policy exclusion to deny coverage six and one-half years after the notice of claim was filed. Premised on the equitable maxim that no party should be permitted to take advantage of its own wrongs, equitable estoppel prevents a party from enforcing or asserting rights where its own conduct has induced another to justifiably and detrimentally rely upon the belief that such enforcement would not be sought. Nassau Trust Co. v. Montrose Concrete Products Corp., 56 N.Y.2d 175, 184, 451 N.Y.S.2d 663, 667, 436 N.E.2d 1265, 1269 (1982); see Travelers Int'l. AG v. Trans world Airlines, Inc., 722 F. Supp. 1087, 1098 (S.D.N.Y. 1989). To properly plead equitable estoppel the party seeking its protection must allege: (1) lack of knowledge of the true facts; (2) reliance on the conduct of the party to be estopped; and (3) a prejudicial change in its position. See Broadworth Realty Associates v. Chock 336 Broadway Operating, Inc., 168 A.D.2d 299, 300, 562 N.Y.S.2d 630, 632 (1st Dep't 1990) (citing Airco Alloys Division v. Niagara Mohawk Power, 76 A.D.2d 68, 81, 430 N.Y.S.2d 179, 188 (4th Dep't 1980)).
Reading the complaint in the light most favorable to the claimant it is clear that K. Bell has adequately alleged the essential elements of equitable estoppel. The complaint states that K. Bell: (1) was unaware of Lloyd's intent to deny coverage; (2) relied on the belief that Lloyd's would provide coverage under the terms of the policies; and (3) was prejudiced by Lloyd's delay in denying coverage to the extent that it would have settled the underlying lawsuit prior to the entry of judgment. See Complaint at PP 47-51.
In support of its motion to dismiss, however, Lloyd's argues that, in the context of insurance law, an estoppel cannot arise where the insured remains in control of its defense throughout the underlying action and the insurer reserved its rights to assert non-coverage under the policy. (Lloyd's Letter in Reply to K. Bell's Opposition to the Motion to Dismiss, at 2, 4). Under New York law it is true that where an insurer undertakes the defense of an action on the behalf of an insured without reserving policy defenses it cannot be heard to argue, subsequently, that coverage does not exist. Albert J. Schiff Assoc., Inc. v. Flack, 51 N.Y.2d 692, 699, 435 N.Y.S.2d 972, 975, 417 N.E.2d 84, 87 (1980). While the contraposition of this principle, as propounded by Lloyd's, may create an inference in favor of preventing an estoppel, it does not prevent the assertion thereof, as other acts of the insurer may have worked to prejudice the insured. See O'Dowd v. American Surety Co. of New York, 3 N.Y.2d 347, 355, 165 N.Y.S.2d 458, 463-64, 144 N.E.2d 359, 363 (1957) (insurer may be estopped upon showing that delay in notification prejudiced insured); Ashland Window & Housecleaning Co. v. Metropolitan Casualty Ins. Co. of New York, 269 A.D. 31, 36, 53 N.Y.S.2d 677, 680 (1st Dep't 1945) (where insurer's unreasonable delay in disclaiming liability under policy results in prejudice to insured, insurer is estopped from asserting noncoverage). Accordingly, Lloyd's motion to dismiss the estoppel claim is denied.
K. Bell also claims that Lloyd's waived its right to assert the exclusion clause to deny coverage because it delayed six and one-half years after receiving the notice of claim before doing so. Although often mistakenly used interchangeably with estoppel, waiver is a voluntary and intentional relinquishment of a known and existing right. Schiff, 51 N.Y.2d at 698, 435 N.Y.S.2d at 975, 417 N.E.2d at 87. Waiver differs from estoppel in that it depends on the intent of the party against whom the assertion lies and does not require any showing of reliance by the asserting party. Nassau Trust, 56 N.Y.2d at 184, 451 N.Y.S.2d at 668, 436 N.E.2d at 1269. A proper claim of waiver should state that the waiving party voluntarily and intentionally relinquished a right, with knowledge of all the facts and circumstances that would constitute the entitlement to that right. See id. 57 N.Y. Jur. 2d Estoppel §§ 75, 87 (1986).
Although K. Bell's waiver allegation is sparsely worded, when broadly construed it suffices to state a claim. K. Bell alleges that they promptly notified Lloyd's of the Underlying Action and, thereafter, periodically apprised Lloyd's of the action's status. K. Bell further alleges that Lloyd's took no action until six and one-half years after it had filed the notice of claim. Complaint at PP 44-46. Thus, K. Bell's allegations indicate that Lloyd's was aware of the facts and circumstances required to deny coverage, and that its conduct in failing to do so implicitly demonstrates its intent to waive the applicable policy exclusion.
Lloyd's argues, however, that, as a matter of law, waiver is inapplicable where the issue focuses on whether the policy provides coverage for the liability in question. This argument, however, is inappropriate in support of a motion to dismiss, as the facts are yet to be developed. Accordingly, Lloyd's motion to dismiss K. Bell's claim of waiver must be denied.
K. Bell also asserts what appears to be a claim for punitive damages based on Lloyd's bad faith in failing to decline coverage until six and one-half years after receiving a notice of claim, and in failing to fulfill its obligations under the Policies. In New York, allegations amounting to a breach of an insurance contract, without more, are insufficient as a matter of law to sustain a claim for punitive damages. Carat Diamond Corporation v. Underwriters at Lloyd's London, 123 A.D.2d 544, 548, 506 N.Y.S.2d 708, 711 (1st Dep't 1986); Jacobson v. New York Property Insurance Underwriting Assoc., 120 A.D.2d 433, 435, 501 N.Y.S.2d 882, 884 (1st Dep't 1986). Indeed, punitive damages will not be permitted in the context of a breached insurance agreement unless the allegations supporting the breach demonstrate that the insurance company's actions have worked a fraud upon the genera public. Jacobson, 120 A.D.2d at 435, 501 N.Y.S. 882 at 884. The complaint in the instant matter fails to even remotely approach this stringent standard. The claim for punitive damages, therefore, must be dismissed.
For all of the foregoing reasons, Lloyd's motion to dismiss K. Bell's complaint is granted solely as to the claim for punitive damages and denied in all other respects.
DATED: New York, New York
July 21, 1993
KEVIN THOMAS DUFFY, U.S.D.J....