author: Graffeo, J.

text:
    [876 NE2d 1189, 845 NYS2d 773]
    Castalia Ortega et al., Appellants, v City of New York, Respondent.
    Argued September 5, 2007;
    decided October 16, 2007

      POINTS OF COUNSEL

      Trief & Olk, New York City (Barbara E. Olk of counsel), for appellants.
    I. Third-party negligent spoliation is a valid cause of action. (MetLife Auto & Home v Joe Basil Chevrolet, 1 NY3d 478; DiDomenico v C & S Aeromatik Supplies, 252 AD2d 41; Ripepe v Crown Equip. Corp., 293 AD2d 462, 98 NY2d 765; Vaughn v City of New York, 201 AD2d 556; Weigl v Quincy Specialties Co., 158 Misc 2d 753; Fada Indus. v Falchi Bldg. Co., 189 Misc 2d 1; Kirkland v New York City Hous. Auth., 236 AD2d 170; Bigelow v RKO Radio Pictures, Inc., 327 US 251; Story Parchment Co. v Paterson Parchment Paper Co., 282 US 555; Hardwood Dimension & Mouldings v Consolidated Edison Co. of N.Y., 77 AD2d 644, 51 NY2d 1008.) II. The elements of a cause of action for spoliation: the Court should adopt the Hannah v Heeter (213 W Va 704, 584 SE2d 560 [2003]) elements. III. Appellants have established the requisite elements of a cause of action for spoliation as a matter of law. (Tenuto v Lederle Labs., Div. of Am. Cyanamid Co., 90 NY2d 606; Vetrone v Ha Di Corp., 22 AD3d 835; Rebollal v Payne, 145 AD2d 617; Espinal v Melville Snow Contrs., 98 NY2d 136; Church v Callanan Indus., 99 NY2d 104; Palka v Servicemaster Mgt. Servs. Corp., 83 NY2d 579; Cabasso v Goldberg, 288 AD2d 116; Standard Fire Ins. Co. v Federal Pac. Elec. Co., 14 AD3d 213; Cummings v Central Tractor Farm & Country, 281 AD2d 792, 96 NY2d 896; Puccia v Farley, 261 AD2d 83.) IV There are no material facts for which discovery was needed. (Pearsall v Saracco, 305 AD2d 650; Spatola v Gelco Corp., 5 AD3d 469; Wyllie v District Attorney of County of Kings, 2 AD3d 714; Nadeau v Connell, 243 AD2d 1009.)

      Michael A. Cardozo, Corporation Counsel, New York City (Scott Shorr and Barry P. Schwartz of counsel), for respondent.

      I. Consistent with New York precedent, the Appellate Division correctly declined to recognize a third-party negligent spoliation tort. (Sega v State of New York, 60 NY2d 183; Sterbenz v Attina, 205 F Supp 2d 65; Carella v Reilly & Assoc., 22 AD3d 623; MetLife Auto & Home v Basil Chevrolet, 303 AD2d 30, 1 NY3d 478; Steinman v Barclays Bank, 276 AD2d 436, 96 NY2d 818; Weigl v Quincy Specialties Co., 158 Misc 2d 753; Ripepe v Crown Equip. Corp., 293 AD2d 462, 98 NY2d 765; DiDomenico v C & S Aeromatik Supplies, 252 AD2d 41; Vaughn v City of New York, 201 AD2d 556; Fada Indus. v Falchi Bldg. Co., 189 Misc 2d 1.) II. For sound public policy reasons, this Court should decline to recognize a new and speculative third-party negligent spoliation tort. (Newport v Fact Concerts, Inc., 453 US 247; Millard v Alliance Laundry Sys., LLC, 20 AD3d 866; Simet v Coleman Co., Inc., 8 AD3d 1038, 4 NY3d 703; MetLife Auto & Home v Basil Chevrolet, 303 AD2d 30; Wilson v Beloit Corp., 921 F2d 765; Howard v Lecher, 42 NY2d 109; Fada Indus. v Falchi Bldg. Co., 189 Misc 2d 1; Lauer v City of New York, 95 NY2d 95; Donohue v Copiague Union Free School Dist., 47 NY2d 440; Bigelow v RKO Radio Pictures, Inc., 327 US 251.) III. Because plaintiffs could have pursued a design defect claim even without the car, this Court need not create a new and speculative third-party negligent spoliation tort. (MetLife Auto & Home v Basil Chevrolet, 303 AD2d 30; Dayal v Coinmach Indus. Co., 284 AD2d 206; Otis v Bausch & Lomb, 143 AD2d 649; Katz v PRO Form Fitness, 3 AD3d 474; Kirkland v New York City Hous. Auth., 236 AD2d 170; McDermott v City of New York, 50 NY2d 211; Coley v Michelin Tire Corp., 99 AD2d 795; Iadicicco v Duffy, 60 AD2d 905; Speed v Avis Rent-A-Car, 172 AD2d 267; Longo v Armor El. Co., 278 AD2d 127.) IV Any recognition of a third-party negligent spoliation tort should originate with the Legislature. (Murphy v American Home Prods. Corp., 58 NY2d 293; Matter of Barclays Bank v Hughes, 306 AD2d 406; Hardwood Dimension & Mouldings v Consolidated Edison Co. of N.Y., 77 AD2d 644; Matter of Department of Hous. Preserv. & Dev. of City of N.Y. v Deka Realty Corp., 208 AD2d 37; Krohn v New York City Police Dept., 2 NY3d 329; Mon v City of New York, 78 NY2d 309; MetLife Auto & Home v Basil Chevrolet, 303 AD2d 30.) V In any event, Supreme Court correctly dismissed Castalia Ortega’s purported spoliation claim because, as a matter of law, the City of New York did not owe any preservation duty to Ortega. (Board of Educ. of Union Free School Dist. No. 2, E. Williston, Town of N. Hempstead v New York State Div. of Human Rights [Arluck], 44 NY2d 902; Matter of Freudenthal v County of Nassau, 99 NY2d 285; Lubitz v Mehlman, 187 AD2d 97; Matter of Springer, 238 App Div 305; Mazzella v Sarvis, 272 App Div 381; Bingham v New York City Tr. Auth., 99 NY2d 355; Tenuto v Lederle Labs., Div. of Am. Cyanamid Co., 90 NY2d 606; Rebollal v Payne, 145 AD2d 617; Espinal v Melville Snow Contrs., 98 NY2d 136.) VI. As Supreme Court properly held, the existence of material fact issues warranted denial of Manuel Peralta’s summary judgment motion. (Gerelli Ins. Agency, Inc. v Gerelli, 23 AD3d 341; Matter of Holtzman v Beatty, 97 AD2d 79; Glasser v City of New York, 265 AD2d 526; City of New York v Wilson & Co., 278 NY 86; Gallo v Bay Ridge Lincoln Mercury, 262 AD2d 450; Mitchell v Maguire Co., 151 AD2d 355; Groves v Land’s End Hous. Co., 80 NY2d 978; Thompson v Scocozza Studio Assoc., 86 AD2d 830; Jamie v Jamie, 19 AD3d 330.)

      David L. Darwin, County Attorney, Goshen, for County of Orange and another, amici curiae.
    I. Recognition of an independent tort of third-party spoliation of evidence is contrary to the public policy of New York and a legislative scheme designed to limit municipal liability and protect the public fisc. (MetLife Auto & Home v Joe Basil Chevrolet, 1 NY3d 478; Pelaez v Seide, 2 NY3d 186; Kircher v City of Jamestown, 74 NY2d 251; Cuffy v City of New York, 69 NY2d 255; O’Connor v City of New York, 58 NY2d 184; Amabile v City of Buffalo, 93 NY2d 471; Holt v County of Tioga, 56 NY2d 414; Barry v Niagara Frontier Tr. Sys., 35 NY2d 629; Doremus v Incorporated Vil. of Lynbrook, 18 NY2d 362; Crair v Brookdale Hosp. Med. Ctr., Cornell Univ., 94 NY2d 524.) II. The creation of a new, independent tort for third-party spoliation of evidence will permanently and adversely alter the function and operation of county government, in contravention of public policy and policy of this Court to exercise judicial restraint in matters involving the allocation of municipal resources. (Arteaga v State of New York, 72 NY2d 212; O’Connor v City of New York, 58 NY2d 184; Riss v City of New York, 22 NY2d 579.)

      J. Wade Beltramo, Albany, for New York State Conference of Mayors and Municipal Officials, amicus curiae.
    I. Recognizing third-party spoliation of evidence as an independent tort is against public policy because it will expose municipalities to substantial liability and litigation costs for performing governmental acts. (MetLife Auto & Home v Joe Basil Chevrolet, 1 NY3d 478; Miller v State of New York, 62 NY2d 506.) II. Adopting third-party spoliation of evidence will result in a considerable proliferation of plaintiff’s attorneys seeking court orders directing local governments and the State of New York to preserve evidence, wasting both government and judicial resources. III. Adopting third-party spoliation of evidence as a cause of action against local government officials would create a disincentive for property owners to take possession of their property from local governments.
   OPINION OF THE COURT

Graffeo, J.

In this case we address an issue left open in MetLife Auto & Home v Joe Basil Chevrolet (1 NY3d 478 [2004]): whether New York recognizes the tort of third-party negligent spoliation of evidence. We conclude that the tort is not cognizable in this state.

In October 2003, plaintiff Castalia Ortega purchased a 1987 Ford minivan from a private owner. She then brought the vehicle to a licensed service station for an inspection and tune-up. The day after the vehicle was serviced, while Ortega and plaintiff Manuel Peralta were traveling on Ocean Parkway in Brooklyn, Ortega smelled fumes and pulled the minivan to the side of the road. The van burst into flames, causing Ortega and Peralta to suffer severe burns.

The New York City police officers who investigated the accident contacted Ridge Transport Systems, a towing contractor, to remove the vehicle from the roadway. Ridge towed the van to its facility in Brooklyn where it remained until November 7, 2003, when it was transported to the New York City Police Department’s College Point Auto Pound in Queens. Peralta’s attorney attempted to inspect the vehicle while it was in Ridge’s possession but was refused access because Peralta did not own the vehicle and could not produce a title document or bill of sale. Ridge explained that the van would be destroyed if not claimed by its rightful owner.

On October 31, 2003, Peralta commenced a special proceeding against Ridge and the New York City Police Department by order to show cause seeking to preclude destruction of the vehicle until it could be inspected by Peralta. Neither Ridge nor the police department opposed the application. Supreme Court issued an order on November 18, 2003 granting Peralta a period of 60 days to inspect the vehicle and precluding its alteration or destruction until completion of the inspection. The preservation order was served on Ridge and the police department. The Legal Bureau of the police department promptly forwarded a written request, along with a copy of the court order, to the property clerk at College Point Auto Pound directing preservation of the vehicle pending Peralta’s inspection.

For unknown reasons, the memo and order were either not received by the property clerk or were not properly acted upon. Instead of preserving the minivan as directed by Supreme Court, the Pound followed its ordinary procedures for the disposition of unclaimed vehicles. When the vehicle had arrived at the Pound, a Department of Motor Vehicles ownership check was conducted that revealed two owners: plaintiff Castalia Ortega and the person who sold the car to Ortega. On November 19, 2003, form letters were sent to both individuals by certified mail advising that if the owner did not contact the Pound within 15 days, the vehicle would be deemed abandoned under Vehicle and Traffic Law § 1224 and would be destroyed. The Pound received a signed return receipt from the former owner. However, the letter to Ortega, which had been directed to the address supplied on the police accident report, was returned for insufficient address. Because neither person contacted the Pound within the designated time period, the vehicle was placed in a salvage auction on December 10, 2003 and crushed for scrap metal on December 30, 2003. The Legal Bureau of the police department—which had attempted to assist Peralta’s attorney in his efforts to enforce the preservation order—did not learn of the van’s destruction until February 2004, at which point it notified Peralta and the court of the Pound’s disposition of the vehicle.

Ortega and Peralta did not pursue a personal injury action against the Ford Motor Company, as manufacturer of the vehicle, the previous owner or the service station that had inspected the van. Instead, in July 2004, plaintiffs commenced this action against the City of New York seeking compensation for the personal injuries they sustained as a result of the automotive fire. Plaintiffs asserted two theories of recovery. First, they claimed that the City should be held liable for all damages stemming from the fire because, by destroying the vehicle, the City had breached its duty to preserve evidence, thereby committing the tort of negligent spoliation of evidence. Second, they claimed that by violating the preservation order, the City was guilty of civil contempt, rendering it liable for any damages flowing from its disregard of the court order. The City answered, asserting that plaintiffs had failed to state a cause of action for which relief could be granted and further generally denied the allegations of negligence.

Plaintiffs moved for summary judgment on liability as to both the negligent spoliation of evidence and contempt causes of action. In support of the motion, plaintiffs submitted the affidavit of an accident reconstruction expert who opined that the destruction of the vehicle and resultant inability of plaintiffs to inspect it presented a fatal obstacle to determining the cause of the fire or identifying the responsible parties. As a result of the City’s negligence, plaintiffs contended they were precluded from recovering damages from any of the tortfeasors who were ultimately responsible for their injuries.

The City opposed the motion, alleging that the negligent spoliation of evidence claim was inherently speculative because inspection of the vehicle might not have revealed the cause of the fire, and that destruction of the vehicle did not necessarily preclude a viable lawsuit against the true tortfeasors. The City’s expert, an automotive engineer, concluded that other methods of investigation—including the review of product design, recall information, previous lawsuits, service records and the like— might have revealed circumstantial evidence regarding the cause of the fire sufficient to support a lawsuit against the vehicle manufacturer, previous owner or the service station that inspected the vehicle.

In resolving plaintiffs’ application, Supreme Court addressed whether New York recognizes negligent spoliation of evidence as an independent tort. Although it acknowledged that the tort was problematic due to the speculative nature of the causation and damages elements, the court concluded that plaintiffs stated a cognizable claim. The court nonetheless dismissed plaintiff Ortega’s spoliation cause of action because she had not been a party in the special proceeding that resulted in the preservation order and therefore had not established that the City breached a duty owed to her. Peralta’s motion for partial summary judgment was denied because the court found that factual issues warranted a trial. Finally, the court dismissed the contempt claim, reasoning that contempt should be adjudicated by the court that issued the preservation order within the context of the special proceeding—not by the commencement of separate litigation before a different judge.

On the plaintiffs’ appeal, the Appellate Division agreed that Ortega’s negligent spoliation of evidence cause of action was not viable and, after searching the record, held that Peralta’s claim was also not supportable, thereby modifying the order to grant the City summary judgment dismissing that claim as well. We granted plaintiffs leave to appeal and now affirm.

When parties involved in litigation engage in the destruction of evidence, a number of remedial options are provided by existing New York statutory and common law. Under CPLR 3126, if a court finds that a party destroyed evidence that “ought to have been disclosed . . . , the court may make such orders with regard to the failure or refusal as are just.” New York courts therefore possess broad discretion to provide proportionate relief to the party deprived of the lost evidence, such as precluding proof favorable to the spoliator to restore balance to the litigation, requiring the spoliator to pay costs to the injured party associated with the development of replacement evidence, or employing an adverse inference instruction at the trial of the action (see e.g. Dorsa v National Amusements, 6 AD3d 652 [2d Dept 2004]; Ifraimov v Phoenix Indus. Gas, 4 AD3d 332 [2d Dept 2004]; Hulett v Niagara Mohawk Power Corp., 1 AD3d 999 [4th Dept 2003]). Where appropriate, a court can impose the ultimate sanction of dismissing the action or striking responsive pleadings, thereby rendering a judgment by default against the offending party (see e.g. Standard Fire Ins. Co. v Federal Pac. Elec. Co., 14 AD3d 213 [1st Dept 2004]; Puccia v Farley, 261 AD2d 83 [3d Dept 1999]; Kirkland v New York City Hous. Auth., 236 AD2d 170 [1st Dept 1997]).

In light of the various remedies available to trial courts, we noted in MetLife that “[o]ne traditional method of dealing with spoliation of evidence in New York has been CPLR 3126 where sanctions, including dismissal, have been imposed for a party’s failure to disclose relevant evidence” (1 NY3d at 482-483). We were asked in MetLife to recognize negligent spoliation of evidence as an independent tort giving rise to consequential damages but we found it unnecessary to determine whether the tort was viable because the plaintiff in that action had failed to establish a fundamental element—that the party who destroyed the evidence owed plaintiff a duty to preserve it. In this case, because Peralta demonstrated that the City had a duty arising from the preservation order to safeguard the vehicle pending his inspection, we must resolve the specific issue of whether a third-party spoliation of evidence claim is cognizable in New York.

An independent tort arising from the spoliation of evidence was first recognized in 1984 by a California intermediate appellate court (see Smith v Superior Ct., 151 Cal App 3d 491, 198 Cal Rptr 829 [2d Dist 1984]). Following Smith, several other jurisdictions embraced the tort, although there is little consensus regarding its elements. For example, some courts allow recovery only when a plaintiff in a spoliation claim can establish that the destruction of evidence was malicious or that the spoliator’s actions were motivated by an intent to disrupt the underlying litigation (see e.g. Torres v El Paso Elec. Co., 127 NM 729, 987 P2d 386 [1999]; Hibbits v Sides, 34 P3d 327 [Alaska 2001]). Other states have folded spoliation claims into their ordinary negligence rubric, requiring plaintiffs to meet typical proximate cause and actual damages standards (see e.g. Gilleski v Community Med. Ctr., 336 NJ Super 646, 765 A2d 1103 [App Div 2001]; Boyd v Travelers Ins. Co., 166 Ill 2d 188, 652 NE2d 267 [1995]). Plaintiffs’ claim here would fail under the standards adopted by these courts as there is no indication that the City acted with malice or an intent to prevent them from obtaining recovery for their burn injuries, nor was the City’s destruction of the car a proximate cause of those injuries.

Thus, plaintiffs primarily urge this Court to recognize the tort by emulating the rationale set forth in three cases: Hannah v Heeter (213 W Va 704, 584 SE2d 560 [2003]), Oliver v Stimson Lbr. Co. (297 Mont 336, 993 P2d 11 [1999]), and Holmes v Amerex Rent-A-Car (710 A2d 846 [DC App 1998]). These courts have endorsed the tort of third-party negligent spoliation of evidence on the theory that, for every wrong there should be a remedy, and have reasoned that traditional responses to spoliation—such as the imposition of discovery sanctions available only against parties—are inadequate in certain situations. In particular, plaintiffs ask us to adopt the elements of a negligent spoliation claim articulated by the West Virginia Supreme Court of Appeals, requiring a spoliation plaintiff to prove:

“(1) the existence of a pending or potential civil action; (2) the alleged spoliator had actual knowledge of the pending or potential civil action; (3) a duty to preserve evidence arising from a contract, agreement, statute, administrative rule, voluntary assumption of duty, or other special circumstances; (4) spoliation of the evidence; (5) the spoliated evidence was vital to a party’s ability to prevail in a pending or potential civil action; and (6) damages” (Hannah, 213 W Va at 713-714, 584 SE2d at 569-570).

Plaintiffs further request that we echo West Virginia’s view that, “[o]nce the first five elements are established, there arises a rebuttable presumption that but for the fact of the spoliation of evidence, the party injured by the spoliation would have prevailed in the pending or potential litigation” (213 W Va at 714, 584 SE2d at 570). Finally, acknowledging that Montana and the District of Columbia require discounting of damages in spoliation cases, plaintiffs ask that we follow West Virginia’s approach in compelling the spoliator to fully compensate the plaintiff for any damages plaintiff would have received if the civil action thwarted by the destruction of evidence had been successfully prosecuted. Under this analysis, the spoliator must compensate the plaintiff for any damages caused by the underlying tortfeasor, regardless of the nature or severity of the spoliator’s misconduct.

In New York, while the desire to provide an avenue to redress wrongs is certainly an important consideration underlying our tort jurisprudence, the recognition that there has been an interference with an interest worthy of protection has been the beginning, not the end, of our analysis. “While it may seem that there should be a remedy for every wrong, this is an ideal limited perforce by the realities of this world” (Trombetta v Conkling, 82 NY2d 549, 554 [1993], quoting Tobin v Grossman, 24 NY2d 609, 619 [1969]).

“Tort liability . . . depends on balancing competing interests: the question remains who is legally bound to protect plaintiffs’ right at the risk of liability. . . . To identify an interest deserving protection does not suffice to collect damages from anyone who causes injury to that interest . . . Not every deplorable act ... is redressable in damages” (Madden v Creative Servs., 84 NY2d 738, 746 [1995] [citation, internal quotation marks and brackets omitted]).

New York courts therefore also weigh other judicial and social policy concerns in determining whether to recognize new tort causes of action (see Hall v United Parcel Serv. of Am., 76 NY2d 27 [1990]).

In this case, there can be no doubt that the City’s violation of the preservation order interfered with an interest worthy of protection. The integrity of our judicial system depends on the ability of litigants to locate and identify relevant proof without fear that the truth-seeking process will be thwarted by spoliation of evidence. Destruction of evidence by parties with a duty of preservation simply cannot be condoned, especially when that duty is imposed by court order.

But we are not convinced that existing New York remedies are inadequate to deter spoliation or appropriately compensate its victims. Based on a review of cases across the nation, it appears that destruction of evidence by an entity without ties to the underlying litigation is not a frequent occurrence. As the California Supreme Court concluded when it ended its state’s 15-year experiment with the tort: “If existing remedies appear limited, that may well be because third party spoliation has not appeared to be a significant problem in our courts” (Temple Community Hosp. v Superior Ct., 20 Cal 4th 464, 477, 976 P2d 223, 232 [1999]).

Indeed, in many of the instances where other jurisdictions have recognized an independent tort, a New York court could have provided a remedy to the spoliation victim through our traditional litigation sanctions. For example, in Holmes (710 A2d 846 [1998]), the spoliator was the car rental company that had rented a car to the plaintiff injured in an accident. Plaintiff initially brought a personal injury claim against the company, alleging improper maintenance of the vehicle. But after the company destroyed the vehicle, plaintiff abandoned his negligent maintenance claim in favor of a spoliation claim. In that situation, it would not be necessary in New York to use an independent tort to afford plaintiff a remedy for the destruction of evidence. Rather, plaintiff could have continued to pursue his personal injury claim against the company, which could have been appropriately sanctioned for destruction of evidence within the context of that action.

Similarly, in Hannah (213 W Va 704, 584 SE2d 560 [2003]), plaintiff brought a sexual harassment claim against a prospective employer, relying on an audiotape of a conversation with the defendant as her primary evidence. When defendant sought to inspect the original tape, it was discovered that plaintiff had left the tape with her ex-husband, who passed it along to plaintiffs mother who, in turn, destroyed it. Although the West Virginia Supreme Court of Appeals viewed this as a third-party spoliation claim, plaintiff could have been held accountable for failing to safeguard the original tape, providing a sanction against her in the underlying sexual harassment case (see e.g. Amaris, 304 AD2d 457 [2003]). One option available in New York would have been to preclude plaintiff from using her copy of the tape since the original was no longer available, leaving both parties in the same position most litigants are in—having to prove their case through testimony. Recognition of an independent spoliation tort was not necessary to afford the victim of spoliation—there a defendant—a meaningful remedy.

As the present case demonstrates, there will be unfortunate instances when third parties with a duty to preserve evidence but no connection to the underlying lawsuit will negligently breach that duty, presenting a situation where discovery sanctions are inadequate to address the spoliation victim’s loss. But even in this case, plaintiffs were not left without recourse. Under our civil contempt statutory scheme, a party who suffers a loss or injury as a result of violation of a court order can seek full compensation from the contemnor (see Judiciary Law § 773; State of New York v Unique Ideas, 44 NY2d 345 [1978]). The City conceded at oral argument that, had plaintiffs pursued their contempt claim, they would—at the very least—have been entitled to monetary damages in an amount necessary to reimburse them for additional investigation, research or expert expenses incurred in attempting to prove the underlying negligence claim absent inspection of the vehicle.

Plaintiffs consider the contempt remedy deficient because they seek to recover not only the damages flowing from the City’s destruction of the vehicle but also compensation for their pain and suffering, emotional distress and other damages related to the fire, which they concede was not caused by the City. At bottom, plaintiffs seek recognition of a new cause of action because they cannot meet the traditional proximate cause and actual damages standards at the foundation of our common-law tort jurisprudence. This highlights one of the primary arguments against adoption of the spoliation tort. As the Massachusetts Supreme Judicial Court recently explained:

“we are persuaded that allowing a separate cause of action for spoliation would recognize a claim that, by definition, could not be proved without resort to multiple levels of speculation ... A plaintiff pursuing a spoliation action would have to prove that the breach of the duty to preserve evidence caused damage to the plaintiffs position in the underlying case, and would have to prove the amount of those damages. To establish causation and damages, the plaintiff would have to show that the jury in the underlying action would have found differently if the original, unaltered item of evidence had been before them. Such a showing requires proof of the very thing that can no longer be proved: the precise nature of the original item. If the contents or salient characteristics of the original item can still be shown, then they can be shown in the underlying action and there is no damage from any ‘spoliation.’ If they cannot be shown, then the jury in the spoliation action could only surmise whether the item in its original state would in fact have been favorable to the party now claiming to have suffered a loss on account of that spoliation. And it would be the utmost of surmise and speculation for the jury to decide what persuasive effect that item, if still available in its original state, would have had on the jury in the underlying action” (Fletcher v Dorchester Mut. Ins. Co., 437 Mass 544, 551-552, 773 NE2d 420, 426-427 [2002] [citations omitted]).

In a third-party spoliation case, because the content of the lost evidence is unknown, there is no way of ascertaining to what extent the proof would have benefitted either the plaintiff or defendant in the underlying lawsuit and it is therefore impossible to identify which party, if any, was actually harmed. This led the California Supreme Court to limit the availability of the tort, in part, because “[t]he elements of causation and damages . . . would be nearly impossible to prove, and permitting a cause of action that necessarily would be based upon speculation and conjecture could burden the courts with claims that may be peculiarly productive of arbitrary and unreliable verdicts” (Temple Community Hosp., 20 Cal 4th at 470, 976 P2d at 228). As a general rule, New York courts have been reluctant to embrace claims that rely on hypothetical theories or speculative assumptions about the nature of the harm incurred or the extent of plaintiff’s damages (see e.g. Becker v Schwartz, 46 NY2d 401, 411-412 [1978]).

The same concerns about speculation are evident in this case. Plaintiffs contend that examination of the vehicle would have revealed either a design or manufacturing defect, improper maintenance or faulty repair services. But it is also possible that the fire caused so much damage to the van that an inspection would fail to disclose a conclusive cause. Or an inspection could have resulted in conflicting expert opinions with differing views on causation, rendering plaintiffs’ success in a lawsuit dependent on which party’s expert the jury found most credible. Finally, inspection of the vehicle might not have disclosed any maintenance issues, manufacturing deficiencies or design defects, thereby failing to supply a basis to hold any of those defendants liable. These are among the possibilities that the finder of fact would have to ponder were we to recognize the spoliation of evidence cause of action, with no meaningful way for the jury to reliably resolve whether the destruction of evidence was, in fact, the cause of plaintiffs’ failure to obtain damages for their burn injuries from the original tortfeasors.

Plaintiffs’ claims further present uncertainties with respect to recovery of damages. Plaintiffs assume that, had the van not been destroyed, they would have been able to obtain a judgment in the full amount of damages from a responsible defendant with adequate funds or insurance coverage. But even if plaintiffs prevailed in the underlying lawsuit, this outcome would not be assured. Had more than one defendant been joined in the action and multiple causes assigned to the accident, liability might have been apportioned among the tortfeasors without any one defendant bearing responsibility for the total judgment. If plaintiffs obtained a judgment against the original tortfeasor or tortfeasors, there is no guarantee they would have collected damages in full. The complexities inherent in any multiple party negligence action would be compounded in a spoliation claim since litigation emphasizing the impact of destruction of evidence would afford the jury no reasonable means of determining how liability might have been apportioned among tortfeasors in the original litigation or of assessing plaintiffs own comparative fault, if any.

The facts here reveal yet another public policy factor weighing against the new claim. Recognition of the tort has the potential to create significant liability for municipalities in New York since these entities perform a myriad of functions—including towing and warehousing vehicles involved in accidents— which could give rise to spoliation claims. We are not persuaded that it would be sound public policy to create a new tort that shifts liability from responsible tortfeasors to government entities that serve as repositories of evidence that may or may not be relevant in future civil cases. Municipalities might prove unduly attractive defendants, diverting the focus of litigation away from the tortfeasors who actually caused the injury and resultant damages.

For all of these reasons, we join the majority of jurisdictions to consider the issue (see Fletcher, 437 Mass at 547, 773 NE2d at 424) and decline to recognize spoliation of evidence as an independent tort claim.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Kaye and Judges Ciparick, Read, Smith, Pigott and Jones concur.

Order affirmed, with costs.

      . Plaintiffs have not challenged the dismissal of the contempt cause of action.

      . Discovery sanctions have also been employed against a litigant who had an opportunity to safeguard evidence but failed to do so (see e.g. Amaris v Sharp Elecs. Corp., 304 AD2d 457 [1st Dept 2003], lv denied 1 NY3d 507 [2004]).

      . In these jurisdictions, the trier of fact calculates the damages the plaintiff would have been awarded had it won the impaired lawsuit and then determines, in percentage form, the likelihood that the plaintiff would have prevailed in that litigation. If, for example, the jury finds that the plaintiff would have had a 50% chance of success, damages are discounted by 50% (see Holmes, 710 A2d at 853-854; Oliver, 297 Mont at 351-352, 993 P2d at 21).


source: Caselaw Access Project

author: Smith, J.

license: Public Domain

text:
    [876 NE2d 1187, 845 NYS2d 771]
    In the Matter of Victor M., a Person Alleged to be a Juvenile Delinquent, Appellant.
    Argued September 6, 2007;
    decided October 16, 2007

      POINTS OF COUNSEL

      Legal Aid Society, New York City (Lisa B. Freedman, Tamara A. Steckler, Steven Banks and Carolyn Kalos of counsel), for appellant.
    I. The Family Court erred in denying appellant’s motion to suppress where the prosecution failed to demonstrate that the arresting police officer—who saw appellant playing a dice game with three others—had probable cause to believe that appellant “advance[d] or profiled]” from “unlawful gambling activity” (Penal Law § 225.05) or “possess[ed]” a gambling device (Penal Law § 225.30), where appellant was at best merely a dice player and not a promoter of the gambling activity. (Dunaway v New York, 442 US 200; People v De Bour, 40 NY2d 210; People v Hodge, 44 NY2d 553; People v Berrios, 28 NY2d 361; People v Dodt, 61 NY2d 408; People v Misuis, 47 NY2d 979; People v Hollman, 79 NY2d 181; Terry v Ohio, 392 US 1; People v Cantor, 36 NY2d 106; People v Batista, 88 NY2d 650.) II. The Appellate Division erred in affirming the Family Court’s suppression ruling on the alternative ground that the arresting police officer had probable cause to believe that appellant had committed the violations of trespass (Penal Law § 140.05) and loitering (Penal Law § 240.35 [2]). (Matter of Curtis H., 216 AD2d 173; People v Dodt, 61 NY2d 408; People v Johnson, 64 NY2d 617; People v More, 97 NY2d 209; People v Parris, 83 NY2d 342; People v Stith, 69 NY2d 313; People v Nieves, 67 NY2d 125; Parkin v Cornell Univ., 78 NY2d 523; Collucci v Collucci, 58 NY2d 834; Matter of Richardson v Fiedler Roofing, 67 NY2d 246.)

      Michael A. Cardozo, Corporation Counsel, New York City (Sharyn Rootenberg and Larry A. Sonnenshein of counsel), for respondent.
    I. The presentment agency met its burden of demonstrating the legality of Officer Reeio’s conduct, as the undisputed facts and circumstances established reasonable suspicion to detain Victor M. and verify his identity at the station house. (People v Berrios, 28 NY2d 361; People v De Bour, 40 NY2d 210; People v Hollman, 79 NY2d 181; People v Bronston, 68 NY2d 880; People v Howard, 50 NY2d 583; People v Roque, 99 NY2d 50; People v Martinez, 80 NY2d 444; People v Cantor, 36 NY2d 106; People v Hicks, 68 NY2d 234; People v Pines, 99 NY2d 525.) II. The Appellate Division’s determination is consistent with the testimony presented to the Family Court, is consistent with the parties’ closing arguments to the Family Court, and is easily harmonized with the reasoning of the Family Court. Accordingly, the preservation rule does not apply. (People v Powell, 180 Misc 2d 627; People v King, 102 AD2d 710, 65 NY2d 702.)
   OPINION OF THE COURT

Smith, J.

We hold that the police search at issue in this case was unreasonable as a matter of law, and that the drugs found on Victor M. during the search must be suppressed.

Facts and Procedural History

Officer Orlando Recio, patrolling a Bronx apartment building, came upon Victor and several other people gambling with dice. The officer decided to issue Victor a summons, but Victor had no identification, and his mother, who appeared on the scene, had none either. Victor offered to get identification but, for reasons not explained in the record, the offer was not accepted. Instead, the officer handcuffed Victor and brought him to the station house, where he searched him and discovered narcotics.

In the resulting juvenile delinquency proceeding based on Victor’s possession of a controlled substance, Victor moved to suppress the narcotics as being the result of an unlawful search. Family Court denied the motion, adjudicated Victor a delinquent, and placed him in the custody of the Office of Children and Family Services for a period of up to 18 months. The Appellate Division, by a 3-2 vote, affirmed the order of disposition. Victor appeals to us as of right, pursuant to CPLR 5601 (a), and we now reverse.

Discussion

The only issue on appeal is whether Officer Recio’s search of Victor was lawful. Three theories have been advanced to support the search—one by Family Court, a second by the Appellate Division majority, and a third by the presentment agency in its brief to us. We reject all three theories.

Family Court held the detention and subsequent search of Victor lawful because it believed Officer Recio had seen him commit two misdemeanors, promoting gambling in the second degree (Penal Law § 225.05) and possession of a gambling device (Penal Law § 225.30). Neither of these statutes is applicable to the facts of this case. Under the first, a person is guilty “when he knowingly advances or profits from unlawful gambling activity”—but the definitions of the terms “advance gambling activity” and “profit from gambling activity” specifically exclude actions taken “as a player” (Penal Law § 225.00 [4], [5]). Nothing in the record suggests that Victor was anything but a player in the dice game. The second statute, as relevant here, applies when a person possesses a gambling device “believing that the same is to be used in the advancement of unlawful gambling activity” (Penal Law § 225.30 [a] [2]). Whatever its precise scope, this statute cannot fairly be read to apply to every player in a dice game who touches the dice.

The Appellate Division majority agreed with Family Court that “Recio’s observation of appellant gambling in the hallway provided him with probable cause for an arrest” (35 AD3d 180, 181 [2006]). But the Appellate Division ignored the two statutes relied on by Family Court and cited two others, those prohibiting trespass (Penal Law § 140.05) and loitering (Penal Law § 240.35 [2]). We see nothing in the record to indicate that Victor was trespassing, but he apparently did violate the loitering statute, applicable to anyone who “[l]oiters or remains in a public place for the purpose of gambling with cards, dice or other gambling paraphernalia.” The point is moot, however, because neither simple trespass nor loitering is a “crime” as the term is defined in the Penal Law (§ 10.00 [6]); each is a violation, not a misdemeanor or a felony. A warrantless arrest of a juvenile is authorized only in cases where an adult could be arrested “for a crime” (Family Ct Act § 305.2 [2]). Victor was 15 years old at the time of his arrest, and there is no evidence in the record that the officer either believed or had reason to believe that he was older.

Finally, the presentment agency argues before us that Officer Recio’s detention of Victor was not an arrest, but only a stop based on a reasonable suspicion that Victor was trespassing or loitering (see People v Hicks, 68 NY2d 234, 238-239 [1986]; People v De Bour, 40 NY2d 210, 223 [1976]). The flaws in this argument are many. Officer Recio testified to an “arrest,” not a temporary detention. Temporary detentions are authorized by statute only for felonies and misdemeanors, not violations (CPL 140.50 [1]). A temporary detention justifies only a frisk, not a full-fledged search (De Bour, 40 NY2d at 223). And finally, assuming that transporting a suspect to the station house in handcuffs could ever be found to be only a temporary detention under De Bour and Hicks, even a temporary detention is unlawful if it is not reasonable under the circumstances. Here, nothing in the record shows that it was reasonable for Officer Recio to take Victor to the station house, instead of going with him to his apartment to get his identification.

Accordingly, the order of the Appellate Division should be reversed, without costs, the motion to suppress granted and the petition dismissed.

Chief Judge Kaye and Judges Ciparick, Grafpeo, Read, Pigott and Jones concur.

Order reversed, etc.


text:
    [876 NE2d 1197, 845 NYS2d 781]
    Linda Boyd, Respondent, v Manhattan & Bronx Surface Transit Operating Authority et al., Appellants.
    Argued September 4, 2007;
    decided October 18, 2007

      POINTS OF COUNSEL

      Lawrence Heisler, Brooklyn, and Wallace D. Gossett for appellants.
    Under Bethel v New York City Tr. Auth.’s (92 NY2d 348 [1998]) regime of equality, plaintiff was required to prove that the Manhattan & Bronx Surface Transit Operating Authority had notice of the defective handle. Having failed to prove such notice, plaintiffs suit should have been dismissed. At a minimum, the case should be remanded for a new trial because the trial court refused to charge that plaintiff bore the burden of proof on notice. (Espinosa v A & S Welding & Boiler Repair, 120 AD2d 435; Levinstim v Parker, 27 AD3d 698; Imhotep v State of New York, 298 AD2d 558; Scialpi v Island Right Homes, 304 AD2d 551; Weiser v Gumowitz, 209 AD2d 509; DeCarlo v Village of Dobbs Ferry, 36 AD3d 749; Marszalkiewicz v Waterside Plaza, LLC, 35 AD3d 176; Figueroa v Goetz, 5 AD3d 164; Fetterly v Golub Corp., 300 AD2d 1056; Graham v Wohl, 283 AD2d 261.)

      Law Office of Francis M. DeCaro, Bronx (Candice A. Pluchino of counsel), for respondent.
    I. Plaintiff met the prima facie burden of proving actual and constructive notice through evidence of defendant’s duty to inspect. (Schiff v State of New York, 31 AD3d 526; Feldmus v Ryan Food Corp., 29 AD3d 940; Ames v Waldbaum, Inc., 34 AD3d 607; Batton v Elghanayan, 43 NY2d 898; Taylor v New York City Tr. Auth., 48 NY2d 903; Anthony v New York City Tr. Auth., 38 AD3d 484; Brown v Linden Plaza Hous. Co., Inc., 36 AD3d 742.) II. The court’s charge to the jury pursuant to PJI 2:164 conveyed the appropriate principles of law as to standard of care and notice. (Bell v New York City Tr. Auth., 21 AD3d 299; Bethel v New York City Tr. Auth., 92 NY2d 348; Dermatossian v New York City Tr. Auth., 67 NY2d 219; Kroupova v Hill, 242 AD2d 218; Manna v Don Diego, 261 AD2d 590; Clark v Rubenstein, 96 AD2d 1071; Koehler v Grace Line, Inc., 285 App Div 154.)
   OPINION OF THE COURT

Smith, J.

We hold that, in a negligence action against a common carrier for injuries caused by defective equipment, the jury should be charged that the plaintiff must show the carrier had actual or constructive notice of the defect.

Facts and Procedural History

Plaintiff, unable to find a seat in a New York City bus, grasped a metal strap to steady herself. When the bus began to move, the strap slid out of position, causing injuries to her shoulder and hand. Plaintiff sued the public authority that operated the bus and its parent, claiming that the strap was defective.

Defendants asked the court to charge the jury on actual and constructive notice. While the request was never put in writing, an extended colloquy made it clear. The court was asked to charge that, even if the strap was defective, defendants were not negligent if they did not know, and would not by the use of reasonable care have known, of the defect. The court rejected the request and charged the jury, without objection, in the language of New York Pattern Jury Instruction (PJI) 2:164:

“A common carrier such as a bus company is required to know, and is charged with knowing the danger of its passengers from faulty maintenance of its vehicle and equipment, and is also charged with knowing how to avoid such dangers.
“A common carrier of passengers has the duty to use reasonable care under all of the circumstances in the maintenance of vehicles and equipment for the safety of its passengers. Reasonable care means that care that a reasonably prudent bus company would use under the same circumstances in keeping with the dangers and risks known to the bus company, or which it should reasonably have foreseen.”

The jury returned a verdict for plaintiff, judgment was entered in her favor, and the Appellate Division affirmed. We granted leave to appeal and now reverse.

Discussion

In Bethel v New York City Tr. Auth. (92 NY2d 348, 351 [1998]), we abandoned the rule that common carriers owe a “duty of highest care,” and decided to “realign the standard of care required of common carriers with the traditional, basic negligence standard of reasonable care under the circumstances.” It follows from Bethel that a common carrier, like any other defendant, is not an insurer of the safety of its equipment; it can be held liable for defects in the equipment only if it knew, or with reasonable care should have known, that the equipment was defective (see e.g. Piacquadio v Recine Realty Corp., 84 NY2d 967 [1994]; Levinstim v Parker, 27 AD3d 698 [2d Dept 2006]; Fetterly v Golub Corp., 300 AD2d 1056 [4th Dept 2002]). Plaintiff does not dispute this principle, but argues that the court’s charge here adequately communicated it to the jury. We disagree.

The charge the court gave was not incorrect, but the statement that “a bus company is required to know, and is charged with knowing the danger of its passengers from faulty maintenance of its vehicle and equipment” is open to misinterpretation. Indeed, the trial judge himself, in discussing the charge with counsel, stated the law incorrectly. He said “once it’s established that there is a defect, given the obligation of the common carrier to maintain these things without defects . . . it’s then the burden of proof ... on the defendant to show that in the exercise of due care, that they could not have discovered this defect.” The court’s charge, in the absence of the specific explanation defendants requested of actual and constructive notice, could have led the jury to the same error.

In cases like this one, courts should, if requested, give a charge on actual or constructive notice. Such a charge should inform the jury that the plaintiff must prove the defendant knew, or using reasonable care should have known, that the equipment was not in a reasonably safe condition; the charge could be quite similar to PJI 2:226, which is applicable to claims against municipalities. Also, although both sides in this case agreed to the language the court did charge, future trial courts should avoid using the first sentence of PJI 2:164, which seems to suggest, contrary to Bethel, that there is something special or unique about a common carrier’s duty of care.

Because of the trial court’s error in refusing to give a notice charge, defendants are entitled to a new trial. They argue, however, that no new trial is necessary because plaintiff failed, as a matter of law, to make a prima facie case on the issue of actual or constructive notice. We reject this argument. The evidence supports conflicting inferences as to whether defendants made an adequate inspection of the bus, and as to whether the defect in the strap was readily observable. The choice between these inferences is for the jury.

Accordingly, the order of the Appellate Division should be reversed, with costs, and a new trial ordered.

Chief Judge Kaye and Judges Ciparick, Graffeo, Read, Pigott and Jones concur.

Order reversed, etc.


author: Pigott, J.

text:
    [877 NE2d 643, 846 NYS2d 593]
    In the Matter of Eric R. Dinallo, as Superintendent of the New York State Insurance Department Liquidation Bureau, et al., Appellants, v Thomas P. DiNapoli, as Comptroller of the State of New York, Respondent.
    Argued September 4, 2007;
    decided October 11, 2007

      POINTS OF COUNSEL

      Davis Polk & Wardwell, New York City (Guy Miller Struve, Kevin C. Wallace, Joshua D. Liston and Shannon K. Manigault of counsel), and Andrew J. Lorin, General Counsel, New York Liquidation Bureau, for appellants.
    I. The Liquidation Bureau is not a state agency. (Matter of Kinney, 257 App Div 496, 281 NY 840; Corcoran v Hall & Co., 149 AD2d 165; Corcoran v National Union Fire Ins. Co. of Pittsburgh, 143 AD2d 309; Matter of Ideal Mut. Ins. Co., 140 AD2d 62; Matter of O’Connor v New York State Employees’ Retirement Sys., 2 AD2d 639, 4 NY2d 795; Matter of Bean v Stoddard, 207 App Div 276, 238 NY 618; Matter of Consolidated Edison Co. of N.Y. v Insurance Dept. of

      State of N.Y., 140 Misc 2d 969; Helvering v Therrell, 303 US 218; Maybee v State of New York, 4 NY3d 415; Matter of Higby v Mahoney, 48 NY2d 15.) II. The State Constitution and the State Finance Law do not give the Comptroller the power to audit the Liquidation Bureau. (Blue Cross & Blue Shield of Cent. N.Y. v McCall, 89 NY2d 160; Matter of Bean v Stoddard, 207 App Div 276; Saratoga Harness Racing Assn. v Agriculture & N.Y. State Horse Breeding Dev. Fund, 22 NY2d 119; Matter of Blaikie, 11 AD2d 196; Law Enforcement Ins. Co., Ltd. v Corcoran, 807 F2d 38; G. C. Murphy Co. v Reserve Ins. Co., 54 NY2d 69; Matter of Lloyd v Grella, 83 NY2d 537; Matter of Kolb v Holling, 285 NY 104; Anderson v Regan, 53 NY2d 356; People v Newman, 32 NY2d 379.) III. The Comptroller’s limited reviews of the payments to the Liquidation Bureau from the insurance security funds do not authorize the sweeping audit called for by the Comptroller’s subpoenas. (Alliance of Am. Insurers v Chu, 77 NY2d 573; Matter of Allcity Ins. Co. [Kondak], 66 AD2d 531; Matter of Union Indem. Ins. Co. of N.Y., 92 NY2d 107.) IV The Abandoned Property Law does not authorize the sweeping audit sought by the Comptroller. (Matter of Temporary Comm. of Investigation of State of N.Y. v French, 68 AD2d 681.)

      Cleary Gottlieb Steen & Hamilton LLP, New York City (Evan A. Davis and Michael J. Byars of counsel), and Luke Bierman, Albany, Helen M. Fanshawe, Albert Wm. Brooks, John K. Dalton and Michael E. Kupferman for respondent.
    I. Because the Superintendent is a state officer in both his regulator and liquidator capacities, State Finance Law §§ 111 and 121 (2) give the Comptroller the power to conduct the audits in question. (Matter of Sutka v Conners, 73 NY2d 395; Matter of Blaikie, 11 AD2d 196; Matter of Lawyers Mtge. Co., 293 NY 159; Matter of Smith v Levitt, 37 AD2d 418; Saratoga Harness Racing Assn. v Agriculture & N.Y. State Horse Breeding Dev. Fund, 22 NY2d 119; Matter of Clark v Sheldon, 106 NY 104; Delaware County Elec. Coop. v Power Auth. of State of N.Y., 96 AD2d 154, 62 NY2d 877; Matter of People [Casualty Co. of Am.], 244 NY 443; Matter of Worth Constr. Co., Inc. v Hevesi, 8 NY3d 548; Anderson v Regan, 53 NY2d 356.) II. Because the Liquidation Bureau is a state agency within the meaning of the Governmental Accountability, Audit and Internal Control Act, section 8 (2-b) (a) of the State Finance Law gives the Comptroller the power to conduct the audits in question. (Sebastian v State of New York, 93 NY2d 790; Serio v Ardra Ins. Co., 304 AD2d 362.) III. The Comptroller’s exercise of his power to audit the Liquidation Bureau pursuant to State Finance Law § 8 (2-b) (a) and §§ 111 and 121 (2) is constitutional. (Blue Cross & Blue Shield of Cent. N.Y. v McCall, 89 NY2d 160.) TV The Superintendent’s “parade of horribles” does not follow from the vindication of the Comptroller’s audit power. (Anderson v Regan, 53 NY2d 356; Matter of Consolidated Edison Co. of N.Y. v Insurance Dept. of State of N.Y., 140 Misc 2d 969; Collins v Manhattan & Bronx Surface Tr. Operating Auth., 62 NY2d 361; Matter of Ideal Mut. Ins. Co., 140 AD2d 62; Corcoran v National Union Fire Ins. Co. of Pittsburgh, 143 AD2d 309; Matter of Worth Constr. Co., Inc. v Hevesi, 8 NY3d 548.) V Receivership of an insurance company does not remove the obligation to make payments and reports under the Abandoned Property Law to the Comptroller.
   OPINION OF THE COURT

Pigott, J.

The central issue on this appeal is whether the New York State Comptroller has the constitutional and/or statutory authority to audit the New York State Insurance Department Liquidation Bureau. We hold that the Comptroller does not possess such authority.

I.

The Superintendent of Insurance serves in two distinct capacities: (1) as supervisor and regulator of New York State’s insurance industry as a whole (see Insurance Law §§ 201, 301); and (2) as a court-appointed receiver on behalf of distressed insurers (see Insurance Law §§ 7402, 7404). As to the latter role, the Legislature, by statutory enactment, bestowed upon the Superintendent broad fiduciary powers to manage the affairs of distressed domestic insurers and to marshal and disburse their assets (see Corcoran v Ardra Ins. Co., 77 NY2d 225, 232 [1990], cert denied 500 US 953 [1991]; see also Insurance Law §§ 7401-7436). This statutory scheme was devised for the protection of creditors, policyholders and the general public by furnishing a comprehensive mechanism for collecting the assets of a distressed insurer and paying its creditors (see Matter of Transit Cas. Co. [Digirol—Superintendent of Ins.], 79 NY2d 13, 19 [1992], cert denied 506 US 869 [1992], citing Matter of Knickerbocker Agency [Holz], 4 NY2d 245 [1958]).

As a court-appointed receiver, the Superintendent is authorized to either rehabilitate or liquidate a domestic insurer that meets the definition of “insolvency” as defined by Insurance Law § 1309 (see Insurance Law § 7402 [a]; § 7404). An order of rehabilitation directs the Superintendent “to take possession of the property of such insurer and to conduct the business thereof, and to take such steps toward the removal of the causes and conditions which have made such proceeding necessary as the court shall direct” (Insurance Law § 7403 [a]). Should the Superintendent determine that attempts to rehabilitate a distressed insurer would be “futile,” he may apply to Supreme Court for an order of liquidation (Insurance Law § 7403 [c]). Such order directs the Superintendent “to take possession of the property of such insurer,” liquidate its business, “deal with such property and business of such insurer,” and “give notice to all creditors to present their claims” (Insurance Law § 7405 [a]). An order of liquidation terminates the distressed insurer’s existence, and the Superintendent “ ‘for all practical purposes takes the place of the insolvent insurer’ ” (see Matter of Knickerbocker Agency [Holz], 4 NY2d at 251, quoting Bohlinger v Zanger, 306 NY 228, 234 [1954], rearg denied 306 NY 851 [1954]).

Upon entry of an order of liquidation, the Superintendent is “vested by operation of law with the title to all property, contracts and rights of action of such insurer” (Insurance Law § 7405 [b]). He has the discretionary authority to dispose of assets and compromise claims of a distressed insurer, pursuant to statutory claim priorities and subject to the approval of Supreme Court (see Insurance Law §§ 7428, 7434). Supreme Court, in turn, is charged with directing “the manner in which payments and dividends to creditors shall be made” (Matter of Knickerbocker Agency [Holz], 4 NY2d at 252 [citation omitted]).

The Superintendent enforces orders of rehabilitation and liquidation through the New York State Insurance Department Liquidation Bureau (Bureau), a separate office of the Insurance Department which conducts the day-to-day operations of the distressed insurer (see Gillis and Calareso, Litigators. Must Prepare for Risk that Insurers May Go Into Rehabilitation or Liquidation, 75 NY St BJ 20 [Mar./Apr. 2003]). The Bureau routinely retains personnel from the distressed insurer to assist it in the liquidation process, a practice sanctioned by Insurance Law § 7422 (a). Such individuals are compensated “out of the funds or assets of such insurer” (Insurance Law § 7422 [b]) and are not employees of the State (see e.g. Matter of Kinney, 257 App Div 496, 499 [3d Dept 1939], affd without op 281 NY 840 [1939]; see also Helvering v Therrell, 303 US 218, 221, 225 [1938]).

II.

In January 2004, the Comptroller sought to audit the financial management and operating practices of the Bureau. The Bureau rejected the Comptroller’s request, asserting that the Bureau was not a “state agency” subject to oversight by the Comptroller. After several months of unsuccessful negotiations concerning the scope of the audit, the Comptroller issued nine testimonial subpoenas seeking an examination of the Superintendent and eight Bureau officials. The purpose of the audit was to: (1) “determine whether the financial management and operating practices of the Liquidation Bureau are effective in carrying out its responsibility to liquidate and settle the affairs of insolvent insurance companies”; and (2) “establish the accuracy and completeness of the abandoned property reports the Liquidation Bureau has filed with the Comptroller under the Abandoned Property Law.” The Comptroller’s asserted authority to audit the Bureau was premised on article V, § 1 of the New York State Constitution, the State Finance Law, and the Abandoned Property Law. Specifically, the Comptroller contended that his audit authority originated from his constitutional and statutory powers to audit all official accounts, moneys under the control of state officials, and the books, records and documents of entities required to file abandoned property reports with the Comptroller.

The Comptroller also served a subpoena duces tecum seeking production of documents concerning, among other things, the financial records of distressed insurers in liquidation and records from the Bureau’s abandoned property account involving open and closed rehabilitated and liquidated estates. The Comptroller’s asserted authority and purpose for the production of the documents was premised on the same constitutional and statutory authority set forth in the testimonial subpoenas.

The Superintendent and the eight subpoenaed Bureau employees commenced this special proceeding to quash all 10 subpoenas, asserting that the Comptroller lacked the constitutional and statutory authority to audit the Bureau. They additionally asserted that the subpoenas issued relative to the proposed audits of abandoned property were overly broad and burdensome. In his verified answer, the Comptroller sought a declaration that he had the authority to pre-audit all Bureau expenditures and post-audit the financial management and operations of the Bureau, and that the Comptroller’s power to audit encompassed all assets held by the Superintendent, including all abandoned property and abandoned property reports of open and closed insurer estates.

Supreme Court quashed the subpoenas, holding that article V § 1 of the New York State Constitution, State Finance Law § 111 and Abandoned Property Law § 1412-a did not permit the Comptroller to pre-audit Bureau expenditures, post-audit the financial management and operations of the Bureau, or empower him to audit the property of insolvent insurers (see Matter of Serio v Hevesi, 9 Misc 3d 835, 841-844 [Sup Ct, NY County 2005]). In a 3-2 decision and order, the Appellate Division reversed the judgment of Supreme Court and reinstated the subpoenas, holding that the Bureau is a “state agency” and that the Superintendent, when acting as a liquidator, is a “state officer,” and therefore the Comptroller had the constitutional and statutory authority to audit the Bureau (see Matter of Serio v Hevesi, 40 AD3d 72, 78-81 [1st Dept 2007]). The Appellate Division further concluded that the Comptroller’s audit authority was “not limited to examining the . . . Bureau’s handling of abandoned property” but also included the power to audit open and closed liquidation proceedings (id. at 82). We now reverse that order and reinstate the judgment of Supreme Court.

III.

The Comptroller asserts that his constitutional and statutory authority to pre-audit Bureau expenditures and post-audit the financial management and operational practices of the Bureau is derived from article Y § 1 and State Finance Law § 111, respectively. Both provisions relate to the Comptroller’s express authority to pre-audit certain expenditures. The Comptroller’s asserted authority to post-audit is derived from his “implicit constitutional authority to post-audit payments of funds under state control and his express constitutional power to audit all official accounts.”

The Comptroller’s constitutional authority to pre-audit certain enumerated expenditures originates from article V § b which provides, in pertinent part, that:

“The comptroller shall be required: (1) to audit all vouchers before payment and all official accounts; (2) to audit the accrual and collection of all revenues and receipts; and (3) to prescribe such methods of accounting as are necessary for the performance of the foregoing duties. The payment of any money of the state, or of any money under its control, or the refund of any money paid to the state, except upon audit by the comptroller, shall be void, and may be restrained upon the suit of any taxpayer with the consent of the supreme court in [the] appellate division on notice to the attorney-general. In such respect the legislature shall define the powers and duties and may also assign to him or her: (1) supervision of the accounts of any political subdivision of the state . . . The legislature shall assign to him or her no administrative duties, excepting such as may be incidental to the performance of these functions, any other provision of this constitution to the contrary notwithstanding.”

The aforementioned constitutional pronouncement designates the Comptroller as the “independent auditing official for the affairs of the State” (Patterson v Carey, 41 NY2d 714, 723 [1977]). As such, all of the duties delineated in article V, § 1, “whether required or discretionary, are in furtherance of the [Comptroller’s] fundamental duty of the office, to ‘[superintend the fiscal concerns of the state’ ” (Blue Cross & Blue Shield of Cent. N.Y. v McCall, 89 NY2d 160, 166 [1996], quoting State Finance Law §8 [1]; 4 Rep 1938 NY St Constitutional Convention Comm, State and Local Government in New York, at 337).

In 1939, the Legislature passed what is now State Finance Law § 111, the statutory counterpart to article V, § 1, to further delineate and designate the Comptroller’s pre-audit authority. That provision states that:

“No moneys of the state, including moneys collected in its behalf, and no moneys in the possession, custody or control of any officer, agent, or agency of the state in his or its representative capacity, and no moneys in or belonging to any fund or depositary, title to which is vested in the state, shall hereafter be paid, expended or refunded except upon audit by the comptroller” (emphasis supplied).

Since the passage of article V, § 1 and State Finance Law § 111, the Comptroller has, on certain occasions upon the consent of the Bureau, post-audited the Bureau’s financial management and operating practices. The first of such post-audits was conducted in 1976; prior to that time, the Bureau operated without any pre-audits or post-audits by the Comptroller. Indeed, this is the first time the Comptroller has sought to pre-audit Bureau expenditures, now contending that any moneys expended by the Bureau without a pre-audit are void. Our interpretation of the constitutional and statutory provisions before us does not support such an argument.

We now hold that because the liquidation of a distressed insurer has no impact on the state fisc, it does not implicate the Comptroller’s constitutional and statutory authority to superintend the fiscal affairs of the State and therefore the Comptroller lacks the authority to audit the Bureau. Specifically, neither article V, § 1 nor State Finance Law § 111 grant the Comptroller the power to audit the Bureau because assets of a distressed insurer constitute neither “money[s] of the state” nor “money [s] under [state] control.”

We recognize that the statutory framework of the Insurance Law grants the Superintendent legal title to the assets of the insolvent insurer (see Insurance Law § 7405 [b]); however, equitable title remains with the distressed insurer for distribution to the creditors and policyholders (see Matter of Kinney, 257 App Div at 499). Any assets distributed by the Superintendent to creditors are derived from the estate of the distressed insurer, subject to direction of Supreme Court (see Insurance Law §§ 7428, 7434). The State has no interest in those assets and thus they do not constitute “money[s] of the state.” Nor do assets of a distressed insurer constitute “money[s] under [state] control” (see generally Matter of Smith v Levitt, 37 AD2d 418 [3d Dept 1971], affd 30 NY2d 934 [1972]). Such assets are segregated from the State Treasury and are not commingled with state funds. Moreover, the assets remain under the control of the Superintendent in his capacity as liquidator of a private business, not in his public capacity as a regulator and supervisor of the insurance industry, and therefore the assets are not under state control.

The Comptroller, citing to State Finance Law § 111, argues that the assets of a liquidated insurer constitute “moneys in the possession, custody or control” of the Superintendent “in his . . . representative capacity” as an officer of the State. We disagree. When acting as liquidator of a distressed insurer, the Superintendent operates as a statutory receiver who stands in the shoes of a private entity and “takes immediate possession and control of the assets and proceeds to a liquidation of its affairs” (Bohlinger, 306 NY at 234). Indeed, the Superintendent as liquidator occupies a legal status that is “separate and distinct from the Superintendent of Insurance as the public official charged with regulating the industry generally” (Matter of Ideal Mut. Ins. Co., 140 AD2d 62, 67-68 [1st Dept 1988]). Thus, while the Superintendent’s role as liquidator is judicial and private, his role as regulator and supervisor is administrative and public. Consequently, the Superintendent as liquidator is not a state officer but rather one who acts on behalf of a private entity.

IV

Nor do we agree that the Bureau is a “state agency” subject to audit by the Comptroller pursuant to State Finance Law § 8 (2-b) (a). Section 8 (2-b) (a), which was enacted as part of the State Governmental Accountability, Audit and Internal Control Act, permits the Comptroller to audit the “internal controls and operations of state agencies.” A “state agency” is defined as “[a]ny . . . board, bureau, division, commission, committee, council, office or other governmental entity performing a governmental or proprietary function for the state” (State Finance Law § 2-a [3] [emphasis supplied]). The Bureau does not perform a governmental or proprietary function “for the state,” but rather runs the day-to-day operations of private businesses in liquidation pursuant to Supreme Court order. The Bureau is not part of the Insurance Department’s budget, operates without the benefit of state funds, maintains its own errors and omissions coverage, and is represented by its own private counsel, not the Attorney General, as is normally the case when a state agency is sued. Thus, the Bureau is not a “state agency” within the ambit of State Finance Law § 8 (2-b) (a). To hold otherwise would be to contravene article V¡ § l’s prohibition against the Legislature assigning to the Comptroller administrative tasks that are not incidental to his duty to superintend the fiscal concerns of the State (see Blue Cross & Blue Shield, 89 NY2d at 167).

Because the Superintendent as liquidator is neither a state officer, nor the Bureau a state agency, State Finance Law § 121 (2) does not apply to either the Superintendent or the Bureau. Section 121 (2) permits the Comptroller to audit those funds governed by State Finance Law § 4 (4), which applies to “[m]oney[s] which [have] not been given, granted, or bequeathed to the state . . . and the ownership and equitable title of which belongs to an individual or organization other than the state, but which is being held by any agency or officer of the state.”

V

Finally, the Comptroller lacks the authority under the Abandoned Property Law to conduct the broad audit functions he seeks to implement in this case. Therefore, Supreme Court properly determined that the subpoenas issued here were overly broad.

Based on the foregoing, the Appellate Division’s order should be reversed, with costs, and the judgment of Supreme Court should be reinstated.

Chief Judge Kaye and Judges Ciparick, Graffeo, Read, Smith and Jones concur.

Order reversed, etc.

      . This proceeding was originally commenced by then-Superintendent of Insurance Gregory V Serio against then-Comptroller Alan G. Hevesi. Since that time, Mr. Serio has been replaced by Eric R Dinallo, and Mr. Hevesi has been replaced by Thomas E DiNapoli.

      . This holding is not meant to imply that the Superintendent may not be subject to an independent audit. Although the Legislature does not have the authority under our holding in Blue Cross & Blue Shield to assign to the Comptroller the task of auditing the Bureau, it does have the authority to require the Bureau to retain independent auditors.


author: Read, J.

text:
    [877 NE2d 281, 846 NYS2d 64]
    Bruce Friedman, on Behalf of Himself and All Others Similarly Situated, Appellant, v Connecticut General Life Insurance Company, Respondent.
    Argued September 5, 2007;
    decided October 18, 2007

      POINTS OF COUNSEL

      Quadrino & Schwartz, P.C., Garden City (Richard J. Quadrino of counsel), for appellant.
    I. Insurance Law § 3216 (c) (7) must be liberally construed because it was enacted for the public’s benefit to suppress the evil of unfair surprise to members of the public at large. II. Expressions of public policy by the Legislature and the Insurance Commissioner mandating fair disclosure and the avoidance of surprise require that the statute be liberally construed in favor of the beneficiaries. III. The Appellate Division ignored the rule of construction regarding the use of provisos and disregarded the Legislature’s intent. IV Plaintiffs construction of the statute is in harmony with the statutory scheme and thus the Appellate Division erred in finding that plaintiffs construction rendered the provision superfluous. V The only remedy for the statutory violation is to bar enforcement of the Relation of Earnings to Insurance clause. (Bersani v General Acc. Fire & Life Assur. Corp., 36 NY2d 457; G.E. Capital Mtge. Servs. v Daskal, 211 AD2d 613.) VI. Even if this Court agrees with the Appellate Division as to the construction of the statute, plaintiff’s other causes of action must be reinstated since they were never adjudicated and only dismissed as moot.

      Rivkin Radler LLP, Uniondale (Cheryl F. Korman, Evan H. Krinick and Norman L. Tolle of counsel), and McCarter & English, LLP, New York City (Andrew O. Bunn and Raphael M. Rosenblatt of counsel), for respondent.
    I. The Relation of Earnings to Insurance provision was worded, captioned and placed in the policy in accordance with the applicable provisions of the Insurance Law. (Ivey v State of New York, 80 NY2d 474; People v Santorelli, 80 NY2d 875.) II. Plaintiffs additional arguments on appeal are without merit. (Gillman v Chase Manhattan Bank, 73 NY2d 1; Bersani v General Acc. Fire & Life Assur. Corp., 36 NY2d 457; G.E. Capital Mtge. Servs. v Daskal, 211 AD2d 613, 89 NY2d 861; Carrier v Salvation Army, 88 NY2d 298; Hammer v American Kennel Club, 1 NY3d 294; Sheehy v Big Flats Community Day, 73 NY2d 629; Burns Jackson Miller Summit & Spitzer v Lindner, 59 NY2d 314; Hudes v Vytra Health Plans Long Is., 295 AD2d 788, 99 NY2d 505; Sparkes v Morrison & Foerster Long-Term Disability Ins. Plan, 129 F Supp 2d 182; Matter of State of New York v Avco Fin. Serv. of N.Y., 50 NY2d 383.)
   OPINION OF THE COURT

Read, J.

We are called upon to decide whether the placement of a “Relation of Earnings to Insurance” (REI) clause within the “General Provisions” of a disability insurance policy complies with Insurance Law § 3216. For the reasons that follow, we conclude that it does.

I.

Defendant Connecticut General Life Insurance Company issued a 10-page form disability income insurance policy to plaintiff Bruce Friedman, a citizen and resident of New York, on July 19, 1983. The first section of the policy, entitled “Policy Specifications,” sets forth a “Monthly Indemnity for Total Disability” in a “Benefit Amount” of $2,500, and an “Annual Premium” of $952.50. Sections entitled “Definitions,” “Benefit Provisions,” “Exclusions and Limitations,” “Premium and Reinstatement Provisions” and “General Provisions” immediately follow.

In its “Benefit Provisions,” the policy declares plaintiff eligible for a “Monthly Indemnity for Total Disability” of $2,500 upon proof of his total disability while the policy is in force. The REI clause, included within the “General Provisions,” specifies, however, that

“[i]f the total amount of loss of time benefits promised for the same disability under all valid loss of time coverage upon the Insured exceeds the greater of (a) the Insured’s monthly earnings at the time disability commenced or (b) the Insured’s average monthly earnings for the 2-year period immediately preceding a disability for which claim is made, the Company will be liable only for a reduced amount of the benefits under the policy. Such reduced amount will be (a) such proportion of the benefits otherwise provided under the policy as the amount of such monthly earnings or average monthly earnings bear to the total amount of monthly benefits for the same disability under all valid loss of time coverage upon the Insured at the time such disability commences, plus (b) a pro rata refund of the premiums paid during such 2-year period for benefits not paid. This provision, however, will not operate to reduce the total monthly amount of benefits payable under all valid loss of time coverage upon the Insured below the lesser of: (a) the sum of $300 or (b) the sum of the monthly benefits specified in such coverages. This provision will not be effective with respect to any renewal of the policy after Age 65. ‘Valid loss of time coverage’ means all loss of time coverage provided by any government, or agency thereof, or any Insurance company, organization or fund.”

In June 1998, plaintiff became totally disabled within the meaning of the policy. He had paid all the premiums due since the policy’s issuance and had otherwise complied with its terms and conditions. Initially, Connecticut General tendered plaintiff a monthly benefit check in the amount of $2,500. Later, however, the company applied the policy’s REI clause and reduced his monthly benefits to $543.33 (plus a pro rata refund of premiums already paid, as provided by the REI clause).

In a summons and complaint dated June 18, 2001, plaintiff sued Connecticut General in Supreme Court on behalf of himself and a putative class. He alleged eight causes of action arising out of the company’s use of REI clauses in its insurance policies in New York and elsewhere.

Plaintiffs first and third causes of action asserted class claims under other states’ statutes proscribing deceptive acts or practices in business or trade and other states’ statutes and regulations governing insurance respectively. A second cause of action alleged that Connecticut General’s “conduct in the marketing and sale of’ the policies was “materially unfair, misleading, and constituted a deceptive act or practice in the conduct of [its] business or trade” under General Business Law § 349. As a fourth cause of action, plaintiff alleged that Connecticut General was “in violation of New York insurance statutes and regulations.” Plaintiffs fifth cause of action alleged breach of contract; his sixth cause of action alleged that the policy was unconscionable because of its REI clause. As remedies for the above causes of action, plaintiff principally sought damages amounting to the difference between the amount paid and the benefit amount of $2,500, and a declaration that the REI clause was void or unenforceable.

A seventh cause of action sought the statutory penalty under Insurance Law § 4226 for alleged violation of insurance regulations: a refund of premiums paid. In his eighth and final cause of action, plaintiff alleged that even if the REI clause was enforceable, Connecticut General had still underpaid him. Plaintiff therefore sought to be awarded a sum equal to the difference between the amount he considered to be due and payable and the lesser amount that he had, in fact, received.

The thrust of the complaint was that the REI clause’s location in the policy was “unfair, deceptive, and misleading” to plaintiff and purported class members. Specifically, plaintiff contended that section 3216 (c) (7) of the Insurance Law mandated putting the REI clause together with the total disability benefit to which it applied, whereas Connecticut General had instead buried the REI clause in the policy’s “General Provisions.”

On August 3, 2001, Connecticut General moved to dismiss the complaint on grounds that plaintiffs claims were either time-barred or failed to state a cause of action. Supreme Court denied the motion in its entirety, agreeing with plaintiff that section 3216 (c) (7) mandated placing the REI clause with the benefit provision to which it applied,

“to wit, the Total Disability Benefit. Instead, [Connecticut General] placed it in the ‘General Provisions’ section of the policy along with ‘general’ terms such as claim forms, proof of loss, payment of claims, etc. . . . [T]he Specification Page, which is the first substantive page of the policy, describes the benefit provided by the policy as $2500 without making any mention of the prior earnings ‘cap.’ ”

Supreme Court went on to address plaintiffs eighth cause of action, although he did not need to reach it. Relying on an out-of-state case where the REI language was written by an insurance company rather than a legislature, the court opined that “it would appear that even if the clause were enforceable, plaintiff would still be entitled to the full benefit amount of the policy, in the absence of a showing that he has another disability policy providing loss of time benefits.”

On May 30, 2003, plaintiff moved by order to show cause to certify a class consisting of “[a] 11 insureds, owners, and beneficiaries under disability policies of insurance underwritten and sold by [Connecticut General] that contain a Relation of Earnings to Insurance Provision.” On July 29, 2003, Connecticut General moved for summary judgment to dismiss the complaint. In support of its motion, the company supplied documentation to establish that the form policy issued to plaintiff had been reviewed and approved by the New York State Insurance Department for use in New York. Further, Connecticut General emphasized that

“[t]he purpose of the REI provision is to reduce or restrict loss of time benefits if the insured was over-insured at the time of claim. Application of the provision does not deprive the insured of benefits to which he was entitled. To the extent premiums were paid for a greater benefit than actually received, such premiums are returned to the policyholder.”

On behalf of himself and the putative class, plaintiff on October 6, 2003 cross-moved for partial summary judgment on certain of his causes of action.

As an initial matter, Supreme Court determined that Connecticut General’s “motion for summary judgment [was], in essence, a motion to reargue the prior motion to dismiss” and treated the prior order as law of the case (2004 NY Slip Op 30089[U], *4). Ultimately, Supreme Court dismissed plaintiffs first and second causes of action on the company’s motion; granted plaintiff summary judgment on his fifth cause of action for breach of contract; declared the REI clause void from the beginning, entitling plaintiff to full disability benefits going forward and reimbursement of any amounts deducted from past payments on account of the REI clause; entered judgment for plaintiff on the seventh cause of action for payment of a statutory penalty equal to the amount of premiums paid; dismissed plaintiffs third, fourth, sixth, and eighth causes of action as duplicative and/or moot; and denied class certification.

Connecticut General appealed; plaintiff cross-appealed the denial of class certification. In addition, plaintiff contended that in the event the Appellate Division reversed the order granting him summary judgment on his fifth and seventh causes of action, it should reinstate the other claims dismissed by Supreme Court.

First, the Appellate Division faulted Supreme Court for regarding Connecticut General’s motion for summary judgment as a motion to reargue the motion to dismiss, and for “treating the prior [order] as law of the case . . . since the scope of review on the two motions differs” (30 AD3d 349, 349 [1st Dept 2006]). The court then explained that

“[t]his error was compounded by the prior motion court’s erroneous construction of the policy language. The breach of contract claim was based upon the insurer’s enforcement of its [REI] clause, which was alleged to be unenforceable under the contract due to failure to comply with statutory requirements. Specifically, the policy allegedly failed to notify the insured that his monthly benefit would be less than the policy’s stated monthly benefit, because the location in the policy of its REI clause did not accord with the statutory requirements” (30 AD3d at 350).

The Appellate Division rejected Supreme Court’s interpretation of section 3216, holding that “the location of the REI clause in the policy did not violate the statute, as a matter of law” (id. at 351). The court denied plaintiffs cross motion in its entirety and dismissed plaintiff’s fifth and seventh causes of action, ultimately directing the clerk to enter judgment in favor of defendant and dismiss the complaint. The Appellate Division did not discuss the four causes of action dismissed by Supreme Court as duplicative and/or moot based on that court’s contrary interpretation of section 3216, but instead simply affirmed this part of Supreme Court’s order.

Plaintiff then moved for leave to appeal to us. We granted his motion except insofar as he sought to appeal from the portion of the Appellate Division’s order denying class certification, which we dismissed on the ground of finality (see 8 NY3d 875 [2007]). We begin our analysis by considering the causes of action dismissed for the first time by the Appellate Division—the fifth cause of action for breach of contract and the seventh cause of action for a statutory penalty under Insurance Law § 4226.

II.

Plaintiff’s breach-of-contract claim is premised upon a clause in the policy entitled “Conformity with State Statutes.” This clause, which comes directly after the REI clause in the section captioned “General Provisions,” states that “[a]ny provision of the Policy ... in conflict with the statutes of the state in which the Insured resides ... is hereby amended to conform to the minimum requirements of such statutes” (see also Insurance Law § 3103 [a] [“in all respects in which (an insurance policy’s) provisions are in violation of the requirements or prohibitions of (the Insurance Law) it shall be enforceable as if it conformed with such requirements or prohibitions”]). Consequently, if Connecticut General’s REI clause does not comply with the requirements of New York’s Insurance Law, the reduction of plaintiffs benefits in accordance with the REI clause would constitute a breach of contract.

Insurance Law § 3216 (c) (7) provides that

“[n]o policy of accident and health insurance shall be delivered or issued for delivery to any person in this state unless: . . .
“[t]he exceptions and reductions of indemnity are set forth in the policy and, except those which are set forth in subsection (d) of this section, are printed, at the insurer’s option, either included with the benefit provision to which they apply, or under an appropriate caption such as ‘EXCEPTIONS’, or ‘EXCEPTIONS AND REDUCTIONS’, provided that if an exception or reduction specifically applies only to a particular benefit of the policy, a statement of such exception or reduction shall be included with the benefit provision to which it applies” (emphasis added).

Plaintiff argues that section 3216 (c) (7)’s closing proviso—i.e., “provided that if an exception or reduction specifically applies only to a particular benefit of the policy, a statement of such exception or reduction shall be included with the benefit provision to which it applies”—should control the placement of the REI clause, which concededly applies solely to the “particular benefit” of “Total Disability Benefit.” Governing principles of statutory construction, as applied to the language of subsections (c) (7), (d) (2), and (d) (4), however, counsel otherwise.

First, section 3216 (c) (7) begins by explicitly “except[ing] those [exceptions and reductions of indemnity] which are set forth in subsection (d) of this section” from its further requirements as to location of exceptions and reductions of indemnity. Subsection (d) (2), in turn, states as follows:

“Other provisions. No such policy delivered or issued for delivery to any person in this state shall contain provisions respecting the matters set forth below unless such provisions are in the words (not including the designation by number or letter) in which the same appear in this paragraph except that the insurer may, at its option, use in lieu of any such provision a corresponding provision of different wording approved by the superintendent [of Insurance] which is not less favorable in any respect to the insured or the beneficiary. Any such provision contained in the policy shall be preceded individually by the appropriate caption appearing herein or, at the option of the insurer, by such appropriate individual or group captions or subcaptions as the superintendent may approve.”

Subparagraph (F) in subsection (d) (2), captioned “RELATION OF EARNINGS TO INSURANCE,” recites the precise wording used by Connecticut General in the REI clause that is the subject of this litigation. Thus, Connecticut General’s REI clause, as an exception or reduction in indemnity “set forth in subsection (d)” of section 3216, is explicitly excepted from the requirements of section 3216 (c) (7) by the plain language of that statutory provision.

Plaintiff nonetheless argues that the “subsection (d)” exception within subsection (c) (7) modifies only the phrase “either included with the benefit provision to which they apply, or under an appropriate caption such as ‘EXCEPTIONS’, or ‘EXCEPTIONS AND REDUCTIONS’.” Thus, he contends that subsection (c) (7)’s further proviso (i.e., “provided that if an exception or reduction specifically applies only to a particular benefit of the policy, a statement of such exception or reduction shall be included with the benefit provision to which it applies”) modifies subsection (d) exceptions or reductions in indemnity. In short, plaintiff maintains that subsection (c) (7)’s final proviso is unqualified by that subsection’s earlier, explicit limitation relating to subsection (d) enumeration.

“The purpose of a proviso is to restrain the enacting clause, to except something which would otherwise have been within it, or in some measure to modify it” (McKinney’s Cons Laws of NY, Book 1, Statutes § 212). “The operation of a proviso is usually and properly confined to the clause or distinct portion of the enactment which immediately precedes it and does not, in the absence of a manifestly shown intent, extend to or qualify other sections or portions of the statute” (id., Comment [emphasis added]). Thus, under traditional principles of statutory construction, the proviso so heavily relied upon by plaintiff modifies only “the clause or distinct portion of the enactment which immediately precedes it.” The end result is that subsection (c) (7) commands that, where no subsection (d) exception or reduction in indemnity applies, any other exception or reduction in indemnity that pertains only to a particular policy benefit must be included with the benefit provision to which it applies. Thus, the statutory proviso is wholly inapplicable to the REI clause.

Further, subsection (d) sets forth its own requirements for placement and captioning of the exceptions or reductions in indemnity that it enumerates. This lends additional support to our reading of section 3216 (c) (7). Specifically, section 3216 (d) (4) provides that

“[t]he provisions which are the subject of paragraphs one and two of this subsection, or any corresponding provisions which are used in lieu thereof in accordance with such paragraphs, shall be printed in the consecutive order of the provisions in such paragraphs or, at the option of the insurer, any such provision may appear as a unit in any part of the policy, with other provisions to which it may be logically related, provided the resulting policy shall not be in whole or in part unintelligible, uncertain, ambiguous, abstruse, or likely to mislead a person to whom the policy is offered, delivered or issued” (emphasis added).

Because of this explicit direction relating to placement of subsection (d) exceptions and reductions, interpreting subsection (c) (7)’s ending proviso to govern the REI clause would inevitably create superfluity if not a downright conflict within section 3216. A court must consider a statute as a whole, reading and construing all parts of an act together to determine legislative intent (see McKinney’s Cons Laws of NY, Book 1, Statutes § 97), and, where possible, should “harmonize [ ] [all parts of a statute] with each other . . . and [give] effect and meaning ... to the entire statute and every part and word thereof’ (id. § 98; see also People v Mobil Oil Corp., 48 NY2d 192, 199 [1979] [“It is a well-settled principle of statutory construction that a statute or ordinance must be construed as a whole and that its various sections must be considered together and with reference to each other”]). The existence of a specific placement scheme within subsection (d) reinforces our conclusion that the final proviso of subsection (c) (7) applies only to those exceptions and reductions in indemnity that are not enumerated in subsection (d), while subsection (d) (4)—the independent provision on placement contained within subsection (d)—applies to those exceptions and reductions in indemnity that are specifically enumerated in subsection (d). Only this interpretation permits subsections (c) and (d) to fit together in complete concinnity.

Because the REI clause’s placement in the policy complies with section 3216, the Appellate Division correctly dismissed plaintiffs fifth cause of action for breach of contract, as that claim hinges upon the policy provision demanding conformity with state statutes. For the same reason, the Appellate Division also properly dismissed plaintiffs seventh cause of action, a claim for statutory penalties under Insurance Law § 4226 (d). We next address plaintiffs eighth cause of action.

III.

Plaintiff alleges in his eighth cause of action that even if the REI clause is enforceable, Connecticut General has not calculated his benefits correctly. He contends that once this cause of action is no longer moot, it must be reinstated because it has never been considered on its merits by any court.

The record makes clear that between Supreme Court’s initial order, which was addressed solely to the pleadings, and its subsequent order, which disposed of Connecticut General’s and plaintiffs motions for summary judgment and partial summary judgment respectively, neither party submitted additional facts on the subject of the eighth cause of action. Connecticut General’s motion for summary judgment and its supporting memoranda, exhibits, and affirmations merely reassert the argument made in its earlier motion to dismiss; that is, that plaintiff insufficiently alleged a mistake. For his part, plaintiff did not cross-move for summary judgment on this particular cause of action. Instead, he simply took the position that there were material issues of fact regarding Connecticut General’s misapplication of the REI clause, assuming it to be enforceable. As a result, plaintiffs eighth cause of action requires further adjudication. Plaintiffs arguments to support revival of his other causes of action are without merit.

Accordingly, the order of the Appellate Division, insofar as appealed from, should be modified, without costs, by reinstating the eighth cause of action and remitting to Supreme Court for further proceedings on that cause of action, and, as so modified, should be affirmed.

Chief Judge Kaye and Judges Ciparick, Graffeo, Smith, Pigott and Jones concur.

Order, insofar as appealed from, modified, etc.

      . Plaintiffs premiums for the policy were waived on June 8, 1998.

      . According to plaintiff’s counsel, at some point Connecticut General increased his monthly benefit from $543.33 to an amount over $1,900. According to Connecticut General’s counsel, plaintiff paid about $14,000 over a 15-year period in premiums and, as of November 2003, had collected roughly $98,000 in benefits.

      . The prior motion was decided by a different Justice, who had retired by the time Connecticut General moved for summary judgment.

      . An order denying class certification is not reviewable on appeal from a final order because it does not necessarily affect the final determination (see Karger, The Powers of the New York Court of Appeals § 4:6, at 61 [rev 3d ed 2005]).