Lavanant v. General Acc. Ins. Co. of America

• Decision Date: 04 June 1992
• Citation: 584 N.Y.S.2d 744,79 N.Y.2d 623,595 N.E.2d 819
• Parties: , 595 N.E.2d 819 Suzanne LAVANANT, et al., Respondents, v. GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA, Appellant, and Chubb Group of Insurance Companies, et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 744

584 N.Y.S.2d 744

79 N.Y.2d 623, 595 N.E.2d 819

Suzanne LAVANANT, et al., Respondents, v. GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA, Appellant and Chubb Group of Insurance Companies, et al., Respondents.

Court of Appeals of New York.

June 4, 1992.

Terrence P. O'Reilly, Armonk, for appellant.

Irwin Brownstein and Richard E. Hershenson, New York City, for Suzanne Lavanant, et al., respondents.

John C. Young, New York City, for Federal Ins. Co., respondent.

Daniel E. Troy, Thomas W. Brunner and Stephen P. Keim, Washington, D.C., of the District of Columbia Bar, admitted pro hac vice, for American Ins. Ass'n et al., amici curiae.

OPINION OF THE COURT

KAYE, Judge.

This appeal by an insurer presents an issue that has divided courts in other jurisdictions but remains open here: whether coverage for "bodily injury" includes emotional distress resulting from the insured's negligent conduct, where no physical injury or contact is involved. We conclude that in the circumstances presented, mental injury alone is covered.

I.

Plaintiffs are the owner and managing agent of a four-story brownstone located on East 24th Street in Manhattan. The property was insured under two policies. The first, a comprehensive general liability policy issued by defendant General Accident Insurance Company of America, provided coverage of up to $500,000 for each occurrence. The second, an umbrella policy issued by defendant Federal Insurance Company, provided excess liability coverage of $10,000,000 over General Accident's occurrence limit.

General Accident's policy--the one directly in issue in this case--provided coverage for bodily injury and property damage. "Bodily injury" was defined as "bodily injury, sickness or disease."

In 1984, during renovation of the premises, a portion of the ceiling collapsed in the apartment rented by Emilio Belliti and Victor Rizika. In a single action, they sought damages from plaintiffs for personal injury and property damage, alleging negligence, intentional infliction of emotional distress, assault, and breach of warranty of habitability. The complaint did not allege any physical injury or contact.

Upon receiving notification of the action, General Accident undertook the defense, reserving its rights on certain questions of coverage. Federal took no action until 1988, when it acknowledged the negligence cause of action and disclaimed liability as to the remaining claims.

Concerned with assigned counsel's handling of the case, plaintiffs substituted their own counsel. On the day of the substitution, and over plaintiffs' objection, General Accident settled the property damage claim under the first cause of action for $50,000. The second and third causes of action-- on intentional conduct--were dismissed by the trial court prior to submission to the jury. In 1988, the jury awarded the tenants $400,000 for personal injuries--including emotional distress--on their negligence claim and $5,226 on the breach of warranty claim; a punitive damage award of $2,500,000 was set aside by the trial court. Judgment was entered in the amount of $410,738, which was affirmed on appeal (Belliti v. Lavanant, 151 A.D.2d 1051, 544 N.Y.S.2d 404, lv. denied 75 N.Y.2d 702, 551 N.Y.S.2d 906, 551 N.E.2d 107).

While the tenants' appeal was pending, plaintiffs commenced this action against General Accident seeking indemnity for the judgment and attorneys' fees. ¹ In response to plaintiffs' motion for partial summary judgment, General Accident argued both that the damages award was based on intentional conduct and thus outside the scope of coverage, and that there was no coverage for emotional distress in the absence of physical injury or contact. Supreme Court granted plaintiffs partial summary judgment, to the extent of requiring General Accident to indemnify them for the judgment in the tenants' action, plus interest, attorneys' fees and costs incurred in defending that action; it severed plaintiffs' claims for punitive damages and attorneys' fees incurred in the present action, which remain pending in the trial court. The court based its holding on the intentional conduct issue and did not reach the question of coverage for purely mental injury.

While noting that the issue appeared to present a case of first impression in New York, the Appellate Division rejected General Accident's assertion that coverage would not attach without physical injury or contact, and held that "bodily injury" includes "the emotional and psychological effects of incidents that are otherwise covered by the policy." (164 A.D.2d 73, 79, 561 N.Y.S.2d 164.) ² In a separate order, the Appellate Division affirmed Supreme Court's award of $104,624 for attorneys' fees and costs incurred by plaintiffs in defending the tenants' action, 176 A.D.2d 618, 575 N.Y.S.2d 60.

General Accident appeals both determinations, arguing that emotional distress without physical injury or contact does not constitute "bodily injury" under the terms of its policy, and that Supreme Court erred in calculating attorneys' fees. Both the order affirming the attorneys' fees award and the prior nonfinal order granting partial summary judgment are reviewable by this Court (see, CPLR 5501[a], but on the merits the insurer's arguments must be rejected.

II.

General Accident first urges that the issue of coverage for pure emotional distress is controlled by prior decisions of this Court, pointing to Brustein v. New Amsterdam Cas. Co., 255 N.Y. 137, 174 N.E. 304 and Rosman v. Trans World Airlines 34 N.Y.2d 385, 358 N.Y.S.2d 97, 314 N.E.2d 848). Neither case governs the issue before us.

Brustein and its progeny concern loss of services claims by spouses of injured persons (see, e.g., Floyd v. Consolidated Indem. & Ins. Co., 237 App.Div. 190, 261 N.Y.S. 61). In Brustein, the Court distinguished between the broad term "personal injury," which encompasses loss of services claims, and the narrower term "bodily injury," which does not. General Accident argues that emotional injury likewise falls within the broad category of personal injury but cannot be considered bodily injury.

Mere statement of those cases exposes the distinction. Loss of services claims are derivative; there are no allegations that plaintiff suffered any direct injury--physical or mental. The insurer's obligation to compensate for bodily injury does not extend to derivative claims for loss of services which occurred as a result of physical injuries suffered by a third person (see, County of Chemung v. Hartford Cas. Ins. Co., 130 Misc.2d 648, 650, 496 N.Y.S.2d 933). The insurance policy in Brustein, moreover, covered "bodily injuries or death." That policy lacked any definition of "bodily injury" comparable to the one in the present case, which adds the terms "sickness and disease."

Nor is Rosman controlling. In Rosman this Court considered whether the phrase "death or wounding * * * or any other bodily injury" contained in the Warsaw Convention created liability for psychic trauma not resulting from impact (34 N.Y.2d, at 388, 358 N.Y.S.2d 97, 314 N.E.2d 848). Analysis began with the fact that the Warsaw Convention was a major international agreement signed by more than 100 nations that had as a primary objective the limitation of liability for air carriers in case of accident (34 N.Y.2d, at 390, 358 N.Y.S.2d 97, 314 N.E.2d 848). As a treaty, the Convention was to be given a liberal construction in order to effectuate its purposes (34 N.Y.2d, at 395, 358 N.Y.S.2d 97, 314 N.E.2d 848). It was against this backdrop that the Court held the term "bodily injury" as used in the treaty excluded mental injury without bodily manifestations (34 N.Y.2d, at 397, 358 N.Y.S.2d 97, 314 N.E.2d 848).

The present case is different in several important respects. First, we are interpreting not an international treaty aimed at limiting liability, but a private contract of insurance. Second, the clause at issue in Rosman did not include the terms "sickness" and "disease," but spoke of "wounding" and bodily injury, plainly contemplating something physical.

Pertinent also is the fact that the Warsaw Convention was drafted more than 60 years ago, when liability for emotional distress was more circumscribed (see, Eastern Airlines v. Floyd, 499 U.S. ----, ----, 111 S.Ct. 1489, 1498, 113 L.Ed.2d 569 [noting that many jurisdictions did not recognize recovery for mental injury at the time of the Convention]. New York itself did not recognize recovery for purely mental injuries until 1961 (see, Battalla v. State of New York, 10 N.Y.2d 237, 219 N.Y.S.2d 34, 176 N.E.2d 729; see also, Eastern Airlines v. Floyd, 499 U.S., at ----, n. 10, 111 S.Ct., at 1498, n. 10, supra). In light of changed attitudes toward compensation for mental injuries in the six decades since the Warsaw Convention, a presumed intent to exclude such damages can have little relevance in interpreting the insurance contract in issue.

We therefore agree with the Appellate Division that the question remains an open one in...