Green Bus Lines, Inc. v. Consolidated Mut. Ins. Co.

Decision Date14 April 1980
PartiesGREEN BUS LINES, INC., Appellant, v. CONSOLIDATED MUTUAL INSURANCE COMPANY, Respondent et al., Defendants.
CourtNew York Supreme Court — Appellate Division
Jerome Cooper, New York City (Douglas A. Cooper, New York City, of counsel), for appellant

Mudge, Rose, Guthrie & Alexander, New York City (John L. Altieri, Jr., Judah Gribetz and Donn A. Randall, New York City, of counsel), for respondent.

Before HOPKINS, J. P., and DAMIANI, TITONE and MANGANO, JJ.

DAMIANI, Justice.

This is a declaratory judgment action in which the plaintiff, Green Bus Lines, Inc. (hereinafter Green Bus), seeks a determination that the defendant Consolidated Mutual Insurance Company (hereinafter Consolidated or defendant) is obligated pursuant to a contract of insurance to defend and indemnify it in certain third-party actions which had been instituted against it. Two principal questions are raised on the appeal, one procedural, and one substantive. The first concerns whether Consolidated's failure to plead certain exceptions to the policy coverage as affirmative defenses constituted a waiver thereof. The second involves whether, if any or all of such exceptions were not waived, they relieve Consolidated of the duty to defend and indemnify plaintiff in the suits pending against it.

THE FACTS

The plaintiff operates a bus line. It is a self-insurer with regard to workers' compensation and motor vehicle liability. With respect to its garages, Green Bus took out a premises liability policy with the defendant Consolidated.

On July 2, 1973 a Green Bus employee named Joseph Butler was injured in the company garage when certain chemical solvents ignited and burned him. Butler won a workers' compensation case against his employer and it paid the award. Thereafter Butler sued the manufacturer of the solvents, Union Oil Company of California, and the distributor, Commercial Solvents Corp., on a products liability theory. Those parties then commenced third-party actions against Green Bus. Both third-party complaints allege that the prime plaintiff, Butler, was an employee of Green Bus and that he was injured during the course of his work. The third-party complaint of Commercial Solvents Corp. alleges that Butler sustained injuries "at the premises known as the Green Bus Lines, Inc. garage". The third-party complaint of the Union Oil Company of California asserts in addition that Butler was injured "when he was assigned by Green Bus Lines Inc. to use a certain liquid product to clean interior windows of buses at a garage located at 147th Street and Rockaway Boulevard". The third-party complaints also alleged that in the event Butler recovered against the third-party plaintiffs, then they, in turn, would have claims over against Green Bus based on indemnity for its negligence in, inter alia, failing to provide Butler with a safe place to work and in failing to properly instruct him in the proper use of the solvent.

Green Bus demanded that Consolidated defend and indemnify it in connection with the third-party actions. Consolidated refused and Green Bus commenced this action for a declaratory judgment alleging that Consolidated had issued a policy of insurance covering injuries occurring at its garage and that Butler was injured while working in the garage during the course of his employment. Consequently, Green Bus claimed that defendant had the duty to defend the third-party actions and to indemnify it in the event that it was held liable. The complaints in the two third-party actions were annexed to and made a part of the allegations of the complaint of Green Bus in the instant declaratory judgment action. The answer of defendant Consolidated admitted the existence of the policy, denied the other material allegations of the complaint and claimed that it provided no coverage with respect to the third-party actions.

The contract of insurance between the parties covers the garage premises at which Butler was injured and states "The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent".

Following this broad coverage provision the policy sets forth a lengthy list of exclusions from policy coverage. Three of the exclusion provisions arguably apply to the case at bar. They state, in relevant part:

"This insurance does not apply:

"(b) to bodily injury or property damage arising out of the ownership, maintenance, operation, use, loading or unloading of

(1) any automobile * * * owned or operated by * * * any insured;

"(i) to any obligation for which the insured or any carrier as his insurer may be held liable under any Workmen's Compensation * * * law;

"(j) to bodily injury to any employee of the insured arising out of and in the course of his employment by the insured or to any obligation of the insured to indemnify another because of damages arising out of such injury" (emphasis added).

THE PROCEDURAL ISSUE

At the trial of this action, Consolidated sought to rely upon the three above-quoted exceptions to policy coverage and Green Bus contended that they had been waived because defendant had failed to assert them as affirmative defenses in its answer. Plaintiff's contention was implicitly rejected by the trial court because it held that certain of the exclusions were applicable.

The principal object of plaintiff's present action for a declaratory judgment is to compel its insurer to provide it with a defense in the third-party actions. An insurer's duty to provide its insured with a defense is a heavy one and is broader than its duty to pay (Goldberg v. Lumber Mut. Cas. Ins. Co. of N.Y., 297 N.Y. 148, 154, 77 N.E.2d 131; International Paper Co. v. Continental Cas. Co., 35 N.Y.2d 322, 326, 361 N.Y.S.2d 873, 320 N.E.2d 619). The policy in this case provides that Consolidated has the duty "to defend any suit against the insured seeking damages on account of (bodily injury to which the insurance applies) * * * even if any of the allegations of the suit are groundless, false or fraudulent". The insurer's duty to defend under such a clause is generally to be determined by an examination of the allegations of the complaint in the underlying action regardless of whether those allegations square with objective truth or are utterly false or groundless (Goldberg v. Lumber Mut. Cas. Ins. Co. of N.Y., 297 N.Y. 148, 153-154, 77 N.E.2d 131, supra ). In order to successfully maintain an action to compel its insurer to undertake the defense of the third-party actions pending against it, Green Bus was required to plead and prove that the allegations of the complaint in the underlying action arguably refer to a case of bodily injury within the broad coverage provision of the policy. Consequently, all plaintiff had to show was that the underlying third-party complaints alleged that Butler suffered bodily injury due to an accident on the insured premises, that Butler had sued the third-party plaintiffs and that they had, in turn, made a claim over against it on a theory of indemnity (cf. Sachs v. American Cent. Ins. Co., 33 Misc.2d 816, 819-820, 227 N.Y.S.2d 873, mot. to vacate decision den. 34 Misc.2d 687, 689-692, 230 N.Y.S.2d 126, affd. 19 A.D.2d 538). Both third-party complaints meet this test.

In addition to the broad coverage provision, insurance policies often contain certain exceptions which are "inserted in the contract for the purpose of withdrawing Having established that the insurer has the burden of proving the applicability of the policy exclusions, the question then is whether it must plead such exclusions as affirmative defenses. Section 3018 of the CPLR governs the pleading of affirmative defenses, stating in relevant part:

from the coverage of the policy, as delimited by the general language describing the risk assumed, some specific risk which the underwriter declares himself unwilling to undertake" (Vance, Insurance (2d ed.), pp. 405-406, as quoted in Agricultural Ins. Co. v. Rothblum, Inc., 147 Misc. 865, 867, 265 N.Y.S. 7). The New York cases impose upon the insurer the burden of proving that the incident and claim thereunder come within the exclusions of the policy (International Paper Co. v. Continental Cas. Co., 35 N.Y.2d 322, 327, 361 N.Y.S.2d 873, 320 N.E.2d 619, supra ; Prashker v. United States Guar. Co., 1 N.Y.2d 584, 592, 154 N.Y.S.2d 910, 136 N.E.2d 871; Wagman v. American Fid. & Cas. Co., 304 N.Y. 490, 109 N.E.2d 592). In the International Paper Co. case (supra, p. 325, 361 N.Y.S.2d p. 875, 320 N.E.2d p. 621), the Court of Appeals observed that "if the insurer is to be relieved of a duty to defend it is obligated to demonstrate that the allegations of the (underlying negligence) complaint cast that pleading solely and entirely within the policy exclusions, and, further, that the allegations, in toto, are subject to no other interpretation."

"(b) Affirmative defenses. A party shall plead all matters which if not pleaded would be likely to take the adverse party by surprise or would raise issues of fact not appearing on the face of a prior pleading".

The existence of exceptions to the policy certainly may not be said to take Green Bus by surprise since it had a copy of the policy which was annexed to and made a part of its complaint (see Siegel, N.Y.Practice, § 223, p. 268, where it is observed that few defenses could satisfy the surprise criterion; cf. Carlson v. Travelers Ins. Co., 35 A.D.2d 351, 353-354, 316 N.Y.S.2d 398; 3 Weinstein-Korn-Miller, N.Y.Civ.Prac., par. 3018.16, p. 30-416). Accordingly, if Consolidated had an obligation to plead affirmatively in this...

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