Opinion
8389/04.
Decided March 14, 2005.
SHAYNE, DACHS, STANISCHI CORKER SAUER MINEOLA, NEW YORK, Attorney for Petitioner.
JAN O. BLAU, ESQ., NEW YORK, NEW YORK, Attorney for Respondent.
Upon the foregoing papers, the petition to permanently stay arbitration is denied and the parties are directed to proceed to arbitration.
Petitioner, the Hartford Insurance Company of the Midwest (hereafter "Hartford"), moves by notice of petition for an order permanently staying an arbitration demanded by respondent Ida Lubrano on October 15, 2004. In the alternative, should a permanent stay not be granted, petitioner requests (1) a temporary stay pending a framed issue hearing on Ms. Lubrano's compliance with the policy's notice requirements, and (2) that Ms. Lubrano provide medical record authorizations and submit to an examination under oath (EUO) and physical examinations.
Respondent opposes the application to permanently stay the arbitration and alleges that medical records as well as authorizations have already been provided to petitioner. In addition, respondent maintains that Ms. Lubrano will submit to an "examination before trial" if directed by the Court. On December 17, 2004, this Court reserved decision on petitioner's motion and "So Ordered" a stipulation which (1) temporarily stayed the arbitration and (2) provided that in the event the petition is denied, the arbitration would remain stayed until the discovery demanded by petitioner is complete.
This litigation involves a claim of serious personal injuries allegedly sustained by respondent when a vehicle owned by her and insured with petitioner was involved in an accident on March 28, 2000. Respondent alleges that while heading east on the Staten Island Expressway at or near the intersection of Slosson Avenue her vehicle was rear-ended by a 1999 Mack Truck and pushed into a third vehicle. It is undisputed that the truck was owned by the Toby Hanna Corporation, that is was registered in New Jersey and that it was driven by one Fausto Navarro. (The accident report is annexed as Exhibit "D" to petitioner's papers).
It is alleged that, as a result of her prior counsel's initial inability to determine whether the Toby Hanna vehicle was insured, respondent gave petitioner written notice of claim under her SUM coverage by way of an arbitration demand served May 26, 2000 on petitioner. (Exhibit "A" to petitioner's papers). Thereafter, on or about March 1, 2001, it was determined by respondent's present counsel that the Toby Hanna vehicle was insured, whereupon petitioner's counsel and the American Arbitration Association were advised by letter dated October 11, 2001 that she was withdrawing her demand for arbitration since the Reliance Insurance Company (the tortfeasor's insurer) had come forward and interposed an answer on behalf of both the corporate defendant and Navarro in an action commenced under Richmond County Index No. 12240/2001. However, eight days before, on October 3, 2001, the Reliance Insurance Company was declared insolvent and all of the actions in which it was involved as an insurer were ordered stayed.
There is also no dispute that respondent was advised by letter dated September 24, 2003 from the New Jersey Property-Liability Guaranty Association (hereafter the "Guaranty Association"), it would be necessary for her to submit a claim under her Hartford policy before seeking coverage from the Guaranty Association on behalf of the insolvent carrier. Consequently, within less than one week, i.e., on September 30, 2003, respondent's counsel conveyed his belief to petitioner's counsel that arbitration pursuant to the previously withdrawn demand had to be rescheduled. By December 2003, it had become apparent to respondent's counsel that petitioner would not consent to arbitrate, whereupon he attempted to determine who was handling respondent's claim against the Reliance policy. There ensued a chain of correspondence, commencing on December 1, 2003 and continuing until March 25, 2004 with GAB Robbins, the entity which respondent alleges was handling that claim. When this approach failed, on June 22, 2004, respondent filed a Request for Judicial Intervention (RJI) and request for a preliminary conference in the Richmond County action originally commenced against Toby Hanna, among others. By letter dated July 1, 2004, respondent was advised by a law firm presumably assigned to defend Toby Hanna in the plenary action that respondent must first initiate arbitration against petitioner. On October 15, 2004, respondent filed a new demand for arbitration which petitioner now seeks to permanently stay . This petition was filed on October 28, 2004.
In support of its application, petitioner alleges that at no time prior to the service of the demand for arbitration dated October 15, 2004 did respondent tender a formal notice or demand for uninsured motorist arbitration based upon the insolvency of the tortfeasor's insurer. Petitioner further alleges that the extensive delay in providing such notice constituted a clear violation of the insurance policy, which required that a written notice of claim be given "as soon as practicable". (Exhibit "C" to petitioner's papers). Finally, petitioner contends that since such a breach alone vitiates coverage under the policy, it need not demonstrate prejudice to be entitled to relief. Accordingly, petitioner requests that the arbitration be permanently stayed or, in the alternative, that a framed issue hearing be conducted to determine whether respondent has complied with the policy notice requirement.
In opposition, respondent contends that petitioner was provided with timely notice, thus satisfying the policy's condition precedent. Further, assuming a second written notice to petitioner was required following receipt of the Guaranty Association's letter, it is contended that such notice was provided to the attorneys for petitioner within one week of receipt of the letter. Moreover, respondent contends that, even if the Court were to hold that the policy required service of a formal second demand for arbitration, any delay in providing the second demand was the result of the dilatory tactics employed by the representatives for Reliance, as demonstrated by the numerous documented attempts by respondent to apprise them of and obtain relief on the respondent's claim, all set in motion by the direction of petitioner's counsel to pursue that claim.
The issue of notice as a condition precedent to insurance coverage has long proved troublesome and has generated a substantial history of judicial interpretation and application. What has evolved from the foregoing is a "flexible standard" to be applied on a case-by-case basis after taking into account all of the relevant circumstances before the Court. See Mighty Midgets v. Centennial Ins. Co., 47 NY2d 12, 19, 416 NYS2d 559 (1970). As the Court of Appeals noted in Mighty Midgets, the phrase "as soon as practicable" is an elastic one and is not to be interpreted to mean immediate or even prompt notice. When the provision "as soon as practicable" is at issue, it is critical to determine whether notice was reasonable in light of the prevailing facts and circumstances. Id. at 19, 416 NYS2d at 563.
Here, it is undisputed that at no time prior to the service of the second Demand for Arbitration, dated October 15, 2004, did respondent ever file a formal notice or demand on petitioner, as opposed to its attorneys, for uninsured motorist coverage based upon the insolvency of Reliance. However, it is conceded by petitioner that respondent gave written notice of an uninsurance claim to Hartford by way of service, on or about May 26, 2000, of the first Demand for Arbitration. That Demand for Arbitration was withdrawn by letter dated October 11, 2004, (annexed to petitioner's papers as Exhibit "F"), when respondent advised the American Arbitration Association and counsel for Hartford that Reliance had acknowledged coverage and had appeared for its insured. In its subsequent disclaimer letter, dated October 5, 2004 which is annexed to petitioner's papers as Exhibit "I", petitioner states that respondent failed to notify it of the claim until "almost three (3) years after the insolvency, more than two (2) years after the Morgan decision, and almost one (1) full year after receipt of the New Jersey Property-Liability Guaranty Association letter. . . ." Petitioner seeks a permanent stay of the arbitration on the grounds of failure to give timely notice. The unstated assumption in any inquiry regarding the timeliness of notice, nevertheless, is that the notice actually given by a contracting party conformed to the requirements of the contract regarding notice. Petitioner here claims breach by the insured of her policy grounded in the contention that formal notice of a claim by respondent based on the insolvency of Reliance was untimely when given directly to petitioner on October 15, 2004. Put another way, petitioner claims that such notice was untimely because it presumes the Court will find, for example, that respondent's prior written notice of claim, dated May 22, 2000 and annexed to petitioner's papers as Exhibit "E", did not make a proper claim under the policy's SUM coverage or became a nullity when the Demand for Arbitration was withdrawn by respondent. Petitioner presumes too much.
This is a reference to American Manufacturers Mutual Insurance Company v. Morgan, 296 App. Div. 2d 491, 746 NYS2d 726 (2nd Dep't 2002), in which the Second Department noted that for purposes of supplementary uninsured motorist (SUM) coverage, a motorist is considered uninsured when its insurance carrier becomes insolvent. Nothing in Morgan, however, indicates that the damaged party is compelled at or around the point in time insolvency of the alleged tortfeasor's insurer occurs to notify its carrier of a claim under the SUM coverage. To the contrary, Morgan intended that an insured's right to recover against SUM coverage be expanded and not contracted, which is what would happen if Morgan were to be read as creating an artificial and accelerated deadline to bring a claim.
The words of the SUM endorsement to the insured's policy set the parameters for proper notice. Critically, the endorsement provides no specific form of notice. Where no particular form of proof of claim is spelled out in a policy of insurance, all that is required is notice, construed liberally in favor of the insured, "adequate to enable an insurer to consider its rights and liabilities." D.C.G. Trucking Corp. v. Zurich Insurance Co., 81 App. Div. 2d 990, 991, 440 NYS2d 74, 75 (3rd Dep't), lv. to app. den., 54 NY2d 605, 443 NYS2d 1027 (1981).
The notice, provided by the May 22, 2000 Demand for Arbitration accomplished precisely what was contemplated by the policy for at the time it was given, and continuing to March 1, 2001, according to the affirmation of petitioner's counsel at ¶ 9, respondent's counsel was unable to establish insurance coverage for the Toby Hanna vehicle. Moreover, following such notice, the SUM endorsement placed the burden on petitioner to seek by written request the details and proof of the noticed claim. Nothing in the record suggests that petitioner ever made such request. Quite to the contrary, the record is clear that in response to the insured's valid notice of claim petitioner opened a file, assigned the claim to outside counsel and prepared to deal with the demand for arbitration. After Reliance answered in respondent's lawsuit against Toby Hanna, respondent's counsel withdrew the first Demand for Arbitration by a letter dated October 11, 2001, just eight days after Reliance filed for liquidation.
Petitioner presumes that respondent's withdrawal of its first Demand for Arbitration, if it was, as the Court finds, valid notice of a SUM claim, rendered the notice of claim it had originally and simultaneously perfected a nullity. That presumption too is without basis in fact or law. There is absolutely nothing in the insured's SUM endorsement which suggests withdrawal of a demand for arbitration nullifies an otherwise valid notice of a SUM claim based on the other vehicle's lack of insurance. Nothing in the endorsement appears to require the insured to file multiple notices of claim covering different theories of recovery. Nothing in the endorsement required the SUM carrier to, or even suggested that the carrier would, close its file upon the withdrawal of a demand for arbitration where the underlying claim against the allegedly responsible party was nowhere near resolution. This is especially true here since it is inconceivable that petitioner was unaware of the Reliance insolvency when respondent withdrew its arbitration demand based on Reliance's appearance in the action against Toby Hanna, or certainly later still when petitioner actually closed its file. By its own admission, petitioner's file had been open for over 16 months following the insured's initial notice of claim and Demand for Arbitration. The initial notice gave petitioner more than adequate notice and the 16 months the file was open gave more than adequate time to enable petitioner to consider its rights and liabilities under its SUM endorsement with respect to the claim which had been spawned by Toby Hanna's apparent lack of insurance. See D.C.G. Trucking Corp., supra, 81 App. Div. 2d at 991, 440 NYS2d at 75. Further, petitioner has not identified a single request made of respondent during the first16 months its file was open that respondent failed to perform. Respondent provided in her initial Demand for Arbitration what was required of her by the policy. As a result, to the extent that there is a dispute concerning that claim, respondent is entitled to arbitration.
Petitioner argues that knowledge of the Reliance insolvency should be imputed to respondent's counsel because "[t]hat fact was well publicized and well-known to members of the personal injury bar," Moving Affirmation at ¶ 12, and that such imputed knowledge thus renders the insured's second Demand for Arbitration untimely. Just the obverse is true. If knowledge of the Reliance insolvency is imputable to the personal injury bar, as petitioner contends, then it is imputable to another liability insurance company in high relief. With knowledge of Reliance's insolvency, petitioner's decision to close the file in this matter before resolution of the underlying action is even more incomprehensible.
In any event, respondent provided more than just the initial notice of claim and Demand for Arbitration. The affirmations of the attorneys for both parties make clear that after the initial Demand for Arbitration was served on petitioner and outside counsel was assigned, all of respondent's contacts with petitioner were through petitioner's counsel until the filing of the second Demand for Arbitration on October 15, 2004. Counsel for petitioner did nothing to dissuade respondent's attorney regarding his apparent authorization to act as petitioner's attorney for all purposes. Although there is a dispute between the attorneys as to exactly what was said by them regarding the course the insurance company expected the insured to follow, it is but a sideshow. The record makes plain that less than a week after receiving the Guaranty Association's formal notification to respondent of the pending Reliance insolvency proceeding and the need to make claim under the insured's SUM coverage, respondent's attorney faxed to petitioner's attorney a letter which enclosed a copy of the notice received from the Guaranty Association and specifically requested that the previously requested arbitration be rescheduled in light of the Reliance bankruptcy. (Exhibit "1" annexed to Affirmation in Opposition). Even crediting the account of the discourse between the lawyers offered by petitioner's counsel, petitioner's response to the fax was to advise merely that counsel could not waive any notice petitioner was entitled to under the SUM endorsement. (Reply Affirmation at ¶ 6).
Petitioner's counsel avers that he told respondent's counsel on December 4, 2003 that it was necessary to file a new notice of claim based on Reliance's insolvency. Respondent's counsel denies he was given such advice and counterpoints that petitioner's counsel told him to continue to pursue his claim against Toby Hanna, which is what he did. It was only when he was advised by the attorneys for the Guaranty Association that his claim against Reliance could not be considered until he actually initiated arbitration of the claim against the SUM coverage, he says, that he actually served and filed a second Demand for Arbitration.
Simply put, respondent's counsel was entitled to treat the attorney he had dealt with for over 16 months as petitioner's counsel and rely that service upon him was service upon petitioner. Nothing presented in the SUM endorsement offered by petitioner as the basis for relief, (Exhibit "C" to the Moving Affirmation), is to the contrary. More important, in line with D.C.G. Trucking Corp., supra, the information faxed to petitioner's attorney more than satisfactorily conformed with the notice required by the terms of the SUM endorsement. At that point, petitioner was free to demand more details or proof, but did not. Since the endorsement did not set any time limit on the filing of a demand for arbitration as opposed to the notice of claim, even if a second demand for arbitration was necessary, it could not be untimely as a matter of contract. Indeed, the Court credits the explanation by counsel for respondent that the second Demand for Arbitration was filed because the Guaranty Association's position made it, practically speaking, essential and not because the SUM endorsement required it. The fact the Guaranty Association wanted a fresh demand for arbitration or whatever it took to get arbitration started is totally irrelevant to the rights and obligations of the parties under the SUM contract.
Under all permutations, respondent gave timely notice of her claim for SUM coverage. The first Demand for Arbitration was sufficient. Morgan, supra, would have allowed, but not required, respondent to seek arbitration as soon as she became aware of Reliance's insolvency. Her failure to accelerate her claim cannot forfeit coverage. And, even if it were determined by the Court, which it is not, that the SUM endorsement required a second notice of claim to the insurance company when respondent received the Guaranty Association's letter of September 24, 2003, the fax sent by respondent's counsel to petitioner's counsel on September 30, 2003 fully satisfied that obligation. To decide otherwise would exalt form over substance and disregard the norm that attorneys provide any appropriate notice to adversary counsel once retained rather than directly to an adversary's client. As a result, even standing alone, the second notice of claim based on the insolvency of Reliance is timely.
Accordingly, it is
ORDERED that the petition is denied and the parties shall proceed to arbitration after full compliance with the So Ordered Stipulation of December 17, 2004.