New York Law Review

Tag: Primary Insurance

  • Fieldston Prop. Owners Assn., Inc. v. Hermitage Ins. Co., Inc., 14 N.Y.3d 232 (2010): Primary Insurer’s Duty to Defend Entire Action

    Fieldston Prop. Owners Assn., Inc. v. Hermitage Ins. Co., Inc., 14 N.Y.3d 232 (2010)

    When a complaint against an insured contains at least one claim potentially covered by a primary insurance policy, the insurer has a duty to defend the entire action, precluding any duty of an excess insurer where its policy provides excess coverage when “any Loss arising from any claim” is covered by other insurance.

    Summary

    This case involves a dispute between two insurers, Hermitage (CGL policy) and Federal (D&O policy), over the cost of defending Fieldston against two lawsuits. Hermitage argued Federal should contribute to defense costs, claiming Federal’s D&O policy covered most claims. The Court of Appeals held that because Hermitage’s CGL policy potentially covered one claim (injurious falsehood) in each lawsuit, Hermitage had a primary duty to defend the entire action. Federal’s D&O policy’s “other insurance” clause made its coverage excess since Hermitage’s policy covered at least one claim. Thus, Hermitage bore the entire defense cost, illustrating the broad duty to defend.

    Facts

    Hermitage issued a CGL policy to Fieldston, and Federal issued a D&O policy. Chapel Farm sued Fieldston in federal court, alleging “injurious falsehood” and other claims. Hermitage defended Fieldston under a reservation of rights, arguing Federal’s D&O policy was primary. After the federal suit was dismissed, Villanova (formerly Chapel Farm) sued Fieldston in state court with similar claims. Hermitage again defended under a reservation of rights, seeking reimbursement from Federal. The state court dismissed the injurious falsehood claim, and Federal then assumed the defense.

    Procedural History

    Two declaratory judgment actions were filed to determine the insurers’ responsibilities. In the first action (federal lawsuit), the Supreme Court ruled Hermitage was primary. In the second action (state lawsuit), the Supreme Court found neither insurer had proved their position as a matter of law. The Appellate Division reversed both rulings, holding Federal was required to contribute to defense costs. The Court of Appeals reversed the Appellate Division, reinstating the Supreme Court’s initial ruling on the federal case and granting summary judgment to Federal on the state case.

    Issue(s)

    Whether Hermitage’s primary duty to defend against the injurious falsehood claim triggers a primary duty to defend against all causes of action in the complaints, precluding any obligation by Federal under its “other insurance” clause.

    Holding

    Yes, because under the terms of Federal’s D&O policy, there existed “other insurance” (Hermitage’s CGL) that covered the “loss” arising from the defense of the underlying actions; when a policy has a clause making it excess to other valid insurance, the insurer is not required to contribute to a defense already covered by another policy.

    Court’s Reasoning

    The court emphasized that an insurer’s duty to defend is broader than the duty to indemnify and is triggered when a complaint alleges any cause of action that creates a reasonable possibility of recovery under the policy. The court quoted Fitzpatrick v American Honda Motor Co., 78 NY2d 61, 65 (1991), stating that the duty to defend “arises whenever the allegations in a complaint state a cause of action that gives rise to the reasonable possibility of recovery under the policy.” The court further explained, quoting Town of Massena v Healthcare Underwriters Mut. Ins. Co., 98 NY2d 435, 443 (2002), that if “ ‘ any of the claims against an insured arguably arise from covered events, the insurer is required to defend the entire action.’ ” The court reasoned that because Hermitage’s CGL policy potentially covered the injurious falsehood claim, it had a duty to defend the entire action. Federal’s D&O policy had an “other insurance” clause that made its coverage excess when any loss was covered by another policy. “Loss” included “Defense Costs.” Therefore, Hermitage had the primary duty to defend without contribution from Federal. The Court stated, “If the policies were drafted using different language, we might hold differently, but we may not judicially rewrite the language of the policies at issue here to reach a more equitable result”. The court prioritized the plain language of the insurance contracts, even if the result appeared inequitable.

  • Lumbermens Mut. Cas. Co. v. Aetna Cas. & Sur. Co., 59 N.Y.2d 539 (1983): Determining Primary Insurance Coverage After Vehicle Sale

    Lumbermens Mut. Cas. Co. v. Aetna Cas. & Sur. Co., 59 N.Y.2d 539 (1983)

    A vehicle purchaser’s insurance becomes the primary coverage when the purchaser executes a note and purchase agreement and both parties sign a security agreement acknowledging the purchaser’s ownership, even if the title transfer is incomplete.

    Summary

    This case addresses which insurance company bears primary responsibility for an accident involving a commercial tanker. Dairylea sold the tanker to R & H Hauling, retaining a security interest but executing documents acknowledging R & H’s ownership. After the sale but before formal title transfer, the tanker was involved in an accident. The court determined that, despite the incomplete title transfer and Dairylea’s license plates remaining on the vehicle, R & H’s insurer, Aetna, provided primary coverage because R & H had taken ownership through the executed agreements. Lumbermens, Dairylea’s insurer, provided secondary coverage.

    Facts

    Dairylea Cooperative, Inc. sold a tanker to R & H Hauling on September 1, 1978. R & H executed a promissory note, a purchase agreement, and a security agreement acknowledging their ownership. Dairylea retained a security interest. On September 23, 1978, the tanker, still bearing Dairylea’s license plates, was involved in an accident. The formal title transfer wasn’t completed until months later. Both Dairylea and R & H had insurance policies: Dairylea with Lumbermens Mutual and R & H with Aetna Casualty. Certificates provided to Dairylea by Aetna did not identify Dairylea’s interest under the policy.

    Procedural History

    Passengers injured in the accident sued Rossal, Dairylea, and R & H. Dairylea filed a claim against R & H based on a hold-harmless agreement and common-law indemnity. Both insurers initiated declaratory judgment actions to determine coverage responsibility. The personal injury case resulted in verdicts for the plaintiffs, with Dairylea obtaining judgment against R & H. The parties settled the verdicts while preserving their rights in the declaratory judgment actions, which were then consolidated. The Supreme Court initially ruled Aetna primary, despite finding Dairylea an owner under UCC. The Appellate Division modified, declaring both insurers primary. The New York Court of Appeals then reviewed the case.

    Issue(s)

    Whether, despite the pending formal transfer of title, the execution of a note, purchase agreement, and security agreement were sufficient to transfer ownership such that the purchaser’s insurer (Aetna) was the primary insurer for an accident occurring after the execution of these documents but before the formal title transfer.

    Holding

    Yes, because the execution of the note, purchase agreement, and security agreement, combined with R & H’s possession of the tanker, sufficiently transferred ownership to R & H, making Aetna the primary insurer.

    Court’s Reasoning

    The court reasoned that the Aetna policy covered the tanker as an owned vehicle and protected both R & H and Dairylea (to the extent of Dairylea’s vicarious liability). The policy stated that “For any covered auto you own this policy provides primary insurance,” thus establishing Aetna’s primary responsibility. The court distinguished Lumbermens’ policy, noting it only covered Dairylea’s liability and excluded coverage for non-owned vehicles, defining a non-owned vehicle as one not owned by Dairylea. The court held that the Vehicle and Traffic Law does not require a different result, as R & H, as the purchaser, was required to obtain its own insurance coverage and could not rely on Dairylea’s policy (citing MVAIC v Continental Nat. Amer. Group Co., 35 NY2d 260, 265). The court further reasoned that under UCC § 2-401(2), title passed to R & H when the agreements were signed because Dairylea had completed its performance regarding the physical delivery of the tanker, which was already in R & H’s possession. The court stated that “Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place”.