NY PIP: Post-Claim Policy Exhaustion Appears To Be Revived As a Defenset.

• Author: Rogak, Lawrence N.
• Position: [COURTSIDE]

For nearly four years now, New York auto insurers have awaited with trepidation a decision from New York's Appellate Division, Second Department, on a question of great urgency: is "policy exhaustion" a complete defense to a PIP lawsuit (or arbitration) if the policy became exhausted after the claim was denied?

The general rule of policy exhaustion in New York, for all types of insurance, is that once the policy is exhausted, the obligations of the insurer end. However, the New York No-Fault Regulations (Insurance Department Regulation 68) are ambiguous on that issue. Existing case law is at odds as well, with the courts in several downstate counties (the "Second Department") holding that, if the policy becomes exhausted after a claim is denied, that defense is not valid. That decision was up on appeal and has now been decided.

In this new decision, Alleviation Medical Services a/a/o Ali Al Rahabi v. Allstate Insurance Co., 2021 NY Slip Opinion 08159, plaintiff commenced a no-fault suit in New York City Civil Court in April 2011 for medical services provided to a claimant who was injured in a motor vehicle accident in October 2010. In May 2014, Allstate moved for summary judgment, alleging that its policy benefits had been exhausted. Civil Court denied Allstate's motion, and the Appellate Term (an intermediate appellate court) affirmed that denial. Allstate then appealed to the Appellate Division.

The Appellate Term had held, when it issued its decision in 2017, that because Allstate had not denied the claim on the grounds of policy exhaustion, that defense was lost. Since that time, courts in the Second Department (counties of Kings, Queens, Richmond, Nassau, Suffolk and Westchester) have been refusing the policy exhaustion defense unless it was contained in the claim denial.

Now the Appellate Division ruling is in, and it is not definitive, but it does imply that policy exhaustion is once again a valid defense at any time. What the Appellate Division says, first, is that they affirm the denial of summary judgment on different grounds than did the Civil Court and the Appellate Term. Since those lower courts based their decisions on the ground that policy exhaustion must be cited in the claim denial, we can draw the inference that such rule is not being adopted by the Appellate Division.

The Appellate Division then goes on to cite prior App. Div. cases which hold that an insurer's duties cease once the policy becomes exhausted (Hospital for...