Mount Vernon Fire Insurance Co. v. Travelers Indemnity Co., 47 N.Y.2d 579 (1979)
An excess insurance policy’s “follow form” clause, which incorporates exclusions from the primary policy, will be interpreted strictly against the excess insurer, preventing it from invoking an exclusion that the primary insurer could not invoke.
Summary
Mount Vernon Fire Insurance Company sought a declaratory judgment that it was not liable under an excess insurance policy due to an exclusion clause incorporated from the primary policy issued by Travelers Indemnity Company. The exclusion applied when a trailer was used with a tractor not covered by “like insurance in the company.” Travelers insured both the tractor and trailer involved in an accident. The New York Court of Appeals held that Mount Vernon could not invoke the exclusion because Travelers, the primary insurer and drafter of the exclusionary language, could not do so, given that it insured both vehicles. The “follow form” clause meant the exclusion operated as it would under the primary policy.
Facts
Smolowitz Brothers Van Lines, Inc. was insured by Travelers Indemnity Company under a primary automobile liability policy covering its fleet. The Travelers policy contained an exclusion stating it was inapplicable “while any trailer covered by this policy is used with any [tractor] owned or hired by the insured and not covered by like insurance in the company.” Smolowitz also had an excess insurance policy with Mount Vernon Fire Insurance Company, which stated its coverage was subject to “all the conditions, agreements, exclusions and limitations of and shall follow the Primary Insurance in all respects.” Gino Trotta was injured in an accident involving a tractor-trailer owned and operated by Smolowitz. Travelers insured both the tractor and trailer, while Mount Vernon’s excess policy only covered the trailer. Mount Vernon sought a declaration that it was not liable, arguing the exclusion applied because the tractor was not insured by Mount Vernon.
Procedural History
Mount Vernon brought a declaratory judgment action in Supreme Court, which ruled that the exclusionary clause was against public policy. The Appellate Division modified the Supreme Court’s judgment in respects not relevant here, but declared that Mount Vernon was obligated to indemnify Smolowitz for any judgment exceeding the limits of the Travelers policy. Mount Vernon appealed to the New York Court of Appeals.
Issue(s)
Whether an excess insurer can invoke an exclusion clause incorporated from a primary insurance policy via a “follow form” clause, when the primary insurer itself could not invoke that exclusion under the facts of the case.
Holding
No, because the “follow form” clause incorporates the limitations on the exclusion’s applicability that exist within the primary policy itself.
Court’s Reasoning
The Court of Appeals emphasized the principle of construing exclusions strictly against the insurer, especially when the policy language is standardized and non-negotiable. Citing Thomas J. Lipton, Inc. v Liberty Mut. Ins. Co., 34 NY2d 356, 361, the court noted such language is the insurer’s own. Because Travelers insured both the tractor and the trailer, it could not invoke the exclusion. The “follow form” clause in the Mount Vernon policy meant that the exclusions were to “follow” the primary insurance “in all respects.” The court reasoned that if Mount Vernon intended to reserve the right to invoke the exclusion independently, it should have explicitly stated so or reiterated the exclusionary language in its own policy, citing Miller v Continental Ins. Co., 40 NY2d 675, 678-679. The court concluded that the exclusion clause remains dormant or comes to life according to the terms of the primary insurance policy. The court further reasoned that the phrase “in the company” should be read to mean “in Travelers,” further solidifying the interpretation that Mount Vernon could only assert the exemption when the tractor was not covered by like insurance in Travelers.