New York Law Review

Tag: insurance exclusion

  • New Amsterdam Jewelry, Inc. v. Hartford Fire Ins. Co., 63 N.Y.2d 1018 (1984): Establishing Entrustment for Insurance Exclusion

    New Amsterdam Jewelry, Inc. v. Hartford Fire Ins. Co., 63 N.Y.2d 1018 (1984)

    An insurer bears the burden of proving that a loss falls within a policy exclusion for dishonest acts by individuals to whom insured property was delivered or entrusted; mere employment by the consignee is insufficient to establish entrustment.

    Summary

    New Amsterdam Jewelry, Inc. sued Hartford Fire Insurance Co. to recover for the loss of diamonds under an all-risk policy. The policy excluded coverage for losses caused by dishonest acts of those to whom the property was delivered or entrusted. The diamonds were stolen by Sergio, an employee of International Diamond & Gem, the buyer. The New York Court of Appeals held that Hartford failed to prove the diamonds were entrusted to Sergio, merely showing his employment was insufficient. Therefore, the exclusion did not apply, and New Amsterdam could recover under the policy.

    Facts

    New Amsterdam Jewelry, Inc. (plaintiff) possessed an all-risk insurance policy issued by Hartford Fire Insurance Co. (defendant). The policy excluded losses from dishonest acts by employees or those to whom the insured property was delivered or entrusted. Sergio, a buyer for International Diamond & Gem, contacted New Amsterdam. After confirming Sergio’s employment, New Amsterdam shipped diamonds worth $102,428.50 to International. Postal receipts confirmed delivery to International. The diamonds were stolen by Sergio. New Amsterdam filed a claim, which Hartford rejected based on the policy’s exclusion.

    Procedural History

    New Amsterdam sued Hartford in the Supreme Court, New York County. The Supreme Court granted summary judgment for New Amsterdam. The Appellate Division reversed, holding the exclusion applied because the diamonds were no longer in the insured’s possession. The dissent argued that the stipulated facts did not demonstrate International entrusted the diamonds to Sergio. New Amsterdam appealed to the New York Court of Appeals.

    Issue(s)

    Whether the insurer, Hartford Fire Insurance Co., met its burden of proving that the loss of diamonds fell within the policy exclusion for dishonest acts “on the part of any person to whom the property hereby insured may be delivered or entrusted” when the diamonds were stolen by an employee of the consignee.

    Holding

    No, because the insurer failed to establish that the diamonds were delivered or entrusted to Sergio, the employee who stole them; his employment with the consignee, International Diamond & Gem, was insufficient to prove entrustment.

    Court’s Reasoning

    The Court of Appeals emphasized that the insurer bears the burden of proving that a loss falls within a policy exclusion, citing International Paper Co. v Continental Cas. Co., 35 NY2d 322, 327. The court focused on the policy language, which excluded losses resulting from dishonest acts “on the part of any person to whom the property hereby insured may be delivered or entrusted.” The court found the stipulation that Sergio was an employee of International insufficient to establish delivery or entrustment to him. The court noted, “Nor should it be inferred from the fact that Sergio was an employee of International that the diamonds were delivered or entrusted to him by International, in the face of the stipulated fact that they were stolen by Sergio, whether before or after or without entrustment to him we are not told.” The court distinguished the case from Abrams v Great Amer. Ins. Co., 269 NY 90 and David R. Balogh, Inc. v Pennsylvania Millers Mut. Fire Ins. Co., 307 F2d 894, where entrustment was established. The court also cited Glick v Excess Ins. Co., 14 NY2d 635, noting that even giving an employee a key to the store and the combination to the safe did not establish entrustment as a matter of law. The court concluded that the insurer failed to meet its burden of proving entrustment, thus the exclusion did not apply, and the insured could recover under the policy. The state of mind of the insured is relevant to determining entrustment, but only once some evidence of delivery or entrustment exists, which was lacking here.

  • Mount Vernon Fire Insurance Co. v. Travelers Indemnity Co., 47 N.Y.2d 579 (1979): Interpreting “Follow Form” Clauses in Excess Insurance Policies

    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.

  • Morales v. Eveready Ins. Co., 39 A.D.2d 46 (N.Y. 1972): Enforceability of Insurance Exclusions Contrary to Public Policy

    Morales v. Eveready Ins. Co., 39 A.D.2d 46 (N.Y. 1972)

    An insurance policy exclusion that conflicts with the public policy of protecting innocent victims of motor vehicle accidents is unenforceable, even if the exclusion is part of a private agreement between the insurer and the insured.

    Summary

    The case addresses whether an insurance company, Eveready, could disclaim coverage based on a policy exclusion for vehicles not leased on an annual basis. Morales, a driver leasing a car from Abco Leasing Company, was involved in an accident. Eveready, Abco’s insurer, disclaimed coverage. The court held the disclaimer invalid, finding it violated the public policy of ensuring financial responsibility for drivers and protecting accident victims. The court reasoned that once Eveready issued the policy, its obligations extended as broadly as the applicable statutes required, and the attempted exclusion was unenforceable.

    Facts

    On April 8, 1967, Efrain Morales, while driving a car he leased from Abco Leasing Company, was involved in an accident with the plaintiffs, who were passengers in his car. Abco had an insurance policy with Eveready Insurance Company. Eveready’s policy included Automobile Endorsement No. 3, which stated coverage did not apply to vehicles used as “Drive-Yourself private passenger vehicles (except leased on annual basis.)” Eveready disclaimed coverage because Morales did not lease the car on an annual basis.

    Procedural History

    The initial judgment was likely in favor of Eveready, upholding the disclaimer. The Appellate Division reversed this judgment. The New York Court of Appeals affirmed the Appellate Division’s reversal, holding the disclaimer invalid and obligating Eveready to defend and pay any judgment against Morales.

    Issue(s)

    1. Whether an insurance policy exclusion that conflicts with the public policy of protecting innocent victims of motor vehicle accidents is enforceable.

    Holding

    1. No, because once an insurance policy is issued, the insurer’s obligation arises by operation of law and is as broad as the requirements of applicable statutes. Any attempted exclusion not permitted by law cannot limit responsibility under the policy.

    Court’s Reasoning

    The court reasoned that New York’s public policy, as reflected in the Insurance Law and the Vehicle and Traffic Law, aims to protect innocent victims of traffic accidents by ensuring that motorists are financially responsible. Section 167 of the Insurance Law mandates that liability insurance policies cover those using a vehicle with the owner’s permission. Section 311 of the Vehicle and Traffic Law defines an “owner’s policy of liability insurance” as providing coverage as defined in regulations promulgated by the superintendent of insurance. These regulations, found in 11 NYCRR 60.1, repeat the requirements of Section 167 and Section 311. Section 60.2 lists permissible exclusions, and the exclusion in Eveready’s policy was not among them. Citing the legal maxim "expressio unius est exclusio alterius" (the expression of one thing is the exclusion of another), the court found the exclusion invalid. The court stated: “Once Eveready issued its policy to Abco, its obligation, with the exception of permitted exclusions, arose by operation of law and was as broad as the requirements of the applicable statutes. Any attempted exclusion, not permitted by law, would not serve to limit its responsibility under the policy, whatever its private agreement with Abco.” The court also noted that Eveready would be unjustly enriched if it collected premiums without providing the required coverage. The court highlighted the importance of protecting the public from uninsured drivers and ensuring compensation for injuries sustained in accidents, stating: “It is the public policy of New York to protect the innocent victims of traffic accidents.”