New York Court of Appeals Now Tweeting Insurance Coverage Decisions

No, not really. That's just a click-baiting title.

But seriously, the court's issuance on December 14, 2017 of 259-character and 219-character decisions in insurance coverage cases could have fit within Twitter's new 280-character limit.  Here are the cases and why they're so short.

Section 500.11 of the New York Court of Appeals' Rules of Practice -- Alternative Procedure for Selected Appeals

22 NYCRR § 500.11(a) provides in pertinent part that "[o]n its own motion, the Court [of Appeals] may review selected appeals by an alternative procedure. Such appeals shall be determined on the intermediate appellate court record or appendix and briefs, the writings in the courts below and additional letter submissions on the merits."

In other words, no record, no briefs and no oral argument to the Court of Appeals.  And a faster and likely shorter decision.

What cases make the alternative review cut, you ask?  Per Rule 500.11(b), the Court of Appeals may select cases for such alternative review based on:

1. questions of discretion, mixed questions of law and fact or affirmed findings of fact, which are subject to a limited scope of review; 
2. recent, controlling precedent; 
3. narrow issues of law not of statewide importance; 
4. unpreserved issues of law; 
5. a party's request for such review; or
6. other appropriate factors.

By my count (actually Google Scholar's count),  the New York Court of Appeals has invoked Rule 500.11 six previous times in insurance coverage cases:

• addressing the question of what constitutes "maintenance" of an auto for purposes of a CGL policy's auto exclusion;
• involving the insured's asserted good-faith belief that the underlying plaintiffs in a libel action would not seek to hold the insured liable (late notice excuse); 
• holding that the injured party failed to use reasonable diligence in providing notice to the insurer; 
• finding triable issues of fact on successor liability; 
• adopting the dissenting memorandum of the Appellate Division on the "stage hand" exclusion; and
•  concerning an insurer's mailing procedures for policy amendments.

Here are the Court of Appeals' latest Tweet-sized insurance coverage decisions:

NO-FAULT – LOSS OF EARNINGS – SPECULATIVE NATURE OF CLAIM
Freligh v. Government Employees Insurance Company
(Ct. Apps., decided 12/14/2017)

Loss of earnings claim.  One of those "Oh, I know I wasn't employed at the time of the accident but I was just about to start a new job" kind of claim.  Regulation 68 permits an eligible injured person to recover "demonstrated future earnings reasonably projected" (11 NYCRR 65-3.16[b][3]).

At the time of the December 23, 2012 MVA, the plaintiff, who had worked in the automotive parts and repair industry for a number of years, had been unemployed for approximately seven months. In January 2013 plaintiff submitted an application for no-fault benefits.  With respect to the LOE portion of his application, plaintiff indicated that he "was due to start [a] new job" but had been unable to work since the MVA  as a result of the injuries that he had sustained in the accident. Plaintiff further indicated that details regarding his position, including his salary and the employer's name and address, would be provided.

Plaintiff thereafter provided GEICO with a copy of an employment application dated December 15, 2012, which purportedly reflected that plaintiff had been offered a $2,000 a week job at a failing auto parts business owned by plaintiff's friend of 15 years who, the record showed, (1) had previously pleaded guilty to insurance fraud and offering a false instrument, (2) had made false sworn statements in regard to the bankruptcy proceeding of a corporation, (3) had initiated that bankruptcy proceeding as a "ruse" to forestall creditors and (4) had paid his wife a salary from the parts business while she was a student at Columbia University for her "learning purposes."

In reversing Supreme Court's denial of GEICO's summary judgment motion, the three-justice majority of the Appellate Division, Third Department, held that "material evidence established as a matter of law that the projection that plaintiff would have received $2,000 a week from the parts business is unreasonable[.]"

Invoking its alternative review authority under Rule 500.11, the New York Court of of Appeals REVERSED the Appellate Division's order and reinstated the complaint.  The Court's 259-character (not counting spaces) decision:

On review of submissions pursuant to section 500.11 of the Rules, order reversed, with costs, and case remitted to the Appellate Division, Third Department, for consideration of issues raised but not determined on the appeal to that court. Triable issues of fact exist as to plaintiff's claim for lost wages.

That's it.  Triable issues of fact regarding the EIP's LOE claim for the jury to hear and decide.  Appellate Division order reversed.  The  Court of Appeal's seventh Rule 500.11 alternative review of an insurance coverage case.  

PERSONAL UMBRELLA – CANCELLATION – DIVISIBILITY
Garcia v. Government Employees Insurance Company
(Ct. Apps., decided 12/14/2017)

Appeal from another 3-2 decision at the Appellate Division (Second Department), but GEICO won this one at the Court of Appeals.

The insured had a $1 million personal umbrella policy with GEICO; the annual premium for that policy was $306.  On renewal the insured asked GEICO to increase the umbrella policy limit to $2 million, which GEICO did so, resulting in an increased premium of $199 for the umbrella policy.  When the insured paid only the prior year's premium of $306 GEICO cancelled the umbrella policy effective 12:01 a.m. on May 19, 2006.  As unluck would have it, the insured's vehicle was involved in a motor vehicle accident later that day in which the plaintiff, Garcia, was injured.

In pursuing coverage under the umbrella policy, Garcia argued that the umbrella policy's declarations were ambiguous, that GEICO's insured had made a payment sufficient to keep $1 million in umbrella coverage in force, and that the the umbrella policy's first and second million dollars of umbrella coverage were divisible.

The 3-2 majority of the Appellate Division, Second Department, disagreed:

Next, because there is no ambiguity in what Rakowski contracted for — $2,000,000 in coverage, as stated in the Amended Declarations of the policy — there is likewise no ambiguity in GEICO's notice of cancellation, which referred to the policy number of Rakowski's umbrella policy. The cancellation notice could only have pertained to Rakowski's coverage of $2,000,000, which was the only coverage the policy provided for the policy period (see First Sav. & Loan Assn. of Jersey City, N. J. v American Home Assur. Co., 29 NY2d at 300).

Invoking its alternative review authority under Rule 500.11, the New York Court of of Appeals AFFIRMED the Appellate Division's order, with costs.  The Court's 219-character (not counting spaces) decision:

On review of submissions pursuant to section 500.11 of the Rules, order affirmed, with costs. There is no ambiguity in the policy as to coverage or divisibility. The parties contracted for $2 million of coverage. Plaintiff's remaining contention lacks merit.

That's it.  No ambiguity.  Insurer wins.  The  Court of Appeal's eighth Rule 500.11 alternative review of an insurance coverage case.  

NYSID Circular Letter No. 9 (2010) -- Incorrect Amounts Listed on Cancellation Notices for Non-Payment of Premium

Circular Letter No. 9 (2010)

August 9 , 2010

TO:  All Insurers Writing Property/Casualty Policies in New York 

RE:  Incorrect Amounts Listed on Cancellation Notices for Non-Payment of Premium

STATUTORY REFERENCES:  Insurance Law §§ 3425 and 3426 

The purpose of this Circular Letter is to clarify for property/casualty insurers that are subject to Insurance Law §§ 3425 and 3426 that a notice of cancellation for non-payment of premium must clearly inform the policyholder of the overdue amount.

It has come to the Department’s attention that some insurers are sending to policyholders notices of cancellation for non-payment of premium that include installment payments that are not yet in arrears.  Therefore, many insureds believe that they must pay premiums not yet overdue in order to avoid a cancellation for non-payment of premium.  

New York Insurance Law § 3425(c) (McKinney Supp. 2009) states in relevant part as follows:

After a covered policy has been in effect for sixty days, or upon the effective date if the policy is a renewal, no notice of cancellation shall be issued to become effective…unless it is based on one or more of the following: 

(1) With respect to automobile insurance policies: 

(A) nonpayment of premium, provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;

*          *          *         *

(2) With respect to personal lines insurance policies:

(A) nonpayment of premium, provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due[.]

Regarding commercial lines insurance, Insurance Law § 3426(c) states that:

After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured’s authorized agent or broker, and such cancellation is based on one or more of the following:

(1) With respect to covered policies:

(A) nonpayment of premium provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due.

In turn, Insurance Law § 3425(a)(10) and Insurance Law § 3426(a)(3) define “nonpayment of premium” as:

the failure of the named insured to discharge any obligation in connection with the payment of premiums on a policy of insurance or any installment of such premium, whether the premium is payable directly to the insurer or its agent, or indirectly under any premium finance plan or extension of credit.  Payment to the insurer, or to an agent or broker authorized to receive such payment, shall be timely, if made within fifteen days after the mailing to the insured of a notice of cancellation for nonpayment of premium.

Because the language of Insurance Law §§ 3425(c)(1)(A), 3425(c)(2)(A) and 3426(c)(1)(A) is identical, the Department construes these provisions in the same manner.  Thus, an insured may receive a non-payment of premium notice only if the insured has failed to discharge an obligation in connection with the payment of premiums on a policy of insurance.[1]

In addition, in an Office of General Counsel (OGC) Opinion 06-12-08 (December 14, 2006), the Department’s OGC found that a notice of cancellation that failed to correctly inform the insured of the amount that was past due constituted a violation of Insurance Law § 3425(c)(1)(A) because any amount not yet due does not provide legal grounds to cancel for nonpayment of premium.  

Accordingly, a notice of cancellation for non-payment of premium must inform the policyholder of the overdue amount and that the policyholder must pay that amount in order to avoid a cancellation.

While an insurer may notify an insured of an installment payment at the same time that the insurer sends a notice of cancellation, the insurer must make clear that those installment payments are not necessary in order to avoid a cancellation.

Questions regarding this Circular Letter should be addressed to Lisa Bugaj, Examiner, New York State Insurance Department, One Commerce Plaza, Albany, New York 12257, 518-473-8162, lbugaj@ins.state.ny.us.

Sincerely,

___________________________________
Mitchel Gennaoui
Assistant Deputy Superintendent
and Chief, Consumer Services Bureau

[1] An obligation in connection with the payment of premiums on a policy of insurance may include, in some instances, an installment fee, late payment fee, or reinstatement fee.  For a detailed discussion, please see Office of General Counsel Opinion 03-04-31 (April 29, 2003).

New York State Insurance Department Office of General Counsel Opinions for November 2009

From the NYS Insurance Department's website come these two Office of General Counsel Opinions from November 2009 relevant to property and casualty insurers doing business in New York, both involving the cancellation of regulated insurance policies.  

Cancellation of Insurance for Non-payment; Insured has Filed for Bankruptcy
OGC Op. No. 09-11-02 (November 6, 2009)

Question Presented:

Is there any provision in the Insurance Law or the regulations promulgated thereunder that prohibits an insurer from cancelling for nonpayment a marine insurance policy where the insured has filed for Chapter 11 bankruptcy protection?

Conclusion:

No.  There is nothing in the Insurance Law or regulations promulgated thereunder that prohibits an insurer from taking such an action.

Facts:

A commercial insured covered by a marine insurance policy filed for bankruptcy protection under Chapter 11 of the federal Bankruptcy Code. Following that filing, the insurer cancelled the policy for non-payment of premium. The insured’s counsel informed the insurer that the cancellation violates the “automatic stay” provided for under the federal Bankruptcy Code. The insurer then reinstated the policy as new business “until cancelled” with annual “renewal endorsements”.

Analysis:

New York Insurance Law § 3426(b) and (c) (McKinney 2006), which governs the cancellation of most commercial lines property/casualty insurance, is relevant to the inquiry. Those statutory provisions read in pertinent part as follows:

(b) During the first sixty days a covered policy is initially in effect, except for the bases for cancellation set forth in paragraph one, two or three of subsection (c) of this section, no cancellation shall become effective until twenty days after written notice is mailed or delivered to the first-named insured at the mailing address shown in the policy and to such insured's authorized agent or broker.

(c) After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured's authorized agent or broker, and such cancellation is based on one or more of the following:

(1) With respect to covered policies:

(A) nonpayment of premium provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;

* * * * *

Insurance Law § 3426(b) and (c) require an insurer to provide timely notice to the insured of cancellation on grounds of nonpayment of premium. Pursuant to that statute, if an insurer wishes to cancel a liability insurance policy, it must provide the requisite written notice to the insured that specifies the reasons for the cancellation. So long as the reason is not otherwise prohibited by law, the Insurance Law does not otherwise limit an insurer’s ability to cancel for nonpayment of premium. Nothing in the Insurance Law or the regulations promulgated thereunder otherwise prohibits an insurer for cancelling a policy for non-payment of premium where the insured has filed for bankruptcy protection.

Notably, Insurance Law § 3426(l)(2) provides that Insurance Law § 3426 does not apply to policies “principally marine insurance.” That Insurance Law § 3426 does not apply to marine insurance, however, is ultimately irrelevant to the inquiry in that there is no provision of the Insurance Law or regulations thereunder that contains any prohibition on cancellations for nonpayment where the insured has filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. Therefore, insofar as the Insurance Law is concerned, an insurer is free to cancel a policy for nonpayment of premium irrespective of the insured’s bankruptcy status.

For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.

Cancellation of Workers’ Compensation Insurance Policy
OGC Op. No. 09-11-03 (November 12, 2009)

Question Presented:

May an insurer cancel an insured’s current workers’ compensation insurance policy midterm for non-payment of the expired policy’s audit premium?

Conclusion:

(Yes.)  An insurer may cancel an insured’s current workers’ compensation insurance policy midterm for non-payment of the expired policy’s audit premium, so long as the policy does not contain any limitations to the contrary, and provided that the insurer complies with New York Workers Compensation Law § 54 (McKinney 2006), and any and all other applicable laws and regulations.

Facts:

An insurance producer reported that an insurer canceled an insured’s workers’ compensation insurance policy midterm because the insured did not pay the audit premium on its most recently expired policy. The producer also reported that the insurer had provided coverage to the insured for several years, and that none of the previous audits resulted in premium change except for the most recent audit, which resulted in a very large additional premium. The producer stated that the insured disputes the accuracy of the audit results, and for that reason, refused to pay the audit premium. The insurer subsequently canceled the insured’s current policy.

Analysis:

New York Insurance Law § 3426 (McKinney 2007) sets forth, among other things, the minimum cancellation provisions applicable to most property/casualty commercial lines insurance policies. However, Insurance Law § 3426(l)(2) explicitly excludes workers’ compensation and employers’ liability coverage. Instead, the cancellation provisions for workers’ compensation insurance are governed by Workers Compensation Law § 54(5), which reads as follows:

[text omitted]

Workers Compensation Law § 54(5) imposes no limitations on the reasons that an insurer may cancel a workers’ compensation insurance policy. Thus, unlike a policy subject to Insurance Law § 3426, a workers’ compensation insurance policy may be canceled by an insurer midterm for non-payment of the expired policy’s audit premium, so long as the policy does not contain any limitations to the contrary, and provided that the insurer complies with Workers Compensation Law § 54, and any and all other applicable laws and regulations. See Insurance Department’s Office of General Counsel Opinion dated May 3, 2005.

However, an insured may invoke the right of review of rating classifications afforded by Insurance Law § 2319. That statute permits an aggrieved insured to request, in writing, a review of the rating classification(s) applied to its policy. An insured that does not receive a timely response to its request for review, or receives an adverse determination, may appeal to the Superintendent for a hearing and new decision. Insurance Law § 2319 reads as follows:

[text omitted]

Thus, the right of review provided by Insurance Law § 2319 may assist the insured here in resolving its dispute over the expired policy’s premium audit.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.

New York State Insurance Department Office of General Counsel Opinions for September 2009

From the NYS Insurance Department's website come these two Office of General Counsel Opinions from September 2009 relevant to property and casualty insurers doing business in New York. 


Commercial Insurance Policy Cancellation
OGC Op. No. 09-09-02 (September 10, 2009)

Questions Presented:

Is an insured’s failure to comply with an insurer’s recommendations, in of itself, a valid basis for canceling a new or renewed commercial lines insurance policy under N.Y. Ins. Law § 3426(c)(1)(D)?

Conclusion:

No.  An insured’s failure to comply with an insurer’s recommendations, in of itself, is not a valid basis for canceling a new or renewed commercial lines insurance policy under Insurance Law § 3426(c)(1)(D).

Facts:

An inquirer reported that several insurers have canceled their insureds’ commercial lines insurance policies due to non-compliance with recommendations, which they claim is a proper basis for cancellation under Insurance Law § 3426(c)(1)(D). The inquirer disagrees with these assertions, contending that a renewed commercial lines insurance policy may not be canceled on such basis, because “[f]rom a practical standpoint, loss control visit[s] must be secured before [the] renewal date and if recommendations are not properly addressed, appropriate non-renewal notice must be tendered.”  The inquirer also questioned whether a new commercial lines insurance policy may be canceled based on non-compliance with an insurer’s recommendations under Insurance Law § 3426(c)(1)(D).

Analysis:

Insurance Law § 3426, which applies to most property/casualty commercial lines insurance, is relevant to the inquiry. That statute sets forth, among other things, the minimum cancellation provisions applicable to such policies.

Pursuant to Insurance Law § 3426(b), an insurer may cancel a new commercial lines insurance policy during the first sixty days the policy is in effect for any reason not prohibited by law.  Insurance Law § 3426(b) reads as follows:

(b) During the first sixty days a covered policy is initially in effect, except for the bases for cancellation set forth in paragraph one, two or three of subsection (c) of this section, no cancellation shall become effective until twenty days after written notice is mailed or delivered to the first-named insured at the mailing address shown in the policy and to such insured’s authorized agent or broker.

Insurance Law § 3426(b) provides a “free look” period of sixty days, during which time an insurer may complete its review of the risk, and determine whether the risk meets its underwriting standards. The Insurance Department explained the rationale behind this “free look” period in its November, 1989 issue of “The Bulletin,” as follows:

Regarding mid-term cancellation, while [Insurance Law] § 3426 clearly gives insurers the authority to cancel policies, the circumstances under which they may do so are limited. And, in order to provide for the legitimate underwriting needs of the insurers, the statute introduced to commercial lines insurance cancellation rules a concept that had been used in personal lines cancellation for many years – the sixty-day “free look.”

Property/casualty insurance is not purchased with the same time and deliberation that might be attendant to the obtaining of, say, a mortgage. Whereas a bank might have weeks or months to thoroughly investigate the mortgage applicant, inspect the property, verify assets, etc., an insurance policy might need to be procured in days or hours. Accordingly, insurers usually have to base their underwriting decisions upon whatever information is available at the time of application, no matter how incomplete or unverified.

The so called sixty-day free look permits an insurer to cancel any newly issued commercial lines policy, upon twenty days written notice, for virtually any reason, during the first days such policy is in effect. This is intended to give the insurer the opportunity to conduct such inspections, verify such information, obtain such experience, etc., as it may deem necessary to properly underwrite the risk. It also gives company officials the opportunity to review the underwriting decisions which may have been made by general agents, lower echelon underwriters, or others who have been given the “power of the pen.” Where deemed appropriate, rating adjustments may be made during the sixty-day period.

The absence of the opportunity to conduct such a review would have serious repercussions regarding the ready availability of commercial property/casualty insurance products. Without the knowledge that they have an appropriate time period to reflect on their underwriting decisions, and correct any major errors which may have been made, insurers would be much less willing to quickly offer coverage unless complete and verified information was in their possession before coverage took effect.

Accordingly, an insurer initially has sixty days in which to review a new risk that it has accepted, and to cancel coverage if the risk is incompatible with its underwriting standards. After the sixty-day “free look” period has expired, however, an insurer may not cancel coverage during the policy term or any renewal thereof unless cancellation is based on one of the criteria specified in Insurance Law § 3426(c). The specific criteria that are relevant to this inquiry are set forth in Insurance Law § 3426(c)(1)(D), which reads as follows:

(c) After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured's authorized agent or broker, and such cancellation is based on one or more of the following:

(1) With respect to covered policies:

* * *

(D) after issuance of the policy or after the last renewal date, discovery of an act or omission, or a violation of any policy condition, that substantially and materially increases the hazard insured against, and which occurred subsequent to inception of the current policy period[.]

The Department addressed the purpose of Insurance Law § 3426(c)(1)(D) in its Office of General Counsel opinion, dated August 14, 1990. The Department stated therein:

By enacting [Insurance Law] § 3426(c) the Legislature sought to encourage insurers to thoroughly evaluate the risk and underwrite carefully with the understanding that after the first sixty days they would be on the risk for the remainder of the policy period unless one of the statutorily enumerated reasons for cancellation applied. This section is intended to guarantee reasonable protection against unwarranted cancellation while at the same time permitting insurers the flexibility to operate responsibly.

The [Insurance Law] § 3426(c)(1)(D) requirement that the act substantially and materially increase the hazard insured against embodies the legislative purpose that an insurer be permitted to cancel a policy only when there has been a major change in the scale of the risk subsequent to policy issuance. The conjunctive substantially and materially was used to underscore the stringent criteria that must be met before the subparagraph may be invoked.

The inquirer reported that several insurers have canceled their insureds’ commercial lines insurance policies due to non-compliance with recommendations, which the inquirer states they claim is a proper basis for cancellation under Insurance Law § 3426(c)(1)(D).

However, Insurance Law § 3426(c)(1)(D) only applies when there is a substantial and material increase in the risk after the policy has been issued, but that is not the situation when the policy is nonetheless renewed and the insured fails to comply with the insurer’s recommendations.  In the latter instance, the insurer has inspected, and knows the condition of, the risk when it makes its recommendations prior to the renewal date; the risk itself has not been altered after policy issuance. Failure to comply with an insurer’s recommendations thus is not a permissible basis for canceling a policy under Insurance Law § 3426(c)(1)(D). 
 

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.

Loss Transfer Jurisdiction
OGC Op. No. 09-09-03 (September 15, 2009)

Questions Presented:

1. When a person has a large self-insured retention and the amount of damages at issue in a loss transfer inter-company arbitration falls within the retention, is the self-insured the appropriate party to the arbitration (as opposed to the liability insurer that insures the losses above the retention)? 
2.  Is a person’s self-insured status a valid affirmative defense to jurisdiction by a liability insurer?

Answers:

1. Yes. A person who has, pursuant to the New York Vehicle & Traffic Law (“VTL”), registered a motor vehicle with proper proof of financial security, that indicates that the person is self-insured with respect to the vehicle, is the appropriate party to a loss transfer inter-company arbitration if the amount at issue wholly falls within the retention amount.
2. [Yes.] The loss transfer inter-company arbitration panel may evaluate all defenses raised at the arbitration, including jurisdictional affirmative defenses.

Analysis:

N.Y. Ins. Law § 5105 is relevant to the inquiries. That statute reads, in pertinent part, as follows:

(a) Any insurer liable for the payment of first party benefits to or on behalf of a covered person and any compensation provider paying benefits in lieu of first party benefits which another insurer would otherwise be obligated to pay pursuant to subsection (a) of section five thousand one hundred three of this article or section five thousand two hundred twenty-one of this chapter has the right to recover the amount paid from the insurer or any other covered person to the extent that such other covered person would have been liable, but for the provisions of this article, to pay damages in an action at law. In any case, the right to recover exists only if at least one of the motor vehicles involved is a motor vehicle weighing more than six thousand five hundred pounds unloaded or is a motor vehicle used principally for the transportation of persons or property for hire…

(b) The sole remedy of any insurer or compensation provider to recover on a claim arising pursuant to subsection (a) hereof, shall be the submission of the controversy to mandatory arbitration pursuant to procedures promulgated or approved by the superintendent. Such procedures shall also be utilized to resolve all disputes arising between insurers concerning their responsibility for the payment of first party benefits.

Insurance Law § 5102(g) defines “insurer” as “the insurance company or self-insurer, as the case may be, which provides the financial security required by article six or eight of the vehicle and traffic law.”

Under the facts presented here, the vehicles in question are owned by a large trucking company, which is self-insured for purposes of the VTL, and therefore is an “insurer” for purposes of Insurance Law § 5105. Provided that the vehicles in question weigh more than 6,500 pounds unloaded, the mandatory arbitration provisions set forth in Insurance Law § 5105(a) apply, and thus provide the sole remedy for the party seeking arbitration.

A. Proper Parties to Loss Transfer Arbitration

VTL § 312 is relevant to the first question, which asks whether the proper party to a loss transfer arbitration is the excess liability insurer or the trucking company as the self-insurer. That law requires an application for motor vehicle registration to be accompanied by proof of financial security, which shall be evidenced by proof of insurance or evidence of a financial security bond, a financial security deposit or qualification as a self-insurer.

Here, the trucking company has satisfied the VTL requirements necessary to qualify as a self-insurer. Consequently, the trucking company also is a self-insurer for purposes of Article 51 of the Insurance Law. Given that circumstance, the trucking company is the proper party to the arbitration.

B. Jurisdictional Defenses Relating to Self-Insured Status

The second query asks whether a party’s self-insured status is a valid affirmative defense to jurisdiction by a liability insurer. Pursuant to section 65-4.11(a)(4) of Tit. 11, Subpart 65-2 (Reg. 68-B) of the New York Codes, Rules and Regulations (“NYCRR”) “[a]ny determination as to whether an insurer is legally entitled to recovery from another insurer shall be made by an arbitration panel appointed pursuant to this section.” Self-insurers are subject to mandatory inter-company arbitration pursuant to 11 NYCRR § 65-4.11(a), which states that the “term insurer as used in this section shall include both insurers and self-insurers as those terms are defined in this Part and article 51 of the Insurance Law.”  Therefore, it is for the arbitration panel to determine whether a jurisdictional affirmative defense predicated on an insured’s self-insured status is valid.

For further information, you may contact Associate Counsel Alexander Tisch at the New York City Office.

New York State Insurance Department Circular Letter No. 23 (2008) Supplement No. 1

April 7, 2009

TO:	All Insurers Writing Homeowners’ Policies in New York
RE:	Mid-Term Cancellation of Policies Based Upon Residence Becoming Unoccupied

STATUTORY REFERENCE: Insurance Law Section 3425

Circular Letter No. 23 (2008), issued November 23, 2008, noted that the lack of occupancy of an insured home does not constitute a “physical change” within the meaning of New York Insurance Law § 3425(c)(2)(E). Circular Letter No. 23 further advised that the fact that an insured is not occupying a residence does not, standing alone, constitute grounds for cancellation of a homeowners’ policy under Insurance Law § 3425(c)(2)(D); rather, the insurer must consider the totality of the circumstances. The circular letter also stated that an insurer may not use the existence of a foreclosure action as a basis to cancel a homeowners’ insurance policy under Insurance Law § 3425(c)(2)(D) or (E).

The Department issues this Supplement to Circular Letter No. 23 to respond to questions that the Department received after the circular letter was issued. Specifically, the Department was asked to distinguish between the terms “vacant” and “unoccupied”; whether an absence from the property can itself constitute a physical change; whether an insurer may cancel a vacant or unoccupied property based upon an exclusion in the underlying policy for damage that occurs when the property is vacant or unoccupied; and whether the circular letter applies to foreclosure actions that have culminated in the sale of the insured property.

I.                "Vacant” and “Unoccupied”

Subsequent to the Department’s issuance of Circular Letter No. 23, the Department received inquiries about the circular letter’s application in circumstances where the insurer discovers that a property is “vacant” or “unoccupied.” Those terms are not defined in the Insurance Law, including in the standard fire insurance policy set forth in Insurance Law § 3404, which permits an exclusion for losses that occur when a property has been vacant or unoccupied for more than 60 days. Although the term “vacant” is found in Insurance Service Organization (ISO) Form HO3, it is not defined there, either. 

According to the common meaning of these terms, a “vacant” residence is one that typically contains no personal property and no inhabitants, whereas an “unoccupied” residence is one that, at that moment, is neither in use nor being lived in. See New Oxford American Dictionary: Second Edition (2005) at 1841, 1856 (defining “vacant” as “having no fixtures, furniture, or inhabitants; empty” and “unoccupied” as “having fixtures and furniture but no inhabitants or occupants”). Similarly, in Lamourex v. NY Central Mutual Fire Ins., 244 A.D.2d 645 (3d Dept. 1997), the policy defined “vacant” as a property in which the “occupants have moved leaving the building empty except for limited personal property,” and “unoccupied” as “not being lived in but personal property has not been removed.” In Gallo v. Travelers, 21 A.D.3d 1379 (4th Dept 2005), the policy defined as “vacant” a property that “does not contain business personal property to conduct customary operations,” and “unoccupied” as containing no “personal property usual to the occupancy of the building while customary activity and operations are suspended.” Likewise, in Coutu v. Exchange Insurance Co., 174 A.D.2d 241 (3d Dept 1992), the policy defined “vacant” as “containing no contents pertaining to operations or activities customary to the occupancy of the building.”

Insurance Law § 3425(c)(2)(D) permits an insurer to cancel coverage upon “discovery of willful or reckless acts or omissions increasing the hazard insured against.” Circular Letter No. 23 notes whether an insurer may lawfully cancel a homeowners’ policy pursuant to Insurance Law § 3425(c)(2)(D) because of “nonoccupancy” or “vacancy” is a question of fact that depends on the totality of the circumstances. The insurer, in such instance, must establish that under the particular facts, the nonoccupancy or vacancy is a willful or reckless act or omission, and that it increases the hazard insured against.

 Thus, where, for instance, an insured enters a nursing home or other health care facility intending for the stay to be temporary and takes steps to protect or maintain the property by having a neighbor or relative routinely check the property, nonoccupancy alone would likely not constitute a permissible ground for cancelling the policy. But where a nonoccupancy were to result from the “abandonment” of the property (where “abandonment” means that the insured has left the property empty or uninhabited, without any intention to return, see New Oxford American Dictionary: Second Edition (2005) at 2), the insurer would likely be justified in cancelling the policy in accordance with Insurance Law § 3425(c)(2)(D).

II.              Absence as Physical Change

The Department received inquiries about whether absence from the property itself can constitute a “physical change” within the meaning of Insurance Law § 3425(c)(2)(E), which permits an insurer to cancel when there has been a “physical change” to the property that occurs after the policy’s issuance or last renewal date and that renders the property uninsurable in accordance with the insurer’s underwriting guidelines in effect at the time the policy was issued or renewed.

Nowhere does the Insurance Law define the term “physical change.” Nor does a survey of other states’ laws reveal a uniform answer. At least nine states countenance “physical change” as a basis for cancellation, but four of them – Alaska, California, Maine, and New Hampshire – expressly distinguish between “physical change” and occupancy, which suggests that they are mutually exclusive. Only one state, Massachusetts, appears to equate a change in occupancy with a physical change.

In the absence of any statutory definition or clear guidance from other states, the Department interprets the term “physical change” as used in Insurance Law § 3425(e)(2)(E) in accord with its “ordinary and accepted meaning.” See N.Y. Statutes § 94 (McKinney Supp. 2009). The word “physical” is commonly defined to mean something of concrete material or matter, as opposed to an abstract concept. See Webster’s NewWorld Dictionary: Second College Edition (1980) at 1074 (“of nature and all matter; natural; material”); New Oxford American Dictionary: Second Edition (2005) at 1282 (“of or relating to things perceived through the senses as opposed to the mind; tangible or concrete”). Thus, a “physical change” within the meaning of the statute is one in which the dwelling or property is altered or changed in a tangible manner. See Opinion of Office of General Counsel (OGC) No. 04-11-20 (November 29, 2004). For instance, the addition of an in-ground pool constitutes a tangible alteration to the permanent structure of the property that satisfies the “physical change” requirement of Insurance Law § 3425(c)(2)(E). OGC Opinion No. 04-11-20 (November 29, 2004). But nonoccupancy is not a tangible change to the property.

Nevertheless, if the nonoccupancy leads to a physical change, such as the deterioration of the property’s condition, the insurer could conceivably cancel the policy pursuant to Insurance Law § 3425(c)(2)(E) where the insurer determines, based upon the specific facts of the situation, that a change occurred after the latter of the policy issuance or the latest policy renewal that renders the property uninsurable in accordance with the insurer’s objective, uniformly applied underwriting standards in effect at such time of policy issuance or last renewal. In applying the underwriting standards to determine whether to cancel the policy, the insurer must ensure that underwriting standards are reasonably related to the risks insured. See OGC Opinion No. 04-09-14 (September 22, 2004).

III.              Exclusions Based on Vacancy or Lack of Occupancy

After the issuance of Circular Letter No. 23, the Department also received comments asserting that an insurer should be permitted to cancel a homeowners policy that sets forth an exclusion for damages that occur while a property is vacant or unoccupied when the criteria for the exclusion are met. These exclusions typically apply once the nonoccupancy has existed for a certain period of time, and only for losses that occur after the specified time period has passed. For instance, the standard fire insurance policy, which is set forth in Insurance Law § 3404 and establishes the minimum provisions in this state for a policy or contract of fire insurance, states that the insurer shall not be liable for loss that occurs “while a described building, whether intended for occupancy by owner or tenant, is vacant or unoccupied beyond a period of sixty consecutive days.” Similarly, ISO Form HO 3 excludes coverage for the breakage of glass or safety glazing material if the property has been vacant for a period of more than 60 days, and damages from vandalism or malicious mischief if the property has been vacant for more than 30 days.

Although the standard fire insurance policy and the ISO policy permit an insurer to exclude certain losses that occur after the property has been “vacant or unoccupied” for more than a prescribed period of time, it does not follow that an insurer therefore has the right to cancel the policy pursuant to Insurance Law § 3425(c)(2) solely based upon nonoccupancy. Rather, the insurer must meet the criteria of one of the specific grounds set out in Insurance Law § 3425(c)(2). That statute does not specify nonoccupancy as a ground for cancellation. Nor does it specify that an insurer may predicate cancellation upon the same criteria that might trigger a policy exclusion.

Indeed, the application of an exclusion and the cancellation of the policy are distinctly different events. A cancellation results in all coverage ending due to the termination of the policy, whereas an exclusion only limits coverage to the extent of the exclusion, which, where vacancy or nonoccupancy is concerned, may be limited to particular types of losses. Further, a homeowner may remedy a vacancy or lack of occupancy simply by reoccupying the property, making the exclusion no longer operative for prospective losses. Moreover, exclusions are “given a strict and narrow construction, with any ambiguity resolved against the insurer.” Belt Painting Corp. v. TIG Ins. Co., 100 N.Y.2d 377 (2003). And, the insurer has the burden to prove that the exclusion applies. See Westview Assocs. v. Guar. Nat'l Ins. Co., 95 N.Y.2d 334 (2000) (“To negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case[.]") (citation omitted).

IV.             Foreclosures

Finally, the Department received queries asking whether Circular Letter No. 23 applies to a completed foreclosure action. The circular letter only speaks to pending foreclosure actions, not ones that already have concluded and resulted in the insured’s loss of title to the property.

*    *    *            

Questions regarding this Circular Letter should be addressed to Deborah Jewell, Senior Examiner, New York State Insurance Department, One Commerce Plaza, Albany, New York, 12257, 518-402-2312, djewell@ins.state.ny.us.

New York State Insurance Department Office of General Counsel Opinions for January 2009 -- Part I

Posted recently to the NYS Insurance Department's website are the Office of General Counsel Opinions from the first half of January 2009. Three of the 6 posted opinions merit mention here.  See each opinion letter for its analysis and discussion of the question(s) presented. 

Electronic Delivery of Executed Insurance Policies via the Internet (January 6, 2009)

Question Presented:

May an insurance policy that has been issued and executed on the Internet be considered a properly delivered and valid insurance contract if the insured prints the policy from the Internet on the insured’s personal computer?

Answer:

Yes.  Nothing in the Insurance Law or regulations promulgated thereunder prohibits an insurance company from issuing and delivering an insurance policy to an insured via the Internet if the insured has consented to receiving electronic documents. The electronic documents must conform to applicable substantive and formatting requirements of the Insurance Law and any other applicable laws.

Circular Letter No. 26 (2008) (January 13, 2009)

Questions Presented:

1.  Do the notice provision amendments of Chapter 388 of the Laws of 2008 apply to claims-made policies?

2.  Do the Chapter 388 notice provision amendments, which become effective on January 17, 2009, apply to policies already in effect on that date that contain a liberalization clause?

3.  Do the Chapter 388 notice provision amendments to N.Y. Ins. Law § 3420(c) set forth a specific date for receipt of notice of claim by an insurer that triggers the beginning of the two-year period that determines which party has the burden of establishing insurer prejudice due to failure to provide timely notice to the insurer?

Answers:

1.  Yes. The Chapter 388 notice provision amendments apply to claims-made policies, but allow for a claims-made policy to provide that the claim must be made during the policy period, any renewal thereof, or any extended reporting period, subject to Insurance Law § 3420(a)(4). 

2.  As a general matter, liberalization clauses typically apply to coverage and not policy conditions, but may be subject to the Chapter 388 notice provision amendments depending on the specific language in the policy endorsement.

3.  No. The date of receipt of notice of claim that triggers the beginning of the two-year period that determines which party has the burden of establishing insurer prejudice due to failure to provide timely notice to the insurer is set forth in the specific language of each policy endorsement.

[See my post of January 16, 2009 for a summary of Chapter 388's changes to the New York Insurance Law.]

Return of Unearned Premium from Producer-Canceled Assigned Risk Policy (January 15, 2009)

Question Presented:

1.  May an insurer cancel an assigned risk policy that is subject to a premium finance agreement at the behest of a producer because the insured’s check, which was deposited in the producer’s premium account, was dishonored by the bank upon which it was drawn?

2.  To whom must the insurer return the canceled policy’s unearned premium?

Answers:

1.  Yes.  An insurer may cancel an assigned risk policy that is subject to a premium finance agreement at the behest of a producer that requests cancellation in accordance with New York Auto Insurance Plan (“NYAIP”) § 18(4). 

2.  The insurer must return, from the canceled policy’s unearned premium, the amount paid by the premium finance agency, pursuant to NY Ins. Law § 3428(d). Further, the insurer must return the remainder, if any, to the producer that requested cancellation, as authorized by NYAIP § 18(4), because the insured’s check, which was deposited in the producer’s premium account, was dishonored by the bank upon which it was drawn.

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?

Not Recalling Receiving Notice of Cancellation Does Not Rebut the Presumption of Its Receipt

AUTO – CANCELLATION NOTICE – VEHICLE & TRAFFICE LAW § 313(1)(A) – PRESUMPTION OF RECEIPT
Geico Indem. v. Roth
(4th Dept., decided 11/14/2008)

Based on a prior policy cancellation, Geico commenced this action for a declaration that it was not obligated to defend or indemnify defendant Scott Mayer in an underlying personal injury action.  In an attemp to create a question of fact to preclude summary judgment from being granted to Geico, Mayer claimed that he did not recall having received Geico's cancellation notice.

In REVERSING Niagara County Supreme's denial of Geico's summary judgment motion, the Fourth Department held:

"It is well established that a notice of cancellation is ineffective unless in strict compliance with the requirements of Vehicle and Traffic Law § 313 (1) (a)" (Barile v Kavanaugh, 67 NY2d 392, 399), and plaintiff met its initial burden by demonstrating its strict compliance with the statute, i.e., plaintiff demonstrated that it timely and validly cancelled the policy issued to Mayer based on his nonpayment of premiums (see generally § 313 [1] [a]; Badio v Liberty Mut. Fire Ins. Co., 12 AD3d 229; Matter of State Farm Mut. Auto. Ins. Co. v Morales, 207 AD2d 546; Matter of State Farm Mut. Auto. Ins. Co. v Cherian, 202 AD2d 434, 435). The burden then shifted to defendants-respondents (defendants) "to establish noncompliance with [Vehicle and Traffic Law § 313 (1) (a)] as to form and procedure' " (Cherian, 202 AD2d at 435, quoting Berrios v Lumbermens Mut. Cas. Co., 162 AD2d 365), and defendants failed to meet that burden. Plaintiff submitted "evidence of its office mailing practice sufficient to establish that the notice of cancellation had been mailed and presumably received" (Badio, 12 AD3d at 230). The deposition testimony of Mayer that he did not recall receiving the notice is insufficient to rebut the presumption of receipt (see id. at 231).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

New York State Insurance Department Office of General Counsel Opinions for September 2008

Just posted to the NYS Insurance Department's website are the Office of General Counsel Opinions from September. Of the 15 opinions posted, only two are directly relevant to P&C insurers for that month.

Cancellation of Homeowner's Insurance Policy Based Upon Pending Foreclosure Action (September 10, 2008)

Question presented:

May an insurer cancel a homeowner’s insurance policy based solely on notification by the bank of an impending or commenced foreclosure action?

Conclusion:

No. An insurer may not cancel a homeowner’s insurance policy based solely on notification by the bank of an impending or commenced foreclosure action, because a foreclosure filing is not one of the permissible grounds for cancellation set forth in N.Y. Ins. Law § 3425(c)(2).

Insurance Law § 3425(c) prevents an insurer from cancelling a personal lines insurance policy that has been in effect for more than 60 days, unless the cancellation is based on one of the permissible grounds set forth in the statute itself:

(c) After a covered policy has been in effect for sixty days, or upon the effective date if the policy is a renewal, no notice of cancellation shall be issued to become effective unless required pursuant to a program approved by the superintendent as necessary because a continuation of the present premium volume would be hazardous to the interests of policyholders of the insurer, its creditors or the public, or unless it is based on one or more of the following:

* * *

(2) With respect to personal lines insurance policies:

(A) nonpayment of premium, provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;

(B) conviction of a crime arising out of acts increasing the hazard insured against;

(C) discovery of fraud or material misrepresentation in obtaining the policy or in the presentation of a claim thereunder;

(D) discovery of willful or reckless acts or omissions increasing the hazard insured against;

(E) physical changes in the property insured occurring after issuance or last annual anniversary date of the policy which result in the property becoming uninsurable in accordance with the insurer's objective, uniformly applied underwriting standards in effect at the time the policy was issued or last voluntarily renewed[.]

In the OGC's opinion, the filing of a foreclosure action does not constitute any of these grounds. It is not, in and of itself, an increase of the hazard insured against or a physical change in the property.

Public Adjuster Ownership of Construction Company (September 10, 2008)

Question presented:

May an individual licensed as a public adjuster and owner of a public adjusting company act as an owner and principal of a construction/renovation company at the same time?

Conclusion:

Yes, an individual licensed as a public adjuster and owner of a public adjusting company may act as an owner and principal of a construction/renovation company at the same time. However, the public adjuster must take care to comply with the New York Insurance Law in the conduct of his or her business as both a public adjuster and owner of a construction/renovation company.

The OGC reminds public adjusters that they may not charge more than 12.5% of the insured's insurance recovery in compensation for their services as public adjusters, and that when the public adjuster also performs contracting or other work for the insured, there must be full disclosure of the relationship to prevent a potential conflict of interest and to make certain that the insured is properly informed. See OGC Opinion 07-06-25 (June 26, 2007):

At all times, the public adjuster/construction company owner must take care to record transactions conducted in both capacities with the utmost transparency and specificity, so as to dispel any inference of impropriety. The public adjuster’s agreement therefore should be in writing, and separate and distinct from the construction/renovation agreements. The public adjuster/construction company owner also would be well-advised to thoroughly itemize fees for the construction company’s services in writing, so as to avoid the appearance of any overlap with adjuster’s fees and to ensure that the transaction is conducted at arm’s length.

The Department may subject the adjuster to disciplinary action under Insurance Law § 2110 for violating the law or engaging in conduct found to be fraudulent, dishonest or otherwise untrustworthy. And in bringing such a proceeding, the Department would not be limited to services that the public adjuster performed that were within the scope of his or her license.

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.

Policy Cancellation Prior to Total Fire Loss Upheld

HOMEOWNERS – FIRE LOSS – CANCELLATION NOTICE SUFFICIENCY & PROOF OF MAILING – AGENT E&O
Kaufmann v. Leatherstocking Coop. Ins. Co.
(3rd Dept., decided 6/12/2008)

How many of you would pay $87.40 to receive $92,243? In this case, had the plaintiff-insured made a minimum payment of $87.40 against his overdue homeowners policy premium by September 26, 2004, the fire destruction of his home 10 days later on October 6, 2004 would have been inside, rather than outside, his policy period to the tune of $92,243 in damages. But could've, would've, and should've in this case meant a disclaimer by Leatherstocking based on the policy's pre-loss cancellation, and the insured sued both Leatherstocking and the producing agent.

In AFFIRMING the Otsego County Supreme's grant of summary judgment to both defendants, the Third Department ruled that the cancellation notice was not defective under Insurance Law § 3425(c)(1)(A) for failing to set forth the amount due because that statutory section applies to auto, not homeowners, policies. The appellate court found that, in any event, the cancellation notice had cleary stated the minimum amount due. Additionally, the court credited the affidavits and testimony of Leatherstocking's former president, which established that the installment payment schedule was altered as a result of plaintiff's initial late payment, a circumstance fully disclosed on the billing statements he received, and that he failed to remit the necessary amount to keep the payments current thereafter. The court held:

Leatherstocking clearly met its burden of proving that the final notice of cancellation was properly mailed to plaintiff by submitting proof of the standard operating procedure for mailing such notices, as well as by submitting proof of the actual mailing of such notice to plaintiff through the affidavit of an employee with personal knowledge (see Thibeault v Travelers Ins. Co., 37 AD3d 1000, 1001 [2007]; Residential Holding Corp. v Scottsdale Ins. Co., 286 AD2d 679, 680 [2001]). Plaintiff's testimony that he never received the final notice is, without more, insufficient to rebut the presumption of receipt (see Badio v Liberty Mut. Fire Ins. Co., 12 AD3d 229, 230 [2004]). Consequently, Supreme Court properly granted summary judgment dismissing plaintiff's contract claims.

With respect to the insured's negligence or errors and omissions (E&O) claims against the producing agent based on the agent's alleged failure to notify the insured that his premium payments were past due, so as to avoid cancellation of the policy, the Third Department held:

Generally, insurance agents are not liable for actions other than obtaining insurance coverage for their insureds, unless a special relationship has been established between the parties (see Curanovic v New York Cent. Mut. Fire Ins. Co., 307 AD2d 435, 438 [2003]). Here, H & B and its principals submitted affidavits and deposition testimony establishing that no special arrangement was made with plaintiff through which they agreed to notify him of past due payments and plaintiff was specifically informed that he would be directly billed by Leatherstocking. Significantly, plaintiff did not submit proof sufficient to raise a question of fact on this issue as plaintiff's deposition testimony indicates that his claim is based upon conversations that he had with one of H & B's principals regarding an unrelated commercial policy. Consequently, Supreme Court properly granted summary judgment dismissing
plaintiff's negligence claim as well.