In difficult economic times, an increase in insurance fraud often follows. Recently, the National Insurance Crime Bureau published a report showing that staged auto accident questionable claims increased by 46% from 2007-2009, despite the fact that auto personal injury claims and claims for PIP benefits decreased during that period.
New York was the second highest state for such claims, falling only behind Florida.
And the number one city? New York, with more than 1,300 claims.
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Insurers that deny coverage often expect their decisions will be challenged in court. But recently, a policyholder made the unusual allegation that a denial of his claim constituted a violation of his civil rights.
In Robinson v. Allstate, in 1984, plaintiff purchased a homeowner’s policy, including coverage for plaintiff’s barn, which he used as a “barn/museum” to store his collection of 200 motorcycles. The Allstate agent told him the contents of the barn would be covered, “as long as he was not running a business.”
In 1999, gasoline leaked from one of the motorcycles, starting a fire. The barn burned down, and plaintiff suffered $800,000 in damages. Allstate disclaimed coverage, citing to an exclusion barring coverage for structures used for business purposes.
Plaintiff sued Allstate in New York State Court, and ultimately a jury held that Allstate properly applied the exclusion. Plaintiff also filed suit in federal court against Allstate, his village, the police department, and the county sheriff, alleging they engaged in a fraudulent conspiracy to deny him coverage for his loss and to violate his equal protection rights.
The federal judge held that res judicata barred plaintiff’s lawsuit, because the issues had already been decided in the state court action. But in any event, the court also ruled that plaintiff failed to prove the existence of any conspiracy, and that there was no conspiracy “motivated by a class based animus.” The court thus dismissed the lawsuit, saving insurers from another worry, at least for the moment.
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Yula Lipchitz, the wife of famed sculptor Jacques Lipchitz, died on July 20, 2003. During the probate of her will, Biond Fury asserted a claim of ownership in The Cry a 1,100 pound bronze sculpture, valued at around $1 million.
Fury claimed that Lipchitz gave him the sculpture in 1997, citing a handwritten note on the back of a photograph of the sculpture as proof. Fury said he stored the sculpture in a warehouse at his expense until it was removed by Hanno Mott, Lipschitz son, who shipped it to a gallery and then loaned it to the French government.
Fury subsequently sold his interest in the work to Petitioners David Mirmish, who filed the action against Mott. The Surrogate’s Court ruled in favor of the Fury/Mirmish, finding that a valid gift was made by Lipchitz to Fury. On appeal, the First Department held that the Surrogate Court improperly granted summary judgment because Fury’s testimony as to the transaction with Lipschitz was inadmissible pursuant to New York’s “Dead Man’s” statute. The Appellate Court also held there was in issue of fact as to whether a gift was made because there was conflicting evidence as to whether Lipchitz parted with “dominion and control” of the sculpture.
However, the Court held that the petitioner’s claims were barred by the three year statute of limitations for conversion and replevin claims. The court noted a conversion cause of action accrues upon the occurrence of “some affirmative act of asportation” – which occurred here no later than 1998, when respondent had The Cry removed from the Michael Leonard Warehouse without Fury’s permission, delivered to the Marlborough gallery and then loaned to the French Government, all in the name of the Lipchitz family.
Thus, the Appellate Court reversed the Surrogate’s Court’s decision and held Mirmish’s claims of ownership were time barred.
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Frivolous litigation claim in New Jersey? Not without proof that the attorney who filed the offending pleading acted in bad faith.
In a recent unreported Appellate Division decision that reversed an award for frivolous litigation, the Court made clear that there must be a determination that the attorney knew or should have known that the pleadings were filed for improper purpose or without evidentiary support for the factual allegations made.
In Torgro Limousine Service, Inc. v. 76 Carriage Company, Inc., the plaintiff had filed suit in New Jersey after defaulting on a suit filed in Pennsylvania by the defendant. When 76 Carriage attempted to locate assets of Torgro Limousine to execute on the default judgment, Torgro filed suit in New Jersey for breach of contract. That suit was dismissed on a basis of res judicata. The present litigation was then commenced with expanded allegations and additional defendants including 76 Carriage’s principals. The court sided with 76 Carriage on a motion to dismiss and for sanctions, and awarded counsel fees finding that the case had been frivolously filed.
In addition to reversing the award, the Appellate Division required specific findings to support the frivolous litigation claim and also to explain the basis for the sanction imposed, i.e. how the sanction would deter repetition and why a lesser sanction would not suffice.
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Plaintiff filed a shareholder dispute, alleging, in part, that the defendants made false and misleading statements regarding the financial condition of the subject company, causing plaintiff to invest to her detriment.
One of the allegations cited to internal e-mail correspondence among the defendants that took place on March 7, 2007, as support for the claim that the defendants had previous knowledge about the financial troubles and then disclosed contrary information to the public.
While litigating a motion to dismiss, plaintiff’s counsel revealed that he learned about the internal e-mails at issue in an article published in Business Spectator magazine. However, counsel subsequently realized that the reference in the article to “March 7” e-mails addressed 2008 e-mails and not 2007, as alleged by plaintiff. This was critical, because this e-mail exchange actually occurred after the company’s public collapse. Counsel conceded the allegation was false, but that it was unintentional.
Rule 11 of the Federal Rules of Civil Procedure requires that factual contentions in pleadings have evidentiary support. In order to comply with the rule, an attorney must make reasonable inquiries into the facts. Here, the Court focused on the fact that this was a “material allegation central to the viability of the entire pleading” — and thus the failure of the attorney to conduct any further inquiry into that fact was “an act of gross negligence bordering on recklessness.”
The Court found this was the type of conduct Rule 11 was meant to address, and imposed sanctions, including the granting of all of the defendant’s legal fees, pending a showing that such an award does not represent an “unreasonable burden.”
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