New York Insurance Coverage Law Update

Employee Driving His Own Leased Car While Working Is Not An Insured Under Employer’s Auto Insurance Policy

While driving his own leased car to the bank to make a deposit for his employer, Regional Integrated Logistics, Michael Hale was involved in an accident. The insurer that had issued a commercial automobile insurance policy to Regional asserted that it had no obligation to defend or to indemnify Hale, and the Appellate Division, Fourth Department, agreed. The court explained that Hale was an insured under the policy only if he was using, with Regional’s permission, an automobile owned, hired, or borrowed by Regional. The court found that the automobile that Hale was driving did not meet those criteria. After noting that it was “not owned or hired by Regional,” the court declared (over the dissent of two justices) that only “an unnatural or unreasonable construction” of the policy provision supported an interpretation that Hale’s personal vehicle had been borrowed by Regional and then used by Hale with Regional’s permission. [RLI Ins. Co. v. Smiedala, 2010 N.Y. Slip Op. 02602 (App. Div. 4th Dep’t March 26, 2010).]

Question of Fact As To Whether Building Owner Covered – Even Though Not An Insured

Yashi Associates owned a building that it leased to Glendale Convenience Store. A woman allegedly fell in the parking lot and sued Glendale and Yashi. The lease required Glendale to maintain an insurance policy that named Yashi as an additional insured, but the policy obtained by Glendale did not do so. The insurer disclaimed coverage for Yashi, which brought suit against the insurer.

The Appellate Division, Second Department, acknowledged that Yashi was not an insured. Contrary to the policy language, however, the court opined that there was a question of fact precluding summary judgment. The policy excluded coverage to an insured for bodily injury assumed under a contract, except this did “not apply to an incidental contract,” which included leases. Although the court acknowledged that the provision did not “expressly” provide coverage to Yashi, it found a triable issue of fact as to whether the insurer was obligated to defend and to indemnify Yashi by operation of the policy and lease. [Majawalla v. Utica First Ins. Co., 2010 N.Y. Slip Op. 02520 (App. Div. 2d Dep’t March 23, 2010).]

Water Exclusion Bars Coverage For Damages From Ruptured Water Main That Ruptured Sewer Lateral In Building

The rupture of a water main near an ambulatory surgical center ruptured a portion of a sewer lateral that carried wastewater from the center. The remaining portion of the sewer lateral then served as a conduit for water that escaped from the water main and entered the center through a drain, causing damage to the center. The commercial property insurance policy that had been issued to the center contained an exclusion for damage caused by “water” and expressly provided that the insurer “will not pay for loss or damage caused directly or indirectly” by “water” that, among other things, “backs up or overflows from a sewer, drain or sump.” The insurer disclaimed coverage based upon, among other things, the water exclusion. The Appellate Division, Fourth Department, agreed that the exclusion precluded coverage for the loss as it arose from “water that backs up or overflows through a sewer,” irrespective of any other concurrent or subsequent contributing cause or event. [Lattimore Rd. Surgicenter, Inc. v. Merchants Group, Inc., 2010 N.Y. Slip Op. 02189 (4th Dep’t March 19, 2010).]

Court Denies Insurer’s Motion To Intervene In Third Party Action Against Employer Upon Finding That Contention That Its Rights Were Not Being Protected Was “Speculative”

After a construction site’s owners and general contractors were sued by a construction worker, a third party action was commenced against the construction worker’s employer. The employer’s workers’ compensation and liability insurer moved to intervene in the third party action, arguing that its rights were not being adequately represented because the employer’s counsel, who was being paid by the insurer, faced a potential conflict if asked by the insurer to move to have the common law indemnification claims dismissed, given that that would risk the loss of coverage afforded by the employer’s liability policy. The Appellate Division, First Department, concluded that the insurer’s theory that counsel may decide that the employer would be harmed if the common law claims against it were dismissed was “speculative,” noting that the insurer’s own moving papers indicated that other coverage was available to the employer. [Severino v. Brookset Hous. Dev. Fund Corp., 2010 N.Y. Slip Op. 02672 (1st Dep’t March 30, 2010).]

 Reprinted with permission.  All rights reserved.