Coverage Pointers - Volume VII, No. 26

Dear Coverage Pointers Subscribers:

Hope you enjoy your July 4th weekend. Just back from the FDCC Litigation Management College and Graduate Program, I again commend this fine program to your attention for excellence in claims education. Reserved seating for next year's programs at the Emory University Conference Center in Atlanta is already available. The Graduate Program, which consisted of 25 very experienced claims professionals, had students from Liberty Mutual, EMC, American Modern, Riverstone Claims Management, Farmers, American Century, RSUI, Nationwide Agribusiness, Erie, Guilford Specialty Group, GenRe/Genesis, PA Lumbermens and Zurich. Contact me if you have any questions or visit the FDCC website, www.thefederation.org.

The July 4th weekend begins the summer slowdown for the appellate courts. You will find this edition of Coverage Pointers attached. It's issue Volume 7: Issue 26. With it, we are pleased to close out our seventh year of publication. Our first issue was sent on July 9, 1999 to a total of 25 initial subscribers. We have over 1200 now and the list continues to grow. Thanks to Scott "We're Good to Go" Billman, our editor and Audrey "The Queen of No Fault" Seeley for their hard word in keeping our issues current and timely.

Nothing much exciting or ground-breaking in this week's issue, the Court's are apparently taking a breather for last week's oddities.

Best wishes.
Dan

Dan D. Kohane
[email protected]

6/29/06 US Fire Insurance Company v. Great American Insurance Group

Appellate Division, First Department

Underlying Bodily Injury Claim Not Covered by Policy or Contemplated by the Parties

The language of a lease agreement which provides for defense and indemnification is separate and apart from the next sentence providing that the Lessee” shall carry insurance to the full insurable value of the equipment leased against loss by fire, theft or other insurable hazards for the benefit of” the Lessor. The mere location of a particular clause in a contract does not, in itself, determine its meaning without regard to the explicit terms employed in the contract. They must be accorded their obvious meaning in order to achieve the purposes of the parties. Reading the sentence addressing insurance against the endorsement in defendant-appellant's policy allows no basis to create coverage for personal injuries rather than damage to the leased equipment.

6/29/06 Mt. McKinley Insurance Company v. Corning Incorporated

Appellate Division, First Department

Stay of Proceedings in State Court an Abuse of Discretion in Multiple Policy Coverage Dispute

This was a declaratory judgment action related to a stay of the State Court proceeding due to a related ongoing proceeding. The matter arose out of allegations of mass asbestos liability exposure on the part of Corning, brought by two of its insurers, Mt. McKinley and Everest Reinsurance Company against Corning and other insurers that issued CGL policies to Corning- approximately . The Plaintiffs sought a declaration that the policies they issued did not cover or provided limited coverage with respect to, the asbestos-related bodily injury claims asserted against Corning. One of the potential avenues for liability as to Corning was through PCC, a Corning affiliate. When PCC filed for Bankruptcy Court Protection, Corning removed to the Federal District Court. There are 145 policies at issue.

The District Court ruled that it had subject matter jurisdiction over only claims arising under 10 policies which comprised 12.6% of the total insurance limits at issue. The District Court rejected Corning's argument that all of its policies were part of a unified coverage program that must be interpreted by one court, the District Court held that since PCC had no interest in the remaining 135 policies, the adjudication of rights under those policies by the New York Supreme Court would "not interfere in any way with the work of the [PCC] bankruptcy court." The New York district court remanded all the claims in the remainder of the action to State Court. The State Court stayed all proceedings pending the outcome of the Federal litigation.

The Appellate Division holds that the stay is not appropriate. The grant of a stay based on justiciability concerns as to these policies constituted a clear abuse of discretion because the claims in this action arising out of the bulk of the policies present a justiciable controversy, whatever the outcome of the PCC bankruptcy or the adversary proceeding. Thus, Corning's coverage dispute with the insurers was presently justiciable and so the Supreme Court should proceed to adjudicate all the claims.

6/29/06 Friedman v. Connecticut General Life Insurance Company

Appellate Division, First Department

Policy Provision on Monthly Benefit Complied with Statute

The breach of contract claim was based upon the insurer's enforcement of its "Relation of Earnings to Insurance" (REI) clause, which was alleged to be unenforceable under the contract due to failure to comply with statutory requirements. Specifically, the policy allegedly failed to notify the insured that his monthly benefit would be less than the policy's stated monthly benefit, because the location in the policy of its REI clause did not accord with the statutory requirements.

Insurance Law § 3216(c) (7) mandates that an exception or reduction to benefits be stated either within the section containing the benefit provision to which it applies or in a section captioned, e.g., "exceptions" or "exceptions and reductions." If the exception or reduction specifically applies only to a particular benefit, a statement of the exception or reduction must be included with the benefit to which it applies. The record shows that the policy at issue complied with the Insurance Law § 3216(d) (2) requirements for the REI clause in all respects.

6/22/06 Cestaro v. Fire and Casualty Insurance Company

Appellate Division, Second Department

Criminal Acts Excluded from Coverage, but Vandalism by Employee Covered

Insured claimed damages as a result of thefts at his premises. The Court holds that coverage is precluded by the insurance policy issued by Fire and Casualty. The policy's “Causes of Loss” form clearly and unambiguously excluded from coverage any loss or damage resulting from a dishonest or criminal act by the insured or its employees. The only inference to be drawn from the evidence presented is that the thefts were orchestrated and facilitated by plaintiff's employees prior to the termination of their employment.

However, the policy did not preclude recovery for damages resulting from vandalism to the premises caused by an employee. The evidence presented indicated that the dishonest parties were employees of plaintiff, i.e., there is no indication they held any position of authority or any ownership or partnership interest in the business. The policy specifically removed from the exclusion any losses sustained by acts of destruction, as opposed to theft, by an employee.

6/20/06 Huckle v. CDH Corporation

Appellate Division, First Department

Carrier Granted Leave to Serve Late Answer When Disclaimer is Withdrawn

Employees brought an action for personal injuries alleging that they were harmed by noxious fumes emanating from a floor covering applied by CDH. CDH informed its liability carrier, National Grange, of the incident on April 24, 2002 and National Grange disclaimed coverage on May 21, 2002. After being served with a summons and complaint in January 2005, defendant forwarded the suit documents to National Grange, which again disclaimed coverage.

In reply, CDH notified National Grange that its disclaimer of coverage was without merit and that defendant did not intend to defend the action. It further notified National Grange that it had a conversation with plaintiffs' attorney wherein it was agreed that a default judgment would be entered against CDH so plaintiffs could commence suit directly against National Grange pursuant to Insurance Law § 3420 (a) (2). The agreement also prohibited enforcement of the judgment against defendant. Defendant assigned all of its rights and causes of action under its policy with National Grange to plaintiffs, making no representation that it had any rights or causes of action to actually assign. It did, however, state that "the disclaimer made by [its insurer] has not been withdraw [sic], waived or otherwise nullified."

Thereafter, National Grange changed its position about its prior disclaimer and contacted plaintiffs' attorney to see if plaintiffs would accept late service of an answer. Plaintiffs refused and moved for a default judgment pursuant to CPLR 3215. CDH successfully cross-moved for an order compelling plaintiffs to accept late service and this appeal ensued.

The Appellate Division upheld the Lower Court and reasoned that National Grange's disclaimer of coverage in 2002, reiterated in 2005, did not void the policy for all purposes as CDH still regarded the policy as in full force and effect, even with respect to plaintiffs' claims as evidenced by its notification to National Grange that it was not going to defend the action. Due to National Grange's disclaimer of coverage, defendant was placed in the unenviable position of having to execute the stipulation not only to protect itself, but also to allow plaintiffs to pursue a direct action against the insurer. As there was no admission of liability and the denial of coverage was the basis for the agreement, the Supreme Court did not abuse its discretion when it disregarded that agreement once the disclaimer of coverage was withdrawn by the insurer.

The Serious (Injury) Side of New York No-Fault

6/29/06 Madden v. Dake

Appellate Division, Third Department

Unpersuasive IME Affidavit Results in Denial of Serious Injury Motion

Plaintiff alleged she sustained serious injuries under three categories: permanent consequential limitation of use of her left knee and left lower extremity; significant limitation of use of the motor functions, muscle and nerve systems of the left lower extremity and knee; and the 90/180-day rubric. The Lower Court denied the serious injury motion at the eve of trial and the Appellate Division affirms.

Defendants offered medical reports and an affidavit from Dr. Eagan, an orthopedic surgeon, who opined that plaintiff had not sustained any serious injury as a result of this accident but, rather, only an abrasion and contusion to her left knee. Eagan concluded that plaintiff's pain complaints and giving way of her left knee were "not supported by any objective findings," noting the absence of fractures or dislocation, and that the causally related ACL strain had healed at arthroscopy, which revealed no evidence of internal knee injury. Also, Eagan conceded that this accident had aggravated without quantification plaintiff's underlying tendencies. The Court also held that defendants' proof did not address plaintiff's medical tests or diagnoses or their significance, or how her preexisting condition was ascertained or the extent to which it was aggravated by this accident. Most troubling to the Court was that Egan’s affidavit was almost a year after his exam of the plaintiff.

In opposition, plaintiff offered he treating physician’s affirmation and all of the medical records and reports as summarized above, which were based upon his prior surgeries and recent treatment and exam of plaintiff in which he observed swelling, stiffness, weakness, limping, atrophy, hyperextension and patellar subluxation. While Ortiz did not offer a numeric percentage of plaintiff's loss of range of motion in her left knee, his affirmation sufficiently provided a qualitative assessment of plaintiff's condition supported by objective evidence, including examination observations, MRIs, CT scans, diagnostic arthroscopies and arthroscopic surgery that were sufficient to defeat defendants' motion.

Audrey’s Angle on No-Fault

In this feature to the newsletter, we highlight recent no-fault arbitration awards. The compilation and publication of these awards is not at the same level as traditional reported case law. There is no single source to conduct comprehensive research in the area. This feature seeks out notable current awards and judicial determinations and provides them to our subscribers.

We encourage the submission of no-fault awards, including Master Arbitration awards that address interesting issues. These can be submitted to Audrey Seeley at [email protected]. With all submissions, we ask that you forward a redacted version of the award omitting the parties’ names and that the document be in PDF format. For copies of these decisions, contact Audrey.

6/26/06 In the Matter of the Arbitration between the Applicant and Respondent

Arbitrator Thomas J. McCorry, Esq. (Erie County)

While Insurer’s Persuasive IME Report Concludes That Applicant’s Surgery Attributed to Prior Motor Vehicle Accident, The Insurer’s Failure To Timely Deny The Surgical Bill Is Fatal.

Here is the Angle: The insurer must timely deny a bill! I repeat, the insurer must timely deny a bill. In this case, the Arbitrator felt that the IME physician’s opinion was persuasive but the insurer failed to timely deny the bill. The consequence as most know is the inability to be able to rely upon that wonderfully persuasive report. Again, it's worth mentioning a third time, the insurer must timely deny a bill.

The Analysis: The issue in this arbitration was whether Applicant’s back surgery was causally related to the motor vehicle accident or a previous 1998 motor vehicle accident.

On March 17, 2001, the Applicant was involved in a motor vehicle accident. Applicant treated an emergency room with neck and back pain complaints. Applicant followed up with her primary care physician, Dr. Deahan who prescribed Oxycontin. On March 22, 2001, Applicant was referred to Dr. P. Jeffrey Lewis for a neurosurgical consultation. After conducting MRI scans of unspecified areas of the spine, Dr. Lewis did not recommend surgery. Rather, Dr. Deahan continued to manage Applicant’s complaint with anti-inflammatory and narcotic medication.

Then, Applicant sought a second surgical consultation with Dr. Andrew Cappuccino, who opined that Applicant sustained significant and severe injuries to her cervical spine. More specifically, Dr. Cappuccino’s impression was that Applicant sustained a questionable C6/7 disc herniation and radiculopathy. It appears as though the Applicant may have undergone lumbar spine surgery prior the March 17, 2001, motor vehicle accident as Dr. Cappuccino also questioned whether Applicant had a solid and stable pseudoarthrosis or solid fusion that may have jarred loose. In October 2002, Dr. Cappuccino proceeded with surgical intervention.

The insurer denied the surgery Dr. Cappuccino conducted on the basis of an independent medical examination conducted by Dr. Avellanosa. Dr. Avellanosa opined that the surgery was related to the 1998 motor vehicle accident and not the March 17, 2001, motor vehicle accident. The basis for this opinion was a review of medical records after the 1998 motor vehicle accident wherein the medical records revealed no change in Applicant’s condition from the 1998 motor vehicle accident until the March 17, 2001, motor vehicle accident.

In addition, the insurer submitted treatment records from Dr. Lewis that stated the Applicant’s low back pain remained unchanged since her preoperative status and was not aggravated by the March 17, 2001, motor vehicle accident. Dr. Lewis further felt that the Applicant’s heavy smoking delayed the bone fusion.

While Arbitrator McCorry found Dr. Avellanosa’s reports to be persuasive he awarded Applicant the proper no-fault rate for Dr. Cappuccino’s surgical bill as the insurer failed to timely deny the bill. Arbitrator McCorry did deny payment of a physical therapy bill based upon Dr. Avellanosa’s reports being more persuasive.

6/24/06 In the Matter of the Arbitration between the Applicant and Respondent

Arbitrator Thomas J. McCorry, Esq. (Erie County)

Unemployed Applicant At Time Of Accident Entitled To Lost Wage Benefits Due To Evidence of Nursing Shortage And Generally Available Positions.

Here is the Angle: This is a unique award of lost wages that appears to be limited to the facts. The Applicant, at the time of the second motor vehicle accident, was an unemployed nurse. She applied for and interviewed for nursing positions but did not accept any as a result of the first motor vehicle accident. At the time of the second motor vehicle accident the Applicant did not have any employment offer for a nursing position. However, she testified and presented evidence that there is a nursing shortage and positions generally available in her field at the time of the second motor vehicle accident. Moreover, Applicant argued that she could not return to a nursing position because of injuries she sustained from both accidents. Despite arbitration awards, that an unemployed eligible injured person must demonstrate an actual job offer at the time of the accident to receive lost wages, Applicant was awarded lost wages based upon the fact that any employer would have hired her as a nurse to the nursing shortage. Further, it was most helpful to the Applicant that she actually returned to work and with the one employer from whom she submitted a letter from indicating positions was generally available.

The Analysis: In this arbitration, which I argued, the Applicant sought lost wages from two insurers as a result of two motor vehicle accidents. The issue, from our client’s perspective, was whether at the time of the second motor vehicle accident the Applicant had a bona fide job offer.

In 1997, the Applicant, a California resident at the time, was involved in a motor vehicle accident in California that resulted in an anterior cervical laminectomy at multiple levels.

On January 6, 2003, while still residing in California but visiting her mother in New York, the Applicant was involved in a motor vehicle accident while operating a rented vehicle.

On May 5, 2003, after Applicant moved to New York, she was involved in another motor vehicle accident.

As a result of both motor vehicle accidents Applicant complained of chronic neck pain. However, Arbitrator McCorry found that the January 2003 motor vehicle accident caused a higher degree of aggravation of her chronic neck pain.

The Applicant, who was a registered nurse, was unemployed when she arrived in New York and was not employed at the time of the January or May 2003 motor vehicle accidents. The Applicant had applied for and interviewed for nursing positions in the Rochester area before the January 2003, motor vehicle accident. However, she never accepted a position due to the January 2003, motor vehicle accident. Further, my client argued that at the time of the May 2003, motor vehicle accident the Applicant did not have a bona fide offer of employment to accept therefore lost wages were not due.

Arbitrator McCorry found Applicant’s testimony more persuasive, in that the Rochester area has a nursing shortage therefore any employer would hire her when she was capable of returning to work. In other words, the fact that there was no evidence from an employer actually offering Applicant a position at the time of the May 2003, accident was of no consequence. The fact that the nursing shortage exists and a potential employer indicated that during the time of the May 2003, motor vehicle accident nursing jobs existed was sufficient to demonstrate Applicant’s entitlement to lost wage benefits.

As between the two motor vehicle accidents, Arbitrator McCorry held that each insurer was responsible for 50% of Applicant’s lost wage benefits up until the time she returned to the nursing profession in June 2004.

6/22/06 In the Matter of the Arbitration between the Applicant and Respondent

Arbitrator Thomas J. McCorry, Esq. (Erie County)

Insurer Cannot Deny Chiropractic Treatment As Not Casually Related To Motor Vehicle Accident Based Upon Its Own Interpretation Of Medical Records.

Here is the Angle: Here, the insurer inappropriately denied chiropractic care based upon its review of a treating orthopedic surgeon’s medical records that indicated the eligible injured person sustained injuries requiring chiropractic care as a result of a motor vehicle accident yet re-injured her after lifting a DVD player. A lesson learned is to obtain an independent medical records review to rely upon.

The Analysis: The Applicant, treating chiropractor, sought payment for chiropractic treatment rendered to the eligible injured person as a result of a May 16, 2005, motor vehicle accident. The eligible injured person complained of low back pain with bilateral sciatic radiation into her hips. The Applicant opined that the eligible injured person’s injuries were a direct result of the May 16, 2005, motor vehicle accident.

The insurer denied the chiropractic treatment based upon “the review of Dr. Leone’s treatment notes dated 12/16/05 indicate that the injured party re-injured herself on 10/30/05 while lifting a DVD player. Therefore, the injury and treatment is related to this event and not the motor vehicle accident of May 16, 2005.”

A review of Dr. Leone’s December 16, 2005, report reveals that the eligible injured person had no back problems prior to the May 16, 2005, motor vehicle accident. Dr. Leone prescribed a week of rest and muscle relaxants as well as narcotic medication. Yet, an October 30, 2005, report from Dr. Leone indicated that “she went to lift a DVD player. She went and twisted the wrong way and it started up again.” Further, Dr. Leone opined that the eligible injured person had lumbar spine disc derangement and recommended continued chiropractic care.

Arbitrator McCorry found the insurer’s denial inappropriate as there was nothing in Dr. Leone’s report to conclude that lifting a DVD player was the cause of the eligible injured person’s complaints and not the May 16, 2005, motor vehicle accident. More importantly, Arbitrator McCorry held that “the claim handlers (sic) interpretation of Dr (sic) Leone’s report was in my opinion insufficient to justify the denial of Applicants (sic) claim.”

Across Borders

Visit the Hot Cases section of the Federation of Defense & Corporate Counsel website, www.thefederation.org ranked among the top five legal research websites in an article published in Litigation News, a publication of the Litigation Section of the American Bar Association. Dan Kohane serves as the FDCC’s Website Editor Emeritus.

6/19/06United Fire and Casualty v. Hixson Brothers, Inc.
Fifth Circuit Court of Appeals

Duty to Defend Where Allegations Do Not Unambiguously Exclude Coverage

Hixson Brothers (“Hixson”) was sued in Louisiana state court for allegedly breaching burial insurance policies under which it was to perform various duties as “Official Funeral Director of the Company,” which plaintiffs in the underlying action allege it did not perform. Hixson tendered its defense against the action to its CGL insurer, United Fire. United Fire defended Hixson for over five years, then filed a declaratory relief action in federal court and sought a declaration that it had no duty to defend. The parties each moved for summary judgment and the district court partially granted Hixson’s motion finding that United Fire had a duty to defend because of the possibility of coverage pursuant to a Mortician’s Professional Liability Endorsement. United Fire appealed the partial summary judgment granted in favor of Hixson. The appellate court affirmed the district court’s decision and held that the underlying action alleged a failure to render funeral services, and, by doing so, alleged that Hixson failed to render professional services. Since those allegations did not unambiguously preclude coverage under the referenced endorsement, United Fire had a duty to defend.

Submitted by: Bruce D. Celebrezze & Michelle M. Hancharik [Sedgwick, Detert, Moran & Arnold LLP]

6/19/06State Farm Fire and Casualty v. Hooks
Illinois Court of Appeal

Household Exclusion Did Not Apply to Preclude Coverage
In an action involving the applicability of a household exclusion contained in a homeowner’s policy, the trial court granted the insurer’s motion for summary judgment holding that the insurer had no duty to defend pursuant to the application of that exclusion. The appellate court reversed the decision and remanded the matter. The appellate court held that the policy in question did not purport to recite any underlying business purpose or intent regarding the exclusion, and that, under the circumstances at issue, a severability clause contained in the policy modified the exclusion so as to permit coverage for a co-insured whose household was not being shared by the claimant.

Submitted by: Bruce D. Celebrezze & Michelle M. Hancharik [Sedgwick, Detert, Moran & Arnold LLP]

6/16/06Patrons Oxford Ins. Co. v. Harris
Supreme Judicial Court of Maine

The Reasonable Belief Exclusion Did Not Preclude Coverage for the Personal Injury Action
The claimant was struck and injured by a truck owned and insured by the insured and driven by the underlying defendant. The insured’s automobile liability insurer defended the underlying action under a reservation of rights. The claimant and the underlying defendant entered into a settlement without the consent of the insurer. The insurer’s reservation of rights was based on the policy’s “reasonable belief” exclusion, as the underlying defendant was not a named insured, had no driver’s license and no permission to drive the truck. The court found that the underlying defendant had a reasonable belief that he was entitled to use the truck, because both he and the insured were under the threat of imminent bodily injury just before the accident occurred and there was no time for “extended colloquy” between them regarding who should drive. The court found that the insurer was not bound by any factual stipulations entered as a part of the underlying settlement, and remanded the case to the trial court for a determination of the reasonableness of the settlement, the alleged existence of collusion and the damages awarded to the claimant.

Submitted by: Bruce D. Celebrezze & Helen H. Chen (Sedgwick, Detert, Moran & Arnold LLP)

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

Newsletter Editor

Scott C. Billman
[email protected]

Insurance Coverage Team

Dan D. Kohane, Team Leader
[email protected]

Michael F. Perley
Scott C. Billman
Audrey A. Seeley

Fire, First-Party and Subrogation Team

Andrea Schillaci, Team Leader
[email protected]

Jody E. Briandi
Philip M. Gulisano

No-Fault/SUM Arbitration Team

Dan D. Kohane, Team Leader
[email protected]

Audrey A. Seeley

Appellate Team
Scott C. Billman, Team Leader
[email protected]

Dan D. Kohane

Scott M. Duquin

Cestaro v. Fire and Casualty Insurance Company

Order, Supreme Court, Bronx County (Patricia Anne Williams, J.), entered April 14, 2005, which granted defendant's motion for summary judgment dismissing the complaint and denied plaintiff's cross motion for partial summary judgment, unanimously modified, on the law, defendant's motion denied with respect to plaintiff's claim for damages stemming from vandalism, that portion of the complaint reinstated, plaintiff's cross motion for partial summary judgment on the issue of liability granted with respect to the vandalism claim, and the matter remanded for further proceedings on the issue of damages with respect thereto, and otherwise affirmed, without costs.

Plaintiff's claim for damages sustained as a result of thefts at his premises on December 8 and 10, 2001, is precluded by the insurance policy issued by defendant. Paragraph B(2)(h) of the policy's Causes of Loss form clearly and unambiguously excludes from coverage any loss or damage resulting from a dishonest or criminal act by the insured or its employees. The only inference to be drawn from the evidence presented is that the thefts were orchestrated and facilitated by plaintiff's employees prior to the termination of their employment.

Paragraph B(2)(h) does not, however, preclude recovery for damages resulting from vandalism to the premises caused by an employee. The evidence presented does not indicate that the dishonest parties were anything more than mere employees of plaintiff, i.e., there is no indication they held any position of authority or any ownership or partnership interest in the business. Paragraph B(2)(h) specifically removes from the exclusion any losses sustained by acts of destruction, as opposed to theft, by an employee.

We have considered plaintiff's remaining arguments and find them without merit.

Huckle v. CDH Corporation

Peters, J.

Appeal from an order of the Supreme Court (Relihan Jr., J.), entered September 26, 2005 in Tompkins County, which, inter alia, denied plaintiffs' motion for a default judgment.

Plaintiffs, employees of Schweizer Aircraft Corporation, brought this action for personal injuries alleging that they were harmed by noxious fumes emanating from a floor covering applied by defendant at Schweizer on January 24, 2002. Defendant informed its liability carrier, National Grange Mutual Insurance Company, of the incident on April 24, 2002 and it disclaimed coverage on May 21, 2002. After being served with a summons and complaint in January 2005, defendant forwarded these documents to National Grange, which again disclaimed coverage. By letter dated April 7, 2005, defendant notified National Grange that its disclaimer of coverage was without merit and that defendant did not intend to defend the action. It further notified National Grange that it had a conversation with plaintiffs' attorney wherein it was agreed that a default judgment would be entered against defendant to enable plaintiffs to enforce the judgment against National Grange pursuant to Insurance Law § 3420 (a) (2), so long as there would be no enforcement of that judgment against defendant. Acknowledging that there may be serious liability and damages involved with the claim, defendant suggested to National Grange that it enter an appearance in the action. Within a week, defendant entered into a stipulation with plaintiffs memorializing their agreement. Defendant assigned all of its rights and causes of action under its policy with National Grange to plaintiffs, making no representation that it had any rights or causes of action to actually assign. It did, however, state that "the disclaimer [*2]made by [its insurer] has not been withdraw [sic], waived or otherwise nullified." Notably, the stipulation stated, in very clear terms, that it was premised upon the fact that plaintiffs were injured and that National Grange disclaimed coverage.

Nothing was done for the next two months until National Grange changed its position about its prior disclaimer. It then contacted plaintiffs' attorney to see if plaintiffs would accept late service of an answer on defendant's behalf. Plaintiffs' counsel refused to accept late service and subsequently moved for, among other things, a default judgment pursuant to CPLR 3215, relying on the stipulation executed by the parties. Defendant successfully cross-moved for an order compelling plaintiffs to accept late service and this appeal ensued.

Acknowledging that public policy favors the resolution of cases on the merits and that Supreme Court is vested with the discretionary authority to permit late service of an answer upon a showing of a reasonable excuse for the delay and a meritorious cause of action (see CPLR 3012 [d]; Amodeo v Gellert & Quartararo, P.C., 26 AD3d 705, 706 [2006]; Loris v S & W Realty Corp., 16 AD3d 729, 730 [2005]; Aabel v Town of Poughkeepsie, 301 AD2d 739, 739 [2003]), we find no error. Supreme Court reasoned that National Grange's disclaimer of coverage in 2002, reiterated in 2005, did not void the policy for all purposes; defendant still regarded the policy as in full force and effect, even with respect to plaintiffs' claims as evidenced by its notification to National Grange that it was not going to defend the action. Due to National Grange's disclaimer of coverage, defendant was placed in the unenviable position of having to execute the stipulation not only to protect itself, but also to allow plaintiffs to pursue a direct action against the insurer (see Insurance Law § 3420 [a] [2]). With no admission of liability in the stipulation and it being clear that the denial of coverage was the basis for their agreement, Supreme Court cannot be found to have abused its discretion in disregarding that agreement once the disclaimer of coverage was withdrawn (see generally Isadore Rosen & Sons v Security Mut. Ins. Co. of N.Y., 31 NY2d 342, 348 [1972]; cf. Krenitsky v Ludlow Motor Co., 276 App Div 511, 513-514 [1950], lv dismissed 301 NY 609 [1950]; see Better v Town of Schodack, 169 AD2d 965, 965 [1991]). We also reject the claim that the reasonableness of the delay should not have been considered because it was not properly asserted (cf. N.A.S. Partnership v Kligerman, 271 AD2d 922, 923 [2000]). Further lacking a viable claim of prejudice and there being a showing of a potentially meritorious defense (see Loris v S & W Realty Corp., supra at 731), we decline to disturb Supreme Court's order.

Madden v. Dake

Spain, J.

Appeal from a judgment of the Supreme Court (Aulisi, J.), entered February 7, 2005 in Fulton County, upon a verdict rendered in favor of plaintiff.

Plaintiff, while operating a motor vehicle, was involved in an accident on December 11, 2001. As she was coming to a stop at an intersection, a school bus owned by defendant Gloversville Enlarged School District and operated by defendant Jean A. Dake crossed into plaintiff's lane while turning a corner, striking the driver's side of plaintiff's vehicle. Plaintiff was transported to the emergency room complaining of pain to her left side and, upon examination, her left thigh and knee were tender to palpation. X rays disclosed no fractures. She was diagnosed, as relevant here,^[FN1] with left knee strain and a left thigh contusion. She returned to the [*2]emergency department several times over the days following the accident, complaining of increased left knee pain. Swelling was noted but X rays were again normal.

Plaintiff began treatment with Gerald Ortiz, an orthopedic surgeon, on December 20, 2001, when observable swelling and a significant limitation in her range of motion were detected. Extended physical therapy was pursued and an MRI revealed an anterior cruciate ligament (hereinafter ACL) strain, edema within the ACL sheath and an intrameniscal tear of the medial meniscus. Plaintiff's pain, stiffness, limited mobility and swelling continued and she saw little improvement from physical therapy; she also experienced snapping in her left knee and the knee gave way multiple times. Ortiz performed a diagnostic arthroscopy in April 2002, and diagnosed "external derangement of the left knee in the form of patellofemoral subluxationm," i.e., movement of the knee cap out of alignment with the femur groove, which Ortiz opined caused her leg to give way and was attributable to this accident. Plaintiff's condition continued and a dynamic CT scan in December 2002 showed her left patella (knee cap) was lateralized (positioned to the side) more than the right patella and was also tilted, which Ortiz attributed to her recurrent patella subluxation. Ortiz performed surgery in March 2003, a Fulkerson osteotomy and lateral ligament release, in which he cut the bone where the patellar tendon attaches, realigned the knee and reattached the bone with screws, to reduce the stress on the patella from bending/straightening and its associated pain. Plaintiff saw some improvement in symptoms after surgery but continued to treat with Ortiz, and the swelling, limited mobility and weakness persisted. She remained totally disabled from her occupation as an intensive care nurse.

By February 2004, plaintiff had atrophy of her lower left extremity and swelling, and X rays revealed that the surgical screws inserted had loosened, necessitating surgical removal and another diagnostic arthroscopy in which hypertrophic (swollen) synovial tissue in her patellofemoral joint was dissected. Ortiz ultimately concluded that plaintiff's left knee pain, weakness and limited mobility were chronic, permanent and significant and, while surgery had helped, it had not fully corrected plaintiff's injuries; no further surgery was recommended.

Plaintiff commenced this action against defendants in December 2002, alleging that she had sustained serious injuries under three categories: permanent consequential limitation of use of her left knee and left lower extremity; significant limitation of use of the motor functions, muscle and nerve systems of the left lower extremity and knee; and the 90/180-day rubric (see Insurance Law § 5102 [d]). On the eve of trial, defendants moved for summary judgment, which Supreme Court denied in a written order and decision.

Following a trial, the jury returned a verdict in plaintiff's favor, finding that she had sustained serious injuries under both the permanent consequential and significant limitation of use categories, but not under the 90/180-day category. Plaintiff was ultimately awarded damages ($763,350) for past and future lost earnings, medical expenses and pain and suffering. Defendants now appeal, arguing that they should have been awarded summary judgment ^[FN2] and [*3]raising challenges to several trial rulings. We affirm in all respects.

Initially, we reject defendants' contention that Supreme Court erred in denying their summary judgment motion seeking dismissal of plaintiff's complaint. As the proponent of the motion, defendants bore the initial burden of establishing that plaintiff did not sustain a serious injury within either of the two limitation of use categories, permanent consequential or significant (see Gaddy v Eyler, 79 NY2d 955, 956 [1992]). Defendants offered medical reports and an affidavit from Thomas Eagan, an orthopedic surgeon, who opined, based upon a review of plaintiff's medical records and reports and his examination of her in November 2003, that she had not sustained any serious injury as a result of this accident but, rather, only an abrasion and contusion to her left knee. Eagan concluded that plaintiff's pain complaints and giving way of her left knee "are not supported by any objective findings," noting the absence of fractures or dislocation, and that the causally related ACL strain had healed at arthroscopy, which revealed no evidence of internal knee injury. Eagan submitted that plaintiff had a preexisting tendency for patellar tilting and movement and ligament laxity (hyperextension) in both knees, which was exacerbated by other factors including her nursing duties. Eagan did not otherwise explain his conclusion that plaintiff's knee problems were attributable to a preexisting, underlying anatomical tendency. Also, Eagan conceded that this accident had aggravated without quantification plaintiff's underlying tendencies. He found, however, that Ortiz's surgery to reposition and stabilize plaintiff's patella had corrected the problem, and physical therapy had corrected the muscle atrophy; he detected no limitations upon her range of motion or subluxations during his exam.

We find that defendants' proof did not address or specifically explain some of plaintiff's medical tests or diagnoses or their significance, or how her preexisting condition was ascertained or the extent to which it was aggravated by this accident. Most troubling, Eagan's November 2004 affidavit (and the independent medical examination addendum) in support of defendants' motion was almost a year after his exam of her, and did not address the significance of her May 2004 diagnostic orthroscopy, in which Ortiz removed screws, noted patellar subluxation and dissected synovial tissue near her patellofemoral joint. Thus, it is questionable whether defendants met their burden of demonstrating that plaintiff did not sustain either of the alleged serious injures but, in any event, plaintiff's proof in opposition was sufficient to defeat defendants' motion (see Franchini v Palmieri, 1 NY3d 536, 537 [2003]; Toure v Avis Rent A Car Sys., 98 NY2d 345, 353 [2002]; cf. Adams v Pagano, 1 AD3d 779 [2003]; Hubert v Tripaldi, 307 AD2d 692 [2003]). [*4]

Plaintiff offered Ortiz's December 2004 affirmation, and all of the medical records and reports as summarized above, which were based upon his prior surgeries and recent treatment and exam of plaintiff in which he observed swelling, stiffness, weakness, limping, atrophy, hyperextension and patellar subluxation. He opined that her recurrent patellar subluxation and attendant chronic knee pain were permanent, caused by this accident, and significantly limited her ability to engage in regular activity, including standing, bending or walking without pain, and rendered her unable to perform nonsedentary nursing duties. While Ortiz did not offer a numeric percentage of plaintiff's loss of range of motion in her left knee, his affirmation sufficiently provided a qualitative assessment of plaintiff's condition supported by objective evidence, including examination observations, MRIs, CT scans, diagnostic arthroscopies and arthroscopic surgery (see Toure v Avis Rent A Car Sys., supra at 350-351). Thus, defendants' motion was properly denied.

Moreover, we find no merit to defendants' claim, apparently raised for the first time on appeal, that Supreme Court erred in issuing a decision after the start of the trial on their eleventh-hour summary judgment motion ^[FN3]. While it is not clear when the note of issue was filed (see CPLR 3212 [a]; see also Brill v City of New York, 2 NY3d 648 [2004]), the court clearly based its written decision on "the papers and proof submitted" on the motion (CPLR 3212 [b]), and there is no support for defendants' assertion that the court's ruling was influenced by the trial proceedings.

We are similarly unpersuaded by defendants' challenges to Supreme Court's trial rulings permitting certain expert testimony. To establish plaintiff's future economic losses attributable to her causally related permanent moderate disability, plaintiff in addition to her own testimony and that of her treating physician presented the testimony of a certified vocational rehabilitation expert, Marvin Reed, and that of an economist. Reed testified that his opinion was based upon plaintiff's medical and employment records, a structured interview with plaintiff, government publications and his extensive experience as a vocational rehabilitation counselor. He testified to plaintiff's functional limits attributable to her physical impairment, her qualified ability to work in a sedentary capacity as a nurse, her loss of and residual earning capacity and projected earnings based upon her expected work life, and her future anticipated medical expenses.

To the extent that Supreme Court overruled some of defendants' objections to aspects of Reed's testimony as lacking adequate foundation or based upon assumptions not supported by the record, we discern no abuse of discretion (see Dufel v Green, 84 NY2d 795, 797-798 [1995]; Tassone v Mid-Valley Oil Co., 5 AD3d 931, 932 [2004], lv denied 3 NY3d 608 [2004]; cf. Pascuzzi v CCI Cos., 292 AD2d 685, 685-687 [2002]). Reed's testimony did not exceed the scope of his expertise or endeavor to extrapolate his calculations to account for inflation or offer conclusions as to total losses sustained by plaintiff, leaving those calculations to the economist. His assessments were largely based upon materials in evidence, or reliant upon identified and [*5]professionally accepted outside sources, or derived from his own personal knowledge and considerable experience, subject to full cross-examination (see Hambsch v New York City Tr. Auth., 63 NY2d 723, 725-726 [1984]; Brown v County of Albany, 271 AD2d 819, 820 [2000], lv denied 95 NY2d 767 [2000]). The court's determination that he was qualified to testify to these matters as an expert "will not be disturbed in the absence of serious mistake, an error of law or abuse of discretion" (Aylesworth v Evans, 225 AD2d 850, 851-852 [1996], citing Werner v Sun Oil Co., 65 NY2d 839, 840 [1985]). Defendants' underlying criticism of Reed's reliance on his own experience in rendering opinions goes to its weight, not its admissibility (see Hoagland v Kamp, 155 AD2d 148, 152 [1990]). Indeed, the jury awarded significantly less compensation for plaintiff's net losses (wages, benefits and future medical expenses) than Reed's testimony and the other testimony would have supported, indicating that the jury disregarded as it was entitled to do many of the disputed aspects of plaintiff's expert testimony based upon defendants' effective cross-examination (see Prescott v LeBlanc, 247 AD2d 802, 802 [1998]).

Next, in view of the consistent testimony and evidence adduced at trial that at the point of impact plaintiff's vehicle was approaching the stop sign but had not yet reached the stop line at this intersection, viewed most favorably to defendants, we find no error in Supreme Court's denial of defendants' request to charge the jury with regard to plaintiff's possible violation of Vehicle and Traffic Law § 1172 (see PJI 3d 2:80 [2006]; see also Tyson v Brecher, 212 AD2d 851, 851 [1995]; Hardy v Sicuranza, 133 AD2d 138, 139 [1987]; cf. Sutton v Piasecki Trucking, 59 NY2d 800 [1983]; Beaumont v Smyth, 16 AD3d 1106 [2005]; Espinoza v Loor, 299 AD2d 167 [2002]).

Finally, defendants take issue with Supreme Court's exclusion of a letter of explanation written to City Court by Dake, the driver of the bus, regarding this accident prior to her guilty plea to violating Vehicle and Traffic Law § 1160. We find no merit to this claim, in view of Dake's ability and opportunity to explain the reasons for her plea during her testimony at this trial (see Kelley v Kronenberg, 2 AD3d 1406, 1407 [2003]). Defendants' remaining claims do not warrant further discussion.

Mercure, J.P., Crew III, Mugglin and Kane, JJ., concur.

ORDERED that the judgment is affirmed, with costs.

Footnotes

Footnote 1: Although plaintiff raised claims in her bills of particular related to other injuries sustained in this accident, they had resolved and were not in issue on defendants' summary judgment motion. Also, plaintiff's 90/180-day claim was rejected by the jury after a trial and, thus, any issue related to the denial of defendants' motion with regard to that category is moot.

Footnote 2: Contrary to plaintiff's claims, defendants' appeal from the final judgment brings up for review all interlocutory orders, including the order denying defendants' summary judgment motion which has not previously been reviewed by this Court (see Warnke v Warner-Lambert Co., 21 AD3d 654, 656 n 2 [2005]; see also CPLR 5501 [a] [1]). The fact that defendants previously had separately appealed from the order (denying their summary judgment motion), and then withdrew that appeal, does not alter its reviewability now on the appeal from the final judgment. Indeed, defendants' right to separately take a direct appeal from that intermediate order would have terminated upon entry of the final judgment upon the jury verdict (see id.).

Footnote 3: It appears that the motion for summary judgment (initiated by a notice of motion) was returnable on December 6, 2004, one week before the scheduled trial date of December 13, 2004. Notably, defendants' reply to plaintiff's response is dated December 13, 2004 and Supreme Court's written decision is dated December 16, 2004, the day before the last day of proof.

Friedman v. Connecticut General Life Insurance Company

Order, Supreme Court, New York County (Richard B. Lowe III, J.), entered January 12, 2005, which granted defendant's motion for summary judgment to the extent of dismissing the first, second, third, fourth, sixth and eighth causes of action, and granted plaintiff's cross motion for summary judgment as to the fifth and seventh causes of action, unanimously modified, on the law, plaintiff's cross motion denied in its entirety, the fifth and seventh causes of action dismissed, and otherwise affirmed, with costs in favor of defendant. The Clerk is directed to enter judgment in favor of defendant dismissing the complaint. Appeal from order, same court (Ira Gammerman, J.), entered April 2, 2003, which denied defendant's motion to dismiss the complaint on grounds that it failed to state a cause of action and/or was time-barred, unanimously dismissed as academic, without costs, in view of the foregoing.

The summary judgment court erred in treating the motion before it as one to reargue the prior motion to dismiss for failure to state a cause of action, and treating the prior determination as law of the case. The doctrine of law of the case is inapplicable "where . . . a summary judgment motion follows a motion to dismiss" (Riddick v City of New York, 4 AD3d 242, 245 [2004], since the scope of review on the two motions differs; the motion to dismiss examines the sufficiency of the pleadings, whereas summary judgment examines the sufficiency of the evidence underlying the pleadings (Tenzer, Greenblatt, Fallon & Kaplan v Capri Jewelry, 128 AD2d 467, 469 [1987]). Moreover, the language relied upon from the prior motion court's determination was obiter dictum. The issue before the prior motion court was whether the statute of limitations had expired, thereby extinguishing plaintiff's fifth cause of action for breach of the subject disability insurance policy. The court improperly considered and construed the policy's language and determined that the insurer had breached the policy. It was this determination that the summary judgment court then improperly treated as law of the case.

This error was compounded by the prior motion court's erroneous construction of the policy language. The breach of contract claim was based upon the insurer's enforcement of its "Relation of Earnings to Insurance" (REI) clause, which was alleged to be unenforceable under the contract due to failure to comply with statutory requirements. Specifically, the policy [*2]allegedly failed to notify the insured that his monthly benefit would be less than the policy's stated monthly benefit, because the location in the policy of its REI clause did not accord with the statutory requirements.

Insurance Law § 3216(c)(7) mandates that an exception or reduction to benefits be stated either within the section containing the benefit provision to which it applies or in a section captioned, e.g., "exceptions" or "exceptions and reductions." If the exception or reduction specifically applies only to a particular benefit, a statement of the exception or reduction must be included with the benefit to which it applies.
The provision expressly excludes from these requirements the exceptions and reductions listed in subsection (d), which provides in relevant part:

Each policy of accident and health insurance . . . shall contain the provisions specified herein in the words in which the same appear in this subsection . . . Each provision contained in the policy shall be preceded by the applicable caption herein . . .

(2) Other provisions. No such policy delivered or issued . . . shall contain provisions respecting the matters set forth below unless such provisions are in the words . . . in which the same appear in this paragraph except that the insurer may, at its option, use in lieu of any such provision a corresponding provision of different wording approved by the superintendent which is not less favorable in any respect to the insured or the beneficiary. Any such provision contained in the policy shall be preceded individually by the appropriate caption appearing herein or, at the option of the insurer, by such appropriate individual or group captions or subcaptions as the superintendent may approve.

. . .

(F) RELATION OF EARNINGS TO INSURANCE

The record shows that the policy at issue complied with the Insurance Law § 3216(d)(2) requirements for the REI clause in all respects. Contrary to plaintiff's contention, the REI clause was not subject to § 3216(c)(7)'s requirements as to location. Plaintiff's reading would render superfluous the clause excluding the items listed in subsection (d). Section 3216(c)(7), having excluded from its ambit the exceptions and reductions listed in subsection (d), did not then reincorporate them by requiring that if an exception or reduction specifically applies only to a particular benefit, a statement to that effect must be included with the benefit to which it applies. Such reading would violate basic tenets of statutory construction requiring that a statute be read so as to give its language its plain meaning (McKinney's Statutes § 94) and so as to give meaning to all of its language (see § 97, § 98, § 231). Thus, § 3216(c)(7) and (d)(2) should be read as prescribing one method for protecting the consumer as to the first group of exceptions and reductions referenced, and a different method to protect the consumer in the case of the subsection (d) exceptions and reductions. The former group may either be stated within the section containing the benefit provision to which it applies (it must be stated within the benefit's section if the exception or reduction specifically applies only to a particular benefit) or in a section captioned "exceptions" and/or "reductions"; in the latter group, each must be highlighted by a separate caption and its language must be that of the statute or be similar language approved by the State Superintendent of Insurance, as in the case at bar. Hence, the location of the REI clause in the policy did not violate the statute, as a matter of law, and the fifth cause of action must be dismissed.

As a result of the foregoing, the seventh cause of action, which sought the statutory penalty under Insurance Law § 4226 for
alleged violation of Insurance Regulation (11 NYCRR) § 52.60, should also be dismissed.

THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: JUNE 29, 2006

CLERK

Mt. McKinley Insurance Company v. Corning Incorporated

Appeal from an order of the Supreme Court, New York County (Karla Moskowitz, J.), entered July 12, 2004, which, to the extent appealed from as limited by the briefs, granted a stay of this declaratory judgment action pending the outcome of a related federal proceeding.




SULLIVAN, J.

This is a declaratory judgment action, which arises in the context of mass asbestos liability exposure on the part of Corning Incorporated, brought by two of its insurers, Mt. McKinley Insurance Company and Everest Reinsurance Company,^[FN1] against Corning and other insurers that similarly issued commercial general liability (CGL) policies to Corning. Plaintiffs seek a declaration that the policies they issued do not cover, or at most, provide limited coverage with respect to, the asbestos-related bodily injury claims asserted against Corning. Defendant insurers, which have filed cross claims against Corning similar to those alleged in the complaint, appeal from Supreme Court's grant of Corning's motion, made in the alternative to a dismissal motion, for a stay of this action pending resolution of certain issues in related matters pending in federal court in Pennsylvania.

The asbestos claims against Corning generally fall into two categories: claims arising from exposure to products sold by a former Corning subsidiary, Corhart Refractories (Corhart claims), and claims arising from exposure to the product Unibestos (Unibestos claims), manufactured from approximately 1962 through 1972 by Corning's affiliate, Pittsburgh Corning Corporation (PCC), owned equally by Corning and PPG Industries, Inc. Corning is a named defendant in thousands of claims of both types.

In 2000, PCC commenced a voluntary Chapter 11 bankruptcy proceeding in the United States District Court for the Western District of Pennsylvania, and in May 2002 announced a reorganization plan that would create a trust funded with approximately $2.7 billion for the disposition of asbestos claims against PCC and PPG. The plan did not address Corning's liabilities.

Thereafter, on July 3, 2002, plaintiffs commenced this action in Supreme Court, New York County, alleging that the CGL policies they issued to Corning from 1962 through 1985 do not cover or provide limited coverage for the Corhart and Unibestos claims, while defendant insurers' CGL policies do provide such coverage. The latter have cross-claimed against Corning, alleging that their policies do not cover or provide limited coverage for the Corhart and Unibestos claims.

The 145 policies in issue, with aggregate limits of $1.7795 billion, fall into three categories. The first and smallest, providing coverage with an aggregate limit of $225 million and representing 12.6% of the insurance limits at issue, consists of 10 pre-1974 excess policies, as to which both Corning and its affiliate, PCC, seek coverage (the affiliate policies). The second category, consisting of 40 policies as to which only Corning claims coverage and as to which it seeks to assign its policy rights as part of the PCC plan (the assigned policies), provides an aggregate limit of $296 million and comprises approximately 16.6% of the insurance limits at issue. The third and largest category, consisting of the 95 remaining policies as to which only Corning claims coverage and which it does not seek to assign as part of the PCC plan (the non-affiliate, non-assigned policies), provides coverage with an aggregate limit of $1.2585 billion and comprises approximately 70.7% of the insurance limits at issue. This category, the non-affiliate, non-assigned policies, comprising the overwhelming majority of polices at issue, is not referred to in the PCC plan or affected by it.

Three weeks after the commencement of this action, on July 24, 2002, Corning removed it to the United States District Court for the Southern District of New York on the ground that it was related to the PCC bankruptcy. Corning thereafter moved to transfer the action to the bankruptcy court in the Western District of Pennsylvania, to be consolidated with a mirror image adversary proceeding that Corning commenced the day after it removed this action to the federal court. Defendant insurers opposed the transfer motion and moved for remand on several grounds, including lack of subject matter jurisdiction and mandatory abstention under 28 USC § 1334(c)(2). The district court in New York ruled that it had subject matter jurisdiction over only those claims arising under the 10 affiliate policies, which, as noted, comprise merely 12.6% of the total insurance limits at issue, finding that these claims were "core" to PCC's reorganization in the Western District of Pennsylvania. Rejecting Corning's argument that all of its policies were part of a unified coverage program that must be interpreted by one court, the New York district court held that since PCC had no interest in the remaining 135 policies, the adjudication of rights under those policies by the New York Supreme Court would "not interfere in any way with the work of the [PCC] bankruptcy court." The New York district court remanded all the claims in the remainder of the action, characterized as "the bulk of this litigation," to Supreme Court. Although finding federal jurisdiction as to the claims arising under the affiliate policies, the New York district court stayed proceedings on these claims in light of Corning's assertion of duplicative claims in an adversary proceeding in PCC's bankruptcy proceeding. Since the federal district court in New York found that Corning's claims on the affiliate policies triggered core, rather than non-core, bankruptcy jurisdiction, it concluded that mandatory abstention under 28 USC § 1334(c)(2) did not apply to those policies.

Corning announced on March 28, 2003 that it had agreed to participate in the PCC plan, to which it would contribute cash, stock and an assignment of rights under the assigned policies, valued at no less than $300 million, in exchange for a complete release with respect to both the Corhart and Unibestos claims. Corning planned to recover the cost of its contribution to the plan from its insurers, including defendant insurers, by expressly reserving its right to do so. On April 10, 2003, Corning moved before the New York district court to modify its earlier order to provide that the assigned policies, in addition to the affiliate policies, were subject to federal jurisdiction. The district court denied the motion, holding that the proposal to assign these assigned policies did not bring them within federal bankruptcy jurisdiction, and reaffirming its remand to Supreme Court of all the claims relating to the policies except the affiliate policies.

In Corning's adversary proceeding in the PCC bankruptcy against PCC and virtually all of the defendant insurers in this action, Corning sought a declaration of coverage under its CGL policies for asbestos claims, expressly alleging the existence of a justiciable controversy between it and all of its insurers with respect to coverage for the Corhart and Unibestos claims. Several insurers successfully moved in the Pennsylvania district court to withdraw the reference of the adversary proceeding from the PCC bankruptcy court. On Corning's motion to vacate the withdrawal of the reference, a hearing was held, at which the Pennsylvania district court dismissed, without prejudice, Corning's claims under the non-affiliate, non-assigned policies on the basis of abstention and deference to the New York State court proceeding. The Court stayed the remaining claims with respect to the affiliate and assigned policies. That stay is still in effect.

Two weeks later, on July 15, 2003, Corning moved in Supreme Court to dismiss the complaint on numerous grounds, including lack of a justiciable controversy. Later, it also moved to dismiss defendant insurers' cross claims. Alternatively, Corning sought a stay of the New York action pending confirmation of the PCC plan in the bankruptcy proceeding and resolution of the adversary proceeding. Supreme Court stayed any decision on the justiciability of the action and held the dismissal motions in abeyance "until the District Court of the Western District of Pennsylvania decides whether the federal courts have jurisdiction to determine coverage concerning all the insurance at issue here, as well as until a reorganization plan has been confirmed in the bankruptcy action."^[FN2] With respect to the affiliate and assigned policies, the court held, "Given the present status of the adversary proceeding, it would be inappropriate" to do anything else. As to the non-affiliate and non-assigned policies, the court found that some of these policies were underwritten by insurers that had also issued affiliate and assigned policies. This appeal, insofar as it stayed the action, followed. We reverse and vacate the stay.

Contrary to Supreme Court's ruling, the fact that some of the non-affiliate and non-assigned policies were issued by insurers that had also issued affiliate and assigned policies is of no legal significance and furnishes no basis for the grant of a stay. The grant of a stay based on justiciability concerns as to these policies constituted a clear abuse of discretion
(see Pierre Assoc. v Citizens Cas. Co. of N.Y., 32 AD2d 495, 496-497 [1969]) because the claims in this action arising out of the 95 non-affiliate, non-assigned policies present a justiciable controversy, whatever the outcome of the PCC bankruptcy or the adversary proceeding. If the PCC plan is not confirmed, Corning will remain subject to thousands of Corhart and Unibestos claims. As to those claims, disputes over coverage will be, as they are now, justiciable. If the plan is confirmed, while Corning will have thereby liquidated its potential asbestos liability with respect to Unibestos and Corhart claims, its claim to recoup its $300 million contribution to the PCC plan from its insurers survives and presents a justiciable controversy. Thus, Corning's coverage dispute with the insurers of the non-affiliate, non-assigned policies is presently justiciable for the same reasons that its coverage disputes with the insurers of the affiliate and assigned policies are admittedly justiciable. Since all the claims in this action are justiciable, and in light of subsequent developments (the Second Circuit's ruling that not even the 10 affiliate policies present issues within the bankruptcy court's core jurisdiction), Supreme Court should proceed to adjudicate all the claims.

Although the stay order purports merely to stay, not decide, the justiciability of the issues raised in this action, its effect is a ruling that the issues are not presently justiciable. Needless to say, a declaratory judgment action requires an actual controversy between parties having a stake in the outcome (see e.g. New York Pub. Interest Research Group v Carey, 42 NY2d 527, 529-531 [1977]), and is routinely used to resolve coverage issues with respect to claims against insureds (see e.g. Cordial Greens Country Club v Aetna Cas. & Sur. Co., 41 NY2d 996 [1977]; Post v Metropolitan Cas. Ins. Co. of N.Y., 227 App Div 156 [1929], affd 254 NY 541 [1930]). Such an action can be maintained prior to a determination of liability against the insured in the underlying action (see State Farm Fire & Cas. Co. v LiMauro, 103 AD2d 514, 518 [1984], affd 65 NY2d 369 [1985]; Post, 227 App Div at 158). Nor does the insolvency of the insured adversely affect the justiciability of a coverage issue (id. at 159).

Here, Corning, being sued in thousands of asbestos personal injury cases, has notified its insurers that it intends to seek coverage for those claims. It has also agreed to contribute assets worth at least $300 million toward a settlement of those claims, reserving the right to seek recovery of that contribution from its insurers. To that end, it has even commenced an adversary proceeding in the PCC bankruptcy seeking a declaration that its insurers are obligated to provide coverage for such claims. Clearly, those facts are more than sufficient to show justiciability. As noted, irrespective of whether the PCC plan is confirmed, a justiciable controversy exists. The only difference, in effect, between confirmation and non-confirmation is the elimination of Unibestos and Corhart claims against Corning in the event of the former development. But that would have no impact on the justiciability of the coverage dispute between Corning and its insurers.

Supreme Court distinguished the authorities supporting the argument that, given the existence of numerous asbestos claims against Corning, declaratory relief is the appropriate remedy, apparently on the ground that the bankruptcy court has enjoined the prosecution of the Unibestos and Corhart claims against Corning. That circumstance, however, has not eliminated Corning's asbestos liability; it has merely moved the issue to a different forum, the bankruptcy court. The exposure of its asbestos liability in the bankruptcy court, as with the resolution of that issue under the tort system, poses a sufficient risk of liability exposure to Corning's insurers as to render the issues relating to that risk justiciable.

Moreover, the argument that no justiciable controversy exists in this action is belied by Corning's own claims to the contrary in the adversary proceeding, where it sought a declaration of coverage with respect to the Unibestos and Corhart claims under all its policies, including the non-affiliate, non-assigned policies. When Corning made its explicit allegation of an "actual justiciable controversy" between the parties, there was an injunction in place staying the prosecution of Unibestos claims against it. Later, the bankruptcy court expanded the injunction to include the Corhart claims. Even after the expansion of the injunction to include both claims, Corning opposed the insurers' efforts to withdraw the adversary proceeding from the bankruptcy court and continued to assert its coverage claims in the adversary proceeding. It was not until the Pennsylvania district court announced it would dismiss the claims under the non-assigned, non-affiliate policies from the adversary proceeding in favor of the New York state court action that Corning took the position that the coverage dispute as to these policies was non-justiciable.

The reason behind such inconsistent positions on justiciability is obvious: Corning prefers to litigate the coverage disputes in the bankruptcy court rather than in Supreme Court. It takes a further inconsistent position in seeking to assign the assigned policies to satisfy asbestos claims, thereby raising a justiciable dispute as to those policies. And, as noted, it now admits that a justiciable coverage dispute exists as to the assigned and affiliate policies. Thus, by its reckoning, it has a justiciable dispute with the insurers that issued the assigned and affiliate policies, but only in the bankruptcy adversary proceeding, and not with the insurers underwriting the non-assigned, non-affiliate policies.

Nor does the pendency of the bankruptcy court adversary proceeding provide a basis for the stay. It is appropriate to stay an action in deference to another only where the determination in the other will resolve all of the issues in the stayed action and the judgment on one trial will dispose of the controversy in both actions (Somoza v Pechnik, 3 AD3d 394 [2004]). The possibility or actuality of two trials is of no importance (Pierre Assoc., 32 AD2d at 497).

Since the instant state court action contains claims already dismissed from the adversary proceeding — those arising from the non-assigned, non-affiliate policies — that total more than one billion dollars, the bankruptcy adjudication will not be dispositive of these claims. The New York action includes policies, claims and issues that are not part of the PCC bankruptcy. To stay proceedings as to these matters will only promote delay, not efficiency (see Grand Cent. Bldg. v New York & Harlem R.R. Co., 59 AD2d 207, 209-210 [1977]), and constitutes an abuse of discretion.

Moreover, a federal court with bankruptcy jurisdiction over non-core claims is mandated to abstain from exercising that jurisdiction in favor of a state court proceeding involving the same claims, if those claims can be "timely adjudicated" in the state court (Mt. McKinley Ins. Co. v Corning, 399 F3d at 447; 28 USC § 1334[c][2]). At the time Supreme Court issued its stay order, both the New York and Pennsylvania federal district courts had expressly ruled that the disputes as to at least 70.7% of the policy limits at issue in this action were non-core and should be adjudicated in the state court. Subsequent to the entry of Supreme Court's stay order, the Second Circuit ruled that none of the claims at issue implicate core federal bankruptcy jurisdiction (Mt. McKinley, 399 F3d at 447-450). Accordingly, the Second Circuit remanded the issue of the affiliate insurer's coverage to the district court for a determination as to whether that issue could be timely adjudicated in a state forum of appropriate jurisdiction, which is a condition of mandatory abstention (see 28 USC § 1334 [c][2]). Thus, Supreme Court's concern over impinging on exclusive federal bankruptcy jurisdiction was misplaced. The relatively insignificant overlap in claims pending in the Pennsylvania district court and this action should be resolved in favor of Supreme Court's jurisdiction (id.).

Finally, Corning's adversary proceeding has now been stayed for almost two years. Indeed, given the Circuit Court's vacatur of the New York district court's finding of federal bankruptcy jurisdiction over the claims under the affiliate policies, these claims cannot even be adjudicated in the bankruptcy proceeding. In light of the Second Circuit's holding that none of the claims at issue implicate core federal bankruptcy jurisdiction, Supreme Court should adjudicate the entirety of the claims in the New York action.

For all of the foregoing reasons, the order on appeal should be reversed, the stay vacated, and the matter remanded to Supreme Court for resolution of the issues presented and a declaration of the parties' rights. Under the foregoing analysis, Corning's unresolved dismissal motions, based on non-justiciability, lack of jurisdiction over the cause of action (CPLR 3211[a][2]), failure to state a cause of action (CPLR 3211[a][7]), and "another action pending between the same parties for the same cause of action" (CPLR 3211[a][4]), are meritless and should be denied.

Accordingly, the order of the Supreme Court, New York County (Karla Moskowitz, J.), entered July 12, 2004, which, to the extent appealed from as limited by the briefs, granted a stay of this declaratory judgment action pending the outcome of a related federal proceeding, should be reversed, on the law, the facts and in the exercise of discretion, with costs and disbursements, the stay vacated and the matter remanded for further proceedings.

All concur except Tom and Andrias, JJ. who dissent in an Opinion by Andrias, J.

ANDRIAS, J. (dissenting)

Since we believe that Supreme Court properly exercised its discretion in granting a stay of this declaratory judgment action pending the outcome of related federal proceedings, we dissent and would affirm.

In light of the related federal proceedings, the stay was justified to conserve judicial resources (see Asher v Abbott Labs., 307 AD2d 211 [2003]). In particular, the outcome of the federal proceedings will affect whether or not certain claims may be heard before Supreme Court. In addition, a stay is necessary since the action is premised upon a future event which may never occur and any determination at this stage of the proceeding may be rendered merely advisory (Combustion Eng'g v Travelers Indem. Co., 75 AD2d 777 [1980], affd 53 NY2d 875 [1981]).

THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: JUNE 29, 2006

CLERK

Footnotes

Footnote 1:Plaintiffs are not participating in this appeal.

Footnote 2:Subsequent to Supreme Court's determination, the United States Court of Appeals for the Second Circuit vacated the Southern District Court's order retaining jurisdiction of the claims with respect to the 10 affiliate policies, finding that these claims were not within the "core" jurisdiction of the PCC bankruptcy court. On the basis of mandatory abstention compelled by 28 U.S.C. § 1334 (c)(2), the court held that the district court was required to remand all claims and proceedings on the affiliate policies to Supreme Court as long as the latter was capable of "timely adjudicat[ing]" the coverage disputes with respect to those policies (Mt. McKinley Ins. Co. v Corning, 399 F3d 436, 447-448 [2005]).

United States Fire Insurance Company v. Great American Insurance Group

Order, Supreme Court, New York County (Marilyn Shafer, J.), entered July 22, 2005, which, insofar as appealed from as limited by the briefs, denied defendant-appellant's motion for summary judgment dismissing the complaint, unanimously reversed, on the law, with costs, the motion granted, and it is declared that the underlying bodily injury claim for which Conesco Industries, Inc. is seeking coverage as an additional insured is not covered by the terms of defendant-appellant's policy issued to Conesco.

Contrary to the motion court's finding, there is no doubt that the language in paragraph 6 of the Mayrich-Conesco lease agreement, in which Mayrich agreed to indemnify and hold harmless Conesco against "any and all claims and liability for death or injury to persons, or damage to property, arising from or connected with the use of the leased items by [Mayrich], its agents or employees," is separate and apart from and is not meant to be read together with the next sentence providing that Mayrich "shall carry insurance to the full insurable value of the equipment leased against loss by fire, theft or other insurable hazards for the benefit of [Conesco], its successors and assigns." To accept plaintiff's contention that the inclusion of both sentences in the same paragraph necessarily makes them structurally interdependent would lead to the legally incorrect conclusion that the mere location of a particular clause determines its meaning without regard to the explicit terms employed in the contract, which must be accorded their obvious meaning in order to achieve the purposes of the parties. Reading the sentence addressing insurance against the endorsement in defendant-appellant's policy allows no basis to create coverage for personal injuries rather than damage to the leased equipment.

THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: JUNE 29, 2006

CLERK