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INSURANCE REGULATION WHICH PROHIBITS TITLE INSURERS FROM PROVIDING VALUABLE INDUCEMENTS TO ATTRACT TITLE INSURANCE BUSINESS IS NOT UNCONSTITUTIONALLY VAGUE, SUPREME COURT REVERSED (FIRST DEPT).

The First Department, reversing Supreme Court, determined Insurance Regulation 208 (11 NYCRR part 228), which prohibits title insurers from providing valuable inducements to attract title insurance business, is not unconstitutionally vague:

Petitioners contend that section 228.2(c) is unconstitutionally vague in setting forth a non-exhaustive list of activities that are “permissible, provided[,]” among other things, that they are “reasonable and customary, and not lavish or excessive” … . The court should have rejected this vagueness challenge, since section 228.2(c) “is sufficiently definite to give a person of ordinary intelligence fair notice that his contemplated conduct is forbidden,” and “the enactment provides officials with clear standards for enforcement so as to avoid resolution on an ad hoc and subjective basis” … . … [T}he words “lavish” and “excessive,” standing in clear contrast with the word “reasonable,” provide adequate notice of the type of behavior that is proscribed. The word “customary” also sets forth a standard that can be understood by an ordinary person … . …

The provisions of section 228.2(c) generally permitting advertising, charitable contributions, and political contributions are consistent with the right to free speech under the First Amendment to the United States Constitution and article I, § 8 of the New York Constitution. … The content-neutral provisions at issue in this case are narrowly tailored to the substantial government interest of clarifying a statute intended to “prevent consumers from being required to subsidize unscrupulous exchanges of valuable things for real estate professionals” … , and that interest is “unrelated to the suppression of free expression” …  .  Matter of New York State Land Tit. Assn., Inc. v New York State Dept. of Fin. Servs., 2019 NY Slip Op 09366, First Dept 12-26-19

 

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THE BUILDING OWNER AND MANAGER WERE ADDITIONAL INSUREDS UNDER A POLICY ISSUED TO THE CONTRACTOR HIRED TO RENOVATE CONCRETE WALKWAYS; THE OWNER AND MANAGER ARE ENTITLED TO COVERAGE FOR A SLIP AND FALL ALLEGED TO HAVE BEEN CAUSED BY PAINTING THE WALKWAYS ALL THE SAME COLOR AND THEREBY DISGUISING A CHANGE IN ELEVATION (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Kapnick, determined plaintiffs are additional insureds under an insurance policy issued by defendant to nonparty Upgrade, the contractor hired to restore concrete catwalks. Plaintiffs, Windsor Apartments and Argo Real Estate, are entitled to coverage for a slip and fall in plaintiffs’ building allegedly caused by painting the floor all the same color, thereby disguising a change in elevation:

Defendant State National issued a commercial general liability (CGL) policy to Upgrade during the relevant time period. The policy contained a “Blanket Additional Insured” Endorsement that limited coverage to operations performed by or on behalf of Upgrade:

“It is agreed that this Policy shall include as additional Insureds any person or organization to whom the Named Insured [Upgrade] has agreed by written contract to provide coverage, but only with respect to operations performed by or on behalf of the Named Insured and only with respect to occurrences subsequent to the making of such written contract.”

The State National policy also stated that its coverage was primary, with exceptions not applicable here, for damages arising out of the premises or operations for which an entity is added as an additional insured.

The policy issued by plaintiff Fireman’s Fund Insurance Company (Fireman’s) to Windsor and Argo provided that coverage was excess when its insureds, Windsor and Argo, have other primary insurance available to them covering liability for damages arising out of the premises or operations for which they have been added as an additional insured. * * *

… [S]ince the injury to the plaintiff in the underlying action here “arose out of” Upgrade’s operation of painting the walkways, plaintiffs are additional insureds under the State National policy and the policy is primary in connection with the underlying action. Fireman’s Fund Ins. Co. v State Natl. Ins. Co., 2019 NY Slip Op 09399, First Dept 12-26-19

 

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THE INSURER IN THIS PERSONAL INJURY CASE DID NOT MEET ITS HEAVY BURDEN TO DEMONSTRATE ITS INSURED’S NON-COOPERATION SUCH THAT THE INSURER WAS NOT OBLIGATED TO INDEMNIFY THE INSURED; CRITERIA EXPLAINED (SECOND DEPT).

The Second Department determined the defendant insurer, Utica. did not meet its heavy burden to demonstrate its insured’s (J & R’s) non-cooperation such that the insurer was entitled to a default judgment declaring that it is not obligated to indemnify J & R in the underlying personal injury action in which the injured plaintiff was awarded nearly $700,000. Despite numerous scheduled depositions, J & R’s principal, Singh, never appeared to be deposed and his answer was ultimately stricken:

“To effectively deny coverage based upon lack of cooperation, an insurance carrier must demonstrate (1) that it acted diligently in seeking to bring about the insured’s cooperation, (2) that the efforts employed by the insured were reasonably calculated to obtain the insured’s cooperation, and (3) that the attitude of the insured, after his or her cooperation was sought, was one of willful and avowed obstruction” … . ” [M]ere efforts by the insurer and mere inaction on the part of the insured, without more, are insufficient to establish non-cooperation'” … .

Here, Utica failed to meet its “heavy” burden of demonstrating J & R’s non-cooperatin … . In support of its motion, Utica established that between January 2009 and April 2009, more than one year before J & R’s answer was stricken, it made diligent efforts, through written correspondence, numerous telephone calls, and visits to Singh’s home, that were reasonably calculated to bring about J & R’s cooperation. Utica’s submissions, however, failed to demonstrate that the conduct of J & R constituted “willful and avowed obstruction” … . Foddrell v Utica First Ins. Co., 2019 NY Slip Op 08991, Second Dept 12-18-19

 

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THE INSURANCE LAW REQUIRED SUBMITTING THE DISPUTE BETWEEN TWO CARRIERS TO ARBITRATION; THEREFORE SUPREME COURT DID NOT HAVE SUBJECT MATTER JURISDICTION OVER THE MATTER; THE LACK OF SUBJECT MATTER JURISDICTION CAN BE RAISED AT ANYTIME (SECOND DEPT).

The Second Department, reversing Supreme Court in this traffic accident case, determined the Insurance Law required that the matter involving a coverage dispute between two insurance carriers (Repwest and Hereford) be submitted to arbitration. Therefore Supreme Court did not have subject matter jurisdiction:

The defendants … were passengers in the livery vehicle and no-fault benefits were paid on their behalf by Hereford. Repwest alleged that there is no coverage for the subject incident because it was not an accident, but rather the result of an intentional act/fraudulent scheme. Thereafter, Hereford interposed an answer to the complaint and asserted a counterclaim against Repwest, among others, for loss transfer pursuant to Insurance Law § 5105(a) … .

Pursuant to Insurance Law § 5105(b), “[t]he 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” … . Contrary to Hereford’s contention, since its counterclaim is for loss transfer pursuant to section 5105(a), the counterclaim is subject to mandatory arbitration and the Supreme Court had no subject matter jurisdiction over the counterclaim … .

Although Repwest did not seek dismissal of the counterclaim in the Supreme Court, “a court’s lack of subject matter jurisdiction is not waivable, but may be [raised] at any stage of the action, and the court may, ex mero motu [on its own motion], at any time, when its attention is called to the facts, refuse to proceed further and dismiss the action” … . Repwest Ins. Co. v Hanif, 2019 NY Slip Op 09047, Second Dept 12-18-19

 

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POLICIES DID NOT REQUIRE THE INSURER TO DEFEND THE INSURED, BUT DID REQUIRE THE INSURER TO PAY THE INSURED’S DEFENSE COSTS (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Friedman, determined that the terms of the policies at issue did not obligate the insurer to defend the insured, but do require the insurer to pay the insured’s defense costs. The opinion is too fact-specific and too comprehensive to fairly summarize here:

In this insurance coverage action brought by a putative additional insured, the liability insurance policies at issue do not impose on the insurers a duty to defend the insured in a covered action. The policies do, however, require the insurers to reimburse the insured for defense costs incurred in an action “in which damages . . . to which this insurance applies are alleged.” The ultimate factual determination in the underlying personal injury actions was that the loss was actually outside the scope of the additional insured coverage. This determination, while it means that the insurers have no duty to indemnify the putative additional insured for its liability to pay damages, is not conclusive of a different question posed to us, which is whether the putative additional insured is entitled reimbursement of its defense costs. * * *

Under the terms of the … policy, the timing of the Port Authority’s demand for reimbursement does not defeat its claim for reimbursement of its defense costs through the time its liability was adjudicated in the underlying actions. … [The] policy entitles the insured to coverage of the costs it incurred in defending “any . . . suit’ to which this policy applies,” and the policy defines the term “suit” to mean an action “in which damages because of bodily injury’ . . . to which this insurance applies are alleged” … . … [U]ntil the jury rendered the verdict adverse to the Port Authority, each of the underlying actions remained a ” suit’ to which th[e] … policy applie[d]” … . Port Auth. of N.Y. & N.J. v Brickman Group Ltd., LLC, 2019 NY Slip Op 08958, First Dept 12-12-19

 

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QUESTION OF FACT WHETHER THERE EXISTED A SPECIAL RELATIONSHIP BETWEEN PLAINTIFFS AND DEFENDANT INSURANCE BROKER SUCH THAT THE BROKER COULD BE LIABLE FOR THE FAILURE TO PROCURE ADEQUATE COVERAGE FOR A DEMOLITION PROJECT (FIRST DEPT).

The First Department, reversing Supreme Court, determined there is a question of fact whether a special relationship existed between plaintiffs and defendant insurance broker, thereby making the broker liable for the failure to procure adequate coverage for a demolition contract:

Issues of fact exist as to whether a special relationship arose between plaintiff STB Investments Corporation and its managing agent plaintiff 303 West 42nd Street Realty Co. (plaintiffs), on the one hand, and defendant insurance broker, on the other, that imposed on defendant a duty to advise plaintiffs as to insurance coverage that would have included the loss arising from plaintiffs’ demolition project … . Plaintiffs contend that the special relationship arose from an interaction with defendant in which they relied on defendant’s expertise as to coverage. There is evidence that plaintiffs’ property manager, who allegedly had never before purchased insurance for a demolition project, requested that defendant obtain adequate coverage for that particular risk, and that defendant agreed to do so, reviewed the demolition contract as part of its efforts, and discussed with plaintiffs the demolition contractor’s coverage in the larger context of determining the appropriate level of coverage to obtain for plaintiffs … . STB Invs. Corp. v Sterling & Sterling, Inc., 2019 NY Slip Op 08606, First Dept 12-3-19

 

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SUPREME COURT PROPERLY DETERMINED THE COLLATERAL SUPPORTING A POSTED BAIL BOND WAS INSUFFICIENT TO ENSURE THE ACCUSED’S RETURN TO COURT, APPELLATE DIVISION REVERSED (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Feinman, reversing the Appellate Division, determined that Supreme Court did not abuse its discretion when it reviewed the collateral for a bail bond which had been posted by an insurer and found the collateral insufficient:

“Following the posting of a bail bond,” CPL 520.30 (1) permits a court to “conduct an inquiry for the purpose of determining,” among other things, “the value and sufficiency of any security offered[] and whether any feature of the undertaking contravenes public policy.” The statute also allows inquiry “into other matters appropriate to the determination, which include but are not limited to” six enumerated factors (CPL 520.30 [1]). For instance, the court has broad discretion to examine “[t]he background, character and reputation of any person who has indemnified or agreed to indemnify an obligor upon the bond” (CPL 520.30 [1] [d]) and the source of any property that will be used as indemnification as well as “whether any such money or property constitutes the fruits of criminal or unlawful conduct” … . * * *

The insurance company … has a financial incentive in obtaining a defendant’s release on bail so that it may retain its premium. This incentive is separate from the insurance company’s interest in securing the defendant’s return to court to avoid forfeiting its pledged security. The court, on the other hand, is concerned only with the defendant’s continued appearances.

Supreme Court … correctly interpreted the statute and did not abuse its discretion when it disapproved the insurance company bail bond package on public policy grounds, specifically that the limited collateral pledged failed to adequately ensure [the accused’s] return to court … . People ex rel. Prieston v Nassau County Sheriff’s Dept., 2019 NY Slip Op 08447, CtApp 11-21-19

 

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PUBLIC HEALTH LAW 230 DOES NOT CREATE A PRIVATE RIGHT OF ACTION FOR MALICIOUS REPORTING OF INSURANCE FRAUD BY A PHYSICIAN TO THE OFFICE OF PROFESSIONAL MEDICAL CONDUCT (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Stein, determined that Public Health Law 230 (11) (b) does not create a private right of action. Plaintiff surgeon provided medical care to four patients injured in an automobile accident and submitted claims for payment to the defendant insurer. The insurer fully or partially denied the claims and then filed complaints against plaintiff with the Office of Professional Medical Conduct (OPMC) alleging insurance fraud. The OPMC declined to discipline plaintiff. Plaintiff then sued defendant insurer for bad-faith and malicious reporting in violation of Public Health Law 230 (11) (b). The Court of Appeals noted a split of authority in the 1st and 2nd Departments re: whether a violation of this statute give rise to a private right of action:

Public Health Law § 230 (11) (b) does not expressly create a cause of action authorizing licensees to commence civil litigation against a complainant that files an allegedly bad-faith and/or malicious report with OPMC (compare Public Health Law § 230 [10] [j] [creating an express right to commence a CPLR article 78 proceeding in certain instances]). Consequently, “recovery may be had . . . only if a legislative intent to create such a right of action is fairly implied in the statutory provision[] and [its] legislative history” … . …

We have consistently identified three “essential factors” to be considered in determining whether a private right of action can be fairly implied from the statutory text and legislative history: “(1) whether the plaintiff is one of the class for whose particular benefit the statute was enacted; (2) whether recognition of a private right of action would promote the legislative purpose; and (3) whether creation of such a right would be consistent with the legislative scheme”… . Critically, all three factors must be satisfied before an implied private right of action will be recognized … . Applying these factors here, we conclude that the legislature did not intend to create a right of action under Public Health Law § 230 (11) (b). Haar v Nationwide Mut. Fire Ins. Co., 2019 NY Slip Op 08445, CtApp 11-21-19

 

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THREE AND A HALF MONTH DELAY IN NOTIFYING THE INSURER OF THE LAWSUIT VIOLATED THE POLICY PROVISION REQUIRING NOTICE AS SOON AS PRACTICABLE; THE DISCLAIMER MAILED 29 DAYS AFTER NOTICE OF THE SUIT WAS RECEIVED BY THE INSURER WAS TIMELY AND PRECLUDED SUIT AGAINST THE INSURER (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant did not timely notify the insurer of the action and the insurer’s disclaimer on that ground was timely. Plaintiff alleged she was sexually assaulted by defendant Braun, an employee of defendant APS. Braun received the summons and complaint on October 31, 2008. Braun was deemed an agent of his employer APS. The insurer was not notified of the suit until February 12, 2009. The disclaimer was mailed on March 16, 2009. The claim was settled with the defendants for more than $3 million. Plaintiff then sued the insurer:

Braun’s receipt of the October 31, 2008, letter with the summons and complaint was within the scope of his employment as an officer of APS, and, as an insured under the policies, he had a duty to notify the insurers of the claim … . Moreover, given that the plaintiff, and not APS, was the victim of Braun’s conduct, there is no adversity to negate the imputation of Braun’s knowledge to the corporation [i.e., the adverse interest exception did not apply]. …

Since APS had knowledge of the claim against it as of October 31, 2008, but did not give notice to the insurers until February 12, 2009, it failed to provide notice as soon as practicable, in violation of the policy conditions … . …

Here, the insurers timely disclaimed coverage following a thorough and diligent investigation. Contrary to the plaintiff’s contention, the insurers did not have all the information they needed to disclaim coverage on February 12, 2009, and they properly commenced an investigation to determine the specifics surrounding the incident and to verify when APS first acquired knowledge of the claim … . Issuance of the disclaimers 29 days after the insurers’ receipt of notice was therefore reasonable as a matter of law under the circumstances. Plotkin v Republic-Franklin Ins. Co., 2019 NY Slip Op 08233, Second Dept 11-13-19

 

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INSURER’S ACCIDENT INVESTIGATION REPORT IS PRIVILEGED AND NOT DISCOVERABLE (FIRST DEPT).

The First Department, reversing Supreme Court, determined that an insurer’s accident investigation report is privileged and not discoverable:

Documents in an insurer’s claim file, including an accident investigation report, that were prepared for litigation against its insured are immune from disclosure (see CPLR 3101[d][2] … ). Although documents in a first-party insurance action prepared in an insurer’s ordinary course of business in investigating whether to accept or reject coverage are discoverable (see CPLR 3101[g] … ), there is no indication that such documents are being protected here. In the absence of any demonstration of hardship by plaintiff, the insurer’s accident investigation report remains privileged … . Dabo v One Hudson Yards Owner, LLC, 2019 NY Slip Op 07751, First Dept 10-29-19

 

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