Belmer v. Nationwide Mut. Ins. Co.

Decision Date03 May 1993
Citation599 N.Y.S.2d 427,157 Misc.2d 845
PartiesEdward BELMER, Plaintiff, v. NATIONWIDE MUTUAL INSURANCE COMPANY, Monte Carlo Auto Repair, Inc., Joann Fiorito and Angela Rivera, Defendants. NATIONWIDE MUTUAL INSURANCE COMPANY, Third-Party Plaintiff, v. RELIANCE INSURANCE COMPANY, Third-Party Defendant. Civil Term Part 13
CourtNew York Supreme Court

Stuart M. Herz, Garden City, for plaintiff Edward Belmer.

Smith, Mazure, Director & Wilkins, P.C., New York City, for defendant/third party plaintiff Nationwide Mut. Ins. Co.

Martin, Fallon & Mulle, Huntington, for defendant Monte Carlo Auto Repair.

Becker, Achrion & Isserlis, Lynbrook, for defendant Fiorito and third-party defendant Reliance Ins. Co.

Burns & Hernandez, New York City, for defendant Angela Rivera.

HERBERT KRAMER, Justice.

Plaintiff herein, the defendant driver in the underlying negligence action, seeks a summary declaration (CPLR § 3212) adjudging the defendant Nationwide Mutual Insurance Co. (hereinafter, "Nationwide") liable for defense costs in the underlying action. Third Party defendant, Reliance Insurance Company (hereinafter, "Reliance") cross moves for an order granting summary judgment.

Defendant Fiorito was the owner of the vehicle which struck a pedestrian. Fiorito had previously delivered her automobile to defendant Monte Carlo Auto Repair, Inc. (hereinafter, "Monte Carlo") for a tune up. 1

In the underlying action, the pedestrian, Rivera, alleged that Belmer was operating the vehicle owned by Fiorito, with her knowledge, permission and consent and within the course of his employment with Monte Carlo.

Both carriers initially declined to defend based on a lack of permission to drive the vehicle. Nationwide additionally declined because the vehicle was not being used in the course of Belmer's employment, claiming he was not test-driving the vehicle as part of the "repair or servicing" of the vehicle.

Reliance thereupon retained separate counsel to represent Belmer, the operator of the Fiorito vehicle.

The underlying action was settled on June 2, 1992 for $80,000 of which Nationwide agreed to pay $75,000 and Reliance $5,000. 2 The Nationwide policy had $300,000 liability coverage while the Reliance policy had $10,000 liability coverage.

CONTENTIONS

Belmer and Reliance contend that Nationwide had the sole obligation to defend the driver pursuant to the terms of the Nationwide garage owner's policy. 3

Reliance contends that Belmer was test-driving the vehicle in furtherance of Monte Carlo business after the vehicle had been serviced by Monte Carlo at Fiorito's request.

Nationwide contends that it has not clearly been established that Belmer was driving the vehicle with permission of the owner and that they had no duty to defend and that Reliance should bear the full cost of defense.

DISCUSSION

The duty to defend arises out of and is governed by the allegations in the complaint for which the insured may stand liable, and which fall within the risk covered by the policy and is greater than the duty to pay; Everlast Sporting Goods Mfg. Co. v. Aetna Ins. Co., 23 A.D.2d 641, 256 N.Y.S.2d 991; Goldberg v. Lumber Mut. Cas. Ins. Co., 297 N.Y. 148, 77 N.E.2d 131; Ross v. Maryland Cas. Co., 11 A.D.2d 1002, 205 N.Y.S.2d 951; aff'd, 9 N.Y.2d 876, 216 N.Y.S.2d 695, 175 N.E.2d 826; Touchette Corp. v. Merchants Mutual, 76 A.D.2d 7, 429 N.Y.S.2d 952; Calkins v. Merchants Mut., 59 A.D.2d 1052, 399 N.Y.S.2d 811; International Paper v. Continental Cas., 35 N.Y.2d 322, 361 N.Y.S.2d 873, 320 N.E.2d 619, Appleman, Insurance Law & Practice (Berdal ed.), § 4691; Couch on Insurance 2d, 51:35.

Since the underlying complaint alleges that the vehicle involved in the accident was driven with the permission and authority of the owner, Reliance owes the driver a duty to defend; Colon v. Aetna Life Ins. & Cas. Ins. Co., 66 N.Y.2d 6, 494 N.Y.S.2d 688, 484 N.E.2d 1040 (1985); Insurance Law § 3420.

Test-driving a vehicle recently repaired at a service station is at least "incidental to a garage business", and thus Nationwide owed the driver a duty to defend, 12 Couch on Insurance 2d, 45:119; North E. Ins. Co. v. Woodside, 103 Misc.2d 1016, 427 N.Y.S.2d 367. Thus both carriers owed the plaintiff driver the duty to defend based on the allegations of the underlying complaint.

We must then turn to the "Other Insurance" provisions in each policy. The Nationwide policy, by the terms of the "Other Insurance" Clause, requires it to be excess as to a non-owned vehicle. The Reliance policy is pro rata to all other valid insurance. Where the policies are in conflict, an excess policy for a non-owned vehicle remains excess where an owned vehicle policy has a pro rata clause, Farmingdale Fire District v. GEICO, 58 Misc.2d 978, 297 N.Y.S.2d 257; 8A Appleman, Ins. Law & Practice, § 4909.25; 71 NY Jur.2d, Insurance § 1894. Thus, the Reliance policy is deemed the primary policy and the Nationwide policy excess.

It should be noted that we are not dealing herein with a previously designated policy of primary and excess coverage for specified risk and insured. 4 We are dealing with coincidental mutual coverage, that is, as herein, where coverage is based on the mere fortuitous nature of the incident, where a vehicle, which was being test-driven by an employee of Monte Carlo at the time of the accident, struck a pedestrian.

State and federal courts have considered the issue of allocation of defense costs between primary and excess insurers; Defense Costs--Primary and Excess Insurers, 19 ALR 4th 107.

New York holds with the majority of the states, that where the ad damnum is within the limits of primary coverage or no possibility exists of payment by the excess carrier, no obligation to defend of the excess carrier is created. Downey v. Merchants Mutual, 30 A.D.2d 171, 291 N.Y.S.2d 726; Financial Indemnity Co. v. Colonial Ins. Co., 132 Cal.App.2d 207, 281 P.2d 883; c.f. McFarland v. Chicago Exp. Ins., 200 F.2d 5; P.L. Kanter Agency Inc. v. Continental Casualty Co., 541 F.2d 519; American Surety v. State Farm Mutual Auto Ins., 274 Minn. 81, 142 N.W.2d 304; Bettenberg v. Employers Liability Assur. Corp., 350 F.Supp. 873.

How the costs of defense are to be allocated is treated differently in different jurisdictions.

The majority view seems to be that defense costs, in cases of coincidental mutual coverage, should be apportioned among insurers in accordance with the contribution to the payment of the loss, unless there are contractual provisions otherwise.

Several New York courts have similarly held that an excess carrier is entitled to reimbursement by the primary carrier for costs of defense where the recovery was within the primary limit. Mandell Corp. v. INA, 125 Misc.2d 390, 479 N.Y.S.2d 452; Broome County Co-op Fire Ins. Co. v. Aetna Life & Casualty, 75 Misc.2d 587, 347 N.Y.S.2d 778; Dankoff v. Bowling Proprietors Assn., 69 Misc.2d 658, 331 N.Y.S.2d 109; Crowley's Milk Co. v. American Mut. Liability Ins. Co. 313 F.Supp. 502 (E.D.N.Y.).

In Continental Casualty Co. v. Zurich Ins. Co., 57 Cal.2d 27, 17 Cal.Rptr. 12, 366 P.2d 455, the court held that costs of defense are payable in the same ratio as the judgment, relying upon general principles of equitable subrogation, c.f. Federal Ins. Co. v. Atlantic Ins. Co., 25 N.Y.2d 71, 302 N.Y.S.2d 769, 250 N.E.2d 193; Hartford Accident & Indemnity Co. v. Civil Service Employees Ins. Co., 33 Cal.App.3d 26, 108 Cal.Rptr. 737; Travelers Ins. Co. v. Norwich Union Fire Ins. Soc., 221 Cal.App.2d 150, 34 Cal.Rptr. 406. Where a claim was over the limits of the primary policy, the primary and excess insurers were each liable for a pro rata share of the defense in proportion to the amount each paid on the claim; American Fidelity Ins. Co. v. Employers Mut. Casualty Co., 3 Kan.App.2d 245, 593 P.2d 14.

Some courts have held that where the recovery was not yet determined or was within the primary limit, the excess insurer was not required to contribute to the cost of defense. The Court in Financial Indemnity Co. v. Colonial Ins. Co., 132 Cal.App.2d 207, 281 P.2d 883, reasoned that there was no right of contribution from one insurer to another because the duty to defend is between the insured and each insurer. They found that the excess carrier did not have a duty to the other insurer, c.f. McFarland v. Chicago Exp. Ins., 200 F.2d 5; P.L. Kanter Agency Inc. v. Continental Casualty Co., 541 F.2d 519; American Surety v. State Farm Mutual Auto Ins., 274 Minn. 81, 142 N.W.2d 304; Bettenberg v. Employers Liability Assur. Corp., 350 F.Supp. 873.

Where the excess carrier provides the defense, generally they have a right to be reimbursed for defense costs where the recovery was within the primary limit or was not yet determined; Travelers Ins. Co. v. Norwich Union Fire Ins., 221 Cal.App.2d 150, 34 Cal.Rptr. 406; Pacific Indemnity Co. v. Universal Underwriters Ins. Co., 232 Cal.App.2d 541, 43 Cal.Rptr. 26; Cunningham v. Austin Ford, Inc., 189 So.2d 661, cert. dism'd, 198 So.2d 829; Fireman's Fund Indemnity Co. v. Freeport Ins. Co., 30 Ill.App.2d 69, 173 N.E.2d 543.

In a case factually similar to the case at bar, the Court held the liability policy of an auto repairman excess and the owner's policy primary and found that the primary insurer was liable for costs of defense of an action against the repairman for damages resulting from an accident while the repairman was driving the vehicle. The excess carrier assumed the defense and settled the claim for an amount less than the limits of the primary policy and therefore as excess insurer was entitled to be reimbursed for the costs of defense; Western Pacific Ins. Co. v. Farmers Ins., 69 Wash.2d 11, 416 P.2d 468.

Where a settlement exceeded the primary coverage the excess carrier was not responsible for the cost of defense since there was no agreement between the insurers to share the cost of defense, Federated Mut. Ins. Co. v. Pennsylvania Nat. Mutual Co., 480 F.Supp. 599, aff'd, ...

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