Monday, July 27, 2009

Auto Premium Rate Evasion -- Insidious Brand of Outright Fraud Results in Denial of No-Fault Benefits

NO-FAULT – APPLICATION MISREPRESENTATION – FRAUD – RATE EVASION
AA Acupuncture Serv., P.C. a/a/o Dupont-Desir Ivrose v. Safeco Ins. Co. of Am.
(App. Term, 1st Dept., decided 7/22/2009)

If a woman living in Brooklyn falsely gives a Connecticut residence and garaging address when applying for auto insurance in order to obtain a lower premium, may her insurer deny no-fault benefits to her and her assignees if she's injured in a motor vehicle accident?

In the words of concurring the Appellate Term, First Department's Presiding Justice McKeon, "a question asked is often as powerful as a question answered."  And the answer, in the opinion of the Appellate Term, First Department, is yes, no-fault benefits may be denied to the policy applicant and her assignees. 

In this medical provider no-fault recovery action with three assignees, Safeco moved for summary judgment to dismiss the complaint based on the assignor's misrepresentation of her residence address in applying for her Safeco auto policy.  Safeco's motion papers showed that when the insured-assignor applied for her auto insurance, she listed a Connecticut address as her place of residence and the location where the insured vehicle would be garaged; that two months later, the insured notified Safeco that she had changed her address, listing a second Connecticut address as her place of residence; that when the insured renewed her policy, she again listed a Connecticut address as her place of residence; that the Connecticut address listed by the insured as her residence was a commercial store located in a strip mall; and that the insured, at all relevant time, actually resided in Brooklyn, New York.

New York Civil denied Safeco's motion for summary judgment and Safeco appealed.  In an opinion by Justice Sherry Klein Heitler, the Appellate Term, First Department, REVERSED and granted summary judgment to Safeco, holding: 
Although Vehicle and Traffic Law § 313 does not permit an insurer to cancel an automobile insurance policy retroactively on the grounds of fraud or misrepresentation (see Matter of Liberty Mut. Ins. Co. v McClellan, 127 AD2d 767, 769 [1987]), an insurer may assert misrepresentation or fraud as an affirmative defense in an action by an insured to recover benefits under the policy (see Matter of Insurance Co. of N. Am. v Kaplun, 274 AD2d 293, 298-299 [2000]; Matter of Liberty Mut. Ins. Co. v McClellan, 127 AD2d at 770). [In addition to the evidence Safeco submitted regarding the insured's misrepresentations regarding her residence], [d]efendant further demonstrated that the annual insurance premium of $1,236 paid by the insured was based on her representation that she resided in Connecticut, and that the annual premium for the same policy based on her Brooklyn address would have been $4,807. This evidence was sufficient to establish prima facie that the insured intentionally misrepresented her address in order to obtain insurance at reduced premiums, and that the misrepresentation was material, since defendant would not have issued the policy under the same terms had it known that the insured resided in Brooklyn (see Matter of Insurance Co. of N. Am. v Kaplun, 274 AD2d at 299-230). Contrary to the motion court's determination, defendant was not required to show that the insurance policy had actually been cancelled in order to establish a prima facie showing of entitlement to summary judgment based on its fraud/misrepresentation defense.

In opposition, plaintiffs, as assignees "stand[ing] in the shoes" of their assignor (see Long Is. Radiology v Allstate Ins. Co., 36 AD3d 763, 765 [2007]), failed to submit any competent evidence sufficient to defeat summary judgment.
Presiding Justice Douglas McKeon wrote a passionate concurring opinion that deserves republication in full here:
I wholeheartedly agree with Justice Heitler that the brazen act of a Brooklyn resident registering an automobile from a shopping mall in Connecticut for the sole purpose of obtaining a cheaper insurance premium is outright fraud, but write separately to express my concern that the practice of New Yorkers fraudulently registering motor vehicles in foreign states seems to be burgeoning, likely costing our State government, insurance companies and honest consumers significant sums in lost revenue and increased premiums and casting a pall over the integrity of automobile registry systems in New York and other states.

Some might argue that more persons travel greater distances to work in New York City and that the abundance of automobiles bearing Connecticut or Pennsylvania license plates can be explained as an increase in long distance commuters. But the trend is not limited to nearby states. Cars with license plates from states all along the east coast and sometimes beyond are a frequent sight in the metropolitan area. Granted, some might be tourists, but there is a justifiable and growing level of suspicion that many of these vehicles registered in other states are owned and operated by New Yorkers, connected to the state whose name appears on their license plates only through a dubious address and a desire to pay less for insurance coverage.

For sure, there are those, in these dire economic times, who might ask, "What's the big deal?" In the minds of many, insurance companies charge too much for too little. Perhaps there are those who simply cannot afford to insure a vehicle in New York, yet need a car for work or personal necessity. True, theirs is a choice not motivated by ill gain, but by economic considerations. Whatever the reason, the reality remains that the spiraling cost of automobile insurance premiums in New York is directly linked to ever increasing instances of insurance fraud, a fact recognized by this state's highest court (see Matter of Medical Soc'y of the State of NY v Serio,100 NY2d 854, 861 [2003]). Thus, the New Yorker deceitfully claiming to be a Pennsylvanian for purposes of registering a car might pay less, but the rest of us pay more. Soon, New Yorkers will pay higher fees to register their vehicles. Those of our neighbors who do so elsewhere will escape that cost and our State will be shortchanged much-needed revenue.

However, the sad truth is that this insidious brand of fraud produces consequences beyond higher fees and insurance premiums. What about the innocent family involved in an accident with one of these out-of-state registrants? Are they assured of a financially responsible source of compensation for physical injury or the death of a loved one, or must they deal with a "fly by night" local insurer, little regulated and beyond the jurisdictional reach of New York courts? What about the disclaimer jurisprudence in these foreign states? Will the innocent victim of the tortious wrong of a fraudulent out-of-state registrant still have the benefit of insurance once the fraud is discovered? The questions are myriad and the potential for harm to New Yorkers is real and significant.

Ready answers will not be found in courthouse writings, this included. That should not be our purpose, for regulatory and legislative matters are best left to others. Fortunately, there are gifted professionals in the remaining branches of government possessed of the experience and wisdom to address these issues. On the other hand, courts are not required to turn a blind eye to the gathering legal clouds about them. Indeed, this ordinary lawsuit involving the questionable registration of a car in a foreign state should serve to remind us that we "[w]rite not only for this case and this day alone" (Carroll v Lanza, 349 US 408, 413 [1955]), but for the future, ever mindful that a question asked is often as powerful as a question answered. 
Strong but accurate words that should put to rest any doubt that rate evasion is insurance fraud which can result in the loss of first-party coverage rights of those complicit in it.  The takeaway points from this decision are:
  • although New York personal auto insurers generally may not retroactively cancel or rescind an auto policy for application misrepresentation/fraud, they may deny first-party coverage benefits, including no-fault coverage, to those complicit in the application misrepresentation/fraud;
  • to sustain a denial of first-party coverage, including no-fault benefits, for application misrepresentation/fraud, the auto insurer need not demonstrate that it would not have issued the policy at all, but only that it would not have issued the particular policy at issue under the same terms; a significant difference in premium is such proof; 
  • proof that the policy was actually canceled is, under the ruling of this decision, not required to establish a prima facie showing of entitlement to summary judgment based on a policy application fraud/misrepresentation defense.
Over at The Rojak Report, Larry Rojak reminds that in 2006, his office obtained a similar result from the Appellate Term, Second Department, in A.B. Med. Servs. PLLC a/a/o Yevgenya Ioffe v Commercial Mut. Ins. Co., 2006 NY Slip Op 26118, 12 Misc 3d 8 (App. Term, 2d Dept., 2006).  Although evidence of application misrepresentation/fraud was used to deny summary judgment to the plaintiff medical provider-assignees in that case rather than grant summary judgment to the no-fault insurer, the court's reasoning in that case is similarly instructive:
In opposition to plaintiffs' motion, defendant also asserted the defense that plaintiffs' assignor was involved in a fraudulent scheme to procure the subject insurance policy in order to pay reduced insurance premiums, and that, consequently, plaintiffs providers were not eligible to recover assigned no-fault benefits. Vehicle and Traffic Law § 313 provides in pertinent part: "(1) (a) No contract of insurance . . . shall be terminated by cancellation by the insurer until . . . after mailing to the named insured . . . a notice of termination by regular mail . . . ." Vehicle and Traffic Law § 313 "supplants an insurance carrier's common-law right to cancel a contract of insurance retroactively on the grounds of fraud or misrepresentation, and mandates that the cancellation of a contract pursuant to its provisions may only be effected prospectively" (Matter of Liberty Mut. Ins. Co. v McClellan, 127 AD2d 767, 769 [1987]; see also Matter of Cruz v New Millennium Constr. & Restoration Corp., 17 AD3d 19 [2005]; Matter of Metlife Auto & Home v Agudelo, 8 AD3d 571 [2004]; Matter of Integon Ins. Co. v Goldson, 300 AD2d 396 [2002]; Matter of Insurance Co. of N. Am. v Kaplun, 274 AD2d 293 [2000]). The statute "places the burden on the insurer to discover any fraud before issuing the policy, or as soon as possible thereafter, and protects innocent third parties who may be injured due to the insured's negligence" (Matter of Insurance Co. of N. Am. v Kaplun, 274 AD2d at 298). There has been no allegation that defendant effectively cancelled the subject insurance policy pursuant to section 313.

However, case law has made clear that whereas the policy may not be retroactively cancelled, thereby protecting "innocent third parties who may be injured due to the insured's negligence" (id. at 298), in "an action to recover benefits under a policy, the insurance carrier may assert as an affirmative defense that the insured's misrepresentations and/or fraud in obtaining the policy precludes any recovery by the insured" (id. at 298-299). The issue presented here is whether, assuming the insurance policy was fraudulently procured, plaintiff health care provider is an "innocent" third party which case law protects and, thus, as assignee of the insured who allegedly perpetrated the fraud, acquires greater rights than had by the assignor. We hold that only innocent third parties who are injured are protected (id. at 298), and not a health care provider who deals with the assignor-insured at its peril in accepting an assignment of the insured's no-fault benefits. Contrary to plaintiffs' contention, the defense of fraudulent procurement of an insurance policy, which is nonwaivable and hence exempt from the 30-day preclusion rule, may be asserted as against plaintiffs providers in this action seeking to recover assigned no-fault benefits (cf. Matter of Metro Med. Diagnostics v Eagle Ins. Co., 293 AD2d 751, 751-752 [2002]). Upon our review of the record, we find that defendant's submissions in support of its defense were sufficient to raise issues of fact as to whether the insurance policy was fraudulently procured. Therefore, plaintiffs' motion for partial summary judgment was properly denied. To the extent that Ocean Diagnostic Imaging P.C. v Commerce Ins. Co. (7 Misc 3d 133[A], 2005 NY Slip Op 50642[U] [App Term, 2d & 11th Jud Dists 2005]) may be inconsistent with the determination herein, the dicta set forth therein should not be followed (see Ocean Diagnostic Imaging, P.C. v Nationwide Mut. Ins. Co., 11 Misc 3d 135[A], 2006 NY Slip Op 50477[U] [2006]).

Saturday, July 25, 2009

Water Damage Exclusion Held to Apply to In-Ground Swimming Pool Damage

HOMEOWNERS – PROPERTY – IN-GROUND SWIMMING POOL – WATER DAMAGE EXCLUSION
Jahier v. Liberty Mut. Group
(2nd Dept., decided 7/21/2009)

First Liberty Insurance Corporation insured the plaintiffs under a Deluxe Homeowners Insurance Policy.  In April 2007, the plaintiffs' in-ground swimming pool, the surrounding patio area, and the plumbing which serviced the pool sustained damage when the pool lifted up several inches out of the ground. At the time of the loss, the pool was not filled with water, as it had been drained by a contractor hired by the plaintiffs to perform maintenance work. During the time that the pool was empty, and shortly before the plaintiffs discovered the damage, heavy rains had fallen in the area. The plaintiffs made a claim under their policy, but Liberty disclaimed coverage based the policy's "Earth Movement" and "Water Damage"exclusions.

Then water damage exclusion negated coverage for loss caused "directly or indirectly" by "[w]ater damage, meaning . . . [w]ater below the surface of the ground, including water which exerts pressure on ... a building ... swimming pool or other structure ... regardless of any other cause or event contributing concurrently or in any sequence to the loss."

Plaintiffs sued Liberty for breach of contract and a declaration of coverage.  Suffolk County Supreme Court denied Liberty's motion and granted plaintiffs' cross motion for summary judgment, and Liberty appealed.  In REVERSING the motion court and granting summary judgment to Liberty, the Second Department held:
Liberty met its initial burden of establishing its entitlement to judgment as a matter of law by demonstrating that the "water damage" exclusion clearly and unambiguously applied to the plaintiffs' loss (see Reynolds v Standard Fire Ins. Co., 221 AD2d 616; Hipper v CNA Ins. Co., 2002 NY Slip Op 40109[U] [App Tm 9th & 10th Dists 2002]; see generally Cali v Merrimack Mut. Fire Ins. Co., 43 AD3d at 417; Sheehan v State Farm Fire & Cas. Co., 239 AD2d 486, 487; Kula v State Farm Fire & Cas. Co., 212 AD2d 16, 20). The plain language of the exclusion relieves Liberty from loss caused "directly or indirectly" by "[w]ater damage, meaning . . . [w]ater below the surface of the ground, including water which exerts pressure on . . . a building . . . swimming pool or other structure." Furthermore, losses due to "water damage" are excluded "regardless of any other cause or event contributing concurrently or in any sequence to the loss." Here, the evidence demonstrated that the plaintiffs' loss was attributable to the subsurface water pressure that was exerted upon the empty swimming pool, even though it was precipitated by the drainage of the pool and heavy rainfall (see Cali v Merrimack Mut. Fire Ins. Co., 43 AD3d at 417-418; Sheehan v State Farm Fire & Cas. Co., 239 AD2d at 487; Reynolds v Standard Fire Ins. Co., 221 AD2d 616, 616-617; Kula v State Farm Fire & Cas. Co., 212 AD2d at 20-21; Hipper v CNA Ins. Co., 2002 NY Slip Op 40109[U] [App Tm 9th & 10th Dists 2002]; South Carolina Farm Bureau Mut. Ins. Co. v Durham, 380 SC 506, 671 SE2d 610). In opposition to Liberty's motion and in support of its cross motion for summary judgment, the plaintiffs failed to raise a triable issue of fact or establish their prima facie entitlement to judgment as a matter of law, respectively, so as to preclude the award of summary judgment to Liberty (see Zuckerman v City of New York, 49 NY2d 557, 562).

Friday, July 24, 2009

Complaint Alleging Slander By No-Fault Insurer Dismissed -- Particular Words Complained of Not Set Forth

NO-FAULT – SLANDER – CPLR 3016(A)
Horbul v. Mercury Ins. Group
(2nd Dept., decided 7/21/2009)

New York is not alone in its requirement that a complaint which alleges defamation must set forth the particular words complained of. New York CPLR Rule 3016 provides:
Rule 3016. Particularity in specific actions. 
(a) Libel or slander. In an action for libel or slander, the particular words complained of shall be set forth in the complaint, but their application to the plaintiff may be stated generally.
Horbul sued Mercury for allegedly slandering him by reporting to the police that he had filed a fraudulent no-fault insurance claim for his son with Mercury.  In REVERSING the Kings County Supreme Court's denial of Mercury motion to dismiss the complaint, the Second Department ruled:
The plaintiff alleged in the complaint that the defendants committed slander per se when they reported to the police that the plaintiff had filed a fraudulent claim with them for no-fault medical benefits for his son. However, the complaint failed to comply with CPLR 3016(a), which requires that a complaint sounding in defamation "set forth the particular words complained of'" (Simpson v Cook Pony Farm Real Estate, Inc., 12 AD3d 496, 497, quoting CPLR 3016[a]; see Fusco v Fusco, 36 AD3d 589). Compliance with CPLR 3016(a) is strictly enforced (see Abe's Rooms, Inc. v Space Hunters, Inc., 38 AD3d 690). Accordingly, that branch of the defendants' motion which was pursuant to CPLR 3211(a)(7) to dismiss the complaint for failure to state a cause of action should have been granted. 
Even if the complaint had set forth the "particular words" alleged to be defamatory, the doctrine of qualified privilege might have applied to protect Mercury and its personnel from liability.  See LaBaron v. Erie Ins. Co., 59 AD3d 939 (4th Dept. 2009). In that case, the Fourth Department noted:
In the instant case, [Erie's special investigator] is protected by a qualified privilege in that the statements he gave were part of his duties to report possible false insurance claims to the police. Chapo v. Premier Liquor Corporation, 259 AD2d 1050 (4th Dept, 1999). There can be no liability for merely giving information to legal authorities who are left entirely free to use their own judgment in proceeding any further with respect to that information. Lowmack v. Eckerd Corporation, 303 AD2d 998 (4th Dept, 2003); Cobb v. Willis, 208 AD2d 1155 (4th Dept, 1994). Moreover, Defendants and the police certainly have a common interest in the investigation of potentially false insurance claims. Liberman v. Gelstein, 80 NY2d 429; Herlihy v. Metropolitan Museum of Art, 214 AD2d 250.

Thursday, July 23, 2009

My Passport in Nine Days

Shout out to the U.S Department of State's Bureau of Consular Affairs Passport Services.

From East Amherst, New York, to Washington D.C. and back to East Amherst in 9 days. I applied for my passport book and card (I live near the Canadian border, crossing which now requires either an enhanced New York State driver's license or a passport -- the card works for border crossings by land or sea) on July 13th and received my computer chip embedded electronic passport book on July 22nd:
The chip securely stores the same data visually displayed on the photo page of the passport, and additionally includes a digital photograph. The inclusion of the digital photograph enables biometric comparison, through the use of facial recognition technology, at international borders.
Did not know that. Of course, I paid the $60 extra plus overnight delivery costs for expedited processing of my application, but 9 days exceeds the "about 2-3 weeks door-to-door" estimate I was given at the East Amherst Post Office when I applied. Nice.

Need to apply for a U.S. passport? Use this search page to find the designated passport application facilities nearest to you. Most now take the passport photo right on site.  Just make sure that you have a certified birth certificate to submit with your application:
A certified birth certificate has a registrar's raised, embossed, impressed or multicolored seal, registrar's signature, and the date the certificate was filed with the registrar's office, which must be within 1 year of your birth. 
My wife's passport application was rejected because her birth certificate isn't certified.  She applied online for a certified certificate from Pennsylvania, her birth state, using VitalChek and her certificate arrived yesterday.  Problem.  Her middle name is misspelled. Sorry hon.  Guess you get to stay home and feed the dogs. 

Tuesday, July 21, 2009

Separated and Non-Resident Spouse Found Entitled to SUM Coverage as "Insured"

SUM – "INSURED" – RESIDENCY REQUIREMENT
Matter of Preferred Mut. Ins. Co. v. Bath
(Sup. Ct., Ulster Co., decided 6/2/2009)

What happens when one policy form defines an "insured" one way and another policy endorsement defines it in another way?

Victoria Bath separated from her husband and moved out of the marital residence in early May 2008.  Less than one month later, on June 1, 2008, she was injured when the driver of the car in which she was riding lost control and the vehicle flipped over. The driver was later charged with driving while intoxicated.  His auto insurer settled with Bath for the $25,000 liability limit of his policy, and Bath then sought SUM coverage from Preferred Mutual under a personal auto policy that had been issued to her husband in his name alone.  Preferred Mutual denied SUM coverage on the basis that Bath's physical separation from her husband in early May 2008 ended her status as an "insured" under the terms of the SUM endorsement of the policy.  Bath demanded arbitration and Preferred Mutual commenced this special proceeding for a stay.

The main personal auto policy form (probably a PP 00 01 form) defined "you" and "your" as follows:
A.  Throughout this policy, "you" and "your" refer to:
1. The "named insured" shown in the Declarations; and
2. The spouse if a resident of the same household. 
 If the spouse ceases to be a resident of the same household during the policy period or prior to the inception of this policy, the spouse will be considered "you" and "your" under this policy but only until the earlier of:
1. The end of 90 days following the spouse's change of residency[.]
The prescribed SUM endorsement, however, defined an "insured" as:
I.  Definitions. For purposes of this SUM endorsement, the following terms have the following meanings:

(a) Insured. The unqualified term "insured" means:
(1) You, as the named insured and, while residents of the same household, your spouse and the relatives of either you or your spouse[.]
Preferred Mutual argued that the SUM endorsement's more narrow, regulatorily prescribed definition of "insured" controlled and that, since Bath had moved out of the marital residence a few weeks before the accident, she did not qualify as an "insured" for SUM coverage purposes.

Ulster County Supreme Court Justice Henry Zwack disagreed, finding this to be "a classic 'ambiguity' in its purest etymological sense: it leads the reader in two directions at the same time."  In ruling in favor of coverage and dismissing the petition, Justice Zwack held:
Both parties to this litigation agree that the dilemma must be resolved. They disagree, not only on the ultimate resolution, but on its method. Petitioner urges that the standard to be applied is one of plain meaning and "impartial interpretation" (Reply Affirmation at para 22), since the SUM language is mandated by statute (see Walton v Lumberman's Mut. Cas. Co., 88 NY2d 211, 214 [1996]). Respondent, on the other hand, insists that the general rule construing inconsistencies in insurance policy language against the drafter should be applied (see Wagman v American Fidelity & Cas. Co., 304 NY 490 [1952]). 

The prescribed language of the SUM endorsement, when read alone, is clear and unambiguous. What removes its clarity and creates the ambiguity is petitioner's facially contradictory definition, ostensibly applicable "throughout th[e] policy." The mandatory SUM language existed first; petitioner wrote its policy and incorporated the pre-existing SUM language. Accordingly, if the unambiguous SUM language loses its clarity because petitioner chose to draft language of its own that contradicts the definitions of the SUM endorsement, the Wagman standard should apply, as it is petitioner and not the Insurance Department that created the ambiguity.

The balance of the analysis is simple. Petitioner's policy provides coverage to respondent under one definition of its terms, then excludes her from coverage under another definition. Resolution of the inconsistency against the drafter of the inconsistent language results in coverage for respondent. 

The appropriateness of this result can be cross-checked by the application of the familiar canon of construction which holds that the specific shall take precedence over the general (Cf. Delaware & Hudson Ry. Co. v McDonald, 126 AD2d 29, 32 [3d Dept 1987]). Petitioner's expansive definition of "you" provides a specific formula for the determination of the termination of coverage for a non-resident spouse at the end of ninety (90) days. The general language of the SUM endorsement merely states that a spouse will be covered "while [a] resident[] of the same household," yet is silent as to whether coverage terminates at the moment when a spouse decides to leave the household, after the spouse has established a different residence, or after the spouse has removed all possessions from the former household. The specific language of the main policy provides clear guidance and fixes a definite terminus for coverage; the general SUM endorsement language does not. Coupled with the unequivocal statement that the specific definition will apply "throughout this policy," there can be little doubt that respondent falls within the definition of covered individuals.

Petitioner contends that the clear statement that the policy's definition would apply "throughout" is countered by the statement that appears immediately before the SUM endorsement: "THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY." This statement is so general as to be meaningless. It cannot be reasonably interpreted as superseding the definition that was said, by petitioner, to apply "throughout the policy." 

To say that the SUM endorsement "changes" the policy is at best surplusage and at worst misleading. If the SUM endorsement did not "change" the policy there would be no point in its inclusion. If the policy already provided exactly the same SUM coverage as the endorsement describes, reiterating the terms of that coverage in an endorsement that did not "change" the policy would be pointless. Therefore, to state expressly that the endorsement "changes the policy" means nothing. If, on the other hand, the true purpose of the statement is to provide petitioner with the ability to claim that its own choice of apparently clear wording that its definitions would apply "throughout this policy" was in fact really intended to mean "only until we choose to use a different definition," it is an intent that cannot be effectuated at respondent's expense. As noted supra, ambiguous language in a contract of insurance is to be construed against the insurer. If petitioner's language was chosen to mean one thing while appearing to mean another, it cannot be enforced.
You can't blame Preferred Mutual for attempting to apply the plain and unambiguous words of the SUM endorsement's "insured" definition.  The potential flaw in Justice Zwack's interpretation of the seemingly inconsistent definitions is his overlooking of the modifying prepositional and adjectival phrase "as the named insured", following the "you" in the SUM endorsement's definition.  The court's decision completely ignores that phrase, rendering it meaningless in comparative construction with the main policy form's definition of "you".  If Justice Zwack had focused on this language and actually applied the "specific over the general" canon of contract construction he cites, he would have found the more specific definition of "insured" in the regulatorily prescribed SUM endorsement to control, leaving Bath uncovered for SUM.  The decision does not indicate whether counsel for Preferred Mutual made this particular argument.

Earlier this month I perfected an appeal in a first-party property coverage case to the Fourth Department in which my core argument pivots on the "specific over general" canon of insurance policy interpretation.  In Rocon Mfg. v Ferraro (199 AD2d 999, 1000 [4th Dept 1993]), the Fourth Department stated that “where ‘there [is] an inconsistency between a specific provision and a general provision of a contract * * * the specific provision controls[.]’"  I'll let you know how that appeal turns out, if Ray Zuppa doesn't beat me to the punch.  No widows or "potential" widows in that case.  Just rich country club members and some wet sand.

New York State Insurance Department Circular Letter No. 15 (2009)

June 30, 2009
TO: All Insurers and Self-Insurers Authorized to Write Motor Vehicle Liability, Physical Damage and Mechanical Breakdown Insurance in New York State; and the New York Automobile Insurance Plan
RE: Third Party Information Sharing for Sales Tax Compliance Purposes

STATUTORY REFERENCE: New York Tax Law § 1136(i)

The purpose of this Circular Letter is to advise insurers of a recent amendment to the New York Tax Law.  Recently, the legislature amended Section 1136 to require insurers to file an annual informational return with the New York State Department of Taxation and Finance (“DTF”) if the insurer pays consideration or an amount under an insurance contract for the servicing or repair of a motor vehicle on behalf of an insured.  The law also requires insurers to advise recipients of such payments, including motor vehicle body or mechanical repair shops as sales tax vendors, of the information reported to the DTF.  In addition, the law establishes penalties for noncompliance with the required reporting requirements.

The first informational return required under this law is due on September 20, 2009, and will cover the period of March 1, 2009 through August 31, 2009.  DTF is expected to issue written guidance explaining the filing process and clarifying the information required.           

Any questions regarding compliance should be directed to DTF at (518) 457-5342 or (800) 972-1233.

***************************************************************************************************
Hat tip to Rhonda Brooker of New York Central Mutual for the heads up on this new reporting requirement, which was buried within this year's budget bill.

"To increase tax compliance and improve [New York State's] ability to enforce the payment of taxes," New York State is now requiring auto insurers annually to report to New York State sales tax paid to auto body and repair shops. Wouldn't be so bad if this new reporting requirement were to begin sometime next year so that insurers could re-program their systems to capture the required information, but New York State needs money NOW, so this legislation requires two interim reports -- one due on September 20, 2009 for the filing period March 1--August 31, 2009, and the second due on March 20, 2010 for the filing period September 1, 2009--February 28, 2010.  After 2010, each annual return for the preceding March 1st--February 28th (29th) period will be due on March 20th. 

In other words, when New York auto insurers opened their mail on July 1st, they discovered that they would be required to capture and report sales tax payment information dating back four months to March 1st of this year.  Some, no doubt, were not already electronically tracking this information in a form that could easily be compiled and produced for a informational return.  Perhaps some college kids got jobs this summer making manual searches of paid auto physical damage files to pull the newly required information.

In New York where over-regulation rules the roost, a simple name, taxpayer ID number and amount paid during the filing period would just not do.  Instead, the information required for these new returns is:
  •  vendor’s name (legal entity name);
  • vendors DBA name (e.g., repair shop name as displayed outside premises, if different from legal entity name);
  • vendor’s address;
  •  total amount paid to each vendor located in New York State, including payments made by checks made out to both the vendor and other parties, such as the insured or a lien holder (multiple payee checks);
  •  total number of individual payments made to each vendor (including multiple payee checks);
  •  vendor’s Federal Employer Identification Number (EIN/Federal ID number) which would be the owner’s Social Security Number if vendor is a sole proprietor;
  • vendor’s New York State Sales Tax Certificate of Authority Number;* and
  • vendor’s New York State Department of Motor Vehicles (DMV) Facility Number.*
If a motor vehicle insurer is unable to provide any of the information listed above that is marked with an asterisk (*) on the first information return required to be filed on or before September 20, 2009, the motor vehicle insurer will not be considered to have failed to provide information that is required on the return, as long as all the other information is provided. However, for all returns due March 20, 2010, and thereafter, the information listed above marked with an asterisk must be provided along with the information that is not marked with an asterisk, in order for the return to be considered to be properly filed.

Although not required for each return, the following information must also be compiled and provided to the New York State Department of Taxation and Finance upon request:
  •  the name of the insured on whose behalf payments were made;
  • deductible amount for each claim;
  • total amount paid for sales tax for each claim;
  • date of each individual payment; and
  • check number of each check issued to the vendor or where applicable, the vendor’s electronic funds transfer (EFT) number.
Of course, what would more regulation be without some monetary penalties for non-compliance?  The DTF's advisory bulletin of July 2nd gives those as:
(1) If a motor vehicle insurer fails to:

• provide any of the information as required on the information return;
• include information on the information return that is true and correct; or 
• provide to each affected vendor, on or before March 20th of each year, the statement as described above; 

the motor vehicle insurer is subject to a penalty of $500 for 10 or fewer failures and up to $50 for each additional failure. 

(2) If a motor vehicle insurer fails to timely file an information return under the new law, in addition to the penalties described above, a penalty of not less than $500 but up to $2000, will apply to each failure. 

The penalties described above cannot exceed a total of $10,000 for any filing period.
If the DTF determines, however, that any failure to comply with the requirements of this new law was entirely due to reasonable cause and not to willful neglect, the penalties as described above will be waived.

If all this weren't enough to ruin auto insurer IT folks' summers, the state made one more thing mandatory -- electronic filing of these information returns.  How?  In what format?  No one knows yet.  For the first return due on September 20th, the DTF promises to provide information regarding the actual filing of the electronic return on the Tax Department’s Web site by September 1st.  Nice.

Monday, July 20, 2009

SUM Arbitration Award Confirmed -- Inconsistency of Prior No-Fault Arbitration Award Not Given Preclusive Effect

SUM – NO-FAULT – COLLATERAL ESTOPPEL – VACATING ARBITRATION AWARD
Matter of Falzone v. New York Cent. Mut. Fire Ins. Co.
(4th Dept., decided 7/2/2009)

Falzone arbitrated New York Central Mutual's denial of no-fault benefits and won.  She then arbitrated her related SUM claim against NYCM before a different arbitrator and lost on the ground that her injuries were not caused by the accident.  Contending that the second arbitration decision was inconsistent from the first, and that NYCM was collaterally estopped in the SUM arbitration from relitigating the issue of causation with respect to her injuries, Falzone commenced this CPLR article 75 special proceeding to vacate or modify the SUM arbitration award.  Supreme Erie granted petitioner's motion to vacate the SUM award and NYCM appealed.

In a 3-2 split decision, the Fourth Department, Appellate Division, REVERSED the order and confirmed the SUM arbitration award, holding:
The fact that a prior arbitration award is inconsistent with a subsequent award is not an enumerated ground in either subdivision (b) or (c) of CPLR 7511 for vacating or modifying the subsequent award (see Matter of City School Dist. of City of Tonawanda v Tonawanda Educ. Assn., 63 NY2d 846, 848). As the court properly recognized, "[i]t was within the [SUM] arbitrator's authority to determine the preclusive effect of the prior arbitration on the instant arbitration" (Matter of Progressive N. Ins. Co. v Sentry Ins. A Mut. Co., 51 AD3d 800, 801). The court erred in noting, however, that it was unable to determine whether the SUM arbitrator even considered claimant's contention with respect to collateral estoppel. Arbitrators are not required to provide reasons for their decisions (see Matter of Solow Bldg. Co. v Morgan Guar. Trust Co. of N.Y., 6 AD3d 356, 356-357, lv denied 3 NY3d 605, cert denied 543 US 1148; Matter of Guetta [Raxon Fabrics Corp.], 123 AD2d 40, 41), and thus the SUM arbitrator was not required to state that he had considered that contention.
Two justices dissented and voted to affirm the award.  While acknowledging that collateral estoppel "is not a basis on which [Supreme C]ourt may, under CPLR 7511, vacate an arbitration award," the dissent nevertheless noted that
vacatur is permitted where the award 'violates a strong public policy, is irrational or clearly exceeds a specifically enumerated limitation on the arbitrator's power' " (Matter of Mays-Carr [State Farm Ins. Co.], 43 AD3d 1439, 1439, quoting Matter of New York City Tr. Auth. v Transport Workers' Union of Am., Local 100, AFL-CIO, 6 NY3d 332, 336; see generally CPLR 7511 [b] [1] [iii]). In our view, the arbitrator who issued the award with respect to supplemental uninsured motorist (SUM) benefits exceeded his power by disregarding the preclusive effect of a prior arbitration award and instead issuing a different determination with respect to causation, involving the same parties and based upon the same facts (see Matter of American Honda Motor Co. v Dennis, 259 AD2d 613; Motor Veh. Acc. Indem. Corp. v Travelers Ins. Co., 246 AD2d 420, 422).
The dissent further observed that in this matter there were no factual issues regarding whether the no-fault arbitration award should be given preclusive effect.  "The SUM arbitrator was thus barred from relitigating the issue of causation between the identical parties, inasmuch as it was 'actually contested and therefore determined by the [prior] award' ", reasoned the dissent. 

Although some practitioners may regard the majority's decision as standing for the proposition that collateral estoppel no longer attaches to no-fault arbitration awards in the Fourth Department, the majority's ruling is much more narrow than that.  The majority reversed the trial judge and confirmed the award not because they believed collateral estoppel could or did not apply to preclude NYCM from relitigating injury causality, but because they (and the dissent) adhered to the rule that collateral estoppel is not a basis on which Supreme Court may, under CPLR 7511, vacate an arbitration award.

Editor's Note ~~ The New York Court of Appeals AFFIRMED this decision on October 21, 2010.  The Court's 6-1 opinion is here.  

NYS Insurance Frauds Bureau Statistics First Half 2007-2009

The New York State Insurance Frauds Bureau has released its compiled statistics for the first halves of 2007 through 2009.  The report, sans analysis, is here.

Total reports are up, arrests are trending down, and convictions are again up.

2007
2008
2009
Reports
11,549
11,260
12,961
Arrests
388
344
323
Convictions
245
160
281

Percentage arrests and convictions per number of reports and arrests:

2007
2008
2009
Arrests/Reports
3.36%
3.05%
2.49%
Convictions/Reports
2.12%
1.42%
2.17%
Convictions/Arrests
63.14%
46.51%
87%

CGL and Garage Insurers Found to Owe Policy Limit Coinsurance to Employers' Liability Insurer

CGL – GARAGE POLICY EMPLOYER'S LIABILITY POLICY – COINSURANCE CONTRIBUTION – UNTIMELY DISCLAIMER
State Ins. Fund v. American Hardware Mut. Ins. Co.
(2nd Dept., decided 7/7/2009)

Question:  In New York, when does a CGL or a garage policy apply to cover a garage employee's injuries sustained during employment?  Answer:  When  the insurers wait more than four months to disclaim coverage based on those policies' employee injury exclusions, that's when. 

The parties in this coinsurance contribution action insured World of Hitches N Rentals in North Bellmore, New York -- the State Fund (SIF) under a WC/EL policy; and American Hardware under a $300K CGL policy and a $300K garage policy.  An employee of the insured was burned when a container he was filling with kerosene exploded.  He sued various defendants, three of which impleaded the insured, World of Hitches, in a third-party action.  Although both insurers initially assumed World of Hitches' defense, SIF took over that defense after American Hardware disclaimed coverage under both policies more than four months after receiving notice of the third-party action, based on the policies' employee injury exclusion.

Then underlying action eventually settled for $1,475,000, with SIF contributing $750,000 and agreeing to waive its $225,000 WC lien in the amount of $225,000. SIF then brought this action for a proportionate coinsurance contribution towards its defense and indemnification costs relative to the underlying action and successfully moved for summary judgment, the trial court awarding SIF $650,000 in principal, representing approximately two-thirds of its combined indemnity contribution of $975,000, and two-thirds of its defense costs in the underlying personal injury action.

On appeal, the Second Department agreed with the trial court's determinations that "[s]ince the disclaimer was based on policy exclusions, the defendants were required to provide World of Hitches with timely notice of its disclaimer under Insurance Law § 3420(d)", and American Hardware's disclaimer,  issued more than four months after receiving notification of the third-party action, was untimely as a matter of law.  The Second Department rejected the defendants' contention that SIF was obligated to demonstrate prejudice from their delay in disclaiming.

The Second Department also rejected the defendants' argument that that even if the disclaimer was untimely, no coverage was provided under the garage policy because the employee was not injured while engaged in garage operations:
The record establishes that the employee's actions were taken in furtherance of the garage business (compare Lancer Ins. Co. v Whitfield,AD3d, 2009 NY Slip Op 02975 [2d Dept 2009]; Singh v Allcity Ins. Co., 1 AD3d 501; Minerva v Merchants Mut. Ins. Co., 117 AD2d 720).
The Second Department did, however, MODIFY the trial court's ruling to reduce the indemnification coinsurance award from $650,000 down to $300,000, holding:
Although the defendants were obligated to defend and indemnify World of Hitches in the underlying action (see Moore v Ewing, 9 AD3d 484), and thus must pay their proportionate share of the settlement (see Hawthorne v. South Bronx Community Corp., 78 NY2d 433) and defense costs incurred in the underlying action, their contribution may not exceed the limits of the policies. Here, both policy limits were $300,000 per accident. Moreover, the garage policy provided that all of the defendants' policies were mutually exclusive in that if more than one policy applied to the same accident, the maximum limit of liability under all the policies would not exceed the highest applicable limit under one policy. Thus, the maximum amount the defendants were required to contribute to the settlement was $300,000, and the judgment must be modified accordingly. 
This aspect of the Second Department's decision is noteworthy in standing for two propositions:  that an untimely disclaimer under Insurance Law § 3420(d) does not: (1) increase the disclaiming insurer's coinsurance obligation above policy limits; or (2) preclude the disclaiming insurer from later relying on policy conditions that limit such coinsurance contributions.

Tuesday, July 14, 2009

Motion Court Erred in Requiring a Showing of Prejudice for Late Notice Disclaimer and in Not Conducting In Camera Review of Documents Listed on Insurer's Privilege Log

CLG – LATE NOTICE – TIMELY DISCLAIMER – PREJUDICE DISCOVERY – ATTORNEY-CLIENT PRIVILEGE
Sevenson Envtl. Servs., Inc. v. Sirius Am. Ins. Co.
(4th Dept., decided 7/10/2009)

The motion court's rulings against the CGL insurer went 0-3 on this appeal.

Sirius Insurance Company insured Thomas Johnson, Inc. (TJI) under a CGL policy that required TJI to notify Sirius of any accident or occurrence "which may result in a claim" as soon as practicable.  An employee of TJI was injured in a construction accident on October 6, 2003, and TJI learned of the injury within days, but failed to notify Sirius of the accident nearly 15 months later.  Sirius disclaimed coverage based on TJI's late notice 24 days after receiving TJI's notice of claim.

Sevenson Environmental Services, Inc. (Sevenson) and The Goodyear Tire and Rubber Company (Goodyear), commenced this action for a declaration that Sirius was obligated to defend and indemnify them in the underlying personal injury action brought by TJI's employee.  TJI cross-claimed for a declaration that Sirius was obligated to defend and indemnify it also in the underlying action, and moved for summary judgment. Sirius cross-moved for summary judgment with respect to its coverage obligation to TJI.  Plaintiffs also moved to compel Sirius to disclose documents listed in its privilege log.

The motion court granted TJI's motion for summary judgment, finding that Sirius had not been prejudiced by TJI's delayed notice, and that Sirius' disclaimer was untimely and/or defectively unspecific.  The motion court also granted plaintiffs' motion to compel disclosure of documents listed in Sirius' privilege log without first conducting an in camera review of those documents. Sirius appealed, and the Fourth Department unanimously REVERSED all three rulings.

TJI apparently had successfully argued to the motion court that its nearly 15-month delay in notifying Sirius of its employee's accident should be excused because it believed that its employee intended to assert only a workers' compensation claim.  Citing Matter of Travelers Ins. Co. [Delosh], 249 AD2d 924, 925, the Fourth Department held that that excuse was "unreasonable as a matter of law[.]"

With respect to Sirius' disclaimer, the Fourth Department found it to be both timely and sufficiently specific:
We further conclude that Sirius provided TJI with timely written notice of its disclaimer, in accordance with Insurance Law § 3420 (d). Sirius issued its disclaimer letter upon completion of its investigation, 24 days after receiving TJI's notice of the claim (see Dryden Mut. Ins. Co. v Greaser, 269 AD2d 792, 793). Contrary to TJI's contention, the disclaimer letter was valid inasmuch as it " apprise[d] [TJI] with a high degree of specificity of the ground . . . on which the disclaimer [was] predicated' " (Utica Mut. Ins. Co. v Gath, 265 AD2d 805, 806).
 TJI had also apparently convinced the motion court that Sirius' disclaimer was ineffective because it was not prejudiced by TJI's reporting delay.  Correctly noting that the "new" prejudice requirement only applies to liability policies issued on or after January 17, 2009, the Fourth Department reversed the motion court's ruling on this issue, as well, holding:
The court's determination that Sirius was not prejudiced by TJI's late notice of claim is of no moment. As the Court of Appeals wrote, "[w]e have long held, and recently reaffirmed, that an insurer that does not receive timely notice in accordance with a policy provision may disclaim coverage, whether it is prejudiced by the delay or not" (Briggs Ave. LLC v Insurance Corp. of Hannover, 11 NY3d 377, 382).  We note that, in addressing the issue of prejudice, the court erred in relying on amendments to Insurance Law § 3420 that apply only to policies issued on or after January 17, 2009. The policy in question was issued before that effective date, and thus "[t]he common-law no-prejudice rule applies to this case" (id.).
Lastly, the Fourth Department agreed with Sirius that the motion court erred in not first conducting an in camera review of documents listed in Sirius' privilege log before ordering disclosure of those documents to the plaintiffs:
Sirius further contends on appeal that the court erred in granting plaintiffs' motion to compel the disclosure of documents listed in its privilege log without first conducting an in camera review of those documents (see Baliva v State Farm Mut. Auto. Ins. Co., 275 AD2d 1030, 1031). We also agree with that contention. The broad discretion afforded trial courts in supervising discovery is not unlimited (see Hardy v Tops Mkts., Inc., 231 AD2d 879, 880), and here Sirius refused to disclose several documents based upon its contention that they included communications between its attorney and representatives of UTC Risk Management Services, Inc. (UTC), Sirius' third-party claims administrator. Thus, according to Sirius, the documents in question fall within the scope of the attorney-client privilege. As Sirius correctly contends, the attorney-client privilege extends to communications to "one serving as an agent of either attorney or client" (First Am. Commercial Bancorp, Inc. v Saatchi & Saatchi Rowland, Inc., 56 AD3d 1137, 1139 [internal quotation marks omitted]) and, contrary to plaintiff's contention, the record establishes that UTC acted as an agent of Sirius. Significantly, UTC, acting on behalf of Sirius, issued the disclaimer letter to TJI and also sent a similar letter to Goodyear. Moreover, there is no evidence that TJI, Goodyear, or Sevenson questioned UTC's authority to act on behalf of Sirius. The determination whether a particular document is shielded from disclosure by the attorney-client privilege "is necessarily a fact-specific determination . . ., most often requiring an in camera review" (Spectrum Sys. Intl. Corp. v Chemical Bank, 78 NY2d 371, 378). We therefore remit the matter to Supreme Court to determine plaintiffs' motion following an in camera review of the documents in question.  
Notice that in this case, the communications claimed to be privileged were between Sirius' attorneys and its third-party claims administrator, which was acting as Sirius' agent for purposes of investigating and communicating Sirius' coverage position.  Disagreeing with the motion court, the Fourth Department held that such communications may still fall within the disclosure protection of the attorney-client privilege.

How receptive do you think the trial court will be to Sirius' arguments of attorney-client privilege when making the ordered in camera review?  Anyone laying odds on the outcome of the plaintiffs' re-decided motion to compel?

Tuesday, July 7, 2009

The Chronicles of a Coverage Denying, Creature Slaughtering Blogger -- Part 1

June 26, 2009, 5:13 PM EDT --

The BlackBerry Pearl vibrates.

"That is some photo of you on Zuppa's page... and quite a write up I must add ", a Central New York client emails.

"What? Give me a call on my cell if you're still there", I reply.

And so it was that I discovered what the prolix but perennially unprevailing Ray Zuppa had been doing over at his critically unclaimed Zuppa's Pit while I was resting my fingertips during the latter half of June.

Yes, Ray may not know how to write a winning motion in either federal or state court, but he does apparently know how to google, and that is in fact me, in my survival/float suit holding a 11-pound 4-ounce female steelhead trout on February 17, 2007, just outside the weigh-in station at the 2007 Roger Tobey Memorial Steelhead Tournament sponsored by the the Niagara River Anglers Association.  If you want to know what it takes to be a coverage denying, creature slaughtering angler in the wintertime on the Lower Niagara River running through the Niagara Peninsula, check out my slideshow from that tourney.  And, by the way, that fish was the only one of several that I caught and kept to be weighed that day.  All fish kept and weighed for tournament contention were then donated to a local food pantry, so none went to waste.  But if the slaughtering God's creatures image works better for you for me, I will expend no effort to disabuse you of that notion.

But for Part 1 of my chronicles, I really would have expected and hoped for more.  More than failing to victimize a "potential widow", whatever that means.  More than the same tired, worn, puffy reference previously slung at NICB’s Senior Vice President/General Counsel Robert H. Mason.  I'm underwhelmed, Ray.  Just like Justice Stone (page 9).  Could you not have done more?  You call that dislike?

Please tell me that Part 2 of my chronicles will be better, bitier, more bombastic.  Anything worth doing is worth doing well, Ray.  And yes, the payment of premiums does guarantee nothing, except, of course, as we all know, the reduction of disposable income.  Insurance policies protect against unrealized risks; if a loss and consequent payment were guaranteed, now that wouldn't be insurance, would it?  Tenets count, you know.

"You win some and and you lose some unless your [sic] Zuppa in which case you lose and lose and lose."  Zuppa's Pit 07.07.09

500th Post

For those keeping count (all none of you), June 16th's post was my 500th of this blog. I was so impressed with my own handiwork, I took two weeks off. No, not really. I just didn't blog.

Although this blog has not been a financial bonanza -- in fact, I can count on one finger on one hand the number of new referrals it's garnered -- the visit metrics tell me that it serves as a useful resource to those looking for insurance information. Especially if that information relates to New York insurance loss or claim matters. And it keeps me grounded in an area of law that continues to stimulate and interest me. So I press on.

To my regular commenters, thank you for your contributions. To my regular readers, let me know if you'd like to see something on these pages that's not already here. Like Q&A stuff. I've a small list of recent client inquiries to sterilize and post in the near future. I am and intend proudly to remain an ad-free blog. Remember that the post labels and various search boxes/bars are there to make it easier for you to find information in older posts. You can even bookmark a certain label search result, such as no-fault or CGL, waiver of subrogation or the Graves Amendment, and return occasionally to check out what's new. And please, let me know if you ever discover any dead or incorrect links. I'll be working on moving files stored on the soon-to-be defunct Google Page Creator to another file hosting service and renaming those 60 or so files.

Nearly 45,000 visits in just over 14 months for a niche legal subject matter blog in a single jurisdiction mean either that I'm an SEO genius or there's something here folks find useful. Since it took me several tries to complete the iPhone's The Moron Test, I must conclude the latter.

496 more to reach 1,000. Use the restroom now, because we're not stopping again until we get there.

Court of Appeals Affirms: Unconsented Settlement with Second Tortfeasor Forfeits SUM Coverage

AUTO – SUM – CONSENT TO SETTLE – EXHAUSTION OF MULTIPLE TORTFEASORS' POLICY LIMITS
Matter of Central Mut. Ins. Co. v. Bemiss
(Ct. Apps., decided 6/25/2009)

Three car accident.  Injured plaintiff in Car 1 sues drivers/owners of Cars 2 and 3.  Plaintiff settles with Car 2 for its full, per person BI liability policy limit after properly notifying her SUM insurer.  Then settles with Car 3 for less than its BI limit without notice to or consent from her SUM insurer.  Has plaintiff breached the consent-to-settle and subrogation-protection conditions of her policy's SUM endorsement, voiding coverage for her SUM claim vis-à-vis Car 2?

Yes, said the Third Department, and yes, now says the Court of Appeals.  By choosing to proceed with and settle her claim against the second tortfeasor without obtaining her SUM insurer's consent, the plaintiff-insured forfeited her SUM coverage.

At issue in this case was "whether consent-to-settle and subrogation-protection provisions in the supplementary uninsured/underinsured (SUM) endorsement in an automobile liability insurance policy fall by the wayside once an insured has exhausted the available policy limits of a single tortfeasor in a multi-tortfeasor accident."  In a unanimous decision holding that these provisions remain in force and govern any settlements that the insured may subsequently make with other tortfeasors, Judge Read reasoned:
As already noted, an insured generally may not settle with a tortfeasor without the SUM insurer's written consent, and may not prejudice the SUM insurer's subrogation rights. As to the latter point, Condition 13 of the SUM endorsement specifically states as follows:
"13. Subrogation: If we make a payment under this SUM coverage, we have the right to recover the amount of this payment from any person legally responsible for the bodily injury or loss of the person to whom, or for whose benefit, such payment was made to the extent of the payment. The insured or any person acting on behalf of the insured must do whatever is necessary to transfer this right of recovery to us. Except as permitted by Condition 10, such person shall do nothing to prejudice this right" (11 NYCRR 60-2.3 [f]) (emphasis added).
The final sentence of Condition 10 — the crux of Bemiss's argument — specifies that the insured "shall not otherwise settle with any negligent party, without [the SUM carrier's] written consent, such that [the SUM carrier's] rights would be impaired" (emphasis added). Looking at both this language and the structure of Condition 10, "otherwise" refers back to the settlement scenario delineated in the first sentence — i.e., an insured's 30 days' written notice to the insurer of a tortfeasor's offer to settle for the maximum available policy limits. And while Bemiss contends that "any negligent party" refers only to the first tortfeasor whose policy is exhausted so as to make SUM benefits payable, this is not readily apparent from the words used or the regulatory history. In the original version of Condition 10 (former Condition 8), "any negligent party" clearly referred to all the tortfeasors in a multiple-tortfeasor accident. When the Department revised the SUM endorsement to make the exhaustion requirement applicable to any single tortfeasor rather than the aggregate limits of the liability coverage of all tortfeasors, it retained in new Condition 10 the stipulation that the insured could not "otherwise settle with any negligent party" (emphasis added). Bemiss, in effect, asks us to read this provision to mean "otherwise settle with the first party to tender the available limit of his/her motor vehicle bodily injury liability coverage." Even if Bemiss's interpretation of "any negligent party" were correct, there is nothing in the SUM endorsement to suggest that the subrogation-protection provisions in Condition 13 become inoperative once an insured has exhausted a single tortfeasor's policy limits in a multiple-tortfeasor accident.

In short, Condition 10 delineates the sole situation in which an insured may settle with any tortfeasor in exchange for a general release, thus prejudicing the insurer's subrogation rights, without the carrier's written consent. Here, Bemiss violated Condition 10 when she settled with Genski for less than the maximum available policy limits without Central's written consent, such that its subrogation rights were impaired. Moreover, this result is not inconsistent with our decision in S'Dao or Condition 9 of the SUM endorsement. In this case, Bemiss settled with Kowalczyk in compliance with Condition 10, thereby also fulfilling the exhaustion requirement in Condition 9. At that point, she was entitled to make a claim for $75,000 under her SUM coverage and, if Central disagreed, to proceed to arbitration. That is, she did not have to pursue a claim against Genski in order to become eligible to collect up to the remaining limits of her SUM policy. But once having chosen to resolve her claim against Genski, she was not free under the SUM endorsement to compromise Central's subrogation rights unilaterally.
Counsel for persons injured in multiple vehicle accidents with multiple tortfeasors take note:  at the risk of forfeiting your client's SUM coverage, do not settle any claims against multiple tortfeasors without complying with the SUM endorsement's consent-to-settle conditon(s) as to each settling tortfeasor.

Monday, July 6, 2009

"For the Mutual Benefit" Language of Commercial Lease Found to Trigger Blanket Additional Insured Coverage in Favor of Landlord

CGL – BLANKET ADDITIONAL INSURED ENDORSEMENT – "FOR THE MUTUAL BENEFIT OF" MEANS "REQUIRED TO NAME" – COMMERCIAL LEASE
Kassis v. Ohio Cas. Ins. Co.
(Ct. Apps., decided 6/25/2009)

Landlords often require their tenants to carry certain insurance coverages -- sometimes to the benefit of just the tenant, and sometimes to protect the landlord directly, as well.  Such insurance requirements are usually found in the lease, and provisions concerning first- and third-party insurances vary widely.  The responsibility of interpreting such provisions, if unclear and contested, is the courts'.  This is such a case.

In a 3-2 decision issued back in May 2008, the Fourth Department found in favor of Ohio Casualty and ruled that its insured's landlord was not an additional insured under the tenant's CGL policy.  The three-justice majority ruled that the tenant was not "required to name" the landlord as an additional insured because the parties' lease only required insurance "for the mutual benefit of" both the tenant and the landlord.

The Court of Appeals has now REVERSED that decision and reinstated the motion court's judgment in favor of the landlord.

Kassis leased property to Superior Sign.  Under the lease, Superior Sign was obligated to pay for snow removal services and to "indemnify, defend, and hold harmless Landlord from any and all damages, costs, expenses, and liabilities for anything arising out of the occupancy of the Premises caused by Tenant or its agents and from any loss or damage arising out of the acts of Tenant or its agents or the failure of Tenant to comply with the terms and conditions" of the lease.  The lease further provided that Superior Sign, "at its sole cost and expense and for the mutual benefit of Landlord and Tenant, shall maintain a general liability policy ... providing coverage against claims for bodily injury, personal injury and property damage" in specified aggregate and per occurrence coverage limit amounts.

Superior Sign obtained a commercial general liability (CGL) insurance policy from Ohio Casualty. The policy contained a blanket additional insured endorsement that extended coverage to "any person or organization whom [the named insured is] required to name as an additional insured on this policy under a written contract or agreement."

A Superior Sign employee slipped on snow and ice on the leased property and sued Kassis.  Ohio Casualty disclaimed on the ground that the policy, which named only Superior Sign, did not afford Kassis additional insured coverage.  Kassis and Superior Sign commenced this action seeking a declaration that Ohio Casualty was obligated to defend and indemnify Kassis in the underlying action.

Writing for the unanimous court, Chief Judge Lippman utlized other of the lease's insurance requirements to construe the "for the mutual benefit" language:
The intent and meaning of the term "mutual benefit" in the provision becomes clear when juxtaposed with the language of the other insurance provisions of the lease. The lease expressly contemplates that both Kassis and Superior Sign will enjoy fire insurance, and the lease further provides in an "Additional Insurance" provision that Superior Sign may obtain certain types of insurance coverage just for itself. With respect to fire insurance, Kassis, "at Tenant's sole cost and expense," is to "keep the Premises insured for the benefit of the parties against loss or damage by fire," and fire insurance "may be written either under separate policies in Landlord's name or combined with other coverages acquired by Tenant." As for the additional insurance provision, it specifies that Superior Sign, "at its sole cost and expense, may maintain insurance coverage for its benefit on Tenant's leasehold improvements and Tenant's personal property in such amounts as Tenant deems appropriate with Tenant assuming the risk of any co-insurance." The additional insurance provision also expressly permits Superior Sign to "effect for its own account any insurance not required by the provisions of this Lease, including business interruption insurance or insurance covering Tenant's equipment and personal property." Plainly, where a disparity in coverage as between insureds was contemplated — i.e., where the insurance to be procured was not for the insureds' "mutual benefit" — it was expressly noted.

It is therefore clear that Superior Sign was obligated under the lease to procure the same level of general liability insurance coverage for Kassis as it obtained for itself, and because of that, Kassis falls within the policy's additional insured provision. Because Kassis is considered an additional insured, Ohio Casualty is obligated to defend him in the underlying personal injury action and, if appropriate, indemnify him as an additional insured in accordance with the policy.
Under the Court of Appeals' decision, if a commercial lease contains "for the mutual benefit of" language and the tenant's policy includes a blanket additional insured endorsement or provision, the landlord may enjoy CGL coverage as an additional insured.

Wednesday, July 1, 2009

By Dint of a One-Day Tardiness -- Richmond Civil Rules that There is No Repercussion for a Late Follow-Up Verification Request

NO-FAULT – FOLLOW-UP VERIFICATION – INSURANCE LAW § 5106(A)
Pine Hollow Med., P.C. a/a/o Jonathan Aurelien v. Global Liberty Ins. Co. of N.Y.

(NYC Civil, Richmond Co., decided 6/18/2009)


There's nothing like a Richmond County NYC Civil Court Judge Katherine Levine decision to restart the blogging after two weeks.  Although it's several weeks old, I didn't see this decision posted on any of the usual corners, so I thought I'd restart here.

In no-fault parlance, additional verification is what must be requested within 15 business days of the no-fault insurer's receipt of prescribed verification forms (N-F 3 thru 7).  So says 11 NYCRR § 65-3.5(b).

Follow-up verification is what must be requested within 10 calendar days after 30 days have elapsed from the insurer's additional verification request and the requested verification has not been supplied.  So says 11 NYCRR § 65-3.6(b).

If the no-fault insurer requests additional verification on the 16th business day after receiving an N-F 3, i.e., one day late, its 30 calendar days to pay or deny the associated billing once the requested verification is received is correspondingly reduced by one day to 29 days.  So says 11 NYCRR § 65-3.8(j)

But what if the insurer is late in making its follow-up verification request?  Sends the follow-up verification request beyond the 10-day period?  Is there any negative repercussion?  Defense preclusion?  No, says Judge Levine.  Why?  Because of what 11 NYCRR § 65-3.8(j) says:  
(j) For the purposes of counting the 30 calendar days after proof of claim, wherein the claim becomes overdue pursuant to section 5106 of the Insurance Law, with the exception of section 65-3.6 of this subpart, any deviation from the rules set out in this section shall reduce the 30 calendar days allowed (emphasis added).
In acknowledging a "seeming anomaly between precedent and the insurance regulations" (which is a judicially delicate way of saying that a lower court disagrees with a higher court), Judge Levine held:   
Since the regulations only address the repercussion that attaches to an insurer's late submission of an additional verification request and the tenets of statutory construction mandate that different parts of one statute are to be construed together, this court concludes that an insurance carrier should not be subject to greater penalties for submitting a late follow-up verification requests than for submitting a late additional verification request.
This matter involved a follow-up verification request sent one day late.  Plaintiff had not provided the requested verification and sued to collect its $699.34 billing.  Global Liberty moved for summary judgment on the ground that plaintiff's action was premature because it had not provided the requested verification.  Plaintiff did not dispute Global Liberty's assertion that it never provided the requested information, but argued  that Global Liberty's follow-up verification request was late because it was made on the 11th day after 30 days had already transpired since Global Liberty's first (additional) verification request, in violation of 11 NYCRR § 65-3.6(b).

After discussing various case decisions addressing the claim impact of no, early and late follow-up verification requests, Judge Levine ruled:
Based upon the two aforementioned precedent, it is clear that defendant should not be deprived entirely of the opportunity to review and obtain the needed proof by dint of its one day tardiness in submitting its follow up request. 11 NYCRR 65-3.8(j) only addresses the repercussions of an insured's failure to request the additional verification within the set time lines, since it expressly excludes section 65-3.6 which discusses follow up verification requests, and then sets forth that any deviation from the time frame shall reduce the 30 calendar days allowed in which to pay or deny the claim. As such, the regulations do not even contain a punitive provision for an insurer who does not make a follow up verification request within the 10 day period face. A statute or legislative act is to be construed as a whole, and all parts of an act are to be read and construed together to determine the legislative intent. "McKinney's, Statutes § 97.; Frank v. Meadowlakes Dev. Corp., 6 NY3d 687, 691 (2006), and construed so as to harmonize with one another. Anglin v Anglin, 80 NY2d 553, 558 ( 1992 ). In the interpretative context, a court must read the entire law and accord respect to the interlocking and interrelated features of all its parts." Anglin, supra at 558. Furthermore, even apparently conflicting provisions of a statute must be reconciled in a manner most consistent with the overall legislative intent. Statutes § 98; Schulman v. Group Health Inc., 39 AD3d 223 ( 1st Dep't 2007). Finally, the common mandate of statutory construction is to assume that the Legislature "did not intend a patently absurd result. Covington v. Walker, 307 AD2d 908 ( 2d Dep't 2003) See, McKinney's Statutes § 145; In re Adamo, 619 F.2d 216, 219 ( 2d Cir. 1980). 

It would be patently absurd and contravene the meaning of the 11 NYCRR 65-3.8(j) to impose a more draconian punishment on an insurer who is one day late in requesting follow-up verification than on an insurer who is one day late in requesting additional verification. Since in the latter situation, the only repercussion to the insurer's tardiness is the diminution in the time it has to issue a denial or pay the claim, it begs all credulity to impose the more drastic remedy of precluding the insurer from even issuing a denial because of its tardiness in requesting follow up verification. If anything, the aforementioned regulation imposes no repercussion upon the insurer who is tardy in requesting follow up.

Since defendant has yet to receive any response to its verification requests, its 30 day period in which to deny or pay the claim has not yet commenced and the instant action is premature. In light of the above, it is not necessary for this court to determine whether the defendant's time to deny or pay the claim, once it does receive the requested information, is diminished by one day.
Absent from Judge Levine's decision is any mention of the Second Department Appellate Term's decisions in Alur Med. Supply, Inc. v Progressive Ins. Co. , 23 Misc3d 130(A) (App Term, 2d & 11th Jud Dists 2009) and Infinity Health Prods., Ltd. v Eveready Ins. Co., 21 Misc3d 1 (App Term, 2d & 11th Jud Dists 2008), in which that court held that an early follow-up verification request voids the tolling of the 30-day pay/deny rule that stems from a timely additional verification request. Of course, Richmond County is the 13th Judicial District and does not fall within the jurisdiction of the Second Department, Appellate Term for the 2nd & 11th Judicial Districts.  [P.S. 2:45 p.m. -- See comments to this post.]

One certainly could argue that this decision runs contrary to the Second Department's 1996 decision in Presbyterian Hosp., City of NY v. Aetna Cas. & Surety Co., 233 AD2d 431 (2d Dept. 1996), lv. denied, 90 802 (1997), in which the court held where the insurer issued no follow-up verification request, its time either to pay or deny the claim had run even before the verification was received.  The distinction of there having been no follow-up verification request in that case, as opposed to a late request, may or may not be the classic one without a difference.

Judge Levine's logic seems simple enough, though -- if the "punishment" to a no-fault insurer for a late additional verification request is "only" a corresponding reduction in the 30-day pay/deny period, the "with the exception of section 65-3.6 of this subpart" language of 65-3.8(j) must mean that there should be no greater, and possibly a lesser or no punishment for a late follow-up verification request.  Otherwise, that exception would have no meaning, right?

Notably, having found that plaintiff's action was premature because it had not provided the requested verification, Judge Levine did not address the question of whether the insurer's time to deny or pay the claim is diminished by a late follow-up verification request.  One could argue that the potential usefulness of this decision, therefore, is limited to situations in which there has been no response to the insurer's follow-up verification requests, timely or not. 

So what if instead of no follow-up verification request (Presbyterian Hosp.), the follow-up verification request was really late by, let's say, 31 days?  Would the 65-3.8(j) exception still apply or would the 30-day pay/deny period be deemed to have run?  If there is no negative repercussion for a late follow-up verification request, doesn't the exception of 65-3.8(j) swallow up the rule of 65-3.6(b)?

Question for my friends over at BSBGFM&N -- appeal or leave this one alone?  The greater good/greater harm question.