Thursday, August 28, 2008

You Mean You Don't Write Homeowners Policies for Pediatric Offices? But It's In a House, With Lots of Kids...

Tower Ins. Co. v. Rajaram

(Sup. Ct., New York Co., decided 8/19/2008)

Tower issued a homeowners insurance policy to Dr. Madhu Rajaram for a residential private house located at 138 Brighton 11th Street, in Brooklyn, New York for the period January 5, 2006-2007. In her policy application, Dr. Rajaram represented that the house would be "owner occupied" and that it would be for “primary usage.” Here's a street view of the property. Note the green awning with the multi-colored lettering and white sign with the caduceus. Those are called clues.

Erna Karpilovskaya allegedly tripped and fell on the sidewalk outside the insured premises on January 15, 2006. She commenced a personal injury action in Kings County Supreme Court against the City of New York and various persons, including Dr. Rajaram.

Tower received first notice of that occurrence and Ms. Karpilovskaya's claim on November 14, 2006. It sent a representative to investigate, who found Advanced Pediatric Practice, PC, operating on the first and second floors of the building. Tower's representative took a signed statement from Dr. Rajaram, which began:
My name is Dr. Madhu Rajaram. My date of birth is (redacted). My home address is 7 Telegraph Hill Road, Homdel, NJ 07733. My contact telephone number is (redacted). I have been the Property Owner of a residential private house located at 138 Brighton 11th Street, Brooklyn, NY 11235, since January 5, 2006. I have leased the property to the former owner (I will provide their name at a later date) since January 5, 2006 until November 2006. I have never resided at the property since I purchased it on January 5,2006. I visit the premises a few times a month or whenever necessary. I do not believe I visited the premises on January 15, 2006, however ... (redacted).
By letter dated December 13, 2006, Tower disclaimed coverage for various reasons, including Dr. Rajaram's policy application misrepresentations, late notice, and the policy's business pursuits exclusion. Tower then commenced this this action in New York County Supreme Court to “confirm the propriety of its disclaimer” and moved for default judgment against certain defendants and summary judgment against the remaining defendants.

In denying Tower's motion for a default judgment against certain defendants, New York County Supreme Court Justice Eileen Rakower noted that each such defendant had answered after the prescribed time period but before September 16, 2007, the date given in Tower's letter to those defendants, which advised them: "This letter is to inform you that Tower Insurance Company of New York will move for a default judgment against you, if you fail to respond to the Complaint by September 16, 2007."

The court granted Tower's motion for summary judgment, however, adjudging and declaring that the policy was void ab initio and that Tower had no duty to defend or indemnify any party in the related Kings County Supreme Court personal injury action.

Justice Rakower rejected the defendants' argument that Tower's disclaimer was untimely under Insurance Law § 3420(d) because "the issue of a timely disclaimer is irrelevant if the policy, from its inception, never provided coverage for the particular claim at issue." The court then addressed Tower's rescission argument:
In order to establish that a fact is material so as to void ab initio an insurance contract, an insurer must show that it would not have issued the policy had that fact been revealed at the time that the policy was issued. (Interested Underwriters at Lloyd‘s v. H.D.I. III Assoc., 213 AD2d 246 [1st Dept. 1995]). “A court, in finding a material misrepresentation as a matter of law, generally relies upon two categories of evidence, an affidavit from the insurer’s underwriter and the insurer’s underwriting manual.” (Kroski v. Long Island Sav. Bank FSB, 261 AD2d 136 [1st Dept. 1999]). Tower supports its claim that it would not have issued the policy if it had known that Rajaram was not living at the residence by submitting the affidavit of Mr. Blomquist, Supervising Underwriter. Mr. Blomquist affirms that if Rajaram had indicated on her application that she did not intend to occupy the premises it would have presented an unacceptable risk and Tower would not have issued the “homeowner’s policy.” Mr. Blomquist refers to the Tower Group Homeowner’s Selection Rules (“the Rules”) which are annexed to his affidavit. Indeed, those rules state that the insured premises must be “owner occupied.’’

Rajaram represented on the “Homeowner Application” that the building would be "owner occupied” and that it would be for “primary usage.” However, in her statement to Mr. Williams, Rajaram gives her home address as “7 Telegraph Hill Road, Homdel, NJ and she states unequivocally that she “leased the property to the former owner... I have never resided at the property since I purchased it on January 5, 2006.”’ The defendant owners do not contradict the statement made by Ms. Rajaram. Where “the evidence of the materiality of the misrepresentation is clear and substantially uncontradicted, the matter is one of law for the court to determine.” (Interested Underwriters at Lloyd’s v. H.D.I. III Assoc., 213 AD2d 246 [1st Dept. 1995]).

The Rules also state that: “any risks with the following factors may not be written: Any business conducted on the premises . . .” Rajaram indicated on her application that no business was to be conducted on the premises. Contrary to this declaration, Mr. Williams affirms that he "observed a pediatrician’s office being operated from the first and second floors of the premises.”

Tower has shown that it would not have issued a homeowner’s policy had it known that Rajaram would not be residing at the subject premises and that she would be running a business at the location. It is incumbent upon the party opposing summary judgment to come forward with proof in admissible form demonstrating that there exists an issue of fact for the trier of fact to determine. Here, the defendant owners have not contradicted Tower’s showings. Indeed, they submit no evidence controverting Tower’s showing.
The defendants argued that Tower did not support its summary judgment motion with proof in admissible form because Dr. Rajaram's statement, although signed by her, "contain[ed] no jurat, no notary public or commissioner of deeds, and is neither an affidavit nor affirmed under penalties of law.” In rejecting this argument Justice Rakower noted:
While generally, unsworn statements should not be considered in a motion for summary judgment, the statement by Rajaram here is annnexed to an affidavit by Mr. Williams which attests that the statement was taken by him and that Ms. Rajaram read and signed the statement at the bottom of each page to attest to its accuracy. While hearsay, admissions by a party of any fact material to the issue are always competent evidence against that party. (Reed v. McCord, 160 NY 330, 341). Of course, the party-declarant has the right to explain it.
In policy rescission cases, it's not that the insurer would not have insured the risk at all, but that it would not have issued the particular policy on the particular terms it did. This case is a good example of that principle.

So is this how it went?

Dr. Rajaram to Broker/Agent: "I just bought a house in Brooklyn. There will be lots of kids and toys there."

Broker/Agent to Dr. Rajaram: "Okay, fill out this homeowners policy application."

Wednesday, August 27, 2008

LPOs & Google Searches

I used to wonder why IP addresses from India were occasionally hitting and spending time on this blawg. I don't anymore. See, ABA Gives Thumbs Up to Legal Outsourcing. Talk about globalization. Greetings, Mumbaians.

August 2008 Coverage Counsel Poll

Four days left in our August Coverage Counsel poll. Although I personally think the amount of late notice litigation will stay the same (but shift in focus to fights over what constitutes "prejudice"), most of you who have voted think it will increase.

Question: With the passage and signing of the Direct DJ/Late Notice/Prejudice bill, will the amount of late notice litigation in the New York courts:
  1. Increase
  2. Decrease
  3. Stay the same.
Regardless, the ETA to the new direct DJ/prejudice-required era in New York State is approximately 4 ½ months. Anyone see any new or proposed amendatory endorsements yet?

Collateral Estoppel Effect Not Given to Virginia Policy Rescission

Mid Atl. Med., P.C. a/a/o Reginald Smalls v. Victoria Select Ins. Co.

(App. Term, 2nd Dept., decided 8/19/2008)

Plaintiff medical provider moved for summary judgment, and Victoria Select Insurance Company cross-moved to dismiss the complaint based on the doctrine of collateral estoppel. Victoria premised its collateral estoppel argument on an order from a Virginia state court declaring that the Virginia auto policy at issue was "rescinded, void ab initio, and of no effect" based on the named insured's material misrepresentations on his application for insurance including that he resided in, and his car was to be garaged in, Virginia. Neither of plaintiff's two assignors was Victoria's named insured. Kings Civil denied plaintiff's motion and granted Victoria's cross motion.

In MODIFYING the order to deny Victoria's cross motion for dismissal of the complaint while affirming the denial of plaintiff's summary judgment motion, the Appellate Term held:

(1) Victoria failed to raise its collateral estoppel in a timely fashion in either a pre-answer motion or as an affirmative defense in its answer, as required by CPLR Rule 3211(a)(5);

(2) collateral estoppel effect could not be given to the Virginia order because plaintiff, who had been assigned the claims at issue prior to Victoria's commencement of the Virginia DJ action, was not a party to that action and "was therefore not 'afforded a full and fair opportunity to contest' the Virginia order, nor was it in privity with one who was"; but

(3) Victoria's submission of the petition and order from the Virginia DJ action was "sufficient to demonstrate a defense based upon a 'founded belief that the alleged injur[ies] do[ ] not arise out of an insured accident' (Central Gen. Hosp. v Chubb Group of Ins. Cos., 90 NY2d 195, 199 [1997]). Thus, defendant has raised a triable issue of fact as to whether there was coverage under the subject insurance policy[.]"

Food for thought: if Victoria knew about these assignors and claims prior to commencing the Virginia action, might it have been better off commencing the DJ/rescission action in New York state court, naming all interested persons and parties and seeking relief under Virginia law (which, unlike New York, presumably allows rescission ab initio of personal auto policies)? Not sure what opportunities and options existed for gaining personal jurisdiction over the named insured, but presumably they found him to serve him in the Virginia action.

Collateral estoppel, although a potent defense, is applied conservatively by the courts, which will insist on being convinced that the party against whom the doctrine is to be applied had a full and fair opportunity to contest the relevant issue in a prior proceeding.

Tuesday, August 26, 2008

Hiccup In the No-Fault Intoxication Exclusion Cutback Bill?

According to the sponsor's office yesterday, the no-fault intoxication exclusion cutback bill passed by the New York State Legislature in June (see the No-Fault Intoxication Exclusion Cut Back By NYS Legislature post) still has not been delivered to Governor Paterson for signature. We're told that this bill eventually will be sent for signature, but the person we spoke with could not say when.

Once signed, the bill will become law 180 days afterwards and will apply to all policies issued, renewed, modified or altered on or after the effective date.

Venue, Vidi, Vici -- Queens Over Kings

NK Acupuncture, P.C. a/a/o Taniya Smith-Jones v. Travelers Indem. Co.

(App. Term, 2nd Dept., decided 8/19/2008)

Plaintiff medical provider sued in Kings County Civil, the summons stating that the basis of venue in Kings County was "Defendant's residence". Travelers moved to change venue to Queens County, its in-house counsel affirming, "Uh uh, Travelers is a foreign corporation domiciled in Hartford, Connecticut." In response, plaintiff's counsel asserted "in a conclusory manner" that Travelers transacted business in Kings County and, thus, was a resident there.

In AFFIRMING the granting of Travelers' motion to change venue, the Appellate Term held:
By statute, a corporation, such as defendant, is "deemed a resident of any county wherein it transacts business, keeps an office, has an agency or is established by law" (CCA 305 [b]). Since defendant established that it did not "transact[] business" in, and was not a resident of, Kings County, the court below did not improvidently exercise its discretion in transferring the action to Queens County, where the assignor resided. Accordingly, the order entered September 13, 2006 granting defendant's motion to change the venue of the action to Queens County is affirmed.
The definition of undaunted, plaintiff's counsel moved for sanctions against Travelers for making its motion to change venue. The Appellate Term agreed with Kings Civil that "defendant's motion to change the venue of the action to Queens County did not, under the circumstances presented, constitute 'frivolous conduct' for which sanctions may be imposed[.]" What circumstances were those -- being right?

Monday, August 25, 2008

"Skillful and Thorough" Cross Examination of Insurer's Ortho Expert Is Not Rebuttal Evidence of Medical Necessity

Andrew Carothers, M.D., P.C. a/a/o Sabrina Defares v. GEICO Indem. Co.

(NYC Civil Ct., Kings Co., decided 8/20/2008)

Suit over an $879.73 MRI bill, denied based on a peer review. At trial, in an effort to carry its initial burden of proving that the MRI was not medically necessary, GEICO called orthopedic medicine expert "Dr. Bazos" (Andrew?) as its chief and only witness.

Dr. Bazos testified that he reviewed the MRI reports and determined that the MRI performed on the assignor was not medically necessary. He stated that a MRI is necessary when there is significant clinical findings and the patient is a surgical candidate. Dr. Bazos stated that the assignor's examination was proper and well documented; that there was no indication that the assignor was a candidate for surgery; that based on the assignor's diagnosis of soft tissue injury, said injuries usually resolve within four to six weeks with a conservative course of treatment consisting of physical therapy and anti-inflammatory medication. Dr. Bazos stated that the assignor had multiple post traumatic soft tissue injuries which did not necessitate the need for a MRI. That these injuries were typical post-accident injuries and that the performance of an MRI for such injuries was a deviation from the generally accepted standard of care in the medical profession.

On cross examination, Plaintiff's counsel attempted to impeach the credibility of Dr. Bazos, claiming that in 90 percent of his peer reviews, Dr. Bazos found that MRIs were medically unnecessary. Plaintiff's counsel cross-examined Dr. Bazos concerning the number of times he testified, his understanding of the use of peer reviews, the number of peer reviews he performed, the fees charged for each peer review, and the fees he receives for his testimony at trial. Counsel also cross-examined Dr. Bazos concerning his basis for his opinion of lack of medical necessity, claiming that his opinion was contrary to the views expressed in Campbells Operative Orthopedics and that his opinion was reached based on his financial interests with GEICO.

In entering judgment for GEICO dismissing the complaint, Kings Civil Court Judge Sylvia Ash ruled:

While, it is well recognized that compensation has a direct and vital bearing on credibility, the fact that Dr. Bazos had a great deal of experience testifying on behalf of insurance companies does not alone support an inference that his opinion is not honest in this case (see Scott v. Spanjer Bros., Inc., 298 F.2d 928). Dr. Bazos' evidence cannot be disregarded simply because he is an "employee" of the Defendant. While employment or other relationship of a witness may be considered on the point of his credibility in weighing his evidence against opposing evidence, it is not by itself a sufficient reason for disregarding his testimony. Although the fact that Dr. Bazos testified on numerous cases on behalf of Insurance Companies may support the inference of bias, if direct unimpeached, uncontradicted, and reasonable testimony is shown which is consistent with Dr. Bazos' finding of lack of medical necessity, no lawful finding can be made of the existence of bias (see Arnall Mills v. Smallwood, 68 F. 2d 57). And if any bias was established it would simply go to the weight given to the testimony (see Khan v. New York State Dept. Of Health, 17 App. Div. 3d 938). To establish the existence of bias sufficient to disregard Dr. Bazos' testimony, Plaintiff would have to show that his opinion flowed from the claimed bias (see Cohen v. Mills, 271 App. Div. 2d 826).

The Court has assessed and accepted Dr. Bazos' uncontradicted expert opinion and makes the following findings: (1) his testimony was credible and convincing (2) his opinion was medically and factually supported and (3) his opinion was not based on any alleged bias. Dr. Bazos' testimony supplemented his detailed peer review report and fully and explicitly set forth his reasons for the denial. Therefore, the Court finds that Defendant has met its prima facie burden of demonstrating lack of medical necessity for the services rendered, thus shifting the burden to Plaintiff to establish medical necessity. At trial, Plaintiff did not submit any rebuttal evidence, such as the testimony of the referring physician or of its own medical expert, to establish that the services rendered to its assignor were medically necessary. Instead, Plaintiff relied solely upon its cross examination of Defendant's medical expert, Dr. Bazos. However, despite Plaintiff's counsel's skillful and thorough cross examination, he was unable to refute Dr. Bazos' testimony thus failing to meet its burden of establishing medical necessity.

Even a skillful and thorough cross examination, without affirmative proof of some kind, may not be enough. Regardless of how artful the cross examination, I've yet to see any expert change her opinion at trial and say, "You know counselor, that's an awfully good point. Nevermind what I said on direct. "

Carolina In Their Mind

Matter of Government Employees Insurance Co. v. Integon National Ins. Co.

(Sup. Ct., Richmond Co., decided 8/12/2008)

GEICO commenced this special proceeding to stay arbitration of the UM claim of its insured, Nadirah Shakoor, who allegedly was injured in a rear end collision on November 4, 2006. The police report listed the other driver as Jose Manuel Salas Oleda of 207 Vance Street, Wilson, North Carolina 27093 (maybe he lived above the beauty salon? and there is no such zip code), who produced an insurance ID card bearing an Integon National Insurance Company policy number. By letter dated January 29, 2007, Integon indicated that it received notice of an accident having occurred on November 17, 2006, and disclaimed coverage based on Mr. Oleda's failure to cooperate in its accident investigation.

CPLR § 7503(c) provides that “[a]n application to stay arbitration must be made by the party served within twenty days after service upon him of the notice or demand, or he shall be so precluded." Although GEICO filed this special proceeding 21 days after receiving Shakoor's arbitration demand, the 20th day fell on a Sunday, so GEICO's application for a stay was timely under New York General Construction Law § 25(a)(1).

With respect to the validity of Integon's disclaimer, Integon argued that because Oledo purchased his insurance policy in North Carolina for an automobile registered in North Carolina, that North Carolina law should apply in this matter. Richmond County Supreme Court Justice Joseph Maltese agreed, citing the Second Department's decision in Matter of Eagle Insurance Company v. Singletary, holding that insurance contracts are governed by the law of the state where the principal parties understood to be the “. . . principal location of the insured risk[.]" Under North Carolina law, an insured's breach of a policy's cooperation clause must be "material and prejudicial", ordinarily questions of fact for a jury.

In granting GEICO's motion for a temporary stay of arbitration pending a framed issue hearing to determine whether the Oleda vehicle was uninsured at the time of the alleged accident, the court found:
Based on the factual landscape currently before this court, it is impossible to hold as a matter of law that Integon’s disclaimer of coverage based breach of the cooperation clause is lawful under the laws of the state of North Carolina.

Friday, August 22, 2008

NYS Insurance Department Office of General Counsel July 2008 Opinions

Just posted to the NYS Insurance Department's website are the Office of General Counsel Opinions from July. Lots of stuff relevant to P&C insurers from last month.

Property Damage Release (July 1, 2008)

11 NYCRR § 216.6(g) sets forth standards for prompt, fair, and equitable settlements, and reads as follows:

Checks or drafts in payment of claims; releases. No insurer shall issue a check or draft in payment of a first-party claim or any element thereof, arising under any policy subject to this Part, that contains any language or provision that expressly or impliedly states that acceptance of such check or draft shall constitute a final settlement or release of any or all future obligations arising out of the loss. No insurer shall require execution of a release on a first- or third-party claim that is broader than the scope of the settlement. (Emphasis added.)

The OGC opines that the following "Property Damage Only Release" complies with this section:

Property Damage Only Release

Policy Number: ________________ Claim Number: ____________________
Claimant: ____________________

RELEASE IN CONSIDERATION OF THE SUM OF $_________________________ DOLLARS ($__________________) to me paid, receipt of which is hereby acknowledged, I hereby release and discharge_______________________________, his or her heirs, executors, administrators, agents and assigns, and all other persons, ABC Insurance Company, its subsidiaries, affiliates, agents, assigned, firms or corporations for property damage including_______________________ which represents the total damages asserted, reduced by______, for known property damage sustained arising from a vehicle collision which occurred on or about the _____ day of __________, 200_, at or near ____________________________________________________________.

Recovery under an automobile insurance policy for loss of fetus (July 1, 2008)

The inquirer represented a woman who was involved in an automobile accident when she was approximately seven months pregnant. The client seeks recovery for bodily injury under an automobile liability insurance policy, which has liability limits of $25,000/$50,000 per person/per occurrence – the minimum liability coverage required in New York State. The inquirer asks whether the “loss of fetus” will serve to “double the policy” – that is, whether the loss of the fetus triggers recovery on behalf of two people under the policy. The inquirer also asks whether the policy will “double” if the baby is born alive then subsequently dies at the hospital.
Questions Presented:

1. May a woman seek damages in excess of $25,000 under a $25,000/$50,000 per person/per occurrence automobile liability insurance policy for injuries that she sustained in an automobile accident caused by the insured, in addition to the loss of a fetus for which the insurer already has agreed to pay the maximum under the policy limits?

2. If the woman gives birth prematurely as a result of an automobile accident caused by the insured and the baby dies shortly thereafter as a proximate cause of the accident, may a duly appointed representative of the decedent bring an action to seek damages against the policy on behalf of the decedent who is survived by distributees who suffered pecuniary loss as a result of the infant’s death?


1. No. Any damages for all serious injuries that the woman seeks under the liability policy are subject to the $25,000 policy limit, including the loss of the fetus.

2. Yes. If the baby was born “alive,” as that term is defined in New York Public Health Law § 4130(1), and then died shortly thereafter, the baby is a “covered person” under the liability policy. Thus, an appointed representative of the decedent may bring an action on behalf of the decedent who is survived by distributees, thereby triggering the $50,000 liability limits for death.

Insurer Payment Obligation Under Collision Coverage (July 16, 2008)

The inquirer reported that insurers are using, and courts relying on, an opinion dated April 16, 2002 from the Department’s Office of General Counsel (“O.G.C.”) to argue that an insurer may recommend to an insured a specified facility for physical damage repair without a request from the insured. The inquirer asks whether the Department continues to adhere to the April 16, 2002 opinion.

The inquirer also asked what constitutes a good faith negotiation and what elements such a negotiation must include.

The inquirer further asked whether the Department adheres to the view that an insurer is not financially responsible for repair costs in excess of those at an insurer-recommended repair facility should an insured use a facility not recommended by the insurer.

Questions Presented:

1. May an insurer recommend or suggest a particular facility for motor vehicle repairs if not expressly requested by the insured?

2. Must an insurer, as part of a good faith negotiation, negotiate labor rates?

3. If an insured elects to have a vehicle repaired at a facility other than that recommended by the insurer, is the insurer financially responsible for any excess repair cost over the cost that the recommended facility would have charged?


1. No. Insurance Law § 2610(b) prohibits an insurer from recommending or suggesting a particular facility for repairs in the absence of an express request from the insured. Any previous opinions issued by the Insurance Department to the contrary should no longer be followed.

2. Yes. A good faith negotiation, like a good faith settlement offer, should be inclusive of all elements of the cost of the repair, including labor rates.

3. The Department has opined that if an insurer makes a good faith offer to the insured to pay for the cost of repair, and, after providing the insured with the prescribed notice of rights letter (known as the NYS APD 1), identifies a facility that will repair the damage at the cost estimated by the insurer, the insurer is not obligated to pay for any repair cost that exceeds the amount of the good faith offer required by regulation. However, at least one court has held that an insured may be awarded the balance of the repair costs if the insured establishes that the excess cost was necessary to restore the vehicle.

The April 16, 2002 opinion letter mentioned in and disavowed by this opinion letter is not available on the Department's website. It followed Circular Letter No. 16 (2000), which was withdrawn and replaced with Circular Letter No. 14 (2003). If you would like a copy of the April 16, 2002 for comparison purposes, email me at roy.mura[at] and I'll send it to you.

It is important for auto insurers not to overread this opinion. It does not really represent anything new. The anti-steering law (Insurance Law § 2610) remains in place, and no New York court since the federal and state courts in Allstate Ins. Co. v. Serio has interpreted or applied it in any reported decision.

Restoration company’s payment of referral fees to insurance agent or broker (July 17, 2008)

The inquirer, marketing director for a New York restoration company, stated that the restoration company did not represent public adjusters and that the company is an approved vendor for most insurance companies. The inquirer asked whether it is lawful to offer to pay an insurance agent or broker, or an employee of the agent or broker who handles claims, a referral fee for “leads.” The inquirer indicates that in order to secure business for the restoration company, the inquirer would like to pursue the business of paying fees to agents and brokers for referring work, specifically, with respect to fire, flood, or “puffback” damage.

The inquirer also asked whether the legality of the proposed business would depend on whether the inquirer describes the fee as a “commission” or a “referral fee,” and whether the size of the monetary value of the “gift” to the agent or broker is relevant.

Questions Presented:

1. May a restoration company pay referral fees to an insurance agent or broker for referring projects, such as fire, flood, or “puffback” damage?

2. Would the legality of the fee depend on whether it is described as a “commission” rather than “referral fee,” or depend on its monetary value?


1. No. A restoration company that pays an insurance agent or broker fees for referring projects may run afoul of the commercial bribing and commercial bribe receiving statutes of the N.Y. Penal Law §§ 180.00-180.08. Also, an agent or broker who receives a referral fee from a restoration company without the consent of the insurer or the insured may violate his/her fiduciary obligations to the principal.

2. No. Under the scenario described below, such fees would not fall within the purview of commissions. It is the payment of the fee to the broker that may be unlawful or that may present a conflict of interest; the amount of the fee or how the fee is identified is immaterial.

Commercial Auto Liability Exclusion (July 28, 2008)

A business wanted to request that its insurer exclude specific persons, namely, the owner and/or officer of the business who will not be driving the insured vehicle, from a commercial automobile liability insurance policy. The inquirer asks whether the insurer must, as a matter of law, honor the request.
Question: May an owner or officer of a business be excluded from coverage on a commercial liability automobile insurance policy if that person is not going to drive the insured vehicle?

Answer: No. Section 60-1.1 of NYCRR Title 11, Part 60 (Regulation 35-A) sets forth minimum required provisions in an automobile liability insurance policy, and does not allow for an exclusion of an owner or officer of a business that has coverage under a commercial automobile liability insurance policy.

No-Fault Medical Fees After Exhaustion of Benefits (July 30, 2008)

Questions Presented:

1. May a health care provider, which has accepted a no-fault assignment of benefits from a patient, bill that patient directly when his or her no-fault benefits have been exhausted?

2. When the patient has exhausted all available no-fault benefits for reimbursement, must the health care provider continue to bill at no-fault fee schedule rates?


1. When a patient’s available no-fault benefits are exhausted, the assignment of those benefits for health services rendered is no longer effective, as there are no other benefits available under the applicable policy. Whether the health care provider is thereafter able to bill the patient is dependent upon whether any other health services coverage is available and, if so, the contractual arrangement that the provider has with the patient and/or the insurer providing the other health services coverage. In the absence of any other available coverage after exhaustion of the no-fault benefits, there is no impediment to the health care provider’s ability to bill the patient directly.

2. Payment of fees for services rendered after the exhaustion of no-fault benefits are still subject to the fee schedule limitations established pursuant to N.Y. Ins. Law § 5108.

No-Fault Deductible (July 30, 2008)

The inquirer represented a client who was injured in an accident while traveling in the bus of a common carrier. The injured person was covered by his father’s no-fault insurance policy, which was written with a $200 deductible. Pursuant to that policy, the insurer deducted from reimbursement due the injured person payment for the first $200 of no-fault medical expenses. The injured person now seeks payment of the $200 deductible from the common carrier, which is self-insured.

Questions Presented: May an injured person, who has no-fault insurance coverage written with a $200 family deductible, seek compensation for that deductible from the insurer of the bus in which he was riding when injured?

Conclusion: No. An injured person covered by no-fault insurance that was written with a deductible cannot seek compensation for the deductible from the insurer of the bus in which he was injured.

Thursday, August 21, 2008

8-Month Delay in Notifying Insurer of Property Loss Found Unreasonable as a Matter of Law

Masonville Lodge, Inc. v. Nova Casualty Co.

(Sup. Ct., Delaware Co., decided 8/11/2008)

My partner, Scott Storm, obtained this favorable result on motion for Nova Casualty Company. The decision is not yet published.

Plaintiff operated a motel known as the Mason Inn located at 1384 Route 206, in Masonville, New York. Plaintiff claimed that on December 7, 2004, the property was flooded and raw sewage leaked into the basement of the building due to a broken pipe.

On October 28,2004, plaintiff had applied for a policy of commercial insurance through defendant, North Star Insurance Services, Inc., an insurance broker. The broker then contacted R. Marcil Associates, Inc., an agent for Nova, who forwarded the necessary application and other information to Nova. A policy was issued by Nova effective November 1, 2004.

Nova did not receive notice of the loss until approximately eight months later, on August 18, 2005. By then, most of the flood damaged building materials had been removed and discarded. After the flood, plaintiff had not only stopped the leak and cleaned up the water or sewage, but had also removed and discarded carpets, dry wall and ceiling tiles.

Nova disclaimed coverage based on various grounds, including the insured's breach of the policy's "prompt" notice condition, and breach of the policy condition requiring the insured to preserve the damaged property for Nova's inspection. The insured sued Nova, the agent, and its broker, and following discovery, Nova and the agent moved for summary judgment.

In granting Nova's motion for summary judgment, Delaware County Acting Supreme Court Justice Eugene Peckham upheld both of Nova policy defenses, finding the insured's claim that it did not know who the insurance company was in order to give notice to be not credible. The court found that the insured's notice to its own broker did not constitute notice to Nova or its agent, and held:
It is also clear that notice of loss to the insurance company eight months after the occurrence does not comply with the prompt notice requirement of the policy. Notice as little as 22 days after the event causing the loss has been held to be unreasonable delay as a matter of law. * * *

The reason why an opportunity for inspection is important to the insurer is demonstrated by this case. Patrick Vakharia and other people on the scene shortly after the flood have given differing explanations of the cause of the flood: broken pipes, loose pipes, sump pumps turned off, springs on the hill behind the property causing water in the basement or a leaking toilet (Freitag Affidavit, Paragraphs 13-15 and Exhibits H, M, T. and G, pp. 69-73). If the water in the basement was caused by water run off or seepage or sewer backup it is not covered under the policy. (Freitag, pp. 7-8 and Exhibit B, p. 12, paragraph 6). Without the opportunity to inspect the property at the time of the flood the insurance company cannot determine the cause for itself to decide if the cause is a covered peril, or to defend itself.
In upholding Nova's denial based on the insured's failure to preserve the damaged property for Nova's inspection, the court held:
Compliance by plaintiff with the requirement to preserve the damaged property for inspection by the insurer is a condition precedent to recovery on the claim. When it is not done, the complaint must be dismissed. Seaport Park v Greater N.Y. Mut. Ins. Co., 39 AD3d 51 (1st Dept. 2007); Sulner v G.A. Ins. Co., 224 AD2d 205 (1st Dept. 1996); Argo Corp. v Greater NY Ins. , supra.
The court also granted the agent's motion for summary judgment, finding that there was not contract or legal relationship between the plaintiff and Nova's agent.

Wednesday, August 20, 2008

No Limitations Placed on Non-Party Deposition of Treating Doctor

State Farm Mutual Auto. Ins. Co. v. CPT Medical Services, P.C.

(EDNY, decided 7/22/2008)

State Farm brought this action against 47 defendants, alleging that it was defrauded when defendants CPT Medical Services, P.C., Hoss Medical Services, P.C., Channel Diagnostics, P.C., and East-Way Chiropractic, P.C. performed medically unnecessary diagnostic current perception threshold tests ("CPT tests") on patients covered by State Farm insurance, and then submitted bills to State Farm for those tests with fraudulent documentation purporting to support the medical necessity of those tests. State Farm also alleged that the defendants who performed the CPT tests, Drs. Huseyin Tuncel and Andrew Susi, owned and operated the Defendant Medical Corporations in name only, when in fact they were secretly owned and operated by layperson Richard Weinstein through defendant management companies Richard's Medical Management Corp. and Weinstein Healthcare Management, Inc. in violation of New York law requiring medical corporations to be owned by licensed physicians. To carry out their fraudulent scheme, Weinstein and the Weinstein Entities allegedly paid kickbacks to either the treating physicians or other lay persons who controlled the medical corporations in order to obtain patient referrals and letters of medical necessity that they submitted to State Farm to bolster their claims.

State Farm subpoenaed Dr. John McGee, a non-party, to appear for a deposition on April 1, 2008. It claimed that Dr. McGee was one of the treating physicians who ordered CPT tests from the Defendant Medical Corporations. He was also the principal of two non-party medical corporations, Ostia Medical and Wexford Medical, that allegedly billed State Farm for medically unnecessary CPT tests and submitted fraudulent supporting documentation almost identical to that submitted by the Defendant Medical Corporations. State Farm asserts that Dr. McGee's deposition was necessary to:
provide direct testimony about why CPT Tests billed by the CPT Medical Defendants were performed, the basis for certain statements about CPT Testing that State Farm alleges were fraudulent, and the conduct of named defendants in the case, including the CPT Medical Defendants, the Weinstein Entities, Richard Weinstein, Huseyin Tuncel, Andre Susi, Yan Moshe and Dr. Riaz Ahmad.
Dr. Gee moved to quash that subpoena, based on his belief that at his deposition State Farm would question the propriety of his medical practice and whether he violated any rules of professional conduct. Dr. McGee asserted that State Farm has in the past used depositions of other physicians to "intentionally seek[] out information of professional misconduct in order to report the doctors to state authorities," thereby gaining the added benefit of "being able to deny all pending and future insurance claims from those doctors." Dr. McGee contended that he should be afforded a qualified privilege not to answer questions regarding his medical practice because if he were subjected to similar questioning from a professional disciplinary committee he would be given notice of the claims against him, given time to prepare a defense, and granted a hearing.

The magistrate judge overseeing discovery denied that motion, holding:
The court declines to stay Dr. McGee's deposition and directs Dr. McGee to answer all questions that are relevant to the claims and defenses of the parties to this action or that are likely to lead to the discovery of admissible evidence. Dr. McGee has not demonstrated the existence of any privilege that would allow him to avoid answering relevant questions that might put his medical license at risk. Dr. McGee's assertion that disciplinary proceedings may be commenced against him as a result of his deposition testimony are speculative at this time, nor has he shown that he would not be afforded due process in any disciplinary proceedings against him.
District Court Judge Leo Glasser upheld the magistrate's ruling:
With respect to Dr. McGee's deposition, there is no authority for limiting depositions based on mere speculation that some questions might put the witness at risk of appearing before a professional disciplinary committee. Dr. McGee is not protected by any privilege, and as such must answer all relevant questions regarding his relationships to defendants and the submission of claims for CPT tests as they relate to State Farm's allegations.
State Farm had also served subpoenas on the Bank of America and Morgan Stanley for financial documents related to Weinstein and the Weinstein Entities to determine how the alleged kickback payments were made. The Weinstein defendants moved to quash the bank subpoenas, arguing that the subpoenas were overly broad, missing return dates, and that State Farm should not be permitted to pursue its own discovery when it had failed to properly respond to the Weinstein defendants' discovery demands.

The magistrate judge denied the motion to quash, and the district court upheld that decision:
The Court is also not aware of any authority that would allow the Weinstein defendants to quash State Farm's subpoenas to the Banks based on the alleged noncompliance by State Farm with discovery requests. Moreover, that objection is now moot pursuant to Judge Matsumoto's finding on July 7th that State Farm has fulfilled its discovery obligations. See Docket Minute Entry dated July 7, 2008. Defendants' objection based on the procedural defects of the subpoenas, namely that they were missing relevant return dates, is also moot because those defects have since been corrected by Plaintiff, as noted in Judge Matsumoto's Memorandum & Order. Thus, the Court finds that, with Judge Matsumoto's directive to add temporal limits in accordance with the dates set out in the Amended Complaint, the subpoenas are tailored to produce relevant evidence directed at whether the Weinstein defendants made kickback payments to the other defendants, and if they did, how those payments were made.

Tuesday, August 19, 2008

Injunctive Relief Granted in Mallela-Type Action

One Beacon Insurance Group, LLC v. Halima

(Sup. Ct., Suffolk Co., decided 7/15/2008)

OneBeacon, AutoOne and General Assurance brought this Mallela-type action against three groups of defendants, the Halima defendants, the Minick defendants and the Glassman defendants, alleging that all the various defendants and entities had engaged in a systematic scheme to defraud OneBeacon by submitting bills for reimbursement of no-fault related services allegedly rendered to individuals involved in automobile accidents. One Beacon contended that the named individual defendants who are physicians sold their names and allowed the use of their medical licenses to form the related professional corporations also named as defendants for the sole basis of obtaining benefits from OneBeacon, among others. OneBeacon alleged that the professional medical corporations were actually created and owned by laypersons, chiropractors and a now disbarred attorney. All but defendant Mark Slamowitz of the Halima defendants defaulted.

Claiming that it was currently litigating claims by the defendants in excess of $456,682.11, OneBeacon moved for injunctive relief seeking to stay all current and future no-fault proceedings against the defendants as well as payments pending resolution of this lawsuit. The Minick defendants moved to dismiss various causes of action of the complaint, including ones for declaratory relief (1st and 2nd), fraud (3rd), punitive damages (4th) and unjust enrichment (5th), based on the asserted failure of the complaint to state valid causes of action. Defendant Slamowitz also moved to change the action's venue from Suffolk County to Kings County.

On OneBeacon's motion for injunctive relief, Suffolk County Supreme Court Justice Peter Fox Cohalan ruled:
The plaintiff has established irreparable harm, likelihood of ultimate success on the merits and that the balancing of the equities lies in their favor. Trimboli v. Irwin, 18 AD3d 866, 796 NYS2d 659 (2nd Dept. 2005). However, because preliminary injunctive relief is an equitable remedy, the award of such relief is not only discretionary with this Court, but may be tailored to protect the interests of all the parties. See, Paddock Construction LTD. v. Automated Swim Pools. Inc., 130 AD2d 894, 515 NYS2d 662 (3rd Dept. 1987); Antinelli v. Toner, 74 AD2d 996,427 NYS2d 99 (4th Dept. 1980) appeal after remand, 78 Ad2d 576,432 NYS2d 421. Therefore, as to the defaulting defendants named, injunctive relief is granted without opposition; as to those defendants appearing in this action, the injunctive relief sought is granted unless these defendants present and file with the plaintiff, the corporate documents establishing a licensed medical professional is the owner, operator and in principal control of the corporation seeking reimbursement of no-fault benefits provided. A failure to so provide the corporate documents, resolutions and identity of the officers of the corporation seeking benefit payments will continue the injunction as to all defendants failing to provide such proof. The defendants are directed to provide to the Court copies of all documents identifying the principals in control of the various entities seeking payment for benefits provided under the no-fault provisions. The defendants are granted leave to renew their objections to injunctive relief if they have been unfairly denied reimbursement after having provided the documentation and proof required by this order. See, CPLR § 6314. The plaintiff is directed to file an undertaking in the amount of $100,000.00 pursuant to CPLR § 6312 (b).
Justice Fox Cohalan denied the Minick defendants' motion to dismiss the complaint based on their argument that the complaint failed to state valid causes of action:
CPLR § 3016 requires an action sounding in fraud to be pled with particularity and to set forth sufficient detail to clearly inform the defendant with respect to the incidents complained of. The plaintiff has set forth in detail that the named defendants and the corporations controlled by them are but shell corporations in the name of licensed medical physicians but are actually owned and controlled by nonlicensed non-medical individuals, such as Michael Scott Minick, a chiropractor, using the “dummy” corporations to bill the no-fault carrier for services allegedly not performed or performed contrary to law. The plaintiff provides an affidavit from Halima, a defaulting defendant and a cooperating one, as well as an affidavit from Nichole Matthews, an investigator for Autoone Insurance Company, that Halima, among others, sold his name to non-licensed non-medical professionals to incorporate “dummy or shell” corporations owned and controlled by others but carrying a licensed physician’s name to provide no-fault services which were billed to the named plaintiff seeking reimbursement for these no-fault services. While there may be some missing details, the New York Court of Appeals has held that the misconduct of the defendants complained of must be shown in some detail but particularity and/or specific conduct may await further discovery where it is impossible at this stage of the proceedings to detail the fraud.
* * * * *
As to the 4th cause of action sounding in punitive damages, the courts have long recognized that punitive damages are warranted where the conduct of the party being held liable evidences a high degree of moral culpability, where the conduct is so flagrant as to transcend mere recklessness or where the conduct constitutes wilful or wanton negligence or recklessness. * * * Since the plaintiff alleges in its complaint the commission of a tort in the nature of a fraud, independent of any contractual claim, the cause of action alleging punitive damages is proper. * * *

A review of the plaintiff's complaints and submissions demonstrates sufficient claims and principles well recognized in the New York Court of Appeals' decision in State Farm v. Mallela, supra, that there is no entitlement to no-fault reimbursement for a fraudulently incorporated medical corporation and the failure of the defendants to cooperate into a full airing of the underlying ownership and control of the various corporate entities by the individual defendants named is subject to the relief requested if established. For those reasons, the motion to dismiss the 1st and 2nd causes of action seeking declaratory judgment relief is denied.
Finally, the court denied defendant Slamowitz' motion to change venue to Kings County, finding that Suffolk County was a proper venue because OneBeacon maintains an office there, defendant Slamowitz failed to make a timely demand or motion to change venue, and failed to establish the identity of the witnesses of the movant who allegedly will be inconvenienced, their willingness to testify and the nature of their anticipated testimony.

Antisubrogation Rule Bars Subrogation Claim Against Subtenant

Utica Mut. Ins. Co. v. Jan's Euro Motors, Inc.

(Sup. Ct., Suffolk Co., decided 7/18/2008)

Interesting case. Perhaps one of first impression in New York.

Commack Auto Collision subleased space to Jan's Euro Motors within a building that Commack leased on Jericho Turnpike in Commack, New York. A rider to the sublease required Commack, the overtenant landlord, to maintain fire and hazard insurance coverage with extended coverage on the premises, and that the undertenant (Jan’s) was to pay its pro rata cost of this insurance as additional rent. In particular, that rider required Jan’s to pay $75.00 per month as an additional rent “representing its pro rata share of the fire insurance premium for the building[.]”

On April 6, 2003, a fire caused damage to the building and its contents. Utica Mutual paid $343,402.74 in fire damages and commenced this subrogation action as subrogor of Commack against Jan's and its owner, alleging that Jan's negligence caused the fire. Jan's moved to dismiss the complaint based on its argument that because it made pro rata payments under the sublease for fire insurance and Commack was required to maintain the insurance on Jan’s behalf, the antisubrogation rule barred Utica's subrogation claim against it.

Utica, of course, argued that the policy listed only Commack, and not Jan's, as an insured. Suffolk County Supreme Court Justice Peter Fox Cohalan prefaced his decision by noting that "[t]he issues to be determined in this motion are whether Jan’s is an 'insured' under the facts of this case, and whether or not subrogation is precluded against Jan’s by Utica." The court also noted that "[n]o case on point has been found on the very issue presented in this action", before holding:
In the instant action, the sublease agreement required the overtenant landlord (Commack) to maintain fire and hazard insurance coverage with extended coverage of the Premises, and the undertenant (Jan’s) paid its pro rata cost of this insurance as additional rent. It is clear that the intent of the parties was that Commack was to obtain insurance on behalf of Jan’s. In support of this motion, Utica submitted the report of its investigation into the April 6, 2003 fire, which contained the results of the interview with Jim Young (hereinafter Young), the owner of Commack. Young stated that Jan’s lease called for the premium payment on the Traveler’s Group policy insuring the overall building. Based upon the foregoing, although not individually named on the policy, Jan’s is deemed to have been an insured under the policy at issue in that it paid its pro rata share of the premiums and it is undisputed that the loss occurred on the premises at 2153 Jericho Turnpike, Commack, New York, where Jan’s was doing business. Although Commack did not separately name Jan’s in the policy as an insured, it did specifically list the address of the premises to be covered by the policy obtained by Commack, including that section of the building occupied by Jan’s.
With respect to the antisubrogation rule, the court ruled:
In that the sublease agreement is clear on its face that Commack was procuring insurance on the premises being sublet by Jan’s, and that money for the insurance premium was collected on a pro rata basis by Commack who failed to specifically name Jan’s on the policy, it would appear that a conflict would arise if Commack tried to make a claim against Jan’s for the damage which Utica claims was caused by Jan’s alleged negligence. Commack does not claim any out of pocket expenses as a result of the property damage, and therefore has no indemnification claim either in its own right against Jan as indemnification does not arise until the indemnitee has actually sustained a loss (See, Bay Ridge Air Rights v State of New York, 44 NY2d 49, 404 NYS2d 73 [1978]). The Court finds that the language of the sublease agreement shows that Jan’s was intended to benefit from the insurance being procured by Commack who failed to add Jan’s to the policy as an additional insured. Thus Utica is attempting to benefit from its insured’s failure to name Jan’s as an insured on the policy when Jan’s was paying the premium for its pro rata share. Had Jan’s been named on the Utica policy, there would be no issue as to Utica being precluded by the antisubrogation rule.

* * * * *

Based upon the foregoing, the Court finds that Commack, as subrogor, was required to provide the insurance on behalf of Jan’s which paid its pro rata share of insurance premiums, and that Utica stands in the shoes of its insured, Commack, and is therefore barred by the antisubrogation rule from asserting a subrogation claim against Jan’s as Jan’s was indirectly insured by Utica who insured the entire premises.
The decision's reference to a "Travelers Group policy" makes it sound like Travelers insured the building, for which Jan's made monthly pro rata payments, and Utica Mutual insured the business personal property within. It is unclear whether Jan's additional rent for pro rata insurance costs was for the building owner's policy with Travelers, or for Commack's policy with Utica Mutual. Nonethess, it is remarkable that the court deemed Jan's to be an "insured" under Commack's policy with Utica Mutual, protected by the antisubrogation rule, simply because it contributed to the property's fire insurance costs. Instead of arguing that it was an "insured" under Utica's policy, perhaps Jan's should have defended the subrogation action by arguing that Commack's breach of its promise to procure insurance for Jan's effectively barred Utica's subrogation action. Not quite the antisubrogation rule, but the same outcome. With over $300,000 at stake, Utica Mutual will probably appeal this decision, and we'll get to see what the Second Department thinks.

Sunday, August 17, 2008

Court Reverses Jury Verdict for Injured Parties on Late Notice DJ Trial

Kiladze v. Countrywide Ins. Co.

(Sup. Ct., New York Co., decided 7/14/2008)

Under New York's Insurance Law, injured parties have an independent right to notify the tortfeasor's liability insurer, but they must act with due diligence to: (1) identify that insurer; and (2) promptly place it on notice once they learns its identify. In this case, although the plaintiffs convinced a jury that they had acted with such diligence, the trial judge disagreed and granted Countrywide's CPLR § 4401 post-trial motion to set aside the verdict.

In setting aside the jury's verdict, New York County Supreme Court Justice Nicholas Figueroa held:
Neither plaintiff nor her attorney provided any explanation of why they waited seven months before giving notice to Countrywide. Therefore, as a matter of law, Countrywide is entitled to judgment dismissing plaintiff’s complaint (St. Nicholas Cathedral of the Russian Orthodox Church In North America v. Travelers Properly Casualty Insurance Company, 45 AD3d 411).

Nor is there legally sufficient evidence in the record to sustain the jury finding that plaintiff and her attorney took reasonable measures to learn that Countrywide was the insurer. Kiladze’s attorney made no attempt to obtain the information from the Department of Motor Vehicles. Rather, he relied on information that he knew came from plaintiff herself, without taking any measurers [sic] to determine if the information was correct. The attorney did not receive any confirmation from Progressive that it was the insurer subsequent to his contact with that carrier; thus, he could not have reasonably believed that Progressive was the carrier. Given the complete lack of proof that either plaintiff or her attorney made reasonable efforts to learn that Countrywide was the insurer, the jury's finding to the contrary was not supported by legally sufficient proof (American Home Assurance Company v. State Farm Mutual Insurance Company, 277 AD2d 409, 410).

Nor is there any merit to plaintiff's contention that she is entitled to recover against Countrywide because it did not timely disclaim coverage. Countrywide's April 13,2000 disclaimer was effective against her (Schlott v. Transcontinental Insurance Company, 41 AD3d 339, 340). That disclaimer, issued only seven days of the Vasquez complaint, as well as the June 29, 2000 disclaimer, sixteen days after receiving the papers from attorney Blau, were timely, as a matter of law (Nationwide Insurance Company v. Lukus, 264 AD2d 778, 779).
From the court's decision, it appears plaintiff's attorney failed to take relatively simple steps to determine Countrywide's identity and then promptly place it on notice, including writing to the New York State DMV to gain the identity of DLM Trucking's insurer.

New York Coverage 2007-2008 Annual Seminar

If you've clicked on the link to my résumé under my profile to the right, you know that my office has been offering an all-day coverage seminar annually to insurance professionals and service providers since 1996.

We're one month away for this year's seminar, to be held on Thursday, September 18, 2008, in Amherst, New York.

In an interactive and fast moving program, we "do" property in the morning and casualty/liability in the afternoon, with afternoon breakout sessions in HO/GL, Auto and No-Fault. We are an approved CLE provider with the New York State Bar Association for any attorneys who are employed by insurance companies.

Because this is a free seminar (i.e., we foot the bill), we must limit it to insurance professionals (claims, underwriting, sales), self-insureds, and service providers to property and casualty insurers.

If you did not already receive an email invitation and would like to register for this program, click on the invitation image or register on Mura & Storm's website by clicking here. Or email this post to others who might be interested in attending. We reserve the right to decline your registration if you are not either employed by an insurer or self-insurer or provide services to insurers and their insureds. You understand.

We offer a double money-back guarantee for anyone who finds the experience and education not worth spending a day or half day away from your desks or work spaces.

Hope to see some new faces in September. Not that there's anything wrong with the old ones, of course.

Courts Itself Raises and Disqualifies Defense Counsel of Driver & Lessor Based on Conflict of Interest

Graca v. Krasnik

(Sup. Ct., Kings Co., decided 7/28/2008)

Since August 10, 2005, the "Graves Amendment" has provided vehicle lessors with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits. In this case, defense counsel's motion to dismiss this action against co-defendant Honda Lease Trust not only was unsuccessful, but prompted the motion court, sua sponte (of its own accord), to disqualify Allstate's staff counsel from representing both defendants in this action.

Plaintiff allegedly was injured in a motor vehicle-pedestrian accident and brought this personal injury action against the vehicle's driver, Krasnik, and owner, Honda Lease Trust. The complaint did not allege that Honda Lease Trust was the vehicle's lessor. Allstate appointed staff counsel to defend both defendants, and counsel moved to dismiss the action against Honda Lease Trust based on the Graves Amendment (49 U.S.C.A. § 30106). During oral argument, Kings County Supreme Court Justice Wayne Saitta raised the question of whether it was a conflict for defendants' attorney to represent both the driver and the owner where they were moving to dismiss against the owner only.

Defense counsel did not argue that no conflict existed but that because of the Graves Amendment, any concern about a conflict of interest was moot because that statute relieves a leasing company from vicarious liability as a matter of law. In opposition to the motion to dismiss, plaintiff argued that she did not allege that Honda was the lessor of the vehicle nor did Honda annex to its motion any documentation, a lease or affidavit from a person with knowledge, which would substantiate that claim. Plaintiff did not submit any written position as to the conflict of interest issue as it was raised by the court at oral argument.

In denying Honda's motion to dismiss the action based on the Graves Amendment, Justice Saitta held:
The police accident report annexed to Defendants' motion lists the owner as "Honda Lease Trust". The complaint alleges Honda was the owner of the vehicle Krasnik was driving, and that Krasnik was driving the vehicle with the "consent and permission of its owner, express or implied". Nothing further is stated or submitted as to the relationship between the Defendants.
Defendants, in their motion, assert that the Graves Amendment provides a basis for dismissal against Honda but they fail to provide any admissible evidence to demonstrate Defendants had a lessor/lessee relationship. Also Defendants provide no affidavit of a person with personal knowledge attesting that Honda Lease Trust is in the business of leasing cars. Although, Defendants, in reply submit a largely illegible copy of a lease, that lease appears to indicate a party other than Honda Lease Trust as lessor. Defendants fail to show that there are no questions of fact as to whether they are a lessor or in the business of leasing cars, accordingly summary judgment must be denied.
With respect to the court's own concern about defense counsel's conflict of interest in representing both Krasnik and Honda, Justice Saitta ruled:
The Court has raised sua sponte whether it is a conflict for Defendants' attorney to represent both the driver and owner where the attorney moved to dismiss the action against the driver pursuant to the Graves Amendment. While the motion was made by the attorney for both Defendants, no affidavit in support from the driver was included and it is unclear that he gave informed consent to the motion.
* * * * *
Defendants' attorneys do not argue that no conflict exists but that because of the Graves Amendment, any concern about a conflict of interest is moot because legislation relieves a leasing company from vicarious liability as a matter of law.
However, the mere assertion of a Graves Amendment defense does not mean there are no questions of fact as to whether the Amendment applies. A party asserting the defense must show they are engaged in the business of leasing vehicles. Also, the Amendment is only a defense to vicarious liability, so a defendant must also demonstrate that there was no negligence on their part.
Furthermore, 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. Defendants' attorneys cannot zealously represent both Defendants where they seek dismissal of the claims against one of the defendants they represent while the other has no independent advocate to oppose the motion which would result in their shouldering full liability.

* * * * *
The conflict exists at the point the attorney recognizes that one of their two clients may have a Graves Amendment defense.
* * * * *
Here, the issue giving rise to the conflict of interest, the dismissal of the claim against one defendant shifting liability to the other, rises to a level that full disclosure and consent would not cure. The driver has the right to an advocate who will zealously investigate and assess whether there is a basis to contest the applicability of the Graves Amendment, and if so, vigorously oppose the defense.
This Court has the authority to raise this issue sua sponte, despite the relief not having been sought by either party. Indeed, the Court has an obligation to intervene where it recognizes a possible conflict in a case before it.
Accordingly, Defendants' [sic] cannot be adequately represented by the same counsel where counsel seeks to have all liability dismissed as to Honda, leaving Defendant Krasnik without an independent opportunity to resist that motion. Separate counsel must be provided to Defendant Krasnik.
I don't agree with this decision. Lessors typically are named as additional insureds on personal auto policies and frequently consent to allow the lessee's personal auto insurer to defend both with single counsel. What Justice Saitta didn't realize or discuss is the potential of a cross claim by the lessor against the lessee/driver for indemnification. Moving to dismiss a Vehicle & Traffic Law § 388 claim against the lessor does nothing to increase the lessee's/insured's exposure to damages. If a conflict of interest exists in these situations, it exists at inception of the defense, not when defense counsel decides to make a summary judgment motion based on the Graves Amendment.

Nevertheless, if a personal auto insurer wished to avoid any argument over its appointed defense counsel's conflict of interest, I suppose it could appoint separate counsel for the lessor and immediately make a motion -- one supported by adequate evidentiary proof -- for summary judgment based on the Graves Amendment.

To read most posts about New York cases involving the Graves Amendment, click here.   

Friday, August 15, 2008

Unconsented Settlement with Second Tortfeasor for Less Than Full Policy Voids SUM Coverage

Matter of Central Mut. Ins. Co. v. Bemiss

(3rd Dept., decided 8/14/2008)

After Bemiss was injured in a multicar accident, she negotiated a settlement with one of the tortfeasors for the full amount of that tortfeasor's liability insurance policy. She then gave written notice of her intent to enter into this settlement to Central Mutual, which had issued her an insurance policy with supplementary uninsured/underinsured motorist (SUM) coverage, but Central Mutual did not respond. Later, she agreed to settle with a second tortfeasor for less than that tortfeasor's policy limits without first giving any notice to, or obtaining written consent from, Central Mutual. Bemiss ultimately signed releases for both tortfeasors that made no provision for preserving Central Mutual's subrogation rights. When she then made a claim for SUM benefits, Central Mutual disclaimed coverage based upon her failure to either obtain its consent to the settlements or take steps to preserve its subrogation rights. Bemiss then demanded arbitration of her SUM claim, and Central Mutual commenced this CPLR article 75 proceeding to permanently stay arbitration. Supreme Court granted Central Mutual's application and Bemiss appealed.

In a 4-1 decision, the Third Department, Appellate Division, AFFIRMED the motion court's order granting a permanent stay of SUM arbitration. With respect to Bemiss' settlement with the first tortfeasor, the majority ruled that since Bemiss gave timely notice of her intention to settle with that tortfeasor and Central Mutual did not advance the settlement amount, the policy permitted Bemiss to settle with that tortfeasor without Central Mutual's consent (the "30-day okay or pay rule").

With respect to the Bemiss' settlement with the second tortfeasor, however, the majority found that Bemiss did not comply with policy conditions, thereby voiding her entire claim for SUM benefits:

We reach a different conclusion as to respondent's argument that her settlement with the first tortfeasor for that party's policy limits relieved her of the obligation to either obtain petitioner's written consent to her settlement with the second tortfeasor or preserve petitioner's subrogation rights in the release given to that tortfeasor. While paragraph 9 of the policy makes clear that respondent was obligated to fully exhaust the policy of only one of the tortfeasors involved in her accident (see S'Dao v National Grange Mut. Ins. Co., 87 NY2d 853, 854-855 [1995]), that same provision does not excuse a failure to comply with paragraph 10 upon settling with another tortfeasor. Unlike the settlement with the first tortfeasor, paragraph 10's first sentence is not applicable to respondent's settlement with the second tortfeasor because the latter was not for the full policy amount. As a result, only the last sentence of paragraph 10 applies here. That sentence provides: "An insured shall not otherwise settle with any negligent party, without our written consent, such that our [subrogation] rights would be impaired." We do not view this sentence to be limited to where a party seeks in the first instance to settle for the full available policy limits of one tortfeasor. Rather, its function is to make clear that the method described in the first sentence of paragraph 10 is the one and only way to enter a settlement with "any negligent party" which impairs petitioner's rights without its consent. There is no dispute that respondent failed to obtain petitioner's consent or reserve petitioner's subrogation rights against the second tortfeasor here.

Our reading of paragraph 10 will not have the effect of discouraging settlements by, as respondent contends, holding her hostage to petitioner's subrogation rights and forcing her to fully litigate any claims that she might have against any and all tortfeasors. That effect would occur only if the insured were required to exhaust the policies of all tortfeasors either before or after receiving SUM benefits. However, since the amendment of the applicable regulation (see 11 NYCRR 60-2.3 [f]) in 1993 and the Court of Appeals holding in S'Dao v National Grange Mut. Ins. Co. (supra) in 1995, it has become clear that insureds need only exhaust the policy or policies of a single tortfeasor (see Dachs and Dachs, Insurance Law, NYLJ, Sept. 13, 2005, at 3, col 1). Thus, there is no longer any requirement in the regulations or the policy language that the insured pursue litigation or settle the claims that it might have against additional tortfeasors in order to qualify for or retain SUM benefits. While it is true that our reading of paragraph 10 precludes the insured from entering a second settlement that impairs subrogation rights without the insurer's consent, it nonetheless encourages an initial settlement with one tortfeasor and expedites the receipt of SUM benefits while protecting the insurer's subrogation rights to recoup the benefits paid from other tortfeasors. There can be little doubt that such was the intent of the applicable regulations (see Dachs and Dachs, Insurance Law, NYLJ, Sept. 13, 2005).

The dissenting justice asserted that the effect of the majority's ruling "is to discourage settlements in this type of litigation and to invite indeed command a plaintiff's counsel to fully litigate any and all personal injury claims that it might have against any and all tortfeasors. Clearly, this is not the result that was intended by the Legislature when it enacted these provisions and, in my view, it constitutes a waste of precious judicial resources. * * * Finally, respondent should not, in my view, be penalized because she had the misfortune to be involved in an accident that involved more than one wrongdoer. Had she only brought suit against the primary tortfeasor and settled against him under precisely the same circumstances while forgoing her right to sue others that were involved in this accident, respondent would clearly have been entitled to make this claim under her SUM policy. As a result, I would reverse and deny petitioner's application to stay arbitration. "

Post Script (July 7, 2009) ~~ The Court of Appeals AFFIRMED this decision on June 25, 2009. Read about it here.

Wednesday, August 13, 2008

Circular Letter No. 18 (2008) -- Re: Flood Insurance Notice Required by Section 3444 of the New York Insurance Law

I posted on flood insurance back on June 15th. Coincidental with the very rainy weather we've been experiencing during what may loosely be called this summer, and in response to the recent amendment of Insurance Law § 3444, applicable to all homeowners and dwelling fire personal lines policies issued or renewed on or after August 31, 2008, the New York State Insurance Department today issued Circular Letter No. 18 of 2008.

Effective August 31, 2008, every insurer must provide an annual notice (rather than only at policy inception) prescribed or approved by the Superintendent to all homeowner and dwelling fire insureds that explains that: (a) their policies do not provide coverage for loss caused by flood or mudslide; and (b) flood insurance is available under separate policies issued pursuant to the National Flood Insurance Program. The notice also must include information regarding flood insurance eligibility and access, and must be worded in a manner that does not alarm insureds or entice them into purchasing unnecessary coverage.

Here's the flood insurance notice that the Superintendent of Insurance has prescribed:

Your homeowners or dwelling policy does NOT provide coverage for loss caused by flood or mudslide, which is defined, in part, by the National Flood Insurance Program as:

A general and temporary condition of partial or complete inundation of normally dry land areas from overflow of inland or tidal waters or from the unusual and rapid accumulation or runoff of surface waters from any source.

If you are required by your mortgage lender to have flood insurance on your property, or if you feel that your property is susceptible to flood damage, insurance covering damage from flood is available on most buildings and contents in participating communities through the National Flood Insurance Program.

Information about flood insurance and whether your community participates in the program can be obtained from your insurance company, from your insurance agent/broker, or directly from the National Flood Insurance Program by calling 1-800-638-6620 or via their website at

Third Citing of Bi-Economy

It's been a while, but we have our third citing of the Court of Appeals' February 2008 Bi-Economy holding, this time in a Kansas federal court case.

In United States Fire Ins. Co. v. Bunge North America, Inc., Case No. 05-2192-JWL (USDC Kansas, decided 8/4/2008), an environmental pollution coverage case decided under New York law, US District Court Judge John Lungstrum held:
Bunge insists that it may pursue a claim for consequential damages under New York law based on Travelers's breach of good faith. Indeed, only this year, in Bi-Economy Market, Inc. v. Harleysville Insurance Company of New York, 10 N.Y.3d 187, 886 N.E.2d 127 (N.Y. 2008), the New York Court of Appeals permitted an insured to pursue a claim for consequential damages, including the demise of its business, based on the insurer's breach of its implied contractual duty of good faith and fair dealing in light of evidence that such a claim was reasonably foreseeable and within the contemplation of the parties at the time of contracting. See 10 N.Y.3d at 196; see also Panasia Estates, Inc. v. Hudson Ins. Co., 10 N.Y.3d 200, 203, 886 N.E.2d 135 (N.Y. 2008) (companion case to Bi-Economy). In its summary judgment briefing, Travelers did not argue that a claim for consequential damages was not reasonably foreseeable or within the contemplation of the parties when the policies were issued. Accordingly, Travelers has not shown at this stage as a matter of law that Bunge may not pursue a claim for consequential damages based on the allegation (litigated within the context of its primary breach-of-contract claim) that Travelers breached its implied duty of good faith and fair dealing.FN 13
FN 13 In its response brief, Bunge pointed to various acts by which Travelers allegedly breached its duty of good faith. Bunge's allegations concerning Travelers's failure to pay its coverage claims and its failure to investigate adequately provide proper bases for the claim recognized in Bi-Economy as well as Bunge's claim for attorney fees. Travelers's alleged conduct in breaching separate agreements with Bunge concerning defense costs are properly litigated only in a separate action for breach of those agreements, and Bunge's breach-of-good-faith claim in this case may not rest on such allegations. Similarly, Bunge's allegations concerning Travelers's litigation tactics in this case do not provide a proper basis for a claim that Travelers breach its duty of good faith in performing its obligations under the policies. See Fed. R. Civ. P. 56(d)(1).
Not sure this adds anything to the progeny of Bi-Economy. It appears that Travelers did not vigorously oppose Bunge's claim for consequential damages based on Bi-Economy and Travelers' alleged breach of its good faith duty to investigate and pay covered claims. What is somewhat notable, or at least interesting, is the citation to Bi-Economy in a commercial liability coverage case.

Tuesday, August 12, 2008

Validity & Amount of Garageman's Lien Determined -- Part II

Matter of GMAC v. ACME Towing Inc.

(Sup. Ct., Albany Co., decided 8/7/2008)

In Part I of this special proceeding to determine the validity and amount of respondent's garageman's lien on a 2002 Cadillac initially towed on December 23, 2005, Albany County Supreme Court Justice Joseph Teresi had directed the parties to submit additional proof on the questions of whether ACME was a "duly registered motor vehicle repair shop", whether it released possession of the vehicle back to the vehicle's owner, or whether ACME and the owner were colluding in submitted a "bogus lien claim." ACME claimed that its lien totaled $14,395.22, as of January 12, 2008, and continued to accrue storage charges.

To prove to claim a valid lien under New York Lien Law §184, a lienor is required to establish four elements: (1) the garage is the bailee of a motor vehicle; (2) it has performed garage services or stored the vehicle with the vehicle owner's consent; (3) there was an agreed upon price or, if no agreement on price had been reached, the charges are reasonable for the services supplied; and (4) the garage is a duly registered motor vehicle repair shop as required under article 12-A of the Vehicle and Traffic Law.

In Part I, Justice Teresi found that ACME had established the first three of these four elements. On the question of whether ACME was a duly registered motor vehicle repair shop, the court found:
ACME submitted a copy of its "Tow Truck Funded" type license, which was issued on "6/20/05" and expired on "12/31/05". No extension of such licence or additional licenses were provided. ACME's president alleges that such license was in effect at the time "the services were performed herein", but fails to specify the services he is referring to. Petitioner submitted no factual proof to discredit the license submitted. Accordingly, the court finds that ACME's license authorized it to both tow the vehicle on December 23, 2005 and store the vehicle until December 31, 2005.

While ACME has proven that it was duly licensed/registered at the time of its initial towing and storage of the vehicle, no proof is submitted that the registration continued in effect past December 31, 2005. Rather, the only proof submitted by ACME shows their license expired December 31,2005, eight days after it towed the vehicle. Because a lien only inures to the benefit of a registered motor vehicle repair shop, ACME's lien accrued storage charges only for that portion of time ACME was duly licensed/registered.

* * * * *

ACME proved it was registered at the time it towed the vehicle and for eight days of its storing the vehicle. In accord with ACME's agreement with the owner of the vehicle, and Lien Law §184, ACME is entitled to a lien for towing and storage of the vehicle from December 23, 2005 to December 31, 2005.

Accordingly, ACME's lien against the vehicle amounts to $211.82 (Tow fee and First day of Storage - $80 + Second and Third Day of Storage $30 + Fourth through Eighth Day of Storage
$85 + Tax at 8.625%).
With respect to ACME's additional charges for "services performed", Justice Teresi ruled that ACME did not support the validity of the lien claimed "nor is it properly raised in this special proceeding under Lien Law §201-a."