Not a Named Insured? Not Entitled to Coverage.

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

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

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

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

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

After Further Review, The Release Stands -- Insured Charged With Timeout

CGL – POLICY RELEASE – NO MUTUAL MISTAKE
Scotts Co., LLC v. Ace Indem. Ins. Co.
(1st Dept., decided 5/6/2008)

What a difference a good - or bad - bar graph can make. And sometimes a picture IS worth a thousand or 64 million words. Or dollars, in this case.

Over a period of 21 months and with the assistance of experienced counsel and consultants, plaintiff negotiated a settlement of a pending DJ action that its insurers, the defendants, had brought. Pursuant to a settlement agreement and release entered into in December 2000, plaintiff, in exchange for $325,000, released defendants from "any and all past, present and future claims under insurance policies, whether known or unknown", issued by defendants. Four and a half years after executing the agreement and accepting the $325,000, plaintiff commenced this action to rescind the agreement.

In seeking to rescind the agreement based on "procedural unconscionability" and the equitable doctrine of mutual mistake, plaintiff claimed that a bar graph in a policy chart that its agent had prepared contained a "visual error" that gave the erroneous impression that the total amount of primary insurance coverage the plaintiff was releasing was only $16 million when in fact, as the text of that policy chart correctly denoted in eight different places, it was $80 million. Apparently, quoting the First Department's description of the optical mallusion, "the the bars of the graph representing the policies were a smaller size than was commensurate with the dollar amounts." Exactly how much longer would a bar for another $64 million have needed to be?

In rejecting the plaintiff's claims and AFFIRMING the lower court's order awarding summary judgment to defendants, the First Department noted that "[t]here is no legitimate dispute that the settlement agreement and release was entered into by two sophisticated commercial entities, that there were no deceptive or high pressure tactics, that there was no fine print in the unambiguous agreement, and that there was no disparity between plaintiff and defendants in experience or bargaining power." The court also mused that the difference in "exchanged value" between $80 million and $325,000 and $16 million and $325,000 was not such that it demonstrated "substantive unconscionability" because $15,675,000 was itself a "substantial" number.

The court also rejected the plaintiff's claim of mutual mistake because: (1) its own agent had prepared the policy chart and bar graph; (2) its agent was aware of the correct policy limits; (3) the correct policy limits were written in the policy chart in eight different places; and (4) "it does not avail plaintiff to invoke even a material mistake to avoid the consequences of its own negligence"; "plaintiff could have easily ascertained the limits of the policies by reading the policies. Instead, it assumed the risk of proceeding based upon second-hand information presented to it by its own agent."

Here's what I would like to know: what happened 4 1/2 years later that led to plaintiff's discovery of that "visual error"? I prefer pie charts to bar graphs myself, but geez - if I were talking $325,000 for millions, I think I'd read the story and not just look at the pictures. But that's just me.