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.

Village Determination to Demolish After Fire Not Occurrence

Village of Springville v. Reynolds--- N.Y.S.2d ----, 2009 WL 1099695N.Y.A.D. 4 Dept.,2009.

In this interesting coverage decision, the plaintiff Village instituted a declaratory judgment action to obtain coverage under its general liabilty policy seeking defense and indemnity with respect to a suit against it for its decision to condemn property after a fire.

The Fourth Department sided with the insurance carrier that the Village failed to establish that the loss was caused by an occurrence. "Occurrence" being "an accident." The complaint alleged that the decision to demolish the building and the demolition itself were intentional. The court noted that “[a]ccidental results [and unintended damages] can flow from intentional acts ..., when the damages alleged in the [underlying] complaint ‘are the intended result which flows directly and immediately from [the insured's] intentional act, rather than arising out of a chain of unintended though foreseeable events that occurred after the intentional act’, there is no accident, and therefore, no coverage” ( Salimbene v. Merchants Mut. Ins. Co., 217 A.D.2d 991, 994; cf. Automobile Ins. Co. of Hartford, 7 NY3d at 137-138).

Thus, the court granted summary judgment to the carrier. The court also reversed the award of attorneys fees in favor of the village since it was the village that instituted the DJ. Mighty Midgets v. Centennial Ins. Co., 47 N.Y.2d 12, 21-22).

Policy Issued for Delivery in New York?

Recently, I was faced with the prospect of a plaintiff excess insurance company seeking to amend its complaint to rely on the employee exclusion provision in the policy. They had neither relied on it in the disclaimer nor pleaded it in the complaint. The injured plaintiffs were not employees of my client, an additional insured on the policy, but rather were employees of the named insured. Notwithstanding, the Second Department has held that if the plaintiff is an employee of the named insured, there is no coverage under the policy for the additional insureds, notwithstanding the general rule that "separation of insureds" doctrine. Bassuk Bros., Inc. v. UTICA First Ins. Co., 1 A.D.3d 470 (2d Dep't 2003); but see, U.S. Underwriters Ins. Co. v. City Club Hotel, LLC, 2003 WL 2006621.

The principal issue was whether the amendment was futile given the plaintiff's failure to give notice of its reliance on this exclusion within a reasonable period of time pursuant to New York Insurance Law 3420(d). New York is distinct in the draconian penalty of waiver if insurance carriers fail to assert exclusions within a reasonable period of time, which is generally considered to be sixty days.

It was however unclear whether 3420(d) applied since by its own terms it only is applicable with respect to insurance policies "delivered or issued for delivery" in New York. The subject policy however, was issued by a Connecticut insurance company to a named insured with a principal place of business in New Jersey. Upon initial discussions with the court, the presiding judge opined that 3420(d) would not apply and thus, would not bar the amendment.

However, upon further research, I came to a different conclusion. While the policy at issue was not delivered in New York, the question remained whether it was issued for delivery in New York. The Court of Appeals addressed this issue in Preserver Insurance Co. v. Ryba, 10 N.Y.3d 635 where it stated that a policy is "issued for delivery" in New York if it "covers both insureds and risks located in this state." Preserver, 10 N.Y.3d at 642. Also see, Columbia Casualty Company, v. National Emergency Services, Inc., 282 A.D.2d 346 (1st Dep't 2001); American Ref-Fuel Company of Hempstead v. Employers Ins. Co. of Wausau, 265 A.D.2d 49 (2d Dep't 2000).

Although the plaintiff did not pursue the amendment, I was prepared to argue that the policy was in fact issued for delivery in New York because the named insured used a New York address when purchasing its underlying primary insurance policy. In addition, the named insured was revealed in the underwriting file to be working on jobs mainly in New York. When the carrier would have reviewed the named insured's loss history, it would have seen that the only two former claims had occurred in New York.

Presumably, the plaintiff would have countered that the policy itself does not list any New York based insured and did not specifically insure any New York locations. It also would have argued that most of the evidence of the insured's New York work was added to the underwriting file after the effective date of the policy. It is unclear how the court would have framed the issue...would it have looked at the totality of the evidence in deciding whether the policy was issued for delivery in New York, or would it have only looked at the evidence that was available to the carrier at the time the policy was issued? Also unclear is to what degree the carrier had a duty to inquire whether an insured worked in New York. Here, the insured's principal place of business was just outside New York City and accordingly, the carrier had reason to suspect that it would be insuring New York risk.