Both Insurers Lose Because of Lack of Proof
It is probably a certainty that courts are not thrilled when dealing with a dispute brought by an insured. They often prefer to rule against the insurer in favor of the insured. However, when one insurer sues another, it is difficult for the court to determine which party to favor. The result, often, is to punt.
In Lexington Insurance Company v. Allstate Insurance Company, Supreme Court Of The State Of New York Appellate Division, Second Judicial Department, 2016-02222, 2017 NY Slip Op 05213(June 28, 2017) an excess insurer, Lexington, sued Allstate, a primary insurer, to recover damages for breach of an insurance contract and for declaratory relief.
The defendant, Allstate, appealed from an order of the trial court, the Supreme Court, Nassau County (Sher, J.), which denied its motion for summary judgment dismissing the complaint and for a declaration in its favor, and granted the plaintiff’s motion for summary judgment on the complaint and declaring that the plaintiff’s policy provided only excess insurance coverage for a loss and that the defendant’s policy provided primary insurance coverage for that loss.
The plaintiff, Lexington Insurance Company, commenced this action against the defendant, Allstate Insurance Company. The plaintiff alleged that it issued an insurance policy to the holder of a home mortgage, and the defendant issued an insurance policy to the homeowner. The plaintiff paid its insured in response to a claim for benefits for damage to the home caused by a fire. Allstate refused to pay because its policy was cancelled before the loss.
Essentially, the plaintiff’s position was that the defendant would have covered this loss, as primary with respect to the plaintiff’s excess policy, had the defendant not improperly cancelled, and subsequently reinstated, the policy between the defendant and the homeowner.
Allstate moved for summary judgment dismissing the complaint and for a declaration in its favor. Lexington also moved for summary judgment on the complaint seeking a declaration that its policy provided only excess insurance coverage for the loss and that the defendant’s policy provided primary insurance coverage for that loss. The Supreme Court denied the Allstate’s motion and granted the Lexington’s motion. Allstate appealed.
“Indemnity is the right of a person who has been compelled to pay what another should have paid to require complete reimbursement. In the insurance context, the right to indemnity may arise, as in the case of contribution, either in the insurer’s own right or by way of subrogation to the right of its insured” (Couch on Insurance § 217:16 [3d ed]).
Where an excess insurer makes a payment which, as between it and the primary insurer, should have been paid by the latter, the excess insurer is entitled to recoup such payment by way of indemnity from the primary insurer.
If Allstate improperly cancelled and later reinstated the homeowner’s insurance policy, then it may be equitable for Allstatet to pay for the loss that would have been covered under its policy but for the improper cancellation.
Although,Lexington may be able to recover against the defendant on an equitable theory, Lexington has not shown, prima facie, that the policy between the defendant and the homeowner was improperly cancelled nor did Allstate prove that it had properly cancelled the policy issued to its insured.
As a result, Lexington failed to make a prima facie showing of entitlement to judgment as a matter of law by tendering sufficient evidence to eliminate all triable issues of fact. Likewise, Allstate, on its motion, failed to eliminate all triable issues of fact.
Thus, the Supreme Court properly denied the defendant’s motion, but should have denied the plaintiff’s motion. Both motions failed to prove the necessary elements of Lexington’s case nor the necessary elements of Allstate’s defense.
Insurance company lawyers know that when they file a motion for summary judgment they must produce evidence eliminating all issues of fact. Proving a valid cancellation should have been easy. A sworn declaration from the underwriter issuing the notice of cancellation and the documents involved that comply with state statutes. Failure to do so resulted in an appeal where both sides lost.
This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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