Paper or Digital? -- Remote Claims Handler's Lack of Knowledge of Home Office's Procedures Found Inadequate to Vacate Default Judgment for Extracontractual Damages

NO-FAULT – VACATING DEFAULT JUDGMENT – PERSONAL KNOWLEDGE OF OFFICE PROCEDURES
Westchester Med. Ctr. v. Philadelphia Indem. Ins. Co.
(2nd Dept., decided 1/5/2010)

There's nothing particularly surprising about this plaintiff and its counsel taking a default judgment on the earliest possible day against a no-fault insurer defendant.  What is surprising is how this insurer attempted to prove an excusable default and meritorious defense to vacate what was, and still is, an extracontractual award. 

Vacating a default judgment requires proof of (1) a reasonable excuse for the default and (2) a meritorious defense to plaintiff's claim.  In REVERSING Nassau Supreme's order that vacated the plaintiff's $19,325.61-plus default judgment against Philadelphia Indemnity Insurance Company (PIIC), the Second Department found that PICC had failed to demonstrate either.

In an attempt to demonstrate an excusable default, PIIC submitted an affidavit of a senior claims examiner employed in PIIC's Texas office, who averred that there was no record of the plaintiff's summons and complaint in PIIC's computer system.  The Second Department found that affidavit to be inadequate since it:

failed to demonstrate any knowledge of the office procedures employed in the handling of a summons and complaint received at the defendant's Pennsylvania office. Thus, that affidavit was insufficient to show that the failure to timely appear and answer was due to a clerical error which caused the summons and complaint to be overlooked (see Montefiore Med. Ctr. v Auto One Ins. Co., 57 AD3d at 959; New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d 968; Kaperonis v Aetna Cas. & Sur. Co., 254 AD2d 334; cf. Hospital for Joint Diseases v Lincoln Gen. Ins. Co., 55 AD3d 543, 544).

For the same reason, the Second Department held that the Texas senior claims examiner's affidavit was legally insufficient to demonstrate a meritorious defense to payment of plaintiff's $19,325.61 hospital bill:

Furthermore, the defendant failed to set forth facts from an individual with personal knowledge sufficient to demonstrate the existence of a meritorious defense. The affidavit of the plaintiff's biller showed that the Forms N-F5 and UB-92 relating to this matter were mailed on April 23, 2008, and signed for by the defendant on April 28, 2008. At that time, according to the defendant's own records, there were still sufficient funds remaining under the policy to pay this bill (see 11 NYCRR 65-3.15; Nyack Hosp. v General Motors Acceptance Corp., 8 NY3d 294). In response, the defendant offered only the same aforementioned affidavit, which also averred that there was no record of the bill in question in the defendant's computer system. This was insufficient for a similar reason; that is, the affiant failed to show any knowledge of the office procedures employed in the handling of billing forms received at the defendant's Pennsylvania office (see St. Barnabas Hosp. v American Tr. Ins. Co., 57 AD3d 517; New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d at 968; see generally New York Hosp. Med. Ctr. of Queens v Insurance Co. of State of Pa., 16 AD3d 391, 392; Peacock v Kalikow, 239 AD2d 188, 190; cf. St. Vincent's Hosp. of Richmond v Government Empls. Ins. Co., 50 AD3d 1123). Accordingly, the defendant's motion to vacate the judgment entered upon its failure to appear or answer should have been denied.

It gets worse.  Not only is PIIC now facing what sounds like an extracontractual award -- the decision implying that PIIC had paid its policy limit sometime after plaintiff submitted its bill -- but the Second Department remitted the action back to Nassau County Supreme Court for a determination of plaintiff's motion to hold PIIC in contempt, which could bring an additional monetary sanction. 

When seeking to vacate a default judgment, go with the paper and establish, through the affidavit of someone with personal knowledge of that paper and its handling procedures, both the reasonable excuse for the default and meritorious defense to plaintiff's claim. Don't rely on what's in, or not in, the computer.  Real world defaults require real world proof for vacatur.