Thursday, November 20, 2008

Disclaimer of Adverse Vehicle's Insurer Held Invalid -- No Evidence that Claimant Participated in Fraudulent Procurement of Adverse Vehicle's Auto Policy

Matter of General Assur. Co. v. Rahmanov

(1st Dept., decided 11/18/2008)

Rahmanov was injured in an auto accident with a car registered to McKain, driven by McDaniels and insured by State Farm.  State Farm disclaimed coverage to McDaniels and his passengers on the grounds of failure to cooperate and fraud, based on its determination that McKain was the victim of identity theft and had not procured the State Farm insurance policy.

Rahmanov filed and demanded arbtiration of his UM claim with his own auto insurer, General Assurance, which commenced this special proceeding for a permanent stay of that arbitration, based on its contention that State Farm should afford liability coverage for the accident.  After a framed-issue hearing, New York County Supreme granted the petition and determined that the vehicle operated by McDaniels was uninsured and that State Farm's disclaimer of coverage was valid.

In REVERSING that order, declaring State Farm's disclaimer to be invalid and granting the petition to stay the UM arbitration, the First Department held:
The court improperly determined that State Farm's disclaimer of coverage was valid. The evidence establishes that State Farm did not cancel the subject policy before the date of the accident, and there was no indication that Rahmanov participated in the fraud in obtaining the State Farm policy in McKain's name. Under these circumstances, State Farm was precluded from denying coverage on the ground that the policy was fraudulently obtained (see Matter of Metlife Auto & Home v Agudelo, 8 AD3d 571 [2004]; Taradena v Nationwide Mut. Ins. Co., 239 AD2d 876 [1997]). Furthermore, the disclaimer of coverage, issued approximately three months after State Farm had sufficient knowledge of the reasons why it was disclaiming coverage, was untimely as a matter of law (see e.g. Hartford Ins. Co. v County of Nassau, 46 NY2d 1028 [1979]; Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD3d 84, 88-89 [2005]; Campos v Sarro, 309 AD2d 888 [2003]).
The First Department has now joined the Second Department in ruling that a personal auto insurer may not deny liability coverage to an injured third party who did not participate in the fraudulent procurement of that insurer's auto policy for the offending vehicle.  Compare this ruling to the Fourth Department's recent decision in Matter of GEICO v. Battaglia, however, in which the offending vehcile's personal auto policy was declared void from inception based on material misrepresentation.  There was no indication that the claimant was involved in that misrepresentation in Battaglia.  Is there a conflict?

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