Travelers Indem. Co., Application of

Decision Date30 December 1993
Citation195 A.D.2d 35,606 N.Y.S.2d 167
PartiesIn re Application of the TRAVELERS INDEMNITY COMPANY, to Stay Arbitration. The TRAVELERS INDEMNITY COMPANY, Petitioner-Appellant, v. Kenneth LEVY, Respondent-Respondent.
CourtNew York Supreme Court — Appellate Division

Michael Baldo, of counsel (Caulfield, Galvin, Heller, Harris & Colligan, attorneys) for petitioner-appellant.

Jay H. Tannenbaum, for respondent-respondent.


ASCH, Justice.

The facts are not in dispute. Respondent Kenneth Levy was injured in an automobile accident in Arizona, along with one Yoichi Arima. Mr. Levy and Mr. Arima were both driving rented cars. Mr. Levy brought suit in Arizona and settled for $15,000. Mr. Levy gave a general release that expressly reserved his ability to claim against his underinsured motorist coverage.

Mr. Levy is domiciled in New York. His insurance policy, issued by Travelers, includes a provision for underinsurance; specifically, for Supplemental Uninsured Motorist Coverage pursuant to Insurance Law § 3420(f)(2). Accordingly, Mr. Levy's policy included a standard New York Automobile Accident Indemnification Endorsement that excluded coverage for injury where the insured settles an action against a potentially liable party without the insurer's written consent.

The language provides for arbitration as follows:

"If any person making claim hereunder and the company do not agree that such person is legally entitled to recover damages from the owner or operator of an underinsured automobile because of bodily injury to the insured, or do not agree as to the amount of payment which may be owing under this endorsement, then, upon written demand of either, the matter or matters upon which such person and the company do not agree shall be settled in arbitration ...".

When Mr. Levy made a claim for supplemental insurance and Travelers did not pay, Mr. Levy demanded arbitration.

In December of 1991, Travelers commenced this proceeding with a petition for a permanent stay of arbitration, pursuant to CPLR § 7503(c) on the ground that no arbitrable controversy existed. The supporting affirmation included an assertion that Mr. Levy:

"... by settling his bodily injury suit in Arizona without the petitioner's consent[,] has violated his contractual obligation to protect the company's right of subrogation against the tort-feasor".

Further, it was argued that:

"... by not protecting the subrogation rights of the company against the tort-feasor [Mr. Levy committed acts that] constitute a breach of policy conditions ...".

Justice Davis rendered a May 21, 1992 short-form order denying the application with leave to renew on a copy of the consent and subrogation endorsements of the policy and on a discussion of a choice of law between New York and Arizona.

On a renewed motion, in addition to providing a copy of the standardized endorsement and arguing the choice-of-law issue, Travelers argued that Mr. Levy's failure to preserve the subrogation rights of Travelers by seeking written consent to the settlement precluded his underinsured motorist claim, and amounted to breaches of the insurance agreement, so that there should be a permanent stay of arbitration of the claim "based on the consent and subrogation provisions contained in the ... Endorsement to the policy ... since these provisions were not considered by the court" on the original motion.

The IAS court found for Mr. Levy. In a memorandum decision constituting the order of the court, the court first noted that Travelers had not claimed that the arbitration agreement was of limited scope, or that there had been any preliminary requirement or condition precedent to arbitration. The court found that the parties were required to arbitrate the issue of whether or not Mr. Levy had committed a breach of the policy precluding him from indemnification. Further, Justice Davis declined to participate in what he saw as an enlargement of the scope of judicial review under CPLR 7503.

Mr. Levy is wrong to argue that Arizona law should prevail. The choice-of-law analysis leads to application of New York law in this New York insurance case.

Choice-of-Law discussions in tort cases have focused on which jurisdiction has the greater interest in a dispute, (see, e.g., Cooney v. Osgood Machinery, Inc., 179 A.D.2d 240, 242, 582 N.Y.S.2d 873, aff'd with op., 81 N.Y.2d 66, 595 N.Y.S.2d 919, 612 N.E.2d 277 (1993)), but this is not a tort case. It is a dispute over the arbitration provision of a New York insurance agreement. The "grouping of contacts" test applies in contract cases (see, e.g., Matter of Allstate Ins. Co. (Stolarz), 81 N.Y.2d 219, 226, 597 N.Y.S.2d 904, 613 N.E.2d 936).

This court has made clear why. In Pessin v. Chris-Craft Industries, 181 A.D.2d 66, 70, 586 N.Y.S.2d 584 (1st Dept.1992), Justice Milonas drew a distinction between cases of conduct regulation and cases of loss allocation. It was held that the former requires the state interest test (see, also, Schultz v. Boy Scouts of America, 65 N.Y.2d 189, 195, 491 N.Y.S.2d 90, 480 N.E.2d 679). Necessarily, the latter would still be measured according to the grouping of contacts test. As allocation of loss is the essence of the dispute at bar, the instant choice-of-law question would be best decided under the contacts grouping test, sometimes called "the center of gravity" test (see Matter of Allstate, supra ).

Here, the essential issue is construction of a policy purchased by a New York resident from a company doing business in New York, with policy language that is mandatory under New York Law. All of the contacts essential to the dispute are with this jurisdiction. The contacts with Arizona--location of underlying insured incident, place of contract with underinsuring rental agency, venue of the underlying tort litigation--are no more than collateral to the issue of policy construction. Accordingly, the court need not be concerned with Mr. Levy's argument that the subrogation rights of Travelers were not prejudiced under Arizona law.

True, even New York law allows that language preserving the claimant's rights to claim against his insurance may be read to preserve the insurer's rights in a subsequent subrogation action. (see, State Farm Mut. Ins. Co. v. Trapanotto, 166 A.D.2d 537, 538, 560 N.Y.S.2d 818).

All the same, Trapanotto involved a claimant who had obtained her insurer's express consent to the settlement with the tort-feasor. As the policy herein required consent (cf., Federal Ins. Co. v. Stechman, 192 A.D.2d 531, 595 N.Y.S.2d 815 (2d Dept.1993), Mr. Levy's failure to obtain such consent constituted a breach of a condition of his policy (see, Continental Ins. Co. v. Canni, 192 A.D.2d 651, 596 N.Y.S.2d 471 (2d Dept.1993); State Farm Mut. Auto. Ins. Co. v. Taglianetti, 122 A.D.2d 40, 504 N.Y.S.2d 476 (2d Dept.1986)). Travelers is prejudiced because the general release did not expressly reserve its subrogation rights, creating an ambiguity that would require Travelers to litigate the subrogation issue (see, State Farm Mut. Ins. Co. v. Lopez, 163 A.D.2d 390, 391, 558 N.Y.S.2d 118).

The IAS court erred in concluding that the consequences of Mr. Levy's failure to obtain the consent of Travelers presented an arbitrable issue. As Travelers notes, it is settled that the subject arbitration clause creates no arbitrable issue other than fault of the underinsured driver in the underlying tort in the contract language, (whether or not "such person is legally entitled to recover damages from the owner or operator of an underinsured automobile because of bodily injury to the insured") and damages ("the amount of payment which may be owing under this endorsement") (see Rosenbaum v. American Sur. Co., 11 N.Y.2d 310, 314, 229 N.Y.S.2d 375, 183 N.E.2d 667; U.S. Fidelity and Guar. Co. v. Mitchell, 168 A.D.2d 941, 942, 564 N.Y.S.2d 894; Hanover Ins. Co. v. Squarzini, 96 A.D.2d 471, 464 N.Y.S.2d 785). All other issues are for the court, including the scope of the arbitration provision, (see, Kansas City Fire & Marine Ins. Co. v. Barnes, 115 A.D.2d 311, 495 N.Y.S.2d 876), and the satisfaction of conditions precedent to arbitration, see Aetna Cas. & Sur. Co. v. Bruton, 45 N.Y.2d 871, 410 N.Y.S.2d 580, 382 N.E.2d 1355, rev'ng on dissent [Silverman, J.], 58 A.D.2d 551, 553, 396 N.Y.S.2d 207.

The court must then ask whether...

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