Mount Vernon Fire Ins. Co. v. Creative Housing Ltd.
| Decision Date | 21 August 1996 |
| Docket Number | D,No. 183,183 |
| Parties | MOUNT VERNON FIRE INSURANCE COMPANY, Plaintiff-Counter-Defendant-Appellant, v. CREATIVE HOUSING LTD; and Creative Housing Ltd, d/b/a Creative Housing Management Co., Defendants-Counter-Claimants-Appellees, Linnette Hunter, Defendant-Appellee. ocket 95-7248. |
| Court | U.S. Court of Appeals — Second Circuit |
Michael A. Miranda, New York City (Thurm & Heller, of counsel), for Plaintiff-Counter-Defendant-Appellant.
Michael Majewski, Mineola, NY (Nicole Norris; Joel P. Iannuzzi, Beck & Iannuzzi, Brooklyn, NY, of counsel), for Defendants-Counter-Claimants-Appellees.
Brian J. Farrell, Yonkers, NY (Fitzgerald & Fitzgerald, P.C., of counsel), for Defendant-Appellee.
Before OAKES, MINER and MAHONEY, Circuit Judges.
In this diversity case, Mount Vernon Fire Insurance Company ("Mount Vernon") appeals from a February 10, 1995, judgment of the Eastern District of New York, Charles P. Sifton, Judge, that denied Mount Vernon a declaratory judgment of no coverage against its insured, Creative Housing Ltd. ("Creative Housing"). Mount Vernon claimed on appeal that the district court's holding is in direct conflict with New York law recently established in U.S. Underwriters Ins. Co. v. Val-Blue Corp., 85 N.Y.2d 821, 623 N.Y.S.2d 834, 647 N.E.2d 1342 (1995) (per curiam). After consideration of the briefs, appendix, record, and oral argument, we certified two questions to the New York Court of Appeals pursuant to New York Court of Appeals Rules § 500.17. Having reviewed that court's answers, we now reverse the district court's judgment.
The facts underlying this case are fully set forth in our order of certification, Mount Vernon Fire Ins. Co. v. Creative Housing Ltd., 70 F.3d 720 (2d Cir.1995), and we therefore restate them only briefly here. In April 1991, Linnette Hunter was assaulted in her apartment building, which was owned and managed by Creative Housing. Hunter sued Creative Housing, alleging negligent supervision, management, and control of the premises. Creative Housing sought a defense and indemnification from Mount Vernon under a policy in which Mount Vernon agreed to pay for "those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies."
Mount Vernon then filed a diversity action seeking a declaratory judgment that it had no duty to defend or indemnify Creative Housing in Hunter's civil suit because its policy excluded coverage for claims based on assault and battery. The exclusion stated:
It is agreed that no coverage shall apply under this policy for any claim, demand or suit based on Assault and Battery, and Assault and Battery shall not be deemed an accident, whether or not committed by or at the direction of the insured.
The district court correctly found that New York law applies to the dispute between Mount Vernon appealed to this court. Finding no obviously dispositive precedent and mindful that New York has a significant interest in resolving for itself questions of state law, we certified two questions to the New York Court of Appeals. The Court of Appeals responded in June 1996, Mount Vernon Fire Ins. Co. v. Creative Housing Ltd., 88 N.Y.2d 347, 645 N.Y.S.2d 433, 668 N.E.2d 404 (1996), and, guided by its opinion, we now revisit Mount Vernon's appeal.
the parties. The district court dismissed Mount Vernon's action, holding that the exclusion was ambiguous and should therefore be construed against the insurer and in favor of the insured. The court found it unclear whether Hunter's negligence claims qualified as "any claim ... based on Assault and Battery" under the exclusion. The court further found the exclusion clause ambiguous when, as here, it is applied to an intentional tort committed by a person wholly unrelated to the insured.
In its appeal to this court, Mount Vernon argued that the district court's holding was in direct conflict with New York law as established in U.S. Underwriters Ins. Co. v. Val-Blue Corp., 85 N.Y.2d 821, 623 N.Y.S.2d 834, 647 N.E.2d 1342 (1995) (per curiam). 1 Val-Blue held that the exact assault and battery exclusion language at issue in the instant case was unambiguous and precluded coverage of negligence claims. The court applied a "but for" test to determine coverage in cases involving exclusion clauses: if no cause of action would exist but for the assault, the claim is based on assault and the exclusion applies.
Appellees Creative Housing and Hunter responded that Val-Blue 's holding is limited to its facts. 2 Noting that the five-paragraph opinion in Val-Blue cites no cases in support of its conclusion that the exclusion was unambiguous, the Appellees rejected Mount Vernon's characterization of Val-Blue as a definitive statement of New York law with respect to injuries caused by third parties and claims relating to maintenance of the insured's premises. They also argued that nothing in the Val-Blue opinion indicated that the decision should extend beyond cases in which the assault was committed by the insured's employee or the insured itself.
In order to resolve the conflict between the parties, we certified the following questions to the New York Court of Appeals:
(1) Is the language "based on" narrower than the language "arising out of" when used in an insurance policy and does the Val-Blue decision establish that neither is ambiguous?
(2) When a third party rather than an insured's employee perpetrates an assault, is the basis of the victim's claim against the insured assault or the negligent failure to maintain safe premises?
Our uncertainty with respect to the first of these questions arose from two New York decisions in negligent entrustment cases, Lalomia v. Bankers & Shippers Ins. Co., 35 A.D.2d 114, 312 N.Y.S.2d 1018 (2d Dept.1970), aff'd, 31 N.Y.2d 830, 339 N.Y.S.2d 680, 291 N.E.2d 724 (1972), and Cone v. Nationwide Mut. Fire Ins. Co., 75 N.Y.2d 747, 551 N.Y.S.2d 891, 551 N.E.2d 92 (1989). In both of these cases, the court held that an automobile exclusion clause in an insurance contract did not preclude coverage of a negligent entrustment claim. The Lalomia and Cone courts so held despite the fact that in both cases the negligent entrustment claim would not have existed "but for" the use of an automobile. The Cone court further found, over dissent from Judge Kaye, that the automobile exclusion clauses at issue in Lalomia and Cone were legally identical, though the former excluded from coverage claims "based directly on" the use of an automobile whereas the latter excluded from coverage those claims "arising out of" the use of an automobile.
As recognized by the First Department of the Appellate Division in a...
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