Insurance Law – New York Appellate Digest

DEFENDANT EMPLOYEE DID NOT HAVE HIS EMPLOYER’S PERMISSION TO DRIVE THE TRUCK INVOLVED IN THE ACCIDENT; THEREFORE THE EMPLOYER’S INSURER PROPERLY DISCLAIMED COVERAGE (THIRD DEPT).

The Third Department, reversing Supreme Court, determined the driver, Nichols, did have the permission of his employer (Monro) to drive the truck involved in the accident. Therefore Monro’s insurer properly disclaimed coverage:

Under Vehicle and Traffic Law § 388 (1), the negligence of the operator of a motor vehicle may be imputed to the owner of the vehicle who “operat[ed] the same with the permission, express or implied, of such owner”… . The statute “creates a presumption that the vehicle is being operated with the owner’s consent, but the presumption may be rebutted by substantial evidence showing that the operation was without permission”… .

We find that respondents rebutted the presumption of permissive use. Michael Kio, Monro’s store manager and Nichols’ superior, testified that he advised Nichols on more than one occasion of the company’s longstanding policy proscribing an employee’s personal use of company vehicles, including the truck. Nichols acknowledged to Kio that he was aware and understood this policy and that he did not have permission to operate the truck for personal use or use outside of business hours, and that it was to be used for store business only. As Nichols stated in his written submission to Supreme Court, “I knew I was not supposed to be driving the company truck off company time.” The statements of Kio and Nichols regarding company policy and their understanding of that policy proscribing personal use stand uncontradicted. “Uncontradicted statements by both the vehicle’s owner and its driver that the driver was operating the vehicle without the owner’s permission will constitute substantial evidence that rebuts the presumption” … . Matter of Progressive Specialty Ins. Co. (Travelers Prop. Cas. Co. of Am.), 2021 NY Slip Op 07598, Third Dept 12-30-21

December 30, 2021/0 Comments/by Bruce Freeman

Civil Procedure, Contract Law, Insurance Law, Negligence

THE SUBROGATION ACTION BY THE INSURER OF THE PROPERTY OWNER IN THIS SLIP AND FALL CASE WAS NOT PRECLUDED BY THE RES JUDICATA DOCTRINE AFTER A GLOBAL SETTLEMENT WITH THE INJURED PARTY (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the subrogation action by plaintiff-insurer of the property owner, 60 LBC, in this slip and fall case was not precluded by the res judicata doctrine:

The court determined that plaintiff is barred by res judicata from pursuing 60 LBC’s [the property owner’s] coverage claim against defendant [the insurer of the landscaping business hired by 60 LBC to remove ice and snow] because it was resolved in the global settlement [with the injured party] reached during mediation. We disagree. Defendant [insurer of the landscaping company] was not a party to the underlying personal injury action or the third-party action, and the release resulting from the settlement of those actions makes no mention of any claims directly against defendant by 60 LBC or anyone else. Nor does the stipulation of discontinuance. The breach of contract claim asserted by 60 LBC against Red Cedar [the landscaping company] in the third-party action is separate and distinct from plaintiff’s breach of contract cause of action against defendant [insurer of the landscaping company] here. Cincinnati Ins. Co. v Acadia Ins. Co., 2021 NY Slip Op 07351, Fourth Dept 12-23-21

December 23, 2021/0 Comments/by Bruce Freeman

Appeals, Fraud, Insurance Law, Workers' Compensation

THE INSURER PRESENTED EVIDENCE THE BOARD’S RULING THAT THE INSURER WAS THE RESPONSIBLE CARRIER WAS BASED UPON FRAUDULENT DOCUMENTATIOIN; IT WAS ABUSE OF DISCRETION TO DENY THE INSURER’S APPLICATION FOR REVIEW (THIRD DEPT).

The Third Department, reversing the Workers’ Compensation Board, determined the Board abused its discretion when denying an insurer’s (Everest’s) application for a review of a ruling that the insurer was the responsible carrier. That ruling was plausibly argued to have been based upon fraudulent documentation:

… [T]he proof submitted by Everest in support of its administrative appeal strongly suggests that the certificate of insurance provided to the Board was not authentic, and, based upon the limited record before us, the certificate appears to have been an important, if not the only, factor in the WCLJ’s [Workers’ Compensation Law Judge’s] decision as to Everest. In other words, Everest has brought to the Board’s attention the strong possibility that it has issued a decision based perhaps entirely upon fraudulent documentation. … Under these facts, “[i]t is not an adequate answer to say that this kind of determination is usually discretionary” … , and, in our view, the very purpose of the discretion afforded to the Board is to grant relief in circumstances such as these … . … [W]e find that the Board abused its discretion in denying Everest’s application for review … . Matter of Salinas v Power Servs. Solutions LLC, 2021 NY Slip Op 07321, Third Dept 12-23-21

December 23, 2021/0 Comments/by Bruce Freeman

Civil Procedure, Contract Law, Insurance Law

THE INSURED, SPACE NEEDLE, LLC, IS LOCATED IN WASHINGTON STATE; ALTHOUGH THE INSURANCE POLICY NAMED NEW YORK AS THE FORUM AND REQUIRED THE APPLICATION OF NEW YORK LAW FOR ANY LAWSUITS, THE WASHINGTON INSURANCE CODE RENDERED SUCH PROVISIONS VOID; THEREFORE THE INSURER WAS NOT ENTITLED TO AN ANTI-SUIT PRELIMINARY INJUNCTION IN NEW YORK (FIRST DEPT).

he First Department determined plaintiff Elite Insurance Company did not demonstrate a likelihood of success or a balancing of the equities in its favor in its attempt to have a preliminary injunction issued in New York to prevent a suit by the insured, Space Needle of Seattle, Washington, after the COVID-related business-loss claim was denied: Although the insurance contract indicated New York would be the forum and New York law would apply, the Washington Insurance Code rendered such provisions void. The decision includes extensive discussions of the leading cases in these areas:

… [P]laintiff did not demonstrate either a likelihood of success on the merits of its claim for an anti-suit injunction based on the contractual choice-of-law and forum selection clauses of the parties’ insurance contract, or a balancing of the equities in its favor. As an insurance company authorized to sell insurance in Washington, plaintiff was required to comply with the Washington Insurance Code’s prohibition against choice-of-law and forum selection clauses in insurance policies sold in Washington (Wash Rev Code Chapter 48). The Code (RCW) expressly provides that no insurance contract delivered or issued for delivery in this state (Washington) . . . “shall contain any condition, stipulation or agreement (a) requiring it to be construed according to the laws of any other state or country. . .; or (b) depriving the courts of this state of the jurisdiction of action against the insurer . . .” (RCW 48.18.200 [1]). RCW further specifies that any such agreement violating this prohibition “shall be void, but such voiding shall not affect the validity of the other provisions of the contract” (RCW 48.18.200 [2]). Thus, plaintiff has not demonstrated that the equities tip in its favor where it is attempting, as Supreme Court stated, “a blatant end run around” Washington’s prohibition against choice-of-law and forum selection clauses. North Am. Elite Ins. Co. v Space Needle, LLC, 2021 NY Slip Op 06769, First Dept 12-2-21

December 2, 2021/by Bruce Freeman

Contract Law, Insurance Law, Securities

THE $140 MILLION PAID BY BEAR STEARNS TO THE SEC TO SETTLE AN ACTION ALLEGING THE FACILITATION OF LATE TRADING WAS NOT A “PENALTY IMPOSED BY LAW” AND THEREFORE WAS A COVERED LOSS UNDER THE TERMS OF THE INSURANCE POLICIES (CT APP).

The Court of Appeals, reversing the Appellate Division, in a full-fledged opinion by Judge DiFiore, over an extensive dissent, determined the funds paid to the Security and Exchange Commission (SEC) to settle an action alleging Bear Stearns “facilitated late trading” and “deceptive market timing activity” did not constitute a “penalty imposed by law” and therefore was a covered loss under the insurance policies:

… [U]nder relevant New York law, penalties have consistently been distinguished from compensatory remedies, damages, and payments otherwise measured through the harm caused by wrongdoing. Thus, at the time the parties contracted, a reasonable insured would likewise have understood the term “penalty” to refer to non-compensatory, purely punitive monetary sanctions. In this case, the question therefore distills to whether the disputed $140 million settlement payment meets that standard. …

… Bear Stearns demonstrated that the $140 million disgorgement payment was calculated based on wrongfully obtained profits as a measure of the harm or damages caused by the alleged wrongdoing that Bear Stearns was accused of facilitating. This can be contrasted with the $90 million payment denominated a “penalty,” which was not derived from any estimate of harm or gain flowing from the improper trading practices. J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 2021 NY Slip Op 06528, CtApp 11-23-21

November 23, 2021/by Bruce Freeman

Attorneys, Civil Procedure, Contract Law, Education-School Law, Insurance Law

THE COMPLAINT SUFFICIENTTLY ALLEGED A BREACH OF THE COVENANT OF GOOD FAITH CAUSE OF ACTION IN THIS INSURANCE COVERAGE DISPUTE; THE “IMPLIED COVENANT” CAUSE OF ACTION ALLEGED CONDUCT DIFFERENT FROM THE BREACH OF CONTRACT CAUSE OF ACTION AND WAS THEREFORE NOT DUPLICATIVE; SUPREME COURT IMPROPERLY REDUCED THE ATTORNEYS’ FEES AWARDS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the breach of the implied covenant of good faith and fair dealing cause of action in this insurance coverage dispute should not have been granted. The court noted that the “breach of the implied covenant” cause of action was not based on the same conduct as the breach of the insurance policy cause of action and therefore was not “duplicative.” The court also found Supreme Court improperly reduced the attorneys’ fees awards:

This appeal arises out of an insurance coverage dispute between the plaintiff and its insurer, the defendant, in connection with a School Board Legal Liability Policy … (hereinafter the policy). While the policy was in effect, a putative class action entitled Montesa v Schwartz (hereinafter the underlying action) was commenced … in … the Southern District of New York against … the plaintiff and its current and former school board members, alleging various constitutional violations, school segregation, breach of fiduciary duty, and fraud. … [P]laintiff timely submitted a notice of claim to the defendant regarding the underlying action and requested coverage under the policy, and the defendant denied coverage to the plaintiff and its board members. * * *

The plain language of the complaint reflects the plaintiff’s allegation that the defendant breached the implied covenant of good faith and fair dealing. The complaint alleged … that the defendant failed to investigate in good faith the claims in the underlying action, denied coverage to the plaintiff based upon a manufactured and/or “nonexistent” assertion, deviated from industry practices by denying coverage to the plaintiff where “[n]o reasonable insurer would have denied [such] coverage,” and “[disclaimed] coverage with gross disregard for the facts and applicable law” … . In determining the defendant’s motion to dismiss, the court was required to accept as true the facts alleged in the complaint, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged by the plaintiff fit within any cognizable legal theory … . …

… [W]here, as here, the cause of action to recover damages for breach of the policy and the cause of action to recover damages for breach of the implied covenant of good faith and fair dealing allege different conduct on the part of the defendant and seek different categories and/or types of damages, the cause of action seeking damages for breach of the implied covenant of good faith and fair dealing should not be dismissed as “duplicative” of the cause of action alleging breach of contract … . East Ramapo Cent. Sch. Dist. v New York Schs. Ins. Reciprocal, 2021 NY Slip Op 06341, Second Dept 11-17-21

November 17, 2021/by Bruce Freeman

Contract Law, Insurance Law, Negligence

QUESTIONS OF FACT ABOUT WHETHER THE INSURED MADE A SPECIFIC REQUEST TO DEFENDANT INSURANCE-BROKER FOR COVERAGE AND WHETHER THERE WAS A SPECIAL RELATIONSHIP BETWEEN THE INSURED AND THE BROKER; THE BREACH OF CONTRACT CAUSE OF ACTION PROPERLY SURVIVED SUMMARY JUDGMENT; THE NEGLIGENT MISREPRESENTATION CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the defendant insurance-broker’s motion for summary judgment on the breach of contract cause of action was properly denied, and the motion for summary judgment on the negligent misrepresentation cause of action should have been denied. The issues are whether the insured made a specific request for coverage and whether there was a special relationship between the insured and defendant broker:

“An insurance agent or broker has a common-law duty to obtain requested coverage for a client within a reasonable amount of time, or to inform the client of the inability to do so … . Generally, “‘[t]o set forth a case for negligence or breach of contract against an insurance broker, a plaintiff must establish that a specific request was made to the broker for the coverage that was not provided in the policy'” … . “Thus, the duty is defined by the nature of the client’s request” … . However, “[w]here a special relationship develops between the broker and client, . . . the broker may be liable, even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage” … .

… [T]he defendant insurance broker failed to meet its initial burden of tendering sufficient evidence to demonstrate the absence of triable issues of fact with respect to whether the plaintiff client made a specific request for coverage which was not obtained … . … [T]riable issues of fact exist as to whether a specific interaction took place between the plaintiff and the defendant regarding a question of coverage related to the plaintiff’s renovation work on the insured property that could give rise to a special relationship between the parties … . Copacabana Realty, LLC v A.J. Benet, Inc., 2021 NY Slip Op 05944, Second Dept 11-3-21

November 3, 2021/by Bruce Freeman

Insurance Law

THE ENDORSEMENT RELIED UPON BY THE DEFENDANT INSURER TO EXCLUDE COVERAGE FOR AN OIL SPILL DID NOT MEET THE STRICT CRITERIA FOR AN EXCLUSION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant insurer was not entitled to summary judgment on the ground the oil spill damage was covered by a policy exclusion. The policy endorsement relied on by defendant did not meet the strict criteria for an exclusion from coverage:

In order “to ‘negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case'” … . “[P]olicy exclusions are given a strict and narrow construction, with any ambiguity resolved against the insurer” … . Here, in support of its motion for summary judgment, the defendant did not point to an applicable policy exclusion. Rather, the defendant relied on the ELF [Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages] endorsement, which provided additional coverage for the remediation of escaped liquid fuel in limited circumstances not present here. Such argument is unavailing. On its face, the ELF endorsement is not an exclusion. While the defendant argues that the existence of the ELF endorsement compels the conclusion that the policy itself excludes coverage for escaped liquid fuel under any circumstances not specified in the endorsement, policy exclusions are “not to be extended by interpretation or implication” … . As such, the defendant failed to meet its initial burden of establishing, prima facie, that an exclusion not subject to any other reasonable interpretation applied in this case … . Mulle v Lexington Ins. Co., 2021 NY Slip Op 05707, Second Dept 10-20-21

October 20, 2021/by Bruce Freeman

Contract Law, Insurance Law

ALTHOUGH THE BROKER MAY HAVE REQUESTED THAT PLAINTIFF BE ADDED TO THE INSURANCE POLICY, THE BROKER ALLEGEDLY DID NOT VERIFY THE COVERAGE WAS IN PLACE BEFORE ERRONEOUSLY REPRESENTING TO THE PLAINTIFF THAT IT WAS INSURED; THERE WAS A QUESTION OF FACT WHETHER THE BROKER BREACHED A COMMON-LAW OR CONTRACTUAL DUTY OWED TO PLAINTIFF (SECOND DEPT).

The Second Department determined there were triable issues of fact concerning whether defendant Ovation breached its common-law or contractual duty to procure insurance for plaintiff Concrete. Allegedly, Ovation had represented to Concrete that the insurance had been procured but did not verify that the coverage, to be provided by the insurer, was in place:

In general, “insurance brokers have a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so” … . A claim of liability for a violation of this duty may sound in either contract or tort … . To state a claim based upon violation of the insurance broker’s common-law duty, the client must demonstrate that the broker failed to discharge its duty either by breaching the agreement with the client by failing to obtain the requested coverage or by failing to exercise due care in obtaining insurance on the client’s behalf … .

Here, the Ovation defendants failed to establish … that Ovation did not breach its common-law or contractual duty to Concrete. Even assuming [there was a request] that Concrete be added to the existing policy … the deposition testimony submitted by the Ovation defendants … demonstrated that Ovation agreed to obtain insurance for Concrete and then represented that it had done so without verifying this fact. … [T]he Ovation defendants failed to establish, … the absence of a triable issue of fact as to whether Ovation undertook a duty to Concrete which it then failed to discharge. Alpha/Omega Concrete Corp. v Ovation Risk Planners, Inc., 2021 NY Slip Op 05113, Second Dept 9-29-21

September 29, 2021/by Bruce Freeman

Civil Procedure, Insurance Law

SUPREME COURT HAD THE AUTHORITY UNDER CPLR 3001 TO ISSUE A DECLARATORY JUDGMENT ON THE PROPER RATE FOR POST-JUDGMENT INTEREST; ANOTHER COURT’S PRIOR DISCUSSION OF THE PROPER INTEREST RATE WAS MERELY ADVISORY (I.E., NOT ON THE MERITS) AND THEREFORE WAS NOT SUBJECT TO THE DOCTRINES OF RES JUDICATA, COLLATERAL ESTOPPEL OR LAW OF THE CASE (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Dillon, over an extensive dissent, determined (1) Supreme Court had the power to issue a declaratory judgment in this hybrid proceeding seeking a declaratory judgment on the rate of post-judgment interest; and (2) Supreme Court correctly found that dicta in a prior ruling about the proper post-judgment interest rate (i.e., that the rate should be 9% per year under the CPLR, not 2% per month under the Insurance Law) was merely “advisory” and therefore was not controlling under the doctrines of collateral estoppel, res judicata, or law of the case. Supreme Court’s finding that the Insurance Law interest rate applied was affirmed. Using that rate the original 2001 judgment of $8,842.49 had apparently grown to $229,981.66 as of 2015:

CPLR 3001 uniquely vests the Supreme Court with authority to render declaratory judgments to the exclusion of other courts of the state. … [T]o the extent [respondent] wished to obtain a declaratory judgment governing the rate of interest on its judgment, … with appellate remedies correctly foreclosed, the Supreme Court was the only court where it could seek redress on that issue. * * *

… [T]he Appellate Term’s expression in its decision and order dated August 18, 2017, regarding the applicable rate of interest was not determined on the merits, but was instead merely advisory. * * *

… [Appellant] was unable to establish that there was a determination on the merits in any prior proceeding about the proper rate of interest applicable to the judgment, as to preclude the Supreme Court from considering the issue de novo … . Matter of B.Z. Chiropractic, P.C. v Allstate Ins. Co., 2021 NY Slip Op 04484, Second Dept 7-21-21

July 21, 2021/by Bruce Freeman

DEFENDANT EMPLOYEE DID NOT HAVE HIS EMPLOYER’S PERMISSION TO DRIVE THE TRUCK INVOLVED IN THE ACCIDENT; THEREFORE THE EMPLOYER’S INSURER PROPERLY DISCLAIMED COVERAGE (THIRD DEPT).

THE SUBROGATION ACTION BY THE INSURER OF THE PROPERTY OWNER IN THIS SLIP AND FALL CASE WAS NOT PRECLUDED BY THE RES JUDICATA DOCTRINE AFTER A GLOBAL SETTLEMENT WITH THE INJURED PARTY (FOURTH DEPT).

THE INSURER PRESENTED EVIDENCE THE BOARD’S RULING THAT THE INSURER WAS THE RESPONSIBLE CARRIER WAS BASED UPON FRAUDULENT DOCUMENTATIOIN; IT WAS ABUSE OF DISCRETION TO DENY THE INSURER’S APPLICATION FOR REVIEW (THIRD DEPT).

THE $140 MILLION PAID BY BEAR STEARNS TO THE SEC TO SETTLE AN ACTION ALLEGING THE FACILITATION OF LATE TRADING WAS NOT A “PENALTY IMPOSED BY LAW” AND THEREFORE WAS A COVERED LOSS UNDER THE TERMS OF THE INSURANCE POLICIES (CT APP).

THE ENDORSEMENT RELIED UPON BY THE DEFENDANT INSURER TO EXCLUDE COVERAGE FOR AN OIL SPILL DID NOT MEET THE STRICT CRITERIA FOR AN EXCLUSION (SECOND DEPT).

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