Ford v. Unity Hospital

• Citation: 346 N.Y.S.2d 238,32 N.Y.2d 464,299 N.E.2d 659
• Parties: , 299 N.E.2d 659 Frank FORD, as Administrator of the Estate of Dorothy M. Ford, Deceased, et al., Plaintiffs, v. UNITY HOSPITAL et al., Defendants. Bryce ANTHONY et al., Third-Party Plaintiffs-Respondents, v. 'AMERICA', COMPANIA GENERAL DE SEGUROS, S.A., Third-Party Defendant-Appellant, and Mid-Continent Underwriters et al., Third-Party Defendants.
• Decision Date: 07 June 1973
• Court: New York Court of Appeals

Page 238

346 N.Y.S.2d 238

32 N.Y.2d 464, 299 N.E.2d 659

Frank FORD, as Administrator of the Estate of Dorothy M.

Ford, Deceased, et al., Plaintiffs, v. UNITY HOSPITAL et al., Defendants.

Bryce ANTHONY et al., Third-Party Plaintiffs-Respondents, v. 'AMERICA', COMPANIA GENERAL DE SEGUROS, S.A., Third-Party

Defendant-Appellant, and Mid-Continent

Underwriters et al., Third-Party Defendants.

Court of Appeals of New York.

June 7, 1973.

Geoffry D.C. Best, New York City, for appellant.

John J. Tullman and R. Robert Caplan, New York City, for respondents.

BURKE, Judge.

The issue on this appeal is whether the unauthorized act of a foreign insurance agent in delivering into this State a cover letter for a policy which was both beyond the scope of and in direct contravention of its agency agreement is sufficient under due process standards to subject its principal, a nondomiciliary insurer having no other contacts with New York, to the jurisdiction of our courts pursuant to section 59--a of the Insurance Law. In our opinion, it is not.

The opinions of the courts below establish the following as undisputed facts for purposes of this appeal. Third-party defendant Seguros, a Mexican insurance company having its principal place of business in Mexico, does no business in New York and has authorized no one to do or transact any business here in its behalf. Mid-Continent Underwriters, Inc. (hereinafter Mid-Continent), a Louisiana insurance brokerage corporation, is Seguros' sole managing agent in the United States; and National Reinsurance Agency, Inc. (hereinafter National), an Illinois insurance brokerage corporation, is a limited agent for Seguros, having authority to solicit policies on only certain risks, not including malpractice insurance, in a limited number of States, not including New York. ¹ There is no indication in the record that either of these agents has had any contact with New York other than that alleged in this action.

In December, 1967, third-party plaintiffs, members of a medical partnership, retained Taylor Stevens Corp. and Max M. Rappaport, New York insurance brokers, to secure for them medical malpractice liability insurance. These domestic brokers, through an affiliate, retained Arnold Chait, a New Jersey broker, who, in turn, retained National, the Illinois-based limited agent of Seguros, to obtain said malpractice liability insurance.

On January 2, 1968, National attempted to secure the requested coverage through Mid-Continent, the United States agent of Seguros, but the proposal was immediately rejected by Mid-Continent on the ground that neither Mid-Continent nor, obviously, National, were authorized by Seguros to issue such a policy. Notwithstanding this rejection and the limitations in its agency agreement, National, on January 16, 1968, issued a cover letter, which it sent to the third-party plaintiffs in New York, purporting to bind Seguros to a three-year $100,000/$300,000 malpractice policy, covering the period January 1, 1968 to January 1, 1971. Upon subsequent discovery of National's action, Mid-Continent issued to the third-party plaintiffs a 10-day cancellation notice, effective March 24, 1968; and as a result of this incident, Seguros cancelled its agency agreement with National. There is no evidence presented and Seguros flatly denies that it or its agents ever received a premium on the alleged policy.

In February of 1970, the underlying action was commenced against the third-party plaintiffs, alleging malpractice on their part in February of 1968--during the two-month period prior to Seguros' cancellation notice when, under the terms of the cover letter issued by National, the malpractice insurance was allegedly in effect. The third-party action was then commenced by personal service upon Mid-Continent in Louisiana charging that, by virtue of the policy purportedly issued by National, Seguros was bound to defend and indemnify the third-party plaintiffs in the malpractice action. Seguros then made this motion to dismiss, urging a lack of in personam jurisdiction as to it. ²

In denying the motion to dismiss, Special Term relied upon section 59--a of the Insurance Law ³ for the proposition that in issuing an insurance policy to a New York resident, a foreign insurer 'does business in this state and is subject to its jurisdiction.' Citing Zacharakis v. Bunker Hill Mut. Ins. Co., 281 App.Div. 487, 120 N.Y.S.2d 418, the court held that 'a singular act brings the carrier within the statute.' Regarding Seguros' contention that the issuance of the cover letter was an unauthorized act of its limited agent and therefore insufficient to bring Seguros, the principal, within New York's jurisdiction, the court stated that 'although National may have exceeded its actual authority by issuing the cover note insuring New York residents * * * its apparent authority nevertheless established a nexus with this state for jurisdictional purposes binding on Seguros * * * sufficient to satisfy the minimum contacts requirements of due process (McGee v. International Life Ins. Co. (355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223)).'

The Appellate Division, 39 A.D.2d 569, 331 N.Y.S.2d 865, unanimously affirmed the order, concluding, as did Special Term, that notwithstanding the unauthorized nature of National's action, Seguros was bound, at least for purposes of jurisdiction, under the doctrine of apparent authority. The court was not, however, unaware of the tenuous nature of its ruling, noting (p. 571, 331 N.Y.S.2d p. 868): 'We recognize that the facts of this case test the very outer limits of due process requirements (see Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283; Longines-Wittnauer Watch Co. v. Barnes & Reinecke, 15 N.Y.2d 443, 261 N.Y.S.2d 8, 209 N.E.2d 68). However, in view of the overriding interest of this State in affording its residents effective means of redress in their dealings with foreign and alien insurers, we deem the exertion of jurisdiction herein to be proper (McGee v. International Life Ins. Co., 355 U.S. 220, 223, 224, 78 S.Ct. 199, 2 L.Ed.2d 223; Insurance Law, § 59--a, subd. 1).' Thereafter the Appellate Division granted leave certifying the following question: 'Was the order of this court, dated April 17, 1972, properly made?'

We cannot agree with the reasoning of the courts below. Since we can find no constitutionally sufficient predicate for an assertion of jurisdiction over the nondomiciliary, third-party defendant Seguros, we answer the certified question in the negative and direct a reversal of the order appealed from.

In adopting section 59--a of the Insurance Law, which provides for substituted service upon a foreign insurance company engaged in any of the acts enumerated in subdivision 2 thereof, the Legislature has defined 'doing business' in New York by an insurer in terms more broadly inclusive than those applied to other commercial enterprises by CPLR 301 (see Millner Co. v. Noudar, Lda., 24 A.D.2d 326, 329, 266 N.Y.S.2d 289, 293). However, neither the respondents nor the courts below suggest that the scope of section 59--a transcends the boundaries of due process as delineated by the Supreme Court in International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, McGee v. International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223, and Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283. Rather, it is argued that, in the interest of protecting New York residents, section 59--a extends the extraterritorial effect of our courts' process to the very perimeters of those due process standards--the Appellate Division in this case admitting that the facts herein test the 'outer limits' thereof.

The criterion, then, for subjecting a foreign insurance company to our jurisdiction is the 'minimal contacts' test outlined in International Shoe, McGee and Hanson v. Denckla--the pivotal question being whether the defendant 'purposefully' availed itself of the 'privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws' (357 U.S., at p. 253, 78 S.Ct., at p. 1240; see, also, Parke-Bernet Galleries v. Franklyn, 26 N.Y.2d 13, 308 N.Y.S.2d 337, 256 N.E.2d 506; McKee Elec. Co. v. Rauland-Borg Corp., 20 N.Y.2d 377, 283 N.Y.S.2d 34, 229 N.E.2d 604; Longines-Wittnauer Watch Co. v. Barnes & Reinecke, 15 N.Y.2d 443, 261 N.Y.S.2d 8, 209 N.E.2d 68). And, as the Hanson court emphasized, the requisite contacts with the forum State must result from activities of the defendant, and not those of the party seeking to assert jurisdiction. 'The unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State.' (357 U.S., at p. 253, 78 S.ct., at p. 1239; see, also, haar v. armendaris Corp., 31 N.Y.2d 1040, 342 N.Y.S.2d 70, 294 N.E.2d 855; Parke-Bernet Galleries v. Franklyn, 26 N.Y.2d 13, 19, n. 2, 308 N.Y.S.2d 337, 256 N.E.2d 506; N.Y.S.2d 913, 258 Co. v. Lasker-Goldman Corp., 26 N.Y.2d 280, 309 N.Y.S.2d 913, 258 N.E.2d 202; Glassman v. Hyder, 23 N.Y.2d 354, 296 N.Y.S.2d 783, 244 N.E.2d 259; Katz & Son Billiard Prods. v. Correale & Sons, 20 N.Y.2d 903, 285 N.Y.S.2d 871, 232 N.E.2d 864; Standard Wine & Liq. Co. v. Bombay Spirits Co., 20 N.Y.2d 13, 281 N.Y.S.2d 299, 228 N.E.2d 53).

On the facts before us, third-party defendant Seguros cannot be said to have purposefully availed itself of the privilege of conducting activities in this State. Indeed, Seguros purposefully avoided any contacts with New York, limiting its agency agreement with National to certain States, excluding New York. Furthermore, when such contacts were proposed by National--acting in behalf of the third-party plaintiffs--Seguros, through Mid-Continent's...