Key Takeaway
New York court rejects insurance company's policy exhaustion defense, ruling that paying other claims after denying specific ones doesn't warrant dismissal.
Insurance companies sometimes attempt to escape liability by claiming their policy limits have been exhausted through payments to other claimants. This defense strategy becomes particularly complex in New York no-fault insurance law cases, where insurers must navigate specific regulatory requirements while managing multiple claims against the same policy.
The timing of when an insurer pays claims versus when it denies them can significantly impact the validity of a policy exhaustion defense. Courts have consistently scrutinized insurers’ attempts to use this defense, especially when the sequence of payments and denials raises questions about the insurer’s good faith obligations.
Jason Tenenbaum’s Analysis:
S.O.V. Acupuncture, P.C. v State Farm Mut. Auto. Ins. Co., 2020 NY Slip Op 51365(U)(App. Term 2d Dept. 2020)
“In support of its motion, defendant alleged that, after it had partially denied the claims that are the subject of this action, it paid other claims and that those subsequent payments had exhausted the available coverage. However, even if true, this allegation does not warrant summary judgment dismissing the complaint on the basis of an exhaustion of available coverage defense (see 11 NYCRR 65-3.15; Alleviation Med. Servs., P.C. v Allstate Ins. Co., 55 Misc 3d 44 ; see also Nyack Hosp. v General Motors Acceptance Corp., 8 NY3d 294 ).”
This was before the affirmance of Alleviation, which says a lot of nothing.
Key Takeaway
The court rejected State Farm’s policy exhaustion defense, emphasizing that paying other claims after denying the plaintiff’s specific claims does not automatically justify dismissal. This ruling reinforces that insurers cannot strategically exhaust policy limits to avoid paying previously denied but potentially valid claims, maintaining protections for healthcare providers in no-fault cases.
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