Insurance Law Archives - New York Appellate Digest

Administrative Law, Civil Procedure, Constitutional Law, Insurance Law, Religion

THE REGULATION REQUIRING NEW YORK HEALTH INSURANCE POLICIES TO COVER MEDICALLY NECESSARY ABORTION SERVICES, WHICH INCLUDES AN EXEMPTION FOR ‘RELIGIOUS EMPLOYERS,’ IS CONSTITUTIONAL AND WAS PROPERLY PROMULGATED (THIRD DEPT).

The Third Department, in a full-fledged opinion by Justice Colangelo, affirming Supreme Court, determined the regulation requiring health insurance policies in New York to provide coverage for medically necessary abortion services, which includes an exemption for “religious employers,” was properly promulgated and was constitutional. The Court of Appeals decision upholding a similar regulation for prescription contraceptives, Catholic Charities of Diocese of Albany v Serio (7 NY3d 510 [2006] …), was deemed the controlling precedent:

At issue in Catholic Charities of Diocese of Albany was the validity of a provision of the Women’s Health and Wellness Act (…[hereinafter WHWA]) that requires health insurance policies that provide coverage for prescription drugs to include coverage for prescription contraceptives … . The WHWA also provided an exemption from coverage for “religious employers” (Insurance Law § 3221 [l] [16] [E]), which exemption contains the identical criteria as the exemption applicable here … . … As the constitutional arguments raised by plaintiffs here are the same as those raised and rejected in Catholic Charities of Diocese of Albany, Supreme Court properly concluded that they must meet the same fate by operation of the doctrine of stare decisis. “Stare decisis is the doctrine which holds that common-law decisions should stand as precedents for guidance in cases arising in the future and that a rule of law once decided by a court will generally be followed in subsequent cases presenting the same legal problem” … .

We agree with Supreme Court that an analysis of the Boreali factors [Boreali v Axelrod, 71 NY2d 1] weighs in favor of rejecting plaintiffs’ challenge that the Superintendent exceeded regulatory authority in promulgating the regulation at issue here. Roman Catholic Diocese of Albany v Vullo, 2020 NY Slip Op 03707, Third Dept 7-2-20

July 2, 2020/0 Comments/by Bruce Freeman

Insurance Law

PLAINTIFFS ALLEGED THEY PAID A BROKER FOR THE INSURANCE POLICY ISSUED BY DEFENDANT INSURER BUT THE INSURER CANCELLED THE POLICY FOR NONPAYMENT; THE INSURER ALLEGED THE BROKER WAS NOT IN THE CHAIN OF BROKERS LEADING FROM PLAINTIFFS TO THE INSURER; QUESTIONS OF FACT PRECLUDED SUMMARY JUDGMENT (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined defendant-insurer’s (Interstate’s) motion for summary judgment in this “wrongful policy cancellation” suit should not have been granted. Plaintiffs alleged they paid a broker for the policy issued by Interstate . The premiums never reached Interstate. Interstate alleged the broker was not in the chain of brokers leading from plaintiffs to Interstate. The policy was cancelled for nonpayment:

Plaintiffs allege that they paid a broker the initial premium for the excess liability coverage issued by defendants, and that the broker also procured a financing agreement for them for the balance of the premiums. The party financing the premiums paid the broker on plaintiffs’ behalf and plaintiffs complied with the financing agreement. Plaintiffs’ president testified that plaintiffs only dealt with that broker, who delivered the policies to them. However, the premiums never reached defendants, who canceled the policies. Thereafter, three persons were killed during the term of the policies in an accident on plaintiffs’ premises when the decedents inhaled hydrogen sulfide fumes (the accident). Defendants disclaimed coverage.

Where an insured makes timely payment to a broker in the chain of brokers and the insurer delivers the policy to the broker pursuant to the broker’s request, Insurance Law § 2121 precludes the insurer from canceling the policy based on nonpayment of premiums where the broker did not remit the payment to the insurer … .

Here, the record is replete with triable issues of fact as to whether the broker with whom plaintiffs state they dealt was in the chain of brokers leading from plaintiffs to Interstate, such that the payment of the premiums to the broker was sufficient to bind Interstate. Plaintiffs referred to the testimony of their president that the broker was the only broker used by them, and that the broker’s employee delivered the policies to them. Moreover, the premium checks were made payable to the broker, who prepared a loss summary, and no evidence was presented demonstrating that another broker delivered the policies to plaintiffs. However, the absence of significant paperwork naming the broker cited by plaintiffs as a broker in the transaction, the testimony of the wholesale brokers that they did not deal with the broker cited by plaintiffs and would not do so, and the Notice of Excess Line Placement naming a different entity as plaintiffs’ broker, raise questions that preclude summary judgment in favor of either plaintiffs or Interstate. Royal Waste Servs., Inc. v Interstate Fire & Cas. Co., 2020 NY Slip Op 03616, First Dept 6-25-20

June 25, 2020/0 Comments/by Bruce Freeman

Arbitration, Civil Procedure, Insurance Law

PETITION TO STAY ARBITRATION IN THIS UNDERINSURED MOTORIST PROCEEDING WAS SERVED AFTER THE 20-DAY STATUTORY PERIOD FOR SERVICE AND WAS NOT SERVED IN THE MANNER REQUIRED BY THE STATUTE (CPLR 7503(c)); THEREFORE THE APPLICATION TO STAY ARBITRATION WAS JURISDICTIONALLY DEFECTIVE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the insurer’s (State Farm’s) notice and petition to stay arbitration was not served within the required 20 days and was not properly served. The petition therefore should have been dismissed:

… [T]he insured, Joyce Reid, sent State Farm Insurance Company (hereinafter State Farm) a demand for supplemental underinsured motorist (hereinafter SUM) arbitration, which was received by State Farm on February 14, 2019. On March 22, 2019, State Farm filed a notice of petition and petition seeking to temporarily stay the arbitration pending the completion of pre-arbitration discovery. That notice and petition were served upon counsel for Reid by first-class mail on March 22, 2019. …

CPLR 7503(c) requires that an application to stay arbitration be made within 20 days after service of a demand to arbitrate. “This limitation is strictly enforced and a court has no jurisdiction to entertain an untimely application” … . CPLR 7503(c) also directs that notice of an application to stay arbitration “shall be served in the same manner as a summons or by registered or certified mail, return receipt requested.”

… State Farm did not file its notice of petition and petition until March 22, 2019, which was beyond the 20-day statute of limitations. Consequently, the proceeding is time-barred … .

Moreover, State Farm’s notice of petition and petition to stay arbitration were served by regular first-class mail, rather than by registered or certified mail, return receipt requested. Since there was a lack of compliance with CPLR 7503(c), the present proceeding was jurisdictionally defective … . Matter of State Farm Ins. Co. v Reid, 2020 NY Slip Op 03517, Second Dept 6-24-20

June 24, 2020/0 Comments/by Bruce Freeman

Civil Procedure, Contract Law, Employment Law, Insurance Law

UNDER THE TERMS OF THE EMPLOYMENT AGREEMENT AND THE APPLICABLE INSURANCE LAW PROVISIONS, AND UNDER THE PRINCIPLES OF UNJUST ENRICHMENT, PLAINTIFF EMPLOYEE, NOT DEFENDANT EMPLOYER, WAS ENTITLED TO THE DEMUTUALIZATION PROCEEDS WHEN THE MEDICAL MALPRACTICE INSURANCE CARRIER CONVERTED FROM A MUTUAL TO A STOCK INSURANCE COMPANY, DESPITE THE FACT THAT THE DEFENDANT EMPLOYER PAID THE POLICY PREMIUMS (THIRD DEPT).

The Third Department, reversing Supreme Court, in a full-fledged opinion by Justice Mulvey, dealt with insurance law, employment law, contract law, unjust enrichment and stare decisis in this dispute between defendant employer and plaintiff employee over the “demutualization” proceeds of an insurance policy. Plaintiff was employed as a certified nurse midwife by defendant. As part of the employment agreement defendant was required to maintain and pay the premiums for a malpractice insurance policy. When the insurance company (MLMIC) converted from a mutual insurance company to a stock insurance company (demutualization) the policyholder was entitled to nearly $75,000. Plaintiff-employee claimed the money was hers and brought an action for a declaratory judgment. Supreme Court agreed with plaintiff but, because there was no on-point appellate decision by the Court of Appeals or the Third Department, Supreme Court was required to follow a First Department decision and, based on that decision, found in favor of defendant-employer. The Third Department noted that it, unlike Supreme Court, was not bound by stare decisis and reversed:

… [P]er the relevant statute [(Insurance Law § 7307 [e] [3])] and the conversion plan’s definitions, plaintiff was entitled to the cash consideration … . * * *

… [T]he parties’ employment agreement provided that plaintiff would perform professional services for defendant. In exchange, defendant would pay her a stated salary and provide specified benefits including, as relevant here, obtaining and paying the premiums for professional liability insurance covering plaintiff. The record indicates that defendant purchased, controlled and maintained such a policy from MLMIC in plaintiff’s favor. Defendant was the policy administrator, selected the coverage and terms, and was responsible for all financial aspects of the policy. Notably, defendant paid annual premiums of approximately $25,710; plaintiff paid nothing toward the premiums and those amounts were not counted as income to plaintiff. Defendant received from MLMIC dividends, premium reductions and the return of premiums when the policy was canceled upon plaintiff leaving defendant’s employ, all without any objection by plaintiff. * * *

The reality is that neither party here bargained for the demutualization proceeds. Moreover, neither party actually paid for them, because membership interests in a mutual insurance company are not paid for by policy premiums; such rights are “acquired . . . at no cost, but rather as an incident of the structure of mutual insurance policies,” through operation of law and the company’s charter and bylaws … . * * *

Neither party changed its position based on demutualization and plaintiff’s conduct was neither tortious nor fraudulent. … [W]e conclude that defendant failed to meet its burden to establish its affirmative defense and counterclaim alleging unjust enrichment. Schoch v Lake Champlain OB-GYN, P.C., 2020 NY Slip Op 03444, Third Dept 6-18-20

June 18, 2020/0 Comments/by Bruce Freeman

Appeals, Civil Procedure, Employment Law, Insurance Law

SUPREME COURT WAS BOUND TO FOLLOW A FIRST DEPARTMENT DECISION BECAUSE THERE WERE NO ON-POINT DECISIONS FROM THE THIRD DEPARTMENT OR THE COURT OF APPEALS; HOWEVER THE THIRD DEPARTMENT IS NOT SO BOUND; SUPREME COURT REVERSED (THIRD DEPT).

The Third Department, reversing Supreme Court, dealt with the issue of stare decisis in this dispute between defendant employer and plaintiff employee over the “demutualization” proceeds of an insurance policy. Plaintiff was employed as a certified nurse midwife by defendant. As part of the employment agreement defendant was required to maintain and pay the premiums for a malpractice insurance policy. When the insurance company converted from a mutual insurance company to a stock insurance company (demutualization) the policyholder was entitled to nearly $50,000. Plaintiff-employee claimed the money was hers and brought an action for a declaratory judgment. Supreme Court agreed with plaintiff but, because there was no on-point appellate decision by the Court of Appeals or the Third Department, Supreme Court was required to follow a First Department decision and, based on that decision, found in favor of defendant-employer. The Third Department noted that it, unlike Supreme Court, was not bound by stare decisis and reversed:

Initially, Supreme Court was “bound by the doctrine of stare decisis to apply precedent established in another Department,” as no relevant precedent was available from this Court or the Court of Appeals … . However, this Court is not so bound … . We agree with Supreme Court’s inclinations — although that court was constrained by stare decisis not to follow them — and disagree with the First Department’s holding in Matter of Schaffer, Schonholz & Drossman, LLP v Title (171 AD3d at 465 …). Therefore, for the reasons stated in our decision in Schoch v Lake Champlain OB-GYN, P.C. (___ AD3d ___ [decided herewith]), we reverse. Shoback v Broome Obstetrics & Gynecology, P.C., 2020 NY Slip Op 03447, Third Dept 6-18-20

June 18, 2020/0 Comments/by Bruce Freeman

Civil Procedure, Contract Law, Insurance Law, Real Property Law

THE TITLE INSURANCE POLICY GAVE THE INSURER THE RIGHT TO PROSECUTE A TITLE CLAIM BUT NOT THE OBLIGATION TO PROSECUTE A TITLE CLAIM; THEREFORE PLAINTIFF’S COMPLAINT ALLEGING DEFENDANT BREACHED THE POLICY BY NOT PROSECUTING THE CLAIM SHOULD HAVE BEEN DISMISSED (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined plaintiff’s action against a title insurance company should have been dismissed based upon the language of the policy. Plaintiff had requested that defendant take action against a party plaintiff believed was using plaintiff’s land. Defendant refused. The title insurance policy gave defendant the right but not the obligation to bring such an action:

A dismissal of a complaint pursuant to CPLR 3211 (a) (1) is warranted if “the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law” … . Plaintiffs alleged that defendant breached section 5 (b) of the policy, which provides, in relevant part, that defendant “shall have the right . . . to institute and prosecute any action or proceeding or to do any other act that in its opinion may be necessary or desirable to establish the Title, as insured, or to prevent or reduce loss or damage to the Insured.” Defendant’s “right” to prosecute an action is not equivalent to an “obligation” … . Inasmuch as the policy submitted by defendant on the motion did not require defendant to prosecute the action against the property owner, defendant is entitled to dismissal of the complaint insofar as it sought attorneys’ fees and costs that plaintiffs had already incurred for the prosecution of that action … . We further conclude that defendant is entitled to a declaration that it is not obligated to pay for the attorneys’ fees and costs necessary to prosecute that action in the future … . Irma Straus Realty Corp. v Old Republic Natl. Tit. Ins. Co., 2020 NY Slip Op 03307, Fourth Dept 6-12-20

June 12, 2020/0 Comments/by Bruce Freeman

Bankruptcy, Contract Law, Corporation Law, Insurance Law

THE BANKRUPTCY EXCEPTION TO THE INSURED VS INSURED EXCLUSION IN THE DIRECTORS AND OFFICERS LIABILITY POLICY APPLIED TO THE CREDITOR TRUST WHICH WAS SET UP TO PURSUE THE BANKRUPTCY ESTATE’S LEGAL CLAIMS ON BEHALF OF UNSECURED CREDITORS; THE CREDIT TRUST SUED THE DIRECTORS AND OFFICERS OF THE INSURED ALLEGING BREACH OF FIDUCIARY DUTY (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Renwick, in a matter of first impression, determined that the bankruptcy exception to the insured vs. insured exclusion of a Directors and Officers (D & O) liability insurance policy applied to a Creditor Trust. The Creditor Trust was formed pursuant to a Chapter 11 bankruptcy reorganization plan for the insured, RCS Capital Corporation (RCAP), to pursue the bankruptcy estate’s legal claims on behalf of unsecured creditors of the insured:

… [T]he Creditor Trust sued RCAP’s directors and officers alleging they had breached their fiduciary duties to the company. The directors and officers sought coverage under RCAP’s D & O liability policy with Westchester (the insurer). Westchester commenced this action in response, seeking a declaratory judgment that it has no coverage obligations.

This appeal raises an issue of apparent first impression of whether a D & O liability policy’s bankruptcy exception, which allows claims asserted by the “bankruptcy trustee” or “comparable authority,” applies to claims raised by a Creditor Trust, as a post-confirmation litigation trust, to restore D & O coverage removed by the insured vs. insured exclusion. For the reasons that follow, we find that the bankruptcy exception, to the insured vs. insured exclusion, applies to restore coverage. Specifically, we interpret the broad language “comparable authority” to encompass a Creditor Trust that functions as a post-confirmation litigation trust, given that such a Creditor Trust is an authority comparable to a “bankruptcy trustee” or other bankruptcy-related or “comparable authority” listed in the bankruptcy exception. Westchester Fire Ins. Co. v Schorsch, 2020 NY Slip Op 02895, First Dept 5-14-20

May 14, 2020/by Bruce Freeman

Insurance Law

QUESTION OF FACT WHETHER PLAINTIFF ACTED TO MITIGATE ITS DAMAGES FROM THE BREAKDOWN OF EQUIPMENT IN THIS BUSINESS INTERRUPTION INSURANCE CASE (THIRD DEPT).

The Third Department, reversing Supreme Court, determined there was a question of fact about whether plaintiff did enough to mitigate damages stemming from the two-day breakdown of a concrete mixer. Plaintiff manufactured and sold precast concrete products:

… [D]efendant relied upon a policy provision that required plaintiff to reduce its losses by undertaking efforts to “[m]ake up for lost business within a reasonable period of time” and “[m]ake use of every reasonable means to reduce or avert loss, including . . . [w]orking extra time or overtime.” Defendant argued that plaintiff failed to make up for the lost production by scheduling extra shifts or weekend work and, thus, failed to mitigate its losses as required by the policy.

Like any other policy provision, mitigation requirements in business interruption insurance policies must be enforced according to their terms … . Here, plaintiff’s president testified that it could not use extra shifts during the work week to make up for lost production due to the nature of its manufacturing process, and that various constraints related to that process and plaintiff’s labor force made it so difficult to schedule weekend work that plaintiff rarely did so. Plaintiff thus limited most of the weekend work that it did schedule to small projects requiring only a few employees. Viewing the evidence in the light most favorable to defendant, we find that the reasonableness of plaintiff’s decision to make up for the lost production during its normal work hours rather than by scheduling overtime shifts on subsequent weekends, as well as the effect of this decision on the amount of its damages, present factual issues that must be resolved by a factfinder … . Binghamton Precast & Supply Corp. v Liberty Mut. Fire Ins. Co., 2020 NY Slip Op 02214, Third Dept 4-9-20

April 9, 2020/by Bruce Freeman

Contract Law, Insurance Law

QUESTION OF FACT WHETHER FLOODING, AS OPPOSED TO WIND, CAUSED THE PROPERTY DAMAGE PRECLUDED SUMMARY JUDGMENT IN FAVOR OF THE INSURER BASED UPON POLICY EXCLUSIONS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined there were questions of fact whether the exclusions in the homeowner’s policy applied to damage caused during Superstorm Sandy. The expert opinion evidence did not demonstrate flooding, as opposed to wind, was the predominant cause of the damage:

The Homeowners Policy contains three exclusions which Allstate has raised here: the flood exclusion, the “weather conditions” exclusion, and the “predominant cause” exclusion. The Homeowners Policy states that Allstate does not cover losses caused by “[f]lood, including, but not limited to surface water, waves, tidal water or overflow of any body of water, or spray from any of these, whether or not driven by wind.” The “weather conditions” exclusion states that Allstate does not cover losses caused by “Weather Conditions that contribute in any way with a cause of loss excluded in this section to produce a loss.” The “predominant cause” exclusion states that Allstate will not cover loss to a covered property when “there are two or more causes of loss to the covered property” and “the predominant cause(s) of loss is (are) excluded” under other provisions of the Policy. Ain v Allstate Ins. Co., 2020 NY Slip Op 02042, Second Dept 3-25-20

March 25, 2020/by Bruce Freeman

Consumer Law, Contract Law, Insurance Law

GENERAL BUSINESS LAW CAUSES OF ACTION ALLEGING DECEPTIVE PRACTICES AND FALSE ADVERTISING WERE SUFFICIENTLY ALLEGED AGAINST AN INSURER PROVIDING HEALTH INSURANCE TO NEW YORK CITY EMPLOYEES; PLAINTIFF, A RETIRED POLICE OFFICER, ALLEGED DECEPTIVE AND FALSE MARKETING BY THE INSURER INDUCED HIM TO CHOOSE THE INSURER’S PLAN (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Stein, determined General Business Law sections 349 and 350 applied to a health insurance plan offered to New York City employees. Plaintiff, a retired NYC police officer brought the action in federal court alleging the insurer (GHI) engaged in “deceptive practices” and “false advertising.” The Third Circuit asked the Court of Appeals to rule on whether the General Business Law causes of action were applicable to plaintiff who was a third-party beneficiary of the insurance contract which had been negotiated by sophisticated parties. The insurer argued a contract between sophisticated parties did not raise a “consumer-oriented” issue:

We have explained that, to state a claim under sections 349 or 350, “a plaintiff must allege that a defendant has engaged in (1) consumer-oriented conduct, that is (2) materially misleading, and that (3) the plaintiff suffered injury as a result of the allegedly deceptive act or practice” … . Thus, a plaintiff claiming the benefit of either section 349 or 350 “must charge conduct of the defendant that is consumer-oriented” or, in other words, “demonstrate that the acts or practices have a broader impact on consumers at large” … . * * *

Here, although there was an underlying insurance contract negotiated by sophisticated entities—only one of which is a party to this action—neither plaintiff, nor any of the other hundreds of thousands of employees and retirees who participated in the GHI Plan, were participants in its negotiation and, critically, that negotiation was followed by an open enrollment period, which exposed City employees and retirees to marketing resembling a traditional consumer sales environment. During the open enrollment period, the employees and retirees could select only one of 11 previously-negotiated health insurance plans offered as part of their compensation and retirement packages from the City, and the insurers were able to market their health care plans directly to the employees and retirees. Significantly, it is the allegedly misleading summary materials that are the subject of plaintiff’s case—not the contract between the City and GHI, which purportedly was never provided to City employees and retirees. Plavin v Group Health Inc., 2020 NY Slip Op 02025, CtApp 3-24-2020

March 24, 2020/by Bruce Freeman