Opinion
INDEX NO.: 708254/14
02-26-2015
SENSATIONAL SERVICE, INC., Petitioner, v. AMERICAN TRANSIT INSURANCE COMPANY, Respondent.
MEMORANDUM
BY: LANE, J. MOTION DATE: December 8, 2014 MOTION SEQUENCE NO.: 1
Petitioner Sensational Service, Inc. (SSI) has moved for a preliminary injunction prohibiting respondent American Transit Insurance Company (ATIC) from cancelling insurance policy CAP 613858-1.
Petitioner SSI, engaged in the livery car business, has ninety-four vehicles insured with respondent ATIC under policy CAP 613858-1. In late 2013, ATIC received a claim for benefits, and upon checking the policy for the list of covered vehicles, the insurer discovered that the vehicle identification number (VIN) on the claim did not match that of a covered vehicle. In 2014, ATIC received over a dozen further claims and again discovered that the VIN numbers on the claims did not match those of covered vehicles.
ATIC conducted an investigation into these claims and concluded that the drivers of the livery vehicles had apparently produced some type of documentation showing ATIC as the insurer. Andrew Kidd, the principal of petitioner SSI, is also the principal of four other livery companies, and ATIC's investigation disclosed that three of these companies had also submitted apparently fraudulent claims to the insurer. ATIC issued a notice of cancellation for fraud on June 18, 2004 which was scheduled to take effect on July 12, 2014.
However, on July 11, 2014, SSI began a special proceeding in the New York State Supreme Court, County of Queens, for the purpose of obtaining a judgment, inter alia, declaring that the cancellation of its policy was void (Sensational Services, Inc. v. American Transit Insurance Company, Index No. 10502/14). SSI moved for a preliminary injunction by way of an order to show cause, and the Honorable Rudolph Greco granted a temporary restraining order which directed that "for the policy period of March 1, 2014-March 1, 2015 *** coverage shall remain in full force and effect pending the determination of this motion." Pursuant to a decision and order dated September 19, 2014 (one paper), Judge Greco denied the motion for a preliminary injunction, finding that SSI had not demonstrated a likelihood of success on the merits.
On or about September 16, 2014, ATIC issued a second notice of cancellation, this time for non-payment of past due premiums totaling $166,505.79, which was scheduled to take effect on October 10, 2014. The attorney for ATIC has affirmed: "Three days before Justice Greco rendered his decision, ATIC issued a second notice of cancellation on September 16, 2014 for non-payment of past-due premiums unpaid from the inception of the policy totaling $166,505.79." (Affirmation, ¶20, emphasis added.) The attorney for ATIC has also affirmed: "Clearly, the unpaid premiums were for a period of time that ATIC was required [by court order] to provide involuntary coverage." (Affirmation, ¶33.)
ATIC received a check for the past due premiums on October 9, 2014, and the insurer alleges that it accepted the check because the premiums paid were for a time period covered by the temporary restraining order. ATIC sent SSI a notice of reinstatement to SSI on October 9, 2014. However, on October 14, 2014, ATIC sent SSI another notice of cancellation based on "discovery of fraud or material misrepresentation in the obtaining of the policy or in the presentation of a claim thereunder." The notice of cancellation was scheduled to take effect on November 7, 2014.
SSI began this second special proceeding for the purpose of, inter alia, vacating the second notice of cancellation sent on October 14, 2014. SSI alleges that unless provisional relief is granted, it will have to cease its operations because it could not generate income to pay for other insurance coverage.
Contrary to the argument made by ATIC, the decision and order rendered by Judge Greco on the motion for a preliminary injunction have no res judicata or collateral estoppel effect in this special proceeding. "It is settled law that the grant or denial of a request for a preliminary injunction, a provisional remedy designed for the narrow purpose of maintaining the status quo, is not an adjudication on the merits and will not be given res judicata effect ***." (Coinmach Corp. v. Fordham Hill Owners Corp., 3 AD3d 312, 314). "The granting or refusal of a temporary injunction does not constitute the law of the case or an adjudication on the merits, and the issues must be tried to the same extent as though no temporary injunction had been applied for ***." ( J.A. Preston Corp. v. Fabrication Enterprises, Inc., 68 NY2d 397, 402). The court notes that its electronic records do not indicate that there has been a final disposition of the previous special proceeding. In any event, this special proceeding concerns a different notice of cancellation and presents a new issue-ratification of the contract after discovery of fraud.
In order to obtain a preliminary injunction, petitioner SSI had to show (1) a likelihood of ultimate success on the merits, (2) irreparable injury if provisional relief is withheld, and (3) a weight of the equities in its favor (see, Aetna Insurance Co. v. Capasso, 75 NY2d 860; McNeil v. Mohammed, 32 AD3d 829). The petitioner successfully carried this burden. In regard to the first requirement, the petitioner established a likelihood of ultimate success on the merits by making a prima facie showing that it can prove that ATIC ratified the insurance contract after the alleged discovery of fraud by accepting a check for $166,505.79 in payment of premiums. SSI showed prima facie that ATIC abandoned its right to rescind the insurance policy when—cognizant of the alleged fraud—it accepted the payment of premiums and thereby affirmed the insurance contract (see, Augsbury v. Adams, 135 AD2d 941; Clearview Concrete Products Corp. v. S. Charles Gherardi, Inc., 88 AD2d 461). On the present state of the record, there are issues of fact concerning whether the notice of cancellation for nonpayment of premiums and the acceptance of SSI's check for $166,505.79 were connected to the temporary restraining order, not an affirmance of the policy, and the hearsay affirmation by ATIC's attorney has no probative force in that regard. Although there may be issues of fact in this case, they do not preclude a finding of the likelihood of ultimate success on the merits (see, Ruiz v. Meloney, 26 AD3d 485). In regard to the second requirement, SSI demonstrated that it will be effectively put out of business without insurance coverage for its vehicles. In regard to the third requirement, a balancing of the equities tips in favor of granting preliminary injunctive relief to maintain the status quo pending the resolution of this special proceeding (see, Masjid Usman, Inc. v. Beech 140, LLC, 68 AD3d 942).
Accordingly, the motion for a preliminary injunction is granted to the extent that ATIC is prohibited from cancelling the insurance policy it issued to SSI while this special proceeding is pending on condition that SSI stays current on the payment of premiums. The parties may submit affidavits concerning the proper amount of the undertaking at the time of the settlement of the order to be entered hereon.
The respondent is directed to serve its answer to the petition within ten (10) days after the service of a copy of the order to be entered hereon with notice of entry (see, CPLR 402). The petitioner may re-calendar this matter after service of the answer. The court notes that a special proceeding may be determined on the pleadings to the extent that no triable issues of fact are raised (see, CPLR 409[b]; Malcolm v. New York State Dept. of Labor, 122 AD3d 1318.)
Settle order and submit to the Motion Support Office, Room 140.
/s/ _________
HOWARD G. LANE, J.S.C.