Volume XVIII, No. 7 (No. 463)
Friday, September 23, 2016
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. 2016
All rights reserved
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? Everyone does from time to time. We love situations. We really love helping you through them.
Autumn has arrived. That’s great for autumn lovers but not so good for those who cherish summers. Perhaps I fall into that latter category.
Welcome New Subscribers:
We have added several new members to the Coverage Pointers family in the past couple of weeks. So you know what you are reading, this cover note contains general interest information on upcoming continuing education programs (or past ones), news of the day or week, welcome and highlight notes from our several editors, historical trivia and newspaper articles from 100 years earlier and a bulleted list of those cases that are summarized in the newsletter which is attached in Word format. We do so in order for you to easily copy and paste case summaries into your claims files.
We don’t mind that at all, that’s the purpose of this informational piece.
Several insurance and in-house claims personnel also share this publication in their internal publications. We are delighted that you do so.
All we ask is that you credit Hurwitz & Fine for content. At least once a year, we receive, within 48 hours of publication, a note from someone asking us whether we read this “great summary of an important decision” and we see our work bouncing back to us. We love this newsletter but we simply ask for a kind acknowledgement if you pass it along. Many thanks.
Law School for Insurance Professionals:
Thanks to those who came to Buffalo to take part in the Law School for Insurance Professionals program this past Friday. Jen and I enjoyed sharing our time with you and I know that Steve’s trip to Albany to participate was equally splendid.
Personal Thanks:
A special thanks to those who learned and were kind enough to reach out to me on Facebook, email and otherwise on the passing on my mother. She lived 95 healthy years, in three countries, Germany, Palestine/Israel and the US and experienced more in her life than I can even imagine. With a keen sense of humor, boundless curiosity and friends galore, she added quality to the world.
That sidelined me a little this past week, but we’re back in the saddle.
Praising Talent:
We have such a talented team of lawyers in our office. I want to mention two of them who were especially honored in the last few days:
Special Kudos to Ann Evanko:
Business First of Buffalo honored our President and Managing Partner with a Lifetime Achievement Award for Women of Influence for her contributions to the community, to the women-focused charitable organizations she champions and to the firm. Ann was previously recognized with the inaugural Business First “Women Who Mean Business Award”.
Atta Lawyer!
Special Kudos to Diane Bosse:
The editorial staff of the New York Law Journal set out to select its first group of Top Women in Law, their attempt to shine a light on the outstanding work being done by female attorneys across New York state who have had notable achievements over the past year.
These outstanding attorneys, gathered with the help of recommendations from the legal community, are making strides to push the legal profession forward for women.
Diane Bosse was selected as part of that distinguished group of 25, the only attorney so selected from Western New York and one of few, if any, from outside of NYC.
Att Lawyer!
PLRB Regional Adjusters Conference – November 15-16 in Richmond:
I was in Sacramento and St. Louis and will now complete the regional circuit in Richmond, speaking on risk transfer, additional insured coverage and hold harmless agreements. I’ll empower you to unravel what appear to be complicated questions and help you respond to tenders – and make tenders – much more tenderly and effectively.
To register, visit the PLRB site.
Labor Law Pointers:
If you handle New York construction site accidents and you don’t subscribe to Labor Law Pointers you are truly missing a gem of a publication. Send Dave Adams a note, [email protected], and tell him that you heard that he both edited a great publication and knew how to properly smoke pulled pork. He’ll add you.
Hewitt’s Highlights:
Dear Subscribers:
As Fall begins, we have one serious injury case this week, which reminds us to research the injured parties history and credibility. In that case, defendants lost on summary judgment as to liability due to it being a rear end collision for which there is a rebuttable presumption that the party that struck from the rear is at fault. However, defendant’s counsel was able to get plaintiff to concede that he had been in prison prior to the accident for filing false statements (already a strike against his credibility) and while in prison, felt pain in the same areas he was considered injured now. His doctors on cross-examination conceded plaintiff never informed them that he previously had suffered pain in these areas. The jury accepted the defense experts’ contention that the injuries were pre-existing and degenerative.
Enjoy the cooler weather and the leaves changing color as we head into Autumn months.
Until next time,
Rob
Robert Hewitt
[email protected]
The Lord and Life Insurance, Connected at the Hip:
St. Louis Star and Times
September 23, 1916
Insurance and Religion
The insurance banquet ended with a prayer and a hymn and why should it not? If there is one thing more than another which supplements religion in making the closing hours of life free from anxiety it is insurance. Time was, and in some localities is not yet entirely past, when there was much ignorant prejudice against life insurance on religious grounds. It was assumed that it was assurance against death and therefore blasphemous. But when full realization came that it is but another and surer method of providing for the care of dependent ones after the protector is gone and just as legitimate and reverent as to leave a home, a bank account or stock in a mill, for the support of wife or children after the death of the accumulator, this religious prejudice faded.
Now, probably, more members of churches, in proportion to their total number, carry life insurance than do non-members. Therefore, it is entirely fitting that a national meeting and banquet of insurance men should close with a prayer and the beautiful hymn, “God Be With You Till We Meet Again.” God works through human agencies and one of His ways of caring for the widows and orphans of His children is through life insurance.
Altman’s Administrative (and Legislative) Agenda:
Greetings. I am pleased to inform you that the Department of Financial Services has new proposed legislation coming down the pike. New York is to become the first State in the Nation to promulgate regulations governing cyber security for banks and insurance carriers. The good news, Dear Readers, is that I, your trusty legislative liaison, am here to give you the nuts and bolts of the new proposals. The bad news is that you must therefore do without one of my heartwarming poems. There is, as they say, always tomorrow. Until then, I will turn my attention to the proposed regulations, which are certain to be adopted this fall.
Howard
Howard B. Altman
Century Old Insurance Fraud:
The Daily Gate City and Constitution-Democrat
Keokuk, Iowa
23 Sep 1916
IOWA BAND IS
BROKEN AT LAST
Napier Family of Outlaws From Kentucky,
Had Operated in State for Many Years
SENT TO PENITENTIARY
Charged With Collecting Insurance
on Horses at High Valuation,
Which They Killed Themselves
[United Press Leased Wire Service.]
OTTUMWA, Iowa, Sept. 23.—When Mrs. Lilly Lewis of Sewal pleaded guilty in federal court at Creston Friday to a charge of using the mails to defraud and was sentenced to two years, federal officials were satisfied they had broken up one of the best organized gangs of defrauders ever working in this part of the state. Grant S. Napier, alias J. D. Lewis, her husband, Anna Morgan, alias Anna Napier, and Oscar Napier, alias O. K. Wilson, were also indicated, but are still are large.
According to government officers, the gang operated in the middle west for nine years, collecting insurance for the death of horses which they killed themselves after an excessive appraisal had been made by innocent persons. It is claimed the gang mulcted* the insurance companies out of thousands of dollars and realized handsomely in other frauds.
The Napier family originated in Kentucky and came to Ottumwa twenty-five years ago. They were outlaws and out of the family, fourteen members have served time in the penitentiary.
It is claimed Mrs. Lewis and Anna Napier blackmailed Iowa and Missouri farmers for several thousand dollars in the past two years.
Editor’s Footnote: *Mulcted -- deprive someone of (money or possessions) by fraudulent means.
Jen’s Gems:
Greetings!
Hope all is well. This year I am serving as DRI’s Insurance Law Committee Annual Meeting Vice-Chair. The 2016 Annual Meeting will be held October 19, 2016 through October 23, 2016 in Boston, Massachusetts. The focus will be on ways to rejuvenate and energize the legal profession and your career with an eye toward the future. Some of the headliners for the meeting include:
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John Della Volpe, Director of Polling at Harvard’s Institute of Politics and Founder/CEO of SocialSphere will provide insight into the millennial mind;
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Vincent D. Rougeau, Dean, Boston College Law School, will address issues involved with educating the 21st Century Lawyer;
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Andrew Perlman, Dean Suffolk Law School, a nationally known voice on the future of the practice of law will discuss how technology will change the delivery of legal services;
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Jason L. Riley, Senior Fellow at the Manhattan Institute and a columnist for the Wall Street Journal, will discuss racial issues in America examining where we were when the Civil Rights Act was adopted and where we are today; and
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1988 Democratic Presidential Nominee, former Governor of Massachusetts (1975–1979, 1983–1991), and Distinguished Professor of Political Science, Northeastern University, the Honorable Michael S. Dukakis will take a look at American foreign and defense policy.
In addition to these mainstage programs, the Insurance Law Committee will have its own CLE program, presented by Adam Ziegler, an attorney and member of the Library Innovation Lab at Harvard Law School, on Friday, October 21, 2016 at 3:30. The program, entitled Beyond Websites and E-mail: Using Advances in Technology to Excel in Your Practice, will focus on how lawyers use technology, what ethical responsibilities lawyers have to learn and master technology, and why lawyers should and may have a duty to seek out emerging technologies.
It should be a great program. Check out the brochure for more detailed information (http://www.dri.org/event_brochures/2016AM.pdf).
And, if you do make it to Boston, please say “hello”.
Until next week …
Jen
Jennifer A. Ehman
Campaigning Differently in 1916:
The Brooklyn Daily Eagle
Brooklyn, New York
23 Sep 1916
WILSON SPEAKS TODAY
Delivers First ‘Porch Campaign’
Speech at 3 o’clock.
Long Branch, N.J., September 23—President Wilson’s program today called for the first of a series of speeches he plans to deliver at Shadow Lawn in his “porch campaign” for re-election. He planned to address a large delegation of New Jersey business men on the attitude of his administration toward American business. He will speak about 3 o’clock.
The general public was to be admitted to the Shadow Lawn estate to hear the President’s speech and several thousand persons were expected to be present. Business men from various sections of New Jersey began arriving for the reception and speech early this morning.
Walter Hines Page, American Ambassador at London, who arrived here late last night, remained over this morning to discuss with the President British interference with American trade and mails. The President informed him fully of the resentment in this country over British restrictions on neutral commerce.
Barnas on Bad Faith:
Hello again:
Welcome to Fall. Last week I visited Chicago for the first time to attend the DRI Young Lawyers Coverage and Claims Professionals Training. It was a wonderful program, and it was nice to meet so many other lawyers who practice insurance coverage law. Chicago is pretty amazing as well. I can’t wait to go back.
I have three bad faith cases to report on this week. In One Way Investments, the Northern District of Texas reminds us that a bona fide dispute over coverage will often defeat a claim of breach of the covenant of good faith and fair dealing in a first party case. In Murphy, a bad faith claim against State Farm was dismissed as the insured made nothing more than boilerplate allegations of bad faith without factual support. Finally, in Lennon, the court states that violations of the Oregon Unfair Claim Settlement Practices Act are not a per se violation of the duty of good faith. As a reminder, in New York, there is no private cause of action for violation of the Unfair Claim Settlement Practices Act.
See you next time.
Signing off,
Brian
Brian D. Barnas
Presidential Odds makers Didn’t Do a Good Job:
The New York Times
New York, New York
23 Sep 1916
CHICAGO BETS ON HUGHES.
Bookmaker O’Leary’s Odds Are:
Hughes, 3 to 5; Wilson, 7 to 5
Special to The New York Times
CHICAGO, Sept. 22.—Charles Evan Hughes rules as the betting favorite in odds posted today by “Jim” O’Leary, Chicago’s chief betting commissioner. At other places in the city even money is being offered.
“My odds are: Wilson, 7 to 5; Hughes, 3 to 5,” said O’Leary tonight.
Frank McNichols is stakeholder for some even money bets on Hughes and Wilson. Considerable Hughes money which had been placedwith McNichols had been withdrawn as a result of the passage of the Adamson Eight-Hour bill.
Some Democrats who heard there was plenty of Hughes money around the Board of Trade failed to find any of it.
Wilewicz’ Wide World of Coverage
Dear Readers,
Diving right in this week, as the courts have heated up as the outside temperatures have finally cooled down.
First this time around, we have Petroterminal v. Houston Casualty out of the Second Circuit. This case stems from an oil spill in Panama. Long story short, the insured’s policies did not include express “duty to defend” provisions, but instead stated that defense costs would be paid in connection with any claims. The carriers fronted a portion of the defense costs when the insured was sued, but then coverage litigation ensued, as it so often does. The court held that the policies only contained indemnification provisions. That is, defense costs would be paid, but only in connection with covered claims. Potentially covered or arguable claims were not. Here, none of the claims were ultimately covered. As such, not only did the insurers not have to front the costs, after they did they were entitled to recoupment. Good stuff.
Next, we bring you National Railroad v. Aspen Specialty, also hailing from our Second Circuit. In that one, National Railroad (aka Amtrak) sought all of its potentially $675 million in coverage following Superstorm Sandy. A major portion of that claim stemmed from flooding in its tunnels under the East and Hudson Rivers, and resultant corrosion of its equipment after it was exposed to seawaters. The decision is brief, well-written, and worth the read. It covers three issues: whether the $125m sublimit applied (it did; “flood”, though defined three ways, was unambiguous); whether the corrosion was an “ensuing loss” (it was not; flood sublimit applied, as the corrosion not separable from water damage); and whether the demolition and increased cost of construction clause applied (the court punted, citing prematurity of that argument). Also good stuff.
Lots more coming down the pike from around the District Courts of the country. Stay tuned.
See you all in two weeks! Until next time,
Agnes
Agnes A. Wilewicz
t
Two Fingers a Century Ago:
The Topeka Daily Capital
Topeka, Kansas
23 Sep 1916
HAS TWO FINGERS JERKED
OFF; ASKS $4,968 DAMAGES
Special to The Capital.
Independence, Kan., Sept. 22.—To have his right hand caught by a drilling cable, to be hoisted three feet into the air and held there until two fingers of the hand were pulled off at the knuckle joint, was the fate of William Osterhout, an oil well driller of this city, who is suing the company by which he was employed at the time of the accident for $4,968. Before the injury Mr. Osterhout said he could earn $6 a day. Now he can only earn $10 a week.
Tessa’s Tutelage:
Dear Readers,
This week I bring you another arbitration case that I had to read twice. Unfortunately, I can’t seem to link arbitration cases anymore so if you want to read the decision in its entirety please shoot me an email. The matter involves a motor vehicle accident (obviously) where the injured party was transported to the hospital. She then sought chiropractic care almost two weeks later. She was evaluated and then a month later her chiropractor ordered MRI studies. The MRI was positive for significant spinal conditions. A peer review was conducted and it was recommended that the MRI study bill be denied because her chiropractor had not re-evaluated her prior to the order.
At first blush I presumed Claimant would win, because her studies demonstrated herniations and disc budges; however the analysis cannot stop with MRI studies. Arbitrator Brown concluded that the peer review sufficiently made its case that ordering the MRI before re-evaluation deviated from the standard of care, and related the facts of the case to his analysis. Applicant, possibly relying on the positive studies did not rebut the peer review report in its submission. The lesson here for Claimants is don’t let a good peer review report go unchecked.
I hope all of you enjoy the first weekend of Autumn. Get some apple cider and tuck in, winter is coming…
Tessa
Tessa R. Scott
Tiring Campaign Activity on the Other Side:
Democrat and Chronicle
Rochester, New York
23 Sep 1916
HUGHES WEARIED
AFTER MAKING 12
SPEECHES IN A DAY
Shakes Hands with Thousands of Indianans
TALKS ON MANY SUBJECTS
Tells Audiences that Democratic
Appropriations, After Deducting
Preparedness Expenditures,
Exceed Republican by $232,933,762
South Bend, Ind., Sept. 22.—Charles E. Hughes reached South Bend to-night, at the fag end of his business day, almost minus his voice. He spent it in twelve speeches along the way, and talked to his audience here to-night at times in a hoarse whisper.
Utterly wearied, travel-stained, worn by the day’s actions, which included shaking thousands of Indiana hands, the nominee faced here a large audience in his chief speech of the day.
Phillips Federal Philosophies
Hello, All:
Welcome again to fall and this week’s issue of Coverage Pointers, which slips in nicely between the recent release of Craig Johnson’s latest Longmire novel, An Obvious Fact, and the upcoming release of Tana French’s The Trespasser in October. (Seasonal reference and book recommendations -- full service as always.) Happy reading all around!
First an update. In July we reported on the district court’s consideration of strict notice requirements under a claims-made policy in University of Pittsburgh v. Lexington Ins. Co. and AXIS Ins. Co. There, the court denied the motion for summary judgment of The University of Pittsburgh, which was prosecuting the suit in place of the insured, on the ground that the insured’s notice to the Lexington was inadequate to trigger coverage under the Lexington policy. In a decision released on September 16, 2016, the district court resolved the resulting summary judgment motion made on behalf of Lexington. Full disclosure: although not yet in the batter’s box on this particular decision (although next at bat), Hurwitz & Fine represents AXIS in this matter.
Next, from the Eastern District of New York, in Mikaelian v. Liberty Mutual Insurance, a case involving a son who bought and lived in a house and a father who purchased the homeowner’s insurance but didn’t live in the insured premises. The district court granted the insurer’s motion to dismiss the complaint for failure to state a claim.
As always, thanks for reading.
J.
Jennifer J. Phillips
Should Have Rented 100 Years Ago:
The Brooklyn Daily Eagle
23 September 1916
For Rent:
766 Ocean Ave
Near Beverley Road; best section of Flatbush, 3 and 4 room apartments up to date in every way. Hall bay; rents from $39 to $45. Apply on premises or T.E. Cisney, 38, Park Row, New York.
Editor’s Note The building at 766 Ocean Avenue was constructed in 1912. Currently rents in the same building are approximately $2,200 a month for a two bedroom unit. According to Zillow, you could buy Apartment Q (two bedroom, one bath) in that building for about $661,794. Such a deal!
Peiper’s Prost:
Greetings. We start by thanking old and new friends alike for their warm reception at the NYSBA’s recent Law School for Claims Professional’s event in Albany. Every few years, the Bar Association adds a new wrinkle to its course options. This year was no exception, as the program contained an interactive discussion between counsel, claims and engineers. I learned at least as much, if not more, by being part of that discussion than any other CLE I can remember.
Obviously, in a first-party claim your expert/engineer is your most effective weapon. As my friend Stu Morrison showed me last week, they can also be quite an effective teacher.
Speaking of mentoring, in my first year as an associate attorney, I recall sitting at lunch with a more experienced attorney from whom I learned much. At that particular lunch, this individual was talking about the technological advances that, as a kid, he assumed he’d see by the time he reached a more mature age.
I am not that old, and this lunch did not occur that long ago, relatively speaking, but I recall having a good laugh at his suggestions of self-driving vehicles, rocket packs and living in bubbles under the ocean. We may be years, if not decades, away from rocket packs, but we are closer to the future than I ever thought possible.
This week, in case you missed it, the NHTSA released a much anticipated set of guidelines governing autonomous vehicles. California has taken the lead among states, and has introduced the first regulations on autonomous vehicles. While a good start, we haven’t even scratched the surface of what is possible.
What is a virtual certainty, however, is that autonomous vehicles will be seen on your local roadways with ever increasing frequency. With an estimated 94% of automobile accidents caused by driver error, the move toward taking the steering wheel out of someone’s hand should be a welcomed change. The world of automobile insurance, and automobile lawsuits, is surely to be transformed. Given that nearly every insurance defense or insurance coverage lawyer grew up in the world of auto collisions, it is a world with which we have much experience.
The change will be palpable, but it will lead to new risks and solutions as well. Cyber security, mechanical failure, mechanical error, and lack of maintenance are but a few of the issues lurking just around the next virtual corner.
We encourage you to watch this space frequently for updates as new regulations are announced and advanced.
That’s it for now.
-sp
P.S. – A word, or several, on Oktoberfest. In case you were wondering (as I was), Oktoberfest is not just a way for American beer manufactures to sell new labels. It turns out the first one was inspired by Crown Prince Ludwig’s marriage to Princess Therese of Saxony-Hildburghausen on October 12, 1810. The fine folks of Munich were invited to attend the festivities. Horse races closed the event, and when the races were repeated the following year the event was well on its way to becoming the second most exploited European drinking holiday in the U.S.
P.P.S. – I found the same story from multiple sources, so I’m relatively confident it’s accurate. All but the exploitation part, that is; that was sourced from my own personal observation. Glücklich Wiesn.
Steven E. Peiper
A Good Judge of Talent;
Chicago Eagle
Chicago, Illinois
23 Sep 1916
BRIGHTEST STAR OF SEASON
Roger Hornsby, Who is Doing So Well
With St. Louis, Was Recommended
to Other Clubs
If you should happen to meet three certain major-league managers, do not mention the name of Roger Hornsby. This young man was recommended to three clubs while he was playing with the Denison team of the Western association last season, but the scouts sent to look him over declared that he would not do.
Hornsby is batting well over the .300 mark at present, stands fourth in extra-base hitting, and has played third, short and first in brilliant fashion. He is the star recruit of the season.
Editor’s Note: Hornsby entered the Majors for St. Louis in 1915, at age 19, playing in 18 games. A star by 1916, he played until 1937 when he retired at age 41. He was inducted into the Hall of Fame in 1942. Hornsby had a lifetime batting average of .358, only second to Ty Cobb’s .367. Babe Ruth had a lifetime batting average of .342, Gehrig .340 and Musial .331. He captured the triple crown in 1922 when he had a .401 batting average, a .459 on base percentage and a .722 slugging percentage (along with 42 home runs).
Highlights of This Week’s Issue:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
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Court of Appeals Rights a Wrong – Insurer had Not Waived Coverage Defense – Should have Cited to Coverage Pointers.
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Parsing Additional Insured Language – an Endorsement that Provides AI Coverage to Any Organization …. with whom the Insured has Agreed to Add an Additional Insured .. Requires a Contract Between the Named Insured and the Purported AI for AI Status to be Created
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
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At Trial It Was Established That Plaintiff Failed to Inform His Doctors That He Had Previously Felt Pain in the Affected Areas Which They Conceded on Cross Examination Showed Signs of Degeneration
TESSA’S TUTELAGE
Tessa R. Scott
[email protected]
Arbitration:
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The Claimant Must Provide a Rebuttal to a Peer Review Report to Have a Shot at Success
.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
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Constructive Notice Requires Actual Evidence of Last Inspection or Cleaning Prior to Injury Producing Event
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Use of Deposition Transcript in Opposition to a Motion Waives Arguments to its Admissibility
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
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Second Circuit Holds that Where Policies Do Not Have Express Duty to Defend Language, Defense Obligation Owed Only for Covered Claims in Oil Spill Case
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Second Circuit Rules that Amtrak’s Flood Sublimit Applied to Superstorm Sandy Damages, “Flood” Definitions were Unambiguous, and Corrosion was Necessarily Tied to Water Damage and Subject to Sublimit
JEN’S GEMS
Jennifer A. Ehman
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General Contractor and Subcontractor entitled to Contractual Indemnity from Supervising Sub-Subcontractor/Employer
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Carrier has no Obligation to Pay for Roof Damage Where Roof was Repaired and Debris Removed Prior to Inspection
BARNAS ON BAD FAITH
Brian D. Barnas
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Bona Fide Dispute over the Cause of Roof Damage was Fatal to Claim for Extra-Contractual Damages
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Boilerplate Allegations of Bad Faith, without more, held Insufficient to State a Claim
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Violations of the Oregon Unfair Claim Settlement Practices Act are not a per se Violation of the Duty of Good Faith
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
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Strict Notice Requirements under Claims-Made Policies
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All in the Family, Nothing under the Policy
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
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DFS Announces New Proposed “Cybersecurity Requirements for Financial Services Companies”
EARL’S PEARLS
Earl K. Cantwell
[email protected]
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Latent Construction Defects Not Covered
That’s about all. Enjoy life as every day is a gift.
Dan
Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Office: 716.849.8942
Mobile: 716.445.2258
Fax: 716.855.0874
E-Mail: [email protected]
Website: www.hurwitzfine.com
Twitter: @kohane
LinkedIn: www.linkedin.com/in/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
Audrey A. Seeley
Jennifer A. Ehman
Patricia A. Fay
Agnieszka A. Wilewicz
Jennifer J. Phillips
Brian D. Barnas
Howard B. Altman
Diane F. Bosse
Joel R. Appelbaum
FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]
Michael F. Perley
Robert E. Hewitt, III
Jennifer J. Phillips
Brian D. Barnas
NO-FAULT/UM/SUM TEAM
Audrey A. Seeley, Team Leader
[email protected]
Jennifer A. Ehman
Patricia A. Fay
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
Phillips’ Federal Philosophies
Altman’s Administrative (and Legislative) Agenda
Earl’s Pearls
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
09/15/15 Estee Lauder Inc. v. OneBeacon Insurance Group
New York Court of Appeals
Court of Appeals Rights a Wrong – Insurer had not Waived Coverage Defense – Should have Cited to Coverage Pointers
We reviewed and criticized the First Department decision in this case in our July 16, 2015 issue (Vol. XVII, No. 2):
07/09/15 Estee Lauder Inc. v. OneBeacon Insurance Group, LLC
Appellate Division, First Department
Court Applies Common Law Waiver Principles, It Says, to Property Damage Denial and Finds Insurer Waived Coverage Defenses
OneBeacon waived its right to assert the affirmative defense of late notice when it failed to raise that ground in its letter of disclaimer to plaintiff. The Court did not decide this case on statutory waiver (which only applies to bodily injury or wrongful death cases under Insurance Law Section 3420(d)(2) but on common law waiver. This one seems destined for reversal
The court held that It notes that under New York law, "an insurer is deemed, as a matter of law, to have intended to waive a defense to coverage where other defenses are asserted" and the insurer knows of "the circumstances relating to its defense of untimely notice" and states that OneBeacon did not dispute that it had such knowledge long before it sent the 2002 letters (id.at 36). Thus, in a matter involving property damage claims, it relied on the common law for the proposition that "[a] ground not raised in the letter of disclaimer may not later be asserted as an affirmative defense.
The Court did note that the Court of Appeals frowned on an earlier decision in the same case: In KeySpan Gas E. Corp. v Munich Reins. Am., Inc. (23 NY3d 583 [2014]) the Court of Appeals stated that "[t]o the extent Estee Lauder Inc. v OneBeacon Ins. Group, LLC (62 AD3d 33 [1st Dept 2009]) ... and other Appellate Division cases hold that Insurance Law § 3420(d)(2) applies to claims not based on death and bodily injury, those cases were wrongly decided and should not be followed".
Editor’s Note: No matter how the court couches it, it is waiver principles without proof that the insurer had abandoned this defense. Sorry, don’t buy it.
The high court agreed and reversed the First Department order:
Analyzing the circumstances under the common-law waiver standard, which requires an examination of all factors, defendants cannot be said to have waived their right to assert the late-notice defense as a matter of law by failing to specifically identify late notice in their disclaimer letters.
Defendants identified the late-notice defense in early communications with plaintiff before relying on a reservation of rights in two disclaimer letters. "[U]nder common-law principles, triable issues of fact exist whether defendants clearly manifested an intent to abandon their late-notice defense" (Keyspan Gas E. Corp. v Munich Reins. Am., Inc., 23 NY3d 583, 591 [2014]). Accordingly, Supreme Court properly granted defendants' motion for leave to amend their answer to reassert the affirmative defense of late notice.
09/15/16 Gilbane Building Co v. St. Paul Fire and Marine Ins. Co.
Appellate Division, First Department
Parsing Additional Insured Language – an Endorsement that Provides AI Coverage to Any Organization …. with whom the Insured has Agreed to Add an Additional Insured ... Requires a Contract between the Named Insured and the Purported AI for AI Status to be Created
Plaintiffs Gilbane Building Co./TDX Construction Corp., a Joint Venture (“JV”), and its individual members, Gilbane Building Company and TDX Construction Corporation, construction managers at a job site, seek a declaration that defendant Liberty Insurance Underwriters (“LIU”) is obligated to defend and indemnify them, as an additional insured under a commercial general liability (CGL) policy issued by Liberty to a prime contractor. The principal issue in this appeal is the interpretation of the additional insurance endorsement in the policy which provides that an additional insured is "any person or organization with whom you [the insured] have agreed to add as an additional insured by written contract."
The court held that the subject additional insured clause covers only those that have written contracts directly with the named insured.
The City of New York (“City”) owned the property. Dormitory Authority of the State of New York (“DASNY”) was the project manager and JV provided construction management services. Sampson Construction (“Sampson”) entered into a contract with DASNY as a prime contractor and was required to name the construction manager, DASNY, the CITY and the JV as an additional insureds under its liability policies.
Samson, as required, obtained a policy from defendant LIU that contained, as is relevant to this dispute, an "Additional Insured-By Written Contract" clause, stating:
"WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract but only with respect to liability arising out of your operations or premises owned by or rented to you.”
During the project, Samson's excavation and foundation work allegedly caused adjacent buildings to sink, resulting in significant structural damage to those buildings. In 2006, DASNY sued Samson and the architects seeking damages for Samson's negligence in performing the work. Liberty denied coverage to plaintiffs by letter dated July 20, 2011, stating that plaintiffs had provided no documentation that Samson, the named insured, was supposed to defend and indemnify them, and that, in any event, plaintiffs' notice of the third-party action five months after it had been initiated was not timely under the policy.
The JV then commenced this action seeking a declaration that Liberty is obligated to provide them with coverage.
In this case, the First Department held that the language age in the "Additional Insured-By Written Contract" clause of the Liberty policy clearly and unambiguously requires that the named insured execute a contract with the party seeking coverage as an additional insured. Since there is no dispute that Samson did not enter into a written contract with the JV, Samson's agreement in its contract with DASNY to procure coverage for the JV is insufficient to afford the JV coverage as an additional insured under the Liberty policy.
In a decision that led to great debate between and among the lawyers on the H&F coverage team, the court held dove into universe of linguistics:
…the word "whom" is the object both of the preposition "with" and of the infinitive "to add." To make the parties' intent clear, the language should be read without the unnecessary preposition "with," i.e., "any . . . organization . . . whom you have agreed to add as an additional insured by written contract." Read in this manner, the Samson-Liberty policy would be understood to cover any party the policyholder agreed by written contract to cover.
Basically, “with whom you have agreed” meant there had to be an agreement with the party seeking additional insured coverage.
Editor’s Note: Words matter.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
09/14/16 Yuzary v. Hafif
Appellate Division, Second Department
At Trial It Was Established That Plaintiff Failed to Inform His Doctors That He Had Previously Felt Pain in the Affected Areas Which They Conceded on Cross Examination Showed Signs of Degeneration
The Appellate Division affirmed in support of a jury verdict which found plaintiff did not suffer a serious injury in a car accident. The plaintiff commenced this action to recover damages for personal injuries resulting from a motor vehicle accident in which a vehicle operated by the defendant struck the plaintiff's vehicle in the rear. The lower Court granted the plaintiff's motion for summary judgment on the issue of liability as there is a rebuttable presumption that rear end collisions are the fault of the rear driver.
At the ensuing jury trial on damages, the plaintiff presented evidence that he experienced significant deficits in the range of motion of the lumbar region of his spine, his left shoulder, and his left knee. On cross-examination, the plaintiff admitted that he previously had been convicted of filing false statements. He further testified that, while he was in prison, he experienced shoulder and back pain. He testified that he never told the doctors who treated him after the accident about the pain he experienced while in prison. The plaintiff's expert physicians similarly testified that the plaintiff failed to inform them of the symptoms he experienced in his back, left shoulder, and left knee prior to the accident. Both of the plaintiff's experts further conceded on cross-examination that these areas of the plaintiff's body showed signs of degeneration.
The defendant presented the testimony of two expert physicians who reviewed MRI films of the plaintiff's alleged injuries and concluded that the plaintiff's alleged deficits were caused either by prior trauma or by degeneration, and not by the accident. The jury found that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the accident. As a jury verdict should not be set aside as contrary to the weight of the evidence unless the jury could not have reached its verdict on any fair interpretation of the evidence, the jury's conclusion that the plaintiff did not sustain a serious injury as a result of the accident constituted a fair interpretation of the evidence.
TESSA’S TUTELAGE
Tessa R. Scott
[email protected]
Arbitration:
09/22/16 Proscab Radiology Buffalo v A. Central Ins. Comp.
Arbitrator Brown
The Claimant Must Provide a Rebuttal to a Peer Review Report to Have a Shot at Success
The injured party was involved in a motor vehicle accident on 9/7/14. On 10/2/14 she was referred for a cervical and a lumbar MRI study, which were both performed on 10/10/14. Reimbursement has been denied based on a peer review prepared by Dr. Craig Horner, DC, on 11/9/14.
Following the 9/7/14 accident, she was transported to a hospital where she was X-rayed and discharged with pain medication. Two days later she went to an immediate care facility, complaining of neck pain. On 9/12/14, she was evaluated prior to beginning chiropractic care with Dr. Croce. Almost a month later, on 10/2/14, Dr. Croce referred her for the subject MRI studies. The MRIs revealed lumbar and cervical disc herniations and bulges, as well as C4-C5 retrolisthesis.
Dr. Horner's peer review recommended denying reimbursement because she had no follow-up or reevaluation with Dr. Croce prior to his ordering the MRI studies. Claimant argued that the fact that the studies were positive was indicative of their medical necessity.
Applicant argued that the Horner peer review was insufficient because it discounted the conservative care with other providers that the injured party underwent after her evaluation by Dr. Croce. Applicant also argued that the results of the tests show their medical necessity, since they were both positive for significant spinal conditions.
Arbitrator Brown noted that Dr. Croce did not reevaluate the patient prior to ordering the tests and that the injured party had no chiropractic care between 9/12/14 and 10/2/14, when the referral for the MRIs was signed. As such, he found Dr. Horner's peer review report to be sufficient, “inasmuch as he enunciates a standard of care, and relates the facts of the injured party’s case to that standard. He clearly stated that which should be present for such a test to be ordered, and describes exactly what was missing, that made this test not in accord with a generally accepted standard of practice.”
Arbitrator Brown further found that there was no rebuttal to the peer review contained within claimant's submission, whether explicit or constructive, which would serve to contradict or rebut Dr. Horner's findings. As such, Arbitrator Brown denied the claim.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
09/14/16 Giantomaso v T. Weiss Realty Corp.
Appellate Division, Second Department
Constructive Notice Requires Actual Evidence of Last Inspection or Cleaning Prior to Injury Producing Event
Plaintiff slipped and fell on ice when exiting a building owned by defendant T. Weiss. At the close of discovery, defendant moved for summary judgment on the basis that it did not have actual or constructive knowledge of the allegedly dangerous condition which caused Ms. Giantomaso’s fall.
While it met its burden with respect to the actual notice requirement, T. Weiss failed to establish that it lacked constructive knowledge. The defendant established its normal business practices, but it failed to demonstrate any evidence as to the last time the site was inspected prior to the incident.
Plaintiff’s cross motion on res ipsa was also denied. The court noted that while res ipsa motions are rarely granted, it is possible so long as the movant demonstrates (a) the event does not occur without someone’s negligence (b) the cause of the injury was in the exclusive control of the defendant and (c) that the incident was not caused by any voluntary action of the plaintiff. Here, apparently, plaintiff failed to offer any evidence exculpating herself, and her motion was denied accordingly.
09/14/16 Gallway v Muintir, LLC
Appellate Division, Second Department
Use of Deposition Transcript in Opposition to a Motion Waives Arguments to its Admissibility
In this slip and fall lawsuit, plaintiff alleged that she was caused to fall as a result of a 1 ½ inch hole that had formed in the concrete outside of defendant’s restaurant. In support of its motion, defendant produced an employee who stated that he never saw the alleged defect prior to plaintiff’s injury. In addition, plaintiff’s own deposition testified that in the 10 prior visits within the year prior to the fall she, too, had never noticed the allegedly defective condition. On that record, defendant’s motion was granted and affirmed by the Appellate Division.
The appellate opposition also discussed the evidentiary question of whether plaintiff’s deposition was properly placed into evidence, as it was unsigned. Because plaintiff relied upon the deposition, her opposition insofar as it alleged the transcript was not properly in evidence was waived. In addition, defendant’s offer on reply of the stenographer’s verification that transcript was a true and accurate copy of the transcript sent to plaintiff was deemed to be curative as well.
Finally, plaintiff’s attempt to rely upon an affidavit of a previously unidentified witness was stricken. The court noted that the witness was not disclosed in discovery responses, and plaintiff offered no good reason for the oversight.
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
09/08/16 Petroterminal De Panama v. Houston Casualty Company
United States Court of Appeals, Second Circuit
Second Circuit Holds that Where Policies Do Not Have Express Duty to Defend Language, Defense Obligation Owed Only for Covered Claims in Oil Spill Case
Petroterminal owns and operates oil transport and storage facilities in Panama. As part of those operations, in 2007 they had two insurance policies: a marine primary policy and a bumbershoot policy (a type of umbrella coverage for marine risks). When a pipeline control valve failed in February 2007, Petroterminal was sued in New York. The claim against them sounded in breach of contract, as the allegations stated that the oil spill amounted to a breach of their Transport and Storage Agreement with Castor Petroleum. Castor allegedly suffered damages for shipping expenses, trading losses, and lost profits as a result, which thereby triggered Petroterminal’s indemnity obligations under the contract.
When Petroterminal was sued, the insurers agreed to provide a defense. However, all sides agreed that the losing party to any subsequent coverage litigation would reimburse the prevailing party for costs advanced or owed. In that later declaratory judgment action, the insurer won, since the Castor claims were found to fall within the policies’ exclusions. The Second Circuit here took up the case and reviewed.
Interestingly, the policies did not contain duty to defend language. Rather, they provided that they would pay for costs incurred with viable claims. To that end, the primary policy stated that it would “pay on behalf of [Petroterminal], any ... sums as [it] may be liable to pay as the result of an accident” as well as “costs in connection with any claim thereunder”. The bumbershoot policy provided coverage for sums “which the Insured shall become legally liable to pay as damages” including defense costs “paid as a consequence of any occurrence covered hereunder”.
The court held that this language, in keeping with precedent, created a duty to pay defense costs but only for claims that were established to be covered through either judgment or settlement. The policies only contained duties to indemnify. That is, defense costs would only be owed for covered claims, not potentially covered claims. Here, the policies excluded coverage for losses resulting from seizure and confiscation. Moreover, the only losses were for business interruption, trading losses, lost profits, and other consequential damages, which also were not covered. With no covered claims, the insurers had no duty to advance defense costs. Indeed, under the policy terms, they were even entitled to recoupment of those costs they had advanced.
09/07/16 National Railroad Passenger Corp. v. Aspen Specialty Ins. Co.
United States Court of Appeals, Second Circuit
Second Circuit Rules that Amtrak’s Flood Sublimit Applied to Superstorm Sandy Damages, “Flood” Definitions was Unambiguous, and Corrosion was Necessarily Tied to Water Damage and Subject to Sublimit
Following damage it sustained during Superstorm Sandy in 2012, Amtrak (aka National Railroad Passenger Corp.) sought all of its available $675 million in coverage from its various insurers. A major portion of that claim stemmed from flooding in its tunnels in the East River and Hudson River by seawater. On this appeal, at issue were three questions: 1) whether the damage caused by the inundation of water into the tunnels was subject to the policies’ $125 million flood sublimit; 2) whether the corrosion of Amtrak’s equipment after it pumped out the seawater was an not “ensuing loss” and therefore subject to the flood sublimit; and 3) whether Amtrak had shown an entitlement to coverage under the Demolition and Increased Cost of Construction (DICC) clause of its policies.
The first point, whether the flood sublimit applied, was complicated by the fact that the policies contained three different definitions of “flood”. One definition (contained in a majority of the policies) defined it as “a rising and overflowing of a body of water onto normally dry land”. Another defined it as a “temporary condition of partial or complete inundation of normally dry land from (1) the overflow of inland or tidal waters outside the normal watercourse or natural boundaries; (2) the overflow, release, rising, back-up, runoff or surge of surface water; or (3) the unusual or rapid accumulation or runoff of surface water from any source”. Finally, another definition was “surface water, flood waters, waves, tide or tidal waters, sea surge, tsunami, the release of water, the rising, overflowing or breaking of defenses of natural or manmade bodies of water, or wind driven water, regardless of any other cause or event contributing concurrently or in any other sequence of loss”.
The Second Circuit held that under any of these definitions, the storm surge caused by Sandy was a “flood”. The fact that there were three different definitions of that term did not render it ambiguous. The terms were clear, albeit broad, and the storm surge fit squarely within any of them.
Second, with regard to whether the corrosion of the pumping equipment was or was not an “ensuing loss”, the court again looked at the policy language. The policy provided that “Even if the peril of flood ... is the predominant cause of loss or damage, any ensuing loss or damage not otherwise excluded herein shall not be subject to any sublimits”. Amtrak had argued that the corrosion to its equipment (a large source of its damages after Sandy) was actually caused by a “chloride attack”. This happens when seawater residue combines with oxygen in the air. Since this would be a separate covered peril, they claimed, it was separate from the flood and not subject to the sublimit. The Second Circuit disagreed – such a reading was too broad. The corrosion of the equipment could not meaningfully be separated from the water damage caused by the flood. Thus, it was all subject to the flood sublimit.
Finally, the policy’s DICC clause provided that: “In the event of loss or damage under this policy that causes the enforcement of any law, ordinance, governmental directive or standard regulating the construction, repair, use, or occupancy of property, this Company shall be liable for: (1) the cost of demolishing the undamaged property including the cost of clearing the site; (2) the proportion that the value of the undamaged part of the property bore to the value of the entire property prior to loss; (3) the increased cost of repair or reconstruction of the damaged and undamaged property on the same or another site, limited to the cost that would have been incurred in order to comply with the minimum requirements of such law or ordinance regulating the repair or reconstruction of the damaged property on the same site ...” However, the Second Circuit punted on analyzing this provision. It held that it was premature at this juncture to rule on whether it applied, since it did not have a time limit and federal regulations might require Amtrak to make changes to tracks in the future. Should that happen, Amtrak could then make a claim and seek to enforce it on the merits.
Jennifer A. Ehman
09/19/16 Kosiv v. ATC Group Servs., Inc.
Supreme Court, New York County; Hon. J. Braun
General Contractor and Subcontractor entitled to Contractual Indemnity from Supervising Sub-Subcontractor/Employer
This decision arises from a New York labor law claim. Plaintiff slipped and fell on water which allegedly came from a box containing asbestos debris which had been hosed down to avoid spreading asbestos dust during a renovation project. Plaintiff claimed the fall occurred in the back of an unlit trailer.
The property was owned by the United Nations who hired Skanska to act as its construction manager. Skanska then retained Wing Specialty Trades (“Wing”) for the abatement work which was then subcontracted out to plaintiff’s employer, Pinnacle Environmental.
For our purposes, the court began by considering Skanska and Wing’s motion seeking to dismiss the § 200 and common law negligence claim.
In considering the evidence, the court found that plaintiff was supervised by another employee of Pinnacle. Neither Skanska nor Wing supervised, directed or controlled the specific work. Skanska’s general supervisory and site safety functions were insufficient to impose liability. As a reminder, for common law liability, it has to be established that the contractor actually exercised supervision and control of the work as opposed to merely have the authority to do so. And, Wing did not perform any actual work at the site. In fact, plaintiff testified that he did not even know who Wing was.
The court also noted that since plaintiff alleged that the dangerous condition on the floor was created by watering down bags and boxes, plaintiff was referring to the means and methods of the work that Skanska and Wing did not directly supervise, and not the condition of the premises. Thus, the § 200 and common law negligence claims against Skanska and Wing was dismissed.
The question then became whether Skanska and Wing were entitled to contractual indemnity pursuant to Wing’s agreement with Pinnacle. The agreement provided that Pinnacle would indemnify Wing and Skanska if the claim or injury arose out of or resulted from Pinnacle’s work under the subcontract. The court found that plaintiff’s injury arose out of Pinnacle’s work as those words have been construed. Thus, the court found Skanska and Wing were entitled to defense costs from Pinnacle, and Skanska was entitled to indemnity (of note, where Wing was entitled to indemnity appeared moot to the court since the claims against Wing were dismissed as it was not an appropriate labor law defendant).
06/28/16 TV Realty, LLC v. Tower Ins. Co. of N.Y.
Supreme Court, Bronx County; Hon. Kenneth L. Thompson, Jr.
Carrier has no Obligation to Pay for Roof Damage Where Roof was Repaired and Debris Removed Prior to Inspection
Plaintiff sustained damage to the roof and interior of its building due to wind and rain damage, which occurred on December 26-27, 2012. Although Plaintiff contacted a public adjuster on the 27th, it failed to provide notice of the loss to Tower, its insurer, until January 10, 2013. Plaintiff then postponed two visits by Tower to inspect the property, and when Tower’s adjuster appeared for the inspection on January 24, 2013, the roof had been repaired and the debris removed from the site.
The court found these actions violated two sections of the policy, one requiring prompt notice of a loss, and the other to make damaged property available for inspection. Plaintiff’s claim that the delay in notifying Tower was necessitated by the busy schedule of the public adjuster was dismissed by the court as irrelevant. The court emphasized that plaintiff had an obligation to promptly notify Tower, and no valid excuse was provided for that failure. The court also noted that while Tower was not obligated to show it was prejudiced by the failure to provide prompt notice, the delay in this case was prejudicial as it resulted in Tower never having the opportunity to inspect the damaged roof or debris.
Brian D. Barnas
09/21/2016 One Way Investments, Inc. v. Century Surety Company
United States District Court, Northern District of Texas
Bona Fide Dispute over the Cause of Roof Damage was Fatal to Claim for Extra-Contractual Damages
Century insured One Way's Han Gil Hotel Town in Dallas under a Texas Commercial Property Insurance Policy. One Way alleges that, on or about June 13, 2012, a severe hail storm caused significant damage to the Property's roof and appurtenances and to its interior. One Way submitted a claim under the Policy for wind and hail damage caused to the Property by the storm, seeking the cost for repair and/or replacement of the roof, air conditioning units, and damage to the interior walls.
Century's adjuster estimated the cost of the Property damage to be $2,372.43, which was less than the amount of One Way's deductible. Accordingly, Century did not pay any amount on One Way's claim. Century also maintained that the Policy did not cover damage or loss to the Property due to wear and tear.
One Way brought a lawsuit against Century alleging that it breached the insurance contract and the duty of good faith and fair dealing. The Court granted summary judgment in favor of Century on the breach of contract cause of action. It reasoned that there was no evidence that would allow a jury to determine what portion of the loss was caused by covered hail and wind damage and what portion was caused by wear and tear.
The court also dismissed the cause of action for extra-contractual damages. There was a bona fide dispute over coverage based on the Century’s expert’s report that “hail damage to the roof did not cause or contribute to roof leakage and that there was no wind damage to the roof,” and that “the poor condition of the roof was not caused by hail or any storm event but by the age of the roofing materials and normal wear and tear.” In addition, there was no indication that Century failed to timely respond to the claim or engaged in unfair settlement practices.
09/15/2016 Murphy v. State Farm Mutual Automobile Insurance Company
United States District Court, Eastern District of Pennsylvania
Boilerplate Allegations of Bad Faith, without more, held Insufficient to State a Claim
Ms. Murphy was insured by State Farm under insurance policy containing combined underinsured motorist (“UIM”) coverage of up to $75,000.00 for Ms. Murphy and her husband. On April 29, 2011, Ms. Murphy sustained injuries in a motor vehicle collision with a third non-party driver, who admitted 100% liability for the collision. Ms. Murphy eventually settled the claim against the driver for $46,635.00 with State Farm’s consent. Thereafter, Ms. Murphy submitted a UIM claim to State Farm. Ms. Murphy claimed that State Farm failed to make a reasonable and fair offer of settlement, and she filed a lawsuit alleging, inter alia, that State Farm acted in bad faith.
State Farm moved to dismiss the bad faith claim and was successful. The court noted that the allegations of the Complaint and its incorporated exhibits showed only that: (1) Ms. Murphy suffered an accident for which she was insufficiently compensated, (2) Ms. Murphy applied to State Farm for UIM compensation, and, (3) in accordance with Ms. Murphy's Policy, State Farm requested, and Ms. Murphy gave, State Farm the ability to obtain signed medical authorizations. These bare, boilerplate allegations without any factual allegations of delay, frivolous refusal to pay the policy proceeds, or failure to communicate were insufficient to state a bad faith claim.
09/13/2016 Lennon v. State Farm Fire & Casualty Insurance Company
United States District Court, District of Oregon
Violations of the Oregon Unfair Claim Settlement Practices Act are not a per se Violation of the Duty of Good Faith
Plaintiffs Ronald and Susan Lennon are a husband and wife. They were the owners of residential real property in Josephine County, Oregon. Plaintiffs' home was insured under a policy issued by Defendant State Farm. On May 25, 2015, Plaintiffs' home was rendered uninhabitable by a fire and most of its contents were destroyed. Within days of the fire, Plaintiffs contacted an agent of State Farm and submitted a claim for the loss. State Farm commenced an investigation and initially paid $2,500 on the claim, but refused to make any further payment. This failure resulted in the loss of the property.
Plaintiffs filed a lawsuit against State Farm arguing that it breached the duty of good faith and fair dealing. Plaintiff’s argued that State Farm violated the Oregon Unfair Claim Settlement Practices Act and that this violation gave rise to their claim.
The court rejected this argument. There is no private cause of action for violation of the Oregon Unfair Claim Settlement Practices Act, and violations of the act are not a per se violation of the duty of good faith. However, the conduct underlying an alleged violation may give rise to a claim of violation of the duty of good faith. While Plaintiffs argued that State Farm failed to acknowledge and act promptly upon communications relating to claims and refused to pay without conducting a reasonable investigation, the complaint did not allege these failures. Accordingly, the cause of action for violation of the duty of good faith and fair dealing was dismissed with leave to amend.
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
09/16/16 University of Pittsburgh v. Lexington Ins. Co. and Axis Ins. Co.
United States District Court, Southern District of New York
Strict Notice Requirements under Claims-Made Policies
This coverage dispute results from a notice of claim submitted by the insured, an architectural firm working for the University of Pittsburgh, on the last day of the coverage period of a claims-made policy with Lexington Insurance Company. In a prior opinion and order, the district court found that the notice was plainly deficient on its face under the unambiguous terms of the Lexington policy. That decision denied the University of Pittsburgh’s motion for summary judgment and, as the court notes, invited the summary judgment motion by Lexington at issue in the present decision.
The district court granted Lexington’s motion for summary judgment. In doing so, it rejected the University’s argument that precluding recovery under the Lexington policy would result in a “Catch-22” of no coverage under either the Lexington or the subsequent Axis claims-made policy, because under the Lexington policy the insured did not have enough knowledge of potential claims, while under the Axis policy the insured might have had too much knowledge of potential claims. “Yossarian would be unimpressed.” The district court found that the question of whether the University could recover against Axis was not before it on Lexington's motion for summary judgment, and that the University’s claims against Lexington and Axis “do not rise and fall together; they involve different contracts and different facts, and granting Lexington's motion for summary judgment does not necessarily preclude Pitt from pursuing recovery from Axis under that separate policy.”
Further: “the higher bar to recovery created by specific notice requirements in [the insured’s] insurance contracts—and the chance that a claim could accrue close to the termination date—are known risks of claims-made insurance policies. [The insured] could have insured itself in a more costly but less risky manner, for example, by purchasing occurrence coverage. It chose not to do so. Contrary to [the University’s] claim that denying recovery against Lexington would work an ‘unacceptable forfeiture,’ allowing [the University] to dodge a foreseeable consequence of [the insured’s] decision to pay less in premiums for a lower chance of recovery would give the insured an unfair windfall.”
09/08/16 Mikaelian v. Liberty Mutual Insurance
United States District Court, Eastern District of New York
All in the Family, Nothing under the Policy
In October 2012, Harry Mikaelian purchased and renovated a residential property. That same month, his father, Mikael Mikaelian, purchased a homeowner’s insurance policy to insure that same residential property. Although Harry resided at the insured premises, his father Mikael did not.
This insurance coverage dispute arises from a claim for coverage under the homeowner’s policy related to mold removal and remediation. Defendant Liberty Mutual moved to dismiss the complaint on the ground that, even assuming the allegations therein were true (the appropriate standard on such a motion), the plaintiffs failed to state a claim on which they could recover. The district court agreed.
Initially, the district court found that Harry was not an insured under the homeowner’s policy purchased by his father. Mikael, not Harry, was the named insured, and although related, the policy defined an “insured” as “you (the “named insured”) and residents of your household who are: a. Your relatives; or b. Other persons under the age of 21 and in the care of any person named above.” Although related, it was undisputed that these two did not live in the same household.
The district court then found that Mikael was not an insured because he lacked an insurable interest in the house owned by Harry; indeed, Mikael’s only connection with the insured premises was his purchase of the homeowner’s policy. The court noted that New York Insurance Law, in an effort to prevent fraud, precludes the enforcement of an insurance policy “except for the benefit of some person having an insurable interest in the property insured.” Quoting New York case law, the district court noted, “In general a person has an insurable interest in the subject matter insured where he has such a relation or connection with, or concern in, such subject matter that he will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against.”
Plaintiffs’ bad faith claim was dismissed on the ground that it relied solely on the insurer’s denial of coverage, which is insufficient to state a cognizable bad faith claim under New York law. Further, because the allegations in the complaint made clear that the plaintiffs did not rely on any representations made by defendant regarding the need for mold remediation, the district court also dismissed the plaintiffs’ claims for fraudulent investigation and negligent misrepresentation.
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
DFS Announces New Proposed “Cybersecurity Requirements for Financial Services Companies”.
On September 13, the New York Department of Financial Services (DFS) issued what was described as “a new first-in-the-nation regulation” titled “Cybersecurity Requirements for Financial Services Companies”, a set of that rules that would require banks, insurers, and other DFS-regulated companies to adhere to stringent cybersecurity requirements mandating firms to test their systems, establish plans to respond to cybersecurity events, and annually certify compliance with the cybersecurity requirements, among other mandates.
The proposed regulations are in direct response to a number of high-profile “hacking” and leak cases. New York is the first in the Nation to seek to establish such guidelines. Comments on the proposed rules are due in 45 days.
The proposed regulations may be viewed at:
http://www.dfs.ny.legal/regulations/proposed.rp500t.pdf
The proposed regulation requires DFS-regulated financial services institutions, including, but not limited to, banks, insurance companies, money service businesses and regulated virtual currency operators, regardless of size, to do the following:
- establish a cybersecurity program designed to ensure confidentiality, integrity and availability of information systems;
- adopt a written cybersecurity policy setting forth policies and procedures for the protection of their information systems and nonpublic information;
- designate a qualified individual to serve as a Chief Information Security Officer responsible for overseeing, implementing and enforcing the cybersecurity program and policy;
- adopt policies and procedures designed to ensure the security of information systems and nonpublic information accessible to, or held by, third-parties; and
- abide by a series of additional requirements to protect the confidentiality, integrity and availability of information systems.
Important Dates
Comments on the Proposal are due by November 12, 2016. The Proposal, unless modified, would become effective on January 1, 2017, with a 180-day grace period for compliance. Thus, banking, insurance, and financial services firms subject to the proposed regulations would be required to have a cybersecurity program and other requirements in place by June 30, 2017, and covered entities would begin filing the annual compliance certification (described below) on January 15, 2018.
The Proposal would require each covered entity to establish a cybersecurity program that
- identifies internal and external cyber risks;
- uses defensive infrastructure to protect the covered entity’s Information Systems[6] and Nonpublic Information stored on such systems from unauthorized access, use, or other malicious acts;
- detects “Cybersecurity Events,” defined as “any act or attempt, successful or unsuccessful, to gain unauthorized access to, disrupt, or misuse an Information System or information stored on such Information System”;
- responds to identified Cybersecurity Events to mitigate any adverse effects;
- recovers from Cybersecurity Events (the Proposal does not mandate a specific recovery time objective); and
- fulfills all regulatory reporting obligations.
As part of a covered entity’s cybersecurity program, a covered entity would be required to establish a cybersecurity policy that addresses 14 areas, including customer data privacy, vendor and third-party service provider management, risk assessment, and incident response, among others. A covered entity’s board of directors would need to review (and a senior officer approve) the cybersecurity policy at least annually and as frequently as necessary to address the cybersecurity risks posed to the covered entity. The proposed regulations will impose “minimum” requirements for quarterly vulnerability assessments, including incident response plans, encryption, access permissions, and authentication methods typically found in cybersecurity best practices.
Chief Information Security Officer and Other Personnel
A covered entity would be responsible for designating a qualified individual to serve as a Chief Information Security Officer (CISO) to oversee and implement the cybersecurity program and enforce the cybersecurity policy. The Proposal would permit a covered entity to use a third-party service provider to comply with this requirement, but the covered entity would retain responsibility for compliance and would need to designate a senior member of its personnel to oversee the third-party service provider. The proposal requires a bi-annual report to the covered entity’s board of directors. The CISO’s bi-annual report to the covered entity’s board of directors must assess the confidentiality, integrity, and availability of the covered entity’s Information System, detail exceptions to the covered entity’s cybersecurity policies and procedures; and identify cyber risks to the covered entity, and assess the effectiveness of the cybersecurity program. In addition, the CISO would be required on an annual basis to review, assess, and update the covered entity’s guidelines, procedures, and standards for secure development practices of in-house applications.
The proposed regulations also would require a covered to notify the Superintendent within 72 hours of becoming aware of a Cybersecurity Event
In short, the proposed regulations will require insurers to (1) promulgate cybersecurity measures; (2) appoint an ‘overseer’ to oversee compliance with cybersecurity measures; and (3) notify DFS of any cybersecurity event.
Earl K. Cantwell
[email protected]
02/05/16 Reginella Construction Co. v. State Farm Fire & Casualty Co.
United States District Court, Western District of Pennsylvania
Latent Construction Defects Not Covered.
Mr. Eck bought a house built by Reginella in Pennsylvania in 2005, and several years later in 2012 noticed problems with the floors on the second story of the house. The customer eventually alleged that the contractor used faulty materials and substandard construction which caused bulging floors and other structural problems. State Farm insured the contractor during the policy period in which the house was built 2004-2006. The policy covered property damage caused by an occurrence during the policy period.
The customer sued Reginella, who tendered the case for defense and indemnification to State Farm, and State Farm rejected the tender on the primary basis that the alleged construction defects were not discovered until 2012. Therefore, State Farm argued that there was no “occurrence” as specified in its policy within the policy period. Eventually, the insured sued State Farm in 2015 for breach of contract, bad faith, unreimbursed attorneys’ fees, punitive damages and other costs. The District Court in Pennsylvania agreed with State Farm’s principal position and granted the insurer’s motion to dismiss. The triggering “occurrence”, the Court found, took place after State Farm’s policy expired.
The Court admitted that the cause of the damage, the allegedly defective construction, arguably occurred within State Farm’s coverage period, but cause of injury is not necessarily determinative of the date an insurance policy is triggered unless specifically required by the language of the policy. The Court ruled that State Farm’s coverage denial was based on a consistent reading of the insurance policy, and was legally proper with respect to coverage under occurrence-based policies.
This case is interesting, because, generally, in construction defect litigation the defect occurs at the time of defective construction during the contractor’s actual physical work. Typically, the active negligence of the contractor is held to be the defect, which occurs at the time of construction. For example, cases dealing with the statute of limitations have consistently held that the statute begins to run on constructions defects from completion of the contractor’s actual physical work, and not when defects are discovered or first observed.
In this case, the Court seems to be saying that under the policy manifestation of injury was the occurrence, and that did not arise until 2012 regardless of the fact that the alleged defective construction took place back in 2004-2006 during State Farm’s policy period.
The Court held that there was no coverage under the State Farm 2004-2006 policy even though it was an occurrence-based policy, although the reasoning is more attuned to a claims-made policy, i.e., no visible damage and claim made until 2012.
