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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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Eliot Spitzer, Former New York Attorney General, Was a Necessary Party in FOIL Proceeding Seeking His Private Emails In Connection With Civil Enforcement Action against AIG Chief Financial Officer

Petitioner, former Chief Financial Officer of AIG, was the subject of a civil enforcement action against him brought in 2005 by then Attorney General Eliot Spitzer.  Supreme Court granted petitioner’s Freedom of Information Law (FOIL) request for access to private emails of Spitzer.  The Third Department determined that, given the nature of the documents requested, and Spitzer’s current status as a private person, he was a necessary party to the action:

Since at this juncture the object of this proceeding is Spitzer’s private email account(s), and the outcome of this appeal could be a directive to respondent to gain access to and review those private accounts, Spitzer would certainly be “inequitably affected by a judgment in th[is] [proceeding]” and “ought to be [a] part[y] if complete relief is to be accorded between the persons who are parties to [this proceeding]” (CPLR 1001 [a]).  As such, Spitzer is a necessary party herein … .  While not raised directly by the parties, “the court may at any stage of a case and on its own motion determine whether there is a nonjoinder of necessary parties” … .  “The rule . . . insures fairness to third parties who ought not to be prejudiced or ’embarrassed by judgments purporting to bind their rights or interest where they have had no opportunity to be heard'” … .

In this matter, resolution of the disputed FOIL demand directly impacts the personal property of Spitzer, now a private citizen who is not before this Court and whose significant private rights and property cannot be said to be protected by the current respondent, which admittedly does not represent Spitzer’s private interests.  However, “[t]his [C]ourt has previously held that a court may not, on its own initiative, add or direct the addition of a party” (…see CPLR 1003).  Accordingly, the matter must be remitted to Supreme Court to order Spitzer to be joined if he is subject to the jurisdiction of the court and, if not, to permit Spitzer’s joinder by stipulation, motion or otherwise and, “if joinder cannot be effectuated, the court must then determine whether the [proceeding] should be permitted to proceed in the absence of necessary parties”… .  Matter of Smith v NYS Office of the Attorney General, 515758, 3rd Dept 10-17-13

 

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Plaintiff’s Chapter 13 Bankruptcy Did Not Preclude Lawsuit—Question of Fact Re: Applicability of Emergency Doctrine

In affirming the denial of summary judgment to the defendant driver who struck plaintiff when the defendant turned toward the shoulder to avoid an on-coming car, the Third Department noted that plaintiff’s Chapter 13 bankruptcy did not preclude the suit and there were questions of fact about the applicability of the emergency doctrine:

Initially, we reject defendants’ assertion that plaintiff lacks the capacity to sue by virtue of his failure to disclose his personal injury claim in his chapter 13 bankruptcy schedule of assets.  “While [c]hapter 7 and [c]hapter 11 debtors lose standing to maintain civil suits – which must be brought and/or maintained by their bankruptcy trustees – it is clear that [c]hapter 13 debtors like plaintiff are not subject to this restriction” … .   Accordingly, Supreme Court properly concluded that plaintiff’s omission in this regard was not fatal. …

“Under the emergency doctrine, a driver who confronts a sudden and unexpected circumstance which leaves little or no time for thought, deliberation or consideration may be relieved of liability if the actions taken in response are reasonable and prudent in the emergency context” … .  The reasonableness of the driver’s conduct, as well as whether he or she could have done something to avoid the accident, typically present questions of fact for a jury to resolve … .  Thus, in order to be granted summary judgment in this regard, “a driver must establish as a matter of law that he or she did not contribute to the creation of the emergency situation, and that his or her reaction was reasonable under the circumstances such that he or she could not have done anything to avoid the collision” …Defendants failed to meet that burden here.  Collins v Suraci, 516138, 3rd Dept 10-17-13

 

Res Ipsa Loquitur Doctrine Re: Shard of Wood Ingested by Plaintiff Allowed Case to Survive Summary Judgment

In reversing Supreme Court, the Third Department determined the doctrine of res ipsa loquitur sufficiently raised a question of fact about whether a shard of wood, which was swallowed by plaintiff, was negligently present in food prepared by defendant (Cipriani):

Res ipsa loquitur is neither a theory of liability nor a presumption of liability, but instead is simply a permitted inference – that the trier of fact may accept or reject – reflecting a “common-sense application of the probative value of circumstantial evidence” … .  Criteria for res ipsa loquitur to apply are that “(1) the event must be of a kind which ordinarily does not occur in the absence of someone’s negligence; (2) it must be caused by an agency or instrumentality within the exclusive control of the defendant; [and] (3) it must not have been due to any voluntary action or contribution on the part of the plaintiff” … .  The parties dispute the exclusive control element and, to establish that element, plaintiffs were “not obligated to eliminate every alternative explanation for the event, but only to demonstrate that the likelihood of causes other than the defendant[s’] negligence is so reduced that the greater probability lies at defendant[s’] door, rendering it more likely than not that the injury was caused by defendant[s’] negligence” … .

Here, the event occurred at a banquet hall operated by Cipriani.  Cipriani prepared and provided all of the food. Attendees were not permitted to bring food onto the premises. Individuals undisputedly under Cipriani’s control (pursuant to a contractual arrangement) acted as captains, servers and bartenders.  Cipriani thus exclusively prepared, provided and served the food.  Although the shard possibly could have been present when the ingredients for food were purchased from suppliers, it was not so small as to have been likely concealed and thus not visible upon careful preparation (cf. Restatement [Second] of Torts § 328D, Comment e, Illustration 2).  … There is sufficient proof under these circumstances to find ample control by defendants for purposes of res ipsa loquitur. Brumberg v Cipriani USA Inc, 2013 NY Slip Op 06759, 3rd Dept 10-17-13

 

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New Medicaid Reimbursement Procedures Did Not Violate State Administrative Procedure Act

The Third Department affirmed Supreme Court and determined that a modified Medicaid reimbursement procedure for the school supportive health services program (SSHSP) did not violate the State Administrative Procedure Act because the new administrative directives (referred to as Q & A’s) were not new rules triggering the requirements of the Act:

The documentation and reimbursement eligibility requirements reflected in the challenged Q & As were not required to be promulgated as rules under the State Administrative Procedure Act.  For purposes of rule-making notice and filing requirements (see State Administrative Procedure Act § 202), a rule is defined as “the whole or part of each agency statement, regulation or code of general applicability that implements or applies law, or prescribes . . . the procedure or practice requirements of any agency, including the amendment, suspension or repeal thereof” (State Administrative Procedure Act § 102 [2] [a]).  Expressly excluded from the definition are “rules concerning the internal management of the agency which do not directly and significantly affect the rights of or procedures or practices available to the public” (State Administrative Procedure Act § 102 [2] [b] [i]), and “forms and instructions, interpretive statements and statements of general policy which in themselves have no legal effect but are merely explanatory” (State Administrative Procedure Act § 102 [2] [b] [iv]).  The Court of Appeals has recognized “that there is no clear bright line between a ‘rule’ or ‘regulation’ and an interpretative policy” (Cubas v Martinez, 8 NY3d 611, 621 [2007]).  Courts have previously found administrative directives to be interpretive statements when they rely on and constitute reasonable interpretations of existing regulations or statutes, or merely address the type of documentation needed to establish whether a predetermined test of eligibility has been met … .  Board of Education of the Kiryas Joel Village Union Free School District, 516336, 3rd Dept 10-17-13

 

Revocation of Empire Zone Program Certifications Cannot Be Applied Retroactively

The Third Department noted that revocation of Empire Zone Program certifications cannot be applied retroactively pursuant to James Sq Assoc LP v Mullen, 21 NY3d 233 [2013].  Matter of Bond, Schoeneck & King PLLC v NY Dept of Economic Development…, 514812, 3rd Dept 10-17-13

 

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In College Disciplinary Action, Victim Need Not Testify—Failure to Detail Factual Findings in Determination Violates Due Process

The Third Department, in a disciplinary action by SUNY Cortland, determined the alleged victim of harassment was not the complainant in the disciplinary proceeding and therefore the alleged victim need not testify in the proceeding.  The court, however, determined the school’s failure to set forth detailed factual findings in its disciplinary determination violated the student’s due process rights. The matter was sent back for those factual findings, after which the student could pursue administrative remedies:

We reject petitioner’s contention that the Hearing Panel failed to substantially adhere to its rules and regulations published in the Code … .  Although petitioner correctly notes that the Code requires the “complainant” to present his or her own case, the “complainant” is defined as “any person or persons who have filed disciplinary charges against a student.”  Here, the complainant was SUNY Cortland’s Director of Judicial Affairs.  Thus, petitioner’s contention that the Hearing Panel did not comply with the Code because the victim did not present the case is unavailing.  Furthermore, as the victim was not called as a witness by either side and nothing in the Code establishes that the victim is a party to a disciplinary proceeding, we find that the Hearing Panel substantially complied with its rule requiring it to afford petitioner the opportunity to question all parties.  …
We do agree, however, that petitioner was denied due process because the Hearing Panel failed to set forth detailed factual findings in its disciplinary determination.  In a disciplinary proceeding at a public institution of higher education, due process entitles a student accused of misconduct to “a statement detailing the factual findings and the evidence relied upon by the decision-maker in reaching the determination of guilt” … .   Recognized as one of the “‘rudimentary elements of fair play'” in this context …, “[s]uch a statement is necessary to permit the student to effectively challenge the determination in administrative appeals and in the courts and to ensure that the decision was based on evidence in the record”… . Matter of Boyd v SUNY Cortland, 514925, 3rd Dept 10-17-13

 

Accidental Disability Retirement Benefits (Police Officers)

The Third Department confirmed the comptroller’s determination that the injuries suffered by a police officer were not the result of “accidents” and therefore did not justify the award of accidental disability retirement benefits.  The officer slipped on a wet metal-encased curb while directing traffic and was subsequently injured again when a suspect he was chasing resisted arrest.  The Third Department wrote:

Initially, we note that petitioner has the burden of demonstrating that he is entitled to receive accidental disability retirement benefits, and the Comptroller’s determination will be upheld if supported by substantial evidence … .  In order to qualify as an accident, the precipitating event must be “a sudden, fortuitous mischance that is unexpected, out of the ordinary and injurious in impact” … .  Notably, an injury will not be considered accidental if it “‘results from an expected or foreseeable event arising during the performance of routine employment duties'” … . Matter of Rodriques v DiNapoli, 515935, 3rd Dept 10-3-13

 

Retroactive Transfer of Liability to Special Fund Proper

The Third Department affirmed the board’s determination that retroactive transfer of liability to the Special Fund to a time within seven years of the underlying injury was proper:

Pursuant to Workers’ Compensation Law § 25-a, liability is transferred to the Special Fund “when an application to reopen a closed case is made more than seven years from the date of injury and more than three years after the last payment of compensation” (…see Workers’ Compensation Law § 25-a [1]).  Here, there is no dispute that these conditions have been met and the only issue before us is whether the Board properly transferred liability to the Special Fund retroactively to a period of time prior to the lapse of seven years following claimant’s injury.

While the retroactive transfer of liability to the Special Fund is limited to no longer than two years prior to the date of the application to reopen (see Workers’ Compensation Law § 25-a [1-a]…), there is no statutory requirement that there be a seven year lapse from the date of a claimant’s injury prior to the date of a retroactive transfer of liability (see Workers’ Compensation Law § 25-a [1-a]).  Accordingly, we conclude that the Board’s determination, that Workers’ Compensation Law § 25-a does not preclude a retroactive transfer of liability to the Special Fund to a time period within seven years of the underlying injury, is not unreasonable, irrational or inconsistent with the purpose of the statute …, and the Board has set forth sufficient reasons for no longer following any prior decisions to the contrary. Canfora v Goldman Sachs…, 515529, 3rd Dept 10-3-13

 

Math Tutor Was an Independent Contractor, Not an Employee

The Third Department affirmed the decision of the Unemployment Insurance Appeal Board finding that claimant, a math tutor, was an independent contractor, not an employee:

Although claimant maintains that he was erroneously considered an independent contractor in connection with earnings received from tutoring services through TestQuest, Inc. and that such funds should be utilized as covered employment to establish his claim, we cannot agree.  As noted earlier, TestQuest, Inc. tutors such as claimant were deemed by this Court to be independent contractors (Matter of Leazard [TestQuest, Inc.–Commissioner of Labor], 74 AD3d at 1415-1416), which decision is conclusive and binding upon all such persons employed by TestQuest, Inc. (see Labor Law § 620 [1] [b]).  As such, those earnings cannot qualify for inclusion as remuneration in the base periods… . Matter of Tkachyshyn…, 516210. 3rd Dept 9-26-13

 

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