When You Is an It

AUTO – UM COVERAGE – "INSURED" – STAY OF UM ARBITRATION

State Farm Mut. Auto. Ins. Co. v. Sanchez
(Sup. Ct., NY Co., 8/3/2020)

State Farm issued an auto policy to "Profit General Contractor & Contracting, LLC", a limited liability company having one member (owner),  Alexandro Sanchez.  While riding his bicycle, Mr. Sanchez was hit by an uninsured vehicle, sustaining injuries.  He made a claim under his LLC's auto policy with State Farm for UM coverage, which State Farm denied on the basis that Sanchez did not qualify as an "insured" under the LLC's policy, which was defined as:

(1) you, as the named insured and, while residents of the same household, your spouse and the relatives of either you or your spouse; 

(2) any person while acting in the scope of that person's duties for you, except with respect to the use and operation by such person of a motor vehicle not covered under this policy, where such person is: 

(i) your employee and you are a fire department; 

(ii) your member and you are a company, as defined in General Municipal Law section 100; 

(iii) your employee and you are an ambulance service, as defined in Public Health Law section 3001; or

(iv) your member and you are a voluntary ambulance service as defined in Public Health Law section 3001; 

(3) any other person while occupying: 

(i) a motor vehicle insured for SUM under this policy; or 

(ii) any other motor vehicle being operated by you or your spouse ; and 

(4) any person, with respect to damages such person is entitled to recover, because of bodily injury to which this coverage applies sustained by an insured under paragraph (1), (2), or (3) above.

Sanchez demanded arbitration of his UM claim and State Farm commenced this special proceeding to stay that arbitration.  

In ruling in favor of Sanchez and dismissing State Farm's petition, the court, after noting that "the burden rests on the party seeking the stay to establish the existence of evidentiary facts, sufficient to conclude that there is a genuine preliminary issue", held that because the policy was issued to an LLC and afforded coverage options for the named insured's "spouse"  and a discount for the named insured having taking an accident prevention course, the policy afforded UM coverage to him: 

Factually, the facts of the instant matter have even more in common with with those of Morette. In Morette, Anthony Morette, the sole owner of policyholder A.T. Morette Electric LLC, allegedly was struck by an unidentified motor vehicle while he was jogging. Ultimately, Mr. Morette's wife and daughter sought a declaratory judgment that the insurer, Merchants Mutual Insurance Company, was liable for SUM coverage (Morette, supra, 35 Misc. 3d at 201-202). The court denied the insurers' motion for summary judgment, rejecting Merchants' argument that because the LLC was the named insured, SUM coverage was unavailable. In reaching such conclusion, the court relied on a few key provisions, including the option to pay a premium for spousal liability coverage (id. at 206). It further noted that the exclusions page did not exclude the member of the LLC from injuries that were relevant to the facts at hand. Here, too, the option to purchase spousal liability coverage existed, and coverage for a bike accident was not excluded. In addition, the exclusions page indicates that petitioner had the discretion to provide coverage to the surviving spouse if the insured was deceased (NYSCEF Doc. No. 5, at 000029). Further, as respondent points out, petitioner provided a discount to the LLC because respondent took an accident prevention course, and this also weighs in favor of treating him as individually covered under the policy.

LLCs don't have spouses and can't take an accident prevention course, but they can be treated as a carbon-based life form for purposes of UM (and SUM) coverage under an automobile insurance policy.

No, You May Not Be Excused... Court Denies Insurer's 3211(a)(1)-Based Pre-Answer Motion to Dismiss Declaratory Judgment Action

PERSONAL AUTO – TEMPORARY SUBSTITUTE AUTO – NON-OWNED AUTO – DECLARATORY JUDGMENT ACTION – MOTION TO DISMISS

Bonavita v. Government Employees Ins. Co.
(2nd Dept., 7/22/2020)

Before the Roman Catholic Mass was said in English in Mahwah, New Jersey, my brothers and sisters and I had to ask "May I be excused?" (may, not can) before leaving our assigned seats (assigned theoretically to preserve order in a family of then seven, rivaling siblings) at the dinner table to head back outside to play or into the living room to watch our allotted one hour of television.  The qualifying condition for an affirmative answer from one of our parents was a dinner plate cleared of the meat, starch AND vegetable food groups that made a daily appearance at our dinner table (ask me sometime about the inventive methods my mother came up with to get my brothers and me to finish our green vegetables, especially cellulose-armored asparagus).  There was no leaving our dinner table without finishing your dinner.  Period.  I learned to intensely dislike certain foods, while developing strategies for clearing my plate without eating its unappetizing contents (our family's German Shepherd was one such strategy until she was banned from the dining room during dinner), before I was ten.

Insurers facing declaratory judgment and breach of contract actions sometimes ask to be excused from a lawsuit without getting to the meat and potatoes (and even asparagus) of the action, moving to dismiss the complaints lodged against them before interposing an answer.  In New York state court actions, New York Civil Practice Law and Rules (CPLR) Rule 3211 provides the bases for doing so:

1. a defense is founded upon documentary evidence;  or 
2. the court has not jurisdiction of the subject matter of the cause of action;  or 
3. the party asserting the cause of action has not legal capacity to sue;  or 
4. there is another action pending between the same parties for the same cause of action in a court of any state or the United States;  the court need not dismiss upon this ground but may make such order as justice requires;  or 
5. the cause of action may not be maintained because of arbitration and award, collateral estoppel, discharge in bankruptcy, infancy or other disability of the moving party, payment, release, res judicata, statute of limitations, or statute of frauds;  or 
6. with respect to a counterclaim, it may not properly be interposed in the action;  or 
7. the pleading fails to state a cause of action;  or 
8. the court has not jurisdiction of the person of the defendant;  or 
9. the court has not jurisdiction in an action where service was made under section 314 or 315 ;  or 
10. the court should not proceed in the absence of a person who should be a party; or 
11. the party is immune from liability pursuant to section seven hundred twenty-a of the not-for-profit corporation law .  

Plaintiff Bonavita was driving a vehicle owned by plaintiff Molinari when the vehicle was involved in a multivehicle accident.  As a result of the accident, the plaintiffs were named as defendants in a pesonal injury action (the underlying action).  Plaintiffs subsequently commenced this action against GEICO, seeking a judgment declaring that, pursuant to an insurance policy issued to Bonavita's mother, GEICO is obligated to defend and indemnify plaintiffs in the underlying action. The plaintiffs alleged that Bonavita's use of Molinari's vehicle qualified for "temporary substitute auto" or "non-owned auto" coverage under the policy.

In lieu of answering, GEICO moved pursuant to CPLR 3211(a)(1) and (7) to dismiss the complaint, contending that the plaintiffs were not entitled to coverage under the policy because, among other things, the vehicle being driven by Bonavita on the date of the accident was neither a "temporary substitute auto" nor a "non-owned auto" as defined in the policy. In support of its motion, GEICO submitted, among other things, an affidavit of its claims examiner, an affidavit of its attorney, a letter sent to GEICO from the plaintiffs' counsel, a letter from GEICO disclaiming coverage, a copy of the GEICO policy, and policy "declaration sheets" issued by GEICO during the relevant period. Plaintiffs opposed the motion and submitted, among other things, an affidavit of Bonavita, who averred that he is the son of GEICO's policyholder and resided at her home at the time of the accident.  Supreme Court denied the motion, and GEICO appealed.

In AFFIRMING the denial of GEICO's motion to dismiss, the Second Department reiterated what kind of evidence constitutes "documentary evidence" under subdivision 1 of CPLR 3211(a):

A motion to dismiss a complaint pursuant to CPLR 3211(a)(1) on the ground that a defense is founded on documentary evidence may be appropriately granted only where the documentary evidence utterly refutes the plaintiff's factual allegations, conclusively establishing a defense as a matter of law (see Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326; Leon v Martinez, 84 NY2d 83, 88; Rodolico v Rubin & Licatesi, P.C., 114 AD3d 923, 924). "[T]o be considered documentary,' evidence must be unambiguous and of undisputed authenticity" (Fontanetta v John Doe 1, 73 AD3d 78, 86; see Cives Corp. v George A. Fuller Co., Inc., 97 AD3d 713, 714). "[J]udicial records, as well as documents reflecting out-of-court transactions such as mortgages, deeds, contracts, and any other papers, the contents of which are essentially undeniable, would qualify as documentary evidence in the proper case" (Fontanetta v John Doe 1, 73 AD3d at 84-85 [internal quotation marks omitted]; see Cives Corp. v George A. Fuller Co., Inc., 97 AD3d at 714). Affidavits, deposition testimony, and letters are not considered documentary evidence within the intendment of CPLR 3211(a)(1) (see Rodolico v Rubin & Licatesi, P.C., 114 AD3d at 925; Cives Corp. v George A. Fuller Co., Inc., 97 AD3d at 714).  

*  *  *  *  * 

Here, the affidavits and letters submitted by GEICO in support of its motion did not constitute documentary evidence within the intendment of CPLR 3211(a)(1) (see County of Westchester v Unity Mech. Corp., 165 AD3d at 885; Attias v Costiera, 120 AD3d 1281). Moreover, the GEICO insurance policy and declaration sheets failed to show that the plaintiffs were not, as they alleged in the complaint, entitled to coverage under the temporary substitute auto and/or non-owned auto provisions of the GEICO policy. Therefore, GEICO's submissions did not utterly refute the plaintiffs' allegations or conclusively establish a defense as a matter of law (see 25-01 Newkirk Ave., LLC v Everest Nat. Ins. Co., 127 AD3d 850; AGCS Marine Ins. Co. v Scottsdale Ins. Co., 102 AD3d 899).

An insurance policy is a contract, but the policy and policy declarations by themselves did not "utterly refute" the complaint's allegations and establish that plaintiffs were not entitled to coverage under the GEICO policy.  While I certainly understand an insurer's desire for the earliest possible exit from an insured's DJ or breach of contract action, this case is another example of how challenging it is for an insurer to get a lawsuit dismissed on a substantive coverage defense before answering the complaint.

Primary vs. Umbrella -- No Duty, No Standing, No Suit

PERSONAL AUTO – PRIMARY POLICY – UMBRELLA POLICY – STANDING – EQUITABLE SUBROGATION – VOLUNTARY PAYMENT
Government Employees Ins. Co. v. RLI Ins. Co.
2nd Dept., decided 11/25/2015)

You probably know that an umbrella insurer may sue and maintain an action against a primary insurer, but what about the other way around?  Not in this case.

Freier had a primary personal auto policy with GEICO and an umbrella policy with RLI.  After an auto accident, GEICO undertook to defend Freier in a personal injury action against her.  RLI disclaimed coverage based on late notice.  GEICO eventually paid $200,000 more than its policy limit to settle the action against Freier and commenced this action against RLI for reimbursement of that amount, seeking to challenge RLI's disclaimer.

In AFFIRMING Supreme Court's order granting RLI's motion to dismiss the complaint, the Second Department, Appellate Division, held

As the Supreme Court properly concluded, GEICO did not have standing to seek that relief. ... Here, it is undisputed that the coverage provided by the RLI policy was excess to GEICO's policy and, thus, RLI's duty to indemnify the Freiers was not triggered until coverage under GEICO's policy was exhausted. ... Therefore, GEICO did not stand to benefit from the RLI policy, depriving it of standing to seek a declaration of RLI's duty to indemnify under that policy... Accordingly, the court properly granted RLI's motion to dismiss the complaint for lack of standing. 

The Second Department also held that: (1) GEICO failed to demonstrate the existence of any duty running from RLI, the excess carrier, to GEICO, the primary insurer, with respect to RLI's coverage determination; and (2) contrary to GEICO's contention, the doctrine of equitable subrogation cannot be invoked where, as here, the payments sought to be recovered were voluntary.

Denial of Personal Auto Liability Coverage Based on Bodily Injury to Resident Relative of Insured Exclusion Upheld

PERSONAL AUTO – BODILY INJURY TO RESIDENT RELATIVE OF INSURED EXCLUSION – UNBORN CHILD 
Harrell v. State Farm Ins. Co.
(3rd Dept., decided 11/12/2015)

State Farm insured George Birdwell under a personal auto policy.  The policy excluded liability coverage for "bodily injury to: . . . c. any other person who both resides primarily with an insured and who: (1) is related to that insured by blood, marriage or adoption."  Birdwell also had a personal umbrella policy with State Farm.

Birdwell son, William Harrell, was involved in a two-car motor vehicle accident while driving Birdwell's car.  Harrell's wife, who was then pregnant with the couple's child, was a passenger in the Birdwell vehicle at the time. Thereafter, Trina Harrell commenced a personal injury action, individually and on behalf of the Harrell's child, against the driver of the second vehicle.  Eventually William Harrell and George Birdwell were joined as defendants in that lawsuit and sought liability coverage from State Farm.

Citing the BI to resident relative exclusion, State Farm denied liability coverage to Harrell and Birdwell, and they commenced this declaratory judgment action.  On cross motions for summary judgment Supreme Court granted judgment to State Farm and plaintiffs appealed.

In AFFIRMING judgment to State Farm, the Appellate Division, Third Department, agreed that Birdwell's auto policy unambiguously excluded liability coverage for injuries to the child:

Plaintiffs concede that they both qualify as "an insured" as defined in the policy. At the time of the accident, the child resided primarily with Harrell, who is her father. Thus, as the child both resided primarily with an insured and is related to that insured, there is no coverage for her injuries for either plaintiff (see Pfoh v Electric Ins. Co., 14 AD3d 777, 779 [2005], lv denied 4 NY3d 711 [2005]). This determination necessarily defeats the related claim under the umbrella policy. Accordingly, we find no error in Supreme Court's holding that defendant was not obligated to defend or indemnify plaintiffs under either of the subject policies.

The unborn child was residing with William Harrell, who qualified as an "insured" under his father's policy because Harrell was permissively operating the covered or insured auto.  Hence, the exclusion applied.

New York Appellate Court Holds that Third-Party Diminution in Value Damages Are Recoverable in Addition to Cost of Repairs for Personal Property that Appreciates in Value

PERSONAL AUTO – THIRD-PARTY DIMINISHED VALUE – COST OF REPAIRS – MEASURE OF RECOVERABLE DAMAGES
Franklin Corp. v Prahler
(4th Dept., decided 11/10/2011) 

Spoiler alert: it could be said that this decision makes new law in New York on the issue of whether third-party diminution of value damages for a motor vehicle are recoverable in addition to the cost of repairs even if the repairs restore the vehicle to its pre-accident condition.  In the opinion of the Appellate Division, Fourth Department, they are if the personal property or vehicle in question is the type that appreciates in value.

Plaintiff owned a 550-hp 2005 Ford GT sportscar¹, one of only 4083 ever built.  The MSRP in 2005 for one of these cars was $149,995, but plaintiff claimed the GT "is a rare collector's sports car rapidly appreciating in value."  On May 28, 2005, defendant's 1997 Jeep Cherokee (MSRP $20,460) brushed up against and allegedly damaged² the plaintiff's GT while it was parked on a street in the Chippewa bar district of downtown Buffalo, New York.

Defendant's personal auto insurer, State Farm, estimated the cost of repairing the damage to plaintiff's GT to be $3,484.35.  Plaintiff sued the defendant in negligence, seeking $52,000 in damages.  Plaintiff claimed that even if the GT were fully repaired, the mere fact that it had been in an accident had diminished its market value by $40,000 because it would no longer be in its "original factory condition."  Plaintiff also claimed that repairing the GT would itself cause the vehicle to lose market value because it would no longer be in its original factory condition.   As of March 2009 when plaintiff's president was deposed, the GT had 2,500 miles on it and had not been repaired.

On the eve of trial, defendant made a motion in limine seeking to preclude plaintiff's two expert appraisers from "giving expert opinion testimony" at the damages trial.³  Defendant also requested that the court charge New York Pattern Jury Instruction (PJI) 2:311, entitled "Damages—Property with Market Value", which states:

If plaintiff's . . . automobile . . . was damaged by the defendant's negligence, you will award to the plaintiff as damages the difference between its market value immediately before and immediately after it was damaged, or the reasonable cost of repairs necessary to restore it to its former condition, whichever is less.

Thus, if the reasonable cost of repairs exceeds the reduction in market value, you will award the amount by which the market value was reduced.  If the reasonable cost of repairs is less than the reduction in market value, you will award to the plaintiff the reasonable cost of repairs required to restore the . . . automobile . . . to its condition immediately before it was damaged.

Plaintiff cross-moved in limine and submitted its own proposed post-trial jury charge based on PJI 1:60:

In this case the plaintiff claims that it has suffered damage to its automobile as a result of the accident caused by the defendant.  Plaintiff further claims that the measure of damages is the difference between the market value of the vehicle immediately prior to the accident and the value after the accident. It is plaintiff's contention that even with repairs to return the vehicle to its pre-loss condition in terms of appearance and function, this particular vehicle is worth less after the accident simply because it was involved in an accident.

Citing Johnson v. Scholz, 276 A.D. 163 (2nd  Dept. 1949), plaintiff also requested that the following jury charges on damages be given: 

Where the repairs do not restore the property to its condition before the accident, the difference in the market value immediately before the accident and after the repairs have been made may be added to the costs of repairs.

When, as in this case, the property damaged is a limited edition collector item[,] the plaintiff may recover the difference in money between the market value of the property before and after the damage. In determining the amount of such loss, you will consider the evidence presented with respect to: witnesses experienced in the trade of the specialized market, testimony as to the market for such property, the distinction in value between two similar collector items where one has been damaged and repaired and one that has never been damaged and repaired, together with all other evidence presented to establish the value of the vehicle and the extent of plaintiff's damage.

The trial court granted defendant's motion in limine and, concluding that the case was controlled by the Second Department's decision in Johnson v. Scholz, ruled that the jury would be instructed that the measure of damages would be either the diminution in value or the reasonable cost of repair, whichever was less.  Recognizing that its ruling would limit the proof and issues at trial,the court ordered that the trial would be stayed pending plaintiff's appeal of its decision to the Appellate Division.

In REVERSING the trial court's decision on defendant's motion in limine, the Appellate Division, Fourth Department, in a unanimous opinion written by Justice Martoche, concluded that the trial court erred in limiting plaintiff's proof at trial with respect to the diminution in value of the GT and thus that plaintiff was entitled to the charges it requested on that issue.

Distinguishing Johnson, the Fourth Department noted that there was no evidence that the automobile in Johnson had appreciated in value from the time of its purchase, as plaintiff contended the GT did in this case.  The Fourth Department likened the GT more to the plaintiff's violin in Schalscha v Third Ave. R.R. Co., a First Department, Appellate Division, decision from 1897, in which the court held that the plaintiff could recover not only the cost to repair the damaged violin but also its after-repair depreciation in value.

In support of its decision, the Fourth Department quoted Restatement of Torts § 928, entitled "Harm [t]o [C]hattels", which provides:

Where a person is entitled to a judgment for harm to chattels not amounting to a total destruction in value, the damages include compensation for 

(a) the difference between the value of the chattel before the harm and the value after the harm or, at the plaintiff's election, the reasonable cost of repair or restoration where feasible, with due allowance for any difference between the original value and the value after repairs, and 

(b) the loss of use.

Noting that a majority of jurisdictions have adopted Restatement of Torts § 928 to conclude that a plaintiff may recover the reduction in value after repairs are made, the Fourth Department reasoned that the trial court was not constrained to charge the jury with New York PJI 2:311, which was based on the holding in Johnson.  While not disagreeing with the holding in Johnson, the Fourth Department seemingly created an exception to the Johnson rule, stating:

Conversely, there can be no doubt that, under a general theory of damages, a plaintiff is entitled to be made whole. The situation presented here is somewhat unusual in that the GT has allegedly increased in value since the time of purchase, unlike most motor vehicles that would have diminished in value from the time of purchase to the time of the accident.  Where a vehicle, like any other piece of personal property, has increased in value and is subsequently damaged by the negligence of the defendant, the plaintiff should be entitled to recover the cost of that diminution in value.  Otherwise, the plaintiff will not be made whole.  In our view, PJI 2:311 was intended to cover the situation in Gass (264 NY at 143-144), where personal property has depreciated from its original market value and is then damaged by the negligence of the defendant.  The plaintiff in such a case will be entitled to recover the costs of repairs or the diminution in value, whichever is less.

If personal property appreciates in market value from the time of its acquisition and is damaged by the negligence of another, the rule of this decision allows for the third-party recovery of both repair costs and proven diminished value IF repairs are actually made.  If, however, like most chattel (personal property), if the property's original market value has depreciated, then its owner will be limited to recover either the reasonable cost of repairs or the property's diminished value, whichever is less. 

The actual impact of this decision to personal auto and liability insurers should be minimal since most personal property depreciates rather than appreciates in market value after acquisition.  It marks, however, what could be considered a "new" rule in New York.  New, at least, to the 20th and 21st centuries. 

Post Script (August 29, 2012) ~~ I tried this case to a jury for the defendant, Justin Prahler.  Verdict returned today.  $0.00 in repair costs.  $0.00 in diminished value.  Huge.

---

1. The decision says 2000, but Ford built the GT for model years 2005 and 2006 only.

2. Substantial dispute exists between the parties as to whether the GT sustained any damage at all from its contact with the defendant's Jeep. If anything, the damage was cosmetic only.  My office represents the defendant in this action.

3.  The court previously granted plaintiff's motion for partial summary judgment on negligence liability against the defendant.

Dismissal of Insured's Suit Against Auto Insurer's EUO Counsel Affirmed

AUTO – EXAMINATION UNDER OATH – LIABILITY OF INSURER'S EUO COUNSEL – SUBSTANTIAL JUSTICE
Henig v. Bruno, Gerbino & Soriano, LLP
(App. Term, 2nd Dept., 9th & 10th Jud. Dists., decided 12/23/2010)

Plaintiff made a claim for the alleged theft of a 1990 Lincoln Town Car to his auto insurer, Encompass Insurance Company, which retained the defendant law firm to conduct an examination under oath of the plaintiff.  After the EUO was held, Encompass denied plaintiff's claim based upon his failure to demonstrate that he had an insurable interest in the subject vehicle at the time of the alleged loss.

Unhappy with that decision, plaintiff commenced this small claims action against Encompass' EUO counsel, alleging that they had misled Encompass regarding his ownership of the vehicle.  Defendant moved to dismiss this small claims action pursuant to CPLR 3211 (a) (2) [jurisdiction], (7) [fails to state cause of action] and (10) [absence of necessary party]. The District Court granted defendant's motion, and plaintiff appealed.

In AFFIRMING the action's dismissal, the Appellate Term held:

Our review is limited to whether substantial justice was done between the parties according to the rules and principles of substantive law (see UDCA 1804, 1807). Upon our review of the motion papers, we find that defendant's motion to dismiss the action was properly granted, as plaintiff failed to articulate any cognizable cause of action against defendant which would entitle him to relief. Accordingly, there is no basis for this court to reverse the District Court's order dismissing the action.

Nothing presumably prevented plaintiff from suing his insurer directly, but this action against Encompass' EUO counsel failed to state a claim upon which relief could be granted and, thus, was dismissed.  Encompass' EUO counsel owed the insured no duty and had no contractual relationship with him.  Absence the allegation of an independent tort, a claimant's or insured's suit against the insurer's coverage counsel should be subject to summary dismissal. 

New Jersey Resident Injured by a Commercial Vehicle in New York Found Not to be a "Qualified Person" Entitled to Hit and Run Benefits from MVAIC

AUTO – MVAIC – INSURANCE LAW § 5218 – "QUALIFIED PERSON"
Matter of Thakuri v. Motor Veh. Acc. Indem. Corp.
(Sup. Ct., New York Co., decided 11/18/2010)

Petitioner, a New Jersey resident, made a motion for an order allowing her to commence a personal injury action against the New York Motor Vehicle Accident Indemnification Corporation (MVAIC) for a broken ankle she sustained when she was struck while riding her bicycle in Manhattan by a bus that left the scene of the accident.

In spite of her motion being unopposed, New York County Supreme Court Justice Eileen Rakower DENIED petitioner's application, finding that since New Jersey no-fault law does not afford protection for injuries from being struck by commercial vehicles, petitioner did not meet the definition of a "qualified person" under New York Insurance Law § 5202(b):

Insurance Law §5202(b) states, in relevant part:

"Qualified person" means (i) a resident of this state, other than an insured or the owner of an uninsured motor vehicle and his spouse when a passenger in such vehicle, or his legal representative, or (ii) a resident of another state, territory or federal district of the United States or province of the Dominion of Canada, or foreign country, in which recourse is afforded, to residents of this state, of substantially similar character to that provided for by this article, or his legal representative[.]

On her police accident report, petitioner lists her address as "518 North 5 Street Harrison NJ 07029." On her Notice of Intention to Make a Claim form, pay stub, household affidavit; and hospital records, petitioner lists her address as 17 Davis Street Harrison, NJ. The court in Simon v. Motor Vehicle Acc Indemnification Corp., 83 AD2d 803 (1st Dept. 1981) found:

The record before this Court demonstrates that claimant is not a qualified person.   The no-fault statute in the State of New York applies to commercial vehicles, while the statute in the State of New Jersey only applies to passenger cars. Coverage for injuries sustained while being struck by a commercial van are not covered under New Jersey law.(where a New Jersey resident was struck by a commercial van that left the scene of the accident.)

In the police report, the offending vehicle is described as an "unknown bus." In her MVAIC paperwork, petitioner checks the option for "A Bus or School Bus," next to "the type of vehicle" that hit her.  There is no evidence that the bus involved in the accident was not a commercial vehicle.  Here, as in Simon, petitioner has failed to show that New Jersey would afford reciprocal coverage to a New York driver and, thus, is not considered a "qualified person" for purposes of commencing a lawsuit against MVAIC.

Truck Renter's Failure to Produce Copies of Its Internal Policies and Procedures for Investigating Renter's Driving and Criminal History Found an Insufficient Basis to Deny Renter's Motion for Summary Judgment Based on Graves Amendment

AUTO – GRAVES AMENDMENT – RENTED TRUCK – RESTRICTED DRIVER'S LICENSE – FAILURE TO PRODUCE RENTAL POLICIES AND PROCEDURES – NEGLIGENT ENTRUSTMENT THEORY
Byrne v. Collins
(2nd Dept., decided 10/19/2010)

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

While agreeing that the presentation of a restricted license "does not, in and of itself, compel a motor vehicle rental agent of average ken to scrutinize the renter", Kings County Supreme Court Justice Francois Rivera denied the Budget defendants' motion for summary judgment because they had not submitted their written rental policies and procedures and established that the Budget franchisee followed those policies and procedures in renting the truck to JBG.

The Budget defendants appealed that decision to the Appellate Division, Second Department, and that court REVERSED the lower court's decision, finding that there was no triable issue of fact as to whether or not the Budget defendants possessed any special knowledge concerning a characteristic or condition peculiar to Collins that rendered his use of the truck unreasonably dangerous as required to support plaintiff's negligent entrustment theory of liability.

With respect to the Budgets defendants' failure to submit copies their written rental policies and procedures and demonstrate that the Budget franchisee had followed those procedures, the Second Department further held:

Contrary to the plaintiff's contention, the appellants' failure to provide copies of any internal policies as to investigation of potential renters with restricted licenses constitutes an insufficient basis upon which to deny their motion for summary judgment.  Even if such a policy had been violated, under the circumstances of this case, such violation would not constitute actionable negligence (see Lambert v Bracco, 18 AD3d 619, 620; Newsome v Cservak, 130 AD2d 637, 638).

The first cause of action, which was based on the alleged vicarious liability of the appellants, was barred under the Graves Amendment (49 USC § 30106), as the appellants showed they are "owner[s] . . . engaged in the trade or business of renting or leasing motor vehicles" (49 USC § 30106; see Gluck v Nebgen, 72 AD3d 1023), and should also have been dismissed.

Motor Vehicle Accidents Still Reportable at $1,000 -- Now Surchargable at $2,000

On July 30, 2010, Governor Paterson signed Bill S1700B as part of Chapter 277 of the Laws of 2010,  which raises the aggregate property damage premium surcharge threshold from $1,000 to $2,000 for New York auto policies issued, modified or renewed on and after November 27, 2010.  The new law amends New York Insurance Law § 2335 by adding a new subsection (a) to that statute, providing:

§ 2335 -- Motor vehicle liability insurance rates; prohibition of surcharges for certain traffic infractions

No insurer authorized to transact or transacting business in this state, or controlling or controlled by or under common control by or with an insurer authorized to transact or transacting business in this state, which sells a policy providing motor vehicle liability insurance coverage in this state shall increase the policy premium in connection with the insurance permitted or required by this chapter solely because the insured or any other person who customarily operates an automobile covered by the policy:

(a) has had an accident that does not result in aggregate damage to property in excess of two thousand dollars, provided that any policy surcharge shall be permissible for any accident which results in bodily injury or if the insured has more than one accident in the merit rating experience period.  Nothing in this subsection shall change the dollar amount of the accident reporting threshold of the Department of Motor Vehicles as provided for in paragraph one of subdivision (a) of section six hundred five of the Vehicle and Traffic Law.  (New language underlined.)

Note that premium surcharges are expressly permitted for accidents that result in bodily injury or if an insured has more than one accident during the merit rating experience period.  The reporting threshold of V&T § 605 was left unchanged at $1,000.

If the New York state legislature does not extend Insurance Law § 2335, it will sunset or expire on July 1, 2011. 

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.

Graves Amendment Held to Exempt Car Sharing Company from Vicarious Liability

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

For all actions commenced on or after August 10, 2005, the "Graves Amendment" provides persons or companies engaged in the trade or business of renting or leasing motor vehicles with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits.  This amendment to the Safe, Accountable, Flexible, Efficient Transportation Equity Act of 2005: A Legacy for Users ("SAFETEA") provides in relevant part that:

[a]n owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate of the owner) shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle (or an affiliate of the owner), for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if-

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

(2) there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner).  49 U.S.C. § 30106(a). 

For purposes of the Graves Amendment, section 30102(a)(6) of Chapter 301 of Title 49 of the United States Code, entitled Motor Vehicle Safety, defines "motor vehicle" as "a vehicle driven or drawn by mechanical power and manufactured primarily for use on public streets, roads, and highways, but does not include a vehicle operated only on a rail line."

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

§ 388. Negligence in use or operation of vehicle attributable to owner.

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

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

This case addresses the question of whether a car sharing business, such as Zipcar,  can be said to be "engaged in the trade or business of renting or leasing motor vehicles" within the meaning of the Graves Amendment.  In the opinion of Queens County Supreme Court Justice Roger Rosengarten, it can and it is.

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

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

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

Turning to the question of whether Zipcar's car sharing business could be said to be the "renting or leasing vehicles" within the meaning of the Graves Amendment, Justice Rosengarten held:

In determining whether the Graves Amendment applies to a car-sharing company such as Zipcar, the Court begins with the statutory text. Maraia v. Orange Regional Med. Center, 63 A.D.3d 1113 [2d Dept. 2009].  The Graves Amendment does not define “the trade or business of renting or leasing motor vehicles,” or its constituent terms “renting” and “leasing.”  The consistent and established understanding of “leasing” is the “transfer of the right to possession and use of goods for a term in return for consideration.” UCC 2-A-103(j); see also First Franklin Sq. Assocs., LLC v. Franklin Sq. Prop. Account, 15 A.D.3d 529, 532 [2d Dept. 2005] (“The central distinguishing characteristic of a lease is the surrender of absolute possession and control of property to another party for an agreed-upon rent.”); Black’s Law Dictionary (8th Ed., 2004) (“To grant the possession and use of (land, buildings, rooms, movable property, etc.) to another in return for rent or other consideration.”)  Black’s Law Dictionary defines “rent,” used as a noun, as the “[c]onsideration paid, usu. periodically, for the use or occupancy of property (esp. real property).” (8th Ed., 2004.) “When used as verbs, the words ‘lease’ and ‘rent’ are synonymous.” Zizersky v. Life Quality Inc., 21 Misc. 3d 871, 878 [N.Y. Sup. 2008] (citing Richards v. Princeton Ins. Co., 178 F Supp 2d 386, 395 [SD NY 2001]).  Zipcar’s contract with Douglas allowed him to “use Zipcar’s vehicles, to the extent available, in accordance with the terms of this Contract and subject to paying the corresponding fees.” (Supp. Opp., Exh. C.)  This bargain – use of a car in exchange for a fee – appears little different from “traditional rental car[ ]” companies, notwithstanding Zipcar’s marketing statements that contrast it with those companies. The Court finds that Zipcar is in “the trade or business of renting or leasing motor vehicles” as those words are traditionally and plainly understood.

The court also found that the allegation in plaintiff's complaint that Zipcar was negligent “in the manner they rented their vehicles to the people” did not preclude summary judgment from being granted to Zipcar.  While acknowledging that the Graves Amendment does not preempt such claims of direct negligence, the court noted that plaintiff did not attempt to offer any evidence or argument in support of these allegations in its moving papers:

The only relevant evidence offered is by Zipcar, which states in a sworn affidavit from a company official that its policies require a valid driver’s license for at least one year and no record of an alcohol violation for at least seven years prior to renting, and that these policies were followed before renting to Douglas. (Zipcar Opp. Exh. A.) With the record containing no conflicting evidence, the Court finds Plaintiff’s claim for direct negligence cannot withstand summary judgment.

In light of the plaintiff's attempted use of Zipcar's marketing statements to disqualify it from the Graves Amendment's vicarious liability exemption in this case, will Zipcar change its website statements to distance itself less from traditional car rental businesses? 

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

No Coverage for a Non-Non-Owned Car

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

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

Henderson's personal auto policy with Phoenix provided:

We will pay damages for which the insured becomes legally responsible because of bodily injury or property damage caused by accident and arising out of the ownership, maintenance or use of your car or any non-owned car.

The policy listed Henderson as the only named insured and a Chevrolet Lumina as the only covered vehicle. The policy defined "your car" as, among other things, "any vehicle described on the declarations page of [the] policy." Because the Celebrity was not listed on the declarations page, it was not covered under the "your car" category.

The policy also defined a "non-owned car" as

a land motor vehicle with at least four wheels designed to be used mainly on public roads, or a trailer. However, it must not be owned by or furnished or available for the regular use of you or a relative.

 The policy further explained that "You and your mean the person [listed as the named insured on the declarations page, i.e., Henderson, and that] . . . Relative means your relative, residing in your household."

In AFFIRMING the order granting summary judgment to Phoenix, the Fourth Department concluded that the Celebrity did not qualify as a "non-owned car" under Henderson's policy with Phoenix because it was owned by Tynette Thurston, Henderson's daughter and resident of Henderson's household, and was available for the regular use of David Thurston, Henderson's son and also resident of Henderson's household.  The appellate court also held that the timely disclaimer requirement of New York Insurance Law § 3420(d) did not apply because the Celebrity did not qualify as a covered vehicle under the Phoenix policy, and plaintiff's claim fell outside the scope of coverage of that policy:

Contrary to plaintiff's contention, the court properly determined that the Thurston siblings were relatives of Henderson who resided in her household and that the Celebrity therefore was not a "non-owned car" for which defendant would be required to provide coverage with respect to the accident in question. A person is a resident of a household for insurance purposes if he or she " lives in the household with a certain degree of permanency and intention to remain' " (Matter of State Farm Mut. Auto. Ins. Cos. v Jackson, 31 AD3d 1171, 1171). Although Tynette Thurston lived at college at the time of the accident, defendant submitted evidence in support of the motion establishing that she was a resident of the household inasmuch as she lived with Henderson during the summers, received mail at Henderson's house, stayed there every other weekend, and listed that address on the Celebrity's title and insurance (see Dutkanych v United States Fid. & Guar. Co., 252 AD2d 537, 538; see also Matter of Prudential Prop. & Cas. Ins. Co. [Galioto], 266 AD2d 926). Thus, because the Celebrity was owned by a relative of Henderson who was a resident of her household, it was not a "non-owned car" under the terms of the policy entitled to coverage by defendant. 

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

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

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

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

New York's third-party bad faith failure to settle within policy limits standard is:

"To prevail in . . . an action [seeking damages for an insurer's bad faith refusal to settle an underlying action], a plaintiff must establish that the insured lost an actual opportunity to settle the . . . [action] . . . at a time when all serious doubts about [his or her] liability were removed . . ., and that defendant insurer [acted with gross disregard for the insured's interests, i.e., it] engaged in a pattern of behavior evincing a conscious or knowing indifference to the probability that [the] insured would be held personally accountable for a large judgment if a settlement offer within the policy limits were not accepted." Kumar v American Tr. Ins. Co., 57 AD3d 1449, 1450 [internal quotation marks omitted]; see Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445, 453-454, rearg denied 83 NY2d 779).

Merchants' insured, Fitzpatrick, rear-ended Doherty, allegedly injuring her.  Doherty sued Fitzpatrick, who had a $300,000 personal auto policy with Merchants, for her injuries and, according to the three-justice majority's and two-justice dissent's memorandum opinions:

• Doherty and her husband presented medical testimony and opinion that she had sustained a significant shoulder injury in addition to permanent injuries at multiple levels of her cervical spine and a disc injury in her lumbar spine at the L5-S1 level;
• Merchants investigated Doherty's claim and arranged for a physical examination of her to determine the extent of her alleged injuries and whether they constituted a "serious injury";
• although the expert retained by Merchants and plaintiff's treating physician had differing views of the extent of plaintiff's injuries, Merchants' expert determined that Doherty sustained cervical, thoracic and lumbar strains that resulted in a "moderate, partial, temporary disability for recreational activities and activities of daily living in the home"; 
• Merchants did not attempt to obtain an IME related to Doherty's shoulder and, in fact, relied upon the limited examination of a neurologist who admitted that she was not qualified to offer an opinion regarding Doherty's shoulder and that accident biomechanics was "a weak point in her expertise";
• prior to the trial of Doherty's personal injury action, attorneys for both Doherty and Fitzpatrick requested that Merchants settle for the policy limit of $300,000; 
• prior to trial, Merchants' settlement offer was $10,000;
• the record was silent as to whether Merchants had evaluated and actually assigned a potential jury verdict value, as compared to a settlement value, to Doherty's personal injury claim;
• Merchants' claim representative admitted that she never assigned a value or even a value range to the claim and could not recall how she arrived at Merchants' $10,000 pre-trial settlement offer;
• 20 months before trial, Merchants determined that Fitzpatrick's proportionate share of fault for liability in this rear-end accident was "100%"; 
• 16 months before trial, Merchants concluded that Fitzpatrick had "no legal defenses" to Doherty's negligence claim;  
• 10 months before trial, Merchants' claim representative advised Fitzpatrick's defense counsel that a motion for summary judgment on the serious injury threshold was not authorized because Merchants' own "IME indicate[d] [Doherty] is disabled" and that such a motion would not be granted since defendant's "IME was completed on 11/4/03 (1 year and 2 mos after the [date of loss]) indicating [Doherty] is still disabled";
• one month before trial, Supreme Court denied a motion for summary judgment by Fitzpatrick on the issue of the serious injury threshold;
• on the first day of trial, Fitzpatrick's defense counsel advised that he needed to revise his exposure opinion and that, if the jury believed that Doherty needed surgery, the potential exposure was above $250,000, in response to which Merchants increased its settlement offer to $25,000;
• Merchants' investigation included videotaped surveillance of Doherty engaged in activities without apparent difficulty, despite her alleged injuries;
• Merchants participated in settlement negotiations prior to and during the trial and the trial judge (Erie Supreme Court Justice John Curran) was actively engaged in the settlement negotiation process;
• prior to trial, Doherty and her husband reduced their settlement demand to $250,000 and, four days into trial, they further reduced their demand to $240,000;
• in response to plaintiffs' reduced settlement demand, Merchants increased its settlement offer from $25,000 to $55,000, but plaintiffs' counsel declined to negotiate further;
• after the trial commenced, Merchants made a "high-low" settlement offer that was "not well received" and was rejected; 
• the videotape surveillance showed Doherty, stay-at-home mother of two children ages 5 and 7, engaging in "activities without apparent difficulty," including carrying her children; the jury included four women who, according to the dissent, "might understand and sympathize with Doherty's lack of choice in engaging in those activities while Doherty's husband worked at two jobs";
• Merchants was never prepared to offer the policy limits in that the claim manager's settlement authority was limited to $150,000, Merchants' claim manager testified that he never spoke with his supervisor concerning authorization to offer a greater amount;  and
• the jury returned a verdict against Fitzpatrick for $740,000, $500,000 of which was for future pain and suffering; of the $300,000 limit of Fitzpatrick's insurance policy with Merchants, the sum of $289,489 was available after other claims had been paid.

Fitzpatrick assigned his cause of action for Merchants' alleged third-party bad faith failure to settle within policy limits to Doherty, and she commenced this action directly against Merchants.  Merchants successfully moved for summary judgment dismissing plaintiffs' complaint, and plaintiffs appealed.

In AFFIRMING the order appealed from, the three-justice majority held:

We conclude that defendant established that Fitzpatrick did not lose an actual opportunity to settle the claim at a time when all serious doubts about his liability were removed and it was clear that the potential recovery far exceeded the insurance coverage (see id.), and thus that it did not act with gross disregard for Fitzpatrick's interests (see id. at 453). We therefore conclude that defendant established its entitlement to summary judgment dismissing the complaint, and that plaintiffs failed to raise a triable issue of fact in opposition (see generally Zuckerman v City of New York, 49 NY2d 557, 562). 

The two-justice dissent disagreed, believing that there was sufficient evidence of Merchants' alleged bad faith to submit that issue to a jury for determination:

Necessarily inherent in an insurer's duty to its insured is a well-reasoned and thorough analysis leading to the establishment of a predicted jury verdict value in the event of a verdict in favor of the injured claimant (see PJI 4:67). The record is devoid of any assertion by defendant that it had evaluated and actually assigned a potential jury verdict value, as compared to a settlement value, to Doherty's personal injury claim. Indeed, defendant's claim representative admitted that she never assigned a value or even a value range to the claim and could not recall how she arrived at the $10,000 settlement offer that remained in place until the first day of trial, when it was increased to $25,000. The record does not contain evidence of any analysis by defendant of the potential for high-end jury verdicts in the trial venue or any examination of jury verdict reports in cases with similar injuries in similar venues. Thus, in our view, on this record, defendant utterly failed to satisfy one of the most fundamental factors essential to a finding of good faith.

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

* * * * *

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

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

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

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

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

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

According the Genesee Valley Chapter of the BMW Car Club of America's website,

A driving school provides an opportunity for you to learn high performance driving skills in your own vehicle, on a racetrack, in a controlled environment, with in-car instruction.

The purpose of a driving school is quite simple: to improve your driving skills.

It is hoped that the skills you learn will benefit you in your day-to-day driving, especially when confronted with emergency situations such as slippery road conditions or having to avoid hitting a deer on a country road.

Yeah, right.  People pay $400-$500 just to learn how to drive better on slippery or deer populated roads.

The Genesee Valley Chapter's website also answers this FAQ about insurance for using one's own auto in a driving school weekend:

Does my insurance cover my car at the track?
Read your policy.  It probably says that you are not covered if you participate in “racing” or “timed” events.  Driving Schools are NOT “racing events” and timing is strictly forbidden.  However, our driving schools are held at facilities that are specially designed for racing. The intent of our school is to make you a better driver, not to teach you how to race.  It is up to you to fully understand what your policy covers or doesn’t cover.

On May 11, 2007, plaintiff Peter Stephan totaled his 1989 BMW E30 M3 while participating in one of the Genesee Valley BWMCCA's Ultimate Driving School weekends at the Watkins Glen racetrack in Watkins Glen, New York.  At the time of the accident, Stephan was an advanced driving student who was permitted to drive without an instructor.  According to plaintiff, the front tire on the driver's side of his vehicle went onto the grass shoulder as plaintiff was maneuvering a turn at an exit and subsequently spun onto the other side and hit the guardrail in his attempt to steer the BMW back onto the track, which resulted in a total loss to the vehicle.  Plaintiff estimated that he was traveling at approximately 50-70 miles per hour at the time of the accident. Additionally, plaintiff maintained that no other vehicles were in proximity to his BMW at the time of the accident and that no timing devices were used on the racetrack.  There were no witnesses to this accident.  

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

Stephan's personal auto policy with Clarendon National Insurance Company contained the following racing exclusion for collision and comprehensive coverage:

There is no collision or comprehensive coverage for the following:

g.  Loss to any auto or trailer while inside any racing facility for the purpose of practicing for, preparing for, or participating in any prearranged or organized racing or speeding contest.

Clarendon's investigation of the accident revealed, among other things, that Stephan's BMW was "enhanced by the prior owner," "equipped for racing" and "loaded with aftermarket racing parts".  Clarendon denied collision coverage to Stephan based on the policy's racing exclusion, and he commenced this action to recover payment for his vehicle's loss. 

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

On what appeared to Judge Kennedy to be an issue of first impression in New York, the court adopted the reasoning set forth by the Superior Court of Massachusetts in Metropolitan Prop. and Cas. Ins. Co. v Stevens (10 Mass. L. Rptr. 729 [Mass Super 1999]) and by the Court of Appeals of Georgia in Progressive American Ins. Co. v Horde (259 Ga. App 769, 577 N.E. 2d 835 [2003]) and concluded that Clarendon had met its burden in establishing that plaintiff's loss fell within the policy's racing exclusion:

The 1989 BMW E 30 vehicle is characterized as a "street-legal version of the marque's racing car," with such advantages as "real racing heritage," "strong performance," and "active club support" (see Defendant's Exhibit F in Evidence). Such vehicles are often modified which result in a faster performance on the track (see Defendant's Exhibit F in Evidence). Although plaintiff testified that he only used his BMW for pleasure to drive on country roads or public highways, the Court did not find such testimony to be credible. Plaintiff has held himself out to the world as an amateur racer with fifteen (15) years experience (see Defendant's Exhibit D in Evidence). Additionally, plaintiff has participated in at least twelve (12) BMW CCA driving events prior to the May 11, 2007 accident as a member of BMW CCA or Sports Car Club of America.

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

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

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

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

As the court stated in Metropolitan, "[j]ust as a rose by any other name is still a rose, so a race by any other name is still a race; so much like a race that any damage to vehicles, or personal injury, are outside insurance coverage" (supra at fn 4).

Although there's no mention of it in her decision, do you think Judge Kennedy also found and watched these videos on Stephan's YouTube channel?  And just yesterday, Stephan responded to this posting of a BWM CCA Club Racing M3 track racing car for sale. 

For slippery roads and deer?  Not in this case.

Intentionally Driving into Pedestrians Disqualifies Driver from Liability Coverage and Pedestrians from Uninsured Motorists Coverage

AUTO – UM – INTENTIONAL ACT – "UNINSURED MOTOR VEHICLE" – STAY OF ARBITRATION
Matter of Travelers Indem. Co. v. Richards-Campbell
(2nd Dept., decided 5/18/2010)

Jamille Andrews intentionally drove Cheryl Holt's car into Shekenah, Shadrach and Shekeila Campbell, injuring them.  Andrews subsequently was charged criminally and pleaded guilty to three counts of assault in the second degree arising from the incident, admitting that she had  intentionally struck the Campbells.

The Campbells made third-party BI claims to Holt's auto insurer, Lincoln General, which denied liability coverage based on Andrews' intentional act.  The Campbells then filed uninsured motorists (UM) coverage claims with their mother's auto insurer, Travelers, which similarly denied UM coverage because their injuries were caused by Andrews' intentional criminal acts rather than an accident and because the Holt vehicle did not constitute an "uninsured motor vehicle" within the meaning of their mother's auto policy.  The Campbells demanded arbitration of their UM claim and Travelers commenced this special proceeding for a permanent stay of that arbitration.

In REVERSING the Orange County Supreme Court's order that had denied and dismissed Traveler's petition, the Appellate Division, Second Department, held:

The Supreme Court correctly determined that Lincoln was not obligated to provide coverage under its automobile insurance liability policy, given that the Campbells' injuries were not the result of an accident, but rather, of an intentional criminal act by Andrews (see Matter of American Mfrs. Mut. Ins. Co. v Burke, 63 AD3d 732, 733; State Farm Mut. Auto. Ins. Co. v Langan, 55 AD3d 281, 283; Met Life Auto & Home v Kalendarev, 54 AD3d 830, 831; State Farm Mut. Auto. Ins. Co. v Langan, 18 AD3d 860, 862). However, the Supreme Court improperly determined, in effect, that Travelers was obligated to provide uninsured motorist benefits under its policy with the Campbells (see McCarthy v Motor Veh. Acc. Indem. Corp., 16 AD2d 35, 42, affd no opn 12 NY2d 922). 

The record reveals that Travelers properly disclaimed the Campbells' claim for uninsured motorist benefits under the subject insurance policy by establishing that their bodily injuries were caused by Andrews's intentional criminal acts (see Matter of American Mfrs. Mut. Ins. Co. v Burke, 63 AD3d at 733; Westchester Med. Ctr. v Travelers Prop. Cas. Ins. Co., 309 AD2d 927, 928; Matter of Progressive Northwestern Ins. Co. v Van Dina, 282 AD2d 680; Matter of Aetna Cas. & Sur. Co. v Perry, 220 AD2d 497), and that the offending vehicle was not an "uninsured motor vehicle" within the terms of the policy (McCarthy v Motor Veh. Acc. Indem. Corp., 16 AD2d at 46). Accordingly, the Supreme Court should have upheld Travelers' disclaimer and granted that branch of the petition which was to permanently stay arbitration. 

Note that Lincoln General's denial of liability coverage to Andrews did not render the Holt vehicle "uninsured" for purposes of a UM claim. See, McCarthy v. Motor Vehicle Acc. Ind., 16 AD2d 35 (4th Dept. 1962).

Second Department Reaffirms Its Finding that Graves Amendment is Constitutional -- Personal Injury Action Against Trustee of Vehicle Lessor Is Dismissed

GRAVES AMENDMENT – VICARIOUS LIABILITY – "AFFILIATE" OF THE VEHICLE OWNER – CONSTITUTIONALITY
Gluck v. Nebgen
(2nd Dept., decided 4/27/2010)

In  Graham v Dunkley, 50 AD3d 55 (2nd Dept. 2008), the Appellate Division, Second Department, held that "the Graves Amendment was a constitutional exercise of congressional power pursuant to the Commerce Clause of the United States Constitution."  Since that decision was issued, injured parties have continued to challenge both the constitutionality and application of the Graves Amendment to New York personal injury actions against vehicle renters and lessors.

The Graves Amendment exempts an "owner (or an affiliate of the owner) ... engaged in the trade or business of renting or leasing motor vehicles" from vicarious liability for injuries or damages caused by the negligent operation of the rented or leased vehicle.  The question addressed in this case is whether the Graves Amendment applies to an entity that it not the offending vehicle's actual owner and lessor, but is affiliated with and related to the owner/lessor.

Gluck was a passenger in defendant Nebgen's car, which collided with a vehicle operated by defendant Turco.  Turco's motor vehicle allegedly was leased from defendant NILT, Inc., which was the title owner of that vehicle.  NILT, Inc. is the trustee of of Nissan-Inifinit LT, a Delaware statutory trust.  Gluck brought this personal injury action, and NILT moved to dismiss plaintiffs' complaint pursuant to CPLR Rule 3211(a)(7), asserting that it could not be held vicariously liable for Turco's alleged negligence by reason of the Graves Amendment, which preempted New York Vehicle & Traffic Law § 388.  Plaintiffs opposed NILT's motion on two grounds: (1) that the Graves Amendment did not apply because NILT neither itself leased the Turco vehicle nor is in the business of leasing vehicles; and (2) that the Graves Amendment violates the Commerce Clause of the United States Constitution. 

An employee of Nissan North America testified at an examination before trial that NILT, Inc., was a subsidiary of Nissan North America, and that NILT, Inc., was the trustee of NILT Trust, the owner of Nissan-Infiniti LT.  He also testified that NILT Trust is owned by Nissan Motor Acceptance Corporation, which relies on dealers to originate leases directly to and with consumers.  Once a consumer leases a vehicle, the lease is purchased by Nissan-Infiniti LT.  The Nissan employee testified that as trustee for Nissan-Infiniti LT, NILT, Inc., was not directly involved in the practice of leasing automobiles to the ultimate consumer.  NILT, Inc.'s main purpose was to acquire motor vehicle titles from Nissan Motor Acceptance Corp. in order to allow it to raise capital for the funding of the lease finance business.  After Turco leased her vehicle from Smithtown Nissan, the lease was assigned to Nissan-Infiniti LT, who by way of the NILT Trust, is owned by NILT, Inc.

In an affidavit submitted in support of NILT, Inc.'s 3211(a)(7) motion, it was explained that the primary purpose of the "originating" or "titling" trusts commonly utilized in the automotive leasing industry is to isolate the ownership of the lease contracts in the event of creditors rights actions against a non-bank corporation engaged in the manufacture or leasing of motor vehicles, and that without such trusts, the funding of motor vehicle lease contracts to consumers would be considerably more expensive or unavailable. 

In granting NILT's motion to dismiss plaintiffs' complaint against it, Suffolk County Supreme Court Justice Peter Mayer held:

Here, deposition testimony by Alan Hunn indicates that NILT is the owner of Nissan-Infiniti LT whose primary role is to purchase customer leases directly from Nissan dealerships. Mr. Hunn testified that by purchasing the motor vehicle titles, NILT allows Nissan-Infiniti LT to raise capital for the funding of the lease financing business. NILT's expert explained that as an "originating trust", NILT is indispensable to the leasing trade since it lowers Nissan-Infiniti's costs to consumers.  Plaintiffs' restrictive interpretation of the Act, as relating only to those businesses which directly lease a car to the consumer, is belied by the Act's attempt to effect an industry-wide reformation and deliver lower costs to the consumer.  Plaintiffs' interpretation of the Act would negate its broad aim and ignore NILT's integral role in the assumption of leases from Nissan dealerships. Under these circumstances NILT is unmistakably among those affiliates targeted by the Act.  Moreover, the instant action is distinguishable from Zizerski v Life Quality Motor Sales, NYLJ October 27, 2008, Kings County. Unlike Zizerski where the Court refused to extend the protection of the Graves Act to the defendants because they provided defendants with a loaner rather than a leased vehicle, here it is undisputed that the car provided to defendant Turco was a leased motor vehicle.  

Plaintiffs appealed the dismissal of their complaint against NILT, Inc., and the Appellate Division, Second Department, AFFIRMED, holding:

The Supreme Court properly granted that branch of the motion of the defendant NILT, Inc. (hereinafter the respondent), which was to dismiss the complaint insofar as asserted against it pursuant to CPLR 3211(a)(7). The respondent showed that it was an "owner (or an affiliate of the owner) . . . engaged in the trade or business of renting or leasing motor vehicles" (49 USC § 30106). Since there are no allegations of negligence or wrongdoing on its part, the respondent was entitled to dismissal of the complaint insofar as asserted against it for failure to state a cause of action (see 49 USC § 30106; Graham v Dunkley, 50 AD3d 55, 58). The plaintiffs' cross motion also was properly denied.

The Second Department also rejected "[t]he plaintiffs' remaining contention [as being] without merit (see Graham v Dunkley, 50 AD3d at 58)."  That remaining contention was the plaintiffs' additional argument that the Graves Amendment is unconstitutional.  By citing page 58 of its 2008 decision in Graham v. Dunkley, the Second Department implicitly reaffirmed its finding that the Graves Amendment is a constitutional exercise of congressional power pursuant to the Commerce Clause of the United States Constitution.