Zappone v. Home Ins. Co.

• Citation: 432 N.E.2d 783,55 N.Y.2d 131,447 N.Y.S.2d 911
• Parties: , 432 N.E.2d 783 Michael ZAPPONE et al., Appellants, v. HOME INSURANCE COMPANY, Respondent, and Ivan Belyna, an Infant, et al., Appellants.
• Decision Date: 18 February 1982
• Court: New York Court of Appeals

Page 911

447 N.Y.S.2d 911

55 N.Y.2d 131, 432 N.E.2d 783

Michael ZAPPONE et al., Appellants, v. HOME INSURANCE COMPANY, Respondent, and Ivan Belyna, an Infant, et al., Appellants.

Court of Appeals of New York.

Feb. 18, 1982.

William J. Werner, New York City, for Michael Zappone and others, appellants.

Harry D. Snyder, for Ivan Belyna and others, appellants.

Myron Komar, Albany, for respondent.

OPINION OF THE COURT

MEYER, Judge.

The principle, declared in Schiff Assoc. v. Flack, 51 N.Y.2d 692, 435 N.Y.S.2d 972, 417 N.E.2d 84, that the failure to disclaim coverage does not create coverage which the policy was not written to provide, applies to liability policies as well as professional indemnity insurance, notwithstanding the provisions of subdivision 8 of section 167 of the Insurance Law. The words 'deny coverage' in that subdivision refer to denial of liability predicated upon an exclusion set forth in a policy which, without the exclusion, would provide coverage for the liability in question. It does not encompass denial that the policy as written could not have covered the liability in question under any circumstances. The order of the Appellate Division, 80 A.D.2d 661, 436 N.Y.S.2d 402, should, therefore, be affirmed, with costs.

Judith Zappone, her brother, Michael, and her father, Dominick, reside in the same household. Home Insurance Company issued an automobile liability policy to Judith covering a 1970 MG. Judith also owned a 1966 Mercedes Benz which was, however, insured not by Home but by Aetna Insurance Company. Home also insured a 1963 Chevrolet owned by Dominick. On July 20, 1975, Michael was involved in a collision while driving Judith's Mercedes Benz with Judith's permission. Aetna undertook the defense as to the claim arising out of the collision and has offered to pay up to the limits of its policy in settlement. In November, 1975, two of the persons injured in the collision sued Michael and Judith. Notice of the action and the accident was given to Home by the Zappones on January 6, 1976. Home, by letters dated January 20, 1976 predicated essentially on late notice, advised that it would investigate the matter but was reserving its rights. Not until April 14, 1977 did it advise the Zappones that, because the Mercedes Benz was neither an owned nor a nonowned automobile under either Judith's or Dominick's policy, it would not provide coverage excess to the Aetna policy.

The Zappones and Aetna then brought this action for judgment declaring that the Zappones were entitled to excess coverage under the two Home policies and that Home's disclaimer was invalid by reason of subdivision 8 of section 167 of the Insurance Law. Trial Term granted the judgment requested, but on appeal to the Appellate Division that court, two Judges dissenting, reversed on the law and directed entry of judgment declaring that neither policy provided coverage for the incident of July 20, 1975 and that Home was not required by subdivision 8 of section 167 to give notice of denial of coverage. We affirm.

Subdivision 8 provides that: 'If under a liability policy delivered or issued for delivery in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.' It is settled law that the subdivision applies whether the policy is primary or excess (Preisch v. Continental Cas. Co., 55 A.D.2d 117, 389 N.Y.S.2d 700, mot. for lv. to app. den. 41 N.Y.2d 802, 393 N.Y.S.2d 1026, 362 N.E.2d 626), that if the subdivision applies it is the carrier's burden to explain its delay in notifying of its disclaimer or denial (Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028, 1029, 416 N.Y.S.2d 539, 389 N.E.2d 1061), that a reservation of rights letter does not constitute compliance with the requirements of the subdivision (Id.; Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, 269, 317 N.Y.S.2d 309, 265 N.E.2d 736), and that an unexplained delay of 15 months is unreasonable as a matter of law (Hartford Ins. Co. v. County of Nassau, supra; Regional Tr. Serv. v. Kemper Ins. Cos., 73 A.D.2d 1036, 425 N.Y.S.2d 400). If the subdivision was intended to cover the situation of the instant case, therefore, Trial Term's decision was correct.

We conclude, however, that the Legislature did not intend by its use of the words 'deny coverage' to bring within the policy a liability incurred neither by the person insured nor in the vehicle insured, for to do so would be to impose liability upon the carrier for which no premium had ever been received by it and to give no significance whatsoever to the fact that automobile insurance is a contract with a named person as to a specified vehicle.

The parties have presented no legislative report or memorandum to explain the sense in which the words were used in the statute and our research has revealed none. Essentially then the arguments advanced are in terms of the plain meaning of the words on the one hand and on the other the unreasonableness of the result which would provide insurance coverage to a person and with respect to a vehicle for which no premium had ever been received by the carrier.

A carrier may deny liability because, for example, its insured has breached the terms of his policy by failing to co-operate in the defense of the lawsuit brought by the injured person or by failing to give notice of an accident or of the beginning of an action against the insured. It may deny liability because although the person and the vehicle are covered by the policy the circumstances of the accident bring a policy exclusion into play, for example, that the person injured is an employee of the insured whose injury arose out of and in the course of his employment or was injured while an automobile insured as a pleasure vehicle was being used as a public conveyance. It may deny liability because it made no contract of insurance with the person and for the vehicle involved in the accident in question or because, though there was such a policy at one time, it had, prior to the accident, been canceled by the insurer or terminated by act of the insured.

In the first instance, the policy covers the driver, the vehicle and the accident and the carrier will be liable unless it disclaims liability because of the insured's breach. In the second, the policy covers the driver and the vehicle and the accident would be covered except for the specific policy exclusion and the carrier must deny coverage on the basis of the exclusion if it is not to mislead the insured and the injured person to their detriment. In the third, though the carrier may have some other relationship with the owner or driver of the vehicle, it has no contract with that person with respect to the vehicle involved and, there being no contractual relationship with respect to the vehicle, is not required to deny coverage or otherwise respond to a claim arising from an accident involving that vehicle except as statute mandates or courtesy suggests. Though the second and third situations may both the denominated a denial of coverage, there is a basic distinction between them; as the Trial Judge put it, in the second there is no coverage 'by reason of exclusion,' in the third, by reason of 'lack of inclusion.' We disagree, however, with his conclusion that because both situations fit within the meaning of the words 'denial of coverage' both were intended to be covered by subdivision 8 of section 167.

In the interpretation of statutes the 'of facial ambiguity is * * * rarely, if ever, conclusive' (New York State Bankers Assn. v. Albright, 38 N.Y.2d 430, 436, 381 N.Y.S.2d 17, 343 N.E.2d 735). Literal interpretation of the words used will not be accorded when to do so will occasion great inconvenience, or produce inequality, injustice or absurdity (Matter of Hogan v. Culkin, 18 N.Y.2d 330, 335, 274 N.Y.S.2d 881, 221 N.E.2d 546; Matter of Petterson v. Daystrom Corp., 17 N.Y.2d 32, 38, 268 N.Y.S.2d 1, 215 N.E.2d 329; Matter of Meyer, 209 N.Y. 386, 389, 103 N.E. 713; McKinney's Cons. Laws of N.Y., Book 1, Statutes, § 111, pp. 233-234). It is, moreover, always presumed that no unjust of unreasonable result was intended and the statute must be construed consonant with that presumption (Matter of Breen v. New York Fire Dept. Pension Fund, 299 N.Y. 8, 19, 85 N.E.2d 161; McKinney's Statutes, § 143), the court looking to the purpose of the legislation as a whole rather than its literal words (New York State Bankers Assn. v. Albright, 38 N.Y.2d 430, 437, 381 N.Y.S.2d 17, 343 N.E.2d 735, supra).

The purpose for which subdivision 8 of section 167 was enacted was to avoid prejudice to the insured, the injured claimant and the Motor Vehicle Accident Indemnity Corporation, each of whom could be harmed by delay in learning of the carrier's position (Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, 267, 317 N.Y.S.2d 309, 265 N.E.2d 736, supra). It was not, however, to provide an added source of indemnification which had never been contracted for and for which no premium had ever been paid. Here, as in State Farm Mut. Auto. Ins. Co. v. Westlake, 35 N.Y.2d 587, 592, 364 N.Y.S.2d 482, 324 N.E.2d 137, to hold Home for Michael's accident in the Mercedes Benz on either of the policies written by Home on Judith's MG or Dominick's Chevrolet would be to rewrite the policy to expose Home to a risk (an accident in the Mercedes Benz when driven by someone other than Judith in the one case or Dominick in the other) never contemplated by the parties and for which Home had never been compensated, though the Insurance Law requires that a rate commensurate with the risk assumed be charged without deviation or discrimination (see §§ 180, 183-186). Home argues that if the subdivision be...