Coverage Pointers - Volume IX, No. 19

Dear Coverage Pointers Subscribers:

 

With everyone in New York confessing to something.  I decided I would do the same here. There was a time - only once - that I straightened my hair.  I was 16. I'm sorry.  I promise I'll never do it again.

 

We see a number of Coverage Pointers Subscribers signed up for my presentation in the PLRB - LIRB conference in Boston.  We have 100 pre-registered for the Monday program and 96 signed up for the Wednesday session.  We recognize a number of names.  Please introduce yourselves to me.  If you are not attending, but your associates are doing so, please do have them do the same.

 

Complex Liability Coverage Issues

Monday, April 14, 2008           3:30-5:00
Sheraton 2 Independence West

 

Wednesday, April 16, 2008      1:30-3:00
Sheraton 2 Back Bay C

 

We also hope to see many of you at the DRI Insurance Coverage and Claims Institute in Chicago on April 9 - 11. 

 

Bi-Economy Watch

 

Not a single reported decision yet on the scope and breadth of the Court of Appeals decision on consequential damages in Bi-Economy.

 

Red Alert. Red Alert.

 

Disclaimer Letters in an Underinsured Motorist "Failure to Secure Consent" Case

 

In this week's issue, you will find a Fourth Department decision which penalizes a carrier for not promptly disclaiming once it learned that a claimant failed to secure its permission before settling with an underlying tortfeasor in preparation for filing an underinsured motorist claim under a SUM policy.  Fundamentally, we take strong issue with the court's decision in last Friday's Morath morass. (Try that one three times fast).  It appears to us that securing permission and protecting subrogation rights by not signing a release is a fundamental requirement of this coverage and would not be waived by the mere passage of time (in this case, 36 days).  Note how brief a period of time was under consideration.

 

That being said, we are certain that there are many carriers that are not sending out disclaimer letters when they learn that a SUM claimant has settled without consent, but are instead, awaiting the filing of a SUM claim and then promptly moving for a permanent stay.  Until a higher court takes a different perspective, and we suggest that there is a disagreement among the Appellate Departments, we would urge insurers to send out disclaimer letters as soon as they learn that a potential SUM claimant has settled his or her tort lawsuit with another motorist without seeking prior consent.  If a claim is thereafter made for underinsured motorist benefits, an application for a stay must be filed within 20 days but at least for now, and at least in the Fourth Department, a failure to promptly disclaim might be considered fatal.  It does not appear from the decision that an argument was made that a disclaimer was unnecessary, so it surely not clear that the Court deal with this issue directly.

 

Back to the mundane .

 

It is absolutely unfair that the Spitzer Spectacle commenced and concluded between issues of Coverage Pointers.  I had hundreds of requests (OK, OK -- perhaps it was one or two) requests for my coverage analysis on the Spitzer situation.  But alas, Leno, Letterman and the others had a long head-start on me and took care of most of the easy jokes. 

 

I was contacted, however, and told to expect a call from a new carrier out of Hooker, Oklahoma (Hooker is a town in Texas County, population 1788 famous for being the location of the Happy Cemetery) to consider whether an impeachment proceeding was a "personal injury" under the Governor's homeowner's policy.  Alas, the call did not come, nor did my opportunity to share with you timely humor. 

 

Instead, I will use this space to pose a Multiple Choice Question:

 

William Sulzer was:

 

(a)    The inventor of the "Pensie Pinkie" a critical part of any Brooklyn stickball game;

(b)   The name of Mary Donohue's dog;

(c)    The inventor of the "egg cream," a NYC drink made with seltzer, syrup and milk;

(d)   The creator of the Garbage Plate;

(e)    The jockey who rode Lucille Glow to victory before a crowd of 4,408 in the first Harness Race run at Saratoga Harness Track on June 26, 1941;

(f)     The only Governor in New York State history to be impeached and removed from office;

(g)    The owner of the Roscoe Diner;

(h)    Bill Miller's law partner;

(i)      The only person in 2000 randomly interviewed by the New York Times, who could name at least 50 of New York's 62 counties;

(j)     The last toll collector to collect the 10 cent toll on the Southern State Parkway;

(k)   William McKinley's assassin.

 

The answer is (f).  Governor Sulzer took over the Governor's Mansion in Albany on January 1, 1913, a Tammany Hall candidate.  Tammany Hall was the New York City Democratic Machine that dramatically influenced NYC politics from the last part of the 18^th century to the first third of the 20^th century.  Tammany Hall succeeded in having Mr. Sulzer elected Governor but when Sulzer arrived in Albany, he backed away from Tammany's influence.  He refused to appoint Tammany's nominees to positions of power and shortly thereafter, Tammany Hall responded by having its elected legislators commence impeachment proceeding against the Governor.  Corruption was alleged but by most accounts, the charges were, in reality, a mere mask to punish Sulzer for abandoning the Tammany machine.  He was convicted of the charges and removed from office in October of 1913, succeeded by Martin Glynn, the first Roman Catholic Governor in New York's history.

 

Since we know you'd ask:

 

• Pensie Pinkees were pink, hollow rubber balls used in many NY street games and were favored in Brooklyn over the more expensive Spauldeen. 
• Ms. Donohue was Lt. Governor under George Pataki.  Her timing was off.
• The egg cream has neither eggs nor cream in its ingredients. 
• Bill Miller, from Lockport, New York in Niagara County was Barry Goldwater's running mate in 1964 and then made American Express Card commercials {Do you know me?] 
• Nick Tahou's in Rochester is the home of the world-famous Garbage Plate.  
• Johnny Porter, rode the winning buggy in that opening race.
• Anyone who grew up in NYC and traveled to "upstate" has stopped at Roscoe Diner (for those of you from Western and Central New York, "upstate" to those who grew up in NYC, is not near here).
• There is NOBODY who can name 50 of the 62 New York counties and in fact only one in 2000 interviewed knew that New York has both 62 counties and 62 cities (city with the smallest population is Sherrill, in Chemung County, with a population at the 2000 census at 3,147). 
• The toll booth is long gone on the Southern State;
• Anyone in Buffalo knows that Leon Czolgosz pulled the trigger in front of the Temple of Music and the Pan Am Exposition in 1901.

From Audrey Seeley, the Queen of No Fault, we bring you these words of wisdom:

 

Spring is finally here and with it came two inches of fresh snow at my house.  I am still optimistic that I will see the grass and temperatures above 60 degrees by August.

 

We spotted a new trend this edition for you in litigation.  The plaintiff is invoking CPLR section 2309(c) non-compliance regarding affidavits from out of state experts and adjusters.  CPLR section 2309(c) provides that if an oath or affirmation is taken outside of New York State it will be treated as though taken within the state as long as it is accompanied by the appropriate certificate required to entitle a deed acknowledged outside of the state to be recorded within New York if the deed was acknowledged before an officer who administered the oath or affirmation.  Huh??  Simply put, if you obtain an affidavit from an expert or an adjuster outside of New York make sure their affidavit has a certificate of conformity attached to it.  What does a certificate of conformity look like?  I couldn't tell you but I will find out as I have a contact at the carrier involved in these suits.  If anyone actually has such a certificate I ask that you email me one.

 

Audrey
[email protected]

 

Here's what this week's issue has to offer:

 

Have you heard of the Sedona Principles?  Earl "Brackets" Cantwell has a superb Earl's Pearls feature discussing this think tank's approach to discovery.

 

From the land of insurance appeals, the courts surely were busy:

 

• What is a "Severe" Facial Disfigurement under the "Grave Injury" Definition.  It Must be Abhorrently Distressing, Highly Objectionable, Shocking or Extremely Unsightly
• Is Notice to the Insured's Agent - the Secretary of State - Notice to the Insured for the Purposes of Policy Notice Provisions?
• Insured Violated Consent-to-Settle Provisions and Loses Coverage
• Questions of Fact Exist About Timeliness of Notice to Carrier from Insured and Injured Party (Although Carrier's Response Found Timely)
• Lang, Like March, Came in Like a Lion and Out Like a Lamb; Person Under 21, Not in Care of Insured, Not Himself an Insured Under Homeowners Policy
• Policy Terms Cannot be Amended by Website
• Assigned Risk Policy Properly Canceled so Claimant Entitled to UM Benefits
• A Long Way to Get There, but No Coverage Available for "Staged Accidents"
• By Not Timely Raising Insured's Failure to Seek Consent to Settle in SUM Claim, Carrier Loses Right to Complain
• What's a "Business" Under a Homeowner's Policy?
• After Proper Notice, Hearing Should be Granted to Prove Attempts to Identify Offending Motorist
• Empire Strikes Back and Wins a Late Notice Disclaimer Where Insured Received Claim Letter and Did Nothing
• Each Insured has Separate Obligation to Provide Timely Notice.  Insurer's 92 Day Delay in Disclaiming May be Timely if Investigation Done in Good Faith
• Under Title Policy, Rules Relating to Duty to Defend are Familiar 

STAROSIELEC'S SERIOUS (INJURY) SIDE OF NEW YORK NO FAULT
Mark Starosielec

[email protected]
 

• Deceased Plaintiff Failed to Raise Triable Issue of Fact under any SI Category
• Reversed! Plaintiff Can Re-Argue Opposition to Defendant's MSJ
• Affirmed! Defendants' Failure to Meet Prima Facie Burden Means Case Carries On!
• Plaintiff's ROM Test 5-Years Post MVA is Not Enough to Create an Issue of Fact
• Court to Counsel: Address Medical Reports or Risk Denial of SJ Motion 

AUDREY'S ANGLES ON NO-FAULT

Audrey Seeley

[email protected]

 Arbitration

• IME Report Persuasive on Issue of Lack of Medical Necessity for Physical Therapy
• Failure to Submit Medical Evidence of Concurrent Care and State with High Degree of Specificity Basis for Denial Fatal
• Uphill Battle to Argue 17 Years of Chiropractic Care More Than Palliative

 Litigation

• If You Did Raise the Issue in the Lower Court Then You Cannot Raise the Issue Now
• Award's Failure to Follow the Settled Law Leads to Vacation of Award and Judgment in Petitioner's Favor
• Yet Another Vacation of Award for Failure to Follow Settled Law
• Plaintiff Failed to Submit the Proper Affidavit from Billing Agent Warranting Denial of Summary Judgment
• Plaintiff's Complaint Dismissed When Demonstrated Prior Action on Same Issue Pending
• Plaintiff's Failure to Rebut Evidence of Lack of Medically Necessary Leads to Dismissal
• Lack of Appropriate Affidavit Results in Dismissal
• A Word of Warning - If Your Appeal Becomes Moot Before Oral Argument Notify the Court!
• Yet Another Case Where the Plaintiff Failed to Submit a Proper Affidavit
• Common Sense Prevails - If 45 Day Rule is Regulatory Requirement for Policy Then Attaching the Policy to Motion Papers is Not Required
• Adjuster's Affidavit's Failure to Comply with the CPLR and Real Property Law not Fatal This Time
• And Yet Another Case Where the Plaintiff Failed to Submit a Proper Affidavit
• Sufficient Belief of Defense Established but No Evidence Submitted to Support Defense Warranting Dismissal of Complaint
• CPLR §2309(c) Compliance Raised Again and Again Court Deems Argument Waived
• This Time the Argument Prevails on CPLR §2309(c) Noncompliance 

PEIPER ON PROPERTY

Steven E. Peiper

[email protected]

  

• Carrier Entitled to be Indemnified for Losses Caused by Negligent Parking Garage Attendants
• Court's to Experts:  Need more than Speculation to Defeat Summary Judgment in a Products Liability Dispute
• Contractors "Self Help" is No Help when Indemnity Clauses Fail 

Happy Easter.  Watch the cholesterol in the eggs and see you in a couple of weeks.

 

Dan

 

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]
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

 

3/20/08            Fleming v. Graham

New York State Court of Appeals

What is a “Severe” Facial Disfigurement under the “Grave Injury” Definition.  It Must be Abhorrently Distressing, Highly Objectionable, Shocking or Extremely Unsightly

Let’s not confuse “significant disfigurement” under the No Fault law with “severe facial Disfigurement” under the Workers Compensation Law. This case deals with the latter.

With a “grave injury” as defined in Section 11 of the Workers Compensation Law, a third party action seeking common law contribution cannot be commenced against a plaintiff’s employer.  Section 11 provides:

An employer shall not be liable for contribution or indemnity to any third person based upon liability for injuries sustained by an employee acting within the scope of his or her employment for such injuries unless such third person proves through competent medical evidence that such employee has sustained a 'grave injury' which shall mean only one or more of the following: death, permanent and total loss of use or amputation of an arm, leg, hand or foot, loss of multiple fingers, loss of multiple toes, paraplegia or quadriplegia, total and permanent blindness, total and permanent deafness, loss of nose, loss of ear, permanent and severe facial disfigurement, loss of an index finger or an acquired injury to the brain caused by an external physical force resulting in permanent total disability" (emphasis added).

 

How “severe” must be a facial disfigurement, to be “grave?”  Quite significant, says the New York Court of Appeals

 

An injury disfigures the face when it detrimentally alters the plaintiff's natural beauty, symmetry or appearance, or otherwise deforms. A disfigurement is severe if a reasonable person viewing the plaintiff's face in its altered state would regard the condition as abhorrently distressing, highly objectionable, shocking or extremely unsightly. In finding that a disfigurement is severe, plaintiff's injury must greatly alter the appearance of the face from its appearance before the accident. .

 

3/13/08            Briggs Avenue v. LLC Insurance Corporation of Hannover

New York State Court of Appeals

Is Notice to the Insured’s Agent – the Secretary of State – Notice to the Insured for the Purposes of Policy Notice Provisions?

The New York State Court of Appeals has accepted certification of this question from the Second Circuit Court of Appeals and we can expect a decision within the next few months.  The link above is to the Second Circuit decision decided in mid-February.

 

3/13/08            Vigilant Insurance Company v. The Bear Stearns Companies, Inc.
New York State Court of Appeals

Insured Violated Consent-to-Settle Provisions and Loses Coverage

The clause was quite clear:

The Insured agrees not to settle any Claim, incur any Defense Costs or otherwise assume any contractual obligation or admit any liability with respect to any Claim in excess of a settlement authority threshold of $5,000,000 without the Insurer's consent, which shall not be unreasonably withheld . . . The insurer shall not be liable for any settlement, Defense Costs, assumed obligation or admission to which it has not consented.

Here, the insured entered into an agreement to settle a case in principle subject to court (not insurer) approval, in excess of $5,000,000.  By doing so, it breached the policy provision and lost its right to have the carrier pay the claim.

Editors Note:  Bear Sterns. Bear Stearns.  Now where did I hear of them?  Ahh yes.  This was the company that closed at $156.98 a share on April 25, 2007 and closed at $4.88 a share on March 17, 2008.  Bear Stearns has not had a good week.

3/20/08            U.S. Underwriters v. Carson  

Appellate Division, Third Department

Questions of Fact Exist About Timeliness of Notice to Carrier from Insured and Injured Party (Although Carrier’s Response Found Timely)

There were questions of fact about whether or not the insured gave timely notice of an accident.  Carson owned a bar and was notified, on the day of the accident, that a patron (later involved in a fatal auto accident) had been a patron in his bar.  However, for several months, nobody suggested to him that a dram shop action might be commenced against the bar.  When he first received notice that a claim would be made, he notified his liquor liability carrier.  Appellate court agreed that a question of fact would have to be resolved at trial on the reasonableness of the delay.  Later notice given by the injured party’s estate – after attempts to identify the carrier – also raised issues of fact.  The injured party has a separate and distinct right to give notice and its conduct must be separately analyzed.

 

On the issue of the carrier’s disclaimer, the court found that the carrier’s disclaimer letter was timely sent.  When it received notice of the accident, it hired an investigator and then sent out a prompt disclaimer about a month after it first received notice and one day after it received its investigator’s report.

 

3/20/08            Lang v. Hanover Insurance Company

Appellate Division, Third Department

Lang, Like March, Came in Like a Lion and Out Like a Lamb; Person Under 21, Not in Care of Insured, Not Himself an Insured Under Homeowners Policy
Who can forget the earlier incarnation of this case?  It was the Court of Appeals, in a 2004 opinion in this case, holding that an injured party cannot bring a declaratory judgment action against an insurer.  Instead, the injured party must take a judgment against the insured first and commence a 3420 direct action against the carrier.  It is the earlier Lang decision that has led to the flurry of direct action legislative initiatives.

 

Well, Mr. Lang took heed and eventually took a default judgment against the party who shot him in the eye with a paint ball.  He then brought a direct action against Hanover as instructed by the Court of Appeals.  The Appellate Division held that the “shooter,” one Richard Bachman, who was under 21 and temporarily living in the Hanover-insured household, was not “under the care of the insured” and thus was not entitled to coverage.

 

So, Mr. Lang has completed his trial and tribulations through the courts, including a trip to the Court of Appeals and another separate visit to the Appellate Division and all he has to show for it is a sharp stick(y paintball) in the eye and an uncollectible default judgment.

 

3/18/08            Matter of GEICO v. Constantino

Appellate Division, Second Department

Policy Terms Cannot be Amended by Website
The fiancé of insured claimed that website page indicated that he was listed on insured’s policy.  When, as a bicyclist, he was struck by a hit-and-run driver, he claimed UM benefits under her policy. The policy was clear that only his fiancé was insured, as the named insured. The policy provided UM/SUM coverage provided benefits only to his fiancé, her spouse and their relatives.  He was none of them and thus was not covered under the policy.

 

A reference on a GEICO website listing him as an “individual covered” or as a “driver covered” does not and cannot change terms of policy which can only be amended by written endorsement.

3/18/08            Matter of Progressive Casualty Insurance Company v. Jackson
Appellate Division, Second Department
Assigned Risk Policy Properly Canceled so Claimant Entitled to UM Benefits
Jackson, a Progressive insured, was involved in an accident with a car owned by Dinardo.  State Farm had insured the Dinardo car but had sent out a notice of cancellation prior to the accident.  The notice contained all of the language required by the Vehicle & Traffic law and informed the insured how the cancellation could be challenged.  Since the policy was properly cancelled, the application by Progressive to stay the arbitration was denied.

3/18/08            Emanvilova v. Pallotta
Appellate Division, First Department

A Long Way to Get There, but No Coverage Available for “Staged Accidents”

Pallotta and plaintiffs, his three fee-paying passengers, were injured in 1999 when their vehicle, insured by American Transit (American) was rear-ended by a vehicle driven by defendant Loktev and insured by Allstate. Allstate disclaimed coverage, which led to litigation over whether Loktev was an uninsured motorist. First American established that Allstate had coverage because Allstate did not appear at a hearing. Allstate then convinced the court that it had a justifiable excuse and a meritorious defense, namely, Loktev's involvement in a pattern of staged collisions.

 

American then brought a second proceeding to stay the arbitration demanded by Pallotta, but this time the other plaintiffs were omitted as parties. The court ruled in Allstate’s favor but a judgment was never entered.

 

The plaintiff then sued the two drivers, Pallotta and Loktev and there was a default and an award of money.  The trial judge then vacated that award of damages, after learning of Allstate’s success in proving these were staged accidents.

 

The Appellate Division dismisses the appeal finding that the plaintiffs cannot demonstrate their right to insurance coverage from Allstate. Even innocent victims are not entitled to coverage if their injuries were not caused by an "accident" within the meaning of the applicable insurance policy

The motion for sanctions against Allstate's attorneys was properly denied. It cannot be said, on this record, that the conduct of the attorney in question was frivolous, that his actions were unduly dilatory or that he failed in timely fashion to bring the existence of the parallel proceedings to the attention of the various courts.

3/14/08            Morath v. New York Central Mutual

Appellate Division, Fourth Department
By Not Timely Raising Insured’s Failure to Seek Consent to Settle in SUM Claim, Carrier Loses Right to Complain

The insurer learned that the SUM claimant had failed to seek its approval for the settlement and did not send out a disclaimer letter for 36 days.  The Court held that the failure to raise that issue in a disclaimer letter renders the denial untimely. 

 

Editor’s Note:  Now we rarely take issue with our friends at the Fourth Department on coverage issues, but we think this one is wrongly decided.  In reviewing the opinion as well as the lower court decision, it is not clear to us that either court was presented with the arguments advanced here.

 

We understand the case law that emanates from Insurance Law Section 3420(d) that requires a liability carrier to disclaim coverage timely or lose its right to raise policy conditions or exclusions.  We know that there have been cases that have held that an unexplained delay of 36 days may be "long enough" to invoke this doctrine of waiver for policy exclusions and conditions.  We know that that case law doesn’t apply to the grant of coverage. With all that being said, we still think this case was wrongly presented and thus wrongly decided.

 

First of all, we submit that compliance with Condition 10 of the SUM policy – seeking the insurer’s permission to settle -- is a condition of coverage that must be established by the claimant, not a defense to be raised by the insurer.  If the claimant did not seek the insurer’s permission, he or she should not be able to go forward with a SUM claim. By settling without consent, the insured has destroyed the carrier’s subrogation rights, reason coverage should be denied.

 

For example,  In the Matter of The Phoenix Insurance Company v. Kantlis, 14 A.D.3d 418; 787 N.Y.S.2d 868 (1^st Dept. 2005), the First Department held:

 

Respondent Kantlis breached a condition of the underinsured motorists endorsement to his policy by failing to obtain petitioner's consent to settlement with the insurance carrier for one of the tortfeasors in the underlying personal injury action, thus vitiating coverage and disqualifying him from receiving these benefits (Matter of Integon Ins. Co. v Battaglia, 292 A.D.2d 527, 739 N.Y.S.2d 590 [2002]; Matter of State Farm Mut. Auto. Ins. Co. v Hardina, 225 A.D.2d 486, 639 N.Y.S.2d 374 [1996]).

 

Even the Fourth Department has previously said as much:

 

Supreme Court erred in denying the application seeking a permanent stay of arbitration of respondent's underinsurance motorist claim. Respondent settled his personal injury action against the tortfeasor and tendered a general release without petitioner's consent in violation of the express terms of the policy. The "failure of [respondent] to obtain such prior consent from [petitioner] constitutes a breach of a condition of the insurance contract and disqualifies [respondent] from availing himself of the pertinent benefits of the policy."

Transportation Ins. Co. v. Pecoraro, 270 A.D.2d 851, 852 (4^th Dept 2000).

The court was right then.  It is a QUALIFICATION of coverage to obtain prior consent.  It is a fundamental part of the grant of coverage.  No consent?  You are not eligible for coverage.  Why?  The policy says so.  By not following the protocols of Condition 10 of the policy you have destroyed the carrier's right to subrogation.  THAT is why Condition 10 was adopted, to guarantee that the insurer would have the right to maintain its subrogation opportunities against the tortfeasor, while permitting the claimant to settle his or her case.

 

It is worth reviewing “Condition 10” in the mandatory  policy language, required by Insurance Department regulation 11 NYCRR 60-2.3 (e), commonly known as Regulation 35-D:

 

10. Release or Advance: In accidents involving the insured and one or more negligent parties, if such insured settles with any such party for the available limit of the motor vehicle bodily injury liability coverage of such party, release may be executed with such party after thirty calendar days actual written notice to us, unless within this time period we agree to advance such settlement amounts to the insured in return for the cooperation of the insured in our lawsuit on behalf of the insured.

We shall have a right to the proceeds of any such lawsuit equal to the amount advanced to the insured and any additional amounts paid under this SUM coverage. Any excess above those amounts shall be paid to the insured.

An insured shall not otherwise settle with any negligent party, without our written consent, such that our rights would be impaired.

 

That's a SHALL.  It is a mandate.  It's the regulation screaming:  "DO NOT DESTROY THE INSURER'S SUBROGATION RIGHTS.”  In this case, that's just what happened.  The claimant settled, impairing the carrier's rights, and now gets away with it because of the passage of 36 days.  Had the claimant asked permission to settle, the insurer would have had the option of advancing the settlement amount to the insured and the insured would have been fully protected. The Insurance Department has given the insured a simple protocol under the policy to (a) be compensated and (b) protect the insurer's rights.  That regulatory change provided a remedy to the old “Catch 22,” an inability to recover SUM benefits without taking a verdict against the tortfeasor.  By breaching the policy, the claimant should have lost its right to the coverage.  He was disqualified.  Period.  End of story.

 

Second of all, we would argue that the “timely disclaimer” rules are established by 3420(d) of the Insurance Law and apply to liability coverage do not apply to SUM claims. We note that every case cited by the Fourth Department in this decision involved liability coverage, not SUM coverage (although we recognize that there are a few cases out there applying 3420(d) to underinsured coverage).  It just ain’t right.

 

3/14/08            Weiss v. Allstate Insurance Company

Appellate Division, Fourth Department

What’s a “Business” Under a Homeowner’s Policy?
The insured’s daughter admitted that she used the barn for boarding and breeding horses for profit.  Accordingly, when the barn burned, the business use exclusion precluded coverage.

 

3/14/08            In the Matter of Carter v. MVAIC

Appellate Division, Fourth Department

After Proper Notice, Hearing Should be Granted to Prove Attempts to Identify Offending Motorist
The lower court improperly determined that the claimant failed to give the timely notice of his MVAIC claim.  Accordingly, he was entitled to a hearing to establish that he tried to identify the offending motorist, under Article 52 of the Insurance Law.

 

3/11/08            Donovan v. Empire Insurance Group
Appellate Division, Second Department
Empire Strikes Back and Wins a Late Notice Disclaimer Where Insured Received Claim Letter and Did Nothing
Empire issued a CGL policy to Donovan for her property located at 7344 Amboy Road in Staten Island with standard notice provisions. On September 9, 2001, Barbara Kearney allegedly was injured when she tripped and fell on the sidewalk which she described as located at 7336-7346 Amboy Road. By letter dated October 10, 2001, Kearney's attorney, sent written notification of Kearney's claim to Donovan and then sued the City (but not Donovan) in February 2002. In March 2003, the City filed a third-party complaint against Donovan, seeking contribution and indemnity and about 10 weeks later, Donovan sent those pleadings to Empire seeking a defense.  A month later, Empire denied coverage based on late notice. Donovan sought a declaration that Empire’s disclaimer was invalid, alleging that her delay in notification was excusable because she had a reasonable belief in her nonliability. 

A win for the insurer here.  An insured's good-faith belief that the injured party would not seek to hold it liable, when reasonable under the circumstances, may excuse a delay in notifying an insurer of an occurrence or potential claim, but that believe must be reasonable under all the circumstances.  It may be relevant on the issue of reasonableness, whether and to what extent, the insured has inquired into the circumstances of the accident or occurrence.  Having received a claim letter, Donovan had an obligation to investigate the facts surrounding the accident to determine if Kearney did, in fact, fall on her property.  She did not.  Her delay, therefore, was unreasonable.

3/11/08            The City of New York v. Welsbach Electric Corp

Appellate Division, First Department

Each Insured has Separate Obligation to Provide Timely Notice.  Insurer’s 92 Day Delay in Disclaiming May be Timely if Investigation Done in Good Faith
Welsbach Electric, the named insured under the policy and the City, as additional insured, were adverse in litigation.  Each had a separate obligation to give notice under the liability policy.

 

In this case, Century Insurance waited 92 days after receiving notice that the City was sued before disclaiming.  Whether that disclaimer was timely depends on whether Century’s claimed need for investigation of this 10-year old claim was reasonable.  It makes no difference that the underlying claim was already settled, the obligation to disclaim timely continues to exist.

 

3/11/08            Francis v. D & W Saratoga, Inc.

Appellate Division, Second Department
Under Title Policy, Rules Relating to Duty to Defend are Familiar
In an unusual case involving the obligation to defend under a Title Policy, the court applied well known rules to require an insurer to provide its insured with a defense, even if the allegations of the complaint were groundless, false or fraudulent.

 

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

 

3/14/08            Alcombrack v Swarts

Appellate Division, Fourth Department

Deceased Plaintiff Failed to Raise Triable Issue of Fact under any SI Category

The Appellate Division reversed a lower court order after it determined that plaintiff, who died 18 months following the subject motor vehicle accident, failed to raise a triable issue of fact with respect to any serious injury category. As such, the complaint was dismissed.

As a result of the collision, decedent’s pickup truck rolled over multiple times. Decedent testified felt "dazed," but he did not lose consciousness. It is not clear whether from the Appellate Division’s opinion whether he died as a result of injuries he alleged he sustained in this accident.

Plaintiffs moved for partial summary judgment on the issue of liability, including the issue of serious injury. Defendant conceded his negligence since he drove through a stop sign, but he cross-moved on the ground that decedent had not sustained a serious injury. On appeal, plaintiffs failed to meet their initial burden with respect to the 90/180 category since they failed to submit objective evidence establishing that decedent sustained “a medically determined injury or impairment of a non-permanent nature.” The affidavit of decedent’s treating physician is insufficient to establish plaintiffs’ entitlement to judgment as a matter of law because it is based solely on decedent’s subjective complaints of headaches.

With respect to defendant’s cross motion, because plaintiffs did not specify in the pleadings any particular category or categories of serious injury allegedly sustained by decedent, defendant was required to establish that decedent did not as a matter of law sustain a serious injury under any category. Defendant met that burden. Contrary to plaintiffs’ contention, the failure of defendant to obtain an IME of decedent did not require denial of his cross motion. A qualified physician’s opinion based upon a review of decedent’s medical records may constitute competent evidence sufficient to meet defendant’s burden. The physician's conclusion that decedent “did not sustain a serious head injury” is broad enough to encompass all the categories enumerated in Insurance Law § 5102 (d).

 

3/14/08            Herbst v Marshall
Appellate Division, Fourth Department

Reversed! Plaintiff Can Re-Argue Opposition to Defendant’s MSJ

Plaintiffs, involved in two accidents, get a second chance at their case after the Appellate Division reversed a lower court order which had partially granted defendant’s summary judgment.  Defendant had moved for summary judgment with respect to the permanent consequential limitation of use and significant limitation of use categories of serious injury. Plaintiffs appealed and defendant cross-appealed from an order that granted the motion of plaintiffs for leave to reargue their opposition to those parts of defendant’s motion with respect to those aforementioned categories, and upon reargument, adhered to the prior decision.

On appeal, it was held the defendant met his initial burden. In opposition, however, plaintiffs submitted the affirmation of a radiologist who stated that plaintiff’s MRI indicated the presence of bulging discs that were not degenerative in nature. Plaintiffs also submitted the affirmation of plaintiff’s treating physician, who relied on the report of plaintiff’s physical therapist, which quantified a degree of limitation of range of motion in plaintiff’s cervical spine. Plaintiff’s treating physician also stated that plaintiff’s condition was significant and permanent, and that it was caused by the first accident. In conclusion, plaintiffs raised triable issues of fact with respect to the permanent consequential limitation of use and significant limitation of use categories.

3/13/08            Caballero v Fev Taxi Corp.

Appellate Division, First Department

Affirmed! Defendants’ Failure to Meet Prima Facie Burden Means Case Carries On!

Defendants were unsuccessful appealing a lower court order which had granted defendants’ motion for summary judgment dismissing the complaint. Defendants failed to meet their initial burden of establishing that plaintiff did not sustain a serious injury. The affirmed reports of the neurologist and orthopedist who examined plaintiff failed to set forth the objective tests performed to support their claims that there was no limitation of range of motion, and did not address the objective findings of plaintiff’s MRIs showing, inter alia, herniated and bulging discs.

3/11/08            Medina v. Medina

Appellate Division, First Department

Plaintiff’s ROM Test 5-Years Post MVA is Not Enough to Create an Issue of Fact

In a brief opinion, the Appellate Division affirmed a lower court order which had granted defendant-respondent’s motion for summary judgment dismissing the complaint as to plaintiff-appellant for lack of a serious injury as required by Insurance Law § 5102(d). Defendants made its prima facie showing. In opposition, plaintiff adduced no medical evidence of impingement or other neurologic deficits that could be attributed to a bulging disc, and the objectively tested range of motion limitations noted in plaintiff’s lumbar spine, cervical spine, left knee and shoulder, were not assessed until nearly five years after the accident, too remote to raise an issue of fact as to whether the restrictions were caused by the accident.

 

3/11/08            Patterson v. Rivera

Appellate Division, First Department

Court to Counsel: Address Medical Reports or Risk Denial of SJ Motion

In an even shorter opinion than Medina, the Appellate Division unanimously affirmed a lower court order which denied defendants' motion for summary judgment. The motion was properly denied because defendants’ expert did not address the plaintiff’s MRI reports showing herniated discs, which in conjunction with other evidence was indicative of serious injury.

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. 

 

Arbitration

 

3/18/08            In the Matter of the Arbitration Between Applicant and Respondent

Arbitrator Thomas J. McCorry (Erie County)

IME Report Persuasive on Issue of Lack of Medical Necessity for Physical Therapy

The Applicant, eligible injured person, sought payment of physical therapy bills, two of which were already paid by the insurer at the no-fault fee schedule.  The Applicant claimed with respect to the two bills already paid that the physical therapist was seeking the difference between its bill and the fee schedule plus a collection fee.

 

Initially, the Arbitrator determined that the two bills were properly paid at the fee schedule and that portion of the claim was denied.

 

In regard to the remainder of the physical therapy bills at issue in the arbitration, the insurer denied the bills based upon an independent medical examination conducted by Dr. John Ring.  Dr. Ring’s report indicated that at the time of the examination the Applicant was not experiencing neck pain.  Further, she only complained of intermittent low back pain.  The Applicant was not taking any pain medication and had returned to work without restriction.  Dr. Ring opined that the Applicant sustained a cervical and lumbar strain that did not require any further necessary treatment.  The Arbitrator held that Dr. Ring’s report was persuasive and denied the Applicant’s claim.

 

3/18/08            In the Matter of the Arbitration Between Applicant and Respondent

Arbitrator Stephen P. Falvey (Erie County)

Failure to Submit Medical Evidence of Concurrent Care and State with High Degree of Specificity Basis for Denial Fatal

The Applicant, eligible injured person, sought reimbursement for out-of-pocket expenses for massage therapy and transportation.  Relying upon King’s Med. Supply v. Country Wide Ins. Co., 783 NYS2d 448 (2004), Applicant met her initial burden of proof through the submission of a properly completed claim form that established the nature and extent of the injuries; the health benefits received; and proof of loss sustained.  The burden shifted to the insurer to pay, deny or request further verification of the claim under Hospital for Joint Diseases v. Travelers, 2007 NY Slip Op. 09067 (2007).

 

Here, the insurer’s Box 33 explanation simply stated that under Regulation 68 if more than one physician treats the applicant for the same condition during the same period of time then only one physician can be paid.  The chiropractic and massage therapy treatments received by the Applicant were concurrent care.

 

The Arbitrator held that the insurer failed to submit any evidence to provide with a reasonable degree of medical certainty that the Applicant’s massage therapy was identical in nature to her chiropractic treatment as well as received at or around the same time rendering it redundant and medically unnecessary.  The Arbitrator further stated that it was apparent to him that the insurer’s decision on current care was made on an administrative level and not on a medical level which was inappropriate.

 

Furthermore, the Arbitrator determined that an insurer’s unilateral decision to change the Applicant’s CPT codes, deny the claim, and/or pay reduced fees for the disputed services cannot be enforced absent support by a Peer Review or other proof setting forth a sufficiently factual basis and medical rationale for code changes, denials, and fee reductions.  Amaze Med. Supply v. Eagle Ins. Co., 3 Misc3D 128 (2003).  In this case, the Arbitrator determined that the insurer’s denial lacked the required high degree of specificity for the denial and subsequently failed to meet its burden of proof.

 

3/13/08            In the Matter of the Arbitration Between Applicant and Respondent

Arbitrator Thomas J. McCorry (Erie County)

Uphill Battle to Argue 17 Years of Chiropractic Care More Than Palliative

The Applicant, eligible injured person, purportedly sustained neck injuries in a September 19, 1990, pedestrian/motor vehicle accident.  The Applicant’s treating physician, Dr. Gary Glazer, opined that continued chiropractic care as late at May 2005 was medically necessary.

 

The insurer denied chiropractic care based upon a September 29, 2004, independent chiropractic examination conducted by James Hildebrand, D.C.  Mr. Hildebrand’s report indicates that the Applicant could perform his job without lost time, restrictions, or modifications.  He opined that the Applicant had reached the full benefit from chiropractic care and any further care would not be medically necessary.

 

The Arbitrator in denying the claim determined that it would be difficult to argue that after 17 years of chiropractic treatment the care is anything but palliative in nature.

 

Litigation

 

3/14/08            PLP Acupuncture, P.C. v. Travelers Indem. Co.

Appellate Term, First Department

If You Did Raise the Issue in the Lower Court Then You Cannot Raise the Issue Now

The Court refused to hear the insurer’s arguments that the plaintiff failed to establish that the claims were mailed and received; that the plaintiff lacked a valid assignment of benefits; or that the fees submitted were excessive as none of the issued were raised in the lower court.

 

3/13/08            Metropolitan Radio. Imaging, P.C. v. Country-Wide Ins. Co.

Appellate Term, Second Department

Award’s Failure to Follow the Settled Law Leads to Vacation of Award and Judgment in Petitioner’s Favor

The vacation of the Master Arbitrator’s award was appropriate and a judgment in favor of the Petitioner was warranted as the Master Arbitrator’s award was irrational.  The Court held that the award was irrational as it was contrary to what can fairly be described as settled law.

 

3/13/08            RJ Professional Acupuncturist, P.C. v. Travelers Indem. Co.

Appellate Term, Second Department

Yet Another Vacation of Award for Failure to Follow Settled Law

The Petitioner was successful in obtaining a vacation of the Master Arbitrator’s award under CPLR §7511 on the ground that it was irrational.  The argument was that the award was contrary to what could be fairly described as settled law.  Here, the Court held that the Master Arbitrator as well as the lower arbitrator failed to follow Mary Immaculate Hosp. v. Allstate Ins. Co., 5 AD3d 742 (2004), which held that a provider need only demonstrate its prima facie case through proof of claim settling forth the amount of loss sustained and that the claim was submitted to the insurer with payment being overdue.  The arbitrators erred in determining that the provider failed to submit additional evidence to substantiate its bills for the services rendered.  The case was remanded to a different arbitrator for another hearing.

 

3/13/08            AB Med. Services, PLLC v. Amex Assur. Co.

Appellate Term, Second Department

Plaintiff Failed to Submit the Proper Affidavit from Billing Agent Warranting Denial of Summary Judgment

The insurer properly asserted that the plaintiff was not entitled to summary judgment as it failed to submit the appropriate affidavit to establish that the person had sufficient knowledge of the plaintiff’s practices and procedures.  Accordingly, the plaintiff failed to lay the proper foundation for admission of its business records into evidence.

 

3/13/08            Keiler Chiropractic, LLC v. New York Cent. Mut. Fire Ins. Co.

Appellate Term, Second Department

Plaintiff’s Complaint Dismissed When Demonstrated Prior Action on Same Issue Pending

The complaint was properly dismissed as a prior action on the same claim was pending in Queens County Civil Court.  The Court held that since the evidence demonstrated that both actions were predicated on the same cause of action; the prior action was proceeding through discovery; and the prior action was filed first, this action should have been dismissed.

 

3/12/08            Eagle Surgical Supply, Inc. v. Progressive Cas. Ins. Co.

Appellate Term, Second Department

Plaintiff’s Failure to Rebut Evidence of Lack of Medically Necessary Leads to Dismissal

The insurer’s summary judgment motion was properly granted as the plaintiff failed to refute the insurer’s prima facie showing, through a peer review, that the treatment was not medically necessary.

 

3/12/08            Delta Diagnostic Radiology, P.C. v. Progressive Cas. Ins. Co.

Appellate Term, Second Department

Lack of Appropriate Affidavit Results in Dismissal

The insurer was entitled to summary judgment as the plaintiff failed to provide a sufficient affidavit to admit its records as business records.  Likewise, the Court rejected plaintiff’s argument that the insurer’s motion should be denied because its NF-10s, which were based upon a peer review, failed to assert the sufficient facts and medical rationale to set forth the reason for the denial.

 

3/12/08            Bright Med. Supply, Inc. v. Progressive Northeastern Ins. Co.

Appellate Term, Second Department

A Word of Warning – If Your Appeal Becomes Moot Before Oral Argument Notify The Court!

In this case the Court issued a stern warning to not only the parties but the bar in general that if you settle your case or your appeal becomes moot that the attorney’s have an affirmative obligation to immediately notify the Court.  Here, the appeal was rendered moot because the lower court granted a motion for reargument.

 

3/10/08            Vista Surgical Supplies, Inc. v. Utica Mut. Ins. Co.

Appellate Term, Second Department

Yet Another Case Where the Plaintiff Failed to Submit a Proper Affidavit

Plaintiff’s summary judgment motion was denied as it failed to submit the proper affidavit to admit its records as business records to establish a prima facie case.

 

3/10/08            Eagle Chiropractic, P.C. a/a/o Annette Monk v. Chubb Indem. Ins. Co.

Appellate Term, Second Department

Common Sense Prevails – If 45 Day Rule is Regulatory Requirement for Policy Then Attaching the Policy to Motion Papers is Not Required

We follow the best practice of ensuring that a complete certified copy of an insurance policy attached by an affidavit from the insurer is included in motion papers on insurance coverage issues.  In this case the plaintiffs raised the argument that the insurer failed to attach the PIP endorsement of the automobile insurance policy containing the 45 day rule and failed to prove that the plaintiff was subject to the 45 day rule.

 

I know what you are thinking – the PIP endorsement of a policy contains uniform mandatory language pursuant to Regulation 68 that must be in every automobile policy.  There is no way that the policy can deviate from the regulation.  Now if there was a question as to whether the old 180 day rule applied okay but you still do not need a copy of the policy.  You need only look at the date of the accident and date in which the regulation changed.  Well the Court had the same sentiment but worded it a bit more diplomatically than you may have.

 

The Court held that attaching a copy of the policy that contains the provision with 45 day rule was not necessary as the language was standard and mandatory for every automobile policy.  Moreover, if the plaintiff felt that it was subject to old 180 day rule again there was no requirement to attach the policy.  Rather, the plaintiff need only look at the date of the accident which in this case post dated the old regulation by two years.

 

3/10/08            NY Comp. Med., P.C. v. Maryland Cas. Co.

Appellate Term, Second Department

Adjuster’s Affidavit’s Failure to Comply with the CPLR and Real Property Law not Fatal This Time

The insurer’s failure to have its adjuster’s affidavit that was notarized by a Connecticut notary public be accompanied by a certificate of conformity as required by CPLR §2309(c) and Real Property Law §299-a(1) was not fatal, in this case, since the plaintiff failed to object to the omission.  Furthermore, the plaintiff admitted that the denial was timely issued.

 

3/10/08            Fortune Med., P.C. v. New York Cent. Mut. Fire Ins. Co.

Appellate Term, Second Department

And Yet Another Case Where the Plaintiff Failed to Submit a Proper Affidavit

Plaintiff’s summary judgment was properly denied as it failed to submit the appropriate affidavit to demonstrate its prima facie case through the admission of business records.

 

3/7/08              Lexington Acupuncture, P.C. v. GEICO Ins. Co.

Appellate Term, Second Department

Sufficient Belief of Defense Established but No Evidence Submitted to Support Defense Warranting Dismissal of Complaint

The insurer’s summary judgment motion on the ground that the plaintiff’s assignor’s injuries did not arise for an insured incident was denied.  The Court held that while the insurer demonstrated that it possessed a founded belief that the alleged injuries did not arise out of insured incident it failed to submit sufficient evidence that the alleged injuries did not arise out of insured incident.

 

3/5/08              Mani Med., P.C. v. New York Cent. Mut. Fire Ins. Co.,

Appellate Term, Second Department

CPLR §2309(c) Compliance Raised Again and Again Court Deems Argument Waived

Insurer raised issue of fact precluding plaintiff’s summary judgment by demonstrating through the admission of an accident reconstruction report that there was a founded belief the alleged injuries did not arise out of an insured incident.  The plaintiff argued for the first time on appeal that the accident reconstructionist’s affidavit was not in admissible as it did not comply with CPLR §2309(c).  The Court deemed this argument waived since it was not raised below.

 

2/29/08            Impulse Chiropractic, P.C. v. New York Cent. Mut. Fire Ins. Co.,

Appellate Term, Second Department

This Time the Argument Prevails on CPLR §2309(c) Noncompliance

The insurer failed to submit an affidavit from its accident reconstructionist, which was executed in Maryland, that complied with CPLR §2309(c).  Specifically, the affidavit failed to contain a certificate of conformity.  The plaintiff objected to the affidavit’s admissibility and the appellate court held that the insurer failed to submit competent evidence to support its defense due to the insufficient affidavit.

 

It is noted that in this case the insurer’s constitutional challenge to CPLR §2309(c) was unpreserved in this case but was preserved in the Mani Med., P.C. case.  This is an issue we will keep our eye on.

 

PEIPER ON PROPERTY

Steven E. Peiper

[email protected]

 

3/11/08            Vetland v. FX Enterprises I, Ltd.

Appellate Division, Second Department

Carrier Entitled to be Indemnified for Losses Caused by Negligent Parking Garage Attendants

Plaintiff’s car was stolen and destroyed while in the care and custody of defendant who had agreed to park and store it.  Defendant, at the time plaintiff’s car was damaged, had assumed the car under a bailor/bailee relationship.  In finding that plaintiff’s personal auto carrier was entitled to indemnification from defendant, the Second Department noted that “[a] bailee is liable for the reasonable value of the property lost through its negligence.”  However, the Second Department held that defendant was entitled to an offset of what it owed to carrier which was equal to the amount of plaintiff’s loan reduction.

 

And for a break from insurance law, here’s a quick review of some interesting other cases in this week’s potpourri.

 

3/13/08            Ramos v Howard Indus., Inc.

New York State Court of Appeals

Court’s to Experts:  Need more than Speculation to Defeat Summary Judgment in a Products Liability Dispute

In this matter, plaintiff sought recovery for back injuries related to an alleged transformer explosion which occurred years before the suit was commenced.  In that time, the subject transformer had been either destroyed or lost, and as such was not made available for defendant’s (the manufacturer of the transformer) review. 

 

Not having any evidence to review, defendant’s expert opined that given the rigorous testing and product control measures taken at defendant’s manufacturing plant made it a near certainty that the transformer was not deficient.  Rather, defendant’s expert theorized that the explosion may have been caused by the negligence of Mr. Ramos’ employer. 

 

To combat defendant’s assertions, plaintiff retained an expert witness who opined that the defective design and manufacture of the transformer caused the explosion.  Further, plaintiff’s expert dispelled defendant’s expert witness’ theory that the explosion was resultant from negligent maintenance by plaintiff’s employer.

 

The Court of Appeals initially noted that for a plaintiff to prevail in a products liability case on circumstantial evidence alone, the injured party must first establish that the product did not perform as intended and “exclude all other causes for the product’s failure.”  The also noted that when relying upon expert testimony to disprove other proposed causes, the evidence must provide more than just speculative conclusions.

 

Because plaintiff’s expert’s affidavit did not put forth any evidence other than “pure speculation,” the Court of Appeals affirmed the Trial Court’s grant of defendant’s motion for summary judgment.  As noted by the Court in support of its position, “in sum…a reasonable jury could not conclude that other causes of the transformer explosion ere excluded.”

 

It should be noted that Judge Jones authored a dissenting opinion to the view advanced by the Court.  In it, Judge Jones stated that the defendant’s expert, who was ultimately relied upon by the majority, was also purely speculative.  Under the unique facts of the case, the dissent argued that neither party could establish summary judgment. 

 

3/18/08            Watral & Sons, Inc. v OC Riverhead 58, LLC

New York State Court of Appeals

Contractors “Self Help” is No Help when Indemnity Clauses Fail

Plaintiff agreed via written contract to perform certain excavation work at a building site owned by defendant.  In the course of the work, plaintiff’s employee struck an underground electric line which provided service to a neighboring premises owned by non-party Adchem Corporation.  As a result of the loss of power, Adchem sustained damages related to its loss of electricity. 

 

At the conclusion of the work, defendant held back a portion of the amount that was payable to plaintiff on the theory that it would use this money to reimburse Adchem for its losses associated with the disrupted electric service.  The current matter is a result of plaintiff’s action seeking to recover the hold back kept by defendant.

 

In support of its position, defendant argued that it was entitled to be indemnified for all property damages caused as a result of the negligence, in whole or in part, of plaintiff.  Also, defendant argued it was entitled to indemnification under second indemnity provision in the contract which provided that plaintiff would “promptly remedy all damage or loss to property.”

 

The Trial Court found that the indemnifications provisions relied upon by defendant were inapplicable to the current matter, and the Appellate Division reversed.  However, in affirming the Trial Court’s initial ruling, the Court of Appeal’s refused to apply the first indemnity clause where defendant had failed to establish that the losses sustained Adchem arose from the negligence of plaintiff. 

 

The Court of Appeals likewise refused to acknowledge the second indemnity clause by holding that defendant’s had failed to establish Adchem sustained property damages.  As the damages could be characterized as economic damages related to downtime caused by the power outages, the indemnification clause at issue (which covered only losses to property) was inapplicable.

EARL’S PEARLS

Earl K. Cantwell, II

[email protected]

 

The Sedona Principles on E-Discovery

 

The “Sedona Principles on E-Discovery” sound like a new Michael Crichton science fiction thriller/horror story about mutant men from Mars taking over the world.  However, in this case we are not talking about aliens or mutants but lawyers and judges, which in many minds is no distinction.  The “Sedona Principles” arose in 2003 to deal with the growing importance and problems of e-discovery in litigation.  Although the Sedona Principles total approximately 14 in number, this article will address a few of the basic principles and their importance for corporations, accountants, information technology professionals, and lawyers. 

                       

In March 2003, an Arizona “think tank” called The Sedona Conference released a 46 page paper entitled “The Sedona Principles:  Best Practices, Recommendations & Principles for Addressing Electronic Document Production”.  This document was prepared by The Sedona Conference working groups, and sought to present guidelines to be applied by lawyers and judges to specific litigation cases and disputes.  The Sedona Principles quickly attracted widespread attention and have been cited by court cases, advisory committees, and legal commentators for at least addressing and discussing basic issues of e-discovery, and in many cases furnishing underlying rationales for judges to apply.  To some extent, The Sedona Principles remain a work in progress since there was a 2004 revised addition, and their “Working Group on Electronic Document Retention Production” continues to meet and publish on the issues.

Principle No. 1:  Electronic data and documents are potentially discoverable under FRCP 34 and its state law equivalents.  Organizations must properly preserve electronic data and documents that can reasonably be anticipated to be relevant to litigation. 

           

Real World Application:  As phrased in my “Cantwell Corollary”, electronic data is being treated by the courts, business community, and lawyers the same as paper documents in the “old days”.  Therefore, organizations must properly preserve electronic data, and be able to identify and retrieve it.  The trigger point for identification and preservation is not limited to actual litigation, but the real threat or “reasonable anticipation” of litigation. 

 

Principle No. 2:  When balancing the cost, burden, and need for electronic data and documents, courts and parties should apply the balancing standards embodied in FRCP 26(b) (2) and its state law equivalents, which require considering the technological feasibility and realistic cost of preserving, retrieving, producing, and reviewing electronic data, as well as the nature of the litigation and the amount in controversy. 

 

Real World Application:  The cost, burden, and need for electronic data discovery is a balancing test, taking into account the nature of the litigation, the amount in controversy, the scope and relevancy of particular e-discovery requests, and the feasibility and cost of retrieving and reviewing data. 

 

Principle No. 5:  The obligation to preserve electronic data and documents requires reasonable and good faith efforts to retain information that may be relevant to pending or threatened litigation.  However, it is unreasonable to expect parties to take every conceivable step to preserve all potentially relevant data. 

 

Real World Application:  The obligation to preserve electronic data relates to pending or threatened litigation.  However, not every scrap of data needs to be preserved in all forms and for all time.  Certainly core economic data, e-mails, memoranda and reports need to be preserved, but not every piece of corporate data or communication. 

 

There is now also a limited “safe harbor” with respect to electronic information that becomes unavailable because of the routine, good faith operations of an electronic information system.  FRCP 37(f) now provides that, absent exceptional circumstances, a court may not impose sanctions under the Federal Rules on a party for failing to provide electronically stored information which is lost because of “…the routine good faith operation of an electronic information system.”  FRCP 37(f) as amended, effective December 1, 2007.

 

Principle No. 10:  A responding party should follow reasonable procedures to protect privileges and objections to production of electronic data and documents. 

 

Real World Application:  Procedures and markers should be put on e-data and any hard copies to trigger and protect attorney-client, work product, and other legal privileges that may attach to documents to avoid improper or inadvertent production and waiver of privileges.  Electronic data itself should be marked or indexed with respect to privileges, and any hard copy printouts or summaries should also be marked and segregated. 

 

Electronic documents, and any hard copies, should be carefully scrutinized to excise privileged materials and other privileges.  This can be difficult to do, for example, with respect to a working document such as a contract or memorandum which may have had input from a number of people and revisions and comments by company attorneys.  This is also difficult to do with respect to “chains” of e-mails all of which may or may not have been sent to or received by company counsel.  In a litigation context, reports and commentaries prepared for litigation can become attached to working documents, briefs, and discovery responses and then mistakenly find their way into a production and disclosure. 

 

Some help arrived for practitioners in the form of amendments to FRCP 26(b)(5)(B), which provide as of December 1, 2007 that, if information produced in discovery is subject to a claim of privilege or protection as trial preparation material is inadvertently produced, the party making the claim may notify any party who receives the information of the claim and the basis for it.  After being notified, the recipient party must promptly return, sequester, or destroy the specified information and any copies it has, and may not use the information until the claim is resolved.  This provision will most likely set further norms of conduct for both a party who makes an inadvertent disclosure of e-data and the party who may receive it. 

 

Principle No. 13:  Absent a specific objection, agreement of the parties, or order of the court, the reasonable costs of retrieving and reviewing electronic information for production should be borne by the responding party, unless the information sought is not reasonably available to the responding party in the ordinary course of business.  If the data or formatting of the information is not reasonably available to the responding party in the ordinary course of business, then absent special circumstances the cost of retrieving and reviewing such electronic information should be shifted to the requesting party. 

 

Real World Application:  If documents and information are available in the ordinary course of business from active data, files, backup tapes, or off-line data storage, the cost of retrieval and production will normally be borne by the responding party.  However, if the data is not ordinarily available in a business context, or special costs or burdens are involved in locating, retrieving, formatting, or producing the information, then the courts may engage in cost shifting.  Companies have to know what data and types of information are ordinarily available through their business technology systems, and counsel will have to be provided with that information to assess whether the responding party should bear the cost, or make an argument for cost shifting. 

 

Principle No. 14:  Sanctions, including spoliation findings, should only be considered by the court if, upon a showing of a clear duty to preserve, the court finds that there was an intentional or reckless failure to preserve and produce relevant electronic data, and that there is a reasonable probability that the loss of the evidence has materially prejudiced the adverse party. 

 

Real World Application:  Parties and counsel should be mindful of spoliation issues but may have some protection absent intentional or reckless failure to preserve and produce data.  The other side also has to show how they were “materially prejudiced” due to loss, destruction, or alteration of any data.  However, there are starting to appear in the case reports federal and state court decisions imposing significant spoliation sanctions such as adverse inferences, adverse factual findings, and cost sanctions ranging into the hundreds of thousands (and even millions) of dollars for loss or destruction of electronic data. 

 

The problems and consequences of data loss and spoliation must be explained to the client.  Key personnel such as filing systems, information technology staff, and others must be aware of the potential consequences of data loss or inability to retrieve.  However, FRCP 37(f) does provide that, absent exceptional circumstances, a court should not impose sanctions under the Federal Rules on a party for failing to provide electronically stores information lost due to “…routine good faith operation of an electronic information system.”

 

Companies should analyze their electronic data and storage for ease of identification, retrieval and production not only for use in the ordinary course of business, but also in the event of litigation.  Companies need to work closely with counsel in litigated matters to identify, preserve, and produce electronic data, and avoid negative mishaps such as non-disclosure or inadvertent disclosures.  The Sedona Principles identified and condensed many of the common issues, and aside from being part of developing standards, they do purport to give “best practices” and “recommendations” which can help guide your business and counsel when litigation looms. 

 

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

 

3/13/08            TIG Insurance Company v. AON Re, Inc.
Fifth Circuit Court of Appeals
Insurer’s Claims Time-Barred because Discovery Rule Did Not Apply
Reinsurer rescinded a reinsurance treaty based on incomplete application information. The insurer then brought negligence, misrepresentation, breach of fiduciary duty, and indemnity claims against the broker who negotiated the treaty for failing to provide the re-insurer with the appropriate information. The court held that the insurer’s claims were time barred because the causes of action accrued at the time the treaty was signed. The "discovery rule" did not apply to defer accrual of the causes of action until the insurer knew or, exercising reasonable diligence, should have known of the facts giving rise to the cause of action because the facts revealed that the insurer’s injury was not inherently undiscoverable.

Submitted by: Brett J. Preston and Casey G. Reeder (Hill Ward Henderson)

 

3/11/08            Molleur v. Dairyland Insurance Company
Maine Supreme Judicial Court
Offset Provision in UM Policy Contrary to Public Policy
Plaintiff was injured in a multi-party motorcycle accident and recovered from three defendants, including from her husband, under whose policy Plaintiff was also insured. Plaintiff then sought uninsured (UM) motorist benefits under the policy. The insurer argued that it was entitled to offset the amount it had already paid the plaintiff based on her husband’s negligence against any UM recovery. The Maine Supreme Judicial Court vacated the summary judgment previously entered in favor of the insurer on the grounds that the offset provision was contrary to public policy. The court held that the fact that the insurer already made liability coverage payments under the policy as a result of the principal insured’s negligence does not relieve it from its statutory obligation to provide UM benefits to compensate Plaintiff for negligence by second, uninsured tortfeasor.

Submitted by: Brett J. Preston and Casey G. Reeder (Hill Ward Henderson)

3/11/08            Scottsdale Insurance Company v. Tolliver

Tenth Circuit Court of Appeals
Intent to Deceive Proven by Clear and Convincing Evidence
Insurer sought to avoid payment of a claim and rescind a property insurance policy based on misrepresentations in the policy application. Oklahoma law allows this relief only if the insured intended to deceive the insurer. The lower court instructed the jury that the insurer had the burden to prove intent to deceive by a preponderance of the evidence. After a judgment in favor of the insurer, the insureds appealed. The Tenth Circuit held that intent to deceive must be proved by clear and convincing evidence and, since the lower court’s instruction on the burden of proof was not harmless, the court remanded the case for a new trial.

Submitted by: Brett J. Preston and Casey G. Reeder (Hill Ward Henderson)
 

REPORTED DECISIONS

 

Alcombrack  v. Swarts

Appeal from an order of the Supreme Court, Jefferson County (Joseph D. McGuire, J.), dated February 7, 2007 in a personal injury action. The order granted plaintiffs' motion for partial summary judgment and denied defendant's cross motion for summary judgment dismissing the complaint.

 

Law Office Of Keith D. Miller, Liverpool (Gary H. Collison Of Counsel), For Defendant-Appellant.
Menter, Rudin & Trivelpiece, P.C., Syracuse (Steven B. Alderman Of Counsel), For Plaintiffs-Respondents.


It is hereby ORDERED that the order so appealed from is unanimously reversed on the law without costs, the motion is denied, the cross motion is granted and the complaint is dismissed.

Memorandum: Wesley C. Alcombrack (decedent) and his wife, plaintiff Alice Alcombrack, commenced this action seeking damages for injuries sustained by decedent when the vehicle driven by defendant collided with the pickup truck driven by decedent. Decedent died approximately 18 months after the collision. As a result of the collision, decedent's pickup truck rolled over multiple times before coming to rest upside down on the side of the road, with decedent hanging from his seatbelt. Decedent testified at his deposition that he felt "dazed," but he did not lose consciousness. Decedent refused to go to the hospital for treatment immediately following the collision but, later that evening, he sought treatment for headaches at an urgent care facility. Although X rays, a CAT scan and an MRI of his head showed no brain injury, decedent continued to receive treatment for headaches from his primary care physician.

Plaintiffs moved for partial summary judgment on the issue of liability, including the issue of serious injury pursuant to Insurance Law § 5102 (d). Defendant conceded his negligence in causing the collision inasmuch as he drove through a stop sign, but he cross-moved for summary judgment dismissing the complaint on the ground that decedent had not sustained a serious injury. In granting plaintiffs' motion, Supreme Court determined in relevant part that plaintiffs established their entitlement to judgment as a matter of law with respect to the 90/180 category of serious injury. That was error and, indeed, we conclude that the court should have granted defendant's cross motion for summary judgment dismissing the complaint.

Plaintiffs failed to meet their initial burden with respect to the 90/180 category inasmuch as they failed to submit objective evidence establishing that decedent sustained "a medically determined injury or impairment of a non-permanent nature" (Insurance Law § 5102 [d]; see Nitti v Clerrico, 98 NY2d 345, 357; Parkhill v Cleary, 305 AD2d 1088, 1090; Calucci v Baker, 299 AD2d 897, 898). The affidavit of decedent's treating physician is insufficient to establish plaintiffs' entitlement to judgment as a matter of law because it is based solely on decedent's subjective complaints of headaches (see Burke v Carney, 37 AD3d 1107, 1108; Constantine v Serafin, 16 AD3d 1145, 1146; Solarzano v Power Test Petro, 181 AD2d 631, lv denied 80 NY2d 759; see also Fitzmaurice v Chase, 288 AD2d 651, 653-654). Plaintiffs contend that the affidavit constituted objective evidence of a medically determined injury because it was based upon the physician's observation of actual, quantified limitations. We reject that contention. The headaches suffered by decedent were not physical limitations that could be observed by his treating physician and, in any event, the affidavit did not include any observations of quantified limitations (cf. O'Neal v Cancilla, 294 AD2d 921; Tompkins v Burtnick, 236 AD2d 708, 709; Parker v Defontaine-Stratton, 231 AD2d 412, 413).

With respect to defendant's cross motion, because plaintiffs did not specify in the pleadings any particular category or categories of serious injury allegedly sustained by decedent, defendant was required to establish that decedent did not as a matter of law sustain a serious injury under any category (cf. Manrique v Warshaw Woolen Assoc., 297 AD2d 519, 519-520; see generally Randazzo v Our Lady of Mercy Med. Ctr., 284 AD2d 158). We conclude that defendant met that burden. In support of his cross motion, defendant submitted the affirmation of a physician who reviewed the medical records of decedent and determined that he had not sustained a serious head injury. Defendant also submitted medical records indicating that decedent sought medical treatment for a variety of symptoms following the collision but that none of the tests performed on his head revealed a medically determined injury that caused his headaches. We thus conclude that defendant met his initial burden with respect to the 90/180 category, and plaintiffs failed to raise a triable issue of fact (see generally Zuckerman v City of New York, 49 NY2d 557, 562). Contrary to plaintiffs' contention, the failure of defendant to obtain an independent medical examination of decedent did not require denial of his cross motion. A qualified physician's opinion based upon a review of decedent's medical records may constitute competent evidence sufficient to meet defendant's burden (see e.g. Monk v Dupuis, 287 AD2d 187, 189). We also reject plaintiffs' contention that the physician's affirmation submitted by defendant was insufficient to establish his entitlement to judgment as a matter of law because the physician failed to address the required time period under the 90/180 category. The physician described his review of decedent's medical records from the relevant time period and set forth his conclusions with respect to those records. The physician's conclusion that decedent "did not sustain a serious head injury" is broad enough to encompass all the categories enumerated in Insurance Law § 5102 (d).

Herbst v. Marshall

Appeal and cross appeal from an order of the Supreme Court, Niagara County (Ralph A. Boniello, III, J.), entered October 25, 2006 in a personal injury action. The order granted the motion of plaintiffs for leave to reargue their opposition to certain parts of defendant's motion for summary judgment and, upon reargument, the court adhered to its prior decision.


Paul William Beltz, P.C., Buffalo (Debra A. Norton Of Counsel), For Plaintiffs-Appellants-Respondents.
Hagelin Kent LLC, Buffalo (Leo T. Fabrizi Of Counsel), For Defendant-Respondent-Appellant.


It is hereby ORDERED that the order so appealed from is unanimously modified on the law by denying in its entirety defendant's motion and reinstating the complaint and as modified the order is affirmed without costs.

Memorandum: Plaintiffs commenced these actions seeking damages for injuries sustained by Mary Herbst (plaintiff) in two separate motor vehicle accidents. Defendant moved for summary judgment dismissing the complaint against him on the ground that plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102 (d) as a result of the March 2003 accident. Supreme Court granted the motion in part by dismissing the complaint, as amplified by the bill of particulars, with respect to the permanent consequential limitation of use and significant limitation of use categories of serious injury. Plaintiffs appeal and defendant cross-appeals from an order that granted the motion of plaintiffs for leave to reargue their opposition to those parts of defendant's motion with respect to the permanent consequential limitation of use and significant limitation of use categories, and upon reargument, adhered to the prior decision. We agree with plaintiffs that the court erred in granting those parts of defendant's motion, and we therefore modify the order accordingly.

Defendant met his initial burden by submitting, inter alia, the report of his examining physician, who stated that there was no objective evidence of a serious injury and that plaintiff sustained only a cervical strain as a result of the March 2003 accident (see Clark v Perry, 21 AD3d 1378, 1379). In opposition to the motion, however, plaintiffs submitted the affirmation of a radiologist who stated that plaintiff's MRI indicated the presence of bulging discs that were not degenerative in nature. Plaintiffs also submitted the affirmation of plaintiff's treating physician, who relied on the report of plaintiff's physical therapist, which quantified a degree of limitation of range of motion in plaintiff's cervical spine. Plaintiff's treating physician also stated that plaintiff's condition was significant and permanent, and that it was caused by the March 2003 accident. We conclude that plaintiffs thereby raised triable issues of fact with respect to the permanent consequential limitation of use and significant limitation of use categories (see Clark, 21 AD3d at 1379; Howell v Holloway, 17 AD3d 1117, 1118; Leahey v Fitzgerald, 1 AD3d 924, 925-926; see generally Toure v Avis Rent A Car Sys., 98 NY2d 345, 350-351).

Contrary to the contention of defendant on his cross appeal, we conclude that the court properly denied that part of his motion with respect to the 90/180 category of serious injury. Although defendant established in support of his motion that there was no objective evidence of "a medically determined injury or impairment of a non-permanent nature" (Insurance Law § 5102 [d]), plaintiffs submitted evidence raising a triable issue of fact in that respect (see generally Nitti v Clerrico, 98 NY2d at 357). Plaintiffs also established that plaintiff was unable to perform substantially all of her customary and usual daily activities for not less than 90 days during the 180 days immediately following the March 2003 accident (see Howell, 17 AD3d at 1118-1119; see also Leahey, 1 AD3d at 926; see generally Licari v Elliott, 57 NY2d 230, 236).

Caballero v. Fev Taxi Corp.

 

Baker, McEvoy, Morrissey & Moskovits, P.C., New York
(Stacy R. Seldin of counsel), for appellants.

Order, Supreme Court, New York County (Deborah A. Kaplan, J.), entered June 25, 2007, which denied defendants' motion for summary judgment dismissing the complaint, unanimously affirmed, without costs.

Defendants failed to meet their initial burden of establishing, prima facie, that plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d). The affirmed reports of the neurologist and orthopedist who examined plaintiff failed to set forth the objective tests performed to support their claims that there was no limitation of range of motion, and did not address the objective findings of plaintiff's MRIs showing, inter alia, herniated and bulging discs (see Nix v Yang Gao Xiang, 19 AD3d 227 [2005]). Defendants' failure to meet their initial burden of establishing a prima facie case renders it unnecessary to consider plaintiff's opposition to the motion (see Offman v Singh, 27 AD3d 284 [2006]).

Medina v. Medina

 

Dinkes & Schwitzer, P.C., New York (Souren A. Israelyan of counsel), for appellant.
Baker, McEvoy, Morrissey & Moskovits, P.C., New York
(Stacy R. Seldin of counsel), for respondent.

Order, Supreme Court, Bronx County (Mark Friedlander, J.), entered December 14, 2006, which, insofar as appealed from, granted defendant-respondent's motion for summary judgment dismissing the complaint as to plaintiff-appellant for lack of a serious injury as required by Insurance Law § 5102(d), unanimously affirmed, without costs.

There is no merit to plaintiff's argument that defendant's prima facie showing was rendered deficient by his physician's acknowledgment that a bulging disc was revealed by the MRI of plaintiff's lumbar spine taken shortly after the accident (see Lloyd v Green, 45 AD3d 373 [2007]; Kearse v New York City Tr. Auth., 16 AD3d 45, 49-50 [2005]). In opposition, plaintiff adduced no medical evidence of impingement or other neurologic deficits that could be attributed to a bulging disc, and the objectively tested range of motion limitations noted in plaintiff's lumbar spine, as well as her cervical spine, left knee and shoulder, were not assessed until nearly five years after the accident, too remote to raise an issue of fact as to whether the restrictions were caused by the accident (see Lopez v Simpson, 39 AD3d 420 [2007]). The excerpts from an arthoscopic operative report on plaintiff's left knee, included in plaintiff's bill of particulars, indicates only a partial tear of the anterior cruciate ligament, and there is no evidence that surgical repair of the knee was performed. We have considered plaintiff's 90/180-day claim and find that it too lacks merit.

Patterson v. Rivera

Baker, McEvoy, Morrissey & Moskovits, P.C., New York
(Stacy R. Seldin of counsel), for appellants.
Fotopoulos, Rosenblatt & Green, New York (Constantine D.
Fotopoulos of counsel), for respondent.

Order, Supreme Court, New York County (Deborah A. Kaplan, J.), entered July 25, 2007, which denied defendants' motion for summary judgment dismissing the complaint for lack of a serious injury under Insurance Law § 5102(d), unanimously affirmed, without costs.

The motion was properly denied on the ground that defendants' expert did not address the MRI reports showing herniated discs, which in conjunction with other evidence was indicative of serious injury (see Wadford v Gruz, 35 AD3d 258 [2006]; Nix v Yang Gao Xiang, 19 AD3d 227 [2005]). Since defendants failed to meet their initial burden on the motion, there is no need to consider plaintiff's opposing papers (see id.).

The City of New York v. Welsbach Electric Corp

Nixon Peabody LLP, New York (Michael P. Murphy of
counsel), for appellant-respondent.
Michael A. Cardozo, Corporation Counsel, New York (Janet L.
Zaleon of counsel), for respondent-appellant.

Order, Supreme Court, New York County (Edward H. Lehner, J.), entered May 11, 2006, which denied the motion of defendant Century Indemnity Company (Century), successor to Insurance Company of North America, for summary judgment dismissing the complaint as against it, and denied the City of New York's cross motion for partial summary judgment as against Century, unanimously affirmed, without costs.

Because defendant Welsbach Electric Corp., the named insured under the policy issued by Century, and the City, an additional insured under the policy, were adverse parties in the underlying action, the City had an independent obligation to provide timely written notice of the claim to Century (see Travelers Ins. Co. v Volmar Constr. Co., 300 AD2d 40, 44 [2002]). Further discovery as to whether Welsbach provided timely notice would serve no purpose (see American Mfrs. Mut. Ins. Co. v CMA Enters., 246 AD2d 373 [1998]).

Since Century asserted its late notice defense 92 days after receiving the City's summons and complaint, its disclaimer cannot be held to be timely as a matter of law (see CPLR 3012[c]; Insurance Law § 1212[b]). While the City waived any defense based on lack of personal jurisdiction in the parties' agreement extending Century's time to answer, it did not waive its right to assert an untimely disclaimer defense (cf. DiGuglielmo v Travelers Prop. Cas., 6 AD3d 344, 346 [2004], lv denied 3 NY3d 608 [2004]).

Nor can Century's notice of disclaimer be held to be untimely as a matter of law, since Century asserts that it needed time to investigate the 10-year old claim. However, an issue of fact exists whether Century conducted its investigation promptly, diligently and in good faith (see Those Certain Underwriters at Lloyds, London v Gray, 2007 NY Slip Op 8885, *3 [2007]; cf. 2540 Assoc. v Assicurazioni Generali, 271 AD2d 282, 284 [2000]). Contrary to Century's contention, discovery as to its investigation would not violate the attorney-client and protected work-product privileges (see Brooklyn Union Gas Co. v American Home Assur. Co., 23 AD3d 190, 191 [2005]).

Contrary to Century's further contention, Insurance Law  § 3420(d) protects the insured from the insurer's unreasonable delays in disclaiming coverage even where, as here, the underlying claim has been satisfied (see e.g. 474431 Assoc. v AXA Global Risks US Ins. Co., 18 AD3d 604, 605 [2005]).

In light of our determination, we do not address Century's remaining contentions.

Vigilant Insurance Company v. The Bear Stearns Companies, Inc.,

 

Joseph G. Finnerty III, for appellants.
John H. Gross, for respondent.

GRAFFEO, J.:

In this insurance dispute, we conclude that the insured breached a policy provision obligating it to obtain the consent of its liability carriers before settling claims in excess of $5 million. We therefore reverse the order of the Appellate Division denying the insurers' motion for summary judgment.

Defendant Bear Stearns Companies, Inc., a financial services firm, was issued a primary professional liability insurance policy by plaintiff Vigilant Insurance Company that provided coverage for losses resulting from claims made against the insured for its wrongful acts. The Vigilant policy afforded $10 million in coverage after Bear Stearns exhausted its $10 million self-insured retention. Plaintiffs Federal Insurance Company and Gulf Insurance Company further provided Bear Stearns an additional $40 million in coverage under follow-form excess liability policies ^[FN1]. Pursuant to the terms of these insurance contracts, Bear Stearns agreed not to settle any claim in excess of $5 million without first obtaining the consent of its insurers. In addition, the policies excluded coverage for claims arising from investment banking work undertaken by Bear Stearns.

In early 2002, the U.S. Securities and Exchange Commission (SEC), National Association of Securities Dealers (NASD) and New York Stock Exchange (NYSE), along with state Attorneys General, initiated a joint investigation into the practices of research analysts working at financial services firms and the potential conflicts that could arise from the relationship between research functions and investment banking objectives. The investigation focused on allegations that research analysts employed at ten major financial institutions, including Bear Stearns, were improperly influenced by investment banking concerns. Toward the end of 2002, the regulators met separately with each of the investigated firms to discuss a global settlement.

On December 20, 2002, Bear Stearns signed a settlement-in-principle document, acknowledging that each regulator would commence an action or administrative proceeding against it and that Bear Stearns would subsequently "consent to the action and the relief sought without admitting or denying the allegations." Bear Stearns further agreed to pay $50 million in retrospective relief, plus $25 million to fund independent research and $5 million for investor education. The document indicated that the terms of the settlement were subject to approval by the SEC and other regulators. Also taking place on December 20, 2002, the regulators issued a press release announcing they had achieved an industry-wide settlement with the 10 financial institutions that would result in payments of more than $1.4 billion in penalties, restitution and education funds.

A few months later, Bear Stearns executed a consent agreement in which it acceded to the entry of a final judgment in the SEC's federal lawsuit against Bear Stearns in the United States District Court for the Southern District of New York. Under the terms of the "Consent of Defendant Bear, Stearns & Co. Inc.," dated April 21, 2003, Bear Stearns consented to be permanently enjoined from violating a number of NASD and NYSE rules and agreed to pay a total amount of $80 million allocated as follows: $25 million as a penalty, $25 million in disgorgement, $25 million for independent research and $5 million for investor education. Of the $50 million in retrospective relief, $25 million was designated to resolve the SEC action and related proceedings instituted by the NASD and NYSE, while the remaining $25 million covered the settlement of proceedings with various state regulators. Bear Stearns explicitly agreed not to seek insurance coverage for the $25 million penalty. The agreement also allowed the SEC to present a final judgment to the federal court "for signature and entry without further notice" to Bear Stearns.

Three days after executing the settlement agreement, Bear Stearns sent letters to its insurers requesting their consent to the settlement. The insurers disclaimed coverage and commenced this declaratory judgment action seeking a declaration that the $45 million sought by Bear Stearns (after depletion of the $10 million self-insured retention) was not covered by the policies.

In October 2003 the federal district court found the Bear Stearns settlement to be "fair, adequate, and in the public interest," and entered a final judgment ordering Bear Stearns to pay the agreed-upon sum of $80 million. Shortly thereafter, the insurers moved for summary judgment in this declaratory judgment action. In support of their motion, the insurers argued that they were not liable for all or part of the $45 million sought by Bear Stearns for four reasons. First, they asserted that Bear Stearns could not recover any of the settlement because it had breached the policy provision obligating it to obtain the insurers' consent before settling the case. Second, they claimed that the investment banking exclusion precluded recovery of the settlement proceeds. Third, the insurers contended that the $25 million disgorgement payment was uncollectible either as a matter of public policy or under contract interpretive principles. Finally, they posited that neither the $25 million payment for independent research nor the $5 million payment for investor education was covered because those liabilities were not "losses" within the meaning of the policies.

Supreme Court found that triable issues of fact existed as to whether Bear Stearns breached the policy clause prohibiting it from settling without the insurers' consent and whether the investment banking exclusion applied. Siding with the insurers on the disgorgement issue, the court held that the $25 million disgorgement payment did not constitute damages under the terms of the policies and that Bear Stearns was not entitled to look behind the settlement to ascertain whether the entire $25 million truly represented ill-gotten gains. The court also rejected the insurers' position that the $25 million payment for independent research and $5 million payment for investor education were not losses under the policies. Bear Stearns and the insurers appealed.

The Appellate Division modified, by granting Bear Stearns summary judgment on the investment banking exclusion and independent research/investor education issues and denying the insurers summary judgment on the disgorgement issue, and otherwise affirmed. The court concurred with Supreme Court in finding an issue of fact as to whether Bear Stearns breached the provision obligating it to obtain the consent of the insurers, but determined that the investment banking exclusion was not applicable. Despite the agreement by Bear Stearns to pay $25 million as disgorgement, the court found "an issue of fact as to whether the portion of the settlement attributed to disgorgement actually represented ill-gotten gains or improperly acquired funds" (34 AD3d 300, 302 [2006]). Finally, the court rejected the insurers' contention that the combined $30 million payment for independent research and investor education were not covered losses.

The Appellate Division granted the insurers leave to appeal and certified the following question to this Court: "Was the order of the Supreme Court, as modified by this Court, properly made?" We conclude that it was not.

The insurers raise a number of objections to the Appellate Division order, but we find it necessary to address only one of them. The insurers contend that the Bear Stearns settlement is not recoverable because Bear Stearns breached the policy provision obligating it to obtain their consent prior to settling the regulator lawsuits. Specifically, the insurers claim that Bear Stearns resolved and finalized the settlement of the case when it executed the settlement-in-principle in December 2002 or, at the latest, when it signed the consent agreement in April 2003 without advising the insurers. Bear Stearns counters that the courts below properly found a triable issue of fact as to whether its execution of these two documents constituted a breach of the policy provision.

The primary insurance policy, whose terms and conditions are incorporated into the follow-form excess policies, provides in relevant part:

 

"The Insured agrees not to settle any Claim, incur any Defense Costs or otherwise assume any contractual obligation or admit any liability with respect to any Claim in excess of a settlement authority threshold of $5,000,000 without the Insurer's consent, which shall not be unreasonably withheld . . . The insurer shall not be liable for any settlement, Defense Costs, assumed obligation or admission to which it has not consented."

As with the construction of contracts generally, "unambiguous provisions of an insurance contract must be given their plain and ordinary meaning, and the interpretation of such provisions is a question of law for the court" (White v Continental Cas. Co., 9 NY3d 264, 267 [2007] [citation omitted]).

We conclude that Bear Stearns breached this provision when it executed the April 2003 consent agreement before notifying the insurers or obtaining their approval. As contemplated by the earlier settlement-in-principle, Bear Stearns signed the April 2003 agreement acquiescing to the relief sought in the SEC federal action. Under this agreement, Bear Stearns agreed to pay $80 million, covering four payment categories, in order to resolve the various federal and state regulatory actions and proceedings pending against it. Bear Stearns further accepted injunctive relief that prevented it from violating certain NASD and NYSE rules. And it acknowledged that the SEC could present a final judgment to the federal court for signature and entry without further notice. In short, Bear Stearns did everything within its ability to settle the matter and no further action was required on its part.

We are unpersuaded by the contention that a triable issue of fact exists because the federal court did not approve the settlement until it entered a final judgment in October 2003. Parties are free to enter into a valid settlement agreement that is made subject to court approval. Notably absent from the agreement, however, was any provision similarly subjecting it to the insurers' approval. Having signed the consent agreement, Bear Stearns was not free to walk away from it before entry of a final judgment (see TLC Beatrice Intl. Holdings, Inc. v Cigna Ins. Co., 2000 WL 282967, *7, 2000 US Dist LEXIS 2917, *20-21 [SD NY 2000] ["Although the Court, whose approval was sought by the parties, could accept or reject the Settlement, subject to that approval the parties themselves were bound by the Settlement's terms" (citation omitted)], affd in unpublished op sub nom. Lewis v Cigna Ins. Co., 234 F3d 1262 [2d Cir 2000]). In executing the April 2003 agreement, Bear Stearns settled a claim within the meaning of the insurance policy provision.

As a sophisticated business entity, Bear Stearns expressly agreed that the insurers would "not be liable" for any settlement in excess of $5 million entered into without their consent. Aware of this contingency in the policies, Bear Stearns nevertheless elected to finalize all outstanding settlement issues and executed a consent agreement before informing its carriers of the terms of the settlement. Bear Stearns therefore may not recover the settlement proceeds from the insurers.

Accordingly, the order of the Appellate Division should be reversed, with costs, plaintiffs' motion for summary judgment granted, judgment granted declaring in accordance with this opinion and the certified question answered in the negative.

Briggs Ave., L.L.C. v. Ins. Corp., 2008 U.S. App. LEXIS 3221, 1-19 (2d Cir. 2008)

This case raises a question of state law that has yet to be addressed by the New York Court of Appeals and that has led to divergent opinions in the federal district courts. When an injured party begins its suit against an insured by serving process on the Secretary of State, who, under New York corporate and limited liability company law, is the insured's agent for such service, does this service suffice to trigger the provisions in the relevant insurance policy that require the insured to inform its insurer in a timely manner that a suit has been brought, where: (a) the insurance policy does not expressly refer to notice that a suit has been brought being given to an insured's "representative" rather than the insured itself, and (b) the insured plausibly argues that-due to its failure to update its address with the Secretary of State-it had not received actual notice  [*2] that the suit had been brought? Because we believe that the New York Court of Appeals should be given the opportunity to decide whether it wishes to address this technical but recurring question of New York state law, we CERTIFY the question to the New York Court of Appeals.

BACKGROUND

Plaintiff-Appellant Briggs Avenue LLC ("Briggs" or "Appellant") filed an action in New York State Supreme Court seeking a declaratory judgment that its insurer, Insurance Corporation of Hannover ("ICH" or "Appellee"), be required to defend and indemnify Briggs in a personal injury lawsuit filed by one of Briggs's tenants against Briggs. ICH removed the suit, pursuant to 28 U.S.C. § 1441, to federal district court in the Southern District of New York. n1

FOOTNOTES

n1 ICH is an Illinois corporation. Briggs is a New York limited liability company.


At the district court, ICH moved for judgment on the pleadings and/or summary judgment on the ground that Briggs failed to comply with various notice requirements contained in its insurance policy. Briggs cross-moved for summary judgment. The district court granted ICH's motion, denied Briggs's cross-motion, and dismissed the case with prejudice. Briggs Ave, LLC v. Ins. Corp. of Hanover, No. 05 Civ. 4212, 2006 U.S. Dist. LEXIS 34854, 2006 WL 1517606 (S.D.N.Y. May 30, 2006).  [*3] Briggs appeals that decision.

A. The Underlying Tort Lawsuit

Briggs owns and operates an apartment house at 2570 Briggs Avenue in the Bronx. On or about May 14, 2003, Shaban Mehaj, the sole principal of Briggs, was informed of an incident at this apartment house. A portion of the ceiling in one of the apartments had fallen. Mehaj visited the apartment shortly thereafter, and asserts in his affidavit that he "was not informed that anyone in the apartment had been injured in the incident and had no reason to suspect so." Mehaj did not notify Briggs's insurer, ICH, because, at this point, he assertedly "had no knowledge or notice that anyone had been injured."

Later, on or about July 28, 2003, Nelson Bonilla, an adult son of one of the tenants at 2570 Briggs Avenue, filed a personal injury action against Briggs, alleging that on May 14, 2003, he was injured when a piece of the ceiling fell and struck him, and that the accident was caused by Briggs's negligence in maintaining the premises. The lawsuit sought $ 2 million in damages. A week or so earlier, Bonilla had served his personal injury complaint on the Secretary of State of New York, who under New York law functions as Briggs's agent  [*4] for service. N.Y. Ltd. Liab. Co. L. § 203(e)(4). The Secretary of State forwarded copies of the complaint to the address for Briggs then on file at the Secretary's office. That address was, however, incorrect as Briggs had failed to advise the Secretary of State of its new mailing address. Briggs asserts that, because of the wrong address, it did not receive word of Bonilla's suit.

In state court, Bonilla moved for default judgment against Briggs and, in late March or early April 2004, directly served Briggs at its correct address. Briggs received the notice and "within days" informed its insurance broker of the lawsuit. Shortly thereafter, ICH received, through the insurance broker, an Accord General Liability Notice of Occurrence/Claim form, dated April 2, 2004.

B. The Briggs Insurance Policy and Affirmative Defenses Claimed by ICH

Briggs's insurance policy, issued by ICH, provided coverage for the period of September 20, 2002 to September 20, 2003, and thus was in place at the time of the ceiling incident. The policy included a section entitled "Commercial General Liability Conditions" which articulated notice requirements that the insured needed to comply with, in the event of an  [*5] occurrence, offense, claim or suit. The policy stated: 2. Duties in the Event of Occurrence, Offense, Claim or Suit a. You must see to it that we are notified as soon as practicable of an "occurrence" or an offense which may result in a claim. . . .

b. If a claim is made or "suit" is brought against any insured, you must: (1) Immediately record the specifics of the claim or "suit" and the date received; and

(2) Notify us as soon as practicable.

You must see to it that we receive written notice of the claim or "suit" as soon as practicable.

c. You and any other involved insured must: (1) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or "suit" . . . .

ICH, after receiving the notification of Bonilla's lawsuit, replied to Briggs in a disclaimer letter dated April 12, 2004, claiming affirmative defenses and indemnity due to Briggs's failure to comply with the policy notification conditions. The relevant portion of the letter explains that "despite the service on the Secretary of State in July of 2003, Briggs Ave LLC first notified Insurance Corporation of Hannover of the occurrence, claim or suit and first provided copies of  [*6] the summons and legal papers by cover letter dated April 2, 2004."

In summary, ICH argues that Briggs is not entitled to insurance coverage because Briggs failed to inform ICH of the ceiling incident or the Bonilla lawsuit until eleven months after the incident, and eight months after the filing of the lawsuit, thus violating the conditions in the insurance policy requiring (1) notice to ICH "as soon as practicable of an 'occurrence' or an offense which may result in a claim," (2) notice to ICH "as soon as practicable" of a lawsuit filed against Briggs, and (3) that Briggs "[i]mmediately" send to ICH any papers received in connection with a lawsuit. In response, Briggs argues that ICH has waived certain of these arguments by failing to mention them specifically in its April 12, 2004 letter disclaiming coverage, and further contends that none of the relevant conditions was violated by Briggs.

The district court, in addressing the cross-motions for summary judgment, found that there were outstanding issues of fact regarding whether or not Briggs violated its duty to inform ICH of the occurrence-the falling of the ceiling in May 2003. It noted, however, that ICH could nonetheless prevail  [*7] on summary judgment if it were able to demonstrate that, as a matter of law, Briggs violated its duty to notify ICH as soon as practicable of the Bonilla lawsuit. This ICH did to the district court's satisfaction, by citing a short (one paragraph), but clear, decision of the New York Appellate Division for the First Department. 26 Warren Corp. v. Aetna Cas. & Sur. Co., 253 A.D.2d 375, 676 N.Y.S.2d 173, 174 (App. Div. 1998). Other federal district courts, facing similar factual circumstances, have chosen to distinguish 26 Warren Corp. and have come out the opposite way. See 105 St. Assocs., LLC v. Greenwich Ins. Co., 507 F. Supp. 2d 377, 381 (S.D.N.Y. 2007); Nouveau Elevator Indus. v. Cont'l Cas. Ins. Co., No. 05 Civ. 0813, 2006 U.S. Dist. LEXIS 41495, 2006 WL 1720429, at *6 (E.D.N.Y. Jun. 21, 2006). For the reasons that follow, we believe that the New York Court of Appeals should be given the opportunity-if it wishes-to address the Appellate Division decision and the underlying issues of public policy that opinion raises.

DISCUSSION

HN1The law of New York and Second Circuit Local Rule § 0.27 permit us to certify to New York's highest court "determinative questions of New York law [that] are involved in a case pending before  [*8] [us] for which no controlling precedent of the Court of Appeals exists." 22 N.Y. Comp. Codes R. & Regs. tit. 22, § 500.27(a) (2008). We have certified questions to the Court of Appeals "where state law is not clear and state courts have had little opportunity to interpret it." State Farm Mut. Auto. Ins. Co. v. Mallela, 372 F.3d 500, 505 (2d Cir. 2004). In Unigard Security Insurance Company, Incorporated v. North River Insurance Company, 949 F.2d 630, 631-32 (2d Cir. 1991), we particularly noted the problems that arise when an issue of state law, recurring in federal cases, leads to a split of authority within or between federal districts. There, as here, the Southern District of New York was split on a question relating to the interpretation of New York state law, n2 with only a single decision of a lower New York state court as guidance. Id.

FOOTNOTES

n2 New York law does not permit questions to be certified to the Court of Appeals from district courts, thus the divergent interpretations of the holding in 26 Warren Corp. could not have been resolved at the district court level.


The certification process provides us with a "valuable device for securing prompt and authoritative resolution" of questions  [*9] of state law. Ex rel. Kidney v. Kolmar Labs., Inc., 808 F.2d 955, 957 (2d Cir. 1987). And often when we certify we express no view as to the merits of the issue at hand. See, e.g., Rivkin v. Century 21 Teran Realty LLC, 494 F.3d 99, 108 (2d Cir. 2007); O'Mara v. Town of Wappinger, 485 F.3d 693, 697-99 (2d Cir. 2007); White Plains Coat & Apron Co. v. Cintas Corp., 460 F.3d 281, 288 (2d Cir. 2006). There are, however, cases where it is desirable that, in outlining the question to be certified to the Court of Appeals, we also address how, were certification denied, we would resolve the issue. n3 By doing this, we facilitate the Court of Appeals's decision as to whether or not to accept certification. See 22 N.Y. Comp. Codes R. & Regs. tit. 22, § 500.27(d) (2008). We therefore make clear that while we invite New York's highest court to speak to an issue, we in no way impose on it to do so should it prefer, in its discretion, to withhold judgment. We place ourselves, in other words, in a position similar to that of the New York Appellate Divisions, whose view of the merits in a particular case may, but need not, be reviewed by the New York Court of Appeals.

FOOTNOTES

n3 We would usually base our proposed  [*10] resolution on available New York sources of law. In their absence, or particular dubiety, we look to the relevant law of other states as well. This capacity, together with certification, goes a long way toward avoiding the dangers of which our late distinguished colleague, Charles E. Clark, warned shortly after the decision in Erie Railroad Company v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). A decade before the certification procedure was created, he wrote that "instances [] where the federal court feels it cannot really re-examine state law beyond the wooden limits set by a single precedent [] lead, I submit, in reality to a falsification of the state law by erecting a single instance into a general principle to the point where, in all likelihood, the state court eventually would refuse to go." Charles E. Clark, State Law in the Federal Courts: The Brooding Omnipresence of Erie v. Tompkins, 55 Yale L J. 267, 293 (1946).


When we express our view of the merits, we create the following situation. The New York Court of Appeals can opt to grant certification. If it does, it will resolve the state law issue as it sees fit, which as New York's highest court, only it can ultimately do. If, however, the  [*11] Court of Appeals does not wish to speak to the subject, it can decline certification with a fuller knowledge of what that refusal will mean in that particular case. In the event of such a refusal, our interpretation of New York law would stand, and quite properly so. We would, in effect, have been authorized "to impose our view of state law, provisionally, [and] until the highest court of the state decides to resolve the question." Guido Calabresi, Federal and State Courts: Restoring a Workable Balance, 78 N.Y.U. L. Rev. 1293, 1302 (2003).

It is this approach to certification that we employ in the case before us.

A. New York Law and Our Analysis

ICH argues (1) that the notice that Briggs received, when Bonilla served its agent in law, the Secretary of State, with his complaint, should suffice to trigger the notification requirement of the insurance policy, and (2) that an eight-month delay was, as a matter of law, untimely notification under the policy. Briggs responds by claiming that its insurance policy requires actual rather than constructive notice and, hence, that the service on the Secretary of State, without evidence of actual notice to Briggs, did not obligate Briggs to inform  [*12] ICH "as soon as practicable" of the suit. n4

FOOTNOTES

n4 The district court analyzed the case in a somewhat different way. It took for granted that the notice to the Secretary of State triggered the requirement, and focused on whether Briggs's failure to update its address with the Secretary of State was an "excuse" for the delay. The district court found no excuse as a matter of law.


In support of its position, ICH relies on a First Department case, 26 Warren Corp., 676 N.Y.S.2d at 174, which held, in a similar situation, that the defendant insurer was not obligated to defend or indemnify the insured, because: [t]he subject insurance policy's notice of claim condition precedent to coverage, that "the insured shall immediately forward to [the insurer] every demand, notice, summons or other process received by him or his representative," is devoid of ambiguity, and the receipt of service of the summons and complaint by the Secretary of State, as plaintiff's designated agent, constituted receipt by a representative within the meaning of the policy. The fact that plaintiff itself did not actually receive a copy, due solely to its own failure to notify the Secretary of State of a change in address of  [*13] its representative to whom the Secretary was authorized to forward process, does not excuse its noncompliance with the notice requirement of the policy.Id. (citations omitted) (second alteration in original) (emphasis added).

Briggs asserts, in response, that it did comply with the policy provisions, as it only became "practicable" for Briggs to notify ICH when Briggs actually "became aware that the lawsuit had been commenced." Brief of Plaintiff-Appellant at 20. In distinguishing 26 Warren Corp., Briggs argues that because its policy (unlike that in 26 Warren Corp.) did not include the words "process received by him or his representative" (emphasis added), the policy intended that only actual notice would trigger the notification requirement. n5

FOOTNOTES

n5 Briggs also attempts to distinguish 26 Warren Corp. on the ground that the Warren policy required that notice be given "immediately" rather than "as soon as practicable." But this argument adds nothing to the previous one made by Briggs. For, if the notification duty was triggered by service on the Secretary of State, then, as a matter of law, the notification Briggs gave was not provided "as soon as practicable."


Recent case law in the federal  [*14] district courts lends some support to Briggs's effort to distinguish 26 Warren Corp. Addressing policies that mirror Briggs's, in circumstances where, like Briggs, the insured had failed to update its address with the Secretary of State, two district courts have found that it was the "or his representative" language in the 26 Warren Corp. policy that served as the "term by which receipt by the Secretary of State triggered the duty to notify the insurance company." Nouveau Elevator Indus., Inc. v. Cont'l Cas. Ins. Co., No. 05 Civ. 0813, 2006 U.S. Dist. LEXIS 41495, 2006 WL 1720429, at *6 (E.D.N.Y. Jun. 21, 2006). See also 105 St. Assocs., LLC v. Greenwich Ins. Co., 507 F. Supp. 2d 377, 382 (S.D.N.Y. 2007) (finding, in similar circumstances, that the date on which the insured claimed to have received actual notice of the suit was "the appropriate starting point from which to judge the reasonableness of its delay in notifying" the insurer).

On the other hand, two district courts-the court below and one other-have found 26 Warren Corp. applicable, even in situations where the underlying language did not include the "or his representative" language. See Briggs, No. 05 Civ. 4212, 2006 U.S. Dist. LEXIS 34854, 2006 WL 1517606 at *5-6; U.S. Underwriters Ins. Co. v. 203-211 W. 145th St. Realty Corp., No. 99 Civ. 8880, 2001 U.S. Dist. LEXIS 7099, 2001 WL 604060, at *7 (S.D.N.Y. May 31, 2001) (noting relevance of 26 Warren Corp. to a policy similar to the one before us, though finding a triable issue of fact on whether the insured was properly registered with the Secretary of State), vacated on other grounds, 37 Fed. App'x 575 (2d Cir. 2002).

Were the issue up to us, we would agree with these  [*15]  latter district courts. Given the rule in 26 Warren Corp., n6 we do not believe that the presence of words like "or his representative" can be determinative. And we would reject the notion that such a phrase is necessary for service on the Secretary of State to trigger the notification requirement. We therefore invite the New York Court of Appeals to speak to this issue, should it choose to do so.

FOOTNOTES

n6 Should the Court of Appeals choose to accept certification, that court is not restricted to the specific question we have presented, and may, of course, review the Appellate Division's decision in 26 Warren Corp. itself.


B. Other Factors Favoring Certification

We have embraced certification where a question of state law raises important issues of public policy. See, e.g., Shaffer v. Schenectady City Sch. Dist., 245 F.3d 41, 47 (2d Cir. 2001).  [*16] We believe certification is warranted here not simply because of the recurrence of this seemingly narrow question (we have cited four cases that have been decided by the federal district courts in the last five or so years), but also because the issue of when a notification requirement is triggered implicates broader questions of insurance law and public policy. Should the Court of Appeals choose to take this case, it would, if it wished, have the opportunity to speak to the proper balance among the differing interests at stake.

HN2New York, as the Court of Appeals has itself recognized, is one of increasingly few states that allow an insurer to disclaim based on a failure by an insured to inform the insurer in a timely fashion of the initiation of a suit, even if the insurer was not prejudiced by the delay in notification. See In re Brandon, 97 N.Y.2d 491, 496, 769 N.E.2d 810, 743 N.Y.S.2d 53 (2002). The Court of Appeals has declined to abandon, or even to reduce, the New York no-prejudice rule. At the same time, it has been unwilling to extend that rule. Id. at 493 (refusing to extend no-prejudice rule where an insured failed timely to submit summons and complaint in context of supplementary uninsured motorist coverage).  [*17] See also Unigard Sec. Ins. Co. v. N. River Ins. Co., 79 N.Y.2d 576, 582, 594 N.E.2d 571, 584 N.Y.S.2d 290 (1992) (refusing to apply presumption of prejudice in late notice dispute in reinsurance context). The severity of the no-prejudice rule has been tempered, moreover, by the seemingly heavy burdens that New York places on insurers in related contexts, for example, New York's reading of insurers' disclaimers very narrowly, and its requirement that insurers who do disclaim do so with great specificity. See, e.g., Gen. Accident Ins. Group v. Cirucci, 46 N.Y.2d 862, 864, 387 N.E.2d 223, 414 N.Y.S.2d 512 (1979).

These are, of course, in addition to the common rules favoring coverage and interpreting ambiguous terms in an insurance policy strictly against the insurer. See, e.g., U.S. Fidelity & Guar. Co. v. Annunziata, 67 N.Y.2d 229, 232, 492 N.E.2d 1206, 501 N.Y.S.2d 790 (1986).

A rule that makes notice served on the Secretary of State the equivalent of notice served on the insured penalizes those insureds who fail to update their addresses with the Secretary of State. Such a rule reinforces appropriate norms of corporate behavior, providing, as the district court said, "greater incentive for businesses to familiarize themselves with the law's requirements." Briggs, No. 05 Civ. 4212, 2006 U.S. Dist. LEXIS 34854, 2006 WL 1517606, at *7.  [*18] Yet, as the court below also stated, the result may well be "harsh", id., particularly for a small business owner who fails, through ignorance, to update his address. If the rule deems service on the Secretary of State in all cases to furnish actual notice to the insured, it may be harsher yet in the rare case in which the Secretary of State, through no fault of the insured, fails to give notice to it. Cf. Micarelli v. Regal Apparel, Ltd., 52 A.D.2d 524, 381 N.Y.S.2d 511, 512 (App. Div. 1976). But cf. Hilldun Corp. v. Scarboro Textiles, Inc., 73 A.D.2d 535, 422 N.Y.S.2d 417, 417 (App. Div. 1979). We do not know, or presume to suppose, whether in the total contours of insurance law in New York, the New York Court of Appeals would agree that the result is harsh, and choose to temper it, or whether it would instead find the rule not to be harsh at all, but only justly merited.

We think these questions, and the delicate calibrations they require in response, are best considered by the New York Court of Appeals. We therefore indicate what, in the absence of guidance by that distinguished court, we believe to represent New York law today, and, by certification, offer the New York Court of Appeals the opportunity to guide  [*19] us, should it opt to do so. For this reason we certify the following question:

QUESTION CERTIFIED: Upon all the facts of this case, given the terms of the insurance policy and the reason for the insured's failure to give more prompt notice of the lawsuit to the insurer, should the insurer's disclaimer of coverage be sustained?

The New York Court of Appeals is, of course, invited, should it choose to grant certification, to address any other issues it deems germane to this question.

It is hereby ORDERED that the Clerk of the Court transmit to the Clerk of the New York Court of Appeals a Certificate in the form attached, together with a copy of this opinion and a complete set of the briefs, appendices, and record filed by the parties in this court. This panel will retain jurisdiction to decide the case once we have had the benefit of the views of the New York Court of Appeals, or once that court declines certification.

 

Donovan v. Empire Insurance Group

Gilroy Downes Horowitz & Goldstein, New York, N.Y. (Thomas
Dillon and Michael Horowitz of counsel), for appellants.
Zuntag & Zuntag, Staten Island, N.Y. (Steven F. Zuntag of
counsel), for respondent.

DECISION & ORDER

In an action for a judgment declaring that the defendants are obligated to defend and indemnify the plaintiff as a third-party defendant in a personal injury action entitled Kearney v City of New York, pending in the Supreme Court, Richmond County under Index No. 10827/02, the defendants appeal from an order of the Supreme Court, Richmond County (Mega, J.), dated November 27, 2006, which confirmed the report of a referee dated October 30, 2006, finding that the plaintiff had a reasonable belief in her nonliability in the underlying action, denied their cross motion for summary judgment and, in effect, granted the plaintiff's motion for summary judgment.

ORDERED that the order is reversed, on the law, with costs, the plaintiff's motion for summary judgment is denied, the defendants' cross motion for summary judgment is granted, and the matter is remitted to the Supreme Court, Richmond County, for the entry of a judgment declaring that the defendants are not obligated to defend and indemnify the plaintiff as a third-party defendant in the underlying action.

The defendants issued a commercial general liability insurance policy to the plaintiff for her property located at 7344 Amboy Road in Staten Island. The policy obligated the plaintiff to notify the defendants "as soon as practicable of an occurrence' or an offense which may result in a claim."

During the policy period, on September 9, 2001, Barbara Kearney allegedly was injured when she tripped and fell on the sidewalk which she described as located at 7336-7346 Amboy Road. By letter dated October 10, 2001, Simonson & Cohen, P.C., Kearney's attorney, sent written notification of Kearney's claim to the plaintiff. Kearney commenced an action against the City of New York (hereinafter the City) on February 26, 2002, and did not name the plaintiff as a party in that action. The City filed a third-party complaint dated March 5, 2003, against the plaintiff claiming that she was required to indemnify it for the injuries Kearney sustained. On May 23, 2003, the plaintiff sent the third-party complaint and summons to the defendants, providing notification to the defendants of the occurrence for the first time. By letter dated June 25, 2003, the defendants disclaimed coverage based on late notice.

The plaintiff subsequently commenced the instant action for a judgment declaring that the defendants are obligated to defend and indemnify her in the underlying action. The plaintiff moved for summary judgment, contending that her delay in notification was excusable because she had a reasonable belief in her nonliability. The defendants cross-moved for summary judgment. After a hearing on the issue before a referee, the Supreme Court confirmed the referee's finding that the plaintiff's delay in notifying the defendants 19 months after receiving the October 2001 claim letter was based on a reasonable belief in her nonliability. We reverse.

Where an insurance policy requires an insured to provide notice "as soon as practicable" of an occurrence, such notice must be provided within a reasonable time under all circumstances (see Deso v London & Lancashire Indem. Co. of Am., 3 NY2d 127, 129). "Providing the required notice is a condition to the insurance carrier's liability and absent a valid excuse, a failure to satisfy the notice requirement vitiates the policy" (Lukralle v Durso Supermarkets, 238 AD2d 318, 319; see Deso v London & Lancashire Indem. Co. of Am., 3 NY2d at 129). "An insured's good-faith belief that the injured party would not seek to hold it liable, when reasonable under the circumstances, may excuse a delay in notifying an insurer of an occurrence or potential claim" (United Talmudical Academy of Kiryas Joel v Cigna Prop. & Cas. Co., 253 AD2d 423, 424). "The insured's belief must be reasonable under all the circumstances, and it may be relevant on the issue of reasonableness, whether and to what extent, the insured has inquired into the circumstances of the accident or occurrence" (Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d 436, 441).

In general, a court should enforce a referee's report if the referee's findings are supported by the record (see Royal & Sun Alliance v New York Cent. Mut. Ins. Co., 29 AD3d 886; Capili v Ilagan, 26 AD3d 354). We conclude, however, that here the referee's findings are not supported by the record. The plaintiff's belief in nonliability after receiving the claim letter, which clearly stated that Kearney had retained attorneys for the purpose of pursuing a claim against the plaintiff, was unreasonable. Additionally, the plaintiff's failure to investigate the facts surrounding the accident to determine if Kearney did, in fact, fall on her property was unreasonable under the circumstances (see Security Mutual Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d at 441; Felix v Pinewood Bldrs., Inc., 30 AD3d 459). Therefore, the plaintiff's delay in notifying the defendants of the occurrence for 19 months after receipt of the claim letter was in violation of the insurance policy, and the defendants are not obligated to defend and indemnify her in the underlying action (see Deso v London & Lancashire Indem. Co. of Am., 3 NY2d at 129).

Accordingly, the defendants were entitled to summary judgment.

Since this is a declaratory judgment action, the matter must be remitted to the Supreme Court, Richmond County, for the entry of a judgment declaring that the defendants are not obligated to defend and indemnify the plaintiff in the underlying action (see Lanza v Wagner, 11 NY2d 317, 334, appeal dismissed 371 US 74, cert denied 371 US 901).

Francis v. D & W Saratoga, Inc.

DelBello Donnellan Weingarten Wise & Wiederkehr, LLP, White
Plains, N.Y. (Jacob E. Amir of counsel), for appellant.
Jeanette G. Stewart, New York, N.Y., for defendant-respondent.
Kleinman, Saltzman & Bolnick, P.C., New City, N.Y. (Laurence
D. Kleinman of counsel), for
intervenor-respondent.

DECISION & ORDER

In an action pursuant to RPAPL article 15, inter alia, for a judgment declaring that a deed conveying certain real property is void, the defendant Washington Title appeals from an order of the Supreme Court, Kings County (Schneier, J.), dated November 13, 2006, which denied its motion for summary judgment dismissing the cross claims of the defendant D & W Saratoga, Inc., asserted against it and granted the cross motion of the defendant D & W Saratoga, Inc., in effect, for summary judgment on so much of its second cross claim as was, in effect, for a declaration that Washington Title is obligated to defend it in this action and for reimbursement of attorney's fees, costs, and expenses incurred in defending the action. The appeal brings up for review an order of the same court dated May 11, 2007, which, upon reargument, adhered to the original determination (see CPLR 5517[b]).

ORDERED that the appeal from the order dated November 13, 2006, is dismissed, as that order was superseded by the order dated May 11, 2007, made upon reargument; and it is further,

ORDERED that the order dated May 11, 2007, is affirmed; and it is further,

ORDERED that one bill of costs is awarded to the respondents.

The appellant failed to make a prima facie showing that a claim made by the defendant D & W Saratoga, Inc. (hereinafter D & W), under a title insurance policy it issued to D & W was not covered under the policy. Accordingly, the Supreme Court properly denied the appellant's motion for summary judgment dismissing D & W's cross claims against it and, upon reargument, properly adhered to that determination.

The Supreme Court also properly determined that the appellant is obligated to defend D & W in the instant action under the terms of the title insurance policy. "[A]n insurer's duty to defend its insured arises whenever the allegations in a complaint state a cause of action that gives rise to the reasonable possibility of recovery under the policy" (Fitzpatrick v American Honda Motor Co., 78 NY2d 61, 65; see Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137 ). "However, an insurer can be relieved of its duty to defend if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision" (Allstate Ins. Co. v Zuk, 78 NY2d 41, 45). The appellant failed to make that showing. Its contention that coverage for D & W's claim is precluded under the policy because the basis for the claim, the conveyance of the subject property pursuant to a purportedly fraudulent deed, was not known to the appellant or was not part of the public record as of the effective date of the policy, is unavailing. "[A] title insurer will be liable for hidden defects and all matters affecting title within the policy coverage and not excluded or specifically excepted from said coverage" (Citibank v Commonwealth Land Tit. Ins. Co., 228 AD2d 635, 637; see U.S. Bank Natl. Assn. TR U/A DTD 12/01/98 v Stewart Tit. Ins. Co., 37 AD3d 822, 824). Here, the policy contains no specific exclusion from coverage in the event the deed conveying the property to D & W was fraudulent.

In the Matter of Carter v. MVAIC

Appeal from an order of the Supreme Court, Oneida County (Norman I. Siegel, A.J.), entered November 2, 2006. The order denied petitioner's application for permission to commence an action against respondent pursuant to Insurance Law § 5218.


DAVID G. GOLDBAS, UTICA, FOR PETITIONER-APPELLANT.
BOND, SCHOENECK & KING, PLLC, ALBANY (RYAN M. FINN OF COUNSEL), FOR RESPONDENT-RESPONDENT.


It is hereby ORDERED that the order so appealed from is unanimously reversed on the law without costs and the matter is remitted to Supreme Court, Oneida County, for a hearing pursuant to Insurance Law § 5218 (b) (5).

Memorandum: Petitioner, allegedly the victim of a hit-and-run accident, appeals from an order denying his application for an order permitting him to commence an action against respondent pursuant to Insurance Law § 5218. We agree with petitioner that, by the affidavit of his attorney, he established the applicability of the presumption that he delivered the requisite notice of claim to respondent by mail (see Nassau Ins. Co. v Murray, 46 NY2d 828, 829; see generally §§ 5208, 5218 [b] [1]), and that respondent failed to rebut that presumption (see Nassau Ins. Co., 46 NY2d at 829-830). We further agree with petitioner that, on the record before us, Supreme Court erred in denying his application without conducting a hearing pursuant to Insurance Law § 5218 (b) to enable him to establish that he made "all reasonable efforts . . . to ascertain the identity of the motor vehicle and of the owner and operator" (§ 5218 [b] [5]; see Matter of O'Rourke v Motor Veh. Acc. Indem. Corp., 29 AD2d 938; Matter of Malitz v Motor Veh. Acc. Indem. Corp., 17 AD2d 108). We therefore reverse the order and remit the matter to Supreme Court for a hearing pursuant to Insurance Law § 5218 (b) (5).

Weiss v. Allstate Insurance Company

Appeal from an order and judgment (one paper) of the Supreme Court, Oneida County (Samuel D. Hester, J.), entered June 29, 2007. The order and judgment denied plaintiffs' motion for summary judgment against defendant Allstate Insurance Company and granted in part the cross motion of defendant Allstate Insurance Company for summary judgment dismissing the complaint against it.

GUSTAVE J. DE TRAGLIA, JR., UTICA, FOR PLAINTIFFS-APPELLANTS.
SUGARMAN LAW FIRM, LLP, SYRACUSE (REBECCA A. CRANCE OF COUNSEL), FOR DEFENDANT-RESPONDENT.

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

Memorandum: Plaintiffs commenced this action alleging, inter alia, that Allstate Insurance Company (defendant) improperly disclaimed insurance coverage for fire damage to plaintiffs' property. Supreme Court properly granted that part of defendant's cross motion for summary judgment dismissing the first cause of action. As a preliminary matter, we conclude that the term "business," defined in the insurance policy as "any full or part-time activity of any kind engaged in for economic gain including the use of any part of any premises for such purposes," is not ambiguous with respect to the facts of this case (cf. Roland v Nationwide Mut. Fire Ins. Co., 286 AD2d 872; see generally W.W.W. Assoc. v Giancontieri, 77 NY2d 157, 162). We further conclude that plaintiffs' daughter is an "insured person" under the unambiguous definitions of that term in the insurance policy (see generally W.W.W. Assoc., 77 NY2d at 162). Contrary to plaintiffs' contention, defendant met its initial burden on its cross motion with respect to the first cause of action by establishing that the barn located on the property at issue was being used by plaintiffs' daughter for business purposes and that the insurance policy excluded coverage for structures used for business purposes (see generally Zuckerman v City of New York, 49 NY2d 557, 562).

Contrary to the further contention of plaintiffs, they failed to raise a triable issue of fact whether their daughter's business activities were sporadic or not motivated by profit (cf. Pepper v Allstate Ins. Co., 20 AD3d 633, 635-636; Bragin v Allstate Ins. Co., 238 AD2d 773, 774; see generally Showler v American Mfrs. Mut. Ins. Co., 261 AD2d 896, 897). Indeed, plaintiffs' daughter candidly acknowledged during her deposition that she used the barn for her business involving breeding and boarding horses and that she was operating that business at the time of the fire. We reject the further contention of plaintiffs that there is a triable issue of fact whether defendant is vicariously liable for the negligent act of its agent in procuring an insurance policy that was insufficient to meet plaintiffs' needs (see generally Zuckerman, 49 NY2d at 562). The complaint, as amplified by the bill of particulars, asserts only causes of action for breach of contract against defendant.

Morath v. New York Central Mutual

 

Appeal from a judgment (denominated order) of the Supreme Court, Ontario County (Craig J. Doran, A.J.), entered December 27, 2006. The judgment, inter alia, declared that defendant is obligated to provide supplementary uninsured/underinsured motorist coverage to plaintiffs for the accident in question.

LAW OFFICE OF KEITH D. MILLER, LIVERPOOL (KEITH D. MILLER OF COUNSEL), FOR DEFENDANT-APPELLANT.
LOREN H. KROLL, LLC, ROCHESTER (LOREN H. KROLL OF COUNSEL), FOR PLAINTIFFS-RESPONDENTS.

It is hereby ORDERED that the judgment so appealed from is unanimously affirmed with costs.

Memorandum: Plaintiffs commenced the underlying personal injury action against Susan Milliman seeking damages for injuries sustained by Elizabeth G. Morath (plaintiff) when the vehicle driven by Milliman struck the vehicle driven by plaintiff. At the time of the accident, plaintiff was insured under an automobile liability policy issued by defendant, which included supplementary uninsured/underinsured motorist (SUM) coverage. After plaintiffs settled the underlying action for the limit of Milliman's liability coverage, defendant denied SUM coverage and disclaimed liability based upon plaintiffs' failure to obtain defendant's prior written consent to the settlement, as required by the policy. Plaintiffs thereafter commenced this action seeking a declaration that defendant is obligated to provide SUM coverage.

Supreme Court properly granted plaintiff's cross motion seeking summary judgment declaring that defendant must provide SUM coverage to plaintiffs for the accident in question. The record establishes that, as soon as defendant learned of the settlement, it possessed all of the information necessary to deny coverage and disclaim liability (see Squires v Marini Bldrs., 293 AD2d 808, 810, lv denied 99 NY2d 502; cf. Ace Packing Co., Inc. v Campbell Solberg Assoc., Inc., 41 AD3d 12, 15). In view of the failure of defendant to justify its 36-day delay in notifying plaintiffs of its disclaimer, the court properly concluded that the delay was unreasonable as a matter of law (see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 70; Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD3d 84, 88-90; West 16th St. Tenants Corp. v Public Serv. Mut. Ins. Co., 290 AD2d 278, 279, lv denied 98 NY2d 605).

Emanvilova v. Pallotta

 

Marina Trubitsky & Associates, PLLC, New York (Marina
Trubitsky of counsel), for appellants.
McDonnell & Adels, P.C., Garden City (Martha S. Henley of
counsel), for Allstate Insurance Company, respondent.

Orders, Supreme Court, New York County (Milton A. Tingling, J.), entered April 2 and 17, 2007, insofar as they denied so much of the motion by plaintiffs to impose sanctions upon the attorneys for respondent Allstate, unanimously affirmed, without costs. Appeals from so much of those orders as denied reinstatement of previously vacated judgments, unanimously dismissed, without costs.

Pallotta and plaintiffs, his three fee-paying passengers, were injured in 1999 when their vehicle, insured by petitioner American Transit, was rear-ended by a vehicle driven by defendant Loktev and insured by proposed additional respondent Allstate. Allstate disclaimed coverage, which led to litigation over whether Loktev was an uninsured motorist. Initially, American Transit obtained an order permanently staying arbitration, after Allstate neglected to appear at a referee's hearing. That default was vacated and the matter placed back on the referee's calendar when Allstate convinced the court that it had a justifiable excuse and a meritorious defense, namely, Loktev's involvement in a pattern of questionable "accidents" that were really staged collisions. American Transit thereafter brought a second proceeding to stay the arbitration demanded by Pallotta, but this time plaintiffs were omitted as parties. That later petition was granted by Justice Leland DeGrasse on April 10, 2002, ruling that Allstate was not obligated to defendant Loktev. However, judgments called for in that ruling were never settled.

Meanwhile, in their civil action against Pallotta and Loktev, plaintiffs were awarded judgments after inquest by Justice Tingling on March 11, 2002. Allstate objected to any judgment imposing liability on it, in light of Justice DeGrasse's recent ruling. In an order entered July 2, 2003, Justice Tingling sua sponte vacated plaintiffs' judgments and set the matter down for a hearing. Plaintiffs filed a notice of appeal, but never perfected, and their appeal was subsequently dismissed by this Court in August 2004.

A prior dismissal for want of prosecution acts as a bar to a subsequent appeal as to all questions that would have been presented on the earlier unperfected appeal (see Rubeo v National Grange Mut. Ins. Co., 93 NY2d 750 [1999]). Plaintiffs seek to litigate the very same issues that would have been raised in the prior appeal, namely, the validity of Justice Tingling's order vacating the judgments purportedly on the basis of Justice DeGrasse's decision in the second stay proceeding (to which they had not been parties), including the effect of the insurance companies' failure to settle the April 10, 2002 order of Justice DeGrasse. Accordingly, their appeal from the order denying their motion to reinstate the March 11, 2002 judgment is hereby dismissed.

Moreover, plaintiffs cannot demonstrate their entitlement to insurance coverage from Allstate, Loktev's carrier. Even innocent victims are not entitled to coverage if their injuries were not caused by an "accident" within the meaning of the applicable insurance policy (see Westchester Med. Ctr. v Travelers Prop. Cas. Ins. Co., 309 AD2d 927 [2005]).

The motion for sanctions against Allstate's attorneys was properly denied. It cannot be said, on this record, that the conduct of the attorney in question was frivolous, that his actions were unduly dilatory or that he failed in timely fashion to bring the existence of the parallel proceedings to the attention of the various courts.

Fleming v. Graham

Robert C. Baxter, for third-party appellant.
Barbara DeCrow Goldberg, for third-party
respondents.


JONES, J.:

The issue in this case is whether plaintiff's facial injuries constituted a "permanent and severe facial disfigurement" for purposes of qualifying as a "grave injury" under Workers' Compensation Law § 11. Under the facts of this case, we hold that they do not.

Following a collision between a van driven by a Pinstripes Garment Services, LLC employee and a school bus driven by an employee of Evergreen Bus Service, Inc., plaintiff Cedric Fleming (a Pinstripes' employee and passenger in the van) sustained multiple facial injuries resulting in scars on his forehead and right upper eyelid. Fleming sued Evergreen and its bus driver for negligence. Evergreen commenced a third-party action against Pinstripes for common-law indemnity and/or contribution pursuant to Workers' Compensation Law § 11 on the theory that Fleming sustained a "permanent and severe facial disfigurement." Pinstripes subsequently moved for summary judgment dismissing the third-party complaint on the ground that Fleming's injuries were not "grave."

Supreme Court denied Pinstripes' motion, concluding that questions of fact existed. The court relied on an unsworn report of the first-party defendant's expert who opined that some of Fleming's scars could not be improved. The court also stated that Fleming's "numerous facial scars [were] plainly visible to the observer." The Appellate Division affirmed, concluding that photographs of Fleming's face "did not clearly show that [his] facial scarring was not a severe facial disfigurement" (Fleming v Graham, 34 AD3d 525, 527 [2d Dept 2006]). We now reverse.

Absent an express indemnification agreement, or a "grave injury" as enumerated in Workers' Compensation Law § 11,^[FN1] an employer's liability for an employee's on-the-job injury is ordinarily limited to workers' compensation benefits (see Tonking v Port Auth. of N.Y. & N.J., 3 NY3d 486, 490 [2004]). Where a "grave injury" results, a primary defendant may commence a third-party action against the injured plaintiff's employer for common-law indemnification and/or contribution. This case requires us to articulate a standard for assessing claims of "permanent and severe facial disfigurement."

Our analysis begins and ends with the legislative goal of the Omnibus Workers' Compensation Reform Act of 1996, which enacted the third paragraph of section 11. Before 1996, first-party defendants were free to implead an injured-plaintiff's employer in a personal injury action for "unlimited contribution or indemnification" (Governor's Approval Mem., Bill Jacket, L 1996, ch 635 at 54). Allowing such unfettered third-party actions undermined the employer's reliance upon workers' compensation benefits as its exclusive liability.

The purpose of the 1996 legislation was "to reduce costs for employers while also protecting the interests of workers" (Rubeis v Aqua Club, Inc., 3 NY3d 408, 415 [2004]). Section 11 thus serves to protect employers by limiting third-party actions against them "except in extremely limited, defined circumstances" (Castro v United Container Mach. Group, 96 NY2d 398, 402 [2001] [emphasis added]; see also Minkowitz, Practice Commentaries, McKinney's Cons Laws of NY, Book 64, Workers' Compensation Law § 11, at 444 ["Section 11 was written with the obvious, deliberate intention of ensuring preservation of the concept of the Workers' Compensation Law being the employer's exclusive liability to its employees."]). The categories of grave injuries listed in section 11, providing the sole bases for a third party action, "are deliberately both narrowly and completely described;" the list, both "exhaustive" and "not illustrative," is "not intended to be extended absent further legislative action" (Governor's Mem, supra [emphasis added]).

What constitutes "permanent and severe facial disfigurement" is unlike most of the other enumerated "grave" injuries, which are amenable to "objectively ascertainable" determinations as a matter of law (Rubeis, 3 NY3d at 416; see also Meis v ELO Org., 97 NY2d 714, 716 [2002] [loss of thumb is not a "permanent and total loss of use" of a hand]; Castro, 96 NY2d at 401 ["'loss of multiple fingers' cannot sensibly be read to mean partial loss of multiple fingers"]). Generally, courts have been able to conclusively say, one way or the other, whether an injury is or is not so "severe" for section 11 purposes (see e.g., Rosen v Nygren Dahly Co., 1 AD3d 998, 998 [4th Dept 2003] [minor facial scarring insufficient as a matter of law]; Krollman v Food Automation Serv. Techniques, Inc., 13 AD3d 1209, 1210 [4th Dept 2004] [three-millimeter scar above eyebrow and "some mottling of her cheeks" insufficient]; Giblin v Pine Ridge Log Homes, Inc., 42 AD3d 705, 707 [3d Dept 2007] [loss of eye, though a permanent condition, not a severe disfigurement where use of prosthesis leaves only negligible alteration in facial appearance]). However, these determinations have been rendered without the aid of a reliable, fairly predictable legal guidepost.

In construing the statute we follow two fundamental principles: first, we implement the intent of the Legislature. Second, we construe statutory words in light of "their plain meaning without resort to forced or unnatural interpretations" (Castro, 96 NY2d at 401). The statutory purpose of section 11, as explained above, is clear. Turning to the critical statutory words, we note that permanency and severity are both conditions precedent to a finding of "facial disfigurement." With competent medical evidence, a court may generally determine, initially, whether a facial disfigurement is permanent. Severity presents a different inquiry. Consistent with the legislative intent behind section 11, we conclude that "severity" implies a highly limited class of disfiguring injuries beyond minor scarring or lacerations.

"Severe" is variously defined as something "[c]ausing sharp discomfort or distress" (American Heritage Dictionary 1248 [3d ed 2000]) or something "[e]xtremely intense," as in "severe pain" (Webster's II New College Dictionary 1012 [1995]; see also Webster's Third New International Dictionary, Unabridged [2008] [something "of a great degree or an undesirable or harmful extent"]). Plainly, the specification of "severe" in the statute points to the greater end of the disfigurement spectrum (see Blackburn v Wysong & Miles Co., 11 AD3d 421, 422 [2d Dept 2004] ["(g)rave injury is a statutorily-defined threshold for catastrophic injuries"] [emphasis added]).

As for "disfigurement," one definition seems to capture the essence of the word well: "that which impairs or injures the beauty, symmetry or appearance of a person or thing; that which renders unsightly, misshapen or imperfect or deforms in some manner" (Pilato v Nigel Enterprises, Inc., 2008 NY Slip Op 00877 [4th Dept 2008]; see also Giblin, 42 AD3d at 707; Superior Mining Co. v Industrial Commission, 309 Ill 339, 340-341 [1923]).

While no conceivable standard can capture in toto the highly limited class of "severe" facial disfigurements contemplated by section 11, we nonetheless conclude that an injury disfigures the face when it detrimentally alters the plaintiff's natural beauty, symmetry or appearance, or otherwise deforms. A disfigurement is severe if a reasonable person viewing the plaintiff's face in its altered state would regard the condition as abhorrently distressing, highly objectionable, shocking or extremely unsightly. In finding that a disfigurement is severe, plaintiff's injury must greatly alter the appearance of the face from its appearance before the accident. The foregoing standard, ordinarily one for the court as a matter of law, removes the inquiry from plaintiff's subjective self-assessment and most closely approximates what the Legislature contemplated.

In this case, Pinstripes demonstrated that no material issue of fact remains and it is thus entitled to summary judgment on the basis that Fleming did not sustain a permanent and severe facial disfigurement (see Cox v Kingsboro Med. Group, 88 NY2d 904, 906 [1996]). The photographs in the record show numerous scars. However, they demonstrate a steady progression from the initial injuries to scarring, to significant recovery. Although first-party defendant's expert implied that Fleming's scars are permanent, his report indicated that revisions were possible. Even aside from the evidentiary value of the report and, indeed, the question of permanency, whether Fleming's disfigurement is "severe" remains for us to decide. While in some cases that question is one properly for the jury, we determine that, on the facts of this case, Fleming's injuries do not rise to the level of a "severe" disfigurement. Although there are cases where a reasonable person might view multiple scarring as satisfying the standard we articulate here, this is not one of them.

Accordingly, the Appellate Division order should be reversed, with costs, third-party defendant's motion for summary judgment dismissing the third-party complaint granted and the certified question answered in the negative.
* * * * * * * * * * * * * * * * *
Order reversed, with costs, third-party defendant's motion for summary judgment dismissing the third-party complaint granted and certified question answered in the negative. Opinion by Judge Jones. Chief Judge Kaye and Judges Ciparick, Graffeo, Read, Smith and Pigott concur.
Decided March 20, 2008

Footnotes

Footnote 1: Section 11 states, in part: "An employer shall not be liable for contribution or indemnity to any third person based upon liability for injuries sustained by an employee acting within the scope of his or her employment for such injuries unless such third person proves through competent medical evidence that such employee has sustained a 'grave injury' which shall mean only one or more of the following: death, permanent and total loss of use or amputation of an arm, leg, hand or foot, loss of multiple fingers, loss of multiple toes, paraplegia or quadriplegia, total and permanent blindness, total and permanent deafness, loss of nose, loss of ear, permanent and severe facial disfigurement, loss of an index finger or an acquired injury to the brain caused by an external physical force resulting in permanent total disability" (emphasis added).

Lang v. Hanover Insurance Company

Calendar Date: January 8, 2008
Before: Cardona, P.J., Peters, Carpinello, Rose and Malone Jr., JJ.


Greene & Reid, L.L.P., Syracuse (Jeffrey G. Pomeroy
of counsel), for appellant.
Costello, Cooney & Fearon, L.L.P., Albany (Nicole
M. Marlow of counsel), for respondent.

MEMORANDUM AND ORDER

Carpinello, J.

Appeal from a judgment of the Supreme Court (Relihan Jr., J.), entered November 30, 2006 in Tompkins County, upon a decision of the court making a declaration in defendant's favor.

Plaintiff was injured in the home of John Durbin and Elizabeth Durbin after being shot in the eye with a "paint ball" by Richard Bachman who, at that time, had been living there for several weeks ^[FN1]. Plaintiff thereafter obtained a default judgment against Bachman for which he now seeks to recover under the Durbins' homeowners insurance policy issued by defendant (see Lang v Hanover Ins. Co., 309 AD2d 1123 [2003], affd 3 NY3d 350 [2004]). Finding that Bachman was not an insured under the terms of this policy, Supreme Court declared that defendant had no obligation to satisfy the judgment and dismissed this action.
Plaintiff now appeals. 

Under the subject homeowners insurance policy, an insured includes "persons under the age of 21 and in the care of [the Durbins or a relative]." Here, the record establishes that, although Bachman was a resident of the Durbin home under the age of 21, they had not assumed any responsibility for him (see New York Cent. Mut. Fire Ins. Co. v Sweet, 16 AD3d 1013 [2005], lv denied 5 NY3d 704 [2005]; Pattengell v Welsh, 81 AD2d 831 [1981], affd 54 NY2d 917 [1981]; see also Korson v Preferred Mut. Ins. Co., 39 AD3d 483 [2007]; Chautauqua Patrons Ins. Assn. v Ross, 38 AD3d 1190, 1991 [2007]). At the time of the incident, Bachman was 20 years old, had finished his schooling and was looking for full-time employment. Indeed, according to him, the reason he moved out of his father's apartment and into the Durbin residence was because he was always there anyway and it was "[j]ust cooler to live with [his] friends" (see n 1, supra). Moreover, again according to Bachman, during the time period he resided with the Durbins, he did his own laundry, paid his own bills, took care of himself the few times he was sick and paid rent when he had the money.

While the Durbins' testimony differed on some of these points, it nevertheless established that Bachman was simply a "boarder" in their home and that they did not undertake any financial, disciplinary or emotional responsibility for him (see n 1, supra). Thus, because Bachman was not "in the care of" the Durbins within the meaning of the policy, Supreme Court properly declared that defendant was not required to satisfy plaintiff's judgment against him.

U.S. Underwriters v. Carson  

Calendar Date: January 17, 2008
Before: Peters, J.P., Carpinello, Rose, Kane and Malone Jr., JJ.


Pinksy & Skandalis, Syracuse (George Skandalis of
counsel), for appellant-respondent.
Office of Thomas W. Reed, P.L.L.C., Corning
(Thomas W. Reed II of counsel), for Robert Carson, respondent-
appellant.
Davidson & O'Mara, P.C., Elmira (Bryan J. Maggs of
counsel), for Lois A. Check, respondent-appellant.

MEMORANDUM AND ORDER


Malone Jr., J.

Cross appeals from an order of the Supreme Court (Mulvey, J.), entered November 30, 2006 in Schuyler County, which, among other things, denied plaintiff's motion for summary judgment.

Defendant Robert Carson is the owner of a bar known as Maria's Tavern located in the Village of Watkins Glen, Schuyler County. On the evening of April 17, 2002, while Carson was on vacation in Florida, Catrina Decker was bartending and served alcoholic beverages to Timothy Cooke and some of his friends. During the early morning hours of April 18, 2002, approximately one hour after Cooke had left the bar, he was killed in an automobile accident in Tompkins County when the vehicle he was driving struck a vehicle driven by Gerald Check. Check was also killed in the accident, but his father, who was a passenger in the car, survived. 

Later that morning at approximately 6:30 A.M., Decker was informed by her husband, a Watkins Glen police officer, of the fatal accident involving Cooke. Later that day, she was contacted by an investigator with the Schuyler County Sheriff's Department and complied with his request to give a statement about Cooke's whereabouts and conduct the night before. Shortly thereafter, she advised Carson, who was still in Florida, of the fatal accident and that she had given a statement to police. She had a further conversation with Carson about the incident when he returned from Florida about a week later.

Carson did not hear anything else about the accident until January 9, 2003, when he received a letter from Ransom Reynolds, an attorney for Check's estate, advising of a potential legal claim. Carson promptly notified his insurance agent, and the letter was eventually forwarded to plaintiff on February 21, 2003. Meanwhile, Reynolds had learned through his own investigation that plaintiff was Carson's liquor liability insurance carrier and he notified plaintiff by letter dated March 19, 2003 of the potential claim. Plaintiff issued two letters, one on March 28, 2003 and a second on April 7, 2003, both disclaiming coverage based upon Carson's failure to provide plaintiff with notice of the injury forming the basis for the claim as soon as practicable as required by the policy.

Plaintiff then commenced the instant action against Carson, Check's estate and Check's family members seeking a judgment declaring that it had no duty to provide either a defense or indemnification for any personal injuries or wrongful death resulting from the accident. Following joinder of issue, plaintiff moved, among other things, for summary judgment. Carson cross-moved for summary judgment, as did Check's estate. Carson also sought a ruling that plaintiff's disclaimer was untimely. Supreme Court found that questions of fact existed as to the timeliness of the notices provided by Carson and Check's estate, but ruled that plaintiff's disclaimer was not untimely. Consequently, it denied the motion and cross motions, resulting in these cross appeals.

We turn first to plaintiff's contention that Carson failed as a matter of law to comply with the policy provisions requiring him to notify plaintiff "as soon as practicable" of any injury that might result in a claim. We have observed that "'[w]here a policy of liability insurance requires that notice of an occurrence be given "as soon as practicable," such notice must be accorded the carrier within a reasonable period of time'" (Klersy Bldg. Corp. v Harleysville Worcester Ins. Co., 36 AD3d 1117, 1118 [2007], quoting Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d 742, 743 [2005]). An insured's delay in providing timely notice, however, may be excused "where the insured has 'a good faith belief in nonliability,' provided that belief is reasonable" (Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d at 743, quoting Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimmons Corp., 31 NY2d 436, 441 [1972]; see Insurance Law § 3420 [a] [4]). "[T]he focus of such an inquiry is its reasonableness under the circumstances, not whether the insured should have anticipated the possibility of a lawsuit" (Spa Steel Prods. Co. v Royal Ins., 282 AD2d 864, 865 [2007]). Significantly, the question of reasonableness is generally a question of fact for a jury (see Klersy Bldg. Corp. v Harleysville Worcester Ins. Co., 36 AD3d at 1119; Hudson City School Dist. v Utica Mut. Ins. Co., 241 AD2d 641, 642 [1997]).

The insured, Carson, was first aware of the fatal accident when Decker called him the day after it happened. During this conversation, Decker indicated that she had given a written statement to the police, but was not provided with any details concerning the accident or if alcohol was involved. She further told Carson that Cooke came to the bar at 10:30 P.M. and stayed until 12:45 A.M., during which time she served him four or five beers and one shot of rum. She stated that Cooke did not appear intoxicated when he left the bar and appeared to be on foot. When he returned from Florida approximately one week after the accident, Carson had a brief conversation with Decker and reviewed her written statement, but he was never questioned by law enforcement officials and did not hear any media reports about the accident. In fact, he did not hear anything else about the accident until approximately 10 months later when he received the letter from Reynolds, which he promptly forwarded to his insurance agent ^[FN1]. In our view, the foregoing clearly raises questions of fact concerning the reasonableness of Carson's actions in waiting to notify plaintiff that he might be subject to liability due to the fatal accident. Accordingly, we decline to disturb Supreme Court's ruling on this issue.

Moreover, we reject plaintiff's contention that the notice provided to plaintiff by Check's estate was legally irrelevant. Notwithstanding the timeliness of the notice given by an insured, an injured party has an independent right to give notice so as to preserve his or her right to proceed against an insurer (see General Acc. Ins. Group v Cirucci, 46 NY2d 862, 863-864 [1979]; Allstate Ins. Co. v Marcone, 29 AD3d 715, 717 [2006], lv dismissed 7 NY3d 841 [2006]; see also Insurance Law § 3420 [a] [3]). "Significantly, the notice required of an injured party to an insurer is measured less rigidly than the notice required of an insured . . . 'since what is reasonably possible for the insured may not be reasonably practical for the injured person'" (GA Ins. Co. of N.Y. v Simmes, 270 AD2d 664, 666 [2000], quoting Jenkins v Burgos, 99 AD2d 217, 221 [1984]). Here, the record reveals that after being retained by Check's estate, Reynolds undertook a thorough investigation to ascertain the circumstances of the accident and the potentially responsible parties. Once he concluded that Carson bore potential liability, he promptly sent Carson a letter on January 7, 2003 advising him of the same. In addition, Reynolds contacted various insurance companies with whom Carson had coverage before he determined on March 3, 2003 that plaintiff wrote the policy covering the claim. Only a few weeks later, on March 19, 2003, Reynolds sent plaintiff written notification of the claim. As with the notice provided by Carson, we find that the reasonableness of the actions of Check's estate in providing notice also present a question of fact (see e.g. Allstate Ins. Co. v Marcone, 29 AD3d at 717; GA Ins. Co. of N.Y. v Simmes, 270 AD2d at 667-668). Therefore, Supreme Court properly denied the motion and cross motions for summary judgment on the notice issue.

Contrary to the assertion of Carson and Check's estate, we do not find that plaintiff's disclaimer was untimely. Insurance Law § 3420 (d) requires an insurer to provide a written disclaimer "as soon as is reasonably possible" as "measured from the time when the insurer learns of sufficient facts upon which to base the disclaimer" (McEachron v State Farm Ins. Co., 295 AD2d 685, 685 [2002]). The record discloses that plaintiff sent its disclaimer letter to Carson on March 28, 2003, the day that it received the full report of its investigator, which was completed about a month after plaintiff received Carson's notice. A follow-up letter correcting a minor technical defect was sent on April 7, 2003. Although plaintiff did not send a disclaimer letter to Check's estate until May 12, 2003, its notice was not filed until late March 2003 and, in any event, as of April 11, 2003 it was already aware of the disclaimer issued to Carson. Under these circumstances, we cannot conclude that plaintiff's disclaimer was untimely.

In the Matter of Government General Employees Insurance Company v. Constantino

Wingate, Russotti & Shapiro, LLP, New York, N.Y. (Scott A. Stern
of counsel), for appellant.
Darienzo & Lauzon, Garden City, N.Y. (Montfort, Healy,
McGuire & Salley [Donald S. Neumann, Jr.]
of counsel), for respondent.

DECISION & ORDER

In a proceeding pursuant to CPLR article 75 to permanently stay arbitration of a claim for uninsured motorist benefits, the appeal is from an order of the Supreme Court, Nassau County (La Marca, J.), dated March 30, 2007, which granted the petition.

ORDERED that the order is affirmed, with costs.

On June 29, 2006, the appellant, Pearson Constantino, was struck by a hit-and-run driver as he was riding a bicycle, and allegedly sustained injuries. He subsequently sought benefits under the "supplementary uninsured/underinsured motorist" (hereinafter SUM) provisions of the "Family Automobile Insurance Policy" (hereinafter the policy) issued by the Government Employees Insurance Company, sued herein as Government General Employees Insurance Company (hereinafter GEICO), to his fiancÉ;e, nonparty Julia K. Wrona. When GEICO denied payment, Constantino demanded arbitration of the claim. GEICO then commenced this proceeding pursuant to CPLR article 75 seeking a permanent stay of arbitration on the ground that Constantino was not a "resident relative" under the policy and, therefore, was not entitled to SUM benefits for his injuries. Constantino countered that he was entitled to SUM benefits because, when Wrona purchased the policy from GEICO, she specifically sought coverage for him that was equal to her own, and because a page on a website maintained by GEICO listed Constantino as a "driver[] covered" and an "individual covered" under the policy. The Supreme Court granted GEICO's petition for a permanent stay of arbitration, concluding that Constantino was not entitled to benefits because he was neither Wrona's spouse nor related to her. We affirm.

The policy unambiguously listed only Wrona as the named insured. Insofar as relevant here, the policy's SUM coverage provided benefits only to Wrona, her spouse, and their relatives, provided that they were residents of Wrona's household. Constantino is not mentioned in the policy, and it is undisputed that he was neither married to nor related to Wrona when he was injured. Thus, Constantino was not entitled to SUM benefits under the terms of the policy.

Constantino's contention that he was nonetheless entitled to SUM benefits because a web page maintained by GEICO listed him as an "individual covered" or as a "driver covered" under the policy is without merit. The policy provides that its "terms and provisions . . . cannot be . . . changed, except by an endorsement issued to form a part of this policy." The web page does not constitute such an endorsement. In any event, inasmuch as the language of the policy admits of no ambiguity, resort may not be had to the extrinsic web page which is not part of the policy (see Matter of State Farm Mut. Auto Ins. Co. v Russell, 39 AD3d 759, 761; cf. Kennedy v Valley Forge Ins. Co., 84 NY2d 963, affg 203 AD2d 930). Accordingly, the Supreme Court properly found that Constantino was not entitled to SUM benefits under the policy.

In the Matter of Progressive Casualty Insurance Company v. Jackson

 

Buratti, Kaplan, McCarthy & McCarthy, Yonkers, N.Y. (Michael
A. Zarkower of counsel), for appellant.
Martin, Fallon & MullÉ;, Huntington, N.Y. (Richard C. MullÉ;
and Stephen P. Burke of counsel), for
respondents.

DECISION & ORDER

In a proceeding pursuant to CPLR article 75, inter alia, to permanently stay arbitration of an uninsured motorist claim, the appeal is from an order of the Supreme Court, Suffolk County (Weber, J.), dated April 20, 2007, which denied the petition and dismissed the proceeding.

ORDERED that the order is affirmed, with costs.

On April 22, 2005, a car owned by the respondent Cynthia Jackson and insured by the petitioner, Progressive Casualty Insurance Company (hereinafter Progressive), was involved in an accident with a car owned by the respondent Leonard Dinardo and allegedly insured by the respondent State Farm Mutual Automobile Insurance Company (hereinafter State Farm). However, State Farm had cancelled Dinardo's policy before the accident occurred. Contrary to Progressive's contention, the State Farm notice of cancellation was effective since it informed the insured of a means "via which the cancellation of his policy could be challenged" (Matter of State Farm v Mut. Auto. Ins. Co., 104 AD2d 495, 496; see Silverstein v Minkin, 49 NY2d 260; Matter of Prudential Prop. & Cas. Ins. Co. v Rothman, 116 AD2d 652; Matter of Lumbermens Mut. Cas. Co. v Medina, 114 AD2d 959). Accordingly, since there is otherwise no dispute that the State Farm cancellation notice contained all of the information required by Vehicle and Traffic Law § 313 and the New York Automobile Insurance Plan rules regarding cancellation of automobile insurance, the Supreme Court correctly refused to permanently stay arbitration of the uninsured motorist claim.

Under the circumstances of this case, it was also a provident exercise of the court's discretion to, in effect, deny that branch of the petition which sought the alternate relief of pre-arbitration discovery (see Matter of State Wide Ins. Co. v Womble, 25 AD3d 713; Matter of New York Cent. Mut. Fire Ins. Co. v Gershovich, 1 AD3d 364).

 

Vetland v FX Enterprises I, Ltd., et al

O'Donnell & McLaughlin (Sweetbaum & Sweetbaum, Lake
Success, N.Y. [Marshall D. Sweetbaum] of counsel), for
appellant-respondent.
Charles J. Siegel, New York, N.Y. (Richard D. O'Connell of
counsel), for respondent-appellant.
John Z. Marangos, Staten Island, N.Y. (Denise Marangos of
counsel), for respondent.


DECISION & ORDER

In an action, inter alia, to recover damages for breach of contract and negligence, (1) the defendant Allstate Insurance Company appeals from so much of a judgment of the Supreme Court, Richmond County (Aliotta, J.), dated November 6, 2006, as, upon an order of the same court (Giacobbe, J.), dated February 8, 2004, granting the plaintiff's cross motion for summary judgment on the issue of liability, and upon an order of the same court (Aliotta, J.), dated May 3, 2006, among other things, granting the plaintiff's motion to confirm the report of a Judicial Hearing Officer (Pizzuto, J.H.O.), dated July 28, 2005, made after an assessment of damages, is in favor of the plaintiff and against it in the principal sum of $57,650; and (2) the defendant Executive Valet Services, Inc., cross-appeals from (a) the order dated May 3, 2006, and (b) so much of the same judgment as is in favor of the plaintiff and against it in the principal sum of $57,650.

ORDERED that the cross appeal from the order dated May 3, 2006, is dismissed, without costs or disbursements; and it is further,

ORDERED that the judgment is modified, on the law and the facts, by deleting from the first decretal paragraph thereof the provision in favor of the plaintiff and against the defendants Executive Valet Services, Inc., and Allstate Insurance Company in the principal sum of $57,650 and substituting therefor a provision in favor of the plaintiff and against these defendants in the principal sum of $43,906; as so modified, the judgment is affirmed, without costs or disbursements, and the order dated May 3, 2006, is modified accordingly.

The cross appeal from the intermediate order dated May 3, 2006, must be dismissed because the right of direct appeal therefrom terminated with entry of judgment in the action (see Matter of Aho, 39 NY2d 241, 248). The issues raised on the cross appeal from the order dated May 3, 2006, are brought up for review and have been considered on the cross appeal from the judgment (see CPLR 5501[a][1]).

The plaintiff commenced this action after her vehicle, which was insured by the defendant Allstate Insurance Company (hereinafter Allstate), was taken by an unknown person from the defendant Executive Valet Services, Inc. (hereinafter Executive), to whom she had given the vehicle for parking and storage. The Supreme Court found that Executive was negligent in its capacity as a bailee, and held that Allstate, which had refused to indemnify the plaintiff for her loss, had breached its contract of insurance. The Supreme Court subsequently confirmed the determination of a Judicial Hearing Officer that the plaintiff had been damaged in the amount of $57,650. The only issues raised on the appeal and the cross appeal are the measure of damages and whether Allstate may recover from Executive, either in indemnification or subrogation, the amount that it is required to pay to the plaintiff.

A bailee is liable for the reasonable value of property lost through its negligence (see Klar v H. & M. Parcel Room, Inc., 270 App Div 538, 541, affd 296 NY 1044). Here, the record supports the determination of the Judicial Hearing Officer as to the reasonable value of the lost property. However, Executive was entitled to a credit in the sum of $13,744, representing the amount by which the plaintiff's loan obligation had already been reduced when the vehicle was ultimately recovered and disposed of by the vehicle's lienholder. The principal amount of the judgment against Executive should therefore have been reduced by that amount.

The liability of an insurer under a contract of casualty insurance is determined in accordance with the terms of the contract of insurance (see Liberty Mut. Ins. Co. v Aetna Cas. & Sur. Co., 168 AD2d 121, 130). Here, Allstate's contract provided that the insured's recovery in the event of a loss would be determined in accordance with the actual cash value of the lost or destroyed property. The record supports the Supreme Court's determination that the cash value of the vehicle on the date of the loss was $57,750, that a $1,000 deductible was properly applied in reduction of that sum, and that the plaintiff was entitled to recover the additional sum of $900 to reimburse her for amounts she incurred in renting a replacement vehicle. However, Allstate, like Executive, was entitled to a credit for the reduction in the plaintiff's loan obligation, in the amount of $13,744, when the vehicle was recovered.

Accordingly, the judgment should have been entered against Allstate and Executive, jointly and severally, in the principal sum of $43,906.

Contrary to Allstate's contentions, it is not entitled to be indemnified by Executive. "[T]he key element of a common-law cause of action for indemnification is not a duty running from the indemnitor to the injured party, but rather is a separate duty owed the indemnitee by the indemnitor'" (Raquet v Braun, 90 NY2d 177, 183, quoting Mas v Two Bridges Assoc., 75 NY2d 680, 690). Here, no such duty existed between Allstate and Executive.

Finally, whether Allstate may recover in subrogation is not properly before us, since the issue of subrogation was raised for the first time on appeal (see Vera v Soohoo, 41 AD3d 586).
SPOLZINO, J.P., ANGIOLILLO, BALKIN and LEVENTHAL, JJ., concur.

Ramos v Howard Industries, Inc.

Lawrence J. Vilardo, for appellant.
Stephen C. Halpern, for respondent.




PIGOTT, J.:

In this products liability action, defendant manufacturer was denied summary judgment dismissing plaintiff's complaint. Because we conclude that defendant met its initial burden by presenting competent evidence that its product was not defective and plaintiff failed to create an issue of fact excluding all other causes for the product's failure not attributable to defendant, we reverse the Appellate Division order and dismiss the complaint.

In June 1997, plaintiff John Ramos sustained personal injuries when a transformer designed and manufactured by defendant Howard Industries, Inc. allegedly exploded. According to plaintiff, the explosion occurred shortly after he energized the transformer in the course of his employment as a lineman for nonparty Niagara Mohawk Power Corporation. Initially, plaintiff reported to his employer and doctors that he was injured when he reached out of an aerial bucket while installing the transformer on a utility pole. More than two years later, however, plaintiff claimed that the transformer exploded, the force of which caused him to fall inside the bucket, injuring his back. By that time, the transformer could not be located for inspection or testing to determine the cause of its failure. Plaintiff explained that he failed to promptly disclose the transformer explosion because he feared disciplinary action or the loss of certain employment-related benefits.

In May 2000, plaintiff commenced this products liability action, alleging that the transformer was defectively designed and manufactured. Following discovery, defendant moved for summary judgment dismissing the complaint. In support of its motion, defendant submitted the affidavit of an expert engineer who, after visiting defendant's plant, concluded that its manufacturing processes, quality control, testing and inspection were "current and state of the art." The expert noted that an internal electrical fault could cause an explosion as described by plaintiff, but concluded that such a defect "would have been readily identified at several stages of the manufacturing process." He stated that, "[g]iven the various stages of testing and inspection, it [was] virtually impossible for a transformer with an internal fault to leave [defendant's] plant." The expert also concluded that defendant's manufacturing processes complied with all applicable industry standards and Niagara Mohawk's specifications, and that the transformer in question would have been individually tested to ensure compliance with such requirements. He posited other possible causes of the explosion, such as Niagara Mohawk employees negligently rewiring or rebuilding the transformer, or the potential creation of "an internal fault" during rewiring by dropping a metal object inside the transformer, "which could cause the transformer to overheat the insulating oil within the tank and result in the cover being forced off the transformer."

In opposition to defendant's motion, plaintiff offered the affidavit of an expert engineer, who asserted that the transformer was defectively designed and manufactured because it "experienced an internal electrical fault due to defective coil/windings and/or insulation." Plaintiff's expert further stated that the "electrical fault generated excessive heat within the transformer's tank and superheated the oil contained therein" causing "excessive internal vapor pressure to build up, and ultimately produced the explosion." The expert also asserted that two safety devices placed on the transformer by defendant failed to operate and prevent the explosion. In addition, the expert rejected the theories presented by defendant to explain the explosion other than a manufacturing defect.

Supreme Court denied defendant's motion for summary judgment. It concluded that, although defendant's expert's assertion that a defect in the transformer would have been readily identified during the manufacturing process "might be a sufficient statement to obtain summary judgment if other causes of the accident were excluded," here, "other possible causes of the accident have not been excluded by the defendant in the first instance."

The Appellate Division, with one Justice dissenting, affirmed, but for different reasons than Supreme Court. The court held that defendant failed to meet its burden on summary judgment, concluding that its evidence "does not establish as a matter of law that the transformer was not defective and that a manufacturing defect therefore did not cause the explosion" (38 AD3d 1163, 1164 [4th Dept 2007]). That court thereafter granted defendant leave to appeal and certified the following question: "Was the order of this Court, entered March 16, 2007, properly made?" We answer the question in the negative, reverse the order of the Appellate Division and grant defendant's motion for summary judgment dismissing the complaint.

It is well settled that a products liability cause of action may be proven by circumstantial evidence, and thus, a plaintiff need not identify a specific product defect (see Speller v Sears, Roebuck & Co., 100 NY2d 38, 41 [2003]; Halloran v Virginia Chems., 41 NY2d 386, 388 [1977]; Codling v Paglia, 32 NY2d 330, 337 [1973]). "In order to proceed in the absence of evidence identifying a specific flaw, a plaintiff must prove that the product did not perform as intended and exclude all other causes for the product's failure that are not attributable to defendants" (Speller, 100 NY2d at 41, citing Halloran, 41 NY2d at 388 [other citation omitted]). If, however, a plaintiff is unable to prove both elements, "a jury may not infer that the harm was caused by a defective product unless plaintiff offers competent evidence identifying a specific flaw" (Speller, 100 NY2d at 42).

In Speller, the plaintiffs alleged that a defective refrigerator caused a house fire. The manufacturer and retailer moved for summary judgment dismissing the complaint, offering evidence of an alternative cause of the fire, i.e., a stovetop grease fire. We stated that, "[i]n order to withstand summary judgment, plaintiffs were required to come forward with competent evidence excluding the stove as the origin of the fire" (id. at 42). Based on plaintiff's three expert opinions, which concluded that the fire originated in the refrigerator and not from the stove, we held "that plaintiffs raised a triable question of fact by offering competent evidence which, if credited by the jury, was sufficient to rebut defendants' alternative cause evidence" (id. at 43). Put another way, we stated, "based on plaintiffs' proof, a reasonable jury could conclude that plaintiffs excluded all other causes of the fire" (id.).

Here, contrary to the Appellate Division's conclusion, defendant established its prima facie entitlement to judgment as a matter of law. Without the product available for testing and inspection (admittedly caused by plaintiff's lengthy delay in reporting the incident), defendant was unable to provide an expert opinion based upon an examination of the transformer. Instead, defendant presented competent evidence demonstrating that its transformers were designed and manufactured under state of the art conditions according to Niagara Mohawk's specifications and that its manufacturing process complied with applicable industry standards. The evidence further demonstrated that each transformer was individually tested before leaving defendant's plant and that in light of such testing and inspection, its expert concluded that it was "virtually impossible for a transformer with an internal fault to leave [defendant's] plant." Defendant's expert affidavit also posited other possible causes of an explosion that may have been introduced while the transformer was rewired or rebuilt by Niagara Mohawk employees after it left defendant's possession.

Because defendant met its initial burden, in order to defeat summary judgment, plaintiff must raise "a triable question of fact by offering competent evidence which, if credited by the jury, [i]s sufficient to rebut defendant['s] alternative cause evidence" (Speller, 100 NY2d at 43). An expert's affidavit — offered as the only evidence to defeat summary judgment — "must contain sufficient allegations to demonstrate that the conclusions it contains are more than mere speculation and would, if offered alone at trial, support a verdict in the proponent's favor" (Adamy v Ziriakus, 92 NY2d 396, 402 [1998] [quoted case omitted]; see also Diaz v New York Downtown Hosp., 99 NY2d 542, 544 [2002] ["Where the expert's ultimate assertions are speculative or unsupported by an evidentiary foundation, . . . the opinion should be given no probative force and is insufficient to withstand summary judgment"]).

Plaintiff failed to present evidence excluding all other causes for the transformer's malfunction not attributable to defendant such that a reasonable jury could find that the transformer was defective in the absence of evidence of a specific defect. Although a plaintiff is not required to identify a specific defect in a circumstantial case, plaintiff's theory here — that the explosion resulted from a manufacturing defect in the form of an "internal electrical fault" — is pure speculation. Furthermore, as noted by the Appellate Division dissent, plaintiff's expert failed to exclude the possibility presented by defendant's expert that the transformer exploded because it was improperly rewired or rebuilt by Niagara Mohawk employees after leaving defendant's possession. In sum, based on plaintiff's proof, a reasonable jury could not conclude that all other causes of the transformer explosion were excluded, and thus, plaintiff's manufacturing defect claim fails as a matter of law.

Accordingly, the order of the Appellate Division should be reversed, with costs, defendant's motion for summary judgment dismissing the complaint granted and the certified question answered in the negative.
Ramos v Howard Industries
No. 26

JONES, J. (dissenting) :

The issue before the Court is whether defendant Howard Industries, Inc. is entitled to summary judgment when the object of the products liability action was unavailable for inspection or testing. Because I think that this question should be answered in the negative, I respectfully dissent.

The majority relies on defendant's evidence, proffered by expert affidavit, that states that "its transformers were designed and manufactured under state of the art conditions" according to specifications and that "its manufacturing process complied with applicable industry standards" (majority opn, at 6). The majority also relies on statements "that each transformer was individually tested before leaving defendant's plant" and that it would be "virtually impossible for a transformer with an internal fault to leave [defendant's] plant" (id.). In my view, this showing is insufficient to entitle defendant to judgment as a matter of law.

The available inference from defendant's bare assertions — that this transformer could not have left its plant with a defect — is purely speculative. Defendant's own expert conceded as much: "without the transformer to test and examine, there is simply no evidence or proof that [defendant] sold a transformer containing a defect."

Yet, defendant's experts proceeded to speculate as to possible causes of the explosion, of course, excluding a manufacturing defect. For example, they posited numerous theories: that a negligent worker could have "inadvertently cause[d] an internal short (fault) by permitting the wires to become kinked;" that a negligent worker could have dropped "an object such as a nut, metal tool or other conductive material" into the transformer; that the transformer may have been rebuilt by Niagara Mohawk; or that a negligent worker could have allowed rainwater to enter the transformer while it was being rewired.

Although the majority correctly states the law in its discussion of Speller v Sears, Roebuck & Co. (100 NY2d 38 [2003]), that case is distinguishable. After the defendant in Speller presented its theory of the cause of the house fire (i.e., grease fire began on top of kitchen stove), plaintiff, who had access to the refrigerator, kitchen and the stove, was able to come forward with competent evidence to exclude the stove as the origin of the fire (see id. at 42-43). With a finite number of potential causes of the fire, it was proper, in that case, to permit possible alternative causes to satisfy movant's initial burden and, indeed, nonmovant's burden. In other words, each party in Speller benefitted by the factual scenario such that, on their respective burdens, each could proffer equally plausible, narrowing theories of causation adequate on a motion for summary judgment.

Here, on the other hand, defendant speculated as to possible causes of the transformer explosion which, according to its own experts, could not be established, while plaintiff was expected to exclude these very causes. The unique facts surrounding the unavailability of the transformer are equally disadvantageous, and neither party could definitively establish entitlement to judgment as a matter of law. Accordingly, the burden shifting exercise in this case is impractical, thus rendering these facts fundamentally unlike Speller (cf. Speller, 100 NY2d at 43). In sum, by giving credence to defendant's bare, obviously self-serving assertions that permit a weak inference of no defect, the result here unjustifiably disadvantages the nonmovant.

Accordingly, I would hold, as did the Appellate Division, that defendant failed to meet its burden, thus obviating the need to consider the adequacy of plaintiff's submissions in opposition.
* * * * * * * * * * * * * * * * *
Order reversed, with costs, defendant's motion for summary judgment dismissing the complaint granted and certified question
answered in the negative. Opinion by Judge Pigott. Chief Judge Kaye and Judges

 

Watral & Sons, Inc. v OC Riverhead 58, LLC

Eric Schneider, for appellant.
M. William Scherer, for respondent.


READ, J.:

This appeal calls upon us to interpret provisions in a construction contract (AIA) Document A201/CM [1980])^[FN1] to determine if Watral & Sons must indemnify landowner OC Riverhead 58 for damages allegedly sustained by a neighboring landowner, Adchem Corporation, during Watral's performance of excavation work on OC's property. For the reasons that follow, we conclude that OC was not entitled to contractual indemnification, and therefore reverse.

I.

On December 6, 1999, OC entered into a contract with Watral for the excavation, drainage, and sanitary work necessary to build an Applebee's Restaurant on property that OC owned in Riverhead, New York, across from the Tanger Outlet Center. The contract price, as ultimately adjusted with additions and credits, was $167,401.

On August 3, 2000, a Watral employee was excavating on OC's property for the sewer line when his backhoe struck and damaged an underground power cable supplying electricity to Adchem's adjacent property. Before beginning this work, a project superintendent employed by Sindrome Construction, Inc., the construction manager and the owner representative's on the site, had notified "New York One Call" to ask for the electric line servicing Adchem to be marked. Although this was done, an unidentified electrician at some point relocated the cable.
The excavator was working 10 to 15 feet from the flags put in place to mark the cable when he struck it. Further, after the accident it was discovered that "excess cable, in the form of a loop had been buried, at the time of the original cable installation." Watral agreed to pay for the materials necessary to repair the cable, and the electrician agreed to supply his labor. At the same time, the excess loop was removed.

On August 17, 2000, the project superintendent was supervising a Watral employee, who was excavating in the same area in order to adjust the sewer's height. The ground gave way, dragging the cable toward the excavation site. The cable did not come into contact with the excavator's backhoe, but was damaged at the place where it had previously been repaired, apparently again disrupting electric service to Adchem's property. Watral once more seems to have paid for the materials necessary to fix the damage to the cable.

During the spring and summer of 2000, OC paid Watral $85,000 of the contract price, but withheld the $82,401 balance due, ostensibly because OC was involved in a dispute with Adchem over damages allegedly caused by the accidents on August 3 and August 17, 2000. OC subsequently resolved this dispute by paying Adchem $69,639.

On January 30, 2001, Watral filed a notice of mechanic's lien against the property, and on May 11, 2001, Watral commenced an action in Supreme Court to foreclose upon the lien. In its answer dated July 31, 2001, OC counterclaimed that "[i]n response to threats by Adchem to commence litigation and in order to resolve the dispute that [Watral] failed and refused to resolve, [OC] was forced to make a payment to Adchem . . . resulting in damage to [OC] in an amount at least equal to the amount [Watral] demands herein."

After the parties submitted the matter upon a stipulated statement of facts, Supreme Court found in Watral's favor, based on its interpretation of Subparagraphs 4.18.1 and 10.2.5 of the contract. Construing these two provisions together, the trial court concluded that Watral was required to indemnify OC only for its own negligent acts, and that the stipulated facts did not establish that the damage to the cable was Watral's fault. Accordingly, Supreme Court entered judgment for the balance due Watral under the contract, with interest to be computed from November 30, 2000.

The Appellate Division, with two Justices dissenting, subsequently modified Supreme Court's order, ruling that Watral was obligated to indemnify OC under Subparagraph 10.2.5, which "was intended to impose a broader duty of indemnification upon [Watral] than subparagraph 4.18.1," which concededly required negligence (34 AD3d 560, 564 [2d Dept 2006]). Moreover, the majority disagreed with Supreme Court's findings of fact: "Although the Supreme Court found no evidence that [Watral] was at fault for either of the incidents in which the cable was damaged, the stipulated facts point to a contrary conclusion" (id. at 566). Accordingly, the majority concluded that OC was also entitled to indemnification under Subparagraph 4.18.1 and common law indemnification principles. Watral appeals to us as of right, pursuant to CPLR 5601(a), and we now reverse.

II.

Article 4 of the AIA form contract at issue on this appeal is entitled "Contractor," and Paragraph 4.18 is entitled "Indemnification." Subparagraph 4.18.1 states that

"[t]o the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, the Architect, the Construction Manager, and their agents and employees from and against all claims, damages, losses and expenses, including, but not limited to, attorneys' fees arising out of or resulting from the performance of the Work, provided that any such claim, damage, loss or expense (1) is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including the loss of use resulting therefrom, and (2) is caused in whole or in part by any negligent act or omission of the Contractor . . . regardless of whether or not it is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge or otherwise reduce any other right or obligation of indemnity which would otherwise exist as to any party or person described in this Paragraph 4.18."^[FN2]

Article 10 of the form contract is entitled "Protection of Persons and Property," and Paragraph 10.2 is entitled "Safety of Persons and Property." As relevant to this appeal, Subparagraph 10.2.1.3 provides that

"[t]he Contractor shall take all reasonable precautions for the safety of, and shall provide all reasonable protection to prevent damage, injury or loss to: . . . property at the site or adjacent thereto, including trees, shrubs, lawns, walks, pavements, roadways, structures and utilities not designated for removal, relocation or replacement in the course of construction; . . .."^[FN3]

Finally, Subparagraph 10.2.5 specifies that

"[t]he Contractor shall promptly remedy all damage or loss . . . to any property referred to in Clause[] . . . 10.2.1.3 caused in whole or in part by the Contractor . . . and for which the Contractor is responsible under Clause[] . . . 10.2.1.3, except damage or loss attributable to the acts or omissions of the Owner, the Architect, the Construction Manager or anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable, and not attributable to the fault or negligence of the Contractor. The foregoing obligations of the Contractor are in addition to the Contractor's obligations under Paragraph 4.18."^[FN4]

First, we agree with Supreme Court and the dissenters that there is insufficient proof on the bare-bones record in this case to support indemnification under Subparagraph 4.18.1. As for the first accident, the dissenters pointed out that "the parties stipulated that the electrical cable servicing the Adchem property was not where it was supposed to be, but 'had been relocated by others'" before Watral began work (34 AD3d at 571-572 (Fisher, J., dissenting [emphasis added]). As a result, there was no proof of Watral's negligence, and "because the record [did] not disclose the identity of the electrician responsible for the relocation," it was not possible to figure out "whether that person was someone for whose acts Watral [might] be liable, so as to trigger indemnity" under Subparagraph 4.18.1 (id. at 572). With respect to the second incident,

"the agreed-upon facts reveal only that the same electrical cable was damaged when the ground adjacent to Watral's excavation gave way, dragging the cable towards the excavation site. An employee of the construction manager was present and supervising Watral's work at the time. There was no contact between the excavation equipment and the cable, and the only damage to the cable was at the site of the previous repair" (id.).

As for Subparagraph 10.2.5, its reach is limited in this case to "damage or loss . . . to any property referred to in Clause[] . . . 10.2.1.3"; namely, "property at the site or adjacent thereto, including trees, shrubs, lawns, walks, pavements, roadways, structures and utilities not designated for removal, relocation or replacement in the course of construction." As the dissenters noted, the only "property" damaged on August 3 and August 17, 2000 would appear to have been the cable, and "[t]here is no evidence . . . as to whether Adchem actually suffered any damage to its own property as a result of the damage to the cable, or, instead, sustained purely economic injury" which Subparagraph 10.2.5 does not cover (id. at 574). In light of our disposition of this appeal, we need not reach and express no opinion as to whether Subparagraph 10.2.5 imposes a negligence or fault-type liability standard.

Accordingly, the order of the Appellate Division, insofar as appealed from, should be reversed, with costs, and Supreme Court's judgment should be reinstated.
* * * * * * * * * * * * * * * * *
Order, insofar as appealed from, reversed, with costs, and judgment of Supreme Court, Suffolk County, reinstated. Opinion by Judge Read. Chief Judge Kaye and Judges Ciparick, Graffeo, Smith, Pigott and Jones concur.
Decided March 18, 2008

Footnotes

Footnote 1:The American Institute of Architects' most recent version of this form contract would appear to be AIA Document A201/CMa (1992).

Footnote 2:In AIA Document A201/CMa (1992), a substantially identical indemnification provision is found at Subparagraph 3.18.1.

Footnote 3:The language in Subparagraph 10.2.1.3 in AIA Document A201/CMa (1992) is substantially identical.

Footnote 4:The language in Subparagraph 10.2.5 in AIA Document A201/CMa (1992) is substantially identical.