Source: https://www.hurwitzfine.com/news/coverage-pointers-volume-vi-no-7
Timestamp: 2020-05-27 12:04:33
Document Index: 324128027

Matched Legal Cases: ['§ 3407', '§ 5106', '§ 268', '§ 268', '§ 349', '§ 349', '§ 5106', '§ 5103', '§ 5102', '§ 5103', '§ 1192', '§ 5106', '§ 5106', '§ 5102', '§ 120', '§ 3407', '§ 9', '§ 16', '§ 224', '§ 18']

Coverage Pointers - Volume VI, No. 7 | Hurwitz & Fine, P.C.
Coverage Pointers - Volume VI, No. 7
12/2/04 Excess Insurance Company v Factory Mutual Insurance Company
Reinsurer’s Obligation To Pay Losses Arising From A “Follow The Settlements” Clause Are Subject To The Indemnification Limit Stated In the Reinsurance Policy
Factory Mutual Insurance Company agreed to provide Bull Data Systems Inc. property insurance with an indemnification limit of $48 million. Specifically, the policy covered against the risk of loss or damage to Bull Data's personal computer inventory stored in a warehouse located in France. In turn, Factory Mutual obtained reinsurance from various London reinsurers. In June 1991, a fire destroyed the warehouse and Bull Data presented a claim to Factory Mutual. Suspecting that the fire was the result of arson, Factory Mutual refused to satisfy it and Bull Data brought suit in France to recover under the policy. Factory Mutual also commenced an unsuccessful litigation against Bull Data in the United States claiming that the loss was due to arson, and the limit of liability under the insurance policy was $48 million. After incurring approximately $35 million in litigation expenses, both lawsuits were terminated and Factory Mutual settled the claims with Bull Data for nearly $100 million. Lawsuits were commenced in a variety of venues as Factory Mutual sought recovery under the reinsurance policy. Factory Mutual sought the $7 million indemnification limit under the reinsurance policy as well as $5 million in loss adjustment expenses it incurred pursuant to the “follow the settlements” clause in the policy that required the reinsurers to pay their portion of expenses incurred in the investigation and defense of any claim under the agreement. The Court of Appeals affirms the Appellate Division’s finding that reinsurers cannot be required to pay loss adjustment expenses in excess of the stated limit in the reinsurance policy. Once the reinsurers have paid the maximum amount stated in the policy, they have no further obligation.
12/2/04 Kevin P. Smith v. New York Central Mutual Insurance Company
A Few Eggs, A Bat And The Exclusion For An Intentional Act
The son of the insured became angered that the vehicle he was driving had been struck by eggs thrown by unknown persons from a park. So, he drove to his parents' nearby home where he resided, retrieved a wooden baseball bat and returned to the park. Upon seeing three individuals whom he believed were responsible, he pursued them and caught up to one of them, striking him in the back of the head with the bat. Of course, a personal injury action ensued alleging causes of action for intentional tort and negligence. The insurer disclaimed coverage under the parents’ homeowners’ policy based upon the policy exclusion for bodily injury "expected or intended by the insured" and on the ground that there was no "occurrence" because the insured's conduct was intentional, not accidental. Although the complaint pled a cause of action based in negligence and the boy pled to negligent assault, the Court found – from the testimony in the underlying depositions -- that the injuries sustained were the result of the boy’s intentional actions as a matter of law and could not be characterized as unexpected or unintended and, thus, as a matter of law, fell within the policy exclusion, entitling the insurer to summary judgment. Note: the Court reminds us that while an insurer's duty to defend derives from the allegations in the complaint, the duty comes to an end if it can be established that the underlying facts establish that there is no coverage under the policy. For a similar case decided by the Second Department, see also Dennis Anastasis v American Safety Indemnity Company
11/29/04 Hedaya Home Fashions, Inc. v. American Motorists Insurance
In Action Against Insurer For Breach, Damages Capped At Policy Limit
The jury verdict in this case found that the insurer had breached its insurance contract with the insured by improperly denying coverage for damage to the plaintiffs' machines resulting from a fortuitous event. The Appellate Division affirms. The evidence at trial established that the actual value of the loss exceeded the policy limit and so the Supreme Court properly confined the judgment to the policy limit. In addition, since the insurer failed to serve a demand for proof of loss, choosing instead to deny coverage, it waived the provisions of Insurance Law § 3407(a) and its insured was not required to file a proof of loss statement as a condition precedent to coverage. The Court found, pursuant to well established precedent, that the insured was not entitled to recover the expenses incurred in bringing the action against the insurer to settle its rights under the policy.
11/24/04 North New York Medical Care v. New York Central Mutual Insurance Company
Right To Recover No-Fault Benefits By Proof That Claims Forms Timely Mailed To Carrier
Plaintiff sought to recover first party no-fault insurance benefits for medical services rendered to its assignors who were injured in an automobile accident. The court held that the plaintiff made a prima facie showing that defendant failed to pay or deny the claims within 30 days after defendant received plaintiff's demands and that payment of plaintiff's claims was overdue. The sworn statement of plaintiff's billing manager that the claim forms were mailed to defendant on the date each was signed were uncontradicted as the motion was unopposed. Judgment was granted to the plaintiff and the case was remanded for assessment of reasonable attorney fees pursuant to Insurance Law § 5106(a).
11/24/04 Daisernia and Roberts v. Thomas
Plaintiff Cannot Defeat Serious Injury Threshold With Affidavit That Contradicts Deposition Testimony
Defendants' submissions met their initial burden of showing that plaintiff did not suffer a serious injury. Plaintiff’s own testimony repeatedly confirmed that she was not seeking recovery for her shoulder injury, as treatment of that injury was pre-existing and unrelated to the accident. Her records from other medical providers note a history of prior shoulder problems, and no provider ever specifically causally linked any shoulder injury to the accident. As a result, the plaintiff could not create questions of fact to avoid summary judgment by contradicting her own deposition testimony through her self-serving affidavit submitted in opposition to the motion.
11/23/04 Rubeis v. The Aqua Club Inc., d/b/a V.I.P. Tennis & Beach Club, Ltd.,
“Grave Injury” Definition Clarified By High Court in Brain Injury Cases
In resolving a dispute between Appellate Departments, the New York State Court of Appeals determined that a “Grave Injury” permitting a third-party action against a plaintiff’s employer, is achieved if there is a brain injury which results in total unemployability. It is not necessary to establish that the plaintiff is in a vegetative state, only that a brain injury results in "permanent total disability" under section 11 of the Workers Compensation Law when the evidence establishes that the injured worker is no longer employable in any capacity.
11/23/04 Fireman's Fund Insurance Company v. Abax, Inc., Zurich Amer. Ins. Group
“Other Insurance Clause” Misapplied; Co-Primary Coverage in Place
Although the motion court correctly determined that the Zurich American policy did afford coverage to the commercial plaintiffs, the motion court erred nonetheless in directing Zurich American to reimburse Fireman's Fund in full for the defense costs incurred and the indemnity payments made in connection with the underlying litigation. The "other insurance" clause in the Fireman's Fund policy, which is contained in the property section of the policy, does not apply to this liability claim. As a result, the Fireman's Fund policy was not excess to the Zurich American policy; both provided primary coverage. Accordingly, Fireman's Fund and Zurich American should be considered co-insurers of the commercial plaintiffs in the underlying personal injury action, and should thus share equally in the defense costs and indemnity payments therein.
11/23/04 S & M Supply Inc. v. State Farm Mutual Insurance Company
Fraud Defense Not Precluded By Untimely Denial
In this action to recover no-fault benefits for medical services rendered to its assignor, plaintiff health care provider established a prima facie entitlement to summary judgment by proof that it submitted the statutory claim form, setting forth the fact and the amount of the loss sustained. Inasmuch as defendant failed to pay or deny the claim within the 30-day claim determination period, it was precluded from raising most defenses. But, defendant was not precluded from asserting a fraud defense, despite the untimely denial of plaintiff's claim.
11/19/04 Matter Of The Arbitration Between New York Central Mutual Fire Insurance Company and David Bett
Dissent Argues Timely Notice Based On Recorded Statement Of Insured Taken At Insurer’s Direction
The Appellate Division affirmed the Lower Court order that granted a permanent stay of arbitration related to a SUM claim related to a January 3, 2002 accident. The majority decision adopts the Lower Court’s findings that the insured did not give notice of the claim until November 6, 2002 through correspondence from the insured’s counsel and, therefore, notice was untimely.
But a lone dissent makes a strong argument that notice occurred prior to the November 6, 2002 correspondence. On January 10, 2002, one week after the accident, the insured gave a recorded statement to an independent insurance adjusting company at the carrier’s request. That statement was reduced to a written transcript and signed by respondent on January 21, 2002. It indicated that the vehicle that struck him could not be identified because it left the scene. The statement also indicated that respondent did not see the vehicle that struck him and could not identify the make or model of the vehicle because he was struck from behind. The statement further set forth the extent and nature of the injuries suffered by respondent. The Dissent argues that based on this recorded statement and the current case law that provides that notices to one’s insured should be construed liberally in the insured’s favor that the recorded statement provided to the insurer at its request was timely notice of the claim.
11/22/04 Desulme v. Stanya
Objective Findings Defeat Motion for Summary Judgment on Serious Injury
Affidavit of the plaintiff's treating physician was sufficient to raise a triable issue of fact. The plaintiff's physician stated that he had objectively measured the plaintiff's range of motion with a goniometer, and recorded a loss of 30% on extension of the cervical spine and of 60% on extension of the lumbar spine. Moreover, since the appellant had already put before the Supreme Court certain unsworn magnetic resonance imaging reports indicating the existence of bulging discs in the lumbar and cervical spines, it was proper for the plaintiff's physician to rely upon those reports. Lower court properly accepted the plaintiff's proffered explanation for the gap in time between the end of his medical treatments and his re-examination by his physician in June of 2002.
11/22/04 Lynch v. Progressive Insurance Company
No-Fault: Question of Disqualifying Intoxication is Issue of Fact
Question of fact existed as to whether No Fault claimant was intoxicated and whether that intoxication was a proximate cause of the accident, precluding summary judgment.
11/19/04 Jame Wynn v. Security Mutual Insurance Co. and Steimiller Associates
Action For Fraud For Refusal To Provide Coverage Barred By SOL
Plaintiff sought damages the allegedly fraudulent conduct of defendants in their refusal to provide plaintiff with coverage under a homeowner's insurance policy issued by Security Mutual Insurance Co. and procured through Steinmiller Associates. Two prior actions sounding in fraud and commenced against Security Mutual Insurance Co. were dismissed based upon plaintiff's failure to obtain personal jurisdiction but neither dismissal was the equivalent of a final disposition "on the merits" and therefore the doctrine of res judicata did not apply. But, the Court held that the action was barred by the six-year limitations period for fraud (CPLR 213 [8]), and plaintiff failed to raise a triable issue of fact in opposition.
11/18/04 Makuch v. New York Central Mutual Insurance
Fourth Department Takes Another Step Closer to Allowing Quasi-Bad Faith Claims
Anyone who follows the development in “bad faith” case law in New York realizes that it is still quite difficult to plead and prove a case of “bad faith” claims handling. In this first party case, involving the adjustment of a damage claim arising from a fallen tree, the Appellate Division tossed out the bad faith claims, holding that the fraud and general claims handling allegations were insufficient to give rise to extracontractual claims. However, the court did permit a claim under the consumer protection provisions of the New York General Business Law to proceed against the homeowner’s insurer, holding that the plaintiffs have set forth “sufficient factual allegations that defendant's conduct was consumer-oriented, that the conduct was misleading in a material way, and that plaintiffs suffered injury as a result of the deceptive acts). In particular, the allegations that the forms making up plaintiffs' insurance policy are standard and regularly used by defendant are sufficient to support the allegation that defendant's actions are consumer-oriented.” [Editor’s Note: pay close attention to the “floodgates”.
11/18/04 Town of Newfane v. General Star National Ins. Co.
For Insurance Purposes, Malicious Prosecution Claim Accrues on Date of Arrest, Not on Date of Termination
An element of a malicious prosecution claim is that it terminates favorably for the plaintiff. However, the Court held that the claim accures upon the arrest so that the carrier on the risk at that time, rather than at the time the underlying criminal claim is dismissed, is responsible for defense and indemnity. Case of first impression in New York.
11/18/04 New York Central Mutual Fire Insurance Company v. Drasgow
No Fault Arbitrator had No Rational Basis to Conclude that Claimant Could Not Give Notice to APIP Carrier Within Ninety Days of Accident
No Fault applicant was operating someone else’s car, whose carrier was responsible for paying basis No-Fault (PIP) benefits. Claimant did not give notice to own carrier, for excess PIP, within 90 days as required by policy. Arbitrator found that it was impossible to give such notice because claimant had no idea that medical expenses (and other First Party Benefits) would exceed primary coverage of $50,000. Appellate Division, in 3-2 decision, affirms lower court decision that there was “no rational basis” in arbitrator’s finding and determines that notice was late and violative of the policy provisions.
11/18/04 Matter of State Farm Mutual Automobile Insurance Companies v. Jackson
UM Carrier Entitled to Jury Trial, in Application to Stay Arbitration, on Factual Issues
Insurer moved to permantly stay Uninsured Motorist arbitration claiming that in fact there was insurance. Question resolved on residency of driver in household. UM carrier asked for jury trial, which application was denied and motion judge rules against UM carrier on residence issue. Court reversed, and sent the matter back for a jury trial. “A jury trial is appropriate where, as here, there is a factual issue preliminary to arbitration pursuant to an uninsured motorist claim”
11/24/04 FOUNDERS COMMERCIAL, LTD. V. TRINITY UNIVERSAL INS. CO.
First District of Texas Court of Appeals
No Duty to Defend or Indemnify Where Incorporated Designated Premises Endorsement Does NotCover Premises From Which Injury Arose
The Court of Appeals affirmed the trial court’s decision to grant summary judgment in favor of the respondent, Trinity Universal Insurance Company (Trinity). The appellant, Founders Commercial, Ltd. (Founders), claimed that, under the advertising liability provision of the commercial general liability (CGL) policy that had been issued to Founders by Trinity, Trinity owed a duty to defend and indemnify it in a federal suit filed against it for trademark infringement and dilution of trade name. Founders argued that under the eight-corners rule, Trinity owed it coverage because the claims against it constituted an advertising injury as defined by the policy. In its defense, Trinity claimed that Founders’ coverage under the policy was limited by a designated premises endorsement, and, that because the injuries did not arise from the premises covered by the endorsement, it owed Founders no duty to defend, nor indemnify. In concluding that the policy did not obligate Trinity to defend or indemnify Founders in the underlying suit, the court first ruled out the existence of any ambiguity with respect to the policy at issue. The court held that although the original CGL policy provided coverage for the entire tract of land, developed and undeveloped, owned by Founders, the language of subsequent, incorporated designated premises endorsements made it clear that they modified the premises covered by the original CGL policy, such that the area covered by the policy represented only the undeveloped half of Founders’ land. The court held that because the advertising injuries arose out of the developed portion of Founders’ land, the portion of Founders’ land not covered by the designated premises endorsements, Trinity owed no duty to defend Founders in the underlying suit. The court then considered Founders’ eight-corners rule argument. The court held that because the complaint did not mention the premises covered by the policy, nor allege any tortious conduct attributable to the premises covered by the policy, Trinity owed no duty to defend under the eight-corners rule. Finally, the court considered Founders’ contention that Trinity owed a duty to indemnify it for any judgment. The court determined that because the facts of the underlying suit failed to invoke the duty to defend, they were likewise insufficient to create a duty to indemnify.
Submitted by: Bruce D. Celebrezze & Tara L. Riedley (Sedqwick, Detert, Moran & Arnold, LLP)
11/23/04 KBL CABLE SERV. OF THE SOUTHWEST, INC. V. LIBERTY MUT. FIRE
Completion of Contractual Obligations Precludes Coverage Under Additional Insured Provisions
The Court of Appeals affirmed the District Court’s summary judgment award, holding that the respondent, Liberty Mutual Fire Insurance Company (Liberty), had no duty to indemnify or defend the appellant, KBL Cable Services of the Southwest (KBL). The appeal arose out of an insurance policy, required by a construction and maintenance work contract between KBL and Muller-Pribyl Utilities, Inc. (M&P), issued to M&P by Liberty, which insured KBL as an additional insured “only with respect to liability arising out of your ongoing operations performed for that insured . . . status as an insured under this endorsement ends when your operations for that insured are completed.” KBL sought a declaratory judgment that Liberty had a duty to indemnify and defend KBL in a case in which the plaintiff had been injured at a site that had been temporarily repaired by M&P. In support of KBL’s contention that Liberty had a duty to indemnify it as an additional insured, KBL argued that M&P’s operations at the site were not complete until the permanent repair was performed. The Court of Appeals declared that Liberty had no duty to indemnify KBL, holding that M&P’s operations at the site were not ongoing at the time of the injury to the plaintiff. The court concluded that because permanent repair by M&P could only be initiated by another work request from KBL and, more significantly, the contract between KBL and M&P allowed KBL to use contractors other than M&P, there was no understanding of when, or even if, M&P would return to the site after the temporary repair, and, therefore, M&P’s contractual obligation was terminated at the time the temporary repair was completed. Further supporting its conclusion that M&P’s contractual obligation to KBL was extinguished at the time the temporary repair was completed, the court found that no allegations had been made regarding defects in M&P’s work, that M&P had fully completed the tasks contained in the work order for the temporary repair, and that M&P was only obligated to take safety precautions during the period in which it was actually performing services pursuant to a work order. KBL alternatively argued that even if it was not covered as an additional insured, Liberty was obligated to indemnify it because it had an “insured contract” with M&P. The court held that there was no insured contract between KBL and M&P. First, it found that the only section that could be construed as creating a duty to indemnify was one in which M&P agreed to indemnify KBL for safety statute violations, and that KBL had not claimed any violation of safety statutes. Second, it found that the contract failed to contain a clear intent to indemnify the other party for all tort liability, and therefore, could not represent an insured contract. Finally, it found that there was no ambiguity in the contract which would require construing it in favor of KBL. KBL also maintained that Liberty had a duty to defend it against the plaintiff who had been injured at the site. The court responded to this argument by holding that Liberty had no duty to defend KBL in the lawsuit. It concluded that because further communication and agreement were necessary prior to any work by M&P following the temporary repair, the conclusion of the temporary repair marked the end of M&P’s obligation to KBL. Further, the court found that M&P and KBL’s reasonable expectations were that no coverage would exist between the termination of the temporary repair and any future work order obligations.
Submitted by: Bruce D. Celebrezze & Tara L. Riedley (Sedgwick, Detert, Moran & Arnold, LLP)
Rubeis v. The Aqua Club Inc., d/b/a V.I.P. Tennis & Beach Club, Ltd.,
An employer's liability for an on-the-job injury is generally limited to workers' compensation benefits, but when an employee suffers a "grave injury" the employer also may be liable to third parties for indemnification or contribution. In the three actions before us, we are again asked to define the scope of an enumerated "grave injury" in Workers' Compensation Law ' 11--this time "an acquired injury to the brain caused by an external physical force resulting in permanent total disability." We hold that a brain injury results in "permanent total disability" under section 11 when the evidence establishes that the injured worker is no longer employable in any capacity.
Rubeis v The Aqua Club, Inc.
Aldo Rubeis, an ironworker, sustained a brain injury when he fell approximately 19 feet from a ladder while installing a steel cupola at the Aqua Club. At the time of the accident, Rubeis was employed by Venezia Iron Works, Inc. Rubeis commenced a personal injury action against Aqua Club, which then impleaded Venezia alleging a cause of action for common law indemnification and contribution. Aqua Club claimed that plaintiff sustained a grave injury under Workers' Compensation Law ' 11 and thus plaintiff's employer was liable.
At the close of the liability phase of trial, the court granted Aqua Club judgment on its claim against Venezia, subject to resolution of the question whether plaintiff sustained a grave injury, which it submitted to the jury. The court instructed the jury that
"[i]n order to prove a grave injury . . . the medical evidence must indicate that . . . plaintiff is unable to return to any employment. You may consider plaintiff's ability to obtain other employment and should also consider his ability to perform the usual and customary tasks of ordinary day-to-day living, such as whether he is physically independent and ambulatory, in determining whether or not plaintiff suffered a grave injury. . ."
The jury found that the plaintiff sustained a grave injury and awarded him approximately $3.2 million in damages. The trial court denied Venezia's motion to set aside the verdict, but the Appellate Division, Second Department, reversed and granted the motion. Relying on Second Department case law holding that brain injury does not result in permanent total disability where the employee is able to perform day-to-day functions, the Appellate Division concluded that plaintiff had not suffered a grave injury under Workers' Compensation Law ' 11.
Largo-Chicaiza v Westchseter Scaffold Equipment Corp.
Jorge Largo-Chicaiza, a day-laborer, sustained a brain injury when he fell from the roof of a six-story house owned by Peter and Catherine McCaffrey while removing shingles. At the time of the accident, he was employed by the general contractor, Salvatore Sanzo. Largo-Chicaiza brought a personal injury action against the McCaffreys, Sanzo and the roofing subcontractors. In their answers, defendants each sought dismissal of the complaint and, in the alternative, cross-claimed for indemnification and contribution against Sanzo pursuant to Workers' Compensation Law ' 11.
Sanzo sought summary judgment against plaintiff and dismissal of all cross-claims against him on the ground that he was plaintiff's employer, and plaintiff's sole recovery against him were therefore workers' compensation benefits. The trial court granted Sanzo's motion for summary judgment as against plaintiff, but denied his motion seeking to prohibit impleader actions against him and converted defendants' cross-claims into third-party actions against Sanzo. Citing Way v Grantling (289 AD2d 790, 792 [3d Dept 2001]) for the proposition that permanent total disability relates to the injured party's employability, not ability to function in society, the trial court concluded that the evidence raised material questions of fact. The Appellate Division, Second Department, reversed and, citing Rubeis, concluded that plaintiff's injuries were not a grave injury under the Workers' Compensation Law ' 11.
Knauer v Anderson
Thomas Knauer, an electrician employed by Knauer Electric, sustained a brain injury when he fell 17 feet from a ladder and crashed headfirst onto a gravel floor. Knauer commenced a personal injury action against the general contractor and the property owner. The defendants then brought a third-party action against plaintiff's employer for indemnification. The trial court denied the employer's motion for summary judgment, finding a triable issue of fact regarding whether plaintiff sustained a grave injury.
After trial, the court charged the jury that permanent total disability means permanent total disability from employment and does not require that plaintiff lack all capacity to perform personal or household activities. The jury found in plaintiff's favor, awarding him $11 million, and the Appellate Division, Fourth Department, affirmed, relying on Way. The court reasoned, "evidence that a plaintiff has suffered the specified injury to the brain resulting in permanent total disability relates to his or her permanent total disability from employment, not to his or her ability to otherwise care for himself or herself and function in modern a society" (2 AD3d 1314, 1315 [4th Dept 2004] [internal quotations omitted]).
We granted leave to address this split among Departments on the meaning of "permanent total disability" under Workers' Compensation Law ' 11.
Workers' Compensation Law section 11 provides:
"An employer shall not be liable for contribution or indemnity to any third person based upon liability for injuries sustained by an employee acting within the scope of his or her employment for such employer unless such third person proves through competent medical evidence that such employee has sustained a 'grave injury' which shall mean only one or more of the following: death, permanent and total loss of use or amputation of an arm, leg, hand or foot, loss of multiple fingers, loss of multiple toes, paraplegia or quadriplegia, total and permanent blindness, total and permanent deafness, loss of nose, loss of ear, permanent and severe facial disfigurement, loss of an index finger or an acquired injury to the brain caused by an external physical force resulting in permanent total disability."
Section 11 was enacted in 1996 as part of a comprehensive reform intended to reduce costs for employers while also protecting the interests of injured workers (Omnibus Workers' Compensation Reform Act of 1996, L 1996, ch 635; Governor's Mem approving L 1996, ch 635, Bill Jacket at 54). Before that, New York State stood alone in freely allowing a defendant in a personal injury action brought by an employee injured on the job to seek indemnification or contribution from the employer. Central to the reform was immunity from tort liability for employers who provide workers' compensation coverage by exposing employers to third-party liability "only in cases involving narrowly defined 'grave' injuries" (Gov Mem in Supp, Bill Jacket at 55 [emphasis in original]). The injuries enumerated as grave were "deliberately both narrowly and completely described. The list is exhaustive, not illustrative: it is not intended to be extended absent further legislative action" (id.).
This legislative directive has consistently guided our determination as to whether a particular injury is a grave injury within the statute. In Castro v United Container Machinery Group, Inc., (96 NY2d 398 [2001]), for example, we held that the term "'loss of multiple fingers' cannot sensibly be read to mean partial loss of multiple fingers" (id. at 401). The word finger in the statute means the whole finger, not just its tip. And in Meis v ELO Org., LLC (97 NY2d 714, 716 [2002]), we concluded that loss of a thumb is not "permanent and total loss of use" of a hand, and thus not a grave injury.
In Castro and Meis, the words of the statute alone answered the question before us. Partial loss of multiple fingers, and loss of a thumb, simply do not fit the clear literal terms of the statute. The statutory words "an acquired injury to the brain caused by an external physical force resulting in permanent total disability," however, do not alone answer the question whether a particular injury is a grave injury. That phrase requires interpretation.
The definition of "permanent total disability" within section 11 has, moreover, divided the Appellate Divisions. The Third and Fourth Departments conclude that the permanent total disability envisioned by the section "relates to the injured party's employability and not his or her ability to otherwise care for himself or herself and function in a modern society" (Way v Grantling, 289 AD2d 790, 792 [3d Dept 2001]; Knauer v Anderson, 2 AD3d 1314 [4th Dept 2003]). In Way, the Third Department found a material issue of fact as to permanent total disability when evidence suggested that the employee's postconcussive syndrome permanently disabled him from competitive employment in even the most menial tasks, and where he had been awarded Social Security disability benefits. When defining "permanent total disability" the Second Department, by contrast, has focused on the injured party's ability to engage in day-to-day functions (see Schuler v Kings Plaza Shopping Ctr. and Marina, Inc., 294 AD2d 556, 559 [2d Dept 2002] [no grave injury where injured plaintiff managed a limited social agenda and was able to, among other things, dress and feed himself and handle simple arithmetic]).
These appeals in fact place before us two possible definitions of permanent total disability: the Second Department's standard essentially requiring a vegetative state, and the Third and Fourth Department's standard essentially requiring unemployability. In choosing between these alternatives, our guiding principle is, of course, to implement the intent of the Legislature--in this case to narrow tort exposure for employers while also protecting the interests of injured workers--by considering both the language used and objects to be accomplished. While both definitions are plausible, the second, in our view, better fits section 11 and better effectuates the legislative purposes.
First, we consider the choices within the context of section 11 itself. The Legislature in section 11 has itself defined a grave injury to include "loss of multiple fingers," "loss of multiple toes," "loss of nose," "loss of ear," "permanent and severe facial disfigurement" and "loss of an index finger." None of those enumerated grave injuries has the effect of preventing an employee from performing daily life activities. Limitation of permanent total disability to a vegetative state thus is too harsh a test, out of step with the balance of the section.
Next, we consider the two alternatives within the larger context of the Workers' Compensation Law, where the customary definition of "disability" relates to employment.* The Workers' Compensation Law deals with employment benefits, and the term "disability" generally refers to inability to work. Workers' Compensation Law section 201 (9) (A) and Rule and Regulation 363.1, for example, relate disability to inability to perform duties of employment. And section 37 (1), which refers to occupational diseases, states, "'[d]isability' means the state of being disabled from earning full wages at work at which the employee was last employed." The Workers' Compensation Law is about workers and their work.
Finally, we make clear that the test we adopt for permanent total disability under section 11 is one of unemployability in any capacity. "In any capacity" is in keeping with legislative intent and sets a more objectively ascertainable test than equivalent, or competitive, employment.
Accordingly, in Rubeis v The Aqua Club, Inc., the order of the Appellate Division should be reversed, with costs, and the order of Supreme Court, Rockland County, reinstated; in Largo-Chicaiza v Westchester Scaffold Equipment Corp., the order of the Appellate Division should be reversed, with costs, and the third-party complaint reinstated; and in Knauer v Anderson, the judgment appealed from and order of the Appellate Division brought up for review should be affirmed, with costs.
Fireman's Fund Insurance Company v. Abax, Inc., Defendant, Zurich American Insurance Group,
Judgment, Supreme Court, New York County (Karla Moskowitz, J.), entered July 16, 2003, which granted plaintiffs' motion for summary judgment declaring defendant Zurich American fully obligated to reimburse them for costs and indemnity incurred in the commercial plaintiffs' defense in an underlying personal injury action, denied Zurich American's cross motion for summary judgment to declare it not obligated to indemnify or defend the commercial plaintiffs, and awarded plaintiffs the principal sum of $232,357.52 against Zurich American, unanimously modified, on the law and the facts, plaintiffs' motion granted only to the extent of declaring Zurich American and Fireman's Fund co-insurers of the commercial plaintiffs, leaving Zurich American responsible to reimburse Fireman's Fund for half the costs and indemnity payments incurred in the defense of the commercial plaintiffs in the underlying action, and reducing the award to plaintiffs to the principal sum of $116,178.76, and otherwise affirmed, without costs.
Although the motion court correctly determined that the Zurich American policy did afford coverage to the commercial plaintiffs, the motion court erred nonetheless in directing Zurich American to reimburse Fireman's Fund in full for the defense costs incurred and the indemnity payments made in connection with the underlying litigation. The "other insurance" clause in the Fireman's Fund policy, which is contained in the property section of the policy, does not apply to this liability claim. As a result, the Fireman's Fund policy was not excess to the Zurich American policy; both provided primary coverage. Accordingly, Fireman's Fund and Zurich American should be considered co-insurers of the commercial plaintiffs in the underlying personal injury action, and should thus share equally in the defense costs and indemnity payments therein (see National Union Fire Ins. Co. v Hartford Ins. Co., 248 AD2d 78, 86 [1998], affd 93 NY2d 983 [1999]).
TOWN OF NEWFANE v. GENERAL STAR NATIONAL INSURANCE COMPANY
Appeals from a judgment (denominated order) of the Supreme Court, Niagara County (Ralph A. Boniello, III, J.), entered October 14, 2003. The judgment granted those parts of plaintiff's motion for partial summary judgment seeking a declaration that defendants General Star National Insurance Company and Selective Insurance have a duty to defend plaintiff in the underlying action.
It is hereby ORDERED that the judgment so appealed from be and the same hereby is unanimously modified on the law by denying that part of the motion for relief against defendant Selective Insurance, granting the cross motion of defendant Selective Insurance and granting judgment in its favor as follows: It is ADJUDGED AND DECLARED that defendant Selective Insurance is not obligated to defend or indemnify plaintiff in the underlying action and as modified the judgment is affirmed without costs.
In this matter of apparent first impression in this state, we are called upon to determine when, for purposes of invoking insurance coverage in an underlying action, the insured's alleged underlying act of malicious prosecution is deemed to have occurred on the date on which the criminal prosecution was instituted, or on the date on which it was terminated in favor of the accused. We conclude that the tort was committed when the criminal prosecution was instituted. We thus conclude that there is no coverage for a claim of malicious prosecution under an insurance policy issued after the prosecution was instituted but in effect when the prosecution was terminated.
Plaintiff, the Town of Newfane (Town), commenced this action against six insurers, seeking a judgment declaring that each is obligated to defend and indemnify the Town pursuant to a policy of insurance issued to the Town. Before us are appeals, perfected on separate records, by two insurers, defendant General Star National Insurance Company (General Star) and defendant Selective Insurance (Selective). Because both appeals are taken from a single order, we treat them together, although only the appeal of Selective involves the issue previously identified herein.
Addressing first the appeal of General Star, we conclude that Supreme Court properly granted that part of the Town's motion for partial summary judgment declaring that General Star must defend the Town in the underlying action pursuant to the provisions of a Public Officials and Employment Practices Liability Policy issued by General Star to the Town. In comparing the allegations of the underlying complaint with the policy in question (see Touchette Corp. v Merchants Mut. Ins. Co., 76 AD2d 7, 9-10), we conclude that the Town met its burden of establishing its entitlement to judgment as a matter of law (see generally Alvarez v Prospect Hosp., 68 NY2d 320, 324). The Town made the requisite showing that at least one cause of action in the underlying complaint falls within the policy's coverage, thus establishing its entitlement to a defense of the entire underlying action (see Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169, 175). In particular, the Town established that the fourth and fifth causes of action of the underlying complaint, respectively entitled "Retaliation for First Amendment Exercise" and "Respondeat Superior Liability," are covered by section II (d) of the policy, which provides that the Town's employees are covered "for their acts in the cause and scope of their employment." In addition, the Town established that the seventh and ninth causes of action of the underlying complaint, alleging negligence and the violation of civil rights, are covered by policy sections I (1) (a) and VI (5), which provide that the Town is covered for claims against it arising out of the wrongful acts of public officials. Contrary to the contention of General Star, the policy exclusions set forth in section I (2) (e) for "false arrest, false imprisonment ... [or] malicious prosecution" do not apply to those causes of action.
Turning to the appeal of Selective, we note that the Town sought partial summary judgment declaring that Selective is obligated to defend and indemnify it in the underlying action pursuant to the provisions of a commercial general liability policy issued by Selective. Selective opposed the motion and cross-moved for summary judgment declaring that it has no duty to defend or indemnify the Town in the underlying action. The court granted that part of the Town's motion seeking partial summary judgment declaring that Selective is obligated to defend the Town in the underlying action and denied Selective's cross motion. We conclude that the court should have granted Selective's cross motion.
The "Coverage Effective Date" for the Selective policy was April 26, 2000. By the terms of that policy, the Town has coverage for claims for "damages because of 'personal injury,'" which the policy defines in relevant part as "injury, other than 'bodily injury,' arising out of one or more of the following offenses: a. [f]alse arrest, detention or imprisonment; [or] b. [m]alicious prosecution ...." However, to be covered under the policy, the personal injury must have been "caused by an offense arising out of [the Town's] business," but "only if the offense [*3]was committed ... during the policy period."[FN1]
The underlying action was brought against the Town by Thomas Callahan in February 2002. The underlying complaint alleges the Town's liability for malicious prosecution, false arrest, and false imprisonment, among other torts that are undisputedly outside the coverage of the Selective policy and hence not relevant to Selective's appeal. The underlying complaint alleges that Callahan was "charged, arrested, and jailed under a warrant" on June 7, 1989 based on his alleged violation of Town Law § 268 and the Town's Zoning Ordinance; that the accusatory instrument against Callahan was subsequently amended on January 30, 1990; that Callahan was again jailed for several hours on April 9, 1990; that on June 6, 1990 he was convicted of 36 counts of violating Town Law § 268 and the Town's Zoning Ordinance; that he was sentenced and remanded to jail on July 23, 1990; that he was discharged from custody and released on his own recognizance later that day; that the judgment of conviction was reversed on appeal on July 2, 1991, at which time all but one count was dismissed; and that the criminal prosecution of Callahan on that remaining count lay dormant until November 28, 2000, when his motion to dismiss "for lack of a speedy trial and timely prosecution" was granted, resulting in the formal dismissal of that remaining count the next day.
As is the case with respect to the appeal of General Star, the issue on this appeal by Selective is whether the underlying complaint "contains any facts or allegations which bring the claim even potentially within the protection purchased" (Technicon Elecs. Corp. v American Home Assur. Co., 74 NY2d 66, 73, rearg dismissed 74 NY2d 843, rearg denied 74 NY2d 893, citing Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663, 669-670, rearg denied 54 NY2d 753; see Frontier Insulation Contrs.,91 NY2d at 175). If it does, then the insurer is under a duty to defend, which we note is broader than the insurer's duty to indemnify (see Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 310; Ruder & Finn, 52 NY2d at 669). Conversely stated, an insurer may escape the duty to defend under the policy "only if it c[an] be concluded as a matter of law that there is no possible factual or legal basis on which [the insurer] might eventually be held to be obligated to indemnify [the insured] under any provision of the insurance policy" (Spoor-Lasher Co. v Aetna Cas. & Sur. Co., 39 NY2d 875, 876; see Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 NY2d 419, 424).
We note that the Town does not respond to Selective's contention on appeal that there is no coverage under the policy for the underlying causes of action for false arrest and false imprisonment, and in any event we agree with Selective that those "offenses" were "committed" outside the effective date of the coverage in question (see generally National Cas. Ins. Co. v City [*4]of Mount Vernon,128 AD2d 332, 335-338). Thus, the sole issue before us on Selective's appeal is whether there is coverage for the underlying cause of action for malicious prosecution where the criminal prosecution was initiated before the effective date of the policy but terminated in favor of the accused during the policy period. We conclude as a matter of law that there is no coverage for an underlying malicious prosecution cause of action under such circumstances. We reach that conclusion based on the language of the policy, mindful that our task in any case involving issues of contractual interpretation is to ascertain the intent and uphold the reasonable expectations of the parties as expressed in the unequivocal language employed by them (see Breed v Insurance Co. of N. Am., 46 NY2d 351, 355, rearg denied 46 NY2d 940; Throgs Neck Bagels v GA Ins. Co. of N.Y., 241 AD2d 66, 69; see also Album Realty Corp. v American Home Assur. Co., 80 NY2d 1008, 1010, rearg denied 81 NY2d 784; Bird v St. Paul Fire & Mar. Ins. Co., 224 NY 47, 51).
We further note that our determination of the issue accords with the great weight of authority from other jurisdictions (see City of Erie, Pa. v Guaranty Natl. Ins. Co., 109 F3d 156, 160-165 [applying Pennsylvania law]; Royal Indem. Co. v Werner, 979 F2d 1299, 1300 [applying Missouri law]; Ethicon, Inc. v Aetna Cas. & Sur. Co.,688 F Supp 119, 123-127 [applying New Jersey law]; Southern Maryland Agric. Assn. v Bituminous Cas. Corp., 539 F Supp 1295, 1302-1303 [applying Maryland law]; Consulting Engrs. v Insurance Co. of N. Am.,710 A2d 82, 86-88, affd 560 Pa 247, 743 A2d 911; American Family Mut. Ins. Co. v McMullin, 869 SW2d 862, 864-865 [Mo]; Paterson Tallow Co. v Royal Globe Ins. Cos.,89 NJ 24, 30-37, 444 A2d 579, 582-586; S. Freedman & Sons v Hartford Fire Ins. Co.,396 A2d 195, 199-200 [D.C.]; Zurich Ins. Co. v Peterson, 188 Cal App 3d 438, 444-448, 232 Cal Rptr 807, 810-813; Harbor Ins. Co. v Central Natl. Ins. Co.,165 Cal App 3d 1029, 1034-1043, 211 Cal Rptr 902, 905-911; Muller Fuel Oil Co. v Insurance Co. of N. Am., 95 NJ Super 564, 576-579, 232 A2d 168, 174-175; contra Security Mut. Cas. Co. v Harbor Ins. Co., 65 Ill App 3d 198, 204-206, 21 Ill Dec 707, 711-712, 382 NE2d 1, 5-6, revd on other grounds 77 Ill 2d 446, 34 Ill Dec 167, 397 NE2d 839; Roess v St. Paul Fire & Mar. Ins. Co., 383 F Supp 1231, 1233-1235 [applying Florida law]).
In concluding that the date of the commencement of the criminal prosecution is controlling for purposes of insurance coverage, we recognize that the underlying cause of action for malicious prosecution may be premised on the initiation or continuation of a criminal proceeding without probable cause (see Smith-Hunter v Harvey, 95 NY2d 191, 195; Broughton v State of New York, 37 NY2d 451, 457, cert denied sub nom. Schanbarger v Kellogg, 423 US 929; Weaver v Town of Rush, 1 AD3d 920, 922-923). We further recognize that the cause of action for malicious prosecution did not ripen substantively or accrue for purposes of the statute of limitations until the ultimate dismissal or favorable termination of the criminal charges in November 2000 (see generally Martinez v City of Schenectady, 97 NY2d 78, 84-85; Cantalino v Danner, 96 NY2d 391, 395; Roche v Village of Tarrytown, 309 AD2d 842, 843; Nunez v City of New York, 307 AD2d 218; Matter of Ragland v New York City Hous. Auth., 201 AD2d 7, 9). Finally, we recognize that the damages incurred (such as for counsel fees) by reason of the continuation of a criminal prosecution might well be, to a corresponding extent, continuing (see Callan v State of New York, 134 AD2d 882, 883, revd on other grounds for reasons stated in dissenting mem 73 NY2d 731, mot to amend remittitur granted 74 NY2d 647; see also Ethicon, Inc.,688 F Supp at 125). However, none of those considerations determines the issue at hand, for here the policy speaks not of the date upon which an action could have been brought or the damages fully ascertained, but of when the "offense [was] committed" (S. Freedman & Sons, 396 A2d at 199; see Southern Maryland Agric. Assn., 539 F Supp at 1303).
We are unable to conclude that the "offense" of malicious prosecution was "committed" at the time of such dismissal of the criminal charges. In referring to the "offense," the policy invokes the concept of legal injury or wrong, as evinced by the policy's references to the [*5]"personal injury" being "caused by an offense" and "arising out of" an "offense." In our view, Callahan was not in any sense legally injured by the Town when the criminal prosecution against him was dismissed on his motion, and the Town at that juncture "committed" no "offense" against Callahan. In the language of the policy, the "injury" was not "caused by," nor did it "aris[e] out of," that dismissal. Both causally and temporally, therefore, we cannot attribute whatever "personal injury" was suffered by Callahan to the termination of the criminal charges against him (see Harbor Ins. Co.,165 Cal App 3d at 1036, 211 Cal Rptr at 907). Indeed, the dismissal of the criminal charges against Callahan was but the beginning of the judicial system's remediation of whatever alleged "offense" or "personal injury" may have been suffered by him. As a condition precedent to a cause of action for malicious prosecution (see City of Erie, Pa.,109 F3d at 160; S. Freedman & Sons, 396 A2d at 199; Harbor Ins. Co.,165 Cal App 3d at 1037, 211 Cal Rptr at 907; Muller Fuel Oil Co.,95 NJ Super at 577, 232 A2d at 174), the termination of the criminal prosecution in a manner favorable to the accused is required by law so that the court may be satisfied that the accused has in fact been wronged or injured.
"The theory underlying the requirement of favorable termination is that it tends to indicate the innocence of the accused ... [and thus] establishes the tort, that is, the malicious and unfounded charge ... against an innocent person. If the accused were actually convicted, the presumption of his [or her] guilt or of probable cause for the charge would be so strong as to render wholly improper any action against the instigator of the charge" (Zurich Ins. Co., 188 Cal App 3d at 444, 232 Cal Rptr at 810 [internal quotation marks omitted]).
Thus, the requirement or element of favorable termination "serves practical concerns of judicial economy, by forestalling unnecessary and unfounded actions and by facilitating proof of the remaining elements of the tort" (Harbor Ins. Co.,165 Cal App 3d at 1037, 211 Cal Rptr at 907). Indeed, the fact of favorable termination is merely part of the counterargument of the plaintiff in the underlying action to any claim or defense of the defendant therein, or any evidentiary presumption, of privilege based on probable cause (see S. Freedman & Sons, 396 A2d at 198; Harbor Ins. Co.,165 Cal App 3d at 1037, 211 Cal Rptr at 907). Moreover, in most criminal matters, the original criminal complainant quickly loses control of the prosecution to the pertinent prosecutorial authorities, meaning that the fact of termination is likewise generally outside the control of the insured. Those facts render it inappropriate in our view to equate the termination with the tortious injury or "offense" triggering insurance coverage (see S. Freedman & Sons, 396 A2d at 199; see also Southern Maryland Agric. Assn., 539 F Supp at 1303). On the other hand, to the accused, it makes little difference whether the state or an individual complainant controls the prosecution, because from the accused's standpoint, the injury or offense has been incurred upon the filing of a criminal complaint with malice and without probable cause (see Zurich Ins. Co., 188 Cal App 3d at 448, 232 Cal Rptr at 813). Finally, it bears noting that the failure of the accused to secure a favorable termination of the criminal proceeding before suing for malicious prosecution would by no means negate the obligation of an insurer to defend its insured against such a premature and groundless cause of action (see S. Freedman & Sons, 396 A2d at 199; see also Southern Maryland Agric. Assn., 539 F Supp at 1303). It therefore follows that the date of termination of the criminal prosecution cannot itself constitute the date on which the injury or "offense was committed" within the meaning of the policy (see S. Freedman & Sons, 396 A2d at 199).
In our view, the "offense" of malicious prosecution was "committed," for purposes of determining the issue of insurance coverage, in 1989, more than a decade before the effective date of the Selective policy. That "offense was committed" when the prosecution was instituted, allegedly without probable cause (see Southern Maryland Agric. Assn., 539 F Supp at 1302; Consulting Engrs.,710 A2d at 85-88; Paterson Tallow Co., 89 NJ at 36-37, 444 A2d at 586; S. [*6]Freedman & Sons, 396 A2d at 199; Harbor Ins. Co.,165 Cal App 3d at 1035-1037, 211 Cal Rptr at 906-908). Such initiation of the criminal prosecution is the essence or gist of the tort of malicious prosecution (see S. Freedman & Sons, 396 A2d at 199; Muller Fuel Oil Co.,95 NJ Super at 577, 232 A2d at 174; Harbor Ins. Co.,165 Cal App 3d at 1036, 211 Cal Rptr at 907). Moreover, the legal injury or "offense" incurred by the plaintiff in the underlying action (albeit not necessarily the damages or liability incurred as a result of that "offense") is the same irrespective of whether the criminal prosecution was known to be baseless when it was initiated or only subsequently demonstrated to be lacking in merit (see Ethicon, Inc.,688 F Supp at 126-127; see also National Cas. Ins. Co.,128 AD2d at 337). Here, therefore, the injury to the plaintiff in the underlying action was contemporaneous with the initiation of the criminal proceeding against him and hence complete long before the inception of coverage and the incidental termination of the criminal prosecution (see National Cas. Ins. Co.,128 AD2d at 337; see also Ethicon, Inc.,688 F Supp at 125; American Family Mut. Ins. Co., 869 SW2d at 864-865; Muller Fuel Oil Co.,95 NJ Super at 577, 232 A2d at 174-175). We thus conclude that, for purposes of determining insurance coverage, malicious prosecution is not a continuing tort (see Zurich Ins. Co., 188 Cal App 3d at 440, 232 Cal Rptr at 808; Harbor Ins. Co., 165 Cal App 3d at 1037-1038, 211 Cal Rptr at 908). We further conclude that the policy is to be construed as "fixing the point of coverage for malicious prosecution at one readily ascertainable date: the date on which the acts [we]re committed that [might] result in ultimate liability" (Paterson Tallow Co., 89 NJ at 35 n 5, 444 A2d at 585 n 5), or "when the alleged tortfeasor t[ook the] action resulting in the application of the [s]tate's criminal process to the [plaintiff in the underlying action]" (Southern Maryland Agric. Assn., 539 F Supp at 1302, citing S. Freedman & Sons, 396 A2d 195).
In our view, it would make no sense to adopt the position advanced by the Town that the "offense" was not "committed" until termination of the criminal prosecution. To do so would be to interpret the Selective policy as covering the Town for its alleged malicious prosecution of Callahan but not for its alleged false arrest and false imprisonment of him, even though all of those alleged "offense[s]" were contemporaneously "committed" by the same officials, employees or agents of the Town. Further, to adopt the position advanced by the Town would mean that whichever insurer or insurers provided coverage to the Town in 1989 and 1990 would necessarily have no obligation to defend and indemnify the Town for malicious prosecution, despite being subject to defending and indemnifying the Town for the false arrest and false imprisonment allegedly "committed" by the same Town officials, employees or agents at the same general time. Moreover, to hold that Selective is liable to provide a defense to the Town and possibly indemnify it for malicious prosecution would lead to the unreasonable inference that, upon issuing the policy, Selective intended to assume liability for damages arising from tortious acts "committed" at least a decade earlier (see Consulting Engrs.,710 A2d at 88; Harbor Ins. Co.,165 Cal App 3d at 1041, 211 Cal Rptr at 910; see also Muller Fuel Oil Co.,95 NJ Super at 577, 232 A2d at 175). Additionally, such a result would give an unscrupulous tortfeasor license to foist its tort liability onto an unwary insurer (see City of Erie, Pa.,109 F3d at 160-161; Royal Indem. Co.,979 F2d at 1300; Consulting Engrs.,710 A2d at 88; Muller Fuel Oil Co.,95 NJ Super at 577-578, 232 A2d at 175), such as by procuring insurance coverage for malicious prosecution at any time during the pendency of the criminal prosecution, even just prior to an anticipated acquittal or other dismissal (see Muller Fuel Oil Co.,95 NJ Super at 577-578, 232 A2d at 175). Conversely, to afford coverage based upon a supposed delay between the initiation of the allegedly wrongful criminal prosecution and the commission of the "offense" would allow an insurer to terminate coverage before incurring any liability for a claim of personal injury arising from a criminal prosecution initiated during the policy period (see Consulting Engrs.,710 A2d at 87).
In view of our determination, we do not reach the remaining issues raised by the parties. Accordingly, we conclude that the judgment should be modified by denying that part of the Town's motion for relief against Selective, granting Selective's cross motion, and declaring that Selective is not obligated to defend or indemnify the Town in the underlying action.
Entered: November 19, 2004
Footnote 1: By the terms of the policy, the Town further has coverage for claims for "damages because of 'bodily injury,'" which the policy defines as "bodily injury, sickness, or disease sustained by a person ...." However, in order for such claim to be covered, the bodily injury must have been "caused by an 'occurrence'" defined as an "accident, including the continuous or repeated exposure to substantially the same general harmful conditions" and must have occurred "during the policy period." The Town inappropriately contends for the first time on appeal that it has coverage under that provision of the policy for the underlying cause of action for negligence, and that contention therefore is not properly before us (see Killeen v Crosson, 284 AD2d 926, 927; Sovik v Healing Network, 244 AD2d 985, 988).
New York Central Mutual Fire Insurance Company v. Drasgow
Appeal from an order of the Supreme Court, Erie County (Donna M. Siwek, J.), entered June 17, 2003. The order granted the petition to vacate an arbitration award and denied respondent's petition to confirm the award.
Memorandum: Supreme Court properly granted the petition seeking to vacate the arbitration award directing petitioner to pay additional personal injury protection (APIP) benefits to respondent. Respondent was injured in an automobile accident on February 20, 1999 while operating a vehicle that belonged to a relative. That vehicle was insured by State Farm Insurance Company (State Farm), and respondent received no-fault insurance benefits from State Farm. On February 3, 2000, respondent, through an attorney whom she had recently retained, gave petitioner written notice of her claim for APIP benefits. Petitioner denied the claim because respondent failed to give notice within 90 days of the accident as required by respondent's policy with petitioner. The parties proceeded to arbitration and the arbitrator determined that it was impossible for respondent to have given notice within 90 days because she was unaware of the seriousness of her condition until February 2000. That determination was upheld by the master arbitrator. Petitioner sought to have the award vacated and respondent petitioned for confirmation of the award.
As a preliminary matter, the court properly determined that it could not disturb the award on the ground that it was based upon an error of law, as urged by petitioner, but only on the ground that it lacked a rational basis (see Matter of Allen [New York State], 53 NY2d 694, 696; see also CPLR 7511 [b] [1]). The policy required respondent to give notice "as soon as reasonably practicable, but in no event more than 90 days after the date of the accident, unless the eligible injured person submits written proof that it was impossible to comply with such time limitation due to specific circumstances beyond such person's control." We note that this notice requirement is more stringent than notice requirements for supplemental underinsured motorist benefits, which typically require notice as soon as practicable (see e.g. Medina v State Farm Mut. [*2]Auto. Ins. Co.,303 AD2d 987, 988; see generally Matter of Metropolitan Prop. & Cas. Ins. Co. v Mancuso,93 NY2d 487, 494-495). Even assuming, arguendo, that respondent was not aware of the seriousness of her injuries until February 2000, the record establishes that respondent sought medical treatment for her injuries two days after the accident and, because her symptoms continued to worsen, she was referred to a specialist, who, among other things, ordered an MRI within the 90-day period. That physician thereafter referred respondent to a neurosurgeon who ultimately advised respondent that surgery was required. Thus, we conclude that there is no rational basis for the arbitrator's finding that it was impossible for respondent to provide notice to petitioner within the 90-day period because of circumstances beyond her control, as required by the policy.
All concur except Pine, J.P., and Lawton, J., who dissent and vote to reverse in accordance with the following Memorandum: We respectfully dissent. We concur with the majority that Supreme Court properly determined that it could not disturb the arbitrator's award on the ground that it was based upon an error of law. We differ only with the majority's holding that "there is no rational basis for the arbitrator's finding that it was impossible for respondent to provide notice to petitioner within the 90-day period." Because the finding of the arbitrator was based upon the weighing of factual matters and the record supports that determination, the court is powerless to substitute its determination for that of the arbitrator (see Matter of United Fedn. of Teachers, Local 2, AFT, AFL-CIO v Board of Educ. of City School Dist. of City of N.Y., 1 NY3d 72, 83; Matter of New York State Correctional Officers & Police Benevolent Assn. v State of New York, 94 NY2d 321, 326; Matter of Singleton [Fireman's Fund Ins. Co.], 247 AD2d 868). We would therefore reverse the order, deny petitioner's petition, grant respondent's petition and confirm the arbitrator's award.
Makuch v. New York Central Mutual Insurance
Memorandum: Plaintiffs commenced this action for a declaratory judgment and damages alleging breach of contract, breach of duty of good faith, and the violation of General Business Law § 349 after defendant partially disclaimed coverage under a homeowner's policy for damage caused when a falling tree struck plaintiffs' home. In lieu of an answer, defendant moved to dismiss the third and fourth causes of action, for breach of duty of good faith and the violation of section 349, respectively, including any claims for punitive damages. Supreme Court erred in denying that part of defendant's motion seeking to dismiss the third cause of action. Even giving the amended complaint a liberal construction and accepting the facts alleged therein as true (see Leon v Martinez, 84 NY2d 83, 87-88; see also Guggenheimer v Ginzburg, 43 NY2d 268, 274-275), we conclude that the amended complaint fails to state a tort independent of the parties' contractual obligations (see New York Univ. v Continental Ins. Co., 87 NY2d 308, 316). At most, plaintiffs allege that defendant induced them to enter into a contract that defendant did not intend to honor; such allegations do not state a cause of action in fraud (see 767 Third Ave. LLC v Greble & Finger, 8 AD3d 75, 76; Barington Capital Group v Arsenault, 281 AD2d 166, 166-167; Bronx Store Equip. Co. v Westbury Brooklyn Assoc., 280 AD2d 352). Allegations that defendant violated "the implicit contractual duties of good faith and fair dealing" are not sufficient to state a "violation of a duty independent of the contract" (Scavo v Allstate Ins. Co., 238 AD2d 571, 572; see New York Univ., 87 NY2d at 319-320). We therefore modify the order by granting defendant's motion in part and dismissing the third cause of action.
The court properly denied that part of defendant's motion seeking dismissal of the fourth cause of action. Plaintiffs have set forth sufficient factual allegations that defendant's conduct was consumer-oriented, that the conduct was misleading in a material way, and that plaintiffs suffered injury as a result of the deceptive acts (see Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 25). In particular, the allegations that the forms making up plaintiffs' insurance policy are standard and regularly used by defendant are sufficient to support the allegation that defendant's actions are consumer-oriented (see Acquista v New York Life Ins. Co., 285 AD2d 73, 82-83; cf. New York Univ., 87 NY2d at 321). We thus conclude that, "[a]t this early prediscovery phase, these allegations sufficiently plead violations of General Business Law § 349" (Skibinsky v State Farm Fire & Cas. Co., 6 AD3d 975, 976).
Matter of State Farm Mutual Automobile Insurance Companies v. Jackson
Appeal from an order of the Supreme Court, Erie County (Joseph R. Glownia, J.), entered October 21, 2003. The order, among other things, denied the petition for a permanent stay of arbitration.
It is hereby ORDERED that the order so appealed from be and the same hereby is unanimously reversed on the law without costs and the matter is remitted to Supreme Court, Erie County, for further proceedings in accordance with the following Memorandum: In this proceeding to stay arbitration of an insurance dispute, Supreme Court erred in denying petitioner's request for a jury trial of the issue whether respondent was a resident of the household of his mother and thus covered under her automobile insurance policy. "[T]he right to a trial by jury is zealously protected in our jurisprudence and yields only to the most compelling circumstances" (John W. Cowper Co. v Buffalo Hotel Dev. Venture, 99 AD2d 19, 21). "Although the CPLR does not make express provision for trial by jury of matters preliminary to arbitration, it was not the intent of the framers to eliminate trial by jury where constitutionally required or desirable" (Anthony Drugs of Bethpage v Local 1199 Drug & Hosp. Union, AFL-CIO, 34 AD2d 788, 788; see generally CPLR 410). A jury trial is appropriate where, as here, there is a factual issue preliminary to arbitration pursuant to an uninsured motorist claim (see Matter of Rosenbaum [American Sur. Co. of N.Y.], 11 NY2d 310, 313; see also Matter of Motor Veh. Acc. Indem Corp. [Stein], 23 AD2d 526, 527). We therefore reverse the order in appeal No. 2 and remit the matter to Supreme Court for a jury trial. We dismiss appeal No. 1 as subsumed in the final order (see CPLR 5501 [a] [1]).
Wynn v. Security Mututal Insurance Company
Appeal from an order of the Supreme Court, Monroe County (William P. Polito, J.), entered December 31, 2002. The order granted defendants' motion for summary judgment dismissing the amended complaint.
Memorandum: Plaintiff commenced this action on January 18, 2002 seeking damages for the allegedly fraudulent conduct of defendants in their refusal to provide plaintiff with coverage under a homeowner's insurance policy issued by defendant Security Mutual Insurance Co. and procured through defendant Steinmiller Associates, Inc. Defendants moved for summary judgment on the grounds that the action is barred by res judicata and that the action is barred by the six-year statute of limitations for fraud. Supreme Court granted defendants' motion on both grounds.
We agree with plaintiff that, because two prior actions sounding in fraud and commenced in Rochester City Court against Security Mutual Insurance Co. were dismissed based upon plaintiff's failure to obtain personal jurisdiction, neither dismissal was the equivalent of a final disposition "on the merits," and the doctrine of res judicata does not apply (see Lamar Outdoor Adv. v City Planning Comm'n of Syracuse, 296 AD2d 841, 842, citing Kokoletsos v Semon, 176 AD2d 786, 787, and Van Dussen-Storto Motor Inn v Rochester Tel. Corp., 63 AD2d 244, 249). We nonetheless conclude that defendants made a prima facie showing of entitlement to judgment as a matter of law on the ground that this action is barred by the six-year limitations period for fraud (see CPLR 213 [8]), and plaintiff failed to raise a triable issue of fact in opposition (see Alvarez v Prospect Hosp., 68 NY2d 320, 324). In support of their motion, defendants submitted evidence establishing that the alleged fraud occurred, at the latest, in May 1995 and that this action was commenced on January 18, 2002, which is outside the six-year limitations period. In opposition, plaintiff did not submit any evidence in admissible form establishing the existence of facts to the contrary.
Plaintiff's remaining contention is not preserved for our review and is in any event [*2]meritless.
PRESENT: McCABE, P.J., COVELLO and TANENBAUM, JJ.
2004-57 N C
S & M SUPPLY INC. a/a/o Michael Monsignal, Appellant,
Appeal by plaintiff from so much of an order of the District Court, Nassau County (S. Pardes, J.), entered on November 3, 2003, as denied its motion for summary judgment.
In this action to recover no-fault benefits for medical services rendered to its assignor, plaintiff health care provider established a prima facie entitlement to summary judgment by proof that it submitted the statutory claim form, setting forth the fact and the amount of the loss sustained (see Insurance Law § 5106 [a]; New York Hosp. Med. Ctr. of Queens v New York Cent. Mut. Fire Ins. Co., 8 AD3d 640 [2004]; Mary Immaculate Hosp. v Allstate Ins. Co., 5 AD3d 742 [2004]; Damadian MRI in Elmhurst v Liberty Mut. Ins. Co., 2 Misc 3d 128 [A], 2003 NY Slip Op 51700 [U] [App Term, 9th & 10th Jud Dists]). Inasmuch as defendant failed to pay or deny the claim within the 30-day claim determination period (11 NYCRR 65.15 [g] [3]), it is precluded from raising most defenses (see Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d 274, 282 [1997]).
However, defendant is not precluded from asserting the defense that the collision was in furtherance of an insurance fraud scheme, despite the untimely denial of plaintiff's claim (see Matter of Metro Med. Diagnostics v Eagle Ins. Co., 293 AD2d 751 [2002]). The affidavit submitted by defendant's special investigator was sufficient to demonstrate that defendant's denial was based upon a "founded belief that the alleged injur[ies] do[] not arise out of an [*2]insured incident" (Central Gen. Hosp. v Chubb Group of Ins. Cos., 90 NY2d 195, 199 [1997]). Accordingly, since defendant demonstrated the existence of a triable issue of fact as to whether there was a lack of coverage (see id.; Zuckerman v City of New York, 49 NY2d 557 [1980]), plaintiff's motion for summary judgment was properly denied.
Decision Date: November 19, 2004
MATTER OF THE ARBITRATION BETWEEN NEW YORK CENTRAL MUTUAL FIRE INSURANCE COMPANY, PETITIONER-RESPONDENT, AND DAVID BETT, RESPONDENT-APPELLANT.
Appeal from an order of the Supreme Court, Erie County (Donna M. Siwek, J.), entered May 14, 2003. The order granted the petition for a permanent stay of arbitration.
It is hereby ORDERED that the order so appealed from be and the same hereby is affirmed without costs for reasons stated in decision at Supreme Court.
All concur except Gorski, J., who dissents and votes to reverse in accordance with the followingMemorandum: I respectfully disagree with the position taken by the majority. I conclude that it was error to grant the petition to stay arbitration of this insurance dispute.
In its decision, Supreme Court acknowledged that, on January 3, 2002, respondent, a pedestrian, was struck by an unidentified car driven by an unidentified driver and sustained personal injuries. The court also acknowledged that petitioner issued a motor vehicle liability policy with a supplementary uninsured motorists (SUM) endorsement to respondent that was in effect on January 3, 2002. The court concluded that respondent's November 6, 2002 notice to petitioner that respondent intended to seek SUM benefits under his policy was untimely.
It is apparent from the record, however, that, on January 10, 2002, just one week after the accident, respondent gave a recorded statement to an independent insurance adjusting company at petitioner's request. That recorded statement was reduced to a written transcript and signed by respondent on January 21, 2002. It indicated that the vehicle that struck him could not be identified because it left the scene. The statement also indicated that respondent did not see the vehicle that struck him and could not identify the make or model of the vehicle because he was struck from behind. The statement further set forth the extent and nature of the injuries suffered by respondent. It is undisputed that respondent timely submitted a claim for no-fault benefits to petitioner.
By letter dated November 6, 2002, respondent's attorney placed petitioner on notice of a potential SUM claim. On November 19, petitioner denied SUM coverage on the ground of late [*2]notice. On December 12, petitioner received a demand for arbitration, and subsequently brought the instant petition to stay the arbitration. As noted above, the court granted the petition and permanently stayed the arbitration, holding that respondent failed to timely notify petitioner of his claim for SUM benefits under his policy. The court determined that respondent did not give notice of his SUM claim "as soon as practicable," a condition of SUM coverage set forth in the policy.
Respondent, who suffered a fractured arm that required surgery, received no-fault benefits from petitioner. He could only have received those benefits pursuant to Insurance Law § 5103 (a) (2), which requires insurers to provide coverage to their policyholders "for loss arising out of the use or operation of ... an uninsured motor vehicle."
I therefore believe that the requirement that respondent provide his insurer with notice of his claim "as soon as practicable" was met by the recorded statement given to the insurer one week after the accident, fully detailing the claim. "Construing the notice liberally in [respondent's] favor, [respondent] provided [his] insurer with sufficient notice of a claim for uninsured motorist coverage" (Matter of Merchants Mut. Ins. Co. v Falisi, 99 NY2d 568, 569, rearg denied 100 NY2d 535). I believe that it is "inconsistent and inequitable" for petitioner to contend that it did not have timely notice of respondent's claim for SUM benefits after petitioner took a recorded, signed statement of respondent 10 months earlier containing all of the essential elements of such claim (Matter of New York Cent. Mut. Fire Ins. Co. [Guarino], ___ AD3d ___, ___ [Oct. 1, 2004]).
I would therefore reverse the order and deny the petition.
Desulme v. Stanya
In an action to recover damages for personal injuries, the defendant Joseph Ramek appeals from so much of an order of the Supreme Court, Nassau County (Brandveen, J.), dated June 17, 2003, as, upon reargument, denied his motion for summary judgment dismissing the complaint insofar as asserted against him on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d).
The Supreme Court properly determined, upon reargument, that the affidavit of the plaintiff's treating physician submitted on the prior motion was sufficient to raise a triable issue of fact. The plaintiff's physician stated that he had objectively measured the plaintiff's range of motion with a goniometer, and recorded a loss of 30% on extension of the cervical spine and of 60% on extension of the lumbar spine. Moreover, since the appellant had already put before the Supreme Court certain unsworn magnetic resonance imaging reports indicating the existence of bulging discs in the lumbar and cervical spines, it was proper for the plaintiff's physician to rely upon those reports (see Pietrocola v Battibulli, 238 AD2d 864, 866). Finally, the Supreme Court providently accepted the plaintiff's proffered explanation for the gap in time between the end of his medical treatments and his re-examination by his physician in June of 2002.
Accordingly, the Supreme Court properly determined, upon reargument, that the appellant was not entitled to summary judgment dismissing the complaint insofar as asserted against him.
Lynch v. Progressive Insurance Company
In an action to recover unpaid no-fault insurance benefits, the plaintiff appeals from an order of the Supreme Court, Dutchess County (Pagones, J.), dated August 7, 2003, which denied his motion for summary judgment and granted the defendant's cross motion for summary judgment dismissing the complaint.
ORDERED that the order is modified, on the law, by deleting the provision thereof granting the cross motion and substituting therefor a provision denying the cross motion; as so modified, the order is affirmed, with costs payable to the plaintiff, and the complaint is reinstated.
There are issues of fact which precluded the granting of the defendant's cross motion for summary judgment dismissing the complaint (see Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 404), including whether the plaintiff was intoxicated at the time of the accident within the meaning of the no-fault insurance law (see Insurance Law § 5103[b][2]; Vehicle and Traffic Law § 1192[2],[3]), and whether his intoxication was a proximate cause of the accident (see Scahall v Unigard Ins. Co., 222 AD2d 1070; North v Travelers Ins. Co., 218 AD2d 901, 902; Cernik v Sentry Ins., 131 AD2d 952 ).
HON. LUCINDO SUAREZ, P.J.
HON. PHYLLIS GANGEL-JACOB, Justices.
NORTH NEW YORK MEDICAL CARE, P.C., a/a/o JULIO CRUZ, 570160/04 STEVEN ROSA, Plaintiff-Appellant,
Plaintiff appeals from an order of the Civil Court, Bronx County, entered on or about January 13, 2004 (Irving Rosen, J.) which denied its motion for summary judgment.
Order entered on or about January 13, 2004 (Irving Rosen, J.) reversed, with $10 costs, plaintiff's motion for summary judgment is granted and the matter is remanded to the Civil Court for (1) the assessment of reasonable attorney's fees pursuant to Insurance Law § 5106(a) and the regulations promulgated thereunder, and (2) the entry of a judgment in favor of plaintiff and against defendant in the principal sum of $12,836.22, plus appropriate interest and attorney's fees (see St. Clare's Hospital v State Farm Mutual Automobile Insurance Co., 215 AD2d 641 [1995]).
Plaintiff seeks to recover first party no-fault insurance benefits for medical services rendered to its assignors who were injured in an automobile accident. Plaintiff made a prima facie showing that defendant failed to pay or deny the claims within 30 days after defendant received plaintiff's demands (see Insurance Law § 5106 [a] and 11 NYCRR [*2]65.15[g][3]; Presbyterian Hospital in the City of New York v Maryland Casualty Company, 90 NY2d 274, 278 [1997]) and that payment of plaintiff's claims was overdue. The sworn statement of plaintiff's billing manager that the claim forms were mailed to defendant on the date each was signed [FN1] is uncontradicted on this record. Accordingly, plaintiff's unopposed motion for summary judgment should have been granted (see CPLR 3212[b]).
Decision Date: November 24, 2004
Footnote 1: The record contains forms signed October 2, 2002, October 8, 2002, October 16, 2002 and November 6, 2002 for the claims with respect to Julio Cruz and September 30, 2002, October 8, 2002, October 29, 2002, November 6, 2002 and November 26, 2002 for the claims with respect to Steven Rosa.
NICHOLAS DAISERNIA, Plaintiff, and B. LOUISE ROBERTS, Appellant,
MICHELLE E. THOMAS et al., Respondents.
Calendar Date: October 15, 2004
Before: Crew III, J.P., Spain, Mugglin, Rose and Kane, JJ.
Kriss, Kriss, Brignola & Persing L.L.P., Albany
(Daniel J. Persing of counsel), for appellant.
Maynard, O'Connor, Smith & Catalinotto L.L.P.,
Albany (Michael T. Snyder of counsel), for respondents.
Appeal from an order of the Supreme Court (Spargo, J.), entered July 2, 2003 in Greene County, which granted defendants' motion for summary judgment dismissing the complaint.
The only question in this personal injury action is whether plaintiff B. Louise Roberts (hereinafter plaintiff) has submitted sufficient evidence to show that her shoulder injury is causally related to the accident so as to prevent summary judgment. Agreeing with Supreme Court that plaintiff has not met her burden on the serious injury threshold, we affirm.
Plaintiff was a passenger in a car rear-ended by another vehicle owned by one defendant and operated by another defendant. Plaintiff was removed from the car on a backboard and taken to the hospital, where she was diagnosed with cervical and lumbar sprains and released. Although her bill of particulars indicated that she suffered injuries to her upper back, shoulder blades, neck and right shoulder, she testified several times at her examination before trial that her complaints were limited to her back injuries and that any complaints with regard to her shoulder were not related to this car accident. Based on that testimony, plaintiff's medical records and the report and affidavit from their independent medical examiner, defendants moved for summary [*2]judgment dismissing the complaint on the ground that plaintiff failed to meet the serious injury threshold imposed by Insurance Law § 5102 (d). Supreme Court granted that motion.
Defendants' submissions met their initial burden of showing that plaintiff did not suffer a serious injury causally related to the accident (see Drexler v Melanson, 301 AD2d 916, 917 [2003]). The burden then shifted to plaintiff to produce competent medical evidence creating a genuine factual issue concerning the existence of such a serious injury (see Gaddy v Eyler, 79 NY2d 955, 956-957 [1992]; John v Engel, 2 AD3d 1027, 1028 [2003]). Plaintiff failed to meet that burden. Her own testimony repeatedly confirmed that she was not seeking recovery for her shoulder injury, as treatment of that injury was pre-existing and unrelated to this accident. The emergency room records do not mention any complaints related to the shoulder. Her records from other medical providers note a history of prior shoulder problems, and no provider ever specifically causally linked any shoulder injury to the accident (see Franchini v Palmieri, 307 AD2d 1056, 1057 [2003], affd 1 NY3d 536 [2003]). Plaintiff cannot create questions of fact to avoid summary judgment by contradicting her own deposition testimony through her self-serving affidavit submitted in opposition to the motion (see Campagnano v Highgate Manor of Rensselaer, 299 AD2d 714, 715 [2002]). Even if her affidavit was sufficient to show that she was restricted from performing substantially all of her usual and customary daily activities for 90 out of the first 180 days following the accident, any serious injury under that category must still be supported by medical evidence based upon objective findings and tests substantiating the injury and connecting it to the accident (see Drexler v Melanson, supra at 918; June v Gonet, 298 AD2d 811, 812 [2002]). Based on plaintiff's failure to causally connect her shoulder injury to the accident, as required to meet her burden on the serious injury threshold, Supreme Court properly granted defendants' motion dismissing the complaint.
Crew III, J.P., Spain, Mugglin and Rose, JJ., concur.
KEVIN P. SMITH, Respondent,
NEW YORK CENTRAL MUTUAL FIRE INSURANCE COMPANY, Appellant. (And a Third-Party Action.)
Flink Smith & Associates L.L.C., Latham (Jeffrey D.
Mlynarski & Cawley P.C., Binghamton (Joseph F.
Cawley Jr. of counsel), for respondent.
Appeal from an order and judgment of the Supreme Court (Relihan Jr., J.), entered December 16, 2003 in Broome County, which, inter alia, denied defendant's motion for summary judgment dismissing the complaint and declared that defendant was required to defend and indemnify plaintiff in an underlying tort action.
It is undisputed that at about 10:00 P.M. on July 23, 1999, plaintiff, angered that the vehicle he was driving had been struck by eggs thrown by unknown persons from a park in the City of Binghamton, Broome County, drove to his parents' nearby home where he resided, retrieved a wooden baseball bat and returned to the park. Upon seeing three individuals whom he believed were responsible, he pursued them and they fled. Plaintiff quickly caught up to one of them, John Perhach. Just as Perhach started to fall or slide, plaintiff struck him in the back of the head with the bat, causing injuries to the back of Perhach's head. Perhach declined plaintiff's offers of help and was treated at an emergency room. Plaintiff later entered a guilty plea to assault in the third degree (see Penal Law § 120.00 [3] [negligent assault]) for negligently causing physical injury to Perhach. [*2]
Perhach and his parents commenced a personal injury action against plaintiff an additional insured under his parents' homeowners' policy with defendant alleging causes of action for intentional tort and negligence. Defendant disclaimed coverage, based upon the policy exclusion for bodily injury "which is expected or intended by the insured" and on the ground that there was no "occurrence" under the policy because the insured's conduct was intentional, not accidental. In that underlying action, Supreme Court (Monserrate, J.) granted the Perhachs' motion for partial summary judgment against plaintiff on the issue of negligence liability based upon plaintiff's guilty plea, but found that plaintiff had raised a triable issue of fact for a jury on his defenses that Perhach had assumed the risk of injury and contributed to his own injuries.
Plaintiff then commenced this action seeking a declaration that the insurer is required to defend and indemnify him in connection with the Perhachs' underlying action, and defendant commenced a third-party action against the Perhachs for a declaration of noncoverage. On the parties' cross motions for summary judgment, Supreme Court granted plaintiff's cross motion and denied defendant's motion, finding that defendant was obligated to defend plaintiff in the underlying action and indemnify him for any damages awarded on the negligence claim in that action, but not their intentional tort claim. On defendant's appeal, we agree that it is not obligated to defend or indemnify plaintiff in connection with the underlying action and, thus, reverse.
Under settled principles, "[i]f any of the claims against the insured arguably arise from covered events, the insurer is required to defend the entire action" (Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169, 175 [1997]; see Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377, 383 [2003]). In determining whether the policy exclusion for injuries intended or expected by the insured applies, the dispositive inquiry is whether the harm that resulted to the victim from this assault could have been other than harm "expected or intended" by the insured, i.e., "'whether there is any possible factual or legal basis upon which to find that the bodily injuries inflicted upon [Perhach] were not 'expected or intended' by [plaintiff]'" (Pennsylvania Millers Mut. Ins. Co. v Rigo, 256 AD2d 769, 770 [1998], quoting Home Mut. Ins. Co. v Lapi, 192 AD2d 927, 928 [1993]; see Allstate Ins. Co. v Mugavero, 79 NY2d 153, 159 [1992]; Doyle v Allstate Ins. Co., 255 AD2d 795 [1998]; Pistolesi v Nationwide Mut. Fire Ins. Co., 223 AD2d 94, 95 [1996], lv denied 88 NY2d 816 [1996]).
Here, a review of the record reveals that the harm to the victim was inherent in the nature of the acts alleged (and admitted by plaintiff) and that the harm flowed directly and immediately from plaintiff's intentional acts and, thus, the resulting injuries were intentional and expected, as a matter of law (see Allstate Ins. Co. v Mugavero, supra; Pistolesi v Nationwide Mut. Fire. Ins. Co., supra at 97). At his examination before trial in this action, plaintiff testified that he pursued Perhach believing that he was responsible for the egg throwing; that he saw Perhach stumble, and then, holding the bat with both hands, he swung it "as though [he] were batting," striking the back of Perhach's head, and that Perhach was looking away from him when he swung the bat. Clearly, Perhach's injuries flowed directly from plaintiff's purposeful act, which permits no interpretation other than that the injuries were expected and intended (see Peters v State Farm Fire & Cas. Co., 306 AD2d 817 [2003], affd 100 NY2d 634 [2003]; Pennsylvania Millers Mut. Ins. Co. v Rigo, supra).
Plaintiff's reliance upon the fact that he received a favorable plea to a crime involving negligence is unavailing, and "does not necessarily foreclose finding that the underlying conduct [*3]falls within an insurance policy's intentional acts exclusion" (Carmean v Royal Indem. Co., 302 AD2d 670, 672 [2003]; see Peters v State Farm Fire & Cas. Co., supra; Pennsylvania Millers Mut. Ins. Co. v Rigo, supra at 770-771). Likewise, plaintiff's claims and self-serving testimony that he was only trying to "scare" Perhach or "catch" him and never intended to hit him in the head are unsupported, conclusory and not credible as a matter of law (see Pennsylvania Millers Mut. Ins. Co. v Rigo, supra at 771). When questioned, plaintiff offered no explanation for how swinging the bat could have scared the fleeing victim, whose back was turned to plaintiff, and he admitted that he saw the victim stumble before he swung and could have tackled him rather than swung the bat. Also, while the complaint in the underlying action contains a cause of action based upon negligence, "this claim is conclusory and unsupported by any facts contained in the record" (id. at 771; see Peters v State Farm Fire & Cas. Co., supra at 817-818, cf. Merrimack Mut. Fire. Ins. Co. v Carpenter, 224 AD2d 894, 895 [1996], lv dismissed 88 NY2d 1016 [1996]). Indeed, an insurer's duty to defend derives from the terms of the insured's policy and not from the allegations in a complaint drafted by a third party such as the Perhachs (see Fitzpatrick v American Honda Motor Co., 78 NY2d 61, 65-68 [1991]). Under the circumstances of this case, the injuries sustained by Perhach as a result of plaintiff's intentional actions cannot be characterized as unexpected or unintended and, thus, as a matter of law fall within the policy exclusion, entitling the insurer to summary judgment and requiring denial of plaintiff's cross motion.
ORDERED that the order and judgment is reversed, on the law, with costs, plaintiff's cross motion denied, defendant's motion granted, summary judgment awarded to defendant and complaint dismissed, and it is declared that defendant has no duty to defend or indemnify plaintiff in the underlying action.
Dennis Anastasis, appellant,
American Safety Indemnity Company, et al., respondents. (Index No. 12043/03)
Tonino Sacco, P.C., Whitestone, N.Y. (Luigi Brandimarte of
Lewis, Johs, Avallone, Aviles & Kaufman, LLP, Melville, N.Y.
(Kerry Bassett and Michael G.
Kruzynski of counsel), for respondents
American Safety Indemnity Company and
Apex Insurance Managers, LLC.
In an action for a judgment declaring that the defendant American Safety Indemnity Company is obligated to defend and indemnify the defendant Gotham City Night Club, Inc., d/b/a World Bar Lounge, in an underlying action entitled Anastasis v Gotham City Night Club, Inc., d/b/a World Bar Lounge, pending in the Supreme Court, Queens County, under Index No. 31502/02, the plaintiff appeals, as limited by its brief, from so much of an order and judgment (one paper) of the Supreme Court, Queens County (Satterfield, J.), dated October 6, 2003, as, in effect, granted that branch of the motion of the defendants American Safety Indemnity Company and Apex Insurance Managers, LLC, which was to declare that American Safety Indemnity Company is not obligated to defend and indemnify the defendant Gotham City Night Club, Inc., d/b/a World Bar Lounge in the underlying action.
ORDERED that the order and judgment is reversed insofar as appealed from, on the law, with costs, that branch of the motion of the defendants American Safety Indemnity Company and Apex Insurance Managers, LLC, which was to declare that American Safety Indemnity Company is not obligated to defend and indemnify the defendant Gotham City Night Club, Inc., d/b/a World Lounge, in the underlying action is denied, and it is declared that American Safety Indemnity Company is obligated to defend the defendant Gotham City Night Club, Inc., d/b/a World Bar Lounge, in the underlying action.
At issue in this case is whether, as a matter of law, based upon the plaintiff's pleadings, the incident in question fell within the battery exclusion of the insurance policy. An [*2]exclusion for assault and/or battery applies if no cause of action would exist "but for" the assault and/or battery (Mount Vernon Fire Ins. Co. v Creative Hous., 88 NY2d 347, 353).
In the underlying action to recover damages for personal injuries against the insured, Gotham City Night Club, Inc., d/b/a World Bar Lounge (hereinafter the World Bar Lounge), the plaintiff alleged that he was "lawfully and properly traversing the premises" when he "was caused to be struck about his person, and be precipitated to the ground" as a result of the negligence of World Bar Lounge. In his verified complaint in the instant action for a judgment declaring that the insurance carrier, American Safety Indemnity Company (hereinafter American Safety), is obligated to defend and indemnify World Bar Lounge, the plaintiff claimed that he was injured when "a bouncer . . . stepped on and made contact with the plaintiff's foot and leg, causing the plaintiff to be precipitated to the ground."
"Battery" is defined in the policy as "harmful or offensive contact between or among two or more persons." The language "harmful or offensive contact" is apparently derived from the definition of the tort of battery, to wit, "bodily contact" which was "offensive" and which arose when the batterer "intended to make the contact without the plaintiff's consent" (Bastein v Sotto, 299 AD2d 432, 433). An assault and battery exclusion applies if the causes of action alleged are "rooted in intentional tortious behavior"(Silva v Utica First Ins. Co., 303 AD2d 487, 488). Where no intentional assaultive acts are alleged in the complaint and the injuries may have resulted from "unintentional acts" such as allegations that a bouncer "negligently and carelessly escorted" a patron from the premises, the insurance carrier is required to defend notwithstanding the existence of an assault and battery exclusion (see Essex Ins. Co. v T-Birds Nightclub & Rest., 229 AD2d 919).
In the order and judgment appealed from, the Supreme Court found in favor of American Safety on the ground that "[n]o cause of action would exist but for the intentional assaultive behavior alleged by plaintiff." However, contrary to the determination of the Supreme Court, the plaintiff's pleadings do not allege intentional assaultive behavior. Both of the plaintiff's pleadings allege that he was struck or stepped on but those pleadings do not allege he was struck or stepped on intentionally. Therefore, a battery is not alleged and it cannot be said as a matter of law that the battery exclusion applies. Accordingly, American Safety has a duty to defend (see City of New York v Insurance Corp. of N.Y., 305 AD2d 443).
RITTER, J.P., S. MILLER, GOLDSTEIN and MASTRO, JJ., concur.
Hedaya Home Fashions, Inc., et al., respondents
American Motorists Insurance Company, appellant, et al., defendants. (Index No. 8337/97)
White Fleischner & Fino, LLP, New York, N.Y. (Nancy Davis
Lyness and Gil M. Coogler of counsel), for appellant.
Weg and Myers, P.C., New York, N.Y. (Dennis T.
D'Antonio, Joshua L. Mallin, and Renée J.
Levine of counsel), for respondents.
In an action, inter alia, to recover damages for breach of contract, the defendant American Motorists Insurance Company appeals from (1) a judgment of the Supreme Court, Kings County (Harkavy, J.), dated December 18, 2002, which, upon a jury verdict, is in favor of the plaintiffs and against it in the principal sum of $400,000 and (2) an order and amended judgment (one paper) of the same court dated April 25, 2003, which, inter alia, denied its motion pursuant to CPLR 4404(a) to set aside the verdict as against the weight of the evidence, granted the plaintiffs' cross motion for an award of prejudgment interest and for a hearing to determine an award of a reasonable attorney's fee, litigation costs, and expenses, and is in favor of the plaintiffs and against them in the total sum of $628,470.
ORDERED that the appeal from the judgment is dismissed on the ground that it was superseded by the order and amended judgment; and it is further,
ORDERED that the order and amended judgment is modified by deleting the provision thereof which granted that branch of the plaintiffs' cross motion which was for a hearing to determine an award of a reasonable attorney's fee, litigation costs, and expenses; as so modified, [*2]the order and amended judgment is affirmed, without costs or disbursements.
A jury verdict should not be set aside as against the weight of the evidence unless the jury could not have reached its verdict on any fair interpretation of the evidence (see Lolik v Big V Supermarkets, 86 NY2d 744, 746; Nicastro v Park, 113 AD2d 129, 134). Great deference is accorded to the fact-finding function of the jury, and determinations regarding the credibility of witnesses are for the fact-finders, who had the opportunity to see and hear the witness (see Corcoran v People's Ambulette Serv., 237 AD2d 402). A review of the evidence in this case demonstrates that a fair basis existed for the jury verdict in the plaintiffs' favor finding that the appellant breached its insurance contract with them by improperly denying coverage for damage to the plaintiffs' machines resulting from a fortuitous event. Consequently, the trial court correctly denied the appellant's motion pursuant to CPLR 4404(a) to set aside the verdict (see Corcoran v People's Ambulette Serv., supra).
The uncontroverted credible evidence at trial established that the actual value of the loss exceeded the policy limit. Thus, the Supreme Court appropriately confined the judgment to the policy limit, and correctly determined that pre-judgment interest should be awarded from the earliest ascertainable date the cause of action arose (see CPLR 5001[b]). Since the appellant failed to serve a demand for proof of loss, choosing instead to deny coverage, it waived the provisions of Insurance Law § 3407(a), thus, the plaintiffs were not required to file a proof of loss statement as a condition precedent to coverage (see Han-Ki Lee v American Tr. Ins. Co., 304 AD2d 713; Matter of State Farm Ins. Co. v Domotor, 266 AD2d 219).
The Supreme Court erred, however, in allowing the jury to consider the issue of damages arising from the defendant's alleged breach of the implied covenant of good faith and fair dealing. "It is well established that an insured may not recover the expenses incurred in bringing an affirmative action against an insurer to settle its rights under the policy." (New York Univ. v Continental Ins. Co., 87 NY23 308, 324; see also Gold v Nationwide Mutual Ins. Co., 273 AD2d 354). In the absence of explicit statutory or contractual authority therefor, a right to an award of an attorney's fee, litigation costs, and expenses will not be inferred (see Culinary Connection Holding, Inc. v Culinary Connection of Great Neck, Inc., 1 AD3d 558, 559-560, lv denied 3NY3d 601; Lawyer's Fund for Client Protection v Morgan Guaranty Trust Co., 259 AD2d 598, 560).
SANTUCCI, J.P., LUCIANO, SCHMIDT and SKELOS, JJ., concur.
Excess Insurance Company Ltd., et al., Respondents,
Richard A. Walker, for respondents.
The issue presented by this appeal is whether respondents' obligation to pay sums for certain loss adjustment expenses arising from a "follow the settlements" clause is subject to [*2]the indemnification limit stated in a reinsurance policy. Like the Appellate Division, we conclude that it is, and therefore affirm the order of the Appellate Division.
In December 1990, appellant Factory Mutual Insurance Company (formerly known as Allendale Mutual Insurance Company) entered into an agreement with Bull Data Systems Inc. to provide property insurance with an indemnification limit of $48 million. Specifically, the policy covered against the risk of loss or damage to Bull Data's personal computer inventory stored in a warehouse located in Seclin, France. In turn, Factory Mutual obtained facultative reinsurance [FN1] from various London reinsurers which have severally subscribed to the reinsurance agreement at issue in this litigation. The reinsurance policy states, in pertinent part:
REASSURED:ALLENDALE INSURANCE COMPANY
ASSURED:BULL DATA CORPORATION and/or as original.
PERIOD:Twelve months at 1st June, 1991 and/or as original. Both days inclusive.
LOCATIONS:Bull Data Corporation, Seclin, France as original
INTEREST:Goods and/or Merchandise incidental to the Assured's business consisting principally of personal computers and/or as original.
LIMIT:US $ 7,000,000 any one occurrence p/o US $ 13,500,000 any one occurrence excess of US $ 25,000,000 any one occurrence.
CONDITIONS:As original and subject to same valuation, clauses and conditions as contained in the original policy or policies but only to cover risks of All Risks of Physical Loss or Damage but excluding Inventory Shortage. Including Strikes, Riots, Civil Commotions and Malicious Damage risks if and as [*3]original. Premium payable as in original. Reinsurers agree to follow the settlements of the Reassured in all respects and to bear their proportion of any expenses incurred, whether legal or otherwise, in the investigation and defence of any claim hereunder. Service of Suit Clause (U.S.A.). Insolvency Clause.
In June of 1991, a fire that generated a spate of litigation, in the United States and abroad, destroyed the warehouse. Bull Data presented a claim to Factory Mutual and, suspecting that the fire was the result of arson, Factory Mutual refused to satisfy it.
Bull Data brought suit in the courts of France to recover under its insurance policy. Factory Mutual also commenced an unsuccessful litigation against Bull Data in the United States District Court for the Northern District of Illinois, claiming that the loss was due to arson, and the limit of liability under the insurance policy was $48 million. After incurring approximately $35 million in litigation expenses, both lawsuits were terminated and Factory Mutual settled the claims with Bull Data for nearly $100 million.
Factory Mutual thereafter sought payment from respondent-reinsurers. The reinsurers refused payment and filed an action in the courts of England seeking a declaration that the reinsurance contract was invalid. The English courts dismissed the case for lack of jurisdiction. During that period, Factory Mutual commenced a declaratory judgment action in the United States District Court for the District of Rhode Island seeking $7 million from the reinsurers and an additional $5 million in loss adjustment expenses, allegedly the proportionate share of expenses that the reinsurers owed Factory Mutual for having defended the Bull Data claim. Factory Mutual later discontinued the action upon stipulation and commenced a similar action in the United States District Court for the Southern District of New York.
District Judge Shira A. Scheindlin granted partial summary judgment to the reinsurers and dismissed Factory Mutual's claim for loss adjustment expenses (Allendale Mutual Ins. Co. v Excess Ins. Co. Ltd., 970 F Supp 265 [SDNY 1997], modified following motion for reargument, 992 F Supp 271 [SDNY 1997]). During the pendency of Factory Mutual's appeal to the United States Court of Appeals for the Second Circuit, that court decided an unrelated case which affected the subject matter jurisdiction of the pending case, resulting in dismissal of the appeal and vacatur of the judgment of the District Court(Allendale Mutual Ins. Co. v Excess Ins. Co. Ltd., 62 F Supp2d 1116 [SDNY 1999]). [*4]
The reinsurers thereafter commenced this declaratory judgment action in Supreme Court, New York County, seeking to annul the reinsurance agreement based on material nondisclosures and misrepresentations or, in the alternative, a judgment awarding damages [FN2]. Factory Mutual interposed a counterclaim, seeking the $7 million indemnification limit under the reinsurance policy as well as $5 million in loss adjustment expenses incurred by Factory Mutual in the litigation of the original claim with Bull Data. Both Factory Mutual and the reinsurers moved for partial summary judgment on Factory Mutual's counterclaims seeking loss adjustment expenses in excess of the amount stated in the indemnification limit. Supreme Court denied the reinsurers' motion, granted Factory Mutual's cross-motion and declared that the reinsurers' obligation to pay their proportionate share of the loss adjustment expenses was not subject to the stated indemnity limit of $7 million.
The Appellate Division reversed by granting the reinsurers' motion and denying Factory Mutual's cross-motion. The court thus declared that any portion of the loss adjustment expenses that the reinsurers were obligated to bear was subject to the $7 million limit stated in the reinsurance policy. The Appellate Division granted Factory Mutual leave to appeal to this Court. We now affirm the order of the Appellate Division.
In resolving the issue before us, we are mindful that in interpreting reinsurance agreements, as with all contracts, the intention of the parties should control. To discern the parties' intentions, the court should construe the agreements so as to give full meaning and effect to the material provisions (see Breed v Insurance Co. of North America, 46 NY2d 351, 355 [1978]; see also Greenfield v Phillies Records, Inc., 98 NY2d 562, 569 [2002]; Slatt v Slatt, 64 NY2d 966, 967 [1985]). [*5]
Here, there is no dispute that the reinsurance agreements set the policy limit at $7 million per occurrence. The so-called "follow the settlements" clause is thereafter set forth in the section of the policy entitled "Conditions."[FN3] As provided in the agreement, the clause requires the reinsurers to pay their portion of expenses incurred in the investigation and defense of any claim under the agreement. The reinsurers, however, contend that their liability to pay is subject to the $7 million cap negotiated under the policy. By contrast, Factory Mutual argues that the reinsurers' liability to pay the defense expenses are separate and apart from the indemnification cap on the policy.
We agree with the reinsurers and hold that they cannot be required to pay loss adjustment expenses in excess of the stated limit in the reinsurance policy. Once the reinsurers have paid the maximum amount stated in the policy, they have no further obligation to pay Factory Mutual any costs related to loss adjustment expenses. In so holding, we follow the decisions of the United States Court of Appeals for the Second Circuit as expressed in Bellefonte Reinsurance Co. v Aetna Cas. and Surety Co. (903 F2d 910 [2d Cir 1990]) and Unigard Security Ins. Co., Inc. v North River Ins. Co. (4 F3d 1049). In both cases, the ceding insurers claimed that a similar "follow the fortunes" clause required the reinsurers to reimburse litigation costs beyond the stated limit in the policy. The court in both cases concluded that such a reading of the policy would render meaningless the liability cap negotiated in the policy. According to the Bellefonte court, to "allow[] the 'follow the fortunes' clause to override the limitation on liability — would strip the limitation clause and other conditions of all meaning; the reinsurer would be obliged merely to reimburse the insurer for any and all funds paid. * * * The 'follow the fortunes' clauses in the certificates are structured so that they coexist with, rather than supplant, the liability cap. To construe the certificates otherwise would effectively eliminate the limitation on the reinsurers' liability to the stated amounts" (903 F2d at 913).
Likewise here, the parties negotiated an indemnity limit of $7 million per occurrence. Thus, any obligation on the part of the reinsurers to reimburse Factory Mutual, whether it be for settling the original insurance claim with Bull Data or for the loss adjustment [*6]expenses incurred in the protracted litigation that ensued, must be capped by the negotiated limit under the policy. Otherwise, the reinsurers would be subject to limitless liability. Indeed, this case well illustrates such an injustice as Factory Mutual now seeks to saddle the reinsurers with a portion of a litigation bill that exceeds the negotiated policy limit by more than 70%[FN4]. To permit such a result would render the liability cap a nullity.
Factory Mutual asserts that this case is distinguishable from Bellefonte and Unigard in that those cases involved liability insurance while this case involves property insurance. According to Factory Mutual, a liability insurance product normally encompasses the obligation to pay the legal defense costs on behalf of the insured as well as the cost of the loss itself. Thus, the risk to be spread in reinsurance would already include loss adjustment expenses. However, a property insurance product would cover only the value of the property item to be insured. Under those circumstances, Factory Mutual contends, an insurer would have no contractual obligation to incur investigation or litigation costs and the risk of those costs is not already included in the reinsurance product. We find this argument unpersuasive and conclude that this distinction does not provide a sufficient basis to extend the reinsurers' liability beyond the limit stated in the reinsurance policy.
The limit clause in the policy is intended to cap the reinsurers' total risk exposure. Although Judge Scheindlin's decision in Allendale was vacated and is not binding, we find her reasoning persuasive, "Whether [the reinsurers] reimburse [Factory Mutual] for claims for property losses or defense costs makes no difference to them. Reinsurers of property insurance policies have the same interest in controlling their maximum exposure as do reinsurers of liability insurance policies. Thus, Bellefonte and Unigard's holdings that the limit clauses define the reinsurers' bargained-for maximum exposure to liability inclusive of all costs and expenses are applicable even where the underlying insurance policy does not oblige the insurer to cover the insured's defense costs" (992 F Supp at 277).
Of course, both parties were well aware of the type of product that was being reinsured. It would be far from unreasonable to expect that at the time of procuring reinsurance, Factory Mutual could anticipate the possibility of incurring loss adjustment expenses in settling a claim from Bull Data. Certainly, nothing prevented Factory Mutual from insuring that risk either [*7]by expressly stating that the defense costs were excluded from the indemnification limit or otherwise negotiating an additional limit for loss adjustment expenses that would have been separate and apart from the reinsurers' liability on the insured property. Failing this, the reinsurers were entitled to rely on the policy limit as setting their maximum risk exposure.
I see no way to tell from the plain language of this certificate whether the parties intended for costs and expenses to be included in the reinsurance limit or excluded from it. Further, in my view the majority has misinterpreted Bellefonte Reins. Co. v Aetna Cas. & Sur. Co. (903 F2d 910 [2d Cir 1990]) in ways that augur further expansion of its much debated holding. Accordingly, I dissent.
The certificate pertains to reinsurance of a $13,500,000 layer ($25,000,000 to $38,500,000) of a $48,000,000 property insurance policy issued by Factory Mutual. Two provisions are at issue. The first provides that the "limit" is "US$7,000,000 any one occurrence part of US$13,500,000 any one occurrence excess of US$25,000,000 any one occurrence."[FN1] The second notes several "conditions," including one whereby the certificate is made "subject to the same valuation, clauses and conditions as contained in the original policy" (a "following form" provision) and one whereby "reinsurers agree . . . to bear their proportion of any expenses incurred" (a "follow the settlements" provision).
In essence, the majority concludes that the only reasonable interpretation of these provisions is that the policy contains a $7,000,000 limit (any one occurrence) which is cost-inclusive. This conclusion rests too heavily on the "follow the settlements" provision of the certificate, and fails to consider the "following form" provision. An equally plausible reading is that the parties, who "conditioned"[FN2] the certificate on the same "valuation, clauses and [*8]conditions" as exist in the primary property policy — where costs are commonly paid in addition to the policy limit [FN3] — could have intended to create a cost-exclusive reinsurance limit. Moreover, the parties did not expressly state that the limit was "subject to" the conditions and therefore capped all liability under the certificate (see e.g. Bellefonte). Because the certificate may reasonably be interpreted in either of two ways, I conclude that it is ambiguous (see Evans v Famous Music Corp., 1 NY3d 452 [2004])[FN4].
Moreover, I disagree with the majority's apparent reading of Bellefonte. In Bellefonte, Aetna issued primary and excess liability policies to A.H. Robins Co., the manufacturer of the Dalkon Shield. Aetna reinsured the excess policies with various reinsurers. After an "explosion" of litigation over the device, Aetna and Robins disputed the extent of Aetna's liability for defense expenses under the excess policies, and ultimately reached a [*9]monetary settlement in excess of the limit stated in the excess policy. Aetna then looked to the reinsurers for the excess paid on the underlying policy. The reinsurers refused to pay, arguing that their liability was limited by the reinsurance certificate.
The certificate stated that the reinsurance was provided "subject to the . . . amount of liability set forth herein" (903 F2d at 911). The court concluded that this created a cap on the reinsurers' liability whether reached through payment of expenses or settlement of claims. The Second Circuit reasoned that "[a]ny other construction of the reinsurance certificates would negate" the "subject to" provision of the certificate (id. at 914; see also Unigard Sec. Ins. Co. v North Riv. Ins. Co., 4 F3d 1049 [2d Cir 1993] [following Bellefonte as certificate included same "subject to" language]).
The Bellefonte Court also considered and rejected a second argument made by Aetna, which the Appellate Division applied below (2 AD3d 150 [1st Dept 2003]) and the majority now adopts. Aetna argued that the "follow the fortunes" doctrine, as embodied in a clause in the certificate,[FN5] obligated the reinsurers to pay all Aetna's settlements even if they were in excess of the liability limit in the reinsurance policy. The Bellefonte court rebuffed this argument, noting that "[t]he 'follow the fortunes' clauses in the certificates are structured so that they coexist with, rather than supplant, the liability cap. To construe the certificates otherwise would effectively eliminate the limitation on the reinsurers' liability to the stated amounts" (id. at 913 [emphasis added]). Critically, this prong of the court's analysis was based on its conclusion that the certificate created a cap on liability through the "subject to" and the "limitation" clauses, and that "the 'follow the fortunes' doctrine does not allow Aetna to recover defense costs beyond the express cap stated in the certificates" (id.).
The Appellate Division disregarded the "subject to" analysis in Bellefonte, as does [*10]the majority, summarily concluding that "all contracts are subject to their terms and conditions" (2 AD3d at 152). Instead, the Appellate Division relied on Bellefonte's "follow the fortunes" analysis, and concluded that the "overriding determination in Bellefonte and Unigard was that the 'follow the fortunes' clauses of the reinsurance contracts considered there coexisted with, and did not supplant, the contract limitations" (id.). In my view, this was error.
Bellefonte's holding was not intended as a general rule applicable to any and all reinsurance certificates (see Goldstein, Bellefonte Lives, 8-10 Mealey's Litig. Rep. Reinsurance 9 [1997] [noting that Bellefonte should have been limited to "the specific contract language" in the certificate]). The holding relies on specific certificate language — "the first two provisions of the reinsurance certificates" (903 F2d at 913) — which the court determined contained a "cap" on the reinsurers' liability. Because the certificate had a cap, the "follow the fortunes" clause in the certificate could not supplant the cap, which therefore limited expenses [FN6].
The Appellate Division and now the majority have converted a rule unique to the specific certificate language in Bellefonte into a general principle that a "follow the fortunes" clause never supplants a policy limit. Thus, the majority, like the Appellate Division before it, expands Bellefonte from a contract-specific holding into a rule of general applicability.
When the holding of Bellefonte — that the reinsurance certificate's specific policy language controls whether costs are included or excluded from the limit — is applied here, it is easily distinguished. There is no "subject to" language in the reinsurance certificate at issue on this appeal. Rather, the certificate contains two discrete provisions — "limit" and "conditions" — and neither offers any guidance as to whether the "conditions" are subject to the "limit."
Further, it is worth observing that practitioners in the reinsurance industry have consistently criticized Bellefonte. Specifically, commentators have noted that in ruling "based [*11]solely on a textual interpretation of the language of the certificates," the Bellefonte Court ignored important extrinsic evidence of industry custom and practice showing that the nature of the underlying policy often controlled whether the reinsurance limit was cost-inclusive or cost-exclusive (see Goldstein, Bellefonte Lives ["[n]otwithstanding Bellefonte . . . the industry for the most part has continued to follow the custom and practice of reinsurers providing coverage for expenses in addition to limits where the reinsured policy also covers expenses in addition to limits"]). There was a fear "that the Bellefonte rule would be applied to the same certificate language but where the reinsured policy covered defense costs in addition to limits" (id.).
When Unigard was decided, this fear was realized. There, the certificate language was nearly identical to that in Bellefonte. The Second Circuit rejected extrinsic evidence that the reinsurers covered expenses in addition to the policy limit, instead choosing to rely on its holding in Bellefonte and the similar certificate language (4 F3d at 1071).
Commentators have similarly faulted Allendale Mut. Ins. Co. v Excess Ins. Co. Ltd. (992 F Supp 278 [SDNY 1998], rearg granted, original decision adhered to 992 F Supp 271, vacated by 172 F3d 37 [2d Cir 1999]). The federal district court in Allendale was the first court to rule on the case now before us, holding that the plain language of the certificate meant that expenses were included in the policy limit [FN7]. Citing Bellefonte and Unigard, the court rejected Factory Mutual's request to distinguish these cases on the basis of the specific certificate language or the nature of the underlying policies (992 F Supp at 274-275). Allendale was thus judged to be "a significant extension" of Bellefonte on both fronts (see Goldstein, Bellefonte Lives; see also Goldstein, For Whom Does Bellefonte Toll? It Tolls for Thee, 9-7 Mealey's Litig. Rep. Reinsurance 12 [1998] ["Because Allendale involved reinsurance of a property policy, rather than a liability policy that provided a defense for the insured, and because the contract at issue lacked certain critical language contained in the Bellefonte and Unigard decisions, [*12]Allendale clearly expanded the breadth of the Bellefonte Rule"])[FN8]. [*13]
Today, the majority adopts the Allendale rationale, and suggests that Factory Mutual should have negotiated language "expressly stating that the defense costs were excluded from the indemnification limit," or otherwise setting forth "an additional limit for loss adjustment expenses that would have been separate and apart from the reinsurers' liability on the insured property" (majority op at 10). But Factory Mutual first obtained the relevant certificate in London in December 1990, about eight months after the Second Circuit decided Bellefonte. It seems harsh and unrealistic for us to fault Factory Mutual for not having drafted this certificate to conform with a recently decided case whose potential future reach could hardly have been predicted at the time.
Here, both parties moved for summary judgment, arguing that the certificate was unambiguous. Although neither party argued that the certificate was ambiguous, ambiguity is an issue of law for the courts (Greenfield, 98 NY2d at 569). Factory Mutual opposed the reinsurers' motion for summary judgment with extrinsic evidence of industry custom and practice, and thereby created a question of fact concerning the parties' intent (Mallad Constr. Corp. v County Fed. Sav. & Loan Assn., 32 NY2d 285, 290-293 [1973]). Our precedent establishes that where there is ambiguity in a reinsurance certificate, the surrounding circumstances, including industry custom and practice, should be taken into consideration (see London Assurance Corp. v Thompson, 170 NY 94 [1902];[FN9] see also Christiania General Ins. Corp. v Great American Ins. Co., 979 F2d 268, 274 [2d Cir 1992] [citing London Assurance]; Russ & Segalla, Couch on Insurance 3d § 9:15, at 9-53). [*14]Accordingly, I would modify the order of the Appellate Division by denying both motions, and remand the matter for further proceedings consistent with this opinion.
Order affirmed, with costs, and certified question answered in the affirmative. Opinion by Judge G.B. Smith. Chief Judge Kaye and Judges Ciparick, Rosenblatt, Graffeo and R.S. Smith concur.
Judge Read dissents and votes to modify by denying both motions for summary judgment in an opinion.
Decided December 2, 2004
Footnote 1: "Facultative reinsurance is policy-specific, meaning that all or a portion of a reinsured's risk under a specific contract of direct coverage will be indemnified by the reinsurer in the event of loss" (Travelers Cas & Sur Co v Certain Underwriters at Lloyd's of London, 96 NY2d 583, 587 [2001]).
Footnote 2:Factory Mutual moved Supreme Court to dismiss the action on the grounds of forum non conveniens and also commenced an action in the Superior Court of Providence, Rhode Island. Supreme Court granted Factory Mutual's motion. While the reinsurers appealed the order, they sought a preliminary injunction in Supreme Court to enjoin the Rhode Island proceeding, which that court denied. While the Rhode Island court was considering Factory Mutual's motion for partial summary judgment on its claims for loss adjustment expenses in excess of the indemnification limit, the Appellate Division reversed the order of Supreme Court, reinstated the reinsurer's lawsuit and enjoined the Rhode Island litigation.
Footnote 3:In the reinsurance industry a "follow the settlements" clause "refers to the duty to follow the actions of the cedent in adjusting and settling claims" (Barry R. Ostrager and Thomas R. Newman, Handbook on Insurance Coverage Disputes, § 16.01[b] at 944 [11th ed. 2002]). Thus, the reinsurers will be bound by the settlement or compromise agreed to by the cedent unless it can show impropriety in arriving at the settlement (id.).
Footnote 4:Such an outcome would be particularly unfair given that the "follow the settlements" clause gave the reinsurers no control over the management of the unsuccessful litigation that Factory Mutual launched against Bull Data and no voice in limiting the $35 million litigation expense.
Footnote 1:Sorema N.A. reinsured the remaining $6,500,000 of the $13,500,000 layer. Unlike Excess, Sorema paid up to its limit and also paid its proportion of costs.
Footnote 2:The word "conditions" is not illuminative. The Restatement of Contracts defines a condition as "an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due." As the comments note, the term "condition" "is used with a wide variety of other meanings in legal discourse" (Restatement [Second] of Contracts § 224).
Footnote 3:The courts below did not determine whether or not this was the case here.
Footnote 4:Indeed, the history of this case betokens ambiguity: five courts have now interpreted the certificate with varying results. Supreme Court and the Rhode Island Superior Court concluded that the certificate does not contain a cap and therefore the limit is cost-exclusive (see Factory Mutual Insurance Co. v Excess Insurance Co., Superior Court, Providence, Rhode Island, May 22, 2001, Hurst, J., PC 00-0760 [litigation enjoined by order of the Appellate Division, First Department, July 5, 2001]; Excess Insurance Co. v Factory Mutual Insurance Co., Sup Ct, NY County, August 22, 2002, Moskowitz, J., Index No. 605759/99). The majority now joins the Appellate Division and the United States District Court for the Southern District, which found that the limit is cost-inclusive (see 2 AD3d 150 [1st Dept 2003]; Allendale Mut. Ins. Co. v Excess Ins. Co. Ltd., 992 F Supp 278 [SDNY 1998], rearg granted, original decision adhered to 992 F Supp 271, vacated by 172 F3d 37 [2d Cir 1999]).
Footnote 5:The clause provided that "the liability of the Reinsurer . . . shall follow that of [Aetna]" (903 F2d at 911). These clauses are generally construed to mean that "the reinsurer follows the insurer's fortunes under the latter's insurance policies, subject to the stated exclusions and limitations in the reinsurance agreement . . . . Without such a concept — and on occasion even with it — the reinsurer could successfully assert a defense to a claim under the reinsurance agreement, that was not asserted by the insurer with respect to the insurance claim, leaving the insurer with an unidentified liability" (Staring, Law of Reinsurance, § 18:1).
Footnote 6:Our decision in Travelers Cas. & Sur. Co. v Certain Underwriters at Lloyd's of London (96 NY2d 583 [2001]) is not to the contrary. There, we were asked whether a "follow the fortunes" clause negated an insurer's obligation to apply the allocation methodology contained in the reinsurance policy. In rejecting this argument, we agreed with the "rationale" of the Second Circuit that the follow the fortunes doctrine "does not alter the terms or override the language of reinsurance policies" (id. at 596). Thus, Travelers supports the proposition that each reinsurance policy must be interpreted according to its own terms.
Footnote 7:On reargument, however, the Allendale court acknowledged that "[i]n a purely semantic sense, the reinsurance Agreement is ambiguous" (992 F Supp at 276). Nonetheless, the judge concluded that the certificate was only reasonably interpreted to be cost-inclusive. The Allendale court (like the majority) seemed concerned that a reinsurer would otherwise accept open-ended liability for costs (992 F Supp at 276 n 4), and thus appears to have "alter[ed] the contract to reflect its personal notions of fairness and equity" (Greenfield v Philles Records, 98 NY2d 562 [2002]).
Footnote 8:Other courts have regarded Bellefonte and Unigard skeptically. Aetna Cas. & Sur. Co. v Philadelphia Reins. Corp. (1995 US Dist LEXIS 4806 [EDPA]) followed Bellefonte, but only because Aetna was a party in Bellefonte and therefore was collaterally estopped from relitigating the issue. The court in Philadelphia Reinsurance preferred the analysis used in Penn Re, Inc. v The Aetna Cas. & Sur. Co. (1987 US Dist LEXIS 15252 [EDNC]). There, the court (deciding the issue prior to Bellefonte) interpreted a reinsurance policy containing a "subject to" provision and found that the reinsurer was liable for costs in addition to the limit of the policy. Bellefonte rejected the analysis of Penn Re. In North River Ins. Co. v Cigna Reins. Co. (52 F3d 1194 [3d Cir 1995]), the court was faced with a Bellefonte question, which it avoided by holding that whether the certificate placed a cap on the policy was not timely raised. In TIG Premier Ins. Co. v Hartford Accident & Indem. Co. (35 F Supp 2d 348, 350 [SDNY 1999]), the court sidestepped Bellefonte by applying California law, which allows use of extrinsic evidence to reveal a "latent ambiguity" in a contract that "appears unambiguous on its face." Accordingly, the court reviewed extrinsic evidence showing that reinsurers commonly pay expenses in addition to limits. Finding a genuine issue of fact, the court denied the motion for summary judgment. In addition, arbitrators have apparently declined to follow Bellefonte, at least in some cases (see Monin and Brady, Reinsurance Disputes: Death of the Handshake, 61 Def. Couns. J. 529, 538, n 22 [Oct. 1994]; Monin and Brady, Updating Reinsurance Law Developments: The Gloves are Beginning to Come Off, 63 Def. Couns. J. 219, 223 [April 1996]; see also Wilker and Lenci, Much Ado About Nothing: A Response Regarding Bellefonte's Reach,9-10 Mealey's Litig. Rep. Reinsurance 16 [September 24, 1998] [stating that "arbitration panels, even those sitting in the Second Circuit, are free to ignore Bellefonte, Unigard and Allandale" and suggesting that "most properly constituted arbitration panels will not follow those decisions or any generalized Bellefonte rule unless it is shown that it was clearly the cedent's and reinsurer's intention not to cover expenses in addition to the liability limit of the certificate in question"]).
Footnote 9:"Reinsurance, like any other contract, depends upon the intention of the parties, to be gathered from the words used, taking into account, when the meaning is doubtful, the surrounding circumstances. Custom or usage is presumed to enter into the intention when it is found as a fact, not only that it existed, but was uniform, reasonable and well settled, and either known to the parties when the contract was made, or so generally known as to raise a presumption that they had it in mind at the time" (170 NY at 99).
* "[P]ermanent total disability" is defined in section 15 (1)--which authorizes schedule compensation awards based on a worker's wages at the time of the accident--to mean, "[l]oss of both hands, or both arms, or both feet, or both legs, or both eyes, or of any two thereof shall, in the absence of conclusive proof to the contrary, constitute permanent total disability." The purpose there is, however, different from the section before us (see Castro, 96 NY2d 398, 401 n 2).