Coverage Pointers - Volume II, No. 5

08/28/00: STATE FARM MUTUAL AUTOMOBILE INS. CO. v. MUCERINO
New York State, Appellate Division, Second Department
Arbitration on Uninsured Motorist Claim Permanently Stayed Where There is No Physical Contact Between Vehicles
Insurer given permanent stay of arbitration of an uninsured motorist claim. The finding by the trial court -- that there was no physical contact between the insured’s vehicle and alleged hit and run vehicle -- was supported by a fair interpretation of the evidence and should not be disturbed.

08/21/00: TRANES v. INDEPENDENT HEALTH ASSOCIATION, INC.
New York State, Appellate Division, Second Department
HMO Not Required To Pay for Non-Medical Emergency Performed outside Service Area
In an action for breach of contract against an HMO for failure to pay for a medical procedure, the court found in favor of the HMO. The Court held that the HMO was not required to provide coverage for a procedure performed outside of the "service area" of the contract, since the procedure did not constitute a "medical emergency" as defined by the contract.

07/27/00: TENKATE v. MOORE
New York State Supreme Court, Appellate Division, Third Department
Insurer has Duty to Defend Insureds for Action Arising from Home Child Care Business Despite Policy’s Business Pursuits Exclusion -- Nature of Injuries did not Rule-Out Exception to Exclusion for Injuries Usual to Non-Business Pursuits
The plaintiff commenced this personal injury action against the defendant and her husband for injuries to their child, claiming that the defendants’ negligent supervision and care were the cause of the injuries. The defendants commenced a third-party action against their insurer seeking an order declaring that it was obligated to defend and indemnify them in the main action under the terms of their homeowner's policy. The insurer moved for summary judgment based on an exclusion in the policy for injuries arising from insureds’ business enterprise because the allegations fell squarely within the policy’s express exclusion of coverage for injuries "[a]rising out of the business pursuits of an insured". The insureds cross-moved for summary judgment based on an exception to the exclusion because the insurer failed to establish that the alleged injury did not occur within the context of the policy’s non-business pursuits exception, which states that the business exclusion does not apply to injuries arising from "activities which are usual to non-business pursuits". The court held that the insurer was obligated to defend the action, finding that there "was nothing about the nature of the child’s injuries themselves implying that they could have been sustained only as a result of conduct intrinsic to the provision of child care. Rather, the injuries could have been intentionally inflicted by another child present in defendants' home, a cause incident to a non-business pursuit" or by "a fall down a long flight of stairs" – also not ordinarily associated with non-business pursuits or with the provision of child care. In light of these possible causes, the insurer "failed to meet its burden of establishing that the alleged injury resulted from activities which fell solely under the business pursuits exclusion of the policy and not under the narrow exception to that exclusionary clause which requires that coverage be afforded for activities ‘usual to non-business pursuits’".

08/29/00: BELMONTE v. EMPLOYERS INSURANCE CO.
California Court of Appeal, Fourth Appellate District, Division Three
Where Insured's Niece Stole Car Keys and had Auto Accident, Allegations of Premises Liability Claims do Not Change Essential Nature of Accident -- It's an Auto Accident, Excluded Under CGL Policy
Erika, CGL-insured's 16-year-old niece, who did not have a driver’s license, entered his private office and, allegedly without permission, took the keys to his van. She and her friend Fabiola, who worked in the store, took turns driving the vehicle around a parking lot. While Erica was at the wheel, she lost control of the van and hit Fabiola, seriously injuring her. Barajas sued the insured alleging negligence in the use of the premises, negligent entrustment of the van, negligent failure to supervise its use, and vicarious liability for Erica’s conduct. The premises liability claim asserted plaintiff "negligently owned, maintained, managed and operated" the store by enabling her to gain access to the key. California court determines that even though a premises liability claim was alleged, this accident could not have happened without a car – accordingly, automobile exclusion in CGL policy excluded claim.

08/28/00: PENN v. PRESTIGE STATIONS, INC.
California Court of Appeal, Fourth Appellate District, Division One
Retroactive Effect Given to Spoliation Ruling -- Judgment for Compensatory and Punitive Damages Vacated
In Cedars-Sinai Medical Center v. Superior Court (1998) 18 Cal.4th 1, 5 (Cedars-Sinai), the California Supreme Court determined there is no cause of action for intentional spoliation of evidence by a litigation adversary. The California Court of Appeal gives it retroactive effect and vacates that portion of the judgment which awarded plaintiff $95,000 for intentional spoliation of videotapes from a surveillance camera controlled by defendant. Because, aside from the spoliation of evidence, there was no other basis upon which to award punitive damages, it also vacates the jury's $500,000 punitive damage award.

08/25/00: FK DAIRIES, INC. v. FIREMAN’S FUND
U.S. Ninth Circuit Court of Appeals (apply California law)
Comprehensive General Liability Policy Covered After-Acquired Property
The court held that where the state seeks recovery for damage to state-owned groundwater contained within certain property, the property owner's comprehensive general liability policy must provide coverage if the damage occurred within the policy period, but the insured purchased the property after the policy period and before the state made its claim. Insurance policy states that the insurer "shall have the right and duty to defend any suit seeking damages on account of bodily injury or property damage" where the injury or damage is "caused by an occurrence." The policy defines an "occurrence" as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured." This language is unambiguous. Moreover, there is no language in the policy stating that the insured's liability, as opposed to the damage that serves as the basis for that liability, must arise within the policy period. An exclusion or limitation on policy coverage cannot be read into the insurance contract; rather, such provisions must be "conspicuous, plain, and clear."

08/24/00: DEJESUS v. FLICK
Nevada Supreme Court
Plaintiff's Counsel's Closing Argument Merits Reversal of >$1 Million Award
Outrageous conduct of plaintiff's counsel leads to new trial. Plaintiff's attorney presented an emotional and provocative closing argument to the jury, and he injected his personal life and opinions into this argument. Among other things, he personally vouched for the justness of his cause, talked about his grandchildren, his career with the FBI, his twenty years’ experience as a trial lawyer, and even cried during his closing argument. Counsel expressed his disdain for the defendant, said he was in a better position than the jury to know plaintiff's suffering and stated he would not trade the use of his own fingers for ten million dollars. In painting a negative image of defense medical experts, he informed the jury that the defense doctors were motivated to testify solely by money and that, in his opinion, one of them lied and the jury could discard his testimony in a garbage can. Finally, he invited the jury to punish defense counsel and all civil defense attorneys with its verdict:

What I’d like the message to be to this law firm and to other law firms is, dang it, when someone is hurt, pay them, pay them what’s reasonable and let’s go on with life. But if you let them get away with this, if you let them get away with bringing some clown like [the defense doctor] in here to try to convince the jury that -- that she’s not hurt, they’ll keep doing that . . . . that’s the way the game is played, . . . that’s what happens, that’s what the power brokers of this world do to people like you

Submitted by Janice J. Brown, an attorney with Barker, Brown, Busby, Chrisman & Thomas, P.C., in Las Vegas, NV.

08/21/00: LYONS V. MEDICAL MALPRACTICE INS. ASSOC.
New York State Supreme Court, Appellate Division, Second Department
Attorneys not bound by Jury’s Determination of Settling Defendant’s Negligence in Subsequent Action for Legal Malpractice – Attorneys were not Parties to that Action
In this legal malpractice action, the plaintiffs alleged that their attorneys did not properly represent them in connection with the settlement of a medical malpractice claim against plaintiff’s doctor. After settling the medical malpractice claim against the doctor, a jury verdict was obtained in plaintiffs’ favor with liability apportioned 60% against the settling doctor and 40% against the hospital. Relying on the jury verdict, the plaintiffs moved for partial summary judgment, on the ground that the determination of liability at trial was binding on their attorneys, who were therefore estopped from contesting their liability in this legal malpractice action. The Court held that the attorneys were not bound by the verdict with respect to the doctor’s negligence. They were not parties to the medical malpractice action and were not afforded a full and fair opportunity to contest the determination.

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In a proceeding pursuant to CPLR article 75 to permanently stay arbitration of an uninsured motorist claim, the appeal is from an order of the Supreme Court, Nassau County (Rosenblum , R.), dated August 31, 1999, which, after a hearing, granted the petition and permanently stayed arbitration .

ORDERED that the order is affirmed, with costs.

"It is well established that the decision of the fact-finding court should not be disturbed on appeal unless the court's conclusions could not be reached on any fair interpretation of the evidence, especially in cases resting in large part on the credibility of witnesses" (Matter of Allstate Ins. Co. v McMahon, 251 AD2d 571, 572; see also, Thoreson v Penthouse Intl., 80 NY2d 490, 495; Matter of Aetna Life & Cas . v Gramazio, 242 AD2d 530). The determination that there was no physical contact between the appellants ' automobile and an alleged hit-and-run vehicle is supported by a fair interpretation of the evidence adduced at the hearing and should not be disturbed.

BRACKEN, J.P., FRIEDMANN, LUCIANO and SMITH , JJ., concur.

In an action, inter alia, to recover damages for breach of contract, the plaintiffs appeal from an order of the Supreme Court, Westchester County (Colabella, J.), entered May 21, 1999, which granted the defendant's motion for summary judgment dismissing the complaint.

ORDERED that the order is affirmed, with costs.

The plaintiffs ' argument that the Supreme Court erred in granting the defendant's motion for summary judgment because the defendant failed to attach the pleadings to its motion is unpreserved for appellate review (see, Matter of Dietrich, AD2d [3d Dept., Apr. 27, 20 00]; Panzella v Shop Rite Supermarkets, 238 AD2d 490).

The Supreme Court properly determined that the defendant, a health maintenance organization, was not required to provide coverage for a procedure performed outside of the "service area" of the contract, since the procedure did not constitute a "medical emergency", as that term was defined in the contract.

The plaintiffs ' remaining contentions are without merit.

MANGANO, P.J., O'BRIEN, SULLIVAN and H. MILLER, JJ ., concur.

In an action to recover damages for legal malpractice, the defendants Lonn Berney and Ann Chase, individually and as a partnership, appeal from an order of the Supreme Court, Suffolk County (Gowan, J.), dated August 5, 1999, which granted the plaintiffs' motion for partial summary judgment on the issue of liability.

ORDERED that the order is reversed, with costs, and the motion is denied.

In 1980 the plaintiffs commenced an action against Dr. William Saperstein and Huntington Hospital seeking to recover damages for personal injuries sustained as a result of alleged medical malpractice. The defendant attorneys Lonn Berney and Ann Chase, as successors to the firm of Berney & Zweben, represented the plaintiffs in the malpractice action. In March 1987 the plaintiffs settled their claim against Dr. Saperstein. Thereafter, in May 1997, with substituted counsel representing them, the plaintiffs obtained a jury verdict in their favor against Huntington Hospital with liability apportioned 60% against the settling defendant , Dr. Saperstein, and 40% against Huntington Hospital.

In this legal malpractice action, the plaintiffs allege, inter alia, that the appellants did not properly represent them in connection with the settlement of their claim against Dr. Saperstein. Relying on the jury verdict against Huntington Hospital in the medical malpractice action, the plaintiffs moved for partial summary judgment, on the ground that the determination of liability at trial is binding on the appellants and therefore the appellants are estopped from contesting their liability in this action. The Supreme Court agreed and granted the motion. We reverse.

Under settled principles of law regarding res judicata and collateral estoppel, the appellants - who were not parties to the medical malpractice action - cannot be bound by the verdict with respect to Dr. Saperstein's negligence. By virtue of their nonparty status, the defendants were not afforded "a full and fair opportunity to contest the [determination] now said to be controlling " (Schwartz v Public Administator of County of Bronx, 24 NY2d 65, 71). Accordingly, the Supreme Court improperly granted the plaintiffs' motion for partial summary judgment (cf., Jones Lang Wootton USA v LeBoeuf, Lamb, Greene & MacRae, 243 AD2d 168).

BRACKEN, J.P., SANTUCCI, McGINITY and FEUERSTEIN , JJ., concur.

(1 ) Cross appeals from an order of the Supreme Court (Relihan Jr., J.), entered October 12, 1999 in Tompkins County, which granted third-party defendant's motion for summary judgment and granted a declaration in favor of third-party defendant, and (2) appeal from an order of said court, entered October 22, 1999 in Tompkins County, which partially denied defendants' motion for summary judgment dismissing the complaint.

In August 1995, defendant Marie S. Moore provided child care services for plaintiffs by babysitting their 13-month-old daughter, Erica Tenkate, in Moore's home. On August 2, 1995, Moore informed plaintiff Donna Tenkate (hereinafter plaintiff) of two unexplained bruises on Erica's back and the child's favoring of one of her arms during the day. Plaintiff subsequently observed that Erica was lethargic and inactive, but attributed these symptoms to a recent immunization . On the following morning, Moore observed Erica's leg buckle when she attempted to climb onto a couch and mentioned this occurrence during a later telephone call from plaintiff. Plaintiff immediately picked the child up from Moore's home, observed that her leg was swollen and took her to a pediatrician. Subsequent X rays revealed that the child had sustained a spiral fracture of her right femur and a chip fracture of her right humerus. The pediatrician notified the Tompkins County Department of Social Services (hereinafter DSS) of these injuries. DSS removed the child from plaintiffs' care pending the outcome of a Family Court Act article 10 proceeding. After hearing the opinions of medical experts as to the possible causes of the child's injuries, Family Court concluded that the injuries were "likely as not" sustained while the child was in Moore's care and dismissed DSS' petition .

In July 1998, plaintiffs commenced the instant personal injury action (hereinafter the main action) against Moore and her husband claiming that their negligent supervision and care were the cause of the child's injuries . Thereafter, defendants commenced a third-party action against third-party defendant, National Grange Mutual Insurance Company (hereinafter National), seeking an order declaring that National was obligated to defend and indemnify them in the main action under the terms of the homeowner's insurance policy issued to them by National.

Following depositions, National moved for summary judgment based on an exclusion of coverage in the homeowner's policy for injuries arising from an insureds' business enterprise. Defendants cross-moved for summary judgment in the third-party action based on an exception to the policy's exclusion and moved for summary judgment dismissing the complaint in the main action on the ground that plaintiffs would not be able to establish that defendants' negligence was a cause of the child's injuries. By order entered October 12, 1999, Supreme Court, inter alia , granted National's motion, finding that National had no duty to defend or indemnify defendants under the insurance policy. By separate order entered October 22, 1999, Supreme Court, inter alia , denied summary judgment to defendants on the negligence claims. Defendants appeal from both orders . We affirm the second order and reverse the first.

Supreme Court properly denied defendants ' motion for dismissal of the negligence causes of action because summary judgment is inappropriate where, as here, the facts governing the resolution of material issues are within the exclusive knowledge of the moving parties (see, Zwart v Town of Wallkill, 192 AD2d 831, 834). Defendants' motion to dismiss is primarily based on Moore's assertion in her supporting affidavit that on the two days in question, the child was not involved in a fall or other accident and was not abused by anyone while at defendants' home. Although plaintiffs are unable to offer evidence demonstrating the specific act or omission which caused their child's injury, they rely on circumstantial evidence to meet their burden of proof in opposing defendants' motion.

"'To establish a prima facie case based solely on circumstantial evidence, it is enough that [a] plaintiff shows facts and conditions from which negligence of [the] defendant and causation of the accident may reasonably be inferred * * *' and the evidence must be viewed in the light most favorable to the plaintiff, according her every reasonable inference * * *" (Di Franco v Golub Corp., 241 AD2d 901, 902, quoting Kadyszewski v Ellis Hosp. Assn., 192 AD2d 765, 766 [citations omitted]). Here, plaintiffs assert that the injury did not occur while the child was in their care and was discovered while the child was in Moore's care. There is also evidence that other children had sustained injuries while in Moore's care, that symptoms clearly referable to the child's fractures arose only while in Moore's care, and that one of the possible accidental causes of the child's injuries was a long fall on or from an unprotected stairway such as is present in defendants' home. Because no party has alleged that the injuries occurred while this 13-month-old child was somewhere other than in plaintiffs' or defendants' home, determination of the cause of the injury and any liability on the part of defendants turns primarily upon an assessment of the parties' credibility.

As the nonmoving parties, plaintiffs are entitled to the benefit of the doubt and the favorable inference that the injuries were sustained while in Moore's care. Although plaintiffs clearly will bear the burden of proof on the issue at trial (see, Henry v General Motors Corp., Chevrolet Motor Div., 201 AD2d 949, lv denied 84 NY2d 803), they raised sufficient issues of fact in the context of this summary judgment motion to warrant having the circumstantial evidence and defendants ' credibility concerning the child's injury tested by cross-examination and assessed by the trier of fact (see, Walsh v Town of Cheektowaga, 237 AD2d 947, 948, lv dismissed 90 NY2d 889; Kelly v Le Moyne Coll., 199 AD2d 942, 943-944; Scott v Keener, 186 AD2d 955, 958; Fulmont Mut. Ins. Co. v Toran, 158 AD2d 829, 831).

Supreme Court, however, erred in granting National's motion for summary judgment and making a declaration in its favor. "The duty of a liability insurer to defend an action brought against an insured is determined by the allegations in the complaint * * *. If the facts alleged raise a reasonable possibility that the insured may be held liable for some act or omission covered by the policy, then the insurer must defend * * *. If no such possibility is raised, no duty to defend is owed under the policy" (A. Meyers & Sons Corp. v Zurich Am. Ins. Group, 74 NY2d 298, 302 [citations omitted]). Here, in pertinent part, the complaint in the main action alleges that the child was injured as a result of the negligent care and supervision exercised by defendants while they were providing child care. National contends that because defendants do not deny that they were engaged in the business of child care as to the child, these allegations fall squarely within the subject policy's express exclusion of coverage for injuries "[a]rising out of the business pursuits of an insured". Defendants, however, maintain that National failed to establish that the alleged injury did not occur within the context of the policy's nonbusiness pursuits exception, which states that the business exclusion does not apply to injuries arising from "activities which are usual to non-business pursuits".

We find nothing about the nature of the child's injuries themselves implying that they could have been sustained only as a result of conduct intrinsic to the provision of child care. Rather, the injuries could have been intentionally inflicted by another child present in defendants' home, a cause incident to a nonbusiness pursuit (see, Gallo v Grosvenor, 175 AD2d 454 [insured's supervision of her own son, the failure of which allegedly resulted in a sexual attack on a child being cared for by the insured, was incident to a nonbusiness pursuit]). The other possible cause of the child's injuries mentioned in the earlier Family Court proceeding was a fall down a long flight of stairs. Moore's deposition testimony confirms that there was an unguarded stairway in defendants ' home, a feature ordinarily associated with nonbusiness pursuits and not with the provision of child care (see, Gulf Ins. Co. v Tilley, 280 F Supp 60, 65, affd 393 F2d 119 [preparation of coffee in babysitter's home held to be within nonbusiness pursuits exception]). In light of these possible causes of the child's injuries here, National "failed to meet its burden of establishing that the alleged injury resulted from activities which fell solely under the business pursuits exclusion of the policy and not under the narrow exception to that exclusionary clause which requires that coverage be afforded for activities 'usual to non-business pursuits'" (Hanover Ins. Co. v Cowan, 172 AD2d 490, 491; see, Gulf Ins. Co. v Tilley, supra). National therefore has a duty to defend defendants.

Crew III, J.P., Spain, Mugglin and Lahtinen, JJ., concur .

ORDERED that the order entered October 12, 1999 is modified, on the law, without costs, by reversing so much thereof as granted third-party defendant's motion for summary judgment; said motion denied to that extent and it is declared that third-party defendant has a duty to defend defendants in the main action; and, as so modified, affirmed.

ORDERED that the order entered October 22, 1999 is affirmed, without costs.