Mount Vernon Fire Insurance Company, Plaintiff-Counter-Defendant-Appellant v. Creative Housing Ltd and Creative Housing Ltd., D/B/A Creative Housing Management Co., Defendants-Counter-Claimants-Appellees, Linnette Hunter
Docket: 95-7248
Court: Court of Appeals for the Second Circuit; November 14, 1995; Federal Appellate Court
An appeal has been initiated by Mount Vernon Fire Insurance Company against Creative Housing Ltd. and others in the U.S. Court of Appeals for the Second Circuit, following a decision from the Eastern District of New York. Mount Vernon seeks a declaratory judgment asserting it has no obligation to defend or indemnify Creative Housing in a lawsuit filed by Lynette Hunter. Hunter claims negligent supervision and management after being assaulted in her apartment managed by Creative Housing. Mount Vernon argues that a policy exclusion for assault and battery applies and that Creative Housing failed to promptly notify them of the incident. In contrast, Creative Housing contends that the underlying negligence claim is not excluded and that Mount Vernon wrongfully denied coverage due to late notice.
The district court dismissed Mount Vernon’s action, finding the assault and battery exclusion ambiguous. It noted that it was unclear if Hunter's claims were based on the assault or negligent maintenance, and whether the exclusion applies when the assault is committed by a third party. The court concluded that the policy covered Creative Housing in Hunter's lawsuit. On appeal, Mount Vernon asserts that this decision contradicts New York law established in U.S. Underwriters Ins. Co. v. Val-Blue Corp., which held that similar exclusion language unambiguously precludes coverage for negligence claims related to assaults, applying a "but for" test to determine if the claim is based on the assault, regardless of who committed it.
Creative Housing and Hunter argue that the ruling in Val-Blue is confined to its specific facts and lacks supporting legal precedent, contesting Mount Vernon's assertion that it serves as a definitive interpretation of New York law regarding injuries from third parties and maintenance claims. They emphasize that Val-Blue does not extend to cases involving assaults by employees or the insured. The discussion identifies two unresolved issues under New York law: the implications of different language in assault and battery exclusion clauses and their relevance to third-party tort claims.
The analysis of clause language highlights a distinction between "based on" and "arising out of," noting that New York courts have previously varied in their interpretations. In Lalomia v. Bankers, Shippers Ins. Co., the Appellate Division determined that an automobile exclusion did not negate coverage for negligent entrustment, as the claim was rooted in common law negligence rather than vehicle ownership. Similarly, in Cone v. Nationwide Mut. Fire Ins. Co., the Court of Appeals reaffirmed Lalomia's stance, indicating that the difference between "based on" and "arising out of" was not significant enough to alter legal outcomes. However, dissenting opinions highlighted the potential for differing interpretations based on the language used.
The excerpt concludes that the confusion surrounding exclusionary clauses remains unresolved, as evidenced by New Hampshire Ins. Co. v. Jefferson Ins. Co., which found a lack of obligation to defend a negligent entrustment claim under an "arising out of" clause, while acknowledging inconsistencies with prior rulings. Appellees argue that Val-Blue does not clarify these legal nuances and does not dictate the outcome of the current case.
Salimbene v. Merchants Mut. Ins. Co. demonstrates that a homeowner's insurance policy did not cover an insured who intentionally threw stones at a vehicle, as the action was deemed not accidental. The court differentiated between cases where damages were intended versus unintended, referencing Val-Blue. Although Salimbene's facts differ from the current case, it adds complexity to Val-Blue's interpretation regarding negligence claims like Hunter's.
Key ambiguities remain concerning the treatment of third-party assaults versus employee assaults or negligent entrustment scenarios. Val-Blue involved assaults and negligence committed by the insured, leaving unclear whether claims against an insured for injuries caused by third parties through negligence should be treated as based on assault or as negligent maintenance of premises, potentially allowing for coverage despite assault and battery exclusions.
The Val-Blue exclusion contains similar language to that in the Mount Vernon exclusion, stating that "assault and battery shall not be deemed an accident." However, the Val-Blue court did not address this language, leaving its applicability to third-party torts open to interpretation. The court suggests that the ambiguity in assault and battery exclusions will likely lead to ongoing litigation, emphasizing the need for the New York Court of Appeals to clarify state law on these issues.
The court certifies two questions for the New York Court of Appeals: 1) Whether "based on" is narrower than "arising out of" in insurance policies and if the Val-Blue decision clarifies their ambiguity; and 2) Whether a third-party assault claim against an insured should be viewed as an assault claim or as one of negligent premises maintenance. The resolution of these questions is deemed crucial for the state's interests in insurance contract interpretation and enforcement, ultimately aiding in clearer contractual agreements and risk management. The court notes that existing New York precedents are inconclusive, underscoring the necessity for state court deliberation rather than relying on federal appellate rulings.
The New York Court of Appeals is invited to address any relevant state law issues related to the current appeal, with the court expressing openness to guidance on these matters. The excerpt includes a policy exclusion stating that no coverage applies for claims related to Assault and Battery, which will not be considered an accident, regardless of the insured's involvement. Prior to trial, Mount Vernon retracted its claim of untimely notice. The Val-Blue case, decided on February 9, 1995, involved a police officer shot by a nightclub security guard, raising issues of negligence in hiring and supervision. The Val-Blue court emphasized that intent to cause harm is irrelevant to determining whether an act is intentional. Although New York has not yet ruled on the applicability of assault and battery exclusions to third-party assaults, similar cases in other jurisdictions have been noted. For instance, the Massachusetts Supreme Court found an insurer had a duty to defend against a negligent security claim when a patron was assaulted by another patron, indicating that assault and battery exclusions do not apply to negligence claims absent clear language to the contrary. Conversely, in cases with broader exclusion clauses, such as Kelly v. Figueiredo, courts have denied coverage for negligence claims stemming from third-party torts. The District Court has provided two interpretations of the exclusionary language, suggesting it applies to intentional torts by persons acting for the insured or excludes all assault and battery claims, while allowing for the possibility of additional interpretations.
