Tri-State Ins. Co. v Salguero

[*1] Tri-State Ins. Co. v Salguero 2009 NY Slip Op 51036(U) [23 Misc 3d 1131(A)] Decided on May 26, 2009 Supreme Court, Queens County Rios, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on May 26, 2009
Supreme Court, Queens County

Tri-State Insurance Company, Petitioner, 9

against

Victor Salguero, Respondent, - and - State Farm Insurance Company and Sherina C. Frempong, Proposed Add'l. Respondents.



24456/08

Jaime A. Rios, J.

In this CPLR 7503 proceeding, the petitioner, Tri-State Insurance Company (Tri-State), seeks to permanently stay an arbitration for uninsured motorist (UM) benefits sought by respondent, Victor Salguero (Salguero). The validity of a "late notice" disclaimer issued by State Farm Insurance Company is the sole issue before the court.

On May 24, 2004, Salguero was operating a motor vehicle insured by Tri-State when that vehicle was involved in an accident with a vehicle owned and operated by Sherina C. Frempong (Frempong) and insured by State Farm Insurance Company (State Farm).

Salguero commenced an action against Frempong in Civil Court of Queens County under index number 23492/2007 arising out of the May 24, 2004 accident. Judgment was entered on Frempong's default in the amount of $33,173.98 and on January 28, 2008, Salguero commenced a subsequent action in Supreme Court of Queens County under index number 2333/2008 seeking recovery of the judgment against State Farm.

By correspondence dated February 29, 2008, State Farm advised Frempong that "Your failure to send us copies of any notices or legal papers received is in violation of your policy's provision regarding the reported claims. As such State Farm Mutual Automobile Insurance Company disclaims coverage for any and all claims resulting from this loss". A copy of the correspondence was forwarded to Jose Mendez, Salguero's attorney (Mendez). [*2]

By correspondence dated February 29, 2008, State Farm advised Mendez that "Our Insured failed to forward the Summons & Complaint for the law suit filed against her to State Farm Insurance. This is in violation of our insured's policy provision regarding the duties after an accident or loss. You received an order of judgment entered on September 5, 2007 that allegedly was served on the insured, Sherina Frempong. Again our insured has not forwarded us the court's order of default. Accordingly, we decline to afford coverage for the above date of loss due to our insured's failure to forward suit papers."

By demand dated September 16, 2008, Salguero sought arbitration of his claim for UM benefits with Tri-State on the basis that the adverse vehicle was uninsured and attached State Farm's disclaimer notices.

Tri-State commenced this CPLR 7503 proceeding seeking to stay arbitration for UM benefits demanded by the Salguero contending that the adverse vehicle was insured by State Farm.

By order dated November 26, 2008, this court (Rios, J.) granted Tri-State's petition to the extent of adding Frempong and State Farm as respondents and directing a hearing on the issue of whether coverage for the subject accident is available through State Farm.

At the hearing held on April 30, 2009, the parties relied on their respective memoranda of law and agreed that the sole issue to be determined is the validity of State Farm's disclaimer notices, dated February 29, 2008. Any issue involving the timeliness of the disclaimers was withdrawn.

State Farm submits that its notices of disclaimer are valid

as against its insured as well as respondent, and that Salguero should not be allowed to benefit from his intentional failure to apprise State Farm of the pending lawsuit against its insured, which resulted in the default judgment. State Farm contends that although, Mendez notified it of the accident and participated in settlement negotiations with State Farm, once the negotiations became unsuccessful, Mendez commenced the action against its insureds, neglecting to notify State Farm of the lawsuit.

In support, State Farm relies on the holding in Schlott v Transcon. Ins. Co., Inc., (41 AD3d 339 [2007]), wherein the Appellate Division, First Department determined that the insurer complied with the mandates of Insurance Law § 3420(d) when it gave notice of disclaimer to the insured and sent a copy to the injured party, despite its omission of any specific reference to the injured party's failure to timely notify it of the accident.

Salguero maintains that State Farms's disclaimers are not effective against him, since they failed to include his alleged failure to timely notify State Farm of the lawsuit as a basis for disclaiming and only referred to its insured's failure.

Insurance Law §3420(d) provides that an insurer shall give written notice of a disclaimer of liability or denial of coverage to the insured and injured party or any other claimant as soon as is reasonably possible (see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64 [2003]; Hereford Ins. [*3]Co. v Mohammod, 7 AD3d 490 [2004]; State Farm Ins. Co. v Cooper, 303 AD2d 414 [2003]).

The notice of disclaimer must address with a high degree of specificity the grounds upon which it is based (see General Acc. Ins. Group v Cirucci, 46 NY2d 862 [1979]; State Farm Mut. Auto. Ins. Co. v Cooper, 303 AD2d 414, supra; State Farm Mut. Auto. Ins. Co. v Joseph, 287 AD2d 724 [2001]). An insurer's justification for denying coverage is limited to the ground(s) stated in the disclaimer and waives any ground for denying coverage that is not specifically asserted in its disclaimer, regardless of merit (see General Acc. Ins. Group v Cirucci, 46 NY2d 862, supra; Adames v Nationwide Mut. Fire Ins. Co., 55 AD3d 513 [2008]; Vacca v State Farm Ins. Co., 15 AD3d 473 [2005]).

Additionally, contrary to the holding in Schlott v Transcon. Ins. Co., Inc., (41 AD3d 339, supra), the Second Department has consistently held that in order for a disclaimer to be valid against an injured party, the notice of disclaimer must advise the claimant that his or her notice was not timely (see State Farm Mut. Auto. Ins. Co. v Cooper, 303 AD2d 414, supra; State Farm Mut. Auto. Ins. Co. v Joseph, 287 AD2d 724, supra).

Here, the sole basis of State Farm's disclaimer notices was Frempong's failure to notify it of the lawsuit. The disclaimer notices are thus, ineffective against Salguero, despite his failure to provide State Farm with notice of the lawsuit. As such, State Farm is estopped from raising his failure as a ground to disclaim coverage, despite the questionable practices of respondent's attorney (see Vacca v State Farm Ins. Co., 15 AD3d 473, supra; Gov. Empl. Ins. Co. v Jones, 6 AD3d 534 [2004]; Hazen v Otsego Mut. Fire. Ins. Co., 286 AD2d 708 [2001]; Legion Ins. Co. v Weiss, 282 AD2d 576 [2001]; Eagle Ins. Co. v Ortega, 251 AD2d 282 [1998]).

Accordingly, TriState's petition for a permanent stay of UM arbitration demanded by Salguero is granted, as State Farm is obligated to defend and indemnify for the subject loss.

Settle judgment.

Dated: May 26, 2009________________________

J.S.C.