Fiduciary Ins. Co. v. Am. Bankers Ins. Co. of Fla.

• Citation: 14 N.Y.S.3d 427,132 A.D.3d 40,2015 N.Y. Slip Op. 06343
• Parties: In the Matter of FIDUCIARY INSURANCE COMPANY, appellant, v. AMERICAN BANKERS INSURANCE COMPANY OF FLORIDA, respondent.
• Decision Date: 29 July 2015
• Court: New York Supreme Court Appellate Division

132 A.D.3d 40

14 N.Y.S.3d 427

2015 N.Y. Slip Op. 06343

In the Matter of FIDUCIARY INSURANCE COMPANY, appellant

v.AMERICAN BANKERS INSURANCE COMPANY OF FLORIDA, respondent.

Supreme Court, Appellate Division, Second Department, New York.

July 29, 2015.

D'Amato & Lynch, LLP, New York, N.Y. (Robert D. Lang, David A. Boyar, and Roy T. Caplinger of counsel), for appellant.

Kral Clerkin Redmond Ryan Perry & Van Etten, LLP, Melville, N.Y. (Leonard Porcelli of counsel), for respondent.

PETER B. SKELOS, J.P., THOMAS A. DICKERSON, ROBERT J. MILLER and SYLVIA O. HINDS–RADIX, JJ.

Opinion

HINDS–RADIX, J.

In the fall of 2006, a taxi insured by the petitioner was involved in a collision with a horse. The rider of the horse was seriously injured, and the petitioner paid him nearly $60,000 in no-fault benefits. The petitioner then sought reimbursement of the no-fault benefits that it had paid to the rider by filing a demand for mandatory arbitration against the respondent, American Bankers Insurance Company of Florida (hereinafter American Bankers), the carrier that provided commercial liability coverage to the stables where the horse was boarded. The arbitrator denied the petitioner's claim, finding, in essence, that the petitioner could not recoup payment from American Bankers because American Bankers was not a motor vehicle insurer subject to the mandatory arbitration provisions of Insurance Law § 5105 and its implementing regulations. We conclude that the arbitrator had the authority to determine this threshold issue, and that the determination had a rational basis.

The facts underlying the commencement of this proceeding are not in dispute. On October 8, 2006, Jared Johnson was riding a horse named Romeo on a path alongside of North Conduit Avenue in Queens when Romeo suddenly bolted into the roadway, and collided with a taxi owned and operated by Parjit Singh. Johnson was thrown from the horse, and suffered serious injuries, including skull fractures and a broken leg. On the date of the accident, Singh's taxi was insured by the petitioner, Fiduciary Insurance Company. Johnson filed a claim with the petitioner seeking to recover first-party benefits, more commonly known as “no-fault” benefits, under Insurance Law § 5103. The petitioner ultimately paid Johnson a total of $59,906.97 in no-fault benefits.

Romeo was owned by Julius Stanton, who had no insurance coverage in effect for the horse on the date of the accident. Stanton boarded Romeo at Cedar Lane Stables (hereinafter Cedar Lane), a facility owned by the City of New York, and licensed to the Federation of Black Cowboys, Inc. (hereinafter the Cowboys). Cedar Lane and the Cowboys (hereinafter together the insureds) were insured by American Bankers under a commercial liability policy that provided no-fault coverage only for accidents arising from the use of “mobile equipment,” a category that includes various types of machinery not generally used for travel on public roads. More specifically, the policy afforded supplemental coverage to the insureds for “all sums for which an insured is legally liable for bodily injury or property damages resulting” from its mobile equipment, including no-fault insurance coverage required by any insurance law. The subject accident, however, did not involve mobile equipment owned by the insureds, but, rather, a horse that the insureds merely boarded at their stables.

Following the accident, Johnson commenced an action to recover damages for personal injuries against several parties including the City, the Cowboys, and Singh. In an order dated November 30, 2009, the Supreme Court awarded summary judgment to the City, the Cowboys, and Singh dismissing the complaint insofar as asserted against them, based upon the doctrine of primary assumption of risk.

On October 19, 2012, nearly two years after Johnson's action was dismissed against the insureds, the petitioner sought reimbursement of the no-fault benefits that it had paid him by filing a demand for mandatory arbitration against American Bankers pursuant to Insurance Law § 5105. That statute allows an insurer that has paid no-fault benefits to obtain mandatory arbitration to recoup its loss from the insurer of the party actually at fault for the accident^* . In its arbitration demand, the petitioner asserted that its insured, Singh, was not at fault for the accident because he had done nothing to cause the horse to “attack” his taxi, and that the insureds had negligently created “an extremely hazardous situation” by permitting the horse to travel upon “a riding path so close to a roadway without any barricade.” American Bankers did not file a response to the demand or otherwise participate in the arbitration.

In an award dated December 12, 2012, the arbitrator ruled that the petitioner could not obtain reimbursement from American Bankers because it had “failed to provide substantiation that [American Bankers] is a motor vehicle insurer that could be held liable under Section 5105 of Insurance Law.” The arbitrator added that, therefore, “[t]he proper forum would have been litigation.”

About three months later, on March 11, 2013, the petitioner commenced the instant proceeding pursuant to CPLR 7511(b) to vacate the arbitration award, contending that the arbitrator erred in sua sponte raising an affirmative defense on behalf of American Bankers, which had elected not to appear in the arbitration proceeding. The petitioner further argued that, in any event, American Bankers was an insurer subject to mandatory arbitration of claims against it arising from an accident involving a motor vehicle for hire.

In opposition to the petition, American Bankers asserted that the arbitrator's determination had a rational basis, and cross-petitioned pursuant to CPLR 7511(e) to confirm the award.

In the order appealed from, the Supreme Court denied the petition to vacate the arbitration award, granted the cross petition, and confirmed the award. The court began its analysis by noting that

“[t]here are two types of no-fault disputes between insurers that are subject to mandatory arbitration: loss transfer and priority of payment (see Insurance Law § 5105 ; 11 NYCRR 65–3.12 ; 11 NYCRR 65–4.11 ). The arbitration procedures established pursuant to section 5105 of the Insurance Law apply to disputes over priority of payment among insurers who are liable for the payment of first-party benefits (see Insurance Law § 5105[a][b] ; 11 NYCRR 3.12[b] ).”

The court then rejected the petitioner's argument that the arbitrator had improperly raised and disposed of an affirmative defense by determining that American Bankers was not a motor vehicle insurer liable for the payment of no-fault benefits. Rather, the arbitrator's determination was that the petitioner had failed to meet “a threshold part” of its “required showing as the applicant seeking reimbursement under Insurance Law § 5102 and 11 NYCRR 3.12(b)” that American Bankers was an “insurer” within the meaning of the applicable statute and regulations and, thus, subject to mandatory arbitration of another insurance carrier's claims against it.

Contrary to the petitioner's contention, the arbitrator had the authority to rule on the issue of whether the controversy was subject to mandatory arbitration under Insurance Law § 5102 and its implementing regulations. An arbitrator's authority generally “extends to only those issues that are actually presented by the parties” (Matter of Joan Hansen & Co., Inc. v. Everlast World's Boxing Headquarters Corp., 13 N.Y.3d 168, 173, 889 N.Y.S.2d 886, 918 N.E.2d 482 ). Therefore, an arbitrator is precluded from identifying and considering an affirmative defense that is not pleaded by a party to the arbitration. Here, however, the issue before the arbitrator cannot be characterized as an affirmative defense, such as lack of coverage (see New York Cent. Mut. Fire Ins. Co. v. Amica Mut. Ins. Co., 162 A.D.2d 1009, 557 N.Y.S.2d 801 ). Nor was the issue whether the petitioner satisfied a condition precedent to recovery in a loss-transfer proceeding (see Matter of Allstate Ins. Co. v. New York Petroleum Assn. Compensation Trust,

104 A.D.3d 682, 961 N.Y.S.2d 218 ). Rather, the issue before the arbitrator was the threshold issue of whether American Bankers was an “insurer” subject to the mandatory arbitration procedures of Insurance Law § 5105, and 11 NYCRR 3.12(b) (see Hunter v. OOIDA Risk Retention Group, Inc., 79 A.D.3d 1, 9, 909 N.Y.S.2d 88 ). Furthermore, the fact that American Bankers elected not to participate in the arbitration did not divest the arbitrator of the authority to determine, in the first instance, whether American Bankers was an “insurer” within the meaning of the subject statute and regulation. An arbitrator may hear and determine a controversy upon the evidence produced, notwithstanding the failure of a party to appear (see CPLR 7506[c] ; Whale Securities Co., L.P. v. Godfrey, 271 A.D.2d 226, 227, 705 N.Y.S.2d 358 ), and since American Bankers did not appear at the arbitration, it did not affirmatively waive the issue of whether it was an “insurer” subject to arbitration by participating in the arbitration and raising other issues to the exclusion of that issue (cf. Matter of United Fed. of Teachers, Local 2, AFT, AFL–CIO v. Board of Educ. of City School Dist. of City of N.Y., 1 N.Y.3d 72, 78, 769 N.Y.S.2d 451, 801 N.E.2d 827 ; Matter of Emerald Claims Mgt. for Ullico Cas. Ins. Co. v. A. Cent. Ins. Co., 121 A.D.3d 481, 482–483, 994 N.Y.S.2d 589 ; Matter of Nelson v. Queens Surface Corp., 283 A.D.2d 577, 724 N.Y.S.2d 895 ).

As noted by the Court of Appeals, a party may not be bound to arbitrate a dispute by mere inaction (see Matter of Commerce & Indus. Ins. Co. v. Nester, 90 N.Y.2d 255, 262, 660 N.Y.S.2d 366, 682 N.E.2d 967 ). Therefore, American Bankers' failure to move to stay arbitration pursuant to CPLR 7503 did not render this dispute arbitrable, where, as here, no agreement to arbitrate was ever made (see id.; Matter of Matarasso ...