745 NYS2d 671 | N.Y. Sup. Ct. | 2002
OPINION OF THE COURT
This proceeding was brought by the Attorney General, in the name of the People of the State of New York, pursuant to Executive Law § 63 (12) and article 22-B of the General Business Law, against respondents ELRAC, Inc., Snorac, Inc. and Enterprise Rent-A-Car Company, Inc., all doing business as Enterprise Rent-A-Car (ELRAC).
The parties ask the court to define the scope and extent of the duty to provide a legal defense for permitted users vehicles leased from ELRAC when a claim is made regarding a motor vehicle accident. ELRAC is a self-insurer and this issue arises as self-insured rental car companies and regulatory agencies
All New York vehicles are subject to automobile liability coverage requirements which ELRAC satisfies, not by the purchase of insurance, but by being approved by the Commissioner of Motor Vehicles as a self-insurer under Vehicle and Traffic Law § 370 (3). Self-insurance, in general, is simply an assurance that the self-insurer has the financial means to pay any judgments against it (see, Guercio v Hertz Corp., 40 NY2d 680 [1976]), for a self-insurer is not an “ ‘insurer’ of anything other than [its] own ability to pay for damages for which [it] is legally responsible” (40 NY2d at 684). While this arrangement is sometimes confusingly called a “ ‘policy’ of self-insurance” (40 NY2d at 485), there is no actual insurance policy.
The self-insurance coverage amount is the legal minimum statutorily required personal injury liability coverage amount, including uninsured motorist coverage (Allstate Ins. Co. v Shaw, 52 NY2d 818, 820 [1980]). For a typical car with a seating capacity of seven or fewer passengers, such required coverage for personal injury is a minimum of $25,000 and a maximum of $50,000 and, for death, a minimum of $50,000 and a maximum of $100,000 (Vehicle and Traffic Law § 370 [1] [a]). Until recently, property damage coverage was not viewed as required and self-insured rental car companies could disclaim all liability for property damage (ELRAC, Inc. v Masara, 96 NY2d 847 [2001]); such self-insured companies now must provide property damage liability coverage up to $10,000 (L 2002, ch 20, eff Mar. 26, 2002, amdg Vehicle and Traffic Law § 370 [1] [b]). If a renter wishes coverage above the statutory limits, a renter may pay an optional daily charge and receive “supplemental liability protection,” often referred to as “SLP.” The impact of SLP or other insurance upon the obligation to provide a defense is not at issue here (see, as to such issues, generally, William T. Barker, Combining Insurance and
The typical “duty to defend” was crisply defined in Frontier Insulation Contrs. v Merchants Mut. Ins. Co. (91 NY2d 169, 175 [1997]) as follows: “If any of the claims against the insured arguably arise from covered events, the insurer is required to defend the entire action.” (Citation omitted.) No reason is advanced here justifying a departure from this rule, under which it is expected that there is a duty to assign an attorney to defend the driver or permitted user, which attorney shall continue to defend the action through its conclusion.
This “duty to defend” cannot be terminated upon payment of a settlement or damages prior to the complete resolution of any litigation or claim, as ELRAC urges.
Finally, given that the availability of a defense through the conclusion of all litigation is seen as a part of the New York, automobile insurance obligation, the obligation to continue to
Nonetheless, this court cannot go so far as to rule that ELRAC has an inescapable or unalterable duty to defend. The issue of termination or modification of a defense obligation by an insurer must be raised on a case-by-case basis in the forum before which the case or claim is pending and cannot be decided here on a global basis. There are two courses of action available'. The best recognized is an affirmative declaratory judgment action in which a self-insurer advances the position that there is no duty to defend in a particular instance (see, e.g., AIU Ins. Co. v ELRAC, Inc., 287 AD2d 668, 669 [2d Dept 2001] [self-insurer not required to defend or indemnify when unauthorized driver operating rented vehicle]).
Alternatively, a particular counsel may seek to be relieved from the obligation to represent a client by a motion made under CPLR 321 (b), which governs the withdrawal of an attorney from a matter.
*82 “[A]ri attorney may have good and sufficient reasons to seek withdrawal from representing the client. When a change of attorneys occurs during the course of an action, however, the judicial system’s interest in procedural regularity and fairness to other parties requires certainty as to the point in time at which a party’s change of counsel should be deemed effective. CPLR 321 (b) provides such certainty.
“When the change of counsel can be effected by agreement, the party and the outgoing attorney can simply file a jointly signed consent (with an acknowledgment by the client) with the clerk and serve notice of the change of attorney on the other parties. CPLR 321 (b)(1). If consent is lacking, judicial intervention is required for substitution of counsel. A motion must be made upon such notice as the court may direct, i.e., by order to show cause. The notice of motion must be given to the client of the outgoing attorney, the other parties and any other appropriate person as the court may direct.” (McKinney’s Cons Laws of NY, Book 7B, CPLR C321:2 [2001].)
While it is abundantly clear that a motion to withdraw as counsel is an inappropriate means to test an insurer’s obligation to defend (Laura Accessories v A.P.A. Warehouses, 140 AD2d 182 [1st Dept 1988] [counsel, assigned by insurer to represent insured, must file declaratory action to secure a finding of no coverage]; Rusolo v Skate Odyssey, 109 AD2d 875 [2d Dept 1985] [disclaimer based on insured’s alleged lack of cooperation not proper basis for a motion to withdraw]), two types of exceptions to this general rule have been recognized.
One exception exists if a court finds a conflict of interest between the insured and the insurer exists which forms a sound basis for a motion to withdraw (see, Torres v Bratcher, 35 AD2d 922 [1st Dept 1970] [attorney, for insurance company permitted to withdraw where policy cancelled for nonpayment of premiums, resulting in conflict of interest between obligation
The second recognized ground for a motion to withdraw might arise when, in addition to the self-insurance, the lessee or driver has other insurance or indemnification arrangements (id.; see also, Jane Massey Draper, Annotation, Performance by One Insurer of Its Duty to Defend as Excusing Failure of Other Insurers Equally Obligated To Defend, 90 ALR3d 1199). In such an instance, if ELRAC were to tender the full amount which could be claimed under the available self-insurance coverage, the ELRAC assigned counsel might have grounds to move to be substituted by counsel assigned by another insurer or indemnitor (see, e.g., Duffy v County of Chautauqua, 247 AD2d 854 [4th Dept 1998] [where commercial liability policy limits exhausted and another insurer had undertaken defense, attorneys could withdraw]). As a practical matter, it seems unlikely that this situation will arise with any frequency. Documentation shows that the average claims made and/or paid by ELRAC rarely reach elevated levels. Taking the statistics ELRAC reported to the Department of Motor Vehicles in recent self-insurance program applications, for the approximately 17,000 ELRAC rental vehicles in New York, for 2000, ELRAC paid an average of $5,039.42 on 359 pure
Because of these two exceptions, this court cannot rule that counsel assigned by ELRAC should be barred from moving for permission to withdraw. The proper course is to leave treatment of a motion to withdraw to the sound discretion of the forum in which each litigation or dispute is pending. Each individual presiding judge, or perhaps arbitrator, must balance the interests involved.
To draw to a close on the duty to defend, this court determines that ELRAC, as a self-insurer, must assign an attorney to provide a defense for users of its vehicles. The defense obligation may be terminated if either (1) a declaratory judgment determines there is no duty to defend, or (2) an order of an appropriate tribunal relieves the attorney assigned the litigation of the duty to represent such client.
As to the form in which this determination is to be embodied, both parties request a declaration sustaining their respective positions. The petition provides a basis for substantively similar injunctive relief because it is undisputed that, prior to the issuance of the decision in ELRAC, Inc. v Ward (supra), ELRAC regularly advised its renters and permitted users that it would not provide a legal defense if an accident ensued, which is now established to be improper advice as a matter of law. An injunction may issue pursuant to Executive Law § 63 (12), because even the voluntary cessation of unlawful activity does not obviate the need for, or the propriety of, an injunction (People v General Elec. Co., Sup Ct, NY County 2001, Index No. 400927; State of New York v Midland Equities of N.Y., 117 Misc 2d 203 [Sup Ct, NY County 1982]; Matter of State of New York v Hotel Waldorf-Astoria Corp., 67 Misc 2d 90 [Sup Ct, NY County 1971]). Similarly, under General Business Law § 349 (b), an injunction may be granted where a commercial misrepresentation clearly is made out by the papers before the court (People ex rel. Vacco v Appel, 258 AD2d 957 [4th Dept 1999]; Matter of State of New York v Daro Chartours, 72 AD2d 872 [3d Dept 1979]), even on proof which does “not
. Under ELRAC’s scenario, if ELRAC tendered its maximum dollar coverage but the plaintiff or claimant demanded a still higher amount, ELRAC’s duty to defend would be satisfied and the driver or permitted user would thereafter be compelled to choose whether to proceed pro se, to secure and pay for substitute counsel to appear through the conclusion of the matter, or to cease participation and be held in default.
. CPLR 321 (b) provides as follows:
“(b) Change or withdrawal of attorney.
“1. Unless the party is a person specified in section 1201 [i.e., an infant, incompetent person or conservatee], an attorney of record may be changed by filing with the clerk a consent to the change signed by the retiring attorney and signed and acknowledged by the party. Notice of such change of attorney*82 shall be given to the attorneys for all parties in the action or, if a party appears without an attorney, to the party.
“2. An attorney of record may withdraw or be changed by order of the court in which the action is pending, upon motion on such notice to the client of the withdrawing attorney, to the attorneys of all other parties in the action or, if a party appears without an attorney, to the party, and to any other person, as the court may direct.”