Carlson v. American Intern. Group, Inc.

Written by: Karl Braun, Esq.

One of the toughest aspects of coverage and coverage opinions is making determinations with an acceptable level of certainty. This task is made exceedingly difficult when courts make coverage determinations based upon amorphous concepts like whether a company has a “substantial business presence” in a certain jurisdiction. The Court of Appeals of New York delivered just such a potential morass in Carlson v. American Intern. Group, Inc., 30 N.Y.3d 288, 89 N.E.3d 490, 67 N.Y.S.3d 100, 2017 N.Y. Slip Op. 08163 (Nov. 20, 2017).

MVP and its employee driver, William Porter, were defendants in an underlying suit involving an MVP owned delivery truck (painted with DHL’s logo) that, while being driven by Mr. Porter, crossed the centerline and hit the plaintiff, Claudia Carlson, killing her. A jury awarded her husband $20 million, ultimately reduced to $7.3 million, and the issues on appeal involved three insurance policies issued to DHL: 1) a $3 million primary issued by National Union; 2) a $2 million excess issued by AAIC: and 3) a $23 million umbrella with National Union.

After lengthy discussion of various issues, the court turned to the argument by AAIC that its excess policy fell outside the purview of §3420 since it was not “…issued or delivered in this state…” [NY INS §3420(d) imposes requirements upon insurers who seek to disclaim liability or deny coverage “…for death or bodily injury arising out of a motor vehicle accident…occurring within this state…” In order for such a disclaimer to be valid it must be in writing and delivered “…as soon as is reasonably possible…to the insured and the injured person or any other claimant…” Thus, a disclaimer letter must be sent not only expeditiously, but a copy must be sent to the claimant(s) or it risks being rendered invalid. AAIC argued that since its policy was initially issued in New Jersey for delivery to DHL’s predecessor, Airborne, Inc. (in Washington) and later assumed by DHL (in Florida) , it was neither issued nor delivered in New York rendering §3420 inapplicable. On its face, AAIC’s argument seemed dispositive.

The court noted that §3420 “…does not define the term ‘issued or delivered in this state,’ but other provisions of the Insurance Law are instructive…” The majority opined that Preserver Insurance Co. v. Ryba, et al., 10 N.Y.3d 635, 862 N.Y.S.2d 820, (N.Y. 2008) was applicable holding that, “a policy is ‘issued for delivery’ in New York if it covers both insureds and risks located in this state.” The court explained that, “issued for delivery” was to be interpreted to mean where the risk to be insured was located – not where the policy document itself was actually handed over or mailed to the insured. Thus, §3420 provided a benefit – deliberately in derogation of common law – to New Yorkers whenever a policy covers “insureds and risks located in this state.” Applying the Preserver standard, the court found that DHL was “ ‘located in’ New York because it has a substantial business presence and creates risks in New York.”

Following Carlson, one must consider the evasive concept of whether an insured company (or that company’s predecessor-in-interest) has a “substantial business presence” within New York. The dissent in Carlson aptly suggested that, “…given the sharp change in the meaning of ‘issued and delivered’ and the frequency with which that phrase is used…,” the majority’s holding would “wreak havoc” in (as the majority characterized the dissent) “unspecified ways.” Quoting the Appellate Division in the case, Judge Garcia (who authored the dissent) explained, “…the parties and the court have improperly conflated the phrase ‘issued or delivered’ with ‘issued for delivery…,’” thus reaching a result that was contrary to the plain meaning of the phrase “issued or delivered in the state” as that phrase is ordinarily understood.

Judge Garcia pointed out that the “…excess policy was issued by AAIC from New Jersey and delivered to the insured in Washington and then in Florida. Thus, the policy was not ‘issued or delivered in this state’ as that phrase is ordinarily understood.” [emphasis added] This is obviously a reasonable conclusion that could easily be reached and communicated in a coverage opinion for an insurance client with an insured located outside New York. Even research of established and enduring New York case law (other than Carlson) would yield the same conclusion. Judge Garcia cited Taggert v. Security Ins. Co. of New Haven, Conn., 277 App. Div. 1051 (2d Dept. 1950) which held that, “…a policy of insurance is issued when it is delivered and accepted, whereby it comes into full effect and operation as a binding mutual obligation, or when it is prepared and signed, as distinguished from its delivery to the insured.”

Regardless of the actual impact of Carlson in future New York judicial decisions, the impact on coverage opinions and practical decisions regarding notice, coverage and disclaimers, is already relatively significant. There is a far-reaching impact on coverage opinions as practitioners will need to inquire of even non-New York insurance clients about the exact nature of the activities of their insureds. As Judge Garcia ruminated in his dissent in Carlson, it could potentially “wreak havoc well beyond this case” in unspecified ways as insurers who have an insured with an arguably substantial business presence and/or which arguably creates risks in New York must decide whether to comply with the prompt notice requirements of §3420(d). Suffice it to say that it is prudent for any practitioner in the field of coverage to be acutely aware of Carlson.