New York Insurance Coverage Law Update

SUM Endorsement In Commercial Automobile Policy Issued To LLC Deemed To Cover Its Sole Member As “Insured”

Alan Tekel was struck by a vehicle.  After Tekel settled with the driver of the vehicle for the full limit of the driver’s auto policy, Tekel submitted a claim for supplementary underinsured motorist (SUM) benefits under a commercial auto policy issued by Progressive Insurance Company to Air Repair, LLC – an LLC of which Tekel was the sole member.  Progressive denied coverage on the ground that Tekel was not insured because he was not the named insured on the policy and, at the time of the accident, he was not occupying a motor vehicle insured for SUM coverage under the policy.  Tekel filed a demand for arbitration, and the Appellate Division, Second Department, affirmed the trial court’s denial of Progressive’s petition seeking a stay.  The court reasoned that a limited liability company is like a partnership which is a combination of individuals who can suffer injuries and have spouses, households, and relatives.  Although the declarations sheet of the policy identified the LLC as the named insured, “insured” was defined to mean “you, as the named insured and, while residents of the same household, your spouse and the relatives of either you or your  spouse”.  In addition, the SUM endorsement contained a provision for survival rights coverage. The Second Department concluded that the definition of “insured” should be resolved in Tekel’s favor to cover him too. [Matter of United Fin. Cas. Co. v. Tekel, 2020 N.Y. App. Div. LEXIS 4022 (2d Dep’t July 15, 2020).]

Insured’s Notice After Default Judgment Gives Rise to Irrebuttable Presumption of Prejudice, Precluding Coverage

Mountain Valley Indemnity issued a personal liability policy to the owner of residential premises who was sued for a slip-and-fall at his premises.  The owner defaulted, and a default judgment was entered against the owner.   The owner filed a motion to vacate the default on the ground that he was not properly served, but his motion was denied.  In turn, the owner sought insurance coverage from Mountain Valley which disclaimed coverage based on the owner’s failure to comply with the timely notice condition in the policy.   A declaratory judgment action ensued, and the court upheld the disclaimer.  Citing New York Insurance Law § 3420(a) and (c), the court stressed that untimely notice does not preclude coverage unless the insurer has been prejudiced, but that an “irrebuttable presumption” of prejudice arises if “prior to notice, the insured’s liability has been determined by a court of competent jurisdiction.”  The court held that the default judgment constituted a determination of liability and, therefore, established prejudice to the insurer as a matter of law.  The court also rejected the owner’s argument that the insurer’s disclaimer was untimely and invalid because it waited 19 days to disclaim after being provided with notice and the basis for the disclaimer.  [Mountain Valley Indem. Co. v. Cohen, 2020 N.Y. Misc. LEXIS 4293 (N.Y. Sup. Ct., N.Y. Cnty. August 14, 2020).]

Federal District Court Holds That Purported Continuing Injuries Do Not Trigger Policy Issued After Suit Filed

In April, 2016, Claimants filed suit against Weirfield Coal for alleged injuries from exposure to toxic coal dust from Weirfield’s facility, and Penn-Star Insurance Company was ordered to defend Weirfield in the action.  Penn-Star sought contribution from other insurers including Markel Insurance Company. Markel insured Weirfield under a pollution liability insurance policy with a policy period from June 30, 2017 to June 30, 2018, after the bodily injury action was filed.  The Markel policy required that the bodily injury occur “during the policy period” and that “[p]rior to the policy period, no insured … and no ‘responsible insured’ knew that the ‘bodily injury’ … had occurred, in whole or in part….”  Penn-Star argued that Markel’s policy was triggered because the bodily injury action plead a continuous tort to the present.  The United States District Court for the Eastern District of New York found Penn-Star’s argument “unpersuasive,” stressing that there is no coverage by virtue of the “plain language” of the policy and New York case law recognizing that there is no coverage for a known loss.  [Hanover Ins. Co. v. Weirfield Coal, Inc., 2020 U.S. Dist LEXIS 131108 (E.D.N.Y July 24, 2020).]