Royal Indemnity Co. v. Providence Washington Ins. Co., 92 N.Y.2d 653 (1998)
A non-trucking-use exclusion in a commercial vehicle insurance policy is invalid under New York law and public policy if it doesn’t expressly state that it only applies when the vehicle’s lessee has separate trucking-use insurance coverage.
Summary
This case concerns a dispute between two insurance companies regarding coverage for an accident involving a tractor-trailer. The New York Court of Appeals held that a “non-trucking-use” exclusion in the vehicle owner’s insurance policy was invalid because it could potentially leave injured parties without recourse to a financially responsible defendant, violating public policy. The court emphasized that such exclusions are only valid if the policy explicitly states that it’s effective only when the vehicle’s lessee has its own valid insurance coverage. The existence of the lessee’s insurance or the insurer’s internal procedures is not sufficient to validate an otherwise invalid exclusion.
Facts
John Van Dorp leased a tractor-trailer to Deliverance Road Transport, Inc. Van Dorp obtained a “bobtail” (non-trucking-use) insurance policy from Providence Washington Insurance Company. Deliverance had a truckers liability insurance policy with Royal Indemnity Insurance Company. While Scott Bodine was driving the tractor-trailer for Deliverance’s business, he injured a bicyclist. The injured party sued Van Dorp, Deliverance, and Bodine. Royal, Deliverance’s insurer, settled the case and sought contribution from Providence, Van Dorp’s insurer, arguing Providence’s policy should cover part of the loss.
Procedural History
Royal brought a declaratory judgment action in the United States District Court for the Northern District of New York. The District Court granted summary judgment for Royal, holding the non-trucking-use exclusion void as against public policy. Providence appealed to the Second Circuit Court of Appeals, which certified two questions to the New York Court of Appeals.
Issue(s)
1. Whether a non-trucking-use exclusion from coverage in an insurance policy obtained by the owner of a commercial vehicle is valid under New York law, despite the absence of express language in the policy stating that the exclusion is effective only if the vehicle’s lessee is required to obtain insurance coverage, where the insurer has established that its standard underwriting policy is not to issue a policy containing such an exclusion unless the vehicle owner has provided proof that the vehicle’s lessee has insurance coverage.
2. If the non-trucking-use endorsement is not valid to exclude coverage entirely, whether such an endorsement is nonetheless valid to limit liability to the financial security minima required by New York law.
Holding
1. No, because the non-trucking-use exclusion violates New York law and public policy by potentially creating a gap in coverage where an injured party would not have recourse to a financially responsible defendant.
2. No, because the policy must be read as if the exclusion did not exist, and no limitation to the statutory minimum can be imposed if the exclusion itself is invalid.
Court’s Reasoning
The Court of Appeals relied on the precedent set in Randazzo v. Cunningham, which held that a non-trucking-use exclusion is invalid if it’s not explicitly limited to situations where the lessee has trucking-use insurance. The court reasoned that Vehicle and Traffic Law § 388(4) requires all insurance policies to provide indemnity against liability arising from permissive operation of the vehicle. The non-trucking-use exclusion in Providence’s policy failed to meet this requirement, as it could potentially apply even if the vehicle had no other valid insurance coverage.
The court dismissed Providence’s argument that its underwriting procedure of requiring proof of the lessee’s insurance validated the exclusion. The court stated,