Coverage Pointers - Volume IX, No. 17

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Dear Coverage Pointers Subscribers:

 

What a week!  Greetings from the Bahamas, where I'm attending the DRI Board Meeting and the Federation of Defense & Corporate Counsel's Winter Meeting.  It's tough duty.  I much prefer the several inches of snow I left behind.

 

Below you will find two documents, our Coverage Pointers edition for this week and a special summary of the Bi-Economy decision from the Court of Appeals

 

Bi-Economy v. Harleysville Mut. Ins. Co., from the Court of Appeals, is a must read. A first-party insurer can be liable for foreseeable consequential damages for a breach of the implied duty of good faith and fair dealing?  This decision may signal a wholesale change in how the courts in New York look at the extra-contractual damages resulting from an insurer's breach of an insurance policy.  On the other hand, perhaps it may be limited to its facts - a business fails because of a failure to promptly pay a business interruption claim - and that result could have been foreseen by the parties.

 

It surely appears that the Court of Appeals has swung open a much wider door to first party - extra contractual damage cases - even without bad faith being established -- in its 5-2 decision in Bi-Economy decided on Wednesday.  Is there a difference between "consequential damages" and "punitive damages" as the majority insists or is "punitive damages are now called "consequential" damages, and a bad faith failure to pay a claim is called a "breach of the covenant of good faith and fair dealing" as the dissent predicts.  Or, is this case limited to a business that failed because of a failure to pay promptly a business interruption claim?

 

A Pandora's Box of litigation is surely in the offing.

 

Again, our analysis is attached.

 

Valentine's Thanks

 

Thanks for all the Valentine's cards after last week.  If I received even one more piece of goat strip, I'd have to build new book shelves.

 

Upcoming Presentation

 

PLRB/LIRB 2008 Claims Conference
Sheraton Boston, Boston Marriott & Hines Convention Center, Boston, MA
April 13-16. 2008

 

I will be a speaker at the PLRB/LIRB Claim Conference in Boston in April and I know that many of you attend this multi-faceted program.  I know so many of the other speakers and know that those who attend will have a splendid potpourri of presentations from which to select.  My topic will be:

 

Complex Liability Insurance Issues
An Approach to Simplifying the Complex

 

Thematically, it is about "empowerment."  It is designed to give the claims professional a method to unravel complex insurance coverage questions presented to them in a systematic way. Let me know if you're attending and I hope and trust we can meet and greet.

 

Almost every issue brings an inquiry from readers about reported cases.  Sometimes, the attorney or claims professional whose case is reported calls to tell us the "rest of the story" and, like all "stories behind the stories," they are always fascinating.  We learn why a particular case, which appeared insignificant in value, was taken on appeal.  We learn about why mistakes were made and why options were selected over others.  We do appreciate those calls and e-mails and would only publish the inside information with your permission.

 

You'll find a great article in this week's issue - one of Earl's Pearls - discussing e-mail and the attorney-client privilege.

 

Castro, Baseball, Leap Year and the Singing Cowboy

 

Fidel Castro has stepped down.  The rumors about him have tried out for the old Washington Senators have resurfaced.  He is said to be on a boat to Miami.  We may see him striding up the plate on February 29th when, at 1:05 PM, the Washington franchise plays Florida.  Is that a coincidence?  Speaking of leap year and baseball .

 

I feel compelled to relate the history and the dread of Leap Year and its correlation with the disgrace of baseball, particularly seeing that the Grapefruit and Cactus Leagues are opening this week.

 

Sosigenes was an astronomer, hired by Julius Caesar, to fix the calendar.  The Romans originally had a 355-day calendar. To keep up with the seasons, an extra 22 or 23-day month was inserted every second year, depending on when it was politically acceptable. Of course, since this wasn't consistent, the spring was being celebrated in the winter and that simply wasn't working.  Sosigenes proposed eliminating the extra month and adding one or two extra days to the end of various months, thus extending the calendar to 365 days. The Emperor then decided to add extra calendar day every fourth year (following the 28th day of Februarius) make up the extra ? day still missing.   I won't go into the no-leap-year-in -every-century-which-can-century-be-divided-by-400-with-the-exception-of centuries-ending-in-00 explanation here, resulting from a year really being 365.242 days long, but I could.

 

So, we have this extra day in this peculiar year.  And we know what ruin it has caused.

 

Of course, we know that unmarried men have to be particularly careful on February 29th. There is a tradition, said to go back to Saint Patrick and Brigid of Kildare in 5th century Ireland, that women could may make marriage proposals but only in leap years. In 1288, Queen Margaret of Scotland decreed that any man who did not accept such a proposal would be subjected to fines.  We note, for historical accuracy, that Queen Margaret, known as the Maid of Norway, lived from 9 April 1283 to 26 September 1290 (seven years) and was Queen of Scotland from 19 March 1286 to 26 September 1290.  Pretty good work for a five year old.  In any event, because there was a fine assessed for acceptance refusal, eventually the permission to propose was reduced from the entire leap year to one day, that being February 29th.

 

That would be tough enough, but it turned out that the curse of the leap year  brought baseball as we know it to an untimely cultural demise. In 1972, a famous leap-year in its own right,  the American League decided to transform the game of baseball into a unacceptable sport by adopting the Designated Hitter Rule.  So much for any fan ever wanting to watch an American League game again. 

 

If that wasn't enough, who can forget Al Autry, one of only 12 major league baseball players to be born on February 29th.  Al's career was a little less than illustrious.  Born on February 29, 1952, he pitched only one game for the Atlanta Braves in, of course, a leap year, 1976.  He gave up a double and home run to, you guessed it, Caesar Cedeno (a distant relative of the Emperor's no doubt) and never played in another major league game again. Autry is now the Senior VP for Advertising at the News & Observer in Raleigh Durham and was not interviewed for this story.  It was also on February 29, 1972 that Hank Aaron became the first professional baseball player to sign a $200,000 contract, by the way.

 

And I knew you would ask, but I am not certain of any familial relationship between Al Autry and Gene Autry, the famous cowboy singer, who, from 1940 to 1956 (leap year to leap year) entertained America on Gene Autry's Melody Ranch. Of course, Gene Autry was also the owner of the Los Angeles Angels, who became the California Angels, who became the (gag me with a fork) Los Angeles Angels of Anaheim.  It is said that Gene Autry's famous horse Champion had a Caesar Salad as his last meal . but I don't believe it.

 

Now, From the Wonderful World of No Fault - if Such a World Exists .

 

From Audrey Seeley, the Queen of No Fault (with a promise that I would never edit her contributions), I offer her comments

 

Have you heard??  Dan Kohane was recognized as one of the World's Leading Insurance and Reinsurance Lawyers by the internationally acclaimed Euromoney Guide!!! 

 

Dan was one of 300 lawyers selected in the United States and the only lawyer selected from New York State, outside of New York City.  I did a bit of digging on the selection process and found out that over 4,000 questionnaires were sent out to senior practitioners and in-house counsel in over 60 jurisdictions requesting a nomination of an attorney based upon work and reputation.  Even if you are fortunate to get nominated you still have to pass the group of advisors that are comprised of worldwide legal centers.

 

Dan never hesitates to break out into song at our firm about one of his fellow attorney's accomplishments and circulate e-mail congratulations with his patented phrase "Attalawyer!"  However, Dan seems less comfortable in singing his own praise.  This is one accomplishment that cannot go unnoticed. So I am singing Dan's praises and saying Congratulations Dan on a well deserved recognition.  If you think of it, take a moment over the next day or two to drop Dan a quick email saying "Attalawyer" or your own patented congratulatory phrase.

 

This edition is scant on case law and arbitration decisions.  There is an Insurance Department Opinion of note on an HMO subrogation rights in no-fault.  I have also thrown out a few timely topics for consideration and discussion.  The number one issue on many insurers' minds is if and how the arbitrators are applying LMK.  You have to read the article and not just the cover letter to find out!

 

Audrey

 

Audrey A. Seeley
[email protected]

 

And from Mark Starosielec, one of the few people in the western hemisphere that has read and analyzed every single serious injury decision from the Appellate Division and Court of Appeals in the last many months

 

Contradictions and Conclusions

 

Today's issue offers the none-too-subtle reminder to practitioners to make sure your motion for summary judgment is well-reasoned and consistent throughout. In Martinez v Pioneer Transp. Corp., defendants were successful at the trial level. However, the order granting its motion for summary judgment was reversed, when the Appellate Division found contradictory statements in its medical submissions. That right there is a triable issue of fact. Likewise, in Cavender v. Wyeth Pharms., defendants' doctors' overreaching doomed defendants' motion for summary judgment. As they teach in journalism school: show, don't tell.

 

Mark A. Starosielec
[email protected]

 

What's in this week's issue?  You'll find a legislative update of the New York late notice/prejudice bill and a variety of judicial decisions, including:

 

  • Grave Injury: How Much of an Index Finger Constitutes Loss of an Index Finger?
  • Battle of Other Insurance Clauses:  Policy that Provides it is Excess Over Any Other Insurance is Excess of Policy that is Excess Only in Limited Situations (and Not This Situation)
  • No Duty to Defend or Indemnify if No Coverage Under the Policy
  • Repeat After Me:  "I Will Not Make a Motion for Summary Judgment on a Coverage Case without Presenting the Court with an Authenticated Copy of the Policy"
  • Elrac Loses Again.  So, What Else is New?
  • In Uninsured Motorist Application for Stay, Once Proof of Coverage was Established, Burden Shifts to Establish Coverage Defenses
  • Physical Contact Required to Secure Uninsured Motorist Benefits and Proof Here Justifies It  

STAROSIELEC'S SERIOUS (INJURY) SIDE OF NEW YORK NO FAULT
Mark Starosielec
[email protected]

 

  • Tears in Plaintiff's Medial Meniscus = Triable Issue of Fact
  • Contradictory Medical Submissions Results in Denial of Defendant-School Bus Co.'s MSJ
  • Live By the Test, Die By The Test: SJ granted as Defendant Doctors Objectively Test Plaintiff and Plaintiff Fails to Raise Triable Issue of Fact in Opposition
  • Kissing Cousins: Appellate Division Affirms partial Summary Judgment
  • Don't Jump to Conclusions
  • Brief & To the Point: Defendants Met Their Burden; Plaintiff Failed to Raise Issue of Fact
  • Reversed: SJ is Granted as Plaintiff's Doctor's Finding of ROM Limitations Two Years Post MVA is Too Late to Raise a Triable Issue of Fact
  • Plaintiff's Own Physician's Opinion that Plaintiff has full ROM within 3 Months Leads to SJ
  • Sprains and Strains May Hurt But Neither is a Serious Injury 

AUDREY'S ANGLES ON NO-FAULT

Audrey Seeley

[email protected]

 

  • Default Judgment Entered as Insurer Failed to Demonstrate that Denials Timely Mailed to Preserve Statutory Defenses.
  • Another Plaintiff Denied Summary Judgment for Failure to Submit the Proper Affidavit on Business Records.
  • HMO Cannot Subrogate Its Recovery Under Insurance Law §5105 and May be Precluded Under Insurance Law §5102(a).

Audrey's Angle on:

 

  • How LMK is Changing the Arbitration World
  • Court of Appeals to Review Fair Price Med. Supply Corp. a/a/o Cesar Nivelo v. Travelers Indem. Co.
  • Obtaining an Adequate Peer Review and Defending It 

PEIPER ON PROPERTY

Steven E. Peiper

[email protected]

 

  • Court to Carriers:  Keep the Faith - Live with the Consequentials (Part I)
  • Court to Carriers:  Keep the Faith - Live with the Consequentials (Part II)
  • Notice without Action is Fatal to Carrier's Attempts to Avoid Coverage Obligation to Mortgagee
  • Motion to Dismiss under the Navigation Law Denied where Plaintiff's Claim for Common Law Indemnification amounted to Declaration of Non-Negligence      

EARL'S PEARLS

Earl K. Cantwell, II

[email protected]

 

  • Oops, I Did It Again:  How to Risk and Waive the Attorney-Client Privilege 

Best wishes and thanks for reading!

 

Dan

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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]

 

Insurance Coverage Team

Dan D. Kohane, Team Leader
[email protected]

Michael F. Perley
Audrey A. Seeley
Steven E. Peiper

Fire, First-Party and Subrogation Team
Andrea Schillaci, Team Leader
[email protected]ine.com

Jody E. Briandi
Steven E. Peiper

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

APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
Dan D. Kohane
Scott M. Duquin

Index to Special Columns

 

Starosielec’s Serious Side of “Serious Injury”

 Audrey’s Angles on No Fault

Peiper on Property
Earl’s Pearls

Across Borders

 

Legislative Update – The Prejudice Bill

 

As of this writing, the final “i’s” have not quite been dotted and the last “t’s” need to be crossed on the amendments to the New York State Insurance Law that imposing a prejudice standard before a liability carrier can deny a claim on late notice.  The bill will also permit limited direct actions.  Here is a:

 

Summary of Latest Draft of Late Notice / Direct Action Bill

Amended to Declaratory Judgment Action Section

  • CPLR Section 3001 (Declaratory Judgment section) amended to permit party who has “brought a claim” against another party to commence a “declaratory judgment action” against the insurer of such other party, but only as provided in Insurance Law Section 3420 of the Insurance Law.  Note:  Section 3420 of the Insurance Law does not deal with declaratory judgment actions, but “direct actions.” 

 

Adoption of Prejudice Requirement before Denial on Basis of Late Notice Under Policy

  • Insurance Law Section 3420(a)(5) is added to provide that “a failure to give any notice required by such policy within the time prescribed therein shall not invalidate any claim made by the insured, injured party or any other claimant, unless the failure to provide timely notice has prejudiced the insurer.

 

Expansion of Direct Action Provisions on Notice Issues Only

  • Insurance Law Section 3420(a)(6) is added to allow an injured party or other claimant to commence a direct action to challenge a disclaimer based on untimely notice, on the sole issue of late notice, unless the insurer commenced a declaratory judgment action against the insured, naming the injured party, within 60 days following such disclaimer.

 

Allocation of Burden of Proof to Demonstrate Late Notice

  • Insurance Law Section 3420(c) is amended, by adding a subdivision (2) to place the burden of proving prejudice on the insurer, if the notice was provided within two years of the time required under the policy and on the insured or injured party, if the notice was provided more than two years after the time prescribed.  If the insured’s liability had already been determined, there is an irrebutable presumption of prejudice.

 

What is Prejudice and How Much is Enough?

  • The definition and quantum of prejudice is still under discussion.

 

Pre-Suit Disclosure of Primary Liability Limits

  • With respect to personal lines policies, written on other than an excess or umbrella basis, an insurer shall, within 60 days of written request by a person who has indicated, writing, that he or she if making a claim, shall reveal to the claimant whether or not the insurer has issued a liability policy to a particular insured and specify the liability limits of that policy.  Rules for extension and penalties for non-compliance are included.

 

Stay tuned.

 

Judicial Decisions

 

2/13/08            Castillo v. 711 Group, Inc.

Court of Appeals

Grave Injury: How Much of an Index Finger Constitutes  Loss of an Index Finger?

Generally, in New York, an injured worker’s employer can become a third party defendant in a personal injury lawsuit, despite the availability of workers compensation coverage, in only two situations.  First of all, if there is a contract of indemnity, a contractual claim may be brought against the employer by the party favored by the indemnity agreement.  Secondly, if the injured employee has sustained a “grave injury” as defined in Workers' Compensation Law § 11, the employer can be sued for contribution.

 

That section expressly lists the "loss of an index finger" as a "grave injury." The Court of Appeals holds that these words should be given their natural meaning and accordingly, loss of  the tip of the finger is not enough to constitute a “grave injury.”  Here, however, there was a loss of both interphalangeal joints of his left index finger, leaving a "painful amputation stump" that required two corrective surgeries to desensitize.  That was enough to establish a loss of an index finger and a “grave injury” to permit a third-party action against the plaintiff’s employer for contribution..

 

2/19/08            Osorio v. Kenart Realty, Inc.

Appellate Division, Second Department
Battle of Other Insurance Clauses:  Policy that Provides it is Excess Over Any Other Insurance is Excess of Policy that is Excess Only in Limited Situations (and Not This Situation)
Osorio was injured while working on property owned by Madison and leased to Pizza-Del.  Pizza Del agreed to indemnify, hold harmless, and defend Madison against all claims arising from work performed or negligent acts occurring on the premises. Pizza-Del also agreed to obtain insurance on a primary basis, with Madison named as an additional insured. Tower insured Pizza-Del and American National insured Madison.  Tower denied coverage based on late notice.

After determining that the Tower disclaimer was untimely, the court then wrestled with the question of the primacy of the policies by comparing the “other insurance” clauses.  The court found that the “other insurance” clauses were not identical.  The American National policy provided that it was excess of any other valid and collectible insurance.  The Tower policy provided it was excess only in specified circumstances, and this was not one of the circumstances.  Accordingly, applying the apt words of the clauses, it remained as the primary policy while the American National policy took an excess position.

2/19/08            Serrano v. Republic Insurance
Appellate Division, Second Department

No Duty to Defend or Indemnify if No Coverage Under the Policy

While we can’t tell from the decision what the arguments in favor of coverage might have been, it’s clear that the Second Department wasn’t impressed with them.  The court just reminded us that if the policy does not provide coverage for the loss, there’s no obligation to defend or indemnify.

 

2/14/08            Gonnerman v. State of New York and Merchants Insurance Group
Appellate Division, Second Department

Repeat After Me:  “I Will Not Make a Motion for Summary Judgment on a Coverage Case without Presenting the Court with an Authenticated Copy of the Policy”
We just made this point – when was it, last issue ?  The carrier claimed that its policy did not list the State of New York as an additional insured and attached what proof?  The policy?  Nah, that would be too easy.  It attached the Certificates of Insurance which (you all know by now) establish nothing.  No policy, no determination of a lack of coverage and the matter is remitted for trial.

Editor’s Note:  For those who missed it, we repeat what we said in last week’s cover letter, third paragraph:

 

You will find lots of lessons in this week's issue.  Two attempts at summary judgment were denied because of failure to place the policy before the court in evidentiary form.  I can't tell you how often I see that - coverage lawsuits that require the court to read the policy (now there's a surprise) and counsel has inexcusably failed to have someone from the company, rather than the lawyer, identify the policy and present it to the court.

 

2/14/08            Wosner v. Elrac Incorporated
Appellate Division, First Department

Elrac Loses Again.  So, What Else is New?

If we were representing Enterprise Rent-a-Car, we’d be developing a complex.  Our favorite company to pick on, we cannot recall a case in the recent memory when Enterprise (Elrac) actually has success in an appellate court decision.  It’s well established, however, in Elrac’s defense, that the least likely of any auto-player to win in a judicial proceeding is a car rental company. 

 

That being said, here Elrac was attempting to establish that New Jersey, rather than New York law applied to an accident case.  The plaintiff was a passenger and sustained serious injuries when the automobile operated by defendant Leibowitz, was involved in an accident in New Jersey with a vehicle owned and driven by defendant O'Brien, a Pennsylvania resident. Both the plaintiff and Leibowitz were New York domiciliaries, and when the driver-host and the passenger-guest share a common domicile, the law of that state generally controls.  That Leibowitz was driving a long term rental vehicle registered and insured in New Jersey and owned by Elrac, a Delaware corporation with its headquarters in New Jersey, made no difference. Leibowitz primarily used his car in New York, the parties were traveling between two New York locations, but just happened to pass briefly into New Jersey due to a fortuitous circumstance  and, after all, the defendant is Elrac!

 

2/13/08            In the Matter of State Farm Mutual Automobile Ins. Company v. Mazyck

Appellate Division, Second Department
In Uninsured Motorist Application for Stay, Once Proof of Coverage was Established, Burden Shifts to Establish Coverage Defenses

State Farm brought petition to stay Uninsured Motorist arbitration claiming that RLI insured vehicle. It submitted police report along with RLI’s response to notice to admit. The burden then shifted to RLI to establish a lack of coverage or a timely and valid disclaimer of coverage.  RLI failed to do so.  It did not establish a valid disclaimer based on the asserted lack of cooperation of its insured, that was timely sent.  Without that proof, RLI could not meet its burden of proof.


2/13/08           
In the Matter of Nova Casualty Company v. Musco

Appellate Division, Second Department

Physical Contact Required to Secure Uninsured Motorist Benefits and Proof Here Justifies It
Claim for UM benefits filed and Uninsured Motorist carrier moved to stay arbitration within 20 days as statute requires.  It alleged that there was no physical contact between motorcycle on which claimant was a passenger and van which swerved into his lane of traffic.  Framed issue was held and trial judge, after hearing proof, concluded that physical contact had occurred.  Appellate court found that record justified that finding and affirmed.

 

 

STAROSIELEC’S SERIOUS (INJURY) SIDE OF NEW YORK NO FAULT
Mark Starosielec
[email protected]

 

2/21/08            Bentham v. Rojas

Appellate Division, First Department

Tears in Plaintiff’s Medial Meniscus = Triable Issue of Fact

Here, defendants unsuccessfully appealed their motion for summary judgment dismissing the complaint, unanimously affirmed, without costs. The Appellate Division held summary judgment was properly denied as plaintiff presented a triable issue of fact. An MRI taken after the accident revealed tears of the medial meniscus and anterior cruciate ligament in plaintiff’s left knee, and the affirmation of his physician note that plaintiff had significant and specified limitations of the range of motion with respect to his lumbar and cervical spine and his left knee.

 

2/21/08            Brantley v. New York City Metro Tr. Auth.

Appellate Division, First Department

Missing 5 Days of Work is Not Enough to Qualify as a Serious Injury under 90/180

Plaintiff’s confinement to a hospital bed for five days and missing five days of work was not enough to create an issue of fact. As such, the lower court order granting defendants’ motions for summary judgment dismissing the complaint. Further, with respect to all categories of serious injury claimed by plaintiff, his opposition raised no issues of fact as to causation. Without objective findings of limitations of motion contemporaneous with the accident, plaintiff’s assertion that he has “difficulty” engaging in athletic activities, lifting heavy objects, and walking are insufficient to raise a triable issue of fact.  

 

2/19/08            Martinez v Pioneer Transp. Corp.
Appellate Division, First Department

Contradictory Medical Submissions Results in Denial of Defendant-School Bus Co.’s MSJ

The Appellate Division reversed a lower court order which had granted defendants’ motion for summary judgment on the issue of serious injury. Here, the plaintiffs were allegedly injured when a vehicle they were in, was struck by a school bus. The driver of the vehicle was treated by a chiropractor and remained out of work for three months. The passenger, a student, missed two months of school. While defendants moved for summary judgment, its submissions were contradictory. Some of their submitted medical reports indicate that objective tests were negative, while others reflect limitations in the range of motion of the spine, legs and back of each of these plaintiffs, and herniated and bulging discs for both of them. The contradictory findings raise a triable issue of fact. Where conflicting medical evidence is offered on the issue of whether a plaintiff’s injuries are permanent or significant, and varying inferences may be drawn, the question is one for the jury.

 

2/14/08            Rossi v Alhassan

Appellate Division, First Department

Live By the Test, Die By The Test: SJ granted as Defendant Doctors Objectively Test Plaintiff and Plaintiff Fails to Raise Triable Issue of Fact in Opposition

The Appellate Division reversed a lower court order, which had denied the motion of defendants for summary judgment dismissing the complaint. The Appellate Division held the affirmed medical reports of defendants’ orthopedist and neurologist, detailing the objective tests they performed on examination, finding that plaintiff had full range of motion in his cervical and lumbar spine, satisfied defendants’ burden. In opposition, plaintiff failed to raise a triable issue of material fact as to whether his injury was serious. While he submitted evidence of pain, as well as evidence of herniated and bulging discs, he failed to submit the requisite contemporaneous quantitative assessment of range-of-motion limitations based on objective testing.

 

2/8/08              Parmer v. Opportunities Unlimited of N.Y.

Appellate Division, Fourth Department

Kissing Cousins: Appellate Division Affirms partial Summary Judgment

Here, Defendants moved for summary judgment dismissing the complaint against them on the ground that plaintiff did not sustain a serious injury. The lower court had granted that part of defendants’ motion with respect to the permanent loss of use category but denied that part of the motion with respect to the permanent consequential limitation of use and 90/180 categories. Defendants met their initial burden regarding the permanent consequential category by submitting the report of a physiatrist who examined plaintiff and concluded that her disability was only temporary. However, plaintiff raised a triable issue of fact with respect to that category by submitting the report of a physician who examined her and concluded that she did not sustain any injuries in the second accident and the affidavit of one of her treating physicians who averred that plaintiff had sustained a permanent consequential limitation of use of her cervical spine as a result of the first accident and thus was totally disabled. There is sufficient objective evidence of plaintiff's injuries, including X ray reports, an MRI report, and "an expert’s designation of . . . numeric percentage[s] of . . . plaintiff's loss of range of motion," to defeat that part of defendants' motion (Toure v Avis Rent A Car Sys., 98 NY2d 345, 350). We further conclude that, although defendants met their initial burden with respect to the 90/180 category, plaintiff raised a triable issue of fact by submitting the affidavit of one of her treating physicians and additional evidence establishing that she had been disabled from her job for well over 90 days during the 180 days immediately following the first accident.

 

2/5/08              Cavender v. Wyeth Pharms.

Appellate Division, Second Department

Don’t Jump to Conclusions

Defendants’ doctors “conclusory assertions” led the Appellate Division to reverse a lower court order, which had granted defendants’ motion for summary judgment. The Appellate Division held the defendants failed to establish a prima facie case. The report of the defendants’ examining hand specialist noted the surgeries to the plaintiff’s left wrist and thumb as well as the “two well healed scars” on her wrist and thumb. He diagnosed these injuries as “post excision of a mass of wrist and mass of thumb.” His conclusory assertion that these injuries were not secondary to the accident was insufficient as a matter of law to establish that the plaintiff did not sustain a serious injury as a result of the subject accident.

 

2/5/08              Hallett v. Hassan

Appellate Division, Second Department

Brief & To the Point: Defendants Met Their Burden; Plaintiff Failed to Raise Issue of Fact

In a short opinion, the Appellate Division reversed a lower court order which had denied defendants’ motion for summary judgment. The Appellate Division held the defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury. In opposition, the plaintiff failed to raise a triable issue of fact.

 

2/5/08              Morris v. Edmond

Appellate Division, Second Department

Reversed: SJ is Granted as Plaintiff’s Doctor’s Finding of ROM Limitations Two Years Post MVA is Too Late to Raise a Triable Issue of Fact

In a lengthy opinion, the defendant successfully appealed a lower court order which had denied his motion for summary judgment dismissing the complaint insofar as asserted against him on the ground that the plaintiff did not sustain a serious injury. The Appellate Division held the defendant made a prima facie showing through the plaintiff’s deposition testimony and the affirmed medical reports of the defendants’ examining neurologist and orthopedic surgeon. The plaintiff testified that, at most, she missed a week or two of college as a result of the accident. The defendant’s examining orthopedic surgeon concluded, based upon objective range of motion tests, that the plaintiff had full range of motion in her cervical spine, lumbar spine, and left knee.

In opposition, the plaintiff failed to raise a triable issue of fact. One of her treating physicians examined her for the first time two years and five months after the accident. While the physician found significant limitations in the plaintiff’s range of motion, such findings were not contemporaneous with the subject accident.  Further, although the plaintiff’s MRI reports showed bulging discs in the cervical and lumbar spine, there were no opinions contained as to causation or objective evidence of the extent and duration of the alleged physical limitations resulting there from.

2/5/08              Sharma v. Diaz

Appellate Division, Second Department

Plaintiff’s Own Physician’s Opinion that Plaintiff has Full ROM within 3 Months Leads to SJ

In another reversal by the Second Department, the Appellate Division cited plaintiff’s own physician’s opinion in ultimately deciding in defendant’s favor. Defendant had appealed a lower court order which had denied his motion for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury. Appellate Division held that contrary to the lower court’s determination, the defendant met his prima facie burden.

 

In opposition, the plaintiff failed to raise a triable issue of fact. The report of Dr. Shahid Mian was without any probative value, since it was unaffirmed. Further, Dr. M.A. Farescal, one of the plaintiff’s treating physicians, examined the plaintiff and concluded that, within three months of the accident, that the plaintiff had full range of motion in the lumbar and cervical regions of his spine. The plaintiff offered no other range of motion findings made after that examination that differ. In fact, there was no recent examination of the plaintiff in which range of motion testing was shown to be performed. This was fatal for the plaintiff since he asserted that his medical submissions raised a triable issue of fact that he sustained permanent disabilities as a result of the subject accident. Without a recent examination, no such permanency could be established.

 

2/5/08              Washington v. Cross

Appellate Division, Second Department

Sprains and Strains May Hurt But Neither is a Serious Injury

Here plaintiffs were unsuccessful in their appeal from a lower court order which granted defendants’ motion for summary judgment dismissing the complaint. The medical evidence submitted by the defendants established that, as a result of the subject motor vehicle accident, the plaintiffs sustained only sprains and/or strains, and accordingly, neither of them sustained a serious injury within the meaning of Insurance Law § 5102(d). In opposition to the motion and cross motion, the plaintiffs failed to raise a triable issue of fact.

 

 

AUDREY’S ANGLES ON NO-FAULT

Audrey Seeley

[email protected]

 

The reporting of No-Fault arbitration awards is not at the same level of reported case law, meaning there is no one source to turn to for comprehensive research of arbitration awards.  We encourage you to submit to us, in a PDF format, at [email protected], any recent no-fault arbitration awards, especially Master Arbitration awards, that address interesting no-fault issues. 

 

2/20/08  Stracar Med. Services, P.C. a/a/o Pedro Ovalles v.

State Farm Mut. Auto. Ins. Co. (App. Term 2d Dept)

Default Judgment Entered as Insurer Failed to Demonstrate that Denials Timely Mailed to Preserve Statutory Defenses.

The lower court’s order granting defendant’s motion to vacate a default judgment was reversed.  The court held that the lower court improvidently exercised its discretion as the defendant provided conclusory allegations of a meritorious defense.  Further, the defendant failed to show that its defenses were based on timely denial of claims so as not to preclude its proffered defenses.  The court determined that the defendant’s documentary evidence was insufficient to give rise to a presumption of timely mailing of the denial of claims pursuant to a standard office procedure.  Also, the defendant failed to assert a reasonable excuse for its failure to timely serve an answer.  The court rejected the contention that the adjuster’s belief in faxing over a stipulation to plaintiff extending the time to answer without ever speaking with the plaintiff’s attorney about the extension was insufficient.

 

2/20/08  Bedford Park Med. Practice, P.C. a/a/o Angel Perez-Rivas v.

New York Central Mut. Fire Ins. Co. (App. Term 2d Dept)

Another Plaintiff Denied Summary Judgment for Failure to Submit the Proper Affidavit on Business Records.

Plaintiff’s cross-motion for summary judgment was denied as it failed to establish that the documents attached to the plaintiff’s affidavit were business records.

 

1/28/08            New York State Insurance Department Office of General Counsel Opinion

HMO Cannot Subrogate Its Recovery Under Insurance Law §5105 and May be Precluded Under Insurance Law §5102(a).

The Insurance Department’s Office of General Counsel recently issued an opinion that a HMO has no right to subrogate its recovery under Insurance Law §5105 as the HMO is not an insurer as defined by that section.  However, the Office of General Counsel could offer no opinion, due to lack of sufficient facts, as to whether the HMO was a health service provider under Insurance Law §5102(a)(1).

The question presented was whether an HMO who pays benefits basic economic loss benefits has standing, as a subrogee, to proceed against the automobile operators’ no-fault insurer in New York State Supreme Court under an equitable subrogation claim. 

The Office of General Counsel opined that an HMO is not an insurer as defined in Article 51 of the New York State Insurance Law and accordingly cannot attempt to recover under Insurance Law §5105.  It is noted that Insurance Law §5105 also only permits arbitration and has requirements that the benefits paid were to a covered person and involving a vehicle over 6,500 pounds unloaded or a vehicle principally used for the transportation of persons or property for hire. 

Yet, under 11 NYCRR §65-3 a no-fault insurer can directly pay a provider of health care service benefits covered under Insurance Law §5102(a) (definition of basic economic loss).  In that case, the eligible injured person may provide an assignment of benefits to the provider of health care services who then stands in the eligible injured person’s shoes to bring a claim against the no-fault insurer for those benefits.  The Office of General Counsel indicated that it did not have sufficient facts to ascertain if the HMO provided health care service benefits within Insurance Law §5102(a). 

The Office of General Counsel did cite to Health Insurance Plan of Greater New York v. Allstate Insurance Co., 2007 N.Y.Slip Op 33925(U) (Sup. Ct. N.Y. Co. November 20, 2007), which held that an HMO, as a health insurer, is not a provider of health care service benefits under Insurance Law §5102(a). 

The question becomes if the HMO is precluded from arbitration under Insurance Law §5105 and any remedy under Insurance Law §5102 then what recourse, if any, does it have.  The opinion indicates that under Health Insurance Plan, the court suggests that a subrogation action against the responsible tortfeasor may exist.  However, the opinion indicates that the action would be against the driver of the other vehicle who struck the eligible injured person’s vehicle. This opinion does not address the situation where there is no other liable vehicle.

A second alternative is for the HMO to invoke the no-fault exclusion in its contract, if one exists.

 

 

Audrey’s Angle on:

 

·        How LMK is Changing the Arbitration World

 

Many of you are aware of the recent Appellate Division Third Department decision entitled LMK Psychological Services, P.C. v. State Farm Mut. Auto. Ins. Co.  The question has become what impact the decision will have not only in litigation but also in arbitration.  A quick review of the American Arbitration Associations’ website reveals that an announcement or alert has been posted to all no-fault arbitration users reporting on this decision.  Interestingly, the AAA has interpreted this decision to mean that an attorney’s fee is due on each disputed NF-3 or its functional equivalent.  It is notable that the AAA is silent on interest.  In practice, I note that I was recently before an upstate arbitrator that advised that the attorney’s fee would be calculated per NF-10.  We will keep you updated as to how AAA is applying this decision.  I encourage you to share with us what your experience has been with attorney’s fees in the arbitration world post LMK.   

 

·        Court of Appeals to Review Fair Price Med. Supply Corp. a/a/o Cesar Nivelo v. Travelers Indem. Co.

 

We reported this Appellate Division Second Department decision to you in June 2007 and will keep you posted as to the Court of Appeals Decision.  For those who may not recall the substance of the decision the following is the write up from our June 2007 edition on this case:

On May 8, 2001, the eligible injured person ("EIP") was allegedly injured in a motor vehicle accident.  The Plaintiff, medical supplier, purportedly issued to the EIP a TENs unit, infrared heat lamp, massager, heating pad, cervical pillow, and lumbosacral support.  The Plaintiff submitted a claim for no-fault benefits, as the assignor of the EIP, on September 18, 2001 and October 13, 2001 for the total amount of $1,638.98.  The insurer requested a letter of medical necessity which the Plaintiff provided on November 6, 2001.

The insurer never denied the claims until nearly two years later - August 15, 2003.  The basis for the denial was that based upon the EIP's October 4, 2001, statement he denied ever receiving the medical supplies the Plaintiff sought payment for.

The issue before the Appellate Division was whether the insurer was precluded from arguing the defense that the claim fraudulently seeks reimbursement for medical supplies that were never delivered to the EIP.  The Court held that this defense was precluded as the insurer failed to pay or deny the claim within 30 days from receipt of proof of claim.

The Court proceeded to provide an analysis of the Zappone, Presbyterian Hosp., and Chubb cases (citations omitted) which the Court reasoned ultimately permitted an insurer, who fails to timely deny a claim, to preserve the ability to argue fraud with respect to staged accidents.  Simply put, the insurer is not precluded from arguing that the claim was not "accident" never falling within what the insurance policy provided coverage.  This is opposed to the insurer relying upon a policy exclusion or breach of policy condition.  In that case, the insurer is essentially indicating that the claim initially fell within the scope of coverage provided by the policy but some fact or situation, i.e., intoxication or late notice took it outside of coverage.

 Here, the Court concluded that the insurer was not arguing that this claim did not fall within the grant of insurance coverage.  The claim was really that the medical supply, which is covered under the insurance policy, was not provided not that medical supplies were never within the scope of insurance coverage under the policy. 

Yet, you may ask what about the fraud defense?  The Court addresses that argument by reasoning that in the defense of fraud by a staged accident it is a situation where there was never insurance coverage under the policy in the first instance.  The key inquiry is whether the defense is based upon whether the claim was within the grant of insurance coverage in the first instance.  In the situation of medical supplies, the insurance policy provides coverage for medical supplies, but the purported fraud arose later taking it out of insurance coverage.

What is the insurer to do then when it suspects that the medical supply was never provided to the EIP?  Request timely verification of the claim and timely issue the denial if the medical supply was never provided.

·        Obtaining an Adequate Peer Review and Defending It

 

When an insurer obtains a peer review it should keep in mind the CityWide Social Work & Psych. Servs. v. Travelers Indem. Co., 3 Misc3d 608 (Civ. Crt. Kings Cty. 2004) case, which is still being applied in arbitrations that I appear at upstate.  Under CityWide, the peer reviewer’s opinion alone is insufficient to demonstrate lack of medical necessity.  The peer reviewer must support his or her opinion with evidence that the testing or medical service was inconsistent with the generally accepted medical practice for that testing or medical service.

 

PEIPER ON PROPERTY

Steven E. Peiper

[email protected]

 

02/19/08          Bi-Economy Market, Inc. v Harleysville Insurance Company of New York

Court of Appeals

Court to Carriers:  Keep the Faith - Live with the Consequentials (Part I)

 

Please see the Special Addendum to Coverage Pointers for a Much More Thorough Review of this Decision and its Possible Impact on the Industry.

 

Bi-Economy Market, Inc. (“Bi-Economy”) was insured under a business owner’s policy which it had procured from Harleysville Insurance Company of New York (“Harleysville”).  As part of the overall insurance package, Harleysville insured Bi-Economy against losses of business income due to a covered event.  

 

Bi-Economy’s retail location was rendered a total loss after an October 2002 fire destroyed the physical structure as well as all food inventory kept there. Unfortunately, by the time the claim was resolved, Bi-Economy’s operations were completely shut down, and have not reopened to date.

 

As a result of lengthy settlement negotiations, Bi-Economy commenced the current proceeding against Harleysville.  In support of its argument for consequential damages, Bi-Economy maintained that its business was caused to flounder, and ultimately fail, while it negotiated its claim with Harleysville.   Importantly, Bi-Economy maintained from the outset that it was “reasonably foreseeable” that the business would fail if a prompt adjustment of the claim was not realized.    

 

In opposition, Harleysville argued that consequential damages were beyond the scope of coverage intended by the parties.  Also, Harleysville argued that even if the damages were intended, they were removed from coverage by operation of “several contractual provisions excluding coverage for ‘consequential loss’.”

 

The lower court dismissed Bi-Economy’s claim for consequential damages on the grounds that they were beyond the intended scope of the insuring agreement.  The Fourth Department affirmed the trial court’s determination that Bi-Economy’s claim was improper, but appears to have relied upon the policy’s exclusion of consequential losses.

 

As noted above, Bi-Economy maintained it was entitled to losses (to be proven at trial) it sustained as a result of the failure of its business.  In response, the Court of Appeals first noted that “implicit in contracts of insurance is a covenant of good faith and fair dealing, such that “a reasonable insured would understand that the insurer promises to investigate in good faith and pay covered claims.” 

 

The Court also noted the principle that in addition to general damages, a party may also be entitled to special, compensatory damages.  To recover compensatory damages, an insured must establish that the possibility of the loss would arise from a breach, was foreseen, or should have been foreseen, at the time the policy was issued.

 

The Court then engaged in a lengthy discussion regarding whether Harleysville should have foreseen that a breach of the contract would result in the loss of the Bi-Economy business.   The Court concluded that the nature of business interruption coverage was such that the loss of one’s ability to operate a business was an understandable and foreseeable result of a breach of the implied duty.

 

The Court noted that the  “purpose of business interruption insurance is to indemnify the insured against losses arising from inability to continue normal business operation and function due to the damage sustained as a result of the hazard.”  Thus, the Court concluded that the entire purpose of business interruption insurance is to place the insured “back on its feet as soon as possible.”

 

2/19/08            Panasia Estates, Inc. v Hudson Insurance Company

Court of Appeals

Court to Carriers:  Keep the Faith - Live with the Consequentials (Part II)

 

Please see the Special Addendum to Coverage Pointers for a Much More Thorough Review of this Decision and its Possible Impact on the Industry.

 

Panasia Estates (“Panasia”) was the owner of a certain commercial rental property in New York City. Panasia, and its rental property, were insured under a builder’s risk policy that it had procured from Hudson Insurance Company (“Hudson”).  During renovation of the property, rain entered the interior of the structure through an open roof.  The rain infiltration allegedly caused substantial damage to the interior of the building, and as such Panasia noticed a claim under its policy with Hudson. 

 

Apparently after several weeks, Hudson appeared to investigate that loss and ultimately ruled that the damage was caused by repeated water infiltration, as well as ordinary wear and tear.  Accordingly, Hudson then disclaimed and denied coverage. 

 

Just as Harleysville did in Bi-Economy, Hudson opposed Panasia’s claims for consequential damages on the basis that consequential losses were excluded by the plain terms of the policy at issue.  However, on appeal, the First Department ruled that consequential losses and consequential damages “are not synonymous.”  Accordingly, Hudson’s attempts to rely upon exclusionary language in the policy were denied.  As the insured was entitled to recovery of consequential damages for losses that were readily foreseeable by parties to the contract, the First Department ruled that Panasia’s claim was properly plead.

 

In a much shorter companion decision, the Court of Appeals affirmed the First Department’s ruling that consequential damages may be recovered as long as the claim arises out of a breach of the covenant of good faith and fair dealing.  In addition, the loss must fall within the scope of what losses were contemplated, or should have been contemplated, at the time the policy was issued.

 

Because the underlying court did not assess whether Hudson should have foreseen the losses incurred by Panasia, the matter was remanded with instructions to further develop this issue.  As a minor issue, the Court of Appeals again ruled, consistent with its opinion in Bi-Economy that policy provisions limiting exposure to consequential losses do not apply to bar the imposition of consequential damages.

 

02/13/08          Washington Mutual Bank, F.A. v Allstate Ins. Co.

Appellate Division, Second Department

Notice without Action is Fatal to Carrier’s Attempts to Avoid Coverage Obligation to Mortgagee

 

In this case, plaintiff, the mortgagee of the property, was entitled to protection on the mortgagor’s insurance policy for losses to the covered property where mortgagee had an interest.  This was true even if the underwritten risk increased during the course of the policy as a result of the insured’s failure to preserve and protect the premises, so long as the mortgagee did not know of the increased hazard.

 

Evidence established that the plaintiff/mortgagee knew of the insured’s abandonment of the premises well before the loss.  Thus, under most circumstances, the Second Department noted that this would have vitiated the mortgagee’s rights to protection.  However, the Court noted that plaintiff/mortgagee had informed defendant approximately two months prior to the loss that the property had been abandoned.  As the defendant had made no effort to cancel the policy in that time, and thereby absolve itself of the increased hazard and possible exposure to plaintiff/mortgagee, the Court ruled that, in essence, defendant had waived its right to deny coverage due to known increased hazard.

 

Further, as the plaintiff/mortgagee was not an insured under the policy, carrier’s attempts to rely upon exclusions applicable to acts committed by an “insured person” were not applicable.

 

2/13/08            Gen. Cas. Ins. Co. v Kerr Heating Products                                                                                    Appellate Division, Second Department

Motion to Dismiss under the Navigation Law Denied where Plaintiff’s Claim for Common Law Indemnification amounted to Declaration of Non-Negligence.                        

 

In or about 2002, carrier’s insureds sustained property damage as a result of fuel discharging into the surrounding soil and ground water.  After covering the insured’s losses for cleanup, removal and environmental testing, carrier then commenced the current action in subrogation against defendant as manufacturer/distributor/assembler of the leaky oil tank.

 

Defendant immediately moved to dismiss this claim on the basis that the negligence of the carrier’s insureds contributed to the loss.  Under the Navigation Law, a party may not seek recovery unless it is free from fault. 

 

The Second Department quickly affirmed the trial court’s denial of defendant’s motion to dismiss.  In so holding, the Court noted that carrier’s cause of action for common law indemnification was akin to an allegation that plaintiff’s insureds were free from fault.  Accordingly, when the allegations are viewed in light most favorable to the non-moving party; it was clear that a claim under the Navigation Law had been properly pleaded.


EARL’S PEARLS

Earl K. Cantwell, II

[email protected]

 

Oops, I Did It Again:  How to Risk and Waive the Attorney-Client Privilege

 

Britney Spears continues to try to get her act together, literally.  Actually, we hail Britney and respect what she is doing for the legal profession, as I am sure she is single-handedly keeping many of our legal brethren gainfully employed in disciplines such as criminal law, family law, DWI-DUI defense, etc.  Attorneys and clients are also trying to get their act together in terms of coping with e-mail and electronic communications.  One recent case illustrates how the attorney-client privilege can be put at risk and ultimately discarded by “oops.”

 

The case is Scott v. Beth Israel Medical Center, 847 N.Y.S.2d  436 (Sup. Ct. New York County, Oct. 17, 2007).  Scott involved a doctor who was going to bring a legal action against the hospital where he worked. He and his lawyer exchanged e-mails via the hospital’s e-mail system.  Although the hospital did not see the e-mails at the time, after litigation the e-mails came to light and then up for review as to whether they retained attorney-client privilege.  The issue of whether the e-mails enjoyed privileged status was presented to the court, and the court ruled that they were not privileged, and that any such presumptive privilege had been lost. The court held that the e-mails enjoyed no privilege because the hospital had a policy prohibiting personal use of its e-mail, phone, and fax systems, and a policy that such communications were subject to monitoring and review by the employer.  The court held that the existence of these policies was sufficient to constitute a waiver of privilege.

 

Traditionally, the four factors with respect to such an analysis have been as follows:

                        1.         Does the party maintain a policy banning personal or other objectionable e-mail use?

                        2.         Does the company monitor the use of employee computer or e-mail?

                        3.         Do the employer or other third parties (such as computer vendor and systems maintenance) have a right of access to the computer and e-mails?

                        4.         Did the company notify the employee, or was the employee aware, of the use and monitoring policies?

 

The court in Scott held that the employer’s policy of prohibiting personal use of the e-mail system in combination with the proviso that e-mail could be monitored created no “reasonable expectation of privacy” and destroyed an essential element for presentation of the attorney-client privilege.  The most important issue is “reasonable expectation of confidentiality,” a critical element for most privileges.  Unlike traditional mail communications, e-communications are generally not sealed and can be viewed by those with access to the system, or multiple distributions may occur, many to unknown individuals. 

 

Cases such as Scott warn lawyers and clients about the risks of communicating by e-mail.  Often, the legal professional is unlikely to be fully aware of the client’s e-mail system, let alone any applicable company policies or practices. 

 

If you believe an adversary may be communicating with his or her attorney from a public account or an employer e-mail system, this ruling may allow access to, disclosure of, and possible use of any e-mails.  Recommendations and suggestions for avoiding such problems include the following:

 

                        1.         Be wary of communicating with clients at work by e-communications;

                        2.         Wherever possible, communicate by secure, private lines and accounts which others cannot access;

                        3.         Limit e-mails solely to attorney-client participants, and limit or exclude third parties or “chain e-mail” responses;

                        4.         Check and verify to whom any e-mail may be forwarded or copied, either when sent or in the course of subsequent communications.

 

It is much better to stop or limit the “oops” from occurring than having to air the argument and your quandary before scores of attentive fellow lawyers and professionals at motion term.     

 

ACROSS BORDERS

 

Visit the Hot Cases section of the Federation of Defense & Corporate Counsel website, www.thefederation.org. Dan Kohane serves as the FDCC’s Immediate Past President and Board Chair and past Website Editor

 

On hiatus this week.  Blame the editor

 

REPORTED DECISIONS

 

Castillo v. 711 Group, Inc.


Submitted by Sim R. Shapiro, for third-party appellant.
Submitted by Scott E. Miller, for third-party respondent.

MEMORANDUM:

The order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative.

Third-party defendant 3-D Laboratory, Inc. moved for summary judgment [*2]dismissing the third-party action against it, claiming the injuries plaintiff sustained to his left index finger did not qualify as a "grave injury" under Workers' Compensation Law § 11. Supreme Court denied the motion. The Appellate Division affirmed the denial of the third-party defendant's motion, but searched the record and awarded plaintiff and defendant/third-party plaintiff 711 Group, Inc. partial summary judgment on the issue whether plaintiff suffered a "grave injury" under Workers' Compensation Law § 11. We affirm.

Workers' Compensation Law § 11 expressly lists the "loss of an index finger" as a "grave injury." Consistent with the principle that "[w]ords in a statute are to be given their plain meaning without resort to forced or unnatural interpretations," this Court has held that "the word 'finger' means the whole finger, not just its tip" (Castro v United Container Mach. Group (96 NY2d 398, 401 [2001]).

Here, plaintiff demonstrated that he lost both interphalangeal joints of his left index finger, leaving a "painful amputation stump" that required two corrective surgeries to desensitize. Thus, plaintiff established that he suffered the "loss of an index finger" within the meaning of Workers' Compensation Law § 11 (cf. Mentesana v Bernard Janowitz Constr. Corp., 36 AD3d 769, 770 [2d Dept 2007]; Blackburn v Wysong & Miles Co., 11 AD3d 421, 422 [2d Dept 2004]; McCoy v Queens Hydraulic Co., 286 AD2d 425, 425 [2d Dept 2001]).

Wosner v. Elrac Incorporated


Brand Glick & Brand, P.C., Garden City (Peter M. Khrinenko
of counsel), for appellant.
Subin Associates, LLP, New York (Brooke Lombardi of
counsel), for respondent.

Order, Supreme Court, New York County (Milton A. Tingling, J.), entered July 20, 2007, which, upon the grant of reargument, vacated its prior order and denied defendant Elrac Incorporated's motion to apply the law of New Jersey and to dismiss the complaint and all cross claims as against it, unanimously affirmed, with costs.

The court properly determined that New York law controls in this action where plaintiff is alleged to have sustained serious injuries when the automobile in which he was a passenger, and which was being operated by defendant Leibowitz, was involved in an accident in New Jersey with a vehicle owned and driven by defendant O'Brien, a Pennsylvania resident. The record establishes that plaintiff and Leibowitz are both New York domiciliaries, and when the driver-host and the passenger-guest share a common domicile, the law of that state generally controls (see Cooney v Osgood Mach., 81 NY2d 66, 73 [1993]; see also Neumeier v Kuehner, 31 NY2d 121, 128 [1972]). Although the car Leibowitz was driving was registered and insured in New Jersey under a long-term rental agreement with its owner, Elrac, a Delaware corporation with its headquarters in New Jersey, Leibowitz primarily used, garaged and drove the vehicle in New York, and at the time of the accident, he and plaintiff were traveling between two New York locations, but just happened to pass briefly into New Jersey due to a fortuitous circumstance (see Babcock v Jackson, 12 NY2d 473, 480

Gonnerman v. State of New York and Merchants Insurance Group


Baxter, Smith, P.C., Jericho, N.Y. (Anne Marie Garcia, Arthur J.
Smith, and Rocco Riccobono of counsel), for third-party
defendant-appellant.
Steven Cohn, P.C., Carle Place, N.Y., for claimant-respondent.
Andrew M. Cuomo, Attorney General, New York, N.Y. (Peter
H. Schiff and Michael S. Buskus of
counsel), for defendant third-party
claimant-respondent.


DECISION & ORDER

In a claim to recover damages for personal injuries, the third-party defendant, Merchants Insurance Group, appeals from an order of the Court of Claims (Nadel, J.), dated January 10, 2006, which denied its cross motion for summary judgment declaring that it is not obligated to defend and indemnify the defendant third-party claimant State of New York in the main claim or, in the alternative, for summary judgment dismissing the main claim, and granted that branch of the motion of the State of New York which was for summary judgment declaring that the third-party defendant is obligated to defend it in the main claim.

ORDERED that the order is modified, on the law, by deleting the provision thereof granting that branch of the motion of the State of New York which was for summary judgment declaring that the third-party defendant is obligated to defend it in the main claim, and substituting therefor a provision denying that branch of the motion; as so modified, the order is affirmed, without costs or disbursements.

The defendant third-party claimant, the State of New York, contends that it is an additional insured under one or more insurance policies issued by the third-party defendant, Merchants Insurance Group (hereinafter Merchants), to a certain contractor known as Lighting Maintenance, Inc. While Merchants admits the existence of the subject policy or policies, it denies that the State is an additional insured thereunder and claims that, in any event, the subject policy or policies afford no coverage for the underlying accident. Although both sides moved for summary judgment on the third-party claim, neither tendered a copy of the relevant insurance policy or policies.

Contrary to the State's contention, copies of certificates of insurance, without more, are insufficient to establish the existence of coverage for the underlying accident. Because the relevant policy language is not before us, it is impossible to determine whether Merchants is obligated to defend and indemnify the State under the facts presented (see Empire Ins. Co. v Insurance Corp. of NY, 40 AD3d 686, 687-688; Zurich Am. Ins. Co. v Argonaut Ins. Co., 204 AD2d 314, 315). Thus, the Supreme Court erred in declaring that Merchants was obligated to defend the State in the main claim. On this record, neither side is entitled to a declaration on the issue of coverage (see Ayotte v Gervasio, 81 NY2d 1062).

Moreover, Merchants' alternative contention that the main claim should be dismissed on the ground of qualified immunity is without merit, as Merchants failed to establish its prima facie entitlement to judgment as a matter of law on that ground (see Ayotte v Gervasio, 81 NY2d 1062).

In the Matter of Nova Casualty Company v. Musco

 

Baxter Smith Tassan & Shapiro, P.C., Hicksville, N.Y. (Anne
Marie Garcia and Catherine Gibbons Clement of counsel), for appellant.
Fredrick A. Schulman, PLLC, New York, N.Y., for respondent
Tyrone Musco.


DECISION & ORDER

In a proceeding pursuant to CPLR article 75, inter alia, to permanently stay arbitration of an uninsured motorist claim, the petitioner, Nova Casualty Company, appeals, as limited by its brief, from so much of an order of the Supreme Court, Richmond County (McMahon, J.), dated June 6, 2007, as, after a framed-issue hearing, denied that branch of the petition which was to permanently stay arbitration and, in effect, directed the parties to proceed to arbitration.

ORDERED that the order is affirmed insofar as appealed from, with costs.

The petitioner Nova Casualty Company (hereinafter Nova) commenced this proceeding, inter alia, to permanently stay arbitration of a claim for uninsured motorist benefits on the ground that there was no physical contact between its insured (the respondent Tyrone Musco) and an alleged hit-and-run vehicle (a van). After a framed-issue hearing as to physical contact, the Supreme Court denied the stay and, in effect, directed the parties to proceed to arbitration. We affirm.

Physical contact is a condition precedent to recovery on an uninsured motorist claim (see Insurance Law § 5217; Matter of Newark Ins. Co. v Caruso, 14 AD3d 613, 614). The insured has the burden of establishing that the loss sustained was caused by an uninsured vehicle, namely, that physical contact occurred, that the identity of the owner and operator of the offending vehicle could not be ascertained, and that the insured's efforts to ascertain such identity were reasonable (see Matter of Newark Ins. Co. v Caruso, 14 AD3d at 614). Here, Musco met his burden of proof as to physical contact with his testimony, credited by the court, that he lost control of his motorcycle after he swerved to avoid, and was struck in the left leg by, a van that entered his lane of travel in violation of his right of way, which then fled the scene. The record supports the court's determination (see Northern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492, 499).

In the Matter of State Farm Mutual Automobile Insurance Company v. Mazyck


Smith Mazure Director Wilkins Young & Yagerman, P.C., New
York, N.Y. (Kisha V. Augustin of counsel), for appellant.
Martin, Fallon & MullÉ;, Huntington, N.Y. (Richard C. MullÉ; of
counsel), for petitioner-respondent.


DECISION & ORDER

In a proceeding pursuant to CPLR article 75 to stay arbitration of an uninsured motorist claim, RLI Insurance Company appeals from a judgment of the Supreme Court, Queens County (Rios, J.), entered August 21, 2006, which, after a hearing, granted the petition.

ORDERED that the judgment is affirmed, with costs.

The petitioner, State Farm Mutual Insurance Automobile Insurance Company, met its burden of establishing, prima facie, the existence of insurance coverage by RLI Insurance Company (hereinafter RLI) for the vehicle that was involved in the subject accident on May 25, 2002, through the submission of a police accident report and RLI's response to a notice to admit. The burden thus shifted to RLI to establish a lack of coverage or a timely and valid disclaimer of coverage (see Mercury Ins. Group v Ocana, 46 AD3d 561; Eagle Insurance Company v Rodriguez, 15 AD3d 399; Allstate Insurance Company v Frederick, 266 AD2d 283).

RLI failed to meet its heavy burden of establishing a valid disclaimer based on the asserted lack of cooperation of its insured, Sunrise Auto Enterprises, Inc. (see Preferred Mut. Ins. Co. v SAV Carpentry, Inc., 44 AD3d 921; Allstate Ins. Co. v United Intl. Ins. Co., 16 AD3d 605). RLI also failed to meet its burden of justifying the delay in its purported service of a notice of disclaimer (see Delphi Restoration Corp. v Sunshine Restoration Corp., 43 AD3d 851). An unsatisfactory explanation renders delay in disclaiming coverage unreasonable as a matter of law (see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64; Tully Constr. Co. Inc. v TIG Ins. Co., 43 AD3d 1150).

RLI's remaining contentions are without merit.

Bentham v. Rojas



Baker, McEvoy, Morrissey & Moskovits, P.C., New York (Michael I. Josephs of counsel),         for appellant.
Julian J. Bailey & Associates, Manhasset (Willard G. LaFauci of counsel), for respondent.

Order, Supreme Court, Bronx County (Betty Owen Stinson, J.), entered June 7, 2007, which denied defendant's motion for summary judgment dismissing the complaint, unanimously affirmed, without costs.

Summary judgment was properly denied as plaintiff presented sufficient objective evidence demonstrating the existence of triable issues of fact as to whether he sustained a "serious injury" as a result of the automobile accident between the parties (Insurance Law § 5102[d]). An MRI taken after the accident revealed tears of the medial meniscus and anterior cruciate ligament in plaintiff's left knee, and the affidavit of plaintiff's chiropractor and the affirmation of his physician note that following detailed tests, plaintiff had significant and specified limitations of the range of motion with respect to his lumbar and cervical spine and his left knee both shortly after the accident and more than three years later (see Toure v Avis Rent A Car Sys., 98 NY2d 345 [2002]; see also Britt v Goodspeed Tr., 41 AD3d 179 [2007]).

Brantley v New York City Metro. Tr. Auth.



Mark L. Lubelsky & Associates, New York (Mark L. Lubelsky of counsel), for appellant.
Wallace D. Gossett, New York (Steve S. Efron of counsel), for
New York City Metropolitan Transit Authority, respondent.
Baker, McEvoy, Morrissey & Moskovits, P.C., New York
(Holly E. Peck of counsel), for Sweeta Ram, respondent.

Order, Supreme Court, New York County (Robert D. Lippmann, J.), entered on or about December 18, 2006, which granted defendants' motions for summary judgment dismissing the complaint for lack of a serious injury as required by Insurance Law § 5102(d), unanimously affirmed, without costs.

With respect to the 90/180-day category, defendants met their initial burden on the motion by submitting plaintiff's deposition testimony and bill of particulars indicating that he was confined to bed for only five days and missed only five days of work (see Thompson v Abbasi, 15 AD3d 95, 101 [2005]), and the report of an orthopedist who examined plaintiff about four months after the accident and found unrestricted range of motion. With respect to all categories of serious injury claimed by plaintiff, his opposition raised no issues of fact as to causation. While an MRI taken about three months after the accident indicated a herniated lumbar disc, the only objective evidence of limitations of motion is contained in a report of an orthopedist who examined plaintiff about four years after the accident - "too remote to raise an issue of fact as to whether the limitations were caused by the accident" (Lopez v Simpson, 39 AD3d 420, 421 [2007]), even if there were no evidence of a prior neck and back injury left unaddressed in the orthopedist's report and which kept plaintiff out of work for two months and on disability for six months (see Pommells v Perez, 4 NY3d 566, 579-580 [2005]; Carter v Full Serv., Inc., 29 AD3d 342 [2006], lv denied 7 NY3d 709 [2006]). Without objective findings of limitations of motion contemporaneous with the accident, plaintiff's assertion that he has "difficulty" engaging in athletic activities, lifting heavy objects, and walking are insufficient to raise a triable issue as to whether there was a curtailment of his customary activities during the requisite 90/180-day period (see Nelson v Distant, 308 AD2d 338, 340 [2003]; Grimes-Carrion v Carroll, 17 AD3d 296, 297 [2005]).

 

Martinez v. Pioneer Transp. Corp.



Rubenstein & Rynecki, Brooklyn (Kliopatra Vrontos of counsel), for appellants.
Ahmuty, Demers & McManus, Albertson (Brendan T. Fitzpatrick of counsel), for respondents.

Order, Supreme Court, Bronx County (Sallie Manzanet, J.), entered July 11, 2006, which granted defendants' motion for summary judgment against the Martinez plaintiffs on the issue of serious injury, unanimously reversed, on the law, without costs, the motion denied, and the complaint reinstated on behalf of those plaintiffs.

The Martinez plaintiffs were allegedly injured in an automobile accident in May 2004, when their car was hit by defendants' school bus. Both were taken by ambulance to the hospital and released the same day, after X rays were taken. The driver was treated by a chiropractor over the course of four months, and remained out of work for three months. The passenger, a student, missed two months of school. Neither of these plaintiffs has received any medical treatment since the summer of 2004. The insurance company stopped paying for treatment, which appellants claim they terminated because they could not afford it, and it no longer seemed to have any beneficial effect.

Defendants moved for summary judgment on the basis that the Martinez plaintiffs could not demonstrate they sustained serious injury as defined in Insurance Law § 5102(d). However, defendants' submissions were contradictory. Some of their submitted medical reports and opinions indicate that objective tests were negative, and others reflect limitations in the range of motion of the spine, legs and back of each of these plaintiffs, and herniated and bulging discs for both of them. The contradictory findings raise a triable issue of fact.

Where conflicting medical evidence is offered on the issue of whether a plaintiff's injuries are permanent or significant, and varying inferences may be drawn, the question is one for the jury (see Noble v Ackerman, 252 AD2d 392, 395 [1998]). Since defendants never sustained their initial burden of establishing that each of the Martinez plaintiffs had not suffered a serious injury causally related to the accident, the burden of proof never shifted to them (see Whittaker v Webster Trucking Corp., 33 AD3d 613 [2006]).

 

 

Rossi v. Alhassan

Alhassan v.Nizam



The Sullivan Law Firm, New York (Timothy M. Sullivan of counsel), for appellants.
Segal & Lax, New York (Patrick Daniel Gatti of counsel), for respondent.

Order, Supreme Court, New York County (Deborah A. Kaplan, J.), entered July 31, 2007, which denied the motion of defendants Mahamad Nizam and Rajai Lutfi for summary judgment dismissing the complaint as against them, unanimously reversed, on the law, without costs, the motion granted, and the complaint dismissed as against these defendants. The Clerk is directed to enter judgment accordingly.

The affirmed medical reports of defendants' orthopedist and neurologist, detailing the objective tests they performed on examination, finding that plaintiff had full range of motion in his cervical and lumbar spine, and concluding that plaintiff had no ongoing impairment resulting from the accident, satisfied defendants' burden of establishing prima facie that plaintiff did not suffer a serious injury pursuant to Insurance Law § 5102(d) (see Nagbe v Minigreen Hacking Group, 22 AD3d 326 [2005]).
Plaintiff, however, failed to raise a triable issue of material fact as to whether his injury was serious. While he submitted evidence of pain, as well as evidence of herniated and bulging discs, he failed to submit the requisite contemporaneous quantitative assessment of range-of-motion limitations based on objective testing (see Thompson v Abbasi, 15 AD3d 95, 97 [2005]; Arjona v Calcano, 7 AD3d 279 [2004]). He also failed to offer competent medical proof that he could not perform substantially all his daily activities for 90 of the first 180 days following the accident because of an injury or impairment caused by the accident (see Uddin v Cooper, 32 AD3d 270, 272 [2006], lv denied 8 NY3d 808 [2007]; Nelson v Distant, 308 AD2d 338, 340 [2003]).

Parmer v. Opportunities Unlimited on N.Y.

 


Appeal from an order of the Supreme Court, Niagara County (John M. Curran, J.), entered June 12, 2006 in a personal injury action. The order, insofar as appealed from, denied in part the motion of defendants Rides Unlimited of Niagara, Inc. and David L. Pawlukovich for summary judgment dismissing the complaint against them.


FELDMAN, KIEFFER & HERMAN, LLP, BUFFALO (STEPHEN M. SORRELS OF COUNSEL), FOR DEFENDANTS-APPELLANTS.
MARK D. GROSSMAN, NIAGARA FALLS (LEONARD G. TILNEY, JR., OF COUNSEL), FOR PLAINTIFF-RESPONDENT.


It is hereby ORDERED that the order so appealed from is unanimously affirmed without costs.

Memorandum: Plaintiff commenced this action to recover damages for injuries she allegedly sustained when the motor vehicle she was operating was struck by a vehicle owned by Rides Unlimited of Niagara, Inc. and operated by David L. Pawlukovich (collectively, defendants). Defendants moved for summary judgment dismissing the complaint against them on the ground that plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102 (d). Supreme Court granted that part of defendants' motion with respect to the permanent loss of use category but denied that part of the motion with respect to the permanent consequential limitation of use and 90/180 categories. We affirm. Defendants met their initial burden with respect to the permanent consequential limitation of use category by submitting the report of a physiatrist who examined plaintiff and concluded that her disability was only temporary,and the report of an orthopedist who also examined plaintiff and concluded that she had achieved preaccident statusand that any residual disability was caused by a subsequent motor vehicle accident (see Harris v Carella, 42 AD3d 915, 916; Yoonessi v Givens, 39 AD3d 1164, 1165; Moore v Gawel, 37 AD3d 1158, 1159). We conclude, however, that plaintiff raised a triable issue of fact with respect to that category by submitting the report of a physician who examined her and concluded that she did not sustain any injuries in the second accident and the affidavit of one of her treating physicians who averred that plaintiff had sustained a permanent consequential limitation of use of her cervical spine as a result of the first accident and thus was totally disabled (see generally Zuckerman v City of New York, 49 NY2d 557, 562). We conclude on the record before us that there is sufficient objective evidence of plaintiff's injuries, including X ray reports, an MRI report, and "an expert's designation of . . . numeric percentage[s] of . . . plaintiff's loss of range of motion," to defeat that part of defendants' motion (Toure v Avis Rent A Car Sys., 98 NY2d 345, 350). We further conclude that, although defendants met their initial burden with respect to the 90/180 category, plaintiff raised a triable issue of fact by submitting the affidavit of one of her treating physicians and additional evidence establishing that she had been disabled from her job for well over 90 daysduring the 180 days immediately following the first accident (see Insurance Law § 5102 [d]; Mancuso v Collins, 32 AD3d 1325, 1326).

Cavender v. Wyeth Pharms.



Costello, Shea & Gaffney LLP, New York, N.Y. (Steven E. Garry and Sooyung T.A. Lee                                     of counsel), for respondents.


DECISION & ORDER

In an action to recover damages for personal injuries, the plaintiff appeals from an order of the Supreme Court, Kings County (Hurkin-Torres, J.), dated August 18, 2006, which granted the defendants' motion for summary judgment dismissing the complaint on the ground that the defendant did not sustain a serious injury within the meaning of Insurance Law § 5102(d).

ORDERED that the order is reversed, on the law, with costs, and the defendants' motion for summary judgment dismissing the complaint is denied.

The defendants failed to establish, prima facie, that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d). The report of Dr. Monsanto, the defendants' examining hand specialist, noted the surgeries to the plaintiff's left wrist and thumb as well as the "two well healed scars" on her wrist and thumb, which he diagnosed as "post excision of a mass of wrist and mass of thumb." His conclusory assertion that these injuries were not secondary to the accident was insufficient as a matter of law to establish that the plaintiff did not sustain a serious injury as a result of the subject accident. Since the defendants failed to satisfy their burden of establishing a prima facie case, it is unnecessary to consider whether the plaintiff's papers in opposition were sufficient to raise a triable issue of fact (see Jenkins v Miled Hacking Corp., 43 AD3d 393, and cases cited therein).
SPOLZINO, J.P., SKELOS, FLORIO and ANGIOLILLO, JJ., concur.

Hallett v. Hassan



Baker, McEvoy, Morrissey & Moskovits, P.C. (Thomas Torto, New York, N.Y. [Jason Levine] of counsel), for appellants.
Harmon, Linder & Rogowsky (Mitchell Dranow, Mineola, N.Y. of counsel), for respondent.


DECISION & ORDER

In an action to recover damages for personal injuries, the defendants appeal from an order of the Supreme Court, Kings County (Hinds-Radix, J.), dated May 23, 2007, which denied their motion for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d).

ORDERED that the order is reversed, on the law, with costs, and the defendants' motion for summary judgment dismissing the complaint is granted.

The defendants met 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 (see Toure v Avis Rent A Car Sys., 98 NY2d 345; Gaddy v Eyler, 79 NY2d 955, 956-957; see also Meyers v Bobower Yeshiva Bnei Zion, 20 AD3d 456). In opposition, the plaintiff failed to raise a triable issue of fact.
MASTRO, J.P., FISHER, FLORIO, ANGIOLILLO and DICKERSON, JJ., concur.

Morris v. Edmond



Baker, McEvoy, Morrissey & Moskovits, P.C., New York, N.Y.
(Stacy R. Seldin of counsel), for appellant.
Albert Zafonte, Jr. (Richard Paul Stone, New York, N.Y., of
counsel), for respondent.


DECISION & ORDER

In an action to recover damages for personal injuries, the defendant Tehal Singh appeals from an order of the Supreme Court, Kings County (Bunyan, J.), dated May 23, 2007, which denied his motion for summary judgment dismissing the complaint insofar as asserted against him on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d).

ORDERED that the order is reversed, on the law, with costs, the appellant's motion for summary judgment dismissing the complaint insofar as asserted against him is granted and, upon searching the record, summary judgment is awarded to the defendant Reynaldo Edmond dismissing the complaint insofar as asserted against him.

Contrary to the Supreme Court's determination, the appellant made a prima facie showing through the respondent's deposition testimony and the affirmed medical reports of the appellant's examining neurologist and orthopedic surgeon that the respondent did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident (see Toure v Avis Rent A Car Sys., 98 NY2d 345; Gaddy v Eyler, 79 NY2d 955; Kearse v New York City Tr. Auth., 16 AD3d 45, 51-52). At her deposition, the respondent stated that, at most, she missed a week or two of college as a result of the subject accident. The appellant's examining orthopedic surgeon concluded, based upon objective range of motion tests, that the respondent had full range of motion in her cervical spine, lumbar spine, and left knee. The appellant's examining neurologist also concluded, based upon objective range of motion tests, that the respondent had full range of motion in her cervical spine, and found an insignificant limitation in lumbar flexion only.

In opposition, the respondent failed to raise a triable issue of fact. Nunzio Saulle, one of the respondent's treating physicians, examined her for the first time on April 5, 2006, two years and five months after the accident, and on two subsequent dates, the latest on February 15, 2007. While Saulle found significant limitations in the respondent's range of motion, such findings were not contemporaneous with the subject accident (see D'Onofrio v Floton, Inc., 45 AD3d 525; Morales v Daves, 43 AD3d 1118; Rodriguez v Cesar, 40 AD3d 731). Similarly, Sebastian Lattuga, another of the respondent's treating physicians, did not examine her until June 11, 2004, seven months after the accident. Moreover, while Lattuga set forth certain restricted ranges of motion, he failed to compare his findings to normal ranges of motion (see Umar v Ohrnberger,AD3d [2d Dept, Dec. 4, 2007]; Sullivan v Dawes, 28 AD3d 472) or to state that any of the limitations noted were the result of injuries sustained in the subject accident (see Itskovich v Lichenstadter, 2 AD3d 406, 407).

Further, although the respondent's magnetic resonance imaging reports showed bulging discs in the cervical and lumbar spine, and joint effusion in the left knee, there were no opinions contained therein as to causation nor objective evidence of the extent and duration of the alleged physical limitations resulting therefrom (see Mejia v De Rose, 35 AD3d 407, 407-408; Yakubov v CG Trans Corp., 30 AD3d 509, 510; Cerisier v Thibiu, 29 AD3d 507, 508; Bravo v Rehman, 28 AD3d 694, 695; Kearse v New York City Tr. Auth., 16 AD3d at 50; Collins v Stone, 8 AD3d 321, 322-323). The respondent also failed to proffer competent medical evidence that she sustained a medically-determined injury of a nonpermanent nature which prevented her, for 90 of the 180 days following the subject accident, from performing her usual and customary activities (see Sainte-Aime v Ho, 274 AD2d 569, 570).

Based on the foregoing, we search the record pursuant to CPLR 3212(b) and award the nonmoving defendant, Reynaldo Edmond, summary judgment dismissing the complaint insofar as asserted against him on the ground that the respondent did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident (see Dunham v Hilco, 89 NY2d 425, 430; Merritt Hill Vineyards v Windy Hgts. Vineyard, 61 NY2d 106, 110-111; Wilson v Buffa, 294 AD2d 357, 358).
SPOLZINO, J.P., SKELOS, LIFSON and McCARTHY, JJ., concur.

Sharma v. Diaz



Marjorie E. Bornes, New York, N.Y., for appellant.
Sanders, Sanders, Block, Woycik, Viener & Grossman, P.C.,
Mineola, N.Y. (Michael F. Villeck and Melissa C. Ingrassia of counsel), for respondent.


DECISION & ORDER

In an action to recover damages for personal injuries, the defendant appeals from an order of the Supreme Court, Kings County (F. Rivera, J.), dated May 4, 2007, which denied his motion for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d).

ORDERED that the order is reversed, on the law, with costs, and the defendant's motion for summary judgment dismissing the complaint is granted.

Contrary to the Supreme Court's determination, the 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 (see Toure v Avis Rent A Car Sys., 98 NY2d 345; Gaddy v Eyler, 79 NY2d 955, 956-957; see also Meyers v Bobower Yeshiva Bnei Zion, 20 AD3d 456; Kearse v New York City Tr. Auth., 16 AD3d 45, 49-50).

In opposition, the plaintiff failed to raise a triable issue of fact. The report of Dr. Shahid Mian was without any probative value, since it was unaffirmed (see Patterson v NY Alarm Response Corp., 45 AD3d 656; Rodriguez v Cesar, 40 AD3d 731; Phillips v Zilinsky, 39 AD3d 728). Moreover, while Dr. Mian did set forth range of motion findings based on his January 26, 2004, examination of the plaintiff, he failed to compare those findings to the normal ranges of motion (see Page v Belmonte, 45 AD3d 825; Malave v Basikov, 45 AD3d 539; Fleury v Benitez, 44 AD3d 996; Nociforo v Penna, 42 AD3d 514).

Despite any range of motion findings that may have been made prior to January 29, 2004, the findings made on that date are the most recent ones set forth by the plaintiff in opposition to the motion. Dr. M.A. Farescal, one of the plaintiff's treating physicians, examined the plaintiff on January 29, 2004, and concluded on that date, which was within three months of the subject accident, that the plaintiff had full range of motion in the lumbar and cervical regions of his spine. Thus, the plaintiff's own treating physician concluded that within three months of the subject accident the plaintiff had full range of motion in those areas. The plaintiff proffered no other range of motion findings made after January 29, 2004, that differ. In fact, there was no recent examination of the plaintiff in which range of motion testing was shown to be performed. This was fatal for the plaintiff since he asserted that his medical submissions raised a triable issue of fact that he sustained permanent disabilities as a result of the subject accident. Without a recent examination, no such permanency could be established (see Amato v Fast Repair, Inc., 42 AD3d 477, 477-478; Ali v Mirshah, 41 AD3d 748, 749; Elgendy v Nieradko, 307 AD2d 251; Chinnici v Brown, 295 AD2d 465, 466). While Dr. Farescal performed an examination on August 16, 2006, of the plaintiff, no range of motion findings concerning the plaintiff's ability to move the cervical and/or lumbar regions of his spine on that date were set forth. The mere existence of a herniated or bulging disc, and even radiculopathy, is not evidence of a serious injury in the absence of objective evidence of the extent of the alleged physical limitations resulting from the disc injury and its duration (see Patterson v NY Alarm Response Corp., 45 AD3d 656; Mejia v DeRose, 35 AD3d 407-408). Objective evidence of the extent of the alleged physical limitations resulting from the disc injuries and their duration was not established by the plaintiff via his submissions. Neither the self-serving affidavit of the plaintiff, nor his deposition testimony, established the existence of a triable issue of fact (see Brobeck v Jolloh, 32 AD3d 526, 527; Davis v New York City Tr. Auth., 294 AD2d 531, 531-532; Fisher v Williams, 289 AD2d 288, 289).

Since the plaintiff did not allege in his complaint or bill of particulars that he sustained a significant disfigurement as a result of the subject accident and did not move for leave to amend the bill of particulars, the evidence pertaining to any scar on his forehead was not considered (see Ifrach v Neiman, 306 AD2d 380; Seymour v Roe, 301 AD2d 991, 992 n 2).
RIVERA, J.P., FLORIO, CARNI and BALKIN, JJ., concur.

Washington v. Cross



Milber, Makris, Plousadis & Seiden, LLP, Woodbury, N.Y. (Lorin A. Donnelly of counsel),              for respondent Sherri Cross.
Boeggeman, George & Corde, P.C., White Plains, N.Y. (Cynthia Dolan of counsel),                            for respondent Roger E. Gair.


DECISION & ORDER

In an action to recover damages for personal injuries, etc., the plaintiffs appeal from an order of the Supreme Court, Westchester County (Murphy, J.), entered August 16, 2006, which granted those branches of the motion of the defendant Roger E. Gair and the cross motion of the defendant Sherri Cross which were for summary judgment dismissing the complaint insofar as asserted against each of them on the ground that neither of the plaintiffs sustained a serious injury within the meaning of Insurance Law § 5102(d).

ORDERED that the order is affirmed, with one bill of costs.

The medical evidence which the defendants submitted in support of their respective motion and cross motion, inter alia, for summary judgment dismissing the complaint, established that, as a result of the subject motor vehicle accident, the plaintiffs sustained only sprains and/or strains, and accordingly, neither of them sustained a serious injury within the meaning of Insurance Law § 5102(d) (see Toure v Avis Rent a Car Sys., 98 NY2d 345, 352; Gaddy v Eyler, 79 NY2d 955, 956-957; Hasner v Budnik, 35 AD3d 366, 368; Forte v Vaccaro, 175 AD2d 153). In opposition to the motion and cross motion, the plaintiffs failed to raise a triable issue of fact. The plaintiffs' remaining contentions regarding the propriety of the cross motion and the admissibility of the defendants' evidence are without merit.
SPOLZINO, J.P., SKELOS, FLORIO and ANGIOLILLO, JJ., concur.

 

Bi-Economy Market, Inc. v Harleysville Insurance Company of New York

 


Kathleen A. Burr, for appellant.
Michael F. Chelus, for respondents.
New York Public Adjusters Association; United
Policyholders; New York Insurance Association et al., amici curiae.

 


PIGOTT, J.:

In this action brought by an insured against an insurer for breach of a commercial property insurance contract, the principal issue presented is whether the insured can assert claim for consequential damages. Under the circumstances of this case, we hold that it can.[FN1]

I.

Bi-Economy Market, a family-owned wholesale and retail meat market located in Rochester, New York, suffered a major fire in October 2002, resulting in the complete loss of food inventory and heavy structural damage to the building and business-related equipment. At the time of the fire, Bi-Economy was insured by defendant Harleysville Insurance Company under a "Deluxe Business Owner's" policy that provided replacement cost coverage on the building as well as business property or "contents" loss coverage.

The policy also provided coverage for lost business income, what is commonly referred to as "business interruption insurance," for up to one year from the date of the fire. Specifically, the contract stated that Harleysville would "pay for the actual loss of Business Income . . . sustain[ed] due to the necessary suspension of [Bi-Economy's] 'operations' during the 'period of restoration.'" Business income is defined as the "(1) Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; and (2) Continuing normal operating expenses incurred, including payroll." "Period of restoration" is defined as the period of time that "[b]egins with the date of direct physical loss or damage" and "[e]nds on the date when the property . . . should be repaired, rebuilt or replaced with reasonable speed and similar quality."

Following the fire, Bi-Economy submitted a claim to Harleysville pursuant to the terms of the contract. Harleysville disputed Bi-Economy's claim for actual damages, and advanced only the sum of $163,161.92. More than a year later, following submission of their dispute to alternative dispute resolution, Bi-Economy was awarded the sum of $407,181. During all this time, Harleysville offered to pay only seven months of Bi-Economy's claim for lost business income, despite the fact that the policy provided for a full twelve months. Bi-Economy never resumed business operations.

In October 2004, Bi-Economy commenced this action against Harleysville, asserting causes of action for bad faith claims handling, tortious interference with business relations and breach of contract, seeking consequential damages for "the complete demise of its business operation in an amount to be proved at trial." Bi-Economy alleged that Harleysville improperly delayed payment for its building and contents damage and failed to timely pay the full amount of its lost business income claim. Bi-Economy further alleged that, as a result of Harleysville's breach of contract, its business collapsed, and that liability for such consequential damages was reasonably foreseeable and contemplated by the parties at the time of contracting.

Harleysville answered, and subsequently moved for leave to amend its answer to raise the defense that the contract excluded consequential damages and for partial summary judgment dismissing Bi-Economy's breach of contract cause of action. In support of its motion, Harleysville cited several contractual provisions excluding coverage for "consequential loss."

Supreme Court granted the motion and the Appellate Division affirmed, holding that "the insurance policy expressly exclude[d] coverage for consequential losses, and thus it cannot be said that [consequential] damages were contemplated by the parties when the contract was formed" (37 AD3d 1184, 1185 [internal quotation marks and citations omitted]). The Appellate Division granted Bi-Economy leave to appeal and certified the following question: "Was the order of this Court, entered February 2, 2007, properly made?" We conclude that it was not.

II.

Bi-Economy contends that the courts below erred in dismissing its breach of contract claim seeking consequential damages for the collapse of its business resulting from a failure to fulfill its obligations under the contract of insurance. We agree and therefore reverse the order of the Appellate Division and reinstate that cause of action.

It is well settled that in breach of contract actions "the nonbreaching party may recover general damages which are the natural and probable consequence of the breach" (Kenford Co. v County of Erie, 73 NY2d 312, 319 [1989]). Special, or consequential damages, which "do not so directly flow from the breach," are also recoverable in limited circumstances (American List Corp. v U.S. News & World Report, Inc., 75 NY2d 38, 43 [1989]). In Kenford, we stated that "[in] order to impose on the defaulting party a further liability than for damages [which] naturally and directly [flow from the breach], i.e., in the ordinary course of things, arising from a breach of contract, such unusual or extraordinary damages must have been brought within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting" (Kenford, 73 NY2d at 319 [internal quotation marks and citations omitted]). We later explained that "[t]he party breaching the contract is liable for those risks foreseen or which should have been foreseen at the time the contract was made" (Ashland Mgt. v Janien, 82 NY2d 395, 403 [1993]). It is not necessary for the breaching party to have foreseen the breach itself or the particular way the loss occurred, rather, "[i]t is only necessary that loss from a breach is foreseeable and probable" (id., citing Restatement [Second] of Contracts § 351; 3 Farnsworth, Contracts § 12.14 [2d ed 1990]).

To determine whether consequential damages were reasonably contemplated by the parties, courts must look to "the nature, purpose and particular circumstances of the contract known by the parties . . . as well as 'what liability the defendant fairly may be supposed to have assumed consciously, or to have warranted the plaintiff reasonably to suppose that it assumed, when the contract was made'" (Kenford, 73 NY2d at 319, quoting Globe Ref. Co. v Landa Cotton Oil Co., 190 US 540, 544 [1903]). Of course, proof of consequential damages cannot be speculative or conjectural (see Ashland Mgt., 82 NY2d at 403 [damages for the loss of future profits must be proven with reasonable certainty and "be capable of measurement based upon known reliable factors without undue speculation"]; see also Kenford Co. v County of Erie, 67 NY2d 257, 261 [1986]).

The dissent seeks to distinguish this case from the Kenford line of reasoning by grouping it with that separate class of contract actions involving pure "agreements to pay" — contracts for money only — where the only recoverable damage for breach is interest. This distinction is without basis. With agreements to pay money — for example, an agreement to pay sales commissions or a contract to pay a lender $12 tomorrow for $10 given today, the sole purpose of the contract is to pay for something given in exchange. In such cases, what the payee plans to do with the money is external and irrelevant to the contract itself. In the present case, however, the purpose of the agreement — what the insured planned to do with its payment — was at the very core of the contract itself.

The dissent also blurs the significant distinction between consequential and punitive damages. The two types of damages serve different purposes and are evidenced by different facts. Consequential damages, designed to compensate a party for reasonably foreseeable damages, "must be proximately caused by the breach" and must be proven by the party seeking them (24 Lord, Williston on Contracts § 64.12, at 124-125 [4th ed]). Punitive damages, by contrast, "are not measured by the pecuniary loss or injury of the plaintiff as a compensation" but are "assessed by way of punishment to the wrongdoer and example to others" (11 Perillo, Corbin on Contracts § 59.2, at 550 [rev ed]). Unlike consequential damages, which are quantifiable, "[t]here is no rigid formula by which the amount of punitive damages is fixed, although they should bear some reasonable relation to the harm done and the flagrancy of the conduct causing it" (IHP Corp. v 210 Cent. Park South Corp., 16 AD2d 461, 466 [1st Dept 1962], affd 12 NY2d 329 [1963]).

As in all contracts, implicit in contracts of insurance is a covenant of good faith and fair dealing, such that "a reasonable insured would understand that the insurer promises to investigate in good faith and pay covered claims" (New York Univ. v Continental Ins. Co., 87 NY2d 308, 318 [1995]). An insured may also bargain for the peace of mind, or comfort, of knowing that it will be protected in the event of a catastrophe (see e.g. Beck v Farmers Ins. Exch., 701 P2d 795, 802 [Utah 1985] ["[I]t is axiomatic that insurance frequently is purchased not only to provide funds in case of loss, but to provide peace of mind for the insured or his beneficiaries"]; The Best Place, Inc. v Penn Am. Ins. Co., 82 Haw 120, 920 P2d 334, 342 [1996], quoting Noble v Nat'l Am. Life Ins. Co., 128 Ariz 188, 624 P2d 866, 867 [1981] ["An insurance policy is not obtained for commercial advantage; it is obtained as protection against calamity"]; Andrew Jackson Life Ins. Co. v Williams, 566 So 2d 1172, 1179 n9 [Miss 1990] ["An insured bargains for more than mere eventual monetary proceeds of a policy; insureds bargain for such intangibles as risk aversion, peace of mind, and certain and prompt payment of the policy proceeds upon submission of a valid claim"]); Ainsworth v Combined Ins. Co. of America, 104 Nev 587, 763 P2d 673, 676 [1988] ["A consumer buys insurance for security, protection, and peace of mind"]).

III.

The purpose served by business interruption coverage cannot be clearer — to ensure that Bi-Economy had the financial support necessary to sustain its business operation in the event disaster occurred (see Howard Stores Corp. v Foremost Ins. Co., 82 AD2d 398, 400 [1st Dept 1981] ["The purpose of business interruption insurance is to indemnify the insured against losses arising from inability to continue normal business operation and functions due to the damage sustained as a result of the hazard insured against"], affd 56 NY2d 991 [1982]; 3-36 Bender's New York Insurance Law § 36.06). Certainly, many business policyholders, such as Bi-Economy, lack the resources to continue business operations without insurance proceeds. Accordingly, limiting an insured's damages to the amount of the policy, i.e., money which should have been paid by the insurer in the first place, plus interest, does not place the insured in the position it would have been in had the contract been performed (see generally Brushton-Moira Cent. Sch. Dist. v Fred H. Thomas Assocs., 91 NY2d 256, 262 [1998] ["Damages are intended to return the parties to the point at which the breach arose and to place the nonbreaching party in as good a position as it would have been had the contract been performed"]; Goodstein Constr. Corp. v City of New York, 80 NY2d 366, 373 [1992], citing Restatement [Second] of Contracts § 347, Comment a; § 344 ["Contract damages are ordinarily intended to give the injured party the benefit of the bargain by awarding a sum of money that will, to the extent possible, put that party in as good a position as it would have been in had the contract been performed"]).

Thus, the very purpose of business interruption coverage would have made Harleysville aware that if it breached its obligations under the contract to investigate in good faith and pay covered claims it would have to respond in damages to Bi-Economy for the loss of its business as a result of the breach (see Sabbeth Indus. v Pennsylvania Lumbermens Mut. Ins. Co. (238 AD2d 767, 769 [3d Dept 1997]).

Furthermore, contrary to the dissent's view, the purpose of the contract was not just to receive money, but to receive it promptly so that in the aftermath of a calamitous event, as Bi-Economy experienced here, the business could avoid collapse and get back on its feet as soon as possible. Thus, this insurance contract included an additional performance-based component: the insurer agreed to evaluate a claim, and to do so honestly, adequately, and — most importantly — promptly. The insurer certainly knew that failure to perform would (a) undercut the very purpose of the agreement and (b) cause additional damages that the policy was purchased to protect against in the first place. Here, the claim is that Harleysville failed to promptly adjust and pay the loss, resulting in the collapse of the business. When an insured in such a situation suffers additional damages as a result of an insurer's excessive delay or improper denial, the insurance company should stand liable for these damages. This is not to punish the insurer, but to give the insured its bargained-for-benefit.

Nor do we read the contractual exclusions for certain consequential "losses" as demonstrating that the parties contemplated, and rejected, the recoverability of consequential "damages" in the event of a contract breach. The consequential "losses" clearly refer to delay caused by third party actors or by the "[s]uspension, lapse or cancellation of any license, lease or contract." Consequential "damages," on the other hand, are in addition to the losses caused by a calamitous event (i.e., fire or rain), and include those additional damages caused by a carrier's injurious conduct — in this case, the insurer's failure to timely investigate, adjust and pay the claim.

Therefore, in light of the nature and purpose of the insurance contract at issue, as well as Bi-Economy's allegations that Harleysville breached its duty to act in good faith, we hold that Bi-Economy's claim for consequential damages including the demise of its business, were reasonably foreseeable and contemplated by the parties, and thus cannot be dismissed on summary judgment.

Accordingly, the order of the Appellate Division, insofar as appealed from, should be reversed, with costs, defendants' motion for leave to amend their answer to raise the defense of contractual exclusion for consequential damages and partial summary judgment dismissing the plaintiff's second cause of action denied, and the certified question answered in the negative.


SMITH, J. (dissenting):

In Rocanova v Equitable Life Assur. Socy. of U.S. (83 NY2d 603 [1994]) and New York Univ. v Continental Ins. Co. (87 NY2d 308 [1995]), we rejected the argument that a bad faith failure by an insurer to pay a claim could, without more, justify a punitive damages award. We held that punitive damages are not available for breach of an insurance contract unless the plaintiff shows both "egregious tortious conduct" directed at the insured claimant and "a pattern of similar conduct directed at the public generally" (Rocanova, 83 NY2d at 613; see NYU, 87 NY2d at 316). Today, the majority abandons this rule, without discussing it and without acknowledging that it has done so. The majority achieves this simply by changing labels: Punitive damages are now called "consequential" damages, and a bad faith failure to pay a claim is called a "breach of the covenant of good faith and fair dealing."

I think that Rocanova and NYU were correctly decided, and that the majority makes a mistake in largely nullifying their holdings.

Underlying our refusal in Rocanova and NYU to open the door to awards of punitive damages was a recognition of the serious harm such awards can do. Punitive damages will sometimes serve to deter insurer wrongdoing and thus protect insureds from injustice, but they will do so at too great a cost. Insurers will fear that juries will view even legitimate claim denials unsympathetically, and that insurers will thus be exposed to damages without any predictable limit. This fear will inevitably lead insurers to increase their premiums — and so will inflict a burden on every New Yorker who buys insurance.

This policy judgment was implicit in Rocanova and NYU. Not everyone agreed with it. The Appellate Division majority in Acquista v New York Life Ins. Co. (285 AD2d 73, 78 [1st Dept 2001]) hardly concealed its disagreement: "It is correct that, to date, this State has maintained the traditional view . . . [citing Rocanova and NYU]. Yet, for some time, courts and commentators around the country have increasingly acknowledged that a fundamental injustice may result . . . ." The Acquista court found a way to avoid what it thought an injustice: award "consequential," not punitive damages. Acquista adopted the rule of some sister-state decisions, notably Beck v Farmers Ins. Exch. (701 P.2d 795 [Utah 1985]), that an insurer that denies a claim in bad faith becomes liable for consequential damages beyond the policy limits (285 A2d at 80-81). With less frankness than the Acquista court — indeed, without even citing either Rocanova or Acquista — the majority here reaches the same result.

The "consequential" damages authorized by the majority, though remedial in form, are obviously punitive in fact. They are not triggered, as true consequential damages are, simply by a breach of contract, but only by a breach committed in bad faith. The majority never explains why this should be true, but the explanation is self-evident: the purpose of the damages the majority authorizes can only be to punish wrongdoers and deter future wrongdoing. They have nothing to do with consequential damages, or with the covenant of good faith and fair dealing, as those terms are ordinarily understood.

The whole idea of "consequential damages" is out of place in a suit against an insurer that has failed to pay a claim — or, indeed, in any case where the obligation breached is merely one to pay money. Consequential damages are a means of measuring the harm done when a party fails in some non-monetary performance — say, the transportation of a broken mill shaft (Hadley v Baxendale, 9 Ex 341 [1854]) or the construction of a football stadium (Kenford Co. v County of Erie, 73 NY2d 312 [1989]). In such cases, where there is no agreement on what money will be paid in the event of a breach, a court must try to decide what damages the parties contemplated — what damages they would have agreed to had they considered the question when the contract was signed (Kenford, 73 NY2d at 320). But in insurance contracts or other contracts for the payment of money, the parties have already told us what damages they contemplated; in the case of insurance, it is payment equal to the losses covered by the policy, up to the policy limits. There is no occasion for a Kenford analysis.

Nor could such an analysis, done in the way Kenford requires, support the results the majority reaches in these two cases. Under Kenford, the premise of consequential damages awards is that they effectuate the parties' presumed intentions at the time of contracting: "the commonsense rule to apply is to consider what the parties would have concluded had they considered the subject" (Kenford, 73 NY2d at 320 [emphasis in original]). Can anyone seriously believe that the parties in these cases would, if they had "considered the subject," have contracted for the results reached here? Imagine the dialogue. Applicant for insurance: "Suppose you refuse, in bad faith, to pay a claim. Will you agree to be liable for the consequences, including lost business, without regard to the policy limits?" Insurance company: "Oh, sure. Sorry, we forgot to put that in the policy."

The majority also departs from the established understanding of the "covenant of good faith and fair dealing" — thus obscuring the fact that the predicate for "consequential" damages here is exactly the same conduct, bad faith failure to pay claims, that we refused to make a predicate for punitive damages in Rocanova and NYU. Ordinarily, the covenant of good faith and fair dealing is breached where a party has complied with the literal terms of the contract, but has done so in a way that undermines the purpose of the contract and deprives the other party of the benefit of the bargain (e.g., 511 West 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144 [2002]). Here, plaintiffs allege that defendants breached, in bad faith, the express terms of the policies, by refusing to pay for the losses the policies covered. There is no need for resort to the implied covenant of good faith, and this is the first time, as far as I know, that we have relied on that implied covenant to condemn the bad faith breach of an express promise.

These two conceptual errors — the misuse of the terms "consequential damages" and "covenant of good faith" — are not the only ones in the majority opinions. The Bi-Economy opinion seems fundamentally to misunderstand the purpose of business interruption insurance — which is to compensate the insured for a business interruption that has already occurred, not to prevent one from occurring (see Bi-Economy majority op at 8-9). If the insured's business is never interrupted, there can be no claim under a business interruption policy. This error seems unimportant, however, for the majority's discussion of business interruption insurance is apparently extraneous to its holding. The Panasia case involves no business interruption coverage — yet the majority upholds the legal sufficiency of Panasia's claim for consequential damages on the basis of a simple citation to Bi-Economy (Panasia majority op at 3-4). 

The majority's bad policy choice is more important than the flaws in its reasoning. This attempt to punish unscrupulous insurers will undoubtedly lead to the punishment of many honest ones. Under today's opinions, juries will decide whether claims should have been paid more promptly, or in larger amounts; whether an insurer who failed to pay a claim did so to put pressure on the insured, or from legitimate motives, or from simple inefficiency; and whether, and to what extent, the insurer's slowness and stinginess had consequences harmful to the insured. All these very difficult, often nearly unanswerable, questions will be put to jurors who will usually know little of the realities of either the insured's or the insurer's business. The jurors will no doubt do their best, but it is not hard to predict where their sympathies will lie.

The result of the uncertainty and error that the majority's opinions will generate can only be an increase in insurance premiums. That is the real "consequential damage" flowing from today's holdings.
* * * * * * * * * * * * * * * * *
Order, insofar as appealed from, reversed, with costs, defendants' motion for leave to amend their answer to raise the defense of contractual exclusion for consequential damages and partial summary judgment dismissing the plaintiff's second cause of action denied, and certified question answered in the negative. Opinion by Judge Pigott. Chief Judge Kaye and Judges Ciparick, Graffeo and Jones concur. Judge Smith dissents in an opinion in which Judge Read concurs.
Decided February 19, 2008

Footnotes



Footnote 1: This being an appeal from the grant of partial summary judgment to the insurer, we view the facts in the light most favorable to the insured.

 

Washington Mutual Bank, F.A. v Allstate Ins. Co.



Feldman, Rudy, Kirby & Farquharson, P.C., Westbury, N.Y. (Brian
R. Rudy of counsel), for appellant.
Cullen and Dykman, LLP, Garden City, N.Y. (Thomas S. Baylis
of counsel), for respondent.

DECISION & ORDER

In an action to recover damages for breach of an insurance contract, the defendant appeals from an order of the Supreme Court, Nassau County (Feinman, J.), dated January 24, 2007, which denied its motion for leave to amend its answer to assert a fourth affirmative defense and for summary judgment dismissing the complaint based on the proposed fourth affirmative defense, and granted the plaintiff's cross motion for summary judgment on the issue of liability.

ORDERED that the order is affirmed, with costs.

The plaintiff's failure to properly move for the entry of a deficiency judgment within 90 days after the delivery of the referee's deed would normally have resulted in a presumption that there had been a "full satisfaction of the mortgage debt" that was owed to it (RPAPL 1371[3]). As a result of such presumed full satisfaction of the mortgage debt, the plaintiff mortgagee would normally be deemed to lack any insurable interest in the property insured by the defendant (see Moke Realty Corp. v Whitestone Sav. & Loan Assn., 82 Misc 2d 396, 397-398, affd 51 AD2d 1005, affd 41 NY2d 954). In the absence of any such insurable interest, the plaintiff would not be permitted to recover under the mortgagee loss payable clause contained in the defendant's policy (see Moke Realty Corp. v Whitestone Sav. & Loan Assn., 82 Misc 2d at 397-398; Sportsmen's Park, Inc. v New York Property Ins. Underwriting Assn. 97 AD2d 893, affd 63 NY2d 998).

The present case does not fall within the ambit of the general rule stated above since the plaintiff was legally enjoined from making a motion for leave to enter a deficiency judgment in accordance with RPAPL 1371. A decree of the federal Bankruptcy Court, dated November 14, 2000, pursuant to which all of the mortgagor's dischargeable debts had been discharged, expressly enjoined the plaintiff from "instituting or continuing any action, employing any process or engaging in any act to collect [any one of the discharged] debts as personal liabilities of the [mortgagor]."

By order dated October 16, 2000, the Bankruptcy Court had modified an automatic stay "to the extent necessary to allow [the plaintiff's predecessor in interest] to foreclose on the Mortgage and the real property located at 455 East 185th Street, Bronx, New York." While this order may have permitted the plaintiff's predecessor in interest to obtain from the Supreme Court leave to enter a deficiency judgment against the mortgagor, even while the bankruptcy proceedings were pending (see Steuben Trust Co. v Buono, 254 AD2d 803; Matter of Tyler, 166 BR 21, 25; Matter of Valerino, 275 BR 684, 689), the plaintiff's predecessor in interest would have been able to enforce such a deficiency judgment only "by filing a proof of claim [in the Bankruptcy Court] before any applicable bar date or [by] amending a previously filed proof of claim before any applicable bar date"' (Matter of Valerino, 275 BR 684, 689, quoting Matter of Tyler, 166 BR 21, 25; see Matter of Ferrante, 195 BR 990). However, the plaintiff's predecessor in interest had, at an earlier point in the bankruptcy proceedings, been instructed not to file any proof of claim because it appeared to the Bankruptcy Court that there were, in any event, no assets "available to the trustee to pay creditors." The filing of a proof of claim in a "no assets" bankruptcy case would have been " meaningless and worthless'" (Matter of Deutsch-Sokol v Northside Sav. Bank, 290 BR 27, 31 [SDNY 2003], quoting Matter of Mendiola, 99 BR 864 [N.D. Ill. 1989]; see Matter of Beezley, 994 F2d 1433, 1435 [9th Cir 1993]; Matter of Moyette, 231 BR 494, 499 [EDNY 1999]). It also would have been "meaningless and worthless" in 2005 to seek what would have been a necessarily void deficiency judgment relating to mortgage debt that already had been extinguished in 2000.

Here, the foreclosure sale did not occur until more than five years after the date of the final judgment of the Bankruptcy Court. The plaintiff could not have sought a deficiency judgment in accordance with the procedure prescribed in RPAPL 1371 without contravening the final decree of the Bankruptcy Court dated November 14, 2000. As the plaintiff notes, such an application not only would have violated the decree of the Bankruptcy Court, but also, it would have resulted in a judgment that would have been void as it would have been based on an indebtedness from which the mortgagor had already been discharged. Such an application would have violated the general rule that "the discharged [mortgagor] cannot be the subject of a deficiency judgment motion" (1 Bergman on New York Mortgage Foreclosures § 2.19, at 2-96.20 [2007]; see Terio v Great W. Bank, 166 BR 213 [SDNY 1994]["a chapter 7 discharge eliminates the debtor's in personam liability . . . while the in rem liability of the property held as security is unaffected and may be enforced by the mortgagee postdischarge"]).

Under these circumstances, we agree with the Supreme Court that the plaintiff's failure to make a timely motion for leave to enter a deficiency judgment should not relieve the defendant of the contractual obligation that it otherwise would have to pay, the fire loss claim pursuant to the mortgagee loss payable clause of the policy. Because the plaintiff was enjoined from making a motion for a deficiency judgment in accordance with RPAPL 1371, it would be inequitable to conclude that the amount of the successful bid at the foreclosure action (although low when compared to the amount that would have been owed to the plaintiff by the mortgagor had the debt not been discharged) must nonetheless be "deemed to be in full satisfaction of the mortgage debt" (RPAPL 1371[3]). In other words, because the plaintiff was enjoined from making a motion in accordance with RPAPL 1371, the analysis should be the same as though RPAPL 1371(3) did not exist. As noted by the Court of Appeals in Whitestone Sav. & Loan Assn. v Allstate Ins. Co. (28 NY2d 332, 336), the common-law rule, and the rule that would prevail but for the terms of RPAPL 1371(3), was that "extinguishment of a mortgage . . . does not necessarily extinguish the debt itself. Only to the extent that the mortgagee receives payment upon the debt through the foreclosure is the debt extinguished. . . . It is in this sense that the rule is quite properly stated to the effect that extinguishment of the mortgage does not affect the liability of an insurance company to a loss-payable mortgagee."

For the reasons outlined above, the Supreme Court properly denied both the defendant's motion for leave to amend its answer to assert an affirmative defense based on the plaintiff's supposed lack of an insurable interest in the property and the defendant's motion for summary judgment dismissing the complaint based on such proposed affirmative defense. If such an affirmative defense had been pleaded as of right, the plaintiff would have had the right to strike it, for the reasons outlined above.

We also agree with the Supreme Court that the plaintiff was entitled to summary judgment on the issue of liability. The policy under review in this case expressly states that the mortgagee, in this case the plaintiff, will be protected even "in the event of an increase in hazard [or in the case of a] failure by any insured persons to take all reasonable steps to save and preserve the property after a loss . . . if [the mortgagee] has no knowledge of these conditions." Here, there is evidence that the plaintiff knew that the mortgaged property had been abandoned, and thus, that there may have been an "increase in hazard." However, construing the terms of the policy to resolve any possible ambiguities against the defendant (see United States Fid. & Guar. Co. v Annunziata, 67 NY2d 229, 232), we conclude that the plaintiff's apparent knowledge of the "increase in hazard" that may have resulted from the mortgagor's abandonment of the property should not result in a forfeiture of coverage where the plaintiff undoubtedly did comply with another provision of the mortgagee loss payable clause according to which it had a duty "to notify [the defendant] in writing of any change of . . . occupancy or increase of hazard of which [it had] knowledge."

In a letter dated October 24, 2002, the plaintiff notified the defendant that the subject property had been abandoned by the mortgagor. This was approximately two months before the date of the fire loss, which occurred on December 28, 2002, for which the plaintiff now seeks to recover insurance proceeds. There is no indication that the defendant thereafter cancelled the policy due to the supposed "increase in hazard."

To the extent that the defendant relies on various exclusions that are applicable to limit the availability of coverage to the insured mortgagor, for example, the "increase in hazard" exclusion set forth in paragraph 8 on page 8 of its policy, the defendant fails to appreciate that the mortgagee loss payable clause of its policy created what amounted to a separate contract with the plaintiff (see United States Fid. & Guar. Co. v Annunziata, 67 NY2d 229, 234; Grady v Utica Mutual Ins. Co., 69 AD2d 668, 673). Exclusions that limit or exclude coverage based on an act or omission of "an insured person" do not apply to the plaintiff. The plaintiff is not "an insured person" as that term is defined in the policy (see United States Fid. & Guar. Co. v Annunziata, 67 NY2d at 232-233, n 2). We therefore conclude that the Supreme Court was correct in determining that, after the plaintiff made a prima facie showing of entitlement to summary judgment as to liability, the defendant failed to demonstrate the existence of any triable issue of fact either as to the invalidity of its July 10, 2003, disclaimer as to the plaintiff, or as to the lack of merit of the three affirmative defenses asserted in the defendant's answer.
MASTRO, J.P., FISHER, CARNI and McCARTHY, JJ., concur.

Panasia Estates, Inc. v Hudson Insurance Company



Janet P. Ford, for appellant.
Michael S. Zicherman, for respondent.


PIGOTT, J.:

Panasia Estates is the owner of commercial rental property located at 33 West 19th Street in Manhattan. Panasia had a commercial property insurance policy with Hudson Insurance Company, which included "Builders Risk Coverage," covering damage to its property while undergoing renovation. During the policy period, the roof of its building was opened in order to perform construction work. Inclement weather caused rain to enter the building through the roof opening, resulting in extensive damage to the property.[FN1]

Shortly after the occurrence, Panasia claimed it promptly notified Hudson of the loss. According to Panasia, however, Hudson failed to investigate or adjust the claim until several weeks later. Hudson then denied the claim three months after that, stating that Panasia's loss was the result of repeated water infiltration over time and wear and tear rather than from a risk covered under the builders risk policy provision.

Panasia commenced this action against Hudson, alleging that it breached the insurance contract by failing to properly investigate the loss and denying the loss as not covered under the policy. Panasia sought both direct and consequential damages that it claimed stemmed from Hudson's breach.

Hudson moved for partial summary judgment "dismissing all of Panasia's bad faith allegations and all prayers for consequential, extra contractual, or incidental damages or attorneys [sic] fees." Hudson argued, among other things, that a contractual exclusion for "[a]ny other consequential loss" precluded Panasia's request for consequential damages.

As pertinent here, Supreme Court denied that part of Hudson's motion to dismiss Panasia's claims for consequential damages. The Appellate Division affirmed, stating that "[a]n insured may recover foreseeable damages, beyond the limits of its policy, for breach of a duty to investigate, bargain for and settle claims in good faith" (39 AD3d 343, 343, citing Acquista v New York Life Ins. Co., 285 AD2d 73 [1st Dept 2001]). In addition, the court concluded that Hudson failed to show that the contractual exclusion for "'consequential loss' applied to Panasia's claim, rejecting Hudson's argument that "consequential loss" and "consequential damages" were synonymous (id.).

The Appellate Division granted Hudson leave to appeal to this Court, certifying the question: "Was the order of the Supreme Court as affirmed by this Court, properly made?" We conclude that it was.

The courts below properly rejected Hudson's contention that it was entitled to judgment as a matter of law because consequential damages are not recoverable in a claim for breach of an insurance contract. As we explained in Bi-Economy Market v Harleysville Ins. Co. [decided today], consequential damages resulting from a breach of the covenant of good faith and fair dealing may be asserted in an insurance contract context, so long as the damages were "'within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting'" (majority opn, at 5, quoting Kenford Co. v County of Erie (73 NY2d 312, 319 [1989]). Here, the courts below failed to consider whether the specific damages sought by Panasia were foreseeable damages as the result of Hudson's breach. Because the record before us is not fully developed on that issue, such claim must be considered by Supreme Court.

Lastly, as the Appellate Division correctly concluded, the contractual exclusion for consequential loss does not bar the recovery of consequential damages (see Bi-Economy, at 10-11).

Accordingly, the order of the Appellate Division should be affirmed, with costs, and certified question answered in the affirmative.

General Cas. Ins. Co. v. Kerr Heating Products.



Torys LLP, New York, N.Y. (David W.R. Wawro and Christopher
M. Caparelli of counsel), for appellants.
Kardisch, Link & Associates, P.C., Mineola, N.Y. (Beth L.
Rogoff of counsel), for respondent.


DECISION & ORDER

In an action to recover insurance payments made by the plaintiff to its insureds for the cleanup costs of an oil discharge on their property, the defendants Kerr Heating Products and Parrsboro Metal Fabricators, Ltd., appeal from so much of an order of the Supreme Court, Suffolk County (Baisley, J.), dated May 11, 2007, as denied their motion pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted against them for failure to state a cause of action.

ORDERED that the order is affirmed insofar as appealed from, with costs.

In December 1998, James Spillane and Deborah Spillane, the plaintiff's insureds, had an oil tank installed at property which they owned in Islip. In or about June 2002, they detected an odor emanating from the tank and it was thereafter discovered that the tank was leaking and discharging oil into the soil and groundwater. The appellants, Kerr Heating Products and Parrsboro Metal Fabricators, Ltd., allegedly manufactured, designed, assembled, and distributed the tank. The Spillanes incurred expenses for cleanup and removal, environmental testing, and labor. The Spillanes filed a claim under an insurance policy issued by the plaintiff, General Casualty Insurance Company. The plaintiff paid the Spillanes under the terms of the policy. The plaintiff, as subrogee of the Spillanes, commenced this action to recover insurance payments it made to the Spillanes. The appellants moved pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted against them for failure to state a cause of action. The Supreme Court denied the motion. We affirm.

The first cause of action in the complaint, which was asserted pursuant to Navigation Law § 181(5), alleged that due to the defendants' defective manufacture, design, assembly, and/or distribution of the tank, the tank malfunctioned, caused the leak and required the Spillanes to incur significant remediation expenses. Navigation Law § 181(1) imposes absolute liability upon "[a]ny person who has discharged petroleum," regardless of fault (see Fuchs & Bergh, Inc. v Lance Enters., Inc., 22 AD3d 715; Huntington Hosp. v Anron Heating & A.C., 250 AD2d 814, 815). A property owner who is held strictly liable for the costs of a petroleum discharge is authorized to bring a claim as an "injured person" for the cost of cleanup and removal against a prior owner or any other party who actually caused or contributed to the discharge (White v Long, 85 NY2d 564, 568-569). A party pursuing a claim under Navigation Law § 181(5) must be without fault; once it is established that a property owner caused or contributed to a spill, the property owner will be precluded from bringing a claim under Navigation Law § 181(5) (see Hjerpe v Globerman, 280 AD2d 646, 647).

On a motion to dismiss, the court must liberally construe the complaint and accept as true the facts alleged and any submissions in opposition to the dismissal motion (see 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 151-152). Moreover, the court must accord the plaintiff every possible inference and determine only whether the facts as alleged fit within any cognizable legal theory (see Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 414). If a plaintiff can succeed upon any reasonable view of the allegations, the complaint may not be dismissed (see MacDonell v PHH Mtge. Corp., 45 AD3d 537). According the plaintiff here every favorable reasonable inference and bearing in mind that the Navigation Law must be liberally construed (see Huntington Hosp. v Anron Heating & A.C., 250 AD2d at 815), the complaint alleges a viable cause of action pursuant to Navigation Law § 181(5). Moreover, the complaint also alleges a viable cause of action for common-law indemnification, as the complaint alleges that the Spillanes were faultless property owners required to pay cleanup and related costs resulting from an oil discharge on their property caused by the appellants' defectively manufactured, designed, assembled, and/or distributed tank (see generally Glaser v Fortunoff of Westbury Corp., 71 NY2d 643, 646).

The parties' remaining contentions are without merit or have been rendered academic by our determination.
RIVERA, J.P., RITTER, DILLON and CARNI, JJ., concur.

 

Serrano v. Republic Insurance

 


Kornfeld, Rew, Newman & Simeone, Suffern, N.Y. (Frank
Simeone and Maurice J. Recchia of counsel), for respondent.


DECISION & ORDER

In a consolidated action to recover damages for personal injuries, etc., and for a judgment declaring that the defendant Republic Insurance is obligated to defend and indemnify the defendant Jose Peixoto, Jr., in the personal injury action, the plaintiffs appeal from a judgment of the Supreme Court, Westchester County (Nicolai, J.), dated January 9, 2007, which, upon an order of the same court entered December 20, 2006, denying their motion for summary judgment on the complaint insofar as asserted against the defendant Republic Insurance and granting the cross motion of the defendant Republic Insurance for summary judgment, dismissed the complaint insofar as asserted against that defendant.

ORDERED that the judgment is modified, on the law, (1) by deleting the provision thereof dismissing the complaint insofar as asserted against the defendant Republic Insurance and substituting therefor a provision declaring that Republic Insurance is not obligated to defend and indemnify Jose Peixoto, Jr., in the personal injury action, and (2) by adding a provision thereto severing the action as to the remaining defendants; as so modified, the judgment is affirmed, with costs.

"The duty of an insurer to defend its insured arises whenever the allegations within the four corners of the underlying complaint potentially give rise to a covered claim" (Physicians' Reciprocal Insurers v Loeb, 291 AD2d 541, 542; see Belsito v State Farm Mut. Ins. Co., 27 AD3d 502, 502). [*2]The duty to indemnify requires a determination that the insured is liable for a loss that is covered by the policy (see Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 NY2d 419). Here, on their motion for summary judgment, the plaintiffs did not meet their prima facie burden of establishing that the allegations made in the underlying complaint potentially gave rise to a claim covered by the insurance policy at issue. Consequently, the Supreme Court properly denied their motion for summary judgment (see Alvarez v Prospect Hosp., 68 NY2d 320, 324; Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853). The Supreme Court also properly granted the cross motion of Republic Insurance (hereinafter Republic) for summary judgment because Republic established, prima facie, that the allegations made in the underlying complaint did not potentially give rise to a claim covered by the policy (see Belsito v State Farm Mut. Ins. Co., 27 AD3d at 503), and the plaintiffs did not raise a triable issue of fact (see Zuckerman v City of New York, 49 NY2d 557, 563; Belsito v State Farm Mut. Ins. Co., 27 AD3d at 503).

Since this is, in part, a declaratory judgment action, the Supreme Court should not have dismissed the complaint insofar as asserted against Republic, but should have included an appropriate declaration in favor of Republic. Accordingly, we modify the judgment and add such a declaration (see 200 Genesee St. Corp. v City of Utica, 6 NY3d 761, 762; Lanza v Wagner, 11 NY2d 317, 334, appeal dismissed 371 US 74, cert denied 371 US 901).

 

Osorio v. Kenart Realty, Inc.


Callan, Koster, Brady & Brennan, LLP, New York, N.Y. (Michael P.
Kandler of counsel), for defendant third-party plaintiff-appellant-respondent,
Madison 45 Company, and third-party plaintiff-appellant-respondent,
American National Fire Insurance Company.
Law Offices of Andrew P. Saulitis, P.C., New York, N.Y., for
third-party defendant-respondent-appellant Tower
Insurance Company.


DECISION & ORDER

In an action to recover damages for personal injuries, (1) the defendant third-party plaintiff, Madison 45 Company, and the third-party plaintiff, American National Fire Insurance Company, appeal, as limited by their brief, from so much of an order of the Supreme Court, Kings County (Schneier, J.), dated March 28, 2006, as (a) denied that branch of their motion which was for summary judgment in the third-party action declaring that the insurance coverage provided by the third-party plaintiff, American National Fire Insurance Company, is excess to that provided by the third-party defendant Tower Insurance Company in connection with the defense and indemnification of the defendant third-party plaintiff, Madison 45 Company, in the underlying action, (b) denied that branch of their motion which was for summary judgment in the third-party action declaring that the third-party defendant Tower Insurance Company must fully reimburse the third-party plaintiff, American National Fire Insurance Company, for all defense costs incurred, and (c) directed the third-party plaintiff, American National Fire Insurance Company, and the third-party defendant Tower Insurance Company to "share, on a primary basis, in the defense and indemnification" of the defendant third-party plaintiff, Madison 45 Company, in the underlying action, and (2) the third-party defendant Tower Insurance Company cross-appeals, as limited by its brief, from so much of the same order as directed it to "share, on a primary basis, in the defense and indemnification" of the defendant third-party plaintiff, Madison 45 Company, in the underlying action.

ORDERED that the order is reversed insofar as appealed from, on the law, those branches of the motion of the defendant third-party plaintiff, Madison 45 Company, and the third-party plaintiff, American National Fire Insurance Company, which were for summary judgment in the third-party action declaring that the insurance coverage provided by the third-party plaintiff, American National Fire Insurance Company, is excess to that provided by the third-party defendant Tower Insurance Company and that the third-party defendant Tower Insurance Company must fully reimburse the third-party plaintiff, American National Fire Insurance Company, for all defense costs incurred are granted, and the matter is remitted to the Supreme Court, Kings County, for entry of an appropriate declaratory judgment in accordance herewith; and it is further,

ORDERED that the cross appeal is dismissed as academic in light of our determination on the appeal; and it is further,

ORDERED that one bill of costs is awarded to the defendant third-party plaintiff-appellant-respondent, Madison 45 Company, and the third-party plaintiff-appellant-respondent, American National Fire Insurance Company.

The plaintiff, Angel Osorio, commenced this action to recover damages for personal injuries he sustained while working on premises owned by the defendant third-party plaintiff, Madison 45 Company (hereinafter Madison), and leased to the defendant third-party defendant Pizza-Del, Inc., d/b/a Eurostar Cafe (hereinafter Pizza-Del). As part of the lease between Pizza-Del and Madison, Pizza-Del agreed to indemnify, hold harmless, and defend Madison against all claims arising from work performed or negligent acts occurring on the premises. Pizza-Del also agreed to obtain insurance on a primary basis, with Madison named as an additional insured.

The third-party defendant Tower Insurance Company (hereinafter Tower), is the insurer of Pizza-Del, and the third-party plaintiff, American National Fire Insurance Company (hereinafter American National), is the insurer of Madison. Upon receipt of the notice of occurrence, Tower disclaimed coverage, inter alia, on the ground of late notice.

American National and Madison (hereinafter collectively the third-party plaintiffs) subsequently commenced a third-party action alleging, among other things, that Tower is obligated to provide them with a defense and indemnification in the plaintiff's underlying action. The third-party plaintiffs moved, inter alia, for summary judgment in the third-party action declaring (1) that Tower must defend and indemnify Madison in the plaintiff's underlying action, (2) that the insurance coverage provided by American National is excess to that provided by Tower, and (3) that Tower must fully reimburse American National for all defense costs incurred. In an order dated July 15, 2004, the Supreme Court, among other things, concluded that Tower's disclaimer was untimely and granted that branch of the third-party plaintiffs' motion which was for summary judgment declaring that Tower was obligated to defend and indemnify Madison pursuant to the policies and the lease. However, the court failed to decide the other branches of the third-party plaintiffs' motion which were, inter alia, for summary judgment declaring that American National's insurance was excess and that Tower must fully reimburse American National for all defense costs incurred.

The third-party plaintiffs appealed from the order dated July 15, 2004. By decision and order on motion dated June 29, 2005, this Court dismissed the appeal because the third-party plaintiffs were not aggrieved by the order appealed from. We noted that to the extent the third-party plaintiffs claimed that the Supreme Court failed to decide certain branches of their motion, those issues were not properly before the Court as those branches of the motion remained pending and undecided (see Katz v Katz, 68 AD3d 536).

In an order dated March 28, 2006, the Supreme Court determined those branches of the third-party plaintiffs' motion which remained pending and undecided at the time of their appeal from the order dated July 15, 2004. The Supreme Court determined, inter alia, that since both policies contained "other insurance" clauses and both policies purported to be excess to each other, the clauses "cancel[ed] each other out" and the insurers were obligated to share equally, "on a primary basis," in the defense and indemnification of Madison in the underlying action. Thus, the Supreme Court denied those branches of the third-party plaintiffs' motion which were for summary judgment declaring that American National's insurance was excess to that provided by Tower and that Tower must fully reimburse American National for all defense costs incurred. The third-party plaintiffs appealed from the order dated March 28, 2006, and Tower cross-appealed.

Generally, unless it would distort the plain meaning of the policies, where there are multiple policies covering the same risk, and each generally purports to be excess to the other, the excess coverage clauses are held to cancel each other out and each insurer contributes in proportion to its limit amount of insurance (see State Farm Fire & Cas. Co. v LiMauro, 65 NY2d 369, 374; Lumbermens Mut. Cas. Co. v Allstate Ins. Co., 51 NY2d 651, 655; American Tr. Ins. Co. v Continental Cas. Ins. Co., 215 AD2d 342, 343). In contrast, however, if one party's policy is primary with respect to the other policy, then the party issuing the primary policy must pay up to the limits of its policy before the excess coverage becomes effective (see Great N. Ins. Co. v Mount Vernon Fire Ins. Co., 92 NY2d 682, 687).

Here, it is undisputed that the American National policy and the Tower policy cover the same risk. Moreover, both policies have "other insurance" clauses specifying when their coverage is primary as opposed to excess. In the order on appeal, the Supreme Court determined that "the other insurance' clauses in both policies are effective and, therefore, both policies purport to be excess." We disagree.

The provision of the American National policy entitled "Amendment Of Other Insurance Condition (Occurrence Version)," by its plain wording, renders that policy excess with respect to the Tower policy. In contrast, the "other insurance" clause contained in paragraph 10 of the Tower policy, entitled "Insurance Under More than One Policy," states, in relevant part: [*4]

"(a) Insurance under this General Liability Coverage is primary except as provided under paragraph 10c below, or unless otherwise stated. The amount of our liability is not reduced because of other insurance which applies to the loss on other than a primary basis.

. . .

(c) Insurance under this General Liability Coverage is excess over any other insurance:

(1) if the other insurance, whether primary, excess, contingent or on any other basis, provides:

(a) fire, extended coverage, builders' risk, installation risk or similar coverage for your work; or

(b) fire insurance for premises rented to you; or

(2) if the other insurance applies to any loss arising out of the maintenance or use of aircraft, autos or watercraft which may be covered by this policy"


(emphasis in original). This language renders the Tower policy excess only in specific, enumerated circumstances where first-party property loss coverage would serve as primary indemnification for a loss (see Great N. Ins. Co. v Mount Vernon Fire Ins. Co., 92 NY2d at 689). Insofar as those circumstances do not exist in the case at bar, Tower bears the initial responsibility for defending and indemnifying Madison in the underlying action, and American National is entitled to full reimbursement accordingly.

In its brief, Tower challenges the propriety of the prior order dated July 15, 2004, as a basis for its request for relief in connection with the order presently cross-appealed from. However, Tower did not appeal from that prior order, and thus, Tower's contention that such order should be reversed is not properly before this Court (see CPLR 5515; Hecht v City of New York, 60 NY2d 57, 61; Damiani v Federated Dept. Stores, Inc., 23 AD3d 329, 332). Contrary to Tower's contention, its cross appeal from the order dated March 28, 2006, does not bring the prior order dated July 15, 2004, up for review pursuant to CPLR 5501(a)(1), since that provision applies only to appeals from final judgments (see Cardinal Holdings v Chandre Corp, 302 AD2d 550).

Since the third-party action seeks, in part, a declaratory judgment, we remit the matter to the Supreme Court, Kings County, for the entry of a judgment declaring that the insurance coverage provided by American National is excess to that provided by Tower and that Tower must fully reimburse American National for all defense costs incurred (see Lanza v Wagner, 11 NY2d 317, 334, appeal dismissed 371 US 74, cert denied 371 US 901).

 

 

COURT TO CARRIERS:

 

KEEP THE FAITH, BUT LIVE WITH THE CONSE-QUENTIALS

The Court of Appeals and the Bi Economy Decision

 

Prepared by:

Steven E. Peiper and Dan D. Kohane

Hurwitz & Fine, P.C.

1300 Liberty Building

Buffalo, New York 14202

tele: (716) 849-8900

fax: (716) 855-0874

 

WHAT IT WAS – Status Prior to February 19, 2008

 

            A.        First Party Bad Faith

 

For years, practitioners and claims professionals alike could rely on the basic principle that in New York, there would have to be rather dramatic and egregious conduct on the part of  first party insurer to establish extra-contractual liability against it. The state’s highest court, the Court of Appeals, held in Rocanova v Equitable Life Assur. Soc. of the United States that “the standard for awarding punitive damages in first-party insurance actions is ‘a strict one’ [citations omitted], and this extraordinary remedy will be available ‘only in a limited number of instances’.”[i]

 

 Indeed, the Court of Appeals explained that:

 

[p]unitive damages are available where the conduct constituting, accompanying or associated with the breach of contract is first actionable as an independent tort for which compensatory damages are ordinarily available, and is sufficiently egregious…to warrant additional imposition of exemplary damages [ii]

 

(emphasis supplied)

 

The Court of Appeals further defined the first-party bad faith doctrine by stating a party seeking damages:


must not only demonstrate egregious tortuous conduct by which he or she was aggrieved, but also that such conduct was part of a pattern of similar conduct directed at the public generally [iii]

                       

                        (emphasis supplied)

 

Thus, it was generally understood that a claim could not be sustained by a mere allegation of bad faith conduct.  Rather, it had to be precipitated by a claim of an independent tort that was truly remarkable in nature. 

 

The so-called Rocanova test required prospective claimants to establish:

 

(1)        defendant’s conduct must be actionable as an independent tort;

(2)        the tortious conduct must be of the egregious nature;

(3)        the egregious conduct must be directed to the plaintiff; and

(4)        the egregious conduct must also be part of a pattern of

            conduct directed to the public generally.

 

Failure to satisfy each prong of this test resulted in the claim being dismissed.   In New York University[iv], plaintiff commenced an action against the carrier asserting a litany of causes of action that included allegations of bad faith.  In affirming Rocanova, the Court of Appeals relied upon the above test and held that plaintiff failed to satisfy the first prong (an allegation of an independent tort).

 

B.        Consequential Damages

 

If an insurer could not be punished for mere negligence in breaching its contract with the insured to act in good faith and not be saddled with punitive damages, could there be any other financial penalty for insurer conduct which would inure to the benefit of the policy holder?  Surely, attempts were made to reshape claims for extra-contractual damages in order to avoid the strictures of the Rocanova decision.

 

Creative policyholders tried a different tack – if punitive damages were not available without outrageous conduct – perhaps the courts will recognize a claim for “consequential damages” for a breach of the implied duty of fair dealing.  In essence, a claim for consequential damages would be made to compensate the policy holders for foreseeable losses that would not have occurred had their not been a breach of the insurance contract.  Using more traditional contract theory, claims were made, for example, to recover for losses that were predictable and could, with reasonable certainty, be calculated.

 

Under standard contractual doctrinal analysis, consequential damages, it was argued, should be recoverable if the plaintiff can establish that the risks for which recovery is sought were readily foreseeable at the time both parties entered into the contract.  To determine this, a court must refer to the nature, purpose, and circumstances of the party at the time the contract was being negotiated and executed.

 

Consequential damages made their arrival in the insurance milieu in the First Department’s 2001 decision of Aquista v New York Life Ins. Co.[v]  Mr. Aquista, who sought coverage under his personal disability policy and was denied, commenced a lawsuit against his carrier New York Life Insurance Company (“NY Life”).  Among the causes of actions alleged, the insured sought recovery for breach of contract and bad faith.  Given the strength of the Rocanova test, NY Life moved to dismiss plaintiffs’ claims of bad faith and extra-contractual damages.

 

The First Department held that under the status of bad faith law established by Rocanova and New York University, plaintiff’s bad faith must be denied.[vi]  However, for the first time, the First Department recognized that a breach of the covenant of good faith could provide recovery for consequential damages sustained by the insured as a result of the improper denial.  Relying on decisions from foreign jurisdictions (notably Beck v. Farmers Ins. Exc., 701 P2d 795 [Utah 1985], the First Department awarded consequential damages beyond the policy limit. 

 

At the time, and ever since, practitioners have been wondering if this was an “end-run” to avoid Rocanova.  We still do not know the Answer, but the question became clearer with the recent Court of Appeals decisions.

 

WINDS OF CHANGE

 

Appellate Division’s Split on Consequential Damages

 

The issues raised by the First Department’s earlier decision in Aquista remained silent until two separate challenges were commenced at approximately the same time.  Bi-Economy Market, Inc. v. Harleysville Insurance Company of New York was commenced in the Supreme Court of Monroe County, and sought recognition of consequential damages as a result of a carrier’s breach of business interruption coverage.  Concurrently, Panasia Estates, Inc. v Hudson Insurance Company, commenced in and for the Supreme Court of New York County, sought to recover consequential damages as a result of a carrier’s breach of a builder’s risk policy.

 

The results of these cases caused a split among the Appellate Divisions, and required that the Court   of Appeals step in to unify the Departments. 

 

            A.        Bi-Economy Market, Inc. v Harleysville Insurance Company of New York

 

Bi-Economy Market, Inc. (“Bi-Economy”) was insured under a business owner’s policy which it had procured from Harleysville Insurance Company of New York (“Harleysville”).  As part of the overall insurance package, Harleysville insured Bi-Economy against losses of business income due to a covered event.  

 

Bi-Economy’s retail location was rendered a total loss after an October 2002 fire destroyed the physical structure as well as all food inventory kept there.  As a result of the event, Bi-Economy pursued a fire loss and business interruption claim under its policy with Harleysville.  After a lengthy dispute regarding Bi-Economy’s total loss, Harleysville was eventually directed to pay $407,181 in losses to Bi-Economy.

 

Unfortunately, by the time the claim was resolved, Bi-Economy’s operations were completely shut down, and have not reopened to date. As a result of the lengthy settlement negotiations, Bi-Economy commenced the current proceeding against Harleysville.  Therein it was alleged that Harleysville’s conduct had tortiously interfered with Bi-Economy’s business relations, that Harleysville had negotiated the claim in bad faith, and that due to the breach of contract, Bi-Economy was entitled to consequential damages over and above the previous award.

In support of its argument for consequential damages, Bi-Economy maintained that its business was caused to flounder, and ultimately fail, while it negotiated its claim with Harleysville.   Importantly, Bi-Economy maintained from the outset that it was “reasonably foreseeable” that the business would fail if a prompt adjustment of the claim was not realized.    

 

In opposition, Harleysville argued that consequential damages were beyond the scope of coverage intended by the parties.  Also, Harleysville argued that even if the damages were intended, they were removed from coverage by operation of “several contractual provisions excluding coverage for ‘consequential loss’.”

 

The lower court dismissed Bi-Economy’s claim for consequential damages on the grounds that they were beyond the intended scope of the insuring agreement.  The Fourth Department affirmed the trial court’s determination that Bi-Economy’s claim was improper, but appears to have relied upon the policy’s exclusion of consequential losses. [vii]

 

            B.        Panasia Estates, Inc. v Hudson Insurance Company

 

Panasia Estates (“Panasia”) was the owner of a certain commercial rental property in New York City. Panasia, and its rental property, were insured under a builder’s risk policy that it had procured from Hudson Insurance Company (“Hudson”).  During renovation of the property, rain entered the interior of the structure through an open roof.  The rain infiltration allegedly caused substantial damage to the interior of the building, and as such Panasia noticed a claim under its policy with Hudson. 

 

Apparently after several weeks, Hudson appeared to investigate that loss and ultimately ruled that the damage was caused by repeated water infiltration, as well as ordinary wear and tear.  Accordingly, Hudson then disclaimed and denied coverage. 

 

In response, Panasia commenced the current lawsuit seeking recovery for damages which are covered  by the terms of the policy.  In addition, Panasia also alleged it was entitled to consequential damages (e.g. lost rent, etc.). 

 

Just as Harleysville did in Bi-Economy, Hudson opposed Panasia’s claims for consequential damages on the basis that consequential losses were excluded by the plain terms of the policy at issue.  However, on appeal, the First Department ruled that consequential losses and consequential damages “are not synonymous.”  Accordingly, Hudson’s attempts to rely upon exclusionary language in the policy were denied.  As the insured was entitled to recovery of consequential damages for losses that were readily foreseeable by parties to the contract, the First Department ruled that Panasia’s claim was properly plead.[viii]  

 

Consequential Damages v. Punitive Damages

 

 

            A.        Bi-Economy v. Harleysville Insurance Company of New York

 

In its decision released on February 19, 2008, the Court of Appeals recognized for the first time an insured’s right to recovery of consequential damages under a first party claim.  In support of its ruling, the Court noted that the carrier’s actions violated the implied covenant of good faith and fair dealing and as such an award of damages beyond those contemplated by the terms of the policy was merited.

 

As noted above, Bi-Economy maintained that losses (to be proven at trial) that it sustained as result of the failure of its business.  In response, the Court of Appeals first noted that “implicit in contracts of insurance is a covenant of good faith and fair dealing, such that “a reasonable insured would understand that the insurer promises to investigate in good faith and pay covered claims.” 

 

The Court also noted the principle that in addition to general damages, a party may also be entitled to special, compensatory damages.  To recover compensatory damages, an insured must establish that the possibility of the loss would arise from a breach, was foreseen, or should have been foreseen, at the time the policy was issued.

 

The Court then engaged in a lengthy discussion regarding whether Harleysville should have foreseen that a breach of the contract would result in the loss of the Bi-Economy business.   The Court concluded that the nature of business interruption coverage was such that the loss of one’s ability to operate a business was an understandable and foreseeable result of a breach of the implied duty.

 

The Court noted that the  “purpose of business interruption insurance is to indemnify the insured against losses arising from inability to continue normal business operation and function due to the damage sustained as a result of the hazard.”  Thus, the Court concluded that the entire purpose of business interruption insurance is to place the insured “back on its feet as soon as possible.”

 

In turn, the Court reasoned that Harleysville “knew that failure to perform would (a) undercut the very purpose of the agreement and (b) cause additional damages that the policy was purchased to protect against in the first place.”   The Court went on to note that “when an insured suffers additional damages as a result of….excessive delay or improper denial, the insurance company should stand liable for these damages.”

 

It should be noted that the Court’s decision also addresses various points raised by Judge Smith’s strong dissent (see Part C, infra).  Initially, the Court addressed the dissent’s view that consequential damages should be limited to breaches of non-monetary obligations by stating that the insured’s use of the money after the claim is adjusted “at the very core of the contract itself.”  Thus, it is unlike a traditional contract for the repayment of money where the use of the resulting recovery under the contract is irrelevant. 

 

Next, the Court addressed the dissent’s argument that the decisions were mislabeling punitive damages as consequential damages.  The Court noted that punitive damages are, by their nature, meant to be punitive and not measured by the loss sustained by the insured.  On the other hand, consequential damages are compensatory in nature and must be linked to actual losses incurred by the insured as a result of the breach.

 

            B.        Panasia Estates, Inc. v. Hudson Insurance Company

 

In a much shorter companion decision, the Court of Appeals affirmed the First Department’s ruling that consequential damages may be recovered as long as the claim arises out of a breach of the covenant of good faith and fair dealing.  In addition, the loss must fall within the scope of what losses were contemplated, or should have been contemplated, at the time the policy was issued.

 

Because the underlying court did not assess whether Hudson should have foreseen the losses incurred by Panasia, the matter was remanded with instructions to further develop this issue.  As a minor issue, the Court of Appeals again ruled, consistent with its opinion in Bi-Economy that policy provisions limiting exposure to consequential losses do not apply to bar the imposition of consequential damages.

 

C.        The Dissent

 

As both the Bi-Economy and Panasia Estates decisions were handed down on the same date, Judge Smith offered a strong dissenting opinion which was appended to both decisions.  Judge Smith’s dissent was joined by Judge Read.

 

In it, Judge Smith devotes the main thrust of his argument to the traditional policy judgment that first-party bad faith claims are detrimental to the citizenry of New York, as well as the insurance industry.  In support, he refers to the long standing principle that a first-party claim for bad faith cannot be made without establishing “egregious tortious conduct” which is directed both at the claimant and the general public as a whole.  In its holdings, Justice Smith argues that the Court of Appeals simply changed the label of bad faith to a breach of the covenant of good faith and fair dealing, and the label of punitive damages to consequential damages.  The imposition of consequential damages is meant to have a punitive impact on insurers that mistakenly deny coverage to their insureds.   

 

The dissent continues by noting that consequential damages are meant to compensate a party to a contract who is injured in a “non-monetary” fashion.  Consequential damages were not, in Judge Smith’s opinion, meant to augment other monetary damages already recovered under the contract.

 

Judge Smith continues by arguing that the Court of Appeals has “obscured” its long standing definition of a breach of the covenant of good faith and fair dealing.  The allegations made by plaintiffs in both Bi-Economy and Panasia amount to bad faith, and as such the less onerous definition of a breach the covenant of good faith should not be interposed.  In essence, Judge Smith argues that the Court has lessoned the test for bad faith conduct in an attempt to create a system of the recovery of consequential damages.

 

Lastly, the dissent argues that the imposition of consequential damages upon an insured for a breach of the covenant of good faith will cast too broad a net, and entangle many an unscrupulous carrier.  Why should we worry about entangling unscrupulous carriers? Indeed, a carrier’s conduct (whether it is a breach of the covenant of good faith) will be left to unsophisticated jurors that will have a natural leaning toward finding for the insured.  Faced with the possibility of exposure beyond their proposed policy limits, Judge Smith surmised that carriers will be forced to raise premiums

 

THROUGH THE LOOKING GLASS

 

·        What we can take from these two decisions is that the law of “bad faith”, that is to say punitive damages, remains largely untouched.  As neither Rocanova, nor New York University, were addressed in either decision, we believe that it can safely be presumed that a claimant must still satisfy the Rocanova test to present a claim of bad faith.

 

·        The Court of Appeals has also explained that punitive damages available under bad faith and consequential damages are entirely different theories of recovery.  Thus, the Court rejected the dissent’s view that it was simply creating punitive damages in consequential damages clothing. 

 

·        However, the Court does establish that a breach of any policy may give rise to the imposition of consequential damages, so long as the carrier could have foreseen the damages which flow from a breach (Bi-Economy = a business interruption/business income policy and Panasia = a builder’s risk policy).

 

·        Furthermore, the Court of Appeals has firmly established that limitations on consequential losses will not shield a carrier from the imposition of consequential damages.   The two terms, as noted by the court are not synonymous. 

 

·        Finally, the Court of Appeals has also established what appears to be a test for determining whether a claimant is entitled to consequential damages:

 

                        (1)        As set forth in Bi-Economy and Parasia, respectively, it appears that a

                                    claimant must first establish that the carrier breached the agreement; 

 

                        (2)        Next, a fact specific, intensive, inquiry must be made into whether the

                                    carrier had reason to know, or should have known, that the consequential

                                    damages were being sought;  and,

 

                        (3)        Lastly, it must be established that the breach, upon which the claim for

                                    consequential damages is made, must rise to a breach of the implied

                                    covenant of good faith (and not simply a breach of contract).

 

 

WHAT THIS DOES NOT MEAN

 

  • At this point, the decisions of Bi-Economy and Parasia do not mean that a party may seek punitive damages against a carrier without satisfying the aforementioned Rocanova test.  

 

  • Moreover, the Court of Appeals has not provided a carte blanche argument that every breach of every insurance policy.  Again, a plaintiff must first establish a breach of the agreement, that the damages flowing from the breach should have been foreseen by the carrier, and that the breach giving rise to the damages qualifies as a breach of the covenant of good faith and fair dealing. 

 

WHAT’S NEXT?

 

From the decision of Parasia, it is clear that an insured must establish that the carrier knew, or should have known, what damages could arise if the policy is breached.  In this vein, the lengthy discussion in Bi-Market clearly establishes which factors should be considered when either making the argument that the carrier was aware, or conversely opposing a plaintiff’s allegations that a carrier should have been aware.

 

What we do not yet know is what, and how, a breach of the covenant of good faith and fair dealing will be defined.  The Court of Appeals has previously noted that it is characterized as a “pledge that ‘neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.”  Justice Smith’s dissent in Bi-Economy Market, Inc., characterizes the covenant as a breach where the one party has complied with the terms of the policy, but has done so in a way that injures the insured’s rights. 

 

Previously, the Court of Appeals has indicated that bad faith is characterized by a breach of the covenant of good faith.  Thus, the terms were used interchangeably.  In Gordon v. Nationwide  Mut. Ins. Co., the Court of Appeals held in a third-party context that a breach of the covenant of good faith constituted bad faith.  However, a breach of contract where there was an “arguable case of coverage responsibility bad faith was not found to lie. 

 

The question not addressed by the Court of Appeals is what standard will be applied for a breach of the covenant, and it is precisely the question asked in Judge Smith’s dissent. 

 

Is it the Rocanova standard?  Is it the “arguable case of coverage standard” applied in third-party bad faith? Or is it something different altogether?

 

Let us assume, as we do, that a carrier, like Harleysville, undertakes a legitimate, honest evaluation of a loss and takes a fair amount of time to do so.  Will the next policyholder argue that any delay, even a reasonable one, is a breach of the implied duty of good faith and fair dealing?  The Court provides no guidance as to what constitutes a breach.  Do you we want to punish honorable carriers for doing just want other policyholders would want them to do?  Conduct a reasonable investigation? We hope not.

 

Equally as important is the issue of whether the arguments made on foreseeable consequential damages will be appended to other kinds of insurance policies – life, health and disability, liability, directors & officers, etc.  Surely, the last chapter has not been written.


 

[i] Rocanova v Equitable Life Ins. Co of the United States, 83 NY2d 603 [1994]. 

[ii]  Id.

[iii]  Id.

[iv] New York Univ. v Continental Ins. Co., 87 NY2d 308 [1995].

[v] Acquista v New York Life Ins. Co., 285 AD2d 73 [2001].

[vi] Rocanova v Equitable Life Ins. Co of the United States, 83 NY2d 603 [1994]; New York Univ. v Continental Ins. Co., 87 NY2d 308 [1995].

[vii] Bi-Economy Market, Inc. v Harleysville Ins. Co. of New York, 37 AD3d 1184 [4th Dept. 2007].

[viii] Panasia Estates, Inc. v Hudson Ins. Co., 39 AD3d 343 [1st 2007]

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