Second Department Affirms that Offering Rather than Tendering Commercial Auto Policy Limit Does Not Terminate the Insurer's Obligation to Pay Post-Judgment Interest

COMMERCIAL AUTO – PAYMENT OF POST-JUDGMENT INTEREST – "OFFER" VS. "TENDER"
Lancer Ins. Co. v. Sunrise Removal, Inc.
(2nd Dept., decided 11/30/2010)

What's the difference between an "offer" and a "tender"?  About $105,000 extra in this case.

Robyn Schiffer sued Sunrise Removal and its employee for personal injuries she sustained in an accident with a Sunrise Removal truck.  At the time of the accident, Lancer insured the truck with a liability coverage limit of $100,000.  Prior to trial of the Schiffer action, counsel for Sunrise Removal offered the $100,000 policy limit to settle the matter. Schiffer rejected the offer and the case went to trial, resulting in a jury verdict for Schiffer in the amount of $776,858.05.  Judgment was entered on September 5, 2007.  A subsequent appeal by Sunrise resulted in an affirmance.

Sometime in 2009, Lancer commenced this declaratory judgment action for a declaration that it had no obligation to pay interest above its liability limit of $100,000, an order permitting it to deposit the policy liability limit into court, and a declaration that it was released from liability.  Schiffer answered and asserted a counterclaim seeking a declaration that Lancer was obligated to pay interest on the full amount of the judgment in addition to its $100,000 policy limit.  Both parties moved for summary judgment.

Nassau County Supreme Court (Angela G. Iannacci, J.) granted summary judgment to Schiffer and Lancer appealed.  In AFFIRMING that aspect of the order appealed from which granted Schiffer's motion for summary judgment, the Second Department, Appellate Division, held:

Contrary to the plaintiff's contention, the statement of its attorney at the trial of the underlying personal injury action that "the policy was offered" was insufficient to terminate its obligation to pay interest on the ensuing judgment in that action.  Construing the plaintiff's unambiguous policy provision regarding the payment of interest in accordance with the plain and ordinary meaning of its language (see White v Continental Cas. Co., 9 NY3d 264, 267), it is clear that the subject provision contemplates the existence of a judgment before the plaintiff's obligation to pay interest could be terminated by the payment of, offer to pay, or depositing in court of, its share of that judgment.  Accordingly, the subject policy did not provide a mechanism for the extinguishment of the plaintiff's obligation to pay interest before the existence of a final judgment in the action.  In any event, the statement of the plaintiff's attorney did not satisfy the requirements of a valid and unconditional tender under the governing insurance regulation (see 11 NYCRR 60-1.1[b]; Doviak v Lowe's Home Ctrs., Inc., 63 AD3d 1348, 1356; Levit v Allstate Ins. Co., 308 AD2d 475, 476-477; Michaels v United States Tennis Assn., 295 AD2d 222; Jamaica Sav. Bank v Sutton, 42 AD2d 856, 857).

Lancer had also argued that if any post-judgment interest were owed, it should be limited to interest on the policy's $100,000 policy limit, rather than on the entire $776,858.05 judgment.  In rejecting that argument, as well, the Second Department noted, as had the trial court, that the Lancer policy language was more generous to the insured than what the regulation required:

The Supreme Court properly determined that the plaintiff's policy obligation to pay interest was more generous than the obligation imposed by the applicable regulation, and that the plaintiff was, therefore, obligated to pay interest on the full amount of the underlying judgment rather than on the amount of its policy limit (see e.g. Levit v Allstate Ins. Co., 308 AD2d 475).

So to terminate an insurer's obligation to pay post-judgment interest under an auto liability policy in New York, tender, don't offer, the policy limit after there actually is a money judgment in place.  And read and adhere to the policy language on the measure of post-judgment interest owed.

Opening a Taxicab Door Is Not "Operating" the Taxicab -- Liability Coverage to Passenger Who Opened Door into Path of Bicyclist Denied

COMMERCIAL AUTO – LIABILITY COVERAGE – WHAT CONSTITUTES "OPERATING" A VEHICLE
Kohl v. American Tr. Ins. Co.
(Ct. Apps., decided 7/1/2010)

In Henderson v. New York Cent. Mut. Fire Ins. Co., 56 AD3d 1141, the Fourth Department ruled that negligently opening a car door constituted an "automobile accident" and stated that "the 'act of opening the [vehicle] door in order to exit the vehicle constitutes "use and operation" of a vehicle pursuant to Vehicle and Traffic Law § 388[.]'" 

In this case, plaintiff commenced this action for a judgment declaring that the American Transit was obligated to defend and indemnify him in an personal injury action brought by a bicyclist who was injured when the plaintiff opened the rear door of a taxicab he was exiting into the bicyclist's path.  Affirming the Supreme Court's order granting American Transit's cross motion for summary judgment, the Second Department stated that "[t]he Supreme Court properly granted the defendant's cross motion for summary judgment since the plaintiff is not entitled to a defense or to indemnity for his 'use' of a vehicle under the defendant's commercial automobile policy insuring the owner and the driver of the taxi-cab[.]"

Plaintiff obtained leave to appeal the Second Department's decision to the Court of Appeals, and that court recently AFFIRMED the award for summary judgment to American Transit, succinctly holding:

The Appellate Division correctly held that Kohl was not insured under the taxi owner's policy of automobile liability insurance. The policy says that it "shall inure to the benefit of any person legally operating" the insured vehicle in the business of the insured. The word "operating" cannot be stretched to include a passenger's riding in the car or opening the door. 

Is there a legal difference between "operation" as used in the term "use and operation" and "operating", as used in the more limited insuring language of American Transit's taxicab policy?  Apparently there is, with both the Second Department's and Court of Appeals' decisions in this case having succeeded (but not mentioned) the Fourth Department's decision in Henderson. 

Not All Policy Definitions Are Created Equal -- Ones Limiting Coverage By Lack of Inclusion Are Not Subject to New York Insurance Law § 3420(D)(2)

CGL – COMMERCIAL AUTO – "HIRED AUTO" & "NON-OWNED AUTO" DEFINITIONS – INSURANCE LAW § 3420(D)(2) – LACK OF INCLUSION
NGM Ins. Co. v Blakely Pumping, Inc.
(2nd Cir., 2/1/2010)

When may a negative or limiting policy definition be considered an exclusion subject to the timely disclaimer and denial requirement of New York Insurance Law § 3420(d)(2)?  When it negates liability coverage that the policy otherwise provides.  In a rare insurance coverage decision from the Second Circuit United States Court of Appeals, the court ruled that not all policy definitions that limit coverage are exclusions.  The two in this case -- the "Hired Auto" and "Non-Owned Auto" definitions -- are not.

New York Insurance Law § 3420(d)(2) provides:

If under a liability policy issued or delivered in [New York State], an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.

On November 3, 2005, Brian Blakely crashed his pickup truck into Peter Slingerland’s car in Kingston, New York. Blakely was driving the truck in the course of his work for his company, Blakely Pumping, as he frequently did. Slingerland and his wife brought a personal injury action against both Blakely and Blakely Pumping.

In a letter dated March 18, 2006, Blakely Pumping requested that NGM Insurance Company defend the action pursuant to an insurance policy for "Businessowners Liability Coverage” that Blakely Pumping had purchased from NGM. The policy generally covered liability for personal injuries but contained a section entitled “Exclusions” that expressly negated coverage for damages “arising out of the ownership, maintenance, use or entrustment to others of any ... ‘auto’ ... owned or operated by or rented or loaned to any insured.” Blakely Pumping, however, had also purchased an endorsement from NGM that modified the policy; the Endorsement extended coverage to bodily injury arising from the use of a “Hired Auto” or a “Non-Owned Auto” by the company or one of its employees. The endorsement defined those terms as follows:

“Hired Auto” means any “auto” you lease, hire or borrow. This does not include any “auto” you lease, hire or borrow from any of your “employees” or members of their households, or from any partner or “executive officer” of yours.

“Non-Owned Auto” means any “auto” you do not own, lease, hire or borrow which is used in connection with your business. 

On March 23, 2006, NGM disclaimed coverage, based on the policy’s auto exclusion.  In a letter dated July 24, 2006, counsel for the Slingerlands called NGM’s attention to the endorsement’s extension of coverage for bodily injuries arising out of the use of a “Hired Auto” or “Non-Owned Auto.”  Two weeks later, NGM again disclaimed coverage, this time on the ground that Blakely was an executive officer of Blakely Pumping and, therefore, his pickup truck was neither a “Hired Auto” nor “Non-Owned Auto” as defined in the endorsement.

In July 2007, NGM commenced this action, seeking a declaratory judgment that it was under no obligation to defend or indemnify Blakely Pumping in the underlying Slingerland personal injury action.  On March 24, 2009, after the parties cross-moved for summary judgment, the district court entered a judgment declaring that NGM was indeed obligated to defend and indemnify Blakely Pumping.  Although the court concluded that Blakely Pumping had borrowed the auto of one of its officers and that the accident was therefore not covered under the terms of the policy as modified by the endorsement, the district court found that the policy's "Hired Auto" and "Non-Owned Auto" definitions constituted exclusions of general coverage, thereby triggering the timely disclaimer and denial requirement of New York Insurance Law § 3420(d)(2).  Since NGM originally disclaimed coverage based only on the policy's auto exclusion, the district court ruled that it had "waived" its right to disclaim coverage on other grounds.  Thus, the district court held that NGM’s subsequent notice of disclaimer was ineffective.  NGM appealed to the Second Circuit. 

In REVERSING the district court's ruling, the Second Circuit held that the district court erred in finding that the endorsement’s definitions of “Hired Auto” and “Non-Owned Auto” were exclusions triggering the timely disclaimer or denial requirement of New York Insurance Law § 3420(d)(2):

Determining whether there is no coverage by reason of exclusion as opposed to lack of inclusion can be “problematic."  Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 189 (2000).  We find guidance in Planet Insurance Co. v. Bright Bay Classic Vehicles, Inc., 75 N.Y.2d 394 (1990), a case that is particularly applicable to the facts before us.  There, the New York Court of Appeals considered whether definitional language that did not appear in the section of an insurance policy entitled “Exclusions” eliminated coverage by reason of exclusion or lack of inclusion. Defendant Bright Bay obtained the policy in question for its fleet of rental cars. The policy defined “covered rental cars” as those rented for periods of less than 12 months.  Id. at 398. One of Bright Bay’s cars was later involved in an accident while being rented for a 24-month period.  The court found that, although the insurance company disclaimed coverage based on the definition of “covered rental cars” as opposed to a provision in the policy’s “Exclusion” section, the definition’s limiting language still amounted to an exclusion.  Id. at 400. The court explained that the car was initially covered by the policy and only “became ‘uncovered’ upon the happening of a subsequent event: i.e., the rental ... for a lease period other than that prescribed in the policy.”  Id. at 401. Since the car was at one point covered, this was not a case where there “was never a policy in effect covering the involved automobile.”  Id.

In the instant case, the principal issue in dispute is whether the district court erred in finding that the Endorsement’s definitions of “Hired Auto” and “Non-Owned Auto” constitute exclusions requiring a notice of disclaimer.  We conclude that the district court did err in so finding.

The Endorsement did not generally cover auto accidents; it covered only accidents arising from the use of a “Hired Auto” or “Non-Owned Auto.”  Those terms were defined in such a way that an employee’s or officer’s vehicle, like Blakely’s pickup truck, could never be covered. This is not a case then where “the happening of a subsequent event” implicated a definitional term that “uncovered” a formerly covered car.  Id.  Rather, it is a case in which “the policy as written could not have covered the liability in question under any circumstances.” Zappone [v. Home Ins. Co.], 55 N.Y.2d [131] at 134.  In short, there was no coverage “by reason of lack of inclusion,” and thus no notice of disclaimer was required. Id. at 137 (internal quotation marks omitted).

The court also discussed but distinguished the New York Appellate Division's decisions in Greater New York Mutual Insurance Co. v. Miller, 205 A.D.2d 857(3d Dept. 1994) (policy definition of an “insured” negated coverage for drivers who used the auto in question without permission) and United Services Automobile Association v. Meier, 89 A.D.2d 998 (2d Dept. 1982) (policy definitions that negated coverage from individuals engaged in automobile businesses).  In distinguishing the Meier case, the Second Circuit noted:

In fact, the Meier court found that other definitions in the same policy – such as the definitions of “owned vehicle,” “newly acquired vehicle,” and “temporary substitute vehicle” – were not exclusions.  Id. at [454 N.Y.S.2d] 320-21.  According to the court, the failure of the vehicle in question to qualify as one of these defined terms meant that there was never a “contract of insurance with the person or for the vehicle involved in the accident.”  Id. at [454 N.Y.S.2d] 321. We employ identical logic in our analysis.

In New York, noncoverage grounds based on a lack of inclusion are not subject to Insurance Law § 3420(d).  Disclaimers or denials based either on policy exclusions or conditions are.  Although somewhat of a fine distinction, the difference between policy definitions that negate coverage and ones that merely state what is covered is an important one.  The Second Circuit correctly analyzed these definitions in concluding that the policy provided no coverage in the first place for the insured's officer's use of his own pickup truck, which did not meet the policy's definitions of either a hired auto or non-owned auto.

Offering Rather than Tendering Policy Limit Costs Commercial Auto Insurer an Extra $191 Per Day in Interest

COMMERCIAL AUTO – PAYMENT OF POST-JUDGMENT INTEREST – 11 NYCRR § 60-1.1 – "OFFER" VS. "TENDER"
Lancer Ins. Co. v. Sunrise Removal, Inc.
(Sup. Ct., Nassau Co., decided 1/22/2010)

Most liability policies provide for the payment of interest on judgments against insureds  But is the interest paid on the full amount of the judgment, or only on the judgment amount not exceeding the policy limit?  Insurers may look to their policy language for the answer, but policy language may not answer the question for New York auto policies.

Section 60-1.1(b) of Subpart 60-1 of New York's insurance regulations (Title 11), entitled "Minimum Provisions for Automobile Liability Insurance Policies", provides:

An "owner's policy of liability insurance", as defined in section 311 of the Vehicle and Traffic Law, shall contain in substance the following minimum provisions or provisions which are equally or more favorable to the insured and judgment creditors, so far as such provisions relate to judgment creditors:

(b) With respect to such insurance as is afforded, the insurer, subject to the policy terms shall: defend any suit, with the right to make such investigation, negotiation and settlement as it deems expedient; pay all premiums on attachment bonds and appeal bonds; pay all expenses incurred by the company, all costs taxed against the insured in any such suit, and all interest accruing after entry of judgment until the insurer has paid or tendered or deposited in court such part of such judgment as does not exceed the applicable policy limits; pay expenses incurred by the insured for first aid to others at the time of accident; and reimburse the insured for reasonable expenses other than loss of earnings, incurred at the company's request. The amounts so incurred under this subdivision, except settlement of claims and suits, shall be payable by the company in addition to the applicable policy limits.

Sunrise Removal's commercial auto policy with Lancer contained  the following provision:

2. Coverage Extension

a. Supplementary Payments

In addition to the Limit of Insurance, we will pay for the "insured":

* * * * * 

(6) All interest on the full amount of any judgment that accrues after entry of the judgment in any "suit" against the "insured" we defend, but our duty to pay interest ends when we have paid, offered to pay or deposited in court the part of the judgment that is within our Limit of Insurance.

Robyn Schiffer sued Sunrise Removal and its employee for personal injuries she sustained in an accident with a Sunrise Removal truck.  At the time of the accident, Lancer insured the truck with a liability coverage limit of $100,000.  Prior to trial of the Schiffer action, counsel for Sunrise Removal offered the $100,000 policy limit to settle the matter. Schiffer rejected the offer and the case went to trial, resulting in a jury verdict for Schiffer in the amount of $776,858.05.  Judgment was entered on September 5, 2007.  A subsequent appeal by Sunrise resulted in an affirmance.

Sometime in 2009, Lancer commenced this declaratory judgment action for a declaration that it had no obligation to pay interest above its liability limit of $100,000, an order permitting it to deposit the policy liability limit into court, and a declaration that it was released from liability. Schiffer answered and asserted a counterclaim seeking a declaration that Lancer was obligated to pay interest on the full amount of the judgment in addition to its $100,000 policy limit.  Both parties moved for summary judgment.

In granting Schiffer's motion and ruling that Lancer was obligated to pay 9% statutory interest on the entire $776,858.05 judgment from September 5, 2007 until the date of commencement of this action, Nassau County Supreme Court Justice Angela Iannacci held:

While an insurer can't provide less than the regulation requires, there is no prohibition from being more generous than the regulation requires (see Dingle v Prudential Prop. and Cas. Ins. Co., 85 NY2d 657 [1995]). Here, although the policy language indicates that merely an offer of settlement is sufficient, section 60-1.1(b) requires tender of payment. An offer to settle pursuant to the policy limits is not an unconditional tender of payment and is insufficient to stop the accrual of interest on the judgment (see Levit v Allstate Ins. Co., 308 AD2d 475 [2d Dept. 2003]; Fama v Metropolitan Prop. & Cas. Ins. Co., 242 AD2d 663 [2d Dept. 1997]). Accordingly, the language of the regulation must control and Lancer's offer to settle just before trial was insufficient to stop the accrual of interest. 

Conversely, while the insurance regulation does not require a provision in the policy providing for payment of interest on the entire judgment, Lancer's policy is more generous and clearly provides for the payment of interest on the entire judgment in addition to the payment of the policy limit (see Dingle, supra at 662, fn.2). 

For those wondering, that's $191.55 in interest per day.  If it was not until mid-2009 that Lancer commenced this DJ action, the interest owed over and above its $100,000 policy limit is approximately $105,000.  Yikes.

It's important to note that 11 NYCRR § 60-1.1(b) applies only to an "owner's policy of [automobile] liability insurance" as defined by Vehicle & Traffic Law § 311.  There is no similar regulation applicable to non-auto policies.  Policy language should control the payment of post-judgment interest under those policies.

Editor's Note ~~ The Appellate Division, Second Department, affirmed this decision on November 30, 2010.  Review that decision here. 

Volunteer Firefighter Injured While Directing Traffic Away from Accident Scene Found Not Entitled to SUM Coverage Under His Fire Company's Business Auto Policy

SUM – BUSINESS AUTO – MEANING OF "YOU" – "OCCUPYING"
Gallaher v. Republic Franklin Ins. Co.
(4th Dept., decided 2/11/2010)

An insurance actuary of one of your readers' companies could probably tell me what the chances are of seeing two reported decisions on the issue of supplementary uninsured motorists (SUM) or underinsured motorists coverage for volunteer firefighters in the span of two weeks.  Matter of American Alternative Ins. Corp. v. Pelszynski out of Suffolk County Supreme was the first; here's the second.

Volunteer firefighter James Gallagher had ridden to the scene of a motor vehicle accident on his fire company's truck.  Upon arrival, he exited the truck and, at the time of the accident that led to his injuries, was directing traffic away from the original accident scene.  The relevant SUM endorsement defined an insured as "[y]ou, as the named insured" and "[a]ny other person while occupying . . . [a] motor vehicle insured for SUM under this policy." The SUM endorsement also defined "occupying" as "in, upon, entering into, or exiting from a motor vehicle."

Republic Franklin, the volunteer fire company's business auto insurer, denied SUM coverage to Gallagher, and he sued for that coverage, arguing alternatively that he qualified as an "insured" under the policy's SUM endorsement or that he was "occupying" the SUM-covered fire truck at the time of his accident.  Wayne County Supreme Court denied both parties' motions for summary judgment, and both parties appealed.

In REVERSING the order appealed from insofar as it had denied Republic Franklin's motion for summary judgment, the Appellate Division, Fourth Department, held that: (1) Gallagher was not a named insured under the policy because the "[y]ou" in the SUM endorsement referred only to the fire company and did not also refer to an employee of the company; and (2) Gallagher was not "occupying" the fire truck at the time of his accident because his conduct in directing traffic was unrelated to the truck and was not incidental to his exiting it:

Addressing first plaintiff's cross appeal, we conclude that the court properly determined that plaintiff is not a named insured under the policy. The named insured was the fire company, and thus "[y]ou" in the SUM endorsement referred only to the fire company and did not, as plaintiff contends, also refer to an employee of the company (see Buckner v Motor Veh. Acc. Indem. Corp., 66 NY2d 211, 214; Matter of Coregis Ins. Co. v Miceli, 295 AD2d 511). Addressing next defendant's appeal, we agree with defendant that the court erred in determining that there is an issue of fact whether plaintiff was covered under the policy as a person occupying the truck. At the time of the accident, plaintiff had exited the fire company's truck and was directing traffic away from the scene of a motor vehicle accident.  Plaintiff's conduct in directing traffic was "unrelated to the [truck]" and was not incidental to his exiting it (Matter of Travelers Ins. Co. [Youdas], 13 AD3d 1044, 1045). Thus, under the facts of this case, plaintiff was not "occupying" the truck within the meaning of that term in the policy (see Matter of Martinez, 295 AD2d 277, 278; Coregis Ins. Co., 295 AD2d at 511). 

Does this decision conflict with and, as it's from the Appellate Division, override the Pelszynski decision?  One could argue either way.  The holding in Pelszynski turned not on the meaning of "you" as used in the first part of the SUM endorsement's definition of "insured", but on subpart 2.(b) of that definition.  Moreover, "occupying" was not at issue in Pelczynski.  Read literally, however, the Fourth Department's statement that "'[y]ou' in the SUM endorsement referred only to the fire company and did not, as plaintiff contends, also refer to an employee of the company" could be construed to conflict with the holding in Pelszynski.

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. 

Court Reverses Jury Verdict for Injured Parties on Late Notice DJ Trial

COMMERCIAL AUTO – LATE NOTICE BY INJURED PARTY – INSURANCE LAW § 3420(A)(2) – TIMELY DISCLAIMER
Kiladze v. Countrywide Ins. Co.
(Sup. Ct., New York Co., decided 7/14/2008)

Under New York's Insurance Law, injured parties have an independent right to notify the tortfeasor's liability insurer, but they must act with due diligence to: (1) identify that insurer; and (2) promptly place it on notice once they learns its identify. In this case, although the plaintiffs convinced a jury that they had acted with such diligence, the trial judge disagreed and granted Countrywide's CPLR § 4401 post-trial motion to set aside the verdict.

In setting aside the jury's verdict, New York County Supreme Court Justice Nicholas Figueroa held:

Neither plaintiff nor her attorney provided any explanation of why they waited seven months before giving notice to Countrywide. Therefore, as a matter of law, Countrywide is entitled to judgment dismissing plaintiff’s complaint (St. Nicholas Cathedral of the Russian Orthodox Church In North America v. Travelers Properly Casualty Insurance Company, 45 AD3d 411).

Nor is there legally sufficient evidence in the record to sustain the jury finding that plaintiff and her attorney took reasonable measures to learn that Countrywide was the insurer. Kiladze’s attorney made no attempt to obtain the information from the Department of Motor Vehicles. Rather, he relied on information that he knew came from plaintiff herself, without taking any measurers [sic] to determine if the information was correct. The attorney did not receive any confirmation from Progressive that it was the insurer subsequent to his contact with that carrier; thus, he could not have reasonably believed that Progressive was the carrier. Given the complete lack of proof that either plaintiff or her attorney made reasonable efforts to learn that Countrywide was the insurer, the jury's finding to the contrary was not supported by legally sufficient proof (American Home Assurance Company v. State Farm Mutual Insurance Company, 277 AD2d 409, 410).

Nor is there any merit to plaintiff's contention that she is entitled to recover against Countrywide because it did not timely disclaim coverage. Countrywide's April 13,2000 disclaimer was effective against her (Schlott v. Transcontinental Insurance Company, 41 AD3d 339, 340). That disclaimer, issued only seven days of the Vasquez complaint, as well as the June 29, 2000 disclaimer, sixteen days after receiving the papers from attorney Blau, were timely, as a matter of law (Nationwide Insurance Company v. Lukus, 264 AD2d 778, 779).

From the court's decision, it appears plaintiff's attorney failed to take relatively simple steps to determine Countrywide's identity and then promptly place it on notice, including writing to the New York State DMV to gain the identity of DLM Trucking's insurer.

It Started With A Blast

Buffalo, New York
April 23, 1979
(c) Buffalo Evening News

A truck loaded with dynamite caught fire and exploded this morning at a Town of Lancaster stone quarry, injuring nine workers, leveling nearby buildings and vehicles, and sending shock waves that blew out windows of home several miles away.

Miraculously, Leonard Rinker, a truck driver from Lancaster Stone Products Corp. on Barton Road, was able to run to safety when the cab of his truck caught fire just after 7 a.m. and he called to other workers to take cover. * * *

The explosion flattened buildings, destroyed 26 trucks and cars, and tore down power lines at the quarry site.

The force of the blast cracked foundations of nearby homes, police said, and residents of the villages of Lancaster and Depew reported their windows were blown out and cupboards rattled. Windows were also blown out at police headquarters on Main Street in Clarence. * * *

Mr. Rinker told the Buffalo Evening News that he ran from his truck when the cab filled with smoke. He said he was about 1,500 feet away when the truck exploded. * * *

A hole 6 feet deep and 20 feet across was left where the truck had been, officials said, and parts of the vehicle were found 200 yards away.

-------------------------------------------------------------------------------------------------

In commemoration of Independence Day, I thought I'd share a report of some local fireworks that formed the basis of what is known in New York as the "antisubrogation rule".

In Pennsylvania General Ins. Co. v. Austin Powder Co., 68 NY2d 465 (1986), the New York Court of Appeals ruled:

An insurer has no right of subrogation against its own insured for a claim arising from the very risk for which the insured was covered. This rule applies even where the insured has expressly agreed to indemnify the party from whom the insurer's rights are derived and has procured separate insurance covering the same risk.

Bison Ford Truck Sales rented a truck Austin Powder Company under a rental agreement that required Bison Ford to obtain primary liability insurance and Austin Powder to indemnify Bison Ford for liability arising out of Austin Powder's use of the vehicle. Liberty Mutual issued auto policies to Bison Ford under which Austin Powder and Rinker were found to be "additional insureds". Austin Powder used the truck to transport dynamite and blasting caps to a stone quarry in Lancaster, New York, a northeastern suburb of Buffalo. The driver, Leonard Rinker, overloaded the truck, causing the rear wheels and wheel wells to overheat from friction. Did I mention that the truck was loaded with dynamite and blasting caps?

A 6 x 20 foot crater and 1 million in 1979 dollars in property damage later, Pennsylvania General commenced this subrogation action for $2,252.35 in auto physical damage it had paid to its insured (a new AMC Pacer cost $3,100 in 1979). On behalf of Bison Ford, Liberty Mutual settled and paid that claim, and crossclaimed as Bison Ford's subrogee against Austin Powder under the rental agreement, which presented the courts with this opportunity to address and impose the antisubrogation rule.

This case did not create the antisubrogation rule, but refined it somewhat to provide for its application even where the insured has expressly agreed to indemnify the subrogor and procured separate insurance covering the same risk. Liberty Mutual unsuccessfully argued that the indemnification provision of the rental agreement between Bison Ford and Austin Powder, coupled with the fact that Austin Powder had procured its own liability insurance, should permit recovery from Austin Powder. The Court of Appeals disagreed, finding no reason to create an exception to the antisubrogation rule since Austin Powder and Rinker clearly were covered as additional insureds under Liberty Mutual's primary insurance policy with Bison Ford.

Austin Powder has been cited 215 times since being decided in 1986 and remains one of the seminal antisubrogation cases in New York. It has been followed, explained and distinguished, but not overruled. Although leasing and rental companies and their insurers have learned to limit or circumvent its holding in relation to mandatory liability insurance coverages owed to lessees, renters and customers, New York judges continue to apply its holding to prevent insurers from subrogating against parties to whom or which they owed defense and indemnification coverage for the same risk, as in the recent decision in ELRAC, Inc. d/b/a Enterprise Rent a Car v. Russo (Dist. Ct., Nassau Co., decided 6/10/2008).

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.