Jefferson Ins. Co. of New York v. Travelers Indem. Co.

• Decision Date: 27 October 1998
• Citation: 92 N.Y.2d 363,681 N.Y.S.2d 208,703 N.E.2d 1221
• Parties: , 703 N.E.2d 1221, 1998 N.Y. Slip Op. 9252 JEFFERSON INSURANCE COMPANY OF NEW YORK, Respondent, v. TRAVELERS INDEMNITY COMPANY, Appellant, and Reliance Insurance Company, Respondent, et al., Defendants.
• Court: New York Court of Appeals Court of Appeals

Page 208

681 N.Y.S.2d 208

92 N.Y.2d 363, 703 N.E.2d 1221, 1998

N.Y. Slip Op. 9252

JEFFERSON INSURANCE COMPANY OF NEW YORK, Respondent, v. TRAVELERS INDEMNITY COMPANY, Appellant and Reliance Insurance Company, Respondent, et al., Defendants.

Court of Appeals of New York.

Oct. 27, 1998.

Werner & Kennedy, New York City (John M. Nonna, Brendan M. Kennedy, Patricia A. Taylor and Stephen T. Brewi, of counsel), for appellant.

Herzfeld & Rubin, P.C., New York City (David B. Hamm and Herbert Rubin, of counsel), for Jefferson Insurance Company of New York, respondent.

Pellini & Poblete, New York City (James Burbage and John T. Pellini, of counsel), for Reliance Insurance Company, respondent.

OPINION OF THE COURT

CIPARICK, Judge.

In addition to interpreting various insurance policy provisions in this case, we must decide whether the antisubrogation rule promulgated in Pennsylvania Gen. Ins. Co. v. Austin Powder Co., 68 N.Y.2d 465, 510 N.Y.S.2d 67, 502 N.E.2d 982 bars a claim of indemnity by an excess and primary carrier of insurance purchased by the owner of a leased van against the lessee's carrier.

This dispute among three insurers centers on coverage of an automobile accident involving a leased van driven by an employee of defendant Continental Copy Products, Ltd. and owned by defendant A-Drive Corporation. A-Drive, the owner/lessor, had purchased primary insurance for the van from Reliance Insurance Company and excess insurance from Jefferson Insurance Company. Continental Copy, the lessee, had purchased comprehensive coverage from Travelers Indemnity Company; the Travelers policy also contained an endorsement naming A-Drive as an insured under its policy. ^* The injured pedestrian, Teklia Perun, sued the driver and A-Drive as owner in the underlying personal injury action. She did not sue Continental Copy. As insurers of owner/lessor A-Drive, Reliance paid the entire $500,000 limit of its primary policy and Jefferson paid $400,000 of its $500,000 excess policy to settle Perun's claims against A-Drive.

Jefferson then brought this declaratory judgment action against Travelers and also named as defendants Reliance, A-Drive and Continental Copy, but only sought affirmative relief from Travelers. On Jefferson's motion, and Reliance and Travelers' cross motions, all for summary judgment, the courts below held Travelers liable for the entire $900,000 settlement amount under its $1 million general/contractual liability policy, with the exception of $10,000, which the courts determined was Reliance's exposure for this loss based on a "step-down" endorsement to its policy.

Jefferson and Reliance seek recovery under the Travelers policy. They make essentially two arguments under two distinct theories, both successful in the courts below. First, they argue that the endorsements to Travelers' policy with Continental Copy also made Travelers a primary insurer of A-Drive, and as such Travelers must share in covering A-Drive's loss. Second, on an indemnity theory, they argue that--because the rental agreement between A-Drive and Continental Copy required Continental Copy to indemnify A-Drive--Travelers as Continental Copy's insurer must indemnify Jefferson and Reliance as the insurers of A-Drive notwithstanding the antisubrogation rule.

Travelers is appellant here. It claims that it did not insure A-Drive at all but insured only Continental Copy. Although one endorsement We granted Travelers leave to appeal and we now modify the order of the Appellate Division by granting Travelers' motion for summary judgment against Reliance and by denying Reliance's motion for summary judgment. We conclude that (1) Jefferson and Reliance can recover against Travelers as a primary coinsurer of A-Drive under its $500,000 business auto policy; (2) the "step-down" endorsement to the Reliance policy did not limit Reliance's liability to $10,000; and (3) the antisubrogation rule does, in fact, bar the indemnity claim against Travelers as the insurer of Continental Copy. In essence, then, Travelers and Reliance, as primary coinsurers, will both be responsible for payment of the settlement amounts to the injured pedestrian.

to its policy states that A-Drive is to be included under a paragraph of the "WHO IS INSURED" provision and another endorsement states that "HIRED AND NON-OWNED COVERAGE IS HEREBY APPLICABLE," Travelers maintains that the lower courts were incorrect in determining that these endorsements created coverage for A-Drive, and that its delay in disclaiming coverage could create coverage, where, by its plain terms, no coverage ever existed for A-Drive under the policy. Even if it can be considered the insurer of A-Drive, Travelers contends that the lower courts nonetheless erred in concluding that it provided insurance under its general/contractual liability policy and instead should have been deemed an insurer only under its business auto policy and, if so, solely as an excess insurer based on its "OTHER INSURANCE" provision. Travelers also asks this Court to reexamine whether the "step-down" endorsement to Reliance's policy was effective to limit its coverage to $10,000.

I.

We first address whether Travelers' policy insured A-Drive. The lease between A-Drive and Continental Copy required A-Drive to "provide and maintain in full force and effect at its own expense, a standard form Vehicle Insurance Policy, * * * with minimum coverage * * * [for] Bodily Injury in the amount of $500,000 per person." It further provided that Continental Copy

"shall indemnify, protect and hold harmless A-Drive * * * from and against any and all claims, liabilities, losses, damages, injuries and expenses, including legal expenses, caused by, arising out of, or connected with the use or operation whether authorized or unauthorized * * * of the vehicle * * *. This indemnity shall survive termination of this lease."

In accordance with these provisions, A-Drive purchased the Reliance policy as primary insurance on the van, and additionally purchased $500,000 of excess insurance from Jefferson. The policy with Reliance had a "permissive user" clause that made "[a]nyone else * * * an insured while using with your permission a covered auto you own, hire or borrow." Jefferson's excess policy "followed the form" of the Reliance policy, incorporating the terms and conditions of the Reliance policy, such that liability triggered under the Reliance policy would also trigger liability under the Jefferson policy after the coverage limit was reached. No party disputes that the van involved in the dispute was a "covered auto" under the Reliance policy, and Jefferson does not contend that a provision in its policy excluded permissive users from its excess coverage.

Continental Copy purchased several types of coverage from Travelers, and based on the endorsements to this policy, Jefferson and Reliance claim recovery from Travelers as a primary insurer of A-Drive. Travelers counters that its endorsements provide no coverage for the van that A-Drive rented to Continental Copy.

The Travelers policy is really a three-fold policy, a general/contractual liability policy, a bodily injury policy and a business auto policy. One of Travelers' endorsements, "ADDITIONAL INSURED," includes A-Drive under "Paragraph 3 of the 'WHO IS INSURED' provision." The courts below considered this reference sufficient to make A-Drive an insured under the general/contractual liability portion of the policy, with its $1 million in coverage. However, this portion of the policy refers to a provision that appears only in the business auto policy.

The general liability section, by contrast, contains only a "PERSONS INSURED" portion. Thus, the courts below erred in holding that A-Drive was an insured under the general/contractual liability portion of the policy.

Travelers' interpretation that the endorsement does not provide any business auto coverage, however, fails to give the provision meaning and courts cannot read policy provisions to be meaningless (ZKZ Assocs. v. CNA Ins. Co., 89 N.Y.2d 990, 991, 657 N.Y.S.2d 390, 679 N.E.2d 629). Another attachment, however--the "Hired and Non-Owned Coverage" rider to Travelers' policy--provides the necessary explanation as to A-Drive's coverage. It is true that the van involved in the accident is not listed in the Travelers policy, but this is not the full picture. The declarations listed only vehicles Continental Copy owned. Thus, the rented van would not appear there. Instead, the specific change endorsement (bearing the same date as the "ADDITIONAL INSURED" endorsement) made "Hired and Non-Owned Coverage" applicable pursuant to another attachment that listed "N.Y." as the State in which such coverage would apply, and also listed a "Rate per each $100 cost of hire" and a premium amount. That the van is not specifically listed is not determinative in that this endorsement has no such requirement.

Travelers' efforts at avoiding coverage are further weakened by its failure to disclaim coverage after it received notice of the claim. Travelers is correct that estoppel cannot create coverage when none existed under the policy's terms (see, Zappone v. Home Ins. Co., 55 N.Y.2d 131, 447 N.Y.S.2d 911, 432 N.E.2d 783). However, where some ambiguity is present regarding the extent of coverage or any possible exclusions, the insurer must timely disclaim (see, Insurance Law § 3420[d]; Planet Ins. Co. v. Bright Bay Classic Vehicles, 75 N.Y.2d 394, 399-400, 554 N.Y.S.2d 84, 553 N.E.2d 562; Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, 317 N.Y.S.2d 309, 265 N.E.2d 736).

Based on the language of the endorsement, the question remaining is not whether A-Drive could be considered an insured, or whether coverage existed under any circumstances, but instead the nature and extent of coverage of A-Drive. The endorsement indicated that A-Drive was to be included in Paragraph 3 of the "WHO IS INSURED" provision, and any limitation on A-Drive's inclusion in the policy...