         SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department
1583
CA 10-00264
PRESENT: MARTOCHE, J.P., CENTRA, FAHEY, LINDLEY, AND SCONIERS, JJ.


PROGRESSIVE NORTHEASTERN INSURANCE COMPANY,
PLAINTIFF-RESPONDENT,

                    V                             MEMORANDUM AND ORDER

STATE FARM INSURANCE COMPANIES, CRAIG DONAGHEY,
GLORIA CARD, JEANETTE BOSKET, CANDICE A. RHEA,
GABE’S AUTO, DEFENDANTS-RESPONDENTS,
CHARTER OAK FIRE INSURANCE COMPANY,
DEFENDANT-APPELLANT,
ET AL., DEFENDANT.


HISCOCK & BARCLAY, LLP, ROCHESTER (JOSEPH A. WILSON OF COUNSEL), FOR
DEFENDANT-APPELLANT.

MACKENZIE HUGHES LLP, SYRACUSE (RYAN T. EMERY OF COUNSEL), FOR
DEFENDANTS-RESPONDENTS STATE FARM INSURANCE COMPANIES AND CANDICE A.
RHEA.

COLELLA LAW OFFICE, CHITTENANGO (JOHN D. COLELLA OF COUNSEL), FOR
DEFENDANT-RESPONDENT GABE’S AUTO.


     Appeal from a judgment (denominated order) of the Supreme Court,
Onondaga County (John C. Cherundolo, A.J.), entered October 14, 2009
in a declaratory judgment action. The judgment, inter alia, declared
that defendant Charter Oak Fire Insurance Company is obligated to
defend and indemnify Gabe’s Auto, Gabriel O’Loughlin and Craig
Donaghey in an underlying personal injury action.

     It is hereby ORDERED that the judgment so appealed from is
unanimously modified on the law by denying the motion of defendant
Gabe’s Auto in its entirety, vacating in part the 4th decretal
paragraph and vacating in their entirety the 7th and 10th decretal
paragraphs, and granting judgment in favor of defendant Charter Oak
Fire Insurance Company as follows:

          It is ADJUDGED and DECLARED that defendant Charter Oak
     Fire Insurance Company is not obligated to defend or
     indemnify defendant Gabe’s Auto, Gabriel O’Loughlin or Craig
     Donaghey in the underlying personal injury action brought by
     defendants Jeanette Bosket and Gloria Card and is not
     obligated to reimburse defendant Gabe’s Auto and Gabriel
     O’Loughlin in hiring substitute counsel in that underlying
     personal injury action and as modified the judgment is
                                 -2-                          1583
                                                         CA 10-00264

     affirmed without costs.

     Memorandum: This declaratory judgment action involves a dispute
over insurance coverage of various parties involved in a motor vehicle
accident. The accident occurred when a vehicle occupied by defendants
Jeanette Bosket and Gloria Card was rear-ended by a vehicle owned by
defendant Candice Rhea and operated by defendant Craig Donaghey.
Earlier that day, Rhea had taken her vehicle to defendant Gabe’s Auto
in Syracuse for minor repairs and an inspection. Because a light for
the vehicle’s Onboard Diagnostic System (ODS) had been activated, an
inspection sticker could not be issued at that time because the
inspection could be approved only after the light was deactivated.
Because the light would not deactivate until the vehicle had been
driven for a period of time, that same day the owner of Gabe’s Auto
gave Donaghey, his employee, permission to drive the vehicle to
Binghamton to pick up his son for visitation. The accident occurred
when Donaghey was returning from Binghamton. The occupants of the
other vehicle, Bosket and Card, were injured in the accident, and they
later commenced the underlying personal injury action against Donaghey
and Rhea.

     In its amended complaint in this action, plaintiff, Progressive
Northeastern Insurance Company, sought a declaration that it is not
obligated to defend or indemnify its insured, Donaghey, in the
underlying action. Gabe’s Auto in turn asserted a cross claim seeking
a declaration that its insurer, defendant Charter Oak Fire Insurance
Company (Charter Oak), is obligated to defend and indemnify it in the
underlying action as well as a second cross claim seeking, inter alia,
a declaration that Charter Oak is obligated to reimburse Gabe’s Auto
and Gabriel O’Loughlin for the costs of hiring substitute counsel to
defend them in the underlying personal injury action. Charter Oak
thereafter moved for summary judgment dismissing, inter alia, that
cross claim against it, and Gabe’s Auto cross-moved for summary
judgment on its cross claim. Supreme Court issued the declaration
sought by Gabe’s Auto in its cross claim, and Charter Oak appeals.

     We agree with Charter Oak that the court erred in declaring that
it has a duty to defend and indemnify Gabe’s Auto in the underlying
action. The commercial liability policy issued by Charter Oak
specifically excludes coverage for injuries and property damage
arising from the use of any “auto” owned, operated, or rented or
loaned to the insured. Pursuant to the “Operation of Customers Autos
Garage Operations” endorsement, however, the auto exclusion “does not
apply to any ‘customer’s auto’ while on or next to those premises you
[the insured] own, rent or control and that are being used for any
‘garage operations’ ” (emphasis added). That endorsement is
inapplicable in this case because the accident involving the
customer’s auto did not occur “on or next to” the insured premises; as
noted, it occurred in another city, some 60 miles away. We thus
conclude that, even assuming that Donaghey was using Rhea’s vehicle
for “garage operations” at the time of the accident, the policy does
not afford coverage, and Charter Oak has no obligation to defend or
indemnify Gabe’s Auto in the underlying action.
                                 -3-                          1583
                                                         CA 10-00264

     Gabe’s Auto contends that the court properly determined that the
endorsement is ambiguous and should therefore be construed against
Charter Oak. According to Gabe’s Auto, the endorsement can reasonably
be read to limit the auto exclusion where the accident occurs “on or
next to” the premises or if the vehicle is being used at the time for
“garage operations,” which includes the servicing and repair of a
customer’s auto. We disagree. Although insurance contracts should be
liberally construed in favor of the insured (see Salimbene v Merchants
Mut. Ins. Co., 217 AD2d 991, 992, appeal withdrawn 88 NY2d 979), it is
equally true that policies must be interpreted in light of “the plain
language of the contract as it would be understood by an average or
ordinary citizen” (RLI Ins. Co. v Smiedala, 71 AD3d 1553, 1554), and
“[w]here the provisions of an insurance contract are clear and
unambiguous, the courts should not strain to superimpose an unnatural
or unreasonable construction” (Maurice Goldman & Sons, Inc. v Hanover
Ins. Co., 80 NY2d 986, 987). In our view, the construction of the
relevant policy language urged by Gabe’s Auto, and accepted by the
court, is strained, unnatural and unreasonable. The endorsement is
phrased in the conjunctive, meaning that for an accident to be
covered, two conditions must be satisfied - i.e., the customer’s auto
must be “on or next to those premises,” and the premises must be
“being used for any ‘garage operations.’ ” Interpreting this language
in the manner urged by Gabe’s Auto effectively turns the conjunctive
“and” into a disjunctive “or.” The structure of the sentence does not
support that interpretation. Moreover, the interpretation proffered
by Gabe’s Auto relies on a construction of the sentence that is
grammatically incorrect, in that it requires the plural verb “are” to
modify the singular noun “auto.” Thus, “the plain language” of this
sentence, “as it would be understood by an average or ordinary
citizen” (RLI Ins. Co., 71 AD3d at 1554), supports the interpretation
urged by Charter Oak.

     We also reject respondents’ alternative contention that the
Garagekeepers Liability endorsement applies to this case. That
endorsement provides coverage only for property damage to a customer’s
vehicle; it does not provide liability coverage for damage caused by a
customer’s vehicle. We therefore modify the judgment accordingly and
declare that Charter Oak is not obligated to defend or indemnify
Gabe’s Auto (or its employee, Donaghey) in the underlying action.




Entered:   February 10, 2011                    Patricia L. Morgan
                                                Clerk of the Court
