Liberty Mut. Ins. Co. v. Aetna Cas. & Sur. Co.

• Citation: 571 N.Y.S.2d 735,168 A.D.2d 121
• Parties: LIBERTY MUTUAL INSURANCE COMPANY, Appellant, v. AETNA CASUALTY & SURETY COMPANY, et al., Respondents, et al., Defendants.
• Decision Date: 31 May 1991
• Court: New York Supreme Court Appellate Division

Page 735

571 N.Y.S.2d 735 168 A.D.2d 121 LIBERTY MUTUAL INSURANCE COMPANY, Appellant,
v.
AETNA CASUALTY & SURETY COMPANY, et al., Respondents, et
al., Defendants. Supreme Court, Appellate Division,
Second Department. May 31, 1991.

Page 736

[168 A.D.2d 125] Shapiro, Shiff, Beilly, Rosenberg & Fox, New York City (Gerald Richman, of counsel), for appellant.

Leahey & Johnson, P.C., New York City (Lewis I. Wolf, of counsel), for respondent Aetna Cas. & Sur. Co.

Quirk & Bakalor, P.C., New York City (Nicholas Goodman, of counsel), for respondent Travelers Ins. Co.

Page 737

Barry, McTiernan & Moore, New York City (William E. Fay III, of counsel), for respondent INA Ins. Co.

Before BRACKEN, J.P., and BROWN, O'BRIEN and RITTER, JJ.

BRACKEN, Justice Presiding.

On July 17, 1985, an automobile owned by Oxford Resources Corp. (hereinafter Oxford) and driven by Esther Dancour, collided with a bicycle at an intersection in Brooklyn. At the time of this accident, Mrs. Dancour was allegedly operating her vehicle in the course of her employment. The injured bicyclist, Catherine Cranston, was subsequently awarded a money judgment in the sum of $1,526,000 against both Oxford and Mrs. Dancour. Since Oxford's tort liability was wholly vicarious (see, Vehicle & Traffic Law § 388), it was granted a judgment for full indemnification over against Mrs. Dancour, the sole active tortfeasor (see Cranston v. Oxford Resources Corp., 173 A.D.2d 757, 571 N.Y.S.2d 733 [decided herewith]. Mrs. Dancour's employer, Manny's Kiddie Shop (hereinafter Manny's) was not a party to the Cranston action.

In the present declaratory judgment action, the central question is whether the better part of the judgment awarded in favor of Miss Cranston should be paid by the plaintiff-[168 A.D.2d 126] appellant Liberty Mutual Insurance Co. (hereinafter Liberty), which furnished $1,000,000 in primary automobile liability coverage to the innocent judgment creditor, Oxford, or instead by the defendant-respondent Aetna Casualty & Surety Company (hereinafter Aetna), which furnished $1,000,000 in coverage to Manny's, the employer of the individual whose negligence actually caused the accident, i.e., Mrs. Dancour. Resolution of this question is complicated by the fact that Liberty, in addition to insuring Oxford up to a limit of $1,000,000, also afforded primary insurance coverage to Mrs. Dancour; however, by virtue of the "stepdown" endorsement contained in its policy, Liberty's coverage of Mrs. Dancour was limited to the sum of only $100,000.

Aetna argues that Liberty's "stepdown" clause is unenforceable and Liberty's policy must, therefore, be read as affording $1,000,000 in primary coverage to Mrs. Dancour. Aetna also argues that Liberty may not avail itself in any way of Oxford's right to full indemnification from Mrs. Dancour, invoking the rule that an insurance carrier may not assert a subrogation claim against its own insured. We disagree with both of these arguments.

Among the related questions which must be resolved on appeal are (1) whether the personal excess insurance policy issued to Mrs. Dancour's husband by the defendant-respondent INA Insurance Company (hereinafter INA) must contribute toward a satisfaction of the underlying judgment, and (2) whether the defendant-respondent Travelers Insurance Company (hereinafter Travelers) must also contribute to the underlying judgment. We answer these separate questions in the negative.

I

Four insurance carriers are involved in this action, and it is appropriate to begin with an examination of the terms of their respective policies.

First, there is the policy issued by Liberty to Oxford, the owner of the offending vehicle. This policy provided for a limit of liability coverage in the amount of $1,000,000 per loss. This policy covered "any auto used under a written rental agreement issued by [Oxford] in which [Oxford] agrees to provide the insurance". However, in such cases, Liberty's policy further stipulated, in what is referred to as a "stepdown" endorsement, that any insurance provided under Liberty's policy [168 A.D.2d 127] "for the lessee * * * is subject to the terms, including any limit of liability * * * contained in the lease or rental agreement".

The "stepdown" endorsement is implicated in this case because the offending vehicle had in fact been leased by Oxford to Manny's in November of 1984. The lease provided for liability insurance coverage with limits in the amount of $100,000 per person and $300,000 per accident. Mrs. Dancour was allegedly working in Manny's business at the time of the accident (although

Page 738

Manny's was not named as a party in the underlying action). Thus, if enforced, the "stepdown" endorsement contained in Liberty's policy results in two separate levels of coverage: $1,000,000 for one insured (Oxford) and $100,000 for another insured (Mrs. Dancour).

The second policy implicated in the case is the Business Owners Policy issued by Aetna to Manny's. This policy listed Manny's, the lessee of the offending vehicle, as a named insured, with $1,000,000 as the limit of liability. This policy included a "non-owned and hired automobile liability endorsement", which stated, in part, that "this insurance applies to bodily injury or property damage arising out of the maintenance or use of hired automobiles in [Manny's] business". The Aetna policy expressly provided that the coverage afforded under the hired automobile endorsement noted above was "excess insurance over any other valid and collectible insurance available to [Manny's]". Otherwise, the Aetna policy expressly provided that its liability coverage would be primary.

The third policy to be considered is that which was issued by Travelers to the defendant Morris Dancour, an officer of Manny's and the husband of Esther Dancour. Travelers issued a standard automobile liability policy to Mr. Dancour as coverage for his personally-owned 1984 Datsun. This policy had limits of $250,000 per person and $500,000 per accident. It is alleged that this policy also furnished coverage to Mrs. Dancour, as a member of Mr. Dancour's family, for any liability she might have incurred while operating the "non-owned" vehicle. However, after receiving notice of the accident in 1987, Travelers disclaimed coverage on the basis that the vehicle involved in the collision was "leased by Manny's Kiddie Shop and available to [Mrs. Dancour's] personal use on a regular basis". Travelers later asserted a disclaimer on the basis that the offending vehicle was excluded from coverage [168 A.D.2d 128] because it was a "non-owned car * * * being used or maintained in any other business or occupation of the insured".

The fourth policy in question is that issued by INA to Mr. Dancour. This "personal excess liability policy" covered all liability "for personal injury or property damage for which a covered person becomes legally liable", subject to several exclusions. The term "covered person" included the named insured, Mr. Dancour, as well as members of his family. This policy has a limit of liability in the sum of $2,000,000.

II

Liberty commenced the instant action, and named the three other interested carriers (Aetna, Travelers and INA), as well as Oxford, Manny's and the Dancours, as party defendants. The plaintiff in the underlying personal injury action, Catherine Cranston, was also named as a party defendant.

Liberty alleged in its complaint that at the time of the accident the subject vehicle (identified as a 1985 Oldsmobile) was owned by Oxford, leased by Oxford to Manny's, and driven by Mrs. Dancour. The complaint stated that as a result of the accident, a personal injury action had been brought against Oxford, as owner of the offending vehicle, and Mrs. Dancour, its driver. According to Liberty's complaint, the settlement negotiations, which were then under way in the underlying personal injury action, had come to an impasse because of disputes with respect to whether, under what circumstances, and up to what limit, each carrier could be called upon to indemnify either one of the two insureds named as defendants in the underlying action. Accordingly, Liberty requested a "judgment * * * declaring the obligations, rights and responsibilities of the various insurance carrier defendants under the policies described".

The three defendant insurance companies submitted answers in which nothing of substance was conceded. Shortly after the joinder of issue, Liberty attempted to place its action on the trial calendar by filing a note of issue dated March 29, 1988. Aetna immediately responded by moving to strike the action from the calendar, claiming that

Page 739

Liberty had not complied with certain demands for discovery. This motion was heard by the Supreme Court on June 7, 1988, and the court apparently issued an oral ruling granting the motion. The court also made an oral ruling which directed certain discovery. A written order to this effect was, according to one of the [168 A.D.2d 129] attorney's affidavits contained in the record, signed by Justice Cohen and later entered on July 18, 1988.

In the meantime, Liberty made a cross motion for summary judgment. According to the attorney for Liberty, the underlying personal injury action, which was pending when the present action was commenced, had since resulted in a verdict of $1,526,000 in favor of the plaintiff and against Oxford and Mrs. Dancour. This attorney conceded that Liberty was bound by the terms of its policy to pay $100,000 toward the satisfaction of this judgment.

Liberty's attorney asserted that the next layer of coverage to be deployed toward the satisfaction of the underlying judgment consisted of the $1,000,000 available to Manny's under Manny's policy with Aetna. Liberty's attorney asserted that Esther Dancour had been operating the subject vehicle "on behalf of Manny's" so as to be covered under the hired automobile endorsement of Aetna's policy. In support of this contention...