Wednesday, March 31, 2010

The Fraud Detection Threshold

In today's ├╝ber competitive insurance marketplace, property and casualty insurers must sometimes sacrifice accuracy at the altar of customer service.   Claims handling becomes a process to be streamlined, automated and maximized, especially for large companies.  Such companies make attractive targets for petit fraud, however, because their expedited underwriting and claims processes can allow fraudulent claims of the smaller variety to go undetected.  Smaller particles through a larger sieve, so to speak.  

Perhaps that's what Sidney Edwards of Buffalo, New York, was counting on.   He reportedly:
  • took out a homeowners policy on a Kenmore, New York home that he didn't own,
  • provided Allstate with a fictitious bank account number for payment of the policy premiums,
  • submitted a claim for damage to the home's undamaged garage door,
  • received a check -- most likely not to the insured location's address -- from Allstate for $1,600,
  • called Allstate to complain that he had not received Allstate's claim payment check,
  • received a second check for $1,600 from Allstate, again probably not sent to the insured address, and
  • cashed both checks at a local store.
Investigation by the New York State Insurance Department's Insurance Frauds Bureau revealed that the home's actual owner did not know Edwards and was unaware that he had used the address to obtain a homeowners policy.  But consider the opportunity for fraud that presented itself to Edwards:  an underwriting process that did not initially verify ownership; an accounting system that perhaps did not quickly enough flag the policy and submitted claims; and a claims process that did not include an actual inspection of the loss and permitted the issuance of not one but two claim payment checks, presumably sent to other than the insured address, that could be cashed at other than a bank. 

Maybe it was Edwards' greed in requesting a second check that caused Allstate to take a closer look at the claim.  In insurance fraud work, the maxim "pigs get fat, hogs get slaughtered" is often apropos.  Something Edwards did tripped the fraud detection threshold, leading to his eventual arrest.  What I wonder, though, is whether Edwards came up with this idea all on his own, or had he learned of a similar hit and run from someone else? 

Fast, cheap, good.  Can have two but not all three.  In project work, and in insurance fraud detection.

Tuesday, March 30, 2010

What's It All About, Algae?

PREMISES LIABILITY – READILY OBSERVABLE CONDITION INHERENT OR INCIDENTAL TO THE NATURE OF THE PROPERTY
Fox v. Central Park Boathouse, LLC
(1st Dept., decided 3/30/2010)

This is not a coverage case, but one that actually stands for the proposition that accidents can and do happen without someone being liable for them.

Plaintiff allegedly was injured when, while disembarking from a rowboat she had rented from defendant, she slipped on algae that was present on the dock.  In AFFIRMING the lower court's order which had granted defendant's motion for summary judgment, the Appellate Division, First Department held:
The algae did not constitute an unreasonably dangerous condition for which the defendant may be held liable, as it was inherent in the nature of a lake in the summer (see Stanton v Town of Oyster Bay, 2 AD3d 835 [2003], lv denied 3 NY3d 604 [2004]; Nardi v Crowley Mar. Assoc., 292 AD2d 577, 578 [2002]).  Plaintiff should have reasonably anticipated that there would have been algae present, given the testimony that algae covered the dock along the waterline for approximately 150 feet. Furthermore, plaintiff's argument that her injury was caused by a concealed condition, and that defendant breached its duty to take reasonable measures to remedy said condition, is unavailing (see Rosen v New York Zoological Socy., 281 AD2d 238 [2001]). 
Really?  There should be no algae on a dock on a lake in the summertime?  Just stop.

Friday, March 26, 2010

Commercial Landlord Found Entitled to Additional Insured Coverage Under Tenant's Policy But on Excess Basis Only

CGL – ADDITIONAL INSURED – ARISING OUT OF THAT PART OF LEASED PREMISES – PRIORITY OF COVERAGE
L&B Estates, LLC v. Allstate Ins.
(2nd Dept., decided 3/16/2010)

Commercial landlord L&B Estates leased Brooklyn premises to tenant 21st Century Achievers.  As required by the lease, the tenant obtained a CGL policy from Allstate, naming the landlord as an additional insured, but "only with respect to liability arising out of the ownership, maintenance or use of that part of the premises shown in the [d]eclarations as leased to [tenant]."  The Allstate policy's declarations did not mention the sidewalk in front of the premises as having been leased to Century. L&B, the landlord, was covered by its own CGL policy with United National Specialty Insurance Company, and the Allstate and United policies each contained an "other insurance" provision.

In November 2005, a pedestrian allegedly was injured when she tripped and fell as a result of an alleged defect in the sidewalk in front of the leased premises.  She sued both landlord and tenant, and the landlord, L&B, tendered the suit to Allstate for defense and indemnification as an additional insured under the tenant's, Century's, CGL policy.  Allstate rejected the tender on the basis that the injured party's claim did not arise out of the ownership, maintenance or use of "that part of the premises shown in the Declarations as leased to [Century]."  L&B commenced this declaratory judgment action for defense and indemnification coverage from Allstate as an additional insured under Century's policy, as well as damages for breach of contract against Allstate and Century. L&B cross-moved for summary judgment on its complaint against Allstate and Century, and the Kings Supreme (Knipel, J.) granted L&B's cross motion.

In MODIFYING the order appealed from, the Appellate Division, Second Department, held that although L&B was entitled to coverage as an additional insured under Century's policy with Allstate, Allstate's AI coverage was excess to L&B's primary coverage with United and, therefore, Allstate was not obligated to contribute towards L&B's defense or indemnification in the underlying personal injury action under L&B's coverage with United was exhausted:
L&B established its prima facie entitlement to judgment as a matter of law against Allstate by submitting, among other things, the Allstate policy, which established that it was an additional insured with respect to Coddett's claim, and that Allstate had refused to provide coverage. Inasmuch as Administrative Code of the City of New York § 7-210 imposes liability on owners of commercial property for defects in sidewalks, L&B's potential liability arises from its ownership of the premises leased to Century. Since unambiguous terms in an insurance contract are given their plain and ordinary meaning (see Antoine v City of New York, 56 AD3d 583, 584), L & B is an additional insured under the Allstate policy for claims arising from defective conditions on the sidewalk in front of the premises. 

In opposition, however, Allstate established, as a matter of law, that its coverage of L&B under the Allstate policy was excess to the coverage provided to L&B under the United policy. When a policy provides only excess coverage, the duty to defend or indemnify is not triggered until coverage under the primary policy has been exhausted or otherwise terminated (see Great N. Ins. Co. v Mount Vernon Fire Ins. Co., 92 NY2d 682, 686-687; Sport Rock Intl., Inc. v American Cas. Co. of Reading, Pa., 65 AD3d 12, 20; Osorio v Kenart Realty, Inc., 48 AD3d 650, 653). Consequently, upon searching the record, Allstate is entitled to summary judgment declaring that it is not the primary insurer, that the coverage it provided to L&B is excess to that provided by the United policy, and that, therefor, it was not obligated to defend or indemnify L&B in the underlying action unless its obligated [sic] to provide excess coverage is triggered. 

Thursday, March 25, 2010

2010 Lawsuit Climate Report

On March 22, 2010, the U.S. Chamber’s Institute for Legal Reform released its survey ranking the states with the best and worst legal climates in the country. According to the survey, the states with the worst legal climates are West Virginia (50th), Louisiana (49th), Mississippi (48th), Alabama (47th), and California (46th).  The states with the best legal climates are Delaware (1st), North Dakota (2nd), Nebraska (3rd), Indiana (4th), and Iowa (5th).  New York ranks near the middle of the states at 23rd. 

The survey also shows that a state’s legal climate affects how and where a company does business and creates jobs. Two-thirds, or 67%, of the 1,482 corporate lawyers and executives contacted say a state’s lawsuit environment is likely to impact important business decisions at their company, such as where to locate or expand their businesses. That is up 10% from just three years ago.

H/t to Claire Wilkinson of the I.I.I.'s Terms + Conditions Insurance Industry Blog for bringing this report to my attention. For additional analysis and commentary on this report, see Jordan Weissman's post on The BLT:  The Blog of Legal Times.

Wednesday, March 24, 2010

Leave to Amend Answer to Assert Fraudulent Proof of Loss Defense Granted

HOMEOWNERS – PROPERTY – LEAVE TO AMEND ANSWER – FRAUDULENT CLAIM EXAGGERATION
Forsythe v. Otsego Mut. Fire Ins. Co.
(1st Dept., decided 3/23/2010)

Two years after answering plaintiffs' complaint, defendant Otsego Mutual Fire Insurance Company moved for leave to amend its answer to assert a fraud affirmative defense and for summary judgment based on that defense.  Otsego Mutual contended that plaintiffs' proof of loss was fraudulently overstated.  New York Supreme (Jane S. Solomon, JSC) denied Otsego's motion in all respects and Otsego Mutual appealed.

In MODIFYING the lower court's order to grant leave to Otsego Mutual to amend its answer but sustaining the lower court's denial of summary judgment, the Appellate Division, First Department held:
Although defendant did not move for leave to amend until approximately two years after it answered the complaint, plaintiffs do not show, or even allege, prejudice or surprise as a result of the delay (see CPLR 3025[b]; Arellano v HSBC Bank USA, 67 AD3d 554 [2009]).

However, defendant failed to demonstrate as a matter of law that plaintiffs' proof of loss was fraudulent (see Saks & Co. v Continental Ins. Co., 23 NY2d 161, 164-165 [1968]). Plaintiffs' explanation for their overvaluation of the loss, that the house was uninhabitable and all their furniture destroyed, raises an issue of fact whether they intended to defraud defendant (see Latha Rest. Corp. v Tower Ins. Co., 38 AD3d 321 [2007], lv denied 9 NY3d 803 [2007], cert denied 552 US 1010 [2007]; Kyong Nam Chang v General Acc. Ins. Co. of Am., 193 AD2d 521 [1993]). 
I've posted before that obtaining summary judgment on a fraudulent claim exaggeration defense is difficult.   Intent to defraud and materiality are issues that often involve questions of fact, requiring a trial.  The Saks & Co. v. Continental Ins. Co. case, cited by the First Department, involved an appeal and reversal of a bench trial verdict, not a pre-trial motion for summary judgment.  Still, the opening section of the New York Court of Appeals' 1968 decision in the Saks case is worth repeating: 
There is an old saying that "clothes make the man". This aphorism must have been coined (to jumble a metaphor) with the plaintiff, here, one Khaibar Khan Goodarzian, in mind.*fn1 Mr. Goodarzian's life-style can only be characterized as extravagant and flamboyant. His manner of living is typified by his wardrobe. The different types of clothing and the numbers of each type which Mr. Goodarzian claimed to have possessed is simply staggering. 

To accommodate his inventory of clothing, Goodarzian converted a bedroom of his Fifth Avenue apartment into a wardrobe room in which closets lined all four walls; a bathroom was made into a shoe closet.  Goodarzian's extravagance for clothing is amply documented in the record and supports his self-proclaimed title of the "World's Best Dressed Man".  He even went so far as to monogram his clothing with the initials WBDM, an acrostic made up of the first letters of his title. 

Mr. Goodarzian sued the defendant insurance companies for $411,952, the full coverage of the policies issued by the companies, alleging that he had sustained a loss of $985,000 as a result of a fire which occurred in his apartment in the early morning hours of November 4, 1961 while he was entertaining a group of friends at a plush nightclub. Earlier in the evening, he had been a host to an even larger group at his apartment.  Goodarzian claimed that various items of clothing, furniture, fixtures, betterments and improvements, valuable jewelry and Persian rugs were damaged, destroyed, or lost and missing as a consequence of the fire and that the loss to his property amounted to approximately $985,000. The defendants did not dispute the value placed on the property allegedly lost by the plaintiff, but resisted his claim on the ground that items included in the proof of loss, submitted as the basis for recovery under the policies, included many which were not in the apartment on the night of the fire. 

The policies issued to Goodarzian insured him against fire for the contents of his apartment to the extent of $341,000 and $57,000 for theft and mysterious disappearance.*fn2 The insured claimed that there was destruction to "in-sight" property amounting to $92,625, improvements and betterments amounting to $9,437, in debris $750, lost and missing $132,518, jewelry $745,300 and additional living expense $4,500. Goodarzian accordingly claimed the full amount of his insurance coverage to partially compensate him for his loss.

The case was tried without a jury, and the Trial Judge awarded judgment to the plaintiff for $104,316. (The sum embraced $35,645 for clothing, $17,702 for carpeting, $37,482 for damage to furnishings, and $13,487 for destruction of betterments and improvements.) The Trial Judge stated that "Claims for the other items as lost and missing are not allowed because of failure of proof by the plaintiffs." 

The Appellate Division (First Department) unanimously reversed and dismissed the plaintiff's complaint, finding as a matter of law that the proof of loss was fraudulent. We affirm.

Consequence of Rate Evasion on a No-Fault Claim

Over at our sister blog, Arbiters of NY No-Fault, my associate Bethany Mazur reports on a recent arbitration decision we obtained for an insurer client in which Arbitrator Veronica O’Connor ruled that the assignor's proven participation in rate evasion disqualified the assignee from recovery of no-fault benefits, and that the rate evasion/application misrepresentation or fraud defense was not subject to the 30-day preclusion rule, citing A.B. Medical Services, PLLC a/a/o Yevgenya Ioffe v. Commercial Mut. Ins. Co., 12 Misc.3d 8 (App. Term, 2nd Dept., 2006), in which the Appellate Term stated:
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]). 
You can read Bethany's post about the arbitration decision here.

Tuesday, March 23, 2010

What the Health Care & Education Affordability Reconciliation Act of 2010 Could Mean to You

I'll confess that like many others, I formed an opinion on health care reform before knowing much about the actual Senate and House/Reconciliation bills.  I focused more on the process than on the substance of the legislation.  With yesterday's passage of the House's Reconciliation bill, however, I spent some time this evening reviewing the essential provisions and changes of what is being called the health care system's overhaul.  The best resources and summaries I've found so far are:
Forty-five minutes to an hour of worthwhile reading to arrive at a better understanding of what just happened yesterday and what's in store for all of us when what recent polls indicated most Americans did not want takes effect.

For those with more time or greater interest who want to read the entire 2,409-page bill passed by the Senate this past Christmas Eve, you can download a .pdf of the whole thing here.  The House of Representative's Reconciliation Bill, which made only budget- or money-related changes to the Senate's bill, is here.  For less legalese, the House Ways and Means Committee prepared a brief overall summary of the main points of the legislation and a slightly more detailed section-by-section summary.

Finally, if you're a numbers person and you’re interested in learning what this legislation will mean in terms of expanding insurance coverage and the effect on the federal budget, here's the analysis prepared by the nonpartisan Congressional Budget Office.

Monday, March 22, 2010

Recent Appellate Term, Second Department, New York No-Fault Decisions

These eleven Appellate Term, Second Department, New York no-fault decisions were decided on March 10 and posted on March 18, 2010.  Click the case name links to read the full decisions. 

NO-FAULT – CHOICE OF LAW – NEW JERSEY VEHICLE, INSUREDS AND POLICIES
A.B. Med. Servs., PLLC a/a/o Leon Regis v. GEICO Cas. Ins. Co.
(App. Term, 2nd Dept., 9th & 10th Dists., decided 3/10/2010)

Upon the application of a "center of gravity" or "grouping of contacts" analysis, New Jersey law was found to apply to a New York motor vehicle accident that involved a New Jersey registered vehicle, a New Jersey insured, and two New Jersey insurance policies.   Summary judgment to GEICO was properly denied. 

NO-FAULT – JOINT TRIAL
Anthony M. Palumbo, D.C. a/a/o Marc Taly v. Tristate Consumer Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th Dists., decided 3/10/2010)

Queens Civil improperly denied defendant's motion for a joint trial of three providers' separate actions for the same services rendered on the same date at the same location.  Tristate intended to defend all three actions on the ground that the services rendered were not medically necessary, and plaintiff failed to establish that a joint trial would prejudice a substantial right.

NO-FAULT – PROOF OF MAILING – UNANSWERED VERIFICATION REQUESTS
St. Vincent Med. Care, P.C. a/a/o Breyton Squires v. Country-Wide Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th Dists., decided 3/10/2010)
  • Plaintiff established its prima facie entitlement to summary judgment because defendant's claims representative conceded receipt of claims in question and the affidavit of plaintiff's billing manager established that the documents annexed to plaintiff's motion were admissible pursuant to CPLR 4518.  
  • The affidavit of defendant's no-fault litigation supervisor sufficiently established the timely mailing of the NF-10 denial of claim forms and verification requests since it described, in detail, based on the affiant's personal knowledge, defendant's standard office practices or procedures used to ensure that said documents were properly mailed. 
  • Although defendant sent follow-up verification requests on the 30th day after its initial verification requests, rather than waiting the full 30 days before sending its follow-up requests, plaintiff did not respond to those requests, so defendant was entitled to summary judgment on those claims, pursuant to Infinity Health Prods., Ltd. v Eveready Ins. Co. (67 AD3d 862 [2d Dept 2009]).
NO-FAULT – PROOF OF MAILING – MEDICAL NECESSITY
Right Aid Diagnostic Medicine, P.C. a/a/o Tarshia Harrison v. Geico Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th Dists., decided 3/10/2010)
  • Plaintiff established its prima facie entitlement to summary judgment because defendant's claims representative conceded receipt of claims in question and the affidavit of plaintiff's billing manager established that the documents annexed to plaintiff's motion were admissible pursuant to CPLR 4518.  
  • In opposition to plaintiff's summary judgment motion, defendant established that it had timely mailed its denial of claim form, which denied plaintiff's $911.99 claim on the ground of lack of medical necessity, by submitting an affidavit of an employee with knowledge of defendant's standard office practices or procedures designed to ensure that items are properly addressed and mailed.
  • Defendant also raised triable issues of fact by submitting a copy of the affirmed peer review report setting forth a factual basis and medical rationale for the conclusion that the MRI was not medically necessary and presenting evidence that it had already paid plaintiff's claim.
NO-FAULT – TIMING OF EUO REQUEST
St. Vincent Med. Care, P.C. a/a/o Omar Morgan v. Travelers Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th Dists., decided 3/10/2010)

Although an examination under oath (EUO) need not be scheduled to be held within 30 days of the receipt of the claim form, the EUO request letter must be mailed within 30 days of the insurer's receipt of the bills in question.  The mailing of Travelers' EUO scheduling letters 52 days after its receipt of three bills from plaintiff was untimely and did not toll Travelers' time to pay or deny those bills, regardless of plaintiff's nonappearance at the requested EUO.

NO-FAULT – MEDICAL NECESSITY OF MEDICAL SUPPLIES  – AFFIRMED PEER REVIEW REPORT
High Quality Med., P.C. a/a/o Robel Thomay v. Mercury Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th Dists., decided 3/10/2010)

Queens Civil (Lebedeff) improperly denied Mercury's cross motion for summary judgment.  The affirmation of plaintiff's doctor did not meaningfully refer to, let alone rebut, the conclusions set forth in the affirmed peer review report Mercury submitted in support of its cross motion, which set forth a factual basis and medical rationale for the conclusion that there was a lack of medical necessity for the medical supplies at issue.  

NO-FAULT – UNTIMELY PROOF OF CLAIM – 11 NYCRR § 65-3.3(e) NOTICE  – BILL INITIALLY SUBMITTED TO WRONG INSURER
Prestige Med. & Surgical Supply, Inc. a/a/o Michael Martin v. Chubb Indem. Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th Dists., decided 3/10/2010)

Kings Civil (Sherman) properly granted defendant's motion for summary judgment.  Defendant's denial of claim form adequately advised plaintiff pursuant to 11 NYCRR § 65-3.3 (e) that its late submission of the claim would be excused if plaintiff provided a reasonable justification for its failure to timely submit the claim within 45 days after the date the supplies at issue had been provided to its assignor.  Plaintiff failed to proffer any explanation as to why it first submitted the claim to another insurance carrier.

NO-FAULT – VACATING DEFAULT JUDGMENT – CPLR 317
Nursing Personnel Homecare a/a/o Evelyn White v. New York Cent. Mut. Fire Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th Dists., decided 3/10/2010)

Kings Civil (Garson) improvidently exercised its discretion in denying defendant's motion to vacate the default judgment.  Pursuant to CPLR 317, NYCM met its burden of showing that it did not receive actual notice of the summons in time to defend the action.  NYCM submitted an affidavit from one of its no-fault litigation examiners, who had personal knowledge regarding defendant's practices and procedures in retrieving, opening and filing its mail and in maintaining its files on existing claims. In that affidavit, the no-fault litigation examiner stated that defendant had never received the summons, the complaint or the motion for a default judgment.  NYCM also submitted an affidavit from its litigation examiner in which he stated that the assignor had cancelled her insurance policy with defendant prior to the date of the accident and had not subsequently taken out another insurance policy with NYCM.  

NO-FAULT – MEDICAL NECESSITY OF CHIROPRACTIC TREATMENT – QUESTION OF FACT
Co-Op City Chiropractic, P.C. a/a/o Gloria Fagan v. Mercury Ins. Group
(App. Term, 2nd Dept., 2nd, 11th & 13th Dists., decided 3/10/2010)

Queens Civil properly denied defendant's motion for summary judgment.  Although the affidavit and peer review report of defendant's chiropractor set forth a factual basis and medical rationale for the chiropractor's conclusion that there was a lack of medical necessity for the services rendered, the affidavit of plaintiff's treating chiropractor, submitted in opposition to defendant's motion for summary judgment, was sufficient to demonstrate the existence of a triable issue of fact as to the medical necessity of the services rendered.

NO-FAULT – MEDICAL NECESSITY OF MEDICAL SUPPLIES – UNREBUTTED SWORN PEER REVIEW REPORTS
Favorite Health Prods., Inc. a/a/o Jeoniel Michel v. Geico Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th Dists., decided 3/10/2010)

Queens Civil (Lebedeff) improperly denied defendant's cross motion for summary judgment.  Defendant submitted, among other things, two sworn peer review reports, which set forth a factual basis and medical rationale for the conclusion that there was a lack of medical necessity for the medical supplies at issue.  Defendant's showing that the supplies were not medically necessary was unrebutted by plaintiff.

NO-FAULT – MEDICAL NECESSITY – UNREBUTTED IME REPORT
Advanced Med., P.C. a/a/o Joyce Asiedu v. GEICO Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th Dists., decided 3/10/2010)

Queens Civil (Lebedeff) improperly denied defendant's cross motion for summary judgment.  Defendant sufficiently established that the denial of claim forms were timely mailed in accordance with defendant's standard office practice or procedure, and submitted an affirmation by the doctor who performed the independent medical examination as well as a copy of the independent medical examination report, establishing, prima facie, that with respect to the services at issue in plaintiff's third and fifth causes of action, there was no medical necessity.  Plaintiff did not rebut that evidence.

Summary Judgment Properly Denied on Alleged Oral Agreement to Name Property Owner as Additional Insured

CGL – ADDITIONAL INSURED – ORAL AGREEMENT TO PROCURE INSURANCE
Pyramid Brokerage Co., Inc. v. Zurich Am. Ins. Co.
(4th Dept., decided 3/19/2010)

There were two actions in this matter, the first of which resulted in a declaration that plaintiff was not an additional insured under the Zurich policy and that Zurich had no duty to defend or indemnify plaintiff in an underlying Labor Law action (White v General Motors Corp., 38 AD3d 1193).  This appeal concerned the second action, in which plaintiff sued various contractors and subcontractors for their alleged breach of contract, negligent misrepresentation and intentional misrepresentation in relation to additional insured coverage plaintiff contended the defendants were obligated to procure for it.

On the parties' appeals from their various motions and cross motions for summary judgment, the Fourth Department held:
  • contradicting affidavit and deposition testimony from plaintiff's site project manager and defendants' employees created a question of fact precluding summary judgment on the alleged existence of the defendants' oral agreement to name plaintiff as an additional insured under their commercial general liability policy;

  • as it sounded in fraud, plaintiff's intentional misrepresentation cause of action was governed by the six-year statute of limitations set forth in CPLR § 213(8) and accrued in January 2003, when Zurich disclaimed coverage on the ground that plaintiff was not named as an additional insured under the defendants' policy; and

  • the lower court properly concluded as a matter of law that, if an oral agreement existed, defendants breached that agreement and plaintiff was damaged thereby, because neither in opposition to plaintiff's  motion nor in support of their own cross motion did defendants address the alleged breach of contract in the event that an oral agreement was made, and they also did not address the specified damages.

Damage from Ruptured Water Main Not Covered

COMMERCIAL PROPERTY – WATER BACKUP EXCLUSION – ANTI-CONCURRENT CAUSATION CLAUSE
Lattimore Rd. Surgicenter, Inc. v. Merchants Group, Inc.
(4th Dept., decided 3/19/2010)

A ruptured water main in the basement of plaintiff's ambulatory surgical center in turn ruptured a portion of a nearby sewer line that carried wastewater from the surgical center. Water from the ruptured main entered the sewer line and into the surgical center through one of the surgical center's sewer drains, causing extensive damage to the surgical center.

Plaintiff's commercial property policy with Merchants Mutual Insurance Company excluded coverage for "loss or damage caused directly or indirectly by ... water that backs up or overflows from a sewer, drain or sump." A policy endorsement amended the exclusion to provide a special extension of up to $5,000 for damage to property "by water that backs up or overflows from a sewer, drain or sump."

Merchants paid the $5,000 coverage extension but denied payment for all other water damage.  Plaintiff brought this breach of contract action, and the parties moved from summary judgment.  Plaintiff apparently argued that the exclusion was inapplicable because it was the water main, rather than the sewer line, that had backed up. 

In AFFIRMING the lower court's order granting summary judgment to Merchants, the Fourth Department held:
"Where[, as here,] the provisions of an insurance contract are clear and unambiguous, they must be enforced as written' " (Oot v Home Ins. Co. of Ind., 244 AD2d 62, 66). Affording the unambiguous terms in the instant insurance contract their plain and ordinary meaning (see White v Continental Cas. Co., 9 NY3d 264, 267), we conclude that defendants established their entitlement to judgment as a matter of law by establishing that the policy does not provide coverage for the loss herein (see generally Zuckerman v City of New York, 49 NY2d 557, 562). Plaintiff's contention that the water exclusion is inapplicable because it excludes only sewer backups or overflows is misplaced.  Pursuant to the terms of the exclusion, there plainly is no coverage for loss stemming from "water that backs up or overflows through a sewer," irrespective of any other concurrent or subsequent contributing cause or event.
I have no idea why the court used "from a sewer, drain or sump" in first quoting the backup exclusion and then switched to "through a sewer" in its holding.  Different prepositions.  Arguably different meanings.  Perhaps counsel for either party will explain in a comment.  In any event, notice that the court recognized the exclusion-broadening impact of the policy's anti-concurrent causation clause, which negated coverage for loss or damage "caused directly or indirectly" by any excluded peril. 

Thursday, March 18, 2010

Question of Fact on Whether Rental Car Company Verified Facial Validity of Renter's Driver's License Precludes Summary Judgment on Graves Amendment

AUTO – GRAVES AMENDMENT – RENTAL COMPANY'S NEGLIGENCE – FACIALLY VALID DRIVER'S LICENSE
Palacios v. Aris, Inc.
(EDNY, decided 3/11/2010)

On November 4, 2007, Aris, Inc., rented a 2007 Toyota Camry to Bursztyn and Azriel.  Azriel had asked Bursztyn to help him rent a car because Azriel did not have a credit card with insurance and thus lacked the ability to rent a car by himself.  Bursztyn's license was already on file at Aris from prior rentals, so he was not required to present a license at the time of rental. When Aris rented the car to Bursztyn, Bursztyn informed Aris that Azriel would be driving the vehicle.  Because he would be driving the vehicle, Azriel provided Aris with a paper that was asserted to be an Israeli driver's license that was in Hebrew and contained no photograph.  Upon being shown that document, Aris rented the vehicle to Bursztyn and Azriel. Azriel left with the Camry, but Bursztyn departed separately.

Later that same day, while Azriel was driving the Camry, there was a collision between the Camry and another vehicle.  The impact of the collision caused one of the cars to land on the nearby sidewalk on top of a pedestrian, plaintiff Palacios.

At the scene, Azriel was issued a ticket for being an "unlicensed operator." Azriel did not appear in court to answer the ticket, and on June 16, 2008, the New York State Department of Motor Vehicles suspended Azriel's privilege to operate a motor vehicle in New York State for his failure to appear in court.  On October 21, 2009, Azriel appeared in court to answer the "unlicensed operator" charge against him and pled guilty to the charge. Plaintiff asserted in this action that as of November 4, 2007, the date of the accident, Azriel's privilege to operate a motor vehicle in New York State had been suspended six times on five different dates.

Aris moved for summary judgment based on the Graves Amendment, a federal statute which exempts vehicle lessors and renters from liability for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if the owner is engaged in the trade or business of renting or leasing motor vehicles and there is no negligence or criminal wrongdoing on the part of the vehicle's owner.  49 U.S.C. § 30106(a)

In opposition to Aris's motion, plaintiff argued that Aris was negligent because it failed in its statutory duty not to rent a vehicle to an individual who did not have a valid driver's license or did not have the privilege to drive in New York State under Vehicle & Traffic Law § 250.  

In denying Aris's motion, United States District Court Judge Joseph Bianco held that
with respect to Aris's reliance on the Graves Amendment, plaintiff has presented evidence that Azriel, when renting the car from Aris, presented a document purporting to be an Israeli driver's license that was in Hebrew and contained no photograph. No other identification was presented. Moreover, there is a factual dispute as to whether the Israeli license presented by Azriel was valid. The Court recognizes there is no duty under New York law for rental car companies, once they determine that the lessee has a facially valid driver's license, to conduct an investigation of the renter, including his or her driving history. However, after reviewing the record in the light most favorable to plaintiff, the Court concludes that plaintiff has raised genuine issues of material fact as to whether the license was valid, whether Aris was negligent in failing to determine whether the purported Isareli license was valid on its face, and whether, given the lack of a photograph, the license presented belonged to the person who was seeking to rent the vehicle. Thus, under the particular circumstances of this case, summary judgment under the Graves Amendment is unwarranted.
*  *  *  *  *
Although foreign drivers may operate vehicles in the United States, "[a]n entity can be held liable for knowingly allowing an unlicensed driver to operate a vehicle." Pacho v. Enterprise Rent-A-Car Co., 572 F. Supp. 2d 341, 352 (S.D.N.Y. 2008). Thus, even though the Graves Amendment may allow a rental car company to escape vicarious liability for another's negligence, by the Graves Amendment's very terms, the rental car company will still be liable if the company itself is negligent. Accordingly, a rental company may be liable if it allows an unlicensed driver, or a driver without a valid license, to operate a vehicle.  Although this obviously requires that rental car companies assess the facial validity of a driver's license before renting to that driver or otherwise allowing that driver to operate a vehicle, this duty does not require the company to investigate a renter's driving record where that renter has presented a valid driver's license. See, e.g., Sigaran v. Elrac, Inc., 22 Misc. 3d 1101[A], 875 N.Y.S.2d 824, 2008 NY Slip Op 52569[U], 2008 WL 5381494, at *6 [N.Y. Sup. Ct. 2008] (finding failure to state a cause of action when "[p]laintiffs failed to cite any legal authority that ELRAC was under an obligation to check Fernandez's driver's record beyond verifying that he had a valid driver's license"); Vedder v. Cox, 18 Misc. 3d 1142[A], 859 N.Y.S.2d 900, 2008 NY Slip Op 50408[U], 2008 WL 595857, at *1-2, 4 [N.Y. Sup. Ct. 2008] finding no evidence or legal basis from which to conclude that rental company had a duty to investigate the driving record of a defendant who had a "history of suspended driving privileges," particularly without proof that the company rented the vehicle to the defendant "during a time that his driving privileges were suspended"); accord Barksdale v. Nat'l Bank of Detroit, 186 Mich. App. 286, 463 N.W.2d 258, 260-61 (Mich. App. 1990); Osborn v. Hertz Corp., 205 Cal. App. 3d 703, 710, 252 Cal. Rptr. 613 (Cal. App. 1988). However, if Aris was negligent in failing to exercise reasonable care to determine that the license was facially valid and belonged to Azriel, then the Graves Amendment would not protect Aris from liability.
Interestingly, the court also denied Bursztyn's motion for summary judgment, who argued that he had only assisted Azriel in renting the car and owed no duty to the plaintiff:  
Under the particular circumstances of this case, the Court cannot determine as a matter of law on summary judgment whether Bursztyn negligently entrusted this vehicle to an unsafe or unlicensed driver.  At Aris, in the presence of Bursztyn, Azriel presented a temporary license that was written in Hebrew and lacked a photograph of its holder. There is a material issue of fact regarding whether, in light of the circumstances of this transaction--the fact that Bursztyn had just met Azriel that day, was unaware whether Azriel had a valid driver's license, and saw Azriel procure a temporary foreign license without a photograph on it--Bursztyn should have been reasonably concerned about entrusting Azriel with a vehicle and was negligent in doing so.  Based on the information in the record, it cannot be determined on summary judgment as a matter of law whether Bursztyn knew, or should have known in the exercise of reasonable care, that permitting Azriel to drive the vehicle "represented an unreasonable risk of harm to that person or to others because of [Azriel's] incompetence to handle it safely." See Good, 564 N.Y.S.2d at 952. Viewing these facts in a light most favorable to the plaintiff and drawing all reasonable inferences therefrom, plaintiff has put forth sufficient evidence to survive summary judgment on this issue.
To read most posts on this blog about New York court decisions involving the Graves Amendment, click here.

Wednesday, March 17, 2010

Three-Month Delay in Notifying Liability Insurer of Tenant's Assault Found Untimely -- Insured Failed to Make Reasonable Inquiry Into Incident

CGL – ASSAULT OF TENANT – LATE NOTICE – GOOD-FAITH BELIEF IN NONLIABILITY – REASONABLE INQUIRY
Tower Ins. Co. of N.Y. v. Christopher Ct. Hous. Co.
(1st Dept., decided 3/16/2010)

The New York courts have repeatedly held that the reasonableness of an insured's asserted good-faith belief in nonliability excuse to late notice depends on whether and to what extent the insured has inquired into the circumstances of the accident or occurrence.  In this case, the insured's failure to obtain a copy of the related police report was found, as a matter of law, to show a lack of reasonable inquiry. 

A residential tenant in defendant's building was allegedly assaulted in the hallway outside her apartment. The incident report generated by the security guard on duty, which was submitted to defendant's employee, the building's property manager, reported that the tenant claimed she was "grabbed" by the assailant, police and emergency medical personnel were called to the scene, and there was "no evidence" of the assailant. The police report, which the property manager did not obtain, reported that the tenant stated that an unknown assailant came out from the stairwell, grabbed her, pulled her hair, knocked off her glasses and that her arm was scratched; that the tenant was going through an "anxiety attack," was "very distraught," and was taken to the hospital by emergency medical personnel; and that the officers canvassed the premises but were unable to find the assailant.

Tower Insurance Company's first notice of the incident was its receipt of the tenant's summons and complaint against defendant some three months after the incident. Tower disclaimed liability coverage based on the insured's late notice of the incident and commenced this declaratory judgment action.   In opposition to Tower's motion for summary judgment, the insured argued that it had a good-faith belief in nonliability.  New York Supreme denied Tower's motion and it appealed. 

In REVERSING the lower court's order and granting summary judgment to Tower, the First Department found that by not obtaining a copy of the incident's police report, the insured had not made a reasonable inquiry into the incident and possibility of a claim:
Defendant argues that its delay in giving notice was reasonable where there was no evidence that the tenant was knocked down by the assailant, security staff told the property manager that a problematic rear door was closed at the time of the incident, and the property manager observed the tenant to be uninjured and was rebuffed by the tenant when she attempted to talk to her about the incident.  Such circumstances, as a matter of law, do not show a reasonable inquiry.  The property manager knew that the building's security staff did not speak to the tenant and had learned of the incident from the responding police officers.  Had the property manger inquired whether a police report had been filed, as she should have, she would have learned of details that were not reported by the security staff, including that the tenant was in distress and had been taken from the building by ambulance. Coupled with her personal knowledge of a potentially hazardous condition — a fire exit door that was sometimes found propped open or held open from the insider by tenants — the police report would have alerted the property manager to the possibility of a claim (see SSBSS Realty Corp. v Public Serv. Mut Ins. Co., 253 AD2d 583 [1998]).
Had the claim been submitted for coverage under a liability policy issued or renewed on or after January 17, 2009, Tower likely would have been required to demonstrate prejudice from the three-month delay in notice.  The absence of any mention of a prejudice requirement in this decision probably means that the late notice issue was decided under New York's "old" no prejudice rule of law.

Tuesday, March 16, 2010

Are You Covered If the Cows Come Home? -- The Bovine Break-In Peril

So you think it's bad when the new puppy gnaws on your wood-spindled furniture?  When kitty shreds your sheer drapes?  Latisha Francis of Pike County, Arkansas, has seen much, much worse.  

Francis arrived home recently to find that two tons of bovine had invaded and ransacked her house.  Bessie, Bluebell, and Buttercup had butted their way into Francis' home, apparently after being frightened by her dogs, which chased the cows after they had gotten out of their enclosure.  Once inside, the three 1,400-pound-plus girls proceeded to help themselves to their antagonists' 50-pound bag of dog food, deposit a wheelbarrow's worth of manure, and obliterate furniture as they kept struggling to stay on their feet on the home's hoove-unsteady wooden floors.  Ninety minutes, a pickup truck and some rope later -- Francis and her sons, Billy Joe and Ben, needing the rope and pickup to drag Bluebell out of the house -- and Francis was able to survey the $20,000 or so in damage to her home and personal property.

After returning the cows to their outdoor enclosure, Francis called her insurance company, only to learn that the damage wasn't covered.  But why?  Probably because the home-invading cows were hers.

The standard homeowners' policy HO-3 form affords all-risk coverage for the dwelling (Coverage A) and other structures (Coverage B) and named perils coverage for personal property or contents (Coverage C).  Because insurers don't want to cover damage caused by your new puppy or kitty, the HO-3 expressly does not insure for loss to the dwelling or other structures caused by "[a]nimals owned or kept by an 'insured'".  Bessie, Bluebell and Buttercup presumably were owned or kept by Francis, so there would be no coverage for the damage the bovines caused to doorways, floors, etc.

Most homeowners policies afford only named perils coverage for personal property.  The October 2000 edition of the HO-3 names 14 perils for personal property coverage:
  1. Fire or Lightning
  2. Windstorm or Hail
  3. Explosion
  4. Riot or Civil Commotion
  5. Aircraft
  6. Vehicles
  7. Smoke
  8. Vandalism or Malicious Mischief
  9. Theft
  10. Falling Objects
  11. Weight of Ice, Snow or Sleet
  12. Accidental Discharge or Overflow of Water or Steam
  13. Sudden and Accidental Tearing Apart, Cracking, Burning or Bulging 
  14. Freezing
  15. Sudden and Accidental Damage from Artificially Generated Electrical Current
  16. Volcanic Eruption
Now, although a creative policyholder's counsel or public adjuster might argue for coverage to Francis' personal property under the riot or civil commotion, vandalism, falling objects and even volcanic eruption (dog food aftermath) perils, none applies.   The closest we come to coverage for the personal property damage would be the vandalism peril, but since vandalism is defined as the intentional and malicious destruction of another's property, unless we're talking about the genetically created killer mutant calf from the 2006 Screamfest Best Film winning movie Isolation, the vandalism peril doesn't apply. 

From the community weblog MetaFilter's posting Cizzows in the hizzouse come some clever and observant comments on this story:
  • REVENGE OF THE BURGER
  • 'til the cows go home
  • That picture of the cow is hilarious. It looks like she just got done with an epic, Hangover-style weekend of partying in that woman's house, was finally kicked out, but couldn't make it more than a few steps before collapsing in a stupor and calling it a day. When she wakes up she's going to have to worry about her boss seeing the pics on Facebook.
  • Reminds me to call USAA about adding the Roaming Cow rider to my renter's insurance.
  • What is the point of homeowner's insurance if it doesn't cover bovine break-ins?
  •  "I tell you, Abigail, I was udderly flabbergasted."
  • Beef flood. Like an unpredicted water flood, only with different residues, and less well defined cleanup regimes...
  • it's clear to me that this was a cowtastrophe waiting to happen
  • They broke in so easily. They must have been steaking that place out for days.
  • It was either there or the china shop, and no one felt like walking into town.
  • Organized on MeatUp, no doubt.
  • It was a grass-fed moovement.
  • I am wondering just which exclusion clause in the homeowners' insurance policy covers this. Natural calamities? Accidental damage done by household pets? Terrorism?
    Maybe acts of God? If the insurance company is based in India?
  • To err is human
    To forgive bovine.
  • She should grind them all and make hamburglars.
  • Man, I hate it when the look-out chickens out and runs away without letting everyone else in the party know that the parents are back.
  • Party 'til the cows come home, then party with the cows.
  • "Yeah, you really should've pre-applied for the additional livestock insanity insurance we just made up. I'd love to help you, but nowhere in the contract does it cover home invasion of the bovine variety. I would love to give you this pen as a token of our sympathy, though. Just so we're clear though; at no point were we obligated to give you the pen."
  • Seems her homeowner's policy doesn't account for intruding cows.
    On the other hand her policy does cover extruding cows as well as intruding crows.
  • Her insurance should cover it under vandalism. Doesn't really matter that the vandals are cows, if you ask me. I'd appeal that case.
    I also kept expecting to see another cow hiding behind an "EAT MORE CHIKIN" sign.
  • Her homeowners insurance might not cover it if the cows were hers, because it's then business related. The article isn't clear on whose cows they were or where they came from, but it does describe the place as a "farmhouse." Homeowners policies generally have a lot of exclusions pertaining to commercial activity.
    Alternately she might just have a really minimal homeowners policy that doesn't cover "all other perils" and instead only covers fire/wind/theft and other specific stuff. There are some crummy policies out there.
Really?  Is there a non-crummy policy out there that would cover this?  I don't think so but if there is, someone please enlighten me.  And Ms. Francis. 

By the way, did you know that cows with names produce more milk?  Dairy researchers in the UK found that on farms where each cow was called by her name the overall milk yield was higher than on farms where the cattle were herded as a group.  Of course, it was the swine Babe of Hollywood sheepherding fame who first discovered that herded animals respond better to politeness.

This concludes today's lesson on bovine break-in coverage.  Had they been someone else's cows, the dwelling damage probably would have been covered.  Since they apparently were the Francises' cows, however, I concur that Francis should grind them up and make hamburglars out of them.  Or fix their enclosure so they can't get out.  Hat tip to legal secretary Kathy Burns of my office for bringing this story to my attention.

Monday, March 15, 2010

Second Department Finds Earth Movement Exclusion Applicable to Damages from Cliff Collapse

COMMERCIAL PROPERTY – EARTH MOVEMENT EXCLUSION – ROCK TOPPLE
Lordae Realty Corp. v. United States Fire Ins. Co.
(2nd Dept., decided 3/9/2010)

The earth movement exclusion found in the standard Causes of Loss--Special Form, ISO endorsement number CP 10 30 10 00, of a commercial property insurance policy provides, in part:
B.      Exclusions 
1.     We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
b.       Earth Movement
(1)   Earthquake, including any earth sinking, rising or shifting related to such event;
(2)   Landslide, including any earth sinking, rising or shifting related to such event;
(3)   Mine subsidence, meaning subsidence of a man-made mine, whether or not mining activity has ceased;
(4)   Earth sinking (other than sinkhole collapse), rising or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water under the ground surface.
But if Earth Movement, as described in b.(1) through (4) above, results in fire or explosion, we will pay for the loss or damage caused by that fire or explosion.
Are damages from a rock topple excluded under the earth movement exclusion?  Must there be seismic activity for the earth movement exclusion to apply?  When huge rocks and car-sized boulders from a cliff immediately behind commercial buildings suddenly move from their previous place of rest and cause damage to those buildings, does the earth movement exclusion apply?   In the opinion of Appellate Division, Second Department, yes, the earth movement exclusion does apply in such a situation to negate coverage. 

From Google research (the Second Department's decision gives no facts or policy language), it appears that on December 20, 2005, plaintiffs' buildings on the east side of Fifth Avenue in Pelham, New York, were severely damaged when when a colossal chunk of a cliff that towered behind a row of shops on Fifth Avenue suddenly gave way.  The collapse sent car-sized boulders and tons of debris tumbling down onto the stores and street.  Plaintiffs and 15 other store owners submitted claims to their commercial property insurers for building damage and business interruption losses.  Nearly all of those insurers, including United States Fire Insurance Company, denied coverage based on their policies' earth movement exclusions.  Plaintiffs commenced this action for breach of contract and a declaratory judgment, seeking coverage for their losses from the cliff's partial collapse. 


Westchester Supreme denied USFIC's motion for summary judgment and it appealed.  In REVERSING the lower court's order, the Appellate Division, Second Department, held:
The Supreme Court erred in denying the defendant's motion for summary judgment. The defendant met its initial burden of establishing its entitlement to judgment as a matter of law by demonstrating that the "earth movement" exclusion in the insurance policy clearly and unambiguously applied to the plaintiffs' losses (see I & R Realty Mgt., Inc. v Transcontinental Ins. Co., 59 AD3d 598; Labate v Liberty Mut. Ins. Co., 45 AD3d 811, 812; Cali v Merrimack Mut. Fire Ins. Co., 43 AD3d 415, 417). In opposition, the plaintiffs failed to raise a triable issue of fact (see Zuckerman v City of New York, 49 NY2d 557, 562). Accordingly, the Supreme Court erred in denying the defendant's motion. 
There is no lower court decision available online, so I cannot report the exact language of the earth movement exclusion upon which USFIC relied to deny coverage.  Nor can I discern the exact argument or arguments plaintiffs raised in opposition to USFIC's motion for summary judgment.  From the local newspaper coverage of the event, however, it appears plaintiffs may have argued that the earth movement exclusion did not apply because: (1) there was no seismic activity at the time of the collapse; and (2) this was not a landslide, but a "rock topple" -- a rupture that was a long-term result of water seepage into crevices along the cliff which, after years of successive freezes and thaws, eventually deepened, allowing rocks to give way.  If those were plaintiffs' arguments, they were unsuccessful. 

Friday, March 12, 2010

"Executed" Means Signed or Fully Performed -- Additional Insured Coverage Denied

CGL – BLANKET ADDITIONAL INSURED ENDORSEMENT – "EXECUTED"
Burlington Ins. Co. v. Utica First Ins. Co.
(2nd Dept., decided 3/9/2010)

Manlyn Development Corp. (Burlington's insured) contracted to perform work as construction manager on a renovation project at a property located in Manhattan.  Manlyn subcontracted certain work at the site to New York Interiors, Ltd. (Utica First's insured), as memorialized in a purchase order. The purchase order required New York Interiors to obtain insurance in specified minimum amounts, and to name Manlyn as an additional insured on a certificate of insurance.  Although the purchase order was dated June 26, 2003, it was not signed and "authorized" by Manlyn until July 9, 2003, and it was not signed by New York Interiors until July 23, 2003.

New York Interiors apparently didn't wait until the purchase order was fully signed to start its work and one of its employee was injured on June 27, 2003, one day after the purchase order was dated but weeks before it was fully signed.  The employee sued, and Manlyn sought additional insured (AI) coverage from New York Interior's commercial general liability insurer, Utica First Insurance Company.  Utica First denied AI coverage to Manlyn, based on language of the blanket additional insured endorsement in New York Interior's policy, which provided that an "insured" included any person or organization the insured was required to name as an additional insured on the policy "under a written contract or written agreement." The endorsement further provided that the written contract or agreement must be, inter alia, "[c]urrently in effect or becoming effective during the terms of this policy; and . . . [e]xecuted prior to the bodily injury' [or] personal injury.'"

Utica First denied coverage to Manlyn on the ground that the purchase order was not signed at the time of the underlying plaintiff's alleged injury and, therefore, had not been "executed" as of that time.  Burlington and Manlyn then commenced this declaratory judgment action seeking AI coverage for Manlyn under New York Interior's policy in relation in the underlying action. 

Nassau Supreme denied Utica First's motion for summary judgment and Utica First appealed.  In REVERSING the order appealed from and granting summary judgment to Utica First, the Second Department ruled that the term "executed" as used in the blanket AI endorsement was not ambiguous and meant fully signed or performed:
Here, the term "executed" in the additional insured endorsement does not render the policy ambiguous. "[T]hat the term executed' can be interpreted in two ways does not render the contract uncertain or ambiguous" (Rodless Props., L.P. v Westchester Fire Ins. Co., 40 AD3d 253, 254). Rather, the defendant demonstrated that the contract was not "executed" at the time of the alleged accident on June 27, 2003, since it was both unsigned and had not been fully performed at that time (id.; see Nicotra Group, LLC v American Safety Indem. Co., 48 AD3d 253, 253-254). Moreover, there is no support for the plaintiffs' contention that the condition in the additional insured endorsement that the contract be "executed" prior to the bodily injury or personal injury could be satisfied by partial performance. Accordingly, that branch of the defendant's motion which was for summary judgment declaring that it was not required to defend or indemnify Manlyn in the underlying action should have been granted.

Monday, March 8, 2010

Issue of Employment Is Referred to Workers' Compensation Board

NO-FAULT – WORKERS' COMPENSATION – ISSUE OF INDEPENDENT CONTRACTOR OR EMPLOYEE
Dunn v. American Tr. Ins. Co.
(2nd Dept., decided 3/2/2010)

In this case, the Second Department reminds that the Workers' Compensation Board, not the courts, has primary jurisdiction over determinations regarding the applicability of the Workers' Compensation Law:
"[P]rimary jurisdiction with respect to determinations as to the applicability of the Workers' Compensation Law has been vested in the Workers' Compensation Board and . . . it is therefore inappropriate for the courts to express views with respect thereto pending determination by the board" (Botwinick v Ogden, 59 NY2d 909, 911; see O'Rourke v Long, 41 NY2d 219; Catapane v Half Hollow Hills Cent. School Dist., 45 AD3d 517). In this case, the defendant's motion presented factual questions as to the plaintiff's "status as either an independent contractor, as he claims he is, or as an employee of" a car service dispatch base, as the defendant claims (Arvatz v Empire Mut. Ins. Co., 171 AD2d 262, 269). Resolution of these questions "is best suited for determination by the [Workers' Compensation] Board, given its expertise in the area" (id. at 269). Accordingly, prior to rendering a determination on the motion, the Supreme Court should have referred the matter to the Workers' Compensation Board for a hearing and determination as to whether the plaintiff is relegated to benefits under the Workers' Compensation Law (see Catapane v Half Hollow Hills Cent. School Dist., 45 AD3d at 518-519; Arvatz v Empire Mut. Ins. Co., 171 AD2d at 269).

Sunday, March 7, 2010

Insurer's Proof of Fraud on Default Judgment Application Found Insufficient

AUTO – NO-FAULT – FRAUDULENT MISREPRESENTATIONS – DECLARATORY JUDGMENT – PROOF REQUIRED FOR DEFAULT JUDGMENT IN FAVOR OF PLAINTIFF INSURER
New South Ins. Co. v. Dobbins
(2nd Dept., decided 3/2/2010)

It's not easy for plaintiff insurers to obtain default judgments in declaratory judgment actions.  In addition to establishing the defendants' defaults, the plaintiff insurers must establish, prima facie, that they are entitled to the relief sought.  That usually entails demonstrating, in evidentiary form, the merits of the coverage defenses which form the basis of the DJ action.  A verified complaint, by itself, won't suffice if the insurer's coverage defenses are based on facts outside the personal knowledge of the person who verified the complaint.

New South insured Adrienne Dorns, who allowed James Dobbins, Sr., to drive her vehicle.  On July 31, 2006, Dobbins Sr. was involved in a collision with a vehicle owned by Quadrozzi Concrete Corp. and operated by Emanuel Paradiso.  Dobbins Sr., James Dobbins, Jr., Felita Dobbins, and Jamie Dobbins all claimed to be within the Dorns vehicle at the time of the accident, and all made no-fault claims to New South.  In his MV-104 and subsequent interview, Paradiso indicated that there was only one occupant of the Dorns vehicle at the time of the accident.  New South conducted examinations under oath of the Dobbins claimants and then commenced this DJ action against Dorns and the four Dobbins, seeking a declaration that its policy with Dorns afforded no liability, no-fault or uninsured motorists coverage in relation to the July 31, 2006 accident by reason of: (1) Dorns's policy application misrepresentations; and (2) the Dobbins' fraudulent misrepresentations of the identities and numbers of the occupants of the Dorns vehicle.  All defendants failed to appear, and New South moved for a default judgment against all.

Nassau County Supreme Court Justice F. Dana Winslow denied New South's initial motion, based primarily on New South's failure to submit a complete copy of Dorns's insurance policy with New South in support of its motion.  Justice Winslow also found that New South could only cancel the policy prospectively for application fraud and noted:
[A]lthough the DOBBINS defendants' [EUO] testimony seems evasive and inconsistent , and is contradicted, in some respects, by the accident report, the record to date does not unequivocally demonstrate that any individual defendant was not in the vehicle at the time of the accident.  Plaintiff has not sufficiently established that it is entitled to wholesale relief from its obligations under the policy with respect to any individual defendant. To the extent that plaintiff assert that a particular claim is fraudulent, its remedy is to issue a disclaimer pursuant to the Insurance Law and applicable regulations, or to defend against such claim in any
proceeding in which coverage is sought.
New South moved to renew and reargue, this time submitting a complete copy of the insurance policy at issue. On that motion to renew and reargue, Justice Winslow granted New South a default judgment as to no-fault claimant Jaime Dobbins, but denied the motion as to no-fault claimants James Dobbins, Jr. and Felita Dobbins.  The court found that New South had not established via evidentiary material that James Jr. and Felita were not in the Dorns vehicle at the time of the accident:
Plaintiff relies on the Form MV-104 filed by the driver of the adverse vehicle, Manny E. Paradiso, which indicates only one occupant in the vehicle driven by DOBBINS. The Affidavit of Brinton Max Esty, plaintiff's investigator, sworn to on July 17, 2007, refers to Mr. Paradiso's statement, in the MV-104 and in a subsequent interview, that DOBBINS was the sole occupant.  These statements, however, are inadmissible hearsay, and cannot be relied upon to support plaintiff's prima facie showing of entitlement to the relief sought. Although, as plaintiff contends, defaulters may be deemed to have admitted the facts alleged in the complaint, that rule can only apply where the allegations were made or verified by someone with first-hand knowledge. See Woodson v. Mendon Leasing Corp., 100 NY2d 62; State v. Wiliams, 44 AD3d 1149.  In the case at bar, plaintiff's attorney verified the Complaint, and plaintiff's investigator lacked first-hand knowledge of who was in the DOBBINS vehicle at the time of the Incident.

Plaintiff also cites inconsistencies in the testimony of JAMES JR., FELITA and JAMIE in their No-Fault examinations under oath, with respect to the circumstances of the Incident and the description of the adverse vehicle. The Court finds these to be inconclusive and insufficient to demonstrate that the purported passengers were not in the DOBBINS vehicle at the time of the Incident.
In granting New South a default judgment as to Jaime Dobbins, however, the court found that Dobbins Sr.'s admissions in his MV-104 and telephone report to New South supported the inference that there were only two adult passengers -- James Jr. and Felita -- in the vehicle at the time of the accident.

New South appealed the second order to the Appellate Division, and the Second Department AFFIRMED, holding:
The Supreme Court properly, upon renewal and reargument, adhered to so much of its original determination as denied the plaintiff leave to enter judgment against the defendants James Dobbins, Jr., and Felita Dobbins, upon their default in answering the complaint.  In support of its motion, the plaintiff offered the complaint, which was verified by plaintiff's counsel, and an affidavit of the plaintiff's investigator, neither of whom possessed personal knowledge of the facts constituting the claim (see CPLR 3215; Woodson v Mendon Leasing Corp., 100 NY2d 62, 70-71; Hosten v Oladapo, 44 AD3d 1006; Finnegan v Sheahan, 269 AD2d 491). The statements from the driver of the other vehicle that the plaintiff's investigator relied upon in his affidavit constituted inadmissible hearsay (see CPLR 4518[a]; Hochhauser v Electric Ins. Co., 46 AD3d 174, 179-183; Metropolitan Cas. Ins. Co. v Shaid, 23 Misc 3d 1140[A]). Accordingly, entry of a default judgment against these defendants was properly denied on the papers before the Supreme Court. 
If New South had obtained an affidavit from the adverse driver that there was only one occupant of the Dorns vehicle at the time of the accident, would that have been enough?  Perhaps.   But relying on hearsay statements and affidavits from those lacking first-hand knowledge in moving for a default judgment in a insurer-commenced declaratory judgment action will probably never be enough.

Liability Insurer That Does Not Receive Notice of Underlying Action Can Contest Merits of Underlying Claim in Insurance Law § 3420(a)(2) Action

AUTO – LATE NOTICE OF SUIT – DEFAULT JUDGMENT AGAINST INSURED – INSURANCE LAW § 3420(A)(2) DIRECT ACTION
Jimenez v. New York Cent. Mut. Fire Ins. Co.
(2nd Dept., decided 3/2/2010)

It has long been the rule in New York that a liability insurer which disclaims coverage in relation to a pending action against its insured may not contest the merits of that action -- the insured's liability and injured party's damages -- if the insured defaults in that action and the underlying plaintiff brings an subsequent action against the insurer for payment of the judgment pursuant to New York Insurance Law § 3420(a)(2).  In such a situation, the liability insurer may not "open the default" and litigate the merits of underlying claim.  Only the grounds the insurer asserted to disclaim or deny coverage may be litigated as defenses to the 3420(a)(2) direct action.

But what if the liability insurer does not receive notice of the underlying action until after the default judgment has already been taken against its insured?  In the subsequent 3420(a)(2) action, can the insurer contest the merits of the judgment creditor's underlying claim against the insured?  Yes it can, says the Second Department in this case.

Plaintiff Doris Jimenez obtained a default judgment against Roxana Sanchez, New York Central Mutual Fire Insurance Company's insured, in the amount of $32,382.50 for injuries she had allegedly sustained in a motor vehicle accident.  Jimenez then commenced this action pursuant to Insurance Law § 3420(a)(2) against New York Central Mutual to recover on the unsatisfied judgment.  Although Jimenez had not given NYCM notice of the underlying action against its insured until after the default judgment had been entered, the Supreme Court granted her motion for summary judgment on the complaint against NYCM in this action.

In REVERSING judgment against NYCM, the Second Department held that an affidavit from NYCM's claims manager denying that it had received the underlying judgment prior to plaintiff's commencement of this action created a triable question on the issue of whether plaintiff complied with Insurance Law § 3420(a)(2)'s requirement that notice of entry of the judgment be served on the judgment debtor's liability insurer at least 30 days before commencing a 3420(a)(2) direct action against that insurer.  The court also found that although NYCM was entitled to disclaim coverage because of the almost two-year delay in receiving notice of the commencement of the underlying negligence action against its insured, a triable issue of fact existed as to the timeliness of NYCM's disclaimer, precluding summary judgment in NYCM's favor.

With respect to the issue of NYCM's opportunity to contest the merits of the underlying action, the Second Department noted:
Furthermore, while an insurance carrier that knowingly chooses not to participate in an underlying action "may litigate only the validity of its disclaimer and cannot challenge the liability or damages determination underlying the judgment" (Lang v Hanover Ins. Co., 3 NY3d 350, 356 [emphasis added]; Insurance Law § 3420[a][2]), here, NYCM asserts it did not receive notice of the commencement of the underlying action until after the entry of judgment against its insured. Under these circumstances, NYCM is not collaterally estopped from litigating the merits of the underlying action, as it was not provided "a full and fair opportunity to contest the decision now said to be controlling" (Tydings v Greenfield, Stein & Senior, LLP, 11 NY3d 195, 199, quoting Buechel v Bain, 97 NY2d 295, 304, cert denied 535 US 1096). Although summary judgment in favor of the plaintiff should have been denied in light of the existence of the triable issues of fact described above, the award of summary judgment in the plaintiff's favor was premature in any event since NYCM is entitled to raise affirmative defenses, receive responses to its outstanding discovery requests, and conduct additional appropriate discovery relating to the extent of the plaintiff's injuries (see CPLR 3212[f]; Kiernan v DaimlerChrysler Corp., 65 AD3d 614; Desena v City of New York, 65 AD3d 562). 
The important takeway points of this decision for liability insurers doing business in New York are:
  1.  A liability insurer that disclaims or denies both defense and indemnification coverage with respect to a personal injury or property damage action that it knows has been commenced against its insured may not later contest the merits of that action if its insured defaults and the underlying plaintiff attempts to recover on the judgment via an Insurance Law § 3420(a)(2) action against the insurer. Only the validity of its disclaimer can be litigated in the 3420(a)(2) direct action. 

  2. A liability insurer that does not learn of the underlying action until after a default judgment has been taken against its insurer may contest the merits of that action in addition to litigating timely asserted coverage defenses in the context of the subsequent Insurance Law § 3420(a)(2) action.  

Friday, March 5, 2010

Not SUM Late Notice -- 16-Month Delay

AUTO – SUM – LATE NOTICE – SERIOUSNESS OF INJURIES
Matter of Tri-State Consumer Ins. Co. v. Furboter
(3rd Dept., decided 3/2/2010)

The insured did not notify petitioner, Tri-State Consumer Insurance Company, of his supplementary uninsured motorists (SUM) coverage claim until 16 months after the accident.  Tri-State denied the claim based on late notice, and commenced this special proceeding to permanently stay the SUM claim arbitration.  Nassau Supreme denied Tri-State's petition, and it appealed.

In AFFIRMING the order appealed from, with costs, the Second Department held:
Contrary to the petitioner's contention, the Supreme Court properly denied its petition to permanently stay the arbitration of the respondent's underinsured motorist benefits claim on the ground of late notice. In determining whether notice was given in a timely fashion, the court must consider the particular circumstances of the case, including, inter alia, the latency, nature, and seriousness of the insured's injuries (see Matter of Metropolitan Prop. & Cas. Ins. Co. v Mancuso, 93 NY2d 487, 493; Matter of Progressive Northeastern Ins. Co. v McBride, 65 AD3d 632, 633). In the instant case, the uncontroverted affidavit and medical records of the respondent demonstrated that his delay of some 16 months in notifying the petitioner of his claim for underinsurance benefits was attributable to the belief of his various treating physicians that his injuries were relatively minor and would resolve with treatment. Moreover, the respondent gave notice promptly after he was made aware of the worsening and permanent nature of his injuries (see Matter of Progressive N. Ins. Co. v Sachs, 50 AD3d 803, 804-805; Matter of New York Cent. Mut. Fire Ins. Co. [Guarino], 11 AD3d 909, 911; Medina v State Farm Mut. Auto. Ins. Co., 303 AD2d 987; Matter of Nationwide Ins. Co. [Bellreng], 288 AD2d 925; Matter of Nationwide Ins. Enter. [Leavy], 268 AD2d 661, 662-663). Accordingly, the respondent complied with his obligation to give notice "[a]s soon as practicable" under the policy.
The latency, nature and seriousness of a SUM claimant's injuries must be taken into consideration in determining whether the claimant has provided timely notice of the SUM claim. 

Thursday, March 4, 2010

Discoveries on National Grammar Day -- March 4, 2010

Better late than never, I end my celebration of today, March 4th, National Grammar Day, with this post.  Yes, that's right, National Grammar Day, established in 2008 by Martha Brockenbrough, founder of the Society for the Promotion of Good Grammar (SPOGG).  The twitterstream for this year's #GrammarDay, led by @GrammarGirl, has been fierce.


Today I discovered:

►  An accordian polka playing pickle gots some mean grammar licks, including one from Deep Purple's most famous classic rock tune at 1:15.

►  There's actually an official website for competitive sentence diagramming.  Woot. 

►  There are lots and lots of other people nutty about grammar.

► Bad grammar makes those people [sic].

►  This is what an abstract noun is not (PG-rated). --and--

► I wish I had seen Victor Borge while he was still with us.  Enjoy his classic Phonetic Punctuation: 


It must be my predilection for insurance coverage that causes me to be this way.  Can't wait for next March 4th.

Wednesday, March 3, 2010

A Graves Amendment Update -- New York

For all actions commenced on or after August 10, 2005, the "Graves Amendment" provides vehicle renters and lessors with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits.  This amendment to the Safe, Accountable, Flexible, Efficient Transportation Equity Act of 2005: A Legacy for Users ("SAFETEA") provides in relevant part that:
[a]n owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate of the owner) shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle (or an affiliate of the owner), for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if-

(1) the owner (or an affiliate of the owner) is engaged in the trade or business of renting or leasing motor vehicles; and

(2) there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner).  49 U.S.C. § 30106(a)
For purposes of the Graves Amendment, section 30102(a)(6) of Chapter 301 of Title 49 of the United States Code, entitled Motor Vehicle Safety, defines "motor vehicle" as "a vehicle driven or drawn by mechanical power and manufactured primarily for use on public streets, roads, and highways, but does not include a vehicle operated only on a rail line."

Motor vehicle rental and leasing defendants use the Graves Amendment as a tort defense to indirect or vicarious liability under state laws such as New York's Vehicle & Traffic Law § 388.  In pertinent part, that statute provides:
§ 388. Negligence in use or operation of vehicle attributable to owner.

1. Every owner of a vehicle used or operated in this state shall be liable and responsible for death or injuries to person or property resulting from negligence in the use or operation of such vehicle, in the business of such owner or otherwise, by any person using or operating the same with the permission, express or implied, of such owner. Whenever any vehicles as hereinafter defined shall be used in combination with one another, by attachment or tow, the person using or operating any one vehicle shall, for the purposes of this section, be deemed to be using or operating each vehicle in the combination, and the owners thereof shall be jointly and severally liable hereunder.

2. As used in this section, "vehicle" means a "motor vehicle", as defined in section one hundred twenty-five of this chapter, except fire and police vehicles, self-propelled combines, self-propelled corn and hay harvesting machines and tractors used exclusively for agricultural purposes, and shall also include "semitrailer" and trailer" as defined in article one of this chapter, whether or not such vehicles are used or operated upon a public highway. For the purpose of this section, self-propelled caterpillar or crawler-type equipment while being operated on the contract site, shall not be defined as motor vehicles.

AUTO – GRAVES AMENDMENT – RENTED TRUCK – RESTRICTED DRIVER'S LICENSE – FAILURE TO PRODUCE RENTAL POLICIES AND PROCEDURES PRECLUDES SUMMARY JUDGMENT NEGLIGENT ENTRUSTMENT THEORY
Byrne v. Collins
(Sup. Ct., Kings Co., decided 11/24/2009)

A Budget franchisee rented a Budget truck to JBG Trucking.  The rental agreement provided that any authorized employee of JBG with a valid driver's license was permitted to operate the vehicle upon presentation of a valid driver's license by the company employee who picks up the vehicle.  Jamie Collins presented a restricted driver's license to the Budget location and, while driving the rented truck, struck and killed the plaintiff's decedent, who was riding a bicycle.  Plaintiff alleged that the Graves Amendment did not apply because the Budget defendants knew or should have known from Collins' presentation of a restricted driver's license that he had a history of drug and/or alcohol related offenses.  In opposition to the Budget defendants' motion to dismiss plaintiff's complaint and for summary judgment, plaintiff argued that the Budget defendants negligently entrusted the rented truck to Collins, and that their negligence precluded application of the Graves Amendment's vicarious liability exemption. 

While agreeing that the presentation of a restricted license "does not, in and of itself, compel a motor vehicle rental agent of average ken to scrutinize the renter", Kings County Supreme Court Justice Francois Rivera ruled that the Budget defendants had not carried their burden of establishing their entitlement to summary judgment because they had not submitted their written rental policies and procedures and established that the Budget franchisee followed those policies and procedures in renting the truck to JBG:
However, at this juncture we cannot find that the moving defendants are entitled to summary judgment as a matter of law. Upon searching the record, the Court finds that triable issues of material fact remain regarding whether Perfect possessed special knowledge of any propensity by Collins to operate the subject truck in an unreasonably dangerous way. Specifically, the moving defendants have not tendered any evidence establishing that Perfect followed the proper policies and procedures required of Budget rental locations before renting vehicles to drivers.[FN9] Nor does the moving defendants' reply address their failure to produce such documents. Although we decline to impose upon motor vehicle rental agents any obligation to check a renter's driving record beyond verifying that he or she has a valid driver's license, absent further evidence of the unsuitability of the renter and the agent's knowledge thereof, we need also conclude that such precautions are not part of Budget's internal policies and procedures before granting summary judgment to the moving defendants. The moving defendants have not persuaded us of that fact with their showing. Having failed to eliminate all material issues of fact from the case, they do not meet their prima facie burden of establishing that they had no reason to doubt Collins' ability to operate a motor vehicle properly and safely. The Court need not examine the sufficiency of the supporting evidence in plaintiff's opposition papers.
Editor's Note (December 15, 2010) ~~ The Appellate Division, Second Department, reversed this decision on October 19, 2010 and granted the Budget defendants' motion for summary judgment, holding that "[c]ontrary to the plaintiff's contention, the appellants' failure to provide copies of any internal policies as to investigation of potential renters with restricted licenses constitutes an insufficient basis upon which to deny their motion for summary judgment. Even if such a policy had been violated, under the circumstances of this case, such violation would not constitute actionable negligence (see Lambert v Bracco, 18 AD3d 619, 620; Newsome v Cservak, 130 AD2d 637, 638)."

AUTO – GRAVES AMENDMENT – RENTED VEHICLE – NO OBLIGATION TO VERIFY VALID STATUS OF RENTER'S DRIVER'S LICENSE
Tedesco v. Warner
(Sup. Ct., Suffolk Co., decided 12/23/2009)

Elrac, Inc. (Enterprise Rent-A-Car) rented a car to Jennifer Warner on March 10,2006.  Warner presented her driver's license and information regarding her automobile insurance coverage. The car rental agreement that Warner signed included a provision requiring the driver to certify that her driver’s license was valid.  Erlac's regional loss manager testified that although Elrac employees input information appearing on the face of a customer’s driver's license into its computer system, Elrac had no computer system which would have enabled an Elrac employee at a rental location to determine whether a customer's driver’s license was suspended. Elrac argued that its business practice of requiring customers to both present facially valid drivers’ licenses and to confirm that the licenses were valid by having the customer sign the acknowledgment section of the rental agreement satisfied its obligation under Vehicle & Traffic Law § 509(4) ("No person shall knowingly authorize or permit a motor vehicle owned by him or in his charge to be operated [by an unlicensed driver].") to ensure that it rented only to competent drivers.

In granting summary judgment to Elrac, Suffolk County Supreme Court Justice Peter Mayer rejected plaintiff's argument that Elrac violated Vehicle & Traffic Law § 509(4) and held:
Plaintiff's sole cause of action against Elrac is for negligence premised upon its alleged duty to investigate the status of Warner’s driver’s license. The so-called Graves Amendment (USC § 30106[a][1] and [a][2]) provides that an owner of a rental vehicle shall not be liable under state law for harm to persons or property resulting from the use, operation or possession of the vehicle during the rental period.  Plaintiff, by her cause action, seeks to impose a duty upon Elrac to research its customers’ driving histories beyond verifying the existence of a valid driver’s license. Inasmuch as no such obligation exists, plaintiff's complaint, as to Elrac, must be dismissed.

AUTO – GRAVES AMENDMENT – RENTED TRUCK – QUESTION OF FACT ON RENTER'S NEGLIGENCE PRECLUDES SUMMARY JUDGMENT
Ballatore v. Hub Truck Rental Corp.
(Sup. Ct., Suffolk Co., decided 1/4/2010)

Defendant Hub Truck Rental Corp. rented a commercial truck that was involved in a motor vehicle accident.  The Graves Amendment's vicarious liability exemption does not apply if there is negligence or criminal wrongdoing on the part of the rented or leased vehicle's owner or an affiliate of the owner.  In denying defendant's motion for summary judgment pursuant to the Graves Amendment, Suffolk County Supreme Court Justice Peter Fox Cohalan ruled that Hub had failed to carry its initial motion burden of establishing that it was not negligent:
Vicarious liability is not abrogated where the injury or damages results from the negligence of the owner’s employee in the operation or maintenance of the vehicle, nor where it seems the owner was negligent in entrusting the vehicle to the operator (see, Byrne v Collins, 25 Misc 3d 1232 [A]; 2009 NY Slip Op 52395U [2009]; Luma v Elrac, lnc., 19 Misc 3d 1138 [A], 862 NYS2d 81 5 [2008]).

Here, Hub has failed to establish its entitlement to judgment as a matter of law. In his October 26, 2007 EBT testimony, Hayes Conn, Ill., Hub’s vice president of maintenance, stated that, prior to renting the subject truck to Nuzzolese on August 3, 2005, a pre-trip inspection including brakes was conducted on the truck and that one of Hub’s employees would check “air pressure leaks” in the brake system and would walk around the truck to make sure that all requirements of the inspection were properly performed. In his May 7, 2008 EBT Butler testified that, prior to the impact with the plaintiffs’ vehicle, he “put [his] foot onto the brake” and knew that he “wasn’t going to stop” because the truck he was operating had “no brakes.” There are triable issues of fact as to whether the accident was caused by the alleged brake failure and thus as to Hub’s possible contribution to the accident (see, Suitor v Boivin, 219 AD2d 799, 631 NYS2d 960 [1995]). Hub has failed to sustain its initial burden of establishing a prima facie entitlement to judgment as a matter of law.

AUTO – GRAVES AMENDMENT APPLICABLE TO LEASED TRAILER
Yoon Young Lee v. Rivera
(Sup. Ct., New York Co., decided 1/26/2010)

In Zawatsky v. Barker Materials, Ltd., 22 Misc 3d 1132(A) (Sup. Ct., Suffolk Co., 1/29/2009), the court ruled that the Graves Amendment's vicarious liability exemption applies to leased trailers.  This decision concludes the same.

In rejecting the special referee's post-hearing report and recommendation and granting Jiffy Trucking Company's motion for summary judgment, New York County Supreme Court Justice Paul Wooten held:
In support of its motion to renew and reargue defendant Jiffy Trucking Company argues that under 49 U.S.C.A.§ 13102, the term motor vehicle is defined as a: 
vehicle, machine, tractor, trailer, or semi-trailer, propelled or drawn by mechanical power...
Defendant Jiffy Trucking Company argues that at the time of the subject accident, Jiffy Trucking Company’s trailer was attached to Ponce Dynasty Corporation’s tractor, thus being “drawn by mechanical power”.  As such, the trailer is a motor vehicle pursuant to 49 U.S.C.A.§ 13102 and the Graves Amendment is applicable.  

In opposition, plaintiff argues, inter alia, that Jiffy Trucking Company’s “delivery equipment” does not qualify as a trailer as defined under the Graves Amendment.  Accordingly, defendant Jiffy Trucking Company is not in the business of leasing motor vehicles and is not afforded the protection under the Graves Amendment.

It is undisputed that Jiffy Trucking Company is an affiliate of General Trading Company Grocery and Dairy and is the owner and lessor of the trailer, that was leased to defendant Ponce Dynasty Corporation and attached to the tractor that was operated by defendant Rivera, at the time of the subject accident. Thus, pursuant to 49 U.S.C.A. § 13102, defendant Jiffy Trucking Company’s trailer qualifies as a motor vehicle and Jiffy Trucking Company is an “affiliate of the owner of the tractor-trailer, engaged in the business of renting or leasing motor vehicles” (49 U.S.C. § 30106).

Accordingly, the plaintiffs claims against Jiffy Trucking are “barred by operation of the Graves Amendment” and the case must be dismissed as to defendant Jiffy Trucking Company (Berkan v. Penske Truck Leasing Can., Inc., 535 F. Supp. 2d 341, 345-346 [WDNY 2008]; see Flagler v Budget Rent A Car System, Inc., 538 F. Supp. 2d 557 [EDNY 2008] ).
The question I have about this and the Zawatsky decision, which is light on analysis, is this:  does the definition of "motor vehicle" found in section 13102(16) of Chapter 131 of Part B of Subtitle IV of Title 49 of the United States Code, which includes a reference to a trailer, override or supersede the definition of "motor vehicle" found in section 30102(a)(6) of Chapter 301 of Part A of Subtitle VI Title 49 of the United States Code -- the Chapter in which the Graves Amendment (49 USC § 30106) appears -- which does not mention trailers?  Was Congress' omission of any reference to trailers or semi-trailers in section 30102(a)(6) deliberate, since it included those terms in section 13102(6)?  Why the different definitions in the same title, but different subtitles?  Or, is it enough that a leased or rented trailer be "drawn by mechanical power" to qualify it as a "motor vehicle" under section 30102(a0(6) and the Graves Amendment?  Or, still yet, does it not matter because New York Vehicle & Traffic Law § 388(2) includes semitrailers and trailers within the ambit of that statute?  I'm not sure this issue is settled in New York.

To read most posts about New York cases involving the Graves Amendment, click here.