When a Structure Can be Said to Have "Replaced" Another Structure for Replacement Cost Coverage Purposes -- The "Functional Similarity" Test

What do you think? 

Can a multi-building commercial property comprising a supermarket, a wine and liquor store, a hardware store, a drug store, and an automatic car wash reasonably be said to have "replaced" a single-family, 5-bedroom dwelling rented to 10 fraternity brothers within the meaning of and under a landlord's package insurance policy that limits loss payment to actual cash value "until actual repair or replacement [of the damaged building] is completed"?

I thought not, and now Clinton County Supreme Court Justice John T. Ellis thinks not.  In an action I was defending in which the policyholder was seeking the balance of the Coverage A-Residence limit for the total fire loss of the rental dwelling, and on the eve of a jury trial, my insurer client moved and the plaintiff cross-moved for summary judgment.  

The policyholder argued that its "replacement" of the single-family, five-bedroom dwelling shown above--found in an appraisal to have had a replacement cost value of just over $1 million--with the three-parcel, six-building commercial shopping plaza shown above--at an alleged cost of nearly $1.9 million--qualified it for payment of the depreciation holdback equal to the balance of the policy's Coverage A-Residence limit.

In GRANTING my client's motion, Justice Ellis summed it up best:

Significantly, the insured premises is a dwelling, covered under a residential policy of insurance, which is rented to tenants who reside therein. The Gorman Properties are a multi-parcel, multi-building commercial shopping plaza, containing commercial tenants, who use the property for commercial reasons. Overall, a commercial shopping plaza, which has as its primary function the conduct of shopping, is not functionally similar to a residence, which functions primarily as a place for people to live. The Court therefore finds that actual replacement, as contemplated by the Replacement Cost Provision of the policy has not occurred. Based on such finding, the Defendant has not breached the contract between the parties by failing to pay the balance of the fire insurance policy. Accordingly, and for the foregoing reasons, it is hereby 

    ORDERED that the Plaintiff's cross-motion for summary judgment is hereby denied; and it is further

   ORDERED that Defendant's motion for summary judgment is granted, and the Complaint is hereby dismissed.

New York and other jurisdictions utilize the "functional similarity test" for determining whether Property B can be said to have "replaced" Property A (the insured property) for replacement cost coverage/depreciation holdback recovery purposes.  The case law establishing and discussing that test (which my senior associate Will Lorenz and I cited in our initial and reply memoranda of law) can be found beginning on page 10 of Justice Ellis' Decision and Order of October 28, 2021:

Unless modified or reversed on appeal (none has not been filed yet), this decision (which I've submitted to the New York State Reporter for consideration of publishing in the New York Official Reports) can be cited for the following propositions, in my opinion:

1. The term "replacement" is not ambiguous.


2. New York utilizes the "functional similarity test" for determining whether a purported replacement property qualifies for replacement cost coverage/depreciation holdback under a property insurance policy.


3. A commercial shopping plaza is not functionally similar to a residence, even if the policyholder rented/rents both to tenants.  
   

Bookmark or save this post or this decision.  If you handle property claims in New York and are more than a year or two from retirement, chances are you'll encounter this issue again in one of your files.

Replacement Cost Coverage Denied to Insured Who Did Not Replace the Dwelling Within Two Years or Show That His Actual Repair/Replacement Costs Exceeded the Insurer's ACV Payment

PROPERTY – HOMEOWNERS – TWO-YEAR REPAIR/REPLACEMENT DEADLINE – REPLACEMENT COST COVERAGE 
Mateyunas v. Cambridge Mut. Fire Ins. Co.
(Sup. Ct., Queens Co., decided 7/16/2015)

Plaintiff's residence was damaged in a fire in 2011 while insured under a policy of homeowners insurance issued by the defendant.  Under the policy defendant was obligated to pay no more in replacement cost coverage than the least of:

(a) the limit of liability under the policy that applied to the building;
(b) the replacement cost of that part of the building damaged for like construction and use on the same premises; or
(c) the necessary amount actually spent to repair or replace the damaged building.

An appraisal of plaintiff's dwelling loss was conducted, resulting in an appraisal ACV award of $400,008.90, and a RCV award of $451,232.98.  At some unspecified time prior to the two-year anniversary of the fire defendant paid a total of $415,232.98 to the plaintiff for his dwelling loss.  Plaintiff did not, however, repair or replace the damaged dwelling prior to the two-year fire anniversary. He sued just within that two-year period, however, alleging that defendant owed him more monies under the dwelling, personal property, and ALE coverages of his policy with defendant.  Both plaintiff and defendant moved for summary judgment.

In GRANTING the defendant insurer's motion for summary judgment with respect to plaintiff's dwelling loss claim, the Supreme Court held:

Defendant has paid plaintiff the amount of $415,232.98 on plaintiff’s claim for loss to his dwelling, and asserts that no further amount is due, as plaintiff has been paid the actual cash value of the dwelling as determined by the umpire. Defendant contends that the language of the Policy permits the withholding of the difference between the actual cash value and the replacement cost until the repair or replacement is completed, because only at that time could defendant ascertain whether the actual cash value or the amount spent on repairing or replacing the property is the lesser amount to which plaintiff is entitled. Defendant further contends that the replacement of the dwelling was not completed within the two-year-from-date-of-loss period required by the Policy, and that plaintiff has not demonstrated the actual cost of the replacement to be in excess of the amount already paid to plaintiff. Plaintiff contends that he is entitled, by the unreserved terms of the policy, to the replacement amount as set by the umpire; that the two-year period is unreasonable and he was entitled to notification by defendant of such limited period; and that his actual expenses exceeded the amount already paid to him, as evidenced by the bills, checks and credit card receipts he included, for the first time, in his opposition/reply papers.  

*  *  *  *  *

The court agrees with the moving parties herein that the Policy terms regarding dwelling loss are unambiguous. Pursuant to the Policy, plaintiff would be entitled to payment, of up to the amount of the replacement cost loss, upon his completion of the replacement of the dwelling within two years and his submission of proof of the costs of replacement in excess of the actual cash loss to the dwelling. Otherwise, plaintiff would be entitled only to the actual cash loss to the dwelling, which amount has already been received by plaintiff. Plaintiff’s contention that he is entitled to the stated replacement cost loss recovery purely by reason of his having maintained a “replacement loss” policy is without merit. Plaintiff does not deny that he failed to complete the replacement of the dwelling within the requisite two-year period, nor has he shown that his expenses incurred in replacing the dwelling exceeded the amount already paid to him. His introduction of the untimely, unexplained, and unsworn-to photocopies of bills, checks and credit card statements are inadmissible to evidence entitlement to summary judgment (see CPLR 3212 [b]; Seidman v Industrial Recycling Props., Inc., 52 AD3d 678 [2008]; see also CPLR 4533[a]; Daguerre S.A.R.L. v Rabizadeh, 112 AD3d 876 [2013]; Matell Contracting Co., Inc. v Fleetwood Park Development, LLC, 111 AD3d 681 [2013]). Plaintiff has failed to submit an affidavit of a person with first-hand knowledge of the facts, and counsel’s reply affirmation herein, made without asserting any personal knowledge of the facts, did not satisfy the statutory requirements of CPLR 3212, because it did not serve as a vehicle to submit admissible documentary evidence[.] 

The court denied both parties' motions for summary judgment with respect to plaintiff's ALE claim, holding that neither party carried its burden of eliminating all material issues of triable fact.

Note:  this is an unreported decision from a trial-level New York state court.  Cite and rely on it accordingly.

New York's Highest State Court Finds that a Two-Year Suit Limitation Period Is Unreasonable and Unenforceable in Cases Where the Insured Property Cannot Reasonably Be Replaced in Two Years

PROPERTY – SUIT LIMITATIONS PERIOD – PERIOD OF TIME TO REPAIR OR REPLACE
Executive Plaza, LLC v. Peerless Ins. Co.
(Ct. Apps., decided 2/13/2014)

We'll start with this statement from the second paragraph of this decision:

[W]e hold that such a [two-year] contractual limitation period, applied to a case in which the property cannot reasonably be replaced in two years, is unreasonable and unenforceable.

Read that again and let it sink in.  Answering a certified question from the United States Court of Appeals for the Second Circuit, the New York Court of Appeals has essentially eliminated the two-year contractual suit limitations condition found in most New York property insurance policies in cases where insured property, damaged or destroyed by a covered peril, "cannot reasonably be replaced in two years[.]"

Executive Plaza LLC owned a commercial building in Long Island that was severely damaged by a fire in February 2007.  The building was insured for $1 million, and the insurer, Peerless Insurance Company, made a $757,812.50 actual cash value payment to the insured.  Rather than replacing the insured building by buying another one elsewhere, the insured chose to rebuild the building on the same site, but ran into zoning problems due to various changes it had proposed for the new building.  Those zoning problems allegedly caused the insured not to be able to complete the reconstruction of the insured building until October 2010, more than two and a half years after the loss.

The policy under which the plaintiff's building was insured contained the following replacement cost condition:

We will not pay on a replacement cost basis for any loss or damage:  

(i)  Until the lost or damaged property is actually repaired or replaced; and
(ii)  Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.

The policy also contained a "Legal Action Against Us" suit limitations condition that provided:

No one may bring a legal action against us under this insurance unless:

a.  There has been full compliance with all terms of this insurance; and
b.  The action is brought within 2 years after the date on which the direct physical loss or damage occurred.

Just prior to the February 2009 two-year anniversary of the fire loss but before it had completed the insured building's reconstruction, the insured commenced an action against Peerless.  That action was removed to federal court and dismissed on motion based on Peerless' argument that the insured had not yet expended more than the ACV payment in repairs or replacement of the building.  The insured eventually completed the building's reconstruction in October 2010 and sued again for the replacement cost holdback of approximately $250,000.

Peerless again moved to dismiss the action based on the policy's two-year suit limitations period.  In granting that motion, the United States District Court held:

[T]he Court finds that the Policy unambiguously bars any and all suits commenced more than two years after the date of the damage or loss. Since Plaintiff commenced this action well beyond the limitations period prescribed in the Policy, Plaintiff's action is time-barred.

Plaintiff appealed that decision to the United States Court of Appeals for the Second Circuit and that court, rather than deciding that appeal, certified the following question to the New York Court of Appeals:

If a fire insurance policy contains

(1) a provision allowing reimbursement of replacement costs only after the property was replaced and requiring the property to be replaced "as soon as reasonably possible after the loss"; and  

(2) a provision requiring an insured to bring suit within two years after the loss; 

is an insured covered for replacement costs if the insured property cannot reasonably be replaced within two years?

The New York Court of Appeals has now answered that question in the affirmative, adding that it would consider any suit limitations condition that bars a suit for replacement cost coverage benefits for property that cannot be reasonably replaced within two years to be unreasonable and unenforceable:

"[A]n agreement which modifies the Statute of Limitations by specifying a shorter, but reasonable, period within which to commence an action is enforceable" (John J. Kassner & Co. v City of New York, 46 NY2d 544, 551 [1979]; emphasis added). We conclude that the contractual period at issue here — two years from the date of "direct physical loss or damage" (i.e., from the date of the fire) — is not reasonable if, as the Second Circuit's question requires us to assume, the property cannot reasonably be replaced within two years.

It is true, as the District Court pointed out, that there is nothing inherently unreasonable about a two-year period of limitation. In fact, we have enforced contractual limitation periods of one year (Blitman Constr. Corp. v Insurance. Co. of N. Am., 66 NY2d 820 [1985]; Sapinkopf v Cunard S.S. Co., Ltd., 254 NY 111, 114 [1930]) and six months (Continental Leather Co. v Liverpool, Brazil & Riv. Plate Steam Nav. Co., 259 NY 621 [1932]; Aron & Co. v Panama R.R. Co., 255 NY 513, 519 [1931]; see also John J. Kassner, 46 NY2d at 552). The problem with the limitation period in this case is not its duration, but its accrual date. It is neither fair nor reasonable to require a suit within two years from the date of the loss, while imposing a condition precedent to the suit — in this case, completion of replacement of the property — that cannot be met within that two-year period. A "limitation period" that expires before suit can be brought is not really a limitation period at all, but simply a nullification of the claim. It is true that nothing required defendant to insure plaintiff for replacement cost in excess of actual cash value, but having chosen to do so defendant may not insist on a "limitation period" that renders the coverage valueless when the repairs are time-consuming.

We have found no case in which we have squarely held that an otherwise reasonable limitation period may be rendered unreasonable by an inappropriate accrual date. We think, however, that the law was correctly stated in Judge Crane's dissenting opinion in Continental Leather Co.: "[T]he period of time within which an action must be brought . . . should be fair and reasonable, in view of the circumstances of each particular case . . . . The circumstances, not the time, must be the determining factor" (259 NY at 622-623). While that rule was stated in a dissent, the majority, in affirming without opinion, apparently disagreed not with the principle but with its application to the case. The Appellate Division opinion that we affirmed in Continental Leather stated essentially the same rule in saying that the issue was whether the plaintiff had "a reasonable opportunity to commence its action within the period of limitation" (Continental Leather Co. v Liverpool, Brazil & Riv. Plate Steam Nav. Co., Ltd., 234 App Div 386, 387 [2d Dept 1932]).

Blitman also supports our holding here. In that case, we enforced an agreed-upon twelve-month limitation period, rejecting the insured's argument that it was "commercially unreasonable" under the circumstances (66 NY2d at 823). But in doing so, we pointed out that the policy enabled the insured to "protect itself by . . . beginning an action before expiration of the limitation period" (id.). Here, the insured did begin an action on the last day of the limitation period — and the insurer successfully argued that that action was brought too soon. It is unreasonable for it now to say, as it in substance does, that a day later would have been too late.

Some legal commentators has opined that this decision has limited precedential value or impact.  I disagree.  Insureds and their public adjusters will now argue in both building and contents loss claims that where the insured property "cannot reasonably be replaced" within two years the insurer must consider payment beyond the loss's two-year anniversary.  First-party property coverage suits brought after that two-year anniversary will no longer be subject to automatic dismissal based on a clear violation of the policy's two-year suit limitations condition.  Insureds undoubtedly will argue that they could not reasonably repair or replace the insured property within that two-year period and, therefore, should not be subject to the policy's two-year suit limitation.  Property insurers that previously had been able to take down reserves on open claims for replacement costs holdbacks will no longer be able to do so confidently in all claim situations.  Insurers that seek to avoid the impact of this decision by making it clear that damaged or destroyed property must be repaired or replaced within that two-tear period may face legal challenges and court nullification of such redrafted conditions based on the Court of Appeals' expressed view that such a condition would be unreasonable and unenforceable.

Of course, who's to say when it is that insured property "cannot reasonably be replaced" within two years after its damage or destruction?  What test or standard will be utilized to assess whether the reasons given for such delay are reasonable?  And does the court's use of the adverb "reasonably" mean that all disputes over a more than two-year delay in repair or replacement will involve one or more questions of fact, not amenable to summary disposition on motion?  We shall see.

Doctrine of Accord and Satisfaction Bars Suit for Additional ACV Payment

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

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

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

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

In MODIFYING the order appealed from to grant complete summary judgment to Great American, dismissing the entire complaint, the Third Department held that the equitable doctrine of accord and satisfaction barred the complaint's first cause of action (underpayment of ACV damages), as well:

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

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

Plaintiffs' remaining claims for damages, arising from items allegedly omitted or undervalued in the final calculation of actual cash value, are similarly barred by accord and satisfaction. As with the above fees, while Rosemann stated that he did not know that sales tax was omitted from the calculation of replacement cost, the record reveals that he inquired about the inclusion of the tax prior to settling the claim. Plaintiffs further complain that the valuation of unit costs in the settlement was too low, but Rosemann had affirmatively challenged those costs prior to settling the claim. Finally, plaintiffs concede that damages for additional tear-out and removal costs are unavailable given the dismissal of the second claim. 

Key to the application of the doctrine of accord and satisfaction is a showing that the parties discussed, negotiated and agreed upon a compromised figure in settlement of a disputed claim.  In this case, evidence of the extensive negotiations preceding plaintiffs' acceptance of Great American's ACV settlement offer supported the doctrine's application to bar plaintiffs' suit for additional damages.

New York State Insurance Department Office of General Counsel Opinions for October 2008 -- Part II

Posted earlier today to the NYS Insurance Department's website are the Office of General Counsel Opinions from the second half of October. A rich 5 of the 8 posted opinions get a look as relevant to P&C insurers.

Duty to Defend -- Directors' and Officers' Policies (October 16, 2008)

Question Presented:

May a directors' and officers' (D&O) liability policy include a provision that places the duty to defend upon the insured rather than the insurer?

Answer:

No, a D&O liability policy may not include a provision that places the duty to defend upon the insured, rather than the insurer.

Analysis:

* * * A policy that places the duty to defend upon an insured would run afoul of Regulation 107 (11 NYCRR Part 71) because it would limit the availability of coverage for legal defense costs. By placing the duty upon the insured, the policy would condition defense cost coverage upon the insured taking charge of the defense. And, even where, as is the case with the proposed ABC policy, the policy provides coverage for attorneys’ fees and other direct costs of litigation, the insurer transfers to the insured the insurer’s duty to absorb the administrative costs of litigation, such as the cost of managing, controlling and otherwise overseeing the litigation. The ABC filing, in particular, excludes any coverage for compensation to directors, officers or employees of the insured, thereby negating any defense cost coverage for representation by the insured’s in-house counsel.

Although the inquiry concerns the duty to defend, the Department notes that the ABC policy also limits the availability of coverage for legal defense costs by providing allocation of defense costs between covered and noncovered matters. As noted above, where the insurer has the duty to defend, in an action in which at least one claim may possibly fall within the coverage, the insurer has the duty to defend all claims in the action. Clearly, the cost allocation provision of the ABC policy affords less defense costs coverage to the insured than a policy under which the insurer bears the duty to defend. Moreover, Regulation 107 does not authorize any allocation of defense costs. Given these circumstances, the Department will not approve such a provision * * *.

No-Fault Lost Earnings Claim (October 27, 2008)

Question Presented:

May an individual who receives a stipend under the federal Foster Grandparent Program, and is subsequently injured in a motor vehicle accident, receive compensation for the stipend through a lost earnings claim under the no-fault coverage of the vehicle in which she was a passenger, or may the claim be denied by the no-fault insurer based upon the Domestic Volunteer Services Act of 1973, 42 U.S.C. § 5058?

Answer:

[Yes], [a]n individual receiving a stipend under the federal Foster Grandparent Program who is injured in a motor vehicle accident may receive compensation for the stipend through a lost earnings claim made under the no-fault coverage of the vehicle in which the inquirer was traveling. The federal statute, 42 U.S.C. § 5058, is not applicable and does not preempt the New York no-fault law with respect to reimbursement of the lost earnings claim.

Analysis:

The New York no-fault law, enacted by the New York Legislature as Article 51 of the Insurance Law, is a mechanism through which individuals who are injured in automobile accidents may receive prompt compensation for substantially all resulting economic losses without regard to fault.

The lost earnings claim for the stipend which the Foster Grandparent Program affords was initially denied based on the Domestic Volunteer Services Act of 1973, 42 U.S.C. § 5058. That statute provides:

Notwithstanding any other provision of law, no payment for supportive services or reimbursement of out-of-pocket expenses made to persons serving pursuant to subchapter II of this chapter shall be subject to any tax or charge or be treated as wages or compensation for the purposes of unemployment, temporary disability, retirement, public assistance, workers’ compensation, or similar benefit payments, or minimum wage laws. This section shall become effective with respect to all payments made after October 1, 1973.

“Subchapter II” in this context refers to the subchapter which enacts the Foster Grandparent Program. Whether the federal statute is applicable to the New York no-fault law, and therefore preempts the New York no-fault law with respect to the availability of lost earnings for stipends under the program, is thus determinative of whether the lost earnings claim for lost stipends may be denied. Since no-fault reparations payments are not referenced directly in the statutory definition, the question therefore turns on whether the New York no-fault law is deemed to be subject to the federal statute with respect to the term “similar benefit payments.”

It is the Department’s view that the federal statute does not preempt coverage for lost stipends in this instance, given the no-fault law’s distinction from the “similar benefit payments” provision enumerated in the federal statute. Insurance Law § 5102(a)(2) (McKinney 2000) specifically enumerates loss of earnings for reimbursement as:

(2) Loss of earnings from work which the person would have performed had he not been injured, and reasonable and necessary expenses incurred by such person in obtaining services in lieu of those that he would have performed for income, up to two thousand dollars per month for not more than three years from the date of the accident causing the injury. An employee who is entitled to receive monetary payments, pursuant to statute or contract with the employer, or who receives voluntary monetary benefits paid for by the employer, by reason of the employee’s inability to work because of personal injury arising out of the use or operation of a motor vehicle, is not entitled to receive first party benefits for “loss of earnings from work” to the extent that such monetary payments or benefits from the employer do not result in the employee suffering a reduction in income or a reduction in the employee’s level of future benefits arising from a subsequent illness or injury. (Emphasis added.)

Pursuant to this provision, no-fault reimbursement for loss of earnings would include stipends for work performed had the person not been injured. The federal statute creating the Foster Grandparent Program exempts stipends earned from specifically enumerated programs providing other types of benefits, such as workers’ compensation payments, and other non-specified programs that would provide “similar benefit payments.” But the New York no-fault law was enacted with a broad mandate to provide reparations for a more comprehensive range of earnings than the programs referenced in the federal statute. The concept of basic economic loss defined in Insurance Law § 5102 addresses a broad spectrum of losses for which the no-fault law provides compensation, and the statute does not limit earnings reparations to employees’ wages alone. The second sentence of Insurance Law § 5102(a)(2) distinguishes certain “monetary payments” to which an “employee” is entitled, indicating that the language of the previous sentence refers to loss of earnings from broader sources than employment alone. The wording of Insurance Law § 5102(a)(2) thus makes clear that loss of earnings is to be compensated without regard to the kinds of limitations and exemptions described in the federal statute at issue.

Therefore, because the term “similar benefit payments” under the federal statute is silent as to whether such payments under the no-fault law would be “similar” so as to exclude reimbursement for lost stipends under the federal program, it is the view of the Department that the no-fault coverage is not a similar benefit to any of the benefits specified in the federal act, and that the no-fault law’s intent to provide reimbursement for a loss of earnings logically and naturally encompasses the loss of stipends under the federal statute. Accordingly, the insurer here should honor the claim.

For further information you may contact Principal Attorney Lawrence M. Fuchsberg at the New York City office.

Privacy of Consumer's Nonpublic Personal Financial Information (October 29, 2008)

Questions Presented:

1. Does the Insurance Law or regulations promulgated thereunder require an insurer or its agent to purge consumer’s personal information from its records after giving the consumer a quote for an automobile insurance policy, when the transaction does not result in the purchase of insurance?
2. Under what circumstances, if any, may an insurer or its agent disclose to third parties personal information that it receives about a consumer for an insurance quote, when the transaction does not result in the purchase of insurance?
   

Answers:

1. No. Neither the Insurance Law nor regulations promulgated thereunder require an insurer or its agent to purge information it receives from persons who request an insurance quote. In fact, the Department’s regulations require the insurer to maintain certain information for minimum specified periods.
2. An insurer and its agent may not disclose a consumer’s personal information to third parties, except in accordance with N.Y. Comp. Codes R. & Regs. Tit. 11, Part 420 (Regulation 169).

Replacement Cost; Payment on an "Estimated Claim" (October 29, 2008)

Questions Presented:

1. Does the Insurance Law or regulations promulgated thereunder define the term “replacement cost”?
2. Does an insured’s acceptance of an insurer’s check for payment based on an “estimated claim” extinguish the insured’s right to seek additional payments from the insurer?
   

Answers:

1. No. The term “replacement cost” is not defined in either the New York Insurance Law or Insurance Department regulations.
2. As general matter, if the payment made on the estimated claim represents payment of only the undisputed elements of the claim, the insured may accept the check, and then seek payment for the disputed amount within the limitations of the insured’s insurance policy. If the payment represents a full settlement of the claim, and the insured accepts the payment, then the insured may not seek additional payment for damages sustained.

Calculation of Total Loss Payments Upon Automobiles' Title Transfer Fees and Sales Tax" (October 30, 2008)

Questions Presented:

1. When a claimant elects to retain title to an automobile that is a total loss - under which the vehicle’s salvage value will be deducted from the settlement payment - is the amount of sales tax added to the value of the vehicle prior to the accident, or added after the deduction for the salvage value has reduced the value of the vehicle?
2. Must an automobile insurance company include title transfer fees as part of a settlement for the actual cash value of a motor vehicle upon its total loss?

Answers:

1. The amount of sales tax is added to the value of the vehicle prior to the accident, in accordance with the definition of actual cash value in § 216.6(b)(2) of 11 NYCRR 216 (Regulation 64), before the deduction for the salvage value is taken.
2. No. An insurance company is not required under the New York Insurance Law or regulations promulgated thereunder to include title transfer costs associated with the purchase of a replacement vehicle in determining the actual cash value of a motor vehicle that has suffered a total loss. However, there is also no prohibition in paying that extra sum as a component of loss, so long as it is done in a uniform and non-discriminatory manner.

Facts:

This is an example of a situation where a first- or third-party claimant retains ownership of an automobile that has been declared a total loss, which had a pre-loss value of $1,000 and a post-loss value of $100. The claimant transfers the automobile to the insurer for disposal. The insurer would pay $1,000 plus sales tax on the pre-loss value of $1,000. However, where the claimant elects to retain the salvage automobile, and the insurer deducts the $100 salvage value from the settlement payment, it is asked whether the insurer should pay sales tax calculated on $1,000, the actual cash value just prior to the loss, or on the $900 paid after deducting the $100 salvage value.

It has been the insurer’s practice to include a $50 title transfer fee as part of its settlement payments to first- and third-party claimants whose automobiles have been declared total losses. The insurer has learned of an opinion of the New York Insurance Department’s Office of General Counsel dated March 12, 2001, which concluded that an automobile insurance company need not include title cost in determining the total loss claim settlement with its insured. It is asked whether that opinion still represents the Department’s position.

Analysis:

Automobile insurance policies generally provide coverage on an “actual cash value” basis. Except where an automobile insurance policy provides otherwise, the definition of “actual cash value” that an insurer must use is set forth in Regulation 64. 11 NYCRR § 216.6(b) defines “actual cash value" as follows:

(b) Actual cash value, unless otherwise specifically defined by law or policy, means the lesser of the amounts for which the claimant can reasonably be expected to:

(1) repair the property to its condition immediately prior to the loss; or

(2) replace it with an item substantially identical to the item damaged. Such amount shall include all monies paid or payable as sales taxes on the item repaired or replaced. . . . [Emphasis added.]

Accordingly, in calculating the actual cash value of a vehicle upon a total loss where the claimant elects to retain the salvage, the definition of actual cash value in § 216.6(b)(2) specifies that the cost of replacement includes sales tax. The salvage value of the insured vehicle upon a total loss is a deduction from its actual cash value and, therefore, it is taken after the sales tax has already been added into the calculation of the vehicle’s replacement cost. Applying this formula to the hypothetical example posed, the insurance company would add the amount of sales tax to the $1,000 pre-loss value of the automobile, and then deduct the salvage value to arrive at the amount of the claim payment.

Concerning the question of title transfer fees, there is no requirement in the New York Insurance Law or Regulation 64 that an insurance company include a title transfer fee in the calculation of an automobile’s actual cash value in New York. But there is also no prohibition in paying such fee as a component of loss, as many insurers do so long as it is done in a uniform and non-discriminatory manner.

As the analysis above indicates, this opinion is consistent with the conclusions of the March 12, 2001 Department opinion that this inquiry references. Consequently, that opinion remains the position of the Department.

For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.