Coverage Pointers - Volume XVII, No. 8

Coverage Pointers

Volume XVII, No. 8
Friday, October 9, 2015

A Biweekly Electronic Newsletter
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202

Phone: 716-849-8900
Fax: 716-855-0874
www.hurwitzfine.com

© Hurwitz & Fine, P. C.
All rights reserved


As a public service, Hurwitz & Fine, 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.

If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise our editor Dan D. Kohane at [email protected] or call 716-849-8900. You will find back issues of Coverage Pointers here.


 

Dear Coverage Pointers Subscribers:

Do you have a situation?  We hope not, but if you do, call.  We love situations.

Tough travel week for your Coverage Team.  We were all over the East coast doing the Lord’s work.  Three of us were on a plane to NYC at the end of last week.  Andrea Schillaci was heading to Queens County for a court appearance, Steve was mediating at JAMS and I was to be an expert witness in a New York Supreme Court legal fee dispute.   I had planned on joining Audrey Seeley at the DRI Annual Meeting in Chicago, but that was not to be.  Court ordered depos got in the way.

Welcome Back Margo:

Margo Lagueras has returned to the fold after a bit of an absence and we are delighted to welcome her back to the office and to her column on litigated No Fault cases.

Hartford in My Heart:

I hope to see some of you in Hartford for the DRI program later this month.  See the program description below.

Criticizing the ALI Restatement of Insurance:

Beth Fitzpatrick and I published an article criticizing the ALI Restatement proposal on the penalties for failure to defend.  Entitled, Breaching the Duty to Defend – Let Reason and Logic Govern the Penalty, we introduce our position as follows:

"Some commentators, most recently, policyholder counsel, Jill Berkeley in a National Law Journal article posted on July 10, 2015, support the draconian penalty of estoppel for those ‘wrongfully denied a defense by their liability insurers.’  We lend our voices to a solution which is even-handed, reflective and considerate of the breach and which is consistent with the majority rule in state jurisdictions."  A link to the article can be found here:

Others might well want to jump on that bandwagon. We thank that great coverage lawyer, Laura Foggan, for her support.

 

Upcoming Continuing Education Programs:

Federation of Defense & Corporate Counsel
INSURANCE INDUSTRY INSTITUTE (I-3)
New York Athletic Club
October 21-13
NYC


Click here for brochure
Jennifer Johnsen, Patrick Nails, and Barbara O’Donnell
I-3 Co-Chairs

I-3 2015 will once again be held in New York City at the New York Athletic Club, October 21-23.  The Institute will bring together senior insurance industry leaders, regulators and insiders  - from companies such as Swiss Re, Markel, Hanover, Hamilton Re, Arch, AIG and Starr Marine - to offer their expertise and insights concerning “top burner” issues tailored to senior level insurance company representatives and their outside counsel.  Make plans now to join us for this timely conference and spread the word to your colleagues and clients. In addition to plenty of networking opportunities, programing includes:

Robert Hartwig and CEO Presentations - The President of the Insurance Information Institute will examine the topics that industry members have identified as their major areas of concern. A CEO Roundtable will share their views regarding the topics examined throughout the program and the challenges the industry will face in coming years.

Cyber Exposure and Risk -  This 2 part program will examine the problem, including the most recent tools used to perpetrate and stave off cyber-crime, and the ways in which the industry is responding to this evolving risk.  Both panels will be comprised of law enforcement, key industry professionals and other experts in the field.

Business Tools & Investments – A discussion of how leading insurers are harnessing big data tools, metrics and technological innovations to decrease litigation costs, improve risk modeling and projections and achieve productivity targets. Another panel will discuss creative approaches being utilized by leading insurers to manage their capital and investment portfolios.

Regulatory Panel – A panel of senior industry representatives as well as former and current state regulators will discuss the impact of regulatory convergence on insurers conducting business globally. Topics include supervisory colleges, ORSA requirements, amended holding company requirements, IAIS, emerging capital standard, and state regulatory initiatives for cybersecurity.

Blindfolds Off: Judges and How They Decide - Published author and attorney Joel Cohen and a panel of leading jurists will provide an insiders’ explanation of how judges decide high stakes and challenging cases.

International Maritime Panel - An international panel of lawyers and industry leaders will discuss the challenges insurers face when trying to forecast and then respond to rapidly changing international exposures in the arena of maritime risks.

 

DRI’s Insurance Law and Claims Conference:

DRI's Insurance Law Committee specifically designed a brand new kind of program for insurance executives, in-house counsel, and claim professionals. DRI's conference is a one-day program, October 28, in Hartford, Connecticut. This program will cover multiple issues impacting the insurance industry, while providing CLE/CE credit and great networking opportunities.

October 28, 2015
Hilton Hartford
Hartford, Connecticut

  • Defending under a Reservation of Rights is not always the smart option. This program will discuss when and why you should not reserve rights.
  • Recent decisions are modifying the attorney–client privilege and work product doctrine. How will these trends impact the discovery of claim files and attorney opinions and communications?
  • How to handle policy limit demands and high exposure claims with questionable coverage, collusive settlements, and the presence of excess carriers
  • How SARS, Ebola and other pandemics and catastrophes are affecting insurers.
  • How is the new ALI Restatement of Liability Insurance being written and who will benefit? You will also learn how the insurance industry is responding, what it still has to fear and tactics to avoid big and emerging institutional bad faith risks.

I will be speaking on the “privilege” issue, a very important one, in light of recent appellate cases reported in this publication. Hope to see you there.

Lalka – Speaking of the “Privilege Issue”,  the Appellate Division, Fourth Department Denied Review by Court of Appeals:

This Friday past, the Fourth Department ACA’s application for leave to appeal the Lalka decision to the Court of Appeals.  There wasn’t enough muscle in the application, in my opinion.  I hope that ACA seeks leave from the Court of Appeals and considers retaining appellate counsel for that application.

If you don’t remember Lalka, in our May 8th edition, I complained bitterly about it and its implications for the insurance industry in New York.  It is on this topic that I am speaking in Hartford, at the DRI program described above.  If you missed my rant on that decision, I include in here for your review:

Coverage Counsel – Insurer Attorney Client Privilege: Another Nail in the Coffin

I am so concerned about this decision and this subject; I was tempted to speak of nothing else in this cover letter.  Attention all who work for or with insurance companies!  Unlike all other parties who need, secure or provide legal advice, YOUR communications may be discoverable.

This madness must stop.

We review a May 8, 2015 Fourth Department decision in Lalka v. ACA Insurance Company.  This was an action to recover supplementary underinsured motorist coverage. Plaintiff sought the entire claim file in discovery.  While some portions of the file were produced, counsel for the insurer resisted producing any documentation that covered counsel’s communication with the insurer on the grounds, in part, that attorney-client privilege protected those exchanges.

The motion judge, a very thoughtful and respected jurist, Hon. Patrick NeMoyer, granted that part of the motion seeking those portions of the claim file generated before the date of commencement of the action "with the exception of those materials reviewed in camera."  Those documents withheld by the court were exchanges between counsel and the insurer that discussed counsel’s coverage opinion.

The Appellate Division, Fourth Department concluded that the court properly denied that part of plaintiff's motion seeking disclosure of documents in the claim file created after commencement of the action.  However, the appellate court agreed with plaintiff, concluding that the court abused its discretion in denying that part of her motion seeking disclosure of those documents submitted to the court for in camera review:

It is well settled that [t]he payment or rejection of claims is a part of the regular business of an insurance company. Consequently, reports which aid it in the process of deciding which of the two indicated actions to pursue are made in the regular course of its business' " (Nicastro v. New York Central Fire Insurance Company, 117 AD3d 1545,1546). "Reports prepared by . . . attorneys before the decision is made to pay or reject a claim are thus not privileged and are discoverable . . . , even when those reports are mixed/multi-purpose' reports, motivated in part by the potential for litigation with the insured”. Emphasis added.

The court concluded that the documents submitted for in camera review constituted multi-purpose reports motivated in part by the potential for litigation with plaintiff, but also prepared in the regular course of defendant's business in deciding whether to pay or reject plaintiff's claim, and thus plaintiff is entitled to disclosure of those documents.

The Nicastro case, cited as precedent, is worth reviewing.   It held that:

  •  
  • A party seeking to invoke the attorney-client privilege must show that the information sought to be protected from disclosure was a “confidential communication” made to the attorney for the purpose of obtaining legal advice or services;
  • The burden of proving each element of the privilege rests upon the party asserting it;
  • For the privilege to apply when communications are made from client to attorney, they must be made for the purpose of obtaining legal advice and directed to an attorney who has been consulted for that purpose;
  • For the privilege to apply when communications are made from attorney to client—whether or not in response to a particular request—they must be made for the purpose of facilitating the rendition of legal advice or services, in the course of a professional relationship.

We have no problem with any of those elements, but the court carved out an exception for insurers:

It is well settled that "[t]he payment or rejection of claims is a part of the regular business of an insurance company. Consequently, reports which aid it in the process of deciding which of the two indicated actions to pursue are made in the regular course of its business".

The court continued: 

[W]hile information received from third persons may not itself be privileged … a lawyer's communication to a client that includes such information in its legal analysis and advice may stand on different footing. The critical inquiry is whether, viewing the lawyer's communication in its full content and context, it was made in order to render legal advice or services to the client.

In Nicosia, the Fourth Department drew a line between an attorney who is retained to act as an adjuster and one who is retained for legal advice:

Here, defendant did not retain counsel to perform the work of an adjuster or otherwise to handle claims. [The insurer] itself evaluated plaintiff's claim and determined that it was obligated to pay and did pay him in excess of $100,000 as a result of a fire that damaged two insured properties. When it became clear that plaintiff believed that the value of his claim was far in excess of what defendant was willing to pay him, [the insurer] retained counsel to protect its rights. [Coverage counsel]  expressly stated that he was retained to provide legal services to [the insurer], to advise … of its legal responsibilities, and to conduct the examination under oath of plaintiff.

The court in Nicosia thus concluded that counsel was retained to provide legal advice and services to the insurer with respect to plaintiff's claim and, as a result, the court should not have granted disclosure of documents of or relating to communications between defendant and its attorney and documents that constitute attorney work product.
That ruling we understand.  If an insurer is acting as a claims professional and conducting the work that a claims professional would undertake and a decision to deny or pay a claim is based on that work we can recognize why that kind of activity might be discoverable.  However, the court’s language in Lalka is considerably broader, not restricting discovery to those cases where the attorney is acting as a claims professional.  Again:

Reports prepared by . . . attorneys before the decision is made to pay or reject a claim are thus not privileged and are discoverable . . . , even when those reports are mixed/multi-purpose' reports, motivated in part by the potential for litigation with the insured".

The court then cites to Bombard v. Amica Mutual Insurance Company, 11 AD3d 647 (2nd Dept. 2014).  In that case, the court held that documents generated between counsel and the carrier during a period of investigation starting from the date that a reservation of rights letter was issue and the date of disclaimer were discoverable. The court found that “the insurer’s investigation of the incident and the facts related to the plaintiff's notice of the incident was ongoing and that it was not until the disclaimer letter, dated February 4, 2003, that there was a firm decision to reject the plaintiff's claim”. Since it was only at that time that the files became privileged, the Supreme Court, the Court held, properly directed the defendant to comply with the plaintiff's request for the production of the material previously prepared.

What was the Second Department telling the parties and what is the Fourth Department saying is this latest decision?

We are hopeful that the court would restrict discovery to factual investigation and not legal analysis, strategic advice and mental impressions.  However, the language of these decisions suggest a broader, more dangerous, intrusive and privilege-smashing approach.

Insurers are entitled to legal advice, confidential, private and protected, the same as other litigants. 

We are hopeful that ACA seeks further review by the Court of Appeals and that the industry joins to seek clarification from the courts.

Peiper’s Panderings:

Unfortunately, we present another light column this week.  If you have an interest in securities bonds, feel free to read the US Fire case we review below.  The Court does a really nice job of describing basic policy interpretation.  Rather than being swayed by creative arguments which seek to create an ambiguity in relatively straight-forward language, the Court applies the words as written (and rightly so, we might humbly add).   

Other than that, we also note that the US Fire case is yet another lawsuit arising out of the Bernie Madoff scandal.  The litigation that has arisen out of the Madoff scandal has become almost as costly as the initial fraud.  Well, okay, maybe not, but there has been quite a lot.

With this, I bid you all adieu this week.  My son, who just turned 6, will be accompanying me to the Sabres’ Home Opener tonight.  He doesn’t yet know, and the puck drops in a mere 90 minutes.  Rather than continue to write, quite frankly, I’d rather go tell him of our plans.   And so I will.

See you in two weeks.

Steve
Steven E.  Peiper   
[email protected]

One Hundred Years Ago:  Quieting Loud:

The New York Times
New York, NY
9 OCT 1915

DROPS HER $100,000 SUIT.

Will Not Prosecute Breach of Promise
Plead Against Loud

The suit begun by Miss Alice Albery against Robert E. Loud, a piano maker of Buffalo, some months ago for $100,000 for breach of promise, was discontinued yesterday by consent, at the request of Ivins, Wolff & Hoguet, counsel for the defendant.

In her complaint Miss Albery said she arrived at her home in Buffalo in 1903 from the Loretto Convent in Ontario, Canada, after which she met the defendant and was wooed by him.  He told her, she said, that he had obtained a divorce from his wife, who was then in a sanitarium.

He frequently visited her at her home, she said, and in 1906 induced her to come to this city, where he furnished an apartment for her.  Later, according to the complaint, Mr. Loud displayed a paper which he said was a marriage certificate, and which she signed.  Then, believing that she was really married, the plaintiff and defendant lived together as man and wife.  In 1912 Mr. Loud confessed, Miss Albery said, that she had been deceived; that she was still unmarried.  Neither side would give any reason for the discontinuance of the suit.

We tracked Alice to New York City after the breakup where she was a songwriter.  I last found her in the 1940 US census, at age 59, living in Los Angeles, and never married.

Antiquepianoshop.com  notes that Robert Loud (not to be confused with Loud Brothers or Thomas Loud of the early 19th Century) was a prominent music dealer and retailer in Buffalo, NY during the early 20th Century.  Robert Loud was a retailer, not a manufacturer, and a special agreement was in place with W. P. Haines to build pianos under the Robert Loud name so that the instruments could be sold in Robert Loud’s retail music stores.  A limited number of instruments were also built and sold under the “Lingard” label.

The W. P. Haines factory was capable of high volume manufacturing, and they actually manufactured pianos to the specifications of several other firms during the early 20th Century. In addition to pianos sold under the 'Robert Loud' and 'W. P. Haines' brand names, the firm built instruments for The Bradbury Piano Company and the Webster Piano Company during the ‘teens and ‘twenties.

After the Great Depression, the W. P. Haines was absorbed into the large Winter Piano Company of New York. Winter continued building pianos under the W. P. Haines brand name until about 1950, though the Robert Loud brand name was discontinued during the Great Depression.

Wilewicz’s Wide World of Coverage:

We hope that this edition finds you well, and enjoying this crisp autumn. For those in the Carolinas, our thoughts are with you as you make your way out of the recent deluge. Do let us know if there is anything that we can do to help.

To the subscribers who have joined us in the past few months, welcome! In my column, Wilewicz’s Wide World of Coverage, we bring you coverage-related decisions from New York’s Federal Courts, as well as a sampling of interesting decisions from Federal Circuit Courts around the country. Plus, since I have a particular penchant for environmental litigation, now and then I will include a decision or two involving the latest in environmental liability law, whether coverage-related or not.

Since taking on the role of covering the Federal beat, I have been holding my breath for a SCOTUS (Supreme Court of the U.S.) decision to even remotely touch upon insurance coverage. It’s been months and I’m still waiting – though it probably does not help that the Court has been out of session since June. In any event, the October term started this past Monday. I will be sure to monitor the docket and report back. Stay tuned! In the meantime, the Court announced that it will now highlight post-release edits to its slip opinions on its website. This will make it easier to see if changes are made, and provide a small glimpse into the minds of our nation’s highest court. They provide some examples in a Sample Opinions page where one can see just how this will work.

This week in the Wide World, we have a Second Circuit decision about examinations under oath and the ramifications for an insured if they chose to ignore requests to sit down for one. In Wingates v. Commonwealth, the insurer repeatedly asked the insured to appear for EUOs. The insured ignored those requests, despite being told of the possible implications to coverage. When it came time for dispositive motions, the Court was clear – a willful failure to submit to an EUO is a material breach of the policy and is a defense to coverage. Interestingly, the Court found that the “willful” portion of the rule was satisfied because the insured was advised of what could happen. Ignoring the warning proved the death knell.

Finally, though not a Federal case, we bring you a “doozy” from Massachusetts that we just had to report on this week. A hat tip to Mike McMyne of IFG Companies for alerting us! In Boyle v. Zurich, the insured had a business auto policy with a $50,000 limit. After an unfortunate tire explosion incident, a covered claim arose. Though the insured notified its carrier, it never explicitly asked for a defense, even after the claim went into suit. After the insured defaulted because it had gone out of business, the insurer neglected to take any action. It did not seek to vacate the default or settle the claim within policy limits, as it could have. The carrier took the position that since the insured never tendered a defense, none would be provided. However, after judgment was entered in excess of $2,000,000, the Court found the carrier to be on the hook. Stating that the insurer could have done more at any step along the way, and since the insurer could not demonstrate actual prejudice, it had breached its duty to defend, as a matter of law. Ouch.

See you in a couple of weeks!

Agnes
Agnes A. Wilewicz
[email protected]

The Gentler Sex --  A Century Ago:

           
Greensboro Daily News
Greensboro, North Carolina
9 Oct 1915

CIVIL SERVICE PLACES
OPEN MOSTLY TO MEN

Twenty-Five Positions to Be Open Shortly,
Only Two Open to Gentler Sex.

THE JOBS AND SALARIES

Anti-suffragists will probably find excellent cause for argument when perusing the list of positions to be filled by United States civil service examinations during this month and the earlier part of November.  Of the 25 vocations in which there are openings, but two may be filled by the members of the gentler sex.  One of these is for the position of library assistant and the examination may be taken on October 13, with the other is for a laboratory aid in chemistry and physics, which is to take place on October 20 and 21.  The former pays an annual salary of from $720 to $1,000, while the latter pays from $600 to $900.

HEWITT’S HIGHLIGHTS:

Dear Subscribers:

There are several cases of interest this week, with a few of them involving defendants’ failure to establish entitlement to summary judgment due to their own defense expert. One defense expert relied on an MRI report which he failed to identify. The court found the opinion conclusory and speculative, which it may not have had the report been identified clearly. Another involved relying on a defendant’s expert who found significant range of motion and a probable causal relationship between the subject accident and the injured plaintiff's injuries. It appears it was a waste of time to bring that motion.  In yet another, the defendant’s orthopedist stated that he saw no proof as to what had caused the significant limitations he found in the cervical region of the plaintiff's spine. He did not, however, state affirmatively that the subject accident had not caused those limitations. The Court found that since he did not rule out the accident caused the limitations, the defendant could not establish a prima facie case that there was no issue fact as to causation. Many of these motions are going to live or die on the expert’s report.

On a personal note, it is nice to see the season change into Fall, the leaves start to turn color, and it get breezier and cooler. Halloween will be here before we know it.

 Until next time,

Rob
Robert Hewitt

[email protected]

Now You Know the Answer to the Trivia Question:  Who Was The First President to Attend a World Series Game?:

The New York Times
New York, New York
10 Oct 1915

WILSON WATCHES
RED SOX WIN, 2-1

Foster, Boston Pitcher, Hero in
Second of the World’s
Series Games.

ECLIPSES THE PRESIDENT

Who Proves a real Fan, Though,
and Coaches His Fiancée
in Keeping Score.

PHILLIES AND SOX NOW TIE

Huge Crowds Witness Exciting
Game in Which Score is Tied
Until Ninth Inning.

Special to The New York Times

PHILADELPHIA, Penn., Oct. 9.—President Woodrow Wilson modestly played second fiddle at the second game of the world’s series this afternoon when, with the true spirit of a boy out on a holiday, he joined with more than 21,000 fans and crowned a new ball hero in George Foster, the Boston Pitcher.  For Foster, a stocky, broad-shouldered farmer boy from Arkansas, by one snappy swing of his bat, had realized the ambition of every baseball pitcher.  He had won his own game.  The margin was as close as it could be.  The score was 2 to 1.

President Wilson didn’t seem to mind being eclipsed by the man who drove in the winning run in the ninth.  Before the hostilities were started the gay, happy crowd paid homage to the President and his fiancée, Mrs. Norman Galt, who, with other members of the Presidential party, occupied a box close to the Boston Bench.  Woodrow Wilson is the first president who has ever taken enough interest in the great American game to attend one of the world’s series.

Jen’s Gems:

Greetings!

Hope everyone is doing well.  Tonight is a big night in Buffalo.  It is the first Buffalo Sabres hockey game of the season.  As I was driving home from work tonight, it seemed as if there was a person on every corner wearing a Sabres jersey.  Now we can see whether the “decision” to tank last year and finish in last place will actually paid off.  Let’s Go Buffalo!

My column this week reports on a decision from both our Appellate Division, Fourth Department and a trial court addressing motions to dismiss bad faith claims.  These decisions highlight what I frequently advise which is to always consider making a motion to dismiss when you receive a complaint which contains bad faith type allegations.  The pleading requirements for bad faith causes of action in New York are extremely high, and taking these type of claims out of the case early avoids headaches later.

Lastly, I wanted to let every know that the DRI Insurance Law Committee is putting on a one-day Insurance Law and Claims Conference on October 28, 2015 at the Hilton Hartford in Hartford Connecticut.  It should be a great program.  The conference was developed by the Insurance Law Committee in coordination with Hartford-area insurance carriers and insurance law experts in order to update insurance executives, in-house counsel, and outside counsel on crucial new authority impacting claims handling, coverage decisions, and extra-contractual exposure.  If you are interested in registering or getting more information on the program, you can follow this link:  https://www.dri.org/Event/20150135.

Hope everyone has a nice weekend!

Until next issue…

Jen
Jennifer A. Ehman
[email protected]

Try, Try and Try Again, a Century Ago:

Dunkirk Evening Observer
Dunkirk, New York
9 Oct 1915

Finished Good Time With Poison.

New York, Oct. 9.—Percival Moser of Wilmington, Del., ended four days spent along Broadway with a handsome, attractive woman, not his wife, by taking 30 grains of bichloride of mercury and two grains of morphine at the Hotel Marlborough, where he and the woman had been staying.  Moser is in the New York hospital with slim chances of recovery.  The woman was allowed to leave the hotel, and her whereabouts are not known.

Editor’s note:  I had to find out what happened.

Mr. Mosher survived, living until the ripe age of 74 and remained married to Mae, the woman with whom he was not entertaining when he attempted suicide.  Percival died of pneumonia, secondary to Diabetes after having his leg amputated about seven months before his passing.  A son, age eight at the time of the suicide attempt, served in World War II and died at age 69. A grandson and namesake is a successful banker by all accounts at the present time.  We wonder whether he knows of his grandfather’s encounter with near death.

May the Lord Bless You and Insure You:

 

The Bakersfield Californian
Bakersfield, California
9 Oct 1915

Adam Took Out First Insurance Policy.

SAN FRANCISCO, Oct. 8.—The oldest profession on earth is the insurance business, E. O. McCormick, vice president of the Southern Pacific, asserted, addressing the World’s Insurance Congress.

“The Bible is full of insurance facts,” said Mr. McCormick.  “The first life insurance policy was issued to Adam.  Adam would be here yet if he had stuck to the conditions of the contract and curbed his appetite for apples.

“Noah took out the first marine insurance.  He built the ark and found it a good policy.  The original accident insurance was issued to the children of Israel when the Lord parted the Red sea for them to cross over.”

Highlights of This Week’s Issue, Attached

 

KOHANE’S COVERAGE CORNER
Dan D. Kohane

[email protected]

  • Do Not Save Money on Postage, When another Carrier or TPA Gives Notice of Coverage, Err On the Side of Sending Coverage Letter to Everyone, Including Tender Carrier’s Insured
  • Related Corporations to Employer Were Not Employers Able to Rely Upon Exclusivity of Workers Compensation

 

HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
[email protected]

  • Defendants’ Motion for Summary Judgment Denied Where Their Own Expert Opined That There Was a Probable Causal Relationship between the Accident and the Injury and Also Found Range of Motion Limitations
  • Defendant’s Orthopedist’s Statement That He Saw No Proof as to What Caused the Significant Limitations He found not enough to Grant Summary Judgment
  • Defendant Failed to Adequately Address Plaintiff’s 90/180-Day Claim
  • Defendant’s Expert Did Not Specify Which MRI Report He Reviewed and Was Found to Be Speculative and Conclusory As to Causation As A Result
  • Plaintiff’s Fracture Constituted A Serious Injury Under the Insurance Law But The Owner of A Chassis Was Protected From Liability By The Graves Amendment and the Lessee of the Chassis Was Protected As They Were Not A Statutory Owner of the Chassis Nor Did They Have Exclusive Control

 

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

Arbitration

  • AOB Pre-Dating Dates of Treatment and Not Released or Rescinded Results in EIP’s Lack of Standing
  • Arbitrator Has Discretion to Shift Burden Back to Applicant Even If Respondent’s Expert Employed Phrase “Maximum Medical Improvement”
  • Peer Review Fails to Rebut Presumption of Causal Relationship

 

Litigation

  • No Requirement Exists to Establish That Failure to Appear For EUOs Was “Willful”

 

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

  • Exclusion Removing Protection for Fraud Caused by Someone Who is a Broker-Dealer of Securities Applies to Preclude Claim Even Though the Fraud Arose from Broker’s Investment Advisor Activities

 

FITZ’S BITS
Elizabeth A. Fitzpatrick
[email protected]

  • Swamped.

 

WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
[email protected]

  • Willful Failure to Submit To Examination under Oath Is a Material Breach of Policy Cooperation Provision, Vitiating Coverage, Second Circuit Holds
  • Despite $50,000 Policy Limit And Insured’s Lack Of Tender, Massachusetts Court Affirms $2.25 Million Award Against Insurer, Plus Interest, Due To Breach Of Duty To Defend

 

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

  • S2152/A2026            Waivers for Families of Victims of Terrorist Attacks

 

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

Bad Faith

  • Trial Court Reversed; Bad Faith Claims Dismissed
  • Trial Court Dismisses GBL Claim and Bad Faith Allegations, But Keeps Claim for Consequential Damages

 

EARL’S PEARLS
Earl K. Cantwell

[email protected]

  • Coverage Allowed For “Fun” Business Boat Trip

 

We love your feedback.  Don’t hesitate to give it to us.
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
Audrey A. Seeley
[email protected]

ASSISTANT EDITOR
Jennifer A. Ehman
[email protected]

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

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

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

Elizabeth A. Fitzpatrick
Cassandra Kazukenus

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


Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

Taylor F. Gabryel

APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]

 Elizabeth A. Fitzpatrick
Diane F. Bosse

Topical Index

Kohane’s Coverage Corner
Hewitt’s Highlights on Serious Injury
Margo’s Musings on No Fault
Peiper on Property and Potpourri
Fitz’ Bits
Wilewicz’s Wide World of Coverage
Cassie’s Capital Connection
Keeping the Faith with Jen’s Gems
Earl’s Pearls


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

10/08/15       Endurance America v. Utica First Insurance Company
Appellate Division, First Department
Do Not Save Money on Postage, When another Carrier or TPA Gives Notice of Coverage, Err On the Side of Sending Coverage Letter to Everyone, Including Tender Carrier’s Insured
There was an October 16, 2011 accident involving an employee of CFC.  He sued Adelphi Restoration to recover damages for his injuries.

Adelphi brought a third party action against CFC, seeking contribution, indemnity (common law and contractual) and damages for failure to procure promised coverage.  In this action Adelphi sought additional insured (“AI”) coverage under a policy Utica issued to CFC, under which Adelphi claimed AI coverage.

The Utica policy contained an additional insured endorsement conferring additional insured coverage on entities for which CFC was required to procure additional insured coverage under a written agreement executed before the date of the alleged loss (the blanket endorsement). However, the Utica policy also contained an exclusion for bodily injuries sustained by employees of any insured, or by contractors or employees of contractors "hired or retained by or for any insured." Thus, additional insured coverage was triggered when there was a written contract and when the claim arose out of the insured's work; however, coverage did not apply to an employee of any insured.

While this clearly involved an employee of any insured, CFC claimed that Adelphi contended that the timing of Utica's disclaimer to it precludes Utica precluded Utica from denying coverage and the First Department agreed.

Utica first received notice of the accident on November 16, 2011 from Rockville Risk Management (Rockville), the third-party administrator for plaintiff Endurance. By letter of November 21, 2011 Utica informed CFC that it was denying coverage for the accident, citing the employee exclusion. In its correspondence, Utica stated that it would not provide coverage "to you or any other party seeking coverage under this policy of insurance for damages arising out of this incident." Utica further stated that it would "not defend any legal action against you or any other party; [would] not indemnify our insured or any other party for any judgment awarded; and [would] not make any payment on our insured or any other party's behalf in connection with damages arising out of this event." However, Utica did not inform Adelphi directly of the denial, but sent Rockville a copy of this letter.

By letter dated May 10, 2012, Rockville, on behalf of Endurance and Adelphi, tendered its defense and indemnity to Utica, noting that CFC had entered into a contract with Adelphi. However, Rockville did not include a copy of the contract.

On November 20, 2012, Rockville sent another tender letter to Utica on behalf of Endurance and Adelphi, requesting a response to its earlier tenders and noting that Utica had not responded to the earlier tender on Adelphi's behalf.

On January 25, 2013, Rockville, on behalf of Adelphi, sent Utica a copy of the contract that triggered the blanket endorsement for Adelphi's benefit; Utica received that letter on January 28, 2013. One day later, on January 29, 2013, Utica informed Adelphi and Rockville that although Adelphi had provided a contract requiring that it be named as an additional insured on the Utica policy, the employee exclusion precluded coverage for the accident.

Utica's disclaimer of liability for coverage by letter dated November 21, 2011 to its named insured, defendant CFC, did not constitute notice to additional insured Adelphi under Insurance Law § 3420(d)(2).  Utica knew by November 21, 2011, at the latest, that the employee exclusion applied to the employee's alleged accident, Utica did not immediately disclaim coverage on that basis; it instead waited to disclaim coverage until January 29, 2013 — one day after it had received the contract that triggered the blanket endorsement. However, Insurance Law § 3420(d) "precludes an insurer from delaying issuance of a disclaimer on a ground that the insurer knows to be valid . . . while investigating other possible grounds for disclaiming".

If Adelphi was not entitled to coverage because of the employee exclusion, it did not matter one way or the other whether it was an additional insured under the CFC/Utica policy, and Utica therefore did not need to investigate Adelphi's status in order to disclaim coverage under the exclusion.
Editor’s Note:  On the second point, don’t wait for what you don’t need.  This First Department is tough on carrier’s denying AI coverage.

09/30/15       Ugbomah v. Edison Parking Corporation
Appellate Division, Second Department
Related Corporations to Employer Were Not Employers Able to Rely Upon Exclusivity of Workers Compensation
This was a personal injury action involving woman who was hurt when she fell at her place of employment. She applied for and received Workers' Compensation benefits from her employer's insurance carrier. She also brought an action against the property owner, Edison Second Avenue Ministorage Properties, LLC, Manhattan Mini Storage, LLC, the property manager and Edison Parking Corporation, the alleged manager of all "Edison" entities that are limited liability companies, including the plaintiff's employer, which is not a party to this action.

The defendants moved for summary judgment dismissing the complaint, contending that they did not create the alleged hazardous condition or have actual or constructive notice of it, and that the action was barred by the Workers' Compensation Law.

The lower court granted the defendants' motion for summary judgment dismissing the complaint, concluding that the action was barred by the Workers' Compensation Law. The Second Department affirmed, but on a different ground.

The appellate court held that the defendants failed to establish, prima facie, that this action is barred by the exclusivity provisions of the Workers' Compensation Law.  It cited to a 1993 Second Department case where an action was brought against an officer of the corporation which employed the worker.  In that case, the action against the officer was dismissed on the grounds of exclusivity of workers compensation because any action in connection with common employment would be barred.  Without discussion, the court’s ruling suggested that such proof was not presented in this case, that is, that the other defendant corporations were co-employees.

However, the defendants were nonetheless happy because the appellate court dismissed the case against them anyone because of their failure to have any prior actual or constructive notice of the allegedly defective condition that led to the plaintiff’s fall.

HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW

Robert E.B. Hewitt III
[email protected]

10/07/15                 Goldstein v. Baez
Appellate Division, Second Department
Defendants’ Motion for Summary Judgment Denied Where Their Own Expert Opined That There Was a Probable Causal Relationship between the Accident and the Injury and Also Found Range of Motion Limitations
The defendants’ motion for summary judgment was denied and the lower court’s order reversed. Defendants failed to meet their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident as the defendants' expert found significant limitations in the range of motion in the cervical region of her spine.. The defendants also failed to establish, prima facie, a lack of causation, as their expert opined that there was a probable causal relationship between the subject accident and the injured plaintiff's injuries.

10/07/15                Murphy v. Hurdle
Appellate Division, Second Department
Defendant’s Orthopedist’s Statement That He Saw No Proof as to What Caused the Significant Limitations He found not enough to Grant Summary Judgment
Defendant’s motion for summary judgment sought to establish that the significant limitations in the cervical regions of the plaintiff's spine had not been caused by the subject accident. To support that contention, the defendant submitted an affirmed report of an orthopedist who had examined the plaintiff on her behalf.

The orthopedist stated that he saw no proof as to what had caused the significant limitations he found in the cervical region of the plaintiff's spine. He did not, however, state affirmatively that the subject accident had not caused those limitations. Thus, the orthopedist's report was insufficient to satisfy the defendant's prima facie of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. Since the defendant did not satisfy her prima facie burden, it is unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact. Thus the Appellate Court reversed the trial court.

10/07/15                Peralta v. Kravitz
Appellate Division, Second Department
Defendant Failed to Adequately Address Plaintiff’s 90/180-Day Claim
The Appellate Court reversed the trial court’s grant of summary judgment, in an opinion devoid of any factual detail. The Appellate Court found that defendant failed to meet his prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident as the defendant failed to adequately address Peralta's claim, set forth in the bill of particulars, that he sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d) In light of the defendant's failure to meet his prima facie burden, it is unnecessary to determine whether the papers submitted in opposition were sufficient to raise a triable issue of fact

10/07/15                Rivera v. Ramos
Appellate Division, Second Department
Defendant’s Expert Did Not Specifiy Which MRI Report He Reviewed and Was Found to Be Speculative and Conclusory As to Causation As A Result
The Appellate Division reversed the grant of summary judgment to the defendant by the lower court. The Appellate Division found defendant met his prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident by submitting competent medical evidence establishing, inter alia, that the alleged injury to the cervical region of the plaintiff's spine did not constitute a serious injury within the meaning of Insurance Law § 5102(d)  In opposition, however, the plaintiff submitted competent medical evidence raising a triable issue of fact as to whether he did sustain a serious injury to the cervical region of his spine. Since the plaintiff raised a triable issue of fact with respect to the injuries to the cervical region of his spine, it is not necessary to determine whether his proof with respect to his other alleged injuries would have been sufficient to defeat the defendant's motion for summary judgment.

The opinion of the defendant's expert, based upon a review of an unspecified MRI report, was speculative and conclusory and, thus, insufficient to establish, prima facie, a lack of causation. Therefore, the burden did not shift to the plaintiff to raise a triable issue of fact as to whether the alleged injuries were caused by the subject accident, rather than some other contributory factor

 

9/30/2015     Eisenberg v. Cope Bestway Express, Inc.
Appellate Division, Second Department
Plaintiff’s Fracture Constituted A Serious Injury Under the Insurance Law But The Owner of A Chassis Was Protected From Liability By The Graves Amendment and the Leasee of the Chassis Was Protected As They Were Not A Statutory Owner of the Chassis Nor Did They Have Exclusive Control
The Appellate Division reversed the trial court’s denial of plaintiff’s cross-motion for summary judgment. The plaintiff made a prima facie showing that the subject accident caused her to sustain a fracture and, thus, a serious injury within the meaning of Insurance Law § 5102(d). None of the defendants opposed the plaintiff's prima facie showing.

The rest of the opinion demonstrates that this was an unusual case in terms of which defendants to hold liable. The plaintiff sustained personal injuries when the passenger vehicle in which she was riding was struck by a tractor-trailer. The passenger vehicle was operated by the defendant Orcun Apak and owned by the defendant Munur Apak, and the tractor-trailer was operated by the defendant James G. Wright, an employee of the defendant Cope Bestway Express, Inc., the owner of the tractor. The trailer, which was attached to and pulled by the tractor, consisted of two parts: (1) an intermodal cargo container without wheels, and (2) an intermodal chassis, which is a metal frame with wheels, upon which the intermodal cargo container sat. The container was owned by the defendant CSX Intermodal, Inc. (hereinafter, together with the defendant CSX Transportation, Inc., the CSX defendants), and the chassis, which was on lease to the CSX defendants, was owned by the defendant Interpool Titling Trust (hereinafter, together with the defendant Interpool, Inc., the Interpool defendants). The plaintiff sought, to hold the CSX defendants and the Interpool defendants vicariously liable for Wright's alleged negligence pursuant to Vehicle and Traffic Law § 388.

The Interpool defendants moved, inter alia, for summary judgment dismissing the complaint insofar as asserted against them, arguing, among other things, that pursuant to the Graves Amendment (49 USC § 30106), they were not liable for the plaintiff's injuries, as the intermodal chassis lessor, because they were a bona fide commercial lessor of motor vehicles, and there is no allegation that the accident was the result of any negligence on its part. The Appellate Division held that the Interpool defendants established their prima facie entitlement to judgment as a matter of law dismissing the complaint insofar as asserted against them. The Interpool defendants established that the Graves Amendment applied to shield them from liability by demonstrating the absence of any material issues of fact with respect to whether they were commercial lessors of motor vehicles, that they had in fact leased the subject chassis to the CSX defendants pursuant to a user equipment agreement at the time of the accident, that the chassis qualifies as a motor vehicle under the Graves Amendment, and that there are no allegations of direct negligence against them. In opposition, the plaintiff failed to raise a triable issue of fact.

The CSX defendants moved for summary judgment dismissing the complaint insofar as asserted against them, asserting, among other things, that they cannot be held vicariously liable as the lessee of the subject intermodal chassis because they were not a statutory owner of the chassis pursuant to Vehicle and Traffic Law § 128, and there were no allegations of direct negligence alleged against them.  The Appellate Division found the CSX defendants established their prima facie entitlement to judgment as a matter of law by demonstrating that they were not vicariously liable for the negligence of the driver in connection with the subject accident. The CSX defendants submitted evidence demonstrating that, for more than 30 days prior to the accident, they did not have exclusive control of the chassis, which was rented to another company within that period and, thus, they were not statutory owners of the chassis. In opposition, the plaintiff failed to raise a triable issue of fact. Therefore, they were properly dismissed from the lawsuit.

MARGO’S MUSINGS ON NO FAULT

Margo M. Lagueras
[email protected]

Arbitration

10/01/15       Applicant v Adirondack Insurance Exchange
Erie County, Arbitrator Gillian Brown
AOB Pre-Dating Dates of Treatment and Not Released or Rescinded Results in EIP’s Lack of Standing
The EIP sought to recovery for out-of-pocket expenses for chiropractic treatment received by her.  However, the AOB she signed pre-dated by several years the sessions for which she paid out-of-pocket expenses and there was no proof presented that the AOB was ever released or rescinded.  As such, the Arbitrator found that the EIP had divested herself of her interests in the benefits and dismissed the claim without prejudice.

10/01/15       Medical Care WNY v NFTA Metro System, Inc.
Erie County, Arbitrator Michelle Murphy-Louden
Arbitrator Has Discretion to Shift Burden Back to Applicant Even If Respondent’s Expert Employed Phrase “Maximum Medical Improvement”
Here the 46 year old was allegedly injured in December 2011 when she fell backward onto her left side when the bus in which she was a passenger pulled away from the curb.  She did seek medical treatment but, according to the IME report, she consulted at ECMC in mid-December complaining of wrist pain.  An x-ray was negative for fracture.  The she presented to Millard Fillmore Gates Hospital complaining of neck and left hip pain.  Again, x-rays were negative.  In January 2012, she presented to Applicant who referred her to physical therapy, chiropractic and acupuncture at his own facility.  She also was involved in a second accident while a passenger on Respondent’s bus.  Her treatment continued into November 2014, the “Loss of Enjoyment & Duties under Duress Summaries” completed periodically indicating increased pain due to restricted movement, weakness and fatigue.

The IME documented a past medical history significant for a 1995 mva, an October 2002 mva which caused the EIP to be out of work for several years.  She also sustained work-related injuries to the neck, back, right shoulder, right hip, and right ankle, and other work-related injuries in 2002 with injuries to her neck and back from which she did not recover.  She had ongoing chiropractic treatment from 2002 through 2009.  The IME doctor opined that the PT, chiropractic and acupuncture treatments were redundant.  In May 2012, the IME doctor reexamined the EIP and determined that she had no instability, sensation was normal, and that she had fairly full and symmetric motion.  He determined that she had reached a medical endpoint and no further treatment was required for the December 2011 or January 2012 accidents.

The Arbitrator referred to a prior award she made in March 2015, and which was upheld by a Master Arbitrator, in which she held that even under Hobby an applicant is required to establish medical necessity for continued treatment by submitting port-IME records establishing that the continued treatment was benefiting the EIP either curatively or palliatively.  Thus, when the respondent’s expert opines that an EIP has reached “maximum medical improvement”, the burden shifts back to the applicant to present evidence of medical necessity.  Given that here the records clearly established that the EIP was not benefitting, the claim was denied.

09/30/15       Rochester Brain & Spine v State Farm Fire & Cas. Co.
Erie County, Arbitrator Michelle Murphy-Louden
Peer Review Fails to Rebut Presumption of Causal Relationship
The 50 year old EIP was injured in June 2013 when the vehicle she was driving struck a deer.  After an initial consultation, she underwent a cervical MRI on July 1, 2013 which, when compared to a previous 2009 MRI, revealed a new mild kyphotic deformity at C3-C4.  In October 2013, an anterior cervical discectomy was recommended and performed in January 2014.  In February, a peer review was performed and concluded that the surgery was related to a developmental degenerative disc disease of the spine rather than the accident.  The carrier denied the claim.  The Arbitrator, however, disagreed because the peer reviewer admitted that the accident exacerbated the pre-existing degenerative condition.  The Regulations clearly mandate that, regardless of the nature of a pre-existing condition, an insurer is liable for the payment of benefits for losses occasioned by the aggravation of that pre-existing condition.  Therefore, the insurer failed to establish a lack of causal relationship between the accident and the surgery.

 

Litigation

09/17/15       Metro Health Products, Inc. v State Farm Mut. Auto. Ins. Co.
Appellate Term, Second Department
No Requirement Exists to Establish That Failure to Appear For EUOs Was “Willful”
On appeal, the court agreed that defendant had timely and properly denied plaintiff’s claims based upon plaintiff’s failure to comply with duly scheduled EUOs.  The court determined that the scheduling letters and denial of claim forms had been timely mailed and that the affirmation by the attorney who was present to conduct the EUO was sufficient to establish plaintiff’s non-appearance.  In addition, discovery relevant to the reasonableness of the EUO request was not necessary for plaintiff to be able to oppose the motion, nor is there any requirement that it be shown that the failure to cooperate was willful.

 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]
10/06/15       United States Fire Ins. Co. v Nine Thirty FCF Investments, LLC, et al.
Appellate Division, First Department
Exclusion Removing Protection for Fraud Caused by Someone Who is a Broker-Dealer of Securities Applies to Preclude Claim Even Though the Fraud Arose from Broker’s Investment Advisor Activities
Defendants are/were Limited Liability Companies which were formed to invest and trade securities.  At some time after formation, they retained Madoff Securities wherein Mr. Madoff would act as the Broker for the various companies’ investments.

We all know that Mr. Madoff was charged with, and subsequently pled guilty to, a litany of fraudulent acts as an Investment Advisor.  At around the same time, defendants submitted a claim to plaintiff under bonds that covered the relevant time period.  Plaintiff responded by denying defendants’ claim on the basis of an exclusion “x” which extinguished benefits for losses which were caused by the fraudulent acts of an non-employee Broker of securities.  Mr. Madoff, of course, clearly qualified as a Broker, and likewise there was no doubt as to his role in various frauds.

Defendants opposed plaintiff’s position by pointing to the provision of a Rider “9” which provided benefits where a loss was occasioned out of dishonest acts of a non-employee, Investment Advisor.  Recall, of course, that Mr. Madoff’s transgressions were committed as an Investment Advisor.  Thus, it was argued that the bonds provided protection for the actual loss caused by Mr. Madoff and Madoff Securities.

The Trial Court denied US Fire’s motion for summary judgment finding a potential ambiguity in if/how Rider 9 impacted the wording of exclusion “x.”  The Appellate Division reversed, however, on the basis that exclusion “x” was clear and unambiguous on its face.  Whether Mr. Madoff was acting as an Investment Advisor was irrelevant because the provision precluded coverage for fraud committed by a Broker.  Madoff Securities was identified on the face of its agreements with the Limited Liability Companies as “the Broker.”  The fact that Rider “9” is similar cannot change the clear and unambiguous wording of the exclusion.  If Rider “9” was meant to change the reading of exclusion “x”, the Court advised that defendants should have ensured such language was in the bond when it was underwritten.

Moreover, the Court also noted there is no inconsistency in applying the plain wording of exclusions “x”.  Surely, Rider “9” would apply to provide benefits to the defendants if the fraudulent actor was acting solely as an Investment Advisor.  Where, as here, he or she also acted as a Broker, exclusion “x” applied and coverage was extinguished as a result.

FITZ’S BITS

Elizabeth A. Fitzpatrick
[email protected]

Swamped.

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz
[email protected]

09/29/15       The Wingates, LLC v. Commonwealth Ins. Co. of America
United States Court of Appeals, Second Circuit
Willful Failure to Submit To Examination under Oath Is a Material Breach of Policy Cooperation Provision, Vitiating Coverage, Second Circuit Holds
Commonwealth Insurance issued a property policy to Wingates, covering the insured as owner of an apartment complex in Ohio. Following a fire loss that destroyed one building and damaged another, the insured made a claim for coverage. Thereafter, the carrier requested various documents and photographs, then asked Wingates submit to and examination under oath (“EUO”), pursuant to the terms of the policy. However, the insured received those requests and chose not to submit to the EUOs. They did so against the advice of Commonwealth’s adjuster and despite the adjuster’s warning that the failure to present for an EUO would violate the policy.

Nevertheless, even before Commonwealth completed its investigation, Wingates sued the carrier for coverage. During the litigation, the insurer deposed several of the insured’s employees and conducted extensive discovery. The insured, in turn, conducted no discovery and took no depositions, then disclosed no expert testimony. After the close of discovery, Commonwealth moved for summary judgment. Wingates opposed and sought to reopen discovery so that it could provide expert witnesses.

Suffice it to say the Court was not amused. The District Court granted the carrier’s motion for summary judgment and denied the insured’s request for discovery. Last week, the Second Circuit affirmed. They concluded that, at the outset, Wingates materially breached its policy’s cooperation provision by failing to comply with the EUO requirement. It stated that “it is undisputed that the Policy contained an EUO provision and that Wingates failed to comply when requested. Under New York law, an insured’s ‘willful failure to appear at an EUO constitutes a material breach of the cooperation clause and a defense to an action on the policy”. Wingates had repeatedly failed to respond to the insurer’s requests for EUOs, despite knowledge of the possible repercussions, and this demonstrated as a matter of law that the breach was entirely willful.  Accordingly, there was no coverage for the claim under the policy.

09/15/15       Boyle v. Zurich American Insurance Company
Supreme Judicial Court of Massachusetts, Middlesex
Despite $50,000 Policy Limit And Insured’s Lack Of Tender, Massachusetts Court Affirms $2.25 Million Award Against Insurer, Plus Interest, Due To Breach Of Duty To Defend
In this case, Zurich insured the operator of a car repair shop, C&N Corp. Zurich’s business auto policy included liability coverage, with a limit of $50,000. One day, the plaintiff Boyle was injured in the shop as he was listening to a truck’s engine rev and one of the truck’s tires exploded. His left forearm and hand were severely lacerated and fractured. He incurred over $100,000 in medical expenses and was out of work for nearly a year, then compelled to seek lower-paying, less-skilled employment than he had previously held.

C&N reported the accident to their insurance agent a few days after it happened. The agent notified Zurich, which opened a claim file and started an investigation. Zurich interviewed C&N representatives, and eventually determined that there was coverage for the incident and that C&N would be held liable for Boyle’s injuries. Boyle retained counsel, who advised C&N that he would be asserting a claim. C&N forwarded this letter to the agent, who forwarded it to Zurich.

By the time Boyle filed suit, C&N was no longer operating as a business. C&N thus did not inform its agent or Zurich about the complaint or any other documents that were filed in the case. C&N did not answer the pleading, and a default was eventually entered against it. Boyle’s counsel notified Zurich that a damages hearing was going to take place, and forwarded copies of Boyle’s medical bills. However, since Zurich had never received a tender request from C&N, by then they had closed their file on the claim. As such, Zurich’s mail clerk scanned the documents, added them to the closed file, and took no other action. Zurich thus did not seek to get the default vacated, did not contact C&N, and at no time did they attempt to settle the matter. At the damages hearing, the Boyles were awarded over $2,000,000 in damages, plus pre- and post-judgement interest. They then obtained an assignment from C&N and sued Zurich to collect.

After a non-jury trial, the Massachusetts Superior Court held that Zurich had breached its contractual duty to defend C&N as a matter of law. That duty, the Court said, was triggered upon initial notice from the insured, coupled with the notice of impending damages assessment. The Judge there found “that any reasonable insurer would have attempted, by the time of the damages hearing, to settle the Boyle’s claim for the policy limit of $50,000”.

In this latest decision, the Supreme Judicial Court agreed. In Massachusetts, the Court said, an insurance company cannot deny coverage because of an insured’s failure to give notice, unless the insurer has been prejudiced. Actual proof of some prejudice is required. Here, Zurich failed to provide any such proof. Moreover, the Court added that Zurich could have done earlier in the case, either after it made its coverage determination, after it learned of the lawsuit, or before the hearing on damages took place. Even after judgment was entered they could have sought to set it aside. The Court recognized the fact that Zurich’s failure to defend was, in part, due to an inadvertent or negligent error of its file clerk. However, Zurich’s failure to make more reasonable efforts to settle the suit within its policy limits, while multiple opportunities arose, warranted the award. [Hat tip: Mike McMyne of IFG Companies]

 

CASSIE’S CAPITAL CONNECTION

Cassandra A. Kazukenus
[email protected]

S2152/A2026          Waivers for Families of Victims of Terrorist Attacks
On October 5, 2015, Governor Cuomo signed the above bills into law.  The purpose of this legislation is to provide family members of victims of terrorist attacks against the United States with premium deductions with respect to structure settlement transfer agreements.

Specifically, 5-1708-a of the General Obligations Law is amended.  Previously, an annuity issuer was permitted to waive or offer to waive commissions or other compensation payable as a result of the sale of a policy or contract subject to Insurance Law 4224 for victims of the September 11th attacks.  This provision is now expanded to include the victims of any terrorist attack defined in this provision.  The law now defines terrorist attack as “premeditated, politically motivated violence perpetrated against noncombatant targets by subnational groups or clandestine agents, listed on the U.S. Department of State’s list of Foreign Terrorist Organization or listed at the time of such attack.  The new law also deletes the prior reference that a “victim” is defined as only those who were injured as a result of the September 11th attack and expands the definition to include anyone who has died or is injured as a result of any terrorist attack.

This law went into effect when signed on October 5, 2015.

 

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman
[email protected]

Bad Faith

10/2/15         Miller v. Allstate Indem. Co.
Appellate Division, Fourth Department
Trial Court Reversed; Bad Faith Claims Dismissed
Plaintiffs brought this action against Allstate after their property damage claim was denied.  After answering the complaint, Allstate moved to dismiss the fourth, fifth and sixth causes of action as well as plaintiffs’ demands for punitive damages and attorneys’ fees.  Plaintiffs previously withdrew their fifth cause of action, which alleged unfair claim practices in violation of New York Insurance Law §2601.

In reversing the trial court, the Fourth Department held that the fourth and sixth causes of action alleging bad faith should have been dismissed for failure to state a cause of action.  These causes of action did not allege any conduct by Allstate constituting the requisite gross disregard of the insured's interests’ necessary to support such causes of action.  Moreover, the allegation that defendant had no good faith basis for denying coverage was redundant to plaintiffs’ causes of action for breach of contract based on the denial of coverage, and did not give rise to an independent tort cause of action, regardless of the insertion of tort language into the pleading.

The court also dismissed all demands for punitive damages since the complaint failed to set forth the pleading elements required to state a claim for punitive damages; plaintiffs' conclusory allegations as to Allstate's motive for its refusal to pay the claim were an insufficient premise for a demand for punitive damages.

Lastly, the court found that plaintiffs failed to state a cause of action for untimely disclaimer as contained in the sixth cause of action.  Where, as here, the underlying claim did not arise out of an accident involving bodily injury or death, the notice of disclaimer provisions set forth in Insurance Law § 3420 (d) were inapplicable and, under the common-law rule, delay in giving notice of a disclaimer of coverage, even if unreasonable, will not estop the insurer to disclaim unless the insured has suffered prejudice from the delay.  Contrary to plaintiffs’ contention, their conclusory allegation that they were “damaged and prejudiced” by the untimely disclaimer was insufficient to withstand the motion to dismiss.

10/06/15       Millin v. Allstate Indemnity Co.
Supreme Court, New York County
Trial Court Dismisses GBL Claim and Bad Faith Allegations, But Keeps Claim for Consequential Damages
This is a trial court decision where the insurer also moved to dismiss the bad faith allegations.  Allstate insured plaintiff’s condominium.  Plaintiff suffered a loss due to a water leak in another apartment.  Following partial denial of the claim, plaintiffs brought suit alleging bad faith and seeking punitive damages, consequential damages and attorney’s fees.

Allstate moved to dismiss.   The court found that plaintiff had not met the threshold requirement to maintain a claim under GBL § 349 as Allstate’s partial disclaimer of coverage did not constitute consumer-oriented conduct, and did not have a broad impact on consumers at large.  Rather, the dispute was between plaintiffs and Allstate and involved only a private contract dispute.

Likewise, the court dismissed the claim for punitive damages as the complaint was devoid of any allegations that Allstate’s alleged breach of the policy involved fraud or any wanton dishonesty as to imply criminal indifference.  Further, no facts were alleged that demonstrated Allstate’s conduct was aimed at the public generally.

Additionally, the claim for attorney’s fees, costs and disbursements was dismissed since the insured brought the action against the insurer.

However, the court did decline to dismiss the claim for consequential damages finding that plaintiff’s complaint stated that Allstate misrepresented facts on some or all of its communications and claims decisions, willingly and/or intentionally misrepresented available coverage and otherwise acted in bad faith.  It further alleged that as a result of this bad faith, plaintiffs suffered consequential damages.  The court found this allegation sufficient.

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

04/30/15        Pennsylvania National Mutual Casualty Insurance Co. v. Lewis
Coverage Allowed For “Fun” Business Boat Trip
A Federal Court held that an insurance company owed coverage for a man being sued by his wife for injuries incurred in a boating accident under a commercial liability policy because the boat was being used for business purposes.

Mrs. Lewis was injured in a boating accident in September 2011 while the boat was being operated by her husband.  The issue was whether the insurance company, which issued a commercial general liability policy to Mr. Lewis’ company, had a duty to defend and indemnify the husband and the company from a lawsuit brought by the wife.  Mr. Lewis was the sole member-manager of the company, and indeed its only employee at the time.  The policy provided that, if the named insured was a limited liability company, its members are insureds only with respect to the conduct of business for the company.

Penn National argued that there was no coverage because the boat was being used for personal pleasure and not in connection with company business.  Mr. Lewis countered that there were two other passengers on the boat at the time that Mr. Lewis was entertaining as business prospects for his company.  Penn National replied that the family’s daughters and one of their friends were also on the boat at the time.

After a trial, the Court ruled that Mr. Lewis did appear to be using the boat to develop business for his company.  Even though the two passengers on the boat were neighbors and belonged to the same church as the family, Mr. Lewis claimed that he viewed the neighbors as potential customers for his company, and that they also referred prospective customers to his company.  This was despite the Court’s acknowledgement that Mr. Lewis and his family used the boat at other times solely for personal recreation.  The Court concluded that Mr. Lewis was engaged in activities in furtherance of the conduct of his company’s business, and therefore the insurance company owed a duty to defend the company and Mr. Lewis in the wife’s suit.

This was certainly a close case with significant evidence that the boat was in fact being used for family or recreational purposes at the time of the accident.  It was also of course unusual for the wife to be suing her husband with respect to the injuries, although other factors such as a lack of health insurance might have had a bearing on that decision.  The insured’s argument that their friends were also possible sources of business referrals would also be true in every case.  It appears that each side made the best and most appropriate arguments they could make to the District Court, and after a trial the insured prevailed, but there certainly was much to contest and question about the claim.

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