In the September 30th edition of the No-Fault Insurance Wrap-Up, in the New York Law Journal, David M. Barshay, a partner at Baker, Sanders, Barshay, Grossman, Fass, Muhlstock and Neuwirth and I (not a partner) discuss the recent developments in no-fault law. This edition covers a few topics, including a SCOTUS case.  Yes, a friggin SCOTUS case.

The Excerpts:

The U.S. Supreme Court recently granted certiorari in Shady Grove Orthopedic Associates, P.A. v. Allstate Ins. Co.¹ from the U.S. Court of Appeals for the Second Circuit.²

Shady Grove Orthopedic Associates (a Maryland corporation) and Sonia E. Galvez³ brought a class action against Allstate (an Illinois corporation) in the Eastern District of New York⁴ for unpaid interest on no-fault claims pursuant to a New York insurance policy.⁵ Those claims were paid, but for the interest. Shady Grove argued that it could get into federal court through 28 U.S.C. §1332(d)(2)(A), which gives the federal courts original jurisdiction in a class action where the amount in controversy is more than $5 million and diversity exists, and FRCP 23 allows class certification for the relief requested.

****

First, the court addressed the Erie⁹ issue. Under Erie, when a federal court sits in diversity jurisdiction, it must apply a state’s substantive law and the federal procedural law. It found that FRCP 23 does not conflict with CPLR §901(b); that there is no “direct collision” with §901. It reasoned that, because FRCP 23 does not determine which actions can or cannot be brought, “it leaves room for the operation of §901(b),” finding it to be a substantive rule.

But would the application of CPLR §901(b) “serve the twin aims¹⁰ of Erie?” The court answered in the affirmative. Not applying the rule would, according to the court, encourage plaintiffs to file in the federal courts, rather than in New York, and it would allow them to recover in federal court, when they could not in New York.

Second, the court then discussed (and ultimately dismissed) Shady Grove’s argument that under N.Y. Ins. Law §5106(a) the lawsuit can be maintained via class action because 11 NYCRR §65-3.9(c)¹¹contemplates class actions in this context, and therefore satisfies the exception clause of CPLR §901(b). In rejecting this argument, the court found that N.Y. Ins. Law §5106(a) contains no authorization for class actions to recover a penalty and that 11 NYCRR §65-3.9(c) did not specificallyauthorize¹² class actions to recover a penalty. The Second Circuit interpreted the language of CPLR §901(b) “provides that where a statute creates a penalty, the ‘statute‘ itself must ‘specifically authorize‘” the class action. “At most, [the] regulation contemplates the recovery of a penalty in a class action,” and contemplation is not enough. The Eastern District’s decision was affirmed.

Oral argument before the Supreme Court is scheduled for Nov. 2, 2009.

***

Staged Accidents

In proving that an accident was intentional, defendant does not have to prove fraud. Such is the rule according to the Appellate Term, 2nd, 11th, and 13th Judicial Districts. In V.S. Med. Servs., P.C. v. Allstate Ins. Co.²³ defendant must only show that “at least one driver intended to make contact,” because, “[a] deliberate collision caused in furtherance of an insurance fraud scheme is not a covered accident.”²⁴ And defendant must show that the accident was intentional by a preponderance of the evidence, not by clear and convincing evidence.

The court did not cite or address State Farm Mut. Auto. Ins. Co. v. Langan,²⁵ an Appellate Division case decided well after State Farm Mut. Auto. Ins. Co. v. Laguerre.²⁶ Langan, readers might recall,²⁷ held that in no-fault, even if an accident is intentional, if the injured person was not complicit in “misconduct, provocation, or assault” and if the accident “was unexpected, unusual, and unforeseen” by the injured person, no-fault coverage exists. V.S. Med does not tell us whether plaintiff’s assignor was somehow complicit in the manufactured accident.

I left out all of the footnotes to save space.