New York Taxi-Cab Law Does Not Obviate Insurer's Right To Receive Notice Of Suit
September, 2004
New York’s Court of Appeals has held that New York Vehicle and Traffic Law §370 does not obviate the right of a taxi-cab’s liability insurer to receive notice of a suit against the cab’s owner and driver. American Transit Ins. Co. v. Sartor, 2004 WL 1472632.
In American Transit, defendant Anthony Sartor was injured in March, 2000, when a vehicle he was driving was involved in an accident with a taxi-cab driven by defendant Julien Mesamours. The cab was owned by defendant Utica Taxi Center, Inc. and insured by plaintiff in the name of its registered owner, defendant Pierre Toussaint. Pursuant to Vehicle and Traffic Law §370(4), a taxi operator is required to provide written notice to its insurer within five days of an accident or face a misdemeanor criminal charge. Despite this requirement, Mesamours, Toussaint, and Utica Taxi all neglected to inform plaintiff about the accident. Approximately seven months later, Sartor’s attorney notified plaintiff of the accident and requested the name of the claims adjuster and the policy’s liability limits. Plaintiff did not respond to this request.
Sartor, an Ohio resident, then filed a personal injury suit against Mesamours, Toussaint, and Utica Taxi in federal court. None of the defendants answered Sartor’s complaint or informed plaintiff that a lawsuit had been filed as required by the terms of the policy. Sartor and his attorney also did not inform plaintiff that a suit had actually been filed. Sartor ultimately obtained a default judgment and was awarded $100,000.00 in damages.
Plaintiff then filed the instant action seeking a declaration that it was not obligated to provide coverage for the default judgment because it was never notified of the suit as required by the policy. The trial court granted plaintiff summary judgment. The appellate court reversed, finding that an insured’s failure to provide the requisite notice does not prejudice the rights of an injured party to recover under the policy.
The Court of Appeals reversed the appellate court and reinstated summary judgment for the plaintiff insurer. The Court first noted that an insurer has the right to demand that it be notified of any loss or accident that is covered under the terms of the policy, as well as a distinct right to be notified of any resulting lawsuit. The purpose of the latter right, the Court wrote, “is to provide the insurer with a fair and reasonable opportunity to appear and defend against a claim or exercise its right to settle the matter.” (2004 WL 1472632 at *2). The Court further noted that the insurer’s right to receive notice of a lawsuit is a condition precedent to its liability under the policy. Although the insured has the primary duty to notify the insurer of a lawsuit, New York Insurance Law §3420 also gives the injured party a right to fulfill this policy obligation. Here, because it was undisputed that no one notified the plaintiff insurer of the lawsuit, the Court of Appeals found that plaintiff had the right to disclaim liability for coverage of the resulting judgment.
The Court then considered defendant Sartor’s argument that the foregoing notice rules are negated by Vehicle and Traffic Law §370(4), which specifically addresses taxi-cabs and other vehicles that transport passengers for hire. As set forth supra, §370(4) requires an owner or operator of a taxi-cab to notify its insurer within five days of an accident, which did not happen here. Sartor argued that an insured’s failure to comply with §370(4) precluded the insurer from disclaiming coverage because of the failure of the insured or injured party to provide the insurer with notice of the lawsuit. The Court of Appeals rejected this argument outright, relying upon the purpose of §370(4):
It is readily apparent that the purpose of this provision is to establish an incentive to the operator of a vehicle for hire to supply its insurer with immediate notice that an accident has occurred in order to avoid criminal liability for noncompliance. But the statute also clearly indicates that the operator’s failure to furnish such notice has no effect on the insured’s obligations under the terms of the policy. Thus, a violation of section 370(4) does not create an exclusive basis for a disclaimer of coverage by the insurer. Nothing in the language of the statute therefore relives a claimant from complying with Insurance Law §3420(a)(3) – the provision allowing an injured party to issue the notice otherwise required of an insured – in order to preserve a right to recovery. (2004 WL 1472632 at *3).
Learning Point:
As the Court of Appeals noted in its opinion, its decision that Vehicle and Traffic Law §370(4) does not negate the policy’s notice condition “preserves the fair and reasonable balance of rights and responsibilities among injured claimants, insured parties and their insurers. Rather than being left to the mercy of an insured’s acts of compliance or noncompliance with the terms of the policy, a claimant injured by a vehicle for hire can safeguard the ability to seek enforcement of a judgment against the insurer by exercising the independent notice right provided by the Legislature in Insurance Law §3420(a)(3). Concomitantly, the insurer will have an opportunity to challenge or settle claims against its insured.” (2004 WL 1472632 at *4). •
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