The failure to stay a compulsory arbitration on jurisdictional grounds precludes appellate review of the improperly arbitrated jurisdictional issue
In UM and SUM arbitration, it has been held that the failure to stay the arbitration within 20-days of the service of an intent to arbitrate waives the right to contest jurisdictional issues. We learn today that a modified rule holds true for UM arbitrations.
State Farm Mut. Auto. Ins. Co. v Statewide Ins. Co., 2010 NY Slip Op 50588(U)(App. Term 2d Dept. 2010)
“Petitioner argued that the matter was not subject to mandatory arbitration since, although the application for arbitration alleged that its insured’s vehicle weighed over 6,500 pounds, its insured’s vehicle did not weigh more than 6,500 pounds (see Insurance Law § 5105 [a]). In a judgment entered January 14, 2009, the Civil Court denied the petition and dismissed the proceeding. The instant appeal by petitioner ensued.
Since petitioner failed to apply for a stay of arbitration prior to the arbitration, it waived its claim that the matter was not arbitrable under Insurance Law § 5105 (see Matter of Liberty Mut. Ins. Co. [Allstate Ins. Co.], 234 AD2d 901 ; see also Matter of Silverman [Benmor Coats], 61 NY2d 299 ; Matter of Utica Mut. Ins. Co. v Incorporated Vil. of Floral Park, 262 AD2d 565 ). Consequently, the petition to vacate the arbitration award was properly denied.”
The one thing that we can all say about Second Department practice, whether it be at the Appellate Term or the Appellate Division, is that the decision/orders of these courts never elucidate upon the facts of a given matter. This is not necessarily a bad thing, especially when you are on the losing side of a case. But when a case has lived an interesting life, it would be nice to know what happened.
While the Appellate Division’s decision tells a different story, a review of the record of appeal in Mercury Cas. Co. v. Surgical Center at Milburn, LLC, 2009 N.Y. Slip Op. 06516 (2d Dept. 2009), shows us that this is not your every day run of the mill “default” case.
This case started as a $12,000 no-fault AAA arbitration, where the Defendant sought to recover for surgery services performed on its Assignor. Plaintiff denied the claim on the basis that the surgery was not causally related to the motor vehicle accident. In support of this defense, Plaintiff presented the report of a radiologist who, upon a review of the applicable MRI films, found that the injuries were pre-existing, degenerative and not related to the underlying motor vehicle accident.
The lower arbitrator, upon a review of the record, did not find the Plaintiff’s proof convincing and awarded Defendant the principle sum of $12,000, along with interest, costs and attorney fees. It is not uncommon these days for an insurance carrier to lose in arbitration.
Plaintiff, as would be expected, filed a master arbitral demand and perfected its master arbitral brief. Similarly, Defendant proceeded to perfect his master arbitral brief. Following due deliberation, the master arbitrator upheld the award of the lower arbitrator, finding that the award was not defective as a matter of law. This decision was probably correct.
Since the amount in controversy, however, exceeded $5,000, Plaintiff sought a trial de–novo. In this regard, a summons and complaint, fashioned as an action seeking a declaration that the surgery was not related to the motor vehicle accident, was filed with the Supreme Court and served upon Defendant. The action seeking a declaratory judgment spelled out the procedural history and the nature of the defense to the underlying no-fault claim.
Defendant failed to timely answer or move, and Plaintiff moved for leave to enter a default judgment against Defendant. Defendant opposed the motion, but failed to set forth a reasonable excuse or any evidence to support a potentially meritorious defense. All Defendant attached to his answering papers were the proofs he presented at the lower arbitration. In order to raise a potentially meritorious defense, Defendant would have had to obtain a radiology review that contradicted, point by point, Plaintiff’s own film review. As to the proof necessary to defeat a causation defense predicated upon a radiology review, please see my prior posts.
The Supreme Court denied Plaintiff’s motion. A notice of appeal was promptly filed. At the Appellate Division, Plaintiff moved to stay the Supreme Court case, pending the outcome and determination of the appeal. This motion was granted. The appeal was then perfected. Following due deliberation, the order of the Supreme Court was reversed and Plaintiff’s motion was granted. Consequently, the matter was remitted to the Supreme Court for the purpose of entering a judgment, declaring that the surgery was not causally related to the motor vehicle accident.
Here are a few thoughts. First, it would appear that the collateral estoppel consequences of this type of a decision are huge, as I have opined in previous posts. The second thing, and one of a practical matter, is that a demand for a trial de–novo, in this type of proceeding, should be commenced as a declaratory judgment type of action. There are other ways to commence a trial de-novo, but these methods are not as effective or efficient as commencing it through a declaratory judgment action.
The failure to serve a demand for master arbitral review in the manner set forth in the regulations will foreclose review of the underlying award
Matter of Progressive Northeastern Ins. Co. v Seaport Orthopedic Assn. 2009 NY Slip Op 31915(U)(Sup Ct NY Co. 2009)
In this case, a master arbitrator failed to consider the merits of the insurance carrier’s appeal since there was insufficient proof as to whether the demand for master arbitral review was sent via certified mail, return receipt requested, in accordance with 65-4.10. Petitioner commenced an Article 75 proceeding in Supreme Court, New York County, to vacate the award of the master arbitrator.
The Supreme Court confirmed the award of the master arbitrator. The Court found the following:
“Courts are reluctant to disturb the decisions of arbitrators lest the value of this
method of resolving controversies be undermined.” Goldfinger v. Linger, 68 N.Y.2d 225,230 (1986)(citations omitted). The Notice failed to set forth compliance with 11 N.Y.C.R.R. 65-4.10(d)(3) in that it failed to set forth the manner of service. There is no basis to vacate the award under CPLR § 7511. From the face of the Notice, the Master Arbitrator was within his power to hold that service was improper, and refuse to reach the merits of the decision of the lower arbitrator.”
The above rationale appears to be based upon the more deferential standard that applies to non-compulsory arbitrations, as opposed to the Article 78 standard that applies to the review of PIP arbitrations. It also appears that the Appellate Division, First Department, in Travelers Indem. Co. v. Rapid Scan Radiology, P.C., 61 A.D.3d 466 (1st Dept. 2009), already held that the failure to comply with certain service provisions in 65-4.10, is deemed de minimus, as recognized below:
“The master arbitrator did not exceed his authority and his determination was not arbitrary or capricious. As to petitioner’s claim that respondent did not comply with the filing requirements of 11 NYCRR 65-4.10 (d) (2) because it failed to state the nature of the claim and grounds for review and failed to include a copy of the lower arbitrator’s award, this was not the basis of their challenge before the master arbitrator. Further, no prejudice has been shown since the parties submitted memoranda fully apprising the master arbitrator of the issues at hand and of the lower arbitrator’s decision
While it is conceded that Rapid Scan served its request by regular mail, not certified mail as required by 11 NYCRR 65- *467 4.10 (d) (3), as the Supreme Court found, petitioner participated in the master arbitrator’s review and recognized in its own submission that the defect could be viewed as “de minimus and/or harmless.”
Hopefully, Progressive preserved the argument set forth in Rapid Scan and will appeal this decision since it is contrary to established First Department precedent.
In a very interesting case, the Appellate Division, Fourth Department held that principles of collateral estoppel do not apply in arbitration.
Matter of Falzone v New York Cent. Mut. Fire Ins. Co. 2009 NY Slip Op 05423 (4th Dept. 2009)
In this case, a Claimant initially arbitrated a no-fault claim between himself and his insurance carrier. The issue that was arbitrated involved whether Claimant’s injuries were causally related to the motor vehicle accident. A no-fault arbitrator found the injuries to be causally related to the motor vehicle accident and awarded benefits.
The Claimant after obtaining an award for no fault benefits then sought to obtain SUM benefits arising from the same loss. Accordingly, Claimant commenced a second arbitration between himself and the same carrier upon which he was awarded no-fault benefits. The insurance carrier’s defense to payment in this SUM arbitration, similar to that in the no-fault arbitration, was that there was a lack of a causal nexus between the motor vehicle accident and the alleged injuries.
Since the parties and issues to be resolved in this SUM matter were the same as that in the no-fault matter, i.e., whether the injuries were causally related to the motor vehicle accident, you would think that principles of collateral estoppel would come into play and bind the SUM arbitrator to the same decision as that of the no-fault arbitrator. As we saw in a previous post involving the matter of Lobel v. Allstate, a no-fault arbitrator’s decision on causation will collaterally estopp a party from re-litigating a previously arbitrated issue in Court. Yet, the SUM arbitrator, aware that the prior arbitrator found a causal nexus existed between the motor vehicle accident and the injuries, nonetheless ruled that there was no causal connection between the injuries and the motor vehicle accident.
An Article 75 challenge was lodged in the Supreme Court. The Supreme Court granted the petition, reversed the SUM arbitrator’s decision and properly found that the results of the no-fault arbitration collaterally estopped the parties from contesting the causal relationship between the motor vehicle accident and the injuries at the SUM arbitration. Thus, the SUM arbitratror, as a matter of law, had to find that there was a causal relationship between the motor vehicle accident and the loss. The carrier appealed and the Fourth Department surprisingly reversed the order and judgment of the Supreme Court as set forth herein:
“We agree with respondent that Supreme Court erred in granting claimant’s motion. The fact that a prior arbitration award is inconsistent with a subsequent award is not an enumerated ground in either subdivision (b) or (c) of CPLR 7511 for vacating or modifying the subsequent award (see Matter of City School Dist. of City of Tonawanda v Tonawanda Educ. Assn., 63 NY2d 846, 848). As the court properly recognized, “[i]t was within the [SUM] arbitrator’s authority to determine the preclusive effect of the prior arbitration on the instant arbitration” (Matter of Progressive N. Ins. Co. v Sentry Ins. A Mut. Co., 51 AD3d 800, 801). The court erred in noting, however, that it was unable to determine whether the SUM arbitrator even considered claimant’s contention with respect to collateral estoppel. Arbitrators are not required to provide reasons for their decisions (see Matter of Solow Bldg. Co. v Morgan Guar. Trust Co. of N.Y., 6 AD3d 356, 356-357, lv denied 3 NY3d 605, cert denied 543 US 1148; Matter of Guetta [Raxon Fabrics Corp.], 123 AD2d 40, 41), and thus the SUM arbitrator was not required to state that he had considered that contention. “
Two points need to be considered. First, the Fourth Department cites a 2007 Second Department case entitled Matter of Progressive N. Ins. Co. v Sentry Ins. A Mut. Co. for its rule of law. Yet, the Progressive case actually held that collateral estoppel should be given effect to prior arbitration awards involving the same parties and the same issue. Second, there was a two Justice dissent, which as a matter of right brings this case to the Court of Appeals.
For the sake of commonsense, this case should be reversed. Otherwise, there will be too many instances where inconsistent decisions will arise in post-ime cases, other policy violation cases and coverage cases, among others. It would be a fair assessment to say that no-fault and other first-party practitioners will not benefit from the uncertainty and some could say absurdity that this case could rein upon the arbitral process.
The law is simple: Disputes involving whether an insurance carrier in a no-fault coverage dispute is primary, secondary, or tertiary must be resolved through intercompany arbitration. This fact pattern was presented four years ago in SZ Medical, P.C. v. Lancer Ins. Co., 7 Misc.3d 86 (App. Term 2d Dept. 2005) and was again presented in M.N. Dental Diagnostics, P.C. v Government Employees Ins. Co., 2009 NY Slip Op 29266(App. Term 1st Dept. 2009).
State Farm v. Stack
2008 NY Slip Op 07651 (2d Dept. 2008)
“A no-fault arbitration tribunal twice concluded that the defendant, James Stack, was entitled to benefits arising from an automobile accident. Subsequently, the plaintiff, State Farm Automobile Insurance Company (hereinafter State Farm), commenced a de novo plenary action seeking a determination that medical expenses for Stack’s hospitalization were for a condition unrelated to the accident and that Stack failed to demonstrate his entitlement to lost earnings.”
“An insurer seeking to deny no-fault benefits on the basis that a claimant’s condition is not causally related to an accident “has the burden to come forward with proof in admissible form to establish the . . . evidentiary foundation for its belief’ that the patient’s treated condition was unrelated to his or her automobile accident” (Mount Sinai Hosp. v Triboro Coach, 263 AD2d 11, 19-20). The testimony of State Farm’s expert witness, an anesthesiologist and pain management specialist, that his opinion was based solely upon a hospital discharge summary and insurance claim form, rendered his opinion speculative and of little probative value (see Gordon v Tibulcio, 50 AD3d 460).”
“In contrast, the testimony of Stack’s expert witness, a neurologist who based his opinion upon his examination of Stack and his review of Stack’s relevant medical records, including, inter alia, CT scans and magnetic resonance imaging, and determined that Stack’s symptoms first appeared within two weeks of the accident and progressively worsened, was sufficient to establish that Stack’s condition was causally related to the accident (see Scudera v Mahbubur, 299 AD2d 535, 536).”
Comment: Another case where the Appellate Courts are loathe to sustain an insurance carrier’s proof that a service is not causally related to a motor vehicle accident.