September 13, 2004

Matter of Progressive County Mut. Ins. Co. (McNeil) (2004 NY Slip Op 50998(U))


The court considered the facts of a rear-end collision between two vehicles insured by State Farm and Progressive insurance companies. State Farm disclaimed coverage for the collision, claiming it was an intentional, staged event to defraud the insurance company. The main issues decided were whether State Farm's disclaimer of coverage was valid, and whether the injured parties could seek arbitration under Progressive's uninsured motorist endorsement. The court held that State Farm's disclaimer was valid and that the collision was indeed an intentionally staged event. As a result, the injured parties could not seek compensation under Progressive's uninsured motorist endorsement, and the insurer's application for a permanent stay of arbitration was granted. The court also noted the injustice of innocent victims of intentional collisions being left without any recourse for compensation.

Reported in New York Official Reports at Matter of Progressive County Mut. Ins. Co. (McNeil) (2004 NY Slip Op 50998(U))

Matter of Progressive County Mut. Ins. Co. (McNeil) (2004 NY Slip Op 50998(U)) [*1]
Matter of Progressive County Mut. Ins. Co. (McNeil)
2004 NY Slip Op 50998(U)
Decided on September 13, 2004
Supreme Court, Nassau County
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.
Decided on September 13, 2004

Supreme Court, Nassau County

In the Matter of the Petition of PROGRESSIVE COUNTY MUTUAL INSURANCE COMPANY, Petitioner,
For an Order staying the arbitration attempted to be had by


Zelda Jonas, J.

Pursuant to the order of this Court dated August 19, 2003, this matter was set down for a framed-issue hearing to determine whether petitioner, Progressive County Mutual Insurance Company (hereinafter referred to as “Progressive”), is entitled to a stay of the uninsured motorist arbitration commenced by the respondents, Diandre McNeil and Tatyana Newbern, under the [*2]uninsured motorist endorsement of the insurance policy and to determine the validity of the disclaimers of coverage forwarded by respondent, State Farm Mutual Automobile Insurance Company (hereinafter referred to as “State Farm”), to its insured, Elicier Delgado, Jr., and the reported operator of the State Farm-insured vehicle, Ernesto Ortiz. State Farm has disclaimed coverage upon the ground that the collision was an intentional, staged event by its insured to defraud State Farm. The respondents, Diandre McNeil and Tatyana Newbern, were in a vehicle that was struck in the rear by the vehicle insured by Elicier Delgado, Jr. and Ernesto Ortiz on February 18, 2002.

Petitioner Progressive claims that the arbitration should be permanently stayed because the offending vehicle is insured by respondent State Farm. Petitioner claims that State Farm’s disclaimer of coverage is defective since the notice of disclaimer was issued in an untimely manner, and the injured parties were never served with the notice of disclaimer as required by Insurance Law §3420 (d). Therefore, petitioner claims that the respondents insured by Progressive cannot seek arbitration under the uninsured motorist endorsement of the insurance policy. In the alternative, petitioner claims that if the Court finds that there is no insurance because of an intentional collision, then the injured parties still cannot receive compensation under the Progressive uninsured motorist endorsement because the endorsement only covers injuries that are caused by accidents.

A bench trial was held on March 4, 2004. The parties stipulated that the rear-end collision occurred between the Delgado vehicle and the McNeil-Newbern vehicle on February 18, 2002. The sole witness to testify is Miss Fink, the investigator for State Farm. The Court credits her testimony as being credible.

Findings Of Fact

Elicier Delgado owned a 1989 Honda which was insured by State Farm on the date of the collision, February 18, 2002. The inception date of the automotive policy was January 18, 2002. The policy was a standard automobile policy under an assigned risk plan, and a premium payment was paid at the time of its inception. On February 3, 2002, Delgado’s vehicle was involved in a rear-end collision in which his vehicle struck the preceding vehicle. On February 18, 2002, Delgado’s vehicle was involved in a second rear-end collision with the respondents, McNeil and Newbern. Again, his vehicle struck the rear of the preceding vehicle, this time the respondents’ vehicle, a 1998 Dodge. There is a discrepancy over the operator of Delgado’s vehicle during the February 18th collision. Mr. Delgado informed the State Farm investigator that he was the operator of the vehicle, while the police report indicates that Ernesto Ortiz was the operator. On March 9, 2002, State Farm canceled Delgado’s insurance policy for nonpayment of the premium. Delgado never made a subsequent payment since his initial premium payment. On June 5, 2002, an investigator visited Delgado’s residence at which time Delgado informed the investigator that his vehicle had been involved in the February 18th accident. On June 6, 2002, an investigator unsuccessfully attempted to get a statement from Ortiz by visiting his home. On September 20, 2002, Delgado was scheduled for an Examination Under Oath (hereinafter referred to as EUO), but he failed to appear. On October 9, 2002, the State Farm conducted EUO’s of two passengers in the Delgado vehicle, Manano Ortiz and Eli Ramos. On October 27, 2002, Delgado was scheduled for a second EUO and once again failed to appear. Miss Fink [*3]testified that on February 5, 2003, State Farm issued letters to Ortiz, Delgado, McNeil, and Newbern to inform them that they were disclaiming coverage as they concluded that the Delgado’s vehicle was involved in an intentional fraud and not an accident.

Conclusions Of Law

Respondent State Farm is correct in asserting that the offending Delgado vehicle is not covered under the automotive policy issued by respondent if the collision was an intentional, staged event and not caused by an accident (Metro Medical Diagnostics, P.C. v. Eagle Insurance Company, 293 A.D.2d 751).

The respondent State Farm has demonstrated that the collision that occurred on February 18, 2002 was one of two accidents that occurred over a short period of time, i.e. two weeks, that were deliberately caused to fraudulently obtain insurance benefits. An insurer asserting a lack of coverage based upon a defense of fraud must come forward with “the facts” or a “foundation for its belief” that the incident was a deliberate, staged event in furtherance of a scheme (Mount Sinai Hospital v. Triboro Coach Inc., 263 A.D.2d 11, at 19, citing Central General Hospital v. Chubb Group of Ins. Cos., 90 N.Y. 2d 195, 199; Inwood Hill Medical P.C. v. Allstate Insurance Company, 2004 WL 1381082). Where it is proven that the vehicles were involved in several collisions within a short period of time after the insurer issued insurance policies for vehicles registered to the insured, that is sufficient to satisfy the definition of “founded belief” (State Farm Mutual Automobile Ins. Co., v. Leguerre, 305 A.D.2d 490; Inwood Hill Medical P.C. v. Allstate Insurance Company, supra, at 10). It has been held that two collisions that occurred in a similar manner, coupled with discrepancies within the statements provided by the insured, constituted a “compelling and persuasive body of circumstantial evidence” that the underlying loss resulted from an intentional collision arranged for the purpose of insurance fraud (National Grange Mutual Insurance Company v. Vitebskaya, 1 Misc3d 774, at 777). The inference to be drawn from the circumstantial evidence must be logically compelling and prove that it was “more likely” or “more reasonable” that the collision was a result of a staged, intentional event rather than caused by an accident. (See, Gayle v. New York, 92 N.Y.2d 936.)

At the framed-issue hearing, respondent State Farm has established sufficient facts through the testimony of their investigator, Miss Fink, that created the reasonable inference of a founded belief that the collision on February 18, 2002 was an intentional, staged event. The State Farm-insured vehicle, a 1989 Honda, was involved in two alleged accidents within a two-week period of time and also within one month after an assigned risk policy of insurance was assigned to State Farm. In each of those incidents, the 1989 Honda allegedly rear ended another car while there were multiple individuals in the 1989 Honda as passengers. After each of these alleged accidents, the multiple individuals in the State Farm-insured vehicle made claims of injuries and no-fault claims. The insurance policy covering the 1989 Honda was cancelled shortly after these two alleged accidents as the State Farm-insured Delgado never made premium payments subsequent to the initial payment made when he procured the assigned risk policy of insurance. Finally, neither the State Farm insured nor the alleged operator of the State Farm-insured vehicle appeared for examinations under oath in connection with the investigation of this claim. Accordingly, the Court finds that State Farm presented compelling and persuasive circumstantial evidence that the collision that occurred on February 18, 2002 was an intentionally staged event. [*4]

Contrary to petitioner’s contention, State Farm was not required by Insurance Law §3420 (d) to issue a notice of disclaimer to the insured and the injured parties because its denial of coverage was based on a lack of coverage for the incident from a deliberate collision caused in furtherance of an insurance fraud scheme which is not a covered accident and, therefore, not an exclusion under the policy (State Farm Automobile Insurance Company v. Laguerre, 305 A.D.2d 490).

Because the injuries sustained by respondents, Diandre McNeil and Tatyana Newbern, were caused by an intentional collision, they also cannot recover from the uninsured motorist endorsement of the Progressive policy which provides only for compensation for injuries sustained by a covered person “caused by an accident.” This language in an insurance policy has been interpreted by the courts to exclude recovery for intentional conduct (McCarthy v. MVAIC, 16 A.D.2d 35, aff’d, 12 N.Y.2d 922; In the Matter of Progressive Northwestern Insurance Company v. Van Dina, 282 A.D.2d 680; In the Matter of Aetna Casualty & Surety Company v. Perry, 220 A.D.2d 497). In particular, it excludes coverage under the uninsured motorist policy endorsement for an intentional collision whether it was motivated by malice or fraud (In the Matter of Government Employees Insurance Company v. Shaulskaya, 302 A.D.2d 522).

The Court finds this can result in an injustice since respondents, McNeil and Newbern, appear to be without any recourse for remuneration of injuries. It is also disturbing given the fact that the line of appellate cases which constitutes precedent binding upon this Court completely overlooks that the uninsured motorist insurance was designed for the protection of the insured victims for which insurers pay an additional premium. Legislative action is necessary in order to remedy this glaring void where innocent victims of intentional collisions are left without any recourse for compensation for their injuries by the insurance industry.

Accordingly, petitioner’s application for a permanent stay of arbitration under the uninsured motorist insurance policy endorsement pursuant to CPLR §7502 is granted in its entirety.

Submit order.