Unanimity, for the Most Part, In Broad Variety of Insurance Rulings

The past term’s insurance law decisions by the Court of Appeals generally did not involve the rather traditional slew of insurance coverage, insurance bad faith, and insurance fraud rulings that usually comprise the Court’s insurance law docket. The opinions, however, are by no means any less significant, or less interesting. Mostly rendered by a unanimous Court, the key insurance law cases it decided resolved a range of issues, from automobile insurance questions to the applicability of the statute of limitations to claims for retrospective premiums. In these rulings, the Court affirmed the Appellate Division in three cases, reversed in three, and, in one, affirmed in part and reversed in part.

No-Fault Decisions

The Court issued two decisions regarding different aspects of the No-Fault Law this past term. In October, Associate Judge Theodore T. Jones wrote the unanimous opinion for the Court in New York and Presbyterian Hospital v. Country Wide Ins. Co.[1]

The case arose after an insured was injured in a traffic accident and treated in a hospital. When the insured was discharged, he assigned his right to receive no-fault benefits to the hospital. The hospital subsequently billed the insurer and submitted a number of documents to it, including a form notifying the insurer of the accident.

The insurance carrier received these documents 40 days after the accident and denied the hospital’s claim on the ground it had not received timely notice of the accident as provided by insurance regulations that require an “eligible insured person” to give written notice to the insurer “in no event more than 30 days after the date of the accident.”^[2] I

In response, the hospital argued that it had met the regulations’ requirement that it submit written proof of claim no later than 45 days after the date health care services were rendered, and that that submission also met the notice requirement.

The Court rejected the hospital’s argument, ruling that a health care services provider, as assignee of a person injured in a motor vehicle accident, could not recover no-fault benefits by timely submitting the required proof of claim after the 30 day period had expired for providing written notice of the accident. The Court found that the “notice of accident” and “proof of claim” requirements were “independent conditions precedent” to a no-fault insurer’s liability.

About one month after the Country Wide decision, Associate Judge Robert S. Smith wrote the opinion for a unanimous Court in the term’s second no-fault case: Perl v. Meher.[3]

Under the No-Fault Law, to bring a personal injury action against a tortfeasor arising out of an automobile accident, a plaintiff must suffer a “serious injury” as defined in the Insurance Law. That issue has been addressed often by the Court[4] and has continued to inundate the Appellate Division.

Here, the Court reviewed three cases in which the Appellate Division had rejected allegations of “serious injury” as a matter of law. Although the Court acknowledged that “serious injury” claims were “still a source of significant abuse,” and that courts – including the Court of Appeals – approached claims that soft-tissue injuries satisfy the  “serious injury” threshold with “well-deserved skepticism,” it reversed two of the cases and affirmed the third.

The Court gave great weight to a physician’s specific, numerical range of motion measurements about the plaintiffs in the two cases it reversed – even though those measurements had been made well after the accidents. Indeed, the Court specifically refused to find “contemporaneous” quantitative measurements a prerequisite to recovery, declaring that such a rule “could have perverse results.”

Even though the plaintiffs will still need to prove their entitlement to recovery before a jury, the inability of the courts to grant summary judgment under the facts presented will likely provide an impetus to plaintiffs to bring more cases alleging that they have suffered “serious injury.” Such a result defeats the litigation-limiting purpose of no-fault insurance. If that were to occur, the legislature may need to address the definition of “serious injury” in order for its legislative goals to be satisfied.

Uninsured Motorist Benefits

The unanimous opinion in the Court’s third automobile insurance case, Matter of Elrac, Inc. v. Exum,[5] also was written by Judge Smith.

The case arose when an employee of Elrac, Inc., a subsidiary of Enterprise Rent-A-Car Company, was driving a car owned by Elrac in the course of his employment and was involved in an accident with another car, which was driven by a person without liability insurance. Elrac was self-insured and thus had not obtained an insurance policy to cover the car its employee was driving. The employee sought uninsured motorist benefits from Elrac.  Elrac contended that the employee was barred from recovering those benefits by the exclusivity provision of the Workers’ Compensation Law.^[6]

The Court rejected Elrac’s argument, holding that a self-insured employer whose employee was involved in an automobile accident could be liable to that employee for uninsured motorist benefits, notwithstanding that exclusivity provision. The Court found that the Workers’ Compensation statute could not be read to bar all suits to enforce contractual liabilities. It reasoned that if an employer agreed, as part of a contract with an employee, to provide life insurance or medical insurance, and if the employer breached that contract, an action to recover damages for the breach would not be barred. By the same token, the contractual claim for uninsured motorist benefits also was not barred.
Exclusions Applied

The court issued two decisions that were noteworthy because they found each of the exclusions at issue to be unambiguous and that there was no coverage.

The issue in Federal Ins. Co. v. International Business Machines Corp.[7]was whether language in an excess insurance policy extended coverage to alleged violations of the Employee Retirement Income Security Act of 1974 (“ERISA”) by the insureds, International Business Machines Corporation and the IBM Personal Pension Plan (collectively, “IBM”), acting in their capacity as the settlor of their employee benefit plans.

The case began when a class action was filed against IBM, alleging that certain amendments to benefit plans had violated ERISA provisions pertaining to age discrimination. The parties reached a settlement, which included amounts designated to cover plaintiffs’ attorneys’ fees. IBM made those payments and then sought reimbursement from its excess insurer, maintaining that the limits of the underlying policy had been exhausted.

In a unanimous opinion, by Chief Judge Jonathan Lippman, the Court explained that the policy covered violations of ERISA by an insured acting in its capacity as an ERISA fiduciary. In this case, the Court found, even if IBM were a fiduciary and even if the actions were alleged to have violated certain provisions of ERISA, IBM was not acting as an ERISA fiduciary when it took the actions that gave rise to the allegations in the underlying lawsuit. Rather, the Court concluded, it was acting as a plan settlor when it made the changes to the benefit plans that allegedly violated ERISA. The Court concluded that the policy language was not ambiguous, and it held that the insurer was entitled to summary judgment and a declaration that it was not required to indemnify IBM.

On occasion, the Court decides a case by relying on the opinion of the Appellate Division. Less frequently, it decides a case by relying on a dissenting opinion from the Appellate Division. In both situations, it is as if the Court wrote the opinion itself, and it is equivalent to a decision by the Court.

In Dzielski v. Essex Ins. Co.,^[8] the Court reversed the majority decision by the Appellate Division, Fourth Department, “for the reasons stated in the dissenting memorandum at the Appellate Division.”^[9]

Here, the plaintiff allegedly fell from a loading dock after exiting the rear door of a nightclub.  He had provided sound equipment for a band that performed at the nightclub. The nightclub’s insurer disclaimed coverage based on a “stage hand” exclusion in the policy’s “Restaurant, Bar, Tavern, Night Clubs, Fraternal and Social Clubs Endorsement.” In the Fourth Department, a three-justice majority determined that the exclusion was ambiguous and found coverage.

The dissenting opinion – which the Court of Appeals later adopted – found the exclusion to be “clear and unmistakable” and that it applied where two conditions were met: (1) the injured party was an entertainer, stage hand, crew member, independent contractor, spectator, patron, or customer who “participates in or is a part of” an athletic event, demonstration, show, competition, or contest; and (2) the injury “arises out of” such participation.

The dissent concluded that the language “participates in or is a part of” a show was not ambiguous, and that the plaintiff fell squarely within that language. Moreover, it also found, the plaintiff’s injury arose out of his participation in the show within the meaning of the exclusion, noting that, in the insurance context, the phrase “arising out of” has been broadly interpreted to mean “originating from, incident to, or having connection with.”

Additional Insured

Admiral Ins. Co. v. Joy Contractors, Inc.,[10] stemmed from the collapse of a tower crane during construction of a luxury high-rise condominium in Manhattan.Here, the excess insurer sought, among other things, to rescind the policy with respect to the coverage claims of additional insureds based on the named insured’s alleged misrepresentations in its underwriting submission. The lower courts rejected the excess insurer’s arguments, but the Court did not.

Associate Judge Susan Phillips Read, writing for a unanimous Court, accepted the excess insurer’s contentions that the lower courts’ decisions dismissing their cause of action seeking rescission of the policy as against all defendants except the named insured illogically left in place the excess policy to be enforced by the other parties even if the policy were ultimately rescinded. In effect, these other parties would be permitted to rely on the terms of a policy that might be deemed never to have existed to create coverage in the first place. The Court made clear that “additional” insureds must exist in addition to something; namely, the named insureds in a valid existing policy.

Dissent

The one insurance case that divided the Court was Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co.,[11] a 4-3 decision.

The policyholder, an auto parts distributor with operations in multiple states, secured general liability, automotive liability, and Workers’ Compensation policies from the defendant insurers for annual coverage periods between September 1992 and September 2003. The policies provided for the regular adjustment of premiums based on actual claims experience.

Although the contractual relationship between the parties began in the early 1990s, it was not until 2005 and 2006 when the insurers discovered that they had not billed the policyholder for the additional premiums to which they believed they were entitled. The policyholder did not pay the amounts requested, and the dispute reached the Court.

The insurers argued that their claims seeking all of the amounts billed were timely because the six year statute of limitations did not begin to run until 2005 and 2006, when they demanded payment and the policyholder refused to pay. The policyholder countered that the statute had begun to run much earlier, when the insurers possessed the right to demand payment for the various amounts owed, such that any debts that arose before May 2000 (six years prior to the commencement of the lawsuit) were untimely.

The majority opinion, by Associate Judge Victoria A. Graffeo, relied on Appellate Division cases that have held that, where a claim was for payment of a sum of money allegedly owed pursuant to a contract, the cause of action accrued when the party making the claim possessed the legal right to demand payment. Put simply, the majority continued, the statute of limitations in these cases was triggered when the party that was owed money had the right to demand payment, not when it actually made the demand.

The majority then agreed with the policyholder that it was reasonable to apply this accrual principle to its insurance contracts. Accordingly, the majority concluded that the statute of limitations on the insurers’ claims began to run when they acquired the right to demand payment of the various amounts owed under the policies. Hence, the majority concluded, any debts for which the insurers had the legal right to demand payment prior to May 2000, i.e., more than six years before the commencement of the litigation, were time-barred.

Judge Read wrote the dissenting opinion, declaring that courts have “uniformly concluded” that the statute of limitations for a claim for unpaid premiums calculated on the basis of claims history did not accrue until the insured refused payment after demand had been made by the insurer. Whether the majority’s decision changes what has been New York law or puts New York in an outlier position depends, perhaps, on one’s point of view. Certainly, however, the decision is noteworthy for both insurers and policyholders involved in policies that provide for premium adjustments based on claims history.

Reprinted with permission from the August 27, 2012 issue of the New York Law Journal.  All rights reserved.