Coverage Pointers - Volume II, No. 14

New Page 1

BRASNER
New York State Supreme Court, Appellate Division, First Department
Insurance Carrier and its Agents have no Duty to Disclose Medical Conditions Discovered during Pre-insurance Physical Exam
In a case of first impression in New York, the court held that an insurance carrier and its agents have no duty to disclose to a prospective insured medical conditions discovered during a pre-insurance physical exam. The prospective insured had filed an application for life insurance and, as part of the application process, was examined by a technician employed by Examination Management Services, Inc. At the insurer’s direction, the technician drew blood and urine (which were forwarded to an independent lab for evaluation), took blood pressure readings and performed an EKG. The technician specifically advised the prospective insured that the tests were not for the purpose of treatment or evaluation. The lab results revealed abnormal cholesterol blood levels as well as nicotine in the urine, although the prospective insured had asserted in his application that he was a non-smoker. Therefore, the insurer concluded that the prospective insured had materially misrepresented his condition. The application was rejected, but the insurer offered an alternative "tobacco users" policy, which was conveyed to the prospective insured’s agent. There was no communication to the insured about the reason for offering the alternative policy. The insured died suddenly from a myocardial infarction, after which an autopsy revealed severe and extensive atherosclerotic disease. The insured’s spouse then commenced this action alleging that the insurers and their agents were under a duty to disclose a prospective insured’s medical conditions discovered during the pre-insurance physical. The court held that, while liability could be imposed if the defendants had affirmatively misled the insured or induced him to forgo necessary treatment, there was no factual basis for it here. The prospective insured was advised that the testes were not administered for the purpose of treatment and nothing in their relationship gave rise to a reasonable reliance on the insurer for health information. Nor could the insured rely upon EMSI for the health information since the exam was conducted for the sole purpose of aiding the insurer in determining insurability. Moreover, no duty of disclosure is imposed by Ins. Law §2611(c), which applies only to the discovery of HIV-related tests.

12/27/00: LAMB v. SECURITY MUTUAL INS. CO.
New York State, Appellate Division, Fourth Department
Insurer Obligated to Provide Defense on all Causes of Action where there is Potential for Coverage under Policy

Plaintiff was babysitting a child in her home when the child was bitten by the family dog. An action was commenced against the plaintiff alleging negligence and strict liability for the dog’s actions, and a separate cause of action for negligently supervising the child. The insurer disclaimed coverage based on the business pursuits exclusion in the policy. While the court agreed that full-time babysitting was a business activity that fell within the exclusion, and that there was no duty to defend or indemnify the plaintiff for that cause of action, the remaining allegations in the complaint fell outside the exclusion. Thus, the insurer had a duty to indemnify plaintiffs for those causes of action. And, as there was a potential that the insured may be liable for some act or omission covered by the policy, the insurer also had a duty to defend the plaintiffs in the underlying action.

12/27/00: AVILES v. DRYDEN MUTUAL INS. CO.
New York State, Appellate Division, Fourth Department
Insured Excused from Timely Notice based on Reasonable Belief in Non-Liability
Plaintiff was injured at insured’s facility. The insurer disclaimed coverage based on late notice of the occurrence. Plaintiff then commenced this action seeking a declaration that the insurer had a duty to defend and indemnify its insured. The court held that the insurer had a duty to defend and indemnify its insured, as there was a reasonable belief by the insured in non-liability that excused its untimely notice. Plaintiff produced evidence showing that the insured found no defects in the premises that contributed to plaintiff’s injuries and that the insured was told the plaintiff suffered from a history of seizures. Under these circumstances, the court concluded that the insured’s belief in non-liability was reasonable.

12/27/00: MATTER BETWEEN HARTFORD CAS. INS. and BRODY
New York State, Appellate Division, Fourth Department
Hearing Required on SUM Claim to Determine if Insured Acted with Due Diligence in Ascertaining Tortfeasor’s Policy Limits
Respondent sought to compel insurer to arbitrate her claim for supplementary underinsured motorist coverage. The insurer moved to stay on the ground that respondent failed to provide timely notice of her claim, which notice was provided 1 ½ years after the accident. The trial court stayed the arbitration, but the appellate court reversed and remanded the case for a hearing to determine whether respondent acted with due diligence in ascertaining the tortfeasor’s policy limits. There was evidence in the record that respondent’s attorney failed to request the information before formal discovery, but the record did not contain any information about what efforts, if any, were undertaken by respondent to learn the information sooner.

12/21/00: KYES v. NORTHBROOK PROPERTY AND CASUALTY INS. CO.
New York State Supreme Court, Appellate Division, Third Department
Summary Judgment Improper in Action against Agent where Issue of Fact is raised regarding Insured’s Reliance on Agent’s Instructions
The insured transported recreational vehicles between various manufacturers' warehouses, his own warehouse and retail outlets, storing the vehicles at his warehouse for varying periods of time. In 1991, the insured purchased a "Cargo-All Risk" policy from his agent. The application was completed over the phone and notes therefrom, while describing the business, did not indicate that the vehicles were stored in the insured’s warehouse. The policy issued by the insurer provided coverage for plaintiff's "personal property or property . . . sold to others while the property is in transit on vehicles that . . . [ he] own[s], lease[s] or operate[s]." Plaintiff alleged that after he read the policy, he telephoned his agent, specifically questioning the scope of the coverage obtained in light of his business practice. The agent assured him that he "was all set for what [he] did". While the policy was in effect, a portion of the roof on the insured’s facility collapsed, which ultimately resulted in damage to several motorcycles. When the insured filed a claim with his insurer for the loss, the insurer denied coverage and this action for breach of contract and malpractice action ensued. At issue in this appeal was whether the insured demonstrated a triable issue of fact to support his contention that the agent breached a professional duty of care. The court held that he did. In an ordinary commercial setting, insurance agents have been found to have a "’common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so; however, they have no continuing duty to advise, guide or direct a client to obtain additional coverage.’" An insurance agent's duty to its customer is generally defined by the nature of the customer's request for coverage. The court concluded that the insured demonstrated a question of fact whether the insured had the right to rely upon the agent’s instructions. Therefore, summary judgment was improper.

12/21/00: MATTER of ESPOSITO v. PETRUZZI
New York State, Appellate Division, Third Department
No-fault Carrier who Fully Participated in Workers’ Comp Hearings has Standing to Challenge Workers Comp Decision
Claimant was injured in an automobile accident while driving a taxicab leased from Petruzzi. Petruzzi had an auto policy covering the vehicle through Empire, which denied first party benefits on the ground that claimant was injured during the course of his employment. The insurer directed Petruzzi to seek workers compensation benefits. Empire was allowed to fully participate in the workers’ compensation hearings, including examination of witnesses. The Workers’ Compensation Law Judge ("WCLJ") disallowed the claim finding that claimant was an independent contractor rather than an employee. A panel of the Workers’ Compensation Board denied Empire’s application for review finding that Empire lacked standing to request Board review. Empire appealed, arguing that since it was allowed to fully participate in the workers’ compensation proceeding by the presiding WCLJ, it attained the status of a party in interest and became conclusively bound by the decision. As such, it should not be denied its right to appeal. The appellate court agreed, finding that Empire’s active participation in the hearings gave Empire the necessary legal standing to obtain Board review. The matter was remanded accordingly.

Our very own Donna L. Burden and Carolyn M. Henry handled this case.

12/21/00:
W. JOSEPH McPHILLIPS INC. v. ELLIS
New York State, Appellate Division, Third Department
Insured’s Waiver of Claims against Carrier does not Preclude Counterclaim against Agents for Failure to Procure Adequate Coverage
A gas explosion and fire destroyed the insured’s business premises resulting in a claim for loss against its insurer, which subsequently made partial payments. Additional repair estimates prompted the insurer to request extensive documentation, but the defendant eventually dropped the claim choosing instead to pursue litigation against the party responsible for the explosion. Plaintiff-insurance agency then brought this action against the insured to recover unpaid premiums on the insurance policies issued by the insurer. In response, the insured asserted counterclaims alleging the agency’s officers failed to procure sufficient coverage and that they misrepresented that they were experts in the kind of insurance coverage for the property he owned and that the existing coverage was adequate. The officers sought to dismiss the counterclaims on two grounds: (1) that as officers they could not be held personally liable for the claim and (2) that damages for a broker’s failure to obtain insurance is limited to the amount recoverable from the insurer if greater coverage had been in place. Since the insured had waived his claim to further insurance proceeds, no damages could be recovered because no additional amount could be recovered from the insurer even if coverage had been greater. The court found an issue of fact whether personal liability might be imposed on corporate officers who participate in the commission of a tort, even if the participation is for the corporation’s benefit. As to the second ground for dismissal, the court recognized that a broker's liability for failing to procure insurance is limited to that which would have been borne by the insurer had coverage been obtained, but the court declined to draw the further inference that the broker thereby has the same defenses as the insurer in resisting a claim for damages. Although the insured’s waiver of further claims against its insurer may constitute a failure to mitigate damages, it does not preclude the counterclaim.

ACROSS BORDERS

We regularly feature cases from other jurisdictions. This week, we offer cases from Kansas, Florida, Idaho and California:

01/05/01: VOYLES v. GARCIA
Kansas Court of Appeals
Where Insurance Policy Secured Through Fraud, Even Liability Claims Need Not Be Honored
Under common law, where insurance policy was determined to be secured by fraud, policy could be rescinded, but for payments due under liability provisions to innocent third parties. Kansas, however, has enacted statutory changes to that common law rule. The plain language of K.S.A. 1999 Supp. 40-2,118 indicates the legislature intended it to apply throughout the insurance code to any and all insurance policies, including mandatory liability policies. Thus, an insurer is not required to pay a claim to an innocent third party under a policy acquired through a fraudulent insurance act.

Prepared by Lori Iwan of the Chicago, Illinois firm of Cray Huber Horstman & VanAusdal, LLC

01/04/01: JACOBS v. NATIONWIDE MUT. FIRE INS. CO.
First Circuit (applying Florida law)
All Post-Loss Obligations must be Satisfied Before Insured has Right of Appraisal under Property Policy
In United States Fidelity & Guar. Co. v. Romay, 744 So.2d 467 (Fla. 3d DCA 1999), the Florida Supreme Court held that insureds must perform certain prerequisites before the appraisal clause was triggered, such as: "submit a sworn proof of loss and supporting documents; submit to an examination under oath; and make the property available for inspection." Romay requires the Jacobs to fulfill all of their post-loss obligations under the insurance policy with Nationwide before invoking their right of appraisal. These obligations include: (1) providing immediate notice to the insurer; (2) protecting the property from further damage; (3) exhibiting the damaged property; (4) submitting to examination under oath; and (5) providing records and documents requested by the insurance company. Accordingly, the First Circuit reversed the district court's order holding that submission of a sworn proof of loss is the sole precondition to appraisal and remanded for a full hearing on affirmative defenses.

Prepared by Lori Iwan of the Chicago, Illinois firm of Cray Huber Horstman & VanAusdal, LLC

12/28/00: ROBINSON v. STATE FARM MUTUAL AUTOMOBILE INS. CO.
Idaho Supreme Court
Idaho Supreme Court Affirms $95 Million Bad Faith Award Against Insurer for Wrongfully Sending Out Claims to "Paper Review" Companies
State Farm held by plenary jury for $102,00 in compensatory and $9.5 million in punitive damages for sending out med-pay claims for "paper review" and delaying processing and pressuring claimants to settle at lower amounts. Court holds that in first-party bad faith case, carrier has burden of proof to demonstrate its denial or delay was because claim was "fairly debatable" and insured need to establish its claim was within policy coverage. Juror's Internet research to determine population statistics not grounds for a mistrial because statistical information within common knowledge of jurors. Punitive damage award 95 times compensatory award not considered excessive.

Prepared by Gary Grasso of the Chicago, Illinois firm of Ungaretti & Harris

01/03/01: GOLDEN EAGLE REFINERY CO. INC. v. ASSOCIATED INTERNATIONAL INS. CO.
California Court of Appeal
Without Evidence of Ability to Allocate Between Covered Acts and Non-Covered and Among Various Insurers, Insured Cannot Recover Environmental Clean-up Costs from Liability Carrier
This is an action by plaintiff and appellant Golden Eagle Refinery Company against defendants and respondents, its third party liability insurance carriers The action is for indemnity for the millions of dollars Golden Eagle spent for the cleanup of environmental contamination at one of its refinery sites, and for the attendant economic losses resulting from its inability to develop or market that property. The trial court granted the insurers’ various motions for summary adjudication upon the grounds that Golden Eagle failed to demonstrate a prima facie case for indemnity. The trial court subsequently denied Golden Eagle’s timely motion for reconsideration. The dispositive question of law in this appeal is whether, in an action for indemnity under a third party general liability insurance policy, proof of causation and the amount of damages incurred during each policy period are essential elements of the plaintiff’s prima facie case? The Court of Appeal concludes in the affirmative. Because Golden Eagle failed to present evidence demonstrating an ability to allocate between covered acts and non-covered and among the various different insurers, we affirm.

Prepared by Gary Grasso of the Chicago, Illinois firm of Ungaretti & Harris

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REPORTED DECISIONS

PETROSKY v. BRASNER

LERNER, J.

The instant action is one of first impression in New York. At issue is whether an insurance carrier and its agents have a duty to disclose to a prospective insured medical conditions discovered during a pre -insurance physical examination.

On February 3, 1997, decedent Frank Petrosky filed an application for life insurance with defendant-agent Steven Brasner (hereinafter "Brasner") of Fabricant and Fabricant (hereinafter "Fabricant"). On February 11, 1997 technician John Jensen (hereinafter "Jensen"), an employee of Examination Management Services, Inc. (hereinafter "EMSI" ;), drew blood and urine, took a blood pressure reading and performed an electrocardiogram (hereinafter "EKG") at the direction of The United States Life Insurance Company (hereinafter "U.S. Life") as part of its application process. In the course of performing these tests necessary for U.S. Life’s determination as to whether Mr. Petrosky qualified for a life insurance policy, Jensen specifically advised Petrosky that the tests were not for the purpose of treatment or evaluation by Jensen. At U. S. Life’s further direction, Jensen forwarded the specimens to an independent laboratory for evaluation , and the EKG tape and questionnaire, filled out during the testing, to U.S. Life for evaluation by their underwriters. Although during the application process, Petrosky had asserted he was a non-smoker, the laboratory results revealed abnormal cholesterol blood levels as well as nicotine in the urine, from which U.S. Life concluded that Petrosky had materially misrepresented his condition. U.S. Life therefore determined that Petrosky’s application would be rejected, but decided to offer him an alternative " ;tobacco users" policy at a lower face value and shorter term, which alternative was communicated to insurance agent Brasner of the brokerage firm of Fabricant and Fabricant. Although the EKG results were abnormal, this may or may not have been one of the bases on which the original application was denied by U.S. Life. There were phone messages exchanged between Petrosky and Brasner, but there was no communication to Petrosky as to the reason for offering an alternative policy. No premium was paid triggering an effective date of a policy, and no policy was in effect when Mr. Petrosky died.

Frank Petrosky died suddenly on April 11, 1997 from a myocardial infarction, brought on by a cardiac tamponade, after which an autopsy revealed severe and extensive atherosclerotic disease. Plaintiff, Mrs. Barbara Petrosky, was thereafter advised that there was no U.S. Life Insurance coverage in effect for her husband’s death.

Mrs. Petrosky brought two lawsuits. The first action against U.S. Life , Brasner and Fabricant alleged breach of contract in failing to timely process the original application or offer an alternative policy. That suit was dismissed as to U.S. Life, although Brasner’s and Fabricant ’s cross-motions for summary judgment were denied.

The instant action alleges that defendants were negligent in failing to disclose to decedent the results of his physical examination, namely the EKG results which revealed heart abnormalities. Defendants each moved to dismiss on the ground that they had no duty to obtain and no duty to reveal the results of the EKG. Jensen, EMSI, Brasner and Fabricant contended that they never possessed any knowledge of the test results. The IAS court agreed, rejecting plaintiffs’ argument that the defendants’ failure to disclose was tantamount to misrepresentation, and refused to extend the duty of care owed by employer to employee to Petrosky’s relationship with defendants , whose function it was to determine Petrosky’s insurability and perhaps sell an insurance policy. The IAS court also reasoned that dismissal was warranted, insofar as plaintiffs had failed to establish that Petrosky was a third-party beneficiary of the contract between EMSI and U.S. Life, so that therefore no duty was owed to Petrosky.

It is well settled that a duty of reasonable care owed by defendant to a plaintiff is elemental to any recovery in negligence (see, e.g., Pulka v Edelman, 40 NY2d 781, 782; Palsgraf v Long Is. R. R. Co., 248 NY 339, 344). Foreseeability of injury does not determine the existence of duty (Strauss v Belle Realty Co., 65 NY2d 399, 402). Unlike foreseeability and causation, both generally factual issues to be resolved on a case-by-case basis by the fact finder , the duty owed by one member of society to another is a legal issue for the courts (De Angelis v Lutheran Med. Center, 58 NY2d 1053, 1055).

The complaint, alleging that defendants, insurers and their agents, were under a duty to disclose to a prospective insured medical conditions discovered during a pre-insurance physical examination, was properly dismissed since, ordinarily, there is no such duty. Plaintiff acknowledges that no such duty exists and asks the Court to assume the role of the Legislature in creating such an obligation. This is neither our function nor mission. Without the existence of a duty, the action cannot stand.

While liability might have been imposed upon defendants if they had affirmatively misled the prospective insured or foreseeably induced him to forgo otherwise necessary treatment (see, Eiseman v State of New York, 70 NY2d 175, 187), we perceive no factual basis for such theories in this case. Petrosky was not examined by a physician. He was specifically advised that the tests were administered in the routine course of the application process and not for purposes of treatment. There is no indication that he relied on U.S. Life for anything other than approval for life insurance. Nothing in the nature of Petrosky’s relationship with this defendant could give rise to a reasonable reliance on it for health information despite the apparent abnormal EKG, the precise nature of which is not revealed. Indeed, U.S. Life certainly would not have offered an alternative " ;tobacco users" policy had it known that Petrosky had a life threatening medical condition. Further , Petrosky could not rely on Jensen or EMSI for health information since the examination was for the sole purpose of aiding US Life in determining Petrosky’s insurability.

We note, finally, that contrary to plaintiff’s argument, the broad duty of disclosure alleged did not arise by virtue of Insurance Law § 2611(c), which applies only to the discovery of HIV-related tests. Had the Legislature intended to extend the duty to the within circumstances, it would have expressly done so.

Accordingly, the order of the Supreme Court, New York County (Jane Solomon, J.), entered on or about August 19, 19 99, which, inter alia, granted defendants’ motion and cross motions for summary judgment dismissing the complaint, should be affirmed, without costs.

All concur except Saxe, J. who dissents in part in an Opinion.

SAXE, J. (dissenting in part)

If an insurance company receives test results indicating that an applicant for an insurance policy has a potentially life-threatening medical condition, the insurer has, in my view, a legal duty to notify the prospective insured of those results. Such a duty could be satisfied with only a minimal effort, and does not impose an onerous burden on the insurance industry. Moreover, imposition of the duty in such circumstances comports with established law (see, McKinney v Bellevue Hosp., 183 AD2d 563). For this reason, I would modify the order on appeal so as to deny the motion insofar as it sought summary judgment dismissing the complaint as against defendant insurance company.

According to plaintiff, the decedent, Frank Petrosky , filed an application for life insurance on February 3, 1997, which his insurance agent, defendant Steven Brasner of the insurance brokerage firm of Fabricant & Fabricant, forwarded to defendant United States Life Insurance Company ("U.S. Life"). At the direction of U.S. Life, on February 11, 1997 a technician employed by defendant Examination Management Services, Inc. ("EMSI"), obtained blood and urine samples from Petrosky, took his blood pressure reading and performed an electrocardiogram ("EKG") as part of the process by which U.S. Life would determine whether the applicant qualified for the requested life insurance policy. According to EMSI's medical director and the technician conducting the tests, the specimens and results were forwarded to an independent laboratory for evaluation, and the EKG tape and questionnaire, filled out during the testing, were forwarded directly to U.S. Life for evaluation by their underwriters.

Plaintiff asserts that Mr. Petrosky never received a response to his application. U.S. Life asserts that based upon blood and urine testing, it concluded that Mr. Petrosky had misrepresented that he was a non-smoker; consequently, it determined that his application would be rejected, but decided to offer him an alternative "tobacco users" policy at a lower face value and shorter term, which alternative was communicated to Mr. Petrosky's insurance agent, Steven Brasner. For his part, Mr. Brasner states that he received U.S. Life's alternative proposal on April 2, 1997, and that he then contacted Mr. Petrosky on April 7, 1997, and again on April 10, 1997, to explain the insurer's position and discuss his options. He says Mr. Petrosky said he was unable to meet with Brasner until the following week.

Before any such meeting could occur, on April 11, 1997, Mr. Petrosky died suddenly, from a myocardial infarction, after which an autopsy revealed severe and extensive atherosclerotic disease. Mr. Petrosky's widow, the executrix of his estate, offers evidence that the EKG taken on February 11, 1997 disclosed abnormalities indicative of heart disease, and that U.S. Life was aware of this. She contends that U.S. Life was negligent in failing to disclose to him the abnormal EKG results , the disclosure of which could have enabled Mr. Petrosky to obtain treatment and avoid the heart attack . U.S. Life asserts that it had no such duty toward Mr. Petrosky, and therefore, as a matter of law, cannot be held negligent.

While a viable cause of action in negligence requires the existence of a duty from defendant to plaintiff, and a breach of that duty (see, Akins v Glens Falls City School Dist., 53 NY2d 325, 333), this Court has held that such a duty exists when a prospective employer learns through a pre-employment physical of a job applicant's potentially life-threatening condition (see, McKinney v Bellevue Hosp., 183 AD2d 563). I see no reason to arrive at a different conclusion where a prospective insurer learns of a potentially life-threatening condition through a physical examination of an prospective insured.

U.S. Life would have us apply the holdings of Doe v Jackson Natl. Life Ins. Co. (944 F Supp 488 [SD Miss 1995], affd 92 F3d 274) and Doe v Prudential Ins. Co. of America (860 F Supp 243 [D Md 199 3]), which concluded that an insurer has no duty to disclose positive HIV test results to the applicant .

The court in Jackson National held that "there must be something about the relationship between the parties which would justifiably create an expectation on the part of one party that the other was protecting [him] from the occurrence of a particular risk" (944 F Supp at 492, supra). It distinguished between circumstances involving an insurer and an applicant for insurance, and cases where an employer or prospective employer has been held to owe a duty to convey results of medical exams it requires an employee to take (id. at 494). The court remarked that "an insurance company should [not] bear the same burden of care as a physician, i.e. divulging the results of a medical examination " (id. at 494-495). The court’s essential reasoning was that any duty on the part of an employer to divulge the apparent existence of a dangerous condition was derived from the obligations of the physician , of whom, the court noted, "people have a right to expect a certain degree of care and disclosure on their health and health related matters regardless of whether a doctor/patient relationship exists" ( id. at 494). Finally, the court in Jackson National emphasized the policy against holding people liable for failing to protect others from harm they did not cause (id. at 495).

Similarly, in Prudential, supra, the court reasoned that a duty will be imposed upon an insurer to disclose test results only where the physician, acting as the insurer's agent in conducting or reviewing the physical examination, "has . . . assumed a professional and expert position with respect to the insured's physical condition and well-being" (860 F Supp at 252, supra).

However , the rationale for the duty described by this court in McKinney v Bellevue Hosp. (183 AD2d 56 3, supra), to convey abnormal results or findings of medical examinations performed on job applicants , is fundamentally different from that discussed in Doe v Prudential and Doe v Jackson National (supra). While Jackson National suggests that cases such as Dornak v Lafayette General Hosp. (399 So 2d 168, 170) and Daly v United States (946 F2d 1467) simply extend to hospitals the duty of physicians employed by the hospitals, McKinney reflects an entirely different basis for imposition of a duty on employers, apart from the duty of an examining physician.

In McKinney, supra, a pre-employment chest X-ray was interpreted by a physician employed by the prospective employer, Bellevue Hospital, and the physician's report indicated the presence of a mass in the lung. The plaintiff was thereafter hired by the defendant, without ever being informed of the results. The Court remarked,

The operative question is whether, having correctly detected a disease, defendants were under a duty to disclose the condition to plaintiff.

Our law does not generally impose a duty to make disclosure, requiring some affirmative misrepresentation before imposing liability (citation omitted). However, as suggested by a leading commentator, "a failure to disclose the existence of a known danger may be the equivalent of misrepresentation, where it is to be expected that another will rely upon the appearance of safety" (Prosser, Torts § 33, at 179 [4th ed]). " ;The causal connection between the wrongful conduct and the resulting damage, essential throughout the law of torts, takes in cases of misrepresentation the form of inducement of the plaintiff to act, or to refrain from acting, to his detriment" (Prosser, Torts § 108, at 714 [4th ed]).

The failure to inform an employee or prospective employee that his pre-employment physical has detected a serious medical condition is an act of ordinary negligence within the experience of a trier of fact. That, under the circumstances of this case, the silence of the employer induced reliance by plaintiff on his general good health and resulted in the failure to seek treatment, to his obvious detriment, may be inferred from the pleadings for the purposes of a motion to dismiss the complaint ( Arrington v New York Times Co., 55 NY2d 433, 442; Rovello v Orofino Realty Co., 40 NY2d 633, 634). The tendency of the average person, in similar circumstances, to interpret the employer 's silence as an indication of good health is so apparent and the consequence of such reliance so potentially serious that we conclude that the law imposes a duty to disclose upon the employer. In comparison with the harm to be abated, the burden placed upon the employer is slight and promotes the public welfare (cf., Green v Walker, 910 F2d 291, 296 [5th Cir]). (McKinney v Bellevue Hosp ., supra, 183 AD2d, at 565-566 [emphasis added].)

The foregoing quote demonstrates that the duty discussed by this Court in McKinney was not intended as an extension of the responsibilities of the physician hired by the employer, but rather, was based on the recognition that an average job applicant in the plaintiff's position would assume that he would be informed by the employer if any test results indicated the presence of a serious condition warranting further investigation and treatment.

Nothing in the discussion in McKinney supports the conclusion reached in Doe v Prudential (supra), that imposition of a duty is only appropriate where the physical examination was conducted by a physician, thereby "assum[ing] a professional and expert position with respect to the insured's physical condition and well-being" (see, 860 F Supp at 252, supra ).

Initially, it is well established that the employer's duty to notify the job applicant of test results is not dependent upon the existence of a physician-patient relationship between the job applicant and the physician interpreting test results; the temporary and limited nature of the physician 's assigned task does not result in the elimination of the employer's duty (see, McKinney , supra; Meinze v Holmes, 40 Ohio App 3d 143, 147, 532 NE2d 170, 173-174 ["the duty to disclose will arise under circumstances when a reasonable physician . . . would disclose a significant risk or danger to the person being examined"]).

By the same token, it should make no difference if the professional who read or interpreted Mr. Petrosky's test results was some other type of medical professional. First of all, physicians are not the only professionals who, even when serving on a limited , consulting basis, may still have an obligation to disclose a serious problem that becomes apparent in the course of the consultation (see, e.g., Togstad v Vesely, Otto, Miller & Keefe , 291 NW2d 686 [Minn] [attorney must notify potential client of imminent expiration of limitations period]). Moreover, a rule limiting the duty of notification to circumstances when a physician conducted the test or interpreted the test results would permit an insurance company to avoid liability simply by employing non-physician technicians to evaluate and interpret the results of medical tests. Such a possibility cannot be countenanced. If an insurer in possession of troubling test results may be said to have a duty to disclose those test results if they were obtained by a physician, there should be no different result where some other form of medical professional or technician obtained them.

The important point is that defendant was allegedly in possession of information of critical importance to plaintiff. As in McKinney, the critical factor is not who interpreted the test results, but that the applicant would naturally believe, in the absence of any notification of a serious problem, that the silence following the physical examination meant that no indication of a critical health problem had been discerned.

There is no justification for ignoring the reasoning of the McKinney case in the present circumstances. No valid distinction can be made between a prospective employer and a prospective insurer who know of test results indicating the presence of a potentially life-threatening medical condition in an application, whether it be for a job or for an insurance policy. Nor does the absence of a special relationship between the parties make any difference; even if a special relationship can be said to exist between an employer and an employee, the McKinney case applied its reasoning to both employees and prospective employees, and no special relationship can be said to exist between a prospective employer and a mere job applicant.

It cannot properly be concluded as a matter of law that Mr. Petrosky did not rely upon the absence of a report of poor test results to forgo necessary and appropriate medical attention. Rather, an issue of fact is presented as to whether he relied upon the silence following the tests to conclude that nothing was amiss.

Moreover, I reject defendant 's suggestion that it must be inferred from Insurance Law § 2611(c) that the Legislature intended that no duty be imposed upon insurers to disclose test results of any kind of test result other than HIV tests . While the duty statutorily imposed upon insurance companies by Insurance Law § 2611(c) only applies to the results of HIV-related tests, there is no reason to infer from this that the Legislature purposely decided that no duty must be imposed upon insurers to disclose any other type of test result. Rather , in enacting that provision, the Legislature was merely focusing its attention on the ongoing effort toward preventing the spread of a contagious, deadly illness, which effort requires large-scale, society -wide actions. It did not preclude the courts from imposing a similar duty in other types of circumstances .

Like legislation, the common law has historically developed and grown in response to changes in society (see, generally, Holmes, The Common Law, at 1-2 [Dover ed]; Cardozo, Nature of the Judicial Process, at 24-28 [Yale Univ Press]). Part of the task of a court operating within the common law tradition is to determine the propriety of imposing a duty upon a party in a particular situation . In doing so here, the court would not be preempting the legislature; rather, it would simply continue the common law tradition of speaking on a subject on which the legislature has not spoken (see , Cardozo, supra, at 19).

The reasoning enunciated in McKinney is no less applicable in the present case. Because the average person, in circumstances like Mr. Petrosky's, would tend to interpret the insurer's silence as an indication that no serious medical conditions were apparent in the test results it received, the law should impose upon the insurer a duty to disclose such results. "In comparison with the harm to be abated, the burden placed upon the employer is slight and promotes the public welfare" (supra, at 566).

KYES v NORTHBROOK PROPERTY AND CASUALTY INS. CO.

Peters, J.

Appeal from an order of the Supreme Court (O'Shea, J.), entered March 20, 2000 in Tompkins County, which granted a motion by defendants Eric B . Chapman and J.D. Chapman Agency Inc. for summary judgment dismissing the complaint against them.

Plaintiff, owner of F.W. Kyes Transportation (hereinafter Kyes), transports recreational vehicles between various manufacturers' warehouses, his own warehouse and retail outlets, storing such vehicles at his warehouse for varying periods of time. In 1991, plaintiff switched insurers, ultimately purchasing a "Cargo-All Risk" policy from defendants Eric B. Chapman and the J.D. Chapman Agency Inc. (hereinafter collectively referred to as Chapman). While procuring such insurance, plaintiff worked with Chapman over the telephone to complete the application. Notes therefrom described plaintiff 's business as follows:

Kyes picks up snowmobile & motorcycles in Hightown, NY once per w[ee]k in covered tractor trailer. ([A]ctually takes title and posssess[ion]). He brings them back to Locke, NY and unloads them onto 3-Ford F450's mini flat beds in crates and delivers 3 times/wk to local dealers in Central N.Y. State.

The policy, written by defendant Northbrook Property and Casualty Insurance Company, provided coverage, inter alia, for plaintiff's "personal property or property * * * sold to others while the property is in transit on vehicles that * * * [ he] own[s], lease[s] or operate[s]". Plaintiff alleged that after he read the declaration page and policy issued by Northbrook, as well as the binder sent to him by Chapman, he telephoned Chapman , specifically questioning the scope of the coverage obtained in light of his business practices; Chapman assured him that he "was all set for what [he] did". Plaintiff twice renewed the policy without changing the amount or scope of coverage.

While such policy was in effect, a portion of the roof on plaintiff's trucking facility collapsed onto one of the trucks that was loaded for delivery . As a worker tried to cut the truck free, a fire erupted. When plaintiff attempted to drive the truck to safety, several motorcycles fell from the truck and were destroyed.

Plaintiff filed a claim with Northbrook seeking coverage for the loss under his "Cargo-All Risk" policy. Upon Northbrook's denial of coverage, plaintiff commenced this declaratory judgment action against both Northbrook and Chapman alleging breach of contract and malpractice. Supreme Court (Rumsey, J.), concluding that the loss was outside of the provided coverage, granted Northbrook's motion for summary judgment . Supreme Court (O'Shea, J.) granted Chapman's motion for summary judgment by finding, inter alia , that plaintiff had "conclusive presumptive knowledge of the terms and limits of the policy ". Plaintiff appeals only the grant of Chapman's motion for summary judgment.[1]

The sole issue is whether plaintiff demonstrated the existence of a triable issue of fact to support his contention that Chapman breached a professional duty of care. The factual disputes are centered on the two telephone conversations between plaintiff and Chapman. Plaintiff contends that at both times he fully informed Chapman of the nature of his business, including the warehouse operation, and was assured that the entire operation would be covered. Chapman denies that he was told of the extent of plaintiff's business and instead believed that the business merely consisted of transporting owned and nonowned personal recreational vehicles for which he procured appropriate insurance.

In an ordinary commercial setting, insurance agents have been found to have a "'common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so; however, they have no continuing duty to advise, guide or direct a client to obtain additional coverage'" (M & E Mfg. Co. v Reis Inc., 258 AD2d 9, 11, quoting Murphy v Kuhn, 90 NY2d 266, 270 [emphasis omitted]). Hence, "an insurance agent's duty to its customer is generally defined by the nature of the customer's request for coverage" (M & E Mfg. Co . v Reis Inc., supra, at 11). Upon this record, we find that plaintiff has met his burden to demonstrate the existence of a viable question of fact pertaining to whether or not he had the right to rely upon Chapman's "presumed obedience to his * * * instructions" (Mets Donuts v Dairyland Ins. Co., 166 AD2d 508, 509). As such reliance could, under the appropriate circumstances, supercede what the trial court deemed to be his "conclusive presumptive knowledge of the terms and limits of the policy", the motion for summary judgment was, in our view, prematurely granted (cf., Metzger v Aetna Ins. Co., 227 NY 411, 415-416; Ambrosino v Exchange Ins. Co., 265 AD2d 627, 627- 628).

Crew III, J.P., Mugglin, Rose and Lahtinen, JJ., concur .

ORDERED that the order is reversed, on the law, with costs, and motion denied.

**FOOTNOTES**

[1]: Northbrook is not a party to this appeal.

W. JOSEPH McPHILLIPS INC. v. ELLIS

Rose, J.

Appeal from an order of the Supreme Court (Dier, J.), entered October 21, 1999 in Warren County, which, inter alia, denied a motion by Neil McPhillips and Paul R. McPhillips for summary judgment dismissing a claim brought against them by defendant Frank P. Ellis.

In 1995 plaintiff, an insurance agency, commenced this action against defendants to recover unpaid premiums on insurance policies issued through plaintiff by Continental Insurance Corporation to defendant Frank P. Ellis in 1994. At that time, Ellis and defendant Josef Roettig were doing business as The Balsam House in the Town of Chester, Warren County. A gas explosion and fire that destroyed much of defendants' business premises in July 1994 resulted in a claim for the loss against Continental, which subsequently made partial payments in excess of $500,000. Following an initial damage estimate of $373,000, a second contractor calculated the cost to repair defendants ' building and fixtures at $3,289,554. Continental responded to this estimate by requesting extensive documentation concerning defendants' claims. On September 25, 1995, before this documentation was produced , Roettig informed Continental that defendants wished to "drop the pending claim and appraisal procedures * * * [and] put aside [their] efforts to obtain full payment under the policies for [their ] damages". Roettig indicated that instead, due to limited financial resources, they would pursue litigation against the gas company allegedly responsible for the explosion.

In response to the action, Ellis answered and asserted three counterclaims against plaintiff and its officers and principal shareholders, Neil McPhillips and Paul R. McPhillips (hereinafter collectively referred to as the officers). After replying to the counterclaims, the officers moved for leave to amend their reply to add the affirmative defense of waiver and for summary judgment dismissing the counterclaims . Supreme Court granted the officers leave to amend their reply, but denied the motion for dismissal . The officers appeal.

In denying dismissal of the counterclaims against the officers personally, Supreme Court found that they were properly asserted pursuant to CPLR 3019, and that there were issues of fact as to whether the officers had participated in plaintiff's alleged breach of contract and negligence. Supreme Court correctly concluded that the counterclaims were not procedurally defective because counterclaims may be asserted against any "other persons alleged to be liable" to a defendant (CPLR 3019 [a]), even if such claims do not arise out of the transaction or occurrence from which the plaintiff's claim arises (Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3019:1, at 205). Supreme Court failed to consider, however, the well-settled principle that a corporate officer is not normally liable in his or her personal capacity on contracts executed on behalf of the corporation unless the officer expresses some intention to be personally bound, for the officer is in effect an agent of the corporate principal (see, Key Bank of N.Y. v Grossi , 227 AD2d 841, 843; Walz v Todd & Honeywell, 195 AD2d 455; Westminster Constr. Co. v Sherman, 160 AD2d 867; 3 White, New York Corporations * 715.09 [13th ed]).

Here , Ellis alleges that the officers breached a promise to require the payment of premiums only when The Balsam House was operational and producing income. However, there is no evidence that the officers intended to personally bind themselves to such a promise, assuming that it constituted an enforceable contract (see, General Obligations Law § 5-701). Thus, Supreme Court should have granted summary judgment to the officers dismissing any claims sounding in contract.

Ellis' cause of action in tort alleges that the officers failed to procure sufficient insurance coverage, and that he reasonably relied to his detriment on the officers' representations that they were experts in insurance coverage for the kind of property he owned and that the existing coverage was adequate. The officers contend that this claim also should have been dismissed because they cannot be held personally liable . "Personal liability will be imposed, however, upon corporate officers who commit or participate in the commission of a tort, even if the commission or participation is for the corporation's benefit * * *" (Key Bank of N.Y. v Grossi, supra, at 843 [citations omitted]). Ellis alleges that it was the officers who failed to obtain adequate insurance coverage and the officers' denial merely serves to raise an issue of fact as to their participation. In these circumstances, personal liability could be imposed if the officers were found to have acted negligently.

The officers contend further that an essential element is absent from Ellis' tort claim because damages for a broker's failure to obtain adequate insurance are limited to the amount recoverable from the insurer if greater coverage had been in place. Since Ellis waived his claim to further insurance proceeds from Continental, the officers maintain that no damages can be recovered from them because no additional amount could be recovered from the insurer even if coverage had been greater.

While this Court has recognized that a broker's liability for failing to procure insurance is limited to that which would have been borne by the insurer had coverage been obtained (see, Kinns v Schulz , 131 AD2d 957, 959; see also, Gorgone v Regency Agency, 238 AD2d 265, 266), we decline to draw the further inference that the broker thereby has the same defenses as the insurer in resisting a claim for damages. As authority for this inference, the officers cite Andriaccio v Borg & Borg (198 AD2d 253), a case where the insured's failure to exhaust the existing coverage relieved the broker of liability for failing to procure supplementary uninsured motorist coverage because Insurance Law § 3420 (f) (2) made such exhaustion a condition precedent to the insurer's obligation to pay . There is no comparable statute applicable here. Although Ellis' waiver of further claims against Continental may constitute a failure to mitigate damages, it does not preclude his counterclaim. Accordingly , Supreme Court did not err in denying the officers' motion to dismiss the tort counterclaim asserted against them.

Finally, we note that, as stated in the notice of motion filed with Supreme Court, only the officers moved for summary judgment. They cannot now argue that Supreme Court should have granted plaintiff summary judgment for unpaid premiums as the merits of the underlying cause of action asserted by plaintiff were neither presented to nor considered by Supreme Court.

Crew III, J.P., Peters, Mugglin and Lahtinen, JJ., concur.

ORDERED that the order is modified, on the law, without costs, by reversing so much thereof as denied the motion of Neil McPhillips and Paul R. McPhillips for summary judgment dismissing the claim to the extent that it sounded in contract; motion granted to that extent and said claim dismissed; and, as so modified, affirmed.

AVILES V. DRYDEN MUTUAL INSURANCE COMPANY

Judgment unanimously affirmed without costs. Memorandum: Supreme Court properly granted judgment in favor of plaintiff declaring that Dryden Mutual Insurance Company (defendant) is obligated to defend and indemnify defendant 938 SCY Limited, d/b/a Friends & Players (SCY), in the underlying personal injury action commenced by plaintiff against SCY. "On a bench trial, the decision of the fact-finding court should not be disturbed upon appeal unless it is obvious that the court’s conclusions could not be reached under any fair interpretation of the evidence , especially when the findings of fact rest in large measure on considerations relating to the credibility of witnesses" (Claridge Gardens v Menotti, 160 AD2d 544, 544-545; see, Thoreson v Penthouse Intl., 80 NY2d 490, 495, rearg denied 81 NY2d 835). Plaintiff presented evidence that the owners of SCY found no defects in the premises that contributed to plaintiff’s injuries and that the owners were told that plaintiff suffered from a history of seizures. Thus, a fair interpretation of the evidence supports the court’s determination that the failure of SCY to provide timely notice of the potential claim was excused by the good faith belief of SCY that it was not liable for plaintiff’s injuries , which belief was reasonable under the circumstances (see, Security Mut. Ins. Co. of N. Y. v Acker-Fitzsimons Corp., 31 NY2d 436, 441; see also, D’Aloia v Travelers Ins. Co., 85 NY2d 825, 826, rearg denied 85 NY2d 968; White v City of New York, 81 NY2d 955, 957). (Appeal from Judgment of Supreme Court, Monroe County, Stander, J. - Declaratory Judgment.) PRESENT: PIGOTT, JR., P. J., PINE, WISNER, SCUDDER AND LAWTON, JJ. (Filed Dec. 27, 2000 .)

MATTER OF THE ARBITRATION BETWEEN HARTFORD CASUALTY INSURANCE COMPANY AND BRODY -- Order unanimously reversed on the law without costs and matter remitted to Supreme Court for further proceedings in accordance with the following Memorandum: Petitioner commenced this proceeding seeking a permanent stay of arbitration on the ground that respondent failed to provide timely notice of a claim for supplemental uninsured motorist (SUM) benefits. Supreme Court erred in denying the petition without conducting a hearing. Respondent fractured her hand in a motor vehicle accident on January 6, 1998, and surgery was required to repair her hand. She did not file a claim for SUM benefits until July 23, 1999, after she determined the insurance coverage of the tortfeasor through pretrial discovery in the underlying action commenced on May 11, 1999. Respondent was obligated to give petitioner notice of her claim "with reasonable promptness after [she] knew or should reasonably have known that the tortfeasor was underinsured" (Matter of Metropolitan Prop. & Cas . Ins. Co. v Mancuso, 93 NY2d 487, 495). "Delay in giving notice may be excused, but ‘[t]he burden of establishing a reasonable excuse for the delay is upon the insured’" (Matter of State Farm Mut. Auto. Ins. Co. [Tremaine], 270 AD2d 962, 963, quoting Matter of Travelers Ins. Co. [DeLosh], 249 AD2d 924, 925). It appears that respondent’s present attorney, who was retained in March 1999, failed to seek information with respect to the tortfeasor’s insurance coverage (see , Insurance Law § 3420 [2] [a]) prior to pretrial discovery. Although the record reflects that respondent had counsel before she retained her present attorney, it does not reflect the efforts of that attorney , if any, to obtain the information necessary for respondent to make a claim for SUM benefits (see , Matter of State Farm Mut. Auto. Ins. Co. [Hernandez], ___ AD2d ___ [decided Sept. 29, 2000]). We therefore reverse the order and remit the matter to Supreme Court for a hearing before a different Justice to determine whether respondent acted with due diligence and thus has a reasonable excuse for the delay in providing notice to petitioner of her claim for SUM benefits (see, Matter of State Farm Mut. Auto. Ins. Co. [Hernandez], supra; Matter of Travelers Ins. Co. [DeLosh], supra, at 9 25-926). (Appeal from Order of Supreme Court, Niagara County, Joslin, J. - Arbitration.) PRESENT: PIGOTT, JR., P. J., PINE, WISNER, SCUDDER AND LAWTON, JJ. (Filed Dec. 27, 2000.)

LAMB v. SECURITY MUTUAL INSURANCE COMPANY --

Judgment unanimously modified on the law and as modified affirmed without costs and judgment granted in accordance with the following Memorandum: Plaintiffs commenced this action seeking a declaration that defendant Security Mutual Insurance Company (Security Mutual) is obligated to defend and indemnify them in the underlying action. Plaintiff Colleen Lamb was an "additional insured" under the homeowner’s policy issued by Security Mutual to her parents, plaintiffs Thomas C. Lamb, Jr. and Susan J. Lamb. Colleen was babysitting for the 2-year -old daughter of the plaintiff in the underlying action when the child was bitten by plaintiffs’ dog. Security Mutual disclaimed coverage based upon an exclusion in its policy for business activities.

Supreme Court erred in granting in its entirety plaintiffs’ motion for summary judgment seeking a declaration that Security Mutual has a duty to defend and indemnify plaintiffs in the underlying action . Rather, the court should have denied the motion to the extent that plaintiffs seek indemnification from Security Mutual under that part of the fourth cause of action alleging Colleen’s negligent supervision of the child. We agree with Security Mutual that Colleen’s full-time babysitting was a "business " activity that falls squarely within the business exclusion in its policy. The policy defines business as a "trade, profession, or other occupation". Colleen, who was then 21 years old , "regularly engaged in [babysitting] with a view toward earning a livelihood or making a profit " (Stewart v Dryden Mut. Ins. Co., 156 AD2d 951, 951-952), i.e., she provided full-time babysitting services, five days per week, 10 hours per day, for compensation. Thus, babysitting is her "business" as defined by the policy.

We conclude, however, that the exception to the business exclusion for activities that "are ordinarily non-business in nature" applies to the remainder of the underlying complaint. Thus, Security Mutual has a duty to indemnify plaintiffs with respect to the remainder of the underlying complaint and must defend plaintiffs in the underlying action. "The duty of a liability insurer to defend an action brought against an insured is determined by the allegations in the complaint [citation omitted]. If the facts alleged raise a reasonable possibility that the insured may be held liable for some act or omission covered by the policy, then the insurer must defend" (A. Meyers & Sons Corp. v Zurich Am. Ins. Group, 74 NY2d 298, 302). Here, the remainder of the complaint in the underlying action alleges that plaintiffs are strictly liable for the actions of the dog and that they failed to supervise the dog properly. The actions of the dog and plaintiffs’ alleged failure to supervise the dog properly were not incident to Colleen’s business pursuit, i.e., the care of the child (see, Tenkate v Moore, 274 AD2d 934, 937; Gallo v Grosvenor, 175 AD2d 454, 456; see also, Allstate Ins. Co. v Noorhassan, 158 AD2d 638, 640-641). Thus, although Security Mutual has no duty to indemnify plaintiffs with respect to that part of the fourth cause of action alleging Colleen’s negligent supervision of the child, it nevertheless must defend plaintiffs with respect to the entire complaint (cf. , Allstate Ins. Co. v Noorhassan, supra, at 640-641).

Finally, we note that a potential conflict of interest exists between Security Mutual and plaintiffs. Thus, plaintiffs may select their own attorney and Security Mutual is liable for the reasonable value of the services of that attorney (see, Allstate Ins. Co. v Noorhassan, supra , at 641).

We therefore modify the judgment by denying plaintiffs’ motion in part, granting Security Mutual's cross motion in part and providing that Security Mutual has no duty to indemnify plaintiffs if they are found liable under that part of the fourth cause of action in the underlying complaint alleging Colleen’s negligent supervision of the child and providing that plaintiffs may select their own attorney and granting judgment in favor of plaintiffs declaring that Security Mutual is liable for the reasonable value of the services of that attorney. (Appeal from Judgment of Supreme Court, Erie County, Fahey, J. - Declaratory Judgment.) PRESENT: HAYES, J. P., HURLBUTT, SCUDDER, KEHOE AND LAWTON , JJ. (Filed Dec. 27, 2000.)

ESPOSITO v. PETRUZZI

 

Lahtinen, J.

Appeal from a decision of the Workers' Compensation Board, filed July 27, 1999, which ruled that Empire/Allcity Insurance Company lacked standing to challenge the Workers' Compensation Law Judge 's decision ruling that claimant was an independent contractor.

Claimant was injured in an automobile accident while driving a taxicab leased from Richard Petruzzi. Empire/Allcity Insurance Company (hereinafter Empire), claimant's motor vehicle no-fault insurance carrier, denied claimant first-party benefits on the ground that claimant was injured during the course of his employment with Petruzzi and directed him to seek workers' compensation benefits. Following a hearing at which Empire was allowed to fully participate in the examination of witnesses, an expansion of the opportunity to participate granted to no-fault insurers by 11 NYCRR 65.3-19 (c) (2) (formerly 11 NYCRR 65.15 [p] [3 ] [ii]), a Workers' Compensation Law Judge (hereinafter WCLJ) disallowed the claim based upon a finding that claimant was an independent contractor rather than Petruzzi's employee.

A panel of the Workers' Compensation Board denied Empire's application pursuant to Workers' Compensation Law § 23 for review of the WCLJ's decision, finding that Empire lacked standing to request Board review . The Board, relying in part on the commentaries pertaining to Workers' Compensation § 22, held that "applicable case law confirms that the no- fault insurance carrier is not a party for the purposes of determining whether it may pursue an appeal under the Workers' Compensation Law" citing a number of decisions of this Court in support of its ruling (see, Matter of Wofsy v Dial Car, 211 AD2d 52, lv dismissed 86 NY2d 838; Matter of Roa v American Tr. Ins. Co., 96 AD2d 609, appeal dismissed 60 NY2d 860, lv dismissed 60 NY2d 557; Matter of Lotito v Salt City Playhouse, 66 AD2d 437, 439). Empire appeals.

Workers' Compensation Law § 23 provides, in pertinent part, that "[a]ny party may * * * file with the board an application * * * for * * * review of such award or decision", that "an appeal may be taken therefrom to the appellate division of the supreme court, third department, by any party in interest " and that if there is a dissent from the review of the panel of the board "any party in interest may * * * make application in writing for review thereof by the full board" (emphasis supplied). Our prior decisions cited by the Board, which held that a no-fault carrier may not be deemed a party to a workers' compensation proceeding, involved a later-stage attempt at initial participation in a compensation proceeding by a no-fault carrier seeking to reopen a contested compensation proceeding for the purpose of presenting additional evidence or argument, clearly not the situation here. Empire argues that it was allowed to fully participate in the workers' compensation proceeding by the presiding WCLJ, thus attaining the status of a party in interest[1] and becoming conclusively bound by the decision therein and should not be denied its right to appeal provided by Workers' Compensation Law § 23 . On the record before us we are compelled to agree with Empire and find that it had the necessary legal standing to obtain Board review.

The Board's decision quoted a portion of the commentaries to Workers' Compensation Law § 22, which states that "a party can only be the employer, its carrier, an appropriate special fund, the claimant or legal representative of any of the foregoing" ;. (Minkowitz, Practice Commentaries, McKinney's Cons Laws of NY, Book 64, Workers' Compensation Law § 22, at 262). While we know of no precedential value afforded such commentaries, we nevertheless note that Workers' Compensation Law § 22 deals not with the employment status of a claimant but rather the modification of an award, decision or order that previously awarded compensation, rendering that section and the commentaries thereto inapplicable to our review here.

Although not cited in the Board's decision (cf., Matter of Wofsy v Dial Car, supra, at 5 4), the Uninsured Employers Fund cites 11 NYCRR 65-3.19 (c) (2) in its brief claiming that this regulation "expressly states that a no- fault carrier is not a party" to a workers' compensation proceeding .[2] The pertinent part of the regulation states:

Although the insurer may not be a party to such hearing, it may submit evidence to the referee and may request that the referee put specific questions to the parties (11 NYCRR 65-3.19 [c] [2] [emphasis supplied]).

This Insurance Department regulation permitting a no-fault insurer limited participation at a claimant 's workers' compensation hearing does not, in our view, prohibit a WCLJ from allowing that insurer to fully participate in such a hearing. Nor have we found any statute or Labor Department regulation affecting workers' compensation matters which impose an absolute prohibition on a no-fault insurer from fully participating in a workers' compensation hearing of a claimant to whom it has issued an automobile no - fault insurance policy.

Further, since a claimant must litigate the issue of coverage before the Board (see, Liss v Trans Auto Sys., 68 NY2d 15; O'Rourke v Long, 41 NY2d 219, 227-228), it is only logical that the affected no-fault carrier should be allowed an opportunity to fully participate in the hearing that determines a claimant's employment status, as Empire participated here, examining and cross-examining witnesses and engaging in discussions with the WCLJ (see , Liss v Trans Auto Sys., supra, at 22). By doing so, Empire becomes conclusively bound by the ruling therein (see, Workers' Compensation Law § 23) and is deemed to have elected its remedy (see e.g., Matter of Zatz v Moscovici, 258 AD2d 850), waiving further review in another judicial or arbitral arena of any issue decided in the compensation proceeding affecting its responsibility to the claimant, thereby entitling it to the right to appeal afforded to any party by Workers' Compensation Law § 23 (see, Arvatz v Empire Mut. Ins. Co., 171 AD2d 2 62).

Such an interpretation of this regulation, to the extent that it applies to the facts of this case, is consistent with the requirement that the Workers' Compensation Law "is to be construed liberally [in favor of the claimant] to accomplish the economic and humanitarian objects of the act" (Matter of Husted v Seneca Steel Serv., 41 NY2d 140, 145; see, Matter of Waters v Taylor Co., 218 NY 248, 251-252; Matter of Zatz v Moscovici, supra, at 851) as it diminishes the possibility of contrary decisions in different forums which may result in the denial of intended first party benefits to a claimant and eliminates successive legal challenges on the same issues resulting in a more timely resolution and more efficient use of both administrative and judicial resources while protecting the panoply of rights afforded claimants.

Finally, while mindful of our limited review of and the deference given to Board decisions (see, e.g., Flacke v Onondaga Landfill Sys., 69 NY2d 355, 363), we find nothing in this record or in our research which would indicate that the underlying operational practices of the Board would be disrupted or compromised by allowing Empire party status in this proceeding and conclude that the Board's contrary determination is unreasonable when viewed in the context of the facts presented on this appeal (see, Matter of Union Indem. Ins. Co., 92 NY2d 107, 122-123; Matter of Gruber [New York City Dept. of Personnel - Sweeney], 89 NY2d 225, 231).

For these reasons, the Board's decision that Empire lacked standing to challenge the decision of the WCLJ as to claimant's employment status must be reversed and this matter remitted to the Board for further proceedings .

Peters and Rose, JJ., concur.

**FOOTNOTES* *

[1]: Although Workers' Compensation Law § 23 refers to both a party and party in interest, the parties to this appeal and some courts have used the terms interchangeably. Insofar as applicable here, we are concerned with Empire's right to appeal to the Board from an adverse decision of a WCLJ which, to be consistent with the statute, would require us to find Empire a party to the underlying proceeding.

[ 2]: It is interesting to note that the Board has previously taken the position that it is not bound by this regulation (see, Matter of Wofsy v Dial Car, supra, at 54).

Mercure, J.P. (dissenting).

We respectfully dissent. In our view, the Workers' Compensation Board's construction of the seemingly synonymous terms "party" and "party in interest " to include only the employer, its carrier, an appropriate special fund, the claimant or a legal representative of any of them (see, Minkowitz, Practice Commentaries, McKinney's Cons Laws of NY, Book 64, Workers' Compensation Law § 22, at 262) is by no means irrational. We would therefore affirm the Board's decision that pursuant to Workers' Compensation Law § 23, claimant's no-fault carrier lacks standing to seek review of the decision of the Workers' Compensation Law Judge (hereinafter WCLJ) denying compensation upon the ground that claimant was an independent contractor.

This Court has previously held that "inasmuch as a claimant's no-fault insurer has no legal, enforceable interest in the compensation award that is the subject of a proceeding before the Board, such an insurer cannot be considered a 'party in interest' in that proceeding" (Matter of Wofsy v Dial Car, 211 AD2d 52, 53-54, lv dismissed 86 NY2d 838; see, Matter of Roa v American Tr. Ins. Co., 96 AD2d 609, appeal dismissed 60 NY2d 860, lv dismissed 60 NY2d 557; Matter of Lotito v Salt City Playhouse, 66 AD2d 437, 439). As correctly pointed out by the majority, those cases arise out of a somewhat different procedural setting than the present one , but no argument advanced by the no-fault carrier or analysis put forth by the majority persuades us that the same rule of law does not apply with equal force in this case. Consistent with that view , regulations of the Board require that notice of hearings be mailed to a claimant, the compensation carrier and its authorized representative and, where the employer is alleged to be uninsured at the time of the underlying accident, to the employer (12 NYCRR 300.8). Although a no-fault carrier may well be affected by the outcome of hearings before a WCLJ or the Board, no provision is made for notice to any other person.

Further, unlike the majority, we are not persuaded that permitting a no- fault carrier to take part in the hearing before the WCLJ while denying it the right to appeal the WCLJ's decision is illogical. Permitting the carrier to participate at the hearing level tends to insure that the administrative record will contain all evidence relevant to the issue of the claimant 's entitlement to compensation benefits. At the same time, denying the carrier party status gives proper recognition to the fact that it is a stranger to the proceeding, albeit one with an indirect financial stake in the outcome. To that end, regulations of the Insurance Department specifically provide that "[a]lthough the insurer may not be a party to such a hearing, it may submit evidence to the referee and may request that the referee put specific questions to the parties" (11 NYCRR 6 5-3.19 [c] [2] [emphasis supplied]).

As a final matter, we do not believe that the authority cited to by the majority necessarily supports the conclusion that the no-fault carrier's limited involvement in the hearing before the WCLJ would bar it from attempting to establish claimant 's employee status in a different forum (cf., Arvatz v Empire Mut. Ins. Co., 171 AD2d 262, 268 [no-fault carrier's right to participate in WCLJ hearing and to appeal any determination to the Board would be binding on it]).

Spain, J., concurs.

ORDERED that the decision is reversed, without costs, and matter remitted to the Workers' Compensation Board for further proceedings not inconsistent with this Court's decision.

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