Friday, January 30, 2009

Second Department Affirms Vacatur of Default Judgment Against No-Fault Insurer

NO-FAULT – VACATING DEFAULT JUDGMENT – REASONABLE EXCUSE
Westchester Med. Ctr. a/a/o Diedre Walsh v. Hartford Cas. Ins. Co.

(2nd Dept., decided 1/27/2009)


Under New York CPLR Rule 5015(a)(1), a party seeking to vacate a default judgment taken against it must demonstrate (1) a reasonable excuse for its delay in appearing and answering, and (2) a meritorious defense to the action.

Plaintiff medical provider sued Hartford for unpaid no-fault billing(s).  Hartford did not timely appear and answer, and plaintiff obtained a default judgment in the principal sum of $16,571.91 against it.  Hartford successfully moved to vacate the default judgment, and plaintiff appealed.

In AFFIRMING Nassau Supreme's vacatur of the default judgment, the Second Department held:
Here, the defendants established that their employee reasonably believed that the action had been discontinued after she advised the plaintiff's counsel's office that no-fault benefits had been exhausted, thereby demonstrating a reasonable excuse for the short period of time in which they failed either to appear or to answer the complaint (see New York Univ. Hosp. Tisch Inst. v Merchants Mut. Ins. Co., 15 AD3d 554, 554-555). In addition, the defendants established that the policy limits had been partially exhausted through the payment of claims for prior services (see 11 NYCRR 65-3.15; Nyack Hosp. v General Motors Acceptance Corp., 8 NY3d 294, 301; Montefiore Med. Ctr. v Government Empls. Ins. Co., 34 AD3d 771, 772; New York & Presbyt. Hosp. v Allstate Ins. Co., 28 AD3d 528, 528-529), thereby demonstrating the existence of a potentially meritorious defense to the action. Finally, the plaintiff did not demonstrate prejudice from the defendants' relatively short delay in appearing and answering, and public policy favors the resolution of cases on the merits (see Verde Elec. Corp. v Federal Ins. Co., 50 AD3d at 673).
The motion court's decision is not available online, and this appellate decision does not explain why it was reasonable for Hartford's representative to believe that this action would be discontinued after advising plaintiff's counsel's office that the assignor's no-fault benefits had been exhausted.  And I'm not sure what "partially exhausted" means exactly, or why it represents a potentially meritorious defense to a provider's no-fault claim, but my uncertainty doesn't matter.  Both the motion and appellate court found that Hartford had established a reasonable excuse (we thought the action would be discontinued) and meritorious defense (no-fault limits were partially exhausted), and plaintiff suffered no prejudice from the short delay in appearing and answering.  Vacatur of the default judgment was, therefore, warranted.

SUM Arbitration Stay Denied -- Prejudice from Late Notice of SUM Claim Not Shown

SUM – LATE NOTICE – PREJUDICE
Matter of Liberty Mut. Ins. Co. (Frenkel)

(3rd Dept., decided 1/29/2009)


The New York Court of Appeals' April 2005 decision in Rekemeyer v State Farm Mut. Auto. Ins. Co. created a new rule:  New York auto insurers were required to show prejudice before disclaiming SUM coverage for an insured's late notice of a SUM claim.  Three years earlier, that same court had ruled in Matter of Brandon (Nationwide Mut. Ins. Co.), 97 NY2d 491 (2002) that a SUM carrier which receives timely notice of a SUM claim must show prejudice before disclaiming SUM benefits based on late notice of the underlying legal action.  In Rekemeyer, inasmuch as State Farm had received timely notice of the accident and the insured's no-fault claim, the court held that State Farm was required to but had not established prejudice from late notice of the actual SUM claim, especially since State Farm had investigated the accident and conducted IMEs in relation to the insured's no-fault claim.

The Third Department has now carried the Rekemeyer rule a step farther.  In this case, Liberty's insured was involved in an automobile accident in an auto accident in October 2004 when the vehicle he was driving was rear-ended.  Three weeks later, the insured's attorney sent a letter to Liberty notifying it that the insured had been injured in an automobile accident, had incurred medical expenses, lost wages from work and would be seeking no-fault benefits under his insurance policy. The letter also stated that "if our investigation reveals that the offending vehicle was not insured or underinsured, we are therefore reserving our rights to pursue [uninsured motorist/supplemental uninsured/underinsured motorist] benefits under [said] endorsement in the policy."

More than two years later, in December 2006, the insured's attorney notified Liberty that the insured was in the process of settling a lawsuit that he had commenced against the tortfeasor for the limits of the tortfeasor's insurance policy and that the insured, upon such settlement, intended to seek supplemental uninsured/underinsured motorist (SUM) benefits under his policy with Liberty.  On January 3, 2007, Liberty notified the insured that it was disclaiming coverage under the policy on the grounds that the insured had failed to provide Liberty with timely notice not only of his lawsuit against the tortfeasor, but also of his claim for SUM benefits. After the insured served Liberty with a notice to compel arbitration, Liberty commenced this CPLR article 75 special proceeding for a permanent stay of that arbitration.  Albany Supreme dismissed Liberty's petition, and Liberty appealed.

In AFFIRMING the dismissal of Liberty petition for a permanent stay of the SUM arbitration, the Third Department noted that the 2004 attorney's letter did put Liberty on notice "of the existence of the accident and the potential implications it held for its policy" and ruled:
There is no dispute that petitioner was put on notice of the existence of the accident within three weeks of its occurrence and that respondent would be submitting a claim pursuant to the no-fault provisions of the policy. With that notice, petitioner also received the police report prepared in connection with the accident that identified the individuals involved in the accident as well as the vehicle each individual was operating.  Petitioner was also notified at that time that respondent would seek SUM coverage under its policy if the tortfeasor's policy proved inadequate to fully compensate him for the injuries that he sustained in the accident.  Under the circumstances, petitioner had ample information at its disposal shortly after the accident occurred to properly investigate this claim and ensure that its interests under the policy were fully protected. Equally important, petitioner has failed to demonstrate that respondent's delay in notifying it of the third-party action or the SUM claim in any way compromised its ability to investigate the circumstances surrounding the accident or to protect its interests under this policy (see Rekemeyer v State Farm Mut. Auto. Ins. Co., 4 NY3d at 475; Matter of Nationwide Mut. Ins. Co. [Mackey], 25 AD3d at 907). As such, its application to stay arbitration was properly denied. 
Under this holding, a mere letter from the insured notifying the auto insurer of an accident with injuries and impending no-fault claim would appear to be enough to satisfy an insured's notice of SUM claim requirement if the auto insurer is unable to prove prejudice from the insured's delay in actual, formal notice of such a claim.  Does this mean that New York auto insurers should investigate every accident reported to them, regardless of seriousness and far in advance of having any reason to believe that a SUM claim may be made?  Why would they?

Thursday, January 29, 2009

Court Weighs Impact of Fair Price Medical Decision on No-Fault Fraud-Related Defenses

NO-FAULT – IMPACT OF FAIR PRICE MEDICAL ON NO-FAULT FRAUD-RELATED DEFENSES – MALLELA DEFENSE – STAGED ACCIDENT DEFENSE
Manhattan Med. Imaging, P.C. a/a/o Jessica Rodriguez v. State Farm Mut. Auto. Ins. Co.

(NYC Civil, Richmond Co., decided 9/4/2008)


I spoke about this case at yesterday's NYSSIU quarterly meeting in Cicero. Kudos to all who made it there in spite of the snow, and welcome new NYSSIU officers and directors.

The decision dates back to September of last year, but its rulings are noteworthy and important to no-fault practitioners. I've had some of this post in draft for some time, and yesterday's discussion motivated me to finish it.

When the New York Court of Appeals issued its decision in Fair Price Medical in June of last year, the New York no-fault community wondered what fraud-related defenses could and would survive beyond 30 days from an insurer's receipt of a bill (even for services or devices that may not actually have been administered or delivered to patients) or requested verification of a claim. If billing fraud for services or devices not actually administered or delivered to patients would be subject to the 30-day pay or deny preclusion rule, what other types of no-fault claimant and provider fraud wouldn't be? The incline on the "coverage defense" slipperly slope had just gotten radically steeper.

Enter Judge Katherine Levine of Richmond County New York City Civil Court, whose prodigious vocabulary and prolific writing on no-fault issues provide ample grist for this blawger's mill. In this case, Judge Levine addressed “the murky issue of what precise evidence a defendant insurer must present in support of its late denial based upon fraud to withstand the granting of summary judgment to a plaintiff medical services provider in a No-Fault case.” Also at issue was whether the Court of Appeals’ Fair Price Medical decision requires an insurer to proffer the defense that a provider is fraudulently incorporated within 30 days or whether that defense remains non-waivable.

On the first issue, Judge Levine reiterated that a staged accident defense is not subject to the 30-day preclusion rule and held that State Farm’s proffer of the assignors’ transcribed recorded statements, although unsworn and unsigned but certified by the transcriber, together with a signed and sworn affidavit of State Farm’s special investigator was sufficient to create a question of fact on whether the claim was fraudulent, precluding summary judgment. State Farm’s special investigator memorialized inconsistencies in the various assignors' statements, including the color and make of the car they were in that was supposedly involved in the accident, different reasons as to why they were all together with the same driver, who was seated in the front of the car at the time of the accident and whether the car was stopped at the point of the accident. Judge Levine commented:
While this court does not believe that defendant presents a strong case of a staged accident, it presents enough inconsistencies to rise above the base level of "unsubstantiated hypothesis and suppositions" so as to permit this defense to go to trial. The court is not troubled that the statements of the assignors were not verified or signed since their transcribed statements were certified by the transcriber. See R.M. Newell Co. v. Rice, 236 AD2d 843, 844 (4th Dept. 1997), (deposition transcripts certified as accurate by transcriber admissible on summary judgment motion even though unsigned). Nor is the court concerned that Fink was not present during the taking of the statements. See, e.g., PDG Psychological, supra, Northern Medical, P.C., supra (trial held despite late denial based upon SIU investigator's finding that there was a staged accident based upon his review of the file for the first time a few weeks before the trial and his running a prior claim history on the assignor).
On Fair Price Medical's impact on the Mallela (fraudulent incorporation) defense, Judge Levine also ruled that the Court of Appeals’ decision does not preclude a no-fault insurer from raising a fraudulent incorporation defense beyond 30 days from receipt of billings or verification, provided the insurer presents a "founded belief" that the corporation is ineligible to obtain no-fault benefits by reason of a fraudulent corporate filing:
Defendant herein alleges that Dr. Brownstein is not the sole owner of Manhattan Medical but rather shares his ownership responsibilities with Sam Stern, a non physician. The attorney's affirmation cites a number of certificates of incorporation which allegedly show a labyrinth of interconnections between plaintiff Manhattan Medical and Universal Diagnostic Imaging, the latter of which is purportedly owned by Stern. Defendant also alleges that Brownstein owns at least five other imaging companies and is allegedly facing civil fraud lawsuits stemming from his ownership of other entities. Also attached is an EBT of the assistant office manager of plaintiff who indicates that Stern is one of the other owners of plaintiff and the testimony of plaintiff's business manager in another where she testified that Stern is a general partner of plaintiff.

The court finds that defendant has articulated a "founded belief" that plaintiff is fraudulently incorporated as it is actually controlled by a non-licensed professional. Defendant has therefore made allegations sufficient to raise an issue of fact as to whether plaintiff is fraudulently incorporated.
Through this morning, Judge Levine's decision in this case has been cited only once -- again by Judge Levine in her New Year's Eve ruling in Yklik, Inc. a/a/o Tammy Agosto v. Allstate Ins. Co. concerning a no-fault insurer's fee schedule defense, a decision with which, by the way, I take a most respectful exception for reasons given in my post on that case.

Tuesday, January 27, 2009

New York State Insurance Department Office of General Counsel Opinions for December 2008



Posted recently to the NYS Insurance Department's website are the Office of General Counsel Opinions from December 2008. Two of the 9 posted opinions merit mention here.

Settlement of No-Fault cases (December 26, 2008)

Questions Presented:

1. Does an insurer violate any provision of the Insurance Law or regulations promulgated thereunder by settling a group of no-fault claims with an attorney (“Attorney A”) for a lower settlement amount and no interest, in order to avoid settling the same claims with another attorney (“Attorney B”), who is the attorney of record and who demands a higher settlement amount including interest?

2. If the insurer has violated the Insurance Law, what are the legal consequences to the insurer, Attorney A, and Attorney B:
a. Must the cases be “unsettled?”
b. Must Attorney B “discontinue the cases?”
c. Must the insurer pay attorney’s fees and interest?
Answers:

1. Nothing in the Insurance Law or regulations promulgated thereunder addresses whether an insurer may settle no-fault cases with one attorney when the insurer is specifically aware that another attorney is the attorney of record.

2. Because, under the circumstances described, there is no per se violation of the Insurance Law or regulations promulgated thereunder, the Insurance Department will not comment on the legal consequences of the insurer’s actions.

Facts:

Attorney A and an insurer were negotiating the settlement of a group of no-fault claims on behalf of a single client who is a no-fault provider. Both parties agreed to settle the claims for a percentage of the principal without interest. At the same time, the insurer was engaged in negotiations with Attorney B to settle the same group of claims. Attorney B had demanded a higher percentage of the principal plus interest. The inquirer states that during negotiations with Attorney B, the insurer announced its intention to settle with Attorney A a group of claims from one particular provider. Attorney B contested the settlement, contending that Attorney A did not file those claims with the court, did not have copies of those claimants’ files, and did not file a change of attorney form with the court so as to allow him to settle the claims. However, the inquirer states that Attorney B concedes that Attorney A may settle any claims from that specific provider over which Attorney A has control, but may not settle any claims over which Attorney B has control, unless Attorney A files a change of attorney form.

Further, the inquirer reports that the insurer requested from Attorney B a list of the claims that Attorney B filed in court. That list comprised of 30 to 40 claims. After reviewing those claims, along with the settlement amount that Attorney B demanded, the insurer discontinued negotiations with Attorney B, asserting that the insurer did not pay interest on “bulk settlements,” and that the percentage of the principal that Attorney B demanded was “too high.” A few weeks later, Attorney B was informed that Attorney A had settled all of Attorney B’s claims. Subsequently, the insurer sent to Attorney B a $65 filing fee for all of attorney B’s cases that were filed in court and requested discontinuance on all the “settled” cases. However, Attorney B did not receive any attorney’s fees.

Finally, the inquirer states that as part of the settlement agreement between the insurer and Attorney A, Attorney A would have to settle all the claims, including those of Attorney B. In this regard, the client, who desired settlement of the claims, granted Attorney A written permission to negotiate with the insurer the settlements of all the claims (including those of Attorney B). Attorney B received a copy of this written permission after Attorney B refused to discontinue the claims.

Analysis:

Nothing in the “no-fault law”, which is codified in Article 51 of the Insurance Law, or the regulations promulgated thereunder, addresses the issues presented by the inquiry. Indeed, inasmuch as the client apparently unilaterally consented to the settlement, it is unclear whether any wrongdoing in fact occurred.

The inquiry seemingly involves legal issues beyond the purview of the Insurance Department, and which may be appropriately resolved by a court of competent jurisdiction. If a court clearly determines that the insurer’s conduct as described above is unlawful or unethical, the Department at some later date may take appropriate action.

Editor's Note: Over at No-Fault Paradise, Dave Gottlieb asks "[Is the New York State] Insurance Department unaware of its own regulations?" Dave draws comparison between this OGC opinion letter and Circular Letter No. 14 (2008), in which the Department reminded New York no-fault insurers that 11 NYCRR § 65-3.9(b) provides that an insurer "shall not suggest or require, as a condition to settlement of a claim, that the interest due be waived" and that "the obligations set forth in 11 NYCRR § 65-3.9 fully apply regardless of whether a claim is in litigation or arbitration[.]" Perhaps the distinction Dave and his commenters are looking for is the difference between saying "we do not pay interest on bulk settlements" and "we will not settle these bulk claims unless you agree to waive interest". To some, that may seem like the archetypal distinction without a difference, but there is analogous support in both statute and case law relating to prohibited "steering" under Insurance Law §2610. That statute similarly forbids "recommend[ing] or suggest[ing]" that an insured have physical damage repairs to an insured vehicle made at a particular shop "unless expressly requested by the insured", and yet the New York courts have upheld insurers from advising insureds of their preferred shop programs and asking them whether they would like more information about such programs. Is an offer to pay only a percentage of principal on a set of disputed claims, i.e., ones the insurer contends and believes are not "due", any different than any other offer which the other party is free to accept or reject? Surely the New York State Insurance Department did not intend by Circular Letter No. 14 (2008) to prohibit insurers from negotiating, or to limit such negotiations on disputed claims to principal only, requiring the addition of interest to all agreed principal amounts. Did it?

New York State Health Care Reform Act (HCRA) Surcharges (December 30, 2008)

Question Presented:

Are New York State HCRA surcharges recoverable or reimbursable under Insurance Law § 5105?

Answer:

No. New York State HCRA surcharges are not considered first-party benefits and therefore are not recoverable or reimbursable under Insurance Law § 5105.

Analysis:

The New York State HCRA set forth in Public Health Law § 2807-c and related provisions establish the requirement that no-fault insurers and self-insurers pay a surcharge on payments made for services rendered in general hospitals, diagnostic and treatment centers, and freestanding clinical laboratories to the Public Goods Pool.

Insurance Law § 5105 is relevant to the inquiry. That statute authorizes, under specified circumstances, for the recovery of no-fault payments between insurers to the extent that covered parties would have been liable to pay damages in an action at law. * * *

Thus, insurers may recover first-party benefits under the no-fault law from one another under limited circumstances. Insurance Law§ 5102(b) defines “first party benefits” as “payments to reimburse a person for basic economic loss on account of personal injury arising out of the use or operation of a motor vehicle…” (Emphasis added.) “Basic economic loss,” in turn, is defined in Insurance Law § 5102(a)[.] * * *

Basic economic loss does not include HCRA surcharges to insurers. Accordingly, first-party benefits do not encompass those surcharges, either. Therefore, although Insurance Law § 5105 permits the recovery of first-party benefits between no-fault insurers under certain limited circumstances, HCRA surcharges are not recoverable or reimbursable under Insurance Law § 5105, as they do not come within the definition of “first party benefits” set forth in Insurance Law § 5102.

Notice of Rights Letter and Collision Coverage (December 31, 2008)

Questions Presented:

1. Must an insurer directly negotiate with an insured prior to issuing a notice of rights letter when, subsequent to the insurer’s negotiation with a motor vehicle repair facility, the insurer was unable to reach a settlement with the facility?

2. Must an insurer issue a notice of rights letter to an insured when choice of repair facility was not a part of the insurer’s negotiation with the motor vehicle repair facility?

3. Is an insurer required to alter its initial negotiating position on labor rates, or any other negotiable issue, before issuing a notice of rights letter?

Answers:


1. Yes. An insurer must negotiate directly with an insured prior to issuing a notice of rights letter when the insurer has negotiated with a repair facility that has not been designated by the insured, and was unable to reach a settlement with that facility.

2. Yes. Pursuant to Section 216.7(b)(14)(i) of the New York Comp Codes R. & Regs. (“NYCRR”) Tit. 11, Part 216 (Regulation 64), an insurer must issue a notice of rights letter to an insured if “after negotiations an agreed price cannot be reached.” Thus, the insurer’s letter must be issued when choice of repair facility was not explicitly a subject of negotiation with the motor vehicle repair facility.

3. No. An insurer in a negotiation is not required to shift from its initial negotiating position on labor rates, or any other negotiable issue, so long as its initial position is taken in good faith.

Sunday, January 25, 2009

NY PIP Intercompany Arbitration Rule Revisions -- Effective February 1, 2009

Arbitration Forums has announced and posted revised rules for no-fault intercompany loss transfer arbitrations pursuant to New York Insurance Law § 5105(b).  Read them here.  Insurers, self-insurers and compensation providers subject to § 5105 take note. 

Can someone explain the "CPLR 325A-1" reference on page 2 of the revised rules to me?  There is no such section of the CPLR. 

Saturday, January 24, 2009

Insurance Requirement in Bid Documents Does Not Trigger Blanket Additional Insured Coverage

CGL – ADDITIONAL INSURED – CERTIFICATE OF INSURANCE
Illinois Natl. Ins. Co. v. American Alternative Ins. Corp.

(1st Dept., decided 1/22/2009)


Defendant's policy with a nonparty subcontractor included as an additional insured "any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy."

The contract between the subcontractor and the general contractor (GC) and City of New York did not contain a requirement that the GC and City be named as additional insureds.  The bid documents, however, stated that the work "shall be governed by" certain terms and conditions, including a requirement that the GC and City plaintiffs be added as additional insureds on the subcontractor's policy. 

Plaintiff, which insured the CG andCity, argued that the language of the bid documents constituted a "contract or agreement" and triggered the automatic or blanket additional insured coverage under the defendant insurer's policy.  The First Department disagreed, AFFIRMING the motion court's order denying plaintiffs' motion and granting defendant's cross motion declaring that defendant was not obligated to defend or indemnify the GC and City in an underlying personal injury action.

Additionally, the First Department reminded that "[t]he certificate of insurance generated by the subcontractor's broker, by its terms, confers no rights upon the certificate holder".  

Friday, January 23, 2009

Court Finds Question of Fact on Coverage for Sinkhole Collapse

SPECIAL MULTI-PERIL POLICY – WATER DAMAGE EXCLUSION – SINKHOLE COLLAPSE – EFFICIENT PROXIMATE CAUSE
Simmons v. Dryden Mut. Ins. Co.

(Sup. Ct., Rensselaer Co., decided 1/21/2009)


Would you know a sinkhole if your house fell into one? 

Plaintiffs owned a rental property in Rensselaer, New York.  A nearby city water main ruptured, leaking very large quantities of water into the subsurface soils around plaintiffs' property. The massive amount of water caused a large area of ground to collapse into what the court thought "would likely be considered by most people to constitute a sinkhole."  The erosion and "sinkhole" undermined the foundation of the house causing a portion of the foundation to collapse. The water also infiltrated plaintiffs' basement causing significant water damage.

Plaintiffs had a special multi-peril policy with Dryden Mutual which afforded named or enumerated perils property coverage, not all-risk coverage.  The subject policy provided insurance coverage only for losses caused by fire or lightning, removal, explosion, windstorm or hail, riot or civil commotion, aircraft, vehicles, smoke, vandalism, sinkhole collapse and volcanic action. The relevant policy form also contained an exclusion for water damage caused by flood, surface water, waves, tides, tidal water or overflow of a body of water, water which backs up through sewers or drains, and water below the surface of the ground pressing on or flowing or seeping through foundations or basements. Shortly after plaintiffs notified Dryden Mutual of their loss, it disclaimed coverage on the ground that water damage was excluded by the policy.

Plaintiffs commenced this breach of contract action, and both parties moved for summary judgment.  In DENYING both motions, Rensselaer County Supreme Court Justice Michael Lynch held:
(1)  the water damage exclusion did not apply because that exclusion has been held to exclude only damage from natural causes or phenomenon, and not damage caused by defective municipal water supply systems; 
(2)  the policy was ambiguous as to coverage for "sinkhole collapse"; the policy definition required a subterranean void caused by the action of water on a limestone or similar rock formation; it did not limit covered sinkholes to natural phenomena or the action of water to chemical dissolution; Dryden's geologist did not offer any opinion as to where the earth that washed away went, did not state how deep the bedrock or other rock formations that were beneath the subject property, and did not exclude the possibility that the water released from the city water system was sufficient to physically create a subterranean void within or upon a rock formation allowing the supporting earth to collapse into such void;
(3)  partial summary judgment was granted to Dryden Mutual, dismissing plaintiffs' claims for damages to the property's driveway, trees, shrubs, plants and lawn, which were not not covered; and 
(4)  the affidavit of plaintiffs' construction engineering expert failed to set forth all of the facts upon which the expert's opinions were  based and, therefore, was without probative value; moreover, it failed to address or exclude a likely cause of the collapse and was "excessively conclusory". 

Thursday, January 22, 2009

Coverage Counsel Twittering

I've created a new Twitter profile to microblog this blog.  You can follow it/me at https://twitter.com/CoverageCounsel. I'll be tweeting case decision links and articles that may not make actual posts, so if you want the latest on New York coverage stuff, you may want to follow either on Twitter or via your favorite RSS feed/viewer.  Tweets are also compiled in the gadget to the right, just beneath the Recent Posts/Labels/Archives gadget.

Twitter explained.  And here

Wednesday, January 21, 2009

Insurers Did Not Systematically "Steer" Auto Body Repair Customers to Designated Shops, Investigation Finds


Eric R. Dinallo   Superintendent of Insurance  25 Beaver Street  New York, N.Y. 10004

ISSUED 01/21/2009

INSURERS DID NOT SYSTEMATICALLY “STEER” AUTO BODY REPAIR CUSTOMERS TO DESIGNATED SHOPS, INVESTIGATION FINDS 

Some practices raise concerns; consumers’ right to choose where to have cars repaired must be protected, Superintendent says

Auto insurance companies have not systematically violated a section of the State Insurance Law that gives consumers the right to choose where they want their vehicles repaired after a collision, Insurance Superintendent Eric Dinallo said today. 

However, in some isolated instances, representatives of some insurance companies engaged in practices that could be considered violations of the Insurance Law or regulations by providing improper or inaccurate information, Dinallo said. His announcement was based on a comprehensive investigation by the New York State Insurance Department, which was launched after complaints by a statewide trade association for collision repair professionals that insurance companies were illegally “steering” customers to designated collision repair shops. 

As with health insurers who have sought to reduce costs by creating networks of providers who agree to reduce individual charges in return for the volume of business provided by insurers, many auto insurers have created networks of repair shops, sometimes called “network,” “participating” or “direct repair” shops. Unlike health insurers, however, auto insurers are not permitted to require customers to choose “in network” providers. 

“This very thorough investigation is reassuring in that it shows auto insurers are largely complying with the laws that preserve consumer choice,” Dinallo said. “But it does raise some issues which the Department is addressing directly with certain individual insurance companies. Consumers have the right to choose where they want their cars repaired after an accident. Companies are allowed to discuss the benefits of their programs, but they are not allowed to use the claims process to lead or mislead consumers into making a particular choice at what is usually a stressful time.”

In addition to forbidding insurance companies from requiring consumers to repair their cars at a specific shop, Section 2610 of the Insurance Law also prohibits companies from recommending or suggesting to their insureds that repairs be done at a particular place or shop unless their insured expressly asks for a recommendation. That means a company cannot make a referral – to its preferred program or repair shop, for example – during the claims process unless and until their insured asks for one.

While most companies were found to comply fully with the Insurance Law and related regulations, the Department found isolated instances of noncompliance, including where a company or its representative:
  • Required of some customers that a damaged vehicle be inspected at that company’s drive-through facility, in apparent violation of a regulation requiring this inspection to take place at a time and place “reasonably convenient to the insured”;
  • Set a “goal” of having 45-60% of repairable vehicles repaired at network shops; and
  • Told an insured to bring his car to a network shop for inspection, and stated that the repairs could be done there, while another claim representative said repairs could be done at the network shop in half the time an out-of-network body shop would take.
“Consumers need to know their rights, and know that the Insurance Department stands ready to protect them,” Dinallo said. “If your insurer tells you that you need to get your car inspected or repaired at a particular place, call the Insurance Department at 1-800-342-3736. If, unfortunately, you are in an accident and need to have your car repaired, call the Department to find out your rights, or visit our website.”
Dinallo said there are some basic rights of which consumers should be aware:
  • While an insurance company may discuss the benefits of its direct repair program, it cannot make you choose its auto repair shop. That choice is yours.
  • Except for window glass repair, an insurance company cannot recommend a particular shop unless you ask for a recommendation.
  • An insurance company cannot tell you to go to its shop to get your damaged car inspected. The insurer must meet you at some place and time reasonably convenient to you.
  • An insurance company cannot tell you that you have to repair your vehicle in order to get paid. If you have damage, the insurer must pay the cost of repairing that damage, whether or not you choose to repair the vehicle.
These restrictions apply when a consumer files a claim with his or her own auto insurance company under his or her own policy. Claims filed with a third-party insurance company – the insurance company covering a person who hit you, for example, even if that company is the same as yours – are subject to different restrictions. A third-party company is allowed to recommend a particular repair shop, but still cannot require its use.

The Insurance Department’s investigation began in May 2007 and was conducted by its Consumer Services Bureau, headed by Deputy Superintendent Steven Nachman and Assistant Deputy Superintendent Mitchel Gennaoui. The investigation was handled by Principal Insurance Examiner Barry Bistreich, Associate Insurance Examiners Daniel Bell and John Capuano, Senior Insurance Examiner Vince Palma and Insurance Examiner Golda Moore. It included a review of controls that insurers put in place to ensure compliance with the applicable laws, and of insurer tapes and file notes. It also included an on-site review of randomly sampled tapes and file notes from insurers, and of all complaints filed with the Department related to alleged violations of the relevant laws.

Consumers with insurance-related complaints or questions should call the Insurance Department toll free at 1-800-342-3736 between 9 a.m. and 4:30 p.m. Monday through Friday, or visit the Department’s website at www.ins.state.ny.us. In addition, information about auto insurance for consumers – including publications such as the Consumer Guide to Auto Insurance and the Auto Complaint Ranking – is available free at the website or via the toll-free number.

Monday, January 19, 2009

Defensive Bear Hugging Is Covered

HOMEOWNERS – LIABILITY – INTENTIONAL ACTS EXCLUSION
Clayburn v. Nationwide Mut. Fire Ins. Co.

(App. Term, 3rd Dept., decided 1/15/2009)


Although bears may not bear hug, people sometimes do. From the Appellate Division, Third Department, comes this lesson on when harm that results from intentional grappling is and is not covered.

Mark Clayburn and his brother were walking down a street and passed Robert Tamsett. Mark and Robert exchanged what the appellate decision delicately characterizes as "unkind words" (insert cartoon shorthand $#%$!! here). Tamsett then began to follow the brothers, continuing the verbal argument with Clayburn. Although there was some dispute over who intiated each aspect of physical contact, it was undisputed that at some point Tamsett pushed Clayburn to the ground. Tamsett and Clayburn then became "physically engaged", with Tamsett holding Clayburn in a bear hug. They struggled and lost their balance, falling through a plate glass window of a nearby store. Tamsett pleaded guilty to harassment based on his involvement in the incident.

Clayburn sustained severe facial lacerations as a result of the incident and brought a personal injury action based on negligence against Tamsett, who qualified as an insured under his parents' homeowners policy with Nationwide. Despite the negligence allegations, Nationwide disclaimed both defense and indemnification coverage to Tamsett based on the policy's exclusion for bodily injury
caused intentionally by or at the direction of an insured, including willful acts the result of which the insured knows or ought to know will follow from the insured's conduct.
After a bench trial in that underlying action, Montgomery Supreme found Tamsett negligent and entered a judgment against him for his portion of the damages. Clayburn then commenced this action directly against Nationwide pursuant to New York Insurance Law § 3420(a)(2) and Clayburn moved for summary judgment.

In MODIFYING the order appealed from granting plaintiff's motion to declare that Nationwide was obligated to indemnify Tamsett in relation to the judgment rendered against him, the Third Department held:
Supreme Court properly determined that the intentional acts exclusion does not bar coverage here. The policy at issue excludes coverage for bodily injury "caused intentionally by or at the direction of an insured, including willful acts the result of which the insured knows or ought to know will follow from the insured's conduct." To successfully bar coverage under an insurance policy's intentional acts exclusion, the insurer must prove that there is no possible legal or factual basis to support a finding that, from the point of view of the insured, the bodily injuries inflicted were unexpected, unintended and unforeseen (see Agoada Realty Corp. v United Intl. Ins. Co., 95 NY2d 141, 145 [2000]; Pennsylvania Millers Mut. Ins. Co. v Rigo, 256 AD2d 769, 770 [1998]; Home Mut. Ins. Co. v Lapi, 192 AD2d 927, 928 [1993]). Yet courts are wary of claims that intentional acts resulted in unintended injuries where the harm "was inherent in the nature and force" of the wrongful act (Pennsylvania Millers Mut. Ins. Co. v Rigo, 256 AD2d at 771; see New York Cent. Mut. Fire Ins. Co. v Wood, 36 AD3d 1048, 1049 [2007]).

Here, while Supreme Court acknowledged that Tamsett intentionally placed his hands upon plaintiff, the court found that Tamsett did so in an attempt to subdue plaintiff or ward off an attack, "as opposed to beat him." Tamsett and plaintiff did not exchange any punches, or even any words. Tamsett merely wrapped his arms around plaintiff in response to plaintiff approaching him after Tamsett pushed Clayburn to the ground. We accept the court's determination that Tamsett did not expect, intend or foresee that plaintiff would end up crashing through the plate glass window or be injured in any way when Tamsett placed him in a bear hug (see Baldinger v Consolidated Mut. Ins. Co., 15 AD2d 526, 526 [1961], affd 11 NY2d 1026 [1962]; compare Smith v New York Cent. Mut. Fire Ins. Co., 13 AD3d 686, 688 [2004]; Mazzaferro v Albany Motel Enters., 127 AD2d 374, 376 [1987]). Plaintiff's injuries were not inherently likely to result from the nature and force of a defensive bear hug. Under the circumstances, the intentional acts exclusion does not apply (see Slayko v Security Mut. Ins. Co., 98 NY2d 289, 293 [2002]; cf. Allstate Ins. Co. v Zuk, 78 NY2d 41, 46 [1991]).
In defending the 3420(a)(2) action, Nationwide also argued that the policy's criminal acts exclusion negated coverage for the judgment against Tamsett, since he had pleaded guilty to criminal harassment. In rejecting that argument, the court noted that Nationwide could not rely on that exclusion because it had failed to include that ground in its disclaimer letter, citing Maroney v New York Cent. Mut. Fire Ins. Co., 10 AD3d 778, 780-781 (3rd Dept 2004), affd 5 NY3d 467 (2005).

Although wrestlers and mixed martial arts/extreme fighters may use bear hugs in an offensive manner, injuries that result from purely defensive bear hugging are not negated by a homeowners policy's intentional acts exclusion, at least in the opinion of the Third Department.

Sunday, January 18, 2009

New Stuff

I've spent some hours (won't tell you how many) jumping on Twitter and LinkedIn this weekend. If you tweet or connect (linkin? inlink?), you can find my stuff by using the buttons on the right side of this page. And send me yours if I may follow and/or connect you. Thanks.

Also, there's a new New York blogger in our blogosphere. Welcome John Hochfelder and his well written and spectacularly illustrated New York Injury Cases Blog. Check it out.

Friday, January 16, 2009

End of an Era -- The Last Hours of New York's No Prejudice Rule

Tomorrow at midnight, New York will join the ranks of other jurisdictions in which liability insurers must prove prejudice from delayed reporting of liability claims. The changes that Chapter 388 of the Laws of 2008 make to New York's Insurance Law take effect tomorrow, January 17, 2009.

WHAT ARE THESE CHANGES?

What changes are those, you ask? Essentially there are three:
  1. Direct DJ Actions Allowed: Personal injury or wrongful death plaintiffs may commence and maintain declaratory judgment actions directly against liability insurers that have disclaimed liability or denied coverage based on late notice. Such DJ actions are limited to the question of late notice, and a plaintiff no longer will need to obtain a money judgment against the insured in order to maintain such a DJ action to challenge the insurer's late notice disclaimer.

  2. Prejudice Required: The failure to give any required notice within the time period that a policy prescribes will not invalidate any liability coverage claim made by any insured, injured person or any other claimant, unless the failure to provide timely notice has prejudiced the insurer. In DJ litigation over a late notice disclaimer, "the insurer's rights shall not be deemed prejudiced unless the failure to timely provide notice materially impairs the ability of the insurer to investigate or defend the claim." Prejudice will be presumed "if, prior to notice, the insured's liability has been determined by a court of competent jurisdiction or by binding arbitration; or if the insured has resolved the claim or suit by settlement or other compromise." If the notice was provided within two years of the loss or occurrence, the burden will be on the insurer to prove that is was prejudiced; if the notice was delayed by more than two years, the burden will be on the insured, injured person or other claimant to prove the insurer was not prejudiced.

  3. Disclosure of Liability Coverage & Limits Required: Upon written request, auto and personal liability (homeowners, renters, etc.) insurers will have 60 days to: (1) confirm the existence of liability coverage in effect on the date of the alleged occurrence; and (2) disclose the liability coverage limits of such policies. This new requirement does not apply to excess liability or umbrella policies, whether personal or commercial lines in nature. It also ostensibly does not apply to commercial liability policies, unless they are "used to satisfy a financial responsibility requirement imposed by law of regulation."
WHEN AND HOW DO THESE CHANGES BECOME EFFECTIVE?

When and how do these changes become effective, you ask? In relevant part, Section 8 of the bill states:
This act shall take effect on the one hundred eightieth day after it shall have become a law, and shall apply to policies issued or delivered in this state on or after such date and to any action maintained under such a policy[.]
Tomorrow is Day 180, and this section would seem to limit the entire "act" and its changes to policies "issued or delivered in this state" as of tomorrow, January 17, 2009. Expect there to be some litigation, however, over whether these new rules and requirements -- especially the the direct DJ right and coverage/limits disclosure rule -- apply immediately, even to policies issued or delivered before tomorrow. A strong argument can be made from the language of Section 8 of Chapter 388 that they do not.

The new prejudice requirement is clearly policy language driven, so there shouldn't be much dispute that it will only apply to qualifying policies issued or delivered on and after January 17, 2009. Not the loss date and not the disclaimer date. The policy inception or renewal date. Prejudice will be relevant only to late notice disclaimers of coverage under qualifying liability policies that have an inception or renewal date of January 17, 2009 or later.

To the extent that the new direct DJ right and coverage/limits disclosure requirement are statute driven (CPLR § 3001 and Insurance Law § 3420[d][1]), however, it is likely some will argue that those changes take effect tomorrow and apply regardless of the subject policy's inception or renewal date. I believe the above-quoted language of section 8 of the act indicates otherwise and strongly supports an argument that even those changes apply only to DJ actions brought and coverage requests made under qualifying liability policies issued or delivered on or after January 17, 2009. Liability insurers doing business in New York should consider this issue and choose what effective date and mechanism they will use in responding to direct late notice DJ actions commenced and requests for coverage/limits information received after today.

In determining whether the "new" rules or "old" rules apply, New York liability insurers should first determine the inception or renewal date of the policy under which the claim is made or information is sought. If that date is before Janaury 17, 2009, the "old" rules apply. In cases where these new rules apply, it goes without saying that there will be ample litigation over what constitutes prejudice and when a liability insurer's ability to investigate or defend a claim has been "materially impaired". These new rules do not, however, apply to late notice of first-party property coverage losses and claims. Or to no-fault losses or claims.

HOW WILL THE AMENDED STATUTORY SECTIONS READ?

During this transition period, the websites or services from which you obtain your New York statutory language may include asterisked "effective until..." and "effective..." notes and sections. Here's how the affected statutory sections will read as of tomorrow, January 17, 2009:

CPLR § 3001

§ 3001. Declaratory judgment.
The supreme court may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed. If the court declines to render such a judgment it shall state its grounds. A party who has brought a claim for personal injury or wrongful death against another party may maintain a declaratory judgment action directly against the insurer of such other party, as provided in paragraph six of subsection (a) of section three thousand four hundred twenty of the insurance law.

INSURANCE LAW § 3420

§ 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) of this section, 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 that are equally or more favorable to the insured and to judgment creditors so far as such provisions relate to judgment creditors:

(1) A provision that the insolvency or bankruptcy of the person insured, or the insolvency of the insured's estate, shall not release the insurer from the payment of damages for injury sustained or loss occasioned during the life of and within the coverage of such policy or contract.

(2) A provision that in case judgment against the insured or the insured's 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.

(3) A provision that notice given by or on behalf of the insured, or written notice by or on behalf of the injured person or any other claimant, to any licensed agent of the insurer in this state, with particulars sufficient to identify the insured, shall be deemed notice to the insurer.

(4) A provision that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, an injured person or any other claimant if it shall be shown not to have been reasonably possible to give such notice within the prescribed time and that notice was given as soon as was reasonably possible thereafter.

(5) A provision that failure to give any notice required to be given by such policy within the time prescribed therein shall not invalidate any claim made by the insured, injured person or any other claimant, unless the failure to provide timely notice has prejudiced the insurer, except as provided in paragraph four of this subsection. With respect to a claims-made policy, however, the policy may provide that the claim shall be made during the policy period, any renewal thereof, or any extended reporting period, except as provided in paragraph four of this subsection. As used in this paragraph, the terms "claims-made policy" and "extended reporting period" shall have their respective meanings as provided in a regulation promulgated by the superintendent.

(6) A provision that, with respect to a claim arising out of death or personal injury of any person, if the insurer disclaims liability or denies coverage based upon the failure to provide timely notice, then the injured person or other claimant may maintain an action directly against such insurer, in which the sole question is the insurer's disclaimer or denial based on the failure to provide timely notice, unless within sixty days following such disclaimer or denial, the insured or the insurer: (A) initiates an action to declare the rights of the parties under the insurance policy; and (B) names the injured person or other claimant as a party to the action.

(b) Subject to the limitations and conditions of paragraph two of subsection (a) of this section, an action may be maintained by the following persons against the insurer upon any policy or contract of liability insurance that is governed by such paragraph, to recover the amount of a judgment against the insured or his personal representative:

(1) any person who, or the personal representative of any person who, has obtained a judgment against the insured or the insured's personal representative, for damages for injury sustained or loss or damage occasioned during the life of the policy or contract;

(2) any person who, or the personal representative of any person who, has obtained a judgment against the insured or the insured's personal representative to enforce a right of contribution or indemnity, or any person subrogated to the judgment creditor's rights under such judgment; and

(3) any assignee of a judgment obtained as specified in paragraph one or paragraph two of this subsection, subject further to the limitation contained in section 13-103 of the general obligations law.

(c) (1) If an action is maintained against an insurer under the provisions of paragraph two of subsection (a) of this section and the insurer alleges in defense that the insured failed or refused to cooperate with the insurer in violation of any provision in the policy or contract requiring such cooperation, then the burden shall be upon the insurer to prove such alleged failure or refusal to cooperate.

(2)(A) In any action in which an insurer alleges that it was prejudiced as a result of a failure to provide timely notice, the burden of proof shall be on: (i) the insurer to prove that it has been prejudiced, if the notice was provided within two years of the time required under the policy; or (ii) the insured, injured person or other claimant to prove that the insurer has not been prejudiced, if the notice was provided more than two years after the time required under the policy.
(B) Notwithstanding subparagraph (A) of this paragraph, an irrebuttable presumption of prejudice shall apply if, prior to notice, the insured's liability has been determined by a court of competent jurisdiction or by binding arbitration; or if the insured has resolved the claim or suit by settlement or other compromise.
(C) The insurer's rights shall not be deemed prejudiced unless the failure to timely provide notice materially impairs the ability of the insurer to investigate or defend the claim.

(d)(1)(A) This paragraph applies with respect to a liability policy that provides coverage with respect to a claim arising out of the death or bodily injury of any person, where the policy is: (i) subject to section three thousand four hundred twenty-five of this article, other than an excess liability or umbrella policy; or (ii) used to satisfy a financial responsibility requirement imposed by law or regulation.
(B) Upon an insurer's receipt of a written request by an injured person who has filed a claim or by another claimant, an insurer shall, within sixty days of receipt of the written request: (i) confirm to the injured person or other claimant in writing whether the insured had a liability insurance policy of the type specified in subparagraph (A) of this paragraph in effect with the insurer on the date of the alleged occurrence; and (ii) specify the liability insurance limits of the coverage provided under the policy.
(C) If the injured person or other claimant fails to provide sufficient identifying information to allow the insurer, in the exercise of reasonable diligence, to identify a liability insurance policy that may be relevant to the claim, the insurer shall within forty-five days of receipt of the written request, so advise the injured person or other claimant in writing and identify for the injured person or other claimant the additional information needed. Within forty-five days of receipt of the additional information, the insurer shall provide the information required under subparagraph (B) of this paragraph.

(2) If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.

(e) No policy or contract of personal injury liability insurance or of property damage liability insurance, covering liability arising from the ownership, maintenance or operation of any motor vehicle or of any vehicle as defined in section three hundred eighty-eight of the vehicle and traffic law, or an aircraft, or any vessel as defined in section forty-eight of the navigation law, shall be issued or delivered in this state to the owner thereof, or shall be issued or delivered by any authorized insurer upon any such vehicle or aircraft or vessel then principally garaged or principally used in this state, unless it contains a provision insuring the named insured against liability for death or injury sustained, or loss or damage occasioned within the coverage of the policy or contract, as a result of negligence in the operation or use of such vehicle, aircraft or vessel, as the case may be, by any person operating or using the same with the permission, express or implied, of the named insured.

(f) (1) No policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any natural person arising out of the ownership, maintenance and use of a motor vehicle by the insured shall be issued or delivered by any authorized insurer upon any motor vehicle then principally garaged or principally used in this state unless it contains a provision whereby the insurer agrees that it will pay to the insured, as defined in such provision, subject to the terms and conditions set forth therein to be prescribed by the board of directors of the Motor Vehicle Accident Indemnification Corporation and approved by the superintendent, all sums, not exceeding a maximum amount or limit of twenty-five thousand dollars exclusive of interest and costs, on account of injury to and all sums, not exceeding a maximum amount or limit of fifty thousand dollars exclusive of interest and costs, on account of death of one person, in any one accident, and the maximum amount or limit, subject to such limit for any one person so injured of fifty thousand dollars or so killed of one hundred thousand dollars, exclusive of interest and costs, on account of injury to, or death of, more than one person in any one accident, which the insured or his legal representative shall be entitled to recover as damages from an owner or operator of an uninsured motor vehicle, unidentified motor vehicle which leaves the scene of an accident, a motor vehicle registered in this state as to which at the time of the accident there was not in effect a policy of liability insurance, a stolen vehicle, a motor vehicle operated without permission of the owner, an insured motor vehicle where the insurer disclaims liability or denies coverage or an unregistered vehicle because of bodily injury, sickness or disease, including death resulting therefrom, sustained by the insured, caused by accident occurring in this state and arising out of the ownership, maintenance or use of such motor vehicle. No payment for non-economic loss shall be made under such policy provision to a covered person unless such person has incurred a serious injury, as such terms are defined in section five thousand one hundred two of this chapter. Such policy shall not duplicate any element of basic economic loss provided for under article fifty-one of this chapter. No payments of first party benefits for basic economic loss made pursuant to such article shall diminish the obligations of the insurer under this policy provision for the payment of non-economic loss and economic loss in excess of basic economic loss. Notwithstanding any inconsistent provisions of section three thousand four hundred twenty-five of this article, any such policy which does not contain the aforesaid provisions shall be construed as if such provisions were embodied therein.

(2) (A) Any such policy shall, at the option of the insured, also provide supplementary uninsured/underinsured motorists insurance for bodily injury, in an amount up to the bodily injury liability insurance limits of coverage provided under such policy, subject to a maximum of two hundred fifty thousand dollars because of bodily injury to or death of one person in any one accident and, subject to such limit for one person, up to five hundred thousand dollars because of bodily injury to or death of two or more persons in any one accident, or a combined single limit policy of five hundred thousand dollars because of bodily injury to or death of one or more persons in any one accident. Provided however, an insurer issuing such policy, in lieu of offering to the insured the coverages stated above, may provide supplementary uninsured/underinsured motorists insurance for bodily injury, in an amount up to the bodily injury liability insurance limits of coverage provided under such policy, subject to a maximum of one hundred thousand dollars because of bodily injury to or death of one person in any one accident and, subject to such limit for one person, up to three hundred thousand dollars because of bodily injury to or death of two or more persons in any one accident, or a combined single limit policy of three hundred thousand dollars because of bodily injury to or death of one or more persons in any one accident, if such insurer also makes available a personal umbrella policy with liability coverage limits up to at least five hundred thousand dollars which also provides coverage for supplementary uninsured/underinsured motorists claims. Supplementary uninsured/underinsured motorists insurance shall provide coverage, in any state or Canadian province, if the limits of liability under all bodily injury liability bonds and insurance policies of another motor vehicle liable for damages are in a lesser amount than the bodily injury liability insurance limits of coverage provided by such policy. Upon written request by any insured covered by supplemental uninsured/underinsured motorists insurance or his duly authorized representative and upon disclosure by the insured of the insured's bodily injury and supplemental uninsured/underinsured motorists insurance coverage limits, the insurer of any other owner or operator of another motor vehicle against which a claim has been made for damages to the insured shall disclose, within forty-five days of the request, the bodily injury liability insurance limits of its coverage provided under the policy or all bodily injury liability bonds. The time of the insured to make any supplementary uninsured/underinsured motorist claim, shall be tolled during the period the insurer of any other owner or operator of another motor vehicle that may be liable for damages to the insured, fails to so disclose its coverage. As a condition precedent to the obligation of the insurer to pay under the supplementary uninsured/underinsured motorists insurance coverage, the limits of liability of all bodily injury liability bonds or insurance policies applicable at the time of the accident shall be exhausted by payment of judgments or settlements.
(B) In addition to the notice provided, upon issuance of a policy of motor vehicle liability insurance pursuant to regulations promulgated by the superintendent, insurers shall notify insureds, in writing, of the availability of supplementary uninsured/underinsured motorists coverage. Such notification shall contain an explanation of supplementary uninsured/underinsured motorists coverage and the amounts in which it can be purchased. Subsequently, a notification of availability shall be provided at least once a year and may be simplified pursuant to regulations promulgated by the superintendent, but must include a concise statement that supplementary uninsured/underinsured motorists coverage is available, an explanation of such coverage, and the coverage limits that can be purchased from the insurer.

(3) The protection provided by this subsection shall not apply to any cause of action by an insured person arising out of a motor vehicle accident occurring in this state against a person whose identity is unascertainable, unless the bodily injury to the insured person arose out of physical contact of the motor vehicle causing the injury with the insured person or with a motor vehicle which the insured person was occupying (meaning in or upon or entering into or alighting from) at the time of the accident.

(4) An insurer shall give notice to the commissioner of motor vehicles of the entry of any judgment upon which a claim is made against such insurer under this subsection and of the payment or settlement of any claim by the insurer.

(g) No policy or contract shall be deemed to insure against any liability of an insured because of death of or injuries to his or her spouse or because of injury to, or destruction of property of his or her spouse unless express provision relating specifically thereto is included in the policy as provided in paragraphs one and two of this subsection. This exclusion shall apply only where the injured spouse, to be entitled to recover, must prove the culpable conduct of the insured spouse.

(1) Upon written request of an insured, and upon payment of a reasonable premium established in accordance with article twenty-three of this chapter, an insurer issuing or delivering any policy that satisfies the requirements of article six of the vehicle and traffic law shall provide coverage against liability of an insured because of death of or injuries to his or her spouse up to the liability insurance limits provided under such policy even where the injured spouse, to be entitled to recover, must prove the culpable conduct of the insured spouse. Such insurance coverage shall be known as "supplemental spousal liability insurance".

(2) Upon issuanceof a motor vehicle liability policy that satisfies the requirements of article six of the vehicle and traffic law and that becomes effective on or after January first, two thousand three, pursuant to regulations promulgated by the superintendent, the insurer shall notify the insured, in writing, of the availability of supplemental spousal liability insurance. Such notification shall be contained on the front of the premium notice in boldface type and include a concise statement that supplementary spousal coverage is available, an explanation of such coverage, and the insurer's premium for such coverage. Subsequently, a notification of the availability of supplementary spousal liability coverage shall be provided at least once a year in motor vehicle liability policies issued pursuant to article six of the vehicle and traffic law, including those originally issued prior to January first, two thousand three. Such notice must include a concise statement that supplementary spousal coverage is available, an explanation of such coverage, and the insurer's premium for such coverage.

(h) In this section, the term "insurance upon any property or risk located in this state" includes insurance against legal liability arising out of the ownership, operation or maintenance of any vehicle which is principally garaged or principally used in this state, or arising out of the ownership, operation, use or maintenance of any property which is principally kept or principally used in this state, or arising out of any otheractivity which is principally carried on in this state.

(i) Except as provided in subsection (j) of this section, the provisions of this section shall not apply to any policy or contract of insurance in so far as it covers the liability of an employer for workers' compensation, if such contract is governed by the provisions of section fifty-four of the workers' compensation law, or by any similar law of another state, province or country, nor to the kinds of insurances set forth in paragraph three of subsection (b) of section two thousand one hundred seventeen of this chapter.

(j) (1) Notwithstanding any other provision of this chapter or any other law to the contrary, every policy providing comprehensive personal liability insurance on a one, two, three or four family owner-occupied dwelling, issued or delivered in this state on and after the first of March, nineteen eighty-four, shall provide for coverage against liability for the payment of any obligation, which the policyholder may incur pursuant to the provisions of the workers' compensation law, to an employee arising out of and in the course of employment of less than forty hours per week, in and about such residences of the policyholder in this state. Such coverage shall provide for the benefits in the standard workers' compensation policy issued in this state. No one who purchases a policy providing comprehensive personal liability insurance shall be deemed to have elected to cover under the workers' compensation law any employee who is not required, under the provisions of such law, to be covered.

(2) The term "policyholder" as used in this subsection shall be limited to an individual or individuals as defined by the terms of the policy, but shall not include corporate or other business entities or an individual who has or individuals who have in effect a workers' compensation policy which covers employees working in and about his or their residence.

(3) Every insurer who is licensed by the superintendent to issue homeowners or other policies providing comprehensive personal liability insurance in this state shall also be deemed to be licensed to transact workers' compensation insurance for the purpose of covering those persons specified in this subsection.

INSURANCE LAW § 2601(a)

§ 2601. Unfair claim settlement practices; penalties.

(a) No insurer doing business in this state shall engage in unfair claim settlement practices. Any of the following acts by an insurer, if committed without just cause and performed with such frequency as to indicate a general business practice, shall constitute unfair claim settlement practices:

(1) knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue;

(2) failing to acknowledge with reasonable promptness pertinent communications as to claims arising under its policies;

(3) failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies;

(4) not attempting in good faith to effectuate prompt, fair and equitable settlements of claims submitted in which liability has become reasonably clear, except where there is a reasonable basis supported by specific information available for review by the department that the claimant has caused the loss to occur by arson. After receiving a properly executed proof of loss, the insurer shall advise the claimant of acceptance or denial of the claim within thirty working days;

(5) compelling policyholders to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them; or

(6) failing to promptly disclose coverage pursuant to subdivision (d) or subparagraph (A) of paragraph two of subsection (f) of section three thousand four hundred twenty of this chapter.

Thursday, January 15, 2009

A Spate of No-Fault Decisions from the Appellate Term, Second Department

NO-FAULT – NOTARY PUBLIC'S JURAT – TECHNICAL DEFECT – PEER REVIEW – MEDICAL NECESSITY
Complete Orthopedic Supplies, Inc. a/a/o Ana Valencia v. State Farm Mut. Auto. Ins. Co.

(App. Term, 2nd Dept., decided 1/9/2009)


Appeal from a Queens Civil judgment for plaintiff DME provider on its motion for summary judgment.

REVERSED and State Farm's cross motion for summary judgment was granted. The notary public's jurat was missing the year State Farm's affidavits of mailing were signed. The Appellate Term held that this was a "technical defect" that the Civil Court should have disregarded since it did not prejudice a substantial right of a party, and plaintiff had raised no objection to it. State Farm's affirmed peer review report established prima facie that there was no medical necessity for the supplies provided by plaintiff, which proof plaintiff did not rebut. As a result, State Farm's cross motion for summary judgment dismissing the complaint should have been granted.


NO-FAULT – UNTIMELY SUBMISSION OF CLAIMS
Long Is. Multi-Medicine Group, P.C. a/a/o Sumira Lund v. Travelers Ins. Co.

(App. Term, 2nd Dept., decided 1/8/2009)


Appeal from a Queens Civil judgment for plaintiff on its motion for summary judgment.

AFFIRMED. Civil Court had granted plaintiff's motion based on its finding that Travelers waived its defense of claim submission untimeliness, since it failed to advise plaintiff that the claim would be reconsidered upon a showing of impossibility to timely submit the claims. The Appellate Term affirmed the judgment, not on that ground, but because Travelers' opposition motion papers annexed denial of claim forms that did not correspond to the claim forms upon which plaintiff sought summary judgment. As such, the court held that Travelers had failed to establish that it timely denied the subject claims and, as such, failed to raise a triable issue of fact with respect to the claims at issue.


NO-FAULT – ADMISSIBILITY OF BUSINESS RECORDS
Union Physician Healthcare, P.C. a/a/o Christopher Kelly v. Utica Mut. Ins. Co.

(App. Term, 2nd Dept., decided 1/9/2009)


Appeal from a Kings Civil judgment for plaintiff on its motion for summary judgment.

REVERSED and plaintiff's motion denied. The affidavit by plaintiff's officer submitted in support of plaintiff's motion for summary judgment failed to lay a proper foundation for the admission of the documents annexed to plaintiff's moving papers and, as a result, plaintiff failed to establish a prima facie case. The affidavit submitted by plaintiff's officer was insufficient to demonstrate that he possessed personal knowledge of plaintiff's practices and procedures so as to lay a foundation for the admission, as business records, of the documents annexed to plaintiff's moving papers. Accordingly, plaintiff failed to make a prima facie showing of its entitlement to summary judgment (see Art of Healing Medicine, P.C. v Travelers Home & Mar. Ins. Co., 15 Misc 3d 144[A], 2007 NY Slip Op 51161[U] [App Term, 2d & 11th Jud Dists 2007], affd 55 AD3d 644 [2008]; Bath Med. Supply, Inc. v Deerbrook Ins. Co., 14 Misc 3d 135[A], 2007 NY Slip Op 50179[U] [App Term, 2d & 11th Jud Dists 2007]; Dan Med., P.C. v New York Cent. Mut. Fire Ins. Co., 14 Misc 3d 44 [App Term, 2d & 11th Jud Dists 2006]).


NO-FAULT – MVAIC – NOTICE OF CLAIM – INSURANCE LAW § 5208(A)
M.N.M. Med. Health Care, P.C. a/a/o Erick Papillion v. MVAIC

(App. Term, 2nd Dept., decided 1/9/2009)


Appeal from a Queens Civil order denying defendant MVAIC's motion for summary judgment.

REVERSED and MVAIC's motion granted, dismissing the complaint. The filing of a timely affidavit providing MVAIC with notice of intention to file a claim is a condition precedent to the right to apply for payment from MVAIC pursuant to New York Insurance Law § 5208(a). Compliance with the statutory requirement of timely filing a notice of claim must be established in order to demonstrate that the claimant is a "covered person" who is entitled to recover no-fault benefits from MVAIC. MVAIC's submissions in support of its motion for summary judgment made a prima facie showing that plaintiff's assignor failed to timely file a notice of claim. By defaulting on the motion, plaintiff did not demonstrate that its assignor timely filed a notice of claim or sought leave to file a late notice of claim. Thus, MVAIC's motion for summary judgment should have been granted.


NO-FAULT – NOTICE TO ADMIT – PRIMA FACIE CASE SHOWING
All Mental Care Medicine, P.C. a/a/o Augustin Martes v. State Farm Mut. Ins. Co.

(App. Term, 2nd Dept., decided 1/9/2009)


Vista Surgical Supplies, Inc. a/a/o Tyrone Pearson v. State Farm Mut. Ins. Co.
(App. Term, 2nd Dept., decided 1/9/2009)


Judgments for State Farm dismissing the complaints AFFIRMED. An admission that defendant received plaintiff's claim form is not a concession of the facts set forth in said claim form (Bajaj v General Assur. Co., 18 Misc 3d 25, 28 [App Term, 2d & 11th Jud Dists 2007]; Midborough Acupuncture, P.C. v New York Cent. Mut. Fire Ins. Co., 13 Misc 3d 132[A], 2006 NY Slip Op 51879[U] [App Term, 2d & 11th Jud Dists 2006]). By only submitting the notices to admit and producing no witnesses at trial, plaintiffs failed to make a prima facie case for recovery of no-fault benefits.


NO-FAULT – MOTION TO AMEND ANSWER TO ADD AFFIRMATIVE DEFENSES – RES JUDICATA – COLLATERAL ESTOPPEL BASED ON PRIOR ARBITRATION DECISION – FRAUDULENTLY INCORPORATED PC
Uptodate Med. Serv., P.C. a/a/o Jean Alberic v. State Farm Mut. Auto. Ins. Co.

(App. Term, 2nd Dept., decided 1/9/2009)


Appeal from a Queens Civil judgment for plaintiff on its motion for summary judgment.

REVERSED, granting State Farm's motion to amend its answer and, upon such amendment, summary judgment dismissing the complaint. The Civil Court improperly denied State Farm's motion to amend its answer to add the affirmative defenses of res judicata and collateral estoppel. Generally, leave to amend a pleading pursuant to CPLR 3025 (b) should be granted where there is no significant prejudice or surprise to the opposing party and where the proof submitted in support of the motion indicates that the amendment may have merit. State Farm sought to add those affirmative defenses because there was a prior arbitration proceeding between the parties in which plaintiff had sought to recover assigned first-party no-fault benefits for services rendered from August 2003 through January 14, 2004, in which proceeding the arbitrator had determined that plaintiff was ineligible to receive reimbursement of no-fault benefits because it was a fraudulently incorporated professional service corporation. Plaintiff did not demonstrate prejudice or surprise from the proposed amendment.

State Farm established that the issue of whether plaintiff was ineligible to receive reimbursement of no-fault benefits because it was a fraudulently incorporated professional service corporation was identical to the issue previously decided by the arbitrator. In opposition to State Farm's cross motion, plaintiff failed to address the branch of the cross motion which sought summary judgment dismissing the complaint on the ground of collateral estoppel. Therefore, plaintiff failed to establish that it did not receive a full and fair opportunity to litigate in the arbitration proceeding. Thus, the branch of defendant's cross motion seeking summary judgment should have been granted.


NO-FAULT – ADMISSIBILITY OF BUSINESS RECORDS
V.S. Med. Servs., P.C. a/a/o Mohamad Nazir v. Travelers Ins. Co.

(App. Term, 2nd Dept., decided 1/9/2009)


Appeal from a Queens Civil judgment after non jury trial for Travelers dismissing plaintiff's complaint.

AFFIRMED. While plaintiff produced a witness to testify regarding the claim forms plaintiff sought to have admitted into evidence, because said witness did not testify at all as to the generation of such claim forms, they were not admissible as business records (see CPLR 4518). Accordingly, plaintiff failed to establish a prima facie case (see Bajaj v General Assur., 18 Misc 3d 25 [App Term, 2d & 11th Jud Dists 2007]).

Wednesday, January 14, 2009

Court Upholds Liability Coverage Denial for Accident at Insured Dwelling Where Named Insured Did Not Reside

HOMEOWNERS LIABILITY – "INSURED LOCATION" – "RESIDENCE PREMISES"
Tower Ins. Co. of New York v. Monroy

(Sup. Ct., New York Co., decided 12/24/2008)


Most dwelling or homeowners policies exclude liability coverage for bodily injury or property damage "arising out of a premises:
a.  Owned by an 'insured';

b.  Rented to an 'insured'; or

c.  Rented to others by an 'insured';

that is not an 'insured location'[.]"
One would think that the "insured location" is simply that location shown in the policy declarations, but such dwelling and homeowners policies define "insured location" primarily to mean the "residence premises", which itself is defined as the 1-4 family dwelling or other building where the named insured resides and which is shown in the policy declarations as the "residence premises".  So if the residence premises shown in a policy's declarations is owned by or rented to/by the named insured but is not where the named insured resides, will there be liability coverage for injuries or damage that arises from such premises?  No, not if the insurer issues a timely disclaimer based on this premises other than an insured location exclusion.

And such was the outcome in this case.  Fifteen years earlier, Monroy had purchased a home in Brooklyn for his brother who had bad credit.  Although he was the deed owner, Monroy never visited or lived at that home; his brother and brother's family lived there.  Monroy had never performed any maintenance at the property, paid any taxes on the property, made any mortgage payments on the property, or made any insurance payments on the property.  Although all bills relating to the property were in Monroy's name, they went to the Brooklyn home and Monroy relied on his brother to do everything in conjunction with that property.

A woman fell in front of the home and sued Monroy and the City of New York for her injuries.  At the time of that accident, Tower insured the home under a Dwelling Fire Policy that had been transferred to Tower from Empire/All City Insurance, which went into liquidation at the end of 2001.  Tower denied liability coverage to Monroy based on the premises other than an insured location exclusion  and commenced this declaratory judgment action to validate its denial.  Tower and Monroy moved and cross-moved for summary judgment.

In granting Tower's motion, declaring that Tower was not obligated to defend or indemnify Monroy in relation to the underlying personal injury action, New York County Supreme Court Justice Michael Stallman noted the similarity of this case to the facts and decision in Marshall v Tower Ins. Co. of New York (44 AD3d 1014 [2d Dept 2007]), and held:
Defendant‘s argument that the policy covers the address specified in the instrument regardless of whether or not the insured resided there is in direct contravention of the clear statement in the policy. As discussed above, the policy excludes coverage for “bodily injury” and “property damage’’ arising out of an insured’s owned premises that is not an “insured location."  Because Monroy admits that he does not reside at the subject property at issue, it is not an “insured location.”
“Unambiguous terms in a policy of insurance must be given their plain and ordinary meaning and courts may not make or vary the contract of insurance to accomplish their notion of abstract justice or moral obligation [citation omitted] .“
Metropolitan Property & Casualty Ins. Co. v Pulido, 211 AD2d 57, 61 (2d Dept 2000) (interpreting a provision identical to the one in question).
In opposition to Tower's motion, Monroy also argued that Tower could not rely on the premises exclusion because he never received a copy of the policy.  Justice Stallman rejected that argument as both conclusory and illogical, holding:
Defendant’s final argument, that plaintiff cannot deny coverage because defendant never received a copy of the policy, is without merit. Defendant asserts that he would never have agreed to a policy that did not provide coverage. Not only is this statement conclusory on the part of defendant, but the logical outcome of this theory would be that, since defendant never saw the contract, he could not be bound thereby. This would mean that there was no meeting of the minds, so no contract of insurance exists between the parties, defeating defendant's position. See generally Yenom Corp. v 155 Wooster St. Inc., 23 AD3d 259 (lst Dept 2005).
In other words, claiming that certain policy provisions cannot apply because I never received the policy would mean that the entire policy shouldn't apply, in which case there wouldn't be coverage in the first place.

Tuesday, January 13, 2009

Why Mom Says to Get Out of the Pool When There's Lightning

PROPERTY – POOL COLLAPSE – CAUSE OF LOSS – WEAR AND TEAR OR DETERIORATION – LIGHTNING
Lynch v. Liberty Mut. Fire Ins. Co.

(3rd Dept., decided 1/8/2009)


Do you remember your flash-to-bang ratioFor each five seconds you count between seeing a lightning flash and hearing the thunder, there is one mile between you and that lightning strike.  Most public swimming pools close when the flash-to-bang is 50 seconds (10 miles).  

The Lynches had an above-ground swimming pool in their backyard.  Liberty was their homeowners insurer.  During a bad thunderstorm in late June, the Lynches' daughter felt a huge explosion at the same time she saw a flash of light in the backyard, leading her to believe that the house had been struck by lightning.  When she and her father went into the backyard a short time later, it appeared that "the pool had exploded."  The Lynches submitted a claim to Liberty for that damage, which Liberty denied based on its inspection of the damaged pool and determination that the pool had collapsed due to the excluded causes of wear  and tear or deterioration.  The Lynches sued.

Albany Supreme granted Liberty's motion for summary judgment, dismissing the complaint, and the Lynches appealed.  In MODIFYING the order appealed from to deny Liberty's summary jugdment motion, the Third Department found that the plaintiffs had created a question of fact as to whether lightning was the cause of their swimming pool's collapse:
[D]efendant offered the deposition testimony of its claims representative and one of its pool inspectors, both of whom denied seeing any evidence such as charring and burning that lightning struck the pool. On the other hand, they observed that the steel truss supporting the pool was rusted. In fact, the claims representative testified that the truss was so weak that it crumpled in his hands when he touched it and the pool inspector opined that the failure of the steel truss to support the pool wall had led to the wall's collapse. Coupled with the testimony of plaintiff George Lynch that the pool was almost 20 years old when the incident occurred, this evidence established that the policy provision concerning wear and tear was applicable in this case (see id. at 1016), thereby shifting the burden to plaintiffs to raise a question of fact.

Contrary to Supreme Court's determination, we find that plaintiffs met this burden. Lynch testified that he maintained his pool in a state of good repair and that yearly maintenance had been performed up until the time of the incident. Plaintiffs also provided evidence that there was a particularly bad thunderstorm on the night the pool was damaged. In addition, the sworn statement of plaintiffs' daughter was presented wherein she alleged that she felt a huge explosion contemporaneous to seeing a flash of light in the backyard, leading her to believe that the house had been struck by lightning. When she and her father went into the backyard a short time later, it appeared that "the pool had exploded."

Plaintiffs also offered the sworn statement of Ronald Casso, a licensed architect with over 25 years of experience repairing and building above-ground pools. Based upon his review of color photographs of plaintiffs' pool taken shortly after the incident, Casso concluded that the pool had "been subjected to an extreme trauma." He further noted that the structural makeup of plaintiffs' pool was such that, even if the steel truss in question had been rusted, such wear and tear would not have been responsible for the pool's collapse. In his experience, when pools collapse due to wear and tear, it is "always the last stage in a process of deterioration that is physically apparent," and he observed nothing that would indicate that such a process of deterioration had taken place here.

Finally, plaintiffs offered the sworn statement of Howard Altschule, a certified meteorologist who performed an analysis of the weather conditions on the evening of June 29, 2005, reviewing weather data and climatological records of the area in and around plaintiffs' residence. This analysis reflected data indicating numerous lightning strikes within a five-mile radius of plaintiffs' home at or about the time of the incident, including one particular bolt that struck "very close to the house in question." While defendant's attorney questions the proximity of that particular strike based upon his interpretation of the meteorological data, nothing in the record establishes his qualifications to do so. In all events, his contrary opinion would, at best, merely create a question of fact. Additionally, Altschule explained that lightning strikes can be "hot" or "cold," with the latter failing to leave charring or scorching in and around the area of a strike. Thus, based upon the data and the testimony of plaintiffs' daughter, Altschule concluded that lightning did strike plaintiffs' pool, causing the corner of the pool to collapse.

If "cold" lightning has enough power to lift a 44,000 ton ocean liner six feet into the air, a backyard above-ground swimming pool probably won't escape a direct strike unharmed.