Does A Policy For the "Mutual Benefit" of Two Parties Provide Additional Insured Coverage to One?

Kassis v. Ohio Cas. Ins. Co.
--- N.E.2d ----, 2009 WL 1789223 (N.Y.), 2009 N.Y. Slip Op. 05207
In this case, the Court of Appeals addressed the issue whether the provision in a lease requiring a tenant to procure a commercial general liability policy for the “mutual benefit” of the tenant and landlord, was sufficient to allow the landlord to claim additional insured status pursuant to the broad form additional insured endorsement of the policy?

This obviously was not an easy question. After the landlord obtained summary judgment, the Fourth Department reversed with two justices dissenting. The Appellate Division found that the purchase of insurance by the tenant for itself provided a mutual benefit on both the landlord and the tenant, even if the landlord was not an additional insured. If the lease had intended additional insured coverage, it should have so indicated. The Court of Appeals however, in a unanimous decision, reversed the Fourth Department.

It noted that the subject lease provided 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” with specified aggregate and per occurrence coverage amounts.

The Court framed the issue by asking whether the lease required the tenant to ensure the landlord received coverage equivalent to the coverage the tenant enjoyed. The Court of Appeals found that “the natural and intended meaning of the term “mutual benefit” as used in this provision is that [the landlord and the tenant] are intended to enjoy the same level of coverage. The Court found evidence of this in several other insurance related provisions which required either joint or singular coverage. The court found that where coverage for to be joint, it was so noted.

Given the Court’s reliance on other language in the contract to establish the meaning of the term mutual benefit, it is not altogether clear whether the Court was holding that the term “mutual benefit” is now hereinafter the equivalent to the term “shall name an additional insured.” It is assumed that they are now the equivalent, but such might still be challenged where there is some compelling evidence suggesting this was not the intent.

First Department Applies New Jersey Law Due to Domicile of Insured

Travelers Cas. and Sur. Co. v. Honeywell Intern., Inc.
880 N.Y.S.2d 66, (1st Dept., 2009)

In a case involving a choice of law between New Jersey and New York, with respect to certain asbestos-related claims, the trial court chose New Jersey law and the First Department unanimously affirmed.

The court reaffirmed the settled doctrine that a contract of liability insurance is generally “governed by the law of the state which the parties understood was to be the principal location of the insured risk” citing to Certain Underwriters at Lloyd's, London v. Foster Wheeler Corp., 36 A.D.3d 17, 822 N.Y.S.2d 30 [2006], affd. 9 N.Y.3d 928, 844 N.Y.S.2d 773, 876 N.E.2d 500 [2007]. In Certain Underwriters, the First Department had held that “where it is necessary to determine the law governing a liability insurance policy covering risks in multiple states, the state of the insured's domicile [at the time of contracting] should be regarded as a proxy for the principal location of the insured risk” (id. at 24, 822 N.Y.S.2d 30), and that, for such purposes, a corporate insured's domicile is the state of its principal place of business, not the state of its incorporation (id. at 25, 822 N.Y.S.2d 30; see also Appalachian Ins. Co. v. Di Sicurata, 60 A.D.3d 495, 875 N.Y.S.2d 57 [2009] ).

Since it was undisputed that the principal place of the insured's business was New Jersey, it was immaterial that the insured had used a New York address on some of the policies, that it had used New York brokers, or that it had used New York amendatory endorsements on some of the policies. The court found it relevant that the "parties knew that the risks were spread nationwide". As such, it was appropriate to apply the law of the insured's domicile.

Practioner's Note:
This question of choice of law should not be confused with the issue of whether a policy was "issued for delivery in New York" for the purposes of New York Insurance Law 3420(d). See Preserver Insurance Co. v. Ryba, 10 N.Y.3d 635, 862 N.Y.S.2d 820(2008); American Ref-Fuel Company, v. Employers Insurance Co., 265 A.D.2d 49, 705 N.Y.S.2d 67 (2d Dep't 2000). Seemingly, a court could find that New Jersey law applied, and also find that the policy was issued for delivery in New York as long as there was a New York risk being insured.

Execution of Non-Waiver Agreement Did Not Protect Carrier From Insurance Law § 3420[d]

Mayer's Cider Mill, Inc. v. Preferred Mut. Ins. Co., --- N.Y.S.2d ----, 2009 WL 1565160, (4th Dept., 2009).

The above case involved a 12 year old injured 1999, while working at a cider mill. It was unclear whether the infant was an employee or an independent contractor. This was an important distinction as the mill’s general liability policy contained an employee exclusion. The mill gave prompt notice to its insurance carrier and signed a “Non-Waiver Agreement” in 1999 pursuant to which the carrier indicated it would investigate the claim and reserved its right to disclaim coverage.

The infant waited until 2007 to file a complaint, claiming to be an independent contractor. The carrier issued a letter advising that it was still investigating the matter and reasserting the policy did not cover the Mill for injury to employees.

On appeal, the Court found that the carrier had “failed to provide the requisite written notice of disclaimer to plaintiff “as soon as [was] reasonably possible” (Insurance Law § 3420[d][2]; cf. Zappone v. Home Ins. Co., 55 N.Y.2d 131, 136-137). The Court noted that “it is incumbent upon the insurance company to conduct its own prompt investigation ( see id. at 1286-1287), and “the burden is on the insurer to demonstrate that its delay [in disclaiming coverage] was reasonably related to its completion of a thorough and diligent investigation” (Tully Constr. Co., Inc. v. TIG Ins. Co., 43 AD3d 1150, 1152-1153).

The court rejected the carrier’s claim that its investigation into the employment status remained ongoing as well as the defense that the claim was initially reported “for informational purposes only.” Presumably, the carrier also argued that the non-waiver agreement protected it from waiving a policy defense. The Court however, did not address or acknowledge such a defense in the decision. Rather, it merely found that the record neither supported the claim was for “informational purposes” or that the carrier was still investigating the claim. Accordingly, it found that any disclaimer by the carrier was untimely as a matter of law (see Wood, 45 AD3d at 1287).

While this decision involved an extreme delay in time, it raises the question how effective are non-waiver agreements? Recently, the Second Department similarly disregarded a non-waiver agreement in Quincy Mut. Fire Ins. Co. v. Uribe, 45 A.D.3d 661, 845 N.Y.S.2d 434 (2d Dept.,2007), where the agreement set forth a need for additional investigation, but the carrier then could not justify the need for further investigation.

The narrow effectiveness of non-waiver agreements was also demonstrated in Greater New York Sav. Bank v. Travelers Ins. Co., 173 A.D.2d 521, 570 N.Y.S.2d 122 (2d Dept.1991) where the Court held that notwithstanding the existence of a non-waiver agreement, material issues of fact existed with regard to the reasonableness of the carrier’s delay in denying coverage. It held the non-waiver agreement executed by the plaintiff “was not dispositive of the claim inasmuch as it merely allowed [the carrier] to ascertain the actual value of the property, to determine the amount of the loss, and to investigate the cause of the fire, without waiving its rights under the policy. It did not permit [the carrier] to unreasonably delay the exercise of those rights, to the detriment of the insured (see, Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, 269, 317 N.Y.S.2d 309, 265 N.E.2d 736).

It should be emphasized that non-waiver agreements and reservations of rights letters do provide carriers with much needed protection and rights. Indeed, in Federated Dept. Stores, Inc. v. Twin City Fire Ins. Co., 28 A.D.3d 32, 807 N.Y.S.2d 62 (1st Dept. 2006) the Court held that a reservation of rights prevented the insured from claiming detrimental reliance on the carrier’s defending the case, even where the insurer later disclaimed on a basis different from the ground originally asserted in the reservation of rights (see Village of Waterford v. Reliance Ins. Co., 226 A.D.2d 887, 640 N.Y.S.2d 671 [1996]). The key lesson to be learned here, is that non-waiver agreements and reservations of rights letters, will only protect a carrier to the extent they do not sit on their rights and/or fail to act in a timely manner.

11 Month Delay In Giving Notice Vitiated Coverage to Insured and Injured Party

Sputnik Restaurant Corp. v. United Nat. Ins. Co.
878 N.Y.S.2d 428, (2d Dept., May 5, 2009).

In this recently decided case, the Court reviewed the principals behind the requirement that both the insured and injured parties provide timely notice to insurance carriers. It emphasizes that the late notice defense is very much alive and well in New York. While much of the case merely rehashed well-settled principles, it is good to review them from time to time.

The Court noted: “‘[w]here an insurance policy requires that notice of an occurrence be given promptly, notice must be given within a reasonable time in view of all of the facts and circumstances'” (Zeldin v. Interboro Mut. Indem. Ins. Co., 44 A.D.3d 652, 652, 843 N.Y.S.2d 366, quoting Eagle Ins. Co. v. Zuckerman, 301 A.D.2d 493, 495, 753 N.Y.S.2d 128; see Argo Corp. v. Greater N.Y. Mut. Ins. Co., 4 N.Y.3d 332, 339, 794 N.Y.S.2d 704, 827 N.E.2d 762.

The requirement that an insured provide timely notice “operates as a condition precedent to coverage” (see Security Mut. Ins. Co. of N.Y. v. Acker-Fitzsimons Corp., 31 N.Y.2d 436, 440, 340 N.Y.S.2d 902, 293 N.E.2d 76; Quality Inves., Ltd. v. Lloyd's London, England, 11 A.D.3d 443, 782 N.Y.S.2d 761). Absent a valid excuse for a delay in furnishing notice, failure to satisfy the notice requirement vitiates coverage (see Great Canal Realty Corp. v. Seneca Ins. Co., Inc., 5 N.Y.3d 742, 743, 800 N.Y.S.2d 521, 833 N.E.2d 1196; Eagle Ins., 301 A.D.2d at 495.

“ ‘Where an insurance policy requires that notice of an occurrence be given promptly, notice must be given within a reasonable time in view of all of the facts and circumstances' ” (Zeldin, 44 A.D.3d at 652 quoting Eagle Ins., 301 A.D.2d at 495, see Argo Corp., 4 N.Y.3d at 339; White v. City of New York, 81 N.Y.2d 955, 957, 598 N.Y.S.2d 759, 615 N.E.2d 216). Absent a valid excuse for a delay in furnishing notice, failure to satisfy the notice requirement vitiates coverage (see Great Canal, 5 N.Y.3d at 743; Eagle Ins., 301 A.D.2d at 495).

Here, the defendant United National Insurance Co. (hereinafter United) established its prima facie entitlement to judgment as a matter of law by demonstrating that it was not notified of the accident until approximately 11 months had elapsed. Once United established its prima facie entitlement to judgment, the burden shifted to the plaintiffs to raise a triable issue of fact as to whether there existed a reasonable excuse for their delay in notifying United (see Argentina v. Otsego Mut. Fire Ins. Co., 86 N.Y.2d 748, 750, 631 N.Y.S.2d 125, 655 N.E.2d 166).

Moreover, the Court held that the injured party has an independent right to give notice to an insurer, even though it is not to be charged vicariously with an insured's delay (see Insurance Law § 3420[a]; Maldonado v. C.L.-M.I. Props., Inc., 39 A.D.3d 822, 823, 835 N.Y.S.2d 335; Seneca Ins. Co. v. W.S. Distrib., Inc., 40 A.D.3d at 1070, 838 N.Y.S.2d 99; Becker v. Colonial Coop. Ins. Co., 24 A.D.3d 702, 704, 806 N.Y.S.2d 720). The Court found that the injured defendants, failed to notify United of right claims in a timely manner.

Are Temporary Employees, Employees?

Nick's Brick Oven Pizza, Inc. v. Excelsior Ins. Co.
877 N.Y.S.2d 359, (2d Dept., April 07, 2009)

In this Second Department case, the Court was presented with the question whether the policy covered a tortious act that was committed by an insured employee, where the policy excluded from the definition of employee, temporary employees who were “furnished to [the insured] to substitute for a permanent ‘employee’ on leave or to meet seasonal or short-term workload conditions.”

The court found that the employee was a temporary employee because he “was hired to meet seasonal …conditions during the …summer …” In doing so, it rejected the carrier’s claim that the employee was not a “temporary employee” because he was not “furnished” by a employment agency, but was merely referred by another employee of Nick’s Pizza. The Court rejected the argument, finding that the term “furnished” was ambiguous with any ambiguities being resolved in favor of the assured. (See Lee v. State Farm Fire & Cas. Co., 32 A.D.3d 902, 822 N.Y.S.2d 559).

Demanding Additional Insured Coverage and Insurance Law 3420(d)

JT Magen v. Hartford Fire Ins. Co., --- N.Y.S.2d ----, 2009 WL 1326359 (1st Dept., 2009).

In Jt. Magen, the First Department revisited the issue which it first addressed in Bovis Lend Lease LMB, Inc. v. Royal Surplus Lines Ins. Co. (27 AD3d 84 [2005]), to wit, whether a letter sent from one insurance company to another on behalf of a mutual insured(s)triggers the recipient carrier's duty to disclaim within a reasonable period of time pursuant to New York Insurance Law 3420(d)?

As the reader may be familiar, 3420(d) is a unique provision of New York law that will preclude a carrier from relying upon a policy exclusion if the carrier fails to issue a disclaimer within a reasonable period of time after obtaining sufficient basis to disclaim. While there is no exact period of time, carriers are expected to respond within thirty (30) days or less to avoid problems.

The Court in JT Magen, reminded us that 3420(d) has no application to an insurance carrier's demand to another carrier to defend its own insured or for contribution. See Tops Mkts. v. Maryland Cas., 267 A.D.2d 999, 1000 [1999]; Thomson v. Power Auth of State of New York, 217 A.D.2d 495 [1995]). As a result of this rule, the defendant in JT Magen, the Hartford, claimed that the letter sent by JT Magen's carrier's on its behalf did not trigger 3420(d) since the statute did not apply to demands made by insurance companys. Also, as noted by the dissent, it is well settled that notice given by a third party is not effective to satisfy the notice requirement in an insurance policy.

The First Department rejected the Hartford's argument, citing Bovis supra as well as Bovis Lend Lease LMB Inc. v. Garito Contr., Inc., 38 AD3d 260 [2007], in which it had held that a letter sent by an insurance carrier on behalf of their insured would trigger 3420(d) with respect to the mutual insured's request for coverage.

However, the court also held that with respect to the claims of one insurance carrier against another carrier, 3420(d) would not preclude the recipient from relying on an exclusion it had failed to provide a timely disclaimer with respect to.

Remediation of Collapsed Retaining Wall Excluded by Owned Property Exclusion

Castle Village Owners Corp. v. Greater New York Mut. Ins. Co.--- N.Y.S.2d ----, 2009 WL 1186692N.Y.A.D. 1 Dept.,2009.

This recent insurance opinion arose out of the collaspse of the retaining wall adjacent to the West Side Highway in New York, which caused a large quantity of debris, including dirt, benches, boulders and other objects, to fall onto an adjacent sidewalk and roadway.

The City of New York responded by issuing an emergency order to the owner of the property, Castle Village, to remediate the condition. The remediation work was eventually performed and a settlement for the cost of the work was reached between the City and Castle Village's primary and excess carrier. The excess carrier, contributed to the settlement, but reserved its right to disclaim coverage for further claims resulting from the incident, based on the "owned property" exclusion in the excess policy, which essentially excluded coverage for:

“property you own, rent, or occupy, including any costs or expenses incurred by you, or any other person, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another's property;”

After the remediation had stabilized the situation, the City ordered Castle Village to perform permanent repairs to the wall including regrading the remaining portion of the wall and slopes, and stabilizing the surrounding soil. Upon notice of this liability, the defendant excess carrier disclaimed coverage based on the "owned property" exclusion.

Helen Freedman found for Greater New York Mutual and Castle Village appealed to the First Department and argued that since the policy affords coverage for sums the insured is obligated to pay as a result of liability imposed by law, the effect of the City declaration was to render inapplicable the “owned property” exclusion, since the emergency declaration required it to repair the wall.

In an interesting decision, the Court acknowledged that there are "circumstances where an “owned property” exclusion may not be enforceable because of a legal obligation to prevent damage to another's property." In particular, where there is a fuel spill and the insured is ordered to clean it up in order to prevent harm to adjacent land owners. See State of New York v. New York Cent. Mut. Fire Ins. Co. (147 A.D.2d 77 [1989]. The Court noted however, that central to these cases, was the seepage being a condition hazardous to the property of others, and the condition being an ongoing and continuing one.

The Court distinguished these cases from Castle Village, since in this case, "after the initial wall collapse and remedial measures, the hazardous condition was significantly mitigated. The possibility of a future collapse presented the need for permanent ameliorative measures, but, unlike those situations involving an oil spill, an imminent, continuing danger no longer existed."

The Court also found that Greater New York was under no duty to disclaim until the primary policy had been exhausted (see Wilson v. Galicia Contr. & Restoration Corp., 36 AD3d 695, 697 [2007], affd 10 NY3d 827 [2008] ) and found no basis for finding defendant was estopped from disclaiming on the basis of its participation in initial settlement with the city.