author: Pigott, J.

text:
    [6 NE3d 578, 983 NYS2d 460]
    Country-Wide Insurance Company, Appellant, v Preferred Trucking Services Corp. et al., Defendants, and Filippo Gallina et al., Respondents.
    Argued January 15, 2014;
    decided February 18, 2014

      POINTS OF COUNSEL

      Thomas Torto, New York City, for appellant.
    Since Preferred Trucking Services Corp.’s liability is vicarious, Country-Wide Insurance Company could not disclaim as to it so long as its driver was cooperating with the defense of the underlying action, regardless of whether Preferred Trucking’s president was cooperating. (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64; Matter of Allcity Ins. Co. [Jimenez], 78 NY2d 1054; Hartford Ins. Co. v County of Nassau, 46 NY2d 1028; Allstate Ins. Co. v Gross, 27 NY2d 263; 2540 Assoc. v Assicurazioni Generali, 271 AD2d 282; DeSantis Bros. v Allstate Ins. Co., 244 AD2d 183; Aetna Cas. & Sur. Co. v Brice, 72 AD2d 927; Fish King Enters. v Countrywide Ins. Co., 88 AD3d 639; Matter of Allstate Ins. Co. v Cruz, 30 AD3d 511; Continental Cas. Co. v Stradford, 11 NY3d 443.)

      Alexander J. Wulwick, New York City, for respondents.
    I. Plaintiffs sole argument on appeal was not presented to the Supreme Court and was raised for the first time in the Appellate Division. Accordingly, it should be rejected as not having been properly preserved for the Court’s review. (Wild v Catholic Health Sys., 21 NY3d 951; Continental Cas. Co. v Stradford, 11 NY3d 443; Rios v Smith, 95 NY2d 647; Cummins v County of Onondaga, 84 NY2d 322; Haynes v Haynes, 83 NY2d 954; Matter of State of New York v Rashid, 16 NY3d 1; Harvey v Mazal Am. Partners, 79 NY2d 218.) II. In the alternative, plaintiff’s argument should be rejected on the merits, since it finds no factual support in the record. (2540 Assoc. v Assicurazioni Generali, 271 AD2d 282; First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64; George Campbell Painting v National Union Fire Ins. Co. of Pittsburgh, PA, 92 AD3d 104.)
   OPINION OF THE COURT

Pigott, J.

Filippo Gallina was injured during the unloading of a vehicle owned by Preferred Trucking Services Corp. and operated by Carlos Arias. In March 2007, Gallina and his wife commenced a personal injury action against Preferred Trucking, Arias, and other defendants. Preferred Trucking was insured by CountryWide Insurance Company under a “business auto policy” with limits of $500,000 per accident. The policy, a standard one, required that insureds cooperate with Country-Wide in its investigation or settlement of a claim or defense against a lawsuit.

Throughout the spring of 2007, Country-Wide made numerous attempts to contact both the president of Preferred Trucking, Andrew Markos, and the driver, Arias, with no success. Markos and Arias did not respond to the lawsuit either and, as a result, on September 21, 2007, the plaintiffs filed an application for a default judgment against Preferred Trucking and Arias. When their attorney faxed a copy of the motion to Country-Wide on October 4, 2007, the insurance company received its first formal notice of the lawsuit. On October 10, 2007, Country-Wide informed Preferred Trucking and Arias, by letters, that it was exercising its “right to issue a disclaimer of indemnity” and reserving its “right to disclaim any duty to defend” because of the insureds’ failure to cooperate.

At this point, Markos contacted Country-Wide, once, expressing willingness to cooperate, but he then proved impossible to reach. The insurance company continued its efforts to contact Markos and Arias through the summer of 2008. Meanwhile, Cheven, Keely & Hatzis, a law firm retained by Country-Wide to defend its insureds, sent multiple letters to Arias, advising him of a scheduled deposition and reminding him of the need to cooperate. On May 29, 2008, Supreme Court informed the parties that failure to submit to a deposition would preclude Preferred Trucking “from offering evidence in support of its claims or defenses.” Further futile efforts by Cheven, Keely & Hatzis to reach Markos and Arias ensued.

On July 7, 2008, a Country-Wide investigator visited Markos’s home for the sixth time. Markos’s wife said that her husband was not at home, but she would relay a message to him that he should call Country-Wide. Again, Markos failed to respond.

On July 28, 2008, a Country-Wide investigator was able to speak with Arias’s daughter, who told the investigator that Arias did not speak much English, but gave him her father’s cell phone number. On August 18, a Spanish-speaking CountryWide investigator finally reached Arias; according to the investigator’s notes, Arias said he would cooperate. The following day, Cheven, Keely & Hatzis wrote to Arias, in Spanish, informing him of the upcoming deposition, now scheduled for September 9. Arias did not respond.

On October 13, 2008, the Spanish-speaking investigator again spoke to Arias, who now said that he did not “care about the EBT date,” because of a “family situation.” The investigator was unable to reach Arias by telephone over the next two days, although he left messages explaining in Spanish the urgent need for Arias to attend the deposition (or reschedule it). On October 16, 2008, Supreme Court granted the Gallinas’ motion to strike defendants’ answer for failure to appear.

On November 6, 2008, Country-Wide disclaimed its obligation to defend and indemnify Preferred Trucking and Arias, based upon refusal to cooperate in the defense. Subsequently, Supreme Court granted the motion of Cheven, Keely & Hatzis to be relieved as defendants’ counsel.

Supreme Court struck defendants’ answer, awarded judgment to the Gallinas, and directed an assessment of damages. An inquest was duly held and Supreme Court awarded the Gallinas $2,550,000 in damages, by default, against Preferred Trucking, plus interest, costs and disbursements.

Country-Wide brought the present action against Preferred Trucking, Arias, the Gallinas, and others, seeking a declaration that it is not obligated to defend and indemnify Preferred Trucking and Arias in the underlying action. The Gallinas moved for summary judgment, arguing, among other things, that CountryWide’s disclaimers were untimely as a matter of law. CountryWide cross-moved for summary judgment.

Supreme Court granted the Gallinas’ motion to the extent of declaring that Country-Wide is obligated to indemnify Preferred Trucking in the underlying action, granted Country-Wide’s cross motion to the extent of declaring that Country-Wide is not obligated to indemnify Arias (and is obliged to indemnify Preferred Trucking only up to the policy limit), and otherwise denied Country-Wide’s cross motion. Country-Wide appealed. (2011 NY Slip Op 32214[U] [2011].) The Gallinas did not cross-appeal.

On appeal, the parties dispute one question: whether CountryWide’s November 6, 2008 disclaimer was timely as a matter of law. The Appellate Division affirmed Supreme Court’s order, insofar as appealed from, holding that the insurer’s disclaimer on that date “was untimely, since it came approximately four months after it learned of the ground for the disclaimer” (99 AD3d 582, 582 [1st Dept 2012]).

We granted Country-Wide leave to appeal, and now reverse.

The governing statute in this area is Insurance Law § 3420, which provides, with respect to a liability policy issued or delivered in New York, that if

“an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant” (Insurance Law § 3420 [d] [2] [emphasis added]).

The law protects both policyholders and injured parties who are made aware as soon as possible that the defendant’s insurer has a ground for refusal of coverage.

We have clarified the application of the statute by holding that

“once the insurer has sufficient knowledge of facts entitling it to disclaim, or knows that it will disclaim coverage, it must notify the policyholder in writing as soon as is reasonably possible . . . [T]imeliness of an insurer’s disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage” (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 66, 68-69 [2003] [internal quotation marks and citation omitted]).

Moreover, “[a]n insurer who delays in giving written notice of disclaimer bears the burden of justifying the delay” (id. at 69).

The question whether an insurer disclaimed as soon as reasonably possible is necessarily case-specific. In some cases, very different from this one, the justification for disclaimer is “readily ascertainable from the face of the complaint in the underlying action” (Fish King Enters. v Countrywide Ins. Co., 88 AD3d 639, 642 [2d Dept 2011]) or “all relevant facts supporting ... a disclaimer [are] immediately apparent . . . upon . . . receipt of notice of the accident” (Matter of Allstate Ins. Co. v Cruz, 30 AD3d 511, 513 [2d Dept 2006]). In such cases, a disclaimer must be made rapidly. The present appeal, on the other hand, involves disclaimer for noncooperation by an insured. A determination as to whether such a disclaimer was made within a reasonable time is more complex because “an insured’s noncooperative attitude is often not readily apparent” (Continental Cas. Co. v Stradford, 11 NY3d 443, 449 [2008]). We have emphasized that “insurers must be encouraged to disclaim for noncooperation only after it is clear that further reasonable attempts to elicit their insured’s cooperation will be futile” (id. at 450).

The primary reason that we allow a longer period for disclaimer for noncooperation lies in a well-established principle of our case law, which is intended to facilitate the full compensation of injured victims suing for damages. This is the requirement that an insurer may not properly disclaim for noncooperation unless it has satisfied its burden, described in the precedent as “a heavy one indeed,” of showing “that it acted diligently in seeking to bring about the insured’s co-operation; that the efforts employed by the insurer were reasonably calculated to obtain the insured’s co-operation; and that the attitude of the insured, after his co-operation was sought, was one of willful and avowed obstruction” (Thrasher v United States Liab. Ins. Co., 19 NY2d 159, 168 [1967] [internal quotation marks and citations omitted]).

Country-Wide does not dispute that it knew or should have known in July 2008 that Markos, the president of Preferred Trucking, would not cooperate. Instead, Country-Wide contends that it was not in a position to know that Arias, the driver of the vehicle, would not cooperate until October 13, 2008, when he said he did not “care about the EBT date.”

Country-Wide’s argument is compelling. The period at issue extends from July to October 2008. During most of this time, while it may have been clear that Markos would not be cooperative, the situation with respect to Arias remained opaque. One Country-Wide investigator made a breakthrough in that he reached Arias’s daughter, who volunteered her father’s contact number and explained that Arias spoke little English, possibly accounting for his failure to communicate with Country-Wide. Moreover, when a Spanish-speaking Country-Wide investigator finally reached him, Arias said he would cooperate. It was only in mid-October 2008 that Arias’s unwillingness to cooperate became clear, when he told the investigator that he did not care about the deposition and thereafter gave no further response.

In these circumstances, in which Arias “punctuated periods of noncompliance with sporadic cooperation or promises to cooperate” (Stradford, 11 NY3d at 450), we hold that CountryWide established as a matter of law that its delay was reasonable. The Gallinas fail to raise a triable issue of fact regarding whether Country-Wide knew or should have known that it would disclaim coverage as soon as it became clear that Markos would not cooperate. The named insured was Preferred Trucking, and its cooperation could occur through Arias, the driver. Arias, unlike Markos, had personal knowledge of the accident and was in a position to provide a meaningful defense, or, alternatively, testify in such a way as to bind Preferred Trucking. As Country-Wide argues, as long as it was still seeking Arias’s cooperation in good faith, it could not disclaim.

Accordingly, the order of the Appellate Division should be reversed, with costs, and judgment granted declaring that Country-Wide is not obligated to defend and indemnify Preferred Trucking in the underlying action.

Chief Judge Lippman and Judges Graffeo, Read, Smith and Rivera concur; Judge Abdus-Salaam taking no part.

Order reversed, with costs, and judgment granted declaring in accordance with the opinion herein.


source: Caselaw Access Project

author: Smith, J. Graffeo, J.

license: Public Domain

text:
    [6 NE3d 1117, 983 NYS2d 761]
    K2 Investment Group, LLC, et al., Respondents-Appellants, v American Guarantee & Liability Insurance Company, Appellant-Respondent.
    Argued January 7, 2014;
    decided February 18, 2014

      POINTS OF COUNSEL

      Coughlin Duffy, LLP, New York City (Kevin T. Coughlin, Robert J. Kelly and Michael S. Chuven of counsel), and Steinberg & Cavaliere, LLP, White Plains, for appellant-respondent.
    I. The lower court erred as a matter of law in affording the insured’s status exclusion and business enterprise exclusion an unduly narrow scope. (Fox v Employers’ Liab. Assur. Corp., Ltd., of London, 243 App Div 325, 267 NY 609; Wenig v Glens Falls Indem. Co., 294 NY 195; Holmes v Allstate Ins. Co., 33 AD2d 96; Maurice Goldman & Sons v Hanover Ins. Co., 80 NY2d 986; American Guar. & Liab. Ins. Co. v Timothy S. Keiter, P.A., 360 F3d 13; Niagara Fire Ins. Co. v Pepicelli, Pepicelli, Watts & Youngs, P.C., 821 F2d 216; Matter of Covert, 97 NY2d 68; Bretton v Mutual of Omaha Ins. Co., 110 AD2d 46; Maroney v New York Cent. Mut. Fire Ins. Co., 5 NY3d 467; Regal Constr. Corp. v National Union Fire Ins. Co. of Pittsburgh, PA, 15 NY3d 34.) II. The majority committed reversible error in limiting its consideration of relevant facts to the allegations contained in the legal malpractice claims that form the basis of the default judgment. (Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 NY2d 419; Fitzpatrick v American Honda Motor Co., 78 NY2d 61; Robbins v Michigan Millers Mut. Ins. Co., 236 AD2d 769; Atlantic Mut. Ins. Co. v Terk Tech. Corp., 309 AD2d 22; First State Ins. Co. v J & S United Amusement Corp., 67 NY2d 1044; Rucaj v Progressive Ins. Co., 19 AD3d 270; Lang v Hanover Ins. Co., 3 NY3d 350; Hough v USAA Cas. Ins. Co., 93 AD3d 405.) III. The case law relied on by the majority supports a reversal of its decision. (American Guar. & Liab. Ins. Co. v Moskowitz, 58 AD3d 426; Oot v Home Ins. Co. of Ind., 244 AD2d 62; Niagara Fire Ins. Co. v Pepicelli, Pepicelli, Watts & Youngs, PC., 821 F2d 216; Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 NY2d 419.) IV Respondents’ summary judgment motion should have been denied because material questions of fact exist.

      Law Offices of Michael A. Haskel, Mineóla (Michael A. Haskel of counsel), for respondents-appellants.
    I. The order correctly affirmed the Supreme Court’s grant of summary judgment to plaintiffs on their claims under Insurance Law § 3420 (a). (Ramos v National Cas. Co., 227 AD2d 250; Rosenberg v Litas

      Inv. Co., 212 AD2d 686; Goldstein v Engel, 240 AD2d 280; Worldwide Asset Burch., LLC v Karafotias, 9 Misc 3d 390; Cobb v City of New York, 272 AD2d 117; Lang v Hanover Ins. Co., 3 NY3d 350; Rucaj v Progressive Ins. Co., 19 AD3d 270; Nelson v Kalathara, 48 AD3d 528; Hallman v Kantor, 72 AD3d 895, 15 NY3d 706; Mendoza v Schlossman, 87 AD2d 606.) II. Instead of granting summary judgment dismissing the bad faith claims of plaintiffs, the order should have awarded summary judgment to plaintiffs on these claims. (Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131; Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169; Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663; Sport Rock Intl., Inc. v American Cas. Co. of Reading, Pa., 65 AD3d 12; Barkan v New York Schools Ins. Reciprocal, 65 AD3d 1061; Town of Massena v Healthcare Underwriters Mut. Ins. Co., 98 NY2d 435; Panasia Estates, Inc. v Hudson Ins. Co., 39 AD3d 343, 10 NY3d 200; Sukup v State of New York, 19 NY2d 519; Birsett v General Acc. Ins. Co. of Am., 226 AD2d 1027, 88 NY2d 1005; Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445.) III. Summary judgment awarded in favor of Guarantee on the third and fourth causes of action was reversible error. (Winegrad v New York Univ. Med. Ctr., 64 NY2d 851.)

      Chamberland D’Amanda Oppenheimer & Greenfield LLP, Rochester (K. Wade Eaton of counsel), and Wiley Rein LLP, Washington, D.C. (Laura A. Foggan and Jennifer A. Williams of counsel), for Complex Insurance Claims Litigation Association and another, amici curiae.
    I. “Automatic” indemnity is inconsistent with established principles of coverage law. (Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 NY2d 419; Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169; Hough v USAA Cas. Ins. Co., 93 AD3d 405; Bovis Lend Lease LMB Inc. v Garito Contr., Inc., 65 AD3d 872; Flannery v Allstate Ins. Co., 49 F Supp 2d 1223; Matter of Covert, 97 NY2d 68; Matijiw v New York Cent. Mut. Fire Ins. Co., 292 AD2d 865; Robbins v Michigan Millers Mut. Ins. Co., 236 AD2d 769; Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640; Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663.) II. Adequate incentives already exist under New York law to enforce insurers’ defense obligations. (Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445; Federal Ins. Co. v North Am. Specialty Ins. Co., 83 AD3d 401; Lang v Hanover Ins. Co., 3 NY3d 350; Rucaj v Progressive Ins. Co., 19 AD3d 270; Matychak v Security Mut. Ins. Co., 181 AD2d 957.) III. Important policy considerations weigh against “automatic” indemnity. (Graf v Hope Bldg. Corp., 254 NY 1; Dependible Janitorial Servs. v Transcontinental Ins.

      Co., 212 AD2d 946; Republic Franklin Ins. Co. v Pistilli, 16 AD3d 477; Teichman v Community Hosp. of W. Suffolk, 87 NY2d 514; Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208; Cooper Industries, Inc. v Leatherman Tool Group, Inc., 532 US 424; BMW of North America, Inc. v Gore, 517 US 559; State Farm Mut. Automobile Ins. Co. v Campbell, 538 US 408.)

      Anderson Kill, PC., New York City (William G. Passannante and Allen R. Wolff of counsel) and Amy Bach, San Francisco, California, for United Policyholders, amicus curiae.
    I. The Court’s decision in K2 Inv. Group, LLC v American Guar. & Liab. Ins. Co. (21 NY3d 384 [2013]) applies a remedy that was clearly articulated in Lang v Hanover Ins. Co. (3 NY3d 350 [2004]) and progeny. (Bowker v NVR, Inc., 39 AD3d 1162; Republic Franklin Ins. Co. v Pistilli, 16 AD3d 477; State Farm Fire & Cas. Co. v Ricci, 96 AD3d 1571; Jimenez v New York Cent. Mut. Fire Ins. Co., 71 AD3d 637; Town of Massena v Healthcare Underwriters Mut. Ins. Co., 98 NY2d 435; Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 NY2d 419; Endresz v Friedberg, 24 NY2d 478; Bing v Thunig, 2 NY2d 656; People v Hobson, 39 NY2d 479; United States Trust Co. of N.Y. v O’Brien, 143 NY 284.) II. Many states take a similar approach to the Lang v Hanover Ins. Co. (3 NY3d 350 [2004]) rule as the remedy for an insurance company’s breach of the duty to defend. (Jones v Southern Mar. & Aviation Underwriters, Inc., 888 F2d 358; Martin v Travelers Indem. Co., 450 F2d 542; Ayers v C & D Gen. Contrs., 269 F Supp 2d 911; Capitol Reproduction, Inc. v Hartford Ins. Co., 800 F2d 617.) III. American Guarantee & Liability Insurance Company and the insurance industry amici seek to limit the court’s power to award policyholders the value of a contract’s full performance. (Wakeman v Wheeler & Wilson Mfg. Co., 101 NY 205; Taylor v Bradley, 39 NY 129; Freund v Washington Sq. Press, 34 NY2d 379; Baker v Drake, 53 NY 211; Heary Bros. Lightning Protection Co., Inc. v Intertek Testing Servs., N.A., Inc., 9 AD3d 870, 4 NY3d 615; Lang v Hanover Ins. Co., 3 NY3d 350.) IV Speculative due process arguments are insufficient to overcome the Court’s holding in Lang v Hanover Ins. Co. (3 NY3d 350 [2004]) and K2 Inv. Group, LLC v American Guar. & Liab. Ins. Co. (21 NY3d 384 [2013]). (Liverpool, New York & Philadelphia S.S. Co. v Commissioners of Emigration, 113 US 33; Burton v United States, 196 US 283; United States v Vilches-Navarrete, 523 F3d 1; Campaign for Fiscal Equity v State of New York, 100 NY2d 893; Matter of Lezette v Board of Educ., Hudson City School Dist., 35 NY2d 272.)

      Hurwitz & Fine, PC., Buffalo (Dan D. Kohane, Elizabeth A. Fitzpatrick, Steven E. Peiper and Diane F. Bosse of counsel), for
      New York Insurance Association, Inc. and others, amici curiae.

      I. An insurer that rejects a valid request for defense is bound by facts necessarily decided in the underlying action, but the terms of the insurance policy determine the scope of coverage. (Lang v Hanover Ins. Co., 3 NY3d 350; Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169; Servidone Constr. Corp. v Security Ins. Co. of Hartford, 106 Misc 2d 118, 64 NY2d 419; Lombardi, Walsh, Wakeman, Harrison, Amodeo & Davenport, P.C. v American Guar. & Liab. Ins. Co., 85 AD3d 1291; Hanover Ins. Co. v Cowan, 172 AD2d 490; Halloway v State Farm Ins. Cos., 23 AD3d 617; George A. Fuller Co. v United States Fid. & Guar. Co., 200 AD2d 255; Colon v Aetna Life & Cas. Ins. Co., 66 NY2d 6; Dreyer v New York Cent. Mut. Fire Ins., 106 AD3d 685; Kaczmarek v Shoffstall, 119 AD2d 1001.) II. Not only is the enhanced penalty imposed by this Court in its decision in this matter inconsistent with its prior holdings, it is not commensurate with the alleged breach. (Lang v Hanover Ins. Co., 3 NY3d 350; Flannery v Allstate Ins. Co., 49 F Supp 2d 1223; Capitol Envtl. Servs., Inc. v North Riv. Ins. Co., 536 F Supp 2d 633; Johnson v Studyvin, 828 F Supp 877, 839 F Supp 1490; Bucci v Essex Ins. Co., 323 F Supp 2d 84; Servants of Paraclete, Inc. v Great Am. Ins. Co., 857 F Supp 822, 866 F Supp 1560; Emhart Indus., Inc. v Home Ins. Co., 515 F Supp 2d 228; Burroughs Wellcome Co. v Commercial Union Ins. Co., 713 F Supp 694; Time Oil Co. v Cigna Prop. & Cas. Ins. Co., 743 F Supp 1400.)

      Covington & Burling LLP, Washington, D.C. (Elliott Schulder, William F. Greaney and Matthew Kudzin of counsel), and Covington & Burling LLP, New York City (P. Benjamin Duke of counsel), for Coltec Industries Inc. and another, amici curiae.
    I. The duty to defend is a critical component of a liability policy. (BP A.C. Corp. v One Beacon Ins. Group, 33 AD3d 116; Truax v State Farm Ins. Cos., 101 Misc 2d 1031; Katz v Umansky, 92 Misc 2d 285; Seaboard Sur. Co. v Gillette Co., 64 NY2d 304; International Paper Co. v Continental Cas. Co., 35 NY2d 322; Feliberty v Damon, 129 AD2d 207, 72 NY2d 112; Transcare N.Y., Inc. v Finkelstein, Levine & Gittlesohn & Partners, 23 AD3d 250; Clarke v Fidelity & Cas. Co. of N.Y., 55 Misc 2d 327; MBIA Inc. v Federal Ins. Co., 652 F3d 152.) II. An insurer that breaches its duty to defend should not be permitted to rely on policy exclusions to avoid its obligation to pay an adverse judgment. (DeCapua v Dine-A-Mate, Inc., 292 AD2d 489; Isadore Rosen & Sons v Security Mut. Ins. Co. of N.Y., 31 NY2d 342; St.

      Louis Dressed Beef & Provision Co. v Maryland Casualty Co., 201 US 173; George Campbell Painting v National Union Fire Ins. Co. of Pittsburgh, PA, 92 AD3d 104; Estee Lauder Inc. v OneBeacon Ins. Group, LLC, 62 AD3d 33; General Acc. Ins. Group v Cirucci, 46 NY2d 862; American Tr. Ins. Co. v Mendon Leasing Corp., 241 AD2d 436; Cardinal v State of New York, 304 NY 400; Fieldston Prop. Owners Assn., Inc. v Hermitage Ins. Co., Inc., 16 NY3d 257; Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131.) III. This Court’s ruling is consistent with mainstream authority. (Twin City Fire Ins. Co. v City of Madison, Miss., 309 F3d 901; Tibbs v Great Am. Ins. Co., 755 F2d 1370; Lunsford v American Guar. & Liab. Ins. Co., 18 F3d 653.)
   OPINION OF THE COURT

Smith, J.

American Guarantee & Liability Insurance Company contends, on reargument, that our prior decision in this case, K2 Inv. Group, LLC v American Guar. & Liab. Ins. Co. (21 NY3d 384 [2013]) (K2-I), erred by failing to take account of a controlling precedent, Servidone Constr. Corp. v Security Ins. Co. of Hartford (64 NY2d 419 [1985]). We hold that American Guarantee is correct.

I

A brief summary of the case will do for present purposes: Claims for legal malpractice were brought against American Guarantee’s insured, Jeffrey Daniels, which American Guarantee—wrongly, it is now conceded—refused to defend. Daniels suffered a default judgment, and then assigned his rights against American Guarantee to the plaintiffs in the suit against him. Those plaintiffs brought the present case, seeking to enforce American Guarantee’s duty to indemnify Daniels for the judgment. In defense, American Guarantee asserted that the loss was not covered, relying on two exclusions in the policy. (The facts are described in more detail in our K2-I opinion, 21 NY3d at 387-389.)

In K2-I, we affirmed an order granting plaintiffs summary judgment, holding that American Guarantee’s breach of its duty to defend barred it from relying on policy exclusions. We later granted reargument (21 NY3d 1049 [2013]), and we now vacate our prior decision and reverse the Appellate Division’s order.

n

In Servidone—a case in which, as in this one, the insurer was relying on policy exclusions in defending against a suit for indemnification—we stated the question as follows:

“Where an insurer breaches a contractual duty to defend its insured in a personal injury action, and the insured thereafter concludes a reasonable settlement with the injured party, is the insurer liable to indemnify the insured even if coverage is disputed?” (64 NY2d at 421.)

We answered the question in Servidone no. In K2-I, we held that “when a liability insurer has breached its duty to defend its insured, the insurer may not later rely on policy exclusions to escape its duty to indemnify the insured for a judgment against him” (21 NY3d at 387). The Servidone and K2-I holdings cannot be reconciled.

Plaintiffs suggest that the cases are distinguishable because in Servidone the insured had settled with the plaintiff in the underlying litigation, whereas here there was a judgment, not a settlement. We do not find the distinction persuasive. A liability insurer’s duty to indemnify its insured does not depend on whether the insured settles or loses the case. It is true that a judgment, unlike most settlements, is a binding determination of the issues in the underlying litigation. Thus it can be said here, as it could not in Servidone, that the issues in the suit brought against the insured are now res judicata. But that is irrelevant, because American Guarantee does not seek here, and the defendant in Servidone did not seek, to relitigate the issues in the underlying case. It is well established that such relitigation is not permitted after an insurer has breached its duty to defend (see the authorities discussed in K2-I, 21 NY3d at 390). The issue in Servidone, as here, is whether the insurer may rely on policy exclusions that do not depend on facts established in the underlying litigation.

Plaintiffs also rely, as we did in K2-I, on our decision in Lang v Hanover Ins. Co. (3 NY3d 350, 356 [2004]). We said in Lang that, when an insurer has refused to defend its insured, it “may litigate only the validity of its disclaimer” when it is later sued on a judgment obtained against the insured. But the issue we now face was not presented in Lang. We decided in Lang “that a judgment is a statutory condition precedent to a direct suit against the tortfeasor’s insurer” (id. at 352); we did not consider any defense based on policy exclusions. The sentence on which plaintiffs rely was offered as support for our statement that

“an insurance company that disclaims in a situation where coverage may be arguable is well advised to seek a declaratory judgment concerning the duty to defend or indemnify the purported insured” (id. at 356).

That continues to be sound advice, but Lang should not be read as silently overruling Servidone.

The dissent would read Servidone as being limited to cases in which the defense was “based on noncoverage” rather than “predicated on an exclusion” (dissenting op at 589). It is true, as the dissent says, that we have made such a distinction in cases arising under Insurance Law § 3420, which imposes an obligation of timely disclaimer. It could hardly be clearer, however, that we were not making that distinction in Servidone. Describing the defense asserted by the insurer in that case, we said:

“Security responded that, pursuant to an exclusion in the policy, a loss based upon any obligation the insured had assumed by contract was outside coverage” (64 NY2d at 422 [emphasis added]).

Thus, “outside coverage,” as Servidone used the term, describes a loss to which a policy exclusion applies.

In short, to decide this case we must either overrule Servidone or follow it. We choose to follow it.

There is much to be said for the rule of K2-I, as our previous opinion shows; but, as the Servidone opinion shows, there is also much to be said for the Servidone rule. Several states follow the Servidone approach (e.g. Sentinel Ins. Co., Ltd. v First Ins. Co. of Haw., Ltd., 76 Haw 277, 290-297, 875 P2d 894, 907-914 [1994]; Polaroid Corp. v Travelers Indem. Co., 414 Mass 747, 760-766, 610 NE2d 912, 919-923 [1993]), while others adopt a rule like that of K2-I (e.g. Employers Ins. of Wausau v Ehlco Liquidating Trust, 186 Ill 2d 127, 150-154, 708 NE2d 1122, 1134-1136 [1999]; Missionaries of Co. of Mary, Inc. v Aetna Cas. & Sur. Co., 155 Conn 104, 112-114, 230 A2d 21, 25-26 [1967]). A federal district judge, writing in 1999, said that “[t]he majority of jurisdictions which have considered the question” follow the Servidone rule (Flannery v Allstate Ins. Co., 49 F Supp 2d 1223, 1227 [D Colo 1999]).

Under these circumstances, we see no justification for overruling Servidone. Plaintiffs have not presented any indication that the Servidone rule has proved unworkable, or caused significant injustice or hardship, since it was adopted in 1985. When our Court decides a question of insurance law, insurers and insureds alike should ordinarily be entitled to assume that the decision will remain unchanged unless or until the legislature decides otherwise. In other words, the rule of stare decisis, while it is not inexorable, is strong enough to govern this case.

m

Having decided that American Guarantee is not barred from relying on policy exclusions as a defense to this lawsuit, we must also decide whether the applicability of the exclusions it relies on presents an issue of fact sufficient to defeat summary judgment. We conclude that it does.

The exclusions in question are the so-called “insured’s status” and “business enterprise” exclusions, contained in the following policy language:

“This policy shall not apply to any Claim based upon or arising out of, in whole or in part . . .
“D. the Insured’s capacity or status as:
“1. an officer, director, partner, trustee, shareholder, manager or employee of a business enterprise . . .
“E. the alleged acts or omissions by any Insured . . . for any business enterprise ... in which any Insured has a Controlling Interest.”

The malpractice claims brought against Daniels, American Guarantee’s insured, were based on the allegation that he represented plaintiffs as lenders in a transaction with a borrower known as Goldan. The alleged malpractice consisted of Daniels’s failure to record mortgages that Goldan had given to plaintiffs. Daniels was one of two principals of Goldan; it is fair to infer that he was at least a “manager” of Goldan, and had a “Controlling Interest” in it, within the meaning of the policy. We cannot say on this record as a matter of law that the malpractice claims did not arise “in whole or in part” out of his status as a manager; nor can we say that they did not arise out of any of his “acts or omissions” on Goldan’s behalf. We therefore agree with the Appellate Division dissenters that plaintiffs’ motion for summary judgment should have been denied.

The Appellate Division majority’s rationale for granting summary judgment was, essentially, that a case arising out of the alleged attorney-client relationship between plaintiffs and Daniels could not also arise out of Daniels’s managerial status with, or acts or omissions for, Goldan. But the claims could arise out of both. Because the malpractice case was resolved on default, the record tells us little about the substance of the claims; it is at least possible, however, that the alleged malpractice occurred because Daniels was serving two masters—plaintiffs, his clients, and Goldan, the company of which he was a principal. If that is the case, it can fairly be said that the malpractice claims arose partly out of Daniels’s law practice and partly out of his status with or activity for Goldan—precisely the situation that the insured’s status and business enterprise exclusions seem to contemplate.

Accordingly, upon reargument, our prior decision should be vacated, the remittitur recalled, the order of the Appellate Division reversed, with costs, and plaintiffs’ motion for summary judgment on their first and second causes of action seeking to enforce the default judgment in the underlying action denied.

Graffeo, J.

(dissenting). I would adhere to the general principle that a breach of a liability insurer’s duty to defend prohibits it from subsequently invoking policy exclusions to escape its corollary duty to satisfy a judgment entered against the insured by a third party (see Lang v Hanover Ins. Co., 3 NY3d 350, 356 [2004]). This rule makes sense for several reasons. An insurer should be subjected to some legal consequence for breaching its duty to defend an insured. Prohibiting exclusions from being collaterally invoked provides an insurer with an incentive to appear on behalf of the policyholder in the underlying lawsuit, as it agreed to do in return for the payment of premiums. It also encourages the initiation of a declaratory judgment by an insurer that seeks judicial authorization to rely on a policy exclusion to avoid indemnification. Bringing all of the interested parties—injured plaintiffs; insured defendants; and insurance carriers—together in a judicial forum further contributes to the efficient resolution of factual issues for the benefit of litigants without unduly burdening the ability of injured parties to obtain recovery for covered losses.

A fundamental purpose of an insurance contract is to provide “litigation insurance” for the policyholder (see e.g. Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137 [2006], citing Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 310 [1984]). This is particularly true in the context of legal malpractice insurance coverage such as that purchased by Jeffrey Daniels in this case. It is imperative that an insurer timely defend its insured. A contrary rule encourages unnecessarily repetitive judicial proceedings by allowing an insurer to wrongfully abandon its policyholder’s defense, subsequently forcing the insured to later litigate the effect of a policy exclusion on the duty to indemnify.

At first glance, Servidone Constr. Corp. v Security Ins. Co. of Hartford (64 NY2d 419 [1985]) appears to adopt a different rule. Closer scrutiny, however, reveals that Servidone may have intended to endorse a more limited principle. Our insurance cases have long drawn a distinction between “noncoverage” and “exclusions” (see e.g. Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188-189 [2000]; Zappone v Home Ins. Co., 55 NY2d 131, 134 [1982]). Noncoverage involves the situation where an insurance policy does not contemplate coverage at its inception. For example, a homeowner’s policy would not provide malpractice liability coverage. Exclusions, in contrast, involve claims that fall within the ambit of the policy’s coverage parameters but are excepted by a particular contractual exclusion provision. Hence, a homeowner’s policy might contain an exclusion for certain types of water damage to the house. The distinction between the two is not always easy to identify and in many cases the result is the same—the insured will not be entitled to indemnification.

But our precedents make clear that the classification of an insurer’s defense as one based on noncoverage or one predicated on an exclusion can have significant legal ramifications. For example, we have held that the failure of a carrier to timely disclaim coverage under Insurance Law § 3420 (d) will preclude the carrier from later invoking a policy exclusion to deny coverage (see Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d at 188-189). In other words, the carrier will be obligated to indemnify the insured for the loss, despite the fact that the claim was expressly exempted under an exclusion clause. But an identical violation of Insurance Law § 3420 (d) will not bar the carrier from later raising a defense of noncoverage (see id. at 188 [“Disclaimer pursuant to section 3420 (d) is unnecessary when a claim falls outside the scope of the policy’s coverage portion”]). The rationale for this result is that, “[u]nder those circumstances, the insurance policy does not contemplate coverage in the first instance, and requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed” (id.; see also Markevics v Liberty Mut. Ins. Co., 97 NY2d 646, 648-649 [2001]; Fair Price Med. Supply Corp. v Travelers Indent. Co., 10 NY3d 556, 565 [2008]).

Servidone acknowledged this concept, explaining that the “bargained-for coverage” could not be “enlarged ... as a penalty for [the insurer’s] breach of the duty to defend” (64 NY2d at 424). As a result, the insurer could attempt to demonstrate that the loss at issue “was not within policy coverage” despite the breach (id. at 425). In so holding, Servidone contrasted earlier decisions in which our Court held that “an insurer cannot by virtue of its own breach escape liability for the reasonable settlement of a covered risk” where there was “no question that the loss was within the policy” (id. at 424, citing Isadore Rosen & Sons v Security Mut. Ins. Co. of N.Y., 31 NY2d 342 [1972]; Cardinal v State of New York, 304 NY 400 [1952]).

Servidone did, however, refer to the insurer’s ability to invoke a “policy exclusion” notwithstanding its breach of the duty to defend (64 NY2d at 425 [emphasis added]). But I believe Servidone should be applied more restrictively—and thereby reconciled with our other precedent—to clarify that an insurer’s breach of the duty to defend prohibits it from avoiding indemnification on the basis of policy exclusions, but not from demonstrating that there never was coverage for the loss in the first instance.

Applying these principles here, it is apparent that American Guarantee must satisfy the judgment that was entered against its policyholder. Daniels purchased legal malpractice coverage from American Guarantee. A judgment premised on legal malpractice was secured against Daniels after American Guarantee refused to honor its obligation to defend him in that action. Assuming Daniels was insured against this particular claim under the terms of the malpractice policy, American Guarantee should not now be allowed to avoid satisfying the judgment on the ground that the claim in the underlying lawsuit actually fell under a policy exclusion. If, as the majority asserts, Daniels’ liability for professional negligence may have partially arisen from his actions as both an attorney and a manager of Goldan— and was therefore precluded under the “insured’s status” or “business enterprise” exclusion clauses—American Guarantee should have fully participated in the underlying action and attempted to establish the basis for the exclusion. I believe that these issues should have been resolved in the original action rather than being delayed for years. The majority’s decision to authorize additional litigation and fact-finding will prolong final resolution of this matter even further.

Accordingly, I would affirm the order of the Appellate Division.

Chief Judge Lippman and Judges Read and Rivera concur with Judge Smith; Judge Graffeo dissents and votes to affirm the order appealed from in an opinion in which Judge Pigott concurs; Judge Abdus-Salaam taking no part.

Upon reargument, this Court’s decision of June 11, 2013 vacated, the remittitur recalled, order appealed from reversed, with costs, and plaintiffs’ motion for summary judgment on their first and second causes of action seeking to enforce the default judgment in the underlying action denied.

      . See also 1 Dunham, New Appleman New York Insurance Law 2d § 15.04 (1) (c) at 15-47 (“Most New York courts distinguish between a failure to disclaim on grounds of ‘noncoverage’ . . . which generally does not effect a waiver, and failure to disclaim based upon a policy exclusion, which generally does”).

      . A number of decisions from other jurisdictions (see majority op at 586) are similarly reconcilable under a rule that allows noncoverage (but not exclusions) to be raised even if the duty to defend is breached (see e.g. Employers Ins. of Wausau v Ehlco Liquidating Trust, 186 Ill 2d 127, 150-151, 708 NE2d 1122, 1135 [1999] [an insurer that breaches the duty to defend “is estopped from raising policy defenses to coverage” but may seek to prove that “there clearly was no coverage or potential for coverage”]; Polaroid Corp. v Travelers Indem. Co., 414 Mass 747, 764, 610 NE2d 912, 922 [1993] [“agree(ing) with the Court of Appeals of New York that an insurer that wrongfully declines to defend a claim will have the burden of proving that the claim was not within its policy’s coverage”]; Alabama Hosp. Assn. Trust v Mutual Assur. Socy. of Ala., 538 So 2d 1209, 1216 [Ala 1989] [“A failure of an insurer to defend a claim against an insured does not work an estoppel on the issue of coverage”]; Flannery v Allstate Ins. Co., 49 F Supp 2d 1223, 1229 [D Colo 1999] [“I hold . . . that an insurer is not precluded from contesting coverage when it has breached its obligation to defend its insured”]).


text:
    [6 NE3d 1113, 983 NYS2d 757]
    In the Matter of John Gaied, Appellant, v New York State Tax Appeals Tribunal et al., Respondents.
    Argued January 16, 2014;
    decided February 18, 2014

      POINTS OF COUNSEL

      Hodgson Russ LLP, Albany (Timothy P. Noonan and Joshua K. Lawrence of counsel), for appellant.
    I. Mr. John Gaied did not maintain a “permanent place of abode” under a proper interpretation of New York’s residency statute. (Matter of 1605 Book Ctr. v Tax Appeals Trib. of State of N.Y., 83 NY2d 240; Doctors Council v New York City Employees’ Retirement Sys., 71 NY2d 669; Matter of SIN, Inc. v Department of Fin. of City of N.Y., 71 NY2d 616; Matter of Evans v Tax Appeals Trib. of State of N.Y., 199 AD2d 840; Matter of DaimlerChrysler Corp. v Spitzer, 7 NY3d 653; Riley v County of Broome, 95 NY2d 455; Matter of Yellow Book of N.Y., Inc. v Commissioner of Taxation & Fin., 75 AD3d 931; Matter of Sedacca v Mangano, 18 NY3d 609; Ferres v City of New Rochelle, 68 NY2d 446; Metropolitan Life Ins. Co. v Durkin, 276 App Div 394, 301 NY 376.) II. The Third Department did not apply the same test that was employed by the New York State Tax Appeals Tribunal in Matter of Gaied (2011 NY Tax LEXIS 136 [NY St Tax Appeals Trib DTA No. 821727, June 16, 2011]). (Matter of Evans v Tax Appeals Trib. of State of N.Y., 199 AD2d 840; Matter of New York Times Co. v City of N.Y. Commn. on Human Rights, 41 NY2d 345; Matter of Jennings v New York State Off. of Mental Health, 90 NY2d 227.)

      Eric T. Schneiderman, Attorney General, Albany (Robert M. Goldfarb, Barbara D. Underwood and Andrew D. Bing of counsel), for respondents.
    The New York State Tax Appeals Tribunal’s determination that petitioner qualified as a “statutory resident” of New York under Tax Law § 605 (b) (1) (B) is rational and supported by substantial evidence. (Matter of Siemens Corp. v Tax Appeals Trib., 89 NY2d 1020; Matter of Jennings v New York State Off. of Mental Health, 90 NY2d 227; Matter of Orvis Co. v Tax Appeals Trib. of State of N.Y., 86 NY2d 165; 300 Gramatan Ave. Assoc. v State Div. of Human Rights, 45 NY2d 176; Matter of Tamagni v Tax Appeals Trib. of State of N.Y., 91 NY2d 530, 525 US 931; Matter of Orens v Novello, 99 NY2d 180; Matter of El-Tersli v Commissioner of Taxation & Fin., 14 AD3d 808; People ex rel. Mackall v Bates, 278 App Div 724; Matter of Smith v State Tax Commn., 68 AD2d 993; Matter of Pell v Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 NY2d 222.)
   OPINION OF THE COURT

Pigott, J.

On this appeal, we are asked to consider New York’s “statutory resident” test (Tax Law § 605 [b] [1] [B]) and, more specifically, the standard to be applied when determining whether a person “maintains a permanent place of abode” in New York. Petitioner John Gaied contends that the question should turn on whether he maintained living arrangements for himself to reside at the dwelling. We agree with petitioner and hold that in order for an individual to qualify as a statutory resident, there must be some basis to conclude that the dwelling was utilized as the taxpayer’s residence.

During the relevant time period, petitioner was domiciled in New Jersey. He owned an automotive service and repair business on Staten Island, New York and commuted daily to work, a distance of about 28 miles.

In November 1999, he purchased a multifamily apartment building on Staten Island, located in the same neighborhood as his business. Petitioner testified that his motivation for acquiring the building was two-fold: as a place for his elderly parents to live and as an investment property.

Starting in 1999, petitioner’s parents lived in a first-floor apartment and relied on petitioner for their support. Petitioner claimed them as dependents on his federal, New Jersey, and New York tax returns. He paid the electric and gas bills for the apartment, and maintained a telephone number for the apartment in his name. However, he insists that he never lived at the apartment and did not keep any clothing or other personal effects there; nor did he have sleeping accommodations at the apartment. While he had keys to the apartment, he contends that he did not have unfettered access. He stayed at the apartment only on occasion, doing so at his parents’ request to attend to their medical needs. On those occasions, he would sleep on a couch.

Petitioner leased the other two apartments in the building to tenants. During the years in question, 2001 through 2003, he filed a federal Schedule E, which reported income and expenses from rental real estate associated with the property. He did not, however, produce records to substantiate the rental income or expenses reported. New York City voter registration records indicate that petitioner voted in general elections in New York in 2000.

In December 2003, petitioner sold his New Jersey residence in order to satisfy a large 2002 federal tax obligation. He placed his belongings in storage and stayed with an uncle in New Jersey while renovating the boiler room at the Staten Island property to make an additional apartment, where he began residing in 2004, after the tax years at issue.

For each of the tax years in question, petitioner filed nonresident income tax returns in New York. After an audit, the Department of Taxation and Finance issued a Notice of Deficiency indicating that he owed an additional $253,062 in New York State and City income taxes, plus interest. The Department determined that he was a “statutory resident” of New York within the meaning of Tax Law § 605 (b) (1) (B) because he spent over 183 days in New York City and maintained a “permanent place of abode” at the Staten Island property during those years.

Petitioner sought a redetermination of the deficiency, conceding that he was in New York City more than 183 days during each year at issue but challenging the determination that he maintained a “permanent place of abode” at the Staten Island property. After a hearing, an Administrative Law Judge (ALJ) issued a determination sustaining the Notice (2009 WL 2491342, 2009 NY Tax LEXIS 86 [NY St Div of Tax Appeals DTA No. 821721, Aug. 6, 2009]) and thereafter, petitioner filed an exception.

The Tax Appeals Tribunal initially reversed the ALJ’s determination on the ground that petitioner did “not have living quarters at his parents’ apartment” and, therefore, he did not maintain a permanent place of abode (2010 WL 2801871, *8, 2010 NY Tax LEXIS 117, *23, available at http://www. dta.ny.gov/pdf/archive/Decisions/821727.dec.pdf at 14 [NY St Tax Appeals Trib DTA No. 821727, July 8, 2010]).

The Department moved for reargument, contending that the Tribunal’s decision failed to take into account precedent that, in order to qualify as a statutory resident under the Tax Law, a taxpayer need not actually dwell in the permanent place of abode, but need only maintain it. Petitioner opposed the motion.

On reargument, the Tribunal, with one member dissenting, granted the Department’s motion, affirmed the ALJ’s decision and sustained the deficiency (NY St Tax Appeals Trib DTA No. 821727, June 16, 2011, available at http://www.dta.ny.gov/pdf/ archive/Decisions/821727.2.dec.pdf). The Tribunal stated that its initial decision was “an improper departure from the language of the statute, regulations, and controlling precedent” and concluded that “where a taxpayer has a property right to the subject premises, it is neither necessary nor appropriate to look beyond the physical aspects of the dwelling place to inquire into the taxpayer’s subjective use of the premises” (id. at 15-16). The Tribunal rejected petitioner’s argument that the premises must be maintained for his personal use, finding that there is “no requirement that the petitioner actually dwell in the abode, but simply that he maintain it” (id. at 19). The Tribunal further found that petitioner had not established that the property was maintained exclusively for his parents’ use. It found that petitioner stayed overnight on occasion to care for his father, listed the address under his name for the utility and telephone bills, listed the address as his on the other apartment leases, and had unfettered access to the apartment (rejecting, as did the ALJ, petitioner’s testimony that he did not have unfettered access).

The dissent would have affirmed the Tribunal’s original decision in petitioner’s favor. He noted that the Tribunal construed the statute in its original decision “in a practical manner, generally referring to an individual doing whatever is necessary to continue one’s living arrangements in a particular dwelling place” (id. at 20).

Petitioner brought this CPLR article 78 proceeding challenging the Tribunal’s second determination. The Appellate Division, with two Justices dissenting, confirmed the determination, recognizing that although a “contrary conclusion would have been reasonable based upon the evidence presented,” it was nevertheless “constrained to confirm, since [the court’s] review is limited and the Tribunal’s determination [was] amply supported by the record” (101 AD3d 1492, 1494 [3d Dept 2012]).

The dissent focused on the legislative intent of the statutory residence rules and noted that the paramount inquiry in determining whether a taxpayer is maintaining a permanent place of abode in New York should be whether a taxpayer maintains “living arrangements” in a particular dwelling place (id. at 1495). Applying this analysis, the dissent would have found that petitioner did not live in the dwelling or have any personal residential interest there, and the Tribunal’s decision to hold him as a resident was “irrational and unreasonable” (id. at 1496).

Petitioner appealed from the Appellate Division’s order, pursuant to CPLR 5601 (a).

Tax Law § 601 and Administrative Code of the City of New York § 11-1701 impose, respectively, New York State and New York City personal income tax on state and city “resident individuals.” An individual may be taxed as a “resident” in one of two ways, the first one being the obvious: that he or she is domiciled in New York, i.e. the taxpayer’s permanent and primary home is located in New York (see Tax Law § 605 [b] [1] [A]).

The alternative test is found in Tax Law § 605 (b) (1) (B), which taxes a “statutory resident” or someone “who is not domiciled in this state but maintains a permanent place of abode in this state and spends in the aggregate more than [183] days of the taxable year in this state.”

It is the second test that is at issue here. Petitioner concedes that he was in New York City more than 183 days during each of the years at issue. Thus, whether petitioner is a statutory resident depends on whether he maintained a permanent place of abode in New York.

In Matter of Tamagni v Tax Appeals Trib. of State of N.Y. (91 NY2d 530 [1998]), this Court examined the legislative history of the tax statute, and noted that there had been “several cases of multimillionaires who actually maintain homes in New York and spend ten months of every year in those homes . . . but . . . claim to be nonresidents” (91 NY2d at 535, quoting Mem of Income Tax Bureau, Bill Jacket, L 1922, ch 425). We explained that the statutory residence provision fulfils the significant function of taxing individuals who are “really and [for] all intents and purposes . . . residents of the state” but “have maintained a voting residence elsewhere and insist on paying taxes to us as nonresidents” (id.). “In short, the statute is intended to discourage tax evasion by New York residents” (91 NY2d at 535).

The Tax Law does not define “permanent place of abode,” but the regulations define it as “a dwelling place of a permanent nature maintained by the taxpayer, whether or not owned by such taxpayer, [which] will generally include a dwelling place owned or leased by such taxpayer’s spouse” (20 NYCRR 105.20 [e] [1]). The regulations further provide that, by way of example, “a mere camp or cottage, which is suitable and used only for vacations, is not a permanent place of abode” (id.).

The Tax Tribunal has interpreted “maintains a permanent place of abode” to mean that a taxpayer need not “reside” in the dwelling, but only maintain it, to qualify as a “statutory resident” under Tax Law § 605 (b) (1) (B). Our review is limited to whether that interpretation comports with the meaning and intent of the statutes involved (Matter of Siemens Corp. v Tax Appeals Trib., 89 NY2d 1020, 1022 [1997]). We conclude there is no rational basis for that interpretation. Notably, nowhere in the statute does it provide anything other than the “permanent place of abode” must relate to the taxpayer. The legislative history of the statute, to prevent tax evasion by New York residents, as well as the regulations, supports the view that in order for a taxpayer to have maintained a permanent place of abode in New York, the taxpayer must, himself, have a residential interest in the property.

Accordingly, the judgment of the Appellate Division should be reversed, with costs, and the matter remitted to that court with directions to remand to respondent New York State Tax Appeals Tribunal for further proceedings in accordance with this opinion.

Chief Judge Lippman and Judges Graffeo, Read, Smith, Rivera and Abdus-Salaam concur.

Judgment reversed, with costs, and matter remitted to the Appellate Division, Third Department, with directions to remand to respondent New York State Tax Appeals Tribunal for further proceedings in accordance with the opinion herein.


author: Smith, J. Rivera, J.

text:
    [7 NE3d 496, 984 NYS2d 283]
    The People of the State of New York, Respondent, v Gunther J. Flinn, Appellant.
    Argued January 14, 2014;
    decided February 25, 2014

      POINTS OF COUNSEL

      Muldoon & Getz, Rochester (Martin P. McCarthy, II, of counsel), for appellant.
    I. Defendant’s right to be present at all material stages of the proceedings was violated when no express or implied waiver of his right to attend bench conferences occurred. (People v Sloan, 79 NY2d 386; People v Turaine, 78 NY2d 871; People v Anderson, 16 NY2d 282; People v Velasco 77 NY2d 469; People v Antommarchi, 80 NY2d 247; People v Mitchell, 80 NY2d 519; People v Vargas, 88 NY2d 363; People v Keen, 94 NY2d 533; People v Williams, 15 NY3d 739; People v McAdams, 22 AD3d 885.) II. Defendant was unconstitutionally punished for exercising his right to a trial. (United States v Goodwin, 457 US 368; Bordenkircher v Hayes, 434 US 357; People v Van Pelt, 76 NY2d 156; North Carolina v Pearce, 395 US 711; People v Simmons, 29 AD3d 1024; People v Rogers, 56 AD3d 1173; People v Miller, 65 NY2d 502.)

      Cindy F. Intschert, District Attorney, Watertown (Patricia L. Dziuba of counsel), for respondent.
    I. Because defendant effectively waived his right to be present during voir dire sidebars, a new trial is not required. (Maurer v People, 43 NY 1; People ex rel. Lupo v Fay, 13 NY2d 253; People v Mullen, 44 NY2d 1; People v Antommarchi, 80 NY2d 247; People v Vargas, 88 NY2d 363; People v Spotford, 85 NY2d 593; People v Velasco, 77 NY2d 469; People v Keen, 94 NY2d 533; People v Williams, 15 NY3d 739.) II. Because the court did not sentence defendant vindictively nor was the sentence harsh or excessive, a new trial is not required. (People v Mitchell, 104 AD2d 689; People v Roman, 84 AD2d 851; People v Richard, 65 AD2d 595; People v Cotter, 25 AD2d 609; People v Farrar, 52 NY2d 302; People v

      Nicholson, 237 AD2d 973; United States v Goodwin, 457 US 368; Bordenkircher v Hayes, 434 US 357; People v Van Pelt, 76 NY2d 156.)
   OPINION OF THE COURT

Smith, J.

We hold that defendant validly waived his right under People v Antommarchi (80 NY2d 247, 249-250 [1992]) to be present during bench conferences at which prospective jurors were questioned on voir dire.

Defendant was tried for attempted murder and other crimes. Before beginning jury selection, the trial judge announced in defendant’s hearing:

“If there are any conferences at the bench, I just remind everyone the defendant is welcome to attend them, I will leave that up to defense counsel and the defendant as to whether or not he wants to get up and attend any of those conferences.”

A few minutes later, after one prospective juror had been excused for medical reasons, defense counsel said in a bench conference, held out of defendant’s hearing:

“Your Honor, may I just put one thing on the record. Mr. Flinn is remaining at counsel table. I have discussed with him that he has the right to come up here during these discussions at the bench, and he has waived that right.”

Voir dire proceeded, and a number of bench conferences were held at which prospective jurors’ qualifications were discussed. There is no indication in the record that defendant attended, or asked to attend, any of these conferences. Defendant was convicted, and the Appellate Division affirmed (People v Flinn, 98 AD3d 1262 [4th Dept 2012]). A Judge of this Court granted leave to appeal (20 NY3d 986 [2012]), and we now affirm.

Defendant waived his Antommarchi right both implicitly and explicitly. He did so implicitly when, after hearing the trial judge say that he was “welcome to attend” the bench conferences, he chose not to do so. And he waived it explicitly by his lawyer’s statement to the court.

The implicit waiver is not significantly different from the one we upheld in People v Williams (15 NY3d 739 [2010]). It is true that in Williams the trial court said not only that the defendant was “welcome” at sidebar conferences but also that he had “an absolute right” to attend them (id. at 740), but we think that in context the two statements convey the same message: defendant was free to attend bench conferences if he wanted to do so. This was the important point for him to understand—not whether his opportunity to attend was a right or a privilege. It is hard to imagine how his decision not to attend could have been affected if the court here had used the word “right.”

As for the explicit waiver, we have repeatedly held that a lawyer may waive the Antommarchi right of his or her client (People v Velasquez, 1 NY3d 44, 47-50 [2003]; People v Keen, 94 NY2d 533, 538-539 [2000]; see also People v Vargas, 88 NY2d 363, 376 [1996] [because sidebar presence is a statutory, not a constitutional, right, “this Court has been more flexible regarding the acceptable form of voluntary waivers by defendants and their lawyers”]). Defendant seeks to distinguish these cases on the ground that here the lawyer’s statement waiving the right was not made in defendant’s hearing. But the premise of Velasquez and Keen is that a lawyer may be trusted to explain rights to his or her client, and to report to the court the result of that discussion. If that was not our assumption in those cases, we would not have found a valid waiver; we certainly did not rely on the client’s vigilance in listening to, or his diligence in correcting, his lawyer’s misstatements. Indeed, in Velasquez, while the client did hear the lawyer’s oral waiver, it is unlikely that he understood it. The only relevant words said in open court in Velasquez were “Waived” by the lawyer and “Antommarchi waived” by the court (1 NY3d at 47).

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

Rivera, J.

(dissenting). The trial court’s failure to properly inform defendant of his fundamental right to attend certain conferences, and to confirm and make a public record of defendant’s alleged waiver communicated to the court by counsel at sidebar and out of defendant’s presence, constitutes a violation of defendant’s rights as recognized by People v Antommarchi (80 NY2d 247 [1992]) and its progeny, and the majority’s opinion risks rendering our prior decisions meaningless. Therefore, I dissent.

A defendant’s fundamental right to be present during any material stage of trial includes the right to be present for sidebar discussions on juror bias, hostility or predisposition (CPL 260.20; Antommarchi, 80 NY2d at 250; People v Dokes, 79 NY2d 656, 661-662 [1992]). Violation of that right is reversible error when a juror questioned outside of the defendant’s presence is empaneled or subjected to defense counsel’s peremptory challenge (People v Davidson, 89 NY2d 881, 882-883 [1996]).

A defendant may waive the fundamental Antommarchi right so long as the waiver is voluntary, knowing, and intelligent (People v Keen, 94 NY2d 533, 538-539 [2000]; People v Vargas, 88 NY2d 363, 375-376 [1996]). Waiver may be accomplished explicitly, by the defendant or through defense counsel, or implicitly, through defendant’s failure to exercise the Antommarchi right after an adequate in-court apprisal (see People v Velasquez, 1 NY3d 44, 49-50 [2003]; People v Williams, 15 NY3d 739, 740 [2010]).

The majority concludes that defendant implicitly waived his right by failing to attend sidebar conferences probing juror bias. We have only recognized an implicit waiver of the Antommarchi right when the defendant has been informed of the right in time to exercise it during juror selection (see Williams, 15 NY3d at 740). Otherwise, defendant’s waiver could not be voluntary, knowing, and intelligent. Here, the majority concludes that the trial court informed defendant of his right to attend sidebars probing juror bias when it said: “If there are any conferences at the bench, I just remind everyone the defendant is welcome to attend them[.] I will leave that up to defense counsel and the defendant as to whether or not he wants to get up and attend any of those conferences.” According to the majority, this statement was sufficiently descriptive as to inform defendant of his fundamental Antommarchi right, and, according to the majority, defendant waived his right when he did not exercise it.

The majority considers it of no moment that, in this case, the court never used the legally familiar terminology associated with Antommarchi’s mandate, namely that defendant had a fundamental right he was entitled by statute to assert and that the court was obliged to recognize. Instead, the majority is persuaded that the word “welcome” as used by the court sufficiently apprised defendant of this statutory right. I cannot agree. The word “welcome” is defined as “received gladly into one’s presence or companionship: admitted willingly to the company, house, or entertainment” or “freely or willingly permitted: cordially invited” (Webster’s Third New International Dictionary [2002]). To recite the definition of “welcome” is to make obvious its inappropriateness to the task of informing defendant of a right, which is defined as “[something that is due to a person by just claim, legal guarantee, or moral principle^] [a] power, privilege, or immunity secured to a person by law” (Black’s Law Dictionary 1436 [9th ed 2009]). Unlike a right, a welcome is a mere invitation, subject to revocation by the person who extended it. A right recognized as fundamental, such as the Antommarchi right, cannot be conveyed by a word or phrase that suggests that it is subject to revocation. A welcome is more properly left for informal gatherings than the courtroom, where a defendant’s future hangs in the balance and may very well turn on the proper understanding of the court’s directive.

Words have meaning, which must be derived from and understood by the context in which they are expressed. Words in one context may convey a meaning which makes the word wholly appropriate given the circumstances, but which in another setting may be judged as inappropriate. Here, a statement by which the court states as a general matter, and not directed to the defendant, that the defendant is “welcome” to attend bench conferences, simply cannot be equated with a statement made directly to defendant explicating a fundamental right and informing him of the opportunity to exercise that right. Absent the court’s adequate notification of that right to the defendant, any waiver cannot be knowing and voluntary and lacks legal significance.

Further, trial court’s statement that it was “up to defense counsel and the defendant as to whether or not he wants to get up and attend any of those conferences” suggests that the decision was not solely the defendant’s. A defendant’s right to control his or her own defense has deep roots in U.S. jurisprudence (see Erica J. Hashimoto, Resurrecting Autonomy: The Criminal Defendant’s Right to Control the Case, 90 B U L Rev 1147, 1163-1174 [2010]). After all, “[t]he defendant, and not his lawyer or the State, will bear the personal consequences of a conviction” (Faretta v California, 422 US 806, 834 [1975]). New York’s statutory right to be present at material stages of trial protects this autonomy interest and ensures a defendant the opportunity to meaningful participation in his or her own defense (People v Dokes, 79 NY2d 656, 660-661 [1992]). Defendant, not defense counsel, bears the sole authority to waive this right; otherwise, the guarantee of meaningful participation rings hollow.

The circumstances surrounding defense counsel’s attempted waiver on behalf of defendant provide an independent basis to reject such waiver’s legal sufficiency. Until today, we have not recognized a defense counsel’s waiver of Antommarchi rights made outside the defendant’s presence and without a subsequent confirmation made in open court. With good reason. Such a waiver lacks any recognition by the defendant and confirmation by the court that it reflects a voluntary, knowing, and intelligent waiver of the right. Certainly, as the majority notes, counsel can be expected to “explain rights to his or her client, and to report to the court the result of that discussion” including defendant’s decision to waive his rights (majority op at 602). What counsel cannot do is satisfy the court’s duty to ensure that defendant’s waiver meets our legal standards.

Chief Judge Lippman and Judges Graffeo, Read, Pigott and Abdus-Sajlaam concur with Judge Smith; Judge Rivera dissents and votes to reverse in an opinion.

Order affirmed.