McClaney v. Utility Equipment Leasing Corp.McClaney v. Utility Equipment Leasing Corp.
This action arose from an accident which occurred in Albany, New York on December 22, 1981, when a truck driven by Albert J. Molchan struck a Niagara Mohawk Power Corporation building, causing an explosion within the building which injured the plaintiff. The truck, owned by Utility Equipment Leasing Corp., had been leased to Gallagher Equipment Leasing Co., Inc., which in turn had leased it to Niagara Mohawk Power Corporation. Gallagher retained Reuben-Siegfried Chauffeurs, Inc., to retrieve the truck from Niagara Mohawk’s premises, and Molchan, an agent of Reuben-Siеgfried, was in the process of retrieving the truck when the accident occurred. Suit was commenced on January 26, 1982 by Bessie McClaney, individually and as guardian ad litem of Grady M. McClaney, the injured party. Federal jurisdiction is based upon diversity of citizenship.
On February 22, 1983, this Court entеrtained three summary judgment motions which raised the same question: whether an insurance policy issued by fourth-party defendant New Hampshire Insurance Company, Inc., to defendant Gallagher Equipment Company, Inc., covers Gallagher’s liability in this lawsuit. At the close of orаl argument the Court granted the motions by Gallagher and Snyder Moore Agencies, Inc., et al., for summary judgment, declaring that the New Hampshire policy offered coverage to Gallagher here; and denied the motion by New Hampshire Insurance Company, Inc., for summary judgment for contra relief. This Memorandum constitutes the Court’s decision and order herein.
Gallagher Equipment Company, Inc., applied for the policy, through the Snyder Moore Agencies, Inc., in 1980. The original application described Gallagher’s operations as “Sales and Service Hydraulic Equipment”. The policy issued was a “Garage Liability Policy” providing coverage in the amount of $100,000/person; $300,000/oc-currence. The period of coverage was from February 1980 through February 1981.
Upon expiration, Gallagher оbtained a renewal policy, which differed slightly in language from the previous policy, and which provided the same dollar coverage for February 1981 through February 1982. This policy, which was in effect at the time of the accident, states in Part IV A 1:
We (New Hampshire Insuranсe Company) will pay all sums the insured legally must pay as damages because of bodily injury or property damage to which this insurance applies caused by an accident and resulting from garage operations.
Part I F of that policy defines “garage оperations” as follows:
“Garage Operations” means the ownership, maintenance or use of the locations stated in the declarations and that portion of the roads or other accesses that adjoin these locations for garage business. Garage operations includes the ownership, maintenance or use of the autos indicated in Part II as covered autos. Garage operations also include all operations necessary or incidental to a garage business.
(emphasis added).
The рarties agree that, under Part II of the insurance policy, Gallagher’s coverage extended to “any auto” (as opposed to only autos owned by the insured); and includes the vehicle involved in this accident.
The policy also contains the following еxclusions, which are relied upon by the insurer in disclaiming coverage:
C. WE WILL NOT COVER — EXCLUSIONS This insurance does not apply to:
1. Liability assumed under any contract or agreement... .
7. Any covered auto while leased or rented to others....
In June of 1981, prior to the accident, Gallagher obtained an “additional interest endorsement” affording policy coverage to four additional insured, including Gallagher Equipment Leasing Co., Inc., which is a co-defendant in the first-party action.
Upon the commencement of the McClaney’s lawsuit, Gallagher notified American
On March 24, 1982, AIAC sent Gallagher a disclaimer of coverage in which it mistakenly relied upon the language of the super-ceded 1980-81 policy. However, the exclusions relating to contractuаl liability and auto-leasing are substantially the same in both the 1980-81 and 1981-82 policies, and the Court fails to discern any prejudice to the insured from this clerical error in the disclaimer notice. It therefore declines to base its decision as to coverage on а theory of estoppel due to AIAC’s technically incorrect notice of disclaimer. Instead, the Court bases its decision on the language of the policy and the circumstances surrounding its issuance.
Preliminarily, there is a choice-of-law issue which must be resоlved. Gallagher has argued that New York law governs the validity and effect of the insurance agreement, because the pretrial deposition of New Hampshire’s representative, Theodore Thomas, indicates that the policy was “serviced out of New York City”. Apparently Gallagher favors the application of New York law in order that it may then invoke New York Insurance Law § 167, subd. 8, which conditions the effectiveness of a disclaimer on it being sent to the insured “as soon as is reasonably possible”.
Snyder Moorе Agencies, Inc., et al., maintain that Pennsylvania law governs the construction of the policy and the insured’s duties with respect to the issuance of the policy, since the insureds are Pennsylvania Corporations with their principal places of business in Pennsylvania, and the policy was delivered in Pennsylvania.
New Hampshire has submitted briefs which assume the application of either New York or Pennsylvania law. However, at oral argument the suggestion was made that New Hampshire law might apply, on the grounds that the insurer is a New Hаmpshire Corporation.
Applying as we must the New York choice-of-law rules, Klaxon v. Stentor Electric Mfr. Co.,
Coverage under the policy depends initially on whether Gallagher’s use of the vehicle at thе time of the accident falls within the scope of “garage operations” within the meaning of the policy. As pointed out, the policy defines “garage operations” to include “the ownership, maintenance or use of the autos indicated in Part II аs covered autos”, i.e., “any autos”. New Hampshire has not challenged that the vehicle in question is an “auto” within the meaning of the policy. It does maintain, however, that Gallagher’s use of the vehicle, even if not otherwise excluded, is outside the scopе of “garage operations” be
In the United States of America, its territories or possessions, Puerto Rico or Canada or while the covered auto is being transported between any of these places.
New Hampshire repeatedly emphasizes that Gallagher never rеquested coverage for leasing operations. However, Gallagher expressly requested and received additional coverage for Gallagher Equipment Leasing Co., Inc., in June of 1981. But more importantly, Gallagher’s failure to specifically request a leasing operations policy does not alter the fact that the policy in effect defines “garage operations” broadly enough to encompass unrelated activities so long as they are not otherwise excluded.
Having determined that Gallagher’s use of the vehicle is within the scope of “garage operations” under the policy it is necessary to determine whether the exclusions cited by New Hampshire relating to contractual liability and auto-leasing support the disclaimer of cоverage. Both Gallagher and Snyder Moore Agencies argue strenuously that New Hampshire is precluded from relying on the contract and leased auto exclusions because it failed to explain those exclusions to the insured as it is required to do under Hionis v. Northern Mutual Ins. Co.,
Even where the policy is written in unambiguous terms, the burden of establishing the applicability of an exclusion or limitation involves proof that the insured was aware of the limitation or exclusion and that the effect thereof was explained to him.
New Hampshire does not maintain that it explained the exclusions to the insured. However, it argues that Hionis does not apply where (1) the policy language is unambiguous, or (2) knowledge of a policy exclusion may be imputed to the insured, or (3) the expectation of coverage will not be defeated by enforcement of 'the exclusion, or (4) the parties are on relatively the same footing in contracting for insurance.
Unambiguous language does not relieve the insurer of its obligation under Hionis. Hionis itself states this, and the Pennsylvania courts have adhered to the principle. Kelmo Enterprises, Inc. v. Commercial Union Insurance Company,
Hionis appears to be applied in all but exceptional circumstances, none of which are present here. See, e.g., Miller v. Prudential Ins. Co.,
With respect to the “equal footing” argument, while it is true that Pennsylvania law required New Hampshire to afford this assigned risk coverage, that itself does not place the parties on equal footing with respect to the contents of the policy. Nеw Hampshire had drafted the terms, was familiar with the terms, and presumably did not alter those basic terms by negotiation in the typical case. These are the considerations which gave rise to the Hionis doctrine, and they are fully applicable here.
Accordingly, the Court finds that the Hionis doctrine bars New Hampshire and AIAC from invoking the exclusions in their policy issued to Gallagher.
The parties have also devoted considerable argument to the question of whether the Gallagher-Niagara Mohawk lease had terminated prior to the accident, which would render the auto-leasing exclusion inapplicable even if it were valid. Since the Court has determined that New Hampshire is precluded from relying on either exclusion in any event, we decline to address that difficult question of law and fact at this juncture.
Summary judgment is hereby granted against New Hampshire Insurance Company, and that Company is declared obligated to indemnify and pay any judgment rendered against the insured in this action, to the extent of $100,000 as provided in the policy.
IT IS SO ORDERED.