Saturday, June 7, 2008

DJ Action Doesn't Trump Untimely Commenced CPLR Article 75 Special Proceeding

State Farm Ins. Cos. v. DeSarbo
(3rd Dept., decided 6/5/2008)

File this in the "nice try but no cigar" category.

State Farm commenced a special proceeding to stay DeSarbo's SUM arbitration. The motion court granted State Farm's petition for a permanent stay and the claimant appealed. During the pendency of that appeal, State Farm commenced this DJ action, contending that DeSarbo breached the policy and voided SUM coverage by having failed to cooperate and provided false information to State Farm.

State Farm moved for summary judgment in this DJ action. While that motion was pending, the Third Department reversed the stay of arbitration that had been granted to State Farm in the special proceeding on the ground that State Farm's application for the stay had been untimely (not commenced within 20 days as required by CPLR § 7503[c]). Supreme Court, noting that the Third Department's decision did not address the issues raised in plaintiff's motion for summary judgment in the declaratory judgment action, granted State Farm's motion.

The Third Department REVERSED, holding:
Here, a valid agreement to arbitrate underinsurance claims exists under the policy. The issue of defendant's compliance with terms of that agreement had to be raised by seeking a stay within 20 days of service of the intent to arbitrate. We have previously held that plaintiff failed to properly seek a stay within 20 days. Plaintiff cannot now circumvent the arbitration requirements by asserting in a declaratory judgment action an issue it failed to assert in a timely fashion when faced with a demand for arbitration.

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