Summary Judgment Denied to Commercial Property Insurer on Coverage for Leasehold's Improvements & Betterments

COMMERCIAL PROPERTY – IMPROVEMENTS & BETTERMENTS COVERAGE – BURDENS OF PROOF – NON-COOPERATION – SUIT LIMITATIONS PERIOD
Bread & Butter, LLC v. Certain Underwriters at Lloyd's, London
(2nd Dept., decided 11/30/2010)

In 2000, plaintiff insured purchased a restaurant and assumed the seller's commercial lease with the property owner.  In December 2005, there was a fire at the premises.  Plaintiff made a claim for insurance coverage for the loss of improvements and betterments to the premises which it claimed it had purchased from the restaurant's prior owner, claiming that, pursuant to the terms of the commercial lease which it had assumed, those improvements never became the property of the landlord who owned the real property.  However, the defendant insurer denied coverage for the improvements and betterments on the ground that the plaintiff had neither made nor acquired the improvements as required for them to be covered under the policy.

Plaintiff timely sued in federal court, but later voluntarily discontinued that action when it received documents demonstrating a lack of complete diversity.  Plaintiff then brought this action in state court within six months after the federal court action's discontinuance but after the period of time required by the policy to bring suit.  Defendant insurer cross-moved for summary judgment to dismiss this state court action as untimely and to dismiss plaintiff's improvements and betterments claim.  Nassau County Supreme Court (Palmeri, J.) denied defendant's cross motion and it appealed.

In AFFIRMING the denial of summary judgment to the insurer, the Second Department held first that because the parties had sufficiently expressed their intent that the discontinuance of the previous federal court action was not on the merits, that it was without prejudice and, consequently, the commencement of a new action within six months pursuant to CPLR 205(a) was permitted.

With respect to Lloyd's arguments of non-coverage on the improvements and betterments claim and because the plaintiff allegedly had not cooperated with Lloyd's investigation of the claim by not producing certain requested documents, the Second Department held:

In a dispute over insurance coverage, the insured bears the initial burden of establishing that the loss claimed falls within the scope of the policy (see Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208, 220). "Once coverage is established, the insurer bears the burden of proving that an exclusion applies" (id.). However, as the moving party with respect to the cross motion for summary judgment, the defendant had the burden of establishing its prima facie entitlement to judgment as a matter of law (see Lancer Ins. Co. v Whitfield, 61 AD3d 724, 725).

Viewing the facts in the light most favorable to the plaintiff (see Forrest v Jewish Guild for the Blind, 3 NY3d 295, 315; Pearson v Dix McBride, LLC, 63 AD3d 895), the defendant failed to demonstrate either that the improvements and betterments at issue were not installed by the plaintiff's predecessor but by the landlord or a previous tenant, or, that, to the extent that the improvements and betterments were owned by the plaintiff's predecessor, they were not included in the sale of the business's assets.  Consequently, the defendant failed to make a prima facie showing sufficient to shift the burden to the plaintiff (see Ferluckaj v Goldman Sachs & Co., 12 NY3d 316, 321). Likewise, the defendant failed to demonstrate that the plaintiff's failure to provide certain requested documents constituted a "material breach" of the policy requirements or was "unexcused and willful" and thus that it was entitled to deny coverage based upon the policy exclusion for noncooperation with the defendant's investigation of the claim (Matter of New York Cent. Mut. Fire Ins. Co. v Rafailov, 41 AD3d 603, 604; see also High Fashions Hair Cutters v Commercial Union Ins. Co., 145 AD2d 465, 466).

Neither of the substantive non-coverage defenses was dismissed.  The trial and appellate courts merely held that Lloyd's had not established its entitlement to summary judgment on those defenses. 

Court Denies Summary Judgment Motion Based on Insureds' Recorded Statements

AUTO – NON-COOPERATION – FALSE REPORTING – INADMISSIBILITY OF RECORDED STATEMENTS – BUSINESS RECORD EXCEPTION TO HEARSAY RULE
Metropolitan Cas. Ins. Co. v. Shaid
(Sup. Ct., Queens Co., decided 5/21/2009)

On June 8, 2006, a vehicle operated by the underlying plaintiff Justin Marvisi collided with a vehicle insured by Metropolitan operated by Arshad and owned by Shaid. In initially reporting the accident, Shaid advised Metropolitan that he did not know the identity of the person who was driving his vehicle at the time of the accident and that he had dropped off his vehicle at a service station with the keys inside it. It was not until 2008 that Shaid acknowledged that he knew Arshad, the driver, and had given him permission to use the vehicle for personal and non-business related reasons. Both Shaid and Arshad provided recorded statements to an investigator for Metropolitan.

In October 2006, Metropolitan denied liability coverage to Shaid and Arshad based on the policy's exclusion for use of the insured auto in an “auto business.” Marvisi brought a personal injury action against Shaid and Arshad and obtained a default judgment against them. Metropolitan then commenced this action, seeking a declaratory judgment declaring that Shaid and Arshad had breached the policy's cooperation clause.

Metropolitan moved for summary judgment based on the contents of recorded statements obtained from Shaid and Arshad. Queens County Supreme Court Justice Bernice Siegel initially agreed that:

[t]he law is well settled that an insured who falsely informs his insurer as to who was driving the insured vehicle at the time of the accident breaches the cooperation clause of the insurance policy. (Geico v. Fisher, 54 AD2d 1087 [4th Dept 1976].)In this matter, the insurer contends that Shaid knew who was driving his vehicle at the time of the accident and for what purpose, but intentionally misrepresented those facts to Metropolitan.

An insured breaches the condition of cooperation and seriously prejudices the insurer in handling the claims and lawsuits arising out of the accident when making false statements concerning the facts of an accident. (see State Farm Mutual Automobile Ins. Co. v. Brown, 21 AD2d 742 [4th Dept. 2004].) However, even through the insurer may be prejudiced by the lack of cooperation “[t]he lack of prejudice to the insurer is immaterial when there has been a breach of a condition.” (National Grange Mutual Liab. Co. v. Fino, 13 AD2d 10 [3d Dept 1961].)

In spite of these legal principles, however, the court denied Metropolitan's motion for summary judgment, finding that the recorded statements Shaid and Arshad gave to Metropolitan's investigator were not business records that qualified as admissible under the business records exception to the hearsay rule:

Hearsay is a statement made out of court offered for the truth of the fact asserted in the statement. (People v. Romero, 78 NY2d 355 [1991].) A hearsay statement may be received in evidence only if it falls within one of the recognized exceptions to the hearsay rule, and then only if the proponent demonstrates that the evidence is reliable. (Nucci v. Proper, 95 NY2d 597 [2001].)

Plaintiff contends that the statements fall under the business records exception to the hearsay rule. For the purposes of determining whether hearsay is admissible under business records exception, the concern relating to trustworthiness extends to “each participant in the chain producing the business record, from the initial declarant to the final entrant.” (Matter of Leon RR, 48 NY2d 117 [1979].)

The Court of Appeals has ruled that “the statement is inadmissible hearsay if any of the participants in the chain is acting outside the scope of the business duty.” Id. at 122. It is undisputed that the insured was outside the insurers enterprise at the time of the statement.

At issue though, is whether the duty of an insured to cooperate with an insurer is comparable to a business duty during an insurance investigation. (Hochhauser v. Electric Insurance Co., 46 AD3d 174 [2d Dept 2007].) However, “despite potential consequences which may befall an insured who fails to provide accurate and truthful information to, or to cooperate with, an insurer, the insured’s statement to the insurance investigator ... was not made under the circumstances which create a high probability that the statement was truthful.” (Corsi v. Town of Bedford, 58 AD3d 225, 231 [2d Dept 2008], quoting Hochhauser v. Electric Insurance Co., 46 AD3d at 1823.)

The essence of the business records exception to the hearsay rule is that records systematically made for the conduct of business are inherently highly trustworthy because (1) the records are routine reflections of the day to day operations of a business; (2) the entrant is obliged to be truthful and accurate for purposes of conducting the enterprise. (Hochhauser v. Electric Insurance Co., 46 AD3d 174 [2d Dept 2007].)

Here, the insured was outside of the insurer’s enterprise and was not communicating information regarding the accident under the compulsion of any business duty. (see generally, Matter of Leon RR , 48 NY2d 117 [1979].) Accordingly, the statements made by Shaid and Arshad to the insurance investigator do not constitute a business record. Without the benefit of the business record exception, the plaintiffs statements to the investigator are simply impermissible hearsay.

Contrast this decision with Tower Ins. Co. v. Rajaram (Sup.Ct., NY Co., 2008) and Tower Ins. Co. v. Kravtchouk (Sup.Ct., NY Co., 2008) in which New York County Supreme Court Justice Eileen Rakower found signed statements of the insureds to be admissible as evidence on Tower's motions for summary judgment in those cases. In rejecting the defendants' argument that their signed statements were inadmissible hearsay, Justice Rakower ruled: "While hearsay, admissions by a party of any fact material to the issue are always competent evidence against that party."

Did Metropolitan also argue that Shaid's and Arshad's recorded statements constituted party admissions and, thus, were admissible under a separate exception to the hearsay rule? Once the declaratory judgment action was pending, couldn't Metropolitan also have converted the recorded statements into evidentiary form by attaching transcripts to a notice to admit or marking and using the transcripts during party depositions of Shaid and Arshad? This decision does not indicate in what form and under whose sponsoring affidavit the recorded statements were submitted in support of Metropolitan's motion.

Willful and Avowed Obstruction -- SUM Arbitration Not Stayed for Claimant's Mistaken Refusal to Submit to Second IME

AUTO – SUM – MULTIPLE IMEs – COOPERATION
Matter of New York Cent. Mut. Fire Ins. Co. v. Bradfield
(3rd Dept., decided 4/9/2009)

Claimant was injured while a passenger in a one-car accident in January 2006.  She was covered under her parents' policy with New York Central Mutual, which included a UM/SUM endorsement.  She settled her personal injury claim against the tortfeasor with NYCM's consent, and submitted to an IME requested by NYCM in January 2007. She refused, through counsel, however, to appear for a second IME in both November 2007 and April 2008, claiming that NYCM was not entitled to multiple examinations.  She subsequently demanded arbitration of her SUM claim, and NYCM commenced this special proceeding to stay that arbitration based on its contention that claimant had violated a condition precedent to coverage by refusing to submit to a second IME.  Ulster Supreme denied the application and NYCM appealed.

The SUM endorsement at issue required claimant to "submit to physical examinations by physicians we select when and as often as we may reasonably require."  When NYCM scheduled claimant's first IME in January 2007, her attorney advised NYCM that claimant's treatment was ongoing and suggested that the IME await the completion of treatment. Claimant's attorney further indicated that if NYCM insisted upon an IME at that time, claimant would not participate in a second IME.  According to the claimant's attorney, this refusal was based on his incorrect belief that NYCM was not entitled to more than one IME.

In AFFIRMING the motion court's denial of NYCM's petition for a stay of the SUM arbitration, the Third Department agreed with the lower court that NYCM had not met its

heavy burden of showing "that it acted diligently in seeking to bring about [respondent's] co-operation; that the efforts employed by [petitioner] were reasonably calculated to obtain [respondent's] co-operation; and that the attitude of [respondent], after [her] co-operation was sought, was one of 'willful and avowed obstruction'" (Thrasher v United States Liab. Ins. Co., 19 NY2d 159, 168-169 [1967], quoting Coleman v New Amsterdam Cas. Co., 247 NY 271, 276 [1928] [citations omitted]; see Matter of St. Paul Travelers Ins. Co. [Kreibich D'Angelo], 48 AD3d 1009, 1010 [2008]). 

According to the decision, when claimant's attorney received NYCM's show cause application on April 15, 2008 and became aware that the included SUM endorsement permitted multiple physical examinations, he contacted NYCM's attorney and advised him that the claimant was willing to submit to the second IME, which had been rescheduled to April 21, 2008.  NYCM's attorney, however, declined the offer and proceeded with the application to stay the SUM arbitration based on the claimant's asserted breach of the policy's IME condition.

Characterizing the claimant's attorney's mistaken assumption that NYCM was not entitled to multiple IMEs and his failure to request a copy of the policy "no more unreasonable than [NYCM]'s failure to offer a copy of the policy in the face of [his] obvious misunderstanding", the Third Department held:

In our view, even assuming that petitioner acted diligently and employed reasonable efforts to secure respondent's cooperation, Supreme Court properly determined that petitioner failed to demonstrate that respondent's lack of cooperation rose to the level of willful and avowed obstruction (see Baust v Travelers Indem. Co., 13 AD3d 788, 790 [2004]; Ingarra v General Acc./PG Ins. Co. of N.Y., 273 AD2d 766, 767 [2000]). Although respondent's earlier refusals to submit to a second examination were unequivocal, there is no evidence that either she or her attorney was in possession of the policy and, therefore, aware of the provision permitting multiple examinations ^[FN2]. Furthermore, respondent did submit to one physical examination, answered questions under oath for three hours and provided petitioner with copies of medical records, as well as numerous authorizations for healthcare providers, employers and insurance companies. Once she was aware of her obligation to submit to a second physical examination, she immediately indicated her willingness to do so. Overall, there is ample evidence that respondent's attitude was one of cooperation and that her conduct was not an unreasonable attempt to obstruct discovery (see Baust v Travelers Indem. Co., 13 AD3d at 790). Therefore, Supreme Court properly denied petitioner's application to stay arbitration. 

The "willful and avowed obstruction" or "Thrasher" standard has always been a high one to prove for insurers in New York.  Conceptually speaking, bona fide ignorance of a policy condition or requirement could, in the right circumstances, be mutually exclusive of willfulness.  In this case, there certainly was "avowed" obstruction -- in that claimant's counsel made his client's refusal to attend a second IME clear and unequivocal -- and yet seemingly missing, at least in the opinion of the motion and appellate courts, was the claimant's willfulness, given her attorney's mistaken assumption or belief that the insurance policy did not permit more than one IME.  If faced with the appearance of such mistake, misunderstanding or ignorance, insurers might consider quoting the policy conditions or providing a copy of the applicable endorsement, to avoid any dispute over what the policy obliges the claimant to do.  Especially in the Third Department.

Negligence, Slander and Punitive Damages Claims Dismissed Against Property Insurer and Its Special Investigator -- Continuation of EUO Ordered

COMMERCIAL PROPERTY – NONCOOPERATION – EUO – SPOUSAL PRIVILEGE – NEGLIGENCE CAUSE OF ACTION AGAINST PROPERTY INSURER – DEFAMATION CLAIM AGAINST SPECIAL INVESTIGATOR – PUNITIVE DAMAGES
LeBaron v. Erie Ins. Co.
(4th Dept., decided 2/6/2009)

If you had read just the Fourth Department's "ORDERED that the order so appealed from is unanimously affirmed without costs for reasons stated in the decision at Supreme Court" memorandum of February 6, 2009, you might have passed right over this case.  What caught my eye, however, was the court's description of the order appealed from, viz, one granting "those parts of the motion of defendants seeking dismissal of the negligence and slander causes of action and the punitive damages claim."

The term "slip ops" refers to court decisions that may or may not later be published officially in the New York State Reporter.  Written decisions from the New York Court of Appeals and four departments of the Appellate Division are always published officially.  Less than 6% of the decisions received from the Appellate Term and trial-level courts get published officially in the Miscellaneous Reports.  Under a program approved by the Court of Appeals, however, most of the remainder are selected for publication electronically in the New York Slip Opinion Service.  These opinions are classified by subject to the Official Reports Digest-Index and are assigned a unique Slip Opinion citation (e.g., 2007 NY Slip Op 52588[U]) and pagination to permit point-page citations. Some opinions are published in image (PDF) format.

The statutory criteria used to select a lower court decision for publication in the Miscellaneous Reports (the books, not just online),  are:  precedential significance; novelty; public importance; practical significance;subject matter diversity; geographical diversity; author diversity; and literary quality.  Both judges and lawyers can and do submit lower court decisions to the New York Law Reporting Bureau for consideration and possible publication in the Miscellaneous Reports. 

There are several ways of searching for an "unpublished" lower court decision other than by using a paid legal research service such as LexisNexis or Westlaw.  I found the motion court's decision in this case by checking the New York Official Reports and using its Advanced Search tab or feature.  Searching "LeBaron" produced several results, including Stueben County Supreme Court Justice Peter Bradstreet's decision of December 12, 2007, which formed the basis of the parties' appeal and cross appeal to the Fourth Department.  Another way of searching for written decisions that may not get published electronically as a slip opinion is through the eCourts portal of the New York State Unified Court System.  Written decisions are sometimes saved as PDF files to the court's electronic files and can be found by searching with an index number, party's name, judge's name, and or venue.

Which brings us back to this case. It's the trial-level decision that provides the procedural and substantive information, and plenty of it.  

On July 29, 2006, a fire in plaintiff LeBaron's van damaged many of the tools and machinery plaintiff used in his business. After plaintiff reported the loss, defendant Erie Insurance Company began an investigation into the claim.  In August 2006, after Erie had reviewed the list of items plaintiff claimed were damaged in the fire, Erie's special investigator Piontkowski met with representatives of the Corning Police and Fire Departments. According to a Corning Police Department report, Piontkowski told the police and fire investigators that there were inconsistencies between the items listed on plaintiff's claim and the items that were actually damaged in the fire. The police report further indicated that Piontkowski was going to re-interview plaintiff and then forward the matter to the New York State Insurance Frauds Bureau.

In September 2006, the parties attempted to schedule an examination under oath (EUO) of plaintiff. Conflicts between counsel for the parties developed immediately thereafter when plaintiff, prior to the EUO, refused to release a jet washer, one of the items allegedly damaged in the fire, without receiving adequate assurances that the item would be protected. After more than two months of correspondences between counsel, in which the parties argued about Erie's right to inspect and test the disputed item, Erie finally was able to inspect the jet washer in December 2006 after which its expert found that the item was not damaged by the van fire.

On April 12, 2007, counsel for Erie finally conducted the EUO of plaintiff. After some introductory questions, counsel for Erie asked plaintiff whether he had spoken with anyone other than his attorney about the testimony he was to give at the EUO. Plaintiff responded that he had discussed the matter with his wife. When Erie's counsel for inquired about the nature of the discussions with his wife, plaintiff's counsel refused to allow plaintiff to answer the question, citing a spousal privilege. Plaintiff's counsel indicated that Erie's counsel for could ask plaintiff any other questions, but that plaintiff would not answer any questions concerning conversations plaintiff may have had with his wife. Based upon plaintiff's refusal, Erie's counsel declined to ask any further questions and the EUO ended.

Ultimately Erie denied plaintiff's claim, presumably based in part on plaintiff's noncooperation and refusal to answer questions during his EUO.  Plaintiff sued Erie and Piontkowski, asserting causes of action sounding in breach of contract, negligence, slander and punitive damages.  Erie moved to dismiss the action as premature, based on plaintiff's asserted noncooperation with Erie's investigation, including his delay in providing the jet washer for inspection and refusal to answer questions during his EUO.  Erie aslo sought dismissal of the slander claim against Piontkowksi based on qualified privilege, and the negligence claim based on the absence of any duty independent of the insurance contract.

Plaintiff cross-moved for leave to serve an amended complaint specifying his causes of action sounding in negligence, slander and punitive damages.  In opposition to defedants' motion to dismiss, plaintiff argued that defendants had not shown sufficiently willful noncompliance with the insurance contract to warrant dismissal of the action since plaintiff acted reasonably in insisting that proper safeguards be established before he submitted the jet washer for testing and inspection. Plaintiff also contended that he correctly asserted a spousal privilege during the EUO, that he was not required to adhere to Erie's "almost Godlike stance that he who represents an insurance company must be obeyed", and that Erie's position that plaintiff and his wife were involved in a conspiracy to obtain insurance proceeds was "preposterous".

As for his slander claim, plaintiff argued that his allegations did raise questions as to whether defendant Piontowski acted with malice in discussing the insurance claim with the police. As to his negligence claim, plaintiff contended that a separate tort action is allowable because defendants breached their duty of good faith which is independent of the insurance contract. Finally, plaintiff asserted that the complaint's allegation that Piontowski's statements to the police were willful, wanton and reckless supported an award of punitive damages.

Steuben County Supreme Court Justice Peter Bradstreet: (1) conditionally granted defendants' motion to dismiss the complaint unless plainitiff submitted to another EUO within 60 days of the court's decsion and answered "all material and relevant questions, consistent with this Decision and Order"; (2) granted defendants' motion dismissing the negligence, slander and punitive damages claims; and (3) denied plaintiff's cross motion to serve an amended complaint on those causes of action.

In declining to dismiss the entire action based on defendants' noncooperation defense, the court found that plaintiff's delay in providing the jet washer for testing did not, in and of itself, constitute the type of willful noncooperation necessary to warrant a dismissal of the action. "Plaintiff's actions, while not particularly reasonable, did not rise to the level of 'willful and avowed obstruction'".

With respect to plaintiff's assertion of the spousal privilege at his EUO, the court found this to be "more problematic."  In reviewing this issue, the court noted that the purpose of a policy's EUO condition is to enable the insurer to obtain all knowledge and facts concerning the cause of the fire and the loss involved while the information is still fresh in order to protect itself from false and fraudulent claims; that the right to examine under the cooperation clause of an insurance policy is much broader than the right of discovery under the CPLR; that an insurer is permitted to ask, and an insured is required to answer, any material and relevant questions concerning the claim; and that an insured risks the loss of coverage under a fire insurance policy even when refusing to answer questions at an EUO or provide information to the insurer upon the advice of counsel.

Based on these principles, the court held that plaintiff had no basis to refuse to answer questions at the EUO concerning conversations he had with his wife prior to testifying. 

While the Court recognizes the importance of protecting confidential communications between a husband and a wife, if an insured is not permitted to invoke at an EUO a basic Constitutional right, it certainly cannot be said that Plaintiff can refuse to answer questions at an EUO based upon a spousal privilege. 

Although having found that plaintiff improperly refused to answer questions during his EUO regarding his conversations with his wife, the court declined to dismiss the action, instead finding that a conditional order of dismissal was the appropriate remedy in this case because counsel for Erie had terminated rather than continued the EUO when plaintiff invoked the spousal privilege:

While, as noted above, Plaintiff improperly asserted a spousal privilege during the EUO, the record demonstrates that it was counsel for Erie who stopped the EUO and refused to ask any further questions. Cf, Davis v. Allstate Insurance Company, 204 AD2d 592; Evans v. International Insurance Company, 168 AD2d 374; Pizzirusso v. Allstate Insurance Company, 143 AD2d 340. Had counsel continued with the EUO, the record may have revealed that questions concerning conversations Plaintiff had with his wife would, indeed, be information material and relevant to the subject claim. As such, Defendants have, at this point, failed to establish that they acted diligently in seeking Plaintiff's cooperation (Blinco v. Preferred Mutual Insurance Company, 11 AD3d 924) and, notwithstanding Plaintiff's breach of his contractual obligation by failing to answer certain questions at the EUO, and his delay in submitting to Defendants the jet washer, Plaintiff's noncompliance was not so willful or extreme as to warrant dismissal of the action without giving him one last chance to answer the questions. Marmorato v. Allstate Insurance Company, 226 AD2d 156 (1st Dept, 1996).

On plantiff's negligence and bad faith claims, the court agreed with defendants that no such separate claims had been stated:

It is a well established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated. Bristol-Myers Squibb, Industrial Division v. Delta Star, Inc., 206 AD2d 177 (4th Dept, 1994); City of Watertown v. Stebbins Engineering and Manufacturing Company, 206 AD2d 828 (4th Dept, 1994). Because a tort obligation is apart from and independent of promises made in a contract, a defendant may be liable in tort only when it has breached a duty of reasonable care distinct from its contractual obligations, or when it has engaged in tortious conduct separate and apart from its failure to fulfill its contractual obligations. New York University v. Continental Insurance Company, 87 NY2d 308 (1995). 

In the instant case, the essence of Plaintiff's negligence cause of action is Erie's breach of the insurance policy by failing to timely provide him with the benefits to which Plaintiff contends he is entitled due to damages he sustained in the van fire. The Complaint does not allege the creation of a relationship between Plaintiff and Defendants separate from their contractual relationship (Alexander v. Geico Insurance Company, 35 AD3d 989) and there is no separate tort for the bad faith refusal to comply with an insurance contract. New York University v. Continental Insurance Company, 87 NY2d 308; Paterra v. Nationwide Mutual Fire Insurance Co., 38 AD3d 511 (2nd Dept, 2007); Johnson v. Allstate Insurance Company, 33 AD3d 665 (2nd Dept, 2006); Alexander v. Geico Insurance Company, 35 AD3d 989.

On plaintiff's slander claim, the court agreed with defendants that Erie's special investigator was protected by the doctrine of qualified privilege:

A communication is subject to a qualified privilege where it is made (1) in good faith by a person in the discharge of some public or private duty, legal or moral, or in the conduct of his or her own affairs, in a matter where his or her interest is concerned (Toker v. Pollak, 44 NY2d 211 (1978); or (2) by one person to another upon a subject in which both have a common interest. Liberman v. Gelstein, 80 NY2d 429 (1992); East Point Collision Works, Inc., v. Liberty Mutual Insurance Company, 271 AD2d 471 (2nd Dept, 2000); Herlihy v. Metropolitan Museum of Art, 214 AD2d 250 (1st Dept, 1995). The defense of qualified privilege will be defeated by demonstrating that the party spoke with malice, i.e., where it is shown that the motivation for making such statements was spite or ill will (common law malice), or that the statements were made with a high degree of awareness of their probable falsity (constitutional malice). Foster v. Churchill, 87 NY2d 744 (1996); Liberman v. Gelstein, 80 NY2d 429; Kondo-Dresser v. Buffalo Public Schools, 17 AD3d 1114 (4th Dept, 2005); Fregoe v. Fregoe, 33 AD3d 1182 (3rd Dept, 2006). 

In the instant case, Defendant Piontkowski is protected by a qualified privilege in that the statements he gave were part of his duties to report possible false insurance claims to the police. Chapo v. Premier Liquor Corporation, 259 AD2d 1050 (4th Dept, 1999). There can be no liability for merely giving information to legal authorities who are left entirely free to use their own judgment in proceeding any further with respect to that information. Lowmack v. Eckerd Corporation, 303 AD2d 998 (4th Dept, 2003); Cobb v. Willis, 208 AD2d 1155 (4th Dept, 1994). Moreover, Defendants and the police certainly have a common interest in the investigation of potentially false insurance claims. Liberman v. Gelstein, 80 NY2d 429; Herlihy v. Metropolitan Museum of Art, 214 AD2d 250.

The Court further finds that both the original and Amended Complaints fail to raise sufficient allegations that Defendant Piontkowski acted with malice in speaking with the police. According to the police report provided by Plaintiff, Defendant Piontkowski's discussion with the police dealt only with possible inconsistencies between the items Plaintiff claimed were damaged by the fire and the photographs taken by the police. While the papers submitted in support of Plaintiff's cross-motion make repeated suggestions that Defendants had falsely accused Plaintiff of arson, the Amended Complaint alleges only that Defendant Piontkowski "did wrongfully advise" the police about the insurance claim. Construing the Amended Complaint in the light most favorable to Plaintiff, the Court finds Defendant Piontkowski's qualified privilege is not overcome by the vague and conclusory allegations set forth in the Amended Complaint that the statements to the police were made with ill will or with a high degree of awareness of their probable falsity. Doherty v. New York Telephone Company, 202 AD2d 627 (2nd Dept, 1994); East Point Collision Works, Inc., v. Liberty Mutual Insurance Company, 271 AD2d 471; cf, Labarge v. Holmes, 30 AD3d 1087 (4th Dept, 2006); Kondo-Dresser v. Buffalo Public Schools, 17 AD3d 1114.

Finally, in dismissing the plantiff's punitive damages claim,  Justice Bradstreet held:

First, inasmuch as the Court is dismissing Plaintiff's negligence and slander claims, there is no independent tort action upon which a punitive damages claim can lie. Even if the negligence and slander claims were to survive, and affording the original and Amended Complaints every possible inference, the Court finds Plaintiff's allegations fail to rise to the level of willful or wanton negligence, recklessness, or moral culpability. Hunter v. Galland, 37 AD3d 1048. Plaintiff's claims that Defendants' behavior "may also be possibly tied to a pattern" of similar behavior towards other claimants is wholly conclusory and completed unsupported in the Complaint. In sum, the acts alleged by Plaintiff constitute private wrongs for which punitive damages may not recovered. Westinghouse Electric Supply Company v. Pyramid Champlain Company, 193 AD2d 928. 

Lots and lots of good stuff in the motion court's decision, which the Fourth Department affirmed wholesale.  Take a look.

Question of Fact Found on Timeliness of Insurer's Non-Cooperation Disclaimer

PROFESSIONAL LIABILITY – NON-COOPERATION – TIMELINESS OF DISCLAIMER
Continental Cas. Co. v. Stradford
(Ct. Apps., decided 11/25/2008)

When an insured is not cooperating in the defense of a suit against him that alleges bodily injuries, at what point does New York Insurance Law § 3420(d) require the insurer timely to disclaim coverage? Judge Ciparick, who wrote this opinion for the Court of Appeals, said it best: "Fixing the time from which an insurer's obligation to disclaim runs is difficult." Especially in non-cooperation situtations, such as this.

Continental insured Staten Island dentist Terrance Stradford, who was sued for dental malpractice in two separate actions. Over the course of nearly six years from 1998 through 2004, Stradford cooperated only sporadically with Continental in the defense of those actions. In July 2004, Continental mailed Stradford two detailed letters -- one for each underlying action -- setting forth his history of noncompliance, evasion and broken commitments. Those letters also demanded that Stradford schedule a meeting with newly-retained counsel Stradford himself had demanded be retained for a date on or before August 13, warned that further non-cooperation "may imperil" his coverage, and, given adverse expert findings regarding Stradford's care of the underlying defendants, recommended that he consent to settlement of both actions. On August 11, 2004, Continental received both letters back as "unclaimed" (Stradford and his former employee, Christina Hachadoorian, apparently being preoccupied with other matters at that very time).

Approximately two months later, on October 13, 2004, Continental's outside counsel sent a disclaimer letter to Stradford. Two days later, Continental commenced this action, seeking a declaratory judgment that it had no duty to defend or indemnify Stradford in the two underlying dental malpractice actions. Continental's decision to disclaim was bolstered by a declaratory judgment issued on June 1, 2004 in two other dental malpractice actions then pending against Stradford. In that DJ action, the court had held that Stradford's failure to respond to multiple letters seeking his cooperation and his absence on trial dates constituted sufficient grounds for a disclaimer of coverage. Stradford never appeared in this DJ action, but the two underlying plaintiffs, named as defendants in this DJ, contested Continental's disclaimers.

Following discovery, the parties moved and cross-moved for summary judgment, the defendants contending that Continental's disclaimer was untimely or that it had not sustained its burden of proving Stradford's non-cooperation. Richmond Supreme granted Continental's motion, concluding that Stradford was not entitled to defense and indemnification because of his multiple breaches of the the cooperation clause. In a 3-2 decision, the Second Department reversed, the majority holding that Continental had sufficient information to support a disclaimer of coverage not later than August 11, 2004, when its letters to Stradford came back marked unclaimed and that Continental's subsequent two-month delay in disclaiming was not "as soon as reasonably possible" in violation of Insurance Law § 3420(d) as a matter of law. Continental appealed.

The Court of Appeals MODIFIED by denying the defendants' cross motion for summary judgment:

Even if an insurer possesses a valid basis to disclaim for non-cooperation, it must still issue its disclaimer within a reasonable time (see 14 Couch on Insurance 3d § 199:69). When construing Insurance Law § 3420 (d), which requires an insurer to issue a written disclaimer of coverage for death or bodily injuries arising out of accidents "as soon as is reasonably possible," we have made clear that timeliness almost always presents a factual question, requiring an assessment of all relevant circumstances surrounding a particular disclaimer (First Fin. Ins. Co. v Jetco Constr. Corp., 1 NY3d 64, 69 [2003]; Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 1030 [1979]; Allstate Ins. Co. v Gross, 27 NY2d 263, 270 [1970]). One of those circumstances is the time necessary for an insurer to conduct a prompt investigation into those grounds supporting a potential disclaimer (see Gross, 27 NY2d at 270; First Fin. Ins. Co., 1 NY3d at 69). Although we have declined to provide a "fixed yardstick" against which to measure reasonableness of a delay in disclaiming coverage (see id. at 70), we have said that cases in which the reasonableness of an insurer's delay may be decided as a matter of law are exceptional and present extreme circumstances (see Hartford, 46 NY2d at 1030; Gross, 27 NY2d at 270). This is not such a case.

Fixing the time from which an insurer's obligation to disclaim runs is difficult. That period begins when an insurer first becomes aware of the ground for its disclaimer (see First Fin. Ins. Co., 1 NY3d at 68-69, quoting Matter of Allcity Ins. Co. [Jimenez], 78 NY2d 1054, 1056 [1991]). But unlike cases involving late notice of claims (see id. at 66-67; Hartford, 46 NY2d at 1029; Gross, 27 NY2d at 268) or other clearly applicable coverage exclusions, an insured's non-cooperative attitude is often not readily apparent. Indeed, as here, such a position can be obscured by repeated pledges to cooperate and actual cooperation.

The challenge of setting an appropriate date is only heightened by the heavy burden that an insurer seeking to establish a non-cooperation defense must carry (see Thrasher v U.S. Liab. Ins. Co., 19 NY2d 159, 168-169 [1967]; accord Matter of Empire Mut. Ins. Co. [Stroud], 36 NY2d 719, 721 [1975]). To further this State's policy in favor of providing full compensation to injured victims, who are unable to control the actions of an uncooperative insured, insurers must be encouraged to disclaim for non-cooperation only after it is clear that further reasonable attempts to elicit their insured's cooperation will be futile (see Thrasher, 19 NY2d at 168; see also Matter of Liberty Mut. Ins. Co. v Roland-Staine, 21 AD3d 771, 772 [1st Dept 2005] ["strict[] scrutin[y]" of facts supporting non-cooperation defense required to protect "innocent injured parties from suffering the consequences of a lack of coverage"]). In some cases, such as where an insured openly disavows its duty to cooperate (see e.g. Allcity Ins. Co. v 601 Crown Street Realty Corp., 264 AD2d 315, 316-317 [1st Dept 1999]) little time is needed to evaluate the relevant non-cooperative conduct before disclaiming. But here, where an insured has punctuated periods of non-compliance with sporadic cooperation or promises to cooperate, some reasonably longer period for analysis may be warranted.

The Appellate Division majority acknowledged that even after June 1, 2004, when Continental received a declaratory judgment that it was entitled to disclaim coverage in the O'Halloran and Shields actions, the carrier "was continuing to pursue its heavy burden" of attempting to bring about Stradford's compliance in the two actions relevant here (see 46 AD3d at 601). The court also found that the time for disclaimer ran from August 11, 2004, the date when what became Continental's final letters to Stradford were returned unclaimed. Following that date, there is no indication that the company engaged in further communication with Stradford. Thus, on these facts, we agree with both of the Appellate Division's conclusions.

Contrary to the Appellate Division, however, we conclude that a question of fact remains regarding the amount of time required for Continental to complete its evaluation of Stradford's conduct in the two underlying actions. In this case, the reasonableness of an approximately two-month delay to analyze the pattern of obstructive conduct that permeated the insurer's relationship with its insured for almost six years presents a question of fact that precludes entry of summary judgment for either plaintiff or for defendants (see First Fin. Ins. Co., 1 NY3d at 69 ["[I]nvestigation into issues affecting an insurer's decision whether to disclaim coverage obviously may excuse delay in notifying the policyholder of a disclaimer"]; Hartford, 46 NY2d at 1030 ["[A] two-month delay may often be easily justified, if in fact there be justification"]).

When the case returns to Richmond County for further proceedings, its unlikely that Dr. Stradford will be available over the next 116 months or so for testimony. He's got a conflicting appointment. Given Stradford's non-cooperativeness, he made an ironic choice of appellate counsel, don't you think?

Lying About Auto Accident Voids Liability Coverage

AUTO – NON-COOPERATION – FRAUDULENT MISREPRESENTATION
Nationwide Mut. Ins. Co. v. Posa
(4th Dept., decided 11/14/2008)

Nationwide's insured, Posa was involved in an auto accident with Baughman and left the scene without providing any identifying information to Baughman or the police.  Posa submitted an insurance claim to Nationwide, claiming that he damaged his pickup truck by driving into it with his garden tractor.  Posa's former girlfriend later  informed the police that Posa had been involved in the accident with Baughman's vehicle, and Posa pleaded guilty to leaving the scene of an accident.  When it learned of Posa's admission, Nationwide disclaimed coverage based, among other things, Posa's failure to cooperate with Nationwide and his fraudulent misrepresentations concerning the accident.  Nationwide then commenced this action for a declaration that it was not obligated to defend or indemnify Posa in Baughman's underlying personal injury action. 

In REVERSING Niagara County Supreme's order that denied summary judgment to Nationwide, the Fourth Department held:

We agree with plaintiff that Supreme Court erred in denying that part of its motion for summary judgment seeking a declaration that it has no duty to defend or indemnify Posa in the underlying action. Plaintiff met its burden of establishing Posa's lack of cooperation and misrepresentations, and defendants failed to raise a triable issue of fact (see Nationwide Mut. Ins. Co. v Graham, 275 AD2d 1012, 1013; see generally Thrasher v United States Liab. Ins. Co., 19 NY2d 159, 168-169). Posa's "failure to make fair and truthful disclosures in reporting the [accident] constitutes a breach of the cooperation clause [and the fraud and misrepresentation clause] of the insurance policy as a matter of law" (Nationwide Mut. Ins. Co., 275 AD2d at 1013).

No Fire Alarm, No Cooperation, No Coverage

PROPERTY – NON-COOPERATION – FIRE ALARM CONDITION/WARRANTY
Mirabelli v. Merchants Ins. Co. of N.H.
(2nd Dept., decided 10/28/2008)

Once upon a time, insurers issued insurance policies based on their insureds' warranties.  Warranties made at inception of the policy.  The structure is so many feet from a fire hydrant.  Money will be transported  with an armed security service.  The jewelry store will have a certain kind of safe.  Although it still exists in specialty lines, such as marine and jeweler's block insurance, the concept of warranties has been replaced in most modern personal and commercial policies with policy conditions precedent and conditions subsequent to a loss, with which the insured must comply to be entitled to coverage. 

There are not many facts in this decision, but it seems the insured breached both the policy's fire alarm and cooperation conditions, voiding coverage for what presumably was his property loss due to fire.  In AFFIRMING Suffolk Supreme's award of summary judgment to Merchants, the Second Department held:

On its motion, the defendant established its entitlement to judgment as a matter of law (see Alvarez v Prospect Hosp., 68 NY2d 320, 324), by demonstrating, prima facie, that a loss to the plaintiffs' property was not covered under the subject insurance policy. The defendant provided evidence establishing that the plaintiffs not only failed to comply with a policy provision requiring that the property have a particular type of fire alarm, but also failed to fulfill their obligations under the policy's cooperation clause (see 232 Broadway Corp. v New York Prop. Ins. Underwriting Assn., 206 AD2d 419, 421; Dyno-Bite, Inc. v Travelers Cos., 80 AD2d 471, 473-474). Since, in opposition, the plaintiffs failed to raise a triable issue of fact, the Supreme Court properly granted the defendant's motion (see Alvarez v Prospect Hosp., 68 NY2d at 324).

Insured's Failure to Cooperate with Insurers' Investigation of Reported Jewelry Robbery Voids Coverage

JEWELER'S BLOCK INSURANCE – BROKER'S CANCELLATION CLAUSE – PREMIUM FINANCE AGREEMENT – NEW YORK BANKING LAW § 576 – NON-COOPERATION
D&R Plaza Jewelry v. Those Lead Underwriters at Bellmarine, S.A.
(Sup. Ct., Kings Co., decided 10/16/2008)

There's a lot in here, so be sure to read this decision if you're on the property side of the P&C equation.

Jeweler's (or "jeweller's" if you're across the pond) block insurance is all-risk specialized insurance coverage for jewelers. There are usually certain preconditions or requirements that must be met, such as safes, alarms, surveillance systems, and regular inventories, for the coverage to be available in case of a loss.

D&R Plaza Jewelry in Brooklyn had a jeweler's block insurance policy with the defendants. The policy limit was $500,000, which increased pursuant to policy terms to $1,000,000 for the months November, December and January. Plaintiff used a premium finance company, Standard Funding Corporation, to make the annual premium payment, and the finance agreement listed SJ International Brokers as the insured's agent. The finance agreement also appointed Standard as D&R's attorney-in-fact and authorized Standard to cancel the policy if D&R failed to make the $963.53 monthly payments to Standard as agreed.

Standard did not received D&R's fourth monthly payment and issued a cancellation notice dated December 2, 2005 to D&R but addressed to SJ. The effective date of the cancellation was December 3, 2005. Standard apparently did not send a copy of the cancellation notice to defendants, and D&R alleged that it did not receive the cancellation notice until after its effective date. D&R also alleged that it had issued a check to its broker, SJ, on December 1, 2005, which was sent to Standard and posted to its account on December 9, 2005.

On December 11, 2005, D&R reported to the NYPD's 63rd Precinct that $400,000 to $500,000 of jewelry had been stolen from its store. D&R reported the theft to SJ on December 12. Defendants immediately retained an insurance adjuster, Donald Yick, who contacted David Shimunov, D&R's one-half owner, on December 12 and instructed him to close the store to business and activate the alarm until December 15, 2005, when Yick was to interview Simunov and conduct a post-loss inventory. Yick met with Shimunov and Roman Khaimov, D&R's other one-half owner of plaintiff, on December 15.

According to Yick, during his investigation of the insurance claim he learned that the alarm system had not been activated on December 12, contrary to Yick's instructions. Yick was advised that an employee, Nathan Kataev, was also in the store the evening of the alleged robbery, but was unable to appear at the December 15 meeting because he was preparing for a trip to Russia through the end of January 2006. Yick claimed he requested that he be contacted upon Kataev's return to schedule an interview, but was never contacted by the insured regarding Kataev's return. Khaimov also informed Yick that, along with his father, Ilya Khaimov, he had entered the store between December 12 and 15, worked on the inventory, and Ilya Khaimov had removed merchandise from the premises that was allegedly on consignment from Ilya Khaimov's own jewelry manufacturing company. While Yick viewed a video of the alleged robbery that was recorded on the store's surveillance system and requested a copy of the video from Shimunov, the plaintiff never provided Yick with a copy of the video. At the December 15 meeting, Yick presented Shimunov with a statement regarding the loss for his review and signature and, despite numerous requests for the signed document, Shimunov did not sign the statement until May 29, 2008, for inclusion in plaintiff's opposition to defendants' motion for summary judgment. Yick also requested a formal written claim detailing the alleged loss along with a copy of the physical inventory per the Policy.

In May of 2006, Yick contacted Shimunov and Khaimov through the cell phone numbers provided at the December 15, 2005 meeting and indicated that specific documents were still needed to substantiate plaintiff's claims. Both agreed to appear for an interview. However, neither appeared at the scheduled place and time. Yick claimed in his affidavit in support of the motion that he had made several subsequent attempts to interview Shimunov and Khaimov, left three messages on the voicemail of Shimunov's cell phone, and never received a response from either individual. Yick sent plaintiff's broker, SJ, a written request for a formal claim and documents, including the most recent inventory conducted, on January 16, 2006. When the plaintiff did not respond to Yick's requests, Yick followed up with interviews of SJ's employees and three visit's to SJ's offices to obtain the file on the claim. SJ did not provide Yick with the file and was unwilling to cooperate in the investigation.

John Kim ("Kim") was the certified public accountant hired to assist in the post-loss inventory. According to Kim's affidavit in support of the motion, he sent a letter to D&R and SJ on January 16, 2006 that included a copy of the count sheets from the physical inventory. The letter requested a number of inventory documents, bank statements, invoices and tax returns from the plaintiff. A follow up letter from Kim was addressed to Shimunov at his personal address on February 17, 2006. Kim wrote to SJ on February 28, 2006, March 1, 2006, and May 4, 2006 indicating that he had been unable to reach Shimunov and requested that the letter be forwarded to Shimunov. On May 8, 2006, Lenny Madowicz of SJ wrote to Kim indicating that D&R was gathering the requested documents and they would be provided within 30 days. Kim never received the documents requested from either the plaintiff or SJ.

Plaintiff commenced this action on December 7, 2006, just before the one-year limit to file suit on the policy expired (under New York law, property policies covering other than fire and lightning losses are not required to provide a two-year suit limitations period and may provide for a shorter period). Plaintiff's complaint alleged that it had sustained a theft loss of jewelry in the amount of $1,000,000, the policy limit. Defendants answered and asserted various affirmative defenses, including that the policy had been cancelled before the loss, the insured's breach of the policy's cooperate requirement, its failure to submit a sworn proof of loss, and its misrepresentation and concealment of material facts. Defendants eventually moved for summary judgment on the cancellation, proof of loss, and non-cooperation grounds.

In denying defendants' motion based on their pre-loss policy cancellation ground, Kings County Supreme Court Justice Carolyn Demarest found that defendants had not established that the policy was properly cancelled before December 11, 2005 because: (1) Standard had not sent a copy of its cancellation notice to defendants, as required by the policy's "Broker's Cancellation Clause"; and (2) Standard had not complied with the cancellation notice requirements of New York Banking Law §576, which requires a premium finance agency to provide not less then ten days written notice (13 days if mailed) to an insured of the intent to cancel the policy.

On defendants' proof of loss defense, Justice Demarest held:

Although defendants' agent, Yick, provided an affidavit averring that he personally gave Shimunov a copy of a printed statement regarding the loss and requested that Shimunov complete and return the document, defendants have not demonstrated that they provided blank proof of loss forms as required under Insurance Law § 3407 [a] (Ingarra v General Accident/PG Ins. Co., 273 AD2d 766, 767 [3d Dept 2000]; Medical Facilities, Inc. v Pryke, 172 AD2d 338 [1st Dept 1991] (holding that insurer failed to meet the requirement of Insurance Law § 172 (now § 3407) by providing insured with proof of loss forms filled in with amounts instead of blank forms as required by statute)). Plaintiff's failure to provide a proof of loss statement within 60 days of the alleged loss does not, therefore, require dismissal of plaintiff's action.

The court did, however, grant summary judgment to the defendant insurers based on their non-cooperation defense:

Paragraph A, E and J of the conditions precedent of the Policy required the plaintiff to provide the defendants with records and various documentation as well as to submit to an examination under oath in the event of a loss as follows: A. The Assured shall keep detailed records of all sales, purchases and other transaction, and that such records shall be available for inspection by the Underwriters or their representative in case of a claim being made under this Policy. (Emphasis added) E. The Assured shall in case of loss or damage and as a condition precedent to any right of indemnification in respect thereof give to the Underwriters, via the negotiating brokers, such information and evidence as to the property lost or damaged and the circumstances of the loss or damage as the Underwriters may reasonably require and as may be in the Assured's power. (Emphasis added) J. The Assured shall in the event of loss or damage and as per Underwriters' request submit to an examination under oath by any persons authorized by the Underwriters relative to any and all matters concerning the claim and subscribe to the same; and shall produce for examination all books of accounts, bills, invoices and other vouchers or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by Underwriters or its representatives and shall permit extracts and copies thereof to be made. (Emphasis added) The defendants undertook diligent efforts that were reasonably calculated to bring about plaintiff's cooperation with regard to Paragraphs A, E and J by sending letters to the plaintiff at the personal address of Shimunov, sending letters and faxes to the plaintiff's broker, setting up interviews with Shimunov and Khaimov, leaving phone messages on the personal phone number of Shimunov, and making multiple appearances at the office of the plaintiff's broker to review the claim file. As noted above, defendants' attempts were futile. The pattern of noncooperation and unexplained delay, which continued for over two years, was clearly persistent and unreasonable.

Although Shimunov states in his amended affidavit that he was at all times willing to appear for an examination under oath, he did not dispute Yick's statement that he did not appear for an interview as scheduled in May 2006 or deny receiving Kim's February 17, 2006 letter request for documentation. The only explanation offered for the delay is David Shimunov's reference to his prior attorney's suspension on October 10, 2006, prior to commencement of suit, and his "ex-partner[ s]" attempt to intervene in this action by separate counsel, neither of which would have logically influenced his ability to co-operate with defendants' investigation prior thereto. Mr. Shimunov also makes reference to his conviction for possession of counterfeit funds as having created a depression for which he has been taking medication. This court does not find such excuses sufficient to justify plaintiff's failure to provide defendants with the documentation as required under the Policy. Despite defendants' numerous attempts addressed to both Mr. Shimunov and Mr. Khaimov, to obtain documentation regarding the inventory at the time of the alleged robbery, the documentation was still not provided as of March 26, 2008, the day this motion was filed. It is noted that neither Mr. Khaimov, a fifty percent owner of plaintiff, nor the broker S.J., has provided any explanation for their failure to co-operate with the investigation. It was plaintiff's burden under the Policy to support its claim in a timely fashion so as to afford defendants the opportunity to verify both the fact of the loss and its value. It did not meet such burden.

At times, insureds are given a second chance, but "[t]he delay and avoidance here has precluded any possibility of obtaining anything but stale information" (Levy v Chubb Ins., 240 AD2d 336, 338 [1st Dept 1997]). Plaintiff's non-co-operation is held to be wilful as the defendant demonstrated that the plaintiff's failure to co-operate was persistent (see Levy v Chubb Ins., 240 AD2d at 337). Plaintiff's continued failure to provide the defendants with the requested inventory records, purchase records, list of the property allegedly lost, information as to Kataev's availability for an interview, and Shimunov and Khaimov's failure to appear for an interview without a valid explanation or excuse constituted a material breach of the Policy which precludes plaintiff's recovery (see Cabe, 153 AD2d at 653; Pizzirusso, 143 AD2d at 340; Bulzomi, 92 AD2d at 878; 232 B'way Corp., 206 AD2d at 419). The belated attempt by Shimunov to provide the requested documentation cannot cure the actual prejudice to defendants caused by the extended delay and the ultimate failure to co-operate by providing access to witnesses with relevant knowledge.

De Novo Action Following Master Arbitration Award of No-Fault Benefits Upheld

NO-FAULT – DE NOVO ACTION – RES JUDICATA
Progressive Ins. Co. v. Strough
(4th Dept., decided 10/3/2008)

Is it possible for a no-fault insurer to challenge a master arbitration award? Yes. 11 NYCRR § 65-4.10(h) provides:

(h) Appeal from master arbitrators award.

(1) A decision of a master arbitrator is final and binding, except for:

(i) court review pursuant to an article 75 proceeding; or

(ii) if the award of the master arbitrator is $5,000 or greater, exclusive of interest and attorney’s fees, either party may, in lieu of an article 75 proceeding, institute a court action to adjudicate the dispute de novo.

(2) A party who intends to commence an article 75 proceeding or an action to adjudicate a dispute de novo shall follow the applicable procedures as set forth in CPLR article 75. If the party initiating such action is an insurer, payment of all amounts set forth in the master arbitration award which will not be the subject of judicial action or review shall be made prior to the commencement of such action.

In this case Progressive commenced a de novo action following a master arbitration award, seeking a declaration not only that it should not have to pay the master arbitration award, but that it was not obligated to indemnify the insured for any claims arising from her accident based on her alleged lack of cooperation.

In AFFIRMING the denial of both parties' summary judgment motions, the Fourth Department held:

We conclude that Supreme Court properly denied defendant's motion seeking summary judgment dismissing the complaint and confirming the award of the master arbitrator and properly granted that part of the cross motion of plaintiff seeking a de novo determination of its claim that it has no duty to indemnify defendant for claims arising from the motor vehicle accident, including claims for no-fault benefits. Contrary to the contention of defendant, the action is not barred by the doctrine of res judicata. Although the doctrine of res judicata generally applies with respect to a final arbitration award (see Rembrandt Indus. v Hodges Intl., 46 AD2d 623, 623-624, affd 38 NY2d 502), Insurance Law § 5106 (c) and 11 NYCRR 65-4.10 (h) (1) (ii) expressly provide that either party to a matter submitted to arbitration has the right to a de novo determination of the dispute in the event that the master arbitrator's award is $5,000 or greater, exclusive of interest and attorney's fees, and that is the case here (see Matter of Greenberg [Ryder Truck Rental], 70 NY2d 573, 576-577; Matter of Capuano v Allstate Ins. Co., 122 AD2d 138, 139).

We further conclude that the court properly denied that part of plaintiff's cross motion for summary judgment declaring that plaintiff has no duty to indemnify defendant for claims arising from the motor vehicle accident in question, including claims for no-fault benefits. Plaintiff failed to support its motion with evidence provided by an individual with personal knowledge of the facts (see Chiarini v County of Ulster, 9 AD3d 769, 769-770), and the documents provided by plaintiff in support of the cross motion do not establish that defendant failed to cooperate with plaintiff, as alleged in the complaint. Thus, plaintiff failed to meet its burden of establishing its entitlement to judgment as a matter of law (see generally Zuckerman v City of New York, 49 NY2d 557, 562; New York Cas. Ins. Co. v Kushner, 309 AD2d 1235).

With the abundance of reported cases denying summary judgment motions based on the lack of supporting affidavits from individuals with personal knowledge -- especially in the no-fault arena -- one would think that this procedural deficit could and would easily be avoided. A summary judgment motion without a party's affidavit is like an omelette without eggs.

Non-Cooperation by Insured In Defense of Personal Injury Action Justified Disclaimer, Leaving Injured Party Uninsured

UM – STAY OF ARBITRATION – NON-COOPERATION
Matter of Allstate Ins. Co. v. Gardaner
(2nd Dept., decided 6/10/2008)

Allstate brought this CPLR article 75 proceeding to permanently stay the arbitration of its insured's UM claim stemming from an motor vehicle accident the claimant had with a vehicle insured by Travelers. Travelers apparently had disclaimed liability coverage to its named insured and insured driver after the commencement of a personal injury action based on the named insured's breach of the policy's cooperation clause. The plaintiff then presumably made a UM claim to Allstate and demanded arbitration. After a framed hearing, Kings Supreme denied Allstate's petition and ordered that the UM arbitration proceed.

In AFFIRMING the lower court's order, the Second Department held that Travelers was justified in disclaiming insurance coverage for its insured because of his failure to cooperate in the defense of an action against him:

Under the circumstances of this case, where there was no cooperation by the insured, the insured could not be located after a diligent search, and there had been misrepresentations made by the insured when applying for insurance, there was a breach of the cooperation clause (citations omitted). Additionally, inasmuch as the driver of the insured's vehicle supplied the police with a nonexistent address, Travelers' failure to serve a separate disclaimer on the driver did not render the original disclaimer ineffective (see Matter of Allstate Ins. Co. v Rico, 28 AD3d 353, 354).

The key in supporting a disclaimer based on an insured's non-cooperation in the defense of a pending personal injury action is the insurer making and documenting diligent but unsuccessful efforts calculated to bring about the insured's cooperation. In this case, Travelers apparently tossed in the insured's application misrepresentations as yet more evidence of its insured's non-cooperation.