- New York Court of Appeals Rebuffs Homeowner Insurer’s Efforts to Avoid Wrongful Death Coverage
- August 2, 2011 | Author: Guy J. Levasseur
- Law Firms: Wilson Elser Moskowitz Edelman & Dicker LLP - Florham Park Office ; Wilson Elser Moskowitz Edelman & Dicker LLP - White Plains Office
The New York Court of Appeals rebuffed a homeowner’s insurer’s efforts to avoid coverage by finding the term “benefit” as used in an exclusion barring bodily injury coverage where an insured received benefits under the policy did not include the insured’s right to defense and indemnification coverage in a wrongful death suit.
On June 9, 2011, the Court of Appeals decided Eric Cragg v. Allstate, 2011 NY Slip Op 04767, No. 118. This dispute arose from the tragic death of three-year-old Kayla Cragg, who drowned in a swimming pool at her grandparents’ home, where she resided with them and her mother. Her father, who was not an insured under the policy, brought suit against the child’s mother and grandparents and obtained a default judgment against the child’s mother in excess of $100,000. He then commenced a declaratory judgment action against the homeowner’s insurer seeking a declaration that the insurer was obligated to defend and indemnify its insureds.
Lower Courts’ Decisions
The insurer won at the trial, and on appeal the Fourth Department affirmed, stating that “there is no coverage for the simple reason that a homeowner’s insurance policy is essentially designed to indemnify the policyholders against liability for injuries sustained by non-insureds.” (Emphasis added.) It also stated that allowing coverage would result in a benefit to the mother, an insured, which “violates the plain language of the policy and thus is untenable.”
New York Court of Appeals Decision
The Court of Appeals reversed. It found that the exclusion barring coverage, “whenever any benefit of this coverage would accrue directly or indirectly to an insured,” was ambiguous because the term “benefit” was undefined. The Cragg Court acknowledged that the exclusion could be read “to mean that bodily injury to an insured is not covered whenever any benefit - including coverage itself in the form of defense and indemnification - would accrue to an insured.” Slip op. at 5 On the other hand, it also noted that “a benefit must mean something other than the coverage itself and is more naturally read to mean proceeds paid under the policy.” Faced with these conflicting interpretations, the Court sided with the plaintiff and construed the exclusion against the insurer. In so ruling, the Court noted that in a recent factually similar case, Day v. Allstate, 2011 WI 24 (April 29, 2011), the Wisconsin Supreme Court held the insurer had failed to meet its burden of proving that the term “benefit,” as used in the exclusion, included a defense and indemnification.
Interestingly, the exclusion in question had been modified by the insurer to include benefits that went “indirectly” to an insured. This was done after a 1990 appellate court decision that held the earlier version of the exclusion did not bar defense and indemnification coverage for parents defending a counter-claim filed by the state in response to a negligence suit the parents brought on behalf of one of their children injured in a diving accident in a state-owned lake. The insurer’s efforts to redraft the exclusion to restrict coverage were unpersuasive to the Cragg Court, which found that the amendments actually narrowed the breadth of the exclusion: “Instead of making the exclusion broader, the additional language can be read as limiting application of the exclusion to situations where an insured would receive a benefit (i.e., payment) under the policy. . . As relevant to this appeal, however, the exclusion fails to bar unambiguously payment to a noninsured plaintiff...[for] wrongful death claims arising from the fatal injury to an insured.” Slip op at 6.
Impact of Cragg Decision
Cragg teaches this lesson under New York law: In the context of a homeowner’s policy exclusion barring coverage where an insured receives “benefits” under the policy, where - as here - the term “benefit” does not unambiguously include an insured’s right to defense and indemnification, the exclusion would likely be inapplicable, and - absent some other defense to coverage - the policy would likely be obligated to defend and indemnify any insured against claims or suits by non-insured entities.