Chubb Ins. Co. v GEICO Ins. Co. (2008 NY Slip Op 51985(U))

Supreme Court, New York County

105012/07

For the Petitioners:Agnes Neiger, Esq.

Jones Jones O’Connell LLP

45 Main Street, Suite 1101

Brooklyn, New York 11201

For the Respondents:

Patrice Soberano, Esq.

Short & Bill, P.C.

217 Broadway, Suite 300

New York, New York 10007

Marcy L. Kahn, J.

By notice of petition and petition dated April 4, 2007 and the exhibits annexed thereto, petitioner Chubb Insurance Company (“petitioner” or “Chubb”), moved for an order pursuant to CPLR §7511(b)(1)(iii) vacating the amended award of the arbitrator, dated January 17, 2007, in the arbitration proceeding between petitioner and respondent, GEICO Insurance Company (“respondent” or “GEICO”) on the ground that the arbitrator exceeded her powers, and sought to reinstate the original award issued by the arbitrator on November 3, 2006. Respondent submitted no opposition to the petition. By decision and order dated July 21, 2007, this court granted the petition on default, vacated the amended award and reinstated the original award. Respondent now moves to vacate the default judgment and, upon vacation, to reinstate the amended award. For the reasons stated, respondent’s motion is denied. [*2]

I. FACTUAL AND PROCEDURAL BACKGROUND

On January 22, 2003, Chenille Bonner (“Bonner”), a New York City Transit Authority (“NYCTA”) bus driver, was on duty in her bus when it became involved in a three-vehicle accident. As the NYCTA workers’ compensation insurer, Chubb paid $42,065.56 in benefits to and on behalf of Bonner as a result of the accident. (Pet. Exh. B).

In accordance with Insurance Law §5105, Chubb filed an inter-company arbitration demand against GEICO and Statewide Insurance Company (“Statewide”), the insurers of the other two vehicles,^[FN1] seeking reimbursement of the first-party benefits it had paid to its insured. As one of the vehicles involved in the accident was a NYCTA bus weighing in excess of 6500 pounds unloaded and constituting a vehicle for hire (see Pet. Exh. A), the jurisdictional requirements of §5105(a) were satisfied. The case was then submitted to arbitration with Arbitration Forums Inc. (“AFI”) pursuant to §5105(b) and 11 NYCRR §65.10 of the no-fault regulations on September 19, 2005. (Pet. Exh. C).

On October 31, 2006, the arbitration was held before the AFI arbitrator, Sabrina Owens (“Owens” or the “arbitrator”). On November 3, 2006, Owens issued her decision in the matter under AFI Docket No. I068-07725-05-00 (the “original award”), finding each of the respondents to be fifty per cent liable, and awarding Chubb a total of $42,065.56. (Pet. Exh. D).

Thereafter, by letter to the arbitrator dated November 22, 2006, respondent GEICO requested that the award against it be vacated due to an “incorrect application of New York regulations regarding PIP loss transfer requirements . . . .” (Pet. Exh. E). In essence, GEICO argued that because GEICO also provided motor vehicle insurance coverage for the NYCTA bus, it was “united in interest” with Chubb and recovery by Chubb against it was barred.

On January 17, 2007, the arbitrator issued an amended decision and award (the “amended award”), in which she determined that Statewide bore fifty per cent of the liability and that GEICO bore no liability in the case. (Pet. Exh. F). The amended award reduced Chubb’s recovery to $21,032.78.

Thereafter, petitioner commenced a proceeding to vacate the amended award and reinstate the original award, arguing that the arbitrator exceeded vacating the original award and her powers in issuing the amended award. As proof of service on the Superintendent of Insurance was provided by petitioner and respondent submitted no opposition to the petition, this court issued a decision and order dated July 20, 2007 (“Chubb I“), granting the petition on default but also addressing the merits [*3]of the petition.^[FN2]

Petitioner served respondent with notice of entry of the judgment on or about September 4, 2007. On May 9, 2008, GEICO filed the instant motion to vacate the default judgment in Chubb I. Chubb has opposed the motion. GEICO thereafter furnished a reply affirmation.

II.PARTIES’ CONTENTIONS

On this motion, GEICO claims that this court’s decision in Chubb I should be vacated on the ground of excusable default, as its failure to appear in the Article 75 proceeding was reasonable and it has a meritorious defense to the proceeding. Proffering the representation of its claims representative, Simon King (“King”), GEICO maintains that its failure to appear in the Article 75 proceeding was reasonable and should be excused, because its files do not reflect that it was ever served with process or received any notice of the proceeding until after the entry of judgment against it on September 4, 2007. (Aff. of Merit of Simon King, sworn Apr. 23, 2008 [the “King affidavit”], at ¶11).

GEICO states that it has a meritorious defense, arguing that the original award was so irrational as to require vacation. Specifically, GEICO argues that Chubb, Bonner’s worker’s compensation carrier, was aligned in interest with GEICO, which provided no-fault motor vehicle coverage for Bonner’s NYCTA bus, as well as for one of the other vehicles involved in the accident. It argues that to permit a worker’s compensation carrier to recover from the no-fault insurer of the same person would improperly eliminate the worker’s compensation offset for no-fault insurers mandated by Insurance Law §5102(b)(2). It also argues that there should have been no consideration of negligence through intercompany loss transfer pursuant to Insurance Law §5105(a) because of Chubb’s status as a worker’s compensation carrier, and that Chubb is the sole source of Bonner’s medical benefits under 11 NYCRR §65-3.16(a)(9). Contending that the arbitrator recognized her own error and, accordingly, amended her award appropriately, GEICO argues that the amended award should be reinstated.

Chubb responds that GEICO has failed to establish either a reasonable excuse for its default or a meritorious defense to the petition. Chubb contends that GEICO cannot furnish a reasonable excuse for its default because the statement by King is conclusory and unsupported by specific factual allegations. It proffers an affidavit of service upon the office of the Superintendent of the New York State Insurance Department (“NYSID”) as the duly appointed representative of GEICO and the [*4]acknowledgment of such service and delivery to GEICO by that office on April 16, 2007. (Affirm. of Agnes Neiger, Esquire in Opp.[“Neiger Aff.”], dated July 10, 2008, Exh. D). Chubb further maintains that GEICO’s defense, namely, that the original award is irrational and should be vacated, does not address the issue before this court in Chubb I, that being whether the arbitrator exceeded her authority in issuing the amended award.

Chubb also argues that GEICO’s request to the arbitrator for modification of the original award failed to comply with the requirements of CPLR §7509, as GEICO submitted its request more than twenty days after the original award was issued. Chubb reiterates that because the amendment of the award did not fall within the statutory parameters specified in CPLR §§7509 and 7511(c), the arbitrator exceeded her authority in amending the original award in response to the request, rendering GEICO’s position unmeritorious.

III.DISCUSSION

It is settled law that “[a] party seeking to vacate a default must demonstrate both a reasonable excuse for [that party’s] nonappearance and a meritorious defense to the action.” (Eugene Di Lorenzo, Inc. v. A.C. Dutton Lumber Co., 67 NY2d 138, 141 [1986]; Central City Brokerage Corp. v. Acosta, 49 AD3d 455 [1st Dept. 2008]. On this motion, GEICO has failed to establish either a reasonable excuse or a meritorious defense.

A. Reasonable Excuse

GEICO’s assertion that it was not properly served with the petition is belied by both the affidavit of service sworn on April 13, 2007 and the affidavit of acknowledgment of service dated April 16, 2007. The affidavit of service attests to the fact that on April 13, 2007, GEICO was served by personal delivery with a true copy of the notice of petition and petition to Dora Lewis of the NYSID and that Ms. Lewis was a duly appointed representative of GEICO for the purpose of receiving service of process.^[FN3] (Neiger Aff., Exh. D). The affidavit of acknowledgment of service reveals that on April 16, 2007, Salavatore Castiglione, Assistant Deputy Superintendent and Chief of NYSID, acknowledged that the notice of petition was served upon him on April 13, 2007 and that he notified GEICO of service by forwarding the acknowledgment and a copy of the notice of petition to Mr. Robert M. Miller of GEICO at its address in Woodbury, New York on April 16, 2007. (Id.) GEICO presents no facts contradicting this evidence, or demonstrating that it had a new address for the forwarding of service of process and had [*5]failed through inadvertence to notify the Superintendent of Insurance of that fact. Further, there are no facts before this court demonstrating that the notice of petition was ever returned undelivered to the Insurance Department. Although GEICO does claim that a copy of the notice of petition could not be located in its files, no facts have been presented to this court supporting GEICO’s claim that it was never served on the company.

Thus, the record establishes that service of the notice or petition and petition was effected pursuant to Insurance Law §1212(b).^[FN4] GEICO has failed to provide a sworn factual basis to controvert these allegations. As GEICO has not shown that it was not properly served with the petition in this proceeding, GEICO does not have a reasonable excuse for its failure to appear in this proceeding prior to filing the instant motion.

B. Meritorious Defense

GEICO’s claim of a meritorious defense in this proceeding is equally unavailing. In Chubb I, the issue before the court was whether the arbitrator exceeded her powers in issuing the amended award, which Chubb sought to vacate pursuant to CPLR §§ 7509 and 7511(b)(1). (See Chubb I, section II, at 3). On this motion, rather than addressing that issue, GEICO challenges the rationality of the original award. These misdirected arguments do not constitute a meritorious defense to Chubb’s petition.

Although, as GEICO contends, New York courts have been liberal in vacating default judgments in light of the strong public policy favoring the resolution of cases on their merits (Reply Affirm. of Patrice Soberano, Esquire dated July 25, 2008 in Support of Resp. Mot., at ¶14; see Aliksanyan v. Sundman, 98 AD2d 607 [1st Dept. 1983]; Balint v. Marine Midland Bank, 112 AD2d 1023 [2d Dept. 1985]), in most of the cases relied upon by GEICO, the motion to vacate the default judgment was filed promptly upon receipt of the notice of entry of the default judgment by the prevailing party. (See, e.g., Glass v. Janbach Properties, 73 AD2d 106, 108 [2d Dept. 1980][motion to vacate filed eight days after receipt of notice of entry of default judgment]). Here, by contrast the motion to vacate the default [*6]was filed some eight months after service of the notice of entry of the judgment. Moreover, in Chubb I this court did address the merits of this proceeding, rather than merely granting a default judgment based upon GEICO’s failure to respond to the petition. (See Chubb I, section III at 4-8).

GEICO proffers no factual or legal basis for this court to vacate its judgment in Chubb I. Instead, GEICO argues that the arbitrator made an error of law in issuing the original award in contravention of both a governing statute and a regulation. Specifically, GEICO maintains that the original award, which permitted Chubb, the workers’ compensation carrier for Bonner, to recover from GEICO, the no-fault insurer for the same party, violates the statutory scheme set forth in Insurance Law §5102(b)(2). Under that scheme, first-party benefits paid by a no-fault insurer to reimburse a person for basic economic loss on account of personal injury are to be offset by any amounts recovered on account of workers’ compensation benefits, rather than the reverse. (See Ins. Law §5102[b][2]; Arvatz v. Empire Mut. Ins. Co., 171 AD2d 262 [1st Dept. 1991][“. . . Insurance Law §5102(b)(2) provides that workers’ compensation benefits serve as an offset against first-party benefits payable under no-fault as compensation for basic economic loss'”]; New York Cent. Mut. Fire Ins. Co. v. Tower Ins. Co. of New York, Index No. 100446/07, [Sup. Ct. NY Co. July 6, 2007][vacating arbitrators’ award of medical expenses from no-fault insurer to workers’ compensation carrier as contrary to Insurance Law §5102(b)]). GEICO further asserts that the original award does not comply with 11 NYCRR § 65-3.16(a)(9), which provides:

(p)ursuant to section 5102(b)(2) of the Insurance Law, when the applicant is entitled to workers’ compensation benefits due to the same accident, the workers’ compensation carrier shall be the sole source of reimbursement for medical expenses.

(11 NYCRR §65-3.16[a][9]; see also New York Cent. Mut. Fire Ins. Co. v. Tower Ins. Co. of New York, supra [“because the compensation carrier is solely responsible for the medical expenses, it turns the law on its head to allow the carrier to recover from the no-fault insurer”]). Assuming, without deciding, the correctness of GEICO’s statement of the law and its application to the circumstances presented here,^[FN5] GEICO had a remedy, which was to make a successful motion in this court to vacate the original award pursuant to CPLR §7511, but, for [*7]reasons still unexplained, failed to do so. Rather, GEICO sought to have the arbitrator modify her award. In doing so, GEICO sought its remedy in an inappropriate manner. Should a party to an arbitration proceeding seek to vacate or modify an award, the appropriate means to do so is by way of CPLR article 75 procedure. (See Caso v. Coffey, 41 NY2d 153, 157 [1976][a requirement that arbitrators be prepared to defend their awards would “discourage qualified and competent persons from serving as arbitrators”]).

Chubb subsequently brought its petition seeking to vacate the amended award. Despite having been properly served with the petition by personal service on the Superintendent of Insurance, GEICO failed to respond. Having been presented no contentions on the merits by GEICO, this court considered Chubb’s argument that the arbitrator exceeded her authority and determined that the arbitrator had done so. (See CPLR §7511[b][1][iii]; Matter of the Board of Educ. of the Dover Union Free School Dist. v. Dover-Wingdale Teachers’ Ass’n, 61 NY2d 913,915 [1984] [arbitration award may be vacated where the award is “in excess of a specifically enumerated limitation upon arbitral authority”]). Thus, this court decided the issue on the merits in favor of Chubb. (See Chubb I at 4-8).

Further, GEICO’s motion, which effectively seeks an order from this court confirming the amended award, is untimely, as it has been approximately one year and eight months, long after the expiration of the one-year statutory time period, since the delivery of the amended award to GEICO. (CPLR §7510).

As GEICO proffers neither a reasonable excuse for its nonappearance in this proceeding prior to the filing of the instant motion, nor a meritorious defense to the petition, the motion to vacate the default judgment must be denied.

IV.CONCLUSION

For the foregoing reasons, respondent’s motion to vacate the default judgment of this court dated July 20, 2007 is denied.

The foregoing constitutes the decision and order of this court.

ENTER:

______________________

Marcy L. Kahn, J.S.C.

Dated:New York, New York

September 29, 2008

Footnotes

Footnote 1:In addition to the NYCTA bus, GEICO insured a third-party vehicle involved in the accident.

Footnote 2:See Chubb I, section III, at 4-8.

Footnote 3: CPLR §317 is not applicable here, since the agent for

service of process was personally served.

Footnote 4:Insurance Law §1212(b) provides:

Service of process upon any such insurer in any proceeding in any court of competent jurisdiction may be made by serving the superintendent, or any salaried employee of the department whom the superintendent designates for such purpose, all of whom shall have authority to accept such service pursuant to any such power of attorney.

Footnote 5:The instant situation is complicated by the fact thatGEICO is the no-fault insurer of both the workers’compensation vehicle and one of the third-parties’ vehicles.