Announcing a New Blog -- Arbiters of NY No-Fault

Dave Gottlieb's got three.  Now I have two.  Blogs, that it. 

Over this past weekend I created a new blog that will post and discuss just New York no-fault arbitration awards/decisions and issues.  Announcing Mura & Storm's second venture into the blogosphere -- Arbiters of NY No-Fault, which can be found at the easy-to-remember domain http://nynofaultarbitration.com.  My associates, Bethany Mazur and Scott Mancuso (awaiting admission), will be the primary authors of this new blog, and I'll chime in from time to time.  Our hope is to provide digests of interesting and important arb awards, as well as to track and report stats on each AAA no-fault arbitrator and master arbitrator.  Over time, our database of awards by arbitrators and issues should be a resource to our no-fault insurer clients.  Please let us know in what ways we can make this new blog most useful to you who work in the New York no-fault arbitration arena. Check back in a few weeks when we hope to have a decent amount of materials uploaded to the new blog, which is hosted on a WordPress platform and has several, very easy ways of subscribing to content. 

New York State Insurance Department Unchanges Its Mind -- Withdraws Circular Letter No. 21 (2009) Regarding New York HCRA & No-Fault Insurance Surcharge

This may be a new record for the shortgevity of a NYSID circular letter.  Circular Letter No. 21 (2009), issued on September 16, 2009, has been withdrawn effective December 7, 2009.  That's a shelf life of only 81 days.

For the 81 days it was in effect, Circular Letter No. 21 (2009), entitled "The New York State Health Care Reform Act and No-Fault Insurance", expressly superseded Circular Letter No. 16 (1996) and Supplement No. 1 to  Circular Letter No. 16 (1996), which the Department withdrew on 9/16/2009.  With today's withdrawal of Circular Letter No. 21 (2009), Circular Letter No. 16 (1996) and its Supplement No. 1 presumably go back into effect.

In Circular Letter No. 16 (1996), issued November 22, 1996, the Department advised all authorized insurers writing motor vehicle insurance and motor vehicle automobile self-insurers that they were obligated, under the Health Care Reform Act (“HCRA”) set forth in New York Public Health Law § 2807-c and related provisions, to pay a surcharge to the Public Goods Pool on payments made for services rendered in general hospitals, diagnostic and treatment centers, and freestanding clinical laboratories. Supplement No. 1 to Circular Letter No. 16 (1996), issued November 21, 2003, updated the information set forth in Circular Letter No. 16 to take account of amendments to HCRA.  Both Circular Letter No. 16 (1996) and Supplement No. 1 advised insurers and self-insurers that they could offset an applicant's aggregate no-fault benefit limit for the payment of a surcharge when the surcharge was paid directly to the New York State Department of Health's (“DOH”) Office of Pool Administration.

Based on a December 30, 2008 OGC opinion (which has also been withdrawn and rescinded), the Department "changed its position" on the surcharge issue and declared in Circular Letter No. 21 (2009) that insurers and self-insurers were not allowed to offset an applicant's aggregate no-fault benefit limit by the amount of any HCRA surcharges paid directly to the DOH's Office of Pool Administration.

With the withdrawal of both the OGC Opinion No. 08-12-07 and Circular Letter No. 21 (2009), New York insurers subject to HCRA (payors pursuant to the New York State workers' compensation law, volunteer firefighters' benefits law, ambulance workers' benefit law, and the comprehensive motor vehicle insurance reparations act [article 51 of the New York Insurance Law]) may continue to reduce or offset an applicant's aggregate no-fault benefit limit by the amount of any HCRA surcharges paid directly to the DOH's Office of Pool Administration.

The Department's withdrawal of Circular Letter No. 21 (2009) should not affect the increases in HCRA surcharges enacted by the New York state legislature in its 2009-2010 State Fiscal Year Budget.  For services rendered in general hospitals, diagnostic and treatment centers, and freestanding clinical laboratories from 1/1/06 through 03/31/09, the HCRA surcharge percentages were 8.95% and 26.26% (both being owed if paid directly to the provider; just the former if paid directly to the DOH's Office of Pool Administration).

For services rendered from 4/1/09 through 12/31/11, the HCRA surcharge percentages were raised to 9.63% and 28.27%.

Insurers that did not offset or reduce an eligible insured's aggregate PIP limit by HCRA surcharge payments made in 2009 in accordance with the Department's now withdrawn OGC opinion and circular letter on the subject may wish to recalculate the available limits on the involved policies.

New York State Insurance Department Office of General Counsel Opinions for November 2009

From the NYS Insurance Department's website come these two Office of General Counsel Opinions from November 2009 relevant to property and casualty insurers doing business in New York, both involving the cancellation of regulated insurance policies.  

Cancellation of Insurance for Non-payment; Insured has Filed for Bankruptcy
OGC Op. No. 09-11-02 (November 6, 2009)

Question Presented:

Is there any provision in the Insurance Law or the regulations promulgated thereunder that prohibits an insurer from cancelling for nonpayment a marine insurance policy where the insured has filed for Chapter 11 bankruptcy protection?

Conclusion:

No.  There is nothing in the Insurance Law or regulations promulgated thereunder that prohibits an insurer from taking such an action.

Facts:

A commercial insured covered by a marine insurance policy filed for bankruptcy protection under Chapter 11 of the federal Bankruptcy Code. Following that filing, the insurer cancelled the policy for non-payment of premium. The insured’s counsel informed the insurer that the cancellation violates the “automatic stay” provided for under the federal Bankruptcy Code. The insurer then reinstated the policy as new business “until cancelled” with annual “renewal endorsements”.

Analysis:

New York Insurance Law § 3426(b) and (c) (McKinney 2006), which governs the cancellation of most commercial lines property/casualty insurance, is relevant to the inquiry. Those statutory provisions read in pertinent part as follows:

(b) During the first sixty days a covered policy is initially in effect, except for the bases for cancellation set forth in paragraph one, two or three of subsection (c) of this section, no cancellation shall become effective until twenty days after written notice is mailed or delivered to the first-named insured at the mailing address shown in the policy and to such insured's authorized agent or broker.

(c) After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured's authorized agent or broker, and such cancellation is based on one or more of the following:

(1) With respect to covered policies:

(A) nonpayment of premium provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;

* * * * *

Insurance Law § 3426(b) and (c) require an insurer to provide timely notice to the insured of cancellation on grounds of nonpayment of premium. Pursuant to that statute, if an insurer wishes to cancel a liability insurance policy, it must provide the requisite written notice to the insured that specifies the reasons for the cancellation. So long as the reason is not otherwise prohibited by law, the Insurance Law does not otherwise limit an insurer’s ability to cancel for nonpayment of premium. Nothing in the Insurance Law or the regulations promulgated thereunder otherwise prohibits an insurer for cancelling a policy for non-payment of premium where the insured has filed for bankruptcy protection.

Notably, Insurance Law § 3426(l)(2) provides that Insurance Law § 3426 does not apply to policies “principally marine insurance.” That Insurance Law § 3426 does not apply to marine insurance, however, is ultimately irrelevant to the inquiry in that there is no provision of the Insurance Law or regulations thereunder that contains any prohibition on cancellations for nonpayment where the insured has filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. Therefore, insofar as the Insurance Law is concerned, an insurer is free to cancel a policy for nonpayment of premium irrespective of the insured’s bankruptcy status.

For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.

Cancellation of Workers’ Compensation Insurance Policy
OGC Op. No. 09-11-03 (November 12, 2009)

Question Presented:

May an insurer cancel an insured’s current workers’ compensation insurance policy midterm for non-payment of the expired policy’s audit premium?

Conclusion:

(Yes.)  An insurer may cancel an insured’s current workers’ compensation insurance policy midterm for non-payment of the expired policy’s audit premium, so long as the policy does not contain any limitations to the contrary, and provided that the insurer complies with New York Workers Compensation Law § 54 (McKinney 2006), and any and all other applicable laws and regulations.

Facts:

An insurance producer reported that an insurer canceled an insured’s workers’ compensation insurance policy midterm because the insured did not pay the audit premium on its most recently expired policy. The producer also reported that the insurer had provided coverage to the insured for several years, and that none of the previous audits resulted in premium change except for the most recent audit, which resulted in a very large additional premium. The producer stated that the insured disputes the accuracy of the audit results, and for that reason, refused to pay the audit premium. The insurer subsequently canceled the insured’s current policy.

Analysis:

New York Insurance Law § 3426 (McKinney 2007) sets forth, among other things, the minimum cancellation provisions applicable to most property/casualty commercial lines insurance policies. However, Insurance Law § 3426(l)(2) explicitly excludes workers’ compensation and employers’ liability coverage. Instead, the cancellation provisions for workers’ compensation insurance are governed by Workers Compensation Law § 54(5), which reads as follows:

[text omitted]

Workers Compensation Law § 54(5) imposes no limitations on the reasons that an insurer may cancel a workers’ compensation insurance policy. Thus, unlike a policy subject to Insurance Law § 3426, a workers’ compensation insurance policy may be canceled by an insurer midterm for non-payment of the expired policy’s audit premium, so long as the policy does not contain any limitations to the contrary, and provided that the insurer complies with Workers Compensation Law § 54, and any and all other applicable laws and regulations. See Insurance Department’s Office of General Counsel Opinion dated May 3, 2005.

However, an insured may invoke the right of review of rating classifications afforded by Insurance Law § 2319. That statute permits an aggrieved insured to request, in writing, a review of the rating classification(s) applied to its policy. An insured that does not receive a timely response to its request for review, or receives an adverse determination, may appeal to the Superintendent for a hearing and new decision. Insurance Law § 2319 reads as follows:

[text omitted]

Thus, the right of review provided by Insurance Law § 2319 may assist the insured here in resolving its dispute over the expired policy’s premium audit.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.

New York State Insurance Department Office of General Counsel Addresses Minimum and Maximum Attorneys' Fees Under LMK

Those of you who attended the LMK Psychological Webinooner back in April may recall this poll:

Of the four possible interpretations of LMK's impact on future cases, which one do you think the courts ultimately will choose?

12% Per cause of action
62% Per accident/injured person/provider/action
21% Per accident/injured person/provider
3% Per accident/injured person
2% None of the above. I have something else in mind.

Add the NYSID's Office of General Counsel to the 62% of you who thought that the Court of Appeals' ruling on attorneys' fees in LMK Psychological Servs., P.C. v. State Farm Mut. Auto. Ins. Co. should be applied on a per accident/assignor/provider/action basis.

Students of no-fault will recall that in LMK, the Court of Appeals relied heavily on the NYSID Office of General Counsel's Opinion of October 8, 2003, in which the OGC had opined that attorneys' fees in no-fault matters should be based on the aggregate of all bills for each eligible insured disputed in a single action or arbitration, and not based on a "per bill" basis.

But what if there is more than one provider or more than one assignor/injured person treated by a single provider in a single action or arbitration?  What are the minimum and maximum attorneys' fees recoverable under the Court of Appeals' ruling in LMK?  The OGC has now addressed those questions and opined:

1. In actions or arbitrations in which there are multiple providers, each prevailing provider is entitled to a minimum attorney's fee of $60.  
2. In actions or arbitrations in which there is a single provider but bills for multiple assignors/injured persons, the prevailing provider is entitled to an attorney's fee ($60 up to 20% of the award capped at $850) for each injured person that the provider treated.

Limitations on No-Fault Attorney Fees  
OGC Op. No. 09-11-05 (November 30, 2009)

Questions Presented:

1.     When one or more no-fault assignee health care providers contest the denials or partial payments issued by an insurer for bills submitted for health services rendered to an assignor injured person eligible for no-fault benefits under a motor vehicle insurance policy in a single legal proceeding in arbitration or court which results in an award of benefits to one or more of the health care providers, is each health care provider entitled to a minimum attorney fee based upon the aggregate sum of all bills awarded reimbursement to each provider in that legal proceeding?

2.     Where the legal proceeding involves more than one person injured in the same motor vehicle accident, all of whom are treated by the same assignee health care provider, how is the attorney fee determined?

Conclusion:

1.     Yes, in a single no-fault legal proceeding, each assignee health care provider of a person injured in a motor vehicle accident is entitled to a minimum attorney fee based upon the aggregate sum of all bills awarded reimbursement to each provider in the proceeding.

2.     In a single no-fault legal proceeding, the assignee health care provider is entitled to an attorney fee, subject to the limitations set forth in Article 51 of the New York Insurance Law and the regulations promulgated thereunder, for each injured person that the provider treated.

Facts:

The inquiry is of a general nature, without reference to particular facts.

Analysis:

11 NYCRR § 65-4.6 (Regulation 68-D) establishes the amount of attorney’s fees reimbursable by an insurer and sets forth limitations on the amount of attorney’s fees that an insurer may be required to pay for services necessarily performed in the resolution of no-fault disputes.

When an attorney of an applicant for benefits commences a court action or initiates arbitration to resolve a claim dispute and receives an award of benefits, 11 NYCRR § 65-4.6(c) establishes that “the minimum attorney’s fees payable pursuant to this subpart shall be $60.” Furthermore, 11 NYCRR § 65-4.6(e) states that “for all other disputes subject to arbitration,” which includes the initiation of court actions to resolve payment disputes, “the attorney’s fee shall be limited as follows: 20 percent of the amount of first party benefits, plus interest thereon, awarded by the arbitrator or court, subject to a maximum fee of $850.” Thus, the attorney fee is 20% of the amount of no-fault benefits awarded from the total number of individual bills disputed in either a court action or arbitration (subject to a minimum fee of $60 and a maximum fee of $850), regardless of whether one bill or multiple bills are presented as part of a total claim for benefits, based upon the health services rendered by a provider to the same eligible insured. The calculation is discussed in greater detail in OGC Opinion 03-10-04 (October 8, 2003). The New York Court of Appeals recently confirmed this method of determining attorney fees “based on the aggregate of all bills for each insured” in LMK Psychological Servs., Pc.C. v. State Farm Mut. Auto. Ins. Co., 12 N.Y.3d 217, 223 (2009).

Since the attorney fee is limited to 20% of the first-party benefits awarded by an arbitrator or court to a health care provider, subject to the $850 cap, each health care provider treating the same injured person is entitled to a minimum attorney fee based upon the aggregate sum of all bills awarded reimbursement. Thus, the attorney fee in each legal proceeding is generally limited to a $60 minimum and $850 maximum for the total amount of first-party benefits awarded in the proceeding to each health care provider for health services provided to the same eligible insured person.

This calculation is also applied to the award of first-party benefits for each injured person’s claim in a given legal proceeding to determine the attorney fees that a health care provider may receive. When a health care provider receives an award of benefits in a single legal proceeding for claims resulting from the treatment of more than one person injured in the same motor vehicle accident, so that there are multiple assignors, the same calculation is applied to the total award of first-party benefits for health services rendered to each injured person in the legal proceeding in order to determine the amount of attorney fees the provider may receive, so that the provider is entitled to an attorney fee for each of the injured persons that provider has treated. Thus, each fee would be calculated as 20% of the total amount of benefits awarded to the provider in the same legal proceeding, subject to the $850 cap, based upon the aggregate claims for health services rendered to each injured person.

For further information, you may contact Principal Attorney Lawrence M. Fuchsberg at the New York City office.

Outing Blog Comment Spammers, Starting with All States Public Adjusters

Over at the always excellent New York Personal Injury Law blog, Eric Turkewitz has adopted the policy of outing law firms' blog comment spammers and their clients.  Comment spammers troll the Internet and drop poorly written and usually wholly unrelated comments with hyperlinks to their clients' websites onto blog posts in the hopes that comments aren't moderated and the blog's readers will click through to their clients' websites and patronize them.  Or, at the very least, that their clients' websites will receive a higher Google page ranking from the click-throughs.

In the 18 months it's been up, Coverage Counsel has seen its share of comment spam.  Most comment spam comes from offshore and far away places and continents, as it seems, from my experience at least, that many website owners and companies outsource their blog comment spamming to Asians with computers, Internet access, and a marginal grasp of the English language.

More than a year ago I started moderating comments, in part to spare you readers the nuisance of comment spam such as not so well-disguised solicitations for Florida DUI attorneys, rental car companies, insurance sales websites, and British escort services (yes, that's right, but I can't remember into what post that spam was inserted, pun intended).  This morning at 12:53, however, I received another piece of comment spam that has motivated me to adopt the Turk's policy of outing comment spammers, or at least ones working for insurance industry clients.

From an IP address in New Delhi, India, via a Google search of "public adjusters site: blogspot.com", came this bit of comment spam (links neutralized with NoFollow to ensure that no Google juice flows to the client company):

Mritunjay Kumar Singh has left a new comment on your post "Westchester Public Adjuster Companies Fined":

Hi, I was looking for information regarding PUBLIC ADJUSTER. i found your post more informational-- I hope it will help many more as me.

Public Adjusters
Insurance Claims Adjuster
Public Insurance Adjusters
public adjusters florida

Found my post about public adjusters being fined for illegal conduct more informational?  About public adjusters?  Really?  Well, in a certain respect, I guess I did, too.  And I hope, as well, that my post helps many more than me.  We can agree on that. 

Mr. Singh describes himself as a "Link Builder and SEO professional" (sic), albeit one with a lean résumé, and his client, as evidenced by the four links all pointing back to the same website is the person-less All States Public Adjusters, purportedly headquartered in Hollywood, Florida.

In the opinion of one, anyone looking to hire a public adjuster should think twice about a hiring a company that outsources blog comment spam to a person who then drops spam onto a post about public adjusters being fined for illegal conduct.  Very nice.  And so honorable.  All States Public Adjusters -- when you read this, and you eventually will because you apparently think link building and SEO is important, you should rethink your SEO strategy.  And tell your blog comment spammer, Mr. Singh, to stay away from my URL.  I know how SEO works, too, but you won't love my linking.

Postscript (Mon., 7 December 2009) ~ Mr. Singh from New Delphi paid a 5 minute and 27 second visit to this post this morning at 5:21 a.m., Buffalo time, via a "importance of public adjusters" Google search.  What, no comment?

New York Insurance Department Releases Proposed Revised Regulation 68

Last week, the New York State Insurance Department released its working draft of a revised Regulation 68, a document that "follows an intensive review of Regulation 68 by the Department’s Office of General Counsel and its Property Bureau, including meetings with representatives of insurers, health professionals, trial lawyers, health service providers and other stakeholders."  The last significant revision to New York's no-fault regulation was implemented in 2002.  According to the Insurance Superintendent James Wrynn's press release,  the revised rules covering no-fault automobile insurance "aim to help reduce fraud and abuse associated with no-fault claims, while making the no-fault system more user-friendly."

The 152-page "working document" can be found here or by clicking on the image to the left.

The Department has announced that the release of this draft is the first step of the regulatory process. Modifications to this draft may be made based on the feedback received before the proposed revisions enter the formal regulatory approval process, which will also include a statutorily-prescribed comment period.

Comments on the draft are due on or before January 8, 2010 and may be sent to the Department either by completing a webform created specifically for commenting (http://www.ins.state.ny.us/r68/r68_draft_form.htm) or by emailing the Department at NoFaultDraftReg@ins.state.ny.us.

I'll be posting my thoughts on the proposed changes first on this blog and then submitting them to the Department.  If you would like me to include your thoughts and comments with mine, please post them here or email them to me.  At rough count, this proposed revised regulation imposes 74 new "shalls" or requirements on no-fault insurers not found in the current regulation.  That's 74 more chances per claim of having a New York court find something wrong with the insurer's claim handling, and 74 more chances per claim of having a denial invalidated on technical non-compliance grounds.

The Department's press release notes that "[o]ne of the most significant forces increasing automobile insurance claim costs has been the explosion of filings in the court system of disputed no-fault claims by providers of health services. This has overwhelmed the courts and led to long delays in the resolution of these disputes and to the payment of unnecessary claims, undermining the very purpose of the no-fault system."

Does anyone actually think adding 74 new "shalls" directed at no-fault insurers will reduce provider litigation?  Really? 

I'll have more on the proposed revisions soon, including a key for decoding the red, blue and green underscoring and strikeouts.  Meanwhile, get busy scribbling your thoughts and comments in the margins of the working draft and send them through to the Department.  The more input the Department receives from interested parties, the better.

Uninsured Motorist Arbitrator Did Not Exceed His Authority by Placing Monetary Value on Claimant's Injuries in Excess of Policy Limit

UM – SERIOUS INJURY – CPLR 7511 PROCEEDING TO VACATE ARBITRATION AWARD – GROUNDS TO VACATE AWARD
Safeco Prop. & Cas. Ins. Cos. v. Dye
(Sup. Ct., Queens Co., decided 11/18/2009)

On August 27, 2006, a vehicle owned and operated by Safeco's insured, Roshaun Dye, was struck by a hit-and-run motor vehicle. By demand dated December 3, 2007, Dye sought arbitration of his claim for uninsured motorist (UM) benefits from Safeco on the basis that the accident involved a hit-and-run vehicle.

The arbitration was held on April 20, 2009. Upon completion of the arbitration of this matter, the arbitrator, in his award dated May 15, 2009 determined that "the compensatory value of the injuries sustained by the Claimant RD to be $100,000.00. However, I also find that the Claimant RD was 75% comparatively negligent in causing this accident and therefore his award is reduced and he is entitled to $25,000.00".

Safeco commenced this special proceeding pursuant to CPLR § 7511 to vacate the arbitration award, contending that: (1) the arbitrator exceeded his authority by awarding benefits in excess of applicable policy limits; (2) there was no evidence in the record to support that the claimant sustained a serious injury; and (3) the arbitrator's exclusion of pertinent evidence constituted misconduct.

In denying Safeco's petition and confirming the award, Queens County Supreme Court Justice Jaime Rios noted that judicial review of compulsory arbitration, such as UM arbitration, is more limited than for voluntary arbitration, and that to be upheld, the arbitrator's award must only have evidentiary support and not be arbitrary and capricious.  Justice Rios then held:

An arbitrator is not required to justify his award, it must merely be evident that there exists a rational basis for it upon a reading of the record (see Block v St. Paul Fire & Marine Ins. Co., 137 AD2d 475 [1988]; Dahn v Luchs, 92 AD2d 537 [1983]).

Here, the arbitrator's decision was based upon Dye's testimony, police report, photos of the accident scene and Dye's vehicle, MRI reports of Dr. Shapiro and Dr. Rothpearl; hospital and medical records submitted by Dye and Safeco; a copy of Safeco's insurance policy, and examination under oath of Dye. The MRI report of the right knee by Dr. Shapiro revealed "abnormal signal in the posterior horn of the medial meniscus without articular extension" and "joint effusion"; the MRI of the right knee by Dr. Rothpearl revealed "medial, supra patellar plicai", "thickening and increased signal associated with the medial collateral ligament, consistent with a low-grade partial tear", "lateral patellar tilt", "suboptimal visualization of the anterior cruciate ligament. A tear of this ligament cannot be excluded and clinical correlation is recommended", and the MRI report of the lumbar spine revealed "right foraminal herniation at L5-S1. According to the records of Lutheran Medical Center, on November 29, 2007, Dye underwent arthroscopic surgery to the right knee, which revealed "medial meniscal tear of the medial and lateral side", "synovitis of the medial compartment" and "cartilage abrasion on the medial femoral condyle".

Judicial review of an arbitrator's award is very limited (see Pearlman v Pearlman, 169 AD2d 825 [1990]) and the fact findings of the arbitrator may not be second guessed by a reviewing court (see Liberty Mut. Ins. Co. v Sedgewick of New York, 2007 NY Slip Op 6882). The question of whether a claimant has sustained a serious injury is a matter within the province of the arbitrator not the courts (see Aetna Cas. & Sur. Co. v Cochrane, 64 NY2d 796 [1985]). Based upon the present record, the arbitrator's award has ample evidentiary support and is thus, rationally based. Additionally, even if the arbitrator failed to consider certain evidence, vacatur of the award would not be warranted (see American Express Prop. & Cas. Co. v Vinci, 63 AD3d 1055 [20009]).

Moreover, while an arbitration award may be vacated upon the ground that the arbitrator exceeded his authority by making an award in excess of the policy limits, here, the arbitrator made an award within the policy limits. 

The decision does not reveal what the UM policy limit was, but presumably it was at least $25,000.  As reduced by the claimant's percentage of comparative negligence or culpable conduct, the arbitration award did not exceed the policy's UM coverage limit.

Homeowners Insurer Ordered to Defend Teenager Who Allegedly Injured Another Teenager at a Party

HOMEOWNERS – EXPECTED OR INTENDED INJURY EXCLUSION – DUTY TO DEFEND
Rhodes v. Liberty Mut. Ins. Co.
(2d Dept., decided 11/17/2009)

The standard homeowners policy excludes liability coverage for bodily injury or property damage which is expected or intended by an insured.  With a liability insurer's duty to defend being broader that its duty to indemnify, the allegations of a complaint are what, in most cases, dictate whether the insurer must defend its insured notwithstanding facts that may indicate an intentionally caused harm.  It is only in cases where the insurer can establish that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision that it can disregard complaint allegations and deny both the duty to defend and the duty to indemnify.

Although the facts underlying this decision are scant, it appears Devon Rhodes and Alava David were at a teenage party at which alcohol was being served.  Rhodes reportedly caused injury to David, and David brought a personal injury action against her.  Although the personal injury complaint alleged that Rhodes' "recklessness, carelessness, and negligence" caused serious personal injuries to David, Liberty Mutual Insurance Company apparently declined to defend or indemnify Rhodes under her parents' homeowners policy with Liberty, citing the policy's intended or expected harm exclusion.  Rhodes then commenced this declaratory judgment action for liability coverage in relation to the underlying personal injury action.

Suffolk Supreme denied Liberty's motion and granted plaintiff's cross motion for summary judgment on the issue of defense coverage owed with respect to the underlying personal injury action.  In AFFIRMING that order, the Second Department agreed that the underlying complaint's allegations triggered defense coverage and held:

Generally, it is the insured's burden to establish coverage and the insurer's burden to prove the applicability of an exclusion (see Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208, 218-220; Barkan v New York Schools Ins. Reciprocal, 65 AD3d 1061). Moreover, an insurer's duty to defend is broader than its duty to indemnify, and arises whenever the allegations in the complaint in the underlying action, construed liberally, suggest a reasonable possibility of coverage, or where the insurer has actual knowledge of facts establishing such a reasonable possibility (see Frontier Insulation Contrs., v Merchants Mut. Ins. Co., 91 NY2d 169, 175; Burlington Ins. Corp. v Guma Constr. Corp.,AD3d, 2009 NY Slip Op. 07216 [2d Dept 2009]; City of New York v Insurance Corp. of N.Y., 305 AD2d 443). As such, the duty to defend arises if the claims against the insured arguably arise from a covered event, even if the claims may be meritless or not covered, either because the insured is not liable or because the event is later determined outside the policy's scope of coverage (see Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137; Fitzpatrick v American Honda Motor Co., 78 NY2d 61, 65-66; Physicians' Reciprocal Insurers v Loeb, 291 AD2d 541, 542). An insurer can be relieved of its duty to defend only "if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision" (Allstate Ins. Co. v Zuk, 78 NY2d 41, 45; see Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640, 652; Physicians' Reciprocal Insurers v Giugliano, 37 AD3d 442, 444).

Here, the plaintiffs established that Devon Rhodes (hereinafter Rhodes) was entitled to coverage under the homeowner's insurance policy issued to her parents (see Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d at 218, 220; Barkan v New York Schools Ins. Reciprocal, 65 AD3d 1061). In contrast, the defendant Liberty Mutual Insurance Co. (hereinafter Liberty) failed to establish that "there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision" (Allstate Ins. Co. v Zuk, 78 NY2d at 45). The complaint in the underlying action alleges, inter alia, that while attending a teenage party at which alcohol was served, Rhodes' "recklessness, carelessness, and negligence" caused serious personal injuries to Alava David, the plaintiff in the underlying action. Construing the complaint liberally, a possible legal or factual basis exists by which Rhodes's conduct may be deemed accidental and, therefore, a covered "occurrence" under the subject Liberty policy, and not excluded from coverage on the ground that the personal injuries allegedly sustained by David were expected or intended by Rhodes (see Frontier Insulation Contrs., v Merchants Mut. Ins. Co., 91 NY2d 169, 175; City of New York v Insurance Corp. of N.Y., 305 AD2d 443; see also Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137-138; Merchants Ins. of N.H., Inc. v Weaver, 31 AD3d 945).

In New York and other jurisdictions there are a number of a "harm inherent in the nature of the act" cases in which liability insurers have successfully argued that the nature of the intentional act itself is such that the insured must have expected or intended the harm, negating liability coverage.  See, e.g., Allstate Ins. Co. v. Mugavero, 79 NY2d 153 (1992).  This apparently was not such a case.

Question of Fact Found on Whether Insurer's Disclaimer Was Unreasonably Delayed

LIABILITY – TIMELINESS OF INSURER'S DISCLAIMER – INSURANCE LAW § 3420(D)
Felice v. Chubb & Son, Inc.
(2d Dept., decided 11/17/2009)

In this declaratory judgment action for liability coverage in relation to an underlying wrongful death action, Kings Supreme denied Chubb's motion and plaintiff's cross motion for summary judgment.

In AFFIRMING the lower court's denial of both motions, the Second Department reiterated some well-established rules regarding the timeliness of a liability insurer's disclaimer:

An insurance carrier must give timely notice of a disclaimer "as soon as is reasonably possible" after it first learns of the accident or grounds for disclaimer of liability (Insurance Law § 3420[d][2]; see Pawley Interior Contr., Inc. v Harleysville Ins. Cos., 11 AD3d 595, 595; Mount Vernon Hous. Auth. v Public Serv. Mut. Ins. Co., 267 AD2d 285, 285-286). It is the insurance carrier's burden to explain the delay in notifying the insured or injured party of its disclaimer, and the reasonableness of any such delay must be determined from the time the insurance carrier was aware of sufficient facts to disclaim coverage (see Pawley Interior Contr., Inc. v Harleysville Ins. Cos., 11 AD3d at 595; Prudential Prop. & Cas. Ins. v Persaud, 256 AD2d 502, 504). Further, the issue of whether a disclaimer was unreasonably delayed is generally a question of fact, requiring an assessment of all relevant circumstances surrounding a particular disclaimer (see Continental Cas. Co. v Stradford, 11 NY3d 443, 449; First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 69; Mount Vernon Hous. Auth. v Public Serv. Mut. Ins. Co., 267 AD2d at 286). Cases in which the reasonableness of an insurer's delay may be decided as a matter of law are exceptional and present extreme circumstances (see Continental Cas. Co. v Stradford, 11 NY3d at 449; Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 1030; Allstate Ins. Co. v Gross, 27 NY2d 263, 270). We agree with the Supreme Court that there is a question of fact as to whether the defendants' disclaimer was unreasonably delayed (see Pawley Interior Contr., Inc. v Harleysville Ins. Cos., 11 AD3d at 596; Mount Vernon Hous. Auth. v Public Serv. Mut. Ins. Co., 267 AD2d at 286).

Appellate Term Again Holds that Licensed Acupuncturists Properly Reimbursed Under Workers' Compensation Fee Schedule for Acupuncture Performed by Chiropractors

NO-FAULT – REIMBURSEMENT RATE FOR ACUPUNCTURE SERVICES – WORKERS' COMPENSATION FEE SCHEDULE
Great Wall Acupuncture, P.C. a/a/o Maria Gonzalez v. Geico Ins. Co.
(App. Term, 2d Dept., 2d, 11th & 13th Dists., decided 11/17/2009)

Geico paid plaintiff acupuncture PC for acupuncture services using the the workers' compensation fee schedule for acupuncture services performed by chiropractors.  Plaintiff claimed that its licensed acupuncturists were not limited to the fee schedule for acupuncture services performed by chiropractors -- there being no separate fee schedule for for acupuncture services performed by licensed acupuncturists -- and commenced this action to recover additional payment.  The parties stipulated to all but the propriety of the fees charged.  Following a non-jury trial on that issue, Civil Queens granted judgment to Geico, dismissing the complaint.  Plaintiff appealed. 

In AFFIRMING the judgment dismissing the complaint, the Appellate Term held:

A person who seeks to practice acupuncture must be either licensed (Education Law § 8214) or certified (Education Law § 8216) to do so (see Education Law § 8212). The training to obtain a license remains the same even if the person seeking to practice acupuncture has a license in a different profession, such as a chiropractic license (see 8 NYCRR 52.16[b]; cf. 8 NYCRR 52.16[a]). Indeed, at trial, plaintiff's witness, who was both a licensed acupuncturist and a licensed chiropractor, so testified. Accordingly, in light of the licensure requirements, we hold, as a matter of law, that an insurer may use the workers' compensation fee schedule for acupuncture services performed by chiropractors to determine the amount which a licensed acupuncturist is entitled to receive for such acupuncture services (see Great Wall Acupuncture v GEICO Gen. Ins. Co., 16 Misc 3d 23 [App Term, 2d & 11th Jud Dists 2007]; see also AVA Acupuncture, P.C. v GEICO Gen. Ins. Co., 23 Misc 3d 140[A], 2009 NY Slip Op 51017[U] [App Term, 2d, 11th & 13th Jud Dists 2009]; AVA Acupuncture, P.C. v GEICO Gen. Ins. Co., 17 Misc 3d 41 [App Term, 2d & 11th Jud Dists 2007]; 2004 Ops Gen Counsel NY Ins Dept No. 04-10-03 [Oct 2004] [http://www.ins.state.ny.us/ogco2004/rg041003.htm]). Consequently, since it is undisputed that the instant defendant reimbursed plaintiff pursuant to the workers' compensation fee schedule for acupuncture services rendered by a chiropractor, plaintiff is not entitled to any additional reimbursement.

Google Scholar -- Legal Opinions & Journals

Hat tip to Dave Gottlieb over at No-Fault Paradise for first bringing this to my attention. 

It appears that court decisions are now available, free of charge, on Google.  Actually, on Google Scholar, to be more precise.

I haven't figured out how far back Google's coverage goes, but for New York cases, it's farther than the coverage of the New York Official Reports or Cornell's Legal Infomation Institute, and I was impressed to be able to find the Court of Appeal's 1979 decision in Mighty Midgets v. Centennial Ins. Co. via Google Scholar when no other free caselaw databases had it available.  Coverage of lower court decisions appears to be excellent.  Federal court cases are also accessible through Google Scholar.

To open and bookmark the Google Scholar search engine for all federal and state legal opinions and journals, click here.

To open and bookmark the Google Scholar search engine for just New York federal and state legal opinions and journals, click here.  You can change the jurisdiction(s) you want to search by clicking the "Advanced Scholar Search" link to the right of the search box. 

Firefox users can set up and use a keyboard shortcut to search Google Scholar legal opinions.  Here's all you need to do:

1. Open the Google Scholar search engine for all federal and state legal opinions and journals by clicking  here (a new window will open; you'll need to come back to this page for the instructions).   If you prefer to restrict your Google Scholar legal opinions and journals searches to New York materials, click here instead.  
2. Right click within the search box and select (left click) "Add a Keyword for this Search".
3. Name the search bookmark what you want.  I used "Google Scholar Legal Opinions & Journals".
4. Assign a memorable keyword and click "Save". I used "gs" to stand for Google Scholar.
5. From any webpage, open a new page or tab by pressing Ctrl+N or Ctrl+T. 
6. If you opened a new tab (Ctrl+T), your cursor should already be in the Firefox Location Bar (the URL for the webpage you are viewing).  If not, press Ctrl+L.
7. Type "[your keyword and your search terms]" (without the quotation marks and brackets) in the Firefox Location Bar and hit enter.  You should be taken right to your search results.  Try "[your keyword] Jerge v. Buettner" and see what case comes up first.
   
8. Once you set up this search bookmark shortcut, you should be able to execute the search even without opening a new page by pressing Ctrl+L and repeating Step #7.  I prefer to run searches in a new tab or page.   
   

Firefox users can use this same method for creating search shortcuts for any website that contains a search bar.  Pretty cool.  I've created shortcuts for this blog's search engine (using "cc" as the bookmark's keyword) and my other favorite blogs.  Internet Explorer users, Dave Gottlieb thinks you're stupid and he hates you.  I don't hate you, but I, too, once was IE and now am Firefox.  There probably are ways of creating similar shortcuts in IE, but you IE users will need to look those up.  Or switch to Firefox.

Postscript (Sun., 22 November 2009) ~  Just checked my Google Analytics and found that 75% of this blog's visitors use IE as their browser.  For you IE users, I did the research and here's how you can set up a shortcut to the Google Scholar search engine for legal opinions and journals:

1. Open the Google Scholar search engine for all federal and state legal opinions and journals by clicking  here or for Google Scholar legal opinions and journals searches to just New York materials by clicking here.  
2. Bookmark the page you chose to open by saving to your Favorites list.  
3. Find the bookmark in your Favorites list and right click on it.
4. Select (left click) "Properties".
5. Assign a keystroke combination in the "Shortcut key" box.  I used Ctrl+Alt+S.  
6. Select (left click) "Apply" and then "OK".  The keystroke shortcut should open your preferred Google Search engine page in IE (or Firefox if that is your default browser) from any window.  

If you're a mouse person and prefer shortcut buttons on your IE toolbar instead of keyboard shortcuts, open your preferred Google Scholar legal opinions and journals page (all or just New York) and right click within the search box.  Select (left click) "Generate Custom Search" and click "Add".  You should now have a Google Scholar button on your toolbar.

Provider that Ignored Verification Requests Estopped from Arguing that Insurer's Premature Follow-Up Verification Request Precludes Any Defenses

NO-FAULT – TIMING OF FOLLOW-UP VERIFICATION – INSURANCE LAW § 5106(A) – 11 NYCRR § 65-3.6(B)
Infinity Health Prods., Ltd. v. Eveready Ins. Co.
(2nd Dept., decided 11/17/2009)

This is for you half-a-loaf folks.

The first sentence of 11 NYCRR § 65-3.6(b) provides:

At a minimum, if any requested verifications has not been supplied to the insurer 30 calendar days after the original request, the insurer shall, within 10 calendar days, follow up with the party from whom the verification was requested, either by telephone call, properly documented in the file, or by mail. (Bold added.)

If a no-fault insurer does not wait the entire 30-day period to issue a follow-up verification request pursuant to § 65-3.6(b), does it "lose" the tolling effect of such verification requests and is it precluded from relying on defenses related to those requests?  Prior to the Second Department's decision in this case, this was the box score on this question:

Psych. & Massage Therapy Assoc., PLLC a/a/o Kendra Harrell v. Progressive Cas. Ins. Co.	5 Misc3d 723 (NYC Civil, Queens Co., decided 11/4/2004)	No preclusion.
Seaside Medical P.C. a/a/o Sandra Bond v. State Farm Mut. Auto Ins. Co.	12 Misc3d 1127 (NYC Civil, Richmond Co., 2006)	Yes, preclusion.
Park Slope Med. & Surgical Supply, Inc. a/a/o Alicia Marsh v. Country-Wide Ins. Co.	19 Misc 3d 1138(A)(NYC Civil, Richmond Co., decided 5/27/2008)	No preclusion.
Infinity Health Prods., Ltd. a/a/o Jermaine Thomson v. Eveready Ins. Co.	21 Misc3d 1 (App. Term, 2nd Dept., decided 7/10/2008)	Yes, preclusion.
Unitrin Advantage Ins. Co. v. Painless Medical, P.C.	2008 NY Slip Op 32365(U) (Sup.Ct., New York Co., decided 8/22/2008)	No preclusion.
Alur Med. Supply, Inc. a/a/o Teresa Radriguez v. Progressive Ins. Co.	23 Misc 3d 130(A) (App. Term, 2nd Dept., decided 4/7//2009)	Yes, preclusion.

In REVERSING the Appellate Term's finding of defense preclusion in this case, the Appellate Division, Second Department, has narrowly ruled that a provider which ignores the no-fault insurer's verification requests altogether is estopped from claiming that the insurer's early or premature follow-up verification request -- sent on Day 27 in this case -- precludes any defenses from being asserted, including the defense that the provider's action is premature because it did not respond to the insurer's verification requests.

It is important to note, as Jason Tenenbaum does over at No Fault Defender, that the Second Department has not ruled that all early or premature follow-up verification requests are okay and inconsequential to the insurer's claim defenses.  That broader question may be answered when the Second Department decides Progressive's appeal in Alur Medical, which does not appear to involve a situation in which the provider completely ignore the insurer's allegedly premature follow-up verification request (sent on Day 30 in that case).

Instead, the Second Department reversed and granted Eveready's cross motion for summary judgment, "on the facts and in the exercise of discretion", dismissing plaintiff's action as premature, "without prejudice to commencement of a new action."  The Second Department held:

There is no dispute here that the defendant timely requested initial verification by sending out its verification request within seven days (on March 21, 2001) after receipt of the plaintiff's claim (on March 14, 2001). There also is no dispute that the plaintiff did not respond to the defendant's timely initial verification request. An insurer does not have to pay or deny a claim until it has received verification of all of the relevant information requested (see 11 NYCRR former 65.15[g][1][i], [2][iii]). The issue in this case is whether an insurer loses the toll of the 30-day rule to pay or deny the claim, which is afforded by an initial timely request for verification, simply because its follow-up verification request is sent 3 days before the expiration of a full 30 days after a plaintiff fails to respond to the initial request. The Insurance regulations stated, in pertinent part, that "if any requested verification has not been supplied to the insurer 30 calendar days after the original request, the insurer shall, within 10 calendar days, follow up with the party from whom the verification was originally requested" (11 NYCRR former 65.15[e][2]).

Although the defendant in this case did not strictly comply with the time limitation set forth in the rule regarding the submission of a second verification request, under the circumstances of this case, the plaintiff is estopped from claiming that the defendant is precluded from asserting any defense to the claim. It would be inequitable to award summary judgment to the plaintiff, which ignored two verification requests, merely because the defendant, slightly prematurely, sent its second verification request a mere 3 days before the expiration of a full 30 days after the first verification request had been sent (see New York & Presbyt. Hosp. v American Tr. Ins. Co., 287 AD2d 699; see generally Chemical Bank v City of Jamestown, 122 AD2d 530; Guberman v William Penn Life Ins. Co. of N.Y., 146 AD2d 8). Indeed, in light of the particular factual circumstances herein, it would be incongruous to conclude that the Insurance regulation regarding follow-up verification, or any other statute or rule, warrants a result which would, in effect, penalize an insurer who diligently attempts to obtain the information necessary to make a determination of a claim, and concomitantly, rewards a plaintiff who makes no attempt to even comply with the insurer's requests. Such a result is not contemplated by the "no-fault law" or its regulations, which should be interpreted to promote the expeditious handling of verification requests and prompt claim resolution.

Furthermore, inasmuch as the plaintiff did not respond to either of the verification requests, the 30-day period within which the defendant was required to pay or deny the claim did not commence to run (see 11 NYCRR former 65.15[g][1][i], [2][iii]; Westchester County Med. Ctr. v New York Cent. Mut. Fire Ins. Co., 262 AD2d 553). Thus, the plaintiff's action is premature (see Hospital for Joint Diseases v New York Cent. Mut. Fire Ins. Co., 44 AD3d 903; Hospital for Joint Diseases v ELRAC, Inc., 11 AD3d 432).

The court could have disposed of this appeal simply by ruling that an early or premature follow-up verification request is of no legal consequence.  It did not do so, however, perhaps suggesting to some that had plaintiff responded to Eveready's verification requests, the result in this case would have been  an affirmance.

I'm not going to speculate on that possibility, but instead await the outcome of Progressive's Alur Medical appeal.   I will say, however, that I believe the Second Department is already incorrect in viewing the 30-day period of 65-3.6(b) as a "time limitation".  If that period truly were a time limitation, such as a statute of limitations period, the early issuance of a follow-up verification request could not be deemed to violate it, since time limitations necessarily connote an outside limit for doing something, rather than proscribe certain conduct during the limitations period. The 30-day period of 65-3.6(b) should properly be viewed as a minimum prescription, rather than an absolute proscription.  

New York statutes contain numerous examples of actual proscriptive waiting periods.  For instance, Insurance Law § 3420(a)(2) effectively requires a judgment creditor to wait at least 30 days after serving an insured and its insurer with notice of entry of a money judgment before suing that insurer to enforce the judgment.  Similarly, General Municipal Law § 50-i requires a party claiming personal injury, wrongful death or property damage due to the negligence of a municipality to wait at least 30 days after serving a notice of claim before commencing suit against the municipality. Legislators and regulators know how to draft proscriptive waiting periods.  The 30-day period of 65-3.6(b) is not such a period. 

When the Second Department revisits the 30-day period of 65-3.6(b), I hope it doesn't overlook the first three words of that section.  "At a minimum" must mean something.  To me, those words must mean that "at a minimum", no-fault insurers must send follow-up verification requests within 30+10 days after their initial additional verification requests.  The "minimum" is the insurer's minimum handling requirement.  Substitute "at the very least" into the first sentence of 65-3.6(b) and the incongruity and inequity of penalizing a no-fault insurer for sending a follow-up verification request sooner than 31 days after the initial additional verification request becomes obvious.  At least to me.  At a minimum.

Trial Court Did Not Abuse Its Discretion in Excluding Reference to Defendant's Expert's Stock Ownership in Defendant's Liability Insurer

EVIDENCE OF DEFENDANT'S LIABILITY INSURANCE – PROBATIVE VS. PREJUDICIAL VALUE
Salm v. Moses
(Ct. Apps., decided 10/22/2009)

Hat tip to Gregory McGoldrick over at McGoldrick's New York State Civil Evidence for spotting and blogging this decision. 

This is not an insurance coverage decision, but one about insurance coverage.  It has long been the rule in New York that evidence that a civil defendant carries liability insurance is generally inadmissible at trial.  In this dental malpractice action, moved in limine to preclude plaintiff from cross-examining defendant's expert regarding the fact that he and defendant were both shareholders of and insured by the same dental malpractice insurance company.  Plaintiff opposed the motion, but did not request a voir dire of the expert to inquire into his connection to the insurer.  After a colloquy with counsel, Supreme Court granted the motion, finding that the probative value of the inquiry would be outweighed by the prejudicial effect of having defendant's insurance coverage revealed to the jury. Upon plaintiff's appeal following a jury verdict in favor of defendant, the Appellate Division affirmed (57 AD3d 370 [1st Dept 2008]). The Court of Appeals granted plaintiff leave to appeal.

In AFFRIMING the Appellate Division's decision, the Court of Appeals held that the trial court did not abuse its discretion in granting the defendant's motion in limine:   

Evidence that a defendant carries liability insurance is generally inadmissible (see Leotta v Plessinger, 8 NY2d 449, 461 [1960], rearg denied 9 NY2d 688 [1961]; Simpson v Foundation Co., 201 NY 479, 490 [1911]). The rationale underlying this rule is twofold. First, "it might make it much easier to find an adverse verdict if the jury understood that an insurance company would be compelled to pay the verdict" (Loughlin v Brassil, 187 NY 128, 135 [1907]). Second, evidence of liability insurance injects a collateral issue into the trial that is not relevant as to whether the insured acted negligently. Although we have acknowledged that liability insurance has increasingly become more prevalent and that, consequently, jurors are now more likely to be aware of the possibility of insurance coverage, we have continued to recognize the potential for prejudice (see Oltarsh v Aetna Ins. Co., 15 NY2d 111, 118-119 [1965]; see also Barker and Alexander, Evidence in New York State and Federal Courts § 4:63, at 260-261 [5 West's NY Prac Series 2001] ["Because the prejudice quotient is obvious, the rule barring such evidence is one of the least controversial in the law of evidence"]).

The rule, however, is not absolute. If the evidence is relevant to a material issue in the trial, it may be admissible notwithstanding the resulting prejudice of divulging the existence of insurance to the jury. For example, we have held that evidence that a defendant insured a premises is relevant to demonstrate ownership or control over it (see Leotta, 8 NY2d at 462). Likewise, it was proper to allow cross-examination of a physician regarding the fact that the defendant's insurance company retained him to examine the plaintiff in order to show bias or interest on the part of the witness (see Di Tommaso v Syracuse Univ., 172 App Div 34, 37 [4th Dept 1916], affd without opn 218 NY 640 [1916]).

Here, we perceive no abuse of discretion in Supreme Court's evidentiary ruling. Such evidence may be excluded if the trial court finds that the risk of confusion or prejudice outweighs the advantage in receiving it (see Kish v Board of Educ. of City of N.Y., 76 NY2d 379, 384-385 [1990]). In this case, plaintiff speculated during the colloquy that a verdict in defendant's favor could result in a $100 benefit — at the time of the expert's death, disability or retirement — based on the expert's shareholder status in OMSNIC. The trial court's finding that any such financial interest was likely "illusory" and that the possibility of bias was attenuated was reasonable on this record. Absent a more substantial connection to the insurance company — or at least something greater than a de minimis monetary interest in the carrier's exposure — the court did not engage in an abuse of discretion in precluding the testimony. We note that a voir dire of an expert outside the presence of the jury can better aid the court in exploring the potential for bias.

Judge Piggott concurred in the majority's conclusion but wrote separately because, in his view, "courts should no longer treat insurance coverage as the third rail of trial practice such that it can neither be mentioned, even incidentally, nor be the basis of appropriate inquiry as to possible bias, as in the ruling here."

Live Tweeting of the NYACT Insurance Claims & SIU Personnel Conference on November 17th & 18th

For those of you who wanted but are unable to attend the NYACT 2-Day Education Conference for Insurance Claims and SIU Personnel in Smithtown, Long Island tomorrow and Wednesday, I'll be live microblogging the conference on Twitter.  If you don't follow @royamura or @CoverageCounsel but want to follow the live tweets, load http://search.twitter.com/search?q=NYACT into your Internet browser or click here on Tuesday morning and follow along by periodically refreshing your browser.  The program runs from 8:30 a.m. to 4:30 p.m. each day.  Perhaps I'll conscript someone into tweeting my Conducting Difficult EUOs presentation on Wednesday morning.

If there are other tweeple out there who will be attending the conference and would like to add to the microblog, use hashtag #NYACT.

If you have a Twitter account and have any questions for the presenters, you can tweet them to #NYACT and I'll do my best to ask them for you.

Fourth Department Rejects Attorneys' Fees Claim for Defending Insurer's Appeal -- Not So Mighty Midgets

EMPLOYER'S LIABILITY – RIGHT TO INDEPENDENT COUNSEL – ATTORNEYS' FEES
Thomas Johnson, Inc. v. State Ins. Fund
(4th Dept., decided 11/13/2009)

Since at least 1979, the New York rule regarding the recoverability of attorneys' fees in declaratory judgment actions has been that it is only when the insured is "cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations" and wins the DJ action that the insured may recover its attorneys' fees.  The seminal case pronouncing that rule is the New York Court of Appeals' decision in Mighty Midgets v Centennial Ins. Co., 47 NY2d 12 (1979), and the rule has come to be known simply as the "Mighty Midgets rule".  Generally speaking, the recoverability of attorneys' fees depends on which of the two parties -- insured or insurer -- commences the DJ action:  if the insured commenced it, no attorneys' fees regardless of the outcome; if the insurer commenced it and loses, attorneys' fees can be awarded. 

Some inventive counsel, including the plaintiff's law firm in this DJ action, have argued that even in cases such as this where the insured was the one to initiate the DJ action, the insured should be able to recover its attorneys' fees for defending against the insurer's counterclaim (which is unnecessary in a DJ action since the court is obligated to declare the rights and responsibilities of all parties to the DJ action), motion for summary judgment, or appeal of an adverse order or judgment. In this case, the defendant State Insurance Fund unsuccessfully appealed from the lower court's judgment declaring that the insured was entitled to an attorney of its own choosing, at SIF's expense, in an underlying personal injury action.

Counsel for the plaintiff then sought to recover their fees for defending against the insurer's unsuccessful appeal and managed to convince Niagara Supreme that such fees were recoverable under the Midget Midgets rule because the insurer's appeal had cast plaintiff in a "defensive posture" vis-à-vis that appeal.  The SIF appealed the award of such attorneys' fees to the plaintiff insured, and the Fourth Department REVERSED, holding:

We agree with defendant that Supreme Court erred in granting judgment in plaintiff's favor declaring that defendant is obligated to pay all costs and fees incurred by plaintiff in the defense of an appeal taken by defendant from a prior judgment (Thomas Johnson, Inc. v State Ins. Fund, 50 AD3d 1544). The prior judgment, inter alia, granted that part of plaintiff's cross motion seeking summary judgment declaring that plaintiff is entitled to an attorney of its own choosing, at defendant's expense, in the underlying personal injury action. "[I]t is well settled that an insured may not be awarded attorney fees incurred in the prosecution of a declaratory [judgment] action against the insurer to determine coverage" (Penn Aluminum v Aetna Cas. & Sur. Co., 61 AD2d 1119, 1120), unless the insured was "cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations" (Mighty Midgets v Centennial Ins. Co., 47 NY2d 12, 21), and that is not the case here. Moreover, the fact that defendant took an appeal in a declaratory judgment action commenced by plaintiff is of no moment (see generally Crouse W. Holding Corp. v Sphere Drake Ins. Co., 248 AD2d 932, affd 92 NY2d 1017). We therefore modify the judgment accordingly.

No moment.  Same holding ostensibly should apply to fees for defending against insurer's counterclaims or defensive motions or cross motions for summary judgment in DJ actions in which the insured occupies the plaintiff's position. I have an insured-initiated DJ action heading to a jury trial in January in which the same law firm has made the same argument.  Must add this decision to my motion in limine.  Grazie.

First Department Upholds Primary Insurer's Coverage Denial Based on Designated Ongoing Operations/Construction Exclusion

CGL – COINSURANCE – EXCESS VS. PRIMARY – CONSTRUCTION EXCLUSION – INSURANCE LAW § 3420(D)
American Guar. & Liab. Ins. Co. v. State Natl. Ins. Co., Inc.
(1st Dept., decided 11/12/2009)

State National Insurance Company insured S&W Realty, LLC, under a $1 million per occurrence CGL policy, which contained this Designated Ongoing Operations/Construction Exclusion:

Description of Designated Ongoing Operation(s):

Construction Exclusion:  Construction of buildings or structures including, but not limited to, erection ... painting, leaning or pointing, and all work or activity in connection with the foregoing.  This exclusion does not apply to incidental repair and maintenance performed by the named insured on buildings owned and operated by the named insured.

This insurance does not apply to “bodily injury” or “property damage” arising out of the ongoing operations described in the Schedule of this endorsement, regardless of whether such operations are conducted by you or on your behalf or wliether the operations are conducted for yourself or for others.

S&W was also insured under a $50 million purchasing group commercial umbrella liability policy issued by American Guarantee & Liability Insurance Company. 

On March 30, 2004, a contractor's employee fell from a scaffold and was injured while doing pointing work on an apartment building owned by S&W.  Within days of the accident, both State and American were notified of the employee's fall and injuries.  Weeks later, the employee commenced a personal injury action against S&W, alleging causes of action sounding in common law negligence and violations of New York Law Law §§ 200, 240(1) and 241(6).

Presumably based on the possibility that the employee's injuries had arisen from incidental repair and maintenance of the insured's building, defendant Tower Risk Management Company, acting as State's general managing agent, issued a reservation of rights letter and retained defense counsel to defend S&W in early May.  On May 21, 2004, Tower received a letter from S&W's managing agent which indicated that S&W and the injured party's employer did not have a written contract for the job “as it was a minor building repair, a leak into two apartments[.]"

In a November 2004 bill of particulars report letter, S&W's retained defense counsel advised Tower that it appeared "likely" that the injured employee would be able to sustain a Labor Law § 240(1) cause of action.  By letter dated November 6, 2006, defense counsel advised Tower that the court had granted partial summary judgment to the underlying plaintiff on his Labor Law § 240(1) claim, and that it had been determined "that the job was much larger and [they] did 'pointing work' on the entire front facade of the building."

By letter dated January 30, 2007, Tower disclaimed coverage on State’s behalf to S&W based on the policy's construction exclusion.  American subsequently sent a letter to Tower on behalf of S&W, requesting that State withdraw its coverage disclaimer based on what American asserted was the inapplicability of the construction exclusion and untimeliness of State's coverage denial in violation of Insurance Law § 3420(d).

In May 2007, the matter went to mediation and settled, without State's participation,  for $2.1 million.  American funded the entire settlement and commenced this action to recover State's $1 million in primary coverage, plus interest.

On the parties' motion and cross motion, New York County Supreme Court Justice Michael Stallman granted summary judgment to State and Tower, dismissing the complaint.  Justice Stallman rejected American's arguments that the construction exclusion was ambiguous, and that State had failed to issue a disclaimer in a timely fashion, in violation of Insurance Law § 3420(d).  American appealed.

In AFFIRMING the award of summary judgment to State and Tower, the First Department  held:

Plaintiff, the excess insurance carrier, sought a declaration that the coverage disclaimer by defendant State National, the primary insurer, for reimbursement of funds advanced by the excess insurer on the insured's behalf to settle the underlying personal injury action, was untimely as a matter of law, and that the primary insurer's policy exclusion was inapplicable and ambiguous. The court properly found that the primary insurer's "construction" exclusion was unambiguous and applied to the activities being performed by the injured party at the time of his accident. The exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case (see Continental Cas. Co. v Rapid-Am. Corp., 80 NY2d 640, 652 [1993]). The court also properly found that the protections of Insurance Law § 3420[d] were inapplicable to one insurer's claim for reimbursement from another insurer (see Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD3d 84, 91-92 [2005]).

It apparently did not matter to either the motion court or the First Department that, unlike in Bovis Lend Lease LMB, the mutual insured was a nominal party in this coinsurance recovery action, settlement monies had already been paid on behalf of the mutual insured, and American was proceeding against State, in part, as the mutual insured's subrogee.  Thus, the Insurance Law § 3420(d) argument of untimeliness American was making against State was being made as much on behalf of S&W as for itself.

Contrast this decision with the First Department's ruling in JT Magen v. Hartford Fire Ins. Co., 64 AD3d 266 (1st Dept., 5/14/2009), in which the court clarified its holding in Bovis Lend Lease LMB and held that a tender letter which one insurer sends to another insurer — asking that their mutual insureds be provided with a defense and indemnity as additional insureds under the latter insurer's policy — fulfills that policy's notice-of-claim requirements so as to trigger that insurer's obligation to issue a timely disclaimer pursuant to Insurance Law § 3420(d).  The First Department made no mention of its JT Magen decision in this case presumably because both State and American became aware of the underlying accident and injuries at the same time, there was no tender from American to State (American being the excess/umbrella rather than a co-primary insurer), and State assumed S&W's defense in the underlying personal injury action.

New York State Legislature Passes New Anti-Subrogation Law -- Effective November 12, 2009

On November 10, 2009, both the New York State Senate and Assembly passed Senate Bill S66002, as substituted for Assembly Bill A40002.  The bill was delivered to Governor Paterson, who signed it today, November 12, 2009.

Comprising six separate parts, A through F, the bill is self-described as:

AN ACT to amend the insurance law, in relation to municipal cooperative health benefit plans, a study of community rating and the provision of claims experience to a municipality (Part A); to amend the general municipal law and the highway law, in relation to mutual aid (Part B); to amend the public health law, in relation to the composition of county and part-county boards of health (Part C); to amend the general municipal law, in relation to purchasing requirements (Part D); to amend the public authorities law and the local finance law, in relation to authorizing certain bonds to be issued or purchased by the municipal bond bank agency (Part E); and to amend the civil practice law and rules, in relation to treating public and private defendants equally when considering the impact of collateral source payments in tort claims for personal injury, property damage or wrongful death; to amend the general obligations law, in relation to protecting parties to the settlement of a tort claim from certain unwarranted lien, reimbursement and subrogation claims; and to repeal certain provisions of the civil practice law and rules relating to collateral source payments (Part F)

It is Part F that will affect the prospective handling of tort claims in New York State.  The nine sections of Part F of the bill are:

• § 1 -- repeals subdivisions (a) and (b)of CPLR § 4545
• § 2 -- amends subdivision (c) and reletters it as subdivision (a) of CPLR § 4545
• § 3 -- reletters subdivision (d) and as subdivision (b) of CPLR § 4545
• § 4 -- repeals subdivision (e) of CPLR Rule 4111
• § 5 -- amends subdivision (f) and reletters it subdivision (e) of CPLR Rule 4111
• § 6 -- amends subdivision (b) of CPLR § 4213
• § 7 -- adds a new subdivision 4 to General Obligations Law § 5-101
• § 8 -- adds new section 5-335 to General Obligations Law 
• § 9 -- provides for the effective dates of these amended and new statutes
  

The complete text of the entire bill is here.  The text of Part F, with stricken statutory language language bracketed and struckthrough and new provisions capitalized and underlined, is as follows:

PART F

19  Section 1. Subdivisions (a) and (b) of section 4545 of the civil prac-
   20  tice law and rules are REPEALED.
   21    § 2. Subdivision (c) of section 4545 of the  civil  practice  law  and
   22  rules,  as  added by chapter 220 of the laws of 1986, is amended to read
   23  as follows:
   24    [(c)] (a) Actions for personal injury, injury to property or  wrongful
   25  death.    In  any action brought to recover damages for personal injury,
   26  injury to property or wrongful  death,  where  the  plaintiff  seeks  to
   27  recover  for  the  cost  of medical care, dental care, custodial care or
   28  rehabilitation services,  loss  of  earnings  or  other  economic  loss,
   29  evidence shall be admissible for consideration by the court to establish
   30  that  any  such past or future cost or expense was or will, with reason-
   31  able certainty, be replaced or indemnified, in whole or  in  part,  from
   32  any  collateral  source  [such  as  insurance (], except for life insur-
   33  ance[), social security (except  those  benefits  provided  under  title
   34  XVIII  of  the  social  security act), workers' compensation or employee
   35  benefit programs (except such collateral  sources  entitled  by  law  to
   36  liens  against any recovery of the plaintiff)]  AND THOSE PAYMENTS AS TO
   37  WHICH THERE IS A STATUTORY RIGHT OF REIMBURSEMENT.  If the  court  finds
   38  that any such cost or expense was or will, with reasonable certainty, be
   39  replaced or indemnified from any SUCH collateral source, it shall reduce
   40  the  amount  of  the award by such finding, minus an amount equal to the
   41  premiums paid by the plaintiff for such benefits for the two-year period
   42  immediately preceding the accrual of such action  and  minus  an  amount
   43  equal  to the projected future cost to the plaintiff of maintaining such
   44  benefits. In order to find that any future cost or  expense  will,  with
   45  reasonable  certainty,  be  replaced  or  indemnified  by the collateral
   46  source, the court must find that the plaintiff is  legally  entitled  to
   47  the  continued receipt of such collateral source, pursuant to a contract
   48  or otherwise  enforceable  agreement,  subject  only  to  the  continued
   49  payment  of  a  premium  and  such other financial obligations as may be
   50  required by such agreement.  ANY COLLATERAL SOURCE DEDUCTION REQUIRED BY
   51  THIS SUBDIVISION SHALL BE MADE BY THE TRIAL COURT AFTER THE RENDERING OF
   52  THE JURY'S VERDICT.   THE PLAINTIFF MAY PROVE  HIS  OR  HER  LOSSES  AND
   53  EXPENSES  AT THE TRIAL IRRESPECTIVE OF WHETHER SUCH SUMS WILL LATER HAVE
   54  TO BE DEDUCTED FROM THE PLAINTIFF'S RECOVERY.
       S. 2                               19                               A. 2

    1    § 3. Subdivision (d) of section 4545 of the  civil  practice  law  and
    2  rules is relettered subdivision (b).
    3    §  4. Subdivision (e) of rule 4111 of the civil practice law and rules
    4  is REPEALED.
    5    § 5. Subdivision (f) of rule 4111 of the civil practice law and rules,
    6  as amended by chapter 100 of the laws of 1994, is relettered subdivision
    7  (e) and amended to read as follows:
    8    (e) Itemized verdict in certain  actions.  In  an  action  brought  to
    9  recover  damages  for  personal  injury,  injury to property or wrongful
   10  death, which is not subject to [subdivisions] SUBDIVISION (d) [and  (e)]
   11  of this rule, the court shall instruct the jury that if the jury finds a
   12  verdict awarding damages, it shall in its verdict specify the applicable
   13  elements  of  special  and general damages upon which the award is based
   14  and the amount assigned to each element including, but not  limited  to,
   15  medical expenses, dental expenses, loss of earnings, impairment of earn-
   16  ing ability, and pain and suffering. Each element shall be further item-
   17  ized  into  amounts  intended  to  compensate for damages that have been
   18  incurred prior to the verdict and amounts  intended  to  compensate  for
   19  damages  to  be incurred in the future. In itemizing amounts intended to
   20  compensate for future damages, the jury shall set forth  the  period  of
   21  years  over which such amounts are intended to provide compensation.  In
   22  actions in which article fifty-A or fifty-B of this chapter applies,  in
   23  computing  said  damages, the jury shall be instructed to award the full
   24  amount of future damages, as calculated, without  reduction  to  present
   25  value.
   26    §  6.  Subdivision  (b)  of section 4213 of the civil practice law and
   27  rules, as separately amended by chapters 485 and  682  of  the  laws  of
   28  1986, is amended to read as follows:
   29    (b)  Form  of  decision.  The  decision of the court may be oral or in
   30  writing and shall state the facts it deems  essential.  In  [a  medical,
   31  dental  or podiatric malpractice action or in an action against a public
   32  employer or a public employee who is subject  to  indemnification  by  a
   33  public  employer  with respect to such action or both, as such terms are
   34  defined in subdivision (b) of section forty-five hundred forty-five, for
   35  personal injury or wrongful death arising out of an injury sustained  by
   36  a public employee while acting within the scope of his public employment
   37  or  duties,  and  in]  any [other] action brought to recover damages for
   38  personal injury, injury to  property,  or  wrongful  death,  a  decision
   39  awarding  damages  shall  specify the applicable elements of special and
   40  general damages upon which the award is based and the amount assigned to
   41  each element, including but not  limited  to  medical  expenses,  dental
   42  expenses,  podiatric  expenses,  loss of earnings, impairment of earning
   43  ability, and pain and suffering. In a medical, dental or podiatric malp-
   44  ractice action, [and in any other action brought to recover damages  for
   45  personal  injury,  injury  to  property, or wrongful death, each element
   46  shall be further  itemized  into  amounts  intended  to  compensate  for
   47  damages  which  have  been  incurred  prior  to the decision and amounts
   48  intended to compensate for damages to be  incurred  in  the  future.  In
   49  itemizing  amounts  intended to compensate for future damages, the court
   50  shall set forth the period of years over which such amounts are intended
   51  to provide compensation. In computing  said  damages,  the  court  shall
   52  award  the  full  amount  of  future  damages,  as  calculated,  without
   53  reduction to present value] COMMENCED ON OR AFTER JULY TWENTY-SIXTH, TWO
   54  THOUSAND THREE, THE COURT'S DECISION AS TO FUTURE DAMAGES SHALL BE ITEM-
   55  IZED IN ACCORDANCE WITH SUBDIVISION (D) OF RULE FORTY-ONE HUNDRED ELEVEN
   56  OF THIS CHAPTER.  IN ANY ACTION BROUGHT TO RECOVER DAMAGES FOR  PERSONAL
       S. 2                               20                               A. 2

    1  INJURY,  INJURY  TO  PROPERTY  OR  WRONGFUL DEATH, OTHER THAN A MEDICAL,
    2  DENTAL OR PODIATRIC MALPRACTICE ACTION COMMENCED ON OR AFTER JULY  TWEN-
    3  TY-SIXTH,  TWO THOUSAND THREE, THE COURT'S DECISION AS TO FUTURE DAMAGES
    4  SHALL  BE  ITEMIZED IN ACCORDANCE WITH SUBDIVISION (E) OF RULE FORTY-ONE
    5  HUNDRED ELEVEN OF THIS CHAPTER.
    6    § 7. Section 5-101 of the general obligations law is amended by adding
    7  a new subdivision 4 to read as follows:
    8    4. AS USED IN SECTION 5-335 OF THIS ARTICLE, THE TERM "BENEFIT PROVID-
    9  ER" MEANS ANY INSURER, HEALTH MAINTENANCE ORGANIZATION,  HEALTH  BENEFIT
   10  PLAN,  PREFERRED  PROVIDER  ORGANIZATION, EMPLOYEE BENEFIT PLAN OR OTHER
   11  ENTITY WHICH PROVIDES  FOR  PAYMENT  OR  REIMBURSEMENT  OF  HEALTH  CARE
   12  EXPENSES,  HEALTH CARE SERVICES, DISABILITY PAYMENTS, LOST WAGE PAYMENTS
   13  OR ANY OTHER BENEFITS UNDER A POLICY OF INSURANCE OR  CONTRACT  WITH  AN
   14  INDIVIDUAL OR GROUP.
   15    §  8.  The  general obligations law is amended by adding a new section
   16  5-335 to read as follows:
   17    § 5-335. LIMITATION OF  NON-STATUTORY  REIMBURSEMENT  AND  SUBROGATION
   18  CLAIMS IN PERSONAL INJURY AND WRONGFUL DEATH ACTIONS.  (A) WHEN A PLAIN-
   19  TIFF SETTLES WITH ONE OR MORE DEFENDANTS IN AN ACTION FOR PERSONAL INJU-
   20  RIES,  MEDICAL,  DENTAL, OR PODIATRIC MALPRACTICE, OR WRONGFUL DEATH, IT
   21  SHALL BE CONCLUSIVELY PRESUMED THAT THE SETTLEMENT DOES NOT INCLUDE  ANY
   22  COMPENSATION  FOR  THE COST OF HEALTH CARE SERVICES, LOSS OF EARNINGS OR
   23  OTHER ECONOMIC LOSS TO THE EXTENT THOSE LOSSES OR EXPENSES HAVE BEEN  OR
   24  ARE OBLIGATED TO BE PAID OR REIMBURSED BY A BENEFIT PROVIDER, EXCEPT FOR
   25  THOSE  PAYMENTS AS TO WHICH THERE IS A STATUTORY RIGHT OF REIMBURSEMENT.
   26  BY ENTERING INTO ANY SUCH SETTLEMENT, A PLAINTIFF SHALL NOT BE DEEMED TO
   27  HAVE TAKEN AN ACTION IN DEROGATION OF  ANY  NONSTATUTORY  RIGHT  OF  ANY
   28  BENEFIT  PROVIDER  THAT  PAID  OR  IS  OBLIGATED  TO PAY THOSE LOSSES OR
   29  EXPENSES; NOR SHALL A PLAINTIFF'S ENTRY INTO SUCH SETTLEMENT  CONSTITUTE
   30  A  VIOLATION  OF  ANY  CONTRACT  BETWEEN  THE PLAINTIFF AND SUCH BENEFIT
   31  PROVIDER.
   32    EXCEPT WHERE THERE IS A STATUTORY RIGHT  OF  REIMBURSEMENT,  NO  PARTY
   33  ENTERING  INTO SUCH A SETTLEMENT SHALL BE SUBJECT TO A SUBROGATION CLAIM
   34  OR CLAIM FOR REIMBURSEMENT BY A BENEFIT PROVIDER AND A BENEFIT  PROVIDER
   35  SHALL  HAVE NO LIEN OR RIGHT OF SUBROGATION OR REIMBURSEMENT AGAINST ANY
   36  SUCH SETTLING PARTY, WITH RESPECT TO THOSE LOSSES OR EXPENSES THAT  HAVE
   37  BEEN OR ARE OBLIGATED TO BE PAID OR REIMBURSED BY SAID BENEFIT PROVIDER.
   38    (B)  THIS  SECTION SHALL NOT APPLY TO A SUBROGATION CLAIM FOR RECOVERY
   39  OF  ADDITIONAL  FIRST-PARTY  BENEFITS  PROVIDED  PURSUANT   TO   ARTICLE
   40  FIFTY-ONE  OF  THE INSURANCE LAW. THE TERM "ADDITIONAL FIRST-PARTY BENE-
   41  FITS", AS USED IN THIS SUBDIVISION, SHALL HAVE THE SAME MEANING GIVEN IT
   42  IN SECTION 65-1.3 OF TITLE 11 OF THE CODES, RULES AND REGULATIONS OF THE
   43  STATE OF NEW YORK AS OF THE EFFECTIVE DATE OF THIS STATUTE.
   44    § 9. This act shall take effect immediately and  shall  apply  to  all
   45  actions  and  proceedings  commenced  on  or  after such date; provided,
   46  however, that sections four through eight of this act shall  also  apply
   47  to  any action or proceeding which was commenced prior to such effective
   48  date where, as of such date, either (a) a trial of the  issues  has  not
   49  yet  commenced,  or  (b)  the parties have not yet entered into a stipu-
   50  lation of settlement.

Effective Dates:

Sections 1, 2 and 3 of Part F of this act (the changes to CPLR § 4545) will take effect "immediately" upon the Governor's signature of this bill (which occurred on November 12, 2009) and will apply to all actions commenced on and after that date.

Sections 4, 5 (changes to CPLR Rule 4111), 6 (change to CPLR § 4213),7 (addition of General Obligations Law § 5-101[4]), and 8 (addition of General Obligations Law § 5-335) will also apply to any applicable action or proceeding that was commenced prior to November 12, 2009, (Governor's signing date) if as of such date either the trial had not yet commenced or the parties had not "entered into" (settlement memorialized in writing or one "spread on the record") a stipulation of settlement. 

For medical, dental, or podiatric malpractice actions commenced on and after July 26, 2003, the court's decision on future damages must be itemized in accordance with CPLR Rule 4111(d).

For actions brought to recover damages for personal injury, injury to property or wrongful death commenced on and after July 26, 2003, that are not medical, dental or podiatric malpractice actions, the court's decision on future damages must be itemized in accordance with the relettered CPLR Rule 4111(e).

Purpose of Part F:

When predecessor Senate Bill S6068 was passed by just the Senate back in July, the New York State Trial Lawyers Association website pronounced it a legislative victory:

NYSTLA is proud to announce that the New York State Senate voted to pass a mandate relief bill, S.6068 (Sampson), on July 17th, 2009, which includes an anti-subrogation provision. This is a major victory for the civil justice system and injured New Yorkers. The anti-subrogation provision amends the general obligations law to protect all settling plaintiffs and defendants in a personal injury action from certain unwarranted reimbursement and subrogation claims.

This bill will remedy recent, ill-advised Court of Appeals decisions such as Teichman v. Community Hosp. of Western Suffolk , 87 N.Y.2d 514 (1996), and Fasso v. Doerr, 12 N.Y.3d 80 (Feb. 24, 2009). These decisions incorrectly opened the door to benefits providers, such as health insurers, "double-dipping" by seeking reimbursement from settling defendants who have caused personal injuries to a plaintiff who has health insurance.

APIP Subrogation Exempted:

Notice that the new GOL § 5-335 specifically exempts subrogation claims for recovery of "additional first-party benefits" as provided for in Insurance Law Article 51 and defined by the prescribed APIP endorsement found at 11 NYCRR § 65-1.3.  This means that APIP subrogation claims are still fully viable. 

Property Damage Subrogation Claims Unaffected:

On its face, the new GOL § 5-335 will apply only to and limit non-statutory reimbursement and subrogation claims in personal injury and wrongful death actions, and, as to such actions, only insurers or entities qualifying as a "benefit provider" will be affected.  GOL § 5-101(4) will define a "benefit provider" as "any insurer, health maintenance organization, health benefit plan, preferred provider organization, employee benefit plan or other entity which provides for payment or reimbursement of health care expenses, health care services, disability payments, lost wage payments or any other benefits under a policy of insurance or contract with an individual or group."

GOL § 5-335 should not apply to insurers that afford first-party property coverage benefits to their insureds and then seek to exercise their subrogation rights because those insurers should not fall within the definition of a "benefit provider" under that section. 

Common Law Anti-Subrogation Rule Unaffected:

The new law should not affect what has come to be known as New York's common law "antisubrogation rule".  The common law rule operates as a party's liability defense based on coverage principles, not a recovery right of subrogation.

Second Department Appellate Division Grants Progressive Insurance Company Leave to Appeal in Alur Medical Supply

Hat tip to Dave Gottlieb, hat tipping Damin Toell. 

On November 5, 2009, the Appellate Division, Second Department, granted the unopposed motion of Progressive Insurance Company for leave to appeal the Appellate Term, Second Department's April 7, 2009 decision in Alur Med. Supply, Inc. a/a/o Teresa Radriguez v. Progressive Ins. Co., 23 Misc 3d 130(A) (App. Term, 2d Dept., 2d, 11th & 13th Dists., decided 4/7/2009).

In Alur Medical, the Appellate Term held that a no-fault insurer can be penalized for doing something too quickly.  Yes, that's right.  Or wrong.  The court held for the second time that a follow-up verification request sent before the expiration of that initial 30-day period of 11 NYCRR § 65-3.6(b) is premature and a nullity, rendering the no-fault insurer's eventual denial untimely and precluding it from raising most defenses, including lack of medical necessity.  Progressive had sent its follow-up verification request on Day 30, instead of on Days 31 through 41. 

Assuming a standard briefing schedule, we should see a decision from the Second Department in mid-2010.

Permanent Stay of Uninsured Motorists Coverage Claim Arbitration Granted -- Liability Coverage for Leased Trailer Found to Apply to Tractor

UM – AUTO – GRAVES AMENDMENT – TRACTOR TRAILER LIABILITY – VEHICLE & TRAFFIC LAW § 388
Matter of State Farm Mut. Auto. Ins. Co. v. Morales
(Sup. Ct., Nassau Co., decided 10/22/2009)

State Farm's insured, Jose Morales, claimed injuries from an accident in which his vehicle was struck in the rear by a tractor trailer.  An accident report indicated that the offending vehicle was owned by Tuscan Lehigh Dairies and insured by Ace American Insurance Company.  Morales made a claim to State Farm for uninsured motorists (UM) coverage benefits after Ace presumably disclaimed or denied coverage. State Farm commenced this special proceeding pursuant to CPLR Article 75 for a permanent stay of the UM claim arbitration, contending that there was liability coverage for the tractor trailer, and naming both Tuscan and Ace as proposed additional respondents.

In an opposing attorney's affirmation, Tuscan alleged that it owned only the trailer, and not the tractor.  The tractor allegedly was owned by Action Transport and being driven by one of Action's employees at the time of the accident.  Tuscan also submitted an opposing affidavit of a Kathy Weaver, the human resources manager of Dean NE, LLC, which purportedly was associated with Tuscan.  Weaver's affidavit stated that Tuscan was in the business of renting or leasing trailers to haulers under hauling agreements for the purpose of moving its products from on point to another and, as such, was exempt from vicarious liability under New York's Vehicle & Traffic Law § 388 by operation of the Graves Amendment. Her affidavit also stated there was an agreement between Dean NE, LLC and Action Transport for the purpose of hauling products of Tuscan, and that agreement required Action Transport to assume full responsibility for the trailer including any claims by third parties.

A hearing was conducted at which the parties stipulated that: (1) the trailer owned by Tuscan was insured on the accident date; (2) State Farm could not prove any policy of insurance was issued to Action Transport for the operation of its tractor on the accident date; (3) the trailer itself did not come into contact with Morales' vehicle; and (4) the only issued to be determined in this proceeding was whether the insurance policy on Tuscan's trailer would provide coverage for and negligence on the part of the tractor pulling the trailer.

Although Suffolk Supreme had previously held in Zawatsky v Barker Materials, Ltd., that the Graves Amendment does apply to leased trailers, Nassau County Supreme Court Justice Antonio Brandveen rejected Tuscan's Graves Amendment argument and granted State Farm's petition to permanently stay Morales' UM coverage claim arbitration:

The affidavit of Kathy Weaver stating she is the Human Resources Manager of DEAN NE, LLC which is associated with TUSCAN and Garelick Farms was not notarized and can not be considered by this court. Further, the purported affidavit asserting that Dean NE, LLC is "associated" with TUSCAN is vague and imprecise, that standing alone, is insufficient to establish a connection between the two entities to give TUSCAN standing to assert the application of the Graves Amendment in this action.

*  *  *  *  *

It is clear that the provisions of VTL § 388(1) provide that when a tractor and trailer are being operated in combination the owners shall be jointly and severally liable.  VTL § 388(2) clearly defines a vehicle for purposes of this statute to include a semitrailer and a trailer.

In MOUNT VERNON FIRE INSURANCE COMPANY v. THE TRAVELERS INDEMNITY COMPANY, 63 A.D.2d 254, 255 the court held:

Section 388 of the Vehicle and Traffic Law imposes joint and several liability on owners of tractors and trailers used in combination with one another, for injuries occasioned by such vehicles. Subdivision 4 thereof mandates "All... policies of insurance issued to the owners of any vehicle subject to the provisions of this section shall contain a provision for indemnity or security against the liability and responsibility provided in this section . This statute, which has as its objective the protection of injured plaintiffs, does not differentiate between primary and excess policies but directs that "All" policies of insurance are to provide the required coverage. (Emphasis added).  See, also (Employers Mut. Liability Ins. Co. Of Wis. v Indemnity Ins. Co. Of North America 37 Misc.2d 839)

Accordingly, the court finds that pursuant to VTL § 388 the insurance policy covering the trailer owned by TUSCAN is required to provide coverage for any negligence on the part of the tractor operated in combination with trailer. The petition by STATE FARM is granted.

Justice Brandveen was correct in rejecting the unnotarized affidavit submitted in support of Tuscan's Graves Amendment argument.  But even if that affidavit been notarized (and certificated pursuant to CPLR § 2309(c) if executed outside of New York State), would the result have been different?  A motor vehicle lessor's coverage responsibility is not always congruent with its liability exposure. 

In Antwi v. HVT, Inc., 24 Misc 3d 1250(A) (Sup. Ct., Bronx Co., decided 9/11/2009), the court allowed HVT to renew its Graves Amendment-based motion for summary jugdment with a new affidavit that could have been but was not submitted in support of HVT's original motion.  If Tuscan were to try the same thing here -- to move to renew based on a properly executed and notarized affidavit of Kathy Weaver -- would the result be any different?  Probably not.  A fair reading of the Graves Amendment is that while it exempts motor vehicle lessors from the vicarious liability imposed by subsection 1 of Vehicle & Traffic Law § 388, it does nothing to affect or excuse lessors from their coverage responsibilities under subsection 4 of that statute.  

In other words, the fact that Tuscan may not be held liable under VTL § 388(1) to Morales for his injuries by operation of the Graves Amendment does not necessarily mean its trailer's liability policy with Ace does not cover the tractor's operation.  Liability exposure?  No.  Coverage responsibility?  Yes.  New York personal auto insurers facing UM claims stemming from accidents with leased tractors or trailers should bear this in mind.

New York's Prescribed No-Fault Claim Forms

The New York State Insurance Department's website provides access to an electronic copy of Regulation 68 (11 NYCRR Part 65), and that page address includes a link to Reg 68's appendix, which is a complete set of all prescribed no-fault claim forms, but is there anywhere on the Internet one can find each of the 15 individual forms, linked to separate documents?  Not until today, and that anywhere is now here.

Bookmark this post if you would find it useful to have access to the 15 individual prescribed no-fault claim forms comprising the complete set.  Those forms are the:

• NF-1A (Rev 1/2004) Cover Letter
• NF-1B (Rev 1/2004) Cover Letter 
• NF-2 (Rev 1/2004) Application for Motor Vehicle No-Fault Benefits 
• NF-3 (Rev 1/2004) Verification of Treatment by Attending Physician of Other Provider of Health Service
• NF-4 (Rev 1/2004) Verification of Hospital Treatment
• NF-5 (Rev 1/2004) Hospital Facility Form
• NF-6 (Rev 1/2004) Employers Wage Verification Report
• NF-7 (Rev 1/2004) Verification of Self-Employment Income
• NF-8 (Rev 1/2004) Agreement to Pursue Social Security Disability Benefits
• NF-9 (Rev 1/2004) Agreement to Pursue Workers' Compensation or N.Y.S. Disability Benefits 
• NF-10 (Rev 1/2004) Denial of Claim Form 
• NF-11 (Rev 1/2004) Additional PIP Subrogation Agreement 
• NF-12 (Rev 1/2004) Lump-Sum Settlement Agreement
• NF-13 (Rev 1/2004) Election of Option -- Optional Basic Economic Loss Coverage 
• NF-AOB (Rev 1/2004) Assignment of Benefits Form 

Study up.  There's going to be a test.

Conducting Difficult EUOs

I'll be on Long Island next week Tuesday and Wednesday for NYACT's 2-Day Education Conference for Insurance Claims and SIU Personnel.  I'm speaking on Wednesday morning, November 18th, on Conducting Difficult EUOs.  My three-hour presentation will include sample EUO written materials and 11 videotaped and open-captioned vignettes of situations that sometimes arise during EUOs of no-fault and property insureds and claimants.  The cast of the unscripted and one-take videos includes my partner, Scott Storm, playing various roles from the tape-recording and early-departing insured to the obstructionist attorney.  With my daughter playing the role of the court reporter, here's an example of one of the vignettes:



Whether you conduct EUOs yourself or do the work leading up to the EUO, this presentation is designed to present and discuss methods of dealing with common obstacles to successfully completing EUOs -- success being defined as obtaining the information being sought in the EUO.  It is also useful for insurance professionals who conduct recorded interviews. 

We'll also be discussing recent New York case law regarding no-fault EUOs and the New York State Insurance Department's Office of General Counsel Opinion Letter No. 09-06-10, entitled "Examinations Under Oath of Assignees".

If you're a regular reader of Coverage Counsel and are able to make the conference, be sure to stop up and introduce yourself.

Is New York’s No-Fault Auto Insurance Crisis Returning?

I.I.I. Analysis Finds Average Cost of No-Fault Claim Has Soared 56 Percent Since 2004

LATHAM, NEW YORK, November 5, 2009 — New York’s auto insurers saw their typical no-fault payment for the medical care of accident victims rise by 56 percent to $8,748 per claim in the second quarter of 2009. This represents a dramatic increase from late 2004, when the average no-fault payment stood at $5,615 per claim, according to an Insurance Information Institute (I.I.I.) analysis.

The insurance industry, the New York State Insurance Department’s (NYSID) Frauds Bureau, the National Insurance Crime Bureau and law enforcement agencies continue to investigate suspicious claims vigorously, according to Dr. Robert Hartwig, the I.I.I. president and an economist. Yet loopholes in the no-fault system make it particularly vulnerable to fraud and abuse by a “no-fault industry” of corrupt medical professionals, attorneys, and street-level criminals who work on their behalf.

“In less than five years, New York’s auto insurers have seen an extraordinary 56 percent increase in the average cost of no-fault claims, to a great extent the result of abuse and, sometimes, outright fraud in the system,” stated Dr. Hartwig, in remarks scheduled for delivery today to the New York Insurance Association’s (NYIA) annual meeting in Latham, NY. “The costs of fraud and abuse of the state’s no-fault system ultimately are borne by New York’s honest policyholders. New York’s no-fault claim costs are now the second highest in the country and are 111 percent higher than the U.S. average of $4,152.”

“State lawmakers need to make no-fault auto insurance reform a high priority when they reconvene in Albany for their 2010 session,” said Ellen Melchionni, president of the NYIA. “There are external forces which drive up the cost of auto insurance in this state which can and must be contained.”

The state Insurance Department’s Frauds Bureau, in its 2008 annual report, said that no-fault fraud reports to the NYSID had increased 22 percent since 2006, after the number of these same reports fell 35 percent between 2003 and 2006, Dr. Hartwig observed. Moreover, the Frauds Bureau has significantly expanded its number of no-fault investigations, its 2008 annual report stated.

The term "no-fault" auto insurance is often used to denote any auto insurance program that allows policyholders to recover financial losses, such as medical costs and lost wages, from their own insurance company, regardless of fault. The policyholder’s no-fault benefit coverage is listed under the personal injury protection (PIP) provision of their policy.

Dr. Hartwig said that several proposals have been advanced to combat New York’s growing no-fault crisis, including:

Institute Medical Protocols/Utilization Reviews: Implement medical treatment guidelines for specific auto accident-related injuries so as to reduce instances of over-treatment and/or unnecessary treatments. New York’s no-fault system is one of the few in the U.S. that allows for insurer payment of medical treatment providers while requiring neither mandatory protocols nor utilization reviews. This virtual blank check drives up system costs dramatically because the PIP payment ceiling is a very generous $50,000.

Require Disputes Be Resolved via Arbitration: Implement an arbitration system to eliminate trial costs for all parties while also expediting claims resolution. No-fault systems were created to avert courtroom battles. Yet, in New York, no-fault cases are clogging the judicial system’s calendar, especially in New York City. The city courts are so inundated with no-fault cases today that they are currently setting trial dates for 2011.

Streamline the Process for Adjudicating No-Fault Claims: Permit parties with no-fault disputes involving less than $5,000 to submit proof based on a sworn affidavit from doctors. Under today’s system, doctors must appear personally in court, time which could be better spent treating their patients.

Implement Fair Burden of Proof Requirements: Require that, in order to establish the plaintiff’s right to no-fault benefits, the plaintiff must produce a witness with personal knowledge of the facts alleged in the plaintiff’s complaint. Furthermore, there should be no presumption of medical necessity based on documents submitted by non-medical plaintiffs and/or witnesses who do not have personal knowledge of the facts of the case. New York’s medical treatment providers are required only to submit proof that a bill was received by the auto insurer to establish entitlement to receive amounts billed—irrespective of suspicions of fraud or abuse. The burden of the auto insurers is much higher. They are required to produce in court both a witness to testify under oath that the claim was handled in accordance with regulations and a medical expert to testify on the “lack of medical necessity.”

Strengthen anti-runner laws: “Runners” are those who receive a monetary benefit for facilitating a fraudulent insurance transaction, usually by acting as a go-between for dishonest policyholders and unscrupulous medical treatment providers and/or attorneys. The crime is currently a misdemeanor but, if upgraded to a felony, could provide an added deterrent.

For more information, see Dr. Hartwig’s PowerPoint presentation to the NYIA’s annual meeting:  New York PIP Insurance Update: Is New York’s No-Fault Crisis Returning?

Bronx Supreme Reluctantly Declines to Invalidate the Coverage-Negating Employee Injury, Roofing Work and Contractual Liability Exclusions

CGL – ADDITIONAL INSURED – EMPLOYEE INJURY EXCLUSION – ROOFING WORK EXCLUSION – CONTRACTUAL LIABILITY EXCLUSION – DUTY TO DEFEND
720-730 Fort Wash. Ave. Owners Corp. v. Utica First Ins. Co.
(Sup. Ct., Bronx Co., decided 11/4/2009)

Plaintiff owned a property on which a subcontractor's employee was injured during construction.  Plaintiff had contracted with DNA Contracting, which had hired the injured party's employer, subcontractor Rauman Construction Company, to do the masonry and roof replacement work. DNA's contract with Rauman required that Rauman purchase CGL and name DNA and plaintiff as additional named insureds. Rauman purchased insurance from Utica First which named those entities as additional insureds, but the policy contained three exclusions at issue:  (1) an "employee" exclusion, (2) an exclusion for "roofing work", and (3) an exclusion for any liabilities assumed under contract or agreement.

The "employee exclusion" provided:

This insurance does not apply to:

(i) bodily injury to any employee of any insured, to any contractor hired or retained by or for any insured or to any employee of such contractor, if such claim for bodily injury arises out of and in the course of his/her employment or retention of such contractor by or for any insured, for which any insured may, liable in any capacity;

(ii) any obligation of any insured to indemnify or contribute with another because of damage arising out of the bodily injury; or

(iii) bodily injury sustained by the spouse, child, parent, brother or sister of an employee of any insured, or of a contractor, or of an employee of a contractor of any insured as a consequence of the bodily injury to such employee, contractor or employee of such contractor, arising out of and in the course of such employment or retention by or for any insured.

The "roofing work" exclusion stated:

It is hereby understood and agreed that such insurance as is afforded by coverage L-bodily injury, property damage coverage and coverage N-products/completed work coverage does not apply to bodily injury, property damage, products or completed work arising out of any roofing operations, which involve any replacement roof or recovering of the existing roof.

The exclusion for liabilities assumed under contract or agreement read:

1. "We" do not pay for "bodily injury", "property damage", "personal injury", or "advertising injury" liability which is assumed by the "insured" under a contract or an agreement.

This exclusion does not apply to:

a. Liability that an "insured" would have had in the absence of the contract or agreement; or

b. "Bodily injury or property damage" covered under the contractual liability coverage, provided that the "bodily injury" or "property damage" occurs after the effective date of the contract or agreement.

The injured employee commenced a personal injury action against plaintiff, alleging causes of action for violations of §§ 200, 240 and 241 of New York's Labor Law, as well as a cause of action for common law negligence.  Plaintiff tendered that action to Utica First for defense and indemnification, and Utica First disclaimed coverage based on the employee injury, roofing work and contractual liability exclusions.  DNA's CGL insurer, Liberty International Underwriters, assumed plaintiff's defense and commenced this declaratory judgment action, in plaintiff's name, against Utica First for coverage under Rauman's policy.

Prior to the completion of discovery, Utica First moved for summary judgment based on the employee and roofing work exclusions.  Plaintiff opposed the motion based on its arguments that: (1) the Utica First policy was illusory and should be held to be against public policy since it does not provide any of the insureds with the usual construction site coverage required under plaintiff's agreement with DNA and Rauman;  (2) discovery has not yet been completed;  (3) questions of fact remained as to whether or not Rauman's employee was, in fact, working in the course of his roofing duties with Rauman at the time of the accident that caused his injuries; and (4) Utica First must defend under the policy even if it need not indemnify, since the duty to defend is greater than the duty to indemnify.

In response to plaintiff's opposition, Utica First argued that since plaintiff had admitted that Rauman's employee was working in the course of his employment with Rauman, and performing roofing operations, no further discovery was necessary since both the "employee" and "roofing" exclusions applied.   As to plaintiff's argument that the Utica First policy was violative of public policy, Utica First argued that exclusions are necessary to precisely define the scope of coverage.  Lastly, Utica contended that, although the duty to defend is broader than the duty to indemnify, it does not attach, when, as here the complaint and claims are so totally baseless.

Noting that plaintiff was not contending that the three exclusions at issue were vague, ambiguous or inapplicable, Bronx County Supreme Court Justice Paul Victor identified the sole issues for determination to be whether those three exclusions are violative of public policy, and whether, despite the language of those exclusions, Utica First might still be obligated to defend the plaintiff.  The court answered those questions with a no, and a no. 

Appellate Term, Second Department, No-Fault Decisions

NO-FAULT – MAILING – PROVING IME NO-SHOW
Radiology Today, P.C. a/a/o Charles Rawlins v. GEICO Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th, decided 10/23/2009)

Order of Richmond Civil (Katherine Levine, J.) REVERSED.  Defendant's unopposed motion for summary judgment dismissing the complaint should have been granted.

• Affidavit of a manager employed by the independent medical review service retained by defendant to schedule and conduct IMEs sufficiently set forth the standard office practice and procedure for the generation and mailing of IME notices designed to ensure that said notices were properly addressed and mailed.
• The affirmations and affidavits of the medical professionals who were to perform the IMEs established that plaintiff's assignor failed to appear for said IMEs.

NO-FAULT – SUFFICIENCY OF PEER REVIEW
Richmond Radiology, P.C. a/a/o Arkady Polevoy v. GEICO Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th, decided 10/23/2009)

Order of New York Civil (Diane A. Lebedeff, J.) denying plaintiff's motion for summary judgment AFFIRMED. 

• The doctor performing the peer review did not conclude that he had insufficient information upon which to base a conclusion. Instead, the affirmed report raised a triable issue of fact because "the report clearly indicates that the pertinent [treating] physician's reports and other documentation had been requested and provided for the purpose of conducting a peer review, and the conclusion of lack of medical necessity is based on the peer reviewer's opinion, in effect, that there was no substantiation in the reports and documents reviewed of medical necessity for the [services] provided[.]"

NO-FAULT – PROOF OF MAILING – USE OF WORKERS' COMPENSATION FEE SCHEDULE FOR ACUPUNCTURE SERVICES
New Wave Oriental Acupuncture, P.C. a/a/o Gerard Ikezi v. Government Employees Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th, decided 10/23/2009)

Order of New York Civil (Robin S. Garson, J.) granting summary judgment to plaintiff REVERSED. 

• The affidavit submitted by defendant sufficiently established that the denial of claim forms were timely mailed in accordance with defendant's standard office practices and procedures.
• It was proper for defendant to use the workers' compensation fee schedule for acupuncture services performed by chiropractors to determine the amount which plaintiff was entitled to receive.

NO-FAULT – LEAVE TO AMEND ANSWER – FRAUDULENT INCORPORATION DEFENSE  – COMPELLING DEPOSITION OF PROVIDER'S OWNER
New York First Acupuncture, P.C. a/a/o Anitta Allen v. State Farm Mut. Auto. Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th, decided 10/23/2009)

Order of Richmond Civil (Diane A. Lebedeff, J.) granting defendant's motion to amend its answer to assert a fraudulent incorporation defense and compel plaintiff to produce its owner for a deposition AFFIRMED.

• The Civil Court did not improvidently exercise its discretion in granting defendant's application for leave to amend its answer in order to interpose the affirmative defense of fraudulent incorporation, in the absence of any showing that prejudice or surprise would result therefrom and since the proposed affirmative defense was neither devoid of merit nor palpably insufficient as a matter of law.
• Plaintiff's contention, that the defense of fraudulent incorporation must be asserted in a timely denial of claim form, is without merit. 
• Defendant sufficiently demonstrated that the deposition testimony of plaintiff's owner, Valentina Anikeyeva, regarding plaintiff's corporate structure was material and necessary so as to warrant the granting of the branch of its motion seeking to compel Ms. Anikeyeva's deposition.

Justice Golia's concurring memorandum is worth a look:

While I agree with the ultimate disposition in the decision reached by the majority, I strenuously disagree with the majority gratuitously raising a nonexistent issue, namely that a Mallela defense (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005]) may be disallowed if "prejudice or surprise would result therefrom." This impression was created by the majority in choosing here to excise an important requirement with regard to the law of amending an answer. The actual statement by the Court of Appeals in McCaskey, Davies & Assoc. v New York City Health & Hosps. Corp. (59 NY2d 755, 757 [1983] [emphasis added, citations and internal quotations marks omitted]) is that, "Leave to amend the pleadings shall be freely given absent prejudice or surprise resulting directly from the delay."

Inasmuch as it is inconceivable that a Mallela defense of fraudulent incorporation could ever create prejudice or surprise that resulted directly from the delay in raising such defense, it is clear that such analysis is unwarranted.

To me, it is extremely unlikely that an individual who creates a fraudulent entity for the purpose of defrauding an insurance company would forget that he/she did so and be prejudiced or surprised when it was discovered. Such would be akin to a person running a "Ponzi" scheme deciding to invest in his own firm because it was obtaining such good results.

So is Dave Gottlieb's observation on Justice Golia's point.  What do you think?  I get Justice Golia's point on the no surprise part, but I guess whether the "absent prejudice or surprise" aspect attaches to an insurer's leave to amend its answer to add a Mallela defense depends on one's definition of "prejudice". 


NO-FAULT – UNTIMELY PROOF OF CLAIM – WAIVER
Delta Diagnostic Radiology, P.C. a/a/o Frank Louigarde v. Interboro Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th, decided 10/23/2009)

Judgment of Queens Civil (William A. Viscovich J.) in favor of plaintiff AFFIRMED.

• Although plaintiff's claim was submitted more than 45 days after the services at issue were rendered, defendant waived its reliance on the 45-day rule as a basis to deny the claim because defendant had failed to communicate to plaintiff, as required by the No-Fault Regulations, that late submission of the proof of claim will be excused where the applicant can provide a reasonable justification for the late submission. 
• Defendant also failed to demonstrate that discovery was needed in order to show the existence of a triable issue of fact.

First Department Chooses Connecticut as Law Governing Commercial Liability Policy

COMMERCIAL LIABILITY – CHOICE OF LAW
Liberty Surplus Ins. Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa.
(1st Dept., decided 11/5/2009)

In this insurer vs. insurer suit, defendant National Union moved to dismiss three causes of action of plaintiff's amended complaint, presumably arguing that New York rather than Connecticut law applied to render those causes of action non-viable. 

In AFFIRMING New York Supreme's order that had denied National Union's motion, the First Department held:

A contract of liability insurance is governed by "the local law of the state which the parties understood was to be the principal location of the insured risk" (Zurich Ins. Co. v Shearson Lehman Hutton, 84 NY2d 309, 318 [1994], quoting Restatement [Second] of Conflict of Laws § 193). Where the covered risks are spread over multiple states, courts will generally locate the risk in one state, namely, "the state of the insured's domicile at the time the policy was issued," and a "corporate insured's domicile is the state of its principal place of business" (Certain Underwriters at Lloyd's, London v Foster Wheeler Corp., 36 AD3d 17, 24-25 [2006], affd 9 NY3d 928 [2007]). The liability policies at issue in this action were issued by defendants to Hontz Elevator Company, which had operations in several states but maintained its principal place of business in Connecticut, the state of its incorporation. Accordingly, the subject policies, which do not contain choice-of-law provisions, are governed by Connecticut law. We further note that the accident giving rise to the underlying personal injury litigation occurred in Connecticut; that the subject policies contain amendatory endorsements required by Connecticut law but no New York endorsements; and that the record, while showing that Hontz had locations in Connecticut, Florida, Massachusetts and Rhode Island, gives no indication Hontz conducted any operations in New York.

Don't Ask, Don't Sell -- Suit Against Insurance Agent Dismissed

AGENT E&O – CONSTRUCTION MANAGEMENT LIABILITY INSURANCE – SPECIAL RELATIONSHIP – REQUEST FOR CERTIFICATE OF INSURANCE
Axis Constr. Corp. v. O'Brien Agency, Inc.
(Sup. Ct., Suffolk Co., decided 10/21/2009)

Plaintiff, a general contractor and construction manager, brought this action against its insurance agent, alleging that it had failed to procure construction management liability insurance.  In late 2002 and early 2003, the plaintiff made some inquiries of O’Brien regarding whether it needed to procure construction management liability insurance.  O'Brien advised plaintiff that it did not have construction management liability insurance, that it was available but expensive, and that the plaintiff's existing business, as it was described to him, was covered by the existing general liability insurance policy.  Plaintiff did not ask O’Brien to procure construction management liability insurance for it in 2002 or 2003.

In June and July 2003, plaintiff entered into two construction management contracts to build modular elementary school buildings in New Jersey.  Both contracts clearly required the plaintiff to have construction management professional liability insurance in addition to CGL and excess liability insurance.  Plaintiff reportedly sent the insurance provisions of the contracts to defendants, and the agency issued certificates of insurance for the contracts in September and October 2003.  The certificates, which were sent to the plaintiff, indicated that the plaintiff had existing general liability, excess liability, automobile liability, and property insurance, but not construction management liability insurance as required by the contracts.  There was no evidence that plaintiff subsequently asked O’Brien to procure the required construction management insurance for it.

In January 2004, the modular building company declared plaintiff in default of ts contracts and commenced two successive lawsuits in New Jersey.  Through 2009, plaintiff allegedly incurred more than $1 million in legal and expert witness fees defending the second action and a third-party action. 

Plaintiff subsequently commenced this action against the defendant agencies, seeking to impose liability on them for allegedly failing to procure construction management liability insurance on plaintiff's behalf.  Plaintiff alleged that it had both express and implied agreements with the defendants, dating back to 1993, to provide advice regarding its insurance needs and to procure insurance for it when its coverage was insufficient.  Plaintiff alleged that the agency defendant breached those agreements by failing to procure construction management liability insurance on its behalf. The defendants moved for summary judgment dismissing the complaint.

In granting summary judgment to defendants, Suffolk County Supreme Court Justice Elizabeth Emerson reviewed New York's common law rules of insurance agent liability for failing to procure insurance and held that plaintiff had failed to request construction management liability insurance prior to 2005:

It is well settled that insurance agents have a common-law duty to obtain requested coverage for their clients within a reasonable time or to inform the client of their inability to do so.  Insurance agents do not have a continuing duty to advise, guide, or direct a client to obtain additional insurance coverage (Murphy v Kuhn, 90 NY2d 266, 270).  Insurance agents or brokers are not personal financial counselors and risk managers, approaching guarantor status.  Insureds are in a better position than general insurance agents or brokers to know their personal assets and their ability to protect themselves, unless the latter are informed and asked to advise and act (Id. at 273).  Unlike a recipient of the services of a doctor, attorney, or architect, the recipient of the services of an insurance broker is not at a substantial disadvantage to question the actions of the provider of services (Id. at 273).

Nevertheless, the Court of Appeals has acknowledged that exceptional and particularized situations may arise in which an insurance agent, through his conduct or by express or implied contract, assumes or acquires duties in addition to those fixed at common law (Id. at 272).  Whether such additional responsibilities should be recognized and given legal effect is governed by the particular relationship between the parties and is best determined on a case-by-case basis (Id. at 272).  While the New York courts disfavor finding such a relationship, they may recognize an additional duty in exceptional situations, for example, when the agent receives compensation for consultation beyond the premium payments, when the insured relies on the expertise of the agent regarding a question of coverage, or when there is an extended course of dealing sufficient to put an objectively reasonable insurance agent on notice that his advice is being sought and is specially relied upon (Id. at 272; see also, Curanovic v New York Central Mutual Fire Ins. Co., 307 AD2d 435,438). The burden of establishing such a relationship is on the insured (Murphy v Kuhn, supra at 273).

The court finds that the record establishes as a matter of law that the plaintiff failed to request the specific coverage at issue prior to November 2005 (see, Hoffend & Sons, Inc. v Rose & Kiernan, Inc., 7 NY3d 152, 156-158). While the plaintiff made some inquiries of O’Brien in 2002 and 2003 regarding whether it needed to obtain construction management liability insurance, the record reveals that the plaintiff did not specifically request O’Brien to procure such insurance at that time.  Moreover, there is no evidence in the record that the plaintiff requested O’Brien to procure construction management liability insurance either before or after it executed the I-R Mobile and William Scotsman contracts.  While the plaintiff sent the insurance provisions of the I-R Mobile contract to the O’Brien Agency on July 24, 2003, it was in connection with a request for a certificate of insurance.  The court finds that such a request is not a specific request for a certain type of coverage.  Accordingly, it was insufficient to trigger O'Brien's common-law duty (Id. at 157-158).

Justice Emerson also rejected the plaintiff's contention that it had a special relationship with O’Brien because O'Brien had been its insurance agent for 16 years, was aware of plaintiff's construction management business, had reviewed  the insurance requirements contained in the construction contracts that plaintiff bid on to determine whether plaintiff had adequate insurance coverage, and had agreed to advise the plaintiff and make recommendations to it regarding insurance matters:

The court finds that the services provided by O’Brien to the plaintiff in his capacity as an insurance agent do not rise to the level of a special relationship.  Although the parties had an extended course of dealing, the plaintiff did not compensate O’Brien for his insurance advice apart from its payment of premiums, nor did it delegate its insurance decision-making responsibility to O’Brien (Hoffend & Sons, Inc. v Rose & Kiernan, Inc., supra at 158).  The record reflects that the plaintiff, a sophisticated commercial entity, was actively involved with O'Brien in procuring both the QBE and RLI insurance policies.  The plaintiff is presumed to have had knowledge of the contents of those policies (see, McGarr v Guardian Life Ins. Co. of Am., 10 AD3d 254, 256; Busker on the Roof Ltd. Partnership Co. v Warrington, 283 AD2d 376, 377; Rotanelli v Madden, 172 AD2d 815, 817), as well as the contents of the I-R Mobile and William Scotsman contracts (see, Daniel Gale Assocs. v Hillcrest Estates, 283 AD2d 386, 387; Sofio v Hughes, 162 AD2d 518, 519; Avanta Bus. Servs. Corp, v Colon, 4 Misc 3d 117, 119).  In fact, the record reveals that the plaintiff was well aware that it did not have the construction management liability insurance explicitly required by the I-R Mobile and William Scotsman contracts.  O’Brien advised the plaintiff, in 2002 or 2003, before it entered into those contracts, that it did not have construction management liability insurance.  Moreover, as previously discussed, the plaintiff sent the insurance provisions of the I-R Mobile contract to the O'Brien Agency on July 24, 2003, in connection with a request for a certificate of insurance.  The certificates that were sent back to the plaintiff clearly indicated that the plaintiff had only general liability, excess liability, automobile liability, and property insurance. The plaintiff, a sophisticated commercial entity who was in a better position than O’Brien to protect itself, did nothing to procure construction management liability insurance at that time.  The court finds that, under these circumstances, the plaintiff has no cause of action against O’Brien.  It was the plaintiff's failure to obtain the construction management insurance explicitly required by the I-R Mobile and William Scotsman contracts, and not any breach of duty by O’Brien, that ultimately caused the plaintiff's damages (see, Busker on the Roof Ltd. Partnership Co. v Warrington, supra at 377).  Accordingly, the complaint is dismissed insofar as it is asserted against the O’Brien Agency.

Takeaway points from this decision include:

• an insured's request to its agent for a certificate of insurance is not, by itself, a specific request for insurance; 
• absent a specific request or a special relationship, an agent cannot be held liable for allegedly failing to procure certain insurance; 
• regardless of how long the insured and agent have had a business relationship, without compensation to the agent, or a delegation to or assumption by an agent of an insured's decision-making responsibilities, it is unlikely that a special relationship will be found to exist; 
• sophisticated insureds that are involved in the procurement of their own insurance are less likely to be found to have had a special relationship with their agent, sufficient to impose liability for failing to procure insurance; and 
• insureds, especially sophisticated ones, are presumed to have read and know the contents of their insurance policies. 

Stuff Happens -- Subrogation Claim for Damages from Toilet Overflow Dismissed

SUBROGATION – RES IPSA LOQUITUR – LIABILITY FOR NEGLIGENCE OF INDEPENDENT CONTRACTOR
American Guar. & Liab. Ins. Co. v. Federico's Salon, Inc.
(1st Dept., decided 10/15/2009)

As the bumper sticker says, stuff happens.  Plaintiff insurer brought this subrogation action for property damage resulting when a toilet on the unoccupied fourth floor of the commercial building in which its insured was a tenant became clogged and overflowed, flooding the insured's store and destroying its inventory.  At the time, the defendant leased the fifth floor of the building and was renovating its space.  Defendant successfully moved for summary judgment, and plaintiff appealed.

In AFFIRMING the award of summary judgment to defendant, the First Department held that the motion court had correctly rejected plaintiff's attempt to rely on the doctrine of res ipsa loquitur as inapplicable: 

Federico's made a prima facie showing of entitlement to judgment as a matter of law, as it demonstrated that no negligence on its part contributed to the leak. In opposition, plaintiff sought to rely on the doctrine of res ipsa loquitur, which the motion court correctly determined was inapplicable. Even assuming that the evidence was sufficient to support a finding that the toilet malfunction was of a type caused by negligence, plaintiff failed to present competent evidence that Federico's control of the fourth-floor bathroom was of "sufficient exclusivity to fairly rule out the chance that the defect. . . was caused by some agency other than [its] negligence" (Dermatossian v New York City Tr. Auth., 67 NY2d 219, 228 [1986]; see Edmonds v City of Yonkers, 294 AD2d 330 [2002], lv denied 98 NY2d 612 [2002]). Indeed, the evidence shows that Federico's did not control any portion of the fourth floor, but was occasionally allowed access when the elevator or emergency stairwell door was left unlocked. When the doors were unlocked, the building porter, real estate agents, and the independent contractors retained by Federico's had access to the fourth-floor bathroom. Furthermore, to the extent the evidence permits an inference that the contractors hired by Federico's negligently disposed of debris in the toilet, it is well established that "an employer who hires an independent contractor is not liable for the independent contractor's negligent acts" (Rosenberg v Equitable Life Assur. Socy. of U.S., 79 NY2d 663, 668 [1992]), and plaintiff provides no reason to depart from this general rule.

Using a toilet apparently does not fall within the ultra-hazardous activity exception to the general rule against holding one liable for the ordinary negligence of one's retained independent contractors. 

Westchester Public Adjuster Companies Fined

James J. Wrynn    Superintendent of Insurance    25 Beaver Street  New York, N.Y. 10004

ISSUED 10/19/2009                                                                                                                     FOR IMMEDIATE RELEASE

WESTCHESTER COUNTY PUBLIC ADJUSTER COMPANIES EACH FINED $25,000 

Companies Ignored Consumer Protection Requirements When Soliciting Business

The New York State Insurance Department has fined two Westchester County public adjuster companies, Executive Adjustment Bureau Inc. and Adjustrite Inc., $25,000 each for improperly soliciting business between the hours of 6 p.m. and 8 a.m.  Adjustrite was also cited for operating without a license.

“Public adjusters must abide by specific consumer protections. These fines should send a message to public adjusters who choose to ignore those rules. The Insurance Department will protect the public, as well as public adjusters who follow the rules, by penalizing those who ignore the law,” Insurance Superintendent James Wrynn said.

Public adjusters act on behalf of insurance policyholders by negotiating the settlement of claims with insurance companies for damage to property resulting from covered losses. Policyholders pay the adjusters a fee for their services.

Consumer protections are built into the law to safeguard people who are often under pressure when dealing with highly stressful circumstances, such as when they are trying to recover from a fire loss. Those protections include:

• Banning public adjusters from soliciting business in person, over the phone or by any other means, after 6 p.m. and before 8 a.m.
• Allowing consumers to negotiate the fees they pay public adjusters, but limiting adjuster fees to 12.5 percent or less.
• Requiring that consumers are provided written compensation agreements and that these agreements are expressed in the same language that was principally used in verbal negotiations and presentations. These agreements must conform to Insurance Department regulations.
• Allowing consumers the right to cancel compensation agreements within three business days after the date they are signed by consumers, provided cancellation requests are made in writing.
• Requiring the licensing of public adjusters and their employees by the Insurance Department.

“Most public adjusters follow these common-sense rules, but Department investigations have found some less than reputable adjusters going so far as contacting consumers late at night as they awaited treatment in hospital emergency rooms following disasters at their homes. The Insurance Department will not tolerate that type of conduct,” Wrynn said.

Executive Adjustment Bureau, which is licensed by and through Joseph J. Armato, sublicensee, agreed to pay its fine after admitting that it improperly solicited business outside of the hours allowed under the law. The solicitations on behalf of Executive were made by John H. Capriles, Brad Barnett and Brett D. Joseph, who are also individually licensed as public adjusters. Also cited for soliciting outside of the permitted hours was Kevin M. Taylor, who is individually licensed as a public adjuster.

Adjustrite, which is currently licensed by and through Capriles, sublicensee, agreed to pay its fine after admitting after-hours solicitation violations and conducting business without a license.

The companies, both of which are located at 333 Fifth Ave. in Pelham, were directed to implement procedures and internal business controls to prevent further violations.

Consumers considering agreements with public adjusters may verify a firm’s licensing and obtain further guidance on consumer protections by contacting the Department’s Consumer Services Bureau from 9 a.m. to 4:30 p.m., Monday through Friday toll-free at 800-342-3736.  Information is also available on the Department’s website, http://www.ins.state.ny.us.

Examinations Under Oath of Assignees -- An Open Letter

On June 24, 2009, Associate Counsel Alexander Tisch of the New York State Insurance Department's Office of General Counsel issued an opinion letter that has generated a good deal of discussion and debate in the New York no-fault community.  In his opinion letter, entitled "Examinations Under Oath of Assignees", Mr. Tisch opined that "[n]either the [New York] Insurance Law nor the regulations promulgated thereunder permit an insurer to require that a corporate assignee of no-fault benefits designate a specific person of the insurer’s choice to submit to an examination under oath."  (My bold.) 

Some of the provider attorney ilk have questioned whether or themselves opined that Mr. Tisch's opinion letter may be read in support of an argument that any assignee EUO letter which identifies a specific deponent is invalid or defective as a matter of law.  See, David Gottlieb's No-Fault Paradise post and Damin Toell's It's No Fault of New York post on this subject.  I, myself, chimed in on this and a related question on the comment thread to Gottlieb's No-Fault Paradise post. At stake are claim denials dating back six years that were based on an assignee's failure or refusal to produce a specifically requested person, such as the provider's nominal owner, for an EUO. 

If the bright minds of Gottlieb and Toell think there may be an issue here, then there may be an issue here.  Rather than disagree privately or publicly with them, and given the opportunity this private soap e-box gives me to express my views on subjects such as this, I post this open letter to Mr. Tisch and his Office of General Counsel in hopes that the New York no-fault community may have some clarity and/or clarification:

Dear Mr. Tisch --

I have read your June 24, 2009 opinion letter entitled "Examinations Under Oath of Assignees" in which you addressed this general question:

May an insurer, when requesting verification in the form of an examination under oath of an assignee of no-fault personal injury protection (“PIP”) benefits, require a corporate assignee to designate a specific person to be examined?

You opined that a "[n]either the Insurance Law nor the regulations promulgated thereunder permit an insurer to require that a corporate assignee of no-fault benefits designate a specific person of the insurer’s choice to submit to an examination under oath."  An inquirer apparently had asked the Department whether the Insurance Law or the regulations promulgated thereunder require that a corporate entity or partnership submit a particular person specified by the insurer to an examination under oath. You correctly noted that both the Insurance Law and Regulation 68 are silent on this question, and that the reference to “any person named by the Company and subscribed the same” in 11 NYCRR § 65-1.1 refers to the person that is to conduct the examination under oath, such as an attorney, rather than to the “eligible injured person or that person’s assignee or representative” to be examined.

You underscored the lack of any helpful text in the regulation by further pointing out that "nowhere does the regulation address whether an assignee that is a corporate entity or partnership must submit a person for examination that is specifically identified by an insurer in its examination under oath notice."

In spite of the regulation's silence on the question posed, however, you answered it with a no,  interpreting  the acknowledged absence of any prescription or prohibition in the regulation to be, in essence, a prohibition.  But a prohibition of what?  A prohibition on asking?  Or on requiring? 

Limited to its express terms, your opinion means only that a no-fault insurer may not require a corporate assignee of no-fault benefits to designate a specific person of the insurer’s choice to submit to an EUO.  It doesn't or shouldn't mean that an insurer may not request that a certain person, knowledgeable of the issues to be explored during the EUO, attend the EUO.  Indeed, your opinion recognizes a corporate provider's obligation to produce such a knowledgeable person for the EUO by stating: 

Although a duty to cooperate is not expressly included in the no-fault endorsement, the Department’s Office of General Counsel is of the view that the principle enunciated in Somerstein Caterers that a corporation ought to produce employees familiar with the claim for an examination under oath should extend to a no-fault examination under oath of an assignee that is a corporation or partnership.

Here's the problem with your opinion.  Some might interpret it to mean that an EUO request to a corporate provider which designates or names a particular person is defective or invalid under Regulation 68. Some might also attempt to extend your opinion to mean that all denials of no-fault benefits that were based on a corporate provider's EUO non-appearance or no-show are invalid if the related EUO letter or notice named a specific  representative of the corporate provider, such as its purported owner, as the person to be examined under oath.

Either such interpretation of your opinion would be unwarranted and incorrect, in my opinion.  My take on your opinion is that without any specific prohibition in either the New York Insurance Law or Regulation 68, an EUO request that names a certain owner or employee of a corporate provider is not legally invalid, but merely  cannot serve as the basis of a denial if the provider produces someone else who is familiar with the issues  to be explored in the EUO.  Am I right? 

You obviously don't think that a corporate provider which receives a person-specific EUO request can  ignore it, do you?  Some might think that your opinion allows providers to do so.

Section 65-3.2(c) of Regulation 68 mandates that "[w]hen verification of facts is necessary, it should be done as expeditiously as possible."  Your opinion could undermine that claims handling principle if corporate assignees are allowed either to ignore person-specific EUO requests or produce a string of unknowledgeable employees of the assignee to frustrate or prolong the EUO process.  Your opinion does state:

If the insurer is unable to garner the information that it needs from the examination under oath of a person submitted by the assignee corporation or partnership, the insurer may request additional examinations of the assignee until a person is submitted for examination by the assignee who can provide the “items necessary to verify the claim.”

Is there a limit on how many such additional EUOs an insurer may request?  Who gets to decide whether the person submitted by the assignee "can provide 'the items necessary to verify the claim'"?  To shorten the EUO process, wouldn't it be better for the insurer to say that "we want to examine Dr. So-and-So about such-and-such" so that the corporate assignee can determine whether there is any other person as or more familiar with  the such-and-such?  And at what point would you say that Somerstein Caterers allows the no-fault insurer after the first, second or third useless EUO to say, "Okay, if you don't produce Dr. So-and-So for an EUO, we will deny this claim"? 

As you can see, your answer to what may have seemed like a simple question has itself raised a number of questions that, if left unanswered, could negatively affect the processing of no-fault claims in New York.  I'm sure you didn't mean for your opinion to serve as the basis for ignoring or invalidating assignee EUO requests.  Some clarification of your opinion would be helpful to both insurers and providers on this issue. 

Thank you for your consideration of this issue.  Both insurers and providers look forward to hearing from you.

Roy A. Mura
MURA & STORM, PLLC

New York State Insurance Department Office of General Counsel Opinions for September 2009

From the NYS Insurance Department's website come these two Office of General Counsel Opinions from September 2009 relevant to property and casualty insurers doing business in New York. 


Commercial Insurance Policy Cancellation
OGC Op. No. 09-09-02 (September 10, 2009)

Questions Presented:

Is an insured’s failure to comply with an insurer’s recommendations, in of itself, a valid basis for canceling a new or renewed commercial lines insurance policy under N.Y. Ins. Law § 3426(c)(1)(D)?

Conclusion:

No.  An insured’s failure to comply with an insurer’s recommendations, in of itself, is not a valid basis for canceling a new or renewed commercial lines insurance policy under Insurance Law § 3426(c)(1)(D).

Facts:

An inquirer reported that several insurers have canceled their insureds’ commercial lines insurance policies due to non-compliance with recommendations, which they claim is a proper basis for cancellation under Insurance Law § 3426(c)(1)(D). The inquirer disagrees with these assertions, contending that a renewed commercial lines insurance policy may not be canceled on such basis, because “[f]rom a practical standpoint, loss control visit[s] must be secured before [the] renewal date and if recommendations are not properly addressed, appropriate non-renewal notice must be tendered.”  The inquirer also questioned whether a new commercial lines insurance policy may be canceled based on non-compliance with an insurer’s recommendations under Insurance Law § 3426(c)(1)(D).

Analysis:

Insurance Law § 3426, which applies to most property/casualty commercial lines insurance, is relevant to the inquiry. That statute sets forth, among other things, the minimum cancellation provisions applicable to such policies.

Pursuant to Insurance Law § 3426(b), an insurer may cancel a new commercial lines insurance policy during the first sixty days the policy is in effect for any reason not prohibited by law.  Insurance Law § 3426(b) reads as follows:

(b) During the first sixty days a covered policy is initially in effect, except for the bases for cancellation set forth in paragraph one, two or three of subsection (c) of this section, no cancellation shall become effective until twenty days after written notice is mailed or delivered to the first-named insured at the mailing address shown in the policy and to such insured’s authorized agent or broker.

Insurance Law § 3426(b) provides a “free look” period of sixty days, during which time an insurer may complete its review of the risk, and determine whether the risk meets its underwriting standards. The Insurance Department explained the rationale behind this “free look” period in its November, 1989 issue of “The Bulletin,” as follows:

Regarding mid-term cancellation, while [Insurance Law] § 3426 clearly gives insurers the authority to cancel policies, the circumstances under which they may do so are limited. And, in order to provide for the legitimate underwriting needs of the insurers, the statute introduced to commercial lines insurance cancellation rules a concept that had been used in personal lines cancellation for many years – the sixty-day “free look.”

Property/casualty insurance is not purchased with the same time and deliberation that might be attendant to the obtaining of, say, a mortgage. Whereas a bank might have weeks or months to thoroughly investigate the mortgage applicant, inspect the property, verify assets, etc., an insurance policy might need to be procured in days or hours. Accordingly, insurers usually have to base their underwriting decisions upon whatever information is available at the time of application, no matter how incomplete or unverified.

The so called sixty-day free look permits an insurer to cancel any newly issued commercial lines policy, upon twenty days written notice, for virtually any reason, during the first days such policy is in effect. This is intended to give the insurer the opportunity to conduct such inspections, verify such information, obtain such experience, etc., as it may deem necessary to properly underwrite the risk. It also gives company officials the opportunity to review the underwriting decisions which may have been made by general agents, lower echelon underwriters, or others who have been given the “power of the pen.” Where deemed appropriate, rating adjustments may be made during the sixty-day period.

The absence of the opportunity to conduct such a review would have serious repercussions regarding the ready availability of commercial property/casualty insurance products. Without the knowledge that they have an appropriate time period to reflect on their underwriting decisions, and correct any major errors which may have been made, insurers would be much less willing to quickly offer coverage unless complete and verified information was in their possession before coverage took effect.

Accordingly, an insurer initially has sixty days in which to review a new risk that it has accepted, and to cancel coverage if the risk is incompatible with its underwriting standards. After the sixty-day “free look” period has expired, however, an insurer may not cancel coverage during the policy term or any renewal thereof unless cancellation is based on one of the criteria specified in Insurance Law § 3426(c). The specific criteria that are relevant to this inquiry are set forth in Insurance Law § 3426(c)(1)(D), which reads as follows:

(c) After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured's authorized agent or broker, and such cancellation is based on one or more of the following:

(1) With respect to covered policies:

* * *

(D) after issuance of the policy or after the last renewal date, discovery of an act or omission, or a violation of any policy condition, that substantially and materially increases the hazard insured against, and which occurred subsequent to inception of the current policy period[.]

The Department addressed the purpose of Insurance Law § 3426(c)(1)(D) in its Office of General Counsel opinion, dated August 14, 1990. The Department stated therein:

By enacting [Insurance Law] § 3426(c) the Legislature sought to encourage insurers to thoroughly evaluate the risk and underwrite carefully with the understanding that after the first sixty days they would be on the risk for the remainder of the policy period unless one of the statutorily enumerated reasons for cancellation applied. This section is intended to guarantee reasonable protection against unwarranted cancellation while at the same time permitting insurers the flexibility to operate responsibly.

The [Insurance Law] § 3426(c)(1)(D) requirement that the act substantially and materially increase the hazard insured against embodies the legislative purpose that an insurer be permitted to cancel a policy only when there has been a major change in the scale of the risk subsequent to policy issuance. The conjunctive substantially and materially was used to underscore the stringent criteria that must be met before the subparagraph may be invoked.

The inquirer reported that several insurers have canceled their insureds’ commercial lines insurance policies due to non-compliance with recommendations, which the inquirer states they claim is a proper basis for cancellation under Insurance Law § 3426(c)(1)(D).

However, Insurance Law § 3426(c)(1)(D) only applies when there is a substantial and material increase in the risk after the policy has been issued, but that is not the situation when the policy is nonetheless renewed and the insured fails to comply with the insurer’s recommendations.  In the latter instance, the insurer has inspected, and knows the condition of, the risk when it makes its recommendations prior to the renewal date; the risk itself has not been altered after policy issuance. Failure to comply with an insurer’s recommendations thus is not a permissible basis for canceling a policy under Insurance Law § 3426(c)(1)(D). 
 

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.

Loss Transfer Jurisdiction
OGC Op. No. 09-09-03 (September 15, 2009)

Questions Presented:

1. When a person has a large self-insured retention and the amount of damages at issue in a loss transfer inter-company arbitration falls within the retention, is the self-insured the appropriate party to the arbitration (as opposed to the liability insurer that insures the losses above the retention)? 
2.  Is a person’s self-insured status a valid affirmative defense to jurisdiction by a liability insurer?

Answers:

1. Yes. A person who has, pursuant to the New York Vehicle & Traffic Law (“VTL”), registered a motor vehicle with proper proof of financial security, that indicates that the person is self-insured with respect to the vehicle, is the appropriate party to a loss transfer inter-company arbitration if the amount at issue wholly falls within the retention amount.
2. [Yes.] The loss transfer inter-company arbitration panel may evaluate all defenses raised at the arbitration, including jurisdictional affirmative defenses.

Analysis:

N.Y. Ins. Law § 5105 is relevant to the inquiries. That statute reads, in pertinent part, as follows:

(a) Any insurer liable for the payment of first party benefits to or on behalf of a covered person and any compensation provider paying benefits in lieu of first party benefits which another insurer would otherwise be obligated to pay pursuant to subsection (a) of section five thousand one hundred three of this article or section five thousand two hundred twenty-one of this chapter has the right to recover the amount paid from the insurer or any other covered person to the extent that such other covered person would have been liable, but for the provisions of this article, to pay damages in an action at law. In any case, the right to recover exists only if at least one of the motor vehicles involved is a motor vehicle weighing more than six thousand five hundred pounds unloaded or is a motor vehicle used principally for the transportation of persons or property for hire…

(b) The sole remedy of any insurer or compensation provider to recover on a claim arising pursuant to subsection (a) hereof, shall be the submission of the controversy to mandatory arbitration pursuant to procedures promulgated or approved by the superintendent. Such procedures shall also be utilized to resolve all disputes arising between insurers concerning their responsibility for the payment of first party benefits.

Insurance Law § 5102(g) defines “insurer” as “the insurance company or self-insurer, as the case may be, which provides the financial security required by article six or eight of the vehicle and traffic law.”

Under the facts presented here, the vehicles in question are owned by a large trucking company, which is self-insured for purposes of the VTL, and therefore is an “insurer” for purposes of Insurance Law § 5105. Provided that the vehicles in question weigh more than 6,500 pounds unloaded, the mandatory arbitration provisions set forth in Insurance Law § 5105(a) apply, and thus provide the sole remedy for the party seeking arbitration.

A. Proper Parties to Loss Transfer Arbitration

VTL § 312 is relevant to the first question, which asks whether the proper party to a loss transfer arbitration is the excess liability insurer or the trucking company as the self-insurer. That law requires an application for motor vehicle registration to be accompanied by proof of financial security, which shall be evidenced by proof of insurance or evidence of a financial security bond, a financial security deposit or qualification as a self-insurer.

Here, the trucking company has satisfied the VTL requirements necessary to qualify as a self-insurer. Consequently, the trucking company also is a self-insurer for purposes of Article 51 of the Insurance Law. Given that circumstance, the trucking company is the proper party to the arbitration.

B. Jurisdictional Defenses Relating to Self-Insured Status

The second query asks whether a party’s self-insured status is a valid affirmative defense to jurisdiction by a liability insurer. Pursuant to section 65-4.11(a)(4) of Tit. 11, Subpart 65-2 (Reg. 68-B) of the New York Codes, Rules and Regulations (“NYCRR”) “[a]ny determination as to whether an insurer is legally entitled to recovery from another insurer shall be made by an arbitration panel appointed pursuant to this section.” Self-insurers are subject to mandatory inter-company arbitration pursuant to 11 NYCRR § 65-4.11(a), which states that the “term insurer as used in this section shall include both insurers and self-insurers as those terms are defined in this Part and article 51 of the Insurance Law.”  Therefore, it is for the arbitration panel to determine whether a jurisdictional affirmative defense predicated on an insured’s self-insured status is valid.

For further information, you may contact Associate Counsel Alexander Tisch at the New York City Office.

Declaratory Judgment and Order of Restitution of No-Fault Payments Granted Based on Annulment of PC's Certificate of Incorporation

NO-FAULT – FRAUDULENT INCORPORATION – MALLELA – ANNULMENT OF MEDICAL PC'S CERTIFICATE OF INCORPORATION
Allstate Ins. Co. v. Plainview Professional Med., P.C.
(Sup Ct., Nassau Co., decided 9/24/2009)

Three Allstate companies brought this action against Plainview Professional Medical, P.C., Bruce Bromberg, D.C., Rafael Garcia, M.D., PPP Healthcare Management, Inc., and Handon Management, Ltd.: (1) for a declaration that the Allstate plaintiffs were under no obligation to pay pending, previously denied or future no-fault claims submitted to them by defendants since Plainview Professional Medical PC's certificate of incorporation was annulled by order of the New York State Department of Health, State Board for Professional Medical Conduct on or about October 6, 2008; and (2) to recoup payments made to defendants pursuant to New York State s no-fault law from April 4, 2002 through and including July 18, 2006, predicated on causes of action sounding in fraud and unjust enrichment/restitution.

Plaintiffs moved for summary judgment, contending that, as a consequence of their failure to comply with the state licensing requirements of § 1503(a) of the Business Corporation Law, defendants were not eligible to receive in excess of $600,000 in no-fault payments paid to them by the Allstate plaintiffs.  Specifically, Allstate argued that Plainview was formed in violation of Business Corporation Law § 1503 in that Rafael Garcia was not, in fact, Plainview's true owner and Plainview's certificate of incorporation was annulled by the New York State Department of Health, State Board for Professional Medical Conduct on or about October 6, 2008 after an evidentiary hearing at which neither Rafael Garcia nor Plainview appeared to contest the charges. The Hearing Committee found that unqualified individuals were instrumental in operating, controlling and/or handling Plainview's financial and operational affairs, to wit: according to the Findings of Fact contained in the Determination and Order of the Hearing Committee, Plainview "evaded the legal restrictions on incorporation, ownership and/or control of (Professional Corporations) by concealing * * * that legally unqualified individuals incorporated, owned, operated and controlled medical service corporations . While Rafael Garcia, M.D. was listed on Plainview's certificate of incorporation, filed with the Secretary of State on March 8 , 2000 as Plainview's sole shareholder, director and officer, he did not operate or control Plainview from its inception through the present. Although he apparently did not practice medicine at Plainview since in or about the summer of2000, he was compensated for the use of his name.

Allstate also asserted that once he surrendered his medical license, effective February 6, 2008, pursuant to Public Health Law § 230.12, defendant Rafael Garcia was no longer authorized to practice medicine, a further violation of §§ 1503(a) and (b) and 1504(a) of the Business Corporation Law.

Kings County District Attorney Charles J. Hynes Announces Indictments in $10,000-Per-Day Criminal Enterprise

THIRTEEN FACE 263 COUNTS IN THREE INDICTMENTS CHARGING
 ID THEFT, CREDIT CARD FRAUD, AUTO-INSURANCE FRAUD AND
REAL ESTATE FRAUD IN BROOKLYN, QUEENS,
NASSAU COUNTY, NEW JERSEY AND PHILADELPHIA 

Brooklyn, October 7, 2009 – Kings County District Attorney Charles J. Hynes today announced the indictment of 13 people charged, in three separate indictments, in a wide-ranging criminal enterprise that included real estate fraud, identity theft and credit card fraud, and a conspiracy involving automobile insurance fraud. The indictments are the results of an 18-month, joint investigation with the U.S. Secret Service.

The first indictment, containing 164 counts including Enterprise Corruption, charges four defendants – Ryan Foster, Nathaniel Mahone, Jacques Sylvestre, and Yanira Santiago – with operating a credit-card fraud and identity theft ring, which at times netted as much as $10,000 per day, between 2006 and 2008. They are charged with purchasing credit card numbers from private Internet sites in Russia and the Ukraine and using the information to manufacture fake credit cards in various Brooklyn sites they called the “lab”. Then the defendants sent hired “shoppers” to stores, such as Game Stop, Best Buy, Home Depot, Lowe’s, Zales, Louis Vuitton and Ford’s Jewelers, where they would purchase items the ringleaders would later sell, according to the indictment.

The Enterprise Corruption indictment also charges the defendants with purchasing properties through mortgage fraud and using the merchandise stolen from home improvement stores, such as Lowe’s and Home Depot, to increase the values of the homes. The properties could then be re-appraised at higher values, and the defendants could get the mortgages refinanced, according to the indictment. Another aspect of the scheme involved orchestrating fraudulent purchases and sales of the properties, by employing straw buyers and using crooked real estate brokers and loan officers to help them file false paperwork.

In a second, 97-count indictment, Foster, Mahone, Sylvestre and nine others are charged with conspiring to make false accident, vandalism and theft claims on late-model luxury cars, such as BMW, Land Rover, Lexus, Mercedes Benz and Cadillac. The indictment charges that the defendants would remove undamaged interior parts, such as air bags, dash boards, door panels and seats, and replace them with damaged parts. Then they would report to police that the cars had been vandalized near their homes and file claims with their insurance companies to have the damaged car parts replaced, according to the indictment. The investigation revealed that the same damaged car parts were recycled and used repeatedly in separate claims. The defendants are also charged with staging accidents and car thefts to collect insurance payments.

To read the full press release, click here.

Jump Breaks

I'm trying something new and would like your input.

Blogger recently offered a jump break feature for its blogs.  A jump break truncates a post on the blog's main page and and allows/requires readers to click a link in order to read the entire post. Many bloggers use them; some don't. 

Some of my posts can get long, especially when I quote language from a court's decision. In an effort to de-clutter and shorten the main page, I've inserted jump breaks into recent posts that are long.  In a comment to this post or email directly to me, please tell me:

• Do you like/mind the jump breaks on longer posts?  -or-
• Do you prefer simply to read and scroll down the complete, untruncated posts, regardless of their length? 

The jump breaks do not affect the various search tools that are available here for finding blog content, unless you're looking for content in the "read more" part of a posting using Ctrl+F.  Otherwise, other than an extra left mouse click, nothing's changed. 

Go back to long or keep the jump breaks?

Obtaining Written Report of Hit-and-Run Accident Not Always Required for Claim Against MVAIC

UM – HIT-AND-RUN ACCIDENT – CLAIM TO MVAIC – REPORT TO POLICE WITHIN 24 HOURS
Matter of Gurvich v. Motor Veh. Acc. Indem. Corp.
(2nd Dept., decided 10/6/2009)

One precondition to securing uninsured motorists benefits from New York's Motor Vehicle Accident Indemnification Corporation (MVAIC) for injuries sustained in a hit-and-run accident is that the claimant "[r]eport the accident to the police, justice of the peace, a judge, or the Motor Vehicle Commissioner within twenty-four (24) hours after the accident[.]"

The New York courts liberally interpret what constitutes a satisfactory "report".  In this matter, the claimant commenced this special proceeding pursuant to Insurance Law § 5218(c) for leave to commence an action against MVAIC, which opposed the petition based on its assertion that the claimant had failed to report the hit-and-run accident to the police within 24 hours.  Kings Supreme rejected MVAIC's contention and granted the petition, leading to this appeal.

In AFFIRMING the order granting claimant's petition, the Second Department, held:

The Motor Vehicle Accident Indemnification Corporation opposed the petition for leave to commence an action against it on the ground that the petitioner failed to report the subject accident to the police within 24 hours of the occurrence. However, the courts have "consistently afforded a very liberal interpretation to the notice requirement, accepting police contacts that fall far short of the operator's obtaining a written report" (Matter of Country Wide Ins. Co. [Russo], 201 AD2d 368, 370; see Canty v Motor Veh. Acc. Indem. Corp., 95 AD2d 509; Matter of Dixon v Motor Veh. Acc. Indem. Corp., 56 AD2d 650). Under the circumstances of this case, sufficient notice of the accident was timely given to the police.

The decision does not reveal what the "circumstances of this case" were that the motion and appellate courts found constituted sufficient notice of the accident to the police.  However, it appears the claimant had not obtained a written accident report from the police, something the courts rules was not fatal to her MVAIC claim. 

The First Department's New "I Didn't Know the Insurance Company Had Moved and My Attorney Didn't Spend Three-Tenths of a Second to Check" Excuse to Late Notice of Suit

AUTO – LATE NOTICE OF SUIT – EXCUSE FOR NON-COMPLIANCE
American Tr. Ins. Co. v. Brown
(1st Dept., decided 10/8/2009)

This is a troubling decision.  Got to agree with the two dissenting justices that the majority created a new and unwarranted excuse to late notice of suit -- the "I didn't know the insurance company had moved and my attorney didn't spend three-tenths of a second to check" excuse. 

American Transit insured Batista under a personal auto policy.  Batista struck and injured Brown on November 12, 2002.  Brown's attorney promptly notified ATIC of Brown's claim, and ATIC assigned a claim number and acknowledged that claim in a letter to Brown's attorney dated January 28, 2003.  ATIC's address at the time was 275 Seventh Avenue, New York, NY 10001.  ATIC subsequently conducted a property damage appraisal of Brown's vehicle and settled the property damage portion of his claim.

Just shy of the applicable three-year SOL, Brown commenced a personal injury action against Batista on November 9, 2005.  On January 26, 2006, Brown's counsel sent a "courtesy copy" of the summons and complaint to ATIC at its Seventh Avenue address, instructing it to interpose an answer on behalf of its insured.

There was no reply or appearance by ATIC which, in fact, had moved two years earlier in November 2003 to offices on West 34th Street in Manhattan.  Brown's counsel apparently did nothing to determine why ATIC had not responded to his notice of suit, as ATIC had done almost immediately to counsel's first notice of claim.  On June 21, 2007, following an inquest, the court granted a default judgment in favor of Brown for $75,000. Judgment in the total amount of $81,830, including medical liens and interest, was entered against Batista on July 19, 2007.  Now needing to "serve" notice of entry of the judgment on ATIC in order to comply with Insurance Law § 3420(a)(2), Brown's attorney apparently had no trouble identifying ATIC's current West 34th Street address and sent the judgment to ATIC at that address on August 9, 2007.

Upon receipt of the default judgment, ATIC promptly disclaimed coverage on the ground that it was not provided with timely notice of the lawsuit.  ATIC then brought this declaratory judgment action alleging that neither Brown nor Batista had complied with the policy's requirement that ATIC be timely notified of any suit brought against one of its insureds.  ATIC alleged that its first notice of Brown's lawsuit came after judgment was entered against Batista.

New York Supreme denied Brown's motion and ATIC's cross motion for summary judgment on the ground that additional discovery was needed.  The First Department's three-justice majority MODIFIED the order appealed from by granting Brown's motion and declaring that ATIC was obligated to satisfy the $81,830 default judgment  against Batista.

Fourth Department Rules on What Consitutes a Health Care Provider's Prima Facie Showing in a No-Fault Action -- 14 Different Assigned Claims Severed

NO-FAULT – PRIMA FACIE SHOWING – SEVERANCE OF CLAIMS
Sunshine Imaging Assn./WNY MRI a/a/o Carol Vancheri v. Government Employees Ins. Co.
(4th Dept., decided 10/2/2009)

In what may be the Fourth Department's first decision addressing what constitutes a plaintiff's prima facie showing in a no-fault action, the appellate court ruled that plaintiff MRI facility

made a prima facie showing of entitlement to judgment as a matter of law by submitting evidence that the prescribed statutory billing forms were received by defendant and that defendant's payment of no-fault benefits to plaintiff was overdue  (see A.B. Med. Servs., PLLC v Liberty Mut. Ins. Co., 39 AD3d 779, 780; LMK Psychological Servs., P.C. v Liberty Mut. Ins. Co., 30 AD3d 727, 728)[.]

Defendant GEICO, however, raised a triable issue of fact by submitting its denial of claim forms setting forth that the services for which plaintiff sought to recover no-fault benefits were not medically necessary:

Contrary to plaintiff's contention, defendant is not precluded from denying the claims after the services were rendered on the ground of lack of medical necessity. Plaintiff's assignors were entitled only to reimbursement for medically "necessary" expense (Insurance Law § 5102 [a] [1]; see 11 NYCRR 65-1.1 [d]), and plaintiff assignee is subject to that lack of medical necessity defense (see Long Is. Radiology v Allstate Ins. Co., 36 AD3d 763, 765).

The appellate court also unanimously affirmed the motion court's severance of the amended complaint's 14 causes of action that were based on the plaintiff's billing for 14 separate patients-assignors:

Although this action was commenced "by a single assignee against a single insurer and all [causes of action] allege the erroneous nonpayment of no-fault benefits . . ., they arise from [14] different automobile accidents on various dates in which the [14] unrelated assignors suffered diverse injuries and required different medical treatment" (Poole v Allstate Ins. Co., 20 AD3d 518, 519).

DeclaratoryJudgment Not Granted on Default -- Plaintiff Directed to Accept Insurer's Answer

LIABILITY – DECLARATORY JUDGMENT – DEFAULT JUDGMENT
Dole Food Co., Inc. v. Lincoln Gen. Ins. Co.
(4th Dept., decided 10/2/2009)

In this short decision, the Fourth Department reminds insurance coverage litigants that "[a] default judgment in a declaratory judgment action will not be granted on the default and pleadings alone for it is necessary that plaintiff[s] establish a right to a declaration[.]"  Here, the appellate court ruled that plaintiffs failed to establish their entitlement to the declaration sought, and the motion court abused its discretion in denying Lincoln General's cross motion to compel plaintiffs to accept its answer.

Bronx Supreme Grants Lessor's Motion to Renew and for Summary Judgment Based on Graves Amendment

AUTO – LEASED VEHICLE – GRAVES AMENDMENT
Antwi v. HVT, Inc.
(Sup. Ct., Bronx Co., decided 9/11/2009)

For all actions commenced on or after August 10, 2005, the "Graves Amendment" has provided vehicle lessors with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits.  This amendment to the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ("SAFETEA") provides in relevant part that:

[a]n owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate of the owner) shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle (or an affiliate of the owner), for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if-

(1) the owner (or an affiliate of the owner) is engaged in the trade or business of renting or leasing motor vehicles; and

(2) there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner).  49 U.S.C. § 30106(a).

After plaintiff had successfully moved for partial summary judgment on liability against all defendants, defendant HVT, Inc. moved for leave to amend its answer to add an affirmative defense based on the Graves Amendment, for renewal of the plaintiff's previous motion, and for summary judgment in its favor based on the Graves Amendment.  Plaintiff opposed HVT's motion, arguing: (1) that HVT's Graves Amendment defense lacked merit; (2) that HVT waived that affirmative defense by not having asserted it in its original answer; (3) that such defense was prejudicial; (4) that HVT proffered no excuse for having failed to seek summary judgment in response to plaintiff's prior motion; and (5) that HVT failed to establish its prima facie entitlement to summary judgment.

In support of its motion, HVT submitted an an affidavit from a Diane Adams, the Manager of the Procedures and Regulations Department for American Honda Finance Corporation, the servicer of HVT's leasing program and agent of HVT for all obligations of HVT as a lessor under its lease contracts. Adams averred that the vehicle that struck the plaintiff's car was a leased vehicle, owned by HVT.  The Adams affidavit also stated that the lessee driver involved in the accident was not an employee or agent of HVT, that HVT had no duty to repair or maintain the leased vehicle, that the vehicle's lessee was responsible for repairs and maintenance, and that as of the accident date, HVT was in the business of leasing motor vehicles to the public.

In granting HVT's motion for renewal of plaintiff's earlier motion for partial summary judgment, Bronx County Supreme Court Justice Nelson Roman reiterated the general rule that an application for leave to renew must be based upon additional material facts which existed at the time the prior motion was made, but were not then known to the party seeking leave to renew, and, therefore, not made known to the court.  Justice Roman went on to note that the New York courts have carved out an exception to that general rule:

The Waterfowl Rule of Insurance Policy Interpretation -- First: Read the Policy. Second: Read the Policy Again

PROPERTY – HOMEOWNERS – OTHER STRUCTURES COVERAGE
Weichert v. Allstate Ins. Co.
(Sup. Ct., Onondaga Co., decided 4/1/2009)

When Allstate issued a homeowner's policy to the plaintiffs in 2000, plaintiffs' agent told them that a detached pole barn on their property would not be covered under their Allstate policy and procured a separate policy for them from another carrier specifically insuring that structure.   In June 2005, while both policies were still in effect, a fire destroyed the pole barn and its contents. 

Plaintiffs made a claim to and were paid by the pole barn's insurer, in a amount less than the full value of the loss.  While adjusting that fire loss, plaintiffs discovered that their Allstate policy covered other structures and contained no exclusion for the pole barn. Plaintiffs submitted a claim to Allstate for the approximately $45,000 balance of their damages, which Allstate denied, and plaintiffs sued.  Following discovery, both sides moved for summary judgment.

In support of their motion, plaintiffs contended that despite what their agent may have told them regarding what coverage the Allstate policy did and did not afford, the Allstate policy was clear and unambiguous in affording coverage to the pole barn as a covered structure, not excluded by any specific endorsement to the policy that Allstate issued to them and for which they had paid a premium.

In opposition, Allstate argued that what plaintiffs agent had told them regarding the lack of coverage under the Allstate policy for the pole barn should control, despite what the policy provided or did not specifically exclude.  Allstate further contended that a specific policy exclusion, in this case endorsement AP 54, was not necessary and it was not their practice to have insureds actually sign the AP 54.

In granting plaintiffs' motion for summary judgment, Onondaga County Supreme Court Justice Anthony J. Paris found that plaintiffs had met, and defendants had not met, their respective burdens of showing on their motions for summary judgment:

In reviewing insurance policies vis-à-vis motions for summary judgment, Professor Samuel Donnelly instructs that there are two rules to follow:

First: Read the policy.

Second: Read the policy again.

It appears that the Court of Appeals agrees with Professor Donnelly as it has held in TAG 380, LLC v. COMMET 380, INC., 10 NY3d 507 (2008), that it is for the Court to determine the parties' rights and obligations under an insurance policy based on the specific language of the policy.

To negate coverage pursuant to an exclusion, a carrier must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case. Policy exclusions are to be narrowly construed and any ambiguity must be resolved against the insurer. BELT PAINTING CORP. v. TIG INSURANCE COMPANY, 100 NY2d 377 (2003).

Also, in construing an endorsement to an insurance policy, the endorsement and the policy must be read together, and the words of the policy remain in full force and effect except as altered by the words of the endorsement. COUNTY OF COLUMBIA v. CONTINENTAL INSURANCE COMPANY, 83 NY2d 618 (1994).

In this particular case, it is impossible for the policy and the endorsement to be read together as the endorsement AP 54 which allegedly excluded the pole barn from coverage was never attached to the policy or presented to Plaintiffs. Furthermore, when a copy of AP 54 was requested, all that Defendants could produce was a blank form without any entries describing the structure or evidencing a signature by either Plaintiff. Also, the policy provides for "other structures" protected in the amount of forty-one thousand nine hundred seventy-two dollars ($41,972.00).

Therefore, the policy language commands and it clearly and unambiguously states that under Coverage B at Page six of the policy that structures at Plaintiffs' address separated by clear space are covered.

The Court notes that the only other structure on Plaintiffs' property separated by clear space is the pole barn. The Court further notes that pursuant to CPLR 3123 Defendants have admitted that the policy and endorsements in Plaintiffs' Exhibit L are the policy endorsements that are the subject of this action. The AP 54 endorsement is not contained therein.

Where the language of the policy is clear and unambiguous, parole and extrinsic evidence may not be considered. STATE OF NEW YORK v. HOME INDEMNITY COMPANY, 66 NY2d 669 (1985); KENNEDY v. VALLEY FORGE INSURANCE COMPANY, 203 AD2d 930 (4th Dept., 1994).

Even if the Court went "outside the box" and considered evidence extrinsic to the policy, what can be considered?

How about the deposition testimony of MR. HUDSON, Defendants' adjustor, with twenty-four (24) years of experience, who testified that AP 54 is used to exclude structures otherwise covered. So if AP 54 is not issued, then, there is coverage. Also, if AP 54 is not filled in and addressed to a particular structure, there is coverage.

How about the deposition testimony of MR. BEALE, who never found nor could secure AP 54 from the Company and was never given an explanation as to why it could not be located. Most likely because it did not exist.

How about MS. GLEASON'S testimony, the Defendants' supervisor, who denied coverage because the Company computer told her to do so. Sounds a little like the teleprompter thing that Rush talks about.

And let's not forget the testimony of MS. HARROD [plaintiffs' agent] who told Plaintiff, CYRUS WEICHERT, that the pole barn was not covered because of size and intended use, but never secured information regarding size or intended use, and collected a double commission, one from Defendants and one from the other carrier who duplicated coverage.

In addition, MS. HARROD testified that she never read the policies that she wrote for plaintiffs in 2000 or 2002. Had she done so, she would have realized that there was coverage under the policies, specifically, Coverage B.

Defendants cannot defeat Plaintiffs' motion for summary judgment on the mere allegation that there was no coverage because MS. HARROD said so, especially when the language of the policy specifically provides for such coverage.

The fact that she was in error and caused Plaintiffs to pay a double premium cannot be held against Plaintiffs who relied on Defendants' agent's mistaken statements. Fortunately for Defendants, Plaintiffs had another policy that covered part of the loss to the pole barn and only seek excess or secondary coverage.

If an insured cannot recover when he or she does not read the policy and alleges that the agent told the insured there was coverage that's not in the language of the policy, how can an insurance company avoid coverage by saying its agent told the insured there wasn't coverage when the agent did not read the policy that specifically contains coverage and does not exclude such coverage. What the policy says is what the policy means; and the Court will cite the case of GOOSE v. GANDER, at 19 AJP 814.

Barnyard animal insurance coverage buffs may also recall the seminal cases of Cat v. Mouse (interpretation of a homeowners policy's vermin exclusion), E. Fudd v. B. Bunny (intentional acts exclusion), Wyle E. Coyote v. Rhode Runner (explosion exclusion of a commercial property policy), Tortoise v. Hare (the racing exclusion of a personal auto policy), Fox v. Hound (whether harassment claims are covered under a PUP policy), and In re Charlotte's Web (the savings clause of a farmowners policy). 

Hat tip to attorney Michael Mernin of Finazzo Cossolini O'Leary Meola & Hager, LLC, for both bringing this decision to my attention yesterday afternoon and decrypting the "AJP" reporter citation in Justice Anthony J. Paris' decision.  Could the 19 volume and 814 page citation be an Orwellian reference to Animal Farm?

Had the policy not be sufficiently clear in what it did not contain, perhaps Justice Paris could have ordered the parties to settle their coverage dispute with a game of rock, paper, scissors, as United State District Court Judge Gregory Presnell did in Avista Management, Inc. v. Wausau Underwriters Ins. Co.

It seems that all I really needed to know for analyzing and litigating insurance coverage disputes I did learn in kindergarten. Thank you Mrs. Henning.

Question of Fact Found on Applicability of Auto Insurer's Speed Contest Exclusion

PERSONAL AUTO – SPEED CONTEST EXCLUSION
MIC Prop. & Cas. Corp. v. Avila
(2nd Dept., decided 9/29/2009)

Many personal auto policies exclude liability coverage for the ownership, maintenance or use of a vehicle in "any race, speed contest or performance contest."  Some modern personal auto policies, such as ISO's PP 00 01 01 05 personal auto form, limit the application of that exclusion to vehicles "located inside a facility designed for racing" while being used for the purpose of competing in, practicing or preparing for "any prearranged or organized racing or speed contest."

MIC Property & Casualty Corp. insured Pedro Avila and his vehicle.  On October 3, 2005, the Avila vehicle, being driven by Merqui Avila, struck an automobile, killing one of the passengers in that vehicle and injuring two others.  Merqui and the driver of another vehicle, Carlos Molina, were charged with manslaughter in the second degree as a result of the accident.  During their plea allocution to the reduced charge of criminally negligent homicide, both admitted that at the time of the accident, they were engaged in a speed contest.  In their prior statements to the police, however, they admitted only that after being stopped adjacent to each other at a traffic light, they each attempted to pass the other over the ensuing blocks until the accident occurred.

The injured passengers and the decedent's estate sued all three vehicles' drivers and owners.  MIC disclaimed coverage to the Avilas based upon a policy provision that excluded liability for a vehicle that was used in or preparing for "any race, speed contest or performance contest."  MIC then commenced this action for a judgment declaring that it had no duty to defend or indemnify Merqui or Pedro Avila in the underlying actions.  Nassau Supreme granted MIC's motion for summary judgment declaring, in effect, that MIC owed no liability coverage to the Avilas.  The decedent's executrix appealed.

In a 3-2 decision, the Second Department REVERSED the order appealed from and denied MIC's summary judgment motion.  In the three-justice majority's opinion, the statements made by the drivers to the police on the day after the accident, which were admissible for the purpose of defeating a motion for summary judgment,  raised a triable issue of fact as to whether Merqui's conduct fell within the speed contest exclusion:

Merqui's plea of guilty to criminally negligent homicide does not, in itself, establish that he was engaged in a speed contest at the time of the accident. "A person is guilty of criminally negligent homicide when, with criminal negligence, he causes the death of another person" (Penal Law § 125.10). Since nothing in the statutory language requires that, to be convicted of that crime, a person have been engaged in a speed contest, the conviction of criminally negligent homicide does not, in itself, establish that Merqui was involved in a speed contest (see Allstate Ins. Co. v Zuk, 78 NY2d 41, 45).

Merqui's admission that he was engaged in a speed contest at the time of the accident also is not dispositive here. At issue here is the meaning of the term "speed contest" in the exclusion from coverage contained in the insurance policy issued by MIC. To " negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case'" (Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377, 383, quoting Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640, 652; see Incorporated Vil. of Cedarhurst v Hanover Ins. Co., 89 NY2d 293, 298). Any ambiguity in the exclusion is to be construed against the insurer (see Allstate Ins. Co. v Noorhassan, 158 AD2d 638, 639). "The test for ambiguity is whether the language in the insurance contract is susceptible of two reasonable interpretations. The focus of the test is on the reasonable expectations of the average insured upon reading the policy" (NIACC, LLC v Greenwich Ins. Co., 51 AD3d 883, 884 [internal quotation marks and citations omitted]). "The insurance company bears the burden of establishing that the exclusions apply in a particular case and they are subject to no other reasonable interpretation" (MDW Enters. v CNA Ins. Co., 4 AD3d 338, 340; see Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 311; Gaetan v Firemen's Ins. Co. of Newark, 264 AD2d 806, 808). MIC failed to carry this burden here.

The policy does not define the term "speed contest." Where the term is used in New York law, however, in Vehicle and Traffic Law § 1182(1), it does not encompass the conduct in which Merqui engaged here. Merely speeding down the street, even in tandem with another vehicle, does not constitute a "speed contest" within the meaning of that statute (see People v Grund, 14 NY2d 32; see also Shea v Kelly, 121 AD2d 620, 621). "Violation of this statute means that, at least by implication, some race course must have been planned by the competitors along a street. It is not enough that an automobile operated by defendant and one by his codefendant left an intersection abreast when the traffic light changed to green and, thereafter, travelled abreast at about 55 miles an hour, each car jockeying for position" (People v Grund, 14 NY2d at 34).

The statements made by Merqui and Molina to the police on the day after the accident, which are admissible for the purpose of defeating a motion for summary judgment (see Ashif v Won Ok Lee, 57 AD3d 700; Westchester Med. Ctr. v Progressive Cas. Ins. Co., 51 AD3d 1014, 1017; cf. Niyazov v Bradford, 13 AD3d 501, 502), raised a triable issue of fact as to whether Merqui's conduct falls within the exclusion as so defined. Therefore, MIC's motion for summary judgment should have been denied (see Alvarez v Prospect Hosp., 68 NY2d 320, 324).

The two dissenting justices disagreed with the majority's reliance on the "speed contest" section of New York's Vehicle & Traffic Law to find that there was a question of fact on the applicability of MIC's speed contest exclusion:

[I]n the case at bar, the issue is not the sufficiency of evidence with respect to the drivers' criminal convictions, but rather, whether MIC met its burden of establishing that the conduct at issue falls within the policy exclusion. In contrast to Vehicle and Traffic Law § 1182, the policy at issue does not require that a race be prearranged or organized, nor does it cite to the Vehicle and Traffic Law. The policy merely uses the same phrase, "speed contest." In this regard, it is to be noted that the phrase "speed contest" also has been interpreted to mean "a challenge coupled with a response in speed and relative position indicating acceptance of the challenge," which is a lower standard of proof than that required for a criminal conviction for drag racing under Vehicle and Traffic Law § 1182 (Shea v Kelly, 121 AD2d 620, 621, citing People v Grund, 14 NY2d 32). Moreover, based on the statements which the drivers made to the police at the time of their arrest, I believe that it is fair to conclude that their actions prior to the accident constituted such a "speed contest." Indeed, both drivers indicated that just before the accident occurred, and after stopping at a traffic light, Merqui pulled away at a high rate of speed and Molina raced to catch up with him. After stopping at a second traffic light, they continued "playing with each other," and pulled away at a high rate of speed as Merqui tried to pass Molina.

The dissenting justices also noted that both charged drivers, in allocuting to their guilty pleas, admitted that they had been engaged in a speed contest:

Furthermore, although no specifics as to the speed contest were elicited during the plea allocution, neither Merqui nor Molina was charged with a violation of the Vehicle and Traffic Law. Finally, and most significantly, the drivers clearly admitted that they had participated in a speed contest when they were asked that question during their plea allocution. Indeed, a review of the plea minutes indicates that not only did the court specifically elicit such admissions from them, but also, that there was no concern expressed at that time about the meaning of the questions being posed.

`Twas Brillig, and the Slithy Toves Did Gyre and Gimble in the Wabe

NO-FAULT – FRAUDULENT BILLING – INSURER RECOVERY ACTION – FAIR PRICE
Lincoln Gen. Ins. Co. v. Alev Med. Supply Inc
(Nassau Co. Dist. Ct., 1st Dist., decided 9/28/2009)

Lewis Carroll wrote  Jabberwocky for his brothers and sisters in 1857 when he was 23 years old.  Fair Price Medical was decided by the New York Court of Appeals in 2008 when New York's no-fault law was 31 years old.  For over 150 years, the academic debate has continued over what the text of Jabberwocky means.  In just over a year, Fair Price continues to spawn unusual decisions such as this one.  In the words of young Alice from the Wonderland fame, "It seems very pretty, but it's rather hard to understand."

Andrey Armstrong was injured in an automobile accident on September 5, 2008.  On October 4, 2008 and October 9, 2008, defendant Alev Medical Supply, Inc. purportedly provided medical supplies to Armstrong. Armstrong assigned his right to no-fault benefits for these items to Alev, which submitted bills for the medical supplies to the plaintiff, Lincoln General Insurance Company.

Lincoln received the bills from Alev on November 10, 2008 and paid the bills in part and denied the bills in part 24 days later on December 4, 2008.  Lincoln issued checks to Alev for the portions of the bills it paid and issued denials for the balance of the bills.  Lincoln denied a portion of the bills on the ground the charges for the medical supplies and equipment were not in accordance with the no-fault payment schedule, 11 NYCRR Part 68.  Alev received and deposited the checks issued in payment of the claims.

On December 18, 2008, Armstrong testified at an examination under oath that he never received any of the equipment Alev claims it provided to him.  Based on that testimony, Lincoln commenced this action seeking to recover the money it paid to Alev on the claim.  Alev defaulted in the action, and Lincoln moved for a default judgment against Alev.

In denying Lincoln General's unopposed motion for a default judgment, Nassau County District Court Judge Fred Hirsh relied principally on the Court of Appeals' decision in Fair Price Medical and held that since Lincoln General had not denied Alev's bills within 30 days for fraud, it could not seek to recover its payment of those bills based on fraud:

An insurer's time to pay or deny a claim is tolled or extended if the insurer timely requests verification and/or upon receipt of the verification, timely requests additional verification of the claim. St. Barnabas Hospital v. American Transit Ins. Co., 57 AD3d 517 (2nd Dept. 2008); and Central Suffolk Hosp. v. New York Central Mut. Fire Ins. Co., 24 AD3d 492 (2nd Dept. 2005); lv. dnd. 7NY3d 704 (2006)^[FN1]When a insurer timely requests additional verification, the 30 day period in which to pay or deny the claim is tolled pending receipt of the additional verification. Kingsbrook Jewish Medical Center v. Allstate Ins. Co., supra ; and Montefiore Medical Center v. Government Employees Ins. Co., 34 AD3d 771 (2nd Dept. 2006).

Lincoln did not request verification of the claim submitted by Alev.

With limited exception, none of which are relevant to this case, an insurer is precluded from raising defenses including fraud not asserted in a timely denial. Fair Price Medical Supply Corp. v. Travelers Indemnity Co., 10 NY3d 556 (2008); Hospital for Joint Disease v. Travelers Property Casualty Ins. Co., supra ; and Careplus Medical Supply, Inc. v. Selective Ins. Co of America, -Misc.3d-, 2009 WL 679251 (App.Term 9th & 10th Jud. Distrs. 2009).  

Lincoln could have denied the claim on the grounds it was fraudulent. Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra . Lincoln did not. It paid the claim in part and denied the claim in part. The denial of the claim was based not upon fraud but upon the charges not being in accordance with the no-fault payment schedule.

The purpose of the no-fault law is "...to ensure prompt compensation for losses incurred by accident victims without regard to fault or negligence, to reduce the burden on the courts and to provide substantial premium savings to New York motorists." Medical Society of the State of New York v. Serio, 100 NY2d 854, 860 (2003). See, Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra ; and Hospital for Joint Disease v. Travelers Property Casualty Ins. Co., supra . An insurer can contest an illegitimate or fraudulent claim, but it must do so within the strict time periods and processes established by the no-fault law and regulations. Presbyterian Hosp. in the City of New York v. Maryland Cas. Co., 90 NY2d 274(1997).

The core objective of the no fault law and regulations is "...to provide a tightly timed process of claim, disputation and payment." Id. at 281. See, LMK Psychological Services, P.C. v. State Farm Mutual Auto Ins. Co., 12 NY3d 217 (2009).

Permitting Lincoln to recover in this action would allow an insurer to avoid or evade the time restrictions of the no fault law and regulations by paying and then investigating a claim and suing to recover the previously paid benefits if the investigation reveals the claim was fraudulent. To permit this would subvert the entire no-fault system which establishes strict time limits by which an insurer must process, dispute and pay a claim.

The no-fault law and regulations require insurers to promptly investigate and pay claims. The regulations provide insurers with the verification process in order to obtain additional information designed to ferret out illegitimate or fraudulent claims.

While the 30 day period plus any applicable tolls for paying or denying a claim may be "...too short of a time frame in which to detect billing fraud, any change is up to the Legislature." Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra at 565.

All bases that an in insurer has for denying a no fault claim, except for specific and limited exceptions, must be raised in a timely denial.^[FN2] The only way an insurer can avoid paying a fraudulent no fault claim is to deny the claim as fraudulent in a timely denial and to assert and prove the defense at trial. Id.; and Lenox Hill Radiology and MIA, P.C. v. Global Liberty Ins. Co. of New York, 24 Misc 3d 1225(A) (NY Civil Ct. 2009).

With due respect to Judge Hirsh and an appreciation of the case law context in which he was required to consider Lincoln General's motion, there is no indication that as of December 4, 2008, only three months after the accident, Lincoln General "could have denied [Alev's bills] on the grounds [sic] that [the claim] was fraudulent" or even had reason to request verification of those billings from Alev.  Fair Price Medical addresses the legal consequence of a no-fault insurer doing nothing within 30 days of receiving what may be fraudulent billings.  It does not, in this blogger's opinion, support or require the holding that a no-fault insurer which, in good faith, makes timely payment of a bill later discovered to be fraudulent cannot sue the provider on a fraud theory to recover that payment.  Fair Price Medical and its ilk address only the preclusion of defenses to payment under Insurance Law § 5106(a) and Regulation 68.

Lincoln General was not seeking to "avoid or evade the time restrictions of the no fault law and regulations" in this case; it paid Alev's bills in a timely fashion.  That fact alone should render the preclusion rule of § 5106(a) inapplicable.  Permitting no-fault no-fault insurers that have timely paid bills later discovered to be fraudulent to sue the providers to recover those payments would not "subvert the entire no-fault system which establishes strict time limits by which an insurer must process, dispute and pay a claim."  The system's objectives are met if, in the first instance, bills are timely paid.  Certainly New York courts would not have no-fault insurers delay payment of bills by requesting verification of them when there is no apparent reason to do so.  The 30-day preclusion rule is not a period of incontestability; it is a defense to payment rule.  Once timely payment is made, the rule should be irrelevant.  No further extension of that rule, from its genesis in Presbyterian Hospital through its unusual manifestation and application in Fair Price Medical is needed or warranted as respects an insurer's right to recover payments that it was fraudulently induced into making.

All mimsy were the borogoves, and the mome raths outgrabe.

Galumph.

Coinsurance Recovery Action Against New York State Insurance Fund Must Be Brought in New York Court of Claims

CGL – COINSURANCE CONTRIBUTION – SUIT AGAINST STATE INSURANCE FUND
Twin City Fire Ins. Co. v. State Ins. Fund
(1st Dept., decided 9/24/2009)

The New York State Court of Claims is the exclusive forum for civil litigation seeking damages against the State of New York or certain other State-related entities such as the New York State Thruway Authority, the City University of New York and the New York State Power Authority (claims for the appropriation of real property only).  Plaintiff's denomination of this action as being one for declaratory relief notwithstanding, the Court of Claims is also the forum in which a commercial general liability insurer must sue the New York State Insurance Fund for recovery of coinsurance contribution of defense and indemnification costs for a mutual insured, holds the First Department in this case.

Action Against Property Insurers Dismissed Based on Finding of No Collapse

COMMERCIAL PROPERTY – COLLAPSE – NO ABRUPTNESS – WEAR & TEAR EXCLUSION – DETERIORATION EXCLUSION – EXPERT OPINION FROM AN ARCHITECT
Rapp B. Props., LLC v. RLI Ins. Co.
(1st Dept., decided 9/15/2009)

Plaintiff sought payment from their commercial property insurers for damage to its building's south wall as a result of collapse, an allegedly covered peril, which occurred "[o]n or about July 19, 2005 and continuing thereafter."  The complaint cited damage consisting of "severe cracking, bulging, splaying and displacement of the exterior brick facade."  The insurers disclaimed coverage on the ground that the damage was "due to wear & tear and gradual deterioration not collapse."  The policy's additional coverage provisions defined collapse as respects buildings as follows:

a.  Collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose;

b.  A building or any part of a building that is in danger of falling down or caving in is not considered to be in a state of collapse;

c.  A part of a building that is standing is not considered to be in a state of collapse even if it has separated from another part of the building;

d. A building that is standing or any part of a building that is standing is not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion.

Plaintiff sued its insurers and two entities that had installed an outdoor sign that allegedly contributed to the failure of the building's south wall.  New York Supreme denied the parties' respective motions for summary judgment and all parties appealed.

In MODIFYING the order to grant the insurers' motion for summary judgment dismissing plaintiff's complaint against them, the First Department held:

The interpretation of an unambiguous provision of an insurance contract is a question of law for the court (White v Continental Cas. Co., 9 NY3d 264, 267 [2007]. Accordingly, regardless of the cause or causes of the damage, it was error for the court to deny the insurers' motion, because there was no collapse within the meaning of the policies. Michael H. Rappaport, plaintiff's managing member, testified that the building and its south wall were still standing three months after the damage was observed in July 2005. Standing alone, Rappaport's testimony suffices to belie any claim that the wall's collapse was "abrupt" within the meaning of the additional coverage provisions. John Paul Murray, plaintiff's architect, observed displacement of brick masonry units and opined that there was an "imminent risk that the wall would completely collapse." In light of subparagraph b above, which excludes imminent collapse from the definition, Murray's affidavit does not bring the occurrence within the coverage of the policies. In Rector St. Food Enters., Ltd. v Fire & Cas. Ins. Co. of Conn. (35 AD3d 177 [2006]), this Court held that a building that was "shown to have had two-to-three-inch-wide cracks in its facade and was sinking, out of plumb, and leaning" did not meet a materially identical definition of collapse. Rappaport's affidavit is also unavailing insofar as he claims to have discovered that bricks had fallen from the inside of the wall where it was covered by sheetrock and tile. As noted above, the wall was still standing. Tellingly, Rappaport describes the condition as hidden "decay," a phenomenon which, by definition, does not occur abruptly.  

The appellate court did affirm that part of the lower court's order that had denied the outdoor sign installer defendant's motion for summary judgment.  The First Department held that the plaintiff's architect's opinion that the tension created by tightly stretching the sign against its fasteners contributed to the failure of the south wall created a triable question of fact regarding the sign defendants' alleged negligence, precluding summary judgment to the sign defendants.  In rejecting those defendants' argument that the plaintiff's architect was not qualified to offer an opinion regarding the sign and the tension its attachment created on the south wall, the appellate court held:

The profession of architecture involves "the application of the art, science, and aesthetics of design and construction of buildings ... including their components and appurtenances ... wherein the safeguarding of life, health, property and public welfare is concerned" (Education Law § 7301).

Twenty-One Floors of Wet -- New York Supreme Dismisses Subrogation Action Based on Anti-Subrogation Rule

BUILDER'S RISK – SUBROGATION – ANTISUBROGATION RULE – INSURABLE INTEREST
St. Paul Fire & Mar. Ins. Co. v. FD Sprinkler, Inc.
(Sup. Ct., New York Co., decided 8/31/2009)

St. Paul issued a builders risk policy to Chelsea 27th Streets Apartments, LLC for construction at 800 Sixth Avenue, New York, New York.  Subcontractors FD Sprinkler, Inc. and Woodworks Construction Company were named as additional insureds on that policy by the following provision:

All subcontractors as Additional Insureds, ATIMA. St. Paul does not waive its rights of subrogation. The insured is not permitted to release from liability any such subcontractor after a loss.

ATIMA is an underwriting acronym meaning "as their interests may appear". 

On December 24, 2003, a sprinkler head on the 21st floor accidently discharged, causing extensive water damage all all the way down to the lobby.  The door to a temporary bathroom had swung open and struck the sprinkler head, causing it to discharge.  FD Sprinkler has installed the sprinkler head, and Woodworks had framed and constructed the temporary bathroom.  St. Paul paid Chelsea $714,438 for the damages and commenced this subrogation action against FD Sprinkler, Woodworks and others to recover its payment.

FD Sprinkler and Woodworks moved for summary judgment dismissing the complaint on the ground that the antisubrogation rule barred St. Paul's action against them.   St. Paul opposed the motion by arguing that although FD Sprinkler and Woodworks were additional insureds on the policy, they were not insureds for the damages at issue, and therefore, were not protected by the antisubrogation rule. St. Paul asserted that these subcontractors enjoyed only limited property insurance protection under the policy, in that they were only covered for property damage "ATIMA", or to the extent of their respective financial interests in the insured property.

In GRANTING FD Sprinkler's and Woodworks' motions, New York County Supreme Court Justice Doris Ling-Cohan ruled that each had an insurable interest in the damaged property, and thus were insured under Chelsea's builder's risk policy with St. Paul because their trade subcontracts provided that “[a]ny Work performed by others that is damaged by this Subcontractor or its employees or agents shall be the sole responsibility of this Subcontractor to replace at no additional cost[.]”  Based on this finding, the court held that the antisubrogation rule applied to preclude this action against FD Sprinkler and Woodworks.

New York Supreme Dismisses CPLR Article 78 Mandamus Proceeding Against NYS Insurance Department, NICB, State Farm, AutoOne and General Assurance

NO-FAULT – MANDAMUS RELIEF – CPLR ARTICLE 78
Matter of Okslen Acupuncture P.C. v. Dinallo
(Sup. Ct., New York Co., decided 6/26/2009)

In one man's crusade to invalidate the New York State special investigation units of State Farm, AutoOne and General Assurance Company and otherwise squelch certain investigations of no-fault providers, losses and claims suspected to be fraudulent, this is another battle lost.

Regarded by some as my no-fault nemesis, Brooklyn attorney Ray Zuppa began this campaign in June 2008 by filing a class action "bad faith" action in New York State Supreme Court, New York County, seeking only declaratory relief.  After reading the entire 225-page complaint, I called it "a mess" -- endearing me henceforth to its author -- and predicted its dismissal on motion.  I was only partly correct.

Instead of seeking dismissal of that action in state court, State Farm and two law firm defendants removed it to federal court pursuant to the Class Action Fairness Act of 2005 ("CAFA"), and then all plaintiffs except Okslen Acupuncture P.C.voluntarily discontinued their action against all defendants. Okslen then voluntarily dismissed its action against the two removing law firm defendants, leaving State Farm as the sole removing defendant.  Zuppa then filed a motion on behalf of Okslen to remand the action back to the more familiar environs of state court, which the federal court denied.  Following that decision, Zuppa discontinued the class  action against State Farm reportedly because he was unfamiliar with federal court procedure. 

Bowed but not broken, Zuppa returned to state court and commenced this special proceeding for mandamus relief against the New York State Insurance Department, the National Insurance Crime Bureau (NICB), State Farm, AutoOne and General Assurance Company pursuant to CPLR Article 78, which is entitled "Proceeding Against Body or Officer".  The chest-thumping Zuppa unprophetically self-proclaimed:

Ray Zuppa, the modern day gladiator, is relentless in his pursuit to fight the evil in the world of insurance. His latest advancement is an earthshattering [sic] Article 78 proceeding sure to set the world of No-Fault aflame. Please LexisNexis, skip the nomination process and just give this man the Person of the Year award.

Unrealized seismologic and incendiary predictions aside, in the Article 78 special proceeding the Petitioners asked that the court:

• order the Superintendent of Insurance to "thoroughly audit and investigate the claims practices of [the Carriers]...and take all appropriate action to remedy any and all infirmities, deficiencies and misconduct" and to publish such findings;
• order NICB and certain agents to cease all investigative activities until NICB is licenced under New York General Business Law §70; and 
• order the Carriers "to take all action necessary" to insure that all investigators who are members of Special Investigative Units be qualified under 11 NYCRR 86.6 and to provide a list of all non qualified investigators, and to order State Farm to conduct its investigations in a certain manner and conduct its medical examinations "purely on the application of medical science to the patient being examined and not as a pretext to deny a claim for which the decision to deny has already been made and to document its decisions."

The Superintendent of Insurance moved to dismiss the petition as against him on the grounds that under CPLR Article 78 mandamus may not be used to compel him to take discretionary enforcement action.  Then insurer respondents jointly cross-moved to dismiss the petition as against them pursuant to CPLR Rule 3211(a)(3) on the ground that the petitioners lacked legal capacity to sue them and pursuant to CPLR Rule 3211(a)(7) on the ground that the petition failed to state a cause of action against them.  NICB also cross-moved to dismiss the petition as against it pursuant to CPLR Rule 3211(a)(2) on the ground that the court lacked subject matter jurisdiction over the claim asserted against NICB, and pursuant to CPLR Rule 3211(a)(3) on the ground that petitioners lacked legal capacity to sue and pursuant to CPLR Rule 3211(a)(7), and also on the ground that the petition failed to state a cause of action against NICB.

In GRANTING the respondents' motions to dismiss the petition in its entirety, New York County Supreme Court Justice Lewis Bart Stone ruled:

►  CPLR Article 78 relief was not available against NICB because it is not not a governmental body and no petitioner is a member or employee of NICB or is otherwise subjected by governmental mandate to employment or regulation by NICB;

►  similarly, "the limited exception of the availability of CPLR Article 78 review of decisions of certain non-governmental bodies is wholly unavailable to review Petitioners' claims against the Carriers as the Carriers are business entities and petitioners are not shareholders, or have any special relationship with the Petitioners[;] [t]heir relationship is commercial"; and

►  mandamus relief is not available against the Superintendent for discretionary functions, including the Insurance Department's roles in investigating and auditing insurance companies; "as the Superintendent's power to act against any carriers for its claim settlement practices is at the discretion of the Superintendent, mandamus will not lie."

Insureds Allowed to Continue Suit Against Neighbors Even After Receiving Insurance Payment for Garage Crushed by Neighbor's Tree

HOMEOWNERS – ACTUAL CASH VALUE – SUIT AGAINST TORTFEASOR
Hopper v. McCollum
(2nd Dept., decided 8/25/2009)

If insureds collect payment from their homeowners insurer for damage to their garage crushed by their neighbor's rotted tree, can they then also sue their neighbor for damages?  Yes, says the Appellate Division, Second Department.

Plaintiffs' garage was damaged when portions of an allegedly decayed and fractured tree located on their neighbor's adjacent property fell onto it. Plaintiffs made a claim under their homeowners' insurance policy and were paid the policy limit, defined as the actual cash value of the loss under a policy provision entitled "Other Structures Protection."  Plaintiffs then commenced this action against their neighbor.  The defendant moved to dismiss the complaint pursuant to CPLR 3211(a)(5) on the ground that the plaintiffs had received payment through their homeowners' insurance policy and were not entitled to any additional recovery from her.  Putnam Supreme converted the motion to dismiss into one for summary judgment and granted the motion.

In REVERSING the motion court's decision and reinstating plaintiffs' complaint, the Second Department held:

Contrary to the defendant's contention, the plaintiffs are not precluded from maintaining this action against the defendant simply because they received payment from their insurance carrier (see generally Fisher v Qualico Contr. Corp., 98 NY2d 534, 538; Spectra Audio Research, Inc. v Chon, 62 AD3d 561; Corsa v Pacific Indem. Co., 52 AD3d 450, 451; Winkelmann v Hockins, 204 AD2d 623, 623-624). If the trier of facts in this matter finds the defendant liable and awards damages to the plaintiffs, then the plaintiffs' receipt of the insurance payment may be relevant as a possible setoff against the damages award (see CPLR 4545[c]; Fisher v Qualico Contr. Corp., 98 NY2d at 539-540). 

Although the court's decision mentions that plaintiffs received the policy limit from their homeowners insurer, it also states that "the plaintiffs could have sought additional reimbursement from their insurance carrier if they submitted proof that they repaired, rebuilt, or replaced the garage within 180 days of payment, [which] they did not do[.]"  I'm not sure which is true, but it probably does not matter to the holding.  If the actual cash value of the plaintiffs' garage exceeded the limit of their "Other Structures Protection" coverage, they could sue for their uninsured loss.  The decision does not indicate why the plaintiffs' homeowners insurer did not join as a co-plaintiff to recover its payment or whether it had commenced a separate subrogation action against plaintiffs' neighbor. 

What if the plaintiffs were unsuccessful in their claim of negligence against their neighbor?  Would that finding collaterally estop their homeowners insurer from pursuing its subrogation claim?  It shouldn't.  Proceeding as a subrogee is different than suing as an assignee, and only assignees should be collaterally estopped by a finding on the merits against their assignors.  Moreover, to the extent that plaintiffs such as the ones in this case either are subject to a setoff against a damages award for payments they had received from their insurer or can be said not to be able to recover for those insurance payments in the first place, the insurer's subrogation interest is not at issue in an insured's separate tort action to recover the insured's uninsured loss. 

Motion to Withdraw as Retained Defense Counsel Due to Liability Insurer's Subsequent Disclaimer Is Denied

CGL – DUTY TO DEFEND – WITHDRAWING AS RETAINED DEFENSE COUNSEL – DECLARATORY JUDGMENT ACTION
Iacobellis v. A-1 Tool Rental, Inc.
(2nd Dept., decided 9/8/2009)

It has long been the rule in New York that once a liability insurer retains counsel to defend its insured, only a declaratory judgment relieving the insurer of that defense or the insured's consent will enable retained counsel to withdraw.

James River Insurance Company retained Wilson Elser Moskowitz Edelman & Dicker, LLP to defend its insureds in this personal injury action.  After James River subsequently issued a letter disclaiming coverage and denying that it had a duty to defend its insureds, Wilson Elser moved for leave to withdraw as attorneys of record for them. Kings Supreme granted Wilson Elser's motion. 

In REVERSING the order allowing Wilson Elser to withdraw as defense counsel, the Second Department reiterated New York's long-standing rule:

The motion of Wilson Elser was a "poor vehicle" to test the propriety of the disclaimer of coverage and withdrawal of defense by James River (Brothers v Burt, 27 NY2d 905, 906; see Seye v Sibbio, 33 AD3d 608; Garcia v Zito, 242 AD2d 258; Pryer v DeMatteis Orgs., 259 AD2d 476). An action seeking a declaratory judgment respecting the rights of the insured entities vis-à-vis their insurance carrier pursuant to the subject insurance policy is the appropriate means of resolving the issue of coverage, as it will afford the insured entities an opportunity to adequately litigate James River's disclaimer (see Seye v Sibbio, 33 AD3d 608; Garcia v Zito, 242 AD2d 258; Pryer v DeMatteis Orgs., 259 AD2d 476; Laura Accessories v A.P.A. Warehouses, 140 AD2d 182; Monaghan v Meade, 91 AD2d 1014).

So what is a liability insurer to do if it receives a summons and complaint that appears to trigger a defense obligation and an answer is due in days?  If plaintiff's counsel won't grant an extension?  If there are unanswered coverage questions that warrant inquiry or investigation?

If the insured does not have its own counsel to protect against a default, the liability insurer risks not being able to contest the insured's alleged liability and plaintiff's damages if it does not retain counsel to defend its insured and a default judgment is taken while the insurer is investigating coverage.

In New York, if, however, the insurer retains defense counsel who puts in an appearance and becomes the "attorney of record" for the insured, only a declaratory judgment in a separate DJ action relieving the insurer of that defense or the insured's consent will enable retained counsel subsequently to withdraw.  The insurer may not withdraw its defense by simply instructing retained counsel to make a motion to withdraw.

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Court Again Rules that Graves Amendment Creates Conflict in Joint Defense Representation of Driver & Rental Car Company

AUTO – RENTAL VEHICLE – GRAVES AMENDMENT – RETAINED DEFENSE COUNSEL – CONFLICT OF INTEREST
Meigel v. Schulman
(Sup. Ct., Kings Co., decided 8/12/2009)

Kings County Supreme Court Justice Wayne Saitta has done it again.  As he did in Graca v. Krasnik, Justice Saitta not only denied the car lessor's motion for summary judgment, but ordered that separate defense counsel be provided for the renter who was driving the rental car at the time of the accident.

For all actions commenced on or after August 10, 2005, the "Graves Amendment" has provided vehicle lessors with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits.  This amendment to the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ("SAFETEA") provides in relevant part that:

[a]n owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate of the owner) shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle (or an affiliate of the owner), for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if-

(1) the owner (or an affiliate of the owner) is engaged in the trade or business of renting or leasing motor vehicles; and

(2) there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner).  49 U.S.C. § 30106(a). 

Micki Schulman rented a vehicle from ELRAC, Inc., d/b/a Enterprise Rent-A-Car and was involved in an accident with the plaintiff.  Plaintiff commenced a personal injury action against Schulman and ELRAC.  Prior to discovery, both defendants moved to dismiss plaintiff's complaint against ELRAC based on the Graves Amendment.   On the motion, Justice Saitta sua sponte (of its own accord) raised the issue of whether defendants' counsel had a conflict in representing both defendants while seeking to dismiss the complaint against only one of them.

Defense counsel argued that there was no conflict in one attorney representing both defendants because: (1) the Graves Amendment applied to preclude ELRAC from being held vicariously liable for Schulman's allegedly negligent driving; (2) Schulman submitted an affidavit asserting that that were no problems with the rental vehicle; (3) because the leasing agreement between the defendants required Schulman to indemnify ELRAC for any loss over $25,000, including attorneys' fees, it was in Schulman's best interest to have the case dismissed against ELRAC; and (4) there had been full disclosure of the potential for conflicts and the defendants both consented to the joint representation.  Plaintiff opposed defendants' motion based on the fact that he had not had an opportunity to conduct discovery as to whether ELRAC properly maintained and serviced the vehicle (direct negligence of the vehicle's owner being an exception to the Graves Amendment's liability exemption).

In rejecting defense counsel's argument that there was no conflict in representing both defendants and denying their motion with leave to renew after the appointment of separate defense counsel and completion of discovery, Justice Saitta held:

There is an inherent conflict of interest in representing two named defendants where, if the case against one defendant (owner/lessor) is dismissed pursuant to the Graves Amendment, the other defendant (driver) is left bearing full liability for the claims alleged in Plaintiff's complaint. The driver has no independent advocate to oppose the motion which would result in the driver shouldering full liability.

The conflict remains despite the provision in the lease that requires the driver, SCHULMAN, to reimburse ELRAC for any loss they suffer arising from her use of the vehicle.  Such a lease provision is enforceable, but not as to losses resulting from ELRAC's own negligence. This means that if ELRAC's motion to dismiss pursuant to the Graves Amendment was denied on the grounds that they were negligent in maintaining the vehicle, and ELRAC was found liable to the Plaintiff because of that negligence, ELRAC could not seek indemnification from Schulman for that percentage of the damages caused by its negligence. 

Further, such an indemnification provision is enforceable only to the extent that the losses that exceed the minimum primary coverage ELRAC was required to provide pursuant to VTL §370. Elrac v Ward, 96 NY2d 58, 724 NYS2d 692 (Ct of Ap 2001); Haight v Estate of DePamphilis, 5 AD3d 547, 772 NYS2d 833 (2nd Dept. 2004). Thus ELRAC may only seek reimbursement for any losses that exceeded the $25,000 in coverage they were required to provide Schulman. 

There is an inherent conflict in an attorney representing both the driver and the leasing company where there is a possibility that the leasing company may have been negligent. If ELRAC was negligent then the driver would be entitled to contribution from ELRAC and ELRAC could not seek indemnification for such contribution based on its own negligence. 

In this case, counsel has produced an affidavit from SCHULMAN stating that there was nothing wrong with the vehicle, which counsel argues shows that there is no question as to negligence by ELRAC, and thus no conflict.  However, this line of reasoning conflates the issue of whether ELRAC was negligent with whether an attorney representing both ELRAC and the driver can vigorously investigate, on the driver's behalf, whether ELRAC was negligent. 

It is difficult to imagine an attorney, who represented only the driver, agreeing that ELRAC was not negligent based on the fact that the driver, who is not an expert, thought there was nothing from with the car. It is even more difficult to imagine an attorney who represented only the driver, procuring such an affidavit from their client. An independent counsel would almost certainly at a minimum insist on conducting discovery of ELRAC's maintenance and service records before conceding that ELRAC was not negligent. 

There is also a need for separate counsel to evaluate whether there is a basis to argue that the Graves Amendment is not applicable in a given case, either on constitutional grounds or because the company is not a leasing company within the meaning of the act. While it is true that if ELRAC was held vicariously liable, the driver may be liable to reimburse ELRAC for its losses and attorneys fees that exceeded $25,000. However there many be situations in which counsel would conclude that having the leasing company remain in the case, if there is a legal basis for doing so, may increase the chances of a favorable settlement that outweigh the risk of having to reimburse the leasing company and pay additional legal fees. A client is entitled to the undivided loyalty of counsel, even for such strategic decisions. 

Lastly, Plaintiff is entitled to conduct discovery as to the maintenance of the vehicle, before having to answer the summary judgment motion, as such information is both material and within ELRAC's sole control. Therefore summary judgment would be premature at this time.