Hartford Ins. Group v. Rubinshteyn

Decision Date22 October 1985
Citation488 N.E.2d 98,66 N.Y.2d 732,497 N.Y.S.2d 352
Parties, 488 N.E.2d 98 HARTFORD INSURANCE GROUP, Respondent, v. Rakhel RUBINSHTEYN et al., Defendants, and Nationwide Insurance Companies, Appellant.
CourtNew York Court of Appeals Court of Appeals
OPINION OF THE COURT MEMORANDUM.

The order of the Appellate Division, 101 A.D.2d 826, 476 N.Y.S.2d 349, should be reversed, with costs, and the judgment of the Supreme Court, Kings County, reinstated.

In this declaratory judgment action, Hartford Insurance Group seeks a declaration that it is not obligated to defend 18th Avenue Garage, Inc. (Garage), its named insured under a Garage Hazard No. 1 policy, in negligence and wrongful death actions in which Garage is a named defendan arising from the alleged negligent operation of a vehicle sold by Garage to defendant Dennis Schwartz. The Appellate Division held that Hartford had no duty to defend or indemnify Garage because the circumstances surrounding the sale of the offending vehicle clearly indicated that the parties intended that title to the vehicle pass at the time of the sale. In that court's view, the vehicle therefore was not owned by Garage at the time of the accident and thus was not a "covered auto" under the policy notwithstanding that Garage's dealer license plates remained on the car.

We disagree and now reverse.

The determinative issue is not whether Garage was the "owner" of the offending vehicle at the time of the occurrence, or whether the omnibus clause of the Hartford policy extended coverage to Schwartz. Rather, the issue is whether the policy, by its terms, provides coverage to Garage in respect to this occurrence.

The policy names Garage, a used car dealer, as the insured, identifies its business as "auto dealer," and provides that Garage "is insured for any covered auto". Liability coverage is provided in connection with the "garage operations" of the insured for any "covered auto". A "covered auto" is expressly defined to include "any auto", as distinguished from "owned autos only", "owned private passenger autos only" and other descriptions of "covered autos" contained in Item Three of the policy. The phrase "garage operations" is defined to include "the ownership, maintenance or use of autos indicated * * * as covered autos * * * [and] also [to] include all operations necessary or incidental to a garage business".

It is clear from these policy provisions that there is no necessity for a vehicle to be "owned" by Garage in order for it to be a "covered auto" (see, Abrams v. Maryland Cas. Co., 300 N.Y. 80, 85, 89 N.E.2d 235) and that "any auto" is a "covered auto" if it is maintained or used in the insured's defined operations, which include all operations "necessary or incidental" thereto (Switzer v. Merchants Mut. Cas. Co., 2 N.Y.2d 575, 579, 161 N.Y.S.2d 867, 141 N.E.2d 904). The question then is whether the auto was being used in an operation "necessary or incidental" to the insured's used car dealership.

We have had occasion previously to remark upon the broad coverage provided by a garage liability policy such as the one at issue here, noting that such a policy "by its terms and purposes is intended to cover the use of cars owned by persons other than the dealer and the limited use of dealers' plates by vendees where the use and operation of the cars or the permission for the use of the plates are acts performed in furtherance of the business of a dealer. One of the services offered by a dealer in connection with the sale of a car is the temporary use of dealers' plates" (Phoenix Ins. Co. v. Guthiel, 2 N.Y.2d 584, 589, 161 N.Y.S.2d 874, 141 N.E.2d 909). In Switzer v. Merchants Mut. Cas. Co., 2 N.Y.2d 575, 161 N.E.2d 867, 141 N.E.2d 904, supra, a case decided the same day as Phoenix, we observed that "[i]t is common practice for automobile dealers to give permission to purchasers of their cars to use temporarily their dealers' license plates. Indeed, the law recognizes such practice, provides for and regulates it (Vehicle and Traffic Law, §§ 61-63 [now §§ 415, 416] )" (id., at p. 579, 161 N.E.2d 867, 141 N.E.2d 904).

Vehicle and Traffic Law § 416 permits a purchaser to operate a newly purchased vehicle on public highways for five days following purchase, provided that, among other things, the dealer plates are attached to the vehicle. Indeed, whether or not there had been a sale here, the only way Schwartz could lawfully drive the vehicle before having obtained his own license plates was with Garage's plates attached. Therefore, in permitting Schwartz to use the dealer plates, an arrangement that benefited both Schwartz and Garage, Garage was rendering a service to its customer that constituted an act "necessary or incidental" to its business (see, Phoenix Ins. Co. v. Guthiel, 2 N.Y.2d 584, 589, 161 N.Y.S.2d 874, 141 N.E.2d 909, supra; Tok v. The Hartford, 60 A.D.2d 251, 400 N.Y.S.2d 85). This act was a risk assumed "by the insurer, as the insurer is chargeable with knowledge of the business practices of automobile dealers" (Phoenix Ins. Co. v. Guthiel, 2 N.Y.2d 584, 589, 161 N.Y.S.2d 874, 141 N.E.2d 909, supra).

We hold therefore that Hartford is obligated under the policy provisions to defend Garage and indemnify it if necessary.

Dairylea Coop. v. Rossal, 64 N.Y.2d 1, 483 N.Y.S.2d 1001, 473 N.E.2d 251, does not require a different result. There we said that "[a] registered owner who transfers a vehicle without removing the license plates is estopped as against an injured third party from denying ownership, but the estoppel does not prevent his insurance carrier from denying ownership within the meaning of the policy as against another carrier" (id., at p. 10, 483 N.Y.S.2d 1001, 473 N.E.2d 251). Here, in a dispute between the carrier and its insured, where the occurrence is within the coverage of the policy, no question of estoppel is presented.

Titone, Judge (dissenting).

In this declaratory judgment action, the majority holds that an insurance carrier, which issued a standard garage liability policy, must defend and indemnify a garage against litigation arising from the alleged negligent operation of a vehicle that the garage had previously sold. Because the plain language of the policy explicitly excludes coverage in the present circumstances and the majority holding, which rests solely upon dicta taken out of context from an inapposite authority, will have mischievous consequences beyond the parameters of this case, I dissent.

The underlying facts, which are the skin and bones of this case, are stipulated. On April 1, 1980, defendant Dennis Schwartz purchased a 1978 Pontiac automobile from the 18th Avenue Garage, Inc. (Garage). Before taking possession, Schwartz paid the full purchase price and obtained an insurance binder from a broker for a policy of insurance issued by defendant Nationwide Insurance Company. Schwartz exhibited the binder to the Garage and was permitted to temporarily use dealer plates registered to the Garage (see, Vehicle and Traffic Law § 416). Three days later, while the dealer plates were still on the car, an individual, who was driving with Schwartz's permission, was involved in an accident in which one person was killed and two others seriously injured. Suit was brought against the Garage, among others.

Plaintiff, Hartford Insurance Group, which had issued a standard garage liability policy to the Garage, then commenced this action seeking a declaration that it is not required to defend or indemnify the Garage in the personal injury and wrongful death litigation. Special Term held that the procurement of the Nationwide policy did not supersede the Hartford policy and that plaintiff was required to defend and indemnify the Garage, if necessary.

The Appellate Division, Second Department, unanimously reversed. Examining the policy provisions, it found that neither Schwartz nor the operator of the vehicle were insureds under the policy and that any coverage which might have existed for them as customers of the Garage ceased when they obtained the Nationwide policy. Further, the Appellate Division reasoned that plaintiff was obligated to defend and indemnify only if the Garage owned the vehicle on the day of the accident, and, unlike the Garage, was not estopped from denying ownership. Since the evidence established that title had passed when Schwartz took possession, the Appellate Division made a declaration in plaintiff's favor. I would affirm.

To place the question before us in proper context, it is useful to restate some basic principles. New York is a compulsory insurance State, and a motor vehicle may not be registered, absent certain exceptions, unless and until the owner furnishes proof that a liability policy has been issued by an authorized insurer, containing, among other things, an omnibus clause which covers the owner and anyone operating the vehicle with the owner's permission (Insurance Law § 3420[e]; Vehicle and Traffic Law § 312[1][a] ). In addition, by virtue of Vehicle and Traffic Law § 388, the negligence of any person operating the vehicle with the owner's permission is statutorily imputed to the owner in any personal injury litigation, making the owner and operator jointly and severally liable (see, Naso v. Lafata, 4 N.Y.2d 585, 590, 176 N.Y.S.2d 622, 152 N.E.2d 59; Traub v. Dinzler, 309 N.Y. 395, 131 N.E.2d 564; Hatch v. Lovejoy, 142 Misc. 137, 254 N.Y.S. 35; 1 NY PJI2d 568). * In this fashion, an injured plaintiff is theoretically guaranteed a solvent defendant, at least up to the statutory minimum set for compulsory insurance.

An automobile cannot, of course, be operated on a public highway without license plates (Vehicle and Traffic Law §§ 401, 402). Often, however, a purchaser will want to drive the vehicle before the registration process is completed. The law recognizes this contingency...

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