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concluding that vessel was not ocean going where the policy specifically disclaimed coverage for operation "in coastal waters, oceans, seas or gulfs"
Summary of this case from American Steamship Owners Mut. Prot., Indemy. v. Alcoa Ss.Opinion
99 Civ. 8998 (SHS).
August 21, 2001
OPINION ORDER
In this maritime action, plaintiff Progressive Northeastern Insurance Company seeks a declaratory judgment that a boat insurance policy it issued does not afford coverage for the underlying boat accident and has now moved for summary judgment pursuant to Fed R. Civ. P. 56. Defendant American Insurance Company has crossed moved for summary judgment in its favor on the grounds that Progressive failed to disclaim coverage in a timely fashion. For the reasons set forth below, Progressive's motion is denied and American's motion is granted.
I. BACKGROUND
On August 31, 1998 Scott Lamb, an employee of Dr. George de Menil, was driving de Menil's 25 foot motor boat in Long Island Sound while on an errand to pick up de Menil's daughter's cat from the veterinarian. (Seife Aff. Ex. 10.) While en route, the boat tipped over and threw him and de Menil's daughter overboard. (Id.) Tragically, after being rescued by the U.S. Coast Guard, Lamb suffered cardiac arrest on the way to the hospital and died. (Id.)
The next day de Menil informed his insurance company, Progressive, of the accident. (Seife Aff. Ex. 4 at 19; Rainbow Aff. ¶ 4.) Progressive acknowledged receiving the notice of claim, assigned a claim number, and began to investigate. (Seife Aff. Ex. 5-9; Rainbow Aff. ¶¶ 4, 5.)
Progressive quickly concluded that its "New York Boat Policy Contract" with de Menil did not cover this accident because the contract extended only to "damages . . . for which the insured is legally liable because of bodily injury or property damage arising out of an accident." (Seife Aff. Ex. 2, § B; Rainbow Aff. ¶ 5.) Because Lamb had been acting in the scope of his employment at the time of the accident, Progressive concluded that de Menil was not "legally liable" because the worker's compensation insurance system, and its rules providing compensation for employees in lieu of litigation, would apply. (Rainbow Aff. ¶ 6, Seife Aff. Ex. 5.)
Furthermore, the boat policy contains two exclusions that provide that the coverage and Progressive's duty to defend any litigation "does not apply to . . . bodily injury to an insured [or] bodily injury to any person eligible to receive benefits required to be provided or voluntarily provided by an insured under any workers' or workmen's compensation law. . . ." (Seife Aff. Ex. 2, § B ¶¶ 9, 11.) An "insured" is defined in part as "[a]ny person using [de Menil's] boat with [de Menil's] permission, if within the scope of [de Menil's] permission." (Seife Aff. Ex. 2 "Definitions" ¶ 16.) Progressive alleges that because Lamb was operating the boat with de Menil's permission and because his use of the boat was within the scope of his employment, these provisions also exclude coverage for the accident. (Seife Aff. Ex. 13.)
Although Progressive was aware in September of 1998 that the policy excluded coverage for Lamb's death, it did not notify de Menil until July 9 of the following year that "any handling or actions taken in regard to this matter in any form whatsoever [by Progressive] is under a full Reservation of Rights" (Seife Aff. Ex. 12), and it did not formally disclaim coverage until filing this declaratory action on August 18, 1999. The reason for the nearly twelve month delay, Progressive explains, is that it believed the Lamb estate was going to handle the matter exclusively as a worker's compensation claim. (Rainbow Aff. ¶¶ 6, 9.)
However, Progressive admits that in the middle of November of 1998, an attorney for Lamb's estate did inform it that the estate was considering filing a lawsuit against de Menil. Progressive orally requested a letter confirming that the attorney in fact represented the Lamb estate but did not receive one. (Rainbow Aff. ¶ 8.) More than six months later, in May of 1999, Progressive made a written request for a letter of representation. (Rainbow Aff. Ex. A.) More importantly, the employee in Progressive's claims department responsible for handling the claim was informed "near the end of May 1999" by attorneys for the Lamb estate that "they were going to be pursuing a liability claim against the de Menils for in excess of One Million Dollars." (Rainbow Aff. ¶ 14.) Progressive then transferred the case file to its legal department, (Rainbow Aff. ¶ 14) which sent de Menil the Reservation of Rights letter referred to above one month later (Seife Aff. Ex. 12, Burba Aff. ¶ 8) and filed this declaratory judgment action the month after that, in August of 1999.
In February of 2000, the Lamb estate petitioned the Surrogate's Court of the State of New York, County of Suffolk to approve a settlement of its claim against de Menil, which included a payment by the American Insurance Company, de Menil's excess liability carrier, of $200,000. That court approved the settlement in June of 2000. As part of the settlement, the Lamb estate and de Menil assigned to American their respective rights against Progressive for any claims or causes of action. (Seife Aff. Ex. 15 at Counterclaim ¶ 15.)
As noted above, Progressive has now moved for summary judgment in its favor and American has cross moved seeking summary judgment for indemnification from Progressive of the amount it paid in the settlement.
II. DISCUSSION
A. Summary Judgment Standard
Summary judgment may be granted "only when the moving party demonstrates that `there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'"Allen v. Coughlin, 64 F.3d 77, 79 (2d Cir. 1995) (quoting Fed.R.Civ.P. 56(c)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The Court must "view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in its favor . . . and may grant summary judgment only when `no reasonable trier of fact could find in favor of the nonmoving party.'" Allen, 64 F.3d at 79 (quoting Lund's, Inc. v. Chemical Bank, 870 F.2d 840, 844 (2d Cir. 1989)).
Once the moving party meets its initial burden of demonstrating the absence of a genuine issue of material fact, the non-moving party must come forward with specific facts to show there is a factual question that must be resolved at trial. Fed.R.Civ.P. 56(e); see also Legal Aid Society v. City of New York, 114 F. Supp.2d 204 (S.D.N.Y. 2000). A nonmoving party must produce evidence in the record and "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993). In short, a nonmoving party must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
B. Applicability of New York Insurance Law Section 3420(d)
American contends that New York Insurance Law mandates that Progressive must provide coverage despite the policy exclusions. Section 3420(d) of New York Insurance Law provides, in relevant part, that "[i]f under a liability policy delivered or issued for delivery in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring with this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant." The New York Boat Policy Contract provides that "[t]erms of this policy which conflict with the statutes of the state in which this policy is issued are hereby amended to conform to those statutes." (Seiffe Aff. Ex. 2 § D ¶ 11.) Because Progressive failed to give a written notice of disclaimer until almost a year after the accident, American contends that New York Insurance law section 3420 prevents Progressive from denying coverage.
Progressive contends that section 3420(d) does not require it to provide coverage on the grounds that: (1) accidents involving "ocean going vessels" are exempt from the strictures of that section, (2) the claim was denied based on lack of coverage in the policy, rather than a policy exclusion, and therefore, Progressive was not statutorily obligated to disclaim coverage pursuant to section 3420(d), (3) Progressive's delay in disclaiming coverage was reasonable pursuant to section 3420(d), and (4) Progressive cannot be estopped from denying coverage because American cannot demonstrate any prejudice. Each of these arguments is without merit.
1. Ocean Going Vessel
New York Insurance Law § 3420 does not apply to "the kinds of insurances set forth in paragraph three of subsection (b) of section two thousand one hundred seventeen of this chapter." N Y Ins. § 3420(i). One such type of insurance set forth in that section is "insurance in connection with ocean going vessels against any of the risks specified in paragraph twenty-one of subsection (a) of section one thousand one hundred thirteen of this chapter." N.Y. Ins. § 2117(b)(3)(B). The risks specified in paragraph 21 include "marine protection and indemnity insurance," meaning "insurance against, or against legal liability of the insured for, loss, damage or expense arising out of, or incident to, the ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in use in ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person." N.Y. Ins. § 1113(a)(21). Thus, the issue is whether the object of the policy must be an "ocean going vessel" as provided in section 2117(b)(3)(B), or merely a "vessel . . . in use in ocean or inland waterways" as provided in section 1113(a)(21), and, if so, whether de Menil's 25 foot motor boat is an "ocean going vessel."
The statutes, when read as a whole, require that the insurance must be of a kind "in connection with ocean going vessels" as provided in section 2117(b)(3)(B). Section 1113(a) delineates between the risks associated with ocean marine insurance policies and inland marine policies. Section 1113(a)(20) provides, in relevant part, that "in this chapter `inland marine' insurance shall not include insurance of vessels, crafts, their cargoes, marine builders' risks, or other similar risks, commonly insured only under ocean marine insurance policies." Thus, the New York legislature intended to afford different treatment to policies involving "ocean going vessels" and non ocean going vessels. The one case to squarely address this issue reached the same conclusion. See Hartford Fire Ins. Co. v. Mitlof, 123 F. Supp.2d 762, 767 (S.D.N Y 2000); see also Royal Ins. Co. of America v. A C Ship Fueling Corp., 1992 WL 219783, at *7 (E.D.N.Y. March 21, 1992) vacated ab initio by stipulation of parties, 1995 A.M.C. 504, 505 (E.D.N.Y. July 21. 1994) (finding that the insured boat must be an "ocean going vessel" and lamenting the lack of statutory authority and case law defining the term); Nicolas R. Foster, Marine Insurance: Direct Action Statutes and Related Issues, 11, U.S.F. Mar. L.J. 261, 285-86 (1998-99) (explaining that section 3420 "excluded certain types of marine insurance from a direct suit . . . including in section 1113(a)(21) `marine protection and indemnity insurance.'").
The policy itself determines whether it is of the kind intended to cover "ocean going vessels." See Mitlof, 123 F. Supp. 2d at 767. Progressive's "New York Boat Policy Contract" provides coverage for physical damage, boat liability, and medical payments in connection with de Menil's 1989 25 Foot Contender Model 251 power vessel. (Seife Aff. Ex 1 ¶ 10, Ex. 2.) The "Policy Territory" is defined as "land, tributaries, inland lakes, bays and rivers of the continental United States or Canada. No coverage is granted hereunder when operating in coastal waters, oceans, seas or gulfs." (Seife Aff-Ex. 2 § D ¶ 2.) The motor boat was stored, maintained, and operated on Long Island Sound. (Seife Aff. Ex. 10.) A "sound" is defined as "a long passage of water connecting two larger bodies but too wide and extensive to be termed a strait (as a passage connecting a sea or a lake with the ocean or with another sea or a channel passing between a mainland and an island)." Webster's Third Int'l Dictionary 2176 (3d ed. 1993).
From these facts, this Court concludes that the boat was not meant to be operated in the ocean, nor was the policy intended to cover it if it had. Because the policy is not of a kind "in connection with ocean going vessels," it is not exempt from the timeliness requirement of section 3420(d). See, e.g., Mitlof, 123 F. Supp. 2d at 767; A C Ship, 1992 WL 219783, at *7; Dunn v. American Home Assurance Co., 158 A.D.2d 505, 507, 551 N.Y.S.2d 268, 270 (2d Dep't 1990).
2. Exclusion v. non coverage
An insurance company need not timely disclaim coverage pursuant to section 3420(d) when "the insurance policy does not contemplate coverage in the first instance. . . ." Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 188, 734 N.E.2d 745, 747, 712 N.Y.S.2d 433, 435 (2000). "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 189 734 N.E.2d at 747, 712 N.Y.S.2d at 435; see also Zappone v. Home Ins. Co., 55 N.Y.2d 131, 136-37, 432 N.E.2d 783, 786, 447 N.Y.S.2d 911, 914 (1982) (construing former N.Y. Ins. § 167(8), now § 3420(d)); Handelsman v. Sea Ins. Co., LTD., 85 N.Y.2d 96, 102, 647 N.E.2d 1258, 1260-61, 623 N.Y.S.2d 750, 752-53 (1994). "Failure to comply with section 3420(d) precludes denial of coverage based on a policy exclusion." Worcester, 95 N.Y.2d at 189, 734 N.E.2d at 747, 712 N.Y.S.2d at 435.
Progressive's reliance on New York University v. Continental Ins. Co., 87 N.Y.2d 308, 662 N.E.2d 763, 639 N.Y.S.2d 283 (1995) for the proposition that "coverage is the net total of policy inclusions minus exclusions, and the failure to disclaim based on an exclusion will not give rise to coverage that does not exist" is misplaced. That proposition is not meant to apply in cases falling under section 3420, where death or bodily injury results from an accident. See Worcester, 95 N.Y.2d at 188 n. *, 734 N.E.2d at 747, 712 N.Y.S.2d at 435; Sphere Drake Ins. Co. v. Block 7206 Corp., 265 A.D.2d 78, 81-82, 705 N.Y.S.2d 623, 625-26 (2d Dep't 2000).
An example of a policy exclusion occurs when "the person injured is an employee of the insured whose injury arose out of and in the course of his employment. . . ." Zappone, 55 N.Y.2d at 136, 432 N.E.2d at 786, 447 N.Y.S.2d at 914. This is because the policy would normally cover the vehicle, the person and the accident but for the specific circumstances of the case. Id. For example, if the employee involved in the accident had not been acting in the course of his employment, the policy may well provide coverage.
The instant case falls squarely within this example. The Progressive insurance policy on its face provides coverage for bodily injury and physical damage arising out of use of the 1989 25 Foot Model Contender 251 Power Vessel. It insures de Menil against damages for which he is "legally liable." A determination of legal liability depends on the circumstances of the accident, namely, whether Lamb was acting in the scope of his employment and whether Lamb was covered by worker's compensation insurance.
Progressive's argument that de Menil's lack of legal liability due to the worker's compensation insurance system means that coverage was "not contemplate[d]" rather than specifically excluded is inconsistent with the language of the contract itself. There is a paragraph in the "exclusions" section of the contract which addresses this very circumstance, namely "bodily injury to any person eligible to receive benefits required to be provided or voluntarily provided by an insured under any workers' or workmen's compensation law." (Seife Aff. Ex. 2 § B ¶ 11.) Furthermore, another specific "exclusion" — bodily injury to "any person using [de Menil's] boat with [de Menil's] permission, if within the scope of [de Menil's] permission" — applies to this case. (Seife Aff Ex. 2 "Definitions" ¶ 16, § B ¶ 9.) Because the Court finds that denial of coverage here is based on a "policy exclusion" rather than an "insurance policy [that] does not contemplate coverage in the first instance," Progressive was required to timely disclaim coverage in writing by virtue of section 3420(d). See, e.g. Worcester, 95 N.Y.2d at 190, 734 N.E.2d at 748, 712 N.Y.S.2d at 436; Handelsman, 85 N.Y.2d at 102, 647 N.E.2d at 1260-61, 623 N YS.2d at 752-53.
3. Reasonableness of delay of disclaimer
Pursuant to section 3420(d), "[a] failure by the insurer to give [notice of disclaimer] as soon as is reasonably possible after it first learns of the accident or of grounds for disclaimer of liability or denial of coverage, precludes effective disclaimer or denial." Hartford Ins. Co. v County of Nassau, 46 N.Y.2d 1028, 1029, 389 N.E.2d 1061, 1062, 416 N.Y.S.2d 539, 540 (construing former N.Y. Ins. § 167(8), now § 3420(d)); see also Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, 268-69, 265 N.E.2d 736, 738, 317 N.Y.S.2d 309, 313 (1970) (same);Wasserheit v. New York Centeral Mutual Fire Ins. Co., 271 A.D.2d 439, 440, 705 N.Y.S.2d 368, 639 (2d Dep't 2000); Underwriters Ins. Co. v. Chou, 2000 WL 1473607, at *5 (S.D.N.Y. Sept. 29, 2000). It is the insurance carrier's burden to explain the delay in notifying the insured or injured party of its disclaimer, and the reasonableness of any such delay must be determined from the time the insurance carrier was aware of sufficient facts to disclaim coverage. See Hartford Ins., 46 N Y2d at 1029, 389 N.E.2d at 1063, 416 N.Y.S.2d at 541; Prudential Prop. Casualty Ins. v. Persaud, 256 A.D.2d 502, 504, 682 N.Y.S.2d 412, 415 (2d Dep't 1998); U.S. Underwriters v. Congregation B'nai Israel, 900 F. Supp. 641, 647 (E.D.N.Y. 1995); Chou, 2000 WL 1473607, at *5.
The determination of whether an insurer disclaimed coverage in a reasonable amount of time is usually a question for the fact finder. See Hartford Ins., 46 N.Y.2d at 1030, 389 N.E.2d at 1062-63, 416 N.Y.S.2d at 541; Chou, 2000 WL 1473607, at *5. However, when the grounds for a disclaimer are readily apparent from the notice of claim, and there is no excuse for the delay, New York courts have found short delays to be unreasonable as a matter of law. See B'nai Israel, 900 F. Supp. at 647;Wasserheit, 271 A.D.2d at 440, 705 N.Y.S.2d at 640.
In this case, Progressive's delay of nearly twelve months in disclaiming coverage — i.e. the period from notice of the accident until this action was filed — was unreasonable as a matter of law. By its own admission, Progressive knew within days of receiving notice of the boat accident that any claim would not be covered by the policy, yet it gave no written notice to its insured. Progressive's explanation that there was no need to issue a formal notice of disclaimer because it believed the claim was being handled through worker's compensation insurance was imprudent at best; moreover, it is belied by the fact that Progressive knew by mid-November of 1998 that the Lamb estate was contemplating a lawsuit against de Menil, yet it still gave no notice.
Although it received confirmation "near the end of May 1999" (Rainbow Aff. ¶ 14) that the Lamb estate was filing a lawsuit against de Menil, it still took Progressive approximately six weeks to send a Reservation of Rights letter. Even so, such letters have "no relevance to the question whether the insurer has timely sent a notice of disclaimer of liability or denial of coverage." Hartford Ins., 46 N.Y.2d at 1029, 389 N.E.2d at 1062, 416 N.Y.S.2d at 541; see also Gross, 27 N.Y.2d at 269, 265 N.E.2d at 739, 317 N.Y.S.2d 313-14. The commencement of this declaratory judgment action on August 18, 1999 seeking an affirmative declaration of non coverage was the only writing in this case that satisfies the requirements of a proper written disclaimer pursuant to New York Insurance Law section 3420(d). See Gross, 27 N.Y.2d at 269, 265 N.E.2d at 739, 317 N.Y.S.2d 313-14; U.S. Underwriters Ins. Co. v. Held Brothers, Inc., 1998 WL 355425, at *3 (S.D.N.Y. June 30, 1998); Norfolk Dedham Mutual Fire Ins. Co. v. Petrizzi, 121 A.D.2d 276, 503 N.Y.S.2d 51 (1st Dep't 1986). Thus, Progressive did not effectively disclaim coverage until more than two months after it received formal notice of a claim against its insured, nine months after it received notice of the possibility of a claim, and nearly twelve months after it received notice of the accident from its insured.
Because the grounds for disclaimer were readily apparent from the moment Progressive received notice of the claim, and Progressive failed to timely disclaim, it cannot now disclaim coverage. See Hartford Ins., 46, N.Y.2d at 1030, 389 N.E.2d at 1063, 416 N.Y.S.2d at 541 (holding delay of more than two months unreasonable as a matter of law where no explanation was provided, but two month delay can be justified if an explanation is given by the insurer); Persaud, 256 A.D.2d at 504, 682 N.Y.S.2d at 415 (delay of two months in disclaiming coverage was unreasonable); Matter of Colonial Penn Ins. Co. v. Pevzner, 266 A.D.2d 391, 391, 698 N.Y.S.2d 310, 310 (2d Dep't 1999) (delay of 41 days was unreasonable); Mount Vernon Fire Ins. Co. v. City of New York, 236 A.D.2d 296, 296-97, 653 N.Y.S.2d 582, 583 (1st Dep't 1997) (83-day delay was unreasonable); Ward v. Corvally, 207 A.D.2d 342, 343-44, 615 N.Y.S.2d 430, 431-32 (2d Dep't 1994) (delay of more than two months was unreasonable).
4. Prejudice to the insured
The timeliness requirement of section 3420(d) is "not intended to be a technical trap that would allow interested parties to obtain more than the coverage contracted for under the policy." Excelsior Ins. Co. v. Antretter Contracting Corp., 262 A.D.2d 124, 127, 693 N.Y.S.2d 100, 104 (1st Dep't 1999). Progressive contends that American is using section 3420(d) as a "technical trap" because no potential party was prejudiced by the delay. However, Progressive is attempting to apply a common law requirement of prejudice to a statute which is designed to eliminate that requirement. See Worcester, 95 N.Y.2d at 190, 734 N.E.2d at 748, 712 N.Y.S.2d at 436 ("Section 3420(d) was enacted to avoid prejudice to an injured claimant who could be harmed by delay in learning the insurer's position."); Gross, 27 N.Y.2d at 313-14, 265 N.E.2d at 739, 317 N.Y.S.2d at 313 (The statute's time "limit depends merely on the passage of time rather than on . . . prejudice to the insured as in estoppel. Otherwise, there would have been little purpose for the statute.").
Furthermore, in Excelsior, the one case presented by Progressive finding that section 3420(d)'s timeliness requirement would create a "technical trap," the insurer did timely disclaim coverage to the insured's real party in interest. The defendant also tried to present the defense of untimeliness on the eve of trial, four years after the case commenced. See Excelsior, 262 A.D.2d at 127-28, 693 N.Y.S.2d at 104-05.Excelsior is completely distinguishable from the case at hand where Progressive did not give written notice to any party until nearly twelve months after receiving notification of the accident and where American included its section 3420(d) argument in its Amended Answer and Counterclaim. (Seife Aff. Ex. 15 at counterclaim ¶ 20.)
III. CONCLUSION
Progressive cannot disclaim coverage because (1) the insured's motor boat is not an "ocean going vessel," (2) denial of coverage was based upon a policy exclusion rather than non coverage, (3) Progressive's disclaimer was untimely as a matter of law, and (4) American does not need to show that it was prejudiced by Progressive's delay in disclaiming coverage. Progressive's motion for summary judgment is denied, and American's cross motion for summary judgment is granted. Progressive is ordered to indemnify American for $200,000 — the amount it paid to settle the Lamb claim.
SO ORDERED.