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New York Supreme Court of Appeals Affirms Decision Requiring Insurance Company to Defend

Apr 19, 2012 | Parker Waichman LLP

The New York Supreme Court of Appeals has ruled that an insurance company must defend a so-called "dram shop" liability lawsuit,  upholding a lower court ruling that rejected the insurance company's assertions that it had timely disclaim ed coverage in the underlying personal injury.

Dram shop liability involves giving or serving alcohol to a person who then injures a third party as a direct result of the impairment from the alcohol.  While such laws may vary, the majority of states hold retailers accountable if they who know or should have known they are selling alcohol to obviously intoxicated people or minors.

On Tuesday, April 19, 2012, the New York Supreme Court of Appeals affirmed the decision of a lower court that requires Citizens Insurance Co. of America (d/b/a Hanover Insurance Group) to defend a dram shop liability lawsuit that was filed on behalf of a young woman who was killed in a drunk driving accident in 2008.  The victim was a passenger in a car driven by the drunk driver, who eventually pleaded guilty to manslaughter and other charges. The Court of Appeals decision can be viewed here.

The victim’s family had filed a dram liability lawsuit against the bar that had served the driver alcohol in the hours prior to the car crash.  The bar's insurer, Citizens Insurance Co. of America, filed a motion for summary judgment with the Supreme Court of New York, asserting that it timely disclaimed coverage for the underlying accident by letter dated July 9, 2008.  In response, the defendant insured held that the July 9, 2008 letter was not a notice of disclaimer, but a reservation of rights, and that plaintiff did not disclaim coverage until commencing the declaratory judgment action more than two months after receiving notice of the underlying action, which was untimely as a matter of law. In an order entered on July 9, 2010, the Supreme Court agreed with defendants and denied plaintiff's motion.

The insurance company then moved to renew based on the "new facts" that it actually sent a letter disclaiming coverage on July 16, 2008 and that it never sent the "draft” dated July 9, 2008 that was submitted with its original motion for summary judgment.  The Supreme Court of New York denied that motion in an order entered July 18, 2011.   The lower court did not buy the insurance company’s excuse that its counsel inadvertently attached the wrong letter in its prior motion papers, given that, in reply to defendants' opposition to the original motion, plaintiff submitted a sworn affidavit from its agent attesting to the fact that the July 9, 2008 letter was the disclaimer letter sent to defendants .Citizens Insurance Co. of America then filed an appeal with the Supreme Court of New York, Appellate Division. 

In an order dated April 19, 2012, the Supreme Court agreed with the lower court ruling, stating that the Supreme Court properly determined that the "failure to submit the July 16, 2008 letter was more than mere law office failure." The Appeals Court affirmed that Citizens Insurance Co. of America was not entitled to a summary judgment and must defend the dram liability lawsuit.


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