Tozzi v. Long Island R. Co.

• Decision Date: 29 October 1996
• Parties: Fred A. TOZZI et al., Plaintiffs, v. LONG ISLAND RAILROAD COMPANY, Defendant and Third-Party Plaintiff, L & L Painting, Third-Party Defendant and Fourth-Party Plaintiff; Commerce and Industry Insurance Company, Fourth-Party Defendant.
• Court: New York Supreme Court

Page 270

651 N.Y.S.2d 270

170 Misc.2d 606

Fred A. TOZZI et al., Plaintiffs, v. LONG ISLAND RAILROAD COMPANY, Defendant and Third-Party Plaintiff L & L Painting, Third-Party Defendant and Fourth-Party Plaintiff Commerce and Industry Insurance Company, Fourth-Party Defendant.

Supreme Court, Nassau County.

Oct. 29, 1996.

Herzfeld & Rubin, New York City, for L & L Painting.

Lester Schwab Katz & Dwyer, New York City, for Commerce and Industry Insurance Company.

MARVIN E. SEGAL, Justice.

FINDINGS OF FACT

On September 1, 1989, the plaintiff, Fred Tozzi, was injured on the job, in the course of his employment by L & L Painting Company, Inc. (hereafter L & L), as a steel painter, at premises owned by the Long Island Railroad Company. Mr. Tozzi and his wife commenced the primary action against the Long Island Railroad Company seeking damages for personal injuries and loss of consortium in or about July, 1990, alleging negligence and violation of Labor Law 240. In December, 1991, the Long Island Railroad Company commenced a third-party action against L & L seeking common law contribution and indemnity and contractual indemnity. By Order dated October 11, 1994, the plaintiff was granted partial summary judgment on the issue of liability under Labor Law 240(1). By Order dated October 24, 1994, the Long Island Railroad Company was granted summary judgment against L & L, on the ground that 1) L & L was contractually obligated to defend and indemnify the Long Island Railroad Company from and against all claims for bodily injury suffered by L & L's employees except for those injuries resulting from the Railroad's negligence, and 2) L & L had failed to rebut the Railroad's prima facie showing that it was not negligent. In April, 1995, L & L commenced the instant fourth-party action against Commerce and Indemnity Insurance Company (hereafter C & I), claiming that C & I owed it both a defense and indemnification pursuant to a Commercial General Liability Policy No. GL971-34-77 issued to L & L by C & I effective April 26, 1989 to April 26, 1990. By Order dated August 2, 1995, the fourth-party action was severed. A jury returned a verdict on May 23, 1996 in favor of the plaintiffs, in the primary action, in the sum of $302,000.00 and judgment in plaintiffs' favor was entered on May 29, 1996 in the sum of $347,592.50. C & I has alleged and L & L has not disputed In its answer served in or about May, 1995, C & I defended the fourth-party complaint on the ground that endorsement no. 46460, which was approved by the New York State Insurance Department on September 30, 1987, excludes coverage for bodily injuries to employees of the insured arising out of and in the course of employment by the insured (1) whether the insured may be liable as an employer or in any other capacity and (2) to any obligation to share damages with or repay someone else who must pay damages because of the injury.

that its defense in the third-party action was provided by the State Insurance Fund, L & L's Employer's Liability Insurer, and it is the State Insurance Fund that is the real party in interest prosecuting the fourth-party action. C & I has alleged on information and belief that the State Insurance Fund has paid the judgment against L & L in the third-party action.

L & L now moves for summary judgment declaring that C & I was obligated to defend and indemnify L & L for the contractual indemnification liability L & L owed to the Long Island Railroad Company in the third party action. C & I cross moves for summary judgment dismissing the fourth-party complaint, declaring that C & I does not have an obligation to defend and indemnify L & L and declaring that L & L owes common law and contractual indemnification to the Long Island Railroad Company in the third-party action.

L & L asserts that it is entitled to a defense and indemnification from C & I in the third party action on the grounds that 1) the subject insurance policy is ambiguous and the ambiguity should be construed so as to afford coverage to L & L and 2) principles of regulatory estoppel bar C & I from denying coverage.

THE FOLLOWING FACTS ARE UNDISPUTED

1. The Insurance Services Office (hereafter ISO) General Liability Policy, form no. CG00 01 11 85, Section I, coverage A, generally provides liability for personal injury damages.

2. Prior to the adoption of endorsement nos. 45687 and 46460 in 1987, said standard form General Liability Policy contained an exclusion entitled "exclusion e", which excluded coverage for bodily injury suffered by the insured's employee. "Exclusion e", however, contained an unnumbered concluding paragraph which set forth an exception to this exclusion to the extent that the "exclusion does not apply to liability assumed by the insured under an 'insured contract' ".

3. Pursuant to "exclusion e", the ISO's General Liability Policy form provided coverage to an insured who owed contractual indemnification for a claim arising from bodily injury suffered on the job by an employee of the insured. If the policy issued by C & I to L & L had contained "exclusion e", C & I clearly would have owed L & L a defense and indemnification in the third-party action. Effective November 1, 1987, endorsement form no. 46460 replaced "exclusion e". The unnumbered paragraph in "endorsement e" which excepts insured contract liability from exclusion from coverage does not appear in endorsement form no. 46460.

4. The ISO General Liability Policy form contains an endorsement entitled "Notice of Occurrence" which sets forth that "(w)here the insured reports an occurrence to the compensation carrier insuring their compensation insurance which later develops into a liability claim, coverage for which is provided by the policy to which this endorsement is attached (emphasis added), failure to report the occurrence to the Company at the time of the occurrence shall not be deemed in violation of general conditions entitled 'Notice to Company' upon the distinct understanding and agreement however, that the insured just as soon as they are definitely made aware of the facts that a particular occurrence is a liability case rather than a compensation case, shall give notification of the aforesaid occurrence to this Company."

5. In addition to deleting the insured contract exception, Endorsement no. 46460 adds an additional paragraph, not previously set forth in "exclusion e", clarifying the exclusion and setting forth that the exclusion applies to past, present or prospective employees and 6. Endorsement 46460 or its equivalent has been approved in 46 states. It was not approved in Texas, was withdrawn in New Jersey and is pending in Vermont. Approval was sought from the Insurance Department of each state based upon the same basic submission letter. Said submission letters advised the various state insurance departments that endorsement no. 46460 (9/87) would replace "exclusion e" of the new simplified ISO General Liability Policy (form no. CG00 01 11 85). Said letters further advised that endorsement no. 46460 was identical to the approved form no. 45687 (4/87) for the old non-simplified ISO policy.

excludes injuries suffered by employees as a result of a wrongful termination.

7. The basic form letter submitted seeking approval of form no. 45687 (4/87) advised the various state Insurance Departments as follows:

"The primary purpose of this endorsement is:

"1) To promote quicker understanding of the intent of excluding employee bodily injury stated by exclusion (J) in ISO's General Liability Policy.

"2) To respond to the recent sudden increase in actions brought by employees, particularly in relation to wrongful termination actions.

"3) To be explicit as to the individual employee's status as either past, present or prospective employees."

8. In seeking approval of endorsement form nos. 45687 and 46460, C & I did not advise the New York State Insurance Department or any other state insurance department that it was reducing coverage in that the ISO's standard General Liability Policy form would no longer provide coverage for an insured's contractual obligation to defend and indemnify another party for damages for injuries suffered by the insured's employee. In fact, C & I advised the Insurance Department of the State of Hawaii in writing as follows: "... 3. These endorsements are optional. There is no reduction in premium because there is no reduction in coverage. These endorsements merely clarify the exclusions already stated, the insureds are not allowed to buy back the coverage." The State of Washington was informed in writing that "(w)ith regard to endorsement form no. 46460, our purpose is to clarify the exclusions under Coverage A of ISOCGL. We don't think this will result in any gap in coverage."

9. Insurance Law § 3426(e) requires notice upon renewal of a covered policy, by the insurer to the insured, of any reduction of coverage or addition of any exclusion. Although L & L did not adduce any proof that C & I renewed any ISOCGL policy subsequent to the effective dates of the adoption of endorsement form no. 45687 in the old form and endorsement form no. 46460 in the new form, C & I did not demonstrate that it ever notified any policy holder of any reduction in coverage incident to the replacement of "exclusion e" by said endorsements. The policy issued to L & L by C & I effective April 26, 1989, was a new policy, and C & I was not required by Insurance Law § 3426 to afford L & L any statutory notice relating to the deletion of the insured contract coverage.

10. In June, 1992, in Joy Technologies, Inc. v. Liberty Mut. Ins. Co., 187 W.Va. 742, 421 S.E.2d 493, the Supreme Court of Appeals of West Virginia held that a commercial liability policy issued by Liberty Mutual to Joy afforded Joy coverage for pollution which was not "sudden", despite an exclusion in the insurance contract excluding coverage for pollution claims, except where the release of the pollutant was...