Johnson v. General Mut. Ins. Co.

• Decision Date: 20 February 1969
• Citation: 246 N.E.2d 713,24 N.Y.2d 42,298 N.Y.S.2d 937
• Parties: , 246 N.E.2d 713 Robert JOHNSON, an Infant, by Arthur Johnson, His Guardian ad Litem, et al., Plaintiffs-Respondents, v. GENERAL MUTUAL INSURANCE COMPANY, Respondent-Appellant, and Edward F. Kucskar, Appellant-Respondent. Gerard JOHNSON, an Infant, by Arthur Johnson, His Guardian ad Litem, et al., Plaintiffs-Respondents, v. GENERAL MUTUAL INSURANCE COMPANY, Respondent-Appellant, and Edward F. Kucskar, Appellant-Respondent. GENERAL MUTUAL INSURANCE COMPANY, Defendant and Third-Party Plaintiff-Appellant, v. AGENT'S SERVICE CORP. et al., Third-Party Defendants-Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 937

298 N.Y.S.2d 937

24 N.Y.2d 42, 246 N.E.2d 713

Robert JOHNSON, an Infant, by Arthur Johnson, His Guardian ad Litem, et al., Plaintiffs-Respondents, v. GENERAL MUTUAL INSURANCE COMPANY, Respondent-Appellant, and Edward F. Kucskar, Appellant-Respondent.

Gerard JOHNSON, an Infant, by Arthur Johnson, His Guardian ad Litem, et al., Plaintiffs-Respondents, v. GENERAL MUTUAL INSURANCE COMPANY, Respondent-Appellant, and Edward F. Kucskar, Appellant-Respondent.

GENERAL MUTUAL INSURANCE COMPANY, Defendant and Third-Party Plaintiff-Appellant, v. AGENT'S SERVICE CORP. et al., Third-Party Defendants-Respondents.

Court of Appeals of New York.

Feb. 20, 1969.

James E. Brearton, Troy, for appellant-respondent.

E. Edan Spencer and Walter Feller, New York City, for respondent-appellant and third-party plaintiff-appellant.

Francis J. Holloway and Warner M. Bouck, Albany, for plaintiffs-respondents.

John T. De Graff, Jr., Albany, for Agent's Service Corp., third-party defendant-respondent.

BREITEL, Judge.

Involved are an appeal and cross appeals on summary judgment, and the assessment of damages at a nonjury trial, in declaratory judgment actions arising out of an automobile accident and the wrongful cancellation of liability insurance covering the driver owner. The insured driver owner (Kucskar) appeals from the order of the Appellate Division, reducing his recovery against the insurer (General Mutual) from $3,000 to $500. The court permitted him to recover only his legal expenses in defending the personal injury tort action brought against him as a result of the accident, thus disallowing his expenses of defending the declaratory judgment actions and prosecuting his cross claims against the insurer, and also disallowing consequential damages resulting from the wrongful cancellation of his liability insurance. The insurer cross-appeals from the order reducing the judgment rendered against it on the ground that the cancellation of the insurance was proper if the notice of the cancellation was personally served, and whether there was such service constituted an issue of fact which could not be determined on summary judgment. The insurer also cross-appeals from a denial of summary judgment in its favor against Agent's Service Corp., a third-party defendant, on a prior appeal to the Appellate Division (26 A.D.2d 602, 271 N.Y.S.2d 428).

The insured is entitled to a modification awarding him damages for his expenses in defending these declaratory judgment actions. He may not, however, recover the expenses of prosecuting his cross claims against the insurer. On the other hand, the disposition of his claim for consequential damages resulting from the cancellation of his insurance should be without prejudice to his maintaining a separate action for that purpose. In such action he might show that he was unable to mitigate his damages, for example, by obtaining substitute insurance or by other appropriate measures. On the insurer's cross appeal against the insured, Kucskar, there should be an affirmance. The insurer's affidavits belie personal service of the notice of cancellation of insurance and, therefore, cancellation was ineffective and improper. The fact of notice may be relevant, however, in any action the insured may bring to recover consequential damages for the wrongful cancellation of his insurance. As for the cross appeal by the insurer against Agent's Service Corp. the issues were never developed properly in the insurer's affidavits, and, hence, affirmance of the denial of summary judgment against Agent's is required.

The present declaratory judgment actions were brought by Motor Vehicle Accident Indemnity Corporation (MVAIC), as subrogee, in the name of the infants injured (the Johnsons) in the automobile accident. It was sought to compel the insurer to defend separate tort actions which MVAIC had also brought on behalf of the injured infants against the insured. The insured was joined as a defendant in the declaratory judgment actions. He cross-claimed against the insurer to require the insurer to defend the pending tort actions and also for damages sustained by him in defending all the still pending actions brought by MVAIC, for prosecuting his cross claims, and for damages consequent on the wrongful cancellation of insurance. The insurer served a third-party complaint against the broker Ahearn, and Agent's Service Corp., the finance company which financed the payment of insured's premium for his liability insurance. Ahearn is not a party to this appeal.

The original tort action, brought by the injured infants and no longer pending, went to judgment on default, the insurer refusing to defend. The judgment was later vacated without prejudice, because a guardian ad litem had not been appointed for defendant Kucskar, then still an infant. MVAIC was then sued and the infant plaintiffs recovered judgment against it in their favor. In due course, MVAIC, as subrogee for the injured infants, sued the insured. These actions evidently are still pending.

Insured obtained insurance in June, 1961 through a broker, Ahearn, who arranged for the premium to be advanced by Agent's which, in turn, would be reimbursed in installments paid by the insured. On October 14, 1961 the accident occurred in which the infant plaintiffs were injured. On October 21, 1961 insured was notified by the insurer by letter that his insurance had been canceled as of September 24, 1961. The cancellation was based on mailed notices of termination sent September 11, 1961 to the insured and the insurer by Agent's, purportedly under the premium financing agreement. The assigned reason was a default in the payment of installments on the premium loan but, in fact, insured had paid the installment in question and Agent's, therefore, had no right to attempt cancellation of the insurance. Moreover, and this is critical in eliminating an issue of fact from the case, Agent's failed to give the insured 13 full days' notice of termination as required by statute in the event the notice is given by mail (Banking Law, § 576, subd. 1, par. (b)).

Summary judgment was rendered against the insurer in favor of the injured infants and insured requiring the insurer to defend the other tort actions and to pay any judgments rendered therein within the insurance policy limits. Insured was also granted summary judgment judgment on his cross claims against the insurer. On the assessment of damages, the trial court allowed insured all of his damages up to $3,000. The Appellate Division, however, modified the judgment by disallowing insured's expenses in the declaratory judgment actions and his claim for consequential damages (28 A.D.2d 945, 281 N.Y.S.2d 612). In limiting the litigation expense to the defense of the tort actions, the court relied on Doyle v. Allstate Ins. Co., 1 N.Y.2d 439, 154 N.Y.S.2d 10, 136 N.E.2d 484. It excluded the consequential damages sought for deprivation of insured's automobile operator's license and registration, as speculative and conjectural, even if it could sustain insured's theory of liability.

It is simplest to dispose of the insurer's cross appeal first. The courts below correctly found from the insurer's affidavits that Agent's notice of termination was sent by mail, and was not served personally. Since service by mail requires 13 full days' notice it was a nullity (Banking Law, § 576, subd. 1, par. (b); Johnson v. General Mut. Ins. Co., 48 Misc.2d 219, 224, 264 N.Y.S.2d 494, 499, affd. 26 A.D.2d 602, 271 N.Y.S.2d 428; Cannon v. Merchants Mut. Ins. Co., 35 Misc.2d 625, 230 N.Y.S.2d 282; cf. MVAIC v. Davidson, 56 Misc.2d 246, 249, 288 N.Y.S.2d 304, 307; see Rotsettis v. Nationwide Mut. Ins. Co., 58 Misc.2d 667, 297 N.Y.S.2d 333, affd. 31 A.D.2d 722, 297 N.Y.S.2d 712, mot. for lv. to app. den. 23 N.Y.2d 646, 299 N.Y.S.2d 1026, 247 N.E.2d 499). Consequently, it is not necessary to consider the effect of a timely notice without a proper basis, namely, nonpayment of a premium loan installment, which in fact had been paid.

The Doyle case (supra) does indeed stand for the proposition that the duty to defend and indemnify under standard policy provisions is confined to actions in which the insured may be cast in monetary damages. It also stands for the proposition that expenses incurred in an action to establish insurance coverage are not recoverable.

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