Candice Rhea left her vehicle at Gabe's Auto for minor repairs and an inspection. After the work was finished, the vehicle's system warning light would not reset unless it was driven for a while. Craig Donaghey (an employee of Gabe's), with the permission of Gabe's owner, drove the car to a town approximately 60 miles away to pick up his son. On his way back, he rear-ended a vehicle occupied by Jeanette Bosket and Gloria Card, who later filed a lawsuit.

Donaghey's insurance carrier was Progressive Northeastern Insurance Company (Progressive). Charter Oak Fire Insurance Company (Charter Oak) insured Gabe's Auto. Progressive filed an action seeking a declaration that it was not obligated to defend or indemnify Donaghey. Gabe's filed two cross-claims. It asked the court to declare that Charter Oak was obligated to defend and indemnify it and that Charter Oak was obligated to reimburse Gabe's and its owner (Gabriel O'Loughlin) for the cost of hiring substitute counsel to defend them. The lower court found in favor of Gabe's. Charter Oak appealed.

The Charter Oak commercial general liability policy contained an "Operation of Customers Autos Garage Operations" endorsement. While the policy excluded injuries and property damage that arose from the use of any "auto" owned, operated, rented, or loaned to the insured, the endorsement provided that the exclusion "[did] not apply to any 'customer's auto' while on or next to those premises you [the insured] own, rent or contract and (emphasis added) that are being used for any 'garage operations.'"

Gabe's stated that the endorsement was ambiguous and argued that it could be interpreted to limit the exclusion if the vehicle was being used at the time for "garage operations."

The Supreme Court of New York, Appellate Division, Fourth Department, disagreed. It found that such an interpretation would be "strained, unnatural, and unreasonable." The court emphasized the use of the conjunction "and," and noted that two conditions were required for the accident to be covered: (1) the auto must have been on or next to the premises, and (2) the premises had to be used for "garage operations." As a result, the policy did not provide coverage (even if the car was being used for garage operations) because the accident occurred almost 60 miles away from the premises.

The court concluded that Charter Oak was not obligated to defend or indemnify Gabe's Auto, Gabriel O'Loughlin, or Craig Donaghey in the underlying personal injury action. It also was not obligated to reimburse Gabe's Auto and Gabriel O'Loughlin for the cost of hiring substitute counsel. The lower court's decision was reversed.

Progressive Northeastern Insurance Company vs. State Farm Insurance Companies-Supreme Court, Appellate Division, Fourth Department, New York-February 10, 2011-2011 WL 458873 (N.Y.A.D. 4 Dept.)