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Unambiguous Limitation of Liability to $10,000 Should Have Been Enforced

The Second Department determined summary judgment should have been granted to defendant insurer. A fire damaged school dormitories. The insurer paid for the repair but paid only $10,000 toward the more than $200,000 the school paid to relocate the students. The court determined that the policy was unambiguous and the $10,000 limit was properly applied to the relocation costs. The court explained the relevant analytical principles:

In construing policy provisions defining the scope of coverage pursuant to a policy of insurance, courts ” first look to the language of the policy'” …, reading it ” in light of common speech and the reasonable expectations of a businessperson'” …, and in a manner that ” leaves no provision without force and effect'” … . The unambiguous terms of an insurance contract must be given their plain and ordinary meaning, and the interpretation of such terms is a question of law for the court … . Where an ” agreement on its face is reasonably susceptible of only one meaning, a court is not free to alter the contract to reflect its personal notions of fairness and equity'” … . However, if the terms of the policy are ambiguous, any ambiguity must be construed in favor of the insured and against the insurer … .

Here, the defendant established its prima facie entitlement to judgment as a matter of law. The $10,000 limitation was at the end of the pertinent “Additional Coverage” section 5 titled “Institutional Income and Extra Expense.” The limitation stated that the most the defendant “will pay under this Additional Coverage for Institutional Income and Extra Expense is $10,000, unless a higher limit is shown on the Declarations Page.” There was no such higher limit shown on that page. Contrary to the plaintiff’s contention, there was no ambiguity in this additional coverage. Viznitz v Church Mut. Ins. Co., 2015 NY Slip Op 07648, 2nd Dept 10-21-15

 

Late Disclaimer on a Valid Ground Not Excused

The First Department determined the failure to timely disclaim coverage on a valid ground was ineffective. The fact that other grounds for disclaimer might have been investigated does not excuse the late disclaimer: …”Insurance Law § 3420(d) ‘precludes an insurer from delaying issuance of a disclaimer on a ground that the insurer knows to be valid . . . while investigating other possible grounds for disclaiming'”… . Endurance Am. Specialty Ins. Co. v Utica First Ins. Co., 2015 NY Slip Op 07329, 1st Dept 10-8-15

 

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Conclusory Allegations Will Not Survive a Motion to Dismiss for Failure to State a Cause of Action—Punitive Damages Must Be Connected to a Substantive Cause of Action—Late Disclaimer in Property Damage Action Is Valid Absent Prejudice

The Fourth Department determined plaintiff’s cause of action alleging bad faith on the part of the insurer should have been dismissed for failure to state a cause of action. The court explained that conclusory, as opposed to fact-based, allegations will not survive a motion to dismiss. The court noted that a claim for punitive damages must be tied to a specific cause of action and cannot be based upon conclusory allegations.  The court further held that even an unreasonable delay in disclaiming a property damage claim is valid absent prejudice:

Our role is thus to “determine only whether the facts as alleged fit within any cognizable legal theory . . . and the criterion is whether the proponent of the pleading has a cause of action, not whether he [or she] has stated one’ ” … . Nevertheless, ” [w]hile it is axiomatic that a court must assume the truth of the complaint’s allegations, such an assumption must fail where there are conclusory allegations lacking factual support’ ” … . Indeed, ” a cause of action cannot be predicated solely on mere conclusory statements . . . unsupported by factual allegations’ ” … . …

… [W]e note that, “in order to establish a prima facie case of bad faith, the plaintiff must establish that the insurer’s conduct constituted a gross disregard’ of the insured’s interests” … . We conclude … the fourth and sixth causes of action “should have been dismissed because they do not allege [any] conduct by [Allstate] constituting the requisite gross disregard of the insured’s interests’ necessary to support such causes of action” … . Moreover, the “[a]llegations that [Allstate] had no good faith basis for denying coverage are redundant to [plaintiffs’] cause[s] of action for breach of contract based on the denial of coverage, and do not give rise to an independent tort cause of action, regardless of the insertion of tort language into the pleading” … .

… “A demand or request for punitive damages is parasitic and possesses no viability absent its attachment to a substantive cause of action” … . Here, the complaint fails to set forth “the pleading elements required to state a claim for punitive damages” … ; plaintiffs’ “conclusory allegation[s] as to [Allstate’s] motive for [its] refusal [to pay the claim are] an insufficient premise for a demand for punitive damages” … . …

Where, as here, the underlying claim does not arise out of an accident involving bodily injury or death, the notice of disclaimer provisions set forth in Insurance Law § 3420 (d) are inapplicable and, [u]nder the common-law rule, delay in giving notice of disclaimer of coverage, even if unreasonable, will not estop the insurer to disclaim unless the insured has suffered prejudice from the delay’ ” … . Contrary to plaintiffs’ contention, their conclusory allegation that they were “damaged and prejudiced” by the untimely disclaimer is insufficient to withstand this CPLR 3211 (a) (7) motion to dismiss … . Miller v Allstate Indem. Co., 2015 NY Slip Op 07134, 4th Dept 10-2-15

 

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Insurer Must Demonstrate Compliance with 30-Day Notice Requirement Re: an Independent Medical Examination (IME)

The First Department, over a dissent, affirmed Supreme Court’s denial of plaintiff-insurer’s motion for summary judgment which argued the insurer was not obligated to provide no-fault insurance coverage because defendant did not appear for a scheduled independent medical examination (IME).  In order to be entitled to summary judgment, the insurer was required to show that it notified defendant of the IME within 30 days of the insurer’s receipt of the verification form from the defendant. Plaintiff’s papers did not state when the verification form was received by it.  Therefore, the plaintiff could not show it complied with the 30-day-notice requirement. The court noted that the issue could be determined as a matter of law and the defect could not be cured in reply papers:

“Contrary to the position taken by the dissent, the issue of whether plaintiff has failed to establish that the notices for the IMEs were timely, pursuant to 11 NYCRR 65-3.5(d), presents a question of law which this Court can review. Unlike the dissent, we find that plaintiff was required to submit proof of the timely notice in order to make a prima facie showing of entitlement to judgment as a matter of law. Any belated attempt by plaintiff to cure this deficiency in its prima facie showing by submitting evidence for the first time in reply would have been improper…”. American Tr. Ins. Co. v Longevity Med. Supply, Inc., 2015 NY Slip Op 06761, 1st Dept 9-15-15

 

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Even Though the Insured Was Faultless, the “Additional Insureds” Endorsement Was Triggered—The Endorsement Covered Acts or Omissions by the Insured Which “Caused” the Underlying Injury Without Any Requirement that the “Cause” Entail Negligence—Here the Insured Was Not Negligent, but the Injury Was “Caused” by Insured’s Non-Negligent Acts—Therefore the Additional Insureds Were Covered Under the Policy

The First Department, in a full-fledged opinion by Justice Friedman, determined that the “additional insureds” endorsement in plaintiff-insurer’s policy did not have a “negligence trigger.” Therefore, even though it was demonstrated that the company insured under plaintiff-insurer’s policy was not negligent, the endorsement covered the “additional insureds” because there was a causal relationship between the insured’s acts and the underlying injury to a worker. The insured company, Breaking Solutions, was hired by the New York City Transit Authority (NYCTA) and the Metropolitan Transit Authority (MTA) to break up concrete for a subway construction project. Plaintiff-insurer, Burlington Insurance Co. insured Breaking Solutions.  The NYCTA and MTA were additional insureds under the policy. It was NYCTA’s responsibility to identify the location of electric cables and to shut off the power in the areas where Breaking Solutions was working. NYCTA failed to identify and shut off the power to a cable which was struck by Breaking Solutions’ excavation equipment resulting in an explosion. The plaintiff in the underlying personal injury action, an NYCTA employee, was injured by the explosion. The issue came down to the language of the “additional insureds” endorsement which referred only to injuries “caused” by the acts or omissions of the insured. Even though the probable intent of the drafters of the policy was to cover only “negligent” acts or omissions by the insured which “caused” the injury, the language of the endorsement could only be enforced as written. Because the worker’s injuries were “caused” by the (non-negligent) acts of the insured, the additional insureds (NYCTA and MTA) were covered under the terms of the policy:

While it is true that, because NYCTA had not warned the Breaking Solutions’ operator of the cable’s presence, Breaking Solutions’ “act[]” did not constitute negligence, this does not change the fact that the act of triggering the explosion, faultless though it was on Breaking Solutions’ part, was a cause of [the worker’s] injury. The language of the relevant endorsement, on its face, defines the additional insured coverage afforded in terms of whether the loss was “caused by” the named insured’s “acts or omissions,” without regard to whether those “acts or omissions” constituted negligence or were otherwise actionable. Burlington Ins. Co. v NYC Tr. Auth., 2015 NY Slip Op 06481, 1st Dept 8-11-15

 

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Question of Fact Whether Firefighter’s Injury Was Proximately Caused by Driver’s Negligent Operation of His Car Under the “Danger Invites Injury” Doctrine—Firefighter Was Injured Removing Injured Driver from His Car After an Accident

The Second Department determined a firefighter may be entitled to coverage under his own insurance policy’s supplementary uninsured/underinsured motorists (SUM) coverage. Plaintiff-firefighter responded to a car accident and injured his shoulder removing the injured driver, Goodman, from his car. Plaintiff recovered the limit ($25,000) of Goodman’s policy and sought to recover under his own SUM endorsement. Reversing Supreme Court, the Second Department held it could not be determined as a matter of law that plaintiff’s injury was not proximately caused by Goodman’s negligent use of his car. Plaintiff had invoked the “danger invites rescue” doctrine in support of his argument that his shoulder injury was proximately caused by Goodman’s negligence:

SUM endorsements provide coverage only when the injuries are “caused by an accident arising out of such underinsured motor vehicle’s ownership, maintenance or use” … . Factors to be considered in determining whether an accident arose out of the use of a motor vehicle include whether the accident arose out of the inherent nature of the vehicle and whether the vehicle itself produces the injury rather than merely contributes to cause the condition which produces the injury … . ” [T]he [vehicle] itself need not be the proximate cause of the injury,’ but negligence in the use of the vehicle must be shown, and that negligence must be a cause of the injury'” … . ” To be a cause of the injury, the use of the motor vehicle must be closely related to the injury'” … . “[T]he use of the underinsured vehicle must be a proximate cause of the injuries for which coverage is sought” … .

[Plaintiff] invoked the doctrine of “danger invites rescue” to establish that Goodman’s negligent use of the underinsured vehicle proximately caused his injuries. That doctrine imposes liability upon a party who, “by his [or her] culpable act has placed another person in a position of imminent peril which invites a third person, the rescuing plaintiff, to come to his [or her] aid” … . The doctrine also applies “where the culpable party has placed himself [or herself] in a perilous position which invites rescue” … . “In order for the doctrine to apply, the rescuer must have had a reasonable belief that the person being rescued was in peril” … .

Here, [the insurer] failed to establish that [plaintiff] was not entitled to coverage under the SUM endorsement. The evidence in the record establishes that Goodman’s negligent use of his vehicle directly caused the accident that led to him being trapped and in obvious need of medical attention, which, in turn, led to Rich’s intervention and resulting injuries … . It cannot be said, as a matter of law, that Goodman’s negligent use of his vehicle was not a proximate cause of [plaintiff’s] injuries under the doctrine of danger invites rescue. Accordingly, the Supreme Court should have denied that branch of the petition which was to permanently stay arbitration. Matter of Encompass Indem. Co. v Rich, 2015 NY Slip Op 06432, 2nd Dept 8-5-15

 

Plaintiff Did Not Affirmatively Demonstrate Fire Was Not Intentionally Set by Merely Challenging the Insurer’s Arson Investigation—Plaintiff’s Summary Judgment Motion Properly Denied—Proof Burdens at Summary Judgment Stage Explained

The Third Department determined plaintiff was not entitled to summary judgment in its breach of contract action against the insurer. Plaintiff’s restaurant was destroyed by fire. The insurer disclaimed coverage on the ground that the fire had been intentionally set. Plaintiff brought a summary judgment motion seeking the dismissal of the insurer’s affirmative defense (arson) and judgment in its favor on liability. The court explained the relevant proof burdens re: the affirmative defense of arson at the summary judgment stage:

As the movant, plaintiff was required to initially demonstrate “the absence of genuine issues of material fact on every relevant issue raised by the pleadings, including any affirmative defenses” … . Upon the affirmative defense of arson, if plaintiff, as the insured, met its initial burden, the burden would then shift to defendant, as the insurer. Although defendant’s ultimate burden of proving the affirmative defense at trial would be by the standard of clear and convincing evidence …, this strict standard is not applied at this juncture. Assuming that plaintiff met its initial burden to demonstrate that the fire was not intentionally set and that plaintiff had no motive to commit arson, to defeat the summary judgment motion defendant was merely required to demonstrate “that plaintiff’s premises may have been damaged by arson and that plaintiff may have had a motive to see the property destroyed by fire” … . Importantly, “[e]vidence of motive and incendiary origin without more is sufficient to defeat an insured’s motion for summary judgment in an action on its fire insurance policy” … .

Plaintiff failed to offer evidence to establish that the fire had not been intentionally set and, instead, merely challenged the validity of defendant’s investigation, arguing that the evidence failed to affirmatively establish that the fire had been deliberately set. Morley Maples, Inc. v Dryden Mut. Ins. Co., 2015 NY Slip Op 06395, 3rd Dept 7-30-15

 

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The Arbitrator Had the Power to Determine Whether Respondent Insurer Was a Motor Vehicle Insurer Subject to Mandatory Arbitration Pursuant to the No-Fault Insurance Law—The Arbitrator’s Conclusion that the Respondent Insurer Was Not a Motor Vehicle Insurer Had a Rational Basis

The Second Department, in a full-fledged opinion by Justice Hinds-radix, held the arbitrator had the power to determine whether the respondent insurance company, American Bankers Ins. Co., was a motor vehicle insurer subject to the mandatory arbitration provision of the No-Fault Insurance Law. The court affirmed the arbitrator’s determination that American Bankers Ins. Co. was not a motor vehicle insurer (and therefore was not subject to mandatory arbitration). The taxi insured by petitioner was involved in a collision with a horse. The rider was seriously injured and petitioner insurer paid out about $60,000 in no-fault benefits. The petitioner insurer then sought to recover the no-fault benefits from American Bankers Ins. Co., which insured the stable where the horse was kept. The Second Department explained the powers of the arbitrator and explained why the arbitrator’s conclusion (that the matter was not subject to mandatory arbitration under the Insurance Law) was rational. With respect to the arbitrator’s powers, the court wrote:

… [T]he arbitrator had the authority to rule on the issue of whether the controversy was subject to mandatory arbitration under Insurance Law § 5102 and its implementing regulations. An arbitrator’s authority generally “extends to only those issues that are actually presented by the parties” … . Therefore, an arbitrator is precluded from identifying and considering an affirmative defense that is not pleaded by a party to the arbitration. Here, however, the issue before the arbitrator cannot be characterized as an affirmative defense, such as lack of coverage … . Nor was the issue whether the petitioner satisfied a condition precedent to recovery in a loss-transfer proceeding … . Rather, the issue before the arbitrator was the threshold issue of whether American Bankers was an “insurer” subject to the mandatory arbitration procedures of Insurance Law § 5105, and 11 NYCRR 3.12(b) … . Furthermore, the fact that American Bankers elected not to participate in the arbitration did not divest the arbitrator of the authority to determine, in the first instance, whether American Bankers was an “insurer” within the meaning of the subject statute and regulation. An arbitrator may hear and determine a controversy upon the evidence produced, notwithstanding the failure of a party to appear (see CPLR 7506[c]…), and since American Bankers did not appear at the arbitration, it did not affirmatively waive the issue of whether it was an “insurer” subject to arbitration by participating in the arbitration and raising other issues to the exclusion of that issue … .

As noted by the Court of Appeals, a party may not be bound to arbitrate a dispute by mere inaction … . Therefore, American Bankers’ failure to move to stay arbitration pursuant to CPLR 7503 did not render this dispute arbitrable, where, as here, no agreement to arbitrate was ever made …, and where … American Bankers was not an insurer subject to the statutory requirement to submit to mandatory arbitration. Matter of Fiduciary Ins. Co. v American Bankers Ins. Co. of Fla., 2015 NY Slip Op 06343, 2nd Dept 7-29-15

 

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General Obligations Law Prohibition of Indemnification Agreements Which Exempt a Lessor from Its Own Negligence Does Not Apply to a Commercial Lease Negotiated at Arm’s Length Between Sophisticated Parties With an Insurance Procurement Requirement

The Second Department determined the lessor of a shopping center, Montauk Properties, under the terms of its lease with a supermarket, Gambar Food, was entitled to indemnification re: plaintiff’s slip and fall on a sidewalk in front of the supermarket.  Although the terms of the lease exempted the lessor from liability for its own negligence, which is a violation of General Obligations Law (GOL) 5-321, GOL 5-231 does not apply to a commercial lease negotiated at arm’s length between sophisticated parties with an insurance procurement requirement:

The lease between Montauk Properties and Gambar Food requires Gambar Food to indemnify Montauk Properties “for any matter or thing growing out of the occupation of the demised premises or of the streets, sidewalks or vaults adjacent thereto.” The plaintiff’s accident falls within the scope of this indemnification provision …, which, under its broadly drawn language, obligates Gambar Food to indemnify Montauk Properties for its own negligence. Although General Obligations Law § 5-321 provides that an agreement that purports to exempt a lessor from its own negligence is void and unenforceable, the subject indemnification provision is not rendered unenforceable by this statute. “[W]here, as here, the liability is to a third party, General Obligations Law § 5-321 does not preclude enforcement of an indemnification provision in a commercial lease negotiated at arm’s length between two sophisticated parties when coupled with an insurance procurement requirement” … . Campisi v Gambar Food Corp., 2015 NY Slip Op 06205, 2nd Dept 7-22-15

 

Once the Insurer Shows an Exclusion to Coverage Applies, the Burden is on the Insured to Demonstrate an Exception to the Exclusion Applies

In finding the insurer was properly awarded summary judgment, the Second Department explained the burdens of proof re: exclusions from coverage (burden on insurer) and exceptions to exclusions from coverage (burden on insured):

“In determining a dispute over insurance coverage, we first look to the language of the policy” … . Although the insurer has the burden of proving the applicability of an exclusion …, it is the insured’s burden to establish the existence of coverage … . Thus, “[where] the existence of coverage depends entirely on the applicability of [an] exception to the exclusion, the insured has the duty of demonstrating that it has been satisfied” … .

The defendant [insurer] established its prima facie entitlement to judgment as a matter of law by demonstrating the applicability of an exclusion in the plaintiff’s policy … . … [T]he plaintiff failed to raise a triable issue of fact regarding the applicability of an exception to the exclusion … . Copacabana Realty, LLC v Fireman’s Fund Ins. Co., 2015 NY Slip Op 06106, 2nd Dept 7-15-15

 

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