Insurer's Mere Denial of Receipt of Default Judgment Against Its Insured Held Not to Rebut Presumption of Its Receipt

AUTO – LATE NOTICE OF SUIT – INSURANCE LAW § 3420(A)(2) ACTION – PRESUMPTION OF RECEIPT – UNTIMELY DISCLAIMER
Maldonado v. State Farm Mut. Auto. Ins. Co.
(NYC Civil, Queens Co., decided 1/15/2009)

It has long been held in New York -- usually in the context of a notice of cancellation of an insurance policy -- that a person's mere denial of receipt, without more, is insufficient to rebut the presumption of receipt that arises from evidence of proper mailing.  See this blog's Presumption of Receipt label.  It is usually the insurer who benefits from that rule.  In this case, however, it worked against State Farm. 

Sometimes called New York's "direct action statute", New York Insurance Law § 3420(a)(2) provides:

§ 3420. Liability insurance; standard provisions; right of injured person. (a) No policy or contract insuring against liability for injury to person, except as provided in subsection (g) hereof, or against liability for injury to, or destruction of, property shall be issued or delivered in this state, unless it contains in substance the following provisions or provisions which are equally or more favorable to the insured and to judgment creditors so far as such provisions relate to judgment creditors:

(2) A provision that in case judgment against the insured or his personal representative in an action brought to recover damages for injury sustained or loss or damage occasioned during the life of the policy or contract shall remain unsatisfied at the expiration of thirty days from the serving of notice of entry of judgment upon the attorney for the insured, or upon the insured, and upon the insurer, then an action may, except during a stay or limited stay of execution against the insured on such judgment, be maintained against the insurer under the terms of the policy or contract for the amount of such judgment not exceeding the amount of the applicable limit of coverage under such policy or contract.

The New York Court of Appeals has held that since this particular section does not specifically provide a method for giving notice of entry of judgment to the insurer, any method of service which is reasonably calculated to do so ought to be sufficient to comply with the statutory requirement.  Thrasher v United States Liability Ins. Co., 19 NY2d 159 (1967).  Under New York CPLR Rule 2103, service of papers on a party who has not appeared may be made by regular mail.

In this case plaintiffs brought a personal injury action and obtained a $25,000 default judgment against State Farm's insured.  The personal injury action stemmed from a November 21, 2003 automobile accident, but this decision does not indicate when plaintiffs sued State Farm's insured or whether plaintiffs took proceedings for the entry of the judgment within one year after the default, as required by CPLR § 3215(c).

According to the decision, plaintiffs served State Farm with the underlying judgment and notice of entry by mailing those items to State Farm's office on March 7, 2008, and produced an affidavit of service by mail to this effect.  When the judgment remained unpaid for 30 days, plaintiffs then commenced this action against State Farm pursuant to Insurance Law § 3420(a)(2) to recover the $25,000 default judgment obtained against State Farm's insured.

In an affidavit submitted in opposition to plaintiffs' motion for summary judgment, State Farm claimed that although it had been aware of the underlying 2004 accident, it did not receive the judgment and notice of entry in March, 2008.  State Farm's affidavit also asserted that its first notice of the underlying action and judgment against its insured was its receipt of the plaintiffs' summons and complaint in this action in late June, 2008, after which it promptly disclaimed coverage on July 9, 2008, presumably based on its insured's failure to forward the underlying suit papers.  Plaintiffs argued that State Farm's July disclaimer was untimely under Insurance Law § 3420(d) because State Farm was presumed to have received the underlying judgment and notice of entry four months earlier in March and had all the information it needed to disclaim at that time.  

On the parties' opposing motions for summary judgment, the court noted that "the only issues... to determine on the instant motion and cross-motion are when State Farm was put on notice of the underlying judgment against its insured, and whether it timely notified the plaintiffs that it was declining coverage due to its insured's violations of the policy agreement."  In accepting the plaintiffs' argument and granting summary judgment to them, Queens Civil Court Judge Diccia Pineda-Kirwan applied the presumption of receipt rule against State Farm:

First, the plaintiffs served the underlying judgment with notice of entry by mailing it to defendant's office on March 7, 2008, as evidenced in the affidavit of service of Wilfredo Bonilla. While defendant submits the affidavit of Justine Sinkler as proof that it did not receive the underlying judgment, "a properly executed affidavit of service raises a presumption that a proper mailing occurred, and a mere denial of receipt is not enough to rebut the presumption." (Kihl v Pfeffer, 94 NY2d 118 [1999].) Accordingly, the denial of receipt by Ms. Sinkler is not enough to create an issue of fact as to when the judgment with notice of entry was received by the defendant. (Kihl, 94 NY2d 118.) Thus, as a matter of law, the defendant was put on notice of the underlying judgment on March 7, 2009. 

Second, it must be determined whether State Farm's July 9, 2008 letter disclaiming coverage complies with the statutory requirement of disclaiming coverage "as soon as reasonably possible." (Insurance Law § 3420(d).) The Court of Appeals determined in First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64 [2003], that "once the insurer has sufficient knowledge of facts entitling it to disclaim, or knows that it will disclaim coverage," it must notify the party seeking the benefit of the policy coverage in writing as soon as reasonably possible. Timeliness of an insurers disclaimer is measured from the time when the insurer first learns of the grounds for denial of coverage. (First Fin. Ins. Co., 1 NY3d 64; Moore v Ewing, 9 AD3d 484 [2004].) Here, State Farm was aware that it was going to disclaim coverage once the underlying judgment was served upon it, as its reasons for disclaiming coverage were based on its insured's failure to forward suit papers in the underlying cause of action. Thus, State Farms unexplained delay in disclaiming coverage for over four months after it had "sufficient knowledge of facts entitling it to disclaim" is unreasonable as a matter of law. (First Fin. Ins. Co., 1 NY3d 64; Matter of Allstate Ins. Co. v Swinton, 27 AD3d 462 [2006]; Shell v Fireman's Fund Ins. Co., 17 AD3d 444 [2005]; Vacca v State Farm Ins. Co., 15 AD3d 473 [2005]; Moore, 9 AD3d 484.)

Questions occurring to me regarding the injured parties' notice of entry mailing to State Farm include:  When and how did the injured parties learn of State Farm's identity as the insurer?  Did they or their attorney communicate with State Farm before the underlying action was brought?  Were they given a policy number or a claim number?  Did they include such number(s) on their notice of entry mailing?  If not, why not?  How did they know which State Farm office to send the notice of entry to?  Did anyone call and get a claim number, representative's name or office location before sending the notice of entry to State Farm?  Was the notice of entry sent only by regular mail?  If so, why not send by certified mail to make sure State Farm received it?

So what's an insurer to do in the face of such an affidavit of mailing?  Perhaps depose the affiant, in an attempt to create a question on the mailing.  And certainly say more in opposition to a 3420(d)-based motion than merely denying receipt of the judgment and notice of entry.  That doesn't cut it for insureds, and it now has been held not to cut it for insurers.