Court-Ordered Discovery in Aid of SUM Arbitration Denied

MATTER OF ARBITRATION OF ALLSTATE INSURANCE COMPANY, 2021 NY Slip Op 5418 - NY: Appellate Div., 4th Dept. 2021 - Google Scholar

Justice delayed is justice denied, some say.

So can discovery in a SUM (supplementary uninsured/underinsured motorists) coverage claim, apparently.  

In this case, the Fourth Department AFFRIMED the denial of Allstate's petition to stay arbitration of its insured's SUM claim because "the record here establishes that '[Allstate] had ample time...within which to seek discovery of the respondent insured as provided for in the insurance policy, and unjustifiably failed to utilize that opportunity' to obtain the discovery now sought."

The appellate court also agreed that Allstate had made no showing that the discovery allowed in arbitration would be inadequate to establish its case.

Finally, the court held that "[t]o the extent that [Allstate] argues that respondent's demand for arbitration was premature inasmuch as respondent had not complied with the terms of the endorsement for SUM coverage, that argument is not properly before us because [Allstate] failed to raise it before the [lower] court [on its petition]."  One of the basic tenets of appellate practice is that issues not raised and argued to the motion or trial court generally may not be raised and argued on appeal.  

What Is New York's No-Fault Scheme Ill-Equipped to Handle? (The right answer is not "claims".)

NO-FAULT – RICO AFFIRMATIVE ACTION – PRELIMINARY INJUNCTION STAYING COLLATERAL ARBITRATIONS & LITIGATION – MOTION TO DISMISS

GEICO v. Mikhail Strut, MD, RES Physical Medicine & Rehabilitation Services, PC, and Cheryle Hart, MD
(WDNY, 4/10/2020)

Those of you dealing with Mikhail Strut, MD (f/k/a Mikhail Strutsovskiy) and his medical practice,  RES Physical Medicine & Rehabilitation Services, PC, may want to read this decision (click the case name) and follow this case.  

In this decision and order, WDNY Judge Sinatra adopted Magistrate Judge Scott's recommendations to:

• DENY defendants' motion to dismiss GEICO's complaint, which alleges causes of action based on RICO, fraud and unjust enrichment; and

• GRANT GEICO's motion for a preliminary injunction and a stay of all collateral no-fault suits and arbitrations, upon GEICO posting $500,000 security. 

In rejecting Dr. Stut's argument that GEICO was trying "improperly to circumvent New York's no-fault scheme" by litigating Strut's claims in federal court, Judge Sinatra remarked:  "Well, isn't that the pot calling the kettle black?  But the law is clear that Plaintiffs may maintain RICO and fraud claims in federal court, notwithstanding New York's no-fault scheme, because the no-fault scheme is ill-equipped to handle claims involving systemic fraud." 

Okay, Judge Sinatra didn't write the pot/kettle thing.  But he did deny Dr. Strut's motion to dismiss and grant GEICO's preliminary injunction application.  If you're a New York no-fault insurer and are facing growing numbers of suits and arbs while you race to complete a global DJ action to confirm your non-coverage position, consider moving for preliminary injunctive relief.  

Yes, that Mikhail Strut.

When You Is an It

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

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

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

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

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

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

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

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

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

(3) any other person while occupying: 

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

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

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

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

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

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

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

Rottie Bite Out Car Window Not Ownership, Maintenance or Use of Motor Vehicle

UNDERINSURED MOTORISTS COVERAGE – OWNERSHIP, MAINTENANCE OR USE OF UNDERINSURED VEHICLE – STAY ARBITRATION
Matter of Allstate v. Reyes
(2nd Dept., decided 8/7/2013)

Deborah Reyes was walking past a parked car at a Sunoco Mart in Poughkeepsie, New York, when a rottweiler dog extended its head from inside the vehicle and bit her right breast. Reyes sued  the vehicle's owner, Michael Kazimer, which GEICO, the insurer of Kazimer's vehicle, later settled for $25,000, the limits of the policy. Reyes then sought SUM coverage from her own auto insurer, Allstate. Allstate denied SUM coverage, concluding that the incident did not arise "out of the ownership, maintenance, or use of an underinsured vehicle." Reyes demanded arbitration of her SUM claim, and Allstate commenced this special proceeding to permanently stay arbitration. Supreme Court, Dutchess County (Pagone, J.) denied the petition, concluding that the incident had arisen "out of the ownership, maintenance, or use of an underinsured vehicle."  Allstate appealed.

In REVERSING Supreme Court's order and granting the petition to stay arbitration, the Appellate Division, Second Department, held:

Underinsured endorsements, such as the one at issue in this case, provide coverage only when the injuries are the result of an accident "arising out of such [underinsured's] motor vehicle's ownership, maintenance or use" (11 NYCRR 60-2.3[2][e][2]; see Matter of Liberty Mut. Fire Ins. Co. [Malatino], 75 AD3d 967, 968). Use of an automobile encompasses more than simply driving it, and includes all necessary incidental activities such as entering and leaving its confines (see Rowell v Utica Mut. Ins. Co., 77 NY2d 636, 638). To satisfy the requirement that it arose out of the "ownership, maintenance or use of" a motor vehicle, the accident must have arisen out of the inherent nature of the automobile and, as such, inter alia, the automobile must not merely contribute to the condition which produces the injury, but must, itself, produce the injury (see Zaccari v Progressive Northwestern Ins. Co., 35 AD3d 597, 599; Eagle Ins. Co. v Butts, 269 AD2d 558, 559-560; U.S. Oil Ref. & Mktg. Corp. v Aetna Cas. & Sur. Co., 181 AD2d 768). "[T]he vehicle itself need not be the proximate cause of the injury," but "negligence in the use of the vehicle must be shown, and that negligence must be a cause of the injury" (Zaccari v Progressive Northwestern Ins. Co., 35 AD3d at 599; see Empire Ins. Co. v Schliessman, 306 AD2d 512, 513). "To be a cause of the injury, the use of the motor vehicle must be closely related to the injury" (Zaccari v Progressive Northwestern Ins. Co., 35 AD3d at 599).

Here, as a matter of law, Reyes's injuries did not result from the inherent nature of Kazimer's vehicle, nor did the vehicle itself produce the injuries. The injuries were caused by Kazimer's dog, and the vehicle merely contributed to the condition which produced the injury, namely, the location or situs for the injury. Allstate established that a causal relationship between the car and the incident was lacking, and Reyes failed to rebut that showing (see Empire Ins. Co. v Schliessman, 306 AD2d at 513; Eagle Ins. Co. v Butts, 269 AD2d at 559; see also Keppler v American Family Mut. Ins. Co., 588 NW2d 105; Sanchez v State Farm Mut. Auto. Ins. Co., 878 P2d 31; Alvarino by Alvarino v Allstate Ins. Co., 370 Pa Super 563; American States Ins. Co. v Allstate Ins. Co., 484 So 2d 1363). Accordingly, since coverage is lacking, the Supreme Court should have granted the petition to permanently stay arbitration.

It was the dog, not the car, that caused Reyes' injuries, so no SUM coverage.  But can someone explain to me why GEICO paid its policy limit in the first place?

Special Proceedings to Stay Uninsured Motorist Claim Arbitration Dismissed as Untimely Commenced

UM – UNTIMELY SPECIAL PROCEEDING TO STAY ARBITRATION – NOTICE OF INTENTION TO ARBITRATE – CPLR 7503(C)
Matter of Allstate Ins. Co. v. Raynor
(2nd Dept., decided 11/30/2010)

Twenty days.  That's how long a party has to commence a special proceeding under CPLR 7503(c) to stay an arbitration after receiving a notice of intention to arbitrate.

Allstate waited more than five months after receiving its insured's notice of intention to arbitrate her uninsured motorist coverage claim to commence this special proceeding to stay that arbitration.  In REVERSING the order of Nassau County Supreme Court (Feinman, J.) which had denied the insured's cross motion to dismiss the proceeding as time-barred, the Second Department, Appellate Division, held:

The Supreme Court should have granted the appellant's cross motion to dismiss the proceeding as time-barred, as the proceeding was not commenced within 20 days of the June 12, 2009, notice of intention to arbitrate (see CPLR 7503[c]; Matter of Liberty Mut. Ins. Co. v Zacharoudis, 65 AD3d 1353, 1354; Matter of Goverment Empls. Ins. Co. v Castillo-Gomez, 34 AD3d 477, 478; Matter of CNA [Pough], 99 AD2d 510).

Matter of State Farm Mut. Auto. Ins. Co. v. Urban
(2nd Dept., decided 11/23/2010)

The Second Department reached the same determination in this matter.  As had Allstate in the Raynor matter, State Farm argued unsuccessfully that its subsequent receipt of a "Request for Arbitration" filed with the American Arbitration Association is what triggered the 20-day deadline to commence a special proceeding to stay arbitration pursuant to CPLR 7503(c).  The appellate court disagreed, holding:

"CPLR 7503(c) requires that an application to stay arbitration be made within 20 days after service of a notice of intention to arbitrate" (Matter of Liberty Mut. Ins. Co. v Zacharoudis, 65 AD3d 1353, 1353-1354; see Matter of Fiveco, Inc. v Haber, 11 NY3d 140, 144; Matter of Land of the Free v Unique Sanitation, 93 NY2d 942, 943; Matter of Steck [State Farm Ins. Co.], 89 NY2d 1082, 1084). To be considered a valid notice of the intention to arbitrate, the notice must identify the agreement under which arbitration is sought and the name and address of the person serving the notice in addition to containing the statutory 20-day warning that failure to commence a proceeding to stay arbitration will preclude an objection to arbitration (see CPLR 7503[c]; Matter of Blamowski [Munson Transp.], 91 NY2d 190, 195; State Farm Mut. Auto. Ins. Co. v Szwec, 36 AD2d 863).

The failure to move for a stay of arbitration within the statutory period will generally preclude objections to the arbitration after the expiration of that 20-day period (see Matter of Fiveco, Inc. v Haber, 11 NY3d at 144; Matter of Land of the Free v Unique Sanitation, 93 NY2d at 943; Matter of Steck [State Farm Ins. Co.], 89 NY2d at 1084; Matter of Liberty Mut. Ins. Co. v Zacharoudis, 65 AD3d at 1354; Matter of Hermitage Ins. Co. v Escobar, 61 AD3d 869; Matter of State Farm Ins. Co. v Williams, 50 AD3d 807, 809).

Here, once Urban served his notice of intention to arbitrate upon State Farm on December 26, 2008, the 20-day period for State Farm to move for a stay of the arbitration started to run and the subsequent service of the "Request for Arbitration" filed with the AAA did not reset the 20-day period (see Matter of Government Empls. Ins. Co. v Castillo-Gomez, 34 AD3d 477). Consequently, the Supreme Court should have granted Urban's cross motion, regardless of State Farm's contention that there was insurance coverage for the adverse motor vehicle (see Matter of State Farm Ins. Co. v Williams, 50 AD3d at 809) or the Supreme Court's determination that an issue existed with respect to whether there was contact between Urban's vehicle and the motor vehicle which left the scene (see Matter of AIU Ins. Co. v Orellana, 18 AD3d 652; Matter of Merchants Mut. Ins. Co. v Anemone, 271 AD2d 690). Thus, the proceeding should have been dismissed as time-barred (see Matter of Liberty Mut. Ins. Co. v Zacharoudis, 65 AD3d at 1354; Matter of Hermitage Ins. Co. v Escobar, 61 AD3d at 869).

The Second Department also held that the lower court erred in directing discovery in the event the matter proceeded to arbitration because "a failure to move to stay arbitration within the applicable 20-day time period is a bar to judicial intrusion into the arbitration proceedings[.]"  The court also reasoned that because State Farm had repudiated its liability for Urban's claim in an earlier disclaimer letter, it could not thereafter insist upon adherence to the terms of its policy.

Bus Insurer Found to Owe Primary UM Coverage Benefits to Passenger for Injuries from Accident with Uninsured Vehicle

UM – EFFECTIVENESS OF VEHICLE INSURER'S CANCELLATION – BUS PASSENGER – PRIORITY OF COVERAGE
Matter of State Farm Mut. Auto. Ins. Co. v. Thomas
(2nd Dept., decided 7/27/2010)

State Farm's insured, Gracy Thomas, was injured when a bus in which she was riding as a passenger was struck by an allegedly uninsured vehicle being driven by Lawrence Dock on the Garden State Parkway in New Jersey.  She made a UM claim to State Farm and demanded arbitration.  State Farm commenced this special proceeding to permanently stay that arbitration, asserting that: (1) respondents had failed to establish that the offending vehicle was uninsured; and (2) because Thomas was a passenger on the bus insured by National Interstate, National Interstate owed primary UM coverage, and State Farm was not liable for such coverage until National Interstate had exhausted its policy limits, and then only to the extent that State Farm's UM coverage limit exceeded the UM coverage limit of the National Interstate policy.

Suffolk County Supreme Court (Cohalan, J.) denied the petition, finding that the evidence established that Dock's vehicle was uninsured at the time of the accident. The court did not determine the merits of State Farm's second argument concerning the priority of the National Interstate (bus) and State Farm (claimant's car) policies. 

In AFFIRMING the order denying and dismissing State Farm's petition, the Appellate Division, Second Department held that under New Jersey law, Dock's New Jersey auto policy with Mercury Insurance Company had been effectively cancelled three days before the accident.  The Second Department also concluded, however, that Supreme Court should have reached and decided the issue of priority of coverage, and because both New Jersey and New York law would resolve this issue on the basis of the language in the applicable policies, there was no conflict of laws on this issue:

A provision of [State Farm']s SUM endorsement in its policy with Thomas pertaining to priority of coverage indicated that, where an insured was entitled to SUM coverage under more than one policy, the order of priority was to be:

"(a) A policy covering a motor vehicle occupied by the injured person at the time of the accident;

(b) A policy covering a motor vehicle not involved in the accident under which the injured person is a named insured; and

(c) A policy covering a motor vehicle not involved in the accident under which the injured person is an insured other than a named insured [emphasis supplied]."

Coverage under a lower priority policy was to apply "only to the extent that it exceeds the coverage of a higher priority policy."  Here, Schoolman's [the bus company's] policy with National Interstate covered the vehicle occupied by Thomas at the time of the accident.  The petitioner's policy with Thomas covered a motor vehicle not involved in the accident under which Thomas was a named insured.  Thus, under the terms of the petitioner's policy, National Interstate's policy was higher in priority than the petitioner's.

Meanwhile, Schoolman's policy with National Interstate contained a provision which stated, in part,

"Other Insurance. With respect to bodily injury to an insured while occupying a motor vehicle not owned by the named insured, the coverage under this UM endorsement shall apply only as excess insurance over any other similar insurance available to such insured and applicable to such motor vehicle as primary insurance, and this UM endorsement shall then apply only in the amount by which the limit of liability for this coverage exceeds the applicable limit of liability of such other insurance. [emphasis supplied]"

 Here, Schoolman, National Interstate's insured, owned the bus in which Thomas was a passenger when it collided with the Dock vehicle.  Thus, this "Other Insurance" policy provision, on which National Interstate relies in support of its contention that the petitioner's policy is higher in priority, was, by its terms, inapplicable to the circumstances presented here (see Matter of Lancer Ins. Co. v Robayo, 28 AD3d 664, 665). 

Accordingly, National Interstate's policy constituted the primary insurance policy for all coverage, and Thomas may resort to the petitioner's policy only in the event that National Interstate's policy is insufficient to fully compensate her, and then "only to the extent that it exceeds the coverage of a higher priority policy." 

Outcome:  Bus insurer owed primary UM coverage and State Farm's policy owed excess UM coverage only to the extent that its UM policy limit exceeded the National Interstate policy's UM policy limit. 

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

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

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

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

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

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

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

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

New York Supreme Finds That Insurer Did Not Timely Commence Special Proceeding to Stay Arbitration of UM Claim from Mexico Motor Vehicle Accident

UM – CPLR § 7503(C) – 20-DAY LIMITATION FOR COMMENCING SPECIAL PROCEEDING TO STAY ARBITRATION
Matter of Allstate Ins. Co. v. LeGrand
(Sup. Ct., New York Co., decided 2/3/2010)

CPLR § 7503(c) has been called "The Shortest Statute of Limitations Known to the Law".  Dachs, Norman and Dachs, Jonathan, NYLJ, June 12, 1990.  It provides that "[a]n application to stay arbitration must be made by the party served within twenty days after service upon him of the notice or demand [for arbitration or intention to arbitrate], or he shall be so precluded." With respect to UM and SUM arbitration demands, the 20-day period accrues, or begins to run, from the insurer's receipt of the demand for arbitration and ends when the special proceeding is actually commenced by the filing of a petition for a stay. There are a number of exceptions to the 20-day rule that have received extensive treatment in the courts.

Allstate's insured, Jose LeGrand allegedly was injured when the rental car he was driving was rear-ended by a drunk driver in Cancun, Mexico.  On September 22, 2009, LeGrand gave Allstate written notice, via facsimile and regular and certified mail, of his intention to assert an uninsured motorist (UM) coverage claim.  Allstate acknowledged receipt of that notice the same day, but did not commence this special proceeding to permanently stay the arbitration of LeGrand's UM claim until November 2009, well more than 20 days after Allstate had received LeGrand's notice of intention to make a UM claim.  In its petition, Allstate asserted that LeGrand's accident was not a "covered event" because his policy's UM/SUM endorsement provided UM/SUM coverage "only to accidents that occur during the policy period shown in the Declarations, and in the United States, its territories or possessions, or Canada.”  As Mexico fell outside the coverage territory for UM/SUM coverage, Allstate argued that LeGrand's UM claim was not arbitrable. 

LeGrand opposed Allstate's petition on the ground that Allstate had failed to commence this special proceeding within 20 days of its receipt of LeGrand's notice of intention to make a UM claim, as required by CPLR § 7503(c).  In response, Allstate argued that since LeGrand's accident had occurred outside of the UM/SUM coverage territory, there was no coverage and, therefore, no agreement to arbitrate. 

New York County Supreme Court Justice Alice Schlesinger disagreed with Allstate's position, finding that the 20-day deadline of CPLR § 7503(c) to commence the special proceeding did apply to Allstate's non-coverage defense:

However, citing to In re Matarasso v. Continental Casualty Co., 56 NY2d 264 (1982), Allstate insists that the twenty-day period does not apply here because of the coverage limitation in the SUM Endorsement.  In Matarasso, the Court of Appeals carved out a limited exception to the twenty-day rule with respect to applications under CPLR §7503(c) where no agreement to arbitrate exists.  Allstate here contends that because the parties never agreed to arbitrate claims regarding accidents in Mexico, the Matarasso exception
applies and its application is timely.

Allstate’s reliance on Matarasso is misplaced, as the holding is limited to situations where no agreement to arbitrate exists, as opposed to situations like the case at bar where the dispute is whether the arbitration clause applies.  The limitation on the Matarasso exception is clear based on the Court‘s discussion of the facts, as well as its unambiguous holding.

* * * * *

Counsel necessarily agree that LeGrand’s policy contains an arbitration clause applicable to uninsured motorist claims.  Their dispute is whether LeGrand’s injuries are covered because the accident took place in Mexico and the SUM Endorsement does not include Mexico in the territory covered.  The issue relates to the scope of coverage, not to the existence of the arbitration agreement itself.  Thus, the Matarasso exception to the twenty-day rule does not apply.

The courts have no discretion to extend the twenty-day rule to permit consideration of an untimely application such as this one. Matarasso, 56 NY2d at 267; State Farm v. Kankam, 3 AD3d 418 (1st Dep't 2004) (petition dismissed as untimely where arbitration agreement existed and the dispute was whether the conditions had been satisfied).  Allstate cites Zappone v. Home Ins. Co., 55 NY2d 131 (1982) for the proposition that the courts cannot create coverage where none exists. However, Zappone is wholly inapposite, as there the patty was seeking coverage from Home Insurance Company for a car insured by Aetna, and the issue was what steps, if any, Home Insurance was required to take under the Insurance Law to deny coverage. Neither CPLR §7503(c), nor the issue of timeliness, was even involved.

With due respect to Justice Schlesinger, I believe she's wrong on this one.  The UM/SUM endorsement's requirement that an accident take place within the policy period and coverage territory is not akin to a condition precedent or subsequent to coverage, the asserted breach of which would be governed by the 20-day SOL of CPLR § 7503(c).  Instead, to me that issue is more like the question of whether someone qualifies as an "insured" under the UM/SUM endorsement's Insuring Agreement, a coverage issue and "Matarasso exception" the New York courts repeatedly have held is not subject to the 20-day SOL of CPLR § 7503(c).  See, e.g., Matter of Aetna Cas. & Sur. Co. v. Cartigliano, 178 A.D.2d 472 (2nd Dept. 1991).

Evidence of Reported Theft Found Insufficient to Overcome Presumption of Permissive Use

UM – STOLEN VEHICLE – EVIDENCE NEEDED TO OVERCOME PRESUMPTION OF PERMISSIVE USE – FRAMED-ISSUE HEARING
State Farm Mut. Auto. Ins. Co. v. Taveras
(1st Dept., decided 3/30/2010)

Alison Taveras allegedly was injured when a vehicle owned by Richard Cruz struck her.  Cruz's auto insurer denied liability coverage based on Cruz's report that his vehicle had been stolen and was being operated without his permission.  Taveras made a uninsured motorists (UM) claim to her own auto insurer, State Farm, which commenced this special proceeding pursuant to CPLR § 7503(b) for a permanent stay of Taveras' UM arbitration, naming Cruz and his auto insurer as additional respondents. 

Bronx County Supreme Court (Edgar G. Walker, J.) conducted a framed-issue hearing on the issue of whether the striking vehicle was in fact stolen or was being operated with Cruz's permission and ruled that Cruz and his auto insurer failed to submit sufficient evidence to overcome the presumption of permissive use that derives from New York Vehicle & Traffic Law § 388.  In reaching its decision, the hearing court found it significant that Cruz had delayed in calling the police to report the alleged theft, and only called after Cruz and his friends were allegedly assaulted by an angry mob. 

In AFFIRMING Supreme Court's order granting State Farm's petition to permanently stay Taveras' UM arbitration, the First Department noted that a fact-finding court's decision should not be disturbed on appeal unless it is obvious that its conclusions could not be reached under any fair interpretation of the evidence:

Additional respondents, the owner and insurer of the offending vehicle, assert that the vehicle was uninsured at the time of the accident because it was being driven by an unknown thief. No basis exists to disturb the court's finding, after a framed-issue hearing, that the evidence of such theft and nonpermissive use was insufficient to overcome the presumption of permissive use (see Murdza v Zimmerman, 99 NY2d 375, 380 [2003] ["substantial" evidence needed to overcome presumption of permissive use]; Thoreson v Penthouse Intl., 80 NY2d 490, 495 [1992] [fact-finding court's decision should not be disturbed on appeal unless it is "obvious" that its conclusions could not be reached under any fair interpretation of the evidence, especially where findings of fact largely rest on witness credibility]). In so finding, the hearing court properly took into account the owner's failure to adequately explain his substantial delay in calling the police to report the alleged theft, which call immediately followed an alleged assault on the owner and his friends by a mob of angry people (see Minaya v Horner, 279 AD2d 333 [2001]). There being no dispute that the burden of proof was initially on additional respondents to prove nonpermissive use, it does not avail them that the hearing court also rejected as incredible the testimony of one of the victims, called by petitioner, that he had seen the owner sitting in the passenger side of the car in the seconds before the car jumped the curb and knocked him down. 

Notice that in a special proceeding to stay a UM arbitration where the striking vehicle's insurer has denied liability coverage based on its insured's report that the vehicle was stolen, the initial burden of establishing the striking vehicle's nonpermissive use falls on the additional respondent insurer and owner of the striking vehicle, not conversely on the petitioning UM insurer.

Grown Daughter Not a "Resident" of Her Parents' Household, Despite Visiting Often and Still Having a Room with Some Belongings There

UM – CPLR ARTICLE 75 PROCEEDING – HOUSEHOLD "RESIDENT"
Matter of State Farm Mut. Auto. Ins. Co. v. Bonifacio
(2nd Dept., decided 1/19/2010)

Respondent lived most of her life at her parents' residence in Yorktown Heights until she graduated from college in 2005. Shortly afterwards, in September of that year, she rented an apartment in Manhattan with two other people. Two months later, the respondent began employment in Manhattan where she worked five days a week, 11 to 12 hours a day. More than two years later, after spending a Sunday afternoon with some friends near her hometown, the respondent was struck by a car while crossing Route 9A in Ardsley.

Respondent made a claim for uninsured motorists (UM) coverage benefits to State Farm, her mother's personal auto insurer.  State Farm denied UM coverage based on its conclusion that she did not qualify as an "insured" for UM coverage purposes because she was no longer a a resident of her parents' household at the time of the accident.  The respondent demanded arbitration of her UM claim, and State Farm commenced this special proceeding for a permanent stay of that arbitration.  After conducting an evidentiary hearing, Westchester Supreme denied State Farm's petition and directed that the parties proceed to arbitration.  State Farm appealed.

In REVERSING the lower court's order, the Second Department ruled that the evidence presented at the hearing established that the respondent did not reside in her mother's household at the time of the accident and, thus, was not a covered person under the subject policy:

A person's status as a resident of an insured's household "requires something more than temporary or physical presence and requires at least some degree of permanence and intention to remain" (Matter of State Farm Mut. Auto. Ins. Co. v Nicoletti, 11 AD3d 702, 702 [internal quotation marks omitted]; see Lindner v Wilkerson, 2 AD3d 500, 501-502; Fennell v New York Cent. Mut. Fire Ins. Co., 305 AD2d 452, 453; Government Empls. Ins. Co. v Paolicelli, 303 AD2d 633, 633; Matter of New York Cent. Mut. Fire Ins. Co. v Bonilla, 269 AD2d 599; New York Cent. Mut. Fire Ins. Co. v Kowalski, 195 AD2d 940, 941; see also Matter of Aetna Cas. & Sur. Co. v Gutstein, 80 NY2d 773, 775; Matter of Aetna Cas. & Sur. Co. v Panetta, 202 AD2d 662). The issue of residency is a question of fact to be determined at a hearing (see Government Empls. Ins. Co. v Paolicelli, 303 AD2d at 633; Matter of American Natl. Prop. & Cas. Co. v Chulack, 265 AD2d 550). Based on the evidence presented here, we disagree with the hearing court's finding that the respondent resided in the household of the petitioner's named insured, the respondent's mother, at the time of the accident.

* * * * * 

Although the respondent testified at the hearing that she visited her parents at the Yorktown residence at least once a month, "most often more," and that her parents maintained a room for her there where she kept some of her personal belongings, the respondent was emancipated from her parents, paid rent at the Manhattan residence, filed her own tax returns, and was no longer a dependent on her parents' tax returns. Evidence that the respondent's driver's license still listed her parents' address as her home address, that she possessed a key to her parents' home and, in 2008, voted in Yorktown Heights, and that she previously opened a bank account at a Chase branch in Yorktown Heights, was insufficient to establish that the respondent was residing at the Yorktown residence of her parents at the time of the accident (see Matter of Aetna Cas. & Sur. Co. v Gutstein, 80 NY2d 773; Matter of Aetna Cas. & Sur. Co. v Panetta, 202 AD2d 662; D'Amico v Pennsylvania Millers Mut. Ins. Co., 72 AD2d 783, affd 52 NY2d 1000; cf. Dutkanych v United States Fid. & Guar. Co., 252 AD2d 537). Moreover, physical presence in the parents' home was insufficient to establish residency, particularly where, as here, the respondent had previously established another legal residence in Manhattan and signed a new one-year lease at that residence only two months before the accident (see Hollander v Nationwide Mut. Ins. Co., 60 AD2d 380, 383; Appleton v Merchants Mut. Ins. Co., 16 AD2d 361; Allstate Ins. Co. v Jahrling, 16 AD2d 501).

Based on the evidence presented, the respondent was not a covered person under the subject policy and, therefore, the petition to permanently stay the arbitration should have been granted.

Factors offered in support of respondent's ultimately unsuccessful argument that she was a resident:

• her parents kept a room with some of her belongings in their home for her;
• she visited them once a month or more;
• her driver's license still listed her parents' address as her home address;
• she had a key to her parents' home;
• in the year of the accident, she voted in Yorktown Heights, where her parents lived; and
  
• she previously opened a bank account at a Chase branch in Yorktown Heights.
  

Factors cited by the court for its conclusion that respondent was not a resident:

• she worked in Manhattan, five days a week, 11-12 hours a day;
• she had previously established a legal residence in Manhattan;
• she had just signed a one-year lease for that Manahattan apartment, two months before the accident;
• she was emancipated from her parents;
• she paid rent at the Manhattan residence; and
  
• she filed her own tax returns and was no longer claimed as a dependent on her parents' tax returns.

SUM Lack of Proof

SUM – CPLR ARTICLE 75 PROCEEDING – CHANGE ENDORSEMENT – OFFICE MAILING PROCEDURE – LACK OF PROOF
Matter of Government Employees Ins. Co. v. Brunner
(2nd Dept., decided 1/19/2010)

GEICO brought this CPLR article 75 special proceeding for a permanent stay of the arbitration of respondent's supplementary uninsured motorists (SUM) coverage claim.  In support of its application, GEICO contended the SUM limits of the policy under which respondent had claimed SUM coverage had been reduced by a policy change endorsement to $25,000/$50,000.   After an evidentiary hearing on the issue, Suffolk Supreme denied GEICO's petition, dismissed the proceeding, and directed the parties to proceed to arbitration.  GEICO appealed.

In AFFIRMING the lower court's judgment, the Second Department agreed that GEICO had failed to prove that the change endorsement was mailed to the policyholder prior to the accident:

The Supreme Court properly concluded that the petitioner failed to meet its burden of proving that an insurance policy endorsement dated October 21, 2005, which purportedly reduced the limits applicable to the uninsured/underinsured motorist endorsement of the relevant policy to the sums of $25,000 per person and $50,000 per accident, was properly mailed to the policy holder prior to the date of the subject accident. The underwriter who testified at the hearing failed to offer "evidence of an office [procedure] geared to insure the likelihood that [the endorsements are] always properly addressed and mailed" (Federal Ins. Co. v Kimbrough, 116 AD2d 692, 692; see Nassau Ins. Co. v Murray, 46 NY2d 828, 829-830; Matter of Transcontinental Ins. Co. v Gibbs, 34 AD3d 488; New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d 547; Lumbermens Mut. Cas. Co. v Gamble, 250 AD2d 540; Matter of Allstate Ins. Co. v Ramirez, 208 AD2d 828, 830; Sea Ins. Co. v Kopsky, 137 AD2d 804; Anzalone v State Farm Mut. Ins. Co., 92 AD2d 238; cf. Kaufmann v Leatherstocking Coop. Ins. Co., 52 AD3d 1010, 1012; Morales v Yaghoobian, 13 AD3d 424, 425; Matter of Metlife Auto & Home v Pennella, 10 AD3d 726).

Disclaimer Issued 44 Days After First Notice Held Timely Given Insurer's Investigation

AUTO – UM – STAY OF ARBITRATION – REASONABLE EXCUSE FOR DELAYED DISCLAIMER
Matter of GMAC Ins. Co. v. Jones
(4th Dept., decided 4/24/2009)

GMAC commenced this special proceeding to stay arbitration of Jones' UM claim.  Jones was injured in a July 3, 2006 motor vehicle accident with Nova Casualty Company's insured, Willoughby.  Nova's first notice of the accident came on January 8, 2008, when it received a letter from Jones's attorney concerning the accident.  On January 14, 2008, Nova sent a letter to Willoughby indicating that there was a "coverage question" based on his "failure to report an accident and cooperate in the investigation." The letter further stated that Nova would continue to handle the claim but that it reserved its right to disclaim coverage.

Thereafter, Nova attempted to locate Willoughby to allow him to explain his failure to notify Nova of the claim. Nova's efforts included sending a letter to Willoughby's last known address, which was returned as undeliverable; calling Willoughby at several of his last known telephone numbers; calling Willoughby's sister, who stated that she had not had contact with Willoughby since April 2007; calling Willoughby's neighbors at Willoughby's known addresses; physically attempting to contact Willoughby at four known addresses; sending letters to Willoughby at his sister's address; attempting to obtain a copy of the police report from the accident; and corresponding with respondent's attorney in an attempt to obtain additional information concerning Willoughby.

Despite those efforts, Nova never received a response from Willoughby, and it disclaimed coverage on February 21, 2008.  Jones then requested UM arbitration with GMAC, contending that Willoughby's vehicle was an "uninsured vehicle" under his policy.

GMAC commenced this special proceeding to stay Jones's UM arbitration, naming Nova as a proposed additional respondent and contending that Willoughby's vehicle was not uninsured because Nova's disclaimer, sent  six weeks after first notice, was untimely.  Erie Supreme denied  GMAC's request for a framed hearing on the timeliness of Nova's disclaimer and denied GMAC's petition.

In AFFIRMING the denial of GMAC's petition, the Fourth Department agreed that Nova had established as a matter of law that its disclaimer of coverage was valid, based on the 18-month delay between the date of the accident and the date on which Nova received notice of that accident.  The appellate court found that Nova was justified in investigating the 18-month late notice before disclaiming:

Contrary to petitioner's further contention, the delay of 44 days between the date on which Nova received notice of the claim and the date on which it notified Willoughby of the disclaimer did not render its disclaimer of coverage untimely. It is well settled that, "[i]n order to effectively disclaim liability or deny coverage . . . under an automobile liability insurance policy, an insurer must give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage' " (Hartford Ins. Co. v County of Nassau, 46 NY2d 1028, 1029, rearg denied 47 NY2d 951). "[A]n insurer's explanation [for a delay in notifying the insured of a disclaimer] is insufficient as a matter of law where the basis for denying coverage was or should have been readily apparent before the onset of the delay" (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 69). "However, an insurer's delay in notifying the insured of a disclaimer may be excused when the insurer conducts an investigation into issues affecting [its] decision whether to disclaim coverage' . . . In that case, the burden is on the insurer to demonstrate that its delay was reasonably related to its completion of a thorough and diligent investigation" (Tully Constr. Co., Inc. v TIG Ins. Co., 43 AD3d 1150, 1152-1153, quoting First Fin. Ins. Co., 1 NY3d at 69). 

We conclude that Nova's efforts constituted an "investigation into issues affecting [Nova's] decision whether to disclaim coverage" (First Fin. Ins. Co., 1 NY3d at 69; see generally Tully Constr. Co., Inc., 43 AD3d at 1153; Sirius Am. Ins. Co. v TGC Constr. Corp., 37 AD3d 818, 819). Nova therefore established a reasonable excuse for the delay as a matter of law, and there was no reason to conduct a "framed issue hearing" with respect to Nova's disclaimer. The fact that Nova knew on January 8, 2008 that the claim involved an accident that occurred on July 3, 2006 "did not make it readily apparent' that it had the right to disclaim coverage" (Ace Packing Co., Inc. v Campbell Solberg Assoc., Inc., 41 AD3d 12, 15). "Only an investigation of the type ordered by [Nova] would yield [information that it] needed in order to make a good faith decision regarding disclaimer" (id.; see Norfolk & Dedham Mut. Fire. Ins. Co. v Petrizzi, 121 AD2d 276, 278, lv denied 68 NY2d 611).

DMV Abstract Found Sufficient to Require Hearing on Liability Coverage for Offending Vehicle, Staying UM Arbitration

AUTO – UM – HIT AND RUN – STAY OF ARBITRATION
Matter of American Transit Ins. Co. v. Molina
(Sup. Ct., New York Co., decided 4/15/2009)

American Transit commenced this special proceeding to stay the UM arbitration of Molina.  In support of its petition, American Transit offered a police report listing "Vehicle 2" as a 2000 Dodge with a certain license plate that left the scene.  American Transit also offered a DMV abstract showing two matches for that vehicle, and also indicating that Country-Wide Insurance Company insured that vehicle on the accident date. 

In granting American Transit's application for a temporary stay of the claimant's UM arbitration, the court found that American Transit "ha[d] presented evidence that raises a genuine issue as to whether Vehicle 2 was insured on the date of the accident, August 2,2008."  Noting that Country-Wide presented no evidence that it did not insure Vehicle 2 on the accident date, the motion court rejected Country-Wide's objection to the petition due to its pending investigation into the alleged accident and coverage of the vehicle.

Special Proceeding to Stay UM Arbitration Dismissed as Untimely Commenced

UM – CPLR § 7503(C) – 20-DAY LIMITATION FOR COMMENCING SPECIAL PROCEEDING TO STAY ARBITRATION
Matter of Nova Cas. Co. v. Martin
(2nd Dept., decided 12/2/2008)

CPLR § 7503(c) has been called "The Shortest Statute of Limitations Known to the Law". Dachs, Norman and Dachs, Jonathan, NYLJ, June 12, 1990. It provides that "[a]n application to stay arbitration must be made by the party served within twenty days after service upon him of the notice or demand [for arbitration or intention to arbitrate], or he shall be so precluded." With respect to UM and SUM arbitration demands, the 20-day period accrues, or begins to run, from the insurer's receipt of the demand for arbitration and ends when the special proceeding is actually commenced by the filing of a petition for a stay. There are a number of exceptions to the 20-day rule that have received extensive treatment in the courts. See, generally, Dachs and Dachs, "Petitions to Stay Arbitration: Special Considerations for Special Proceedings", July 1997.

Nova Casualty commenced this special proceeding to stay the UM arbitration demanded by its insured, contending that the offending vehicle was insured by GMAC. Apparently, Nova did not commence this proceeding within 20 days of its receipt of its insured's demand for arbitration, but argued that the allegedly insured status of the offending vehicle was an issue falling outside of arbitration to which the 20-day SOL of CPLR § 7503(c) did not apply.

Kings Supreme agreed, but the Second Department didn't, REVERSING the lower court's order which had granted Nova a framed-issue hearing on the offending vehicle's insurance status and instead dismissing Nova's petition in its entirety:

The petitioner's contention that there is no coverage under its policy's uninsured motorist provisions because the offending vehicle was, in fact, insured, is irrelevant to the issue of whether the instant proceeding pursuant to CPLR article 75 was timely commenced (see Matter of Steck [State Farm Ins. Co.], 89 NY2d 1082; Matter of Travelers Indem. Co. v Castro, 40 AD3d 1005, 1006-1007; Matter of Hartford Ins. Co. v Buonocore, 252 AD2d 500, 501). Such contention "relates to whether certain conditions of the contract have been complied with and not whether the parties have agreed to arbitrate" and, thus, the petitioner's contention is outside the exception articulated by the Court of Appeals in Matter of Matarasso (Continental Cas. Co.) (56 NY2d 264) (Matter of Steck [State Farm Ins. Co.], 89 NY2d 1082, 1084; see Matter of Hartford Ins. Co. v Buonocore, 252 AD2d 500, 501).

Since the petition to stay arbitration of the demand was made well beyond the 20-day period set forth in CPLR 7503 (c), and the exception set forth in Matter of Matarasso does not apply, the Supreme Court should not have, in effect, granted that branch of the petition which was for a framed-issue hearing to determine whether there was insurance available through GMAC Insurance Company. Rather, the proceeding should have been dismissed in its entirety (see Matter of Travelers Indem. Co. v Castro, 40 AD3d 1005, 1007; Matter of Hartford Ins. Co. v Buonocore, 252 AD2d 500, 501).

Demands for UM or SUM arbitration should receive the highest claim processing priority and be forwarded to defense counsel immediately if the insurer has grounds and wishes to commence a special proceeding for a permanent stay of arbitration.

Disclaimer of Adverse Vehicle's Insurer Held Invalid -- No Evidence that Claimant Participated in Fraudulent Procurement of Adverse Vehicle's Auto Policy

UM – AUTO POLICY OBTAINED THROUGH IDENTITY THEFT – UNTIMELY DISCLAIMER – STAY OF ARBITRATION
Matter of General Assur. Co. v. Rahmanov
(1st Dept., decided 11/18/2008)

Rahmanov was injured in an auto accident with a car registered to McKain, driven by McDaniels and insured by State Farm.  State Farm disclaimed coverage to McDaniels and his passengers on the grounds of failure to cooperate and fraud, based on its determination that McKain was the victim of identity theft and had not procured the State Farm insurance policy.

Rahmanov filed and demanded arbtiration of his UM claim with his own auto insurer, General Assurance, which commenced this special proceeding for a permanent stay of that arbitration, based on its contention that State Farm should afford liability coverage for the accident.  After a framed-issue hearing, New York County Supreme granted the petition and determined that the vehicle operated by McDaniels was uninsured and that State Farm's disclaimer of coverage was valid.

In REVERSING that order, declaring State Farm's disclaimer to be invalid and granting the petition to stay the UM arbitration, the First Department held:

The court improperly determined that State Farm's disclaimer of coverage was valid. The evidence establishes that State Farm did not cancel the subject policy before the date of the accident, and there was no indication that Rahmanov participated in the fraud in obtaining the State Farm policy in McKain's name. Under these circumstances, State Farm was precluded from denying coverage on the ground that the policy was fraudulently obtained (see Matter of Metlife Auto & Home v Agudelo, 8 AD3d 571 [2004]; Taradena v Nationwide Mut. Ins. Co., 239 AD2d 876 [1997]). Furthermore, the disclaimer of coverage, issued approximately three months after State Farm had sufficient knowledge of the reasons why it was disclaiming coverage, was untimely as a matter of law (see e.g. Hartford Ins. Co. v County of Nassau, 46 NY2d 1028 [1979]; Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD3d 84, 88-89 [2005]; Campos v Sarro, 309 AD2d 888 [2003]).

The First Department has now joined the Second Department in ruling that a personal auto insurer may not deny liability coverage to an injured third party who did not participate in the fraudulent procurement of that insurer's auto policy for the offending vehicle.  Compare this ruling to the Fourth Department's recent decision in Matter of GEICO v. Battaglia, however, in which the offending vehcile's personal auto policy was declared void from inception based on material misrepresentation.  There was no indication that the claimant was involved in that misrepresentation in Battaglia.  Is there a conflict?

The Danger of Um in UM Claims

AUTO – UM – STAY OF ARBITRATION DENIED – PROOF OF INSURANCE
Matter of Integon Natl. Ins. Co. v. Reiffert
(Sup. Ct., Suffolk Co., decided 10/22/2008)

An auto insurer seeking to stay the uninsured motorists (UM) arbitration of its insured based on the assertion that the tortfeasor was insured carries the burden of establishing the existence of that insurance. Relying on an insurance code in a police accident report and waiting 10 or more years to develop evidence of the tortfeasor's auto liability insurance proved to be Integon's undoing in this case.

When she was 11 years old in 1997, Crystal Reiffert was struck by a car owned and operated by Melissa Biondi. Ten years later, when she was 21, Reiffert demanded arbitration of her UM claim against Integon, presumably the auto insurer for her parent(s) in 1997. Integon then commenced this special proceeding against Reiffert, Biondi, Biondi's father, Biondi's unnamed uncle, and Allstate, Biondi's father's auto insurer, contending alternatively: (1) that the Biondi vehicle was insured under a policy issued to William Biondi, Melissa's father; or (2) that the Biondi vehicle was covered under an insurance policy issued to Melissa's uncle, respondent John Doe, with whom Biondi may have been residing at the time of the accident; or (3) that the Biondi vehicle was insured under a policy issued directly to Melissa Biondi.

The court conducted an evidentiary hearing in September 2008 at which Melissa Biondi and her father testified. At the hearing, Melissa testified that she was insured at the time of the accident under a policy issued to her. However, she could not recall the name of the insurer or the agency from which she purchased that policy. She further testified that she had no records which would establish any insurance coverage for her or vehicle at the time of the accident. Reiffert submitted evidence that no record of insurance coverage for the Biondi vehicle was available from the Department of Motor Vehicles due to the lapse of time.

Melissa's father's testimony, which was not controverted, was that Melissa was not a resident of his household on the accident date and that prior to that accident she had been removed as an additional insured from his auto policy with the Allstate.

Based on this evidence, Suffolk County Supreme Court Justice Thomas Whelan dismissed Integon's petition against Melissa's father, her "John Doe" uncle, and Allstate, based on the court's finding that Melissa was not insured under her father's or uncle's policy at the time of the accident, and granted petitioner and respondent Reiffert an opportunity to submit further documentation in support of their respective positions.

On further submissions, Justice Whelan denied and dismissed Integon's petition for a permanent stay of Reiffert's UM arbitration, holding:

It is well established that a petitioner seeking to permanently stay the arbitration of an uninsured motorists' claim must make a prima facie showing that the offending party was insured on the date of the accident (see Matter of Eagle Ins. Co. v Tichman, 185 AD2d 884, 586 NYS2d 1010 [2d Dept 1992]). The petitioner's production of a police accident report containing an insurance code for the offending vehicle or documentation from the Department of Motor Vehicles is sufficient to satisfy a prima facie case for a stay of arbitration (see Matter of Continental Ins. Co. v Biondo, 50 AD3d 1034, 857 NYS2d 588 [2d Dept 2008]). Once the petitioner establishes its prima facie case of coverage, the burden shifts to the respondent to rebut same, which it may do by proof that the offending vehicle was uninsured or that all reasonable efforts to obtain evidence of insurance coverage were unsuccessful (see Matter of Lumbermans Mut. Cas. Ins. Co. v Quintero, 305 AD3d 684, 762 NYS2d 82 [2d Dept 2003]; Aetna Ins. Co. v Logue, 68 Misc 2d, 841, 328 NYS2d 569 [NY County Sup Ct 1972]; Merchants Mutual Ins. Co., v Schmid, 56 Misc 2d 360, 288 NYS2d 822 [Nassau Cty Sup Ct 1968]).

Here, the petitioner produced the police accident report which identified the Allstate Insurance Company as the insurer of the Biondi vehicle. However, this court previously determined that the Allstate Insurance Company was not the insurer of Melissa Biondi under the policy it had issued to her father, William Biondi. The court also found, based upon the evidence adduced at the September 24, 2008 framed issue hearing, that there was no coverage under any policy issued to Melissa Biondi's uncle.

The petitioner's remaining claims for a stay of arbitration thus rest upon allegations that the Biondi vehicle was insured under a policy issued to Melissa Biondi directly, rather than coverage afforded her under a policy issued to her parents or her uncle. Such claims are, however, without any evidentiary support in the record as the only support therefor is Biondi's vague recollection that she was insured at the time of the accident under a policy purchased by her. Neither the identity of the issuer nor the details of any such policy was established. The record is, however, replete with evidence that all reasonable efforts to substantiate this vague recollection of coverage through the discovery and production of documentation tending to establish its existence have been unsuccessful due to the duration of time that has elapsed since the occurrence of the accident and the circumstances of the parties. Under these circumstances, the court concludes that the petitioner has failed to establish its entitlement to a permanent stay of the arbitration at issue herein.

The decision does not indicate when Reiffert notified Integon of her UM claim, but presumably it was in a timely fashion. Nor does the court's decision indicate what information regarding Biondi's auto insurance Integon had available to it at the time of first notice. If the outcome of this case teaches anything, it's that it's better to investigate and document the tortfeasor's auto liability insurance as soon after first notice of the accident or UM claim as possible, rather than waiting for 10+ years to do so and risking the tortfeasor coming to the hearing without any corroborating documents and saying, "Um..., I know I was insured under my own policy, but I don't remember the company or the agent that issued that policy."

Auto Policy Renewed Years After Registrant's Death Voided Ab Initio

UM – APPLICATION MISREPRESENTATION – STAY OF ARBITRATION
Matter of Geico Ins. Co. v. Battaglia
(4th Dept., decided 10/10/2008)

In January 2004, Battaglia was injured when his vehicle collided with a vehicle registered to O'Donnell and being operated by Ramos. GEICO insured the Battaglia vehicle, and New York Central Mutual Fire Insurance Company (NYCM) insured the O'Donnell vehicle.

One small problem. O'Donnell had died in 1998. NYCM disclaimed coverage to/for Ramos, and Battaglia demanded arbitration of his UM (decision incorrectly says SUM) claim. GEICO then commenced this special proceeding to permanently stay arbitration of that claim.

In AFFIRMING Erie Supreme's denial of GEICO's petition and granting of NYCM's cross motion to dismiss the petition against it, the Fourt Department ruled:

We conclude on the record before us that NYCM established as a matter of law that its policy, as renewed, was void ab initio based on the material misrepresentation with respect to O'Donnell's status, i.e., that O'Donnell was deceased (see generally Matter of Mercury Ins. Group v Ocana, 46 AD3d 561). NYCM established that it would not have renewed the policy covering the O'Donnell vehicle had it known that O'Donnell was deceased at that time (see Insurance Law § 3105 [b]; Precision Auto Accessories, Inc. v Utica First Ins. Co., 52 AD3d 1198, 1200).

Yeah, that would be kinda material to underwriting the risk.

Carolina In Their Mind

AUTO – UM – TIMELY APPLICATION TO STAY OF ARBITRATION – CHOICE OF LAW – FRAMED ISSUE HEARING
Matter of Government Employees Insurance Co. v. Integon National Ins. Co.
(Sup. Ct., Richmond Co., decided 8/12/2008)

GEICO commenced this special proceeding to stay arbitration of the UM claim of its insured, Nadirah Shakoor, who allegedly was injured in a rear end collision on November 4, 2006. The police report listed the other driver as Jose Manuel Salas Oleda of 207 Vance Street, Wilson, North Carolina 27093 (maybe he lived above the beauty salon? and there is no such zip code), who produced an insurance ID card bearing an Integon National Insurance Company policy number. By letter dated January 29, 2007, Integon indicated that it received notice of an accident having occurred on November 17, 2006, and disclaimed coverage based on Mr. Oleda's failure to cooperate in its accident investigation.

CPLR § 7503(c) provides that “[a]n application to stay arbitration must be made by the party served within twenty days after service upon him of the notice or demand, or he shall be so precluded." Although GEICO filed this special proceeding 21 days after receiving Shakoor's arbitration demand, the 20th day fell on a Sunday, so GEICO's application for a stay was timely under New York General Construction Law § 25(a)(1).

With respect to the validity of Integon's disclaimer, Integon argued that because Oledo purchased his insurance policy in North Carolina for an automobile registered in North Carolina, that North Carolina law should apply in this matter. Richmond County Supreme Court Justice Joseph Maltese agreed, citing the Second Department's decision in Matter of Eagle Insurance Company v. Singletary, holding that insurance contracts are governed by the law of the state where the principal parties understood to be the “. . . principal location of the insured risk[.]" Under North Carolina law, an insured's breach of a policy's cooperation clause must be "material and prejudicial", ordinarily questions of fact for a jury.

In granting GEICO's motion for a temporary stay of arbitration pending a framed issue hearing to determine whether the Oleda vehicle was uninsured at the time of the alleged accident, the court found:

Based on the factual landscape currently before this court, it is impossible to hold as a matter of law that Integon’s disclaimer of coverage based breach of the cooperation clause is lawful under the laws of the state of North Carolina.

4-Month Delay in Disclaiming Based on Family Member Exclusion Held to be Timely

AUTO – SUM – STAY OF ARBITRATION – TIMELY DISCLAIMER – INSURANCE LAW § 3420(D)
Matter of New York Central Mut. Fire Ins. Co. v. Steiert
(Sup. Ct., Nassau Co., decided 7/17/2008)

Dawn Steiert was injured in a motor vehicle accident with a vehicle owned and/or driven by Erich John Bohn and insured by Eagle Insurance Company. The Eagle policy had a $50,000 per person liability coverage limit. Bohn apparently lived with his grandfather, who owned a car insured by Kemper. Excess coverage was sought for Bohn under his grandfather's policy.

Kemper received notice of the accident on October 18, 2001 and issued a reservation of rights letter on October 26, 2001. It conducted EUOs of Bohn and his grandfather on January 2, 2002 and received the EUO report on January 21, 2002. Thirty-six days later, Kemper issued a disclaimer on February 27, 2002 based on its policy's exclusion for autos owned by a family member that were not covered autos.

Although the decision does not say so, Steiert presumably collected the $50,000 policy limit from Eagle and then made a claim for supplementary uninsured motorist (SUM) coverage benefits to New York Central, which commenced this special proceeding for a stay of arbitration based on its assertion that Kemper owed excess coverage to Bohn. New York Central argued that Kemper's disclaimer, sent four months and nine days after Kemper first received notice of the accident was untimely under Insurance Law § 3420(d).

Nassau County Supreme Court Justice Kenneth Davis disagreed and dismissed New York Central's petition, finding that Kemper's 36-day delay after receiving the EUO report in issuing the disclaimer was reasonable:

The issue currently before this court is whether Kemper timely disclaimed. Where, as here, Insurance Law § 3420 (d) is applicable and a disclaimer is based on a policy exclusion, a timely disclaimer of coverage is required. Given that Kemper's disclaimer of coverage rested on an exclusion in the insured's policy, Kemper had a statutory duty to timely disclaim. On the facts presented, the court finds that Kemper credibly testified that it did not have " sufficient knowledge of the facts entitling it to disclaim" until after receipt of the Examinations Under Oath report. As such, we conclude that Kemper's disclaimer of coverage, made approximately 36 days after receipt of the report, satisfied the statute and was timely as matter of law.

Finding that Kemper "offered a sufficiently reasonable explanation for the delay, accounting for the time that [it] took to issue the disclaimer", Justice Davis rejected New York Central's argument that Kemper could have and should have used more expedient means of investigating coverage than conducting EUOs:

In the instant case, the claim against Kemper was for excess coverage, and respondent Steiert had a viable primary claim against Eagle and NYCM. Kemper issued a reservation of rights letter twelve days after receiving first notice of the claim. Kemper then initiated an investigation in order to flesh out the basis for denying coverage. This investigation, which according to the testimony of the senior claim representative handling the litigated first and third-party claims William Lavoie, included Examinations Under Oath of both the defendant/grandson , Erich John Bohn, and the insured/grandfather, was needed to attain the facts providing the basis on which to disclaim. Contrary to petitioner's contention that Kemper could have used a method other than Examination Under Oath, Mr. Lavoie credibly testified that examinations are the primary tool used by Kemper to determine coverage in these types of instances. Mr. Lavoie also credibly testified that in accordance with Kemper's internal policy, the next step in the investigation into the propriety of the claim was to refer the claim to the technical claim manager who consults with the home office liability executive, who ultimately makes the decision whether to approve or deny coverage.

That's a Long Commute -- Bronx Accident With South Carolina Uninsured

UM – SOUTH CAROLINA POLICY – POLICY RENEWAL OFFER – SELF-TERMINATING STATE – STAY OF ARBITRATION
Matter of Esurance Co. v. Birikorang
(Sup. Ct., Bronx Co., decided 7/18/2008)

So here's what happens when someone with three Zabasearch addresses in the Bronx apparently buys a personal auto policy in South Carolina.

On February 18, 2006, a Dodge van owned and operated by Christopher Gay of 317 Alexander Avenue, Spartanburg, S.C., struck a Honda vehicle owned and operated by Eva Birikorang. According to the police report, Gay produced an insurance card for his van with an Allstate policy number.

The Allstate policy was a renewal policy, effective February 12, 2006. Apparently Mr. Gay did not pay his renewal premium on time, and there was a policy reinstatement after a 9-day lapse of coverage from February 12-21, 2006, a period enveloping the accident date. Allstate denied liability coverage to Gay based on that lapse. Birikorang filed a UM claim with Esurance, her auto insurer, and demanded arbitration.

Esurance commenced this special proceeding to stay that UM arbitration, arguing that Allstate was required but had failed under applicable South Carolina law properly to cancel the policy. Allstate counter-argued that South Carolina is a "self-terminating state" and that in instances of unaccepted renewal policy offers (i.e., non-payment of the renewal premium), South Carolina law does not require prospective cancellation notices. Allstate's renewal policy bill had stated, "This notice reflects your renewal offer premium. If you want your insurance coverage to continue and do not want it to end, please make sure we receive the Minimum Amount Due by the end of the day (midnight) on February 11, 2006 or your policy will end at 12:01 a.m. Standard Time on February 12, 2006." Additionally, the policy endorsement page of the renewal policy had further stated, "If we offer to renew your policy and your required premium payment isn't received when due you will have rejected our renewal offer. This means that the insurance coverage described in the renewal offer and any endorsements to the renewal offer will not become effective." Allstate received Mr. Gay's renewal premium on February 22, 2006, hence the 9-day lapse in coverage.

Applying South Carolina law, Bronx County Supreme Court Justice Alexander Hunter agreed with Allstate's position and dismissed Esurance's petition to stay the UM arbitration as to Allstate. Finding that there was a lapse in Gay's coverage at the time of the accident, the Court rejected Esurance's argument that South Carolina law required both a manifestation by Allstate of its willingness to renew the policy, as well as a demonstration by some overt act that Mr. Gay intended to cancel the policy.