Coverage Pointers - Volume XV, No. 24

Dear Coverage Pointers Subscribers:

Do you have a situation? We love situations.  Indeed we do.

Guest Editors – Jen Ehman and Steve Peiper

Greetings.  With Dan on a cruise traveling the River Seine this week, Steve and I have been left the task of distributing Coverage Pointers.  Either this “honor” was the result of great confidence in our abilities, or no one else volunteered. 

The last few weeks have been very busy for us.  The New York State Bar Association’s Advanced Insurance Coverage Program has just wrapped up in all locations.  Beth co-chaired a very enjoyable and informative program. 

As a good read this week, I report on a number of decisions from the New York trial courts.  Of particular interest is a decision from Supreme Court, Nassau County, Bennett v State Farm Fire & Cas. Co.  The decision analyzes the obligations of a homeowners’ insurer for remediation following a heating oil leak.  The court does a very nice job of discussing the difference between first-party coverage and third-party coverage. 

Lastly, in the past, the editorial board of this publication has felt that it is simply not right to leave out greetings from our columnists while they are out on vacation.  So, once again the board (minus Dan) has collected and considered previous submissions, fed them into the CP computer, and generated a substitute greeting for him: 

            Dear Subscribers:

            Traveling somewhere. 

            Spoke at a great event.  Will soon be speaking at another great event.
           
            I heart insurance law.  Random fact.

            Love & Kisses,

            Dan
            Dan D. Kohane
[email protected]

 

Jen
Jennifer A. Ehman
[email protected]

 

Peiper’s Post:

We start off this week with a reassurance.   To steal line from Kenny Rogers (or The Dude), fear not for Dan has repeatedly “dropped in to see what kind of “situation” his “situations” were in.”     

Jen’s note was spot on.  We’ve been left with the terrifying responsibility of getting Coverage Pointers out on time.  Really, Jen has done all of the heavy lifting on this so all of the criticism should be directed to her.  Any praise, however, will gladly be accepted by yours truly.  We’re proud of our offering this week, which by all accounts is a banner issue.  We just hope you actually get it.

As for my column, take a moment to look at the Dryden Mutual case we review below.  It would appear to this commentator that the loss fell squarely within an exclusion in the policy.  Indeed, the policy excluded coverage for damage arising out of water that “backed up through drains and sewers.”  However, the Court found that a relatively straight forward exclusion was ambiguous, principally, because another exclusion appeared as though it would not apply to the loss.  In other words, because one exclusion appears to not apply, and one exclusion appeared to apply, the Court found an ambiguity and announced a new rule to bring both back into harmony. 

We are perplexed by this ruling.  This is particularly so given the Third Department’s previous rulings which rejected the notion that one exclusion could give rise to an ambiguity in a separate exclusion. 

While we recognize that exclusion (a) seems to be contradicted by exclusions (n) and (2)(d)(iii), this apparent contradiction is negated by the application of the principle that policy exclusions are to be read seriatim and, if any one exclusion applies, there is no coverage since no one exclusion can be regarded as inconsistent with another
(Hartford Acc. & Indemn. Co. v A.P. Reale & Sons, Inc., 228 AD2d 935, 644 NYS2d 935 [3d Dept., 1996] citing Zandri Constr. Inc. v  Firemans Ins. Co. of Newark, 81 AD2d 106, 440 NYS2d 353 [3d Dept., 1981]).

While the Dryden Mutual ruling impacts an exclusion that is generally not found in homeowners’ policies, the reasoning behind the decision gives us pause.

On the training front, we again remind you of our involvement in the Catastrophe Toolbox.  As you know, we participated in this event last year in Connecticut.  This year, we move the Chicagoland area.  If you’re anywhere nearby, we can’t encourage you enough to check it out.  I have the great fortune of speaking at multiple engagements each year, and you will not find a more knowledgeable panel on first party insurance ANYWHERE. 

Check out the flyer immediately following this write up.  If you’re at all interested, please do not hesitate to give anyone of us a call.  We’d love to see you there, but act fast as space is limited. 

Steve
Steven E. Peiper
[email protected]

P.S.  Thank a vet this weekend.  More importantly, if you know someone who lost someone in combat, make certain you thank them for their sacrifice. 

 

Insurance 101 Series:

Back by popular demand, the DRI Insurance Law Committee is proud to present an encore performance of its “Insurance 101” webcast series which will provide an excellent opportunity for claims professionals, attorneys, law clerks, and the like to be introduced to the most significant, core concepts of our practice.  The program will also be a terrific refresher for more experienced claims professionals and seasoned attorneys who want to know more about insurance coverage law.  Each webcast will be presented by the insurance industry’s top professionals in 90 minute segments as follows:

        “The Duty to Defend” will be presented on July 9th (1:00 – 2:30 p.m. CDT) by Chuck Browning of Plunkett Cooney and Brenda Wallrichs of Lederer Weston Craig PLC.  This webcast will cover core issues relating to the “duty to defend” including when it is triggered, reservations of rights, and independent counsel.    

        “What You Always Wanted to Know About Policies” will be presented on July 16th (1:00 – 2:30 p.m. CDT) by Shaun Baldwin of Tressler LLP and Dan Kohane of Hurwitz & Fine, P.C.   This Webcast will overview the different types of policies available in the marketplace, common policy provisions, and rules of interpretation and construction.  

        “Coverage and Bad Faith Litigation” will be presented on August 23rd (1:00 – 2:30 p.m. CDT) by Mike Marick of Meckler Bulger Tilson Marick & Pearson LLP and Kevin Willging, Senior Counsel and Second Vice President of Travelers.  This webcast will overview litigation of coverage and bad faith lawsuits and will address claims typically asserted, common motion practice, and strategic considerations.    

The per-site cost for the individual segments is $150 for DRI members and $180 for non-DRI members.  Or you can purchase the entire webcast series for $300 for DRI members and $360 for non-DRI members.   Please register online at http://dri.org/Events/Webcasts!

Fitz’ Bitz:

Dear Subscribers:

It was nice to see many of you at the New York State Bar Association’s Advanced Insurance Coverage Program in both Albany and on Long Island.  It is always great to spend a day with such fabulous coverage minds and having spent the entire day on Long Island, I can say that the audience who was a very sophisticated group, made the program even more enjoyable.  Thanks to all who participated and attended.

As you know, we are always willing to provide training programs for your staff at your offices.  I have the opportunity to do such training on a regular basis and always enjoy doing so!

Today, I bring you yet another case involving coverage for a construction defect claim.  Not surprisingly, the First Department in National Union Fire Insurance Company of Pittsburgh, P.A. v. Turner Construction Co., found that the claims, under New Jersey law, did not constitute an “occurrence” within the meaning of the policy.  The court did, however, reverse to the extent that it vacated the trial court’s direction that Turner was obligated to reimburse National Union for defense costs incurred in connection with the defense of the action.  While noting that New Jersey law permits reimbursement of costs incurred in defending claims that are later determined not to be covered, the court looked to specific policy language in which the carrier agreed not to take action or recourse against any insured for loss paid or expenses incurred because of any claims made against the policy. I also discuss a case involving coverage sought under the Personal and Advertising Injury section of Urban Outfitter’s policy, where the court found no coverage available and another where the court found Century’s policy exclusion precluded coverage for claims involving carbon monoxide poisoning.

Have a wonderful Memorial Day weekend!

Til next time,

Beth
Elizabeth A. Fitzpatrick
[email protected]

 

May 23, 1914:                       The Komagata Maru Incident:

The Komagata Maru incident involved a Japanese steamship, the Komagata Maru, that sailed from Hong Kong, Shanghai, China to Yokohama, Japan and then to Vancouver, British Columbia, Canada, arriving in Vancouver 100 years ago today, carrying 376 passengers from Punjab, India. Of them 24 were admitted to Canada, but the 352 other passengers were not allowed to land in Canada, and the ship was forced to return to India. The passengers consisted of 340 Sikhs, 24 Muslims, and 12 Hindus, all British subjects. This was one of several incidents in the history of early 20th century involving exclusion laws in both Canada and the United States designed to keep out immigrants of only Asian origin.

One Hundred Years Ago – Will She Die in the Chair?

Dunkirk Evening Observer
Dunkirk, New York
May 23, 1914

NO DEATH HOUSE READY
FOR WOMEN AT SING SING

New York, May 23.—Warden Claney of Sing Sing today requested that Mrs. Madeline Feroia, convicted of first degree murder, be kept there until he has fitted up a special death house for the woman.  Mrs. Feroia killed a young man who obtained a license to marry her and then backed out.  The death sentence will shortly be pronounced.  She will be the first woman sentenced to the chair from this city since 1898.

Editor’s Note: Ms. Fergola lived longer than expected.  While her conviction was affirmed by the Court of Appeals in June 1915 (People v. Fergola, 215 NY 285), Governor Whitman commuted her sentence to life in prison in July (she was scheduled for execution in early August) and Governor Franklin Roosevelt granted her clemency and freed her from prison in 1925, after she served 14 years.

Audrey’s Angle:

Initially, I wanted to say what a great job Steve and Jen did in getting this edition together and permitting our leader to hopefully enjoy what may be the first real vacation I have seen him take since I started at Hurwitz & Fine, P.C.  Viva la France!

Also, for those who handle or are interested in learning about Coverage B, an area I personally find fascinating, please know that the DRI Insurance Law Committee has just published and offered for sale a 50 state compendium on Coverage B in CD ROM and print format.  This is a fantastic publication for your legal library and I would encourage you to consider purchasing it.  You can purchase a copy by going to www.dri.org and then clicking on the “store” tab.

I hope that you have a safe and enjoyable Memorial Day weekend! 

Audrey
Audrey A. Seeley
[email protected]

A Century Ago:  Workers Comp for Sale:

Times Herald
Olean, New York
May 23, 1914

Workmen’s Compensation

Almost everyone must have Workmen’s Compensation Insurance on July 1st.  The State says so.

Do you understand it, or would you like some part of it explained?  We have made a careful study of this line and can give you detailed information.

Call, write or ’phone and we will be glad to talk with you.

F.V.R. Stillman & Co.

F.V.R. Stillman         Bryon J. Both            Ray M. Whitcomb
Bell ’Phone 226-J    109 North Street

 

One Hundred Years Ago:  Baseball on Sunday? 

 

Fairbanks Daily Times
Fairbanks, Alaska
May 23, 1914
SUNDAY BASEBALL GOES AT CAPITAL

Supreme Court of District of
Columbia Sees No Harm in Game

WASHINGTON, D.C., May 22.—The Supreme court of the District of Columbia has handed down a decision in which the opinion is rendered that Sunday baseball may be permitted under the statutes.  The decision comes with great relief to the local fans, who feared that the attempt of the capital churches to prevent Sunday playing would be successful. 

 

Hunter’s Hints:

A lot can happen in two weeks, as evidenced by the number of serious injury threshold cases we explore in this issue.  Opening day of the Hurwitz & Fine softball season was unfortunately rained out last week, but today the office is abuzz with anticipation for the first underhand pitch of the season to be lobbed (weather permitting) this evening.  Expectations for the team are high this year.  I'll keep our dear readers posted as the season moves forward.

As always, please contact me with any and all New York State serious injury threshold questions.  I look forward to hearing from you.

Dan
Daniel T. Hunter
[email protected]

 

A Century Ago:  Debt Collector Never Forgets:

The Iola Register
Iola, Kansas
May 13, 1914

COLLECT BILL AFTER 10 YEARS.

Debtor Changed States So Statute of
Limitations Failed.

In district court today Judge Foust handed down a decision in the ancient suit of Loftis Brothers of Chicago against J. B. Smith in which a balance of $32 was claimed on a diamond ring sold to Smith in 1904.  Mr. Smith at the time lived in Missouri and paid $8 on the $40 ring.  He claims that he moved to Kansas in 1905 and paid the balance to some lawyer but lost the receipt and forgot the name of the lawyer.  Had he remained in Missouri and retained the ring and avoided execution of the statute of limitation would have run, but he moved to Kansas and so the debt remained valid.  The court rendered a verdict in favor of the plaintiff for the $32 and $26 interest, a total of $58.

 

Lawyer Charged, A Century Ago:

LARKINS CASE CONTINUED.

Burgaw Lawyer Will be Tried Tuesday
on Charge of Fraud.

The trial of E. L. Larkins, Esq., of Burgaw, charged with fraud by passing a bogus check, was continued yesterday afternoon by Justice Harriss until Tuesday.  He was required to give bond in the sum of $50 for his appearance. The case was to have been tried yesterday morning, but Mr. Larkins stated that he missed his train and was unable to be present.  It was continued until 6:30 o’clock yesterday afternoon.  He came in on the afternoon train from Burgaw. 

The warrant against the Burgaw lawyer was sworn out before Justice Fowler by Mr. Tom Shepard, one of the proprietors of the Everglade Café, and was made returnable before Justice Harriss.  It is alleged that Mr. Larkins passed a bogus check for a small amount. 

 

In This Week’s Headlines:

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

• While Filing a Proceeding Against MVAIC May Stay Personal Injury Action, the Stay Would Expire when the MVAIC Action is Over
• Battle Over Employee vs. Independent Contract Fought By Two Carriers
• A Finding of No Serious Injury in a Personal Injury Action Collaterally Estops the Plaintiff from Relitigating that Question in a SUM Proceeding
• Owner is Additional Insured Under Construction Manager’s Policy; “Encroachment” Constitutes Property Damage

 

HUNTER’S HINTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Daniel T. Hunter
[email protected]

• New Evidence of a Fracture Deemed Inadmissible
• Upon Further Review, Plaintiff Failed to Raise Triable Issue of Fact, Resulting in Reversal of Lower Court
• Denial of Defendants' Motion Upheld
• Denial of Defendants' Motion Upheld
• Lower Court Order Affirmed as Plaintiff Failed to Raise Triable Issue of Fact Regarding Serious Injury
• Misapplication of "Law of the Case Doctrine" Forces Reversal of Lower Court
• Upon Renewal Motion, Plaintiff Failed to Raise a Triable Issue of Fact
• Order Reversed as Defendants Did not Sustain the Prima Facie Burden
• Lower Court's Order Dismissing Plaintiff's Complaint Reversed
• Plaintiff's Orthopedic Surgeon Provides no Objective Basis for Causation Resulting in Lower Court's Order Being Unanimously Affirmed
• Issue of Fact Raised as to Potential Injury to Plaintiff's Lumbar Spine
• Plaintiff's Orthopedic Surgeon's Report Helps Oppose Defendants' Motion
• Lower Court Order Granting Defendants' Motion for Summary Judgment Affirmed

 

MARGO’S MUSINGS ON NO-FAULT
Margo M. Lagueras
[email protected]

Arbitration:

• Respondent’s Refusal to Submit Copy of Peer Review Upon Proper Demand May Result in Preclusion
• IME Unpersuasive Where Performed Far Earlier Than Treatment in Dispute
• Arbitrator Finds Treating Doctor’s Conduct “Nothing Short of Egregious”

 

Litigation:

• Respondent Clearly Has Right to Investigate Whether Applicant Is Fraudulently Licensed

 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]

• Fabricated Insured, Fabricated Death, Fabricated Claim,

Result in Very Real Rescission

• Failure to Reference Previous Heart Condition Results in Rescission of Policy
• Possible Inconsistencies Among Exclusions Results in Ambiguity in Policy

Thousands Confused!!!

• Late Notice = No Coverage

 

BETH’S BANTER ON COVERAGE B AND FITZ’ BITS
ELIZABETH A. FITZPATRICK
[email protected]

• Faulty Workmanship Not an Occurrence
• No Coverage for Carbon Monoxide Claim
• Illegally Collecting Zip Codes Not Publication

 

AUDREY’S ANGLES ON THE NATIONALLY NOTEWORTHY
Audrey A. Seeley
[email protected]

• Insurer Not Permitted To Rely Upon Rider That Would Afford Less Than The Statutory Minimum Insurance Coverage Required For Ambulance Services. 

 

CASSIE’S CAPITAL CONNECTION
Cassandra A. Kazukenus
[email protected]

• A1475-A Discounts For Homeowners’ Insurance
• A00828 – Waiver of State’s Immunity

 

 

FIJAL’S FEDERAL FOCUS
Katherine A. Fijal
[email protected]

• AI Coverage Could Extend to Claims against AI by Named Insured

 

KEEPING THE FAITH WITH JEN’S GEMS
Jennifer A. Ehman
[email protected] 

• Criminal Acts Exclusion Precludes Coverage for Claims by Clients of Pharmaceutical Development Company Where Insured’s Employee was
• Framed Issue Hearing Ordered On Question of Residency
• Home Insurer’s Obligations Under the Liability Portion of the Policy Limited by DEC Directives following Oil Spill

 

Bad Faith

• Under Florida Law, No Bad Faith Claim when Insured is Not Exposed to Liability Above its Limits

 

EARL’S PEARLS
Earl K. Cantwell
[email protected]

• Policy Did Not Cover “Bad Acts” By Independent Contractor

 

 

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
Audrey A. Seeley
[email protected]

ASSISTANT EDITOR
Jennifer A. Ehman
[email protected]

INSURANCE COVERAGE TEAM
Dan D. Kohane, Team Leader
[email protected]

Michael F. Perley
Elizabeth A. Fitzpatrick
Katherine A. Fijal
Audrey A. Seeley
Steven E. Peiper
Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman
Diane F. Bosse
Joel R. Appelbaum

FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]

Elizabeth A. Fitzpatrick
Cassandra Kazukenus

NO-FAULT/UM/SUM TEAM
Audrey A. Seeley, Team Leader
[email protected]

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

 

APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
 Elizabeth A. Fitzpatrick
Diane F. Bosse

Index to Special Columns

Kohane’s Coverage Corner
Liening Tower of Perley
Hunter’s Hints on Serious Injury
Margo’s Musings on No Fault
Peiper on Property and Potpourri
Beth’s Banter on Coverage B and Fitz’ Bits
Audrey’s Angles on the Nationally Noteworthy
Cassie’s Capital Connection
Fijal’s Federal Focus
Keeping the Faith with Jen’s Gems
Earl’s Pearls

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

05/14/14       Alvarez v. Wright
Appellate Division, Second Department
While Filing a Proceeding Against MVAIC May Stay Personal Injury Action, the Stay Would Expire when the MVAIC Action is Over
On June 28, 1999, Rosendo Alvarez, on a bicycle, was hurt in a collision with the Wright car.  The three year statute of limitations was to expire on June 28, 2002.

However, on May 30, 2002, the plaintiff commenced a special proceeding pursuant to Insurance Law § 5218 for leave to commence an action against the Motor Vehicle Accident Indemnification Corporation (“MVAIC”) by filing a notice of petition and petition, paying a filing fee, securing an index number, and subsequently serving copies of the notice of petition and petition upon MVAIC and the defendants. In an order entered March 9, 2005, the Supreme Court granted the petition, upon finding that the defendants' vehicle was not insured by the insurance carrier that they had identified to police investigating the accident. On May 16, 2008, the plaintiff filed a summons and complaint alleging negligence against Wright under the index number assigned to the special proceeding that he had commenced against MVAIC.

That action is time-barred. Even if Alvarez was entitled to a toll of the three-year limitations period from the commencement of the special proceeding against MVAIC on May 30, 2002, to the termination of that proceeding on March 9, 2005, the limitations period applicable to his causes of action against the defendants would have expired on April 7, 2005. 

05/09/14       Dryden Mutual Insurance Co. v. Goessl
Appellate Division, Fourth Department
Battle Over Employee vs. Independent Contractor Fought By Two Carriers
Plaintiff, Dryden Mutual commenced this action seeking a declaration that it is not obligated to defend or indemnify defendant Goessl in the underlying tort action under a Commercial General Liability Policy issued to Goessl, who was doing business as S & K Plumbing.  Goessl was engaged in plumbing work there and a fire started.

Plaintiff disclaimed coverage on the grounds that, inter alia, Goessl was an employee of defendant AP Daino and was acting within the scope of his employment at the time of the fire.  AP Daino was insured by defendant The Main Street America Group (MSA) under a "contractors policy" (MSA policy). MSA disclaimed coverage on the ground that Goessl was not an employee of AP Daino at the time of the fire and therefore was not an "insured" within the meaning of the MSA policy.

After a bench trial, Supreme Court issued a judgment declaring that Dryden had no duty to defend or indemnify Goessl in the underlying action and that MSA had a duty to "defend and potentially indemnify" Goessl in that action. The Fourth Department disagreed.

The Dryden policy states that, "if the named insured is an individual, both the individual and his/her spouse are insureds but only with respect to the conduct of a business of which he/she is the sole proprietor." "Business" is broadly defined in the Dryden policy as "a trade, profession, or other occupation, including farming, all whether full or part time." The record in this case establishes that Goessl was the sole proprietor of S & K Plumbing and that, at the time of the fire, he was engaged in the conduct of his "trade, profession, or other occupation" as a plumbing subcontractor for AP Daino. Because the injury in the underlying action allegedly arose out of the conduct of Goessl's plumbing business, plaintiff is obligated to defend and indemnify him in the underlying.

With regard to the MSA policy, that policy provides that AP Daino's "employees" are insureds for acts committed "within the scope of their employment by [AP Daino] or while performing duties related to the conduct of [its] business." The term "employee" is not defined in the MSA policy, and should therefore be given its plain or ordinary meaning. Here, the record establishes that AP Daino and Goessl intentionally structured their business relationship as a long-term subcontracting arrangement rather than an employment relationship.

 

The court distinguished between an employee and an independent contractor.

AP Daino did not provide Goessl with health insurance or other employee benefits, and did not withhold taxes or pay social security or unemployment taxes on his behalf. Goessl determined his own hourly rate, submitted invoices to AP Daino on behalf of S & K Plumbing, and received a Form 1099-MISC, for miscellaneous income, as opposed to a W-2 wage statement.  Goessl obtained his own liability coverage, which is further evidence that neither party considered Goessl to be an "employee" under the MSA policy.

A strong dissent would have held otherwise.

05/08/14       Clark v. Farmers New Century Insurance Co.
Appellate Division, Third Department
A Finding of No Serious Injury in a Personal Injury Action Collaterally Estops the Plaintiff from Relitigating that Question in a SUM Proceeding
Clark’s car was struck from behind by Basco’s and Clark allegedly suffered head injuries, vision loss and cognitive defects.  She sued Basco and Basco successfully moved for summary judgment determining that Clark did not suffer a serious injury.

Clark appealed and while the appeal was pending, Clark submitted a claim for Supplementary Uninsured/Underinsured Motorist Benefits (SUM) under a Farmers policy.  Farmers refused to pay and Clark sued Farmers.  In the meanwhile, the Third Department affirmed the dismissal of the personal injury lawsuit.

Farmers then moved to dismiss the SUM claim on the ground that the plaintiff was collaterally estopped from relitigating the question of serious injury since a court had already made that determination in the personal injury action and a serious injury must be established to proceed with a SUM claim.   The Third Department agreed with Farmers. 

The court did note that the plaintiff could have recovered economic loss in excess of Basic Economic Loss even without a serious injury but there was no proof of such loss established.

05/08/14       Madison 96th Associates, LLC v. 17 East Owners Corp.
Appellate Division, First Department
Owner is Additional Insured Under Construction Manager’s Policy; “Encroachment” Constitutes Property Damage
The motion court correctly found that Madison was an additional insured under the insurance policy issued by insurer QBE to Marson Contracting Co., Inc. The policy accepted as an additional insured any entity that Marson was required to insure by written contract, but “only with respect to liability arising out of” Marson’s work. The Construction Management Agreement between Madison and Marson, Madison’s construction manager, specifically requires that Madison be named as an additional insured. Moreover, the injuries allegedly sustained by 17 East arose out of Marson's work.

Madison’s alleged encroachment onto 17 East’s property constitutes” property damage” caused by an “occurrence” or “accident” within the meaning of the policy.

The court properly rejected QBE’s late notice defense. QBE’s initial disclaimer, dated February 2006, failed to raise the issue of late notice; accordingly, QBE waived that defense.
Editor’s Note: Interesting holding that “encroachment” is “property damage”.

 

HUNTER’S HINTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Daniel T. Hunter
[email protected]

05/13/14       Crush Boone v. Elizabeth Taxi, Inc.
Appellate Division, First Department
New Evidence of a Fracture Deemed Inadmissible
Plaintiff, a bicyclist, claims to have suffered injuries to his neck and wrists as a result of a collision with Defendants' taxi.  In their motion for summary judgment to dismiss for lack of serious injury, Defendants submitted an affirmed expert medical report finding full range of motion in Plaintiff's cervical spine and wrists, as well as a radiologist's report claiming Plaintiff's injuries were chronic, degenerative and not causally related to the subject matter accident.

In opposition to Defendants' motion, Plaintiff, for the first time, raised a new serious injury claim under Insurance Law §5102(d), claiming to have suffered a fracture in his left wrist.  In support, Plaintiff submitted a radiologist's report who reviewed the post-accident left wrist MRI and claimed the test showed a non-displaced fracture of the scaphoid.  However, since Plaintiff did not plead a fracture injury in his bill of particulars, consideration of the new claim is inappropriate, especially since no evidence exists from any of Plaintiff's treating physicians ever showing a diagnosis left wrist fracture.  Further, the new claim contradicts the allegations in both Plaintiff's deposition testimony and bill of particulars.  As such, the lower court's finding granting Defendants summary judgment was unanimously affirmed.

05/14/14       Cotto v. Scott
Appellate Division, Second Department
Upon Further Review, Plaintiff Failed to Raise Triable Issue of Fact, Resulting in Reversal of Lower Court
Defendants' motion to dismiss Plaintiff's cause of action for failing to meet the serious injury threshold was denied by the trial court.  The Appellate Division, Second Department found that Defendants put forth competent medical evidence establishing that Plaintiff's alleged injuries to his cervical spine and left hand and wrist did not constitute serious injuries under either the permanent consequential limitation of use or the significant limitation of use categories of Insurance Law §5102(d).  Further, the Appellate Division found that competent medical evidence was submitted demonstrating these injuries were not caused by the subject matter motor vehicle accident.  Since Plaintiff failed to raise a triable issue of fact in opposition, the Appellate Division reversed the lower court and granted Defendants' motion for summary judgment dismissing Plaintiff's complaint.

05/14/14          Felix v. Duane & Himmelburger v. Duchris
Appellate Division, Second Department
In Nearly Identical Opinions, Second Department Upholds Denial of Defendants' Motion
In both matters, Defendants moved for summary judgment on the basis that Plaintiff did not sustain a serious injury within the meaning of Insurance Law §5102(d).  Both sets of Defendants met their prima facie burden of showing that their respective Plaintiffs did not sustain a serious injury by submitting competent medical evidence demonstrating the alleged injuries to Plaintiff's spine did not constitute serious injuries under with the permanent consequential limitation of use or the significant limitation of use categories.  However, in both cases, Plaintiffs’ oppositions raised triable issues of fact as to whether they sustained a serious injury.  As such, the Appellate Division found the lower court properly denied Defendants' motion.

05/14/14       Hoque v. Achiron
Appellate Division, Second Department
Lower Court Order Affirmed as Plaintiff Failed to Raise Triable Issue of Fact Regarding Serious Injury
Defendants' motion for summary judgment dismissing Plaintiff's complaint on the ground that Plaintiff did not sustain a serious injury within the meaning of Insurance Law §5102(d) was affirmed by the Second Department since Plaintiff submitted competent medical evidence establishing the alleged injuries to the cervical and lumbar regions of Plaintiff's spine, to both his knees, and to his right shoulder did not constitute serious injuries under either the permanent consequential limitation of use or the significant limitation of use categories of serious injury.  Further evidence was submitted establishing that Plaintiff did not sustain a serious injury under the 90/180 day category as well.  Since Plaintiff failed to raise a triable issue of fact in opposition, the Second Department found the lower court's order to be properly granted.

05/14/14       Mamani v. Kiesling
Appellate Division, Second Department
Misapplication of "Law of the Case Doctrine" Forces Reversal of Lower Court
Defendants' motion for summary judgment to dismiss Plaintiff's complaint was granted by the lower court based on the "Law of the Case Doctrine".  The lower court relied on a prior order which granted former Co-Defendants in the lawsuit summary judgment against Plaintiff.  However, this earlier order was granted based up Plaintiff's default in opposing the summary judgment motion, and therefore, the issue of whether or not Plaintiff sustained a serious injury as a result of the subject matter incident had not been resolved on the merits.  Since the prior issue was not resolved on the merits, the Law of the Case Doctrine does not apply and the court should not have been bound by the prior determination.  Further, the court found Defendants failed to sustain their prima facie burden establishing that Plaintiff did not sustain a serious injury.

05/14/14       Marshall v. Marshall
Appellate Division, Second Department
Upon Renewal Motion, Plaintiff Failed to Raise a Triable Issue of Fact
Defendants met their initial burden that Plaintiff did not sustain a serious injury within any of the categories of Insurance Law §5102(d) by submitting  competent medical evidence establishing Plaintiff's alleged brain injury cannot be considered a "serious injury".  Upon renewal of the motion, Plaintiff failed to raise a triable issue of fact in opposition.  As such, Defendants' motion for summary judgment was granted.

05/14/14       Singh v. Singh
Appellate Division, Second Department
Order Reversed as Defendants Did not Sustain the Prima Facie Burden
The Second Department notes that papers submitted by Defendants in support of their motion for summary judgment to dismiss Plaintiff's complaint on the ground that Plaintiff did not sustain a serious injury failed to adequately address Plaintiff's claim, as set forth in the bill of particulars, regarding the 90/180 day category of Insurance Law §5102(d).  Since Defendants did not sustain their initial burden, the Appellate Court notes it is unnecessary to determine whether the papers submitted by Plaintiff in opposition were sufficient to raise a triable issue of fact.

05/14/14       Wysocka v. Neglia
Appellate Division, Second Department
Lower Court's Order Dismissing Plaintiff's Complaint Reversed
Defendants, moving separately but relying on the same evidence and arguments, met their prima facie burden showing that Plaintiff did not sustain a serious injury within the meaning of Insurance Law §5102(d) by submitting competent medical evidence establishing that the alleged injuries to Plaintiff's spine do not constitute serious injuries under either the permanent consequential limitation of use of significant limitation of use categories.  In opposition, however, Plaintiff raised triable issues of fact as to whether she sustained serious injuries to the cervical and lumbar regions of her spine, and as to whether these alleged injuries were caused by the accident.  As such, the Second Department reverses, denying Defendants' motion for summary judgment.

05/20/14       Farmer v. Ventkate, Inc.
Appellate Division, First Department
Plaintiff's Orthopedic Surgeon Provides no Objective Basis for Causation Resulting in Lower Court's Order Being Unanimously Affirmed
Defendants moved for summary judgment on the basis that Plaintiff did not sustain a serious injury, and submitted an affirmed report of an orthopedist who concluded Plaintiff demonstrated per-existing osteoarthritis, and the report of a radiologist who opined that post-accident x-rays showed severe osteoarthritis and no evidence of traumatic injury.

In opposition, Plaintiff failed to raise and issue of fact as to the causation or aggravation of a pre-existing arthritic condition in his knee.  Plaintiff's own orthopedic surgeon concurred that the x-rays showed advanced degenerative changes, including complete loss of joint space, and had even diagnosed Plaintiff with osteoarthritis in his knee prior to the surgery.  Further, other than the history provided by Plaintiff, Plaintiff's orthopedic surgeon had no objective basis or reason to support his belief that the motor vehicle accident "likely" exacerbated Plaintiff's pre-existing conditions.  As such, the First Department unanimously affirmed the lower court's order dismissing Plaintiff's complaint.

05/20/14       Pantajas v. Lajara Auto Corp.
Appellate Division, First Department
Issue of Fact Raised as to Potential Injury to Plaintiff's Lumbar Spine
Plaintiff alleged serious injuries to his left knee, cervical spine and lumbar spine as a result of a motor vehicle accident.  Defendants moved for summary judgment on the basis that Plaintiff did not sustain a serious injury, and established their initial burden by demonstrating Plaintiff did not sustain a significant or permanent consequential limitation of any of the claimed body parts by submitting the affirmed report of an orthopedist finding normal ranges of motion in all areas.

In opposition, Plaintiff submitted a chiropractor's report which was not authorized, however, this report may be considered to the extent it does not constitute the sole basis for Plaintiff's opposition to the motion.  Further, the conclusions of Plaintiff's experts insofar that they relied upon unaffirmed MRI reports showing injuries may be considered, given that Defendants' own expert incorporation and relied on those unaffirmed MRI reports in rendering his own opinion.  Since limitations were properly noted in qualitative and quantitative terms regarding Plaintiff's lumbar spine, a material issue of fact exists.  As such, the lower court's ruling was unanimously reversed.

05/20/14       Vargas v. Moses Taxi, Inc.
Appellate Division, First Department
Plaintiff's Orthopedic Surgeon's Report Helps Oppose Defendants' Motion
Defendants moved for summary judgment on the basis that Plaintiff failed to sustain a serious injury.  In opposition to Defendants' motion, Plaintiff raised an issue of fact by submitting her treating orthopedic's affirmation affirming that while performing orthopedic surgery, he observed and repaired tears to the medial and lateral meniscus that, in his opinion, were directly caused by the motor vehicle accident

05/21/14       Persaud v. Palmer
Appellate Division, Second Department
Lower Court Order Granting Defendants' Motion for Summary Judgment Affirmed
Defendant met his prima facie burden of showing that Plaintiff did not sustain a serious injury to the cervical and lumbar region of his spine and to his left shoulder as to the permanent consequential limitation of use or significant limitation category; and the 90/180 day category.  In opposition, Plaintiff failed to raise any triable issues of fact.  As such, the lower court's order dismissing Plaintiff's complaint was affirmed.

 

MARGO’S MUSINGS ON NO-FAULT
Margo M. Lagueras
[email protected]

Arbitration:

05/16/14       Amherst Medical Supply, LLC v Geico Insurance Co.
Erie County, Arbitrator Douglas S. Coppola
Respondent’s Refusal to Submit Copy of Peer Review Upon Proper Demand May Result in Preclusion
Approximately a month after the motor vehicle accident, the treating chiropractor prescribed an LSO lumbar brace and interferential stimulator.  Respondent arranged for a peer review as to medical necessity and thereafter denied the claim.  The Arbitrator found the peer review to be unpersuasive, in part because the peer review doctor made no reference to the actual physical findings contained in the records he supposedly reviewed, and in part because the peer authority he cited was nine to fourteen years old, while the authority relied upon by Applicant was more recent.  In addition, the Arbitrator noted what he referred to as the “disturbing pattern” of frequency with which the Respondent appeared to be ignoring proper demands for a copy of the peer review or IME reports.  Such refusal violates both the no-fault fair practices guidelines and specific regulations and carriers should be aware that they may be precluded from relying on those reports as a result. 
Note:  Fortunately, many, if not most, carriers observe the better practice of routinely including a copy of the peer review or IME report upon which a denial is based with the denial at the time of mailing.

05/16/14       Zair Fishkin MD and Michael A. Pell, MD, PC v Geico Ins. Co.
ERie County, Arbitrator Kent L. Benziger
IME Unpersuasive Where Performed Far Earlier Than Treatment in Dispute
In May 2012, the EIP, a 76-year-old female, was injured in a motor vehicle accident.  She complained of neck, back and right shoulder pain and had various imaging studies performed which revealed numerous conditions including herniations, spondylosis, and stenosis, as well as degenerative and osteoarthritic changes.  Following conservative care, in June 2013, Dr. Fishkin performed a C4-5 and C5-6 anterior discectomy, partial corpectomy for decompression, and interbody fusion with PEEK composite bone cage with instrumentation.  However, in October 2012, Respondent had issued a general denial based on an IME performed in September 2012 in which the examining orthopedist found that the EIP’s decreased range of motion was due to her underlying degenerative changes, that she had reached an end point with regard to orthopedics, and that there was no need for physical therapy, testing or surgery. 

The Arbitrator found the IME unpersuasive as the examining orthopedist failed to discuss the positive findings seen in the diagnostic studies or how the herniated discs, which Dr. Fishkin causally related to the accident, aggravated the pre-existing degenerative conditions.  Nor did the examining doctor discuss the possibility of surgery.  The Arbitrator noted that an IME may not be as effective as a peer review when that IME is performed far earlier in time than the treatment in dispute as a patient’s condition may later become aggravated and additional positive findings may be found.  Where, as here, the IME was performed long before the surgery, and no peer review was conducted to review the subsequent treatment, the IME was found to be insufficient to sustain the denial of the surgery.

05/14/14       Bukaty Family Chiropractic v Kemper Independence Ins. Co.
Erie County, Arbitrator Michelle Murphy-Louden
Arbitrator Finds Treating Doctor’s Conduct “Nothing Short of Egregious”
The 68-year-old EIP was involved in a December 2012 accident in which she broke the small finger of the left hand, and injured her back, neck, and left shoulder.  Nine days later she commenced chiropractic treatment with Applicant.  During the subsequent months, she showed progressive improvement and her pain decreased to 1/10.  She never reported any radiating pain, tingling, numbness or weakness in the upper extremities.  Nevertheless, four months later Dr. Bukaty recommended a bilateral upper extremity EMG/NCV study, noting under “Patient Complaints” that the EIP reported cervical pain of 5/10 radiating into the left shoulder and down into the left hand.  Dr. Bukaty stated that the study was being performed to rule out a cervical radiculopathy versus a peripheral neuropathy.  Dr. Bukay referred the EIP to her own facility for the testing which ultimately revealed no evidence of cervical radiculopathy.

Based upon a peer review performed by Dr. Gaiser, Respondent denied the claim.  In his report, Dr. Gaiser notes that there was no documentation of any findings in any exam or SOAP notes that would justify the need for the electrodiagnostic testing.  In support of its claim, Applicant submitted a letter from the EIP to Dr. Bukaty, the EIP’s personal injury attorneys and Respondent stating that during the initial consultation she told Dr. Bukaty that the pain in her left shoulder was coming from the broken hand and Dr. Bukaty recommended testing to rule out nerve damage in the left hand.  Based on the EIP’s letter, the Arbitrator found that Dr. Bukaty’s Certificate of Medical Necessity was completely lacking in credibility and, in fact, “smacks of having been intentionally falsified in an attempt to justify the study.”  Significantly, the EIP never once complained of radiating pain and Dr. Bukaty’s own SOAP notes make clear that the allegations in the Certificate were false and made “in order to protect herself and obtain payment for electrodiagnostic testing that was not justified under chiropractic parameters. . .”  The Arbitrator found Dr. Bukaty’s conduct to be nothing short of egregious.

Litigation:

05/15/14       Uptown Healthcare Mgt. Inc. v Allstate Insurance Co.
Appellate Division, First Department
Respondent Clearly Has Right to Investigate Whether Applicant Is Fraudulently Licensed
The trial court granted Allstate’s pre-answer motion to dismiss and denied plaintiffs’ cross motion for summary judgment.  On appeal, the court affirmed noting that where an amended pleading is submitted in response to a pre-answer motion to dismiss, that amended pleading should be included in the motion record and the motion should be denied or granted based on the sufficiency of the amended pleading.  Here, neither the original complaint nor the amended one stated a cause of action as, contrary to plaintiffs’ assertions, Allstate clearly had a right to investigate whether plaintiffs were fraudulently licensed under Article 28 of the Public Health Law and therefore ineligible to be reimbursed under No-Fault. 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]

First Party

05/21/14       Qurashi v.  Reliastar Life Insurance Company of New York
Appellate Division, Second Department
Fabricated Insured, Fabricated Death, Fabricated Claim, Result in Very Real Rescission
Plaintiff purchased a life insurance policy from defendant.  However, instead of himself, he used the fictitious identity of a made up person.  Thereafter, plaintiff prepared a false death certificate and submitted a claim to Reliastar.  When defendant denied the claim, plaintiff commenced the instant action.

Approximately four years later, plaintiff apparently plead guilty to the scheme.  As part of the plea colloquy, plaintiff acknowledged that he could not produce a valid death certificate.  Defendant then relied upon that statement to support its motion for denial of the claim.  The Second Department granted the application on the basis that plaintiff was unable to produce a valid death certificate, and thus, could not substantiate a death. 

05/20/14       Kerrigan v Metropolitan Life Ins. Co.
Appellate Division, First Department
Failure to Reference Previous Heart Condition Results in Rescission of Policy
Plaintiff’s decedent had a significant history of heart disease when he applied for a life insurance policy.  Despite his previous history, decedent affirmatively stated that he had never received treatment for coronary disease, high blood pressure or a heart disorder.  Where the underwriting guidelines clearly establish that the policy would not have been written had the application been accurate, rescission was appropriate. 

In opposition, the beneficiaries under the policy argued that a pre-application EKG requested by Met Life showed abnormalities.  As such, the beneficiaries argued that the EKG results placed Met Life on notice of decedent’s health maladies.  They argued that any decision to issue the policy after review of the EKG results therefore should have resulted in the carrier being estopped from rescinding the policy.

The court rejected plaintiff’s arguments for estoppel/waiver.  In particular, despite the results of the EKG which showed abnormalities, the Court ruled that Met Life was entitled to rely upon the information in the application submitted by decedent, as well as his personal interview where he denied a previous history.  In addition, the EKG, standing alone, could not be said to have been actual notice of a condition where it simply flagged “abnormalities” during the test.

05/15/14       Pichel v Dryden Mut. Ins. Co.
Appellate Division, Third Department
Possible Inconsistencies Among Exclusions Results in Ambiguity in Policy
Thousands Confused!!!
Plaintiff is the owner of an apartment complex that was insured under a policy issued by Dryden.  Several of the units at the complex sustained damage when water apparently backed up through toilets, bathtubs and drains in the units.  Upon noticing the damage, plaintiff immediately sought coverage under its policy.  Plaintiff’s Proof of Loss asserted that the damage was caused by the accidental discharge and/or overflow of a plumbing system; which, of course, was conveniently covered under the terms of the policy.  

Dryden denied the claim on the basis of the water exclusion which precluded coverage for, among other things, losses caused by water “which backs up through sewers and drains.”   Upon receipt of the denial, plaintiff proceeded with the instant action.  After both sides moved for summary judgment, the trial court granted plaintiff’s motion for summary judgment affirming coverage.  Dryden instituted the instant appeal. 

In addressing the claims, the Appellate Division first reviewed the water damage exclusion at issue.  Although the exclusion specifically excludes coverage for damage caused by water which “backs up through sewers and drains”, the Court found an ambiguity on its application.  The lack of clarity was found when comparing the “sewer back up” exclusion with another exclusion which removes coverage for repeated or continuous discharge from, among other things, a plumbing system.  However, the “plumbing system” exclusion contains a caveat that provides coverage for water discharge that was accidental in nature.  Reading the two exclusions together, the trial court ruled that the sewer back up applies to water which originates off of the premises, and the plumbing exclusion applies to water that originates on the premises.  

On appeal, the Appellate Division adopted the same interpretation.  Upon review of the “sewer back up” exclusion, and the “plumbing system” exclusion, the Court found that the exception for accidental discharge of a plumbing system created an ambiguity between the two exclusions.  To reconcile the two exclusions, the Court enunciated the rule that a home’s “plumbing system” includes drains that are on the property.  Thus, if the loss is caused by a sewer back up that occurs off of the property, the “sewer back up” exclusion is applicable.  If, however, the damage comes from a backup within the premises, the plumbing system exclusion is applicable, and the exception for accidental discharge applies.   

Notably, however, the Court did not affirm the grant of plaintiff’s motion for summary judgment.  Rather, the Court found that plaintiff/insured failed to establish, as a matter of law, what caused the loss at issue.

Peiper’s Point – What can we say, we have BIG issues with this one.  We always thought that policy language was to be afforded its plain meaning.  We also thought policy exclusions were to be read ad seriatim. 

Indeed, the Third Department itself enunciated this rule in 1981, and ever since Courts have been loath to interpret an exclusion on the basis of the purported scope of a competing exclusion.  Apparently, the Court has declared a new test for policy interpretation, and carriers must now beware. 

Potpourri

05/20/14       Terrasure Development LLC v Illinois Union Ins. Co.
Appellate Division, First Department
Late Notice = No Coverage
This matter arises out of an environmental contamination case.  Plaintiff sought coverage under its environmental policy, and Illinois Union promptly disclaimed for late notice.  The First Department upheld the denial based upon late notice, and, apparently, a litany of other violations.

BETH’S BANTER ON COVERAGE B AND FITZ’ BITS
ELIZABETH A. FITZPATRICK
[email protected]

05/15/14       National Union Fire Insurance Company of Pittsburgh, P.A. v. Turner Construction Co.
Appellate Division, First Department
Faulty Workmanship Not an Occurrence
The declaratory judgment action derived from an underlying action by a building owner against its contractors after a piece of the exterior wall of its 42 story office building under construction in Jersey City fell to the street from the eighth story level.  Turner served as general contractor for the construction project and subcontracted with defendant, Permasteelisa North America Corporation, to design and build the curtain wall, which consisted of granite and glass.

On January 25, 2010, a segment of the pipe rail system fell to the street.  The outside consultant hired by the owner to investigate and inspect the curtain wall determined that more than twenty percent of the pipe rail connections did not conform to the building plans.  Additional problems were also reported with respect to the work performed by Permasteelisa.

The owner sued Turner and Permasteelisa in New Jersey, asserting causes of action for breach of contract, breach of warranty and negligence based upon allegations of defects in the design, fabrication and/or insulation of components of the pipe-rail network.  National Union issued an owner-controlled insurance program (“OCIP”) under which the construction project owner procured insurance on behalf of all parties performing work on the site.  The insurance covered the owner, Turner, and on-site project subcontractors, including Permasteelisa.

The policy defined “occurrence” as “an accident, event or happening, including continuous or repeated exposure to substantially the same general harmful conditions”.  The policy included various exclusions, including one for professional services known as a professional liability exclusion.

Turner and Permasteelisa tendered notice of the underlying action to National Union, who agreed to provide a defense, subject to a reservation of rights, raising the issue that the policy only afforded coverage for property damage caused by an occurrence, and contended that the claim of defective design and workmanship did not constitute “property damage”.

National Union brought the declaratory judgment seeking a judgment that the policy did not cover the underlying claims against Turner and Permasteelisa and for reimbursement of defense costs paid on Turner and Permasteelisa’s behalf.

In opposition to the motion for summary judgment brought by National Union in the declaratory judgment action, Permasteelisa and Turner argued that the parties had negotiated an expanded version of the definition of occurrence and that based upon dictionary definitions of the terms “event” and “happening” the subject loss should be covered.  The trial court held the policy did not cover the owner’s claims, granted the requested declaration, and directed that National Union be reimbursed the costs and fees it paid for its defense of Turner and Permasteelisa in the underlying action.

Initially, the Appellate Court noted that the law of New Jersey governed, but that New Jersey and New York law were consistent as to the issues in dispute.  The court noted that under both New York and New Jersey law, construction defects such as those asserted in the underlying action, faulty design, fabrication or installation – do not constitute “occurrences” under a commercial general liability insurance policy.  They further noted the general rule that a commercial general liability policy does not afford coverage for breach of contract, breach of fiduciary duty, or breach of warranty, but rather for bodily injury and property damage.

The court noted that there is no occurrence where faulty construction only damages an insured’s own work, rejecting Turner and Permasteelisa’s argument that at the least, the definition of “occurrence” in the policy was ambiguous.  The court also rejected Turner and Permasteelisa’s contention that the court adopt the reasoning of other jurisdictions under which faulty work may be treated as an “occurrence”.

With respect to the request for reimbursement of costs, the court noted that under New Jersey law, where an insurer, having honored its duty to defend, sought reimbursement from an insured for those fees incurred in defending uncovered claims, . . . the right of reimbursement exists because otherwise the insured would be unjustly enriched.  However, reviewing the policy endorsement in the applicable policy, which provided that the carrier agreed not to take action or recourse against any insured for loss paid or expenses incurred because of claims made under the policy, the court found that National Union was not entitled to reimbursement.

05/14/14       Siloam Springs Hotel LLC v. Century Surety Co.
United States District Court, Western District Oklahoma
No Coverage for Carbon Monoxide Claim
Our Friends at Century prevailed in an action in Oklahoma arising from a January 17, 2013 incident when several guests inside Siloam Springs Hotel allegedly suffered bodily injury due to carbon monoxide poisoning.  The carbon monoxide escaped into the air when it leaked from the hotel’s indoor swimming pool heater.  After being sued, the Century insured, Siloam Springs, brought an action seeking a declaration that the policy afforded coverage.  Century denied coverage, relying on the indoor air exclusion which provided, in part, that there was no coverage for “any toxic, hazardous, noxious, irritating, pathogenic or allergen qualities or characteristics of indoor air regardless of cause”.

Siloam argued that the phrase “qualities or characteristics of indoor air” referred to inherent and/or ongoing or continuous attributes of the air quality and contended that Century’s interpretation that the exclusion applied to any harmful substance in the air was grossly overbroad and, if adopted, would lead to absurd results such as excluding a claim for smoke inhalation caused by a fire.  Alternatively, they contended that the exclusion was ambiguous.

The court disagreed, finding that the exclusion was not unambiguous, as carbon monoxide is clearly a toxic, hazardous and noxious quality of indoor air, further noting that the exclusion applied “regardless of cause”.  As such, Century’s motion for summary judgment was granted.

05/15/14       One Beacon American Insurance Co. v. Urban Outfitters, Inc.
United States District Court, Eastern District Pennsylvania
Illegally Collecting Zip Codes Not Publication
Urban Outfitters was sued in three underlying lawsuits wherein it was alleged that the retailers violated state statutes and common law privacy rights when they gathered personal zip code information while processing credit card purchases.  One Beacon had issued a combined commercial general liability and umbrella policy under which Urban Outfitters and Anthropology were named as insureds.  One Beacon issued a similar policy for a different policy period which was a “fronting” policy for which Hanover was responsible.

The plaintiffs in the underlying action alleged a violation of the statute prohibiting, as a condition of accepting a credit card as payment for sale of goods or services, a request to record the address or telephone number of a credit card holder.  The plaintiffs alleged that requesting credit card holders’ zip code information at checkout constituted misrepresenting a material fact, that is, that the disclosure of a zip code was needed to complete the transaction.  They further alleged that they illegally obtained zip code information with customers’ names to identify the customers’ home/business address.  The allegations were that Urban Outfitters “systematically and intentionally” violated the act.

In another class action venued in Massachusetts, plaintiffs similarly alleged that Urban Outfitters collected and recorded zip code information for its own promotional and marketing purposes and used that information.  They claimed that the class members were injured when they received Urban Outfitters unsolicited promotional and marketing material and contended that Urban Outfitters misappropriated their commercially valuable personal identification information and invaded their privacy in willful and knowing violation of the statute.  Plaintiff’s sought actual and statutory damages in that action.

The coverage action was brought seeking a declaration that the insurers had no duty to defend or indemnify the defendants in the three suits.  Urban Outfitters, in its motion for partial summary judgment, sought a determination that the insurers had a duty to defend, contending that “the underlying actions allege oral or written publication, in any manner of material that violates a person’s right of privacy” triggering coverage under the personal and advertising and personal injury provision of the policy.  The parties agreed that Pennsylvania law applied to the interpretation of the contracts.

The court, after discussing the coverage grant, reviewed the exclusion for knowing violation of rights of another, as well as distribution of material in violation of statutes.  The court agreed with Hanover and One Beacon that the plaintiffs did not allege “publication” within the meaning of Pennsylvania law, concluding that the actions fell outside the scope of the One Beacon and Hanover policies’ coverage.

In a third action, however, the court found that the allegation that Urban Outfitters disseminated information broadly to third parties sufficed to fall within Pennsylvania’s definition of publication and, there, found the claims fell within the scope of the personal and advertising policy provision.  However, the court found that coverage was precluded by virtue of the exclusion for injury arising directly or indirectly out of any act or omission that violates or is alleged to violate a statute.  The court, therefore, concluded that neither One Beacon nor Hanover had a duty to defend Urban Outfitters or Anthropology in any of the three class action lawsuits considered.

AUDREY’S ANGLES ON THE NATIONALLY NOTEWORTHY

Audrey A. Seeley
[email protected]

5/19/14         Csap v. American Millennium Ins. Co.
Superior Court, Appellate Division, New Jersey
Insurer Not Permitted To Rely Upon Rider That Would Afford Less Than The Statutory Minimum Insurance Coverage Required For Ambulance Services. 
Ms. Csap, who was wheelchair bound, sustained bodily injury in a Mobility Assistance Vehicle (MAV) owned by Alpha Care Ambulance Corporation (Alpha Care) and operated by Mr. Shpetim Elmazi after the vehicle stopped abruptly to avoid an accident.  Ms. Csap was not secured in her wheelchair and Mr. Elmazi’s abrupt stop resulted in her falling from her wheelchair.

By law, Alpha Care was required to carry $500,000 in vehicle related liability insurance coverage.  It attempted to satisfy this requirement by procuring two policies from American Millennium Insurance Company (AMIC).  The first policy with a $35,000 combined single limit.  The second policy “for the difference between [$]35,000 combined single limit [a]nd $500,000 combined single limit.”  The second policy contained a rider limiting coverage to situation where the ambulance was driven by a listed driver.  The rider’s purpose was to allow AMIC to perform a driving record check on the Alpha Care employee before adding the driver to the policy.  Mr. Elmazi was not a listed driver on the second policy.

AMIC afforded coverage under the first policy but denied coverage under the second policy as Elmazi was an unlisted driver.

Alpha Care also had a commercial general liability policy and professional liability policy with Western World Insurance Company which disclaimed coverage on the auto exclusion.

The Court upheld the trial court’s determination that AMIC’s second policy afforded coverage for this accident, irrespective of whether the listed driver requirement was enforceable, as the policy must afford the statutory minimum coverage of $500,000.  The Court rejected AMIC’s position that only the statutory $15,000.00 requirement must be met for general auto insurance as the legislature subsequently authorized the Health Commissioner to adopt regulations mandating minimum insurance coverage for ambulance services of $500,000.

CASSIE’S CAPITAL CONNECTION
Cassandra A. Kazukenus
[email protected]

A1475-A Discounts For Homeowners’ Insurance

This bill recently passed the Assembly for the second year in a row.  This legislation would provide for an “actuarially appropriate” reduction in the premium rates on fire insurance or homeowners insurance.   This reduction would apply for a three year period after an insured completes a certified safety and loss prevention course. 

DFS would be responsible for certifying the residential home safety and loss prevention courses.  A residential home safety and loss prevention course would be an instructional program that presents information and approaches that will help an insured significantly reduce or prevent injuries and property losses at their home.  It will include information on how to minimize property damage claims due to weather related events as well. 

DFS would be required to develop the rules and regulations associated with implementation of the course.  At a minimum, DFS would promulgate course sponsor application procedures that must be followed to obtain certification, curriculum standards, ensure adequate training of the instructors, and demonstration that the course will actually reduce fire, theft, liability and weather related losses in the residence.  Additionally, DFS will be able to revoke or suspend the certification of the course. 

A00828 – Waiver of State’s Immunity

This bill was also recently passed by the Assembly.  This bill proposes to waive the state’s sovereign immunity with regard to ALL claims, actions and proceedings brought pursuant to:

• Americans with Disabilities Act of 1990
• Federal Fair Labor Standards Act of 1938,
• Federal Age Discrimination in Employment Act of 1967 and
• Family and Medical Leave Act.

FIJAL’S FEDERAL FOCUS
Katherine A. Fijal
[email protected]

05/13/14       National Interstate Ins. Co., et.al. v. DCP Midstream, LLC
United States Court of Appeals, Tenth Circuit – Colorado Law (citing to NY Law)
AI Coverage Could Extend to Claims against AI by Named Insured
Higby Crane Service [“Higby”] entered into a contract with Defendant DCP Midstream [“DCP”] that covered crane work to be done at the gas processing plant of DCP’s wholly owned subsidiary National Helium.  A fire negligently started by DCP damaged Higby’s crane.  National Interstate Insurance Company [“National”], issued a commercial inland marine [“CIM”] policy to Higby covering direct physical loss to certain property.  National paid Higby under the policy then Higby and National sued DCP for the loss. DCP counterclaimed that Highby breach the contract by failing to obtain a CGL policy that would have indemnified DCP for its negligence and therefore, Higby should bear the loss from the damage to the crane.  The district court granted summary judgment to Higby and National and DCP appealed.  For the following reason the United States Court of Appeals for the Tenth Circuit [“Court”] reversed and remanded.

The claim arises out of a fire at the National Helium gas processing plant.  The claim alleged that in the course of operating the National Helium plant, DCP negligently and/or in violation of industry standard of care, applicable rules, regulations and statutes released or vented various gases in such a manner that a vapor cloud formed and ignited resulting in damage to the crane.

The contract between DCP and Higby required various kinds of liability insurance, and required the CGL policy to list DCP as an additional insured.  In its motions for summary judgment DCP argued that the contract waived any rights of Higby or National to seek recovery from DCP.  Higby and National cross moved for summary judgment asserting that the contract did not require Higby to waive the right of subrogation under the CIM policy.  DCP responded to the cross motion by alleging that Higby had breached the contract by failing to obtain a CGL policy and that because of the breach, Highby assumed the risk of loss and cannot collect from DCP. Plaintiff, Higby and National, did not produce a CGL policy but took the position that the contract required only “coverage for Higby’s liability arising from its operations” and Higby had no liability for the fire.

DCP argued that if Higby had obtained the CGL policy required by the Contract, the policy would have indemnified DCP for its negligence in damaging the crane.  Under Colorado law “a party who agrees to procure the insurance and fails to do so assumes the position of the insurer and, thus, the risk of loss.” Therefore, if Higby could not recover against DCP for DCP’s negligence, then neither could National because the subrogated insurer has no greater rights than the insured.

Higby and National responded by asserting that the CGL policy required by the contract would not have covered DCP’s liability for the damage to the crane:  (1)  the policy would not cover the negligence of DCP that injures Higby because the CGL policy was only to cover claims from third-parties; and (2) the policy would not cover the loss because the loss was not caused by Higby’s actions in performing the work.  The Court was not persuaded.

First, the Court analyzed that portion of the contract which addressed CGL coverage and found it to be imprecise in its terms; i.e., what does it mean to be an additional insured on the Higby policy. To find an answer the Court looked to standard CGL policies and determined that at the time of this loss most insurers used an additional insured endorsement that extended coverage to liability “arising out of the named insured’s operations”.

Next, the Court looked at court decisions interpreting CGL coverage with this additional insured language.  The Court found the decision Liberty Mutual Fire Ins. Co. v E.E. Cruz & Co., Inc., 475 F.Supp.2d 400 (SDNY 2007) to be particularly informative and instructive. In that decision, the New York court addressed issues on point with those presently before the Court.  Essentially the same arguments were made by Liberty Mutual, that were made by National, the only difference was that the additional insured coverage provided under the Liberty Mutual policy triggered coverage if the loss arose out of the insured’s ongoing operations instead of the insured’s operations in the standard policy being analyzed by the Court.  The New York court rejected Liberty Mutual’s arguments stating:  (1) agreement requiring that a party procure a policy protecting another party from liability and the resulting additional insured endorsement in CGL policies are not construed to preclude coverage for the additional insured against claims of negligence by the named insured against the additional insured; and (2) it does not matter that the named insured was not actively working when the injury occurred because the term ongoing operations in the additional insured endorsement means “operations under the Contract occurring prior to the completion of the work contracted for.”  The New York court in Liberty Mutual went on to state that the mere “presence of [the named insured’s] equipment…at the jobsite is part of the performance of [the named insured’s] obligation under the contract. The court explained that it was immaterial that “the occurrence was allegedly unrelated to [the named insured’s] work under the contract” because New York law provides coverage even when the cause of the harm had nothing to do with the named insured’s work for the additional insured.

The Court noted that the decision in Liberty Mutual was consistent with decisions in other jurisdictions even if the law was not clear in Colorado. The Court ultimately determined that Higby and National had not met their burden to show that the contract unambiguously supports their position and reversed the district court’s grant of summary judgment and remanded the case to district court for further decision.  The Court stated that on remand the district court would not be limited to the arguments made on appeal when considering whether the CGL policy contemplated by the contract would protect DCP against liability to Higby.  For example, the Court stated that the district court could consider the applicability of Colo. Rev. Stat. Ann. §13-21-111.5, which voids some contracts requiring the purchase of insurance; and, the observation that the CGL policies often contain an exclusion for damage to property owned by the insured in order to prevent the CGL policy from serving as a property insurance policy.

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman
[email protected] 

05/08/14       Aptuit, LLC v. Columbia Casualty Co.
Supreme Court, New York County
Criminal Acts Exclusion Precludes Coverage for Claims by Clients of Pharmaceutical Development Company Where Insured’s Employee was Criminally Convicted of Altering Pre-Clinical Data
Aptuit is the parent company of subsidiaries that are engaged in the business of pharmaceutical development services, including providing bio-analytical studies to certain customers.  In January 2009, Aptuit conducted an internal audit which resulted in findings of major irregularities of its pre-clinical data generated for studies (data which had been delivered by Aptuit to its clients).  The audit also revealed that Steve Eaton, a scientist, and employee of Aptuit, was responsible for the irregularities and falsified records.  

Aptuit notified the Medicine and Health Products Regulatory Agency (a regulatory agency in the UK) and its clients.  Aptuit’s audit finding were confirmed by the MHPRA and Eaton was criminally prosecuted for his actions and found guilty of altering pre-clinical data designed to support application to perform clinical trials. 

Certain clients of Aptuit then brought claims against Aptuit with respect to the false data delivered to them.  Aptuit tendered the claims to its professional liability insurance carrier, Columbia Casualty Company.  Columbia agreed to fund the defense of the claims subject to a reservation of rights letter based on “the Criminal Acts Exclusion, Performance Delay Exclusion and definition of ‘damages’ defense.”

In deciding this summary judgment motion brought by Columbia, the court first considered the criminal acts exclusion.  The provision stated that coverage does not apply to any professional liability “based on or arising out of a dishonest, fraudulent, criminal or malicious act by any ‘Insured.’”  Under the policy, “Insured” was defined to include “Employees.”  “Employees” were considered an “Insured” solely with respect to “professional services” rendered on Aptuit’s behalf.  “Professional services” were then defined to be those services performed by Aptuit or by any other “Insured” on behalf of Aptuit for a fee and included pre-clinical research and other professional services for the pharmaceutical/biotechnology industry. 

There was no question that the exclusion applied.  Eaton committed the wrongful conduct out of which the underlying claims arose while he was an employee at Aptuit, and while he was performing pre-clinical research.  He also received a criminal condition for said conduct.  The court rejected Aptuit’s argument that Eaton was not an “Insured” because by committing the criminal action Eaton was acting outside the scope of employment, and thus was not rendering services on its behalf.  It noted that absent from the policy was any language specifying or inferring that criminal conduct did not constitute professional services or/and was outside the scope of employment.  Also, assuming Aptuit’s contention was true, then any criminal conduct committed by an “insured” would never be deemed a “professional service;” thus, forgoing the need for the exclusion.

However, the court did find an issue of fact with regard to Aptuit’s argument that it was unknown as this point which claims arose out of Eaton’s conduct versus the conduct of other employees (other employees were implicated in the investigation) and other circumstances. In term, additional discovery was directed.  

The court then summarily dismissed Columbia’s remaining contentions finding that the Performance Delay Exclusion did not apply, and that any refunds that Aptuit would have to pay could qualify as settlements under the definition of “damages.”

05/08/14       Government Employees Ins. Co. v. Wong
Supreme Court, New York County
Framed Issue Hearing Ordered On Question of Residency
This decision arises from a motion to reargue a prior motion made by GEICO to temporarily stay arbitration pending a hearing as to whether respondent , now deceased, was a “resident relative” of the insured’s household at the time of loss.

GEICO submitted that the court overlooked documentation provided with the original submission indicating that respondent’s address at the time in issue was his daughter’s house in Brooklyn, and not the insured’s address. 

Reargument was granted and ultimately that court directed that a framed hearing be conducted.  It found that the police report submitted by GEICO not only identified the respondent’s address as being in Brooklyn, but also his date of birth.  This information would not necessarily have been known by the neighbor who his daughter stated gave police her Brooklyn address.  While not entirely clear, it appears the theory set forth by GEICO may have been that the respondent was still conscious when police arrived and personally provided the Brooklyn address.  Moreover, billings records were sent to Brooklyn. 

04/21/14       Bennett v. State Farm Fire & Cas. Co.
Supreme Court, Nassau County
Home Insurer’s Obligations Under the Liability Portion of the Policy Limited by DEC Directives following Oil Spill
An employee of defendant Creative Landscaping by Cow Bay, Inc. ("Cow Bay") was performing work on the sprinklers at plaintiffs' home when he punctured an oil line of the oil heating system.  Shortly thereafter, defendant Lewis Oil Company (“Lewis Oil”) was notified that the heating system was not operating.  Employees of Lewis Oil performed certain work, but it did not resolve the problem.  Without further investigation, plaintiffs alleged that Lewis Oil added 726 gallons of additional heating oil to the tank.  Plaintiffs eventually noticed a strong heating oil odor in their home.  Lewis Oil then discovered the broken fuel line and made a temporary repair. 

After discovery, plaintiffs placed their home insurance carrier, State Farm, on notice of the incident.  They also notified the DEC about the spill.  The DEC made a claim against plaintiffs to clean up the spill and also assigned one of its engineers to supervise the work. 

Admitting that it “nicked” the oil line, Cow Bay dug up and removed six truckloads of soil.  When it then attempted to backfill, plaintiffs halted the work noting a continued odor of heating oil.  Cow Bay declined to do further cleanup. 

State Farm then engaged an engineering firm to supervise the investigation and remediation of the spill.  It also agreed to pay an environmental services company to remove additional contaminated soil.  Even though the premises was not returned to pre-spill conditions, State Farm stopped the remediation work when DEC determined that the cleanup, consistent with the DEC policy and procedures, had been achieved at the site and no further remediation activities were necessary. 

This action was eventually brought against Cow Bay, Lewis Oil and their insurer carriers pursuant to section 90 of the Navigation Law seeking a mandatory injunction directing defendants to pay for the soil/load bearing test and to complete the removal of the rest of the contaminated soil.  They also sued their home insurer, State Farm.

Under the Navigation Law, although plaintiffs are strictly liable for the spill as landowners with control over their property, they may seek redress from those who were actually responsible for the spill (and their insurers).  In this case, the plaintiffs where permitted to assert their statutory claim against Cow Bay, Lewis Oil and their insurers.  Since Cow Bay admitted that it damaged the oil line that resulted in the spill, the court deemed it to be a discharger for purposes of liability under the Navigation Law.  The burden then shifted to Cow Bay or its insurer to demonstrate that an issue of fact existed as to whether plaintiffs were at all responsible themselves.  The court found any argument as to the depth of the oil line unconvincing.  Thus, Cow Bay and Star Net (its insurer) were liable for both direct and indirect costs to complete the remediation of the spill, including restoring the property to its condition before the spill occurred.  If the property would not be restored to its pre-spill condition, the court directed that the proper measure of damages would be the total amount of the diminution of the property’s value, plus the cost of repairs.

Lewis Oil did not appear in the action and a default was granted against it. 

With regard to State Farm, the court denied summary judgment to plaintiffs.  Unlike the circumstances above, the plaintiffs had no recourse against their own insurer under the Navigation Law.  Rather, their claims were limited to the relevant insurance policy, and in that regard State Farm, was entitled to relief. 

The court broke its discussion of the claim against State Farm into a separate analysis of first-party and third-party coverage.  With regard to the first-party coverage, under “Section 1-Coverages” at “Coverage A-Dwelling,” damage to land, including costs to restore land, is specifically excluded at paragraph 3.  At “Coverage B-Personal Property,” ‘Section 1-Additional Coverages” at paragraph 3 damage to trees, shrubs and other plants are covered, but the causes of such covered damages do not include contamination by a petroleum spill.  Finally, at “Section 1 - Losses Not Insured”, at paragraph (1)( j), losses from “contamination” are not covered,” regardless of whether the loss occurs suddenly or gradually [or] arises from natural or external forces.”  Such language unambiguously included oil spills such as the one at bar, as petroleum products are pollutants and thus, when leaked, contaminate the site of such leakage. Therefore, direct first-party coverage for an oil spill did not exist under the policy.

Next, the court considered third-party coverage.  Because the plaintiffs were found not to have contributed to the happening of the spill, they were not liable to either Cow Bay or Lewis Oil, or their insurers, under the Navigation Law, as Cow Bay and Lewis Oil each had a role in actually causing the discharge and thus were barred from making a private claim.  Nor could either make a claim for contribution or indemnification under the common law, as Cow Bay and its insurer failed to raise an issue of fact regarding plaintiffs’ lack of fault, and Lewis Oil defaulted in pleading and did not participate in this motion.

In this situation, the only entity that could look to plaintiffs pursuant to Navigation Law § 181, and to their insurer State Farm pursuant to Navigation Law § 190, would be the State of New York through the DEC.  It was undisputed that it did make such a claim, and State Farm undertook a defense of its insureds under the liability section of the plaintiffs’ homeowner policy.
The court thus concluded that no coverage was available under the policy for damages caused by the oil spill, excepting coverage for liability incurred by the insured pursuant to "Section II – Liability."  However, this section gave State Farm the right to settle any claim, as it decides is appropriate.  In its letter to plaintiffs dated September 7, 2011, State Farm indicated that it would consider its policy obligation satisfied when the DEC claim was settled and closed.  Thus, under the terms of the policy, once a claim no longer was pending, State Farm was not obligated to continue making payments for the cleanup, as it was only as a result of a claim that it had to do so.  As the DEC declared itself satisfied with the remediation after significant involvement and payment by State Farm, its claim had been resolved, and State Farm’s obligation to plaintiffs under the policy had been satisfied.

Bad Faith

05/20/14       Wald v. State Farm Mut. Auto. Ins. Co.
United States Court of Appeals, Eleventh Circuit
Under Florida Law, No Bad Faith Claim when Insured is Not Exposed to Liability Above its Limits
Howard Wald, Jr., brought this bad faith claim against State Farm, which insured the driver responsible for an accident injuring Wald.  The estate of the late driver escaped liability beyond State Farm's policy limits despite a tort judgment against it because Wald failed to comply with the Florida probate code’s statute of limitations, which bars claims against estates “unless filed in the probate proceeding on or before the later of” three months after notice by publication or thirty days after service of notice, where service is required.  Of note, excluded from the statute of limitations are claims up to the policy limits of a casualty insurance policy.

Upholding the decision, the Eleventh Circuit held that, under Florida law, a third-party bad faith claim is derivative of the insured’s claim, and an insured suffers no injury supporting his or another’s bad faith claim when he is not exposed to liability beyond his policy limits.

 

EARL’S PEARLS
Earl K. Cantwell
[email protected]

01/14/14       Management Recruiters of Pittsburgh- North Inc. v. Travelers Indemnity Company of America
United States District Court, Western District of Pennsylvania
Policy Did Not Cover “Bad Acts” By Independent Contractor
Management Recruiters had a CGL policy with Travelers Indemnity with a limit of $150,000.00.  Management Recruiters submitted a claim in November 2011 for “employee dishonesty” by one of its recruiters for an alleged loss of $189,000.00 consisting of $111,000.00 lost client payments and the rest was for attorneys’ fees and interest.  Travelers denied the claim, Management Recruiters sued for breach of contract and bad faith, and Travelers moved for summary judgment which was granted by the District Court.

Travelers argued that the recruiter was not covered under the policy because she was an independent contractor, not an employee.  The Court agreed that the recruiter was an independent contractor at the time of the loss, and Travelers was not obligated to provide coverage.  While the status of employee as opposed to independent contractor can be very fact specific, the Court noted that there had been an amendment to the recruiter’s employment agreement which changed her status to “independent contractor”.  The Court rejected claims that the recruiter was an employee because she continued to act on behalf of Management Recruiters and received payments from the company even after she started working for another company.  The Court also ruled that, without a breach of contract by Travelers, there could be no bad faith claim.

This case presents a lesson to check and review policy language defining “employees” as opposed to “independent contractors” and compare that to the insured’s documents and work practices on how they classify employees, as well as state laws and court decisions also often spell out differences between employees and independent contractors in a variety of legal settings.  Whether or not an individual is deemed an “employee” often presents a key finding in many different insurance, legal, and claims situations.