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There Is No “Imminent Litigation” Requirement for the Application of the “Common-Interest Privilege”—Documents Generated During Merger Negotiations Among Two Corporations and Their Counsel May, Therefore, Be Protected by the Privilege, Which Is an Exception to the Rule that the Presence of a Third Party at a Communication Between Counsel and Client Destroys the Privilege

The First Department, in a full-fledged opinion by Justice Moskowitz, determined that the “common-interest privilege” may apply to documents created during merger negotiations among two corporations and their counsel.  The court found there is no requirement that litigation be imminent for the application of the privilege.  The underlying lawsuit was brought by a financial-guaranty insurer (Ambac) which alleged it was fraudulently induced by Countrywide to insure residential mortgage backed securities. Ambac sought discovery of documents relating to a merger between Countrywide and Bank of America Corporation (the subject of secondary claims by Ambac) which, it was alleged, would demonstrate Bank of America Corporation was on notice about Countrywide's alleged fraud. The First Department held that the merger-related documents could be protected by the common-interest privilege and sent the matter back to the motion court to determine whether particular documents are protected:

As noted above, the common-interest privilege is an exception to the rule that the presence of a third party at a communication between counsel and client will render the communication non-confidential … . The doctrine, a limited exception to waiver of the attorney-client privilege, requires that: (1) the communication qualify for protection under the attorney-client privilege, and (2) the communication be made for the purpose of furthering a legal interest or strategy common to the parties … . This Court has never squarely decided whether there is a third requirement: that the communication must affect pending or reasonably anticipated litigation. We answer that question today in the negative. Ambac Assur Corp v Countrywide Home Loans Inc, 2014 NY Slip Op 08510, 1st Dept 12-4-14

 

Exclusion from Uninsured Motorist Coverage and Related Coverage Limitations In Policy Issued in Ohio Not Valid in New York

The Second Department, reversing Supreme Court, determined that the provision in a policy issued in Ohio to an Ohio resident which purported to exclude uninsured motorist coverage was invalid and unenforceable in New York:

The respondent, Robert Johnson, was involved in a motor vehicle accident in which the car he was driving collided with another vehicle that failed to stop at a stop sign. The car he was driving was owned by Johnson’s sister, who lived in Ohio and was insured under a personal automobile liability policy issued in that state by the proposed additional respondent, State Farm Mutual Automobile Insurance Company (hereinafter State Farm). The policy contained an endorsement for uninsured motorist coverage, which provided for liability limits of $100,000 per person and $300,000 per accident, but excluded from the definition of an insured any person who is insured for uninsured motor vehicle coverage under another vehicle policy.

When Johnson eventually made a claim for uninsured motorist benefits under the State Farm policy, State Farm disclaimed coverage on the ground that, inasmuch as records showed that Johnson had uninsured motor vehicle coverage available through a policy issued to him by the petitioner Government Employees Insurance Company (hereinafter GEICO), he did not meet the definition of an insured for purposes of uninsured motor vehicle coverage under the State Farm policy. * * *

GEICO’s counsel argued that the exclusion in the State Farm uninsured motorist endorsement is not valid in New York and, therefore, the State Farm policy should be deemed to have the full complement of coverage mandated by New York to make the State Farm coverage primary. …

“[I]nsurance policies, like all contracts, should be enforced according to their terms unless they are prohibited by public policy, statute or rule” … . “If an attempted exclusion is not permitted by law, the insurer’s liability under the policy cannot be limited” … . Here, the exclusion contained in the uninsured motorist coverage endorsement of State Farm’s personal automobile liability policy is not permitted by law. “Insurance Law § 3420(f)(1) requires that every automobile insurance policy contain an uninsured motor vehicle endorsement. Neither that statute nor any regulations applicable to it mentions any exclusions” … . Since the exclusion is “without the approval or protection of the law” …, it should not be given effect … .

Further, where, as here, the policy does not contain a term stating that coverage is limited to the statutory minimum, if such exclusion is found to be invalid, no such limitation will be read into the policy … .  Consequently, State Farm’s policy must be read as affording liability up to its full limits. Matter of Government Employees Ins Co v Johnson, 2014 NY Slip Op 08433, 2nd Dept 12-3-14

 

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Failure to Timely Raise a Late-Notice Defense to Coverage May Constitute a Waiver of the Defense

The First Department determined there existed a triable issue of fact whether the insurer of a gas plant operated by Long Island Light Company (LILCO) waived a late-notice-based disclaimer of coverage.  Under the common law, the failure to assert a known policy defense may constitute a waiver:

Waiver is the voluntary relinquishment of a known right and must be predicated upon knowledge of the facts upon which the existence of the right depends … . The failure to assert a known policy defense may constitute a waiver … . “Whether an insurer has waived the defense of late notice is ordinarily a question of fact, which is proved by evidence that the insurer intended to abandon that defense” … .

The evidence supports an inference that defendants knew of facts supporting a late notice defense long before disclaiming coverage in their answers. Long Is Light Co v American Re-Insurance Co, 2014 NY Slip Op 08363, 1st Dept 12-2-14


 

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Successive Tenants of Same Apartment Limited to a Single Policy Limit Re: Recovery for Lead Paint Exposure

The Court of Appeals, in a full-fledged opinion by Judge Smith, over a dissent, determined that the children in two families who were successive tenants of the same apartment were restricted to recovery for exposure to lead paint to a single policy limit, and not multiple policy limits based upon annual policy renewals.  The two families’ recoveries were limited to the single $500,000 policy limit:

In September 1991, Allstate Insurance Company issued a policy of liability insurance to the landlord of a two-family house in Rochester. The policy was renewed annually for the years beginning September 1992 and September 1993. It stated on the declarations page a $500,000 limit for “each occurrence,” and contained the following noncumulation clause:

“Regardless of the number of insured persons, injured persons, claims, claimants or policies involved, our total liability under the Family Liability Protection coverage for damages resulting from one accidental loss will not exceed the limit shown on the declarations page. All bodily injury and property damage resulting from one accidental loss or from continuous or repeated exposure to the same general conditions is considered the result of one accidental loss.”

Felicia Young and her children lived in one of the two apartments in the house from November 1992 until September 1993. In July 1993, the Department of Health notified the landlord that one of the children had been found to have an elevated blood lead level and that several areas in the apartment were in violation of State regulations governing lead paint. The Department listed the violations and directed the landlord to correct them. The landlord made some repairs, and the Department advised him in August 1993 that the violations “have been corrected.”

After the Young family moved out of the apartment in September 1993, Lorenzo Patterson, Sr. and Qyashitee Davis moved in with their two children. Again a child was found to have an elevated blood lead level, and the Department of Health sent another letter saying that violations had been found and instructing the landlord to correct them. (This letter was sent in December 1994, but the parties seem to assume that the elevated readings resulted at least in part from events on or before September 29, 1994, the last day of Allstate’s coverage.) * * *

Young’s children and Nesmith’s grandchildren were exposed to the same hazard, lead paint, in the same apartment. Perhaps they were not exposed to exactly the same conditions; but to say that the “general conditions” were not the same would deprive the word “general” of all meaning. Nesmith argues that, because the landlord made an effort to correct the problem after Young’s children were exposed and before Nesmith’s grandchildren moved in, the “conditions” that injured her grandchildren must have been new ones. But she makes no claim, and the record provides no basis for inferring, that a new lead paint hazard had been introduced into the apartment. The only possible conclusion from this record is that the landlord’s remedial efforts were not wholly successful, and that the same general conditions — the presence of lead paint that endangered children’s health — continued to exist. Because Young’s children and Nesmith’s grandchildren were injured by exposure to the same general conditions their injuries were part of a single “accidental loss,” and only one policy limit is available to the two families. Nesmith v Allstate Ins Co, 2014 NY Slip Op 08217, CtApp 11-25-14

 

Notifying One’s Broker of an Accident Does Not Constitute Notification of the Insurer

The Court of Appeals, over a partial dissent, determined that the plaintiff’s providing notice of an accident to plaintiff’s broker did not constitute notice to the insurer.  The decision focuses on distinguishing Mighty Midgets v Centennial Ins. Co. (47 NY2d 12 [1979]) where the roles of the broker the insurer were “uncommonly intertwined:”

We have long held that a policyholder’s timely notice to a broker does not “constitute the notice contemplated by the [insurance] policy since a broker is normally the agent of the insured and notice to the ordinary insurance broker is not notice to the liability carrier” Our decision in Mighty Midgets does not alter this fundamental principle. Strauss Painting Inc v Mt. Hawley Ins Co, 2014 NY Slip Op 08214, CtApp 11-24-14

 

Disclaimer Notice Sent to Insureds’ Insurer, But Not to Insureds, Invalid

The Court of Appeals, in a full-fledged opinion by Judge Smith, determined that the failure to notify the insureds of a disclaimer of liability invalidated the disclaimer.  The property owner and managing agent were insured under two different policies.  They were named insureds under their own policy (with GNY) and additional insureds under a contractor’s insurer (Scottsdale). An employee of the contractor was injured. The contractor’s insurer sent the notice of disclaimer to the insureds’ own carrier (GNY), but not to the insureds themselves.  The notice did not meet the requirements of Insurance law 3420(d)(2):

Insurance Law § 3420 (d) (2) says:

“If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage . . . it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant” … .

It is undisputed that Scottsdale did not give notice of its disclaimer directly to its additional insureds or to the lawyer who had been retained to represent them. Scottsdale argues that the disclaimer notice it sent to GNY was sufficient to satisfy the statute. We disagree.

GNY was not an insured under Scottsdale’s policy; it was another insurer. While GNY had acted on the insureds’ behalf in sending notice of the claim to Scottsdale, that did not make GNY the insureds’ agent for all purposes, or for the specific purpose that is relevant here: receipt of a notice of disclaimer. GNY’s interests were not necessarily the same as its insureds’ in this litigation. There might have been a coverage dispute between GNY and the insureds, or plaintiff’s claim might have exceeded GNY’s policy limits. Because the insureds had their own interests at stake, separate from that of GNY, they were entitled to notice delivered to them, or at least to an agent — perhaps their attorney — who owed a duty of loyalty in this matter to them only. … [T]he obligation imposed by the Insurance Law is “to give timely notice of disclaimer to the mutual insureds . . . not to . . . another insurer.” Sierra v 4401 Sunset Park LLC, 2014 NY Slip Op 08216, CtApp 11-24-14

 

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Declaratory Judgment Finding that the Insurer Was Not Obligated to Defend or Indemnify the Insured Precluded, Under the Doctrine of Collateral Estoppel, Suit by Plaintiff Against the Insurer—Plaintiff Was In Privity with the Insured Pursuant to Insurance Law 3420 and Had No Greater Rights than the Insured

The defendant insurer had obtained a declaratory judgment finding that the insurer was not obligated to defend or indemnify the insured, VTEQE group, because the insured had not complied with the policy’s notice requirements.  Plaintiff obtained a judgment against VTEQE.  The instant action was brought seeking payment of the judgment from VTEQE’s insurer.  The Second Department determined that plaintiff was collaterally estopped from suing the insurer because of the declaratory judgment.  By suing the insurer plaintiff stood in the shoes of the insured and has no greater rights than the insured.  The court explained the relevant analysis:

“Collateral estoppel, or issue preclusion, precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party . . . whether or not the tribunals or causes of action are the same'” … . “The doctrine applies if the issue in the second action is identical to an issue which was raised, necessarily decided and material in the first action, and the [party against whom the issue was decided] had a full and fair opportunity to litigate the issue in the earlier action” … . The party seeking the protection of collateral estoppel bears the burden of proving that the identical issue was necessarily decided in the prior action and is decisive of the present action … . ” The party against whom preclusion is sought bears the burden of demonstrating the absence of a full and fair opportunity to contest the prior determination'” … . “Generally, a nonparty to a prior litigation may be collaterally estopped by a determination in that litigation by having a relationship with a party to the prior litigation such that his own rights or obligations in the subsequent proceeding are conditioned in one way or another on, or derivative of, the rights of the party to the prior litigation” … .

Here, Hudson established, prima facie, that the plaintiff is in privity with the VTEQE group for the purpose of the application of collateral estoppel … . When a plaintiff maintains a direct action against an insurer pursuant to Insurance Law § 3420, it “stands in the shoes” of the insured and can have no greater rights than the insured … . River View at Patchogue LLC v Hudson Ins Co, 2014 NY Slip Op 08000, 2nd Dept 11-19-14

 

Duty to Defend

The First Department determined that the insurer was obligated to defend the defendants even though subsequently it may be able to demonstrate the insured did not cause the injuries.  The duty to defend is determined by comparing the policy to the complaint.  If the pleaded claims are potentially within the scope of coverage, the insurer’s duty to defend is triggered:

An insurer may obtain a declaration absolving it of its duty to defend only when a comparison of the policy and the underlying complaint on its face shows that, as a matter of law, “there is no possible factual or legal basis on which the insurer might eventually be held to be obligated to indemnify the insured under any provision of the insurance policy” … . As this Court has observed, “[T]he primary obligation of an insurer is to provide its insured with a defense” …, an obligation that is incurred “if facts alleged in the complaint fall within the scope of coverage intended by the parties at the time the contract was made” … . “By contrast, the duty to indemnify requires a determination of liability” … .

Because the underlying complaints pleaded claims that were potentially within the scope of coverage, plaintiff is obligated to defend the underlying actions. Whether plaintiff might ultimately be able to establish that its insured did not cause the injuries alleged in the underlying actions involves questions of fact yet to be resolved; it is not an issue that can be determined as a matter of law by examination of the insurance contract. Thus, it does not afford a basis to relieve plaintiff of its duty to provide a defense… . Greewich Ins Co v City of New York, 2014 NY Slip Op 07933, 1st Dept 11-18-14

 

Unexcused Late Disclaimer of Coverage Invalid and Unenforceable

The Third Department determined the insurer’s disclaimer of coverage was invalid and uneforceable because it was inexcusably late.  The court noted that a “reservation of rights letter” does not constitute a disclaimer:

An insurer’s decision to disclaim liability insurance coverage must be given to the insured, in writing, as soon as is reasonably practicable, “failing which the disclaimer or denial will be ineffective” (… see Insurance Law § 3420 [d] [2]…). While the timeliness of an insurer’s notice of disclaimer generally raises an issue of fact for a jury to decide, where, as here, the basis for a disclaimer “was or should have been readily apparent before the onset of the delay,” the delay will be found to be unreasonable as a matter of law … . “Reasonableness of delay is measured from the time when the insurer learns of sufficient facts upon which to base the disclaimer” … . * * *

Even after receiving the attorney’s summary, which ostensibly equipped it with sufficient facts to issue a written disclaimer, plaintiff instead sent defendant a reservation of rights letter, which does not serve as “a substitute for the required notice of disclaimer” … . Vermont Mut Ins Co v Mowery Constr Inc, 2014 NY Slip Op 07537, 3rd Dept 11-6-14

 

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Non-Party Attorneys Properly Held in Civil Contempt for Starting a Class Action Suit In Violation of Anti-Suit Injunctive Order

In a proceeding to liquidate the Executive Life Insurance Company of New York, non-party attorneys for objectors to the liquidation filed a class action lawsuit in federal court in violation of anti-suit injunctive orders issued by Supreme Court.  In affirming Supreme Court’s finding the non-party attorneys in contempt, the Second Department explained the criteria:

To prevail on a motion to punish for civil contempt, the movant must demonstrate that the alleged contemnor violated a clear and unequivocal court order, of which the alleged contemnor had knowledge, thereby prejudicing a right of a party to the litigation (see Judiciary Law § 753[A][3]…). “To satisfy the prejudice element, it is sufficient to allege and prove that the contemnor’s actions were calculated to or actually did defeat, impair, impede, or prejudice the rights or remedies of a party” … .

* * * The commencement of the class action violated the anti-suit injunctive provisions set forth in three court orders entered in this rehabilitation proceeding commenced pursuant to Insurance Law article 74, that was later converted into a liquidation proceeding … . An order of the court must be obeyed until that order is set aside, either by appeal or otherwise, where, as here, the court that issued the order had jurisdiction to issue it … . The petitioner also demonstrated that the commencement of the class action prejudiced its rights … . Matter of Executive Life Ins Co of NY, 2014 NY Slip Op 07506, 2nd Dept 11-5-14

 

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