New York Insurance Coverage Law Update

Insurers Need Not Prove Fraud To Deny No-Fault Payments To Healthcare Providers, New York Court Of Appeals Decides

After insurance companies stopped paying no-fault claims submitted by Andrew Carothers, M.D., P.C., a professional service corporation, as assignee, the PC sued the insurers. The insurers asserted that, under State Farm Mut. Auto. Ins. Co. v. Mallela, 4 N.Y.3d 313 (2005), the PC was not eligible to receive those payments because it was controlled by non-physicians. The PC countered that Mallela allowed insurers to withhold payments only where a professional corporation’s ostensible or real managers had engaged in conduct “tantamount to fraud,” which had not occurred here. The New York Court of Appeals agreed with the insurers, holding that Mallela does not require a finding of fraud for an insurer to withhold payments to a medical service corporation improperly controlled by non-physicians.  Accordingly, the Court concluded, the insurers did not have to allege or demonstrate fraudulent intent or conduct “tantamount to fraud” to be able to reject a professional corporation’s no-fault claims. [Andrew Carothers, M.D., P.C. v. Progressive Ins. Co., 2019 N.Y. Slip Op. 04643 (N.Y. June 11, 2019).]

New York Insurance Law § 3420(d)(2) Inapplicable to Risk Retention Group, New York Court Of Appeals Rules

After a general contractor was sued in a personal injury action by a subcontractor’s employee, the general contractor sought additional insured coverage under the

subcontractor’s insurance policy. The insurer – a foreign risk retention group (“RRG”) chartered in Montana and doing business in New York – disclaimed coverage. The general contractor sued the RRG, alleging that it failed to timely disclaim under New York Insurance Law § 3420(d)(2).  The New York Court of Appeals held that § 3420(d)(2) does not apply to the RRG because it does not involve a failure to promptly disclose coverage within the meaning of New York Insurance Law § 2601(a)(6) which is the statutory provision applicable to foreign RRGs. [Nadkos, Inc. v. Preferred Contractors Ins. Co. Risk Retention Group LLC, 2019 N.Y. Slip Op. 04641 (N.Y. June 11, 2019).]

First Department Rules That Insurer Does Not Have To Indemnify Contractor That Breached Cooperation Clause

After a fire damaged an apartment building in Queens, an insurer for the owner and manager of the building and an insurer for various tenants in the building paid claims of their insureds. The insurers brought subrogation actions against New Triple M. Construction Corp., whose employees allegedly caused the fire through their negligent use of a torch to perform roof repairs. Triple M’s insurer disclaimed coverage and did not defend Triple M, and the two insurers obtained default judgments. The two insurers then sued Triple M’s insurer to recover the judgments under New York Insurance Law § 3420(a)(2).  The trial court awarded nearly $3 million to the two insurers, and Triple M’s insurer appealed.  The Appellate Division, First Department, reversed.  The First Department explained that Triple M’s insurer had no duty to indemnify Triple M because Triple M breached its policy’s cooperation clause by making untruthful disclosures to its insurer when reporting the accident.  Specifically, Triple M’s employees lied to the insurer’s investigator about not having used a torch on the roof.  [Greater N.Y. Mutual Ins. Co. v. Utica First Ins. Co., 2019 N.Y. Slip Op. 04041 (1st Dep’t May 23, 2019).]

Late Notice Of Accident And Lawsuit Doom Insureds’ Bid For Coverage

A worker allegedly injured while performing repair work at a building in Lynbrook, New York, sued the building owner and tenant. Their insurer asked a New York court to declare that it had no obligation to defend or to indemnify the owner or the tenant because they did not provide notice of the accident or the worker’s underlying lawsuit until more than two years after the worker filed suit.  The insurer asserted that it was prejudiced by the delay because it was not notified until after the underlying court granted the injured worker’s motion for partial summary judgment as to liability under Labor Law § 240(1), and the action was about to proceed to trial on damages. The court granted summary judgment in favor of the insurer. The court found that notice was late as a matter of law and resulted in an “irrebuttable presumption of prejudice” under New York Insurance Law § 3420(c)(2)(B) because notice was given after the “insured’s liability had been determined”. The court also rejected the injured worker’s argument that he had acted diligently in providing prompt notice.   [Tower Ins. Co. of N.Y. v. Commissary Direct, Inc., 2019 N.Y. Slip Op. 50792(U) (Sup. Ct. N.Y. Co. May 13, 2019).]