Thursday, September 27, 2012

Although Adjustment of Claim is Not Required for Public Adjuster to Collect Its Fee, Whether Public Adjuster Performed "Valuable Services" Presents a Question of Fact

Public Adjustment Bureau, Inc. v. Greater New York Mut. Ins. Co.
(1st Dept., decided 9/25/2012)

Under New York regulatory law (11 NYCRR Part 25, a/k/a Insurance Regulation 10), licensed public adjusters in New York may charge a fee of no more than 12½ % of the recovery for the loss adjusted by such adjusters.  11 NYCRR § 25.7, entitled "Maximum compensation", provides:
No public adjuster shall charge any insured a fee in excess of 12.5 percent of the recovery for services rendered by the adjuster.
Section 25.10, entitled "Right to compensation", further states:
(a) The public adjuster shall not be entitled to any compensation for any services performed pursuant to a compensation agreement prior to its cancellation in accordance with section 25.8 of this Part.

(b) If a public adjuster performs no valuable services, and another public adjuster, insurance broker (in accordance with section 2101[g][2] of the Insurance Law) or attorney subsequently successfully adjusts such loss, then the first public adjuster shall not be entitled to any compensation whatsoever.

(c) Where more than one public adjuster performs valuable services for an insured, and there has not been a valid cancellation of the compensation agreement in accordance with section 25.9 of this Part, the insured shall not be obligated to pay an amount for all of such services in excess of the maximum compensation amount set by section 25.7 of this Part.
Property insurers are obligated to pay public adjusters their fee only if, at the time of the claim's settlement, the  the insured requests that the public adjuster be paid.  Section 25.12, entitled "Payment of losses", provides:
When a claim is settled where the insured is represented by a public adjuster, upon the request of the insured, the insurer's check may be made payable to both the public adjuster and the insured or to the public adjuster named as a payee, but not in excess of the amount of the public adjuster's fee, as indicated in the written compensation agreement signed by the insured and filed with the insurer. The balance of the proceeds shall be made payable to the insured or loss payee, or both, whichever is appropriate.
It occasionally happens that insureds do not want to pay their public adjusters either at all or what their public adjuster's compensation agreement specifies as the adjuster's fee.  In this case, plaintiff entered into a compensation agreement with Seward Park Housing Corporation in which the parties agreed:
We retain Public Adjustment Bureau, Inc. to perform valuable services, to include preparation and submission of claim detail and to advise and assist in the adjustment of claim detail and to advise and assist in the adjustment of the loss by collapse of January 15, 1999, at [the premises in question.] We agree to pay and hereby assign and request payment of expenses, disbursements and seven percent of the amount of loss and salvage be distributed to Public Adjustment Bureau, Inc. when adjusted or otherwise recovered, regardless to whom the loss is payable[.]
The claim was not adjusted; following extensive litigation, which included at least one trial and an appeal, Seward Park settled with Greater New York. Seward Park then disputed its obligation to pay the plaintiff, its public adjuster.  Public Adjustment Bureau (PAB) sued both its client, Seward Park, and the insurer, Greater New York Mutual Insurance Company.  Seward Park moved and PAB cross-moved for summary judgment.  Supreme Court granted Seward Park's motion, dismissing the complaint, and PAB appealed.

In MODIFYING the Supreme Court's order to deny both motions for summary judgment, the First Department, Appellate Division, held:
We reject Seward Park's argument that plaintiff is not due any fee under the contract because it neither adjusted the claim nor provided "valuable services" that resulted in the adjustment of the claim (see 11 NYCRR 25.10). In light of the "otherwise recovered" language in the retainer agreement, we find that adjustment of the claim is not a condition precedent to plaintiff's recovery of a fee (see GS Adj. Co., Inc. v Roth & Roth, L.L.P., 85 AD3d 467 [1st Dept 2011]; see also Goldstein Affiliates v Affiliated FM Ins. Co., 178 AD2d 301 [1st Dept 1991]). However, the record presents an issue of fact whether plaintiff performed valuable services.  
In New York State, public adjusters may be compensated only if they have a written and signed compensation agreement with the insured that "consist[s] of substantively the same information and statements contained in Form 1 in section 25.13(a) of [Part 25]."  11 NYCRR § 25.6(a).  The "otherwise recovered" language found in PAB's compensation agreement with Seward Park is contained in the prescribed public adjustment compensation agreement found at section 25.13 of Part 25 (Regulation 10).  In pertinent part, that form provides that the insured
hereby retains (name of adjuster) to act or aid in the preparation, presentation, adjustment and negotiation of or effecting the settlement of the claim for the loss or damage by (nature of loss) sustained at (loss location) on ________, [20] ________, and agrees to pay the adjuster for such services a fee of ________ percent of the amount of the loss including salvage when adjusted or otherwise recovered from the insurance companies.
Notably, the "valuable services" language that PAB incorporated into its compensation agreement is not required by or found in the prescribed compensation agreement of Regulation 10 and presumably derived  instead from section 25.10(b).  Had PAB not pledged in its compensation agreement to provide "valuable services" -- the delivery of which the First Department has now held presents a question of fact -- the question of whether a New York licensed public adjuster provides any "valuable services" would not be relevant to the public adjuster's compensation unless "another public adjuster, insurance broker ... or attorney subsequently successfully adjusts such loss[.]"  11 NYCRR § 25.10(b).

Wednesday, September 26, 2012

Second Department Holds that SUM Limit Is To Be Reduced by Recovery from All Tortfeasors

Weiss v. Tri-State Consumer Ins. Co.

(2nd Dept., decided 9/26/2012)

$250,000 per person/$500,000 per accident SUM limits.
Two deaths in insured vehicle.
Drunk driver and two Dram Shop defendants.
Drunk driver's auto insurer pays $100,000 limit to settle.
Dram Shop defendants and their insurers pay $255,000 to settle.
Total settlement of wrongful death action = $355,000.

Question:  What's the recoverable SUM coverage limit?
Answer:  $145,000.

Plaintiffs successfully argued to Supreme Court that the recoverable SUM limit was $400,000 because only the $100,000 settlement amount from the drunk driver's motor vehicle liability insurer was to be deducted from the $500,000 per accident SUM limit.   In REVERSING the Supreme Court's denial of summary judgment to defendant Tri-State, the Second Department reasoned:
The subject policy contained the standard SUM endorsement prescribed by the Superintendent of Insurance in Regulation No. 35-D (11 NYCRR 60-2.3[c], [f]). Two conditions in the endorsement are directly at issue in this appeal. Condition 6 provides:
6. Maximum SUM Payments. Regardless of the number of insureds, our maximum payment under this SUM endorsement shall be the difference between:

a) The SUM limits; and

b) The motor vehicle bodily injury liability insurance or bond payments received by the insured or the insured's legal representative, from or on behalf of all persons that may be legally liable for the bodily injury sustained by the insured.

The SUM limit shown on the Declarations for "Each Person" is the amount of coverage for all damages due to bodily injury to one person. The SUM limit shown under "Each Accident" is, subject to the limit for each person, the total amount of coverage for all damages due to bodily injury to two or more persons in the same accident.
Condition 11 provides:
11. Non-Duplication. This SUM coverage shall not duplicate any of the following:

(a) Benefits payable under workers' compensation or other similar laws; 

(b) Non-occupational disability benefits under article nine of the Workers' Compensation Law or other similar law;

(c) Any amounts recovered or recoverable pursuant to article fifty-one of the New York Insurance Law or any similar motor vehicle insurance payable without regard to fault;

(d) Any valid or collectible motor vehicle medical payments insurance; or

(e) Any amounts recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds.
SUM coverage in New York is a converse application of the golden rule; its purpose is "to provide the insured with the same level of protection he or she would provide to others were the insured a tortfeasor in a bodily injury accident" (Matter of Prudential Prop. & Cas. Co. v Szeli, 83 NY2d 681, 687; see Matter of Allstate Ins. Co. v Rivera, 12 NY3d 602, 608; Raffellini v State Farm Mut. Auto. Ins. Co., 9 NY3d 196, 204; see generally Norman H. Dachs and Jonathan A. Dachs, SUM Insurance Dilemma Hits the Mainstream, NYLJ, Sept. 19, 2012 at 3, col 1). With this limited purpose, SUM coverage does not function as a stand-alone policy to fully compensate the insureds for their injuries (cf. Bauter v Hanover Ins. Co., 247 NJ Super 94, 96-97, 588 A2d 870, 872, cert denied 126 NJ 335, 598 A2d 893). The conditions quoted above make this clear, as do other conditions not directly at issue in this case.

Here, the maximum SUM coverage of the subject policy was $500,000 per accident. The amount payable under that coverage was reduced, under Conditions 6(a) and 6(b), by the $100,000 paid by McGibbon's insurer, inasmuch as that amount constituted a "motor vehicle bodily injury liability insurance . . . payment[ ]" that the plaintiffs received (11 NYCRR 60-2.3 [f]). Further, the Dram Shop claims were settled for a total of $255,000. The Dram Shop recovery constitutes, under Condition 11(e), an amount "recovered as bodily injury damages from sources other than motor vehicle bodily injury liability insurance policies or bonds." Condition 11 does not allow duplicate recovery of such damages. Consequently, under the terms of the SUM endorsement, the plaintiffs' receipt of the Dram Shop recovery reduces, by that same $255,000, the amount payable under the SUM endorsement. The plaintiffs are not penalized by this reduction, since they received the maximum amount for which they are covered under the SUM endorsement: $100,000 from McGibbon's policy, $255,000 from or on behalf of the Dram Shop defendants, and $145,000 from Tri-State.

Tuesday, September 25, 2012

Notice of Consolidated Proposed Consensus Rulemaking to Correct Out-of-Date Hyperlinks and References as a Result of the Consolidation of the New York State Insurance and Banking Departments Into a New Department of Financial Services

How could I have missed it with a title so clear and succinct?

Since October 3rd of last year, when the New York State Banking and Insurance Departments consolidated into a single Department of Financial Services, I've been waiting for the DFS to announce the corrected verbiage for the "Should you wish to take this up with..." consumer advisory paragraph required by Regulation 64.  You know, the one that instructs insureds and claimants how to skew your company's consumer complaint ratio.  I blogged about that paragraph -- and in what letters it belongs and doesn't belong -- more than four years and four months ago.  If you work in claims for a personal property or auto insurer that does business in New York and don't recall reading that post, you should do so now by clicking here.

Well on July 18, 2012, the DFS proposed a consolidated consensus rulemaking that, among other things, replaces the old and outdated New York State Insurance Department references and hyperlink in the advisory paragraph with new and up-to-date references to the DFS.  The new advisory paragraph will thus read:
Should you wish to take this matter up with the New York State Department of Financial Services, you may file with the Department either on its website at or you may write to or visit the Consumer Assistance Unit, Financial Frauds and Consumer Protection Division, New York State Department of Financial Services, at: 25 Beaver Street, New York, NY 10004; One Commerce Plaza, Albany, NY 12257; 163B Mineola Boulevard, Mineola, NY 11501; or Walter J. Mahoney Office Building, 65 Court Street, Buffalo, NY 14202.
Although the 45-day public comment period for this new language expired on September 1, 2012, we still wait for our newly activated subscription (see the immediately preceding post) to register the listing of the Twelfth Amendment to 11 NYCRR 216 (a/k/a Regulation 64) among the Department's final adoptions

I understand that some New York insurers, perhaps recognizing that this is a consensus rulemaking that is not expected to garner any objections, have already changed their letters and forms to comport with the new language, even though the proposed amendment technically has not yet taken effect.  This new paragraph becoming the required one is not an if, but a when.

Little known factoid:  the consumer advisory paragraph is also found on Page 2 of the prescribed NF-10 Denial of Claim Form for New York no-fault claims.  Once this consolidated rule goes into effect, including its Fourth Amendment to 11 NYCRR 65-3 (a/k/a Regulation 68-C), New York no-fault insurers will need to begin using the revised or "new" NYS Form NF-10.

Wednesday, September 19, 2012

More Sausage, the New York Register, and Regulation 68-E

For those of you who like to watch, I bring you some more information regarding how administrative law is made in New York State.

In New York, administrative agencies that wish to promulgate new rules and regulations do so on either in an emergency basis without public review and comment, or a regular basis with an opportunity for public review and comment.  The New York State Administrative Procedure Act or "SAPA" governs how proposed rules and regulations of administrative agencies in New York become law.

The maternity ward, if you will, of administrative rules and regulations in New York is the New York Register, where preemie and full-term newborn rules and regulations are displayed for adoring parents and relatives.  And, much like real world maternity wards, one needs to visit the New York Register regularly to see the newborns.

Take, for example, the rules and regulations promulgated by the combined agency formerly known as the New York State Insurance Department -- the New York Department of Financial Services.  Since the beginning of this year, it has proposed seven insurance regulation changes on a regular basis by publishing them in the New York Register.  A Notice of Proposed Rule Making that accompanies the proposed rule or regulation will indicate, among other things, whether a public hearing is to be scheduled and how long the public comment period is to last from the proposed rule or regulation's publication in the New York Register.  Similarly, since the beginning of this year it has also published seven insurance regulation changes adopted and promulgated on an emergency basis, including the adoption of Regulation 68-E, entitled "Unauthorized Providers of Health Services", which took effect on the date it was filed with the New York Secretary of State, which the DFS's website lists as August 31, 2012.

When a proposed rule or regulation is promulgated on an emergency basis there will be an accompanying Statement of Reasons for Emergency Measure filed with the New York Secretary of State and published in the New York Register.  In Regulation 68-E's case, the accompanying Statement of Reasons for Emergency Measure dated August 31, 2012 reads:
This regulation concerns the de-authorization of certain providers of health services.  Insurance Law § 5109(a) requires the Superintendent, in consultation with the Commissioner of Health and the Commissioner of Education, to promulgate standards and procedures for investigating and suspending or removing the authorization for providers of health services to demand or request payment for health services under Article 51 of the Insurance Law upon findings of certain unlawful conduct reached after investigation, notice, and a hearing pursuant to Insurance Law § 5109.

For years, certain owners and operators of professional service corporations and other types of corporations have abused the no-fault insurance system. These persons are involved in activities that include intentionally staging accidents and billing no-fault insurers for health services that were unnecessary or never in fact rendered. Indeed, recent federal indictments have demonstrated that organized crime has infiltrated and permeated the no-fault provider network.  Such wide-scale criminal activity is estimated to have defrauded insurers of at least hundreds of millions of dollars, if not more. Insurers ultimately pass on these costs to New York consumers in the form of higher automobile premiums, and schemes such as the fraudulent staging of auto accidents endangers the innocent public. Furthermore, it places in peril the quality of care received by innocent auto accident victims and the public’s health, safety, and welfare.

It is of the utmost importance that the Superintendent, Commissioner of Health, and Commissioner of Education be able, as soon as possible, to prohibit health service providers who engage in such activities from demanding or requesting payment from no-fault insurers.

For the reasons stated above, emergency action is necessary for the public health, public safety, and general welfare.
So how does a New York insurance professional keep up on the new rules and regulations of the New York Department of Financial Services?  Several ways.  First, you can set up and use a webpage monitoring service to watch for changes to the DFS's proposed, emergency, and final insurance regulations pages.  I use the free service offered by  Or, if you prefer, you can navigate to the New York Register's webpage by clicking the image below and click the "Subscribe" button, which will create an email to to subscribe to dos.dl.listserv.DAR.ERegister, after which you can then scan and read the weekly New York Register's weekly publications.

Or you can subscribe to this blog by using the widget on the right side of this page, and I'll do my best to let you know when fresh New York insurance-flavored sausage is made.

Monday, September 17, 2012

Law and Sausage

Dean v. Tower Ins. Co.

(1st Dept., decided 5/10/2011)

It reportedly was the 19th Century American poet John Godfrey Saxe, not the laconic German aristocrat and statesman Otto von Bismarck, who in 1869 first said, "Laws, like sausages, cease to inspire respect in proportion as we know how they are made."  You may have heard its more modern variation:  if you like law and sausage, you should never watch either one being made. 

And yet, in spite of Mr. Saxe's implied urgings to avert one's eyes, and at the risk of diminishing the great respect I'm sure all of you already have for the legal process, I bring you some law in the making -- the September 11th oral argument of Tower Insurance Company's appeal to the New York Court of Appeals of the First Department's 2011 reversal of the New York County Supreme Court's grant of summary judgment to Tower based on the named insureds' lack of residency in the insured dwelling.

Be warned.  If you, like I, are passionate about first-party property insurance coverage, you may want to watch this 22 minute and 8 second video by yourself in a room that permits some audible, emotive outbursts.  But if you watch -- please watch the video to the end.  There's a surprise twist at the end.  Not really, but as one who clerked for two years at the Appellate Division right out of law school, I found it refreshing that most, but not all, of the judges' questions reflected a relatively balanced peppering of the parties' legal advocates.  Can you tell which of the judges seem to have already made up their minds?   Here's a hint:  one of them authored the Court of Appeals' 2008 5-2 majority opinion in the first-party property insurance groundbreaking decision in Bi-Economy Market, Inc. v. Harleysville Ins. Co. of NY.

For those of you who care, this case involves a denial of coverage under a homeowners insurance policy issued on a dwelling that the named insureds never moved into.  Instead, the named insureds claimed that they had been working on their intended residence for more than a year after the policy was issued to fix termite damage they had discovered around the time of the property's closing.  Approximately 15 months after Tower issued the subject homeowners policy, for a dwelling the named insureds had represented on their signed policy application was to be their primary and only residence, a fire of unknown origin and cause destroyed the property.

Tower denied coverage for the fire loss based, in part, on its position that because the policy insured the "dwelling on the residence premises" and that "residence premises" meant "[t]he one family dwelling ... where you reside", the property did not qualify as a "residence premises because "the dwelling was unoccupied at the time of the loss[.]"  The named insureds sued and the parties move and cross-moved for summary judgment.

In granting summary judgment to Tower, the New York County Supreme Court held:
In Marshall [v. Tower Ins. Co., 44 AD3d 1014 (2d Dept. 2007)], the court found that the exact policy provisions at issue here were not “ambiguous.” According to Webster’s II New College Dictionary (2001) “reside” means "to live in a place for a permanent or extended period of time; to be inherently present.”  Giving the words “where you reside” their “plain and ordinary meaning,” the policy covered a dwelling where the Deans lived for a permanent or extended period of time.  Consistent with this construction, “[t]he standard for determining residency for insurance coverage ‘requires something more than temporary or physical presence and. . . at least some degree of permanence and intention to remain’” Allstate Insurance Co., v Rupp, 7 AD3d 302 (lst Dept. 2004) (citing Government Empls. Ins. Co. v Paolicelli, 303 AD2d 633, 633 [2nd Dept. 20031 (for uninsured motorist coverage, a grandson was a resident of his grandfather’s home where he lived Monday to Friday during the school year for six years and attended school based on the grandfather’s address).  Moreover, for the purposes of residency, a “resident is one who lives in the household with a certain degree of permanency and intention to remain” Canfield v Peerless Ins. Co., 262 AD2d 934,934-935 (4th Dept. 1999), lv denied 94 NY2d 757 (1999) ( the insurer failed to rebut the plaintiffs testimony that she maintained a residence at both her own household and at the household of the insured, where plaintiffs testimony established that she was the sole owner of the home in which the insured resided, spent weekends and holidays in the home, had a key to the home, maintained her own bedroom in the home, in which she kept clothing and necessaries, and paid the heating, water costs and real estate taxes for the home.)

Here, plaintiffs do not allege that they ever lived at the Mountain Road house. At best, plaintiffs have established ownership of the house and presence in it to perform certain renovations, and a stated intent of living there.  The court concludes that under these circumstances, there is insufficient evidence of plaintiffs’ physical presence and permanency to demonstrate that they resided in the premises at any time prior to the date of loss.  Accordingly, defendant has established there is no coverage, and is entitled to summary judgment.
Plaintiffs appealed and the First Department REVERSED, denying summary judgment to Tower based on its finding that because the policy did not define the work "resides", that term was ambiguous:
Because the "residence premises" insurance policy fails to define what qualifies as "resides" for the purposes of attaching coverage, the policy is ambiguous in the circumstances of this case, where the plaintiff insureds purchased the policy in advance of closing but were then unable to fulfill their intention of establishing residency at the subject premises due to their discovery and remediation of termite damage that required major renovations. "[B]efore an insurance company is permitted to avoid policy coverage, it must satisfy the burden which it bears of establishing that the exclusions or exemptions apply in the particular case, and that they are subject to no other reasonable interpretation" (Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 311 [1984] [citations omitted]). Accordingly, the ambiguity in the policy must be construed against defendant under the facts of this case, and precludes the grant of summary judgment in its favor (see Ace Wire and Cable Co. v Aetna Cas. and Sur. Co., 60 NY2d 390, 398 [1983]).
Notably, the First Department rejected the lower court's and Tower's reliance on the Second Department's 2007 decision in Marshall v. Tower Ins. Co., finding that Marshall was "inapposite because it did not address whether the term 'residence premises' is ambiguous in light of the policy's failure to define 'resides'" and because unlike in this case, the plaintiff in Marshall reportedly had no intention of living at the premises. 

The Court of Appeals granted Tower leave to appeal and on last Tuesday, September 11th, heard oral arguments on that appeal.  The judges' questions included:
  • Is a homeowners policy's residency requirement permitted under the 165-line New York standard fire insurance policy of New York Insurance Law § 3404(e)See, Lane v. Security Mut. Ins. Co., 96 NY2d 1 (2001).
  •  Does a HO policy's residency requirement preclude coverage where people have bought insurance and closed on their purchase of a new home but not yet moved into it?
  • Are the concepts of residency and occupancy the same?
  • Doesn't the record in this case indicate that Tower's risk inspection agent knew or should have known that the named insureds were not residing in the dwelling, and does the allegation of such actual or constructive knowledge present a question of fact precluding summary judgment from being granted to Tower?
  • Is the policy's residency requirement found in the definition of the term "residence premises" clear or ambiguous?
What do you think?  Which way do you think the judges are leaning, if any, from their questions?  Any prediction on what the Court will do in deciding Tower's appeal?

Post Script (09.27.12) ~~  Over in LinkedIn's New York Insurance group, a member asked why Tower took a SJ motion denial to the Court of Appeals.  Max Gershweir, who argued the case for Tower, provided the back story.

In April 2011 the Second Department reversed the Supreme Court and granted SJ to Tower in a similar matter, holding, in part, that "the policy's 'residence premises' provision is not ambiguous[.]" That was in Vela v. Tower Ins. Co.  The plaintiffs in that case sought leave to appeal to the Court of Appeals presumably based on the First Department's May 2011 contrary decision in Dean v. Tower, and the Second Department granted leave on September 29, 2011.  Tower itself had made a motion to the First Department for leave to appeal the Dean decision to the Court of Appeal based presumably on the conflicting authority between the First and Second Departments, which was granted on September 8, 2011.  

According to Max, both cases headed to the Court of Appeals together, but Vela was settled and the appeal was withdrawn in January.