author: Bellacosa, J.

text:
    [623 NE2d 531, 603 NYS2d 404]
    Westinghouse Electric Corporation, Plaintiff, v New York City Transit Authority Et Al., Defendants.
    Argued August 31, 1993;
    decided October 19, 1993

      POINTS OF COUNSEL

      Smith, Pachter, McWhorter & D’Ambrosio (Peter M. DAmbrosio and John V. Snyder of counsel, of the Virginia Bar, admitted pro hac vice) and Davis, Scott, Weber & Edwards, P. C., New York City (John A. Redmon and Ellen Wahl Parker of counsel), for plaintiff.
    Article 8.03 is void as contrary to public policy. (Matter of Cross & Brown Co. [Nelson], 4 AD2d 501; Crimmins Contr. Co. v City of New York, 138 AD2d 138, 74 NY2d 166; Naclerio Contr. Co. v City of New York, 116 AD2d 463, 69 NY2d 794; Lovisa Constr. Co. v City of New York, 116 AD2d 1047, 69 NY2d 801; Gruzen Partnership v City of New York, 153 AD2d 1014; Fuller Co. v Gustafson Co., 55 AD2d 872; Morris v New York Football Giants, 150 Misc 2d 271; Matter of Digeorgia [American Fedn. of Musicians], 17 Misc 2d 343; Erving v Virginia Squires Basketball Club, 349 F Supp 716, 468 F2d 1064; Westinghouse Elec. Corp. v New York City Tr. Auth., 735 F Supp 1205.)

      Ira J. Lipton, Brooklyn, Albert C. Cosenza, Diane J. Morgenroth, Martin B. Schnabel and Richard Schoolman for defendants.
    A contractual alternative dispute resolution procedure which authorizes one party’s employee to make final and binding decisions as to all questions arising under the contract, subject to judicial review limited to the issue of whether such decisions are arbitrary, capricious or so grossly erroneous to evidence bad faith, is not contrary to public policy; nor does it violate public policy where, as here, the employee is the party’s Superintendent with responsibility for administering the contract and as such, may have had prior involvement in the subject matter in dispute. (McMahon v New York & Erie R. R. Co., 20 NY 463; Sweet v Morrison, 116 NY 19; Del Genovese v Third Ave. R. R. Co., 13 App Div 412, 162 NY 614; Maross Constr. v Central N. Y. Regional Transp. Auth., 66 NY2d 341; Ardsley Constr. Co. v Port Auth., 54 NY2d 876; Tufano Contr. Corp. v Port of N. Y. Auth., 18 AD2d 1001, 13 NY2d 848; NAB Constr. Corp. v Metropolitan Transp. Auth., 167 AD2d 301, 180 AD2d 436; Westinghouse Elec. Corp. v New York City Tr. Auth., 735 F Supp 1205, 794 F Supp 79, 990 F2d 76.)

      Berman, Paley, Goldstein & Kannry, New York City (Robert G. Benisch and Alvin Goldstein of counsel), for the General Contractors Association of New York, Inc., amicus curiae.

    The attempt by the New York City Transit Authority to constitute itself, through its Superintendent, as the arbiter of disputes under the contract is void as against public policy. (Matter of Susquehanna Val. Cent. School Dist. [Susquehanna Val. Teachers’ Assn.] 37 NY2d 614; Matter of Goldfinger v Lisker, 68 NY2d 225; Matter of Penn Cent. Corp. [Consolidated Rail Corp.] 56 NY2d 120; Riko Enters, v Seattle Supersonics Corp., 357 F Supp 521; Matter of Siegel [Lewis], 40 NY2d 687; Matter of Astoria Med. Group [Health Ins. Plan] 11 NY2d 128; Morelite Constr. Corp. v New York City Dist. Council Carpenters Benefit Funds, 748 F2d 79; Rowe v Great Atl. & Pac. Tea Co., 46 NY2d 62; Crimmins Contr. Co. v City of New York, 138 AD2d 138, 74 NY2d 166; Naclerio Contr. Co. v City of New York, 116 AD2d 463, 69 NY2d 794.)

      Murtagh, Cohen & Byrne, Garden City (Edward T. Byrne of counsel), for New York Electrical Contractors Association, Inc., amicus curiae.

    I. Article 8.03, which provides for the designation of an employee of NYCTA to decide a dispute to which his employer is a party, violates the public policy of the State of New York and is invalid. (Crimmins Contr. Co. v City of New York, 138 AD2d 138, 74 NY2d 166; Naclerio Contr. Co. v City of New York, 116 AD2d 463; Matter of Cross & Brown Co. [Nelson], 4 AD2d 501; NAB Constr. Corp. v Metropolitan Transp. Auth., 167 AD2d 301; Westinghouse Elec. Corp. v New York City Tr. Auth., 735 F Supp 1205, 794 F Supp 79.) II. "Undiluted” review under CPLR article 78 is applicable to the decision of the Superintendent, whose determination can be overturned if affected by an error of law. (Crimmins Contr. Co. v City of New York, 74 NY2d 166; Maross Constr. v Central N. Y. Regional Transp. Auth., 66 NY2d 341; Naclerio Contr. Co. v City of New York, 116 AD2d 463; Westinghouse Elec. Corp. v New York City Tr. Auth., 735 F Supp 1205; Matter of New York City Dept. of Envtl. Protection v New York City Civ. Serv. Commn., 78 NY2d 318.)

      Milton H. Pachter, New York City, Arthur P. Berg, Carlene V. McIntyre and Kathleen M. Collins for the Port Authority of New York and New Jersey, amicus curiae.

    I. Both the courts in this State and the Federal courts have continuously sustained determinations made pursuant to dispute resolution clauses which designate one party’s engineer as the decision-maker. (Maross Constr. v Central N. Y. Regional Transp. Auth., 66 NY2d 341; S&E Contrs. v United States, 406 US 1; United States v Grace & Sons, 384 US 424; Crimmins Contr.

      Co. v City of New York, 74 NY2d 166; Tufano Contr. Corp. v Port of N. Y. Auth., 18 AD2d 1001, 13 NY2d 848; Ardsley Constr. Co. v Port Auth., 54 NY2d 876; Matter of Siegel [Lewis], 40 NY2d 687, 41 NY2d 901.) II. An agreement to abide by a dispute resolution clause does not create a contract of adhesion. (Fiore v Oakwood Plaza Shopping Ctr., 78 NY2d 572, 79 NY2d 916; Seaboard Lbr. Co. v United States, 903 F2d 1560; City of New York v Local 333, Mar. Div. Intl. Longshoremen’s Assn., 106 Misc 2d 888, 79 AD2d 410, 55 NY2d 898; Meaott Constr. Corp. v Ross, 100 Misc 2d 767; Newton v Choctaw & Memphis R. R. Co., 202 US 620; Smith Contr. v City of New York, 209 App Div 271, 240 NY 491.) III. There are restraints imposed upon the NYCTA that prevent it from overreaching. (Eastern R. R. Conference v Noerr Motors, 365 US 127; Mine Workers v Pennington, 381 US 657.) IV. The wisdom of permitting dispute resolution clauses in government contracts is for the Legislature, not the courts. (United States v Wunderlich, 342 US 98.)
   OPINION OF THE COURT

Bellacosa, J.

The issue in this case, certified to this Court by the United States Court of Appeals for the Second Circuit so that we might resolve a question of New York law, is whether New York public policy prohibits an "alternative dispute resolution CADE,’) provision that authorizes an employee of a party [the New York City Transit Authority and Metropolitan Transportation Authority] to a contract dispute, where such employee is personally involved in the dispute, to make conclusive, final, and binding decisions on all questions arising under the contract” (Westinghouse Elec. Corp. v New York City Tr. Auth., 990 F2d 76, 79). We answer the certified question in the negative and conclude that the challenged ADR provision, which expressly provides for judicial review, does not in these circumstances violate New York public policy.

I.

In 1983, Westinghouse Electric Corporation, a Pennsylvania corporation, bid on, won and entered into a contract with the New York City Transit Authority (NYCTA) and the Metropolitan Transportation Authority for the sale, delivery, and installation of power rectifier equipment to five substations for the New York City subway system. During the course of Westinghouse’s performance under the contract, numerous disputes arose between the parties concerning whether Westinghouse was entitled to damages for delay or compensation for additional work; whether NYCTA could properly delete certain portions of the work from the contract; whether Westinghouse was being restrained from performing under the contract; and whether Westinghouse was entitled to unilaterally stop work under the contract. The alternative dispute resolution provision, article 8.03, provides:

"(a) In the event the Contractor and Authority are unable to resolve their differences concerning a determination by the Superintendent, the Contractor may initiate a dispute in accordance with the procedure set forth in this Article. Exhaustion of these procedures shall be a precondition to any lawsuit permitted hereunder.
"(b) The parties to this contract authorize the Superintendent, acting personally, to decide all questions of any nature whatsoever arising out of, under, or in connection with, or in any way related to or on account of, this Contract * * * and his decision shall be conclusive, final and binding on the parties. * * *
"(c) If the Contractor protests the determination of the Superintendent, the Contractor may commence a lawsuit in a Court of competent jurisdiction of the State of New York under Article 78 of the New York Civil Practice Law and Rules or a United States Court in New York, under the procedures and laws applicable in that court, it being understood the review of the Court shall be limited to the question of whether or not the Superintendent’s determination is arbitrary, capricious or grossly erroneous to evidence bad faith.”

Westfall (whose title is Chief Electrical Officer) is a NYCTA employee and functioned as the Superintendent and ADR adjudicator. By letter dated November 3, 1988, Westinghouse notified Westfall that the NYCTA’s failure to resolve numerous long-standing design problems and other restraints and prohibitions on Westinghouse’s work constituted a constructive stop work order. The letter requested that the NYCTA resolve all outstanding performance problems within 90 days. In a subsequent letter dated February 3, 1989, Westinghouse advised Westfall that it was suspending further performance effective February 3, 1989, because the NYCTA did not respond to the problems set forth in the earlier letter. Westfall responded by letter dated February 8, 1989, acknowledging Westinghouse’s formal advice that it was suspending performance under the contract. Westfall further stated that this was a breach of contract and directed Westinghouse to discontinue all work. In addition, Westfall advised Westinghouse that a recommendation would be made that it be held in default and, on June 13, 1989, the NYCTA advised Westinghouse that that had been formally effectuated. On June 21, 1989, Westinghouse submitted to Westfall a "Request for Additional Compensation and Time Extension,” including the costs of additional labor, equipment, and general and administrative expenses Westinghouse claimed it incurred to perform the contract due to the NYCTA’s alleged failure to discharge its contract obligations. Westinghouse asked that the NYC-TA’s default declaration be rescinded and for a Superintendent’s decision, as required by article 8.03. It thus submitted itself to the ADR mechanism. By letter dated July 26, 1989, Westfall advised Westinghouse that he rejected its claims.

On August 2, 1989, Westinghouse sued in the District Court of the Southern District of New York for breach and rescission of the contract. Westinghouse argued that article 8.03 contravenes New York public policy and, therefore, is void and unenforceable. In Westinghouse Elec. Corp. v New York City Tr. Auth. (794 F Supp 79 [SD NY 1991, Haight, J.]), the District Court upheld enforceability of the provision, believing that the greater weight of the intermediate appellate authority in New York supported validity.

Westinghouse appealed to the United States Court of Appeals, Second Circuit, arguing that article 8.03 imposes a procedure for dispute resolution by a functionary inseparable from one of the parties to the dispute and, thus, fosters a predisposed adjudication process, which is contrary to New York public policy. Pursuant to this Court’s Rules of Practice (22 NYCRR), § 500.17, the Second Circuit certified the issue to our Court for the articulation of New York State law and public policy (Westinghouse Elec. Corp. v New York City Tr. Auth., 990 F2d 76, supra).

II.

Article 8.03 arrives at this Court with a dubious reputation, though its validity has been upheld by lower courts. In K. G. Indus, v Metropolitan Tramp. Auth. (Sup Ct, NY County, Oct. 8, 1987, Wilk, J., index No. 5761/86, affd 149 AD2d 992), the Court affirmed a decision which dismissed the contractor’s action seeking a declaratory judgment involving the alternative dispute procedures in the parties’ contract. The claim was that they were invalid and against public policy because the contract designated the Chief Engineer, an employee of the NYCTA, to serve as adjudicator of all disputes arising under the contract. The contractor’s contention was similarly rejected in NAB Comtr. Corp. v Metropolitan Tramp. Auth. (167 AD2d 301).

Matter of Astoria Med. Group (Health Ins. Plan) (11 NY2d 128) and Matter of Siegel (Lewis) (40 NY2d 687) provide persuasive authority affecting the rationale of NAB Comtr. and K. G. Indus, at the Appellate Division. In Matter of Siegel, the parties designated a lawyer and an accountant of one of the parties as the arbitrators of any dispute arising from a stock purchase agreement. A dispute arose resulting in a demanded arbitration, but before a decision was rendered, one party refused arbitration and brought a proceeding to vacate the designation of the lawyer and the accountant as arbitrators. This Court dismissed the action, stating that as it has long been the policy of New York courts to interfere as little as possible with the freedom of consenting parties, "[t]herefore, strange as it may seem * * * a fully known relationship between an arbitrator and a party, including one as close as employer and employee * * * will not in and of itself disqualify the designee” (Matter of Siegel, 40 NY2d 687, 690, supra [emphasis added]). Our strong, albeit cautionary, sentiments expressed in Matter of Siegel and Matter of Astoria Med. Group have been extended to apply to alternative dispute resolution provisions contained in municipal contracts (see, Maross Constr. v Central N. Y. Regional Tramp. Auth., 66 NY2d 341; see also, Ardsley Constr. Co. v Port Auth., 54 NY2d 876).

Considerable authority thus supports the validity and enforceability of alternative dispute resolution mechanisms, which reflect the informed negotiation and endorsement of parties. It is firmly established that the public policy of New York State favors and encourages arbitration and alternative dispute resolutions (Matter of Nationwide Gen. Ins. Co. v Investors Ins. Co., 37 NY2d 91, 95; see also, Matter of Weinrott [Carp], 32 NY2d 190). These mechanisms are "well recognized as an effective and expeditious means of resolving disputes between willing parties desirous of avoiding the expense and delay frequently attendant to the judicial process” (Maross Constr. v Central N. Y. Regional Transp. Auth., 66 NY2d 341, 345, supra). Thus, "[i]t has long been the policy of the law to interfere as little as possible with the freedom of consenting parties to achieve that objective” (Matter of Siegel, 40 NY2d 687, 689, supra; but see, Crimmins Contr. Co. v City of New York, 74 NY2d 166; Naclerio Contr. Co. v City of New York, 116 AD2d 463, affd for reason stated below 69 NY2d 794 [noting that the cases were not decided on the precise issue here]).

Westinghouse chose, with its business eyes open, to accept the terms, specifications and risk of the bid contract, including the ADR clause. It subsequently came to believe and feel aggrieved that having an employee of the NYCTA alone decide the ongoing disputes during the performance of the contract led ultimately to decisions unfavorable to it. But this Court has noted that "even in cases where the contract expressly designated a single arbitrator who was employed by one of the parties or intimately connected with him, the courts have refused to disqualify the arbitrator on the ground of either interest or partiality” (Matter of Astoria Med. Group, 11 NY2d 128, 136, supra [citation omitted] [emphasis in original]; see also, Matter of Siegel, 40 NY2d 687, 690, supra).

Without doubt, Westinghouse understood the implications of the ADR clause prior to undertaking its business and legal risks under the whole of the multimillion dollar agreement. To allow it, after the fact, to secure the assistance and power of the courts to relieve it of a particular procedural provision, while retaining the benefits of the rest of the publicly bid public works contract, is not compelled by our precedents and would have destabilizing commercial law consequences.

Focusing on the instant case, we recognize the commercial and competing public policy realities when parties freely contract and select their own ADR process and adjudicator with some judicial review (see, Maross Constr. v Central N. Y. Regional Transp. Auth., 66 NY2d 341, 345, supra; Matter of Siegel, 40 NY2d 687, 689, supra; Matter of Nationwide Gen. Ins. Co. v Investors Ins. Co., 37 NY2d 91, 95, supra). Most importantly, we conclude only that public policy has not been transgressed in this case, particularly because of the provision for judicial review of the adjudicator’s decision. That review, under the terms of the agreement, is by CPLR article 78 and thus allows broader review than the usual and stricter standards of arbitration award review in article 75.

Westinghouse, nevertheless, emphasizes that this case should not rest on freedom of contract principles because of the inhibiting nature of the bid process. But Westinghouse pushes the argument too far when it urges that public policy requires that in contractual relations public entities cannot, as a matter of law, require by bid specification that private contractors (often economic giants in their own right) must allow a Chief Engineer as Superintendent to serve as the ADR adjudicator of contractual disputes, when the ADR provision itself imposes some independent review mechanism.

Relative one-sidedness is a proposition of too general a nature to resolve, by itself, such an important public contract issue. To be sure, when powerful municipalities put their public works jobs out for bid and require competition, low cost and performance in accordance with published specifications, they enjoy a virtual monopolistic-kind of power. But that does not make those contracts adhesion agreements. The courts should not, except for compelling reasons, wrest away from contracting parties a superior marketplace bargaining hand and try to equalize relatively arm’s length commercial dealings. The judicial review check provided for in this ADR provision should be sufficient to regulate and remedy intolerable abuses and one-sided economic oppression. Thus, the parties should be left to their own ingenuity to enter such agreements and solve their differences with appropriate ADR mechanisms, such as the one here. Westinghouse freely and knowingly accepted an ADR solution for its disputes with NYCTA by contract and by actual submission of such controversies. It cannot accept the whole contract, except for a part it later chooses not to accept, and should not be able to slip out of the deal after it eventually found the mechanism did not result in decisions favorable to it. That is part of the calculated business risk it undertook.

The bedrock of the doctrine of unconscionability is " 'the prevention of oppression and unfair surprise * * * and not of disturbance of allocation of risk’ ” (Equitable Lbr. Corp. v IPA Land Dev. Corp., 38 NY2d 516, 522 [citation omitted]). Thus, where, as here, the parties are "dealing at arm’s length with relative equality of bargaining power,” they ought to be left to themselves (id., at 523; see also, Kalisch-Jarcho, Inc. v City of New York, 58 NY2d 377, 384). The law of contracts does not allow Westinghouse to pick and choose among the provisions of its contract in this fashion.

Our public policy evaluation is also relevantly affected by the realization that billions of dollars of commercial transactions and thousands of public work contracts are outstanding containing identical or similar ADR provisions. They are entitled to some stability because they were entered into with reliance on reasonable predictability factors. These contracts were let, bid and made under what was evidently perceived to be the state of the law and valid public policy in New York, promoted and induced by judicial decisions and extant policies, such as they were, which not only tolerated but encouraged parties to freely contract generally and especially with ADR mechanisms. Altering the path taken through the forest in the fashion urged here by Westinghouse by relocating trees across the roadway would not be prudent or sound public policy (Cardozo, The Nature of the Judicial Process, reprinted in Selected Writings of Benjamin Nathan Cardozo, at 133 [Margaret E. Hall ed 1947]). The rule of law should not suddenly be changed to dislodge reliably perceived public policy in New York, which encourages parties to agree to submit their disputes to forums and persons for prompt, efficient and fair resolution, by their reckoning, not that of the courts, after the fact.

Accordingly, the certified question should be answered in the negative.

Chief Judge Kaye and Judges Simons, Titone, Hancock, Jr., and Smith concur; Judge Levine taking no part.

Following certification of a question by the United States Court of Appeals for the Second Circuit and acceptance of the question by this Court pursuant to section 500.17 of the Rules of the Court of Appeals (22 NYCRR 500.17), and after hearing argument by counsel for the parties and consideration of the briefs and records submitted, certified question answered in the negative.


source: Caselaw Access Project

author: Smith, J. Chief Judge Kaye

license: Public Domain

text:
    [623 NE2d 536, 603 NYS2d 409]
    In the Matter of the Arbitration between Liberty Mutual Insurance Company, Appellant, and Milicent Hogan et al., Respondents.
    Argued and submitted September 8, 1993;
    decided October 21, 1993
    POINTS OF COUNSEL

      Callahan, Schepp, Yuhas, Adams & Carfora, Mineóla (Michael Majewski of counsel), for appellant.
    I. Liberty’s uninsured motorist endorsement livery exclusion is valid and should be upheld. (Matter of Allstate Ins. Co. v Shaw, 52 NY2d 818; Matter of Knickerbocker Ins. Co. [Faison], 22 NY2d 554; Eveready Ins. Co. v Asante, 153 AD2d 874; Moffitt v Moffitt, 46 AD2d 944.) II. Public policy would not be served by invalidating Liberty’s uninsured motorist exclusion. (Matter of Knickerbocker Ins. Co. [Faison], 22 NY2d 554; Eveready Ins. Co. v Asante, 153 AD2d 874; Allstate Ins. Co. v Shaw, 52 NY2d 818.) III. Should this Court enforce Liberty’s livery exclusion, then respondents would be able to seek recovery from MVAIC. (Matter of Knickerbocker Ins. Co. [Faison], 22 NY2d 554; Matter of Rice v Allstate Ins. Co., 32 NY2d 6; McCarthy v Motor Vehicle Acc. Indem. Corp., 16 AD2d 35, 12 NY2d 922; Matter of Chiro [Merchants Mut. Ins. Co.], 49 AD2d 686, 40 NY2d 852; Pajak v Motor Vehicle Acc. Indem. Corp., 155 AD2d 912; Matter of Crump [Motor Vehicle Acc. Indem. Corp.], 44 Misc 2d 180.)

      Livoti, Bernstein & Moraco, New York City (Berry S. Bernstein of counsel), for respondents.
    The courts below correctly held that neither the "livery” exclusion nor the presence of another vehicle which was insured precluded an uninsured motorist arbitration. (Allstate Ins. Co. v Giordano, 108 AD2d 910, 66 NY2d 810; Passaro v Metropolitan Prop. & Liab. Ins. Co., 128 Misc 2d 21, 124 AD2d 647; Matter of Electric Ins. Co. v Woods, 101 AD2d 840; Eveready Ins. Co. v Asante, 153 AD2d 874; Matter of Knickerbocker Ins. Co. [Faison], 22 NY2d 554.)
   OPINION OF THE COURT

Smith, J.

The issue in this proceeding to stay arbitration is whether a "livery exclusion” contained in the uninsured motorists coverage endorsement of a personal automobile liability policy is invalid so as to require arbitration of an uninsured motorist claim. We hold that such an exclusion is not based on statute or regulation and is inconsistent with the purpose of the mandatory uninsured motor vehicle statutes and the public policy of this State, and, therefore, is unenforceable.

Respondents were passengers in a car, which was owned and operated by John Karim, and which passed a stop sign at the intersection of 143rd Street and Linden Boulevard, in Queens County, and collided with a vehicle owned by Jeannette Williams and operated by Frank Venable. At the time, Karim was operating his vehicle as a livery. Karim’s vehicle was insured by appellant Liberty Mutual Insurance Company (Liberty Mutual). Both the liability coverage provision and the uninsured motorists coverage endorsement in the policy issued by Liberty Mutual to Karim excluded from coverage vehicles used "to carry persons or property for a fee.”

Based on the exclusions in the policy, Liberty Mutual declined to defend or indemnify Karim in a personal injury action brought by respondents. Respondents then demanded arbitration from Liberty Mutual under the uninsured motorists coverage endorsement of the policy. Liberty Mutual commenced this proceeding to stay arbitration, asserting that the liability coverage provision and the uninsured motorists coverage endorsement in the policy it issued to Karim contained a valid livery exclusion, that at the time of the accident Karim was using his vehicle as a livery, and that the other vehicle involved in the accident was insured.

Supreme Court denied the application to stay arbitration and dismissed the petition (150 Mise 2d 456). The court concluded that since the other vehicle involved in the accident was not at fault, the fact that it was insured "is irrelevant,” that the exclusion for livery conveyances permitted under 11 NYCRR 60-1.2 (a) is inapplicable here since "that rule refers only to the 'policy of liability insurance’ * * *, and not to the uninsured motorist endorsement,” and that the livery exclusion under the uninsured motorists coverage endorsement is "contrary to Insurance Law § 3420 (f) (1) * * * [and] inconsistent with the strong public policy underlying statutes providing for uninsured motorist coverage” (id., at 458). The Appellate Division affirmed for the reasons stated by Supreme Court (see, 188 AD2d 378). This Court granted leave to appeal.

Insurance Law § 3420 mandates that every automobile insurance policy must contain an uninsured motor vehicle endorsement. Section 3420 (f) (1) provides:

"No policy insuring against loss resulting from liability * * * for bodily injury or death * * * arising out of the ownership, maintenance and use of a motor vehicle by the insured shall be issued * * * unless it contains a provision whereby the insurer agrees that it will pay to the insured * * * all sums * * * which the insured or his legal representative shall be entitled to recover as damages from an owner or operator of an uninsured motor vehicle * * * [or] an insured motor vehicle where the insurer disclaims liability or denies coverage.”

Liberty Mutual argues that although section 3420 (f) (1) specifically sets forth the circumstances under which uninsured motorist insurance applies, that statute is silent as to whether there may be valid exclusions. Thus, Liberty Mutual asserts, its uninsured motorists coverage endorsement, which excludes from coverage vehicles being used "to carry persons or property for a fee,” is not contrary to that statute. For the following reasons, we reject Liberty Mutual’s arguments.

First, a provision in the uninsured motorists coverage endorsement of a liability insurance policy, such as the one in Liberty Mutual’s policy, that excludes from coverage vehicles used "to carry persons or property for a fee” is not based on any statute or regulation. As stated, Insurance Law § 3420 (f) (1) requires that every automobile insurance policy contain an uninsured motor vehicle endorsement. Neither that statute nor any regulations applicable to it mentions any exclusions. That is in contrast to the regulations for liability coverage (see, 11 NYCRR 60-1.2), no fault (see, 11 NYCRR 65.12) and supplemental uninsured/underinsured (see, 11 NYCRR 60-2.3), all of which specify what exclusions are allowed. The conclusion to be drawn is that when the Legislature and the State want to allow exclusions, they say so. In the absence of an express statutory or regulatory provision permitting such an exclusion, this Court declines to endorse that exclusion. The concurrence states that "the livery exclusion authorized by regulation (11 NYCRR 60-1.2 [a]) may be equally applicable to compulsory uninsured motorists coverage” (concurring opn, at 62). The more logical view is that since the Legislature enacted a compulsory uninsured motorist coverage statutory scheme, any exclusions to that scheme should also be expressly authorized by statute or regulation.

As the Court stated in Rosado v Eveready Ins. Co. (34 NY2d 43, 49), once an insurance company issues a liability policy to an insured, "its obligation, with the exception of permitted exclusions, [arises] by operation of law and [is] as broad as the requirements of the applicable statutes.” If an attempted exclusion is not permitted by law, the insurer’s liability under the policy cannot be limited (id.; accord, Planet Ins. Co. v Bright Bay Classic Vehicles, 75 NY2d 394, 399).

Second, enforcement of the livery exclusion in the uninsured motorists coverage endorsement of a liability insurance policy would be inconsistent with the strong public policy underlying the compulsory uninsured motor vehicle statutes, "to ensure that innocent victims of motor vehicle accidents be recompensed for their injuries and losses” (Matter of Allstate Ins. Co. v Shaw, 52 NY2d 818, 819). The purpose of the compulsory uninsured motor vehicle statutory scheme is to provide coverage "to insured persons who suffer automobile accident injuries at the hands of financially irresponsible motorists” (Matter of Country-Wide Ins. Co. v Wagoner, 45 NY2d 581, 586). The aim, to make the prescribed compensation available in all such cases, calls for a policy of inclusion rather than exclusion in determining whom it covers (id.). Enforcement of a "livery exclusion” in an uninsured motor vehicle endorsement would be contrary to the purpose underlying this State’s compulsory uninsured motor vehicle statutes and would reduce the scope of coverage required by the statutory mandate.

Liberty Mutual urges that Insurance Law § 3110 authorizes the Superintendent of Insurance to withdraw approval of the policy if the uninsured motorists coverage endorsement is determined to contravene public policy or statutory intent, and that we should construe the inaction by the Superintendent as approval of the livery exclusion. Although the construction given to a statute by an agency charged with its administration, supervision and enforcement is entitled to considerable weight (People v Newman, 32 NY2d 379, 388, cert denied 414 US 1163), inaction by the Superintendent of Insurance here does not divest the courts of their duty "to interpret statutes so as to reach a reasonable result whenever possible” (Matter of Vega v Bell, 47 NY2d 543, 552).

While the concurrence asserts that we are invalidating the livery exclusion in an uninsured motorists coverage endorsement on "illusory” public policy grounds (concurring opn, at 64), and would decide this case on appellant’s unpreserved argument that respondents may seek recovery from the Motor Vehicle Accident Indemnification Corporation (MVAIC), the issue before this Court, and the only issue raised in the prior courts, is whether a livery exclusion contained in an uninsured motorists coverage endorsement of a personal automobile liability policy is invalid. As stated, the challenged livery exclusion is not authorized by any statute or regulation. The exclusion is inconsistent with the sound public policy of this State of ensuring that innocent victims of motor vehicle accidents are compensated for their injuries and losses. Moreover, it is questionable whether a claim to the MVAIC is an adequate remedy here, particularly in view of the requirements such as notice (see, Insurance Law § 5208). As the Rosado Court noted, the presence of MVAIC should not matter. To allow the insurer here to escape liability is to allow the insurer to be "unjustly enriched to the detriment of the public, which eventually bears the burden through MVAIC” (id., at 49).

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Kaye

(concurring). Contrary to the majority’s holding, the livery exclusion authorized by regulation (11 NYCRR 60-1.2 [a]) may be equally applicable to compulsory uninsured motorists coverage. But because Supreme Court held that the exclusion is limited to the liability portion of the policy (150 Mise 2d 456, 458), and Liberty Mutual does not contend otherwise, I agree that the insurer in this case should not have the benefit of that statutory construction. By the same token, however, Liberty Mutual’s failure to contest the issue should not bind the Superintendent of Insurance or other insurers who are prepared to make the argument. I therefore concur in the result in this case but write separately to suggest that the livery exclusion may be authorized by regulation for uninsured motorists coverage and does not violate public policy.

Vehicle and Traffic Law § 311 (4) (a) defines the term "owner’s policy of liability insurance” as including whatever minimum coverage is prescribed by regulation. Subpart 60-1 implements the statutory directive and contains the following provision regarding mandatory uninsured motorists coverage:

"Payments to insured. Such an 'owner’s policy of liability insurance’ shall be subject to the applicable provisions of section 167 of the Insurance Law, as amended. For the purpose of complying with the provisions of subsection 2-a of section 167 [now § 3420 (f) (1) (mandatory uninsured motorists coverage)], no policy subject to this Part shall be issued by any authorized insurer unless it contains coverage providing for payments to the insured, as defined in such coverage, by the New York Motor Vehicle Accident Indemnification Corporation, pursuant to the provisions of article 17-A of the Insurance Law applicable to such payments.” (11 NYCRR 60-1.4; emphasis added.)

The regulations additionally provide that "[s]uch an 'owner’s policy of liability insurance’ may contain in substance the following exclusions: (a) while the motor vehicle is used as a public or livery conveyance” (11 NYCRR 60-1.2 [a]; emphasis added). Thus, it is possible to read the statutes and regulations together as authorizing the livery exclusion for uninsured motorists coverage as well as liability coverage. Indeed, it is significant that the majority cannot find any other regulations pertaining to mandatory uninsured motorists coverage, for the Superintendent may have intended subpart 60-1, including the livery exclusion, to apply to this type of insurance. In the posture of the present appeal, it should be clear that the Court’s holding in this case would not foreclose the issue in future cases.

Moreover, I disagree with the majority’s view that a livery exclusion is void as against public policy. To the extent uninsured motorists coverage is unavailable to an innocent passenger because of such an exclusion, a claim for benefits may be filed with the Motor Vehicle Accident Indemnification Corporation (MVAIC).

In 1956, New York became the second American jurisdiction to require automobile owners to carry liability insurance. It soon became clear, however, that compulsory liability insurance could not solve the problems posed by uninsured and hit- and-run drivers (Loufer, Embattled Victims of the Uninsured: In Court With New York’s MVAIC, 1959-1969, 19 Buffalo L Rev 472, 473-474 [1970]). Thus, the Insurance Law was amended to require liability policies to include an uninsured motorists endorsement providing benefits in these situations (see, former Insurance Law § 167 [2-a], recodified as § 3420 [¶] [1]).

Even then, however, mandatory insurance would occasionally fail "to accomplish its full purpose of securing to innocent victims of motor vehicle accidents recompense for the injury and financial loss inflicted upon them” (Insurance Law § 5201 [b]). For example, pedestrians struck by an uninsured, judgment-proof driver would not have a source of recovery. Accordingly MVAIC was created to "close the gaps” in insurance (Matter of Wallace v MVAIC, 25 NY2d 384, 388; see also, Matter of Rice v Allstate Ins. Co., 32 NY2d 6, 12).

MVAIC "provide[s] persons injured by financially irresponsible motorists a fund from which they could seek some compensation for their injuries” (Matter of Lloyd [MVAIC], 23 NY2d 478, 481; see generally, Insurance Law art 52). Each automobile insurance company, as a condition of doing business in this State, is required to become a member of MVAIC (Insurance Law § 5203 [bj; Matter of Lloyd, 23 NY2d, at 481) and fund its operations in proportion to the amount of business it does (Insurance Law § 5207 [a], [b]).

The MVAIC scheme sets up mutually exclusive categories of "qualified persons” and "insureds” (Matter of Rice, 32 NY2d, at 10). "Insureds” are persons for whom uninsured motorists coverage is available (see, Insurance Law § 5202 [i]); these people are expected to recover under their policies and not from the MVAIC. A "[qjualified person” is a resident of this State who is not an insured or an owner of an uninsured vehicle (see, Insurance Law § 5202 [b] [i]). Qualified persons may file claims with the MVAIC arising out of accidents caused by the owner or operator of an uninsured motor vehicle (see, Insurance Law § 5208; see generally, Buckner v MVAIC, 66 NY2d 211, 213).

In the present case, the culpable driver was operating his car as a livery but obtained, and paid for, only a personal automobile insurance policy. It is obvious that a vehicle used as a livery poses a greater risk to insurance companies than a personal automobile and would be insured at a higher premium. Indeed, it is for that reason the Superintendent of Insurance authorizes livery exclusions. Accordingly, no one disputes that Liberty Mutual could properly disclaim liability coverage in these circumstances. That disclaimer having rendered the driver "uninsured” (see, Insurance Law § 5201 [b] [6]; § 5202 [j] [1]; Matter of Knickerbocker Ins. Co. [Faison] 22 NY2d 554, 556, cert denied 393 US 1055), the passengers now make the clever argument that they are entitled to the uninsured motorists coverage available under the driver’s own policy. But that portion of the policy, too, contains a livery exclusion.

The Court’s conclusion that public policy militates against giving effect to the livery exclusion is based solely on the notion that innocent passengers might go unrecompensed (majority opn, at 60-61). This proffered public policy is illusory, generated only by ignoring Liberty Mutual’s argument that the MVAIC was available to the passengers to vindicate their claims.

Because of the livery exclusion, these passengers were never "insureds” under the contract’s uninsured motorists coverage and thus they would have been "qualified” to file a claim with MVAIC (compare, Matter of Knickerbocker Ins. Co. [Faison], 22 NY2d, at 558-559 [passengers who were "insureds” at time of accident entitled to recover against insurance company; future disclaimer of coverage due to driver’s noncooperation would not exclude passengers from category of "insureds”]).

Moreover, contrary to the majority’s suggestion, the statute requiring insurance companies to provide uninsured motorists coverage was not intended to be foolproof. The MVAIC was created to fill the gaps in coverage, and it was to that forum the passengers should have sought a remedy.

Judges Simons, Hancock, Jr., Bellacosa and Levine concur with Judge Smith; Chief Judge Kaye concurs in result in a separate opinion in which Judge Titone concurs.

Order affirmed, with costs.

       The majority notes that these plaintiffs may not have redress under MVAIC because of their failure to give timely notice. That particular parties fail to pursue their rights, however, cannot determine the correct rule generally applicable.


author: Simons, J.

text:
    [623 NE2d 541, 603 NYS2d 414]
    David Heard et al., Appellants, v City of New York, Respondent.
    Argued September 7, 1993;
    decided October 21, 1993

      POINTS OF COUNSEL

      Profeta & Eisenstein, New York City (Fred P. Profeta, Jr., of counsel), and Glaser, Shandell & Blitz (Bert A. Blitz and Craig T. Heard of counsel), for appellants.
    I. Herman v State of New

      York does not eliminate a public landowner’s duty to protect beach patrons under the facts of this case, and, in any event, the City never claimed lack of duty in the trial court. (Cimino v Town of Hempstead, 110 AD2d 805; Caldwell v Village of Is. Park, 304 NY 268; Curcio v City of New York, 275 NY 20; Peterson v City of New York, 267 NY 204; Jacques v Village of Lake Placid, 39 AD2d 163, 32 NY2d 739; Haber v Cross County Hosp., 37 NY2d 888; Danbois v New York Cent. R. R. Co., 12 NY2d 234; Herman v State of New York, 63 NY2d 822; Smyth v County of Suffolk, 172 AD2d 741; Perez v Town of E. Hampton, 166 AD2d 640.) II. The Court below erred by holding, as a matter of law, that the jury was irrational in finding that the lifeguards conceded negligence was a proximate cause of the accident. (Barker v Bice, 87 AD2d 908; Taype v City of New York, 82 AD2d 648; Cohen v Hallmark Cards, 45 NY2d 493; Derdiarian v Felix Contr. Corp., 51 NY2d 308; Boltax v Joy Day Camp, 67 NY2d 617; Roberts v Town of Colchester, 139 AD2d 819; Ziecker v Town of Orchard Park, 75 NY2d 761; Corbin v Coleco Indus., 748 F2d 411; Levy v Cascades Operating Corp., 176 Misc 373, 263 App Div 882, 289 NY 714.) III. The City’s duty was not limited by any alleged primary assumption of risk, and, in any event, the City did not preserve such an argument. (Arbegast v Board of Educ., 65 NY2d 161; Turcotte v Fell, 68 NY2d 432; Benitez v New York City Bd. of Educ., 73 NY2d 650; Matter of Star Leslie W., 63 NY2d 136; Nelson v Times Sq. Stores Corp., 110 AD2d 691, 67 NY2d 645; Boltax v Joy Day Camp, 67 NY2d 617; Maddox v City of New York, 66 NY2d 270; Wolf v City of New York, 39 NY2d 568; Kriz v Schum, 75 NY2d 25.) IV. Assumption of the risk, as a defense, was waived because it was not pleaded, and, in any event, could not be substantiated on the facts as proved. (Arbegast v Board of Educ., 65 NY2d 161; Benitez v New York City Bd. of Educ., 73 NY2d 650; Turcotte v Fell, 68 NY2d 432; Micallef v Miehle Co., 39 NY2d 376; Graham v Murphy, 135 AD2d 326; Schwartz v Greenberg, 304 NY 250.) V. The trial court erred in excluding evidence which would have shown that the danger associated with the jetties could easily have been neutralized, and the Court below inexplicably ignored this point. (Preston v State of New York, 59 NY2d 997.)

      O. Peter Sherwood, Corporation Counsel of New York City (Ronald E. Sternberg and Leonard Koerner of counsel), for respondent.
    I. Plaintiffs failed, as a matter of law, to meet their burden of demonstrating negligence on the part of the City, referenced to the duty of care owed, which proximately caused the injuries incurred when plaintiff David Heard, ignoring the obvious dangers involved, assumed the risks of diving from a jetty into the shallow ocean water. (Boyce Motor Lines v State of New York, 280 App Div 693, 306 NY 801; Turcotte v Fell, 68 NY2d 432; Benitez v New York City Bd. of Educ., 73 NY2d 650; Curdo v City of New York, 275 NY 20; Valdez v City of New York, 148 AD2d 697; Cuesta v Immaculate Conception R. C. Church, 168 AD2d 411; Wertheim v United States Tennis Assn., 150 AD2d 157; Corbin v Coleco Indus., 748 F2d 411; Cimino v Town of Hempstead, 110 AD2d 805; Belling v Haugh’s Pools, 126 AD2d 958, 70 NY2d 602.) II. If this Court determines that plaintiffs failed to establish a prima facie case, plaintiffs are not entitled to a new trial. If this Court reverses the order appealed from, the matter should be remanded to the Court below for the determination of issues raised by the City but not reached by that Court. (Benitez v New York City Bd. of Educ., 73 NY2d 650; Graham v Murphy, 135 AD2d 326.)
   OPINION OF THE COURT

Simons, J.

Plaintiff David Heard was seriously injured when he dove off a jetty into shallow water at Rockaway Beach in Queens. Moments earlier, a lifeguard had ordered Heard and his companions to leave the wooden structure. Heard resisted the order, telling the lifeguard he wanted to make one more dive. The lifeguard repeated the order but finally acquiesced in the face of Heard’s insistence. Heard and his mother, also a plaintiff here, contend on this appeal that the lifeguard’s acquiescence constituted negligence and was a cause of his injuries. For the reasons stated below, we disagree and therefore affirm the order of the Appellate Division dismissing the complaint.

I

The testimony at trial established that Heard, age 17, came to the beach with a group of friends. There is a series of wooden jetties along the beach, each approximately 40 feet long and extending into the ocean perpendicular to the waterline. The structures were installed at midcentury to control erosion. Over time, they have become covered with sand, and now only the bulkhead at the ocean end remains visible. It was from one of these bulkheads that Heard and his companions began jumping and diving shortly after their arrival.

According to trial testimony, the boys, for a period of 10 to 15 minutes, repeatedly climbed up on the jetty and jumped off without incident. Several hours later, as high tide approached, the group returned to the jetty. There, for another 15 or 20 minutes, the boys jumped and dove in all directions. Three or four times, Heard dove seaward toward an oncoming wave, using a "racing dive” employed by swimmers when they enter shallow water. Heard testified that when he stood in the water, the waves broke below his shoulders. His companions likewise placed the depth at five to six feet. Lifeguards on duty, however, recalled the water level as being two feet or less.

While the boys were diving, lifeguard Stuart Gottlieb approached them and told them to get off the jetty. The parties disagree on exactly what followed, but it is undisputed that Heard refused to leave and indicated in some fashion that he wanted to make one more dive. Gottlieb, in turn, repeated his order, but Heard continued to resist. Finally, Gottlieb told him he could go ahead. Heard waited for a wave and attempted a shallow-water racing dive. He hit the water about five feet from the jetty and sustained paralyzing injuries. The evidence did not establish what Heard hit as he entered the water.

Responding to interrogatories, the jury determined that lifeguard Gottlieb had given Heard permission to dive, that defendant was negligent and Heard was not, and that defendant’s negligence caused the injury. On appeal the Appellate Division reversed on the law. It found that the causes of Heard’s injuries were the sandbar around the jetty and "his insistence on taking another dive” rather than any negligence on defendant’s part (186 AD2d 108, 109). It concluded that plaintiffs’ complaint should have been dismissed at the close of plaintiffs’ evidence for failure to establish a prima facie case.

The appeal focuses narrowly on the consequences to be attached to the lifeguard’s acquiescence in Heard’s final dive. The core theory of plaintiffs’ case is that the lifeguard’s assent breached a duty of care owed to Heard and was a proximate cause of his injuries. The City has argued principally that Heard assumed the risk inherent in the activity of diving (see, Curcio v City of New York, 275 NY 20, 23-24; Valdez v City of New York, 148 AD2d 697, 698-699). It is the City’s contention that where the doctrine of assumption of risk applies, its duty is limited to exercising the ordinary reasonable care necessary to protect a plaintiff from risks that are "unassumed, concealed or unreasonably increased” (Benitez v New York City Bd. of Educ., 73 NY2d 650, 658; and see, Turcotte v Fell, 68 NY2d 432, 438-439).

II

First, plaintiffs portray the lifeguard’s conduct as a breach of the municipality’s recognized duty of general supervision (see, Caldwell v Village of Is. Park, 304 NY 268, 273). That theory will not support liability on the facts presented. The scope of the duty to supervise varies according to the circumstances but, in the operation of recreational areas, it does not extend to protecting patrons from "the dangers inherent in the sport so far as they are obvious and necessary” (Curcio v City of New York, 275 NY 20, 23-24). Even when an agent of the municipality expressly authorizes swimming in a location where the municipality has banned it, a swimmer continues to assume the obvious and necessary risks unless a representation as to safety has been given (Cunningham v City of Niagara Falls, 242 App Div 39, 42, after retrial 244 App Div 880, affd 269 NY 644). Plaintiffs here failed to show that the risk actually encountered was unusual to ocean diving or not obvious (compare, Caldwell v Village of Is. Park, supra, at 275 [risk of injury from illegal fireworks not inherent to beach activities]; Fritz v City of Buffalo, 277 NY 710 [risk of injury caused by others’ hazardous play at skating rink not inherent to skating]). Moreover, the lifeguard was present and made clear that diving from the jetty was to cease and the municipality was not required to do more. Its duty to provide adequate general supervision did not extend to providing "strict or immediate supervision” to protect users of the beach from obvious risks (Caldwell v Village of Is. Park, supra, at 273; Peterson v City of New York, 267 NY 204, 206). To the extent that plaintiffs’ case was premised on the duty to supervise, the complaint was properly dismissed.

III

That does not end the matter, however. Beyond that general duty of supervision, a duty may arise from negligent words or acts that induce reliance (see, Prosser and Keeton, Torts § 56, at 378; § 107, at 745 [5th ed]). If the evidence shows that Heard dove into the water in justifiable reliance on the lifeguard’s negligent words or acts, a prima facie case was made and properly presented to the jury. It is not enough for plaintiffs to say that defendant could have prevented Heard’s conduct by withholding permission (see, Restatement [Second] of Torts § 314). The issue is causality — in short, not what defendant could have prevented but what defendant proximately caused by inducing reliance. It was plaintiffs’ failure to establish reliance that was a central contention in the City’s motion to dismiss at the conclusion of plaintiffs’ evidence, and on that basis the motion should have been granted. Though an issue of causality is usually a factual matter left to the jury, plaintiffs’ evidence here failed to meet the minimum legal test of Cohen v Hallmark Cards (45 NY2d 493, 499): whether the evidence provided any "valid line of reasoning and permissible inferences” that could lead rational minds to the conclusion urged by plaintiffs.

A

In the context of this case, two theories of reliance are available to plaintiffs. First, an "assumed duty”, or a "duty to go forward”, may arise once a person undertakes a certain course of conduct upon which another relies (Nallan v Helmsley-Spear, Inc., 50 NY2d 507, 522). In determining whether a cause of action lies in such instances, "[t]he query always is whether the putative wrongdoer has advanced to such a point as to have launched a force or instrument of harm, or has stopped where inaction is at most a refusal to become an instrument of good” (Moch Co. v Rensselaer Water Co., 247 NY 160, 167-168; accord, Nallan v Helmsley-Spear, Inc., supra, at 522). Put differently, the question is whether defendant’s conduct placed plaintiff in a more vulnerable position than plaintiff would have been in had defendant done nothing (Nallan v Helmsley-Spear, Inc., supra, at 522). In Nallan, plaintiff alleged that defendant was negligent in performing its assumed duty by not providing a lobby attendant in a building on the night plaintiff was shot there. We suggested there that the assumed duty theory would have been viable if defendant’s prior conduct (i.e., the provision of an attendant on other nights) had foreseeably led plaintiff to change his own conduct — for instance, by giving him a false sense of security. In such an instance, defendant’s actions could properly be deemed to be a legal cause of plaintiff's harm.

No such causal connection is to be found in the present case. The mere fact that the lifeguard undertook to remove the boys from the jetty neither enhanced the risk Heard faced, created a new risk nor induced him to forego some opportunity to avoid risk (see, Restatement [Second] of Torts § 323, comment c). Simply stated, the lifeguard’s actions created no justifiable reliance. Heard was in no worse position once the lifeguard acquiesced in his dive than if the lifeguard had stood by and done nothing. Thus, in looking at plaintiffs’ evidence under an assumed duty theory, we conclude as a matter of law that the lifeguard’s failure to insist that Heard leave the jetty was not a breach of duty proximately causing Heard’s injuries.

B

The second theory of reliance available to plaintiffs would hold that the lifeguard’s assent to the dive was a negligent misrepresentation as to the safety of the dive and that Heard foreseeably relied upon it to his own detriment.

At common law, mere statements, even those upon which persons were likely to act, were not grounds for an action in tort, unless fraud or deceit was alleged (International Prods. Co. v Erie R. R. Co., 244 NY 331, 336, cert denied 275 US 527). Only negligent conduct, and not "negligence in word”, was actionable (id., at 335-336). New York abandoned that distinction long ago. Beginning with the International Prods, decision, the rule has been settled in this State that words as well as acts may serve as the premise for a negligence action (see, e.g., White v Guarente, 43 NY2d 356; Courteen Seed Co. v Hong Kong & Shanghai Banking Corp., 245 NY 377; see also, Dawes v Ballard, 133 AD2d 662, lv denied 76 NY2d 714). Though initially the cause of action arose solely in commercial litigation, misrepresentation now may be asserted as grounds for recovery in personal injury litigation as well (see, e.g., Webb v Cerasoli, 275 App Div 45, affd 300 NY 603; Panica v New York, New Haven & Hartford R. R. Co., 295 NY 756; see also, Restatement [Second] of Torts § 311 [negligent misrepresentation involving risk of physical harm]; compare, Restatement [Second] of Torts § 552 [negligent misrepresentation in business transactions]).

Not every misstatement, however, gives rise to a valid cause of action. For there to be an actionable claim, the defendant must be under a duty to the plaintiff to exercise reasonable care in giving the information, and plaintiff’s reliance upon the information must be foreseeable (Prosser and Keeton, Torts § 33, at 207 [5th ed]). In elaborating on this test, we stated: "There must be knowledge or its equivalent that the information is desired for a serious purpose; that he to whom it is given intends to rely and act upon it; that if false or erroneous he will because of it be injured in person or property. Finally the relationship of the parties, arising out of contract or otherwise, must be such that in morals and good conscience the one has the right to rely upon the other for information, and the other giving the information owes a duty to give it with care” (International Prods. Co. v Erie R. R. Co., 244 NY 331, 338, supra; accord, Eiseman v State of New York, 70 NY2d 175, 187-188).

There can be no doubt that a prima facie case is made out when one familiar with a hazard offers direct assurances of safety to one who is unfamiliar with the hazard and who foreseeably relies upon those assurances. In Kriz v Schum (75 NY2d 25), we concluded that a facially sufficient complaint had been made where a diver using defendant’s poorly lighted pool for the first time acted, in part, on defendant’s assurances that diving was safe. Similarly, when one party seeks specific information from a second party, and the second party exclusively controls the information and purports to investigate the matter before responding, liability may be found (International Prods. Co. v Erie R. R. Co., 244 NY 331, 339, supra).

No liability arises, however, when the statements are made in circumstances where reliance is unforeseeable or unjustified. Thus, in Webb v Cerasoli (275 App Div 45, affd 300 NY 603, supra), we affirmed a decision holding that plaintiff, a painter, had no cause for action based on negligent misrepresentation when he overheard defendant property owner tell plaintiff’s supervisor that it was safe to stand on a building’s marquee while working and the marquee subsequently collapsed causing him injury (see also, Courteen Seed Co. v Hong Kong & Shanghai Banking Corp., 245 NY 377, supra). Similarly, the particular nature of the communication may serve to defeat plaintiffs’ claim of reliance. A casual response given informally does not stand on the same legal footing as a deliberate representation for purposes of determining whether an action in negligence has been established (Glanzer v Shepard, 233 NY 236, 241).

In sum, our cases make clear that the determination of whether defendant, by negligent misrepresentation, breached a duty to plaintiff and proximately caused the injury turns on the reasonableness of both parties’ conduct. Defendant must have imparted the information under circumstances and in such a way that it would be reasonable to believe plaintiff will rely upon it; plaintiff must rely upon it in the reasonable belief that such reliance is warranted (Restatement [Second] of Torts § 311, comments b, c).

Here, plaintiffs’ evidence, when viewed in the light most favorable to them, is insufficient to establish the necessary reliance under a misrepresentation theory. Heard and his companions had been jumping and diving from the jetty for several minutes. They had done so earlier in the day as well. Thus, while the lifeguard may have been informed of the general hazards of their conduct as part of his training, Heard had at least some familiarity with the area based on his immediate experience and that of his companions. In fact, Heard exhibited his appreciation for the hazards involved by employing a shallow-water racing dive. In making his request of the lifeguard, he was not a person wholly without knowledge seeking assurances from one with exclusive knowledge. Moreover, the lifeguard made no explicit representation that diving was safe. Nothing about the exchange suggested that the lifeguard was imparting exclusive information about safety upon which Heard should rely. To the contrary, he clearly communicated to the boys that they were to leave the jetty. While his decision to permit Heard one last dive was inconsistent with that message, such inconsistency did not revoke the prior admonition or, according to the testimony, even create an ambiguity in the minds of the divers as to whether they were to leave the jetty. The evidence establishes that the lifeguard initially refused Heard’s request and gave in only after Heard continued to press for permission.

At best, then, the lifeguard’s statement was a reluctant assent that may have implicitly minimized the risk. In looking at the nature and context of the lifeguard’s statement as presented in plaintiffs’ evidence, however, we conclude that no reasonable person in Heard’s position would have relied on such a statement in deciding to dive and that no jury could reasonably have found to the contrary under the test of Cohen v Hallmark Cards (45 NY2d 493, supra). In the context of his continuing order that the jetty be cleared and his obvious reluctance to accede to Heard’s wishes, the lifeguard was as much warning of danger as vouching for safety. In the face of such ambiguity, a reasonable person would not have relied upon the lifeguard’s reluctant assent to decide to undertake an obvious hazard. That being so, as a matter of law, the lifeguard’s statement was not a breach of duty that proximately caused Heard’s injuries.

IV

The Appellate Division apparently based its decision, at least in part, on its belief that the City was not liable because the injury was caused by a sandbar and it held that under our decisions there was no duty to warn of hazardous conditions resulting from sandbars (see, Herman v State of New York, 63 NY2d 822). Plaintiffs’ evidence failed to establish what caused the injury and the case did not go to the jury on a theory that the City failed in a duty to warn. We therefore have no occasion to discuss or distinguish the Herman decision.

We have considered plaintiffs’ remaining points and find them without merit.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Kaye and Judges Titone, Hancock, Jr., Bellacosa and Smith concur; Judge Levine taking no part.

Order affirmed, with costs.

       This case, like others involving reliance, may be analyzed as raising either an issue of proximate cause or scope of duty. Under either view, the question is whether the defendant had a duty to protect the plaintiff against the harm that occurred (Prosser and Keeton, Torts § 42, at 274 [5th ed]).