ALLCITY INSURANCE COMPANY v. EAGLE INSURANCE COMPANY (2004)

Motion by petitioner to vacate an arbitration award on the grounds that Arbitration Forums has not only misapplied the statute of limitations three times but has flouted an order of this court, and for the imposition of sanctions against respondent Arbitration Forums, Inc. for such contumacious and frivolous behavior is granted to the extent of vacating said arbitration award, remanding the matter for a new hearing before yet another arbitrator and setting the matter of sanctions against Arbitration Forums and Eagle insurance Company (Eagle) down for a hearing on September 27, 2004 at 9:30 a.m. in Part 39 of this court with memoranda of law to be served upon opposing counsel and filed with the Court on or before September 20, 2004.   The court, sua sponte, extends the matter of the imposition of sanctions to also apply against Eagle Insurance Company as, in light of the law of the case and clear decisional law to the contrary, Eagle opposed the Petition to vacate and cross-moved to confirm the erroneous award.   The court recognizes that in opposition to the Petition, Arbitration Forums, Inc. has indicated that it will vacate the award and reopen the arbitration.   Relief for Petitioner, however, remains contingent.   Should such vacatur indeed occur prior to the entry of this judgment, it is understood that the portion of the within motion respecting the vacating of the award would be moot.   However, the issues of whether this court has the authority to impose sanctions upon Arbitration Forums, Inc. and, if so, does Arbitration Forums' action warrant such punishment, would be nonetheless ripe for review and require a reasoned response.   Additionally, Respondent's cross motion to confirm on the grounds that the misapplication of the statute of limitations is not sufficient grounds to vacate an arbitrator's decision is unavailing and is denied in all respects.

Petitioner, the assignee of an individual allegedly injured in a motor vehicle accident by the respondent's insured, initially sought reimbursement pursuant to 11 NYCRR § 65.10 through compulsory arbitration required for PIP Loss Transfer.   In its initial decision dated October 13, 1998, Arbitration Forums held that the Petitioner failed to prove liability in that it commenced the arbitration more than three years from the date of loss.   Petitioner argued that the correct statute of limitations should have been three years from the date of first payment.   The award was eventually vacated by the Appellate Term, by order dated October 20, 2000, holding that the imposition by the arbitrator of the wrong statute of limitations was arbitrary and capricious and remanded the matter for a new hearing before another arbitrator.   The matter was set down for a new hearing, whereupon it was dismissed by the arbitrator on May 15, 2001 upon the same grounds.   The court again vacated the arbitration award as the award was “based on an erroneous application of the statue (sic) of limitations” on or about September 10, 2001.   The matter was once again submitted for arbitration and once again, on July 15, 2003, the arbitration award was granted in favor of Respondent on the grounds that “no fault statue (sic) based on 3 yrs. from date of loss not date of 1st payment.”

Scope of Review

 The scope of review of compulsory arbitration decisions has long been held to be clearly beyond the restrictions engrafted in CPLR § 7511.   In 1980, the Second Department held that “[t]he test thus applicable for review of no-fault arbitrations where error of law is in issue is * * * whether any reasonable hypothesis can be found to support the questioned interpretation.”   (Shand v. Aetna Insurance Company, 74 A.D.2d 442, at 454, 428 N.Y.S.2d 462 [2nd Dept. 1980] ).   The Court of Appeals further refined the test and held that where arbitration is mandatory, an award “must have evidentiary support and cannot be arbitrary and capricious” (MVAIC v. Aetna Casualty & Surety Co., 89 N.Y.2d 214, at 223, 652 N.Y.S.2d 584, 674 N.E.2d 1349 [1996] ).   Thus, the stricter standard imposed upon review of compulsory arbitration applies to the case at bar as the Petitioner herein sought reimbursement of no fault payments pursuant to New York Insurance Law Section 5105 and New York State Insurance Regulations, 11 NYCRR § 65.10 entitled “Mandatory arbitration procedures for insurers, self-insurers and compensation providers under section 5105 of the Insurance Law.” Therefore, there is no question that the underlying arbitration was compulsory, derived from statute and not voluntary.   Thus, the question of law is whether the imposition of a three year statute of limitations from the date of the accident was arbitrary and capricious.

Statute of Limitations

CPLR § 214 imposes a three-year statute of limitation and, specifically, CPLR § 214(2) imposes a three-year statute on liabilities imposed by statute.

The Court of Appeals noted almost one decade ago that in determining the applicability of CPLR § 214(2):

“The pertinent inquiry is whether the statute creates a liability ‘for wrongs not recognized in the common or decisional law,’ and which would not exist but for the statute (State of New York v. Cortelle Corp., 38 N.Y.2d 83, 86, 378 N.Y.S.2d 654, 341 N.E.2d 233;  see, Aetna Life & Cas. Co. v. Nelson, 67 N.Y.2d 169, 175, 501 N.Y.S.2d 313, 492 N.E.2d 386;  State of New York v. Stewart's Ice Cream Co., 64 N.Y.2d 83, 88, 484 N.Y.S.2d 810, 473 N.E.2d 1184;  Murphy v. American Home Prods. Corp., 58 N.Y.2d 293, 307, 461 N.Y.S.2d 232, 448 N.E.2d 86;  Siegel, N.Y. Prac. § 35, at 41 [2d ed.] ).”  (Hartnett v. New York City Transit Authority, 86 N.Y.2d 438, at 444, 633 N.Y.S.2d 758, 657 N.E.2d 773 [1995] ).

Recently, the 4th Department specifically held that in a loss-transfer claim, which is statutorily created, the statute of limitations is governed by CPLR § 214(2) and “accrues on the date of payment of no-fault benefits to the claimant, because by then ‘all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain the relief in court’ (citations omitted).”  (Liberty Mutual Insurance Company v. Hanover Insurance Company, 307 A.D.2d 40, at 42, 763 N.Y.S.2d 181 [4th Dept. 2003] ).   This is true in spite of the recent pronouncement of the Court of Appeals wherein it found that Plaintiff insurer seeking reimbursement from the tortfeasor was foiled by a three year statute of limitations from the date of the accident as “it involves a traditional equitable subrogation, not a liability created by statute” (Allstate Insurance Company v. Daniel J. Stein, 1 N.Y.3d 416, at 422, 775 N.Y.S.2d 219, 807 N.E.2d 268 [2004] ).

 Respondent Eagle's reliance on Allstate v. Stein is therefore misplaced.   The case at bar is not one that involves “traditional equitable subrogation,” rather it involves loss transfer plucked from New York State's No Fault Insurance Law, between two insurers.   As the rights and relationships between the parties were created by statute and did not exist in the common law, the statute of limitations found in CPLR § 214(2) must be applied.

Further, the issue of which statute of limitations to impose for mandatory no fault arbitrations is not new to the appellate courts in this Department or to these respondents.   The Appellate Term has consistently held in both published and unpublished decisions during 2003 that the statute of limitations of three years from the date of payment is applicable in mandatory loss transfer arbitrations between carriers and failure to apply the correct statute of limitations is arbitrary and capricious.  (State Farm Mutual Automobile Insurance Company a/s/o Dennis Shannon v. Eagle Insurance Company, 6 Misc.3d 27, 762 N.Y.S.2d 773 [App. Term 2d & 11th Districts 2003];  Allcity Ins. Co. v. Eagle, 1 Misc.3d 41, 768 N.Y.S.2d 73 [App. Term 2d & 11th Districts 2003];  Allcity Ins. Co. v. Geico, 2003 N.Y. Slip Op. 50898(U), 2003 WL 21203344 [App. Term 2d & 11th Districts 2003] ).

 Moreover, as Allstate v. Stein, supra, is not dispositive, the Appellate Term has spoken on this very dispute between these very parties, no appeal has been taken and, thus, its decision entered on October 20, 2000 wherein it held that the misapplication of the statute of limitations was arbitrary and capricious, remains the law of the case (see People v. Evans, 94 N.Y.2d 499, 706 N.Y.S.2d 678, 727 N.E.2d 1232 [2000];  Rubenfeld v. Gambino, 289 A.D.2d 319, 734 N.Y.S.2d 488 [2nd Dept.2001];  Kowalski Enterprises, Inc. v. Sem International L.L.C., 278 A.D.2d 371, 718 N.Y.S.2d 624 [2nd Dept.2000];  Shroid Construction, Inc. v. Dattoma, 250 A.D.2d 590, 672 N.Y.S.2d 389 [2nd Dept.1998] ).

Accordingly, the motion by Petitioner to vacate the arbitration award is granted with costs, but the demand for sanctions is set down for a hearing on September 27, 2004, including but not limited to evidence of attorneys fees expended on Petitioner's behalf for the various arbitrations and petitions to vacate after the Appellate Term decision, with memoranda of law respecting the imposition of sanctions on both Arbitration Forums and Respondent Eagle Insurance and its attorneys, including whether this court has the authority to impose sanctions in this matter and the basis therefor, to be served and filed with the court prior to September 20, 2004.   Respondent's cross-motion is denied in all respects.

BERNICE D. SIEGAL, J.