The New York Court of Appeals settled a longstanding debate over the scope of Insurance Law section 3420 by ruling it “encompasses situations where both insureds and risks are located in this state.” The debate raged under the old 3420, which applied to policies “issued for delivery” in New York, and was reinvigorated following the revision of 3420 as applicable to policies “issued or delivered” in New York.
In the action underlying the coverage dispute of <a href="http://www.nycourts.gov/reporter/3dseries/2017/2017_08163.htm"><em>Carlson v. Amer. Int’l Group, Inc.</em></a>, Claudia Carlson was killed in a car accident by a truck with a DHL Worldwide Express, Inc. logo. DHL hired MVP Delivery and Logistics, Inc. to supply delivery services in Western New York, where the accident occurred. The Estate obtained a $7.3 million verdict in their wrongful death suit. MVP’s insurer contributed $1.1 million toward the verdict, and the Carlson Estate obtained the right to pursue further amounts from DHL’s insurer, in this case National Union Fire Insurance Co. (“National Union”) and American Alternative Insurance Co. (“AAIC”). Although American International Group, Inc., and AIG Domestic Claims, Inc. (collectively “AIG”), did not issue any pertinent policy to DHL, both were named as defendants.
AAIC issued a policy providing “hired auto” coverage to Airborne Inc. (headquartered in Washington State), DHL’s predecessor. DHL issued a similar policy providing “hired auto” coverage to DHL (headquartered in Florida), and a second policy providing umbrella coverage. The Carlson Estate sued AIG and DHL seeking satisfaction of the outstanding judgment pursuant to Section 3420, and alleging a host of causes of actions alleging unfair business practices, including bad faith. National Union and AAIC argued the first cause of action, seeking contribution to settlement, should be dismissed in part because the pertinent policies were not “issued or delivered” in New York as required Section 3420. Reversing the trial court, the Fourth Department held the policies were not issued or delivered in New York, holding instead they were issued in New Jersey (from AAIC’s offices), and delivered in Washington and then Florida.
On appeal, the Court of Appeals reversed the Fourth Department on this issue, and held the policies were “issued or delivered” in New York. Based on a previously issued General Counsel Opinion underlying Section 3420, the Court noted, “[T]he proper interpretation of the term ‘issued or delivered in this state’ refers both to a policy issued for delivery in New York, and a policy issued for delivery outside of New York.” The Court recognized that the location of the risk and the location of the insured, rather than the location of the physical insurance policy, controlled. As a matter of public policy, the Court reasoned the outcome was consistent with the legislative intent behind Section 3420, which “created this statutory cause of action to remedy the inequity of the common law rule that an injured person had no cause of action against the insurer of a tortfeasor and to protect the tort victims of New York.” The Court further recognized DHL purchased insurance coverage for its package delivery services, a substantial portion of which occurred within New York State.
The Court of Appeals’ decision amounts to a common sense recognition of business reality: not all businesses regularly operating within New York are domiciled or headquartered there. It would be presumptively unfair to afford the business the economic benefits of providing services within the state, while not holding the same business accountable under New York law. That said, the decision was decided on a 4-3 split, and featured a strongly worded dissent that perceived the majority ruling as unduly expansive. The dissent predicts this decision will open the proverbial can of worms. Ultimately, if an insurer seeks to limit risk to geographic locations, care should be taken in the underwriting process, and the policy should be issued with specific endorsements to that effect.
Thanks to Chris Soverow for his contribution to this post.