Monday, July 26, 2010

Nassau District Court Rules that a No-Fault Insurer May Not Obtain Documentary Material Relating to a Mallela Defense in an EUO Request

NO-FAULT – VERIFICATION – PROVIDER EUO – DOCUMENT REQUESTS – MALLELA DEFENSE
Dynamic Med. Imaging, P.C. a/a/o Staffa Pasqualino v State Farm Mut. Auto. Ins. Co.

(Nassau Dist, 1st Dist., decided 7/15/2010)

From the judge who last inspired me to quote Lewis Carroll's Jabberwocky comes this decision, another head scratcher.

New York no-fault mavens know that the Mallela defense is not subject to the 30-day pay-or-deny preclusion rule of Insurance Law § 5106(a) and 11 NYCRR § 65-3.8(a)(1).  They may also know that under New York procedural law, a litigant must have a good faith basis for alleging something that's in a complaint or an answer.  Having a good faith basis to allege something usually depends on having already obtained some factual information about the allegation or defense.  

In State Farm Mut. Auto. Ins. Co. v Mallela (4 NY3d 313 [2005]), the New York Court of Appeals held that a health care provider which is fraudulently incorporated or organized in violation of New York Business Corporation Law §§ 1507, 1508, and New York Education Law § 6507(4)(c) is not entitled to reimbursement from no-fault insurers for medical services rendered by licensed medical practitioners.  New York state licensing requirements prohibit nonphysicians from owning or controlling medical service corporations. Only an appropriately licensed professional licensed may be the owner of a profession corporation [Business Corporation Law §1507], a professional limited liability company [Limited Liability Company Law §1207]or a professional limited liability partnership [Partnership Law §121-1500(q)], and only licensed professionals can obtain payment of no-fault benefits. 11 NYCRR § 65-3.16(a)(12).

Plaintiff submitted bills to State Farm for lumber and cervical MRIs and 3D renderings ordered by the assignor's treating chiropractor.  State Farm sought to determine whether the plaintiff, Dynamic Medical Imaging, P.C., was properly incorporated and operating, so it requested that the PC's purported owner, Steven Brownstein, M.D., appear for an examination under oath (EUO) and produce the following documents and records:
(i) documents evidencing ownership of the P.C., at the time of the treatment for which you seek payment, by one or more licensed professionals, including but not limited to a copy of the certificate of incorporation for the P.C., receipts for filing, stock certificates, and the stock ledger for the P.C.;

(ii) documents relating to the income and expenses of the P.C., including but not limited to tax returns and general ledgers of the P.C. for the past twelve months;

(iii) a list of the individuals who provided and/or supervised the health care services for which you seek payment, identification of the type of professional license each individual holds, and documents (i.e, W-2, 1099, etc.) identifying the relationship between the individual and the P.C. (e.g. whether the individual is an employee or independent contractor and how that individual is compensated);

(iv) a list of days of the week and hours that any owner of the P.C. provides or supervises services for the P.C. during the period for which payment is sought for services rendered;

(v) all documents, including all schedules, attachments or addenda, relating to the relationship between the P.C., and/or any entity of individual that leases equipment or space to or from the P.C., or provides management, consulting, administrative or billing services to the P.C. and any payments made to any person or entity that rendered such services to the P.C.; and

(vi) complete, sign and return the enclosed NF-3 form.
Dr. Brownstein twice did not appear for the EUO, scheduled for October 30, 2007 and November 19, 2007, and none of the requested documents was provided to State Farm.  By letter dated December 12, 2007, State Farm denied payment of the plaintiff's bills, based on Dr. Brownstein's failure to appear for an EUO and the provider's failure to comply with 11 NYCRR 65-3.16(a)(12).  Plaintiff commenced this action on January 24, 2008 to recover payment of its bills, and State Farm moved for summary judgment.

In DENYING State Farm's motion, Justice Fred Hirsh concluded that by requesting Mallela materials, State Farm's EUO request was "palpably improper" and that a no-fault insurer should not be allowed to obtain what in essence Justice Hirsh believes constituted pre-action discovery in conjunction with a duly requested EUO:
No-fault is a statutory/regulatory system. See, Medical Society of the State v. Serio, 100 NY2d 854 (2003). No fault is in derogation of the common law. East Acupuncture, P.C. v. Allstate Ins. Co., 61 AD3d 202 (2nd Dept. 2009).  The rights of an insurer are limited to those expressly provided for by the statute and regulations. Presbyterian Hosp. in City of NY v. Maryland Cas. Co., 90 NY2d 274, rearg. denied 90 NY2d 937 (1997)The regulation provide for an examination under oath. The term "examination under oath" is not defined by the no-fault regulations. Word used in regulations that are not specifically defined in the regulations are to be given their ordinary meaning. Oefelein v. Town of Thomson Planning Board, 9 AD3d 556 (3rd Dept. 2004); Parker v. Kelly, 140 AD2d 993 (4th Dept. 1988); McCarter v. Beckwith, 247 App.Div 289 (2nd Dept. 1936: and McKinney's Statutes §76. Examination is defined as the questioning of a witness by an attorney. See, Law.Com Law Dictionary. Examination can also be defined as a formal interrogation. Webster's Unabridged Dictionary 2nd Ed. (1998) p.673. Therefore, the term "examination under oath" as used in the no-fault regulations means the insurer can request the injured party or the assignee of the injured party appear and give oral testimony after having been sworn or under affirmation.

The regulations do not provide an insurer with the right to obtain written documentation other than such documentation as may be demanded as verification. In addition to appearing for an examination under oath, the assignee can be compelled to execute a written proof of claim under oath and provide other pertinent information as may assist the insurer in determining the amount due and payable. 11 NYCRR 65-1.1. The regulation do not give the insurer to right to ask an assignee to produce documents relating to the corporate structure or finances of a medical provider. 11 NYCRR 65.3.5(a). Upon receipt of the completed verification form, the insurer can request additional verification. 11 NYCRR 65-3.5(b). The regulations only permit the insurer to obtain written information to verify the claim. 11 NYCRR 65-3.5(c). See generally, V.M.V. Management Co, Inc. v. Peerless Ins., 15 AD3d 647 (2nd Dept,. 2005). Nothing in the No-Fault regulations permits an insurer to request an assignee to produce corporate organizational and financial documents a week in advance of an EUO.

An examination under oath permits the insurer to question the injured party or the its assignee regarding the claim. While an examination under oath has been treated by the courts as condition precedent to coverage, the no fault regulations treat the examination under oath as a form of verification. Thus, where a carrier properly demands an examination under oath, "...the verification is deemed to have been received by the insurer on the day the examination was performed." 11 NYCRR 65-3.8(a)(1). The insurer has 30 days from the day the EUO is conducted to is conducted to pay or deny the claim. Id. 

The purpose for demanding verification is to extend or toll the carriers time to pay or deny the claim so the carrier can obtain information regarding the claim. Hospital for Joint Disease v. New York Central Mutual Fire Ins. Co., 44 AD3d 903 (2nd Dept. 2007); and 11 NYCRR 65-3.5(c); and 11 NYCRR 65-3.8(a)(1). The extension of time in which to pay or deny the claim is extremely important in circumstances in which the insurer is seeking information regarding a defense the insurer would be precluded from raising if the defense is not stated in a timely served denial. Fair Price Medical Supply Corp. v. Travelers Indemnity Co., 10 NY3d 556 (2008); and Lincoln General Ins. Co. v. Alev Medical Supply Inc., 25 Misc 3d 1019 (Dist. Ct. Nassau Co. 2009).

However, this rationale does not apply to a Malella [sic] defense since a Malella [sic] defense is non-precludable. State Farm Mutual Ins. Co. v. Malella [sic], 4 NY3d 313 (2005).

While Malella [sic] has been called a fraudulent incorporation defense, the rationale underlying Malella [sic] is that only an appropriately licensed professional licensed may be the owner of a profession corporation [Business Corporation Law §1507], a professional limited liability company [Limited Liability Company Law §1207]or a professional limited liability partnership [Partnership Law §121-1500(q)] and only licensed professionals can obtain payment of no-fault benefits. 11 NYCRR 65-3.16(a)(12). The Malella [sic] defense permits an insurer to look behind a facially proper business structure to determine if persons not duly licensed to practice the profession are the actual owners of the medical provider. Andrew Carothers, M.D., P.C. v. Insurance Companies Represented by Bruno, Gerbino & Soriano, LLP, 26 Misc 3d 448 (Civil Ct. Richmond Co. 2009). If the provider is not owned by a licensed professional or if the provider is controlled by a non-professional, then the provider may not obtain payment of no-fault benefits. State Farm Mutual Ins. Co. v. Malella [sic], supra.

If a carrier believes the provider/assignee is subject to a Malella  [sic] defense, the proper way to assert it as an affirmative defense it in its answer. New York First Acupuncture P.C. v. State Farm Mut. Auto. Ins. Co., 25 Misc 3d 134(A) (App Term2nd, 11th & 13th Jud. Dists. 2009). 

The document demand contained in State Farm's EUO letters to Dynamic and Dr. Brownstein are essentially a demand for pre-action discovery regarding a Malella  [sic] defense. CPLR 3102(c) permits pre-action discovery only by court order and only to aid in bringing an action. Some of the documentation requested in the EUO letters State Farm might not be able to obtain even if it had been requested in a duly served notice for discovery and inspection.[FN3]

The oft stated purpose of the No-fault Law is to insure prompt payment for medical services rendered to persons injured in motor vehicle accidents. Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra; and Hospital for Joint Diseases v. Travelers Property Casualty Ins. Co., 9 NY3d 312 (2007); and Presbyterian Hosp. in City of NY v. Maryland Cas. Co., supra. Permitting an insurer to obtain what would be tantamount to full discovery regarding a Malella  [sic] defense as part of an EUO would defeat that purpose and is beyond the scope of the No-fault Law and regulations relating to EUO.

Permitting an insurer to demand what has been demanded by State Farm in this action for an EUO is fraught with the potential for abuse. See, Unitrim Advantage Ins. Co. v. Carothers, 17 Misc 3d 1121(A) (Sup. Ct. NY Co. 2007); and Gegerson v. State Farm Ins. Co., 27 Misc 3d 1207(A) (District Ct. Nassau Co. 2010). An insurer should not be able to defeat no fault claims by making an onerous and improper document demand relating to an EUO.

If an insurer has a reasonable basis for believing a medical provider cannot obtain payment of no-fault benefits because the provider is "fraudulently incorporated", then it should assert the defense in its answer and litigate the issue on the merits in the action brought by the provider for no-fault benefits. The insurer should move to consolidate all of the actions brought by the provider and have the issue of whether the provider is subject to a Malella  [sic] defense determined in one action. See, Andrew Carothers, M.D., P.C. v. Insurance Companies Represented by Bruno, Gerbino & Soriano, LLP, supra. Alternatively, an insurer can commence a declaratory judgment action seeking a judgment declaring the provider ineligible to receive no-fault payments. See, State Farm Mutual Ins. Co. v. Malella  [sic] , supra.

While State Farm may have reason to believe Dynamic is not eligible to receive no-fault benefits for Malella  [sic] reasons, State Farm cannot use a palpably improper EUO demand not subject to court review as a basis for obtaining summary judgment. See, Westchester Medical Center v. Progressive Casualty Ins. Co., 51 AD3d 1012 (2nd Dept. 2008). 

Since the EUO demand was improper, defendant's motion for summary judgment is denied.
Expect an appeal.  And a reversal, in my opinion.   In my respectful view, Justice Hirsh's misunderstanding of the Mallela decision and its defense is not confined to its spelling.  Denying no-fault insurers an opportunity to obtain verification of a provider's proper licensing and ownership in conjunction with the verification of their bills would force insurers to do something the New York courts have repeatedly said litigants should not do, i.e., allege something in a complaint or answer without a good faith, factual basis for doing so. And as to Footnote # 2, an NF-3 is the prescribed Verification of Treatment by Attending Physician or Other Provider of Service form, not the Verification of Hospital Treatment form, which is an NF-4.  Here's a bookmark of the current forms.

Wednesday, July 21, 2010

Proposed Amendment to Regulation 83 -- Licensed Acupuncture Fees


Today the New York State Insurance Department published notice of its Proposed Thirty-Second Amendment to Regulation No. 83 (11 NYCRR 68).  The proposed regulation would add new Part L to Appendix 17-C of 11 NYCRR to read as follows:
(L)  Licensed Acupuncture fees

     (a)     A licensed acupuncturist is an individual who has complied with the requirements of Article 160 of the Education Law.

     (b)     The maximum permissible charge for treatment rendered by a licensed acupuncturist shall not exceed the maximum permissible charge for a licensed physician certified to perform acupuncture in accordance with the Official New York Workers' Compensation Medical Fee Schedule referenced in 12 NYCRR 329.3.
The Department's Regulatory Impact Statement for this proposed amendment explains the "Needs and benefits" of this proposed regulatory change as follows:
The Workers’ Compensation Board fee schedules were initially adopted in 1977 and have been revised regularly since that time in order to reflect inflationary increases and to incorporate other necessary enhancements. Similar modifications and improvements have also been applied to those fee schedules established by the Insurance Department for various health care services related to automobile accidents that are not covered in any fee schedule established by the WCB. Periodic revision to the fee schedules is a part of the ongoing process of keeping the fee schedules current and reflective of changes in the health care industry, thereby facilitating access to health care for motor vehicle accident victims while controlling costs.

The WCB currently has a fee schedule for acupuncture services performed by medical doctors certified to perform acupuncture and another fee schedule for chiropractors licensed to perform acupuncture. The WCB does not have a fee schedule for acupuncture services performed by licensed acupuncturists.

The current regulation does not establish the appropriate level of reimbursement for acupuncture treatment rendered by an acupuncturist, which leads to many fee disputes going to arbitration or court to be adjudicated. In order to reduce the number of these disputes, to assure a sufficient pool of health providers, and provide a uniform method of reimbursement by no-fault insurers, this proposed rule states that the maximum permissible charge for treatment rendered by a licensed acupuncturist shall not exceed the maximum permissible charge for a physician certified to perform acupuncture in accordance with the Workers’ Compensation Medical fee schedule contained in 12 NYCRR 329.3.

Pursuant to 11 NYCRR Part 65, Section 65-3.16(a)(6) of Regulation 68 acupuncturists must be licensed in order to be reimbursed for acupuncture treatment rendered to no-fault patients. There is no Department certification requirement for acupuncturists to handle no-fault patients. Acupuncture treatment rendered by licensed acupuncturists is the primary service they perform and for which they bill. The WCB permits an additional fee for the reimbursement of acupuncture treatment rendered by a chiropractor licensed to perform acupuncture as an adjunct service to the primary services that the chiropractor performs and for which the chiropractor bills. The WCB also establishes a fee for reimbursement of acupuncture treatment rendered by a medical doctor certified to perform acupuncture as an adjunct service to the primary services that the doctor performs and for which the doctor bills, which in many instances is greater than the fee permitted to be charged by a chiropractor. Since the acupuncture treatments are the primary service performed and billed by licensed acupuncturists and the acupuncturist is not permitted to bill for any other services, the superintendent has determined that such treatments merit reimbursement at the same rate that medical doctors receive for comparable services.

The establishment by the superintendent of fees for acupuncture treatment rendered by licensed acupuncturists will reduce disputes regarding the fees to be charged, provide for more timely payment of acupuncturist’s charges, and result in a significant reduction in litigation costs that are presently being incurred due to the lack of a fee schedule for licensed acupuncturists. Utilization of a maximum permissible fee for licensed acupuncturists should significantly reduce the number of disputes between insurers and licensed acupuncturists, resulting in more uniform, efficient, and cost-effective processing and payment of no-fault claims.
Pursuant to the accompanying Notice of Proposed Rule Making, public comment on this proposed amendment will be received until 45 days after today, its publication date, or through September 4, 2010.  Comments may be submitted to Buffy Cheung at the Department. 

If adopted and promulgated, this amendment to Regulation 83 will take effect 90 days after its publication in the New York State Register

No-Fault Intoxication Exclusion Cut-Back Bill Delivered to Governor for Signature

The revised no-fault intoxication exclusion cut-back bill, S7845 Breslin, passed by the New York State Senate on June 18th and the Assembly on July 1st, was delivered to Governor Paterson for signing on July 19, 2010. The Governor is expected to sign the bill into law, which will then take effect 180 days after its signing.  Coverage Counsel will report the new law's effective date as soon as the bill's signing becomes known.  Come mid to late January of next year, New York no-fault insurers will be required to pay for emergency general hospital and ambulance services provided to intoxicated and impaired drivers.

Editor's Note (01.14.11) ~~ An amended Insurance Law § 5103(b)(2) takes effect on January 26, 2011.  Read about that amendment and the New York State Insurance Department's interpretation of it here.

Monday, July 19, 2010

Exclusion for Bodily Injury to an Employee of Any Insured Held to Apply to Negate CGL Coverage to Building Owner for Injury to Tenant's Employee

CGL – ADDITIONAL INSURED – BODILY INJURY TO EMPLOYEE OF ANY INSURED EXCLUSION
Howard & Norman Baker, Ltd. v American Safety Cas. Ins. Co.
(2nd Dept., decided 7/13/2010)

American Safety Casualty Insurance Company (ASCIC) issued a CGL policy to Point Recycling, which was a tenant in a building owned by the plaintiff, Howard & Norman Baker, Ltd. (HNB).  As required by the lease between HNB and Point, HNB was named as an additional insured under Point's CGL policy.  Roberto Ruiz, an employee of Point, commenced an action to recover damages for personal injuries he allegedly sustained in the subject building, and the defense of HNB in that action was tendered to ASCIC, which denied coverage based, in part, on the ground that the policy contained an exclusion for "bodily injury to . . . [a]n employee of any insured arising from and in the course of . . . [e]mployment by any insured."

HNB then commenced this action for a judgment declaring that ASCIC was obligated to defend and indemnify it in the underlying action. After ASCIC moved to vacate plaintiff's note of issue, HNB cross-moved for summary judgment declaring that ASCIC was is obligated to defend and indemnify it in the underlying action.  Supreme Court denied HNB's cross motion for summary judgment and, in effect, denied American's application to search the record and award summary judgment in its favor. 

In REVERSING the lower court's order and granting summary judgment to ASCIC, the Second Department held that the policy's BI-to-an-employee-of-any-insured exclusion was clear and unambiguously applied to negate liability coverage to HNB for the underlying personal injury action:
Here, the plain meaning of the exclusion invoked by American was that the Policy did not provide coverage for damages arising out of bodily injury sustained by an employee of any insured in the course of his or her employment (see Bassuk Bros. v Utica First Ins. Co., 1 AD3d at 471; see also Hayner Hoyt Corp. v Utica First Ins. Co., 306 AD2d 806, 807; Consolidated Edison Co. of N.Y. v United Coastal Ins. Co., 216 AD2d 137; Tardy v Morgan Guar. Trust Co. of N.Y., 213 AD2d 296). Despite the Policy provision stating that "this insurance applies if each Named Insured were the only Named Insured," the exclusion's reference to "any insured" makes it unmistakably clear that the exclusion is not limited to injuries sustained by HNB's employees (cf. Greaves v Public Serv. Mut. Ins. Co., 5 NY2d 120). Accordingly, since Ruiz was an employee of one of the insureds, his injury is not covered under the Policy. The Supreme Court, therefore, should have granted American's application to search the record and award it summary judgment declaring that it is not obligated to defend and indemnify HNB in the underlying action.  

Homeowner's Suit for Additional Living Expenses Commenced Two Days After Two-Year Anniversary of the Insured Home's Fire Loss Found Timely

PROPERTY – HOMEOWNERS – ADDITIONAL LIVING EXPENSE CLAIM – TWO-YEAR CONTRACTUAL SUIT LIMITATIONS PERIOD
Villa v. Sterling Ins. Co.
(App. Term, 2nd Dept., 9th & 10th Dists., decided 7/16/2010)

New York property insurers haven't been faring well lately in seeking to enforce their policies' two-year suit limitations period.  In Fabozzi v. Lexington Ins. Co., the Second Circuit US Court of Appeals ruled that the term "date of loss" as used in a homeowner policy's Suit Against Us condition did not mean the date of physical loss, but the date when the insured's claim for loss accrued.  Later that same month, in Dail v. Merchants Mut. Ins. Co., the Appellate Division, Fourth Department, held that the one-year tolling period of CPLR 210(a) for an insured's post-loss death extends the policy's two-year suit limitations period.

This is another case in which a suit commenced more than two years after the date of the covered physical loss to insured property was held to be timely, notwithstanding the policy's two-year suit limitations period.

On April 12, 2006, plaintiff's home was damaged by fire, and she submitted a claim for damage to her residence and personal property, as well as additional living expenses while she was unable to occupy her home, to the defendant, her homeowners insurer.  Defendant eventually settled plaintiff's dwelling claim and her home was repaired. She incurred additional living expenses (ALE), however, until April 2007, when she moved back into her home. Sterling paid some, but not all, of her ALE claim.

The policy contained a contractual period of limitations on the time within which the insured could sue Sterling, specifying that for Property Coverages,
No suit to recover for any property claim may be brought against us unless . . . the suit is commenced within 2 years after the loss.  (Bold added.)
After demanding payment and filing complaints with the New York State Insurance Department concerning Sterling's failure to pay the disputed ALE claim, plaintiff commenced this action on April 14, 2008, two years and two days after the date of the fire, to recover the principal amount of $8,750, representing unpaid additional living expenses.  Sterling moved for summary judgment dismissing the complaint on the ground that it was time barred. The District Court denied Sterling's motion, concluding that there existed a question of fact as to when plaintiff's cause of action accrued.  Sterling appealed.

In AFFIRMING the District  Court's denial of Sterling's motion for summary judgment, the Appellate Term held that by not defining "the loss", the policy's contractual suit limitations period was ambiguous:
In support of its motion for summary judgment dismissing the complaint, defendant relied entirely on the contractual period of limitations contained in the insurance policy. That provision required that actions be brought within two years "after the loss," but failed anywhere to define the term "loss," although it did define "occurrence." Also, for "additional living expenses," covered expenses were to be paid on a monthly basis upon submission of reasonable proof of the insured's expenses. The policy's coverage for these items was open-ended, specifying that it was "not limited by the policy period."

Exclusions from, or limitations of, coverage must be in clear and unmistakable language which is capable of no other reasonable interpretation or implication (see e.g. Pioneer Tower Owners Assn. v State Farm Fire & Cas. Co., 12 NY3d 302, 307 [2009]).  Ambiguities in insurance policies are required to be construed against the insurer, particularly when found in clauses that exclude or limit coverage (see Breed v Insurance Co. of N. Am., 46 NY2d 351, 353 [1978]). In the absence of a specific provision regarding accrual in a contract of insurance, the statute of limitations generally begins to run upon the insurer's breach of contract by its failure to pay (see Medical Facilities v Pryke, 62 NY2d 716 [1984]; see also Fabozzi v Lexington Ins. Co., 601 F3d 88 [2010]; cf. Costello v Allstate Ins. Co., 230 AD2d 763 [1996]; 815 Park Ave. Owners v Fireman's Ins. Co. of Washington, D.C., 225 AD2d 350 [1996]). Here, we conclude that the insurance policy was ambiguous as to the applicable limitations period respecting actions seeking additional living expenses. Thus, the statute of limitations on these items did not begin to run until after defendant's breach of contract, and had not run at the time this action was commenced. Accordingly, the Civil Court correctly denied defendant's motion for summary judgment, and we affirm the order.

Monday, July 12, 2010

Opening a Taxicab Door Is Not "Operating" the Taxicab -- Liability Coverage to Passenger Who Opened Door into Path of Bicyclist Denied

COMMERCIAL AUTO – LIABILITY COVERAGE – WHAT CONSTITUTES "OPERATING" A VEHICLE
Kohl v. American Tr. Ins. Co.
(Ct. Apps., decided 7/1/2010)

In Henderson v. New York Cent. Mut. Fire Ins. Co., 56 AD3d 1141, the Fourth Department ruled that negligently opening a car door constituted an "automobile accident" and stated that "the 'act of opening the [vehicle] door in order to exit the vehicle constitutes "use and operation" of a vehicle pursuant to Vehicle and Traffic Law § 388[.]'" 

In this case, plaintiff commenced this action for a judgment declaring that the American Transit was obligated to defend and indemnify him in an personal injury action brought by a bicyclist who was injured when the plaintiff opened the rear door of a taxicab he was exiting into the bicyclist's path.  Affirming the Supreme Court's order granting American Transit's cross motion for summary judgment, the Second Department stated that "[t]he Supreme Court properly granted the defendant's cross motion for summary judgment since the plaintiff is not entitled to a defense or to indemnity for his 'use' of a vehicle under the defendant's commercial automobile policy insuring the owner and the driver of the taxi-cab[.]"

Plaintiff obtained leave to appeal the Second Department's decision to the Court of Appeals, and that court recently AFFIRMED the award for summary judgment to American Transit, succinctly holding:
The Appellate Division correctly held that Kohl was not insured under the taxi owner's policy of automobile liability insurance. The policy says that it "shall inure to the benefit of any person legally operating" the insured vehicle in the business of the insured. The word "operating" cannot be stretched to include a passenger's riding in the car or opening the door. 
Is there a legal difference between "operation" as used in the term "use and operation" and "operating", as used in the more limited insuring language of American Transit's taxicab policy?  Apparently there is, with both the Second Department's and Court of Appeals' decisions in this case having succeeded (but not mentioned) the Fourth Department's decision in Henderson

Non-Insuring Companies Dismissed from First-Party Action -- Landlord Found to Be an Additional Insured Only under Tenant's CGL Coverage

COMMERCIAL PROPERTY – NON-INSURING COMPANIES – ADDITIONAL INSURED – NO FIRST-PARTY BUILDING COVERAGE
SUS, Inc. v. St. Paul Travelers Group
(3rd Dept., decided 7/1/2010)

SUS, Inc. owned and operated a restaurant and leased the property from plaintiff New Prospect Properties, LLC.  In 2008, a fire completely destroyed the restaurant, including the building and its contents. At the time of the fire, SUS had an insurance policy with Charter Oak Fire Insurance Company providing commercial general liability (CGL) insurance and businessowners' property insurance coverage.  New Prospect was expressly named as an "[a]dditional [i]nsured" on an endorsement to SUS's CGL coverage, but was not named under SUS's business property coverage.

After certain claims made by plaintiffs under the policy were denied, they commenced this action against, among others, defendants St. Paul Travelers Group, Travelers Indemnity Company, Travelers Indemnity Company of America, St. Paul Travelers Companies, Inc., St. Paul Fire and Marine Insurance Company and Charter Oak Fire Insurance Company.  The Travelers defendants moved, pursuant to CPLR 3211 (a) (1) and (7), to dismiss the complaint except as against Charter Oak, alleging that none of the other Travelers defendants was an insuring company under the policy.  They also sought to dismiss any claims for damage to the building itself as not covered under the policy, and to remove Sangiovese Restaurant and New Prospect as plaintiffs.  Supreme Court granted that portion of the motion which sought removal of Sangiovese Restaurant as a plaintiff, and otherwise denied the motion.  The Travelers defendants appealed.

In MODIFYING the order appealed from, the Third Department held:
  1. Dismissal of Non-Insuring Companies:  All but Charter Oak should have been dismissed as defendants.  Charter Oak alone issued the policy at issue.  The word "Travelers" and its logo on the declarations pages and certain portions of the policy did not serve to create an ambiguity where no other existed.  Since plaintiffs neither alleged nor submitted any facts indicating that the other Travelers defendants exercised direct dominion and control over Charter Oak, there was no basis upon which to predicate liability against them.

  2. Scope of Additional Insured Coverage for Owner/Landlord:  Any claims under the policy by New Prospect, the landlord and owner of the premises, should have been dismissed because New Prospect was not named to any extent under SUS's businessowners' property coverage.  Although New Prospect was named as an "additional insured" under SUS's CGL coverage, the standard CGL policy — like the one at issue here — does not cover damage to property owned by the insured, but rather provides coverage for liability to third parties pursuant to a judgment or settlement.  Since New Prospect was not named under SUS's businessowners' property coverage and its status as an additional insured under the CGL policy did not entitle it to any coverage in this first-party liability claim, any claims asserted by New Prospect must be dismissed.

  3. Scope of Businessowners Property Coverage for Named Insured Tenant:  The policy provided no coverage for damage to the building itself and, therefore, SUS's claims for any such damage should have been dismissed.  While the "Businessowners Declarations" of the policy set forth a limit of insurance for "Business Personal Property" and other coverage extensions, such as accounts receivable and fine arts, no limit of insurance was shown for the building.  As such, the subject building was not covered under the clear language of the businessowners' property coverage part of the policy.  Furthermore, the CGL portion of the declarations — which provides a limit of insurance of $300,000 for "Damage to Premises Rented to You" — was not applicable to SUS's first-party liability claim for damage to the building.  The CGL coverage expressly limited Charter Oak's liability to SUS to those sums that SUS becomes legally obligated to pay as property damage arising from a covered event, and there was no allegation that SUS had been found legally obligated to pay any of the damages alleged.  Accordingly, Supreme Court should have dismissed all claims by SUS seeking recovery for damage to the building.

Question of Fact Found on Whether Landlord Had Provided Heating System that Was "Working and in Good Repair" -- Subrogation Action Reinstated

SUBROGATION – FROZEN & BURST WATER PIPES – LANDLORD'S CONTRACTUAL DUTY TO PROVIDE "WORKING AND IN GOOD REPAIR" HEATING SYSTEM - LANDLORD'S COUNTERCLAIMS
Peerless Ins. Co. v. Michael Beshara, Inc.
(3rd Dept., decided 7/1/2010)

After paying $151,583.84 to its insured for damages caused when water pipes at the insured's restaurant froze and burst, Peerless brought this subrogation action against the insured's landlord for its alleged failure to have provided a heating system that the lease required be "working and in good repair".  Defendants interposed counterclaims against Peerless for property damage, alleging that its insured was responsible for the heating system's maintenance and agreed to indemnify defendants for any loss resulting from the bursting of pipes.  Defendants moved and Peerless plaintiff cross-moved for summary judgment.  Supreme Court, Saratoga County (Williams, J.), granted defendants' motion dismissing the complaint and, finding that the allegations underlying defendants' counterclaims only provide the basis for an affirmative defense of comparative negligence, dismissed the counterclaims as well.  The parties cross-appealed.

In MODIFYING the order appealed from to reinstate both Peerless' complaint and defendants' counterclaims, the Third Department held that Peerless had raised a genuine issue of fact as to whether the landlord fulfilled his duty of providing a heating system to Peerless' insured that was "working and in good repair" in the first instance.  As to defendants' counterclaims, the appellate court ruled:
Turning to defendants' cross appeal, we likewise find that outright dismissal of the counterclaims was improper.  It is well settled that "[a] subrogee acquires all rights, defenses and remedies of the subrogor and is subject to any claims or defenses which may be raised against the subrogor" (Servidori v Mahoney, 129 AD2d 944, 945 [1987]; see United States Fid. & Guar. Co. v Smith Co., 46 NY2d 498, 504 [1979]; Solomon v Consolidated Resistance Co. of Am., 97 AD2d 791, 792 [1983]).  Having commenced the instant action, plaintiff stepped into the shoes of Rainer's Gourmet, "succeeding to the benefits which it might bring, but chargeable to the extent of it with the liabilities of [Rainer's Gourmet]" (Seibert v Dunn, 216 NY 237, 245-246 [1915] [emphasis added]).  Despite plaintiff's contention and Supreme Court's conclusion to the contrary, defendants' claims may properly be interposed as counterclaims (see Siegel, NY Prac § 226 [4th ed]; Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3019:5, at 210-211; see also Allstate Ins. Co. v Babylon Chrysler Plymouth, 45 AD2d 969 [1974]; cf. James Talcott, Inc. v Winco Sales Corp., 14 NY2d 227, 231-233 [1964]). However, they cannot effect an affirmative recovery against plaintiff, but rather may be maintained against plaintiff in the present action only to the extent of setting off plaintiff's claim (see Allstate Ins. Co. v Babylon Chrysler Plymouth, 45 AD2d at 969; see also Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3019:5, at 210; Travelers Indem. Co. v Zeff Design, 23 Misc 3d 1121[A], *2 [2009]; Allstate Ins. Co. v Trans Hudson Express, Inc., 4 Misc 3d 1029[A], *2-3 [2004]).  In order to seek affirmative relief, defendants must commence an independent action against Rainer's Gourmet or implead Rainer's Gourmet on the counterclaims (see CPLR 3019 [d]; see also Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3019:5, at 211).

Doctrine of Accord and Satisfaction Bars Suit for Additional ACV Payment

COMMERCIAL PROPERTY – ACV SETTLEMENT PAYMENT – ACCORD & SATISFACTION
Rose Inn of Ithaca, Inc. v. Great Am. Ins. Co.
(3rd Dept., decided 7/1/2010)

A 2004 fire destroyed plaintiffs' country inn.  Because plainitiffs decided not to rebuild the inn, the policy entitled them to the actual cash value (ACV) of the loss.

The inn's owner, Charles Rosemann, who had decades of experience in the hospitality industry and had negotiated a prior insurance claim involving a fire at the inn, conducted the claim negotiations on this fire himself.  In that role, the Rosemann dealt regularly with the independent adjuster to assess the degree of damage to the inn and, after receiving the preliminary estimate of the damage, contended that over 200 items in it required revision.  Rosemann raised a number of issues with regard to the revised estimate as well, and his efforts resulted in a final estimate of property damage that was almost $250,000 higher than the preliminary one. He also negotiated directly with Great American Insurance Company, rejecting multiple settlement offers and arguing that surviving portion of inn was a total loss.  After several months of these extensive discussions, the claim was settled for the ACV of those parts of the inn that had been destroyed, leaving unresolved only the issue of whether plaintiffs were entitled to payment for the surviving portion of the inn.  The final settlement amount of approximately $4.3 million was over $300,000 more than Great American's initial offer.

Plaintiffs then commenced this action asserting two breach of contract claims: (1) that Great American had omitted items from its ACV calculation of the damages it paid; and (2) that Great American should have determined that the surviving portion of the inn was a total loss and awarded plaintiffs its ACV, as well.  Great American answered and raised the affirmative defense of accord and satisfaction.  Plaintiffs subsequently moved for partial summary judgment on the first claim insofar as it related to architectural and engineering fees allegedly omitted from the ACV calculation, and Great American cross-moved for summary judgment dismissing the entire complaint.  Supreme Court, Tompkins County (Garry, J.) granted plaintiffs' motion as to the issue of liability on the first claim, and granted Great American's cross motion to the extent of dismissing the second claim.  Great American appealed.

In MODIFYING the order appealed from to grant complete summary judgment to Great American, dismissing the entire complaint, the Third Department held that the equitable doctrine of accord and satisfaction barred the complaint's first cause of action (underpayment of ACV damages), as well:
We agree with defendant that the first claim should have been dismissed in its entirety, and modify Supreme Court's order accordingly. As defendant asserts, an accord and satisfaction is effected when "the parties . . . enter into a new contract wherein they agree that a stipulated performance will be accepted in the future, in lieu of an existing claim" (Altamuro v Capoccetta, 212 AD2d 904, 904 [1995], lv denied 85 NY2d 808 [1995]; see Environmental Prods. & Servs. v Consolidated Rail Corp., 285 AD2d 700, 702 [2001]). That is, an accord and satisfaction requires a "dispute as to the amount due and knowing acceptance by the creditor of a lesser amount" (Consolidated Edison Co. of N.Y. v Jet Asphalt Corp., 132 AD2d 296, 303 [1987]; see Marine Midland Bank v Scallen, 161 AD2d 103, 105 [1990]). Inasmuch as an accord and satisfaction constitutes a contract, it must be shown that the parties set forth the essential elements thereof and had a meeting of the minds to resolve the disputed claim (see Sorrye v Kennedy, 267 AD2d 587, 589 [1999]; Altamuro v Capoccetta, 212 AD2d at 905).

Here, the relevant facts are not in dispute. The adjuster who handled plaintiffs' claim for defendant stated in deposition testimony that the architectural and engineering fees incurred in the rebuilding of a structure are a component of replacement cost. She also acknowledged that replacement cost is reduced by depreciation to arrive at the actual cash value of a structure. Nevertheless, the adjuster omitted the architectural and engineering fees from the final settlement amount because plaintiffs decided not to rebuild the inn. Rosemann asserted that he was unaware that defendant did not intend to pay the fees. Long before accepting the settlement amount, however, Rosemann had questioned whether the fees should be included in the estimate that became the basis for the final calculation of replacement cost. Although the dispute over the fees evidently was not expressly resolved, plaintiffs nonetheless accepted the settlement. As such, there was no "mistake as to matters that were not within the contemplation of the parties" that would permit plaintiffs to avoid the creation of an accord and satisfaction (13-70 Corbin on Contracts § 70.14 [2010]). Inasmuch as plaintiffs elected to accept the settlement without asserting their current claim that they were entitled to an additional amount representing the architectural and engineering fees, the settlement gave rise to an accord and satisfaction (see Gimper, Inc. v Giacchetta, 221 AD2d 682, 684 [1995]; Hemingway v State Farm Fire & Cas. Co., 187 AD2d 814, 815-816 [1992]; Restatement [Second] of Contracts § 154; cf. Sabbagh v Pantano, 170 AD2d 411, 412 [1991]; Ginsburg v Equitable Life Assur. Socy. of U.S., 254 App Div 445, 447 [1938], lv denied 279 NY 810 [1938]). 

Plaintiffs' remaining claims for damages, arising from items allegedly omitted or undervalued in the final calculation of actual cash value, are similarly barred by accord and satisfaction. As with the above fees, while Rosemann stated that he did not know that sales tax was omitted from the calculation of replacement cost, the record reveals that he inquired about the inclusion of the tax prior to settling the claim. Plaintiffs further complain that the valuation of unit costs in the settlement was too low, but Rosemann had affirmatively challenged those costs prior to settling the claim. Finally, plaintiffs concede that damages for additional tear-out and removal costs are unavailable given the dismissal of the second claim. 
Key to the application of the doctrine of accord and satisfaction is a showing that the parties discussed, negotiated and agreed upon a compromised figure in settlement of a disputed claim.  In this case, evidence of the extensive negotiations preceding plaintiffs' acceptance of Great American's ACV settlement offer supported the doctrine's application to bar plaintiffs' suit for additional damages.

Friday, July 9, 2010

Lots to Blog About

There's lots to blog about later today and over the coming weekend.  For those of you who like to read the cases, here's what's coming:

Thursday, July 8, 2010

The Second Coming of No -- Offsetting HCRA Surcharges Against Aggregate No-Fault Limits


Back in December 2009, I posted about the New York State Insurance Department's withdrawal after only 81 days of Circular Letter No. 21 (2009), entitled "The New York State Health Care Reform Act and No-Fault Insurance", which for a time superseded Circular Letter No. 16 (1996) and Supplement No. 1 to Circular Letter No. 16 (1996).  It all had to do with the the Department's position on whether New York no-fault insurers and self-insurers could offset an applicant's aggregate no-fault benefit limit by the amount of any HCRA surcharges paid directly to the New York State Department of Health's (“DOH”) Office of Pool Administration.  The Department's position on that question from November 22, 1996 through September 16, 2009 was YES, such HCRA surcharge payments could be applied as an offset, NO from September 16 through December 6, 2009, and YES again from December 7, 2009 to present, retroactive to its 1996 circular letter.

Soon it'll be NO again.  Yesterday, the Department released a draft of Circular Letter No. XX dated July XX, 2010.  Alike its withdrawn 2009 predecessor, this proposed circular letter again supersedes and withdraws Circular Letter No. 16 (1996) and Supplement No. 1 to Circular Letter No. 16 (1996) and again advises New York no-fault insurers and self-insurers that the Department has "reconsidered its position on this issue."

Quoting a June 16, 2010 opinion of the Department's Office of General Counsel, which is not yet posted to the Department's website, the proposed circular letter states:
The Legislature clearly intended payment to health providers to be included as part of basic economic loss when it enacted Article 51 of the Insurance Law. There is no similar evidence, however, that the Legislature intended payment of the surcharge to be included as a reimbursable health expense under the no-fault law. To the contrary, when it enacted the law providing for HCRA surcharge, the Legislature did not amend the no-fault law in any manner. Accordingly, the interpretive guidance set forth in Circular Letter No. 16 no longer should be followed, and insurers may not offset the HCRA surcharge against any no-fault benefits to which an injured person is entitled under Insurance Law § 5102(a).  In view of OGC Opinion No. 06-16-2010, insurers and self-insurers may not offset an applicant's aggregate no-fault benefit limit for the payment of a surcharge when the surcharge is paid directly to the DOH's Office of Pool Administration.
The last sentence should probably be its own paragraph, rather than within the proposed circular letter's quotation of OGC Opinion No. 06-16-2010 (which are usually numbered YY-MM-DD).  One of my regular Insurance Department readers -- please tell Debra Parris.

According to the Department's website, the proposed circular letter will be available for review for only five (5) business days, or through July 14, 2010.  Comments on the proposed circular letter may be directed here.

Wednesday, July 7, 2010

On an Issue of First Impression, Third Department Holds that an Underinsurance Claim is Ripe Only if the Exhaustion of Limits Is of the Adverse Driver's Bodily Injury Insurance

SUM – TRIGGER – EXHAUSTION OF OTHER DRIVER'S POLICY LIMITS
Matter of Kemper Mut. Ins. Co. v. Russell
(3rd Dept., decided 7/1/2010)

If instead of collecting the other driver's full $50,000 in auto liability insurance coverage limits, you collect that amount from the legal malpractice insurer of the law firm that failed to sue your personal injury claim in a timely manner, do you have a supplementary uninsured motorists (SUM) coverage or underinsured claim against your own auto insurer?  In a 4-1 decision, the Third Department, Appellate Division, says no, you do not.

Patricia Russell was injured in a 2000 accident in which the automobile she was driving was rear-ended by another car.  She retained a law firm to bring a personal injury suit and, when the firm failed to timely do so, her ensuing legal malpractice action against the firm settled for $50,000, an amount equal to the full limit of the other driver's automotive liability insurance.  Russell then advised Kemper, her personal auto insurer, that she intended to file a supplementary uninsured/underinsured motorist (SUM) insurance coverage claim.  After she demanded arbitration of that claim, Kemper commenced this proceeding seeking a stay of arbitration.  Supreme Court granted the petition to the extent of temporarily staying arbitration pending a hearing on various issues, and Kemper appealed.

In REVERSING the order appealed from and granting Kemper's petition for a permanent stay of the SUM arbitration, the four-justice majority held:
An insurer is obligated to pay under SUM coverage if the bodily injury liability insurance limits of its insured's policy exceed those of the other policy, subject to the condition that "the limits of liability of all bodily injury liability bonds or insurance policies applicable at the time of the accident shall be exhausted by payment of judgments or settlements" (Insurance Law § 3420 [f] [2] [A]; see Matter of Federal Ins. Co. v Watnick, 80 NY2d 539, 546 [1992]).  The statute, in short, "requires primary insurers to pay every last dollar, and requires [respondent] to accept no less, prior to the initiation of an underinsurance claim" (Matter of Federal Ins. Co. v Watnick, 80 NY2d at 546).  The primary insurer here, however, has paid nothing, as respondent was forced to recover damages in a separate legal malpractice claim.  As the other driver's policy limit was not exhausted by payment, respondent's own SUM coverage does not come into play, and Supreme Court should have granted petitioners' application for a permanent stay. 
In her lone dissent, Justice Garry opined that the majority had misread and misinterpreted this language of New York Insurance Law § 3420(f)(2)(A):
As a condition precedent to the obligation of the insurer to pay under the supplementary uninsured/underinsured motorists insurance coverage, the limits of liability of all bodily injury liability bonds or insurance policies applicable at the time of the accident shall be exhausted by payment of judgments or settlements.  (Emphasis added.)
Justice Garry thought the majority had placed undue emphasis on the modifying phrase "all bodily injury . . . insurance policies" in holding that Russell must obtain the pertinent funds directly from the automobile carrier as a condition precedent to enforcing her contract with her own carrier:
Had the Legislature intended to require exhaustion of the applicable policies as opposed to exhaustion of the limits, this purpose would be met by simply stating that "all bodily injury insurance policies . . . shall be exhausted." This is not what the statute requires; the modifying phrase instead defines the measure of benefits, nothing more, and neither precedent nor public policy supports construing the statutory language as the majority suggests.

* * * * *

Upon this appeal, it is undisputed that respondent obtained the full amount of the "limits of liability" of the tortfeasor's bodily injury policy applicable at the time of the accident, albeit from another carrier. This unusual circumstance apparently presents a matter of first impression and, as Supreme Court correctly noted, no legal precedent establishes that the source of payment, as opposed to the amount of the payment, is a critical factor in the analysis. Instead, as respondent has obtained the full amount of the "limits of liability" of the applicable underlying bodily injury policy, the requisite statutory condition has been met, and the insurer's interests have been fully protected [FN2]. Accordingly, I would affirm the determination in full and allow the parties to proceed for determination of the remaining issues.
Although this was a reversal of the Supreme Court's order, with only one rather than two dissents, Russell will need leave of either the Third Department or the Court of Appeals to place what appears to be this issue of first impression before the Court of Appeals for determination.

Sunday, July 4, 2010

Court Grants Motion to Exclude Insurer's Computer Fire Modeling Expert's Testimony

PROPERTY – HOMEOWNERS – FIRE INVESTIGATION – COMPUTER FIRE MODELING – ADMISSIBILITY OF EXPERT TESTIMONY – FRYE HEARING
Santos v. State Farm Fire & Cas. Co.
(Sup. Ct., Nassau Co., decided 6/28/2010)


Plaintiff moved pursuant to Frye v. United States, 293 F. 1013 (DC Cir. Ct. Apps.1923) to exclude the testimony of State Farm's defense computer fire modeling expert witness, Dr. Jozef Urbas.  At the time the motion was made, plaintiff contended that Dr. Urbas utilized the computer fire modeling to determine the origin and cause of a fire that occurred at plaintiff's premises in Bethpage, New York, on January 20, 2006. The court ordered a Frye Hearing.
Pursuant to the Frye test, expert testimony based on scientific principles or procedures is admissible only after a principle or procedure has gained general acceptance in its specified field (People v Wesley, 83 NY2d 417, 422 [1994]). A particular procedure need not be unanimously indorsed by the scientific community but must be generally accepted as reliable (Id. at 423). The Frye test emphasizes "'counting scientists' votes," rather than verifying the soundness of a scientific conclusion (Parker v Mobil Oil Corp., 7 NY3d 434, 447 [2006]).

In 1993 the United States Supreme Court decided Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 US 579 which, in federal courts, displaced the Frye general acceptance standard based upon the Federal Rules of Evidence. The Frye general acceptance test, however, continues to be the standard for determining reliability and admissibility of expert testimony in New York (see People v. Wesley, 83 NY2d at 433).

The burden of proof is on the party challenging the evidence to make a prima facie showing that it is a novel theory which is not generally accepted (Matter of Seventh Jud. Dist. Asbestos Litig., 9 Misc 3d 306, 311-312 [Sup. Ct. Wayne Co. 2005]). The burden then shifts to the proponent of the evidence to show by a fair preponderance of the credible evidence that there is sufficient general acceptance of its reliability (Id.).
Eugene J. West, retired investigator for the New York City Bureau of Fire Investigation (the Fire Marshal's Office), testified for the plaintiff that in his capacity as a fire investigator he would get many requests to utilize computer fire modeling but would decline to use it as part of the official investigation, stating that: "We can only speculate as to what was the composition or the exact construction of a room or the type of materials that were used, especially if those things are no longer available to us."

Mr. West stated that computer fire modeling was never generally accepted as an investigative tool by the New York City Fire Department.  It was his opinion that computer fire modeling is not generally accepted in the fire investigative community and cannot be used to determine the cause of a fire.  Although computer fire modeling was used in the World Trade Center investigation, it was used for illustrative purposes.  Mr. West explained that there is a caveat by the National Fire Protection Association ("NFPA") that the program is essentially as good as the information put into it.

In support of the introduction of the computer fire modeling evidence, Dr. Urbas testified the NFPA endorses the use of fire modeling in fire dynamics in the use of fire investigation.  Dr Urbas further testified that the underlying equations and laws of physics have been generally accepted in the fire science community and that they have been generally accepted as reliable in computer fire modeling.

State Farm's counsel explained that Dr. Urbas was not coming into court to state the cause and origin of the fire but rather to apply the computer dynamics to see how the fire would spread.  Dr. Urbas testified that the results of the fire modeling established that there was a time line that matched a particular origin of the fire, that the damage in the building corresponded to the results of the modeling and that the determination of fire dynamics in that particular theory [the time line] is generally accepted for that purpose.  The computer fire modeling essentially verified the hypothesis as to the ignition source or cause of the fire.  Dr. Urbas "never said it's accepted for determining the origin of the fire" and acknowledged that although "[i]t can help determining the cause", " it cannot be the sole method of determining the cause" of a fire.

After hearing the testimony of both parties' experts, Nassau County Supreme Court Justice Thomas Phelan granted plaintiff's motion to exclude the computer fire modeling testimony:
The NFPA Users Manual for 921 states: "To conduct valid modeling and testing it is important that the investigator gather data that is as accurate and complete as possible."  Dr. Urbas agreed that the concept "garbage-in-garbage-out" was applicable (p. 73).  Here, the input was based upon regulatory agency tables [for furniture, floors, walls, etc.]*, measurements taken by Dr. Urbas, his inspection of the damage and his reliance upon information received from fire investigators from the insurance company.  Dr. Urbas never spoke with the homeowner, the Nassau County fire officials or local firefighters.  Dr. Urbas testified that he was unaware that there were paint thinners and solvents in the area where the fire started and that such knowledge would have thrown off the entire calculation (p. 75).

Fire modeling carries with it a 15 to 20 percent margin for error assuming all conditions are correct but could be as high as 80 percent depending upon the real conditions (pp. 76-77).  Dr. Urbas acknowledged that there could be a difference between the material represented in a table and the actual material at the fire scene (p. 83). "If the input in the model is correct then the output is correct" (p. 96).  Dr. Urbas' testimony indicated that incorrect input could lead to inaccurate results.

Bearing in mind that the court's role as gatekeeper is "counting scientists," the court finds that defendant did not present sufficient evidence to establish that there is a consensus in the fire investigation community that computer fire modeling is generally accepted as reliable. "The long-recognized rule of Frye v. United States (supra) is that expert testimony based on scientific procedures is admissible but only after a principle or procedure has gained general acceptance' in its specified field" (People v. Wesley, 83 NY2d at 422).  Here the specified field is fire investigation. The issue before the trier of fact in this particular lawsuit involves when and how the fire started.  Defendant failed to meet its burden of proving that its expert's use of computer fire modeling was generally accepted in the fire investigation community (Cumberbatch v. Blanchette, 35 AD3d 341, 342 [2d Dept. 2006]). Although defendant's expert may support a case for the acceptance of computer fire modeling in the regulatory/design community, it does not support a conclusion that it is generally accepted in the fire investigation community. 
It is important to understand that Justice Phelan did not hold that computer fire modeling is scientifically unreliable and never admissible in a civil arson case; he merely held that in this particular case, State Farm did not submit sufficient evidence to convince him that computer fire modeling was generally accepted in the fire investigation community.

And as late as the mid-nineteenth century, some still believed that the earth was flat.

Friday, July 2, 2010

Reprise of the No-Fault Intoxication Exclusion Cut-Back Bill Has Passed the NYS Assembly -- To Governor to Sign

As I predicted in my post of June 30th, the revised no-fault intoxication exclusion cut-back bill, S7845 Breslin, was put to a vote and passed in the New York State Assembly yesterday, July 1, 2010. The Senate passed the bill on June 18th. 

Although some will recall that Governor Paterson vetoed a broader version of this bill back in 2008, this 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.  Given the bill's limitation to emergency general hospital and ambulance services, Governor Paterson is expected to sign this bill.

The bill amends Insurance Law § 5103(b)(2) as follows (new language underlined):
Section 5103:  Entitlement to first party benefits; additional financial security required

(b)  An insurer may exclude from coverage required by subsection (a) hereof a person who:

(2) Is injured as a result of operating a motor vehicle while in an intoxicated condition or while his ability to operate such vehicle is impaired by the use of a drug within the meaning of section eleven hundred ninety-two of the vehicle and traffic law; provided, however, that an insurer shall not exclude such person from coverage with respect to necessary emergency health services rendered in a general hospital, as defined in subdivision ten of section two thousand eight hundred one of the public health law, including ambulance services attendant thereto and related medical screening. notwithstanding any other law, where the covered person is found to have violated section eleven hundred ninety two of the vehicle and traffic law, the insurer has a cause of action for the amount of first party benefits paid or payable on behalf of such covered person against such covered person.
This new law will take effect 180 days after Governor Paterson signs it -- and he WILL sign this one -- 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.

If Governor Paterson signs the bill today or tomorrow, some New York no-fault insurers could be paying for emergency treatment  to persons overreveling on this coming New Year's Eve.  Certainly we can expect to see no-fault payments for intoxicated and impaired drivers sometime in early 2011. 

And does the language "found to have violated [Vehicle & Traffic Law § 1192]" in the new law mean that there must be a conviction before a no-fault insurer may sue the covered person to recover health care service benefits paid for his or her emergency treatment?  New York law currently does not contain such a requirement, so this new law, which grants a new cause of action to no-fault insurers, should arguably be construed to enlarge, rather than diminish, no-fault insurers' rights in this area, right?

Editor's Note (01.14.11) ~~ An amended Insurance Law § 5103(b)(2) takes effect on January 26, 2011.  Read about that amendment and the New York State Insurance Department's interpretation of it here.

Thursday, July 1, 2010

The New York Automobile Fraud Prevention Act of 2010 -- Introduced June 29, 2010

After months and months of meetings and multiple drafts of proposed language that I'm told was the product of negotiation and compromise between interested groups and industries, the New York State Legislature introduced its own "Automobile Fraud Prevention Act of 2010" on June 29, 2010.  This "same as" bill is numbered S8414 Breslin in the Senate and A11596 Titone in the Assembly.

The bill has eight sections:
  • § 1 -- Names the bill "the automobile insurance fraud prevention act of 2010"
  • § 2 -- Amends and substantially adds to Insurance Law § 5106 regarding defenses preclusion, medical necessity IME- and peer review-based denials, arbitrations, burdens of proof and evidentiary presumptions in lawsuits, and the use of depositions in no-fault litigation
  • § 3 -- Amends Insurance Law § 5109 regarding unauthorized health service providers
  • § 4 -- Amends Insurance Law § 5103(b)(2) to exempt emergency general hospital and ambulance services from the no-fault intoxication exclusion
  • § 5 -- Amends Insurance Law § 5102(d) to add two more categories of "serious injury"
  • § 6 -- Adds subparagraph (4) to subsection (j) of Insurance Law § 3420 to define "covered person" as used in Insurance Law § 3420(f)(1)
  • § 7 -- Adds subsection (m) to Insurance Law § 5202 adding a definition "covered person" to that section.
  • § 8 -- Provides for the effective dates of the various sections of the act.  
The full text of the bill, in a PDF document, is here.  New language is underlined.  Deleted language is bracketed.

I'll post a more detailed review and assessment in a day of two, but for now, here are the bill's highlights or lowlights, depending on your perspective:
  • Defense preclusion:  If the New York no-fault insurance industry was hoping for a complete eradication of the Presbyterian Hospital decision, this isn't it.  Fair Price (services or supplies not provided) would be gone, but the preclusion of the fee schedule defense up to 10% would remain.  A weak and inartful attempt has been made to codify the courts' non-preclusion for for staged/caused event defense. 
  • IME- and Peer Review-Based Medical Necessity Denials:  Extends to 60 days the time period within which a no-fault insurer may deny a claim based on lack of medical necessity.  Requires that lack of medical necessity denials be based on an IME or peer review and, even if not requested, copies of the IME or peer review report supporting any such denial would be required to be sent to the claimant, the claimant's attorney, and "the claimant's treating health care provider" within 30 days of the IME or peer review.
  • Arbitrations:  Mandatory arbitrations of no-fault disputes?  Not in here.  Instead, a claimant's option to arbitrate some bills or benefits and sue others from the same accident would be codified.  A claimant would not be able to submit the same dispute to multiple forums, however.  Arbitrators would be required to "follow and apply substantive law", master arbitration would include the opportunity for parties to submit "written briefs", the master arbitrator's scope of review would include "factual, legal and procedural errors", and an arbitration or master arbitration award, except as to the issue of "the existence of insurance coverage" would not be given collateral estoppel effect in any personal injury litigation. 
  • Burdens of Proof & Evidential Presumptions in Arbitrations & Lawsuits:  The claimant's prima facie showing would be satisfied by the claimant's filing of a "verification" with the arbitration demand or complaint setting forth that: (1) the claimant was licensed to render the services or the items provided at the time they were provided; (2) the services were rendered or items supplied by the claimant; (3) the services or items were medically necessary, or, for services or supplies provided pursuant to prescription, that such were properly supported by a prescription; (4) the claimant received an assignment of benefits from the injured party or the guardian or parent of the injured party; and (5) the claimant authorized the particular attorney or law firm to commence the suit.  In litigation, certain rebuttable evidentiary presumptions would attach to various billing and claim documents upon the submission of an affidavits sponsoring such documents as business records.
  • Use of Depositions:  Depositions of any person could be used by any party without the necessity of showing unavailability or special circumstances, subject to the right of any party to move pursuant to CPLR 3103 to prevent abuse, "provided that the party against whom the evidence is offered had been afforded an opportunity to participate and question the witness at the deposition."
  • Unauthorized Health Service Providers:  Authorizes the superintendent of insurance to fine up to $50,000 and prohibit a provider of health services from demanding or requesting payment for health services rendered under the no-fault article, for a period not exceeding three years, if the superintendent makes certain determinations after notice and a hearing.
  • "Serious Injury" Threshold:  Would add "a complete tear or rupture of a nerve, tendon, ligament, cartilage or muscle" and "a tear, rupture or impingement of a nerve, tendon, ligament, cartilage or muscle which results in a significant impairment of a body organ, member, function or system" to the "serious injury" categories under Insurance Law § 5102(d).  
  • "Covered Person":  Would define a "covered person" for purposes of Insurance Law §§ 3420(f)(1) and 5202 to include pedestrians and anyone injured in a staged/caused event who "is not a perpetrator of or a knowing participant in the staging or planning of the accident."
My sources tell  me that there is a chance this bill will make it out of committee and onto the floors of the Senate and Assembly for a vote this legislative session.  If you oppose the passage of this packaged bill, you should contact your legislative liaison or contact the sponsors themselves.  Or you could post your comments here or email them to me and I'll make sure they get to people who can get them to the legislators.  I'll post the sponsors' contact information here later tonight or tomorrow. anyone

I Am He as You Are He as You Are Me and We Are All Together

CGL – LATE NOTICE – NOTICE TO BROKER
Prince Seating Corp. v. QBE Ins. Co.
(2nd Dept., decided 5/11/2010)

Since this is an insurance coverage blog, I should probably start with a disclaimer:  I am not the walrus, have never written a song lyric (or anything else for that matter) to the rhythm of a police siren or while on an acid trip, have never sat on a cornflake or had my grade school study and interpret any writings of mine (at least to my knowledge), have never done anything to be called or been called "the Eggman", do believe in the concept of element'ry penguin, and agree that the song just wouldn't have been the same if entitled "I Am the Carpenter".

In insurance coverage parlance, "you" and "your" and "we", "our" and "us" have defined and generally understood meanings, right?  After all, insurance contracts long ago dropped the "party of the first part" and  "party of the second part" (hence "first-party coverage" and "third-party coverage") lingo.

New York Insurance Law § 3420(a)(3) requires bodily injury and property damage liability policies issued or delivered in this state to contain
(3)  A provision that notice given by or on behalf of the insured, or written notice by or on behalf of the injured person or any other claimant, to any licensed agent of the insurer in this state, with particulars sufficient to identify the insured, shall be deemed notice to the insurer.  (Emphasis added.)
Applicable policies that don't contain such a provision will be "deemed" to include one.

The legal difference between an insurance agent and broker is especially significant in regard to the notice requirements or conditions of a liability insurance policy.  New York case law is "legion", as some lawyers love to say, that  notice provided to an an insured's broker is not notice to its liability insurer.   This is not one of those cases. 

The ISO-standard Commercial General Liability Coverage Form contains the following notice of occurrence condition:
2.     Duties In The Event Of Occurrence, Offense, Claim Or Suit
a.  You must see to it that we are notified as soon as practicable of an "occurrence" or an offense which may result in a claim.
Who is the "we" in that condition?  Most would unhesitatingly say the insurance company, because the CGL form also states:
Throughout this policy the words "you" and "your" refer to the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy. The words "we", "us" and "our" refer to the company providing this insurance.  (Bold and underlining added.)
Most but not all.  Like the insured in this case, and the Second Department under this policy language.

Prince Seating Corp. provided notice of an underlying claim to its broker, Century Coverage Corp., rather than, as required by its insurance policy, to its insurer, QBE Insurance Company.  QBE disclaimed for late notice, and Prince Seating commenced this declaratory judgment action to upset that disclaimer. 

In AFFIRMING Supreme Court's (Jacobson, J.) denial of QBE's motion for summary judgment, the Second Department reiterated its 2006 holding in Jeffrey v. All City Ins. Co., that a policy provision which uses the pronouns “we” and “us” to describe who should be notified without clearly identifying the insurer as the party to whom those terms apply is ambiguous:
It is well settled that, absent some evidence of an agency relationship, even timely notice of an accident by an insured to a broker is not effective and does not constitute notice to the insurance company, as a broker is considered to be an agent only of the insured (see Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimmons Corp., 31 NY2d 436; Matter of Temple Constr. Corp. v Sirius Am. Ins. Co., 40 AD3d 1109, 1111-1112; 120 Whitehall Realty Assoc., LLC v Hermitage Ins. Co., 40 AD3d 719, 721; Gershow Recycling Corp. v Transcontinental Ins. Co., 22 AD3d 460, 462; Rendiero v State-Wide Ins. Co., 8 AD3d 253). Moreover, absent a valid excuse, the failure to satisfy a provision in an insurance policy requiring notice of a covered occurrence, a condition precedent to the insurer's duty to defend and/or indemnify claims against the insured, vitiates the policy (see Empire City Subway Co. v Greater N.Y. Mut. Ins. Co., 35 NY2d 8; Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimmons Corp., 31 NY2d at 440; Jeffrey v Allcity Ins. Co., 26 AD3d 355, 356; Centrone v Staste Farm Fire & Cas., 275 AD2d 728). In this case, there is no evidence that a principal-agent relationship between Century and QBE existed. 

However, the terminology of the policy, including the notice provision, in which the words "we," "us," and "our," referring to "the company providing this insurance," were used to describe who should be notified, is ambiguous. QBE was not clearly identified as the party to whom those terms applied. Given that ambiguity, there is an issue of fact as to whether "the contract should be interpreted to allow notice to [the] broker" (Jeffrey v Allcity Ins. Co., 26 AD3d at 356).
Check your policy language.  Do the "we", "our" and "us" clearly refer to the underwriting insurer usually listed on the policy's declarations page?  If not, notice to the insured's broker may be held to be notice to the insurer.

Element'ry penguin.  Man you should have seen them kicking Edgar Alan Poe.  And even though Paul was my favorite, thank you John (and whoever wrote "Marching to Pretoria") for today's post title.