NGM Ins. Co. v. Blakely Pumping Inc., et al., No. 09-1655 (2d Cir. 2010)

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09-1655-cv NGM Ins. Co. v. Blakely Pumping Inc., et al. 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 -------- 4 August Term, 2009 5 (Argued: December 10, 2009 6 Decided: February 1, 2010) Docket No. 09-1655-cv 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 -----------------------------------------------------------X NGM INSURANCE COMPANY, 30 for the Southern District of New York (Young, J.) declaring that 31 NGM Insurance Company ( NGM ) is obligated to defend and 32 indemnify Blakely Pumping, Inc. ( Blakely Pumping ), against Plaintiff-Counter-Defendant-Appellant, - v. BLAKELY PUMPING, INC., d/b/a ASSENTIAL PUMPING, BRIAN J. BLAKELY, Defendants-Counter-Claimants-Appellees, PETER J. SLINGERLAND, NANCY SLINGERLAND, Defendants-Appellees, PROGRESSIVE CASUALTY INSURANCE COMPANY, Defendant.* -----------------------------------------------------------X Before: McLAUGHLIN, KATZMANN, LYNCH, Circuit Judges. Appeal from a judgment of the United States District Court * Progressive Casualty Insurance Company did not appear before this Court or the court below since it has settled all claims related to its role as Brian Blakely s insurer. The Clerk of the Court is directed to amend the official caption as set forth above. 1 liability arising out of an auto accident involving one of 2 Blakely Pumping s officers. 3 insurance policy in question did not cover the officer s auto 4 under any circumstances and, therefore, the district court erred 5 in finding that New York Insurance Law § 3420(d)(2) required NGM 6 to timely disclaim coverage. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 On appeal, NGM argues that the We agree. REVERSED. HAYDN J. BRILL, Brill & Associates, P.C., New York, New York, for PlaintiffCounter-Defendant-Appellant. ROBERT D. COOK, Cook, Netter, Cloonan, Kurtz & Murphy, P.C., Kingston, New York, for Defendants-Counter-ClaimantsAppellees. PAUL J. GOLDSTEIN, Goldstein & Metzger, LLP, Poughkeepsie, New York, for Defendants-Appellees. PER CURIAM: NGM Insurance Company ( NGM ) appeals from a judgment of the 23 United States District Court for the Southern District of New 24 York (Young, J.) declaring that NGM is obligated to defend and 25 indemnify Blakely Pumping, Inc. ( Blakely Pumping ), against 26 liability arising out of an auto accident involving Brian Blakely 27 ( Blakely ), an officer and employee of Blakely Pumping. 28 Pumping had purchased an insurance policy and endorsement from 29 NGM that covered liability arising out of the use of a Hired 30 Auto or Non-Owned Auto terms defined so as not to include an 31 auto owned by an executive officer or employee of Blakely 2 Blakely 1 Pumping. The determinative question is whether these definitions 2 constitute exclusions of coverage. 3 required under New York Insurance Law § 3420(d)(2) to timely 4 notify Blakely Pumping that it was disclaiming coverage based on 5 a policy exclusion. 6 court erred in finding that the definitions were exclusions since 7 Blakely s auto could not qualify as a Hired Auto or Non-Owned 8 Auto under any circumstances. 9 agree and reverse the district court s judgment. On appeal, NGM argues that the district For the reasons stated herein, we BACKGROUND 10 11 If they do, NGM was On November 3, 2005, Blakely crashed his pickup truck into 12 Peter Slingerland s car in Kingston, New York. Blakely was 13 driving the truck in the course of his work for Blakely Pumping, 14 as he frequently did. 15 personal injury action against both Blakely and Blakely Pumping. 16 In a letter dated March 18, 2006, Blakely Pumping requested Slingerland and his wife brought a 17 that NGM defend the action pursuant to an insurance policy for 18 Businessowners Liability Coverage (the Policy ) that Blakely 19 Pumping had purchased from NGM. 20 liability for personal injuries but contained a section entitled 21 Exclusions that expressly disclaimed coverage for damages 22 arising out of the ownership, maintenance, use or entrustment to 23 others of any . . . auto . . . owned or operated by or rented 24 or loaned to any insured. The Policy generally covered Blakely Pumping, however, had also 3 1 purchased an endorsement (the Endorsement ) from NGM that 2 modified the Policy; the Endorsement extended coverage to bodily 3 injury arising from the use of a Hired Auto or a Non-Owned 4 Auto by the company or one of its employees. 5 defined these terms as follows: 6 7 8 9 10 11 12 13 14 15 16 The Endorsement Hired Auto means any auto you lease, hire or borrow. This does not include any auto you lease, hire or borrow from any of your employees or members of their households, or from any partner or executive officer of yours. Non-Owned Auto means any auto you do not own, lease, hire or borrow which is used in connection with your business. On March 23, 2006, NGM disclaimed coverage, based on the 17 Policy s exclusion for autos. In a letter dated July 24, 2006, 18 counsel for the Slingerlands called NGM s attention to the 19 Endorsement s extension of coverage for bodily injuries arising 20 out of the use of a Hired Auto or Non-Owned Auto. 21 later, NGM again disclaimed coverage, this time on the ground 22 that Blakely was an executive officer of Blakely Pumping and 23 therefore his pickup truck was neither a Hired Auto nor Non- 24 Owned Auto as defined in the Endorsement. Two weeks 25 On July 19, 2007, NGM sued Blakely Pumping, Blakely, and the 26 Slingerlands, seeking a declaratory judgment that it was under no 27 obligation to defend or indemnify Blakely Pumping. 28 2009, after the parties cross-moved for summary judgment, the 29 district court entered a judgment declaring that NGM was indeed 4 On March 24, 1 obligated to defend and indemnify Blakely Pumping.1 2 court concluded that Blakely Pumping had borrowed the auto of one 3 of its officers and that the accident was therefore not covered 4 under the terms of the Policy as modified by the Endorsement, 5 this did not end the analysis. 6 Insurance Law § 3420(d)(2), requiring insurers to provide written 7 notice when they disclaim coverage pursuant to a policy 8 exclusion. 9 generally covered auto accidents, the definitions of Hired Although the The court turned to New York According to the court, since the Endorsement 10 Auto and Non-Owned Auto constituted exclusions of that general 11 coverage. 12 that it was disclaiming coverage on the ground that Blakely s 13 pickup truck was neither a Hired Auto nor Non-Owned Auto ; but 14 because NGM originally disclaimed coverage pursuant to the 15 Policy s exclusion for autos, it had waived its right to disclaim 16 coverage on other grounds. 17 disclaimer was ineffective, meaning NGM could not now rely on 18 those exclusions. NGM was therefore required to provide written notice Thus, NGM s subsequent notice of 1 With the parties consent, the district court treated the case as a case stated, a procedural device most often used in the First Circuit. In a case stated, the parties stipulate a record for decision allow[ing] the judge to decide any significant issues of material fact that he discovers. Boston Five Cents Sav. Bank v. Sec y of Dep t of Hous. & Urban Dev., 768 F.2d 5, 11-12 (1st Cir. 1985) (Breyer, J.); see also United Paperworkers Int l Union, Local 14 v. Int l Paper Co., 64 F.3d 28, 31 (1st Cir. 1995). Because the district court decided only an issue of law below, the use of the case stated procedure has no bearing on our analysis. 5 DISCUSSION 1 2 We review de novo the district court s conclusions of law. 3 BrandAid Mktg. Corp. v. Biss, 462 F.3d 216, 218 (2d Cir. 2006). 4 5 According to New York Insurance Law § 3420(d)(2), which the parties agree controls, 6 7 8 9 10 11 12 13 14 15 The statute s purpose is to avoid prejudice to the insured, the 16 injured claimant and the Motor Vehicle Accident Indemnity 17 Corporation, each of whom could be harmed by delay in learning of 18 the carrier s position. 19 131, 137 (1982). 20 coverage in a timely manner, it is precluded from later 21 successfully disclaiming coverage. 22 of Nassau, 46 N.Y.2d 1028, 1029 (1979). 23 [i]f under a liability policy issued or delivered in [New York], an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident . . . 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. Zappone v. Home Ins. Co., 55 N.Y.2d If the insurance carrier fails to disclaim Hartford Ins. Co. v. County In the seminal case Zappone v. Home Insurance Co., the New 24 York Court of Appeals interpreted the statute as requiring notice 25 only for a denial of liability predicated upon an exclusion set 26 forth in a policy which, without the exclusion, would provide 27 coverage for the liability in question. 28 other words, notice is required where there is no coverage by 29 reason of exclusion. Id. at 137. 6 55 N.Y.2d at 134. In The Zappone court held that 1 the statute does not apply, however, where the policy as written 2 could not have covered the liability in question under any 3 circumstances, id. at 134; that is, notice is not required where 4 there is no coverage by reason of lack of inclusion, id. at 137 5 (internal quotation marks omitted). 6 insurance coverage to liabilities incurred neither by the person 7 insured nor in the vehicle insured. This rule avoids extending Id. at 135. 8 Determining whether there is no coverage by reason of 9 exclusion as opposed to lack of inclusion can be problematic. 10 Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 189 (2000). 11 We find guidance in Planet Insurance Co. v. Bright Bay Classic 12 Vehicles, Inc., 75 N.Y.2d 394 (1990), a case that is particularly 13 applicable to the facts before us. 14 Appeals considered whether definitional language that did not 15 appear in the section of an insurance policy entitled 16 Exclusions eliminated coverage by reason of exclusion or lack 17 of inclusion. 18 question for its fleet of rental cars. 19 covered rental cars as those rented for periods of less than 12 20 months. 21 in an accident while being rented for a 24-month period. 22 court found that, although the insurance company disclaimed 23 coverage based on the definition of covered rental cars as 24 opposed to a provision in the policy s Exclusion section, the There, the New York Court of Defendant Bright Bay obtained the policy in Id. at 398. The policy defined One of Bright Bay s cars was later involved 7 The 1 definition s limiting language still amounted to an exclusion. 2 Id. at 400. 3 covered by the policy and only became uncovered upon the 4 happening of a subsequent event: i.e., the rental . . . for a 5 lease period other than that prescribed in the policy. 6 401. 7 where there was never a policy in effect covering the involved 8 automobile. 9 The court explained that the car was initially Id. at Since the car was at one point covered, this was not a case Id. In the instant case, the principal issue in dispute is 10 whether the district court erred in finding that the 11 Endorsement s definitions of Hired Auto and Non-Owned Auto 12 constitute exclusions requiring a notice of disclaimer.2 13 conclude that the district court did err in so finding. 14 We The Endorsement did not generally cover auto accidents; it 15 covered only accidents arising from the use of a Hired Auto or 16 Non-Owned Auto. 17 employee s or officer s vehicle, like Blakely s pickup truck, 18 could never be covered. Those terms were defined in such a way that an This is not a case then where the 2 Blakely Pumping also suggests that simply because it has a contractual relationship with NGM, anything limiting NGM s coverage must be an exclusion. However, while the Policy broadly covered liability for personal injuries, NGM did, in fact, timely disclaim based on the Policy s general auto exclusion. The question, then, is whether NGM s disclaimer needed to specifically reference the Endorsement to be effective, and that question turns on the proper interpretation of the definitions of Hired Auto and Non-Owned Auto. Accordingly, the sheer fact of Blakely s contractual relationship with NGM does not resolve the matter. 8 1 happening of a subsequent event implicated a definitional term 2 that uncovered a formerly covered car. 3 case in which the policy as written could not have covered the 4 liability in question under any circumstances. 5 N.Y.2d at 134. 6 lack of inclusion, and thus no notice of disclaimer was 7 required. 8 9 Id. Rather, it is a Zappone, 55 In short, there was no coverage by reason of Id. at 137 (internal quotation marks omitted). The Appellees direct us to two cases in which New York appellate courts found that definitional language could 10 constitute a policy exclusion for the purposes of New York 11 Insurance Law § 3420(d)(2). 12 In Greater New York Mutual Insurance Co. v. Miller, 613 N.Y.S.2d 13 295 (App. Div. 1994), the Third Department found that an 14 insurance policy s definition of an insured was an exclusion 15 where it withheld coverage for drivers who used the auto in 16 question without permission. 17 dealt with an insurance policy that explicitly covered the auto 18 and its driver in many other circumstances. 19 This is a critical distinction. 20 36. 21 Neither case changes our analysis. But unlike the instant case, Miller See id. at 297. See Zappone, 55 N.Y.2d at 135- In United Services Automobile Association v. Meier, 454 22 N.Y.S.2d 319 (App. Div. 1982), the Second Department found that 23 various definitions in an insurance policy that withheld coverage 24 from individuals engaged in automobile businesses were 9 1 exclusions. 2 in effect, are nothing more than exclusions. 3 case, however, does not stand for the proposition that all 4 definitions that limit coverage are exclusions. 5 Meier court found that other definitions in the same policy 6 such as the definitions of owned vehicle, newly acquired 7 vehicle, and temporary substitute vehicle were not 8 exclusions. 9 of the vehicle in question to qualify as one of these defined 10 terms meant that there was never a contract of insurance with 11 the person or for the vehicle involved in the accident. 12 321. 13 14 Id. at 320-21. Id. at 321. This In fact, the According to the court, the failure Id. at We employ identical logic in our analysis. We have considered the Appellees other arguments and find them to be without merit. CONCLUSION 15 16 The court termed these negative definitions, which, The district court erred in finding that the Endorsement s 17 definitions of Hired Auto and Non-Owned Auto were exclusions 18 triggering the notice requirement of New York Insurance Law § 19 3420(d)(2). 20 conclusion that NGM would not be obligated to defend and 21 indemnify Blakely Pumping but for the operation of this statute, 22 we REVERSE. Because no party disputes the district court s 10

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