Sukup v. State
| Decision Date | 16 May 1967 |
| Docket Number | No. 37497,37497 |
| Citation | 281 N.Y.S.2d 28,19 N.Y.2d 519 |
| Parties | , 227 N.E.2d 842 Sam SUKUP, Respondent, v. STATE of New York, Appellant. Claim |
| Court | New York Court of Appeals Court of Appeals |
Louis J. Lefkowitz, Atty. Gen. (Emil Woldar and Ruth Kessler Toch, Albany, of counsel), for appellant.
Harry E. Ratner, New York City, for respondent.
A liability has been imposed on an insurance carrier for the legal expenses incurred by the insured in litigating with the carrier the question of coverage under a workmen's compensation policy. Liability has been grounded on a finding by the Court of Claims, affirmed at the Appellate Division, that the carrier's disavowal of responsibility under its policy was not made in good faith.
The claimant Sukup is the insured; the carrier is the State Insurance Fund for whose liabilities the State is responsible; and, accordingly, the claim against it is prosecuted in the Court of Claims.
The Court of Claims found that in denying coverage the State Fund 'failed to deal fairly and in good faith with claimant' and that 'its denial of coverage' was 'in effect' a breach of contract. The Appellate Division also found that the carrier had breached 'the underlying obligation of good faith'.
There is, however, no allegation in the claim filed by claimant--the pleading in the case--that the State Fund's assertion before the Workmen's Compensation Board that it did not cover the accident in issue was asserted in bad faith. The claim alleges a 'breach of contract' by the State Fund in denying coverage under the policy and certain damages which accrued to claimant from this. There was no amendment to the claim to assert bad faith suggested during the trial in the Court of Claims.
Nor is there any evidence in the record on which a finding of bad faith on the part of the State Fund could reasonably be predicated. It is not a breach of contract per se for a carrier to deny that its policy covers a particular event and the assertion of such noncoverage raises a question which, in the course of workmen's compensation adjudication, is to be resolved by the Workmen's Compensation Board.
Here it was resolved against the carrier and in favor of the claimant, the insured, but essentially all this amounts to is an adverse legal controversy between the carrier and insured for which no liability for the legal fees of one party would be chargeable to the other in the absence of some extraordinary showing.
The carrier did not advise the insured that it would not defend him before the Workmen's Compensation Board. Its policy required it to defend all claims against its insured even though the claims were 'wholly groundless, false or fraudulent'. It advised the attorney for the insured by letter that the claim was to be heard on a stated future date, and, in view of the contention of the carrier that the accident was not covered, asked that he 'kindly arrange to be present at the hearing' and, also, that he notify the insured and 'arrange to have him present'.
It is clear from this and from the testimony of the insured's lawyer at the trial of this present case that the issue which brought the insured and his lawyer to the workmen's compensation hearings was the issue between the carrier and the insured as to coverage.
The lawyer testified 'there is no question that the State Insurance Fund Controverted the question of coverage from the beginning to the end'. After the Compensation Referee found against the carrier on coverage, it appealed to the board and the insured's lawyer appeared before the board to defend the Referee's ruling. It is clear that all of the legal services were rendered in in controversy between the carrier and its insured.
It is settled that the carrier may, and indeed under its contract should, defend that insured from the claim for compensation even though it also asserts that there is no coverage (Matter of Jaabeck v. Theodore A. Crane's Sons Co., 238 N.Y. 314, 114 N.E. 625; Matter of Cheesman, 236 N.Y. 47, 51, 139 N.E. 775, 776).
It is equally well settled that an insured cannot recover his legal expenses in a controversy with a carrier over coverage, even though the carrier loses the controversy and is held responsible for the risk (Doyle v. Allstate Ins. Co., 1 N.Y.2d 439, 444, 154 N.Y.S.2d 10, 14, 136 N.E.2d 484, 487; Manko v. City of Buffalo, 296 N.Y. 905, 72 N.E.2d 623, affg. 271 App.Div. 286, 65 N.Y.S.2d 128; Heath v. State of New York, 303 N.Y. 658, 101 N.E.2d 764, affg. 278 App.Div. 8, 103 N.Y.S.2d 397; Davis Acoustical Corp. v. Hanover, Ins. Co., 22 A.D.2d 843, 254 N.Y.S.2d 14; Great Amer Ind. Co. v. Audlane Realty Corp., 163 Misc. 301, 296 N.Y.S. 655).
It would require more than an arguable difference of opinion between carrier and insured over coverage to impose an extra-contractual liability for legal expenses in a controversy of this kind. It would require a showing of such bad faith in denying coverage that no reasonable carrier would, under the given facts, be expected to assert it.
The record in this case shows that the carrier was wrong and the insured right as to coverage, as the Workmen's Compensation Board found. The record does not show any gross disregard for its policy obligation by the insurer in asserting noncoverage. The record shows merely an arguable case in which the carrier was held wrong. That is not enough to impose a liability beyond the terms of the contract.
The arguable case is this: In the insured's declaration forming part of the policy as to the 'Location of All Business Operations, by Town or City, with Street and Number', the claimant answered '11 Pike Street, NY City & elsewhere in NYS'. There is proof that the business of insured in New York was 'real estate' at 11 Pike Street where he owned a building, containing stores and apartments. He also had a farm in Rock Rift, Delaware County. The workmen's compensation claim arose from the death of insured's employee on the farm on January 25, 1958.
The workmen's compensation record which was offered in evidence on the trial of this present case makes it clear that, after the accident and before any claim of compensation was made, the insured, in March, 1958, made an application to the carrier for an indorsement on the policy which would expressly include the coverage of the Delaware county location.
No reference to the fact an accident had already occurred there was made in this application for indorsement and the indorsement to...
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