     09-1655-cv
     NGM Ins. Co. v. Blakely Pumping Inc., et al.

1                         UNITED STATES COURT OF APPEALS

2                             FOR THE SECOND CIRCUIT

3                                      --------

4                                August Term, 2009

5    (Argued:    December 10, 2009             Decided:   February 1, 2010)

6                              Docket No. 09-1655-cv

 7   -----------------------------------------------------------X
 8   NGM INSURANCE COMPANY,
 9
10                     Plaintiff-Counter-Defendant-Appellant,
11
12               - v. -
13
14   BLAKELY PUMPING, INC., d/b/a ASSENTIAL PUMPING, BRIAN J. BLAKELY,
15
16                     Defendants-Counter-Claimants-Appellees,
17
18   PETER J. SLINGERLAND, NANCY SLINGERLAND,
19
20                     Defendants-Appellees,
21
22   PROGRESSIVE CASUALTY INSURANCE COMPANY,
23
24                  Defendant.*
25   -----------------------------------------------------------X
26
27   Before:     McLAUGHLIN, KATZMANN, LYNCH, Circuit Judges.
28
29         Appeal from a judgment of the United States District Court

30   for the Southern District of New York (Young, J.) declaring that

31   NGM Insurance Company (“NGM”) is obligated to defend and

32   indemnify Blakely Pumping, Inc. (“Blakely Pumping”), against

           *
             Progressive Casualty Insurance Company did not appear before
           this Court or the court below since it has settled all claims
           related to its role as Brian Blakely’s insurer. The Clerk of the
           Court is directed to amend the official caption as set forth
           above.
1    liability arising out of an auto accident involving one of

2    Blakely Pumping’s officers.    On appeal, NGM argues that the

3    insurance policy in question did not cover the officer’s auto

4    under any circumstances and, therefore, the district court erred

5    in finding that New York Insurance Law § 3420(d)(2) required NGM

6    to timely disclaim coverage.    We agree.

 7        REVERSED.
 8
 9                            HAYDN J. BRILL, Brill & Associates,
10                            P.C., New York, New York, for Plaintiff-
11                            Counter-Defendant-Appellant.
12
13                            ROBERT D. COOK, Cook, Netter, Cloonan,
14                            Kurtz & Murphy, P.C., Kingston, New
15                            York, for Defendants-Counter-Claimants-
16                            Appellees.
17
18                            PAUL J. GOLDSTEIN, Goldstein & Metzger,
19                            LLP, Poughkeepsie, New York, for
20                            Defendants-Appellees.

21   PER CURIAM:

22        NGM Insurance Company (“NGM”) appeals from a judgment of the

23   United States District Court for the Southern District of New

24   York (Young, J.) declaring that NGM is obligated to defend and

25   indemnify Blakely Pumping, Inc. (“Blakely Pumping”), against

26   liability arising out of an auto accident involving Brian Blakely

27   (“Blakely”), an officer and employee of Blakely Pumping.    Blakely

28   Pumping had purchased an insurance policy and endorsement from

29   NGM that covered liability arising out of the use of a “Hired

30   Auto” or “Non-Owned Auto” – terms defined so as not to include an

31   auto owned by an executive officer or employee of Blakely

                                       2
1    Pumping.   The determinative question is whether these definitions

2    constitute “exclusions” of coverage.      If they do, NGM was

3    required under New York Insurance Law § 3420(d)(2) to timely

4    notify Blakely Pumping that it was disclaiming coverage based on

5    a policy exclusion.   On appeal, NGM argues that the district

6    court erred in finding that the definitions were exclusions since

7    Blakely’s auto could not qualify as a “Hired Auto” or “Non-Owned

8    Auto” under any circumstances.    For the reasons stated herein, we

9    agree and reverse the district court’s judgment.

10                                BACKGROUND

11        On November 3, 2005, Blakely crashed his pickup truck into

12   Peter Slingerland’s car in Kingston, New York.      Blakely was

13   driving the truck in the course of his work for Blakely Pumping,

14   as he frequently did.   Slingerland and his wife brought a

15   personal injury action against both Blakely and Blakely Pumping.

16        In a letter dated March 18, 2006, Blakely Pumping requested

17   that NGM defend the action pursuant to an insurance policy for

18   “Businessowners Liability Coverage” (the “Policy”) that Blakely

19   Pumping had purchased from NGM.    The Policy generally covered

20   liability for personal injuries but contained a section entitled

21   “Exclusions” that expressly disclaimed coverage for damages

22   “arising out of the ownership, maintenance, use or entrustment to

23   others of any . . . ‘auto’ . . . owned or operated by or rented

24   or loaned to any insured.”   Blakely Pumping, however, had also


                                       3
1    purchased an endorsement (the “Endorsement”) from NGM that

2    modified the Policy; the Endorsement extended coverage to bodily

3    injury arising from the use of a “Hired Auto” or a “Non-Owned

4    Auto” by the company or one of its employees.   The Endorsement

5    defined these terms as follows:

 6          “Hired Auto” means any “auto” you lease, hire or
 7          borrow. This does not include any “auto” you
 8          lease, hire or borrow from any of your
 9          “employees” or members of their households, or
10          from any partner or “executive officer” of yours.
11
12          “Non-Owned Auto” means any “auto” you do not own,
13          lease, hire or borrow which is used in connection
14          with your business.
15
16        On March 23, 2006, NGM disclaimed coverage, based on the

17   Policy’s exclusion for autos.   In a letter dated July 24, 2006,

18   counsel for the Slingerlands called NGM’s attention to the

19   Endorsement’s extension of coverage for bodily injuries arising

20   out of the use of a “Hired Auto” or “Non-Owned Auto.”   Two weeks

21   later, NGM again disclaimed coverage, this time on the ground

22   that Blakely was an executive officer of Blakely Pumping and

23   therefore his pickup truck was neither a “Hired Auto” nor “Non-

24   Owned Auto” as defined in the Endorsement.

25        On July 19, 2007, NGM sued Blakely Pumping, Blakely, and the

26   Slingerlands, seeking a declaratory judgment that it was under no

27   obligation to defend or indemnify Blakely Pumping.   On March 24,

28   2009, after the parties cross-moved for summary judgment, the

29   district court entered a judgment declaring that NGM was indeed


                                       4
1    obligated to defend and indemnify Blakely Pumping.1   Although the

2    court concluded that Blakely Pumping had borrowed the auto of one

3    of its officers and that the accident was therefore not covered

4    under the terms of the Policy as modified by the Endorsement,

5    this did not end the analysis.   The court turned to New York

6    Insurance Law § 3420(d)(2), requiring insurers to provide written

7    notice when they disclaim coverage pursuant to a policy

8    exclusion.   According to the court, since the Endorsement

9    “generally covered auto accidents,” the definitions of “Hired

10   Auto” and “Non-Owned Auto” constituted exclusions of that general

11   coverage.    NGM was therefore required to provide written notice

12   that it was disclaiming coverage on the ground that Blakely’s

13   pickup truck was neither a “Hired Auto” nor “Non-Owned Auto”; but

14   because NGM originally disclaimed coverage pursuant to the

15   Policy’s exclusion for autos, it had waived its right to disclaim

16   coverage on other grounds.   Thus, NGM’s subsequent notice of

17   disclaimer was ineffective, meaning NGM could not now rely on

18   those exclusions.


          1
            With the parties’ consent, the district court treated the case
          as a “case stated,” a procedural device most often used in the
          First Circuit. In a case stated, the parties “stipulate a record
          for decision allow[ing] the judge to decide any significant
          issues of material fact that he discovers.” Boston Five Cents
          Sav. Bank v. Sec’y of Dep’t of Hous. & Urban Dev., 768 F.2d 5,
          11-12 (1st Cir. 1985) (Breyer, J.); see also United Paperworkers
          Int’l Union, Local 14 v. Int’l Paper Co., 64 F.3d 28, 31 (1st
          Cir. 1995). Because the district court decided only an issue of
          law below, the use of the case stated procedure has no bearing on
          our analysis.

                                       5
1                                DISCUSSION

2         We review de novo the district court’s conclusions of law.

3    BrandAid Mktg. Corp. v. Biss, 462 F.3d 216, 218 (2d Cir. 2006).

4         According to New York Insurance Law § 3420(d)(2), which the

5    parties agree controls,

 6          [i]f under a liability policy issued or
 7          delivered in [New York], an insurer shall
 8          disclaim liability or deny coverage for death or
 9          bodily injury arising out of a motor vehicle
10          accident . . . it shall give written notice as
11          soon as is reasonably possible of such disclaimer
12          of liability or denial of coverage to the insured
13          and the injured person or any other claimant.
14
15   The statute’s purpose is to “avoid prejudice to the insured, the

16   injured claimant and the Motor Vehicle Accident Indemnity

17   Corporation, each of whom could be harmed by delay in learning of

18   the carrier’s position.”   Zappone v. Home Ins. Co., 55 N.Y.2d

19   131, 137 (1982).   If the insurance carrier fails to disclaim

20   coverage in a timely manner, it is precluded from later

21   successfully disclaiming coverage.    Hartford Ins. Co. v. County

22   of Nassau, 46 N.Y.2d 1028, 1029 (1979).

23        In the seminal case Zappone v. Home Insurance Co., the New

24   York Court of Appeals interpreted the statute as requiring notice

25   only for a “denial of liability predicated upon an exclusion set

26   forth in a policy which, without the exclusion, would provide

27   coverage for the liability in question.”   55 N.Y.2d at 134.    In

28   other words, notice is required where there is no coverage “by

29   reason of exclusion.”   Id. at 137.   The Zappone court held that

                                      6
1    the statute does not apply, however, where “the policy as written

2    could not have covered the liability in question under any

3    circumstances,” id. at 134; that is, notice is not required where

4    there is no coverage “by reason of lack of inclusion,” id. at 137

5    (internal quotation marks omitted).    This rule avoids extending

6    insurance coverage to liabilities “incurred neither by the person

7    insured nor in the vehicle insured.”   Id. at 135.

8         Determining whether there is no coverage by reason of

9    exclusion as opposed to lack of inclusion can be “problematic.”

10   Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 189 (2000).

11   We find guidance in Planet Insurance Co. v. Bright Bay Classic

12   Vehicles, Inc., 75 N.Y.2d 394 (1990), a case that is particularly

13   applicable to the facts before us.    There, the New York Court of

14   Appeals considered whether definitional language that did not

15   appear in the section of an insurance policy entitled

16   “Exclusions” eliminated coverage by reason of exclusion or lack

17   of inclusion.   Defendant Bright Bay obtained the policy in

18   question for its fleet of rental cars.   The policy defined

19   “covered rental cars” as those rented for periods of less than 12

20   months.   Id. at 398.   One of Bright Bay’s cars was later involved

21   in an accident while being rented for a 24-month period.   The

22   court found that, although the insurance company disclaimed

23   coverage based on the definition of “covered rental cars” as

24   opposed to a provision in the policy’s “Exclusion” section, the


                                       7
1    definition’s limiting language still amounted to an exclusion.

2    Id. at 400.       The court explained that the car was initially

3    covered by the policy and only “became ‘uncovered’ upon the

4    happening of a subsequent event: i.e., the rental . . . for a

5    lease period other than that prescribed in the policy.”       Id. at

6    401.       Since the car was at one point covered, this was not a case

7    where there “was never a policy in effect covering the involved

8    automobile.”       Id.

9           In the instant case, the principal issue in dispute is

10   whether the district court erred in finding that the

11   Endorsement’s definitions of “Hired Auto” and “Non-Owned Auto”

12   constitute exclusions requiring a notice of disclaimer.2       We

13   conclude that the district court did err in so finding.

14          The Endorsement did not generally cover auto accidents; it

15   covered only accidents arising from the use of a “Hired Auto” or

16   “Non-Owned Auto.”        Those terms were defined in such a way that an

17   employee’s or officer’s vehicle, like Blakely’s pickup truck,

18   could never be covered.       This is not a case then where “the


            2
              Blakely Pumping also suggests that simply because it has a
            contractual relationship with NGM, anything limiting NGM’s
            coverage must be an exclusion. However, while the Policy broadly
            covered liability for personal injuries, NGM did, in fact, timely
            disclaim based on the Policy’s general auto exclusion. The
            question, then, is whether NGM’s disclaimer needed to
            specifically reference the Endorsement to be effective, and that
            question turns on the proper interpretation of the definitions of
            “Hired Auto” and “Non-Owned Auto.” Accordingly, the sheer fact
            of Blakely’s contractual relationship with NGM does not resolve
            the matter.

                                           8
1    happening of a subsequent event” implicated a definitional term

2    that “uncovered” a formerly covered car.   Id.   Rather, it is a

3    case in which “the policy as written could not have covered the

4    liability in question under any circumstances.”    Zappone, 55

5    N.Y.2d at 134.   In short, there was no coverage “by reason of

6    lack of inclusion,” and thus no notice of disclaimer was

7    required.   Id. at 137 (internal quotation marks omitted).

8          The Appellees direct us to two cases in which New York

9    appellate courts found that definitional language could

10   constitute a policy exclusion for the purposes of New York

11   Insurance Law § 3420(d)(2).    Neither case changes our analysis.

12   In Greater New York Mutual Insurance Co. v. Miller, 613 N.Y.S.2d

13   295 (App. Div. 1994), the Third Department found that an

14   insurance policy’s definition of an “insured” was an exclusion

15   where it withheld coverage for drivers who used the auto in

16   question without permission.   But unlike the instant case, Miller

17   dealt with an insurance policy that explicitly covered the auto

18   and its driver in many other circumstances.   See id. at 297.

19   This is a critical distinction.   See Zappone, 55 N.Y.2d at 135-

20   36.

21         In United Services Automobile Association v. Meier, 454

22   N.Y.S.2d 319 (App. Div. 1982), the Second Department found that

23   various definitions in an insurance policy that withheld coverage

24   from individuals engaged in automobile businesses were


                                       9
1    exclusions.    The court termed these “negative definitions, which,

2    in effect, are nothing more than exclusions.”     Id. at 321.   This

3    case, however, does not stand for the proposition that all

4    definitions that limit coverage are exclusions.      In fact, the

5    Meier court found that other definitions in the same policy –

6    such as the definitions of “owned vehicle,” “newly acquired

7    vehicle,” and “temporary substitute vehicle” – were not

8    exclusions.    Id. at 320-21.    According to the court, the failure

9    of the vehicle in question to qualify as one of these defined

10   terms meant that there was never a “contract of insurance with

11   the person or for the vehicle involved in the accident.”      Id. at

12   321.    We employ identical logic in our analysis.

13          We have considered the Appellees’ other arguments and find

14   them to be without merit.

15                                   CONCLUSION

16          The district court erred in finding that the Endorsement’s

17   definitions of “Hired Auto” and “Non-Owned Auto” were exclusions

18   triggering the notice requirement of New York Insurance Law §

19   3420(d)(2).    Because no party disputes the district court’s

20   conclusion that NGM would not be obligated to defend and

21   indemnify Blakely Pumping but for the operation of this statute,

22   we REVERSE.




                                         10
