Wednesday, June 30, 2010

Reprise of the No-Fault Intoxication Exclusion Cut-Back Bill Has Passed the NYS Senate

It's baaaaack.  And it looks like it may both pass and be signed into law this time.

Some will recall that back in September of 2008, Governor Paterson vetoed the 2008 version of the no-fault intoxication exclusion cut-back bill that removed the exclusion of health care service expenses under Insurance Law § 5102(a)(1) if a person were injured as a result of operating a motor vehicle while in an intoxicated condition or while his ability to operate such vehicle was impaired by the use of a drug within the meaning of Vehicle & Traffic Law § 1192.  In his veto memorandum, however, Governor Paterson expressed his belief that the "bill's goals are sound" and instructed his staff and interested parties to "help enact a new bill that accomplishes the intended purpose...in a manner that will protect the interests of the health service providers, injured patients and the public."

This is that new bill, S7854 Breslin, and it passed the state Senate by a vote of 58-0 on June 18, 2010.  This bill's identical Assembly twin, A1116 Dinowicz, went to its Rules Committee on Monday, June 28th, and is expected to come out for a vote soon.

The 2010 version of the cut-back bill limits the exception to the intoxication exclusion to the payment of "necessary emergency health services rendered in a general hospital, as defined in [New York Public Health Law § 2801(10)] including ambulance services attendant thereto and related medical screening."  As its 2008 predecessor did, it also provides that where a covered person is found to have violated V&T § 1192, the no-fault insurer may sue the covered person to recover the amount of first party benefits paid or payable for that person.

As one who has suspected that some hospitals play hide the toxicology report with no-fault insurers, I had to smile when reading this sentence in the sponsors' Statement in Support: 
By permitting reimbursement for necessary related medical screenings, such as blood alcohol and drug tests, more screenings will occur, underlying drug or alcohol problems will be more frequently identified and addressed, and ultimately fewer drug or alcohol-related injuries will occur.  
We'll see.

If enacted, this bill will take effect 180 days after enactment and will apply to all policies that must afford no-fault insurance which are issued, renewed, modified, altered or amended on or after such date.  Does anyone out there think New York no-fault insurers won't be paying for emergency services to intoxicated persons soon?

Eins, zwei, drei, zuffa!

Tuesday, June 29, 2010

Shooting Your Deer Hunting Partner is Not Nice and Possibly Not Covered

HOMEOWNERS – CRIMINAL ACT EXCLUSION – CRIMINAL NEGLIGENCE
Gruninger v. Nationwide Mut. Ins. Co.
(4th Dept., decided 6/11/2010)

While deer hunting together, Nationwide's insured, Jeffrey Harmer (actual name), shot and injured plaintiff Michael Gruninger.  As a result of the incident, Harmer pleaded guilty to assault in the third degree , a class A misdemeanor, in violation of subsection 3 of section 120.00 of the New York Penal Law, which provides:
A person is guilty of assault in the third degree when:

     3.  With criminal negligence, he causes physical injury to another person by means of a deadly weapon or a dangerous instrument.
After being notified of the incident, Nationwide denied liability coverage to Harmer based on, among other things, the criminal act exclusion of his homeowners policy with Nationwide, which negated coverage for bodily injury "caused by or resulting from an act or omission [that] is criminal in nature and committed by an insured."  Gruninger sued and obtained a money judgment against Harmer, and then brought this action pursuant to New York Insurance Law § 3420(a)(2) against Nationwide, seeking payment of the underlying judgment.  Nationwide successfully moved for summary judgment, and the plaintiffs appealed.

In unanimously AFFIRMING Supreme Court's order granting summary judgment to Nationwide, the Fourth Department agreed that the policy's criminal act exclusion applied to negate liability coverage in favor of Harmer:
In Slayko v Security Mut. Ins. Co. (98 NY2d 289, 292), the defendant's insured had pleaded guilty to assault in the second degree (Penal Law § 120.05 [4]), arising from an incident in which he pointed a shotgun at the plaintiff and pulled the trigger, incorrectly believing that the gun was unloaded. The Court of Appeals concluded that a provision in the insurance policy issued by the defendant excluding coverage for liability “arising directly or indirectly out of instances, occurrences or allegations of criminal activity by the insured'” did not violate public policy and that it properly excluded coverage for the plaintiff's injuries (Slayko, 98 NY2d at 294-296). 

Here, plaintiffs correctly concede that the shooting incident falls within the criminal act exclusion in the homeowners' policy and, based on the Court's decision in Slayko, such an exclusion is not barred by public policy.  Plaintiffs contend, however, that this case is of the sort anticipated by the Court when it acknowledged in Slayko that "[a] case may arise in which a broad criminal activity exclusion . . . facially applies, yet works an injustice because the prohibited act involves little culpability or seems minor relative to the consequent forfeiture of coverage" (id. at 294). We reject that contention. Pursuant to Penal Law § 120.00 (3), "[a] person is guilty of assault in the third degree when . . . [w]ith criminal negligence, he [or she] causes physical injury to another person by means of a deadly weapon or a dangerous instrument." Contrary to plaintiffs' contention, criminal negligence as defined in Penal Law § 15.05 (4) is not synonymous with the common-law negligence standard applied in civil cases (see PJI 2:10), and not every hunting accident would be excluded under the criminal activity exclusion inasmuch as such accidents do not necessarily involve criminal negligence
New York Penal Law § 15.05 defines "criminal negligence" as:
     4. "Criminal negligence."  A person acts with criminal negligence with respect to a result or to a circumstance described by a statute defining an offense when he fails to perceive a substantial and unjustifiable risk that such result will occur or that such circumstance exists.  The risk must be of such nature and degree that the failure to perceive it constitutes a gross deviation from the standard of care that a reasonable person would observe in the situation.
Is there a fundamental difference between the facts of this case and those of the 55-gallon oil drum wielding drunken college student in Massa v. Nationwide, or do the Fourth and Third Departments merely take differing views on the criminal act exclusion and when it applies?  Apparently key to the non-coverage finding in this case was the fact that the insured pleaded guilty to a crime that involved conduct amounting to criminal negligence, rather than just recklessness.

If there is a set of facts that would fall within what the New York Court of Appeals had in mind for a Slayko exception to application of a liability insurance policy's criminal act or criminal activity exclusion, this is not it.

Monday, June 28, 2010

Issues of Fact Preclude Summary Judgment on Whether Insurer is Estopped from Denying Additional Insured Coverage

CGL – ADDITIONAL INSURED – CERTIFICATE OF INSURANCE – ESTOPPEL
Sevenson Envtl. Servs., Inc. v. Sirius Am. Ins. Co.
(4th Dept., decided 6/11/2010)

Plaintiffs submitted a certificate of insurance (COI) providing that they "and their respective officers, employees and agents [we]re named as additional insureds on [Thomas Johnson Inc.'s general liability policy with Sirius on] a direct, primary and non-contributory basis."  They also submitted an additional insured (AI) endorsement naming persons or organizations "as on file with company."  In response, Sirius submitted an affidavit of its third-party claims administrator, who averred that the named insured's underwriting file did not contain any request or notice to name plaintiffs as additional insureds on the policy.

In ruling that Supreme Court properly denied summary judgment to Sirius, the Fourth Department found that the fact that Sirius's third-party claims administrator did not locate any documentation in the named insured's underwriting file was, by itself, insufficient to establish as a matter of law that neither Sirius nor one of its agents possessed documentation naming plaintiffs as additional insureds.

The Fourth Department, however, disagreed with the lower court's ruling that Sirius was estopped from denying AI coverage to the plaintiffs:
It is well established that a certificate of insurance, by itself, does not confer insurance coverage, particularly under the circumstances of this case, in which the certificate expressly provides that it "is issued as a matter of information only and confers no rights upon the certificate holder [and] does not amend, extend or alter the coverage afforded by the policies listed below," e.g., the general liability policy. "A certificate of insurance is only evidence of a carrier's intent to provide coverage but is not a contract to insure the designated party nor is it conclusive proof, standing alone, that such a contract exists" (Tribeca Broadway Assoc., LLC, 5 AD3d at 200; see School Constr. Consultants, Inc. v ARA Plumbing & Heating Corp., 63 AD3d 1029, 1030-1031; Home Depot U.S.A., Inc. v National Fire & Mar. Ins. Co., 55 AD3d 671, 673).

Nevertheless, an insurance company that issues a certificate of insurance naming a particular party as an additional insured may be estopped from denying coverage to that party where the party reasonably relies on the certificate of insurance to its detriment (see Lenox Realty v Excelsior Ins. Co., 255 AD2d 644, 645-646, lv denied 93 NY2d 807; Bucon, Inc. v Pennsylvania Mfg. Assn. Ins. Co., 151 AD2d 207, 210-211). For estoppel based upon the issuance of a certificate of insurance to apply, however, the certificate must have been issued by the insurer itself or by an agent of the insurer (see Tribeca Broadway Assoc., LLC, 5 AD3d at 200; Niagara Mohawk Power Corp. v Skibeck Pipeline Co., 270 AD2d 867, 869; Lenox Realty, 255 AD2d at 646; see also American Ref-Fuel Co. of Hempstead v Resource Recycling, 248 AD2d 420, 423-424).
The Fourth Department held that both parties failed to eliminate all triable issues of material fact regarding whether the COI was issued by or at the direction of an agent of Sirius.

Jury Must Decide Whether a Drunken College Student's Tossing of a 55-Gallon Oil Drum Out of Second Story Frat House Window Onto Students Below Is "Criminal in Nature" and Excluded from Liability Coverage

HOMEOWNERS – INTENTIONAL ACT EXCLUSION – CRIMINAL ACT EXCLUSION – "CRIMINAL IN NATURE"
Massa v. Nationwide Mut. Fire Ins. Co.
(3rd Dept., decided 6/24/2010)

This is a good news/bad news post.  If you live in the Third Department and are injured when a crazed teenager seeking revenge deliberately drives his car over the tent in which you are sleeping at a state park campsite at 6:15 in the morning, or when a hostile, drunken college student hurls a 55-gallon metal oil drum out of a second-story fraternity house window you just told him to get away from onto your head, there may be liability coverage for your assailants.  Good news if you're the injured person; not so good news if you're the miscreant's auto or homeowners insurer.

In New York Cent. Mut. Fire Ins. Co. v Wood, 36 AD3d 1048 (3d Dept 2007), the Third Department affirmed the Supreme Court's denial of summary judgment to Progressive Northeastern, finding there to be a question of fact as to whether Progressive's insured, defendant Charles Young, knew the tent he deliberately drove over at 6:15 in the morning at a state park campsite was occupied.  Young pleaded guilty attempted reckless assault and was sentenced to 11 years in prison.  Said the Court:
Here, Young's assertion that he did not know that the tent was occupied could provide a sufficient basis for a finding that his conduct was merely reckless, rather than intentional or expected. Although one could conclude that Young must have appreciated the substantial risk that a tent would be occupied at such an early hour of the morning, his conduct would not be intentional, but reckless, if he disregarded that known risk in a desire to wreak havoc and damage property, without forming a specific intent to drive over an occupied tent.
In the view of the Third Department, it could not be said as a matter of law that the underlying plaintiff's crushing injuries from having been driven over by the insured's car at 6:15 in the morning were "bodily injur[ies] caused by an intentional act of an insured person or at the direction of an insured person."

It's a tent.  At 6:15 in the morning.  At a campsite where you know people are camping.  And sleeping.  In tents.

Now find and cue Animal House on your DVR.  In this case, the insureds' college-aged son, David Massa, became very intoxicated at a fraternity house and was asked to leave.  He did so, for a while, but later returned and reentered the frat house, where students who were outside saw him standing at an open upstairs window.  The inebriated David threw a piece of garbage toward the students below and "reacted with confusion and hostility" when they told him to move away from the window, which he eventually did.  Thirty seconds after disappearing from the window's opening, a 55-gallon oil drum exited that window and dropped onto one of the students below, injuring that person.  An eyewitness who was upstairs in the fraternity house stated to police that Massa was "really drunk" and said she saw him at the window, apparently about to "dump" what she described as a garbage can outside. She took it away and told him to stop, and Massa pushed her, causing her to fall.  He then "put the oil drum through the window" and let go; it lodged briefly in the window before dropping to the ground.

Is there liability coverage for the drunken David's drum dropping conduct under his parents' homeowners policy?  Supreme Court, Schenectady County (Aulisi, J.) said absolutely, and granted plaintiffs' motion for summary judgment.  While agreeing with the lower court's finding that the policy's intentional act exclusion was inapplicable, the Third Department ruled that a jury must decide whether David's conduct was "criminal in nature", thereby triggering the criminal act exclusion of the parents' homeowners policy with Nationwide applies to negate coverage. 

In rejecting Nationwide's contention that the resulting harm was inherent in the nature and force of David's wrongful act, the appellate court held that Supreme Court properly determined that the intentional act exclusion, which negated coverage for bodily injury "caused intentionally by or at the direction of an insured, including willful acts the result of which the insured knows or ought to know will follow from the insured's conduct", was inapplicable:
The evidence does not conclusively establish that anyone was directly below the window when plaintiff looked outside, that he saw anyone below, or that he knew there was anyone there when he pushed or threw the drum outside. Therefore, there is a possible basis for a factual determination that, from plaintiff's point of view, it was unexpected, unintended, and unforeseen that the drum would strike someone, despite the fact that other interpretations are also possible. 

Defendant contends that plaintiff's actions were nonetheless intentional within the meaning of the exclusion because the resulting harm "'was inherent in the nature and force'" of the wrongful act (Clayburn v Nationwide Mut. Fire Ins. Co., 58 AD3d at 991, quoting Pennsylvania Millers Mut. Ins. Co. v Rigo, 256 AD2d 769, 770 [1998]). However, as no injuries would have occurred if no one had been below the window, the question as to whether plaintiff knew anyone was there prevents a determination, as a matter of law, that "'to do the act [was] necessarily to do the harm which [was] its consequence'" (New York Cent. Mut. Fire Ins. Co. v Wood, 36 AD3d 1048, 1050 [2007], quoting Progressive N. Ins. Co. v Rafferty, 17 AD3d 888, 889 [2005]). 
David's parents' homeowners policy with Nationwide also contained a criminal act exclusion, which negated liability coverage for injury "caused by or resulting from an act or omission which is criminal in nature and committed by an insured ... regardless of whether the insured is actually charged with, or convicted of a crime[.]"  In this case, David had been charged with second degree assault, a felony, but pleaded guilty only to disorderly conduct, a violation.

In MODIFYING the order appealed from to deny both parties' summary judgment motions on the criminal act exclusion of the Massas' policy, the Third Department held:
Disorderly conduct is a violation rather than a felony or misdemeanor (see Penal Law § 240.20)[FN1] and, thus, is not a "crime" as defined in the Penal Law (see Penal Law § 10.00 [3], [6]; De Paulo v City of Albany, 49 NY2d 994, 995-996 [1980]). However, conduct may be found to be "criminal in nature" without regard to whether it led to actual criminal prosecution or conviction (see New York Cent. Mut. Fire Ins. Co. v Nationwide Mut. Ins. Co., 307 AD2d 449, 451 [2003]; see also Kehoe v Nationwide Mut. Fire Ins. Co., 299 AD2d 318, 319 [2002]). Defendant contends that plaintiff's conduct was "criminal in nature" even if his intoxication prevented him from forming an intention to cause injury and therefore from committing intentional assault (see Penal Law § 120.00 [2]), because proof of voluntary intoxication does not negate recklessness (see Penal Law § 15.05 [3]; People v Johnson, 277 AD2d 702, 704 [2000], lv denied 96 NY2d 831 [2001]). In defendant's view, plaintiff's conduct was criminally reckless.

"A person acts recklessly . . . when that person is aware of and consciously disregards a substantial and unjustifiable risk of a result, where the risk is of such a nature and degree that to disregard it constitutes a gross deviation from the standard of conduct of a reasonable person" (Allstate Ins. Co. v Zuk, 78 NY2d 41, 46 [1991]; see Penal Law § 15.05 [3]). As previously discussed, there is a triable issue of fact as to whether plaintiff was aware that someone was below the window. Moreover, neither of the two witnesses who described the accident to police has been deposed or cross-examined. Their statements in the police report do not decisively demonstrate that plaintiff necessarily intended to throw the can through the window. Thus, there are triable issues of fact deserving of further inquiry as to whether plaintiff consciously disregarded a substantial risk that his conduct would cause injury. Construing the exclusion narrowly against the insurer (see Pepper v Allstate Ins. Co., 20 AD3d at 635), we find that these factual issues prevent a determination as to whether plaintiff's conduct was "criminal in nature" as a matter of law.

Defendant did not demonstrate "that there is no possible factual or legal basis on which [it] may eventually be held liable under its policy" (First State Ins. Co. v J & S United Amusement Corp., 67 NY2d 1044, 1046 [1986]; accord Allstate Ins. Co. v Kemp, 144 AD2d 853, 854 [1988]). Thus, defendant was not entitled to a declaratory judgment in its favor as to the applicability of the criminal act exclusion, and Supreme Court properly denied its cross motion for summary judgment.    Further, as defendant did not demonstrate that the allegations of negligence in the underlying complaint "cast [the] pleading solely and entirely within the policy exclusions, and, further, that the allegations, in toto, are subject to no other interpretation" (Pennsylvania Millers Mut. Ins. Co. v Rigo, 256 AD2d at 770 [internal quotation marks and citations omitted]), summary judgment was properly granted to plaintiffs as to defendant's broad duty to provide a defense in the underlying action. However, summary determination as to defendant's narrower duty to indemnify was inappropriate, as we find triable issues of fact as to whether plaintiff's conduct was criminal in nature (see Zuckerman v City of New York, 49 NY2d 557, 562 [1980]. That determination must await trial on a full record in the declaratory judgment action (compare Allstate v Zuk, 78 NY2d at 47). 
 It's a 55-gallon oil drum, for Pete's sake.  Pushed or hurled from an open, second story frat house window at a frat party.  Where students are known to congregate, both inside and outside the house.  Not surprisingly striking a student below.  Not intentional?  Not criminal?  Was liability insurance coverage designed to respond to these kind of acts?  I understand the desire to find compensation sources for injured parties, but Wood and this case distort my notion of liability insurance, which I though was meant to cover accidentally and fortuitously caused injuries and damages.

Saturday, June 26, 2010

Coverage Counsel Nominated to LexisNexis Insurance Law Community's Top 50 Blogs of 2009



I'm pleased to learn that Coverage Counsel has once again been nominated for LexisNexis' Top 50 Insurance Blogs for 2009.  Compiled by LN's Insurance Law Community (ILC), the list of nominees currently numbers 74 blogs.  It describes this blog as:
Coverage Counsel

http://nycoveragecounsel.blogspot.com/

Published by Mura & Storm

Roy A. Mura is the insurance coverage & fraud attorney, grammarian, blogger, and angler behind this blog, which provides a rolling dialogue about New York insurance coverage cases and issues. The analysis is spot-on, and Mura's in-depth commentary and quick wit is both engaging and informative. 
Thanks for the kind words, LN.  If you would like to nominate a new blog or say what you think about an existing nominee (like Coverage Counsel), you'll have to post a comment on the list.  Nominations for additions to the nominees' list will be taken through July 6, 2010.  Click here to register for the ILC (it's free), and then visit the list and post a comment to nominate your favorite insurance blog or to give props to one already on the list. 

After the Top 50 Insurance Blog honorees are selected by ILC's Advisory Board, community members will be asked to vote for Top Insurance Blogs of the Year by categories.  I'll let Coverage Counsel readers know when the voting begins.  Meanwhile, click over to the nominees' list and check out the offerings of this country's best insurance bloggers. 

Thursday, June 17, 2010

South Brooklyn No-Fault DME Fraud Indictments Announced

SEVENTEEN INDIVIDUALS CHARGED AND TWELVE LOCATIONS SEARCHED IN MAJOR HEALTH CARE FRAUD AND MONEY LAUNDERING PROSECUTION

On June 15, 2010, United States Attorney Loretta E. Lynch announced four separate indictments charging 17 individuals for their participation in health care fraud and money laundering schemes in the Eastern District of New York.  In addition, agents of Immigration and Customs Enforcement (ICE), the Federal Bureau of Investigation, and Internal Revenue Service searched offices of 12 durable medical equipment retail companies located in South Brooklyn that were operated by the defendants and seized assets from bank accounts maintained by the defendants’ retail companies.

According to the indictments, the defendants filed fraudulent claims with private insurance companies with no-fault insurance plans.  Specifically, the defendants – through their retail companies – allegedly submitted false invoices to the insurance companies for reimbursable expenses for durable medical equipment at prices well in excess of the price paid by the defendants, as well as for durable medical equipment that was never obtained.   The indictments allege that it was also part of the defendants’ schemes to engage in financial transactions to conceal the identity, source, and destination of the fraudulent proceeds by “laundering” them through checks they issued to the same wholesale companies.   The checks were then negotiated at check cashing stores and the resulting cash was delivered back to the defendants.

According to the U.S. Attorney's press release, the indicted defendants are:

ALEKSANDR AFANASEV
Age: 44
EDUARD BODRUNOV
Age: 49
GRIGORY BRANFENBRENER
Age: 57
GENNADIY BRONSHTEYN
Age: 51
LYUBOV GROYSMAN
Age: 56
VLADIMIR KHMELNITSKI
Age: 45
ILIYA MUGERMAN
Age: 46
BELA RUD
Age: 38
VIKTOR SEMERIK
Age: 44
ARKADI SHAPIRO
Age: 59
DENIS ZAGLADKO
Age: 29
IGOR SHTURMAN
Age: 48
MARIYA GOMELSKAYA\
Age: 27
IGOR VETUKH
Age: 50
ANDREI KOZLOVSKI
Age: 42
IGOR LADANOV
Age: 28
ARTEM YURYEV
Age: 31

The press release notes that the charges announced are merely allegations, and the defendants are presumed innocent unless and until proven guilty.

Wednesday, June 16, 2010

Graves Amendment Held to Exempt Car Sharing Company from Vicarious Liability

PERSONAL AUTO – GRAVES AMENDMENT – VICARIOUS LIABILITY – VEHICLE & TRAFFIC LAW § 388
Minto v. Zipcar New York, Inc.
(Sup. Ct., Queens Co., decided 6/15/2010)

For all actions commenced on or after August 10, 2005, the "Graves Amendment" provides persons or companies engaged in the trade or business of renting or leasing motor vehicles 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.
This case addresses the question of whether a car sharing business, such as Zipcar,  can be said to be "engaged in the trade or business of renting or leasing motor vehicles" within the meaning of the Graves Amendment.  In the opinion of Queens County Supreme Court Justice Roger Rosengarten, it can and it is.

This personal injury action arose from a May 25, 2009 motor vehicle collision, in which plaintiff Leslie Minto alleged that his vehicle was rear-ended while stopped at a red light by a vehicle driven by defendant Dale Douglas.  Douglas had the use and possession of his vehicle pursuant to his membership in defendant Zipcar New York, Inc.  Zipcar is a membership-based business that, after an application process and pursuant to a “membership contract,” provides cars to its members for an hourly or daily charge.  Gas and insurance are included in the hourly or daily charge.  Zipcar had leased the vehicle Douglas was driving from its title owner, non-party Union Leasing.

Plaintiff moved for summary judgment on the issue of liability against both Douglas and Zipcar.  In opposition to plaintiff's motion, Zipcar initially argued that it could not be held vicariously liable under New York Vehicle & Traffic Law § 388 because it was not the "owner" of that vehicle, as that term is defined in Vehicle and Traffic Law § 128.  The court rejected that argument, finding that Zipcar had obtained exclusive use of the vehicle from Union Leasing pursuant to the vehicle's lease.  In the opinion of the court, the fact that Zipcar relinquished exclusive use of the vehicle to its members did not alter that conclusion.

Zipcar also argued that the Graves Amendment applied to exempt it from vicarious liability under Vehicle & Traffic Law § 388 because it was in the "business of renting or leasing motor vehicles".  In response to that argument, plaintiff pointed out that Zipcar's own website distinguishes its vehicles from "traditional rental cars", telling prospective customers that being a Zipcar member is “more convenient, cost-effective and more fun than renting” and “you could rent a car (but that would be silly)”.  On that point, the court found, however, that "these marketing statements do not resolve the question presented by Plaintiff’s motion. That Zipcar advertises itself by drawing contrasts to 'traditional rental cars,' does not foreclose the possibility that it is nevertheless also in the rental car business, although not of a traditional sort."

Turning to the question of whether Zipcar's car sharing business could be said to be the "renting or leasing vehicles" within the meaning of the Graves Amendment, Justice Rosengarten held:
In determining whether the Graves Amendment applies to a car-sharing company such as Zipcar, the Court begins with the statutory text. Maraia v. Orange Regional Med. Center, 63 A.D.3d 1113 [2d Dept. 2009].  The Graves Amendment does not define “the trade or business of renting or leasing motor vehicles,” or its constituent terms “renting” and “leasing.”  The consistent and established understanding of “leasing” is the “transfer of the right to possession and use of goods for a term in return for consideration.” UCC 2-A-103(j); see also First Franklin Sq. Assocs., LLC v. Franklin Sq. Prop. Account, 15 A.D.3d 529, 532 [2d Dept. 2005] (“The central distinguishing characteristic of a lease is the surrender of absolute possession and control of property to another party for an agreed-upon rent.”); Black’s Law Dictionary (8th Ed., 2004) (“To grant the possession and use of (land, buildings, rooms, movable property, etc.) to another in return for rent or other consideration.”)  Black’s Law Dictionary defines “rent,” used as a noun, as the “[c]onsideration paid, usu. periodically, for the use or occupancy of property (esp. real property).” (8th Ed., 2004.) “When used as verbs, the words ‘lease’ and ‘rent’ are synonymous.” Zizersky v. Life Quality Inc., 21 Misc. 3d 871, 878 [N.Y. Sup. 2008] (citing Richards v. Princeton Ins. Co., 178 F Supp 2d 386, 395 [SD NY 2001]).  Zipcar’s contract with Douglas allowed him to “use Zipcar’s vehicles, to the extent available, in accordance with the terms of this Contract and subject to paying the corresponding fees.” (Supp. Opp., Exh. C.)  This bargain – use of a car in exchange for a fee – appears little different from “traditional rental car[ ]” companies, notwithstanding Zipcar’s marketing statements that contrast it with those companies. The Court finds that Zipcar is in “the trade or business of renting or leasing motor vehicles” as those words are traditionally and plainly understood.
The court also found that the allegation in plaintiff's complaint that Zipcar was negligent “in the manner they rented their vehicles to the people” did not preclude summary judgment from being granted to Zipcar.  While acknowledging that the Graves Amendment does not preempt such claims of direct negligence, the court noted that plaintiff did not attempt to offer any evidence or argument in support of these allegations in its moving papers:
The only relevant evidence offered is by Zipcar, which states in a sworn affidavit from a company official that its policies require a valid driver’s license for at least one year and no record of an alcohol violation for at least seven years prior to renting, and that these policies were followed before renting to Douglas. (Zipcar Opp. Exh. A.) With the record containing no conflicting evidence, the Court finds Plaintiff’s claim for direct negligence cannot withstand summary judgment.
In light of the plaintiff's attempted use of Zipcar's marketing statements to disqualify it from the Graves Amendment's vicarious liability exemption in this case, will Zipcar change its website statements to distance itself less from traditional car rental businesses? 

To read more Coverage Counsel posts about New York cases involving the Graves Amendment, click here.

No Coverage for a Non-Non-Owned Car

PERSONAL AUTO – NON-OWNED CAR – HOUSEHOLD RESIDENT RELATIVE – TIMELY DISCLAIMER – INSURANCE LAW § 3420(D)(2)
Konstantinou v. Phoenix Ins. Co.
(4th Dept., decided 6/11/2010)

David Thurston was operating his sister Tynette Thurston's Chevy Celebrity when he crashed into the plaintiff's vehicle, killing that vehicle's passenger and seriously injuring its driver.  Plaintiff sued the Thurston siblings and their mother, Brenda Henderson, with whom they allegedly resided.  After obtaining a judgment against the Thurston siblings, plaintiff commenced this action pursuant to New York Insurance Law § 3420(a)(2) and (b)(1) against Henderson's personal auto insurer, Phoenix Insurance Company, for liability coverage under Henderson's policy with Phoenix.  Wayne County Supreme Court (Kehoe, J.) granted Phoenix's motion for summary judgment, dismissing the complaint, and plaintiff appealed.

Henderson's personal auto policy with Phoenix provided:
We will pay damages for which the insured becomes legally responsible because of bodily injury or property damage caused by accident and arising out of the ownership, maintenance or use of your car or any non-owned car.
The policy listed Henderson as the only named insured and a Chevrolet Lumina as the only covered vehicle. The policy defined "your car" as, among other things, "any vehicle described on the declarations page of [the] policy." Because the Celebrity was not listed on the declarations page, it was not covered under the "your car" category.

The policy also defined a "non-owned car" as
a land motor vehicle with at least four wheels designed to be used mainly on public roads, or a trailer. However, it must not be owned by or furnished or available for the regular use of you or a relative.
 The policy further explained that "You and your mean the person [listed as the named insured on the declarations page, i.e., Henderson, and that] . . . Relative means your relative, residing in your household."

In AFFIRMING the order granting summary judgment to Phoenix, the Fourth Department concluded that the Celebrity did not qualify as a "non-owned car" under Henderson's policy with Phoenix because it was owned by Tynette Thurston, Henderson's daughter and resident of Henderson's household, and was available for the regular use of David Thurston, Henderson's son and also resident of Henderson's household.  The appellate court also held that the timely disclaimer requirement of New York Insurance Law § 3420(d) did not apply because the Celebrity did not qualify as a covered vehicle under the Phoenix policy, and plaintiff's claim fell outside the scope of coverage of that policy:
Contrary to plaintiff's contention, the court properly determined that the Thurston siblings were relatives of Henderson who resided in her household and that the Celebrity therefore was not a "non-owned car" for which defendant would be required to provide coverage with respect to the accident in question. A person is a resident of a household for insurance purposes if he or she " lives in the household with a certain degree of permanency and intention to remain' " (Matter of State Farm Mut. Auto. Ins. Cos. v Jackson, 31 AD3d 1171, 1171). Although Tynette Thurston lived at college at the time of the accident, defendant submitted evidence in support of the motion establishing that she was a resident of the household inasmuch as she lived with Henderson during the summers, received mail at Henderson's house, stayed there every other weekend, and listed that address on the Celebrity's title and insurance (see Dutkanych v United States Fid. & Guar. Co., 252 AD2d 537, 538; see also Matter of Prudential Prop. & Cas. Ins. Co. [Galioto], 266 AD2d 926). Thus, because the Celebrity was owned by a relative of Henderson who was a resident of her household, it was not a "non-owned car" under the terms of the policy entitled to coverage by defendant. 

Moreover, it was undisputed that David Thurston was a relative of Henderson who was a resident of her household, and defendant submitted evidence in support of the motion establishing that the Celebrity was available for his regular use inasmuch as he had unrestricted access to the Celebrity while Tynette Thurston was at college and had used it several times prior to the accident (see generally Newman v New York Cent. Mut. Fire Ins. Co., 8 AD3d 1059, 1060). Thus, the Celebrity also was not a "non-owned car" within the meaning of the policy because it was available for the regular use of a relative of Henderson who was a resident of her household. 

Contrary to plaintiff's further contention, the Celebrity is not entitled to coverage under Henderson's policy with defendant on the ground that defendant failed to disclaim coverage in a timely manner. It is well established that "[d]isclaimer pursuant to [Insurance Law § ] 3420 (d) is unnecessary when a claim falls outside the scope of the policy's coverage portion. Under those circumstances, the insurance policy does not contemplate coverage in the first instance, and requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed" (Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188; see State Farm Fire & Cas. Co. v Whiting, 53 AD3d 1033, 1035; see generally Zappone v Home Ins. Co., 55 NY2d 131, 137-139).

Tuesday, June 15, 2010

3-2 Majority of 4th Department Affirms Summary Judgment Dismissing Third-Party Bad Faith Action Against Personal Auto Insurer

PERSONAL AUTO – THIRD-PARTY BAD FAITH FAILURE TO SETTLE – SUMMARY JUDGMENT – JURY QUESTION
Doherty v. Merchants Mut. Ins. Co.
(4th Dept., decided 6/11/2010)

New York's third-party bad faith failure to settle within policy limits standard is:
"To prevail in . . . an action [seeking damages for an insurer's bad faith refusal to settle an underlying action], a plaintiff must establish that the insured lost an actual opportunity to settle the . . . [action] . . . at a time when all serious doubts about [his or her] liability were removed . . ., and that defendant insurer [acted with gross disregard for the insured's interests, i.e., it] engaged in a pattern of behavior evincing a conscious or knowing indifference to the probability that [the] insured would be held personally accountable for a large judgment if a settlement offer within the policy limits were not accepted." Kumar v American Tr. Ins. Co., 57 AD3d 1449, 1450 [internal quotation marks omitted]; see Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445, 453-454, rearg denied 83 NY2d 779).
Merchants' insured, Fitzpatrick, rear-ended Doherty, allegedly injuring her.  Doherty sued Fitzpatrick, who had a $300,000 personal auto policy with Merchants, for her injuries and, according to the three-justice majority's and two-justice dissent's memorandum opinions:
  • Doherty and her husband presented medical testimony and opinion that she had sustained a significant shoulder injury in addition to permanent injuries at multiple levels of her cervical spine and a disc injury in her lumbar spine at the L5-S1 level;
  • Merchants investigated Doherty's claim and arranged for a physical examination of her to determine the extent of her alleged injuries and whether they constituted a "serious injury";
  • although the expert retained by Merchants and plaintiff's treating physician had differing views of the extent of plaintiff's injuries, Merchants' expert determined that Doherty sustained cervical, thoracic and lumbar strains that resulted in a "moderate, partial, temporary disability for recreational activities and activities of daily living in the home"; 
  • Merchants did not attempt to obtain an IME related to Doherty's shoulder and, in fact, relied upon the limited examination of a neurologist who admitted that she was not qualified to offer an opinion regarding Doherty's shoulder and that accident biomechanics was "a weak point in her expertise";
  • prior to the trial of Doherty's personal injury action, attorneys for both Doherty and Fitzpatrick requested that Merchants settle for the policy limit of $300,000; 
  • prior to trial, Merchants' settlement offer was $10,000;
  • the record was silent as to whether Merchants had evaluated and actually assigned a potential jury verdict value, as compared to a settlement value, to Doherty's personal injury claim;
  • Merchants' claim representative admitted that she never assigned a value or even a value range to the claim and could not recall how she arrived at Merchants' $10,000 pre-trial settlement offer;
  • 20 months before trial, Merchants determined that Fitzpatrick's proportionate share of fault for liability in this rear-end accident was "100%"; 
  • 16 months before trial, Merchants concluded that Fitzpatrick had "no legal defenses" to Doherty's negligence claim;  
  • 10 months before trial, Merchants' claim representative advised Fitzpatrick's defense counsel that a motion for summary judgment on the serious injury threshold was not authorized because Merchants' own "IME indicate[d] [Doherty] is disabled" and that such a motion would not be granted since defendant's "IME was completed on 11/4/03 (1 year and 2 mos after the [date of loss]) indicating [Doherty] is still disabled";
  • one month before trial, Supreme Court denied a motion for summary judgment by Fitzpatrick on the issue of the serious injury threshold;
  • on the first day of trial, Fitzpatrick's defense counsel advised that he needed to revise his exposure opinion and that, if the jury believed that Doherty needed surgery, the potential exposure was above $250,000, in response to which Merchants increased its settlement offer to $25,000;
  • Merchants' investigation included videotaped surveillance of Doherty engaged in activities without apparent difficulty, despite her alleged injuries;
  • Merchants participated in settlement negotiations prior to and during the trial and the trial judge (Erie Supreme Court Justice John Curran) was actively engaged in the settlement negotiation process;
  • prior to trial, Doherty and her husband reduced their settlement demand to $250,000 and, four days into trial, they further reduced their demand to $240,000;
  • in response to plaintiffs' reduced settlement demand, Merchants increased its settlement offer from $25,000 to $55,000, but plaintiffs' counsel declined to negotiate further;
  • after the trial commenced, Merchants made a "high-low" settlement offer that was "not well received" and was rejected; 
  • the videotape surveillance showed Doherty, stay-at-home mother of two children ages 5 and 7, engaging in "activities without apparent difficulty," including carrying her children; the jury included four women who, according to the dissent, "might understand and sympathize with Doherty's lack of choice in engaging in those activities while Doherty's husband worked at two jobs";
  • Merchants was never prepared to offer the policy limits in that the claim manager's settlement authority was limited to $150,000, Merchants' claim manager testified that he never spoke with his supervisor concerning authorization to offer a greater amount;  and
  • the jury returned a verdict against Fitzpatrick for $740,000, $500,000 of which was for future pain and suffering; of the $300,000 limit of Fitzpatrick's insurance policy with Merchants, the sum of $289,489 was available after other claims had been paid.
Fitzpatrick assigned his cause of action for Merchants' alleged third-party bad faith failure to settle within policy limits to Doherty, and she commenced this action directly against Merchants.  Merchants successfully moved for summary judgment dismissing plaintiffs' complaint, and plaintiffs appealed.

In AFFIRMING the order appealed from, the three-justice majority held:
We conclude that defendant established that Fitzpatrick did not lose an actual opportunity to settle the claim at a time when all serious doubts about his liability were removed and it was clear that the potential recovery far exceeded the insurance coverage (see id.), and thus that it did not act with gross disregard for Fitzpatrick's interests (see id. at 453). We therefore conclude that defendant established its entitlement to summary judgment dismissing the complaint, and that plaintiffs failed to raise a triable issue of fact in opposition (see generally Zuckerman v City of New York, 49 NY2d 557, 562). 
The two-justice dissent disagreed, believing that there was sufficient evidence of Merchants' alleged bad faith to submit that issue to a jury for determination:
Necessarily inherent in an insurer's duty to its insured is a well-reasoned and thorough analysis leading to the establishment of a predicted jury verdict value in the event of a verdict in favor of the injured claimant (see PJI 4:67). The record is devoid of any assertion by defendant that it had evaluated and actually assigned a potential jury verdict value, as compared to a settlement value, to Doherty's personal injury claim. Indeed, defendant's claim representative admitted that she never assigned a value or even a value range to the claim and could not recall how she arrived at the $10,000 settlement offer that remained in place until the first day of trial, when it was increased to $25,000. The record does not contain evidence of any analysis by defendant of the potential for high-end jury verdicts in the trial venue or any examination of jury verdict reports in cases with similar injuries in similar venues. Thus, in our view, on this record, defendant utterly failed to satisfy one of the most fundamental factors essential to a finding of good faith.

Although the majority concludes that defendant "investigated the claim in the underlying action," we submit that the quality and thoroughness of that investigation should be the subject of careful review. It is for the jury to decide if "[a] reasonable investigation of the facts . . . would indicate that the chances of successfully defending the [underlying] action were very remote" (State of New York v Merchant's Ins. Co. of N.H., 109 AD2d 935, 936).

* * * * *

We disagree with the majority's conclusion that defendant's participation in settlement negotiations is indicative of its good faith. Even the ultimate tender of full policy limits on the eve of trial cannot insulate an insurer from liability for bad faith failure to settle within policy limits (see Knobloch v Royal Globe Ins. Co., 38 NY2d 471, 478). Here, on the first day of trial, defendant's counsel advised that he needed to revise his exposure opinion and that, if the jury believed that Doherty needed surgery, the potential exposure was above $250,000. Although defendant had no expert to rebut Doherty's need for shoulder surgery, its settlement offer remained at $25,000. Four days into trial, defendant's settlement offer was increased to $55,000. The settlement demand of Doherty and her husband was $240,000—well within the policy limits and below the potential exposure indicated by defendant's counsel. Their counsel thereafter declined to continue negotiations and an opportunity to settle within the policy limits had been lost. To the extent that defendant contends that Doherty and her husband cut off settlement discussion or denied defendant an opportunity to settle, the jury could reasonably conclude that their decision to do so "was the direct result of defendant's own conduct" because "[d]efendant never indicated that it would make a fair and reasonable offer and, by failing to do so, defendant suppressed negotiations" (State of New York v Merchants Ins. Co. of N.H., 109 AD2d 935, 937).

We also recognize that opportunities to settle the claim within the policy limits can be lost at various points in the evolving continuum of the litigation and claim management process. In our view, an opportunity to settle the claim may be lost early in the process and may not be recovered or the bad faith cured by subsequent conduct. In other words, we do not believe that an insurer's bad faith is measured at the moment before the jury returns a verdict. Instead, conduct by the insurer weeks or months before the jury verdict may have entrenched the parties or foreclosed the opportunity for settlement long before a jury is empaneled. Thus, in our view, the fact that defendant made a "high-low" offer four days after the trial commenced is not dispositive. Even assuming, arguendo, that the "high-low" offer was meaningful, which, in our view, it was not, such "a belated tender [does not] operate without more to exonerate a carrier from a pre-existing liability for bad-faith failure to settle within policy limits" (Knobloch, 38 NY2d at 478 [emphasis added]). Our own precedent establishes that the delayed unconditional making of a settlement offer of the full policy limits does not automatically relieve the carrier of liability (see Reifenstein v Allstate Ins. Co., 92 AD2d 715, 716). It is not the mere fact that a "high-low" offer was made, but also the timing of that offer that must be evaluated in light of all the circumstances. Therefore, we cannot agree with the majority that defendant's "high-low" offer conclusively demonstrates that defendant met its good faith obligation. Instead, it is "but a factor for the jury to consider on the question of bad faith" (id. at 716).

Lastly, in our view, the contention of defendant that its reliance upon the trial court's discussions during settlement conferences provides some form of absolution from a bad faith claim is misplaced. We conclude that, had the trial court recommended a settlement figure more favorable to Doherty, such as $700,000, defendant would have summarily rejected the trial court's view. In any event, we are well aware that, during settlement conferences, a trial court is not provided full access to the files and investigative materials of the parties. In our view, defendant's good faith is measured by what it knew and had in its files—not by a trial court's view of the case based upon limited information provided during a settlement conference.

Therefore, we conclude that there are issues of fact whether defendant "engaged in a pattern of behavior evincing a conscious or knowing indifference to the probability that [its] insured would be held personally accountable for a large judgment if a settlement offer within the policy limits were not accepted" (Pavia, 82 NY2d at 453-454; see Kumar v American Tr. Ins. Co., 57 AD3d 1449).

    Monday, June 14, 2010

    Thursday, June 10, 2010

    How to Lose a Rate Evasion Defense in Arbitration

    NO-FAULT – APPLICATION FRAUD – MATERIAL MISREPRESENTATION – RATE EVASION – ARBITRATION
    Matter of Comprehensive Psychological Evaluation PC and Esurance Insurance Co.
    AAA Case No. 412009047088
    Arbitrator Andrew M. Horn, decided 3/31/2010

    While doing some research earlier this week on no-fault claim presentment fraud and the concept of "fraud in part, fraud in whole" as it applies to no-fault claims, I ran across a number of American Arbitration Association no-fault arbitration decisions on policy procurement or application fraud and misrepresentation. 

    Provable insurance fraud is often a moving target, as insureds and claimants are often slippery and indefinite in their answers about conduct suspected to have been fraudulent.  Sometimes what looks like, sounds like and walks like a duck, however, turns out to not be a duck.  And sometimes even honest insureds and claimants who perceive they are being investigated for possible fraud understandably will be guarded in their answers, requiring more effort in obtaining definite and precise answers.  My experience is that insurers know this and require an appreciable quantum of evidence before they will deny a claim based on fraud in the policy application, loss commission, or claim presentment. 

    This was a $339 claim for a psychiatric diagnostic interview examination, psychotherapy and review of records by the applicant's owner.  The insurer denied and defended the claim based on the assignor's asserted policy application misrepresentation about her residence, a/k/a rate evasion.  Arbitrator Horn's decision lays out  a road map of what a no-fault insurer must do to establish a rate evasion/application material misrepresentation defense, economies of scale notwithstanding.

    Fatal to Esurance's application fraud defense in this matter were:
    • what Arbitrator Horn determined was unclear and indefinite proof from the assignor's EUO of her misrepresentations about her Rhinebeck, New York residence in applying for her personal auto policy;
    • the lack of the policy application offered into evidence; and
    • the lack of an underwriter's affidavit averring either that the policy would not have been issued or that its premium would have been higher had the assignor revealed her Brooklyn residence address.
    The fact that Esurance's counsel, who appeared by telephone, attempted to prove that the Rhinebeck address given by the assignor during the application process was a commercial building by stating that she had called the building's owner and he had told her so probably didn't help. 

    Arbitration Horn's decision does set forth some seminal statutory and case law on this issue, however, that is worth bookmarking:
    Applicant's attorney objected to the timeliness of the denial. However, I find that it was made within the statutory 30-day period as extended by a valid and timely verification request -- namely, the EUO of the provider's assignor. In any event, "the defense of fraudulent procurement of an insurance policy ... is nonwaivable and hence exempt from the 30-day preclusion rule, (and) may be asserted as against ... providers in this action seeking to recover assigned no-fault benefits". A.B. Med. Servs. PLLC v. Commercial Mut. Ins. Co., 12 Misc.3d 8, 2006 NY Slip Op 26118 (App Term 2d Dept.).

    * * * * *

    In the arena of No-Fault insurance coverage, it is well settled that a policy cannot be cancelled retroactively under Insurance Law § 3105 (b) even if an insured has made misrepresentations in procuring it. See, e.g., Matter of Insurance Co. of N. Am. v. Kaplun, 274 A.D.2d 293, 713 N.Y.S.2d 214 (2000); Matter of Liberty Mut. Ins. Co. v. McClellan, 127 A.D.2d 767, 512 N.Y.S.2d 161 (1987); Teeter v. Allstate Ins. Co., 9 A.D.2d 176, 192 N.Y.S.2d 610 (1959), affd 9 NY2d 655, 173 N.E.2d 47, 212 N.Y.S.2d 71 (1961). Rather, Vehicle and Traffic Law § 313 "supplants an insurance carrier's common-law right to cancel a contract of insurance retroactively on the grounds of fraud or misrepresentation, and mandates that the cancellation of a contract pursuant to its provisions may only be effected prospectively".  Matter of Liberty Mut. Ins. Co. v. McClellan, 127 A.D.2d 767, 769, 512 N.Y.S.2d 161 (1987).  See Cruz v New Millennium Constr. & Restoration Corp., 17 A.D.3d 19, 793 N.Y.S.2d 548, 2005 N.Y. Slip Op. 02336 (3rd Dept., March 24, 2005); Matter of Insurance Co. of N. Am. v. Kaplun, 272 A.D.2d 293 (2d Dept. 2000). See DiDonna v. State Farm Mut. Auto. Ins. Co., 259 A.D.2d 727, 687 N.Y.S.2d 175 (1999).

    The statute "places the burden on the insurer to discover any fraud before issuing the policy, or as soon as possible thereafter, and protects innocent third parties who may be injured due to the insured's negligence". Matter of Insurance Co. of N. Am. v. Kaplun, 272 A.D.2d 293 (2d Dept. 2000). (There has been no allegation that the instant insurance carrier effectively cancelled the subject insurance policy pursuant to section 313 prior to the accident).

    However, case law has made clear that whereas the policy may not be retroactively cancelled, thereby protecting "innocent third parties who may be injured due to the insured's negligence", Id. at 298, in "an action to recover benefits under a policy, the insurance carrier may assert as an affirmative defense that the insured's misrepresentations and/or fraud in obtaining the policy precludes any recovery by the insured". Id. at 298-299. See AA Acupuncture Serv., P.C. v. Safeco Ins. Co. of Am., 25 Misc.3d 30, 2009 NY Slip Op 29311 (App Term 1st Dept.); A.B. Med. Servs. PLLC v. Commercial Mut. Ins. Co., 12 Misc.3d 8, 2006 NY Slip Op 26118 (App Term 2d Dept.).

    To be entitled to bar recovery, an insurer must establish by clear and convincing evidence that an applicant obtained the subject insurance policy by making “material misrepresentations” on the insurance policy application. See Insurance Law § 3105 (b). A misrepresentation is deemed “material” if “knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such contract”. Id.
    Without clear and convincing proof of both a misrepresentation and the materiality of that misrepresentation, a policy application fraud/misrepresentation defense will fail.  Every time.  Even if the amount in dispute is only $339.

    Tuesday, June 8, 2010

    Injured Motorcyclist Not Entitled to Uninsured Motorists Benefits Under His Father's Personal Auto Policy -- Owned But Not Insured Motor Vehicle Exclusion of SUM Endorsement Applied

    UM/SUM – OWNED VEHICLE EXCLUSION
    Matter of New York Cent. Mut. Fire Ins. Co. v. Polyakov
    (2nd Dept., decided 6/1/2010)

    Polyakov drove his motorcycle into the rear of Tsismanakis's automobile while it was stopped at a traffic light on Coney Island Avenue in Brooklyn. Polyakov reported to the responding police officer that an unidentified vehicle struck his motorcycle causing him to swerve and hit the Tsismanakis vehicle. At the time of the accident, Polyakov's father had an automobile insurance policy issued by New York Central Mutual Fire Insurance Company. The only vehicle named under that policy as a covered vehicle, however, was a 2001 Nissan Maxima owned by Polyakov's father.

    Polyakov' retained counsel, who notified NYCM that Polyakov intended to file both no-fault and uninsured motorists coverage claims under Polyakov's father's policy with NYCM.  Counsel advised NYCM that Polyakov was involved in the accident while he "occupied [an] uninsured vehicle" and that he was the son of and a member of the named insured's household. In his application for no-fault benefits, Polyakov asserted that the owner of the motorcycle he was driving was "unknown at this time."

    NYCM subsequently denied Polyakov's claim for supplementary uninsured/underinsured motorists coverage benefits based on its investigation, which revealed that Polyakov was the titled owner of the motorcycle he was riding at the time of the accident, but which was not an insured vehicle under the subject policy.  In denying Polyakov's UM claim, NYCM cited the SUM endorsement's owned vehicle exclusion, which provided:
    This SUM coverage does not apply . . . [t]o bodily injury to an insured incurred while occupying a motor vehicle owned by that insured, if such motor vehicle is not insured for SUM coverage by the policy under which a claim is made.
    Polyakov demanded arbitration of his UM claim, and NYCM commenced this special proceeding to stay that arbitration.  The Supreme Court denied NYCM's petition and directed the parties to proceed to arbitration.

    In REVERSING the Supreme Court's order and granting NYCM's petition, the Second Department held:
    The policy language in question was not ambiguous, and the petitioner was entitled to have the provisions it relied on to disclaim coverage enforced (see Matter of USAA Cas. Ins. Co. v Hughes, 35 AD3d 486, 487-488; see generally Baughman v Merchants Mut. Ins. Co., 87 NY2d 589, 592; Government Empls. Ins. Co. v Kligler, 42 NY2d 863, 864-865). The SUM endorsement under the subject policy provided, in relevant part, that "This SUM coverage does not apply . . . [t]o bodily injury to an insured incurred while occupying a motor vehicle owned by that insured, if such motor vehicle is not insured for SUM coverage by the policy under which a claim is made." This language is not ambiguous and the terms must be construed according to their plain and ordinary meaning. This policy exclusion unambiguously excluded from SUM coverage compensation for bodily injuries sustained by an insured when injured in a motor vehicle accident with an uninsured vehicle, while occupying a motor vehicle he or she owns, which vehicle was not covered under the policy (see Matter of USAA Cas. Ins. Co. v Hughes, 35 AD3d at 488; Matter of Utica Mut. Ins. Co. v Reid, 22 AD3d 127, 129; Matter of New York Cent. Mut. Fire Ins. Co. [Prehoda], 231 AD2d 829, 829-830). There is no dispute that Polyakov, at the time of the accident, was occupying a vehicle, the motorcycle, that he owned but that was not covered under the subject policy. 
    The Appellate Division also rejected Polyakov's contention that UM coverage was available under Part C--Uninsured Motorists Coverage of his father's personal auto policy with NYCM, finding:
    [T]he exclusion from coverage also would have been applicable under the mandatory uninsured motorists provision of the policy, which similarly provides that the petitioner does "not provide Uninsured Motorists Coverage for bodily injury' sustained: 1. By an insured while occupying', or when struck by, any motor vehicle owned by that insured' which is not insured for this coverage under this policy." However, as the petitioner correctly argues, the mandatory uninsured motorists provision was removed from the subject policy by amendment pursuant to Section III of the Amendment of Policy Provisions - New York, and the SUM endorsement was added (see generally 11 NYCRR 60-2.3[e]).

    Thursday, June 3, 2010

    New York Court of Appeals Revisits & Reiterates Scope of Additional Insured Coverage

    CGL – SCOPE OF ADDITIONAL INSURED COVERAGE – "ARISING OUT OF" NAMED INSURED'S OPERATIONS FOR ADDITIONAL INSURED
    Regal Constr. Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA
    (Ct. Apps., decided 6/3/2010)

    Few insurance coverage issues have generated as much litigation in New York as the issue of the scope and priority of additional insured coverage has.  This blawg's additional insured label currently numbers 41 related posts, including this one.  As long as New York maintains its "Scaffolding Law" -- Labor Law § 240(1) -- and the absolute liability it imposes on construction project owners and general contractors for gravity-related injuries to subcontractors' employees, CGL insurers for named insureds likely will continue to scrutinize and litigate tenders by parties claiming additional insured status and protection under the named insureds' policies. 

    In May 2008, the New York Court of Appeals issued its unanimous decision in Worth Constr. Co., Inc. v Admiral Ins. Co., 10 NY3d 411 (2008), reversing the First Department and finding no AI coverage to be owed because there was no proximate causal connection between the the named insured's work (fabrication and installation of a staircase), which the Court characterized as "merely the situs of the accident", and the accident.

    Almost immediately after Worth was issued, commercial liability insurers began debating its meaning and impact on claims and tenders for AI coverage in construction accident cases.  This is one of those cases, and with two First Department justices dissenting based, in part, on their interpretation of Worth, the Court of Appeals presumably granted leave to appeal so it could clarify its ruling in that case.

    The City of New York (owner) engaged URS Corporation as the construction manager for a renovation project at Rikers Island.  URS in turn hired plaintiff Regal Construction Corporation to serve as a prime contractor for general construction at the project, including demolition and renovation. The written agreement between Regal and URS required Regal to procure a CGL insurance policy naming URS as an additional insured.  Accordingly, Regal obtained a CGL insurance policy from plaintiff Insurance Corporation of New York (INSCORP), which named URS as an "additional insured."  The AI language of Regal's policy with INSCORP provided that Regal's insurance covered URS
    only with respect to liability arising out of [Regal's] ongoing operations performed for [URS] (emphasis added). 
    While the renovations were underway, Regal's project manager, Ronald LeClair, was walking through the facility with Regal's superintendent and an employee of Regal's demolition subcontractor. Because the area was in the process of demolition, the flooring consisted of temporary sheets of plywood spread over steel floor joists. LeClair stepped from the plywood onto a floor joist to indicate a wall that needed to be demolished. Unbeknownst to LeClair, the joist on which he stepped had been freshly painted and the paint caused him to slip, resulting in a back injury. LeClair claimed during his deposition that an unnamed person from URS told him that URS employees had painted the joist.

    LeClair commenced a personal injury action against the City and URS; he did not sue his own employer, Regal, so there was no mention in his complaint about any connection between his injury and Regal's work or "ongoing operations" for URS.  URS tendered the complaint to Regal and INSCORP for defense and indemnification coverage, asserting that it was entitled to AI coverage under Regal's CGL policy with INSCORP.  INSCORP initially reserved its right to disclaim AI coverage to URS, but ultimately accepted URS's defense tender and began defending URS in the underlying personal injury action.  In an effort to resolve the question of whether URS was entitled to AI coverage under Regal's policy, however, INSCORP and Regal subsequently commenced this DJ action against URS and its CGL insurer, National Union Fire Insurance Company, seeking a declaration that URS was not entitled to coverage as an additional insured under the INSCORP policy.

    On motions, Supreme Court granted judgment in favor of URS and its insurer, concluding that LeClair's injury arose out of Regal's work for URS.  Regal and INSCORP appealed, and the Appellate Division, First Department, affirmed, with two justices dissenting.

    In AFFIRMING the Appellate Division's order, Judge Ciparick distinguished Worth, reiterated what the term "arising out of" means to the Court of Appeals, and opined:
    The additional insured endorsement at issue here provides that URS is an additional insured under the CGL policy issued by INSCORP to Regal "only with respect to liability arising out of [Regal's] operations." We have interpreted the phrase "arising out of" in an additional insured clause to mean "originating from, incident to, or having connection with" (Maroney v New York Cent. Mut. Fire Ins. Co., 5 NY3d 467, 472 [2005] [internal quotations marks and citations omitted]).  It requires "only that there be some causal relationship between the injury and the risk for which coverage is provided" (id.).

    Here, Regal's employee, LeClair, was walking through the work site to indicate additional walls that needed to be demolished by Regal's subcontractor when he slipped on a recently-painted metal joist. Although Regal and INSCORP contend that LeClair's injury did not arise from Regal's demolition and renovation operations performed for URS, but that it was URS employees who painted the joist on which LeClair slipped, the focus of the inquiry "is not on the precise cause of the accident but the general nature of the operation in the course of which the injury was sustained" (Worth, 10 NY3d at 416 [internal quotation marks and citation omitted]). Accordingly, the injury "ar[ose] out of" Regal's operations notwithstanding URS's alleged negligence, and fell within the scope of the additional insured clause of the insurance policy. 

    Regal and INSCORP's reliance on Worth to argue otherwise is misplaced. * * * Worth sought to invoke the protection of the additional insured clause of the CGL policy procured by Pacific, but we rejected Worth's argument that the injury arose out of Pacific's operations. Specifically, we explained that it was "evident that the general nature of Pacific's operations involved the installation of a staircase and handrails. An entirely separate company was responsible for applying the fireproofing material. At the time of the accident, Pacific was not on the job site, having completed construction of the stairs, and was awaiting word from Worth before returning to affix the handrails" (id. at 416).  We went on to characterize the staircase as "merely the situs of the incident," concluding that there was no connection between the accident and Pacific's work (id.). 

    This case is factually distinct from Worth. Here, there was a connection between the accident and Regal's work, as the injury was sustained by Regal's own employee while he supervised and gave instructions to a subcontractor regarding work to be performed.  That the underlying complaint alleges negligence on the part of URS and not Regal is of no consequence, as URS's potential liability for LeClair's injury "ar[ose] out of" Regal's operation and, thus, URS is entitled to a defense and indemnification according to the terms of the CGL policy. 
    We have known for some time that the New York courts take an expansive view of the term "arising out of" and the Court of Appeals reminds insurance professionals and practitioners that that term means originating from, incident to, or having connection with.   

    This case now stands for the proposition that even an unpled causal connection between a named insured's work or ongoing operations for the additional insured and an accident that causes injuries for which the additional insured allegedly is liable will be enough to trigger defense coverage in favor of the additional insured under "arising out of [the named insured's] ongoing operations for [the additional insured]" policy language, even if it was the additional insured's rather than the named insured's negligence that caused the accident and resulting injuries.

    In other words, in the opinion of the New York Court of Appeals, for AI coverage to apply under this particular policy language, there must merely be a connection between the named insured's work or ongoing operations and the injury-causing accident, not the named insured's negligence and the accident. 

    Who thinks this decision will quell additional insured coverage litigation in New York?

    Wednesday, June 2, 2010

    Subrogation Claims Against Fire District and Parties Who Retained Negligent Independent Contractor Dismissed

    SUBROGATION – NO LIABILITY FOR INDEPENDENT CONTRACTOR'S NEGLIGENCE – FIRE DEPARTMENT LIABILITY – SPECIAL RELATIONSHIP REQUIREMENT
    United Servs. Auto. Assn. v. Wiley
    (2nd Dept., decided 5/25/2010)

    On behalf of his neighbor O'Brien, townhouse owner Smith hired independent contractor Wiley to do some roofing work on a shared roof.  During the work, a fire apparently started when an open flame being used to solder copper gutters ignited a wood fascia board.  The fire caused damage to the units owned by O'Brian, Smith, and another townhouse owner, Powers.  The fire was extinguished by the Eastchester Fire District.  After paying Powers' claim, Powers' insurer commenced a subrogation action against Wiley, O'Brien, Smith, and the Eastchester Fire District. Eastchester, O'Brien and Smith moved for summary judgment, which motions were denied.

    In vacating its March 2009 decision upon Eastchester's motion to reargue and MODIFYING the order appealed from to grant Eastchester's, O'Brien's and Smith's motions for summary judgment, the Second Department held:
    • O'Brian and Smith demonstrated their prima facie entitlement to judgment as a matter of law by submitting evidence that they were not negligent in the happening of the fire and that Wiley was an independent contractor for whose alleged negligence they could not be held liable.  In opposition, no party raised a triable issue of fact as to whether Wiley was an independent contractor, or whether any exception to the general rule of nonliability applied.

    • The Eastchester Fire District demonstrated, prima facie, that it was entitled to summary judgment dismissing all complaints and cross claims insofar as asserted against it. "Government action, if discretionary, may not be a basis for liability, while ministerial actions may be, but only if they violate a special duty owed to the plaintiff, apart from any duty to the public in general" (McLean v City of New York, 12 NY3d 194, 203). Here, in the absence of a special relationship with an injured party, the Eastchester Fire District could not be held liable for the actions of its employees. The Eastchester Fire District demonstrated, prima facie, that such a relationship was lacking as to any injured party.

    A Race by Any Other Name Is Still a Race -- Racing Exclusion Found to Negate Coverage for Total Loss of Insured's Racing Equipped BMW E30 M3 During Driving School Participation

    PERSONAL AUTO – COLLISION COVERAGE – RACING EXCLUSION
    Stephan v. Clarendon Natl. Ins.
    (NYC Civil Ct., New York Co., decided 3/8/2010)

    According the Genesee Valley Chapter of the BMW Car Club of America's website,
    A driving school provides an opportunity for you to learn high performance driving skills in your own vehicle, on a racetrack, in a controlled environment, with in-car instruction.
    The purpose of a driving school is quite simple: to improve your driving skills.

    It is hoped that the skills you learn will benefit you in your day-to-day driving, especially when confronted with emergency situations such as slippery road conditions or having to avoid hitting a deer on a country road.
    Yeah, right.  People pay $400-$500 just to learn how to drive better on slippery or deer populated roads.

    The Genesee Valley Chapter's website also answers this FAQ about insurance for using one's own auto in a driving school weekend:
    Does my insurance cover my car at the track?
    Read your policy.  It probably says that you are not covered if you participate in “racing” or “timed” events.  Driving Schools are NOT “racing events” and timing is strictly forbidden.  However, our driving schools are held at facilities that are specially designed for racing. The intent of our school is to make you a better driver, not to teach you how to race.  It is up to you to fully understand what your policy covers or doesn’t cover.
    On May 11, 2007, plaintiff Peter Stephan totaled his 1989 BMW E30 M3 while participating in one of the Genesee Valley BWMCCA's Ultimate Driving School weekends at the Watkins Glen racetrack in Watkins Glen, New York.  At the time of the accident, Stephan was an advanced driving student who was permitted to drive without an instructor.  According to plaintiff, the front tire on the driver's side of his vehicle went onto the grass shoulder as plaintiff was maneuvering a turn at an exit and subsequently spun onto the other side and hit the guardrail in his attempt to steer the BMW back onto the track, which resulted in a total loss to the vehicle.  Plaintiff estimated that he was traveling at approximately 50-70 miles per hour at the time of the accident. Additionally, plaintiff maintained that no other vehicles were in proximity to his BMW at the time of the accident and that no timing devices were used on the racetrack.  There were no witnesses to this accident.  

    Two weeks later, Stephan was looking to replace his totaled BMW with another "race-prepared" BMW M3

    Stephan's personal auto policy with Clarendon National Insurance Company contained the following racing exclusion for collision and comprehensive coverage:
    There is no collision or comprehensive coverage for the following:
    g.  Loss to any auto or trailer while inside any racing facility for the purpose of practicing for, preparing for, or participating in any prearranged or organized racing or speeding contest.
    Clarendon's investigation of the accident revealed, among other things, that Stephan's BMW was "enhanced by the prior owner," "equipped for racing" and "loaded with aftermarket racing parts".  Clarendon denied collision coverage to Stephan based on the policy's racing exclusion, and he commenced this action to recover payment for his vehicle's loss. 

    The matter was tried non-jury to New York City Civil Court Judge Tanya R. Kennedy, who correctly identified the determinative issue as being whether Stephan's operation of his vehicle during the driving school at the Watkins Glen racetrack constituted "practicing for, preparing for, or participating in any prearranged or organized racing or speeding contest" as defined by the terms of Clarendon's policy.

    On what appeared to Judge Kennedy to be an issue of first impression in New York, the court adopted the reasoning set forth by the Superior Court of Massachusetts in Metropolitan Prop. and Cas. Ins. Co. v Stevens (10 Mass. L. Rptr. 729 [Mass Super 1999]) and by the Court of Appeals of Georgia in Progressive American Ins. Co. v Horde (259 Ga. App 769, 577 N.E. 2d 835 [2003]) and concluded that Clarendon had met its burden in establishing that plaintiff's loss fell within the policy's racing exclusion:
    The 1989 BMW E 30 vehicle is characterized as a "street-legal version of the marque's racing car," with such advantages as "real racing heritage," "strong performance," and "active club support" (see Defendant's Exhibit F in Evidence). Such vehicles are often modified which result in a faster performance on the track (see Defendant's Exhibit F in Evidence). Although plaintiff testified that he only used his BMW for pleasure to drive on country roads or public highways, the Court did not find such testimony to be credible. Plaintiff has held himself out to the world as an amateur racer with fifteen (15) years experience (see Defendant's Exhibit D in Evidence). Additionally, plaintiff has participated in at least twelve (12) BMW CCA driving events prior to the May 11, 2007 accident as a member of BMW CCA or Sports Car Club of America.

    Further, plaintiff acknowledged during trial that the prior owner modified the vehicle by removing the rear seats, replacing the original front stock seats with racing seats, installing a roll-bar and cage (which was bolted into the car frame), modifying the hose and engine, replacing the tires and wheels with those used for racing and installing an additional 4-point harness seat belt system, which holds a driver into her/her seat. Plaintiff also acknowledged at trial that removing the rear seats would cause the vehicle to travel faster and that he never replaced such seats in the BMW after purchase. Although plaintiff testified that the prior owner provided him with the original stock tires, wheels and seats, plaintiff also indicated that he never used these items.

    During cross-examination, plaintiff initially testified that the prior owner removed the rear seats because the owner used the BMW for auto cross racing. However, plaintiff subsequently testified during cross examination that he was unaware as to the reason why the prior owner removed the rear seats and that plaintiff assumed that the BMW was involved in auto cross racing, which the Court found incredible. Similarly, the Court found as incredible plaintiff's testimony that he was unaware as to the reason why the prior owner installed a 4-point harness system into the BMW.

    Plaintiff's counsel contends in his post-trial memorandum that the aforementioned cases are inapplicable since (1) the purpose of the driver's school was "awareness" and not speed; (2) racing was prohibited at the event; (3) no timing devices were utilized; and (4) no vehicles were in close proximity to plaintiff's BMW at the time of the accident.

    Plaintiff's counsel also addresses the fact that plaintiff was operating his vehicle at a lesser speed than the vehicle in the Progressive case. However, the fact that plaintiff was not traveling in excess of 100 miles per hour does not prevent the Court from concluding that plaintiff's loss fell within the terms of the subject policy exclusion. The totality of the circumstances clearly establish that plaintiff's operation of a vehicle during an automobile club sponsored driver's school event located at a racing facility constituted "practicing for, preparing for, or participating in any prearranged or organized racing or speeding contest"as defined by the terms of defendant's policy.

    As the court stated in Metropolitan, "[j]ust as a rose by any other name is still a rose, so a race by any other name is still a race; so much like a race that any damage to vehicles, or personal injury, are outside insurance coverage" (supra at fn 4).
    Although there's no mention of it in her decision, do you think Judge Kennedy also found and watched these videos on Stephan's YouTube channel?  And just yesterday, Stephan responded to this posting of a BWM CCA Club Racing M3 track racing car for sale. 

    For slippery roads and deer?  Not in this case.