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Auto insurer's fail to meet noncooperation disclaimer standard: Pepper v. Geico.

In April 2008, Daniel Pepper was riding a bicycle when a car operated by Yolanda Johnson swerved towards him allegedly causing him to fall from his bicycle and sustain personal injuries. In mid-April 2008, Pepper's counsel, both verbally and in writing, notified Johnson's no-fault insurer, Geico that the accident had occurred. In response, Geico claims examiner Frances Moran opened a claims file on April 18, 2008 when plaintiff's counsel advised Geico that the accident had occurred.

Since no police report had been filed, Geico attempted to contact Johnson to secure confirmatory details about the accident. Moran called Johnson at work on April 21, 2008, around mid-day, and was told that Johnson was out in the field. Moran then left a message about the claim together with her return phone number.

When no response was forthcoming, Moran called Johnson's cell phone and home phone on April 22, 2008 and left messages advising Johnson that it was very important that Johnson call her back so they could discuss the alleged accident. That same day, April 22, 2008, Moran sent a so-called contact letter to Johnson at her home address. The letter advised that Geico was attempting to locate Johnson and requested that she call Moran at the number listed in the letter.

Since Johnson did not respond to either Moran's calls or her contact letter, on April 24, 2008, Moran requested that Geico field investigator Quinton Blakes attempt to contact Johnson.

After confirming the accuracy of the address and telephone numbers on file for Johnson, on April 29, 2008, Blakes called Johnson's work number and left a message with a co-worker asking that Johnson return his call.

On April 30, 2008, the next day, Johnson returned Blakes' call and asked that Blakes call her cell phone. When Blakes returned her call, Johnson told him, however, that she could not take calls at that time since she was "in the field" during work hours. Blakes called Johnson later that night and left a voice message about the claim requesting that she return his call. On May 6 2008, Johnson returned Blakes' call leaving a voice mail, in response to which Blakes called her back on May 7, 2008 and left a message requesting a return call.

On May 11, 2008, Blakes called Johnson and she answered the call, but after Blakes identified himself as a Geico employee, Johnson claimed that she could not hear or understand him properly. Blakes immediately called her back and informed Johnson that it was her obligation as a policy holder to cooperate with Geico's investigation and that she should call him back.

On May 12 2008, Blakes received a call from a person who identified herself as a friend of Johnson's named "Angela" During the conversation, Angela informed Blakes that she was then attempting to set up a three-way conference call with Johnson. Angela was apparently unable to complete the process and Blakes was unable to speak to Johnson that day. Angela advised Blakes that she would attempt to contact Johnson and have Johnson call Blakes.

Blakes called Angela once again and also called Johnson two times, both on May 13, 2008. He left a message with Angela inquiring as to whether she had spoken to Johnson and also left a message with Johnson requesting that she return his call, but Johnson did not respond to his requests.

Moran also called Johnson on May 13 2008 and informed her that if she did not respond, Geico would then disclaim coverage under the policy and all legal bills would thereafter become her personal responsibility. On May 20, 2008, Moran sent a reservation of rights letter to Johnson at her home address, which letter stated inter alia that "we are making this reservation of rights because you have failed to cooperate in the investigation of this claim ***"

When no response was received to the May 20, 2008 letter, Geico disclaimed coverage by letter dated July 11 2008. The disclaimer letter advised inter alia that "this disclaimer is made because of your failure to notify us of this loss and your failure to cooperate with GEICO *** in the investigation and subsequent handling of the loss."

The letter further stated that "we have made many attempts to verify this loss with you *** but that to date we have had no response from you and therefore we are disclaiming coverage for this loss."

Thereafter, in September, 2008, the plaintiff herein, Pepper, commenced an action against Johnson in the Supreme Court, Kings County. Johnson defaulted, and a damages inquest was conducted. A default judgment was subsequently entered against Johnson on June 9, 2009 in the principal sum of $500,000.00.

Plaintiff's counsel wrote to Geico, informing it that its insured had defaulted and that the judgment has been entered against her. In response, Geico acknowledged that the default judgment had been entered, but noted that it had previously disclaimed coverage as to the claim in July of 2008.

By summons and complaint dated August 2009, plaintiff commenced the within direct action as against Geico, demanding that Geico satisfy the outstanding judgment pursuant to Insurance Law 3420.

In opposition to plaintiff's summary judgment motion, Geico contended inter alia that its disclaimer was timely and in all respects proper and that the Court should search the record and dismiss the plaintiff's complaint.

"To deny coverage based upon a failure to cooperate, an insurer bears the heavy burden of demonstrating:

(1) that it acted diligently in seeking to bring about the insured' s cooperation;

(2) that the efforts employed by the carrier were reasonably calculated to obtain the insured's cooperation, and

(3) that the attitude of the insured, after his cooperation was sought, was one of willful and avowed obstruction. Johnson v. GEICO 72 AD.3d 900, 898 N.Y.S.2d 526 (2d Dept. 2010), quoting Baghaloo-White v. Allstate Ins. Co. 270 AD.2d 296 704 N.Y.S.2d 131 (2d Dept. 2000). See also Continental Cas. Co. v. Stradford, 11 N.Y3d 443, 871 N.Y.S.2d 607(2008); Thrasher v. United States Liabilty Ins. Co. 19 N.Y.2d 159, 278 N.Y.S.2d 793 (1967); AutoOne Ins. Co. v. Hutchinson 71 AD.3d 1011 898 N.YS.2d 161 (2d Dept. 2010): Insurance Law 3420."

"Significantly, where a carrier disclaims coverage and declines to defend in an underlying lawsuit, it takes the risk that the injured party will obtain a judgment against the purported insured and then seek payment pursuant to Insurance Law 3420. See Lang v. Hanover Ins. Co., supra at 356; Bowker v. NVR, Inc. 39 AD.3d 1162, 834 N. YS.2d 798 (4 Dept. 2007)."

"Moreover, under those circumstances, having chosen not to participate in the underlying lawsuit, the insurance carrier may litigate only the validity of its disclaimer and cannot challenge the liability or damages determination underlying the judgment. See Lang v. Hanover Ins. Co. supra."

"With these principles in mind, the Court agrees that the plaintiff has demonstrated its prima facie entitlement to judgment as a matter of law. In opposition to the motion, Geico has failed to sustain its burden of demonstrating the existence of a triable issue of fact as to whether Johnson s alleged failure to cooperate amounted to willful and avowed obstruction. See New York State Ins. Fund v. Merchants Ins. Co. of New Hampshire 5 AD3d 449, 773 N. Y.S.2d 431(2d Dept. 2004)."

"More particularly, while Geico made efforts to contact Johnson (exclusively through a series of telephone calls and a contact letter), the evidence does not establish, or generate a triable issue of act with respect to, the third prong of the Thrasher test; namely, that Johnson's attitude was one of willful and avowed obstruction. See Thrasher v. United States Liability Ins. Co., supra at 168; Country- Wide Ins. Co. v. Henderson 50 AD3d 789, 856 N.Y.S.2d 184(2d Dept. 2008). See also Empire Mutual Ins. Co. v. Stroud, 36 N.Y.2d 719, 367 N.Y.S.2d 972(1975)."

"Although Johnson did not return the majority of the calls made to her, she did make return calls on two occasions and spoke personally to Blakes on a third occasion. Moreover, and even as recounted by Geico's own affiants, there was nothing in the content of Blakes' conversation with Johnson--or the two phone messages she left for him--evincing a willful or avowedly obstructionist attitude toward Geico s inquiries."

"Although upon these facts, Johnson's conduct may perhaps qualify as evincing an attitude of inaction, mere efforts by the insurer and mere inaction on the part of the insured without more, are insufficient to establish non-cooperation as the inference of non-cooperation must be practically compelling. See Country- Wide Ins. Co. v. Henderson, supra at 790, quoting Empire Mutual Ins. Co. v. Stroud, supra at 721."

"Here, the evidence submitted does not raise a practically compelling inference of non-cooperation. Alternatively, the record supports the conclusion that the July 11, 2008 disclaimer letter was untimely as a matter of law as to the plaintiff.

'An insurer s failure to provide notice as soon as is reasonably possible precludes effective disclaimer, even where the policyholder s own notice of the incident to its insurer is untimely. First Financial Ins. Co. v. Jetco Contracting COyp. 1 NY3d 64, 769 NYS2d 459 (2003)." "The timeliness of an insurer s disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage. When the basis for denying coverage was or should have been readily apparent before the onset of the delay, the insurer's explanation is insufficient as a matter of law."

"Significantly, a reservation of rights letter has no relevance to the question whether the insurer has timely sent a notice of disclaimer of liability or denial of coverage. See Hartford Ins. Co. v. Nassau County, supra; New York Cent. Mut. Fire Ins. Co. v. Hildreth 40 AD2d 602, 835 N. Y.S. 2d 409 (2d Dept. 2007)."

"Additionally an injured third par may seek recovery from an insured's carrier despite the failure of the insured to provide timely notice of the accident. See General Acc. Ins. Group v. Cirucci 46 N. Y.2d 862, 414 N.Y.S.2d 512 (1979)."

"The burden of justifying that two-month delay in disclaiming rests with the carrier. See Scott McLaughlin Truck Equipment Sales, Inc. v. Selective Ins. Co. of America, supra at 1620; Felice v. Chubb Son, Inc., supra at 861-862."

"Here, and as described by Geico's two principal affiants--Moran and Blakes, Geico's last and final telephonic efforts to contact Johnson occurred on or about May 13, 2008--after which a period of almost two months elapsed before the disclaimer letter was finally issued on or about July 11 2008. At this juncture in mid-May of 2008, Geico was aware of the non-cooperation based disclaimed theory."

"Although investigation into issues affecting an insurer's decision whether to disclaim coverage obviously may excuse delay in notifying the policyholder of a disclaimer, there is no evidence here that any further analysis or investigative efforts were made or required after Geico ceased its efforts to contact Johnson in mid-May of 2008."

"While in early May, 2008, the insured's alleged friend Angela apparently attempted to broker a three-way telephone conference call which failed, there is nothing in the record which establishes that Johnson was aware of--or a party to--Angela's efforts."

"Nor does the evidence support the view that sporadic instances of cooperation existed which would warrant further and additional consideration once the last calls to Johnson and Angela went unanswered on May 13, 2008."

"The Court of Appeals holding in Continental Cas. Co. v. Stradford, supra relied on by Geico, is distinguishable. In that case, there existed a six-year period of sporadic, on-again, off-again cooperation, punctuated by contradictory patterns of affirmatively obstructive conduct. Since the assessing insured's actual intent was obscured by repeated pledges to cooperate and actual cooperation, the Court found that further analysis and consideration by the carrier may have been warranted, thereby creating an issue of fact as to whether an ensuing, two-month delay in disclaiming was reasonable."

"Here, in contrast, there was no complex or contradictory pattern of cooperation and obstructive conduct permeating the insurer's relationship with its insured for almost six years which would justify the additional period of delay which took place."

"The Court has considered Geico's remaining contentions and concludes that they are lacking in merit. Accordingly, it is ORDERED that plaintiff's motion for summary judgment pursuant to CPLR 3212 and Insurance Law 3420 is hereby granted."

Comment: As you can see, the burden on an insurer in establishing non-cooperation is very high, especially when it is the injured plaintiff who is seeking to enforce a judgment against the insured. It is usually prudent for the insurer to do more, rather than less, to obtain the insured's cooperation before disclaiming. In this case, answering the Complaint to prevent a default and continuing to defend the suit, with notices to the insured, until such time as a preclusion order was granted based on the insured's lack of input was granted. While an objective observer may feel that this insured was obviously "jerking Geico around," Geico obviously needed to do more before it could effectively pull the plug on coverage.

2010 NYSlipOp 31699

(Supreme Court, Nassau Co.) (Sher,j)]
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Title Annotation:COURTSIDE
Author:Rogak, Lawrence N.
Publication:Insurance Advocate
Date:Jul 31, 2010
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