Garcia v. Government Employees Insurance Co., 151 A.D.3d 1020

Background

On May 19, 2006 Antonio Garcia was injured by a vehicle owned by Jeanne Rakowski; Garcia obtained a judgment against Rakowski and her driver and sought recovery from GEICO under Insurance Law § 3420 after GEICO failed to satisfy the unsatisfied judgment portion.
Rakowski had an umbrella policy renewed for the period Oct. 10, 2005–Oct. 10, 2006; the Amended Declarations listed a $2,000,000 liability limit and separately showed a $199 charge "for additional coverage to second million." Total premium would be $505, but Rakowski paid $306 and did not pay the additional $199.
GEICO issued a cancellation notice for nonpayment, stating the policy would be cancelled effective 12:01 a.m. on May 19, 2006; the accident occurred later that same day.
Garcia sued GEICO claiming the umbrella policy provided at least $1,000,000 in effect at the time of the accident (arguing the policy was severable), and that GEICO’s cancellation was invalid; GEICO moved for summary judgment asserting the policy provided $2,000,000, was properly cancelled for nonpayment, and thus no coverage existed at the time of the accident.
Supreme Court (Nassau) denied GEICO’s motion, finding triable issues about whether the policy was severable; the Appellate Division majority reversed, holding the policy unambiguous as a $2,000,000 policy that was validly cancelled prior to the accident.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the umbrella policy was "entire" or "severable/divisible" as to limits	Rakowski (via Garcia) — separate billing and line item for the second million show parties intended separable coverage; $306 purchase secured $1,000,000 for whole term	GEICO — Amended Declarations show Rakowski contracted for $2,000,000 at policy inception; separate line-item billing is immaterial and the contract is not divisible	Policy was not severable; unambiguous $2,000,000 policy that was subject to cancellation for nonpayment of the full premium
Whether GEICO validly cancelled coverage for nonpayment	Garcia — cancellation may only have applied to additional million; notice and billing create ambiguity	GEICO — timely mailed cancellation tied to the policy number; cancellation effective after prorated premium exhausted	GEICO established prima facie valid notice and cancellation; Garcia failed to raise triable issue
Whether ambiguity exists in the policy language such that summary judgment is improper	Garcia — reasonable insured could expect $1,000,000 coverage from $306 payment; ambiguity precludes summary judgment	GEICO — policy language and Amended Declarations unambiguously reflect $2,000,000 coverage requested and issued	No ambiguity as a matter of law; interpretation is question of law favoring GEICO
Whether courts should avoid forfeiture by construing policy severable	Garcia — forfeiture disfavored; severability avoids forfeiture of partial protection	GEICO — no forfeiture because insured contracted for $2,000,000 and received coverage up to when cancellation took effect	Forfeiture principle inapplicable: insured received the coverage she requested and paid for until cancellation

Key Cases Cited

Lend Lease (US) Constr. LMB Inc. v Zurich Am. Ins. Co., 28 N.Y.3d 675 (interpretation starts with policy language; unambiguous terms are decided as a matter of law)
Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 N.Y.2d 208 (policy interpretation principles)
Federal Ins. Co. v International Bus. Machs. Corp., 18 N.Y.3d 642 (no ambiguity if only one reasonable interpretation exists)
First Sav. & Loan Assn. of Jersey City v American Home Assur. Co., 29 N.Y.2d 297 (test for divisibility/severability of insurance contracts)
White v Continental Cas. Co., 9 N.Y.3d 264 (courts may not rewrite policy to avoid contractual result)
Greenfield v Philles Records, 98 N.Y.2d 562 (contract ambiguity assessed by ordinary meaning; clarity requirement)
Jones v Allstate Ins. Co., 221 A.D.2d 596 (proof of mailing/notice for cancellation)