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Abuse of Discretion to Grant Conditional Order of Preclusion and to Deny Late Motion to Amend Bill of Particulars

The Second Department reversed Supreme Court in a medical malpractice action, finding that the conditional granting of defendants’ motion to preclude the plaintiff from submitting evidence of neurological injuries and the denial of plaintiffs’ motion to amend the bill of particulars constituted abuse of discretion.  The Second Department determined plaintiffs did not “willfully and contumaciously fail to appear for a neuropsychological examination” by the defendants’ doctor and the amendment of the bill of particulars would not prejudice the defendants.  The court noted that the plaintiffs’ request to audiotape the neurophsychological examination was not supported by “special and unusual circumstances” warranting it:

“The Supreme Court has broad discretion in making determinations concerning matters of disclosure, including the nature and degree of the penalty to be imposed under CPLR 3126” … . However, “before a court invokes the drastic remedy of striking a pleading, or even of precluding evidence, there must be a clear showing that the failure to comply with court-ordered discovery was willful and contumacious” … . Here, the Supreme Court improvidently exercised its discretion in granting that branch of the hospital defendants’ motion which was to conditionally preclude the plaintiffs from introducing evidence of the injured plaintiff’s neurological injuries, since there was no clear showing that the injured plaintiff had willfully and contumaciously failed to appear for a neuropsychological examination. Moreover, under the circumstances of this case, it cannot be said that the conduct of the plaintiffs or their attorney warranted the imposition of sanctions. * * *

“Generally, in the absence of prejudice or surprise to the opposing party, leave to amend a bill of particulars should be freely granted unless the proposed amendment is palpably insufficient or patently devoid of merit'” … . Where there is an unreasonable delay in seeking leave to amend, without excuse, and the motion for leave to amend is made close to or on the eve of trial, it is an improvident exercise of discretion to grant the relief … . However, lateness alone is “not a barrier to the amendment. It must be lateness coupled with significant prejudice to the other side” … . In this case, the proposed amendment was first sought in September 2011. Since the hospital defendants and Roca were aware of the plaintiffs’ allegations well before the eve of trial, they were not prejudiced by the amendment. Under the totality of the circumstances, the Supreme Court improvidently exercised its discretion in denying that branch of the plaintiffs’ motion which was for leave to amend the bill of particulars … . Dimouslas v Roca, 2014 NY Slip Op 06170, 2nd Dept 9-17-14

 

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Hearsay Can Not Be Sole Basis for Denial of Summary Judgment Motion

The First Department explained that, while hearsay can be submitted in opposition to a summary judgment motion, it can not be the sole basis for denying the motion:

“A party opposing summary judgment may proffer hearsay evidence, but such proof may not be the sole factual basis for denying summary judgment” … . * * * …[D]efendant’s affidavit relies only on hearsay evidence … . The documentary evidence is to the contrary. Andron v Libby, 2014 NY Slip Op 06155, 1st Dept 9-11-14

 

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Shareholders’ Requests for Documents for Investigation of Possible Wrongdoing by Corporation Were Facially Legitimate Under the Business Corporation Law (BCL) and Common Law–No Need for Shareholders to Bring a Shareholders’ Derivative Action to Procure the Documents

The First Department determined shareholders’ (petitioners’) requests for documents from the respondent corporation were facially legitimate pursuant to the Business Corporation Law (BCL) and common law and disputes about the propriety of the requests should be resolved in a hearing.  Supreme Court’s ruling that the petitioners were required to institute a shareholders’ derivative action was reversed.  The shareholders were investigating whether respondent’s board of directors failed to oversee wrongdoing by S & P, a credit rating agency wholly owned by respondent:

Under New York law, shareholders have both statutory and common-law rights to inspect a corporation’s books and records so long as the shareholders seek the inspection in good faith and for a valid purpose … . The statutory right supplemented, but did not replace, the common-law right … .

Here, petitioners sufficiently showed that they were acting in good faith and for a proper purpose in seeking to enforce their common-law right to inspect respondent’s books and records. Specifically, the petition alleges that petitioners seek to investigate alleged mismanagement and breaches of fiduciary duty by respondent’s board of directors in failing to oversee purported wrongdoing by S & P; this alleged wrongdoing, petitioners assert, exposed respondent to substantial potential liability in multiple civil actions and investigations. These allegations form a proper basis for petitioners’ request … .

Contrary to respondent’s contentions, investigating alleged misconduct by management and obtaining information that may aid legitimate litigation are, in fact, proper purposes for a BCL § 624 request, even if the inspection ultimately establishes that the board had engaged in no wrongdoing … . Indeed, petitioners identified several reasons for making their demand, including assessment of policies that the board had implemented when issuing credit ratings and investigation of possible wrongdoing by the respondent’s board of directors. Each of these purposes adequately justifies petitioners’ access to certain board documents. Moreover, because the common-law right of inspection is broader than the statutory right, petitioners are entitled to inspect books and records beyond the specific materials delineated in BCL § 624(b) and (e) … . Retirement Plan for Gen Empls of City of N Miami Beach vs McGraw-Hill Cos Inc, 2014 NY Slip Op 06154, 1st Dept 9-11-14

 

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Consent to Divorce In Exchange for Payments Would Violate Public Policy

In the course of a lengthy decision dealing with several other issues, the Second Department explained why an in-court stipulation was properly vacated, noting that defendant-wife’s consent to the divorce in exchange for financial payments could not be consideration for the stipulated agreement because such an agreement would violate public policy:

To be enforceable, an open court stipulation must contain all of the material terms and evince a clear mutual accord between the parties (see CPLR 2104…). The 2011 on-the-record agreement was too incomplete and indefinite to be enforceable, and was merely a non-binding agreement to agree … . The parties disagreed whether the proposal included a waiver of maintenance and they did not finalize the details of the transfer of the 1999 Trust. Other material terms were never agreed upon, and the agreement was subject to the consummation of future conditions and additional agreements.

The agreement also lacked consideration … . Accepting defendant’s consent to the divorce in exchange for the financial payments would have been against public policy … . In any event, the parties unambiguously agreed that “whether we hammer out the agreement or not, the divorce will go forward uncontested.” There is no merit to defendant’s claim that her decision to avoid a public trial on fault grounds constituted consideration because it would have brought up embarrassing and difficult questions for plaintiff concerning his financial dealings. Cohen v Cohen, 2014 NY Slip Op 06157, 1st Dept 9-11-14

 

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Failure to Comply with California Insurance Law Rendered Arbitration Clauses in Agreements Issued by a California Workers’ Compensation Insurance Carrier Unenforceable

The First Department, in a full-fledged opinion by Justice Moskowitz, over a dissent, determined that the arbitration clauses within payment agreements issued by the California workers’ compensation insurance carrier were not enforceable because the clauses had not been reviewed as required by California law.  The agreements provided that any arbitration be under the auspices of the Federal Arbitration Act (FAA).  But the court determined California’s insurance law was not preempted by the FAA (pursuant to the McCarran-Ferguson Act) and, therefore, the failure to comply with California law rendered the arbitration clauses void and unenforceable:

…”[T]he McCarran-Ferguson Act was an attempt to . . . assure that the activities of insurance companies in dealing with their policyholders would remain subject to state regulation” (…see 15 USC § 1011). Courts have established a four-part test to determine whether the McCarran-Ferguson Act precludes application of a federal statute (in this case, the FAA). Under this test, a federal statute is precluded if: (1) the statute does not “specifically relate” to the business of insurance; (2) the acts challenged under the statute constitute the “business of insurance”; (3) the state has enacted laws regulating the challenged acts; and (4) the state laws would be “invalidated, impaired, or superseded” by application of the federal statute ….

…[T]he FAA does not specifically regulate the business of insurance, and an act specifically relating to the business of insurance is the only type of federal legislation that can preempt state insurance law under McCarran-Ferguson. Furthermore, application of the FAA would modify California law because it would mandate arbitration even though [the insurer] did not, as required by California law, file the payment agreements, and the payment agreements, in turn, contained the arbitration clauses. Matter of Monarch Consulting Inc v National Union Fire Ins Co of Pittsburgh PA, 2014 NY Slip Op 06158, 1st Dept 9-11-14

 

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Plank Used to Access Work Area Not Covered by Industrial Code—Labor Law 241(6) Action Dismissed

The First Department determined a plank used to walk on for access a work area was not “used in the construction of equipment or a temporary structure” and therefore could not be the basis of an action under Labor Law 241(6):

Insofar as the Labor Law § 241(6) claim is based on a violation of Industrial Code (12 NYCRR) § 23-1.7(e)(1), it should be dismissed. The accident occurred in an open working area, notwithstanding evidence that workers traversed the plank to get from the street to the job site … .

Industrial Code (12 NYCRR) § 23-1.11(a) states: “The lumber used in the construction of equipment or temporary structures required by this Part (rule) shall be sound and shall not contain any defects . . . which may impair the strength of such lumber for the purpose for which it is to be used.” While the plank on which DePaul slipped qualifies as dimensional lumber under the regulation, it fails to meet the other specified criteria: it was not used in the construction of equipment or a temporary structure, and no equipment or temporary structure required by Part 23 has been identified by plaintiffs. A plank fails to meet even the liberal definition of “structure” contained in Joblon v Solow …: “any production or piece of work artificially built up or composed of parts joined together in some definite manner” (internal quotation marks omitted and emphasis added). Plaintiffs concede that the lumber was not joined together, and photographs of the location show only loose planks. Simply put, nothing had been constructed from the planks so as to come within the ambit of the regulation. Furthermore, the regulation applies only to a device required to be constructed by another provision of Part 23, as evident from subsections (b) and (c), which discuss, respectively, “[t]he lumber dimensions specified in this Part (rule)” and the nails required “to provide the required strength at all joints.” Thus …plaintiffs have failed to demonstrate that § 23-1.11(a) is applicable, and this claim was properly dismissed … . DePaul v NY Brush LLC, 2014 NY Slip Op 06152, 1st Dept 9-11-14

 

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Failure to Subpoena Witness Required Reversal

The Third Department reversed the Unemployment Insurance Appeal Board because the putative employer, Brody, was entitled to call the claimant as a witness in a proceeding to determine whether Brody was required to make further unemployment insurance contributions. Claimant had done work for Brody and had subsequently applied for and was granted unemployment insurance benefits. Brody asked that claimant be subpoenaed to testify but the administrative law judge (ALJ) denied the request:

Brody was entitled to call claimant as a witness and, moreover, had the right to request that the ALJ issue a subpoena to compel her attendance (see Labor Law § 622 [1]; 12 NYCRR 461.4 [c]…). Claimant plainly had relevant testimony to offer as to whether an employer-employee relationship existed between her and Brody. The ALJ nevertheless declined to issue the requested subpoena, pointing out that counsel for Brody could have subpoenaed claimant directly. The failure to either issue a subpoena or to adjourn the proceedings so that counsel could do so constituted an abuse of discretion under the circumstances of this case and, thus, “we believe that the proper course is to reverse the Board’s decision and remit this matter for further proceedings”… . Matter of Philip…, 2014 Slip Op 06129, 3rd Dept 9-11-14

 

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“Temporary Substitute Vehicle” Not Excluded from Supplemental Uninsured/Underinsured Motorist Policy

The Second Department determined that the language of the policy did not exclude the driver (O’Brien) of a “temporary substitute” vehicle from coverage under the supplemental uninsured/underinsured motorist (SUM) policy.  O’Brien, an auto mechanic, was injured when returning a customer’s “loaner” car to the dealer (at the customer’s request). O’Brien was named as an additional driver on the loaner vehicle agreement:

“Generally, it is for the insured to establish coverage and for the insurer to prove that an exclusion in the policy applies to defeat coverage” … . Whether the burden of proof rests on the insured to establish coverage, or on the insurer to establish an exclusion, rests on the language of the policy (see id. ). “Where the provisions of the policy are clear and unambiguous, they must be given their plain and ordinary meaning, and courts should refrain from rewriting the agreement. The policy must, of course, be construed in favor of the insured, and ambiguities, if any, are to be resolved in the insured’s favor and against the insurer” … .

Here, State Farm bears the burden of establishing that O’Brien’s use of a “substitute temporary car” was excluded from SUM benefits. The opening language of the SUM endorsement states: “This endorsement is a part of the policy. Except for the changes it makes, all other provisions of the policy remain the same and apply to this endorsement.” Moreover, the opening language of the policy states: “We define certain words and phrases below for use throughout the policy. Each coverage includes additional definitions only for use with that coverage.” The general definition section includes a definition of “temporary substitute car,” which is to be applied throughout the policy: “Temporary Substitute Car means a car that is in the lawful possession of the person operating it and that: 1. replaces your car for a short time while your car is out of use due to its: a. breakdown; b. servicing; c. repair; d. loss; or e. destruction; and 2. neither you nor the person operating it own or have registered.”

This Court has held that the purpose of a provision relating to a “temporary substitute” vehicle “is to afford continuous coverage to the insured during the period that a vehicle scheduled under the policy is out of commission, and at the same time limit the risk to the insurer to one operating vehicle at a time for a single, fair premium. Coverage for a substitute vehicle ceases when the insured vehicle is repaired and returned to its owner” … . Here, the SUM endorsement fails to articulate any exclusion for a “temporary substitute car.” Matter of State Farm Mut Auto Ins Co v O’Brien, 2014 NY Slip Op 06096, 2nd Dept 9-10-14

 

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Insurer Estopped (pursuant to Insurance Law 3420) from Disclaiming Coverage Re: Previously Incurred Defense Costs in a Personal Injury Action

The Second Department determined Insurance Law 3420(d)(2) applied and the insurer, Rutgers Casualty, was estopped from disclaiming coverage for previously incurred defense costs in connection with an underlying personal injury action:

Pursuant to Insurance Law § 3420(d), an insurance carrier is required to provide its insured and any other claimant with timely notice of its disclaimer or denial of coverage on the basis of a policy exclusion, and will be estopped from disclaiming liability or denying coverage if it fails to do so … . Although Insurance Law § 3420(d)(2) does not apply if the underlying claim does not involve death or bodily injury …, contrary to Rutgers Casualty’s contention, this provision is applicable where, as here, the coverage the defendant seeks to disclaim is for defense costs incurred in connection with an underlying personal injury action. Accordingly, the plaintiffs made a prima facie showing of their entitlement to judgment as a matter of law, inter alia, declaring that Rutgers Casualty was estopped from disclaiming insurance coverage under the Policy by submitting evidence that it failed to provide a timely written notice of this disclaimer to Key Fat, a claimant in this litigation … . In opposition, Rutgers Casualty failed to raise a triable issue of fact.  Key Fat Corp vs Rutgers Cas Ins Co, 2014 NY Slip Op 06060, 2nd Dept 9-10-14

 

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Arbitrator’s Award Which Did Not Resolve the Controversy Properly Vacated

The Second Department held the arbitrator’s award was properly vacated because it was neither final nor definite and failed to determined damages.  The petitioner was injured while riding in respondent-county’s bus:

Although judicial review of arbitration awards is limited …, an award will be vacated when the arbitrator making the award “so imperfectly executed it that a final and definite award upon the subject matter submitted was not made” (CPLR 7511[b][1][iii]…). An award will be vacated as indefinite or nonfinal for purposes of CPLR 7511 if it does not “dispose of a particular issue raised by the parties” …, or ” if it leaves the parties unable to determine their rights and obligations, if it does not resolve the controversy submitted or if it creates a new controversy'” … .

Here, the arbitrator’s award was neither definite nor final, as it failed to resolve the controversy submitted, to wit, the negligence of each party and the amount of damages, if any. The arbitrator did not make any specific findings of fact or credibility or dispose of the issues raised by the parties. Instead, the arbitrator pointed to a fact not in dispute—that the petitioner was not wearing a seatbelt—and determined that he did not need to decide whether the County was negligent. In doing so, the arbitrator failed to dispose of the controversy with which he had been charged … .

Moreover, the arbitrator also failed to determine damages and instead referred to the parties’ agreement, to which he was not privy, and awarded the petitioner “the low” sum of damages, despite finding that the petitioner was barred from recovering any damages … .  Matter of Andrews v County of Rockland, 2014 NY Slip Op 06078, 2nd Dept 9-10-14

 

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