Material misrepresentation?

Renelique v National Liab. & Fire Ins. Co., 2016 NY Slip Op 50254(U)(App. Term 2d Dept. 2016)

“With respect to defendant’s cross motion, “[t]he proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case” (Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]). No-fault benefits may be denied to an insured where an insurer submits evidence in admissible form showing that the insured had fraudulently procured the insurance policy (see W.H.O. Acupuncture, P.C. v Infinity Prop. & Cas. Co., 36 Misc 3d 4 [App Term, 2d, 11th & 13th Jud Dists 2012]; New Millennium Psychological Servs., P.C. v Commerce Ins. Co., 34 Misc 3d 127[A], 2011 NY Slip Op 52286[U] [App Term, 2d, 11th & 13th Jud Dists 2011]). Upon the record before us, we find that defendant failed to establish as a matter of law that plaintiff’s assignor had made material misrepresentations in order to obtain insurance at reduced premiums

The question is what is necessary regarding the type of “material misrepresentations” that are necessary to demonstrate a fraudulent procurement defense.  I also do not see any notion that the underwriting handbook has to be presented here, making this different than a 3105 misrepresentation.

Why was misrepresentation material?

Gutierrez v Tri State Consumers Ins. Co., 2015 NY Slip Op 51703(U)(App. Term 2d Dept. 2015)

“Defendant demonstrated that the assignor, who was also the insured under the insurance policy in question, had misrepresented, among other things, his use of the subject vehicle when he had submitted his application for insurance to defendant. However, defendant failed to submit sufficient evidence to establish that this misrepresentation was material”

I sense the lack of materiality flowed from the failure to indicate that this misrepresentation would have caused the premium to be greater,

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?