Not UM and SOL

UM – MEANING OF "UNINSURED" – STATUTE OF LIMITATIONS  
Matter of American Transit Ins. Co. v. Rosario
(1st Dept., decided 11/17/2015)

If your insured's New York lawsuit against the Pennsylvania liability insurer of the tortfeasor's vehicle was dismissed for lack of  personal jurisdiction, is that vehicle uninsured?  And what's the statute of limitations for making a UM coverage claim?

Rosario allegedly was injured in a 2004 motor vehicle accident in Bronx County with Carela, who was insured by American Independent Insurance Company, a Pennsylvania corporation.  Rosario brought a personal injury action action and in 2009 obtained a default judgment against Carela.  In 2012 Rosario sued American Independent in Bronx County Supreme Court under New York Insurance Law § 3420(a)(2) to collect on her default judgment against Carela.  In 2013 American Independent's motion to dismiss Rosario's direct action was granted on the ground that Rosario lacked personal jurisdiction over American Independent.

Rosario then made and demanded arbitration of her claim for uninsured motorists (UM) coverage benefits from her own auto insurer, American Transit, claiming that the 2013 dismissal of her direct action against American Independent rendered the Carela vehicle "uninsured".  American Transit commenced this special proceeding for a permanent stay of Rosario's UM claim arbitration, arguing that the applicable six-year limitations period had expired. Supreme Court rejected that argument and denied the petition, leading to this appeal.

In REVERSING Supreme Court's order and granted the petition for a permanent stay of arbitration, the Appellate Division, First Department, held that the applicable six-year statute of limitations had expired:

A claim for UIM benefits is governed by the six-year statute of limitations applicable to contract actions (see Matter of De Luca [Motor Veh. Acc. Indem. Corp.], 17 NY2d 76, 79 [1966]). The claim accrues either when the accident occurs or when subsequent events render the offending vehicle uninsured (Matter of Allstate Ins. Co. v Morrison, 267 AD2d 381, 381 [2d Dept 1999]). Since there is more than a six-year lapse between the accident and the demand for arbitration, respondent must show that a later accrual date than the accident date is applicable, and that due diligence was used to determine whether the offending vehicle was insured on the date of the accident (id. at 381-382). Respondent failed to make this showing. 

The First Department also held that a dismissal of a direct action against the tortfeasor vehicle's liability insurer does not render that vehicle "uninsured":

Supreme Court's ruling that there was no personal jurisdiction over American Independent in New York was not an event that rendered the offending vehicle uninsured within the meaning of Insurance Law § 3420(f)(1) (see American Tr. Ins. v Barger, 13 Misc 3d 386, 389 [Sup Ct, NY County 2006]). Rather, it was simply a ruling that respondent could not pursue its action against American Independent in a New York court (accord Matter of Government Empls. Ins. Co. v Basedow, 28 AD3d 766 [2d Dept 2006]; Matter of Eagle Ins. Co. v Gutierrez—Guzman, 21 AD3d 489 [2d Dept 2005]). Because no event rendered the offending vehicle uninsured, the statute of limitations for respondent's UIM claim began to run on the date of the accident, May 6, 2004, and expired six years later. Accordingly, respondent's demand for UIM arbitration, filed on or about February 10, 2014, was untimely and the arbitration should be permanently stayed.

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. 

Injured Motorcyclist Not Entitled to Uninsured Motorists Benefits Under His Father's Personal Auto Policy -- Owned But Not Insured Motor Vehicle Exclusion of SUM Endorsement Applied

UM/SUM – OWNED VEHICLE EXCLUSION
Matter of New York Cent. Mut. Fire Ins. Co. v. Polyakov
(2nd Dept., decided 6/1/2010)

Polyakov drove his motorcycle into the rear of Tsismanakis's automobile while it was stopped at a traffic light on Coney Island Avenue in Brooklyn. Polyakov reported to the responding police officer that an unidentified vehicle struck his motorcycle causing him to swerve and hit the Tsismanakis vehicle. At the time of the accident, Polyakov's father had an automobile insurance policy issued by New York Central Mutual Fire Insurance Company. The only vehicle named under that policy as a covered vehicle, however, was a 2001 Nissan Maxima owned by Polyakov's father.

Polyakov' retained counsel, who notified NYCM that Polyakov intended to file both no-fault and uninsured motorists coverage claims under Polyakov's father's policy with NYCM.  Counsel advised NYCM that Polyakov was involved in the accident while he "occupied [an] uninsured vehicle" and that he was the son of and a member of the named insured's household. In his application for no-fault benefits, Polyakov asserted that the owner of the motorcycle he was driving was "unknown at this time."

NYCM subsequently denied Polyakov's claim for supplementary uninsured/underinsured motorists coverage benefits based on its investigation, which revealed that Polyakov was the titled owner of the motorcycle he was riding at the time of the accident, but which was not an insured vehicle under the subject policy.  In denying Polyakov's UM claim, NYCM cited the SUM endorsement's owned vehicle exclusion, which provided:

This SUM coverage does not apply . . . [t]o bodily injury to an insured incurred while occupying a motor vehicle owned by that insured, if such motor vehicle is not insured for SUM coverage by the policy under which a claim is made.

Polyakov demanded arbitration of his UM claim, and NYCM commenced this special proceeding to stay that arbitration.  The Supreme Court denied NYCM's petition and directed the parties to proceed to arbitration.

In REVERSING the Supreme Court's order and granting NYCM's petition, the Second Department held:

The policy language in question was not ambiguous, and the petitioner was entitled to have the provisions it relied on to disclaim coverage enforced (see Matter of USAA Cas. Ins. Co. v Hughes, 35 AD3d 486, 487-488; see generally Baughman v Merchants Mut. Ins. Co., 87 NY2d 589, 592; Government Empls. Ins. Co. v Kligler, 42 NY2d 863, 864-865). The SUM endorsement under the subject policy provided, in relevant part, that "This SUM coverage does not apply . . . [t]o bodily injury to an insured incurred while occupying a motor vehicle owned by that insured, if such motor vehicle is not insured for SUM coverage by the policy under which a claim is made." This language is not ambiguous and the terms must be construed according to their plain and ordinary meaning. This policy exclusion unambiguously excluded from SUM coverage compensation for bodily injuries sustained by an insured when injured in a motor vehicle accident with an uninsured vehicle, while occupying a motor vehicle he or she owns, which vehicle was not covered under the policy (see Matter of USAA Cas. Ins. Co. v Hughes, 35 AD3d at 488; Matter of Utica Mut. Ins. Co. v Reid, 22 AD3d 127, 129; Matter of New York Cent. Mut. Fire Ins. Co. [Prehoda], 231 AD2d 829, 829-830). There is no dispute that Polyakov, at the time of the accident, was occupying a vehicle, the motorcycle, that he owned but that was not covered under the subject policy. 

The Appellate Division also rejected Polyakov's contention that UM coverage was available under Part C--Uninsured Motorists Coverage of his father's personal auto policy with NYCM, finding:

[T]he exclusion from coverage also would have been applicable under the mandatory uninsured motorists provision of the policy, which similarly provides that the petitioner does "not provide Uninsured Motorists Coverage for bodily injury' sustained: 1. By an insured while occupying', or when struck by, any motor vehicle owned by that insured' which is not insured for this coverage under this policy." However, as the petitioner correctly argues, the mandatory uninsured motorists provision was removed from the subject policy by amendment pursuant to Section III of the Amendment of Policy Provisions - New York, and the SUM endorsement was added (see generally 11 NYCRR 60-2.3[e]).

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).

Res Judicata and Collateral Estoppel Not Applicable to Bar Relitigation of Rate Evasion-Based Voiding of Pennsylvania Auto Policy

AUTO – UM/SUM – RATE EVASION – RES JUDISCATA – COLLATERAL ESTOPPEL
Matter of AutoOne Ins. Co. v. Valentine
(2nd Dept., decided 4/20/2010)

On January 3, 2004, Valentine was involved in an automobile accident in Queens with a motor vehicle operated by Rodriguez. The petitioner, AutoOne Insurance Company, insured the Valentine vehicle.  Rutgers Casualty Insurance Company insured the Rodriguez vehicle.

In 2005, Rutgers commenced an action in Pennsylvania state court against, among others, Rodriguez and Valentine.  AutoOne was not a party to the Pennsylvania action. Rutgers' complaint alleged that Rodriguez had fraudulently represented on his application for insurance that he resided in Pennsylvania and that his vehicle was garaged there.  Rutgers sought to have Rodriguez's policy declared void ab initio.  The complaint also stated that "[a]ll other defendants named herein are so named FOR THE PURPOSE OF NOTICE ONLY," referring to Valentine and all of the defendants other than Rodriguez.

In 2006, the Pennsylvania state court declared Rodriguez's policy void ab initio upon the default of Rodriguez and granted Rutgers' request to discontinue the Pennsylvania action against all other defendants, including Valentine.

Valentine thereafter amended his supplementary uninsured motorists (SUM) coverage claim to AutoOne and demanded arbitration.  In 2008, AutoOne commenced this special proceeding and sought leave to join Rutgers and Rodriguez as proposed additional respondents and temporarily to stay arbitration of Valentine's claim for SUM benefits pending a hearing on the determination of coverage under Rodriguez's policy with Rutgers.

Queens Supreme Court (Rios, J.) granted AutoOne's petition and Rutgers appealed.  In AFFIRMING the order appealed from, the Second Department ruled:

• the doctrine of res judicata did not apply to bar relitigation in this proceeding of the issue of insurance coverage for the Rodriguez vehicle under the Rutgers policy because the Pennsylvania court order was not a final judgment on the merits which would be entitled to res judicata effect in this proceeding;
  
  
• because the discontinuance of Rutgers' Pennsylvania state court action as to Valentine did not state that it was granted with prejudice, it did not operate as an adjudication on the merits for purposes of res judicata application; and
  
  
• the doctrine of collateral estoppel did not apply to bar relitigation in this proceeding of the insured status of the Rodriguez vehicle because that issue was not actually litigated and decided in the Pennsylvania action, since Rodriguez defaulted and the Pennsylvania court's order voiding his policy ab initio was issued on that basis.

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.

Uninsured Motorist Arbitrator Did Not Exceed His Authority by Placing Monetary Value on Claimant's Injuries in Excess of Policy Limit

UM – SERIOUS INJURY – CPLR 7511 PROCEEDING TO VACATE ARBITRATION AWARD – GROUNDS TO VACATE AWARD
Safeco Prop. & Cas. Ins. Cos. v. Dye
(Sup. Ct., Queens Co., decided 11/18/2009)

On August 27, 2006, a vehicle owned and operated by Safeco's insured, Roshaun Dye, was struck by a hit-and-run motor vehicle. By demand dated December 3, 2007, Dye sought arbitration of his claim for uninsured motorist (UM) benefits from Safeco on the basis that the accident involved a hit-and-run vehicle.

The arbitration was held on April 20, 2009. Upon completion of the arbitration of this matter, the arbitrator, in his award dated May 15, 2009 determined that "the compensatory value of the injuries sustained by the Claimant RD to be $100,000.00. However, I also find that the Claimant RD was 75% comparatively negligent in causing this accident and therefore his award is reduced and he is entitled to $25,000.00".

Safeco commenced this special proceeding pursuant to CPLR § 7511 to vacate the arbitration award, contending that: (1) the arbitrator exceeded his authority by awarding benefits in excess of applicable policy limits; (2) there was no evidence in the record to support that the claimant sustained a serious injury; and (3) the arbitrator's exclusion of pertinent evidence constituted misconduct.

In denying Safeco's petition and confirming the award, Queens County Supreme Court Justice Jaime Rios noted that judicial review of compulsory arbitration, such as UM arbitration, is more limited than for voluntary arbitration, and that to be upheld, the arbitrator's award must only have evidentiary support and not be arbitrary and capricious.  Justice Rios then held:

An arbitrator is not required to justify his award, it must merely be evident that there exists a rational basis for it upon a reading of the record (see Block v St. Paul Fire & Marine Ins. Co., 137 AD2d 475 [1988]; Dahn v Luchs, 92 AD2d 537 [1983]).

Here, the arbitrator's decision was based upon Dye's testimony, police report, photos of the accident scene and Dye's vehicle, MRI reports of Dr. Shapiro and Dr. Rothpearl; hospital and medical records submitted by Dye and Safeco; a copy of Safeco's insurance policy, and examination under oath of Dye. The MRI report of the right knee by Dr. Shapiro revealed "abnormal signal in the posterior horn of the medial meniscus without articular extension" and "joint effusion"; the MRI of the right knee by Dr. Rothpearl revealed "medial, supra patellar plicai", "thickening and increased signal associated with the medial collateral ligament, consistent with a low-grade partial tear", "lateral patellar tilt", "suboptimal visualization of the anterior cruciate ligament. A tear of this ligament cannot be excluded and clinical correlation is recommended", and the MRI report of the lumbar spine revealed "right foraminal herniation at L5-S1. According to the records of Lutheran Medical Center, on November 29, 2007, Dye underwent arthroscopic surgery to the right knee, which revealed "medial meniscal tear of the medial and lateral side", "synovitis of the medial compartment" and "cartilage abrasion on the medial femoral condyle".

Judicial review of an arbitrator's award is very limited (see Pearlman v Pearlman, 169 AD2d 825 [1990]) and the fact findings of the arbitrator may not be second guessed by a reviewing court (see Liberty Mut. Ins. Co. v Sedgewick of New York, 2007 NY Slip Op 6882). The question of whether a claimant has sustained a serious injury is a matter within the province of the arbitrator not the courts (see Aetna Cas. & Sur. Co. v Cochrane, 64 NY2d 796 [1985]). Based upon the present record, the arbitrator's award has ample evidentiary support and is thus, rationally based. Additionally, even if the arbitrator failed to consider certain evidence, vacatur of the award would not be warranted (see American Express Prop. & Cas. Co. v Vinci, 63 AD3d 1055 [20009]).

Moreover, while an arbitration award may be vacated upon the ground that the arbitrator exceeded his authority by making an award in excess of the policy limits, here, the arbitrator made an award within the policy limits. 

The decision does not reveal what the UM policy limit was, but presumably it was at least $25,000.  As reduced by the claimant's percentage of comparative negligence or culpable conduct, the arbitration award did not exceed the policy's UM coverage limit.

Permanent Stay of Uninsured Motorists Coverage Claim Arbitration Granted -- Liability Coverage for Leased Trailer Found to Apply to Tractor

UM – AUTO – GRAVES AMENDMENT – TRACTOR TRAILER LIABILITY – VEHICLE & TRAFFIC LAW § 388
Matter of State Farm Mut. Auto. Ins. Co. v. Morales
(Sup. Ct., Nassau Co., decided 10/22/2009)

State Farm's insured, Jose Morales, claimed injuries from an accident in which his vehicle was struck in the rear by a tractor trailer.  An accident report indicated that the offending vehicle was owned by Tuscan Lehigh Dairies and insured by Ace American Insurance Company.  Morales made a claim to State Farm for uninsured motorists (UM) coverage benefits after Ace presumably disclaimed or denied coverage. State Farm commenced this special proceeding pursuant to CPLR Article 75 for a permanent stay of the UM claim arbitration, contending that there was liability coverage for the tractor trailer, and naming both Tuscan and Ace as proposed additional respondents.

In an opposing attorney's affirmation, Tuscan alleged that it owned only the trailer, and not the tractor.  The tractor allegedly was owned by Action Transport and being driven by one of Action's employees at the time of the accident.  Tuscan also submitted an opposing affidavit of a Kathy Weaver, the human resources manager of Dean NE, LLC, which purportedly was associated with Tuscan.  Weaver's affidavit stated that Tuscan was in the business of renting or leasing trailers to haulers under hauling agreements for the purpose of moving its products from on point to another and, as such, was exempt from vicarious liability under New York's Vehicle & Traffic Law § 388 by operation of the Graves Amendment. Her affidavit also stated there was an agreement between Dean NE, LLC and Action Transport for the purpose of hauling products of Tuscan, and that agreement required Action Transport to assume full responsibility for the trailer including any claims by third parties.

A hearing was conducted at which the parties stipulated that: (1) the trailer owned by Tuscan was insured on the accident date; (2) State Farm could not prove any policy of insurance was issued to Action Transport for the operation of its tractor on the accident date; (3) the trailer itself did not come into contact with Morales' vehicle; and (4) the only issued to be determined in this proceeding was whether the insurance policy on Tuscan's trailer would provide coverage for and negligence on the part of the tractor pulling the trailer.

Although Suffolk Supreme had previously held in Zawatsky v Barker Materials, Ltd., that the Graves Amendment does apply to leased trailers, Nassau County Supreme Court Justice Antonio Brandveen rejected Tuscan's Graves Amendment argument and granted State Farm's petition to permanently stay Morales' UM coverage claim arbitration:

The affidavit of Kathy Weaver stating she is the Human Resources Manager of DEAN NE, LLC which is associated with TUSCAN and Garelick Farms was not notarized and can not be considered by this court. Further, the purported affidavit asserting that Dean NE, LLC is "associated" with TUSCAN is vague and imprecise, that standing alone, is insufficient to establish a connection between the two entities to give TUSCAN standing to assert the application of the Graves Amendment in this action.

*  *  *  *  *

It is clear that the provisions of VTL § 388(1) provide that when a tractor and trailer are being operated in combination the owners shall be jointly and severally liable.  VTL § 388(2) clearly defines a vehicle for purposes of this statute to include a semitrailer and a trailer.

In MOUNT VERNON FIRE INSURANCE COMPANY v. THE TRAVELERS INDEMNITY COMPANY, 63 A.D.2d 254, 255 the court held:

Section 388 of the Vehicle and Traffic Law imposes joint and several liability on owners of tractors and trailers used in combination with one another, for injuries occasioned by such vehicles. Subdivision 4 thereof mandates "All... policies of insurance issued to the owners of any vehicle subject to the provisions of this section shall contain a provision for indemnity or security against the liability and responsibility provided in this section . This statute, which has as its objective the protection of injured plaintiffs, does not differentiate between primary and excess policies but directs that "All" policies of insurance are to provide the required coverage. (Emphasis added).  See, also (Employers Mut. Liability Ins. Co. Of Wis. v Indemnity Ins. Co. Of North America 37 Misc.2d 839)

Accordingly, the court finds that pursuant to VTL § 388 the insurance policy covering the trailer owned by TUSCAN is required to provide coverage for any negligence on the part of the tractor operated in combination with trailer. The petition by STATE FARM is granted.

Justice Brandveen was correct in rejecting the unnotarized affidavit submitted in support of Tuscan's Graves Amendment argument.  But even if that affidavit been notarized (and certificated pursuant to CPLR § 2309(c) if executed outside of New York State), would the result have been different?  A motor vehicle lessor's coverage responsibility is not always congruent with its liability exposure. 

In Antwi v. HVT, Inc., 24 Misc 3d 1250(A) (Sup. Ct., Bronx Co., decided 9/11/2009), the court allowed HVT to renew its Graves Amendment-based motion for summary jugdment with a new affidavit that could have been but was not submitted in support of HVT's original motion.  If Tuscan were to try the same thing here -- to move to renew based on a properly executed and notarized affidavit of Kathy Weaver -- would the result be any different?  Probably not.  A fair reading of the Graves Amendment is that while it exempts motor vehicle lessors from the vicarious liability imposed by subsection 1 of Vehicle & Traffic Law § 388, it does nothing to affect or excuse lessors from their coverage responsibilities under subsection 4 of that statute.  

In other words, the fact that Tuscan may not be held liable under VTL § 388(1) to Morales for his injuries by operation of the Graves Amendment does not necessarily mean its trailer's liability policy with Ace does not cover the tractor's operation.  Liability exposure?  No.  Coverage responsibility?  Yes.  New York personal auto insurers facing UM claims stemming from accidents with leased tractors or trailers should bear this in mind.

To read most posts about New York cases involving the Graves Amendment, click here.   

Obtaining Written Report of Hit-and-Run Accident Not Always Required for Claim Against MVAIC

UM – HIT-AND-RUN ACCIDENT – CLAIM TO MVAIC – REPORT TO POLICE WITHIN 24 HOURS
Matter of Gurvich v. Motor Veh. Acc. Indem. Corp.
(2nd Dept., decided 10/6/2009)

One precondition to securing uninsured motorists benefits from New York's Motor Vehicle Accident Indemnification Corporation (MVAIC) for injuries sustained in a hit-and-run accident is that the claimant "[r]eport the accident to the police, justice of the peace, a judge, or the Motor Vehicle Commissioner within twenty-four (24) hours after the accident[.]"

The New York courts liberally interpret what constitutes a satisfactory "report".  In this matter, the claimant commenced this special proceeding pursuant to Insurance Law § 5218(c) for leave to commence an action against MVAIC, which opposed the petition based on its assertion that the claimant had failed to report the hit-and-run accident to the police within 24 hours.  Kings Supreme rejected MVAIC's contention and granted the petition, leading to this appeal.

In AFFIRMING the order granting claimant's petition, the Second Department, held:

The Motor Vehicle Accident Indemnification Corporation opposed the petition for leave to commence an action against it on the ground that the petitioner failed to report the subject accident to the police within 24 hours of the occurrence. However, the courts have "consistently afforded a very liberal interpretation to the notice requirement, accepting police contacts that fall far short of the operator's obtaining a written report" (Matter of Country Wide Ins. Co. [Russo], 201 AD2d 368, 370; see Canty v Motor Veh. Acc. Indem. Corp., 95 AD2d 509; Matter of Dixon v Motor Veh. Acc. Indem. Corp., 56 AD2d 650). Under the circumstances of this case, sufficient notice of the accident was timely given to the police.

The decision does not reveal what the "circumstances of this case" were that the motion and appellate courts found constituted sufficient notice of the accident to the police.  However, it appears the claimant had not obtained a written accident report from the police, something the courts rules was not fatal to her MVAIC claim. 

Second Department Affirms Denial of Petition to Stay UM Arbitration -- Insurer's Late Notice & Lack of Physical Contact Grounds Rejected

UM – AUTO  – LATE NOTICE – PREJUDICE – PHYSICAL CONTACT
Matter of New York Cent. Mut. Fire Ins. Co. v. Vento
(2nd Dept., decided 6/9/2009)

The insured, Ann Vento, sought to compel arbitration of her uninsured motorists (UM) coverage claim after she allegedly was struck by an unidentified vehicle while crossing a street at a crosswalk on October 14, 2006.  New York Central Mutual (NYCM) petitioned the Supreme Court to permanently stay arbitration on the ground that the insured had failed to comply with the notice provisions of the subject insurance policy and failed to demonstrate that her injuries were caused by physical contact with the hit-and-run vehicle.

The first notice provision in the supplemental uninsured/underinsured motorist endorsement required that "the insured or someone on the insured's behalf ... shall have filed with the [insurer] a statement under oath."  The second notice provision of the SUM endorsement required both a "notice of claim" and a "proof of claim." Written notice of claim was required "[a]s soon as practicable."  However, written proof of claim was required, upon forms furnished by NYCM, "[a]s soon as practicable after [the petitioner's] written request."

Suffolk Supreme conducted a non-jury framed-issue hearing on the issue of whether the insured's claimed injuries were caused by physical contact with a hit-and-run vehicle and denied NYCM's petition for a stay of the insured's UM arbitration.  NYCM appealed.

In AFFIRMING the trial court's order, the Second Department concluded that: (1) NYCM had not demonstrated prejudice from the insured's delay in providing either notice of claim or proof of claim; and (2) the trial court's non-jury determination of physical contact was supported by the record and, as such, could not be disturbed on appeal:

The insurer's own submissions in support of its petition demonstrated that the insured provided it with notice of the accident as soon as practicable (see Matter of Firemen's Ins. Co. v Clinton, 54 AD3d 759, 759). To the extent that the insurer demonstrated a delay in receiving the "Notice of Intention to Make Claim" form after it sent a written request for proof of claim, the insurer failed to demonstrate that it was prejudiced by any such delay (see Rekemeyer v State Farm Mut. Auto. Ins. Co., 4 NY3d 468, 476; Matter of New York Cent. Mut. Fire Ins. Co. v Ward, 38 AD3d 898, 901; Matter of Nationwide Mut. Ins. Co. [Mackey], 25 AD3d 905, 906-907). 

Furthermore, the sworn, signed, and notarized "Notice of Intention to Make Claim" form received by the insurer satisfied the first notice provision of the subject policy which required that the insured file a "statement under oath" that indicated that the insured had a cause of action arising out of an accident against a person whose identity was unascertainable (cf. Matter of Allstate Ins. Co. v Estate of Aziz, 17 AD3d 460, 461; Matter of Eveready Ins. Co. v Ruiz, 208 AD2d 923, 923), and the insurer failed to demonstrate that it was prejudiced thereby (accord Rekemeyer v State Farm Mut. Auto. Ins. Co., 4 NY3d at 476; Matter of New York Cent. Mut. Fire Ins. Co. v Ward, 38 AD3d at 901; Matter of Nationwide Mut. Ins. Co. [Mackey], 25 AD3d at 906-907).

With respect to the insurer's contention that the insured failed to demonstrate physical contact, we note that "[p]hysical contact is a condition precedent to an arbitration based upon a hit-and-run accident involving an unidentified vehicle" (Matter of Great N. Ins. Co. v Ballinger, 303 AD2d 503, 504; see Insurance Law § 5217; State Farm Mut. Auto. Ins. Co. v Johnson, 287 AD2d 640, 640-641; Matter of Aetna Life & Cas. v Gramazio, 242 AD2d 530, 530). When there is an issue of fact as to whether physical contact occurred, a hearing on the issue must be conducted (see State Farm Mut. Auto. Ins. Co. v Johnson, 287 AD2d at 640-641; Matter of Aetna Life & Cas. v Gramazio, 242 AD2d at 530).

Where, as here, a case is tried without a jury, this Court's power to review the evidence is as broad as that of the trial court, "taking into account in a close case the fact that the trial judge had the advantage of seeing the witnesses'" (Northern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492, 499, quoting York Mortgage Corp. v Clotar Costr., 254 NY 128, 133-134). In this case, the Supreme Court's determination that the insured had been struck by an unidentified vehicle is supported by the record and will not be disturbed on appeal (see Matter of Halycon Ins. Co. v Fox, 44 AD3d 662). The insured's testimony, credited by the court, demonstrated that she had come into physical contact with the hit-and-run vehicle (see Matter of Nova Cas. Co. v Musco, 48 AD3d 572, 573; Matter of Allstate Ins. Co. v McMahon, 251 AD2d at 572; Matter of Aetna Life & Cas. v Gramazio, 242 AD2d at 530).

Turnabout Is Fair Play -- Court Finds Disclaimer Ineffective Against Injured Party

AUTO – UM – INEFFECTIVE DISCLAIMER – CIRUCCI DEFECT
Tri-State Ins. Co. v. Salguero
(Sup. Ct., Queens Co., decided 5/26/2009)

Salguero was injured in an 2004 auto accident with Frempong. Tri-City insured Salguero; State Farm insured Frempong. When negotiations with State Farm became unsuccessful, Salguero's attorney commenced a personal injury action against Frempong but did not notify State Farm of either the action or Frempong's default in that action. After obtaining a $33,173.98 default judgment against Frempong in 2007, Salguero commenced an Insurance Law § 3420(b)(1) action against State Farm in January 2008.

In response to the 3420(b)(1) action, State Farm issued a disclaimer letter to Frempong, its insured, advising her that "[y]our failure to send us copies of any notices or legal papers received is in violation of your policy's provision regarding the reported claims. As such State Farm Mutual Automobile Insurance Company disclaims coverage for any and all claims resulting from this loss". A copy of that letter went to Salguero's attorney. On the same day, State Farm send a separate letter to Salguero's attorney, advising him that "[o]ur Insured failed to forward the Summons & Complaint for the law suit filed against her to State Farm Insurance. This is in violation of our insured's policy provision regarding the duties after an accident or loss. You received an order of judgment entered on September 5, 2007 that allegedly was served on the insured, Sherina Frempong. Again our insured has not forwarded us the court's order of default. Accordingly, we decline to afford coverage for the above date of loss due to our insured's failure to forward suit papers."

Based on State Farm's disclaimer, Salguero then filed and demanded arbitration of a uninsured motorists (UM) coverage claim made to Tri-City. Tri-City then commenced this special proceeding pursuant to CPLR 7503 to stay arbitration of Salguero's UM claim, and the court added Frempong and State Farm as respondents and directed a hearing on the issue of whether coverage for the accident was available from State Farm. The parties agreed that the sole question for determination was whether State Farm's disclaimer letters -- to Frempong and Salguero's attorney -- were ineffective as to Salguero for having not disclaimed coverage on the separate ground that Salguero had also failed to provide timely notice of his underlying personal injury to State Farm.

In finding in favor of Tri-City and declaring that State Farm was obligated to defend and indemnify Frempong for her accident with Salguero, Queens County Supreme Court Justice Jaime Rios rejected State Farm's reliance on a First Department decision, holding that Second Department case law controlled and required the finding that State Farm's disclaimers were ineffective as against Salguero for having said nothing about Salguero's late notification of the underlying personal injury action:

In support, State Farm relies on the holding in Schlott v Transcon. Ins. Co., Inc., (41 AD3d 339 [2007]), wherein the Appellate Division, First Department determined that the insurer complied with the mandates of Insurance Law § 3420(d) when it gave notice of disclaimer to the insured and sent a copy to the injured party, despite its omission of any specific reference to the injured party's failure to timely notify it of the accident.

Salguero maintains that State Farms's disclaimers are not effective against him, since they failed to include his alleged failure to timely notify State Farm of the lawsuit as a basis for disclaiming and only referred to its insured's failure. /div>

Insurance Law §3420(d) provides that an insurer shall give written notice of a disclaimer of liability or denial of coverage to the insured and injured party or any other claimant as soon as is reasonably possible (see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64 [2003]; Hereford Ins. Co. v Mohammod, 7 AD3d 490 [2004]; State Farm Ins. Co. v Cooper, 303 AD2d 414 [2003]).

The notice of disclaimer must address with a high degree of specificity the grounds upon which it is based (see General Acc. Ins. Group v Cirucci, 46 NY2d 862 [1979]; State Farm Mut. Auto. Ins. Co. v Cooper, 303 AD2d 414, supra; State Farm Mut. Auto. Ins. Co. v Joseph, 287 AD2d 724 [2001]). An insurer's justification for denying coverage is limited to the ground(s) stated in the disclaimer and waives any ground for denying coverage that is not specifically asserted in its disclaimer, regardless of merit (see General Acc. Ins. Group v Cirucci, 46 NY2d 862, supra; Adames v Nationwide Mut. Fire Ins. Co., 55 AD3d 513 [2008]; Vacca v State Farm Ins. Co., 15 AD3d 473 [2005]).

Additionally, contrary to the holding in Schlott v Transcon. Ins. Co., Inc., (41 AD3d 339, supra), the Second Department has consistently held that in order for a disclaimer to be valid against an injured party, the notice of disclaimer must advise the claimant that his or her notice was not timely (see State Farm Mut. Auto. Ins. Co. v Cooper, 303 AD2d 414, supra; State Farm Mut. Auto. Ins. Co. v Joseph, 287 AD2d 724, supra).

Here, the sole basis of State Farm's disclaimer notices was Frempong's failure to notify it of the lawsuit. The disclaimer notices are thus, ineffective against Salguero, despite his failure to provide State Farm with notice of the lawsuit. As such, State Farm is estopped from raising his failure as a ground to disclaim coverage, despite the questionable practices of respondent's attorney (see Vacca v State Farm Ins. Co., 15 AD3d 473, supra; Gov. Empl. Ins. Co. v Jones, 6 AD3d 534 [2004]; Hazen v Otsego Mut. Fire. Ins. Co., 286 AD2d 708 [2001]; Legion Ins. Co. v Weiss, 282 AD2d 576 [2001]; Eagle Ins. Co. v Ortega, 251 AD2d 282 [1998]).

In State Farm v. Cooper, a CPLR 7503 proceeding to stay a UM claim, State Farm had made precisely the same argument against Zurich -- that Zurich's disclaimer was ineffective vis-à-vis Cooper, State Farm's insured (the UM claimant) because Zurich's disclaimer had said nothing about Cooper's failure to give timely notice to Zurich of the underlying lawsuit. Both Nassau Supreme and the Second Department agreed, staying Cooper's UM claim against State Farm. The other Second Department decision Justice Rios cited and relied upon -- State Farm v. Joseph -- involved an insured's late notice of the accident, not of the subsequent personal injury lawsuit.

Liability coverage disclaimers and denials can both be untimely and defective. What is sometimes called a "Cirucci defect", based on the New York Court of Appeals' 1979 decision in General Acc. Ins. Group v. Cirucci, 46 NY2d 862, relates to a disclaimer letter's omission of any reference to an injured party's late notice as a separate ground for denying coverage.

Although Justice Rios properly followed the binding precedent of State Farm v. Cooper, since Queens County falls within the Second Judicial Department, the Second Department erroneously decided that case. Cirucci and its progeny apply only to the defense of an insured's or injured party's late notice of an accident, not late notice of the subsequent personal injury lawsuit:

The only other ground stated in the insurance company's notice of disclaimer, the "insured's failure to report this accident to us", was likewise not effective against the third-party claimants. As noted by the Appellate Division, an injured third party may seek recovery from an insured's carrier despite the failure of the insured to provide timely notice of the accident ( Lauritan v American Fid. Fire Ins. Co., 3 AD2d 564, affd 4 NY2d 1028). Although, under the facts of this case a disclaimer might have been premised on the late notice furnished by the third parties themselves to the insurer, since this ground was not raised in the letter of disclaimer, it may not be asserted now. General Acc. Ins. Group v. Cirucci, 46 NY2d 862, 863.

The First Department's 2007 decision in Schlott v Transcon. Ins. Co., Inc. states what I believe is the correct interpretation of Insurance Law §§ 3420(a)(3) and 3420(d) with respect to late notice of lawsuits: "The fact that defendant [insurer] omitted from that notice any specific reference to the injured party's own failure to afford the insurer timely notice [of the underlying lawsuit] did not prejudice plaintiffs." Absent prejudice to the injured party from such an omission -- which in Salguero's case could not have existed or even been argued given his attorney's "questionable practices" of suing and taking a default judment against State Farm's insured without having notified State Farm, which whom that attorney had been negotiating -- a Cirucci defect is immaterial provided the injured party received a copy of the disclaimer letter.

With "only" $33,000 and change at stake, it remains to be seen whether State Farm will appeal this decision to the Second Department (which it likely will lose) and then put the conflict between the First and Second Departments before the Court of Appeals for determination.

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.

No Contact, No Coverage

UM – PHYSICAL CONTACT – HIT AND RUN
Matter of Hanover Ins. Co. v. Lewis
(1st Dept., decided 12/2/2008)

In this classically short memorandum decision, the First Department reminds:

Physical contact is a condition precedent to the arbitration of this uninsured motorist claim, and whether or not there was physical contact between the insured vehicle and an alleged "hit and run" vehicle is an issue of fact to be decided by the court (see Matter of Empire Mut. Ins. Co. [Zelin], 120 AD2d 365 [1986]; see also Lumbermens Mut. Cas. Co. v Nespolini, 281 AD2d 365 [2001]). Here, the evidence at the framed-issue hearing establishes that the court's determination that the vehicle driven by respondent did not come into contact with another vehicle at the time of the accident was supported by a fair interpretation of the evidence, and there is no basis to disturb the hearing court's credibility determinations (see e.g. Claridge Gardens v Menotti, 160 AD2d 544 [1990]). Respondent acknowledged that he told the police officer who responded to the scene of the accident that he had only been cut off, and the police report, which was entered into evidence without objection, is consistent with respondent's testimony.

Notice the difference between UM and no-fault litigation: something entered into evidence without objection.

Time to Update the McKinney's

UM – POLICY CANCELLATION – VEHICLE & TRAFFIC LAW § 313
Matter of Allstate Ins. Co. v. Harris
(1st Dept., decided 12/2/2008)

It's hard enough winning insurance coverage cases in court sometimes. Not raising arguments at the motion court level or relying on outdated statutes makes it infinitely more difficult. Like in this case.

This is a special proceeding to stay a UM arbitration. Allstate presumably argued that National Grange owed liability coverage for the offending vehicle (OV) because it had improperly canceled the OV's policy. National Grange argued that it was not required to file its cancellation notice with the New York State Commissioner of Motor Vehicles because its insured had failed to pay a renewal premium on a policy that had been in force for six months or more. Two problems with that argument, found the First Department:

We decline to reach respondent National Grange Mutual Insurance Company's argument, advanced for the first time on appeal, that an insurer need not file a notice of termination with the Commissioner of the Department of Motor Vehicles after the insured has failed to pay a renewal premium on a policy that had been in force for six months. Were we to consider this argument, we would find it without merit, as it relies on a version of Vehicle and Traffic Law § 313(2)(a) that has not been in effect since 1998 (see L 1998, ch 509).

Order unanimously affirmed, with costs, not suprisingly. Time to update the McKinney's.

P.S. Since I am currently a LexisNexis subscriber, I suppose I should mention their competing New York statutory collection product -- New York Consolidated Laws Service. Now how 'bout a free month, LN?

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?