In the Matter of the Arbitration between Carmen I. Falzone, Now Known as Carmen I. Cordero and New York Central Mutual Fire Insurance Company
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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
----------------------------------------------------------------No. 164
In the Matter of the Arbitration
between Carmen I. Falzone, Now
Known as Carmen I. Cordero,
Appellant,
and
New York Central Mutual Fire
Insurance Company,
Respondent.
Hugh C. Carlin, for appellant.
H. Ward Hamlin, Jr., for respondent.
JONES, J.:
In this CPLR article 75 proceeding arising from
respondent's determination denying petitioner's claim for
supplementary uninsured motorist (SUM) benefits, the primary
issue before this Court is whether the SUM arbitrator exceeded
the scope of his authority by not giving preclusive effect to a
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No. 164
prior arbitration award involving the same parties and accident.
On May 15, 2004, petitioner was involved in a two-car
collision.
Subsequently, she filed a claim for no-fault benefits
with respondent insurer, alleging she had injured her shoulder.
When respondent denied petitioner's no-fault claim on the ground
that her shoulder injury was not related to the accident,
petitioner challenged the denial in arbitration.
Disagreeing
with respondent's denial, the no-fault arbitrator, in May 2008,
ruled that respondent's denial based on lack of relatedness was
inappropriate and awarded petitioner $4,354.56 in no-fault
benefits.
After petitioner settled her lawsuit against the driver
of the other vehicle for that driver's $25,000 policy limit, she
sought SUM benefits in the amount of $75,000 from respondent
insurer.
Citing the prior denial of no-fault benefits as being
unrelated to the accident, respondent denied the claim for SUM
benefits.
On February 28, 2008, during the pendency of the no-
fault arbitration, petitioner sought to challenge the denial of
SUM benefits in a separate arbitration proceeding.
At the hearing in the SUM arbitration, held about two
months after the decision in the no-fault arbitration, respondent
again argued that the injury was unrelated to the accident, while
petitioner countered that the SUM arbitrator was bound by the
prior determination of the no-fault arbitrator under the doctrine
of collateral estoppel.
After the hearing, in August 2008, the
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SUM arbitrator issued an award in favor of respondent denying SUM
benefits.
In a finding directly opposite that of the no-fault
arbitrator, the SUM arbitrator concluded that petitioner's injury
was not caused by the accident, and also found that her recovery
from the other driver was more than adequate compensation for any
injuries sustained in the accident.
Thereafter, petitioner commenced this CPLR article 75
proceeding to set aside the SUM arbitration award in respondent's
favor.
Petitioner argued that respondent was collaterally
estopped from relitigating the causation issue.
Respondent
sought confirmation of the award.
Supreme Court vacated the SUM arbitration award and
ordered that a new arbitration be scheduled before a different
arbitrator.
The court concluded that although it is within an
arbitrator's discretion to determine the preclusive effect of a
prior arbitration award, here, there was nothing in the SUM
arbitrator's decision to indicate whether petitioner's collateral
estoppel argument was even considered.
By a 3-2 vote, the Appellate Division reversed Supreme
Court's order and confirmed the SUM arbitration award (64 AD3d
1149 [4th Dept 2009]).
The majority concluded that (1) "[t]he
fact that a prior arbitration award is inconsistent with a
subsequent award" is not a ground, pursuant to CPLR 7511, for
vacating an arbitration award, (2) it is within the arbitrator's
sole discretion to determine the preclusive effect of a prior
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No. 164
award, and (3) "the SUM arbitrator was not required to state that
he had considered" the collateral estoppel argument raised before
him.
The dissenting Justices countered that the SUM arbitrator
exceeded his power by disregarding the preclusive effect of the
prior no-fault arbitration award, which involved the same parties
and was based on the same facts.
Petitioner appeals as of right
pursuant to CPLR 5601 (a); we now affirm.
It is well settled that a court may vacate an
arbitration award only if it violates a strong public policy, is
irrational, or clearly exceeds a specifically enumerated
limitation on the arbitrator's power (see Matter of New York City
Tr. Auth. v Transport Workers' Union of Am., Local 100, AFL-CIO,
6 NY3d 332, 336 [2005]; Matter of United Fedn. of Teachers, Local
2, AFT, AFL-CIO v Board of Educ. of City School Dist. of City of
N.Y., 1 NY3d 72, 79 [2003]; CPLR 7511 [b] [1] [iii]).
Even where
an arbitrator has made an error of law or fact, courts generally
may not disturb the arbitrator's decision (see Transport Workers'
Union of Am., Local 100, AFL-CIO, 6 NY3d at 336 ["[C]ourts are
obligated to give deference to the decision of the arbitrator.
This is true even if the arbitrator misapplied the substantive
law in the area of the contract (citations omitted)."]).
Here,
petitioner’s claim –- that the arbitrator erred in failing to
apply collateral estoppel to preclude litigation of the causation
issue in the SUM arbitration -- falls squarely within the
category of claims of legal error courts generally cannot review.
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No. 164
In this appeal, we are merely applying this State's
well-established rule that an arbitrator's rulings, unlike a
trial court's, are largely unreviewable (see Board of Educ. of
Patchogue-Medford Union Free School Dist. v Patchogue-Medford
Congress of Teachers (48 NY2d 812, 813 [1979] [this Court,
addressing the doctrine of res judicata, held that if a grievance
is within the scope of the arbitration agreement and would do no
harm to the State's public policy in favor or arbitration,
further judicial inquiry into arbitrability is foreclosed and
"any remaining questions, including whether a prior award
constitutes a bar to the relief sought, are within the exclusive
province of the arbitrator to resolve" [citations omitted];
Matter of City School Dist. of City of Tonowanda v Tonawanda
Educ. Assn., 63 NY2d 846, 848 [1984] ["The effect, if any, to be
given to an earlier arbitration award in subsequent arbitration
proceedings is a matter for determination in that forum."];
compare with Clemens v Apple, 65 NY2d 746 [1985] and Matter of
American Ins. Co. [Messinger–Aetna Cas. & Sur. Co.], 43 NY2d 184,
191 [1977] [holding that if an issue between identical parties is
resolved in an arbitration proceeding, the determination as to
that issue may be binding on subsequent court proceedings under
the doctrine of collateral estoppel where the parties have had a
full and fair opportunity to litigate the issue]).
Thus, if a
court makes an error and fails to properly apply collateral
estoppel, the issue can be reviewed and corrected on appeal.
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By
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No. 164
contrast, if an arbitrator erred in not applying collateral
estoppel, the general limitation on judicial review of arbitral
awards precludes a court from disturbing the decision unless the
resulting arbitral award violates a strong public policy, is
irrational, or clearly exceeds a specifically enumerated
limitation on the arbitrator's power.
Here, the prior (no-fault) arbitration award involved
the same parties, the same accident, the same injuries, and
resolution of the same issue (causation) as the subsequent (SUM)
arbitration award.
Respondent insurer, a party to the prior
arbitration, lost on the causation issue.
Petitioner, the
prevailing party on that issue in the prior arbitration,
reasonably argued that collateral estoppel should apply to bar
relitigation of the causation issue in the subsequent SUM
arbitration.
The SUM arbitrator rejected petitioner’s argument,
had the parties relitigate the causation issue and, contrary to
the no-fault arbitrator’s determination, found in respondent
insurer’s favor on the causation issue.
It is not for us to decide whether the SUM arbitrator
erred in not applying collateral estoppel (i.e., not giving
preclusive effect to the no-fault arbitrator’s determination on
the issue of causation).
Because the SUM arbitration award was
not patently irrational or so egregious as to violate public
policy, the instant SUM arbitration award (and whether the SUM
arbitrator erred or exceeded his authority) is beyond this
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No. 164
Court’s review powers.
Since the instant claim involves the doctrine of
collateral estoppel, not res judicata, petitioner's reliance on
Appellate Division decisions barring subsequent arbitrations on
res judicata grounds is misplaced.
Accordingly, the order of the Appellate Division should
be affirmed, with costs.
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Matter of Falzone v New York Central Mutual Fire Ins. Co
No. 164
PIGOTT, J.(dissenting) :
I respectfully dissent.
In my view, the SUM arbitrator
exceeded his authority in disregarding the no-fault arbitrator's
finding on the issue of causation and substituting his own, when
the identical parties had previously litigated the identical
issue.
Insurance Law § 5106, titled "Fair claims settlement,"
was designed for its titled purpose: to provide a forum where
persons sustaining injuries in auto accidents could quickly
adjudicate whether or not their no-fault carriers would pay their
claims (see Roggio v Nationwide Mut. Ins. Co., 66 NY2d 260, 264
[1985]).
Here, petitioner applied for no-fault benefits and the
insurer denied those benefits because its physician concluded
that the shoulder injury was not related to the accident.
Petitioner sought arbitration of that decision, taking a
significant risk that a negative outcome on the causation issue
would preclude her from bringing a civil suit to recover against
her tortfeasor and, subsequently, her SUM carrier, for her
shoulder injury (see Clemens v Apple, 65 NY2d 746, 748-749
[1985]).
Petitioner submitted her own medical evidence to
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counter the insurer's, and prevailed at the no-fault arbitration.
The arbitrator concluded that petitioner's shoulder injury was
causally related to the accident and awarded her approximately
$4,300.
The insurer did not move to vacate or modify the award
even though Insurance Law § 5106 (c) provides that "an award by
an arbitrator shall be binding except where vacated or modified
by a master arbitrator in accordance with simplified procedures
to be promulgated or approved by the superintendent" (emphasis
supplied).
Having lost at the no-fault arbitration and paying, in
full, the sum awarded to petitioner for her shoulder injury, the
insurer thereafter consented to petitioner's settlement with the
tortfeasor's insurer for the face amount of the tortfeasor's
policy.
However, the insurer again challenged causation relative
to petitioner's shoulder injury, this time during the SUM
arbitration and over petitioner's objection.
Apparently, what is sauce for the goose is no longer
sauce for the gander.
Had the arbitrator during the original no-
fault arbitration found against the petitioner, any direct action
against the tortfeasor would have been met with the defense of
issue preclusion, with the tortfeasor relying on the no-fault
arbitrator's finding of no causation (see Clemens, 65 NY2d 746).
That, in turn, would have precluded petitioner from even bringing
a SUM claim against her carrier, as it would have been impossible
for her to succeed on such a claim without first exhausting the
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No. 164
tortfeasor's policy limits.
When a claim is initially denied, a no-fault claimant
is faced with making the difficult choice: either (1) potentially
losing at the no-fault arbitration and being precluded from
bringing a civil suit, or (2) not seeking arbitration of the nofault carrier's denial of benefits so that the claimant can
preserve his or her ability to bring a civil suit at a later date
against the tortfeasor, thereby transferring the cost of the
claimant's medical care to his or her private insurance carrier,
public insurance, or delaying payment.
These results, however, contradict the primary
legislative purpose behind the no-fault law, namely, to ensure
"'that every auto accident victim will be compensated for
substantially all of his economic loss promptly and without
regard to fault,'" such that the insurer has nothing to lose and
everything to gain from denying no-fault claims (Norman H. Dachs
and Jonathan A. Dachs, Time to Reconsider Clemens v Apple?, NYLJ,
Nov. 14, 1995, at 3, col 1 quoting Rep of the Joint Legislative
Comm on Ins Rates, Regulation and Recodification of the Ins Law,
NY Leg Doc 1973, No 18, at 7; Norman H. Dachs and Jonathan Dachs,
Collateral Estoppel and Res Judicata in Arbitration, NYLJ, Feb.
13, 1990, at 3, col 1).
Simply put, under the majority holding
there is a great deal of incentive for a no-fault carrier to deny
claims because even if it loses at arbitration, it can revisit
the issue in a later SUM proceeding.
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No. 164
In my view, petitioner should be permitted to rely on
the no-fault arbitration causation findings in support of any
subsequent arbitration involving the same issue against the same
party, just as the tortfeasor and insurer would have been able to
rely on that initial finding had petitioner been unsuccessful and
instituted a civil suit.
It cannot be reasonably argued that the
insurer did not have a full and fair opportunity to litigate
causation in the no-fault proceeding.
After all, it submitted
medical proof from its own physician after he conducted an
examination that petitioner was contractually obligated to
attend.
Moreover, the majority's holding directly contradicts
the dictates of Insurance Law § 5106 (c) that arbitration awards
are binding unless vacated or modified by a master arbitrator
because it allows an unsuccessful insurer to do an end run around
that statute to the extent that it effectively nullifies the
findings of the no-fault arbitrator.
By accepting the SUM
arbitrator's "discretion" to disregard the findings of an
arbitrator on an identical issue between the same parties, this
Court grants the arbitrator more authority than a trial court,
appellate court, or this Court, none of which are accorded the
power to review the arbitrator's rejection of petitioner's issue
preclusion argument.
All of the cases cited by the majority involve
arbitrations arising from the invocation of arbitration
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No. 164
provisions contained in either collective bargaining agreements
or inter-company insurance arbitration agreements--parties of
equal size and nature who together agree to submit to the
resolution of their claims in a non-judicial forum.
Petitioner,
like so many motorists, is forced by a sophisticated insurer to
choose between arbitration and engaging, at her own expense, in
the costly litigation that is itself discouraged by the statute.
Having done so, she finds herself in a hall of mirrors where
winning in arbitration is only the beginning, not the end of her
travail.
Finally, I note that the mere finding of a causal
relation between the accident and petitioner's shoulder injury at
the no-fault arbitration stage would not have necessarily
resulted in a finding that petitioner was entitled to recover
damages for non-economic loss in the SUM arbitration.
Petitioner
would still be required to prove that her damages exceeded the
amount of any policy of insurance that covered the original
tortfeasor (see Raffellini v State Farm Mut. Automobile Ins. Co.,
9 NY3d 196, 205 [2007]).
Indeed, that was the issue before the
SUM arbitrator in this case, yet he never reached the "serious
injury" threshold issue, opting instead to revisit the
previously-determined causation finding and reach a different
conclusion.
Based on the foregoing, it is my view that the SUM
arbitrator exceeded his authority by not granting the no-fault
arbitrator's causation finding preclusive effect, and I would
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No. 164
therefore reverse.
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Order affirmed, with costs. Opinion by Judge Jones. Chief Judge
Lippman and Judges Ciparick, Graffeo, Read and Smith concur.
Judge Pigott dissents and votes to reverse in an opinion.
Decided October 21, 2010
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