Coverage Pointers - Volume IX, No. 5

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Dear Coverage Pointers Subscribers:


Oh, how times have changed:


On January 2, 1960, John F. Kennedy announced his candidacy for President of the United States with these storied and well considered remarks:


The Presidency is the most powerful office in the Free World. Through its leadership can come a more vital life for our people. In it are centered the hopes of the globe around us for freedom and a more secure life. For it is in the Executive Branch that the most crucial decisions of this century must be made in the next four years--how to end or alter the burdensome arms race, where Soviet gains already threaten our very existence--how to maintain freedom and order in the newly emerging nations--how to rebuild the stature of American science and education--how to prevent the collapse of our farm economy and the decay of our cities--how to achieve, without further inflation or unemployment, expanded economic growth benefitting all Americans--and how to give direction to our traditional moral purpose, awakening every American to the dangers and opportunities that confront us.


On September 6, 2007, Fred Thompson announced his candidacy for President of the United States, while sitting on a couch talking to Jay Leno, with these historically significant words:


"I'm running for president of the United States . So the preseason is over, let's get on with it!"


Well, it's Thursday night, I'm sitting in my at home with a bottle of something fizzy nearby and have come to a monumental decision.  I would take this opportunity to announce it.  After all, Leno is on TV and I couldn't get on the show.  So, I'll use this forum.  "I am not running for the office of President of United States, again, this year, and have no intention of running in the next election either.  I am, however, running in Delaware Park in the morning and if anyone wishes to join me, I'm there around 5:30 AM, along with the other lunatics that enjoy early morning darkness."


Now that we have that behind us, a few tidbits upon which to contemplate:


·       The New York State Insurance Department has not given up its plan to add a prejudice requirement to liability insurance coverage denials based on late notice.  It has, at least for the time being, given up its plan to require insurance carriers to provide coverage information pre-suit, upon request.  It is considering further limitations on its original plan to allow direct actions against carriers, commenced by claimants, prior to obtaining judgment.   At last report, it has postponed its push to extend prompt disclaimer requirements to property damage and out-of-state accidents.  Negotiations continue and we urge you not to silent on these issues.


·       We have reached that point in the late summer when the appellate courts have just reopened their doors and are now hearing appellate cases, after a long summer hiatus.  There wasn't a single No Fault decision rendered by any of the four appellate Departments over the past two weeks, and barely a handful of coverage decisions of any denomination.  Poor Mark and Audrey - they had nothing about which to write.  Audrey offers these words: 


This is the first time in the history of my column that I have no cases or arbitration decisions to report on.  The courts and the arbitrators seem to be taking a summer siesta which I hope ceases next week.  Actually, I know it will cease next week because my September calendar is chocked full of arbitrations and court appearances.


I wanted to thank the readers who expressed an interest in training after reading last edition's excerpt on arbitration preparation and attendance. 


Let us know if you could use a refresher course or just an update on no-fault.  We would be more than happy to visit!


That's ok, Aud.  Wait a couple of weeks and you and Mark will be provide with coverage manna for consumption and analysis


·       I'm proud of my partners.  Two different publications surveyed lawyers and judges with one asking them to identify Western New York counsel and the other, Upstate New York Counsel, who have achieved a high degree of professional achievement.  While we think all of our lawyers are special, the firm is proud of the 12 lawyers honored by inclusion in the 2007 Upstate New York SuperLawyers Magazine and/or the 2007 Business First Who's Who in Law (in these categories):


·        Bob Fine                          New York Super Lawyers: Business/Corporate

Business First: Corporate

·        Larry Franco                    New York Super Lawyers: Business/Corporate

Business First: Estates/Trusts/Elder Law

·        Dan Kohane*                   New York Super Lawyers: Insurance Coverage

Business First: Insurance

·        Harry Mooney*                New York Super Lawyers: Product Defense

Business First: Defense Litigation

·        Ann Evanko**                 New York Super Lawyers: Employment and Labor

Business First: Labor/Employment

·        Roger Ross                      New York Super Lawyers: Real Estate

Business First: Real Estate

·        Paul Suozzi                       New York Super Lawyers: Personal Injury Defense

Business First: Personal Injury/Tort

·        Larry Ross                       New York Super Lawyers: Health Care

Business First: Health Care

·        Mike Perley*                    New York Super Lawyers: Personal Injury Defense

Business First: Municipal and Litigation

·        Diane Church                   Business First:   Banking/Finance

·        Andrea Schillaci                New York Super Lawyers: Business Litigation

Business First: Business/Commercial

·        Shawn Martin                   New York Super Lawyers: General Litigation


*   Voted one of the Top 50 lawyers in all of Upstate New York by New York SuperLawyers Magazine.

** Voted one of the Top 25 female lawyers in all of Upstate New York by New York SuperLawyers Magazine.



In today's edition, we have this scant offering for your edification:


·       CGL and Employers Liability are Both Primary Policies and Generally Both will be Exhausted Before Excess Policy is Implicated, Unless Schedule of Underlying Insurance Directs Otherwise

·       Australian Dispute Sent Down Under

·       In Unusual Decision, Court Refuses to Dismiss Negligence Claim Against Insurance Broker for Failing to Procure Coverage, Even Where Insured Read Policy

STarosieleC'S serious (Injury) Side of New York No-FaulT
Mark Starosielec
[email protected]


No Reported Decisions


Audrey's Angle on No-Fault

Audrey Seeley

[email protected]


No Reported Decisions



Steven E. Peiper

[email protected]


·       Pursuant to the Terms of the Policy, a Lawsuit Commenced More than Two Years After the Loss was Untimely.



That's all from the land of milk, honey and coverage.  Keep that wonderful feedback flowing and we'll see you in a couple of weeks.


PS  -- Don't forget to contact us to schedule training out at your offices.  We have five or six visits scheduled in the next few months and we want to be sure we can get you in sooner rather than later.




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Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York.


Newsletter Editor

Dan D. Kohane
[email protected]


Insurance Coverage Team

Dan D. Kohane, Team Leader
[email protected]

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

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

Jody E. Briandi
Steven E. Peiper

Audrey A. Seeley, Team Leader
[email protected]
Tasha Dandridge
Mark Starosielec

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

Across Borders


9/6/07              Liberty Mut. Ins. Co. v. The Ins. Company of the State of Pennsylvania
Appellate Division, First Department

CGL and Employers Liability are Both Primary Policies and Generally Both will be Exhausted Before Excess Policy is Implicated, Unless Schedule of Underlying Insurance Directs Otherwise
An employee of subcontractor General Industrial (Industrial) was hurt on a construction job.  He sued the project’s owner and construction manager and they, in turn, brought a third part action against Industrial for indemnification.  The plaintiff’s case was settled for $2.5 million, with Diamond, Industrial’s general liability carrier, paying $1 million and Liberty Mutual, Industrial’s excess carrier paying $1.5 million.  Liberty then instituted an action seeking reimbursement of the $1.5 million from The Insurance Company of the State of Pennsylvania and AIG (collectively referred to as AIG) claiming that AIG had issued an employer’s liability policy providing primary coverage for common law negligence suffered by an employee in the course of his employment.  AIG had refused to participate in settlement negotiations or contribute to the settlement.

Since Diamond paid for the defense, with AIG’s refusal, Liberty sought reimbursement of indemnification costs.  The Court found that Liberty would (theoretically) be entitled to get reimbursed for the indemnification costs.  Why?  Because the AIG policy provided primary coverage for indemnity for common law negligence and a primary policy will pay before an excess policy kicks in a penny.  Why is the recovery only “theoretical?”  Because under New York law, an employer’s liability carrier is not liable unless its insured is liable for common law negligence and the employer/insured cannot be held liable unless a “grave injury” is established under the Workers Compensation Law.  A hearing must be held to determine whether or not a “grave injury” would have been established in the underlying lawsuit.

The court then determined that if a grave injury was established, AIG’s liability would be limited to $1 million.  Why is that, if an employer’s liability policy in New York has unlimited coverage?  It seems that the Liberty Policy provided that it would provide coverage in excess of the insured’s “Retained Limit” and defined “Retained Limit” by reference to the AIG policy.  It noted that the AIG policy had a $1 million limit (which it did not).  However, the schedule indicated it did, so Liberty had to contribute after AIG contributed $1 million, since that was the “Retained Limit.”

Bottom line, Diamond State and AIG pay the first $2 million equally and then the Liberty Excess policy contributes $500,000.


9/6/07              Ghose v. CNA Reinsurance Company Limited

Appellate Division, First Department
Australian Dispute Sent Down Under

In reinsurance dispute involving primarily Australian parties and, perhaps, Bermuda law, court determines that New York is not the most convenient venue to litigate the matter.  It agrees that lawsuit is dismissed, so long as moving party consents to jurisdiction in Australian courts.


9/6/07              Hersch v. DeWitt Stern Group, Inc.

Appellate Division, First Department
In Unusual Decision, Court Refuses to Dismiss Negligence Claim Against Insurance Broker for Failing to Procure Coverage, Even Where Insured Read Policy
While the majority in a split decision did dismiss a breach of fiduciary duty claim against an insurance broker,  it left intact a cause of action for negligence.  The claim against the broker is that the defendant failed to procure adequate insurance for the insured.  The court found that there are triable issues as to whether plaintiff specifically requested additional coverage for the "additions and alterations" to his cooperative apartment, which was damaged in a fire in November 2004, even though the plaintiff admitted her received and read the policy.  


The dissent indicated that it would have dismissed the complaint entirely because the deposition testimony made it clear that there was no specific request for particular coverage for the flooring, carpeting, curtains, painted walls and bookcases in the unit. According to the dissent, the evidence submitted by defendant established that plaintiff made a generalized request that defendant procure a policy that fully or completely insured the contents of the unit. Such a request is insufficient to impose liability on defendant for not procuring an additions and alterations rider.

Editor’s Note:  My vote would have been cast with the dissent.


STarosieleC’S serious (Injury) Side of New York No-FaulT
Mark Starosielec
[email protected]


No Reported Decisions


Audrey’s Angle 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. 


No Reported Decisions



Steven E. Peiper

[email protected]


08/30/07          1145 Lichter Real Estate Number Three, LLC v Greater New York Ins. Co.

Appellate Division, First Department

Pursuant to the Terms of the Policy, a Lawsuit Commenced More than Two Years after the Loss was Untimely.


Plaintiff’s policy contained a provision which explicitly required any legal action to be filed within two years of the loss or damage.  In this matter, plaintiff’s steam riser broke in 2002.  As a result, plaintiff alleged loss of rent and losses associated with a subsequent mold remediation effort.  Because plaintiff’s legal challenge was not commenced until 2005, the First Department ruled that the policy’s two-year statute of limitations barred the action.  In doing so, the Court also ruled that the two year time period began to accrue upon the date the steam riser broke.


This flatly rejected plaintiff’s argument that the two year period did not begin to run until mold was discovered on the premises in 2003.  Evidence indicated that elevated mold levels were discovered approximately six months prior to the mold contamination reaching dangerous levels.

Moreover, the First Department noted that both the mold remediation and the loss of rent claims “were predicated on that event [the breakdown of the steam riser].” 



Across Borders


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


9/05/07            Allstate Insurance Company v. Mercury Insurance Company
Court of Appeal of California, Second Appellate District, Division Six

Excess Coverage Provision In UM Policy Did Not Prevail Over Proration Statute
This case involved the California statute that allows an insurance policy to prorate uninsured motorist ("UM") coverage when an insured has coverage under more than one UM policy. Allstate’s UM policy contained an "excess coverage" provision, while Mercury’s UM policy contained a "pro-rate coverage provision." The policies had drastically different UM coverage limits. The court held that the excess coverage provision did not prevail over the proration statute. Therefore, the insurers were required to prorate the damages claim among themselves.

Submitted by: John P. Craver and Lucas Lorenz (White and Steele, P.C.)



8/31/07            Lamar Homes, Inc. v. Mid-Continent Casualty Company
Supreme Court of

Insurer Has Duty to Defend Homebuilder Against Claim of Defective Construction Under GCL Policy

This case concerns certified questions from the United States Court of Appeals for the Fifth Circuit. Homeowner sued the homebuilder alleging defects in the foundation. Homebuilder forwarded the lawsuit to its insurer seeking a defense and indemnification under a commercial general liability insurance policy. Insurer refused to defend prompting homebuilder to file a declaratory judgment action. The federal district court granted summary judgment for the insurer finding the insurer had no duty to defend the homebuilder for construction errors that only harmed its own product. The Texas Supreme Court concluded that unintended construction defects may constitute an "accident" or "occurrence" under the insurance policy and also that allegations of damage to or loss of use of the home itself may also constitute "property damage" sufficient to trigger the duty to defend under a commercial general liability policy.

Submitted by: Howard Merten & Keith E. Fayan (Partridge Snow & Hahn LLP)


Reported Decisions


1145 Lichter Real Estate Number Three, L.L.C. v.  Greater NY Ins. Co.

Richard C. Rubinstein, New York, for appellant.
Kera Graubard & Litzman, New York (Martin S. Kera of
counsel), for respondent.

Order, Supreme Court, New York County (Marilyn Shafer, J.), entered March 6, 2006, which denied defendant's motion to dismiss the complaint as barred by the two-year contractual limitations period, unanimously reversed, on the law, without costs, the motion granted and Greater New York Insurance Company is declared not obligated to afford plaintiff coverage under the policy.

The policy at issue contained a provision that any legal action for coverage under it must be brought within two years of the date the direct physical loss or damage occurred. Plaintiff commenced this action on June 7, 2005. However, the date of the direct physical loss or damage from which plaintiff's two-year limitations period must to be measured was the date the steam riser broke, in November, 2002, as both plaintiff's loss of rent claim and its mold remediation claim were predicated on that event.

There is no merit to plaintiff's contention that the date from which this contractual limitation period must begin to run is the first time a mold test disclosed dangerous levels of mold contamination, on June 23, 2003. Under New York law, the loss date is the date of "the occurrence of the casualty or event insured against" (see Morgan Guar. Trust Co. of N.Y. v Aetna Cas. & Sur. Co., 199 AD2d 72 [1993], citing Margulies v Quaker City Fire & Mar. Ins. Co., 276 App Div 695 [1950]; Califano v Citizens Ins. Co. of N.J., 163 Misc 542 [Sup Ct 1937], affd, 252 App Div 731 [1937]).

Nor may plaintiff rely on the date-of-discovery rule. For that rule to apply, an insured must demonstrate that an earlier inspection, diligently undertaken in the face of discovered facts, would not have revealed the cause of the loss (see Morgan Guar. Trust Co. v Aetna, 199 AD2d at 73). Here, the tests in December, 2002 and in March, 2003 revealed the presence of mold contamination, albeit not yet the dangerous levels of mold that were first found at the time of the June 23, 2003 test. This is insufficient to establish that the cause of the claimed loss could not have been revealed sooner than June 7, 2003.

Thus, plaintiff's action against ICGNY was barred by the Policy's two-year contractual limitations period.

Liberty Mutual Ins. Co. v. The Insurance Company of the State of Pennsylvania

Catalano Gallardo & Petropoulos, LLP, Jericho (Gary Petropoulos of counsel), for appellant-respondent.
Goldberg Segalla LLP, Buffalo (Sarah J. Delaney of counsel), for respondents-appellants.

Order, Supreme Court, New York County (Rolando T. Acosta, J.), entered January 22, 2007, which, to the extent appealed from, denied plaintiff's motion for summary judgment and granted defendants' cross motion for summary judgment only to the extent of declaring that plaintiff's recovery, if any, will be limited to $500,000, unanimously modified, on the law, to grant the cross motion to the extent of declaring that plaintiff's recovery, if any, will be limited to $1,000,000, and otherwise affirmed, without costs.

In the underlying personal injury action, an employee of General Industrial Service Corporation (General), a subcontractor on a construction project, sought to recover under the Labor Law as against the project's owner and construction manager. Those defendants, in turn, brought a third-party action for indemnification against General. The employee's personal injury claim was ultimately settled for $2.5 million, of which amount plaintiff Liberty Mutual Insurance Company (Liberty), General's excess insurer, paid $1.5 million and General's primary general liability carrier (Diamond) paid $1 million.

After the settlement, Liberty instituted this action seeking reimbursement of its $1.5 million payment from defendants The Insurance Company of the State of Pennsylvania and American International Group of Companies (collectively, AIG). AIG had issued General an employer's liability policy providing, inter alia, primary coverage for common law liability arising from bodily injury suffered by an employee in the course of employment. Nonetheless, AIG had refused to participate in the defense or settlement of the underlying personal injury litigation.

Although AIG's refusal to defend General, its insured, was unwarranted (see Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169, 175 [1997]), General was defended by Diamond, the other primary insurer. Accordingly, Liberty seeks reimbursement only for indemnification, not defense costs. As to Liberty's claim for reimbursement of its indemnification of General, the fact remains that AIG was a primary insurer whose obligation to cover General's liability took precedence over that of Liberty, an excess insurer, and AIG may not avoid its contractual obligation to the insured by invoking the anti-subrogation rule (see Jefferson Ins. Co. of N.Y. v Travelers Indem. Co., 92 NY2d 363, 375 [1998]).

However, the motion court properly denied Liberty's motion for summary judgment, since, pursuant to Workers' Compensation Law § 11, an employer is not liable for contribution or indemnity to a third party "based upon liability for injuries sustained by an employee acting within the scope of his or her employment for such employer unless such third person proves through competent medical evidence that such employee has sustained a grave injury.'" Whether the injury sustained by General's employee was, in fact, "grave" within the meaning of the statute cannot be determined on this record. Accordingly, since the AIG policy afforded General coverage for common law liability only (excluding "liability assumed under a contract"), the determination of whether AIG is obligated (within policy limits) to reimburse Liberty for its settlement payment must await a finding on whether the employee suffered a grave injury. We reject Liberty's argument that the record establishes the existence of a grave injury as a matter of law, which argument was improperly raised for the first time in Liberty's reply papers in the motion court. Contrary to Liberty's further contention, the statements made by AIG's counsel when the settlement of the personal injury action was announced in open court do not preclude AIG from litigating the grave injury issue in the present action.

In the event the existence of a grave injury is proven, AIG's liability will be limited to $1 million. The Liberty policy provides that coverage thereunder is implicated by liability in excess of the insured's "Retained Limit," defined, in pertinent part, as "the total amounts stated as the applicable limits of the underlying policies listed in the Schedule of Underlying Insurance and the applicable limits of any other insurance providing coverage." That Schedule lists the AIG policy and attributes to it a $1 million per-accident limit of insurance. Even though it appears that the coverage afforded by the AIG policy may have been unlimited in this case, the policy limit set forth in the Schedule of Underlying Insurance annexed to the Liberty policy controls the triggering of Liberty's excess coverage (see State Ins. Fund v International Ins. Co., 251 AD2d 86 [1998], lv denied 92 NY2d 816 [1998]; cf. Commissioners of State Ins. Fund v Aetna Cas. & Sur. Co. (283 AD2d 335 [2001] [because excess policy's schedule of underlying insurance did not include the primary policy at issue, excess coverage would not be triggered until "any other available insurance" was exhausted, and, since primary coverage was unlimited, excess policy was not implicated]).

Finally, the motion court erred in limiting AIG's potential liability to $500,000, half the policy limit set forth in the Liberty excess policy's Schedule of Underlying Insurance. The settlement payment by Diamond, the other primary insurer, exhausted its policy limit, so there is no issue of apportionment between primary coinsurers. While both contractual and common law claims were asserted against General, and AIG's policy afforded General coverage only for common law liability, this does not serve to cut AIG's potential liability in half. "[W]here the facts of the case are such that the insured's liability exists on one theory as well as another and [only] one of the theories results in liability within the coverage, the insured may avail itself of the coverage" (Hawthorne v South Bronx Community Corp., 78 NY2d 433, 438 [1991], citing Aetna Cas. & Sur. Co. v Lumbermens Mut. Cas. Co., 136 AD2d 246, 248 [1988], lv denied 73 NY2d 701 [1988]). While there was an apportionment of liability between primary coinsurers in Hawthorne and Aetna, here AIG is the only primary insurer whose coverage has not been exhausted, and it is not entitled to an apportionment of liability between itself and Liberty, whose excess coverage is implicated only upon the exhaustion of primary insurance.


Ghose v. CNA Reinsurance Company Limited

Sedgwick, Detert, Moran & Arnold, New York (Jason D. Turken of counsel), for appellants-respondents.
Becker, Glynn, Melamed & Muffly LLP, New York (Clifford Tsan of counsel), for respondent-appellant.

Order, Supreme Court, New York County (Richard B. Lowe  III, J.), entered April 1, 2005, insofar as denied the motion of the defendant underwriters to dismiss the complaint on grounds of forum non conveniens, unanimously reversed, on the law and the facts, without costs, to grant the motion to dismiss on condition that defendants stipulate to consent to jurisdiction in either
Australia, England or Bermuda, and to waive any statute of limitations defense, provided that such action is filed within ninety days in the forum selected by plaintiff Udayan Ghose.
Order, same court and Justice, entered March 1, 2006, insofar as it granted Ghose partial summary judgment on his second cause of action to the extent of declaring that the underwriters
"are obligated to pay exposure advice cover and to pay defense costs to [Ghose] . . .," and which denied their motion for reargument of the court's prior order entered April 1, 2005, unanimously reversed, on the law, without costs, and the disposition vacated. Appeal of plaintiff Ghose from the same order, to the extent it denied his request for reargument and/or renewal of the
denial of a previous request that the underwriters be directed to post a bond in the amount of $60,000,000, unanimously dismissed, without costs, as academic.

Appeal of underwriters from order entered March 8, 2007, which denied their motion for renewal of the April 1, 2005 order denying their request for dismissal on the grounds of forum non conveniens, unanimously dismissed, without costs, as academic.

The defendant underwriters, with the exception of Encon Underwriting, the insurance administrator, are subscribing insurers and reinsurers to a Directors' and Officers' Liability Insurance Policy covering the period October 11, 1998 to October 11, 1999. All of the subscribing underwriters are also entities organized and existing under the laws of England, which do business in New York.

The policy was issued to non-party New Cap Reinsurance Corporation Holdings Limited, a Bermudian company. Plaintiff Udayan Ghose, currently a resident of Connecticut, was the Chairman and Chief Executive Officer of New Cap Holdings, and in that capacity was covered under the terms of the officers' liability policy. He claims to have been a resident of New York from 1980 through 1998. The policy provided that the law of Bermuda would govern.

New Cap controls two wholly-owned subsidiaries, New Cap Reinsurance Corporation Limited, incorporated in Australia, and New Cap Reinsurance Corporation (Bermuda) Limited, incorporated in Bermuda. Ghose is also Chief Executive Officer of non-party, Eldon Capital, Inc., a "New York-based firm." Eldon was involved in structuring an equity offering for the New Cap companies in 1996.

In late 1998 New Cap sought to raise capital of $50,000,000, and issued a convertible notes offering in Australia. After irregularities in the company's 1998 report were discovered, trading of the company's stock on the Australian Stock Exchange was suspended in 1999. A liquidator was appointed for New Cap and its Bermudian subsidiary in April 1999 in Bermuda, and a liquidator was also appointed for the Australian subsidiary in Australia in the same month.

Ghose and other New Cap officers and directors were sued in Australia in 2001 by various investors, and allegations were made of, inter alia, violations of Australian securities laws in connection with the convertible notes offering. The action was resolved in favor of Ghose and various other defendants in a judgment rendered March 30, 2007 by the New South Wales Supreme Court. Ghose, however, has also been advised by the Australian liquidator that it will assert a claim against him for insolvent trading.

Ghose has made claims under the insurance policy in conjunction with his discussions with counsel in Australia and New York. New York counsel had been retained in conjunction with ancillary proceedings instituted by the Australian and Bermudian liquidators in the United States Bankruptcy Court for the Southern District Court, that sought discovery of documents as well as Ghose's testimony.

By letters dated, inter alia, March 31, 2004 and July 6, 2004, the insurers formally notified the officers and directors covered under the policy that they were considering revoking the coverage because of what they deemed to be the inclusion of fraudulent information in a prospectus, and the failure by New Cap to advise the insurers of this deception at the time the policy was renewed.

New Cap Reinsurance had previously (in 1996) obtained a $50,000,000 loan facility from Dresdner Bank through Dresdner's New York branch. By 1998 the debt facility had been reduced to $25,000,000 and was held solely by Dresdner New York. In conjunction with the 1998 restructuring, New Cap Reinsurance had submitted a financial statement to Dresdner. It is the information in this statement that the insurers claim was fraudulent, and provides grounds for rescission, because upon renewal, New Cap Reinsurance omitted information which was essential in assessing the risk.

Two actions were filed in 2004 in Australia against the insurers by Azmin Daya and Peter Aroney, officers of the Australian subsidiary, for a declaration that they were entitled to indemnification under the insurance policy for legal fees they had incurred resulting from the Australian stockholders' action.

On or about May 27, 2004, Ghose commenced this lawsuit, and sought a declaration that, inter alia, the policy may not be rescinded, and that the underwriters are obligated to indemnify him for all claims that fall within the policy, and for a money judgment in the amount of at least $439,979. The basis of venue was not specified other than to allege that it was proper pursuant to CPLR 503(a), which permits venue in the county where one of the parties resides, or, if no party resides in the state, in the county chosen by the plaintiff.

The defendants moved to dismiss the complaint pursuant to CPLR 327 on the ground that New York is an inconvenient forum. The motion papers did not recite what forum was more convenient, but, in response to a query from the court at oral argument, counsel stated that the appropriate forum "would seem to be Australia."

By notice dated October 7, 2004 Ghose cross-moved for an order pursuant to Insurance Law 1213(c) "requiring each defendant insurance company in this action that is not an authorized insurer in this State to post a bond to secure payment of the potential final judgment . . . which may exceed US $60,000,000. Ghose also sought partial summary judgment on his claim for defense costs paid to date.

By order entered April 1, 2005, the court denied both motions. It found that New York had a substantial nexus to the litigation in that Ghose sought "exposure advice" from New York counsel in connection with the claims against him, and in connection with the disclosure directed by the United States Bankruptcy Court for the Southern District. The court further found that the financial statement that is at the heart of the rescission claim was submitted to Dresdner in New York, and that witnesses might be sought from Dresdner New York.

The court also observed that the defendants were multinational businesses which would not suffer undue hardship in defending an action in New York, even though there were already similar actions pending in Australia. It was also determined that even though the policy was governed by Bermuda law, New York courts were fully capable of applying foreign law.

The court rejected Ghose's request for the imposition of a bond, and denied the request for partial summary judgment as premature, on the ground that issue had not yet been joined.

In their appeal from the April 1, 2005 order, defendants argue that the court abused its discretion in not dismissing on inconvenient forum grounds, since all the parties are non-residents, the policy was issued in London and is governed by Bermudian law, the omission giving rise to the rescission arose outside New York, many documents concerning both the issuance of the policy and the violations of Australian law are outside the jurisdiction, New York was not envisioned as a forum for adjudication of disputes when the policy was issued, and there are already two similar suits pending in Australia.

Ghose responds that he was effectively a New York resident, if not a domiciliary, the loan restructuring with Dresdner occurred in New York, he is seeking reimbursement, in part, for legal fees incurred in New York, there is no other convenient forum for him, New York law governs the rescission claim since the attempt to rescind is based on events that occurred in New York, and documents and witnesses pertaining to the loan transaction are located in New York.

While the disposition of a motion to dismiss on inconvenient forum grounds is a matter for the IAS court's sound discretion, this court may exercise its discretion independently (Shin-Etsu Chem. Co. Ltd. v ICICI Bank Ltd., 9 AD3d 171, 175 [2004]. As has often been stated, the factors in weighing a motion to dismiss include the burden on New York courts, potential hardship to the defendant, the unavailability of an alternate forum, the residence of the parties, and the location of the events giving rise to the transaction at issue in the litigation (Islamic Republic of Iran v Pahlavi, 62 NY2d 474, 479 [1984], cert denied 469 US 1108 [1985]). The burden remains with the party challenging the forum to demonstrate that the litigation would best be adjudicated elsewhere (Grizzle v Hertz Corp., 305 AD2d 311, 312 [2003]).

While Ghose was purportedly a resident of New York when the policy was issued, but not at the time the lawsuit was commenced, the policy was actually issued to a Bermudian corporation, from an English office. The insured, New Cap, and its Bermudian and Australian subsidiaries, conduct little business in New York. New Cap was actually listed on the Australian stock exchange. Indeed, in a brochure intended for distribution to reinsurance intermediaries, New Cap specifically represented, "The Company does not intend to maintain an office or to solicit, advertise, settle claims or conduct other insurance activities in any jurisdiction other than Bermuda or Australia where the conduct of such activities would require that the Company be so admitted" .

All of the defendants are also non-residents, although they obviously conduct business in New York. Australia is available as a forum, as is England and Bermuda. Suits are also pending in Australia, both against the defendants by other officers, and against New Cap by shareholders.

On the other hand, it is evident that defendants are relying on the false statements provided to Dresdner in connection with the loan facility which was executed in New York, as the basis for their position that there were omissions. Thus, there is some nexus to New York concerning the transaction that is at the heart of the litigation.

On balance, however, Australia clearly is the more appropriate forum. It is where the company that purchased the policy operates, and other actions are already pending there. Discovery in those matters can be used in this litigation. Furthermore, even if the bank statement was falsely prepared in New York, it would appear that information concerning the company's finances is more likely maintained either in Australia or Bermuda. Overall, there is insufficient justification for New York courts to be burdened with this matter, and the matter should be dismissed on condition that defendants do not challenge jurisdiction or raise the statute of limitations as a defense in the new forum chosen by Ghose.

Ghose's appeal of that part of the order denying his request to have a bond posted is thus rendered academic. We note, however, that Insurance Law § 1213(a) applies only to situations involving "policies of insurance issued or delivered in this state by insurers while not authorized to do business in this state." The purpose of the statute is, inter alia, "to assure that a foreign carrier's funds will be available in this State to satisfy any potential judgment" (Levin v Intercontinental Cas. Ins. Co., 95 NY2d 523, 527 [2000]). Thus, inasmuch as the policy was not issued or delivered in New York, the section is not applicable.

Defendants also appeal from a March 1, 2006 order, which, inter alia, granted Ghose's renewal motion for partial summary judgment on his request to recover the costs of the exposure advice he sought, and those already incurred in his defense of the underlying claims. In view of the dismissal of the complaint, the grant of summary judgment cannot be sustained. We note, however, that if the complaint were not being dismissed on grounds of inconvenient forum, the interim award of defense costs would not be disturbed. New York law requires that a judicial order is a condition precedent to the cessation of payment for defense costs in circumstances where a claim has already been made (see Federal Ins. Co. v Kozlowski, 18 AD3d 33, 39-40 [2005]).

Even if we were to accept underwriters' arguments that Bermuda law applies, we would conclude that the affidavit of the expert submitted by them, and the authority contained within, does not show that, under Bermuda law, an insurer can unilaterally rescind a policy after a claim has been made.

The balance of the parties' arguments are unavailing or rendered academic as a result of the dismissal of the complaint.


Hersch v. DeWitt Stern Group, Inc.

Sullivan & Manarel, LLP, New York (Sara B. Feldman of counsel), for appellant.
Davis Polk & Wardwell, New York (Melissa Aoyagi of counsel), for respondent.

Order, Supreme Court, New York County (Judith J. Gische, J.), entered February 21, 2007, which, to the extent appealed from, denied defendant's motion for summary judgment dismissing the complaint, modified, on the law, to grant the motion with respect to the third, fourth, fifth, sixth and seventh causes of action, and otherwise affirmed, without costs.

The court properly denied defendant's motion for summary judgment insofar as it sought dismissal of plaintiff's first two causes of action sounding, respectively, in negligence and breach of contract, and alleging that defendant, an insurance brokerage firm, failed to procure adequate insurance for plaintiff. There are triable issues as to whether plaintiff specifically requested additional coverage for the "additions and alterations" to his cooperative apartment, which was damaged in a fire in November 2004 (see Murphy v Kuhn, 90 NY2d 266 [1997]). Although plaintiff admittedly received and read the policy procured by defendant brokerage, he was allegedly assured that the requested coverage had been obtained and he had "a right to look to the expertise of [his] broker with respect to insurance matters" (Baseball Off. of Commr. v Marsh & McLennan, 295 AD2d 73, 82 [2002]).

Plaintiff's cause of action for breach of fiduciary duty, however, should have been dismissed. Although the parties' relationship lasted a considerable period of time and defendant assured plaintiff that his insurance needs were being met, these circumstances are not so exceptional as to support imposition of a fiduciary duty upon defendant (see Busker on Roof Ltd. Partnership Co. v Warrington, 283 AD2d 376, 377 [2001]).Plaintiff's fourth through seventh causes of action, which are based on allegations that the existence of a contingent commission agreement between defendant and the company that issued the subject insurance policy should have been disclosed to him, should have been dismissed as well. Contingent commission agreements between brokers and insurers are not illegal (see Amusement Bus. Underwriters v American Intl. Group, 66 NY2d 878 [1985]), and, in the absence of a special relationship between the parties, defendant had no duty to disclose the existence of the contingent commission agreement (see Wender v Gilberg Agency, 304 AD2d 311, 311-312 [2003], lv denied 100 NY2d 507 [2003]).

We have considered defendants' remaining arguments and find them unavailing.

All concur except McGuire, J. who concurs in part and dissents in part in a memorandum as follows:

McGUIRE, J. (concurring in part, dissenting in part)

While I agree with much of the majority's disposition of this appeal, I disagree with its conclusion that Supreme Court properly denied those aspects of defendant's motion seeking summary judgment dismissing the first two causes of action. Accordingly, I respectfully dissent in part.

In 1992 plaintiff contacted defendant, an insurance broker, and requested that defendant procure insurance for, among other things, plaintiff's cooperative unit. Defendant procured a policy from nonparty Chubb & Son, Inc., which plaintiff signed and subsequently renewed. The policy contained a provision entitled "Additions and alterations" which stated that:
"We cover your building additions, alterations, fixtures, improvements, installations or items of real property that pertain to your unit. . . . For a covered loss to these items, we will pay up to 10% of the amount of contents coverage or any higher amount listed in the Coverage Summary for Additions and Alterations. The same payment basis applies to Additions and Alterations as to contents." With respect to cooperative units, "additions and alterations" coverage apparently includes such items as flooring, certain kinds of carpeting, curtains and painted walls. In order to obtain full insurance coverage of those items the insured must purchase an additions and alterations rider to the policy. Plaintiff did not purchase such a rider.

On November 5, 2004, a fire occurred in plaintiff's unit, causing extensive fire, smoke and water damage. Plaintiff submitted a claim to Chubb for the damages to the flooring, carpeting, curtains, painted walls and bookcases in the unit. Pursuant to the policy, Chubb paid plaintiff approximately 10% of the value specified in the policy of the "contents" of the unit. Plaintiff commenced this action against defendant asserting numerous causes of action seeking to recover the difference between the damages to the flooring, carpeting, curtains, painted walls and bookcases and the 10% payout issued by Chubb. The gravamen of plaintiff's first and second causes of action — negligence and breach of contract — is that defendant failed to procure insurance sufficient to cover the full value of such flooring, carpeting, curtains, painted walls and bookcases. Supreme Court denied defendant's motion for summary judgment dismissing the complaint and this appeal ensued.

"While an insurance broker acting as an agent of its customer has a duty of reasonable care to the customer to obtain the requested coverage within a reasonable time after the request, or to inform the customer of the agent's inability to do so, the agent owes no continuing duty to advise, guide or direct the customer insured to obtain additional coverage" (Hjemdahl-Monsen v Faulkner, 204 AD2d 516, 517 [1994] [internal quotation marks and citation omitted]; see Murphy v Kuhn, 90 NY2d 266, 270 [1997]). Further, the duty owed by an insurance broker to his or her customer is ordinarily defined by the nature of the request the customer makes to the broker (Madhvani v Sheehan, 234 AD2d 652, 654 [1996]; see Chase's Cigar Store v Stam Agency, 281 AD2d 911 [2001]). Therefore, in order to recover damages for negligence or breach of contract against a broker based on the broker's failure to procure a particular type of coverage, the plaintiff must demonstrate that he or she made a specific request to the broker for that coverage (Hoffend & Sons, Inc. v Rose & Kiernan, Inc., 7 NY3d 152, 158 [2006] ["A general request for coverage will not satisfy the requirement of a specific request for a certain type of coverage"]; see Catalanotto v Commercial Mut. Ins. Co., 285 AD2d 788, 790 [2001], lv denied 97 NY2d 604 [2001]). Defendant made a prima facie showing of entitlement to judgment as a matter of law dismissing plaintiff's causes of action to recover damages for negligence and breach of contract on the ground that plaintiff made no specific request for additional coverage protecting the flooring, carpeting, curtains, painted walls and bookcases in the unit. In support of its motion, defendant submitted the deposition testimony of plaintiff, who testified in general terms that he discussed with defendant "what the apartment consisted of, how it was furnished, what had been done to it, and the fact that [plaintiff] wanted to make sure [the unit] was properly insured." Plaintiff's testimony is bereft of any indication that he specifically requested coverage for the flooring, carpeting, curtains, painted walls and bookcases in the unit. At bottom, the evidence submitted by defendant established that plaintiff made a generalized request that defendant procure a policy that fully or completely insured the contents of the unit. Such a request is insufficient to impose liability on defendant for not procuring an additions and alterations rider (see Hoffend, 7 NY3d at 157; Catalanotto, 285 AD2d at 790; see also MDW Enters., Inc. v CNA Ins. Co., 4 AD3d 338 [2004]; Empire Indus. Corp. v Insurance Cos. of N. Am., 226 AD2d 580 [1996]; Chaim v Benedict, 216 AD2d 347 [1995]). In opposition, plaintiff failed to demonstrate the existence of a triable issue of fact regarding whether he made a specific request for coverage for the flooring, carpeting, curtains, painted walls and bookcases.

Since I agree with the majority that plaintiff's third through seventh causes of action should be dismissed, I would reverse the order and dismiss the complaint.

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