A garage policy which insures a temporary substitute is not on the hook for liability coverage (and possibly PIP)February 16, 2010

The Fourth Department – yes the same Justices who told us that collateral estoppel does not apply to arbitration decisions (see, In re Falzone, 64 AD3d 1149 [4th Dept. 2009])- released a really interesting opinion today.  Progressive Cas. Ins. Co. v Harco Natl. Ins. Co., 2010 NY Slip Op 01282 (4th Dept. 2010).  The facts are simple.  Tortfeasor receives a loaner vehicle and gets into accident.  Accident victim sues tortfeasor.  Tortfeasor has insurance through Progressive on a family vehicle.  Harco insures the temporary substitute.

Forget the competing excess and primary liability clauses in the insurance contracts for a minute.  That is what the Appellate Division wants us to think this case is about. The question I have is more fundamental and does not rely on contractual interpretation or the admissibility of parol evidence.  Namely, which insurance carrier should be deemed primary as to liability coverage and presumptively no-fault coverage?  Elrac Inc. v. Ward, 96 NY2d 58 (2001) would suggest that Harco should be primary.  Well, you would be wrong so says the Fourth Department.  Not only is Harco not primary but: “[F]inally, because the Harco policy does not provide coverage for the Webb defendants, there is no merit to Progressive’s contention that Harco had a duty to provide a timely disclaimer for the subject accident (see State Farm Mut. Auto. Ins. Co. v John Deere Ins. Co., 288 AD2d 294, 297). Thus, [*3]even assuming, arguendo, that the written disclaimer provided by Harco was insufficient, we conclude that “the failure to disclaim coverage does not create coverage which the policy was not written to provide” (Zappone v Home Ins. Co., 55 NY2d 131, 134).

We thus conclude that the Progressive policy provides primary coverage for the subject accident and that Harco is not obligated to defend or indemnify the Webb defendants in the underlying action.”

Perhaps the no-fault endorsement of the garage policy should be read differently from the remainder of the garage policy since it is separate and distinct from the underlying liability policy.  Utica Mut. Ins. Co. v Timms , 293 AD2d 669, 670 (2d Dept. 2002).  Also, since this is a garage policy and not a standard liability policy, maybe we can avoid the ultimate PIP primacy issue that I see here.  But, I cannot help but think that priority of payment litigation involving rental cars is going to arise again.  This time, however, the rental car company is going to say that their contract supersedes 65-3.12.  But see, M.N. Dental Diagnostics, P.C. v. Government Employees Ins. Co., 24 Misc.3d 43 (App. Term 1st Dept. 2009); SZ Medical, P.C. v. Lancer Ins. Co., 7 Misc.3d 86 (App. Term 2d Dept. 2005).  Could this decision somehow be related to the “Graves Amendment”.  See, 49 USC sec 30106.

Needless to say, I am confused right now.