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Five-Month Delay in Notifying Carrier Not Justified by Insured’s Belief Lawsuit Was Fraudulent

The Third Department determined, as a matter of law, that defendant’s failure to notify the insurance carrier of a personal injury lawsuit for nearly five months justified the carrier’s denial of coverage.  The court noted that defendant’s belief the lawsuit was fraudulent was not a “good-faith belief of nonliability;”

“Where a policy of liability insurance requires that notice of an occurrence be given ‘as soon as practicable,’ such notice must be accorded the carrier within a reasonable period of time. The insured’s failure to satisfy the notice requirement constitutes a failure to comply with a condition precedent which, as a matter of law, vitiates the contract” … .  Although “there may be circumstances where the insured’s failure to give timely notice is excusable, . . . [t]he insured bears the burden of establishing the reasonableness of the proffered excuse” … .  In this regard, the reasonableness of the insured’s excuse – although generally presenting a question of fact for a jury … – “may be determined as a matter of law where the evidence, construing all inferences in favor of the insured, establishes that the belief was unreasonable or in bad faith” … .

Here, defendant made a prima facie showing of its entitlement to judgment as a matter of law based upon plaintiff’s nearly five-month delay (August 2008 to January 2009) in notifying defendant of the underlying personal injury action …, and plaintiff failed to tender sufficient proof to raise a question of fact as to the reasonableness of such delay.  Plaintiff’s personal belief that the guest’s lawsuit was fraudulent is not the equivalent of “a good-faith belief of nonliability” … . Vale…v Vermont Mutual Insurance Group, 515999, 3rd Dept 12-5-13

 

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“Filed Rate Doctrine” Precluded Lawsuit Alleging Unreasonable Premium

In a full-fledged opinion by Justice Skelos, the Second Department determined the “filed rate doctrine” precluded a lawsuit alleging an insurance premium (re: the employment of uninsured subcontractors) was unreasonable. The action was brought before the premium was paid.  For that reason, the court dismissed the unjust enrichment and breach of contract causes of action (which require damages), noting that the proper action was one seeking a declaratory judgment. In determining the General Business Law section 349 action was properly dismissed, the Second Department explained, in great detail which cannot be fairly summarized here, the “filed rate doctrine:”

The filed rate doctrine bars actions against federal- and state-regulated entities which are “grounded on the allegation that the rates charged by [those entities] are unreasonable” … . “Simply stated, the doctrine holds that any filed rate’—that is, one approved by the governing regulatory agency [here, the Insurance Department]—is per se reasonable and unassailable in judicial proceedings brought by ratepayers” … . Thus, “a consumer’s claim, however disguised, seeking relief for an injury allegedly caused by the payment of a rate on file with a regulatory commission, is viewed as an attack upon the rate approved by the regulatory commission” and, therefore, barred by the doctrine … .  W Park Assoc Inc v Everest Natl Ins Co, 2013 NY Slip Op 07724, 2nd Dept 11-20-13

 

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Proof of Normal Notification Procedure Sufficient to Demonstrate Defendant Was Notified of Lead-Paint-Injury Exclusion in Policy

Over a two-justice dissent, the Fourth Department determined defendant (Donnelly) was notified of an amendment to his insurance policy which disclaimed coverage for injury related to the presence of lead paint (and therefore plaintiff-insurer was not obligated to defend or indemnify defendant in a lead-paint-injury case).  The court also determined that the lead-paint-injury exclusion did not violate public policy. With respect to the proof defendant was notified of the amendment, the court deemed evidence of the usual notification procedure sufficient:

…[W]e conclude that the documents established as a matter of law that the lead exclusion was properly added to Donnelly’s insurance policy and that Donnelly was notified of that amendment.  Although plaintiff did not submit evidence that the notice of the amendment was mailed to Donnelly and Donnelly could not recall receiving the notice, plaintiff submitted evidence in admissible form “of a standard office practice or procedure designed to ensure that items are properly addressed and mailed,” thereby giving rise to a presumption that Donnelly received the notice … .  …[T]he evidence submitted by plaintiff established that the “office practice [was] geared so as to ensure the likelihood that [the] notice[s of amendment] . . . [were] always properly addressed and mailed” … .  Specifically, the evidence established the procedure used by plaintiff for generating notices whenever an insurance policy was amended, and the documentary evidence established that a notice was generated for Donnelly’s policy during the year in which the lead exclusion was added to the policy. In addition, plaintiff submitted evidence that it placed the notices in envelopes with windows so that the address on the notice was the one used for mailing.  The envelopes were then delivered to the mail room, where they were sealed and the appropriate postage was added. Thereafter, the mail was hand delivered to the post office that was located adjacent to plaintiff’s parking lot. Preferred Mutual Insurance Company v Donnelly…, 857, 4th Dept 11-8-13

 

Four-Inch Floor-Drop Caused by Insect-Damage Constituted a “Collapse” within Meaning of Policy

In finding that the term “collapse” in a home insurance policy included a four-inch drop in the floors caused by insect damage, the Third Department explained:

An insurance policy must be interpreted to give clear and unambiguous provisions their plain and ordinary meaning… .  However, “[t]he policy must, of course, be construed in favor of the insured, and ambiguities, if any, are to be resolved in the insured’s favor and against the insurer” … .  The policy at issue here specifically covers “physical loss to covered property involving collapse of a building or any part of a building” …, but only if such collapse is caused by, among other things, “hidden insect or vermin damage.”  While the policy does not define what constitutes a collapse, it provides that a “[c]ollapse does not include settling, cracking, shrinking, bulging or expansion.”  In this regard, we have held that the term collapse “involves an element of suddenness, a falling in, and total or near total destruction” … . However, “the clear modern trend is to hold that collapse coverage provisions [–] which define collapse as not including cracking and settling – provide coverage if there is substantial impairment of the structural integrity of the building or any part of a building” … . Wangerin v New York Central Mutual Fire Insurance Company, 515723, 3rd Dept 11-7-13

 

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Police Officer (a Passenger in a Police Car) Who Was Injured by Underinsured Driver Was Covered By Police-Officer-Driver’s (Private) Underinsured Motorist Endorsement

In a full-fledged opinion by Justice Hall, the Second Department determined that a police car is a “motor vehicle” within the meaning of an uninsured/underinsured motorist endorsement in a [State Farm] policy held by the driver.  The plaintiff, a police officer, was injured in an automobile accident with an underinsured driver. The question was whether the State Farm policy held by the driver of the police car, another police officer, could be financially responsible under the uninsured/underinsured endorsement in the driver’s policy.  The Second Department held that the driver’s underinsured endorsement covered the injured (police-officer) passenger.  The question at issue was whether the exclusion of “police vehicle” from the definition of “motor vehicle” in Vehicle and Traffic Law 388(2) applied.  The court ruled it did not and determined the operative definition of “motor vehicle” in this context was in Vehicle and Traffic Law 125:

Contrary to State Farm’s contention, VTL § 125, instead of VTL § 388(2), should be used to define the term “motor vehicle,” as it appears in the uninsured/underinsured motorist endorsement. VTL § 125 is a general provision that defines the relevant terminology for the entire VTL. In fact, VTL § 388(2) acknowledges this by incorporating by reference the VTL § 125 definition of “motor vehicle.” Additionally, it has been recognized that uninsured motorist coverage extends to all “motor vehicles,” as defined by VTL § 125 (…Insurance Law § 5202[a]…).

Police vehicles fall within the definition of a “motor vehicle” under VTL § 125 because they constitute a “vehicle operated or driven upon a public highway which is propelled by any power other than muscular power,” and they do not fall within any of the exclusions provided in the statute. Thus, the police vehicle at issue here falls within the definition of a “motor vehicle” under the uninsured/underinsured motorist endorsement.  Matter of State Farm Mut Auto Ins Co v Fitzgerald, 2013 NY Slip Op 07186, 2nd Dept 11-6-13

 

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Punitive Damages Not Available in Contract Action Absent Independent Tort

The Third Department determined plaintiff had not pled a tort cause of action independent of the breach of contract cause of action and therefore was not entitled to punitive damages.  The plaintiff had alleged defendant insurance company engaged in bad faith by failing to promptly investigate his no-fault claim and failing to renew his insurance policy:

Although “damages arising from the breach of a contract will ordinarily be limited to the contract damages necessary to redress the private wrong, . . . punitive damages may be recoverable if necessary to vindicate a public right” …, but only where a defendant’s conduct was (1) actionable as an independent tort, (2) egregious, (3) directed toward the plaintiff and (4) part of a pattern directed at the public … .  Thus, “[w]here a lawsuit has its genesis in the contractual relationship between the parties, the threshold task for a court considering [a] defendant’s motion to dismiss a cause of action for punitive damages is to identify a tort independent of the contract” … .  In this regard, a “defendant may be liable in tort when it has breached a duty of reasonable care distinct from its contractual obligations, or when it has engaged in tortious conduct separate and apart from its failure to fulfill its contractual obligations” … .  Nonetheless, “where a party is merely seeking to enforce its bargain, a tort claim will not lie” … .

Here, plaintiff seeks an award of punitive damages based upon his allegation that defendant engaged in “bad faith tactics” by failing to promptly investigate his no-fault claim and failing to renew his insurance policy.  Such claim does not allege a breach of duty distinct from defendant’s contractual obligations. Further, while plaintiff alleged a violation of Insurance Law § 2601 based upon defendant’s purported failure to timely investigate his no-fault claim, New York does not recognize a private cause of action under that statute… . Dinstber v Allstate Insurance Company, 515653, 3rd Dept 10-31-13

 

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No Justification for Vacation of Arbitration Award—Strict Standard Applies

The Second Department determined Supreme Court erred in vacating an arbitration award in a case involving an uninsured motorist endorsement. Petitioner had won a $25,000 (default) civil judgment against the driver, but in the arbitration under the uninsured motorist endorsement, the arbitrator awarded $10,000:

The Supreme Court erred in vacating the arbitration award. “[J]udicial review of arbitration awards is extremely limited” … . ” An arbitration award must be upheld when the arbitrator “offer[s] even a barely colorable justification for the outcome reached”‘” … . In addition, an “arbitrator’s award should not be vacated for errors of law and fact committed by the arbitrator and the courts should not assume the role of overseers to mold the award to conform to their sense of justice” … . “An arbitrator is not bound by principles of substantive law or rules of evidence, and may do justice and apply his or her own sense of law and equity to the facts as he or she finds them to be” … . Insofar as is relevant to the instant proceeding, pursuant to CPLR 7511(b)(1)(iii), a court may only vacate an arbitration award if the rights of the party moving to vacate the award were prejudiced by the arbitrator “exceed[ing] his [or her] power or so imperfectly execut[ing] it that a final and definite award upon the subject matter submitted was not made.” “Such an excess of power occurs only where the arbitrator’s award violates a strong public policy, is irrational or clearly exceeds a specifically enumerated limitation on the arbitrator’s power” … .

Here, the terms of the SUM endorsement clearly provide that any sum [the insurer] was obligated to pay the petitioner, which the petitioner was legally entitled to recover, was subject to arbitration, and that the parties agreed to be bound by the arbitrator’s award.  Matter of Aftor v Geico Ins Co, 2013 NY Slip Op 07032, 2nd Dept 10-30-13

 

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Criteria for Unconstitutional Impairment of Contract Rights Explained in Context of Requirement that Health Insurers Reimburse Customers Pursuant to Public Health Law Section 4308

Supreme Court granted summary judgment to plaintiff health insurer on the ground that certain portions of Insurance Law section 4308 constituted an unconstitutional impairment of contract rights.  The Third Department determined summary judgment should not have been granted (on grounds unrelated to a determination of constitutionality).  In the course of the decision, the court explained the constitutional analytical criteria:

Plaintiff is a not-for-profit health insurer that offers various types of health insurance to its subscribers, including – insofar as is relevant here – community-rated, large-group insurance and health maintenance organization policies. Historically, insurers such as plaintiff were required to obtain prior approval from the Superintendent of Insurance1 before increasing or decreasing premium rates (see Insurance Law former § 4308 [c] [1]…).  In 1995, however, the Legislature replaced this system with a “file and use” methodology, whereby insurers could increase or decrease premiums at their discretion, so long as the “anticipated incurred loss ratio” for the affected insurance pool fell within statutory minimum and maximum percentages… .  If the actual loss ratio fell below the statutory minimum, the insurer was required to “issue a refund to its subscribers or credit a dividend against future premiums”; if the actual loss ratio exceeded the statutory maximum, the insurer “increase[d] its premium rates accordingly”… .

In response to growing concerns that steady increases in premium rates were making health insurance less affordable, the Legislature amended Insurance Law § 4308 again in 2010 (see L 2010, ch 107, § 2) – reinstating the prior approval requirement and setting the minimum loss ratio for all coverage pools at 82% loss ratio for its large-group coverage pools fell below the 82% requirement.  As a result, defendant Superintendent of Financial Services directed that plaintiff issue refunds or credits totaling $3,349,976 to policyholders enrolled in community-rated large-group contracts. * * *

US Constitution, article I, § 10 provides that “[n]o [s]tate shall . . . pass any . . . [l]aw impairing the [o]bligation of [c]ontracts.”  The prohibition contained in the Contract Clause, however, is not absolute, as states “retain the power to safeguard the vital interests of [their] people” … .  “Thus, the [s]tate may impair [private] contracts by subsequent legislation or regulation so long as it is reasonably necessary to further an important public purpose and the measures taken that impair the contract are reasonable and appropriate to effectuate that purpose” … .  Analysis of a claimed Contract Clause violation “require[s] consideration of three factors: (1) whether the contractual impairment is in fact substantial; if so, (2) whether the law serves a significant public purpose, such as remedying a general social or economic problem; and, if such a public purpose is demonstrated, (3) whether the means chosen to accomplish this purpose are reasonable and appropriate”… . Healthnow New York Inc … v NYS Insurance Dept, 516179, 3rd Dept 10-17-13

 

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Damage to Building Caused By Excavation Next Door Constituted “Vandalism”

In a full-fledged opinion by Judge Smith, over a partial dissent, the Court of Appeals answered two certified questions from the Second Circuit.  The case involved damage to a building caused by the excavation of a parking garage next door. The question was whether the damage could fall within the meaning of “vandalism” in the building owner’s insurance policy, even though the alleged acts were not directed at the damaged building.  The Court of Appeals answered in the affirmative:

It is true that, in some cases of alleged vandalism not directed at particular property, the term does not intuitively seem to fit.  … The word vandalism, which derives from the sack of Rome by the original Vandals in 455 AD (see IV, Gibbon, The History of the Decline and Fall of the Roman Empire at 246-248 [Folio Society 1986]), more readily brings to mind people who smash and loot than business owners who seek their own profit in disregard of the injury they do to the property of others.  We conclude, however, that there is no principled distinction between the two.  An excavator who is paid to dig a hole, and does so in conscious disregard of likely damage to the building next door, is, for these purposes, not essentially different from an irresponsible youth who might dig a hole on the same property, with the same effect, whether in search of buried treasure or just for fun. …

In common speech, and by the express terms of the policy in suit, vandalism is “malicious” damage to property.  The Second Circuit’s second question asks, in essence, what state of mind amounts to “malice” for these purposes.  We answer by adopting, insofar as it relates to property damage, the formulation we have used in reviewing awards of punitive damages. Conduct is “malicious” for these purposes when it reflects “such a conscious and deliberate disregard of the interests of others that [it] may be called willful or wanton”… .  Georgitsi Realty LLC v Penn-Starr Insurance Co, 156, CtApp 10-17-13

 

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Plaintiff’s Proof of Reason for Termination of Treatment Was Sufficient to Get By Defendant’s Summary Judgment Motion

Over two dissenters, the Court of Appeals reversed the grant of summary judgment to the defendant with respect to plaintiff’s proof of “serious injury” under the No-Fault Law.  Plaintiff testified that he stopped physical therapy because “they cut [him] off like five months.”  The appellate division held that bare assertion was insufficient to justify the termination of treatment and documentary evidence of the exhaustion of insurance benefits or at least an indication the claimant could not pay for the treatment was required. In reversing, the Court of Appeals wrote:

We stated in Pommells [4 NY3d 566] that a plaintiff claiming “serious injury” within the meaning of the No-Fault Law “must offer some reasonable explanation” for terminating treatment (4 NY3d at 574).  We did not require any particular proof regarding that explanation, although we recognized that there is “abuse of the No-Fault Law in failing to separate ‘serious injury’ cases, which may proceed to court, from the mountains of other auto accident claims, which may not”… .

The Appellate Division’s requirement that plaintiff either offer documentary evidence to support his sworn statement that his no-fault benefits were cut off, or indicate that he could not afford to pay for his own treatment, is an unwarranted expansion of Pommells. Plaintiff testified at his deposition that “they” (which a reasonable juror could take to mean his no-fault insurer) cut him off, and that he did not have medical insurance at the time of the accident.  While it would have been preferable for plaintiff to submit an affidavit in opposition to summary judgment explaining why the no-fault insurer terminated his benefits and that he did not have medical insurance to pay for further treatment, plaintiff has come forward with the bare minimum required to raise an issue regarding “some reasonable explanation” for the cessation of physical therapy.  Ramkumar v Grand Style Transportation Enterprises Inc…, 170, CtApp 10-15-13

 

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