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Coverage Pointers - Volume VI, No. 8

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12/15/04          U.S. Underwriters Insurance Company v. City Club Hotel, LLC,
New York State Court of Appeals
High Court Restates Long-Standing Rule: If Insurer Brings Coverage Action and Fails, it Must Pay Insured’s Costs of Defending the Declaratory Judgment Action
For those unfamiliar with this quirk in NY Insurance Law, the Court of Appeals had reminded you of the rule:  if a liability carrier starts a declaratory judgment action against an insured and loses (coverage is established) the insurer is required to pay the costs of the insured in defending that declaratory judgment action.  This case tells us that the rule applies even if the insured never incurred defense costs in defending the underlying lawsuit for which coverage is sought.  The rule is “quirky” because the payment of the insured’s attorneys fees is NOT required if the insured commences the declaratory judgment and wins,  That is, imagine to carriers that deny coverage for the same claim to two different insureds. In one instance, the insurer commences a DJ action to determine it had no obligation to defend or indemnify.  In the other instance, the insured commences a DJ action to determine that it was entitled to defense or indemnity for the same loss.  The cases are jointly heard and coverage is established.  In the action commenced by the insurer, the insurer, having placed the insured in a defense posture, must pay its fees for that lawsuit.  In the other case, the insured cannot recover the costs of successfully prosecuting the coverage lawsuit.

 

 

12/16/04          Allianz Underwriters Insurance Company v. Landmark Insurance Company

Appellate Division, First Department

Excess Carrier DJ Action Allowed Against Primary Carrier’s Appointed Counsel As Equitable Subrogee Of The Insured

After a jury verdict in a wrongful death action, Allianz commenced a declaratory judgment action against Landmark seeking a judgment declaring that Allianz was not obligated to contribute to any award or settlement related to the wrongful death action on Dunlop's behalf, as well as the costs associated with the appeal of the multi-million dollar verdict. Allianz, as excess carrier to Dunlop, raised issues regarding the manner the underlying litigation was handled by the counsel appointed by Dunlop’s primary carrier.  Based on these allegations, Allianz asserts that the appointed counsel breached its fiduciary duty by manipulating the litigation process for the benefit of the primary carrier and to the detriment of Dunlop and Allianz.  The Court finds that Allianz is entitled to maintain an action against the counsel, as the equitable subrogee of Dunlop and because it was in "near privity" with the counsel.  The primary carrier’s argument that the claim was not ripe was incorrect as the Court finds that contingent claims by subrogees have been recognized, especially where it would further judicial economy.

 

12/16/04          In re Lumbermens Mutual Casualty Co. v. Dorell Brooks and American Transit Insurance Co.

Appellate Division, First Department

Lack Of Specificity In Notice Of Cancellation Renders It Ineffective

Notice of cancellation sent by American Transit to its insured some five months prior to the accident was ineffective to cancel the subject policy since it failed adequately to specify the reason for cancellation and, moreover, it appears that respondent had no valid ground for the policy's cancellation. The reason for the cancellation in the notice was "Producer's Account Closed," and the insured was referred to “Code No. 4” which stated, in part: "after the issuance of the policy, . . . discovery of an act or omission, or a violation of any policy condition that substantially and materially increases the hazards insured against, and which occurred subsequent to inception of the current policy period." The Court finds the notice deficient since it did not specify the act or omission, or violation.

 

12/14/04          Blackwell v. Fraser

Appellate Division, First Department

Serious Injury Threshold Not Met When Plaintiff Fails To Address Pre-Accident Medicals

Defendant submitted medical records documenting plaintiffs' physical complaints, diagnoses and treatment following a December 1999 accident and medical records documenting plaintiffs' complaints, diagnoses and treatment following a motor vehicle accident in April 1999, eight months before the accident that gave rise to the instant action.  The Court reversed the denial of Defendant’s threshold motion and held that the Plaintiff failed to address the evidence that demonstrated that plaintiffs' injuries pre-dated the December 1999 accident by at least eight months. The affirmations of the physicians who examined plaintiffs or reviewed their records after the December 1999 accident indicated that they obtained medical histories that either omitted the April 1999 accident and the injuries alleged or represented that those injuries had been resolved before December 1999.

 

 

12/14/04          Lamana v. Jankowski

Appellate Division, First Department

Trial Court Usurped Province Of The Jury In Determining Threshold Issue

At the close of evidence, defendants moved for a directed verdict on the ground that plaintiff had not suffered a "serious injury". The trial court denied the motion. Subsequent to summations, during the pre-charge conference, the court ruled that plaintiff had met the threshold as a matter of law, and it determined to submit only the issues of liability and damages to the jury. A verdict was rendered finding that defendants were negligent and that such negligence had been a substantial factor in causing the accident, for which defendants bore 60% responsibility. Given that plaintiff did not move for a directed verdict on the question of whether the threshold showing of serious injury had been met and the conflicting evidence as to plaintiff's injuries adduced at trial, the trial court usurped the province of the jury in determining that plaintiff had met the Insurance Law § 5102 threshold as a matter of law.

 

 

12/14/04          Zimmerman v. Tower Insurance Company of New York
Appellate Division, First Department
Remember, if Injured Party is Not a Party to Declaratory Judgment Action, Finding of No Coverage May Not Be Binding on that Party
Now this is one of our pet peeves; we see if to very often.  Insurer has reason to deny coverage, in this case, it was rescission of policy based on material misrepresentation.  Insurer commences a declaratory judgment action but for some reason (usually the carrier’s choice) the injured party isn’t named as a party.  Insurer goes on to win the declaratory judgment action (in this one, by default).  Injured party then takes judgment against “insured” and brings a direct action against insurer to enforce the judgment.  In this case, the Court held that injured party, not being a party to the coverage lawsuit, is not bound by the judgment declaring that insurer had no obligation to defend or indemnify the insured.  Counseling point – solve the problem by including the injured party in the declaratory judgment action and there’s never a reason to worry about the matter being relitigated, if a successful declaratory judgment is obtained.

 

12/10/04          AB Medical Services v. Nationwide Mutual Insurance

Appellate Division, Second Department

Insurance Regulations Don’t Require Authentication of No Fault Claimant’s Signature

Plaintiffs failed to establish a prima facie entitlement to no-fault benefits as the billing manager’s affidavit was insufficient to establish that plaintiffs provided defendant with properly completed claim forms.  The Court rejected the basis for the denial by the Lower Court, i.e. plaintiffs did not submit admissible proof authenticating the signature of plaintiffs' assignor on the assignment form. The insurance regulations, however, do not require that a claimant's signature be authenticated, but only require a health care provider to submit to the insurer a "properly executed assignment" on (1) the prescribed verification of treatment by the attending physician or other provider of service form or (2) the prescribed verification of hospital treatment form, or the prescribed hospital facility form or (3) the prescribed no-fault assignment of benefits form.  The health care provider satisfies its burden by proof of submission of an assignment to the insurer that conforms to the regulations. The Court further noted that defendant's failure to seek verification of the assignment, or to allege any deficiency in the assignment in its denial of claim form, constituted a waiver of those defenses.  See the related case of Diagnostic Rehab. Medicine Serv. v. Travelers Indemnity Company (In an action for no-fault benefits, the purported assignment form was signed by the claimant but did not designate a named assignee. However, the insurer also failed to seek additional verification or allege any deficiency in the assignment in its denial of claim form so waived those defenses).

 

12/8/04            King’s Medical Supply, Inc. v. New York Central Mutual Insurance

Appellate Division, Second Department

Failure To Appear At IME Not Basis For Denial Of No-Fault Claim

In this action to recover assigned first-party no-fault benefits, the insurer's only defense was that each assignor failed to appear for a scheduled independent medical examination (IME).  The Court held that this defense was without merit.  The failure to attend a single requested IME does not afford an insurer a valid basis to deny a no-fault claim where the insurer failed to exhaust the follow-up verification protocols under 11 NYCRR 65.15 [g] [2] [iii] ("an insurer shall not issue a denial of claim form . . . prior to its receipt of verification of all of the relevant information requested”).

 

12/7/04            Baust v. Travelers Indemnity Company

Appellate Division, Third Department

Disclaimer For Untimely Notice Does Not Preclude SUM Benefits

Here, the Plaintiff in the underlying personal injury case sought supplementary insurance coverage from his carrier on the basis that coverage was denied by the personal injury defendant’s liability carrier for untimely notice by the insured.  The Plaintiff’s carrier denied SUM coverage was available because he failed to meet a "triggering event" for such coverage, namely, "the existence of an uninsured motorist."  The Court held that the carrier could have protected itself from recovery of benefits in this situation by excluding from the definition of an uninsured auto those autos upon which a disclaimer of coverage is made subsequent to an accident.  It did not and so the Plaintiff is able to seek SUM benefits.



 

12/7/04            The Standard Fire Insurance Company v. Federal Pacific Electric Company

Appellate Division, First Department

Spoliation -- Subrogation Claim Dismissed Where Property Owner Destroys (or Loses) Key Evidence
Subrogation case arising out of fire loss.  Property owner lost or destroyed circuit breaker which was allegedly involved in accident.  Alleged manufacturer of circuit breaker was unable to conduct an inspection of the product even to determine whether it manufactured product.  Under doctrine of negligent spoliation, subrogation action brought by property insurer on behalf of property owner is dismissed.

 

12/7/04            Matter of American International Ins. Company v. Dibua
Appellate Division, Second Department

In Uninsured Motorist Proceeding it is the Court, Not the Arbitrator, Decides Whether the Vehicle is Uninsured
It is the role of the Court, in an application to stay arbitration, not the UM arbitrator, to decide whether the negligent driver was or was not insured at the time of the accident.  In this case, the Court found that there was a valid policy cancellation as the UM carrier had no evidence to the contrary.

 

12/6/04            American International Insurance Company v. Dibua

Appellate Division, Second Department

Issue Of Whether Vehicle Insured Is Not For The UM Arbitrator

In a petition to permanently stay an UM arbitration, the Lower Court erred in sending the threshold issue of whether the offending vehicle was insured on the date of the accident to the UM arbitrator.  That issue was for the court to determine prior to arbitration of a claim for uninsured motorist benefits.  Nevertheless, the Court affirms the denial of the petition since; in response to the showing that there was a valid cancellation of the insurance policy covering the allegedly offending vehicle prior to the accident, only unsubstantiated conjecture was offered in response that some defect in the cancellation procedure was present.

 

 

Across Borders

 

Visit the Hot Cases section of the Federation of Defense & Corporate Counsel website, www.thefederation.org recently ranked among the top five legal research websites in an article published in the January 2004 issue of Litigation News, a publication of the Litigation Section of the American Bar Association. Dan Kohane serves as the FDCC’s Website Editor.

 


12/10/04          Bituminous Cas. Corp. v. Kenway Contracting Inc.

Kentucky Court of Appeals

Intentional Act Causing Unintentional Injury Is An Occurrence Under Kentucky Law
An insured demolition company was hired to raze a residential carport. The bulldozer sent to do the work mistakenly leveled the carport and the entire home. The court held that the damage to the home was an occurrence covered by the demolition company’s CGL policy because, although the action of demolishing the home was intentional, the damage was not intentional from the standpoint of the insured.

Submitted by: Bruce D. Celebrezze and Erin Adrian (Sedgwick, Detert, Moran & Arnold LLP)


12/9/04            CTI/DC, Inc. v. Selective Insurance Company Of America

Fourth Circuit Court of Appeals

Notice To Collect On Payment Bond Was Defective
CTI/DC, a concrete materials supplier, sought to collect for materials supplied to a construction site by making a claim on the contractor's payment bond. The Court found that CTI/DC failed to satisfy the notice requirements of Maryland's Little Miller Act. CTI/DC's first letter was timely but deficient in that it did not name the subcontractor to whom the materials were supplied. CTI/DC's second letter was substantively sufficient but was sent after the ninety (90) day period allowed under the statute. The timely but deficient letter could not be read in conjunction with the untimely but adequate letter to constitute adequate notice under the statute.  Submitted by: Thomas K. Hanekamp and Marcos G. Cancio [TRESSLER, SODERSTROM, MALONEY & PRIESS]

 


12/9/04            Travelers Indemnity Co. v. PCR, Inc.

Florida Supreme Court

Employers Liability Policy Covers Employer For Tort Claims Arising From Injuries "Objectively Substantially Certain" To Occur
The Florida Supreme Court considered whether an employer's liability insurance policy provided coverage for liability arising from work-related injuries that were "objectively-substantially-certain" to occur. Under Florida law, Worker's Compensation is the exclusive remedy for injured workers unless the injuries were intentionally caused by the employer or the employer engaged in conduct that was "objectively-substantially-certain" to result in injuries. The policy covered accidental injuries, but excluded claims for injuries that were intentionally caused. The insurer argued that since the claims were brought under the "objectively-substantially-certain" exception of the Worker's Compensation exclusivity provision, they were claims based on intentional conduct and not covered by the policy. The Florida Supreme Court disagreed and held that the policy did provide coverage for such a claim.

Submitted by: Thomas K. Hanekamp and Marcos G. Cancio (TRESSLER, SODERSTROM, MALONEY & PRIESS)



12/8/04            Littlefield v. Acadia Ins. Co.

First Circuit Court of Appeals

Exclusion for Criminal Conduct Encompasses Crimes of Negligence
An insured under a yacht policy rammed his yacht with another boat, killing a passenger of that boat. He was convicted of criminally negligent homicide, and the victim’s wife sued him for wrongful death. The court held that the loss was not covered by the yacht policy because it excluded damage “willfully, intentionally, or criminally cause,” rejecting the insured’s argument that, given the adjectives listed with “criminally,” the criminal act must be an intentional one, rather than a merely negligent one.

Submitted by: Bruce D. Celebrezze and Erin Adrian (Sedgwick, Detert, Moran & Arnold LLP) -


12/7/04            Fiess v. State Farm Lloyds

Fifth Circuit Court of Appeals

Whether Mold Loss Covered By Ensuing Loss Language In Insurance Policy Is Certified to Texas Supreme Court
The plaintiffs sued their homeowner's insurer after the insurer paid for some but not all of the loss associated with water damage in their home. The plaintiffs sought additional policy benefits for mold remediation. The Fifth Circuit held that the plaintiffs' expert's testimony concerning the mold was sufficient to raise a genuine issue of material fact regarding the amount of mold attributable to covered causes. The Court also certified to the Texas Supreme Court whether there was coverage for mold under the "ensuing loss" provision in the policy.

Submitted by: Thomas K. Hanekamp and Marcos G. Cancio [TRESSLER, SODERSTROM, MALONEY & PRIESS]

 


12/6/04            In re: General American Life Insurance Company Sales Practices Litigation

Eighth Circuit Court of Appeals

In Vanishing Premium Case Two-Year and Six-Year Statute of Limitations Applied to Bad Faith and Unfair Trade Practices Claims; Reasonable Expectations Doctrine Applicable
Plaintiffs, in a group of consolidated cases, appealed the district court’s grant of dismissal. The appellate court reversed and remanded. Plaintiffs purchased life insurance policies based on representations that after an initial premium payment, the premium payments would “vanish” due to dividends and accrued interest on the policies. Subsequently, additional premium policies were demanded. In such a case, the court considered what the applicable statute of limitations was for plaintiffs’ bad faith and unfair trade practices claims under Pennsylvania law. The Court considered the lower courts, and sister districts resolution of the issue, and determined that the Pennsylvania Supreme Court would assign a two-year statute of limitations to plaintiffs’ bad faith claims and a six-year statute of limitations to plaintiffs’ unfair trade practices claims. Plaintiffs further contended that Pennsylvania’s “reasonable expectations” doctrine would toll some or all of their claims. The appellate court agreed, predicting that the Supreme Court of Pennsylvania would utilize the reasonable expectations analysis when dealing with vanishing premium cases.

Submitted by: Bruce D. Celebrezze & Supriya Sundarrajan (Sedgwick, Detert, Moran and Arnold, LLP)

 


12/6/04            American Family Mutual Insurance Company v. Allen

Colorado Supreme Court

Colorado Supreme Court Holds That Expert Testimony Of Insurers' Standard Of Care Is Not Required To Prove Bad Faith
The Colorado Supreme Court was called upon to determine whether an alleged permissive user of the insured's truck was entitled to coverage under a Personal Injury Protection (PIP) endorsement, and whether expert testimony was required to establish industry standards of care when claiming that the insurer breached its duty of good faith. The court held that the policy at issue provided PIP coverage for injuries sustained by permissive drivers of vehicles owned by the insured, but that factual issues remained concerning who legally owned the vehicle. The court also held that expert testimony was not required to establish what constitutes a reasonable investigation or denial of a claim. The standard of care was within the common knowledge of an average juror and the Colorado Unfair Claims Practices Act, provided the jury with valid, but not conclusive, evidence of the standard of care.

Submitted by: Thomas K. Hanekamp and Marcos G. Cancio (Tressler Soderstrom Maloney & Priess)



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The Standard Fire Insurance Company v. Federal Pacific Electric Company

 

Defendant Federal Pacific Electric Company appeals from an order of the Supreme Court, New York County (Walter B. Tolub, J.), entered February 6, 2003, which denied its motion to strike the complaint, and from an order, same court and Justice, entered October 16, 2003, which denied its motion for summary judgment dismissing the complaint.


Steven J. London, New York (David Samel of counsel), for
appellant.
Speyer & Perlberg, LLP, New York (Joseph B. Wolf
of counsel), for respondent. [*2]

SULLIVAN, J.

In this subrogation action by The Standard Fire Insurance Company arising out of a fire loss covered by its insurance policy, the issue on appeal is whether the action against Federal Pacific Electric Company, which allegedly manufactured the electrical panel and circuit breakers claimed to have malfunctioned and contributed to the cause of the fire, should be dismissed, on the ground of spoliation of evidence, because of the irretrievable loss of the electrical panel and circuit breakers after Standard alone had inspected them.

The fire occurred on February 24, 1997, at the Staten Island residence of Standard's insured, Mark D'Andrea. It is alleged that some seven months earlier, in July 1996, Walsh Electric, also a defendant, performed electrical repairs at the D'Andrea home and installed an electrical service panel manufactured by Federal. Several weeks after the fire, Standard's engineer inspected the damaged premises and observed the electrical panel, a metal cabinet that housed circuit breakers. In his report, the engineer concluded: "[I]t is possible, but not certain, that an electrical fault ignited the subject fire. Furthermore, if the fire had an electrical cause, it is probable that a malfunction of the electrical service panel was a significant contributing factor." The report indicated that the electrical panel had been manufactured by Federal, but it did not identify the manufacturer of the circuit breakers. There is no evidence that Standard took any measures to preserve either the panel or the circuit breakers.

In August 1998, D'Andrea sued Standard under the policy to recover for his fire loss. Apparently, that lawsuit has been settled by a loss payment to D'Andrea, which gives rise to Standard's right of subrogation (see J & B Schoenfeld, Fur Merchants v Albany Ins. Co., 109 AD2d 370, 372-373 [1985]). Thereafter, in February 2000, Standard, as subrogee of D'Andrea, commenced this action against Federal and Walsh, basing its claim solely on the information obtained during the course of its engineer's inspection of the damaged premises. After the commencement of the action, Federal, to no avail, wrote to Standard's counsel inquiring about the availability for inspection of the allegedly defective electrical service panel. Federal subsequently sought to compel Standard to produce the equipment, obtaining two court orders, on April 12 and July 12, 2002, to produce, if still in existence, the electrical panel at issue as well as to comply with other unanswered discovery demands. Based on Standard's failure to respond to the first two orders, Supreme Court issued a third order, entered October 4, 2002, conditionally precluding Standard and dismissing the complaint unless, by October 28, 2002, Standard fully complied with the demands.

When Standard failed to comply with the conditional order by the date specified, Federal moved to strike the complaint or, alternatively, to preclude Standard from offering any evidence at trial. Federal also pointed out that Standard was required to identify not only the allegedly defective electrical panel but the circuit breakers, as well. In that regard, Federal submitted an affidavit from its assistant secretary stating that it had ceased manufacturing circuit breakers in 1986, a decade before Walsh's electrical repair at the D'Andrea home, and that it had sold the trademark right to its Stab-Lok Circuit Breakers in that same year. The assistant secretary noted that two other companies — American Circuit Breaker and a Chinese company, VAB — [*3]manufactured circuit breakers that would have fit inside the electrical panel at the subject premises. According to the assistant secretary, only a physical examination of the circuit breaker would reveal the identity of the circuit breakers housed in the panel in question.

In opposing the motion, Standard alleged that it had only recently — in January 2003, more than two months after the conditional order's deadline — contacted its insured, D'Andrea, and learned that none of the house's fixtures, including the electrical panel and circuit breakers, had been salvaged. The motion court denied dismissal but precluded Standard from offering in evidence the electrical panel, which, as noted, had allegedly already been lost or destroyed. It did not, however, preclude Standard from offering other evidence regarding the missing or destroyed equipment.

Federal thereafter moved for dismissal of the complaint on the basis of Standard's spoliation of evidence, arguing that without the allegedly defective service panel or circuit breakers, Standard would be unable to make out a prima facie case. Federal also sought sanctions for bringing a frivolous lawsuit. In that regard, Federal submitted Standard's own engineer's report, which indicated that it was "possible, but not certain" that the fire was caused by an electrical fault. Federal also submitted the affidavit from the assistant secretary in support of the prior motion attesting to Federal's 1986 cessation of circuit breaker and electrical panel manufacturing, as well as an additional affidavit from him stating that three companies that had acquired the legal rights to Federal's electrical panels and circuit breakers were all inscribing the Federal logo on their own circuit breakers.

In opposition, Standard submitted the affidavit of the engineer who had investigated the fire on its behalf. His report indicated that the electrical service panel had malfunctioned, that it was "probable" that the malfunction was a "significant contributing factor" in causing the fire, and that a "properly functioning electrical panel would have terminated the electrical current through the faulted circuit by tripping the breaker." According to the engineer, the panel was manufactured by Federal, whose panels had "attained a certain degree of notoriety for this type of malfunction." Standard argued that dismissal was unwarranted because of the absence of any showing that it or its subrogor, D'Andrea, deliberately or negligently caused the loss of the panel and circuit breakers and that, even without the panel and circuit breakers, Federal could still defend the action by showing that there was no evidence that the circuit breakers caused the fire and calling the fire marshal as a witness.

Supreme Court denied the motion, concluding that spoliation did not warrant the harsh remedy of dismissal since the parties could use other evidentiary sources to establish their positions. Specifically, it held, Federal "may be able to establish [its] position[] after [examinations before trial] of [Standard's] experts and cross examination of those experts at trial." The court further found that issues of fact precluded the grant of summary judgment dismissing the complaint. Both orders are before us on appeal. The complaint should have been stricken.

It is undisputed that Standard defaulted on the conditional order of preclusion and dismissal entered October 4, 2002. It could not dispute that it had failed to respond timely to the single most important directive under all three orders, namely, the identification and production [*4]of the allegedly faulty electrical equipment. Although a motion for an unconditional order of preclusion was unnecessary (see Lopez v City of New York, 2 AD3d 693 [2003]), Federal made such a motion nonetheless and Standard, in order to defeat the motion, was "required to demonstrate both a reasonable excuse for [its] default and the existence of a meritorious cause of action" (id. at 694; see also Frankel v Hirsch, 2 AD3d 399 [2003]).

As its excuse, counsel for Standard's sole explanation was that "[o]nly last week . . . was [he] able to obtain" the wireless telephone number of Standard's subrogor and policyholder, D'Andrea. Tellingly, there was no statement as to any other efforts undertaken to communicate with D'Andrea, much less any documentary proof thereof. When contacted, D'Andrea is alleged to have told counsel that "as far as he was aware, no part of the destroyed home, including the electric panel, had been salvaged." Yet, as the record shows, Standard's engineer states that he inspected the electrical panel and circuit breakers in March 1997, less than one month after the fire. According to Standard, the electrical panel and circuit breakers survived the fire and were available for inspection. Standard's engineer not only visually examined the assembly, but he even took a photograph of the panel bearing Federal's name. There are, however, no photographs from which the brand names of the circuit breakers themselves can be seen.

In any event, as a result of its investigation and in particular, the inspection of the electrical panel, Standard decided to bring this action against Federal and Walsh. In such circumstances, Standard should have foreseen that preservation of the panel and circuit breakers was absolutely essential to the assertion of any claim based upon a defect in the electrical equipment. As the record shows, Federal has raised a legitimate question about whether it even manufactured the circuit breakers. Thus, Standard, as subrogee of the homeowner, had an obligation to preserve the allegedly defective equipment for all parties to inspect; it had the authority, means and opportunity to safeguard the equipment, but inexplicably failed to do so. Its failure is all the more unfathomable since the entire purpose of its inspection of the equipment was to determine whether it had a basis for denying coverage to its insured or attempting to hold any other party responsible for the fire.

Standard argues, as it did before the motion court, that dismissal is unwarranted, given the absence of any showing that it or its subrogee deliberately or negligently caused the loss of the panel and circuit breakers. In Squitieri v City of New York (248 AD2d 201, 202-203 [1998]), this Court held, "When a party alters, loses or destroys key evidence before it can be examined by the other party's expert, the court should dismiss the pleadings of the party responsible for the spoliation . . . Spoliation sanctions . . . are not limited to cases where the evidence was destroyed willfully or in bad faith, since a party's negligent loss of evidence can be just as fatal to the other party's ability to present a defense."

The leading case in this area is Healey v Firestone Tire & Rubber Co. (212 AD2d 351 [1995], revd on other grounds 87 NY2d 596 [1996]), where the plaintiff was injured by an exploding truck tire. Before the tire rims suspected of being involved in the accident could be inspected by Firestone, the alleged manufacturer, the trucking company, also a defendant, destroyed or discarded them. As a result, this Court dismissed the negligence and strict liability causes of action against Firestone, holding that "the inexcusable conduct of [the trucking [*5]company] in failing to preserve the critical evidence has fatally prejudiced Firestone in its defense of those portions of plaintiff's causes of action sounding in negligence and strict liability. No act or omission of Firestone was involved in the disappearance of the three tire rims, and their unavailability for expert examination and analysis. Under the circumstances, as a matter of elementary fairness, we dismiss those causes of action against Firestone" (212 AD2d at 352). As in Healey, Federal has been fatally prejudiced in defending against Standard's claims of product liability and negligence. While Standard's expert inspected the electrical equipment, it deprived Federal of the same opportunity by failing to preserve this critical evidence. This failure is all the more significant given the sharp question as to whether the allegedly defective circuit breakers were even manufactured by Federal .

In a similar situation to the case at bar, this Court, relying in part on Healey, reaffirmed the principle that negligent as well as intentional spoliation of a key piece of evidence may warrant dismissal. In Kirkland v New York City Hous. Auth. (236 AD2d 170 [1997]), the Housing Authority negligently disposed of a stove, a critical piece of evidence, and then commenced a third-party action against the company that had installed stoves in a number of apartments in the apartment complex. Reversing Supreme Court's denial of the motion to dismiss the third-party action because the third-party defendant had no opportunity to inspect the missing stove, this Court held (at 173):

Spoliation is the destruction of evidence. Although originally defined as the intentional destruction of evidence arising out of a party's bad faith, the law concerning spoliation has been extended to the non-intentional destruction of evidence

. . .

Under New York law, spoliation sanctions are appropriate where a litigant, intentionally or negligently, disposes of crucial items of evidence involved in an accident before the adversary has an opportunity to inspect them. We have found dismissal to be a viable remedy for loss of a "key piece of evidence" that thereby precludes inspection [citations omitted].

As here, there was no showing in Kirkland that the spoliation was intentional. Nevertheless, we held that the evidence "clearly supports a finding that crucial evidence was negligently destroyed . . . . [T]here is no indication in the record that NYCHA, as defendant, had taken any steps to assure preservation of the evidence" (id. at 173-174). Any sanction other than dismissal, we held, would "unfairly compel a party, which was not even a party at the time crucial evidence was lost, to defend an action when such loss has fatally compromised its ability to defend" (id. at 176). Although this Court was addressing a spoliation issue in the context of a personal injury case, our words are equally applicable here: "Commentary suggests that personal injury specialists, defense as well as plaintiff, almost uniformly recognize the elevated priority of preserving the evidence, so that drastic sanctions are not necessarily unduly harsh sanctions when a critical item of evidence is not preserved" (id. at 174). [*6]

Kirkland is directly applicable to this case. Standard should have recognized the "elevated priority of preserving the evidence." In the absence of any indication in the record that Standard had taken any steps to assure preservation of the evidence, dismissal was warranted. As in Kirkland, it would be manifestly unfair to require Federal, "which was not even a party at the time crucial evidence was lost, to defend an action when such loss has fatally compromised its ability to defend" (id. at 176).

The sanction of dismissal is warranted even though Standard was not the owner of the missing evidence. In Amaris v Sharp Elecs. Corp. (304 AD2d 457 [2003]), when a critical piece of evidence (a television set) was destroyed before the defendant had the opportunity to examine it, this Court held, "Although [plaintiff] was aware the television that allegedly caused the injury was a crucial piece of evidence, he negligently failed to take sufficient steps to assure its preservation. The spoliation was clearly the result of plaintiff's negligence notwithstanding the fact that the television set was owned by plaintiff's employer, a nonparty [citation omitted]. Defendant did nothing to contribute to the loss of the evidence, and its unavailability for examination and analysis was highly prejudicial" (id. at 457-458).

The sanction of striking a pleading has been applied even in instances where the destruction took place before litigation, provided the spoliator was on notice the evidence might be needed for future litigation (see DiDomenico v C & S Aeromatik Supplies, 252 AD2d 41, 53 [1998]). There can be no dispute that Standard was on notice at the time of the engineer's inspection of the premises, conducted within one month of the fire, that the electrical panel and circuit breakers would be needed for future litigation. That inspection was the sole basis for Standard's claim against Federal.

Supreme Court's determination precluding Standard from introducing evidence that already had been destroyed was not only meaningless but failed to address the hopeless position faced by Federal. Never having had the opportunity to examine the defective circuit breaker to determine whether it had even manufactured it, Federal would be required to defend against a claim that it had manufactured a defective circuit breaker that caused or contributed to the fire. In Cabasso v Goldberg (288 AD2d 116 [2001]), where a U-Haul trailer's breaking system, allegedly the cause of the accident, had been "irretrievably dismantled," we rejected a less onerous sanction than dismissal and affirmed the striking of U'Haul's answer. This Court was not persuaded by the argument that circumstantial evidence could be used, which would only "invite[] speculation and also permit[ the spoliator] the advantage of utilizing its own expert's report, notwithstanding its responsibility for destroying key evidence that prevented a proper testing of the trailer" [id. At 117]. Similarly, the only proper sanction for Standard's loss of the electrical equipment is dismissal.

We have considered Standard's other arguments in favor of an affirmance and find them without merit. In light of our determination, we need not reach the merits of the appeal from the subsequent order denying Federal's motion for summary judgment dismissing the complaint.

Accordingly, the order of the Supreme Court, New York County (Walter B. Tolub, J.), entered February 6, 2003, which denied the motion of defendant Federal Pacific Electric Company to strike the complaint, should be reversed, on the law, with costs and disbursements, [*7]and the motion granted. The Clerk is directed to enter judgment in favor of defendant Federal Pacific Electric Company striking the complaint as against it. Appeal from order, same court and Justice, entered October 16, 2003, which denied defendant Federal's motion for summary judgment dismissing the complaint, should be dismissed, without costs or disbursements, as academic.

In the Matter of American International Insurance Company v. Dibua

In a proceeding pursuant to CPLR article 75 to stay arbitration of a claim for uninsured motorist benefits, the petitioner appeals, as limited by its brief, from so much an order of the Supreme Court, Nassau County (Woodard, J.), dated June 30, 2004, as, without a hearing, denied the petition.

ORDERED that the order is affirmed insofar as appealed from, with costs to the respondent Katherine Dibua.

The Supreme Court denied the petition of American International Insurance Company (hereinafter AIIC) for a stay of arbitration of a claim for uninsured motorist benefits, finding that the issue of whether the allegedly offending vehicle was insured on the date of the accident was for the arbitrator to decide. This was error, as the threshold issue of whether the offending vehicle was insured on the date of the accident is for the court to determine prior to arbitration of a claim for uninsured motorist benefits (see Matter of Empire Mut. Ins. Co., 36 NY2d 719, 720-721).

Nevertheless, we affirm the denial of AIIC's petition for a stay of arbitration without a hearing, since, in response to the showing of the respondent Government Employees Insurance Company that it validly cancelled the insurance policy covering the allegedly offending vehicle prior to the accident, AIIC offered only unsubstantiated conjecture that there may have been some defect in the cancellation procedure (see Matter of Allstate Ins. Co. v Lopez, 266 AD2d cur.

BAUST v. TRAVELERS INDEMNITY COMPANY

 

Carpinello, J.

Appeal from an order of the Supreme Court (Spargo, J.), entered November 14, 2003 in Greene County, which denied defendant's motion for summary judgment dismissing the complaint.

Defendant was properly denied summary judgment in this action commenced by plaintiff seeking supplementary uninsured motorists coverage under an insurance policy issued to him. The event underlying plaintiff's request for coverage was an October 30, 1997 pedestrian-motor vehicle accident between himself and a vehicle driven by Christopher Kight in New York City. Plaintiff's initial attorney believed that Kight was uninsured at the time of the accident and defendant was notified that a claim would be made on that basis. In actuality, however, Kight was covered by an insurance policy with Eveready Insurance Company, a fact not discovered until June 1999 by plaintiff's second attorney.

When plaintiff thereafter sued Kight to recover for his injuries, Eveready disclaimed coverage on the ground that Kight had failed to provide timely notice of the accident. Eveready's disclaimer of liability on the basis of untimely notification was subsequently upheld in a declaratory judgment action commenced by plaintiff. In the meantime, plaintiff had sought supplementary uninsured motorists coverage from defendant in this action, commenced in [*2]November 1998, on the ground that Kight was uninsured.[FN1]

Defendant claims that plaintiff is not entitled to supplementary uninsured motorist coverage because he failed to meet a "triggering event" for such coverage, namely, "the existence of an uninsured motorist." This contention runs counter to the language in the insurance policy issued to plaintiff, as well as the Court of Appeals' decision in Matter of Vanguard Ins. Co. (Polchlopek) (18 NY2d 376 [1966]). As to the insurance policy itself, it specifically defines an "Uninsured Motor Vehicle" to include a motor vehicle for which "[t]here is a bodily injury liability insurance coverage . . . at the time of accident, but . . . [t]he Insurer writing such insurance coverage . . . denies coverage." With respect to Vanguard, the Court of Appeals ruled that a disclaimer of liability by a primary insurer related back to the time of the accident and rendered the insured under that policy "uninsured" for the purpose of the accident victim's application for supplementary uninsured motorist coverage under his own policy (id. at 381-382).

Here, there is no dispute that Eveready disclaimed coverage under Kight's insurance policy. This being the case, under the terms of the insurance policy itself and Vanguard, plaintiff was entitled to seek supplementary uninsured motorists coverage. To the extent that defendant asks this Court to look "deeper" into the holding of Vanguard and rule its holding inapplicable here because plaintiff and his former attorneys failed to use due diligence in ascertaining that Kight was in fact insured at the time of accident, we are unpersuaded. To this end, we are compelled to point out, as did the Court of Appeals in Vanguard, that defendant could have protected itself from recovery of benefits in this situation by "exclud[ing] from the definition of an uninsured auto those autos upon which a disclaimer of coverage is made subsequent to an accident" (id. at 381; see generally Morgan v Greater N.Y. Taxpayers Mut. Ins. Assn., 305 NY 243, 248 [1953]). No such exclusion is contained in the subject insurance policy and, hence, plaintiff was entitled to seek supplementary uninsured motorist coverage.

Defendant was also properly denied summary judgment on the ground that plaintiff failed to comply with a condition precedent to recovery by allegedly refusing to attend numerous independent medical examinations. Defendant did not meet its "heavy" burden of proving willful and avowed obstruction on the part of plaintiff as a matter of law (Ingarra v General Acc./PG Ins. Co. of N.Y., 273 AD2d 766, 767 [2000]). Rather, the record contains questions of fact concerning the reasonableness of plaintiff's cooperation in scheduling examinations and whether he in fact knowingly or willfully failed to attend any scheduled appointments (cf. Tleige v Troy Pediatrics, 237 AD2d 772, 773-774 [1997]; Wolford v Cerrone, 184 AD2d 833, 833-834 [1992]), thus precluding dismissal of the complaint on this ground.

Cardona, P.J., Mercure, Rose and Lahtinen, JJ., concur.

ORDERED that the order is affirmed, with costs.

Footnotes



Footnote 1: Of note, defendant is not alleging that plaintiff failed to give it timely notice of his claim for supplemental uninsured motorist coverage (cf. Matter of Brandon [Nationwide Mut. Ins. Co.], 97 NY2d 491 [2002]; Matter of Hartford Cas. Ins. Co. [Brody], 278 AD2d 830 [2000]).

 

DECISION & ORDER


2004-06062

In the Matter of American International Insurance Company, etc., appellant,

v

Katherine Dibua, et al., respondents. (Index No. 16722/03)



 

In a proceeding pursuant to CPLR article 75 to stay arbitration of a claim for uninsured motorist benefits, the petitioner appeals, as limited by its brief, from so much an order of the Supreme Court, Nassau County (Woodard, J.), dated June 30, 2004, as, without a hearing, denied the petition.

ORDERED that the order is affirmed insofar as appealed from, with costs to the respondent Katherine Dibua.

The Supreme Court denied the petition of American International Insurance Company (hereinafter AIIC) for a stay of arbitration of a claim for uninsured motorist benefits, finding that the issue of whether the allegedly offending vehicle was insured on the date of the accident was for the arbitrator to decide. This was error, as the threshold issue of whether the offending vehicle was insured on the date of the accident is for the court to determine prior to arbitration of a claim for uninsured motorist benefits (see Matter of Empire Mut. Ins. Co., 36 NY2d 719, 720-721).

Nevertheless, we affirm the denial of AIIC's petition for a stay of arbitration without a hearing, since, in response to the showing of the respondent Government Employees Insurance Company that it validly cancelled the insurance policy covering the allegedly offending vehicle prior to the accident, AIIC offered only unsubstantiated conjecture that there may have been some defect in the cancellation procedure (see Matter of Allstate Ins. Co. v Lopez, 266 AD2d 209, 210; Matter of Eagle Ins. Co. v Battershield, 225 AD2d 545).
RITTER, J.P., SMITH, RIVERA and LIFSON, JJ., concur.

 

Zimmerman v. Tower Insurance Company of New York



 

Order, Supreme Court, Bronx County (Jerry L. Crispino, J.), entered May 27, 2003, which granted defendant's motion for summary judgment and dismissed the action, unanimously reversed, on the law, without costs, the motion denied, the complaint reinstated, and the matter remanded for further proceedings.

In May of 1995, plaintiff brought an action against Skate Key Roller Rink, Inc. (Skate Key) for injuries she sustained on Skate Key's premises. At that time, defendant Tower Insurance Company of New York (Tower) insured Skate Key. In 1998, Tower advised Skate Key that it was rescinding the policy due to Skate Key's failure to pay deductibles owed on settled claims, that it would be commencing a declaratory judgment action to confirm the denial of coverage on six unresolved personal injury actions, including plaintiff's claim, and to terminate its defense of Skate Key in those actions. In 1999, Tower commenced the declaratory judgment action and sent a "Notice of Vouching-In" to plaintiff's attorney to advise plaintiff that her interests might be impaired by the outcome of the action and that she had the right to intervene in the action to protect her interests as she might be bound by any determination rendered in the matter.

A plaintiff in a separate personal injury action against Skate Key pending at the same time, Barbara Van Putten, made a motion to intervene in the declaratory judgment action, but it was denied. The denial was affirmed by this Court by order entered June 27, 2000 .  Skate Key did not appear in the declaratory judgment action, and Tower moved for a default judgment. The court (Diane A. Lebedeff, J.), referred to a referee the question of whether Skate Key's failure to reimburse Tower for its deductibles constituted a material breach. Neither plaintiff nor Skate Key appeared at the referee's hearing. After receiving testimony from Tower, the referee found that Skate Key had materially breached its contract and was entitled to rescission. In 2000, Justice Lebedeff issued a declaratory judgment confirming the referee's report, rescinding the policy, and discharging Tower from any obligation to defend or indemnify Skate Key, or to pay any damages arising from the cases then pending against Skate Key, including plaintiff's case. [*2]

In 2001, the trial of plaintiff's personal injury action against Skate Key commenced and Tower appointed counsel to defend Skate Key. Plaintiff then moved on the date of trial to disqualify Skate Key's counsel based upon Tower's disclaimer of coverage. The court (Luis A. Gonzalez, J.) granted the motion and proceeded on the same day to inquest, after which it awarded plaintiff damages in the amount of $90,000 [FN1].

On or about July 31, 2002, upon Skate Key's failure to pay the judgment, plaintiff commenced this action against Tower for the amount of the judgment pursuant to Insurance Law § 3420. Tower moved for summary judgment dismissing the complaint on the grounds of res judicata and collateral estoppel as plaintiff had relied on the declaratory judgment in moving to disqualify Skate Key's counsel. Plaintiff opposed the motion, contending that she had no standing to participate in the declaratory judgment action as established by Justice Lebedeff's order regarding Ms. Van Putten and this Court's subsequent affirmance of that order.

The court found, citing D'Arata v New York Central Mutual Fire Insurance Company, 76 NY2d 659, 665 [1990], that when a plaintiff maintains a direct action against an insurer pursuant to Insurance Law § 3420, it "stands in the shoes" of the insured and can have no greater rights than the insured. The court thus concluded that an inevitable consequence of plaintiff's election to proceed directly against Tower was that she was in legal privity with Skate Key for the purpose of a collateral estoppel analysis. Furthermore, because Justice Lebedeff had already determined that Tower was not obligated to defend, indemnify or pay damages to any party, Tower's motion must be granted as the court was without jurisdiction or authority to reverse or alter those findings.

It is well established that a creditor has no greater rights than that of the insured by proceeding directly against an insurer under § 3420 as the plaintiff is a subrogee of the insured's rights and is subject to whatever rules of estoppel would apply to the insured (D'Arata v New York Central Mutual, 76 NY2d at 665). Moreover, "a judgment in a prior action is binding not only on the parties to that action, but on those in privity with them" (Green, et al. v Santa Fe Industries., et al., 70 NY2d 244, 253 [1987]). In this case, however, neither collateral estoppel nor res judicata apply as the declaratory judgment resulted from Skate Key's default and there is no legal privity between plaintiff and Skate Key.

Collateral estoppel is a component of the broader concept of res judicata, wherein the parties to a litigation and those in privity with them are conclusively bound by a judgment on the merits by a court of competent jurisdiction regarding issues of fact and questions of law necessarily decided therein in any subsequent action (Gramatan Home Investors Corp. v Lopez, et al., 46 NY2d 481, 485 [1979]). In order to invoke the doctrine of collateral estoppel, two prongs must be satisfied: (1) the identical issue was necessarily decided in the prior proceeding and is decisive of the present action; and (2) there was a full and fair opportunity to contest that issue in the prior proceeding (D'Arata v New York Central Mutual Fire Insurance Company, 76 NY2d at 665-666). Central, therefore, to the inquiry is the concept of privity. "[P]rivity is an amorphous term not susceptible to ease of application" (Gramatan Home Investors Corp. v Lopez, et al., 46 NY2d at 486).

In the instant case, the concept of privity cannot be applied in any fair manner to plaintiff [*3]and Skate Key because while Skate Key had an opportunity to contest the declaratory judgment, its subrogees were prohibited from doing so. Indeed, Ms. Van Putten was specifically precluded from intervening by the Supreme Court and such preclusion was affirmed by this Court. It is axiomatic that plaintiff would also have been unsuccessful in any attempt to intervene and protect her rights. Furthermore, plaintiff had no ability to appeal the declaratory judgment determination as plaintiff was not aggrieved by the court's order (see Augustine v Sugrue, et al., 8 AD3d 517, 518 [2004]). Thus, under the peculiar posture of the history of this case, plaintiff, by law, cannot be considered to be in privity with Skate Key. Without such privity, the judgment in the declaratory action cannot be binding on plaintiff (Green, et al. v Santa Fe Industries., et al., 70 NY2d at 253).

In addition, "[t]he question as to whether a party had a full and fair opportunity to litigate a prior determination involves a practical inquiry into the realities of litigation" (Singleton Management, Inc. v Shakim Compere, 243 AD2d 213, 217 [1998]). The matter of Tower's coverage of Skate Key has not been specifically litigated because Skate Key defaulted in the declaratory judgment action (see Kaufman v Eli Lilly and Company, et al., 65 NY2d 449, 456-457 [1985]). While there was a hearing before a referee, it was necessarily one-sided as no one appeared for Skate Key and no party was allowed to intervene. As there was no actual litigation regarding this issue, there is no identity of issues between the present action and the prior determination in the declaratory judgment action (id. at 456). Thus, preclusive effect cannot be given to the prior determination and the court erred in finding that the declaratory judgment barred the plaintiff's action against Tower.

 

Amber Lee Lamana, Plaintiff-Respondent,

v

Joseph Jankowski, Defendant, Diakite Ousseine, et al., Defendants-Appellants. [And Other Actions]






Camacho Mauro Mulholland, LLP, New York (Andrea Sacco
Camacho of counsel), for appellants.
Pollack Pollack Isaac & DeCicco, New York (Brian J. Isaac of
counsel), for respondent.

Judgment, Supreme Court, Bronx County (Albert J. Emanuelli, J.), entered on or about October 7, 2003, which, following a jury verdict in plaintiff's favor, awarded her a total of $600,000 for past and future pain and suffering, plus interest, costs and disbursements, unanimously reversed, on the law, without costs, and the matter remanded for a new trial.

Plaintiff was the front seat passenger in an automobile that collided with a truck driven by defendant Diakite Ousseine and owned by defendant France Croissant, Ltd. Although plaintiff was wearing a seatbelt, she sustained injuries when three airbags deployed upon impact and struck her in the face. Plaintiff was removed from the car by EMS and taken by ambulance to St. Vincent's Hospital. Upon arrival at the hospital, she complained that she was unable to see out of her right eye. She remained in the hospital for 10 days and was treated by various doctors from the ophthalmology and neuro-ophthalmology departments. Doctors confirmed that plaintiff's right pupil was dilated and fixed, and they observed bruising on her upper eyelid and blood in the anterior chamber of the eye.

Plaintiff testified at trial that, since the accident, she can only see shades of grey and black from her right eye. Plaintiff also testified that she has problems with depth perception, and that she often hits her head with doors and cabinets. She also has difficulty driving and walking down steps.

Dr. Medow, an ophthalmologist, testified on plaintiff's behalf. Dr. Medow examined plaintiff twice, and he related that when asked to read the visual acuity chart with her right eye, plaintiff was unable to do so. However, further examination revealed that plaintiff did have light perception in that eye. Dr. Medow also described a number of other objective tests that he conducted, as a result of which he concluded that plaintiff had several tears in her right papillary sphincter muscle which caused permanent enlargement of the pupil and dense vision loss. A [*2]positive result on a test called the swinging flashlight test indicated optic nerve damage. Dr. Medow also found tears in the muscle that closed plaintiff's right pupil, which, he opined, would not heal. He testified that plaintiff suffered a significant limitation of use of a body function or system, in that the vision in the right eye functioned at less than 50%, depriving plaintiff of binocularity. He also opined that plaintiff sustained a permanent consequential limitation of use of a body system or organ because plaintiff will not regain vision in the injured eye.

Dr. Head, a neurologist, testified for the defense. He stated that he examined plaintiff and found that her right pupil was fixed at three millimeters. He also observed that plaintiff's right eye did not respond to light. Dr. Head examined the right eye with a funduscope and found "optic pallor," which he described as "lightness in the eye that should not be there." He diagnosed plaintiff with optic neuropathy of the right eye or damage to the optic nerve. However, after reviewing another doctor's report containing normal results from a "visual evoked response test," Dr. Head changed his diagnosis to "no optic nerve pathway abnormality and no actual loss of vision" in the right eye. He opined that if a person has a fixed dilated pupil but no damage to the optic nerve, her vision would not be impaired. He also suggested that plaintiff's alleged vision loss might have had a "non-organic" component, or may have been feigned.

Dr. Schutz, an ophthalmologist, also testified for the defense. After examining plaintiff and reviewing her hospital records, he diagnosed her with probable traumatic optic neuropathy. He opined that tears and bleeding which he observed in the iris had caused small microscopic ruptures of the sphincter muscle, which is the muscle that closes the pupil. Dr. Schutz found no evidence of any optic nerve injury. He concluded that there was injury to the iris of the eye that caused bleeding in the anterior chamber, but no damage to the lens, vitreous retina or optic nerve. He also opined that the fixed pupil would not have affected plaintiff's vision, which was essentially normal. However, Dr. Schutz stated that plaintiff's fixed right pupil could cause her to experience sensitivity to light or glare.

At the close of evidence, defendants moved for a directed verdict on the ground that plaintiff had not suffered a "serious injury" under Insurance Law § 5102(d). The trial court denied the motion. Subsequent to summations, during the pre-charge conference, the court ruled that plaintiff had met the Insurance Law § 5102 threshold as a matter of law, and it determined to submit only the issues of liability and damages to the jury. A verdict was rendered finding that defendants were negligent and that such negligence had been a substantial factor in causing the accident, for which defendants bore 60% responsibility. Plaintiff was awarded $300,000 for her past pain and suffering and $300,000 for future pain and suffering over 50 years. Defendants Diakite Ousseine and France Croissant Ltd. appeal. We reverse.

Insurance Law § 5102, commonly referred to as the "No-Fault Law," provides that in order for a victim of an automobile accident to bring an action for "non-economic loss," i.e., pain and suffering, he or she must demonstrate "serious injury," defined by Insurance Law § 5102(d) as:

"a personal injury which results in death; dismemberment; significant disfigurement; a fracture; loss of a fetus; permanent loss of use of a body organ, member, function or system; permanent consequential limitation of use of a body organ or member; significant limitation of use of a body function or system; or a medically determined injury or impairment of a non-permanent [*3]nature which prevents the injured person from performing substantially all of the material acts which constitute such person's usual and customary daily activities for not less than ninety days during the one hundred eighty days immediately following the occurrence of the injury or impairment."


Plaintiff's evidence sought to establish that the injury to her right eye fell within either of two categories. She first alleged that she suffered a "significant limitation of use of a body function or system" because her right eye functioned at less than 50%, essentially depriving her of binocularity. Plaintiff alternatively asserted that she has "permanent consequential limitation of use of a body organ or member" based upon the evidence that she will never regain vision in the affected eye. Defendants' evidence contradicted the existence, the degree and the alleged permanency of the injuries.

Given that plaintiff did not move for a directed verdict on the question of whether the threshold showing of serious injury had been met (see Miller v Miller, 68 NY2d 871 [1986] [failure to move for directed verdict considered concession of jury issue on serious injury question]), and the conflicting evidence as to plaintiff's injuries adduced at trial, the trial court usurped the province of the jury in determining that plaintiff had met the Insurance Law § 5102 threshold as a matter of law (see Young v Gould, 298 AD2d 287 [2002]; Noble v Ackerman, 252 AD2d 392, 395 [1998]; Cooper-Fry v Kolket, 245 AD2d 846 [1997]; Reynolds v Burghezi, 227 AD2d 941, 942 [1996] ["the existence of a serious injury is generally a matter for jury determination"]). Plaintiff's evidence as to injury to the optic nerve in her right eye was not unimpeached, and conflicting evidence was also presented as to the degree and permanency of the impairment of her vision as a result of the accident. Accordingly, we reverse the judgment appealed and remand the matter for a new trial.

THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: DECEMBER 14, 2004

CLERK

Roland Blackwell, et al., Plaintiffs-Respondents,

v

Damien O. Fraser, Defendant-Appellant, John Doe, et al., Defendants.






Law Office of Robert P. Tusa, Yonkers (David Holmes of
counsel), for appellant.

Order, Supreme Court, Bronx County (Janice Bowman, J.), entered June 18, 2003, which denied defendant's motion for summary judgment dismissing the complaint on the ground that plaintiff failed to meet the serious injury threshold of Insurance Law § 5102(d), unanimously reversed, on the law, without costs, and the motion granted. The Clerk is directed to enter judgment in favor of defendant Fraser dismissing the complaint as against him.

Plaintiffs commenced this action in July 2002 for personal injuries allegedly sustained in a motor vehicle accident on December 24, 1999. Defendant, in support of his motion for summary judgment dismissing the complaint, submitted medical records documenting plaintiffs' physical complaints, diagnoses and treatment following the December 1999 accident and medical records documenting plaintiffs' complaints, diagnoses and treatment following a motor vehicle accident in April 1999, eight months before the accident that gave rise to the instant action. Together, these records establish that, regardless of whether plaintiffs' injuries resulted in permanent loss of use or permanent consequential limitation of use of a body organ, member or function, or impairment in their daily activities for 90 days in the 180-day period following the accident, they were not caused by the December 1999 accident.

The records reflect that plaintiffs' physical conditions allegedly resulting from the December 1999 accident had first been observed after the April 1999 accident. Dr. Joseph Macy affirmed that the April 1999 MRIs of plaintiff Roland Blackwell's cervical and lumbar spines show evidence of the condition that Roland alleged was a result of the December 1999 accident. Moreover, according to Dr. Macy, the findings on the MRIs of Roland's cervical and lumbar spines taken after the December 1999 accident were "identical" to the findings on the MRIs taken after the April 1999 accident. Similarly, Dr. Macy affirmed that the April 1999 MRI of Elissa's cervical spine shows evidence of the condition that Elissa alleged was a result of the December 1999 accident.

Plaintiffs' submissions in response to defendant's motion for summary judgment are insufficient to raise a triable issue of fact. They utterly fail to address the evidence submitted by defendant that demonstrates that plaintiffs' injuries pre-date their December 1999 accident by at least eight months. As the affirmations reflect, the physicians who examined plaintiffs or [*2]reviewed their records after the December 1999 accident obtained histories from plaintiffs that either omitted the April 1999 accident and the injuries alleged to have resulted therefrom or represented that those injuries had been resolved before December 1999 (see Franchini v Palmieri, 1 NY3d 536 [2003] [submissions that fail to adequately address preexisting medical conditions insufficient to defeat summary judgment]).

Moreover, in their own affidavits, plaintiffs aver, in direct contradiction to the above-discussed medical records, that before the December 1999 accident they had no problems with their necks or backs. Like the incomplete histories they gave their physicians, plaintiffs' affidavits are undeniably untruthful and
are insufficient to raise a triable issue of fact (see Perez v Bronx Park S. Assoc., 285 AD2d 402, 404 [2001], lv denied 97 NY2d 610 [2002] [self-serving affidavits clearly tailored to feign factual issues insufficient to defeat summary judgment]).

THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: DECEMBER 14, 2004

CLERK

A.B. MEDICAL SERVICES PLLC DANIEL KIM'S ACUPUNCTURE P.C ROYALTON CHIROPRACTIC P.C. a/a/o Raymond Colon, Appellants, —

against

NATIONWIDE MUTUAL INSURANCE COMPANY, Respondent. —————————————————————————————————————————————-x

 

Appeal by plaintiffs from so much of an order of the Civil Court, Kings County (S. Hinds-Radix, J.), entered on August 7, 2003, as denied their motion for summary judgment.

 

Order insofar as appealed from unanimously affirmed without costs.

In this action to recover assigned no-fault benefits, plaintiffs submitted the affidavit of David Safir, wherein he states that he is the "practice and medical billing manager of plaintiff." The affidavit is insufficient to establish that plaintiffs provided defendant with properly completed claim forms (see A.B. Med. Servs. v Allstate Ins. Co., 3 Misc 3d 129 [A], 2004 NY Slip Op 50373 [U] [App Term, 2d & 11th Jud Dists]). Accordingly, plaintiffs failed to establish a prima facie entitlement to no-fault benefits and their motion for summary judgment was properly denied.

We note that the trial court denied plaintiffs' motion for summary judgment on the ground that plaintiffs did not submit admissible proof authenticating the signature of plaintiffs' assignor on the assignment form. The insurance regulations, however, do not require that a claimant's signature be authenticated. Pursuant to the insurance regulations, a health care provider is only required to submit to the insurer a "properly executed assignment" on (1) the [*2]prescribed verification of treatment by the attending physician or other provider of service form (NYS form NF-3), or (2) the prescribed verification of hospital treatment form (NYS form NF-4), or the prescribed hospital facility form (NYS form NF-5), or (3) the prescribed no-fault assignment of benefits form (NYS form NF-AOB) (11 NYCRR 65-3.11 [b] [2]). A health care provider thus satisfies its burden by proof of submission of an assignment to the insurer that conforms to the regulations.

We further observe that defendant's failure to seek verification of the assignment, or to allege any deficiency in the assignment in its denial of claim form, constitutes a waiver of any defenses with respect thereto (see New York Hosp. Med. Ctr. of Queens v New York Cent. Mut. Fire Ins. Co., 8 AD3d 640 [2004]; Presbyterian Hosp. v Aetna Cas. & Sur. Co., 233 AD2d 433 [1996]; Diagnostic Rehab. Medicine Serv. PC v Travelers Ins. Co., ___ Misc 3d ___, 2004 NY Slip Op _____ [decided herewith]; Park Health Ctr. v Eveready Ins. Co., 2001 NY Slip Op [U] [App Term, 2d & 11th Jud Dists]).
Decision Date: December 10, 2004

DIAGNOSTIC REHAB. MEDICINE SERV. PC ASSIGNEE OF IRIS MAZARIEGOS v. Travlers Indemnity Company

 

Appeal by plaintiff from an order of the Civil Court, Kings County (E. Prus, J.), entered June 30, 2003, which granted defendant's motion to dismiss the complaint.

 

Order unanimously reversed without costs and defendant's motion to dismiss the complaint denied.

In this action to recover assigned no-fault benefits, the purported assignment form is signed by the claimant but does not designate a named assignee. However, defendant insurer, having failed to seek additional verification or allege any deficiency in the assignment in its denial of claim form, waived any defenses with respect thereto
(see Presbyterian Hosp. in City of N.Y. v Aetna Cas. & Sur. Co., 233 AD2d 433 [1996]; A.B. Med. Servs. v Nationwide Mut. Ins. Co., _____Misc 3d _____, 2004 NY Slip Op _____ [decided herewith]; Park Health Ctr. v Eveready Ins. Co., 2001 NY Slip Op 40665 [U] [App Term, 2d & 11th Jud Dists]; see also New York Hosp. Med. Ctr. of Queens v New York Cent. Mut. Fire Ins. Co., 8 AD3d 640 [2004]). Accordingly, defendant's motion to dismiss the complaint should [*2]have been denied. To the extent that A.B. Med. Servs. v Progressive Ins. (2003 NY Slip Op 50790 [U] [App Term, 2d & 11th Jud Dists]), may be inconsistent with our decision herein, we no longer adhere
to it.

The parties' remaining contentions are without merit or rendered academic in view of the determinations herein.
Decision Date: December 10, 2004

 

 

 

 

KING'S MEDICAL SUPPLY INC. a/a/o July Gutierrez and Niurka Guzman, Appellant,

against

NEW YORK CENTRAL MUTUAL FIRE INSURANCE COMPANY, Respondent.

 

Appeal by plaintiff from an order of the Civil Court, Kings County (R. Garson, J.), entered June 10, 2003, which granted defendant's motion to vacate an order granting plaintiff's motion for summary judgment on default and which restored the matter to the motion calendar for a determination of plaintiff's underlying motion on the merits.

 

Order unanimously reversed without costs, defendant's motion to vacate the order granting plaintiff's motion for summary judgment denied, and judgment reinstated.

In this action to recover assigned first-party no-fault benefits, after the court awarded plaintiff summary judgment upon defendant's default, defendant was obligated to establish both a reasonable excuse for its default and a meritorious defense (CPLR 5015 [a] [1]; Parker v City of New York, 272 AD2d 310 [2000]). The insurer's only defense, that each assignor failed to appear for a scheduled independent medical examination (IME), is without merit and the motion to vacate should have been denied.

Within days of each assignor's failure to appear for an IME scheduled subsequent to defendant's receipt of plaintiff's proofs of claim, defendant denied the assignee's claims. However, an assignor's failure to attend a single requested IME does not afford an insurer a valid basis to deny a no-fault claim where the insurer failed to exhaust the follow-up verification [*2]protocols, which required, inter alia, that "if any requested verification has not been supplied to the insurer 30 calendar days after the original request, the insurer shall, within 10 calendar days, follow up with the party from whom the verification was originally requested [with a new request]" (11 NYCRR 65.15 [e] [2] [now 15 days,11 NYCRR 65-3.5 (b)]; S & M Supply v Allstate Ins. Co., 2003 NY Slip Op 51191[U] [App Term, 2d & 11th Jud Dists] [defendant's rejection of the claim, "before plaintiff's time to produce the verification had expired, on the ground that it had not received same" was premature and ineffective]; see also 11 NYCRR 65.15 [g] [2] [iii] ["an insurer shall not issue a denial of claim form . . . prior to its receipt of verification of all of the relevant information requested . . ."]; New York Hosp. Med. Ctr. of Queens v County-Wide Ins. Co., 295 AD2d 583, 585 [2002]; Presbyterian Hosp. in City of N.Y. v Aetna Cas. & Sur. Co., 233 AD2d 431, 433 [1996]; Glassman D.C., P.C. v State Farm Mut. Auto. Ins. Co., 192 Misc 2d 264, 265 [App Term, 2d & 11th Jud Dists 2002]). As the denials otherwise interposed no substantive defense to the action, and its time to pay or deny the claims having expired (Insurance Law § 5106 [a]), defendant is precluded from interposing defenses with exceptions herein inapplicable (Amaze Med. Supply v Allstate Ins. Co., 3 Misc 3d 43, 44 [App Term, 2d & 11th Jud Dists 2004]; Amaze Med. Supply v Eagle Ins. Co., 2 Misc 3d 128[A], 2003 NY Slip Op 51701[U] [App Term, 2d & 11th Jud Dists]). Accordingly, defendant's motion should have been denied on the ground that it has failed to establish a meritorious defense warranting the vacatur of the order granted on default.
Decision Date: December 08, 2004

U.S. Underwriters Insurance Company, Respondent-Appellant v. City Club Hotel, LLC,


G.B. SMITH, J.:

The United States Court of Appeals for the Second Circuit, by two certified questions, has asked this Court to clarify whether an insured who prevails in an action brought by an insurer seeking a declaratory judgment that it has no duty to defend or indemnify the insured, may recover attorneys' fees expended in defending against the declaratory judgment action [*2]regardless of whether the insurer provided a defense to the insured. We answer that question in the affirmative.

Plaintiff, U.S. Underwriters Insurance Company, issued a commercial general liability policy for the policy period of May 15, 1999 to May 15, 2000, to defendants City Club Hotel, LLC and Shelby Realty, LLC, as named insureds, in connection with renovation work City Club was to perform on Shelby's property. On April 27, 2000, while performing the renovation work, Marek Szpakowski, a construction worker employed by City Club, fell from a scaffold and sustained serious injuries. In July 2000, U.S. Underwriters received notice of Szpakowski's claim and a copy of his counsel's letter to Shelby informing it that it might be sued. When the insurer confirmed receipt of the notice of claim, it identified City Club and Shelby as "Our Insured." In November 2000, Mr. Szpakowski and his wife brought a personal injury action in Supreme Court asserting various labor and industrial law claims against Shelby, Forthright Development, LLC and Metropolitan Hotels, LLC. A copy of the verified complaint was sent to U.S. Underwriters on or about December 13, 2000. By letter dated December 20, 2000, approximately five months after it received notice of the claim, the insurer disclaimed coverage of City Club and Shelby with respect to the claims based on the Employee Exclusion clause of the policy, but nonetheless provided Shelby a defense in the underlying action.

In September 2002, U.S. Underwriters, asserting diversity jurisdiction, brought the instant action in the United States District Court for the Southern District of New York seeking a declaratory judgment that it has no duty to defend or indemnify defendants Shelby, City Club, Forthright and Metropolitan, or their named officers. The insurer moved, and defendants subsequently cross-moved, for summary judgment. The District Court granted summary judgment to defendants on the issue of disclaimer of coverage, finding that the disclaimer was untimely as a matter of law. The court, however, denied defendants' motion to recover attorneys' fees incurred in successfully defending the declaratory judgment action, ruling that attorneys' fees were not warranted because U.S. Underwriters did not breach the duty to defend.

In its appeal to the Second Circuit, U.S. Underwriters challenged the District Court's finding that its disclaimer of coverage was untimely. Defendants challenged the denial of attorneys' fees. The Second Circuit affirmed and held that U.S. Underwriters' disclaimer of coverage as to Shelby, Forthright and Metropolitan was untimely as a matter of law; that U.S. Underwriters is obliged to defend and indemnify Shelby in the underlying action; and that the complaint against defendants City Club and the named officers must be dismissed as these parties do not seek coverage under the policy. As to whether attorneys' fees can be awarded to defendants, the Second Circuit noted a division in interpreting the relevant law and certified the [*3]following two questions to this Court:

 

    "1. Whether, in a case in which an insurance company has brought a declaratory judgment action to determine that it does not have obligations under the policy but has defended in the underlying suit, a defendant prevailing in the declaratory judgment action should be awarded attorneys' fees expended in defending against that action?"
           
            "2. Whether, in the special circumstances of this case, attorneys' fees should be awarded to one or more of the defendants?" (369 F3d 102, 113 [2d Cir 2004].)

 

We accepted certification (2 NY3d 787 [2004]) and now answer the first question in the affirmative as to Shelby, a named insured under the policy. Since it is not clear what is meant by the "special circumstances of this case,"[FN1] we decline to answer the second question, concluding it is more appropriate for the District Court or the Second Circuit to resolve this issue.

It is well settled in New York that a prevailing party may not recover attorneys' fees from the losing party except where authorized by statute, agreement or court rule (see Chapel, et al. v Mitchell, et al., 84 NY2d 345, 348-49 [1994], quoting Hooper Associates, Ltd. v AGS Computers, Inc., 74 NY2d 487, 491 [1989]; Mighty Midgets, Inc. v Centennial Insurance Company, 47 NY2d 12, 21-22 [1979]). However, an insured who is "cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations," and who prevails on the merits, may recover attorneys' fees incurred in defending against the insurer's action (Mighty Midgets, 47 NY2d at 21). The reasoning behind Mighty Midgets is that an insurer's duty to defend an insured extends to the defense of any action arising out of the occurrence, including a defense against an insurer's declaratory judgment action.

In the instant case, it is undisputed that Shelby, a named insured under the policy, was cast in a defensive posture by U.S. Underwriters in their dispute over whether the insurer had a duty to defend and indemnify Shelby in the underlying personal injury action. Further, it is undisputed that Shelby successfully defended against the insurer's summary judgment motion and thereby prevailed in the matter.

Based on Mighty Midgets, Shelby is entitled to recover attorneys' fees. We hold that under Mighty Midgets, an insured who prevails in an action brought by an insurance company seeking a declaratory judgment that it has no duty to defend or indemnify the insured [*4]may recover attorneys' fees regardless of whether the insurer provided a defense to the insured. Given that the expenses incurred by Shelby in defending against the declaratory judgment action arose as a direct consequence of U.S. Underwriters' unsuccessful attempt to free itself of its policy obligations, Shelby is entitled to recover those expenses from the insurer. In other words, Shelby's recovery of attorneys' fees is incidental to the insurer's contractual duty to defend.

Allianz Underwriters Insurance Company, Plaintiff-Appellant,

v

Landmark Insurance Company, et al., Defendants, Underberg & Kessler, LLP, et al., Defendants-Respondents.



Order, Supreme Court, New York County (Diane S. Lebedeff, J.), entered May 8, 2003, which, to the extent appealed from, granted the cross motion of defendant Underberg & Kessler, LLP to dismiss the complaint insofar as asserted against it for failure to state a cause of action pursuant to CPLR 3211(a)(7), unanimously reversed, on the law, with costs, the motion denied and the complaint as to Underberg & Kessler, LLP reinstated.

This action arises from an underlying wrongful death action, Huthmacher, et al. v Dunlop Tire Corp., et al., commenced in Supreme Court, Erie County, by the estate of Michael D. Huthmacher, who was injured in October 1999 while performing work for his employer, defendant Nicholson & Hall (Nicholson), at premises owned by defendants Dunlop Tire Corporation and Goodyear Dunlop Tires North America, Inc. (collectively Dunlop). Huthmacher later died from his injuries.

Summary judgment was granted as to liability in the underlying wrongful death action, and a trial was held on the issue of damages only. In February 2002, the jury returned a verdict of approximately $8.6 million in plaintiffs' favor. The Appellate Division, Fourth Department, unanimously modified the judgment and granted a new trial on certain elements of damages (309 AD2d 1175 [2003]).

After the jury verdict, in August 2002, Landmark Insurance Company (Landmark) commenced a declaratory judgment action against Allianz Underwriters Insurance Company (Allianz) in Supreme Court, Erie County. In this action, Landmark sought a judgment declaring that Allianz was obligated to contribute to any award in or settlement of the underlying wrongful death action on Dunlop's behalf, as well as the costs associated with the appeal of the multi-million dollar verdict. [*2]

Three months after Landmark commenced the declaratory judgment action against Allianz in Erie County, Allianz commenced the present action in Supreme Court, New York County, against, among others, Nicholson, Dunlop, various insurance companies, including Landmark, and respondent law firm Underberg & Kessler, LLP. In this action, Allianz seeks a declaration that it is not obligated to participate in Dunlop's defense, including any appeal from the judgment in the underlying wrongful death action, or in the funding of any judgment in or settlement of the underlying action. In the alternative, Allianz alleges bad faith on the part of certain defendants and seeks monetary damages.

It is uncontested that Nicholson contractually agreed to indemnify Dunlop for any and all losses Dunlop might incur as a result of Nicholson's work at the Dunlop site. It is also uncontested that, in accordance with the contract, Nicholson named Dunlop as an additional insured on policies issued to Nicholson by General Star Indemnity Corporation (GenStar) for $1,000,000, and on an umbrella policy with Landmark for $10,000,000. Allianz provided an excess liability policy to Dunlop in the amount of $20,000,000 in excess of a self-insured retention of $3,000,000. GenStar, as primary carrier, retained respondent Underberg & Kessler, LLP (Underberg), to represent Dunlop in the underlying wrongful death action on the primary layer of coverage.

As relevant to this appeal, Allianz claims that Dunlop and Allianz repeatedly demanded that Underberg commence a third-party action against Nicholson on the ground that Nicholson was liable in the underlying wrongful death action under the Workers' Compensation Law; that Nicholson was contractually liable to Dunlop for indemnification; and that Nicholson was liable to Dunlop for common-law indemnification. However, according to Allianz, GenStar, which also insured Nicholson, was against commencing a third-party action against Nicholson. Thus, Underberg sent a letter to Dunlop's general counsel asserting that a third-party action against Nicholson would fail. Despite Dunlop's insistence to proceed, Underberg never commenced a third-party action against Nicholson.

Based on these allegations, Allianz asserts that Underberg breached its fiduciary duty by manipulating the litigation process for the benefit of GenStar and Landmark, without regard to the rights of Dunlop or Dunlop's insurer, Allianz.

After joinder of issue, a motion and several cross motions were made for various relief, including, as relevant to this appeal, Underberg's cross motion for, among other things, dismissal of the complaint as to it pursuant to CPLR 3211(a)(7) on the ground that it owed no duty to Allianz. The Supreme Court agreed and found, among other things, that Underberg owed no fiduciary duty to Allianz and that Allianz was not in privity with Underberg. Accordingly, the court dismissed the complaint as to Underberg.

We reverse. On appeal, plaintiff argues that it is entitled to maintain an action against Underberg as the equitable subrogee of Dunlop and because it was in "near privity" with Underberg.
To the extent Underberg argues that plaintiff did not specifically raise these two issues before the motion court, these are questions of law which we may address and review for the first time on appeal (see Chateau D'If Corp. v City of New York, 219 AD2d 205 [1996], lv denied 88 NY2d 811 [1996]).

It is well settled that on a motion to dismiss a complaint for failure to state a cause of action, the complaint must be construed in the light most favorable to the plaintiff and all factual allegations must be accepted as true (see 219 Broadway Corp. v Alexander's, Inc., 46 NY2d 506, [*3]509 [1979]; Great Atl. Ins. Co. v Weinstein, 125 AD2d 214 [1986]). The sole criterion on a motion to dismiss is "whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cognizable action at law a motion for dismissal will fail" (see Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1997).

Accepting plaintiff's allegations as true, we find that, contrary to the motion court's determination, the complaint states a cause of action based upon principles of equitable subrogation (see Great Atl. Ins. Co., supra; Hartford Acc. & Indem. Co. v Michigan Mut. Ins. Co., 93 AD2d 337 [1983], affd 61 NY2d 569 [1984]). Indeed, in Great Atlantic, this Court expressly permitted a suit for legal malpractice by an excess insurer against the attorneys assigned by the primary insurer to represent the insured, claiming that counsel owed a duty to the insured and to the excess insurer as the insured's equitable subrogee. Similarly, in Hartford, just as here, an action was maintained on the ground that the primary insurer and counsel had improperly failed to institute a third-party action, so as to avoid further liability for the primary insurer (see also Allstate Ins. Co. v Am. Tr. Ins. Co., 977 F Supp 197 [EDNY 1997] [given Appellate Division's recognition of an excess insurer's claim for malpractice against an insured's attorney and the general trend of New York law, district court persuaded that New York Court of Appeals would recognize cause of action by excess insurer against insured's counsel founded upon principles of equitable subrogation]). Accordingly, we do not agree that, at this early stage of the litigation and "where . . . the pleadings raise serious issues involving ethical considerations," the law forecloses plaintiff from pursuing its claim (Hartford, 93 AD2d at 344).

Underberg's contention that Allianz is not Dunlop's equitable subrogee because Allianz has not yet paid anything on the underlying judgment is unavailing. Contingent claims by subrogees have been recognized, especially where it would further judicial economy (see e.g. Krause v Am. Guar. & Liab. Ins. Co., 22 NY2d 147 [1968]; Menorah Nursing Home, Inc. v Zukov, 153 AD2d 13 [1989]).

Although the issue of equitable subrogation is dispositive of Allianz's appeal, we note as well that Allianz has alleged a "near privity" relationship, sufficient to overcome a motion to dismiss. We recognize that "absent fraud, collusion, malicious acts or other special circumstances, [a party] is not liable for professional negligence to third parties not in privity" (Block v Brecher, Fishman, Feit, Heller, Rubin & Tannenbaum, 301 AD2d 400, 401 [2003], lv denied 100 NY2d 509 [2003]). However, where the relationship is so close as to touch the bounds of privity, an action may be maintained (see State of California Pub. Empls. Retirement Sys. v Shearman & Sterling, 95 NY2d 427, 434 [2000]; Prudential Ins. Co. of Am. v Dewey, Ballantine, Bushby, Palmer & Wood, 80 NY2d 377, 382 [1992]).

In order for a relationship to approach "near" privity's borders, for the purpose of maintaining a professional negligence claim, the professional must be aware that its services will be used for a specific purpose, the plaintiff must rely upon those services, and the professional must engage in some conduct evincing some understanding of the plaintiff's reliance (see State of California Pub. Empls. Retirement Sys., supra). Here, Allianz sufficiently pleaded that Underberg knew that the insurers and excess insurer relied on its representation of Dunlop. In addition, Allianz adequately alleged Underberg understood that reliance by virtue of its continued correspondence with Allianz, in which Allianz and Dunlop insisted that a third-party action be commenced, while Underberg declined. Finally, we note that Allianz does not appeal from that part of the order which consolidated the instant action with the declaratory judgment action in Erie County and which changed venue in this action from New York County to Erie County. Thus, the reinstated claim against Underberg will be part of the consolidated action now venued in Erie County.

 In re Arbitration, etc., Lumbermens Mutual Casualty Co., Petitioner-Respondent,

v

Dorell Brooks, Respondent-Respondent, David Perea-Perea, Respondent, American Transit Insurance Co.,
Respondent-Appellant.


            Order, Supreme Court, New York County (Rosalyn Richter, J.), entered on or about August 4, 2003, which granted the petition to permanently stay an uninsured motorist arbitration on the ground that the motorist involved was insured on the date of the accident, unanimously affirmed, without costs.

Although the notice of cancellation sent by respondent American Transit Insurance Co. to its insured some five months prior to the accident was addressed in accordance with the requirements of Vehicle and Traffic Law § 313(1)(a), it was nevertheless ineffective to cancel the subject policy since it failed adequately to specify the reason for cancellation and, moreover, it appears that respondent had no valid ground for the policy's cancellation. The reason for cancellation stated in the notice was "Producer's Account Closed," and the insured was referred to Code No. 4, which stated in pertinent part: "after the issuance of the policy, . . . discovery of an act or omission, or a violation of any policy condition that substantially and materially increases the hazards insured against, and which occurred subsequent to inception of the current policy period." The notice is deficient since it does not specify the act or omission, or violation (see De Urbaez v Lumbermens Mut. Cas. Co., 68 NY2d 930[1986], reversing 116 AD2d 534 [1986] on dissenting opinion [116 AD2d at 535-538]). Indeed, it does not mention the actual reason for cancellation, which was rather, as appellant subsequently testified, that the subject policy had been procured by a brokerage that had allegedly engaged in fraudulent policy [*2]procurement practices. Even if this had been the stated ground for cancellation in the notice to the insured, it would not have been substantively adequate as a basis for terminating the policy since there was no demonstrable link between the asserted fraud and the procurement of the particular policy at issue.

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