Determining whether principals of a company sued in their individual capacity are covered under a commercial policy is often a tricky question, and a recent decision by the Appellate Division, First Department, brought this issue to the forefront.

In Kyong Jae Lee v. Lancer Ins. Co., Lancer Insurance Company issued a garage non-dealer insurance policy to Jay Family Parking, Inc.  The owners of the company were sued in their personal capacity for a personal injury that took place on the insured premises, but were never listed or otherwise qualified as insureds under the policy.  As such, Lancer disclaimed coverage for the lawsuit.

Accordingly, plaintiffs commenced a declaratory judgment action against Lancer seeking an order reforming the insurance policy to list them as named insureds.  The insureds claimed that they innocently misdescribed the identity of the owner of the insured premises.  Plaintiffs, as individuals, owned the property, not Jay Family Parking, Inc., and they therefore claimed they ought to be covered.

The trial court agreed with plaintiffs’ argument and issued an order reforming the policy to include plaintiffs as named insureds.  But the Appellate Division, First Department reversed the part of the trial court’s order that reformed the insurance policy.  The First Department placed particular emphasis on the fact that every application for insurance listed Jay Family Parking, Inc. as the only applicant.  The court recognized that reformation is warranted where the insured innocently misdescribes the owner of insured property.  Yet, the court found that here, the specific names of the owners was not the only issue.  Lancer submitted affidavits stating that it would not have issued the policy had it known that plaintiffs owned the premises in their individual capacities.  As such, the First Department held that reformation was not an appropriate remedy.

Thanks to Steve Kaye for his contribution to this post.  If you would like more information please write to Mike Bono.