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THE INSURER’S ACCEPTANCE OF PREMIUM PAYMENTS AFTER IT LEARNED OF THE MISREPRESENTATION ABOUT THE SPRINKLER SYSTEM WAIVED THE INSURER’S RIGHT TO RESCIND THE POLICY (SECOND DEPT).

The Second Department determined that the insurer’s (Hamilton’s) acceptance of premiums after disclaiming coverage for fire damage when it learned the building did not have a sprinkler system waived the insurer’s right to rescind the policy. The insured had indicated the building had a sprinkler system it its application for the policy:

The continued acceptance of premiums by an insurance carrier after learning of sufficient facts which allow for the rescission of the policy, constitutes a waiver of the right to rescind … . Here, … the record demonstrated, as a matter of law, that Hamilton waived its right to assert the plaintiff’s misrepresentation as a basis for rescinding the policy and disclaiming coverage by renewing the policy and accepting further premiums after it discovered the misrepresentation … . 5512 OEAAJB Corp. v Hamilton Ins. Co., 2020 NY Slip Op 07525, Second Dept 12-16-20

 

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THE QUI TAM COMPLAINT ALLEGING INSURERS FAILED TO ACCURATELY REPORT UNCLAIMED LIFE INSURANCE PROCEEDS, TO WHICH THE STATE IS ENTITLED, IN VIOLATION OF THE NEW YORK FALSE CLAIMS ACT SHOULD NOT HAVE BEEN DISMISSED AND THE MOTION TO AMEND THE COMPLAINT TO SPECIFY THE FRAUD ALLEGATIONS SHOULD HAVE BEEN GRANTED (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiff in this qui tam action should have been allowed to amend the complaint to specify the allegations of fraud against the defendant insurance companies. Unclaimed life insurance proceeds are supposed to escheat to the state. The lawsuit alleged the insurance companies had submitted false statements to the state to conceal the existence of life insurance proceeds to which the state is entitled, a violation of the New York False Claims Act (NYFCA). The First Department, in allowing the complaint to be amended to specify the fraud allegations, held that the 10-year statute of limitations applied to the filing of the alleged false reports:

… [P]laintiff adequately alleged that defendants knowingly filed false reports with the State which failed to identify escheatable life insurance proceeds. The complaint alleges that defendants’ recordkeeping was so haphazard — such as listing incorrect names, dates of birth, and Social Security numbers, or omitting one or more of those pieces of information altogether — that it amounted to reckless disregard for the truth or falsity of the reports that they submitted to the State (see State Finance Law § 188[3][a][iii]). In other circumstances, according to the complaint, defendants had actual knowledge that a policyholder was deceased, as evidenced by returned mail, customer call service logs, or demutualization payments separately escheated to the State, yet defendants nevertheless failed to disclose or escheat the deceased policyholder’s life insurance proceeds to the State (see State Finance Law § 188[3][a][i]). These allegations, if true, demonstrate that defendants “deliberately turn[ed] a blind eye to reporting errors and then attest[ed] that, to [their] knowledge, they d[id] not exist” … . Total Asset Recovery Servs. LLC v Metlife, Inc., 2020 NY Slip Op 07480, First Dept 12-10-20

 

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THE PROFESSIONAL LIABILITY INSURANCE POLICYHOLDERS (DOCTORS), NOT THE POLICYHOLDERS’ EMPLOYER WHICH PAID THE PREMIUMS, ARE ENTITLED TO THE PAYMENTS ASSOCIATED WITH THE CONVERSION OF THE MUTUAL INSURANCE COMPANY TO A STOCK INSURANCE COMPANY (SECOND DEPT).

The Second Department, in a full-fledged decision by Justice Scheinkman, reversing Supreme Court, determined the policyholders (doctors), not the policyholders’ employer which paid the professional liability insurance premiums, were entitled the payments associated with the conversion of a mutual insurance company to a stock insurance company. The Second Department further held that the doctors were not unjustly enriched from the standpoint of their employer because the payments to the doctors were not being made by the employer:

We agree with the Third and Fourth Departments that Insurance Law § 7307 makes clear that the policyholder is entitled to the consideration … . Thus, the defendants [doctors] are “legally entitled to receive the cash consideration” … .

In reaching this conclusion, we also note that the First Department … did not express any contrary views as to the import of the statute, the conversion plan, and the DFS [New York Department of Financial Services] approval decision. Rather, the First Department’s determination to award the cash consideration to the employer medical group was predicated entirely upon the theory of unjust enrichment … . Maple Med., LLP v Scott, 2020 NY Slip Op 07366, Second Dept 12-9-20

 

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THERE WAS A QUESTION OF FACT WHETHER THE VEHICLE WHICH STRUCK PETITIONER WAS THE VEHICLE INSURED BY GEICO; ARBITRATION OF PETITIONER’S DEMAND FOR UNINSURED MOTORIST BENEFITS FROM ALLSTATE, HER INSURER, SHOULD HAVE BEEN STAYED AND A FRAMED ISSUE HEARING SHOULD HAVE BEEN ORDERED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined a stay of arbitration should have been granted and a framed issue hearing granted. Respondent, Michelle Robinson, was struck from behind The driver, Randall, gave Robinson her contact information but left the scene before the police arrived. GEICO, the insurer of the offending vehicle, denied Robinson’s claim stating that Lewis, not Randall, was their insured. Robinson then demanded arbitration for uninsured motorist benefits from Allstate, her insurer. Allstate moved to stay arbitration and requested a framed issue hearing:

“The party seeking a stay of arbitration has the burden of showing the existence of sufficient evidentiary facts to establish a preliminary issue which would justify the stay” … . “Thereafter, the burden shifts to the party opposing the stay to rebut the prima facie showing” … . “Where a triable issue of fact is raised, the Supreme Court, not the arbitrator, must determine it in a framed-issue hearing, and the appropriate procedure under such circumstances is to temporarily stay arbitration pending a determination of the issue” … .

Here, the documents submitted by Allstate in support of the petition demonstrated the existence of sufficient evidentiary facts to establish a preliminary issue justifying a temporary stay … . By submitting the MV-104 motor vehicle accident report and the MVR vehicle record report with the results of the license plate search for the plate number provided by Robinson, Allstate made a prima facie showing that the offending vehicle involved in the subject accident had insurance coverage with GEICO at the time of the accident … .

In opposition, Robinson and the GEICO respondents raised questions of fact as to whether the offending vehicle was involved in the subject accident … . Matter of Allstate Ins. Co. v Robinson, 2020 NY Slip Op 07051, Second Dept 11-25-20

 

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BASED UPON THE LANGUAGE OF THE INSURANCE POLICIES AT ISSUE, THE EXCESS INSURER WAS NOT LIABLE FOR THE PREJUDGMENT INTEREST ON THE PERSONAL INJURY JUDGMENT AFTER THE PRIMARY POLICY WAS VOIDED (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge DiFiore, over two dissenting opinions, interpreted the insurance policies at issue such that the excess insurer was not obligated to pay interest on the underlying personal injury judgment after the primary policy was voided:

This appeal involves a dispute concerning an excess insurer’s obligation to pay interest on an underlying personal injury judgment after the primary policy was voided. Like the courts below, we are unpersuaded by the injured plaintiff’s argument that the excess policy provided overlapping coverage for certain interest payments covered in the primary policy … .

Plaintiff Jin Ming Chen was injured at a construction site and sued the general contractor Kam Cheung Construction, Inc. (Kam Cheung). At the time, Kam Cheung maintained both primary and excess liability insurance policies: a primary policy with a liability limit of $1 million per occurrence from Arch Specialty Insurance Company (Arch) and an excess policy with $4 million per occurrence in coverage from defendant Insurance Company of the State of Pennsylvania (ICSOP). In December 2011, Supreme Court granted partial summary judgment to plaintiff in that action, and, in October 2013, the court entered a personal injury judgment awarding plaintiff $2,330,000 plus $396,933.70 in prejudgment interest. During that time, Arch commenced a declaratory judgment action seeking rescission of the primary policy due to material misrepresentations made by Kam Cheung in its application, securing a judgment declaring that the Arch Policy was void ab initio. Thus, Arch provided no coverage relating to the personal injury judgment. * * *

Plaintiff effectively asks us to treat interest payments on the underlying award as falling within or reducing the Arch Policy’s $1 million liability limit, which is contrary to the plain language of the Arch Supplementary Payments provision and the ICSOP Policy’s Coverage, Ultimate Net Loss, and Maintenance of Underlying Insurance provisions. To do so would be inconsistent with the language chosen by the parties to the insurance contracts, rendering several clauses forceless—a result that should be avoided …. Arch agreed to expand its coverage of pre- and post-judgment interest beyond its liability limits, and ICSOP agreed to provide coverage only for losses in excess of Arch’s coverage—including both the $1 million Arch policy limit and its Supplementary Payments. Jin Ming Chen v Insurance Co. of the State of Pa., 2020 NY Slip Op 06938, Ct App 11-24-20

 

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PLAINTIFF ALLEGED A VALID NEGLIGENCE CAUSE OF ACTION AGAINST DEFENDANT INSURANCE BROKER FOR FAILURE TO NOTIFY THE EXCESS CARRIER OF A CLAIM AGAINST PLAINTIFF; IT WAS ALLEGED THAT PLAINTIFF ROUTINELY NOTIFIED DEFENDANT BROKER OF ANY CLAIMS AND DEFENDANT BROKER ROUTINELY NOTIFIED THE AFFECTED CARRIERS, GIVING RISE TO A DUTY TO DO SO (FIRST DEPT).

The First Department, reversing Supreme Court, determined the complaint against the insurance broker, T & H, stated a cause of action in negligence based on T & H’s failure to notify the excess carrier of its potential exposure to a claim:

Under ordinary circumstances, it is understood that “insurance brokers have a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so” … . Nevertheless, if an insured asks the broker to take on additional responsibilities above and beyond procuring specifically requested coverage, and the broker agrees to do so, a duty is created that the broker must execute with reasonable care … . Thus, we have held that a duty was imposed on a broker to notify the appropriate primary and excess carriers of a potential claim where there was “evidence that as a matter of routine [the insured] referred all questions regarding its insurance claims to [the broker] and [the broker] handled all [the insured]’s insurance needs, including referring its claims to insurers” … . Here, plaintiff alleged that it and T&H had established a course of conduct whereby plaintiff would notify the latter of claims against it and T&H would inform the carriers, and that T&H acknowledged that plaintiff relied on it to carry out this function. Indeed, plaintiff alleges, in this case T&H affirmatively represented that it had placed both the primary and the excess carrier on notice. Accordingly, plaintiff has stated a cause of action for negligence predicated on T&H’s alleged failure to advise the excess carrier of its potential exposure. Martin Assoc., Inc. v Illinois Natl. Ins. Co., 2020 NY Slip Op 06860, First Dept 11-19-20

 

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SUBPOENA SEEKING 1099 FORMS SHOWING THE INSURER’S PAYMENTS TO TWO DOCTORS WHO PERFORM MEDICAL EXAMS FOR THE INSURER IN PERSONAL INJURY CASES SHOULD NOT HAVE BEEN QUASHED; WITH RESPECT TO THE SUBPOENA FOR THE MEDICAL RECORDS ASSOCIATED WITH THE EXAMS, THAT ISSUE WAS NOT ADDRESSED BY SUPREME COURT AND CAN NOT, THEREFORE, BE ADDRESSED ON APPEAL (THIRD DEPT).

The Third Department, reversing Supreme Court, in a full-fledged opinion by Justice Garry addressing a matter of first impression in the Third Department, determined the plaintiffs’ subpoena seeking 1099 forms (encompassing several years) issued by the insurer to the two doctors (Seigel and Hughes) who performed the medical examination of the plaintiff in this traffic accident case should not have been quashed. The payment records may provide information relevant to the doctors’ bias in favor of denying coverage. However the subpoena for the medical records for the examinations conducted by the two doctors was not addressed by the motion court and therefore could not be addressed on appeal:

The CPLR extends “full disclosure of all matters material and necessary in the prosecution or defense of an action” to nonparties (CPLR 3101 [a] [4] …). “The words, ‘material and necessary,’ are . . . to be interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity. The test is one of usefulness and reason” … . “A subpoena will be quashed only where the futility of the process to uncover anything legitimate is inevitable or obvious or where the information sought is utterly irrelevant to any proper inquiry” … . …

… [T]he 1099 forms that plaintiffs seek would disclose the amount of compensation that Siegel and Hughes received for performing evaluations on defendant’s behalf and, with questioning, may reveal a financial incentive that the physicians have in testifying. A financial incentive is a relevant consideration in “ascertain[ing] any possible bias or interest on the part of [the physicians]” … . Given the liberal interpretation afforded the terms “material and … necessary” used in the CPLR … , and the general acceptance of testing a witness for bias and interest , we thus find that the financial records are discoverable … . Loiselle v Progressive Cas. Ins. Co., 2020 NY Slip Op 06325, Third Dept 11-5-20

 

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PLAINTIFFS FOUND OUT WELL INTO THE CONTRACT FOR GAS-MAIN WORK THAT THE REQUESTED INSURANCE COVERAGE HAD NOT BEEN PROVIDED; THE DECLARATORY JUDGMENT CAUSE OF ACTION WAS PROPERLY DISMISSED BECAUSE IT DEPENDED ON A CIRCUMSTANCE THAT MAY NOT OCCUR; THE NEGLIGENT PROCUREMENT CAUSE OF ACTION WAS PROPERLY DISMISSED FOR LACK OF DAMAGES; THE BREACH OF CONTRACT CAUSE OF ACTION WAS SUPPORTED BY NOMINAL DAMAGES; THE FRAUD AND NEGLIGENT MISREPRESENTATION CAUSES OF ACTION WERE SUPPORTED BY A SPECIAL RELATIONSHIP WITH THE INSURANCE BROKER AND DETRIMENTAL RELIANCE (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the plaintiffs’ causes of action for declaratory relief and negligent procurement were properly dismissed but the causes of action for breach of contract and fraud and negligent misrepresentation should not have been dismissed. Plaintiffs contracted with Con Ed to work on a gas main and requested insurance coverage for the project from defendants. Well into the project plaintiffs learned that they were not insured and they procured coverage elsewhere for a much higher premium. The declaratory judgment cause of action sought a declaration that defendants would be responsible if plaintiffs are sued for damage done when plaintiffs were uninsured. Because that circumstance may never occur the declaratory judgment cause of action was properly dismissed. The negligent procurement cause of action was properly dismissed because there were no damages. The breach of contract cause of action should not have been dismissed because nominal damages will support it. The fraud and negligent misrepresentation causes of action should not have been dismissed because a special relationship between plaintiffs and the insurance broker had been sufficiently alleged:

” … Nominal damages allow vindication of those rights” … . … “[A]ctual damages are not an essential element” of a breach of contract cause of action … .

… “Where a special relationship develops between the broker and client, [the] broker may be liable . . . for failing to advise or direct the client to obtain additional coverage” … . “… [T]hree ‘exceptional situations’ … may give rise to such a special relationship: ‘(1) the agent receives compensation for consultation apart from payment of the premiums; (2) there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on'” … . … The plaintiffs, at a minimum, claim to have suffered damages when they, on two occasions, made bids for long-term contracts to perform gas main repair work for Con Ed that were priced, in part, based on the defendants’ alleged misrepresentations as to the price of insurance coverage for that work. AB Oil Servs., Ltd. v TCE Ins. Servs., Inc., 2020 NY Slip Op 06232, Second Dept 11-4-20

 

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ALTHOUGH INSURANCE LAW 3420(d)(2) REQUIRING TIMELY NOTICE OF THE DISCLAIMER OF INSURANCE COVERAGE DOES NOT APPLY TO THIS BREACH OF CONTRACT (AS OPPOSED TO A PERSONAL INJURY) ACTION, THE DISCLAIMERS WERE UNTIMELY UNDER COMMON LAW WAIVER AND ESTOPPEL PRINCIPLES (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant insurance companies’ disclaimers of coverage of damages associated with the insured’s breach of contract were not timely. The insured county was found to have breached a contract and was assessed nearly $11,000,000 in damages:

Contrary to the County’s contention, while Insurance Law § 3420(d)(2) imposes strict requirements on an insurer to give timely written notice if it is disclaiming liability or denying coverage for death or bodily injury arising out of an accident, “[w]here, as here, the underlying insurance claim does not arise out of an accident involving bodily injury or death, Insurance Law § 3420 and its heightened requirements do not apply” … . Instead, an insurer’s delay in disclaiming coverage “should be considered under common-law waiver and/or estoppel principles” … . …

Here, the County proffered evidence that * * * [the innsurers] did not respond [for] 6 months and 17 months, respectively, after they were notified of the subject loss. County of Suffolk v Ironshore Indem., Inc., 2020 NY Slip Op 06099, Second Dept 10-28-20

 

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PLAINTIFF WAS ENTITLED TO THE REFORMATION OF THE INSURANCE POLICY TO NAME HIM AS MORTGAGEE; ALL PARTIES AGREED THEY INTENDED TO SO NAME THE PLAINTIFF AND THE FAILURE TO DO SO WAS THE RESULT OF A MISTAKE; PLAINTIFF WAS ENTITLED TO PAYMENT OF THE FIRE-DAMAGE PROCEEDS IRRESPECTIVE OF THE PROPERTY OWNER’S ACTS OR NEGLECT (THIRD DEPT).

The Third Department, reversing Supreme Court, determined plaintiff was entitled to the reformation of an insurance policy and to the payment of the fire-damage proceeds. Through error plaintiff was never named as the mortgagee on the policy:

Plaintiff asserts that reformation of the property policy to name him as the mortgagee is appropriate because the undisputed evidence demonstrates that [all the parties] intended to have him so named and reached an oral agreement to that effect, but that, without their knowledge and because of mutual mistake, the property policy did not embody that agreement. In support of this claim, plaintiff submitted the uncontradicted testimony of [the buyer] and the wife that they were aware of the requirement to have plaintiff named as a mortgagee on the property policy as required by the mortgages and intended to comply with it, that the wife asked [the insurance agent] to make the change, and that she and [the buyer] believed afterward that the change had been made and that plaintiff had become a mortgagee on the property policy. * * *

… [W]e find that the property policy should be reformed to name plaintiff as mortgagee … . Plaintiff’s resulting identification as the mortgagee “creates an independent insurance of [his] interest just as if he had received a separate policy from the company but without any inconsistent or repugnant conditions imposed upon the owner and free from invalidation by the latter’s act or neglect” … . Imrie v Ratto, 2020 NY Slip Op 05986, Third Dept 10-22-20

 

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