Everybody Hurts Sometimes: But Is Insurance Available to Compensate That Pain?

May 11, 2018 | Michael C. Cannata | Frank M. Misiti | Insurance Coverage

From efforts to curtail cyber-bullying, to the creation of safe spaces, protecting individuals from mental injury is now mission critical. Every day, lawsuits are filed by individuals seeking damages for conduct that has resulted in mental injury. Not surprisingly, the targets of these lawsuits have turned to their insurers to defend and indemnify them against such claims. To that end, a recent decision by the Second Circuit underscores the fact that the availability of insurance coverage for these claims will turn on how “bodily injury” is defined by the policy at issue.

In Inc. Village of Old Westbury v. American Alternative Ins. Corp.,1 the Second Circuit recently held that allegations of mental injury, without more, do not fall within the definition of “bodily injury” under the commercial general liability policy at issue. In doing so, the Second Circuit affirmed the trial court’s grant of summary judgment to American Alternative Insurance Corp. (AAIC) concluding that AAIC did not have any obligation to defend or indemnify the Village of Old Westbury (the Village) in connection with an underlying lawsuit.

In the underlying lawsuit, a motorist claimed that the Village clerk negligently failed to alert the Department of Motor Vehicles that the motorist had paid a traffic fine. As a result, the motorist claimed that he was arrested following a routine traffic stop because of the apparent outstanding traffic fine. The motorist commenced an action in the New York State Supreme Court against the Village, claiming to have suffered mental injury as a result of his arrest. The motorist sought damages for negligent infliction of emotional distress, emotional distress, and psychological distress.

The Village, in turn, commenced a declaratory judgment action against AAIC seeking a declaration that AAIC was obligated to defend, and indemnify, the Village in connection with the motorist’s lawsuit. Specifically, the Village sought coverage under a commercial general liability policy issued by AAIC which provided coverage for, among other things, “bodily injury” defined as:

bodily injury, sickness, or disease sustained by a person. This includes mental anguish, mental injury, shock, fright, or death resulting from bodily injury, sickness, or disease.2

The Village argued that coverage existed under the AAIC policy because the motorist’s allegations of mental injury fell within the above definition of “bodily injury.” To support its position, the Village pointed to the New York State Court of Appeals’ decision in Lavanant v. General Accident Ins. Co. of Am.,3 which, according to the Village, held that under New York law, mental injury qualifies as “bodily injury.”

The District Court, however, discounted Lavanant because, in that case, the Court of Appeals concluded that the definition of “bodily injury” in the policy at issue was ambiguous and, thus, should be construed in favor of the insured. Unlike the AAIC policy, the policy at issue in Lavanant broadly defined “bodily injury” as just “bodily injury, sickness, or disease.”4 The District Court reasoned that no such ambiguity was present in the AAIC policy because it plainly states that for coverage to exist, the motorist’s mental injury had to result from an independent bodily injury.5

The Second Circuit agreed. Specifically, the court held that the second sentence of the definition of “bodily injury” in the AAIC policy would be superfluous if the definition of “bodily injury” included purely mental injuries that were not connected to some independent bodily injury. The Second Circuit further distinguished Lavanant on the basis that the policy at issue in Lavanant did not limit coverage only to mental injuries that flowed from some bodily injury, but extended broadly to mental injury alone, even without any physical injury or contact.6

Accordingly, to determine whether a claim for mental injury is covered, careful consideration must be given to the definition of “bodily injury” in the policy at issue. Specifically, consideration should be given to whether the policy contains a requirement that any alleged mental injury results from an independent bodily injury. As demonstrated by the Second Circuit’s holding, a policy containing such a requirement will likely result in an insurer avoiding any obligation to defend or indemnify its insured for a claim seeking redress for mental injury alone.

Reprinted with permission by the Nassau County Bar Association.

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1. Inc. Village of Old Westbury v. American Alternative Ins. Corp., 2018 U.S. App. Lexis 3177 (2d Cir. Feb. 8, 2018).

2. Id. at *3.

3. Lavanant v. General Accident Ins. Co. of Am., 584 N.Y.S.2d 744 (1992).

4. Inc. Village of Old Westbury v. American Alternative Ins. Corp., 2017 U.S. Dist. Lexis 51963, at *3-4 (E.D.N.Y. Mar. 31, 2017)

5. Id.

6. Inc. Village of Old Westbury, 2018 U.S. App. Lexis 3177, at *4.

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