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INSURERS MAY PROPERLY REFUSE NO-FAULT INSURANCE PAYMENTS TO A PROFESSIONAL MEDICAL SERVICE CORPORATION WHICH IS EFFECTIVELY OWNED AND CONTROLLED BY NONPHYSICIANS, THERE IS NO NEED TO DEMONSTRATE FRAUDULENT INTENT OR CONDUCT TANTAMOUNT TO FRAUD ON THE PART OF THE PROFESSIONAL CORPORATION; ANY ERROR IN ALLOWING THE JURY TO HEAR NONPARTY DEPOSITION TESTIMONY IN WHICH THE NONPARTIES REPEATEDLY ASSERTED THE FIFTH AMENDMENT PRIVILEGE AGAINST SELF-INCRIMINATION WAS HARMLESS (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Fahey, determined that the defendant insurers properly refused to make no-fault insurance payments to plaintiff professional corporation because the corporation was owned and controlled by nonphysicians. The court specifically held that fraudulent intent or conduct “tantamount to fraud” need not be demonstrated. The court noted that allowing in evidence the deposition testimony of two nonparties (nonphysicians who allegedly controlled the professional corporation), in which the Fifth Amendment privilege against self-incrimination was repeatedly asserted, if it was error (not determined), was harmless:

… [A]n insurance carrier, seeking to demonstrate that a professional service corporation engaged in corporate practices that violate Business Corporation Law § 1507, Business Corporation Law § 1508, or Education Law § 6507 (4) (c), [need not] show that the professional service corporation or its managers engaged in common-law fraud. … A corporate practice that shows “willful and material failure to abide by” licensing and incorporation statutes … may support a finding that the provider is not an eligible recipient of reimbursement under 11 NYCRR 65-3.16 (a) (12) without meeting the traditional elements of common-law fraud. * * *

While the Fifth Amendment accords an individual the privilege not to answer questions in a civil proceeding if the answers might incriminate the person in future criminal proceedings … , a witness who asserts this Fifth Amendment privilege in a civil trial is not necessarily protected from consequences in the same manner as in a criminal trial. This Court has held that, in a civil case, failure to answer questions by a witness who is a party “may be considered by a jury in assessing the strength of evidence offered by the opposite party on the issue which the witness was in a position to controvert” … . In a civil trial, “an unfavorable inference may be drawn against a party from the exercise of the privilege against self-incrimination” … . We have not previously decided whether a nonparty’s invocation of the Fifth Amendment may trigger an adverse inference instruction against a party in a civil case, and we have no occasion to do so here because any error by the trial court was harmless … . Andrew Carothers, M.D., P.C. v Progressive Ins. Co., 2019 NY Slip Op 04643, CtApp 6-11-19

 

THE STATUTORY TIMELY-DISCLAIMER REQUIREMENT OF INSURANCE LAW 3420(d)(2) DOES NOT APPLY TO OUT-OF-STATE RISK RETENTION GROUPS (RRG’S), DEFENDANT RRG, WHICH DID NOT ISSUE A TIMELY DISCLAIMER OF COVERAGE IN THE UNDERLYING PERSONAL INJURY ACTION, IS NOT BARRED FROM PRESENTING DEFENSES TO COVERAGE (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Rivera, over an extensive dissenting opinion by Judge Wilson, determined that the statutory timely disclaimer requirement of Insurance Law  3420 (d) (2) does not apply to defendant PCIC, an out-of-state risk retention group (RRG). Therefore PCIC’s failure to make a timely disclaimer of coverage in the underlying personal injury action did not bar PCIC’s coverage defenses. The central issue was one of statutory interpretation. The Court of Appeals rejected the argument that Insurance Law 2601 (a) (6), which applies to RRG’s and requires prompt “disclosure” of coverage, also requires timely “disclaimer” of coverage:

Whether PCIC’s disclaimer is regulated by the Insurance Law turns on whether the reference to an insurer’s failure “to promptly disclose coverage” in section 2601 (a) (6) includes the timely disclaimer requirement of section 3420 (d) (2). Nadkos [plaintiff] argues that section 2601 (a) (6) cites to section 3420 (d) without limitation, and thus encompasses both paragraphs (d) (1) and (d) (2). According to Nadkos, if the Legislature intended to limit section 2601 (a) (6) to a specific subparagraph of section 3420 (d), it knew how to do so … .

We reject the interpretation advocated by Nadkos, and adopted by the dissent, because the prohibition on an unfair claim settlement practice based on a failure to promptly disclose coverage encompasses the mandates of section 3420 (d) (1), not (d) (2). Nadkos, Inc. v Preferred Contrs. Ins. Co. Risk Retention Group LLC, 2019 NY Slip Op 04641, CtApp 6-11-18

 

DEFENDANT INSURANCE AGENT WAS NOT UNDER A DUTY TO NOTIFY THE INSURER OF THE INSURED’S DEATH OR TO MAKE SURE ADDITIONAL INSUREDS WERE NAMED ON THE POLICY AFTER THE INSURED’S DEATH; THE DECEDENT’S DAUGHTER CONTINUED TO PAY THE HOUSE INSURANCE PREMIUMS AFTER HER MOTHER’S DEATH, WHEN THE HOUSE WAS DESTROYED BY FIRE THE INSURER DISCLAIMED COVERAGE BECAUSE ONLY THE DECEDENT WAS NAMED ON THE POLICY (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined that defendant insurance agent did not owe a duty to decedent’s daughter, Tomaino, or the estate, with respect to the insurance on decedent’s home. Decedent was the only person named on the house insurance policy. Decedent died in 2010. Tomaino continued to pay the premium to defendant after her mother’s death. When the place was destroyed by fire in 2014 decedent was the only named insured. Allstate disclaimed coverage. Tomaino alleged defendant owed her and the estate a duty to notify the insurer of decedent’s death and to make sure additional insured were named in the policy. The Fourth Department that no such duty was owed, even if defendant was aware of the death of Tomaino’s mother.

Defendant met his initial burden of establishing as a matter of law that he owed no duty to plaintiff, Tomaino, or decedent’s estate inasmuch as he demonstrated that none was a client. Indeed, defendant’s submissions established that decedent, alone, was his client and that, after her death, no one represented the estate until September 2014, approximately eight months after the fire and four years after her death. …

,,, [E]ven assuming, arguendo, that Tomaino was a client of defendant, we conclude that defendant established his entitlement to summary judgment as a matter of law. Defendant established that he had no common-law duty to advise, guide, or direct her to obtain insurance coverage for additional insureds in light of decedent’s death … , and he further established that he did not ” assume or acquire duties in addition to those fixed at common law’ ” … . Here, defendant demonstrated that there were no payments made to him beyond the alleged premium payments, that there was no interaction with Tomaino regarding questions of coverage, and that no special relationship was formed between himself and Tomaino …. Indeed, defendant submitted the deposition testimony of Tomaino, in which she testified that there was no discussion with defendant about any need for changes to the policy and that she was not asked for a copy of any death certificate, thus establishing the absence of any interaction regarding questions of coverage. Additionally, even assuming, arguendo, that Tomaino was a client of defendant and that she informed him of decedent’s death and made premium payments to him in 2012 and 2013, we conclude that such events are insufficient to raise a triable issue of fact whether defendant owed a duty to her to notify Allstate of decedent’s death and to ensure that the property was properly insured … . Gatto v Allstate Indem. Co., 2019 NY Slip Op 04618, Fourth Dept 6-7-19

 

INSURED DID NOT VIOLATE THE SUM POLICY BY SETTLING WITH THE OTHER DRIVER WITHOUT THE SUM CARRIER’S CONSENT, THE SUM CARRIER WAS INFORMED OF THE SETTLEMENT AND TOOK NO ACTION WITHIN 30 DAYS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the supplementary uninsured/underinsured motorist (SUM) carrier (petitioners) was not entitled to permanently stay arbitration on the ground that the injured party (appellant) had settled with other driver’s carrier without the SUM carrier’s consent. In fact the SUM carrier had notice of the settlement and took no action within 30 days. Therefore the settlement did not violate the SUM carrier’s policy:

… [T]he provisions of language set forth in Insurance Regulation 35-D (see 11 NYCRR 60-2.3), which must be included in all motor vehicle liability insurance policies in which SUM coverage has been purchased, require, inter alia, that where an insured advises the insurer of an offer to settle for the full amount of the tortfeasor’s policy, the insurer must either consent to the settlement or advance the settlement amount to the insured and assume the prosecution of the tort action within 30 days … . Where the insurer does not timely respond in accordance with such condition, the insured may settle with the tortfeasor without the insurer’s consent and without forfeiting his or her rights to SUM benefits … .

… The petitioners’ submissions demonstrated that the appellant executed a release … “after thirty calendar days actual written notice” to the petitioners, as provided for in Condition 10, which is required by Insurance Regulation 35-D to be part of the SUM endorsement. Consequently, the petitioners failed to establish that the appellant settled … in violation of a condition of the policy requiring the petitioners’ consent to settle. Unitrin Direct Ins. Co. v Muriqi, 2019 NY Slip Op 04178, Second Dept 5-29-19

 

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FAILURE TO INFORM INSURER OF A SETTLEMENT WITH THE INSURED PARTY IN THIS TRAFFIC ACCIDENT CASE JUSTIFIED GRANTING THE INSURER’S PETITION TO PERMANENTLY STAY ARBITRATION ON AN UNINSURED MOTORIST BENEFITS CLAIM (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the insurer’s (State Farm’s) petition to permanently stay arbitration of an uninsured motorist benefits claim should have been granted. The insureds (McLaurin and Corbin) were involved in an accident with two other cars, one of which was uninsured. The insureds settled with the other insured party (Martinez) without informing State Farm:

“Where an automobile insurance policy expressly requires the insurer’s prior consent to any settlement by the insured with a tortfeasor, failure of the insured to obtain such prior consent from the insurer constitutes a breach of a condition of the insurance contract and disqualifies the insured from availing himself [or herself] of the pertinent benefits of the policy” … . It is undisputed that McLaurin and Corbin entered into the settlement of the Martinez action without State Farm’s consent. “Once the existence of a release in settlement of the relevant tort claim is established, the burden is on the insured to establish, by virtue of an express limitation in the release, or of a necessary implication arising from the circumstances of its execution, that the release did not operate to prejudice the subrogation rights of the insurer” … . Here, McLaurin and Corbin failed to establish that the release issued in the Martinez action did not operate to prejudice the subrogation rights of State Farm … . Matter of State Farm Fire & Cas. Co. v McLaurin, 2019 NY Slip Op 03057, Second Dept 4-24-19

 

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WIFE’S STATUS AS A BENEFICIARY OF AN ANNUITY PAID TO THE HUSBAND WAS REVOKED BY OPERATION OF THE ESTATES, POWERS AND TRUST LAW (EPTL) UPON DIVORCE (THIRD DEPT). ​

The Third Department determined an annuity paid to the husband in settlement of a medical malpractice action was not payable to the former wife (Malizia), as a beneficiary of the annuity, because her status as a beneficiary was revoked upon divorce, pursuant to the Estates, Powers and Trust Law (EPTL):

EPTL 5-1.4 (a) provides that, “[e]xcept as provided by the express terms of a governing instrument, a divorce . . . revokes any revocable (1) disposition or appointment of property made by a divorced individual to, or for the benefit of, the former spouse.” Malizia’s argument that EPTL 5-1.4 does not apply to the annuity is unavailing. Although an annuity is not specifically identified as a governing instrument by EPTL 5-1.4 (f) (5), the statute expressly indicates that the list is illustrative and not exhaustive. An annuity is a testamentary substitute that operates similarly to the examples of governing instruments that are specifically named in the statute by providing for the disposition of property at death … . In that regard, the annuity specifically provided for payment of the monthly installments to decedent during his lifetime, and the beneficiary designation constituted a disposition of a property interest to the named beneficiary at decedent’s death, i.e., the right to receive any guaranteed payments required to be made after his death. The statute was enacted to prevent the inadvertent disposition of such property to a former spouse following termination of a marriage by creating a conclusive and irrebuttable presumption that any revocable disposition of property to a former spouse is automatically revoked upon divorce … . United States Life Ins. Co. In The City of New York v Shields, 2019 NY Slip Op 02593, Third Dept 4-4-19

 

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THE EXCEPTION TO THE FAULTY WORKMANSHIP EXCLUSION IN THE FIRE INSURANCE POLICY APPLIED TO PRESERVE COVERAGE FOR ENSUING LOSS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that the fire damage was covered under the policy:

Following an inspection of the property by a fire investigator and an electrical engineer, the defendant issued a letter to the plaintiffs’ claims adjuster disclaiming coverage for “building damage” on the grounds that “improper conditions” related to a junction box “were the direct cause of the fire and instant loss” and the policy specifically excluded coverage for faulty workmanship. … The exclusion provided, in relevant part, “[w]e do not insure for loss to property described in Coverages A and B caused by any of the following. However, any ensuing loss to property described [in] Coverages A and B not excluded or excepted in this policy is covered. . . c. Faulty, inadequate or defective: . . . (2) design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction . . . of part or all of any property, whether on or off residence premises.”

“Where a property insurance policy contains an exclusion with an exception for ensuing loss, courts have sought to assure that the exception does not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded risk” … . Therefore, “an ensuing loss provision . . . provide[s] coverage when, as a result of an excluded peril, a covered peril arises and causes damage” … . …

We disagree with the Supreme Court’s determination that the plaintiffs did not establish, as a matter of law, that the exception to the faulty workmanship exclusion was applicable to preserve coverage for the damage to their property. The evidence in the record demonstrated that the fire occurred two years after the alleged faulty workmanship related to the junction box, and caused ensuing loss to property “wholly separate from the defective property itself” … . Fruchthandler v Tri-State Consumer Ins. Co., 2019 NY Slip Op 02502, Second Dept 4-3-19

 

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PETITION SEEKING A STAY OF ARBITRATION AND A FRAMED-ISSUE HEARING ON WHETHER THE TRAFFIC ACCIDENT WAS STAGED SHOULD HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that the petition to temporarily stay arbitration of the claim for uninsured motorist benefits pending a framed-issue hearing addressing whether the collision was an accident or intentional should have been granted. The insurer, Global, presented evidence the traffic accident involving an uninsured vehicle was staged. The injured passenger, Eveillard, submitted sufficient evidence to rebut the insurer’s position:

As the party seeking a stay of arbitration based upon a lack of coverage, Global bore the initial burden of “showing the existence of sufficient evidentiary facts to establish a preliminary issue which would justify the stay” … . Here, contrary to the Supreme Court’s determination … , Global set forth evidentiary facts and submitted documentary evidence sufficient to establish a preliminary issue as to whether the collision giving rise to the claim for uninsured motorist benefits was an accident or an intentional act orchestrated, in part, by Eveillard … . Since Eveillard submitted evidence sufficient to rebut Global’s evidentiary showing, a temporary stay of arbitration pending a framed-issue hearing is warranted … .

… Supreme Court should have granted that branch of the petition which was to temporarily stay arbitration of the claim for uninsured motorist benefits pending a framed-issue hearing as to whether the collision was the result of a covered accident or an intentional act, and we remit the matter to the Supreme Court … for a hearing on the issue of insurance coverage and a new determination thereafter on that branch of the petition which was to permanently stay arbitration. Matter of Global Liberty Ins. Co. v Eveillard, 2019 NY Slip Op 02521, Second Dept 4-3-19

 

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NO PRIVATE RIGHT OF ACTION UNDER NEW YORK’S MENTAL HEALTH PARITY LAW (TIMOTHY’S LAW) (SECOND DEPT).

The Second Department determined that New York’s mental health parity law (Timothy’s Law, Insurance Law 3221(1)(5) and 4303(g)) did not create a private right of action over and above the administrative enforcement provisions. Plaintiff alleged the health insurance benefits administered by defendants were far more restrictive for mental health than for general medical claims:

… [T]he Court of Appeals has held that ” regardless of its consistency with the basic legislative goal, a private right of action should not be judicially sanctioned if it is incompatible with the enforcement mechanism chosen by the Legislature or with some other aspect of the over-all statutory scheme'” … . Thus, where “the legislature clearly contemplated administrative enforcement of the statute, “[t]he question then becomes whether, in addition to administrative enforcement, an implied private right of action would be consistent with the legislative scheme”‘” …  . …

… .[D]eterminations of whether the law had been violated require[] complex, fact-based determinations about medical necessity, and DFS [NYS Department of Financial Services] had implemented a comprehensive system to evaluate appeals following denials of coverage  … . … “[A]llowing people to litigate these issues in court might yield duplicative or inconsistent results” … . Kamins v United Healthcare Ins. Co. of N.Y., Inc., 2019 NY Slip Op 02507, Second Dept 4-3-19

 

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RELEVANT REGULATION, RATHER THAN THE POLICY LANGUAGE, CONTROLLED THE CALCULATION OF INTEREST ON INSURANCE POLICY PROCEEDS (FIRST DEPT).

The First Department, reversing Supreme Court, determined the relevant regulation, as opposed to the less generous insurance policy provision, controlled the payment of interest on policy proceeds:

Defendant[‘s] … insurer’s bare offer to pay the policy limit was not a “tender” of the policy for the purposes of stopping the accrual of prejudgment interest under 11 NYCRR 60-1.1(b). While the policy provides that the insurer will pay interest on a judgment until “we have paid, offered to pay or deposited in court the part of the judgment that is within our Limit of Insurance,” 11 NYCRR 60-1.1(b) requires the insurer to pay postjudgment interest until it has “paid or tendered or deposited in court” the part of the judgment that does not exceed the policy limit. As the policy language is less generous to the insured than the regulation, it is deemed superseded by the regulation … . Within that framework, a bare offer to pay does not constitute a tender. Thus, interest must be calculated from the date of entry of the order that granted summary judgment to plaintiff until the date of payment … . Gyabaah v Rivlab Transp. Corp., 2019 NY Slip Op 02417, First Dept 3-28-19

 

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