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Sexual Assault by Son of Homeowners Not an Insured “Occurrence” Under Homeowners’ Insurance Policy

The Second Department determined a sexual assault allegedly perpetrated by the son of the homeowners was not an insured “occurrence” within the meaning of the homeowners’ insurance policy:

Here, Joseph M. allegedly was insured under a homeowner’s insurance policy issued by the plaintiff to his parents, which provided personal liability coverage for claims made against an insured for damages because of bodily injury caused by an “occurrence.” The policy defined the term “occurrence” as “an accident . . . which result[ed] in . . . bodily injury.”   The complaint in the underlying action alleged that the plaintiff in that action sustained bodily injury due to a sexual assault perpetrated by Joseph M. Since the bodily injuries allegedly sustained by the plaintiff in the underlying action were inherent in the conduct that Joseph M. allegedly engaged in, the alleged sexual assault cannot be construed as an accident within the definition of “occurrence” for which the plaintiff’s policy affords coverage … . State Farm Fire and Cas Co v Joseph M, 2013 NY Slip Op 03318, 2nd Dept, 5-8-13

 

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Daily Incidents of Molestation, Spanning Years, Constituted “Separate Occurrences” Triggering a Deductible for Each Policy-Period

The main issue in this case was whether nearly daily incidents of sexual molestation of a minor by a priest in the Roman Catholic Diocese of Brooklyn, spanning six years, should be considered a single “occurrence” or separate “occurrences” within the meaning of the relevant insurance policies.  If considered separate occurrences, then the deductible for each policy-period in which each occurrence was deemed to have taken place would apply. If considered a single occurrence, then only one deductible would apply for all the policy-periods.  The Court of Appeals, in an opinion by Judge Rivera, determined the on-going sexual molestation should be considered separate occurrences for each policy-period, triggering multiple deductibles.  The Court of Appeals also found that the raising of the “separate occurrences” argument by the insurance company was not a disclaimer and therefore was not subject to the timeliness requirement for disclaimers in the Insurance Law. There was a concurring opinion by Judge Smith and a “concurring in part and dissenting in part” opinion by Judge Graffeo. Roman Catholic Diocese of Brooklyn v National Union Fire Insurance Company …, No 69, CtApp 5-7-13

 

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Criteria for Application of Equitable Estoppel to Late Disclaimer of Coverage

The circumstances under which an insurer can be equitably estopped from making a late coverage-disclaimer were discussed by the First Department.  Equitable estoppel based on the timing of a disclaimer alone will only be invoked when the insurer has controlled the defense and the character and strategy of the defense can no longer be altered (i.e., when the matter is close to trial).  201-208 Main St Assoc Inc v Arch Ins Co, 2013 NY Slip Op 03159, 1st Dept, 5-2-13

 

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Duty to Defend Versus Duty to Indemnify—Question of Fact About Whether Intentional Conduct Policy Exclusion Applies

The plaintiff’s vehicle had been struck from behind by one Schwartz.  Plaintiff drove his vehicle into Schwartz and left the scene. Plaintiff was charged criminally for those actions.  In the personal injury action brought by Schwartz against plaintiff, the defendant insurance company defended plaintiff.  A $25,000 judgment was entered against plaintiff. Plaintiff then sued defendant insurance company for indemnification ($25,000).  Plaintiff moved for summary judgment, which was granted.  The Second Department reversed finding a question of fact had been raised by the insurer about whether plaintiff’s injuries were the result of his intentional conduct, a policy exclusion. In explaining the relevant law, the 1st Department wrote:

“While the duty to defend is measured against the possibility of a recovery, the duty to pay is determined by the actual basis for the insured’s liability to a third person” … . The burden to establish coverage and a duty to indemnify lies with the insured … . However, the insurer has the burden of proving facts establishing that the loss falls within an exclusionary clause of the insurance policy … .  * * *  [Here] …the insurer submitted evidence from the criminal prosecution and the underlying personal injury action, including Schwartz’s deposition testimony, which raised a triable issue of fact whether the loss fell within a policy exclusion for bodily injury “intentionally” caused by the insured…Dryer v New York Cent Mut Fire Co, 2013 NY Slip Op 03056, 2nd Dept, 5-1-13

TRAFFIC ACCIDENT, REAR-END COLLISIONS

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Consolidation of Trials Okay Even If Some Prejudice Results; Potential for Inconsistent Verdicts Eliminated by Consolidation

In a personal injury action, the fact that consolidation of two actions arising from the same accident will result in the jury learning of the existence of insurance did not warrant the denial of the motion to consolidate.  The Second Department wrote:

The trial court has broad discretion in determining whether to order consolidation … . The interests of justice and judicial economy are better served by consolidation in those cases where the actions share material questions of law or fact … . A motion to consolidate should be granted absent a showing of prejudice to a substantial right by a party opposing the motion .. . Here, the appellants principally argued that they would be prejudiced if the two actions are tried before the same jury since it will bring to the jury’s attention the existence of insurance in Action No. 1 …. However, even assuming that under the circumstances of this case, the appellants would be prejudiced by consolidation, any such prejudice is outweighed by the possibility of inconsistent verdicts if separate trials ensue … . Furthermore, the possibility of such prejudice to the appellants can be mitigated by appropriate jury instructions.  Hanover Ins Group v Mezansky, 2013 NY Slip Op 02713, 2nd Dept, 4-24-13

TRAFFIC ACCIDENTS, PEDESTRIANS

Material Misrepresentation Rendered Insurance Policy Void Ab Initio

In determining that a material misrepresentation (i.e., no roofing work would be done) allowed the rescission of an insurance policy, rendering the policy void ab initio, the Second Department wrote:

“To establish the right to rescind an insurance policy, an insurer must show that its insured made a material misrepresentation of fact when he or she secured the policy” … . “A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented” (…see Insurance Law § 3105[b]…). ” To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, that show that it would not have issued the same policy if the correct information had been disclosed in the application'” … . ” [M]aterial misrepresentations . . . if proven, would void the . . . insurance policy ab initio'” … .  Meah v A Aleem Constr, Inc, 2013 NY Slip Op 02727, 2nd Dept, 4-24-13

 

 

Person May Have More that One Residence for Insurance Purposes

The Second Department determined Supreme Court erred by not holding a hearing to determine whether the respondent was an “insured” within the meaning of an automobile insurance policy. Noting that a person can have more than one residence for insurance purposes, the Second Department wrote:

The endorsement defines an insured as, inter alia, any relative of the named insured while a resident of the same household as the named insured. While “[a] person can have more than one residence for insurance coverage purposes, residency in this context generally entails something more than mere temporary or physical presence, and requires some degree of permanence and intention to remain … . The petitioner submitted sufficient evidence with regard to the residence addresses of the respondent to raise a genuine issue regarding whether the respondent was a resident of her brother’s household at the time of the subject accident … .   Matter of A Cent Ins Co v Williams, 2013 NY Slip Op 02744, 2nd Dept, 4-24-13

 

 

Injured Party, as Well as the Insured Defendant, Has a Duty to Inform Insured’s Carrier of Incident; Failure of Timely Notice by Both the Insured and the Injured Party Allowed Carrier to Disclaim

In this case the insurer [Tower] disclaimed coverage because it was not given notice of the claim.  The Second Department determined that both the insured [Xu] and the injured party [Gomez] had a duty to inform the carrier of the incident:

The question before us is whether Tower may be required to afford coverage to its defaulting insured (Xu) for the benefit of the injured party (Gomez) pursuant to Insurance Law § 3420(a)(3). Gomez is not accountable, of course, for Xu’s failure to provide notice to Tower during the period of nearly a year and a half  … . Still, even though “[i]n determining the reasonableness of an injured party’s notice, the notice required is measured less rigidly than that required of the insureds” …, some level of diligence was required of Gomez, as the dissent reluctantly concedes, once his counsel, upon receipt of the certificate evidencing that coverage had been renewed five months after the incident, was put on notice of the likelihood (even if not a certainty) that Xu had been covered by a Tower policy at the time of the incident (see Kalthoff v Arrowood Indem. Co., 95 AD3d 1413, 1415 [3d Dept 2012] [where the insured has failed to comply with the notice conditions of the policy, “the injured party bears the burden of demonstrating that it made reasonable efforts to identify the insurer and provide it with prompt notice”] …). Tower Ins Co of NY v Rong Rong Sun, 2013 NY Slip Op 02645, 8777, 108391/10, 1st Dept, 4-18-13

 

“Special Relationship” Between Insured and Broker Allowed Insured to Rely on Broker’s Duty to Advise

The Second Department affirmed the motion court in finding that a question of fact had been raised about whether there was a “special relationship” between the insured and the insurance broker such that the insured could rely on the broker’s expertise and duty to advise:

“While it is certainly better practice for an insured to read its policy, an insured should have the right to look to the expertise of its broker with respect to insurance matters’… . Additionally, where the insured relied on the expertise of the agent, or there was a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on, the agent could be found to have a duty to advise because of a special relationship with the insured … .  South Bay Cardiovascular Assoc, PC v SCS Agency, Inc, 2013 Slip Op 02564, 2012-01964, 2012-05203, Index No 37328/07, 2nd Dept 4-17-13

 

Failure of Freezer to Properly Cool Baked Goods Was an “Occurrence” (I.e., “Accident”) within the Meaning of the Commercial General Liability Policy

Plaintiff manufactured a freezer used by a nonparty bakery.  According to the bakery, the freezer didn’t cool cakes to the proper temperature and the cakes were therefore ruined when cut, causing the bakery millions in damages.  The bakery sued plaintiff and plaintiff sought defense and indemnity from its insurer.  The insurer disclaimed coverage, arguing that the facts did not constitute a covered “occurrence” (i.e. “accident”) within the meaning of the policy.  In affirming the denial of the insurer’s motion to dismiss (there was a dissent), the First Department wrote:

Courts have held that commercial general liability (CGL) policies do not insure against faulty workmanship in the work product itself … . However, such policies do insure against property damage caused by faulty workmanship to something other than the work product … . Plaintiff does not seek coverage simply for allegedly faulty workmanship that caused the defect in the freezer. Rather, it seeks defense and indemnity for property damage that [the bakery], a third party, alleged that it suffered because of a defect in the freezer. Indeed, in George A. Fuller Co. (200 AD2d 255), on which defendant places much reliance, the damage occurred to the property upon which the contractor performed the work – that is, to the work product itself. Plaintiff, by contrast, seeks coverage for the damage to the cakes, not to the freezer. This damage is precisely the kind that plaintiff’s CGL policy contemplated, and therefore, the complaint properly alleges an “occurrence” within the meaning of the policy … . [the bakery’s]  loss of use of the facility specifically built to house the freezer is also covered under the policy, since “property damage” is defined to include “[l]oss of use of tangible property that is not physically injured.”  I.J. White Corp v Columbia Cas Co, 2013 NY Slip Op 02500, 651505/11, 8420, 1st Dept 4-16-13

 

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