Monday, June 30, 2008

No-Fault Attorney's Fees Awarded "Per Claim"

New York Hosp. Med. Center of Queens a/a/o William Guerrdiaz v. Countrywide Ins. Co.
(Sup. Ct., Nassau Co., decided 6/16/2008)

Although the Third Department's December 2007 decision in LMK Psychological Servs., P.C. v. State Farm Mut. Auto. Ins. Co., seems to have resolved the measure of attorney's fees as being on a "per claim" basis in the lower courts, the question of what constitutes a "claim" remains unaddressed and undecided. This decision adds nothing new, Nassau County Supreme Court Justice Arthur Diamond holding that "[a]n attorney may be entitled to a fee for each claim, rather than a single fee when multiple causes of action are bundled". In this case, the two causes of action of the complaint were on behalf of two different assignors and assignees, so it is not surprising that the court awarded the maximum attorney's fee of $850 for the plaintiff's first cause of action, which sought payment of $2,796.15.

June Coverage Counsel Poll

June's Coverage Counsel poll on the recoverability of 5106(a)-required payments for no-fault services or DMEs that can be proven to have never been rendered or delivered ends today. As of this morning, the yeas are leading the nays by 67.9% to 32.1%. If you haven't voted yet and care to, do so today. New poll tomorrow.

9-Month Delay in Providing Notice of Accident "Fatally Late"

Tower Ins. Co. of New York v. Joselyn Grocery Corp.
(Sup. Ct., New York Co., decided 6/20/2008)

Tower insured Joselyn Grocery Corp. under a CGL policy. 2238 M LLC (LLC) and Rose Mack Management (Rose) were the landlord and managing agent of the store property, respectively. Joselyn's lease required that it hold harmless and indemnify LLC and Rose for any injuries or damages resulting from Joselyn's negligence.

In May 2005, Olga Zuniga commenced an action against Joselyn, LLC and Rose for injuries she allegedyl sustained on July 26, 2004 when she tripped on plastic wrapping and fell to the sidewalk in front of Joselyn's grocery store. Tower's first notice of the accident was on May 2, 2005, when it received a tender letter from a third-party claims administrator for Rose and LLC, requesting that Tower defend and indemnify Rose in the underlying action based upon the lease agreement between Joselyn and Rose. Byt letters dated May 31, 2005, Tower: (1) rejected the tender of coverage on the ground that Rose was not named as an insured or additional insured under the policy on the date of the accident; and (2) disclaimed coverage to Joselyn on the ground of late notice. Tower then brought this DJ action.

In GRANTING Tower's motion for summary judgment as against Joselyn, New York County Supreme Court Justice Martin Shulman held that "[t]he notice received by plaintiff on May 2, 2005, nine months after Zuniga’s July 26, 2004 accident, was fatally late[.]"

In rejecting Rose and LLC's claims for coverage and granting summary judgment to Tower, Justice Shulman ruled:
Rose was never named as an additional insured under the policy and LLC was not named as an additional insured until April 24, 2005. Clearly, Rose and LLC were not covered on the date of the accident. Defendants’ contention that insurance coverage for LLC and Rose can be imputed because Joselyn’s lease contains an indemnification provision in favor of the landlord is misplaced for two reasons. First, the obligation to procure insurance is separate and distinct from the obligation to indemnify (citations omitted). Second, Rose and LLC are not parties to the lease which is between Joselyn, as tenant, and 1700 Development Co., Inc., as landlord * * *.
Interestingly, the court granted summary judgment to Tower against LLC and Rose even though Tower's notice of motion requested relief as against Joselyn only. Tower's supporting papers requested summary judgment relief against LLC and Rose, and they fully responded to Towers' arguments. Additionally, Tower's notice of motion requested “such other and further relief as the Court deems just, equitable and proper.”

Sunday, June 29, 2008

No Do-Over for Non-Compliance with So-Ordered Discovery Stipulation

First Help Acupuncture, P.C. a/a/o Simone Brin v. State Farm Mut. Auto. Ins. Co.
(App. Term, 2nd Dept., decided 4/3/2008)

After plaintiff medical provider's first action was dismissed for its non-compliance with a so-ordered discovery stipulation, it commenced this second, identical action, and State Farm moved to dismiss the complaint based on doctrine of res judicata.

In AFFIRMING Kings Civil's grant of summary judgment to State Farm, the Appellate Term held:
Although the court's order dismissing the prior action did not specifically state that the dismissal of the action was with prejudice or on the merits, since the so-ordered discovery stipulation provided for preclusion, the dismissal was with prejudice and, as a result, plaintiff was barred from commencing a second action (citations omitted). Accordingly, the court below properly granted defendant's motion for summary judgment dismissing the complaint based on the doctrine of res judicata.

Petition to Stay SUM Arbitration Denied

Matter of Allstate Ins. Co. v. Dawkins
(2nd Dept., decided 6/24/2008)

Dawkins was injured in a three-car accident. After the tortfeasor's insurer, AIG, offered to settle with three victims of the accident (including Dawkins) for the full amount of the tortfeasor's policy, Dawkins demanded arbitration of his claim for SUM (underinsured motorist) benefits from his own insurer, Allstate. Allstate commenced this special proceeding for a permanent stay of that arbitration, asserting that the tortfeasor's vehicle was not "underinsured" because the limits for bodily injury under the AIG policy were the same as those in the Allstate policy. In opposition, Dawkins argued that he was entitled to benefits pursuant to 11 NYCRR 62-1.8(f)(c)(3)(ii) because the coverage available under the AIG policy had been reduced by payments made to other persons injured in the accident to an amount less than the bodily injury liability limit of his policy with Allstate.

In AFFIRMING the Queens County Supreme Court's denial of Allstate's petition for a permanent stay of arbitration, the Second Department held:
Contrary to Allstate's contention on appeal, the Supreme Court properly declined to address its argument, made for the first time in its reply papers, that there was an issue of fact as to whether AIG made any payments on its policy. The function of reply papers is to address arguments made in opposition to the position taken by the movant, not to permit the movant to introduce new arguments or new grounds for the requested relief (citations omitted). * * * Finally, we decline Allstate's invitation, made for the first time on appeal, to reconsider our case law in this area and hold that the Superintendent of Insurance exceeded his authority in promulgating 11 NYCRR 62-1.8(f)(c)(3)(ii) (citation omitted).

Additional Insured Coverage Denied

ALIB, Inc. v. Atlantic Cas. Ins. Co.
(1st Dept., decided 6/26/2008)

In AFFIRMING Bronx County Supreme Court's order declaring that plaintiff was not entitled to coverage as an additional insured under its subcontractor's CGL policy with Atlantic, the First Department ruled: (1) ALIB was not afforded additional insured status under the CGL policy issued by Atlantic to AFA Construction because the written contract entered into between AFA and ALIB did not require AFA to name ALIB as an additional insured, as required by the subject policy; (2) the certificate of insurance, which contained the disclaimer that it was "issued as a matter of information only and confers no rights upon the certificate holder" and that it did not "amend, extend or alter the coverage afforded" by the subject policy, did not confer additional insured status, even if assurances were provided that ALIB was an additional insured; and (3) even if ALIB did qualify as an additional insured, coverage was negated by the policy's employee exclusionary clause, and Atlantic's disclaimer, issued 20 days after receiving notice of the claim, was timely.

Saturday, June 28, 2008

5 Month Delay in Disclaiming Found Untimely As a Matter of Law

Rael Automatic Sprinkler Co., Inc. v. Schaefer Agency
(2nd Dept., decided 6/17/2008)

On December 11, 2001, an employee of Rael Automatic Sprinkler Company was injured from a fall while installing sprinklers at the Metropolitan Museum of Art. MMA was insured by Gulf Insurance Company, and Rael was insured by Clarendon National Insurance Company. Although Rael had requested blanket contractual liability coverage, the Clarendon policy contained an exclusion from coverage where the obligation to pay damages arose by the "assumption of liability in a contract or agreement," unless the agreement constituted an "insured contract". The policy also excluded coverage for Rael's employees if bodily injury sustained by those employees arose "out of and in the course of employment by the insured".In May 2002, the Rael employee commenced a personal injury action against MMA and the general contractor. On May 16, 2002, Gulf requested that Rael and Clarendon defend and indemnify MMA. On August 8, 2002, Clarendon disclaimed coverage to MMA and the general contractor on the ground that those defendants were never added as additional insureds under Rael's policy. On August 16, 2002, Clarendon disclaimed coverage based upon the contractual liability exclusion and the employer's liability exclusion.Ther personal injury action settled with Rael and its insurance broker, Schaefer Agency, each contributing $250,000. Rael then brought this action against Schaefer for its alleged failure to procure blanket contractual liability coverage, and Schaefer impleaded Clarendon, among others. In AFFIRMING the Nassau County Supreme Court's order granting Schaefer's cross motion for summary judgment against Clarendon, declaring that it was obligated to defend and indemnify Rael in the underlying action, the Second Department held:
Since Clarendon's disclaimer was based on policy exclusions, Clarendon was required to provide Rael with timely notice of its disclaimer under Insurance Law § 3420(d) (citations omitted). In response to a request for interrogatories, Clarendon indicated that it began investigating the grounds for disclaiming coverage as early as March 5, 2002. On May 22, 2002, Clarendon's insurance administrator received a letter from Gulf Insurance Group, requesting that it defend and indemnify MMA. In view of the foregoing, Clarendon's disclaimer in August 2002 was untimely as a matter of law (citations omitted), and it is obligated to defend and indemnify Rael.

Friday, June 27, 2008

UM Arbitration Award of $15,000 for Scalp Scar Confirmed Over Claims of Arbitrator Partiality, Bias, or Prejudice

Travelers Prop. Cas. Co. of Am. v. Swen
(Sup. Ct., Queens Co., decided 6/24/2008)

Swen arbitrated his hit-and-run UM claim against Travelers. After a hearing, the arbitrator found that that the accident was solely attributable to the negligence of the hit-and-run vehicle, the scar on Swen's scalp qualified as "a significant disfigurement" pursuant to Insurance Law §5102(d), and the value of that injury was $15,000. Swen brought this CPLR article 75 special proceeding to vacate the arbitrator's award pursuant to CPLR § 7511(b) based on the arbitrator's alleged partiality, bias and/or prejudice. Travelers cross moved to confirm the arbitration award.

Swen contended that the arbitrator and Traveler's defense attorney had worked together at The Robert Plan for many years. He alleged that "these critical facts" were never presented to him prior to the hearing, and that had he been aware of the close relationship between the arbitrator and Traveler's attorney, he would not have consented to the arbitrator's appointment. Additionally, he argued that the arbitrator has an unfavorable view of scarring injuries, relying on one other decision rendered by the arbitrator in a matter involving a scar.

Travelers opposed Swen's application and supported its cross motion with an affirmation of its counsel, who explained that although he and the arbitrator were employed by the same company for just over one year a decade earlier, at no time had he ever maintained a social relationship with the arbitrator. Travelers also pointed out the arbitrator had disclosed his employment history prior to the start of the arbitration, and both sides agreed to go forward.

In denying Swen's petition and granting Travelers' cross motion to confirm the award, Queens County Supreme Court Justice Jaime Rios held:
CPLR 7511(b) provides that an application to vacate an arbitration award by a party who has participated in the arbitration may only be granted upon the grounds that the rights of that party were prejudiced by corruption, fraud, or misconduct in procuring the award, partiality of the arbitrator, the arbitrator exceeded his powers or failed to make a final and definite award, or a procedural failure that was not waived (citations omitted).

* * * A party who proceeds with an arbitration with actual knowledge of a relationship between his adversary and the arbitrator, waives his objection to the arbitration (citations omitted). Furthermore, a party that has facts that would reasonably prompt further inquiry has a responsibility to ascertain the potentially disqualifying facts (citations omitted).

Swen waives any claim related to the bias or partiality of the arbitrator since he proceeded with the arbitration after learning of the prior relationship (citation omitted). His claim that he was not aware of the alleged relationship prior to attending the hearing is of no consequence, since it is undisputed that the arbitrator disclosed the prior employment relationship prior to the commencement of the arbitration and, although, he was given the opportunity to object, he chose to go forward.

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 (citations omitted).

Here, the arbitrator's decision was based upon Swen's testimony, medical reports and records, his review of the scars and photographs taken. The arbitrator found that the scar on Swen's scalp, which he described as "clearly visible, as an extensive whitish discoloration" qualified as "a significant disfigurement". He concluded that "while the scarring on the knee and shoulder are also visible, they are on parts of the body that are generally concealed by clothing", and that Swen's other injuries were not based upon "competent medical proof".

Swen's allegation that he was prejudiced by the arbitrator's unfavorable view of "scarring injuries" is unsubstantiated.

No Prejudice Lives in the Property Insurance World

Important point of clarification, thanks to my partner, Scott Storm.

The Direct DJ/Late Notice/Prejudice bill that was just passed on Monday this week applies only to third-party personal injury, wrongful death and property damage claims and New York liability insurance policies that insure against losses comprising those claims. It does not apply to first-party property insurance claims or policies.

What this means is that property insurers should not be bound by the new law and required to prove prejudice (material impairment in "the ability of the insurer to investigate or defend the claim") in order to sustain a late notice disclaimer of a first-party property coverage claim.

This is an important distinction. Insurers that will be amending their policy language to comply with the new law (presuming that it will be signed) should note this distinction and, unless they want to extend the prejudice requirement to first-party coverages, make changes only to liability coverage policy language subject to and mandated by Insurance Law § 3420(a).

Do-Over Required Even Though Plaintiff Was Fraudulently Incorporated

Multiquest, P.L.L.C. a/a/o Jean Joseph Jeune v. Allstate Ins. Co.
(App. Term, 2nd Dept., decided 4/3/2008)

Although issued on April 3rd, this decision just hit the New York State Law Reporting Bureau's website this morning.

Allstate moved for summary judgment to dismiss plaintiff's recovery action based on it having already been adjudicated in Multiquest, P.L.L.C. v Allstate Ins. Co., 17 Misc. 3d 37 (App Term, 2d & 11th Jud Dists 2007) that Multiquest PLLC was fraudulently incorporated. Queens Civil denied Allstate's motion, presumably with prejudice.

In a 2-1 decision (Pesce and Rios; Golia), the Appellate Term MODIFIED the order by providing that Allstate's motion was denied without prejudice to renewal upon proper papers, apparently because Allstate's motion papers did not include copies of the parties' complaint and answer, as summary judgment motions must do under CPLR Rule 3212 (b).

Justice Golia dissented:
The simplicity of the majority decision belies the reasoning which lies behind its singular determination. Indeed, my colleagues sua sponte raise the issue concerning the absence of the complaint and the answer, when a simple dismissal is not only the clear and obvious resolution but is also mandated by the facts and law. The pleadings are contained in the court's own file.

It is incontestable that at the time the services that are the subject of this claim were rendered, plaintiff Multiquest, P.L.L.C. was not eligible for reimbursement because it was fraudulently incorporated (see State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005]). This fact has been previously determined after the alleged incorporator, Dr. Kathryn Clark, testified that she was never an owner or manager of plaintiff (see Multiquest, P.L.L.C. v Allstate Ins. Co., 17 Misc 3d 37 [App Term, 2d & 11th Jud Dists 2007]).

I find it inappropriate under these facts to now search for reasons to burden the parties and the courts with additional motions.

Return of the New York Insurance Exchange?

Yesterday's National Underwriter reported that Governor Patterson announced earlier this week at a dinner hosted by Lloyd's of London, that New York may reprise the long-defunct New York Insurance Exchange as part of New York State's financial services modernization campaign. As it had in the early 1980's, the Exchange would provide access to coverage for specialty or hard-to-place risks as well as reinsurance. For an excellent overview of the New York Insurance Exchange, see Peter Bickford's article, "What Ever Happened to the New York Insurance Exchange (and Why Do We Care)?"

What's In an Adjective? -- Contractor's Oral Agreement to Name Owner as Additional Insured Enforced Against Contractor's CGL Insurer

Superior Ice Rink, Inc. v. Nescon Contr. Corp.
(2nd Dept., decided 6/17/2008)

Nescon contracted with Superior Ice Rink to paint the roof of Superior's facility.  Superior's manager and Nescon's principal orally agreed that in order for Nescon to perform any work, Nescon had to name Superior as an additional insured under an insurance policy issued to Nescon by Merchants Mutual Insurance Company.  Nescon requested and obtained from its insurtance broker a certificate of insurance indicating that Superior was an additional insured under the Merchants policy.

In a section entitled "Additional Insureds-By Contract, Agreement or Permit," Nescon's policy with Merchants provided that any organization Nescon was required by "a written contract, agreement or permit" to name as an insured would be included as an insured with respect to liability arising out of Nescon's work performed for that organization at the location designated in "the contract, agreement or permit."

Two Nescon workers were injured during the job and sued Superior, which tendered to Merchants. Merchants disclaimed coverage on the ground that Nescon had no written agreement with Superior to name it as an additional insured.

On motions and cross motions for summary judgment, the Nassau County Supreme Court agreed with Merchants and upheld its disclaimer.  In MODIFYING that order to reverse the granting of summary judgment to Merchants, the Second Department held:
When determining whether a third party is an additional insured under an insurance policy, a court must ascertain the intention of the parties to the policy, as determined from within the four corners of the policy itself (citations omitted). * * *
When the terms and conditions of an insurance policy are clear and unambiguous, the construction of the policy presents questions of law to be determined by the court (citation omitted). Merchants contends that it is clear that the word "written" in the phrase "written contract, agreement or permit" modifies the words "contract," "agreement" and "permit," and hence, that Superior was not an additional insured because Nescon was not required by a written contract, written agreement or written permit to name Superior as an insured under Nescon's policy. However, since the word "written" could also be reasonably interpreted to only modify the word "contract," we find that the phrase is ambiguous (citation omitted).

* * * * *

Applying these principles, we conclude that Nescon's policy must be interpreted as providing that any organization Nescon was required by an oral or written agreement to name as an insured under the policy would be an additional insured under the policy. Since the record demonstrates that Nescon was required by an oral agreement to name Superior as an insured under the policy, the Supreme Court should have granted Superior's cross motion for summary judgment on the complaint insofar as asserted against Merchants and declaring that Merchants is obligated to defend and indemnify Superior in the underlying personal injury actions, and denied Merchants' motion, in effect, for summary judgment dismissing the complaint insofar as asserted against Merchants and declaring that it is not so obligated. 

Thursday, June 26, 2008

No-Fault Intoxication Exclusion Cut Back by NYS Legislature

While everyone's focus was on the direct DJ/late notice/prejudice bill, the NYS Legislature passed a bill last week that prohibits no-fault insurers from excluding basic economic loss benefits for health care services for a person who is injured as a result of operating a motor vehicle while in an alcohol intoxicated or drug impaired condition.

Senate Bill # S8294-A passed the Senate on June 17 by a 61-0 vote, and passed the Assembly on June 19. It awaits the Governor's signature or veto, and if signed, will become law 180 days afterwards and will apply to all policies issued, renewed, modified or altered on or after the effective date.

The bill amends Insurance Law § 5103(b)(2) to read as follows:
§ 5103. Entitlement to first party benefits; additional financial security required.

(b) An insurer may exclude from coverage required by subsection (a) hereof a person who:

(2) Is injured as a result of operating a motor vehicle while in an intoxicated condition or while his ability to operate such vehicle is impaired by the use of a drug within the meaning of section eleven hundred ninety-two of the vehicle and traffic law, provided, however that an insurer may not exclude from the coverage required by subsection (a) of this section basic economic loss as defined in paragraph one of subsection (a) of section five thousand one hundred two of this article. Notwithstanding any other law, where the covered person is found to have violated section eleven hundred ninety-two of the vehicle and traffic law, the insurer has a cause of action for the amount of first party benefits paid or payable on behalf of such covered person against such covered person. (Added language underlined.)
For those of you who don't have it memorized, Insurance Law § 5102(a)(1) defines basic economic loss to include:
(1) All necessary expenses incurred for: (i) medical, hospital (including services rendered in compliance with article forty-one of the public health law, whether or not such services are rendered directly by a hospital), surgical, nursing, dental, ambulance, x-ray, prescription drug and prosthetic services; (ii) psychiatric, physical therapy (provided that treatment is rendered pursuant to a referral) and occupational therapy and rehabilitation; (iii) any non-medical remedial care and treatment rendered in accordance with a religious method of healing recognized by the laws of this state; and (iv) any other professional health services; all without limitation as to time, provided that within one year after the date of the accident causing the injury it is ascertainable that further expenses may be incurred as a result of the injury.
If this bill is signed by the Governor, the intoxication exclusion will no longer apply to these kind of professional health care expenses. Ambulance and hospital bills will be payable even if the eligible injured person is legally intoxicated. Follow-up medical care will also be payable. Lost earnings (5102[a][2]) and other reasonable and necessary expenses (5102[a][3]), however, may still be excluded under the intoxication exclusion.

Note that the bill gives insurers the right to sue EIPs found guilty of violating Vehicle & Traffic Law § 1192 to recover the first-party benefits paid or payable on behalf of those EIPs. Those will be interesting actions. Collateral estoppel effect from the criminal conviction?

The sponsor's memorandum states that the purpose of this bill is:
To make certain that health care providers are compensated for their services regardless of the fact that the insured was injured as a result of operating a motor vehicle in an intoxicated condition and to allow insurers a right of recovery where the injured person is found guilty of operating a motor vehicle while in an intoxicated condition or while his ability to operate a motor vehicle is impaired by the use of drugs or alcohol.
The sponsor's memorandum gives the following as justification for this bill:

Section 2805-b of the Public Health Law and the federal Emergency Medical Treatment and Active Labor Act (EMTALA) require health care providers such as hospitals, emergency room physicians, nurses and surgeons to provide emergency medical services to persons in need of care, and screening, stabilization and treatment of persons seeking medical care at hospitals. At the same time, New York's No-fault auto insurance law allows insurers to deny reimbursement when insureds are injured while operating a motor vehicle in an intoxicated condition. It is grossly unfair to permit health care institutions and professionals to provide lifesaving care, and then provide no compensation. Health care providers offer the life-saving services that are needed when a person is in a motor vehicle accident. In addition, there is no evidence that current No-fault standards deter drunk driving; they simply penalize health care providers for the irresponsible and dangerous behavior of others. This bill would correct the gross inequity by providing for No-fault medical reimbursement for these dedicated professionals and institutions when they provide care pursuant to state and federal guidelines.

The current exclusion on No-fault benefits also represents a serious barrier that prevents individuals with substance abuse problems from getting the treatment they need. Health care providers who test accident victims for blood alcohol levels usually in emergency rooms - risk the loss of tens of thousands of dollars in insurance reimbursement. Without testing, individuals with substance abuse problems are not required to seek counseling or treatment. Instead, they continue their self-destructive behavior and may harm or kill others in the future. This bill will eliminate the financial disincentives health care providers face when considering whether to perform tests that could force individuals with substance abuse problems into confronting their illness. This bill will also eliminate the gross inequity of an insurance system that penalizes health care professionals and institutions for providing life saving care that is required by law.

Alas, the days of playing "hide the toxicology report" appear to be coming to an end. We must wait to see whether the Insurance Department will promulgate a new prescribed PIP endorsement with a revised intoxication exclusion. In any event, if the bill is signed, all New York auto policies issued, renewed, modified or altered 180 days or more later will be deemed to include the revised and limited intoxication exclusion.

Update (September 29, 2008) -- On September 25, 2008, Governor Paterson VETOED this bill. See my post regarding that veto here.

Wednesday, June 25, 2008

NYS Insurance Department Office of General Counsel May 2008 Opinions

Just posted to the NYS Insurance Department's website are the Office of General Counsel opinions from the second half of May. The first half's collection included nothing of particular interest or relevance to P&C insurers.

Insurer Designating a Contractor to Repair, Rebuild or Replace (May 16, 2008)

Property coverage work is so cool because sometimes, like in this OGC opinion, you get to dust off and drag out case law more than a century old.

Question Presented: May a property/casualty insurer designate any contractor to rebuild an insured property that has been partially destroyed by fire, if, pursuant to the policy, the insurer has an option to repair, rebuild or replace the property with other property of like kind and quality?

Conclusion: Nothing in the New York Insurance Law prohibits a property/casualty insurer from designating the contractor of its choosing to repair or rebuild an insured property that has been partially destroyed by fire, pursuant to an insurance policy vesting the insurer with an option to repair, rebuild or replace the property with other property of like kind and quality.

Analysis: An insurer that pays a claim under a fire insurance policy may not require the insured to select a particular contractor. See Opinion of General Counsel No. 06-07-04 (July 10, 2006). However, as an alternative to paying a claim under the standard fire insurance policy, the insurer may, pursuant to the policy, elect to “repair, rebuild or replace the property destroyed or damaged with other of like kind and quality within a reasonable time” by giving proper notice of its intention to do so. See Insurance Law § 3404(e) (policy lines 144-7). Nothing in the Insurance Law prohibits an insurer having made such an election from employing the contractor of its choosing to undertake the repair, rebuilding, or replacement.

Nevertheless, the insurer must use due care in selecting an appropriate, qualified contractor, and should guarantee the contractor’s work. An insurer that deviates from these expectations, as a general business practice, could be found by the Superintendent to have engaged in unfair claims practices within the meaning of Insurance Law § 2601.

Moreover, by electing to repair, rebuild or replace the property rather than paying the claim, a court could determine that an insurer has entered into a building contract with the insured, separate and in place of the insurance policy. See, e.g., Morell v. The Irving Fire Ins. Co., 33 N.Y. 429, 437 (1865); Eisenberg v. Motors Ins. Corp., 62 Misc. 2d 1 (Sup. Ct. N.Y. Co. 1970) (insurer that elected to repair an automobile created a new contract that could not be discharged until the insurer had fully performed the repair and returned the vehicle). In that circumstance, an insurer that fails to deliver property of like kind and quality may be liable for damages for breach of contract, irrespective of the limits of the policy. See Morell, 33 N.Y. at 437. And, the insurer could be liable for negligence of the contractor employed by the insurer. See, e.g., Kleeman v. Rheingold, 81 N.Y.2d 270, 274 (1993) (noting that party may be found negligent in selecting, instructing or supervising the contractor).

Finally, the insurer’s contractor may not act as an independent adjuster without a license. See Insurance Law § 2102.

Wow, is this like a "Yes, but do you really want to do that?" answer? Do you get the sense the OGC Senior Attorney Brenda Gibbs is trying to discourage property insurers from exercising this right? Nonetheless, I have personally been involved in several matters in which even the insurer's mere invocation of this right has facilitated an immediate reasonable compromise and settlement.

Mortgage Note Language (May 23, 2008)

An inquirer asked whether the following language in an insured's mortgage note/agreement violated New York Insurance Law:

Each insurance company concerned is hereby authorized and directed to make payment for such loss directly to Lender, instead of to Borrower and to Lender jointly.
OGC said no, but added that the Insurance Law does not govern the content or form of mortgage notes; the legal requirements for such instruments are set forth in the New York Real Property Law.

Real Property Law § 254(4) recognizes that a mortgagee will seek to protect its interest in the insured property, and allows mortgage notes to contain provisions that require a mortgagor to maintain insurance on the mortgaged property for the benefit of the mortgagee. Section 254(4) also contains safeguards to prevent the mortgagee’s unjust enrichment at the expense of the mortgagor with respect to the application of any insurance proceeds payable. But the statute neither expressly allows nor disallows language of the nature to which the inquirer refers. More importantly, as noted above, the parties to a mortgage note are the lender and the borrower only. Any purported “direction” to an insurer contained in the note cannot, as a general matter, bind the insurer.
I have been involved in claim scenarios in which the mortgagee demands payment of policy proceeds prior to the completion of the insurer's investigation of a suspected arson. In such instances, provisions in certified or attested mortgage agreements such as the one above may permit the insurer to make payment exclusively to the mortgagee in advance of its coverage decision vis-à-vis the insured. As an alternative, a signed Advance Payment Conditioned Upon Reservation of Rights may accomplish the same thing. The risk, of course, in paying the mortgagee directly and exclusively in advance of a reaching a coverage decision on the insured's claim is in having the insured then argue that such payment should not and did not reduce the building's policy limits for purposes of the insured's right of recovery. When in doubt, it's always best to get the insured's acknowledgement and permission prior to making any such direct and exclusive payment to the mortgagee.

Certificates of Insurance (May 30, 2008)

This is an easy one.

Question Presented: May a certificate of insurance provide obligations, conditions, or coverages not set forth within the underlying insurance policy?

Conclusion: No. A certificate of insurance may not confer new or additional rights beyond those specified in the insurance policy.

Analysis: * * * A certificate of insurance is often used as proof that a policy of insurance is in effect. It is a document used in business to summarize the essential terms, conditions, and duration of the contract of insurance that is in effect between the insured and the insurer. The certificate of insurance is not, however, the insurance contract itself, and there is no requirement in statute or regulation that it be filed with the Insurance Department. Nevertheless, the certificate of insurance must contain information consistent with the terms of the insurance policy in question; it cannot confer on a certificate holder new or additional rights beyond that which the insurance policy provides. Thus, if any provision in the certificate of insurance imposes an obligation or liability upon an insurer not required by the policy, such difference would alter, expand, or modify the rights between an insured and the insurer, and would constitute a policy form that must be filed with the Superintendent pursuant to Insurance Law § 2307(b). See, e.g., Office of General Counsel Opinion No. 06-05-02 (May 9, 2006); Opinion No. 06-11-16 (Nov. 17, 2006); Opinion No. 07-05-09 (May 17, 2007).

Thus, to the extent that the certificate of insurance here appears to obligate the insurer to provide additional days of notice not required by the policy, the certificate is inconsistent with the filed policy.

Finally, I note in closing that a producer violates the Insurance Law if the producer amends, expands, or alters the terms of a policy without authorization from the insurer and, where required, approval from this Department. As stated in the Department's Circular Letter No. 15 (1997), the Department may pursue disciplinary measures against any producer who acts in this manner. Consequently, it is prudent to review the entire policy to ensure that the certificate of insurance prepared by the producer actually reflects the terms of the policy.

No-Fault Insurance Policy Additional Personal Injury Protection (May 15, 2008)

This one's not so easy.
Question Presented: Does Article 51 of the New York Insurance Law (commonly known as the “No-fault” law) and the regulations promulgated thereunder require that additional personal injury protection (“APIP”) coverage issued pursuant to N.Y. Comp. Codes R. and Regs. tit. 11, Pt. 65 (Regulation 68) alter personal injury protection (“PIP”) loss of earnings from work limits set forth in N.Y. Ins Law § 5102(a)(2) (McKinney Supp. 2008)?

Conclusion: No. While Regulation 68 requires that APIP coverage alter the time or dollar limits of PIP basic economic loss, the regulation does not specify which PIP basic economic loss limits must be altered. Basic economic loss, as defined in Insurance Law § 5102(a), has multiple time and dollar limits, including the loss of earnings from work limits set forth in Insurance Law § 5102(a)(2). Regulation 68 requires that APIP coverage supplement basic economic loss available in the no-fault scheme by altering at least one basic economic loss time or coverage limit available under PIP. While APIP may alter all of the PIP basic economic limits, including the time and financial loss of earnings from work limits, it is not legally obligated to do so.
File this one in the "I did not know that" category. I always thought that each increment of $50,000 in APIP increased the monthly LOE limit by $1,000 or $2,000 to a maximum (I think) of $4,000 per month. Guess not. Check your policy.

* * * * * * *

Recently added to the NYSID's website is a search engine for OGC opinions dating back to 2000. Check it out and bookmark it.

Tuesday, June 24, 2008

Clothing + Toothbrush + Joint Custody Arrangement = Resident for UM Coverage Under Father's Fiance's Auto Policy

Matter of Allstate Ins. Co. v. Moreno
(Sup. Ct., Suffolk Co., decided 6/5/2008)

While riding his bicycle, Robert Giffone, Jr. was hit by an uninsured motor vehicle and injured. His divorced parents Catherine and Robert Sr., who lived separately, made a claim for UM coverage and then demanded arbitration of that claim under a personal auto policy Allstate had issued to Robert Sr.'s fiance, Nancy Moreno, who married Robert Sr. seven weeks after the accident.

The Allstate SUM policy endorsement (which included UM coverage) defined the term "insured" as "the named insured and, while residents of the same household, your spouse and the relatives of either you or your spouse."

Allstate commenced this special proceeding for a permanent stay of the UM arbitration, contending: (1) that Robert Sr. was not an "insured" under the Moreno policy; and (2) that even if he were, Robert Jr. was not a resident of his household.

At a hearing of this matter, counsel for all parties stipulated that at the time of the accident, the Allstate policy named Robert A Giffone, Sr. as an insured driver. Additionally, the respondents introduced a copy of a New York State Insurance Identification Card issued by Allstate to Mr. Giffone under the Moreno policy for his 1995 Jeep Cherokee. That ID card specifically stated that "An authorized NEW YORK insurer [Allstate] has issued an Owner's policy of Liability Insurance . . . to: Giffone, Robert A." The hearing evidence also included a copy of the Allstate Auto Policy Declarations, which confirmed that the policy for Mr. Giffone's Jeep Cherokee included UM/SUM coverage.

Based on that evidence, Suffolk County Supreme Court Justice Peter Mayer ruled that "the respondents * * * established that respondent Robert A. Giffone, Sr. was, himself, an insured under the subject Allstate policy at the time of Robert Jr.'s accident[.]" Justice Mayer also found that Robert Jr. was a resident of both his parents' households:

The evidence has also established that although Robert Jr. resided with his mother, Catherine Giffone, at the time of the accident, he also resided with his father under a joint custody arrangement. It is well settled that a person may have more than one residence for purposes of insurance coverage (Hochhauser v. Elec. Ins. Co., 46 AD3d 174, 844 NYS2d 374 [2d Dept 2007]; Dutkanych v United States Fid. & Guar. Co., 252 AD2d 537, 675 NYS2d 623 [2d Dept 1998]). Whether a person is a resident of an insured's household requires something more than temporary or physical presence and requires at least some degree of permanence and intention to remain (Hochhauser v. Elec. Ins. Co., supra; New York Cent. Mut. Fire Ins. Co. v Bonilla, 269 AD2d 599, 704 NYS2d 819 [2d Dept 2000]; Allstate Ins. Co. v Rapp, 7 AD3d 302, 776 NYS2d 285 [1st Dept 2004]).

In opposition to Allstate's petition, the respondents submit affidavits from both of Robert Jr.'s parents, respondent Mr. Giffione and Catherine Giffone. The sworn affidavits establish that at the time of the May 8, 2006 accident, both parents shared joint custody of Robert Jr., and that Robert Jr. resided with his father on alternate weekends and during summers. More specifically, Robert Jr. had his own bedroom and kept clothing and a toothbrush at his father's house on a year-round basis. These facts sufficiently establish that as a child of divorced parents, Robert Jr. was, in fact, a resident of both parents' households on the date of his accident (citations omitted).

UM coverage applied, Allstate's application for a stay of arbitration was denied, and the parties were directed to proceed to arbitration pursuant to the applicable policy provisions.

(Billing Manager or Corporate Officer) - (Personal Knowledge) = 0(Summary Judgment)


In Vista Surgical Supplies, Inc. a/a/o Anna Vastardis v. American Protection Ins. Co. (App. Term, 2nd Dept., decided 6/12/2008), Infinity Health Prods. a/a/o Cecelia Morgan v. Amex Assur. Co. (App. Term, 2nd Dept., decided 6/12/2008) and Alur Med. Supply, Inc. a/a/o Douglas Gomez v. Country-Wide Ins. Co. (App. Term, 2nd Dept., decided 6/12/2008) , the Appellate Term AFFIRMED the denial and REVERSED the granting of summary judgment to plaintiff medical providers because:

The affidavit submitted by plaintiff's "billing manager and corporate officer" was insufficient to establish that said person possessed personal knowledge of plaintiff's practices and procedures so as to lay a foundation for the admission, as business records, of the documents annexed to plaintiff's moving papers. Accordingly, plaintiff failed to make a prima facie showing of its entitlement to summary judgment (see Bath Med. Supply, Inc. v Deerbrook Ins. Co., 14 Misc 3d 135[A], 2007 NY Slip Op 50179[U] [App Term, 2d & 11th Jud Dists 2007]; Dan Med., P.C. v New York Cent. Mut. Fire Ins. Co., 14 Misc 3d 44 [App Term, 2d & 11th Jud Dists 2006]). Consequently, the judgment is reversed, the order granting plaintiff's motion for summary judgment is vacated and plaintiff's motion for summary judgment is denied. Infinity Health Prods a/a/o Morgan v. Amex Assur. Co.

In Alur Medical Supply, Inc. a/a/o Douglas Gomez v. Country-Wide Ins. Co., the Appellate Term AFFIRMED the denial of Country-Wide's cross motion for summary judgment because the affirmed IME report submitted in support of that cross motion "did not address the necessity for medical supplies and, therefore, did not establish prima facie that the supplies provided by plaintiff were not medically necessary."

In Vista Surgical Supplies, Inc. a/a/o Anna Vastardis v. American Protection Ins. Co., the Appellate Term AFFIRMED the granting of American's cross motion for summary judgment because the affirmed IME report submitted in support of that cross motion "established prima facie that the supplies furnished by plaintiff were not medically necessary and plaintiff did not present any evidence refuting defendant's prima facie showing[.]"

4-Month Delay Found to Constitute Late Notice By Insureds, But Not By Injured Party

Tower Ins. Co. of New York v. Jaison John Realty Corp.
(Sup. Ct., New York Co., decided 6/17/2008)

In counseling insurer clients on late notice issues, we regularly remind them that not one but two late notice analyses and determinations need to be made in every case: one with respect to the insured's delay or failure in providing notice; and the second with respect to the injured party's or claimant's delay or failure.

The latter determination is needed because Insurance Law § 3420(a)(3) gives injured parties an independent right to notify tortfeasors' liability insurers of an accident or occurrence. The standard or test used to measure late notice by an injured party is, however, less stringent than the one applicable to insureds. Notice by an injured party, even if much later than what would be expected from an insured, will be deemed timely if the injured party is found to have acted with due diligence to identify the tortfeasor's liability insurer, and then have placed that insurer on notice as soon after learning that insurer's identity as possible.

In this case, the court found that while the insureds breached their policy obligation to provide Tower with timely notice of falldown accident of which they were immediately aware, Tower had not met its burden of showing that the injured party relied solely on the insured to give notice to Tower and failed to proceed diligently in giving notice of her claim directly to Tower.

Claim Chronology:

  • 9/17/2006 -- Dias falls down staircase in apartment building owned by insureds. Passerby calls 911. Paramedics arrive. Police arrive and cut off a piece of the staircase's railing in order to extricate Dias. Dias taken from scene to hospital ER where she was treated and released. Insured principal shareholder, John, finds staircase handrail missing later that day and calls the police. Receives a call back from the police, who inform him that someone named Dias had fallen on the staircase. Dias claims she called John from the hospital to tell him about her accident, but he said he already knew about it. John denies receiving such a call.
  • 9/18/2006 -- John says he reached and spoke with Dias, but she never mentioned that she had fallen on the apartment's front step and been injured. Denies subsequently receiving a copy of the police report.
  • 12/20/2006 -- Attorney for Dias writes to John advising that he had been retained to prosecute a personal injury claim. John denies receiving that letter.
  • January 2007 -- John claims he first became aware of Dias's injuries when he received a copy of her summons and complaint. He immediately forwards those suit papers to Tower.
  • 2/16/2007 -- Tower disclaims liability and denies coverage based on the insureds' late notice.
  • 6/7/2007 -- Tower reiterates its late notice disclaimer after receiving a letter from John explaining that he did not report the incident on the date of occurrence because he believed Dias was making a false claim (Wait, so he was aware of Diaz's injuries?).
In granting Tower's motion for summary judgment as against the insureds, New York County Supreme Court Justice Jane Solomon noted and ruled:

In this case, John admits that on the day of the occurrence he received notice from someone who identified himself as a police officer that someone named Dias had fallen on his premises and that a piece of railing was removed because of the falll. John‘s assertion that he did not know that anyone was injured is belied by his own statement that he knew that someone fell; Dias's testimony that she called John from the hospital to tell him that she fell and the accident report which states that the police officer contacted Matthew John by phone and notified him of the occurrence (Sander’s Aff., Ex. 3). Under the circumstances, even construing the facts most favorably to the insured, there is no evidence that would lead to a “reasonable belief” that the party who fell would not assert a claim and, with the facts in his possession, John had both the ability and the responsibility to investigate the outcome of the occurrence (citations omitted). John’s failure to investigate the occurrence was unreasonable as a matter of law.

In denying Tower's motion as respects Dias, the injured party, however, the court held:
Here, there has been no showing that Dias had reason to know that notice directly to Tower was required (citation omitted), and under the circumstances, her counsel was reasonably diligent in his efforts to ascertain the identity of John's insurer. Tower urges the court to hold that the efforts by Dias's attorney were inadequate as a matter of law. In light of the fact that her attorney contacted John approximately three months after the accident and commenced the lawsuit one month later, it cannot be said that Dias sat on her rights. Moreover, Tower disclaimed even before John's time to answer the complaint had expired. On February 12, 2007, four days before Tower sent its formal disclaimer letter, it sought, and received, the consent of
Dias's attorney to extend John's time to serve an answer to the complaint * * *. Tower acknowledged receipt of the complaint in its disclaimer letter of February 16, 2007 * * *. Dias's lawyer communicated directly with Tower regarding the litigation, and Tower participated in the litigation by requesting Dias's forbearance in permitting it the opportunity to file a late answer on John's behalf. Under these circumstances, it cannot be said that Tower has met its burden of showing that Dias, as the injured party, relied solely on the insured to give notice to Tower and failed to proceed diligently in giving notice of her claim directly to Tower.

What's In a Name? -- Appellate Term Rejects Affirmation of Unidentified Attorney

SP Med., P.C. a/a/o Dong Sheng Zheng v. Country-Wide Ins. Co.
(App. Term, 2nd Dept., decided 6/12/2008)

Various New York courts have previously held that attorney affidavits or affirmations may be used to sponsor or submit documents, transcripts, etc., which provide evidentiary proof in admissible form, even if the attorney lacks personal knowledge of the facts contained in those attachments. In this case, plaintiff's application to vacate a master arbitrator's award was supported by a petition and attorney's affirmation, with attached exhibits.

In REVERSING the Kings County Civil Court's order granting the medical provider's petition, the Appellate Term found that the papers submitted by petitioner to the Civil Court were insufficient on their face to warrant the granting of any relief:

Petitioner submitted a document that was denominated an "Affirmation in Support." Said document contained the following statements:

"The undersigned, an attorney duly admitted to practice law in the Courts of the State of New York, states as follows: Affirmant is associated with the firm of Gary Tsirelman P.C., the attorney of record for the Petitioner" (emphasis added).

The last page of the document contains the printed name of petitioner's law firm, Gary Tsirelman, P.C., as attorneys for petitioner. It also contains a signature line with an indecipherable pen marking, which purports to be a person's signature. Immediately below this "signature" is a listing of three printed names, each one next to a small box to be "checked off." However, not one of the three listed names has been "checked off" on this document. In addition, the document was not affirmed "to be true under the penalties of perjury" (CPLR 2106). Indeed, the attorney who signed the document, if that be the case, merely indicates that he or she "states as follows," which is insufficient under the law (citations omitted). Consequently, there is no proof of the name of the attorney who generated the document, and the document is insufficient as an affirmation.

Such are the perils of boilerplate form work. Check please.

STATUS UPDATE (Part IV) -- Direct DJ/Late Notice/Prejudice Bill Passes NYS Legislature on June 23, 2008

As expected, the direct DJ/late notice/prejudice bill has passed and awaits the Governor's signature or veto.

Yesterday, Program Bill #65 passed both houses of the New York State Legislature. The Senate version, Bill # S8610, passed first by a 62-0 vote, and then was delivered to and passed the Assembly, under Bill # A11541, the same day. Since this bill originated from the Governor's Office, expect it to be signed into law.

The new provisions under this bill will take effect 180 days (six months) after the bill becomes law (is signed by the Governor). The new provisions will apply to qualifying policies "issued or delivered in this state on or after [the effective] date and to any action maintained under such a policy[.]"

For an outline and discussion of the provisions of this new law, see my May 14th Status Update (Part II) post.

For a discussion of how the new prejudice rule will work, see my June 14th Prejudice, Presumptions and Burdens of Proof post.

Remember that this new law adds a new paragraph (1) to Insurance Law § 3420(d), which will require certain liability insurers, upon written request by injured persons or other claimants, to confirm the existence and liability coverage limits of qualifying insurance policies. This new requirement will apply to liability policies providing coverage for bodily injury or death, where the policy is: subject to Insurance Law § 3425, other than an excess or liability policy; or used to satisfy a financial responsibility requirement imposed by law or regulation.

Since this bill passed both houses at the end of the Legislature's 2008 session and presumably will be sent to the Governor when the Legislature is out of session, Governor Paterson will have 30 days in which to sign or not sign the bill. A failure to act (not signing the bill) would represent a "pocket veto" and have the same effect as a veto. See, How a Bill Becomes a Law.

Coverage Counsel will report when the Governor signs this bill into law and it becomes effective. Liability insurers doing business in New York should begin preparing for its new provisions, including the requirements for new policy language.

July 23, 2008 -- Governor Paterson signed this bill today. See my post here.

Allegations of Underlying Complaint Found to Fall Wholly Within Policy Exclusions

Global Constr. Co., LLC v. Essex Ins. Co.
(2nd Dept., decided 6/17/2008)

It has long been the rule in New York that a liability insurer must defend its insured whenever the allegations of a complaint in an underlying action suggest a reasonable possibility of coverage. However, when there is no possible factual or legal basis upon which the insurer might eventually be held to be obligated to indemnify the claimant under any provision of the insurance policy, or when the only interpretation of the allegations against the insured is that the factual predicate for the claim falls wholly within a policy exclusion, the duty to defend is not triggered and summary judgment may be warranted.

In this case, Essex successfully cross-moved for summary judgment, Putnam County Supreme Court ruling that Essex was not obligated to defend or indemnity the plaintiff, its insured, in an underlying personal injury action.

In AFFIRMING that decision, the Second Department ruled:
Here, the defendant established, as a matter of law, that there was no factual or legal basis upon which it might eventually be obligated to indemnify its insureds, the plaintiffs [sic] in the underlying action, and that the only interpretation of the allegations in the complaint are that they fell wholly within specific policy exclusions (citations omitted). In opposition, the plaintiffs failed to raise a triable issue of fact.
The short decision does not summarize the underlying complaint or identify the exclusions negating coverage.

Default of Only 15 Days Not Vacated by Court

NYU-The Hospital For Joint Diseases a/a/o Harrison Snyder v. Progressive Cas. Ins. Co.
(Sup. Ct., Nassau Co., decided 6/4/2008)

Plaintiffs commenced this recovery action against Progressive and sent the summons and complaint to the New York State Superintendent of Insurance for service on Progressive. The Superintendant's Office acknowledged service on October 22, 2007 (making Progessive's answer due within 30 days, or by November 21st) and sent copies of plaintiffs' papers to CT Corporation, Progressive's designated agent for service of process, on October 23, 2007.

Progressive claimed that it first became aware of this lawsuit on November 30, 2007, when it received a notice from CT Corporation dated November 28, 2007, sending a copy of the Superintendent's transmittal letter but no summons and complaint. Progressive's no-fault litigation representative called plaintiffs' counsel on November 30, 2007 to request a copies of the summons and complaint but was told that a default judgment had already been taken against Progressive.

Progressive received copies of the summons and complaint on December 4, 2007 and answered on December 5, 2007. Plaintiffs' counsel rejected and returned Progressive's answer on December 20, 2007. The default judgment was actually entered on December 4, 2007 and served on Progressive on December 12, 2007. Progressive did not immediately respond to the judgment, and plaintiffs' counsel served an information subpoena on Progressive on January 21, 2008. Progressive did not respond to that information subpoena, but made this motion to vacate the default judgment in early February, relying primarily on an affidavit of Progressive's no-fault litigation representative.

In support of its motion, Progressive argued: (1) its default was unintentional and excusable; (2) meritorious defenses to each cause of action existed based on exhaustion of benefits, unsatisfied verification requests, or timely payments; (3) the judgment was a nullity because the Nassau County Clerk improperly relied on extrinsic proof of the amounts allegedly due, contrary to CPLR 3215; and (4) plaintiffs would not be prejudiced by the restoration of the action to the court's calendar.

In opposition to Progressive's motion, plaintiffs' counsel argued: (1) Progressive's mere denial of receipt of process was insufficient to rebut the presumption of receipt created by the Superintendent's acknowledgment of service; (2) Progressive's application for vacatur was defective since neither Progressive's representative nor its defense attorney had personal knowledge of the facts; (3) Progressive's defense counsel exhibited a pattern of neglect even after the default; (4) Progressive failed to provide a reasonable excuse for the default; and (5) Progressive had failed to establish meritorious defenses to the first and second causes of action because the affidavit of Progressive's no-fault litigation representative: was hearsay; did not create a foundation for the alleged breakdown of payments; the breakdown was not sworn; the breakdown was not in admissible form; the breakdown of payments contained handwritten notations or alterations which further nullified the form; the form did not comply with 11 NYCRR § 65-3.15, which requires listing the dates in the order in which each service was rendered; and was insufficient to prove the verification requests were mailed to the plaintiff.

After only having outlined both parties' arguments and submissions in support and opposition to the motion, and without any discussion of in what ways Progressive's submissions were insufficient, Nassau County Supreme Court Justice Antonio Brandveen denied the motion to vacate the default judgment, stating:
In order to restore a case to the trial calendar after default, the defendant must establish: (1) a meritorious defense of the case, (2) a reasonable excuse for the delay, (3) the absence of an intent to abandon the matter, and (4) the lack of prejudice to the nonmoving party if the case is restored to the calendar (citations omitted). The defendant here has not made that showing, in the supporting sworn statements, and the other supporting papers to this motion.
The precedential value of this decision is essentially nil because it does not indicate any specific defects or insufficiencies in Progressive's motion papers. Nonetheless, it does represent a stark example of a court's denial of an insurer's motion to vacate after what would seem to be only a minimal default in pleading.

Thursday, June 19, 2008

Gone Fishin'

Black bass (largemouth and smallmouth) season opens this Saturday in New York State, folks, and I'll be gone today (Thursday) through next Monday up in Cape Vincent fishing a friendly tournament with some buds. See ya next Tuesday.

Lack of Separate Claims Examiners for Defense and Coverage Files Held to Warrant Estoppel Defense and Discovery Against CGL Insurer

U.S. Underwriters Ins. Co. v. Ziering
(EDNY, decided 5/28/2008)

Embedded within this discovery dispute decision is what I believe may be an "issue of first impression" or something new in the arena of insurance coverage in New York.

U.S. Underwriters disclaimed coverage to Ziering, its insured, for an underlying property damage suit that alleged damages caused by Ziering's construction activities near the underlying plaintiff's property. Underwriters provided a defense to Ziering in the underlying suit, however, and commenced this action for a judgment declaring that it was not obligated to either defend or indemnify Ziering in the underlying action.

In January 2008, the court granted Ziering's motion for permission to amend its answer to assert an affirmative defense of estoppel, arguing that it had learned that the same Underwriters' claims examiner was controlling both the underlying litigation and this one, to Ziering's harm. Ziering argued that because Underwriters did not erect a screen between those individuals managing Ziering's defense in the state court action and prosecuting Underwriters' claim in this action, Underwriters should be estopped from denying coverage. The court permitted Ziering to amend its answer to assert this defense.

Following that amendment, Ziering served discovery demands for: (1) Underwriters' litigation guidelines, manuals, etc.; (2) reports, correspondence, etc. from underlying counsel to Underwriters relating to the underlying property damage action; (3) reports, etc. from Underwriters to underlying counsel relating to the underlying property damage action; and (4) copies of relevant investigation reports. Underwriters objected to the demands as vague, overbroad, burdensome, irrelevant and improper, and as protected from discovery on privilege grounds. Ziering moved to compel responses.

In opposing that motion, Underwriters asserted that Ziering's real position is a claim that "no court has previously found to exist, namely, a purported failure to assign separate claims examiners for the coverage and defense aspects of the same claim file matter." Underwriters argued that such a claim is more akin to one for legal malpractice than to a true estoppel claim. The court, however, noted that "[w]hile the letter referenced by Underwriters' clearly states that it will provide Ziering with a defense in the Davis action "without waiving any of the grounds for disclaimer" set forth in the letter, it is far from clear that an estoppel defense can arise only when disclaimer is waived, as Underwriters claims."

In support of its motion, Ziering argued that Underwriters' articulation of the estoppel defense was entirely different from the actual defense Ziering was asserting. Ziering argued that it was not asserting that Underwriters had waived its right to disclaim coverage; instead, it sought to estop Underwriters from denying coverage because it allegedly "failed to, in good faith, properly consider, investigate and assess the claims against its insured when it provided a defense" in the Davis action. Ziering further contended that a liability insurer's duty to defend must be fulfilled, and is not satisfied merely by designating independent counsel. Thus, Ziering concluded, the internal claims procedure materials and written communications between Underwriters and underlying retained defense counsel were relevant to the estoppel defense because they pertained not to any malpractice claim, but to a breach of Underwriters' duty owed to its insured in providing a defense.

In rejecting Underwriters' argument that an estoppel can arise only where an insurer has waived its disclaimer rights, the court held:
While such a waiver may well give rise to an estoppel defense, there is nothing before the court to demonstrate that an estoppel defense could not arise under other circumstances as well. Here, Ziering is apparently arguing that Underwriters is estopped from disclaiming coverage because it has breached its duty to provide a zealous defense to Ziering in the Davis action. In response to Underwriters' argument that no court has found the use of a single claims adjuster to be improper, Ziering argues that the fact that "a single claims adjuster has acted as both the insured's prosecutor and defender renders the limited nature of the defense pursued by the insurer highly suspect," and provides some proof in support of the estoppel defense. Thus, Ziering does not claim that the use of a single claims adjuster is per se proof of breach of the duty to defend, only that it is some evidence of that breach, and enough to make the documents that they have demanded relevant. Much of the parties' argument goes to the merits of the estoppel defense itself, an issue that is not properly before this court now and cannot be decided at this time. Whether that defense proves to be meritorious or not, the documents requested by Zeiring [sic] are relevant to it, and cannot be withheld on that ground.
The court then went on also to reject Underwriters' argument that communications between it and retained defense counsel for Ziering in the underlying action were privileged from discovery:
[W]here an insured retains counsel to defend an insured in litigation, the attorney's paramount client is the insured. Therefore, to the extent that the interests of the insured and the insurer collide with respect to the assertion of the attorney-client privilege for communications with counsel retained for the insured, the insured necessarily prevails. (Citations and internal quotes omitted.)
The court found that since Ziering was the "paramount client", any privilege attached to the communications between Underwriters and retained defense counsel in the underlying property damage action was Ziering's, and Underwriters could not withhold production on that basis.

Although the court's earlier decision was merely to allow the insured to assert an estoppel defense based on Underwriters' use of a single claims examiner to monitor and handle both the defense (PD) and coverage (DJ) actions, the very fact that the court allowed such an amendment is potentially troublesome, especially to small insurers that may not have the staff to assign separate adjusters to parallel defense and coverage files. And just how far "up" must the screen extend? Past claim supervisors and managers? At some point, the claims decisionmakers cannot be separated.

Tuesday, June 17, 2008

No Collateral Estoppel From Prior Default Judgments Against Assignors

Rizz Mgt. Inc. a/a/o Jose Fernandez v. State Farm Mut. Auto. Ins. Co.
(Dist. Ct., Nassau Co., decided 6/17/2008)

Just under 9¢ per word. That's the amount of potential recovery the court's carefully reasoned denial of summary judgment to State Farm in this case preserved for the plaintiff.

Rizz sued for $200 in unpaid bills related to services rendered to assignor Fernandez for injuries he allegedly sustained in a January 11, 2002 accident. State Farm moved for summary judgment, arguing: (1) that plaintiff was collaterally estopped from contesting that the January 11, 2002 incident was a staged event based on default judgments State Farm had obtained against assignor Fernandez and others in two prior Supreme Court special proceedings; and (2) that it had submitted sufficient evidence on its motion for the court itself to determine, as a matter of law, that the alleged accident of January 11, 2002 was no accident at all, but a staged event.

In rejecting State Farm's collateral estoppel argument, Nassau County District Court Judge Andrew Engel held that although there was identity of issue -- i.e., whether the alleged accident of January 11, 2002 was a staged event -- that issue was not previously decided against either the plaintiff or one then in privity with the plaintiff, and was not "necessarily decided" in the prior proceedings that concluded with default judgments.

On the privity issue, Judge Engel explained:

"In the assignor-assignee relationship, privity must have arisen after the event out of which the estoppel arises. Hence, an assignee is deemed to be in privity with the assignor where the action against the assignor is commenced before there has been an assignment." (citations omitted). Given the fact that it is the Defendant's burden to demonstrate "that the decisive issue was necessarily decided in the prior action against a party, or one in privity with a party[,]" (citations omitted) before collateral estoppel will apply, it is incumbent upon the Defendant to provide proof of when the assignment herein took place. The Defendant, however, has not done so. Moreover, it would appear from the dates of treatment, February 1, 2002 and April 18, 2002, that if there was in fact an assignment of benefits, it occurred prior to the commencement of the special proceedings upon which the Defendant relies, the petitions for which are dated December 2, 2002.
On the question of whether the staged event issue had been "necessarily decided" in the prior special proceedings, the court ruled:

Even more problematic for the Defendant is the fact that the two determinations upon which it relies were rendered on the default of the respondents therein. Before collateral estoppel will apply, the issue in dispute must have been "actually litigated and determined" in the prior action. (citations omitted). As the Court of Appeals has decisively stated in Kaufman v. Eli Lilly and Company, 65 NY2d 449, 492 NYS2d 584 (1985), "If the issue has not been litigated, there is no identity of issues between the present action and the prior determination. An issue is not actually litigated if, ... there has been a default..." (citations omitted).

The Defendant having failed to demonstrate that the Plaintiff herein was in privity with its assignor in the prior proceedings upon which the Defendant relies, and the prior proceedings having resulted in orders entered on default, they shall not be given preclusive effect in the matter presently before this court.
Turning next to State Farm's evidentiary submissions in support of its motion for summary judgment, the court found numerous deficiencies in State Farm's papers, including: the affidavit of State Farm's investigator "ma[de] it clear" that she lacked personal knowledge and was based on inadmissible hearsay statements and documents for which no proper foundation for admission had been laid; the EUO transcripts of plaintiff's assignor and other occupants of the vehicle in which he was a passenger were "of extremely poor quality and largely illegible"; the EUO transcripts were neither signed nor verified; State Farm had not demonstrated any formal requirements for the taking of the individuals' alleged testimony sufficient to assure their accuracy; and "[n]otably absent" from the EUO transcripts were certifications as to the transcripts' accuracy, executed by the notary public who purportedly took the testimony.

Although Judge Engel found that State Farm's "attempt to submit the transcripts of these examinations is not barred by the hearsay rule, because the Defendant is not offering the statements contained therein for their truth... but for the exact opposite reason, to show their falsity and fraud", he nonetheless seemingly ruled them to be inadmissible because:

it has been recognized that while the transcripts of [assignor] examinations under oath may be admissible to defeat a summary judgment motion, they "are nonetheless hearsay. As such, such statements are inadmissible at trial unless, for example, they are used for impeachment purposes upon cross-examination in the event such declarant/assignor testifies." CPT Medical Service, P.C. v. Utica Mutual Insurance, 12 Misc 3d 237, 811 NYS2d 909 (Civ.Ct. Queens Co. 2006).
In the end, even if the court had found State Farm's papers to be in admissible form, Judge Engel ruled that they "raise[d] a number of factual issues which are subject to the inferences to be drawn from the evidence presented, many of which involve an assessment of credibility, and all of which must be reserved for the trier of facts[.]"

Court Ices Subrogation Claim Against Sub-Zero Ice Maker Maker

Amer. International Ins. Co. v. Sub-Zero Freezer Co.
(Sup. Ct., New York Co., decided 6/9/2008)

An ice maker manufactured by Sub-Zero Freezer Company leaked and caused $144,224.83 in damages to a coop apartment one floor below. American International paid those damages and brought this subrogation action against the ice maker's manufacturers, as well as the general contractor and plumbing company responsible for installing the ice maker.

New York County Supreme Court Justice Judith Gische granted the manufacturers' motion for summary judgment but denied the motions of the GC and plumber.

Justice Gische rejected American International's argument that the doctrine of res ipsa loquitur against the manufacturers because "[e]ven assuming that plaintiff could prove that the event that happened (the leak) does not occur in the absence of someone’s negligence, and the leak was not due to any voluntary action or contribution by the plaintiff, the third element of a prima facie case against the manufacturer is missing, to wit: that the instrumentality was within the exclusive control of [the manufacturer]." The court held that since the manufacturer defendants had met their burden on their summary judgment motion, through EBT testimony and affidavits, and the parties who opposed that motion did not put forth any factual disputes that would require a trial, the claims and cross claims against the manufacturer defendants had to be dismissed.

In denying summary judgment to the general contractor and plumber, Justice Gische held:

The general contractor [Mark] and plumber have failed to eliminate any issues of fact whether either or both of them were negligent. There is factual dispute whether the general contractor supervised and directed the work that its subcontractor (the plumber) did at the Belfer apartment. Mr. Mark testified he was regularly present at the Belfer apartment to supervise the work being done and that he sometimes inspected the work of the subcontractors. (citation omitted). The general contractor does not recall whether it instructed its workers to uncrate the ice maker, but apparently the machine was out of the box and in the kitchen where it would be installed by the plumber. This creates an issue of fact for the jury to decide about whether the general contractor handled the ice maker. There is also an issue of fact whether the machine was mishandled or dropped any point after it was delivered to the Belfer apartment, and if so, who did it.

The plumber is not entitled to summary judgment either because of the factual dispute about whether the ice maker was tested after his men connected to the water line. A failure to test the ice maker could constitute negligence on the part of the plumber.

Policy Submitted Under Attorney's Affirmation Held to Support Dismissal of DJ Complaint

Sirius Amer. Ins. Co. v. Bethel General Contracting, Inc.
(Sup. Ct., New York Co., decided 6/11/2008)

This is a DJ action relating to an underlying construction worksite accident/personal injury action. Sirius brought this DJ action against its named insured, Bethel General Contracting, which impleaded Tudor Insurance Company. Tudor insured one of Bethel's subcontractors, K&S Foundation Works.

Tudor moved to dismiss the complaint pursuant to CPLR 3211 (a)(1) and (7) based on the terms of K&S's policy with Tudor. Bethel was neither a named insured nor a named additional insured on that policy. The court also found that Bethel did not qualify as an additional insured under the Tudor policy's blanket insured section, because K&S had "opted out" by restrictive endorsement of the policy's only definition of an "insured contract" -- “[tlhat part of contract... pertaining to your business... under which you assume the tort liability of another party to pay for ‘bodily injury’ or ‘property damage’ to a third person or organization" -- that could have applied to make Bethel an additional insured.

Bethel did not dispute that it was neither a named insured nor a named additional insured on the Tudor policy, but instead opposed Tudor's motion based solely on the argument that the affirmation of Tudor's attorney was insufficient evidence of the terms of that policy.

In rejecting that argument and dismissing the complaint as against Tudor, with prejudice, New York County Supreme Court Justice Shirley Kornreich held:
Finally, contrary to Bethel’s assertion, the affirmation of an attorney without personal knowledge is an appropriate vehicle for submitting documentary evidence to the court (citation omitted). * * * A contract, like the insurance agreement submitted by Tudor, is the very type of document that may support dismissal under CPLR for a [sic] 3211 (a)(l). (Citations omitted). In any event, in reply, Tudor submitted an affidavit from a senior claims adjuster to authenticate the policy.
It is always better dispositive motion practice to sponsor insurance policy materials under an affidavit of a knowledgeable underwriting or claim representative of the insurer, even when submitting policies bearing a "certification" on their cover.

Homeowners Insurer Found Not Obligated to Defend or Indemnify for Racial Discrimination Claim

Reiss v. United Services Auto. Assn.
(Sup. Ct., Nassau Co., decided 6/4/2008)

Brownlee and Schwaneman sued Reiss and others in New York federal court for racial discrimination. USAA disclaimed and denied coverage based on: (1) the lack of an alleged accident or "occurrence"; and (2) applicability of the "intentional or purposeful acts" exclusion of Reiss's homeowners policy. Travelers (Automobile Insurance Company of Hartford, CT) defended Reiss in that action under her umbrella policy with Travelers and eventually settled that case for $20,000. Reiss and Travelers then commenced this action against USAA for recovery of the $20,000 settlement, plus defense costs.

In denying plaintiffs' motion for partial summary judgment and granting USAA's cross motion for summary judgment, Nassau County Supreme Court Justice Thomas Phelan found that the underlying federal court complaint did not allege an "occurrence", but instead alleged intentional acts by the insured which fell within policy exclusions:
Defendant was obligated to defend and indemnify plaintiff Reiss under the terms of the Homeowner s policy if the complaint can be reasonably interpreted to allege an "occurrence" within the policy definitions. If the complaint alleges "intentional acts" on the part of the insured, it is excluded from coverage. The claimed "personal injuries" are essentially emotional distress, embarrassment, humiliation, inconvenience, anxiety and frustration. Whether these constitute personal injuries" within the policy definitions is relevant only if they were caused by an "occurrence" and not by an intentional act."

An occurrence within the policy definition is an accident, or continuous exposure to harmful conditions, leading to personal injury. An intentional act by the insured is one which is purposeful. None of the allegations of the complaint constitute [sic] an accident, and therefore they are not occurrences. The alleged misconduct by the insured includes refusal to accept tendered payment in accordance with the lease, commencement of an unwarranted eviction proceeding, and the refusal to obey a lawful stay of eviction, all of which were motivated by racial discrimination. These are clearly intentional acts by the insured which fall within the policy exclusions.

Even if the complaint were to contain language sounding in negligence and alleging carelessness, it would not alter the fact that the operative fact giving rise to the claim for recovery is the unlawful eviction. (Desir v. Nationwide Mutual Fire Insurance Company, __ N.Y.S.2d __, 2008 WL 1823427 (2nd Dept.), 2008 Slip Op. 03578).

Since there is no legal basis upon which the insurer could be liable for coverage, there was no obligation to provide a defense or to indemnify the insured.

Monday, June 16, 2008

Court Denies No-Fault Insurer's Motion for Summary Judgment Based on Workers' Compensation Board Subject Matter Jurisdiction Defense

Jing Huo LAc a/a/o Maria Acosta v. American Tr. Ins. Co.
(Civil Ct., Richmond Co., decided 6/12/2008)

New York's Workers' Compensation Law §142 (7) provides that "(w)here there has been a motor vehicle accident which caused personal injury and there is a dispute as to whether the injury occurred in the course of employment, the Workers' Compensation Board shall... hold an expedited hearing on... whether the accident occurred within the course of employment[.]"

The New York courts have consistently ruled that the Legislature has vested "primary jurisdiction" in the Workers' Compensation Board over the issue of the availability of coverage under the Workers' Compensation Law, and that a plaintiff has "no choice but to litigate this issue before the Board". Where a case is likely to fall within the exclusive jurisdiction of the Board, the plaintiff bears the burden of pleading and proving the absence of compensation. The plaintiff must demonstrate either that: (1) no compensation policy covering the plaintiff was in existence; (2) plaintiff was not an employee of the defendant; or (3) the injury did not arise out of and in the course of plaintiff's employment.

American Transit denied no-fault coverage and payment to plaintiff medical provider on the ground that the assignor was in the course of his employment as a taxi cab/car service driver at the time of the accident and, as such, workers' compensation coverage was primary for health care expenses relating to the assignor's reported injuries. Plaintiff sued for payment, and American Transit moved for summary judgment, contending that the court lacked jurisdiction to hear the complaint because the Workers' Compensation Board had primary jurisdiction over the issues of coverage.

In denying American Transit's motion for summary judgment, Richmond County NYC Civil Court Judge Katherine A. Levine held that American Transit had failed to show that there was potential merit to its claim that the assignor was employed at the time of the accident so as to trigger a determination of employment status by the Workers' Compensation Board. Judge Levine found that the police accident report, although identifying the license plate of the vehicle the assignor was driving as having been authorized by the New York City Taxi & Limousine Commission, was not sufficient by itself "to raise a complicated factual question on employment so as to warrant the intercession of the Workers Compensation Board."

The court, however, granted American Transit's motion to amend its answer to assert a lack of subject matter affirmative defense, noting:
While the court, as set forth above, has serious doubts about the viability of defendant's argument that this court lacks subject matter jurisdiction, both parties will have an opportunity, at trial, to present their positions as to whether, as a matter of law, there is Workers Compensation insurance coverage for the assignor and whether the assignor falls within the statutory definition of an employee under the Workers Compensation Law. This court reserves a decision on whether plaintiff has proven its prima facie case until trial.