This issue we offer you one of the most extreme summer-shorts version of Coverage Pointers in 12+ years. This is the summer break for the appellate courts and only a very few decisions will be trickling out of the courts until the middle of September. From Porgy and Bess, and with a tip-of-the-hat to George and Ira Gershwin and the lyricist, Heyward DuBose, we can hear the dulcet voices of Billie Holiday and Ella Fitzgerald singing to us ..
And the livin' is easy,
Fish are jumpin'
And the cotton is high.
Oh yo' daddy's rich
An' yo' ma is good lookin'
So hush, little baby,
Don't you cry.
Will the Winds Blow East? Interesting Case Decided Thursday by the California Supreme Court on Recovery of Medical Expenses Paid by Insurance:
We subscribe to the Daily Appellate Report, an electronic newsletter produced by my friends at Murchison & Cumming, a great California and Nevada-based law firm. In the August 18th, edition, there was a report on a case handed down that day. With thanks to that firm for permission to reprint its summary, we suggest that it is a decision that may make its mark in other states:
California Supreme Court Decides Howell v. Hamilton Meats and Provisions
The California Supreme Court today limited defendants' liability for "medical special" damages. "We hold . . . that an injured plaintiff whose medical expenses are paid through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of trial." The court rejected plaintiff's arguments that defendants are liable for the full "billed" amount, regardless of any discount the insurer may negotiate. "We hold no such recovery is allowed, for the simple reason that the injured plaintiff did not suffer any economic loss in that amount." The court's ruling prevents plaintiffs from recovering in damages more than the actual harm incurred.
If you are interested in subscribing to this excellent and timely publication, please send an e-mail to Jean Lawler at [email protected] and she'll be happy to have you added to the electronic mailing list.
Carmen Sandiego Has Nothing On Us -- Where In The World Is Hurwitz & Fine?:
I'm always getting a lot of gentle ribbing about my travel schedule. Most of my New York coverage files are from venues distant from our Buffalo and Western New York headquarters, with a plurality of my work in New York City, Long Island, and the counties surrounding. Likewise, we are often asked to assist in coverage matters throughout the country and in the UK.
Efficiency and partnership make the retention worthwhile for both client and law firm.
We can help, both with coverage counseling and expert testimony.
Where Are Our Offices?:
Buffalo, NY Albany, NY
Albion, NY Amherst, NY
Niagara Falls, NY Palm Beach Gardens, FL
Speaking of Canada ..
Ontario Canada - Mooney and Kohane Recertified as Foreign Legal Consultants:
Harry Mooney and I have been recertified by the Law Society of Upper Canada to give legal advice in Ontario regarding US law. The FLC By-law-14, states that no person shall give legal advice in Ontario respecting the law of a foreign jurisdiction except in accordance with the provisions of the by-law. It requires lawyers licensed outside of Canada to apply to the Law Society for a permit to practice the law of their home jurisdiction in Ontario. Applicants must fulfill the requirements outlined in the by-law to qualify for this permit and must report annually to the Law Society to renew their permit. Ours was just renewed,
It's Nice to Be Recognized:
Western New York's business weekly, Business First and the Buffalo Law Journal do an annual "Who's Who in Law," reflecting a peer-selected designation. This year, every Hurwitz & Fine partner made the list.
Congratulations Hurwitz & Fine's Who's Who in Law, outstanding lawyers:
A Voice from Our Albany Office - Cassie Kazukenus:
The Insurance Department is quiet this week, but I have been fortunate enough to get the chance to work on cases throughout the Hudson Valley and the Capital District in the past few weeks. I have had the pleasure to work on an assortment of different files, anything from coverage to no-fault to the variety of defense files that we are assigned. The one thing that is certain is that it is never dull! I am truly lucky that Albany is just a quick drive to so many areas of the state, and most of the time, the scenery is beautiful. Plus, I have the added benefit of being able to just hop on the train to be in the city in just a few hours!
The United States Senate voted to admit New Mexico and Arizona as states. President William H. Taft signed the proclamation on January 6, 1912, making New Mexico the 47th state, while he signed the proclamation declaring Arizona the 48th state on February 14, 1912. President Taft had first vetoed the resolution because of Arizona's constitution which allowed for the recall of judges. The people of Arizona voted to remove that provision from the Constitution to satisfy President Taft's objections and then a year after statehood, reinstated the provision.
That gives rise to today's trivia question:
Section 1 of Article Two of the United States Constitution sets forth the eligibility requirements for serving as president of the United States:
No person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President; neither shall any Person be eligible to that Office who shall not have attained to the Age of thirty-five Years, and been fourteen Years a Resident within the United States.
In the last 50 years, two major party candidates for President were nominees of their parties and were not born in a state of the union. Name them. Answer, below:
We have been seeing an uptick in decisions regarding denials of surgery that warrant review. In the decisions we have seen the denial is based upon an IME which has been found to be insufficient as the IME physician did not adequately address the conclusions and opinions set forth by the treating surgeon. It is imperative in these types of cases that the IME report include a thorough review of, and comment upon, medical records and include a well-reasoned rationale as to why the IME physician believes that surgical intervention is not medically necessary.
Also, if you are an Erie County Bar Association Member please be advised that I will be speaking at the Negligence Committee's noontime lecture on No-Fault. It will be a brief review of some important regulatory time frames the applicant and insurer must abide by with encouragement of question and answer from the audience. If you need more information please send me an email at [email protected]
Finally, it is not too late to sign up for the NBI No Fault Law seminar being held in Buffalo and Syracuse on September 13 and 14. If you need more information please contact me.
Bosse Appointed Chair of ABA Accreditation Committee:
Diane F. Bosse has been appointed chair of the Accreditation Committee of the American Bar Association Section of Legal Education and Admissions to the Bar. This committee is charged with the administration of the law school accreditation process. Ms. Bosse has devoted a substantial portion of her professional life to bar admissions and legal education. Ms. Bosse has practiced law in Buffalo, New York for over 30 years, representing self-insured and insurance company clients in a wide variety of insurance coverage and litigated matters.
Trivia answer:John McCain, was born in 1936, in the Panama Canal Zone (part of the United States) although there are some "birthers" who still maintain that he was born in a hospital in Panama City. For an interesting discussion on John McCain's eligibility, see the entry in Snopes, the source of all truth on the Internet. Snopes finds it undetermined if McCain is a natural born citizen. Barry Goldwater ("In his heart you know he's right .") who was beaten by Lyndon Baines Johnson in the 1964 landslide, was born in the Territory of Arizona in 1909.
One Hundred Years Ago Today:
August 19, 1911
READY FOR TRIAL Sixty Witnesses, 100 Talesmen* in Beattie Case
Special to The Syracuse Herald: Richmond, Va .-Final arrangements were completed today to place Henry Clay Beattie, Jr., on trial for his life in Chesterfield County Court House on Monday next on the charge of having murdered his wife, Louise, on the Midlothian turnpike on the night of July 18th. Almost sixty witnesses have been
summoned for the State and a venire of 100 talesmen also has been called.
It is expected that two days will be spent in finding the jury. Then will come addresses to the jury by defense and prosecution, delivered with old style Southern oratory. The first witness probably will be on the stand Wednesday and the real battle for and against the life of young Beattie will begin.
Editor's Note: On July 18, 1911, Chesterfield resident Louise Owen Beattie was murdered: a shotgun blast to the head, while traveling with her husband on a lonely stretch of Midlothian Turnpike. Louise and husband Henry Clay Beattie, 27, had left their five-week-old child with relatives; an hour later they were back, not to pick up the baby, but for Henry to deliver his dead wife and tell a story of a tussle with a bearded man and an attempted carjacking. Three days later, he was charged with murder and the media circus began.
His trial, which began on August 21, was so sensational that Western Union had to take over a building near the Chesterfield courthouse. Henry stuck to his story, but the jury, after deliberating only one hour brought back a verdict of guilty. He was executed on November 24, only 94-days later. Beattie confessed the day before he was put to death.
*The term "talesman" in the headline was one with which your editor did not have familiarity. It means "members of a large pool from which jurors are selected" as distinguished from a talisman which is a good luck charm. Learn something new every day
Ok, based solely upon the fact that my reference to the sounds of crickets as indicative of a quiet summer's night was ridiculed last issue, I make no such poetic references today. Notwithstanding my new found shyness, I am compelled to report that things are really, really quiet this week. As in zilch, zippo, nada! Just like those Trent Edwards era Bills' teams, we've been marginalized, beaten up and shut out.
Given the silence of the Appellate Division, I too join in a vacation this week. Rest assured, we'll be back stronger than ever next week. In the meantime, enjoy the last two weeks of Summer.
A Century Ago - John Jacob Astor Encounters Shipwreck (P.S. More to Come for Him Shortly):
New York Times August 19, 1911 ASTOR SAVES LIVES On Yacht With Fiancee Rescues Wrecked Mariners.
Newport R.I. The steam yacht Noma, whose owner. Col. John Jacob Astor, his bride to be, Miss Madeline T. Force, the latter's father William H. Force, and the entire crew assisted in succoring the wrecked crew of the 50-foot sloop Zingara in Long Island Sound last night , arrived here at 8 A.M. today.
The Astor party landed an hour later and were taken immediately to Colonel
Astor's summer home on Bellevue Avenue while the shipwrecked yachtsmen were brought ashore by another of the Noma's launches.
Mrs. Force, who made the trip to Newport by train, was at the Astor villa, awaiting-.the arrival of the party. Neither Colonel Astor nor Mr. Force would say anything regarding the approaching nuptials.
Editor's Note: John Jacob Astor should have learned then to avoid shipwrecks
At the age of 47, the divorced John Jacob Astor married 18-year-old Madeline Talmage Force on September 9, 1911. While on an extended honeymoon in Europe and Egypt - lengthy because of the scandal of the marriage, Madeline became pregnant. The couple decided to return to the United States for the birth of the baby. Unfortunately, they booked passage on the Titanic where Astor and died, his body one of the 333 later recovered. Madeline survived and the baby, also named John Jacob Astor, was born on August 12th.
One Hundred Years Ago: Baseball Highlights:
IN THE NEWS on August 19, 1911: Thirty-five thousand gather at the not-yet-completed Polo Grounds to watch the Reds finally get to New York Giants great Christy Matthewson after 22 straight losses, beating him for the first time since May 1908. Matty, after saving the 5-4 opener for Hooks Wiltse with two scoreless frames, starts the nightcap, goes five innings, and loses 7-4. Mike Mitchell leads the Reds in the nightcap by hitting for the cycle off Matty, and adding a double.
Editor's Note: Village of Hamilton, New York residents know of Hooks Wiltse (not to be confused with his baseball-playing brother Snake Wiltse) and there remains a baseball field and pavilion bearing his name in the Village. According to the Baseball Biography Project, George Wiltse was known as "Hooks," not for his ability to curve a baseball, nor for his hooknose, but for his fielding prowess. One story credits Giants catcher Frank Bowerman with saying "that's hooking them" after watching Wiltse use his long right arm to snare shots hit back through the middle, while another says that it was a manager in Syracuse who said Wiltse had hooks for hands after watching him work out at first base. Wiltse won in double figures in each of his first eight seasons with the Giants, compiling a 139-90 record and 2.47 ERA over 12 seasons in the major leagues.
In this Week's Issue of Coverage Pointers¸ Attached:
08/18/11 Republic Mtge. Ins. Co. v Countrywide Fin. Corp. Appellate Division, First Department Arbitration Clause in Mortgage Insurance Policy Is Enforceable, Even if Insurer Commenced Rescission Action Involving Same Issues
The issue involved the construction of arbitration provisions in five mortgage insurance policies issued by Republic Mortgage Insurance Company (“Republic”) to the defendant. The policies cover the insureds, who are residential mortgage lenders and their affiliates, against losses caused by their borrowers' loan defaults.
Each policy provides that
"[u]nless prohibited by applicable law, the insured [under the policy], at its option, may elect to settle by arbitration a controversy, dispute, or other assertion of liability or rights which it initiates arising out of or relating to this [p]olicy, including the breach, interpretation, or construction thereof."
A dispute arose when plaintiffs denied the insureds' claims with respect to about 1600 loan defaults, contending that coverage with respect to those claims had been rescinded because of alleged misrepresentations that the insureds made when applying for coverage or the insureds' borrowers made when applying for loans.
The claims were tolled during negotiations but eventually, Republic filed this action seeking a declaration that their rescissions of coverage were consistent with the terms of the policies.
The insureds countered by filing a demand for arbitration before the American Arbitration Association raising the same issues as those found in the amended complaint.
Republic sought to stay the arbitration, claiming that the matters should be resolved in the court proceeding. The insureds argued that the clear purpose of the arbitration clause was to give the insured the option of arbitrating disputes.
Republic argued that the phrase "which [the insured] initiates" as modifying the phrase "controversy, dispute, or other assertion of liability or rights," and to hold that plaintiffs "initiated" the "dispute" by filing this lawsuit. However, that court found that this interpretation frustrates the purpose of giving the insureds the option to arbitrate.
The parties to the policies could not have intended that the insurers could thwart the insureds' right to arbitrate by winning a race to the courthouse to file a declaratory judgment action before the insureds could file a demand for arbitration.
08/16/11 Diudone v. City of New York Appellate Division, Second Department Indemnification Order Without Finding of Negligence – Perhaps a Conflict Between the Departments
Diudone was hurt when she tripped and fell in a roadway near a Brooklyn intersection. She sued DiFazio, a construction company, and Verizon, claiming that their negligence in construction work led to the dangerous condition. Verizon asserted a cross claim for contractual indemnification against DiFazio. Verizon had entered into a contract with DiFazio, pursuant to which DiFazio agreed to perform excavation and repaving work. DiFazio agreed to defend and indemnify Verizon for all claims arising out of DiFazio's "actual or alleged acts or omissions."
The court awarded Verizon indemnification for attorneys' fees and costs incurred in the defense of the Diudone action. This action arises out of DiFazio's "actual or alleged acts or omissions," and the plain and unambiguous terms of the contract do not condition DiFazio's obligation to indemnify Verizon for attorneys' fees and costs incurred in the defense of this action on a finding of fault. Editor’s Note: Whether the term “acts or omissions” should have required a finding of negligence prior to requiring indemnification is still, we suggest, an open question with a split among the courts.
Compare, for example the holding here to a 2005 First Department case involving an additional insured endorsement which provided AI coverage only for the “acts or omissions” of the named insured: We reported on Am. Guar. & Liab. Ins. Co. v. CNA Reinsurance Co., 16 A.D.3d 154 (1st Dept 2005) in our March 11, 2005 edition of Coverage Pointers.
Linden Housing was the landlord of a building in which a tenant was allegedly shot by intruders. Linden had a security guard contract which required that the security guard company procure a liability policy naming Linden as an additional insured, which it did. The blanket additional insured endorsement covered Linden “only with respect to acts or omissions of the Named Insured in connection with the Named Insured’s security or investigative operations on behalf of said additional insured.” The tenant brought a personal injury action against Linden and its security guard company, alleging both negligent maintenance of the building’s lighting and door locks and negligent supervision and conduct of the security guards. The Appellate Division held that the additional insured endorsement covering Linden under its security guard company’s policy unambiguously provided Linden with coverage only for injuries arising from security guard negligence.
Not a single “Serious Injury” case reported in the past two weeks. Sigh.
AUDREY’S ANGLES ON NO-FAULT Audrey A. Seeley [email protected] ARBITRATION 08/16/11 Applicant v. Respondent Arbitrator Kent L. Benziger, Erie County
Insurer Must Have Medical Expert Report to Support Denial on Causal Relationship
The Applicant sought reimbursement for an interferential and muscle stimulator prescribed to the eligible injured person related to a November 17, 2009, motor vehicle accident. The insurer denied the device on the ground that a treating physician’s record indicated the eligible injured person re-aggravated her injury after opening a dishwasher on September 20, 2010. Thus, the device was not warranted for a causally related injury. Further, the denial indicated that the MRI of the eligible injured person’s left shoulder indicated a degenerative change.
The assigned arbitrator did not uphold the denial as the insurer did not rely upon a peer review or an expert affirmation to support a good faith belief that the alleged shoulder injury was not causally related to the accident. Further, the treating medical records did causally relate the injury to the November accident. The assigned arbitrator determined that the insurer’s adjuster’s statement without the support of an expert opinion was not sufficient to uphold such a denial.
08/16/11 Applicant v. Respondent Arbitrator Thomas J. McCorry, Erie County
Lack of Candidness in Other Accidents Makes It Difficult to Assess Whether Insurer Responsible for Aggravation
The insurer denied chiropractic care to the Applicant’s assignor based upon the independent medical examination (“IME”) conducted by Dr. Amy Weiss-Citrome. The evidence submitted at the arbitration revealed that the eligible injured person (“EIP”) was involved in this December 2, 2005, accident but also was involved in a previous work accident resulting in injury to her back. Further, she was involved in a subsequent motor vehicle accident resulting in injury to her neck and back. Dr. Citrome’s report indicated that while she reviewed records documenting these other accidents that the EIP failed to disclose them to her when directly asked at the examination. Thus, Dr. Citrome concluded that due this omission she no longer believed that there are causally related injuries to this December 2005, accident.
The assigned arbitrator determined Dr. Citrome’s report was persuasive. He noted that while the insurer is responsible for the aggravation of a pre-existing injury, it is difficult to for him to make that assessment when the EIP is less than candid about pre and post-accident conditions and history.
08/15/11 Applicant v. Respondent Arbitrator Thomas J. McCorry, Erie County
Possibility of Future Treatment Left Open Thus Denial Not Appropriate
The Applicant sought reimbursement for surgical repair to a right labral shoulder tear on the eligible injured person (“EIP”). On August 9, 2008, the EIP was a pedestrian on a bike involved in an accident with a motor vehicle. The EIP admittedly was putting off any surgical intervention but was followed by the Applicant. Once the EIP exhausted physical therapy and strengthening exercises he underwent the shoulder surgery.
The insurer denied payment based upon the IME conducted by Dr. Stephen Joyce. Dr. Joyce’s opinion was heavily based upon the EIP’s self-reports and he concluded that the EIP did not require further orthopedic treatment “at this time.” The latter phrase was interpreted by the assigned arbitrator as not foregoing the possibility that treatment could be required in the future if surgery was pursued. Thus, the lack of any definitive statement that orthopedic treatment was not medically necessary or warranted due to the EIP returning to pre-accident status was fatal.
08/08/11 Applicant v. Respondent Arbitrator Thomas J. McCorry, Erie County
Report’s MMI Conclusion Inadequate to Support Denial; Do Chiropractor’s Reports Need to Be Notarized?
The Applicant sought reimbursement for an interferential and muscle stimulator prescribed to the eligible injured person (“EIP”) as a result of a December 2, 2007, motor vehicle accident. The insurer denied the device based upon the third examination conducted by Chiropractor Ferrante. Mr. Ferrante’s final report opined that the EIP reached an end result in chiropractic care and no further treatment was necessary.
The assigned arbitrator initially noted a concern that none of the reports from Mr. Ferrante were attested before a notary public. Further, he found more concerning that the treating chiropractor who prescribed the device signed the record without it being sworn to. Instead, the record indicated that the EIP required the device based upon the accepted medical practice standards.
While the assigned arbitrator discussed the Tribunal’s split in requiring a chiropractor to notarize a record it was not the crux of his decision. Instead, the assigned arbitrator determined that the language in Mr. Ferrante’s final report rendered the denial defective as it concluded maximum medical improvement.
08/04/11 Five Boro Psychological Services, PC a/a/o Georgette Beckvermit v. Progressive Northeastern Ins. Co. Appellate Term, Second Department
Insurer’s Motion Properly Granted, P.S. the Insurer Is Not Required to Prove Plaintiff’s Case
The insurer’s summary judgment motion was properly granted. The Court rejected plaintiff’s argument that defendant was not entitled to summary judgment because it did not attach a copy of the bill in its motion papers so as to identify the bill at issue. The defendant was not required to submit the bill as it attached the complaint which identified the sole bill at issue.
Further, the Court rejected plaintiff’s argument that the defendant was required to lay a foundation for admissibility of the denials in order to rely upon them. The defendant did not admit the denials for purposes of asserting the information contained within the denial. Rather, the defendant admitted into evidence the denials for the purpose of demonstrating that a denial was sent and that the claim was denied.
08/04/11 Shoreline Healing Acupuncture Group, PC a/a/o Tania Stevens v. American Transit Ins. Co. Appellate Term, Second Department
Insurer Granted Summary Judgment on Failure to Appear for IMEs
The insurer’s cross-motion for summary judgment on the ground that the plaintiff’s assignor breached a condition to coverage under the policy by failing to appear for scheduled IMEs should have been granted. The insurer demonstrated through an affidavit of an employee of the third party IME scheduling company that the IME notices were timely issued. The insurer also submitted a sufficient affidavit from the chiropractor who was scheduled to perform the IME that the plaintiff’s assignor failed to appear. Finally, the insurer submitted a sufficient affidavit that it timely mailed the denial of claim for.
08/04/11 Gateway Med. PC a/a/o Ruth Weekes v. Progressive Ins. Co. Appellate Term, Second Department
Case Dismissed for Failure to Serve After Filing Complaint, Even Though Insurer Interposed Answer to Unfiled Complaint
The plaintiff served the unfiled summons and complaint upon the insurer in July 2005. The insurer interposed an answer to the complaint. In 2008, the plaintiff purchased the index number, filed the summons and complaint, and filed a notice of trial but did not serve the insurer. The insurer moved to strike the trial notice and dismiss the complaint based upon lack of jurisdiction. It is noted this defense was asserted in the insurer’s answer. The insurer’s motion was properly granted as plaintiff failed to serve the insurer within 120 days of filing the summons and complaint.
08/09/11 Macheca Transport v. Philadelphia Indem. Ins. Co. Eighth Circuit Court of Appeals –Missouri Covered Cause of Loss – Collapse / Weight of Ice
Macheca operates a refrigerated warehouse in St. Louis Missouri. On November 18, 2001, an ammonia leak occurred on the sixth floor of the warehouse after a refrigeration pipe ruptured. The pipe ruptured when the ceiling support system, from which the pipes were suspended failed. The weight of ice which had accumulated on the pipe contributed to the failure. The refrigeration pipe fell and landed on pallets of product inside the warehouse. Ammonia leaked from the ruptured pipe and caused damage to the warehouse floors and walls, as well as the product stored inside the warehouse.
Macheca notified it insurer, Philadelphia Indemnity Insurance Company [“Philadelphia”], of the pipe rupture/ammonia leak and made a claim for coverage. Macheca sought coverage under two policy provisions: (1) an exception to the exclusions for “specified causes of loss,” which included “weight of snow, ice or sleet”; (2) the additional coverage Macheca purchased for collapse. Philadelphia hired an engineer to investigate the claim. Based on the engineers report Philadelphia denied Macheca’s claim. After the denial was challenged, Philadelphia ultimately took the position that there was a limitation on coverage for loss to the interior of any building or to personal property in buildings caused by or resulting from . . . ice. Philadelphia also took the position that the limitation referred to the artificial ice generated in the process of cooling a cold storage facility. Philadelphia contended that the weight of ice referenced in the specified caused of loss was not intended to cover artificial ice generated in the process of cooling a cold storage facility. Macheca later accused Philadelphia of bad faith in handling its claim.
Macheca filed suit in the Circuit Court of the City of St. Louis and Philadelphia removed the case to federal court. Motions were filed. The district court granted Philadelphia’s motion for summary judgment and denied Macheca’s motion for partial summary judgment. In doing so the district only addressed the issue of collapse, it did not address Macheca’s claim that the loss was covered under the exception to certain exclusions for the specified cause of loss for weight of ice. With respect to the collapse issue, the district court determined that Missouri law only recognized “collapse” when there was an entire “falling or reduction [of a structure] to a flattened form or rubble. On appeal the Eight Circuit Court of Appeals [“Court”] remanded the case because the district court failed to address the weight of ice claim. On remand the district court granted Philadelphia’s motion on both the collapse issue and the vexatious refusal to pay claim. With respect to Macheca’s motion for summary judgment on its weight of ice claim, the district court denied summary judgment. The district court determined the weight of ice was not a specified cause of loss because the policy unambiguously referred to ice as an element of the weather, rather than ice that formed on pipes as part of the refrigeration process. In addition, the district court found there was a genuine factual dispute as to whether any of the policy’s exclusions were triggered, concluding that the parties disputed the cause of loss and whether there was one or more proximate cause of loss.
The issue proximate cause of loss and applicability of any policy exclusion proceeded to trial before a jury. The jury found in Philadelphia’s favor. Macheca filed a second appeal.
On appeal the Court reviewed the policy’s collapse provisions which generally provided coverage for “loss caused by or resulting from risks of direct physical loss involving collapse of buildings or any part of buildings.” The policy broadly defined “buildings” as any buildings or structures, and, contained an exhaustive list of items which were included within the meaning of “building”. The list included permanently installed fixtures, permanently installed machinery, permanently installed equipment, etc.” The fight was not about whether the ammonia pipes were included within the terms “buildings or any part of buildings;” rather, the issue is whether there was a “collapse” of the pipes. The policy did not define collapse.
The district court held that Missouri courts interpret the term “collapse” narrowly by requiring a structure or building to completely fall or be reduced to a “flattened form or rubble” before coverage is triggered under the “collapse” provisions of an insurance policy.
The Court, in reviewing decisional law in Missouri along with cases in other jurisdictions decided to go with the majority approach from other jurisdictions which held that the undefined term “collapse” is ambiguous. Those cases have interpreted the term in favor of an insured to cover any serious impairment of a building’s structural integrity. The Court determined that in the context of the Philadelphia policy, defining a “collapse” as any serious impairment of a building or part of a building’s structural integrity is clearly more consistent with what the average lay person would reasonably understand the term “collapse” to mean when viewed in conjunction with items included in this policy’s definition of “buildings”.
The Court concluded that the district court erred in adopting the restrictive definition of “collapse”, because none of the cases relied on by the district court addressed the meaning of the term “collapse” when used in conjunction with the expansive definition of the term “buildings” used in the Philadelphia policy.
On the issue of whether the district court erred when it determined the weight of ice on the refrigerated pipes could not be considered “specified cause of loss” because the “ice” used in the coverage limitation referred only to “ice” as an element of weather, the Court analyzed the policy and disagreed with the district court. The Court determined that the phrase “weight of ice” in the relevant policy provision does not appear in a list limited to weather related items. When considering the policy terms, the Court concluded the its use of the term “ice” is reasonably subject to two different interpretations, one which refers to ice exclusively as an element of weather, and another which refers to ice in either its natural condition or a man-made occurrence. The Court held that at a minimum, Philadelphia’s failure to indicate which form of ice was covered and which was not renders the term ambiguous, and requires us to adopt the meaning which is favorable to the insured.
The Court concluded that the district court erred when it determined the weight of ice on the refrigerated pipes did not constitute a specified cause of loss under the terms of the policy.
Finally, as to the vexatious refusal to pay claim, the Court determined that Philadelphia reasonably believed it had a meritorious defense to insurance coverage and agreed with the district court’s grant of summary judgment to Philadelphia on this issue.
08/11/11 State Farm Mut. Auto. Ins. Co. v. Duckworth Eleventh Circuit Court of Appeals – Florida Anti-Stacking Provisions in Auto Policy – Which State’s Law Applies?
The defendant, Anna Duckworth and her husband, Aquila Duckworth, purchased two automobile insurance policies and one motorcycle insurance policy from the plaintiff, State Farm, while they were Maryland residents. All three insurance contracts contained “anti-stacking” provisions that precluded the Duckworths from recovering uninsured motorist benefits under any policy other than that covering the damaged vehicle. Maryland law explicitly permits the use of such anti-stacking provisions in insurance policies without the informed consent of an insured. The Duckworths later moved to Florida, where Aquila was struck and killed by an uninsured motorist while driving the motorcycle covered under the Maryland policy.
State Farm immediately paid Anna, as representative of Aquila’s estate the uninsured motorist benefits called for by that policy [$100,000] but later denied Anna’s claim for benefits under the other policies citing the anti-stacking provisions. State Farm then brought a declaratory judgment action in district court and Anna counterclaimed for breach of contract. Anna alleged that the policies should be construed under Florida law, not Maryland law. Anna argued that she should be entitled to recover uninsured motorist damages under all three policies because Florida law prohibits the use of anti-stacking provisions absent the insured’s informed consent.
At issue before the district court was the applicability of the public policy exception to Florida’s choice of law rule in disputes over contract terms. The public policy exceptions demands that Florida law control whenever the State has (1) a paramount public policy interest in the application of its own law and (2) a citizen is in need of protection. Whenever an insurance contract is at issue, it is also necessary that the insured party seeking to benefit from the exception satisfy and third prong, (3) the insured must provide the insurer with reasonable notice “of a permanent change in residence”, such that the insurance risk would thereafter be “centered in Florida.”
The district court granted summary judgment to State Farm on all claims, the court found for State Farm on each of the three prongs of the public policy exception holding that (1) no paramount public policy required the application of Florida law, (2) the Duckworth’s had yet to establish themselves as Florida citizens, and (3) State Farm was not given reasonable notice that Florida law would govern the Duckworth policies.
Anna Duckworth appealed, primarily arguing that it is disputed whether she informed a State Farm representative that the Duckworth’s move to Florida was “permanent”. The Eleventh Circuit [“Court”] disagreed with Ms. Duckworth and affirmed the district court decision.
The Court went through a lengthy history of the Duckworth’s residences from 1996 to the time of Aquila’s accident in March, 2007; also reviewing the Duckworth’s procurement of insurance coverage over the years. In rendering its decision the Court looked to decisional law from the Supreme Court and intermediate courts in the State of Florida which addressed the same issue. In extrapolating from the principles found in the Florida decisions the Court did not believe that the Supreme Court of Florida would choose to invoke the public policy exception on the undisputed facts of this case. Instead, the Court believed that the Supreme Court would more likely hold that because State Farm’s picture of where the Duckworths’ intended to permanently reside was clouded by information provided to State Farm agents by the Duckworths or otherwise discovered by State Farm, State Farm did not have reasonable notice that Florida law would govern the Duckworths’ policies.
The Court found the following facts, among others, to be important when rendering its decision: (1) the only Florida address given to State Farm by the Duckworth’s was their daughter’s home, a home that Ms. Duckworth specifically told a State Farm agent would serve as a temporary residence; (2) the Duckworth’s, after several months, had not yet purchased or rented a Florida home or purchased a homeowners’ or renters’ insurance policy from State Farm. Neither had they notified Florida’s motor vehicle department of a change in their permanent address, as their drivers’ licenses, which were on file with State Farm, still listed their prior California address; (3) though the Duckworths had registered their motorcycle in Florida and purchased a Florida license plate for that vehicle, State Farm knew, based on Ms. Duckworth’s comments, that they had only done so because the motorcycle’s registration in Maryland had expired and the Duckworths did not intend to return to Maryland. The Court determined that judging from the Duckworths’ timing, as well as their decision not to register their other two vehicles in Florida, State Farm could have logically viewed that act as one of convenience rather than a declaration of their intent to become permanent Florida citizens.
The Court also found it important that the Duckworths had rejected an opportunity to purchase Florida insurance when offered to the by their Florida agent and instead chose to renew their Maryland policies with their Maryland agent.
One Judge dissented noting that there was conflicting evidence on the issue of Florida citizenship which should be resolved by a trier of fact.
08/10/11 Country-Wide Ins. Co. v. Preferred Trucking Servs. Corp. Supreme Court, New York County Court Stretches to Find Coverage Where Insurer Disclaimed on Late Notice and Lack of Cooperation
Country-Wide Ins. Co. (“Country-Wide”) disclaimed coverage, under a business auto policy it issued, to its insureds, Preferred Trucking Services Corp. and Carlos Arias, for a suit brought against them as a result of a construction site motor vehicle accident.
Country-Wide twice disclaimed for this loss. First, by letter dated October 10, 2007, Country-Wide disclaimed coverage based on late notice of suit and lack of cooperation with the investigation. Second, by letter dated November 6, 2008, it disclaimed coverage based again on noncooperation with suit.
The underlying accident occurred on September 27, 2006. No notice of the occurrence was provided to Country-Wide until February 2007. Upon receipt of notice, Country-Wide began an investigation. By letters dated March 2 and 5, 2007, Country-Wide first sought the cooperation of its insureds. Thereafter, throughout March and April 2007 Country-Wide continued to make telephone calls and visits to the insureds’ addresses. In fact, Country-Wide advised the insureds that their failure to cooperate could result in a disclaimer of coverage. Finally, following a report and recommendation from Country-Wide’s SIU, it closed its file.
A suit was then commenced on March 5, 2007; however, the insureds failed to provide any notice of the action until October 4, 2007. Country-Wide then disclaimed six days later based on late notice of suit and failure to cooperate with the investigation.
Although Country-Wide denied coverage, it agreed to provide a courtesy defense. Nonetheless, after the insureds failed to appear for depositions and the court granted a motion to strike their answer based on a failure to comply with discovery deadlines, Country-Wide disclaimed coverage again.
In considering the denial letters, the court held that Country-Wide waived its right to deny coverage based on lack of cooperation with the investigation since five months passed between the times SIU made its recommendation and the first disclaimer was issued. While Country-Wide argued that it was under no obligation to deny coverage until it received its first notice of the commencement of the lawsuit, the court disagreed. Further, the court held that its denial based on late notice of suit was unsupported. The court reasoned that once an insured provides notice of an occurrence, the insurer can then only disclaim based on late notice of suit if there is a showing of prejudice. No showing of prejudice was made.
With regard to the second denial based on lack of cooperation with the lawsuit, the court held that the denial was effective as to Mr. Arias, but not as to Preferred. In reviewing the timeline, the court found a difference as to when Country-Wide attempted to obtain each insureds’ compliance. In other words, it found that Country-Wide should have disclaimed earlier to Preferred because it was clear earlier that it was not going to cooperate. Accordingly, Country-Wide was required to defend and indemnify Preferred for this loss.
Note: Initially, this is a pre-January 17, 2009 case. Thus, as most of you know, in this situation, the insurer is not required to establish prejudice prior to disclaiming on late notice of suit. This no prejudice rule applies irrespective of whether the insured in fact did provide timely notice of loss or claim. An exception to this rule, which the court appears to have misapplied here, is in the UM/SUM arena. In the UM/SUM area, most times the insurer is already paying no-fault benefits prior to any suit being commenced. Thus, when the suit is commenced, the insurer already knows about the claim, has investigated it, and has access to all of the medical records. For this reason, the courts did not believe it was fair to apply the traditional rule and, instead, carved out an exception. For UM/SUM claims, once an insured provides notice of an occurrence and claim, the insurer can then only disclaim based on late notice of suit if there is a showing of prejudice.
07/27/11 Rodriguez v. Allstate Ins. Co. Supreme Court, Kings County Court Dismisses Punitive Damage Claim, but Permits Plaintiff’s Claims for Consequential Damages and Attorneys’ Fees to Go Forward
Plaintiff obtained an automobile policy through Defendant for her 2007 Jeep Commander. A few months after obtaining the policy, Plaintiff’s vehicle was stolen. While Plaintiff immediately reported the theft to police and Defendant, Defendant neither made a decision as to coverage for the claim nor paid it.
Accordingly, Plaintiff commenced this action seeking $30,000 in contractual damages (value of the vehicle), $19,847.75 in consequential damages for the amount of money she expended on car payments while she was unable to use the insured vehicle, $250,000 in punitive damages and the costs and disbursements of prosecuting this action, including but not limited to attorneys’ fees. Defendant brought this motion to dismiss Plaintiff’s claim for consequential and punitive damages.
The court held, citing Bi-Economy, that insomuch as Plaintiff’s car payments were a foreseeable consequence of Defendant’s alleged breach of contract, it would not dismiss her claim for consequential damages.
Thereafter, in the most interesting portion of the decision, while the court dismissed the punitive damage claim holding that Plaintiff failed to demonstrate such wanton dishonesty as to imply a criminal indifference to civil obligations, and that the conduct was aimed at the public generally, it refused to dismiss Plaintiff’s claims of entitlement to attorneys’ fees and costs in this action. The Court acknowledged that an insured may not recover the expenses incurred in bringing an affirmative action against an insurer to settle its rights under the policy; yet, it still refused to dismiss the claim stating that “as with damages for attorneys’ fees in a contractual dispute, parties are just as free to make non-legal incidental costs recoverable through their insurance agreements as well.” Thus, on this motion to dismiss, the court held that it had not yet seen whether Plaintiff’s insurance policy permitted their recovery.
07/27/11 Structure Tone, Inc. v Harleysville Worcester Ins. Co. Supreme Court, New York County Right to Rely on Late Notice Defense Waived Where Insurer Mistakenly Accepts Tender
An employee of non-party American Wood Installers, Inc. (“American Wood”) was injured when he was suddenly struck by a door at the Hilton Hotel while installing its hinges. Approximately two years after the incident, the employee commenced an action against, among other parties, Structure Tone, the project’s general contractor.
Upon receipt of the suit papers, Structure Tone tendered its defense to Tobin Woodworking, Inc. (the subcontractor that retained American Wood). Harleysville, Tobin’s insurer, denied additional insured status based on late notice of occurrence. The denial letter also noted that Harleysville would continue to investigate this loss, and review to see if there was a contractual obligation to indemnify and defend Structure Tone.
Thereafter, approximately five months later, Structure Tone received a follow up letter indicating that, based on Harleysville’s investigation, an employee of the Hilton Hotel moved the wooden doors causing them to fall and strike the injured party. Thus, according to the letter, without active negligence on the part of Tobin, any contractual obligations in favor of Structure Tone were not triggered.
However, ten months after this letter was received by Structure Tone, Harleysville mistakenly sent a third letter. That letter stated that Harleysville agreed to assume the defense and indemnity of Structure Tone as an additional insured subject to a waiver of past legal costs. It made no reference to Harleysville’s prior position or its last denial. When Harleysville never assumed the defense, Structure Tone brought this action.
In considering the parties’ motions for summary judgment, the court held that the parties failed to adequately address how and when Structure Tone learned of the underlying accident; nevertheless, after having accepted the tender, Harleysville’s renewed attempt to disclaim on the ground of late notice was both untimely and unreasonable as a matter of law.
07/19/11 Nationwide Mut. Fire Ins. Co. v. Kanganis Supreme Court, Nassau County Court Refuses to Vacate Arbitration Award Based on Fraud
Petitioner brought this Article 75 proceeding seeking an order vacating an arbitration award granted in favor of respondent on the basis that it was obtained by corruption, fraud, and/or misconduct. The award was granted to Kristen Kanganis for injuries she sustained when she slipped and fell on a staircase at a house owned by John Naumann. To vacate an arbitration aware on the ground of fraud, a party must establish by clear and convincing evidence the existence of fraud, that the fraud would not have been discoverable upon exercise of due diligence prior to or during the arbitration, and that the fraud materially related to an issue in arbitration.
At this proceeding, petitioner presented evidence that Ms. Kanganis’ husband sent a letter to the New York State Insurance Department indicating that his wife actually fell at their house and was only saying that it occurred at Mr. Naumann’s house so that she could assert a claim against his insurance company. Likewise, petitioner also submitted affidavits from members of Mr. Kanganis’ family supporting this assertion and attesting that they even heard Ms. Kanganis fall at her own home. In opposition, Ms. Kanganis asserted that she was going through a contentious divorce with her husband that had become extremely hostile and violent.
The court determined that petitioner failed to establish by clear and convincing evidence the existence of fraud on behalf of respondents. Specifically, petitioner submitted inconsistent affidavits which contained only hearsay attestations to support it allegations of fraud. Further, according to the court, all of the evidence offered by petitioner could have been discovered upon the exercise of due diligence prior to the arbitration. Thus, the court refused to vacate the award.
06/09/11 Aspen Ins. UK LTD. v East Coast Preserv. Co. LLC Supreme Court, Kings County Evidence That Policy Was Issued to a New York Company by a New York Broker Sufficient to Establish That New York Law Should Apply
East Coast claimed that its insurance contract with Aspen Ins. UK LTD should be governed by either Pennsylvania or New Jersey law, as opposed to New York law. Both Pennsylvania and New Jersey law require an insurer establish that it was prejudiced by the insured’s late notice. In comparison, in New York no showing of prejudice is required (note, this case deals with a policy issued prior to the amendment to Insurance Law 3420(d)).
In determining that New York law should apply, the court noted that in reviewing several documents from Aspen’s underwriting file, the policy was issued for a New York company, rather than a New Jersey company. Further, said documents listed a New York address and telephone number for East Coast. Also, New York was the “principal exposure state” and the insurance broker was located in New York.
Encountering indemnity agreements in contracts and leases is common, and parties and the courts are constantly exploring the limits to which a party can be indemnified, even if the incident occurred because of its own negligence and/or on property it exclusively controlled. One such case was recently decided in Constable v Northglenn, LLC, 2011 Colorado Lexis 232 (March 21, 2011).
Northglenn was the owner of a shopping center and Constable leased commercial space. A lawsuit was filed by a woman who slipped on ice in the shopping center parking lot. The tenant, Constable, asserted that the indemnity provision in the lease favoring Northglenn was void as against public policy because it failed to clearly express an intent to indemnify Northglenn for its own negligence, and because it attempted to relieve Northglenn of “nondelagable duties” for which Northglenn had exclusive control - the care and maintenance of the parking lot. The lease provision provided that Constable would indemnify Northglenn for liability for bodily injury sustained by anyone on the “premises” or elsewhere in the shopping center as long as the person was present to visit Constable’s shop or as a result of her business. The only real exception was that there was no obligation to indemnify for Northglenn’s gross negligence or intentional torts, surely a high if not insurmountable hurdle in a normal premises liability case.
Moreover, the lease required Northglenn as owner of the shopping center to maintain the community areas, including the parking lot. However, Constable’s only remedy for failure to fulfill this obligation was for Constable to cause the maintenance to be performed herself and deduct any expense from the rent.
The trial court held that the indemnity provision was unenforceable and granted summary judgment in Constable’s favor. However, on the first appeal, the Colorado Court of Appeals reversed in favor of Northglenn finding that the lease clearly reflected an intent that Constable indemnify Northglenn for injuries sustained in community areas by her customers. The first appellate court also concluded that the indemnity provision did not violate a duty made “nondelegable” by statute and therefore did not violate public policy. The Colorado Supreme Court granted a petition to review on the question of whether the indemnity provision was or was not void as against public policy. The Colorado Supreme Court essentially agreed with the appeals court and upheld the indemnity provision in favor of Northglenn.
The Colorado Supreme Court stated that Colorado public policy prevented an agreement to indemnify for damages resulting from someone’s own intentional or willful wrong acts. However, this rule did not apply to agreements to hold a party harmless for its own negligence. The Court stated that, in commercial settings, it has been willing to uphold broad language of indemnity, including language which generally provided that Constable would indemnify Northglenn for liability which could only have arisen due to Northglenn’s own negligence. In short, when it comes to ordinary negligence claims and concepts, commercial parties were held to be free to contract in a broad fashion. There clearly are legal tensions between private parties’ right to contract, and courts and legislators restricting indemnity clauses as a matter of public policy.
The Supreme Court also rejected the argument that the indemnity provision violated a Colorado Premises Liability Act which imposed a nondelegable duty on Northglenn to use reasonable care in maintaining its parking lot for the protection of shopping center patrons. The Court distinguished that an agreement to indemnify against liability for the breach of a duty was not the same as delegating that duty to another. The purported distinction that the indemnity provision did not shift a “non-delegable” duty from Northglenn (the landlord) to Constable (the tenant) is certainly specious and wrong from a practical standpoint. An indemnity agreement in a commercial lease was held to be an appropriate way of allocating risk of injury to patrons who are present to do business with a tenant and of inducing a landlord to enter into the lease. The Court held that the provision did not violate general Colorado public policy or the particular statute in question, and the judgment was affirmed denying the tenant’s motion for summary judgment and providing indemnity to the landlord.
The lessons of this case are many:
Broad indemnity language in commercial contracts and leases may be given enforcement. Absent statutes which have been adopted in several states, broad indemnity provisions will be enforced as a matter of common law.
Courts will narrowly construe even state remedial statutes to preserve indemnity clauses in commercial contracts and leases.
While the concept seems counter-intuitive, courts will enforce provisions indemnifying a party against its own negligence.
Cases such as this have historically been what leads legislators to enact limitations and restrictions on indemnity language in certain situations such as construction contracts, residential real estate leases, commercial real estate leases, and the like. Overbearing indemnity clauses inevitably lead to legislative limitations.
In challenging such an indemnity provision, it is helpful if a party can find some expression of statutory or legislative intent which directly or implicitly voids such an indemnity provision, such as the asserted Colorado Premises Liability Act in this case which was held not to be applicable, but an excellent counter-argument nonetheless.
08/11/11 Bouffard v. State Farm Fire & Casualty Company New Hampshire Supreme Court Agency Principles Apply to Rejection of UM Coverage Bouffard filed a declaratory judgment action against State Farm seeking a declaration that she was entitled to UM coverage under her umbrella policy because she did not specifically reject the coverage. When procuring the policy, Bouffard could not enter the agent’s office because it was not wheelchair accessible. In her place, she authorized her husband to “get it done.” Once inside the office, the husband testified that he told the representative to reject UM coverage for recreational vehicles only; however, the representative mistakenly checked the box rejecting UM coverage for all vehicles. After its completion, the representative brought the application to Bouffard, who remained in the car, for review. State Farm approved the application and delivered the policy to Bouffard which she read. Subsequently, Bouffard was involved in a motor vehicle accident and sustained bodily injury. State Farm denied her claim for UM benefits, and Bouffard commenced the declaratory judgment action.
The trial court determined that the husband was Bouffard’s agent and he acted within the scope of his agency when rejecting the UM coverage. Bouffard appealed, and the Supreme Court of New Hampshire affirmed. The Court noted that it found no reason why settled principles of agency law should not apply to the rejection of UM coverage. Based on Bouffard’s instruction “get it done” and the husband’s consent to do so, the Court held that an agency relationship was created based upon implied actual authority. The Court further found that Bouffard ratified her husband’s rejection of UM coverage by reviewing both the application and the policy.
Submitted by: Jennifer Johnsen and Nick Farr, Gallivan, White & Boyd, PA
08/05/11 Citigroup, Inc. v. National Union Fire Ins. Co. of PA Fifth Circuit Court of Appeals
Second Layer Excess insurer’s Indemnity Duties Required the Actual Payment of the Underlying Insurer’s Limits and Therefore Were Not Triggered by a Settlement In Which the Insured Had Accepted Less Than the Carrier’s Full Limits Citigroup sued various excess insurers seeking a declaration of coveragefor class action claims that an affiliate had violated truth in lending statutes by misrepresenting that refinancing its customers’ debts into a single loan secured by their homes would be beneficial. Citigroup eventually settled its claims against Lloyd’s for $15 million in consideration of the dismissal of a layer of insurance with a $50 million limit. As a result, despite Citigroup’s argument that its settlement with Lloyd’s had “exhausted” the underlying limits, the Fifth Circuit agreed with a Texas District Court that the excess policies in the layer above the Lloyd’s policy were not triggered.
The Court noted that a Chubb policy that stated that coverage attaches only after “(a) all Underlying Insurance carriers have paid in cash the full amount of their respective liabilities, (b) the full amount of the Underlying Insurance policies have been collected by the plaintiffs, the Insureds or the Insureds’ counsel, and (c) all Underlying Insurance has been exhausted” unambiguously required that the underlying policies have actually paid their full limits. Likewise, the court reached similar conclusion with respect to language in the a Steadfast policy dictating that its coverage did not attach until the underlying insurer makes a payment equal to all the underlying insurer’s limits of liability.”
The Fifth Circuit declined to find that the excess policies exhaustion requirement were ambiguous,, nor did it accept Citigroup’s request that it follow the Second Circuit’s analysis of similar issues in Zeig. The Court also ruled that the insured’s suit against Twin City was untimely as being filed outside the four year statute of limitations for contract claims under Texas law.
Submitted by: Michael F. Aylward, Morrison Mahoney LLP
Morris Duffy Alonso & Faley, New York, N.Y. (Iryna S.
Krachhanka of counsel), for appellant.
Ledy-Gurren Bass & Siff, LLP, New York, N.Y. (Edward J.
Gorman of counsel), for respondent.
DECISION & ORDER
In an action to recover damages for personal injuries, the defendant S. DiFazio & Sons Construction appeals, as limited by its brief, from so much of an order of the Supreme Court, Kings County (Sherman, J.), dated August 22, 2010, as granted that branch of the motion of the defendant Verizon New York, Inc., which was for summary judgment on the cross claim of that defendant for contractual indemnification with respect to attorneys' fees and costs incurred in the defense of this action.
ORDERED that the order is affirmed insofar as appealed from, with costs.
The plaintiff allegedly was injured when she tripped and fell in the roadway at or near the intersection of Flushing Avenue and Broadway in Brooklyn. She commenced this action to recover damages for personal injuries against, among others, the defendants S. DiFazio & Sons Construction (hereinafter DiFazio) and Verizon New York, Inc. (hereinafter Verizon), alleging that they negligently performed construction work in the area where she fell, and that such negligence caused her injuries. Verizon asserted a cross claim for contractual indemnification against DiFazio. Verizon had entered into a contract with DiFazio, pursuant to which DiFazio agreed to perform excavation and repaving work near a curb on Flushing Avenue at or around its intersection with Broadway. Under the contract, DiFazio agreed to defend and indemnify Verizon for all claims arising out of DiFazio's "actual or alleged acts or omissions."
Contrary to DiFazio's contention, Verizon is entitled to indemnification for attorneys' fees and costs incurred in the defense of this action. This action arises out of DiFazio's "actual or alleged acts or omissions," and the plain and unambiguous terms of the contract do not condition DiFazio's obligation to indemnify Verizon for attorneys' fees and costs incurred in the defense of this action on a finding of fault (see Sand v City of New York, 83 AD3d 923; McCleary v City of Glens Falls, 32 AD3d 605, 609; Pope v Supreme-K.R.W. Constr. Corp., 261 AD2d 523, 524-525; [*2]DiPerna v American Broadcasting Cos., 200 AD2d 267, 269-270; Vamvkaris v City of New York, 21 Misc 3d 1148[A], 2008 NY Slip Op 52555[U] ). Accordingly, the Supreme Court properly granted that branch of Verizon's motion which was for summary judgment on its cross claim for contractual indemnification with respect to attorneys' fees and costs incurred in the defense of this action.
Butler Rubin Saltarelli & Boyd LLP, Chicago, IL (James I.
Rubin of the bar of the State of Illinois, admitted pro hac vice,
of counsel), for appellants.
Pillsbury Winthrop Shaw Pittman LLP, New York (Leo T.
Crowley of counsel), for The Bank of New York Mellon Trust
Company, N.A., respondents.
Reed Smith LLP, New York (John N. Ellison and Jean M.
Farrell of counsel), for Countrywide Financial Corporation,
Countrywide Home Loans, Inc., BAC Home Loan Servicing LP and
Bank of America, N.A., respondents.
Judgment, Supreme Court, New York County (Bernard J. Fried, J.), entered August 25, 2010, upon an order, same court and Justice, entered July 27, 2010, which granted defendants' motions to compel arbitration and to dismiss the amended complaint pursuant to CPLR 3211 (a)(1) and (7), and denied plaintiffs' cross motion to stay arbitration, unanimously affirmed, without costs.
Initially, to reach the merits of plaintiffs' appeal, we exercise our discretionary authority, pursuant to CPLR 5520(c), to deem the inaccurate notice of appeal as valid to correct the procedural problem created here by plaintiffs' appeal from the order and not the judgment (Robertson v Greenstein, 308 AD2d 381 , lv dismissed 2 NY3d 759 ).
On the merits, the issue before us is whether Supreme Court correctly construed the arbitration provision found in five mortgage insurance policies that were issued by plaintiff insurers and held by defendant insureds. The policies cover the insureds, who are residential mortgage lenders and their affiliates, against losses caused by their borrowers' loan defaults. Each policy provides that
"[u]nless prohibited by applicable law, the insured [under the policy], at its option, may elect to settle by arbitration a controversy, dispute, or other assertion of liability or rights which it initiates arising out of or relating to this [p]olicy, including the breach, interpretation, or construction thereof."
Starting in 2008, a dispute arose when plaintiffs denied the insureds' claims with respect to about 1600 loan defaults, contending that coverage with respect to those claims had been rescinded pursuant to the policies' terms because of alleged misrepresentations that the insureds made when applying for coverage or the insureds' borrowers made when applying for loans. The specifics of the dispute and its underlying merits are not at issue here.
In December 2009, plaintiffs and the insureds were attempting to negotiate a settlement of their dispute and the insureds had requested that plaintiffs enter into a tolling agreement to facilitate discussions. However, on December 31, plaintiffs filed this action seeking a declaration that their rescissions of coverage were consistent with the terms of the policies.
In January 2010, the insureds filed a demand for arbitration before the American Arbitration Association raising the same issues as those found in the amended complaint, and in February 2010 all defendants moved for an order dismissing the amended complaint and compelling arbitration, or in the alternative staying this action pending the arbitration. Defendants argued that the insureds were exercising their contractual right to elect to arbitrate disputes arising from the policies.
In their opposition and cross motion for an order staying arbitration, plaintiffs did not dispute that the parties had made a valid agreement to arbitrate and that the issues that the insureds had raised in the arbitration demand fell within the scope of that agreement. Rather, plaintiffs contended that the arbitration provision "permits the insured to arbitrate disputes which it initiates and does not permit the insured to require arbitration of any dispute initiated by [plaintiffs]," and "[s]ince [plaintiffs] initiated all the disputes asserted in its [c]omplaint, they are not arbitrable."
In granting defendants' motion and denying the cross motion, Supreme Court correctly reasoned that the insureds' "right to initiate arbitration is not dependent on which party filed suit first." The court rejected the idea that the arbitration provision conditioned the right to require arbitration upon the insured filing a demand before plaintiffs commenced a court action.
That interpretation reflects the intent of the parties, since the clear purpose of the provision is to give the insured the option of arbitrating disputes. The provision does not mention any right of the insurer and does not condition the insured's right to arbitration on anything other than making a demand.
Plaintiffs urge this Court to construe the phrase "which [the insured] initiates" as modifying the phrase "controversy, dispute, or other assertion of liability or rights," and to hold that plaintiffs "initiated" the "dispute" by filing this lawsuit. However, that interpretation frustrates the purpose of giving the insureds the option to arbitrate. It also confuses a "dispute" with a "dispute resolution proceeding," although a proceeding to resolve a dispute under a contract simply is not the same thing as the dispute itself. Moreover, in this context, one party cannot be said to initiate a dispute. Instead, the dispute arises among the parties.
If one were to construe the arbitration provision to mean that plaintiffs did not have to arbitrate "disputes" that they "initiated," then the real issue before a court enforcing the provision would not be which party filed a lawsuit or arbitration demand first, but rather which "initiated" the underlying "controversy, dispute, or other assertion of liability or rights" under the policy. That question is essentially meaningless and impossible to answer (see Matter of Lipper Holdings v Trident Holdings, 1 AD3d 170, 171  [a contract interpretation should not lead to a result that is absurd or "contrary to the reasonable expectations of the parties"]).
Moreover, plaintiffs' interpretation is commercially unreasonable because it countenances procedural gamesmanship. The parties to the policies could not have intended that the insurers could thwart the insureds' right to arbitrate by winning a race to the courthouse to file a declaratory judgment action before the insureds could file a demand for arbitration.
Thus, for the reasons stated, the parties did not intend the phrase "which [the insured] initiates" to modify "controversy, dispute, or other assertion of liability or rights," because the only logical way to construe the provision is to read the phrase as modifying the word "arbitration." Although the phrase seems misplaced in the sentence in which it appears, clearly the parties' reason for including it was to specify that an insured must exercise its option to arbitrate by initiating the proceeding. Contrary to plaintiffs' view that our interpretation gives no effect to the phrase "which [the insured] initiates," it makes the insureds' right to require arbitration conditioned on their demanding it.
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