made long after the action has been certified for trial, judicial discretion in allowing such amendments should be discrete, circumspect, prudent, and cautious'" (Morris v Queens Long Is. Med. Group, P.C., 49 AD3d at 828, quoting Clarkin v Staten Isl. Univ. Hosp., 242 AD2d 552, 552). "Moreover, when . . . leave is sought on the eve of trial, judicial discretion should be exercised sparingly" (Morris v Queens Long Is. Med. Group, P.C., 49 AD3d at 828; see Comsewogue Union Free School Dist. v Allied-Trent Roofing Sys., Inc., 15 AD3d 523, 525; Rosse-Glickman v Beth Israel Med. Ctr.-Kings Hwy. Div., 309 AD2d 846). "In exercising its discretion, the court should consider how long the party seeking the amendment was aware of the facts upon which the motion was predicated, whether a reasonable excuse for the delay was offered, and whether prejudice resulted therefrom" (Cohen v Ho, 38 AD3d 705, 706). The Supreme Court properly weighed all of these considerations, including the plaintiff's failure to proffer a reasonable excuse for the delay, in denying the plaintiff's cross motion.

Separated and Non-Resident Spouse Found Entitled to SUM Coverage as "Insured"

SUM – "INSURED" – RESIDENCY REQUIREMENT
Matter of Preferred Mut. Ins. Co. v. Bath
(Sup. Ct., Ulster Co., decided 6/2/2009)

What happens when one policy form defines an "insured" one way and another policy endorsement defines it in another way?

Victoria Bath separated from her husband and moved out of the marital residence in early May 2008.  Less than one month later, on June 1, 2008, she was injured when the driver of the car in which she was riding lost control and the vehicle flipped over. The driver was later charged with driving while intoxicated.  His auto insurer settled with Bath for the $25,000 liability limit of his policy, and Bath then sought SUM coverage from Preferred Mutual under a personal auto policy that had been issued to her husband in his name alone.  Preferred Mutual denied SUM coverage on the basis that Bath's physical separation from her husband in early May 2008 ended her status as an "insured" under the terms of the SUM endorsement of the policy.  Bath demanded arbitration and Preferred Mutual commenced this special proceeding for a stay.

The main personal auto policy form (probably a PP 00 01 form) defined "you" and "your" as follows:

A.  Throughout this policy, "you" and "your" refer to:

1. The "named insured" shown in the Declarations; and

2. The spouse if a resident of the same household. 

 If the spouse ceases to be a resident of the same household during the policy period or prior to the inception of this policy, the spouse will be considered "you" and "your" under this policy but only until the earlier of:

1. The end of 90 days following the spouse's change of residency[.]

The prescribed SUM endorsement, however, defined an "insured" as:

I.  Definitions. For purposes of this SUM endorsement, the following terms have the following meanings:

(a) Insured. The unqualified term "insured" means:

(1) You, as the named insured and, while residents of the same household, your spouse and the relatives of either you or your spouse[.]

Preferred Mutual argued that the SUM endorsement's more narrow, regulatorily prescribed definition of "insured" controlled and that, since Bath had moved out of the marital residence a few weeks before the accident, she did not qualify as an "insured" for SUM coverage purposes.

Ulster County Supreme Court Justice Henry Zwack disagreed, finding this to be "a classic 'ambiguity' in its purest etymological sense: it leads the reader in two directions at the same time."  In ruling in favor of coverage and dismissing the petition, Justice Zwack held:

Both parties to this litigation agree that the dilemma must be resolved. They disagree, not only on the ultimate resolution, but on its method. Petitioner urges that the standard to be applied is one of plain meaning and "impartial interpretation" (Reply Affirmation at para 22), since the SUM language is mandated by statute (see Walton v Lumberman's Mut. Cas. Co., 88 NY2d 211, 214 [1996]). Respondent, on the other hand, insists that the general rule construing inconsistencies in insurance policy language against the drafter should be applied (see Wagman v American Fidelity & Cas. Co., 304 NY 490 [1952]). 

The prescribed language of the SUM endorsement, when read alone, is clear and unambiguous. What removes its clarity and creates the ambiguity is petitioner's facially contradictory definition, ostensibly applicable "throughout th[e] policy." The mandatory SUM language existed first; petitioner wrote its policy and incorporated the pre-existing SUM language. Accordingly, if the unambiguous SUM language loses its clarity because petitioner chose to draft language of its own that contradicts the definitions of the SUM endorsement, the Wagman standard should apply, as it is petitioner and not the Insurance Department that created the ambiguity.

The balance of the analysis is simple. Petitioner's policy provides coverage to respondent under one definition of its terms, then excludes her from coverage under another definition. Resolution of the inconsistency against the drafter of the inconsistent language results in coverage for respondent. 

The appropriateness of this result can be cross-checked by the application of the familiar canon of construction which holds that the specific shall take precedence over the general (Cf. Delaware & Hudson Ry. Co. v McDonald, 126 AD2d 29, 32 [3d Dept 1987]). Petitioner's expansive definition of "you" provides a specific formula for the determination of the termination of coverage for a non-resident spouse at the end of ninety (90) days. The general language of the SUM endorsement merely states that a spouse will be covered "while [a] resident[] of the same household," yet is silent as to whether coverage terminates at the moment when a spouse decides to leave the household, after the spouse has established a different residence, or after the spouse has removed all possessions from the former household. The specific language of the main policy provides clear guidance and fixes a definite terminus for coverage; the general SUM endorsement language does not. Coupled with the unequivocal statement that the specific definition will apply "throughout this policy," there can be little doubt that respondent falls within the definition of covered individuals.

Petitioner contends that the clear statement that the policy's definition would apply "throughout" is countered by the statement that appears immediately before the SUM endorsement: "THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY." This statement is so general as to be meaningless. It cannot be reasonably interpreted as superseding the definition that was said, by petitioner, to apply "throughout the policy." 

To say that the SUM endorsement "changes" the policy is at best surplusage and at worst misleading. If the SUM endorsement did not "change" the policy there would be no point in its inclusion. If the policy already provided exactly the same SUM coverage as the endorsement describes, reiterating the terms of that coverage in an endorsement that did not "change" the policy would be pointless. Therefore, to state expressly that the endorsement "changes the policy" means nothing. If, on the other hand, the true purpose of the statement is to provide petitioner with the ability to claim that its own choice of apparently clear wording that its definitions would apply "throughout this policy" was in fact really intended to mean "only until we choose to use a different definition," it is an intent that cannot be effectuated at respondent's expense. As noted supra, ambiguous language in a contract of insurance is to be construed against the insurer. If petitioner's language was chosen to mean one thing while appearing to mean another, it cannot be enforced.

You can't blame Preferred Mutual for attempting to apply the plain and unambiguous words of the SUM endorsement's "insured" definition.  The potential flaw in Justice Zwack's interpretation of the seemingly inconsistent definitions is his overlooking of the modifying prepositional and adjectival phrase "as the named insured", following the "you" in the SUM endorsement's definition.  The court's decision completely ignores that phrase, rendering it meaningless in comparative construction with the main policy form's definition of "you".  If Justice Zwack had focused on this language and actually applied the "specific over the general" canon of contract construction he cites, he would have found the more specific definition of "insured" in the regulatorily prescribed SUM endorsement to control, leaving Bath uncovered for SUM.  The decision does not indicate whether counsel for Preferred Mutual made this particular argument.

Earlier this month I perfected an appeal in a first-party property coverage case to the Fourth Department in which my core argument pivots on the "specific over general" canon of insurance policy interpretation.  In Rocon Mfg. v Ferraro (199 AD2d 999, 1000 [4th Dept 1993]), the Fourth Department stated that “where ‘there [is] an inconsistency between a specific provision and a general provision of a contract * * * the specific provision controls[.]’"  I'll let you know how that appeal turns out, if Ray Zuppa doesn't beat me to the punch.  No widows or "potential" widows in that case.  Just rich country club members and some wet sand.

Son-In-Law Tenant Residing in "Additional Residence Rented to Others" Not an "Insured"

HOMEOWNERS – ADDITIONAL RESIDENCES RENTED TO OTHERS – TENANT OF NAMED INSURED – "INSURED" – "RESIDENT" OF NAMED INSURED'S HOUSEHOLD
Ramos v. OneBeacon Ins. Co.
(Sup. Ct., Queens Co., decided 9/2/2008)

OneBeacon issued a homeowners policy to Giovanni and Giuseppa Scuderi for their residence and two rental properties, which the policy identified and designated as "Additional Residences Rented to Others". The Scuderis' daughter and son-in-law, Davis Ramos, rented and lived with their two children in one of those two rental properties. Ramos hired George Georgiadis to do some plumbing renovations at their rental property and allegedly injured him with a saw. Georgiadis sued Scuderi and Ramos for his injuries, and OneBeacon denied liability coverage under the Scuderi homeowners policy to Ramos because he was not an "insured" under that policy. Ramos did not have renters insurance at the time of the Georgiadis accident. Ramos brought this declaratory judgment action for coverage under the Scuderi policy. Following discovery, OneBeacon moved for summary judgment.

The Scuderis' homeowners policy with OneBeacon defined "insured" as:

3. Insured means you and residents of your household who are:

a. Your relatives; or

b. Other persons under the age of 21 and in the care of any person named above.

OneBeacon's senior business analyst testified during her EBT that the Scuderi homeowners policy did not cover the acts of tenants of the rental properties because “household” does not include tenants. Further, if a tenant of a rental premises wanted to purchase coverage, it would be purchased under a separate renter’s policy.

Ramos testified that he had resided at the rental premises where the underlying accident occurred with his wife and two children on a permanent basis on the date of that accident and for some time prior to that accident. His wife's parents did not reside there and had never resided there.

Scuderi testified that he had resided his own home - the primary location on OneBeacon's policy- for more than 20 years. His daughter and son-in-law did not reside with him but lived, approximately five to ten minutes away, at the rented premises where the underlying incident occurred.

On these facts, Queens County Supreme Court Justice Orin Kitzes granted summary judgment to OneBeacon, declaring that it did not owe Ramos defense and indemnification coverage under the Scuderis' homeowners policy in relation to Georgiadis' underlying personal injury action:

Review of the parties’ deposition transcripts and the documentary evidence submitted herein, which includes a copy of the OneBeacon insurance policy purchased by defendant Scuderi, demonstrates (1) that Ramos did not reside with Scuderi at the Scuderi residence, (2) that Ramos lived with only his wife and children and the premises where the underlying incident occurred, and (3) that Ramos was a renter, or lessee, of the premises where the incident occurred. Since defendant Scuderi, the named insured, did not reside with his son-in-law Ramos at the premises where the underlying incident occurred, and Ramos did not live in or occupy the premises where defendant Scuderi resided on the date of the underlying incident, Ramos cannot be considered a relative who resided in the named insured’s household (see Biundo v New York Central Mutual, 14 AD3d 559 [2005]; cf. Auerbach v Otrego Mut. Fire Ins., Co., 36 AD3d 840 [2007]). Further, it is clear that defendant Scuderi insured the property where Ramos resided where and the underlying incident occurred as a rental property, not as a second residence (see Walburn v State Farm Fire and Cas. Co., 215 AD2d 837 [1995]). Thus, since Ramos is a tenant of the rental property where the incident occurred, and the subject insurance policy unequivocally provides that there is no coverage for Ramos as a tenant of that property, the court finds that defendant OneBeacon has demonstrated a prima facie entitlement to an award of summary judgment in his favor (see generally Alvarez v Prospect Hospital, 68 NY2d 320 [1986]).