New York Law Review

Tag: policy exclusion

  • Cragg v. Allstate Indemnity Corp., 16 N.Y.3d 118 (2011): Interpreting “Benefit” in Homeowner’s Insurance Exclusions

    Cragg v. Allstate Indemnity Corp., 16 N.Y.3d 118 (2011)

    When interpreting exclusionary clauses in insurance contracts, courts must narrowly construe them in favor of the insured, and the insurer bears the burden of proving the exclusion applies unambiguously.

    Summary

    Eric Cragg, father of the deceased Kayla, sued Allstate after Kayla drowned in her grandparents’ pool. Allstate denied coverage based on a policy exclusion for bodily injury to an insured where any policy benefit would accrue to an insured. Cragg, as administrator of Kayla’s estate, sought to recover for wrongful death. The New York Court of Appeals reversed the lower court’s decision, holding that Allstate’s policy exclusion was ambiguous and did not clearly bar coverage for the non-insured father’s wrongful death claim. The court emphasized that insurance contracts should be interpreted according to common speech and the reasonable expectations of the average insured, construing ambiguities against the insurer.

    Facts

    Kayla, a three-year-old, lived with her mother, Marina Ward, at her grandparents’, Gregory and Katherine Klein, home. The Kleins had a homeowner’s insurance policy with Allstate. Kayla drowned in the Kleins’ swimming pool. Eric Cragg, Kayla’s father, maintained a separate residence and was not an insured under the policy. Allstate denied coverage based on a policy exclusion that disallows coverage for bodily injury to an insured person whenever any benefit of the coverage would accrue directly or indirectly to an insured person.

    Procedural History

    Cragg, as administrator of Kayla’s estate, sued Ward and the Kleins for wrongful death and conscious pain and suffering. Ward defaulted. Cragg then filed a declaratory judgment action against Allstate, seeking a declaration that Allstate was required to defend and indemnify its insureds. The Supreme Court granted Allstate’s summary judgment motion. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether Allstate’s homeowner’s insurance policy exclusion for bodily injury to an insured, where any benefit of the coverage would accrue to an insured, unambiguously bars coverage for a wrongful death claim brought by a non-insured parent for the death of their insured child.

    Holding

    No, because the language of the exclusion is ambiguous and can be reasonably interpreted to mean that “benefit” refers to proceeds paid under the policy, not merely the provision of defense and indemnification, and thus does not clearly bar payment to a noninsured plaintiff on a wrongful death claim.

    Court’s Reasoning

    The court found the policy exclusion ambiguous, stating, “The language of the policy exclusion — excluding coverage ‘whenever any benefit of this coverage would accrue directly or indirectly to an insured’ — is ambiguous.” Allstate argued that ‘benefit’ included coverage itself. However, the court reasoned that this interpretation would render the second part of the exclusion meaningless, as the right to defense and indemnification universally accrues to an insured. The court stated, “However, the second part of the exclusion must somehow modify the first part of the clause in order to have any meaning. In this context, a benefit must mean something other than coverage itself and is more naturally read to mean proceeds paid under the policy.”

    The court noted that insurance contracts should be interpreted according to common speech and the reasonable expectations of the average insured. Ambiguities in exclusionary clauses must be construed in favor of the insured. The court quoted, ” ‘exclusions or exceptions from policy coverage . . . are not to be extended by interpretation or implication, but are to be accorded a strict and narrow construction…’ “

    The court acknowledged policy reasons for excluding coverage in similar cases, such as avoiding collusion, but emphasized that Allstate failed to meet its burden of proving the exclusion applied unambiguously. Referencing Day v Allstate Indem. Co., the court agreed that Allstate failed to demonstrate that ‘benefit’ unambiguously includes the contractual right to receive a defense or indemnification. Thus, the exclusion did not bar coverage for the noninsured plaintiff’s wrongful death claim.

  • Schwarz v. Liberty Mut. Ins. Co., 17 N.Y.3d 607 (2011): Interpreting ‘You’ in Insurance Policy Exclusions

    17 N.Y.3d 607 (2011)

    An insurance policy exclusion for vehicles owned by “you” or “furnished or available for your regular use,” where “you” is defined as the named insured and their resident spouse, applies when the spouse owns and operates a vehicle not listed in the policy.

    Summary

    Plaintiff was injured in an accident with Susan Schwarz and sought coverage under her husband Robert’s insurance policy with New York Central Mutual, which covered a different vehicle. Central Mutual disclaimed coverage based on a policy exclusion for vehicles owned by the insured or their resident spouse that were not the “covered auto.” The New York Court of Appeals held that the exclusion applied because Susan was Robert’s resident spouse, fitting the policy’s definition of “you,” and she owned and operated the vehicle involved in the accident, which was not the covered auto. The court affirmed the Appellate Division’s declaration that Central Mutual properly disclaimed coverage.

    Facts

    Plaintiff was injured when his vehicle collided with a vehicle owned and operated by Susan Schwarz.

    Susan’s husband, Robert Schwarz, had a separate insurance policy with New York Central Mutual Fire Insurance Company covering a vehicle he owned.

    The Central Mutual policy defined “you” and “your” to include the named insured (Robert) and his spouse if a resident of the same household (Susan).

    Central Mutual disclaimed coverage for the accident based on a policy exclusion for vehicles owned by “you” or available for your regular use that were not the “covered auto.”

    Procedural History

    Plaintiff filed a declaratory judgment action seeking a determination that Central Mutual was obligated to extend liability coverage to Susan under Robert’s policy.

    The Supreme Court granted relief to the plaintiff, finding Central Mutual obligated to provide coverage.

    The Appellate Division reversed, declaring that Central Mutual had properly disclaimed coverage.

    The New York Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether an insurance policy exclusion for vehicles owned by the named insured or their resident spouse, where the spouse owns and operates a vehicle not listed in the policy, applies to preclude coverage.

    Holding

    Yes, because the policy’s definition of “you” includes the named insured’s resident spouse, and the exclusion applies to vehicles owned by “you” that are not the designated “covered auto.”

    Court’s Reasoning

    The court relied on the plain language of the insurance policy, which defined “you” to include the named insured (Robert Schwarz) and his spouse (Susan Schwarz) if she resided in the same household.

    The policy excluded liability coverage for the ownership, maintenance, or use of any vehicle other than the designated covered auto, which is owned by “you” or “furnished or available for your regular use.”

    Because Susan Schwarz resided with her husband, she met the policy’s definition of “you,” and she was operating a vehicle she owned that was not designated in the policy as a covered auto.

    The court cited Jerge v. Buettner, 90 NY2d 950 (1997), as precedent supporting this interpretation. This case demonstrates the importance of clearly defined terms in insurance policies and how they are applied to specific factual scenarios. As the court stated, “This case falls squarely within the policy exclusion because Susan Schwarz resided with her husband, thereby meeting the policy’s definition of ‘you,’ and she was operating a vehicle she owned which was not designated in the policy as a covered auto.”

  • Markevics v. Liberty Mutual Insurance Co., 97 N.Y.2d 646 (2001): Insurer’s Duty to Disclaim Coverage to Injured Party

    Markevics v. Liberty Mutual Insurance Co., 97 N.Y.2d 646 (2001)

    An insurance company must provide timely written notice of disclaimer to the injured party when denying coverage based on a policy exclusion, even if the insurer notifies the insured.

    Summary

    Alexandra Markevics sued Liberty Mutual seeking a declaration that the insurer was obligated to defend and indemnify Kerry O’Brien under a homeowner’s policy for injuries Markevics sustained in an accident caused by an intoxicated driver who O’Brien allegedly served while working at her family’s bar. Liberty Mutual disclaimed coverage based on a “business pursuits” exclusion but only notified O’Brien, not Markevics. The New York Court of Appeals held that because the denial of coverage was based on a policy exclusion, Insurance Law § 3420(d) required the insurer to provide timely written notice of the disclaimer to the injured party (Markevics), and failure to do so invalidated the disclaimer.

    Facts

    Kerry O’Brien worked as a bartender at O’Bie’s Bar, a family business owned and operated by her parents. O’Brien lived at her parents’ home, which was insured under a “deluxe” homeowner’s policy issued by Liberty Mutual. O’Brien allegedly served liquor to Sandro Perez at the bar while Perez was visibly intoxicated. Perez then drove his car into a utility pole, injuring his passenger, Alexandra Markevics. Markevics sued O’Brien for negligence.

    Procedural History

    Markevics sued O’Brien for personal injuries. O’Brien tendered her defense to Liberty Mutual. Liberty Mutual disclaimed coverage based on a business pursuits exclusion, but only notified O’Brien. Markevics then commenced a declaratory judgment action against Liberty Mutual, arguing the disclaimer was invalid because it was not sent to her. Supreme Court granted summary judgment to Markevics. The Appellate Division affirmed. Liberty Mutual appealed to the New York Court of Appeals.

    Issue(s)

    Whether an insurance company must provide timely written notice of disclaimer to the injured party when denying coverage based on a policy exclusion under Insurance Law § 3420(d).

    Holding

    Yes, because when a claim falls within the coverage terms of an insurance policy but is denied based on a policy exclusion, Insurance Law § 3420(d) requires the insurer to provide timely written notice of the disclaimer to the injured party.

    Court’s Reasoning

    The Court of Appeals reasoned that under Insurance Law § 3420(d), a disclaimer is unnecessary when a claim does not fall within the coverage terms of an insurance policy. However, a timely disclaimer is required when a claim falls within the coverage terms but is denied based on a policy exclusion. The court emphasized that Liberty Mutual’s denial of coverage was based solely on the business pursuits exclusion, triggering the requirements of Insurance Law § 3420(d). The court cited Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, for the proposition that a disclaimer is required when a claim falls within the coverage terms but is denied based on a policy exclusion. Because Liberty Mutual failed to provide timely written notice of its disclaimer to Markevics, the injured party, the attempted disclaimer was defective, and summary judgment was properly granted to the plaintiff. The Court stated, “Conversely, a timely disclaimer pursuant to Insurance Law § 3420 (d) is required when a claim falls within the coverage terms but is denied based on a policy exclusion”. The Court also rejected Liberty Mutual’s argument that the claim did not arise on the insured premises, stating that the policy provides personal liability coverage without geographical limitation. Finally, the Court declined to consider the argument that O’Brien’s actions were not an “occurrence” because it was not raised in the lower courts.

  • Bettenhauser v. Worcester Ins. Co., 92 N.Y.2d 422 (1998): Insurer’s Duty to Timely Disclaim Coverage Based on Policy Exclusion

    92 N.Y.2d 422 (1998)

    An insurer must timely disclaim coverage under Insurance Law § 3420(d) when denying a claim based on a policy exclusion, if the claim would otherwise fall within the policy’s coverage provisions.

    Summary

    Thomas Bettenhauser, injured in a car accident while driving his own uninsured vehicle, sought underinsurance benefits under his parents’ policy with Worcester Insurance. Worcester initially processed the claim, requesting discovery and consenting to Bettenhauser’s settlement with the other driver. Over a year later, Worcester sought to stay arbitration, arguing the policy didn’t cover family members driving their own uninsured vehicles. The New York Court of Appeals held that Worcester’s failure to timely deny coverage, as required by Insurance Law § 3420(d), precluded them from later relying on a policy exclusion to deny the claim. This case clarifies the distinction between claims falling outside a policy’s initial coverage and those denied due to an exclusion.

    Facts

    Thomas Bettenhauser was injured in a two-car accident while driving his own automobile on November 22, 1995.

    The other driver’s insurance policy had a $10,000 limit, and Bettenhauser’s policy did not include underinsurance coverage.

    On February 1, 1996, Bettenhauser, who lived with his parents, filed an underinsurance claim under their policy with Worcester Insurance Company.

    Worcester requested discovery and a medical examination, which Bettenhauser complied with over the next several months.

    In December 1996, with Worcester’s consent, Bettenhauser settled his negligence action against the other driver for the policy limit of $10,000.

    Procedural History

    After settlement negotiations stalled, Bettenhauser demanded arbitration.

    Worcester then commenced a special proceeding to permanently stay arbitration, arguing for the first time that the policy didn’t cover Bettenhauser because he was driving his own vehicle.

    Supreme Court granted the stay, concluding the policy didn’t cover family members driving uninsured automobiles.

    The Appellate Division affirmed.

    Issue(s)

    Whether an insurer must timely disclaim coverage under Insurance Law § 3420(d) when denying a claim based on a policy exclusion, if the claim would otherwise fall within the policy’s coverage provisions.

    Holding

    Yes, because Bettenhauser’s claim fell within the policy’s coverage provisions, and denial of coverage was predicated on a specific exclusion. Worcester’s failure to timely disclaim coverage as required by Insurance Law § 3420(d) precluded them from later relying on the exclusion to deny the claim.

    Court’s Reasoning

    The Court of Appeals reversed, holding that Worcester was required to timely deny coverage under Insurance Law § 3420(d). The court distinguished between situations where a claim falls outside the scope of the policy’s coverage portion (requiring no disclaimer) and where denial of coverage is based on a policy exclusion (requiring timely disclaimer).

    The court emphasized that disclaimer is unnecessary when a claim falls outside the scope of the policy’s coverage portion because the insurance policy does not contemplate coverage in the first instance. By contrast, disclaimer is necessary when denial of coverage is based on a policy exclusion without which the claim would be covered. Failure to comply with section 3420(d) precludes denial of coverage based on a policy exclusion.

    Referencing the case of Handelsman v Sea Ins. Co., the court noted “Because mother and son were “insureds” who satisfied all the conditions of the relevant coverage provisions — which did not contain any limitation with reference to vehicles — we concluded that a relationship between the carrier and the claimants existed, requiring timely denial of coverage based on the policy exclusion. We further explained that the carrier’s failure to timely disclaim was “dispositive” and precluded subsequent reliance on the exclusion to avoid its obligations.”

    The court found that Bettenhauser’s claim fell within the policy’s coverage provisions in the “Insuring Agreement.” The relevant conditions of the Insuring Agreement were met. Denial of coverage was predicated on one of the designated “Exclusions.” But for a specified circumstance — here, the use of a family-owned motor vehicle not insured by the policy — Bettenhauser’s claim would have been covered.

    The court stated that Insurance Law § 3420(d) was enacted to avoid prejudice to an injured claimant who could be harmed by delay in learning the insurer’s position. Worcester waited more than a year to deny coverage, all the while subjecting Bettenhauser to discovery demands, and ultimately consenting to settlement of his action against the other driver. The Court concluded that Worcester could not rely on the policy exclusion to escape liability because they did not comply with Insurance Law § 3420(d).

  • Loblaw, Inc. v. Employer’s Mut. Liab. Ins. Co. of Wisconsin, 88 N.Y.2d 852 (1996): Interpreting Ambiguous Insurance Exclusions

    Loblaw, Inc. v. Employer’s Mut. Liab. Ins. Co. of Wisconsin, 88 N.Y.2d 852 (1996)

    When an insurance policy exclusion is ambiguous and subject to multiple reasonable interpretations, it must be construed in favor of the insured.

    Summary

    Loblaw, Inc. sued its insurer, Employer’s Mutual, seeking reimbursement for anesthesiologist services related to surgery, arguing that the policy’s exclusion for “anesthesia” was ambiguous. The New York Court of Appeals held that the term “anesthesia” could reasonably be interpreted to exclude only the cost of anesthetic agents themselves, not the related medical services. Because the insurance company failed to demonstrate the exclusion was clear and unambiguous, the court reversed the Appellate Division’s order and reinstated the Supreme Court’s order in favor of Loblaw.

    Facts

    Loblaw, Inc. sought insurance reimbursement for the cost of surgery-related anesthesiologist services. The insurance policy covered certain medical and surgical care but contained an exclusion for “anesthesia.” The insurer, Employer’s Mutual, denied coverage, contending the exclusion applied to all costs associated with anesthesia, including the anesthesiologist’s services.

    Procedural History

    The Supreme Court ruled in favor of Loblaw. The Appellate Division reversed. The New York Court of Appeals granted leave to appeal and reversed the Appellate Division, reinstating the Supreme Court’s order.

    Issue(s)

    Whether the term “anesthesia” in an insurance policy unambiguously excludes reimbursement for the cost of anesthesiologist’s services, or whether it can reasonably be interpreted to exclude only the cost of the anesthetic agents themselves.

    Holding

    No, because the term “anesthesia” is ambiguous and could reasonably be construed to exclude only the cost of the anesthetic agents, not the services provided by an anesthesiologist.

    Court’s Reasoning

    The court reasoned that while “anesthesia” can broadly refer to the entire process of becoming anesthetized, it is also commonly used to refer specifically to the anesthetic substance. The court cited numerous cases and statutes where “anesthesia” is used to denote the substance itself. Because the term is susceptible to multiple reasonable interpretations, the ambiguity must be resolved in favor of the insured, Loblaw. The court also rejected the insurer’s argument that a separate exclusion for “inpatient drugs or supplies” would be rendered redundant if “anesthesia” only referred to the substance, noting that the inpatient exclusion only applied to drugs and supplies “normally included in a hospital’s charges.” The court also observed that the policy contained specific exclusions for other professional services like podiatry and chiropractic care, suggesting the absence of a similar exclusion for anesthesiologists implied their services were covered. The court emphasized that the insurer bears the burden of demonstrating that an exclusion is “stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case” (quoting Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640, 652). Because the insurer failed to meet this burden, the exclusion could not be enforced to deny coverage for the anesthesiologist’s services.

  • York v. Sterling Ins. Co., 67 N.Y.2d 823 (1986): Interpreting Ambiguous Policy Exclusions in Favor of the Insured

    67 N.Y.2d 823 (1986)

    When the language of an insurance policy exclusion is ambiguous, and the insurer uses different prepositions (such as “away from” versus “on”) within the same policy to define the scope of exclusions, the ambiguity should be construed in favor of the insured.

    Summary

    Fenton York sustained injuries when an unregistered vehicle located partially on his property rolled and struck him. Sterling Insurance denied coverage under York’s homeowner’s policy, citing an exclusion for injuries arising from the use of unregistered vehicles “away from” the residential premises. The New York Court of Appeals affirmed the Appellate Division’s decision, holding that “away from” did not have the same meaning as “off” the premises, especially given the policy’s separate exclusion for unregistered vehicles requiring the injury to occur “on” the premises. This demonstrated that the insurer itself distinguished between the terms, leading the court to resolve the ambiguity in favor of coverage for the insured.

    Facts

    Fenton York was injured when an unregistered vehicle, situated partially on his residential property, rolled and struck him.
    York had a homeowner’s insurance policy with Sterling Insurance Company.
    The policy contained an exclusion for bodily injury arising out of the ownership or use of an unregistered vehicle “away from” the residential premises.
    Another exclusion in the policy regarding unregistered vehicles stated the injury must occur “on” the residential premises.

    Procedural History

    York filed a claim with Sterling Insurance, which was denied based on the policy exclusion.
    York sued Sterling Insurance seeking coverage.
    The trial court ruled in favor of Sterling Insurance.
    The Appellate Division reversed, finding the exclusion inapplicable.
    Sterling Insurance appealed to the New York Court of Appeals.

    Issue(s)

    Whether the phrase “away from” the residential premises, as used in the homeowner’s insurance policy, is ambiguous when applied to the circumstances where the injury occurred partially on the insured’s property.
    Whether the insurer’s use of both “away from” and “on” in different exclusions within the same policy creates an ambiguity that should be construed against the insurer.

    Holding

    Yes, because in the context of the policy and the circumstances of the injury, the phrase “away from” is uncertain and open to interpretation.
    Yes, because the carrier itself distinguished between “on” and “away from” in the policy, which creates an ambiguity that must be construed against the insurer.

    Court’s Reasoning

    The court reasoned that the precise meaning of “away from” is not clear-cut when applied to a situation where the vehicle was partially on the insured’s property. Because the injury occurred in a gray area, the court had to interpret the policy language.
    The court emphasized that the insurance company itself used different language (“on” versus “away from”) in crafting the policy’s exclusions. This demonstrated that the insurer recognized a distinction between the two phrases. As the court stated, “because the unregistered vehicle exclusion was written to require that the injury occur ‘on’ the residential premises, showing that the carrier itself distinguished between ‘on’ and ‘away from’.”
    When an insurance policy contains ambiguous language, the established legal principle is that such ambiguity should be construed against the insurer, who drafted the policy. This is because the insurer has the opportunity to be clear and specific in its policy language. The court found the Appellate Division didn’t err in holding the exclusion inapplicable, favoring coverage for the insured.
    No dissenting or concurring opinions were mentioned.

  • Shapiro v. Glens Falls Ins. Co., 62 N.Y.2d 417 (1984): Insurance Coverage and Intentional Torts

    Shapiro v. Glens Falls Ins. Co., 62 N.Y.2d 417 (1984)

    An insurance policy that excludes coverage for personal injury caused intentionally by the insured does not require the insurer to defend or indemnify the insured in a slander action where the complaint alleges the insured spoke maliciously with intent to injure.

    Summary

    Alexander Shapiro, a limited partner in a real estate syndicate, was sued for slander by the general partners. His insurer, Glens Falls Insurance Company, refused to defend him, citing a “business pursuits” exclusion and an exclusion for intentionally caused personal injury. Shapiro then sued the insurer seeking a declaration of coverage. The court found that while the “business pursuits” exclusion did not apply, the policy’s exclusion for personal injury caused intentionally barred coverage because the slander complaint alleged Shapiro acted maliciously with intent to injure the plaintiffs. Therefore, the insurer had no duty to defend or indemnify.

    Facts

    Alexander Shapiro, president of a plumbing supply business, invested in a real estate syndicate as a limited partner.

    The general partners of the syndicate sued Shapiro for slander, alleging he falsely and maliciously told other limited partners that the plaintiffs were “phoneying and doctoring the books and records,” “flimflamming, cheating and stealing from the investors.”

    The complaint specifically stated that Shapiro’s statements were made “willfully and maliciously with intent to injure and damage the plaintiffs and their good name, reputation and credit.”

    Shapiro sought coverage from his insurer, Glens Falls Insurance Company, to defend against the slander action.

    Glens Falls denied coverage.

    Procedural History

    Shapiro commenced an action against Glens Falls Insurance Company, seeking a declaration that the insurer was obligated to defend and indemnify him in the slander action.

    The lower courts’ decisions are not specified in the Court of Appeals opinion, but the Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether Glens Falls Insurance Company was obligated to defend or indemnify Shapiro in the underlying slander action, given the policy’s exclusion for personal injury caused intentionally by the insured.

    Holding

    No, because the insurance policy specifically excluded coverage for personal injury caused intentionally by the insured, and the slander complaint alleged that Shapiro acted maliciously and with intent to injure the plaintiffs.

    Court’s Reasoning

    The court focused on the policy’s definition of “occurrence” and the endorsement excluding coverage for intentional personal injury. The policy defined “occurrence” as “an accident…neither expected nor intended from the standpoint of the Insured.” An endorsement to the policy further clarified that the policy “does not apply…to any personal injury…caused intentionally by or at the direction of the Insured.”

    The court reasoned that because the slander complaint alleged Shapiro spoke falsely, willfully, and maliciously with intent to injure, the exclusionary endorsement applied. This meant the alleged conduct fell squarely within the policy’s exclusion for intentional acts. The court distinguished this situation from cases involving negligence or unintentional torts, where coverage might be available.

    The court acknowledged that while the policy’s general summary of coverage indicated that perils like slander were included, this summary was explicitly stated not to be the contract itself and was subject to conditions and exclusions clearly stated in the contract. The exclusionary endorsement was deemed a valid and enforceable part of the insurance contract.

    The court emphasized that the nature of the claim, specifically the allegation of intentional and malicious conduct, triggered the policy exclusion, relieving Glens Falls Insurance Company of its duty to defend and indemnify Shapiro. In essence, the insurer only agreed to cover accidents, not intentional torts. The court effectively highlights the critical importance of aligning the allegations in the underlying complaint with the precise terms and exclusions of the insurance policy.