Tuesday, September 30, 2008

Claim First, Sue Second -- No Justiciable Controversy Where No Breach

King's Gym Complex, Inc. v. Philadelphia Indem. Ins. Co.
(2nd Cir. US Ct. Apps., decided 9/15/2008)

When running up against a policy's two-year suit limitations period, may an insured sue its insurer before making a claim? The Second Circuit, United States Court of Appeals, says no.

King's Gym Complex sued its commercial property insurer in federal court for business income loss coverage before actually filing a claim with the company. The complaint asserted a breach of contract cause of action. Philadelphia Indemnity moved to dismiss the complaint based on the court's lack of subject matter jurisdiction, contending that there was no justiciable controversy for the court to adjudicate.

In AFFIRMING the District Court's granting of Philadelphia's motion, the Second Circuit Court of Appeals agreed with the lower court's reasoning that since King's Gym had not submitted a business loss claim to Philadelphia prior to suing, Philadelphia could not have breached its duty under the policy to honor such a claim, and King's Gym could not assert a claim in federal court based upon such an alleged breach. The Second Circuit also rejected King's Gym's argument that it should be allowed to maintain a suit, even though no justiciable controversy yet existed because otherwise it would be time-barred.

King's Gym argued that the policy did not require it to file a claim before suing, and Philadelphia had not requested that it file a proof of loss on its business income loss claim. The Second Circuit also rejected this argument, holding:
As to the question of its filing a business loss claim with Philadelphia, King's Gym argues that the policy does not explicitly require it to "file a claim" before filing suit against Philadelphia unless Philadelphia had previously requested King's Gym to submit a proof of loss, which Philadelphia did not do. Although the language of the policy between King's Gym and Philadelphia is unclear regarding precisely what conduct by the insured constitutes a filing of a business loss claim, we need not address the question of whether King's Gym did so in this case. King's Gym conceded -- both before the District Court and in its brief to this Court -- that it had not suffered any business loss prior to its filing suit against Philadelphia. The policy obligates Philadelphia to pay for the 'actual loss of Business Income' the insured sustains as a result of a covered loss, and there is no evidence in the record that Philadelphia ever denied or declined to follow up on an actual loss of business income claim by King's Gym. Indeed, the record demonstrates that Philadelphia repeatedly tried to contact King's Gym and, prior to King's Gym's complaint, notified it that it considered the claim inactive." The District Court correctly concluded that there existed before it no dispute ripe for adjudication, and the District Court properly granted Philadelphia's motion to dismiss King's Gym's claims for lack of subject matter jurisdiction.
The same argument of lack of a justiciable controversy and subject matter jurisdiction can be made in a situation where an insured does not submit its replacement cost holdback claim prior to the two-year loss anniversary but nonetheless commences suit to "protect the statute", i.e., to sue within the policy's two-year suit limitations period. My office has successfully moved to dismiss a number of such suits on this basis. See No Replacement of Property Within 2 Years Results in Dismissal of RC Holdback Suit.

This decision is unpublished. Pursuant to Federal Rules of Appellate Procedure Rule 32.1, parties may cite to this opinion, but must provide a copy of it with their papers.

Monday, September 29, 2008

Governor Paterson VETOES No-Fault Intoxication Exclusion Cut-Back Bill

Who would have thunk that despite a vote tally of 61-0 in the State Senate and an aggressive letter-writing campaign by the Medical Society of the State of New York, Governor Paterson would have vetoed the no-fault intoxication exclusion cutback bill that passed the New York State Legislature on June 19th (see the No-Fault Intoxication Exclusion Cut Back By NYS Legislature post).

But last Thursday, September 25, 2008, that's what Paterson did -- he VETOED that bill and 38 others. Apparently the Governor thought that the bill was too expansive and would require no-fault insurers to provide PIP coverage for far more than just emergency care (which, read literally, it would have). The text of the Governor's Veto Message No. 170, however, portends, if not guarantees, the re-passage and signing of a revised bill in the future, much in the same way that former Governor Spitzer signaled the eventual passage and signing of a revised direct DJ/late notice bill with his memorandum veto of the original version:


I am returning herewith, without my approval, the following bill:

Senate Bill Number 8294-A, entitled:

"AN ACT to amend the insurance law, in relation to entitlement to
first party benefits"


Under the Public Health Law and the federal Emergency Medical Treatment and Active Labor Act, health services providers are required to provide emergency medical services to persons in need of such care. The Insurance Law, however, permits no fault insurers to deny coverage where the insured person is injured while operating a vehicle in an intoxicated state. As a result, health services providers are sometimes not compensated for services they are required to render to stabilize their patients.

To prevent this inequity, this bill would amend the Insurance Law to prohibit insurers from excluding from no-fault coverage a covered person who is injured while operating a motor vehicle in an intoxicated state or while impaired by a drug. This would help ensure that health services providers are compensated for the emergency services they render to an impaired driver. In order to protect insurers, the bill would provide the insurers with a right of recovery from the insured.

It is fundamental that health service providers should be compensated for the life saving services they provide to their patients. However, this bill is extremely expansive in scope and requires no fault insurers to provide coverage for far more than just emergency care. Indeed, the bill would require no fault insurers to reimburse a health service provider for all health-related services - including, pharmaceutical, therapeutic, surgical, rehabilitative and diagnostic - not merely until the patient is stabilized, but until the $50,000 no fault limit is exhausted. This would go well beyond the stated purpose of the bill, and the costs of providing such care would result in higher automobile insurance rates for the public.

However, because I believe that this bill's goals are sound, I have instructed my staff to work with the Legislature, the health services provider groups, and the insurance industry to investigate this issue further and to help enact a new bill that accomplishes the intended purpose of this bill in a manner that will protect the interests of the health services providers, injured patients and the public.

The bill is disapproved. (signed) DAVID A. PATERSON
So this is a not a goodbye, but a so long, farewell, arrivederci, auf Wiedersehen, for the intoxication exclusion cut-back bill. We'll see it again, probably in the spring 2009 legislative session.

For those of you who work for insurance companies that may become involved in the "investigat[ion] of this issue", as Governor Paterson's veto message puts it, I suggest you question whether and, if so, why the right of recovery should exist only upon a "finding" or conviction of the EIP of a violation of Vehicle & Traffic Law § 1192 (DWAI or DWI). Insurers should not be subject to plea decisions made by county district attorneys, or foreclosed from suing alcohol intoxicated or drug impaired EIPs simply because either no DWAI or DWI charges were laid or pursued by prosecuting authorities. If they are going to be required to pay emergency medical treatment costs for intoxicated/impaired drivers, why shouldn't insurers also be allowed to seek recovery if they can prove themselves, by a preponderance of the evidence, that the driver was impaired or intoxicated by alcohol or drugs? Will DAs be seeking restitution of no-fault insurers' basic economic loss (BEL) payments from EIPs on condition of accepting reduced pleas? Doubt it. Will a plea of guilty to DWAI (V&T § 1192[1]) collaterally estop the EIP from contesting liability to repay the insurer for required BEL payments made to the hospital? What about requiring hospitals to test for drugs/alcohol when before rendering the kind of emergency care for which they will be seeking payment from no-fault insurers? And providing certified copies of those test reports to insurers as part of their claims? Plenty to consider.

Since this looks like this change is inevitable, no-fault insurers should probably want to become as involved in the redrafting process as possible.

Editor's Note (01.14.11) ~~ An amended Insurance Law § 5103(b)(2) takes effect on January 26, 2011.  Read about that amendment and the New York State Insurance Department's interpretation of it here.

Prejudice Not Required for Late Notice Disclaimer of UM Coverage

Matter of Allstate Insurance Co. v. DeLuca
(Sup. Ct., Nassau Co., decided 9/3/2008)

On April 29, 2002, Barabara DeLuca was involved in a motor vehicle incident with a vehicle owned by Myotte A. Francois and operated by Rome L. Kempbell. On the incident date, State Farm had an auto policy in force for the Francois vehicle.

By letters dated February 11, 2003, State Farm advised Francois, Kempbell, and DeLuca, through her attorney, that it was denying liability coverage because the "loss [was] not an accident." DeLuca then filed an uninsured motorists (UM) coverage claim with her own auto insurer, Allstate, and demanded arbitration, prompting Allstate to commence this special proceeding for a permanent stay.

After conducting a factual hearing, Nassau County Supreme Court Justice R. Bruce Cozzens, Jr. dismissed Allstate's petition against State Farm, finding that State Farm had established through testimony of its field investigator and his link analysis that "when the totality of the State Farm investigation is evaluated, it is determined that this accident conforms to a pattern of fraudulent accident claims."

With liability coverage from State Farm out of the picture, Allstate defended the UM claim based on DeLuca's 28-month late notice of her UM claim. Relying on Rekemeyer v. State Farm Mut. Auto. Ins. Co., 4 NY3d 468 (2005), DeLuca contended that Allstate was required to demonstrate prejudice from her delayed notice of her UM claim in order to disclaim coverage.

Noting that Rekemeyer involved a claim for supplementary uninsured motorists (SUM) or underinsured coverage benefits, Justice Cozzens distinguished Rekemeyer and Brandon v. Nationwide Mut. Ins. Co., 97 NY2d 491 (2002) and held that Allstate was not required to show prejudice from what he found to be DeLuca's unreasonable delay in notifying Allstate of her UM claim after learning of State Farm's disclaimer. Judgment for Allstate permanently staying arbitration of DeLuca's UM claim.

Wednesday, September 24, 2008

Blogging From Camp Fisherman

Blogging from Camp Fisherman on Pigeon Lake in Peterborough, Ontario through the end of this week. Absolutely beautiful up here. It's the muskie thing again. Captain Roy put his buddy onto two 41" and 41.5" 'skies in his very first forray into this top-of-the-fresh-water-food-chain kinda fishing. We forgot the big a-swivel-swivel net back in Buffalo, so we're landing the 'skies by hand with a boga. Day One in the books. Good day. Prop and skag still intact.

Update (Sunday, September 28th) -- I'm back. Guess there wasn't much blogging from Ontario. With a catch of six muskies (no kidding) on Thursday, I did manage to take the tournament and win best boat/team, however.

Tuesday, September 23, 2008

It Won't Be Long Now

According to the NYS Senate's website, the no-fault intoxication exclusion cutback bill that was passed by the New York State Legislature on June 19th (see the No-Fault Intoxication Exclusion Cut Back By NYS Legislature post) was delivered to Governor Paterson for signature on September 15th. Given that this bill passed the State Senate by a vote of 61-0, it's not a reach to predict that Governor Paterson will sign this bill into law.

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.

No-Fault Insurer Found Obligated to Inform Provider That Its Response To Additional Verification Requests Was Insufficient and/or Incomplete

Media Neurology, P.C. a/a/o Justin Harris v. Countrywide Ins. Co.
(NYC Civil, Kings Co., decided 9/15/2008)

When a no-fault insurer receives what it believes to be insufficient and/or incomplete responses to its request for additional verification, what should it do? According to Kings Civil Court Judge Sylvia Ash, it should something, not nothing.

Plaintiff sought recovery of no-fault benefits for supplies furnished to its assignor. Countrywide contended that plaintiff's claim was premature because plaintiff had failed to comply with an additional verification request. Plaintiff argued that it responded to Countrywide's verification request, but Countrywide claimed that the response failed to fully comply with the request.

In awarding judgment to plaintiff, Judge Ash held:

There is no dispute that Plaintiff responded to the additional verification request. There is also no dispute that upon receipt, Defendant did not request any further response from Plaintiff. The issue before the Court is whether Defendant was obligated to notify Plaintiff that its response to their additional verification request was insufficient and/or incomplete. In All Health Medical Care, P.C. v. Government Employees Insurance, 2 Misc 3d 907, the Court reasoned that while "... the regulations are silent as to what, if anything, the insurance company must do if it receives insufficient verification, that it is clear that the insurance company must affirmatively act once it receives a response to its verification request." (see also Westchester County Medical Center v. NY Central Mutual Fire Ins Co., 262 AD2d 553).

In the case at Bar, once Plaintiff submitted its response to Defendant's additional verification request, it was then incumbent on Defendant to inform Plaintiff that said response was insufficient and/or incomplete. Any confusion or disagreement on the part of the Defendant as to what was being sought should have been addressed by further communication, not inaction (see Westchester County Medical Center v. NY Central Mutual Fire Ins Co., supra). Neither party may ignore communications from the other without risking its chance to prevail in the matter (see All Health Medical Care, P.C. v. Government Employees Insurance Co., supra).

The judicial trend, at least in the NYC civil courts, seems to be favoring action, not inaction. See, NYC Civil Court Finds That No-Fault Insurer Must Take "Final Action" Even If Verification Response Believed To Be Inadequate. No-fault insurers should be advised accordingly.

Reminding the Pot Not to Call the Kettle Black

Great Wall Acupuncture, P.C. a/a/o April Outlaw & Deborah Richards v. General Assur. Co.
(App. Term, 2nd Dept., decided 9/19/2008)

In this short decision on procedural issues, the Appellate Term, Second Department, held:
  • defendant's motion to vacate plaintiff's notice of trial and certificate of readiness was timely;
  • since it was undisputed that plaintiff never appeared for the deposition despite being served with a deposition notice, Queens Civil properly vacated plaintiff's notice of trial and certificate of readiness;
  • inasmuch as no issue was raised by plaintiff regarding the lower court's order allowing defendant to "rephrase" its supplemental discovery and inspection demand, plaintiff was not aggrieved by the portion of the order which required it to respond to that supplemental demand; and
  • defendant was entitled to conduct plaintiff's deposition despite having also served an original and supplemental demand for discovery and inspection of documents.
The Appellate Term also affirmed as a provident exercise of its discretion Queens Civil's denial of plaintiff's cross motion for an order sanctioning defendant and defendant's counsel, reminding plaintiff's counsel*** that that "'[f]rivolous conduct shall include the making of a frivolous motion for costs and sanctions'" (Rules of the Chief Administrator [22 NYCRR] § 130-1.1). We further caution plaintiff's counsel to refrain from including invective and ad hominem attacks in his papers."

Eight $10 "reminders" assessed to plaintiff. There's a message in an appellate court's award of costs, isn't there? Especially from a court that ordinarily affirms, modifies and reverses without costs.

Play nice, all.

***Correction: Late this afternoon, the prolix Ray Zuppa claimed ownership of the invective and ad hominen attacks. My apologies for previously linking to plaintiff's counsel identified in eCourts for this matter.

Monday, September 22, 2008

Second Department Holds That No-Fault But Not UM Coverage Owed For Injuries From Intentional Vehicular Assault

State Farm Mut. Auto. Ins. Co. v. Langan
(2nd Dept., decided 9/16/2008)

Would forgetting something that happened five years ago constitute a short-term or long-term memory loss?

With this split decision, the Second Department has ruled that injuries and death from an intentional vehicular assault: (1) are NOT covered under an auto policy's UM coverage; but (2) ARE covered under the same policy's no-fault coverage.

Over the course of a week in 2002, Ronald Popadich shot a woman in New Jersey, plowed his car into 19 pedestrians in Manhattan and then stole another car, returned to the city and slammed into pedestrians again two days later. One of the injured Manhattan pedestrians was Neil Conrad Spicehandler, who was taken to a local hospital for treatment of a severely broken leg and died after two surgeries at that hospital from an embolus of "unknown origin". In 2005, the Second Department reversed the Supreme Court's order and dismissed the wrongful death action brought against the hospital by the defendant in this case, John Robert Langan, as the surviving spouse of Spicehandler under a Vermont civil union. Popadich admitted that he was trying to hurt as many people as possible and eventually pleaded guilty of second degree murder in connection with the hit-and-run incident and Spicehandler's death.

Langan had also made claims for no-fault (PIP), UM and death/dismemberment/loss of sight coverages under Spicehandler's auto policy with State Farm. State Farm denied all coverages based, among other grounds, that Spicehandler's injuries and death were caused by Popadich's intentional criminal conduct and thus were not the result of an "accident" as required by the State Farm policy.

On State Farm's motion to renew its summary judgment motion following Popadich's criminal conviction, Nassau Supreme agreed with State Farm, declaring that it was not obligated to provide PIP, UM and death/dismemberment/loss of sight coverages to Spicehandler's estate based on the lack of an "accident".

On appellate Round # 2, (Round # 1 having been the Second Department's affirmance of Nassau Supreme's denial of State Farm's motion), the 3-2 majority of the Second Department upheld the denial of UM coverage:
The purpose of an uninsured motorist endorsement is to help effectuate New York's compulsory automobile liability insurance scheme "by providing coverage to insured persons who suffer automobile accident injuries at the hands of financially irresponsible motorists" (Matter of Country-Wide Ins. Co. v Wagoner, 45 NY2d 581, 586). To that end, the endorsement is designed to afford an injured person "the same protection as he [or she] would have had if he [or she] had been injured in an accident caused by an identifiable automobile covered by a standard automobile liability insurance policy in effect at the time of, and applicable to, the accident" (McCarthy v Motor Veh. Acc. Indem. Corp., 16 AD2d 35, 38, affd 12 NY2d 922; see Matter of Nagel [Motor Veh. Acc. Indem. Corp.], 22 NY2d 165, 170 [noting that "it has been recognized that the purpose of this statute was to provide compensation through the MVAIC to the extent that claims would be recognized and claimants compensated as if the owner or driver of the vehicle causing the injury were insured"]; accord Matter of Knickerbocker Ins. Co. [Faison], 22 NY2d 554, 558, cert denied 393 US 1055). Thus, in New York, the mandatory coverage afforded under an uninsured motorist endorsement is meant to be coextensive with, and therefore no greater than, the standard coverage that would ordinarily be available to the uninsured motorist had he or she been insured (cf. McCarthy v Motor Veh. Acc. Indem. Corp., 16 AD2d at 42). Plainly, no standard automobile liability policy would have provided coverage to Popadich for the injuries he intentionally inflicted on Spicehandler (see Westchester Med. Ctr. v Travelers Prop. Cas. Ins. Co., 309 AD2d 927, 928; Allstate Ins. Co. v Bostic, 228 AD2d 628, 628-629). It follows, then, that, because no coverage would have been provided under a standard automobile liability policy issued to Popadich, State Farm is not obligated to provide benefits under the uninsured motorist endorsement of its policy with Langan (see McCarthy v Motor Veh. Acc. Indem. Corp., 16 AD2d at 42). Accordingly, we conclude that State Farm established its prima facie entitlement to judgment as a matter of law with respect to Langan's claim for uninsured motorist benefits by establishing that Spicehandler's injury and subsequent death were caused by Popadich's intentional criminal acts (see Zuckerman v City of New York, 49 NY2d 557, 562). In opposition, Langan failed to raise a triable issue of fact.
The majority, however, modified Nassau Supreme's order and granted PIP and death/dismemberment/loss of sight coverages, relying mostly on established New York liability coverage case law and principles:
As explained previously, for policy reasons, New York law does not extend coverage under a mandatory uninsured motorist endorsement to injuries caused intentionally by a tortfeasor. In other contexts, however, the issue whether an event may be deemed "accidental" for insurance purposes is "usually determined by looking at the casualty from the point of view of the insured to see whether or not from his [or her] point of view the event was unexpected, unusual and unforeseen'" (Nallan v Union Labor Life Ins. Co., 42 NY2d 884, 885, quoting 30 NY Jur, Insurance, § 1099, p 484 [emphasis added]; see Agoado Realty Corp. v United Intl. Ins. Co., 95 NY2d 141, 145). "In the absence of an express provision in the policy to the contrary, where the insured is intentionally injured or killed by another, and the injury or death is not the result of misconduct, provocation, or assault by the insured, but is unforeseen from the insured's point of view, and occurs without his or her agency, the injury or death is an accident or accidental, or by accidental means, within the meaning of accident insurance policies, and the insurer is liable therefor" (10 Couch on Ins. § 140:41; see New York Insurance Department Regulations § 60-1.1[f] [11 NYCRR § 60-1.1(f)] [requiring every "owner's policy of liability insurance" to include "(a) provision that assault and battery shall be deemed an accident unless committed by or at the direction of the insured."]). Consequently, in contexts other than a claim made under an uninsured motorist endorsement, coverage is unaffected by whether the tortfeasor acted intentionally in causing the injury, provided only that, from the viewpoint of the insured, the event was "unexpected, unusual and unforeseen" and not brought about by the insured's own "misconduct, provocation, or assault" (Nallan v Union Labor Life Ins. Co., 42 NY2d 884).
In this case, from Spicehandler's point of view, the incident that caused his injuries and death was certainly "unexpected, unusual and unforeseen," and was not the result of any "misconduct, provocation, or assault" on his part. Consequently, the question of whether or not Popadich acted with criminal intent, although critical to the issue of coverage under the uninsured motorist endorsement, was entirely irrelevant to State Farm's obligation here to provide coverage under the subject policy's mandatory personal injury protection endorsement, and its death, dismemberment, and loss of sight provisions, neither of which contain a specific exclusion for injury or death caused by an intentional act. Viewed in this context, our observation on the prior appeal that, "if Spicehandler's injuries and death were the result of an intentional assault or an intentional homicide . . . the incident is not covered under the applicable policy" (State Farm Mut. Auto. Ins. Co. v Langan, 18 AD3d at 862), can reasonably be read as directed only at the policy's uninsured motorist endorsement. Moreover, that our holding affords different interpretations of the term "accident" within the subject policy is the inevitable consequence of the fact that current New York law makes uninsured motorist coverage in this State narrower than would be expected under general insurance principles.
With respect to PIP coverage for intentionally caused injuries, this decision seems to be at sharp odds with the Second Department's 2003 decision in Westchester Med. Ctr. a/a/o Aferdita Suljovic v. Travelers Prop. Cas. Ins. Co., 309 AD2d 927 (2nd Dept. 2003), the husband-who-tried-to-kill-his wife-by-driving-their-car-over-a-cliff case, in which the Second Department held:
However, [Travelers] correctly contends that her injuries were not caused by an accident. The assault, committed through the use of a vehicle, was an intentional act, not an accident (see Matter of Metro Med. Diagnostics v Eagle Ins. Co., 293 AD2d 751; Matter of Progressive Northwestern Ins. Co. v Van Dina, 282 AD2d 680; Allstate Ins. Co. v Bostic, 228 AD2d 628; Matter of Aetna Cas. & Sur. Co. v Perry, 220 AD2d 497, 498; McCarthy v Motor Vehicle Acc. Indem. Corp., 16 AD2d 35, affd 12 NY2d 922). Consequently, the first cause of action [seeking to recover no-fault payments for Mrs. Suljovic's hospitalization and treatment] should have been dismissed.
Oddly, the Second Department does mention this 2003 decision in its decision of last week but only in relation to the UM coverage issue and not in its discussion of the PIP coverage issue, leaving claimants and insurers to wonder whether there is any way to distinguish or explain the two seemingly irreconcilable holdings on the no-fault coverage issue. Relying on Westchester Medical Center v. Travelers, the Third Department also made the same ruling in Progressive Northern Ins. Co. v. Rafferty ("Carman's injuries were not caused by an 'accident' and, thus, he was not eligible for no-fault benefits under the policy.") Any thoughts out there?

With respect to UM coverage, the two-justice dissent reluctantly agreed that case law precedent supported State Farm's denial of such coverage but recommended an appeal to the Court of Appeals:
Given the foregoing discussion, the persuasive logic and strong public policy considerations underlying those decisions in other jurisdictions which have allowed the recovery of uninsured motorist benefits in cases such as this, and the overwhelming modern national trend favoring such recovery, I would respectfully suggest that the time may have come for a reexamination of the governing principles in this area by our state's highest court.
Interestingly, on the issue of PIP coverage, however, the dissent thought that State Farm's denial of PIP and death/dismemberment/loss of sight coverages should have been upheld, not because of the Second Department's 2003 ruling in the Westchester Medical Center v. Travelers case, but because of the court's prior ruling in this case. The dissent also disagreed with the majority's "radically different interpretations" of the phrase"caused by accident" as used in the UM and death/dismemberment/loss of sight endorsements:
That determination is inconsistent with our previous order in this very case, in which we unequivocally and unambiguously held that no coverage was available under the policy for Spicehandler's death if it resulted from intentional conduct. Significantly, our previous decision and order was not merely limited to the uninsured motorist endorsement of the policy, but was applicable to the entire policy. Accordingly, recovery under any section of the policy is precluded by the express language of our previous order, which is binding upon us and constitutes the law of the case (see generally J-Mar Serv. Ctr. v Mahoney, Connor & Hussey, 45 AD3d 809; Suffolk County Water Auth. v Schneider, Inc., 288 AD2d 297). In any event, even if we were free to disregard the clear terms of our previous order in this case, I would decline to join in the majority's construction of the policy in such a manner that the phrase "caused by an accident" would have radically different interpretations depending upon whether it appears in the uninsured motorist endorsement or in the death benefit provisions of the subject policy.
I'm going to go out on a limb and predict that the Court of Appeals will get and hear this case. Until that happens, New York UM insurers can continue to deny UM for injuries that result from intentional vehicular assaults, whereas no-fault insurers can no longer be certain based on prior precedent from the Second and Third Departments that a denial in the same situation will be sustained if challenged in litigation or arbitration.

Friday, September 19, 2008

New York Coverage 2007-2008 Annual Seminar

It was nice to see everyone in Amherst yesterday for our annual New York Coverage seminar. Indexes, compiled digests and the Understanding the New York Civil Courts PowerPoint are available upon request. Those of you who were unable to attend due to Hurricane Ike duties will receive your handout materials in the mail.

Next year's seminar will be on September 17, 2009, again at the Ramada Hotel & Conference Center in Amherst. Mark the date.

Wednesday, September 17, 2008

New Appellate Term, Second Department, No-Fault Decisions

There's a bevy of new no-fault decisions just posted yesterday from the Appellate Term, Second Department. Links and excerpts are over at Dave Gottlieb's No-Fault Paradise. Go take a look. I'll cherry-pick several that may have new or useful stuff in them for no-fault professionals and post separately here later today.

Timely Notice of Suit From Named Insured Did Not Satisfy Additional Insured's Notice Obligation

1700 Broadway Co. v. Greater N.Y. Mut. Ins. Co.
(1st Dept., decided 9/16/2008)

Where a named insured (NI) and additional insured (AI) are both defendants in a single action, notice of the occurrence or lawsuit provided by one of them will be deemed notice on behalf of both of them where the NI and AI are united in interest or where there is no adversity between them. See, 23-08-18 Jackson Realty Assoc. v Nationwide Mut. Ins. Co., (2nd Dept. , decided 7/8/2008).

In this case plaintiff, an additional insured did not provide Greater NY Mutual with notice of the underlying personal action until eight months after it was served with the summons and complaint. It offered no excuse for the delay, instead arguing that the NI's timely notice of the suit to Greater NY Mutual, in which the NI also was a defendant, was timely notice for both defendants.

In AFFIRMING the lower court's award of summary judgment to Greater NY Mutual, the First Department noted that an unexplained 8-month delay in forwarding suit papers constitutes late notice as a matter of law and Greater NY Mutual was not obligated to show prejudice from that delay. As to plaintiff's argument that the named insured's timely notice of the suit was timely notice for both of them, the Second Department held:
The named insured cannot be deemed to have provided timely notice of the lawsuit to defendant on behalf of plaintiff since the notice requirement in the policy applies equally to both primary and additional insureds, and notice provided by one insured in accordance with the policy terms will not be imputed to another (Travelers Ins. Co. v Volmar Constr. Co., 300 AD2d 40, 44 [2002]). An exception might exist where two claimants are similarly situated, i.e., where their interests are not adverse to each other, in which case notice by one may also be deemed applicable to a claim by another (see e.g. Motor Vehicle Acc. Indem. Corp. v United States Liab. Ins. Co., 33 AD2d 902 [1970]). Here, plaintiff, an out-of-possession landlord of the premises where the accident in the underlying personal injury action took place, had an interest adverse to the primary insured, the tenant in the premises, from the moment the complaint was served naming them both as defendants. This adversity was confirmed when plaintiff and the primary insured filed cross claims against each other. Under these circumstances, notice of suit by the primary insured cannot be deemed timely notice by plaintiff.
Rule: For a "similarly situated" NI and AI, timely notice from one can be timely notice from the other. If they have adverse interests, however, i.e., where one could or would assert a crossclaim against the other, each must provide timely notice of the occurrence and suit to the insurer.

In a footnote, the First Department reminds us that "[s]tarting in January 2009, policies will be required to permit an insured such as plaintiff to bring this type of action notwithstanding late notice of claim, with the burden on the insurer to establish prejudice from the delay (L 2008, ch 388, § 2, § 4, amending Insurance Law § 3420[a][6], [c][2][A])."

Monday, September 15, 2008

Get In, Get Out, Move the Empties About, Yo-Ho, Yo-Ho, Yo-Ho

Rosado v. Hartford Fire Ins. Co.
(Sup. Ct., Kings Co., decided 8/18/2008)

Remember that great list of prepositions they taught in grammar school? Okay, maybe circa 60's-70's grammar school. When they still had prepositions. And grammar.
about behind from on toward
above below in on top of under
across beneath in front of onto underneath
after beside inside out of until
against between instead of outside up
along by into over upon
among down like past with
around during near since within
at except of through without
before for off to

Mrs. Swillinger made us memorize that list. And Seton Poems. Anyone out there remember Seton Poems? I think that I shall never see, a poem as lovely as a tree. --Joyce Kilmer. We parochial schooled third-grade boys in Swilly's class liked reciting that one aloud in class not because we were budding arborists (pun intended), but because of last word in the fourth line. Heh.

In any event, back to our regularly scheduled program.

Jesus Rosado was hit and injured by a box truck while making beer deliveries for his employer. Countrywide paid the $25,000 policy limit for the box truck and Rosado made an SUM claim under his employer's auto policy with Hartford, which defined an "insured" to include "any other person occupying * * * a motor vehicle insured for SUM under this policy." The policy's SUM endorsement defined "occupying" as "in, upon, entering into, or exiting from a motor vehicle." Lots of prepositions.

In lieu of demanding arbitration, Rosado and his wife brought this action for SUM benefits. In his deposition, Rosado described the beer delivery truck and testified that, in the course of making deliveries in and out of establishments on the day of the accident, he was leaning his upper body slightly into one of the truck's 12 side bays to make room for empty beer cases that he had brought back to the truck on a handtruck when the box truck hit him, pushing him approximately 10-12 feet before pinning him against the side of his delivery truck.

Hartford moved for summary judgment dismiss the complaint based on its contention that Rosado was not "occupying" the insured delivery truck and, therefore, did not qualify as an "insured" for SUM coverage. Hartford argued that Rosado's momentary contact with the insured delivery truck for the purpose of depositing empty beer cases into one of its bays could not be construed as his being either “in, upon, entering into, or exiting from a motor vehicle” when the subject accident occurred. Rosado cross-moved for summary judgment and for a declaration deeming Hartford to have consented to the $25,000 settlement.

In denying summary judgment to both parties, Kings County Supreme Court Justice Larry Martin held that questions of fact existed with respect to whether Rosado was "occupying" the subject vehicle at the time of his accident:
In the seminal case construing the parameters of the term "occupying" as it is used in SUM endorsements, Matter of Rice v Allstate Ins. Co., 32 NY2d 6, 11 [1973], the Court of Appeals held that “[t]he status of passenger is not lost even though he [or she] is not in physical contact with [the vehicle in question], provided there has been no severance of connection with it, his [or her] departure is brief and he [or she] is still vehicle-oriented with the same vehicle.” In addition, the term "occupying" in this context "has long received a liberal interpretation" (Matter of Travelers Ins. Co. [Youdas], 13 AD3d 1044, 1045 [2004]; see also Rowell v Utica Mutual Ins. Co., 77 NY2d 636, 639 [1991][noting that “[t]he term [“occupying”] has received a liberal interpretation because of the expansive definition in the [controlling] statute [Insurance Law § 3420 (f)(3)] and in standard policy endorsements”]). However, it has been recognized that “[m]ore than a mere intent to occupy a vehicle is required to alter the status of pedestrian to one ‘occupying’ [the subject vehicle]; and this is particularly so where there has been no previous passenger-oriented status (Matter of Rice, 32 NY2d at 11).
* * * * *
[W]here the facts support an interpretation that a sufficient unbroken nexus existed at the time of the accident between the alleged occupant and the subject vehicle and the injured party remained ostensibly "vehicle-oriented" when said accident occurred, courts consistently have determined that the party could be construed as “occupying” the subject vehicle for purposes of SUM coverage[.]

* * * * *
In addition, although the majority of the case law cited to by the parties and relied upon by the court concerns instances where the question of occupation of the subject vehicle revolves around that portion of the definition of “occupying” which refers to the “entering into, or exiting” from the vehicle, the court notes that said definition also encompasses situations where the injured party could be said to be found “upon” the vehicle in question. There is a dearth of case law addressing this aspect of the definition. However, this court is bound to address the issue as it is required to interpret contracts, such as the one at bar, so as to give meaning to all of their terms[.]

In the instant case, the court finds that a triable issue of fact exists as to whether plaintiff was sufficiently “vehicle-oriented” at the time of his accident such that he could be construed to have been "upon" the vehicle when said accident occurred. * * * * * Given the liberal interpretation generally afforded to the term “occupying,” the drastic nature of the remedy of summary judgment and the requirement that this court view the evidence proffered in the light most favorable to the non-movant, the court cannot determine, as a matter of law, that plaintiff was not occupying the subject vehicle at the time of his accident. Rather, given his prior occupancy in the vehicle, his intent to return to same and his arguably vehicle-oriented activity in opening and shutting the truck bays and loading and unloading same at the time of his accident, operations which by their very nature could be deemed intrinsic to the operation of a delivery truck, the court finds that questions of fact exist with respect to plaintiff's so-called “occupant” status which constrains the court from granting summary judgment to either party.
The court also found that Insurance Law § 3420(d) did not apply because Hartford had not denied coverage based on an exclusion, but on Rosado's lack of inclusion or qualification as an "insured". The court also denied that part of plaintiffs' cross motion which sought an order deeming Hartford to have consented to their underlying settlement with Countrywide:
[T]he provision governing such settlements unequivocally refers to an “insured” under the subject SUM endorsement. As questions of fact currently exist as to whether the plaintiff should be afforded the status of an insured under the SUM endorsement and the subject settlement provision contained therein, it would be premature for this court to determine that said provision currently applies to the tender by the third party tortfeasor’s insurer of $25,000 in settlement of plaintiffs' personal injury claim or Hartford Co.’s consent, or lack thereof, to same.

Court Rejects "Novel" Argument That Incomplete EMG & NCV Tests Render Them Medically Unnecessary

Complete Med. Care Servs. of NY, P.C. a/a/o Vanessa Garcia v. State Farm Mut. Auto. Ins. Co.
(NYC Civil, Queens Co., decided 8/22/2008)

ENDs (electroneurodiagnostic tests) continue to stimulate challenge and litigation in the no-fault world, principally because of the perception -- or some would say reality -- that they are over-prescribed to generate increased billings for providers. Referring providers have learned, literally by the trial and error of themselves and others, better to support their referrals or prescriptions of costly ENDs and document their purported medical necessity in order to warrant payment of no-fault benefits.

In this case, State Farm did not challenge the front end of the referral, but the back end of the testing, arguing that the incomplete performance of the electromiogram (EMG) and nerve conduction velocity (NCV) tests made their results useless in terms of the diagnosis and treatment of the assignor patient and, as such, those tests were rendered medically unnecessary as a practical matter and therefore not eligible for reimbursement under no-fault.

In what appears to be a case of first impression, and calling State Farm's argument "unique" and "novel", Queens Civil Judge William Viscovich rejected State Farm's argument and awarded payment for the tests, holding:

Defendant's position seeks a retrospective determination of medical necessity but this court can find nothing in the precedents discussed or in the No-Fault statute and related regulations that establish such a position. In fact, to the contrary, they seem to require a determination of medical necessity be made prospectively from the standpoint of the insured at the time a treatment or service is rendered, not at a time when its effectiveness or lack thereof can be established retrospectively.

This is particularly true when one considers that the expenses sought in No Fault litigation are in reality expenses incurred by the insured, not the provider. A medical provider does not "incur" expenses when it treats an insured. Rather, the provider accepts an assignment of the insured's benefits, allowing it to step into the shoes of the insured for litigation purposes. In theory, if not reality, the insured, not the provider, is the one seeking reimbursement for expenses already incurred. As such, the No Fault statute was clearly intended to "deliver better protection for the insured and to pay off claims quickly.(NY Legis. Ann. 1973 p. 298)". Pavone v. Aetna Cas. & Sur. Co., 91 Misc 2d 658, at 663 [Sup Ct. Monroe County 1977] and No Fault regulations have been interpreted in favor of the insured's rights (and through an assignment of benefits, the rights of the provider), especially as they relate towards speedy payment of proper claims on behalf of the insured. ( See Presbyterian Hospital v. Maryland Casualty Co., 90 NY2d 274 [1997]).

To adopt defendant's position, quite frankly, would be to dramatically and judicially change the very nature of No Fault litigation. It would result in these proceedings all too often delving into issues more related to medical malpractice or professional misconduct litigation, a fact reflected by defendant's brief, which cites as authority a matter decided before the State Board of Professional Medical Conduct (See In the Matter of Carl Dobson, M.D., 2006 NY Phys. Dec. Lexis 411 [2006] ). The nature of such litigation would defeat the very purpose of the No-Fault statute which is "to permit liberal recovery of moneys actually expended in the treatment of accident-related injuries ." Vidra v. Shoman, 59 AD2d 714, at 716 [2nd Dept. 1977]). (See also Presbyterian Hospital v. Aetna, 233 AD2d 431 [2nd Dept. 1996]). This is only reinforced by the Court of Appeals findings that the regulations "are written to encourage prompt payment of claims, to discourage investigation by insurers and to penalize delays." Dermatossian v. NYCTA, 67 NY2d 219, at 225 [1986].

Nowhere in the statutory or regulatory scheme are "necessary expenses" defined to exclude charges for services that were duly prescribed, but improperly or inadequately performed. Insurance Law Section 5102(a)(1) defines "basic economic loss" as including, inter alia, "All necessary expenses incurred...". If either the legislature or the Superintendent of Insurance had intended that the determination regarding medical necessity should be made in hindsight, with regard for whether a procedure was properly performed, a statutory or regulatory change could be made to define necessary expenses as including payment for "properly performed medical procedures." Neither has chosen to do so.

After a reading of the No-Fault statutes and regulations, the precedents established by both Judge Siegal and Judge Agate and the testimony, evidence and briefs submitted in this matter, this court holds that even if defendant has demonstrated that a prescribed medical service or procedure may not have been conducted properly, reimbursement is warranted so long as said service or procedure was medically necessary. The issue of proper performance of such service or procedure is best left for other areas of litigation practice and/or, where appropriate, the State Board for Professional Medical Conduct.

The decision contains a detailed discussion of the expert medical proof State Farm proffered through Dr. James B. Sarno, who, the court noted, acknowledged that a complete bilateral EMG/NCV of the upper and lower extremities was, in fact, medically necessary for the treatment and care of the assignor for injuries she sustained in a motor vehicle accident. Dr. Sarno testified, however, that an insufficient number of muscles in both the upper and lower extremities were tested, a deviation from the accepted standard of care for administering the tests when "assessing evidence of electro-diagnostic radiculopathy." Plaintiff's expert, Dr. Finkelstein (no first name given), while agreeing that the testing may not have been "thorough", testified that it was "not incomplete". Both Dr. Sarno and Dr. Finkelstein acknowledged that EMG/NCVs are extremely uncomfortable and painful for the patient -- Dr. Sarno maintaining that a proper testing regimen in this case required the placing of needles in 48 muscles, while Dr. Finkelstein's position was that, for this case, the placing of needles in 22 muscles was sufficient, particularly if the patient was having a difficult time dealing with the procedure.

Saturday, September 13, 2008

Subrogating an Insured's Conversion Loss, 256 Years Later

Philadelphia Contributionship Ins. Co. v. A 440 Keyboard Corp.
(Sup. Ct., New York Co., decided 9/3/2008)

Not so much coverage worthy stuff in this case. But I love the full name and identity of the plaintiff insurer in this case -- The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, the oldest property insurance company in the United States, founded by Benjamin Franklin and a group of prominent Philadelphia citizens. I haven't seen contributionship used as a word since, oh, 1752 when The Contributionship was organized. And this marks the first time in, what, 256 years that The Contributionship has made it into a New York reported decision. Worthy of posting for that reason alone.

This is a subrogation action brought by The Contributionship against a corporation and its principal shareholder for the defendants' alleged conversion of a B√∂sendorfer grand piano valued at $46,300. Among other rulings, New York County Supreme Court Justice Louis York held that The Contributionship's cause of action for conversion was timely commenced under CPLR §214(3), which provides a three-year statute of limitations for "an action to recover a chattel or damages for the taking or detaining of a chattel.” Justice York also ruled that plaintiff had the legal capacity to sue and could maintain a subrogation action against the corporate defendant for conversion.

At this rate, the next time we'll see a New York case with The Contributionship in the caption will be the year 2264. Of course, by then, Google undoubtedly will have figured out a way of resolving civil disputes with some kind of search engine method, adwords notwithstanding.

Rupugning the Re-Rating

American Home Assur. Co. v. Daffodil General Contracting, Inc.
(Sup. Ct., New York Co., decided 9/3/2008)

Those of us employers who carry workers' compensation coverage for our employees know a little about employee classifications and premium audits. At the beginning of a policy term, the annual premium is an estimate, and is based on, among other things, the projected classification of employees and their annual remuneration. At the end of a policy term, the New York Compensation Insurance Rating Board requires WC insurers to audit the payroll records of employers for the purpose of determining premiums for workers’ compensation policies. If the employer is found to owe less than the estimated premium, it gets a refund. If it is found to owe more, it gets a bill.

In the legal business, there's less chance of misclassifying employees, whether deliberately or not. In the construction business, however... But how would you like to get a post-premium audit bill for more than 10 times the estimated premium? That's what happened in this case and, not surprisingly, the employer did not pay the bill.

American Home issued a WC policy to Daffodil General Contracting for the term January 2, 2004 to January 2, 2005. The estimated annual premium was $8,280, subject to an audit after completion of the term. On July 6, 2005, American Home audited Daffodil's records to determine the actual payroll that had accrued during the year and determined that the total adjusted premium was $84,749. American Home sent Daffodil an invoice for the unpaid adjusted premium dated August 4, 2005. When Daffodil did not pay that invoice, American Home commenced this action in 2006.

Initially, the insurance policy classified Daffodil's employees as masonry, wallboard, and painting workers. In the audit, American Home reclassified all the employees, except for the office manager, as masonry workers, which accounted for the substantial increase in premium. Daffodil argued that only some of its employees were masonry workers and that others were engaged in painting, drywall installation, and tiling. Key to the court's decision in this case was the fact that American Home had not actually been able to complete its audit, having reclassified all but one of Daffodil's employees as masonry workers after having received no response to its audit requests from Daffodil.

American Home moved for summary judgment arguing, among other things, that Daffodil could not challenge employee classifications in court but was required within one year of the rating period in question to request an inspection or review by the New York Compensation Rating Board, which Daffodil had not done. While agreeing with American Home's argument in that regard (as well as that American Home was not required to notify Daffodil of this administrative review requirement and deadline), New York County Supreme Court Justice Louis York nevertheless DENIED American Home's motion:
Despite the foregoing, plaintiff‘s motion must be denied because this case does not present a question of classification. Plaintiff did not examine defendant’s records and then determine that all employees were masonry workers. Plaintiff states that it applied the masonry classification to all of the employees, because it did not have the records to determine the real nature of the employees’ work.

Insurance Law § 2319(b) provides that every insurer must provide “reasonable means whereby any person aggrieved by the application of its rating system may be heard, in person or by an authorized representative, on written request to review the manner in which such rating system has been applied in connection with the insurance afforded or offered.” Whether defendant was afforded “reasonable means” to challenge plaintiff's determinations is not clear. For this reason, summary judgment is denied.

The court is aware that defendant may not be able to produce records showing the nature of its employees' work. Discovery has been had and defendant has not yet produced such information applicable to the time period of the policy. The list noted above was apparently prepared for litigation. Nonetheless, it is plaintiff's burden to establish the correctness of its account and it has not done so.

Friday, September 12, 2008

The Breadth of Additional Insured Coverage -- Proving a Negative

City of New York v. Philadelphia Indem. Ins. Co.

(2nd Dept., decided 9/9/2008)

"Exceedingly broad"
"Reasonable possibility of coverage"
"Common speech"
"Reasonable expectations"
"Read as a whole"

Phrases that portend an insurer-adverse result, fo sho. Like when the A-word is dropped. The stuff that on page 3 of a memorandum decision foretells judgment for the insured on page 6. Such was the case in this matter, in which the Second Department used the full array of these catch phrases to AFFIRM Kings Supreme's finding that Philadelphia Indemnity was obligated to defend the City of New York in an underlying personal action.

Once the City tendered evidence sufficient to demonstrate, as a matter of law, that it was an additional insured as that term was defined by Philadelphia's policy, and that the allegations in the underlying complaint fell within the scope of coverage, the burden then shifted to Philadelphia to establish the absence of coverage, which the Second Department ruled it failed to do:
Here, the interpretation favored by the defendant reflects "extremely narrow coverage" (City of New York v Evanston Ins. Co., 39 AD3d 153, 157). Such an interpretation would rewrite the policy without regard to the plaintiff's reasonable expectations as expressed in the contract between it and the named insured, and provide a windfall for the defendant (see BP A.C. Corp. v One Beacon Ins. Group, 8 NY3d 708, 716).
The court's citation to the City of New York v. Evanston Ins. Co. case suggests (but does not actually reveal) that Philadelphia's policy language made the City an additional insured only if the "claim, loss or liability is determined to be solely the negligence or responsibility of [Philadelphia's named insured]". In Evanston, presumably like here, the Second Department rejected the insurer's argument the additional insured coverage to the City did not apply unless the named insured was solely responsible for the accident and injuries at issue. Instead, the Second Department agreed with the City's reading of the word "solely" to refer only to an apportionment of fault as between the contractor/subcontractor named insured and the additional insured City, without regard to the potential liability of third parties. Under such an interpretation, the City would be an additional insured under the policy if the contractor/subcontractor named insured bore some responsibility for the accident and the City itself bore none. Solely vis-à-vis the named insured (NI) and the additional insured (AI), in other words.

LexisNexis' 2008 Top 50 Insurance Blogs

Earlier this week, the LexisNexis Insurance Law Center apparently selected Coverage Counsel as one of the country's 2008 top 50 blogs for insurance. Said LexisNexis:
These blogsites contain some of the best writing out there on insurance on coverage, catastrophic loss, regulatory compliance, life insurance, health care and insurance issues in general. They contain a wealth of information for the insurance community with timely news items, practical information, expert analysis, frequent postings and helpful links to other sites. These blogsites also show us how insurance issues interact with politics and culture. Moreover, they demonstrate how bloggers can impact the world of insurance law and insurance industry issues.
Really? I'm renaming this blog the Cultured Coverage Counsel.

My fellow New York blawgers Dave Gottlieb (No Fault Paradise) and Matt Lerner (New York Civil Law) also made the list. Kudos to them. Prodigious insurance commentator and author Larry Rogak and his Rogak Report did not make the list, but certainly only because his fine newsletter is subscription only and not googlable on the Internet as a blog.

Full list of the chosen 50 is here or by clicking the JPG on the upper right corner of this page.

Malella-Based Recovery Action Proceeds & Discovery of Financial Documents Granted

One Beacon Ins. Group, LLC v. Midland Med. Care, P.C.

(2nd Dept., decided 9/9/2008)

OneBeacon brought this action against numerous medical PCs, management companies and the individuals who owned them, and licensed healthcare professionals, alleging that the PCs were fraudulently incorporated in the names of licensed healthcare professionals while, in fact, the PCs were owned, operated, and controlled by unlicensed persons and their management companies in violation of applicable statutes and regulations. Under theories of common-law fraud and unjust enrichment, OneBeacon sought recovery of no-fault bills already paid to the PC defendants, as well as a declaration that it was not obligated to pay outstanding claims.

Defendants David Stemerman and his radiology practice, Proscan Imaging, P.C. moved for summary judgment to dismiss OneBeacon's complaint, which was denied, Nassau Supreme finding a triable issue of fact to exist as to whether Proscan was fraudulently incorporated, and ordering those defendants' disclosure of certain financial documents to OneBeacon.

In AFFIRMING the lower court's order, the Second Department pointed out:
Applicable provisions of the no-fault law require insurers to reimburse patients or their medical provider assignees for "basic economic loss" (Insurance Law § 5102[a][1]). A provider of healthcare services is not eligible for reimbursement, however, "if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York" (11 NYCRR 65-3.16[a][12]). The Court of Appeals has interpreted 11 NYCRR 65-3.16(a)(12) to allow insurance carriers to withhold reimbursement for no-fault claims from fraudulently licensed medical corporations and to "look beyond the face of licensing documents to identify willful and material failure to abide by state and local law" (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313, 321). State law mandates that professional service corporations be owned and controlled only by licensed professionals (see Business Corporation Law §§ 1503[a]; 1507, 1508), and that licensed professionals render the services provided by such corporations (see Business Corporation Law § 1504[a]).
In the Second Department's view, although the appealing defendants had shown their entitlement to summary judgment by by submitting evidence that Stemerman, a licensed physician, was the sole shareholder of Proscan, performed or oversaw all medical services provided by Proscan, and was the sole signatory on Proscan's bank account, OneBeacon had submitted sufficient evidentiary proof to raise an issue of fact as to whether Proscan was actually controlled by a management company owned by unlicensed individuals in violation of the New York Business Corporation Law.

On the discovery dispute, the Second Department ruled that Nassau Supreme had properly granted that branch of OneBeaon's cross motion for disclosure of certain financial documents:
Contrary to the appellants' contention, the plaintiffs were not required to make a showing of "good cause" for such disclosure (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d at 322; see Matter of Andrew Carothers, M.D., P.C. v Insurance Cos., 13 Misc 3d 970, 972-973), as the documents were "material and necessary in the prosecution" of this action (see CPLR 3101[a]).

Back At It

I'm back from Atlanta, having attended and spoken at the International Association of Special Investigation Units' 24th annual seminar earlier this week on Crack Ride Losses and Difficult EUOs. Posts to resume today.

Sunday, September 7, 2008

FOILing Redlining

It's happened before. And it's happening again, and this time, the answer is yes.

"Redlining", as the term is used in the insurance industry, is an insurer's refusal to issue or renew, or its cancellation of, a policy premised exclusively on the geographic location of the risk.

Concerned that auto insurers were engaging in that practice in Brooklyn, in 2002, Brooklyn Borough President Marty Markowitz filed two Freedom of Information Law (FOIL) requests with the State Insurance Department seeking information "for each Kings County zip code, including, by carrier, the number of voluntary [automobile] policies issued, renewed, cancelled (other than for non-payment of premium) or nonrenewed." Markowitz claimed that such zip code reports (commonly referred to as Regulation 90 reports) were available pursuant to 11 NYCRR 218.7 (d), an insurance regulation which states that such reports "shall be public record."

The Insurance Department said no to Markowitz, asserting the FOIL exemption precluding disclosure or release of trade secrets or records that, if disclosed, "would cause substantial injury to the competitive position" of insurers (Public Officers Law § 87 [2] [d]). The Department told Markowitz they would send him the requested reports, but only after six years.

Ironically, that's how long it took it took Markowitz to prevail on his FOIL request. After exhausting his administrative remedies, he commenced a CPLR Article 75 special proceeding against the Insurance Department in 2004 to get the Regulation 90 reports he sought. Supreme Court granted his petition, but the Appellate Division, First Department, reversed.

The Court of Appeals granted leave to appeal and, on June 26, 2008, reversed the First Department's decision and granted the petition, ordering the Insurance Department to disclose the reports. Matter of Markowitz v. Serio, 11 NY3d 43 (2008):
Because the overall purpose of FOIL is to ensure that the public is afforded greater access to governmental records, FOIL exemptions are interpreted narrowly (see Matter of Washington Post Co. v New York State Ins. Dept., 61 NY2d 557, 564 [1984]). To meet its burden, the party seeking exemption must present specific, persuasive evidence that disclosure will cause it to suffer a competitive injury; it cannot merely rest on a speculative conclusion that disclosure might potentially cause harm.

Here, the Department and insurers have failed to meet this burden. The evidence suggesting they will suffer a competitive disadvantage is theoretical at best. The insurers' key argument is that if they are forced to reveal zip codes of areas where relatively few policies are issued, competitors could use this information to exploit an insurer's geographic weak spot. It has not been shown that zip code data, without more, would necessarily put the insurer at a competitive disadvantage. Because neither the Department nor insurers have met their burden of justifying the exemption of the reports under Public Officers Law § 87 (2) (d) (see Matter of Washington Post Co., 61 NY2d at 567), the order of the Appellate Division should be reversed, with costs, and the order and judgment of Supreme Court reinstated.
As the Washington Post Co. case citation in the Court of Appeals' decision suggests, newspapers love to FOIL and watch the courts for signs, suggestions and new ideas for utilizing FOIL requests to dig up information for stories. And that's probably what happened recently right here in Buffalo, with the Buffalo News filing FOIL requests for the auto and homeowner policy Regulation 90 reports of State Farm, Nationwide, Fireman’s Fund, USAA, Farmers, Hartford, and Chubb. This time, "constrained" by the Court of Appeals' recent decision in Matter of Markowitz, the Department said yes and ruled earlier this week that the records may be disclosed under FOIL.

The Buffalo News is reporting that several of the insurers may go to federal court to block the disclosure, and at least one insurer is expected to appeal the Department's decision to disclose the records. In the absence of an appeal or further court challenge, the Department must be provided to the Buffalo News by Thursday, September 11th.

New York State DMV Insurance Codes and Company Contacts

The New York State Insurance Department of Financial Services (born on date October 3, 2011) has posted an updated list of DMV insurance company codes and contacts to its website.  Access that information here.  (Updated November 1, 2011.)

Friday, September 5, 2008

SUM Claim Arbitration Not Barred By Res Judicata or Collateral Estoppel

Matter of Interboro Ins. Co. v. Rienzo

(2nd Dept., decided 9/2/2008)

In Matter of State Farm Ins. Co. v Smith, 277 AD2d 390 (2nd Dept. 2000), the Second Department ruled that the claimant was not barred by the doctrine of collateral estoppel from pursuing her SUM claim against State Farm even though she had previously been awarded only $25,000 in an arbitration concluding her personal injury claim against the tortfeasor. While acknowledging that collateral estoppel effect can be given to arbitration awards, the court noted that the claimant and tortfeasor had limited the scope of their arbitration by stipulating in their written arbitration agreement that the decision rendered by the arbitrator was to be conclusive "only as to the matters being adjudicated in said arbitration, pertaining to the parties present," and was to have no "collateral estoppel effect as to the same or similar issues in companion claims or actions arising out of the incident which is the subject of said arbitration."

In this case, the Second Department's citation to and reliance on Matter of State Farm Ins. Co. v Smith implies that Interboro Insurance Company made the same argument -- that collateral estoppel from a prior arbitration award or result collaterally estopped its insured from pursuing coverage under her policy with Interboro. The Second Department affirmed that part of Suffolk County Supreme Court's order which denial of Interboro's petition to permanently stay arbitration of the SUM claim:
The Supreme Court correctly concluded that the respondent was not barred by the doctrines of res judicata or collateral estoppel from pursuing arbitration against the petitioner with respect to her claim for supplementary uninsured/underinsured motorist benefits; accordingly, that branch of the petition which was for a stay of the arbitration on that basis was properly denied (see Matter of State Farm Ins. Co. v Smith, 277 AD2d 390; Kerins v Prudential Prop. & Cas., 185 AD2d 403).
The court reversed that part of the lower court's order denying Interboro discovery of the insured's SUM claim prior to arbitration:
However, the Supreme Court should have granted the alternative branch of the petition, which the respondent, Theresa Rienzo, did not oppose, which was to direct Rienzo to submit to an examination under oath and a physical examination, and to furnish pertinent medical documentation or authorizations for the petitioner to obtain that documentation, prior to arbitration (see 11 NYCRR 60-2.3[f][2], [3]; Matter of Interboro Mut. Indem. Ins. Co. v Wiener, 267 AD2d 310).

Thursday, September 4, 2008

Food Fighting Coverage -- Middle School Cafeteria Garbage Can Hurler Entitled To Defense & Indemnification

Medrano v. State Farm Fire & Cas. Co.
(2nd Dept., decided 9/2/2008)

While Medrano was working as a middle school aide monitoring students during lunch in the cafeteria, a "food fight" broke out among eighth-grade students. [The decision doesn't indicate at what volume and velocity of tossed food and number of combatants such a fracas qualifies as a "food fight" or whether the aide received battle pay for her station in the cafeteria.] The food fight escalated into the use of non-foodstuff, heavy artillery, when student Robert Filer threw a garbage can into the air, striking and injuring Medrano.

At the time of the incident, Robert qualified as an "insured" under his parents homeowners insurance policy with State Farm. Medrano and her husband sued Robert, alleging that he negligently, carelessly, and recklessly caused Medrano's injuries. State Farm denied liability coverage for the claims asserted against Robert in the personal injury action stating, inter alia, that the alleged incident did not qualify as an "occurrence," which the policy defined as an accident, and that the policy contained an exclusion for a claim for bodily injury that either was expected or intended by the insured or was the result of willful and malicious acts of the insured.

The Medranos then commenced this action for a judgment declaring that State Farm was obligated to defend and indemnify Robert in connection with the underlying personal injury action. Queens Supreme granted the Medranos' motion for summary judgment declaring that State Farm was so obligated, granted Filer's cross motion for the same relief, and denied State Farm's cross motion for summary judgment. The court reasoned, in part, that the complaint in the underlying action alleged negligence. It further based its determination on the deposition testimony of Filer, which indicated a lack of intent to injure Medrano, ruling that this was sufficient to bring the underlying personal injury action within the parameters of the policy, and to create a duty to defend. State Farm appealed.

In AFFIRMING the lower court's order, the Second Department held:
State Farm failed to demonstrate its entitlement to judgment as a matter of law since it did not show that the allegations of the complaint fell wholly outside coverage or within any valid policy exclusion. The allegations of negligence in the complaint implied an unintentional or unexpected event which potentially gives rise to a covered claim as against Filer (see Barry v Romanosky, 147 AD2d 605).

The plaintiffs and Filer demonstrated their prima facie entitlement to judgment as a matter of law by submitting evidence that Filer did not intentionally cause injury to the plaintiff, and that although such injury may have been the unintended result of Filer's conduct, it was not the result of a willful and malicious act (see Slayko v Security Mut. Ins. Co., 98 NY2d 289, 293; Allegany Co-op Ins. Co. v Kohorst, 254 AD2d 744, 745; Baldinger v Consolidated Mut. Ins. Co., 15 AD2d 526, affd 11 NY2d 1026). In opposition, State Farm failed to raise a triable issue of fact.

Middle school cafeteria + food fight + flying garbage can + injury- proof of intent to injure = coverage, at least in the opinion of the 2nd Department.

Lawyer's "Please Be Advised..." Letter Found Not To Constitute a "Claim"

Yale Club of New York City, Inc. v. Reliance Ins. Co. in Liquidation

(1st Dept., decided 9/2/2008)

As the name implies, under "claims-made" insurance policies, only claims made and reported during a policy period qualify for coverage. The policy in force on the date the insured became aware and gave notice of a "claim" is the policy that must respond with defense and indemnification coverage, provided the negligent act, error or omission giving rise to the claim occurred after a specified “prior acts” or “retroactive” date.

Yale Club of New York City was the insured under two "claims-made" insurance policies issued by Lloyds, London and Reliance, providing directors and officers liability coverage for the years ending on November 23, 1993 and November 23, 1994, respectively. On August 12, 1993, while Yale Club was insured under the Lloyds policy, it received a letter from an attorney representing certain waiters and other employees at the Yale Club who alleged to have been "deprived of tips and bonuses." The letter requested information to enable compliance with counsel's stated "obligation to make a reasonable inquiry into the facts before filing a pleading with the courts." Yale Club did not notify Lloyds about the letter.

In February 1994, after coverage had commenced under the Reliance policy, the attorney instituted an action against Yale Club on behalf of 13 Yale Club employees represented by his firm. Yale Club notified Reliance of the claim the following month, which disclaimed coverage under its policy on the ground that the August 1993 letter constituted notice of a claim made.

Some years later, the Yale Club settled with the waiters for $370,000. Shortly thereafter Reliance went into liquidation and the Yale Club submitted a proof of loss to its Ancillary Receiver for the sum of the $370,000 settlement, plus $405,005.07 in attorney fees, as well as interest at 9% from May 2000. Like Reliance, the Ancillary Receiver of Reliance asserted that the date of the Yale Club's receipt of the August 1993 lawyer's letter constituted the date upon which the waiters' claims were first made, and, since this date occurred prior to the policy period, denied coverage.

The issue of the August 1993 letter's effect on Reliance's liability to Yale Club was submitted to a referee, who found that "the letter was merely a request for information; the claim was properly filed after the Reliance coverage began." Yale Club successfully moved New York County Supreme Court to confirm the referee's report, and the New York Superintendent of Insurance, as Ancillary Receiver for Reliance, appealed.

In a 3-2 decision, the First Department AFFIRMED the judgment for Yale Club, Justice Tom writing the majority's opinion, which began:
At issue is whether a letter received by an insured constitutes a "claim" within the meaning of a claims-made insurance policy. Although the term is undefined in the insurance contract, defendant Superintendent of Insurance, as Ancillary Receiver for Reliance Insurance Company, contends that case law dictates that the letter be treated as a claim. Since there is an ambiguity as to what constitutes a claim under the Reliance policy, such ambiguity must be construed against the insurer under the doctrine of contra proferentum. In the context of ongoing attempts by the union representing the insured's employees to resolve the parties' dispute, the letter, which neither makes any demand for payment nor advises that legal action will be forthcoming, is insufficient to state a claim.
The majority rejected the Superintendent's invitation, absent a definition in Reliance's policy on what constituted a "claim", to resolve any ambiguity in that term by speculating on the parties' intent. Instead, the majority, noting that New York law ascribes no generally accepted meaning to the term in the context of a claims-made policy, held that under established New York case law, the term has been defined as, for instance, "a demand received by the Insured . . . for money or services":
While the disputed letter certainly conveys the suggestion that a lawsuit was being contemplated, it also states unequivocally that counsel was seeking information in connection with his obligation to determine whether legal action was warranted. Moreover, the letter does not even state that the purpose of any such action would be the recovery of civil damages, merely alleging that the Yale Club's actions variously "constitute criminal violations, as well as civil violations of RICO and the New York State Labor Law, and fraud and conversion."

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Counsel's letter to plaintiff falls far short of a demand for money or services (Retirement Fund of the Fur Mfg. Indus. v Republic Ins. Co., 755 F Supp 625 [SDNY 1991], affd 948 F2d 1275 [2d Cir 1991]), or even the expression of a present intent to initiate legal proceedings (see In re Ambassador Group, Inc. Litig., 830 F Supp 147, 155 [EDNY 1993]). Any action that might have been contemplated in pursuit of the employees' claim is implicitly conditioned upon the outcome of counsel's investigation of its merit. Thus, the letter received by plaintiff is not "an assertion of a legally cognizable damage, . . . a type of demand that can be defended, settled and paid by the insurer" (Evanston Ins. Co., 132 AD2d at 185).

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Defendant's sole basis for seeking reversal of the judgment against the Liquidation Bureau is his contention that the claim arose prior to the inception of the Reliance policy and, thus, outside the scope of its coverage.

Defendant's contention lacks a sound factual predicate. To sustain his attack on the judgment would require this Court to assign an expansive meaning to the term "claim" under uncertain and contentious circumstances. It is uncontested that the workers on whose behalf the letter sought information were represented by a union, and it is apparent that the union was engaged in efforts to resolve the dispute on their behalf and on behalf of the rest of its members employed at the Yale Club. Plaintiff's mere awareness that an action was being contemplated by the attorney for the 13 Yale Club employees was hardly tantamount to notice that an action would be brought, since his investigation could have revealed that suit was unwarranted or subsequent events could have rendered an action unnecessary. The mere awareness of alleged wrongdoing is not a "claim" within the meaning of the typical claims-made policy (see Purcigliotti, 240 AD2d at 206).

The two-justice dissent disagreed with the majority's assessment of the August 1993 lawyer's letter and distinguished the case law authority upon which the majority relied:
From its very first sentence, the Letter could not have been a plainer statement that its subject matter was the claim being made on behalf of certain named employees of the Yale Club. The sentence read: "Please be advised that our office represents the above named employees of the Yale Club with respect to wage claims..." In the Letter, the waiters claimed, among other things, "that they [had] been deprived of tips and bonuses which amount to hundreds of thousands, and probably, millions, of dollars." The Letter further alleges that "[t]he deprivation of these monies constitute[s] criminal violations, as well as civil violations of RICO and the New York State Labor Law, and fraud and conversion." It requests 13 sets of relevant documents and information, as well as insurance information. Significantly, the Letter states that pursuant to court rules "counsel is under an obligation to make a reasonable inquiry into the facts before filing a pleading with the courts." It is reasonable to assume that were it not for "court rules", counsel would have already filed the summons and complaint.

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Further, I contend that both the Yale Club and the majority improperly cite to the nonbinding U.S. District Court opinion in Ambassador to support their contention that the Letter was not a claim because it was not a "demand for money or services." In Ambassador, the state insurance commissioner sent two letters to the insurer stating that it "had uncovered facts which [led] him to conclude that certain former directors and officers were guilty of acts falling within the scope of coverage afforded by the ... policy." In re Ambassador Group, Inc. Litig., 830 F. Supp. at 151 (E.D.N.Y. 1993). The policy did not define the term "claim" and the District Court held that neither of the two letters in question constituted a claim as the term is normally viewed. Id.

In reaching its decision, the Ambassador court relied heavily upon the fact that the policy characterized the reporting of a "claim" to the insurer as giving notice and the reporting of a "claim" directly to the directors and officers as the making of a claim. Id. at 154. The court also relied upon the fact that the letters under evaluation did not specify an alleged wrongdoing nor did they contain a demand for relief. Id. at 155. Thus, the Ambassador court found that the letters in question did not constitute a claim. Id. at 156.

Notwithstanding, Ambassador is distinguishable from the instant case insofar as in this case, the Letter very clearly alleges wrongdoing. Furthermore, in Ambassador, the letters were sent to the insurance company and here, the Letter was sent directly to the directors and the officers of the Yale Club who had knowledge of the ongoing dispute with the wait staff over tips. This fact clearly undercuts the majority's characterization that the Letter constituted merely a notice of a potential claim. See also Retirement Fund of the Fur. Mfg. Indus. v. Republic Ins. Co., 755 F. Supp. 625 (S.D.N.Y. 1991), aff'd, 948 F.2d 1275 (2d Cir. 1991) (disputed letter was not found to be a "claim" in part because the letter was sent to the insurer and not the party against whom a claim was later made).