Monday, February 19, 2018

Go Fish. New York Court of Appeals Rejects Factual Predicate Threshold Requirement for Discovery of Non-Public Facebook Content

Forman v. Henkin
(Ct. Apps., 2/13/2018)

Since 2011, I have included in my social media research presentations a slide setting forth the two-prong showing that most state courts require for a party to obtain another party's protected, "friends-only", or non-public social media content.  Up until last Tuesday, the New York trial and appellate courts followed that two-pronged rule, requiring on a motion to compel or for a protective order that the party seeking disclosure demonstrate to the court's satisfaction:
  1. that the sought social media content is relevant to the plaintiff's injury claims (the "relevance" prong); and 
  2. that the protected social media content being sought actually exists (the "factual predicate" prong).
In the absence of a showing of a factual predicate, the New York appellate courts likened demands seeking non-public social media content to an improper "fishing expedition" and denied the discovery.

The challenge, of course, of the second prong was showing that relevant content was within someone's Facebook account when that person's account was restricted to friends only.  How does one convince the court what furnishings are within a room that has no windows and a solid, locked door?

In a unanimous opinion authored by Chief Judge Janet DiFiore, the New York Court of Appeals has now rejected the "factual predicate" requirement for obtaining non-public Facebook content of a personal injury plaintiff, returning New York courts to New York's traditional CPLR 3101-based rule of discovery in social media content discovery disputes:
A party seeking discovery must satisfy the threshold requirement that the request is reasonably calculated to yield information that is "material and necessary" — i.e., relevant — regardless of whether discovery is sought from another party.
The former two-pronged test for obtaining non-public Facebook content in New York state court civil actions is now a single prong test:

Is the discovery demand appropriately limited and reasonably calculated 
to yield relevant information? 

The plaintiff in this action alleged that she was injured when she fell from a horse owned by defendant, suffering spinal and traumatic brain injuries resulting in cognitive deficits, memory loss, difficulties with written and oral communication, and social isolation. At her deposition, plaintiff stated that she previously had a Facebook account on which she posted "a lot" of photographs showing her pre-accident active lifestyle but that she deactivated the account about six months after the accident and could not recall whether any post-accident photographs were posted. She maintained that she had become reclusive as a result of her injuries and also had difficulty using a computer and composing coherent messages.

Defendant sought an unlimited authorization to obtain plaintiff's entire "private" Facebook account, contending the photographs and written postings would be material and necessary to his defense of the action under CPLR 3101(a). When plaintiff did not produce the demanded authorization, defendant moved to compel, asserting that the Facebook material sought was relevant to the scope of plaintiff's injuries and her credibility, contending that photographs and messages plaintiff posted on Facebook after the accident would likely be material to plaintiff's injury allegations and her claim that the accident negatively impacted her ability to read, write, word-find, reason and use a computer.

Plaintiff opposed the motion arguing that defendant failed to establish a basis for access to the "private" portion of her Facebook account because, among other things, the "public" portion contained only a single photograph that did not contradict plaintiff's claims or deposition testimony.

Supreme Court GRANTED  the motion to compel to the limited extent of directing plaintiff to produce:
  • all photographs of herself privately posted on Facebook prior to the accident that she intended to introduce at trial; 
  • all photographs of herself privately posted on Facebook after the accident that do not depict nudity or romantic encounters; and 
  • an authorization for Facebook records showing each time plaintiff posted a private message after the accident and the number of characters or words in the messages. 
Supreme Court did not order disclosure of the content of any of plaintiff's written Facebook posts, whether authored before or after the accident and defendant, to the seeming surprise of the Court of Appeals, did not appeal.  Only plaintiff appealed, and the Appellate Division, First Department, modified Supreme Court's ruling by limiting disclosure just to photographs posted on Facebook that plaintiff intended to introduce at trial (whether pre- or post-accident).  Two Appellate Division Justices dissented, however, concluding that defendant was entitled to broader access to plaintiff's Facebook account and calling for reconsideration of that court's recent precedent addressing disclosure of social media information as unduly restrictive and inconsistent with New York's policy of open discovery.

On appeal, the Court of Appeals REVERSED the Appellate Division's order and reinstated Supreme Court's ruling, holding:
Disclosure in civil actions is generally governed by CPLR 3101(a), which directs: "[t]here shall be full disclosure of all matter material and necessary to the prosecution or defense of an action, regardless of the burden of proof." We have emphasized that "[t]he words material and necessary,' . . . are to be interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening [*3]the issues and reducing delay and prolixity. The test is one of usefulness and reason" (Allen v Crowell-Collier Publ. Co., 21 NY2d 403, 406 [1968]; see also Andon v 302-304 Mott St. Assoc., 94 NY2d 740, 746 [2000]). A party seeking discovery must satisfy the threshold requirement that the request is reasonably calculated to yield information that is "material and necessary" — i.e., relevant — regardless of whether discovery is sought from another party (see CPLR 3101[a][1]) or a nonparty (CPLR 3101[a][4]; see e.g. Matter of Kapon v Koch, 23 NY3d 32 [2014]). The "statute embodies the policy determination that liberal discovery encourages fair and effective resolution of disputes on the merits, minimizing the possibility for ambush and unfair surprise" (Spectrum Systems Intern. Corp. v Chemical Bank, 78 NY2d 371, 376 [1991]).  
*  *  *  *  *  
In addition to these restrictions, this Court has recognized that "litigants are not without protection against unnecessarily onerous application of the disclosure statutes. Under our discovery statutes and case law competing interests must always be balanced; the need for discovery must be weighed against any special burden to be borne by the opposing party" (Kavanaugh v Ogden Allied Maintenance Corp., 92 NY2d 952, 954 [1998] [citations and internal quotation marks omitted]; see CPLR 3103[a]). Thus, when courts are called upon to resolve a dispute,[FN2] discovery requests "must be evaluated on a case-by-case basis with due regard for the strong policy supporting open disclosure . . . Absent an [error of law or an] abuse of discretion, this Court will not disturb such a determination (Andon, supra, 94 NY2d at 747; see Kavanaugh, supra, 92 NY2d at 954).[FN3]  
Here, we apply these general principles in the context of a dispute over disclosure of social media materials. Facebook is a social networking website "where people can share information about their personal lives, including posting photographs and sharing information about what they are doing or thinking" (Romano v Steelcase, Inc., 30 Misc 3d 426 [Sup Ct Suffolk County 2010]). Users create unique personal profiles, make connections with new and old "friends" and may "set privacy levels to control with whom they share their information" (id.). Portions of an account that are "public" can be accessed by anyone, regardless of whether the viewer has been accepted as a "friend" by the account holder — in fact, the viewer need not even be a fellow Facebook account holder (see Facebook Help: What audiences can I choose from when I share? https://www.facebook. com/help/211513702214269?helpref=faq_content [last accessed January 15, 2018]). However, if portions of an account are "private," this typically means that items are shared only with "friends" or a subset of "friends" identified by the account holder (id.). While Facebook — and sites like it — offer relatively new means of sharing information with others, there is nothing so novel about Facebook materials that precludes application of New York's long-standing disclosure rules to resolve this dispute.  
On appeal in this Court, invoking New York's history of liberal discovery, defendant argues that the Appellate Division erred in employing a heightened threshold for production of social media records that depends on what the account holder has chosen to share on the public portion of the account. We agree. Although it is unclear precisely what standard the Appellate Division applied, it cited its prior decision in Tapp v New York State Urban Dev. Corp. (102 AD3d 620 [1st Dept 2013]), which stated: "To warrant discovery, defendants must establish a factual predicate for their request by identifying relevant information in plaintiff's Facebook account — that is, information that contradicts or conflicts with plaintiff's alleged restrictions, disabilities, and losses, and other claims'" (id. at 620 [emphasis added]). Several courts applying this rule appear to have conditioned discovery of material on the "private" portion of a Facebook account on whether the party seeking disclosure demonstrated there was material in the "public" portion that tended to contradict the injured party's allegations in some respect (see e.g. Spearin v Linmar, 129 AD3d 528 [1st Dept 2015]; Nieves v 30 Ellwood Realty LLC, 39 Misc 3d 63 [App Term 2013]; Pereira v City of New York, 40 Misc 3d 1210[A] [Sup Ct Queens County 2013]; Romano, supra, 30 Misc 3d 426). Plaintiff invoked this precedent when arguing, in opposition to the motion to compel, that defendant failed to meet the minimum threshold permitting discovery of any Facebook materials.  
Before discovery has occurred — and unless the parties are already Facebook "friends" — the party seeking disclosure may view only the materials the account holder happens to have posted on the public portion of the account. Thus, a threshold rule requiring that party to "identify relevant information in [the] Facebook account" effectively permits disclosure only in limited circumstances, allowing the account holder to unilaterally obstruct disclosure merely by manipulating "privacy" settings or curating the materials on the public portion of the account [FN4]. [*4]Under such an approach, disclosure turns on the extent to which some of the information sought is already accessible — and not, as it should, on whether it is "material and necessary to the prosecution or defense of an action" (see CPLR 3101[a]).  
New York discovery rules do not condition a party's receipt of disclosure on a showing that the items the party seeks actually exist; rather, the request need only be appropriately tailored and reasonably calculated to yield relevant information. Indeed, as the name suggests, the purpose of discovery is to determine if material relevant to a claim or defense exists. In many if not most instances, a party seeking disclosure will not be able to demonstrate that items it has not yet obtained contain material evidence. Thus, we reject the notion that the account holder's so-called "privacy" settings govern the scope of disclosure of social media materials.  
That being said, we agree with other courts that have rejected the notion that commencement of a personal injury action renders a party's entire Facebook account automatically discoverable (see e.g. Kregg v Maldonado, 98 AD3d 1289, 1290 [4th Dept 2012] [rejecting motion to compel disclosure of all social media accounts involving injured party without prejudice to narrowly-tailored request seeking only relevant information]; Giacchetto, supra, 293 FRD 112, 115; Kennedy v Contract Pharmacal Corp., 2013 WL 1966219, *2 [ED NY 2013]). Directing disclosure of a party's entire Facebook account is comparable to ordering discovery of every photograph or communication that party shared with any person on any topic prior to or since the incident giving rise to litigation — such an order would be likely to yield far more nonrelevant than relevant information. Even under our broad disclosure paradigm, litigants are protected from "unnecessarily onerous application of the discovery statutes" (Kavanaugh, supra, 92 NY2d at 954).  
Rather than applying a one-size-fits-all rule at either of these extremes, courts addressing disputes over the scope of social media discovery should employ our well-established rules — there is no need for a specialized or heightened factual predicate to avoid improper "fishing expeditions." In the event that judicial intervention becomes necessary, courts should first consider the nature of the event giving rise to the litigation and the injuries claimed, as well as any other information specific to the case, to assess whether relevant material is likely to be found on the Facebook account. Second, balancing the potential utility of the information sought against any specific "privacy" or other concerns raised by the account holder, the court should issue an order tailored to the particular controversy that identifies the types of materials that must be disclosed while avoiding disclosure of nonrelevant materials. In a personal injury case such as this it is appropriate to consider the nature of the underlying incident and the injuries claimed and to craft a rule for discovering information specific to each. Temporal limitations may also be appropriate — for example, the court should consider whether photographs or messages posted years before an accident are likely to be germane to the litigation. Moreover, to the extent the account may contain sensitive or embarrassing materials of marginal relevance, the account holder can seek protection from the court (see CPLR 3103[a]). Here, for example, Supreme Court exempted from disclosure any photographs of plaintiff depicting nudity or romantic encounters.  
Plaintiff suggests that disclosure of social media materials necessarily constitutes an unjustified invasion of privacy. We assume for purposes of resolving the narrow issue before us that some materials on a Facebook account may fairly be characterized as private [FN5]. But even private materials may be subject to discovery if they are [*5]relevant. For example, medical records enjoy protection in many contexts under the physician-patient privilege (see CPLR 4504). But when a party commences an action, affirmatively placing a mental or physical condition in issue, certain privacy interests relating to relevant medical records — including the physician-patient privilege — are waived (see Arons v Jutkowitz, 9 NY3d 393, 409 [2007]; Dillenbeck v Hess, 73 NY2d 278, 287 [1989]). For purposes of disclosure, the threshold inquiry is not whether the materials sought are private but whether they are reasonably calculated to contain relevant information.  
Applying these principles here, the Appellate Division erred in modifying Supreme Court's order to further restrict disclosure of plaintiff's Facebook account, limiting discovery to only those photographs plaintiff intended to introduce at trial [FN6]. With respect to the items Supreme Court ordered to be disclosed (the only portion of the discovery request we may consider), defendant more than met his threshold burden of showing that plaintiff's Facebook account was reasonably likely to yield relevant evidence. At her deposition, plaintiff indicated that, during the period prior to the accident, she posted "a lot" of photographs showing her active lifestyle. Likewise, given plaintiff's acknowledged tendency to post photographs representative of her activities on Facebook, there was a basis to infer that photographs she posted after the accident might be reflective of her post-accident activities and/or limitations. The request for these photographs was reasonably calculated to yield evidence relevant to plaintiff's assertion that she could no longer engage in the activities she enjoyed before the accident and that she had become reclusive. It happens in this case that the order was naturally limited in temporal scope because plaintiff deactivated her Facebook account six months after the accident and Supreme Court further exercised its discretion to exclude photographs showing nudity or romantic encounters, if any, presumably to avoid undue embarrassment or invasion of privacy.  
In addition, it was reasonably likely that the data revealing the timing and number of characters in posted messages would be relevant to plaintiffs' claim that she suffered cognitive injuries that caused her to have difficulty writing and using the computer, particularly her claim that she is painstakingly slow in crafting messages. Because Supreme Court provided defendant no access to the content of any messages on the Facebook account (an aspect of the order we cannot review given defendant's failure to appeal to the Appellate Division), we have no occasion to further address whether defendant made a showing sufficient to obtain disclosure of such content and, if so, how the order could have been tailored, in light of the facts and circumstances of this case, to avoid discovery of nonrelevant materials.[FN7
In sum, the Appellate Division erred in concluding that defendant had not met his threshold burden of showing that the materials from plaintiff's Facebook account that were ordered to be disclosed pursuant to Supreme Court's order were reasonably calculated to contain evidence "material and necessary" to the litigation. A remittal is not necessary here because, in opposition to the motion, plaintiff neither made a claim of statutory privilege, nor offered any other specific reason — beyond the general assertion that defendant did not meet his threshold burden — why any of those materials should be shielded from disclosure.
Under the Court of Appeals' ruling in this case, discovery demands for non-public Facebook content that are appropriately tailored and reasonably calculated to yield relevant information should pass judicial muster and be enforceable.  Although this decision does not represent a one-size-fits-all rule for discovery of non-public social media content, it does give guidance to civil litigants and New York state courts on the scope of permissible social medial content discovery.  The factual predicate (existence) prong is out; limited fishing is in.

Wednesday, February 14, 2018

Court Upholds Insurer's Refusal to Produce in Discovery Information Regarding Claims of Other Insureds

Gray v. Tri-State Consumer Ins. Co.
(2nd Dept., 1/31/2018)

Though not yet 50 shades of Gray, this action is growing some long legs.

The Second Department's affirmance of Supreme Court's denial of summary judgment to the parties on their respective claims and counterclaims in this first-party property coverage case is relatively unremarkable.  What is noteworthy, however, is the appellate court's brief treatment of Supreme Court's conditional granting of plaintiff's motion to strike Tri-State's answer unless it provided a "meaningful" response to plaintiff's supplemental discovery demands within 15 days.  By that supplemental demand, plaintiff had sought discovery of:
     4.  ... true and complete copies of Defendant's claim records for all fire claims for the last three years ... [and] 
     5.  ... true and complete copies of Defendant's  fire claim estimates for the last year.
In REVERSING that part of Supreme Court's order which had conditionally granted plaintiff's motion to strike Tri-State's answer if it did not respond to these supplemental discovery demands, the Second Department held:
The Supreme Court improvidently exercised its discretion in conditionally granting the plaintiff's cross motion pursuant to CPLR 3126 to strike the defendant's answer unless the defendant served a "meaningful" response to the plaintiff's supplemental demand for discovery and inspection within a specified time. "The drastic remedy of striking an answer is inappropriate absent a clear showing that a defendant's failure to comply with discovery demands is willful and contumacious" (Lantigua v Goldstein, 149 AD3d 1057, 1059). Here, the defendant had already complied with the plaintiff's supplemental demand for discovery and inspection, except for items four and five of the demand. The defendant properly objected to items four and five, which called for information regarding the claims of other insureds, as those items sought information that was not necessary and proper to the prosecution of this action (see Diaz v City of New York, 140 AD3d 826, 827; Cabrera v Allstate Indem. Co., 288 AD2d 415, 416).
It is often the case, as it is in this action, that the complaints initiating first-party actions against insurers include in addition to their breach of contract claims, causes of action for "bad faith", consequential damages, and the like.  Insureds in such actions often seek discovery of other claims and other insureds of the defendant insurers.  This decision reaffirms the principle that when something sought by plaintiffs in discovery is not necessary and proper to the prosecution of their actions, an objection to such demands is appropriate and defensible.

Monday, February 12, 2018

Two-Year Suit Deadline Runs from Actual Loss Date, Not from Loss Date Used on Insurer's Correspondence

Kotecki's Grandview Grove Corp. v. Acadia Ins. Co.
(4th Dept., 2/9/2018)

Property insurance policies in New York can limit an insured's time to sue the insurer for breach of the policy to one or two years.  Equitable estoppel is a legal doctrine by which a party to a legal claim or defense can be precluded or "estopped" from taking a legal action that is inconsistent with that party's previous words, claims, or conduct.  For equitable estoppel to apply, however, the party seeking to apply equitable estoppel must have reasonably relied to that party's detriment on the other party's prior words or conduct.

With respect to a suit limitations defense, a defendant may be estopped from pleading such a defense if the plaintiff was induced by fraud, misrepresentations or deception to refrain from filing a timely action.  Plenty of New York insurance coverage cases exist in which insureds have argued -- sometimes successfully and sometimes unsuccessfully -- that their insurers should be estopped from asserting the policy's two-year suit limitations period because they either (1) engaged in a course of conduct which lulled the insureds into inactivity in the belief that their claims would ultimately be processed or (2) induced the insureds by fraud, misrepresentation or deception to refrain from commencing a timely action.

So what if the insurer consistently uses the wrong loss date on all its claim correspondence, including the coverage declination letter that, among other things, advised the commercial insured that it had two years from the reported loss date to sue (per 11 NYCRR § 216.6[c]and the insured commences suit within two years of that date?  Does estoppel apply?

No, says the Appellate Division, Fourth Department, REVERSING Supreme Court's denial of summary judgment to the insurer, Acadia Insurance Company:
Plaintiff commenced this action to recover under an insurance policy issued by defendant Acadia Insurance Company (Acadia) for loss that it allegedly sustained in a "rain and/or windstorm." Plaintiff reported the loss to its insurance broker, defendant First Niagara Risk Management, Inc. (First Niagara). First Niagara prepared a property loss notice listing the date of loss as June 10, 2013. Acadia investigated the claim, partially denied it in October 2013, and reaffirmed that denial in February 2014. All of Acadia's correspondence listed the date of loss as June 10, 2013. The correspondence also advised plaintiff pursuant to New York insurance regulations that, in the event it wished to contest the denial, plaintiff was required by the policy to commence such an action within two years of the reported date of loss. On June 3, 2015, plaintiff commenced this action. During discovery, it was learned that the actual date of loss was May 28, 2013. In response to Acadia's notice to admit, plaintiff admitted that it noticed the damage to its property on May 28, 2013, that it contacted a roofing company on that date to repair the damage, and that it also contacted First Niagara on that date. Acadia then moved for summary judgment dismissing the amended complaint against it as time-barred.  
Supreme Court erred in denying the motion. Acadia met its initial burden of establishing that plaintiff's action was not commenced within two years of the date of loss as required by the policy (see Compis Servs. v Hartford Steam Boiler Inspection & Ins. Co., 272 AD2d 886, 887 [4th Dept 2000]; see generally Nowacki v Becker, 71 AD3d 1496, 1497 [4th Dept 2010]), and plaintiff failed to raise an issue of fact to defeat the motion (see generally Zuckerman v City of New York, 49 NY2d 557, 562 [1980]). Contrary to plaintiff's contention, it did not raise a triable issue of fact whether Acadia should be equitably estopped from relying on the limitations period provided in the policy. "Under the doctrine of equitable estoppel, a defendant is estopped from pleading a statute of limitations defense if the plaintiff was induced by fraud, misrepresentations or deception to refrain from filing a timely action" (Richey v Hamm, 78 AD3d 1600, 1601-1602 [4th Dept 2010] [internal quotation marks omitted]; see Simcuski v Saeli, 44 NY2d 442, 449 [1978]). "A plaintiff seeking to apply the doctrine of equitable estoppel must establish that subsequent and specific actions by defendant[] somehow kept [him or her] from timely bringing suit' " (Putter v North Shore Univ. Hosp., 7 NY3d 548, 552 [2006]). Here, Acadia did nothing to keep plaintiff from commencing the suit in a timely manner. Although Acadia listed the date of loss incorrectly in its correspondence disclaiming coverage, that was the result of incorrect information provided by First Niagara, plaintiff's agent. In any event, plaintiff was always aware of the actual date of loss and that an action had to be commenced within two years of that date. Thus, plaintiff was not induced by Acadia's conduct to refrain from filing this suit in a timely manner.
No inducement because the insured could not and should not have relied on what it knew or should have known was a erroneous loss date in the insurer's correspondence. 

The Million Word March

Was it in 1995 or 1996 that I debuted  my office's annual New York Coverage seminar?  Do any of my readers remember?  I remember that The Law Office of Roy A. Mura opened on November 14, 1994, but I can't remember if I started digesting New York insurance coverage court decisions and presenting them at an annual seminar in 1995 or in 1996.

Whichever year it was, the collection of digested coverage cases has grown.  And grown.  And grown.

How much has it grown, you ask?  The digest is now 935,996 words large and 1,967 pages long (!).  By comparison, Tolstoy's War and Peace is only 1,225 pages long, and the Bible averages around 1,200 pages.  How many of you have read all three?

The digests cover most New York state and federal insurance coverage cases reported from 1995 through the first half of 2016.  Here, as an example, is the first case digest from 1995:
95-001. Williams v. Associated Mutual Ins. Co., 621 NYS2d 206 (3d Dept. 1995) 
Facts:  Insured brought suit against liability insurer for not defending underlying wrongful death suit.  Default judgment entered against insured in u/a. Upon being notified of the default, insurer negotiated and paid settlement on behalf of insured. In the meantime, insured entered into contract of sale for his real property and business. Sales contract contained a "time is of the essence" clause. Title search by buyer revealed the default judgment as a lien against the insured's real property and the buyer rescinded the contract when the insured was unable to have the lien removed within the time required for the closing. Insured sued insurer alleging negligence, breach of contract and unjust enrichment. Claimed damages for legal fees, loss of proceeds from sale of his real estate and business, costs incurred in maintaining the property and business, mental anguish, etc. 
SupCt:  Granted insurer's motion for partial summary judgment, dismissing claims for consequential damages (i.e., everything except legal fees for attempting to vacate default judgment in u/a). 
Held:  Affirmed. "Special" or "extraordinary" consequential damages sought are recoverable in a contract action only if they were foreseeable and within the contemplation of the parties at the time the contract was made. Claimed damages for inability to close on sale, mental anguish, altered standard of living, damage to insured's credit rating, etc. are not recoverable in this breach of contract action. Insured not entitled to attorneys' fees for bringing dj action to compel duty to defend. Counsel fees incurred or expended by insured in attempting to vacate default judgment in u/a, however, are recoverable.
And here's the last case digest from 2016:
16-054.  Flushing Traditional Acupuncture, P.C. v. Auto Club Ins. Association, 2016 WL 1590691 (App. Term 2d, 11th, 13th Dists. 2016) 
Facts:  Health care provider, as assignee of insured, brought action against automobile insurer, seeking to recover assigned first-party no-fault benefits for services rendered to the insured, who had allegedly sustained injuries in a motor vehicle accident. The insurer moved for summary judgment dismissing the complaint.  
SupCt:  Granted the insurer’s motion for summary judgment dismissing the complaint. The provider appealed.  
Held:  Reversed. Under Michigan law, the insurer could not rely on a lack of coverage defense, based on rescission of the policy based on alleged fraud or misrepresentation in procuring the policy, to withhold payment of no-fault benefits to health care provider, who was an innocent third-party.  Contrary to the insurer’s contention, although it does not write insurance policies or conduct business in New York, it is authorized to business in New York State. Therefore, pursuant to Insurance Law § 1212(a), service of process upon the Superintendent of Insurance was sufficient to acquire jurisdiction over the insurer. Accordingly, the order is reversed, and the branch of the insurer’s motion seeking summary judgment on the ground of lack of insurance coverage is denied.
There's lots more where those came from.  Before now I had limited dissemination of the digests to clients and the people who attended our seminar.  Now you can have and make use of the entire set of case digests by clicking HERE.  If you download the digests, you can word-search (Ctrl+F) them using your research term(s).  For example, search "pollution exclusion" or "additional insured" or "late notice" or "untimely disclaimer" for those issues.

Speaking of disclaimers, I must point out a few things about these case digests:

First, if a case was later modified or reversed, it was not so noted on or removed from its inclusion in a previous digest, so be sure to verify that the case you like is still current before relying in its holding (you can use Google Scholar for that).

Secondly, just because a case hasn't been modified or reversed doesn't mean it's still good law.  Sometimes new statutes or regulations or subsequent decisions of higher courts change the law or effectively overrule earlier decisions of lower courts.

Thirdly, although we strove for accuracy in preparing these digests, I pulled some all-nighters in the early years, so please, use the digests as a reference point, but read the actual cases before citing or relying on them.  Again, Google Scholar is good for this.

The 2016-2018 set will follow.  Only 64,004 words to go.

Friday, February 2, 2018

Excess Insurer's Disclaimer 37 Days After First Notice Held Untimely as a Matter of Law

Liberty Mut. Fire Ins. Co. v. Navigators Ins. Co.
(1st Dept., 2/1/2018)

Review points from this decision:
  • Notice Requirement:  An insurer's duty to cover losses of its insured is not triggered unless the insured gives timely notice of loss in accordance with the terms of the insurance contract.

  • Additional Insured's Obligation to Give Timely Notice:  Even if an insurance policy were construed as specifying that only the named insured was required to provide notice of occurrences, demands and suits to the insurer, the duty to give reasonable notice as a condition of recovery is implied in all insurance contracts and is applicable to an additional insured.

  • Timeliness of Notice to Excess Carrier:  Where notice to an excess insurer carrier is at issue, the focus is on whether the insured reasonably should have known that the claim against it would likely exhaust its primary insurance coverage and trigger its excess coverage, and whether any delay between acquiring that knowledge and giving notice to the excess carrier was reasonable under the circumstances.
But even if the additional insured's (or its liability insurer's) notice to the excess carrier is untimely, that late notice can be excused, in effect, if the excess carrier fails to disclaim in a timely manner.  And a delay by the excess insurer (Navigators) of only 37 days in disclaiming based on late notice -- a coverage defense that presumably was readily apparent to the excess insurer at first notice and did not require investigation --  in this case was held to be untimely as a matter of law:
Here, we find that Liberty Mutual's November 17, 2010 letter was sufficient to provide notice of claim to Navigators. However, even if the June 2010 supplemental bill of particulars implicated Navigators' excess policy (see Nova Cas. Co. v Interstate Indem. Co., 42 Misc 3d 1229[A], 2014 NY Slip Op 50250[U] [Sup Ct, Kings County 2014]), and the notice was untimely, Navigators' disclaimer, issued 37 days later, was untimely as a matter of law (see e.g. Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD3d 84, 88-89 [1st Dept 2005]; West 16th St. Tenants Corp. v Public Serv. Mut. Ins. Co., 290 AD2d 278 [1st Dept 2002], lv denied 98 NY2d 605 [2002]).
Judgment against Navigators for $850,000 plus statutory interest and costs.  An expensive delay.

The First Department is especially strict with the obligation of New York liability insurers under New York Insurance Law § 3420(d)(2) to "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 ... as soon as is reasonably possible[.]"

Use it (quickly) or lose it.  The coverage defense based on policy exclusion or breach of policy condition, that is.  See this blog's ... and Sometimes the Bar Eats You post for other examples of  relatively short delays in disclaiming that were held to be untimely as a matter of law. 

Tuesday, January 30, 2018

Deleting the Preantepenultimate and Antepenultimate Paragraphs

Why waste a hyphen when multiple prefixes will do?

This morning I received a batch of Google Scholar email alerts.  I discovered Google Scholar in 2009 and blogged more in depth about it in 2015One of my Google Scholar alerts is "intitle:insurance" in Google Scholar's New York state and federal case databases.  It reports new cases with "insurance" in the case title to me.  I also have "intitle:mutual" and "intitle:casualty" alerts set up and running.

Anyway, one of the cases reported in this morning's Google Scholar alerts email was Toussie v. Allstate, a consolidated, federal court first-party property coverage action involving a flood claim and a theft claim related to Hurricane Sandy.  Now, to someone geographically challenged like me, Brooklyn and waterfront property seem not to belong in the same sentence.  But the plaintiffs lived at the edge of the Atlantic Ocean in the Manhattan Beach area of Brooklyn, just around the bend of Breezy Point Tip.  They claimed flood damage to and the looting theft of personal property, including $350,000 in fine arts, from their home after Hurricane Sandy.

Allstate's investigation of the plaintiff's theft loss uncovered evidence that the plaintiffs may have moved upwards of 190 boxes of personal property from their home to storage before the hurricane and sought access to those boxes.  Motion practice ensued, and ensued, and ensued when plaintiff reportedly resisted and then allegedly obstructed the inspection of boxes of plaintiffs' personal property stored at Christie's.  Within those decisions of the assigned magistrate judge are some interesting and potential useful rulings on the scope and court-supervision of discovery in a first-party property coverage case, so I commend them to your review.   In her first decision the magistrate judge displayed her facility with English composition with statements such as, "Plaintiffs' concerns are not tethered to the realities of these cases."

But what made me pause this morning was spotting two words I had not seen used before in any reported decisions, much less ones relating to insurance claims.  In relation to a motion made by plaintiffs' counsel to withdraw as counsel, the same magistrate judge modified her prior rulings on what was to be filed under seal and what was to be redacted from withdrawing counsel's motion:
Specifically, the Court finds that the preantepenultimate and antepenultimate paragraphs of the motions pose a risk of adversely affecting plaintiffs' interests in other pending litigation not before this Court.  (Bold added.)
Cool.  Before looking those words up (as I did), you can figure out their meanings.  If ultimate means last, and penultimate means next to last, then antepenultimate must mean, that's right, third from last, and preantepenultimate must mean fourth from last, prefixes being what they are and do, that is.  

By the way and in case you're interested (and still reading this), antepenultimate has appeared 41 times in reported case law (that's reported by Google Scholar) and preantepenultimate has appeared only twice.  Alas, propreantepenultimate (fifth from last position) has appeared ... never.

I like words.  Guess that's why insurance coverage work suits me.

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Monday, January 29, 2018

Who Remembers Drop Drafts? Should You Cash Them?

On Friday last week I got a call from an insurer client, who told me that in response to his approximately $21,000 subrogation demand to the insurer of a person who had negligently damaged his insured's home, my client received in the mail a check for approximately $14,000, marked "full and final settlement".

Should my client cash the check?  What if he does?

A Californian law firm says this:
Don´t get drop drafted. One trick adjusters love to do is to send you a check, usually for about $500 and a release for you to sign. They only time an adjuster will drop draft a check is when they are trying to settle for less than it is worth. Simply ignore the check or send it back.
~~from After an Auto Accident Considerations, The Ledger Law Firm blog, March 11, 2010.

That may be the prudent thing to do in California, but what about in New York?

Wait.  You know this one, you say.  You paid attention during training and know that section 216.6(g) of New York's Regulation 64 prohibits drop drafts:
(g) Checks or drafts in payment of claims; releases. No insurer shall issue a check or draft in payment of a first-party claim or any element thereof, arising under any policy subject to this Part that contains any language or provision that expressly or impliedly states that acceptance of such check or draft shall constitute a final settlement or release of any or all future obligations arising out of the loss. No insurer shall require execution of a release on a first- or third-party claim that is broader than the scope of the settlement.  (Emphasis added.)
No drop drafts allowed in payment of first-party claims in New York.  But subrogation claims are, by their nature, third-party claims, not first-party claims.

So should my client cash/deposit the check or not?  

You also recall that New York remains the only jurisdiction in which a check containing "full settlement" or "full and final settlement" or words of that sort on it can be negotiated without prejudice provided you write "under protest", "without prejudice" or words of that sort on the check before cashing or depositing it.  Only in New York can one cash a check offered in full settlement of a dispute and still be able to sue for the unpaid balance.  In all other states the consequences of cashing a check marked “payment in full” even under protest is a settlement (accord and satisfaction) in the amount of the check. 

New York Uniform Commercial Code § 1-308 states:
A party that with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as “without prejudice,” “under protest,” or the like are sufficient.
The seminal New York case on this issue is Horn Waterproofing   Corp. v. Bushwick Iron & Steel Co., Inc., a Court of Appeals’ decision  holding that writing “without prejudice” or “under protest” on a “full settlement” check avoids imposition of the doctrine of accord and satisfaction.

But is a payment offer check on a subrogation claim the type of transaction that New York's Uniform Commercial Code and its section 1-308 govern? 

What say you?  Cash the check or not?

Sunday, January 28, 2018

Leasing Property is Entrusting Property for Purposes of the Dishonest or Criminal Act/Entrustment Exclusion

Winking Group, LLC v. Aspen American Ins. Co.
(SDNY decided 1/18/2018)

Many commercial property insurance policies exclude coverage for loss or damage caused by or resulting from a dishonest or criminal act of the named insured and certain categories of persons related to the named insured:
2.  We will not pay for loss or damage caused by or resulting from any of the following: 
h.   Dishonest or criminal act by you, any of your partners, members, officers, managers, employees (including leased employees), directors, trustees, authorized representatives or anyone to whom you entrust the property for any purpose:
(1) Acting alone or in collusion with others; or
(2) Whether or not occurring during the hours of employment.
This exclusion does not apply to acts of destruction by your employees (including leased employees); but theft by employees (including leased employees) is not covered.  (Emphasis added.)
If a tenant intentionally trashes the leased property while being evicted, does this exclusion apply to negate property coverage?  If an order of eviction has issued, can it be said that the leased property is still "entrusted" to the tenant?

In this case, the federal District Court said yes to both questions.

Winking Group leased Manhattan premises to Ming Dynasty, Inc, which in turn subleased the premises to East Market, Inc., which occupied the premises with Winking's knowledge and consent from 2009 to early January 2015.

In 2014, Ming Dynasty sued East Market for nonpayment of rent. The parties agreed to a stipulation of settlement whereby East Market was to vacate the premises no later than January 10, 2015. On or around January 10, 2015, a notice of eviction was posted on the door of the premises, and East Market was evicted. After the eviction notice was posted, Winking did not retrieve the keys to the property, and it did not change the locks until January 23, 2015.

Also around January 10, 2015, the premises were vandalized. On January 15, 2015, the property's manager told the New York City Police Department that East Market had caused the damage to the premises.

Aspen denied coverage for the vandalism damage on the basis of the policy's dishonest or criminal act ("entrustment") exclusion.  Winking commenced this breach of contract action, contending in opposition to Aspen's summary judgment motion that the entrustment exclusion did not apply because: (1) it was disputed whether East Market vandalized the premises; and (2) even if East Market did vandalize the premises, it was after Winking had revoked its entrustment of the leased premises.

The District Court rejected both arguments and granted summary judgment to Aspen.  As to Winking's second argument in opposition to the motion, the court held:
Plaintiff argues that the entrustment exclusion does not apply to the facts of this case because Plaintiff terminated its entrustment by evicting East Market from the premises on January 5, 2015. This argument is unpersuasive. Construing the entrustment exclusion in Plaintiff's favor, but interpreting it in accordance with its plain meaning, it is sufficient that the vandalism was causally related to Plaintiff's initial entrustment of the premises to East Market. See, e.g., Lexington Park Realty LLC, 992 N.Y.S.2d at 1-2 (holding that the entrustment exclusion applied where plaintiff's tenant did not return cabinets and appliances after the termination of the lease agreement); see also Easy Corner, Inc. v. State Nat'l Ins. Co., 56 F. Supp. 3d 699, 707 (E.D. Pa. —) (applying Pennsylvania law, granting summary judgment based on a similar entrustment exclusion because "the loss [was] causally connected to the act of entrustment: because of [the employee's] prior management of the bar, [the employee] had a key and was able to access the building easily"). The entrustment exclusion applies broadly to "loss or damage caused by or resulting from" a dishonest or criminal act by "anyone to whom you entrust the property for any purpose," and includes no language suggesting that the parties intended to limit its application to acts occurring before the conclusion of the parties' legal relationship. See, e.g., id. (applying Pennsylvania law, holding that "entrustment exclusions . . . apply even after the temporal termination of an entrustment, provided that there is a causal connection between the between the act of entrustment and the resulting loss"); Su v. New Century Ins. Servs., Inc., No. 12 Civ. 3894, 2013 WL 5775160, at *4 (C.D. Cal. Oct. 25, 2013) (internal quotation marks omitted) (applying California law, finding that "[e]ven if the loss occurs after the entrustment of the property has terminated, the exclusion still applies so long as there is a causal connection between the act of entrustment and the resulting loss"); F.D. Stella Prods. Co. v. Gen. Star Indem. Co., No. 03 Civ. 5151, 2005 WL 3436388 (N.D. Ill. Dec. 12, 2005) (applying Illinois law, holding that an entrustment exclusion "applies even if the dishonest or criminal act occurs after the entrustment has terminated"). Nor has Plaintiff proffered any evidence of the parties' intent to limit the entrustment exclusion's applicability.  
Plaintiff also argues that this case is distinguishable from the cases cited by Aspen because, here, East Market was legally evicted, as opposed to the parties' relationship coming to its natural conclusion, or concluding in some other way. Plaintiff provides no legal authority for the proposition that East Market's formal eviction is legally relevant to the scope of the entrustment exclusion.
This exclusion has been held also to apply to:

Friday, January 26, 2018

The Should-You-Wish-to-Complain-About-Your-Insurance-Company Advisory Paragraph of New York Insurance Regulation 64

This marks the sixth of many times since May 2008 that I've blogged about what I like to call the consumer advisory paragraph of New York Insurance Regulation 64 (11 NYCRR Part 216).  Insurers that do business in New York State should know that Regulation 64 requires certain letters to "prominently set out" a certain paragraph advising those to whom your letters are addressed that they may complain about you or your coverage position to New York's insurance regulator, formerly known as the New York State Insurance Department and now known since October 2011 as the New York State Department of Financial Services

Effective February 1, 2017 the consumer advisory paragraph changed with a new Garden City address for the NYS DFS's Long Island office.  Pursuant to the Sixteenth Amendment to 11 NYCRR Part 216, the paragraph now reads (new language highlighted):
Should you wish to take this matter up with the New York State Department of Financial Services, you may file with the Department either on its website at or you may write to or visit the Consumer Assistance Unit, Financial Frauds and Consumer Protection Division, New York State Department of Financial Services, at: One State Street, New York, NY 10004; One Commerce Plaza, Albany, NY 12257; 1399 Franklin Avenue, Garden City, NY 11530; or Walter J. Mahoney Office Building, 65 Court Street, Buffalo, NY 14202.
As demonstrated by the claim file materials we continue to receive in my office, a number of insurers doing business in New York apparently remain uncertain of what kinds of letters must actually include that advisory paragraph. Under Regulation 64, there are only two kinds of letters that must do so: 
  1. letters "rejecting any element of a claim involving personal property insurance" (11 NYCRR § 216.6[h]); and
  2. letters explaining or rejecting any element of a claim for motor vehicle physical damage (11 NYCRR § 216.7[d][3]).
Let's take these in reverse order. 

11 NYCRR § 216.7(d)(3)'s Requirement

Everyone knows what a "motor vehicle physical damage" claim is, right?  Claims for collision or comprehensive coverage.  We're talking first-party, not third-party claims. Indeed, §216.7 begins by stating that “[t]his section is applicable to claims arising under motor vehicle collision or comprehensive coverages”. Thus, by implication, letters regarding third-party property damage claims need not include the advisory paragraph. Notice also that 216.7(d)(3) is somewhat broader in its scope than 216.6(h) in that the advisory paragraph required by 216.7(d)(3) must be included in both coverage rejection and explanation letters.

11 NYCRR § 216.6(h)'s Requirement

Which brings us to letters "rejecting any element of a claim involving personal property insurance", the first type of letter in which the advisory paragraph must be included. A letter rejecting an element of a personal property claim is not:
  • an acknowledgement letter;
  • an ROR letter;
  • a non-waiver agreement;
  • a letter written solely to explain personal property coverage or payments;
  • a letter forwarding payment to an insured;
  • a liability coverage declination letter; or
  • every single letter that leaves the insurer's office addressed to an insured or claimant.
In a January 6, 2004 opinion letter, the NYS Insurance Department's OGC (Office of General Counsel) opined:
The term "personal property insurance" in Section 216.6(h) limits the applicability of subdivision (h) to personal lines property insurance. Thus, subdivision (h) is not applicable to commercial lines property insurance or to liability insurance.
Letters rejecting commercial property insurance ↔ no advisory paragraph required.
Letters rejecting (disclaiming/denying) liability coverage ↔ no advisory paragraph required.


Over the 23+ years that my office has been open I've seen the advisory paragraph included in letters in which it is not required.  If you don't care about your company's consumer complaint ratios, then by all means continue including the consumer advisory paragraph in everything written that leaves your desk or office.  If, however, after reading this sixth missive you still are not sure whether the paragraph belongs in a certain letter or not, call or email me.  We'll figure it out.

Wednesday, January 24, 2018

An EUO No-Show By Any Other Name...

Active Care Med. Supply Corp. v. ELRAC Inc.
(NYC Civ. Ct., Kings Co., decided 11/17/2017)

How many assignor EUO no-shows does it take to change a light bulb?  I mean, to deny an assignee's no-fault claim?  Two, right?  Wrong.  Not when the first no-show is not a "failure to appear".

ELRAC's defense counsel scheduled an EUO of the provider's assignor.  Counsel was informed that the assignor would be unable to appear for the first scheduled EUO, so counsel rescheduled the EUO to a second date.  After the assignor no-showed on the second scheduled EUO date, ELRAC denied no-fault benefits, and the assignee sued.  After a bench trial the court found and entered judgment in favor of the assignee plaintiff, holding with respect to ELRAC's EUO no-show defense:
[G]iven that [ELRAC's defense counsel] testified that he was informed that the assignor would be unable to appear for the first scheduled examination under oath [on April 14, 2011], the examination under oath should have been rescheduled. As such, the assignor's inability to appear on April 14, 2011 does not constitute a "failure to appear." Plaintiff's "no show" on May 5, 2011 constituted his first "failure to appear," and Defendant should have followed up with a second request for an examination under oath as required pursuant to 11 NYCRR 65-3.6.
Make sense?

Monday, January 22, 2018

The AAA Insurance Reporter & The Impact of Fraudulent Procurement of Auto Policies on New York No-Fault Claims

In 2017, after a six-year hiatus, the American Arbitration Association's New York State Insurance Division brought back a "new and improved" quarterly newsletter.  If you work with either New York no-fault or SUM claims, you should have received the four quarterly issues of the AAA Insurance Reporter for 2017.  If you aren't on the email distribution list for that newsletter, don't bother looking on the AAA's website for those quarterly issues.  They're not there.  I don't know why.

The newsletters reside on the Web, however, and their URLs make it easy to find 2017's four issues:
Each issue contains a "Developments in New York No-Fault" section that digests "a cross section of recent, well-reasoned arbitration awards that are consistent with current New York precedent and address commonly raised issues in the No-Fault forum."  According to Issue 1, the reported and digested awards "were objectively selected by an editorial board consisting of No-Fault arbitrators with a view toward promoting discussion and analysis of relevant issues."  Could it be that sitting AAA no-fault arbitrators want participants to pay more attention to these issues?

Issue 1 digested no-fault arbitration awards regarding:
  • the finality of a Worker's Compensation Board's decision; 
  • IME no-shows; 
  • verification requests; 
  • reasonable justification/45-day rule; 
  • medical necessity; and
  • use or operation (including an arbitration decision holding that the birth of a healthy baby following the mother's involvement in a MVA is not a compensable "injury" under New York no-fault law). 
Issue 2 treated:
  • lost earnings; 
  • post-EUO/Mallela verification requests;
  • partial response to verification; 
  • medical necessity--IME awards; and
  • verification requested not under applicant’s control or possession.
Issue 3 addressed:
  • jurisdiction; 
  • intoxication;
  • New Jersey certificate of authority;
  • surgery fee schedule; and
  • EUO no-shows.
Rounding out the year, Issue 4 included abstracts regarding:
  • DME & verification request for wholesale invoice;
  • death benefit claims;
  • fraudulent procurement of the policy;
  • 30-day notice of accident and late receipt of NF-2; and
  • additional verification requested after a denial on a workers’ compensation defense.
Issue 4's abstracts on the impact of fraudulent procurement of the auto insurance policy on the applicant's no-fault claim are copied below (I've added links to the actual awards):

M.G. & State Farm Fire & Cas. Co.,

AAA Case No. 17-15-1021-8978 (4/15/16) (Gary Peters, Arb.)

Arbitrator Peters addressed whether respondent established its defense based upon fraudulent procurement of the policy. Respondent submitted an affidavit from an employee of State Farm Mutual Insurance Company in the Underwriting Department, which referenced that although applicant’s vehicle was insured at a residence in Yonkers, New York, an investigation revealed that applicant was not residing in Yonkers, New York, and that the vehicle was principally garaged in the Bronx. The affidavit further referenced that had State Farm been aware of this, they would not have issued the subject policy. The applicant/injured person provided testimony at the hearing before arbitrator Peters. The applicant/injured person testified that at the time of accident, he resided in Yonkers, New York, and was the operator of a motor vehicle that was registered to his wife at the Yonkers address. The applicant/injured person also testified that he resided in the Bronx “off and on” due to marital difficulties. The applicant/injured person testified that he never misrepresented the location of where the vehicle was garaged in order to obtain cheaper rates. However, due to marital difficulties, his wife moved out of the marital residence in Yonkers, New York, to live with her sister in Mayopac, New York and took the vehicle with her. Arbitrator Peters reviewed the EUO transcript of testimony taken of the applicant/injured person in which he testified that in November, 2014, the policy was changed to the Mayopac, New York address. Despite marital problems, he stayed at the Mayopac address on and off. Arbitrator Peters found that although the applicant/injured person had “multiple residences” wherein he lived in the Bronx, Yonkers and Mayopac for different periods of time, the applicant/injured person believed that the vehicle was garaged primarily in Mayopac, New York, and he was only utilizing the car a few days per week. Arbitrator Peters noted that Insurance Law Sec. 3105 governs material misrepresentation and fraudulent procurement of insurance contracts and that there was no intentional false misrepresentation in this case, since the applicant/injured person did in fact reside at three (3) different locations and his wife principally used the vehicle to care for his children’s needs. 

Isurply, LLC & State Farm Mut. Automobile Ins. Co.,

AAA Case No. 17-16-1026-4904 (12/9/16) (Jeffrey Silber, Arb.)

Arbitrator Silber addressed whether respondent established its defense based upon fraudulent procurement of the policy. Arbitrator Silber noted that although VTL Sec. 313 does not permit an insurer to cancel an automobile insurance policy retroactively on the grounds of fraud or misrepresentation, an insurer is entitled to raise the affirmative defense of fraudulent procurement of the policy in an action to recover benefits thereunder. Arbitrator Silber cited to relevant case law that referenced that misrepresenting residency status for the purpose of rate evasion, if proven, constitutes a material misrepresentation that precludes recovery under the policy. The injured person provided testimony at an examination under oath (EUO), and respondent “outlined” a list of eighteen (18) discrepancies, which the respondent argued established that the injured person actually resided in Brooklyn and not Port Jervis, and thus the injured person made intentional and material misrepresentations in the application for his insurance policy. Arbitrator Silber considered all of the evidence and found that respondent failed to establish its defense based upon fraudulent procurement of the policy. Arbitrator Silber noted that the injured person worked in Brooklyn, where the accident occurred and lived in Port Jervis. Although the injured person testified that she travelled for one and a half hours every day to work, arbitrator Silber found that this did not constitute a misrepresentation, as many people travel that amount of time to work. The injured person testified that her grandmother lives in Brooklyn and that she stayed there the night before the accident. The injured person also testified that her children attend school in Brooklyn and that she was treated at a Brooklyn medical facility. However, the injured person was registered to vote in Port Jervis, and all her mail was delivered to the policy address. Thus, respondent’s defense was not established. 

Jacobson Chiropractic, PC & National Liability & Fire Ins. Co.,

AAA Case No. 17-16-1026-5243 (2/9/17) (Lucille S. DiGirolomo, Arb.)

Arbitrator DiGirolomo addressed whether respondent established its defense based upon fraudulent procurement of the policy. Respondent argued that the assignor used a Saranac Lake, New York, address to procure the policy of insurance when he never lived there. Respondent submitted an SIU report wherein the investigator advised that he went to the Saranac Lake address and spoke to various occupants who had no knowledge of applicant residing at the premises. Moreover, the SIU investigator was advised that the apartment allegedly rented by the assignor was occupied by a different individual, who was a pilot at the local airport and had resided there since February, 2015. Respondent submitted an EUO transcript of testimony in which the assignor testified that although he planned on moving to Saranac Lake for school and would start in September, he never lived in Saranac Lake. Arbitrator DiGirolomo cited to relevant case law that referenced that the standard for determining residency for purposes of insurance coverage requires something more than temporary or physical presence and requires at least some degree of permanence and intention to remain. Arbitrator DiGirolomo found that the mere intention to reside at certain premises is not sufficient. Accordingly, arbitrator DiGirolomo found that respondent’s defense was established. 

New York Community Hospital & Utica National Ins. Co.,

AAA Case No. 17-15-1016-6707 (4/21/16) (Rhonda Barry, Arb.)

Arbitrator Barry addressed whether respondent established its defense based upon fraudulent procurement of the policy. Arbitrator Barry noted that although pursuant to VTL Sec. 313, a policy may not be canceled retroactively, the insurance carrier may assert the fraudulent procurement of the policy by the assignor in an action by a health care provider assignee for no-fault benefits. To sustain its defense, the insurer must provide that the subject insurance policy was procured through material misrepresentation. See, Insurance Law Sec. 3105. Arbitrator Barry cited to relevant case law noting that a misrepresentation is material only if the insurer would not have issued the policy had it known the facts misrepresented. Arbitrator Barry reviewed the available record, which included the EUO transcript of testimony taken of the injured person. The injured person testified that he lived in Rochester from January, 2014 through the date of accident in November, 2014. However, the injured person had no bills, receipts or cancelled checks documenting that he resided at that location. The injured person testified that he paid rent to his friend in Rochester for the last six months of 2013 in cash and traveled back and forth between Rochester and Brooklyn. The injured person was unable to testify regarding the amount of time spent at either location and could not adequately describe his residence in Rochester. Arbitrator Barry noted that the no-fault application provided a Brooklyn address and the injured person had a New York State commercial driver’s license that provided a Brooklyn address. Respondent also submitted an investigative report that referenced that the investigator spoke with the landlord of the premises in Rochester where the injured person purportedly resided and the landlord did not know the injured person. Respondent provided the affidavit of its underwriter who averred that the injured person listed a Rochester, New York, address as his place of residence and the location where the insured vehicle would be garaged when in fact he resided in Brooklyn. This was done to save on policy premiums, as the cost of the policy premiums for a vehicle to be listed as principally garaged in Rochester, New York, as opposed to Brooklyn, New York, is significantly less. Respondent maintained that it would not have issued the policy to the injured person at the same rate had the insured provided truthful information. Based on the foregoing, arbitrator Barry found that respondent’s defense based upon fraudulent procurement was established.

For those keeping score, the applicant prevailed on two of these four arbitrations; the insurers prevailed on the other two.

Proven rate evasion supports the denial of no-fault benefits (and other first-party coverages) to or on behalf of any EIP who was complicit in the fraudulent procurement of the auto policy.  The operative question is NOT whether the insurer would have insured the risk at all had it known the true facts, but whether it would have issued the SAME policy on the same terms and premium.  If the answer to that question is no, the misrepresentation is material.  Although New York personal auto policies may not be rescinded (retroactively canceled) because of New York's financial responsibility laws, first-party benefits may be denied to those complicit in the fraudulent procurement of the policy.

Additionally, remember that the rate evasion/fraudulent policy procurement defense is not subject to the 30-day preclusion rule.  In A.B. Medical Services, PLLC a/a/o Yevgenya Ioffe v. Commercial Mut. Ins. Co., 12 Misc.3d 8 (App. Term, 2nd Dept., 2006), the Appellate Term , Second Department, stated:
Contrary to plaintiffs' contention, the defense of fraudulent procurement of an insurance policy, which is nonwaivable and hence exempt from the 30-day preclusion rule, may be asserted as against plaintiffs providers in this action seeking to recover assigned no-fault benefits (cf. Matter of Metro Med. Diagnostics v Eagle Ins. Co., 293 AD2d 751, 751-752 [2002]). 
For more discussion, cases and awards on this issue, click the rate evasion label below.

Sunday, January 21, 2018

New York Court of Appeals Now Tweeting Insurance Coverage Decisions

Image result for twitter
No, not really. That's just a click-baiting title.

But seriously, the court's issuance on December 14, 2017 of 259-character and 219-character decisions in insurance coverage cases could have fit within Twitter's new 280-character limit.  Here are the cases and why they're so short.

Section 500.11 of the New York Court of Appeals' Rules of Practice -- Alternative Procedure for Selected Appeals

22 NYCRR § 500.11(a) provides in pertinent part that "[o]n its own motion, the Court [of Appeals] may review selected appeals by an alternative procedure. Such appeals shall be determined on the intermediate appellate court record or appendix and briefs, the writings in the courts below and additional letter submissions on the merits."

In other words, no record, no briefs and no oral argument to the Court of Appeals.  And a faster and likely shorter decision.

What cases make the alternative review cut, you ask?  Per Rule 500.11(b), the Court of Appeals may select cases for such alternative review based on:
  1. questions of discretion, mixed questions of law and fact or affirmed findings of fact, which are subject to a limited scope of review; 
  2. recent, controlling precedent; 
  3. narrow issues of law not of statewide importance; 
  4. unpreserved issues of law; 
  5. a party's request for such review; or
  6. other appropriate factors.
By my count (actually Google Scholar's count),  the New York Court of Appeals has invoked Rule 500.11 six previous times in insurance coverage cases:
Here are the Court of Appeals' latest Tweet-sized insurance coverage decisions:

Freligh v. Government Employees Insurance Company
(Ct. Apps., decided 12/14/2017)

Loss of earnings claim.  One of those "Oh, I know I wasn't employed at the time of the accident but I was just about to start a new job" kind of claim.  Regulation 68 permits an eligible injured person to recover "demonstrated future earnings reasonably projected" (11 NYCRR 65-3.16[b][3]).

At the time of the December 23, 2012 MVA, the plaintiff, who had worked in the automotive parts and repair industry for a number of years, had been unemployed for approximately seven months. In January 2013 plaintiff submitted an application for no-fault benefits.  With respect to the LOE portion of his application, plaintiff indicated that he "was due to start [a] new job" but had been unable to work since the MVA  as a result of the injuries that he had sustained in the accident. Plaintiff further indicated that details regarding his position, including his salary and the employer's name and address, would be provided.

Plaintiff thereafter provided GEICO with a copy of an employment application dated December 15, 2012, which purportedly reflected that plaintiff had been offered a $2,000 a week job at a failing auto parts business owned by plaintiff's friend of 15 years who, the record showed, (1) had previously pleaded guilty to insurance fraud and offering a false instrument, (2) had made false sworn statements in regard to the bankruptcy proceeding of a corporation, (3) had initiated that bankruptcy proceeding as a "ruse" to forestall creditors and (4) had paid his wife a salary from the parts business while she was a student at Columbia University for her "learning purposes."

In reversing Supreme Court's denial of GEICO's summary judgment motion, the three-justice majority of the Appellate Division, Third Department, held that "material evidence established as a matter of law that the projection that plaintiff would have received $2,000 a week from the parts business is unreasonable[.]"

Invoking its alternative review authority under Rule 500.11, the New York Court of of Appeals REVERSED the Appellate Division's order and reinstated the complaint.  The Court's 259-character (not counting spaces) decision:
On review of submissions pursuant to section 500.11 of the Rules, order reversed, with costs, and case remitted to the Appellate Division, Third Department, for consideration of issues raised but not determined on the appeal to that court. Triable issues of fact exist as to plaintiff's claim for lost wages.
That's it.  Triable issues of fact regarding the EIP's LOE claim for the jury to hear and decide.  Appellate Division order reversed.  The  Court of Appeal's seventh Rule 500.11 alternative review of an insurance coverage case.  

Garcia v. Government Employees Insurance Company
(Ct. Apps., decided 12/14/2017)

Appeal from another 3-2 decision at the Appellate Division (Second Department), but GEICO won this one at the Court of Appeals.

The insured had a $1 million personal umbrella policy with GEICO; the annual premium for that policy was $306.  On renewal the insured asked GEICO to increase the umbrella policy limit to $2 million, which GEICO did so, resulting in an increased premium of $199 for the umbrella policy.  When the insured paid only the prior year's premium of $306 GEICO cancelled the umbrella policy effective 12:01 a.m. on May 19, 2006.  As unluck would have it, the insured's vehicle was involved in a motor vehicle accident later that day in which the plaintiff, Garcia, was injured.

In pursuing coverage under the umbrella policy, Garcia argued that the umbrella policy's declarations were ambiguous, that GEICO's insured had made a payment sufficient to keep $1 million in umbrella coverage in force, and that the the umbrella policy's first and second million dollars of umbrella coverage were divisible.

The 3-2 majority of the Appellate Division, Second Department, disagreed:
Next, because there is no ambiguity in what Rakowski contracted for — $2,000,000 in coverage, as stated in the Amended Declarations of the policy — there is likewise no ambiguity in GEICO's notice of cancellation, which referred to the policy number of Rakowski's umbrella policy. The cancellation notice could only have pertained to Rakowski's coverage of $2,000,000, which was the only coverage the policy provided for the policy period (see First Sav. & Loan Assn. of Jersey City, N. J. v American Home Assur. Co., 29 NY2d at 300).
Invoking its alternative review authority under Rule 500.11, the New York Court of of Appeals AFFIRMED the Appellate Division's order, with costs.  The Court's 219-character (not counting spaces) decision:
On review of submissions pursuant to section 500.11 of the Rules, order affirmed, with costs. There is no ambiguity in the policy as to coverage or divisibility. The parties contracted for $2 million of coverage. Plaintiff's remaining contention lacks merit.
That's it.  No ambiguity.  Insurer wins.  The  Court of Appeal's eighth Rule 500.11 alternative review of an insurance coverage case.