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The Meaning of “Manifest Intent” in the Context of a Fidelity Bond Insuring the Employer Against Dishonest Acts by an Employee Explained

The First Department explained what the term “manifest intent” means as the term appeared in a fidelity bond which insured the employer from dishonest acts by an employee. The coverage was triggered only when the employee acted with the “manifest intent” to cause the insured to sustain loss or to obtain financial benefit for the employee or a third party:

Manifest intent involves a continuum of conduct, ranging from embezzlement, where the employee necessarily intends to cause the employer the loss, to the other end of the continuum, which does not trigger fidelity coverage, where “the employee’s dishonesty at the expense of a third party is intended to benefit the employer, since the employee’s gain results from the employer’s gain”… .

Manifest intent to injure an employer exists as a matter of law where an employee acts with substantial certainty that his employer will ultimately bear the loss occasioned by his dishonesty and misconduct… . Keybank Natl Assn v National Union Fire Ins Co of Pittsburgh PA, 2015 NY Slip Op 00614, 1st Dept 1-22-15

 

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“Warranty” Need Not Be Set Forth In Any Special Manner—Here the Language on the Declaration Page that “Warranted” a Fire Alarm Will Be “Fully Operational” Was a Valid Condition Precedent to the Insured’s Liability—Summary Judgment In Favor of Insurer Properly Granted

The Second Department determined the language on the declaration page of a fire insurance policy constituted a “warranty” that the fire alarm will be “fully operational,” meaning that the alarm must be activated at the time of the fire or coverage can be disclaimed The alarm was not activated at the time of the fire and defendant’s motion for summary judgment was therefore properly granted:

Insurance Law § 3106(a) provides:

“In this section warranty means any provision of an insurance contract which has the effect of requiring, as a condition precedent of the taking effect of such contract or as a condition precedent of the insurer’s liability thereunder, the existence of a fact which tends to diminish, or the non-existence of a fact which tends to increase, the risk of the occurrence of any loss, damage, or injury within the coverage of the contract” (Insurance Law § 3106[a] [emphasis added]).

“As a general matter, warranties represent a promise by the insured to do or not to do some thing that the insurer considers significant to its risk of liability under an insurance contract” … . Here, the provision in the “special conditions” section of the declaration page which states “[w]arranted . . . burglar alarm[] will be [f]ully operational throughout the period of the policy” meets the definition of a warranty pursuant to the Insurance Law, since requiring the plaintiff to have a fully operational burglar alarm would be significant to the defendant’s risk of liability under the insurance policy. Contrary to the plaintiff’s contention, there is no requirement that the warranty be set forth in any particular manner, as long as its effect is to create a condition precedent to the insurer’s liability. Indeed, the use of the term “warranted” at the beginning of the subject provision establishes that the provision was a warranty as defined by the Insurance Law … . Triple Diamond Cafe Inc v Those Certain Underwriters at Lloyd’s London, 2015 NY Slip Op 00527, 2nd Dept 1-21-15

 

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“Findings” of Wrong-Doing in Bear Stearns’ Settlement Agreements with the Securities and Exchange Commission and the New York Stock Exchange Did Not Constitute an “Adjudication” of Wrong-Doing Which Would Support the Insurer’s Affirmative Defense Based Upon the “Dishonest Acts Exclusion” in the Professional Liability Insurance Policy—However, the Insurer’s Affirmative Defense Based Upon the Public Policy Precluding Coverage for Intentional Harm to Others Should Not Have Been Dismissed

The First Department, in a full-fledged opinion by Justice Mazzarelli, determined that the “dishonest acts exclusion” in the professional liability insurance policy issued by the defendant to the plaintiff (Bear Stearns) could not be used as an affirmative defense in Bear Stearns’ action seeking coverage for settlements paid by Bear Stearns.  Bear Stearns had entered settlement agreements with the Securities & Exchange Commission (SEC) and the New York Stock Exchange (NYSE) in which “findings” of misconduct were made.  The question before the First Department was whether those “findings” constituted an “adjudication” of wrong-doing such that the “dishonest acts exclusion” prohibited recovery from the insurer.  The First Department held that the “findings” did not constitute an adjudciation and the affirmative defense based on the “dishonest acts exclusion” was properly dismissed.  However, the First Department further found the affirmative defense based upon public policy (precluding coverage for monies paid by the insured as a result of intentional harm to others) should not have been dismissed:

Here, the issue is the applicability of the Dishonest Acts Exclusion, so defendants bear the specific burden of demonstrating that a settlement constitutes an “adjudication” for purposes of the exclusion.

In arguing that the term “adjudication” means any resolution of a dispute that has specific consequences for a party, defendants virtually ignore the part of the Dishonest Acts Exclusion that requires that any adjudication “establish that such Insured(s) were guilty of any deliberate, dishonest, fraudulent or criminal act or omission” (emphasis added). Defendants quote the dictionary definition of “adjudication,” but fail to note that “establish” is defined, in this context, as “to put beyond doubt” (Merriam—Webster’s Collegiate Dictionary [11th ed 2003]). It can hardly be said that the SEC Order and the NYSE Stipulation put Bear Stearns’s guilt “beyond doubt,” when those very same documents expressly provided that Bear Stearns did not admit guilt, and reserved the right to profess its innocence in unrelated proceedings. Again, in interpreting the policy we are guided by reason, and defendants’ position that the settlement documents “establish” guilt is not reasonable. * * *

Because the Dishonest Acts Exclusion does not apply, the motion court properly dismissed defendants’ affirmative defense based on that exclusion. However, the court should not have dismissed the affirmative defense invoking the public policy against permitting insurance coverage for disgorgement, to the extent it is based on the settlements with the SEC and the NYSE. Bear Stearns argues that the absence of an adjudication of wrongdoing within the meaning of the Dishonest Acts Exclusion bars defendants from relying on the “findings” in the settlement orders for purposes of the public policy doctrine. Again, however, as the Court of Appeals stated in the prior appeal, one of the two situations in which the contractual language of a policy may be overwritten is where an insured engages in conduct “with the intent to cause injury” … . JP Morgan Sec Inc v Vigilant Ins Co, 2015 NY Slip Op 00462, 1st Dept 1-15-15

 

Totality of the Evidence Established Accident Was “Staged”

The Second Department determined Supreme Court erred when it found a collision was a covered event under a driver’s (Trotman’s) policy because the totality of the evidence demonstrated the collision was “staged:”

A deliberate collision by an insured is not a covered event under an insurance policy … . Here, the strong circumstantial evidence at the framed-issue hearing established that Trotman intentionally caused the collision between his vehicle and Young’s vehicle. In finding otherwise, the Supreme Court focused entirely on whether Trotman’s vehicle suffered any damage, rather than on the totality of the evidence … . Accordingly, because the evidence at the hearing established that Trotman intentionally caused the collision with Young’s vehicle, the collision between the two vehicles was not a covered event under Trotman’s policy with GEICO. Matter of Liberty Mut Ins Co v Young, 2015 NY Slip Op 00377, 2nd Dept 1-14-15

 

If the Accident Was Staged by the Insured, the Insurer Would Not Be Required to Cover a Party Injured In the Collision, Even If that Party Was Not Involved in the Staging

Reversing Supreme Court, the Second Department determined that the insurer could disclaim coverage if the accident was staged by the insured (Robinson), even with respect to a party not shown to have been involved in the staging (Pontoon).  Here Robinson's vehicle side-swiped the vehicle in which Pontoon was a passenger:

Robinson's vehicle was covered under an automobile liability insurance policy issued by the proposed additional respondent Government Indemnity Company (hereinafter GEICO). Pontoon sought coverage for the incident from GEICO. GEICO disclaimed coverage on the ground, inter alia, that the collision was staged, and thus resulted from an intentional act. Pontoon then sought arbitration under the uninsured motorist provision of Nelson's policy, which was issued by Nationwide General Insurance Company (hereinafter Nationwide). Nationwide initiated this proceeding under CPLR article 75 seeking to permanently stay the arbitration on the ground that GEICO was required to provide coverage for Pontoon's injuries, and thus Robinson was not “uninsured.” * * *

The referee incorrectly concluded that GEICO was required to submit evidence that Pontoon was involved in staging the collision in order to support a disclaimer of coverage. Contrary to the referee's conclusion, if GEICO can prove that the collision was staged by Robinson, its insured, it would not be obligated to provide coverage under the policy regardless of whether Pontoon was an innocent third party … . Nationwide Gen Ins v Pontoon, 2014 NY Slip OP 09001, 2nd Dept 12-24-14

 

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Failure to Notify Insured of Change in Coverage for Fire Insurance (In Violation of Insurance Law 3425 (d)) May Constitute a Deceptive Business Practice Under General Business Law 349

The Second Department determined that the insurer's (Quincy's) failure to notify the insured of a change in a the coverage afforded by a homeowner's policy (in violation of Insurance Law 3425 (d)) supported a cause of action for deceptive business practices under General Business Law 349. Quincy had notified the insured's broker of the change, but not the insured:

The elements of a cause of action to recover damages for deceptive business practices under General Business Law § 349 are that the defendant engaged in a deceptive act or practice, that the challenged act or practice was consumer-oriented, and that the plaintiff suffered an injury as a result of the deceptive act or practice … . ” Intent to defraud and justifiable reliance by the plaintiff are not elements of the statutory claim” … . Conduct has been held to be sufficiently consumer-oriented to satisfy the statute where it constituted a standard or routine practice that was “consumer-oriented in the sense that [it] potentially affect[ed] similarly situated consumers” … .

Here, Quincy's submissions failed to demonstrate, prima facie, that its failure to comply with the notice requirements set forth in Insurance Law § 3425(d) did not constitute a deceptive business practice. Quincy, in its submissions, admitted that it sought to change and reduce coverage by eliminating a particular endorsement to its New York homeowners' insurance policies, including the plaintiffs' insurance policy. Upon the plaintiffs' renewal of the policy, Quincy eliminated the endorsement, but failed to notify those insureds of that change in the manner prescribed by the Insurance Law. Moreover, the plaintiffs, who continued to seek full replacement costs in relation to the fire that destroyed their home, were clearly injured by the lack of notice that they were underinsured. Valentine v Quincy Mut Fire Ins Co, 2014 NY Slip Op 08984, 2nd Dept 12-24-14

 

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Insurer of Lessee Obligated to Defend and Indemnify the Owner/Lessor of the Premises (Named as an Additional Insured) Re: a Slip and Fall on the Sidewalk in Front of the Premises/Use of the Sidewalk Constitutes “Use of the Leased Premises” Within the Meaning of the Policy

The Second Department determined the insurer, Continental, was obligated to defend and indemnify the plaintiff-owner of the premises re: a slip and fall on the sidewalk in front of the premises. The premises was leased to the insured, “White Plains,” and sublet to “Pretty Girl,” a retail store.  The owner/lessor was named as an additional insured in the Continental policy:

The Continental policy contains an endorsement stating that a lessor of premises is an additional insured with respect to liability arising out of the ownership, maintenance, or use of the specific part of the premises leased. The plaintiffs, who are the owners and lessors of the subject premises, established that their potential liability in the underlying action arises out of the ownership, maintenance, or use of the specific part of the premises leased to Continental’s insured, White Plains Sportswear Corp., and sublet to Pretty Girl, Inc.

Inasmuch as New York City Administrative Code § 7-210 imposes liability on owners of commercial property for defective conditions on sidewalks, the plaintiffs’ potential liability arises from their ownership of the leased premises … . The underlying claim arises out of the maintenance or use of the leased premises, as the sidewalk was necessarily used for access in and out of the leased building … . Frank v Continental Cas Co, 2014 NY Slip Op 08808, 2nd Dept 12-17-14

 

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Condition Precedent to Arbitration Re: a Hit-and-Run Accident Involving an Unidentified Vehicle Is Physical Contact with Unidentified Vehicle—Lack of Proof of Physical Contact Justified Permanent Stay of Arbitration

The Second Department noted that a condition precedent to an arbitration based upon a hit-and-run accident involving an unidentified vehicle is physical contact.  Here there was insufficient evidence of physical contact with the unidentified vehicle:

The appellant sought uninsured motorist benefits under a policy of insurance issued by the petitioner for physical injuries allegedly sustained by him in a hit-and-run accident. The petitioner commenced this proceeding pursuant to CPLR article 75 to permanently stay arbitration of the claim.

Physical contact is a condition precedent to an arbitration based upon a hit-and-run accident involving an unidentified vehicle (see Insurance Law § 5217…). “The insured has the burden of establishing that the loss sustained was caused by an uninsured vehicle, namely, that physical contact occurred, that the identity of the owner and operator of the offending vehicle could not be ascertained, and that the insured’s efforts to ascertain such identity were reasonable” … . Matter of Progressive Northwestern Ins Co v Scott, 2014 NY Slip Op 08847, 2nd Dept 12-17-14

 

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Plaintiff’s Expert’s Failure to Address Indications in Plaintiff’s Evidence that the Physical Deficits Were the Result of a Preexisitng Degenerative Condition (Not the Accident) Required the Grant of Summary Judgment to the Defendants—Plaintiff Failed to Raise a Question of Fact Re: Suffering a “Serious Injury” [Insurance Law 5102 (d)] as a Result of the Accident

The First Department determined, over a two-justice dissent, that summary judgment was properly granted to the defendants because plaintiff was unable to raise a question of fact whether plaintiff’s injury was a “serious injury” within the meaning of Insurance Law 5102 (d).  Plaintiff’s evidence indicated plaintiff’s physical deficits may be the result of a preexisting degenerative condition, rather than the accident.  However, plaintiff’s expert did not address the preexisting condition in response to the motion for summary judgment:

Plaintiff submitted his … orthopedic surgeon’s opinion that he suffered a knee injury “secondary” to the car accident. However, the surgeon’s opinion failed to raise an issue of fact since the surgeon not only failed to address or contest the opinion of defendants’ medical experts that any condition was chronic and unrelated to the accident, but also failed to address or contest the finding of degenerative changes in the MRI report in plaintiff’s own medical records, which the same surgeon had acknowledged in his … note.

Our dissenting colleague overlooks that recent precedents of this Court establish that a plaintiff cannot raise an issue of fact concerning the existence of a serious injury under the No-Fault Law where, as here, the plaintiff’s own experts fail to address indications from the plaintiff’s own medical records, or in the plaintiff’s own expert evidence, that the physical deficits in question result from a preexisting degenerative condition rather than the subject accident (see Alvarez v NYLL Mgt. Ltd., 120 AD3d 1043, 1044 [1st Dept 2014] [plaintiff failed to raise issue of fact where, inter alia, his expert failed to address “detailed findings of preexisting degenerative conditions by defendants’ experts, which were acknowledged in the reports of plaintiff’s own radiologists”]; Farmer v Ventkate, Inc., 117 AD3d 562, 562 [1st Dept 2014] [plaintiff failed to raise issue of fact where, inter alia, “(h)is orthopedic surgeon concurred [*2]that the X rays showed advanced degenerative changes”]; Mena v White City Car & Limo Inc., 117 AD3d 441, 441 [1st Dept 2014] [plaintiff failed to raise issue of fact where, inter alia, “plaintiff’s own radiologists noted degenerative conditions in their MRI reports, but failed to explain why this was not the cause of plaintiff’s injuries”]; Paduani v Rodriguez, 101 AD3d 470, 470, 471 [1st Dept 2012] [plaintiff failed to raise issue of fact where, inter alia, defendants submitted “a radiograph report of plaintiff’s radiologist finding severe degenerative changes” and, “(w)hile (plaintiff’s) expert acknowledged in his own report MRI findings of degenerative changes in the lumbar spine, he did not address or contest such findings, and the MRI report of (plaintiff’s) radiologist found herniations but did not address causation”]; Rosa v Mejia, 95 AD3d 402, 404 [1st Dept 2012] [plaintiff failed to raise issue of fact where, inter alia, “plaintiff’s own radiologist . . . confirmed degenerative narrowing at the L5-S1 intervertebral disc space’ without further comment”]). Rivera v Fernandez & Ulloa Auto Group, 2014 NY Slip Op 08735, 1st Dept 12-11-14

 

Question of Fact Raised About Whether Any Delay In Insured’s Notifying the Insurer of the Accident Was Attributable to the Insured’s “Good-Faith Belief of Non-Liability”

The Second Department determined a question of fact had been raised about whether any delay in notifying the insurer of the accident was the result of a good-faith belief of non-liability:

“A provision that notice be given as soon as practicable' after an accident or occurrence, merely requires that notice be given within a reasonable time under all the circumstances” … . An insured's failure to provide the insurer notice within a reasonable period of time constitutes “a failure to comply with a condition precedent which, as a matter of law, vitiates the contract” … .

However, there may be circumstances that will explain or excuse a delay in giving notice and show it to be reasonable, such as an insured's “good-faith belief of nonliability” … . The insured's belief of nonliability “must be reasonable under all the circumstances, and it may be relevant on the issue of reasonableness, whether and to what extent, the insured has inquired into the circumstances of the accident or occurrence” … . “Ordinarily, the question of whether the insured had a good-faith belief in nonliability, and whether that belief was reasonable, presents an issue of fact and not one of law” … . “It is only when the facts are undisputed and not subject to conflicting inferences that the issue can be decided as a matter of law” … . Integrated Constr Servs Inc v Scottsdale Ins Co, 2014 NY Slip Op 08606, 2nd Dept 12-10-14

 

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