Case Name: Sam Sukup, Respondent, v. State of New York, Appellant
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1967-05-16
Citations: 19 N.Y.2d 519
Docket Number: Claim No. 37497
Parties: Sam Sukup, Respondent, v. State of New York, Appellant.
Judges: 
Reporter: New York Reports
Volume: 19
Pages: 519–525

Head Matter:
Sam Sukup, Respondent, v. State of New York, Appellant.
(Claim No. 37497.)
Argued April 4, 1967;
decided May 16, 1967.
Louis J. Lefkowitz, Attorney-General (Emil Woldar and Ruth Kessler Toch of counsel), for appellant.
I. In the absence of a special agreement, legal expenses to establish an insured’s right to coverage under an insurance policy are not recoverable from the insurer. (Heath v. State of New York, 278 App. Div. 8, 303 N. Y. 658; Everlast Sporting Goods Mfg. Co. v. Aetna Ins. Co., 23 A D 2d 641; Great Amer. Ind. Co. v. Audlane Realty Corp., 163 Misc. 301; Davis Acoustical Corp. v. Hanover Ins. Co., 22 A D 2d 843.) II. Attributing bad faith to the State Insurance Fund because the Fund disputed coverage of an accident at an upstate farm in the face of the policy’s statement of locale as “ 11 Pike Street, NYCity & elsewhere in NYS ”, is not justified. (Brassil v. Maryland Cas. Co., 210 N. Y. 235; Loughlin v. Brassil, 187 N. Y. 128.)
Harry E. Ratner for respondent.
The Fund failed to deal fairly and in good faith with claimant which was its obligation to claimant in connection with carrying out what was written in the contract of compensation insurance. Its denial of coverage and liability under the peculiar and particular circumstances of this case was in effect a breach of its contract. (Heath v. State of New York,, 278 App. Div. 8, 303 N. Y. 658; Great Amer. Ind. Co. v. Audlane Realty Corp., 163 Misc. 301; Brassil v. Maryland Cas. Co., 210 N. Y. 235; Everlast Sporting Goods Mfg. Co. v. Aetna Ins. Co., 23 A D 2d 641; Davis Acoustical Corp. v. Hanover Ins. Co., 22 A D 2d 843.)

Opinion:
Bergan, J.
A liability has been imposed on an insurance carrier for the legal expenses incurred by the insured in litigating with the carrier the question of coverage under a workmen's compensation policy. Liability has been grounded on a finding by the Court of Claims, affirmed at the Appellate Division, that the carrier's disavowal of responsibility under its policy was not made in good faith.
The claimant Sukup is the insured; the carrier is the State Insurance Fund for whose liabilities the State is responsible; and, accordingly, the claim against it is prosecuted in the Court of Claims.
The Court of Claims found that in denying coverage the State Fund " failed to deal fairly and in good faith with claimant " and that " its denial of coverage " was " in effect " a breach of contract. The Appellate Division also found that the carrier had breached " the underlying obligation of good faith ",
There is, however, no allegation in the claim filed by claimant — the pleading in the case — that the State Fund's assertion before the Workmen's Compensation Board that it did not cover the accident in issue was asserted in bad faith. The claim alleges a '1 breach of contract ' ' by the State Fund in denying coverage under the policy and certain damages which accrued to claimant from this. There was no amendment to the claim to assert bad faith suggested during the trial in the Court of Claims.
Nor is there any evidence in the record on which a finding of bad faith on the part of the State Fund could reasonably be predicated. It is not a breach of contract per se for a carrier to deny that its policy cuvers a particular event and the assertion of such noneoverage raises a question which, in the course of workmen's compensation adjudication, is to be resolved by the Workmen's Compensation Board.
Here it was resolved against the carrier and in favor of the claimant, the insured, but essentially all this amounts to is an adverse legal controversy between the carrier and insured for which no liability for the legal fees of one party would be chargeable to the other in the absence of some extraordinary showing.
The carrier did not advise the insured that it would not defend him before the Workmen's Compensation Board. Its policy required it to defend all claims against its insured even though the claims were " wholly groundless, false or fraudulent ". It advised the attorney for the insured by letter that the claim was to be heard on a stated future date, and, in view of the contention of the carrier that the accident was not covered, asked that he "kindly arrange to be present at the hearing" and, also, that he notify the insured and "arrange to have him present".
It is clear from this and from the testimony of the insured's lawyer at the trial of this present case that the issue which brought the insured and his lawyer to the workmen's compensation hearings was the issue between the carrier and the insured as to coverage.
The lawyer testified ' ' there is no question that the State Insurance Fund controverted the question of coverage from the beginning to the end ". After the Compensation Referee found against the carrier on coverage, it appealed to the board and the insured's lawyer appeared before the board to defend the Referee's ruling. ' It is clear that all of the legal services were rendered in the controversy between the carrier and its insured.
It is settled that the carrier may, and indeed under its contract should, defend the insured from the claim for compensation even though it also asserts that there is no coverage (Matter of Jaabeck. Crane's Sons Co., 238 N. Y. 314; Matter of Cheesman, 236 N. Y. 47, 51).
It is equally well settled that an insured cannot recover his legal expenses in a controversy with a carrier over coverage, even though the carrier loses the controversy and is held responsible for the risk (Doyle v. Allstate Ins. Co., 1 N Y 2d 439, 444; Manko v. City of Buffalo, 296 N. Y. 905, affg. 271 App. Div. 286; Heath v. State of New York, 303 N. Y. 658, affg. 278 App. Div. 8; Davis Acoustical Corp. v. Hanover Ins. Co., 22 A D 2d 843; Great Amer. Ind. Co. v. Audlane Realty Corp., 163 Misc. 301).
It would require more than an arguable difference of opinion between carrier and insured over coverage to impose an extra-contractual liability for legal expenses in a controversy of this kind. It would require a showing of such -bad faith in denying coverage that no reasonable carrier would, under the given facts, be expected to assert it.
The record in this case shows that the carrier was wrong and the insured right as to coverage, as the Workmen's Compensation Board found. The record does not show any gross disregard for its policy obligation by the insurer in asserting noncoverage. The record shows merely an arguable case in which the carrier was held wrong. That is not enough to impose a liability beyond the terms of the contract.
The arguable case is this: In the insured's declaration forming part of the policy as to the " Location of All Business Operations, by Town or City, with Street and Number ", the claimant answered " 11 Pike Street, NY City & elsewhere in NYS ". There is proof that the business of insured in New York was " real estate " at 11 Pike Street where he owned a building, containing stores and apartments. He also had a farm in Rock Rift, Delaware County. The workmen's compensation claim arose from the death of insured's employee on the farm on January 25,1958.
The workmen's compensation record which was offered in evidence on the trial of this present case makes it clear that, after the accident and before any claim of compensation was made, the insured, in March, 1958, made an application to the carrier for an indorsement on the policy which would expressly include the coverage of the Delaware County location.
No reference to the fact an accident had already occurred there was made in this application for indorsement and the indorsement to include the Delaware County location was accordingly made by the carrier. Three months later, in June, 1958, the workmen's compensation claim was filed.
This request for an indorsement specifically to cover the Delaware County location after the accident and before the carrier was advised of its occurrence would signal a reasonably alert carrier to the probability that its insured did not himself regard the phrase " elsewhere in NTS." in the declaration to be sufficiently broad to include farming operations many miles from the stated place of business in New York City. The notice of controversy filed with the Workmen's Compensation Board raised not only the question of place of coverage, but also, on coverage, the employer-employee relationship.
Showing this, and nothing more, the claimant here has not established the bad faith of the carrier in controverting coverage. The decision in Brassil v. Maryland Cas. Co. (210 N. Y. 235), on which the Court of Claims relied, does not sustain the result reached here. There, the insurer refused to accept an offer of settlement within the range of the policy and on trial a verdict was returned against the insured for four times the amount of the policy.
The insurance company then offered to pay the face of its policy but refused to take an appeal. The insured prosecuted the appeal himself and the judgment was reversed and a new trial ordered. The insured was allowed reasonable expenses for prosecuting the appeal.
As Judge Werner noted (p. 242), " it would be a reproach to the law if there were no remedy for so obvious a wrong as was inflicted on this plaintiff ' '. There is no such injustice demonstrated here if this claimant pays his own expenses in accordance with the usual rule in a controversy with the carrier over coverage.
The order should be reversed and the claim dismissed, with costs.