Something Youll Want to Tell Your Insureds; One New Development; and Two Points Ive Overlooked
What Happens When Plaintiff Sues Your Insured By Serving the NY Secretary of State And the Summons Never Reaches Your Insured?
When your insured incorporated or formed an LLC, it agreed to permit claimants to serve notice of suit on the Secretary of State instead of serving the insured. Upon receiving service, the Secretary of State forwards the summons to the address on file.
A plaintiff served notice of suit against S P & S Associates on the Secretary of State. S P & S didn’t receive the notice from the Secretary of State because it had moved and never notified the Secretary of State of its new address. When S P & S failed to respond to the summons, the plaintiff ’s attorney filed a default judgment. S P & S was notified about the default judgment and sent that notice to its insurer, Insurance Company of Greater New York (GNY). GNY declined coverage due to late notice; the original summons had been served on the Secretary of State five and a half months earlier. The Appellate Division ruled that the insured’s failure to notify the Secretary of State of its change of address, which resulted in its not receiving the summons, did not excuse the late notice. GNY’s declination of coverage was upheld.1
Sadly, this in not an infrequent occurrence. In another case the Court of Appeals (New York’s highest court) wrote that it was “unquestionably practicable” for the insured to keep its address current with the Secretary of State to ensure that it would have received, and been able to provide, timely notice of the suit.2
You can help your insureds protect themselves. Send information about this potential problem to your clients and urge them to be sure that the Secretary of State has their correct addresses. Even if your client hasn’t moved, the law firm that handled the transaction may have used its address as the address for the newly formed corporation or LLC. If the law firm moves, notices from the Secretary of State may very well go astray.3
This is an inexpensive valued-added service you can easily provide. It may save your insured from losing coverage for a huge claim and it makes you stand out from the crowd.
Insurance Requirements Eliminated for Most Motor Truck Cargo Common Carriers
The regulations promulgated by the U.S. Department of Transportation (DOT),4 require motor-truck cargo common carriers to carry motor-truck cargo insurance with minimum limits of $5,000 for the contents of any one vehicle and $10,000 aggregate for losses at any one time and place. The insurance company providing this coverage is required to file a certificate, BMC 32, with the Federal Motor Carrier Safety Administration. An interesting wrinkle of this requirement is that the insurance company is responsible for all damage to the shipper’s property even if the cause of loss is excluded from the policy. Thus, if a policy excludes theft and a theft loss occurs, the insurance company is obligated to pay the claim and then go after its own insured for reimbursement if the insured did not voluntarily indemnify the shipper.
Effective March 21, 2011, the requirement to carry insurance has been eliminated for all carriers except household goods motor carriers and household goods freight forwarders.
An unsettled question concerns the obligation to pay non-covered losses after March 21st. If the endorsement is not removed from the policy, must the insurer still pay all claims even though the DOT regulation is no longer in force?
Extrinsic Evidence
Coincidence? I discussed ambiguity in the February 28th issue of the Insurance Advocate. On March 11th Rich Lewis5, an outstanding insurance lawyer who represents the interests of insureds, called me to discuss a case involving, of course, ambiguity.
I sent Rich a copy of my article and he pointed out that I’d overlooked a step when I discussed the topic. Rich said that when a court feels a provision is ambiguous, extrinsic evidence can be introduced to clarify the parties’ intentions. Extrinsic evidence includes evidence regarding an agreement that is not included in the written version of the agreement.6 In the case of insurance policies, it can include the proposals the insurer gave the insured prior to issuing the policy, testimony of experts concerning the insurance-industry understanding of the terms in question, and so forth. It can’t be used to interpret an unambiguous agreement. However, in the case of an ambiguous policy, extrinsic evidence can be introduced. If, after considering the extrinsic evidence, the court still can’t settle the meaning, the ambiguity is resolved in the insured’s favor.
Hidden in Plain Sight: Groundless, False or
Fraudulent Liability Claims Historically, insurance policies stated that general liability coverage applied, even if the allegations were groundless, false or fraudulent. The earliest one I have is from 1966, but the wording was in use long before that. In the 1986 ISO policy language simplification,7 the words “groundless, false or fraudulent” were dropped as redundant. The consensus was that the policy covered such claims even in the absence of the specific words. After all, the insuring agreement in current general liability policies reads “We will have the right and duty to defend the insured against any “suit” seeking those damages.” (Emphasis added.)
Nevertheless claims handlers sometimes confuse “coverage” with “obligation to defend and indemnify.” For example, insureds are sometimes sued for accidents occurring at properties they don’t own and with which they have no connection. When presented with such a claim, claims handlers sometimes say that the claim is not covered. That’s incorrect. There is coverage— the insured will need a defense— but, given the facts, there will be no indemnity payment. It was easier to settle such confusion when you could point to the “groundless, false, or fraudulent” wording. This will become more of a problem as those who remember the pre-1986 forms leave the industry. Fewer than half of those currently working in the property casualty started before 1986.
It’s an issue that’s always lurked in the back of my mind. I somehow missed the fact that it’s a non-issue in New York. When the new forms were introduced in 1986, the New York Insurance Department insisted that a special New York endorsement, currently ISO form CG 01 63 07 11 (New York Changes – Commercial General Liability Coverage Form) be attached to all New York CGL policies. And right there, hiding in plain sight, is the following substituted wording: “We will have the right and duty to defend the insured against any suit seeking those damages even if the allegations of the suit are groundless, false or fraudulent.” (emphasis added)
This is, of course, a typical good news/bad news situation. It’s good news for New York policyholders, but it may be bad news for policyholders in other states because the argument can be made that as New York felt the words were needed to provide coverage, if they are not in the policy, groundless, false or fraudulent claims are not covered. In my view that’s not a good argument. The New York Department was just taking a belt and suspenders approach.
