American Centennial Ins. Co. v. Sinkler
Decision Date | 26 October 1995 |
Docket Number | No. CV-94-986.,CV-94-986. |
Parties | AMERICAN CENTENNIAL INSURANCE COMPANY, Plaintiff, v. James SINKLER, James Sinkler, Jr., John Caban and Carmen Garcia, Defendants. |
Court | U.S. District Court — Eastern District of New York |
Andrew J. Cook and Debra A. Miller, Newman Schlau Fitch & Lane P.C., New York City, for Plaintiff.
Irwin H. Haut, Morris, Duffy, Alonso & Marulli, New York City, for Defendants.
Table of Contents I. INTRODUCTION ................................................ 409 II. FACTS ....................................................... 409 III. PROCEEDINGS ................................................. 410 IV. RIPENESS .................................................... 410 V. CHOICE-OF-LAW ............................................... 410 A. New York Law ............................................. 410 B. South Carolina Law ....................................... 411 C. Choice-of-Law Rules ...................................... 411 VI. APPLICATION OF LAW TO FACTS RELATING TO CHOICE-OF-LAW ....... 413 A. Grouping of Contacts ..................................... 413 B. The Interests of the States .............................. 413 1. South Carolina ........................................ 413 2. New York .............................................. 414 C. Conclusion ............................................... 416 VII. SOUTH CAROLINA LAW .......................................... 416 A. Summary Judgment ......................................... 416 B. Rescission Affecting Third Parties ....................... 417 VIII. APPLICATION OF SOUTH CAROLINA LAW TO FACTS .................. 417 IX. CONCLUSION .................................................. 417
Plaintiff American Centennial Insurance Company brought this action for a declaratory judgment that it had the right to rescind ab initio its auto insurance policy issued to defendant James Sinkler who obtained it through fraudulent misrepresentations. For the reasons indicated below plaintiff is entitled to the relief it seeks.
The facts are uncontested. Four New York residents were involved in a two-car collision in Brooklyn, New York on October 20, 1992. Sinkler drove one car; his son, James, jr., was a passenger. John Caban drove the other car; his mother, Carmen Garcia, was a passenger.
Sinkler held an auto insurance policy issued by Centennial in South Carolina. He had stated on the application that he was a resident of Pinewood, South Carolina and that he would garage the insured vehicle there. Centennial is authorized to issue policies only to South Carolina drivers and owners resident in that state.
After the accident Centennial discovered that Sinkler had lied on his insurance application. In a March 1993 written statement concerning the accident, he listed a Brooklyn address as his residence and admitted that he had been living at that address since 1971 and in New York since 1964. According to the statement, he had been planning to move back to South Carolina, and that the address given on the application was his mother's.
Sinkler has brought an action in state court for personal injuries against Garcia and Caban. Garcia held a policy issued by Government Employees Insurance Company in New York. Neither Sinkler, jr. nor Caban and Garcia have pending lawsuits. Caban and Garcia have represented that they have no plans to bring an action, but colloquy with the court suggest strongly that they probably will file a claim against Sinkler.
Centennial seeks declaratory judgment authorizing it to rescind Sinkler's insurance policy ab initio (as if it never existed), thus avoiding any obligation to Sinkler or to third persons that could arise out of the accident. Centennial claimed Sinkler's misrepresentations were material to the decision to issue coverage.
Sinkler defaulted, resulting in an order as to him rescinding his policy. The order relieved Centennial of the duty either to defend Sinkler or to pay any judgment or settlement rendered against Sinkler.
The remaining issue is whether Centennial is entitled to a declaratory judgment absolving it of liability to Sinkler, jr., Caban or Garcia for any injuries they sustained in the accident. Centennial moves for summary judgment.
Caban and Garcia assert that the present case is not ripe because they have not sued Centennial for contribution. Plaintiff, they argue, seeks to resolve an "abstract question of law" and not a legitimate "case or controversy."
A "declaration of non-liability on an insurance policy is a well-accepted issue for declaratory judgment under 28 U.S.C. 2201...." Reliance Ins. Co. v. Calderon, 685 F.Supp. 72 (S.D.N.Y.1988); 10A Charles A. Wright et al., Federal Practice and Procedure § 2760 (1983) ( ). An actual controversy exists with an injured third person concerning a policy's validity even though the injured person may decide not to sue. 10A Wright et al. supra at § 2757 (citing cases).
Neither Caban nor Garcia have stipulated that they will refrain from seeking recovery from Centennial. The probability remains substantial that they will file a counterclaim in Sinkler's action against them or that they may start an independent action. In either event, Centennial would, as a practical matter, be under strong pressure to defend Sinkler to avoid possible liability to defendants Caban and Garcia (and perhaps Sinkler, Jr.), even though its obligation to Sinkler directly has already been cancelled. Centennial's action is ripe because a live controversy exists concerning its liability arising out of the collision.
Centennial asserts that South Carolina law governs its decision to rescind Sinkler's policy. Defendants Caban and Garcia assert that New York law — which bars such rescission — controls.
The relevant New York statute provides:
No contract of insurance for which a certificate of insurance has been filed with the commissioner shall be terminated by cancellation by the insurer until at least twenty days after mailing to the named insured at the address shown on the policy. ...
N.Y.Veh. & Traf.L. § 313.1(a) (1986). New York courts hold this provision to prohibit rescission of auto insurance policies ab initio even when the policyholder made fraudulent misrepresentations of material issues in obtaining the policy. Olivio v. Government Employees Ins. Co., 46 A.D.2d 437, 362 N.Y.S.2d 873 (2d Dept.1975); see also Middlesex Ins. Co. v. Carrero, 103 A.D.2d 694, 477 N.Y.S.2d 644 (1st Dept.1984) ( ); Aetna Cas. & Sur. Co. v. Garrett, 31 A.D.2d 710, 296 N.Y.S.2d 12 (3d Dept.1968) (same); Teeter v. Allstate Ins. Co., 9 A.D.2d 176, 192 N.Y.S.2d 610, 616 (4th Dept.1959) ( ).
The prohibition of rescission enforces New York's strong public policy of compulsory insurance aimed at ensuring compensation to accident victims. Middlesex, supra, 477 N.Y.S.2d at 645. As Judge Harnett, the respected expert on insurance, noted: "In this State, rescission of auto liability insurance policies after an accident stands in high disfavor, and is generally prohibited." Allstate Ins. Co. v. Sullam, 76 Misc.2d 87, 88, 349 N.Y.S.2d 550, 552 (Sup.Ct.Nassau Co.1973); cf. Bertram Harnett & Irving I. Lesnick, The Law of Life and Health Insurance (Matthew Bender 1995). New York courts have ruled that its laws establishing compulsory and comprehensive auto insurance abrogated insurers' common law right to rescind insurance contracts for fraud or misrepresentation except on notice pursuant to statute. See Aetna Cas. & Sur. Co. v. O'Connor, 8 N.Y.2d 359, 362-64, 207 N.Y.S.2d 679, 170 N.E.2d 681 (1960) (assigned risk plan); Teeter, supra 192 N.Y.S.2d at 615 (compulsory insurance law).
In South Carolina, by contrast, insurers retain the common law right of post-loss ab initio rescission for fraudulent procurement of auto insurance policies. Government Employees Insurance Co. v. Chavis, 254 S.C. 507, 176 S.E.2d 131, 135-36 (1970) ( ). South Carolina courts have adopted a five-part test to determine when ab initio rescission is appropriate. See Strickland v. Prudential Ins. Co., 278 S.C. 82, 292 S.E.2d 301, 304 (1982) (citations omitted). The insurer must show not only 1) the falsity of the statement, but that the falsity was 2) known to the applicant, 3) material to the risk, 4) made with intent to defraud the insurer, and 5) relied upon by the insurer in issuing the policy. Id. While insurers with knowledge or reason to know that a misrepresentation was made are estopped from rescinding coverage, an insurer is entitled to rely on an applicant's answers to specific questions; it has no obligation to make an independent inquiry as to their truth. See, e.g., Southern Farm Bureau Cas. Ins. Co. v. Ausborn, 249 S.C. 627, 155 S.E.2d 902, 907-08 (1967).
A conflict obviously exists between New York and South Carolina law. Only the latter affords the protection sought by plaintiffs. The conflict is one of both law and policy governing auto insurance practices.
Federal courts sitting in diversity jurisdiction normally apply the forum state's choice-of-law rules. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). This case is therefore subject to New York's choice-of-law principles. Se...
To continue reading
Request your trial-
In re Express Scripts, Inc., Pbm Litigation
...various factors to determine which state has the most significant relationship to the transaction at issue. American Centennial Ins. Co. v. Sinkler, 903 F.Supp. 408, 412 (D.N.Y.1995). Under this approach, courts consider "the place of contracting, the places of negotiation and performance, ......
-
Rli Ins. Co. v. Klonsky
...approval of a duty to conduct a reasonable investigation under the circumstances. Id. at 229–231; see also Am. Centennial Ins. Co. v. Sinkler, 903 F.Supp. 408, 411 (E.D.N.Y.1995) (discussing abrogation, under New York law, of a common law right to rescind insurance contracts for fraud or mi......
-
Philips Credit Corp. v. Regent Health Group, Inc.
...application of the law of the state having the most significant contacts with the matter in dispute." American Centennial Ins. Co. v. Sinkler, 903 F.Supp. 408, 411 (E.D.N.Y.1995); see Auten v. Auten, 308 N.Y. 155, 160, 124 N.E.2d 99 (1954); Restatement (Second) Conflict of Laws, § 188 (1971......
-
Aei Life LLC v. Lincoln Benefit Life Co., Docket No. 17-224
...to suggest that parties cannot use their fraud on insurance applications to their advantage. See , e.g. , Am. Centennial Ins. Co. v. Sinkler , 903 F.Supp. 408, 413, 417 (E.D.N.Y. 1995) ; Matter of Eagle Ins. Co. v. Singletary , 279 A.D.2d 56, 59, 717 N.Y.S.2d 351, 353 (2d Dep’t 2000). These......