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Defendant’s Employee Had “Apparent Authority” to Act on Behalf of Defendant Insurance Agency—Plaintiff Justifiably Relied on the Apparent Authority When It Purchased a Fake Policy from Defendant’s Employee–Plaintiff Entitled to Partial Summary Judgment on the Fraud Cause of Action

The Fourth Department, over a two-justice dissent, determined plaintiff was entitled to summary judgment on its fraud cause of action against defendant insurance agency.  An employee of the insurance agency issued a fake workers’ compensation policy to the plaintiff. The Fourth Department found that the actions of the insurance agency provided the employee with “apparent authority” to issue the policy and the plaintiff justifiably relied on that apparent authority.  The relevant law was succinctly explained:

“In an action to recover damages for fraud, the plaintiff must prove a misrepresentation or a material omission of fact which was false and known to be false by [the maker], made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” … . It is undisputed that the insurance policy purportedly issued by AIG was false, and thus plaintiff established that a false representation was made that was known to be false by defendant’s employee. Defendant contends, however, that the justifiable reliance element was not met because it cannot be liable for the acts of its employee, and plaintiff’s reliance on the alleged “apparent authority” of defendant’s employee was not reasonable.

It is axiomatic that “[t]he mere creation of an agency for some purpose does not automatically invest the agent with apparent authority’ to bind the principle without limitation . . . An agent’s power to bind his [or her] principal is coextensive with the principal’s grant of authority” … . “Essential to the creation of apparent authority are words or conduct of the principal, communicated to the third party, that give rise to the appearance and belief that the agent possesses authority to enter into a transaction. The agent cannot by his [or her] own acts imbue himself [or herself] with apparent authority. Rather, the existence of “apparent authority” depends upon a factual showing that the third party relied upon the misrepresentation of the agent because of some misleading conduct on the part of the principal — not the agent’ . . . Morever, a third party with whom the agent deals may rely on an appearance of authority only to the extent that such reliance is reasonable” … . Here, plaintiff contacted defendant seeking workers’ compensation coverage, and defendant assigned its employee who specialized in plaintiff’s type of business to assist plaintiff. We therefore conclude that plaintiff established that it reasonably relied upon the authority of defendant’s employee to act for defendant. Regency Oaks Corp. v Norman-Spencer McKernan, Inc., 2015 NY Slip Op 04959, 4th Dept 6-12-15

 

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Once Payment of a No-Fault Claim Submitted by the Medical Provider to the Insurer Is Overdue (Because the Insurer Has Not Timely Denied, Paid or Asked for Verification of the Claim) the Medical Provider Is Entitled to Summary Judgment Upon the Submission of Proof, in Admissible Form, that the Statutory Claim Form Was Mailed to and Received by the Insurer—The Medical Provider Need Not Submit Proof of the Validity of the Underlying Medical Services

The Court of Appeals, in a full-fledged opinion by Judge Abdus-Salaam, over a dissent, determined, once a no-fault claim is overdue (because the insurance company has not denied the claim, asked for verification of the claim, or paid the claim, within the statutory time-period), the plaintiff-medical-provider is entitled to summary judgment on the overdue claims after submitting proof the statutory claim forms were mailed to and received by the insurer.  There is no requirement that the plaintiff submit proof of the validity of the underlying medical services:

…[T]he Appellate Division properly determined that plaintiff met its prima facie summary judgment burden. As relevant here, to support its motion, plaintiff submitted the eight verification of treatment forms and Matatov’s affidavit. The documents submitted by plaintiff meet the business records exception to the hearsay rule.

Malatov’s [the billing agent’s] affidavit states that based on his business agreement with plaintiff, SUM Billing created the verification of treatment forms in the regular course of its business and that the forms were created soon after the services were provided by plaintiff … . Indeed, the tight timetable of the no-fault scheme requires prompt submission of proof of claim in order to receive reimbursement. Matatov’s affidavit outlines the office practices and procedures used by SUM Billing to mail claim forms to insurers and demonstrates that Matatov himself mails the forms. Matatov explained that SUM Billing relies on these forms in the performance of its business. Further, the affidavit states how and when the forms at issue here were created and that they were mailed to defendant within the statutory time frame. Thus, as plaintiff was able to demonstrate SUM Billing’s office mailing practices and procedures, “a presumption arises that those notices have been received by the insure[rs]” … . It is undisputed that defendant did not pay or deny seven out of the eight claims at issue. Consequently, those claims are overdue. Plaintiff, therefore, satisfied its burden on summary judgment by demonstrating the mailing of the proof of claim forms, and their receipt by the insurer. Viviane Etienne Med. Care v Country-Wide Ins. Co., 2015 NY Slip Op 04787, CtApp 6-10-15

 

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Testimony by the Vehicle Owner that His Vehicle Was “Missing” at the Time of the Accident Did Not Overcome the Statutory Presumption the Vehicle Was Being Driven with the Owner’s Consent at the Time of the Accident

The Second Department determined the evidence at a framed issue hearing was insufficient to overcome the statutory presumption that Woodley’s vehicle was being driven with the owner’s consent at the time of the accident.  The driver of the Woodley vehicle at the time of the accident was not known.  Woodley testified only that the vehicle was “missing” at the time of the accident.  Woodley also testified that only he and his wife had keys to the vehicle and the keys were found in the vehicle after the accident:

Vehicle and Traffic Law § 388 creates a strong presumption that the driver of a vehicle is operating it with the owner’s consent, which can only be rebutted by substantial evidence demonstrating that the vehicle was not operated with the owner’s permission … . “The uncontradicted testimony of a vehicle owner that the vehicle was operated without his or her permission, does not, by itself, overcome the presumption of permissive use” … .

Although evidence that a vehicle was stolen at the time of the accident may overcome the presumption of permissive use …, under the particular circumstances present here, the vehicle owner’s testimony that the vehicle was missing at the time of the accident, without more, was insufficient to overcome the presumption. Matter of State Farm Ins Co v Kathleen Walker-Pinckney, 2014 NY Slip Op 04018, 2nd Dept 6-4-14

 

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Failure to Allege a “Special Relationship” Between Insurance Broker and Client Required Dismissal of the “Breach of Fiduciary Duty” Cause of Action

In determining defendants’ motion to dismiss the “breach of fiduciary duty” cause of action was properly granted, the Second Department explained that an insurance broker can be liable to a client for breach of a fiduciary duty only when a “special relationship” over and above the ordinary broker-client relationship exists.  Here the plaintiffs failed to allege the existence of a “special relationship.” The court explained the relevant law:

The common-law rule is that “an insurance broker acting as an agent of its customer has a duty of reasonable care to the customer to obtain [specifically] requested coverage within a reasonable time after the request, or to inform the customer of the agent’s inability to do so, [but] the agent owes no continuing duty to advise, guide or direct the customer insured to obtain additional coverage” … . However “[w]here a special relationship develops between the broker and client, [the] broker may be liable, even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage” … . The Court of Appeals has identified three “exceptional situations” which 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'” … . Waters Edge @ Jude Thaddeus Landing, Inc. v B & G Group, Inc., 2015 NY Slip Op 04634, 2nd Dept 6-3-15

 

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Ambiguity Should Have Been Resolved Against the Insurer

Reversing Supreme Court, the Second Department determined the ambiguity in the supplemental underinsured motorist (SUM) endorsement about whether a snowmobile was a covered “motor vehicle” should have been resolved against the insurer. “We find that the policy, when read as a whole, is ambiguous as to whether the term “motor vehicle” in the SUM endorsement refers to the snowmobile, the only vehicle covered by the policy. Contrary to State Farm’s contention and the Supreme Court’s determination, this ambiguity must be resolved ‘against the insurer and in favor of coverage’ … , without reference to the definition of ‘motor vehicle’ set forth in the Vehicle and Traffic Law.”  Matter of State Farm Mut. Auto. Ins. Co. v Jones, 2015 NY Slip Op 04493, 2nd Dept 5-27-15

 

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The Insurer Properly Reserved Its Rights to Disclaim Coverage When It Agreed to Defend a Legal Malpractice Action

The insurer agreed to defend an attorney in a legal malpractice action, but reserved its rights to disclaim coverage based upon the exclusion in the policy for actions arising from the conduct of a business owned by the attorney (as opposed to the law practice). The First Department rejected the argument that the insurer’s reservation of rights violated the policy:

The issuance of a reservation of rights allows the insurer the flexibility of fulfilling its obligation to provide its insured with a defense, while continuing to investigate the claim further. In fact, an insurance company’s failure to reserve the right to disclaim coverage may later result in the insurer being equitably estopped from doing so … . Thus, although plaintiffs are correct that the counterclaims, broadly construed, triggered defendants’ duty to provide them with a defense, defendants did not breach that duty by agreeing to do so, but with a reservation of rights to, among other things, later recoup their defense costs upon a determination of non-coverage … . Law Offs. of Zachary R. Greenhill P.C. v Liberty Ins. Underwriters, Inc., 2015 NY Slip Op 04382, 1st Dept 5-21-15

 

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“Bankruptcy” Exclusion in a Political Risk Insurance Policy Applied—Insurer Not Obligated to Cover Loss Occasioned by Bankruptcy Proceedings in Mexico

The First Department, in a full-fledged opinion by Justice Gonzalez, determined that the “bankruptcy” exclusion in a Political Risk Insurance Policy applied to court proceedings in Mexico and the insurer was therefore entitled to disclaim coverage for the related loss to plaintiff.  The core issue was the meaning of “bankruptcy.”  The plaintiff argued the term referred to a final adjudication of bankruptcy. But the court held the definition was much broader, and included the ongoing court proceedings in Mexico.  The fact that the plaintiff and defendant disagreed about the definition of “bankruptcy” did not render the policy-contract ambiguous.  Applying the plaintiff’s narrow definition would have rendered other provisions of the policy-contract superfluous:

We agree with defendant that plaintiff’s definition of bankruptcy (a final judgment of reorganization or liquidation) is overly narrow. Bankruptcy is generally understood to include being under the judicial protection of a bankruptcy court – or, according to dictionary definition – “a statutory procedure by which a (usu[ally] insolvent) debtor obtains financial relief and undergoes a judicially supervised reorganization or liquidation. . . for the benefit of creditors” (Black’s Law Dictionary 175 [10th ed 2014]; see Compact Oxford English Dictionary 934-935 [2d ed 1999][same]).

Plaintiff contends that since the parties have conflicting interpretations of the term “bankruptcy,” the policy must be ambiguous on this point, and points out that settled principles of interpretation of insurance contracts require resolution of any ambiguity in favor of the insured … . However, “provisions in a contract are not ambiguous merely because the parties interpret them differently” … . Here, common understanding supports interpreting the term bankruptcy as the court proceeding in which the debtor is afforded judicial protection while it reorganizes or liquidates.

Further, settled law requires that the terms of a contract be read in context … . Plaintiff’s definition of bankruptcy, i.e. the state of having been declared bankrupt, would render the accompanying alternatives in Section 4.12 of the policy (insolvency and financial default) superfluous. The redundancy can be eliminated only by accepting defendant’s definition, an interpretation that gives meaning to every “sentence, clause, and word of [the] contract of insurance” … . CT Inv. Mgt. Co., LLC v Chartis Specialty Ins. Co., 2015 NY Slip Op 04051, 1st Dept 5-12-15

 

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Insurance Company’s Documents Protected by Attorney-Client Privilege/Where there is a Discrepancy Between an Order and the Related Decision, the Decision Controls

The Fourth Department determined Supreme Court should not have ordered disclosure of documents generated by an insurance company in relation to plaintiff’s claim because they were protected by attorney-client privilege.  (The court noted, with respect to the lower court’s decision and order in this case,  that where there is a discrepancy between and order and a decision, the decision controls:)

A party seeking to invoke the attorney-client privilege must show that “the information sought to be protected from disclosure was a confidential communication’ made to the attorney for the purpose of obtaining legal advice or services . . . [, and] the burden of proving each element of the privilege rests upon the party asserting it” … . “For the privilege to apply when communications are made from client to attorney, they must be made for the purpose of obtaining legal advice and directed to an attorney who has been consulted for that purpose.’ . . . [F]or the privilege to apply when communications are made from attorney to client—whether or not in response to a particular request—they must be made for the purpose of facilitating the rendition of legal advice or services, in the course of a professional relationship” … .

It is well settled that “[t]he payment or rejection of claims is a part of the regular business of an insurance company. Consequently, reports which aid it in the process of deciding which of the two indicated actions to pursue are made in the regular course of its business” … . Notably, “while information received from third persons may not itself be privileged . . . , a lawyer’s communication to a client that includes such information in its legal analysis and advice may stand on different footing. The critical inquiry is whether, viewing the lawyer’s communication in its full content and context, it was made in order to render legal advice or services to the client”… . Nicastro v New York Cent Mut Fire Ins Co, 2014 NY Slip Op 03381, 4th Dept 5-9-14

 

Whether the Insurer Is Obligated to Indemnify the Driver Turns on Whether the Driver Acted Intentionally When His Vehicle Struck the Rear of Decedent’s Vehicle—-There Was a Question of Fact Whether the Incident Was an Accident or the Result of Intentional Conduct

The Fourth Department determined there was a question of fact whether the striking of decedent’s car from behind was intentional or accidental.  If the rear driver acted intentionally, his insurer had no duty to indemnify the rear driver. The court explained the terms “accidental” and “intentional” in this context:

“In deciding whether a loss is the result of an accident, it must be determined, from the point of view of the insured, whether the loss was unexpected, unusual and unforeseen” … . We must look to the allegations of the complaint in the underlying action, but may also consider extrinsic facts … .

Insurable ” [a]ccidental results can flow from intentional acts’ ” … . On the other hand, “when the damages alleged in the [underlying] complaint are the intended result which flows directly and immediately from [the insured’s] intentional act, . . . there is no accident, and therefore, no coverage” … . “[M]ore than a causal connection between the intentional act and the resultant harm is required to prove that the harm was intended” … . The exclusion for an intentional injury, however, will apply where the injuries are ” inherent in the nature’ of the wrongful act”… . Kemper Independence Ins. Co. v Ellis, 2015 NY Slip Op 04011, 4th Dept 5-8-15

 

Person Injured After Being Thrown from a Motorcycle Is an “Occupant” of the Motorcycle Within the Meaning of the Insurance Law and Is Therefore Not Eligible for First-Party No-Fault Benefits

The Fourth Department, in a full-fledged opinion by Justice Sconiers, determined a person injured after being thrown from a motorcycle was an “occupant” of the motorcycle within the meaning of the Insurance Law and therefore ineligible for first-party no-fault benefits:

Previously, motorcycle operators and passengers injured in motor vehicle accidents were generally entitled to first-party benefits under the no-fault law. Former section 672 (1) (a) of the Insurance Law provided that those entitled to first-party benefits under the no-fault scheme encompassed “persons, other than occupants of another motor vehicle.” That category included motorcyclists on a par with pedestrians … . The statute was amended in 1977 to exclude occupants of motorcycles from such benefits (see L 1977, ch 892, § 9), thereby terminating the treatment of motorcycle occupants “as pedestrians rather than motorists [who] enjoy the benefits of no-fault at no cost” … . The successor of the amended statute, Insurance Law § 5103 (a) (1), currently provides that, under a policy of insurance issued on an automobile, first-party benefits are available to “[p]ersons, other than occupants of another motor vehicle or a motorcycle” … . The exclusions in the Kemper and Farm and Family insurance policies of “any person while occupying a motorcycle” are consistent with Insurance Law § 5103 (a) (1) and the regulations promulgated thereunder (see 11 NYCRR 65-1.1 [d]). Boyson v Kwasowsky, 2015 NY Slip Op 03964, 4th Dept 5-8-15

 

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