Matter of Geico Gen. Ins. Co. v Schwartz
Annotate this CaseDecided on May 4, 2012
Supreme Court, Kings County
In the Matter of the Application of Geico General Insurance Company to Stay Arbitration, Plaintiff,
against
Andrea Weislee Schwartz and Avraham Schwartz, Defendant.
11558/11
Plaintiffs Attorney:
Matthew K. Arad
Montfort, Healy, McGuire & Salley, LLP
Defendants Attorney:
Robert Rosenberg
Hill, Rosenberg & Thurston, PC
Yvonne Lewis, J.
Petitioner, Geico General Insurance Company, (Geico) seeks by order to show cause and notices of petition, an order, pursuant to CPLR 7503 (c), permanently staying the arbitration demanded by respondents Andrea Weissler Schwartz, sued herein as Andrea Weislee Schwartz (Andrea) and Avraham Schwartz (Avraham), or in the alternative, a temporary stay of arbitration, pending a hearing in order to determine if Andrea and Avraham have valid supplemental underinsured motorist (SUM) claims entitling them to SUM benefits, and whether they are entitled to proceed to arbitration for SUM benefits. Geico, in its notices of petition, further seeks, in the event that it is determined that Andrea and Avraham are entitled to proceed to arbitration, an order directing them to submit to examinations under oath and physical examinations and to produce copies of all relevant medical records, together with HIPAA compliant authorizations.
On December 11, 2006, an accident occurred on Route 9 in the Town of Fishkill in Dutchess County between a 1992 Acura vehicle owned by Mordechai Schwartz (Mordechai) and a 1997 Dodge vehicle driven by Dan J. Katzenberger (Katzenberger) [*2]and owned by Edward Morgan (Morgan), doing business as Westside Transportation (Westside). At the time of the accident, Avraham was driving the vehicle owned by Mordechai, and Andrea was a passenger in that vehicle. Both Andrea and Avraham claim to have suffered injuries as a result of the accident, and, on February 7, 2007, they filed a personal injury action as against Katzenberger, Morgan, and Westside (Sup Ct, Kings County, index No. 4490/07) (the personal injury action).
Geico had issued a policy of insurance on August 22, 2006 (with a policy period from October 5, 2006 to April 5, 2007) (the policy) to Mordechai, as the policy holder, and such policy was in effect on December 11, 2006, the date of the accident. The policy contains supplementary uninsured/underinsured motorist coverage with UM/SUM limits of $100,000/$300,000. Morgan was insured by a policy issued by American Transit (Morgan's policy).
On March 10, 2011, Avraham served a demand for arbitration on Geico, and, on March 23, 2011, Andrea served a demand for arbitration on Geico, both seeking SUM coverage under the policy. On May 18, 2011, 56 days after service of Andrea's demand for arbitration, Geico served a petition to stay arbitration on Andrea. On May 23, 2011, 74 days after service of Avraham's demand for arbitration, Geico served a petition to stay arbitration on Avraham. Since the arbitration was scheduled to be conducted on September 7, 2011, Geico brought an order to show cause dated August 23, 2011, seeking a temporary stay of the arbitration and an order, pursuant to CPLR 602 (a) consolidating its two proceedings to stay arbitration. By order dated September 30, 2011, the court consolidated these two proceedings.
Geico relies upon Insurance Law § 3420 (f) (2) (a), which provides that "[a]s a condition precedent to the obligation of the insurer to pay under the supplementary uninsured/underinsured motorists insurance coverage, the limits of liability of all bodily injury liability bonds or insurance policies applicable at the time of the accident shall be exhausted by payment of judgments or settlements." Geico also relies upon 11 NYCRR 60-2.3 (Regulation 35-D), which sets forth the prescribed SUM endorsement. The paragraphs of Regulation 35-D, which Geico cites, provide as follows:"9. Exhaustion Required: Except as provided in Condition 10, we will pay under this SUM coverage only after the limits of liability have been used up under all motor vehicle bodily injury liability insurance policies or bonds applicable at the time of the accident in regard to any one person who may be legally liable for the bodily injury sustained by the insured. 10. Release or Advance: In accidents involving the insured and one or more negligent parties, if such insured settles with any such party for the available limit of the motor vehicle bodily injury liability coverage of such party, release may be executed with such party after thirty calendar days actual written notice to us, unless within this time period we agree to advance such settlement amounts to the insured in return for the cooperation of the insured in our lawsuit on behalf of the insured. We shall have a right to the proceeds of any such lawsuit equal to the amount advanced to the insured and any [*3]additional amounts paid under this SUM coverage. Any excess above those amounts shall be paid to the insured. An insured shall not otherwise settle with any negligent party, without our written consent, such that our rights would be impaired." (Paragraphs 9 and 10 of the "Conditions" contained in Section IV of the policy mirror the above paragraphs of the SUM endorsement prescribed by Regulation 35-D). Geico argues that since the personal injury action by Andrea and Avraham is still pending and no settlement for the entire policy issued to Morgan has been reached to date, Andrea and Avraham have not exhausted payment by judgment or settlement from Morgan's policy, and, therefore, they may not seek SUM coverage from it. Geico contends that Andrea and Avraham's demands for arbitration are, consequently, premature and invalid because there is no right to arbitrate prior to satisfying the condition precedent to SUM coverage, namely, the settlement of the tortfeasor's full policy and approval of the settlement by it.
In opposition, Andrea and Avraham point to the undisputed fact that pursuant to CPLR 7503 (c), Geico's applications to stay arbitration were untimely served. CPLR 7503 (c) mandates that an application to stay arbitration be made within 20 days after service of the demand for arbitration (see Matter of State Farm Mut. Auto. Ins. Co. v Urban, 78 AD3d 1064, 1065 [2d Dept., 2010]; Matter of Liberty Mut. Ins. Co. v Zacharoudis, 65 AD3d 1353, 1353-1354 [2d Dept., 2009]; Matter of Hermitage Ins. Co. v Escobar, 61 AD3d 869, 869-870 [2d Dept., 2009]). As discussed above, Geico's petitions were not served within this 20-day period since they were belatedly served 56 and 74 days after service of the demands for arbitration against Andrea and Avraham, respectively.
"An insurer which fails to seek a stay of arbitration within 20 days after being served with a notice of intention or demand to arbitrate under CPLR 7503 (c) is generally precluded from objecting to the arbitration thereafter" (Matter of Liberty Mut. Ins. Co. v Argueta, 59 AD3d 446, 447 [2d Dept., 2009]; see also Matter of Steck [State Farm Ins. Co.], 89 NY2d 1082, 1084 [1996]; Matter of Interboro Ins. Co. v Maragh, 51 AD3d 1024, 1025 [2d Dept., 2008]; Matter of State Farm Ins. Co. v Williams, 50 AD3d 807, 808-809 [2d Dept., 2008]). There is a limited exception to this rule, as articulated by the Court of Appeals in Matter of Matarasso (Continental Cas. Co.) (56 NY2d 264, 266 [1982]), which permits an otherwise untimely petition to stay arbitration to be entertained when "its basis is that the parties never agreed to arbitrate, as distinct from situations in which there is an arbitration agreement which is nevertheless claimed to be invalid or unenforceable because its conditions have not been complied with." However, this exception does not apply here since Geico does not allege that there was no agreement to arbitrate or that Andrea and Avraham are not parties covered under the policy. The policy contains an arbitration clause that specifically addresses the dispute at issue, and it cannot be said that the parties never agreed to submit their dispute to arbitration.
Geico argues, however, that the 20-day time limit is inapplicable here because there was no right to arbitrate since, pursuant to Insurance Law § 3420 (f) (2) (a) and Regulation 35-D, the condition precedent to its obligation to pay under the SUM coverage [*4]of the policy could not arise until exhaustion by payment of judgments or settlements of the underlying limits of the insurance coverage under Morgan's policy. Geico relies upon Matter of Federal Ins. Co. v Watnick (80 NY2d 539, 548 [1992]), in which the Court of Appeals held that since the petitioners therein did not exhaust by payment the limits of the tortfeasor's policy before seeking compensation from their insurer, as required by the policy and the Insurance Law, they were not permitted to arbitrate their underinsured endorsement claim (see also Andriaccio v Borg & Borg, 198 AD2d 253, 254 [2d Dept., 1993] [noting that the injured plaintiff therein would have been precluded from obtaining SUM coverage where he settled his claim for personal injuries against the other motorist involved in the accident for an amount less than the motorist's available insurance coverage]). Geico also cites to Matter of Sutorius v Hanover Ins. Co. (233 AD2d 332, 333-334 [2d Dept., 1996]), which held that an arbitration award had to be vacated pursuant to Insurance Law § 3420 (f) (2) (a) because the petitioner therein failed to exhaust by payment the limits of an applicable bodily insurance policy, and, therefore, was not entitled to arbitration of his underinsured motorist claim under the applicable policy.
These cases do not address the issue of whether a party is entitled to arbitration, as opposed to payment, where, as here, the petitions to stay arbitration were untimely served pursuant to CPLR 7503 (c). In addressing this issue, the court notes that in Matter of Steck (State Farm Ins. Co.) (89 NY2d at 1084), the Court of Appeals held that the issue of whether there is coverage underinsurance provisions "relates to whether certain conditions of the contract have been complied with and not whether the parties have agreed to arbitrate.Furthermore, in Matter of Nova Cas. Co. v Martin (57 AD3d 548, 549 [2d Dept., 2008]), the Appellate Division, Second Department, specifically held that a "petitioner's contention that there is no coverage under its policy's uninsured motorist provisions because the offending vehicle was, in fact, insured, is irrelevant to the issue of whether the instant proceeding pursuant to CPLR article 75 was timely commenced" (see also Matter of Steck [State Farm Ins. Co.], 89 NY2d at 1084; Matter of State Farm Mut. Auto. Ins. Co. v Waite, 68 AD3d 1006, 1006 [2d Dept., 2009]; Matter of Allstate Ins. Co. v Doyle, 64 AD3d 775, 776 [2d Dept., 2009]; Matter of Travelers Indem. Co. v Castro, 40 AD3d 1005, 1006-1007 [2d Dept., 2007]; Matter of Hartford Ins. Co. v Buonocore, 252 AD2d 500, 501 [2d Dept., 1998]).
The Appellate Division, Second Department, in Matter of Nova Cas. Co. (57 AD3d at 549), likewise observed that this is because "[s]uch contention relates to whether certain conditions of the contract have been complied with and not whether the parties have agreed to arbitrate and, thus, the petitioner's contention is outside the exception articulated by the Court of Appeals in Matter of Matarasso (Continental Cas. Co.) (56 NY2d [at 266])" (see also Matter of Steck [State Farm Ins. Co.], 89 NY2d at 1084; Matter of Hartford Ins. Co., 252 AD2d at 501). Consequently, Geico's claim, that the policy condition of exhausting Morgan's insurance policy has not been met, does not [*5]provide an exception to the 20-day time limit of CPLR 7503 (c). In this regard, it is noted that although Insurance Law § 3420 (f) (2) (a) precluded Geico from making any payments under the policy's SUM coverage, it in no way precludes arbitration of Andrea and Avraham's claims. Thus, there is nothing to prevent arbitration from going forward, and, in the event of an arbitration award in favor of Andrea and Avraham, Geico's obligation to pay the SUM claims could be stayed until such time as Morgan's policy is exhausted.
Geico, in its supporting papers, additionally notes that in Matter of Central Mut. Ins. Co. (Bemiss) (12 NY3d 648, 659 [2009]), the Court of Appeals held that the failure to obtain written approval of a settlement results in total forfeiture of all rights under the SUM endorsement. That case, however, is inapposite to the case at bar since it is undisputed that Andrea and Avraham never executed a release regarding the personal injury action, and, thus, did not violate the terms of the policy or prejudice Geico's subrogation rights (see Matter of Eveready Ins. Co. v Vilmond, 75 AD3d 640, 641 [2d Dept., 2010]).
Inasmuch as the court finds that Geico is precluded from seeking a stay of arbitration due to its failure to timely seek such stay, Geico's order to show cause and consolidated petitions insofar as they seek to temporarily and permanently stay arbitration pursuant to CPLR 7503, must be denied (see CPLR 7503 [c]). Since the court has found Geico's motion to stay arbitration to be untimely, it must address its alternative request, for an order compelling Andrea and Avraham to submit to examinations under oath and physical examinations, and to produce copies of all relevant medical records, together with HIPAA compliant authorizations. Geico asserts that Andrea and Avraham have not exchanged any discovery in connection with their SUM claims. Geico claims that it is entitled to such discovery pursuant to paragraph 3 of the "Conditions" of Section IV of the policy, which states: "Medical Reports: The insured shall submit to physical examinations by physicians we select when and as often as we may reasonably require. The insured . . . shall upon each request from us authorize us to obtain relevant medical reports and copies of relevant records."
CPLR 3102 (c) provides that "disclosure . . . to aid in arbitration, may be obtained, but only by court order." In a proceeding pursuant to CPLR article 75 to temporarily stay arbitration of an uninsured motorist claim to allow for discovery in aid of arbitration, the court may direct the respondent to provide all medical authorizations for the medical records and reports relative to the subject accident where it is entitled to such disclosure pursuant to the terms of the policy (see CPLR 3102 [c]; Matter of New York Cent. Mut. Fire Ins. Co. v Serpico, 45 AD3d 598, 598-599 [2d Dept., 2007]; Matter of State Farm Mut. Auto. Ins. Co. v Bautista, 11 AD3d 471, 471 [2d Dept., 2004]; Matter of Allstate Ins. Co. v Moya, 288 AD2d 309, 309 [2d Dept., 2001]; Matter of Allstate Ins. Co. v Baez, 269 AD2d 392, 392 [2d Dept., 2000]; Matter of State Farm Ins. Co. v McManus, 249 AD2d 311, 311 [2d Dept., 1998]). [*6]
Geico's petitions, however, insofar as they seek the relief of pre-arbitration discovery, effectively constitute a request for a stay of arbitration on the ground that Andrea and Avraham have failed to comply with paragraph 3 of the "Conditions" of Section IV of the policy (see Matter of New York Cent. Mut. Fire Ins. Co. v Rafailov, 41 AD3d 603, 604 [2d Dept., 2007]). A right to such pre-arbitration discovery may be waived (see Matter of State Farm Mut. Auto. Ins. Co. [Aponte],182 Misc 2d 372, 373 [Supreme Court, Nassau County 1999, Adams, J.]), and, as discussed above, Geico's failure to move for a stay within the requisite 20-day time period of CPLR 7503 (c) precludes the granting of a stay to allow for such discovery pursuant to CPLR 3102 (c) prior to arbitration. Instead, the issue of Geico's entitlement to such discovery is properly one to be addressed in the arbitration proceeding.Indeed, it has been observed that "[t]he matter of disclosure is better handled directly [between the parties in the arbitration rather than through resort to the courts]" (Matter of Hooper v Motor Veh. Acc. Indem. Corp., 42 Misc 2d 446, 447 [1963] [internal quotation marks and citation omitted]). As noted in Matter of Katz (Burkin) (3 AD2d 238, 239 [1957]), "[i]t would be generally incompatible with the nature and scope of an arbitration proceeding to allow a shift to the court forum of that part of a proceeding relating to the prehearing examination of witnesses or collection of evidence." The court held that "[n]ecessity rather than convenience should be the test" for the granting of disclosure to aid in arbitration pursuant to CPLR 3102 (c). Moreover, Geico has not demonstrated that court-ordered disclosure in aid of arbitration is "absolutely necessary for the protection of [its] rights" or that "extraordinary circumstance" exist which necessitate such disclosure (see Hendler & Murray v Lambert, 147 AD2d 442, 443 [2d Dept., 1989] [internal quotation marks and citations omitted]).
Accordingly, Geico's order to show cause and its petitions are denied in their entireties, and the consolidated proceedings are dismissed.
This constitutes the decision, order, and judgment of the court.
E N T E R,
____________________________
yvonne lewis, JSC
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