ARIDA v. ESSEX INSURANCE COMPANY (2002)

Plaintiffs obtained a money judgment in a negligence action against defendant's insured, Riverfront Development, Inc. (Riverfront), and commenced this action against defendant to recover the amount of that judgment pursuant to Insurance Law § 3420(b)(1).   During the pendency of the negligence action against Riverfront, defendant, which until then had provided Riverfront with a defense, commenced a declaratory judgment action seeking judgment declaring that it owed Riverfront neither defense nor indemnity.   That action was resolved by a release pursuant to which Riverfront, “in consideration of the dismissal of the Declaratory Judgment Action,” released defendant from all duties under its commercial general liability policy with respect to plaintiffs' negligence action, withdrew its request for a defense and indemnification in that action and agreed that the policy “shall be considered null and void” with respect to that action.   Defendant moved pursuant to CPLR 3211(a)(1) to dismiss the amended complaint based on the release, and Supreme Court granted the motion.   That was error.

 Although in seeking dismissal of the amended complaint defendant purports to rely on the defense of documentary evidence pursuant to CPLR 3211(a)(1), the release of defendant by Riverfront can have no effect on plaintiffs' Insurance Law § 3420(b)(1) action except under the doctrine of collateral estoppel (see generally D'Arata v. New York Cent. Mut. Fire Ins. Co., 76 N.Y.2d 659, 563 N.Y.S.2d 24, 564 N.E.2d 634).   Thus, defendant is in effect seeking dismissal pursuant to CPLR 3211(a)(5).   Here, Riverfront surrendered its rights under the liability policy in settlement of the declaratory judgment action commenced by defendant, and no notice of that action or the settlement thereof was provided to plaintiffs herein.   We therefore conclude that plaintiffs should not be estopped from litigating the issue raised herein, i.e., whether the liability policy covers plaintiffs' claims (see Rushing v. Commercial Cas. Ins. Co., 251 N.Y. 302, 304-305, 167 N.E. 450;  Fisons Corp. v. Lumbermens Mut. Cas. Co., 229 A.D.2d 925, 645 N.Y.S.2d 230;  Smith & Wesson v. Birmingham Fire Ins. Co., 123 A.D.2d 135, 137-138, 510 N.Y.S.2d 606;  cf.  D'Arata, 76 N.Y.2d at 665-669, 563 N.Y.S.2d 24, 564 N.E.2d 634;  Matter of Hofmann, 287 A.D.2d 119, 122-125, 733 N.Y.S.2d 168;  New York Cent. Mut. Fire Ins. Co. v. Kilmurray, 181 A.D.2d 40, 585 N.Y.S.2d 599).

 We further conclude that defendant's motion should have been denied on the additional ground that there is an issue of fact whether defendant was required to give plaintiffs notice of disclaimer of liability or denial of coverage pursuant to Insurance Law § 3420(d).  Such notice is required when a claim falls within the coverage terms of the insurance policy but is denied based on a policy exclusion (see Markevics v. Liberty Mut. Ins. Co., 97 N.Y.2d 646, 648-649, 735 N.Y.S.2d 865, 761 N.E.2d 557;  Matter of Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 188-189, 712 N.Y.S.2d 433, 734 N.E.2d 745).   Injured persons may invoke the notice requirement of section 3420(d) even where timely notice of disclaimer or denial of coverage was given to the insured (see Hartford Acc. & Indem. Co. v. J.J. Wicks, Inc., 104 A.D.2d 289, 292-294, 482 N.Y.S.2d 935, appeal dismissed 65 N.Y.2d 691;  John v. Centennial Ins. Co., 91 A.D.2d 1104, 1105, 458 N.Y.S.2d 350, lv. denied 59 N.Y.2d 605, 464 N.Y.S.2d 1026, 451 N.E.2d 505).   Here, it is undisputed that defendant did not give plaintiffs notice of disclaimer of liability or denial of coverage, nor has defendant established that it denied coverage on the ground that the claim fell outside the coverage terms of the policy.   We therefore reverse the order, deny defendant's motion and reinstate the amended complaint.

It is hereby ORDERED that the order so appealed from be and the same hereby is unanimously reversed on the law with costs, the motion is denied and the amended complaint is reinstated.

MEMORANDUM: