Chapter Twenty-Two

• Jurisdiction: New York

Chapter Twenty-Two

Motor Vehicle Coverage Issues

Anthony J. Piazza, Esq. Mark T. Whitford, Esq.*

* The authors acknowledge the contributions of Eric A. Fitzgerald, Esq., who participated in the preparation of the chapter in the first edition of Insurance Law Practice, and Guy A. Talia, Esq., who participated in the preparation of the chapter in the second edition of Insurance Law Practice.

I. Introduction

Analysis of insurance coverage issues in the context of an automobile policy is similar to any other coverage review. As with most insurance policies, an automobile policy has three fundamental sections: insuring agreement, exclusions and conditions.

In the first instance, if it is determined that a particular incident does not trigger a policy’s insuring agreement, then there is no coverage whatsoever. More specifically, if there is no claim of “bodily injury” or “property damage” arising out of an “accident,” then the policy does not apply to a particular loss. For example, if a driver admits that he used his vehicle as a weapon with the intent to injure an enemy, then there would be no coverage, since the incident giving rise to the claim was not an “accident.”

If, however, the insuring agreement has been triggered, then the analysis turns next to whether the claim falls within a particular policy exclusion. For example, if a non-owned vehicle is furnished for the insured’s regular use, then the policy’s exclusion for the same should preclude coverage.

Last, one must examine whether there has been compliance with a policy’s conditions. A common issue is whether a policyholder has provided the insurer with prompt notice of the incident.

This chapter addresses these three major topics in the context of an automobile insurance policy, and interpretation of these clauses by New York State courts. The chapter also addresses an issue peculiar to automobile coverage disputes: conflicting interests that arise when a rental vehicle is involved in an accident.

Ii. The Insuring Agreement

The insuring agreement often raises two coverage issues: (1) whether a claim involves an “accident” so as to satisfy the insuring agreement; and (2) the scope of the insurer’s duty to defend.

A. “Accident” Requirement

Most automobile liability policies are not triggered unless the insured is presented with a claim for “bodily injury” or “property damage” arising out of an “occurrence.” The term “occurrence” is generally defined as an accident. The N.Y. Court of Appeals has defined an accident to be an “event of an unfortunate character that takes place without one’s foresight or expectation” and an “unexpected, unfortunate occurrence.”²⁷¹⁷ Other decisions of the Court of Appeals and appellate courts hold that bodily injury or property damage should be viewed as accidental only if it was neither intended, nor of a sort which reasonably should have been expected to follow from the insured’s action.²⁷¹⁸ In Drew Chemical, the trial court found the appropriate definition of accident to be “an event of an unfortunate character that takes place without one’s foresight or expectation, an undesigned sudden event, a mishap, a mischance, a calamity of catastrophy [sic], a happening not in the usual course; fortuitously, unforeseen and without cause.”

Generally, whether an “accident” has occurred is to be determined from the insured’s viewpoint, and coverage may depend upon the degree of certainty with which the insured presumably must have anticipated that damage or injury would result.²⁷¹⁹

In Allstate Insurance Co. v. Bostick,²⁷²⁰ Bostick was struck and killed by an automobile operated by Hazel Wright. Wright was indicted for two counts of murder in the second degree, but following a jury trial was acquitted of intentional murder and convicted of depraved indifference murder. The decedent’s spouse commenced a wrongful death action against the driver, Hazel Wright, and the owner of the vehicle, Eugene Wright. Allstate commenced a declaratory judgment action, arguing that it had no obligation to defend or indemnify the driver in the wrongful death action. The court agreed, finding that Hazel Wright’s acts of turning her vehicle around, accelerating and striking the decedent with enough force to crush his skull, “cannot be deemed ‘an accident’ within the meaning of the policy.”²⁷²¹

In State Farm Mutual Automobile Insurance Co. v. Van Dyke,²⁷²² a van operated by Van Dyke struck and injured two claimants as they were walking down the street. As a result of the incident, Van Dyke was charged with assault in the second degree and ultimately pleaded guilty to vehicular assault in the second degree. The claimants commenced a personal injury action against Van Dyke and defendant Patchen, the owner of the van.

State Farm commenced an action seeking a declaration that it had no duty to defend either the driver Van Dyke or the owner Patchen in the underlying action on the ground that the injuries to the claimants were not caused by a covered “accident.” Following motions for summary judgment, the Supreme Court granted judgment declaring that State Farm must provide a defense to both the owner and the operator, but that the determination of whether State Farm had an obligation to indemnify the insureds must await the outcome of the underlying action.

This decision was affirmed by the Fourth Department, holding that the lower court properly determined that the first cause of action, alleging negligence, reckless and careless conduct, fell within the policy’s coverage of accidental injury. The court held: “Further, evidence that Van Dyke intentionally injured [the claimants] is insufficient to relieve [State Farm] of its duty to defend, in view of the contrary evidence that Van Dyke was intoxicated and did not intend to strike them.”²⁷²³

The policy requirement of an “accident” as a condition precedent to coverage is pertinent in the following types of cases: (1) “road rage”; (2) intentional striking of pedestrians; (3) evading police pursuit; and (4) staged accidents.²⁷²⁴

The condition precedent of an accident was at issue in a business auto policy in Michaels v. City of Buffalo.²⁷²⁵ In Michaels, an ambulance was called to provide transportation and treatment for the plaintiff, Michaels. After treatment, he was placed in the ambulance, but it would not start. A new ambulance was called and Michaels was transported to the hospital and died soon thereafter.

Michaels sued the ambulance service, among others, and the ambulance timely notified their business auto insurer. The insurer denied on the basis that the mechanical breakdown was not an “accident” as the term was defined in the policy. The motion court agreed and upheld the denial. The Appellate Division reversed, concluding that the term “accident” could be construed broadly enough to contemplate mechanical breakdown. The Court of Appeals reversed the Appellate Division, and upheld the denial. The Court held:

In this case, we must determine if mechanical failure and consequent delay is an accident within the meaning of the term as used in the policy. We conclude it is not. . . . The term “accident” as used in automobile insurance policies refers to an event involving some trauma, violence, or casualty, or application of external force in which the auto is involved. . . . The mechanical failure and resulting delay of the ambulance in this case did not amount to an accident under either the customary definition of accident or the policy’s expanded definition. Specifically, there was none of the extraordinary factors that distinguish accidents from other merely unexpected events, i.e., trauma, violence, casualty, suddenness, or an application of external force in which the auto was involved, and there was no continuous or repeated exposure. ²⁷²⁶

B. Duty to Defend, Generally

Where an insurance policy includes the insurer’s promise to defend the insured against specified claims, as well as to indemnify their actual liability, the insurer’s duty to furnish a defense is broader than its obligation to indemnify.²⁷²⁷ Moreover, the duty to defend arises whenever the allegations in a complaint against the insured fall within the scope of the risks undertaken by the insurer regardless of how false or groundless these allegations might be.²⁷²⁸ If the complaint against the insured asserts a single claim within the policy coverage, the insurer must defend the entire action, even though the complaint asserts additional claims or alternative theories clearly falling outside the policy’s coverage.²⁷²⁹

On the other hand, an insurer is not obliged to defend if it can be concluded as a matter of law that there is no possible factual or legal basis on which the insurer might eventually be held to be obliged,²⁷³⁰ or where the insurer can show that “the allegations of the complaint [are] solely and entirely within the policy exclusions, and, further, that the allegations, in toto, are subject to no other interpretation.”²⁷³¹ It has been held that an insurer has a duty to defend where the pleadings do not allege a covered occurrence but where the insurer has actual knowledge of facts demonstrating that the lawsuit does involve such an occurrence.²⁷³²

C. Duty to Defend in Automobile Cases

The Court of Appeals has held that an insurer has a duty to defend the driver, as well as the owner, of a vehicle in a personal injury action. This duty exists even though the insurer may reasonably conclude that the driver did not have the owner’s permission, so long as the complaint alleges that the driver had the owner’s permission and the issue has not been judicially resolved. Significantly, the Court of Appeals has awarded defense costs and attorney fees to the plaintiff in a declaratory judgment action based on permissive use, even though it was determined that the plaintiff was a non-permissive user. To be relieved of the broad duty to defend, there must be a judicial determination that the operator was a non-permissive user either...