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No-fault award stayed due to Supreme Court ruling.

On September 12, 2005, the Civil Court of the City of New York, Kings County, granted plaintiff's motion for summary judgment on default, awarding plaintiff $635 for first party no-fault insurance benefits. The judgment was filed and entered on September 16, 2005.

On or about February 13, 2006, defendant Progressive filed a declaratory judgment action in the Supreme Court to have that court declare that plaintiff's assignors had staged the accident subject to the no-fault claims. Plaintiff was neither named in the declaratory judgment nor notified of its pendency.

On March 15, 2006, the Supreme Court granted defendant's declaratory judgment action--on default--against the named assignors, and issued a stay of all proceedings. The court's order stated that defendant had no duty to pay claims for no-fault benefits to the named assignors and that the accident subject to these claims was to be deemed "intentionally staged fraudulent and therefore uncovered event."

On March 30, 2006, the plaintiff in this suit, who was never served with a copy of the Supreme Court order, served Progressive with the notice of entry of the Civil Court's order of September 12, 2005. On May 3, 2006, plaintiff proceeded to enter judgment on the default, and on May 12, 2006, defendant's new counsel advised plaintiff of the Supreme Court stay. On July 27, 2006, the Civil Court clerk entered the default judgment against defendant.

On September 14, 2006, Progressive filed the instant order to show cause to enforce the Supreme Court stay and to vacate the notice of entry of the Civil Court default judgment. In its papers, Progressive asserted that plaintiff was collaterally estopped from enforcing the default judgment based on the Supreme Court's declaratory judgment.

Plaintiff opposed the motion on the grounds that the declaratory judgment action was brought against plaintiff's assignor to have the alleged accident deemed a staged event. Plaintiff maintains that it cannot be collaterally estopped to enforce the no-fault award because plaintiff was not a party to the Supreme Court action and therefore had no opportunity to defend against defendant's assertions.

The court here held that "the requisite elements to hold plaintiff estopped in the instant proceeding may not exist. First, the no-fault action preceded the declaratory judgment action, and therefore the issue is not being re-litigated in a subsequent proceeding. Second, defendant was not named in or notified of the declaratory judgment action, and therefore had no opportunity to contest the determination. And third, even though plaintiff stands in privity with the persons named in the declaratory judgment, that decision was rendered on default of those persons. The court has no information as to the reason for such default, which could, in fact, be lack of service. If such be the case, that would negate the assumption that they were afforded the opportunity to contest and simply chose to decline.

"However, regardless of our analysis of the collateral estoppel argument, this court lacks the jurisdiction to review the decision of the Supreme Court. Any argument defendant may posit with respect to the underlying appropriateness of the Supreme Court decision must be made before that tribunal. At this point, this court is obligated to give full effect to the declaratory judgment insofar as it stays all proceedings arising out of the alleged accident with respect to the instant assignor. Since the entry of judgment was filed after the declaratory judgment was issued, this court must find the entry of judgment of the no-fault summary judgment to be a nullity. This is true even though plaintiff acted innocently and without knowledge of declaratory judgment.

"Having determined that the entry of judgment is a nullity, the court is faced with the fact that the summary judgment in favor of plaintiff still stands since it predates the declaratory judgment. As a consequence, should the stay eventually be lifted, the judgment could be entered at that time. Therefore, this court feels compelled in the interests of efficient administration of justice to determine whether defendant has provided sufficient grounds to vacate its default of the original no-fault motion for summary judgment.

"Section 5015 of the CPLR provides the grounds upon which a default may be vacated. Simply stated, in order for a defaulting party to have the judgment vacated, within one year of entry of judgment, it must provide the court with a reasonable excuse for its default and evidence of a meritorious defense. In the instant case defendant has provided absolutely no reason why it never appeared for the argument on the summary judgment motion. However, the Supreme Court's decision on the declaratory judgment, even though rendered on default, does provide some evidence of a meritorious defense.

"With respect to the instant motion, this court feels obligated to exercise its discretion in favor of vacating its initial default judgment in the interests of the efficient administration of the judicial system. As a general principle, the court prefers issues to be decided after a full hearing on the merits rather than by default .... Despite the fact that defendant did not appear for oral argument on the summary judgment motion, the court notes that defendant did submit opposition papers in which it posited the argument that the accident that was subject of the claim was staged and therefore not a covered event. This court would prefer to err on the side of caution and justice to make sure that fraudulent claims are not given the imprimatur of judicial sanction simply because a party fails to appear for oral argument.

"Therefore, after deliberating on all of the arguments presented by both sides, the court grants defendant's motion to the extent of vacating the entry of judgment based on the Supreme Court stay, and further vacates its initial default judgment because the Supreme Court order, along with the facts alleged in defendant's opposition papers to the original motion, raise a question of fact that precludes summary judgment. In reaching this conclusion, the court is not making a determination of the collateral estoppel effect of the declaratory judgment on plaintiff; rather it is simply denying plaintiff's motion for summary judgment because questions of fact exist."

Comment: I find it very interesting, and encouraging, that a Civil Court judge has written that the courts should be cautious about allowing a possibly fraudulent claim to succeed just because the insurer defaults.

Alpha Health Care Plus Med. a/a/o Tsitsishvili v. Progressive Ins. Co., 2007 NY Slip Op 52209(U), Civil Court Of The City Of New York, Kings County (Nadelson. J.)
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Author:Rogak, Lawrence N.
Publication:Insurance Advocate
Date:Dec 3, 2007
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