Knickerbocker Ins. Co. v. Gilbert

Decision Date25 February 1971
Citation28 N.Y.2d 57,320 N.Y.S.2d 12,268 N.E.2d 758
Parties, 268 N.E.2d 758 In the Matter of the Arbitration between KNICKERBOCKER INSURANCE COMPANY, Appellant, and Thelma GILBERT, Respondent.
CourtNew York Court of Appeals Court of Appeals

Arnold Davis, New York City, for appellant.

Philip Myer, New York City, and Leonard J. Birbrower, New City, for respondent.


The issue is whether service by mail of a notice of application to stay arbitration is effected by posting or receipt. CPLR 7503 (subd. (c)) authorizes service by registered or certified mail, return receipt requested, and fixes a limit of 10 days after the notice to arbitrate for such service. In this proceeding by the insurer to stay arbitration, the claimant argues that service is not complete until the notice to stay arbitration is received. Petitioner insurer counters that posting within the 10-day period is sufficient.

The Supreme Court held that, although the notice to stay arbitration was mailed on the tenth and last day, its service was not effective until delivery the following day. The Appellate Division affirmed, two Justices dissenting.

A reading of the statute, amplified by its well-documented legislative history, suggests that service is timely if the notice to stay is posted within the 10-day period. The order of the Appellate Division should, therefore, be reversed.

CPLR 7503 (subd. (c)) provides: 'Notice of intention to arbitrate. A party may serve upon another party a notice of intention to arbitrate, specifying the agreement pursuant to which arbitration is sought and the name and address of the party serving the notice, or of an officer or agent thereof if such party is an association or corporation, and stating that unless the party served applies to stay the arbitration within ten days after such service he shall thereafter be precluded from objecting that a valid agreement was not made or has not been complied with and from asserting in court the bar of a limitation of time. Such notice shall be served in the same manner as a summons or by registered or certified mail, return receipt requested. An application to stay arbitration must be made by the party served within ten days after service upon him of the notice or he shall be so precluded. Notice of such application shall be served in the same manner as a summons or by registered or certified mail, return receipt requested.' The failure to give notice to stay, it is emphasized, bars assertion of inarbitrability in subsequent judicial proceedings.

In March, 1966, claimant Gilbert was involved as a passenger in an automobile accident. The automobile, driven by her husband, was owned by one Merritt, an insured of appellant Knickerbocker. In a plenary action for tort by claimant against Merritt, the latter impleaded Knickerbocker. Merritt has asserted, in defense of the claim against him, that the husband had driven the vehicle outside the physical area and beyond the use for which he had granted permission. Claimant, as a further protective measure, filed a notice of claim under the uninsured motorist's clause in Merritt's Knickerbocker policy. On November 28, 1969, claimant mailed Knickerbocker a notice of intention to arbitrate her claim; and it was received by the insurer on December 1, 1969. The insurer responded, on December 11, 1969, 10 days later, by posting a certified letter, return receipt requested, including a notice and the instant application for a stay of arbitration. The letter, addressed to claimant's attorney, was received on December 12, 1969, 11 days after delivery by mail to the insurer of the notice to arbitrate.

Thus the issue is put squarely whether the insurer is barred from asserting inarbitrability, now or in subsequent judicial proceedings, because its notice to stay arbitration was not delivered until the eleventh day after it had received a notice to arbitrate.

There have been diverse views and results in cases treating with the issue. Courts requiring receipt of the notice to stay arbitration within 10 days have reasoned that the statute must be construed strictly to implement the purpose of speedy settlement. Influential, too, has been the obvious but superficial analogy to the notice to arbitrate which has been said to require receipt. (See, e.g., Matter of All City Ins. Co. (Mikell), N.Y.L.J., Feb. 16, 1970, p. 16, col. 1; State-Wide Ins. Co. v. Harrington, N.Y.L.J., Dec. 4, 1969, p. 16, col. 7; Matter of Finest Rest. Corp. (L & A Music Co.), 52 Misc.2d 87, 89, 275 N.Y.S.2d 1, 3; cf Matter of Jonathan Logan, Inc. (Stillwater Worsted Mills) 31 A.D.2d 208 211, 295 N.Y.S.2d 853, 856, affd. 24 N.Y.2d 898, 301 N.Y.S.2d 636, 249 N.E.2d 477, involving not a mailed notice but an order to show cause with a return day beyond the 10-day limit.) Courts holding the 10-day limit satisfied by posting alone have pointed to the shortness of time for critical decision, compounded if receipt is required (State-Wide Ins. Co. v. Mingione, 65 Misc.2d 310, 318 N.Y.S.2d 895; Matter of Glens Falls Ins. Co. v. Anness, 62 Misc.2d 592, 308 N.Y.S.2d 893; cf. Matter of Liberty Mut. Ins. Co. (Keane), N.Y.L.J., March 6, 1967, p. 21, col. 4).

Historically, by design and in practice, compliance with the 10-day limit compelled diligence and procedural orderliness. The 10-day limit was adopted in 1937, when the arbitration itself was deemed a special proceeding, incepted by the notice to arbitrate, and the application for a stay was a motion made in a pending proceeding (see Civ.Prac. Act, § 1458, subd. 2, as amd. by L. 1937, ch. 341, § 1459; 8 Weinstein-Korn-Miller, N.Y.Civ.Prac., par. 7502.04; cf. Matter of Beverly Cocktail Lounge (Emerald Vending Mach.), 45 Misc.2d 376, 378, 256 N.Y.S.2d 812, 814; Matter of Shine's Rest. (Waiters Union), 20 Misc.2d 737, 113 N.Y.S.2d 315. In that context the time limit closed a loophole which until then had allowed a party both to participate in the arbitration and, should he lose, still defeat confirmation of the award by, for the first time, asserting inarbitrability. (See H. H. Nordlinger, Twenty Years of Statutory Development of Arbitration in New York, 17 N.Y.U.L.Rev. 517, 523--524; see, also, 8 Weinstein-Korn-Miller, op. cit., Supra, par. 7503.25.)

The draftsmen of CPLR, in eliminating the provision that arbitration was a special proceeding, did not intend to change the method of service of the notice to stay arbitration, a method entirely satisfactory within the framework of arbitration practice. Special proceeding or not, the arbitration is initated by a notice or demand for arbitration. Thus the Advisory Committee's Fourth Preliminary Report provided that a notice to arbitrate, as the first step in the matter, must be served 'in the same manner as a summons in an action', but that an application to stay arbitration 'made by the party served shall be made by motion' (N.Y.Legis.Doc., 1960, No. 20, § 17.3, subd. (c), pp. 80--81). The committee explained that absent a liberalizing provision with respect to the method of serving the notice to say, the change in the status of an arbitration from a special proceeding might inadvertently entail that the notice to stay be served in the same manner as a summons, a result unnecessary and undesirable. It was said (p. 77) explicitly and directly to the point: 'There is no need for such service since the other party has required the motion by his own notice, and consequently the proposed provision expressly states that the application shall be by motion--like a motion in any action. It thus invokes the general procedures for method and time of service contained in proposed rules 32.3 and 33.5(b); this replaces the requirement in present section 1458(2) that service be made personally or by registered mail.' The proposed rule 32.3, mentioned in the last-quoted comment, authorized the service of papers in a pending action by posting to an attorney, and was, therefore, substantially similar to CPLR as later enacted covering the service of papers in a pending action (CPLR 2103, subd. (b), par. 2; see Second Report, N.Y.Legis.Doc., 1958, No. 13, pp. 176--177).

The committee evolved in its Fifth Report the final wording of the proposed statute covering the notice to stay arbitration, and this wording was enacted as the last three sentences of CPLR 7503 (subd. (c)). It explained the changes from the previous report as follows: 'provision has been made for service of both the notice of intention to arbitrate and notice of application for a stay by registered or certified mail, return receipt requested, on the suggestion of a number of bar associations that this conforms with actual present practice. The latter portion of the subdivision has also been expanded for clarification with no change in meaning' (N.Y.Legis.Doc., 1961, No. 15, p. 183).

The key words are 'with no change in meaning.' For that qualification to be true, the notice to stay arbitration must remain assimilated to a paper served in a pending action, namely, one which could be served by posting to an attorney, and did not require receipt within the time limit to be effective.

Policy reasons support the analysis and the conclusion. Requiring receipt by mail within the all-too-brief 10 days to be effective as service within the time limit defeats the purpose of encouraging mailing (see Matter of Glens Falls Ins. Co. v. Anness, 62 Misc.2d 592, 593--594, 308 N.Y.S.2d 893, 894--896, Supra). Indeed, mailing may not only be highly desirable but essential, if it turns out that it is impossible to effect personal service within the 10 days allowed to make a decision and serve the notice on a non-cooperative claimant. On the...

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