AAA is licensed to transact business in NY – and recission not allowed

When out-of-state insurance companies operate in New York, they must navigate a complex interplay between their home state’s laws and New York’s regulatory framework. The case of Flushing Traditional Acupuncture, P.C. v Auto Club Insurance Association illustrates two critical principles that govern multi-state insurance operations: personal jurisdiction through certificate of authority and the innocent third-party doctrine in no-fault insurance.

This decision addresses a recurring issue in New York no-fault litigation—insurers attempting to escape New York law by claiming they are foreign entities not subject to the state’s jurisdiction or substantive law. However, as this Appellate Term ruling makes clear, obtaining a certificate of authority to do business in New York comes with significant legal obligations, including amenability to service of process and compliance with New York’s prohibition against rescinding policies to avoid paying innocent medical providers.

Case Background

Flushing Traditional Acupuncture, a medical provider, sought payment for no-fault benefits from Auto Club Insurance Association (AAA Michigan). The insurer attempted to avoid liability by asserting it was a Michigan-domiciled company not subject to New York jurisdiction and that Michigan law—which permits broader policy rescission rights—should apply. AAA Michigan claimed it did not write policies or conduct business in New York, despite holding a New York certificate of authority.

The case presented two distinct legal questions: first, whether service of process on the Superintendent of Insurance was sufficient to establish jurisdiction over AAA Michigan; and second, whether the insurer could rescind the underlying insurance policy to avoid paying an innocent medical provider’s no-fault claims.

Court’s Decision

Flushing Traditional Acupuncture, P.C. v Auto Club Ins. Assn., AAA Mich., 2016 NY Slip Op 26125 (App. Term 2d Dept. 2016)

(1) “Despite defendant’s assertions that it does not write insurance policies or conduct business in New York, it is uncontroverted that defendant’s New York certificate of authority states that defendant is licensed to engage in specified insurance business in New York. Consequently, defendant was authorized to do business in New York State, and, pursuant to Insurance Law § 1212 (a), an insurer authorized to do business in the state must appoint the Superintendent of Insurance as its agent for service of process “in any proceeding against it on a contract delivered or issued for delivery, or on a cause of action arising, in this state” (emphasis added). Inasmuch as the cause of action in the case at bar arose in New York, we find that the service of process upon the Superintendent of Insurance was sufficient to acquire jurisdiction over defendant (see Insurance Law § 1212 ).”

(2) “Michigan law allows for the rescission of a motor vehicle insurance policy based on fraud or a material misrepresentation in the application for insurance (see Titan Ins. Co. v Hyten, 491 Mich 547, 817 NW2d 562 ; Gagnon v Citizens Ins. Co., 2013 WL 331548, *6 , app denied 494 Mich 883, 834 NW2d 503 ; Lakes States Ins. Co. v Wilson, 231 Mich App 327, 586 NW2d 113 ). However, Michigan has generally denied an insurer’s right to rescind a policy of insurance in order to avoid payment of no-fault benefits to an innocent third party”

Therefore: order of Civil Court reversed.

Legal Significance

This decision establishes important precedent in two distinct areas of insurance law. First, it clarifies that obtaining a New York certificate of authority—even for an out-of-state insurer that claims not to actively write policies in New York—creates statutory obligations under Insurance Law § 1212(a). This includes mandatory appointment of the Superintendent of Insurance as agent for service of process whenever a cause of action arises in New York, regardless of where the insurer is domiciled or where the policy was issued.

Second, the ruling reinforces the innocent third-party doctrine in choice-of-law analyses. Even though Michigan law would ordinarily apply to a Michigan-based insurer’s policy, New York courts will not permit application of foreign law when doing so would allow an insurer to avoid paying innocent medical providers who rendered services in reliance on coverage. This reflects New York’s strong public policy protecting medical providers in the no-fault system from retroactive coverage denials based on alleged misconduct by insureds.

The decision aligns with established precedent requiring insurers to honor their payment obligations to providers who had no involvement in any alleged policy fraud or misrepresentation.

Practical Implications

For insurance companies operating across state lines, this decision underscores the importance of understanding that certificates of authority carry significant legal consequences. Insurers cannot selectively invoke their foreign status to avoid New York’s jurisdiction or substantive law when those laws favor claimants. Once an insurer is authorized to do business in New York, it subjects itself to the full range of New York insurance regulations and court jurisdiction.

For medical providers, this ruling provides crucial protection against insurers attempting to deny payment through retroactive policy rescission. Providers can rely on apparent coverage when treating patients, knowing that New York law generally prohibits insurers from avoiding payment to innocent third parties even when the underlying policy may have been procured through fraud.

Practitioners representing either insurers or providers should carefully analyze choice-of-law issues in multi-state cases, recognizing that New York courts will apply New York law to protect innocent parties even when foreign law might otherwise govern the insurance contract.

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