My thoughts on the DJ action in no-fault jurisprudence

Matter of AutoOne Ins. Co. v Valentine, 2010 NY Slip Op 03319 (2d Dept. 2010)

There have been many posts, both on Dave Gottlieb’s blog and on Roy Mura’s blog. I am not sure how much more insight I can give on this case, but I will let you know my thoughts on this doozie of a case.

Here are the facts, simplified for easy reading.

• Brainy (that is his real name) insured a vehicle in Pennsylvania with Rugers Casualty Insurance.  Brainy really lived in New York.
• Brainy while operating his vehicle in New York got into a car accident with Valentine
• Valentine was insured with Auto One.
• Rugters believed that Brainy insured his vehicle in PA to avoid New York no-fault rates.
• Rutgers commenced a declaratory judgment action in Pennsylvania and seeks to have the policy “void (maybe voided?) ab initio”
• Brainy was named.  Valentine was named in an advisory role only.  Auto One was never named.
• The Pennsylvania Common Pleas Court finds the policy is void ab initio, and finds that Rutgers does not have to defend or indemnify Brainy.
• The action against Valentine as discontinued without prejudice.
• Valentine now seeks SUM benefits from Auto One, since Rutgers has obtained a successful disclaimer, or so Rugters thought.
• Auto One moved to stay the arbitration and named Valentine and Rutgers as proposed additional parties.

Holding #1: “Here, although the petition to stay arbitration of Valentine’s claim for SUM benefits arises out of the same automobile accident as did the Pennsylvania action, the Pennsylvania court order on which Rutgers Casualty relies was not a final judgment on the merits which would be entitled to res judicata effect in this proceeding.”

Holding #2: Furthermore, the doctrine of collateral estoppel is not applicable here because the issue of whether the tortfeasor’s vehicle was insured at the time of the accident never was litigated and decided in the Pennsylvania action..  The Pennsylvania court order which determined that the tortfeasor’s policy was void ab initio was made on the default of Rodriguez.  Thus, the doctrine of collateral estoppel does not preclude the petitioner from litigating that issue in this proceeding.”

(internal citations omitted in all of the holdings).

My observations.  First, how did PA have personal jurisdiction over Valentine?  Nobody even touches that one.  A default judgment is worthless if the court that granted it did not have jurisdiction over the person.

Second, you cannot bind a party if they are not named.  We saw that in Five Boro, irrespective of the other holding in Five Boro involving “privity”.

Third, the Court of Appeals had held numerous times that a judgment on default is on the merits as to that issue.  I think the issue that bothered the Appellate Division, and rightfully so, was that Rutgers was trying to bind unnamed parties through the default of Rutger’s insured in the underlying DJ action.

Reality check time.  After reading Five Boro and this case, let us take a step back.  Put aside the procedural nuances that guided these cases, and ask yourself this question: In this case, could have Valentine and Auto One have added in the DJ action?  Would these entities have been able to offer evidence to show that Brainy did not make misrepresentations in the procurement of the insurance policy?

In Five Boro, what could Five Boro have added to the underlying DJ action?  Could Five Boro have offered evidence that the motor vehicle accidents were not intentional?

Finally, let us assume that insurance carriers cannot bring DJ actions on non coverage cases.  Let us further assume that the information regarding the viability of these defenses rests within the assignors/injured persons.  We saw in MIA Acupuncture, P.C. v. Mercury Ins. Co., 26 Misc.3d 39 (App. Term 2d Dept. 2009) that one cannot use Article 31 to compel dislosure from the Assignors.  We also know that utilizing the subpoena power over Assignors who are sometimes no more than shadow people is an exercise in futility.

Now what?  This trend in the law should concern the defense bar greatly.  I just wonder how far the courts are going to push this.