SUM Coverage Affirmed for Mechanic's Use of Insured's Temporary Substitute Car

SUM  – TEMPORARY SUBSTITUTE CAR – LOANER VEHICLE
Matter of State Farm Mut. Auto. Ins. Co. v. O'Brien
(2nd Dept., decided 9/19/2014)

State Farm's policy defined "Temporary Substitute Car" as "a car that is in the lawful possession of the person operating it and that: 1. replaces your car for a short time while your car is out of use due to its: a. breakdown; b. servicing; c. repair; d. loss; or e. destruction; and 2. neither you nor the person operating it own or have registered."

State Farm's insured, Auletta, had his car in for servicing or repair at Massapequa Auto Repair.  While his vehicle was at the shop, Auletta was given a loaner car to use.  When his vehicle was done, Auletta asked O'Brien, an employee of  repair shop, to return the shop's loaner car to the shop.  While doing so, the loaner car was struck in the rear by a vehicle insured by GEICO and O'Brien sustained injuries.  O'Brien sued GEICO's insured and GEICO paid its policy's $25,000 to settle that lawsuit.  State Farm consented to the settlement, but denied SUM coverage to O'Brien based on its position that the loaner car did not meet the policy's definition of an "uninsured motor vehicle".

O'Brien demanded arbitration and O'Brien commenced this special proceeding to stay that arbitration permanently.  Supreme Court denied the petition and State Farm appealed.

in AFFIRMING the order appealed from the Appellate Division, Second Department, held that O'Brien was entitled to SUM coverage under Auletta's policy with State Farm because the loaner car constituted a "temporary substitute car" under the policy, and a temporary substitute car carried the same coverages as Auletta's regular auto:

This Court has held that the purpose of a provision relating to a "temporary substitute" vehicle "is to afford continuous coverage to the insured during the period that a vehicle scheduled under the policy is out of commission, and at the same time limit the risk to the insurer to one operating vehicle at a time for a single, fair premium. Coverage for a substitute vehicle ceases when the insured vehicle is repaired and returned to its owner" (Lancer Ins. Co. v Republic Franklin Ins. Co., 304 AD2d 794, 797 [internal quotation marks and citation omitted]). Here, the SUM endorsement fails to articulate any exclusion for a "temporary substitute car." Therefore, the Supreme Court properly denied State Farm's petition to permanently stay arbitration and directed the parties to proceed to arbitration.

No Liability Clause of Car Dealership's Garage Liability Policy Found to Negate Coverage for Driver of Loaner Vehicle

AUTO – LOANER VEHICLE – NO LIABILITY CLAUSE – PRIORITY OF INSURANCE
Progressive Cas. Ins. Co. v. Harco Natl. Ins. Co.
(4th Dept., decided 2/11/2010)

Jason Webb borrowed a loaner vehicle from Burdick Pontiac-GMC while his own vehicle was being repaired by the car dealership. His son, Justin Webb, was driving the loaner vehicle when he collided with a vehicle operated by Andrea Walker. Walker thereafter commenced the underlying against Justin Webb and Burdick seeking damages for injuries that she allegedly sustained in the accident.

The loaner vehicle was insured under a garage liability policy issued to Burdick by Harco National Insurance Company, and the Webbs were insured under a family motor vehicle policy issued by plaintiff, Progressive Casualty Insurance Company. The Harco policy contained what is commonly known as a "no liability clause," which provided coverage to a customer of its insured only if the customer "[h]as no other available insurance (whether primary, excess or contingent)" or "[h]as other available insurance (whether primary, excess or contingent) less than the compulsory or financial responsibility law limits where the covered auto' is principally garaged." The Progressive policy contained an "excess" clause, which stated that any insurance provided for a vehicle, other than a covered vehicle, "will be excess over any other valid and collectible insurance."

Progressive commenced this action seeking a declaration that Harco was obligated to provide primary coverage to defend and indemnify Justin Webb in the underlying action, and Harco asserted a counterclaim seeking a declaration that Progressive is the primary insurance carrier for Webb and thus was obligated to defend and indemnify him to the limits of its policy. Onondaga County Supreme Court granted Progressive's motion for summary judgment declaring that Harco was obligated to provide primary coverage to Justin Webb and that Progressive's coverage was excess to Harco's.  Harco appealed.

In REVERSING the order appealed from and declaring that Progressive owed primary coverage to Justin Webb and Harco owed no coverage, the Fourth Department gave effect to the no liability clause of the Harco policy:

We agree with Harco and Burdick that the Webb defendants are excluded from coverage pursuant to the express terms of the Harco policy. Under the Harco policy, a customer is excluded from the definition of an "insured" unless the customer possesses insufficient insurance to meet the minimum requirements set forth in New York's financial responsibility laws. In granting the motion of Progressive, the court relied on the general rule that, "[i]n cases in which one insurance policy has a no liability clause and the other insurance policy has an excess clause, . . . the no liability clause is not given effect" (Kipper v Universal Underwriters Group, 304 AD2d 62, 65; see Utica Mut. Ins. Co. v Travelers Ins. Co., 213 AD2d 983, 984). That was error, inasmuch as "[a]n exception to the general rule arises [where, as here,] the no liability clause expressly provides that other available insurance' includes both primary and excess insurance coverage. In that case, the no liability clause is given effect and the excess insurance carrier is the primary carrier" (Kipper, 304 AD2d at 65; see Mills v Liberty Mut. Ins. Co., 36 AD2d 445, affd 30 NY2d 546; Davis v De Frank, 33 AD2d 236, 241, affd 27 NY2d 924). Here, the Harco policy specifically provides that "other available insurance" includes "primary, excess or contingent insurance" (emphasis added), and it is undisputed that the liability limits contained in the Progressive policy exceed the minimum statutory requirements. Thus, the exception to the general rule applies, the no liability clause contained in the Harco policy is given effect, and Progressive is the primary insurer for the Webb defendants (see Davis, 33 AD2d at 241). 

The appellate court also rejected Progressive's argument that the "Other Insurance" clause of the Harco policy rendered Harco liable for coverage in this case:

Contrary to the contention of Progressive, that clause does not in fact render Harco liable to provide insurance coverage with respect to all vehicles owned by Burdick. Rather, it simply clarifies that, where coverage exists under the substantive provisions of the Harco policy, coverage is primary with respect to all vehicles owned by Burdick and excess with respect to non-owned vehicles. 

Finally, and although the court twice stated that Justin Webb was "excluded" from coverage pursuant to the Harco policy's restrictive definition of an  insured, the Fourth Department also rejected Progressive's contention that Harco had a duty to provide a timely disclaimer for the subject accident:

Finally, because the Harco policy does not provide coverage for the Webb defendants, there is no merit to Progressive's contention that Harco had a duty to provide a timely disclaimer for the subject accident (see State Farm Mut. Auto. Ins. Co. v John Deere Ins. Co., 288 AD2d 294, 297). Thus, even assuming, arguendo, that the written disclaimer provided by Harco was insufficient, we conclude that "the failure to disclaim coverage does not create coverage which the policy was not written to provide" (Zappone v Home Ins. Co., 55 NY2d 131, 134). 

I'm confused.  Why would Walker have sued the father, Jason Webb?  This decision contains contradictory references (compare "Walker thereafter commenced the underlying action against Justin Webb and Burdick seeking damages" to "Harco is not obligated to defend or indemnify the Webb defendants in the underlying action").  In all likelihood, Jason Webb was not named as a defendant in the underlying action, only his son, Justin Webb, was as the loaner vehicle's driver, along with the vehicle's owner, Burdick.  And Justin was not Burdick's customer; his father, Jason, was.  Shouldn't that have made a difference?  If Justin wasn't Burdick's customer, the "your customers" exception to coverage for permissive users of Burdick's vehicles should not have applied.  Surely Progressive argued that point, but, as sometimes happens, the Fourth Department did not address it, like it had in its decision in Graphic Arts Mut. Ins. Co. v Russell, 50 AD3d 1611 (4th Dept. 2008). 

Antisubrogation Rule Bars Physical Damage Claim Against Permissive User of Loaner Car

AUTO – USE OF LOANER CAR – PHYSICAL DAMAGE – ANTI-SUBROGATION RULE
Motors Ins. Corp. v. Africk
(2nd Dept., decided 10/7/2008)

This one almost slipped by me. Car dealers and their insurers routinely seek to hold permissive users of the dealers' vehicles liable for physical damage to the dealers' vehicles and damages to third parties. The rules of whose and which coverage is primary for first- and third-party claims are complex and derive from an understanding of case law, statutes and policy language.

Arroway Chevrolet loaned a vehicle to David Africk while it was servicing his vehicle. Africk subsequently damaged the loaner in a one-car collision. Arroway's insurer, Motors Insurance Corp., paid Arroway's claim for the physical damage to the loaner under its comprehensive and collision policy and commenced this subrogation action against Africk to recover the amount it had paid Arroway.

In AFFIRMING the trial court's dismissal of the complaint against Africk, the Second Department applied the anti-subrogation rule, holding:

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 (see North Star Reins. Corp. v Continental Ins. Co., 82 NY2d 281, 294; Pennsylvania Gen. Ins. Co. v Austin Powder Co., 68 NY2d 465, 471; Lodovichetti v Baez, 31 AD3d 718, 719; Blanco v CVS Corp., 18 AD3d 685, 686). For the purposes of the antisubrogation rule, a permissive user of an insured vehicle is treated no differently than a named insured (see Jefferson Ins. Co. of N.Y. v Travelers Indem. Co., 92 NY2d 363, 374-375).

Here, the insurer does not dispute that the Supreme Court properly found that Arroway's loan of the vehicle to the defendant made him a permissive user (see Matter of Liberty Mut. Ins. Co. v Clench, 180 AD2d 684). Moreover, under the terms of the relevant policy, the insurer agreed to indemnify Arroway for "loss to a covered auto caused by . . . collision with another object," and for "loss to a covered auto caused by the failure of a person in lawful possession of a covered auto under a lease, rental or loaner agreement to return it to a dealer in accordance with the terms of the agreement." Thus, the insurer is seeking recovery from a permissive user, authorized by its insured, for a claim arising from the very risk for which the insured was covered, an outcome barred by the antisubrogation rule (see Jefferson Ins. Co. of N.Y. v Travelers Indem. Co., 92 NY2d at 374-375; North Star Reins. Corp. v Continental Ins. Co., 82 NY2d at 294).

It is important to note that this decision does not mention whether the Arroway's policy with Motors contained a "no liability" clause, which may have affected Africk's status as an "insured", at least for liability coverage purposes. Coverage Counsel is going to pull the appellate briefs and will let everyone know. For now, this decision appears to support the argument that a car dealer's insurer may not subrogate against the permissive user of a loaner car for physical damage to it. Do you understand now why car dealers and their insurers are so adament in calling loaner vehicles rentals? Hint: it has something to do with New York Insurance Law § 3440.

Graves Amendment Held Not to Apply to "Loaner" Vehicle

AUTO – GRAVES AMENDMENT – VICARIOUS LIABILITY – VEHICLE & TRAFFIC LAW § 388 – LOANER VEHICLE
Zizersky v. Life Quality Motor Sales, Inc.
(Sup. Ct., Kings Co., decided 10/14/2008)

Since August 10, 2005, the "Graves Amendment" has provided vehicle lessors and renters with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits. In what may be another case of first impression, the court held that the Graves Amendment does not apply to a "loaner" vehicle.

While driving her 1998 Ford, plaintiff Haya Zizersky was involved in a collision with Symantha Mitchell, who was driving a 2008 BMW owned by either BMW of North America, LLC or BMW Financial Services NA, LLC. Defendant Life Quality Motor Sales had provided that vehicle to Mitchell for her use, free of charge, while her vehicle was being serviced by the dealer. Zizersky brought an action against the dealer, both BMW entities and Mitchell for damages relating to that accident.

New York Vehicle and Traffic Law § 388 provides that "[e]very owner of a vehicle . . . shall be liable and responsible for death or injuries to person or property resulting from negligence in the use or operation of such vehicle, in the business of such owner or otherwise, by any person using or operating the same with the permission, express or implied, of such owner." Vehicle and Traffic Law § 388 has been applied to "loaner" vehicles. Dunne v. Lloyd, 40 AD3d 685, 686 (2d Dept 2007); Fili v. Matson Motors, Inc., 183 AD2d 324, 328-29 (4th Dept 1992); Matter of Liberty Mut. Ins. Co. v Clench, 180 AD2d 684, 685 (2d Dept 1992).

In pertinent part, the Graves Amendment provides:

§ 30106. Rented or leased motor vehicle safety responsibility(a) In general. An owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate of the owner) shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle (or an affiliate of the owner), for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if: (1) the owner (or an affiliate of the owner) is engaged in the trade or business of renting or leasing motor vehicles; and(2) there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner).

The BMW entities and dealer moved for summary judgment based on what they contended was the applicability of the Graves Amendment to them, insulating them from V&T § 388's vicarious liability.

In denying that motion, Kings County Supreme Court Justice Jack Battaglia ruled that the Graves Amendment does not apply to a "loaner" vehicle that is provided to a customer free of charge. Finding that the affidavits submitted by the moving defendants were inconsistent and insufficient to warrant summary judgment, Justice Battaglia framed the disputed issue as follows:

The difference in the Affidavits is particularly important because the fundamental dispute between the parties here is the applicability of the Graves Amendment to "loaner" vehicles used, without charge, by persons whose own vehicles, previously purchased or leased, are being serviced. It is essentially Plaintiffs' contention that, no matter which Defendant or Defendants might be considered the "owner" of the subject vehicle or an "affiliate" of the "owner," and whether any or all Defendants might be engaged in the trade or business of renting or leasing motor vehicles, the Graves Amendment cannot apply where, as here, the subject vehicle is "loaned" without separate charge to the user. Under such circumstances, as Plaintiffs would have it, the vehicle has not been "rented" or "leased" as those terms are used in the Amendment. Defendants, of course, disagree.

Before being allowed to use the loaner vehicle, Mitchell had signed a "BMW Rental Agreement" and "Loaner Car Addendum". The heading "rental charges" on the Rental Agreement was blank and that section of the document was crossed-out. The Loaner Car Addendum stated the user's understanding that, if the vehicle was not returned within 24 hours after notification that the repairs to the user's own vehicle had been completed, the user would be charged $40.00 per day.

In support of their argument that the loaner vehicle was a "rental" within the meaning of the Graves Amendment, the moving defendants relied on language in the Rental Agreement that stated: "If Your vehicle is being serviced by Us under BMW warranty Our right, or the right of Our affiliate, to repair your vehicle during this rental is considered by Us as the rental fee. No additional consideration is necessary except for fuel You use and do not replace." Mitchell apparently had been given the loaner vehicle to use while her own car was at the dealer for a warranty repair.

In rejecting that argument, Justice Battaglia held:

Even assuming, however, that Ms. Mitchell's own vehicle was being serviced "under BMW warranty," rendering the quoted provision from the BMW Rental Agreement applicable, the Court concludes for reasons that will appear that any so-called "right . . . to repair [the] vehicle," characterized as a "rental fee," cannot constitute the subject vehicle as "rented" or "leased" for purposes of the Graves Amendment. However it might be characterized for other purposes, the loan of the subject vehicle to Ms. Mitchell was a simple bailment (see Fili v Matson Motors, Inc., 183 AD2d at 328-29.)

* * * * *

"The central distinguishing characteristics of a lease is the surrender of absolute possession and control of property for an agreed-upon rent." (First Franklin Square Assocs., LLC v Franklin Square Prop. Account, 15 AD3d 529, 532 [2d Dept 2005] [quoting Matter of Dodgertown Homeowners Assn. v City of New York, 235 AD2d 538, 539 (2d Dept 1997)].) "When referring to tangible personal property, the word lease' means a contract granting the right to possess property for a specified period of time in exchange for periodic payment of a stipulated rent." (In Re: ICS Cybernetics, Inc., 123 BR 467, 475-76 [Bktcy Ct, NDNY 1989], aff'd 123 BR 480 [NDNY 1990].)
"In the context of lease agreements, rent' is the amount paid for use and occupation of land or other property." (Matter of Daben Corp., 469 F Supp 135, 141 [DPR 1979]; see also Stecher v 85th Estates Co., 43 AD3d 732, 743 [1st Dept 2007] [McGuire, J., dissenting]; 2657 East 68th Street Corp. v Bergen Beach Yacht Club, 161 Misc 2d 1031, 1033 [Civ Ct, Kings County 1994].) When used as verbs, the words "lease" and "rent" are synonymous. (See Richards v Princeton Ins. Co., 178 F Supp 2d 386, 395 [SDNY 2001].)
Giving the words their plain meaning, therefore, to "lease" or "rent" property requires payment for its use. If the words carry any shade of difference in common parlance when applied to personal property, a "lease" might be understood as allowing use for a longer term than a "rental." But, again, giving the words their plain meaning, bailment of a "loaner" vehicle without charge is neither a "lease" nor a "rental."
As the moving defendants would have it, their "right" to service Ms. Mitchell's own vehicle, presumably purchased or leased from one of them, is sufficient "consideration" to constitute the "loaner" arrangement a "rental" for purposes of the Graves Amendment. (Reply Affirmation, ¶ 6.) It may be that the bailment of a "loaner" vehicle without charge, but with other legal consideration, and considering the totality of the contract and relationship between the parties, would be sufficient to constitute a "lease" or "rental" for some purposes. (See Matter of West-Herr Ford, Inc. v Tax Appeals Tribunal, 16 AD3d 727 [3d Dept 2005]; Associated Groups Services, Inc. v Grow, 258 AD2d 716 [3d Dept 1999].) On the evidence of the arrangement presented here, however, there is no "lease" or "rental" for purposes of the Graves Amendment.

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