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Dear Coverage Pointers Subscribers:

 

Big day at the law firm, as H&F celebrates its 30th anniversary today.  Created June 1, 1977, we're delighted and honored to have been of service to our clients and friends, both near and far for these past three decades and look forward to more of the same in the years to come.  

 

Audrey and I had a great trip to Syracuse yesterday, visiting new friends (and renewing old acquaintances) at a zone meeting of a major personal lines auto carrier.  We provided three hours of insurance coverage training to a truly engaged staff of claims professionals, complete with PowerPoint presentation.  A very enjoyable day.  On the long trail back, Audrey and I played "Name that Tune" with 60's music on satellite radio; I was very impressed with her ability to recognize the names and artists of songs released long before she was born!  Almost stumped her on that Sam the Sham and the Pharaohs classic, Wooly Bully.  Of course, who can forget these immortal lyrics:

 

Uno, dos, one, two, tres, quatro
Matty told Hatty about a thing she saw.
Had two big horns and a wooly jaw.
Wooly bully, wooly bully.

 

So much to report on today, I'm not quite sure where to start.  Let me offer you a copy of a release being posted to our website and in general distribution shortly.  We hope in the appropriate case, you will opt to consider this approach to resolving coverage disputes:

 

Insurance Coverage Arbitration & Mediation
Resolving the Complex Without the Substantial Costs of Litigation

 

There are times, more often recently than not, when insurers wish to resolve complex insurance coverage disputes without the expense and costs of trial and without the risk of potentially adverse judicial precedent.  We have encouraged the mediation and/or arbitration of complex insurance coverage claims and our office can assist insurers and insureds in bringing reasoned resolution to coverage disputes.

 

Hurwitz & Fine, P.C. now offers both mediation and arbitration services through attorney Dan D. Kohane.  Why spend the money and the time to litigate these questions when resolution by mediation or arbitration can bring closure to hotly contested matters in relatively short order for substantially reduced costs.

 

Dan D. Kohane has been handling complex insurance coverage matters for over 25 years.  For over 15 years, he has served as an Adjunct Professor of Insurance Law at the Buffalo Law School and is frequently retained as an expert witness in insurance coverage matters throughout the United States, Canada and in the London market.  He is well-schooled as an arbitrator and mediator and lectures regionally, nationally and internationally on insurance coverage issues. Mr. Kohane serves as President of the Federation of Defense & Corporate Counsel, an international organization of over 1300 merit-selected lawyers and regional and national insurance claims professionals and is the past chair of the FDCC's Insurance Coverage Section.

 

Mr. Kohane is also an experienced trial lawyer, handling insurance coverage and extra-contractual matters of behalf of insurers and policyholders. He brings years of experience, scholarship, practicality and common sense to the table.

 

For information, contact Dan Kohane at [email protected] or 716.849.8942.

 

There are a couple of frightening cases in this week's issue, the most dangerous of which is the third case reported below, the May 22 decision from the First Department in Worth

 

There, the court held that additional insured protection was available to a general contractor from a subcontractor's carrier even where it was determined that the subcontractor was found not responsible for the accident.  The subcontractor build a staircase and the accident occurred on the staircase long after the subcontractor left the jobsite and there was a specific concession by the parties that there was nothing wrong with the staircase, and the subcontractor was not negligent.  That's just wrong.

 

The case that is reported right after Worth is another odd one, the Second Department's decision in Westchester Fire.  In that opinion, the insured settled a claim and conceded liability and the insurer was forced to pay that settlement.  No discussion about policy conditions which counsel against an insured doing just that.

 

Audrey Seeley, from the land of No Fault, offers these comments:

 

Initially, I wanted to say Happy 30th Anniversary to Hurwitz & Fine today!  Also, I wanted to say thank you to those that attended the NYSBA Law School for Claims Professionals seminar in Buffalo today.  I hope that you found the program useful and that my presentation on Additional Insured issues provided an approach for analyzing who qualifies as an Additional Insured.  If you would like a copy of my PowerPoint presentation please do not hesitate to email me at [email protected]

 

This issue brings another round in the battle of what is sufficient proof to demonstrate the medical bill and/or verification response was mailed and received.  You may be dismayed to hear that the provider prevailed in this round.  There are two interesting Second Department decisions for your perusal regarding the sufficiency of evidence establishing that a provider mailed a bill and/or verification response to the insurer.

 

We hope you enjoy this edition and as always let us know if we can provide you with any training!

 

Audrey

 

My thanks to Mark Starosielec and Steve Peiper for their columns on "serious injury" and property insurance, respectively.  Two solid citizens who work hard to bring you there summaries and perspective.

 

You'll find cases on the impact of policy misrepresentations, late disclaimers in property damage cases, lawsuits against insurance brokers and the usual array of delightful late notice cases:

 

  • Reinsurers Not Able to Secure Most Privileged Materials Maintained by Insurers
  • Claim for Disgorgement of Profits for Sale of Alcohol is Not Claim for Which Liquor Liability Provisions Provide Coverage
  • Split Court Takes Additional Insured Endorsement to its Illogical Extreme; GC Entitled to Additional Insured Protection from Carrier for Named Insured Subcontractor Found Not Responsible for Accident.  Dissenting Judges Notes Majority Creates "Unseemly Spectacle." Appeal to Court of Appeals Permitted Because of Two Judge Dissent.  Dissenting Judges Notes Majority Creates "Unseemly Spectacle." Appeal to Court of Appeals Permitted Because of Two Judge Dissent
    Thousands Flee.  
  • Where Insured Settles Claim by Acknowledging Responsibility, Insured's Carrier May be Stuck with Obligation to Pay
  • "Mysterious Disappearance" of Artwork May Not be Mysterious. Failure to Disclaim Promptly is of No Moment in Property Loss
  • Carrier Fails to Justify Delay in Denying Coverage
  • Disappointed Party that was Supposed to be Additional Insured has not Contractual Claim Against Named Insured's Insurance Broker for its Failure to Secure Promised Coverage
  • Misrepresentations by Primary Insured Does Not Void Coverage for Additional Insured
  • Federal Statute Eliminates Claim against Truck Leasing Company.  In any Event, Trucking Defendants are Related Closely Enough to be Considered Plaintiff's Employer
  • Where Non-Trucking Clause is Against Public Policy, Savings Clause which Limits Coverage to Statutory Minimum Limits is Enforceable
  • Pollution Exclusion Leads to Loss of Coverage Under CGL Policy for Oil Spill Resulting from Burst Pipe; Auto Policy Doesn't Cover Claim Either

 

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

 

  • Plaintiff's Lawsuit Stays Alive on 90/180 Grounds
  • Even in a Rear-End Motor Vehicle Accident Case, Plaintiff Must Show Objective Medical Evidence of a Serious Injury
  • Know Your Deadlines: Untimely Summary Judgment Motion Denied
  • Wanted: Admissible Medical Proof Contemporaneous with Accident to Defeat SJ Motion
  • Summary Judgment Affirmed as Plaintiff's Moving Papers are Without Probative Value
  • Court to Defense: Do Not Pass 'Prima Facie Burden' Without Showing Tests First
  • Contradictions in Physician's' Examinations Leads to Dismissal of Plaintiff's Complaint

 

Audrey's Angle on No-Fault

Audrey Seeley

[email protected]

 

Arbitration

  • Applicant Who Conducted Medical Test must Demonstrate Medical Necessity but City Wide Application Precludes Award in Insurer's Favor 

Litigation

  • Certified Mail Receipt with Postmark and Cover Letter with Identical Dates as well as "Track & Confirm" Printout Sufficient to Establish Verification Mailed and Received by Insurer. 
  • Insurer's Failure to Request Timely Verification or Object to Claim Form Completeness Bars Defense of Standing

 

PEIPER on PROPERTY

Steven E. Peiper

[email protected]

 

  • Insured's Request for Information Related to Confidential Intra-office Communications was Irrelevant to the Dispute at Hand, and Therefore Beyond the Scope of Permissible Discovery in First Party Suit

 

That's all for now.  Enjoy the beautiful summer days.

 

Dan 

New Page 2

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
Vivian Perry Roché

Steven E. Peiper

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

Jody E. Briandi
Steven E. Peiper

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

APPELLATE TEAM
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

 

5/28/07            American Re-Insurance Co. v. United States Fidelity & Guaranty Co.

Appellate Division, First Department
Reinsurers Not Able to Secure Most Privileged Materials Maintained by Insurers

Reinsurers sought files and records relating to settlements of hundreds of millions of dollars in asbestos claims by the insurers who were presenting claims.  Specifically, the reinsurers sought to review all communications concerning USF & G's presentation of the reinsurance claim, including those related to: allocation, application of the "all sums" rule, application of the "non-accumulation" rule, decision to treat each individual injury as a separate "accident," when and how to inform the reinsurers of the settlement, and when and how to inform the reinsurers of the cession. The reinsurer also sought settlement assessments, including all injury assessments, case projections, claim evaluations and analyses of USF & G's liability for the claims.

 

With the exception of certain billing information, the Court refused to order USF&G to turn the material over.  It was considered privileged, as with attorney-client, work-product or material prepared for litigation.

 

5/24/07            Great Northern Insurance Company v. Kobrand Corporation.

Appellate Division, First Department
Claim for Disgorgement of Profits for Sale of Alcohol is Not Claim for Which Liquor Liability Provisions Provide Coverage
Question of defense under CGL policy with Liquor Liability provisions in the subject policies providing coverage for "all damages" from "injury" where the liability arises "by reason of the selling, serving or furnishing of any alcoholic beverage." The ultimate relief sought is an injunction and a disgorgement of profits. Court holds that Liquor Liability provision does not apply to either the coverage afforded to Kobrand or for the relief sought by the plaintiffs. A strong dissenting judge disagreed.

 

This was not a claim for injuries.  It was a claim to disgorge profits.  It was a claim for economic loss, without an accident or occurrence.  The complaint alleged:

 

"The purpose and effect of defendants' marketing efforts directed at underage consumers is to: (a) increase defendants' revenues and profits derived from the sale of alcoholic beverages . . ."

"Defendants knowingly profit from a billion dollar illegal business of selling alcohol to underage persons."

 

Since the underlying complaints seek damages based on alleged unlawful marketing of alcohol to minors, the court properly held that advertising and marketing techniques do not constitute "selling, serving or furnishing" of an alcoholic beverage, and thus there is no duty to defend.

 

5/22/07            Worth Construction Co. Inc. v. Admiral Insurance Company

Appellate Division, First Department
Split Court Takes Additional Insured Endorsement to its Illogical Extreme; GC Entitled to Additional Insured Protection from Carrier for Named Insured Subcontractor Found Not Responsible for Accident.  Dissenting Judges Notes Majority Creates “Unseemly Spectacle.” Appeal to Court of Appeals Permitted Because of Two Judge Dissent.

Thousands Flee. 

Worth Construction (Worth) was a GC on a construction site.  Hackensack Steel was a subcontractor insured by Admiral.  Worth had another subcontract with Pacific Steel, insured by Farm Family.  Worth had been hired to build a staircase.  Both Admiral and Farm Family had additional insured endorsements protecting Worth for liability arising of their respective insured’s operations and requiring notice of the claim as soon as practicable.

The injured worker was employed by a sub-subcontractor of Hackensack and claimed injury from slipping on the stairs built by Pacific but Worth acknowledged that no negligence on Pacific’s part contributed to the accident.  As a result, Pacific was dismissed from the lawsuit.

Admiral received its first notice some 15 months after Worth learned of the accident and the court found that New York law applied and Admiral was therefore free responsibility.

However, the most important part of this decision is the discussion about Farm Family’s responsibility and a sharply divided court may make this case ripe for Court of Appeals review.

Remember, the action against the Farm Family insured, Pacific, was dismissed with a finding of no negligence on the part of Pacific.  The Farm Family policy provided that Worth was an additional insured for work or operations performed by Pacific, and the majority noted that that 21.b of the policy defined Pacific's work to include: "Materials, parts or equipment furnished in connection with such work or operations." Given this definition of Pacific's work, it is the court concluded that it was immaterial, for purposes of deciding additional insured coverage, whether Pacific had completed its installation of the stairs, whether Pacific's installation of the stairs was negligent, or whether Pacific or a contractor in privity with it was the injured worker's employer. It is sufficient that the injury was sustained on the stairs.

So here, with a finding of NO NEGLIGENCE on the part of the named insured, the additional insured still received coverage because the accident occurred on a staircase provided by the named insured.

The dissenting judges took strong issue with that conclusion. The crucial point, argued the dissenters, is that Worth is an additional insured "only with respect to liability arising out of [Pacific's] operations or premises owned by or rented to [Pacific]."   Referencing a dissent from a decision a couple of years earlier, Chelsea Assoc., LLC v Laquila-Pinnacle (21 AD3d 739, 741 [2005], the dissenters argued that the majority’s decision "reads out of the clause the key words pertinent to its application here: but only with respect to liability arising out of "[the named insured’s ] work"' (emphasis added).

The dissenters argued that absence a showing of liability on the additional insured’s part arising out of the work performed by the named insured, the additional insured clause should never be triggered.  The dissenters noted that the courts have not bee clear on the breadth of the additional insured endorsements and discussed the BP Air Conditioning case which is on its way to the Court of Appeals for review.  You may remember our discussion of that peculiar decision last summer. The link and headlines are here:

7/6/06              BP Air Conditioning Corp v. One Beacon Insurance Group
Appellate Division, First Department
In a Case Destined for Court of Appeal Review, Split Court Rules Obligation to Defend Purported Blanket Additional Insured Based on Allegations in Complaint, Even if the Eventual Determination May be that Injuries Did Not Arise Out of Named Insured's Work

Of course, this decision provides even broader additional insured coverage than that suggested by BP.  In BP, the court  held that there was an obligation to defend the named insured because of the allegations the underlying complaint could result in a determination that the accident did arise out of the named insured’s conduct.  HERE, there was a determination that the liability of the named insured did NOT cause the accident and thus the additional insured’s liability could not arise out of the named insured’s conduct.

 

As the minority stated so well:  This case, accordingly, presents another unseemly spectacle, that of requiring Farm Family to provide Worth with a defense even though Worth has conceded facts that negate any obligation on the part of Farm Family to provide it with a defense.

 

Editor’s Note:  This is a terrible decision.  Plain and simple.  Not that I have a strong view on it or anything.

 

5/22/07            Westchester Fire Insurance Company v. Utica First Insurance Company

Appellate Division, Second Department

Where Insured Settles Claim by Acknowledging Responsibility, Insured’s Carrier May be Stuck with Obligation to Pay
Stay with me on this one, because it’s worth understanding.  There was a personal injury action by Chumsky against Danna Construction and related companies (Danna).  Danna had a third-party action against the subcontractor, Kirkham.  When Danna and Kirkham settled, they agreed that (a) Danna would vacate a default judgment it had taken against Kirkham, (b) Kirkham agreed to indemnify Danna for any judgment taken against Danna by the injured plaintiff, Chumsky, up to $300,000, and (c) Kirkham agreed to assign Kirkham’s claim against Kirkham’s insurer, Utica First, to Danna’s insurer, Westchester and (d) Danna would never enforce the settlement against Kirkham.

 

In other words, Kirkham was agreeing to assign its insurance rights under its policy to Danna and its carrier Westchester) in exchange for a promise to leave Kirkham free from any personal liability.  Danna (and Westchester) settled with Chumsky for $270,000 and then Westchester brought this lawsuit to enforce the coverage rights it acquired from Kirkham against Utica.  Utica argued that it should not have to pay because its insured, Kirkham, was free from liability since Danna and Westchester had agreed never to enforce any judgment against Kirkham.

The Court disagrees.  As Utica issued a policy to the insured Kirkham under which Utica agreed to "pay all sums which an Insured becomes legally obligated to pay as damages." Kirkham became legally obligated to pay damages pursuant to the settlement agreement and release with Danna. Kirkham's liability became legally fixed with the execution of the above settlement agreement. This agreement created a legal obligation on Kirkham's part against which Utica was required to indemnify.

Editors Note:  Your editor is troubled by this one.  The insured (Kirkham) has engaged in conduct which assumed an obligation to indemnify without the consent of its carrier.  That conduct violates a condition of coverage under most CGL policies, the prohibition against “making a payment, assuming any obligation,” or incurring “any expense” without the consent of the carrier.  Its carrier is being forced to pay a judgment which could never be enforced against its insured.

5/22/07            Topliffe v U.S. Art Co., Inc.
Appellate Division, Second Department

“Mysterious Disappearance” of Artwork May Not be Mysterious. Failure to Disclaim Promptly is of No Moment in Property Loss
Some 85 works of art produced by Kenneth Rexroth and owned by the Kenneth Rexroth Trust (Trust) disappeared. US Art were warehousing the artwork in Queens but when a representative of the Trust went to inspect them, the artwork could not be found.  US Art believed that during a period of warehouse renovation, the artwork was accidentally discarded. Some 2½; months after US Art notified its insurer (Lloyds). Underwriters notified US Art that it would be disclaiming coverage based on the "mysterious disappearance" exclusion in the insurance policy it issued to US Art.  US Art claimed that the notice of disclaimer was untimely.

Insurance Law Section 3420(d) that requires prompt disclaimer only applies to bodily injury and wrongful death cases, so it does not apply to this loss.  Without the statute, even an unreasonably late disclaimer will not be voided, unless the insured has suffered prejudice as a result of the denial and no prejudice was shown here.

However, Lloyds has failed to establish as a matter of law that coverage should be barred based on the "mysterious disappearance" exclusion. If the artwork was discarded, its loss would be explained and therefore the "mysterious disappearance" exclusion would not apply.

5/22/07            Schulman v. Indian Harbor Insurance Company
Appellate Division, Second Department
Carrier Fails to Justify Delay in Denying Coverage
Yet another case of an insurer not properly documenting the reason for the delay in denying coverage and getting burned.   Insurance Law § 3420(d) requires an insurer to provide a written disclaimer "as soon as is reasonably possible." The reasonableness of the delay is measured from the time when the insurer "has sufficient knowledge of facts entitling it to disclaim, or knows that it will disclaim coverage" Investigation into issues affecting an insurer's decision whether to disclaim coverage obviously may excuse delay in notifying the policyholder of a disclaimer but they must be properly documented

 

Here, the proof submitted by the insurer to justify its disclaimer consisted of an unsworn letter of its claims analyst, containing hearsay statements of the plaintiff Myron Schulman, who was one of the defendants in the underlying personal injury action.  That was apparently it and that failed to establish that its delay in issuing a disclaimer was reasonable under the circumstances. Even when its investigation was completed, the insurer failed to deny coverage within a reasonable amount of time after learning of facts or circumstances which might provide a reasonable basis for a disclaimer.

 

The court felt, in any event, that once the carrier was given notice of the injury and damages it should have known, then and there, that insured may have breached the applicable notice requirements

 

Editors Note:  You have heard this message before.  DOCUMENT your need for an investigation when notice is received.  DOCUMENT the investigation and then conduct it promptly and thoroughly and then, if there is proof of unexcused late notice, PROMPTLY deny coverage. 

 

5/22/07            Superior Ice Rink, Inc., v. Nescon Contracting Corp.

Appellate Division, Second Department
Disappointed Party that was Supposed to be Additional Insured has not Contractual Claim Against Named Insured’s Insurance Broker for its Failure to Secure Promised Coverage
Superior contracts with Nescon to paint its building and the contract required Nescon to add Superior as an additional insured. Nescon contacts its insurance broker to obtain the policy.  The broker delivers a Certificate of Insurance to Superior indicating that Superior was, in fact, an additional insured under a policy issued to Nescon by Merchants Mutual Insurance Company.

When two of Nescon’s worker get hurt during the painting job, they sued Superior and Superior sought coverage from Merchants.  Surprise, surprise:  Superior was not an insured under the Merchants policy and Merchants denied coverage.  A lawsuit against everyone involved erupted.  The court holds that Superior had no contractual claim against the broker and that it was not a third-party beneficiary of the brokerage contract.

5/22/07            Lufthansa Cargo, AG v. New York Marine and General Insurance Company

Appellate Division, First Department
Misrepresentations by Primary Insured Does Not Void Coverage for Additional Insured
Under New York law, coverage provided to an additional insured is considered distinct or separate from coverage provided to the named insured.  Here, the primary insured made a material misrepresentation to the carrier when the policy was issued and the policy was therefore void with respect to the named insured.  However, the additional insured is does not lose its coverage under the policy.

 

5/22/07            Hernandez v. Sanchez

Appellate Division, First Department
Federal Statute Eliminates Claim against Truck Leasing Company.  In any Event, Trucking Defendants are Related Closely Enough to be Considered Plaintiff’s Employer
Employee of nonparty grocery provider Fresh Direct, LLC, was injured while loading a truck owned by defendant HUB Truck Rental Corp. (HUB) and leased by defendant U.T.F. Trucking Inc. (U.T.F.), when defendant Sanchez, a U.T.F. employee, pulled the truck away from the loading platform, causing plaintiff to lose his balance and fall. Plaintiff received Workers' Compensation from Fresh Direct, and in December 2005 he commenced this personal injury action.

Claim against owner of truck, HUB, asserting liability under Vehicle & Traffic Law Section 388 (owner’s vicarious liability) is dismissed because of 2005 Federal Statute (Graves Amendment) which bars claims against owners in the business of leasing vehicles.  Claims against Fresh Direct and U.T.F. are dismissed based on exclusivity of Workers Compensation Law.  These companies are owned by the same parent, Fresh Direct Holdings, Inc., and all three entities have the same officers and members of the board of directors. Both Fresh Direct and U.T.F. operate out of the same premises, use the same computer and telephone systems, are covered by the same insurance policies, and otherwise function as one in their day-to-day operations. According claims against them are dismissed as are claims against the driver, Sanchez for same reason)

5/22/07            Connecticut Indemnity Company v. Hines

Appellate Division, Second Department

Where Non-Trucking Clause is Against Public Policy, Savings Clause which Limits Coverage to Statutory Minimum Limits is Enforceable

Connecticut Indemnity Company (Connecticut) issued a policy of insurance to the defendant Hines, the owner and operator of a tractor-trailer leased to the defendant David P. McCarthy, Inc., for use in its business. The policy contained a Non-Trucking Use endorsement which excluded coverage for the vehicle while used in the business of a lessee. The policy also contained "Endorsement #2" (hereinafter the savings clause), which stated:

 

"We agree with YOU that if any of the provisions of the endorsement, Truckers Insurance for Non-Trucking Use' CA2309 are held to be void or unenforceable under the law of any jurisdiction, for reasons of public policy, violation of statute, or otherwise, WE will not pay any sums in excess of the minimum amounts required by the Financial Responsibility Laws of such jurisdiction, and then only after all other valid and collectible insurance available to the Named Insured, or which would be available to the Named Insured in the absence of this policy, has been exhausted."

Hines was involved in an accident while driving the tractor-trailer in furtherance of the lessee's business and Hines and lessee were sued. Connecticut disclaimed coverage based upon the Non-Trucking Use endorsement, and the lessee's insurance company undertook to defend the action.

The parties concede on appeal that the Non-Trucking Use endorsement is void as against New York's public policy.  However, the Court did enforce the “savings clause” and held that there is coverage under the policy, but only up to the minimum amounts required under New York law.

5/22/07            Bruckner Realty, LLC v. County Oil Company, Inc.

Appellate Division, Second Department

Pollution Exclusion Leads to Loss of Coverage Under CGL Policy for Oil Spill Resulting from Burst Pipe; Auto Policy Doesn’t Cover Claim Either
The underlying plaintiff, Bruckner, sustained damages for environmental damage and clean-up after heating oil from a burst pipe in its heating system damaged the New York City sewer system and a creek.  Bruckner sued County Oil Company (oil seller) and Anchor Transit (oil deliverer) alleging that the oil contained impurities and that’s what led to the burst pipe. County Oil sued AIG, which issued both a commercial auto insurance policy and a commercial general liability policy to Anchor Transit, claiming additional insured status.

 

AIG demonstrated that the allegations of the complaint fell solely and entirely within a pollution exclusion in the commercial general liability policy. Further, American demonstrated that there is no possible factual or legal basis on which it might eventually be held to be obligated to indemnify County Oil under the commercial auto insurance policy as complaint does not allege any basis upon which it might be found that the alleged defective and/or impure and/or improperly graded fuel oil in the plaintiff's heating system arose from the ownership, maintenance, or use of a covered vehicle within the meaning of the commercial auto insurance policy.

 

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

 

5/31/07            Ames v. Paquin
Appellate Division, Third Department

Plaintiff’s Lawsuit Stays Alive on 90/180 Grounds

In a lengthy majority opinion, the Appellate Division reversed a lower court order which had granted defendants’ summary judgment motion. The order was affirmed except as to the 90/180-day category, which was reversed and that portion of the complaint was reinstated. After getting in a car accident himself, plaintiff was later struck by a responding police car which had been pushed into plaintiff by a tractor-trailer. Plaintiff alleged several categories of serious injury in his bill of particulars, including permanent consequential limitation of use of a body organ or member, significant limitation of use of a body function or system, and failure to perform his usual and customary activities for at least 90 of the 180 days following the accident.

The Appellate Division held: “The law is well settled that a movant’s failure to satisfy his or her burden on a summary judgment motion requires denial of the motion, regardless of the sufficiency of the opposing papers.” Here, review of the record reveals that the burden was not shifted as to the 90/180-day category. The affidavit of defendants’ expert, prepared following an examination conducted more than 28 months after the accident, did not address plaintiff’s limitations during the 180 days immediately following the accident. Included in the expert’s broad conclusions were his opinions that plaintiff had no objective physical findings to substantiate his complaints at the time of the examination, his current complaints were mild and “probably” related to causes other than the accident, his prognosis was good and he was presently able to work on a full-time basis. A lengthy partially concurring and partially dissenting opinion followed.

5/29/07            Parreno v. Jumbo Trucking, Inc.

Appellate Division, First Department

Even in a Rear-End Motor Vehicle Accident Case, Plaintiff Must Show Objective Medical Evidence of a Serious Injury

In another lengthy opinion, the Appellate Division reversed a lower court trial verdict for plaintiff in a rear-end motor vehicle accident case. Defendants conceded liability but at the close of the evidence moved for a directed verdict on the grounds that plaintiff’s evidence had failed to establish causation and failed to establish a threshold injury under the Insurance Law. The court denied the motion with respect to the issue of causation, but reserved decision on the threshold injury question.

 

Because of persistent pain, plaintiff saw an orthopedist, Dr. Kaplan, who examined him and ultimately diagnosed a herniated cervical disc, a bulging lumbar disc and cervical and lumbar straightening. Dr. Kaplan testified that he treated plaintiff for neck and back injuries on seven occasions. During the initial physical examination, Dr. Kaplan performed various tests and asked plaintiff to perform certain maneuvers to determine his condition. His examination revealed four findings: a 30% limitation in the range of motion in plaintiff's neck (cervical spine), multiple trigger points of muscular spasm in his neck and shoulder girdle, spasm and tightness of the lower back (lumbar spine), and pain in the lower back and legs during a straight leg raising test at 70 degrees, whereas the normal is 90 degrees. Dr. Kaplan identified only the findings related to muscle spasm as being objective findings, which means that the test results are “beyond the control of the patient.”

In response, defendants offered two medical witnesses on their case. Dr. Audrey Eisenstadt, a radiologist, examined the MRI films of plaintiff. As to the lumbar MRI, she found no evidence of traumatic change, no straightening of the lumbar spine and no bulging disc. Regarding the cervical spine, Dr. Eisenstadt found the MRI film “blurry,” but found no signs of trauma or disc herniation. Defendants’ second witness, Dr. Jerrold Gorsky, examined plaintiff and determined “some limitation” in his head and neck, but found “normal” results for the straight leg raising test, which indicated no herniated disc. As such, Dr. Gorsky concluded that plaintiff had intermittent complaints of neck and back pain that were consistent with his age and occupation, and that there were no objective findings to suggest that the accident caused any impairment, permanency or disability.

On appeal, defendants argue that because plaintiff’s evidence failed to establish a significant limitation of a body function or system, the trial court erred in failing either to direct a verdict in their favor (CPLR 4401) or to grant judgment to defendants notwithstanding the verdict (CPLR 4404). The Court held that although the existence of a serious injury is often a jury question, “the issue is one for the court, in the first instance where it is properly raised, to determine whether the plaintiff has established a prima facie case of sustaining serious injury.” Thus, “[i]f it can be said, as a matter of law, that plaintiff suffered no serious injury within the meaning of [§ 5102(d)] of the Insurance Law, then plaintiff has no claim to assert and there is nothing for the jury to decide” (id. at 238).

The determination of whether a limitation of use or function is significant “relates to medical significance and involves a comparative determination of the degree or qualitative nature of an injury based on the normal function, purpose and use of the body part.” In order to prove the extent or degree of physical limitation, a plaintiff may rely on an expert's designation of a numeric percentage of a plaintiff's loss of range of motion or a qualitative assessment of the plaintiff's condition. Both the quantitative and qualitative assessments must have an objective basis ( [qualitative assessment may suffice, provided that evaluation has an objective basis and compares the plaintiff's limitations to the normal function, purpose and use of the affected body function or system]; Taylor v Terrigno, 27 AD3d 316 [2006] [complaint dismissed where expert did not identify the objective tests used in deriving measurements of loss of range of motion]).

Viewing the trial evidence in a light most favorable to the plaintiff, as we must, his medical evidence failed to establish a prima facie case of serious injury under either a quantitative or qualitative analysis. The failure of plaintiff's medical expert to demonstrate the objective tests performed to determine the loss of range of motion renders these numerical findings insufficient to demonstrate serious injury. Although plaintiff’s expert did identify some objective evidence of plaintiff's injury — a herniated disc, a bulging disc and multiple points of muscular spasm — this evidence alone was insufficient to establish serious injury, in the absence of objective medical evidence showing the extent or degree of the limitations resulting from these specific injuries and their duration.

5/22/07            Crespo v. Elrac, Inc.

Appellate Division, Second Department

Know Your Deadlines: Untimely Summary Judgment Motion Denied

Here, plaintiff appeals lower court order which granted the defendants’ motion for leave to reargue their prior motion for summary judgment dismissing the complaint and granted the motion for summary judgment itself. On appeal, the order is dismissed as abandoned. The Appellate Division held the plaintiff correctly argued the defendants’ motion for summary judgment was untimely: “since the defendants never sought leave on a showing of good cause from the Supreme Court to submit an untimely motion for summary judgment, the Supreme Court should not have entertained the motion in the first instance (see CPLR 3212 [a]; Brill v City of New York, supra).”

 

5/22/07            Espinosa v. Melendez
Appellate Division, Second Department

Wanted: Admissible Medical Proof Contemporaneous with Accident to Defeat SJ Motion

Defendant appealed lower court order which denied her motion for summary judgment dismissing the complaint insofar as asserted against her on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d). On appeal, the order is reversed. First, the defendant met her prima facie burden of establishing that plaintiff did not sustain a serious injury. In opposition, the plaintiff failed to raise a triable issue of fact. The plaintiff failed to provide any admissible medical proof that was contemporaneous with the subject accident that showed range of motion limitations in her spine and shoulder  

Her cervical spine MRI which showed a bulging disc did not, alone, establish a serious injury. Further, the self-serving affidavit of the plaintiff was insufficient to show that she sustained a serious injury from the accident since there was no objective medical evidence to show that she sustained such an injury.

 

5/22/07            Irizarry v. Chen

Appellate Division, Second Department

Summary Judgment Affirmed As Plaintiff’s Moving Papers are Without Probative Value

The Appellate Division affirms lower court order which granted the defendant’s motion for summary judgment dismissing the complaint on the ground that he did not sustain a serious injury within the meaning of Insurance Law § 5102(d), Here, plaintiff concedes that the defendant’s “moving papers” were sufficient to establish a prima facie showing. In opposition, plaintiff failed to raise a triable issue of fact. Plaintiff’s opposition consisted of unsworn medical reports and uncertified hospital records which were without probative value. Additionally, plaintiff’s MRI reports did not establish that he sustained a serious injury as a result of the subject accident. In this regard, the plaintiff failed to show that the herniation was causally related to the subject accident.

 

5/22/07            Palladino v. Antonelli

Appellate Division, Second Department

Court to Defense: Do Not Pass ‘Prima Facie Burden’ Without Showing Tests First

Failure to show objective tests leads to reversal of lower court order which had granted the defendants’ motion for summary judgment dismissing the complaint. The Appellate Division held: the defendants failed to meet their prima facie burden of showing that the plaintiff did not sustain a serious injury. The defendants’ doctors merely stated that the range of motion in the injured plaintiff’s cervical spine was “full,” without setting forth the objective test or tests performed to support their conclusion. Since defendants failed to establish their prima facie entitlement to judgment as a matter of law, it is unnecessary to reach the question of whether the plaintiffs were able to raise a triable issue of fact.

 

5/22/07            Lopez v. Mendoza

Appellate Division, First Department
Contradictions in Physician’s’ Examinations Leads to Dismissal of Plaintiff’s Complaint

Here, lower court’s order granting defendant’s motion for summary judgment dismissing the complaint, was unanimously affirmed. Plaintiff’s expert, a physician who examined him both before and after surgery, conducted certain range of motion tests in connection with his subsequent examination of plaintiff. His affirmation was contradicted by the affirmations of physicians who examined plaintiff 13 months later. They stated that their examinations of plaintiff disclosed no range of motion limitations. Plaintiff submitted no evidence to contradict those later findings, and, accordingly, no triable issue was raised as to whether he had sustained serious injury involving permanency within the meaning of Insurance Law § 5102(d).

 

 

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. 

 

Arbitration

 

 

5/18/07            In the Matter of the Applicant v. Respondent,

Arbitrator Thomas J. McCorry (Erie County)

Applicant Who Conducted Medical Test must Demonstrate Medical Necessity but City Wide Application Precludes Award in Insurer’s Favor

Here is the Angle:      It is the applicant’s burden to demonstrate medical necessity irrespective of whether the applicant is a medical provider or eligible injured party.  The fact that the medical provider merely conducted the test does not eliminate the burden of demonstrating medical necessity for the test.  In this case, the Applicant, physician, unsuccessfully made the argument that he was not required to establish medical necessity.  Despite this, the burden shifted to the sufficiency of the insurer’s proof s to lack of medical necessity. 

 

The Analysis:  The Applicant, physician, conducted a discogram recommended by a treating neurosurgeon challenged the insurer’s denial of the claim based upon lack of medical necessity after conducting a peer review.  The Applicant, who appeared pro se in this arbitration, argued that the bill must be paid as he was not required to demonstrate medical necessity for the test.  Instead, the treating neurosurgeon who ordered the test determined medical necessity thus not requiring the Applicant to do so.  The Arbitrator aptly pointed out, and case law supports this position, that the Applicant by accepting the assignment of benefits stands in the same position as the eligible injured person.  The eligible injured person would be required to demonstrate medical necessity for a particular medical expense.  Despite this, there is absolutely no discussion as to the proof Applicant put in to establish medical necessity. 

 

Instead, the Arbitrator turned to the insurer’s peer review and applied City Wide to find in Applicant’s favor.  The Arbitrator reasoned that under City Wide, the insurer must demonstrate that the medical services provided were inconsistent with generally accepted medical and/or professional practice in order to deny based upon lack of medical necessity.  The Arbitrator found that the peer reviewer’s conclusion that the discogram was “at best borderline and probably unreasonable” was insufficient to meet the requirements under City Wide.

 

Litigation

 

5/22/07            West Chester Med. Ctr. a/a/o Eric Birnbaum v. Liberty Mut. Ins. Co.,

2007 NYSlipOp 04483 (2d Dept.)                 

Certified Mail Receipt with Postmark and Cover Letter with Identical Dates as well as “Track & Confirm” Printout Sufficient to Establish Verification Mailed and Received by Insurer. 

The battle of whether a party has submitted sufficient evidence to demonstrate that a bill and or verification was mailed and received entitling it to summary judgment continues.  In this round, the plaintiff won. 

The Appellate Division held that the plaintiff demonstrated that with respect to two of the causes of action involving medical bills for two assignors were mailed and received by the insurer and that payment was overdue.  The plaintiff submitted certified mail receipts with postmarks as well as specific item numbers and notations indicating that the insurer’s representative received the medical bills.  The Court held that a presumption of receipt was created by the signed certified mail return receipt. 

With regard to the fourth caused of action involving medical services, the Court held that the plaintiff sufficiently demonstrated that the medical bills were mailed and received by the insurer with payment overdue.  The insurer argued that the plaintiff failed to comply with a verification request of medical records.  The plaintiff, in response, submitted the certified mail receipt with a postmark, an item number, and a notation to the requested medical records.  It also provided an unsigned letter from Hospital Receivables Systems, Inc. which was address to the insurer.  The letter stated that the complete requested medical record was enclosed and referenced the accident date as well as the insurer’s file number.  The plaintiff submitted a copy of the United States Postal Service “Track & Confirm” printout with the same certified maid item number demonstrating when the insurer’s representative accepted the letter.  The Court held that these documents demonstrated that the verification material was provided.

The insurer argued that under New York and Presbyterian Hosp. v. Allstate Ins. Co., the “Track & Confirm” printout was insufficient to demonstrate plaintiff’s entitlement to summary judgment.  The Court held that the insurer mistakenly placed complete reliance upon that decision which had different facts from this case.  The Court pointed out that in the Allstate case the plaintiff failed to demonstrate that the material allegedly mailed to the insurer was mailed under the certified mail receipt number plaintiff provided.  This case is different because, even though the signed return receipt card was missing, the cover letter (which was unsigned) and the outgoing mail receipt had a handwritten notation regarding the mailed items.  Also, the date on the certified mail receipt matched the cover letter date and the “Track & Confirm” printout.  In addition, the insurer’s representative who signed for the letter was the same person who signed for the letters in the prior two causes of action.

5/22/07            West Chester Med. Ctr. a/a/o Demetrio Recinos v. Safeco Ins. Co. of Am.,

                        2007 NYSlipOP 00484 (2d Dept)

Insurer’s Failure to Request Timely Verification or Object to Claim Form Completeness Bars Defense of Standing

The plaintiff submitted sufficient evidence in the form of a certified mail receipt, signed return receipt cards, the medical bills, and an affidavit from its biller attesting to the insurer not paying or denying the claim to demonstrate that the medical bills were mailed and are overdue.

The Court held that the insurer failed to demonstrate that it timely objected to claims’ form completeness or that it sought verification from the plaintiff.  Accordingly, the insurer waived any defense based thereon which included whether plaintiff had standing to maintain a cause of action against the insurer.

PEIPER on PROPERTY

Steven E. Peiper

[email protected]

 

5/24/07            40 Rector Holdings, LLC v Travelers Indem. Co.

Appellate Division, First Department

Insured’s Request for Information Related to Confidential Intra-office Communications was Irrelevant to the Dispute at Hand, and Therefore Beyond the Scope of Permissible Discovery in First Party Suit

In this matter, the insured sought coverage under its policy with Travelers for property damage that was allegedly sustained in the aftermath of the September 11, 2001 terrorist attacks.  While Travelers agreed to pay for certain loses, it refused to provide coverage for damages to the building’s façade.  Travelers maintained that the damage, if any, was preexisting, and therefore not covered under the policy. 

 

In the declaratory judgment action that followed, the insured sought to compel certain intra-office communications related to the calculation of reserves, and confidential information related to the personnel files of three Travelers’ employees involved in evaluation of the insured’s claim.  In overturning the trial court, the First Department held that the requests were not relevant to Travelers’ coverage determination which was based on the language of the policy in question.  In turn, the First Department denied the insured’s abusive discovery requests.

 

 

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 serves as the FDCC’s President and Website Editor Emeritus.

 

5/29/07            Powell v. Infinity Insurance Company

Connecticut Supreme Court
Principles of Res Judicata Barred Insureds from Bringing Action for, inter alia, Bad Faith, Where Insureds had Previously Obtained Judgment in Action for Uninsured Motorist Benefits
Plaintiffs Desire Powell and Clayton Keyworth appealed a trial court’s grant of summary judgment in favor of defendant, Infinity Insurance Company (“Infinity”), on the basis of the doctrine of res judicata. In the initial action against Infinity (“Action I”), plaintiffs asserted claims against insurer for alleged injuries resulting from a motor vehicle accident, and pursuant to the uninsured motorist coverage of a policy issued by defendant to plaintiff Powell, which was in effect on the date of the accident. Infinity refused plaintiffs’ offer of judgment for policy limits. Subsequently, the jury rendered a verdict in excess of policy limits, which was ultimately reduced by the trial court and paid by insurer. Plaintiffs then filed a satisfaction of judgment. One year later, plaintiffs filed a second action against defendants (“Action II”) asserting claims of bad faith, breach of contract and violation of Connecticut Unfair Trade Practices Act (CUPTA) and Connecticut Unfair Insurance Practices Act (CUIPA). The trial court granted insurer’s motion for summary judgment, concluding the action was barred by res judicata. Plaintiffs timely appealed and the case was transferred to the Supreme Court, pursuant to statute. The Supreme Court upheld the summary judgment, concluding that the trial court properly applied the doctrine of res judicata because the claims in Action II were the same as the claims in Action I, in that they grew out of the same transaction or nucleus of facts, entailed the presentation of the same evidence, and involved infringement of the same rights. In addition, the Court concluded that the factual underpinnings of the claims asserted in Action II and those actually litigated in Action I were the same and formed “a convenient trial unit” that would have favored consolidation. The Supreme Court also made explicit here that obtaining a judgment for breach of contract against a defendant is not a necessary predicate to bringing a bad faith claim.

Submitted by: Bruce D. Celebrezze & Lisa G. Rowe (Sedgwick Detert Moran & Arnold LLP)

 

 

Reported Decisions

 

Ames v. Paquin


Calendar Date: February 15, 2007
Before: Peters, J.P., Mugglin, Rose and Lahtinen, JJ.

Learned, Reilly & Learned, L.L.P., Elmira (Philip C. Learned of counsel), for appellant.
Hancock & Estabrook, L.L.P., Syracuse (Mark J. Schulte of counsel), for respondents.

MEMORANDUM AND ORDER


Lahtinen, J.

Appeal from an order of the Supreme Court (Tait, J.), entered March 22, 2006 in Tioga County, which, inter alia, granted defendants' motion for summary judgment dismissing the complaint.

Plaintiff lost control of his vehicle when traveling on Route 17 in Tioga County during a snowstorm and slid down an embankment. Shortly thereafter, as he was sitting in a police car that had responded to the accident, a tow truck called to the scene allegedly braked abruptly in front of a tractor-trailer traveling on Route 17, causing the tractor-trailer to strike the police car, sending the police car and plaintiff down the embankment. Plaintiff was taken to the emergency room of a local hospital where he was examined and then released. He subsequently commenced this negligence action against defendant Daniel Paquin (driver of the tractor-trailer) and defendant Ryder Truck Rental-Canada (owner of the tractor-trailer). He alleged several categories of serious injury in his bill of particulars, including permanent consequential limitation of use of a body organ or member, significant limitation of use of a body function or system, and failure to perform his usual and customary activities for at least 90 of the 180 days following the accident. Defendants brought a third-party action against the owner of the tow truck. Defendants eventually moved for summary judgment dismissing plaintiff's action upon the ground that he did not sustain a serious injury as defined by Insurance Law § 5102 (d). Third-party defendant likewise sought summary dismissal of the third-party action asserting no underlying serious injury. Supreme Court granted the motions for summary judgment and plaintiff now appeals.

"The law is well settled that a movant's failure to satisfy his or her burden on a summary judgment motion requires denial of the motion, regardless of the sufficiency of the opposing papers" (Serrano v Canton, 299 AD2d 703, 705 [2002] [citations omitted]; see McElroy v Sivasubramaniam, 305 AD2d 944, 946 [2003]). Here, review of the record reveals that the burden was not shifted as to the 90/180-day category. The affidavit of defendants' expert, prepared following an examination conducted more than 28 months after the accident, did not address plaintiff's limitations during the 180 days immediately following the accident. Included in the expert's broad conclusions were his opinions that plaintiff had no objective physical findings to substantiate his complaints at the time of the examination, his current complaints were mild and "probably" related to causes other than the accident, his prognosis was good and he was presently able to work on a full-time basis. The expert speculated that he did not "believe" the subject accident was "serious." These conclusions some of which were preferenced with language lacking the requisite degree of certainty did not contain specificity as to the 90/180-day category and, accordingly, did not constitute a prima facie showing of defendants' entitlement to judgment as a matter of law on such category of serious injury (see McElroy v Sivasubramaniam, supra at 946; Serrano v Canton, supra at 705-706).

To the extent that plaintiff preserved for review his claims under other serious injury categories, defendants' papers sufficiently shifted the burden on these categories and the affirmations from plaintiff's chiropractor and physician which, at best, were cursory and conclusory failed to raise a factual issue.

Peters, J.P. and Mugglin, J., concur.


Rose, J. (concurring in part and dissenting in part).

I respectfully dissent from so much of the majority's decision as found that defendants failed to meet their initial burden to demonstrate that plaintiff did not sustain a qualifying serious injury under the 90/180-day category. Initially, it must be noted that plaintiff effectively concedes this point by raising no argument in his brief as to whether defendants met their burden (see CPLR 3212 [b]) and, thus, the issue should be deemed abandoned (see Peak v Northway Travel Trailers, Inc., 27 AD3d 927, 928 [2006]; Dunn v Northgate Ford, 16 AD3d 875, 876 n 2 [2005]; see also Granger v Keeter, 23 AD3d 886, 888 [2005]). In any event, contrary to the majority's view, the report of defendants' expert, a board-certified orthopedic surgeon, does not limit his opinion that there were no objective physical findings of a qualifying serious injury to plaintiff's medical condition at the time of the independent medical exam. The expert reviewed plaintiff's early medical records and MRIs in great detail and asserted that he found no evidence of any objective physical findings of serious injury. The burden thus having shifted to plaintiff, Supreme Court correctly concluded that he failed to submit evidence based on objective findings of a medically determined injury or impairment of a nonpermanent nature which caused the alleged limitations on his daily activities (see Tuna v Babendererde, 32 AD3d 574, 577 [2006]; June v Gonet, 298 AD2d 811, 812 [2002]; Monk v Dupuis, 287 AD2d 187, 190-191 [2001]). Accordingly, I would affirm Supreme Court's order in all respects.

ORDERED that the order is modified, on the law, without costs, by reversing so much thereof as granted defendants' and third-party defendant's motions for summary judgment dismissing that part of the complaint as alleged that plaintiff suffered a serious injury in the 90/180-day category; motions denied to that extent; and, as so modified, affirmed.

 

Parreno v. Jumbo Trucking, Inc.


Thomas Torto, New York (Jason Levine of counsel), for appellants.
Philip J. Sporn & Associates, New York (Robert DiGianni of counsel), for respondent.

Judgment, Supreme Court, Bronx County (George D. Salerno, J.), entered on or about December 9, 2005, which, after a jury trial, awarded plaintiff damages in the principal sum of $100,000, unanimously reversed, on the law, without costs, the judgment vacated and the complaint dismissed. The Clerk is directed to enter judgment accordingly.

Plaintiff alleges that he sustained injuries to his neck and back on August 2, 2000, when the car in which he was riding was rear-ended by a heavy truck owned by defendant Jumbo Trucking and driven by the individual defendant. Plaintiff testified at trial that after the accident, he experienced pain in his neck and back and was taken to the hospital, where he had x-rays taken, was given medication and released. For the next five months, he received physical therapy including chiropractic care, until the treatment was discontinued because the facility was not being paid.

Because of persistent pain, plaintiff saw an orthopedist, Dr. Jeffrey Kaplan, who examined him and ultimately diagnosed a herniated cervical disc, a bulging lumbar disc, cervical and lumbar straightening, cervical and lumbar muscle spasm with trigger points, and cervical and lumbar radiculopathy. When plaintiff's symptoms persisted, Dr. Kaplan took the "next step" by treating him with a series of steroid injections, but they only provided temporary relief. Plaintiff testified that his pain continues, making it difficult to turn his neck or bend forward or turn side to side. He cannot take out the garbage unassisted and his pain has caused him to develop a temper, leading to marital problems. His injuries required him to reduce his work schedule as an inspector of damaged furniture, although he only missed three or four days of work. Plaintiff testified that he had none of these physical or mood problems prior to the August 2000 accident.

Dr. Kaplan testified that he treated plaintiff for neck and back injuries on seven occasions over a 2½; year period, between January 2001 and May 2003. During the initial physical examination, Dr. Kaplan performed various tests and asked plaintiff to perform certain maneuvers to determine his condition. His examination revealed four findings: a 30% limitation in the range of motion in plaintiff's neck (cervical spine), multiple trigger points of muscular spasm in his neck and shoulder girdle, spasm and tightness of the lower back (lumbar spine), and pain in the lower back and legs during a straight leg raising test at 70 degrees, whereas the normal is 90 degrees. Dr. Kaplan identified only the findings related to muscle spasm as being objective findings, which means that the test results are "beyond the control of the patient." Dr. Kaplan further opined that because plaintiff had indicated he had no problems with his neck and back prior to the accident, these injuries were causally related to the accident.

Dr. Kaplan further testified that because conservative treatment did not alleviate plaintiff's pain, he initiated a course of steroid injections in the trigger points of muscle spasm. However, such injections provided only temporary relief and he discontinued this treatment because of the risks posed by multiple steroid injections. In Dr. Kaplan's opinion, the return of the muscle spasms was an indication of an ongoing problem with the neck and lower back, causing the limited ranges of motion. Finally, in light of the fact that plaintiff was still feeling limitations and pain five years after the accident, the doctor gave his opinion that the injuries were both "significant" and "permanent."

Defendants offered two medical witnesses on their case. Dr. Audrey Eisenstadt, a radiologist, examined the MRI films of plaintiff's cervical and lumbar regions of the spine. As to the lumbar MRI, she found no evidence of traumatic change, no straightening of the lumbar spine and no bulging disc. Regarding the cervical spine, Dr. Eisenstadt found the MRI film "blurry," but found no signs of trauma or disc herniation. She acknowledged that the MRI showed "some straightening" of the cervical spine, and that such straightening could be caused by muscle spasm, but in this case she believed it was the result of patient movement.

Defendants' second witness, Dr. Jerrold Gorsky, examined plaintiff for five minutes and determined "some limitation" in his head and neck, but found "normal" results for the straight leg raising test, which indicated no herniated disc. Plaintiff could bend at the waist and bring his fingertips below his knees "without difficulty." Accordingly, Dr. Gorsky concluded that plaintiff had intermittent complaints of neck and back pain that were consistent with his age and occupation, and that there were no objective findings to suggest that the accident caused any impairment, permanency or disability.

Defendants conceded liability after plaintiff's testimony, but at the close of the evidence they moved for a directed verdict on the grounds that plaintiff's evidence had failed to establish causation and failed to establish a threshold injury under the Insurance Law. The court denied the motion with respect to the issue of causation, but reserved decision on the threshold injury question.

The jury returned a split verdict, finding that plaintiff had failed to establish "a permanent consequential limitation of use of a body organ or member," but that he did sustain a "significant loss of use of a body function or member." The jury awarded plaintiff $50,000 for past pain and suffering and $50,000 for future pain and suffering over 24 years. The jury awarded nothing for future medical expenses. After the verdict, the court denied all motions for which decision had been reserved.

On appeal, defendants argue that because plaintiff's evidence failed to establish a significant limitation of a body function or system, the trial court erred in failing either to direct a verdict in their favor (CPLR 4401) or to grant judgment to defendants notwithstanding the verdict (CPLR 4404). Alternatively, they argue that the jury's verdict was against the weight of the evidence. As we agree with defendants that plaintiff failed to establish a serious injury as a matter of law, we reverse and dismiss the complaint.[FN1]

Insurance Law § 5102(d) defines "serious injury" to include "a personal injury which results in . . . significant loss of use of a body function or system." Although the existence of a serious injury is often a jury question, "the issue is one for the court, in the first instance where it is properly raised, to determine whether the plaintiff has established a prima facie case of sustaining serious injury" (Licari v Elliott, 57 NY2d 230, 237 [1982]). Thus, "[i]f it can be said, as a matter of law, that plaintiff suffered no serious injury within the meaning of [§ 5102(d)] of the Insurance Law, then plaintiff has no claim to assert and there is nothing for the jury to decide" (id. at 238).

The determination of whether a limitation of use or function is significant "relates to medical significance and involves a comparative determination of the degree or qualitative nature of an injury based on the normal function, purpose and use of the body part" (Dufel v Green, 84 NY2d 795, 798 [1995]). In order to prove the extent or degree of physical limitation, a plaintiff may rely on an expert's designation of a numeric percentage of a plaintiff's loss of range of motion or a qualitative assessment of the plaintiff's condition (Toure v Avis Rent A Car Sys., 98 NY2d 345, 350 [2002]). Both the quantitative and qualitative assessments must have an objective basis (see id. [qualitative assessment may suffice, provided that evaluation has an objective basis and compares the plaintiff's limitations to the normal function, purpose and use of the affected body function or system]; Taylor v Terrigno, 27 AD3d 316 [2006] [complaint dismissed where expert did not identify the objective tests used in deriving measurements of loss of range of motion]).

Viewing the trial evidence in a light most favorable to the plaintiff, as we must, his medical evidence failed to establish a prima facie case of serious injury under either a quantitative or qualitative analysis. With respect to the quantitative findings, we note that although Dr. Kaplan testified to a 30% loss of range of motion of the neck, and further found that the results of plaintiff's straight leg raising test yielded a 20§ difference from the normal result, any fair reading of the record demonstrates that these numerical restrictions on range of motion were premised exclusively on plaintiff's subjective indications of pain. Indeed, plaintiff's doctor candidly admitted that the results of the straight leg raising test will depend on the patient's assertions of pain, rather than a verifiable inability to raise one's leg more than seventy degrees. Accordingly, the failure of plaintiff's medical expert to demonstrate the objective tests performed to determine the loss of range of motion renders these numerical findings insufficient to
demonstrate serious injury (see Rivera v Benaroti, 29 AD3d 340, 342 [2006]; Taylor v Terrigno, 27 AD3d 316, supra; Nagbe v Minigreen Hacking Group, 22 AD3d 326, 327 [2005]; Nelson v Amicizia, 21 AD3d 1015 [2005]).

Although plaintiff's expert did identify some objective evidence of plaintiff's injury — a herniated disc, a bulging disc and multiple points of muscular spasm — this evidence alone was insufficient to establish serious injury, in the absence of objective medical evidence showing the extent or degree of the limitations resulting from these specific injuries and their duration (see Newton v Drayton, 305 AD2d 303 [2003]; Rangel-Vargas v Vurchio, 289 AD2d 92 [2001]; Noble v Ackerman, 252 AD2d 392, 394 [1998]).

Nor did plaintiff establish a significant limitation based upon a qualitative assessment of his condition. The record discloses that at the end of his testimony, Dr. Kaplan was asked what was the "qualitative difference" between plaintiff's injured cervical and lumbar spine and that of a "normal healthy spine." After Dr. Kaplan stated that he did not understand the question, which plaintiff's counsel rephrased, the doctor stated that "he certainly has pain with activities, acquires pain, complained of pain with activities, complained of pain with weather changes. He has muscular spasm that limits his motion, worse at times than other times. And, so, he has a limited function, certainly." Manifestly, this vague testimony fails to compare plaintiff's limitations to the normal function, purpose and use of the cervical and lumbar regions of his spine (Toure, 98 NY2d at 350; Dufel, 84 NY2d at 798). Likewise, Dr. Kaplan's assertion that plaintiff's injuries were "significant" was conclusory and tailored to meet the statutory and decisional requirements
(Ceruti v Abernathy, 285 AD2d 386 [2001]; see also Lopez v Senatore, 65 NY2d 1017, 1019 [1985]).

 

 

Crespo v. Elrac, Inc.

 

Carmen, Callahan & Ingham, LLP, Farmingdale, N.Y. (James M. Carman and

Michael F. Ingham of counsel), for respondents.

 

DECISION & ORDER

In an action to recover damages for personal injuries, the plaintiff appeals from (1) an order of the Supreme Court, Kings County (Hurkin-Torres, J.), dated January 24, 2006, which granted the defendants' motion for leave to reargue their prior motion for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d), which had been denied in an order dated October 7, 2005, and upon reargument, vacated the order dated October 7, 2005, granted the defendants' motion for summary judgment, and denied the plaintiff's motion for leave to amend his bill of particulars, and (2) an order of the same court dated June 19, 2006.

ORDERED that the appeal from the order dated June 19, 2006, is dismissed as abandoned; and it is further,

ORDERED that the order dated January 24, 2006, is modified, on the law, by deleting the provision thereof which, upon reargument, vacated the order dated October 7, 2005, and granted the defendants' motion for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) and substituting therefor a provision, upon reargument, adhering to the determination in the order dated October 7, 2005, denying the defendants' motion for summary judgment; as so modified, the order is affirmed, and it is further;

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

As the plaintiff correctly argues, the defendants' motion for summary judgment was untimely (see CPLR 3212[a]; Brill v City of New York, 2 NY3d 648). Since the defendants never sought leave on a showing of good cause from the Supreme Court to submit an untimely motion for summary judgment, the Supreme Court should not have entertained the motion in the first instance (see CPLR 3212 [a]; Brill v City of New York, supra).

The parties' remaining contentions are without merit.

Espinosa v. Melendez



Robert P. Tusa (Sweetbaum & Sweetbaum, Lake Success, N.Y.
[Marshall D. Sweetbaum] of counsel), for appellant.

 

DECISION & ORDER

In an action to recover damages for personal injuries, the defendant Elise Payen appeals from an order of the Supreme Court, Kings County (Partnow, J.), dated October 17, 2006, which denied her motion for summary judgment dismissing the complaint insofar as asserted against her on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d).

ORDERED that the order is reversed, on the law, with costs, and the motion of the defendant Elise Payen for summary judgment dismissing the complaint insofar as asserted against her is granted.

The defendant Elise Payen met her prima facie burden on her motion of establishing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident (see Toure v Avis Rent A Car Sys., 98 NY2d 345; Gaddy v Eyler, 79 NY2d 955). In opposition, the plaintiff failed to raise a triable issue of fact.

The plaintiff failed to provide any admissible medical proof that was contemporaneous with the subject accident that showed range of motion limitations in her spine and shoulder (see Felix v New York City Tr. Auth., 32 AD3d 527, 528; Ramirez v Parache, 31 AD3d 415, 416; Bell v Rameau, 29 AD3d 839; Ranzie v Abdul-Massih, 28 AD3d 447, 448).

The magnetic resonance images of the plaintiff's cervical spine which showed a bulging disc did not, alone, establish a serious injury (see Yakubov v CG Trans Corp., 30 AD3d 509, 510; Cerisier v Thibiu, 29 AD3d 507, 508; Kearse v New York City Tr. Auth., 16 AD3d 45, 49). The mere existence of a bulging disc is not evidence of a serious injury in the absence of objective evidence of the extent of the alleged physical limitations resulting from the disc injury and its duration (see Yakubov v CG Trans Corp., supra; Kearse v New York City Tr. Auth., supra). The self-serving affidavit of the plaintiff was insufficient to show that she sustained a serious injury from the accident since there was no objective medical evidence to show that she sustained such an injury (see Yakubov v CG Trans Corp., supra; Davis v New York City Tr. Auth., 294 AD2d 531, 531-532). The remaining submissions of the plaintiff were without probative value in opposing the motion since they were unsworn, unaffirmed, or uncertified (see Grasso v Angerami, 79 NY2d 813, 814-815; Felix v New York City Tr. Auth., 32 AD3d 527, 528; Yakubov v CG Trans Corp., supra; Pagano v Kingsbury, 182 AD2d 268, 270; see also CPLR 4518[c]).

The plaintiff also failed to proffer competent medical evidence that she was unable to perform substantially all of her daily activities for not less than 90 of the first 180 days subsequent to the accident (see Sainte-Aime v Ho, 274 AD2d 569, 570).
CRANE, J.P., SANTUCCI, FLORIO, DILLON and BALKIN, JJ., concur.

Irizarry  v. Bin Chen



Koval, Rejtig & Deand, PLLC, Mineola, N.Y. (Mitchell Dranow of counsel), for appellant.
Cheven, Keely & Hatzis, New York, N.Y. (Mayu Miyashita of counsel), for respondent.

 

DECISION & ORDER

In an action to recover damages for personal injuries, the plaintiff appeals from an order of the Supreme Court, Queens County (Weiss, J.), dated January 30, 2006, which granted the defendant's motion for summary judgment dismissing the complaint on the ground that he did not sustain a serious injury within the meaning of Insurance Law § 5102(d).

ORDERED that the order is affirmed, with costs.

On appeal, the plaintiff concedes that the defendant's "moving papers" were sufficient to establish a prima facie showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5101(d).

In opposition to the defendant's motion, the plaintiff failed to raise a triable issue of fact. The plaintiff's opposition consisted, inter alia, of unsworn medical reports and uncertified hospital records which were without probative value (see Grasso v Angerami, 79 NY2d 813, 814; Mejia v DeRose, 35 AD3d 407, 408; Hernandez v Taub, 19 AD3d 368). Moreover, the magnetic resonance imaging reports submitted by the plaintiff did not establish that he sustained a serious injury as a result of the subject accident. In this regard, the plaintiff failed to show that the herniation was causally related to the subject accident (see Ruddock v Boland Rentals, Inc., 31 AD3d 627). The plaintiff's claim that he was unable to perform substantially all of his daily activities for not less than 90 of the first 180 days subsequent to the subject accident was unsupported by competent medical evidence (see D'Alba v Yong-Ae Choi, 33 AD3d 650, 651; Murray v Hartford, 23 AD3d 629, 629-630). Therefore, the Supreme Court properly granted the defendant's motion for summary judgment dismissing the complaint.
RIVERA, J.P., SPOLZINO, FISHER, LIFSON and DICKERSON, JJ., concur.

Palladino v. Antonelli


Patrick S. Owen, Goshen, N.Y., for appellants.
Marc D. Orloff, P.C., Goshen, N.Y. (Steven A. Kimmel of counsel), for respondents.

 

DECISION & ORDER

In an action to recover damages for personal injuries, etc., the plaintiffs appeal from an order of the Supreme Court, Orange County (McGuirk, J.), dated February 2, 2006, which granted the defendants' motion for summary judgment dismissing the complaint on the ground that the plaintiff Maria Palladino did not sustain a serious injury within the meaning of Insurance Law § 5102(d).

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

The defendants failed to meet their prima facie burden of showing that the plaintiff Maria Palladino (hereinafter the injured plaintiff) did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject motor vehicle accident (see Toure v Avis Rent A Car Sys., 98 NY2d 345; Gaddy v Eyler, 79 NY2d 955, 956-957). The defendants' examining neurologist and examining orthopedist merely stated that the range of motion in the injured plaintiff's cervical spine was "full," without setting forth the objective test or tests performed to support their conclusion (see McCrary v Street, 34 AD3d 768; Ilardo v New York City Tr. Auth., 28 AD3d 610; Kelly v Rehfeld, 26 AD3d 469; Nembhard v Delatorre, 16 AD3d 390; Black v Robinson, 305 AD2d 438). Since the defendants failed to establish their prima facie entitlement to judgment as a matter of law in the first instance, it is unnecessary to reach the question of whether the plaintiffs' papers were sufficient to raise a triable issue of fact (see Coscia v 938 Trading Corp., 283 AD2d 538).
SCHMIDT, J.P., KRAUSMAN, GOLDSTEIN and COVELLO, JJ., concur.

 

 

Lopez v. Mendoza



Pollack, Pollack, Isaac & DeCicco, New York (Brian J. Isaac of counsel), for appellant.
Baker, McEvoy, Morrissey & Moskovits, P.C., New York
(Stacy R. Seldin of counsel), for respondent.

Order, Supreme Court, Bronx County (Patricia Anne Williams, J.), entered March 30, 2006, which granted defendant's motion for summary judgment dismissing the complaint, unanimously affirmed, without costs.

Plaintiff's expert, a physician who examined him both before and after surgery was performed on his shoulder on June 16, 2004, conducted certain range of motion tests in connection with his subsequent examination of plaintiff in September 2004. His affirmation was contradicted by the affirmations of physicians who examined plaintiff 13 months thereafter in October 2005. They stated that their examinations of plaintiff disclosed no range of motion limitations. Plaintiff submitted no evidence to contradict those later findings, and, accordingly, no triable issue was raised as to whether he had sustained serious injury involving permanency within the meaning of Insurance Law § 5102(d) (see Thompson v Abbasi, 15 AD3d 95, 97 [2005]). Nor was there competent objective proof sufficient to raise a triable issue about whether plaintiff sustained, "a medically determined injury or impairment of a nonpermanent nature" (Insurance Law § 5102[d]) that imposed substantial limitations, as opposed to "slight curtailment," on his customary daily activities (see Licari v Elliott, 57 NY2d 230, 236 [1982]). Notably, and consistent with the absence of contemporary evidence contradicting defendant's doctors, the report by plaintiff's expert contemplated "both symptomatic and functional improvement in his condition," provided plaintiff continued periodic treatment.

Bruckner Realty, LLC v. County Oil Company, Inc.


DECISION & ORDER

In an action to recover damages pursuant to Navigation Law §§ 181(5) and 190, the defendant County Oil Company, Inc., appeals, as limited by its brief, from so much of an order of the Supreme Court, Nassau County (Alpert, J.), dated February 27, 2006, as denied its motion for summary judgment on its cross claim against the defendant American Home Assurance Company, a company of American International Group, Inc., declaring that the defendant American Home Assurance Company, a company of American International Group, Inc., is obligated to defend it in this action pursuant to both a commercial auto insurance policy and a commercial general liability policy issued to the defendant Anchor Transit Corp., and granted the cross motion of the defendant American Home Assurance Company, a company of American International Group, Inc., for summary judgment declaring that it is not obligated to defend or indemnify the defendant County Oil Company, Inc., in this action.

ORDERED that the order is affirmed insofar as appealed from, with costs, and the matter is remitted to the Supreme Court, Nassau County for the severance, from the main action, of the cross claim of the defendant County Oil Company, Inc., against the defendant American Home Assurance Company, a company of American International Group, Inc., for a judgment declaring that the defendant American Home Assurance Company, a company of American International Group, Inc., is obligated to defend and indemnify it in the main action pursuant to both a commercial auto insurance policy and a commercial general liability policy issued to the defendant Anchor Transit Corp., and for the entry of a judgment declaring that the defendant American Home Assurance Company, a company of American International Group, Inc., is not obligated to defend or indemnify the defendant County Oil Company, Inc., in the main action.

The plaintiff allegedly incurred damages, including, inter alia, significant expenses for environmental investigation, monitoring, and clean-up, after heating oil from a burst pipe in its heating system flowed into both the New York City Combined Sewer Overflow system and Weir Creek. The plaintiff commenced this action against, among others, County Oil Company, Inc. (hereinafter County Oil), which sold the oil, and Anchor Transit Corp. (hereinafter Anchor Transit), which delivered the oil via truck, alleging, inter alia, that a proximate cause of the burst pipe and discharge was that the heating oil failed to move properly through the system because it was defective and/or contained impurities and/or was of an improper grade. County Oil asserted a cross claim against the defendant American Home Assurance Company, a company of American International Group, Inc. (hereinafter American), which issued both a commercial auto insurance policy and a commercial general liability policy to Anchor Transit. County Oil alleged, in its cross claim, that it was an additional insured under the policies, and was owed a defense and indemnification in this action. County Oil moved for summary judgment on its cross claim, seeking a declaration that American is obligated to provide it with a defense under the policies. American cross-moved, inter alia, for summary judgment declaring that it is not obligated to defend or indemnify County Oil under either policy. The Supreme Court denied County Oil's motion and granted American's cross motion. We affirm.

The duty to defend is triggered whenever the allegations of a complaint, liberally construed, suggest a reasonable possibility of coverage, or the insurer has actual knowledge of facts establishing a reasonable possibility of coverage (see Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131; Fitzpatrick v American Honda Motor Corp., 78 NY2d 61; Sandy Creek Cent. School Dist. v United Natl. Ins. Co., 37 AD3d 812). The duty is not triggered where it may be concluded, as a matter of law, that there is no possible factual or legal basis upon which the insurer might eventually be held to be obligated to indemnify the claimant under any provision of the insurance policy (see City of New York v Evanston Ins. Co., AD3d [2d Dept, Feb. 13, 2007]). An insurer may also disclaim coverage on the basis of a policy exclusion by demonstrating that the allegations of the complaint cast that pleading solely and entirely within the exclusion (see Automobile Ins. Co. of Hartford v Cook, supra; Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 NY2d 419). Here, American demonstrated that the allegations of the complaint fell solely and entirely within a pollution exclusion in the commercial general liability policy (see Physicians' Reciprocal Insurers v Giugliano, 37 AD3d 442). Thus, County Oil is not entitled to a defense or to indemnification under that policy. Further, American demonstrated that there is no possible factual or legal basis on which it might eventually be held to be obligated to indemnify County Oil under the commercial auto insurance policy (see Hudson Riv. Concrete Prods. Corp. v Callanan Rd. Improvement Co., 5 AD2d 49). The complaint does not allege any basis upon which it might be found that the alleged defective and/or impure and/or improperly graded fuel oil in the plaintiff's heating system arose from the ownership, maintenance, or use of a covered vehicle within the meaning of the commercial auto insurance policy. Thus, County Oil is not entitled to a defense or indemnification under that policy.

County Oil's remaining contentions either are without merit or have been rendered academic in light of our determination.

Since the cross claim which is the subject of this appeal seeks a declaratory judgment, the cross claim must be severed from the main action, and we remit the matter to the Supreme Court, Nassau County, for that purpose, and for the entry of a judgment declaring that the defendant American Home Assurance Company, a company of American International Group, Inc., is not obligated to defend or indemnify the defendant County Oil Company, Inc., in the main action (see Lanza v Wagner, 11 NY2d 317, 334, appeal dismissed 371 US 74, cert denied 371 US 901).

Connecticut Indemnity Company v. Hines

 

DECISION & ORDER

In an action for a judgment declaring the rights and obligations of the parties with respect to an underlying personal injury action entitled Michele Scriber v Livon and Stanley Trucking, Inc., commenced in the Supreme Court, Bronx County, under Index Number 18325/01, the defendants David P. McCarthy, Inc., and New Jersey Manufacturers Insurance Company appeal (1) from so much of an order of the Supreme Court, Suffolk County (Emerson, J.), dated November 16, 2005, as denied that branch of their motion which was for summary judgment declaring, in effect, that the plaintiff's obligation to indemnify the defendants in the underlying personal injury action is not limited to the statutory minimum fixed by Vehicle and Traffic Law § 311(4)(a), § 341, § 345(b)(3), and Insurance Law § 3420(f)(1), and granted that branch of the plaintiff's cross motion which was for summary judgment declaring, in effect, that its obligation to indemnify the defendants in the underlying personal injury action is limited to the statutory minimum fixed by Vehicle and Traffic Law § 311(4)(a), § 341, § 345(b)(3), and Insurance Law § 3420(f)(1), and (2) from so much of a judgment of the same court entered April 26, 2006, as declared that its obligation to indemnify the defendants in the underlying personal injury action is limited to the statutory minimum fixed by Vehicle and Traffic Law § 311(4)(a), § 341, § 345(b)(3), and Insurance Law § 3420(f)(1), and that the plaintiff's one-third share of any loss arising from the underlying accident shall not be calculated on more than the statutory minimum.

ORDERED that the appeal from the order is dismissed; and it is further,

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

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

The plaintiff insurer, Connecticut Indemnity Company (hereinafter Connecticut), issued a policy of insurance to the defendant Livon Hines, the owner and operator of a tractor-trailer leased to the defendant David P. McCarthy, Inc., for use in its business. The policy contained a Non-Trucking Use endorsement which excluded coverage for the vehicle while used in the business of a lessee. The policy also contained "Endorsement #2" (hereinafter the savings clause), which stated:

"We agree with YOU that if any of the provisions of the endorsement, Truckers Insurance for Non-Trucking Use' CA2309 are held to be void or unenforceable under the law of any jurisdiction, for reasons of public policy, violation of statute, or otherwise, WE will not pay any sums in excess of the minimum amounts required by the Financial Responsibility Laws of such jurisdiction, and then only after all other valid and collectible insurance available to the Named Insured, or which would be available to the Named Insured in the absence of this policy, has been exhausted."

Hines was involved in an accident while driving the tractor-trailer in furtherance of the lessee's business. The persons injured in the accident commenced an action against, among others, Hines and the lessee. Connecticut disclaimed coverage based upon the Non-Trucking Use endorsement, and the lessee's insurance company undertook to defend the action.

Connecticut then commenced this action seeking, inter alia, a judgment declaring that it had no obligation to defend or indemnify Hines in the underlying action, or, in the alternative, that its indemnification obligation was limited, by the savings clause, to the minimum liability insurance requirements mandated by New York statutory law. The Supreme Court determined, inter alia, that the Non-Trucking Use endorsement was void as against public policy, but that the savings clause was valid and enforceable. It thus limited Connecticut's obligation to the statutory minimum liability insurance requirements, which are $25,000 because of bodily injury to one person and $50,000 because of bodily injury to two or more persons in any one accident (see Vehicle and Traffic Law § 311[4][a], § 341, § 345[b][3]; Insurance Law § 3420[f][1]). We agree.

The parties concede on appeal that the Non-Trucking Use endorsement is void as against New York's public policy (see Royal Indem. Co. v Providence Washington Ins. Co., 92 NY2d 653; Randazzo v Cunningham, 56 AD2d 702, affd on opn below 43 NY2d 937). Accordingly, the only issue on appeal is whether or not the savings clause may be enforced.

In Royal Indem. Co. v Providence Washington Ins. Co. (supra), a "bobtail" policy, i.e., an insurance policy that covered any "miles operated" by the lessor during the terms of a truck lease when the tractor portion of the truck was not in actual service for the lessee, had a Non-Trucking Use endorsement, but no savings clause. Upon a certified question from the United States Court of Appeals for the Second Circuit, the New York State Court of Appeals held that the exclusion was void as against public policy. The second certified question inquired as to whether the endorsement was nonetheless valid to limit liability to the financial security minima required by New York law. The court answered in the negative, stating:

"Since the non-trucking-use exclusion is void as against public policy, the policy must be read as if the exclusion did not exist. Where, as here, the policy does not contain a term stating that coverage is limited to the statutory minima, if a non-trucking-use exclusion is found to be invalid, no such limitation will be read into the policy"


(id. at 659 [citations omitted]).

The Supreme Court correctly held that this language implies that where a policy does contain such a provision limiting coverage to the minima, the provision will be upheld where it is not part of a voided exclusion. Such is the case here.

The Non-Trucking Use endorsement is void because its enforcement might result in a gap in coverage required by Vehicle & Traffic Law § 388 (see Royal Indem. Co. v Providence Washington Ins. Co., supra at 657-658; Randazzo v Cunningham, supra). However, enforcement of the savings clause will not have the same effect. Since the savings clause provides for coverage up to the minimum amounts required by the financial responsibility law (see Insurance Law § 3420[f][1]), it is in compliance with Vehicle and Traffic Law § 311(4)(a), 341, 345(b)(3), and does not violate public policy (see Hanover Ins. Co. v Connor, 232 AD2d 925). Insofar as the cases cited by the appellant hold otherwise (see R.E. Turner Inc. v Connecticut Indem. Co., 925 F Supp 139; Planet Ins. Co. v Gunther, 160 Misc 2d 67), we decline to follow them.

Great Northern Insurance Company v. Kobrand Corporation.

Order, Supreme Court, New York County (Charles Edward Ramos, J.), entered July 1, 2005, which, to the extent appealed from, granted the motions by defendant insurers for summary judgment and denied defendant Kobrand Corporation's cross motion for partial summary judgment that the insurers had a duty to defend in the underlying actions, affirmed, with costs.

An insurer's duty to defend arises when the allegations in the underlying complaint state a cause of action that gives rise to a reasonable possibility of recovery under the policy (Fitzpatrick v American Honda Motor Co., 78 NY2d 61 [1991]). Where, as here, the insurer establishes as a matter of law that there is no possible factual or legal basis upon which it might ultimately be obligated to indemnify under any policy provision, the insurer is relieved of such duty (Allstate Ins. Co. v Zuk, 78 NY2d 41, 45 [1991]).

The applicable Liquor Liability provisions in the subject policies provide coverage only for "all damages" from "injury" where the liability arises "by reason of the selling, serving or furnishing of any alcoholic beverage." The ultimate relief sought is an injunction and a disgorgement of profits. A plain reading of the complaint alongside the language of the policy supports the finding of the motion court that the Liquor Liability Provision does not apply to either the coverage afforded to Kobrand or for the relief sought by the plaintiffs.

The paucity of case law,[FN1] does not overcome the clear language of the words employed (nor the fact of a premium of only $184 for the Liquor Liability Coverage) to expose this carrier to liability for the mere consumption of an alcoholic product without resultant injury and damages.

Since the underlying complaints seek damages based on alleged unlawful marketing of alcohol to minors, the court properly held that advertising and marketing techniques do not constitute "selling, serving or furnishing" of an alcoholic beverage, and thus there is no duty to defend.

All concur except Catterson, J. who dissents in a memorandum as follows:


CATTERSON, J. (dissenting)

Because I believe that issues of fact preclude granting summary judgment to the defendants insurers in this case, I respectfully dissent. Competing dictionary definitions should not serve as a substitute for resolution of this dispute by a finder of fact.

This is an insurance coverage action brought by plaintiffs Great Northern Insurance Company and Federal Insurance Company (collectively hereinafter referred to as "Chubb") against defendant-appellant Kobrand Corporation (hereinafter referred to as "Kobrand"), an alcoholic beverage manufacturer, and Kobrand's co-insurers, Safeguard Insurance Company (hereinafter referred to as "Safeguard") and Transcontinental Insurance Company (hereinafter referred to as "Transcontinental"). Chubb sought a declaration that it has no obligation under liability insurance policies issued to Kobrand to indemnify or defend Kobrand in connection with six underlying lawsuits in which Kobrand was named as a defendant. Chubb named Safeguard and Transcontinental as necessary parties in the action since both insurers issued insurance policies to Kobrand during the applicable period.

In the underlying actions, plaintiffs, parents of minors, alleged that Kobrand unlawfully marketed alcohol to minors. As an alternative to their claim of intentional wrongdoing, plaintiff parents claimed that defendants were negligent in their marketing practices, which they claim encouraged underage drinking. In addition to injunctive relief and the disgorgement of ill-gotten profits, plaintiffs further sought recovery of their "actual damages" including "funds [which] were used without their consent to purchase, for persons under the legal drinking age, alcoholic beverages marketed by the defendants."[FN1]

Kobrand counterclaimed against Chubb and cross-claimed against Safeguard and Transcontinental. Kobrand sought declarations that each of the insurers is obligated under its policies to defend Kobrand in the underlying actions, and if Kobrand has liability, to indemnify Kobrand.

Chubb moved for summary judgment. Safeguard and Transcontinental cross-moved for summary judgment, seeking a declaration that they had no duty to defend or indemnify Kobrand on the grounds that their policies did not provide coverage for the claims in the underlying actions. Safeguard argued that the claims did not involve "bodily injury" as they did not seek to impose liability by reason of the "selling, serving or furnishing" of alcohol. Instead, Safeguard argued, the claims were solely based on the deliberate advertising scheme targeted to minors, and "advertising" is not the same as selling a product.

Kobrand opposed the insurers' motions and cross-moved for partial summary judgment concerning the insurers' duties to defend Kobrand in the underlying actions. Kobrand argued that the parent plaintiffs in the underlying actions alleged, interalia, that they had suffered injury and that their underage children suffered injury as a result of underage drinking, caused by Kobrand's negligence in marketing its alcoholic beverage products to underage children. Further, Kobrand argued that the underlying actions included allegations that underage drinking causes injuries and illness. They also argued that the marketing practices increased underage drinking and the resulting injuries, which were necessarily part of the "actual damages" for which plaintiffs sued as parents and guardians. Kobrand further contended that the underlying actions were within the Liquor Liability policy provisions since the allegations that Kobrand "marketed" to underage drinkers sought to impose liability on Kobrand by reason of its "selling" of alcohol. Finally, Kobrand argued that the underlying actions contained allegations of negligence for which damages were sought.

The court granted the motions of the insurers and denied Kobrand's cross motions from the bench. The court ruled that Kobrand made judicial admissions in prior motions that the plaintiffs in those underlying actions did not seek damages for "bodily injury" or "property damage" but instead sought only pecuniary damages or damages for economic loss.

Kobrand moved to reargue, claiming that the court had not properly considered the claims under the Liquor Liability Coverage Part. The court granted reargument but affirmed to its prior determination. The court further held that the Liquor Liability Coverage Part of the policies did not provide coverage, stating that:

"The underlying actions implicate Kobrand's advertising and marketing techniques. Allegedly, these techniques caused the damages that plaintiffs suffered.

Advertising techniques do not constitute selling, serving or furnishing of any alcoholic beverage.'"

I contend that the motion court erred in determining that, as a matter of law, advertising activities do not constitute selling. See Royal Ins. Co. of American v. The Boston Beer Co., 1:04 cv 2295 (N.D. Ohio Apr. 5, 2007). Moreover, the motion court did so without resort to legal analysis or the citation of any case law to support its conclusion. I believe Kobrand raises a genuine issue of material fact which should preclude summary judgment.

On a motion for summary judgment as to the duty to defend, this Court's "duty is to compare the allegations of the complaint to the terms of the policy to determine whether a duty to defend exists." A. Meyers & Sons Corp. v. Zurich Am. Ins. Group, 74 N.Y.2d 298, 302-303, 546 N.Y.S.2d 818, 820, 545 N.E.2d 1205, 1208 (1989). So long as one claim in the complaint comes within the policy coverage, the insurer has a duty to defend the entire action. Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 310, 486 N.Y.S.2d 873, 876, 476 N.E.2d 272, 275 (1984).

Transcontinental and Safeguard's insurance policies each contained a Commercial General Liability Coverage provision which provided coverage for product liability and other lawsuits seeking damages resulting from "bodily injury" or "property damage." The court below properly determined that the actions did not implicate this part of the policies, and Kobrand does not challenge that holding.

However, the policies also contained a Liquor Liability Coverage provision that is at the center of this dispute. The Liquor Liability Coverage under both the Safeguard and Transcontinental policies is for "those sums that the insured becomes legally obligated to pay as damages because of injury' . . . if liability for such injury' is imposed on the insured by reason of the selling, serving or furnishing of any alcoholic beverage." Injury is defined as "all damages, including damages because of bodily injury' and property damage,' and including damages for care, loss of services or loss of support." (Emphasis added.)

There is no dispute that plaintiff parents in the underlying actions sought to hold Kobrand liable for causing minors to purchase and consume alcoholic beverages. The issue for this court is whether, by these allegations, plaintiffs sought to hold Kobrand liable by reason of "the selling [...] of any alcoholic beverage." (Emphasis added.)

On appeal, Kobrand asserts that both Safeguard and Transcontinental have a duty to defend under the Liquor Liability Coverage Part of their policies because the underlying complaints charge Kobrand with causing harm as a result of their manufacturing, marketing, selling and distributing their alcoholic products. The insurers claim that what is really being challenged is marketing and advertising of alcoholic beverages, not the selling thereof.

The wording used in the complaints, however, is not so limited. The complaints include the following:

"The clear, direct, and foreseeable effects of defendants' conduct as alleged herein include (a) an increase in the illegal sales of defendants' products to underage consumers . . ." (Emphasis added.)

 

"The purpose and effect of defendants' marketing efforts directed at underage consumers is to: (a) increase defendants' revenues and profits derived from the sale of alcoholic beverages . . ." (Emphasis added.)

"Defendents knowingly profit from a billion dollar illegal business of selling alcohol to underage

persons." (Emphasis added.)

The United States Supreme Court has stated, "effective selling often involves extensive promotional activities" i.e., advertising and marketing. Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 187, 130 L.Ed.2d 682, 692, 115 S.Ct. 788, 793 (1995). Giving the terms their ordinary meaning, Kobrand argues that its "advertising" and "marketing" constitute the "selling" of alcoholic beverages. Plaintiff parents in the underlying actions alleged that Kobrand failed "to ensure that [its] marketing efforts do not unreasonably induce or encourage minors to purchase [its] products." (Emphasis added.) Kobrand also argues that marketing is, in fact, selling as defined in The Random House Dictionary of the English Language, where it defines "marketing" as:

"1. The act of buying or selling in a market.

"2. The total of activities by which transfer of title of possession of goods from seller to buyer is effected, including advertising, shipping, storing and selling."

Indeed, Kobrand argues that, promoting in and of itself as an activity distinct from selling would be a meaningless activity. As a result, Kobrand asserts that the allegations of the underlying actions fall within the express scope of the Liquor Liability Coverage afforded by the insurers.

The insurers counter that the proper inquiry involves an analysis of the actual language used in the Liquor Liability Coverage Part, that is a look at the plain meaning of the word "selling." They urge this Court to accept the definitions for selling as they appear in Black's Law Dictionary (8th ed.)("[t]o transfer property by sale;") and in The Merriam-Webster's Collegiate Dictionary (11th ed.)("to give up (property) to another for something of value (as money)." "Marketing," by contrast, they argue, is the activity of promoting a particular product prior to sale.  Safeguard additionally cites Jerry Madison Enters., Inc. v. Grasan Mfg. Co. Inc., 1990 U.S. Dist. LEXIS 1649 (S.D.N.Y. 1990) to support the plain definition of "sell" as set forth by the insurers. In Jerry Madison, the federal district court contrasted the definition of "advertising" (marketing) with "sale" and denied coverage because the plaintiff's claim involved the "sale" of jewelry and not the "advertising" of jewelry. The insurers refute Kobrand's contention that the Jerry Madison Court specifically did not conclude that "selling includes ... advertising." Because if that were so, the insurers argue, the alleged "sale" of jewelry would have triggered the "advertising" injury coverage. Instead, they assert that the Jerry Madison Court clearly considered the two activities to be separate. "Sale" involves the transfer of property for compensation. "Marketing" or "advertising" involves the promotion of a particular product prior to sale.

Nevertheless, Jerry Madison, supra, is not controlling precedent and in light of the foregoing paucity of case law, I believe that this is an issue that should be more fully explored by the finder of fact. I therefore believe the granting of summary judgment to insurers should be reversed, and the matter remanded.

Footnote 1:Asgrow Seed Co. v Winterboer, (513 US 179), relied upon by the dissent, for the similarity between "marketing" and"selling" is at best dicta and in any event is clearly distinguishable from the policy language herein.

Footnote 1:Ayman B. Hakki, et al. v. Zima Company, No. 03-CV-9183, Sup. Ct. D.C., Civil Div., was filed on or about November 14, 2003 and subsequently removed to the U.S. District Court for the District of Columbia. On December 10, 2004, the case was remanded to the Superior Court for the District of Columbia, Civil Div. on the grounds of lack of diversity jurisdiction. Kobrand's motion to dismiss was granted on March 28, 2006 in part on the fact that an actual injury was not alleged in the complaint. Randy Kreft, et al. v. Zima Beverage Co., No. 04-CV-1827, District Ct. of Jefferson, Colorado, was filed on or about December 3, 2004. Kobrand's motion to dismiss was granted on September 16, 2005 in part because there was no allegation in the complaint that the plaintiffs "suffered injury to a cognizable or legally protected interest." Ronald P. Wilson, et al., v. Zima Company, No. 04 CVS 626, St. of N. Carol. Gen. Ct. of Justice, Sup. Ctg. Div., Co. of Mecklenberg, was filed on or about January 13, 2004 and removed to the U.S. Dist. Ct. For the W. Dist. Of N. Carol on March 29, 2004. Kobrand's motion to dismiss is pending. Steven E. Eisenberg, et al. v. Anheuser-Busch, No. 1:04-CV-1081, U.S. Dist. Ct. for the N. Dist. Of Ohio, East Div., was filed on or about April 30, 2004. A nearly identical action, Michael Tully v. Anheuser-Busch, No. CV 04 532269, was commenced on or about June 8, 2004 in the Ct. of Common Pleas for Cuyahoga Co., Ohio. Both cases were removed to the U.S. Dist. Ct. for the N. Dist. Of Ohio, E. Div. and consolidated. The plaintiff class filed an amended complaint on September 15, 2005. Kobrand's motion to dismiss was granted on February 1, 2006 in part because the plaintiffs "failed to state a legally recognizable injury." Elizabeth H. Sciocchetti, et al. v. Advanced Brands & U Importing Col, Index No. 102205, N.Y. Sup. Ct. Albany Co., was filed on February 25, 2005. Kobrand's motion to dismiss was granted on February 16, 2006 on the grounds that plaintiff failed to allege an "injury to a legally protected right caused by defendant's unlawful conduct."

 

Hernandez v. Sanchez


Law Office of Susan B. Owens, White Plains (Joseph M. Zecca
of counsel), for appellants.
Pollack, Pollack, Isaac & DeCicco, New York (Kenneth J.
Gorman of counsel), for respondent.

Order, Supreme Court, Bronx County (Mary Ann Brigantti-Hughes, J.), entered on or about July 3, 2006, which denied defendants' motion to dismiss the complaint pursuant to CPLR 3211(a)(1), (3), and (7), unanimously reversed, on the law, without costs, the motion granted and the complaint dismissed. The Clerk is directed to enter judgment accordingly.

Plaintiff, an employee of nonparty grocery provider Fresh Direct, LLC, was injured while loading a truck owned by defendant HUB Truck Rental Corp. (HUB) and leased by defendant U.T.F. Trucking Inc. (U.T.F.), when defendant Hector Sanchez, a U.T.F. employee, pulled the truck away from the loading platform, causing plaintiff to lose his balance and fall. Plaintiff received Workers' Compensation from Fresh Direct, and in December 2005 he commenced this personal injury action.

The only basis for a claim against HUB is Vehicle and Traffic Law § 388, which imposes vicarious liability upon the lessor of a vehicle for the negligence of the driver. However, 49 USC 30106, the "Graves Amendment," bars State law vicarious liability actions commenced on or after August 10, 2005, against owners of motor vehicles "engaged in the trade or business of renting or leasing motor vehicles," such as HUB (see Williams v White, __ AD3d __, 2007 NY App Div LEXIS 3321 [2007]; Jones v Bill, 34 AD3d 741 [2006]).

Fresh Direct and U.T.F. are owned by the same parent, Fresh Direct Holdings, Inc., and all three entities have the same officers and members of the board of directors. Both Fresh Direct and U.T.F. operate out of the same premises, use the same computer and telephone systems, are covered by the same insurance policies, and otherwise function as one in their day-to-day operations. The trucks of both Fresh Direct and U.T.F. bear a "FRESHDIRECT" logo and their employees wear uniforms with a "FreshDirect" logo; U.T.F. personnel identify themselves as "Fresh Direct" employees when making deliveries. The employees of both companies use the same employee manual, and the same hiring, payroll change, and evaluation forms, attend the same holiday parties and other employee events, and are covered by the same 401-K plan and medical, dental, workers' compensation, and disability insurance. Fresh Direct personnel process the payroll for both companies, and provide human resources, employee benefits, customer services, and accounting services for both. Employees of U.T.F. are required to follow orders given by Fresh Direct managers. Since Fresh Direct, plaintiff's employer, and U.T.F. functioned as one company, plaintiff's claims against U.T.F. are barred by the exclusive remedy of Workers' Compensation Law § 11 (see Ramnarine v Memorial Ctr. for Cancer & Allied Diseases, 281 AD2d 218 [2001]).

Defendant Hector Sanchez is an employee of U.T.F., and therefore a fellow employee of plaintiff, immune from suit under Workers' Compensation Law § 29(6).

Lufthansa Cargo, AG v. New York Marine and General Insurance Company

Order, Supreme Court, New York County (Shirley Werner Kornreich, J.), entered July 31, 2006, which, inter alia, granted plaintiff's cross motion for summary judgment declaring that plaintiff additional insured is entitled to the full benefits of the insurance contract issued by defendant insurer, unanimously affirmed, with costs.

Under New York law, "[e]ach individual additional insured  . . . must be treated as if separately covered by the policy and indeed as if he . . . had a separate policy of his own" (Greaves v Public Serv. Mut. Ins. Co., 5 NY2d 120, 124 [1959]), even where, as here, the policy is issued based on a material misrepresentation by the primary insured (see BMW Fin. Servs. v Hassan, 273 AD2d 428, lv denied 95 NY2d 767 [2000]). Accordingly, plaintiff additional insured was entitled to coverage under the subject policy, notwithstanding the circumstance that the policy had been issued based upon a misrepresentation by the primary insured and was void as to that party.

Schulman v. Indian Harbor Insurance Company


Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, New York,
N.Y. (Glenn J. Fuerth, Richard E. Lerner, and Patrick J. Lawless
of counsel), for appellant.
Shapiro, Beilly, Rosenberg, Aronowitz, Levy & Fox, LLP
(Bertram Herman, Mount Kisco, N.Y., of
counsel), for respondents.

 

DECISION & ORDER

In an action for a judgment declaring that the defendant is obligated to defend and indemnify the plaintiffs in an underlying personal injury action entitled Salten v Schulman, commenced in the Supreme Court, Queens County, under Index No. 14163/04, the defendant appeals from an order and judgment (one paper) of the Supreme Court, Queens County (Schulman, J.), entered November 25, 2005, which, upon a decision of the same court dated October 12, 2005, in effect, denied those branches of the defendant's motion which were to dismiss the complaint pursuant to CPLR 3211(a)(1) and 3211(a)(7) and for summary judgment, granted the plaintiffs' cross motion for summary judgment declaring that the defendant is obligated to defend and indemnify them in the underlying personal injury action, and declared that the defendant is obligated to defend and indemnify the plaintiffs in the underlying personal injury action.

ORDERED that the order and judgment is affirmed, with costs.

Insurance Law § 3420(d) requires an insurer to provide a written disclaimer "as soon as is reasonably possible." The reasonableness of the delay is measured from the time when the insurer "has sufficient knowledge of facts entitling it to disclaim, or knows that it will disclaim coverage" (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 66). The insurer bears the burden of justifying any delay (id. at 69). "While Insurance Law § 3420(d) speaks only of giving notice as soon as is reasonably possible,' investigation into issues affecting an insurer's decision whether to disclaim coverage obviously may excuse delay in notifying the policyholder of a disclaimer" (id. at 69). The failure of an insured to timely notify the insurer of a claim does not excuse the insurer's failure to timely disclaim coverage (see Mount Vernon Fire Ins. Co. v Gatesington Equities, 204 AD2d 419).

In the instant case, the defendant's submission of an unsworn letter of its claims analyst, containing hearsay statements of the plaintiff Myron Schulman, who was one of the defendants in the underlying personal injury action, failed to establish that its delay in issuing a disclaimer was reasonable under the circumstances (see First Fin. Ins. Co. v Jetco Contr. Co., supra; Hartford Ins. Co. v County of Nassau, 46 NY2d 1028). Moreover, the plaintiffs demonstrated that the defendant failed to promptly disclaim coverage for the underlying personal injury action within a reasonable amount of time after learning of facts or circumstances which might provide a reasonable basis for a disclaimer. The Supreme Court thus properly denied that branch of the defendant's motion which was for summary judgment.

Where, as here, the insurance carrier has disclaimed coverage on the ground that its insured failed to comply with the applicable notice requirements, and the insured has offered proof that the disclaimer itself was not issued "as soon as reasonably possible" (Insurance Law § 3420), the burden is upon the insurance carrier to establish that the delay, if any, was reasonably related to its completion of a thorough and diligent investigation (see First Fin. Ins. Co, v Jetco Contr. Co., supra; Hartford Ins. Co. v County of Nassau, supra; DeSantis Bros. v Allstate Ins. Co., 244 AD2d 183; Mount Vernon Fire Ins. Co. v Gatesington Equities, supra). Based on the record before us, we conclude that defendant failed to satisfactorily establish that the delay in disclaiming was occasioned by its need to conduct a thorough and diligent investigation. The complaint in the underlying personal injury action, and the circumstances surrounding the initial cursory inquiry by the defendant's claims analyst, provided sufficient indicia that the insured may have breached the applicable notice requirements, or that a more thorough investigation would have revealed whether that was so (see Mount Vernon Ins Co. v Gatesington Equities, supra; Mount Vernon Fire Ins. Co. v Unjar, 177 AD2d 480). The defendant's conduct is thus indicative of a failure to disclaim as soon as reasonably possible (see Matter of Colonial Penn Ins. Co. v Pevzner, 266 AD2d 391 [delay of 41 days is unreasonable as a matter of law]; National Ins. Co. v Steiner, 199 AD2d 507 [same]). Accordingly, the Supreme Court properly granted the plaintiffs' cross motion for summary judgment declaring that the defendant is obligated to defend and indemnify them in the underlying personal injury action.

The defendant's remaining contentions are without merit.

Superior Ice Rink, Inc., v. Nescon Contracting Corp.

 

DECISION & ORDER

In an action, inter alia, to recover damages for breach of contract, the defendant Seigerman-Mulvey Company, Inc., appeals, as limited by its brief, from so much of an order of the Supreme Court, Nassau County (Mahon, J.), entered August 16, 2006, as denied its motion pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted against it.

ORDERED that the order is reversed insofar as appealed from, on the law, with costs, and the motion of the defendant Siegerman-Mulvey Company, Inc., to dismiss the complaint insofar as asserted against it is granted.

The plaintiff contracted with the defendant Nescon Contracting Corp., d/b/a A1 Discount Painting (hereinafter Nescon), to paint the roof of its facility. The plaintiff required that Nescon add it as an additional insured under Nescon's general liability insurance policy.

Nescon then entered into a contract with the appellant, Siegerman-Mulvey Company, Inc., its insurance broker, to obtain general liability insurance. The appellant delivered a "certificate of liability insurance" to the plaintiff, which indicated that the plaintiff was an additional insured under a policy issued to Nescon by the defendant Merchants Mutual Insurance Company (hereinafter Merchants).

Subsequently, two of Nescon's workers, who allegedly were injured on the plaintiff's premises during the performance of the painting work, commenced personal injury actions against the plaintiff. The plaintiff then sought to be defended and indemnified by Merchants in those actions. However, Merchants disclaimed coverage because, contrary to what the certificate of liability insurance had indicated, the plaintiff was not identified as an additional insured under Nescon's insurance policy.

The plaintiff commenced the instant action against Nescon, Merchants, and the appellant. The plaintiff alleged that it was an "intended third-party beneficiary" of the contract between Nescon and the appellant, that the appellant breached that contract, and that it sustained damages as a result. The appellant moved pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted against it. In the order appealed from, the Supreme Court, inter alia, denied the motion. We reverse the order insofar as appealed from.

Accepting the facts alleged in support of the cause of action against the appellant as true, and according the plaintiff the benefit of every favorable inference, we find that cause of action was not sufficiently pleaded (see CPLR 3211[a][7]; Leon v Martinez, 84 NY2d 83, 87-88). The plaintiff, which was not in privity of contract with the appellant, and which was owed no duty by the appellant (see American Ref-Fuel Co. of Hempstead v Resource Recycling, 248 AD2d 420, 424), failed to set forth sufficient allegations in support of its position that it was an intended third-party beneficiary of the contract between Nescon and the appellant. Furthermore, the plaintiff failed to allege that there was "fraud, collusion, or special circumstances" that would have enabled it to recover the "pecuniary loss" that it allegedly suffered as a result of the appellant's alleged breach of that contract (Binyan Shel Chessed, Inc. v Goldberger Ins. Brokerage, Inc., 18 AD3d 590, 592).

Topliffe v U.S. Art Co., Inc.,

 

DECISION & ORDER

In an action, inter alia, to recover damages for conversion, in which the defendants third-party plaintiffs U.S. Art Co., Inc., and U.S. Art International, LTD., commenced a third-party action for a judgment declaring that the third-party defendant, Certain Underwriters at Lloyd's of London, had a duty to defend and indemnify them in the main action, the third-party defendant appeals, as limited by its brief, from so much of an order of the Supreme Court, Queens County (Grays, J.), dated October 27, 2005, as denied its motion which was, in effect, for summary judgment declaring that it was not obligated to defend and indemnify in the main action and granted those branches of the cross motion of the defendants third-party plaintiffs which were for summary judgment declaring that it was so obligated, for summary judgment striking its fifth affirmative defense based upon the "mysterious disappearance" insurance policy exclusion, and for attorney's fees incurred in defending against the main action.

ORDERED that the order is modified, on the law, (1) by deleting the provision thereof denying that branch of the third-party defendant's motion which was, in effect, for summary judgment declaring that it was not obligated to defend in the main action and substituting therefor a provision granting that branch of the motion, and (2) by deleting the provisions thereof granting those branches of the defendants third-party plaintiffs' cross motion which were for summary judgment declaring that the third-party defendant was obligated to defend and indemnify them in the main action, for summary judgment striking the third-party defendant's fifth affirmative defense based upon the "mysterious disappearance" insurance policy exclusion, and for attorney's fees incurred in defending against the main action to this date, and substituting therefor provisions denying those branches of the cross motion; as so modified, the order is affirmed insofar as appealed from, without costs or disbursements.

The instant matter concerns the loss of 85 works of art produced by the poet and artist Kenneth Rexroth. The artwork was the property of the Kenneth Rexroth Trust (hereinafter the Trust). The defendants third-party plaintiffs, U.S. Art Co., Inc., and U.S. Art International, LTD. (hereinafter collectively US Art), accepted possession of the artwork and warehoused it in Queens. In May 2002 representatives of the Trust requested to view the artwork. The artwork, however, could not be found. US Art employees opined that during a period where the warehouse underwent extensive renovations, the artwork was inadvertently placed in an area where construction refuse was gathered and discarded. Approximately 2½; months after US Art notified its insurer, the third-party defendant, Certain Underwriters at Lloyd's of London (hereinafter Underwriters), of the loss, Underwriters notified US Art that it would be disclaiming coverage based on the "mysterious disappearance" exclusion in the insurance policy it issued to US Art. US Art alleges that the notice of disclaimer was untimely. Underwriters moved for summary judgment, and US Art cross-moved, inter alia, for summary judgment declaring that Underwriters must defend and indemnify it in this action for conversion of 85 of the works of art.

Insurance Law § 3420(d) requires an insurer to "give written notice as soon as is reasonably possible of [a] disclaimer of liability." Contrary to US Art's contention and the Supreme Court's adoption of it, Insurance Law § 3420(d) is inapplicable to this case since the underlying claim does not involve death or bodily injury (see Legum v Allstate Ins. Co., 33 AD3d 670; Vecchiarelli v Continental Ins. Co., 277 AD2d 992, 993; Incorporated Vil. of Pleasantville v Calvert Ins. Co., 204 AD2d 689, 690). Instead, common-law principles govern, under which the insurer's delay in giving notice of disclaimer of coverage, even if unreasonable, will not estop the insurer from disclaiming unless the insured has suffered prejudice from the delay (see O'Dowd v American Sur. Co. of N. Y., 3 NY2d 347, 355; Incorporated Vil. of Pleasantville v Calvert Ins. Co., supra at 690; Legum v Allstate Ins. Co., supra; Vecchiarelli v Continental Ins. Co., supra; Fairmont Funding, Ltd. v Utica Mut. Ins. Co., 264 AD2d 581, 581-582).

Assuming that the 2½;-month delay in issuing the disclaimer was unreasonable, we conclude that US Art failed to make the requisite prima facie showing of prejudice. US Art can only speculate that a favorable settlement in the main action could have been secured if Underwriters immediately assumed the defense of the action. Consequently, pursuant to the common law, Underwriters is not estopped from disclaiming based on the "mysterious disappearance" policy exclusion (see Simplexdiam, Inc. v Brockbank, 283 AD2d 34; Legum v Allstate Ins. Co., supra; Scappatura v Allstate Ins. Co., 6 AD3d 692). However, on its motion for summary judgment dismissing the third-party complaint, Underwriters failed to establish as a matter of law that coverage should be barred based on the "mysterious disappearance" exclusion. The explanation for the loss proffered by the US Art employees, if believed by the trier of fact, could reasonably support an inference that the artwork was accidentally thrown away, which would take the loss out of the "mysterious disappearance" exclusion (see S. Bellara Diamond Corp. v First Specialty Ins. Corp., 287 AD2d 368, 369; Gurfein Bros. v Hanover Ins. Co., 248 AD2d 227, 229-230). Accordingly, Underwriters failed to carry its prima facie burden on its motion for summary judgment by establishing that the alleged loss is one for which US Art can furnish no explanation whatsoever (see S. Bellara Diamond Corp. v First Specialty Ins. Corp., 287 AD2d at 369, supra; Van Dutch Prods. Corp. v Zurich Ins. Co., 67 AD2d 844, 845-846). Thus, a triable issue of fact remains as to the applicability of the exclusion.

In the event that it is determined that the "mysterious disappearance" exclusion does not apply, Underwriters will only have the duty to indemnify US Art for its losses. Pursuant to the language of the policy, Underwriters had the option to defend, not the duty to defend, the main action (see M.H. Lipiner & Son, Inc. v Hanover Ins. Co., 869 F.2d 685, 686-687; Diversified Mortg. Investors v U.S. Life Title Ins. Co., 544 F2d 571, 575; B & D Appraisals v Gaudette Machinery Movers, Inc., 752 F. Supp. 554, 556; Henderson v Aetna Cas. & Sur. Co., 55 NY2d 947; Kriegler v Aetna Cas. & Sur. Co., 108 AD2d 708, 709; Chrapa v Johncox, 60 AD2d 55, 60-61).

Westchester Fire Insurance Company v. Utica First Insurance Company


DECISION & ORDER

In an action, inter alia, to enforce a judgment against an insurance carrier, the defendant appeals from an order of the Supreme Court, Kings County (Ruchelsman, J.), dated March 22, 2006, which denied its motion to dismiss the complaint, and, inter alia, in effect, granted that branch of the cross motion of the plaintiff Westchester Fire Insurance Company which was for summary judgment on the issue of liability.

ORDERED that the order is affirmed, with costs.

In connection with a personal injury action entitled Chumsky v Danna Constr. Corp., commenced in the Supreme Court, Kings County, under Index No. 2963/01, the general contractors Danna Construction Corp. and Danna Equipment Corp., as well as Constance Cincotta (hereinafter collectively Danna), settled their third-party action against the subcontractor Gregory Kirkham and A-1 Real Estate Development Corp. (hereinafter collectively Kirkham). Danna and Kirkham entered into an agreement entitled, "Settlement Agreement and Release," under which Danna agreed to vacate a default judgment it was awarded against Kirkham in connection with the underlying personal injury action, and Kirkham agreed to settle Danna's third-party action against him for the actual settlement or verdict amount in the personal injury action or the sum of $300,000, whichever was less. Further, pursuant to the agreement, Danna agreed not to execute against Kirkham for the settlement or verdict amount, and in exchange, Kirkham agreed to assign to Danna and Danna's insurer, the plaintiff Westchester Fire Insurance Company (hereinafter Westchester), all of his rights against his insurer, the defendant Utica First Insurance Company (hereinafter Utica). Utica had issued an insurance policy to Kirkham under which Utica agreed to "pay all sums which an Insured becomes legally obligated to pay as damages."

Danna settled with the injured plaintiff in the underlying personal injury action for the sum of $270,000, which was paid by Danna's insurer Westchester. Danna, as Kirkham's assignee, sued Utica for a judgment declaring that Utica was obligated to defend and indemnify Gregory Kirkham. After motion practice, the Supreme Court granted Danna's cross motion for summary judgment. This court affirmed and remitted the matter for the entry of a judgment declaring that Utica was obligated to defend and indemnify Kirkham in the underlying personal injury action (see Danna Constr. Corp. v Utica First Ins. Co., 17 AD3d 622). Following the entry of this judgment, Westchester, individually and as Danna's subrogor, commenced the instant action against Utica seeking, among other things, to enforce the judgment. Utica moved for summary judgment dismissing the complaint. Westchester cross-moved for summary judgment. The Supreme Court denied Utica's motion, and, inter alia, in effect, granted that branch of Westchester's cross motion which was for summary judgment on the issue of liability. We affirm.

Indemnification flows from a contractual relationship (see Riviello v Waldron, 47 NY2d 297, 306; Erdman v Eagle Ins. Co., 239 AD2d 847, 849). "The duty to indemnify requires a covered loss" (Servidone Constr. Corp. v Security Ins. Co., 64 NY2d 419, 425), and will ultimately turn on the "actual facts" of the case (Erdman v Eagle Ins. Co., 239 AD2d at 849, supra; Ingber v Home Ins. Co., 140 AD2d 750, 751), including whether the insured becomes legally obligated to pay damages (see M & M Elec. v Commercial Union Ins. Co., 241 AD2d 58, 60), and whether the parties entered a release agreement barring certain claims (see McDonough v Dryden Mut. Ins. Co., 276 AD2d 817, 818; Westervelt v Dryden Mut. Ins. Co., 252 AD2d 877, 879; see also L & K Holding Corp. v Tropical Aquarium, 192 AD2d 643, 645).

"New York law . . . follow[s] the general rule that liability of the insurer attaches when there is a final judgment against the insured as a result of an obligation imposed by law" (M & M Elec. v Commercial Union Ins. Co., 241 AD2d at 60, supra [internal quotations omitted]; see State Farm Mut. Auto. Ins. Co. v Westlake, 35 NY2d 587, 591; 755 Seventh Ave. Corp. v Carroll, 266 NY 157, 161). When insurers agree to pay all sums which an insured becomes "legally obligated to pay as damages," there must be "an establishment of legal liability for payment of damages" to trigger the insurers' duty to indemnify the insured (M & M Elec. v Commercial Union Ins. Co., 241 AD2d at 60, supra).

"As an insurer's obligation to indemnify extends only to those damages the insured is legally obligated to pay, it naturally follows that a release discharging an insured from all liability relieves the insurer from the duty of indemnification because it effectively eliminates any factual or legal grounds on which the duty to indemnify may be based" (McDonough v Dryden Mut. Ins. Co., 276 AD2d at 818, supra).

Here, Utica issued a policy to the insured Kirkham under which Utica agreed to "pay all sums which an Insured becomes legally obligated to pay as damages." Contrary to Utica's contentions, under the circumstances of this case, Kirkham became legally obligated to pay damages [*3]pursuant to the settlement agreement and release with Danna. Kirkham acknowledged his liability in the underlying personal injury action by agreeing to settle Danna's third-party action against him in an amount up to $300,000, and indemnify Danna for the settlement amount in the underlying personal injury action or $300,000, whichever was less. It is of no moment that Danna agreed never to execute against Kirkham for this settlement amount. This narrow restraint was not tantamount to a release of Kirkham's liability in the underlying personal injury action. Moreover, where, as here, "the policy is a contract for protection against liability, the insured may turn to [the insurer] for relief as soon as his liability has become legally fixed and established, although he has not suffered actual loss" (M & M Elec. v Commercial Union Ins. Co., 241 AD2d at 60, supra).

Kirkham's liability became legally fixed with the execution of the above settlement agreement. This agreement created a legal obligation on Kirkham's part against which Utica was required to indemnify. As the assignee of Kirkham's rights against Utica, Danna was entitled to indemnification from Utica. Further, after advancing the settlement amount on behalf of its insured Danna, Westchester was subrogated to the position of Danna and, thus, entitled to indemnification from Utica (see Winkelmann v Excelsior Ins. Co., 85 NY2d 577, 582).

Worth Construction Co. Inc. v. Admiral Insurance Company


Jones Hirsch Connors & Bull P.C., New York (Richard
Imbrogno of counsel), for appellant.
Kral, Clerkin, Redmond, Ryan, Perry & Girvan, LLP, Mineola
(David Guadagnoli of counsel), for Admiral Insurance
Company, respondent.
Lubinsky & Kessler, New Hampton (Leonard Kessler of
counsel), for Farm Family Casualty Insurance Company, respondent.

Order and judgment (one paper), Supreme Court, New York County (Helen E. Freedman, J.), entered June 20, 2005, which, upon renewal, modified a prior order and judgment (one paper), same court and Justice, entered January 5, 2005, to declare that defendants Admiral Insurance Company and Farm Family Casualty Insurance Company are not obligated to defend, indemnify or reimburse plaintiff in an underlying personal injury action, modified, on the law, to declare that Farm Family is so obligated, and otherwise affirmed, without costs. Appeal from the January 5, 2005 order and judgment unanimously dismissed, without costs, as superseded by the appeal from the June 20, 2005 order and judgment.

Plaintiff Worth Construction, a Connecticut corporation, was general contractor on a construction site in White Plains. Defendant Admiral insured subcontractor Hackensack Steel, a New Jersey corporation; defendant Farm Family insured subcontractor Pacific Steel, hired by Worth to build a staircase. Both Admiral's and Farm Family's policies contain additional insured endorsements covering Worth for liability arising out of their respective insured's operations at the White Plains project and requiring notice of the claim as soon as practicable.

The injured worker, who was employed by a sub-subcontractor of Hackensack that was also a named insured on the Admiral policy, brought the underlying action against Worth in Westchester County for injuries allegedly sustained when he slipped on the stairs built by Pacific. It appears that at the time of the accident, Pacific had finished installing the metal pans on the stairs and was not scheduled to come back to the site to put up handrails until other trades had filled in the metal pans with concrete. It further appears that in the underlying Westchester action, Worth formally admitted that no negligence on Pacific's part contributed to the accident, resulting in Pacific's dismissal from the underlying action.

Under New York law, Worth's notice of the accident to Admiral almost 15 months after learning of the accident was late as a matter of law (see Heydt Contr. Corp. v American Home Assur. Co., 146 AD2d 497, 499 [1989], lv dismissed 74 NY2d 651 [1989]). Indeed, Worth does not argue otherwise, but rather that under governing New Jersey law, Admiral could not disclaim for lateness unless it was prejudiced. Admiral responds that New York law governs, under which it could disclaim for lateness even if it were not prejudiced (see Argo Corp. v Greater N.Y. Mut. Ins. Co., 4 NY3d 332 [2005]).

In deciding which law to apply, the motion court correctly found the center of gravity (see generally Matter of Allstate Ins. Co. [Stolarz], 81 NY2d 219, 225-226 [1993]) to be in New York, where the subject construction site was located and the underlying personal injury action is being litigated, not New Jersey, where Admiral issued its policy to Hackensack. Regional Import & Export Trucking Co. v North Riv. Ins. Co. (149 AD2d 361 [1989]) is distinguishable. There, the policy, as here, was issued by a New Jersey insurer to a New Jersey corporation, but unlike here, the policy insured against losses "happening anywhere," the loss occurred in New Jersey and the plaintiff's underlying liability was litigated in New Jersey. Indeed, the only New York contact in Regional was the placing of the policy through a New York broker. Nor should Connecticut law apply based solely on the fact that Worth is a Connecticut corporation. However, the motion court erred in holding that Worth's admission in the underlying action that Pacific was not at fault precludes Worth from claiming in this action that it is covered as an additional insured under Farm Family's policy with Pacific. The motion court reasoned that Pacific's dismissal from the underlying action established as a matter of law that the accident did not arise out of any of its operations performed for Worth, as required by the additional insured clause in Farm Family's policy. Overlooked was the language in paragraph 21.b of the policy defining Pacific's work to mean not only "Work or operations performed by [Pacific] or on [Pacific's] behalf," but also "Materials, parts or equipment furnished in connection with such work or operations." Given this definition of Pacific's work, it is immaterial, for purposes of deciding additional insured coverage, whether Pacific had completed its installation of the stairs, whether Pacific's installation of the stairs was negligent, or whether Pacific or a contractor in privity with it was the injured worker's employer. It is sufficient that the injury was sustained on the stairs (see Impulse Enterprises/F & V Mech. Plumbing & Heating v St. Paul Fire & Mar. Ins. Co., 282 AD2d 266, 267 [2001]).

All concur except Nardelli and McGuire, JJ. who concur in part and dissent in part in a separate memorandum by McGuire, J. as follows:


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

I respectfully disagree with the majority's conclusion that defendant Farm Family Casualty Insurance Company (Farm Family) is obligated to defend, indemnify or reimburse plaintiff in the underlying personal injury action, and would affirm Supreme Court's declaration that Farm Family is not so obligated.

Plaintiff Worth Construction Co. (Worth), the general contractor on the construction project, hired Pacific Steel (Pacific) to build the staircase on which the plaintiff in the underlying action, Michael Murphy, an employee of another subcontractor, slipped and fell. In this declaratory judgment action, Worth contends that as an additional insured under the general liability policy issued by Farm Family to Pacific, it is entitled to a judgment declaring that Farm Family is obligated to defend and indemnify Worth with respect to the claim alleged by Murphy in the underlying action.

The additional insured endorsement of the Farm Family/ Pacific policy provides in relevant part as follows: "WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule as an insured but only with respect to liability arising out of your operations or premises owned by or rented to you." Under paragraph 21 of the policy, the term "Your work" is defined to mean "(a) Work or operations performed by you or on your behalf; and (b) Materials, parts or equipment furnished in connection with such work or operations."

I agree, or at least am prepared to assume, that the definition of the term "Your work" applies to the undefined term "operations" in the endorsement, so that the latter term also includes "[m]aterials, parts or equipment furnished in connection with such work or operations." Nonetheless, the crucial point is that Worth is an additional insured "only with respect to liability arising out of [Pacific's] operations or premises owned by or rented to [Pacific]."

In the majority's view, the undisputed fact that Murphy slipped and fell on the stairs — i.e., "materials, parts or equipment furnished in connection with [Pacific's operations]" — provides a sufficient reason to conclude that Farm Family is obligated to defend and indemnify Worth in the underlying action. In my view, the majority's analysis is erroneous, for the reasons stated by Justice Sullivan in his dissenting opinion in Chelsea Assoc., LLC v Laquila-Pinnacle (21 AD3d 739, 741 [2005], lv denied 6 NY3d 742 [2005]). There, a laborer employed by a subcontractor, Laquila, was injured when he tripped and fell at the job site. The laborer sued, among others, the owner and general contractor, which were additional insureds under the general liability policy issued by Gerling to Laquila. The additional insureds eventually settled with the laborer and, in a third-party action they commenced against Laquila and Gerling, moved for summary judgment for defense and settlement costs incurred in the underlying action. As in this case, the additional insured endorsement amended the policy to include as an insured the person or organization listed in a schedule "but only with respect to liability arising out of your work' [i.e., Laquila's work] performed for that insured by you or on your behalf" (21 AD3d at 741 [dissenting op]). According to the majority, Gerling was obligated to defend and indemnify the additional insureds because the injuries sustained by the employee of the named insured, Laquila, "must be deemed as a matter of law to have arisen out of the work" (21 AD3d at 740-741 [internal quotation marks and citation omitted]). Further, according to the majority, "[a]ny negligence by the [additional insureds] is not material to an additional insured endorsement" (id. at 741 [citation omitted]).

In his dissenting opinion, Justice Sullivan wrote that the majority's interpretation of the additional insured endorsement:

"reads out of the clause the key words pertinent to its application here: but only with respect to liability arising out of "[Laquila's] work"' (emphasis added). The clause does not extend additional insured coverage for your [i.e., Laquila's] work' performed for the named insured, as the majority holds, but rather only for the additional insured's liability arising out of Laquila's work" (21 AD3d at 742 [dissenting op] [emphasis, parenthesis and brackets in original]).


Having bargained for language conditioning its obligation to defend and indemnify on "liability" of the additional insureds "arising out of" the named insured's work, Gerling was "entitled to the benefit of the contractual bargain" (id. at 743). In short, in Justice Sullivan's view, "[a]bsent a showing of liability on [the additional insureds'] part arising out of Laquila's work, the additional insured clause is never triggered" (id. at 742).

As Justice Sullivan, who was joined by Justice Mazzarelli, also pointed out, our cases construing the same or similar additional insured endorsements have hardly been a model of
consistency (id. at 742-743). In BP Air Conditioning Corp. v One Beacon Ins. Group (33 AD3d 116 [2006], lv granted 2006 NY Slip Op 82372[U] [Dec 21, 2006]), a recent decision construing an additional insured endorsement indistinguishable from the one in this case and the one in Chelsea Associates (supra), the panel again was split. In the underlying action, Joseph Cosentino, an employee of Karo Sheet Metal, a subcontractor of BP Air Conditioning Corp., sought to recover for injuries he sustained when he slipped and fell on a patch of oil at the construction site. The oil may have originated from any of a number of subcontractors working on the project, only one of which, Alfa Piping Corp., was a subcontractor of BP. Pursuant to the contract between Alfa and BP, the latter was an additional insured under the general liability policy issued to Alfa by One Beacon Insurance Group's predecessor-in-interest (33 AD3d at 118-119). In a subsequently severed fourth-party action against Beacon, BP sought a declaration requiring Beacon to undertake its defense in the action brought by Cosentino against the general contractor, BP and Alfa, and to reimburse it for past defense costs (id. at 119).

The majority held that BP was entitled to such a declaration. According to the majority, "if BP is ultimately held liable to Cosentino, such liability would aris[e] out of [Alfa's] ongoing operations performed for [BP]' to the extent the factfinder in the Cosentino Action determines that Alfa's negligence in the course of its work as a BP subcontractor was a contributing cause of Cosentino's injuries" (id. at 121). Because there was a "reasonable possibility" of such a determination in the underlying action, Beacon was obligated to provide a defense to BP in that action and to reimburse it for defense costs already incurred (id.). Of course, a contrary determination in the underlying action also was possible. For example, the oil patch may have been the result not of Alfa's negligence but of the negligence of one of the other subcontractors. Alternatively, the trier of fact could determine that Alfa's negligence was not a proximate cause of Cosentino's injuries. Nonetheless, the majority held that "[i]t has no bearing on the existence of a duty to defend that it is also possible that Beacon may not be required to pay once the litigation has run its course" (id. [internal quotation marks and citation omitted]).

Again, Justice Sullivan dissented, this time joined by Justice Catterson (33 AD3d at 132). "The critical language of the additional insured endorsement at issue" — that "[a] person or organization is an additional insured only with respect to liability arising out of your ongoing operations performed for that insured" — establishes "a condition precedent to the triggering of additional insured coverage" (id. at 133). That is, BP was required to show that its liability arose from Alfa's ongoing operations performed for BP, or, more concretely, "that the oil that caused Cosentino to slip and fall emanated, in whole or in part, from Alfa's work" (id.). Because this material issue of fact could "only be resolved by the factfinder in the Cosentino action" and [*5]"cannot be summarily determined, as a matter of law," Justice Sullivan concluded that a coverage obligation, either to indemnify or to defend, had yet to be triggered (id. at 134).

As for the "oft-stated rule that the duty to defend is greater than the duty to indemnify," Justice Sullivan stressed that "[i]t finds no basis in the policy text" (id. at 139). Moreover, the rule " is not unyielding but rather one of expedience'" (id. [quoting Kajima Constr. Servs. Inc. v CATI, Inc., 302 AD2d 228, 229 (2003)]). That is, it is borne of practical necessity and applies "to protect a party with insurance who, because it is engaged with its insurer in a coverage dispute, would otherwise be without defense coverage in a pending litigation" (id.). Apart from the inapplicability of this concern when the additional insured is already being provided a defense by its own insurer, Justice Sullivan noted as well the " unseemly' spectacle" (id. [citation omitted]) of the insurer for the named insured being required to pay the legal expenses of the additional insured so that the latter can saddle the named insured with the liability in the underlying action (id. at 139-140).

With all due respect to the majority in BP Air Conditioning Corp. and Chelsea Associates, I would, like Justices Mazzarelli and Catterson, agree with Justice Sullivan and his analysis. Accordingly, I would hold that a condition precedent to Farm Family's obligation to defend or indemnify Worth in the underlying action is a determination in that action that Worth is liable to the plaintiff for his injuries and that its liability "aris[es] out of [Pacific's] operations or premises owned by or rented to [Pacific]." Because there has been no such determination, I would affirm Supreme Court's declaration that Farm Family is not obligated to defend, indemnify or reimburse Worth in the underlying action.

Indeed, this Court should affirm in this respect for a more compelling reason. That is, not only has there been no such determination in the underlying action, there has been a determination in that action that is fatal to Worth's position in this action. As the majority recognizes, in the underlying action "Worth formally admitted that no negligence on Pacific's part contributed to the accident, resulting in Pacific's dismissal from the underlying action." More specifically, as a defendant/third-party plaintiff, Worth asserted causes of action against Pacific for contractual and common-law indemnification, contending that if Worth was liable to the plaintiff for his injuries it was as a result of the work, property or equipment of Pacific. In response to Pacific's motion for summary judgment seeking dismissal of Worth's third-party complaint against it, Worth conceded that "any and all claims contained in [its] Second Third-Party Complaint against Pacific Steel . . . are without factual merit and must be dismissed." Accordingly, the court granted Pacific's motion for summary judgment and dismissed Worth's third-party complaint against Pacific.

As Supreme Court correctly ruled, that determination in the underlying action — that Pacific was not liable to Worth for any liability Worth might have for the plaintiff's injuries — "precludes Worth from coverage under the Farm Family Policy, which only insures Worth with respect to liability arising out of [Pacific's] ongoing operations for [Worth].'" Even under the majority's approach in BP Air Conditioning Corp., Worth's claim against Farm Family would be rejected. After all, in concluding that the possibility of a determination in the underlying action negating the claim of entitlement by the additional insured to a defense was not sufficient to defeat that claim (33 AD3d at 121), the majority implicitly recognized that the actuality of such a determination in the underlying action would defeat the claim. This case, accordingly, presents another unseemly spectacle, that of requiring Farm Family to provide Worth with a defense even though Worth has conceded facts that negate any obligation on the part of Farm Family to provide it with a defense.

American Re-Insurance Company v. United States Fidelity & Guaranty Company



Order, Supreme Court, New York County (Richard B. Lowe III, J.), entered January 10, 2006, which denied the motion of defendants-appellants United States Fidelity & Guaranty Company (USF & G) and St. Paul Fire & Marine Insurance Company (collectively, USF & G) to vacate an order of the Special Referee, dated December 4, 2005, requiring them to produce documents and provide testimony, without regard to the attorney-client and work product privileges, related to the settlement and bill preparation in an underlying action between USF & G and its insureds, and directed that compliance with the order of the Special Referee proceed forthwith, modified, on the law, the motion granted to the extent that respondents may seek documents and testimony regarding presentation of the reinsurance claim as defined by the document request only to the extent that the discovery relates to disclosures made during the EBT testimony of James Kleinberg, and otherwise affirmed, without costs.

From 1948 to 1960, USF & G issued insurance policies to Western Asbestos Company, the predecessor-in-interest to Western MacArthur Company, which was in the asbestos business. USF & G entered into written reinsurance treaties with plaintiff American Re-Insurance Company (American Re) and defendant Excess Casualty Reinsurance Association (ECRA),[FN1] covering Western's losses for the period 1956 to 1962 (collectively, the Reinsurers).

Western MacArthur became mired in a mass tort litigation involving personal injury claims from asbestos products and filed an insurance claim with USF & G. After USF & G denied coverage, Western MacArthur sued in California state court seeking a declaration that it was entitled to insurance coverage from USF & G and that USF & G's denial of coverage was in bad faith. On June 3, 2002, after extensive negotiations, Western MacArthur settled the underlying personal injury action. As part of the settlement, USF & G agreed, inter alia, to pay approximately $975 million for ultimate distribution to the asbestos claimants, and Western MacArthur would file for bankruptcy. The parties also stipulated that USF & G issued policies to Western Asbestos from 1948 to 1960. However, despite the 12-year coverage period, USF & G allocated settlement payments for all claimants to only one policy period —
the final year — covering the period July 1959 to July 1960.

The United States Bankruptcy Court for the Northern District of California approved the settlement. Western MacArthur assigned to the bankruptcy fund its bad faith claims against USF & G, for which the court found substantial supporting evidence. However, the court did not assign a specific percentage of the settlement amount to the bad faith claims.

Thereafter, in November 2002, USF & G informed the Reinsurers of the settlement of the underlying action and presented them with a bill ultimately amounting to approximately $400 million in reinsurance claims. The bill allocated all of the underlying asbestos claims to the last treaty year. The Reinsurers requested information regarding Western's claimed loss, but USF & G did not respond. Thirteen days after presenting its claim, USF & G sued American Re for nonpayment in federal district court in California, but the lawsuit was dismissed for lack of subject matter jurisdiction. In December 2002, American Re commenced the instant action seeking a declaration of its rights under the reinsurance agreements, as well as the rights of the ECRA pool members.

Thereafter, the Reinsurers served discovery requests seeking documents related to the settlement negotiation and agreement [FN2]. USF & G objected, claiming that the request was burdensome, vague and ambiguous, and that the requested documents were protected by, inter alia, the attorney-client and work product privileges. USF & G later asserted that the "follow-the-fortunes" doctrine and settlement privilege barred disclosure. The Referee ordered disclosure, and, by order entered December 9, 2004, Supreme Court upheld that determination. On appeal, this Court affirmed (19 AD3d 103 [2005]).

Thereafter, by letter dated October 20, 2005, defendant TIG Insurance Company of Colorado, a member of the ECRA pool, requested that the Referee allow production of the following documents:

All communications concerning USF & G's presentation of the reinsurance claim, including those related to: allocation to 1959, application of the "all sums" rule, application of the "non-accumulation" rule, decision to treat each individual injury as a separate "accident," when and how to inform the reinsurers of the settlement, and when and how to inform the reinsurers of the cession. All settlement assessments, including all injury assessments, case projections, claim evaluations and analyses of USF & G's liability for the Western MacArthur claims, (I) performed after December 1, 2001, and/or (ii) shared with the individuals involved in the negotiation of the settlement and/or presentation of the reinsurance claim, regardless of when such assessments were undertaken.

In its written submission, TIG claimed that the Reinsurers were entitled to full disclosure of the requested documents, because even if privileged, the information was "squarely at issue" and a substantial need therefore existed. Apparently, USF & G resisted disclosure based on attorney-client and work product privileges [FN3]. In a two-page ruling, the Referee granted TIG's motion [FN4]. The Referee found that USF & G shared a common interest with the Reinsurers, and had placed at issue "the assertions/claims and underlying supporting and/or non-supporting information laden privileged documents and testimony." Accordingly, the Referee ruled that USF & G's assertions of privilege did not bar disclosure.

Because Supreme Court would not allow any motions without its express permission, USF & G wrote a letter requesting leave to move to vacate the Referee's order. Supreme Court directed the parties to appear for a conference at which the court stated its intention to affirm the Referee's order. Since USF & G intended to appeal, the court allowed the attorneys to make a record after which the court directed USF & G to move by order to show cause to vacate the Referee's order. Both sides would be allowed to submit written papers, but there would be no oral argument and no reply. After the parties submitted their papers, the court would "attach a written decision" and the parties could then appeal.[FN5]

USF & G submitted its motion consisting of counsel's 12- paragraph affirmation and 50 exhibits comprising over 500 pages.  TIG submitted its opposition consisting of 91 exhibits comprising almost 1800 pages. Defendant Excess and Treaty Management Corp. and American Re joined in TIG's submissions. Although the court refused to allow USF & G to submit a reply, USF & G submitted a letter requesting that the court consider a supplemental affirmation offered solely to add four documents to the record [FN6]. The court denied the request because USF & G had not requested permission to file a reply prior to submitting its motion.

Supreme Court rendered a written decision upholding the Referee and concluding that for three reasons the Reinsurers were entitled to "pierce[]" the attorney-client and work product privileges asserted by USF & G: (1) the Reinsurers had a substantial need for the information sought; (2) USF & G and the Reinsurers share a common interest; and (3) by asserting its claim against the Reinsurers, USF & G had placed privileged matter "at issue."

Substantial Need

On appeal, USF & G argues that substantial need was not briefed by USF & G or TIG before Supreme Court, and the Referee did not address this theory in his order. However, in the letter request submitted to the Referee, TIG specifically stated that "a substantial need" exists for production of the requested documents. In any event, regardless of whether the issue was sufficiently advanced by the Reinsurers or addressed by the court, substantial need has no application to whether the documents and testimony the Reinsurers seek are subject to discovery. The only category of potential materials that is subject to disclosure based on substantial need is trial preparation materials (see CPLR 3101[d][2]; Spectrum Sys. Intl. Corp. v Chemical Bank, 78 NY2d 371, 376-377 [1991]). No such materials are sought.

Common Interest

USF & G contends that Supreme Court erred in allowing disclosure based on common interest. Specifically, USF & G argues that the common interest doctrine is not available where the parties are in an adversarial position. Notably, American Re does not join the remaining Reinsurers' argument that the parties share a common interest that requires disclosure. Assuming no common interest, all Reinsurers, except American Re, alternatively argue that USF & G waived any privilege by disclosing privileged communications.

As a general rule, "there is no automatic waiver of the attorney-client privilege merely because [the parties] have a common interest' in the outcome of a particular issue" (North Riv. Ins. Co. v Philadelphia Reins. Corp., 797 F Supp 363, 367  [D NJ 1992]; see also Gulf Ins. Co. v Transatlantic Reins. Co., 13 AD3d 278, 280 [2004]). Indeed, "the fact that an attorney's services for a client benefitted a third party does not establish an attorney-client relationship" (see U.S. Fire Ins. Co. v Phoenix Assur. Co. of N.Y., Sup Ct NY County, Aug. 18 1992, Moskowitz, J., Index No. 7712/91, affd for reasons stated 193 AD2d 559 [1993]).

The clearest indication of common interest is dual representation (see id.; North River Ins. Co. v Columbia Cas. Co., 1995 WL 5792, *2-3, 1995 US Dist LEXIS 53, * 6-7 [SD NY]; North Riv. v Phil. Reins. 797 F Supp at 366-367)[FN7]. Common interest also extends to a situation where there is a joint  defense or strategy, but separate representation (North Riv. V Columbia Cas., 1995 WL 5792, at *3, 1995 US Dist LEXIS 53, at *7). Here, there is neither dual representation nor a joint defense or strategy. In addition, joint representation usually arises in situations between insurers and insureds. However, the relationship between an insured and insurer stands in stark contrast to a relationship between an insurer and a reinsurer. To begin with, an insurer is obligated to defend the insured, whereas a reinsurer has no such duty. Moreover, the parties' interests in the present action are indisputably adverse, and the mere fact that they shared an interest in the eventual outcome of the underlying coverage litigation is not sufficient to create a common interest so as to defeat USF & G's claimed privileges. Indeed, the Reinsurers were "not responsible for the defense [of the underlying lawsuit], although [they] indirectly benefitted from it" (U. S. Fire, supra). Accordingly, we find the common interest doctrine inapplicable.

The Reinsurers, except American Re, alternatively contend that if no common interest is found then USF & G waived any privilege by disclosing documents in the underlying litigation. During the underlying litigation, USF & G sent a series of reports regarding the status of the case to the Reinsurers and USF & G's counsel met with the Reinsurers and discussed strategy. However, although the Reinsurers received information, they gave no input nor did they otherwise participate in the underlying litigation. Notably, Reinsurers were expressly invited to "associate into the case," but declined. USF & G's disclosure of this information "did not function as a waiver because of their shared interest in the outcome of the [underlying litigation]" (U. S. Fire, supra).

At Issue

The Reinsurers contend that USF & G waived any privilege by placing "at issue" the reasonableness and good faith of the settlement of the underlying action and the reasonableness and good faith of the allocations in the bill USF & G presented to the Reinsurers. In particular, the Reinsurers claim that USF & G has placed the privileged materials at issue (1) by alleging that the settlement and bill were made in good faith and consistent with law; (2) through its alleged bad faith in defending the underlying action;[FN8] and (3) through deposition testimony of its witnesses.

Under the "at issue" doctrine, where a party places legal advice or other privileged facts or communication at issue, it is deemed to have waived the privilege with respect to such facts or communications and can be compelled to produce them. This doctrine applies where a party, through its affirmative acts, places privileged material at issue and has selectively disclosed the advice (see Orco Bank v Proteinas Del Pacifica, 179 AD2d 390 [1992]; U. S. Fire, supra). It reflects the principle that privilege is a shield and must not be used as a sword (see McKinney v Grand St., Prospect Park & Flatbush R.R., 104 NY 352, 355 [1887]; Matter of Farrow v Allen, 194 AD2d 40, 45-46 [1993]).

An insurer does not place the bona fides of a settlement at issue merely by alleging in a pleading that the settlement was reasonable and in good faith (U. S. Fire, supra; North Riv. v Columbia Cas., 1995 WL 5792, at *6, 1995 US Dist LEXIS 53, at *16). Nor can an "at issue" waiver of the privilege be premised on the contention that a portion of the underlying settlement was allocated to bad faith claims. Apart from the fact that USF & G maintains that no amount was paid on account of bad faith liability, the contrary claim of the Reinsurers cannot effectuate a waiver of USF & G's privileges (see Chase Manhattan Bank v Drysdale Sec. Corp., 587 F Supp 57, 59 [SD NY 1984]).

However, the same cannot be said regarding preparation of the bill. During the testimony of James Kleinberg, many questions were asked regarding USF & G's decision to allocate all claims to a single treaty year as opposed to spreading them over the several coverage years. This witness repeatedly revealed the advice he received regarding preparation of the bill.
Consequently, he placed this matter at issue (see Weizmann Inst. of Science v Neschis, 2004 WL 540480, 2004 US Dist LEXIS 4254 [SD NY 2004]). Therefore, the Reinsurers may seek testimony and production of documents regarding presentation of the reinsurance claim as defined by TIG's request dated October 20, 2005, as ordered by the Referee on December 4, 2005, only to the extent that the discovery relates to disclosures made during James Kleinberg's EBT testimony.

The Reinsurers urge a broad subject matter waiver. However, USF & G argues that it does not intend to advance an "advice of counsel" defense. Given USF & G's representation, there is no need to expand the waiver (see Kirschner v Klemons, 2001 WL 1346008, 2001 NY Dist LEXIS 17863 [SD NY]). However, the scope of the waiver is narrowed in reliance on USF & G's representation that "advice of counsel" is not at issue. Accordingly, the court should strictly enforce this disclaimer at trial, and USF & G should not be permitted to raise this defense to Reinsurers' claims (id. at n 2).

The Reinsurers contend that USF & G waived its claim of attorney-client and work product privileges by failing to assert these privileges on four prior occasions [FN9]. However, USF & G contends that the prior and instant document requests are distinct. Specifically, USF & G claims the records previously requested (and the subject of an earlier appeal) were not privileged documents, and refers to court papers in which the Reinsurers characterized those previously requested documents as not privileged [FN10]. In any event, neither the Referee nor Supreme Court made a finding as to whether to preclude USF & G from raising privilege on the ground that it had failed to object to an earlier document request based on these two privileges. In addition, the parties strenuously argued the merits of these two privileges regarding the instant discovery request; the law directs full disclosure of all material and necessary evidence to prosecute or defend an action (see CPLR 3101[a]; Spectrum Sys. Intl., 78 NY2d at 376); and we are unable to conclude on this record that these two privileges were waived with respect to those documents sought in the earlier disclosure request. Indeed, had the same documents been requested, it would appear that this appeal would be moot.

We have considered and reject appellants' remaining contentions.

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


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

I agree with much of the majority's analysis and discussion. Specifically, I agree that the Reinsurers' claim of a "substantial need" for the disclosure they seek provides no basis for invading USF & G's attorney-client and work product privileges. I also agree that on the existing record, we cannot conclude that USF & G waived its right to assert these privileges by failing to assert them in prior discovery proceedings. Although I agree as well that the Reinsurers' reliance on the "common interest" doctrine is misplaced, my reasons for that conclusion differ from the majority's. Finally, although I agree with the majority's discussion of "at issue" waivers in every other respect, I disagree with its conclusion that one of USF & G's employees, James Kleinberg, waived USF & G's attorney-client privilege during his deposition.

With respect to the "common interest" doctrine, it operates to protect privileges such as the attorney-client privilege that otherwise would be waived by disclosure (Aetna Cas. & Sur. Co. v Certain Underwriters at Lloyd's London, 176 Misc 2d 605, 612-613 [1998], affd 263 AD2d 367 [1999]). Thus, if A and B share a common interest, the disclosure by A to B of an otherwise privileged communication does not waive the privilege. Of course, however, the "common interest" doctrine is not a sword. Thus, B cannot require A to disclose to it an otherwise privileged communication solely on the basis of the existence of their common interest. In this case, USF & G unquestionably shared a common interest with the Reinsurers in the underlying coverage litigation (Gulf Ins. Co. v Transatlantic Reins. Co., 13 AD3d 278, 280 [2004]). Indeed, on the basis of the "common interest" doctrine USF & G resisted disclosure in the coverage litigation to Western of reports it had made to the Reinsurers (or some of them), reports that USF & G has described as "comprised of information obtained by USF & G's counsel." To the extent the majority's position is that USF & G has not lost the attorney-client privilege in this reinsurance dispute, where it just as unquestionably does not share a common interest with the Reinsurers, merely because the parties once shared a common interest in the coverage litigation, I wholeheartedly agree.

The remaining question concerns the potential effects of the disclosures USF & G made to the Reinsurers in the coverage action. With the exception of American Re,[FN1] the Reinsurers argue that on account of the disclosures USF & G made to the Reinsurers prior to the settlement of the underlying mass tort and coverage litigation, USF & G waived the attorney-client and work product privileges, at least as to the Reinsurers and as to all other communication on the same subjects. In this regard, the Reinsurers rely on the settled principle that voluntarily disclosing a privileged communication waives the privilege for all other communications on the same subject (see Matter of Stenovich v Wachtell, Lipton, Rosen & Katz, 195 Misc 2d 99, 108 [2003] ["The waiver of the attorney-client privilege[] normally compels the production of other documents protected by the privilege which relate to the same subject"] [internal quotation marks and citation omitted]). This argument entails the following proposition: if A and B share a common interest and A elects to disclose to B a privileged communication on a particular subject (either a communication to A's counsel or counsel's advice to A), B can compel A to disclose to it all otherwise privileged communications on the same subject, even though B could not in the first instance have compelled A to disclose any privileged communications on that or any other subject.[FN2]

This argument, however, is foreclosed by our decisions in U.S. Fire Ins. Co. v Phoenix Assur. Co. (193 AD2d 559 [1993], affg for reasons stated by Moskowitz, J., Sup Ct, NY County, Aug. 18, 1992, Index No. 7712/91), and Gulf Ins. Co. (supra). In U.S. Fire, the reinsurer argued that the ceding insurers had "waived the privilege by providing privileged documents to them in the past." In rejecting that contention, Justice Moskowitz ruled that the "disclosure [by the insurers] of certain coverage counsel correspondence to [the reinsurer] did not function as a waiver because of their shared interest in the outcome of the [coverage] dispute." Although the specific character and content of the correspondence is not discussed in Justice Moskowitz's opinion, the reinsurers took the position in this Court, and the insurers did not dispute, that the correspondence contained otherwise privileged material (Brief for Appellant Phoenix Assurance Company of New York in U.S. Fire, at 23-28; Brief for Respondents United States Fire Insurance Company and International Insurance Company in U.S. Fire, at 16-17).

Similarly, in Gulf Ins. Co., the insurer had provided updates to its reinsurers on the status of the litigation between it and the insured (13 AD3d at 278-279). One of the documents sent by the insurer to its reinsurers was an executive summary of the coverage litigation prepared by the insurer's outside counsel in which counsel discussed various defenses (Brief for Respondents Transatlantic Reinsurance Company and Odyssey America Reinsurance Corporation in Gulf Ins. Co., at 23-24; Reply Brief for Appellant Gulf Insurance Company in Gulf Ins. Co., at 23-24).
Because of the common interest of the insurer and the reinsurers in the outcome of the coverage litigation, we held that the earlier "[p]roduction of documents" by the insurer to the reinsurer "does not prevent the assertion of privilege of similar documents in an adversary situation" (13 AD3d at 280).

Although the Reinsurers seek to distinguish U.S. Fire and Gulf Ins. Co., they are not persuasive. That USF & G may have disclosed to its reinsurers more privileged communications (or more blatantly privileged communications) than the insurers in U.S. Fire and Gulf Ins. Co. disclosed to their reinsurers is irrelevant to the issue of whether a waiver occurred. As USF & G points out, moreover, other authorities also support its position (see e.g. Restatement [Third] of Law Governing Lawyers, The Privilege in Common-Interest Arrangements, § 76, comment f [2005] ["Disclosing information does not waive the privilege with respect to other communications that might also be germane to the matter of common interest but that were not in fact disclosed"]).

I respectfully disagree with the majority that USF & G waived the attorney-client privilege when James Kleinberg, the USF & G reinsurance director who prepared the reinsurance bill, was deposed during this litigation and, as the majority puts it, "repeatedly revealed the advice he received regarding preparation of the bill." As Kleinberg testified, in preparing the reinsurance bill he sought to mirror the rationale for the underlying settlement of the coverage action, i.e., to "follow the settlement." Because he had not been a participant in the settlement negotiations, he had to get information about the settlement from someone who had been a participant. That person was Robert Omrod, one of USF & G's in-house lawyers. What Omrod "revealed" to Kleinberg was the basis for the settlement and, specifically, that it was settled in accordance with two rules of California law (the "all sums" and "non-accumulation" rules). As this Court made clear in the prior appeal (19 AD3d 103 [2005]), neither the back-and-forth between the parties in the settlement negotiations nor the terms of the settlement are privileged. Thus, in explaining to Kleinberg the basis for the settlement, Omrod did not disclose any privileged communications. Rather, he merely informed Kleinberg about particular facts of the settlement.

Moreover, the same information about the basis of the settlement and the role it played in the reinsurance bill is set forth in a document transmitted to the Reinsurers by USF & G. The only difference between the information conveyed to the Reinsurers in that document and the information conveyed by Kleinberg during his deposition is that the document does not recite that Omrod or anyone else was the source of the asserted facts about the settlement. Obviously, the fortuitous circumstance that Kleinberg's source was an attorney cannot be the basis for finding a waiver. The key point is that Kleinberg revealed only unprivileged factual matters relating to the settlement and thus his deposition testimony affords no basis for the conclusion that USF & G waived the privilege (Niesig v Team I, 76 NY2d 363, 372 [1990] [attorney-client privilege "applies only to confidential communications with counsel, it does not immunize the underlying factual information . . . from disclosure to an adversary"] [emphasis in original; citations omitted]).

Accordingly, I would reverse Supreme Court's order denying USF & G's application to vacate the order of the Special Referee, and grant the application.

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

ENTERED: MAY 29, 2007

CLERK

Footnotes



Footnote 1:ECRA is a pool of insurance companies that collectively agreed to provide 50% of the reinsurance to USF & G. American Re provided the other 50%.

Footnote 2:In particular, the Reinsurers sought all drafts of the settlement agreement; all documents relating to any analyses, discussions, assessments, evaluations of or comments on the settlement agreement or any draft; all documents relating to the negotiation and allocation of the settlement; all documents relating to past costs that were discharged under the settlement agreement; all documents relating to future defense costs that were discharged under the settlement agreement; all documents relating to future liability costs that were discharged under the settlement agreement; all documents relating to communications with, to or from Reinsurers relating to the settlement agreement or its negotiation.

Footnote 3:Upon review of the 2500-page record on appeal, there does not appear to be a written response by USF & G to this request. This characterization of USF & G's opposition comes from the Referee's order.

Footnote 4:Although the ruling recites that it was issued "[u]pon review and consideration of the parties' respectively asserted (oral and written) positions," it appears that there was no oral argument on the motion.

Footnote 5:Although none of the parties press any claims on this appeal relating to this highly unorthodox method of motion practice, we must note and disapprove of the court's approach. Supreme Court appears to have first rendered a decision, then to have allowed oral argument and then the submission of motion papers. Even assuming that Supreme Court did consider the parties' oral arguments and written submissions before deciding to affirm the Referee's order, the court's approach is not consistent with a fair and reasoned decision-making process. Moreover, it also appears that the court permitted the parties to submit papers solely to create an appellate record and after it had prematurely reached a decision.

Footnote 6:In particular, USF & G requested leave to submit two discovery orders rendered in the underlying coverage action, an appellate brief from the appeal of an earlier discovery order in this action, and deposition testimony of a witness who had been deposed after USF & G submitted its order to show cause but before the Reinsurers had submitted their response papers, such that the Reinsurers were able to refer to the testimony in their response. While not an issue on appeal, we again express our disapproval of the way motion practice was conducted on this discovery issue. Three of these documents were subject to judicial notice (see Casson v Casson, 107 AD2d 342, 344 [1985], appeal dismissed 65 NY2d 637 [1985]; Rossbach v Rosenblum, 260 App Div 206, 210 [1940], affd 284 NY 745 [1940]; Prince, Richardson on Evidence § 9-301 [Farrell 11th ed]). With respect to the last document, fairness dictated either (1) disregarding the deposition testimony taken after USF & G submitted its papers — as that testimony was not part of the record before the Referee or Supreme Court, or (2) allowing USF & G to submit deposition excerpts in reply to the Reinsurers' opposition.

Footnote 7:Not only was there an absence of dual representation in the underlying coverage litigation, the Reinsurers complain that USF & G conducted settlement negotiations for months in secret.

Footnote 8:The Reinsurers do not offer any legal support for this contention.

Footnote 9:Specifically, the Reinsurers assert that (1) USF & G relied solely on the "follow-the-fortunes" doctrine at a January 14, 2004 conference with the Referee; (2) in a cover letter dated January 29, 2004 transmitting a proposed order to the Referee, USF & G referred to a settlement privilege, but did not mention attorney-client or work product privilege; (3) in seeking further review of the Referee's February 9, 2004 order compelling disclosure, USF & G argued only that settlement communications were protected by the "follow-the-fortunes" doctrine and public policy; and (4) on appeal from Supreme Court's December 9, 2004 order directing disclosure, USF & G argued only that the "follow-the-fortunes" doctrine and public policy protected settlement information from disclosure.

Footnote 10:Notably, TIG's written request and reply do not include an argument that USF & G abandoned its privilege claim by not arguing privilege on the appeal from the prior disclosure order. Nor was the issue raised at oral argument before Supreme Court, although on this appeal USF & G appears to concede that the abandonment issue was before the motion court.

Footnote 1:American Re joined in the brief filed in this Court by defendant TIG Insurance Company (TIG), another of the Reinsurers, except as to section V, in which TIG raises the common-interest doctrine and urges that USF & G waived the privileges on account of the disclosures it made to the Reinsurers prior to the settlement of the underlying mass tort and coverage litigation.

Footnote 2:Presumably, the Reinsurers maintain that the waiver as to B occurs at the time of the disclosure, and not that it may arise thereafter, if and to the extent the interests of A and B happen to become adverse.

 

 

40 Rector Holdings, LLC,  v. The Travelers Indemnity Company

Order, Supreme Court, New York County (Louis B. York, J.), entered September 20, 2006, which, insofar as appealed from as limited by the briefs, granted plaintiffs' cross motion to compel defendant to produce certain documents and employees for depositions, unanimously modified, on the law and the facts, those aspects of the cross motion seeking to compel disclosure of items 5-9 in plaintiffs' January 30, 2006 notice for discovery and to compel the deposition of Busson denied, and otherwise affirmed, without costs.

Defendant issued a property insurance policy to plaintiffs covering plaintiffs' commercial premises located at 40 Rector Street. The building on the premises sustained damage as a result of the collapse of the North and South Towers of the World Trade Center. Defendant paid portions of the claims plaintiffs made pursuant to the policy but refused to pay for damage sustained by the facade of the building on the ground that such damage was preexisting and otherwise lacked a causal connection to the towers' collapse.

Plaintiffs commenced this action against defendant for breach of the policy, claiming that the damage to the facade was covered under the policy. Plaintiffs subsequently moved to compel disclosure of: (1) documents relating to the calculation and communication of file estimates, i.e., reserves, (2) copies of all claims service incentive compensation programs for a three-and-a-half-year period, (3) copies of performance reports of three of defendant's employees for a five-year period, (4) information relating to the compensation of three of defendant's employees, and (5) information relating to reserves and modifications thereto. Plaintiffs also sought to depose two of defendant's employees, Busson and Sullivan. Supreme Court granted the motion in its entirety, and this appeal ensued.

Supreme Court erred in granting that aspect of plaintiffs' motion seeking to compel defendant to produce the requested documents and information since such are not material and necessary to this coverage action (see Karta Indust. v Insurance Co. of State of Pa., 258 AD2d 375 [1999] [reserves]; Streamline Capital v Hartford Casualty Ins. Co., 2004 WL 2609575 [SD NY 2004] [same]; Sundance Cruises Corp. v American Bureau of Shipping, 1992 WL 75097 [SD NY 1992] [same]; Brown v Paul Revere Life Ins. Co., 2001 WL 1230528 [SD NY 2001] [information regarding compensation of defendant's employees]; see generally Allen v Crowell-Collier Pub. Co., 21 NY2d 403 [1968]). Specifically, neither the requested documents and information nor the motives of defendant's employees in adjusting the claim — whatever they may have been — are at all relevant to the issues in this case, namely, whether the facade damage preexisted September 11, 2001 and whether any part of the damage was caused by "earth movement." Similarly, Supreme Court erred in compelling defendant to produce Busson for a deposition since her testimony is not material and necessary to this action. In its reply brief, defendant states that it does not object to producing Sullivan for a deposition "to the extent plaintiffs are precluded from questioning him on the Demanded Information, any privileged material or any other improper matter." Accordingly, we have no occasion to review that aspect of the order requiring defendant to produce Sullivan for a deposition. Needless to say, we expect that deposition to proceed in accordance with this decision and the law governing such examinations.