A limited collateral attack on an arbitration award is upheld

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.

Policy limit defense is preserved when payments are compelled that might bring the payments over the policy limit

St. Barnabas Hosp. v Country Wide Ins. Co., 2010 NY Slip Op 09121 (2d Dept. 2010)

Now this is an interesting one, and is quite hypertechnical in practice.  Here is the pertinent part of the holding:

“[s]ince the only issues decided in connection with the motion for summary judgment on its cause of action to recover no-fault medical payments were the questions of whether the defendant had failed to pay or deny the relevant claim within the statutory time frame, and whether the defendant had received verification of that claim, the defendant is not collaterally estopped from seeking to modify the amount of the judgment that was in satisfaction of the plaintiff’s claim, based upon the contention that the policy limits have been partially exhausted”

The best way of understanding this issue is to assume the following:

1. $50,000 policy

2. Bill in the amount of $45,000 denied on lack of medical necessity received 8/1/10

3. Bill in the amount of $30,000 denied on lack medical necessity received 9/1/10

Defendant goes to trial and loses the $30,000 bill on 10/1/10 and loses.  Defendant then goes to trial on $45,000 bill and loses on 11/1/10.

According to this case, Defendant may now move for partial summary judgment on the $30,000 bill to the extent of reducing its liability to $5,000 (the policy limits).

Try this hypothetical.  Bill #1 is $50,000, and assume same facts.  Defendant after losing at trial on the $30,000 bill may now move for summary judgment to dismiss the complaint!  Of course, many might be saying that Defendant should have moved at trial or through motion practice to dismiss the $30,000 bill based upon the policy exhaustion defense.  Yet, it may happen that a decision on the $50,000 bill was pending when the $45,000 bill went to trial.  The carrier thought they could win both.  Oops.

Now, I have another hypothetical, but I am not going to share that on here, since I am going to test it out first.  I cannot give away all my secrets on this blog.