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COMMERCIAL UNION INS. CO. v. ALBERT PIPE & SUPPLY

January 31, 1980

COMMERCIAL UNION INSURANCE COMPANY, Plaintiff, against ALBERT PIPE & SUPPLY CO., INC., Defendant.


The opinion of the court was delivered by: COOPER

In this declaratory judgment action we are asked to determine whether Commercial Union Insurance Company ("CUIC"), an insurance company, is obligated to defend and/or indemnify its insured, Albert Pipe & Supply Co., Inc. ("Albert") under the terms of its policy CY 62285-36 ("the Policy") in an action collateral to one in which Albert is a third-party defendant.

The factual and procedural history of this action is detailed in our opinion and order of June 12, 1979 ("June 12th Order") reported at 82 F.R.D. 702 (S.D.N.Y.1979). For the purpose of clarity, the action captioned Westhemeco Ltd. ("Westhemeco") v. New Hampshire Insurance Company ("N.H.") and Florida East Coast Railway Company ("Fla. Rwy.") is denominated the "main action"; the action captioned N. H. and Fla. Rwy. v. Albert, Standard Pipe Protection Division-General Steel Industries ("Standard"), Tubeco, Inc., and Crippen Pipe Fabrication Co., is called the "third-party action." Under the terms of the June 12th Order, the third-party action was stayed pending the resolution of the within declaratory judgment action instituted by CUIC against Albert; the main action was unaffected.

 In the declaratory judgment action, Albert moves for an order: (1) compelling CUIC to defend Albert under the Policy in the third-party action and to pay any judgment which may be rendered against Albert therein and (2) directing CUIC to reimburse Albert for disbursements, expenses and legal fees thus far incurred in connection with its defense of the third-party action. CUIC cross-moves for (1) an order dismissing Albert's answer in the declaratory judgment action and (2) summary judgment on the ground that CUIC is not obligated to either defend or indemnify Albert in the third-party action. Papers submitted by Albert and CUIC in connection with the motion and cross-motion were served on all parties to the main and third-party actions; no other party has responded.

 We hold that CUIC is obligated to defend Albert in the third-party action and reimburse Albert for its expenses, disbursements and legal fees thus far incurred in the third-party action. We further direct that the stay imposed in the June 12th Order be vacated.

 CUIC's duty to defend Albert

 At the outset, it is important to note that the obligation of an insurance company to defend its insured is broader than its duty to pay in the event that the insured is found liable. Prashker v. United States Guar. Co., 1 N.Y.2d 584, 154 N.Y.S.2d 910, 136 N.E.2d 871 (1956); Goldberg v. Lumber Mut. Cas. Ins. Co., 297 N.Y. 148, 154, 77 N.E.2d 131 (1948). The duty to defend is predicated on the insurer's contractual obligation to its insured whereas the duty to indemnify depends on the applicable law of negligence. American Home Assur. Co. v. Port Authority of New York, 66 A.D.2d 269, 412 N.Y.S.2d 605 (1st Dept. 1979).

 In deciding a declaratory judgment action involving coverage of an insurance policy, a court is required to examine both the policy and the pleadings of the underlying action. See American Home Assur. Co. v. Diamond Tours and Travel Inc., N.Y.L.J. Aug. 28, 1979, p. 6 col. 1 (Sup.Ct.N.Y.Co.1979). The insured has the burden of proving that the claim asserted against it comes within the coverage of the policy while the insurer has the burden of proving that the facts fall within the policy's exclusionary clauses. Prashker v. United States Guar. Co., 1 N.Y.2d at 592, 154 N.Y.S.2d at 916, 136 N.E.2d 871; Sachs v. American Central Ins. Co., 33 Misc.2d 816, 820-22, 227 N.Y.S.2d 873, 878-79 (1962), aff'd, 18 A.D.2d 841, 238 N.Y.S.2d 508 (2d Dept. 1963). As stated in Prashker, supra :

 
The rule that an insurance company has the burden of proving such facts as will come within exclusionary clauses in an insurance policy. (sic) Wagman v. American Fidelity & Cas. Co., 304 N.Y. 490, 109 N.E.2d 592, does not require, however, that liability of the insurance company to pay whatever recoveries may be obtained, shall be adjudicated before the event discloses and establishes on what basis such recoveries are obtained.

 1 N.Y.2d at 592, 154 N.Y.S.2d at 916, 136 N.E.2d at 875. Thus, the question now before us is whether third-party plaintiffs allege facts which potentially may bring their claims against Albert within the coverage of the Policy. If so, CUIC is required to defend Albert irrespective of Albert's ultimate liability. See also Goldberg v. Lumber Mut. Cas. Ins. Co., supra.

 Policy CY 62285-36 is a comprehensive general liability insurance policy. Coverage is provided on behalf of Albert, up to the amount of the policy, to third persons "to whom Albert will become legally liable as a result of property damage or bodily injury caused by an occurrence for which it is claimed Albert is responsible." Verified Complaint, P 6.

 Thus, Albert is covered for "occurrences." An "occurrence" is defined by the Policy as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured."

 The policy obligates CUIC to defend Albert in any action, "even if any of the allegations of the suit are groundless, false or fraudulent." CUIC relies upon the following three exclusions in its disclaimer of its obligation to defend and indemnify Albert:

 This insurance does not apply:

 
(a) to liability assumed by the insured under any contract or agreement except an incidental contract ; but this exclusion does not apply to a warranty of fitness or quality of the named insured's products or a warranty that work performed by or on ...

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