New York Insurance Coverage Law Update

November 1, 2010 | Appeals | Insurance Coverage

Legal Bulletin

Insurer Must Defend Restaurant Owner In Suit Following Fight At Party

A restaurant employee fatally stabbed a guest and injured another person at a party hosted at the restaurant by the owner. The Appellate Division, First Department, agreed with one insurer that it had no duty to defend or to indemnify the restaurant owner based upon the “assault and battery” exclusion in the commercial lines policy it had issued. However, it rejected the other insurer’s argument that it had no duty to defend or to indemnify the owner under the homeowners policy it had issued. The court noted that there was an exception to the “business pursuits” exclusion in the policy for “activities which are ordinarily incident to non-business pursuits.” The court found that the party was “ordinarily incident to a non-business pursuit” and concluded that even if the restaurant owner’s motivation was, in part, to boost employee morale, the party fell under the exception to the exclusion. [Metalios v. Tower Ins. Co. of N.Y., 2010 N.Y. Slip Op. 07257 (1st Dep’t Oct. 14, 2010).]

Law Firm Can Withdraw When Policy’s “Per Occurrence” Limit Is Reached

The plaintiff allegedly was injured at work. The employer’s liability carrier provided coverage up to $6,000 per occurrence, including defense costs. While the litigation was pending, the insurer advised the employer that it would no longer pay to defend or to indemnify the case because the $6,000 limit had exhausted. The law firm representing the employer then moved to withdraw. The Appellate Division, First Department, explained that although a motion for withdrawal by counsel was generally an improper vehicle to test an insurer’s disclaimer of coverage, the insurer here had not disclaimed coverage. Rather, the First Department pointed out, the contractually agreed-to limitation on defense costs had been exhausted and, under these circumstances, the law firm “should not be compelled to continue representation without compensation.” [Ruiz v. Frog Co., LLC, 2010 N.Y. Slip Op. 07482 (1st Dep’t Oct. 21, 2010).]

Court Refuses To Dismiss Insurer’s RICO Claims Against Medical Providers In Alleged No-Fault Fraud Case

A no-fault insurer brought suit in federal court against 20 defendants involved in the medical testing and treatment of various insureds involved in automobile accidents. The insurer alleged that the defendants had engaged in a series of interrelated fraudulent schemes through which they submitted or caused to be submitted thousands of fraudulent charges. Various defendants moved to dismiss the insurer’s RICO and RICO conspiracy claims, but the court refused to do so. The court first found that the complaint properly pled the RICO counts. It also rejected the defendants’ contention that the insurer’s complaint lacked sufficient specificity under Federal Rule of Civil Procedure 9(b), finding that the complaint alleged specific facts describing each fraudulent scheme, the role of each of the defendants and the elements of fraud with respect to each defendant. These allegations were “sufficient to meet the particularity requirements of Rule 9(b),” the court concluded. [Allstate Ins. Co. v. Etienne, No. 09-CV-3582 (E.D.N.Y. Oct. 26, 2010).]

 Insurer Not Entitled To Inter-Company Loss-Transfer Arbitration, Court Rules

After the plaintiff, driving a truck registered in New York, was involved in a motor vehicle accident in Connecticut with a car that was registered in Connecticut, the OOIDA Risk Retention Group paid certain first-party benefits to the plaintiff. Thereafter, the Appellate Division, Second Department, considered whether OOIDA was entitled to so-called inter-company loss transfer arbitration pursuant to Insurance Law § 5105(a) to recoup those benefits from the insurer that had issued a Connecticut policy to the non-New York tortfeasors. The court ruled that such arbitration was not mandated. It explained that § 5105(a) did not provide for inter-company loss transfer under the circumstances presented in this case because “it cannot be said that the alleged tortfeasors ‘would have been liable, but for the provisions of Insurance Law Article 51.'” [Hunter v. OOIDA Risk Retention Group, Inc., 2010 N.Y. Slip Op. 07144 (2d Dep’t Oct. 5, 2010).]

Assault and Battery Exclusion Dooms Coverage For Nightclub Fight

Contending that he had been injured during a fight at a nightclub, the plaintiff argued that the nightclub’s insurer had to indemnify the nightclub because its bouncer had been negligent. The Appellate Division, Fourth Department, ruled in favor of the insurer. It explained that the record demonstrated that the plaintiff had been subjected to an assault, which, it decided, fell within the insurance policy’s “assault and battery” exclusion. [Nahshon Aaron Council v. Utica First Ins. Co., 2010 N.Y. Slip Op. 06989 (4th Dep’t Oct. 1, 2010).



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