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ROYAL INDEM. CO. v. PROVIDENCE WASHINGTON INS. CO.

February 6, 1997

ROYAL INDEMNITY COMPANY, Plaintiff,
v.
PROVIDENCE WASHINGTON INSURANCE COMPANY, Defendant.



The opinion of the court was delivered by: SCULLIN

 This is a diversity action for indemnification in which Plaintiff Royal Indemnity Company ("Plaintiff") alleges that Defendant Providence Washington Insurance Company ("Defendant") failed to defend and indemnify Plaintiff for claims arising out of an automobile collision occurring on March 15, 1990. Plaintiff seeks declaratory and monetary relief. Presently before the Court are cross-motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure.

 BACKGROUND

 The underlying facts in this case are not in dispute. On March 15, 1990, a 1980 Ford tractor-truck owned by John Van Dorp, Jr. and leased by Deliverance Road Transport, Inc. ("Deliverance") *fn1" collided with a bicycle ridden by Sylvia Ann Normandin on Interstate 87 near Wilton, New York. At the time of the accident, the tractor-truck was being used in the course of business by Deliverance. Thereafter, Normandin's father brought a personal injury action in the New York State Supreme Court against Deliverance, Van Dorp, and the driver of the tractor-truck, Scott Bodine ("Normandin action").

 Deliverance leased tractor-trucks from Van Dorp for use in its business pursuant to a Master Lease Agreement dated August 1, 1989. Pursuant to this agreement and federal leasing requirements, Deliverance assumed exclusive possession, control, and use of the leased equipment. 49 C.F.R. § 1057.12(c). In addition, Deliverance agreed to obtain full public liability insurance while Van Dorp agreed to obtain non-trucking use insurance coverage, that is, "bobtail" coverage, which would cover the tractor-truck in all instances when it was not being used in the course of business of Deliverance.

 As required by the lease, Deliverance obtained full public liability insurance through a policy provided by Plaintiff. *fn2" As part of his obligation under the lease, Van Dorp obtained a "Truckmen-Insurance for Non-Trucking Use" policy from Defendant. This policy contains a "bobtail" exclusion. A "bobtail" exclusion is designed to exclude from coverage those instances in which a lessor's vehicle is used in the business of the lessee. When the vehicle is used other than in the business of the lessee, the bobtail exclusion does not apply and Defendant's insurance policy provides coverage. Connecticut Indem. Co. v. Varela, 1995 U.S. Dist. LEXIS 365, 1995 WL 16800, at *1 (S.D.N.Y. Jan. 18, 1995). *fn3"

 DISCUSSION

 Plaintiff contends that the bobtail exclusion contained in Defendant's policy is invalid in New York because it contravenes public policy as contained in New York Vehicle and Traffic Law section 388, New York Insurance Law section 3420(e), and New York Codes, Rules, and Regulations section 60-1.1. Plaintiff asserts that when the bobtail exclusion is stricken from Defendant's policy, Defendant becomes a primary insurer of all the defendants in the Normandin action. Defendant contends that the bobtail exclusion is enforceable in New York, and therefore, no duty exists to defend or indemnify. Alternatively, Defendant asserts that even if the exclusion is invalid, Defendant's financial responsibility should be limited to $ 10,000, as set forth in New York Insurance Law section 3420(e).

 Pursuant to Rule 56(c), summary judgment is warranted if, when viewing the evidence in a light most favorable to the non-movant, the court determines that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 457, 119 L. Ed. 2d 265, 112 S. Ct. 2072 (1992); Commander Oil v. Advance Food Serv. Equip., 991 F.2d 49, 51 (2d Cir. 1993). "It is well-settled that the construction of certain provisions in an insurance policy which does not require an inquiry into the parties' intentions or the consideration of outside and conflicting evidence properly may be resolved by summary judgment." National Railroad Passenger Corp. v. George Campbell Painting Corp., 887 F. Supp. 676, 679 (S.D.N.Y. 1995) (citations omitted). It is undisputed that New York law applies in this action. See R.E. Turner, Inc. v. Connecticut Indem. Co., 925 F. Supp. 139, 144 (W.D.N.Y. 1996) (New York law applies even where insurance policy issued elsewhere).

 I. Validity of Bobtail Exclusion

 As noted above, Plaintiff contends that Defendant's bobtail exclusion is invalid because it contravenes public policy as contained in New York Vehicle and Traffic Law section 388 and New York Insurance Law section 3420(e). Defendant, however, asserts that the exclusion is valid because other insurance was available and in effect at the time of the accident.

 Section 388 of New York's Vehicle and Traffic Law provides that a person injured by the negligent operation of a motor vehicle should have recourse against a financially responsible defendant. N.Y. Veh. & Traf. Law § 388 (every owner of a vehicle "shall be liable for death or injuries to person or property resulting from negligence in the use or operation of such vehicle"). In addition, all insurance policies issued to an owner of a vehicle used in New York must "contain a provision for indemnity or security against the liability and responsibility provided" in section 388(1). Id. § 388(4); see also N.Y. Ins. Law § 3420(e) (no policy shall be issued "unless it contains a provision insuring the named insured against liability for death or injury").

 In addressing "bobtail exclusions" vis-a-vis New York public policy, New York courts have been fairly uniform in finding a violation of public policy unless the insurance policy containing the exclusion by its terms requires a lessee to obtain other insurance coverage. Randazzo v. Cunningham, 56 A.D.2d 702, 392 N.Y.S.2d 740, 741 (4th Dep't 1977), aff'd on opinion below, 43 N.Y.2d 937, 374 N.E.2d 1245, 403 N.Y.S.2d 894 (1978); Transport Ins. Co. v. Protective Ins. Co., 647 F. Supp. 1381, 1385 (N.D.N.Y. 1986) ("Transport I"); R.E. Turner, Inc., 925 F. Supp. at 148 (insurance policy with bobtail exclusion failed to require lessee to provide adequate insurance). Otherwise, by not limiting itself, "the exclusion [sweeps] too broadly," and may include rental of vehicles to lessees with either no insurance or insurance ...


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