Opinion
0601016/2007.
July 11, 2008.
This is a declaratory judgment action. In the underlying case, Tamarit v. Edison Parking Corp., Index No. 117850/2006, the plaintiff alleges that on November 3, 2004, Carole Smellie, an employee of Edison Parking Corporation, drove a vehicle which struck plaintiff, a pedestrian, in the parking garage. Margery Fitts, who was the owner of the car in question, had a car insurance policy with plaintiff Government Employees Insurance Company ("GEICO") at the time of the accident. Ms. Smellie, Ms. Fitts and Edison Parking Corporation ("Edison") all are defendants in the underlying action and in this declaratory judgment action. At the time of the accident, Edison had an insurance policy with co-defendant Liberty Mutual Insurance Company ("Liberty").
Carlos Tamarit, the pedestrian, commenced his personal injury lawsuit on November 24, 2006. He filed the Note of Issue on April 17, 2008. Apparently, shortly after the lawsuit began, GEICO received notification and was requested to defend all defendants.
GEICO does not mention this fact in its moving papers, but Liberty notes that on March 12, 2007, approximately three-and-a-half months after the commencement of the underlying action, GEICO wrote to defendant Carole E. Smellie regarding that action, through the law firm of Kay Gray. More specifically, Kay Gray, holding itself out on the letterhead as in the employ of GEICO, wrote a letter stating that GEICO had instructed the firm to defend Ms. Smellie in the litigation. The March 12 letter identifies the members of Ms. Smellie's "legal defense team at Kay Gray" and asserts that "[a]s your attorneys, our professional obligation is to you, and we will be defending your interests in this case. We are committed to providing you with excellent service as well as excellent representation." The letter asks Ms.Smellie to provide counsel with photographs, witness names, and other information, and describes upcoming stages in the litigation, such as the deposition. There is also a list of frequently asked questions, along with answers. As Liberty notes, neither the letter nor the question and answer list indicate that counsel's representation is contingent or in any way subject to review or reconsideration. Neither party indicates that a similar letter was sent to Edison, so the Court must presume that no such letter exists.
Approximately two weeks later — that is, approximately four months after the underlying summons and complaint — GEICO commenced this action, seeking a declaration that it is not obliged to represent Ms. Smellie or Edison. The basis for this position is that Edison's policy with Liberty, which covers the acts of its employees, is the applicable policy here and therefore Liberty is obliged to represent Ms.Smellie and Edison.
GEICO acknowledges the facts of the underlying lawsuit for the purposes of this motion. GEICO further notes that Edison held a policy with Liberty during this time with and this policy covered the acts of Carole Smellie. GEICO argues that because the car owner entrusted the car to Edison, then Liberty, as Edison's insurer, must indemnify defendants in the underlying lawsuit. Alternatively, GEICO argues that it should be responsible only for excess insurance coverage.
Currently, GEICO moves for summary judgment and a declaration from this Court that it has no duty to indemnify Edison and Ms.Smellie. Alternatively, GEICO seeks a declaration that Liberty is the primary insurer and that GEICO is obliged only to provide excess coverage above the obligations of the primary insurer. In addition, Liberty cross-moves for an order stating that GEICO rather than Liberty is the insurer; that Liberty has no obligation to defend Margery Fitts; and that it is only responsible for providing excess coverage, if that is necessary. It points to provisions of the GEICO policy which purportedly would cover these defendants, but acknowledges that a policy exclusion applies to the instance at hand. However, Liberty argues that the provision on which GEICO now relies is inapplicable because of (1) GEICO's failure to timely disclaim coverage and (2) the March 12 letter, pursuant to which GEICO agreed to indemnify the parties at issue. Based on Insurance Law § 3420(d) and estoppel, Liberty argues, GEICO cannot now disclaim coverage. In addition, Liberty points to the "Who Is An Insured" clause in its own policy under which it does not have to indemnify Ms. Fitts, the owner of the vehicle, for her costs in defending the lawsuit.
As the Court of Appeals has explained, there is a distinction between "a lack of coverage in the first instance (requiring no disclaimer) and a lack of coverage based on an exclusion (requiring timely disclaimer)."Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 189, 734 N.E.2d 745, 747, 712 N.Y.S.2d 433, 435 (N.Y.,2000). An insurance company must disclaim under Insurance Law § 3420(d) when a policy exists but the claim falls outside the scope of the policy's coverage portion. Solomon v. U.S. Fidelity Guar. Co., 43 A.D.3d 333, 333, 841 N.Y.S.2d 39, 40 (1st Dept. 2007). "Under those circumstances, the insurance policy does not contemplate coverage in the first instance, and requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed. By contrast, disclaimer pursuant to section 3420(d) is necessary when denial of coverage is based on a policy exclusion without which the claim would be covered." Id. at 333-334, 841 N.Y.S.2d at 40 (citation omitted).
Here, GEICO acknowledges that a policy exists. However, it points to the "exclusions" section of the policy and argues that paragraph 8 of that section applies to the case at hand. Therefore, the Court must examine the timeliness of GEICO's disclaimer under Insurance Law § 3420(d). That provision states, in pertinent part:
Liberty also argues as to the applicability of the exclusion, but the Court presumes that it applies for the purposes of this motion. The Court also notes that in the cases on which GEICO relies, such asU.S. Underwriters Ins. Co. v. Kum Gang, Inc., 443 F. Supp. 2d 348 (E.D.N.Y. 2006), the applicability and effectiveness of the clause, and not the timeliness of the disclaimers, was in question.
If under a liability policy delivered or issued . . . in this state, an insurer shall disclaim liability or deny coverage for . . . bodily injury arising out of a motor vehicle accident . . . it shall give written notice as soon as is reasonably possible . . . to the insured and the injured person or any other claimant.
There is no predetermined measure by which the courts assess whether the insurer acted as soon as was reasonable. Instead, courts conduct a fact sensitive analysis in light of the surrounding circumstances, and measure reasonableness from the date when the insurer knew or should have known of the grounds for the disclaimer. Those Certain Underwriters at Lloyds, London v. Gray, 49 A.D.3d 1,-, 856 N.Y.S.2d 1, 3 (1st Dept. 2007)("Lloyds"). In addition, the Court must keep in mind the legislative intent — which, here, is "to expedite the disclaimer process, thus enabling a policyholder to pursue other avenues expeditiously." Bovis Lend Lease LMB. Inc. v. Royal Surplus Lines Ins. Co., 27 A.D.3d 84, 91, 806 N.Y.S.2d 53, 59 (1st Dept. 2005)("Royal Surplus").
In Lloyds, as in the case at hand, an insurance company commenced a declaratory judgment action and moved for summary judgment on the issue of the effectiveness of its disclaimer. In that case, it took Lloyds 51 days from the date it received the complaint for it to disclaim. The First Department found that for Lloyds to prevail on the motion, it would have to establish both that
(1) it was not readily apparent from the content of the verified complaint that grounds for the disclaimer in fact existed; and (2) the investigation, which took a total of 51 days to complete and appears to have involved the taking of a single statement from one witness, was promptly and diligently conducted. Id. at-, 856 N.Y.S.2d at 3-4.
In Lloyds, an issue of fact as to the timeliness of the disclaimer existed because the insurer explained what occurred during the investigation in an attempt to justify its delay. Id. In another recent action, the First Department held that there was a genuine issue of fact as to whether an insurer asserted its late notice defense in a timely fashion; in this instance, the insurer asserted the defense 92 days after it received the summons and complaint. City of New York v. Welsbach Electric Co., 49 A.D.3d 322, 852 N.Y.S.2d 134 (1st Dept. 2008). There, too, the insurer attempted to explain the reasonableness of the delay, noting that the claim was 10 years old. Id. at 323, 852 N.Y.S.2d at 136. As stated, based on this assertion the First Department did not grant summary judgment for the insurer but found a triable issue of fact. See id.
Here, neither party sets forth the specific date on which GEICO received notice of the claim — although, based on GEICO's assertions, it appears that it received the complaint in the underlying action shortly after the November 24, 2006 date on the complaint. Indeed, GEICO asserts that it took approximately 4 months — or, approximately 120 days — for it to disclaim coverage. The complaint in question, Tamarit v. Edison Parking Corp., Index 117850/2006, explains that Ms. Smellie was an employee of Edison, that she was the operator of the vehicle when it struck Ms.Tamarit, that the car belonged to Ms. Fitts — GEICO's insured — and that the incident took place in Edison's garage while Ms. Fitts left the car in the care of the garage. Based on GEICO's repeated assertions that the applicability of the exclusion is clear on its face and readily ascertainable, and that this type of exclusion commonly applies to parking garages, GEICO should have realized from a quick glance at the complaint that the exclusion applied here. Where the disclaimer's basis "was or should have been readily apparent before the onset of the delay, any explanation by the insurer . . . will be insufficient as a matter of law. . . ." Royal Surplus, 27 A.D.3d at 88, 806 N.Y.S.2d at 56 (1st Dept. 2005).
The Court would not grant summary judgment against GEICO if it either showed that its delay was indisputably reasonable or set forth a triable issue of fact regarding timeliness. In an attempt to show the indisputable reasonableness of its delay, GEICO simply makes the conclusory statement that "the complexities of the circumstances surrounding the underlying incident" required it to investigate further. Aff. in Reply, at 5-6. The investigation of a claim can justify a delay if the investigation is completely in a timely fashion and is related to the insurer's obligation to insure. See First Financial Ins. Co. V. Jetco Contracting Corp., 1 N.Y.3d 64, 769 N.Y.S.2d 459 (2003). However, the burden is on the insurer "to demonstrate that its delay was reasonably related to its completion of a thorough and diligent investigation."Tully Constr. Co., Inc. v. TIG Ins. Co., 43 A.D.3d 1150, 1152-53, 842 N.Y.S.2d 528,530 (2d Dept. 2007). Here, GEICO has not elaborated on a single one of the purported complexities surrounding the case and has not set forth any of the details of the alleged investigation. In light of this, its conclusory statement that four months was clearly reasonable does not suffice. Thus, it has failed to justify its delay. See Royal Surplus, 27 A.D.3d at 88, 806 N.Y.S.2d at 56 (stating that "an unsatisfactory explanation will render the delay unreasonable as a matter of law").
As GEICO has not shown that its delay was reasonable, the disclaimer is ineffective. Therefore, the Court does not reach the issues of whether Liberty's policy excludes coverage or whether GEICO would be liable for excess coverage. In its cross-motion Liberty acknowledges that it is liable for excess coverage as to Edison and Ms. Smellie, citing a policy provision limiting coverage to excess coverage for non-owned automobiles. However, it seeks a declaration that it is not liable for excess coverage as to Ms. Fitts. The Court denies this portion of the cross-motion because it does not appear that Liberty counterclaimed for declaratory relief. Moreover, the Court notes that the parties have not focused on or briefed this issue adequately, and that Liberty has not annexed the specific and allegedly applicable clauses in its policy.
Liberty quotes some or all of the provisions, but does not indicate where they are located in the myriad forms and hundreds of pages that comprise its policy.
In addition, the Court does not reach the issue of whether estoppel applies here. It does note that Liberty did not adequately address all the elements necessary to show or refute an estoppel argument, see, e.g., Royal Ins. Co. of America v. State, 149 Misc. 2d 531, 536, 564 N.Y.S.2d 982, 985 (Ct. Claims 1990), and that GEICO's argument that the March 12 letter of Kay Gray, See supra at p. 2, "merely indicated that the firm would be defending Ms.Smellie, not indemnifying him," Reply Aff. at ¶ 13, is, at best, strained.
For the reasons above, it is
ORDERED that GEICO's motion for summary judgment is denied; and it is further
ORDERED that Liberty's cross-motion for summary judgment is granted in part, the Court declares that GEICO did not carry its burden of showing that its disclaimer was timely and therefore it must indemnify the insured parties at issue; and it is further
ORDERED that the portion of Liberty's motion seeking a declaration as to its responsibility for providing excess coverage to Ms. Fitts is denied
ORDERED that the declaratory judgment action is dismissed.