First party no-fault litigation is always a dog fight, bitter and ugly and it never ends. Genovese v State Farm Mutual Auto. Ins. Co., decided by the Appellate Division, Second Department on May 15, 2013 (2013 NY Slip Op 03453) is a great example of how contentious these claims become. Here, the plaintiff alleged "fraud" against State Farm, based on the premise of a breach of contract.

The Appellate Division, in a unanimous decision, noted "A cause of action premised upon fraud cannot lie where it is based on the same allegations as a cause of action alleging breach of contract (see Yenrab, Inc. v 794 Linden Realty, LLC, 68 AD3d 755; Heffez v L & G Gen. Constr., Inc., 56 AD3d 526). 

Where "a claim to recover damages for fraud is premised upon an alleged breach of contractual duties and the supporting allegations do not concern representations, which are collateral or extraneous to the terms of the parties' agreement, a cause of action sounding in fraud does not lie". 

A cause of action to recover damages for fraud requires allegations of (1) a false representation of fact, (2) knowledge of the falsity, (3) intent to induce reliance, (4) justifiable reliance, and (5) damages and CPLR 3016(b) requires the cause of action alleging fraud to be stated in detail. Plaintiff's cause of action for breach of contract survived the 3211(a)(7) challenge; however, the fraud claim was properly dismissed.

LaRose v Corrao, 963 N.Y.S.2d 712, decided on April 24, 2013 is a good refresher on the "Frye" standard of admissibility of expert testimony in New York. 

Frye v. United States, 293 F. 1013 (D.C. Cir. 1923), as applied in New York, requires "that expert testimony based on scientific principles or procedures is admissible but only after a principle or procedure has gained 'general acceptance' in its specified field".

In LaRose, the purported expert testimony was not based on a published case study, but rather, on a "synthesis of some of the medical literature presented to the Supreme Court".  The Appellate Division noted, "The literature established that the expert's theory had an objective basis and was founded upon far more than theoretical speculation or a scientific hunch (see Lugo v New York City Health & Hosps. Corp., 89 AD3d at 61). The lack of textual authority to support the theory pertained to the weight to be given to his testimony, but did not preclude its admissibility (see Zito v Zabarsky, 28 AD3d at 46)." 

In  sum, "The fact that there [is] no textual authority directly on point to support the [expert's] opinion is relevant only to the weight to be given the testimony, but does not preclude its admissibility".

Allstate Insurance Company, a/a/o George Stephen, v. Natural Healing Acupuncture, P.C., (New York City Civil Court, Kings Co. Index No: 053664/11), is worth notice this month. 

Judge Katherine Levine issued a decision vacating the award of a American Arbitration Association Master Arbitrator on the grounds that the arbitrator's decision was "arbitrary, capricious and contrary to well-settled law". 

The issue before the original arbitrator was which fee schedule should apply in the absence of a stated Workers' Compensation Fee Schedule applicable to licensed acupuncturists. The original arbitrator considered the proposed amendment to 11 NYCRR §68, which would permit licensed acupuncturists to charge the same fee that licensed physicians certified to perform acupuncture were permitted to charge and decided "fairness dictates that licensed chiropractors [or acupuncturists] be reimbursed at the higher medical fee schedule rate".

The arbitrator failed to follow the Appellate Term's decision in Great Wall Acupuncture v. GEICO Gen. Ins. Co., 16 Misc3d 23 (App. Term, 2nd Dept. 2007), which addressed the issue and applied the fee schedule for licensed chiropractors to acupuncture services provided by licensed acupuncturists. In Great Wall, the Appellate Term analogized licensed chiropractors to licensed acupuncturists based on the similar training they underwent for licensure in order to perform acupuncture services, while contrasting them to physicians, who only had to obtain certification in order to perform acupuncture.

Judge Levine noted, "This Court does not understand the reasoning behind the master arbitrator's award. Allstate did not seek a de novo or a factual review, as prohibited by Petrofsky, supra. Rather, petitioner argued that the decision was arbitrary and capricious and contrary to well-settled law. This Court cannot countenance an award which finds that proposed or pending legislation trumps well established precedent, i.e., Great Wall, supra. Therefore, the award is vacated and the Court directs that the arbitrator calculate the fees owed to respondent in accordance with the fee schedule for licensed chiropractors who perform acupuncture."

Is a sexual assault covered by a Homeowners policy of insurance? "No", said the Appellate Division, Second Department on May 8th, 2013 in the case of State Farm v. Joseph M. (2013 NY Slip Op 3318). 

In this case the respondent sought coverage under his parent's homeowners policy for defense of a civil action premised upon injuries which occurred in a sexual assault. State Farm appealed the denial of summary judgment on an issue of fact from the lower court. The Appellate Division reviewed the applicable case law, "An insurer's duty to defend is broader than its duty to indemnify, and arises whenever the allegations in the complaint in the underlying action, construed liberally, suggest a reasonable possibility of coverage, or where the insurer has actual knowledge of facts establishing such a reasonable possibility". (Rhodes v Liberty Mut. Ins. Co., 67 AD3d 881, 882, 892 N.Y.S.2d 403; see Frontier  Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169, 175, 690 N.E.2d 866, 667 N.Y.S.2d 982). An insurer can be relieved of its duty to defend only "if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision". (Allstate Ins. Co. v Zuk, 78 NY2d 41, 45, 574 N.E.2d 1035, 571 N.Y.S.2d 429; see Rhodes v Liberty Mut. Ins. Co., 67 AD3d at 882).

However the Court concluded, "The bodily injuries allegedly sustained by the plaintiff in the underlying action were inherent in the conduct that Joseph M. allegedly engaged in, the alleged sexual assault cannot be construed as an accident within the definition of "occurrence" for which the plaintiff's policy affords coverage... Nor may the defendants "exalt form over substance by labeling the [underlying] action as one to recover damages for negligence".  

State Farm was therefore relieved of the duty to defendant and indemnify the defendant in the underlying action.

Read the decision here.

The Second Circuit Court of Appeals has certified an interesting question of law to the New York State Court of Appeals involving Fire Insurance coverage. The certified question in  Executive Plaza v. Peerless Insurance, (12-cv-1470) is as follows:

If a fire insurance policy contains  

(1)    A provision allowing reimbursement of replacement costs only after the property was replaced and requiring the property to be replaced " as soon as reasonably possible after the loss"; and

(2)    A provision requiring an insured to bring suit within two years after the loss;

Is an insured covered for replacement costs if the insured property cannot be reasonably replaced within two years?

The claim involved a commercial building that was destroyed by fire in Island Park, New York in 2007. When the owner tried to rebuild, they found out the zoning to the property had changed and they now required a variance. The building permit was not issued until 17 months later.

Judge Chin, in certifying the question to the Court of Appeals, noted the Court of Appeals has not addressed this issue, interpreting the suit limitation two year period in light of the replacement cost provision. 

The Court of Appeals has held suit limitation provisions to be enforceable in Blitman Construction v. Insurance Company of North America 66 NY2nd 620 (1985); and, Proc  v. Home Insurance Co. 17 NY2nd  239 (1966). In New York, actual repair of a building is required to recover on a replacement cost basis, see Todd v Wayne Coop. Insurance Co. 819 N.Y.S. 2nd 179 ( 3rd Department 2006). 

This decision will be closely watched by the insurance industry. An adverse decision may change policy language and prompt legislative action. 

Stay tuned for more on this issue.