Insurance Law – Page 13 – New York Appellate Digest

Debtor-Creditor, Evidence, Insurance Law

THE MEDICAL CENTER WAS ENTITLED TO THE NO-FAULT INSURANCE BENEFITS ASSIGNED TO IT BY THE PEDESTRIAN INJURED BY PLAINTIFF’S TAXI; THE FACT THAT THE PEDESTRIAN HAD SETTLED HIS ACTION AGAINST THE PLAINTIFF TAXI COMPANY DID NOT HAVE ANY BEARING ON THE PLAINTIFF’S OBLIGATION TO PAY THE NO-FAULT BENEFITS TO THE MEDICAL CENTER (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant medical center was entitled to the no-fault benefits assigned to it by the pedestrian injured by plaintiff’s taxi in this traffic accident case. The fact that the pedestrian had settled his action against the plaintiff taxi company had no bearing on the assignment of the no-fault benefits to the medical center:

“[A]n account debtor is authorized to pay the assignor until the account debtor receives notification that the amount due or to become due has been assigned and that payment is to be made to the assignee ” … . To establish that it did not receive notice of the assignment, the plaintiff relies solely on an affidavit of an employee of the plaintiff’s claims administrator, who asserted that the claims administrator never received the faxed notice on July 11, 2011. The employee’s assertion, however, was belied by overwhelming documentary evidence. Indeed, a denial of claim form dated July 20, 2011, which was prepared by the plaintiff’s claims administrator and attached to the employee’s affidavit, designated the defendant as the assignee. In addition, the defendant submitted an arbitration decision dated January 3, 2012, in which [the pedestrian’s] arbitration claim against the plaintiff for no-fault benefits was dismissed on the ground that he lacked standing because he assigned the claims for no-fault benefits. Under these circumstances, the plaintiff failed to raise a triable issue of fact as to whether it received notice of the assignment. Murzik Taxi, Inc. v Lutheran Med. Ctr., 2021 NY Slip Op 02302, Second Dept 4-14-21

April 14, 2021

Civil Procedure, Insurance Law, Negligence

IN THIS COMPLEX EXCESS INSURANCE CASE, WHICH INCLUDED A REVERSAL BY THE COURT OF APPEALS, THE LAW-OF-THE-CASE AND RES-JUDICATA DOCTRINES DID NOT DICTATE THE OUTCOME AND THE EXCESS INSURANCE CARRIER WAS NOT OBLIGATED TO DEFEND OR INDEMNIFY IN THE UNDERLYING PERSONAL INJURY ACTION (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Renwick, reversing Supreme Court, determined that RLI, an excess insurance carrier, was not obligated to defend or indemnify in the underlying personal injury action. In the underlying action, plaintiff, an employee of Transel Elevator, was working on an elevator at a hotel and was injured descending stairs at the hotel. The complex relationships among the parties and several insurance carriers cannot be fairly summarized here. What follows in the First Department’s summary of the case. In essence the First Department held that prior rulings did not dictate the outcome here under law-of-the-case or res-judicata principles:

Plaintiff Aspen Specialty Insurance Company commenced this action seeking a declaration that the excess insurance policy issued by RLI Insurance Company, Inc. was next in order of coverage for a personal injury action, in which Aspen and RLI’s common insured, Alphonse Hotel Corporation, was a defendant. The issue in this case is whether RLI, an excess insurer with a follow form policy, is bound by a prior judicial determination of this Court that the primary policy issued by Ironshore Indemnity Inc., which underlies RLI’s excess policy, covers the defendant in the personal injury action, Alphone, as an additional insured. In the prior declaratory judgment action between Aspen and Ironshore, this Court declared that the language in the additional insured endorsement extends coverage broadly to any injury causally linked to the named insured, which was satisfied in this case because the loss involved an employee of the named insured who was injured while performing the named insured’s work under the contract with the additional insured. RLI argues that it is not bound by this Court’s prior determination because it was not part of the prior declaratory judgment action. In the present declaratory judgment action, RLI wishes to relitigate the issue of whether Ironshore’s policy covers Alphonse as an additional insured. RLI relies upon the 2017 Court of Appeals decision in Burlington Ins. Co. v NYC Tr. Auth. (29 NY3d 313 [2017]), which interpreted language in an additional insured endorsement similar to the language here as covering the additionally insured party, vicariously, only for negligent acts of the named insured. It is undisputed in the instant case that the named insured was not in control of the instrumentality of the accident that caused the underlying personal injuries. … RLI is not bound by our prior determination and that it is entitled to a declaration that it has no obligation to defend or indemnify in the underlying personal injury action. Aspen Specialty Ins. Co. v RLI Ins. Co., Inc., 2021 NY Slip Op 02092, First Dept 4-6-21

April 6, 2021

Civil Procedure, Contract Law, Insurance Law

THE DEFENDANTS SOUGHT REFORMATION OF AN INSURANCE POLICY ALLEGING THE FAILURE TO NAME THEM INDIVIDUALLY AS INSUREDS WAS DUE TO A MUTUAL MISTAKE; THE 3RD DEPARTMENT, OVER A TWO-JUSTICE DISSENT, REVERSED SUPREME COURT AND HELD THE COMPLAINT FAILED TO STATE A CAUSE OF ACTION (THIRD DEPT).

The Third Department, reversing Supreme Court, over a two-justice dissent, determined defendant property owners (Pollards) did not state a cause of action for reformation of an insurance policy based upon mutual mistake. Defendants’ tenant slipped and fell on a staircase outside his apartment at 192-198 Main Street and made a claim against defendants. Defendants’ business, Pollard Excavating, was insured. The insurer disclaimed coverage of the slip and fall at defendants’ apartment because the policy covered only defendants’ business:

The Pollards … allege that they believed that they were covered in their individual capacities and that the failure of [the insurer] to name them as such was the product of a mutual mistake. “It is well established that when interpreting an insurance contract, as with any written contract, the court must afford the unambiguous provisions of the policy their plain and ordinary meaning” … .

… [T]he … third-party complaint asserts that the Pollards own the buildings located at 192-198 Main Street and that they are shareholders of Pollard Excavating and Pollard Disposal. The coverage form contained in the policy issued to Pollard Excavating specifically identifies the insured under the policy as a “corporation in the business of excavating” and further identifies, as relevant here, that “your stockholders are also insureds, but only with respect to their liability as stockholders.” Inasmuch as the express provisions of the insurance policy contract do not include individual coverage for the Pollards, it was incumbent upon the Pollards to allege sufficient facts showing mutual mistake. To that end, the second amended third-party complaint fails to contain any factual allegations that [the insurer] agreed to provide coverage to the Pollards in their individual capacities or that any oral agreement was reached by which [the insurer] was obligated to do so. We therefore find that the … third-party complaint fails to allege with sufficient particularity that the parties “reached an oral agreement and, unknown to either [party], the signed writing does not express that agreement” … . Hilgreen v Pollard Excavating, Inc., 2021 NY Slip Op 02031, Third Dept 4-1-21

April 1, 2021

Attorneys, Insurance Law

FAILURE TO SHOW UP FOR AN INDEPENDENT MEDICAL EXAMINATION (IME) IS A “POLICY ISSUE” WARRANTING DENIAL OF NO-FAULT BENEFITS AND THE AWARD OF ATTORNEY’S FEES TO PLAINTIFF (FIRST DEPT).

The First Department, reversing the Appellate Term and disagreeing with other courts, determined the failure to show up for an independent medical exam (IME) is a “policy issue” warranting the denial of no-fault benefits and the award of attorney’s fees to plaintiff:

… [A]n insurer who denies a claim for first-party No-Fault benefits on the basis of the injured person’s failure to attend an IME properly does so by checking box 4 on the denial of claim form, and therefore an injured person’s failure to attend an IME is a “policy issue” both according to the denial of claim form and for purposes of awarding attorneys’ fees under 11 NYCRR 65-4.6(c). Kamara Supplies v GEICO Gen. Ins. Co., 2021 NY Slip Op 01848, First Dept 3-25-21

March 25, 2021

Insurance Law

THE INSURER’S NEARLY TWO-MONTH DELAY BEFORE DISCLAIMING COVERAGE RENDERED THE DISCLAIMER UNTIMELY AS A MATTER OF LAW (FIRST DEPT).

The First Department, reversing Supreme Court, determined the insurer’s disclaimer of coverage was not timely as a matter of law. The delay in notification was about two months:

“[A] timely disclaimer pursuant to Insurance Law § 3420(d) is required when a claim falls within the coverage terms but is denied based on a policy exclusion” … . The purpose of Insurance Law § 3420 is to protect the insured, injured party, or any other claimant with an interest in the outcome, from prejudice based on a delayed denial of coverage … . “[T]imeliness of an insurer’s disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage” … . The question as to whether the insurer disclaimed coverage as soon as reasonably possible after it first learns of the ground for disclaimer is necessarily case-specific … . “However, where there is no excuse or mitigating factor, the issue poses a legal question for the court, and courts have found relatively short periods to be unreasonable as a matter of law” … .

Here, defendant’s disclaimer, dated December 24, 2014, was untimely as a matter of law. Defendant’s position that it only received plaintiff’s claim on December 16, 2014 is unpersuasive. Defendant was on notice of the underlying accident several months before it disclaimed coverage and commenced an investigation with respect to the alleged accident. Therefore, defendant was sufficiently aware of the facts that would support a disclaimer, but waited almost two months before disclaiming coverage … . ADD Plumbing, Inc. v Burlington Ins. Co., 2021 NY Slip Op 01498, First Dept 3-16-21

March 16, 2021

Agency, Insurance Law, Real Property Law

DEFENDANT TITLE INSURANCE COMPANY WAS ABLE TO DEMONSTRATE DEFENDANT AGENCY DID NOT HAVE ACTUAL AUTHORITY TO ISSUE THE TITLE INSURANCE POLICY TO PLAINTIFF; HOWEVER IT DID NOT DEMONSTRATE THE AGENCY DID NOT HAVE APPARENT AUTHORITY TO ISSUE THE POLICY; THEREFORE THE TITLE INSURANCE COMPANY’S MOTION FOR SUMMARY JUDGMENT SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant WFG, a title insurance company, should not have been granted summary judgment on the “apparent authority” cause of action. WFG had terminated its agency relationship with NMR and had served a temporary restraining order on NMR prohibiting NMR from issuing any title insurance underwritten by WFG. The day after the restraining order was served, NMR issued a policy to plaintiff on property which turned out to have been encumbered with millions of dollars of liens. WFG was able to prove NMR did not have actual authority to issue the policy, but did not demonstrate NMR did not have apparent authority to issue the policy:

In the absence of actual authority, a principal may still be bound by the actions of a person who has apparent authority … . “Essential to the creation of apparent authority are words or conduct of the principal, communicated to a third party, that give rise to the appearance and belief that the agent possesses authority to enter into a transaction” … . The proponent of a motion for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact … . Failure to make such a showing requires a denial of the motion, regardless of the sufficiency of the opposing papers … .

Here, WFG failed to establish, prima facie, that NMR Realty lacked apparent authority to issue the policy. WFG merely pointed to gaps in the plaintiff’s proof, which was insufficient to meet its prima facie burden as the party moving for summary judgment … . Schwartz v WFG Natl. Tit. Ins. Co., 2021 NY Slip Op 01279, Second Dept 3-3-21

March 3, 2021

Consumer Law, Contract Law, Insurance Law

DAMAGES FOR EMOTIONAL DISTRESS ARE NOT AVAILABLE FOR BREACH OF CONTRACT; INSURANCE LAW 2601 DOES NOT CREATE A PRIVATE RIGHT OF ACTION; A GENERAL BUSINESS LAW 349 DECEPTIVE BUSINESS PRACTICES CAUSE OF ACTION WILL SUPPORT A CLAIM FOR PUNITIVE DAMAGES (SECOND DEPT).

The Second Department, modifying Supreme Court, determined emotional-distress damages are not available for breach of contract and Insurance Law 2601 does not create a private right of action. Plaintiff’s property was damaged by Hurricane Sandy. Plaintiff and defendant insurers reached a settlement agreement in which defendants agreed to pay plaintiff $1.6 million within 21 days. Defendants paid only about $400,000, claiming that the over $1 million already paid, together with the $400,000, satisfied the $1.6 million agreed to. Supreme Court and the Second Department disagreed finding that the settlement agreement was unambiguous. Plaintiff was therefore entitled to summary judgment on the breach of contract cause of action (the defendants’ mutual and unilateral mistake arguments were rejected). The deceptive business practices (General Business Law 349) cause of action, together with the related punitive damages claim, survived defendants’ motion to dismiss. With respect to damages for emotional distress, the court wrote:

… Supreme Court should have granted that branch of the defendants’ cross motion which was to dismiss the plaintiff’s demand for damages for emotional distress. A breach of a contractual duty does not create a right of recovery for damages for emotional distress … . Here, the plaintiff alleges no facts giving rise to a relationship between him and the defendants apart from the insurance contract and settlement agreement. An alleged breach of the implied covenant of good faith and fair dealing does not support an award of damages for emotional distress … . Inasmuch as Insurance Law § 2601 serves to regulate insurers’ performance of their contractual obligations rather than to create a separate duty of care and does not give rise to a private cause of action … , the defendants’ alleged violation of their obligations under Insurance Law § 2601 does not support a claim for damages for emotional distress. Perlbinder v Vigilant Ins. Co., 2021 NY Slip Op 00439, Second Dept 1-27-21

January 27, 2021

Contract Law, Insurance Law

AN ANSWER TO AN AMBIGUOUS QUESTION ON AN APPLICATION FOR INSURANCE COVERAGE IS NOT A MATERIAL MISREPRESENTATION; THEREFORE THE ANSWER DID NOT VOID THE POLICY WHICH REMAINS IN FULL FORCE AND EFFECT (FIRST DEPT).

The First Department, reversing Supreme Court, determined a question in the application for insurance coverage was ambiguous. Therefore the answer to the question was not a material misrepresentation and the policy remains in full force and effect:

A misrepresentation in an insurance application is material, voiding the policy ab initio, if, had the true facts been known, either the insurer would not have issued the policy or would have charged a higher premium … . Even an innocent misrepresentation is sufficient to void the policy … . However, “an answer to an ambiguous question on an insurance application cannot be the basis for a claim of misrepresentation” in procuring insurance … .

Here, on defendants-respondents’ insurance application submitted to plaintiff, Question 9, which asked “Any uncorrected code violations?” is ambiguous. While the plain language asks whether there are “any uncorrected fire code violations” and not uncorrected fire code notices of violation, different witnesses provided five different understandings as to what the question was asking. In any event, this Court has used the term “violation” to mean the issuance of a citation … . Indeed, the question is not even posed as a complete sentence but a sentence fragment lacking a verb, which could have clarified the question. Starr Indem. & Liab. Co. v Monte Carlo, LLC, 2021 NY Slip Op 00044, First Dept 1-5-21

January 5, 2021

Contract Law, Insurance Law

DEFENDANT INSURER DID NOT ELIMINATE ALL QUESTIONS OF FACT ABOUT WHETHER PLAINTIFFS (INSUREDS) VIOLATED THE COOPERATION CLAUSE IN THE POLICY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant insurer did not eliminate all questions of fact whether the plaintiffs (insureds) violated the cooperation clause in the policy:

“An unexcused and willful refusal to comply with disclosure requirements in an insurance policy is a material breach of the cooperation clause and precludes recovery on a claim. Compliance with such a clause is a condition precedent to coverage, properly addressed by the court” … . “In order to establish breach of a cooperation clause, the insurer must show that the insured engaged in an unreasonable and willful pattern of refusing to answer material and relevant questions or to supply material and relevant documents” … .

Here, the defendant failed to eliminate all triable issues of fact as to whether the plaintiffs breached the cooperation clause of the policy. Jahangir v Tri-State Consumer Ins. Co., 2020 NY Slip Op 08049, Second Dept 12-30-20

December 30, 2020

Contract Law, Insurance Law

AN INSURER WHO HAS NO DUTY TO DEFEND THE INSUREDS BECAUSE OF LATE NOTIFICATION, IN THE ABSENCE OF A PROVISION IN THE POLICY, MAY NOT RECOVER THE COSTS OF DEFENDING THE ACTION FROM THE INSUREDS AND THE SUCCESSFUL PLAINTIFF IN THE UNDERLYING ACTION (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, in a full-fledged opinion by Justice Duffy addressing a matter of first impression, determined the plaintiff insurer, which was not obligated to indemnify the insureds for a $900,000 default judgment because plaintiff insurer was not timely notified of the claim, could not recover the costs of defending the action from the insureds and the successful plaintiff in the underlying action. The policy was silent on the question. At issue was the effect of a reservation of rights in a letter to the insureds:

There is little doubt that the insurance company could have included in the policy a provision wherein it could recover its defense costs (upon a reservation of rights and a judicial determination that it is not required to indemnify) had it wanted to, but it did not do so here.

The insurance company points to its May 2017 letter wherein it reserved its rights to seek to recover the costs of defending the underlying litigation and argues that other New York courts … . * * *

Typically, a reservation of rights letter asserts defenses and exclusions that are set forth in the policy between the parties. Indeed, awarding an insurer its defense costs when the insurer issues a reservation of rights letter for the same despite the lack of any language in the policy at issue permitting the insurer to recover the costs of defending claims that are later determined not covered by the policy flies in the face of basic contract principles and allows an insurer to impose a condition on its defense that was not bargained for … . Moreover, “‘strong policy considerations militate against allowing an insurer to unilaterally declare that it can recoup the costs of defending an insured where it is later determined [that the policy at issue did not cover the asserted claims]'” as doing so would allow an insurer to define its duty to defend based upon the outcome of a declaratory judgment action and significantly curtail New York’s long held view that the duty to defend is broader than the duty to indemnify … . Thus, we hold that the insurance company may not recover its defense costs based on the May 2017 letter wherein it reserved its rights to recoup its defense costs in the underlying litigation absent an express provision to that effect in the policy. American W. Home Ins. Co. v Gjonaj Realty & Mgt. Co., 2020 NY Slip Op 08027, Second Dept 12-30-20

December 30, 2020

IN THIS COMPLEX EXCESS INSURANCE CASE, WHICH INCLUDED A REVERSAL BY THE COURT OF APPEALS, THE LAW-OF-THE-CASE AND RES-JUDICATA DOCTRINES DID NOT DICTATE THE OUTCOME AND THE EXCESS INSURANCE CARRIER WAS NOT OBLIGATED TO DEFEND OR INDEMNIFY IN THE UNDERLYING PERSONAL INJURY ACTION (FIRST DEPT).

THE DEFENDANTS SOUGHT REFORMATION OF AN INSURANCE POLICY ALLEGING THE FAILURE TO NAME THEM INDIVIDUALLY AS INSUREDS WAS DUE TO A MUTUAL MISTAKE; THE 3RD DEPARTMENT, OVER A TWO-JUSTICE DISSENT, REVERSED SUPREME COURT AND HELD THE COMPLAINT FAILED TO STATE A CAUSE OF ACTION (THIRD DEPT).

FAILURE TO SHOW UP FOR AN INDEPENDENT MEDICAL EXAMINATION (IME) IS A “POLICY ISSUE” WARRANTING DENIAL OF NO-FAULT BENEFITS AND THE AWARD OF ATTORNEY’S FEES TO PLAINTIFF (FIRST DEPT).

THE INSURER’S NEARLY TWO-MONTH DELAY BEFORE DISCLAIMING COVERAGE RENDERED THE DISCLAIMER UNTIMELY AS A MATTER OF LAW (FIRST DEPT).

DAMAGES FOR EMOTIONAL DISTRESS ARE NOT AVAILABLE FOR BREACH OF CONTRACT; INSURANCE LAW 2601 DOES NOT CREATE A PRIVATE RIGHT OF ACTION; A GENERAL BUSINESS LAW 349 DECEPTIVE BUSINESS PRACTICES CAUSE OF ACTION WILL SUPPORT A CLAIM FOR PUNITIVE DAMAGES (SECOND DEPT).

AN ANSWER TO AN AMBIGUOUS QUESTION ON AN APPLICATION FOR INSURANCE COVERAGE IS NOT A MATERIAL MISREPRESENTATION; THEREFORE THE ANSWER DID NOT VOID THE POLICY WHICH REMAINS IN FULL FORCE AND EFFECT (FIRST DEPT).

DEFENDANT INSURER DID NOT ELIMINATE ALL QUESTIONS OF FACT ABOUT WHETHER PLAINTIFFS (INSUREDS) VIOLATED THE COOPERATION CLAUSE IN THE POLICY (SECOND DEPT).

AN INSURER WHO HAS NO DUTY TO DEFEND THE INSUREDS BECAUSE OF LATE NOTIFICATION, IN THE ABSENCE OF A PROVISION IN THE POLICY, MAY NOT RECOVER THE COSTS OF DEFENDING THE ACTION FROM THE INSUREDS AND THE SUCCESSFUL PLAINTIFF IN THE UNDERLYING ACTION (SECOND DEPT).

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