American Home Assur. Co. v. Employers Mut. of Wausau

• Decision Date: 09 December 1980
• Parties: AMERICAN HOME ASSURANCE CO., Plaintiff-Respondent, v. EMPLOYERS MUTUAL OF WAUSAU, Defendant-Appellant, and Santiago Suarez and Rose Suarez, Defendants-Respondents, Luigi Chinetti Motors, Inc., Defendant.
• Court: New York Supreme Court — Appellate Division

Page 7

434 N.Y.S.2d 7

77 A.D.2d 421

AMERICAN HOME ASSURANCE CO., Plaintiff-Respondent, v. EMPLOYERS MUTUAL OF WAUSAU, Defendant-Appellant and Santiago Suarez and Rose Suarez, Defendants-Respondents Luigi Chinetti Motors, Inc., Defendant.

Supreme Court, Appellate Division, First Department.

Dec. 9, 1980.

Anthony J. McNulty, New York City, of counsel (William F. McNulty, New York City, with him on brief; Hendler & Murray, New York City), for defendant-appellant.

Stanley Wilkins, New York City, of counsel (Smith, Mazure & Wilkins, New York City, P. C.), for plaintiff-respondent.

Ira Bartfield, New York City, of counsel (Fuchsberg & Fuchsberg and Irving Brand, New York City), for defendants-respondents.

Before MURPHY, P. J., and SULLIVAN, LUPIANO, SILVERMAN and YESAWICH, JJ.

SULLIVAN, Justice.

At issue are the validity and enforceability of a provision in a Connecticut-issued automobile liability insurance policy excluding coverage for bodily injury arising out of the insured's ownership "of any automobile while rented to others." After tender of the issue in an agreed statement of facts, Trial Term found that the substantive law of New York, where the accident occurred applied, and that the rental exclusion contravened New York's public policy and was therefore invalid. We disagree and reverse.

Chinetti, an automobile dealer in the business of selling foreign cars, with its principal place of business in Greenwich, Connecticut and an office in New York, was insured by Employers Mutual under a Combination Casualty Policy issued in Connecticut for a one-year term commencing June 14, 1975. The policy included Garage Liability insurance which provided bodily injury liability coverage for Chinetti-owned automobiles with limits of $500,000 each person and $1,000,000 each occurrence.

Employers had certified to the State of Connecticut that its policy on Chinetti's dealer-owned automobiles was issued in conformity with the laws of Connecticut, and sixteen months before the policy's issuance the New York State Department of Insurance had also approved Employers' Garage Liability form. The policy also contained a New York State mandatory personal injury protection endorsement providing for the payment of first party benefits.

On January 25, 1974, American Home had issued an Umbrella Liability Policy to Chinetti for a three-year term commencing January 27, 1974, with a $1,000,000 limit on any one occurrence for personal injury liability in excess of Employers' underlying Garage Liability coverage of $500,000/$1,000,000 or in excess of $10,000 with respect to each occurrence not covered by Employers' underlying insurance. ¹

On October 30, 1975, within the term of each of these policies, a Chinetti-owned Ferrari, registered in Connecticut, was involved in an accident in Nassau County, New York, on a public road which the police had closed to traffic. As a result, one Santiago Suarez sustained serious physical injuries, for which he and his wife have instituted an action in New York against Chinetti and others for damages. The Ferrari, which had been garaged at Chinetti's Connecticut showroom, had been rented in Connecticut to Chance Three Productions, Inc. for use in filming a Revlon commercial, and was delivered by truck to the site of the filming in Nassau County. Although not in the car rental business, Chinetti occasionally did rent its automobiles but without Employers' knowledge.

At the time of the accident the Ferrari was being operated by Lawrence Gotch, a Chance employee, who was insured under an automobile liability policy issued by Allstate Insurance Company which provided bodily injury limits of $100,000/$300,000, and included coverage for accidents involving a non-owned vehicle. In addition, both Chance and Revlon, which with Gotch are defendants in the Suarez action, were covered by an automobile liability insurance policy at the time of the accident.

Employers disclaimed coverage, citing exclusion (e)(2)(ii) of the Garage Liability section which provides that the policy does not apply

to bodily injury or property damage arising out of the ownership, maintenance, operation, use, loading or unloading of any automobile while rented to others by the named insured unless to a salesman for use principally in the business of the named insured. (Emphasis added.)

Thereafter American brought this action, initially only against Employers, but to which, pursuant to prior order of this court (64 A.D.2d 563, 406 N.Y.S.2d 826), the Suarezes and Chinetti have been made parties, ² seeking a declaration that Employers' rental exclusion is null and void. American contends that exclusion clauses of the type here involved have uniformly been considered violative of the public policy of New York and found to be unenforceable.

In applying New York law to the determination of whether the rental exclusion was valid, Trial Term relied upon numerous factors including Chinetti's maintenance of a branch office in New York, a covered location in Employer's policy; the rental of the Ferrari by Chinetti with knowledge that it was to be used in New York; the New York residency of the injured party, Suarez ³ and, of course, the occurrence of the accident on a public road here. In our view these factors are not persuasive. No evidence exists to suggest that Chinetti's New York office played any role in the transaction. The Ferrari was garaged, registered, rented and delivered to the lessee, Chance, in Connecticut. And while it may be fairly inferred that Chinetti was aware that the Ferrari was to be driven only in New York during the term of the rental agreement, inasmuch as it was transported here by truck, Chinetti's knowledge is neither binding on Employers nor relevant to the interpretation of an insurance contract written four and one-half months earlier. Thus, the situs of the accident is New York's only material, albeit not insignificant, nexus to this occurrence.

At least until 1954 the traditional New York conflict of laws rule in contractual matters had been that "All matters bearing upon the execution, the interpretation and the validity of contracts ... (were) determined by the law of the place where the contract (was) made", as distinguished from matters relating to their performance, which were "regulated by the law of the place where the contract, by its terms, (was) to be performed." (Swift & Co. v. Bankers Trust Co., 280 N.Y. 135, 141, 19 N.E.2d 992; Union National Bank v. Chapman, 169 N.Y. 538, 543, 62 N.E. 672; see, also, Zwirn v. Galento, 288 N.Y. 428, 43 N.E.2d 474; United States Mtge. & Trust Co. v. Ruggles, 258 N.Y. 32, 38, 179 N.E. 250.)

In Auten v. Auten, 308 N.Y. 155, 124 N.E.2d 99, decided in 1954, the Court of Appeals, relying, in part, upon its earlier decision in Rubin v. Irving Trust Co., 305 N.Y. 288, 305, 113 N.E.2d 424, applied the more flexible "center of gravity" or "grouping of contacts" test (id. 308 N.Y. at 160, 124 N.E.2d 99) in determining whether a wife's institution of a separation action in England operated as a rescission and repudiation of her right to support payments under a separation agreement executed in New York. The court noted, however, that "even if we were not to place our emphasis on the law of the place with the most significant contacts, but were instead simply to apply the rule that matters of performance and breach are governed by the law of performance, the same result would follow" because the parties could not "have expected or believed that any law other than England's would govern the effect of the wife's institution of a separation action." (Id. at 163, 124 N.E.2d 99.)

The Auten "center of gravity" or "grouping of contacts" rule continues to be the test in contract actions (see, e. g., International Planning, Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 300 N.Y.S.2d 817, 248 N.E.2d 576) and has also been applied in tort actions (see Babcock v. Jackson, 12 N.Y.2d 473, 240 N.Y.S.2d 743, 191 N.E.2d 279). But even while adhering to the view that the traditional conflict of laws rule should "no longer be slavishly followed", the Court of Appeals has held that the place where the contract was made is still "a significant contact in applying the center of gravity rule." Matter of Havemeyer, 17 N.Y.2d 216, 221, 270 N.Y.S.2d 197, 217 N.E.2d 26.)

Employers Liab. Assur. Corp. v. Aresty, 11 A.D.2d 331, 205 N.Y.S.2d 711, aff'd 11 N.Y.2d 696, 225 N.Y.S.2d 764, 180 N.E.2d 916, decided by this court after Auten, presents a striking parallel to the case at bar. An automobile liability insurance policy had been issued in New York without the specific provision required to cover an insured's liability to his spouse for death or personal injuries (see Insurance Law § 167(3)). After the policy became effective, the insured moved to Connecticut, thus prompting the issuance in New York of a change-of-address indorsement and a refund of a portion of the premium. Thereafter, the automobile covered by the policy was involved in an accident in Connecticut, and as a result the insured's wife commenced a personal injury action against him. The insurer sought a declaration that it was not obligated to defend or to pay any judgment which might be entered against the insured as a result of such a lawsuit. Rejecting the argument that the issuance of the indorsement and premium refund constituted the making of a new contract so as to subject the policy to the application of Connecticut law, the effect of which, presumably, would be the inclusion of the insured's liability to his spouse within the policy's embrace, this court held:

The execution, interpretation and validity of a contract is determined by the law of the place where the contract is made.

The obligations of the parties thereunder are similarly determined. (Swift & Co. v. Bankers Trust Co., 280 N.Y. 135 (19 N.E.2d 992).) The exception to this general rule is where the parties at the time of the making of the contract...