The Insurance Department amended 11 NYCRR Part 65, which deals with New York’s no-fault law. Under the new amendments, the time frame for a claimant to provide notice to an insurance carrier of an accident was reduced from 90 days to 30 days; and the time frame for a claimant to submit proof of claim for medical treatment was reduced from 180 days to 45 days.
The new amendments to the no-fault law were challenged by several groups and individuals, including the Medical Society of the State of New York, who asserted the following arguments: 1) the new amendments were illegal, null and void; and 2) the adoption and approval of the new amendments was effected by errors of law and were arbitrary and capricious. This is the second challenge to the amendments. Last year, the Appellate Division First Department affirmed Justice Phyllis Gangel Jacob’s ruling that the Insurance Department’s amendments to 11 NYCRR were arbitrary, capricious and in violation of SAPA §§ 202, 202-a and 202-b.
In any event, Supreme Court Justice William A. Wetzel found all of the petitioners’ present challenges to the new amendments to be without merit. In support of his decision, Justice Wetzel found that the Insurance Department made substantive revisions to the rules and addressed each and every one of the SAPA violations set forth by Justice Gangel-Jacob. The Court also found that Superintendent of Insurance did not exceed his authority when he promulgated the New Regulations. Lastly, Justice Wetzel found that the New Regulations were not arbitrary, capricious, or illegal. In support of his decision Justice Wetzel stated: “The No-Fault system is diseased by fraud of a dimension which threatens the economic viability of the program and carries enormous financial consequences for insurers and insureds throughout the state. It is well within the authority of respondent Superintendent to promulgate New Regulations to remedy this universally acknowledged problem.” Justice Wetzel further stated that he could not substitute his judgment for that of the respondent and determine de novo what would be appropriate time periods. The Court also stated that it could not conclude that a thirty-day notice of claim period with the procedural safeguards and provisions contained in the New Regulations was irrational as a matter of law.
02/21/02: CRUMP v. UNIGARD INSURANCE COMPANY
New York State Supreme Court, Appellate Division, Third Department
Banking Law § 576 Does Not Change Common-Law Rule Requiring that Insurer Receive Notice before Cancellation becomes Effective
Plaintiff brought an action against Prosper’s Trucking Inc. to recover damages for the wrongful death of her husband in a motor vehicle accident. Prosper’s insurer disclaimed coverage contending that a premium financing agency had cancelled its insurance policy before the accident, and this action ensued. Banking Law § 576 authorizes a premium financing agency to act “in the name of the insured” to cancel an insurance policy for nonpayment when the premium financing agreement so provides and when the agency strictly complies with the statute’s notice provisions. Since the insurer received the premium financing agency’s notice of cancellation after the accident occurred, the issue on appeal was whether Banking Law § 576 abrogated the common-law rule requiring that an insurer actually receive the notice before cancellation becomes effective. The court held it did not. The available legislative history reveals that the purpose of the 1978 amendment was to prevent unnecessary lapses in insurance coverage. Since the rationale underlying both the statute and the common-law rule is to protect the insured and third parties by preventing gaps in coverage, the court found this interpretation was consistent with public policy.
02/14/02: EAGLE INS. CO. v. ELRAC
New York State Supreme Court, Appellate Division, First Department
Subrogated Vehicle Owner Entitled to Arbitrate Claim for Reimbursement of Medical Payments
Campbell, while a passenger in a livery vehicle insured by Eagle and driven by Bonne-Annge, was injured when the livery vehicle was involved in an accident with a car owned by ELRAC Inc. and driven by Richards. After trial, Richards was found 100% liable for the accident. ELRAC then settled the case with Campbell, pursuant to which ELRAC paid Campbell's outstanding medical expenses. The general release expressly preserved Campbell’s right to collect no-fault benefits from any no-fault provider. Campbell then assigned his right to seek no-fault reimbursement to ELRAC in open court. ELRAC served Eagle with a demand for arbitration seeking reimbursement of the medical expenses, and Eagle commenced this action to stay arbitration on the ground that there was no arbitration agreement between them. The court held that Eagle’s petition was properly denied. ELRAC was subrogated to Campbell's claim against Eagle for first-party benefits and, as such, was entitled under Insurance Law § 5106(b) to arbitration of that claim.
New York State Supreme Court, Appellate Division, Third Department
CGL Policy Does Not Cover Breach of Contract Claim
In 1992, MTCA hired plaintiff to perform general contracting services in connection with the development of real property. In 1993, a “slope failure” and resulting landslide caused property damage and deposited a large quantity of soil into the Grasse River. MTCA commenced an underlying action asserting various tort and contract causes of action against plaintiff arising out of the landslide. Plaintiff notified its liability insurer of the underlying action and demanded that it provide defense and indemnification. In 1994, the insurer disclaimed coverage for a cause of action sounding in breach of contract, other than for the damage caused “outside of this [work] area, for example, to the Grassee [sic] River”. The insurer did not specifically disclaim coverage for all damage resulting from the claimed breach of contract and did not reserve any rights under the policy. In 1998, the Fourth Department upheld dismissal of all of MTCA’s causes of action against plaintiff in the underlying action except for the breach of contract claim, and the insurer again disclaimed coverage and declined to provide plaintiff with a defense in the underlying action. Plaintiff then commenced this action for a declaration that defendant had an obligation to defend and indemnify it under the terms of the policy. The court held that the insurer had no obligation to defend or indemnify plaintiff because the policy it issued provided no coverage for the only remaining claim -- breach of contract. The court also held that, since damages arising out of the breach of contract are not covered losses under a commercial general liability policy, defendant’s failure to previously disclaim coverage on that ground did not effect a waiver.
Visit the HOT CASES section of the Federation of Defense and Corporate Counsel website for cases covering a broad range of legal issues from other jurisdictions: www.thefederation.org.
Connecticut Supreme Court
The Term “Sudden” in “Sudden and Accidental” Pollution Exclusion Given Temporal Meaning
In case of first impression before high court in Connecticut, Court rejects argument that “sudden” in context of gradual pollution can mean “unexpected or intended”. Burden to prove exception to exclusion rests with insured. Moreover, personal injury coverage does not cover pollution either.
02/15/01: PETERS v. UNITED NATIONAL INS. COMPANY
Massachusetts Appeals Court
The Assault and Battery Exclusion in Liquor Liability Policy Precludes Coverage where Patron Assaulted
The insurance policy provided to CCP by United provided in relevant part that United “will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to which this insurance applies, sustained by any person if such liability is imposed upon the insured by reason of the selling, serving or giving of any alcoholic beverage at or from the insured premises, and [United] shall have the right and duty to defend any suit against the insured seeking damages.” Nothing more appearing, a judgment for damages against CCP, if based on the negligent dispensing of alcoholic beverages, would have obligated United to indemnify CCP with respect to that judgment. However, the policy contained an exclusion as follows: “[N]o coverage is provided under [this] policy . . . for either defense or indemnification, for any claim asserting a cause of action within any of the Exclusions listed below.” One of those exclusions, labeled the “Assault & Battery Exclusion,” applied to “[c]laims arising out of an assault and/or battery, whether caused by or at the instigation of, or at the direction of, or omission by, the Insured, and/or his employees.” United asserts that the plaintiffs’ claims that they were the victims of assaults and batteries arising out of the negligent serving of liquor fall within the exclusion and that United was therefore not responsible either to defend CCP or to pay the judgments against it. The fact that complaint contains allegations of negligence against CCP does not change the fact that “an objectively reasonable insured” would construe this incident, arising out of assault, to be excluded.
Connecticut Supreme Court
Ambiguous Terms in Insurance Policy Allows Coverage for UIM
The plaintiff was injured, and his wife was killed, when their automobile collided with a vehicle driven by an underinsured motorist. Following exhaustion of the other motorist’s policy, the plaintiff filed a claim for underinsured motorist benefits under a personal liability umbrella insurance policy issued by the defendants to the plaintiff’s mother, with whom he lived on a part-time basis. The court found that two provisions in the liability policy regarding the maintenance of underlying limits conflicted and, thus, were construed against the defendant insurance company and afforded coverage to the insured plaintiff.
Prepared by Bruce Celebrezze of Celebrezze & Wesley in Los Angeles.
AND IN DEFENSE . . .
02/19/02: ALAMI v. VOLKSWAGEN OF AMERICA, INC
New York Court of Appeals
Plaintiff, Though Driving While Intoxicated, May Still Proceed with Products Liability
Reversing an Appellate Division decision, the high court in NY refused to dismiss a product liability lawsuit brought against an auto manufacturer by an intoxicated driver. The Court refused to extend the rule that precludes someone from profiting from an illegal act to this situation. The Court held that if “Volkswagen did defectively design the Jetta as asserted by plaintiff’s expert, it breached a duty to any driver of a Jetta involved in a crash regardless of the initial cause . . . Plaintiff does not seek to “profit” from her husband’s intoxication -- she asks only that Volkswagen honor its well-recognized duty to produce a product that does not unreasonably enhance or aggravate a user’s injuries. The duty she seeks to impose on Volkswagen originates not from her husband’s act, but from Volkswagen’s obligation to design, manufacture and market a safe vehicle.”
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William A.. Wetrel, J.:
This is a combined proceeding which seeks: 1) a judgment pursuant to CPLR §3001, declaring that the recent amendments to 11 NYCRR Part 65 which implement Article 51 of the Insurance Law (No-Fault Automobile Insurance Law) adopted and approved by the respondents with an effective date of September 1, 2001 (hereinafter referred to as “Regulation 68” or “The New Regulations”), are illegal, null and void; and 2) a judgment pursuant to CPLR Article 78 annulling the revised New Regulations on the grounds that the respondents have failed to perform a duty enjoined upon them by law, have acted in excess of their jurisdiction, and that the adoption and approval of the New Regulations was affected by errors of law and was arbitrary and capricious.
Petitioners have a myriad of complaints about these regulations, but they focus on the shortened time periods for filing claims. Under the New Regulations, the time within which a claimant must notify the No-Fault insurer of an accident has been reduced from 90 to 30 days, and the time within which insurers must receive proof of claim for medical treatment has been reduced from 180 days to 45 days. This is the second time Petitioners have sued to invalidate such Regulations. In Medical Society v. Levin, 185 Mlsc.2d 536 (Sup. Ct. N.Y. County 2000) (hereinafter “Medical Society I), Petitioners successfully challenged an earlier version of the New Regulations. In that decision, Justice Gangel-Jacob exhaustively reviewed the history and purpose of the no-fault insurance system. Familiarity with the content of that decision is assumed herein. She struck down the New Regulations, finding that they “were not promulgated in substantial compliance with the requirements of the Administrative Procedure Act.” Id. at 544. Although Justice Gangel-Jacob specifically enumerated and analyzed five violations of the State Administrative Procedure Act (hereinafter “SAPA”) she carefully pointed out that the list was not exhaustive. She observed in dicta that “in promulgating the New Regulations respondents have placed an enormous new burden on accident victims and small health providers, ostensibly in an effort to prevent fraud, without first making an effort to determine which or how many of them arc contributing to the problem.” Id at 547.
Respondents went back to the drawing board. They revised the New Regulations in response to Medical Society I. and the regulations challenged here are a reincarnation of the New Regulations. After promulgation of these New Regulations, Medical Society I was affirmed. See Medical Society v. Levin 280 AD2d 309 (lst Dept. 2001). While this procedural history is relevant to the present analysis, neither decision is res judicata as to the instant legal issues.
Petitioners now allege that the respondents have once again failed to comply with SAPA. They specify four alleged failures: first, respondents improperly delegated rule-making authority to Insurance companies to establish standards, in violation of SAPA §§20l and 202, and the state Constitution. Second, respondents failed to analyze alternative approaches raised in public comments, pursuant to SAPA §§202-a, 202-b and 202(5). Third, respondents failed to supply an adequate Regulatory Impact Statement (“RIS”) and Regulatory Flexibility Analysis (“RFA”) as required by SAPA §§202-a and 202-b. Fourth, respondents failed to amend the RIS and RFA as required by SAPA Section 202(5)(b).
Respondents assert in response that they made substantive revisions to the rules, guided by the decision in Medical SocietyI and have addressed each and every one of the SAPA violations set forth by Justice Gangel-Jacob. See affidavit of Richard Lynde, Supervising Insurance Examiner, sworn to October 30, 200l; See also Respondents’ Mem. at pp. 8-14, 48-57. These changes and revisions included substantive revisions to the proposed regulation, a Notice of Revised Rulemaking, a Revised Regulatory Impact Statement, a Revised Regulatory Flexibility Analysis for Small Businesses and Local Government, a Revised Job Impact Statement, and a Revised Rural Area. Flexibility Analysis. A thirty-day period for public comment was scheduled and subsequently extended for an additional fifteen days, during which time the Department received one hundred and ninety-one comments in favor of the revisions and four hundred and fourteen against them. Respondents then caused the Notice of Adoption to be published and set September 1, 2001, as the effective date for the revised New Regulations.
It would be a vast understatement to say that Petitioners consider these revisions thoroughly inadequate. For practical reasons, the Court will refrain from addressing each and every argument and counter-argument raised by the parties. After thoroughly reviewing and analyzing the extensive record, this Court concludes that respondents have provided credible evidence of substantial compliance with SAPA.
As previously noted, Justice Gangel-Jacob’s decision in Medical Society I turned on the finding that respondents’ New Regulations were not promulgated in substantial compliance with the requirements of SAPA. See Matter of Industrial Liaison Committee v. Williams. 72 NY2d 137 (1988). Guided by Justice Gangel-Jacob’s detailed objections to the first set of New Regulations, respondents addressed each one of the deficiencies in their second revision, and the record demonstrates that they did so. In particular, respondents paid careful attention to the finding in Medical Society I that the original New Regulations failed to assess the anticipated impact on entities other than insurers, such as claimants and health care service providers. They addressed the added burdens of increased administrative costs and paperwork. Further, respondents discussed the absence of statements of alternatives and why those statements were not incorporated into the regulations themselves. Finally, respondent submitted the Notice of Rulemaking, along with the supporting paperwork and the subsequent revisions, to the Governor’s Office of Regulatory Reform to obtain an “advisory opinion” as to whether the newest revision passed muster pursuant to SAPA While that Office’s finding is of course not binding on this Court, its determination that the New Regulations were in substantial compliance with SAPA is further evidence of respondents’ substantial compliance with the Act.
The scope of judicial review pursuant to Article 78 is extremely constricted. The questions appropriately raised in this proceeding are limited to whether respondents failed to perform a duty imposed upon them by law; whether the respondents acted in excess of their jurisdiction, or whether respondent’s action in promulgating the New Regulations was affected by an error of law, was arbitrary and capricious, or an abuse of discretion. CPLR §7803.
When applying these standards to the respondent Superintendent of Insurance, we
have the benefit of a clear directive from the Court of Appeals that respondent is vested “with broad power to interpret, clarify, and implement (the State’s) legislative policy.” Ostrer v. Schenck.. 41 NY2d 782, 785 (1977). Specifically, the Superintendent’s broad powers to enact regulations must be upheld as long as the regulations “are not inconsistent with some specific statutory provision.” Id. The Superintendent is charged by statute with the duty of regulating insurance policy forms for no-fault coverage. Insurance Law §5103(d). Judicial review of the no-fault regulations governing policy forms is “limited.” Feggans v. Reliance Ins. Co of N.Y. 100 AD2d 570, 571 (2d Dept. 1984). The Court of Appeals so held in Matter of N.Y. Public Interest Research Group, Inc. v. Dent. of Ins. 66 NY2d 444 (1985), a previous case brought by one of the same petitioners:
“The Superintendent of insurance is vested by insurance Law §301
with the power to prescribe regulations interpreting the provisions
of the Insurance Law, provided only that his regulations are not
inconsistent with some specific provision of the law (Ostrer v.
Schenok 41 NY2d 782, 785). By that section he is granted ‘broad
power to interpret, clarify, and implement the legislative policy’ id.,
and his interpretation, if not irrational or unreasonable, will be
upheld in deference to his special competence and expertise with
respect to the insurance industry, unless it runs counter to the clear
wording of a statutory provision (Kurciscs v. Merchants Mut. Ins.
Co. 49 NY2d 451.459; Matter of Howard v. Wyman 28 NY2d 434, 438...!”
Petitioners argue that the respondents’ promulgation of the regulations usurped legislative policy functions and went beyond respondents’ legal authority. See Petitioner’s Mem. at Point II. However, a review of the Petitioners’ argument here suggests that it is directed more at the alleged substantive excesses in the New Regulations than at the issue of the scope of respondent’s authority, Unfortunately, this argument conflates two distinct issues; first, the authority of the Superintendent to promulgate regulations consistent with Article 51, and second, whether the New Regulations themselves substantively exceed the Superintendent’s authority These issues will be addressed seriatim.
The first issue is easily dispatched. There is no doubt that it is within the Superintendent’s authority and jurisdiction to promulgate regulations which carry out the legislative purpose of Article St of the Insurance Law. Matter of N.Y. Public Interest Research Group, Inc. v. Dept. of Ins., supra at 448, Ostrer v. Schenck. supra at 785, Ins. Law §§ 201, 301. Indeed, the “status quo” regulations which Petitioners seek to maintain were promulgated by the Commissioner pursuant to that very authority.
The next inquiry is whether the Superintendent exceeded his authority when he promulgated the New Regulations. Petitioners cite Boreali v. Axlerod 71 NY2d 1 (1988) in support of their position that the Superintendent did in fact reach beyond the scope of his authority in his zeal to combat insurance fraud. They argue that the Insurance Department, as an administrative agency, may not transgress “that di.fficult-to-de6ne line between administrative rule-making and legislative policy-making.” Id at 11. Policy-making authority, they assert, is the sole province of the legislature. (Of course, this argument begs the question of whether the New Regulations substantively constitute “policy-making.”) Petitioners’ reliance on Boreali. however, is misplaced.
At issue in Boreali were Health Department rules governing tobacco smoking. At the time the Health Department promulgated these rules, the New York State Legislature was embroiled in debate over the complex matrix of social, economic, and political problems inherent in establishing a state-wide smoking policy. The Health Department leaped into that legislative breach with its own set of rules, writing on a “clean slate,” “without benefit of legislative guidance.” Id at 13. The Court of Appeals struck down those regulations, holding that an administrative agency could not create rules out of whole cloth, “without benefit of legislative guidance.” Such a promulgation, the Court held, was tantamount to legislating, not administering.
Here, unlike Boreali, the Superintendent has simply revised existing Regulations to better implement the clear legislative purpose of Article 5i of the Insurance Law. See Nicholas v. Kahn, 47 NY2d 24 (1979); Medical Society of the State of New York v. Dep’t of Social Services 148 AD2d 144, 147 (3rd Dept. 1989). Accordingly, this Court finds no impermissible policy-making in the promulgation of the New Regulations.
Petitioners’ corollary argument, that the New Regulations embody changes which can only be made by legislative enactment, falls victim to the “hoisted by your own petard” syndrome. In a memorandum filed on June 9, 1997. in opposition to legislation proposing the very same reduction at issue here (Notice of Claim reduced from 90 to 30 days. Notice of Third Party Benefits reduced from 180 to 45 days), petitioner New York State Trial Lawyers Association, Inc. vehemently advocated a completely opposite legal position from that which they press in the instant case:
“This proposed legislation would require all health care providers
who render first party benefits to a covered person to notify an insurer within thirty calendar days of the initial treatment of the claimant. . The present regulation [Regulation 681 provides for notice to be given the
insurer within 180 days of treatment...
This statute appears to unnecessarily usurp the authority vested in the Superintendent of Insurance to promulgate those regulations deemed to
be necessary to implement the No-Fault Reparations Act.. . and in the
absence of any proposed amendment to his regulation, the Legislature
should refrain from substituting its judgment as to what the time limits
for timely notice should be in this area.”
June 9, 1997 NYSTLA Memorandum to the State Commission on Legislation (Lynde Affidavit ¶5. Resps’ Exit. B)
This Court agrees with NYSTLA’S 1997 position. It is the Superintendent of Insurance, not the legislature, who has the authority to promulgate and revise regulations to implement the provisions of the No-Fault insurance law.
Finally, this Court must determine whether the New Regulations are arbitrary, capricious, or illegal.
Respondents assert that the New Regulations are necessitated by a dramatic increase in fraudulent No-Fault insurance claims See Lynde Aff at ¶¶ 8-13. The statistics relating to fraudulent claims, compiled by the agency charged with the program’s administration, are startling: reports of No-Fault fraud have skyrocketed from 489 reported cases in 1992 to 12,372 cases in the year 2000. Id.
Petitioners do not contest these alarming statistics. Rather, they assert that respondents have no authority to adopt regulations which contain “fraud fighting measures that would undermine the availability of benefits for tens of thousands of claimants.” Alternatively, they suggest that the preferred remedy to escalating fraud is increased law enforcement efforts to identify and prosecute the perpetrators.
This Court cannot accept Petitioners’ argument, which basically suggests that the
Respondent is limited to treating the symptom but not the system. The No-Fault system is diseased by fraud of a dimension which threatens the economic viability of the program and carries enormous financial consequences for insurers and insureds throughout the state. It is well within the authority of respondent Superintendent to promulgate New Regulations to remedy this universally acknowledged problem.
‘Ultimately, Petitioners fear that these provisions go too far and will frustrate the
legislative purpose of the statute, which is to assure a quick, efficient method for covered persons to obtain first-party benefits after an automobile accident. Petitioner asserts that a thirty-day Notice of Claim provision would drastically increase the risk of lost benefits as a result of failure to meet notice requirements. The same argument is advanced regarding the forty-five day period for submission of medical claims.
Petitioners highlight the dicta in Judge Gangel-Jacob’s decision suggesting that these New Regulations will have far-reaching effects and directly impact everyone involved in the No-Fault system. No one can refute that prognostication. Indeed, it is axiomatic that with any statute of limitations, the shorter the period the more likely there will be time-barred claimants. However, that is not the standard by which this Article 78 Court must review the New Regulations. Nor may this Court substitute its judgment for that of the respondent and determine de novo what would be appropriate time periods. It matters not whether this Court, or any other Court, or the Petitioners, for that matter, believes that a less “dramatic” reduction would have been better, e.g., sixty days for notice of claim and ninety for submission of medical statements. (The state of New Jersey, for example, in addressing similar problems, adopted a twenty-one day notice requirement to address this problem. See Notice of Adoption at p. C-24.) What this Court cannot conclude is that a thirty-day notice of claim period with the procedural safeguards and provisions contained in the New Regulations is irrational or unreasonable as a matter of law. See Matter of Pell v. Board of Education. 34 NY2d 222 (1974).
Likewise, this Court cannot conclude that the reduction from one hundred and eighty days to forty-five days for submitting medical claims is irrational or unreasonable. We know from everyday experience that one would be hard-pressed to find an example of obtaining goods or services without being billed for one hundred and eighty days. While Petitioners argue that there is something “special” about third-party medical claims, this Court is unpersuaded that asking a supplier to bill within forty-five days rises to the level of “irrational or unreasonable,” especially in light of the Court of Appeals’ clear instruction to give “deference to [the Superintendent’s] special coincidence and expertise with respect to the insurance industry, unless it runs counter to the clear wording of a statutory provision.” Matter of New York Public Interest Group. Inc... v. Department of Insurance supra at 448.
This Court has reviewed the other arguments raised by Petitioners in challenging the New Regulations and finds them to be without merit.
For the foregoing reasons, this petition is in all respects denied. This constitutes the Decision and Judgment of this Court.
Judgment, Supreme Court, New York County (Walter Tolub, J.), entered on or about June 18, 2001, which denied the petition and dismissed the proceeding brought pursuant to CPLR article 75 to stay arbitration of a no-fault claim, unanimously affirmed, with costs.
Kevin Campbell, while a passenger in a livery vehicle insured by petitioner Eagle Insurance Company and driven by Joseph Bonne-Annge, was injured when the livery vehicle was involved in an accident with a car owned by respondent ELRAC Inc. and driven by Keisha Richards. After a trial on the issue of liability, Richards was found 100% liable for the accident. Respondent then settled the case with Campbell. As part of the settlement, respondent paid Campbell's outstanding medical expenses, which petitioner apparently had refused to pay. The general release executed by Campbell expressly preserved his right to collect no-fault benefits from any no-fault provider. Campbell then, in open court and on the record, assigned his right to seek no-fault reimbursement to respondent. Respondent then served petitioner with a demand for arbitration seeking reimbursement of the medical expenses. Petitioner thereafter brought the present proceeding seeking to stay arbitration arguing, inter alia, that there was no arbitration agreement between it and respondent. The petition, however, was properly denied. Having reimbursed Campbell for his medical expenses under the circumstances presented herein, respondent became subrogated to Campbell's claim against petitioner insurer for first-party benefits and was entitled, pursuant to Insurance Law § 5106(b), to arbitration of that claim. We note, moreover, that Insurance Law § 5105(b) provides that the "sole remedy of any insurer or compensation provider to recover" on a no-fault claim "shall be the submission of the controversy to mandatory arbitration *** Such procedures shall also be utilized to resolve disputes arising between insurers concerning their responsibility for payment of first party benefits" (emphasis added) (see, New York Cent. Mut. Ins. Co. v Amica Mut. Ins. Co., 162 A.D.2d 1009, 557 N.Y.S.2d 801). Petitioner's contentions regarding the merits of respondent's claim are to be determined by the arbitrator (see, Nassau Ins. Co. v McMorris, 41 N.Y.2d 701, 395 N.Y.S.2d 149, 363 N.E.2d 700).
Appeals (1) from an order of the Supreme Court (Demarest, J.), entered October 3, 2000 in St. Lawrence County, which, inter alia, denied defendant's cross motion for summary judgment, and (2) from an order of said court, entered February 22, 2001 in St. Lawrence County, which, upon reargument, granted plaintiff's motion for summary judgment and declared that defendant was required to provide a defense in the underlying property damage action.
In 1992, Massena Towne Center Associates (hereinafter MTCA) hired plaintiff to perform general contracting services in connection with the development of real property in the Town of Massena, St. Lawrence County. In 1993, a "slope failure" occurred at the site and the resulting landslide [*2] caused substantial property damage and deposited a large quantity of soil into the Grasse River abutting the property. Thereafter, MTCA initiated an action in Supreme Court, Monroe County, asserting various tort and contract causes of action against plaintiff and others arising out of the landslide (hereinafter the underlying action).
Plaintiff then notified defendant, its general commercial liability insurer, of the underlying action and demanded that defendant provide it with a defense and indemnify it for the damages recovered. In 1994, defendant disclaimed coverage for the seventh cause of action sounding in breach of contract, other than for the damage caused "outside of this [work] area, for example, to the Grassee [sic] River". Notably, defendant did not specifically disclaim coverage for all damage resulting from the claimed breach of contract and did not reserve any rights under the policy. In 1998, the Fourth Department upheld Supreme Court's dismissal of all of MTCA's causes of action against plaintiff in the underlying action except for the breach of contract claim (Massena Towne Ctr. Assocs. v Sear-Brown Group, 255 A.D.2d 893, 895, 680 N.Y.S.2d 349). Following its review of the Fourth Department's decision, defendant again disclaimed coverage and declined to provide plaintiff with a defense in the underlying action upon the ground that the only remaining cause of action against plaintiff was for breach of contract.
Plaintiff then commenced this action for a declaration that defendant had an obligation to defend and indemnify it under the terms of the general commercial liability insurance policy issued by defendant. Following joinder of issue, both parties moved for summary judgment. Although Supreme Court initially denied both motions, upon reargument it granted plaintiff's motion and declared that defendant had a duty to defend and indemnify plaintiff under the terms of the policy. Defendant appeals.
In our view, there is merit to defendant's contention that it has no obligation to defend or indemnify plaintiff because the policy it issued to plaintiff provides no coverage for the sole breach of contract cause of action that survived the Fourth Department's decision. In its November 1998 decision, the Fourth Department considered the causes of action asserted against plaintiff in the underlying action and concluded that, although [*4] the seventh cause of action alleging breach of contract was viable, no tort causes of action remained against plaintiff (id., at 895). Damages arising out of the breach of a contract are not covered losses under a commercial general liability policy such as the one at issue here (see, Shared-Interest Mgt. v Travelers Prop. Cas. Corp., 265 A.D.2d 622, 623, 695 N.Y.S.2d 632) and, in view of the fact that the policy provided no coverage for the sole remaining claim against plaintiff, defendant's failure to previously disclaim coverage on that ground did not effect a waiver ( see, Schiff Assocs. v Flack, 51 N.Y.2d 692, 698; Hartford Acc. & Indem. Co. v Roerig, 93 A.D.2d 933, 934, 462 N.Y.S.2d 315). We are therefore constrained to reverse Supreme Court's orders, grant defendant's motion for summary judgment and dismiss the complaint.
Cardona, P.J., Crew III, Peters and Lahtinen, JJ., concur.
ORDERED that the orders are reversed, on the law, with costs, plaintiff's motion denied, defendant's cross motion granted, summary judgment awarded to defendant and complaint dismissed.
Appeal from an order of the Supreme Court (Demarest, J.), entered March 27, 2001 in St. Lawrence County, which, inter alia, granted defendant Unigard Insurance Company's motion for summary judgment and declared that it had no duty to defend and indemnify defendants Prosper's Trucking Inc. and Trent A. Emery in an underlying wrongful death action.
Plaintiff brought an action against defendants Prosper's Trucking Inc. (hereinafter Prosper) and Trent A. Emery to recover damages for the wrongful death of her husband in a November 29, 1996 motor vehicle accident. Prosper's insurer, defendant Unigard Insurance Company, disclaimed coverage, contending that AFCO Credit Corporation, a premium financing agency, had cancelled its insurance policy as of November 25, 1996. When plaintiff subsequently sought a declaratory judgment, Supreme Court found that AFCO's actions pursuant to Banking Law § 576 were effective to cancel the policy prior to the accident and granted summary judgment to Unigard and declared that it had no duty to defend and indemnify Prosper and Emery, prompting this appeal. Because Supreme Court erred in deciding that cancellation occurred on November 25, 1996, the date stated in AFCO's notice of cancellation, rather than on December 6, 1996, when the notice of cancellation was actually received by Unigard, we now reverse.
Banking Law § 576 authorizes a premium financing agency to act “in the name of the insured” to cancel an insurance policy for nonpayment when the premium financing agreement so provides and when the agency strictly complies with the statute's notice provisions (Banking Law § 576 ; see, L.Z.R. Raphaely Galleries v Lumbermens Mut. Cas. Co., 191 AD2d 680, 681; Lumbermens Mut. Cas. Co. v Comparato, 151 AD2d 265, 266; Sea Ins. Co. v Kopsky, 137 AD2d 804, 804‑805). Since the record here indicates that Unigard received AFCO's notice of cancellation of Prosper's policy on December 6, 1996, after the accident occurred, the critical issue on this appeal is whether Banking Law § 576, particularly as amended in 1978 (see, L 1978, ch 565), abrogated the common‑law rule requiring that an insurer actually receive the notice before cancellation becomes effective.
Contrary to Unigard's argument on this appeal, the Court of Appeals expressly reaffirmed the common-law rule in Savino v Merchants Mut. Ins. Co. (44 NY2d 625, 628-629), and nothing in the language of the subsequent 1978 amendment reflects an intent to abrogate that rule or supersede Savino. The available legislative history reveals that the purpose of the 1978 amendment was to prevent unnecessary lapses in insurance coverage (see, Mem of State Executive Dept, 1978 McKinney's Session Laws of NY, at 1744; Mem of Assembly Member Alan G. Hevesi, 1978 Legis Ann, at 328). Since the rationale underlying both the statute and the common-law rule is to protect the insured and third parties by preventing gaps in coverage (see, Providence Washington Ins. Co. v Security Mut. Ins. Co., 35 NY2d 583, 586), we find this interpretation to be in accord with public policy.
Moreover, we can infer no intent to abrogate the common-law rule from the Legislature's mere failure to codify it in the 1978 amendment. There would have been no need to codify a rule that had so recently been reaffirmed by the Court of Appeals, nor could the Legislature have intended to abrogate such a well-established rule without making its intent explicit (see, McKinney's Cons Laws of NY, Book 1, Statutes § 74; cf., Matter of Widmark v Cahill, 269 AD2d 33, 35).
Crew III, J.P., Peters, Mugglin and Lahtinen, JJ., concur.
ORDERED that the order is reversed, on the law, without costs, motion by defendant Unigard Insurance Company for summary judgment denied, cross motions by plaintiff and defendants Prosper's Trucking Inc. and Trent A. Emery for summary judgment granted, and it is declared that Unigard Insurance Company has a duty to defend and indemnify Prosper's Trucking Inc. and Trent A. Emery in the underlying action brought by plaintiff.