National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

Under the terms of a lease, the insured tenant was obligated to pay for snow removal services and to “indemnify, defend, and hold harmless Landlord from any and all damages, costs, expenses, and liabilities for anything arising out of the occupancy of the Premises caused by Tenant or its agents and from any loss or damage arising out of the acts of Tenant or its agents or the failure of Tenant to comply with the terms and conditions” of the lease. The lease also required that the tenant, “at its sole cost and expense and for the mutual benefit of Landlord and Tenant, shall maintain a general liability policy . . . providing coverage against claims for bodily injury, personal injury and property damage.”

The tenant obtained a CGL policy from Ohio Casualty, which provided coverage where “the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” The policy also included a blanket additional insured endorsement extending coverage to “any person or organization whom [the named insured is] required to name as an additional insured on this policy under a written contract or agreement.”

The tenant’s employee was injured when he slipped and fell on ice and snow. The claimant sued the landlord for damages, and the landlord tendered the claim to Ohio Casualty for defense and indemnification. Ohio Casualty denied coverage for the claim. At issue was whether the additional insured endorsement extended coverage to the landlord, such that Ohio Casualty was required to defend and indemnify the landlord in the underlying personal injury action.

The Court concluded the landlord did qualify as additional insured under the endorsement. The insurance procurement language in the lease did not use the term “additional insured”; however, the Court focused on whether the lease required the tenant to “ensure that [landlord] received general liability insurance coverage equivalent to the coverage [tenant] enjoyed.” Here, the lease obligated the tenant to obtain coverage for “claims for bodily injury, personal injury and property damage, at its sole cost and expense and for the mutual benefit of [landlord] and [tenant].” “The natural and intended meaning of the term ‘mutual benefit’ as used in this provision,” reasoned the Court, “is that [landlord] and [tenant] are intended to enjoy the same level of coverage,” an intent and meaning reinforced by other insurance language in the lease expressly noting where disparities in the coverage were contemplated. Since the term “additional insured” is well-understood to mean an entity enjoying the same protection as the named insured, the Court concluded that the landlord qualified as such under the policy.
 

In this case, the policyholder had entered into contracts with a general and subcontractor to perform heating and ventilation work. When a pipe separated from a water riser and caused damage to the building, the general contractor claimed the policyholder and subcontractor were solely responsible. The policyholder notified its insurer, who retained counsel to conduct pre-action discovery to preserve evidence in connection with the loss.

Litigation over the property damage did not materialize; however, the general contractor ultimately withheld final payment on the contract for the policyholder’s negligence. The policyholder tendered the claim to its insurer, demanding a defense, but the insurer declined on the basis that the claim did not qualify as a “suit.” Therefore, the policyholder retained its own counsel and sued the general contractor and others to recover the disputed contract balance.

The general contractor responded by asserting as an affirmative defense the right of offset against recovery based on damages caused by the policyholder’s negligence. It subsequently asserted counterclaims to recover for the property damage. The policyholder again demanded a defense, to which the insurer acquiesced, but only as required to defend the counterclaim of negligence; the insurer refused to reimburse for legal fees and expenses incurred in connection with the prosecution of the action, or in connection with the affirmative defense.

The policyholder brought a declaratory judgment action seeking reimbursement of legal expenses incurred in the underlying collection action. In cross-motions for summary judgment, the insurer argued that it was obligated only to defend against the counterclaim because the affirmative defense was not an “occurrence” that triggered coverage. It further argued that because the collection action was ultimately settled, plaintiff's demand for reimbursement did not constitute a claim for property damage and defendant was under no obligation to pay. Plaintiff argued that coverage was triggered because the policy did not differentiate among a pre-suit claim of negligence, an affirmative defense of negligence, and a counterclaim for negligence, arguing further that while the matter initially was not in suit, the insurer should have settled the property damage claim.

The court found in favor of the insurer, concluding that the policy required only the defense of “suits,” not the prosecution of, or reimbursement of costs incurred in connection with, a policyholder’s affirmative claims. In other words, in the courts view, the duty to defend “does not envision affirmative litigation.”

The court also held that the duty to defend was not triggered by the affirmative defense of offset. The court noted a substantive distinction between counterclaims, which it characterized as causes of action seeking affirmative relief, and affirmative defenses, which do not seek affirmative relief but merely dismissal of claims. In the court’s view, to impose a duty to defend such an affirmative defense would eliminate these pleading distinctions, and “would impact the long-established business practices of insurers, and lead to uncertainty in the drafting of insurance contracts.” In so holding, the court declined to follow Construction Protective Services v. TIG Specialty Ins. Co., 29 Cal.4th 189 (2002).

The policyholder would have been entitled to a defense had the general contractor sued the policyholder for property damage, rather than withhold final payment on the contract, and it was the policyholder’s filing of suit that precluded defense for the claim of offset. Could the policyholder have done something different to obtain a defense for the negligence claim given the procedural posture of the case? The court observed that if the policyholder believed the affirmative defense was in fact a counterclaim, it might have moved to dismiss the affirmative defense, thereby forcing the general contractor to assert the counterclaim sooner.
 

In companion cases, Matter of Allstate Insurance Company v. Rivera and Matter of Clarendon National Insurance Company v. Nunez, insurers issued auto policies with liability limits equal to that of the tortfeasors’ liability policies. After paying the liability limits to the injured driver and co-occupants of the covered vehicles, co-occupants sought SUM coverage under the drivers’ policies. Insurers denied the claims, arguing that the SUM coverage was not triggered. SUM claimants argued that each should be allowed to deduct the payments made to other co-occupants, thereby reducing the tortfeasor's liability coverage to an amount less than the coverage limits on their vehicle, triggering SUM coverage.

The Court disagreed, reasoning that the provision for SUM coverage under section 3420(f)(2)(A) of New York’s Insurance Law, enacted to allow policyholders to acquire the same level of protection for themselves and their passengers as they purchased to protect themselves against liability to others, is only triggered when the liability limit of the policy covering the tortfeasor's vehicle is less than the third-party liability limit of the policy under which a party is seeking SUM benefits. The Court explained that the “statute calls for a facial comparison of the limits without reduction from the judgment of other claims arising from the accident.”

New York Insurance Department Regulation 35-D (“Regulation 35-D”) (codified at 11 NYCRR § 60-2) did not support a contrary result. The Court observed that Regulation 35-D, which prescribes the terms of the SUM endorsement, defines an “uninsured motor vehicle” as:

“a motor vehicle that, through its ownership, maintenance or use, results in bodily injury to an insured, and for which . . . there is a bodily injury liability insurance coverage or bond applicable to such motor vehicle at the time of the accident, but . . . the amount of such insurance coverage or bond has been reduced, by payments to other persons injured in the accident, to an amount less than the third-party bodily injury liability limit of this policy.”

11 NYCRR § 60-2 (emphasis added).

The term “insured” includes “any other person while occupying: (i) a motor vehicle insured for SUM under this policy ….”

The Court held that the “payments to other persons” that may be deducted from the tortfeasor’s coverage limits for purposes of rendering the tortfeasor “uninsured” under the SUM endorsement do not encompass payments made to insureds under the endorsement, a result that in the Court’s view is consistent with the statutory purpose of SUM coverage to guarantee “that those who have purchased SUM coverage will receive the same recovery they have made available to third parties they injure — but no more.”

In dissent, Judge Ciparick concluded that claimants meet the stated criteria for SUM coverage under Regulation 35-D, as they are "other persons injured in the accident." Since the regulation does not limit or qualify the phrase “other persons,” and does not exclude as “other persons” a passenger of the covered vehicle, co-occupants should qualify for benefits. Indeed, the dissent reasoned, “[t]he majority's rendering of an artificial and strained distinction between co-vehicle occupants and strangers to the insured vehicle in the definition of ‘other persons injured in the accident’ is unwarranted and inconsistent with the plain language of the regulation as incorporated into these insurance policies.”
 

With respect to timeliness, the policies contained a two-year incontestability clause as required by Section 3203(a) of the New York Insurance Law; however, the action was commenced two years and two days after the policies were dated. Security Mutual argued that since the two-year anniversary fell on a Saturday, New York General Construction Law § 25 (extending contractual deadlines falling on weekends and holidays) and § 25-a (extending statutory deadlines falling on weekends and holidays), applied to extend the time to file the action by two days. Defendants countered that § 25-a was only applicable to statutory deadlines and since the incontestability clause was written into the contract, the only applicable provision was § 25, which applies to contractual deadlines. Defendants further argued that there was no applicable extension under § 25 because it only applies to performance of a contractual "condition," and the incontestability clause was not a “condition” within the meaning of the General Construction Law.

The Appellate Division agreed with Security Mutual, holding that §25-a applied because the incontestability clause was required by statute. The Court reasoned that if the insurance policy had failed to contain the incontestability provision, it would have been read into the policy since it is required by statute. Under this reasoning, a ruling that §25 (as opposed to §25-a) governed would produce an anomalous result: “[A]n insurer that complies with the law and includes in its life insurance policies the clause it is required by law to include will have a shorter period of time in which to contest the policies than it would have if it omitted the clause from the policies.” Therefore, the Court concluded the action was timely filed.

Defendants argued that the rescission claim should be dismissed, reasoning that Security Mutual was estopped from seeking that relief because it had accepted premiums after learning of grounds for rescission. Finding that Security Mutual had collected and retained nine premium payments totaling $40,000 since the action was commenced, the Appellate Division agreed. The Court rejected arguments that commencement of a rescission action prevented estoppel as contrary to N.Y. precedent. Rodriguez, 2009 WL 144524 (discussing Continental Ins. Co. v. Helmsley Enters., 211 A.D.2d 589 (1st Dep’t 1995) (holding that plaintiff waived right to seek rescission of insurance contract when it knowingly accepted premium payments for several months following discovery of alleged misrepresentations) and Scalia v Equitable Life Assurance Soc’y, 251 A.D.2d 315 (2d Dep’t 1998) (holding that that insurer’s continued acceptance of premiums after learning of facts permitting rescission of policy constitutes an estoppel against right to rescind)).

As for the fraud claims, the Court held that they were pled with sufficient detail under CPLR 3016(b), since the complaint included allegations of misstatements of net worth, falsity of medical statements, and the proffering of fictitious accountant and medical records. Thus, the Court concluded that the motion to dismiss the fraud claims was properly denied.
 

In this case, a claim for life insurance was rejected on the basis that the insured committed suicide. After a non-jury trial, the court found that the insured had committed suicide and dismissed the complaint. Evidence at trial supported a finding that the insured committed suicide, but there was also evidence that suicide was not the cause of death. In a 3-2 decision, an appellate court reversed, holding that “the evidence failed as a matter of law to overcome the presumption against suicide.” The appellate court reasoned that because “there are other reasonable conclusions that may be drawn from the evidence, aside from suicide," the "application of the law regarding the presumption against suicide necessitated a directed verdict in this case.”

New York’s high court reversed, holding that the presumption against suicide, which “springs from strong policy considerations as well as embodying natural probability,” is not a rule that requires rejection of suicide as a matter of law, but is merely a guide for the fact finder. ... Where the evidence leaves open two possible findings, it is the jury's business to resolve the doubt.”

The court clarified the New York Pattern Jury Instructions, which state: "You may make a finding of suicide only if you are satisfied from the evidence, and taking into consideration the presumption against suicide, that no conclusion other than suicide may reasonably be drawn.” “This language,” held the court, “should not be taken to mean that, where more than one conclusion is reasonably possible, suicide is excluded as a matter of law.” Instead, the instruction “is directed at jurors deciding facts, not at judges deciding the law; it is a way of impressing on jurors' minds that the presumption against suicide is a strong one—of telling them they should not find suicide unless the evidence shows suicide to be highly probable.”

Thus, because there was evidence legally sufficient to support the trial court’s decision, the appellate court was found in error for rejecting the finding of suicide as a matter of law.