Volume XVIII, No. 12 (No. 468)
Friday, December 2, 2016
A Biweekly Electronic Newsletter
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Phone: 716-849-8900
Fax: 716-855-0874
Long Island Office:
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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.
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Dear Coverage Pointers Subscribers:
Do you have a situation? We love situations.
We deliver greetings from the home office, here in Western New York. We hope you had a delightful Thanksgiving, that the leftovers are either gone or frozen and that you have started thinking about the drone you are thinking of buying for your kids (or for yourself) along with an appropriate insurance policy to cover the risk.
Things have not yet started to slow down for the holiday season. Back in the day, once the turkey carcass turned into soup, we spent the next couple of weeks settling cases to reduce reserves by year-end. Nowadays, we find those cases need to be wrapped up by November and December remains busy. As we say in cold country, every day that goes by is one day closer to spring. Oh, in case you are counting or curious, the vernal equinox will occur on Monday, March 20, 2017 at 5:20 AM EST (a mere 107 days away). Not that I am counting.
On Monday, I’m heading to Minneapolis for a mediation scheduled for Tuesday and then on Wednesday, I will be flying NYC for the DRI Insurance Coverage and Practice Symposium. Busy few days ahead, for once. You can always reach me on my cell at 716-445-2258.
You’ll find a couple of interesting jewels in this issue, including one where the First Department, the source of most “additional insured” case law, again tries to fine tune often stated views on the subject.
DRI – Insurance Coverage and Practice Symposium
If you are there, please find me to say “hello”. I accept that it will be more difficult to do so if you are not.
Who Are We?
For those of you who have recently stumbled upon this newsletter because someone forwarded it to you and you recently subscribed, we welcome you to the Coverage Pointers family. Hurwitz & Fine, P.C. is a full-service law firm, with its headquarters in Buffalo, New York with another office in Long Island. We have lawyers strategically placed through New York to serve our friends and clients anywhere in the state. We have a robust coverage team, one of the most substantial and best layered in New York and handle all aspects of insurance coverage counseling and litigation. Our trial attorneys are available to try cases anywhere in the state (and do so).
Our New York State Labor Law team, spearheaded by Dave Adams, publishes a sister newsletter, Labor Law Pointers, and that is a must read to anyone who dabbles or dances in construction injury litigation. Contact Dave at [email protected] if you want to subscribe to this very useful and timely newsletter.
We also serve our clients in bad faith litigation, excess monitoring and spend a great deal of time in the mediation arena. We are often called in to represent the interests of insurers (or other interested parties) when claims with insurance “issues” are being mediated. There is rarely a week that goes by when one or more of our experienced team isn’t at JAMS, NAMS or another mediation service in New York City or in another jurisdiction anywhere in the country.
Moreover, as the opening line of this newsletter indicates, we love situations. What we mean by that is we so enjoying helping our clients (and friends) with strategic advice in order to unravel even the most complex (or seemingly hopeless) conundrum. Pick up the phone and call, and perhaps we can help you develop a path to resolving a difficult problem (or an easy one).
Training is available by our experienced staff, as well.
We sprinkle both notes from our attorneys and 100 year ago historical trivia, through this cover note. The actual Coverage Pointers issue is attached. Back issues are available on our website, with a search engine to help you find what you may need, even if you don’t want to talk with us! We don’t bite.
Jen’s Gems:
Greetings!
Hope everyone enjoyed a relaxing Thanksgiving with family and friends.
Next week I am heading to New York City for DRI’s Insurance Coverage and Practice Symposium. If you are local and have not yet registered, there is still time to do so. This is the foremost educational event for insurance executives, claims professionals and outside counsel who specialize in insurance coverage. Also, with CLE registration statements due at the end of the year for many, the symposium provides up to 12.25 hours of credit, including 2 hours of ethics credit. Register on-line today or register on-site at the Sheraton New York Times Square in the Central Park Ballroom. In addition, if you have already registered, I hope to see you there.
Until next issue …
Jen
Jennifer A. Ehman
Some Things Never Change: Let’s Do Away with the Electoral College – So They Said a Century Ago:
Everything
Greensboro, North Carolina
2 Dec 1916
ELECTORAL COLLEGE
Should Go, Says New York
After Losing Out
AND now much is being written on the proposed change in the constitution providing for the election of president of the United States by popular vote. We have referred from time to time to the agitation of this question, having its origin with the New York World, it appears, and being taken up by some of the thoughtless ones willing to follow the lead of that supposedly great democratic authority, and we are glad to note that our own objections are being sustained by the ablest of the southern newspapers finding their way to the editorial desk.
The Danville Register takes a fall out with the Richmond Journal for its too radical position along this line and proceeds to show that enterprising and progressive newspaper wherein and wherefore it would not do.
Our very highly esteemed contemporary, the Richmond Journal, is apparently so devoted to the cause of equal suffrage,” says the Register, “that it subordinates, if it does not ignore every other consideration entering into the agitation for the abolition of the Electoral College and the substitution of a plan for the election of president by direct popular vote. The effect of the policy advocated by the Journal would as effectually wipe out State lines as any plan we could conceive of.
The fundamental objection to the popular plans is that it would strip the several states of the last vestige of power secured to them in the constitution which they were so influential in framing. It is no argument to refer to that system as “antiquated,” as the Journal miscalls it. Indeed, there is vastly more reason to call it ‘time-honored,’ instead of antiquated. If the present election plan be antiquated and should be discarded for that reason, then there is equal reason for discarding the whole constitution, which is equally antiquated. So much for that ‘argument’ against the present system, if epithet be accepted as argument.
But, other considerations aside, the real reason for the perpetuation of the existing plan is the safeguarding of the interests of the small states, the purpose which the framers of the constitution had in view. It is surprising also, that a southern newspaper and one published in the capital of the Confederacy itself should be found joining in the thoughtless clamor of New York newspapers for the change of the popular plan of electing presidents. Every Southern state would lose influence in the choice of a president if the dual system of having that official chosen by men representing the various states, plus other men representing the population of the various states be discarded. We are not surprised to find the New York World clamoring in a leading editorial. ‘Abolish the Electoral College.’ It is significant, too, that New York’s clamor comes immediately after that populous state has been shorn of its dominating power in choosing a president. New York is no longer necessary in the election of a president. Nor is Pennsylvania, nor Indiana, nor Illinois. Abolish the Electoral College and we yield to those four states almost absolute power to dictate the choice of a president.
There are more small states than large ones, and as three-fourths of the whole number would have to ratify the suggested amendment to make it effective, we are the more hopeful that through a realization of the fact that the amendment would shear them of power, the greater number of states would stand unalterably opposed to the suggested plan.
Tessa’s Tutelage:
Dear Readers:
I hope your Thanksgiving holiday left you relaxed and recharged. I have always found the first full week after a holiday is a little bit tough, especially after all the overindulgence. To ease you through the Friday finish line, I bring you the same case from last edition! (No, this isn’t a moment of laziness caused by the lingering influence of tryptophan). Somehow the article portion of my column disappeared due to technical problems. But don’t worry there is something new, albeit not conceptually new. Your new case is a pretty straight-forward example of why a Court will vacate an arbitrator’s decision; it doesn’t happen all that often. In this case, the record did not support the arbitrator’s decision. Thus, a vacatur on that basis is pretty unsurprising.
Have a wonderful Friday!
Tessa
Tessa R. Scott
Huge Wrongful Death Verdict – A Century Ago:
The Houston Post
Houston, Texas
2 Dec 1916
WIDOW AND CHILDREN WERE
AWARDED $20,000 VERDICT
Mrs. Sallie Glass Won Suit Against
T. and N. O. Railroad on
Husband’s Death
One of the largest verdicts in a damage suit ever rendered in Harris County was returned by a jury in the eightieth district court Friday in the suit of Mrs. Sallie Glass against the Texas and New Orleans Railroad company. The jury gave Mrs. Glass $20,000 damages for the loss of her husband, A. M. Glass, who was killed while working as foreman of a wrecking crew on July 15, 1913.
Judge Harvey gave the case to the jury shortly after noontime and they returned a verdict within a few minutes. Of the above amount, $5000 was allowed to one daughter, Miss Allie Mae Glass, and $5000 to another, Mrs. Annie J. Nicholls.
Phillips Federal Philosophies:
Hello, All:
There must be something about Thanksgiving that causes judges’ thoughts to turn to discovery. This week we have a decision out of the Eastern District of New York underscoring that there is a low bar for relevancy in federal court. In Certain Underwriters at Lloyd’s v National Railroad Passenger Corp., the magistrate judge considered a subpoena duces tecum served not on the party to litigation, but on the non-party vendor who managed that party’s litigation and discovery.
As always, thanks for reading.
J.
Jennifer J. Phillips
Baseball Strike Looming – 100 Years Ago – It Wasn’t a Union, It Was a Fraternity:
The Tacoma Times
Tacoma, Washington
2 Dec 1916
ONLY 12 PER CENT OF PLAYERS
SIGNED; STRIKE IS FEARED
NEW YORK, Dec. 2.—The latest developments in the threatened strike of baseball players is causing major league magnates no end of concern, regardless of their efforts to deny it. The magnates have sent out feelers to get the sentiment in fraternity circles and what they have learned has not been particularly soothing.
Only 12 per cent of the major league players have signed contracts for 1916. This is unprecedented at this time of year. The other 88 per cent will not sign until they are advised to do so by officers of the fraternity. Players have consistently refused to discuss their attitude. They will not talk to newspapermen or club owners. David Fultz, president of the fraternity, has declared he will tie up both major and minor leagues unless players’ demands are granted.
It is known, however, that players plan concerted action to prevent magnates from cutting salaries produced by wartime contracts during the Federal League tangle.If players refuse to bind themselves up with the contracts, the big league season cannot start on schedule next year. Whether magnates will permit such a condition is a question.
They must decide whether they can afford to wait better than the players, whether they can afford to lose the interest on money tied up in their expensive plants and whether this interest would counterbalance the difference in salaries they want to pay and that which the players will demand.
The strike question also devolves on the request of the fraternity to the National Commission and the National Association of Minor League Clubs, which the latter turned down, and which probably will not receive any better fate at the hands of the former.
Editor’s Note: Did it occur? See article below Steve’s note.
Peiper’s Portion:
It was with the best of intentions that I started this column. I was resolved not to comment on Thanksgiving or the upcoming holiday season. I will do my best despite the fact that my family is currently between tree #3 and tree #4 in their decorating stages. Yes, that’s right, both children have trees in their rooms, we have a tree in the living room, and “small, skinny” one in the kitchen. One can only hope that Santa is not expected to place presents under each.
My travel schedule does not rival our Editor’s or that of my fellow colleagues, but I am scheduled to spend a day of depositions in Jamestown, NY next week. Jamestown, in addition to being at the southern/eastern tip of the delightful Lake Chautauqua, also serves as the de facto home town of former Supreme Court Justice Robert H. Jackson. Indeed, the depositions are being hosted at the Jackson Center in Jamestown, which serve as a museum to Justice Jackson’s career.
For those of you not familiar, he is the last Supreme Court Justice to have not graduated from law school (instead apprenticing in his uncle’s law firm where he befriended a NY State Senator named Franklin Delano Roosevelt). Roosevelt later appointed him to several posts, the last of which being the US Supreme Court. Justice Jackson also served as chief American prosecutor during the Nuremburg Trials, which followed World War II.
Enough with the history lesson. On to more interesting things. If you’re going to be in New York for the upcoming DRI event, which, I trust will be mentioned in this letter, I’ll hope to see you there. Drop me a note if you’re in town.
That’s it for now. Until next time.
Steve
Steven E. Peiper
Baseball Strike Fizzles:
The Concord Times
Concord, North Carolina
19 Feb 1917
NO BASEBALL STRIKE TO
OCCUR THIS YEAR.
Ending of Long Controversy Assured
After McGraw and Fultz Have Conference
New York, Feb. 15.—There will be no strike of baseball players this year. This ending of a long controversy was assured when President David L. Fultz, of the Baseball Players’ fraternity, issued here the following statement:
“Owing to the unfair position in which the major league owners have been placed in the present baseball controversy between owners and players, the fraternity has submitted to the owners the following proposal:”
“To release all players from their pledges not to sign contracts upon the understanding that the owners will not discriminate against fraternity players nor discipline them for their loyalty to the fraternity in observing their pledges.”
Early in the day Manager McGraw of the New York Nationals and President Fultz held a conference at which the fraternity executive said that if it was assured that the members not be discriminated against financially or otherwise by the major league club owners, he would release the men from their pledge.
Editor’s Notes: David Fultz was a major league player and later a football coach at several colleges. He studied law at night. In 1906, Fultz became a practicing attorney. In 1912, he created a furor in baseball by unionizing major league players in an organization called the Players Fraternity. Ty Cobb and Christy Mathewson were among its officers. After the 1916 season, the group threatened to strike, but the walkout was averted after Fultz obtained some concessions for the players. The union collapsed during World War I. After service as a World War I, Fultz became president of the International League. He retired in 1947 as a lawyer, moved to Florida and died at the age of 84.
Hewitt’s Highlights:
Dear Subscribers:
Welcome to another serious threshold column. December is here and the Holidays are approaching. My boys are busy searching for their elves every morning and writing letters to Santa Claus. The Melville Office will be heading up to Buffalo for our annual Holiday Party and it is always a good time to see everyone and have an office reunion. I hope your holiday plans are going well and you and your families are enjoying yourself without too much stress. On the serious injury front, we have a case in which a young woman has facial scarring but that it is almost imperceptible in pictures. The Court held that just because it made her uncomfortable, it did not rise to the level of the significant disfigurement category. In another case, defendant’s motion failed because their own expert noted significant range of motion limitations in the relevant body parts. In a third case, the medical history is extensive, as plaintiff went to many doctors. However, none of the doctors reported any quantitative limitations based on actual testing and all plaintiff was left with was unexplained, subjective complaints of pain, which was not enough to show an issue of fact.
Enjoy the holiday season.
Until next time,
Rob
Robert Hewitt
True, Even Before C-SPAN:
The Oneonta Star
December 2, 1916
Would Eliminate Useless Oratory
---
Clark Says Congressmen Speak Mostly to Galleries
Speaker Clark said today if Congress wanted to clean the legislative slate and go home next March 4, he gladly would join in a movement to eliminate useless oratory by cutting gallery space, and abolishing the Congressional Record, and to introduce voting machines.
“It isn’t difficult to see that the galleries and records cause an awful waste of time and money,” the Speaker declared today. “Any time that the galleries are full, the oratorios on the floor are posing and wasting money. And everybody knows there are any number of congressmen who talk for the records a great deal more than is necessary.
The record isn’t necessary. The English House of Commons has none. A Journal is kept. Dr. Johnson used to write it after the day’s proceedings were over.
Wilewicz’s Wide-World of Coverage:
Dear Readers,
This past week the Second Circuit was quiet and other Circuit Courts evidently took time to celebrate a minor American holiday celebrating indigenous birds. Thus, we have no new cases to report, though we are monitoring a few upcoming decisions and will be back next time with plenty of coverage fun. Because it’s always fun.
In the meantime, next week I’ll be down in NYC with a few of our CP team for DRI’s Insurance Coverage and Practice Symposium. It’s truly an amazing event, with world-class speakers, not-to-be missed CLE, and plenty of opportunity to meet colleagues and friends. If you’re attending, please let me know. I’ve said it before – it’s always great to put a face to a name and meet other coverage-minded souls. Also, if you are going to be in NYC, whether for DRI or not, and want an opportunity to cut the line at the Rockefeller Center skating rink, drop our own Jen Ehman a line. I hear she has tickets for either Wednesday or Friday that allow you to cut the line at the rink, skate for 90 minutes, and enjoy snacks at the quintessential holiday venue in the City. Sounds like break-neck fun!
Until next time!
Agnes
Agnes A. Wilewicz
[email protected]
Healthy Minneapolis, One Hundred Years Ago (in celebration of my visit):
Lead (South Dakota) Daily Call
December 2, 2916
“Health Week” in Minneapolis
Minneapolis today began its first annual observance of “Health Week” which later is expected to develop into a movement of national scope. The municipality and the local hospitals, medical, educational and public welfare societies have cooperated in the plans for the celebration. The program was ushered in with a health parade. More than 30 floats decorated by various organizations interested in health work, were in line. Through the week, there will be health lectures at all the big shops and factories, at the settlement houses and in the churches and schools. Next Thursday night the celebration will conclude with a mass meeting at the auditorium.
Altman’s Administrative (and Legislative) Agenda:
Greetings! Thanksgiving has come and gone, and I survived my first (and last) experience with Tofurkey. Now my thought always takes in the Nutcracker, Chinese food and a movie on Christmas and a trip to see Billy Joel at Madison Square Garden. For, what better way for a Nice Jewish Boy/pianist whose hair is slowly thinning and graying than to see an aged Nice, Jewish, bald guy play the piano. So, Dear Reader, Happy Yuletide to you all.
Today, I bring you a summary of the Federal Insurance Office’s Report on Protection of Insurance Consumers.
Howard
Howard B. Altman
Lighting the Lamp -- Give Me Your Tired, Your Poor:
The Tennessean
Nashville, Tennessee
2 Dec 1916
TO ILLUMINATE GREAT
STATUE OF LIBERTY TODAY
President Wilson Will Attend
Ceremonies in New York
NEW YORK. Dec. 1.—A message from President Poincare, expressing the appreciation of the French Republic to those citizens of the United States who contributed to the fund that will provide permanent illumination of the Statue of Liberty, will be read tomorrow night by Ambassador Jusserand at a dinner here in honor of President Wilson, whose wireless signal from the yacht Mayflower will flood the statute with light. A procession of yachts will go to the statute, led by the Mayflower, and the battleships anchored in the North River will fire salutes of twenty-one guns.
A red rocket will signalize that the President is about to touch the button to release the electric current, and as the statue is illuminated, the warships’ guns will roar again. A parade led by the President will start from Battery Park and move through streets which will be ablaze with lights.
Barnas on Bad Faith:
Hello again:
I hope everyone had a nice Thanksgiving. The week of Thanksgiving is always one of my favorite weeks of the year. It’s a time to catch up with family and old friends who are back in town for a couple days. It also doesn’t hurt that it is a short work week.
Now that the calendar has flipped to December the holiday season is coming fast and furious. Christmas music is now appropriate (such music is untimely before Thanksgiving in this columnist’s opinion). This year marks my first Christmas in my own house, so I have quite a bit of work to do to get my house in order for the holiday. I foresee many trips to Christmas Tree Shops in my future.
I have two cases to report on this week. In Beauburn, we see another example of the Florida rule that a bad faith cause of action is not ripe until it has been determined that the insured is entitled to payment under the policy. The court agrees to abate the plaintiff’s cause of action for bad faith pending a determination of the plaintiff’s entitlement to payment under the policy.
Pesce Brothers is not the typical bad faith case reported on in this space, but it does concern a claim by a plaintiff for extra-contractual damages against its insurer and insurance agent. Plaintiff’s claim against the insurance agent failed in this case because it failed to allege a special relationship between the plaintiff and the agent. As a reminder, in New York an insurance agent or broker does not have a continuing duty to advise the insured regarding coverage unless there is a special relationship between the parties. Here, the plaintiff did not allege that any such relationship existed. However, the plaintiff’s claim for violation of General Business Law 349 survived because it alleged that the defendants engaged in consumer-oriented conduct that was materially misleading and that it suffered injury as a result of the allegedly deceptive act or practice.
See you next time.
Signing off,
Brian
Brian D. Barnas
Insurance Fraud Ain’t a New Thing:
The New York Times
New York, New York
2 Dec 1916
ADMITS INSURANCE FRAUDS
Auto Agent Says Cars Were Set
Fire to Collect Claims.
The accident insurance companies in New York are mulcted of hundreds of thousands of dollars annually through fraudulent claims made against them by unscrupulous dealers of automobiles conspiring with insurance adjusters, according to a statement made yesterday to Assistant District Attorney Weller by Frederick Strobel. President and General Manager of the Moon Auto Sales Company of Brooklyn, who pleaded guilty yesterday to an indictment charged him with filing a false claim for $1,101 with the Globe Indemnity Company of 45 William Street. Strobel said that it was impossible even to estimate the amount of which concerns have been defrauded, so widespread the practice has become.
Strobel was implicated in the confessions of Robert Caswell, Frank McGinley, and William R. Ramey, adjusters in the employ of the Globe Company, who recently pleaded guilty to indictments charging them with collecting large sums of money from their employers on false reports of accident. The three adjusters, in addition to Strobel, are now awaiting sentence.
This Week’s Highlights in Issue Attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
-
Material Misrepresentation in Homeowners Policy Application Provides Carrier with Justification to Rescind
-
How Thin Can One Cut the Bologna? An Additional Insured Endorsement that Provides Coverage for “Losses Caused the Named Insured’s Operations” Provides Coverage for an Additional Insured Even When the Named Insured is Not Negligent. An Additional Insured Endorsement that Provides Coverage “Only to the Extent the Insured is Held Liable for the Acts or Omissions of the Named Insured” Requires a Finding of Negligence.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
-
Defendant’s Expert Admitted Significant Range of Motion Limitations Such That an Issue of Fact was Shown From Defendant’s Papers Alone
-
Plaintiff’s Significant Limitation Claims Were Based on Subjective Complaints and Unquantified Limitations
-
Imperceptible Scars That Make a Plaintiff Feel Uncomfortable Do Not Rise to the Level of a Significant Disfigurement
TESSA’S TUTELAGE
Tessa R. Scott
Litigation
-
The Record Must Support an Arbitrator’s Decision
-
A Third Party Cannot Seek Subrogation without a Clear Record of What Plaintiff’s Damages Are, and If Plaintiff Has Been Made Whole by Their Recovery
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
-
Unsigned Indemnity Clause Raises a Question of Fact as to its Enforceability
-
No Relation-Back Help where Claim against Newly Added Defendant was Strategically Omitted at the Outset of the Lawsuit
-
Question over Breadth of “On or About” Language in a Lease Precludes Summary Judgment
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
-
Next time! See you in NYC in the interim.
JEN’S GEMS
Jennifer A. Ehman
-
Court Finds Diminished Value of Investments Does Not Constitute Property Damage under New York Insurance Law § 3420
.
BARNAS ON BAD FAITH
Brian D. Barnas
-
Plaintiff’s Claim against Insurance Agent Failed based on Lack of a Special Relationship between the Parties, but General Business Law 349 Claim Survived Motion to Dismiss
-
Bad Faith Claim Abated Pending Determination of the Plaintiff’s Entitlement to Benefits under the Insurance Policy
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
-
Non-Party Discovery
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
[email protected]
-
Report on Protection of Insurance Consumers and Access to Insurance
EARL’S PEARLS
Earl K. Cantwell
[email protected]
-
Evidence Extrinsic To the Policy: Another Take
That’s about it. Hope to see you at DRI. P.S. – happy birthday to my wife and cover-letter editor, Chris.
Dan
Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Office: 716.849.8942
Cell: 716.445.2258
Fax: 716.855.0874
E-Mail: [email protected]
H&F Website: www.hurwitzfine.com
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]
Jennifer J. Phillips
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]
11/30/16 Joseph v. Interboro Insurance Company
Appellate Division, Second Department
Material Misrepresentation in Homeowners Policy Application Provides Carrier with Justification to Rescind
Joseph owns residential property in Brooklyn. Prior to buying it, its mortgage broker, McKayle, informed Joseph that they needed insurance in order to close.
McKayle, on the Joseph’s behalf, contacted an insurance broker, Karis to secure a homeowners' insurance policy based upon representations the plaintiffs made in their loan application that they would occupy the premises as their primary residence and so it said in the policy application. Joseph signed the application, and on the date of closing, a homeowners' insurance policy was issued by the Interboro Insurance was issued.
After a fire occurred at the premises, Interboro discovered that the plaintiffs did not occupy the premises as their primary residence and rescinded the policy, contending that the plaintiffs, through a material misrepresentation, induced Interboro to issue a policy that it normally would not have issued.
Joseph then sued Interboro and Karis & Karis for breach of contract and negligence and summary judgment dismissing the complaint insofar as asserted against each of them.
Interboro wins. To establish the right to rescind an insurance policy, an insurer must show that its insured made a material misrepresentation of fact when he or she secured the policy. A representation is a statement as to past or present fact, made to the insurer by, or by the authority of, the applicant for insurance or the prospective insured, at or before the making of the insurance contract as an inducement to the making thereof. A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented.
To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices that show that it would not have issued the policy if the correct information had been disclosed in the application.
Interboro did that by submitting just that kind of proof. Joseph admitted that, at the time the application was completed, they did not intend to occupy the premises.
While an answer to an ambiguous question on an insurance application cannot be the basis for a claim of rescission (there must be proof that the policyholder falsely answered a question he, she or it could understand), the question in this case, was not ambiguous. In any event, as the plaintiffs admitted that they did not read the application when they signed it, they could not have been misled by any unclear language.
Karis wins, too. There was no triable issue of fact was raised with regard to whether Karis had any knowledge of the material misrepresentations set forth in the application for insurance, and thus, contrary to the plaintiffs' contention, such knowledge could not be imputed to Interboro. There was no proof that (1) the agent receives compensation for consultation apart from payment of the premiums; (2) there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied upon.
11/29/16 Aspen Specialty Ins. Co. v. Ironshore Indemnity Inc.
Appellate Division, First Department
How Thin Can One Cut the Bologna? An Additional Insured Endorsement that Provides Coverage for “Losses Caused the Named Insured’s Operations” Provides Coverage for an Additional Insured Even When the Named Insured is Not Negligent. An Additional Insured Endorsement that Provides Coverage “Only to the Extent the Insured is Held Liable for the Acts or Omissions of the Named Insured” Requires a Finding of Negligence.
Ironshore issued a policy to Transel that provided coverage for Transel and any additional insured (“AI”). While the policy issued by Ironshore to Transel refers, with respect to coverage for additional insureds, to "losses caused by' [Transel's] acts or omissions' or operations,' the existence of coverage does not depend upon a showing that [Transel's] causal conduct was negligent or otherwise at fault" citing to Burlington Ins. Co. v NYC Tr. Auth., 132 AD3d 127, a 2015 First Department decision that is on its way to the Court of Appeals. In this case, Aspen’s named insured, the hotel, is entitled to coverage as an additional insured under the Ironshore policy with respect to the claim of injuries sustained by Transel's employee when he lost his footing on the hotel stairway, which resulted from his "acts or omissions" while performing his work. Given the breadth of the duty to defend, the fact that the injured claimant fell in a stairway, and not in the elevator itself, during the course of his elevator repair work, does not change this result.
It makes no difference whether the named insured was or was not negligent. The court distinguished a case, Crespo v City of New York (303 AD2d 166 [1st Dept 2003]) since the additional insured endorsement in that case provided coverage " only to the extent [the additional insured] is held liable for [the named insured's] acts or omissions,'" which language "suggest[s] that the wrongful conduct of the named insured must provide the basis for the imposition of liability on the additional insured".
Editor’s Note: Stay tuned for the Burlington decision, to be argued after the first of the year and decided by early spring. For a summary of that decision, click here.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
11/30/16 Dean v. Coffee-Dean
Appellate Division, Second Department
Defendant’s Expert Admitted Significant Range of Motion Limitations Such That an Issue of Fact was Shown From Defendant’s Papers Alone
The Appellate Court found defendants failed to meet their prima facie burden of showing that neither plaintiff sustained a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants failed to submit competent medical evidence establishing, prima facie, that the plaintiff did not sustain a serious injury to the cervical and lumbar regions of her spine and that the plaintiff Brian Harrison did not sustain a serious injury to the lumbar region of his spine, under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d), as one of the defendants' experts found significant limitations in the range of motion of those body parts. Since the defendants failed to meet their prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiffs in opposition were sufficient to raise a triable issue of fact.
11/23/16 Martin v. LaValley
Appellate Division, Second Department
Plaintiff’s Significant Limitation Claims Were Based on Subjective Complaints and Unquantified Limitations
In January 2011, a van driven by defendant Louis J. LaValley rear-ended a vehicle driven by plaintiff in the Town of Champlain. Plaintiff brought this negligence action against defendants, alleging that he sustained neck and back injuries that constituted serious injuries as defined in Insurance Law § 5102 (d) and incurred economic losses in excess of basic economic loss as a result of the accident. With regard to his contentions of serious injury, plaintiff alleged that his injuries led to a significant limitation of use of a body function or system and that he was unable to perform substantially all of his usual and customary daily activities for 90 of the first 180 days following the accident.
Defendants submitted the records of plaintiff's treating physicians and the affirmed report of a physician who reviewed those records and conducted an independent medical examination of plaintiff. Contrary to plaintiff's contention, although some of his medical records were uncertified, defendants could properly rely upon them to make prima facie showing of entitlement to judgment as a matter of law. The medical records reveal that plaintiff visited the emergency room in the wake of the accident and, after CT scans of his brain and cervical spine only found degenerative changes, he was diagnosed with a cervical strain and directed to stay out of work and return in a few days for follow-up. He returned three days later with continued head pain, but another CT scan of his brain was unremarkable. He was accordingly diagnosed with neck strain and headache, fitted with a cervical collar and directed to remain out of work until cleared to return by his primary care physician. Plaintiff saw his physician three days later, who diagnosed him with cervical spine and trapezial strain and spasm lumber spine strain and spasm and headaches consistent with postconcussive syndrome, but failed to detail the basis for those findings or the extent of plaintiff's impairments. His subsequent visits it was noted that plaintiff did not have significant postconcussive symptoms and probably had a muscle strain that would be helped by physical therapy. His physician was reduced to noting continued tenderness and a slight spasm without addressing what tests, if any, were used to trigger either and referred the matter to a physiatrist to address plaintiff's continued pain and belief that he was disabled.
The physiatrist initially suspected that plaintiff might have a cervical spine condition and kept him out of work due to his subjective complaints of pain, but authorized him to return to light-duty work. The physiatrist acknowledged six months later that he was unable to identify the source of plaintiff's pain despite extensive diagnostic testing and, four months after that, found that plaintiff could return to full-duty work after a course of physical conditioning. Plaintiff also saw a neurologist for his headaches, who ordered an MRI of plaintiff's brain that produced no relevant findings. Plaintiff was likewise examined by an ear, nose and throat specialist who found it impossible to substantiate the theory that plaintiff's tinnitus had been made worse by his injuries. Defendants also submitted the affirmed report of an orthopedist who, after subjecting plaintiff to an independent medical examination and examining his medical records in 2015, opined that there was no objective evidence to show that plaintiff had sustained serious injuries in the accident that caused his subjective complaints. Further, with regard to the 90/180-day category, defendants submitted proof that plaintiff was driving soon after the accident and that he had resumed visiting his son in Ottawa, Canada two or three month after it.
Defendants accordingly showed that plaintiff's significant limitation of use claim was based upon subjective complaints and unquantified limitations, shifting the burden to plaintiff to raise a triable issue of fact on that issue. Moreover, in the absence of objective proof that plaintiff was prevented from performing substantially all of his usual and customary daily activities for 90 of the first 180 days following the accident, the burden shifted to plaintiff on that issue as well.
In opposition, plaintiff primarily relied upon an affirmation from a neurologist and the uncertified records of a chiropractor that he had been intermittently seeing since 1988. Those records provide no objective medical evidence as to plaintiff's physical limitations and restrictions in his daily activities, and did not raise a question of fact with regard to his significant limitation of use and 90/180-day claims. Further, the neurologist who submitted an affirmation on plaintiff's behalf dealt with plaintiff's 90/180-day claim in conclusory fashion and did not set forth objective, quantitative evidence with respect to diminished range of motion or a qualitative assessment comparing plaintiff's present limitations to the normal function, purpose and use of the affected body organ, member, function or system, rendering that affirmation insufficient to raise a question of fact as to either of the serious injury categories at issue.
As for liability, where a driver of a moving vehicle rear-ends a stopped vehicle, a prima facie case of negligence exists that must be rebutted by an adequate, nonnegligent explanation for the collision. The accident in question occurred at the United States-Canada border while plaintiff, a customs official, was escorting LaValley, a service van driver, to a disabled vehicle in the area. LaValley was accordingly following plaintiff and, when plaintiff stopped dead about 100 feet ahead of merging traffic, LaValley testified that he hit the brakes but was unable to stop his vehicle in time. For summary judgment purposes, the Court found this to be a sufficiently nonnegligent explanation for the collision to overcome the inference of negligence. Note: I have seen such explanations of a sudden stop by the lead vehicle causing the defendant driver to hit the lead vehicle fail routinely so it is not clear why it succeeded here, other than the fact defendant was directed to follow plaintiff.
11/18/16 Koch v. Richardson
Appellate Division, Fourth Department
Imperceptible Scars That Make a Plaintiff Feel Uncomfortable Do Not Rise to the Level of a Significant Disfigurement
Plaintiffs motor vehicle in which they were traveling was struck by a vehicle owned and operated by defendants. Defendants met their initial burden of establishing as a matter of law that plaintiff's daughter did not sustain a serious injury under the permanent consequential limitation of use, significant limitation of use, and 90/180-day categories by submitting her medical records and the report of a physician who reviewed them, which indicated that her symptoms of neck and back pain had resolved. Plaintiff failed to raise a triable issue of fact inasmuch as she did not submit any evidence in opposition to defendants' motion with respect to those issues. Defendants also met their initial burden on the motion with respect to the significant disfigurement category by submitting photographs of the daughter's cheek wherein the alleged scars were imperceptible. In opposition to the motion, plaintiff did not raise an issue of fact inasmuch as she did not present evidence that a reasonable person viewing her daughter's cheek in its altered state would regard the condition as unattractive, objectionable or as the subject of pity or scorn. . Furthermore, plaintiff's assertion that the scars make her daughter "feel uncomfortable" did not raise a triable issue of fact whether the injury constitutes a significant disfigurement under the statute.
Tessa R. Scott
Litigation
11/30/16 Matter of Liberty Mut. Fire Ins. Co. v Global Liberty Ins.
Appellate Division, Second Department
The Record Must Support an Arbitrator’s Decision
The petitioner, Liberty Mutual Fire Insurance Company, paid no-fault benefits on behalf of its insured for the medical treatment of a third party who was injured in a motor vehicle collision with a livery vehicle insured by Global Liberty Insurance Co. of N.Y. (hereinafter Global). Liberty Mutual sought to recover payments of $11,398.38 from Global in compulsory arbitration. Despite finding that the livery vehicle insured by Global was 100% at fault in the happening of the accident, the arbitrator determined that Liberty Mutual did not properly manage the medical claims and awarded it only $5,699.19.
Liberty Mutual thereafter commenced this proceeding to vacate the arbitration award, contending that the arbitrator erred in awarding it damages of only $5,699.19, rather than the full amount of $11,398.38, and Global cross-petitioned to confirm the award. The Supreme Court granted Liberty Mutual's petition and denied Global's cross petition, determining that there was no evidence to support the arbitrator's findings.
The Second Department agreed with the Supreme Court. Here’s why:
As we covered in a recent Coverage Pointer’s case: “While judicial review of arbitration awards is limited to the grounds set forth in CPLR 7511, an award that is the product of compulsory arbitration, such as the one at issue in this case, "must satisfy an additional layer of judicial scrutiny—it must have evidentiary support and cannot be arbitrary and capricious'"
Following Liberty Mutual's submission of evidence establishing the medical payments it made, Global did not produce any evidence that any of the medical claims were improperly paid. Thus, the arbitrator's determination that Liberty Mutual was not entitled to full reimbursement was not supported by evidence in the record and did not hold up. Therefore, the Second Department found that the Supreme Court properly granted Liberty Mutual's petition and denied Global's cross petition.
11/10/16 Grinage v Durawa
Appellate Division, Fourth Department
A Third Party Cannot Seek Subrogation without a Clear Record of What Plaintiff’s Damages Are, and If Plaintiff Has Been Made Whole by Their Recovery
This case deals with the “made whole” doctrine and subrogation. As many of Coverage Pointer’s readers are aware, subrogation is a principle that has been around for ages and allows a third party, usually an insurance company, to step into the shoes of an injured party to seek reimbursement for payments it has made on behalf of the injured party. This is to make sure that the injured party is not able to recover for things like medical expenses that they did not fund, effectively giving them a windfall and leaving the third party who made the payments in the lurch. To add another layer of protection for the injured party the third party is generally prohibited from seeking subrogation rights if the injured party has not been “made whole.” The “made whole” doctrine is an equitable doctrine premised on the idea that the injured party can’t be expected to share their recovery with a third party if the recovery is not sufficient to cover their damage.
In this matter, plaintiff commenced negligence action against defendants to recover damages for injuries he sustained in a motor vehicle collision. At some point during the course of litigation, plaintiff's no-fault insurance carrier, ACA Insurance Company, the nonparty respondent, paid him additional personal injury protection (APIP) benefits pursuant to their insurance contract. Thereafter, defendants' insurance carrier offered to settle plaintiff's claims for the $100,000 limit on defendants' no-fault policy. Plaintiff accepted the offer and sought by order to show cause seeking a declaration in Supreme Court that respondent's subrogation rights were limited to that portion of the settlement funds allocable to the category of damages for which APIP benefits are meant to compensate, i.e., extended economic loss. The Supreme Court, Erie County rendered its decision, denied the relief plaintiff sought and directed plaintiff to reimburse respondent ACA Insurance Company in full for Additional Personal Injury Protection benefits paid to plaintiff.
The Fourth Department unanimously reversed and remitted the case, here’s why:
Plaintiff contended that, under the "made whole" rule, respondent had no right of subrogation because plaintiff's damages exceed the amount of the settlement. The Fourth Department agreed with Plaintiff but noted that it was unclear whether the settlement made plaintiff whole.
The Fourth Department further concluded that the lower court erred in directing plaintiff to pay respondent the full amount of the benefits paid without making a determination as to what portion of the settlement represented his pain and suffering. This is important because respondent has no right to recoup its losses from damages attributable to plaintiff's pain and suffering. The contract at issue provided: "In the event of any payment for extended economic loss, the Company is subrogated to the extent of such payments to the rights of the person to whom, or for whose benefit, such payments were made." Under that clause, respondent's right of subrogation extends only to plaintiff's claim for extended economic loss.
As it was unclear what portion of the $100,000 settlement represented plaintiff's recovery for extended economic loss, or whether such amount exceeds the benefits paid; the Fourth Department reversed the judgment and remitted the matter to Supreme Court for decision on same.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
11/30/16 Acadia Constr. Corp. v ZHN Contracting Corp.
Appellate Division, Second Department
Question over Breadth of “On or About” Language in a Lease Precludes Summary Judgment
Acadia suffered a fire loss a building it used for millwork and other construction related activities. The owner of Acadia claimed that the fire was started when sparks from the welding operations of neighboring premises entered the ventilation shaft and ignited the building.
In response, the owner of the neighboring premises, 30 Meadow St., argued that neither it, nor its tenant, ZDH, were engaged in welding on the day of the fire. In opposition, plaintiff was unable to raise an issue of fact. In so holding, the Court noted that plaintiff’s expert was not persuasive because it was based solely upon plaintiff’s unsubstantiated version of the events leading to the fire.
Having decided that neither 30 Meadow, nor ZDH, were liable, the Court next addressed 30 Meadow’s claims for contractual indemnity from ZDH. The contract provided that ZDH would provide indemnification against any and all liabilities for damages to property occurring on or about the Demised Premises. Because 30 Meadow failed to establish that a fire occurring in neighboring premises constituted “on or about the Demised Premises,” it follows that 30 Meadow’s motion was denied.
11/23/16 Ahrorgulova v Mann
Appellate Division, Second Department
No Relation-Back Help where Claim against Newly Added Defendant was Strategically Omitted at the Outset of the Lawsuit
The instant dispute arises from a medical malpractice claim against Dr. Mann. Dr. Mann, in turn, commenced a third-party action against Faye Perl. Perl moved to dismiss the third-party action, and said application was granted by the Supreme Court in July of 2011. Plaintiff, in November of 2013, then attempted to amend her Complaint to assert a claim directly against Ms. Perl.
Perl moved to dismiss based upon statute of limitations grounds, but the Supreme Court permitted plaintiff’s claim to continue. On appeal, the Appellate Division ruled that the attempted main-party claim against Perl was, in fact, time barred. The Court noted that the appropriate statute of limitations was 2 ½ years for medical malpractice claims. In addition, plaintiff was not entitled to application of the “relation-back doctrine” because she intentionally elected to forego an action against Ms. Perl at the time the lawsuit was initially commenced. Accordingly, plaintiff could not establish that Ms. Perl’s exclusion was an inadvertent mistake.
Moreover, the Court also ruled that Perl’s motion to dismiss cross-claims asserted by Dr. Mann was also appropriate. Here, the law of the case as established in Ms. Perl’s original application to dismiss the third-party action applied to Dr. Mann’s common law claims. Simply stated, the court previously ruled Ms. Perl had not deviated from the applicable standard of care.
11/22/16 Dwyer v Central Park Studios, Inc.
Appellate Division, First Department
Unsigned Indemnity Clause Raises a Question of Fact as to its Enforceability
Second Third-Party Plaintiff, Slosberg, commenced a claim for contractual indemnification against DSA Builders seeking indemnity pursuant to a document purportedly agreed to by the parties before the loss. However, DSA testified that it usually worked for Slosberg under a cost breakdown and change orders. He did not recall reviewing, specifically, unsigned portions of the alleged contract which included AIA Standard Form Agreement, and the General Conditions section of the AIA contract which included the indemnity clause at issue.
Where, as here, it is unclear if the parties intended to be bound by unsigned documents, it follows that Slosberg’s motion for summary judgment was denied on a question of fact.
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
Next time! See you in NYC in the interim.
Jennifer A. Ehman
11/15/16 Tuls v. New York Marine and General Insurance Company
Supreme Court, New York County
Hon. Anil Singh
Court Finds Diminished Value of Investments Does Not Constitute Property Damage under New York Insurance Law § 3420
John Thomas Financial, Inc. (“JTF”) was a Wall Street investment brokerage that was eventually shut down by government regulators over numerous securities violations. In February 2012, while FINRA was conducting its investigation in to complaints by clients of JTF alleging fraudulent conduct as a broker-dealer, JTF applied for a securities broker-dealer processional liability policy from defendant. On the application, JTF indicated that it was unaware of any circumstances or situations that might provide grounds for a claim under the proposed insurance, and claimed to be unaware of any pending or completed governmental regulatory, investigative or administrative proceeding.
Upon discovering that these responses were untrue, defendant filed a declaratory judgment action seeking to void the policy along with certain other relief. The trial court agreed that the application contained misrepresentations and voided the policy.
While the declaratory judgment action was ongoing, Plaintiff in this action, Todd Tuls, filed an arbitration proceeding with FINRA in which he claimed to have lost a substantial amount of money due to JTF’s improper handling of his investments. This resulted in a consent judgment in the amount of $650,000 in favor of JTF.
Plaintiff then brought this action against defendant as a judgment creditor.
In moving for summary judgment dismissing the complaint, defendant made a number of arguments. Initially they asserted that plaintiff lack standing to bring the suit. Pursuant to New York Insurance Law § 3420(a): “[n]o policy or contract insuring against liability for injury to person…or against liability for injury to, or destruction of, property shall be issued or delivered in this state, unless it contains in substance the following provisions or provisions that are equally or more favorable to the insured and to judgment creditors…” §3420(b) then states “[s]ubject to the limitations and conditions of paragraph two of subsection (a) of this section, an action may be maintained by the following person against the insurer upon any policy or contract of liability insurance that is governed by such paragraph, to recover the amount of a judgment against the insured or his personal representative…” Specifically, it submitted that diminished value of investment accounts does not constitute property damage within the meaning of this section. The court agreed citing, among other decisions, a trial court case which stated that it could not be reasonably argued that § 3420 was intended by the New York Legislature to serve as a type of safety net for sophisticated investors to recoup their losses on speculative business venues once the business fails.
Next, the court noted that event if plaintiff had standing, there was no coverage for plaintiff’s claim citing the policy exclusion for losses resulting from the insured acting as a market maker.
Lastly, the court noted that plaintiff, as third-party beneficiary under the policy, has no greater rights than those that the insured would have. Citing the often used phrase that the judgment creditor “stands in the shoes” of the insured. Since the policy was voided, and JTF had no rights under the policy, the plaintiff likewise had no rights. Accordingly, the motion was granted.
Brian D. Barnas
11/30/16 Pesce Brothers, Inc. v. Cover Me Insurance Agency of NJ, Inc.
Appellate Division, Second Department
Plaintiff’s Claim against Insurance Agent Failed based on Lack of a Special Relationship between the Parties, but General Business Law § 349 Claim Survived Motion to Dismiss
Plaintiff brought a lawsuit against the defendants Hills Adjustment Bureau, Inc., Cover Me Insurance Agency of NJ, Inc., National Independent Truckers Insurance Company, RRG, and Michael J. Poller for violations of General Business Law §§ 349 and 350, fraud, negligent misrepresentation, injurious falsehood, and tortious interference with prospective business advantage.
On appeal, the Second Department dismissed the plaintiff’s claims for violation of General Business Law § 350, fraud, negligent misrepresentation, injurious falsehood, and tortious interference with prospective business advantage. Regarding the negligent misrepresentation claim against Cover Me Insurance Agency, the plaintiff failed to allege that the Cover Me defendants had a special relationship with the plaintiff imposing a duty on them to impart correct information to the plaintiff, that the Cover me defendants imparted any information to the plaintiff, or that the plaintiff relied on any such information.
However, the defendants' motions to dismiss the cause of action alleging a violation of General Business Law § 349 were denied. The plaintiff sufficiently alleged that the defendants engaged in consumer-oriented conduct that is materially misleading and that it suffered injury as a result of the allegedly deceptive act or practice as required to state a cause of action.
11/17/16 Beauburn v. Geico General Insurance Company
United States District Court, Southern District of Florida
Bad Faith Claim Abated Pending Determination of the Plaintiff’s Entitlement to Benefits under the Insurance Policy
On August 8, 2015, Carlos Bernard Brown and George Spence Clayton, Jr. were involved in a motor vehicle accident that resulted in their deaths. At the time of the accident, Brown, the driver, was insured under a GEICO policy of insurance.
The Policy provided bodily injury limits of $10,000/$20,000 per occurrence. As a result of the accident, the Estate of Clayton, Jr. filed a wrongful death action against the Estate of Brown. Geico was timely notified of the lawsuit, but did not provide a defense to the Estate of Brown.
On May 10, 2016, the Estate of Clayton, Jr. and the Estate of Brown entered into multiple agreements. Pursuant to the terms of the agreements, the court entered judgment against the Estate of Brown in the amount of four million dollars. On August 24, 2016, Plaintiff, individually and as Personal Representative of the Estate of Clayton, Jr., and as Assignee of the Estate of Brown, filed a two-count complaint for declaratory relief including a claim for bad faith against Geico.
Geico filed a motion to dismiss arguing that a policyholder or its third-party assignee may not pursue a bad faith claim against an insurer without first establishing that the policyholder is entitled to both coverage and damages under the policy. In Florida, an insured's action for insurance benefits against the insurer must be resolved favorably to the insured before the cause of action for bad faith in settlement negotiations can accrue. However, the court has manifest discretion to order dismissal of the bad faith claim or to abate the claim pending determination of the insured’s rights under the insurance policy. In this case, the court abated Plaintiff’s bad faith claim pending a determination of Plaintiff’s entitlement to benefits under the policy.
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
11/23/16 Certain Underwriters at Lloyd’s v. National Railroad Corp.
United States District Court, Eastern District of New York
Non-Party Discovery
In this miscellaneous proceeding, Amtrak (aka the National Railroad Passenger Corp.) sought enforcement of a subpoena for documents it had served on Resolute Management, Inc. (“RMI”), in connection with an action brought against Amtrak by London Market Insurers. RMI is not a party to that action, but as the court noted, it is not a typical non-party: RMI is the company that “directs litigation, manages discovery and conducts the handling of Amtrak’s claims for coverage, including those at issue in the underlying action, on behalf of all the Underwriters at Lloyd’s who are parties to the coverage case.”
Prior to the present proceeding, the court had already resolved Amtrak’s motion to compel the Insurers to produce various types of documents in the Insurers' custody, possession, or control, including, but not limited to, claims, underwriting and document destruction/retention manuals and guidelines. RMI therefore argued that it was entitled to a protective order precluding the enforcement of Amtrak’s subpoena against it, in part because its responses would necessarily be duplicative of those documents already produced by the Insurers themselves in response to Amtrak’s discovery demands. The court disagreed, first noting that in the Second Circuit, the fact that a requesting party may already have the demanded documents is not, alone, sufficient to quash a subpoena. Further, if, as RMI argued, the response would be entirely duplicative, then “all that would be required is for RMI to re-produce the documents it previously produced on behalf of its clients.” Finally, the court found that RMI’s own ambiguous and convoluted representations as to the completeness of the prior productions supported Amtrak’s concerns that RMI had additional responsive documents in its possession.
The court also rejected RMI’s argument that the scope of the subpoena was unduly burdensome, noting that “RMI acted inappropriately in lodging ‘non-specific, boilerplate objections’ in response to nineteen of the twenty-two requests.” In fact, the court found that not all of the document production limitations that had been imposed on Amtrak’s direct subpoena to the Insurers were applicable to the RMI subpoena, where that initial disclosure resulted in a paucity of information.
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
Report on Protection of Insurance Consumers and Access to Insurance
On November 21, 2016, the Federal Insurance Office (“FIO”) issued its first annual Report on Protection of Insurance Consumers and Access to Insurance (the “Report”). The Report discusses and provides FIO’s policy recommendations on five themes in insurance and consumer protection, including: (i) insurance and technology, (ii) environmental hazards and insurance, (iii) fairness in insurance practices, and (iv) fairness in state insurance standards. You can read the full report at: https://www.treasury.gov/press-center/press-releases/Pages/jl0616.aspx.
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INSURANCE AND TECHNOLOGY
The Report discusses and makes policy recommendations on cyber risks, which we covered here in recent issues of CP. The Report notes various state and federal efforts to improve cybersecurity in the insurance industry, such as the U.S. Department of the Treasury’s Financial Services Information Sharing and Analysis Center. As New York has already required, the Report calls on insurers to adopt baseline protections based on leading cyber risk management standards and best practices
B. ENVIRONMENTAL HAZARDS AND INSURANCE
The Report discusses and makes policy recommendations on insurance-related issues posed by environmental issues such as climate change. The Report notes that climate change is expected to increase both the frequency and severity of natural hazards and natural catastrophes, and highlights the importance of hazard mitigation measures and incentives such as resilience-based building codes, mandated insurance premium discounts when homeowners undertake specific mitigation measures, and the availability of financing for mitigation projects.
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FAIRNESS IN INSURANCE PRACTICES
The Report reviews a series of practices in the insurance industry that FIO believes “raise fundamental questions of fairness” and makes recommendations for consumers and state regulators. For example, the Report notes that insurers’ use of marital status as a factor in the rating and pricing of personal lines insurance can “raise issues of fairness.” The report also warns of rating insureds based upon gender.
If the Report seems political, remember your Sonny Corleone: It’s not personal, it’s just business, and the Report in essence seeks to protect carriers from a rainy day, whether the storm comes from a cyberattack, environmental disaster, or other danger of these changing times.
Earl K. Cantwell
[email protected]
09/22/16 Landmark American Insurance Co. v. Hilger
United States Court of Appeals, Seventh Circuit
Evidence Extrinsic To the Policy: Another Take
In the last issue of Coverage Pointers, we noted a case from Colorado which essentially held that extrinsic evidence to the policy was not permitted to be introduced when debating and deciding coverage issues. American Family Insurance Co. v. Hansen, (Colorado, 6/20/16). However, another recent case out of Illinois takes a different, or certainly more nuanced, view on this same subject. Landmark American Insurance Co. v. Hilger, 838 F.3d 821 (7th Circuit, September 22, 2016.)
Mr. Hilger was president of a company servicing financial institutions who was named as a defendant in two separate lawsuits brought by credit unions in Michigan and Tennessee. Hilger tendered his defense to Landmark American under an agents and brokers policy which included as a covered person an independent contractor of the named insured. Hilger claimed that the lawsuits pertained to professional services he rendered as an independent contractor. Landmark denied both tenders, and filed a declaratory judgment action that it had no duty to defend.
The Trial Court granted Hilger’s motion to compel a defense arguing that the lawsuits asserted claims consistent with the conclusion that Hilger acted as an independent contractor. The Trial Court also held that evidence outside the underlying complaints was not admissible to argue and determine the coverage issue. On appeal, however, this decision and conclusion were reversed.
The Appeals Court held that the Court may be limited to review of the allegations in the underlying complaint when an insurer seeks to deny coverage without seeking a declaratory judgment, or defending under a reservation of rights. Here, Landmark American did seek a declaratory judgment, so that limitation did not apply. In this situation, the insurance company may present evidence beyond the underlying complaint, as long as it does not tend to determine an “ultimate issue” in the underlying litigation. The Trial Court assumed that all duty to defend issues were analyzed only by comparing the “four corners” of the underlying complaint to the insurance policy, which the Appeals Court held was not the correct analysis in the context of a declaratory judgment action.
In short, the holding was that an insurer seeking a declaratory judgment on its duty to defend may introduce evidence outside the underlying complaint, so long as it does not implicate an “ultimate issue” in the underlying litigation. Therefore, the decision of the Trial Court was reversed and the case was remanded for “further proceedings”.
The first lesson of this case is that whether and when an insurance company may introduce and rely upon information outside of the “four corners” of the complaint in assessing and determining coverage must be examined on a state by state basis. It also must be analyzed based on the particular procedural posture of the case as, for example, this case holds that a different rule applies when the insurance company has initiated a declaratory judgment action, or undertaken a defense under a reservation of rights.
Since Landmark American was pro-active in commencing the declaratory judgment action, it was permitted to introduce evidence outside of the “four corners” of the pleadings on the coverage issue, which here in particular was whether Mr. Hilger was acting as an “independent contractor” to the named insured for purposes of the policy.
