Coverage Pointers - Volume VI, No. 16
New York Court of Appeals
High Court Holds that Where an Insured Previously Gives Timely Notice of an Accident, the Carrier Must Establish That It Was Prejudiced by Late Notice of a SUM (Underinsured Motorist) Claim Before It May Properly Disclaim Coverage
This is a declaratory judgment action in which plaintiff seeks a declaration that she is entitled to payment under the Supplemental Uninsured/Underinsured Motorists (SUM) provision of her insurance contract. The insurance carrier disclaimed on the ground that written notice of the SUM claim was not given as soon as practicable and that a copy of the summons and complaint in plaintiff's legal action were not immediately given to it. New York Court of Appeals holds that on the facts of this case, carrier must show prejudice before it may disclaim coverage due to plaintiff=s late notice of SUM claim.
Here, the plaintiff was involved in a May 8, 1998 accident and State Farm, also the No Fault carrier, was given immediate notice of the accident, paid no fault benefits and twice conducted an independent medical exams of the insured. In April 1999, plaintiff filed suit against the driver of the other car, Sherwood Bouyea and notified State Farm two months later. In September 1999, plaintiff learned that Bouyea's maximum liability coverage was $50,000. Plaintiff's demand was for $1 million. In October 1999, plaintiff underwent surgery on her back for injuries she alleges she sustained as a result of the car accident. On March 12, 2000, she received an offer from carrier of the other vehicle to settle the case for $45,000 to settle the claim. On March 31, 2000, plaintiff notified State Farm that she would pursue Supplementary Uninsured/Underinsured Motorist (SUM) coverage under her own policy. On April 10, 2000, she received a policy limit offer (of $50,000). On April 25, 2000, State Farm disclaimed coverage based upon plaintiff=s failure to notify it of the SUM claim as soon as practicable and because of failure to notify it immediately of the lawsuit.
The Court found that plaintiff gave timely notice of the accident and made a claim for no-fault benefits soon thereafter. That notice was sufficient to promote the valid policy objective of curbing fraud or collusion. Moreover, the record indicates that State Farm undertook an investigation of the accident. It also required plaintiff to undergo medical exams in December 1998 and February 2000. The Court first determined that the insured did not timely notify the SUM carrier of a potential underinsured claim. However, under these circumstances, where the carrier knew of the accident immediately, had full access to the medical records, conducted IME’s, the carrier should not benefit from a windfall because of the insured’s late notice. In order for the SUM carrier to walk away from coverage based on late notice of a potential SUM claim, the insurer must bear the burden of proving that it has been prejudiced by the failure to be given notice of this potential claim in a timely fashion. where an insured previously gives timely notice of the accident, the carrier must establish that it is prejudiced by a late notice of SUM claim before it may properly disclaim coverage.
New York Court of Appeals
Court May Reverse Arbitrator’s Award On Grounds Decision Lacked Rational Basis
The Court of Appeals reversed the Appellate Division Fourth Department, adopting the Appellate Division’s dissenting opinion, confirming a no-fault arbitration Award, finding that it was impossible for the Insured to have given notice to the Insurer, pursuant to the insurance regulations, within ninety (90) days of her February 20, 1999, motor vehicle accident, as she was unaware of the seriousness of her condition until February 2000. The Court reasoned that the Lower Arbitrator’s finding was based upon the weight of factual matters and the Record supported that determination therefore, a Court cannot substitute its own judgment for that of the Arbitrator. This is in spite of the evidence in the record that the Insured sought medical treatment for her injuries two (2) days after the accident, and due to the fact her symptoms worsened, was referred to a specialist who, inter alia, ordered an MRI within the ninety (90) time period. Thereafter, that physician referred her to a neurosurgeon, who advised surgery.
On February 3, 2000, the Insured provided notice to the Insurer for a claim for additional personal injury protection benefits, which claim was denied for failure to comply with the ninety (90) day notice requirement. The parties proceeded to a no-fault arbitration, wherein the Arbitrator determined it was impossible for the Insured to have given notice within ninety (90) days, as she was unaware of the seriousness of her condition until February 2000. A Master Arbitrator upheld the award but the Special Term Court vacated the award. On appeal, the Appellate Division affirmed holding that there was no rational basis for the arbitration award. The Court held that a court cannot disturb an Arbitrator’s award on the ground that the award is based upon an error of law, but can do so on the ground that it lacked a rational basis.
Submitted by: Audrey A. Seeley (Hurwitz & Fine, PC.)
New York Court of Appeals
Injuries From Falls and Loading of Flatbed Trucks Are Not Risks Contemplated Under Labor Law Section 240(1)
The Court decides in this case (and a companion case, Marvin v. Korean Air, Inc.) that: “..workers who fall when working on, or getting down from, the surface of a flatbed truck that is between four and five feet off the ground may not recover under Labor Law ' 240 (1), because their injuries did not result from the sort of ‘elevation-related risk’ that is essential to a cause of action under that section.”
In reaching this decision, the Court focused on two categories of risk that Labor Law Section 240(1) was enacted to provide protection from, "the relative elevation at which the task must be performed" and the elevation "at which materials or loads must be positioned or secured."
The Court of Appeals has previously characterized these two distinct types of case as: "falling worker" and "falling object" cases respectively. Narducci v Manhasset Bay Assoc., 96 NY2d 259, 267 (2001).
In Toefer, the Court of Appeals addressed the Plaintiff’s argument that a hoist, one of the devices specifically described in Labor Law Section 240(1) should have been used instead of wooden poles to lower the beams from the truck. In addressing this argument the Court of Appeals concluded that this argument misconceives the issue. Labor Law ' 240 (1) is arguably implicated in this case only because Plaintiff fell from the truck's trailer to the ground. The purpose of a hoist here would not have been to prevent Plaintiff from falling, but rather, it would have been to prevent the beams themselves from doing damage. But Casey was not injured by a beam, or by any falling object, the object that struck him inexplicably flew at him either upwards or horizontally. His injury, horrendous as it is, is not attributable to the sort of elevation-related risk that Labor Law ' 240 (1) was meant to address.
In Marvin, the Court concluded that a four-to-five foot descent from a flatbed trailer or similar surface does not present the sort of elevation-related risk that triggers Labor Law ' 240(1)'s coverage. Safety devices of the kind listed in the statute are normally associated with more dangerous activity than a worker's getting down from the back of a truck.
Submitted by: Shawn P. Martin (Hurwitz & Fine, P.C.)
The Argo Corporation v, Greater New York Mutual Insurance Company
New York Court of Appeals
New York High Court Reaffirms “No Prejudice” Rule in Late Notice Cases Under Liability Policies
The rumor surrounding the anticipated death of the “no prejudice” rule under liability policies has been greatly exaggerated. New York stands virtually alone in its rule that an insured who, without acceptable excuse, fails to timely notify a liability carrier of a claim or lawsuit has breached the policy conditions, irrespective of any prejudice on the part of the insurer. Most states require an insurer to demonstrate that it has been prejudiced by the lateness. Of course, a carrier must raise that denial promptly – and properly – or waive that policy defense. This highly anticipated decision revisited the question and reaffirmed the rule. The issue in this case was whether a primary insurer can disclaim coverage based solely upon a late notice of lawsuit or must show prejudice. The Court held that under the circumstances of this case, plaintiffs' late notice was unreasonable as a matter of law and the insurer need not show prejudice.
New York State Court of Appeals
This One’s a Biggie – New York High Court Rules Excess Carriers May Have Obligation to Share in Defense Obligations
In a decision that could lead to a dramatic change in the allocation of defense obligations, the Court of Appeals has determined that in certain circumstances, an excess carrier must share in the cost of defending an insured. In this case, two coincidental primary policies existed -- one excess to the other by reason of competing "other insurance" provisions. The excess carrier had voluntarily assumed and marshaled the insured's defense. The high court held that an allocation of defense costs based on primary policy limits is appropriate. Here the primary policy limits are identical, warranting a 50-50 split.
This case involved a leased car. The driver purchased a policy of insurance through Nationwide with $100,000/$300,000 in coverage. The lessor, GMAC, purchased a Business Auto Policy (BAP) with Fireman’s Fund and an umbrella policy with $9 million in coverage. Both Fireman’s policies contained “other insurance clauses” that placed their policies in an excess position so that the allocation of indemnity coverage would be the Nationwide policy first, followed by the BAP and then the umbrella.
Nationwide assumed GMAC’s defense but then tendered it to Fireman’s Fund suggesting that since Fireman’s would pay the lion’s share of the catastrophic injury caused by the driver, it might have an interest in controlling the defense. Fireman’s agreed, reserving its right to chase Nationwide for reimbursement of those defense costs. The Court held that “both Fireman's and Nationwide issued primary policies commensurate with their respective expectations and bargained-for rights and obligations. Therefore, requiring both Fireman's and Nationwide, as coincidental primary insurers having the same policy limits, to contribute equally to defense costs is consistent with the requirement that insurance contracts be interpreted "according to the reasonable expectation and purpose of the ordinary businessman when making an ordinary business contract.” The Court found that that “both Fireman's and Nationwide, by virtue of their status as primary insurers, and additionally through their course of conduct, could reasonably have expected to share the expense of the defense.”
The Court found that while the “other insurance” clauses ordered the responsibility to indemnify, it said nothing about the ranking of defense costs and therefore (particularly with the assumption of defense by Fireman’s Fund) both the primary and excess carrier had the obligation to defend.
The Court did not say how it would have ruled had Fireman’s Fund not assumed Nationwide’s defense, but a concurring opinion seemed to signal a suggestion that perhaps the ruling would have come out the same way, even without the assumption of defense.
New York State Court of Appeals
Fraudulently Incorporated Clinics Not Entitled to Reimbursement under Patient’s No Fault Policy
The Court of Appeals unanimously held that medical practices structured illegally under New York’s Education and Business Corporation laws could not seek reimbursement under patient’s no-fault policies. Insurance Law § 5102 (a) requires no-fault carriers to reimburse patients or their assignees for "basic economic loss." Interpreting the statute, the Superintendent of Insurance promulgated 11 NYCRR § 65-3.16 (a) (12) (effective April 4, 2002) that excluded from the meaning of "basic economic loss" payments made to unlicensed providers, thus rendering them ineligible for reimbursement. The Court finds that these unlicensed providers formed in violation of New York law are not entitled to reimbursement. In support of a carrier’s right to investigate submitted claims under their policies, the Court holds “that on the strength of this regulation, carriers may look beyond the face of licensing documents to identify willful and material failure to abide by state and local law.”
Flores v. Lower East Side Service Center, Inc
New York State Court of Appeals
Unsigned Agreement to Indemnify May Be Sufficient To Allow Third Party Suit
As we know, § 11 of the Workers Compensation statute, permits an owner to bring a third-party claim against an injured worker's employer in only two circumstances: where the injured worker has suffered a "grave injury" or the employer has entered into a written contract to indemnify the owner. In this important case, the Court of Appeals holds that the common-law rule — which authorizes review of the course of conduct between the parties to determine whether there was a meeting of minds sufficient to give rise to an enforceable contract — governs the validity of a written indemnification agreement under Workers' Compensation Law § 11. Therefore, an unsigned agreement to indemnify may be sufficient to allow a third party claim against the employer.
Appellate Division, Second Department
Policy’s Two Year SOL Upheld in Absence of Proof of Waiver or Estoppel
This was an action to recover damages for breach of an insurance contract. Court reverses the Lower Court and dismisses the complaint. The Court finds that the defendant sustained its initial burden of demonstrating its entitlement to summary judgment by presenting evidence that the action was commenced after the two-year limitations period contained in the subject insurance policy had expired. Plaintiffs' failed to raise a triable issue of fact as to whether defendant waived its right to rely upon the protection of the contractual limitations period, or should be estopped from asserting the limitations period as a defense because it engaged in conduct which lulled the plaintiffs into sleeping on their legal rights.
3/31/05 Lora v. Calle
Appellate Division, First Department
Plaintiffs Fail To Present Sufficient Evidence to Prevent Dismissal on Serious Injury
Both plaintiffs fail to produce probative evidence to overcome the Defendants’ prima facie case that summary judgment under Insurance Law § 5102(d) was required. As to Plaintiff No. 1, no evidence was presented that the plaintiff was prevented from performing substantially all of his usual daily activities for at least 90 of the 180 days immediately following the accident. As to Plaintiff No. 2, plaintiff’s doctor failed to provide numeric values to correlate the purported ranges of motion or qualitative assessments to compare normal function, purpose and use of the lumbar spine and left shoulder to the alleged restrictions.
New York Central Mutual Fire Insurance Company v. Sweet
Appellate Division, Third Department
No Coverage Exclusion for Child Not “in the care of” a Named Insured
A homeowner's insurance policy was issued to Mr. and Mrs. Sweet. The Sweets' daughter lived with them and the daughter's fiancé moved into the Sweets' home as well. A few months later, the daughter’s fiancé’ obtained legal custody of his son Matthias and began spending several nights each week at the Sweets' home. On one of these nights, Matthias jumped off the riding lawnmower at the Sweet’s home and injured his foot on the mower blade. When the Sweets filed a notice of loss under their homeowner’s policy, the insurer disclaimed coverage on the basis that the child was an "insured" under the policy and thus not entitled to recover.
The policy excluded personal liability coverage for anyone defined as an "insured" in the policy. That term was defined to include the named insureds and "residents of [the named insureds'] household who are: a. [their] relatives; or b. other persons under the age of 21 and in the care of any person named above." So, the court reasoned, the term "any person named above" is limited to named insureds, the Sweets. Although the Sweets' daughter was an insured because she was a resident relative of the named insureds, she was not considered a "person named above." Accordingly, the child was only an insured if he was "in the care of" the Sweets, not in their daughter's care.
The Court found that although the child was on Mr. Sweet's lap for the 5 to 10 minutes preceding the accident, the child was really being cared for that day by the Sweets' daughter. Under these circumstances, the Appellate Division upheld the Lower Court finding that the child was not "in the care of" the Sweets, thus was not an insured under the policy's definition of that term and so was not excluded from coverage under the policy.
Appellate Division, Third Department
Absent Evidence of Effect on Public at Large, No Violation of General Business Law § 349
Claimed violation of General Business Law § 349 alleged that plaintiffs insurers repeatedly misrepresented the meaning of their standard comprehensive general liability policies. The Court held that the allegations, liberally construed, showed, at best, a private contract dispute over policy coverage and the processing of defendants' claims, not conduct affecting the consuming public at large, and thus do not state a cause of action under § 349.
Appellate Division, Second Department
Heavy Burden of Non-Cooperation Met and Denial of Coverage Proper
United effectively denied coverage based upon lack of cooperation. The record supported a finding that the carrier undertook diligent efforts that were reasonably calculated to bring about the cooperation of the insured. Carrier’s representatives contacted the principle owner of the insured on more than one occasion to ensure that he would be present on the day of his scheduled testimony, including speaking with him the night before his scheduled testimony. Despite these efforts, the owner failed to appear to testify at the last minute, without explanation, despite promising United's representatives that he would testify, and being under subpoena from the plaintiffs' attorney, thereby prompting a contempt proceeding. The defendant therefore met its heavy burden of showing lack of cooperation of its insured.
Appellate Division, Second Department
No Duty to Indemnify as
Trademark Infringement Not Covered Loss
The underlying action was an alleged trademark infringement by the insured. The Court holds that the trademark infringement was not an "advertising injury" and so was not a covered loss under the policy. Therefore, American did not have a duty to indemnify the defendant.
Appellate Division, Second Department
Yet Another Caution to the Plaintiff: Explain the Treatment Gap with Proper Proof
The Court holds that the affidavit of the plaintiff's examining chiropractor gave no satisfactory explanation for the nearly 3½-year gap between the conclusion of the plaintiff's medical treatments and the date of his examination by the chiropractor. Furthermore, the chiropractor partially based his conclusions on inadmissible, unsworn medical records.
Figueroa v. Utica National Insurance Group
Appellate Division, Second Department
Breach of Duty to Give Notice to Insurer Grounds to Disclaim Coverage
Instead of immediately notifying their insurer, the insured waited over two months before providing the required notification. The Court held that the insured should have realized that there was a reasonable possibility of their policy's involvement when the insurance investigator visited their home to obtain a statement regarding the accident. This delay was found to be unreasonable as a matter of law.
Visit the Hot Cases section of the Federation of Defense & Corporate Counsel website, www.thefederation.org ranked among the top five legal research websites in an article published in Litigation News, a publication of the Litigation Section of the American Bar Association. Dan Kohane serves as the FDCC’s Website Editor Emeritus.
4/7/05 Allstate Indemnity Company v. Ruiz
Florida Supreme Court
Underlying Claims and
Litigation Files Discoverable In First-Party Bad Faith Litigation
In connection with evaluating the obligation to process claims in good faith under section 624.155, all materials, including documents, memoranda, and letters, contained in the underlying claim and related litigation file material that was created up to and including the date of resolution of the underlying disputed matter and pertain in any way to coverage, benefits, liability, or damages, should also be produced in a first-party bad faith action. Further, all such materials prepared after the resolution of the underlying disputed matter and initiation of the bad faith action may be subject to production upon a showing of good cause or pursuant to an order of the court following an in-camera inspection. Court cautions that where the coverage and bad faith actions are initiated simultaneously, the courts should employ existing tools such as the abatement of actions and in-camera inspection, to ensure full and fair discovery in both causes of action. Documents that pertain to the processing or litigation of the underlying claim cannot be shielded by merely asserting that such documents were prepared in anticipation of litigation of the bad faith action.
Submitted by: Daina Kojelis
4/1/05 West Orange Lumber Co. v. Indiana Lumbermens Mut. Ins. Co.
Florida Fifth District Court of Appeal
No Duty to Defend or
Indemnify Underlying Action Wherein Allegations Showed that Action Stemmed
from Failure to Supply Product of the Quality Specified in Construction
In the underlying action, Plaintiff, a lumber company, was sued by a subcontractor that alleged that Plaintiff provided cedar wood which did not meet contract specifications regarding the type and grade of wood. Defendant-Insurer initially defended, but obtained a ruling in its favor in the declaratory proceeding. Plaintiff appeals the judgment that Defendant-Insurer had no duty to defend or indemnify. The Court of Appeal affirmed. The Court agreed that the underlying complaint made no allegations of property damages, and that the dispute concerned breach of contract, not tort. Neither the property owner’s, nor the general contractor’s, property suffered damage from the failure to supply proper quality lumber; rather the only damage was the cost to remove the cedar and supply an acceptable substitute. Based on the “impaired property,” exclusion, the “recall exclusion,” and the policy definitions of “your product” and “your work,” the Court held that the liability policies did not cover pure construction defects, absent damage to the property or person of third parties, where, as here, through error, mistake, or negligence a good product was sold, delivered, and rejected for failure to meet contract specifications.
Submitted by: Bruce D. Celebrezze & Supriya Sundarrajan (Sedgwick, Detert, Moran & Arnold LLP)
3/31/05 Dan Ray Warren v. State Farm Mutual
Florida Supreme Court
Section 627.736(5)(b) Which
Requires Providers of Non-Emergency Medical Services and Medical Services Not
Provided In and Billed by a Hospital to Submit a Statement of Charges to
Insurers Within Thirty Days of Service Is Constitutional
Warren was injured in a motor vehicle accident and received treatment from Dr. Rotstein on May 27, June 16 and July 9, 1999. Dr. Rotstein failed to submit statements for his medical services to State Farm until August 9, 1999, more than thirty days after the services were rendered. Because the statements were statutorily delinquent, State Farm denied payment to Dr. Rotstein. Dr. Rotstein initiated an action for non-payment. The county court agreed with Dr. Rotstein's allegations that the thirty day billing requirement was unconstitutional as it violated the rights of equal protection and due process. The Fifth District Court of Appeal reversed the county court's ruling. The Supreme Court agreed with the appellate court and concluded the statute placing medical providers on notice of the thirty-day requirement preserves access to the courts, and does not interfere with petitioners' equal protection or due process rights.
Submitted by: F. Robert Radel, II and Kelly A. Wasmer (Butler Pappas Weihmuller Katz Craig LLP)
3/31/05 Ruenger v. Soodsma and Rural Mutual Insurance Co.
Wisconsin Court of Appeals
Reducing Clause in Personal
Auto Policy is Valid and Business Auto Policy Does Provide UIM Coverage for
Ruenger was operating her skid loader to clear snow from around her mailbox when an automobile driven by Soodsma struck her skid loader and caused injury to Ruenger. Soodsma was injured under a policy issued by Wisconsin American Mutual Insurance. After Ruenger initiated this action, Wisconsin American Mutual paid its policy limits to Ruenger ($250,000). Rural Mutual Insurance Company had issued two policies to Ruenger, a private passenger auto policy and a business automobile policy. Both policies contained UIM coverage ($250,000 under the personal policy and $500,000 under the business policy) and the UIM endorsements in both policies contained reducing clauses. Rural moved for a declaratory ruling that the UIM reducing clause in the personal policy was valid and reduced its obligation to $50,000, which it had already paid to Ruenger. Ruenger argued the reducing clause was unenforceable because it did not comply with Wis. Stat., Section 632.32(5)(i) and because it was ambiguous. The circuit court disagreed with Ruenger and declared the reducing clause valid. The appellate court affirmed the lower court's decision. Rural also moved for a declaratory ruling that Ruenger was not entitled to UIM benefits under the business policy because of the exclusion for bodily injuries sustained by the named insured when occupying an owned vehicle that is not a covered auto. In response, Ruenger asked the court to declare that there was UIM coverage under the business policy. The circuit court concluded that the occupancy exclusion was valid and therefore, there was no UIM coverage under the business policy. The appellate court disagreed with the lower court and determined there was UIM coverage for Ruenger under her business policy. It also held that the reducing clause in the UIM endorsement of the business policy was valid.
Submitted by: F. Robert Radel, II and Kelly A. Wasmer (Butler Pappas Weihmuller Katz Craig LLP)
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Insurance Coverage Team
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Fire, First-Party and Subrogation Team
Andrea Schillaci, Team Leader
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No-Fault/SUM Arbitration Team
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General Motors Acceptance Corporation v. Nationwide Insurance Company
David H. Tennant, for appellant.
Roger B. Lawrence, for respondents.
We are called upon to determine whether an allocation of defense costs between a primary and excess insurer is warranted. We conclude that where, as here, two coincidental primary policies exist -- one excess to the other by reason of competing "other insurance" provisions -- and where the excess carrier has voluntarily assumed and marshaled the insured's defense, an allocation of defense costs based on primary policy limits is appropriate. Here the primary policy limits are identical, warranting a 50-50 split.
In 1994, John C. Sabin, not a party to this action, leased an SUV from plaintiff General Motors Acceptance Corporation (GMAC). The lease agreement required Sabin to obtain an automobile insurance policy and include GMAC as an additional insured under the policy. Sabin procured a suitable primary insurance policy through defendant Nationwide Insurance Company. This policy limited liability to $100,000 per person and $300,000 per occurrence. Nationwide's policy made explicit that it would "defend at [its] expense, with attorneys of [its] choice, any suit against the insured."
In order to cover its potential liability in the event the lessee failed to fulfill its obligation to obtain insurance, and to obtain excess coverage in the event of catastrophic injury, GMAC purchased two distinct policies from plaintiff Fireman's Fund Insurance Company. Fireman's issued both a primary "Business Auto Policy," with liability limits comparable to Nationwide's policy, and an "Excess Liability Policy," or an "umbrella" policy, with a substantially greater limit of $9,000,000 per occurrence. The primary business auto policy stated that Fireman's had "the right and duty to defend any suit asking for [ ] damages." As to other insurance, the policy stated that the primary policy's insurance coverage was "excess over any other collectible insurance, whether primary, excess, or contingent." There was no similar limitation on Fireman's duty to defend. Fireman's true excess or umbrella policy, by contrast, specifically limited the duty to defend to instances where no primary policy or other insurance applied, stating that it would "assume charge of the settlement or defense of any claim or suit against the Insured seeking damages to which this policy applies and to which no Primary Insurance or Other Insurance applies . . ." (emphasis in original).
On April 5, 1995, Sabin drove his leased vehicle through an intersection, colliding with a dump truck and another passenger vehicle. Two individuals were seriously injured and a third died in the accident. The injured parties, and decedent's estate, commenced three separate lawsuits against, among others, GMAC as owner of the offending vehicle. Jeanette Mammano, whose injuries left her in a permanent vegetative state, commenced the action that exposed GMAC to the greatest potential liability. Nationwide's primary policy and both Fireman's policies were in effect on the date of the accident. Prior to commencement of this action, Nationwide -- reasonably expecting any award to exceed policy limits -- tendered its entire policy to Mammano's attorney in exchange for a general release. Counsel refused the tender and the case proceeded.
Nationwide originally undertook GMAC's defense of the Mammano action. In a letter dated October 24, 1997, however, Nationwide wrote that it was tendering the defense to Fireman's. "As our available liability limit is only $100,000 it represents only 1% of the total indemnification potential considering [Fireman's] limits of nine million." Nationwide further wrote that "[i]t only makes sense therefore that [Fireman's] designate counsel that should continue with the defense of the matter, under your direction." In a letter dated November 25, 1997, Fireman's voluntarily agreed that it would "assume the defense of . . . GMAC, but it [would] do so while reserving its rights to pursue collection of all defense costs from Nationwide expended in Fireman's Fund's defense of these actions." Thereafter Fireman's retained counsel vigorously defended the action in an effort to reduce the enormous exposure of GMAC and Fireman's.
In January 1999, the parties settled the Mammano action. The settlement agreement provided for a one-time payment of $4.5 million, of which Fireman's paid $3.3 million and provided an annuity of $10,000 a month for life with guaranteed payments for ten years. The settlement nearly exhausted the $9.1 million limit provided under both Fireman's policies. Nationwide contributed its entire $100,000 policy to the settlement. Prior to settling, Fireman's amassed over $200,000 in legal fees defending the action.
Following settlement, Fireman's sought to recover all its legal expenses from Nationwide. When Nationwide refused to contribute, Fireman's and GMAC commenced the underlying action to recover the defense costs. Supreme Court granted plaintiffs Fireman's and GMAC summary judgment and awarded them full reimbursement of defense costs, and the Appellate Division affirmed.* We granted defendant Nationwide leave to appeal and now reverse.
A primary insurer "has the primary duty to defend on behalf of [its] insureds" (General Accident Fire & Life Assurance Corp., Ltd. v Piazza, 4 NY2d 659, 669 ; see also Ostrager and Newman, Handbook on Insurance Coverage Disputes ' 6.03[a] [12th Ed.]). Moreover, a primary insurer has a duty to defend "without any entitlement to contribution from an excess insurer" (Fireman's Ins. Co. of Washington v Federal Ins. Co., 233 AD2d 193, 193 [1st Dept 1996]). An excess carrier may, in its discretion, "protect its interest . . . by participating in the defense" (General Accident Fire & Life, 4 NY2d at 669). Unlike a primary insurer, however, there is no obligation to do so.
We have liberally construed an insurer's general duty to defend in order to ensure the adequate and timely investigation of a claim and defense of an insured, regardless of the insured's ultimate likelihood of success on the merits. Consequently, an insurer's duty to defend is broader than its duty to indemnify (see Fitzpatrick v American Honda Motor Co., Inc., 78 NY2d 61, 65-66 ).
Here, Fireman's issued two distinct policies -- a primary policy deemed excess by the competing "other insurance" provisions and a true excess, or "umbrella," policy where the duty to defend and the duty to indemnify came into effect only after the limits of the underlying primary coverage were exhausted. Furthermore, Fireman's accepted the defense of the action and conducted it in a most thorough manner suitable to protect its own interests and that of its insured. The circumstances of this case thus allowed both Nationwide and Fireman's to defend the action on behalf of GMAC. Moreover, insofar as both Nationwide and Fireman's shared this obligation, and each participated in the defense, they are both liable for the defense costs, here in equal shares as the policy limits of the coincidental primary auto liability policies are identical.
Both primary insurance policies contain specific language reaffirming their duties, as primary insurers, to defend the insured. While Fireman's primary policy coverage is deemed "excess" by virtue of other collectible insurance, the limiting language is directed to its obligation to contribute to a settlement or judgment, not to its duty to defend. Moreover, when Nationwide tendered the defense, Fireman's accepted and proceeded to defend the action in a manner that it deemed most appropriate -- albeit reserving its rights to collect defense costs from Nationwide. In essence, Fireman's, in accepting the defense here, embraced the specific language of its primary policy requiring it to "defend any suit asking for [ ] damages." In assuming the defense, Fireman's triggered its own duty to defend the action, a duty that overlapped with Nationwide's same obligation.
Fireman's reservation of rights put Nationwide on notice that Fireman's acceptance did not relieve Nationwide of its policy obligations. At a minimum, Nationwide knew that it would be liable for a share of the defense costs. Consequently, insofar as the primary insurers' respective policy limits were identical, an allocation in this case requires that the total defense costs be shared equally.
We are mindful of the fact that these policies were both coincidental primary policies. Primary insurance premiums are based, at least in part, on the insurers' consideration that it may be liable to defend an action. In this sense, "primary" policy premiums are higher, relatively speaking, than "excess" premiums, because the primary insurer contemplates defending a potential lawsuit when it contracts with the insured. A primary insurer's duty to defend is not diminished, however, nor is it entitled to defend an action less vigorously, simply because its policy limits are more easily exceeded in any given case. Relieving primary insurers of this duty to defend would provide a windfall to the carrier insofar as the costs of defense -- litigation insurance -- are contemplated by, and reflected in, the premiums charged for primary coverage. This is in contrast to a true excess, or "umbrella," policy, where the duty to defend is not as readily triggered.
Both Fireman's and Nationwide issued primary policies commensurate with their respective expectations and bargained-for rights and obligations. Therefore, requiring both Fireman's and Nationwide, as coincidental primary insurers having the same policy limits, to contribute equally to defense costs is consistent with the requirement that insurance contracts be interpreted "according to the reasonable expectation and purpose of the ordinary businessman when making an ordinary business contract" (Atl. Cement Co., Inc. v Fidelity & Cas. Co. of New York, 91 AD2d 412, 418 [1st Dept 1983], affd 63 NY2d 798 ). It is also consistent with our general reluctance to relieve a primary insurer of its duty to defend (see generally Fitzpatrick, 78 NY2d 61). In this instance, it is apparent that both Fireman's and Nationwide, by virtue of their status as primary insurers, and additionally through their course of conduct, could reasonably have expected to share the expense of the defense.
Thus, we reject Nationwide's position, followed in only a minority of jurisdictions, that an equitable allocation between a primary and excess insurer must be realized and hold only that, under the circumstances of this case, both insurers should be required to share defense costs. Here, the policy limits of the coincidental policies lead to a 50-50 split (cf. Fed. Ins. Co. v Atl. Natl. Ins. Co., 25 NY2d 71 ).
Accordingly, the order of the Appellate Division should be reversed, with costs, and the case remitted to Supreme Court for further proceedings in accordance with this Opinion.
R. S. SMITH, J.(Concurring):
I agree with the result reached by the majority, and I agree in part with its reasoning. I think the majority is correct in rejecting a general doctrine of "equitable allocation" between primary and excess insurers. I also agree that, since Fireman's chose to take over the defense in this case, it is liable under its policy for a fair portion of defense costs. Indeed, I think the facts here would support allocating to Fireman's more than 50 percent of the burden, but allocations like this are not an exact science, and the majority's 50-50 division is not unreasonable.
I differ with the majority, however, in its reliance on the existence of two "coincidental" defense policies. As the majority notes, the terms of Nationwide's policy and Fireman's "Business Auto Policy" render the latter "excess" with respect to the former. The relevant language in the Fireman's Business Auto Policy -- "The insurance provided by this policy is excess over any other collectible insurance, whether primary, excess, or contingent" -- is on its face equally applicable to defense costs and damages. The majority seems to suggest that, as to defense costs, the Nationwide policy and the Fireman's Business Auto Policy were both primary, but I see no valid reason for reaching that conclusion.
I believe the Fireman's "true excess" policy, the "Excess Liability Policy", provides a sounder basis for compelling Fireman's to share defense costs. That policy provided nine million dollars in coverage -- many times the amount provided by the other two policies. This large exposure obviously furnished the motivation for Fireman's to assume, as it did, control of the defense of the case.
The Excess Liability Policy also gave Fireman's the right to defend the case -- at its own expense. The policy provided that Fireman's "will have the right and opportunity, although not the obligation, to associate with the Primary Insurer in the defense and control of any claim or Suit . . . ." The policy also provided that "[w]ith respect to any claim or Suit of which We [Fireman's] assume charge of the settlement or defense, We will pay . . . All expenses We incur."
Fireman's did assume charge of the defense of the Mammano case, and thus it became obligated to pay the expenses it incurred. That did not release Nationwide from its own obligation under the primary policy. Nationwide's policy excused it from defending claims only "[a]fter the limits of this coverage have been paid," and I agree with the majority that that never occurred.
Thus, the terms of the Fireman's Excess Liability Policy and the terms of the Nationwide policy both rendered the insurers liable for defense costs on the facts of this case. It is only these policy clauses that, in my view, make an allocation between the two insurers appropriate.
MEMORANDUM AND ORDER
Calendar Date: January 14, 2005
Before: Mercure, J.P., Peters, Spain, Lahtinen and Kane, JJ.
Flink, Smith & Associates L.L.C., Latham (Jeffrey D.
Wait of counsel), for appellant.
Orlando & Barbaruolo P.L.L.C., Latham (Ronald B.
Orlando of counsel), for Lawrence Sweet and another,
Conway & Kirby L.L.P., Niskayuna (Andrew W. Kirby
of counsel), for Casey De Long and another, respondents.
Appeal from an order of the Supreme Court (Sise, J.), entered November 3, 2003 in Washington County, which, inter alia, granted defendants' cross motions for summary judgment and declared that plaintiff is obligated to defend and indemnify defendants Lawrence Sweet and Deirdre Sweet in an underlying action.
Plaintiff issued a homeowner's insurance policy to defendants Lawrence Sweet and Deirdre Sweet. The Sweets' daughter lived with her parents. The daughter's fiancé, defendant Casey De Long, moved into the Sweets' home in the spring of 1998. A few months later, De Long obtained legal custody of his son Matthias, and Matthias began spending several nights each week at the Sweets' home. On June 3, 2000, while De Long was at work, Matthias jumped off the riding lawnmower he was on with Lawrence Sweet, whereupon the mower blade caused injuries to Matthias' foot. When the Sweets filed a loss notice, plaintiff disclaimed coverage on the basis that Matthias was an "insured" under the policy. De Long commenced an underlying personal injury action against the Sweets, and plaintiff again disclaimed coverage. Plaintiff then commenced this declaratory judgment action seeking a declaration that it had no duty to defend or indemnify the Sweets in the underlying action. All parties moved for summary judgment, [*2]resulting in Supreme Court's order denying plaintiff's motion, granting defendants' cross motions and declaring that plaintiff is obligated to defend and indemnify the Sweets in the underlying action. Plaintiff appeals. We affirm.
While unambiguous provisions of an insurance contract must be given their plain and ordinary meaning, ambiguous terms which may be interpreted in more than one manner must be resolved in favor of the insured (see State Farm Mut. Auto. Ins. Co. v Glinbizzi, 9 AD3d 756, 757 ). The policy at issue here excluded personal liability coverage for anyone defined as an "insured" in the policy. That term was defined to include the named insureds and "residents of [the named insureds'] household who are: a. [their] relatives; or b. other persons under the age of 21 and in the care of any person named above." Lawrence Sweet and Deidre Sweet were the only named insureds. Matthias, who was three years old and was not related to the Sweets at the time of the accident, could only be considered an insured if he was a resident [FN1] of their household and in the care of "any person named above."
Plaintiff contends that the term "any person named above" means any person included in earlier portions of the definition of "insured," i.e., the named insureds and their resident relatives. Defendants contend that the resident relatives are not named anywhere, so they cannot be considered "named above," leaving only named insureds as those named above. As either interpretation of the term is reasonable, the term is ambiguous and must be construed in favor of the insureds against plaintiff (see id. at 757). Thus, the term "any person named above" is limited to named insureds, the Sweets. Although the Sweets' daughter is an insured because she was a resident relative of the named insureds, she cannot be considered a "person named above." Accordingly, Matthias is only an insured if he was "in the care of" the Sweets, not in their daughter's care.
The policy does not define the term "in the care of," but one court has given it a common sense definition requiring that the individual in question "assume some responsibility for the infant, either in a monetary or disciplinary way" (Pattengell v Welsh, 81 AD2d 831, 831 , affd 54 NY2d 917 ). De Long was primarily responsible for his son's physical, financial and emotional needs, with the Sweets' daughter predominantly acting in his stead while De Long was unavailable. Despite plaintiff's claims that the Sweets' testimony was disingenuous, they both averred that their financial contribution to the child was limited to purchasing birthday and Christmas gifts and providing necessities on rare occasion when De Long had no resources. Deidre Sweet disciplined the child when he was "totally out of control" or when no other adult was around, while there is no record evidence of Lawrence Sweet providing any discipline. Lawrence Sweet never babysat and his wife charged De Long when she watched Matthias, a situation that occurred between one to three percent of the time that the child was in De Long's custody. Although the child was on Lawrence Sweet's lap for the 5 to 10 minutes preceding the accident, he was really being cared for that day by the Sweets' daughter. Under these circumstances, Supreme Court correctly determined that Matthias was not "in the care of" the Sweets, thus he was not an insured under the policy's definition of that term and is not excluded from coverage under the policy. [*3]
Plaintiff's reliance on Utica Fire Ins. Co. of Oneida County v Gozdziak (198 AD2d 775 , appeal dismissed 84 NY2d 812 ) is misplaced, as the policy there had a more expansive definition.
Mercure, J.P., Peters, Spain and Lahtinen, JJ., concur.
ORDERED that the order is affirmed, with one bill of costs.
Footnote 1:Despite the inclusion of residency in the definition of "insured," plaintiff contends that residency is not at issue here. In any event, discussion of Matthias' residency is not necessary based on our resolution of the remainder of the terms in that definition.
Continental Casualty Company v. Nationwide Indemnity
Collier, Halpern, Newberg, Nolletti & Bock LLP, White Plains
(William A. Walsh of counsel), for appellants.
Grippo & Elden, Chicago, IL (Gary M. Elden, of the Illinois
Bar, admitted pro hac vice, of counsel), for respondents.
Order, Supreme Court, New York County (Richard F. Braun, J.), entered March 26, 2004, which, in a declaratory judgment action involving, inter alia, plaintiffs insurers' obligations to persons claiming asbestos injuries arising out of the operations of plaintiffs' insured, a dissolved insulation contractor, granted plaintiffs' motion to dismiss, for failure to state a cause of action, defendants claimants' counterclaims for violation of General Business Law § 349 and breach of the covenant of good faith and fair dealing, unanimously affirmed, with costs.
Defendants claimants' counterclaim for violation of General Business Law § 349 alleges that plaintiffs insurers have repeatedly misrepresented the meaning of their standard comprehensive general liability policies, both to the businesses they sold the policies to, including the dissolved insulation contractor, and to defendants themselves, and that defendants sustained injury as a direct result of such misrepresentations. These allegations, liberally construed, at best show a private contract dispute over policy coverage and the processing of defendants' claims, not conduct affecting the consuming public at large, and thus do not state a cause of action under § 349 (see New York Univ. v Continental Ins. Co., 87 NY2d 308, 320-321 ; Fekete v GA Ins. Co. of N.Y. (279 AD2d 300 ; Medical Socy. of State of N.Y. v Oxford Health Plans, __ AD3d __, 2005 NY App Div LEXIS 1303, *3 ).
Defendants' counterclaim for breach of the implied covenant of good faith and fair dealing alleges that the vast majority of their claims arose out of the insured's installation of asbestos and therefore fall under the unaggregated premises/operations coverage, and that no reasonable insurer would have denied coverage, as plaintiffs did, on the ground that such claims fall under the limited products or completed operations hazards coverage. This counterclaim was properly dismissed since there is no separate cause of action in tort for an insurer's bad faith failure to perform its obligations under an insurance policy (see Acquista v New York Life Ins. Co., 285 AD2d 73, 78 ), and until they obtain a judgment against the insulation contractor [*2]that goes unsatisfied, defendants lack standing to enforce insurance policies to which they were not parties (see Stainless, Inc. v Employers' Fire Ins. Co., 69 AD2d 27, 33-34 , affd 49 NY2d 924 ; Tower Ins. Co. of N.Y. v Skate Key, 273 AD2d 158 ; see Taggart v State Farm Mut. Auto. Ins. Co., 272 AD2d 222 ).
THIS CONSTITUTES THE DECISION
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: MARCH 31, 2005
Cannon & Acosta, LLP, Huntington Station (Sharon Staudigel
of counsel), for appellants.
Cheven, Keely & Hatzis, Esqs., New York (Mayu Miyashita of
counsel), for respondents.
Order, Supreme Court, Bronx County (Barry Salman, J.), entered July 12, 2004, which granted defendants' motion for summary judgment dismissing the complaint, unanimously affirmed, without costs.
Defendants met the prima facie
entitlement for summary judgment under Insurance Law § 5102(d) by producing
sworn reports from three physicians who asserted their qualitative assessments
of plaintiffs' conditions based on either specific tests they had performed or
objective data they had interpreted (see Toure v Avis Rent A Car Sys.,
98 NY2d 345, 357-358 ; Shaw v Looking Glass Assoc., 8 AD3d 100
; Collins v Stone, 8 AD3d 321 ). Plaintiffs' submissions in
response were lacking for a number of reasons. Indeed, even their examining
Dr. Goldman, opined that plaintiff Sandoval's injuries had "essentially resolved." Insofar as Dr. Goldman attributed any occasional lower back pain to the accident, he provided no foundation or objective medical basis whatsoever to support that conclusion (see Franchini v Palmieri, 1 NY3d 536, 537 ). Sandoval's subjective complaints are insufficient to establish a serious injury (Scheer v Koubek, 70 NY2d 678, 679 ). Plaintiffs submitted no probative evidence that Sandoval was prevented from performing substantially all of his usual daily activities for at least 90 of the 180 days immediately following the accident (Ersop v Variano, 307 AD2d 951, 952-953 ).
As to plaintiff Lora, to the
extent Dr. Goldman's diagnosis was based on unsworn medical reports prepared
by other doctors, it was not enough to defeat summary judgment. Dr. Goldman
did not attach to his affirmation sworn copies of the reports of
Dr. Avagyan and the radiologist who had concluded that Lora sustained a lumbar herniation at L4-5, L5-S1, straightening of the cervical spine and fluid collection in her left knee (see Charlton v Almaraz, 278 AD2d 145 ; Friedman v U-Haul Truck Rental, 216 AD2d 266 ). Nor did Dr. Goldman provide the numeric values correlated with the purported ranges of motion, [*2]or the qualitative assessments of Lora's limitations as compared to the normal function, purpose and use of the lumbar spine and left shoulder (Toure, 98 NY2d at 350).
THIS CONSTITUTES THE DECISION
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: MARCH 31, 2005
Evan H. Krinick, for appellant.
Steven J. Harfenist, for respondents Valley Physical
Medicine and Rehabilitation, P.C., et al.
Mark L. Furman, for respondents Yonkers Medical
Services, P.C., et al.
Joseph J. LaBarbera, for respondents Astoria Physical
Medicine and Rehabilitation, P.C., et al.
Gregory V. Serio, Superintendent of Insurance of the
State of New York; Meridian Acupuncture Care; Allstate
Insurance Company, et al.; New York Insurance Association, Inc.,
On this certified question from the United States Court of Appeals for the Second Circuit, we are asked whether, under our "no-fault" insurance laws (see Insurance Law §§ 5101, [*2]et seq and implementing regulations), insurance carriers may withhold payment for medical services provided by fraudulently incorporated enterprises to which patients have assigned their claims. We conclude that they may.
Patients covered by no-fault insurance often assign their claims to their health care providers rather than seek reimbursement from insurance carriers directly (see 11 NYCRR § 65-3.11). Regulations require the carriers to make prompt decisions on claims once the provider has furnished adequate factual support (see 11 NYCRR § 65.15).
This case began when State Farm filed a complaint in the United States District Court for the Eastern District of New York seeking a judgment declaring that it need not reimburse defendants — fraudulently incorporated medical corporations — for assigned claims submitted under no-fault. The complaint also sought equitable relief and damages against defendant companies and individuals for unjust enrichment and fraud. State Farm alleged, in essence, that to obtain payments from the carriers under the requirements of no-fault insurance, defendants willfully evaded New York law prohibiting non-physicians from sharing ownership in medical service corporations [FN1].
According to the complaint, the unlicensed defendants paid physicians to use their names on paperwork filed with the State to establish medical service corporations. Once the medical service corporations were established under the facially valid cover of the nominal physician-owners, the non-physicians actually operated the companies. To maintain the appearance that the physicians owned the entities, the non-physicians caused the corporations to hire management companies owned by the non-physicians, which billed the medical corporations inflated rates for routine services. In this manner, the actual profits did not go to the nominal owners but were channeled to the non-physicians who owned the management companies.
Notably, State Farm never alleged that the actual care received by patients was unnecessary or improper. The patients insured by State Farm presumably received appropriate care from a health professional qualified to give that care. State Farm's complaint centers on fraud in the corporate form rather than on the quality of care provided.
The Federal District Court dismissed State Farm's complaint, holding that defendants' non-compliance with the licensing and incorporation statutes did not extinguish State Farm's duty to pay, so long as the actual providers acted within the scope of their licenses in [*3]rendering care. The Second Circuit then certified to this Court the question whether
"a medical corporation that was fraudulently incorporated under NY Business Corporation Law §§ 1507, 1508, and NY Education Law § 6507(4)(c) [is] entitled to be reimbursed by insurers, under New York Insurance Law §§ 5101 et seq and its implementing regulations, for medical services rendered by licensed medical practitioners."
We accepted the certification and now answer that such corporations are not entitled to reimbursement.
Insurance Law § 5102 (a) requires no-fault carriers to reimburse patients (or, as in this case, their medical provider assignees) for "basic economic loss." Interpreting the statute, the Superintendent of Insurance promulgated 11 NYCRR § 65-3.16 (a) (12) (effective April 4, 2002) and excluded from the meaning of "basic economic loss" payments made to unlicensed providers, thus rendering them ineligible for reimbursement.[FN2]
If State Farm's allegations are true, as we must construe them to be at this stage, the defendant companies undisputedly fail to meet the applicable state licensing requirements, which prohibit non-physicians from owning or controlling medical service corporations. Furthermore, a fraudulently-incorporated medical company is "a provider of health care services" within the meaning of the regulation.
Defendants contend that they are entitled to reimbursement even if they are fraudulently licensed. They first argue that the actual care that patients received was within the scope of the licenses of those who treated the patients. Defendants posit that this licensing compliance brings them within the regulatory framework for reimbursement. We disagree. The fact remains that the reimbursement goes to the medical service corporation that exists to receive [*4]payment only because of its willfully and materially false filings with state regulators.
Defendants also argue that the quoted regulation conflicts with the prompt payment goals of the no-fault statutes. The Second Circuit treated this issue as a difficult policy balance: on the one hand, there is our State's prohibition against lay ownership of shares in medical corporations (and the accompanying potential for fraud), and on the other, our encouragement of prompt payment of insurance claims, as reflected in the statutes.
The regulation is valid. We are guided by the well-established principle of administrative law that the Superintendent's "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" (NY Pub Interest Research Group, Inc v NYS Dep't of Ins, 66 NY2d 444, 448 ). Where, as here, the Superintendent has properly crafted a rule within the scope of his authority, that rule has the force of law and represents the policy choice of this State.[FN3]
The Superintendent's regulation allowing carriers to withhold reimbursement from fraudulently licensed medical corporations governs this case. We hold that on the strength of this regulation, carriers may look beyond the face of licensing documents to identify willful and material failure to abide by state and local law. Defendants argue that the carriers will turn this investigatory privilege into a vehicle for delay and recalcitrance.
The regulatory scheme, however, does not permit abuse of the truth-seeking opportunity that 11 NYCRR § 65-3.16 (a) (12) authorizes. Indeed, the Superintendent's regulations themselves provide for agency oversight of carriers, and demand that carriers delay the payment of claims to pursue investigations solely for good cause (see 11 NYCRR § 65-3.2 [c]). In the licensing context, carriers will be unable to show "good cause" unless they can demonstrate behavior tantamount to fraud. Technical violations will not do. For example, a failure to hold an annual meeting, pay corporate filing fees or submit otherwise acceptable paperwork on time will not rise to the level of fraud. We expect, and the Legislature surely intended, vigorous enforcement action by the Superintendent against any carrier that uses the [*5]licensing-requirement regulation to withhold or obstruct reimbursements to non-fraudulent healthcare providers.
The Second Circuit questioned whether, if the fraudulent corporations were not entitled to reimbursement, State Farm could recover money already paid out under theories of fraud or unjust enrichment. Because we rest our holding on the Superintendent's amended regulation declaring unlicensed corporations ineligible for reimbursement, no cause of action for fraud or unjust enrichment would lie for any payments made by the carriers before that regulation's effective date of April 4, 2002. State Farm's complaint does not clearly indicate, one way or the other, whether it has paid money to defendants after the amended regulation took effect. We therefore answer only the certified question and decline to consider whether State Farm has alleged sufficient facts to support causes of action for fraud or unjust enrichment.
Based on the foregoing, the
certified question should be answered in the negative.
* * * * * * * * * * * * * * * * *
Following certification of a question by the United States Court of Appeals for the Second Circuit and acceptance of the question by this Court pursuant to section 500.17 of the Rules of Practice of the New York State Court of Appeals, and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified question answered in the negative. Opinion by Judge Rosenblatt. Chief Judge Kaye and Judges G.B. Smith, Ciparick, Graffeo, Read and R.S. Smith concur.
Decided March 29, 2005
Footnote 1:See e.g. Business Corporations Law § 1507 ("A professional service corporation may issue shares only to individuals who are authorized by law to practice in this state a profession which such corporation is authorized to practice. . . .").
Footnote 2:See 11 NYCRR § 65-3.16 (a) (12) ["A provider of health care services is not eligible for reimbursement under section 5102 (a) (1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement. . . ."]. In his Amicus brief, the Superintendent asserts that he promulgated this rule to combat rapidly growing incidences of fraud in the no-fault regime, fraud that he has identified as correlative with the corporate practice of medicine by non-physicians.
Footnote 3:We have already unanimously concluded that the regulation is within the Superintendent's authority to issue and will not disturb that result (see Medical Soc'y of New York, Inc v Serio, 100 NY2d 854, 866  ["Here, however, the challenged regulations create not a new category of exclusion, but rather merely a condition precedent with which all claimants must comply in order to receive benefits under the statute."]).
Flores v. Lower East Side Service Center, Inc
Kenneth Mauro, for third-party appellant.
Steven DiSiervi, for third-party respondent.
Workers' Compensation Law § 11 permits an owner to bring a third-party claim against an injured worker's employer in only two circumstances: where the injured worker has suffered a "grave injury" or the employer has entered into a written contract to indemnify the [*2]owner. The issue in this case is whether the "written contract" provision in section 11 requires a signed agreement.
Defendant and third-party plaintiff Lower East Side Service Center (LES) is the owner of a multi-story building in Manhattan that was undergoing rehabilitation. Initially, LES hired third-party defendant Procida Realty and Construction Corp. to act as its on-site representative, having retained another firm to function as general contractor on the project. Following a dispute between LES and the other firm, Procida agreed to assume the role of general contractor.
In March 2000, LES sent Procida a written contract including a provision for Procida to indemnify LES for injuries "arising out of or resulting from performance of the work" on the $3 million project. In accordance with the terms of the agreement, Procida purchased liability insurance and obtained payment and performance bonds. In a June 23, 2000 memorandum entitled "Attachment 4 - Scope Clarifications" and forwarded to LES, a Procida representative acknowledged the existence of an agreement, clarifying that under "this contract" Procida assumed no responsibility for work performed by the previous general contractor. For reasons undisclosed in the record, Procida did not sign the March 2000 contract or the June 2000 addendum, but it performed the work specified in the contract and was paid in conformity with the documents.
In September 2000, plaintiff Moses Flores, a laborer employed by Procida, sustained an eye injury while performing demolition work on the project. In addition to obtaining workers' compensation benefits, Flores commenced this personal injury action against LES as owner of the building. LES filed a third-party action against Procida asserting, in addition to common-law claims, that Procida was obligated to indemnify LES for Flores' injuries pursuant to the indemnification clause in the March 2000 contract. In its answer to the third-party complaint, Procida "admit[ted] the existence of an agreement between the parties," reserving the right to refer to the provisions of the "written agreement, if any."
Following the completion of discovery and the filing of a note of issue, LES moved for summary judgment on its third-party complaint and Procida cross-moved for summary judgment dismissing LES's claims. Although it acknowledged the existence of a contract in its answer, Procida asserted that there was no binding indemnification agreement with LES. Procida relied on the fact that the March 2000 contract was never signed, arguing that LES was precluded from seeking contractual indemnification because Workers' Compensation Law § 11 authorizes such a claim only when there is an executed document. LES countered that, notwithstanding the failure to sign the agreement, Procida's course of conduct demonstrated that it had assented to the terms of the contract months before Flores was injured. Noting that section 11 does not [*3]expressly state that an indemnification agreement must be signed, LES contended that the statute authorized enforcement of any "written contract" that was entered into prior to the date of injury.
Supreme Court denied LES's motion and granted Procida's cross-motion to dismiss the third-party complaint. After disposing of the common-law claims, Supreme Court reasoned that the contractual indemnification clause in the written agreement was unenforceable under Workers' Compensation Law § 11 because Procida did not sign the document. On appeal, the Appellate Division affirmed, concluding that a contract that was never executed was not "entered into" within the meaning of the statute. This Court granted LES leave to appeal and we now reverse, reinstate the contractual indemnification claim and grant summary judgment to LES.
Workers' Compensation Law § 11, as amended by the Omnibus Workers' Compensation Reform Act of 1996 (L 1996, ch 635), prohibits most third-party claims for contribution or indemnification against an employer for injuries sustained by an employee acting within the scope of employment. But the statute sets forth two exceptions: the employer may be impleaded when the employee has sustained a "grave injury" or when there is a "written contract entered into prior to the accident or occurrence by which the employer had expressly agreed to contribution to or indemnification of the claimant" (Workers' Compensation Law § 11).
In our prior cases construing section 11, this Court has "attempt[ed] to effectuate the intent of the Legislature" (Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577, 583  [citations omitted]). "As the clearest indicator of legislative intent is the statutory text, the starting point in any case of interpretation must always be the language itself, giving effect to the plain meaning thereof" (id.). In this regard, we have declined to second-guess the policy choices made by the Legislature, adhering to the literal terms of the statute. Thus, in Castro v United Container Mach. Group (96 NY2d 398 ) and Meis v ELO Org. (97 NY2d 714 ), this Court strictly interpreted the "grave injury" designations specified by the Legislature.
We have had several opportunities to interpret the grave injury exception, but this is the first case requiring us to address the contractual indemnification exception to the prohibition against third-party claims. As previously observed, although the Legislature clearly intended to restrict claims against employers when it adopted the "grave injury" standard, it chose not to abrogate "the power of a third party to recover under express contractual obligations between the employer and the third party" (Majewski, 91 NY2d at 582). Instead, the Legislature preserved the right of parties to enter into binding contractual indemnification agreements. Procida maintains that a contract is only "entered into" within the meaning of section 11 when it [*4]is actually signed. In the absence of statutory language indicating that the written indemnification agreement must be executed, LES relies on the common-law rule that a contract need not be signed to be enforceable. Because the Legislature did not express a clear intent to deviate from the common law, we agree with LES.
We have long held that a contract may be valid even if it is not signed by the party to be charged, provided its subject matter does not implicate a statute — such as the statute of frauds (General Obligations Law § 5-701) — that imposes such a requirement. In Brown Bros. Elect. Contr. v Beam Constr. Corp. (41 NY2d 397 ), a landowner entered into a written agreement with a general contractor for the construction of a shopping plaza. The general contractor in turn contracted with Brown, a subcontractor, for electrical work. When the general contractor failed to pay Brown, the owner requested that Brown complete the work, which Brown did. When Brown submitted its bill for services to the owner, the owner refused to pay on the basis that it had never executed a written contract with Brown. After trial, the lower courts found that there was an enforceable agreement, holding that "the course of conduct between [the owner] and Brown, including their writings . . . was sufficient to spell out a binding contract," notwithstanding the failure of the parties to sign an integrated agreement (Brown, 41 NY2d at 399). This Court agreed that the absence of an executed document did not end the inquiry, stating:
"In determining whether the parties entered into a contractual agreement and what were its terms, it is necessary to look . . . to the objective manifestations of the intent of the parties as gathered by their expressed words and deeds. . . And, while it is the responsibility of the court to interpret written instruments . . . , where a finding of whether an intent to contract is dependent as well on other evidence from which differing inferences may be drawn, a question of fact arises" (Brown, 41 NY2d at 399-400 [citations and internal quotation marks omitted]).
Thus, under the analysis in Brown, an unsigned contract may be enforceable, provided there is objective evidence establishing that the parties intended to be bound (see also Matter of Municipal Consultants & Publ. v Town of Ramapo, 47 NY2d 144 [publishing contract was enforceable even though it was never signed by a representative of the town]).
When it enacted Workers'
Compensation Law § 11, the Legislature clearly intended to limit the number of
indemnification claims against employers by requiring that indemnification
agreements be memorialized in a "written contract." But nothing in the
language of the statute or its legislative history provides a basis for us to
conclude that, in addition to [*5]requiring a
written indemnification clause, the Legislature intended to deviate from the
common-law rule that written documents can be enforced even if they are not
signed. Had the Legislature intended to alter this rule in the context of
indemnification claims, it could easily have done so by including the word
"signed" or "subscribed" prior to the phrase "written contract" in section 11.
Given the many statutes that include language mandating that one or both
parties to an agreement sign the document, it is evident that the Legislature
knows how to impose such a limitation when it intends to do so
[FN1]. In some instances, the Legislature has gone beyond
requiring that agreements be signed by directing that they be executed with a
particular level of formality, such as the requirement that separation
agreements that serve as the basis of a divorce be memorialized in "a written
agreement . . . subscribed by the parties thereto and acknowledged or proved
in the form required to entitle a deed to be recorded" (Domestic Relations Law
§ 170). No similar language appears in section 11.
Under these circumstances, we cannot presume that the Legislature meant to impose a restriction it failed to include in the statute. We therefore hold that the common-law rule — which authorizes review of the course of conduct between the parties to determine whether there was a meeting of minds sufficient to give rise to an enforceable contract — governs the validity of a written indemnification agreement under Workers' Compensation Law § 11.
This interpretation of section 11 is consistent with our decisions analyzing comparable language in CPLR 7501, a statute that confers jurisdiction on courts to enforce arbitration awards only if the parties have a "written agreement" to arbitrate. In the arbitration arena, we have determined that the statutory requirement is met even when the parties never signed a contract expressly agreeing to arbitrate, as long as it is evident from the totality of circumstances that the parties intended to be bound by documents containing arbitration obligations (see Matter of Helen Whiting v Trojan Textile Corp., 307 NY 360  [interpreting predecessor to CPLR 7501, which required that a contract to arbitrate future [*6]disputes must be "in writing"]; see also Crawford v Merrill Lynch Pierce, Fenner & Smith, 35 NY2d 291  [although there was no integrated contract containing arbitration agreement, documentary proof established that each party was bound to arbitrate dispute]). Of course, arbitration implicates different public policy concerns than third-party claims against employers — public policy favors arbitration while the Legislature sought to reduce the liability of owners under section 11. But we are unpersuaded that this difference provides a reasoned basis for this Court to interpret the term "written contract" to impose a signature requirement when the term "written agreement" does not. In this case, like our prior cases interpreting section 11, our role is to apply the statute as written — not to embellish or expand upon the language selected by the Legislature.
As the fact-dependent nature of the Brown rule suggests, in many instances the issue of whether or when an indemnification agreement came into being in the absence of a signed document will present a question of fact to be resolved by the trier of fact. Based on the record presented in this case, however, LES is entitled to summary judgment on the contractual indemnification claim because Procida failed to come forward with evidence to present a triable dispute concerning the existence of an enforceable written contract.
In its answer, Procida conceded that it had entered into an agreement with LES. When it cross-moved for summary judgment, Procida argued only that the written contract it received from LES was not enforceable because the contract had not been signed. Notably absent from the affidavit of Procida's corporate secretary was any assertion that there had not been a meeting of the minds between LES and Procida concerning the terms of the agreement, nor did Procida claim that it had declined to sign the contract because the parties were engaged in ongoing negotiations.
To the contrary, Procida admitted that it had become the general contractor on the project and the record shows that it acted in conformity with contractual requirements. In June 2000, Procida forwarded the "Attachment 4" memorandum clarifying certain terms of the parties' agreement. During the same time frame, Procida obtained a commercial general liability insurance policy naming LES as an additional insured and purchased a performance bond and labor and material bond in the precise amount specified in articles 4.1 and 11 of the March 2000 document. The bonds, secured more than two months before the Flores accident, reference a written agreement between Procida and the owner of the construction project (LES), providing a contract date of March 20, 2000 — the same date that appears on the front page of the contract [*7]containing the indemnification clause [FN2]. Finally, Procida performed the required work as specified in the written document and accepted payment according to its terms. Under these circumstances, Procida failed to raise a question of fact on the issue of whether it had "entered into" a "written [indemnification] contract . . . prior to the accident" (Workers' Compensation Law § 11), which did not occur until September 2000. LES was therefore entitled to summary judgment on the contractual indemnification claim.
As an alternative ground for affirmance, Procida asks this Court to dismiss the indemnification claim due to LES's alleged failure to comply with an arbitration clause in the contract. This we decline to do. Assuming the provision applied to this type of dispute, Procida did not timely assert an arbitration claim either by raising it as a defense in its answer or by moving to compel arbitration (see CPLR 7503), electing instead to fully participate in this litigation for more than 16 months through discovery and the filing of a note of issue. "These acts were clearly inconsistent with [its] later claim that the parties were obligated to settle their differences by arbitration" (Matter of Zimmerman v Cohen, 236 NY 15, 19 ; see Sherrill v Grayco Builders, 64 NY2d 261, 272 ; DeSapio v Kohlmeyer, 35 NY2d 402, 406 ).
Accordingly, the order of the
Appellate Division should be reversed, with costs, the third-party defendant's
motion for summary judgment should be denied, the third-party plaintiff's
motion for summary judgment on its cause of action for contractual
indemnification should be granted and the case remitted to Supreme Court for
further proceedings in accordance with this Opinion.
* * * * * * * * * * * * * * * * *
Order reversed, with costs, third-party defendant's motion for summary judgment denied, third-party plaintiff's motion for summary judgment on its cause of action for contractual indemnification granted and case remitted to Supreme Court, Bronx County, for further proceedings in accordance with the opinion herein. Opinion by Judge Graffeo. Chief Judge Kaye and Judges G.B. Smith, Ciparick, Rosenblatt, Read and R.S. Smith concur.
Decided March 29, 2005
Footnote 1: General Obligations Law § 5-701(a), the statute of frauds, specifies that certain types of agreements — including those conveying interests in real property — are void "unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith." As another example, General Business Law § 454(2), governing the sale of headstones and other monuments, similarly requires that each sale "be evidenced by a written contract which shall be signed by all the parties to the contract."
Footnote 2: The copies of the performance bond and the payment and material bond that appear in the record also do not bear any signatures on behalf of Procida.
Daniel Friedman, New York, N.Y., for appellant.
Curtis, Vasile, Devine & McElhenny, Merrick, N.Y. (Brian W.
McElhenny of counsel), for
In an action, inter alia, for a judgment declaring the disclaimer of coverage by the defendant to be invalid and compelling the defendant to indemnify its insured Lay-Up Enterprises, Inc., d/b/a Sand Bar, in an underlying action entitled Muhs v Lay-Up Enterprises, pending in the Supreme Court, Suffolk County, under Index No. 15057/95, the defendant appeals from a judgment of the Supreme Court, Suffolk County (Molia, J.), entered November 21, 2003, which, upon a decision of the same court dated October 16, 2003, in effect, declared the disclaimer to be invalid, and is in favor of the plaintiffs and against it in the principal sum of $74,675.25.
ORDERED that the notice of appeal from the decision dated October 16, 2003, is deemed a premature notice of appeal from the judgment entered November 21, 2003 (see CPLR 5520[c]); and it is further,
ORDERED that the judgment is reversed, on the law, with costs, and it is declared that the defendant's disclaimer of coverage is valid and the defendant is not obligated to indemnify Lay-Up Enterprises, Inc., d/b/a Sand Bar, in the underlying action entitled Muhs v Lay-Up Enterprises, pending in the Supreme Court, Suffolk County, under Index No. 15057/95.
To effectively deny coverage based upon lack of cooperation, an insurance carrier must demonstrate (1) that it acted diligently in seeking to bring about the insured's cooperation, (2) that the efforts employed by the insurer were reasonably calculated to obtain the insured's cooperation, and (3) that the attitude of the insured, after his or her cooperation was sought, was one [*2]of willful and avowed obstruction (see Thrasher v United States Liab. Ins. Co., 19 NY2d 159; Pawtucket Mut. Ins. Co. v Soler, 184 AD2d 498). To this end, the defendant carrier was required to sustain the very heavy burden of demonstrating that the insured's alleged failure to cooperate was deliberate (see Mount Vernon Fire Ins. Co. v 170 E. 106th St. Realty Corp., 212 AD2d 419). The defendant met that burden in this case.
The record supports a finding that the defendant undertook diligent efforts that were reasonably calculated to bring about the cooperation of the insured, Lay-Up Enterprises, Inc., d/b/a Sand Bar (hereinafter Lay-Up), in the underlying action (see State Farm Fire and Cas. Co. v Imeri, 182 AD2d 683). The defendant's representatives contacted John Rafferty, who was Lay-Up's principal owner, on more than one occasion to ensure that he would be present on the day of his scheduled testimony, including speaking with him the night before his scheduled testimony.
The record also supports a finding that Rafferty's attitude, after his cooperation was sought, was one of willful and avowed obstruction (see Utica Mut. Ins. Co. v Gruzlewski, 217 AD2d 903). Lay-Up's insurance policy required that any "involved insured must cooperate with [the carrier] in the defense of the claim or suit." Rafferty breached this policy by failing to appear to testify at the last minute, without explanation, despite promising United's representatives that he would testify, and being under subpoena from the plaintiffs' attorney, thereby prompting a contempt proceeding (see Weissberg v Royal Ins. Co., 240 AD2d 733; Utica Mut. Ins. Co. v Gruzlewski, supra). The defendant therefore met its heavy burden of showing lack of cooperation of its insured (see Thrasher v United States Liab. Ins. Co., supra). Contrary to the plaintiffs' contentions, the defendant was not required to show prejudice as a result of Rafferty's lack of cooperation (see Coleman v New Amsterdam Cas. Co., 247 NY 271, 276-277; Utica Mut. Ins. Co. v Gruzlewski, supra), and the defendant's disclaimer of coverage was timely (see Insurance Law § 3420[d]; Hartford Ins. Co. v County of Nassau, 46 NY2d 1028). Accordingly, the Supreme Court erred in declaring the defendant's disclaimer of coverage to be invalid. Thus, the defendant is not required to indemnify Lay-Up in the underlying action.
The defendant's remaining
contention has been rendered academic. The plaintiffs' remaining contention is
SCHMIDT, J.P., ADAMS, SANTUCCI and SKELOS, JJ., concur.
James Edward Pelzer
Clerk of the Court
Edwards & Angell, LLP, New York, N.Y. (Anthony J. Viola
and Douglas A. Eisner of counsel), for appellant.
Tressler, Soderstrom, Maloney & Priess, New York, N.Y.
(Thomas G. Drennan and Theresa E.
Mullen of counsel), for respondent.
In an action for a judgment declaring that the plaintiff is not obligated to defend or indemnify the defendant in an underlying trademark infringement action entitled Procter & Gamble Company v Quality King Distributors, Inc., commenced in the United States District Court for the Eastern District of New York, under Index No. CV-95-3113 (ADS), the defendant appeals from so much of an order of the Supreme Court, Suffolk County (Pitts, J.), dated August 20, 2003, as denied that branch of its motion which was for summary judgment declaring that the plaintiff is obligated to indemnify it in the underlying trademark infringement action.
ORDERED that the order is affirmed insofar as appealed from, with costs, and upon searching the record, summary judgment is awarded to the plaintiff declaring that it is not obligated to indemnify the defendant in the underlying trademark infringement action entitled Procter & Gamble Company v Quality King Distributors, Inc., commenced in the United States District Court for the Eastern District of New York, under Index No. CV-95-3113 (ADS).
The duty to indemnify on the part of an insurer requires a determination that the insured is liable for a loss that is covered by the policy (see Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 NY2d 419; Lehrer McGovern Bovis v Halsey Constr. Corp., 254 AD2d 335). Generally, the burden is on the insured to establish coverage in the first instance (see Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208). Here, the Supreme Court properly denied that [*2]branch of the defendant's motion which was for summary judgment declaring that the plaintiff is obligated to indemnify it in the underlying trademark infringement action. Contrary to the defendant's contention, this court's decision and order determining a prior appeal (see American Manuf. Mut. Ins. Co. v Quality King, 287 AD2d 527) did not determine the issue of indemnification. On that prior appeal, we found that the plaintiff had a duty to defend the defendant in the underlying trademark infringement action since the underlying complaint potentially gave rise to a covered claim for which the plaintiff might have had a duty to indemnify. However, this court did not reach the issue of whether the plaintiff had a duty to indemnify the defendant in the underlying trademark infringement action (see American Manuf. Mut. Ins. Co. v Quality King, supra at 529). Under the facts as determined in the underlying trademark infringement action, the injury for which the defendant was liable was not an "advertising injury" (see Procter & Gamble Company v Quality King Distribs., 123 F Supp2d 108; Bonded Concrete, Inc. v Transcontinental Ins. Co., 12 AD3d 761; see generally A. Meyers & Sons Corp. v Zurich Am. Ins. Group, 74 NY2d 298; Allou Health & Beauty Care v Aetna Cas. and Sur. Co., 269 AD2d 478; Century 21 v Diamond State Ins. Co., 2004 WL 1117897, 2004 US Dist Lexis 8929 [SD NY, May 18, 2004]). Thus, the plaintiff did not have a duty to indemnify the defendant. Accordingly, upon searching the record, we award summary judgment to the plaintiff declaring that it did not have a duty to indemnify the defendant in the underlying trademark infringement action.
The defendant's remaining
contentions are without merit.
FLORIO, J.P., KRAUSMAN, GOLDSTEIN and MASTRO, JJ., concur.
James Edward Pelzer
Clerk of the Court
Sinclair Bruce v. New York City Transit Authority
Wallace D. Gossett, Brooklyn, N.Y. (Anita Isola of counsel), for
Rubenstein & Rynecki, Brooklyn, N.Y. (Kliopatra Vrontos of
counsel), for respondents.
In an action to recover damages for personal injuries, etc., the defendants appeal from an order of the Supreme Court, Kings County (Partnow, J.), dated February 11, 2004, which denied their motion for summary judgment dismissing the complaint on the ground that the plaintiff Sinclair Bruce did not sustain a serious injury within the meaning of Insurance Law § 5102(d).
ORDERED that the order is reversed, on the law, with costs, the motion is granted, and the complaint is dismissed.
The defendants made a prima facie showing that the plaintiff Sinclair Bruce (hereinafter the plaintiff) did not sustain a serious injury within the meaning of Insurance Law § 5102(d) (see Toure v Avis Rent A Car Sys., 98 NY2d 345; Gaddy v Eyler, 79 NY2d 955). The affidavit of the plaintiff's examining chiropractor was insufficient to raise a triable issue of fact. No satisfactory explanation was given for the nearly 3½-year gap between the conclusion of the plaintiff's medical treatments and the date of his examination by the chiropractor (see Smith v Askew, 264 AD2d 834), and it is clear that the chiropractor partially based his conclusions on inadmissible, unsworn medical records (see Friedman v U-Haul Truck Rental, 216 AD2d 266).
Finally, the plaintiff submitted no medical evidence indicating that he was unable to perform substantially all of his daily activities for not less than 90 of the first 180 days subsequent to the accident (see Sainte-Aime v Ho, 274 AD2d 569, 570). [*2]
Accordingly, the defendants'
motion for summary judgment should have been granted.
ADAMS, J.P., COZIER, RITTER and SKELOS, JJ., concur.
James Edward Pelzer
Clerk of the Court
Figueroa v. Utica National Insurance Group
Hession, Berkoff & Cooper, LLP, Garden City, N.Y. (Andrew Paul
Cooper of counsel), for appellants-respondents.
Kujawski & DelliCarpini, Deer Park, N.Y. (John M.
DelliCarpini of counsel), for respondent-
Hammill, O'Brien, Croutier, Dempsey & Pender, P.C., Mineola,
N.Y. (Anton Piotroski of counsel), for
In an action, inter alia, for a judgment declaring that the defendants Utica National Insurance Group and Utica Mutual Insurance Company are obligated to defend and indemnify the plaintiffs in an underlying action entitled Bonetti v Figueroa, pending in the Supreme Court, Suffolk County, under Index No. 22894/00, the plaintiffs appeal from an order of the Supreme Court, Nassau County (O'Connell, J.), dated August 25, 2003, which denied their cross motion for summary judgment and granted the motion of the defendants Utica National Insurance Group and Utica Mutual Insurance Group for summary judgment, and the defendant Arianna Bonetti cross-appeals from the same order.
ORDERED that the cross appeal is dismissed on the ground that the defendant Arianna Bonetti is not aggrieved by the order cross-appealed from (see CPLR 5511); and it is further,
ORDERED that the order is affirmed, with costs, and the matter is remitted to the [*2]Supreme Court, Nassau County, for the entry of a judgment declaring that the defendants Utica National Insurance Group and Utica Mutual Insurance Company are not obligated to defend and indemnify the plaintiffs in the underlying action entitled Bonetti v Figueroa, pending in the Supreme Court, Suffolk County, under Index No. 22894/00.
A duty to give an insurer notice arises "when, from the information available relative to the accident, an insured could glean a reasonable possibility of the policy's involvement" (Paramount Ins. Co. v Rosedale Gardens, 293 AD2d 235, 239-240; see C.C.R. Realty of Dutchess v New York Cent. Mut. Fire Ins. Co., 1 AD3d 304). Here, the appellants-respondents should have realized that there was a reasonable possibility of their policy's involvement when the insurance investigator visited their home to obtain a statement regarding the accident. Instead of immediately notifying their insurer, Utica National Insurance Group and Utica Mutual Insurance Company (hereinafter collectively Utica), the appellants waited over two months before providing the required notification. This delay is unreasonable as a matter of law (see Winstead v Uniondale Union Free School Dist., 201 AD2d 721). Moreover, contrary to their contention, Utica's delay in disclaiming coverage was reasonable under the circumstances of this case (see Insurance Law § 3420[d]; Brooklyn Hosp. Ctr. v Centennial Ins. Co., 258 AD2d 491; Structure Tone, Inc. v Burgess Steel Prods. Corp., 249 AD2d 144). Accordingly, the Supreme Court properly granted Utica's motion for summary judgment and denied the cross motion of the appellants-respondents for summary judgment.
Since this is a declaratory
judgment action, the matter must be remitted to the Supreme Court, Nassau
County, for the entry of a judgment declaring that Utica is not obligated to
defend and indemnify the appellants-respondents in the underlying action (see
Lanza v Wagner, 11 NY2d 317, 334, appeal dismissed 371 US 74,
cert denied 371 US 901).
SCHMIDT, J.P., ADAMS, LUCIANO and LIFSON, JJ., concur.
James Edward Pelzer
Clerk of the Court
David R. Hornig, for appellants.
Thomas D. Hughes, for respondent.
Catholic Health Services of Long Island; New York
Insurance Association, Inc.; Complex Insurance Claims
Litigation Association; KeySpan Corporation; Athari Law Office;
Crucible Materials Corporation, et al., amici curiae.
G.B. SMITH, J.:
The issue in this case is whether a primary insurer can disclaim coverage based solely upon a late notice of lawsuit or must show prejudice. We hold that, under the [*2]circumstances of this case, plaintiffs' late notice was unreasonable as a matter of law, that the Appellate Division correctly applied Matter of Brandon v Nationwide Mut. Ins. Co. (97 NY2d 491 ) and that the insurer need not show prejudice.
On January 2, 1997, Igo Maidenek slipped and fell on ice on the sidewalk adjacent to 137-01, 83rd Avenue in Kew Gardens, New York. Maidenek was a tenant of the premises. The property was owned by Henry Moskowitz and managed by two companies owned by Moskowitz, Argo Corporation and Martinique Realty Associates (Argo).
On February 23, 2000, Maidenek brought suit for personal injuries against Argo by serving a summons and complaint on the New York Secretary of State. Argo acknowledged receipt of the summons and complaint by signing a return-receipt dated February 28, 2000. On November 10, 2000, Argo was served with a default judgment. On February 13, 2001, Argo received a notice of entry of the default judgment and of the scheduling of a hearing on that judgment. On February 21, 2001, Argo received service of a note of issue for trial readiness.
Argo notified Greater New York Mutual Insurance Company (GNY), its commercial liability insurance carrier,[FN1] on May 2, 2001. On June 4, 2001, GNY disclaimed coverage because of the late notice of the lawsuit, and occurrence, which, according to GNY, was a "condition precedent" to coverage under the insurance policy.[FN2]
In January, 2003, Argo brought a declaratory judgment action against GNY challenging GNY's disclaimer. GNY responded with a motion to dismiss for failure to comply with the contract provision which required timely notice to the carrier of the occurrence and of the lawsuit against the insured. The contract required notice "as soon as practicable."[FN3] [*3]
Supreme Court agreed that defendant failed to comply with a condition precedent to coverage under the contract, stating, "Plaintiff's policy required them to "see to it that we [the insurer] are notified as soon as practicable of an 'occurrence' or an offense which may result in a [*4]claim. Plaintiffs did not notify defendant of Maidenek's suit until 14 months after service of the complaint upon the Secretary of State as their agent, until 6 months after service of the default motion upon plaintiffs, until more than 3 months after default was entered and until almost 3 months after service of the Note of Issue upon plaintiffs." As a result, Supreme Court granted defendant's motion to dismiss for failure to timely notify the insurer.
The Appellate Division affirmed, stating:
"[T]he insureds are unable to provide an excuse for their failure to comply with the policy's notice provisions. Unlike in Matter of Brandon v Nationwide Mut. Ins. Co., (97 NY2d 491), this is not a case where the carrier had prior notice of the claim before the action was commenced (citations omitted)."
We granted leave to appeal and now affirm.
For years the rule in New York has been that where a contract of primary insurance requires notice "as soon as practicable" after an occurrence, the absence of timely notice of an occurrence is a failure to comply with a condition precedent which, as a matter of law, vitiates the contract (see Security Mut. Ins. Co. of NY v Acker-Fitzsimons Corp., 31 NY2d 436, 440-43 ) [failure to notify in a timely manner allowed insurer to disclaim coverage]). No showing of prejudice is required (id.). Strict compliance with the contract protects the carrier against fraud or collusion (id.); gives the carrier an opportunity to investigate claims while evidence is fresh; allows the carrier to make an early estimate of potential exposure and establish adequate reserves and gives the carrier an opportunity to exercise early control of claims, which aids settlement (Unigard Sec. Ins. Co. v North River Ins. Co., 79 NY2d 576, 582 ).
We have applied the no-prejudice rule in various contexts in recent years: supplementary underinsured motorist insurance (SUM)(Matter of Metropolitan Prop. & Cas. Ins. Co. v. Mancuso, 93 NY2d 487, 495-96 ; cf. Matter of Brandon and Rekemeyer v State Farm Mutual Automobile Ins. Co. _____NY_____ [decided today]); and excess insurance (American Home Assur. Co. v International Ins. Co., 90 NY2d 433, 442-47 ). We have held, however, that the rule enunciated in Security Mutual does not apply to reinsurance and a reinsurer must show prejudice before it can be relieved of its obligations to perform under a contract (Unigard Sec. Ins. Co. v North River Ins. Co., 79 NY2d 576, 582-84 ).
In Matter of Brandon (Nationwide Mut. Ins. Co.)(97 NY2d 491 ), we again departed from the general "no prejudice" rule and held that the carrier must show prejudice before disclaiming based on late notice of a lawsuit in the SUM context (see 97 NY2d 491, 498, supra). Under the facts of Brandon, the carrier received timely notice of claim but late notice of a [*5]lawsuit (see id. at 494-95). We were unwilling to extend the no prejudice exception in regard to late notice of a lawsuit because "unlike most notices of claim — which must be submitted promptly after the accident, while an insurer's investigation has the greatest potential to curb fraud — notices of legal action become due at a moment that cannot be fixed relative to any other key event, such as the injury, the discovery of the tortfeasor's insurance limits or the resolution of the underlying tort claim" (see id. at 498).
Brandon did not abrogate the no-prejudice rule and should not be extended to cases where the carrier received unreasonably late notice of a claim. The facts here, where no notice of claim was filed and the first notice filed was a notice of law suit, are distinguishable from Brandon where a timely notice of claim was filed, followed by a late notice of law suit, and distinguishable from Rekemeyer, where an insured gave timely notice of the accident, but late notice of a SUM claim. Argo was notified of the lawsuit against it in February, 2000 but did not notify GNY until May, 2001. The burden of establishing that the delay was not unreasonable falls on the insured (see U.S. Underwriters Ins. Co. v A&D Maja Const. Inc., 160 F Supp2d 565, 569, [SDNY 2001]).
Argo admits that Maidenek filed the lawsuit against it in late 1999, and that it received notice of the claim in early 2000. Argo further admits that its notice to GNY was late but argues that GNY has not shown prejudice as a result of this late notice. Argo notified GNY 14 months after it was first served with the lawsuit, and six months after a default judgment was entered against it. Argo asks this court to extend the Brandon "prejudice analysis to notice of suit in commercial policies where the notice was admittedly late."
The rationale of the
no-prejudice rule is clearly applicable to a late notice of lawsuit under a
liability insurance policy. A liability insurer, which has a duty to indemnify
and often also to defend, requires timely notice of lawsuit in order to be
able to take an active, early role in the litigation process and in any
settlement discussions and to set adequate reserves. Late notice of lawsuit in
the liability insurance context is so likely to be prejudicial to these
concerns as to justify the application of the no prejudice rule. Argo's delay
was unreasonable as a matter of law and thus, its failure to timely notify GNY
vitiates the contract. GNY was not required to show prejudice before declining
coverage for late notice of law suit.
Accordingly, the order of the Appellate Division should be affirmed, with costs.
* * * * * * * * * * * * * * * * *
Order affirmed, with costs. Opinion by Judge G.B. Smith. Judges Ciparick, Rosenblatt, Graffeo, Read and R.S. Smith concur. Chief Judge Kaye took no part.
Decided April 5, 2005
Footnote 1:Previously, "GNY issued a commercial-package insurance policy to Henry Moskowitz that included commercial-liability insurance coverage for some 35 buildings in New York City."
Footnote 2:"A condition precedent is 'an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises'" (Oppenheimer & Co. v Oppenheimer, Appel, Dixon & Co., 86 NY2d 685, 690 [citations omitted]).
Footnote 3:Section IV—Commercial General—Liability Conditions 2.Duties in The Event of Occurrence, Offense, Claim or Suit a. You must see to it that we are notified as soon as practicable of an "occurrence" or an offense which may result in a claim (emphasis added). To the extent possible, notice should include: (1) How, when and where the "occurrence" or offense took place: (2) The names and addresses of any injured person and witnesses; and (3) The nature and location of any injury or damage arising out of the "occurrence" or offense. b. If a claim is made or "suit" is brought against any insured, you must: 1. Immediately record the specifics of the claim of "suit" and the date received; and 2. Notify us as soon as practicable. c.You and any other involved insured must: 1. Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or "suit"; 2. Authorize us to obtain records and other information; 3.Cooperate with us in the investigation or settlement of the claim or defense against the "suit" and; 4.Assist us, upon our request, in the enforcement of any right against any person or organization which may be liable to the insured because of injury or damage to which this insurance may also apply. d.No insured will, except at that insured's own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.
Joseph M. Brennan, for appellant.
Daniel W. Gerber, for respondent.
New York Insurance Association, Inc.; Complex Insurance Claims Litigation Association, amici curiae.
G.B. SMITH, J.:
This is a declaratory judgment action in which plaintiff seeks a declaration that she is entitled to payment under the Supplemental Uninsured/Underinsured Motorists (SUM) provision of her insurance contract. The insurance carrier disclaimed on the ground that written notice of the SUM claim was not given as soon as practicable and that a copy of the summons and complaint in plaintiff's legal action were not immediately given to it. On the facts of this case, we hold that the carrier must show prejudice before it may disclaim coverage due to plaintiff=s late notice of SUM claim.
On May 8, 1998, plaintiff, Cynthia Rekemeyer, was rear-ended while driving her car. Shortly after the accident occurred, Rekemeyer notified State Farm of the occurrence and and made a claim for no fault benefits. At the time of the accident, plaintiff had been unable to work for eighteen years due to an existing back problem. Throughout 1998, plaintiff received medical care from a number of doctors for accident related injuries. In December 1998 and again in February 2000, at the request of State Farm, plaintiff was evaluated by a doctor of State Farm's choice concerning accident related injuries.
On April 27, 1999, plaintiff filed suit against the driver of the other car, Sherwood Bouyea. By letter dated July 21, 1999, plaintiff notified State Farm of the lawsuit. In a bill of particulars dated July 1999, plaintiff alleged that she had suffered "severe and permanent injuries to her left arm and cervical spine." In September 1999, plaintiff learned that Bouyea's maximum liability coverage was $50,000. Plaintiff's demand was for $1 million.
In October 1999, plaintiff underwent surgery on her back for injuries she alleges she sustained as a result of the car accident. On March 12, 2000, Bouyea's attorney offered $45,000 to settle the claim. On March 31, 2000, plaintiff notified State Farm that she would pursue Supplementary Uninsured/Underinsured Motorist (SUM) coverage under her own policy. On April 10, 2000, Bouyea's attorney made a settlement offer of $50,000. On April 25, 2000, State Farm disclaimed coverage based upon plaintiff=s failure to notify it of the SUM claim as soon as practicable and because of failure to notify it immediately of the lawsuit.
In October 2000, plaintiff brought this declaratory judgment action against State Farm. State Farm answered the complaint. It then filed a motion for summary judgment dismissing the complaint for failure to comply with the insurance contract provision requiring notice of the SUM claim as soon as practicable. On June 19, 2003, Supreme Court denied defendant's motion to dismiss, and, citing Metropolitan Prop. & Cas. Ins. Co. v Mancuso (93 NY2d 487 ), granted plaintiff's motion for a declaratory judgment for SUM coverage. Supreme Court stated:
On the facts of this case, it cannot be concluded that plaintiff did not give
notice of her SUM claim as soon as practicable as a matter of law. The slowly
evolving nature of plaintiff's injuries, her pre-existing injury and daily
pain, intervening surgeries and the bona fide questions as to severity and
causation of the new injury, along with the tortfeasor's defenses on the issue
of liability can reasonably be said to have prevented knowledge that the
tortfeasor was underinsured until at or about such time as a settlement offer
near or at the limit of his policy was tendered. It was at that point that
plaintiff promptly notified defendant of her SUM claim. Thus, defendant's
motion must be denied and plaintiff's cross motion will be granted.
On May 20, 2004, Appellate
Division reversed and determined:
"...plaintiff knew or reasonably should have known that Bouyea's insurance was insufficient to provide full compensation for her injuries and yet she inexplicably waited six months before providing notice to defendant of her intent to make a claim for supplemental coverage. We find such notice to have been untimely and thus, Supreme Court erred in granting her cross-motion for summary judgment."
On September 21, 2004, this Court granted plaintiff leave to appeal.
Initially, plaintiff argues that
she submitted her notice of SUM claim to State Farm as soon as practicable and
did not breach the insurance contract. We have held that in the SUM context,
the phrase "as soon as practicable@
means that "the insured must give notice with reasonable promptness after the
insured knew or should reasonably have known that the tortfeasor was
Prop. & Cas. Ins. Co. v Mancuso, 93 NY2d at 495). The requirement that
the insured give notice be given as soon as practicable "contemplates
elasticity and a case-by-case inquiry as to whether the timeliness of the
notice was reasonable, taking all of the circumstances into account" (see
id., at 494; see also Mighty Midgets v
Centennial Ins. Co., 47 NY2d 12, 19 ).
We agree with the Appellate Division that plaintiff did not submit her notice of SUM claim as soon as practicable. Although plaintiff had disabling injuries prior to the accident that may have interfered with her assessment of the extent of new injuries, she stated in her bill of particulars in the underlying personal injury action -- drafted eight months before plaintiff notified defendant of her claim for SUM coverage -- that she had suffered serious and permanent injuries as a result of the accident. The record thus belies any claim that she was unaware that her injuries were serious. Moreover, Bouyea informed plaintiff in September 1999 that he was insured for only $50,000. Accordingly, the Appellate Division appropriately concluded that plaintiff's notice of her SUM claim in March 2000 -- approximately six months later -- was untimely.
Plaintiff also urges this Court to relax its application of the "no-prejudice" rule in SUM cases where the carrier has been timely put on notice of the accident. This argument is persuasive. The rule in New York has been for years that an insured's failure to provide timely notice of an accident relieves the carrier of its obligation to perform regardless of whether it can demonstrate prejudice (see Security Mut. Ins. Co. v Acker-Fitzsimons Corp. et al., 31 NY2d 436, 442-43 ). This rule is known as the "no prejudice" rule. Although this rule has sometimes been characterized as the Atraditional rule@, it is actually a limited exception to two established contract principles "(1) that ordinarily one seeking to escape the obligation to perform under a contract must demonstrate a material breach or prejudice; and (2) that a contractual duty [requiring strict compliance] ordinarily will not be construed as a condition precedent absent clear language showing that the parties intended to make it a condition" (Unigard Security Ins. Co. v North River Ins. Co., 79 NY2d 576, 581  [citations omitted]). The idea behind strict compliance with the notice provision in an insurance contract was to protect the carrier against fraud or collusion (see id.)
More recently in Matter of Brandon, this court held that a SUM carrier that received timely notice of a claim must show prejudice before disclaiming SUM benefits based on late notice of a legal action (see 97 NY2d 491, 494-95, 498 ). In the SUM context, the Brandon court was unwilling to extend the no prejudice exception in regard to late notice of a legal suit because "unlike most notices of claim -- which must be submitted promptly after the accident, while an insurer's investigation has the greatest potential to curb fraud -- notices of legal action become due at a moment that cannot be fixed relative to any other key event, such as the injury, the discovery of the tortfeasor's insurance limits or the resolution of the underlying tort claim." There are important public policy issues that continue to arise both in federal and state courts which warrant a review of the no prejudice exception, particularly when the insured has given timely notice of occurrence or claim (see Varrichio and Assocs. v Chicago Ins. Co., 312 F.3d 544, 548-50 [certified question to New York Court of Appeals of whether timely notice of occurrence required the insurer to show prejudice before disclaiming for late notice of lawsuit; question withdrawn because parties settled]). This case presents us with an opportunity to reexamine the applicability of the no-prejudice rule in the SUM context.
The facts of the current case, while different from Brandon, also warrant a showing of prejudice by the carrier. Here, plaintiff gave timely notice of the accident and made a claim for no-fault benefits soon thereafter. That notice was sufficient to promote the valid policy objective of curbing fraud or collusion. Moreover, the record indicates that State Farm undertook an investigation of the accident. It also required plaintiff to undergo medical exams in December 1998 and February 2000. Under these circumstances, application of a rule that contravenes general contract principles is not justified. Absent a showing of prejudice, State Farm should not be entitled to a windfall (Brandon, 97 NY2d at 496 n 3, citing Clementi v Nationwide Mut. Ins. Co., 16 P3d 223, 230 [Colo 2001]). Additionally, State Farm should bear the burden of establishing prejudice "because it has the relevant information about its own claims-handling procedures and because the alternative approach would saddle the policyholder with the task of proving a negative" (id. at 498; see also Unigard, 79 NY2d at 584 [placing the burden of showing prejudice on the reinsurer]). Thus, we hold that where an insured previously gives timely notice of the accident, the carrier must establish that it is prejudiced by a late notice of SUM claim before it may properly disclaim coverage.
Our analysis today is in line with other jurisdictions which require that carriers show prejudice before untimely notice of a SUM claim is held to be a material breach in the contract warranting disclaimer (see Clementi v Nationwide Mut. Ins. Co., 16 P3d 223, supra; State Automobile Insurance Company v Youler, 396 SE2d 737 ; Oulette v Maine Bonding & Cas. Co., 495 A2d 1232 ; State Farm Mutual Automobile Insurance Co. v Burgess, 474 So2d 634 ; Pennsylvania General Ins. Co., 475 A2d 1032 ; Rampy v State Farm Mutual Auto. Ins. Co., 278 So2d 428, 435 ; see also Alcazar v Hayes, 982 SW2d 845, 854 [Tenn. 1998][where an insured has failed to provide timely notice of a claim, there is a rebuttable presumption that the carrier has been prejudiced]).
Accordingly, the order of the Appellate Division should be modified, without costs, by denying defendant's motion for summary judgment, remitting to the trial court for the carrier to have an opportunity to demonstrate prejudice, and, as so modified, affirmed.
* * * * * * * * * * * * * * * * *
Order modified, without costs, by denying defendant's motion for summary judgment and, as so modified, affirmed. Opinion by Judge G.B. Smith. Judges Ciparick, Rosenblatt, Graffeo, Read and R.S. Smith concur. Chief Judge Kaye took no part.
Decided April 5, 2005
Paul J. Israelson, Plainview, N.Y., for appellant.
Duskin & Crowe, Staten Island, N.Y. (Steven P. Crowe of
counsel), for respondent.
In an action to recover damages for breach of an insurance contract, the defendant appeals from an order of the Supreme Court, Richmond County (Giacobbe, J.), dated March 9, 2004, which denied its motion for summary judgment dismissing the complaint
ORDERED that the order is reversed, on the law, with costs, the motion is granted, and the complaint is dismissed.
The defendant sustained its
initial burden of demonstrating its entitlement to summary judgment by
presenting evidence that this action was commenced after the two-year
limitations period contained in the subject insurance policy had expired (see
Minichello v Northern Assur. Co. of Am., 304 AD2d 731; Don's Corp. v
Commerical Union Ins. Cos., 300 AD2d 535; Enright v Nationwide Ins.,
295 AD2d 980; Raniolo v Travelers Indem. Co., 279 AD2d 514). Thus,
the burden shifted to the plaintiffs to aver evidentiary facts establishing
that the case at hand falls within an exception to the limitations period (see
Minichello v Northern Assur. Co. of Am., supra at 732). However, the
plaintiffs' submissions failed to raise a triable issue of fact as to whether
the defendant waived its right to rely upon the protection of the contractual
limitations period, or should be estopped from asserting the limitations
period as a defense because it engaged in conduct which lulled the plaintiffs
into sleeping on their legal rights (see Gilbert Frank Corp. v Federal Ins.
Co., 70 NY2d 966; Minichello v Northern Assur. Co. of Am., supra;
Enright v Nationwide Ins., supra; Gongolewski v Travelers Ins. Co.,
252 AD2d 569). Accordingly, the defendant's motion for
[*2]summary judgment dismissing the complaint
should have been granted.
KRAUSMAN, J.P., MASTRO, SPOLZINO and FISHER, JJ., concur.
James Edward Pelzer
Clerk of the Court
Appeal from an order of the Supreme Court, Erie County (Donna M. Siwek, J.), entered June 17, 2003. The order granted the petition to vacate an arbitration award and denied respondent's petition to confirm the award.
It is hereby ORDERED that the order so appealed from be and the same hereby is affirmed without costs.
Memorandum: Supreme Court properly granted the petition seeking to vacate the arbitration award directing petitioner to pay additional personal injury protection (APIP) benefits to respondent. Respondent was injured in an automobile accident on February 20, 1999 while operating a vehicle that belonged to a relative. That vehicle was insured by State Farm Insurance Company (State Farm), and respondent received no-fault insurance benefits from State Farm. On February 3, 2000, respondent, through an attorney whom she had recently retained, gave petitioner written notice of her claim for APIP benefits. Petitioner denied the claim because respondent failed to give notice within 90 days of the accident as required by respondent's policy with petitioner. The parties proceeded to arbitration and the arbitrator determined that it was impossible for respondent to have given notice within 90 days because she was unaware of the seriousness of her condition until February 2000. That determination was upheld by the master arbitrator. Petitioner sought to have the award vacated and respondent petitioned for confirmation of the award.
As a preliminary matter, the court properly determined that it could not disturb the award on the ground that it was based upon an error of law, as urged by petitioner, but only on the ground that it lacked a rational basis (see Matter of Allen [New York State], 53 NY2d 694, 696; see also CPLR 7511 [b] ). The policy required respondent to give notice "as soon as reasonably practicable, but in no event more than 90 days after the date of the accident, unless the eligible injured person submits written proof that it was impossible to comply with such time limitation due to specific circumstances beyond such person's control." We note that this notice requirement is more stringent than notice requirements for supplemental underinsured motorist benefits, which typically require notice as soon as practicable (see e.g. Medina v State Farm Mut. [*2]Auto. Ins. Co.,303 AD2d 987, 988; see generally Matter of Metropolitan Prop. & Cas. Ins. Co. v Mancuso,93 NY2d 487, 494-495). Even assuming, arguendo, that respondent was not aware of the seriousness of her injuries until February 2000, the record establishes that respondent sought medical treatment for her injuries two days after the accident and, because her symptoms continued to worsen, she was referred to a specialist, who, among other things, ordered an MRI within the 90-day period. That physician thereafter referred respondent to a neurosurgeon who ultimately advised respondent that surgery was required. Thus, we conclude that there is no rational basis for the arbitrator's finding that it was impossible for respondent to provide notice to petitioner within the 90-day period because of circumstances beyond her control, as required by the policy.
All concur except Pine, J.P., and Lawton, J., who dissent and vote to reverse in accordance with the following Memorandum: We respectfully dissent. We concur with the majority that Supreme Court properly determined that it could not disturb the arbitrator's award on the ground that it was based upon an error of law. We differ only with the majority's holding that "there is no rational basis for the arbitrator's finding that it was impossible for respondent to provide notice to petitioner within the 90-day period." Because the finding of the arbitrator was based upon the weighing of factual matters and the record supports that determination, the court is powerless to substitute its determination for that of the arbitrator (see Matter of United Fedn. of Teachers, Local 2, AFT, AFL-CIO v Board of Educ. of City School Dist. of City of N.Y., 1 NY3d 72, 83; Matter of New York State Correctional Officers & Police Benevolent Assn. v State of New York, 94 NY2d 321, 326; Matter of Singleton [Fireman's Fund Ins. Co.], 247 AD2d 868). We would therefore reverse the order, deny petitioner's petition, grant respondent's petition and confirm the arbitrator's award.
Submitted by Thomas P. Kawalec, for appellant.
Submitted by Joseph M. Schnitter, for respondent.
On review of submissions pursuant to section 500.4 of the Rules, order reversed, with costs, petition to vacate the arbitration award denied and petition to confirm the arbitration award granted, for the reasons stated in the dissenting memorandum at the Appellate Division (12 AD3d 1038, at 1039-1040), and matter
remitted to Supreme Court, Erie County, for consideration of appellant's claim for attorneys' fees. Chief Judge Kaye and Judges G.B. Smith, Ciparick, Rosenblatt, Graffeo, Read and R.S. Smith concur. [*2]
Decided April 5, 2005
Toefer v. Long Island Rail Road
1 No. 38
Robert V. Marvin et al.,
Korean Air Inc., et al.,
Case No. 37:
Scott N. Singer, for appellants.
Peter Riggs, for respondent Long Island Rail Road.
Michael A. Baranowicz, for third-party respondent Jana
Construction Co., Inc.
Erika C. Aljens, for third-party respondent Harris-Camden
Defense Association of New York, Inc., amicus curiae.
Case No. 38:
Michael J. Hutter, Jr., for appellants.
Brendan T. Fitzpatrick, for respondents.
R. S. SMITH, J.:
We decide in these cases that workers who fall when working on, or getting down from, the surface of a flatbed truck that is between four and five feet off the ground may not recover under Labor Law § 240 (1), because their injuries did not result from the sort of "elevation-related risk" that is essential to a cause of action under that section. [*2]
Facts and Procedural History
A. Toefer v Long Island Rail Road
Toefer is brought by the guardians of Eric Casey, who suffered a disastrous accident while working on the rehabilitation of a Long Island Rail Road bridge. Casey and another man were assigned to unload large steel, lattice-type beams from a flatbed truck. They stood on the surface of the truck's trailer, some four feet above the ground, inserted eight-foot wooden poles into the beams, and pried the beams off by using the poles as levers. When the beams fell to the ground, the levers fell with them.
Casey and his co-worker pushed one beam off the truck without incident. When the next beam was unloaded, a wooden lever, for some reason that has not been explained, flew back at Casey with enormous force, striking him on the head and propelling him backwards, over the beams behind him that had not yet been unloaded, to the ground on the other side of the truck. He became a paraplegic as a result.
Casey's guardians sued the Long
Island Rail Road, alleging among other things violations of Labor Law § 240
(1) and § 241 (6). The railroad claimed over against Casey's employer, which
in turn impleaded several other parties. On a motion and cross motions for
summary judgment, Supreme Court dismissed all plaintiffs' claims except those
arising under Labor Law § 240 (1). The Appellate Division modified that ruling
by ordering all of plaintiffs' claims dismissed. We granted plaintiffs' motion
for leave to appeal, and now affirm.
B. Marvin v Korean Air Inc.
Robert Marvin was employed by a siding subcontractor that was working on the construction of a cargo building for Korean Air, Inc. at Kennedy Airport. Some paneling material was brought to the construction site on a flatbed truck; the trailer of the truck was between four and five feet off the ground. Marvin was assigned to cut the steel straps that secured the material to the truck. No ladder was present. Marvin climbed up on the truck and performed his task. When he was finished, he crouched and began to step off the truck, but his foot became tangled in a safety harness he was wearing and he fell, breaking his ankle.
Marvin and his wife sued Korean Air and several other defendants, alleging among other things a violation of Labor Law § 240 (1). Supreme Court dismissed all plaintiffs' claims, and the Appellate Division affirmed. We granted plaintiffs' motion for leave to appeal, and now affirm.
In this Court, plaintiffs in
both Toefer and Marvin seek reinstatement of their claims under
Labor Law § 240 (1). Plaintiffs in Toefer also seek reinstatement of
their Labor Law § 241 (6) claim. We conclude that both the section 240 (1)
claims and the section 241 (6) claim were properly dismissed.
A. Labor Law § 240 (1)
Labor Law § 240 (1) provides in pertinent part:
"All contractors and owners and their agents, . . . in the erection, demolition, repairing, altering, painting, cleaning or pointing of a building or structure shall furnish or erect, or cause to be furnished or erected for the performance of such labor, scaffolding, hoists, [*3]stays, ladders, slings, hangers, blocks, pulleys, braces, irons, ropes, and other devices which shall be so constructed, placed and operated as to give proper protection to a person so employed."
In Rocovich v Consolidated Edison Co (78 NY2d 509 ), we discussed the occupational hazards against which this statute was directed. We pointed out that, while the hazards themselves are not spelled out in the statute, they can be inferred from the "protective means" set forth in the statute "for the hazards' avoidance" — scaffolding, hoists, stays, ladders and so forth (id. at 513). We explained:
"The various tasks in which these devices are customarily needed or employed share a common characteristic. All entail a significant risk inherent in the particular task because of the relative elevation at which the task must be performed or at which materials or loads must be positioned or secured. The contemplated hazards are those related to the effects of gravity where protective devices are called for either because of a difference between the elevation level of the required work and a lower level or a difference between the elevation level where the worker is positioned and the higher level of the materials or load being hoisted or secured. It is because of the special hazards in having to work in these circumstances, we believe, that the Legislature has seen fit to give the worker the exceptional protection that section 240 (1) provides."
(Id. at 514.)
Applying this reasoning in Rocovich, we held that a worker who had been injured when he slipped into a twelve-inch-deep trough carrying a stream of hot oil had not suffered injury from an elevation-related risk, and so was not within the protection of the statute.
The above-quoted language from Rocovich identifies two distinct sources of elevation-related risk: "the relative elevation at which the task must be performed" and the elevation "at which materials or loads must be positioned or secured." In Narducci v Manhasset Bay Assoc. (96 NY2d 259, 267 ), we described cases involving these risks as "falling worker" and "falling object" cases respectively. But, as we said in Narducci, "[n]ot every worker who falls at a construction site, and not every object that falls on a worker, gives rise to the extraordinary protections of Labor Law § 240 (1)" (id.). In some cases involving falls of workers and objects, we have held that where a plaintiff "was exposed to the usual and ordinary dangers of a construction site, and not the extraordinary elevation risks envisioned by Labor Law § 240 (1)," the plaintiff cannot recover under the statute (Rodriguez v Margaret Tietz Ctr. for Nursing Care, Inc., 84 NY2d 841, 843 ).
We have previously decided two Labor Law § 240 (1) cases involving falls from trucks — though not flatbed trucks — in which we held that the elevation-related risks contemplated by the statute were not present. In Bond v York Hunter Constr., Inc. (95 NY2d 883 ) we denied recovery to a worker who, getting down from the cab of [a] construction [*4]vehicle, placed his foot on the vehicle's track to use it as a step, slipped and fell three feet to the ground. We held as a matter of law that "the risk of alighting from a construction vehicle was not an elevation-related risk which calls for any of the protective devices of the types listed in Labor Law § 240 (1)" (id. at 884-885 [citation omitted]). In Dilluvio v City of New York (95 NY2d 928 ), we reached a similar result where the plaintiff fell some three feet from the back of a pickup truck in which he was riding. The Appellate Division has decided several cases involving flatbed trucks under Labor Law § 240 (1). The results in these cases vary, but most find elevation-related risk to be absent, as do both of the Appellate Division decisions now before us (see e.g. Tillman v Triou's Custom Homes, Inc., [253 AD2d 254 (4th Dept 1999)]; Cabezas v Consol. Edison, [296 AD2d 522 (2d Dept 2002)]; but see e.g. Monroe v Bardin [249 AD2d 650 (3d Dept 1998)]; Orr v David Christa Constr., Inc. [206 AD2d 881 (4th Dept 1994)]).
We conclude that the flatbed trucks in these two cases, like the trucks in Bond and Dilluvio, did not present the kind of elevation-related risk that the statute contemplates.
In Toefer, Casey was working on a large and stable surface only four feet from the ground. That is not a situation that calls for the use of a device like those listed in section 240 (1) to prevent a worker from falling. Plaintiffs in Toefer argue that a hoist, which is one of the devices listed in the statute, should have been used instead of wooden poles to lower the beams from the truck, but this argument misconceives the issue. Labor Law § 240 (1) is arguably implicated in this case only because Casey fell from the truck's trailer to the ground. The purpose of a hoist here would not have been to prevent Casey from falling; it would have been to prevent the beams themselves from doing damage. But Casey was not injured by a beam, or by any falling object; the object that struck him inexplicably flew at him either upwards or horizontally. His injury, horrendous as it is, is not attributable to the sort of elevation-related risk that Labor Law § 240 (1) was meant to address.
The same is true of Marvin's less serious injury. A four-to-five foot descent from a flatbed trailer or similar surface does not present the sort of elevation-related risk that triggers Labor Law § 240 (1)'s coverage. Safety devices of the kind listed in the statute are normally associated with more dangerous activity than a worker's getting down from the back of a truck. Obviously, the distance between the work platform and the ground is relevant; no one would expect a worker to come down without a ladder or other safety device from a work platform that was ten feet high. But the lesser distance Marvin had to travel, considering the nature of the platform he was departing from, was not enough to make Labor Law § 240 (1) applicable.
The Appellate Division
correctly dismissed the Labor Law § 240 (1) claims in both the Toefer
and Marvin cases.
B. Labor Law § 241 (6)
Labor Law § 241(6) provides:
"All areas in which construction, excavation or demolition work is being performed shall be so constructed, shored, equipped, guarded, arranged, operated and conducted as to provide reasonable and adequate protection and safety to the persons employed therein or lawfully frequenting such places. The commissioner may make rules to carry into effect the provisions of [*5]this subdivision, and the owners and contractors and their agents for such work, except owners of one and two-family dwellings who contract for but do not direct or control the work, shall comply therewith."
We pointed out in Ross v Curtis-Palmer Hydro-Elec. Co (81 NY2d 494, 503 ) that this statute "is, in a sense, a hybrid." Its first sentence, requiring "reasonable and adequate" measures, "reiterates the general common-law standard of care;" the second sentence, however, "contemplates the establishment of specific detailed rules" (id.). Our cases hold that the statute imposes a nondelegable duty on owners and contractors to comply with those "specific detailed rules." Thus, the statute creates a cause of action against owners and contractors, making them vicariously liable for the negligence of others whom they did not supervise, where, and only where, a "specific, positive command" (Ross, 81 NY2d at 503) or a "concrete specification" (Rizzuto v L.A. Wenger Contr. Co, 91 NY2d 343, 350 ), of a regulation promulgated by the Commissioner pursuant to the statute has been violated.
The Toefer plaintiffs contend that the failure to provide Casey with a mechanical hoist or a mobile crane to lower the beams from the truck violated specific provisions of the Commissioner's regulations. This contention is without merit. The regulations on which plaintiffs rely, subparts 23-6 and 23-8 of the Industrial Code, do not require the use of hoists or cranes under any particular circumstances; rather, they provide detailed rules to be followed when hoists or cranes are used. Since no hoist or crane was used on the job involved in Toefer, these regulations have no application and plaintiffs' Labor Law § 241 (6) claim must fail.
Accordingly, in each case the
order of the Appellate Division should be affirmed, with costs.
* * * * * * * * * * * * * * * * *
In each case: Order affirmed, with costs. Opinion by Judge R.S. Smith. Chief Judge Kaye and Judges G.B. Smith, Ciparick, Rosenblatt, Graffeo and Read concur.
Decided April 5, 2005
* Supreme Court approved a total award to Fireman's of $289,052.18, representing reasonable attorneys' fees and costs, with statutory interest from January 1999.