Six Rulings Range From Asbestos Claims to No-Fault ReimbursementAugust 22, 2016 |
The six significant insurance law decisions issued this past term by the New York Court of Appeals covered a wide range of issues. Five of the cases were decided by a unanimous Court, with a dissent (by Judge Eugene M. Fahey) occurring only in one.1 Four different judges wrote an opinion for the Court (Judge Leslie E. Stein wrote two; one case was decided in a memorandum decision). Neither of the two newest members of the Court (Chief Judge Janet DiFiore and Judge Michael J. Garcia) wrote an opinion, but they concurred with the majority in every case in which they participated.
Two decisions were pro-insurance carrier2 and two were pro-policyholder.3 In one case,4 the Court decided one issue in favor of insurance companies and a second issue in favor of insureds. In the final case,5 the Court ruled in favor of an automobile insurer and against a health insurer.
New York’s no-fault law requires that automobile insurers must provide up to $50,000 of coverage for an insured’s “basic economic loss.” The law authorizes the chair of the state’s Workers’ Compensation Board and the superintendent of the Department of Financial Services (DFS) to adopt fee schedules for basic economic loss and provides that basic economic loss service charges generally may not exceed the charges permissible under that schedule. A health care provider may not “demand or request any payment in addition to the charges authorized” under the fee schedules.
The schedules include facility fees for hospitals and ambulatory surgery centers (ASC) for the use of their physical locations and related support services.
The GEICO case involved a limited liability company accredited under New York’s Public Health Law as a facility for the provision of office-based surgery (OBS) services. Its owner, a medical doctor who conducts OBS procedures on patients covered by New York’s no-fault law, billed GEICO for his professional services and separately billed for facility fees—totaling more than $1.3 million—associated with his OBS services.
The Court, in an opinion by Judge Jenny Rivera, ruled that OBS centers may not collect facility fees because they are not expressly permitted or authorized by the no-fault law or the payment schedules. To conclude otherwise, the Court said, would undermine the “obvious legislative purpose” of containing costs. Moreover, the Court declared that the legislature or the DFS is the appropriate body to make the policy determination as to whether to include OBS facility fees in the fee schedule. The Court’s conclusion means that millions of dollars of OBS facility fee claims that were pending against GEICO and other New York automobile insurers at the time of the Court’s decision will not have to be paid.
Viking Pump reached the Court on certification from the Delaware Supreme Court, which asked New York’s highest court to determine how to allocate primary and excess liability insurance coverage for two companies that had acquired pump manufacturing businesses in the 1980s that subjected them to significant potential liability in connection with asbestos exposure claims.
In particular, the Court first had to decide whether “all sums”6 or “pro rata”7 allocation applied where an excess insurance policy contained or was governed by a “non-cumulation” provision.8 Then, the Court had to determine whether “horizontal” or “vertical” exhaustion9 was required before certain upper level excess policies attached.
The Court concluded, in a decision by Judge Stein, that all sums allocation and vertical exhaustion applied in this case based on the policies’ language.
In a prior opinion, Consolidated Edison Co. of N.Y. v. Allstate Ins.,10 the Court applied pro rata allocation to claims involving environmental contamination over a number of years. In this case, the Court explained that the Con Ed decision was based solely on the language of the particular policies in issue in that case. Here, the Court reasoned that it was the “very essence of pro rata allocation” that an insurance policy limited indemnification to losses and occurrences during the policy period—meaning that no two insurance policies, unless containing overlapping or concurrent policy periods, would indemnify the same loss or occurrence. A non-cumulation clause, the Court continued, negated that premise by presupposing that two policies could be called on to indemnify the insured for the same loss or occurrence. In other words, it declared, non-cumulation clauses could “not logically be applied in a pro rata allocation.” Based on the contract language in this case, all sums allocation was the appropriate methodology.
Next, the Court observed that all of the excess policies involved in this case primarily hinged their attachment on the exhaustion of underlying policies that covered the same policy period as the overlying excess policy. The Court reasoned that vertical exhaustion was more consistent than horizontal exhaustion with this language tying attachment of the excess policies specifically to identified policies that spanned the same policy period. It also decided that vertical exhaustion was conceptually consistent with an all sums allocation, permitting the insureds to seek coverage through the layers of insurance available for a specific year.11
Judge Stein also wrote the Court’s opinion in Monarch Consulting, which involved a challenge to the validity of certain “payment agreements” entered into by an insurance company with three different California-based employers to which it had issued workers’ compensation insurance policies. The payment agreements contained arbitration clauses requiring that disputes arising out of the agreements, if not resolved internally, had to be submitted to arbitration.
After disputes arose between the insurer and the insureds and court proceedings were initiated in New York, the insurer sought to compel arbitration under the Federal Arbitration Act (FAA).
The employers challenged the arbitration provisions in the payment agreements on the ground that the insurer had not filed them with the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) in accordance with California Insurance Code §11658. In their view, the failure to file meant that the payment agreements were not enforceable under §11658. They also argued that the federal McCarran-Ferguson Act—which generally provides for the primacy of state regulation of insurance—exempted §11658 from the FAA.
The Appellate Division, First Department, agreed with the employers and decided that it would not enforce the arbitration provisions in the agreements, but the Court of Appeals reversed.
The Court observed that McCarran-Ferguson preempts laws that “invalidate, impair, or supersede” state insurance laws, but found that the FAA did not invalidate, impair, or supersede §11658 given that California law did not limit the use of arbitration clauses in insurance policies. The Court concluded that whether the insurer’s failure to file the agreements rendered the arbitration clauses unenforceable had to be determined by the arbitrators pursuant to the FAA and the parties’ agreements to arbitrate arbitrability.
Deductibles and Fees
The Selective Insurance case arose when Rensselaer County was sued in a class action after it implemented a policy of strip-searching all people who were admitted into its jail, regardless of the type of crime the person was alleged to have committed. The county sought coverage for the claims from its insurance company, Selective Insurance Company of America, which agreed to defend the county subject to the limits of the insurance policies it had issued to the county over a number of years and to the policies’ deductible.
The court approved a settlement that provided for a $5,000 payment to the named plaintiff and a $1,000 payment to the approximately 800 other class members. The settlement also set the plaintiffs’ attorney fees at $442,702.
Reprinted with permission from the August 22, 2016 issue of the New York Law Journal. © ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.