Ins Law 3105 in the realm of no-fault? No way

Want to cancel a policy that insures against proper damage?  Material misrepresentation will do it.   A policy that of insurance that insures against death or personal injury?  3105 will not apply and all cancellations will be prospective at best.

Against this reality came the lack of reality that is SS Med. Care, PC v USAA Gen. Indem. Co., 2015 NY Slip Op 51094(U)(Civ. Ct. Kings. Co. 2015)

In this case, the Civil Court found that the law that has developed under 3105 applied to a policy of insurance insuring against personal injury or death.  This was a mistake.  Second, the Court failed to apply a fraudulent procurement theory to the facts of this case; rather, the Court applied a faulty 3105 paradigm.

“It is well settled that to establish the right to rescind an insurance policy an insurer must show that the insured made a material misrepresentation when he or she secured the policy (Interboro Ins. Co. v Fatmir, 89 AD3d 993 [2d Dept 2011], citing see Novick v Middlesex Mut. Assur. Co., 84 AD3d 1330 [2011]; Varshavskaya v Metropolitan Life Ins. Co., 68 AD3d 855, 856 [2009]; Schirmer v Penkert, 41 AD3d 688, 690 [2007]; Zilkha v Mutual Life Ins. Co. of NY, 287 AD2d 713, 714 [2001]). A misrepresentation is considered to be material only if the insurer would not have issued the policy had it known the facts misrepresented (Interboro, 89 AD2d at 994, citing see Insurance Law § 3105 [b] [1]; Novick, 84 AD3d at 1330; Varshavskaya, 68 AD3d [*3]at 856). “To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, that show it would not have issued the same policy if the correct information had been disclosed in the application” (Interboro, 89 AD3d at 994, quoting Schirmer v Penkert, 41 AD3d at 690-691).”

This is all nonsense.

An interesting case in the realm of misrepresentations

Castlepoint Ins. Co. v Jaipersaud, 2015 NY Slip Op 02839 (1st Dept. 2015)

“Thus, we are constrained to find that plaintiff is under no duty to defend or indemnify defendant insureds, in the personal injury action brought against them by defendant Fernando, notwithstanding the inherent inequity of Castlepoint’s acceptance and retention of premiums paid by defendants Jaipersauds on the premises.

Although it is unnecessary to determine whether the misrepresentation on the insurance application vitiated the policy, we note that the underwriting guidelines and the underwriter affidavit that the policy would not have been written had plaintiff known the true status of the premises sufficed for this purpose (see id.).”

Policy can be rescined under PA law; proof insufficient as to particular Assignor

Delta Diagnostic Radiology, P.C. v Infinity Group, 2014 NY Slip Op 50602(U)(App. Term 2d Dept. 2014)

The EUO was sufficient to raise an issue of fact as to the fraudulent procurement issue.  Now, you need to subpoena the assignor for trial and have the Civil Court enforce a judicial subpoena.  I feel pains even thinking about how Defendant is going to win this at trial.  This is another example of how the assignment shields the EIP from being responsible for her sins.  Without the assignment, EIP has to appear and testify pursuant to subpoena; otherwise, the complaint may very well be stricken.  CPLR 2308.  The assignment blocks a 2308 penalty and, at best, can cause a matter to be stricken from the trial calendar during discovery when Assignor dodges a subpoena.  (Total Family v. Mercury)

There is no penalty for the less than innocent medical provider who knows (or should know) that all of Infinity’s insured’s/EIP’s are seemingly involved (somehow) with PA-NY rate evasion issues.  I know this just by reading every Infinity case from this Court;  it is the same issue over and over.  So I digressed.  Here is the holding:

“Pennsylvania law gives an insurer a common law right to rescind a policy of automobile insurance (see Klopp v Keystone Ins. Cos., 528 Pa 1, 595 A2d 1 [1991]). The Pennsylvania Supreme Court has held, however, that while an automobile insurance policy may be retroactively rescinded as to an insured who has made a misrepresentation material to the acceptance of risk by the insurer, the policy may not be retroactively rescinded with respect to third parties “who are innocent of trickery, and injured through no fault of their own” (see Erie [*2]Ins. Exch. v Lake, 543 Pa 363, 375, 671 A2d 681, 687 [1996]). Although defendant, in its motion papers, set forth facts tending to demonstrate that the insured was the actual perpetrator of a fraud, and that, based on that fact, it rescinded the policy in accordance with Pennsylvania law, defendant’s submissions did not conclusively establish that plaintiff’s assignor was not an innocent third party. Consequently, defendant’s cross motion failed to make a prima facie showing of defendant’s entitlement to judgment as a matter of law.”

Material misrepresentation – via Florida law

Universal Health Chiropractic, P.C. v Infinity Prop. & Cas. Co., 2014 NY Slip Op 50350(U)(App. Term 2d Dept. 2014)

No preclusion here.

“The vehicle involved in the accident at issue was, at the time of the accident, insured by defendant under a Florida automobile insurance policy issued to plaintiff’s assignor. After an investigation into the accident revealed that the assignor had not resided at the Florida address listed on her insurance application and that her vehicle had not been garaged at that Florida address, defendant cancelled the policy ab initio, pursuant to Florida Statutes Annotated, title 37, § 627.409, which permits retroactive cancellation of an insurance contract if there has been a material misrepresentation in an application for insurance”

“Under Florida law, in order to show that it voided a motor vehicle policy ab initio, pursuant to Florida Statutes Annotated, title 37, § 627.409, an insurer must demonstrate that it gave notice of the rescission to the insured and that it returned or tendered all premiums paid within a reasonable time after the discovery of the grounds for avoiding the policy”

What would have happened had it not been the assignor who committed the material misrepresentation in the procurement?  The general deemer statute would have probably been effective and carrier would have had to pay benefits.

Fraudulent procurement and preclusuion

Doctrinally, a fraudulent procurement defense should not be bound by the 30-day pay or deny rule.  This is so since the Appellate Division in Kaplun specifically held that an insurance carrier can seek recompense from an EIP for monies paid out due to this fraud and, therefore, the defense can be raised at an time.   Contrariwise, the Court instructed us in Cornell Medical that an unjust enrichment cannot lie if the defense is precludable.   GMAC was an aberrant act and the “preclusion” appeared to be more dicta than anything else.

Great Health Care Chiropractic, P.C. v Hanover Ins. Co., 2014 NY Slip Op 50359(U)

“With respect to defendant’s motion for summary judgment, although defendant contends that, in connection with the issuance of the insurance policy at issue, plaintiff’s assignor had misrepresented the state where the insured vehicle was garaged, defendant is precluded from asserting that defense in support of its motion and in opposition to plaintiff’s motion as it failed to establish that it had timely denied plaintiff’s claim on that ground (see Westchester Med. Ctr. v GMAC Ins. Co. Online, Inc., 80 AD3d 603 [2011]”

The declaratory judgment failed to name everybody

Ideal Med. Supply v Mercury Cas. Ins. Co., 2013 NY Slip Op 23068 (App. Term 1st Dept. 2013)

“Although plaintiff’s assignor was a named party in the prior action, plaintiff cannot be deemed to be in privity with its assignor, since the declaratory judgment action was commenced after the assignment”

Perhaps the concurrence is more interesting than the per curiam opinion.

(Schoenfeld, J.)

“I write separately to acknowledge that the outcome reached today does not serve to promote the purposes of this State’s no-fault law to provide a less costly, more efficient automobile accident reparation system and to ease court congestion.”

“As (now retired) Justice Golia properly recognized in closely analogous circumstances, no-fault actions do not fit squarely within the Gramatan rule, given “the unique nature and reality of the assignment of claims for first-party benefits under the Insurance Law and the no-fault regulations of this State” (Magic Recovery Med. & Surgical Supply Inc. v State Farm Auto. Ins. Co., 27 Misc 3d 67, 69 [dissenting opn][2010]). That being so, and in view of the prior Supreme Court judgment declaring that plaintiff’s assignor and the assignee-providers named as defendants in that action “are not entitled to first-party benefits” stemming from the subject motor vehicle accident due to the assignor’s “material misrepresentations in the procurement of the insurance policy,” it is not unreasonable to say that the denial of summary judgment dismissing this assignee-provider’s claim tends to exalt form over substance, delaying the seemingly inevitable dismissal of the claim until after trial. Nonetheless, on balance, I feel compelled to adhere to the rule set forth in Gramatan without a signal to the contrary from a higher appellate authority”

A primer on Florida Law

W.H.O. Acupuncture, P.C. v Infinity Prop. & Cas. Co., 2012 NY Slip Op 22142 (App. Term 2d Dept. 2012)

It was interesting to see a discussion on the nuances of Florida PIP law.  It has been under such lately, especially as they seek to crack down on perceived abuses of the law.  Putting aside the radical shift in Florida no-fault, an interesting discussion arose from the Appellate Term regarding retroactive cancellation of insurance policies.

(1) “Lawrence Sherman and Bird Waldon were involved in a motor vehicle accident in New York. Sherman, the driver, and Waldon, his passenger, were in a vehicle insured by defendant under a Florida automobile insurance policy issued to Sherman.”

(2) “Florida Statutes Annotated, title 37, § 627.409 permits the retroactive rescission of an insurance policy if there has been a material misrepresentation in an application for insurance, whereas New York prohibits such a retroactive rescission (see Vehicle and Traffic Law § 313; Matter of Eagle Ins. Co. v Singletary, 279 AD2d 56, 58 [2000]; Matter of Insurance Co. of N. Am. v Kaplun, 274 AD2d 293, 297-298 [2000]) but permits an insurer to deny benefits to a claimant who was a participant in the fraud”

(3) “In the instant case, defendant insurer seeks judgment as a matter of law, under Florida law, based upon its having validly rescinded the policy pursuant to Florida law, and not under the laws of New York, where it would have had the burden of establishing that the insured, Sherman, had fraudulently procured the policy.”

(4) “An insurer’s failure to rescind a motor vehicle policy in accordance with the statutory notice of cancellation procedures of Florida Statutes Annotated, title 37, § 627.728 does not preclude or abrogate the insurer’s ability to void the policy ab initio pursuant to Florida Statutes Annotated, title 37, § 627.409 (see United Auto. Ins. Co. v Salgado, 22 So 3d 594, 600-601 [Fla 2009]). The insurer must, however, demonstrate that it gave notice of the rescission to the insured and that it returned or tendered all premiums paid within a reasonable time after the discovery of the grounds for avoiding the policy.”

The Assignee medical provider who takes an assignment from an assignor-insured who makes a material misrepresentation in the procurement under NY law may still have no-fault benefits disclaimed.  My reading of this case is that under Florida law, all of the assignors will lose coverage, whether or not they are innocent.  Contrariwise, under New York law, the insure must prove that the other assignors conspired or aided and abetted the insured in material the misrepresentations.

From a choice of law standpoint, FL law applies because that is where the policy was issued from.

Material misrepresentation in the procurment of the insurance policy is now held to be a precludable defense

Westchester Med. Ctr. v GMAC Ins. Co. Online, Inc., 2011 NY Slip Op 00217 (2d Dept. 2011)

“Moreover, although the defendants contend that they submitted evidence showing that the plaintiff’s assignor misrepresented his state of residence in connection with the issuance of the subject insurance policy, the defendants are precluded from asserting that defense, as a result of their untimely denial of the claim (see Fair Price Med. Supply Corp. v Travelers Indem. Co., 10 NY3d 556, 564; Hospital for Joint Diseases v Travelers Prop. Cas. Ins. Co., 9 NY3d at 319; Westchester Med. Ctr. v Lincoln Gen. Ins. Co., 60 AD3d 1045, 1046-1047).”

This decision raises the question regarding whether certain other “fraudulent” acts on the assignor (or the assignee) are really coverage issues.  Are staged accidents really coverage issues?  Mallela issues?  Did Fair Price (note the above cite) change the calculus on certain issues that we thought were really coverage based?

The spreadsheet was not in admissible form?

Total Family Chiropractic v Mercury Cas. Co., 2010 NY Slip Op 51470(U)(App. Term 2d Dept. 2010)

This was another one that did not necessarily go my way.  By way of explanation, this was a complicated case, where the defense was whether plaintiff assignors made or conspired to make material misrepresentations in the procurement of the insurance policy.

The bills were delayed pending EUO’s of the assignors.  The assignors were coy about admitting that Karoy Brown resided with his soon to be bride, Crystal Franklin Brown.  There were four vehicles that were registered and owned by Crystal Franklin.  Evidence was adduced that a trailer was parked in front of the Franklin residence, which contained lawn mowers and other equipment.  Karoy alleged that he commuted from New Jersey to Patchogue to perform landscaping for a man whose name and number he could not remember.  He worked between 3-5 days per week, for 12 hours per day.  He would always go back home to New Jersey at the end of the day.  Both assignors denied using the vehicles for any commercial purposes.  Karoy had a suspended driver’s license during the relevant time period.  Also, Karoy made a pass at the court reporter after the EUO.  Thank goodness Crystal did not see that.

Evidence was also adduced that Crystal kept logs of  the jobs that were performed.  Both Assignors had cellphones.  Crystal had a lease for her place, and had a landlord.  Other material information was in existence.

The bills were delayed following the EUO in order to obtain this information.  Once obtained, a further investigation would be done, which would shed more light on this case.

Nobody ever complied with the verification requests.

Had the supplied information demonstrated that the vehicles were used for commercial purposes or that Karoy was a resident and used the vehicle, then the claims would have most likely been denied due to the making of material misrepresentations in the procurment of the insurance policy.

Dueling motions for summary judgment were made following commencement of this action.  A spreadsheet was used to log all of the pertinent dates for each bill.  This case was pre-LMK so there were tons of bills for $33.70 and $67.40 flying around out there.

The Court said the following: “In an attempt to establish that the time period in which it had to pay or deny the claims was tolled due to outstanding verification requests, defendant relied upon spreadsheets annexed to the affidavit of its claim representative. However, because the claim representative did not establish that the spreadsheets constituted evidence in admissible form (see CPLR 4518 [a]; People v Kennedy, 68 NY2d 569, 579-580 [1986]; Palisades Collection, LLC v Kedik, 67 AD3d 1329, 1330-1331 [2009]; Speirs v Not Fade Away Tie Dye Co., 236 AD2d 531 [1997]), defendant has not shown that it made timely verification requests.”

The information annexed to the spreadsheets were the dates the bills were received, verifications sent, etc.  All of this information was annexed to the motion itself.  In fact, the motion was about 1000 pages.  The spreadsheet was more or less illustrative.  I mean, I usually put a chart in my motion and put the information in the said chart.  Since there was so much information for each bill, I used a spreadsheet instead of one of my charts in this case.

The affidavit of the claims representative had the standard language that this court previously found to be sufficient to allow the entry of all of the documents into evidence.  The information in the spreadsheet was incorporated by reference.  The case the court cites, Pallisades Collection, involved an assigned credit card debt that Pallisades purchased from Discover.  Pallisades had to establish a business record foundation involving Discover’s business practices, in order to allow the entry of Discover’s data into evidence.

Here, the information was always stored and processed by Mercury.  The affidavit, after laying a foundation for the dates and form of the documents,  said that the spreadhseets annexed to the affidavit memorialized the information pertinent to the claim.  I have to disagree with the court on this one.

Anyway, the moral of the story is this.  If you have information that requires a spreadsheet, make sure you somehow incorporate the actual spreadsheet as part of the affidavit.

E.g.

“3. The following represents the claims handling in this matter:

[INSERT SPREADSHEET]

4. blah blah.

5. Facsimiles shall be deemed originals.”

On the bright side, the notice of trial was stricken so that Mercury can now search this state to find the Brown family and invite them to come in for an EBT.

Identity fraud in the procument of the insurance policy

Alexander Alperovich, M.D., P.C. v Auto One Ins. Co., 2009 NY Slip Op 51721(U)(App. Term 2d Dept. 2009)

They say many times that the devil is in the details. In this case, the defense to the payment of no-fault claims was that there was some type of misrepresentation or “fraud” in the procurement of the insurance policy. We learned last week that the Appellate Term, First Department in the misrepresentation context stated that the misrepresentations must be intentional. We also saw that settled Appellate Division case law holds that a material misrepresentation may be unintentional.

Except for the Kaplan case that was discussed awhile back, the appellate courts have not discussed the extent of third-party liability in relation to “misrepresentations” or other “fraud” in the procurement of an insurance policy.

While Plaintiff prevailed in this case, I would call this a victory for the insurance carriers. The Appellate Term has now framed the issue as to whether “plaintiff’s assignor participated in or was aware of such a fraudulent scheme.”

The defense is now proved if the carrier can show participation or awareness in the so-called scheme. Prior to this case, the standard for third-party liability appeared to be “intentional” involvement in the scheme or involvement in a “conspiracy” in relation to the scheme.