Volume XIX, No. 10 (No. 493)
Friday, November 3, 2017
A Biweekly Electronic Newsletter
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Phone: 716-849-8900
Fax: 716-855-0874
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© Hurwitz & Fine, P. C. 2017
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As a public service, Hurwitz & Fine, P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York State appellate courts. The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers.
In some jurisdictions, newsletters such as this may be considered Attorney Advertising.
If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.
You will find back issues of Coverage Pointers on the firm website listed above.
Dear Coverage Pointers Subscribers:
Do you have a situation? We love situations.
Many questions these days on the applicability of the Burlington case on the duty to defend. It is our view that Burlington doesn’t speak to the duty to defend, unless the duty to indemnify has been resolved favorably to the carrier. Burlington was not, in our opinion, a duty to defend case.
Pardon the brevity of this note, but I’ve just arrived home from travel. The note below was composed earlier Thursday and Agnes will be doing the final newsletter editing.
I write to you from Hartford on Thursday afternoon, where I’ve just completed a presentation on risk transfer with my good friend Vicki Roberts from Meadowbrook. It was nice to have met a passel of CP subscribers here. Hope to see some of you at the FDCC Insurance Industry Institute in NYC next week.
We celebrate women’s suffrage this week. As described below, it was 100 years ago this week that a state constitutional amendment was approved by a popular vote granting women the right to vote in New York.
Dying to Work – A Century Ago:
The St. Louis Star and Times
St. Louis, Missouri
03 Nov 1917
WOMAN TAKES MAN’S
JOB AS HEARSE DRIVER
Pueblo, Colo., Nov. 3.—(By I. N. S.)—War has resulted in woman filling a new berth in this industrial city, and the old maxim has been revised to “The hand that rocks the cradle drives the hearse.”
Mrs. J. T. Brown is the new driver of the hearse of a prominent undertaking concern. She says leading a cortege containing weeping relatives of the deceased was very depressing at first, “but now I just watch the road and never think what the sad occasion of the trip is.”
The hearse was formerly driven by a man who enlisted in Uncle Sam’s liberty army.
Off the Mark:
Dear Readers,
I hope everyone had a happy Halloween. My kids got a lot laughs dressed up as a slice of pizza and a taco. It was fun watching them enjoy their haul of candy. It wasn’t nearly as much fun trying to get them to go to sleep after all that sugar.
This edition discusses two recent construction defect cases. The first case is from the District of New Hampshire. In Patriot Ins. Co. v. Holmes Carpet Ctr., LLC, the Court held that the plaintiff had no duty to defend or indemnify the defendant in an underlying action asserting claims for breach of contract due to defective workmanship. In finding in favor of the plaintiff, the Court relied on New Hampshire law holding that “defective work, standing alone, does not constitute an occurrence.”
The second case is from the District Court for the Western District of Washington. In Westridge Townhomes Owners Ass’n v. Great Am. Assur. Co., the Court reviewed a series of “all risk” property policies issued by the defendants to the plaintiff. The policy at issue in the case specifically states that it does not cover a list of perils, which include “errors in design, errors in processing, faulty workmanship or faulty materials.” The Court held that because the policy was an “all risk” policy and did not explicitly exclude “faulty construction”, “faulty maintenance”, or “wet or dry rot”, such perils are covered. As discovery was incomplete, the Court did not reach a determination as to whether the alleged property damage fell under a covered or excluded peril.
Until next time …
Brian
Brian F. Mark
[email protected]
WW I Soldiers Allowed to Vote:
Times Herald
Olean, New York
03 Nov 1917
SOLDIERS TO VOTE
IF NOT REGISTERED
Ruling Received From Secretary of State
Today—Civilians to be Barred From Camp
(By The Associated Press)
Camp Upton, Yaphank, N.Y., Nov. 3.—A ruling was received from the Secretary of State at Albany today which will enable every soldier in the camp to vote at the coming election, whether or not he is registered. The use of posters by all recognized parties and responsible individuals is also to be permitted. Another ruling by the Secretary of State will bar out of camp when the ballots are being cast all civilians except those employed by the Government. This will prevent electioneering by outsiders.
Tessa’s Tutelage:
Dear Readers,
Medical necessity is one of the most commonly litigated/arbitrated issues in no-fault, so many of you are very familiar with the topic. However, if you are new here, or are just reading this no-fault article as a form of productive procrastination, here is a brief refresher of how it works. Get ready for a lot of burden shifting. (If you are a Rolling Stones fan, I hope you at least enjoy having Beast of Burden stuck in your head).
Once a claimant has established that, he or she is entitled to no-fault benefits, the burden shifts to the Defendant (think the insurance company) to establish that a particular medical treatment was not necessary. As you can imagine, what qualifies as a medical necessity becomes the key to receiving payment for a service rendered, or not.
Now that the ball is in Defendant’s court, it must demonstrate that the denial of payment was based on either a peer review, IME report, or some other competent medical evidence. The medical evidence Defendant relies on must, at minimum, relate the relevant facts, the medical rationale, and evidence demonstrating the generally accepted medical practices in similar scenarios. Defendants can struggle with this threshold when the expert report does not provide a sufficient amount of details about either Plaintiff’s treatments or why the subject treatment was inappropriate.
Nonetheless, if a Defendant can show that a Plaintiff’s treatments were not medically necessary, the burden shifts to Plaintiff. Plaintiff has an opportunity to refute Defendant’s claim and establish that the treatment was necessary.
Okay, now that we went over all the burden shifting, we have Cappello v Global Liberty Ins. Co. of N.Y. Here, Plaintiff prevailed in the lower court and Defendant was required to pay Plaintiff over two thousand dollars for medical services rendered. Defendant appealed and both parties stipulated that the only issue on appeal was medical necessity. They also stipulated that Defendant’s doctor was a qualified expert. Now, Defendant put on a good show and presented their expert’s evidence. This was deemed sufficient so the burden shifted to Plaintiff. Annnnnd :::crickets::: Plaintiff might have missed prior CP newsletters because it didn’t have anything to say. As a result, Defendant won.
Have a wonderful weekend,
Tessa
Tessa R. Scott
Trespass – a Major Crime:
Poughkeepsie Eagle-News
Poughkeepsie, New York
03 Nov 1917
SNEAKED INTO SCHOOL BASEMENT
After sneaking in the William W. Smith School in upper Church St., and arranging his bed in the basement, where he slept undisturbed for several hours until discovery Friday evening by one of the teachers, was what happened to one Poughkeepsie man who had tipped the cup of “John Barleycorn” so many times that sleep overtook him. As it was he escaped most fortunately for arrest stared him in the face when discovered in the evening but he was allowed to go unarrested.
One of the teachers had occasion to go to the basement during the evening and was almost terror stricken when she discovered the form of a man lying on the floor. Rushing back to the assembly room she told William P. Kaufmann, the principal. Mr. Kaufmann went downstairs and after wakening the man demanded a reason for his presence there. The intruder could give none other than that he was there. He said he wanted a place to sleep. The police were notified but the man consented to leave the school at once and go to his home, so he was not arrested.
Ewell's Universe:
Dear Subscribers:
One of the hot topics that we continually report on in Coverage Pointers is the national trend of courts eroding an insurer’s right to attorney-client privilege and work product protection. This trend developed and has continued to expand in jurisdictions such as New York, Washington, Illinois, Ohio, and Florida.
Insurers and their counsel are, however, fighting back. One such example is an important decision from the State of Washington in a case captioned as Richardson v. GEICO. We are fortunate to have with us this week the attorney who argued and won the case: Rory Leid of Cole, Wathen, Leid, Hall P.C. from Seattle, Washington. I invited Rory to write up the case and explain its importance.
And now without further ado, Rory Leid:
Richardson involves Washington discovery in a first-party bad faith UIM claim. The Richardson decision follows Cedell and recognized that the UIM insurer “may defend as the tortfeasor would defend” and “is entitled to counsel's advice in strategizing the same defenses that the tortfeasor could have asserted.” 176 Wn.2d at 697. The Richardson case was an important case because Plaintiff was threatening to depose defense counsel and adjusters regarding actions taken during litigation. For example, Plaintiff was requesting to conduct discovery regarding the insurance company’s ongoing evaluation of the settlement value of the case.
Washington law has previously ruled that there is no presumed attorney/client privilege in first party cases. Cedell v. Farmers Ins. Co., 176 Wn.2d 686, 295 P.3d 239 (2013). The Cedell Court held however, that first-party UIM cases are different because there is an adversarial relationship in a UIM case. The Richardson case followed and clarified the ruling in Cedell. Richardson held that Cedell only applied to pre-litigation activities. As we argued, the public policy behind “allowing litigation conduct to serve as evidence of bad faith would undermine an insurer's right to contest questionable claims…” Timberlake Constr. Co. v. U.S. Fid. & Guar. Co., 71 F.3d 335, 341 (10th Cir. 1995) (internal citations omitted).
We thank Rory for taking for taking the time to explain the case’s importance to our readers. Rory was assisted by Elyse O'Neill. We applaud Rory’s and Elyse’s great work. Their victory in Richardson is a victory for the insurance industry as a whole and supports the nationwide pushback against the attack on insurers’ right to privilege.
This case is a clear victory for insurers who issue insurance policies in the State of Washington. As Rory emphasizes above, this case limited Cedell’s ruling to pre-litigation activities. Now, in the State of Washington, there is a clear ruling that an insurer’s post-litigation file is protected by attorney-client privilege and work product protection. Insurers, as with any other corporation or entity, should be entitled to attorney-client privilege and work product protection. At least, we think so.
The Richardson decision is further discussed in the attached issue. I encourage you to check it out.
Dan and I have written extensively on the topic of the erosion of attorney-client privilege and work product. For guidance as to how insurers and their counsel can protect their claims file from discovery, consider our discussion of national case law and practical pointers for insurers to lock down their claims file: Available here and here.
‘Til Next Time,
John
John R. Ewell
AD: “Women -- You too Can Gain 35 Pounds” and Be Happy!:
Stone County Enterprise
Wiggins, Mississippi
03 Nov 1917
IT ALWAYS HELPS says Mrs. Sylvania Woods, of Clifton Mills, Ky., in writing of her experience with Cardui, the woman’s tonic. She says further: “Before I began to use Cardui, my back and head would hurt so bad, I thought the pain would kill me. I was hardly able to do any of my housework. After taking three bottles of Cardui, I began to feel like a new woman. I soon gained 35 pounds, and now, I do all my housework, as well as run a big water mill.
I wish every suffering woman would give CARDUI The Woman’s Tonic a trial. I still use Cardui when I feel a little bad, and it always does me good.”
Headache, backache, side ache, nervousness, tired, worn-out feelings, etc., are sure signs of womanly trouble. Signs that you need Cardui, the woman’s tonic. You cannot make a mistake in trying Cardui for your trouble. It has been helping weak, ailing women for more than fifty years. Get a Bottle Today!
Editor’s Note: Cardui was a patent medicine sold for difficult menstruation, leucorrhea, backache, headache, dizziness and general female diseases. Cardui was a 38-proof patent medicine made from the late 19th century through the twentieth by the Chattanooga Medicine Company, of Chattanooga, Tennessee .Like most such medicines it worked because of its high alcohol content. Like most patent medicines, it promised to cure a huge range of ailments, many incurable even today: tumors, cancer, "women's diseases," etc. Cardui specifically claimed to relieve painful menstruation, as one commentator says, “it numbed the imbiber several days a month.” You can find more about this and other medicines at www.mum.com (the Museum of Menstruation).
Peiper’s Parables:
We write from the friendly confines of the Liberty Building. It’s nice to be home, if only for a day or two. I wish I had need of a parable, or the creativity to write one, but frankly our reports this week do not compel the expenditure of such poetic inspiration. We’ll leave those to Altman.
What we do have is an interesting Court of Appeals decision on the application (or lack of application) of the US Constitution’s “Contract Clause.” Hey, it’s not every day that we get to write on legitimate, honest to goodness, genuine Constitutional Law. Judge Fahey’s decision is interesting, and it’s on an area of the Workers’ Compensation Law that I’d bet you have never actually looked at.
We close by thanking our friends at the Canadian Defence Lawyers for hosting a day long program on subrogation last week. Yours truly was honoured to participate as the designated Yank, offering insight on the differences between the U.S. and Canadian litigation systems. If you have any interest in a similar program Stateside, please feel free to drop us a note.
That’s it for this week. Go Bills!
Steve
Steven E. Peiper
Building Planes for the War:
The New York Times
New York, New York
3 Nov 1917
American Fighting Airplane
in Successful Test Flight
WASHINGTON, Nov. 2.—The first fighting airplane, wholly made in America of American materials, has taken the air in successful test flights. In making this fact known today officials of the Aircraft Production Board said few changes in the design of either the plane or the “Liberty Motor” were believed necessary, and that production in quantity of the fighting machines soon would be in progress in many factories.
By the first of the New Year, it is expected that the aircraft program will be well under way, and by July 1 the Government expects to be able to supply any demands of its allies. Machines which United States forces in Europe will need when Spring comes are being built abroad.
American engineers expect that the aircraft program can be made into whatever the Allies require. Originally, the figures were set at 50,000 motors and 21,000 planes by July 4.
Hewitt’s Highlights:
Dear Subscribers:
We had a wonderful Halloween down here and my two little monsters got plenty of candy. They quit before I wanted to quit but as my wife says, trick or treating is for them. I was dressed as the Headless Horsemen, my wife, Supergirl, and the two boys, Luigi and Creature from the Black Lagoon (Gillman).
The serious injury cases in this edition find issues of fact where plaintiff’s doctors specifically address prior injuries and degenerative conditions and explain in detail and in comparison to prior films why the current injury is new or an exacerbation. In another case, an issue of fact was found as to liability. Although the plaintiffs were on a bicycle travelling in the wrong direction on a one-way street when hit by a car, the court found an issue of fact as to whether defendant used his senses properly to ascertain all dangers.
Until next time,
Rob
Robert Hewitt
Last Gasp to Unsuccessfully Defeat Women’s Right to Vote:
Star-Gazette
Elmira, New York
3 Nov 1917
The Case Against Woman Suffrage
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The vote is not a question of individual “right,” or what is best for the individual or for any class, but solely a question of what is best for the State.
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The net result of Woman Suffrage wherever tried has been a loss to the State and a loss to women.
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The vote is demanded by only a small minority of women.
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To force the vote upon the great majority of women to satisfy a small minority would be undemocratic and unjust.
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Men and women were created different and designed to work in different spheres for the common good—to co-operate with and supplement each other and not to compete.
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The vote would deprive woman of her non-partisan power which enables her to do for the State what man is unable to do because he is bound by political party obligations.
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The basis of government is physical force, and the physical Power to enforce the law, without which the vote is useless, is neither possible nor desirable for women.
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Woman Suffrage is demanded by Socialists and Feminists as “a means to an end”—the end being “a complete social revolution.”
Editor’s Note: On November 6, 1917, New York State voters, approved a state constitutional amendment granting women the right to vote:
Yes 703,129 53.92%
No 600,776 46.08%
Wilewicz’ Wide-World of Coverage:
We hope that everyone had a happy, spooky Halloween! Ours was timid as the threat of snow (yes, you read that right) scared away some of the ghouls and goblins. This year, my daughter went as a Pirates of the Caribbean pirate lord, loosely based upon the Penelope Cruz character from the fourth movie of the series. The most notable part of her costume was the fact that she borrowed my boots, as my 11-year old now shares a shoe size with me. I remain in a mild state of shock.
This time around in the Wide World, the Second Circuit only issued one case related to coverage. Brian Barnas wrote up the decision and slotted it into my column, as it focuses on bad faith issues, which his column usually covers. It’s an interesting read, about whether an insurer acted in bad faith when obtaining a global settlement that was within the policy limits. Ultimately the court did not believe so, as there was no gross disregard for the insured’s interests. Indeed, with a favorable settlement that did not require the insured’s contribution, we would think that the insured should have been happy. Though the insured had disagreed with the carrier about pre-settlement strategy, that was not enough to justify a bad faith ruling.
Enjoy! Until next time,
Agnes
Agnes A. Wilewicz
Love Me and Lock Me Away:
The Buffalo Enquirer
Buffalo, New York
3 Nov 1917
LOVER LOCKED IN ROOM
UNTIL COP TAKES HIM AWAY
Failure of Dan Cupid to make any favorable progress in his suit for the hand of Lena Canno, a dainty twenty-year-old Italian miss, who resides at No. 62 Main street, this morning at 8 o’clock led the rejected suitor, John Matanano, the police say, used rather extreme means. His is now languishing in a cell at the Franklin Street station, awaiting trial on a charge of assault in the third degree.
Matanano is twenty-nine years old and also resides at No. 61 Main Street, which address is a tenement house. Miss Canno lives on the third floor with her parents. John has a room on the first. This morning, while the young lady was coming downstairs, it is alleged that the infatuated John grabbed her and forced her into a room on the first floor. Lena screamed and put up a valiant flight. Friends came running. The door was locked on the inside, so they—(it was a splendid idea--) locked the door on the outside. All of the doors in the house have an extra lock on the outside.
John heard the lock snap and then tried to get out. He couldn’t. In the meantime Patrolman John R. Potts of the first precinct, summoned by the girl’s mother, arrived on the scene. He forced his way into the room, and collared John. Lena was none the worse for her experience.
Barnas on Bad Faith:
Hello again:
I hope everyone had a Happy Halloween. Trick-or-treaters were a bit reduced in my neighborhood this year, so I have plenty of extra candy to enjoy in the coming days. I enjoyed some of that candy last night while watching the Astros win the World Series. Congrats to Houston and its fans on their first World Series title in over 50 years of existence as a franchise. It really was a crazy and epic World Series, although I could have gone for a couple less pitching changes and mound visits over the course of seven games. I love baseball as much as anyone I have ever met, and even I thought some of those games were far too long.
This is a rare week as I have two New York bad faith cases to report on. The first is a Second Circuit decision that can be found in Agnes’ column. There, the Second Circuit concludes that the insurer did not act in bad faith where it obtained a global settlement within the policy limits on behalf of the insured. The case has some nice language for insurers. My personal favorite is “[s]uch counterfactual thought experiments do not establish bad faith.”
I also report on the Sea Tow case from New York County Supreme Court. There, the insured sought to add causes of action for bad faith and violation of General Business Law § 349 to its complaint against the insurer. The court concluded that the proposed amendments would not have merit and did not allow the causes of action to be added to the pleading. On the bad faith claim the court correctly noted that the insured could not establish a separate claim for bad faith because it could not establish any independent tortious conduct. The insured’s claim for consequential damages was also without merit.
That’s it for now. Go Bills.
Signing off,
Brian
Brian D. Barnas
Altman’s Administrative (and Legislative) Agenda:
Greetings, Dear Readers. I hope you had a wonderful Halloween filled with lots of candy! I handed out dozens of KitKats and peanut butter cups, which means more joy for the kiddies and less calories for my expanding waistline. Then, some kids came to my door dressed as Trump; I gave them bottles of borscht. It’s never too early to teach them East-West relations. In other news, it’s finally Mallomar Season, or, as I call it, “The Most Wonderful Time of the Year.”
Today, I bring you two new circular letters from New York’s Department of Financial Services, the first of which expands coverage for Narcan (Naxalon) to treat heroin overdoses, and the second of which offers guidance on coverage for claims related to Hurricanes Maria and Irma.
Howard
Howard B. Altman
Highlights of this Week’s Issue, Attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
-
Not an Abuse of Discretion to have Claims of Indemnity and Declaratory Relief in Same Proceeding
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
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Issue of Fact Raised as to 90/180-Day Category and Injury to Spine
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Plaintiff’s Expert Raised Issue of Fact by Directly Addressing Pre-Existing Injuries and Degeneration
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Plaintiff Did Not Need To Raise Issue of Fact Where Defendant Failed to Meet Their Prima Facie Burden
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Issue of Fact as to whether Defendant Should Have Seen Plaintiffs Notwithstanding Plaintiffs Were Riding Bicycle the Wrong Way on a One Way Street
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Issue of Fact as to Whether Serious Injury to Lumbar Spine
TESSA’S TUTELAGE
Tessa R. Scott
Litigation:
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Question of Fact Remained with Regard to the Mailing of the Claim Information
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Plaintiff’s Claim Cannot Survive Where it Cannot Establish that it Mailed the Claim
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Once the Burden Shifted to Plaintiff it Needed to Rebut Defendant’s Expert’s Testimony that the Services were not Medically Necessary
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
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State Fund to Administer Re-Opened Workers’ Compensation Cases Properly Shuttered in 2014
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Labor Law 200 Claim Only Precludes Claims for Contractual Indemnity against Third-Party
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Non-Negligent Owner Entitled to Indemnity from Construction Manager where Incident Arose from acts of CM’s Subcontractor
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While Owner has Non-Delegable Obligation to Maintain Sidewalk, Question of Fact Exists as to Whether Such Duty was Transferred to Tenant via Contract
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Products Defendant Cannot Implead Mother of Injured Child on a Dangerous Instrumentality Claim
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
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Second Circuit Finds that Insurer Did Not Act in Bad Faith by Obtaining a Global Settlement within the Policy Limits
JEN’S GEMS
Jennifer A. Ehman
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Trial Court Rejects Insured’s Argument that Homeowners’ Carrier Knew He Moved and Waived Residence Requirement
BARNAS ON BAD FAITH
Brian D. Barnas
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Insured’s Bad Faith Claim did not Allege any Independent Tortious Conduct or Foreseeable Consequential Damages
EWELL’S UNIVERSE
John R. Ewell
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Washington Court of Appeals Rules that an Insurer’s Post-Litigation File is Protected by Attorney-Client Privilege and Work Product Protection
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
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DFS Offers Guidance on Narcan
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DFS Offers Guidance on Hurricanes
OFF THE MARK
Brian F. Mark
[email protected]
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US District Court Holds that an Insured’s Defective Work Does not Constitute an Occurrence Under a CGL Policy and that this Principle Applies Regardless of Whether the Claim is for Damage to the Property that the Insured Worked on Directly or Other Property that Requires Repair or Replacement in Order to Correct the Defective Work.
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US District Court Holds that when an “All Risk” Policy Does Not Explicitly Exclude Certain Perils, those Perils are Covered.
EARL’S PEARLS
Earl K. Cantwell
[email protected]
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First-Party? Third-Party? What’s in a Name?
Keep those cards and letters coming in. We love to hear from you.
Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Office: 716.849.8942
Cell: 716.445.2258
Fax: 716.855.0874
E-Mail: [email protected]
H&F Website: www.hurwitzfine.com
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Twitter: @kohane
Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York
NEWSLETTER EDITOR
Dan D. Kohane
[email protected]
ASSOCIATE EDITOR
Agnes A. Wilewicz
ASSISTANT EDITOR
Jennifer A. Ehman
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]
Steven E. Peiper, Co-Chair
Michael F. Perley
Jennifer A. Ehman
Agnieszka A. Wilewicz
Edward B. Flink
Patricia A. Fay
Brian D. Barnas
Howard B. Altman
Brian F. Mark
John R. Ewell
Diane F. Bosse
Joel R. Appelbaum
FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]
Michael F. Perley
Edward B. Flink
Brian D. Barnas
Howard B. Altman
James L. Maswick
NO-FAULT/UM/SUM TEAM
Jennifer A. Ehman, Team Leader
[email protected]
Patricia A. Fay
Tessa R. Scott
APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
Diane F. Bosse
Topical Index
Hewitt’s Highlights on Serious Injury
Tessa’s Tutelage
Peiper on Property and Potpourri
Wilewicz’s Wide World of Coverage
Barnas on Bad Faith
Ewell’s Universe
Altman’s Administrative (and Legislative) Agenda
Off the Mark
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
11/01/17 Isidore Margel Trust Mitzi Zank Trustee v. Mt. Hawley Ins. Co.
Appellate Division, Second Department
Not an Abuse of Discretion to have Claims of Indemnity and Declaratory Relief in Same Proceeding
3270 Nostrand Laundromat (“3720”) appealed from an order denying its motion to sever.
The Isidore Margel Trust (“Trust”) owned property in Brooklyn which it leased to 3720 (“premises”). The Trust was named as a defendant in a personal injury lawsuit commenced by Burton. Burton claims to have been injured when she fell on the sidewalk in front of the premises.
Mt. Hawley insured 3720 and the Trust tendered to Mt. Hawley contending that it was an additional insured under a policy Mt. Hawley issued to 3720. When Mt. Hawley denied coverage, the Trust sued Mt. Hawley for coverage and sued 3720, alleging common law and contractual indemnification and breach of the promise to procure insurance. 3720 moved to sever the causes of action asserted against it from the cause of action asserted against Mt. Hawley. The Supreme Court denied the motion, and 3720 appealed.
CPLR 603 permits a court to sever claims in furtherance of convenience or to avoid prejudice. The "denial of a request for severance is a matter of judicial discretion, which should not be disturbed on appeal absent a showing of prejudice to a substantial right of the party seeking severance”.
3720 argued that it is generally recognized that it is prejudicial to have the issue of insurance coverage tried before the jury that considers the underlying liability. However, the courts have recognized such potential for prejudice where the liability claims are asserted against the party whose insurance coverage is also in question. Those were not the circumstances here, where the liability issues related to whether the Laundromat was negligent and the insurance coverage issues related to whether the plaintiff is covered, separately, as an additional insured.
It was not an abuse of discretion to deny the motion to sever.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
11/01/17 D.R. v. Kazachov
Appellate Division, Second Department
Issue of Fact Raised as to 90/180-Day Category and Injury to Spine
The defendants, moving separately but relying on the same evidence and arguments, met their prima facie burden of showing that the plaintiff Rudolf Rakhaminov, individually, did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injury to the lumbar region of Rakhaminov's spine did not constitute a serious injury under the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). The defendants also submitted evidence establishing that Rakhaminov did not sustain a serious injury under the 90/180-day category of Insurance Law § 5102(d).
In opposition, however, the plaintiffs submitted evidence raising triable issues of fact as to whether Rakhaminov sustained a serious injury to the lumbar region of his spine, and whether he sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d). No facts are given.
10/31/17 Taylor v. Delgado
Appellate Division, First Department
Plaintiff’s Expert Raised Issue of Fact by Directly Addressing Pre-Existing Injuries and Degeneration
The defendants established that plaintiff did not suffer a serious injury to her lumbar spine or right knee as a result of the motor vehicle accident at issue by submitting the affirmed reports of a radiologist and orthopedist. The radiologist opined that the MRI of the lumbar spine showed a herniation associated with underlying degenerative disc disease and that the MRI of the right knee revealed a tilted patella causing degeneration. The orthopedist opined that plaintiff's lumbar spine surgery was due to her pre-existing spine condition, consistent with her age, weight and MRI findings, and was not caused by the subject accident, and that the knee condition also was unrelated to the accident. Defendants also submitted the MRI reports of plaintiff's own radiologist, who also found evidence of degenerative disc disease in the lumbar spine and a lateral tilting patella, thus shifting the burden to plaintiff to address and explain the medical evidence of preexisting conditions.
In opposition, plaintiff raised an issue of fact as to a serious lumbar spine injury causally related to the accident through affirmed reports of an expert physiatrist, who measured severe, recent limitations in range of motion, and her orthopedic surgeon, who opined, based on his observations in surgery and review of plaintiff's medical history, that the disc herniation was caused by the accident. The surgeon specifically addressed the MRI films, which he reviewed, and opined that certain objective evidence of degeneration was missing both from the MRI films and his observations during surgery. He also addressed the evidence that plaintiff had on one previous occasion sought treatment for back pain, which improved, opining that that was not evidence of a preexisting lumbar condition. Plaintiff failed to present medical evidence sufficient to raise an issue of fact whether her right knee conditions are causally related to the accident. Thus, she cannot recover for any right knee injury, regardless of whether her lumbar spine injury is found to constitute a serious injury.
In addition to submitting evidence that her lumbar injury was causally related to the accident, plaintiff submitted evidence of "a medically determined injury or impairment of a non-permanent nature," thereby raising an issue of fact whether she sustained an injury under the 90/180-day category. Plaintiff did not work for more than six months following the accident, and an examining physician, who found a causal link between the surgery and the accident, noted that she was totally disabled, as evidenced by, among other things, a notice of disability.
10/25/17 Rivera v. Gabrielli Truck Leasing
Appellate Division, Second Department
Plaintiff Did Not Need To Raise Issue of Fact Where Defendant Failed to Meet Their Prima Facie Burden
The Appellate Division found the Supreme Court properly denied defendant’s motion for summary judgment on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants' submissions failed to eliminate all triable issues of fact as to whether the plaintiff sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d), and as to whether she sustained serious injuries to her jaw and to the cervical and lumbar regions of her spine under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). Since the defendants did not sustain their prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact. The Supreme Court properly denied the defendants' motion to strike portions of the affirmation and narrative report of the plaintiff's treating orthopedic surgeon. Contrary to the appellants' contention, the plaintiff's treating orthopedic surgeon relied on a theory of causation that has gained general acceptance in the relevant scientific field. No facts are given.
10/25/17 Rojas v. Solis
Appellate Division, Second Department
Issue of Fact as to whether Defendant Should Have Seen Plaintiffs Notwithstanding Plaintiffs Were Riding Bicycle the Wrong Way on a One Way Street
On January 22, 2010, the plaintiff Algelis Sanchez was operating a bicycle on Irving Avenue in Brooklyn, while the plaintiff Argeny Rojas was standing on pegs located on the rear axle of the bicycle. Irving Avenue is a one-way street, and Sanchez was traveling in the wrong direction. At the same time, the defendant was operating his motor vehicle on Menahan Street, a one-way street governed by a stop sign at its intersection with Irving Avenue. Sanchez's bicycle and the defendant's vehicle collided in the intersection, and both plaintiffs allegedly were injured. The plaintiffs commenced this action against the defendant, alleging that they sustained serious injuries within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendant failed to establish his prima facie entitlement to judgment as a matter of law dismissing the complaint on the ground of no liability. Although Sanchez was negligent as a matter of law in traveling the wrong way on Irving Avenue, the transcript of the defendant's deposition testimony, submitted in support of his motion, presented a triable issue of fact as to whether he failed to see what was there to be seen through the proper use of his senses. Accordingly, the Appellate Division held the Supreme Court properly denied that branch of the defendant's motion which was to dismiss the complaint on the ground of no liability.
The Supreme Court also properly determined that the defendant was not entitled to summary judgment dismissing the complaint on the ground that neither plaintiff sustained a serious injury within the meaning of Insurance Law § 5102(d). The defendant met his prima facie burden of showing that neither plaintiff sustained a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendant submitted competent medical evidence establishing, prima facie, that none of the plaintiffs' alleged injuries constituted a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, however, the plaintiffs raised a triable issue of fact as to whether they each sustained a serious injury.
10/25/17 Smith v. Kenben Industries, Ltd.
Appellate Division, Second Department
Issue of Fact as to Whether Serious Injury to Lumbar Spine
The defendants met their prima facie burden of showing that the plaintiff Sandra Smith did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injury to the lumbar region of the injured plaintiff's spine did not constitute a serious injury under the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, however, the plaintiffs submitted evidence raising a triable issue of fact as to whether the injured plaintiff sustained a serious injury to the lumbar region of her spine under the significant limitation of use category of Insurance Law § 5102(d). No facts are given.
Tessa R. Scott
Litigation:
10/20/17 Charles Deng Acupuncture, P.C. v Ameriprise Auto & Home
Appellate Term, Second Department
Question of Fact Remained with Regard to the Mailing of the Claim Information
Plaintiff appeals from an order of the Civil Court which denied plaintiff's motion for summary judgment, and granted defendant's cross motion for summary judgment based on plaintiff's failure to appear for duly scheduled examinations under oath (EUOs), and on the ground that defendant had never received the claim underlying that cause of action.
Contrary to plaintiff's contention as to the claims denied based upon plaintiff's failure to appear for EUOs, the proof submitted by defendant was sufficient to demonstrate that plaintiff had failed to appear for the EUOs. Consequently, the branches of defendant's cross motion seeking summary judgment dismissing the first and third causes of action were properly granted.
As plaintiff further argues, the proof submitted by plaintiff in support of its motion was sufficient to give rise to a presumption that the claim underlying the second cause of action had been mailed to, and received by, defendant. However, as the proof submitted by defendant was sufficient to raise an issue of fact as to whether defendant had ever received the claim; neither party is entitled to summary judgment on this cause of action.
Accordingly, the order was modified by providing that the branch of defendant's cross motion seeking summary judgment dismissing the second cause of action is denied.
10/20/17 Olmeur Med., P.C. v ELRAC, Inc.
Appellate Term, Second Department
Plaintiff’s Claim Cannot Survive Where it Cannot Establish that it Mailed the Claim
In this action by a provider to recover assigned first-party no-fault benefits, plaintiff appeals from an order of the Civil Court which granted defendant's motion for summary judgment dismissing the complaint on the ground that defendant had never received the claim at issue.
Contrary to plaintiff's argument, plaintiff failed to raise a triable issue of fact as to whether it had mailed the claim at issue.
10/26/17 Cappello v Global Liberty Ins. Co. of N.Y.
Appellate Term, First Department
Once the Burden Shifted to Plaintiff it Needed to Rebut Defendant’s Expert’s Testimony that the Services were not Medically Necessary
Defendant appealed from a judgment in favor of plaintiff for $2,126.66.
In this action by a provider to recover assigned first- party no-fault benefits, the parties stipulated that the only issue for trial would be whether the services rendered to plaintiff's assignor on April 12, 2011 were medically necessary. Plaintiff also stipulated to the expertise of Dr. Vincent Notabartolo, defendant's peer review doctor.
At trial, Dr. Notabartolo testified that in his opinion the services provided by plaintiff, specifically, electromyography and nerve conduction velocity diagnostic testing, were not medically necessary because there was no indication of a "diagnostic dilemma" that would warrant such testing. The witness explained that the assignor was not neurologically deteriorating and was responding to chiropractic treatment. Dr. Notabartolo's peer review report reaching the same conclusion was also stipulated into evidence.
Dr. Notabartolo's testimony, which the court expressly found credible, demonstrated a factual basis and a medical rationale for his determination that there was no medical necessity for the services at issue here. Thus, the burden shifted to plaintiff to present his own evidence of medical necessity. Plaintiff, however, called no witnesses to rebut defendant's evidence. In these circumstances, plaintiff was not entitled to judgment in its favor.
Accordingly, a judgment was entered in favor of defendant dismissing the complaint.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
10/24/17 American Economy Ins. Co. v State of New York
Court of Appeals
State Fund to Administer Re-Opened Workers’ Compensation Cases Properly Shuttered in 2014
The instant dispute has its origins in a 1933 fund established by the New York State Legislature to address workers’ compensation claims that reopen after a period of dormancy. Essentially, the Legislature required that insurers contribute to the fund, and the State would then administer claims that reopened due to a “recurrence of malady.” To qualify under the fund, the claimant had to demonstrate (a) the case was closed; (b) the case was reopened due to an unexpected change in medical condition; (c) a minimum of seven (7) years passed since the date of the injury; and, (d) the case had been closed for a minimum of three (3) years.
Funding has been increased through the years as the program expanded. Ultimately, however, the system permitted the carriers to pass along additional costs/expenses in funding the program to their policy holders. In 2006, this amounted to an assessment upon carriers of $95 million in 2006. By 2013, that number had ballooned to in excess of $300 million in annual assessments.
Accordingly, by way of amendment to the Workers’ Compensation Law in 2013, the New York State Legislature shuttered the fund. The act provided that a carrier would be precluded from transferring “reopened” cases to the fund after January 1, 2014. In so doing, the Legislature provided approximately a 9-month period where carriers could still avail themselves of the fund (from March of 2013 passage, until January 1, 2014).
Carriers opposed the legislation because the previous assessments would not address the increased exposure of “closed” cases coming back to life within the seven (7) year period and outside the nine (9) month grace period established by the act. If permitted to proceed, Workers’ Compensation carriers estimated an unfunded liability of between $1.1 to $1.6 billon.
A group of carriers commenced the instant litigation arguing that the “retroactive” applicability of the statute violated the U.S. Constitution’s Contract Clause. In addition, the carriers argued that the legislation violated the U.S. Constitution “Takings Clause,” as well as Due Process requirements.
The Trial Court disagreed and upheld the law. Upon appeal, the Appellate Division ruled that the act applied retroactively, and, as such, violated the Contract Clause of the Constitution. On appeal to the Court of Appeals, the matter was reversed again with the legislation being upheld.
With regard to the Contract Clause, the Court noted that the carriers needed to establish three components. First, it must establish a contractual relationship. Secondly, they must then establish a change in the law impaired that contractual relationship. Thirdly, the carriers must establish that the impairment was substantial. With regard to the first factor, the Court recognized that the contract (i.e., the policy) was, in fact, a contractual relationship. Nevertheless, the contract was between only the insured and the insurer. The Workers’ Compensation carrier always had an obligation to provide coverage for “reopened” exposures. The mothballing of the fund only meant that the Workers’ Compensation carrier could no longer transfer its exposure to the State. Accordingly, the Court ruled that the legislation did not impair the contractual relationship. Rather, the act only addressed risk transfer of the unaltered contractual rights to coverage.
In so holding, the Court rejected the carriers’ argument that their policies were written so as to conform to existing New York law. As such, as the law changed, the nature of the contracts likewise changed. Again, the Court rejected this notion by stating the carriers confuse “their legal liability for reopened cases [which did not change] with their ability to transfer the costs of that liability [to the fund].”
The Court quickly rejected the argument that legislation constituted an improper “taking.” In order for the “Takings Clause” to apply, the carriers needed to demonstrate that the act infringed on an actual vested property interest. While here, doubtless, the act infringed on an economic interest, the carriers were without any argument which pointed to a vested property interest. Economic interests, alone, have been rejected by the Court’s previous precedent.
Finally, with respect to Due Process, the Court also rejected the carriers’ pleas. In order to survive a Due Process challenge, the Court noted that the State establish “a legitimate legislative purpose furthered by rational means.” Here, given the interest in placing the burden of risk forecasting on the carriers, the Legislature estimated a savings of hundreds of millions of dollars each year to New York State businesses. That, in the Court’s eyes, was a legitimate purpose.
11/02/17 Nielson v Vornado Forest Plaza, LLC
Appellate Division, First Department
Labor Law 200 Claim Only Precludes Claims for Contractual Indemnity against Third-Party
Plaintiff was injured when he fell from a ladder while in the course of his employment. As part of the action, plaintiff’s claims sounding in Labor Law 240(1) and 241(6), respectively, were dismissed. Thus, only plaintiff’s claims of common law negligence/Labor Law 200 survived.
The owner/lessee of premises (PFNY) asserted a claim seeking contractual indemnification against third-party defendant Pro Aire. Pro Aire moved to dismiss the claim on the basis that it was not responsible for the maintenance of the ladder from which plaintiff fell.
In finding for Pro Aire, the Court noted that it found no evidence of independent negligence on Pro Aire. As such, the only liability that PFNY could face would be its own attributable negligence. Moreover, to the extent Pro Aire may have been negligent; the Court noted that the indemnity clause upon which the claim was premised is in violation of GOL 5-322.1 which prohibits a party from being indemnified for its own negligence.
Peiper’s Point – Not to be lost in this decision is the fact that where only a Common Law Negligence/Labor Law 200 claim exists, there is no basis for an indemnity claim against a third-party. Why, you ask? Because for liability to attach to the owner/lessee in this case, a finding of negligence would attach. Accordingly, any claim for exposure they might have would have been directly tied to its/their own negligence. As noted by the Court, since a party cannot be indemnified for its own negligence, there is no basis for an indemnity claim.
11/01/17 DeSouza v Empire Tr. Mix., Inc.
Appellate Division, Second Department
Non-Negligent Owner Entitled to Indemnity from Construction Manager where Incident Arose from acts of CM’s Subcontractor
This incident arises out of a workplace accident involving an employee of subcontractor Casino Development Corp. Apparently, plaintiff was injured when a hose pumping concrete exploded causing injury to his eyes. Plaintiff commenced an action against the owner, LIC Res, and the Construction Manager, McGowan.
LIC Res was able to establish the valid existence of a contractual indemnity clause running from McGowan. LIC also demonstrated that the incident arose from acts or omissions of McGowan and/or a McGowan subcontractor. Also, presumably, LIC established that it was free of negligence. Having established all three evidentiary requirements, LIC Res’ indemnity claim was granted.
11/01/17 O’Donnell v AR Fuels, Inc.
Appellate Division, Second Department
While Owner has Non-Delegable Obligation to Maintain Sidewalk, Question of Fact Exists as to Whether Such Duty was Transferred to Tenant via Contract
Plaintiff commenced this action after sustaining injury due to a trip and fall on the sidewalk outside of a building owned by AR Fuels. AR Fuels leased the premises, per a written agreement, to Mill Basin. As such, AR Fuels appeared in the lawsuit and immediately commenced a cross-claim for indemnity against Mill Basin. Mill Basin, in turn, asserted a cross-claim of its own for common law indemnity against AR Fuels.
Both parties moved for summary judgment, and both applications were denied by the trial court. In affirming, the Appellate Division noted that AR Fuels failed to submit evidence in admissible form of the existence of an enforceable indemnity agreement. Mill Basin argued that it was entitled to dismissal of the indemnity claim against it because AR Fuels, as the owner, had a non-delegable obligation to maintain the sidewalk per the NYC Administrative Code. Here however, the Court noted that a question existed as to whether Mill Basin was contractually obligated to maintain the sidewalks.
10/26/17 Y.A. v Conair Corp.
Appellate Division, First Department
Products Defendant Cannot Implead Mother of Injured Child on a Dangerous Instrumentality Claim
This decision tracks the Siragusa claim we reported on in the September 22nd issue. The facts are nearly identical. Here, plaintiff commenced this action on behalf of her injured daughter who was severely injured when her hands became caught in blender manufactured by defendant. Defendant commenced an action against the mother for indemnity/contribution on the theory that she negligently entrusted the child with a dangerous instrumentality.
The court rejected this notion, and suggested that the claim was really an argument premised upon negligent supervision of a child. As the mother was the target of the claim, the Court noted the long-standing intrafamial immunity rule applied when the loss arose from a “common daily household hazard.”
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
10/27/17 Sea Tow Services v. St. Paul Fire & Marine Ins. Co.
United States Court of Appeals, Second Circuit
Insurer Did Not Act in Bad Faith by Obtaining a Global Settlement within the Policy Limits
Plaintiff-appellant Sea Tow Services International, Inc. (“STSI”) brought sundry claims against its insurer, defendant-appellee St. Paul Fire & Marine Insurance Co. (“St. Paul”), alleging that St. Paul, inter alia, breached the terms of its insurance policy with STSI, acted in bad faith when settling claims at no out-of-pocket cost to STSI, and engaged in unfair and deceptive trade practices.
This litigation stemmed from a boating accident that occurred at one of STSI’s franchisees, Triplecheck, Inc. (“Triplecheck”). The victim of the accident, an employee of Triplecheck, sued both STSI and Triplecheck. Early in the litigation, STSI and Triplecheck agreed on a joint defense and sought a global settlement that would settle all the claims arising out of the accident. St. Paul, STSI’s insurer, opposed this strategy, and sought to settle only the claims against STSI. STSI alleged that, had it entered into a unilateral settlement with the victim, it would have been exposed to a cross-claim by Triplecheck for contractual indemnification. Nevertheless, the parties entered into the global settlement covering all claims.
The court stated that establishing that an insurer acted in bad faith when settling a claim can be a tough row to hoe under New York law, and concluded that STSI did not succeed in the undertaking. To prevail, a plaintiff must show that the insurer’s conduct constituted a gross disregard of the insured’s interests, and that the insured lost an actual opportunity to settle the claim. As STSI admitted, St. Paul settled the claim and all the parties got what they should have wanted, a global settlement within policy limits. While STSI may have taken issue with St. Paul’s pre-settlement strategy, a difference of opinion between carrier and insured does not by itself constitute bad faith. At most, STSI proffered evidence that St. Paul’s strategy inadequately factored in a hypothetical scenario under which STSI might have been liable to Triplecheck, its franchisee, for contractual indemnification—a hypothetical scenario, it should be emphasized, that never came to pass. Such counterfactual thought experiments do not establish bad faith.
Assoc. Editor’s Note: Thanks, Barnas on Bad Faith, for this write-up!
Jennifer A. Ehman
10/18/17 Tower Ins. Co. of N.Y. v. Burrell
Supreme Court, New York County
Hon. Arlene P. Bluth
Trial Court Rejects Insured’s Argument that Homeowners’ Carrier Knew He Moved and Waived Residence Requirement
Tower Ins. Co. (“Tower”) issued homeowners’ insurance coverage for a home located in Springfield Gardens, New York owned by Edwin Burrell. While this policy was in effect, Burrell became aware of a loss at the premises stemming from a slip and fall incident which occurred eleven months prior. During Tower’s investigation, it discovered that Burrell was not living at the premises at the time of the accident and had not lived at this address since 2008. On the date of the accident, he had two separate tenants living at the premises.
Tower denied coverage on the basis that coverage would not be afforded for bodily injury arising out of a rental property because that was not an insured location. The policy required that Burrell reside in at least one of the two units.
In opposition, Burrell acknowledged that he did not reside at the Springfield Gardens address, but submitted that Tower knew Burrell had moved because Burrell sent letters to Tower from a different address.
In considering these arguments, the court found that just because Burrell may have mailed Tower letters from another address did not create an issue of fact. To embrace Burrell’s argument would require insurance companies to “assume someone has moved and automatically and affirmatively change addresses if they receive any correspondence or bill payment from an insured if the return address or letterhead is different than the one on the file.” In the court’s view, this would be “ridiculous” because people mail letters from other addresses all the time. Instead, “to inform the insurance company that you have moved your residence you must write a letter informing the insurance company that you have moved your residence, this Mr. Burrell admits he never did.” Here, Burrell decided to continually renew and pay the premiums for a homeowner’s insurance company for an income producing property rather than informing Tower that he no longer lived at the insured premises. Because he decided not to obtain insurance meant for a landlord (which, presumably would be more expensive), Burrell cannot now seek coverage for a claim specifically excluded in the policy he obtained from Tower.
Brian D. Barnas
10/23/17 Central Amusement International v. Lexington Ins. Co.
New York Supreme Court, New York County
Insured’s Bad Faith Claim did not Allege any Independent Tortious Conduct or Foreseeable Consequential Damages
Central Amusement brought an action against Lexington for breach of contract. It then sought to amend the complaint to add causes of action for bad faith and General Business Law § 349. Central Amusement alleged that, because Lexington denied insurance coverage in bad faith, Central Amusement suffered damages, including consequential damages, from Lexington's breach of the covenant of good faith and fair dealing. Central Amusement sought the same damages on this cause of action as the breach of contract cause of action. In support of its GBL claim, Central Amusement alleged that Lexington engaged in misleading and deceptive conduct by failing to adequately investigate and assess Central Amusement's claims, requiring Central Amusement to retain counsel and commence litigation, and asserting the applicability of policy exclusions without evidence therefor.
The court concluded that the proposed bad faith claim lacked merit. Central Amusement's second cause of action for breach of the covenant of good faith and fair dealing could not stand as a separate claim because the only tortious conduct it alleged concerned Lexington's alleged breach of its obligation to timely investigate and pay under the insurance contract. Moreover, while Central Amusement stated the words "consequential damages," the damages sought in the breach of the covenant of good faith and fair dealing cause of action were entirely duplicative of the damages sought in the breach of contract cause of action. Central Amusement did not allege, with any clarity or specificity, any foreseeable consequential damages it suffered by the alleged bad faith handling of Central Amusement's insurance claim, other than having to litigate this action.
The GBL claim also lacked merit. Central Amusement failed to allege any consumer oriented conduct as required to state a claim.
EWELL’S UNIVERSE
John R. Ewell
10/03/17 Richardson v. GEICO
Washington State Court of Appeals
Washington Court of Appeals Rules that an Insurer’s Post-Litigation File is Protected by Attorney-Client Privilege and Work Product Protection
In 2010, Christine Richardson suffered injuries after being involved in a motor vehicle accident. The at-fault driver settled with her by paying the $25,000 policy. Richardson had an insurance policy with GEICO for personal injury protection (PIP) coverage and first-party underinsured motorist (UIM) coverage. Richardson filed a claim for PIP benefits and GEICO began to pay PIP medical benefits to her.
Following a medical examination of Richardson, GEICO stopped paying for massage or physical therapy, but continued paying for chiropractic care for 12 additional weeks. Richardson demanded PIP arbitration and the PIP arbitrator awarded her the PIP policy limit. Later, Richardson filed a UIM claim with GEICO. GEICO determined that the underlying settlement, including the at-fault driver’s policy limits and Richardson’s PIP limits, fully compensated Richardson, and therefore, denied her UIM coverage.
Richardson sued GEICO alleging, among other claims, bad faith. During discovery, GEICO made several objections to Richardson’s interrogatories and requests for production on the basis of attorney-client privilege and attorney work product. Richard moved to compel production. In response, GEICO moved for a protective order. The trial court ordered an in camera review of the documents, and ultimately ordered production of all of the documents, subject to a protective order.
As the case continued, Richardson deposed a GEICO employee. During the deposition, GEICO’s lawyer directed the employee not to answer questions related to any post-litigation conduct. Richardson filed a motion to compel answers to her deposition questions. She also issued a subpoena to depose GEICO’s defense counsel. GEICO moved to quash the subpoena served on its attorney, preclude her deposition, and protect her litigation file from discovery. The trial court held that Washington case law would “tend toward the conclusion that an insurance company has an ongoing duty of good faith and fair dealing to its policy holders, even after a lawsuit has been commenced.” The trial court ordered that Richardson could pursue discovery involving GEICO’s “activities” from the date of the lawsuit until the “present”. The trial court explained that: it had “previously ruled that post [litigation] activities] are not per se privileged. Anything [in GEICO’s litigation file] not covered by work-product or attorney-client privileges were to be disclosed...”
On appeal, GEICO argued that post-litigation documents or information are protected by the attorney-client privilege and the work product doctrine. GEICO also argued that Cedell v. Farmers Ins. Co. of Washington, relied on by the trial court, did not apply. Richardson resisted this argument, relying on Cedell and out-of-state case law.
The court began its analysis by noting that, in the State of Washington, in first-party insurance claims where the insured claimed bad faith in the handling and processing of claims, a presumption exists that the attorney-client privilege does not apply. However, in the UIM context, “there is no presumption of waiver by the insurer of the attorney-client privilege.” UIM bad faith claims are treated differently from other insurance bad faith claims because:
UIM carriers stand in the shoes of the underinsured motorist/tortfeasor to the extent of the carrier's policy limits... Consequently, the UIM carrier is entitled to pursue all the defenses against the UIM claimant that could have been asserted by the tortfeasor. . . . Because the provision of UIM coverage is by nature adversarial, an inevitable conflict exists between the UIM carrier and the UIM insured…
The Court reasoned that Cedell applied to the insured’s claims file, pre-litigation documents and information, and that Cedell applied to discovery involving why the insurer denied coverage at the time it made such a determination. The Washington State Court of Appeals found that “Cedell does not suggest that privileged or work product information generated post-litigation is also subject to discovery.”
Moreover, the Court explained that:
Allowing Richardson to access privileged information between GEICO and its attorney as to events that occurred after GEICO made its decision regarding the UIM claim and made after Richardson filed suit would run afoul of the purpose of the attorney-client privilege, the work product doctrine, and the purposes of discovery. Attorney work product that occurs after the filing of a lawsuit often contains the lawyer’s assessment of the case, trial strategy, and impressions of witnesses.
Accordingly, the Washington State Court of Appeals held that privileged post-litigation materials, work product, and information are not discoverable. It supported its decision, using public policy concerns. Namely, that allowing discovery of the post-litigation materials would have a chilling effect on an insurer’s ability to defend itself against claim disputes.
Therefore, the Court held that the discovery order was contrary to Washington law. As such, the Court found that the trial court abused its discretion to the extent that the order compelled GEICO to produce post-litigation documents or information protected by the attorney-client privilege or work product doctrine. Upon reversal of the trial court order, the case was remanded.
Editor’s Note: The above summary was prepared by John Ewell. It reflects my impressions alone. It does not reflect the thoughts, opinions, impressions or viewpoints of Rory Leid, Elyse O’Neil, or Wathen, Leid, Hall P.C. I would once again like to thank Rory for offering his insight into this case in the cover note.
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
DFS Offers Guidance on Narcan
The New York Department of Financial Services issued Circular Letter No. 16 on September 28, 2017 to offer guidance health insurance coverage for the use of Narcan:
http://www.dfs.ny.gov/insurance/circltr/2017/cl2017_16.htm
The purpose of the circular letter is to provide direction to insurers regarding health insurance coverage for naloxone (Narcan), which is used to treat opioid overdose. Naloxone, when administered after an overdose, can prevent death. According to the federal Substance Abuse and Mental Health Services Administration’s website, naloxone is an FDA-approved prescription drug used to block or prevent the effects of opiates and opioids, such as oxycodone and heroin. It is often used in an emergency situation to prevent or reverse the effects of an opioid overdose.
The letter mandates that “individual, small group and large group policies must provide coverage for naloxone when medically necessary.”
The Department previously issued regulations requiring New York health insurance policies or contracts to provide a comprehensive package of items and services, which are known as essential health benefits (“EHB”) (Insurance Regulation 62 (11 NYCRR 52.1(q) and 52.71)). The federal Affordable Care Act contains similar EHB requirements.
With respect to large groups, issuers must provide coverage for medication approved by the FDA for the detoxification or maintenance treatment of a substance use disorder in all policies and contracts issued, renewed, modified, altered or amended on or after January 1, 2017. Furthermore, 11 NYCRR § 52.16(c) prohibits issuers offering individual, small group and large group health insurance policies from limiting or excluding coverage by type of illness, accident, treatment, or medical condition.
Thus, as stated in Insurance Circular Letter No. 6 (2016), issuers should provide coverage for naloxone on an outpatient basis when prescribed to an insured by an authorized provider, as they would for any other prescribed drug, subject to the terms and conditions of the health insurance policy or contract. In addition, naloxone should also be covered on an inpatient basis when medically necessary.
Naloxone must be covered when medically necessary. Issuers may not impose any arbitrary limits on coverage for naloxone, for example, issuers may not place an annual limit on coverage for an unused naloxone prescription refill (as some issuers may be doing) unless medically warranted. When determining the appropriate dosage for naloxone coverage, issuers should keep in mind that, according to the Office of Alcohol and Substance Abuse Services, there have been cases of overdoses that involve fentanyl that have required two or more doses of naloxone to reverse the effects of the fentanyl overdose.
***
DFS Offers Guidance on Hurricanes:
On October 4, 2017, The New York Department of Financial Services issued Circular Letter No. 17 to offer guidance on covering claims arising from Hurricanes Irma and Maria. The letter may be viewed at:
http://www.dfs.ny.gov/insurance/circltr/2017/cl2017_17.htm
DFS issued the letter to draw attention to policies issued to New Yorkers for persons or property located in Puerto Rico, the U.S. Virgin Islands and other affected areas, and cautioned that “in this emergency situation, the Department expects all New York domiciled insurers to do their part.” The letter advises that “due to the severity of this situation and extent of damage to people, homes and businesses, it is imperative that members of the insurance industry work towards fair and speedy resolutions of claims” DFS asks that insurers recognize that affected policyholders may be delayed in responding to their premium obligations, and asks that insurers make every effort to reasonably accommodate affected policyholders who miss or make late premium payments due to hardships caused by these hurricanes.
The letter reminds all carriers covering people, homes and businesses in the areas affected by Hurricanes Maria and Irma of their obligations regarding the following:
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Carriers are required to increase their resources to ensure proper treatment of their policyholders;
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Carriers and their third party adjusters must promptly assess claims;
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Affected policyholders are entitled to fair and equitable claim settlement treatment under the New York Insurance Law and Regulations;
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Carriers must not deny claims caused by multiple perils in the event that each peril is not covered under the applicable policy;
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The Department expects timely payments of claims that arise out of covered perils;
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Life insurers are permitted under the Insurance Law and encouraged to accept proof of death in a form other than a death certificate if one cannot be obtained to assist beneficiaries in filing claims;
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In special circumstances, a New York life insurer may apply to the Department for approval of payments made to its New York licensed agents in excess of the usual regulatory limits for their immediate needs to maintain their practices in Puerto Rico, the U.S. Virgin Islands and other areas affected by this season’s storms (NB - requests should generally provide uniform payments to affected agents and limit the duration of the payments to six months); and
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Any claims for emergency or other medical treatment should be promptly processed in accordance with all applicable federal and state laws.
The letter is not a mandate, but an indication that DFS will closely investigate any failure to promptly respond to a claim.
OFF THE MARK
Brian F. Mark
[email protected]10/24/17 Patriot Ins. Co. v. Holmes Carpet Ctr., LLC
U.S. District Court for the District of New Hampshire
US District Court Holds that an Insured’s Defective Work Does not Constitute an Occurrence Under a CGL Policy and that this Principle Applies Regardless of Whether the Claim is for Damage to the Property that the Insured Worked on Directly or Other Property that Requires Repair or Replacement in Order to Correct the Defective Work.
This declaratory-judgment action arises out of an underlying construction defects action alleging claims for breach of contract. The underlying complaint alleges that Red Oak Apartments, LLC (“Red Oak”), the owner and manager of several rental properties, hired Holmes Carpet Center, LLC (“Holmes”) to install flooring in a number of its apartment units. Shortly after Holmes completed its work, flooring planks in several units began to shift and slide out of place, creating large gaps between the planks. After being notified of same, Holmes performed repair work in some of the units. Red Oak was ultimately dissatisfied with the remedial efforts of Holmes and sued for breach of contract and violation of the New Hampshire Consumer Protection Act.The underlying complaint alleges that Holmes failed to complete the work in a workmanlike manner in accordance with accepted flooring installation practices and failed to repair the flooring in a good and workmanlike manner. As a result, Red Oak claims it suffered unspecified damages, including anticipated property damage that would be sustained during the removal of the flooring and its components.
Upon receipt of the complaint, Holmes submitted a claim to Patriot Insurance Company (“Patriot”), its commercial general liability carrier. In turn, Patriot commenced a declaratory-judgment action against Holmes.
The Patriot policy states that Patriot “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” The policy further states that coverage is only available if the “bodily injury” or “property damage” is caused by an “occurrence.” An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” “Property damage” is further defined as “[p]hysical injury to tangible property, including all resulting in loss of use of that property” or “[l]oss of use of tangible property that is not physically injured.”
Patriot argued that that it did not have a duty to defend Holmes against Red Oak’s claims because Red Oak was seeking damages for uncovered defective workmanship, rather than damages caused by an “occurrence.” The Court agreed with Patriot and noted that the New Hampshire Supreme Court “has explained that ‘defective work, standing alone, does not constitute an occurrence.’” An occurrence must be an “accident” and the fortuity implied by reference to accident or exposure is not what is commonly meant by a failure of workmanship. The Court further noted that cases applying this principle show that an insurer has no obligation to defend a claim that seeks to recover only the cost of repairing defective work. Rather, when considering claims for damages caused by defective work, an insurer must defend only claims that seek compensation for additional damages that fortuitously result from the defective work.
Holmes argued that a defense was owed because Red Oak’s claim was not limited to the cost of repairing the defective work itself. As Red Oak sought the costs to repair anticipated damage that would be sustained during the replacement of the defective work, Holmes argued that at least a portion of Red Oak’s damage claim is for property damage.
The Court rejected Holmes’ argument because Holmes could not point to a fortuitous event or exposure as a cause of damage to the property that will need to be replaced when the defective flooring is removed. The Court noted that the Patriot policy only provides coverage for personal injury or property damage caused by an occurrence and an insured’s defective work does not satisfy such a requirement because it lacks the requisite fortuity. The Court held that this principle applies regardless of whether the claim is for damage to the property that the insured worked on directly or other property that requires repair or replacement in order to correct the defective work. In both cases, the sole cause of the property damage is the insured’s defective work, which cannot qualify as an occurrence.
The Court found that any property that will be damaged when the defective flooring is replaced will be solely the result of Holmes’ defective workmanship, rather than some intervening fortuitous event or exposure. Therefore, Holmes is not entitled to a defense. As the underlying action did not seek to recover for property damage caused by an occurrence, summary judgment was granted in favor of Patriot.
10/31/17 Westridge Townhomes Owners Ass’n v. Great Am. Assur. Co.
U.S. District Court for the Western District of Washington
US District Court Holds that When an “All Risk” Policy Does Not Explicitly Exclude Certain Perils, those Perils are Covered.In this action, the plaintiff, an association of unit owners at Westridge Townhomes condominium in Kent, Washington, submitted a claim to the defendants for damage to framing and sheathing that had previously been hidden behind the condominium’s exterior siding. The defendant insurance carriers had sold the Association a series of “Difference in Conditions” property insurance policies, including the one at issue in this case.
The policy states that it “insures against all risks of direct physical loss or damage from any external cause except as hereinafter excluded ….” The policy specifically states that it will not cover a list of excluded perils, including “errors in design, errors in processing, faulty workmanship or faulty materials …” Notably, the policy does not explicitly exclude “faulty construction, “ faulty maintenance,” or “wet or dry rot,” despite those terms being excluded in other policies issued by the defendants.
After receiving notice of the plaintiff’s claim, the defendants denied the claims. Thereafter, the Association filed this action. The Association filed a motion for partial summary judgment seeking a declaration that the policy at issue does not exclude, and therefore covers, the perils of faulty construction, faulty maintenance, and wet or dry rot. In its motion, the Association argued that as the policy affords “all risk” coverage, any peril that is not specifically excluded is covered.
In opposition to the Association’s motion, the defendants argued that faulty construction and faulty maintenance are excluded under the umbrella term “faulty workmanship,” and that wet or dry rot is excluded under the term “deterioration.” The defendants also argued that it would be improper for the Court to rule at this time because of pending discovery and because the damage at issue could be described as faulty workmanship or deterioration.
On reply, the Association cited to case law referenced by the defendants and argued that the term “workmanship” must mean something distinct from “construction” or else it would be superfluous. Therefore, the Association argued that if the policy doesn’t exclude faulty construction; and if workmanship must mean something distinct from construction, then the fact that the policy excludes faulty workmanship doesn’t preclude an order that the policy covers faulty construction.
In its decision, the Court agreed with the Association that because the subject policy does not explicitly exclude “faulty construction,” “faulty maintenance,” or “wet or dry rot,” these perils are covered, pursuant to the other terms of the policy. However, as discovery was incomplete, the Court did not reach a determination as to whether the alleged property damage fell under a covered or excluded peril.
EARL’S PEARLS
Earl K. Cantwell
[email protected]06/30/17 Kathryn Cox v. Continental Casualty Company
2017 WL 2829122 (9th Cir. 2017)
First-Party? Third-Party? What’s in a Name?
At times, insurance laws and regulations can be frustrating and unclear with respect to their language, intent, and “coverage.” One such example was examined in the recent case of Cox v. Continental Casualty Co., 2017 U.S. App. 11722, 2017 WL 2829122 (9th Cir. June 30, 2017). The case involved a statute in the State of Washington called the Insurance Fair Conduct Act (“IFCA”) that provides insureds with a statutory cause of action for wrongful coverage denials, augmenting “traditional” bad faith causes of action. The IFCA may permit for increased damages under certain circumstances for failure to timely and correctly process and pay claims under a policy. The statute provides that a first-party claimant to a policy of insurance may bring a claim under the IFCA against the insurance company for an unreasonable denial of a claim for coverage or the payment of benefits. The question that bedeviled state and federal courts is what exactly is the meaning of a “first-party claimant.”
Some courts interpreted this language to mean true first-party coverage, such as under a homeowner’s policy or a commercial property policy. Other courts interpreted it to include insureds and claimants under liability policies, such as CGL policies which cover the insured’s liability to third parties. Within the statute, the phrase “first-party claimant” is defined as a party asserting a right to payment as a “covered person” under an insurance policy or insurance contract arising out of the occurrence or contingency or loss covered by such a policy or contract.
Courts in the State of Washington had split with some holding that the statute applied only to actual first-party coverage. Other courts had ruled that the phrase “first-party claimant” included insureds and claimants under both first-party and liability policies under the theory that an insured who has a right to file a claim under an insurance policy is a “first-party claimant” regardless of whether it is a first-party or third-party liability policy. The federal courts were likewise split in trying to interpret the meaning of the statute and state law. In Cox, the Ninth Circuit Court of Appeals resolved the split of authority, at least in the federal courts, in favor of the more limited interpretation of the IFCA, holding that the policy in question was not a first-party policy and therefore the plaintiff could not be a first-party claimant.
This case and this issue represent an example of insurance statutes and regulations sometimes raising as many questions as they purport to solve. The essential debate is whether the phrase “first-party claimant” meant a restriction to true first-party coverage, or whether an insured or a claimant under a liability insurance policy could also be called a first-party claimant since they would be a person seeking coverage and payment under a policy. Since this was a state statute, the federal courts then entered the fray since in a diversity of jurisdiction action they are charged with trying to apply state law.
The courts apparently could not find very definitive legislative history as to what exactly the meaning of “first-party claimant” was intended to include. It would seem likely that there would be some legislative history helping to define whether a “first-party claimant” is limited to homeowner’s and property policies, or was intended to include liability coverage as a “covered person under an insurance policy.” This is a case of a bad definition in a statute leading to several and inconclusive Court decisions.
Perhaps that is the ultimate explanation for this ruling, with the Ninth Circuit essentially stating that the statute speaks in terms of a first-party claim, that definition is a certain term of art in the insurance industry, and the Court limited claims in that fashion unless and until the state legislature clarifies the statute in the future. The Court may have favored the more limited interpretation of the statute unless and until the legislature would more clearly indicate a more expansive intent.
