Motion to Dismiss — Country-Wide Insurance v. Harnett

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OCTOBER TERM 1976

No. 76-1386

Country-Wie Insurance Company,

Appellant,

against

THomas A. Harnett, Superintendent of Insurance

of the State of New York,

Appellee.

On Appeal from the United States District Court

for the Southern District of New York

MOTION TO DISMISS OR AFFIRM

Louis J. Lerxow1tz

Attorney General of the

State of New York

Attorney for Appellee

Office & P. O. Address

Two World Trade Center

New York, New York 10047

Tel. No. (212) 488-3445

Irvine Gat

Assistant Attorney General

ALLEN J. TisHMAN

Attorney

of Counsel

TABLE OF CONTENTS

Statement of the Case .............ccccceeeceeees 1

ArcumMent—The decision of the three-judge court

was manifestly correct and presents no substan-

tial question for determination by this court .... 5

Nn. ccccecceccocs 9

ee a

IN THE

Supreme Court of the United States

OCTOBER TERM 1976

No. 76-1386

Country-Wiwe Insurance Company,

Appellant,

against

Tuomas A. Harnett, Superintendent of Insurance

of the State of New York,

Appellee.

On Appeal from the United States District Court

for the Southern District of New York

MOTION TO DISMISS OR AFFIRM

Appellee, pursuant to Rule 16 of the Rules of this Court,

moves to dismiss or affirm on the grounds that the ques-

tions raised on this appeal are so insubstantial as not to

warrant argument, and the decision below is so obviously

correct as to warrant no further review.

Statement of the Case

This action was brought under 28 U.S.C. $§ 1331 and

1343 by appellant, a New York insurer, for a declaration

of unconstitutionality and an injunction with respect to

two features of New York’s No-Fault Act (N.Y. Insur.

Law Art. 18, §§ 670 et seq., as added by L. 1973, ec. 13,

effective Feb. 1, 1974). In unanimously dismissing the

amended complaint, the three-judge District Court ex-

pressed the view (J.S. 22a) that these particular facets

had not been passed upon or authoritatively reviewed by

the New York courts, including the State’s highest court

in previously upholding the constitutionality of the Act

itself in Montgomery v. Daniels, 38 NY 2d 41, 340 NE 2d

444, 378 N.Y.S.2d 1 (1975).*

The holding below was predicated on the law, without

need of resolving any possible issues of fact. Neverthe-

less, we feel bound to take exception to some, at least, of

the plethora of misleading statistics and assumptions of

fact and law set forth in much of appellant’s statement of

the case.

Thus, for example, appellant claims that through the

exercise of a claimant’s option to compel arbitration (N.Y.

Insur. L. § 675[2]), “the insurer is absolutely prohibited

for all time from obtaining a judicial determination on the

merits as to every issue” (J.S. 6).

New York’s arbitration statute, Civil Practice Law and

Rules Art. 75, provides four grounds for vacating awards

on the application of a participant whose rights were preju-

diced.** Once the award has been vacated, ‘‘the court may

*No appeal to this Court was sought to be taken in Mont-

gomery, as was unsuccessfully attempted with respect to Connecti-

eut’s substantially similar no-fault law found constitutional in

Gentile v. Altermatt, 169 Conn. 267, 363 A2d 1 (1975), app. dism.

423 U.S. 1041. We believe the holdings in Montgomery and

Gentile are dispositive of appellant’s contentions in this case.

**“The award shall be vacated . . . if the court finds that the

rights of that party were prejudiced by: (i) corruption, fraud

or misconduct in procuring the award; or (ii) partiality of an

arbitrator appointed as a neutral, except where the award was

by confession; or (iii) an arbitrator, or agency or person making

the award exceeded his power or so imperfectly executed it that

(footnote continued on the following page)

order a rehearing and* determination of all or any of the

issues either before the same arbitrator or before a new

arbitrator . . .” CPLR §7511(d).

As noted below (J.S. 25a), this statutory protection has

been broadened, with respect to compulsory arbitration,

by case law holding that CPLR § 7511(b),

“in authorizing review of whether the arbitrator has

exceeded his power, by necessary logical extension

and without distortion of its literal terms includes

review in the case of compulsory arbitration (but only

in such case) of whether the award is supported by

evidence or other basis in reason, as may be appro-

priate and appearing in the record.” Mt. St. Mary’s

Hospital v. Catherwood, 26 N Y 2d 493, 508, 260 NE

2d 508, 516-17, 311 N.Y.S.2d 863, 875 (1970). See also

Caso v. Coffey, 41 N Y 2d 153, 359 NE2d 683 (1976).

Appellant asserts that “if the insurer could take the first

party benefit dispute into a trial court,” rather than go to

arbitration, there might be a different type of “judicial

recourse” (J.S. 7). While this may be literally true, it

raises no constitutional question, for it does not imply that

there was not a “reasonable basis” for the Legislature’s

decision to permit first party benefit claims, newly created

by the Act, to be referred to a forum other than the

courts. As was said in Hardware Dealers Fire Ins. Co. v.

Glidden, 284 U.S. 151, 158 (1931):

“. . . the procedure by which rights may be enforced

and wrongs remedied is peculiarly a subject of state

regulation and control. The Fourteenth Amendment

neither implies that all trials must be by jury, nor

(footnote continued from preceding page) —

a final and definite award upon the subject matter submitted was

not made; or (iv) failure to follow the procedure of this article,

unless the party applying to vacate the award continued with the

arbitration with notice of the defect and without objection.”

CPLR § 7511(b) (1).

guarantees any particular form or method of state

procedure . . . [A] state may choose the remedy best

adapted, . . . provided its choice is not unreasonable

or arbitrary, and the procedure it adopts satisfies the

constitutional requirements of reasonable notice and

opportunity to be heard.”

The three-judge court pointed out that Hardware Dealers,

supra, a case “directly presenting a due process analysis of

compulsory arbitration of insurance claims . . . clearly

disposes of [appellant’s] contentions concerning arbitra-

tion” (J.S. 24a). Indeed, appellant does not even argue

that arbitration denies it reasonable notice or opportunity

to be heard.

Appellant complains of having been admonished by the

New York County Supreme Court to “keep away from the

courts with complaints about claimants’ elections to com-

pel arbitration” (J.S. 7). Yet, as shown by appellant’s

quoted excerpt (ibid.), the court merely chided the insurer

for instituting “proceedings of this nature without sound

basis” (emphasis supplied). As we have already noted

(ante, p. 3), the State’s highest court has indicated on at

least two occasions the substantial degree of review avail-

able with respect to compulsory arbitration.

In detailing its asserted arbitration expenses (J.S. 8),

appellant seeks undeserved sympathy when its own figures

could just as well be interpreted as showing that the in-

surer has benefited from arbitration. Appellant states it

has been party to 150 arbitrations, resulting in awards of

approximately $105,000 (excluding settlements) plus fees

of $16,000 to the American Arbitration Association, and

some $10,000 in “other expenses.” Thus each award cost it

an average of only $700, plus expenses. The expenses

ostensibly average out to $248 per case, but are actually

much less, for they also include the expenses of settlements,

so that the total cost per case in which an award was made

was well under $950. Clearly, therefore, appellant’s 150

arbitrated claims could not have caused benefits to even

approach, on the average, the pre-No-Fault “10/20 cover-

age”; and the claim of financial harm is not only immaterial,

but grossly exaggerated.

The portrayal of “substantial claim losses” because of

a claimed potential liability of up to $450,000 per accident

(J.S, 12-13) is ludicrous. Appellant’s own figures demon-

strate that its payments under compulsory arbitration,

including awards and expenses, must have been less than

$50,000 per year on all of its policies, for the three years

since No-Fault took effect.

Of the insurer’s 12,000 policies which it says came unde.

the mandatory extension provisions of the Act, appellant

speculates that 1,200 of them would not otherwise have

been renewed. Cancellation of those 1,200 policies would

not have meant a complete end to the insurer’s liability for

the alleged bad risks. Those same insureds would have

been obliged to obtain coverage under the assigned risk

plan, to which the insurer contributes. In addition, appel-

lant would have borne a part of the cost of every other

company’s rejected risks relegated to assigned risk cover-

age, N.Y. Insurance Law §63. Thus, appellant has ac-

tually reaped a benefit by not having to share the cost of

the impliedly bad risk policies that other companies might

have cancelled.

ARGUMENT

The decision of the three-judge court was mani-

festly correct and presents no substantial question for

determination by this Court.

The contract impairment claim, U.S. Const. Art. 1, § 10,

stemming from the provisions of §§7 and 11 of the Act

(N.Y. Laws 1973, c. 13) and N.Y. Insurance Law § 167-a

requiring the extension of certain policies, is patently in-

——

substantial. It received short shrift, and rightly so, at the

hands of the three-judge court, J.S. 28a-29a.

It is virtually a truism that the State’s right to protect

the general welfare of the people by exercise of the police

power is paramount to any rights under contract notwith-

standing the prohibition in Article 1, § 10, against impair-

ment of the obligations of contracts. Home Bldg. Loan

Assn. v. Blaisdell, 290 U.S. 398 (1934); Faitoute Co. v.

Asbury Park, 316 U.S. 502 (1942); East New York Savings

Bank v. Hahn, 326 U.S. 230 (1945), affg. 293 N.Y. 622;

Manigault v. Springs, 199 U.S. 473 (1905); Jamaica Sav-

ings Bank v. Lefkowitz, 390 F. Supp. 1357 ( E.D.N.Y. 1975),

aff'd 423 U.S. 802 (1975). The insurance industry is one

peculiarly amenable to close state regulation in the exer-

cise of the police power, e.g., California State Auto Assn. v.

Maloney, 341 U.S. 105, 109-10 (1951) ; Osborn v. Ozlin, 310

US. 53, 65-66 (1940); Hardware Dealers Mutual F.I. Co.

v. Glidden Co., supra (284 U.S. at 157-58), as has been

held specifically with regard to no-fault legislation, Mont-

gomery v. Daniels, 38 N Y 2d 41, 54-6, 340 NE 2d 444, 452,

453 (1975) ; Gentile v. Altermatt, 169 Conn. 267, 363 A 2d 1,

18 (1975), app. dism. 423 U.S. 1041 (1976). Indeed, with

respect to the insurance industry, the state power is “broad

enough to take over the whole business, leaving no part for

private enterprise”, Calif. State Auto Assn. v. Maloney,

supra (341 U.S. at 110).

As against the exercise of the state police power, coupled

with the powerful presumption of constitutionality, the

claim of contract impairment simply evaporates.

Considerations such as those indicated in the opinion

below (J.S. 28a-29a) support the legislative action in the

exercise of the state police power and as a matter of the

Legislature’s choice and discretion as to the means best

adapted to secure the benefits intended. See, e.g., East

New York Savings Bank v. Hahn, supra; Home Bldg. &

— _e

Loan Assn. v. Blaisdell, supra. In the words of the three-

judge court which dismissed the instant complaint (J.S.

29a) :

“Regulation of the insurance industry, in order to

provide adequate protection of the public, is surely a

proper subject for the state’s exercise of its police

power . . . The law accomplishes a legitimate public

goal and any contract right must yield to it.”

In attacking the arbitration provisions of N.Y. Insur-

ance Law § 675(2), appellant relies principally on the argu-

ment that it is being deprived of a supposed fundamental,

independent right “to access to the courts,” in violation

of the Fourteenth Amendment.

The reliance is misplaced; in the no-fault context, the

argument has been rejected not only by the court below,

J.S. 22a-23a, but previously by the New York Court of

Appeals in a carefully considered opinion, Montgomery v.

Daniels, swpra, where it was pointed out that (38 N Y 2d

at 60)

“reliance on Boddie v. Connecticut (401 U.S. 371) . . .

is misplaced. In Boddie and in subsequent cases clari-

fying Boddie (e.g., Ortwein v. Schwab, 410 U.S. 656;

United States v. Kras, 409 U.S. 434) the Supreme

Court has made it clear that access to the courts in

and of itself is not an independent constitutional right.

The right to access to the courts will be accorded

special constitutional protection only where the right

sought to be asserted through such access is a right

recognized in the constitutional sense as carrying a

preferred status and so entitled to special protection

and then only where there is no alternative forum in

which vindication of that constitutionality protected

right may be sought. . . .” (emphasis supplied.)

So, too, appellant seeks to disinter the long-since aban-

doned doctrines of Wolff Packing Co. v. Indus. Court, 262

U.S. 522 (1923) and 267 U.S. 552 (1925), and Dorchy v.

Kansas, 264 U.S. 286 (1924).

As the court below indicated (J.S. 23a), the “public in-

terest’’ standard of the Wolff duo and Dorchy “‘was ex-

pressly rejected in Nebbia v. New York, 291 U.S. 502

(1934).” The Court went on to explain that Lincoln Fed.

Labor Union v. Northwestern Iron & Metal Co., 335 U.S.

525 (1949), exemplifies the rejection of the substantive due

process approach of Wolff and Dorchy (J.S. 24a).

The New York Court of Appeals had expressed the same

view in a compulsory arbitration case, Mt. St. Mary’s

Hospital, supra (26 N Y 2d at 500):

“The underpinnings for the view [of the Wolff-Dorchy

cases] concerning industries affected with a public

interest have, of course, since then been severely, if

not fatally, weakened (see Lincoln Union v. North-

western Co., 335 U.S. 525, 535-37).”

Equally futile is appellant’s attempt to maintain that

Hardware Dealers Fire Ins. Co. v. Glidden, supra (284

U.S. 151), has no authoritative application to this case.

Although Hardware Dealers upheld the constitutionality

of a statute which permitted determination by compulsory

arbitration only of the amount of loss “reserving all other

issues for trial in court” (284 U.S. at 159), the case laid

down broad guidelines that would also validate a more

comprehensive arbitration scheme (such as provided by

the No-Fault Act). Thus, it held that “the state may

choose the remedy best adapted to protect the interests

concerned . . .,” and that “the requirements of the Four-

teenth Amendment .. . are satisfied if the substitute is

substantial and efficient” (284 U.S. at 158, 159).

In Montgomery, supra, the court rejected the argument

that New York’s No-Fault Act unconstitutionally abro-

a eR

gates, in part, the common law right to sue in tort without

providing an “adequate substitute remedy,” declaring (38

N Y 2d at 58):

“ . . we would conclude that the issue is not present

because under any analysis the law now challenged

provides an adequate substitute for the cause of action

it abrogates.”

CONCLUSION

The appeal should be dismissed or the judgment af-

firmed.

Dated: New York, New York

May 5, 1977

Respectfully submitted,

Louis J. Lerxow1Tz

Attorney Genera! of the