New York Law Review

Tag: Reservation of Rights

  • QBE Insurance Corp. v. Jinx-Proof, Inc., 23 N.Y.3d 1106 (2014): Effective Disclaimer of Coverage Despite Confusing Language

    QBE Insurance Corp. v. Jinx-Proof, Inc., 23 N.Y.3d 1106 (2014)

    An insurance company’s disclaimer of coverage is effective if it sufficiently apprises the insured of the grounds for disclaimer, even if the disclaimer contains some contradictory or confusing language.

    Summary

    QBE Insurance Corp. issued a liability policy to Jinx-Proof, Inc. that contained an assault and battery exclusion. After a patron sued Jinx-Proof for injuries sustained from an employee’s intentional act, Jinx-Proof notified QBE. QBE sent two letters disclaiming coverage for the assault and battery claims but also mentioned defending the matter under the liquor liability portion of the policy, reserving rights for assault and battery allegations. QBE then sought a declaratory judgment that it had no duty to defend or indemnify Jinx-Proof. The New York Court of Appeals held that QBE’s disclaimer was effective because the letters specifically and consistently stated the policy excluded assault and battery coverage, sufficiently apprising Jinx-Proof of the basis for the disclaimer despite some confusing language.

    Facts

    • QBE Insurance Corp. issued a liability policy to Jinx-Proof, Inc. with an assault and battery exclusion.
    • In December 2007, a patron of Jinx-Proof’s bar sued for injuries allegedly caused by an employee throwing a glass at her face.
    • Jinx-Proof notified QBE of the lawsuit in January 2008, which included claims of negligence and intentional acts.
    • QBE sent two letters to Jinx-Proof disclaiming coverage for the assault and battery claims but also mentioning defending under the liquor liability portion, reserving rights.

    Procedural History

    • QBE commenced a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify Jinx-Proof.
    • The Supreme Court granted QBE’s motion for summary judgment.
    • The Appellate Division modified the order, declaring that QBE was not obligated to defend Jinx-Proof, and otherwise affirmed.
    • Jinx-Proof appealed to the New York Court of Appeals.

    Issue(s)

    Whether an insurance company’s disclaimer of coverage is effective when the disclaimer letters contain some contradictory or confusing language but specifically state that the policy excludes coverage for the relevant claims.

    Holding

    Yes, because the letters specifically and consistently stated that Jinx-Proof’s insurance policy excludes coverage for assault and battery claims, which was sufficient to apprise Jinx-Proof that QBE was disclaiming coverage on that ground, regardless of any contradictory or confusing language.

    Court’s Reasoning

    The Court of Appeals focused on the clarity of the disclaimer regarding the assault and battery exclusion. The court stated, “Although the letters contained some contradictory and confusing language, the confusion was not relevant to the issue in this case. The letters specifically and consistently stated that Jinx-Proofs insurance policy excludes coverage for assault and battery claims.” This specific disclaimer was sufficient to inform Jinx-Proof that QBE was disclaiming coverage based on the exclusion. The court cited Blue Ridge Ins. Co. v Jiminez, 7 AD3d 652, 653 (2d Dept 2004), to support the principle that a disclaimer can be effective even with a reservation of rights. The court also declined to consider Jinx-Proof’s argument about potential coverage under the liquor liability portion of the policy, as this argument was not raised in the lower courts and was based on information outside the record. The court emphasized that neither party submitted the liquor liability portion of the policy to the motion court, making the argument “unreviewable” and “based on pure speculation.” This case clarifies that the key requirement for an effective disclaimer is clear communication of the grounds for denial, even if other parts of the communication are less clear.

  • Stark v. Molod Spitz DeSantis & Stark, P.C., 9 N.Y.3d 59 (2007): Determining Waiver of Right to Arbitrate

    9 N.Y.3d 59 (2007)

    A party waives its right to arbitrate when it actively participates in litigation in a manner inconsistent with an intent to arbitrate, but actions to preserve the status quo or address urgent needs do not necessarily constitute waiver.

    Summary

    Linda Stark, a former partner at Molod Spitz DeSantis & Stark, sued the firm for breach of contract, gender discrimination, and other claims after her termination. The firm initially participated in a special proceeding and related court actions regarding client files and fees, before moving to compel arbitration based on an employment agreement. The New York Court of Appeals held that the firm’s prior actions in court did not constitute a waiver of its right to arbitrate, as those actions were primarily aimed at resolving immediate issues related to client representation and fees, and the firm had reserved its rights. The case was remitted to the Appellate Division to determine if the gender discrimination claim was arbitrable.

    Facts

    Linda Stark was a contract partner at Molod Spitz DeSantis & Stark. Her employment agreement contained an arbitration clause for all disputes. After the firm terminated Stark, she removed files and solicited clients. Stark initiated a special proceeding seeking client file access, fee arrangements, and unpaid wages. The firm opposed the application and cross-moved for retaining and charging liens and other reimbursements, but did not initially seek to compel arbitration. A stipulation was reached regarding client files and disbursements, with a mutual reservation of rights. Stark then filed a plenary action alleging breach of contract, gender discrimination, and defamation.

    Procedural History

    Stark initiated a special proceeding, followed by a plenary action. The firm moved to dismiss or compel arbitration in the plenary action. Supreme Court dismissed some claims, compelled arbitration on the gender discrimination claim, and denied Stark’s cross-motion to stay arbitration. The Appellate Division reinstated dismissed claims, denied the motion to compel arbitration, and granted Stark’s cross-motion to stay arbitration, finding the firm had waived its right to arbitrate. The Court of Appeals granted leave to appeal on the arbitration issue.

    Issue(s)

    Whether the law firm waived its right to compel arbitration by participating in a special proceeding and related court actions before moving to compel arbitration in a subsequent plenary action.

    Holding

    No, because the firm’s actions in the initial special proceeding and related court actions were primarily focused on resolving urgent, practical issues related to client representation and fees, and the firm had included a mutual reservation-of-rights clause in the stipulation.

    Court’s Reasoning

    The Court of Appeals recognized New York’s strong public policy favoring arbitration. However, the right to arbitration can be waived if a party’s actions are inconsistent with an intent to arbitrate. Citing De Sapio v. Kohlmeyer, 35 N.Y.2d 402, 405 (1974), the Court emphasized that waiver occurs when a party’s participation in litigation “manifests an affirmative acceptance of the judicial forum.” The Court distinguished the firm’s actions from a waiver, noting that the initial court actions were prompted by Stark’s application for emergency relief regarding client files and fees. The stipulation minimized interruption of Stark’s client representation. The Court stated, “Notably, the motions in the trial courts seeking attorneys’ fees and disbursements were contemplated by the stipulation, and the firm’s only other affirmative motion subsequent to the stipulation sought to enforce it.” The mutual reservation-of-rights clause in the stipulation also preserved the firm’s right to demand arbitration for other claims. The Court remitted the case to the Appellate Division to determine whether Stark’s gender discrimination claim was arbitrable. The Court reasoned that the firm’s actions were consistent with an attempt to preserve the status quo and address immediate needs, rather than an affirmative acceptance of the judicial forum for resolving all disputes.

  • Estate of Thomson v. Wade, 69 N.Y.2d 570 (1987): The Stranger-to-the-Deed Rule

    Estate of Thomson v. Wade, 69 N.Y.2d 570 (1987)

    Under the “stranger-to-the-deed” rule, a deed cannot create an easement or other real property interest in favor of someone who is not a party to the deed.

    Summary

    This case addresses whether a grantor can reserve an easement in a deed for the benefit of a third party who is not a party to the deed (a “stranger to the deed”). The New York Court of Appeals reaffirmed the long-standing rule that such a reservation is invalid. The court reasoned that allowing such reservations would create uncertainty in title and potentially lead to needless litigation, outweighing any potential frustration of the grantor’s intent. The court also held that a personal right-of-way (easement in gross) cannot be transferred if it’s not commercial in nature.

    Facts

    Plaintiff Thomson and Defendant Wade owned adjacent parcels of land. Thomson’s property (the annex parcel) fronted a river and had a motel, while Wade’s property was inland and bordered a public road. Both parcels were previously owned by Edward John Noble. Noble used Wade’s parcel to access the public road from the annex parcel. When Noble conveyed the annex parcel, he did not grant an express easement over Wade’s parcel. Later, when Noble conveyed Wade’s parcel, he included a clause that “excepted and reserved” a right-of-way for himself and Thomson’s predecessor. Thomson acquired a quitclaim deed to the right-of-way from the Noble Foundation (Noble’s successor-in-interest).

    Procedural History

    Thomson brought a declaratory judgment action, claiming an easement over Wade’s property. The Appellate Division concluded that no express easement was created. The Court of Appeals affirmed, upholding the “stranger-to-the-deed” rule.

    Issue(s)

    1. Whether a grantor can reserve an easement in a deed for the benefit of a third party who is not a party to the deed (a “stranger to the deed”).

    2. Whether a personal right-of-way (easement in gross) can be transferred to another party.

    Holding

    1. No, because New York adheres to the “stranger-to-the-deed” rule, which prohibits the creation of an interest in favor of a third party through a reservation or exception in a deed. This rule promotes certainty in title and avoids potential litigation.

    2. No, because the right-of-way reserved to Noble personally was not commercial in nature, and therefore could not be transferred to Thomson via the quitclaim deed.

    Court’s Reasoning

    The court reasoned that Noble could not create an easement benefitting land he no longer owned. Citing Tuscarora Club v. Brown, 215 NY 543, the court reaffirmed the “stranger-to-the-deed” rule, stating that a reservation in favor of a third party does not create a valid interest. While acknowledging that some jurisdictions have adopted a minority view that would recognize such an interest if the grantor’s intent is clear (citing Willard v. First Church of Christ, Scientist, 7 Cal 3d 473), the court declined to abandon the settled New York rule.

    The court emphasized the importance of certainty in real property titles, stating that “public policy favor[s] certainty in title to real property, both to protect bona fide purchasers and to avoid conflicts of ownership, which may engender needless litigation.” (Matter of Violi, 65 NY2d 392, 396). The court noted that any frustration of the grantor’s intent can be easily avoided by a direct conveyance of an easement to the third party.

    Regarding the personal right-of-way, the court cited Saratoga State Waters Corp. v. Pratt, 227 NY 429, 443, holding that because the right-of-way was not commercial, it could not be transferred to Thomson. Thus, neither the reservation of the easement in gross to Noble nor the reservation of a right-of-way to Thomson’s predecessor entitled Thomson to an express easement across Wade’s property.

    The court concluded, “where it can reasonably be assumed that settled rules are necessary and necessarily relied upon, stability and adherence to precedent are generally more important than a better or even a ‘correct’ rule of law” (Matter of Eckart, 39 NY2d 493, 500).