Fourth Department dismissed plaintiffs’ conclusory allegations of bad faith and alleged late disclaimer in a property damage case, and plaintiffs’ demand for punitive damages in connection with a withdrawn claim.

Plaintiff homeowners sued their homeowner-insurer Allstate for its denying and disclaiming plaintiffs’ property-damage claim.  After answering plaintiff’s complaint, Allstate moved to dismiss, under CPLR 3211(a)(7) (failure to state a cause of action), three of plaintiffs’ causes of action: for bad faith, for unfair claims practices, and for late disclaimer plus plaintiffs’  demand for punitive damages in connection with the bad-faith and unfair-claims-practices claims.  Plaintiffs withdrew their claim for unfair claims practices but not their demand for punitive damages related thereto.  Supreme Court denied Allstate’s motion, but the Fourth Department reversed and dismissed these claims and punitive-damages demands in their entirety.

In doing so, the Fourth Department expressly applied the standard for deciding a motion to dismiss for failure to state a cause of action under CPLR 3211(a)(7): the court accepted as true each of plaintiffs’ allegations and limited the court’s inquiry to the legal sufficiency of plaintiffs’ claims.   With regard to plaintiffs’ bad-faith claim, it failed to allege any conduct by Allstate that constituted the requisite gross disregard of the insured’s interests, and plaintiffs’ claim that “Allstate had no good-faith basis for denying coverage” was redundant of plaintiffs’ breach-of-contract claims and therefore failed to support an independent tort claim of bad faith.

With regard to the punitive damages demand in connection with plaintiff’s now withdrawn claim for unfair claims practices, the court dismissed it because there was no viable substantive cause of action for it to attach to.  Plaintiffs’ conclusory allegation as to Allstate’s motive for its refusal to pay plaintiffs’ claim was insufficient to support plaintiffs’ otherwise disassociated demand for punitive damages.

Plaintiffs also failed to state a cause of action for untimely disclaimer.  Because the underlying claim arose out of a property damage claims and not out of an accident involving bodily injury or death, the notice-of-disclaimer provisions from Insurance Law § 3420(d) were inapplicable and, under the common-law rule, a delay in disclaiming coverage, even if unreasonable, does not estop the insurer from disclaiming unless the insured has suffered prejudice from the delay.  Plaintiffs’ conclusory allegation that they were “damaged and prejudiced” by the untimely disclaimer is insufficient to withstand this CPLR 3211(a)(7) motion to dismiss.

Miller v Allstate Indem. Co., 2015 NY Slip Op 07134, 4th Dept 10-2-15

Plaintiff-lender’s loan servicing company had a sufficient relationship with plaintiff to authenticate plaintiff’s business records.

The affidavit from an officer of plaintiff-lender’s loan servicing company established that plaintiff had acquired legal and physical possession of the promissory note before commencing the subject foreclosure proceeding. The original lender had assigned the note and mortgage to plaintiff, but the note had been endorsed in blank with not date. The note therefore did not establish the date that it was assigned to plaintiff. The affidavit of the loan servicing company’s officer stated that before the foreclosure action was commenced, plaintiff had sent the loan documents including the note to the loan servicing company which had scanned the documentation into its own records system and then returned the documents to plaintiff. Based on the dates of these events, the senior VP of the loan servicing company averred that the note had been assigned to plaintiff before plaintiff commenced the foreclosure action.

The Third Department that the loan servicing company’s status as servicer of the loan for plaintiff-assignee of a note and mortgage qualified the loan servicing company’s records as business records of plaintiff. The Third Department rejected defendant’s objection that the records were neither made in the loan servicing company’s regular course of business nor within the officer’s personal knowledge. The Third Department stated that while “the mere filing of papers received from other entities, even if they are retained in the regular course of business, is insufficient to qualify the documents as business records”, such records are nonetheless admissible if the recipient can establish personal knowledge of the maker’s business practices and procedures, or that the records provided by the maker were incorporated into the recipient’s own records or routinely relied upon the recipient in its business. To be admissible, these documents should carry the indicia of reliability ordinarily associated with business records.

Given the loan servicing company’s status as servicer of the loan for plaintiff, the loan servicing company’s records qualified as business records.

Deutsche Bank Natl. Trust Co. v Monica, 2015 Slip Op 06453, 3rd Dept 8-6-15

Chinese national whose return visa to the US was denied can present his videotaped trial testimony and be examined in China by defendants’ doctor.

Plaintiff Chinese citizen was injured while he was a passenger on a bus. Plaintiff appeared for his deposition which was not completed on that date and was adjourned to be completed at a later date. Plaintiff moved back to China before the deposition was completed. Plaintiff had been living in the United States by himself and moved back to China to be with his wife and child lived, allegedly due to his inability to care for himself.

Defendants moved pursuant to CPLR 3126 to dismiss plaintiff’s complaint for failure to continue his deposition or to appear for an IME, or alternatively to compel plaintiff to appear or be precluded from testifying at trial. Plaintiff cross-moved for a protective order directing that his deposition be conducted by remote electronic means and for leave to employ a video transcription of his deposition testimony at trial in lieu of appearing in person due to his inability to obtain a visa to enter the United States.
Held: Because plaintiff’s applications for a visa to return to the United States had been denied, plaintiff demonstrated that traveling from China to the United States for his deposition or independent medical examination would cause undue hardship. Plaintiff would therefore be permitted to present a video transcription of his deposition testimony at trial in lieu of appearing at trial to testify. Plaintiff met the criteria set forth in CPLR 3117(a)(3)(ii), (iv), and (v), to wit, that the witness (plaintiff himself) is more than 100 miles from the place of trial, that plaintiff is unable to procure his attendance at trial, and that such exceptional circumstances exist as to make the use of plaintiff’s videotaped testimony desirable in the interest of justice and with due regard to the importance of presenting his testimony orally in open court.
Although plaintiff would not be required to pay business class airfare and accommodations for defendants’ examining doctor to travel to China, plaintiff had consented to pay the reasonable cost of airfare and accommodations for the defendants’ doctor to conduct the independent medical examination in China.

Feng Wang v A & W Travel, Inc., 2015 NY Slip Op 06312 (2d Dept July 29, 2015).

Fidelity bond covering “a fraudulent entry of Electronic Data or Computer Program” covers fraudulent entry into the system, not fraudulent data.

A rider in a fidelity bond for computer systems fraud that covered “a fraudulent entry of Electronic Data or Computer Program” unambiguously refers only to unauthorized access into plaintiff’s computer system and not to fraudulent content that was input by authorized users.   Universal Am. Corp. v National Union Fire Ins. Co. of Pittsburgh, PA., 2015 NY Slip Op 05516, CtApp 6-25-15

Plaintiff Universal Am. Corp. is a health insurer who offers Medicare Advantage plans to Medicare-eligible individuals who purchase Medicare coverage from private health insurers who in turn are reimbursed by the federal Centers for Medicare and Medicaid Services for health care services that are provided to the plans’ members.  Plaintiff’s computerized billing system allowed health care providers to submit claims directly into the system.   Plaintiff automatically processed, approved, and paid most of the claims without manual review.

Plaintiff suffered more than $18 million in losses from paying fraudulent claims for services that were never actually performed under its Medicare Advantage plans.  When plaintiff sought payment from defendant bonding company for plaintiff’s post-deductible losses, defendant denied coverage on the ground that the rider did not encompass losses for Medicare fraud, i.e., losses from payment for claims submitted by health care providers.

Plaintiff sued defendant for declaratory relief and moved for partial summary judgment on the issue of coverage, and defendant cross-moved for summary judgment dismissing the complaint.

The Court of Appeals affirmed dismissal of the complaint, holding that the rider unambiguously applies to losses incurred from unauthorized access to Universal’s computer system, and not to losses resulting from fraudulent content that authorized users input into the computer system.

The Court applied the “reasonable expectations of the average insured upon reading the policy” (from Mostow, 88 NY2d at 326-27).  The Court noted that the intentional word placement of “fraudulent” before “entry” and “change” manifests the parties’ intent to provide coverage for a violation of the integrity of the computer system through deceitful and dishonest access.  The Court also relied on other language in the rider that evinced defendant’s intent to cover only fraudulent access and not fraudulent input.

 

Business records exception and medical provider’s burden of proof on its motion for summary judgment for payment of services rendered to no-fault claimant

The Court of Appeals held that plaintiff medical provider was entitled to summary judgment for payment of no-fault benefits by showing that the payments were overdue, and that the provider’s claim, using the statutory billing form, had been mailed to and received by the defendant insurer.  With regard to the business -records exception to the hearsay rule, the affidavit of the president of plaintiff’s third-party billing company, which stated that he relied on the statutory billing forms generated by plaintiff, satisfied the business records exception.   With regard to the facts that a medical provider must establish:  because the carrier failed to respond in any fashion to plaintiff’s claim forms, the carrier waived all objections and defenses to those claims, and plaintiff  did not need to establish prima facie that the expenses arose out of a motor vehicle accident and were medically necessary to treat the injuries.  Viviane Etienne Med. Care v. Country-Wide Ins. Co., 2015 NY Slip Op 04787, Ct App 6-10-15.    NB:  This action was commenced in September 2005, before the adoption of the April 1, 2013 amendments to 11 NYCRR 65-3.5 and 11 NYCRR 65-3.8, which can be found at http://www.dfs.ny.gov/insurance/r_finala/2013/rf68ca4t.pdf.

In this case, the injured claimant had assigned to his medical provider his right to receive payment for no-fault medical benefits (i.e., payments for the the medical treatments his medical provider rendered to him for injuries he received in an auto accident.)  Plaintiff medical provider submitted eight verification-of-treatment forms (statutory NF-3 forms) to defendant no-fault insurer for the services rendered.  Defendant denied payment on one claim and failed to respond to the other seven.

Plaintiff sued, asserting that it had timely submitted bills and claims for payment to defendant but that defendant had failed to pay or deny the requests or ask for further verification of the claims. Plaintiff also requested interest and attorney’s fees under the Insurance Law.  Defendant answered and asserted as an affirmative defense that payment for plaintiff’s claims was not overdue because plaintiff failed to submit “proper proof of the fact and amount of the loss” as required by the Insurance Law.

Plaintiff then moved for summary judgment on its claims, submitting in pertinent part the seven verification-of-treatment forms as proof of claim and seven mailing ledgers stamped by the United States Postal Service showing the date the forms were mailed. Plaintiff also submitted the affidavit of the president of plaintiff’s third-party billing company, who detailed the billing company’s reliance on plaintiff’s NF-3 claim forms and stated that he personally mailed the NF-3’s to defendant within the statutory 30-day time limit.

Defendant opposed the motion, arguing that plaintiff failed to satisfy the business records exception to the hearsay rule because the affidavit of the billing company’s president merely stated that the bills were mailed but gave no details as to plaintiff’s generation of the NF-3 claim forms.

The Court of Appeals relied on no-fault regulation 11 NYCRR 65-3.5(b), which stated that within 15 days from receipt of the verification of treatment form, the insurer may seek further verification) and Insurance Law §5106, and 11 NYCRR 65-3.8(c), which stated that within 30 days after receiving the verification of treatment form, the insurer must pay or deny the claim.  As noted above, this action was commenced in September 2005, before the adoption of the April 1, 2013 amendments to 11 NYCRR 65-3.5 and 11 NYCRR 65-3.8, which can be found at http://www.dfs.ny.gov/insurance/r_finala/2013/rf68ca4t.pdf.

The Court of Appeals recited previous holdings to the effect that where an insurer fails to pay or deny a claim within the requisite 30 days after its receipt of the proof of claim, the insurer is precluded from asserting all defenses against payment of the claim except lack of coverage, and that although this preclusion requires carriers to pay claims that it might not have had to honor if it had timely denied the claim, the great convenience of prompt uncontested, first-party insurance benefits is part of the price paid to eliminate common-law contested lawsuits.

The Court of Appeals held that plaintiff met its prima facie burden of proving its entitlement to summary judgment because the documents submitted met the business records exception to the hearsay rule and that because plaintiff was able to demonstrate the billing and mailing practices,  the insurer was presumed to have received those claims.  And because defendant did not pay the seven claims, those claims were overdue and defendant’s failure to contest the claims waived its right to contest the claims as fraudulent.   [NB:  The amount at issue was about $6,000.  At the same time the Appellate Division certified this question to the Court of Appeals, it remanded to Supreme Court to determine whether plaintiff was entitled to attorneys’ fees and interest, which runs at two percent per month from the date the payments became “overdue”.]

Dissent: Judges Stein joined by Judge Reed dissented, stating that neither the statutory nor regulatory deadlines  obviated plaintiff’s burden to show prima facie that it was entitled to receive the benefits in the first place — i.e., that the loss arose from an automobile accident and that the expenses incurred were medically necessary.   Judge Stein noted that the State Insurance Department interpreted the interplay between summary judgment and the preclusion rule in that manner, i.e., although an insurer’s defense to payment of claim may be precluded under the preclusion cases,  the claimant must still meet the statutory requisite and make out a prima facie case of entitlement to benefits, which requires that reimbursable expenses must arise out of a motor vehicle accident and be medically necessary to treat the injuries.  Ops. Gen Counsel NY Ins Dept No. 00-01-02 [January 2000].

Moreover, Judge Stein noted that plaintiff failed to establish its claim forms as business records:  the billing company’s president had no personal knowledge of plaintiff’s procedures in creating the NF-3 claim forms, and that plaintiff should have been required to submit a proper affidavit as to the creation of the NF-3 forms.

 

Administrative denial of firefighter’s claim for benefits upheld where firefighter changed story of how injury happened and administrative denial was supported by substantial evidence, under collective bargaining agreement and NY Admin. Proc. §306(1) (COA 4/5/2011)

Claimant firefighter changed his description of the cause of his back injury from his original version given to his supervisor in his initial report of injury ( which was a defective air suspension in his seat) to a different version (which was hitting a pothole that caused the air-suspension seat to elevate and then shoot downwards, which he claimed at the collective-bargaining-agreement hearing challenging the district’s denial of his claim for benefits for a work-related injury).  After the firefighter’s initial report, the district had had the seat inspected by the district’s mechanic and the manufacturer’s representative neither of whom found anything wrong.   In its denial, the district attributed the firefighter’s back complaints to his two prior back injuries.   Claimant’s neurosurgeon testified at the hearing that he would not causally related the injury to a work-related injury if the injury did not occur as the firefighter had claimed.  

The district’s denial of benefits was upheld because it was supported by “substantial evidence”.  “Substantial evidence” is such relevant proof as a reasonable mind may accept as adequate to support a conclusion or ultimate fact, and is less than a preponderance of the evidence.  Substantial evidence requires only that a given inference is reasonable and plausible, not necessarily the most probable.  The firefighter had the burden under the collective bargaining agreement and under NY Admin. Proc. Act §306(1) to prove that the denial was not supported by substantial evidence.  The hearing officer was required to give deference to the district’s determination.  The fact that there was also substantial evidence supporting the firefighter’s position was irrelevant so long as there was substantial evidence supporting the district’s denial. 

Matter of Ridge Road Fire District, v. Michael P. Schiano  http://bit.ly/fsvwSN (Ct. App. April 5, 2011) (four to three decision).

Victim’s murder was an “accident” for UM and no-fault coverage

Victim’s administrator sought UM and no-fault benefits for the victim for an occurrence in which the uninsured driver struck the victim with the admitted intent of killing him. The driver was convicted of second-degree murder. Held: the term “accident” in the UM and no-fault coverage included the subject occurrence because the occurrence must be viewed from the insured’s prospective.  Although the policy excluded some types of events from the definition of “accident”, nothing expressly excluded intentional conduct. State Farm Mut. Auto. Ins. Co. v. Langan (COA 3/29/11)
http://bit.ly/i6m48r.

Long-arm jurisidiction and digital copyright infringement (COA Mar 23 2011)

CPLR 302(a)(3)(ii): In copyright infringement case involving the uploading
of a copyrighted literary work onto the internet, the situs of injury for
long-arm jurisdictional purposes is the location of the copyright holder.
SDNY therefore had jurisdiction over suit since the principal place of
business of plaintiff-copyright holder was New York City. Defendant was an
Oregon not-for-profit corporation whose principal place of business was in
Arizona which had electronically copied and uploaded complete copies of four
of plaintiff’s copyrighted books onto defendant’s website in Oregon and/or
Arizona. The out-of-state location of the infringement was less important
where digital piracy is involved because of the works’ instate availability
to everyone in the country and the world. Penguin Group (USA) Inc., v.
American Buddha, (NY COA 3/24/11). http://bit.ly/eIPBoz.

CPLR 2001: failure to file summons and complaint prior to service on defendant was fatal (COA, Mar 24, 2011)

CPLR 2001: failure to file summons and complaint prior to their service on
defendant was fatal in action. Defendant was a municipal corporation
against upon whom plaintiff had already obtained leave to serve a late
notice of claim, via a petition and proposed complaint in a special
proceeding. Plaintiff then served a summons and a substantively different
complaint on defendant without first having bought an index number or filed
the summons and actual complaint. Dismissal of action on statute of
limitations grounds was affirmed. Goldberg v. Westchester Co. Health Care
Corp., COA 3/24/11; http://bit.ly/ia72bn.

Golf – no duty to warn (4th Dep’t Dec 21 2010)

Defendant hit a “shank” shot out of the rough without calling “fore”. The
errant ball struck plaintiff (a member of defendant’s foursome) in the eye
causing retinal damage. Held: no negligence for failing to call “fore”;
plaintiff assumed the risk. Summary judgment to defendant was affirmed.
Anand v Kapoor, 15 N.Y.3d 946 (Dec. 21, 2010); http://bit.ly/eAPyF4

Attorney-client privilege and emails (matrimonial action) (Third Dep’t Jan. 13 2011)

Wife’s discovery of e-mails between husband and consulted attorney held partly privileged and partly no.  Plaintiff-wife in matrimonial action discovered a page of an e-mail on defendant-husband’s desk.  Email was between husband and attorney with whom he was conferring about his divorce.  Wife, while searching for the remainder of the letter, discovered the user name and password for husband’s e-mail account, which she used to access the account, printed the e-mails correspondence between him and the attorney, and turned them over to her counsel.  Wife then amended the complaint and her attorney subpoenaed Van Ryn for a deposition and to produce documents.  Held: Husband’s email communications with attorney were protected by attorney-client privilege except for the single page which wife found on husband’s desk in the family room and which husband failed to show that he took reasonable steps to maintain the confidentiality of that page.  Husband’s leaving the username and password for his email account, however, on his desk did not waive the privilege vis-à-vis the balance of the emails.  Husband’s email account was newly established and accessed only from his workplace computer.  Leaving the user name and password on his desk was careless but did not waive the privilege.  Parnes v Parnes, 80 A.D.3d 948, 949 (N.Y. App. Div. 3d Dep’t July 13, 2011)