Voiding Coverage Of A Liability Policy Because Of The Insured s Non-Cooperation

Transcription

1 Voiding Coverage Of A Liability Policy Because Of The Insured s Non-Cooperation Insurers sometimes inquire about disclaiming coverage under the liability section of their policy because their insured has failed to cooperate in the defense of the action brought against the insured. Because the burden upon the insurer to demonstrate lack of cooperation on the part of the insured so as to successfully disclaim coverage under the liability section of the policy is so heavy, it is helpful to review the legal standard for successfully disclaiming coverage based upon the insured s failure to cooperate. Our Court of Appeals in Coleman v. New Amsterdam Casualty Company, 247 N.Y. 271 (1928) first set forth the standard for an insurer to disclaim coverage under the liability section of the policy based upon its insured s failure to cooperate. When discussing an insured s failure to cooperate, the Court of Appeals in Coleman v. New Amsterdam Casualty Company, supra, stated: 247 N.Y. at 276, 277. The attitude of this assured was one of willful and avowed obstruction.... The default of the assured was more than sluggishness or indifference, phases of thought and conduct that might be the subject of varying inferences when considered by a jury. It was so avowed and purposed that but one inference is possible.... When the condition was broken, the policy was at an end, if the insurer so elected. The case is not one of the breach of a mere covenant, where the consequences may vary with fluctuations of the damage. There has been a failure to fulfill a condition upon which obligation is dependent. Almost forty years later, in Thrasher v. United States Liability Insurance Company, 19 N.Y.2d 159, 278 N.Y.S.2d 793 (1967), the Court of Appeals refined the standard imposed upon the insurer to demonstrate that the insured s failure to cooperate warrants a disclaimer of coverage. In Thrasher v. United States Liability Insurance Company, supra, the Court of Appeals stated: Since the defense of lack of co-operation penalizes the plaintiff for the action of the insured over whom he has no control, and since the defense frustrates the policy of this State that innocent victims of motor vehicle accidents be recompensed for the injuries inflicted upon them..., the courts have consistently held that the burden of proving the lack of co-operation is a heavy one indeed. Thus, the insurer must demonstrate that it acted diligently in seeking

2 278 N.Y.S.2d at 800. to bring about the insured s co-operation...; that the efforts employed by the insurer were reasonably calculated to obtain the insurer s co-operation...; and that the attitude of the insured, after his co-operation was sought, was one of willful and avowed obstruction. A review of current case law adjudicating disclaimers of coverage based upon the insured s failure to cooperate reveals that Thrasher v. United States Liability Insurance Company, supra, has become the gold standard for determining whether liability insurance coverage has been validly disclaimed. Therefore, when contemplating whether or not an insurer can disclaim coverage based upon the insured s failure to cooperate with the defense of the claim brought against him, it is advisable for the insurer to expend all efforts possible to secure the insured s cooperation, and to memorialize those efforts before attempting to disclaim coverage. The following is a review of some recent cases which have adjudicated various bases proffered by the insurer for disclaiming coverage due to their insured s failure to cooperate. Sometimes it is the case that the insured has failed to appear for their prescheduled deposition, trial, or some other proceeding where their appearance was required. In that same instance, not only must the insurer have been very thorough in their attempt to locate the insured, but the insurer must have also previously advised the insured of their contractual obligation to appear for a deposition, trial, etc., and warned the insured that their failure to do so could result in a denial of coverage. For example, in Campbell v. Travelers Insurance Company, 35 A.D.2d 362, 317 N.Y.S.2d 444 (3rd dept. 1970) the insured initially cooperated with the insurer, but thereafter failed to appear for two prescheduled depositions, and then failed entirely to communicate with the insurer. The insurer advised the insured of his prescheduled deposition dates, made numerous inquiries at the insured s parents home, police office, and sheriff s office to determine the insured s whereabouts, investigated multiple addresses where the insured may have been located, interviewed witnesses who may have had information concerning the insured s location, and sent various notices to the insured requesting his cooperation. Further, the insurer attempted to maintain communication with the insured throughout the pendency of the underlying litigation, and at times advised the insured that he must remain in contact with the insurer so as to assist in the defense of the action against him. Under these circumstances, the Appellate Division, Third Department ruled that the insured s failure to appear for two prescheduled depositions was sufficient grounds to disclaim liability on the basis of noncooperation. In State Farm Fire and Casualty Company v. Imeri, 182 A.D.2d 683, 582 N.Y.S.2d 463 (2nd Dept. 1992) the Appellate Division, Second Department examined

3 the efforts expended by the insurer to locate their missing insured and bring about his cooperation. In this regard, the insurer s representative made telephone calls and personal visits to the insured s last known residence and business address, undertook a Department of Motor Vehicles search for the insured, conducted a postal search and prison index inquiry, canvassed several establishments where the insured was known to frequent, and personally interviewed the insured s former employer, all in an effort to locate the insured and obtain his cooperation. Additionally, the insurer demonstrated that they provided both verbal and written instruction to the insured of his contractual obligation to cooperate in the defense of the action against him. Once again, under these circumstances the insurer was permitted to disclaim liability coverage on the basis of the insured s non-cooperation. By contrast, in Van Opdorp v. Merchants Mutual Insurance Company, 55 A.D.2d 810, 390 N.Y.S.2d 279 (4th Dept. 1976) the insured informed the insurer at the outset of the underlying personal injury action that he no longer resided in New York, but rather, resided in Newport, Rhode Island (approximately 450 miles from where the action was venued), and that his mother was terminally ill with cancer and thus he preferred to stay by her side. Thereafter, the insured failed to appear for his prescheduled deposition even though he had been advised by the insurer that his failure to appear would result in a disclaimer of coverage. Indeed, the insurer had twice notified the insured of his prescheduled deposition date and warned the insured that his failure to appear for the deposition would result in a disclaimer of coverage. The Appellate Division, Fourth Department ruled that issues of fact remained as to the insurer s efforts to secure the insured s cooperation, specifically suggesting that the insured should have been provided with an opportunity to conduct his deposition in his new home state, conduct his deposition shortly before trial so that the insured make only one trip to New York State, or conduct his deposition by telephone. The court ruled that the insured did not demonstrate willful and avowed obstruction, and therefore, the insurer s motion for summary judgment requesting a declaratory judgment that there was no coverage was denied. Additionally, in Liberty Mutual Insurance Company v. Roland-Staine, 21 A.D.3d 771, 802 N.Y.S.2d 6 (1st Dept. 2005) the insurer was unable to communicate with the insured despite the fact that the insurer dispatched a special investigator to the insured s home, mailed four letters to the insured both by certified mail return receipt requested and by regular first class mail, and left a letter at the insured s home, all requesting that the insured contact the insurer. The Appellate Division, First Department ruled that the insurer did not demonstrate that the insured s failure to cooperate was deliberate or willful, specifically noting that: although the insurer s investigator visited the two locations where the Department of Motor Vehicles had indicated the insured may have resided, the investigator failed to question anyone at either location as to the insured s whereabouts; the correspondence the insurer sent by certified mail return receipt requested was returned as unclaimed, and there was no direct proof that the correspondence sent by regular mail was actually received by the

4 insured; and lastly, the insurer failed to contact the driver of the insured s automobile so as to inquire about the insured s location. As such, the insurer was not permitted to disclaim coverage on the basis of non-cooperation. And finally in this regard, in Mount Vernon Fire Insurance Company v. 170 East 106th Street Realty Corp., 212 A.D.2d 419, 622 N.Y.S.2d 758 (1st Dept. 1995) the insured initially communicated with the insurer about the underlying occurrence, and indeed, executed the verification of a pleading served in his defense. Thereafter, the insured failed to provide various documents and information requested by the insurer, and ceased further communication with the insurer. The insurer was unable to locate the insured at any of his known addresses and telephone numbers. The court did not permit the insurer to disclaim coverage on the basis of non-cooperation, in part because the insurer never advised the insured that his additional cooperation (after he had verified the pleading and initially provided information) would be necessary, and the insurer never specifically warned the insured that his failure to cooperate could lead to a disclaimer of coverage. There are of course other grounds for disclaiming coverage on the basis of the insured s failure to cooperate. For example, where the insured has provided materially false information concerning the underlying claim the insurer may disclaim coverage on the basis of non-cooperation. In Government Employees Insurance Company v. Fisher, 54 A.D.2d 1087, 388 N.Y.S.2d 747 (4th Dept. 1976) the insured falsely reported to the insurer (and to the police) that he was a passenger in the collision involving his automobile. Approximately a year later, it was discovered that the insured was the driver in this same collision. The Appellate Division, Fourth Department in Government Employees Insurance Company v. Fisher, supra, permitted the insurer to disclaim liability coverage based upon the insured s violation of the cooperation clause in the policy because he provided materially false information to the insurer. More recently, in Nationwide Mutual Insurance Company v. Graham, 275 A.D.2d 1012, 713 N.Y.S.2d 602 (4th Dept. 2000) the insured informed the insurer that his pickup truck had been stationery and that no one was driving it when the claimant fell while standing on the bed of the truck. Subsequently, the insurer learned from the claimant that, in fact, the insured had been driving his pickup truck when the claimant fell. The Appellate Division, Fourth Department in Nationwide Mutual Insurance Company v. Graham, supra, stated that the insured s failure to provide truthful information when reporting the incident to the insurer constituted a breach of the cooperation clause in the policy, and thus, permitted the insurer to disclaim coverage on that same basis. And finally, although it rarely occurs, where an insured insists upon representing herself in the underlying negligence action rather than being represented by an attorney hired by the insurer, such insistence on the part of the insured can constitute non-cooperation sufficient to void coverage under the Thrasher v. United States Liability

5 Insurance Company, supra, standard. In Atlantic Mutual Insurance Company v. Struve, 210 A.D.2d 112, 621 N.Y.S.2d 5 (1st Dept. 1994) the insurer first provided defense counsel of its choosing, and then provided defense counsel of the insured s choosing (after the insured fired the attorneys selected by the insurer). Shortly thereafter, the attorney selected by the insured petitioned the court to be relieved, citing the insured s lack of cooperation and dissatisfaction with his representation. Ultimately, the insured insisted upon defending herself. The Appellate Division, First Department in Atlantic Mutual Insurance Company v. Struve, supra, permitted the insurer to disclaim defense and indemnity coverage on the basis that the insured violated the cooperation provision in her policy by not permitting the insurer to provide an attorney at their expense to defend her in the underlying action. In this regard, the Appellate Division, First Department stated: 621 N.Y.S.2d at 7. Moreover, plaintiff, whose financial interests are at risk in the underling action, does not have to place the defense of that action in the hands of a non-lawyer insured, who, whatever her fervor in the defense of that action, more than likely does not have the requisite ability to defend the action properly or share the insurer s financial interest in the outcome thereof. Nor, in answer to the argument advanced by one of the plaintiffs in the underlying defamation action in support of defendant s position herein, is an insurer required to show prejudice as a result of the insured s lack of cooperation. The above recitation of non-cooperation cases is by no means exhaustive. Rather, this review of authorities is meant simply to provide an understanding as to how the courts analyze non-cooperation cases, and to provide some examples as to how extreme the insured s non-cooperation must be in order for an insurer to successfully disclaim coverage under the liability section of the policy. If you have any questions concerning the issues discussed herein, please feel free to contact Paul J. Israelson, Esq. at (516) or at inslaw4u@optonline.net.