Royal Indem. Co. v. Providence Washington Ins. Co.

• Citation: 92 N.Y.2d 653,707 N.E.2d 425,684 N.Y.S.2d 470
• Parties: , 707 N.E.2d 425, 1998 N.Y. Slip Op. 11,381 ROYAL INDEMNITY COMPANY, Respondent, v. PROVIDENCE WASHINGTON INSURANCE COMPANY, Appellant.
• Decision Date: 22 December 1998
• Court: New York Court of Appeals Court of Appeals

Page 470

684 N.Y.S.2d 470

92 N.Y.2d 653, 707 N.E.2d 425, 1998

N.Y. Slip Op. 11,381

ROYAL INDEMNITY COMPANY, Respondent, v. PROVIDENCE WASHINGTON INSURANCE COMPANY, Appellant.

Court of Appeals of New York.

Dec. 22, 1998.

Schindel, Farman & Lipsius, L.L. P., New York City (Laurence J. Rabinovich, Jeffrey Scott Rogoff and Andrew Karonis of counsel), for appellant.

Brody, Fabiani & Cohen, New York City (John V. Fabiani, Jr., and Jonathan P. Mincieli of counsel), for respondent.

OPINION OF THE COURT

LEVINE, J.

In this Federal litigation between the insurer of the owner of a truck and the insurer of the trucking company lessee of the truck, the issue is the validity of a clause in the owner's "bobtail" policy ¹ which excluded from coverage any accident occurring while the truck was being used in the business of the lessee. The United States Court of Appeals for the Second Circuit certified the following questions to us:

"(1) Whether a non-trucking-use exclusion from coverage in an insurance policy obtained by the owner of a commercial vehicle is valid under New York law, despite the absence of express language in the policy stating that the exclusion is effective only if the vehicle's lessee is required to obtain insurance coverage, where the insurer has established that its standard underwriting policy is not to issue a policy containing such an exclusion unless the vehicle owner has provided proof that the vehicle's lessee has insurance coverage.

"(2) If the non-trucking-use endorsement is not valid to exclude coverage entirely, whether such an endorsement is nonetheless valid to limit liability to the financial security minima required by New York law."

We now answer both questions in the negative, concluding that the non-trucking-use exclusion at issue in this case violates New York law and public policy and that the owner's policy must be read as if the exclusion did not exist.

The certified questions arise from the following facts. John Van Dorp leased a tractor-trailer to Deliverance Road Transport, Inc. (Deliverance). Pursuant to the lease agreement, Royal Indemnity Insurance Company (Royal) issued a truckers liability insurance policy to Deliverance, and Providence Washington Insurance Company (Providence) issued a non-trucking-use policy to Van Dorp. Scott Bodine was driving the tractor-trailer in furtherance of the trucking business of Deliverance when it struck and severely injured a bicyclist.

The bicyclist's guardian ad litem brought suit against Van Dorp, Deliverance and Bodine in Supreme Court. Royal acknowledged that it provided liability coverage and undertook the defense of the action. The case was settled, and Royal paid the $900,000 settlement amount plus $29,163 in legal fees. Royal then brought this action in the United States District Court for the Northern District of New York seeking a declaratory judgment that Providence must indemnify Royal for 50% of the $929,163, pursuant to a clause in Providence's policy which required it to contribute ratably in proportion to its policy limits.

Royal's insurance policy covered accidents that took place when the truck was being used in the business of Deliverance. Providence's non-trucking-use policy was intended to cover all instances when the driver was neither pulling a load, nor returning empty from such a delivery nor otherwise using the truck for business purposes. Thus, under Providence's policy, the non-trucking-use exclusion created a gap in policy coverage for any loss incurred when the truck was being used in furtherance of Deliverance's business. On its face, the policy violated the statutory requirement that all "policies of insurance * * * shall contain a provision for indemnity * * * against the liability" (Vehicle and Traffic Law § 388[4] ) "for death or injuries to person or property resulting from negligence in the use or operation of [a] vehicle * * * by any person using or operating the same with the permission * * * of [the] owner" (Vehicle and Traffic Law § 388[1]; see also, Insurance Law § 3420[e]; 11 NYCRR 60-1.1[c][2] ). Randazzo v. Cunningham, 56 A.D.2d 702, 392 N.Y.S.2d 740, affd.43 N.Y.2d 937, 403 N.Y.S.2d 894, 374 N.E.2d 1245 for reasons stated below, held that a non-trucking-use exclusion, not limited by its terms to circumstances in which the vehicle's lessee has trucking-use insurance, violates New York law and public policy. Providence's policy contains no such reference to the existence of trucking-use insurance. Providence did establish, however, that it had followed its standard underwriting procedure not to issue a policy containing a non-trucking-use exclusion until the owner provided proof that the lessee had truckers liability insurance.

The District Court granted Royal's motion for summary judgment (952 F.Supp. 125), holding that where, as here, the non-trucking-use exclusion could by its terms apply even though the vehicle is not covered by insurance that meets the State's minimum standards, it is void as against public policy. The court further determined that defendant's liability is not limited to the minimum amount of coverage that is required under New York law. Providence appealed to the Second Circuit, which certified the present two questions to us (see, 22 NYCRR 500.17).

This case is not materially different from Randazzo v. Cunningham, supra. That it was ultimately shown, as here, that the vehicle's lessee in fact had truckers liability insurance, does not bring a non-trucking-use exclusion in the owner's policy into compliance with New York's statutory requirements if the exclusion would have applied had the lessee not had such insurance (see, Randazzo v. Cunningham, supra, 56 A.D.2d, at 703, 392 N.Y.S.2d 740). Likewise, the policy is not rendered valid simply because the lessee is required by Federal law to obtain other insurance and does so (id.). Since Providence's exclusion on its face could apply even if the vehicle had no other insurance, the instant case is not distinguishable from Randazzo.

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