Wednesday, November 24, 2010

The Knowing I Don't Know

My kids can tell you that I categorically reject the "I don't know."  In my experience that response often means the person is being either lazy -- "My brain is resting. I don't want to think.  Go away." -- or deceptive -- "That's a good question and I know exactly why you're asking it and what the answer is, but I'm not going to answer you."  There is, of course, a third possibility:  the IDK response of true ignorance, but I have found that to be a rare creature especially in the examinations under oath I conduct because most of my questions will always be about things the deponent should have some knowledge of.  I know why I'm asking what I'm asking and usually the deponent does too.

I refer to the deceptive IDK as the verbal middle finger response.  Nothing says eff you like an IDK response to a question the person being questioned most certainly knows the answer to.  "I don't recall" is a mere "get lost" to an IDK eff you.

Attentive and compliant claims professionals whom I've prepped for depositions and trial learn to follow my five-finger verbatim answer choice method of responding to questions (open each finger one at a time on your left hand as you read this for a visual imprinting):
"Yes." -- the thumb
"No." -- the forefinger
"I don't know." -- coincidentally, the middle finger
"I don't recall." -- the ring finger, with or without the circular, precious metal and gemstone memory aid
[Shortest possible answer] -- like the pinky, the shortest finger on most everyone's hands
I've sometimes wondered whether lawyers tell their clients to answer "I don't know" or "I don't recall" to difficult questions.  Or whether people prone to prevarication have themselves figured out that it's nearly impossible to prove that an IDK or IDR response is a lie.  Not until IBM perfects that mind reading machine they've been working on, at least.  

I've had plenty of people flip me the IDK bird over the years.  God knows I've irritated my share of witnesses and representing counsel (and my kids and spouse) in my day by refusing to accept the initial IDK response.  Doggedly but often unsuccessfully I press for confirmation of the deponent's true ignorance.  Like yesterday.  Here's the riveting Q&A:
Q:  How many televisions were in your home at the time of the fire?
A:  I don't know.
Q:  Who cleaned your home?
A:  I did.
Q:  Every room?
A:  Yes.
Q:  Regularly?
A:  Yes.
Q:  Over the entire six-year period you lived there?
A:  Yes.
Q:  Did the home have a basement?
A:  Yes.
Q:  Name the rooms on the first floor.
A:  Kitchen, living room, laundry room.
Q:  Name the rooms on the second floor.
A:  Our daughter's bedroom, the master bedroom, the spare bedroom, and the bathroom.
Q:  Was there a television in the basement?
A:  No.
Q:  Was there a television in the kitchen?
A:  No.
Q:  Was there a television in the living room?
A:  Yes.
Q:  Was there a television in the laundry room?
A:  Yes.
Q:  Was there a television in your daughter's bedroom?
A:  No.
Q:  Was there a television in the master bedroom?
A:  Yes.
Q:  Was there a television in the spare bedroom?
A:  No. 
Q:  Was there a television in the bathroom?
A:  No.
Q:  So there were three TVs in the house at the time of the fire?
A:  Yes.
Q:  So you did know how many televisions there were in your home?
A:  I guess.
Q:  I told you I didn't want you to guess.  You did know, right?
A:  Right. 
Q:  Do you also know then why there are seven televisions listed on the contents inventory that you submitted to ABC Insurance Company?
A:  I don't know.
Information that should have taken five seconds to obtain took 60.  So please folks, we'll be done much sooner if you don't tell me you don't know unless actually you don't know.  And representing counsel, please don't tell me that your clients don't know something.  Unless you were a fact witness to the subject matter of my question, you can't possibly know what they know and don't know.  And yes, my hearing works fine; I heard your client say "I don't know."  I just don't necessary believe that.  Not at first, at least.  Let me show you why.

Next week's discourse:  facilitating the recollection of the assertedly unrecalled.

Monday, November 22, 2010

New York Court of Appeals Finds Stranger-Owned or Stranger-Originated Life Insurance (SOLI or STOLI) Policy Not Prohibited by Then-Existing Sections of New York Insurance Law

Kramer v. Phoenix Life Ins. Co.

(Ct. Apps., decided 11/17/2010)

New York insurance law, alike the law in many other jurisdictions, has long prohibited the procurement of life insurance payable to one who lacks an insurable interest in the person insured at the time the life insurance contract was made.

New York's insurable interest requirement is codified in Insurance Law § 3205(b).  Section 3205(b)(1) addresses individuals obtaining life insurance on their own lives:
"Any person of lawful age may on his own initiative procure or effect a contract of insurance upon his own person for the benefit of any person, firm, association or corporation. Nothing herein shall be deemed to prohibit the immediate transfer or assignment of a contract so procured or effectuated."
Section 3205(b)(2) addresses a person's ability to obtain insurance on another's life and requires, in that circumstance, that the policy beneficiary be either the insured himself or someone with an insurable interest in his life:
"No person shall procure or cause to be procured, directly or by assignment or otherwise any contract of insurance upon the person of another unless the benefits under such contract are payable to the person insured or his personal representatives, or to a person having, at the time when such contract is made, an insurable interest in the person insured."
New York Insurance Law § 3205(a)(1) defines insurable interest as, "in the case of persons closely related by blood or by law, a substantial interest engendered by love and affection" or, for others, a "lawful and substantial economic interest in the continued life, health or bodily safety of the person insured."

On this appeal, the New York Court of Appeals addressed this certified question from the United States Court of Appeals for the Second Circuit:
"Does New York Insurance Law §§ 3205(b)(1) and (b)(2) prohibit an insured from procuring a policy on his own life and immediately transferring the policy to a person without an insurable interest in the insured's life, if the insured did not ever intend to provide insurance protection for a person with an insurable interest in the insured's life?"
In a 5-2 decision, the Court answered that question in the negative, holding that at the time the policies at issued in this case were procured and assigned, New York law permitted a person to procure an insurance policy on his or her own life and immediately transfer it to one without an insurable interest in that life, even where the policy was obtained for just such a purpose.

At issue in this case was $56,200,000 in coverage under several stranger-owned or stranger-originated life insurance policies (SOLI or STOLI policies) issued on the life of Arthur Kramer, a prominent attorney.  Although the policies originally named one or more of Kramer's adult children as beneficiaries at inception, they were immediately assigned to stranger investors and eventually sold.  Neither Arthur Kramer nor his children ever paid premiums on the policies, and the Kramer children were never "true beneficiaries" of the trusts the policies had funded after the policies were issued.

Kramer died in 2008 and his widow refused to turn over copies of the death certificate to investors holding beneficial interests in the policies.  She filed this action in federal court, alleging that the SOLI policies violated New York's insurable interest rule and so should be paid to her as the representative of her deceased husband's estate. 

In ruling on various motions to dismiss, the federal district court held that defendant Steven Lockwood, the principal of Lockwood Pension Services and the person who had originally approached Kramer in 2003 about participating in the SOLI scheme, "breached provisions of the New York Insurance Law in that he caused to be procured directly or through assignment or other means, a contract of insurance upon the life of the decedent [Kramer] for the benefit of strangers who did not have an insurable interest in his life at the time the policy was obtained."  The district court granted an interlocutory appeal of the interpretation of New York Insurance Law § 3205 to the Second Circuit, Court of Appeals, and that court certified the dispositive  question to the New York Court of Appeals, leading to this decision.

In strictly interpreting and applying the language of 3205(b)(1) and (b)(2), the five-justice majority, in a opinion by Justice Ciparick, found that those sections and others of the New York Insurance Law did not prohibit SOLI or STOLI policies at the time the policies at issue in this case were issued, assigned and sold:
In light of the overwhelming textual and historical evidence that the Legislature intended to allow the immediate assignment of a policy by an insured to one lacking an insurable interest, we are not persuaded by plaintiff and the insurers' argument that § 3205 (b) is limited by the common law requirement that an insured cannot obtain a life insurance policy with the intent of circumventing the insurable interest rule by immediately assigning it to a third party (see Steinback v Diepenbrock, 158 NY 24, 30-31 [1899]).  To the extent that there is any conflict, the common law has been modified by unambiguous statutory language.  We note further that if our Legislature had intended to impose such a limitation, it could easily have done so.  The Legislature has been very active in this area, most recently in its redrafting of Article 78 of the Insurance Law.

Finally, we recognize the importance of the insurable interest doctrine in differentiating between insurance policies and mere wagers (see Caruso, 73 NY2d at 77-78), and that there is some tension between the law's distaste for wager policies and its sanctioning an insured's procurement of a policy on his or her own life for the purpose of selling it. It is not our role, however, to engraft an intent or good faith requirement onto a statute that so manifestly permits an insured to immediately and freely assign such a policy.
In footnote #5, the majority noted that in 2009, the New York State Legislature added several new provisions to the Insurance Law regulating permissible "life settlement contracts," i.e. agreements by which compensation is paid for "the assignment, transfer, sale, release, devise or bequest of any portion of: (A) the death benefit; (B) the ownership of the policy; or (C) any beneficial interest in the policy, or in a trust . . . that owns the policy" (see Insurance Law § 7802 [k]).  In addition to regulating the life settlement industry (see Insurance Law art 78), this new law prohibits "stranger-originated life insurance," defined as "any act, practice or arrangement, at or prior to policy issuance, to initiate or facilitate the issuance of a policy for the intended benefit of a person who, at the time of policy origination, has no insurable interest in the life of the insured under the laws of this state" (Insurance Law § 7815). It also prohibits anyone from entering a valid life settlement contract for two years following the issuance of a policy, with some exceptions (see Insurance Law § 7813 [j] [1]).  Because these provisions did not go into effect until May 18, 2010, however, they did not govern the Court's decision on this appeal.

In his dissenting opinion, Justice Smith disagreed with the majority's holding that, in effect, Insurance Law § 3205(b) displaced the common law, and eliminated the exception recognized in late 19th and early 20th century United States Supreme Court cases to the rule of free assignability.   Justice Smith opined that this was an incorrect reading of the statute and saw no reason to believe the Legislature ever intended to abolish the common law anti-wagering rule:
The majority today . . . holds in substance that Insurance Law § 3205 (b) enacts the general rule of free assignability, while abolishing the "cloak for a wager" exception.  For the reasons I have explained, I think this holding is unnecessary and unfortunate.  I agree with the majority that there may be cases where a policy can be valid, even though the insured bought the policy intending to assign it to someone (perhaps a charity, or the insured's domestic partner) without an insurable interest in the insured's life. Thus, I would not answer with an unqualified yes the Second Circuit's question whether an insured must have intended to "provide insurance protection for a person with an insurable interest."  But I think the answer should be yes when the question is limited to a case, like this one, in which the parties attempted the kind of wagering transaction forbidden by the common law.

The majority's negative answer to the Second Circuit's question, though I think it is wrong, may be of limited importance. Any harm done may have already been repaired by the 2009 enactment of a statutory prohibition on stranger-originated life insurance (see majority op at 7 n 5). The new statute may create its own problems; insurable interest rules, as our opinions in this case surely demonstrate, are tricky to handle. But I view the new statute as an attempt to implement what I think has always been the public policy of New York to condemn wagers on the early death of an insured.

Wednesday, November 17, 2010

Appellate Term Agrees that Affidavit Is Better than None

High Quality Med., P.C. v. Mercury Ins. Co.

(App. Term, 2nd Dept., 2nd, 11th & 13th Dists., decided 11/8/2010)

New York CPLR 2106 states:
The statement of an attorney admitted to practice in the courts of the state, or of a physician, osteopath or dentist, authorized by law to practice in the state, who is not a party to an action, when subscribed and affirmed by him to be true under the penalties of perjury, may be served or filed in the action in lieu of and with the same force and effect as an affidavit.  (Bold added.)
Attorneys, physicians, osteopaths and dentists may affirm via affirmations, rather than aver via affidavits, as long as they are not parties to the action in which they're affirming. 

Mercury moved for summary judgment dismissing the fifth cause of action of plaintiff provider's complaint.  In support of its motion, Mercury submitted two affidavits:  one presumably from a Mercury claim representative to establish that Mercury's denial of claim form, which had denied the claim at issue of the ground of lack of medical necessity, was timely mailed in accordance with Mercury's standard office practices and procedures; and the other executed by the doctor who had performed the IME upon which Mercury denied payment, as well as an affirmed IME report, establishing a lack of medical necessity for the services at issue.

Plaintiff provider opposed Mercury's motion with an affirmation executed by plaintiff's principal, Dr. Nihamin.  In its reply papers, Mercury objected to that affirmation on the basis that CPLR 2106 disallows the use of an affirmation from a physician who is a party to the action.

Finding that Mercury had not established that Dr. Nihamin was plaintiff's principal and that Dr. Nihamin's affirmation raised a question of fact regarding the medical necessity of the billed services, Kings County Civil Court (Noach Dear, J.) denied Mercury's motion.  In REVERSING that order, the Appellate Term, Second Department, found that the motion court should not have considered Dr. Nihamin's affirmation:
Although the Civil Court found that defendant had failed to prove that Dr. Nihamin was plaintiff's principal, the claim form submitted to defendant by plaintiff identified Dr. Nihamin as plaintiff's principal.  As a result, the submission of Dr. Nihamin's affirmation was improper because Dr. Nihamin is a principal of plaintiff professional corporation, which is a party to the action (see CPLR 2106; Samuel & Weininger v Belovin & Franzblau, 5 AD3d 466 [2004]; Richard M. Gordon & Assoc., P.C. v Rascio, 12 Misc 3d 131[A], 2006 NY Slip Op 51055[U] [App Term, 2d & 11th Jud Dists 2006]; see also Pisacreta v Minniti, 265 AD2d 540 [1999]).  Since the Civil Court should not have considered any facts set forth, or exhibits referred to, in said affirmation (see Pisacreta, 265 AD2d 540), plaintiff failed to proffer any evidence in admissible form which raised an issue of fact (see Zuckerman v City of New York, 49 NY2d 557 [1980]). 
Over at his No Fault Defender blog, Jason Tenebaum reports that this was Mercury's (his) fourth kill shot with a CPLR 2106 slug.  Coverage Counsel is seeking confirmation of the report that during oral argument of Mercury's appeal, in response to a question from Presiding Justice Pesce, plaintiff provider's counsel quoted another well-known litigator from the Second Department, in saying:  "I explained it to you already, didn't I?  It's procedure.  I'm bound to f@#! up a little.

May seem trite to some, but the outcomes of New York no-fault cases often rest on seemingly nitpicky procedural  rather than substantive grounds.  This wouldn't have anything to do with the inundation of the New York courts with hundreds and hundreds of thousands of no-fault suits would it?

Where There's Fire, There's Smoke

New York Prop. Ins. Underwriting Assn. v. Hampton

(App. Term, 2nd Dept., 2nd, 11th & 13th Dists., decided 11/8/2010)

I don't get the Appellate Term, Second Department, sometimes. 

Defendant left a frying pan unattended on an on stove in his home, causing a fire. While the firefighters were fighting that fire, the defendant told his neighbor, Mrs. Poole, that she should go into her adjacent two-story home and close the windows on the second floor in order to prevent any water or smoke from getting into her residence.  She didn't heed his advice and although her home never caught fire, it nevertheless sustained $6,037.98 in damages from smoke and water that had entered the premises through those very same second floor windows. 

Mr. and Mrs. Poole's homeowners insurer paid those damages, brought this subrogation action against the defendant and moved for summary judgment.  In opposing that motion, defendant argued that because the Pooles did not re-enter their house to close their windows, a question of fact existed as to whether their failure to do so constituted comparative negligence precluding summary judgment. 

Kings County Civil Court (Kathy J. King, J.) granted plaintiff's summary judgment motion, and in a 2-1 decision the Appellate Term, Second Department, AFFIRMED, holding:
"[S]moke and water damage to adjacent property are foreseeable consequences of a fire, and plaintiff may recover for such damage if he established defendant['s] breach of duty and proximate cause" (Cuevas v Quandt's Foodservice Distribs., Inc., 6 AD3d 973, 974 [2004]; see Excelsior Ins. Co. v Auburn Local Dev. Corp., 294 AD2d 861 [2002]; Fontana Fabrics v Hodge, 187 AD2d 378 [1992]).  Here, it is undisputed that the source of the fire was a frying pan located on the stove in defendant's house.  In our view, under the circumstances presented, the Civil Court properly found as a matter of law that the insureds' alleged failure to close their windows while firefighters were fighting the blaze did not constitute culpable conduct on the part of the insureds so as to raise a triable issue of fact.  Accordingly, the order of the Civil Court granting plaintiff's motion for summary judgment is affirmed.
Justice Golia dissented, agreeing that plaintiff had established defendant's negligence, but believing that there existed material issues of fact on plaintiff's subrogors' comparative negligence sufficient to preclude the granting of plaintiff's motion for summary judgment:
Although it is undeniable that defendant's negligence created the fire, there are nevertheless other issues which must be resolved.  During the course of the fire being "fought" by the firefighters, the owner of this neighboring premises, according to her filed affidavit, instructed Ms. Poole to enter and close the windows on the second floor of her premises in order to prevent any water or smoke from getting into plaintiff's premises. Ms. Poole chose not to follow that advice. Subsequently, even though Ms. Poole's premises never caught fire, it nevertheless allegedly suffered from both smoke and water entering the premises through those windows.  I note that neither plaintiff's insured, nor plaintiff with personal knowledge, responded to this claim by denying that it ever happened; by asserting that Ms. Poole believed it was too dangerous to enter her house; by asserting that the firefighters prohibited Ms. Poole from entering her house; or by presenting any other reason why Ms. Poole had failed to protect her property and mitigate her damages.
The relatively minor amount of this claim probably reduces to nil the cost-effectiveness of prosecuting an appeal of the Appellate Term's split decision to the Appellate Division.  So is it now okay or reasonable, in a culpable conduct/comparative negligence sense, to stand by, watch and take no action to protect one's property from potential damages that: (1) were brought to one's attention; and (2) could easily have been avoided?  I don't think so. 

Monday, November 15, 2010

No Good Deed Goes Unpunished

Zenzillo v. Underwriters At Lloyd's London

(4th Dept., decided 11/12/2010)

If an insured's attorney grants and then terminates an indefinite extension for a defendant insurer to answer the insured's complaint, but no answer is forthcoming and the action lies dormant for two years, what happens?
a.  default judgment is granted against defendant insurer; or
b.  complaint is dismissed. 
Believe it or not, the correct answer is "b".  The complaint is dismissed. 

Plaintiff sued defendant for amounts allegedly owed plaintiff under her insurance policy with defendant.  On June 1, 2006, the parties' counsel stipulated to an indefinite extension of time for defendant to answer the complaint.  By letter dated January 19, 2007, plaintiff's counsel requested that defendant answer the complaint so that plaintiff could prosecute the action.  Defendant never did so but, on February 3, 2009, more than two years later, it moved to dismiss the complaint pursuant to CPLR 3215(c), which provides:
(c) Default not entered within one year. If the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed. A motion by the defendant under this subdivision does not constitute an appearance in the action.
Oneida County Supreme (Bernadette T. Romano, JSC) denied defendant's motion but the Appellate Division, Fourth Department, REVERSED, finding that plaintiff had failed to demonstrate "sufficient cause" for not treating the complaint as abandoned:
In opposition to the motion, plaintiff included an affirmation from plaintiff's counsel, who agreed that the January 19, 2007 letter terminated the stipulation extending defendant's time to answer.  Defendant therefore defaulted 20 days after January 19, 2007 by failing to appear in the action (see CPLR 320 [a]), and plaintiff failed to demonstrate sufficient cause why the complaint should not be dismissed (see CPLR 3215 [c]).
Although this outcome may seem harsh, plaintiff's two-year inaction after requesting an answer may imply a level of disinterest in prosecuting the action (as opposed to mere inattention by the insured's counsel).  Sometimes insureds sues their insurers hoping that the mere filing and service of a complaint will prompt a settlement offer on a declined claim.  But was this a calculated strategy by defense counsel of not answering the complaint and waiting just over two years to make a CPLR 3215(c) motion to dismiss?  The short memorandum decision does not indicate why no answer was served within 20 days of the indefinite extension's termination. 

Diary those answer due dates, folks.  Now add one year and circle that date in red. That's the drop-dead deadline to move for a default judgment.  A default not timely taken (i.e., within one year of the default date) can result in the action's dismissal.