Opinion
No. 01 Civ. 9291 (JSM)
February 11, 2003
OPINION ORDER
Zurich American Insurance Company ("Zurich") moves for partial summary judgment that it is liable for only the face amount of its policy, arguing that the construction of its binder is controlled by Section 3404(h) of the New York Insurance Law and that under that statute there is no per occurrence liability.
In a decision issued in June, 2002, this Court rejected a similar claim by Zurich that because its binder does not state that coverage was being provided on a "per occurrence" basis, it could only be liable for the face amount of its binder. In rejecting that argument the Court noted:
The Court agrees with the insureds that the issue of whether Zurich was providing coverage on a "per occurrence" basis can not be resolved without resort to extrinsic evidence. New York law is clear that, unlike more traditional contracts, with respect to which the courts will not look outside the four corners of the agreement to determine the intent of the parties, binders will be construed to contain clauses customary in the insurance industry. As stated in Ell Dee Clothing Co. v. Marsh, 247 N.Y. 392, 396 (1928):
A "binder" is a present contract of insurance issued to protect the assured temporarily while the assurer investigates the risk and determines whether or not to issue a permanent policy. Imported into it, however, are all the obligations "according to the terms of the policy in ordinary use by the company." (Sherrie v. National Surety Co., 243 N.Y. 266.) If the form of the policy is fixed by the State, then its provisions are held to be included in any binder. If there is proof that the company has adopted any particular and customary form the same thing is true.
Similar reasoning is found in the opinion of the Court of Appeals in Employers Commercial Union Ins. Co. v. Firemen's Fund Ins. Co., 45 N.Y.2d 608, 612-13 (1978), in which the Court stated:
Daily, important affairs and rights in our society are made to depend upon [insurance binders]. It is a common and necessary practice in the world of insurance, where speed often is of the essence, for the agent to use this quick and informal device to record the giving of protection pending the execution and delivery of a more conventionally detailed policy of insurance. Courts, recognizing that the cryptic nature of binders is born of necessity and that many policy clauses are either stereotypes or mandated by public regulation, are not loath to infer that conditions and limitations usual to the contemplated coverage were intended to be part of the parties' contract during the binder period. (Matter of Seiderman v. Herman Perla, Inc., 268 N.Y. 188; Ell Dee Clothing Co. v. Marsh, 247 N.Y. 392).
It is, at a minimum, an issue of fact as to whether the custom and practice of the insurance industry, or Zurich's own customary policy form, would have caused Zurich and its insureds to understand that the property 2 damage insurance that Zurich was binding itself to provide was being written on a "per occurrence" basis.
SR Int'l. Bus. Ins. Co. Ltd. v. World Trade Center Properties LLC, No. 01 Civ. 9291, 2002 WL 1868729, *1-*2 (S.D.N.Y. June 4, 2000) (emphasis added).
As is evident from the above quote, the New York Court of Appeals has twice held that in attempting to determine the contents of a binder, the Court can consider extrinsic evidence that is "proof that the company has adopted any particular and customary form. . . ." Here, discovery has established that Zurich regularly wrote property insurance on a per occurrence basis.
Nothing in § 3404(h) requires the Court to blind itself to this persuasive evidence that Zurich intended to be bound to per occurrence coverage. By its own terms, § 3404(h) applies only to fire insurance contracts issued to "one to four family residential real propert[ies]." Nothing in § 3404(h) is inconsistent with the concept that in seeking to determine the terms of a binder in a sophisticated commercial transaction, such as the insurance program for the World Trade Center Properties, the Court should ignore the insurer's own regular practice.
Even if § 3404(h) were applicable to the World Trade Center Properties' insurance program, this statute provides only that a binder is to incorporate the terms of New York's standard fire 3 insurance policy — it does not limit that binder to those terms. Thus, § 3404(h) would not preclude a finding by this Court, based on extrinsic evidence of Zurich's regular practice, that it bound to provide "per occurrence" coverage to the World Trade Center Properties.
For the foregoing reasons, Zurich's motion for partial summary judgment is denied.
SO ORDERED.