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A limited collateral attack on an arbitration award is upheldMarch 25, 2011

Allstate Ins. Co. v DeMoura, 2011 NY Slip Op 50430(U)(App. Term 1st Dept. 2011)

“When an insurer “has paid the full monetary limits set forth in the policy, its duties under the contract of insurance cease” (Countrywide Ins. Co. v Sawh, 272 AD2d 245 [2000]). A defense that the coverage limits of the policy have been exhausted may be asserted by an insurer despite its failure to issue a denial of the claim within the 30-day period (New York & Presby. Hosp. v Allstate Ins. Co., 12 AD3d 579 [2004]), and an arbitrator’s award directing payment in excess of the $50,000 limit of a no-fault insurance policy exceeds the arbitrator’s power and constitutes grounds for vacatur of the award (see Matter of Brijmohan v State Farm Ins. Co., 92 NY2d 821, 822 [1998]; Countrywide Ins. Co. v Sawh, 272 AD2d at 245; 11 NYCRR 65-1.1).”

This was an interesting case, and similar to a recent Second Department case,  where the Court have held that a carrier can collaterally attack an arbitration award or judgment to the limited extent of determining whether complying with the award or judgment would cause the policy to exhaust.

4 Responses

  1. slick says:

    This case reads to me as another reason plaintiffs don’t file for arbitration.

    • JT says:

      When read together with Westchester v. Lincoln (which I did not post yet), you are correct in that limited sense. I would probably file policy violation cases in arbitration in light of Unitrin v. Bayshore.

  2. JM says:

    I couldn’t find the underlying arbitration award for this case. I wanted to know if the carrier interposed that defense at the time of the hearing or if its claims realized it screwed up after it got the award. If that’s the case, then I’d definitely agree with slick.

  3. AB says:

    The arbitration award is at https://nysinsurance.adr.org/viewaward?awardId=86045

    As expected the coverage limit defense was not brought up at arbitration and the award was affirmed at Master Arbitration. I’m not sure what issues Master Arbitrator considered. Is there a way to pull up Master Arb awards?

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