WILLIS v. NEW YORK CENTRAL MUTUAL FIRE INS. CO.

Friday, February 8, 2002

Supreme Court

Westchester County

Justice Lefkowitz

WILLIS v. NEW YORK CENTRAL MUTUAL FIRE INS. CO. ” On February 11, 1998, plaintiff Hopeton Willis purchased a used 1995 automobile. According to Mr. Wills’ pretrial testimony, he and his father signed the contract of purchase. A copy of the contract submitted to the Court indicates that there were two buyers but the signatures are not legible. Mr. Willis also testified before trial that the co-plaintiff, Sharon Fair, his wife, was a co-owner of the vehicle although he said he could not produce written proof of that fact. A copy of the title certificate indicates that Mr. Willis only is listed as the owner with Chrysler Financial as lienholder.

The plaintiffs are named insureds under an automobile liability policy issued by defendant effective December 5, 1997 to December 5, 1998, which covered three automobiles. On March 27, 1998, Mr. Willis reported the used 1995 vehicle stolen. It was subsequently found damaged and was considered a total loss by the insurer. Mr. Willis filed proof of loss. The proofs consist of a handwritten notarized statement from the plaintiff, dated May 12, 1998, a brief handwritten note, not dated and various transportation receipts. In addition to claiming reimbursement for the fair market value of the stolen vehicle of $20,689.92 (less a $500 deductible), Mr. Willis submitted twenty-five receipts from a specific taxicab company for round-trip car service to and from work, representing an alleged expenditure of $250. ¹ Mr. Willis testified before trial that he walked to work on March 27, 1998 and walked home, each way taking about fifteen minutes. However, he did submit a taxicab receipt for March 27, 1998. No explanation has been offered to explain this receipt. Mr. Willis testified before trial that all of the receipts, except for the first one, were photocopied by him and filled in by him. The driver listed on all (but one that bears no driver’s name) of the receipts is “H. Price” (for Harry Price). Mr. Willis testified before trial that he did not remember if he knew someone named Harry Price. He also testified that different drivers picked him up at home and at work. However, the transportation receipts bear only one driver’s name. “H. Price” and Mr. Willis did not explain how that occurred .

The manager of the taxicab company testified before trial that during the period in question no one by the name of Harry Price was employed by the company. He identified the receipts as being on forms used by his company and also testified that occasionally drivers employed by his company would make arrangements to provide car service to persons without informing the company and, also, that it was possible for a driver to provide other drivers, not employed by the company, with blank receipts .

After an investigation, defendant disclaimed coverage for the entire loss based upon the fraud of Mr. Willis in submitting transportation expenses (of $10 daily for thirty days says the letter of disclaimer, although only twenty-five receipts at $10 each were submitted on this motion).

The plaintiffs commenced an action to recover $20,689.92, attorney’s fees and punitive damages. The unverified complaint alleges that both plaintiffs were owners of the stolen vehicle. Defendant answered and discovery is complete. Defendant moves for summary judgment dismissing the complaint on the ground that Mr. Willis breached the insurance contract by his fraudulent conduct in filing for transportation expenses not incurred. Plaintiffs, by counsel’s affirmation and notice of cross-motion, seek summary judgment on the first cause of action for $20,689.92 and have withdrawn any claim (though not specifically plead) for reimbursement of transportation expenses.

No triable issues of fact exist. The copies of the pretrial depositions are unsigned and uncertified, but no party claims they are not accurate. Assuming that the original transcripts were properly submitted for signature or that, in fact, the signatures were affixed, the transcripts of the depositions attached as exhibits to an attorney’s affirmation may be used in support of or to defeat summary judgment. Olan v. Farrell Lines, 64 NY2d 1092 (1985); Thomas v. Hampton Express, Inc., 208 AD2d 824 (2d Dep’t 1994), app. den. 85 NY2d 803 (1995); see CPLR 3116; Insurance Law ?§3406.

Defendant relies upon Part F ” General Provisions of the policy which reads:

” FRAUD We do not provide coverage for any ‘insured’ who has made fraudulent statements or engaged in fraudulent conduct with any accident or loss for which coverage is sought under this policy.”

However, the cases cited by defendant for the proposition that fraud or misrepresentation voids the entire policy are inapposite as those cases involved either: (1) a policy provision providing that the policy is void under those circumstances (Fiore v. State Farm Fire & Cas. Co., 135 AD2d 602 [2d Dep't 1987]; Sunbright Fash. v. N.Y. Mut. Ins., 34 AD2d 235 [1st Dep't 1970], aff’d, 28 NY2d 563 [1971], (2) a statute, as in fire insurance cases (Insurance Law ?§3404 [e] lines 1-6) that provides for voiding the policy in cases of fraud; and (3) misrepresentations to obtain the policy of insurance or its reinstatement (Insurance Law ?§3105; Hinderhofer v. Daisy Mfg. Co., 286 AD2d 419 (2d Dep’t 2000).

Insurance contracts are ones of adhesion, drafted by the insurer. It would have been a simple matter to specifically provide in the policy for voiding claims in their entirety when fraud in proofs of loss occur. Fiore v. State Farm Fire & Cas. Co., supra, 135 AD2d 602, 603. The defendant did not do that.

In Fiore v. State Farm Fire & Cas. Co., supra, 135 AD2d 602, the homeowner’s insurance policy provided that the “entire policy shall be void if any insured has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance”. The insurer claimed that the insured committed fraud in their claims for a burglary loss under the policy. The Appellate Division, Second Department affirmed an order granting the insureds’ motion to strike the affirmative defenses of fraud as voiding the policy because, said the Appellate Division, unlike the provision in fire insurance policies that fraud voids the policies when committed “whether before or after a loss”, the subject policy was ambiguous and was to be construed in the insureds’ favor (135 AD2d at 603). Additionally, the case at bar does not involve a fact situation where the fraud pertains substantially to the very risk insured against (i.e., the theft of the motor vehicle) and a clause in the policy that voids the policy for false swearing. Oak Point Ind. Pk. v. Mass. Bay Ins. Co. 143 AD2d 79 (2d Dep’t 1988).

At bar, there is a policy language ambiguity which must be resolved in favor of the insureds. Westview v. Guaranty Ins. Co., 95 NY2d 334, 339 (2000); Nationwide Mut. Ins. Co. v. CNA Ins. Co., 286 AD2d 485, 487 (2d Dep’t 2001). The ambiguity in the policy fraud provision relates to whether coverage exists as to the main item, the stolen vehicle, or not where, as here occurred, a willful exaggeration (or fraud) of an incidental to such loss vitiates the entire policy. Additionally, it may also be persuasively argued that the fraud of an “insured” does not void the policy as to the innocent co-insured, Sharon Fair, if she had insurable interest. Cf. Reed v. Federal Ins. Co., 123 AD2d 188 (2d Dep’t 1987), aff’d, 71 NY2d 581 (1988); Ann. 64 ALR 4th 714 (1988), Co-insured’s Misconduct; Ann. 24 ALR 3rd 450 (1969), Insured’s Fraud ” Co-insured Rights; 5A Appleman, Insurance Law & Practice, ?§?§3593, 3594 (especially 2001 Interim Supp. at p. 215).

Whether Sharon Fair had an insurable interest in the vehicle is not clear on this record as the insurance policy lists three motor vehicles and she is designated the driver of one of the other vehicles, not the stolen car to which Mr. Willis is designated as driver. Cf. Insurance Law ?§3401, Scarola v. Ins. Co. of North Amer., 31 NY2d 411, 413 (1972); Taylor v. Allstate Ins. Co., 214 AD2d 610 (2d Dep’t 1995) (sole possessor and user of motor vehicle has an insurable interest; also, by reason of being signatory as owner on a security agreement); Silberman v. Royal Ins. Co., 184 AD2d 562 (2d Dep’t 1992) (spouse who paid purchase price and insurance premiums on vehicle has no insurable interest where other spouse was designated the owner); BPD Intl. Bank v. NY Cent. Ins., 189 Misc.2d 291 (Civil Ct. new York 2001) (sole use and possession of stolen vehicle creates insurable interest); Welch v. Commercial Mut. Ins., 119 Misc.2d 630 (Supreme Ct. Ulster 1983); see, 68A NY Jur. 2d, Insurance, ?§?§939-41, 946 (spouse with no beneficial interest in real property lacks insurable interest therein).

The ambiguity in the fraud provision leads to the conclusion that the contract of insurance insofar as proof of loss is concerned is divisible and fraud committed in an incidental matter relating to, but wholly independent of, the main loss will not negate coverage. 22 NY Jur.2d, Contracts, ?§260, 269; 68A NY Jur.2d, Insurance, ?§?§759, 780; 5A Appleman, supra, ?§3595. Indeed, defendant’s claims manager testified before trial that Mr. Willis’ claims were considered separately (the stolen vehicle and then the transportation expenses) for investigation purposes.

Insurance policies have been held to be divisible on coverage or duties or obligations of the insured or insurer where the alleged misrepresentation or fraudulent conduct did not go to the heart of the contract and the void clause did not void the entire contract and every part thereof. Schuster et al. v. Dutchess County Ins. Co., 102 NY260 (1886); American Sur. Co. v. Rosenthal, 206 Misc. 485 (Supreme Ct. New York 1954), aff’d, 1 AD2d 652 (1st Dep’t 1955); see, Donley v. Glens Falls Ins. Co., 184 NY 107 (1906); Matter of Prudential Prop. & Cas., 126 Misc.2d 1044 (Supreme Ct. Nassau 1985); 43 Am. Jur.2d, Insurance, ?§?§312-17; 15 Williston on Contracts (4th ed.), ?§?§45:1, 45:16: Anno. 47 ALR 650 (1927), Insurance Building & Contents.

In National Surety Corp. v. Michigan Fire & Marine Ins. Co., 59 F.Supp. 493 (DC Minn. 1944), aff’d, 156 F.2d 329 (8th Cir. 1946) the Court addressed the void for fraud language in a fire insurance policy where the proof of loss was exaggerated by overvaluing the product destroyed in the fire. The Court rejected an argument that there was no liability because of the fraud. The Court held that the insured’s right to recover for the true (lower) value of the destroyed product vested at the time of loss, not later when proof of loss was filed. New York is in accord on when the right to recover commences, as of the date of the loss under a fire policy, at least for the contractual period of limitations purposes. Blitman Constr. Corp. v. Insurance Co. of N. Am., 66 NY2d 820 (1985); Proc. v. Home Ins. Co., 17 NY2d 239 (1966); Insurance Law ?§3404 (e), lines 157-161; cf. Bergman v. Indemnity Ins. Co. of N. Am., 232 AD2d 271 (1st Dep’t 1996).

The District Judge in National Surety Corp. then stated (59 F.Supp. at 498-99):

“While the clause in question provides that the policy shall be void if fraud occurs before or after the loss, a reasonable construction would suggest that, if there is no breach of a condition precedent or subsequent at the time of the loss, then a breach of a condition subsequent after the loss will not void the policy unless the fraud or breach pertains to the loss which had already occurred; that is, fraud after loss should not disturb vested rights unless it concerns the enforcement of such rights. It may be observed that the policy in question merely provides that it shall be void in the event of fraud before or after loss, and there is an absence of language which suggests an intention to void the policy retroactively unless the subsequent fraud pertains to the particular loss which is being enforced.