New York Law Review

Tag: Insurance Law

  • Igbara Realty Corp. v. New York Prop. Ins. Underwriting Assn., 63 N.Y.2d 201 (1984): Enforcing Proof of Loss Requirements After Insurer Demand

    Igbara Realty Corp. v. New York Prop. Ins. Underwriting Assn., 63 N.Y.2d 201 (1984)

    When an insurer makes a written demand for proof of loss and provides suitable forms, the insured’s failure to file proof of loss within 60 days is an absolute defense for the insurer, absent waiver or estoppel.

    Summary

    This case clarifies the interpretation of Sections 168 and 172 of the New York Insurance Law regarding proof of loss requirements in fire insurance policies. The Court of Appeals held that when an insurer provides written notice and forms for proof of loss, the insured’s failure to comply within 60 days constitutes an absolute defense for the insurer, unless the insurer waives the requirement or is estopped from asserting it. The court also addressed whether an insurer waives the proof of loss defense by asserting other defenses in an answer filed before the 60-day period expires and clarified the procedure for motions regarding corporate capacity to sue.

    Facts

    Igbara Realty Corp., a dissolved corporation, purchased a fire insurance policy from New York Property Insurance Underwriting Association. After the insured property was destroyed by fire, Igbara filed a claim. The insurer sent a written demand for proof of loss. Igbara did not submit the proof of loss within 60 days. The insurer initially filed an answer denying liability but later sought to amend its answer to include the failure to file proof of loss and Igbara’s lack of capacity to sue as defenses. Bonus Warehouse, Syd’s Decorators and Trexler also had similar issues regarding failure to submit timely proofs of loss after a demand from their insurers.

    Procedural History

    In Igbara, the Supreme Court dismissed the complaint based on Igbara’s lack of capacity to sue. The Appellate Division reversed, denying the motion to dismiss but granting leave to assert the lack of capacity defense, while denying leave to assert the failure of proof of loss defense, finding the insurer had repudiated the policy. The Appellate Division granted leave to appeal. In Bonus Warehouse, Special Term denied the insurer’s motion for summary judgment, and the Appellate Division affirmed. In Syd’s Decorators, Special Term denied the insurer’s motion for summary judgment, but the Appellate Division reversed. In Trexler, Special Term denied both parties’ motions for summary judgment, but the Appellate Division modified by granting the insurer’s motion and dismissing the complaint. All cases were appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether failure to file proof of loss within 60 days after a Section 172 demand is an absolute defense for the insurer.
    2. Whether the defense of failure to file proof of loss is waived if the insurer files an answer alleging other defenses before the 60-day period expires.
    3. Whether, in Igbara, the complaint could be dismissed for lack of capacity to sue on motion papers that did not explicitly request dismissal on that ground but did seek summary judgment for failure to file proof of loss.

    Holding

    1. Yes, because when an insurer gives written notice and provides suitable forms for proof of loss, the insured’s failure to furnish proofs of loss within sixty days after receipt of the notice is an absolute defense.
    2. No, because an insurer does not waive the proof of loss defense by asserting other defenses in an answer filed before the 60-day period expires, as long as the insurer asserts the defense in an amended answer.
    3. No, because it was improper to grant summary judgment on the ground of incapacity when the motion did not clearly seek such relief and the opposing party had no reason to present opposition on that issue.

    Court’s Reasoning

    The Court reviewed the history of proof of loss requirements, emphasizing that prior to Section 172 of the Insurance Law, strict compliance was required. Section 172 modifies this strict rule only to the extent of requiring the insurer to make a written demand for proof of loss and provide blank forms. The Court stated that if the insurer makes such a demand, the insured must comply within 60 days to be deemed in compliance with the policy. The court emphasized that the language of the statute goes no further than to require that the insurer bring to the attention of the insured, by making written demand for proofs and providing blank forms, the necessity for filing such proofs.

    Regarding waiver, the Court held that the critical factor is whether the insurer’s actions are inconsistent with asserting the defense. Serving an answer asserting other defenses before the 60-day period expires is not such an inconsistency. The insurer must specifically and with particularity deny the insured’s failure to perform the condition precedent of filing proof of loss to preserve the defense. The Court noted, “Critical to the determination of waiver is whether the act said to constitute a repudiation of liability on the policy is inconsistent with assertion of the defense.”

    Finally, the Court held that Special Term erred in granting summary judgment on the issue of Igbara’s capacity to sue because it was not clear that the opponent of the motion had in fact put before the court all of its factual and legal contentions.

  • Medical Facilities, Inc. v. Pryke, 62 N.Y.2d 716 (1984): Statute of Limitations in Fire Insurance Policies

    Medical Facilities, Inc. v. Pryke, 62 N.Y.2d 716 (1984)

    If a fire insurance policy lacks any statute of limitations provision, the general six-year statute of limitations for contract actions applies, as the insured lacks notice of a shortened period and the insurer is deemed to have waived the two-year period provided by Insurance Law § 168(5).

    Summary

    Medical Facilities, Inc. sued two insurance companies, Illinois Employers’ Insurance Company of Wausau and Great American Surplus Lines Insurance Company, to recover for a fire loss. The insurers moved to dismiss, arguing the suit was filed after the two-year limitations period prescribed by Insurance Law § 168(5). The lower court held the insurers waived this benefit by including a one-year limitation in their policies. The Appellate Division reversed. The Court of Appeals held that if a policy contains a limitations period shorter than two years, it’s enforceable as if it contained the statutory two-year period. However, if the policy contains no limitation period at all, the general six-year contract statute of limitations applies.

    Facts

    Medical Facilities, Inc. sustained a fire loss and sought to recover under two fire insurance policies issued by Illinois Employers’ Insurance Company of Wausau and Great American Surplus Lines Insurance Company. The insurance companies moved to dismiss the case arguing that Medical Facilities failed to comply with the two-year statute of limitations outlined in Insurance Law § 168(5). It was undisputed that the policy issued by Illinois Employers’ Insurance Company of Wausau contained a one-year limitations period. However, there was a dispute as to whether the policy issued by Great American Surplus Lines Insurance Company contained any reference to a limitations period.

    Procedural History

    The Supreme Court, Special Term, denied the defendants’ motion to dismiss, holding that the insurers waived the benefit of the two-year limitations period by including a one-year limitations period in the policies. The Appellate Division reversed and dismissed the complaint as to both defendants, finding the policies enforceable as if they contained the two-year limitations period. The Court of Appeals modified the Appellate Division’s order, denying the motion to dismiss as to Great American and affirming the dismissal as to Illinois Employers’ Insurance Company of Wausau.

    Issue(s)

    1. Whether a fire insurance policy containing a limitations period shorter than the two-year period prescribed by Insurance Law § 168(5) is enforceable as if it conformed to the statutory standard.
    2. Whether the general six-year statute of limitations for contract actions applies to a fire insurance policy that contains no statute of limitations provision.

    Holding

    1. Yes, because Insurance Law § 143(1) dictates that policies with shorter limitations periods are enforceable as if they contained the two-year statutory standard. The inclusion of any express limitations period precludes an inference that the insurer intended to waive any period of limitations other than the general statutory six-year period with respect to actions upon a contractual obligation.
    2. Yes, because in the absence of any provision in the policy as to the limitations period for commencing suit, the insured has no notice that there is a shortened Statute of Limitations and is thus entitled to rely on the general six-year provision for contract actions. In effect the insurer has waived any period of limitations other than the general statutory six-year period.

    Court’s Reasoning

    The Court of Appeals reasoned that when a fire insurance policy contains a limitations period, even if it’s erroneously shorter than the statutory two years, it’s enforced as if it complies with Insurance Law § 168(5). This principle stems from Insurance Law § 143(1) and the court’s prior decision in Bersani v General Acc. Fire & Life Assur. Corp., 36 N.Y.2d 457, 460. However, if the policy lacks any limitations provision, the insured has no notice of a shortened period and can rely on the general six-year contract statute of limitations, as per CPLR 213(2). The court stated, “The holding in Pryke is premised on the fact that in the absence of any provision in the policy as to the limitations period for commencing suit, the insured has no notice that there is a shortened Statute of Limitations and is thus entitled to rely on the general six-year provision for contract actions.” Thus, by omitting the limitations period, the insurer implicitly waives any period shorter than the six-year default. This waiver principle ensures fair notice to the insured, protecting their right to pursue claims within a reasonable timeframe when the policy is silent on the matter. Since a factual question remained regarding whether the Great American policy had a limitations provision, dismissal was inappropriate, whereas dismissal was proper for the Illinois Employers’ policy with its express one-year limitation.

  • Portfolio v. Standard Fire Ins. Co., 67 N.Y.2d 874 (1986): Enforceability of Contractual Limitations Periods in Insurance Policies

    Portfolio v. Standard Fire Ins. Co., 67 N.Y.2d 874 (1986)

    A contractual limitations period in an insurance policy is enforceable, but if the policy’s limitation is explicitly restricted to actions within a specific jurisdiction, the forum’s general statute of limitations applies to actions brought outside that jurisdiction.

    Summary

    Portfolio, as assignee of Puritan Industries, sued Standard Fire Insurance to recover for a theft loss under two insurance policies. The first policy (all-risk) limited suits to two years for actions in Massachusetts, while the second (comprehensive) had a similar two-year limit but without geographical restriction. An initial suit was dismissed for defective service. This action, filed after two years but within six months of the dismissal, was challenged as time-barred. The court held that the comprehensive policy’s two-year limit applied, barring that claim. However, the all-risk policy’s limit applied only to Massachusetts suits; thus, New York’s six-year statute of limitations governed, allowing that claim. The case clarifies the importance of the specific language of contractual limitations periods in insurance policies.

    Facts

    Puritan Industries, Inc., a New York corporation, purchased two insurance policies from Standard Fire Insurance in 1978. The policies were sold and delivered in Massachusetts. One was an all-risk policy for $1,265,000, and the other was a “Comprehensive Dishonesty, Disappearance and Destruction Policy” for $25,000. Both policies were later assigned to Portfolio. In June 1980, Puritan notified Standard Fire of a theft loss that occurred in March 1979. Negotiations for reimbursement failed.

    Procedural History

    Portfolio sued Standard Fire in New York in November 1980, but the action was dismissed due to defective service. In October 1982, Portfolio filed a second suit, identical to the first, asserting claims under both policies. Standard Fire moved to dismiss, arguing the statute of limitations had expired. Special Term dismissed the claim under the comprehensive policy but denied the motion regarding the all-risk policy. The Appellate Division modified, dismissing the entire complaint. Portfolio appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether the contractual two-year limitation period in the insurance policies bars Portfolio’s claim, considering that the initial action was dismissed for lack of personal jurisdiction and the present action was commenced more than two years after the loss but within six months of the prior dismissal.
    2. Whether CPLR 202 allows the New York resident-assignee to benefit from New York’s six-year statute of limitations for contracts, overriding the two-year contractual limitation in the policies.

    Holding

    1. No, because the dismissal for lack of personal jurisdiction does not allow for the extension of the statute of limitations under CPLR 205; however, the all-risk policy’s limitation applied only to suits in Massachusetts.
    2. Yes, because the all-risk policy limited the two-year period only to actions brought in Massachusetts; therefore, New York’s six-year statute applies to actions brought in New York.

    Court’s Reasoning

    The court addressed the enforceability of contractual limitations periods in insurance policies. The court acknowledged that CPLR 205 doesn’t apply when the initial action is dismissed for lack of personal jurisdiction (citing Markoff v South Nassau Community Hosp., 61 NY2d 283). Regarding the choice of law, the court noted that Portfolio, as assignee, had the same rights as its assignor, Puritan, a New York resident (citing United States Fid. & Guar. Co. v Smith Co., 46 NY2d 498). Therefore, Portfolio could invoke New York’s statute of limitations if it were longer than the limitations period in Massachusetts. The court distinguished between the two insurance policies based on their specific language. The comprehensive policy’s two-year limitation applied regardless of where the suit was brought. The court stated, “In this case the comprehensive policy established a contractual limitation applicable to actions in Massachusetts and elsewhere which bound the contracting parties. It did not violate the law or public policy of either New York (see Bargaintown, D.C. v Bellefonte Ins. Co., 54 NY2d 700; Proc v Home Ins. Co., 17 NY2d 239) or Massachusetts.” However, the all-risk policy’s limitation was explicitly restricted to actions within Massachusetts. Thus, the court reasoned that “the provisions of the all risk policy, however, limited the period for suit only for actions instituted within the Commonwealth of Massachusetts. Accordingly, an action lawfully instituted in New York by a New York resident is governed by this State’s six-year statute.” The court modified the Appellate Division’s order, reinstating the causes of action under the all-risk policy, emphasizing the importance of the specific language defining the scope of contractual limitations periods.

  • Pogo Holding Corp. v. New York Property Ins. Underwriting Assn., 61 N.Y.2d 969 (1984): Effect of False Swearing on Insurance Recovery

    Pogo Holding Corp. v. New York Property Ins. Underwriting Assn., 61 N.Y.2d 969 (1984)

    An insured’s intentional false swearing or misrepresentation of a material fact in a proof of loss or examination under oath, as required by a standard fire insurance policy, will bar recovery under the policy.

    Summary

    Pogo Holding Corporation sued to recover proceeds from fire insurance policies. The insurer, New York Property Insurance Underwriting Association, claimed Pogo willfully misrepresented the property’s value and provided false information during examinations. At trial, the insurer presented evidence that the property’s actual value was significantly lower than Pogo’s claimed value in the proof of loss. The jury initially found Pogo falsely swore or misrepresented a material fact. The trial court, however, rejected this verdict and submitted additional questions. After inconsistent answers, the court ordered a new trial. The Appellate Division reversed and reinstated the original verdict for the insurer. The New York Court of Appeals affirmed, holding that the trial court erred in rejecting the jury’s initial finding of false swearing, which, under the jury instructions, warranted a verdict for the insurer.

    Facts

    Pogo Holding Corporation owned two wood-frame buildings in Far Rockaway that sustained fire damage. Pogo had fire insurance policies with New York Property Insurance Underwriting Association totaling $55,000. In its proof of loss statements, Pogo claimed the value of the damaged property was $55,000. During examinations under oath, Pogo’s officer gave testimony about rental values that conflicted with lower figures in a prior letter to the insurer. The insurer’s real estate expert testified the property’s value before the fire was only $10,500. The insurance policies contained standard New York fire insurance policy language, stating that misrepresentation or false swearing would void the policy.

    Procedural History

    Pogo sued the insurance company to recover the policy proceeds. The insurer asserted affirmative defenses of willful misrepresentation of property value and false swearing. The trial court initially submitted interrogatories to the jury, who found Pogo falsely swore or misrepresented a material fact. The trial court refused to accept the verdict and submitted further questions. After inconsistent answers, the court ordered a new trial. The Appellate Division reversed and reinstated the original jury verdict for the insurer. Pogo appealed to the New York Court of Appeals.

    Issue(s)

    Whether the trial court erred in refusing to accept the jury’s initial finding that Pogo falsely swore or misrepresented a material fact, which, according to the jury instructions, mandated a verdict for the insurer.

    Holding

    Yes, because the evidence was sufficient to support the jury’s initial finding of false swearing or misrepresentation, and the trial court should have accepted the verdict.

    Court’s Reasoning

    The Court of Appeals held the trial court erred in refusing to accept the jury’s initial finding. Under the charge given to the jury, which was not objected to, the evidence was sufficient to support the jury’s finding that Pogo falsely swore or misrepresented a material fact. The court emphasized that this was not a case where the jury’s initial answers to interrogatories were ambiguous or inconsistent. Therefore, there was no basis for resubmitting the issue to the jury. The court cited Marine Midland Bank v. Russo Produce Co., 50 N.Y.2d 31, 40-41, and Kennard v. Welded Tank & Constr. Co., 25 N.Y.2d 324, to support its decision. The court stated the inconsistent answers, reached only after the trial court improperly rejected the initial finding, could not serve as a basis for rejecting the jury’s initial interrogatory answer and the consequent general verdict, which were supported by the evidence at trial. The court referenced the principle that the charge to the jury, even if erroneous, becomes the law of the case if not objected to, citing Bichler v. Lilly & Co., 55 N.Y.2d 571, 584. As stated in the ruling, “Trial Term erroneously refused to accept the jury’s initial finding that appellant falsely swore or misrepresented a material fact, which, as stated on the jury verdict form, required a verdict in favor of respondent. Under the law governing this case as set forth in the charge, the evidence was sufficient to support the jury’s finding as to appellant’s false swearing or misrepresentation, and the verdict should have been accepted by Trial Term.”

  • New York Stock Exchange, Inc. v. Hartford Accident & Indemnity Co., 56 N.Y.2d 650 (1982): Extrinsic Evidence and Ambiguous Insurance Contracts

    56 N.Y.2d 650 (1982)

    If the language of an insurance policy is susceptible to two reasonable interpretations, a court may consider extrinsic evidence to determine the parties’ intent at the time of contracting.

    Summary

    This case addresses whether summary judgment was appropriately granted to Hartford and INA, insurance companies, regarding coverage under excess bonds issued to the Newin Corporation. Newin Corporation sought to recover losses sustained after advancing funds to cover losses caused by the bankruptcy of Ira Haupt & Co. The dispute centered around the interpretation of a “deductible” clause in the Newin Bonds. The insurers argued the clause was a standard excess clause, requiring exhaustion of Haupt’s primary fidelity bonds before the Newin bonds were triggered. The New York Court of Appeals reversed the Appellate Division’s order, holding that the clause was ambiguous and that extrinsic evidence regarding the parties’ intent should be considered, thus precluding summary judgment.

    Facts

    The “Salad-oil Swindle” led to the collapse of Allied Crude Vegetable Oil Refining Corp. and the bankruptcy of Ira Haupt & Co.
    New York Stock Exchange, Inc. and its subsidiary, Newin Corporation, advanced $9.5 million to Haupt’s customers who suffered losses due to the bankruptcy.
    Haupt had fidelity bonds to protect its customers from fraudulent acts.
    Hartford and INA issued “excess” bonds (Newin Bond I and Newin Bond II) to Newin Corporation to cover losses exceeding Haupt’s coverage.

    Procedural History

    The plaintiffs sued Hartford and INA to recover under the Newin Bonds.
    The defendants Hartford and INA moved for partial summary judgment, which was granted by the lower court.
    The Appellate Division affirmed the grant of partial summary judgment.
    The New York Court of Appeals reversed the Appellate Division’s order, denying the motion for partial summary judgment.

    Issue(s)

    Whether the “deductible” clause in the Newin Bonds was unambiguous and required the exhaustion of the face amount of Haupt’s primary fidelity bonds before coverage under the Newin Bonds was triggered, thereby entitling Hartford and INA to summary judgment.

    Holding

    No, because the deductible clause was ambiguous, and extrinsic evidence was needed to determine the parties’ intent, precluding summary judgment.

    Court’s Reasoning

    The court reasoned that the rights and obligations of parties under insurance contracts are generally determined by the specific language of the policies. However, if the policy language is susceptible to two reasonable meanings, extrinsic evidence of the parties’ intent at the time of contracting is admissible.
    The court found that the phrase “available to cover such loss” in the deductible clause was ambiguous. Hartford and INA argued it meant the face amount of Haupt’s bonds had to be exhausted, while Newin Corporation argued it meant funds actually available from Haupt’s bonds to cover plaintiffs’ losses.
    Plaintiffs submitted affidavits from individuals involved in negotiating and drafting the Newin Bonds, asserting that the clause was intended to permit recovery after funds were no longer available from Haupt, even if the face value of Haupt’s bonds was not exhausted.
    Because the plaintiffs demonstrated that the deductible clause was, at the very least, ambiguous, a material question of fact regarding the parties’ intent was presented. Therefore, the defendants’ motions for summary judgment should have been denied.
    The court cited Hartford Acc. & Ind. Co. v Wesolowski, 33 NY2d 169, 172, reiterating the principle that extrinsic evidence is admissible when policy language is susceptible to multiple interpretations. The court also noted that, as in Glick & Dolleck v Tri-Pac Export Corp., 22 NY2d 439, 441, the presence of a factual dispute precludes summary judgment.

  • Weinberg v. Transamerica Ins. Co., 62 N.Y.2d 387 (1984): Insured’s Duty to Protect Insurer’s Subrogation Rights in Settlements

    Weinberg v. Transamerica Ins. Co., 62 N.Y.2d 387 (1984)

    An insured prejudices an insurer’s subrogation rights if the insured settles with a third-party tortfeasor without expressly reserving the insurer’s rights in the release, unless the circumstances of the release’s execution necessarily imply such reservation.

    Summary

    Weinberg sued Felder for injuries sustained in a car accident. Weinberg received no-fault benefits from GEICO (Felder’s insurer) and sought additional benefits from his own insurer, Transamerica. Weinberg settled with Felder and provided a general release. Transamerica denied Weinberg’s claim, arguing he prejudiced their subrogation rights by releasing Felder. The New York Court of Appeals held that Weinberg bore the burden of proving the release did not prejudice Transamerica’s rights, and he failed to do so because the general release contained no reservation of rights for the insurer.

    Facts

    Plaintiff Weinberg was injured while a passenger in a car driven by Felder.
    Felder was insured by GEICO for no-fault benefits.
    Weinberg also had his own insurance policy with Transamerica for additional personal injury coverage beyond the statutory minimum.
    Weinberg received the maximum benefits under Felder’s GEICO policy.
    Weinberg sued Felder for negligence and simultaneously sought extended economic loss benefits from Transamerica.
    Weinberg settled the lawsuit against Felder for $17,500 and signed a general release.

    Procedural History

    Weinberg sued Transamerica after they denied benefits, arguing that the release of Felder prejudiced their subrogation rights.
    The Supreme Court granted summary judgment to Transamerica.
    The Appellate Division affirmed the Supreme Court’s decision.
    The New York Court of Appeals granted leave to appeal to resolve conflicting decisions in lower courts regarding the effect of releases on insurer subrogation rights.

    Issue(s)

    Whether an insured prejudices the subrogation rights of their insurer when settling a claim against a third-party tortfeasor and executing a general release without expressly reserving the insurer’s subrogation rights.
    Whether the burden is on the insurer or the insured to prove that a release prejudiced the insurer’s subrogation rights.

    Holding

    Yes, because an insured has a duty to protect the insurer’s subrogation rights when settling with a tortfeasor. The insured bears the burden of proving that the release did not prejudice the insurer’s rights.

    Court’s Reasoning

    The court reasoned that the insured is in a better position to protect the insurer’s subrogation rights during settlement negotiations because the insurer has no part in these negotiations. As the court stated, “it is the insured who participates in and can control the fashioning of the terms of the settlement of the insured’s action against the third-party tort-feasor, a procedure in which the insurer has no part.” The court emphasized that the insured can easily include language in the release to protect the insurer’s rights. The court acknowledged it is usually the insurer’s burden to prove the insured breached the contract, but the practicalities of this situation shift the burden to the insured. The court noted the preferred method to protect subrogation rights is to include explicit language in the release. However, the court recognized an implied reservation of rights may exist based on the circumstances. The court found the general release in this case, lacking any reservation or limitation, prejudiced Transamerica’s subrogation rights. The court emphasized that the release broadly discharged Felder “for, upon, or by reason of any matter, cause or thing whatsoever from the beginning of the world to the day of the date of this release”, without any reservations. Therefore, Transamerica was justified in denying benefits to Weinberg.

  • Medical Facilities, Inc. v. Pryke, 62 N.Y.2d 716 (1984): Enforceability of Shortened Limitations Period in Insurance Policy

    Medical Facilities, Inc. v. Pryke, 62 N.Y.2d 716 (1984)

    An insurer cannot enforce a shortened limitations period for commencing suit if the insurance policy fails to include the statutorily mandated language or any reference to such a period.

    Summary

    Medical Facilities, Inc. sued John William Pryke’s underwriters to recover for business interruption and rent loss under a fire insurance policy. The fire occurred six years and three days before the suit was filed. The insurance policy lacked the standard language mandated by New York Insurance Law § 168(5) regarding a shortened limitations period. Pryke argued the suit was untimely. The court held that because the policy omitted the required language, the standard six-year statute of limitations for contract actions applied, making the suit timely. Actual notice of a shortened period, even if provided, does not cure the defect of omitting it from the policy itself.

    Facts

    Medical Facilities, Inc. operated a health care facility covered by a fire insurance policy issued by underwriters represented by John William Pryke. A fire occurred at the facility. Medical Facilities, Inc. filed a claim for business interruption and rent loss under the policy. Six years and three days after the fire, Medical Facilities, Inc. commenced a lawsuit to recover under the policy.

    Procedural History

    The trial court denied Pryke’s motion to dismiss the complaint as untimely. Pryke appealed. The Appellate Division affirmed the trial court’s decision. Pryke then appealed to the New York Court of Appeals. The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    1. Whether an insurer can enforce a shortened statute of limitations in an insurance policy when the policy does not contain the language mandated by New York Insurance Law § 168(5) or any reference to a shortened limitations period.

    Holding

    1. No, because an insurer who issues a policy omitting reference to the shortened limitations period, in violation of statutory mandate, cannot claim the benefit of its own omission, for an insured would otherwise have no notice that his time to commence suit was different from that provided by law for any contract action.

    Court’s Reasoning

    The court reasoned that because the insurance policy did not include the “165 lines” required by Insurance Law § 168(5), or any reference to a shortened statute of limitations, the general six-year statute of limitations for breach of contract actions under CPLR 213(2) applied. The court emphasized that an insurer cannot benefit from its own failure to comply with the statutory mandate to include the shortened limitations period in the policy. The court stated that without such notice, an insured would not be aware that the time to commence a lawsuit was different from the standard contractual period. The court rejected the argument that actual notice of a shortened limitations period, allegedly given within two years of the fire, could cure the defect of omitting the shortened period from the contract itself, stating that “even actual notice would not have cured the insurer’s failure to make a shortened limitations period part of the insurance contract.” The court clarified the accrual date for a cause of action against an insurer: “A cause of action against an insurer will accrue on the date of the fire if the policy so provides (Proc v Home Ins. Co., 17 NY2d 239), but in the absence of any provision regarding accrual in the contract of insurance the Statute of Limitations for breach of contract generally begins to run upon breach.” Since the policy required claims to be paid within 30 days of proof of loss and the lawsuit was filed six years and three days after the fire, the lawsuit was timely.

  • Hartford Accident and Indemnity Co. v. Michigan Mutual Insurance Co., 59 N.Y.2d 569 (1983): Insurer’s Duty of Good Faith to Excess Carrier

    Hartford Accident and Indemnity Co. v. Michigan Mutual Insurance Co., 59 N.Y.2d 569 (1983)

    A primary insurer owes a duty of good faith to an excess insurer, similar to the duty owed to its own insured, when handling a claim that could trigger excess coverage.

    Summary

    This case addresses the duty of a primary insurer to an excess insurer when both companies insure the same entities. Michigan Mutual, the primary insurer for three affiliated companies, also provided worker’s compensation insurance. When an employee of one company sued the other two, Hartford, the excess insurer, demanded the employer be impleaded. Michigan Mutual refused, and the case settled, triggering Hartford’s excess coverage. Hartford then sued Michigan Mutual for bad faith. The New York Court of Appeals held that Michigan Mutual owed Hartford a duty of good faith and that factual questions existed regarding breach of that duty, precluding summary judgment.

    Facts

    DeFoe Corporation and its subsidiaries, L.A.D. Associates, Inc., and D.A.L. Construction Corporation, were insured by Michigan Mutual under a general liability policy ($1,000,000 coverage) and a worker’s compensation policy. Hartford provided excess coverage ($5,000,000) to the same companies. Davor Gobin, an employee of D.A.L., was injured on the job. Because worker’s compensation law prevented him from suing his employer, he sued DeFoe and L.A.D. Hartford, the excess carrier, demanded that Michigan Mutual implead D.A.L. in the lawsuit. Michigan Mutual refused. The Gobin action settled for $1,400,000, with Hartford paying $400,000 while reserving its rights against Michigan Mutual.

    Procedural History

    Hartford sued Michigan Mutual and its law firm for inducing breach of contract and bad faith. Michigan Mutual moved for summary judgment, which Special Term partially granted. The Appellate Division modified, reinstating Hartford’s individual claims, finding triable issues of fact. The Appellate Division granted Michigan Mutual leave to appeal to the Court of Appeals, certifying the question of whether its order was properly made.

    Issue(s)

    1. Whether the cooperation clause in Hartford’s policy obligated DeFoe and L.A.D. to implead D.A.L.?

    2. Whether Michigan Mutual, as primary insurer, owed a duty of good faith to Hartford, as excess insurer?

    3. Whether Hartford’s payment toward the settlement was voluntary, precluding recovery?

    Holding

    1. Yes, because Hartford’s policy obligated its insured to “enforce any right of contribution or indemnity against any person or organization who may be liable to the insured”.

    2. Yes, because Michigan Mutual, as the primary liability insurer, owed Hartford, as the excess carrier, the same duty to act in good faith that it owed to its own insureds.

    3. This issue is to be determined at trial.

    Court’s Reasoning

    The court distinguished American Sur. Co. v Diamond, noting that Hartford’s policy contained an explicit obligation to enforce rights of contribution or indemnity. The court rejected Michigan Mutual’s argument that an insurer cannot maintain a subrogation action against its own insured, because Michigan Mutual provided two separate policies: a general liability policy and a worker’s compensation policy. The worker’s compensation policy created a separate obligation to defend and indemnify D.A.L. if impleaded. The court emphasized the duty of good faith owed by a primary insurer to an excess insurer, stating, “Michigan Mutual as the primary liability insurer owed to Hartford as the excess carrier the same duty to act in good faith which Michigan owed to its own insureds”. The court reasoned that whether Michigan Mutual acted in good faith to protect its insureds or in its own self-interest to trigger Hartford’s excess liability without sharing in the costs was a question of fact for trial. The court also noted that the voluntary payment issue was a factual question best resolved through trial. The court affirmed the Appellate Division’s order, finding triable issues of fact existed and answering the certified question in the affirmative.

  • Ace Wire & Cable Co., Inc. v. Aetna Cas. & Sur. Co., 60 N.Y.2d 390 (1983): Interpreting “Inventory Computation” Exclusions in Insurance Policies

    Ace Wire & Cable Co., Inc. v. Aetna Cas. & Sur. Co., 60 N.Y.2d 390 (1983)

    An “inventory computation” exclusion in a comprehensive dishonesty insurance policy does not bar recovery when the loss is proven by a physical count of individually identifiable units, as opposed to generalized estimates based on dollar values.

    Summary

    Ace Wire & Cable Co. sued Aetna to recover for missing inventory under a comprehensive dishonesty policy. The policy excluded losses dependent on “inventory computation.” Ace used unit-based inventory records to show reels of wire present in 1978 were missing in 1979. The court held that comparing unit-based inventory records with a physical count is not an “inventory computation” within the exclusion. The court also found that the insured presented sufficient independent evidence of employee dishonesty to overcome a summary judgment motion by the insurer. This case clarifies the scope of the “inventory computation” exclusion, protecting insureds who can demonstrate specific losses through physical counts.

    Facts

    Ace Wire & Cable maintained a warehouse on Staten Island managed by a warehouse manager. Louis Deutsch, Ace’s secretary, kept stock records, listing each reel of wire with its footage and, sometimes, a control number. Deutsch conducted annual physical stock inspections. In June 1979, Deutsch discovered 116 reels of wire missing that he had personally verified as present in June 1978. No reels were removed without Deutsch’s authorization. None of the missing reels were sold or authorized for removal between June 1978 and June 1979, and there was no evidence of a break-in. The missing reels were large, heavy, and required specialized equipment to move, and were either slow-moving items or items stored in large quantities. The warehouse manager abruptly quit in late December 1978.

    Procedural History

    Ace sued Aetna to recover the value of the missing reels. The Supreme Court, Special Term, denied Ace’s motion for summary judgment and granted Aetna’s cross-motion, dismissing the complaint. The Appellate Division modified, denying Aetna’s cross-motion and affirming as modified. Aetna appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether the comparison of inventory records kept on a unit basis with a physical count of items on hand constitutes an “inventory computation” within the meaning of the insurance policy’s exclusion clause.

    2. What quantum of evidence is needed for a loss alleged to have been caused by employee fraud or dishonesty when the insured cannot designate the specific employee(s) causing such loss, to have the benefit of insuring agreement I, subject to the provisions of Section 2(b) of the Policy.

    Holding

    1. No, because the term “inventory computation” in the exclusion clause refers to generalized estimates, not a direct comparison of unit-based records with a physical count.

    2. The insured must present some independent evidence from which employee dishonesty can be reasonably inferred, but this evidence need not meet the standard required to make out a prima facie case were the preponderance of evidence standard applicable.

    Court’s Reasoning

    The court reasoned that the term “inventory computation” is ambiguous. Construing it to include any reference to inventory records would make it nearly impossible for an insured to recover, except when an employee is caught in the act. This interpretation conflicts with the policy’s requirement that the insured keep records allowing the insurer to accurately determine the amount of loss. Applying the principles of construing insurance policies according to common speech and the reasonable expectations of a businessperson, and construing ambiguities against the insurer, the court concluded that “inventory computation” excludes only losses proven through generalized estimates (e.g., calculated from sales records and average markup). It does not preclude proof via inventory records detailing the actual physical count of individually identifiable units. The court cited cases from other jurisdictions supporting this interpretation, noting, “Where the missing items are identified from such records (unit-type or perpetual inventory records), it has been held that there is no ‘inventory computation’ within the meaning of the inventory exclusion clause.” The court further reasoned that Section 4 of the insurance policy requires only that the evidence submitted “reasonably proves” that the loss was in fact due to the fraud or dishonesty of one or more of the Employees. This requires “more than ‘some independent evidence’ but less than a prima facie case as a condition to the use of inventory” records of the type above referred to. The Deutsch affidavits established that only plaintiff’s property was stored in the warehouse, that only plaintiff’s employees had access to the warehouse, that it was protected by a security service when plaintiff’s employees were not present, that during the period between the 1978 and 1979 inventories there had been no break-in or burglary, that nothing was permitted to be removed from the warehouse without Mr. Deutsch’s authorization and that a record is made of what is removed, that a total of 116 reels were missing, most of which were over four feet in diameter, weighed in excess of two tons and required a fork lift to move (and inferentially a truck to cart away), and that the missing reels were of two categories the absence of which would not be likely to be detected until a physical inventory was taken, knowledge available only to warehouse employees. From these facts, “it is a reasonable inference…that plaintiff’s loss was due to the dishonesty of one or more of its employees.”

  • Arcade Cleaning Contractors, Inc. v. Superintendent of Ins., 59 N.Y.2d 331 (1983): Security Fund Coverage and Employer Liability

    Arcade Cleaning Contractors, Inc. v. Superintendent of Ins., 59 N.Y.2d 331 (1983)

    The New York State Property and Liability Insurance Security Fund does not cover an insured’s claim against its insolvent liability insurer for contractual or common-law indemnity to a third party held liable for injury to the insured’s employee.

    Summary

    Arcade Cleaning Contractors sought reimbursement from the New York State Property and Liability Insurance Security Fund after its insurer, Consolidated Mutual Insurance Company, became insolvent. Arcade had a contract to indemnify the Daily News for injuries, including those to Arcade’s employees. An Arcade employee sued the Daily News, who then sought indemnification from Arcade. Consolidated initially defended Arcade, but after insolvency, the Insurance Department denied Security Fund coverage for any judgment against Arcade. The court held that the Security Fund, as defined by Insurance Law § 334, does not cover claims related to employer liability for employee injuries, whether based on common law, statute, or contract, as these fall under Insurance Law § 46(15), which is excluded from Security Fund coverage.

    Facts

    Arcade Cleaning Contractors had a contract with the New York Daily News to perform cleaning work, which included an indemnification clause holding the Daily News harmless from liability for injuries arising out of the contract, including injuries to Arcade’s employees. Jeanne Gerard, an Arcade employee, sued the Daily News for injuries sustained on their premises. The Daily News sought indemnification from Arcade based on both the contract and common-law principles. Arcade’s insurer, Consolidated Mutual Insurance Company, initially defended Arcade but became insolvent.

    Procedural History

    After Consolidated’s insolvency, the Insurance Department’s Liquidation Bureau took over the defense but notified Arcade that the Security Fund would not cover any potential judgment. The Gerard action was settled, with Arcade paying $1,500 without prejudice to its claim against the Security Fund. Supreme Court referred Arcade’s claim to a referee, who recommended disallowance. Supreme Court reversed, allowing the claim, but the Appellate Division reversed again, denying coverage.

    Issue(s)

    Whether the New York State Property and Liability Insurance Security Fund, established under Insurance Law § 334, covers an insured’s claim against its insolvent liability insurer resulting from the insured’s contractual or common-law obligation to indemnify a third party held responsible for injury to the insured’s employee.

    Holding

    No, because Insurance Law § 334 excludes coverage for claims related to employer liability for employee injuries, as defined in Insurance Law § 46(15), from the Security Fund.

    Court’s Reasoning

    The court reasoned that while Insurance Law § 46(13) defines personal injury liability insurance broadly enough to include claims for contribution or indemnification, it expressly excludes insurance specified in § 46(15). Section 46(15), defining worker’s compensation and employer’s liability insurance, includes liability imposed by common law, statute, or contract for employee injuries. The court noted that the Superintendent of Insurance’s interpretation, which excludes § 46(15) claims from the Security Fund, is neither irrational nor unreasonable, considering the legislative intent and the overall structure of the Insurance Law and Workers’ Compensation Law. The court emphasized that “claims within subdivision 15 were not intended to be paid from the Security Fund” and there is no “irreconcilable inconsistency between subdivisions 13 and 15 of section 46.” Furthermore, the court rejected arguments that the legislative history mandated broader coverage, finding inconsistencies between the stated intent and the actual statutory language. The court stated, “at most we are dealing with a legislative omission that should not be supplied by us”.