Jordan Haber, Debbie Haber v. St. Paul Guardian Insurance Company

PARKER, Circuit Judge,

dissenting.

I believe that the district court erred in finding, as. a matter of law, that plaintiffs-appellees Dr. and Mrs. Haber (the “Habers”) voluntarily elected to provide Workers’ Compensation coverage for a domestic helper, Florine Netus (“Netus”) through the HO-90 Endorsement (the “Endorsement”) to their homeowner’s insurance policy with St. Paul Guardian (“St. Paul”). This finding is contrary to the explicit language of New York Insurance Law § 3240(j)(l). I would vacate the judgment of the district court on this point and remand for further proceedings. Therefore, I respectfully dissent.

Under New York law,, which governs this diversity action, an insurance policy should be .construed to give effect to the intentions of the parties as expressed in the unambiguous terms of policy. Village of Sylvan Beach v. Travelers Indem. Co., 55 F.3d 114, 115 (2d Cir.1995). “If the provisions are clear and unambiguous, courts are to enforce them as written.” Id. The determination of whether a provision in an insurance contract is ambiguous is a question of law, reviewed de novo on appeal. Werbungs Und Commerz Union Austalt v. Collectors’ Guild, Ltd., 930 F.2d 1021, 1026 (2d Cir.1991).

If a court finds a provision in an insurance contract to be ambiguous, it should interpret all ambiguities in favor of the insured and against the insurer, as the maker of the contract. Sylvan Beach, 55 F.3d at 115 . A provision in an insurance contract is ambiguous if it “is reasonably and fairly susceptible to more than one meaning.” McCormick & Co. v. Empire Ins. Group, 878 F.2d 27, 30 (2d Cir.1989). Once a court finds a provision to be ambiguous, the insured’s construction of that provision governs, unless the insurer can show: “(1) that it would be unreasonable *701 for the average man reading the policy [to construe it as the insured does] and (2) that its own construction [is] the only one that fairly could be placed on the policy.” Sincoff v. Liberty Mut. Fire Ins. Co., 11 N.Y.2d 386, 390 , 183 N.E.2d 899, 901 , 230 N.Y.S.2d 13, 16 (1962). Under these principles, and contrary to the Habers’ assertion, the Endorsement is not ambiguous.

The Endorsément is entitled “Workers’ Compensation, Certain Residence Employees.” The use of the term “certain” immediately alerts the average person that some but not all residence employees will be covered under the Endorsement. Specifically, at issue in this case is the meaning and effect of the section of the Endorsement entitled “Who is Covered.” This section defines the extent of coverage, which does not extend to all residence employees:

A covered residence employee under this endorsement is a residence employee who is both:

a. engaged in regular employment of less than 40 hours per week or is engaged in casual employment, and

b. defined under New York workers’ compensation law as an employee for whom workers’ compensation benefits must be provided. (Emphasis added.)

With regard to the first prong of this definition, the district court found that Netus worked less than forty hours per week. Because this finding of fact is not clearly erroneous, it must be upheld by this Court. See Anderson v. City of Bessemer City, 470 U.S. 564, 573 , 105 S.Ct. 1504, 1511 , 84 L.Ed.2d 518 (1985). Hence, the first prong of the definition of a “covered residence employee” in the Endorsement is satisfied.

The question thus becomes whether the second prong of the Endorsement’s definition of “covered residence employee” is satisfied. The Habers claim, and the majority opinion agrees, that the second prong is ambiguous. Further, the majority interprets the second prong to be a voluntary election of workers’ compensation coverage. In the first place, I cannot agree that the second prong is ambiguous and, secondly, even if it were, the interpretation which the majority concludes is reasonable, is to me anything but.

The Endorsement provides coverage for employees “for whom workers’ compensation benefits must be provided.” The majority acknowledges, as it must, that domestic workers such as Florine Netus (who was employed for less than forty hours per week) are not employees for whom workers’ compensation benefits are generally required. Indeed, the Workers’ Compensation Law (‘WCL”) specifically requires coverage to be provided for domestic workers who work “a minimum of forty hours per week.” N.Y.Work.Comp.L. § 3(1), Group 12.

The majority sees an ambiguity in the language of the policy because another section of the law permits an employer to elect to bring an employee who is not required to be covered within coverage by voluntarily purchasing insurance which provides workers’ compensation benefits. 1 The reasoning of the majority which creates ambiguity appears to be:

1) The policy provides coverage if the workers compensation law requires Netus to be covered.

2) The law doesn’t specifically require coverage because Netus works less than forty hours per week.

3) The law permits employers to voluntarily elect coverage by purchasing workers’ compensation insurance.

4) Once such coverage is elected to be purchased, the employee is entitled to benefits.

5) By purchasing this policy with its provision covering those who must be covered *702 under the law, the insured made such an election of coverage.

This logic is flawed for several reasons. First, there is no ambiguity in a scheme which provides coverage if the law requires it or if an election to cover is made. The issue is whether such an election was made. The district court specifically found that Haber didn’t ask for workers’ compensation coverage for Netas and did not have any specific intent to purchase it. In fact, Haber did not even treat her as an employee. These findings were not clearly erroneous.. The general intention to purchase comprehensive homeowner’s insurance is hardly sufficient to constitute an election to provide workers’ compensation benefits.

Second, the reasoning is completely circular. The logic is that by the mere act of purchasing a policy which only covers those who must be covered by law, the insured automatically receives coverage for those who may be covered if the insured elects to do so. “May” becomes “must” without any indication of an election except the purchase of the policy.

Third, even if one sees an ambiguity here, which I do not, it is the intent of the parties which controls the interpretation of contracts. The only intent of the Habers as found by the trial court was a general intent to obtain comprehensive homeowner’s insurance. As for St. Paul, it is impossible, in my view to infer that by including a provision in the policy that provided coverage if the coverage is required by law, it intended to further provide coverage not required by law. It is far more reasonable to conclude, as St. Paul contended (and its witness Ms. Poplaw-ski testified) that the Endorsement was included to comply with New York Insurance Law § 3420(j)(l) which requires homeowners’ policies to provide coverage for domestic employees who work less than forty hours per week if they, for some reason, become entitled to benefits under law.

Furthermore, there is a New York statute which directly addresses the issue of whether the Endorsement may be deemed an election of workers’ compensation coverage! Section 3420(])(1) of the Insurance Law provides:

Notwithstanding any other provision of this chapter or any other law to the contrary, every policy providing comprehensive personal liability insurance on a one, two, three or four family owner-occupied dwelling ... shall provide for coverage against liability for the payment of any obligation, which the policyholder may incur pursuant to the provision of the workers’ compensation law, to an employee arising out of and in the course of employment if less than forty hours per week, in and about such residences of the policyholder in this state. No one who purchases a policy providing comprehensive personal liability insurance [for the home] shall be deemed to have elected to cover under the workers’ compensation law any employee who is not required, under the provisions of such law, to be covered.

N.Y.Ins.L. § 3420(j)(l) (emphasis added).

St. Paul claims that the disputed language in the Endorsement’s definition of “covered residence employee” is terminology used to satisfy the requirements of section 3240(j)(l). The Endorsement does indeed track the requirements laid out in section 3420(j)(l). Thus, the definition of “covered residence employee” is susceptible to only one meaning, is not ambiguous, and section 3420(j)(l) prevents the Endorsement from being deemed an election of workers’ compensation coverage.

The practice commentary to section 3 of the WCL specifically addresses the application of section 3420(j) of the Insurance Law:

This coverage [required by § 3420(j) ] does not constitute elective or voluntary coverage as provided in Section 3(1), Group 19 [of the Worker’s Compensation Law]. Therefore any person who is not required to be covered for workers’ compensation benefits would not be deemed to be covered solely because of the existence of the comprehensive personal liability policy.

N.Y.Work.Comp.L. § 3, practice commentary. The practice commentary also notes that section 3420(j) was added “to protect the homeowner from unexpected liability when the [Workers’ Compensation] Board determines that a person, who the homeowner did not believe required coverage, is entitled to *703 benefits.” Id. It is also of note that all comprehensive homeowner’s policies will be construed to include this form of workers’ compensation coverage by virtue of section 3420® “whether or not the applicable endorsement has beén attached to the policy.” N.Y.Gen.Counsel Op. No. 2-28-85, N.Y.Ins.Bull. (Feb. 28, 1985).

There are interpretations and rulings by New York Worker’s Compensation Board (the “Board”) which support this analysis. In In re Howard Frisch, No. 5881 4414, 1992 WL 206148 (N.Y.Work.Comp.Bd. Aug. 10, 1992), the Board found that where a domestic servant worked less than 40 hours per week “[t]he purchase of a homeowner’s policy which provides coverage for worker’s compensation benefits for a domestic servant working less than 40 [hours] per week is not deemed to be an election to cover such employees under the Worker’s Compensation Law [§§ 3, Group 19 or 50].” Id. at *3 (citing N.Y.Ins.L. § 3420(j)); see also In re Home Owner, No. 09254557, 1996 WL 65670 , *2 (N.Y.Work.Comp.Bd. Jan. 26, 1996) (holding that adult worker hired to trim homeowner’s tree branches not defined as an employee under WCL § 2(4) because “the provisions of Section 3420 of Insurance Law at subsection (4)®(1) ... did not act as an election to provide coverage to this claimant, who under [WCL], was not required to be covered.”); In re John & Francis Ho min, No. 5930 7717, 1994 WL 708589 (N.Y.Work.Comp.Bd. Dec. 6, 1994) (finding that because claimant engaged in casual work, claimant “is not deemed to be an employee under § 2(4) ... under the provisions of [ ] § 3420® of the Insurance Law.”).

In re Gertrude Mokotoff, No. 58705854, 1990 WL 150675 (N.Y.Work.Comp.Bd. June 19, 1990), is directly on point. In Mokotoff, the endorsement to the homeowner’s insurance policy at issue was virtually identical to the one disputed in this case, and the Board found that the claimant was a domestic servant who worked less than forty hours per week. Id. at *l-*2. Like the district court in the instant ease, the Worker’s Compensation Law Judge (the “Referee”): (1) found that the employer’s homeowner’s insurance policy was ambiguous; (2) applied general contract law, construing the ambiguous clauses against the insurer; and (3) found that the claimant was a covered employee by deeming the endorsement to be the homeowner’s election of coverage. Id. at *l-*2.

Upon appeal, however, the Board reversed the Referee’s findings. The Board held that the claimant was “not entitled to worker’s compensation benefits under the provisions of the employer’s homeowner’s insurance policy” because pursuant to Section 3420®(1) of the Insurance Law, “the employer did not elect to procure Worker’s Compensation Coverage, which was of a voluntary nature, for the claimant.” Id.

Finally, I believe that the majority’s reliance on Mostow v. State Farm Ins. Co., 88 N.Y.2d 321 , 645 N.Y.S.2d 421 , 668 N.E.2d 392 (1996), is misplaced.. The majority finds that because this case involves the interpretation of an insurance policy, the insured is entitled to have it construed purely as a contract, without reference to the underlying statutory definitions. Ante, Maj.Op. at 699. In Mostow , the New York Court of Appeals interpreted an insurance policy with an allegedly ambiguous endorsement, providing coverage of $100,000 per person and up to $300,-000 if two or more persons were injured. 88 N.Y.2d at 323 , 645 N.Y.S.2d. at 421, 668 N.E.2d at 392 . Two injured persons made claims under the policy and received arbitral awards—one for $190,000 and the other for $100,000—despite section 3420(f)(2)(A) of the Insurance Law which states that a total of $300,000 may be awarded “subject to” a $100,000 per person limit. Id., 88 N.Y.2d. at 324-25, 645 N.Y.S.2d at 422 , 668 N.E.2d at 393 . (quoting N.Y.Ins.L. 3240(f)(2)(A)). Nonetheless, the Court of Appeals allowed the awards to stand and found the endorsement to be ambiguous, because it lacked the “subject to” language of the statute. Id., Id., 88 N.Y.2d at 325 , 645 N.Y.S.2d at 423 , 668 N.E.2d at 394 . The Court of Appeals held that the insured’s interpretation was not “contrary to law” merely because it resulted in a greater recovery than provided for under the statute. Id., Id., 88 N.Y.2d at 326 , 645 N.Y.S.2d at 423 , 668 N.E.2d at 394 .

*704 In this case, although we are faced with a similar challenge to the clarity of a policy by an insured, and reliance on an underlying statute by an insurer, there is an important distinction and Mostow is not controlling. The statute relied on by the insurer in Mos-tow did not state that no insurance policy could be deemed to waive the $100,000 per person recovery limit. Thus, the “subject to” language may have been required under the circumstances of that case to prevent ambiguity. Here, however, section 3420(j)(l) explicitly precludes the interpretation urged by the Habers—that the Endorsement be deemed an election of workers’ compensation coverage not otherwise required by law. The wording of the statute seems to anticipate the exact challenge that the Habers present here. Thus, the interpretation of the Endorsement urged by the Habers is explicitly contrary to law, and the Endorsement is not ambiguous. While it may be true that the Endorsement does not word-for-word track the language of the section 3420(j) of the Insurance Law, this Court is without power to simply ignore the last sentence of section 3420(j), which explicitly prohibits this portion of a homeowner’s insurance policy from being deemed an election of coverage pursuant to sections 3(1), Group 19, and 50 of the WCL.

In sum, based on the explicit language of the controlling statutes, I believe that the majority opinion is incorrect, and that the district court erred as a matter of law in ruling that the Endorsement should be deemed an election of coverage of the WCL. I would reverse and remand for entry of a declaration consistent with this opinion.

. Section 2, subparagraph 4 of the Workers’ Compensation Law (“WCL”) provides that the term "employee” "shall not include domestic servants except as provided in section three ... except where the employer has elected to bring such employees under the law by securing compensation in accordance with the terms of section fifty of this chapter.” N.Y.Work.Comp.L. § 2(4). Section 50 of the WCL provides that an employer may secure compensation to his employees ”[b]y insuring and keeping insured the payment of such compensation with any stock corporation, mutual corporation or reciprocal insurer authorized to transact the business of workmen’s compensation insurance in [New York]:" N.Y.Work.Comp.L. § 50(2).