Don’t Get Lost in Loss Transfer Arbitration

Don’t Get Lost in Loss Transfer Arbitration

8.21.2023

By Christopher P. Keenoy

There is nothing worse than an unwanted surprise. After settling the bodily injury lawsuit in a trucking or automobile claim, your insurer/client happily closes their file, satisfied with the settlement you’ve negotiated. Until…surprise! They receive a demand letter from another insurance carrier for $50,000 in loss transfer. They call you in a panic saying, “I thought you told me you settled this claim!” or “Doesn’t our release cover this?” or “I wouldn’t have paid that much to settle the lawsuit if I knew I still had exposure!” Loss transfer arises in connection with accidents involving a truck or accidents involving a for-hire vehicle.

New York is a no-fault state, meaning that insureds are generally reimbursed by their own insurance company for things like medical bills and lost wages up to at least $50,000 regardless of who was responsible for causing the accident.[1]

In the spirit of the no-fault law, insurers are typically not permitted to seek reimbursement of these payments from the insurer of the negligent driver. However, there are two important exceptions to that rule: (1) when one of the vehicles involved in the accident weighs more than 6,500 pounds unloaded or (2) is a motor vehicle used principally for the transportation of persons or property for hire.[2] With the number of tractor-trailers on the road as well as the ubiquity of taxis and ride share apps (i.e., Uber, Lyft), loss transfer arises more often than you might think.

Trucking

Litigating trucking claims is filled with nuance that goes beyond defending garden variety auto claims. In addition to the New York’s Vehicle and Traffic Law and general negligence theories, attorneys defending trucking lawsuits must be cognizant of regulations concerning drivers’ hours of service, maintaining driving logs, the requisite retention period for the same and countless other regulations prescribed by the Federal Motor Carrier Safety Administration and United States Department of Transportation. However, another and often overlooked aspect of trucking litigation is loss transfer. This is especially true for out-of-state insurers who may not be familiar with New York law in this regard. Luckily, it is simple to determine if loss transfer applies to your trucking accident. All that you need to know is the weight of the vehicle. If it weighs more than 6,500 pounds unloaded, loss transfer applies. If not, loss transfer does not apply.

For-Hire Vehicles

While ordinary auto cases lack much of the complexity inherent in trucking litigation, loss transfer does apply to auto cases involving a vehicle for hire – and making that determination is a bit trickier.

Surely, a taxi or limousine constitutes a vehicle for hire. But is an Uber or a Lyft “a motor vehicle used principally for the transportation of persons or property for hire”? The short answer is one that will give you flashbacks to law school: “It depends.” While a compelling argument can be made on both sides of that issue, luckily the New York State Department of Financial Services has provided some insight in this regard, and it largely depends on where the ride share app passenger was picked up.[3]

The Legislature has added new statutes to account for these types of ride share app vehicles – which they have defined as Transportation Network Company (TNC) vehicles – specifically VTL Article 44-B (Sections 1691-1700) and General Municipal Law (GML) Section 182.

The Vehicle and Traffic Law defines a TNC vehicle as one that is used by a TNC driver using a digital network to provide a TNC prearranged trip originating in the State of New York and owned, leased or otherwise authorized for use by the TNC driver.[4] The definition of a TNC vehicle explicitly excludes a taxicab, livery vehicle, black car, limousine, luxury limousine and a for-hire vehicle.[5] Per VTL Section1692(1), neither a TNC nor a TNC driver shall be deemed to provide taxicab or for-hire vehicle service while operating as a TNC or TNC driver pursuant to Article 44-B. As such, it is the opinion of the New York State Department of Financial Services that the Legislature intended to exempt TNC vehicles from intercompany loss transfer. In other words, the general rule is that there is no loss transfer in accidents involving Uber or Lyft.

However, VTL Section 1691(10) states that all the TNC regulations contained in Article 44-B do not apply in cities with a population of one million or more – in other words, New York City. As such, in its April 12, 2019 Circular Letter No. 4, the New York State Department of Financial Services specifically stated that “trips originating in New York City or any county or city that enacts a local law pursuant to GML Section 182[6] remain subject to all the laws that generally apply to for-hire vehicles and remain subject to the intercompany loss transfer provisions of Insurance Law Section 5105.” In New York City, the Taxi and Limousine Commission’s rules regulate the operation of for-hire vehicles and notably require the acquisition of a TLC license among other things. But also recall that the VTL defines a TNC vehicle as one that originates within the State of New York,[7] and as such, Article 44-B also does not apply to rides that began out-of-state.

These statutes lead to some similar fact patterns that yield different results:

• If an accident occurring in New York City involves an Uber/Lyft and that ride was initiated in New York City, loss transfer applies.
• If an accident occurring in New York City involves an Uber/Lyft and was initiated in Westchester County, loss transfer does not apply.
• If an accident occurring in New York City involves an Uber/Lyft and was initiated on the New Jersey side of the Holland Tunnel, loss transfer applies.[8]

When it comes to TNC vehicles, the critical part of this determination is not where the accident occurred, but where the ride began. Rides initiated inside New York City qualify for loss transfer. Rides initiated outside of New York City but within New York State do not qualify for loss transfer. Rides initiated anywhere outside New York State do qualify for loss transfer.

Loss Transfer Applies . . . What Happens Next?

After determining that loss transfer is applicable to a particular accident, what happens next? Typically, the insurer who paid their insured’s no-fault benefits, but believes the other vehicle was at fault, will seek reimbursement of those payments by sending a demand for the same to the other insurer. If the other insurer does not agree to reimburse those payments, or the parties cannot reach a settlement, the insurer will then file for arbitration. This is the sole remedy to seek loss transfer, and it must be filed with Arbitration Forums, Inc. within three years of the date each claim payment was made. The arbitrator will review the evidence submitted by each side and arrive at a final liability determination, and reimbursement will be ordered pursuant to that determination, which cannot be appealed.

Since treatment is ongoing for many claimants over the course of months or even years, many insurers wait until treatment has substantially concluded before filing for loss transfer arbitration. This explains why an insurer may receive a loss transfer demand or an arbitration notice substantially after the bodily injury lawsuit was filed or possibly even settled and closed.

However, the opposite scenario also arises – the insurer receives an arbitration demand when the bodily injury lawsuit is still in its infancy, such that they lack sufficient information/evidence to formulate liability defenses for arbitration. When this situation arises, you should avail yourself of the rule entitling any party to request a deferment with their answer on the basis of pending litigation.[9] This will trigger an administrative adjournment of one year so as to allow for written discovery and party depositions to be taken, which may be useful in your defense at arbitration.

If you are litigating an accident involving a truck, a taxi or an Uber/Lyft, loss transfer needs to be on your radar. Loss transfer certainly isn’t the most complex aspect of defending a trucking or auto claim, but failure to account for it can lead to an unwanted surprise down the road.

Christopher P. Keenoy is a partner in the New York office of Morrison Mahoney, where he has defended automobile/trucking, products liability and professional liability cases for the past 15 years.

[1] N.Y. Insurance Law § 5221.

[2] N.Y. Insurance Law § 5105(a).

[3] Insurance Circular Letter No. 4 (April 12, 2019).

[4] VTL §§ 1691.

[5] VTL §1691(1)(c).

[6] GML § 182(3) states that this section shall not apply to a city with a population of one million or more (i.e., New York City).

[7] VTL § 1691(1)(a).

[8] This assumes the driver of the vehicle qualifies as a “covered person” under N.Y. Insurance Law § 5105(a).

[9]See Arbitration Forums, Inc. rules. An eLaw print out suffices as evidence that litigation remains pending.