In this no-fault benefits suit, State Farm denied plaintiffs claims on the basis that the alleged injuries do not arise out of an insured incident. At the start of the trial, the parties stipulated to plaintiffs prima facie case and defendants denial based on the ground of lack of coverage due to no true accident. Defendant State Farm presented one witness, State Farm Special Investigative Unit (SIU) investigator Don Willsey. Plaintiff did not present any witnesses.

The trial then proceeded on the defense of lack of coverage. SIU investigator Willsey testified that after receiving the file on the assignor, he performed a preliminary investigation of the claim and tried to contact the parties involved in the alleged accident, including the insured in this case and the assignor, with no success.

Willsey also testified that as part of his investigation, he obtained information from the National Insurance Crime Bureau (NICB), which serves as a clearing house for data from insurance companies concerning claims made against insurance policies, and State Farms Frequency Tracking System, an internal database of all claims made against State Farm policies. As for State Farms Frequency Tracking System, he testified that data from prior losses may be retrieved using an individuals name, Social Security number, address, date of birth, and vehicle identification number (VIN), to determine any connection between the parties involved in the current claim, and prior claims against State Farm. His research concluded that: the owner of claimant vehicle had a prior claim history; owner and driver of the vehicle were not insured.

Plaintiff objected to defendant offering this information into evidence and, after voir dire of Willsey, moved to preclude this testimony on several grounds including hearsay. The court ruled in plaintiffs favor on the hearsay objection to the admittance into evidence of Frequency Tracking System results.

Willsey further testified that he received the file for investigation shortly after the alleged accident, sometime in September or October of 2002. When cross-examined about the gap in time (approximately four months) between the incident in question and his receipt of the Garcia file, he stated that a prior investigator had been assigned to the case.

Willsey also testified that he attempted to interview the parties involved in the incident, but was unable to do so. Having had no success in interviewing the parties, Willsey recommended to his attorney that Examinations Under Oath be scheduled for the parties involved in the incident. According to Willsey, none of the parties involved in the alleged accident appeared for EUOs.

Based on all of these factors, together with the fact that the insureds vehicle was not at the accident scene at the time the police arrived, Willsey determined that the accident was staged, and therefore it was not a covered accident. Thus, he recommended the subject claim be denied.

Deliberate Collision Not Accident

The court began its analysis by stating that no-fault insurance policies cover only vehicular accidents. A deliberate collision is not a covered accident. When a collision is an intentional act, not an accident, there is no coverage regardless of whether the intentional collision was motivated by fraud or malice.

The law is well settled in a no-fault summary judgment context that the insurer need only demonstrate to the court that it had a founded belief that the alleged accident was intentionally caused in order to survive a summary judgment motion by plaintiff-provider. However, defendant-insurers founded belief is usually not enough to obtain judgment on its own. To win on its summary judgment motion, defendant must make a prima facie lack of coverage showing, and if plaintiff does not come forward to rebut, defendant-insurer wins.

At trial, the question remains just how much admissible evidence the defendant-insurer must produce to satisfy its evidentiary burden where nonpayment of a no-fault claim is based on a collision being a non-covered event. The second question concerning this court is whether the elements of fraud must be proved where a claim has been denied based on 11 NYCRR 65-3.8 (e)(2) circumstances of the accident not covered by no-fault.

Preponderance of the Evidence Vs. Clear and Convincing

There have been several recent well-reasoned decisions regarding the standards of proof for fraud or no true accident, as well as a discussion of whether allegations of fraud are necessary in the context of a no-fault denial based on no true accident. Three of these decisions have been particularly helpful in analyzing the complexities involved in no-fault cases where the defense against payment of claims is lack of coverage based on allegations of fraud or that the collision was intentionally caused:

A.B. Medical Services, PLLC v. State Farm Mutual Automobile Ins. Co., supra; JSI Expert Service v. Liberty Mutual Ins. Co.; and V.S. Medical Services, P.C. v. Allstate Insurance Company. After thorough review and consideration of each of these opinions, this court has decided that it must determine first whether the tort of common law fraud must be proved where a denial is based on 11 NYCRR65-3.8(e)(2) circumstance of the accident not covered by no-fault; and second, the standard of proof for a staged accident, or no true accident.

...The standard of proof for the tort of common law fraud has long been viewed as requiring proof beyond a preponderance of the evidence as will be discussed below. This court is concerned, however, that proving the elements of common law fraud by clear and convincing evidence where nonpayment of a no-fault claim is based on a collision being an intentional act, is not what 11 NYCRR 65-3.8 envisioned.

The purposes of this statute were to remove a vast majority of claims arising from vehicular accidents from the sphere of common-law tort litigation, and to establish a quick, sure, and efficient system for obtaining compensation for economic loss suffered as a result of such accidents.

A review of the elements of the tort of common law fraud demonstrates why proving fraud by clear and convincing evidence in a no-fault trial is inconsistent with the purposes of no-fault law, and why it is not necessary to allege fraud as a defense for refusal to pay a no-fault claim.

To sustain a cause of action based on actual fraud, the plaintiff had to establish that (1) the defendant made material representations that were false, (2) the defendant knew the representations were false and made them with the intent to deceive the plaintiff, (3) the plaintiff justifiably relied on the defendants representations, and (4) the plaintiff was injured as a result of the defendants representations.

Clearly, proving these elements (and proving them by clear and convincing evidence) will consume a significant amount of trial time and could be very costly.

Denial of Claim Not Contingent Upon Proving Fraud

While common law fraud must be proved by clear and convincing evidencethe standard common to most civil cases is a preponderance of the credible evidence. What, then, distinguishes civil cases where a preponderance of the credible evidence standard of proof is sufficient, and those where the issue to be decided must meet the clear and convincing standard?

No-fault regulations provide for a denial of a claim for the following reasons:

(1) no coverage on the date of accident;

(2) circumstances of the accident not covered by no-fault; or

(3) statutory exclusions pursuant to section 5103(b) of the insurance law. Id. at 11 NYCRR 65-3.8 (e).

If an insurer has a founded belief that the alleged accident was not a true accident, it can deny the claim based on 11 NYCRR 65-3.8(e) (2). At trial, the insurer must show, through admissible evidence, facts and circumstances leading a trier of fact to conclude that more likely than not, the circumstances of the collision are not covered by no-fault. If this threshold is reached, the burden shifts to the plaintiff to rebut the defendants case.

Nowhere in the no-fault statute or regulations is there a requirement that in order to prevail on denial of a claim pursuant to 11 NYCRR 65-3.8(e), common law fraud must be proved. In fact, as Judge Jack Battaglia in A.B. Medical Services, PLLC v. State Farm Mutual Automobile Insurance company, supra, and Judge Arlene Bluth in V.S. Medical Services, P.C. v. Allstate Insurance Company, supra, point out: Damages resulting from a deliberate collision are not covered by no-fault insurance regardless of the existence of fraudulent motivation. Judge Bluth goes on to state: Put another way, the no-fault policy only covers accidents; it does not cover deliberate incidents. It does not matter whether the incident was a deliberate mugging, an attempted murder, a product of road rage, or a cold calculated scheme to defraud the insurance company. If it was deliberate, it is not a covered incident under the no-fault policy.

While our appellate courts commonly invoke the term fraud when discussing the defense of staged accident, it is a lack of coverage they are discussing, not necessarily fraud. It seems to make no difference why the incident occurred. If it were made to happen, then it is not an accident and therefore not a covered accident.

Insurer Must Go Beyond Founded Belief

In the instant matter, defendant contends that the evidentiary burden for defeating a summary judgment motion founded belief (incident was staged) should apply in a trial context. This court disagrees. As mentioned earlier, to win on its own summary judgment motion, defendant must make a prima facie lack of coverage showing and if plaintiff does not go forward to rebut, then summary judgment is granted to defendant-insurer. Moreover, this court is concerned that fact or founded belief as the evidentiary burden in no true accident cases contravenes the intent of the no-fault insurance law. Such a minimal showing would allow routine denial of claims by insurers and open the floodgates to permit insurers who have not timely denied a claim to use a no true accident defense (understanding that the standard of proof is minimal) and defeat the primary purposes of the no fault law.

The bottom line is that in a staged accident case, the defendant has the burden of coming forward with proof in admissible form that a staged accident occurred; The plaintiff bears the burden of persuasion and rebutting defendants evidence, or the plaintiff succumbs. This court finds that the standard of proof is preponderance of the evidence, often defined as the existence of the fact being more probable than its non-existence. After all the evidence has been presented, the trier of fact must decide whether the evidence preponderates in favor of the plaintiff or defendant.

Defendant Relying on Hearsay

In this trial, defendant failed to come forward with proof in admissible form to establish the fact or the evidentiary foundation to buttress its belief that the injuries alleged by the assignor did not arise from an insured accident. Defendant failed to adduce sufficient admissible evidence to rebut the presumption of coverage that attaches to the plaintiffs properly completed claim form.

While SIU investigator Willseys testimony is entitled to some weight, it is clear to this court that much of the information that SIU investigator Willsey relied upon in his testimony was hearsay and was not admissible due to the lack of appropriate foundation. The defendant sought to introduce information obtained from the National Insurance Crime Bureau (NICB) in establishing its case of intentional collision, but failed to lay any foundation or make any showing that would support the admissibility of this information.

In addition, Mr. Willsey testified that as part of his investigation, he utilized State Farms Frequency Tracking System to determine any prior loss history of any of the parties and/or any of the vehicles involved in the present incident. His search revealed that the owner of claimant vehicle had a prior claim history with State Farm and that the owner and driver were not insured. Again, this court concluded that without the requisite foundation, this information is inadmissible hearsay.

Defendant also asserts an inference of intentional collision should be made by the alleged failure to cooperate by the assignor and /or other parties involved in this incident, and the fact that the insured vehicle was not at the scene of the accident at the time police arrived. The fact that the vehicle was not at the scene of the accident is not determinative of anything. Even though defendant-insurer may wish to use failure to cooperate as one indicia of no true accident instead of as a defense, it did not offer any admissible evidence as to plaintiffs assignors failure to cooperate.

Based upon the testimony at trial and the acts discussed above, this court concludes that the defendant has failed to come forward with evidence of a staged accident, or that the loss giving rise to this action was intentional, and thus the burden of persuasion was never shifted to plaintiff. Accordingly, judgment for plaintiff in the sum of $1,842.26, together with statutory interest and attorneys fees. This constitutes the decision and order of the court.

Comment: If I am reading this decision correctly, it sounds like Judge Velasquez is saying that if State Farm could have produced admissible evidence to back up what its SIU rep was trying to prove, then it might have won this case by showing, by a preponderance of the evidence, that this auto collision was not an accident.

This decision makes an excellent point which should not be lost on no-fault carriers: you dont have to prove that a claim is fraudulent, you just have to prove that it wasnt an accident.

Universal Open MRI of the Bronx, P.C. a/a/o Leovanny Ramirez v. State Farm Mut. Auto Ins. (Civil Court, Kings County)(Velasquez, j)