Tuesday, April 6, 2010

New York Supreme Finds That Insurer Did Not Timely Commence Special Proceeding to Stay Arbitration of UM Claim from Mexico Motor Vehicle Accident

UM – CPLR § 7503(C) – 20-DAY LIMITATION FOR COMMENCING SPECIAL PROCEEDING TO STAY ARBITRATION
Matter of Allstate Ins. Co. v. LeGrand
(Sup. Ct., New York Co., decided 2/3/2010)

CPLR § 7503(c) has been called "The Shortest Statute of Limitations Known to the Law".  Dachs, Norman and Dachs, Jonathan, NYLJ, June 12, 1990.  It provides that "[a]n application to stay arbitration must be made by the party served within twenty days after service upon him of the notice or demand [for arbitration or intention to arbitrate], or he shall be so precluded." With respect to UM and SUM arbitration demands, the 20-day period accrues, or begins to run, from the insurer's receipt of the demand for arbitration and ends when the special proceeding is actually commenced by the filing of a petition for a stay. There are a number of exceptions to the 20-day rule that have received extensive treatment in the courts.

Allstate's insured, Jose LeGrand allegedly was injured when the rental car he was driving was rear-ended by a drunk driver in Cancun, Mexico.  On September 22, 2009, LeGrand gave Allstate written notice, via facsimile and regular and certified mail, of his intention to assert an uninsured motorist (UM) coverage claim.  Allstate acknowledged receipt of that notice the same day, but did not commence this special proceeding to permanently stay the arbitration of LeGrand's UM claim until November 2009, well more than 20 days after Allstate had received LeGrand's notice of intention to make a UM claim.  In its petition, Allstate asserted that LeGrand's accident was not a "covered event" because his policy's UM/SUM endorsement provided UM/SUM coverage "only to accidents that occur during the policy period shown in the Declarations, and in the United States, its territories or possessions, or Canada.”  As Mexico fell outside the coverage territory for UM/SUM coverage, Allstate argued that LeGrand's UM claim was not arbitrable. 

LeGrand opposed Allstate's petition on the ground that Allstate had failed to commence this special proceeding within 20 days of its receipt of LeGrand's notice of intention to make a UM claim, as required by CPLR § 7503(c).  In response, Allstate argued that since LeGrand's accident had occurred outside of the UM/SUM coverage territory, there was no coverage and, therefore, no agreement to arbitrate. 

New York County Supreme Court Justice Alice Schlesinger disagreed with Allstate's position, finding that the 20-day deadline of CPLR § 7503(c) to commence the special proceeding did apply to Allstate's non-coverage defense:
However, citing to In re Matarasso v. Continental Casualty Co., 56 NY2d 264 (1982), Allstate insists that the twenty-day period does not apply here because of the coverage limitation in the SUM Endorsement.  In Matarasso, the Court of Appeals carved out a limited exception to the twenty-day rule with respect to applications under CPLR §7503(c) where no agreement to arbitrate exists.  Allstate here contends that because the parties never agreed to arbitrate claims regarding accidents in Mexico, the Matarasso exception
applies and its application is timely.

Allstate’s reliance on Matarasso is misplaced, as the holding is limited to situations where no agreement to arbitrate exists, as opposed to situations like the case at bar where the dispute is whether the arbitration clause applies.  The limitation on the Matarasso exception is clear based on the Court‘s discussion of the facts, as well as its unambiguous holding.

* * * * *

Counsel necessarily agree that LeGrand’s policy contains an arbitration clause applicable to uninsured motorist claims.  Their dispute is whether LeGrand’s injuries are covered because the accident took place in Mexico and the SUM Endorsement does not include Mexico in the territory covered.  The issue relates to the scope of coverage, not to the existence of the arbitration agreement itself.  Thus, the Matarasso exception to the twenty-day rule does not apply.

The courts have no discretion to extend the twenty-day rule to permit consideration of an untimely application such as this one. Matarasso, 56 NY2d at 267; State Farm v. Kankam, 3 AD3d 418 (1st Dep't 2004) (petition dismissed as untimely where arbitration agreement existed and the dispute was whether the conditions had been satisfied).  Allstate cites Zappone v. Home Ins. Co., 55 NY2d 131 (1982) for the proposition that the courts cannot create coverage where none exists. However, Zappone is wholly inapposite, as there the patty was seeking coverage from Home Insurance Company for a car insured by Aetna, and the issue was what steps, if any, Home Insurance was required to take under the Insurance Law to deny coverage. Neither CPLR §7503(c), nor the issue of timeliness, was even involved.
With due respect to Justice Schlesinger, I believe she's wrong on this one.  The UM/SUM endorsement's requirement that an accident take place within the policy period and coverage territory is not akin to a condition precedent or subsequent to coverage, the asserted breach of which would be governed by the 20-day SOL of CPLR § 7503(c).  Instead, to me that issue is more like the question of whether someone qualifies as an "insured" under the UM/SUM endorsement's Insuring Agreement, a coverage issue and "Matarasso exception" the New York courts repeatedly have held is not subject to the 20-day SOL of CPLR § 7503(c).  See, e.g., Matter of Aetna Cas. & Sur. Co. v. Cartigliano, 178 A.D.2d 472 (2nd Dept. 1991).

1 comment:

Jonathan said...

I agree with you, Roy, on this one.

Jonathan Dachs