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Can a Declaration of Non-Coverage that Arises from a Co-Defendant’s Default be Considered Collateral Estoppel Against the Appearing and Answering Defendant? November 1, 2009

State Farm Ins. Co., v. Frias, 2009 NY Slip Op 07825 (2d Dept. 2009)

Dave Gottlieb at No-Fault Paradise posted on this case, and offered his thoughts.  Here are the pertinent facts:

“Of the 10 defendants named in this action, only 3, Luccme, Urena, and Pedro Fernandez, answered the complaint, and the Supreme Court granted State Farm’s motion for leave to enter a default judgment against the other defendants…  Supreme Court entered a judgment against the defaulting defendants. The judgment declared that State Farm was not required to provide insurance coverage to the defaulting defendants because the incident of January 24, 2002, resulted from an intentional act; that, by reason of no coverage and the failure of State Farm’s insured to cooperate, State Farm was not obligated to defend or indemnify Frias or Abreu in any current or future proceeding, including the underlying action; and that State Farm was not required to pay any damages, awards, or benefits to any of the other defaulting defendants in any current or future proceedings, including the underlying action.”

“Inasmuch as State Farm initially moved for leave to enter a default judgment against the defaulting defendants only, the resulting judgment binds only those defendants, and may not be given preclusive effect to deprive Luccme and Urena, who appeared in the action, of their right to litigate the issues pertaining to coverage”

In Frias, there was no privity between the defendants.  Consequently, the Appellate Division was probably correct in its holding, when it declined to give collateral estoppel effect to the declaration of non-coverage that arose from the co-defendants’ default.

But, the real question this case raises – and one that I know will find its way to the Appellate Division soon – is whether a court would reach the same result if the non defaulting party was in privity with the defaulting party.  Why is this question raised?

Well, assume that a no-fault claimant (hereinafter “injured person”) receives treatment from a medical provider and executes an assignment of benefits in favor of the medical provider.  The injured person and the healthcare provider would be in privity of contact.   Furthermore, assume that an insurance carrier has a coverage based defense against the injured person and commences a declaratory action against the injured person and the assignee healthcare providers.

Also, assume that the injured person in the above scenario defaults, while the medical provider interposes an answer.  A default motion is then filed and a judgment is entered against the injured person, similar to that in Frias.  Similar to Frias, assume that a summary judgment motion is made against the healthcare provider based upon the injured person’s default.

Would the result be similar to Frias?

I am not sure…   I have my thoughts though…

Can a Declaration of Non-Coverage that Arises from a Co-Defendant's Default be Considered Collateral Estoppel Against the Appearing and Answering Defendant? November 1, 2009

State Farm Ins. Co., v. Frias, 2009 NY Slip Op 07825 (2d Dept. 2009)

Dave Gottlieb at No-Fault Paradise posted on this case, and offered his thoughts.  Here are the pertinent facts:

“Of the 10 defendants named in this action, only 3, Luccme, Urena, and Pedro Fernandez, answered the complaint, and the Supreme Court granted State Farm’s motion for leave to enter a default judgment against the other defendants…  Supreme Court entered a judgment against the defaulting defendants. The judgment declared that State Farm was not required to provide insurance coverage to the defaulting defendants because the incident of January 24, 2002, resulted from an intentional act; that, by reason of no coverage and the failure of State Farm’s insured to cooperate, State Farm was not obligated to defend or indemnify Frias or Abreu in any current or future proceeding, including the underlying action; and that State Farm was not required to pay any damages, awards, or benefits to any of the other defaulting defendants in any current or future proceedings, including the underlying action.”

“Inasmuch as State Farm initially moved for leave to enter a default judgment against the defaulting defendants only, the resulting judgment binds only those defendants, and may not be given preclusive effect to deprive Luccme and Urena, who appeared in the action, of their right to litigate the issues pertaining to coverage”

In Frias, there was no privity between the defendants.  Consequently, the Appellate Division was probably correct in its holding, when it declined to give collateral estoppel effect to the declaration of non-coverage that arose from the co-defendants’ default.

But, the real question this case raises – and one that I know will find its way to the Appellate Division soon – is whether a court would reach the same result if the non defaulting party was in privity with the defaulting party.  Why is this question raised?

Well, assume that a no-fault claimant (hereinafter “injured person”) receives treatment from a medical provider and executes an assignment of benefits in favor of the medical provider.  The injured person and the healthcare provider would be in privity of contact.   Furthermore, assume that an insurance carrier has a coverage based defense against the injured person and commences a declaratory action against the injured person and the assignee healthcare providers.

Also, assume that the injured person in the above scenario defaults, while the medical provider interposes an answer.  A default motion is then filed and a judgment is entered against the injured person, similar to that in Frias.  Similar to Frias, assume that a summary judgment motion is made against the healthcare provider based upon the injured person’s default.

Would the result be similar to Frias?

I am not sure…   I have my thoughts though…

The Materiality of the Mistake in the Denial Renders it Per Se Invalid October 31, 2009

St. Barnabus Hosp. v. Allstate Ins. Co., 2009 NY Slip Op 07824 (2d Dept. 2009)

“Contrary to Allstate’s contention, however, the Supreme Court properly determined that the denial of claim, which incorrectly stated the amount of the claim and gave an invalid reason for the denial

Note that this case does not really change the governing law as it relates to what is required to be stated on a denial to preserve the underlying defense.  First, there is an “and” in the holding of the decision, which denotes that multiple defects or omissions are usually required to render a denial invalid.  Second, the case clearly holds that the failure to articulate in the denial what the proffered defense was is fatal per se.

First: the “and” in the holding of this decision comes from the line of cases which held that a denial was invalid because of multiple mistakes and omissions that appeared on the face of the denial.  Those cases were cited in the decision: Nyack Hosp. v Metropolitan Prop. & Cas. Ins. Co., 16 AD3d at 565 (2d Dept. 2006); Nyack Hosp. v State Farm Mut. Auto. Ins. Co., 11 AD3d at 665 (2d Dept. 2006).

Second: the defect here involved the failure to state the correct defense.  In all areas of law, this defect in and of itself will render an otherwise timely disclaimer invalid.  This should be contrasted, however, with the situation where the denial correctly states the general reason of the defense but does not give explicit details regarding the defense. In the situation that I bolded, the denial will be deemed valid.  A.B. Medical v. Liberty Ins. Co., 39 AD3d 779 (2d Dept. 2009)(appraising the carrier of the medical necessity defense); Al Correa Neurologist, P.C. v. State Farm Ins. Co., 15 Misc.3d 140 (App. Term 1st Dept. 2009)(same).  The rule that has developed is that a denial, which does not put the medical provider on notice of what the underlying defense is, will be deemed invalid per se.

This case reinforces the two rules regarding the facial validity of denials that have developed over the last 5 years: (1) Numerous mistakes or omissions will be render the denial invalid; and (2) Failing to state the proper reason (or any reason) for denying benefits in the disclaimer will render the ensuing denial invalid per se.

For more insight on this topic, see No-Fault Paradise.

Laches may prove fatal to opposing a summary judgment motion based upon CPLR 3212 (f) October 30, 2009

Stoian v. Reed, 2009 NY Slip Op 07713 (3d Dept. 2009)

“We also reject plaintiffs’ assertion that Supreme Court abused its discretion in failing to grant them additional time with which to conduct discovery. Although the court had the discretion to permit further discovery if it found that “facts essential to justify opposition [to a motion for summary judgment] may exist but cannot then be stated” (CPLR 3212 [f])…

“[g]iven the fact that plaintiffs provide no reasonable excuse for delaying their request for additional discovery for over two years following depositions and, indeed, nearly six years after commencing this action, we find no abuse of discretion in Supreme Court’s decision to deny plaintiffs’ request (see Dalaba v City of Schenectady, 61 AD3d 1151, 1153 [2009]).”

Standing – the Defense Applied Outside the No-Fault Arena October 25, 2009

Wells Fargo Bank, N.A. v Marchione, 2009 NY Slip Op 07624 (2d Dept. 2009)

There seems to be an air of schizophrenia when the word “standing” finds its way in the Appellate Division reporter.  As I reported earlier, outside of the realm of no-fault practice, the “defense” of standing must be preserved through an affirmative defense in the answer or through a pre-answer motion.

In the newest Opinion and Order on this issue, the Appellate Division discusses the contours of the standing issue in the context of a foreclosure case.  The first line of Wells Fargo represents the issue, the holding and the rule of law, as set forth herein:  “The issue presented on this appeal is whether an assignee of a note and mortgage has standing to commence a foreclosure action prior to the date of the execution of the assignment. We hold that an assignee in such a case has no standing.”

Compare the holding in Wells Fargo to the issue of standing in the realm of no-fault litigation.  In no-fault practice, the failure to issue proper and timely additional verification requests, during the claims stage, will waive the standing defense.  As we all know, had this fact pattern occurred in the context of no-fault litigation, then the complaint would not have been dismissed.  This is true even if the affirmative defense of lack of standing is preserved in the answer.

While this case represents nothing new or earth shattering, it is just another example at how a uniform concept is interpreted in a less than uniform fashion.