York v. Zurich American Ins. Co., 87 N.Y.2d 986 (1996)
An insurance policy exclusion for property under bailment to the insured applies where the insured has possession of property belonging to another under an agreement to redeliver or dispose of the property as directed.
Summary
York involved a dispute over whether Zurich American Insurance Company had a duty to defend its insureds, the Yorks, in a lawsuit brought by their former landlord. The landlord alleged the Yorks converted furnishings and personal property that had been stored on the premises under a lease provision. Zurich refused to defend, citing an exclusion in the Yorks’ general liability policy for property under bailment. The New York Court of Appeals agreed with the lower courts that the bailment exclusion applied, relieving Zurich of its duty to defend because the stored property qualified as a bailment under the policy’s definition. The Court emphasized that the duty to defend is determined by the allegations in the complaint and policy terms.
Facts
The Yorks leased property from a landlord. Their lease contained a provision allowing them to store furnishings and personal property on the premises. A dispute arose, and the landlord sued the Yorks in federal court, alleging conversion of the stored property. The Yorks had a general liability insurance policy with Zurich American Insurance Company.
Procedural History
The Yorks sought to compel Zurich to defend them in the federal lawsuit. Zurich refused, citing a bailment exclusion in the policy. The lower courts granted summary judgment to Zurich, finding the exclusion applicable. The Yorks appealed to the New York Court of Appeals.
Issue(s)
Whether Zurich American Insurance Company had a duty to defend the Yorks in the federal lawsuit, given the bailment exclusion in their general liability policy and the landlord’s allegations of conversion of stored property.
Holding
No, because the allegations in the landlord’s complaint fell within the policy’s bailment exclusion, relieving Zurich of its duty to defend.
Court’s Reasoning
The Court of Appeals affirmed the lower courts’ decisions, holding that the bailment exclusion applied. The court focused on the policy’s definition of “bailment” as a “delivery of property by any person to the insured for purpose beneficial to either the insured or such person or both under a contract, express or implied, for the insured to carry out such purpose and to redeliver such property or otherwise dispose of it as provided.” The court found that the landlord’s property, stored under the lease agreement, met this definition. The Court reiterated the principle that “[a]n insurer’s duty to defend is ‘derived from the allegations of the complaint and the terms of the policy’ (Technicon Elecs. Corp. v American Home Assur. Co., 74 NY2d 66, 73), and exclusions from coverage, which must be in clear and unmistakable language, are given a strict and narrow interpretation (Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 310).” Because the landlord’s complaint alleged facts that fell squarely within the bailment exclusion, Zurich had no duty to defend. The court emphasized that the insurer bears the burden of demonstrating that the allegations in the underlying complaint are outside the scope of coverage due to an exclusion.