In the Matter of Country-Wide Insurance Company v National Indemnity Company
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Attorneys and Parties
Brief Summary
Insurance loss-transfer arbitration and whether Arbitration Forums Inc. (AFI) had jurisdiction to decide a no-fault subrogation reimbursement dispute after the responding insurer asserted a coverage disclaimer.
The lower court confirmed the AFI arbitration award in favor of Country-Wide Insurance Company and denied National Indemnity Company's cross-motion to vacate the award and dismiss the petition.
The Appellate Division reversed the order confirming the arbitration award, denied the petition to confirm, granted the cross-motion to vacate the award, and dismissed the petition.
The appellate court held that AFI lacked jurisdiction once National Indemnity submitted its disclaimer letter through a Post-Decision Inquiry under AFI rule 3-9 [responding insurer may assert no-policy or denial-of-coverage defenses up to 60 days after the decision publication date and at least 60 days before the statute of limitations expires]. That submission made Insurance Law § 5105 [mandatory loss-transfer arbitration provision] inapplicable because respondent had in good faith asserted a lack-of-coverage defense and had not given written consent to mandatory arbitration under 11 NYCRR § 65-4.11(a)(6) [mandatory arbitration does not apply where lack of coverage is asserted in good faith unless there is specific written consent]. AFI rule 2-4 [party is ruled out of jurisdiction if a denial/disclaimer letter is submitted as evidence] likewise required that respondent be treated as outside AFI jurisdiction.
Background
The case arose from a motor vehicle collision. Country-Wide Insurance Company paid no-fault benefits to its insureds and then sought reimbursement from National Indemnity Company, which insured the owner of the other vehicle. National Indemnity had previously sent a written disclaimer stating that the vehicle involved in the accident was not a covered auto listed on the applicable policy schedule. More than a year after receiving that disclaimer, Country-Wide commenced arbitration under Insurance Law § 5105 [mandatory loss-transfer arbitration provision] seeking subrogation reimbursement. National Indemnity did not initially submit the disclaimer letter in the arbitration, and AFI issued an award in Country-Wide's favor. After the award, National Indemnity filed a Post-Decision Inquiry with AFI and attached the disclaimer letter.
Lower Court Decision
Supreme Court, New York County, granted Country-Wide's petition to confirm the arbitration award and denied National Indemnity's cross-motion to vacate the award and dismiss the petition.
Appellate Division Reversal
The Appellate Division unanimously reversed, holding that AFI did not have jurisdiction to decide the proceeding once National Indemnity properly submitted its disclaimer letter. The court ruled that the disclaimer triggered 11 NYCRR § 65-4.11(a)(6) [mandatory arbitration does not apply where lack of coverage is asserted in good faith unless there is specific written consent] and AFI rule 2-4 [party is ruled out of jurisdiction if a denial/disclaimer letter is submitted as evidence], which vitiated the jurisdictional basis for the loss-transfer award. The petition to confirm was denied, the cross-motion to vacate was granted, and the petition was dismissed.
Legal Significance
This decision underscores that in New York no-fault loss-transfer disputes, a good-faith coverage disclaimer can defeat mandatory arbitration jurisdiction even if the disclaimer is presented after the initial award, so long as it is submitted in accordance with AFI's procedural rules. It also confirms that an arbitration award cannot stand where the arbitral forum lacked jurisdiction because the responding insurer was not subject to mandatory arbitration absent written consent.
An insurer seeking to resist a no-fault loss-transfer arbitration award may successfully vacate the award by timely submitting a valid disclaimer of coverage under applicable AFI rules, because a good-faith lack-of-coverage defense removes the dispute from mandatory arbitration jurisdiction.