Injured Party/Judgment Creditor Who Obtains Assignment of Insureds' Bad Faith Claim After Conclusion of Direct Action May Bring Second Action Against Liability Insurer

HOMEOWNERS – LIABILITY – EXCESS JUDGMENT – STANDING – BAD FAITH – INSURANCE LAW 3420(A)(2) & (B)(1) 

Corle v. Allstate Ins. Co.
(4th Dept., 6/8/2018)

Sometimes called New York's direct action statute, New York Insurance Law § 3420(b)(1) states:

(b) Subject to the limitations and conditions of paragraph two of subsection (a) of this section, an action may be maintained by the following persons against the insurer upon any policy or contract of liability insurance that is governed by such paragraph, to recover the amount of a judgment against the insured or his personal representative: 

    (1) any person who, or the personal representative of any person who, has obtained a judgment against the insured or the insured's personal representative, for damages for injury sustained or loss or damage occasioned during the life of the policy or contract[.]

Teeter accidentally shoots Corle, and Corle sues Teeter.  Allstate disclaims coverage to Teeter, asserting that the accidental shooting was not a covered loss under the policy.  Corle proceeds with his personal injury action against Teeter and obtains a judgment of over $350,000 against him.

Corle then sues Allstate as a judgment creditor under Insurance Law § 3420 (a) (2) and (b) (1), and Supreme Court grants Corle's motion for summary judgment, holding that the shooting was a covered loss under Teeter's parents' homeowners insurance policy with Allstate, awarding Corle the policy's $50,000 limit.

This is not that action, however.  This is Corle's second action against Allstate, commenced after the Teeters assigned their rights and claims against Allstate to Corle, who then sued Allstate for disclaiming coverage in bad faith.

Allstate moved to dismiss this action, arguing primarily that Corle should have taken the assignment and included his bad faith claim in his first action under Insurance Law § 3420(b)(1) against Allstate -- that Corle's judgment in that action for $50,000 was res judicata, barring any additional recovery against Allstate.

The Appellate Division, Fourth Department, disagreed:

Contrary to defendant's contention, we conclude that the failure of James [Corle] to litigate the bad faith claim in the earlier Insurance Law § 3420 (a) (2) action does not bar litigation of that claim in the instant action. "Under the doctrine of res judicata, a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter. The rule applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation . . . Additionally, under New York's transactional analysis approach to res judicata, once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy' " (Matter of Hunter, 4 NY3d 260, 269 [2005]; see O'Brien v City of Syracuse, 54 NY2d 353, 357 [1981]).  

Insurance Law § 3420 (b) (1) provides that, "[s]ubject to the limitations and conditions of paragraph two of subsection (a) of this section, . . . any person who . . . has obtained a judgment against the insured or the insured's personal representative[] for damages for injury sustained . . . during the life of the policy or contract" may maintain an action against the insurer "to recover the amount of a judgment against the insured or his personal representative." Such an action may be "maintained against the insurer under the terms of the policy or contract for the amount of such judgment not exceeding the amount of the applicable limit of coverage under such policy or contract" (§ 3420 [a] [2]).  

We conclude that, under Insurance Law § 3420 (a) (2) and (b) (1), an injured party's standing to bring an action against an insurer is limited to recovering only the policy limits of the insured's insurance policy. Contrary to defendant's contention, we conclude that, if an injured party/judgment creditor seeks to recover from the insurer an amount above the insured's policy limits on a theory of liability beyond that created by Insurance Law § 3420 (a) (2), the statute does not confer standing to do so. However, if the insured assigns his or her rights under the insurance contract to the injured party/judgment creditor, then the injured party/judgment creditor may simultaneously bring a direct action against the insurer pursuant to Insurance Law § 3420 (a) (2) along with any other appropriate claim, including a bad faith claim, seeking a judgment in a total amount beyond the insured's policy limits.  

Here, when James [Corle] commenced the prior action pursuant to Insurance Law § 3420 (a) (2) individually and on behalf of [his injured son,] Colin, the Teeters had not yet assigned their rights under the insurance contract to James and Colin. As a result, James did not have standing to bring a bad faith claim against defendant (cf. Bennion v Allstate Ins. Co., 284 AD2d 924, 924-926 [4th Dept 2001]). Thus, because James lacked standing to bring a bad faith claim against defendant at the time he brought the Insurance Law § 3420 (a) (2) action, we conclude that the doctrine of res judicata does not bar this action (see generally Hunter, 4 NY3d at 269; Summer v Marine Midland Bank, 227 AD2d 932, 934 [4th Dept 1996]), and defendant's motion insofar as it sought to dismiss the complaint pursuant to CPLR 3211 (a) (5) was properly denied. 

In so holding, the Fourth Department declined to follow the holding on similar facts of the First Department in a 2010 case:

We recognize that the First Department held otherwise on similar facts in Cirone v Tower Ins. Co. of N.Y. (76 AD3d 883 [1st Dept 2010], lv denied 16 NY3d 708 [2011]).  To the extent that the First Department in Cirone concluded that an injured person/judgment creditor who commenced an action against the insurer pursuant to Insurance Law § 3420 (a) (2) had standing to assert a bad faith settlement practices claim in that action in the absence of an assignment from the insured, we disagree with that conclusion and decline to follow Cirone. 

The Fourth Department also concluded that. contrary to Allstate's argument, Corle's complaint in this action sufficiently stated a cause of action for insurer bad faith:

We reject defendant's further contention that the court erred in denying its motion insofar as it sought to dismiss the complaint under CPLR 3211 (a) (7), for failure to state a cause of action. Viewing the facts as alleged by plaintiffs in the light most favorable to them and affording plaintiffs all favorable inferences (see generally Whitebox Concentrated Convertible Arbitrage Partners, L.P. v Superior Well Servs., Inc., 20 NY3d 59, 63 [2012]), we conclude that plaintiffs sufficiently stated a cause of action for bad faith against defendant.

With the apparent split in appellate authority on res judicata issue, it remains to be seen whether Allstate will seek leave to appeal this decision to the New York Court of Appeals.

Not UM and SOL

UM – MEANING OF "UNINSURED" – STATUTE OF LIMITATIONS  
Matter of American Transit Ins. Co. v. Rosario
(1st Dept., decided 11/17/2015)

If your insured's New York lawsuit against the Pennsylvania liability insurer of the tortfeasor's vehicle was dismissed for lack of  personal jurisdiction, is that vehicle uninsured?  And what's the statute of limitations for making a UM coverage claim?

Rosario allegedly was injured in a 2004 motor vehicle accident in Bronx County with Carela, who was insured by American Independent Insurance Company, a Pennsylvania corporation.  Rosario brought a personal injury action action and in 2009 obtained a default judgment against Carela.  In 2012 Rosario sued American Independent in Bronx County Supreme Court under New York Insurance Law § 3420(a)(2) to collect on her default judgment against Carela.  In 2013 American Independent's motion to dismiss Rosario's direct action was granted on the ground that Rosario lacked personal jurisdiction over American Independent.

Rosario then made and demanded arbitration of her claim for uninsured motorists (UM) coverage benefits from her own auto insurer, American Transit, claiming that the 2013 dismissal of her direct action against American Independent rendered the Carela vehicle "uninsured".  American Transit commenced this special proceeding for a permanent stay of Rosario's UM claim arbitration, arguing that the applicable six-year limitations period had expired. Supreme Court rejected that argument and denied the petition, leading to this appeal.

In REVERSING Supreme Court's order and granted the petition for a permanent stay of arbitration, the Appellate Division, First Department, held that the applicable six-year statute of limitations had expired:

A claim for UIM benefits is governed by the six-year statute of limitations applicable to contract actions (see Matter of De Luca [Motor Veh. Acc. Indem. Corp.], 17 NY2d 76, 79 [1966]). The claim accrues either when the accident occurs or when subsequent events render the offending vehicle uninsured (Matter of Allstate Ins. Co. v Morrison, 267 AD2d 381, 381 [2d Dept 1999]). Since there is more than a six-year lapse between the accident and the demand for arbitration, respondent must show that a later accrual date than the accident date is applicable, and that due diligence was used to determine whether the offending vehicle was insured on the date of the accident (id. at 381-382). Respondent failed to make this showing. 

The First Department also held that a dismissal of a direct action against the tortfeasor vehicle's liability insurer does not render that vehicle "uninsured":

Supreme Court's ruling that there was no personal jurisdiction over American Independent in New York was not an event that rendered the offending vehicle uninsured within the meaning of Insurance Law § 3420(f)(1) (see American Tr. Ins. v Barger, 13 Misc 3d 386, 389 [Sup Ct, NY County 2006]). Rather, it was simply a ruling that respondent could not pursue its action against American Independent in a New York court (accord Matter of Government Empls. Ins. Co. v Basedow, 28 AD3d 766 [2d Dept 2006]; Matter of Eagle Ins. Co. v Gutierrez—Guzman, 21 AD3d 489 [2d Dept 2005]). Because no event rendered the offending vehicle uninsured, the statute of limitations for respondent's UIM claim began to run on the date of the accident, May 6, 2004, and expired six years later. Accordingly, respondent's demand for UIM arbitration, filed on or about February 10, 2014, was untimely and the arbitration should be permanently stayed.

State Insurance Fund Is Not Subject to Direct Suit Pursuant to Insurance Law §§ 3420(A)(2) & (B)(1)

CGL – EMPLOYERS' LIABILITY – INSURANCE LAW § 3420(A)(2) ACTION
National Union Fire Insurance Co. of Pittsburgh, PA. v. State of New York
(1st Dept., decided 4/29/2010)

In Lang v Hanover Ins. Co., 3 NY3d 350 (Ct. Apps. 2004), the New York Court of Appeals held that without contractual privity, an injured party may not bring a direct suit against an alleged tortfeasor's liability insurer before the injured party obtains a money judgment against the tortfeasor.  The Court noted that

Insurance Law § 3420(b)(1) ... grants an injured party a right to sue the tortfeasor's insurer, but only under limited circumstances—the injured party must first obtain a judgment against the tortfeasor, serve the insurance company with a copy of the judgment [pursuant to Insurance Law § 3420(a)(2)] and await payment for 30 days. Compliance with these requirements is a condition precedent to a direct action against the insurance company.

National Union brought this action in the New York Court of Claims as subrogee of its insureds, Chase Manhattan Bank and Morse Diesel International, against the State Insurance Fund, which insured Red Ball Interior Demolition Corporation.  Although National Union argued that this action was not brought under Insurance Law §§ 3420(a)(2) and (b)(1), National Union's initiatory pleadings relied on Insurance Law § 3420(a)(2).  Both parties moved for summary judgment, and the Court of Claims granted the State Insurance Fund's motion. 

In AFFIRMING the lower court's order granting summary judgment to the State Insurance Fund, the Appellate Division, First Department, held:

1. the State Insurance Fund is exempt from actions brought pursuant to Insurance Law §§ 3420(a)(2) and (b)(1) due to Insurance Law § 1108(c); and
   
   
2. even if the State Insurance Fund could be sued directly pursuant to those statutes, National Union's subrogors had not obtained a money judgment against the State Insurance Fund's insured, the alleged wrongdoer.  The Court of Appeals' ruling in Lang v. Hanover applies to actions commenced both before and after that 2004 decision. 

Contrary to claimant's contention, this is an action under Insurance Law § 3420. In both its motion for leave to file a late notice of claim and its amended claim, claimant relied on Insurance Law § 3420(a)(2). Furthermore, "the subrogee possesses only such rights as the subrogor possessed, with no enlargement or diminution" (Allstate Ins. Co. v Stein, 1 NY3d 416, 421 [2004] [internal quotation marks and citation omitted]). Under the common law, the subrogors (Chase Manhattan Bank and Morse Diesel International) would have been able to sue Red Ball Interior Demolition Corp. (the alleged wrongdoer), but they would not have been able to sue the State Insurance Fund (Red Ball's insurer), with whom they had no contractual relationship (see Lang v Hanover Ins. Co., 3 NY3d 350, 353 [2004]). Like claimant, Chase and Morse Diesel would have had to use Insurance Law § 3420 to sue the State Insurance Fund. However, "the State Insurance Fund is exempt from the requirements of Insurance Law § 3420(a) and (b)" due to Insurance Law § 1108(c) (see Kenmore-Tonawanda School Dist. v State of New York, 38 AD3d 203, 203 [2007], lv denied 10 NY3d 702 [2008]), and we decline to depart from this precedent, which the Court of Appeals chose not to review.

Even if, arguendo, Insurance Law § 3420 applied to the State Insurance Fund, Chase and Morse Diesel did not obtain a judgment against Red Ball, which is a condition precedent to a direct suit against Red Ball's insurer (see Lang, 3 NY3d at 352, 354). Contrary to claimant's contention, Lang is applicable even though the claim was filed before Lang was decided (see Weierheiser v Hermitage Ins. Co., 17 AD3d 1133, 1134 [2005]; see also Geissler v Liberty Mut. Ins. Co., 23 AD3d 432, 433 [2005]). Furthermore, we decline to consider claimant's argument, made for the first time in its reply brief on appeal, that we should hold this appeal in abeyance while it attempts to obtain a money judgment. Although orders are sometimes treated as judgments (see Matter of New York State Crime Victims Bd. v Gordon, 66 AD3d 1213, 1214 [2009]), the kind of order that Gordon permitted to be treated as a judgment was one directing the payment of money (id. at 1214-1215). By contrast, the order obtained by Chase and Morse Diesel set the matter down for an inquest, which never occurred.

Liability Insurer That Does Not Receive Notice of Underlying Action Can Contest Merits of Underlying Claim in Insurance Law § 3420(a)(2) Action

AUTO – LATE NOTICE OF SUIT – DEFAULT JUDGMENT AGAINST INSURED – INSURANCE LAW § 3420(A)(2) DIRECT ACTION
Jimenez v. New York Cent. Mut. Fire Ins. Co.
(2nd Dept., decided 3/2/2010)

It has long been the rule in New York that a liability insurer which disclaims coverage in relation to a pending action against its insured may not contest the merits of that action -- the insured's liability and injured party's damages -- if the insured defaults in that action and the underlying plaintiff brings an subsequent action against the insurer for payment of the judgment pursuant to New York Insurance Law § 3420(a)(2).  In such a situation, the liability insurer may not "open the default" and litigate the merits of underlying claim.  Only the grounds the insurer asserted to disclaim or deny coverage may be litigated as defenses to the 3420(a)(2) direct action.

But what if the liability insurer does not receive notice of the underlying action until after the default judgment has already been taken against its insured?  In the subsequent 3420(a)(2) action, can the insurer contest the merits of the judgment creditor's underlying claim against the insured?  Yes it can, says the Second Department in this case.

Plaintiff Doris Jimenez obtained a default judgment against Roxana Sanchez, New York Central Mutual Fire Insurance Company's insured, in the amount of $32,382.50 for injuries she had allegedly sustained in a motor vehicle accident.  Jimenez then commenced this action pursuant to Insurance Law § 3420(a)(2) against New York Central Mutual to recover on the unsatisfied judgment.  Although Jimenez had not given NYCM notice of the underlying action against its insured until after the default judgment had been entered, the Supreme Court granted her motion for summary judgment on the complaint against NYCM in this action.

In REVERSING judgment against NYCM, the Second Department held that an affidavit from NYCM's claims manager denying that it had received the underlying judgment prior to plaintiff's commencement of this action created a triable question on the issue of whether plaintiff complied with Insurance Law § 3420(a)(2)'s requirement that notice of entry of the judgment be served on the judgment debtor's liability insurer at least 30 days before commencing a 3420(a)(2) direct action against that insurer.  The court also found that although NYCM was entitled to disclaim coverage because of the almost two-year delay in receiving notice of the commencement of the underlying negligence action against its insured, a triable issue of fact existed as to the timeliness of NYCM's disclaimer, precluding summary judgment in NYCM's favor.

With respect to the issue of NYCM's opportunity to contest the merits of the underlying action, the Second Department noted:

Furthermore, while an insurance carrier that knowingly chooses not to participate in an underlying action "may litigate only the validity of its disclaimer and cannot challenge the liability or damages determination underlying the judgment" (Lang v Hanover Ins. Co., 3 NY3d 350, 356 [emphasis added]; Insurance Law § 3420[a][2]), here, NYCM asserts it did not receive notice of the commencement of the underlying action until after the entry of judgment against its insured. Under these circumstances, NYCM is not collaterally estopped from litigating the merits of the underlying action, as it was not provided "a full and fair opportunity to contest the decision now said to be controlling" (Tydings v Greenfield, Stein & Senior, LLP, 11 NY3d 195, 199, quoting Buechel v Bain, 97 NY2d 295, 304, cert denied 535 US 1096). Although summary judgment in favor of the plaintiff should have been denied in light of the existence of the triable issues of fact described above, the award of summary judgment in the plaintiff's favor was premature in any event since NYCM is entitled to raise affirmative defenses, receive responses to its outstanding discovery requests, and conduct additional appropriate discovery relating to the extent of the plaintiff's injuries (see CPLR 3212[f]; Kiernan v DaimlerChrysler Corp., 65 AD3d 614; Desena v City of New York, 65 AD3d 562). 

The important takeway points of this decision for liability insurers doing business in New York are:

1.  A liability insurer that disclaims or denies both defense and indemnification coverage with respect to a personal injury or property damage action that it knows has been commenced against its insured may not later contest the merits of that action if its insured defaults and the underlying plaintiff attempts to recover on the judgment via an Insurance Law § 3420(a)(2) action against the insurer. Only the validity of its disclaimer can be litigated in the 3420(a)(2) direct action. 
   
   
2. A liability insurer that does not learn of the underlying action until after a default judgment has been taken against its insurer may contest the merits of that action in addition to litigating timely asserted coverage defenses in the context of the subsequent Insurance Law § 3420(a)(2) action.  

The First Department's New "I Didn't Know the Insurance Company Had Moved and My Attorney Didn't Spend Three-Tenths of a Second to Check" Excuse to Late Notice of Suit

AUTO – LATE NOTICE OF SUIT – EXCUSE FOR NON-COMPLIANCE
American Tr. Ins. Co. v. Brown
(1st Dept., decided 10/8/2009)

This is a troubling decision.  Got to agree with the two dissenting justices that the majority created a new and unwarranted excuse to late notice of suit -- the "I didn't know the insurance company had moved and my attorney didn't spend three-tenths of a second to check" excuse. 

American Transit insured Batista under a personal auto policy.  Batista struck and injured Brown on November 12, 2002.  Brown's attorney promptly notified ATIC of Brown's claim, and ATIC assigned a claim number and acknowledged that claim in a letter to Brown's attorney dated January 28, 2003.  ATIC's address at the time was 275 Seventh Avenue, New York, NY 10001.  ATIC subsequently conducted a property damage appraisal of Brown's vehicle and settled the property damage portion of his claim.

Just shy of the applicable three-year SOL, Brown commenced a personal injury action against Batista on November 9, 2005.  On January 26, 2006, Brown's counsel sent a "courtesy copy" of the summons and complaint to ATIC at its Seventh Avenue address, instructing it to interpose an answer on behalf of its insured.

There was no reply or appearance by ATIC which, in fact, had moved two years earlier in November 2003 to offices on West 34th Street in Manhattan.  Brown's counsel apparently did nothing to determine why ATIC had not responded to his notice of suit, as ATIC had done almost immediately to counsel's first notice of claim.  On June 21, 2007, following an inquest, the court granted a default judgment in favor of Brown for $75,000. Judgment in the total amount of $81,830, including medical liens and interest, was entered against Batista on July 19, 2007.  Now needing to "serve" notice of entry of the judgment on ATIC in order to comply with Insurance Law § 3420(a)(2), Brown's attorney apparently had no trouble identifying ATIC's current West 34th Street address and sent the judgment to ATIC at that address on August 9, 2007.

Upon receipt of the default judgment, ATIC promptly disclaimed coverage on the ground that it was not provided with timely notice of the lawsuit.  ATIC then brought this declaratory judgment action alleging that neither Brown nor Batista had complied with the policy's requirement that ATIC be timely notified of any suit brought against one of its insureds.  ATIC alleged that its first notice of Brown's lawsuit came after judgment was entered against Batista.

New York Supreme denied Brown's motion and ATIC's cross motion for summary judgment on the ground that additional discovery was needed.  The First Department's three-justice majority MODIFIED the order appealed from by granting Brown's motion and declaring that ATIC was obligated to satisfy the $81,830 default judgment  against Batista.

Question of Fact Found on Timeliness of Auto Insurer's Late Notice Disclaimer

AUTO – INSURANCE LAW § 3420(A)(2) – TIMELINESS & SUFFICIENCY OF DISCLAIMER – LATE NOTICE
Liriano v. Eveready Ins. Co.
(2nd Dept., decided 8/4/2009)

Plaintiff sued and obtained a $40,122,06 default judgment against Eveready's insured.  In accordance with Insurance Law § 3420(a)(2), plaintiff served a copy of the default judgment with notice of entry on Eveready by mail on August 13, 2007. Eveready claimed that it never received that judgment in the mail, but first learned of it on March 13, 2008, issuing a disclaimer six days later.  Plaintiff commenced this direct action pursuant to Insurance Law § 3420(b)(1) and successfully moved for summary judgment.  Eveready appealed. 

In REVERSING judgment to the plaintiff, the Second Department ruled that the motion court had improperly granted plaintiff's motion:

In response, the defendant came forward with a sworn denial of receipt and an affidavit of an employee with personal knowledge regarding the defendant's regular practices and procedures in retrieving, opening, and indexing its mail and in maintaining its files on existing claims. That affidavit indicated that the defendant did not receive the judgment in the mail, and instead first learned of it on March 13, 2008, promptly issuing a disclaimer only six days later. Under the circumstances of this case, the defendant's submissions sufficed to raise a triable issue of fact regarding the service of the judgment, and the question of whether the defendant's disclaimer of coverage was timely must await the resolution of that issue (see e.g. Matter of TNT Petroleum, Inc. v Sea Petroleum, Inc., 40 AD3d 771; Johnson v Deas, 32 AD3d 253; First Union Mtge. Corp. v Silverman, 242 AD2d 258; Long Is. Sav. Bank v Meliso, 229 AD2d 478; Poet v Kolenda, 142 AD2d 633). 

Plaintiff had also challenged the sufficiency of Eveready's disclaimer, contending that it was defective and, thus, invalid as against the plaintiff.  The Second Department rejected that argument, as well, holding:

Contrary to the plaintiff's contention and the determination of the Supreme Court, the letter of disclaimer was not defective and, therefore, was not invalid as against the plaintiff. Rather, the letter sent to the plaintiff adequately recited that the defendant was disclaiming coverage as to the plaintiff on the ground that he failed to provide the defendant with timely notice of the underlying litigation and with legal papers filed in connection therewith (see American Tr. Ins. Co. v Sartor, 3 NY3d 71; Matter of GEICO Co. v Wingo, 36 AD3d 908; cf. Shell v Fireman's Fund Ins. Co., 17 AD3d 444; Vacca v State Farm Ins. Co., 15 AD3d 473).

Question of Fact Found on Service on Insurer of Money Judgment Against Insured

AUTO – INSURANCE LAW § 3420(B)(1)– TIMELINESS OF DISCLAIMER
Liriano v. Eveready Ins. Co.
(2nd Dept., decided 6/9/2009)

Plaintiff obtained a $40,112.06 money judgment against Eveready's insured on default, and served that judgment by mail on Eveready on August 13, 2007.  Eveready claimed it did not receive that judgment in the mail, and instead first learned of it on March 13, 2008, promptly issuing a disclaimer six days later.

Plaintiff commenced this action to enforce payment of the judgment pursuant to Insurance Law §§ 3420(a)(2) and (b)(1).  Queens Supreme granted plaintiff's motion for summary judgment and Eveready appealed. 

In REVERSING the plaintiff's judgment, the Second Department held that Eveready had created a triable issue of fact on its alleged non-receipt of the money judgment by submitting "a sworn denial of receipt and an affidavit of an employee with personal knowledge regarding the defendant's regular practices and procedures in retrieving, opening, and indexing its mail and in maintaining its files on existing claims."  That employee averred that Eveready had not received the judgment in the mail.  "Under the circumstances of this case, the defendant's submissions sufficed to raise a triable issue of fact regarding the service of the judgment, and the question of whether the defendant's disclaimer of coverage was timely must await the resolution of that issue", ruled the Second  Department.

The appellate court also overruled the Supreme Court's determination that Eveready's disclaimer letter was defective and invalid as against the plaintiff:

Rather, the letter sent to the plaintiff adequately recited that the defendant was disclaiming coverage as to the plaintiff on the ground that he failed to provide the defendant with timely notice of the underlying litigation and with legal papers filed in connection therewith (see American Tr. Ins. Co. v Sartor, 3 NY3d 71; Matter of GEICO Co. v Wingo, 36 AD3d 908; cf. Shell v Fireman's Fund Ins. Co., 17 AD3d 444; Vacca v State Farm Ins. Co., 15 AD3d 473). 

For those who might wonder why the Second Department did not grant reverse summary judgment to Eveready on the timeliness of a disclaimer issued only six days after first notice, the triable issue identified by the court was not whether six days was timely, but whether Eveready would be able to convince the trier(s)-of-fact that it did not receive the judgment in the mail. 

Insurer's Mere Denial of Receipt of Default Judgment Against Its Insured Held Not to Rebut Presumption of Its Receipt

AUTO – LATE NOTICE OF SUIT – INSURANCE LAW § 3420(A)(2) ACTION – PRESUMPTION OF RECEIPT – UNTIMELY DISCLAIMER
Maldonado v. State Farm Mut. Auto. Ins. Co.
(NYC Civil, Queens Co., decided 1/15/2009)

It has long been held in New York -- usually in the context of a notice of cancellation of an insurance policy -- that a person's mere denial of receipt, without more, is insufficient to rebut the presumption of receipt that arises from evidence of proper mailing.  See this blog's Presumption of Receipt label.  It is usually the insurer who benefits from that rule.  In this case, however, it worked against State Farm. 

Sometimes called New York's "direct action statute", New York Insurance Law § 3420(a)(2) provides:

§ 3420. Liability insurance; standard provisions; right of injured person. (a) No policy or contract insuring against liability for injury to person, except as provided in subsection (g) hereof, or against liability for injury to, or destruction of, property shall be issued or delivered in this state, unless it contains in substance the following provisions or provisions which are equally or more favorable to the insured and to judgment creditors so far as such provisions relate to judgment creditors:

(2) A provision that in case judgment against the insured or his personal representative in an action brought to recover damages for injury sustained or loss or damage occasioned during the life of the policy or contract shall remain unsatisfied at the expiration of thirty days from the serving of notice of entry of judgment upon the attorney for the insured, or upon the insured, and upon the insurer, then an action may, except during a stay or limited stay of execution against the insured on such judgment, be maintained against the insurer under the terms of the policy or contract for the amount of such judgment not exceeding the amount of the applicable limit of coverage under such policy or contract.

The New York Court of Appeals has held that since this particular section does not specifically provide a method for giving notice of entry of judgment to the insurer, any method of service which is reasonably calculated to do so ought to be sufficient to comply with the statutory requirement.  Thrasher v United States Liability Ins. Co., 19 NY2d 159 (1967).  Under New York CPLR Rule 2103, service of papers on a party who has not appeared may be made by regular mail.

In this case plaintiffs brought a personal injury action and obtained a $25,000 default judgment against State Farm's insured.  The personal injury action stemmed from a November 21, 2003 automobile accident, but this decision does not indicate when plaintiffs sued State Farm's insured or whether plaintiffs took proceedings for the entry of the judgment within one year after the default, as required by CPLR § 3215(c).

According to the decision, plaintiffs served State Farm with the underlying judgment and notice of entry by mailing those items to State Farm's office on March 7, 2008, and produced an affidavit of service by mail to this effect.  When the judgment remained unpaid for 30 days, plaintiffs then commenced this action against State Farm pursuant to Insurance Law § 3420(a)(2) to recover the $25,000 default judgment obtained against State Farm's insured.

In an affidavit submitted in opposition to plaintiffs' motion for summary judgment, State Farm claimed that although it had been aware of the underlying 2004 accident, it did not receive the judgment and notice of entry in March, 2008.  State Farm's affidavit also asserted that its first notice of the underlying action and judgment against its insured was its receipt of the plaintiffs' summons and complaint in this action in late June, 2008, after which it promptly disclaimed coverage on July 9, 2008, presumably based on its insured's failure to forward the underlying suit papers.  Plaintiffs argued that State Farm's July disclaimer was untimely under Insurance Law § 3420(d) because State Farm was presumed to have received the underlying judgment and notice of entry four months earlier in March and had all the information it needed to disclaim at that time.  

On the parties' opposing motions for summary judgment, the court noted that "the only issues... to determine on the instant motion and cross-motion are when State Farm was put on notice of the underlying judgment against its insured, and whether it timely notified the plaintiffs that it was declining coverage due to its insured's violations of the policy agreement."  In accepting the plaintiffs' argument and granting summary judgment to them, Queens Civil Court Judge Diccia Pineda-Kirwan applied the presumption of receipt rule against State Farm:

First, the plaintiffs served the underlying judgment with notice of entry by mailing it to defendant's office on March 7, 2008, as evidenced in the affidavit of service of Wilfredo Bonilla. While defendant submits the affidavit of Justine Sinkler as proof that it did not receive the underlying judgment, "a properly executed affidavit of service raises a presumption that a proper mailing occurred, and a mere denial of receipt is not enough to rebut the presumption." (Kihl v Pfeffer, 94 NY2d 118 [1999].) Accordingly, the denial of receipt by Ms. Sinkler is not enough to create an issue of fact as to when the judgment with notice of entry was received by the defendant. (Kihl, 94 NY2d 118.) Thus, as a matter of law, the defendant was put on notice of the underlying judgment on March 7, 2009. 

Second, it must be determined whether State Farm's July 9, 2008 letter disclaiming coverage complies with the statutory requirement of disclaiming coverage "as soon as reasonably possible." (Insurance Law § 3420(d).) The Court of Appeals determined in First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64 [2003], that "once the insurer has sufficient knowledge of facts entitling it to disclaim, or knows that it will disclaim coverage," it must notify the party seeking the benefit of the policy coverage in writing as soon as reasonably possible. Timeliness of an insurers disclaimer is measured from the time when the insurer first learns of the grounds for denial of coverage. (First Fin. Ins. Co., 1 NY3d 64; Moore v Ewing, 9 AD3d 484 [2004].) Here, State Farm was aware that it was going to disclaim coverage once the underlying judgment was served upon it, as its reasons for disclaiming coverage were based on its insured's failure to forward suit papers in the underlying cause of action. Thus, State Farms unexplained delay in disclaiming coverage for over four months after it had "sufficient knowledge of facts entitling it to disclaim" is unreasonable as a matter of law. (First Fin. Ins. Co., 1 NY3d 64; Matter of Allstate Ins. Co. v Swinton, 27 AD3d 462 [2006]; Shell v Fireman's Fund Ins. Co., 17 AD3d 444 [2005]; Vacca v State Farm Ins. Co., 15 AD3d 473 [2005]; Moore, 9 AD3d 484.)

Questions occurring to me regarding the injured parties' notice of entry mailing to State Farm include:  When and how did the injured parties learn of State Farm's identity as the insurer?  Did they or their attorney communicate with State Farm before the underlying action was brought?  Were they given a policy number or a claim number?  Did they include such number(s) on their notice of entry mailing?  If not, why not?  How did they know which State Farm office to send the notice of entry to?  Did anyone call and get a claim number, representative's name or office location before sending the notice of entry to State Farm?  Was the notice of entry sent only by regular mail?  If so, why not send by certified mail to make sure State Farm received it?

So what's an insurer to do in the face of such an affidavit of mailing?  Perhaps depose the affiant, in an attempt to create a question on the mailing.  And certainly say more in opposition to a 3420(d)-based motion than merely denying receipt of the judgment and notice of entry.  That doesn't cut it for insureds, and it now has been held not to cut it for insurers.

Oh, Won't You Stay...Just a Little Bit Longer...Please, Please, Please....Say You Will

PERSONAL AUTO – LATE NOTICE – TIMELY DISCLAIMER
Roules v. State Farm Ins. Cos.
(2nd Dept., decided 2/10/2009)

If this were a post just about the timeliness of a late notice disclaimer issued 13-days after first notice, it'd be a short one.  Heck, I could tweet it in 140 characters or less (and did, as a matter of fact).

No, this post is more about one of the challenges that both property and liability insurers face in litigating insurance coverage disputes:  getting trial courts to stay the trial of the dispute long enough to prosecute an appeal of a dispositive legal issue.

Trial judges and their law clerks do what they can to manage their sizable dockets.  I understand and don't begrudge them that.  Cases come off dockets in one of three ways:  (1) on dispositive motion; (2) by settlement or discontinuance; or (3) after trial.  Judges and their clerks understand the economics of trying insurance coverage disputes (a/k/a expense in ratio to uncertainty of result) almost as well as insurers themselves do.   Judges also understand, no doubt from past experience, whether active or passive, that a looming trial tends to facilitate settlement of such disputes.  Fair or not, scheduling a quick trial or refusing to stay one to allow the insurer to prosecute an appeal, promotes settlement in many cases.  Cases that then come off judges' dockets and free up their calendars.  To busy litigators and judges, found time can be better than found money.

As a coverage litigator, I've encountered this situation a number of times -- summary judgment denied with a scheduled trial date in fewer months than an appeal can be perfected, argued and decided.  More times than not, the trial judges have been unwilling to stay the trial to allow for the completion of an appeal even where, as in most cases, there would be little if any prejudice to the insured if the trial were delayed.  Why is that?  Why should trial judges care if the appeal goes first?  The most probable reason is leverage.  To leverage a settlement of the action.

Although this dynamic applies more readily to first-party than third-party coverage disputes, liability insurers are not immune from such economic pressure.  My office recently completed a relatively expensive week-long trial of a declaratory judgment action and is a few weeks away from oral argument of the pre-trial denial of our client's motion for summary judgment.  The trial judge refused to stay the trial, and our client did not want us to make a formal motion to either the trial judge of Appellate Division.  No automatic stay provision of CPLR 5519 applied, and a trial is not a proceeding to enforce an order denying summary judgment, per subdivision (c).  We now have two appeals pending -- one from the summary judgment motion denial; and one from the trial judgment.  Yes, the jury found against our client at trial, but given who the insured (a church) and venue (a rural, conservative county) were, we knew going in that our best chance of prevailing in that case was on motion, not at trial.

Cut back to the captioned  case. From eCourts we learn that this action was brought in August 2006 against State Farm pursuant to New York Insurance Law § 3420(a)(2) and (b)(1) to enforce a $150,000 default judgment that was granted against State Farm's insured, Jose Rodriguez, on February 9, 2006 for injuries the plaintiff allegedly had sustained in a motor vehicle accident on June 30, 2001.  State Farm received first notice of the accident on December 14, 2004 (more than three years after the accident date, presumably in relation to the underlying Roules v. Rodriguez action) and disclaimed coverage to Mr. Rodriguez under his auto policy based on late notice on December 27, 2004, 13 days later. 

After obtaining the default judgment, Roules sued State Farm, contending that its denial of coverage to Rodriguez was wrongful.  State Farm moved for summary judgment, which was denied, the motion court holding in August 2008 that "whether the service of the disclaimer in this action was timely, remains an issue of fact."  State Farm appealed. 

CPLR 2201 provides:

Stay

Except where otherwise prescribed by law, the court in which an action is pending may grant a stay of proceedings in a proper case, upon such terms as may be just.

In this case, it appears State Farm made a motion to stay the trial of this 3420(a)(2) judgment-creditor's enforcement action directly to the Appellate Division, Second Department, which, without opposition from the plaintiff-respondent, the Second Department granted on October 30, 2008 "pending hearing and determination of [State Farm's] appeal."  Neither the eCourts' appearance listing nor the Second Department's memorandum decision reveals when the trial of the action had been scheduled.

Last week, the Second Department issued its decision on State Farm's appeal.  Not surprisingly, at least not to me, the court ruled that "[c]ontrary to the determination of the Supreme Court, the timeliness of the disclaimer issued by the defendant State Farm ... did not present an issue of fact":

State Farm made a prima facie showing of its entitlement to judgment as a matter of law by demonstrating that only 13 days elapsed between the date that it first learned of the subject accident and the date that it issued its disclaimer of coverage on the ground of late notice. Moreover, during that 13-day interval, State Farm investigated the matter, reviewed its file, and unsuccessfully attempted to contact its insured. In response to this showing, the plaintiff failed to raise a triable issue of fact. Accordingly, State Farm's disclaimer was timely as a matter of law under the circumstances, and its motion for summary judgment should have been granted (see generally Tully Constr. Co., Inc. v TIG Ins. Co., 43 AD3d 1150; Matter of New York Cent. Mut. Fire Ins. Co. v Gonzalez, 34 AD3d 816; Schoenig v North Sea Ins. Co., 28 AD3d 462; Blue Ridge Ins. Co. v Jiminez, 7 AD3d 652). 

Would the Second Department have been less likely to grant State Farm's motion for a stay of the trial had the plaintiff-respondent opposed that motion?  Perhaps.  Regardless, I submit that more trial and appellate courts should exercise their discretion under CPLR 2201 to grant stays of trials in insurance coverage cases where the insured or judgment creditor will suffer little or no prejudice from a delay of mere months to permit an appeal to be perfected, argued and decided.  It's not that I don't understand how the litigation game is played in cases such as this with judges who apply pressure on insurers to settle and forgo their appeals.  I don't have to like it, though. 

By the way, lest any of you non-music trivialists think that Jackson Browne is to thank for this post's lyrical title (I'll save and try to work "The Load Out" into a future post), it was actually Maurice Williams and the Zodiacs who wrote/first sang Stay in 1959.  The Hollies did an upbeat cover in 1963, and Frankie Valli and the Four Seasons covered the tune again in 1964.  There.  Now you know.  Enjoy all versions.

Defensive Bear Hugging Is Covered

HOMEOWNERS – LIABILITY – INTENTIONAL ACTS EXCLUSION
Clayburn v. Nationwide Mut. Fire Ins. Co.
(App. Term, 3rd Dept., decided 1/15/2009)

Although bears may not bear hug, people sometimes do. From the Appellate Division, Third Department, comes this lesson on when harm that results from intentional grappling is and is not covered.

Mark Clayburn and his brother were walking down a street and passed Robert Tamsett. Mark and Robert exchanged what the appellate decision delicately characterizes as "unkind words" (insert cartoon shorthand $#%$!! here). Tamsett then began to follow the brothers, continuing the verbal argument with Clayburn. Although there was some dispute over who intiated each aspect of physical contact, it was undisputed that at some point Tamsett pushed Clayburn to the ground. Tamsett and Clayburn then became "physically engaged", with Tamsett holding Clayburn in a bear hug. They struggled and lost their balance, falling through a plate glass window of a nearby store. Tamsett pleaded guilty to harassment based on his involvement in the incident.

Clayburn sustained severe facial lacerations as a result of the incident and brought a personal injury action based on negligence against Tamsett, who qualified as an insured under his parents' homeowners policy with Nationwide. Despite the negligence allegations, Nationwide disclaimed both defense and indemnification coverage to Tamsett based on the policy's exclusion for bodily injury

caused intentionally by or at the direction of an insured, including willful acts the result of which the insured knows or ought to know will follow from the insured's conduct.

After a bench trial in that underlying action, Montgomery Supreme found Tamsett negligent and entered a judgment against him for his portion of the damages. Clayburn then commenced this action directly against Nationwide pursuant to New York Insurance Law § 3420(a)(2) and Clayburn moved for summary judgment.

In MODIFYING the order appealed from granting plaintiff's motion to declare that Nationwide was obligated to indemnify Tamsett in relation to the judgment rendered against him, the Third Department held:

Supreme Court properly determined that the intentional acts exclusion does not bar coverage here. The policy at issue excludes coverage for bodily injury "caused intentionally by or at the direction of an insured, including willful acts the result of which the insured knows or ought to know will follow from the insured's conduct." To successfully bar coverage under an insurance policy's intentional acts exclusion, the insurer must prove that there is no possible legal or factual basis to support a finding that, from the point of view of the insured, the bodily injuries inflicted were unexpected, unintended and unforeseen (see Agoada Realty Corp. v United Intl. Ins. Co., 95 NY2d 141, 145 [2000]; Pennsylvania Millers Mut. Ins. Co. v Rigo, 256 AD2d 769, 770 [1998]; Home Mut. Ins. Co. v Lapi, 192 AD2d 927, 928 [1993]). Yet courts are wary of claims that intentional acts resulted in unintended injuries where the harm "was inherent in the nature and force" of the wrongful act (Pennsylvania Millers Mut. Ins. Co. v Rigo, 256 AD2d at 771; see New York Cent. Mut. Fire Ins. Co. v Wood, 36 AD3d 1048, 1049 [2007]).

Here, while Supreme Court acknowledged that Tamsett intentionally placed his hands upon plaintiff, the court found that Tamsett did so in an attempt to subdue plaintiff or ward off an attack, "as opposed to beat him." Tamsett and plaintiff did not exchange any punches, or even any words. Tamsett merely wrapped his arms around plaintiff in response to plaintiff approaching him after Tamsett pushed Clayburn to the ground. We accept the court's determination that Tamsett did not expect, intend or foresee that plaintiff would end up crashing through the plate glass window or be injured in any way when Tamsett placed him in a bear hug (see Baldinger v Consolidated Mut. Ins. Co., 15 AD2d 526, 526 [1961], affd 11 NY2d 1026 [1962]; compare Smith v New York Cent. Mut. Fire Ins. Co., 13 AD3d 686, 688 [2004]; Mazzaferro v Albany Motel Enters., 127 AD2d 374, 376 [1987]). Plaintiff's injuries were not inherently likely to result from the nature and force of a defensive bear hug. Under the circumstances, the intentional acts exclusion does not apply (see Slayko v Security Mut. Ins. Co., 98 NY2d 289, 293 [2002]; cf. Allstate Ins. Co. v Zuk, 78 NY2d 41, 46 [1991]).

In defending the 3420(a)(2) action, Nationwide also argued that the policy's criminal acts exclusion negated coverage for the judgment against Tamsett, since he had pleaded guilty to criminal harassment. In rejecting that argument, the court noted that Nationwide could not rely on that exclusion because it had failed to include that ground in its disclaimer letter, citing Maroney v New York Cent. Mut. Fire Ins. Co., 10 AD3d 778, 780-781 (3rd Dept 2004), affd 5 NY3d 467 (2005).

Although wrestlers and mixed martial arts/extreme fighters may use bear hugs in an offensive manner, injuries that result from purely defensive bear hugging are not negated by a homeowners policy's intentional acts exclusion, at least in the opinion of the Third Department.

Just in Time for Thanksgiving -- Second Department Recognizes In-Laws as Relatives

HOMEOWNERS – BODILY INJURY TO INSURED EXCLUSION – "RELATIVE" – INSURANCE LAW § 3420(A)(2) ACTION
Smith v. State Farm Fire & Cas. Co.
(2nd Dept., decided 11/18/2008)

Homeowners insurance policies exclude liability coverage for "bodily injury to you [the named insured(s)], and if residents of your household, your relatives, and persons under the age of 21 in your care or in the care of your resident relatives."  The purpose of this "BI to insured" exclusion is to disincentivize collusive lawsuits that target the HO policy and its indemnification dollars.

In-laws are relatives, whether one likes it (or them) or not.  In this case, plaintiff, the daughter-in-law of State Farm's named insured, apparently sued the public administrator of her father-in-law's estate (the named insured presumably having died intestate, i.e., without a will) for personal injuries she had sustained as a result of the named insured's negligence and recovered a money judgment against the estate.  Plaintiff then commenced this action pursuant to Insurance Law § 3420(a)(2) recover that unsatisfied judgment from State Farm under the named insureds' homeowners policy.

In AFFIRMING the Suffolk County Supreme's order granting summary judgment to State Farm, the Second Department held:

On their motion, inter alia, for summary judgment, the defendants State Farm Fire and Casualty Company and State Farm Insurance Companies (hereinafter together the State Farm defendants), made a prima facie showing of entitlement to judgment as a matter of law. The State Farm defendants demonstrated that the plaintiff, the named insureds' daughter-in-law, who resided in the home of the named insureds at the time of the incident giving rise to her underlying personal injury action against the named insureds, was a resident "relative" of the named insureds. Thus, she was within an exclusion from coverage contained in the homeowner's insurance policy State Farm issued to the named insureds (see Korson v Preferred Mut. Ins. Co., 39 AD3d 483, 484; Randolph v Nationwide Mut. Fire Ins. Co., 242 AD2d 889, 889-890; Smith v Pennsylvania Gen. Ins. Co., 32 AD2d 854, affd 27 NY2d 830; Eisner v Aetna Cas. & Sur. Co., 141 Misc 2d 744, 745). In opposition to the State Farm defendants' motion, the plaintiff failed to raise a triable issue of fact (see Alvarez v Prospect Hosp., 68 NY2d 320). To the extent that McGuinness v Motor Veh. Acc. Indem. Corp. (18 AD2d 1100), may be inconsistent with this determination, it should not be followed.

It's the last sentence that caught my eye in this short decision.  McGuinness has been on the books since 1963, the Second Department holding 45 years ago in that case that the undefined term "relative" in an insurance policy was ambiguous and could be construed to be limited to relatives by blood but not affinity.  With the New York courts and Insurance Department now recognizing same-sex marriages performed in other jurisdictions, I guess it was about time for the Second Department to recognize in-laws as relatives.

Insurer Found to Have Waived Non-Coverage Grounds Not Asserted in Disclaimer Letter

HOMEOWNERS – "INSURED LOCATION" – BUSINESS PURSUITS EXCLUSION – RENTED PREMISES EXCLUSION
Adames v. Nationwide Mut. Fire Ins. Co.
(2nd Dept., decided 10/7/2008)

Not really sure what happened here. Follow the moving coverage defenses.

Adames slipped on ice and fell in front of Bobrowsky's commercial building. Bobrowsky had both a homeowners policy and a personal umbrella policy with Nationwide. According to the decision, Nationwide denied coverage under both policies, relying upon the definition of "insured location" in the homeowners policy, and the definition of "business property," as well as an exclusion applicable to "occurrence[s] arising out of the business pursuits or business property of an insured," in the umbrella policy.

Adamses sued Bobrowsky and obtained a $152,505.50 default judgment against him. After that judgment remained unsatisfied for more than 30 days, Adames commenced this action against Nationwide pursuant to New York Insurance Law § 3420(a)(2) and moved for summary judgment. In opposing that motion, Nationwide cited two exclusions appearing in the homeowners policy, one relating to injuries "arising out of business pursuits of an insured," and the other relating to injuries "arising out of the rental or holding for rental of any part of any premises by an insured." Kings Supreme denied Adames' motion for summary judgment and she appealed. On appeal, Nationwide again relied exclusively on the business pursuits and rented premises exclusions of Bobrowsky's homeowners policy.

Reminding the litigants that a notice of disclaimer "'must promptly apprise the claimant with a high degree of specificity of the ground or grounds on which the disclaimer is predicated'" (General Acc. Ins. Group v Cirucci, 46 NY2d 862, 864; see Insurance Law § 3420[d]), and '[a]n insurer's justification for denying coverage is strictly limited to the ground stated in the notice of disclaimer' (Shell v Fireman's Fund Ins. Co., 17 AD3d 444, 446; see Pawley Interior Contr., Inc. v Harleysville Ins. Cos., 11 AD3d 595; Prus v Glencott Realty Corp., 10 AD3d 390)", the Second Department reiterated that "an insurer waives any ground for denying coverage that is not specifically asserted in its notice of disclaimer, even if that ground would otherwise have merit[.]"

It appears Nationwide's undoing was in asserting coverage defenses not raised in its original disclaimer and denial letter. In REVERSING and granting summary judgment to Adames, the Second Department ruled:

In its disclaimer letter, Nationwide relied upon the homeowners policy's definition of "insured location," which was not a valid basis for denying coverage, since Adames's accident triggered the policy's liability coverage, which was not limited to any particular location, not its property coverage. Nationwide further relied upon the umbrella policy's definition of, and exclusion relating to, "business property." The provisions of the umbrella policy are not relevant in the instant action, since the judgment Adames seeks to have satisfied does not exceed the liability limit of the homeowners policy, and thus the umbrella policy's excess liability coverage is not triggered. The homeowners policy's exclusions relating to business pursuits and rental property, upon which Nationwide now relies, were not mentioned in Nationwide's disclaimer letter, and thus have been waived. The disclaimer letter cited a different exclusion, which rested on a different definition and appeared in a different insurance policy.

In cases in which Insurance Law § 3420(d) applies -- claims under liability policies for death or bodily injury arising out of an accident occurring in New York State -- the moral of the story is: assert the correct grounds for declining coverage in the declination letter, or potentially be found to have waived those grounds.

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.

Injured Party's Notice to Excess Insurer on Eve of Trial Found Timely

CGL – LATE NOTICE – DIRECT ACTION – INSURANCE LAW § 3420(A)
Cicero v. Great Am. Ins. Co.
Cicero v. Great Am. Ins. Co.
(1st Dept., decided 7/29/2008)

Don't adjust your monitor. The First Department issued a pair of decisions yesterday in the same case involving late notice of occurrence/suit to an excess insurer.

Lydia Cicero sued Western Beef, Inc., for serious injuries she suffered on January 20, 1998, when she slipped and fell in its supermarket. A preliminary conference order directed Western Beef to respond to plaintiffs' combined demands, dated May 27, 1999, and disclose "the existence and contents of any insurance agreement as described in CPLR § 3101(f)." On January 21, 2000, defense counsel retained by Zurich American Insurance Group, Western Beef's primary insurer, responded that, at the time of plaintiff's accident, Western Beef was insured by Zurich American Insurance Group under a policy that had a single limit coverage of $1,000,000. Almost four years later, on the eve of trial, Western Beef's broker notified Zurich American that Western Beef had $25 million in excess coverage with Great American Insurance Company. Western Beef's defense counsel then notified plaintiffs' counsel, who promptly gave notice of plaintiffs' claim to General American on January 9, 2004, nearly six years after the slip-and-fall accident.

General American disclaimed coverage because it did not receive timely notice of the accident from its insured, Western Beef. Western Beef then commenced a DJ action against, among others, Great American and the broker who sold it the excess insurance. Cicero settled the underlying personal action (for approximately $2.5 million) and, as part of the settlement, Western Beef assigned to Cicero its rights against Great American and the other defendants in the DJ action.

Cicero then took over the prosecution of the DJ action and also commenced this direct action pursuant to Insurance Law § 3420(a)(2) against Great American to recover the portion of the settlement exceeding the primary policy limit. A motion for summary judgment in the DJ action resulted in a declaration that Great American was under no obligation to satisfy the judgment against Western Beef in the underlying action, the court holding that timely notice by Western Beef to its insurance broker did not constitute timely notice to Great American because the evidence failed to show that the broker was Great American's agent as well as Western Beef's.

Great American moved for leave to amend its answer in this direct action to include an affirmative defense of res judicata and, upon amendment, for summary judgment dismissing the complaint on that ground. In AFFIRMING the New York County Supreme Court's denial of that motion, the First Department held:

We reject Great American's argument that the instant action is precluded by this declaration. The assignment to plaintiffs of Western Beef's rights under its policy with Great American did not diminish their statutory right to pursue a direct action against the insurer, which is independent of the insurance contract (see Lauritano v American Fid. Fire Ins. Co., 3 AD2d 564, 567 [1957], affd 4 NY2d 1028 [1958] [noting the absence of privity]). The determinative issue in the declaratory judgment action was whether notice of plaintiffs' claims in the underlying action given by Western Beef to its broker could be imputed to Great American; here, no contract, agency or insurance coverage issues are involved. Rather, this is a statutory action to collect an unpaid settlement in which the only defense available to Great American is that plaintiffs did not satisfy their statutory obligation to provide notice as soon as reasonably possible "in light of the opportunities to do so afforded [them] under the circumstances" (Appel v Allstate Ins. Co., 20 AD3d 367, 369 [2005] [internal quotation marks and citations omitted]). "While a valid final judgment bars future actions between the same parties on the same cause of action, [a] subsequent action will not be barred by res judicata where the nature or object of the second action is distinct from that in the prior action in which the judgment was rendered" (GTFM, LLC v Nagy, 18 AD3d 266, 268 [2005] [internal quotation marks and citations omitted]).

As to the timeliness of Cicero's 6-year delayed notice to Great American, the First Department REVERSED the New York County Supreme Court's denial of summary judgment to Cicero and awarded judgment to her against Great American in the sum of $1,501,211.00 plus statutory interest from December 8, 2004 (approximately $490,000) and costs. Having noted that an injured party's delay in providing notice to a tortfeasor's liability insurer is measured less rigidly than the insured's delay (see Appel v. Allstate Ins. Co., 20 AD3d 367, 369 [1st Dept. 2005]), the First Department held:

While, ordinarily, whether plaintiffs acted diligently in ascertaining the identity of Western Beef's insurer or insurers would present an issue of fact, under these circumstances, where Western Beef affirmatively misled plaintiffs as to even the existence, let alone the identity, of its excess insurer and failed to cooperate with its primary insurer, Zurich American, in the latter's attempts to ascertain whether there was any excess coverage, plaintiffs' efforts were sufficient and the notice given by them shortly after they learned of the excess coverage and American National's identity was timely as to them.

The decision does not indicate what evidence supported the First Department's conclusion that Western Beef "affirmatively misled" plaintiffs of the existence and identity of its excess insurer and "failed to cooperate" with its primary insurer in its attempts to ascertain whether there was any excess coverage. Certainly, there must have been more at work than simply an incorrect CPLR § 3101(f) disclosure. Although it does not explicitly say so, however, these decisions imply that an injured plaintiff may do nothing more than rely on the accuracy of a defendant's CPLR § 3101(f) insurance disclosure. Inasmuch as New York courts have held that 3101(f) permits the discovery of the insurance agreements themselves, could a plaintiff's failure to demand insurance agreement materials -- declarations pages, certificates of insurance, policies themselves, etc. -- or subpoena records directly from a defendant's agent or broker present a question of fact as to the plaintiff's diligence in seeking to identify and then notify all liability insurers of the tortfeasor(s)?

Questions of Fact on Insureds' Excuses for Late Notice Preclude Summary Judgment to Homeowners Liability Insurer

HOMEOWNERS – LATE NOTICE – LACK OF KNOWLEDGE OF INJURY
Hanover Ins. Co. v. Straus
(Sup. Ct., Suffolk Co., decided 5/23/2008)

O’Neil was allegedly injured by a dog owned by Richard and Maureen Straus on December 5, 2002. O’Neil and his wife sued the Strauses, and a default judgment was entered them on December 20,2005, in the amount of $250,000.

Hanover received first notice of the incident on February 12, 2006, approximately 2 1/2 months after the default judgment was entered. On March 6, 2006, Hanover disclaimed based on the insureds' late notice of the claim. It then brought this DJ action for validation of its disclaimer, while O'Neil brought a direct action against Hanover pursuant to Insurance Law § 3420(a)(2) for payment of the default judgment.

Brian Straus testified at his deposition that on the date of the alleged incident in 2002, he resided at the insured residence his wife and five children but he was not at home when Brian O’Neil, while allegedly delivering a package, was injured. He further testified that his daughter told him that there was an incident, that the individual fell in the street after the O’Neil’s dog barked and that this individual “ ran out to his truck in the street, and fell down and got up and took off and hit the pole.” He said that his daughter told him that O’Neil fell in the street and not on his property. Straus stated that he never discussed this matter with his wife. He further testified that the first time he was aware that an action had been commenced was when he received a copy of the default judgment at home. He stated that he did not remember when he received the judgment, but the other testimony and evidence in this case indicated that it was received early in 2006.

The police were never called to the house and the injured O’Neil allegedly drove off in his truck. Some of Brian Straus's statements were at odds with statements he had made to an investigator of Hanover, but he did tell the investigator that he never received a summons and complaint. Further, he was consistent with his testimony to the extent that he stated that he was not at the house when the incident occurred and that the dog never touched the delivery man.

Maureen Straus also testified she was not aware of the O'Neil action until the judgment came in the mail.

In denying Hanover's motion for summary judgment, Suffolk County Supreme Court Justice Sandra Sgroi held:

Here, the Defendants Richard Straus and Maureen Straus are alleging that they did not believe that anyone was injured in the occurrence. Their belief that only a “trivial incident” occurred is supported by the facts of this case because the police were not called to the scene of the accident, their dog allegedly was not vicious, it is alleged that the dog was on a leash, their children told them that no one was injured in the incident and the Brian Straus drove away in his vehicle.

Here * * * triable issues of fact exist as to the reasonableness of the actions of Richard Straus and Maureen Straus in failing to notify Hanover Insurance Company as to the incident (citations omitted).

While there may be strong factual basis supporting the reasonableness of the Strauses' actions in not notifying the insurance company of the incident after the accident occurred in 2002, separate fact issues exist as to the reasonableness of their actions in not notifying the insurance company after the action was commenced by service of process by the attorneys for Brian O’Neil and Terry O’Neil.

The Court recognizes that there is evidence in this record that would support a finding that Richard Straus and/or Maureen Straus may have received notice of both this accident and the negligence litigation when the summons and complaint was served, the Court cannot make that factual determination on these papers. Both Maureen Straus and Richard Straus have denied that they received notice that they were served with a summons and complaint in this action. If, eventually, there is a factual determination that either Maureen Straus or Richard Straus knew of the existence of the law suit, Hanover Insurance Company might be entitled to a declaratory judgment in its favor. However, if the trier of the facts determines that Maureen Straus and Richard Straus were reasonable in their belief that there was no incident that required them to notify Hanover Insurance Company of the accident in 2002, that neither Maureen nor Richard Straus were aware that an action was commenced against them in 2005 and that they did not get notice of that action until they were served with the default judgment in 2006 by mail, their delay in notifying the insurance company is explained.

The issue herein, whether notice to Hanover Insurance Company was timely, is a factual issue and therefore the motion for summary judgment by the Plaintiff Hanover Insurance Company against the Defendants is denied.

Injured Party's Direct Action Against Defendant's GL Insurer Dismissed For Lack of Standing

CGL – INSURANCE LAW § 3420(A)(2) – STANDING
Azad v. Capparelli
(2nd Dept., decided 5/27/2008)

Azad sued Capparelli for personal injuries and named Utica National Insurance Group as a defendant in two causes of action, presumably for a declaration that Utica owed Capparelli coverage for Azad's personal injury claims.

In REVERSING the lower court's order and granting Utica's motion, dismissing the two causes of action against Utica based on the plaintiff's lack of standing to maintain a direct action against it, the Second Department noted that Azad was neither a named insured under Capparelli's CGL policy with Utica, nor had she obtained a money judgment against Capparelli that remained unsatisfied for 30 days, as required under Insurance Law § 3420(a)(2).

Recall that the DJ/late notice bill that is in the works (see, STATUS UPDATE (Part II) -- Late Notice/Material Prejudice Bill in New York State), proposes to add language to CPLR § 3001 permitting "a party who has brought a claim for personal injury or wrongful death against another party [to] maintain a declaratory judgment action directly against the insurer of such other party". If/when that bill is passed and becomes effective, plaintiffs like Azad will be able to maintain direct actions against the alleged insured tortfeasors' liability insurers prior to obtaining money judgments against the insureds.

New Yorker Injured in Maryland MVA by Vehicle Insured in Virginia

AUTO – INSURANCE LAW § 3420(A)(2) – ACTION ON UNSATISFIED JUDGMENT AGAINST PURPORTED INSURED – INSURANCE LAW § 3420(D)
Perkins v. Allstate Ins. Co.
(2nd Dept., decided 5/6/2008)

This is the second of two decisions isssued by the Second Department on the same day involving New York Insurance Law § 3420(a)(2), which permits an injured party to sue the insurer of the tortfeasor insured once the injured party has obtained a money judgment against her that remains unsatisifed for more than 30 days after presentment to the insurer. This case is a bit more instructive than Lopez (post below), in that it highlights and discusses coverage defenses that may be applicable to such statutory claims or causes of action.

Perkins, a New York resident, was injured in a Maryland auto accident. He sued Shoffner, also a New York resident, as the operator of the offending vehicle, and Riggin Master, a New York corporation as the owner of the vehicle. The vehicle was insured under a policy issued by Allstate to "Lucy Carr", a Virginia resident. Perkins never sued Carr.

Shoffner and Riggin Master did not answer or appear in Perkins' personal injury action, and he took a default judgment against them, which remained unsatisifed for more than 30 days. Perkins then commenced this action against Allstate pursuant to Insurance Law § 3420(a)(2) for payment of the unsatisfied judgment. Allstate counterclaimed and moved for summary judgment on the ground of lack of coverage.

In REVERSING the lower court's denial of Allstate's motion and remitting this matter back to Supreme Court for entry of a judgment declaring that Allstate is not obligated to satisfy the judgment against the defendants in the underlying action, the Second Department held:

The judgment entered on default in the underlying action is conclusive for res judicata purposes as to any matters actually litigated or that might have been litigated therein (see 83-17 Broadway Corp. v Debcon Fin. Servs., Inc. 39 AD3d 583; Rizzo v Ippolito, 137 AD2d 511). In the first instance, no judgment was entered in that action against Carr, [Allstate]'s named insured who, as aforesaid, was not operating the vehicle on the day of the accident. In addition, the underlying action was conclusive as to the identity of the vehicle's owner (Riggin Master) and the vehicle's operator (Robert Shoffner), neither of whom were named insureds under the policy issued by [Allstate] to Carr.

Moreover, although the policy provided coverage for "non-owned automobiles," the only individuals covered thereunder were the named insureds, relatives who reside in the same household as the named insureds (hereinafter a residing relative), and "any other person or organization not owning or hiring the automobile, but only with respect to his or its liability because of acts or omissions of" a named insured or residing relative. The defendants against whom the judgment was entered in the underlying action do not fit any of the criteria for "Persons Insured" under the policy.

Furthermore, the plaintiff's contention that the defense of lack of coverage was invalid because [Allstate] failed to issue a timely disclaimer is without merit. Where an insurer is entitled to deny a claim based on an absence of coverage, its failure to timely disclaim coverage does not preclude it from denying liability on that ground (see Insurance Law § 3420[d]; Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188; State Farm Fire & Cas. Co. v Horton, 37 AD3d 820). Moreover, Insurance Law § 3420(d) does not apply to out-of-state accidents (see Matter of Transportation Ins. Co. v Cafaro, 295 AD2d 618).

Plaintiffs' New York judgment was, therefore, uncollectible under the Allstate policy.

Editor's Note: Does this sound like a case of possible rate evasion to anyone other than me? New York residents, an alleged New York corporation (which doesn't show up in the NYS Department of State's Corporation and Business Entity Database), a Maryland accident, and non-appearances by the New York defendants in a New York action. Lucy Carr, the British singer/model/actress? Or a pun for a fictitious insured from a more premium friendly state?

Proving an Insurance Law § 3420(a)(2) Claim

AUTO – INSURANCE LAW § 3420(A)(2) – ACTION ON UNSATISFIED JUDGMENT AGAINST PURPORTED INSURED
Lopez v. State Farm Fire & Cas. Co.
(2nd Dept., decided 5/6/2008)

New York Insurance Law § 3420(a)(2) permits an injured party to sue the insurer of the tortfeasor insured once the injured party has obtained a money judgment against her that remains unsatisifed for at least 30 days after presentment to the insurer.

In this case, the Second Department AFFIRMED the lower court's denial of summary judgment to the plaintiffs based on their failure to establish their prima facie entitlement to summary judgment on their complaint pursuant to Insurance Law § 3420(a)(2):

Here, the plaintiffs proffered no evidence that they notified the defendant of the underlying action they commenced against the defendant's purported insured and in which a default judgment was entered, until the defendant was served in the instant action (citations omitted). In addition, the plaintiffs' only submission, on their motion for summary judgment on the complaint, to establish that there was in full force and effect an agreement of insurance covering them for the liability, was a letter from the defendant to them requesting information regarding a claim (see Kleynshvag v GAN Ins. Co., 21 AD3d 999). That letter indicated that the defendant was making a second request to the plaintiffs to provide certain documentation regarding the plaintiffs' claim referenced therein "[i]n order to properly analyze and evaluate" the claim. Such letter, without more, failed to establish, prima facie, the existence of a valid policy of insurance covering the accident.

* * * The plaintiffs' failure to meet their initial burden on the motion necessitated its denial regardless of the sufficiency of the opposing papers.