S. & E. Motor Hire Corp. v. New York Indemnity Co., 255 N.Y. 69 (1931)
An insurer is not automatically deemed to have waived a policy exclusion based on a driver’s age merely because it undertook the defense of a lawsuit without first independently verifying the driver’s age, especially when the insured provided information indicating the driver met the age requirements.
Summary
S. & E. Motor Hire Corp. sued New York Indemnity Co. to recover settlement costs for an accident involving their vehicle. The indemnity policy excluded coverage for accidents when the vehicle was driven by someone under the legal age. The insurer initially defended the lawsuit but withdrew upon discovering the driver’s underage status. The Court of Appeals held that the insurer did not waive its right to invoke the policy exclusion simply by initially defending the suit, as the insured had provided information suggesting the driver was of age, and the insurer wasn’t obligated to investigate the driver’s age before providing a defense.
Facts
S. & E. Motor Hire Corp. had an insurance policy with New York Indemnity Co. that excluded coverage for accidents occurring while the vehicle was operated by someone violating age laws. An accident occurred while an employee of S. & E. Motor Hire Corp., who was under 18, was driving. The employee had a license belonging to another person and used that name for employment. The insured provided the insurance company with a statement from the chauffeur claiming he was 18. The insurance company acted on this statement until the trial date, when they learned the chauffeur’s actual age.
Procedural History
S. & E. Motor Hire Corp. sued New York Indemnity Co. to recover the settlement amount. The trial court ruled in favor of the insurance company, finding no waiver. The Appellate Division reversed, holding that the insurance company had sufficient knowledge to inquire about the chauffeur’s age. The New York Court of Appeals then reviewed the Appellate Division’s decision.
Issue(s)
Whether the insurance company, by initially undertaking the defense of the lawsuit against S. & E. Motor Hire Corp., waived its right to invoke the policy exclusion for accidents involving underage drivers, even if it did not have actual knowledge of the driver’s age but possessed information that might have prompted further inquiry?
Holding
No, because the insurance company was entitled to rely on the information provided by the insured, which indicated that the driver met the legal age requirements, and was not under a duty to investigate the driver’s age before providing a defense.
Court’s Reasoning
The court reasoned that waiver is the intentional relinquishment of a known right. While constructive notice (where a party is deemed to know facts they should have discovered through reasonable inquiry) can sometimes establish knowledge, it does not automatically apply in insurance contexts. The court distinguished this case from situations where an insurance company has a duty to inquire, such as when the applicant for insurance directs the company to a source of information and the company chooses to remain ignorant.
The court emphasized that the insurance company was contractually obligated to defend the suit unless the policy exclusion applied. They were entitled to rely on the information provided by the insured, specifically the chauffeur’s statement that he was 18. Suspicion of the statement’s falsity might require inquiry if the insurer was asserting rights against the insured, but in this case, the insured had to prove the insurer waived its rights. The court stated, “Upon the information furnished to the insurer it would have breached its contract if it had failed to defend the suit. It was not, at peril of losing its contractual rights, required to inquire whether the information so furnished was false before it undertook the defense.” Therefore, the court held that the insurer did not waive its right to invoke the policy exclusion.