National Superlease, Inc. v. Reliance Ins. Co. of New York

• Decision Date: 09 January 1985
• Citation: 484 N.Y.S.2d 776,126 Misc.2d 988
• Parties: NATIONAL SUPERLEASE, INC., Plaintiff, v. RELIANCE INSURANCE COMPANY OF NEW YORK, Reliance Special Risk, Inc. and Reliance Insurance Company, Defendants.
• Court: New York Supreme Court

Page 776

484 N.Y.S.2d 776

126 Misc.2d 988

NATIONAL SUPERLEASE, INC., Plaintiff, v. RELIANCE INSURANCE COMPANY OF NEW YORK, Reliance Special Risk, Inc. and Reliance Insurance Company, Defendants.

Supreme Court, Trial Term,

Queens County, Part 1.

Jan. 9, 1985.

Dollinger, Gonski & Grossman, Carle Place, Atty., for plaintiff.

Jones, Hirsch & Bull, Attys., New York City (Daniel Hirsch, Ira H. Block, Jon Yard Arnason, Glenn A. Monk, Eddie Still and Blair C. Fensterstock, New York City, of counsel), for defendants.

OPINION OF THE COURT

ALFRED D. LERNER, Justice.

This is a motion by defendants for summary judgment on the grounds that there are no triable issues of fact and that the insurance policy on which plaintiff's claims are based is void and unenforceable as a matter of law.

On appeal from various orders of Special Term and Trial Term, the Appellate Division directed the parties to complete all discovery within a specified time and placed the action on the Trial Calendar for a date certain, subject to the direction of the Justice then presiding. (National Superlease, Inc. v. Reliance Insurance Company of New York, 103 A.D.2d 737, 477 N.Y.S.2d 203.)

As a preliminary procedural objection, plaintiff argues that in view of the order of the Appellate Division, defendants' motion for summary judgment is improper. The terms of the Appellate Division order do not, however, foreclose summary judgment nor is the motion untimely. A motion for summary judgment made on the eve of trial is not of itself a sufficient reason for denying the motion where delay is caused by the necessity to complete depositions and the motion has merit. (Kule Resources, Ltd. v. Reliance Group, Inc., 49 N.Y.2d 587, 427 N.Y.S.2d 612, 404 N.E.2d 734.)

Plaintiff (hereinafter "Superlease") was the named insured under a policy of automobile liability insurance issued by defendants (hereinafter "Reliance"). In its complaint, Superlease seeks a declaration that the policy is in full force and effect, specific performance of the policy, damages based on Reliance's alleged fraud and breach of contract, punitive damages and rescission. Superlease alleges that it is a domestic corporation in the business of leasing automobiles, limousines and livery vehicles which were insured by the Reliance policy. It is further alleged that notwithstanding the specific provision of the policy that, except for nonpayment, the policy could not be cancelled, changed or nonrenewed, Reliance defaulted in its performance and has purported to terminate the policy. Superlease contends that it has fully performed under the terms of the contract and has already paid more than $600,000 in premiums to Reliance. No claim is made for the return of any unearned premiums after cancellation of the policy.

Reliance denies the material allegations of the complaint and has asserted affirmative defenses of fraud and illegality and counterclaimed for unpaid premiums and damages. Reliance's counterclaims (against Superlease and additional defendants on the counterclaims) and a third-party action have been severed from the main action. It is Reliance's position that Superlease, in conjunction with a related corporate entity, National Motorist Club, Inc., engaged in a series of sham and illegal transactions in order to obtain a fleet automobile policy for approximately 4,700 unrelated vehicle owners. Reliance contends that termination of the policy was justified since the aggregation of unrelated individuals under a single policy constitutes group casualty insurance in violation of the insurance laws of this State.

The legal issues raised by the Superlease policy must be viewed in the dual contexts of New York's strict regulation of the insurance industry and the requirement of compulsory automobile insurance. Since insurance affects the public interest, it is subject to specific statutes and regulations. (Olivio v. Government Employees Ins. Co., 46 A.D.2d 437, 443, 362 N.Y.S.2d 873; Matter of B. & R. Excess Corp. v. Thacher, 37 Misc.2d 307, 234 N.Y.S.2d 486, affd 18 A.D.2d 1137, 239 N.Y.S.2d 531.) In the Insurance Law, the Legislature has specified the types of insurance which may be issued in this State. (Insurance Law, § 1113, formerly § 46.) While group life insurance (Insurance Law, § 4216, formerly § 204), group accident and health insurance (Insurance Law, § 4235, formerly § 221), and group annuity contracts (Insurance Law, § 4238, formerly § 223) are authorized, group coverage for automobile liability insurance is not an enumerated permissible form of insurance. (Matter of Freshstart Brokerage, Inc. v. Corcoran, Sup Ct, New York Co, June 8, 1984 Where a statute "describes the particular situations in which it is to apply, 'an irrefutable inference must be drawn that what is omitted or not included was intended to be omitted or excluded' (McKinney's Cons.Laws of N.Y., Book 1, Statutes, § 240)." (Patrolmen's Benevolent Association v. City of New York, 41 N.Y.2d 205, 208-209, 391 N.Y.S.2d 544, 359 N.E.2d 1338.)

Under New York's compulsory automobile insurance statutes, an owner's policy of liability insurance is required for the registration of either a private or for hire vehicle. (Vehicle and Traffic Law, Articles 6 and 8.) A review of the underlying transactions is necessary to determine the merit of Reliance's claim that the Superlease policy constituted an unauthorized group automobile liability policy for unrelated vehicle owners.

Based on those undisputed facts which were elicited during disclosure and the documents submitted by the parties on the motion for summary judgment, it appears that Superlease was formed in 1983 for the purpose, according to its president and sole stockholder, Nicholas Neu, of acquiring an ownership interest in vehicles owned by members of the National Motorist Club and then leasing these vehicles back to the members. The National Motorist Club (hereinafter "NMC") is also owned and operated by Mr. Neu. Its purpose was to provide certain motorist services to members in return for an annual membership fee. Among the benefits offered to NMC members was automobile liability insurance.

In order to obtain the benefits of membership offered by NMC, a member was required to execute a "short form trust agreement" which purported to transfer "equitable title" to the member's vehicle to Superlease for a one-year period. Simultaneously with the execution of the trust instrument, Superlease entered into a written lease with the member which leased back "equitable title" to the member's vehicle for the same one-year period. At the expiration of one year, both the lease and trust agreement terminated, returning "equitable title" to the NMC member.

As a condition of the lease, the NMC member-lessee was required to obtain insurance coverage either from an insurer of the lessee's choice at the lessee's expense or elect to be named as an additional insured under the policy issued by Reliance to Superlease, at no additional charge. The fees paid by members to NMC were considered full payment for both the lease and the insurance coverage. These fees were set by NMC at rates 20-25% below insurance premiums for comparable coverage.

All NMC members who assigned "equitable title" chose to be named as additional insureds under the Superlease policy and were furnished with certificates of insurance to permit registration of their vehicles with the Commissioner of Motor Vehicles. In the event NMC fees were not paid, a notice of cancellation of insurance was issued to the delinquent member.

The policy referred to in the lease agreement was secured from Reliance by Superlease, as an automobile leasing company, at a premium base rate calculated for a fleet of 747 limousines and 25 private passenger automobiles. At the time of the policy's issuance, Superlease owned no vehicles and all vehicles which it subsequently leased belonged to NMC members. The policy listed Superlease as the insured and covered any vehicle leased to others for a period of 12 months or more in which the lease agreement required the lessor to provide primary coverage. At the time of the policy's cancellation, 4,700 vehicles were insured under the master policy at rates below premium levels that would be charged directly by an insurer to an individual owner of a vehicle. Of the 4,700 insured vehicles approximately 80% were "for hire" or gypsy cabs.

The basis of Superlease's claim to a valid policy is its alleged insurable ownership interest in the motor vehicles of NMC members acquired through the...