The Rogak Report: 25 Feb 2011 ** Arbitration - Default **
AUTO INSURER'S DEFAULT AT ARBITRATION RESULTS IN BEING FORCED TO PROVIDE COVERAGE WHERE NONE EXISTED
Edited by Lawrence N. Rogak
This was a petition by American Country Insurance Company for an order vacating an arbitration award against it on the basis that the arbitrator "exceeded her authority, it was rendered in violation of and the decision is utterly arbitrary." Neither MVAIC nor AAA opposed this motion and the Court decided it on default.
"American Country was at one time the insurer of a vehicle registered to non-party Work for Freedom, Co., Inc. ("WFF") On September 20, 2008, the vehicle, being driven by Carmen Munoz, was involved in a collision. American Country had, however, terminated WFF's policy effective September 15, 2008. WFF had been notified that coverage would be terminated due to non-payment of premiums. That notice was sent to WFF on August 11, 2008."
"After claims were filed with American Country, American Country notified WFF and other insureds that the insurance policy had expired on September 10, 2008, prior to the date of the accident on September 20, 2008."
"MVAIC brought an arbitration proceeding on behalf of Munoz who was injured in the collision. According to Frank Petrino, American Country's Claims Supervisor, once he received notification of the arbitration he contacted MVAIC's attorney handling the matter and advised the attorney that there was lack of coverage. Assuming the hearing would be cancelled, Petrino states that no one appeared for the hearing which took place September 21, 2010. In her decision, the arbitrator notes American's nonappearance."
"She also wrote the following notations: 'Carmen Munoz is a covered person' and 'No evidence of cancellation no document from DMV.'"
"Petrino states that he immediately contacted the arbitrator after receiving a copy of the arbitration award to try to 'resolve the Decision.' He has not however, provided the court with any proof he did this nor explained what he means by 'resolve.'"
"Apparently no formal attempt was made to bring a motion to vacate the arbitration award. Petrino also refers to emails he sent to and received from the arbitrator, but none of them have been provided to the court. American Country's attorney makes a similar statement that he also made attempts to "resolve" this matter and his request was "refused."
"American Country contends the arbitrator's award is an abuse of discretion because there was no insurance policy in effect with the insured on the date of the accident and that the arbitrator simply went by what was listed in the police report which is inadmissible hearsay. Petitioner alleges further that the arbitrator's award is contrary to public policy because it imposes a contract where there is none. Petitioner argues that MVAIC had the burden at the hearing of proving an insurance policy was in effect on the date of the accident which it did not do and that insurance cannot be created through equitable estoppel."
"CPLR § 7511 [b] sets forth the narrow grounds upon which an arbitrator's award may be vacated. An award may be vacated by the court only if the petitioner can prove it was procured by corruption, fraud, or misconduct, the arbitrator was not impartial, the arbitrator exceeded his or her power, or executed it so imperfectly that the award is indefinite or not final. It may also be vacated if there was a complete failure to adhere to required arbitration procedures."
"Although in certain extraordinary circumstances, an award may be vacated if the petitioner can prove it is "utterly arbitrary or violative of public policy," this is a difficult burden to meet, and an award will not be vacated by the court merely because the arbitrator may have committed an error of law or fact. Wien & Malkin LLP v. Helmsley-Spear, Inc., 6 NY3d 471 (2006)."
"Pursuant to Vehicle and Traffic Law, an insurer must adhere to certain notice requirements when seeking to terminate an insured's insurance contract . Among the requirements is that the insurer keep records of of the notice of termination sent and the certificate of mailing as proof such notice was sent. Another requirement is that the notice of termination must be filed with DMV. Notice of cancellation of automobile liability policy is ineffective unless in strict compliance with requirements of VTL 313."
"In her award, the arbitrator specifically noted that there was no evidence of cancellation or proof of filing with DMV. Since American Country would have had the burden of presenting evidence of its compliance with all applicable statutes, but the insurer defaulted in appearing for the hearing, the arbitrator made her decision based upon the information available to her. American Country has failed to show that the arbitrator exceeded her authority in rendering her award. Therefore, the petition to set aside the award is denied although the petition is before the court on default."
"In accordance with the foregoing, It is hereby ordered that the petition is denied and this proceeding dismissed...."
Comment: From reading this decision, I can only come to the conclusion that we have here an insurance company whose claims department does not understand how the laws work here in New York. And based on the Court's recitation that American Country's attorney contacted AAA in an attempt to "resolve" the matter after the default, I will give their defense counsel the benefit of the doubt and assume they were not retained until after the arbitration, when there was nothing they could do about it (because, heaven forbid, if the attorneys had advised the carrier not to appear at the arbitration because they had previously cancelled the policy, that would be really dumb). Assuming that defense counsel was only retained after the default, they did the best they could by bringing this Petition -- and as you can see, a Petition like this does no good after a default.
The main lesson from this decision is that an insurer must never default at an arbitration, no matter what. Or else you can get results like this, where the carrier is forced to provide coverage where none exists.