Coverage Pointers - Volume XIV, No. 10

Dear Coverage Pointers Subscribers:

You have a situation? We love situations. And there sure have been situations over the last few days.

No doubt that the storm has kept the courts quiet, the downstate Departments closed for several days and the quantity of insurance decisions decidedly down.

 

Storm Claims – S.O.S.:

Our heart goes out to those who have suffered so in the wake of Sandy and her aftermath.  We have good friends still without power on Long Island and know several who have suffered devastating losses.

The H&F Cat and Coverage Teams have been engaged to assist insurers in the New York metropolitan area.  From analyzing Hurricane deductibles, to crafting reservation of rights letters, to developing Cat protocols, to retaining and coordinating SIU investigations, to defending claims already filed, we have already helped and can provide you with assistance if you need it. Steve Peiper speaks more on this subject below in his S.O.S (Steve on Sandy) letter.

In the meantime, just click here to contact us.

The Coverage Pointers App:

The reaction to the Coverage Pointers App has been outstanding.  Announced in our previous issue, the  CP App is now available in the iPhone App Store and the Android Marketplace, for free, of course. Search for it there or for iPhone or iPad users, click here. 

Once downloaded, those who accept push notifications will be advised when a new issue is posted. You’ll find our new issues on your smart phone (and the old ones there as well), awaiting your review, on alternate Friday mornings, as always. Please rate our app. Additional features, including searching and bookmarking tweaks, will be added over time and if you have any suggestions for other changes, let us know. The app also contains easy ways to contact us, via e-mail or telephone as well as a link to our website.

S.O.S. -- Steve On Sandy

Just another ho-hum kind of couple of weeks, huh?.  Or not.    

With appropriate acclaim to Mr. Eastwood, we’ve experienced our own good, bad and ugly  this week.  The good and bad come from the Third Department’s landmark decision in Gauthier which we review at length herein.  The ugly comes from this little storm that made its way up the coast just prior to Halloween.  Like it or not, Sandy is front and center in every claims department from now through the foreseeable future.  We have been honored to have been asked to jump in to assist the efforts of several carriers as the industry struggles to get its arms around what, for New York anyway, is a loss that borders on the unprecedented.   From Cat claims handling protocol, to management of claims, experts and outside adjusters, to coverage issues, we stand ready to offer whatever assistance we can.

Before this column gets taken over by Sandy related discussions, we do wish to point you to the Third Department’s decision in Gauthier, reviewed herein, where the Appellate Division again recognizes the possibility of consequential damages.  On the bright side, the Court appears to suggest that consequential damages are only recoverable where the insured can establish that the carrier’s actions violated the duty of good faith and fair dealing.  This, as faithful readers know, has been a source of debate since February of 2008, when Bi-Economy and Panasia Estates were handed down from the Court of Appeals. 

Obviously, proving a breach of the duty of good faith and fair dealing in a first party case is exceedingly difficult.  Indeed, Courts have long recognized the adversarial nature that is inherent in any first party claim.  There is no duty to protect the interests of the insured from a third-party as exists in a third-party policy.  Rather, the only duty owed by the carrier in a first party policy is to provide the benefits that are contractually agreed to as part of the policy.  The competing interests of carrier and insured are never more acute than when the nature and extent of those duties are being ironed out.  Reasonable minds can differ in their interpretations, and, as such, Courts from around the country have recognized a carrier’s right to dispute claims in the first party instance. 

That was the good, now for the bad.  Although it appears that the Court in Gauthier held the line on the standard of review, it is troubling that the Court goes on to cite examples of specific damages that it concluded had been established as consequential damages.  In this writer’s memory, this is the first time any court has explicitly provided guidance what qualified as extra-contractual damages.

The ugly is the massive damage along New York and New Jersey’s coastline caused by Hurricane…err Super Storm…Sandy (see Cassie’s column).  Of utmost importance, we hope that all of those affected by the Sandy are safe and on their way to recovery.   We have all heard and seen the stories from the storm’s aftermath, and we express our deepest sympathies to those who suffered a loss.

After Katrina, and nearly every other major catastrophic loss, the desire to quickly adjust claims resulted in thousands of unforced and unnecessary violations of claims obligations.  Naturally, the clean-up that is already underway will be followed by a massive undertaking facing the industry to adjust thousands of claims.  In light of this task, we have been compiling a list of documents, statutes, regulations and case law likely to come up during the claims process.  May we suggest first that if you do not have a copy of Regulation 64 (11 NYCRR 216), otherwise known as the Unfair Claims Practices Act, that you avail yourself of a copy…quickly. 

If you don’t have a copy, or need an update/refresher, or if you have no idea what I am talking about, please do not hesitate to give us a call.  Actually, if you have no idea what Regulation 64 is, call us immediately!  In the meantime, may we suggest that you pay particularly close attention to the following guidelines

• Acknowledge receipt of any claim within 15 days (11 NYCRR 216.4[a])
• Reply to all other “pertinent” communications  within 15 days (11 NYCRR 216.4[b])
• Commence any investigation within 15 days of receipt of any claim (11 NYCRR 216.5[a])
• Forward any necessary documentation to the insured within 15 days of receipt of a claim (11 NYCRR 216.5[a])
• If disclaiming, inform the insured, in writing, with specificity, of why there is no coverage (11 NYCRR 216.6[d])
• Pay any settled claim within 5 business days of resolution (11 NYCRR 216.6[f])
• Do not condition a settlement draft upon release of any future obligations under the First Party portion of the policy (11 NYCRR 216.6[g])
• If denying a claim for personal property, identify the policy number, claim number, insurer’s address and the right of the insured to complain to the Dept. of Fin.  Services (11 NYCRR 216.6[h]).
• Accept or Deny a claim within 15 days of receipt of a Proof of  Loss (11 NYCRR 216.6[c])
• If additional investigation is need, notify the insured within 15 days of receipt of the Proof of Loss (11NYCRR 216.6[c])
• Follow up with additional letters every 90 days while the investigation remains pending (11 NYCRR 216.6[c])

 

With regard to Actual Cash Value, Regulation 64 provides its definition, unless altered by the policy is the lesser of:

• Repair of the property to is condition immediately prior to the loss or
• Replacement of the property with a substantially similar item (11 NYCRR 216.6[b])

 

All of the above can be distilled down into one mantra: COMMUNICATE, COMMUNICATE, COMMUNICATE…with the insured, with agents, with anyone else of interest, throughout the claims process.  Doing so will limit the quantity and quality of complaints, and in most cases, help assure good faith claims handling. 

In Kohane’s words, we love situations; and, we know you’ve got more than your share right now.  With this in mind, don’t forget about us.  No matter how small the issue, feel free to give Dan, Cassie or myself a call with any questions – or to just bounce an idea off of us.  We do consider ourselves partners with you, and welcome the opportunity to assist in any way possible.  Good luck and best wishes.

Steve Peiper
[email protected]

 

The American College of Coverage and Extracontractual Counsel:

As a founding member of the Board of Regents of the American College of Extracontractual Counsel, I am pleased to announce its formation.  ACCEC brings together preeminent lawyers representing the interests of both insurers and policyholders to improve the quality of the practice of insurance law and to increase civility and professionalism in the field. Its mission includes educating all sectors involved in insurance disputes — including the judiciary, legal and insurance professionals, and businesses — on critical topics such as best practices in policy formation and claims handling, developing trends in insurance law, and bad faith.

The American College is composed of preeminent coverage and extracontractual counsel in the United States and Canada, representing the interests of both insurers and policyholders. The College is focused on the creative, ethical and efficient adjudication of insurance coverage and extracontractual disputes, peer-provided scholarship, professional coordination and the improvement of the relationship between and among our diverse members. Through its Board of Regents and its working committees, the College will engage in a wide variety of activities designed to promote those goals, in addition to improving the civility and the quality of the practice of insurance law.

For more information about the ACCEC, visit the website, www.americancollegecec.org.

 

Paul Suozzi’s Municipal Law Pointers:

As I mentioned in our most recent issue, Paul Suozzi chairs our Municipal Law team, representing towns, villages, school districts and other governmental units in claims throughout New York State.  For the second issue in a row, he is reviewing a high court decision of interest to our readership.  Contact Paul at [email protected] if you have any questions in this regard.

 

COURT OF APPEALS TRICKS HOMEOWNER AND TREATS PLAINTIFF
IN DECISION ON PRIMARY ASSUMPTION OF RISK

In an opinion issued on the eve of all hallows eve, the Court of Appeals decided that the doctrine of primary assumption of risk does not protect landowners from a claim by an experienced rollerblader, who fell when one of her skates allegedly struck a two-inch height differential where the edge of defendants’ driveway met a drainage culvert along the street.  In Custodi v. Town of Amherst (2012 NY Slip Op 07225, October 30, 2012) defendants claimed the plaintiff assumed the risk of injury by voluntarily engaging in recreational rollerblading, thereby negating their duty to plaintiff. 

They also claimed there was no triable issue of fact as to whether the height differential was a proximate cause of the accident.  Supreme Court granted defendant’s motion, but a divided Appellate Division, Fourth Department reversed and granted defendants leave to appeal on a certified question.

Defendants contended that assumption of risk applies because by choosing to rollerblade on their property with awareness that skaters using residential driveways and sidewalks could encounter bumps or height differentials, plaintiff necessarily assumed the inherent risk of falling.  Plaintiff countered that assumption of risk does not apply because she was not engaged in a sporting competition or an athletic or recreative activity at a designated venue so that ordinary premises liability applies.

The Court begins its analysis with a review of CPLR 1411, the comparative negligence rule that replaced contributory negligence and assumption of risk.  It then explains what remains of assumption of risk with citations to several leading cases from the past three decades that have come to define and refine the doctrine.  The Court explains:

Since the adoption of CPLR 1411, we have generally restricted the concept of assumption of the risk to particular athletic and recreative activities in recognition that such pursuits have “enormous social value” even while they may “involve significantly heightened risks” (Trupia, 14 NY3d at 395).  Hence, the continued application of the doctrine “facilitate[s] free and vigorous participation in athletic activities” (Benitez, 73 NY2d at 657), and fosters these socially beneficial activities by shielding coparticipants, activity sponsors or venue owners from “potentially crushing liability” (Bukowski, 19 NY3d at 358).

The Court explains that cases where it has allowed assumption of risk involve sporting events or recreative activities that were sponsored or supported by defendants or occurred in a designated athletic or recreational venue.  It does not wish to extend protection to any landowner, public or private, who has a duty to maintain premises in a reasonably safe condition. 

This decision indicates that the Court will not expand the protection of the assumption of risk doctrine beyond the parameters that it has set forth.  

Paul J. Suozzi
[email protected]

 

A Century Ago – Jim Thorpe Defeats the Army:

The Des Moines News
November 10, 1912
Jim Thorpe -- That's All for the Army

West Point, NY – Nov. 9  -- Jim Thorpe, champion all around athlete of the world, defeated the West Point eleven here this afternoon. In a bitterly contested game that was marked by near rioting rough work, slugging and a general display of bitterness such as has seldom been seen on the gridiron.

Score: Carlisle, 27; West Point, 6.

Jim Thorpe had some help. Arcasa, his partner half back was at his side most of the time and there were nine other Indians behind him, but it was admitted to be a personal victory for Thorpe.

This mighty redskin who brought back for Uncle Sam the highest prize offered in the Olympic games in Sweden, today took the scalps of Uncle Sam's boys in gray.

It was Thorpe, Thorpe, Thorpe all the way through. The big Indian singled out as the object of the fiercely fighting cadets. He was half knocked out several times and once was dragged from a scrimmage totally unconscious.

Editor’s Note:  As reported by Jim Bankes at the Sports Chat Place website, West Point linebacker Dwight David Eisenhower, was on the defense:
Waiting for Thorpe on the plains of West Point stood a tough, street-fighting kid from the wrong side of the tracks in Abilene, Kansas, named Dwight Eisenhower. Later he would become a renowned military man and the 34th President of the United States, but on this day, he had his sights directly on the famous Indian.

At just 5-10 and 180, Eisenhower seemed less than imposing, but gray granite loomed behind the icy-blue eyes and he played full-time as a halfback on offense and a linebacker on defense. Ike soon established himself as the team’s toughest runner and hardest hitter - in fact, the New York Times called him “one of the most promising backs in Eastern football.”

Eisenhower anticipated this meeting with the great Thorpe for months and he intended to punish the Indian to establish his, and his team’s superiority. His chance came on just the third play of the game when Thorpe ran off tackle. Eisenhower met him in the hole and Thorpe ran right through him, knocking him out of the game with a broken nose and an even more heavily-damaged ego. Eisenhower’s promising career ended the very next week when he suffered a severe knee injury against Tufts University.

 

Audrey Seeley – The Queen of No Fault:

Peer reviews, peer reviews, peer reviews, that is what is on my mind this week.  I have provided a few arbitration decisions for review that demonstrate the real scrutiny peer reviews are under.  It is not sufficient enough to indicate that medical records were reviewed, cite to a few journal articles, and conclude that the test or equipment was not medically necessary.  I am not indicating that the peer reviews in the reported decisions were that basic.  The point is that Upstate arbitrators want a thorough discussion of the medical records that are reviewed.  They want a discussion about why positive findings are not a basis to conduct testing or dispense durable medical equipment. 

If there is a pre-existing condition then there should be recognition of it and discussion how it affects the opinion of lack of medical necessity.  There should also be a thorough, well-reasoned conclusion as to why the treatment, based upon all records, deviates from the standard of treatment in that field.  Please keep in mind that we offer training programs on this issue to help identify problems with peer reviews and offer suggestions as to ensuring that a proper peer review is obtained in order to validly review a claim.  If you would like more information on such a training program please send me an email at [email protected].

I hope that you and your family have a great Thanksgiving and I will see you again the day after Thanksgiving.

Audrey Seeley
[email protected]

 

One Hundred Years Ago Today – a President Had Just Been Elected:

Harper’s Weekly had a picture of President-Elect Woodrow Wilson and Vice-President Elect Thomas R. Marshall on its front page.  Four days earlier, Wilson had swept into office, defeating the Republican William Howard Taft, the incumbent and the “Bull Moose” Progressive, Theodore Roosevelt, who had served as President from 1901 to 1909.

 

Labor Law Pointers:

Congratulations to Dave Adams and his Labor Law team for their latest issue of our sister publication, Labor Law Pointers.  This marks the first anniversary of these terrific newsletters, covering appellate cases in the ever-changing world of Section 240(1), Section 241(6) and Section 200 of the New York State Labor Law.  Contact Dave at [email protected] to subscribe or let me know.

 

The Ugly Face of Racism – One Hundred Years Ago Today:
Having just re-elected an African American president and adding five women United States Senators, we sometimes forget how far we have come; it is good to remember our history.  Any boxing enthusiast knows of Jack Johnson, who was the first African American Heavyweight Champion, from 1908 – 1915.  Not everyone remembers that he went to jail, primarily because of his skin color:

New York Times
November 9, 1912, Page 1

JACK JOHNSON GOES TO JAIL.

Court Refuses Cash Bail and He
Cannot Find Bondsmen

CHICAGO, Nov. 8. – Jack Johnson, champion heavyweight pugilist of the world, to-night occupied a cell in the County Jail due to his failure to furnish a $30,000 bond for his release on a charge of violating the Mann act.
           
As he left the Federal Building, handcuffed to Deputy Marshal Edward Northrop, after a futile plea not to have his wrists manacled, Johnson seemed greatly dejected, but said nothing.

In his extended fight for a release on bail Johnson shed tears, offered a cash bond in almost any amount and employed two attorneys, David Bachrach and Edward Morris.  Three prospective bondsmen failed to qualify, and one of them, Albert C. Jones, was sent to jail after he had failed to obtain a bond of $10,000 for his appearance in court next Monday to answer a charge of contempt, which was lodged against him by the court when he attempted to schedule property said to belong to his wife.  Tony May, another prospective bondsman, was ordered out of court, because he gave answers to questions which were considered untruthful.

“Give cash bond in any amount, but for goodness sake keep me out of jail,” Johnson pleaded with his attorneys. 

Both District Attorney Wilkerson and Judge Landis refused to consider a cash bond.

“An unparalleled attempt to swindle this court by offering unqualified bondsmen has been made,” said Judge Landis.  “I will not consider a cash bond.”

Mr. Wilkerson said he understood that Johnson intended to leave this country on Nov. 30, if he obtained his release.  The offense with which Johnson is charged is not subject to extradition.  Several other charges against Johnson are to be investigated by the Grand Jury, it is said. 

On the front page of the November 9, 1912 edition of the Olean, New York Evening Times is a dour looking picture of Mrs. Cameron-Falconet, mother of Lucille Cameron, with the headline:

MOTHER WHO FIGHTS FOR DAUGHTER'S DELIVERANCE FROM NEGRO FIGHTER

Her brave open fight against the horrid association of her pretty young daughter with Jack Johnson, the negro pugilist, has won the admiration of many women who would have hidden from the disgrace of exposure, and has roused the land to active steps against the continuation of the scandal.

 

Prison sentence

On October 18, 1912, Johnson was arrested on the grounds that his relationship with Lucille Cameron for "transporting women across state lines for immoral purposes" due to her being an alleged prostitute but primarily because she was white and he was black. Cameron, soon to become his second wife, refused to cooperate and the case fell apart. A picture of Johnson and Lucille on their wedding day can be seen here.

Less than a month later, Johnson was arrested again on similar charges. This time, the woman, another alleged prostitute named Belle Schreiber, with whom he had been involved in 1909 and 1910, testified against him. In the courtroom of Kenesaw Mountain Landis, the future Commission of Baseball who perpetuated the color barrier until his death, Johnson was convicted by an all-white jury in June 1913, despite the fact that the incidents used to convict him took place prior to passage of the Mann Act. He was sentenced to a year and a day in prison.

After the verdict, the district attorney said that "it was [Johnson's] misfortune to be the foremost example of the evil in permitting the intermarriage of whites and blacks."

Johnson skipped bail and left the country, joining Lucille in Montreal on June 25, before fleeing to France. For the next seven years, they lived in exile in Europe, South America and Mexico. Johnson returned to the U.S. on July 20, 1920. He surrendered to Federal agents at the Mexican border and was sent to Leavenworth to serve his sentence in September 1920. 

There has been a steady drumbeat of proposals to grant Johnson a posthumous presidential pardon, including requests by Senator John McCain and filmmaker Ken Burns, the latter’s open letter appearing in the LA Times in 2004 underscoring the racism inherent in the prosecution:

Unable to beat him in the ring, his enemies sought other ways to bring Johnson low. In 1912, federal authorities in Chicago went after him in court instead, bringing charges against him for violating the Mann Act, a federal law designed to help fight prostitution by making it a crime to transport a woman across state lines for "immoral purposes." But virtually everyone knew — and the prosecuting attorney even admitted — that the real object was to punish Johnson for daring to engage in romantic relationships with white women.

In court, the federal prosecutors argued that Jackson committed a "crime against nature" for engaging in sexual intercourse with a white woman. The fact that he married the woman only a few months after he was arrested made no difference.

 

In this week’s Coverage Pointers, attached:

 

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

• Not Enough Proof to Demonstrate the Validity of a “Lack of Cooperation” Disclaimer of Coverage
• While the Injured Party May Give Notice of an Accident to a Potential Defendant’s Liability Carrier, Here that Just Did Not Happen in a Timely Matter
• A Motion to Withdraw as Counsel May Not Be Made on the Eve of Trial, Where an Insurer Determines Coverage is Not Available.
• In Direct Action, Carrier Liable Only for Policy Limits

 

MARGO’S MUSINGS ON SERIOUS INJURY UNDER NEW YORK NO FAULT
Margo M. Lagueras
[email protected]

• Margo’s on holiday this week.  She’ll catch up for next issue.

 

AUDREY’S ANGLES ON NO-FAULT
Audrey A. Seeley
aas@hurwitzfine.com

ARBITRATION

• Failure to Thoroughly Discuss All Treatment and Complex Findings In Contemplation of Surgical Intervention Inadequate Peer Review To Deny Electrodiagnostic Testing
• Failure To Thoroughly Discuss All Treatment Renders Peer Review Unpersuasive To Deny Electrodiagnostic Testing

 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]

• Insured’s Representation that a Three Family Dwelling was Only a Two Family Dwelling Resulted in the Policy’s Rescission
• Trouble on the Horizon…Statute of Limitations Waived, Consequential Damages Defined
• Contractual Indemnity Claim is Timely Even Where the Indemnitee has Not Paid the Loss

 

CASSIE’S CAPITAL CONNECTION
Cassandra A. Kazukenus
[email protected]

• November 3, 2012 Order Suspending Certain Insurance Law and Banking Law Provisions: An Order from DFS Creating a Moratorium on Renewals and Cancellations
• November 5, 2012 Order Suspending Certain Insurance Law and Banking Law Provisions: An Order from DFS Temporarily Suspending/Modifying the Insurance Law
• Circular Letter 8 (2012) – November 5, 2012: Circular Letter Temporarily Barring Insurers From Barring Insureds From Disposing of Damaged Property Before Inspection Because of Health Concerns
• Governor Cuomo Issues Press Release Stating Hurricane Deductibles Are NOT Applicable

 

FIJAL’S FEDERAL FOCUS
Katherine A. Fijal
[email protected]

• The Term “Robbery” in Crime Insurance Policy was Ambiguous
• Interpreting “Arising Out of” in Policy Exclusion

 

KEEPING THE FAITH WITH JEN’S GEMS
Jennifer A. Ehman
[email protected] 

• New York Court Dismisses Claim for Consequential Damages
• Kansas Law Finds that Excess Carrier May Assert Refusal-to-Settle Claim against Primary Carrier as a Subrogee of Insured

 

MARC’S REMARKS
Marc A. Schulz
[email protected]

• Where Insured Provided First Notice of Claim or Suit to Umbrella Carrier after Verdict Entered, Irrebutable Presumption of Prejudice Applied
• Workers’ Comp. Carrier Not Compelled to Consent, Nunc Pro Tunc, to Settlement of Third-Party Claims without Commencement of Third-Party Action

 

EARL’S PEARLS
Earl K. Cantwell
[email protected]

IT REALLY TAKES A COMPUTER…LIMITATION OF LIABILITY REDUX
.

All for now.  We’re here to help.
Dan
Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202    
Phone: 716.849.8942
Fax:      716.855.0874
E-Mail:  [email protected]
H&F Website:  www.hurwitzfine.com

LinkedIn: www.linkedin.com/in/kohane

You will find back issues of Coverage Pointers on the firm website listed above.

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]

ASSOCIATE EDITOR
Audrey A. Seeley
[email protected]

ASSISTANT EDITOR
Margo M. Lagueras
[email protected]

INSURANCE COVERAGE TEAM
Dan D. Kohane, Team Leader
[email protected]

Michael F. Perley
Katherine A. Fijal
Audrey A. Seeley
Steven E. Peiper
Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman
Marc A. Schulz
Diane F. Bosse

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]

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
 
Scott M. Duquin
Diane F. Bosse

Index to Special Columns

Kohane’s Coverage Corner
Margo’s Musings on “Serious Injury”
Audrey’s Angles on No Fault
Peiper on Property and Potpourri
Cassie’s Capital Connection
Fijal’s Federal Focus
Keeping the Faith with Jen’s Gems
Marc’s Remarks
Earl’s Pearls
Across Borders

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

11/08/12       In re American Transit Ins. Co. v. Hossain
Appellate Division, First Department
Not Enough Proof to Demonstrate the Validity of a “Lack of Cooperation” Disclaimer of Coverage.
This case involved an application to stay an uninsured motorists arbitration.
State Farm had denied a driver insurance coverage based on the insured’s lack of cooperation and the injured party filed a claim for uninsured motorists benefits with American Transit.  American Transit moved to stay arbitration, claiming that State Farm’s denial of coverage based on its insured’s lack of cooperation was faulty. A framed issue hearing was scheduled.

The First Department found that the evidence at the framed-issue hearing was insufficient to establish lack of cooperation. Although State Farm sent letters and investigators to three different addresses for Braithwaite, the record does not establish that Braithwaite received the letters or had actual notice of State Farm's attempts to contact him. Further, State Farm never attempted to contact Braithwaite at various other addresses in its file or at a possible work location.
Editor’s Note:  It is very difficult to establish a lack of cooperation without proof that the insurer went “over and above” in its attempt to secure cooperation.  There is a requirement that the insurer demonstrate “willful and avowed obstruction,” once the insured knows that the insurer is trying to secure cooperation.

11/07/12       GEICO v. Torres
Appellate Division, First Department
While the Injured Party May Give Notice of an Accident to a Potential Defendant’s Liability Carrier, Here that Just Did Not Happen in a Timely Matter
GEICO sought to permanently stay an uninsured motorist arbitration.  It raised an issue of the injured party’s right to give notice of an accident in its respondent’s brief and therefore, the court would not consider it in the appeal.

In any event, there was no evidence in the record that the injured party ever tried to give notice to the other driver’s carrier for eight months.
Editor’s Note:  Always remember under New York statutory law and injured party is empowered to give timely notice of an accident, which timely notice would excuse the insured’s failure, here, there was no evidence that the injured party ever tried.

11/07/12       McDonald v. Shore
Appellate Division, Second Department
A Motion to Withdraw as Counsel May Not Be Made on the Eve of Trial, Where an Insurer Determines Coverage is Not Available.
McDonald brought a claim for dental malpractice. Eastern Dental Insurance Company (“EDIC”), retained the nonparty law firm Morrison Mahoney LLP (“law firm”) to represent its insured, Shore. After discovery, the matter was placed on the trial calendar but the trial was adjourned on several occasions.

On September 20, 2011, about a month before jury selection, EDIC issued a letter disclaiming coverage. The following month the law firm moved for leave to withdraw as counsel of record for Shore, contending, inter alia, that neither EDIC nor Shore had agreed to continue to pay for its services. At the time the appellant initially moved for leave to withdraw as Shore's counsel, jury selection was scheduled to commence on October 19, 2011. The lower court denied the motion, concluding that the appellant's withdrawal on the eve of trial would prejudice the parties and that the validity of EDIC's disclaimer of coverage must be determined in a then-pending separate declaratory judgment action commenced by Shore.

The court held that the decision to grant or deny permission to withdraw lies within the discretion of the trial court. The court cited to the long-standing, general rule that a motion to withdraw as counsel is a poor tool to test an insurer’s disclaimer.  The validity of the disclaimer should be determined in the declaratory judgment action.

Granting the motion to withdraw, the court held, would in effect  validate EDIC's disclaimer without affording Shore the opportunity to be heard the withdrawal on the eve of trial would have caused substantial prejudice to the parties in the conduct of the litigation.
Editor’s Note:  While the court is correct is holding that a motion to withdraw as counsel should not be used to validate a declination of coverage, so too should a law firm not be required to work without compensation.  The carrier’s obligation to defend should continue until the coverage determination is confirmed in the separate DJ action.

11/07/12       Friedman v. Progressive Direct Insurance Company
Appellate Division, Second Department
In Direct Action, Carrier Liable Only for Policy Limits
Friedman obtained a $175,000 judgment against a Progressive insured.  That insured had been operating a car with $25,000 in liability coverage.  The judgment was presented to Progressive and Progressive offered to pay $25,000.  Apparently Friedman wanted more.  When Progressive refused to pay more, Friedman brought this “direct action” under the auspices of Insurance Law § 3420(a)(2).

That statute allows a direct action, once judgment has been obtained against an insured, but only for the “applicable limit of coverage" under the insurance policy at issue.

In his affirmation submitted in support of the plaintiffs' motion for summary judgment in the instant action, Friedman’s attorney noted that the defendant insurance carrier, by letter from a claims representative dated April 2, 2008, indicated that the policy at issue "had policy limits [of] 25,000/50,000," and annexed a copy of that letter to the motion papers. Not surprisingly, the lower court held that Friedman was entitled to recover the policy limits of $25,000 for one person injured in one accident.

While the insurer usually has the burden of providing the amount of policy limits, here the letter submitted was not challenged and therefore was properly considered by the Supreme Court since it was submitted by the plaintiffs and was not contested by the defendant.

Progressive was required to pay interest on the $25,000 which accrued since the entry of the underlying judgment.  Progressive had notice of the underlying action, and an opportunity to defend its insured, the defendant cannot claim that it was absolved from paying interest because it had no opportunity to defend.

 

MARGO’S MUSINGS ON SERIOUS INJURY UNDER NEW YORK NO FAULT
Margo M. Lagueras
[email protected]

Margo’s on holiday this week.  She’ll catch up for next issue.

AUDREY’S ANGLES ON NO-FAULT
Audrey A. Seeley
aas@hurwitzfine.com

ARBITRATION
10/26/12       Academic Buffalonians in Physical Medicine v. GEICO Ins. Co.
Arbitrator Kent L. Benziger, Erie County
Failure To Thoroughly Discuss All Treatment and Complex Findings In Contemplation of Surgical Intervention Inadequate Peer Review To Deny Electrodiagnostic Testing.
The Applicant sought reimbursement for an October 22, 2011, upper extremity EMG/NCV test for injuries allegedly caused by a November 12, 2010 motor vehicle accident.  The Applicant’s assignor was treated by Dr. Conrad of Zenith Medical wherein it was documented that he sustained a left shoulder injury and had a pre-existing right shoulder injury.  The Applicant’s assignor also had a documented history of neuralgia, and unspecified radiculitis, shoulder joint pain, and epilepsy.  Dr. Conrad’s examination revealed tenderness of the left cervical area with associated muscle spasm.  There was also stiffness and tenderness in the shoulder with decreased strength on the left.  The neurological exam was otherwise normal.  Dr. Conrad prescribed an upper extremity EMG/NCV test to determine the next course of treatment.  It is noted that an MRI of the left shoulder conducted subsequent to Dr. Conrad’s examination revealed a moderate grade partial thickness tear.

The EMG/NCV test revealed mild bilateral ulnar neuropathy more on the left with focal demyelinating at the fragment from the mid medial epicondyle to 2.5 cm above.  There was no evidence of carpel tunnel syndrome or cervical radiculopathy. 

Dr. Conrad’s subsequent examination indicated that his treatment plan, after viewing the electrodiagnostic testing results, was to explain the disease process, prescribe mediation and refer the assignor to Dr. Tetro for injections.

The insurer denied the testing upon the neurologic peer review report of Dr. Allan Earl Rubenstein.  Dr. Rubenstein opined that the electrodiagnostic testing would not modify the assignor’s treatment in any medically significant way.  Dr. Rubenstein, relying upon medical articles, further opined that such testing is used for differentiating neuritis, neuropathy or muscle abnormalities from radicular neuropathy.  In other words the testing is used in cases with the etiology of the pain is unclear.  He concluded that the records showed a conservative line of treatment was being afforded the assignor and the test results were not necessary for advancing the diagnosis or treatment. 

The assigned arbitrator did not find Dr. Rubenstein’s peer review report persuasive.  This is because the report did not review and incorporate all of the relevant findings.  Also, there was no discussion of the prior shoulder injury, the radiating cervical and spine pain after this motor vehicle accident, or the MRI’s positive findings. Overall, there was no substantive discussion of the complex findings in the assignor who was considering surgical intervention.

10/26/12       Academic Buffalonians in Physical Medicine v. Travelers Prop. Cas. Ins. Co.
Arbitrator Kent L. Benziger, Erie County
Failure To Thoroughly Discuss All Treatment Renders Peer Review Unpersuasive To Deny Electrodiagnostic Testing.
The Applicant sought reimbursement for a September 24, 2011, upper extremity EMG/NCV test for injuries allegedly caused by a July 9, 2011 motor vehicle accident.  The Applicant’s assignor complained of neck, back and head pain after the accident.  She came under the care of Dr. Conrad of Zenith Medical wherein she was diagnosed with lumbar and neck strain and sprain.  Upon her first examination there was a complaint of neck pain without radiation as well as mild back pain.  At the second examination, the assignor’s neck pain was noted to radiate down the left arm with associated numbness and tingling as well as low back pain.  The assignor was diagnosed with acute cervical and lumbar sprain/strain.  A separate letter of medical necessity for the EMG/NCV test indicated a diagnosis of cervical and lumbar radiculopathy. 

The EMG/NCV test revealed mild right carpel tunnel syndrome with no obvious evidence of radiculopathy or polyneuropathy.  The purpose of the test was to rule out peripheral neuropathy versus radiculopathy.

The insurer denied the test upon the peer review conducted by Dr. Harvey Seigel.  Dr. Seigel found no abnormal reflexes, sensory deficits or decreased motor strength in the upper extremity.  He further opined that while radiculopathy may be suspected there was no indication for immediate surgery or other invasive treatment that would depend upon the results of an EMG/NCV test.  Relying upon medical literature, Dr. Seigel further opined that the neurological examination was not thorough and there was insufficient evidence to justify the test Order, Supreme Court, Bronx County (Norma Ruiz, J.), entered April 20, 2012, which denied petitioner GEICO's petition to permanently stay the uninsured motorist arbitration commenced by respondents, its insured, unanimously affirmed, without costs.

 

PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
[email protected]

11/07/12       Hermitage Insurance Company v LaFleur
Appellate Division, Second Department
Insured’s Representation that a Three Family Dwelling was Only a Two Family Dwelling Resulted in the Policy’s Rescission
Plaintiff commenced the above declaratory judgment action as a result of its decision to rescind the policy due to the insured’s material misrepresentation.  Essentially, in its application for insurance, the insured indicated that the dwelling in question was a two family dwelling.  However, at a personal injury action was commenced against LaFleur, Hermitage learned that the insured premises were actually a three family unit. 

In opposition to Hermitage’s rescission, LaFleur presented evidence of a Certificate of Occupancy from the 1960’s which identified the property as a two family dwelling.  In addition, LaFleur noted that the NYC tax assessment roll lists the premises as a two family dwelling.  In response, the Court noted that this information was irrelevant because the premises in question was clearly a three family dwelling, and LaFleur was well aware of that at the time the policy was incepted. 

We note that Hermitage’s motion was successful because it was also able to establish, through competent evidence, that it would not have written the policy had LaFleur not represented the capacity of the dwelling. 

Peiper’s Point – Another win for Max.  Nice work.

11/01/12       Gauthier v Countryway Insurance Company
Appellate Division, Third Department
Trouble on the Horizon…Statute of Limitations Waived, Consequential Damages Defined
Plaintiffs commenced the instant action after they were unable to reach a resolution of a fire claim with Countryway.  In addition to alleging breach of contract, plaintiffs also alleged that they were entitled to consequential damages due to Countryway’s failure to adjust the claim in good faith.

Countryway opposed plaintiffs’ allegations, and eventually moved for summary judgment on several grounds.  The first sought dismissal of plaintiffs’ complaint due to the alleged expiration of statute of limitations.  That portion of Countryway’s motion was dismissed where it was established that it failed to assert statute of limitations as an affirmative defense in its answer, amended answer or pre-answer motion.  Accordingly, the Court noted that Countryway waived any such defense.

Countryway also moved to dismiss plaintiffs’ Complaint on the basis that plaintiffs failed to respond to discovery demands.  The trial court refused to strike plaintiff’s Complaingt, and the Third Department reiterated the truism that trial courts are permitted broad discretion in supervising discovery exchange.  Absent an abuse of that discretion, the Court ruled that Countryway’s motion was properly denied.

Further, Countryway argued that per the terms of the policy plaintiff was not entitled to replacement cost.  Essentially, Countryway argued that because plaintiffs’ apparently replaced the fire damaged/destroyed home with a mobile home, any argument for replacement cost was waived.  In support of its position, Countryway pointed to a section in the policy which provided that replacement cost was only available for a building covered under Coverage A…that has a permanent foundation or roof.” 

In denying this portion of Countryway’s motion, the Third Department noted that the provision relied upon by the carrier only referenced premises that were already covered by the policy.  It did not, as urged by Country, apply in any way to the purchase of any building or dwelling after the covered loss.  Accordingly, because the premises insured under Coverage did, in fact, have a permanent foundation and roof, it was reasoned that the replacement cost provision of the policy applied. 

Finally, Countryway’s motion to dismiss the consequential damages claims was also dismissed.  Due the existence of dueling expert affidavits, the Court maintained that a question of fact existed as to whether Countryway had breached the duty of good faith and fair dealing. 

Notably, however, the Court expressly stated that “increased damage, necessary code upgrades, their purchase of a double wide mobile home so they could have a place to live and counsel fees” all fell within the types of damages that the carrier could have foreseen at the time the policy was executed.  Where damages from a breach of contract are foreseeable, the Court noted that they qualified as “consequential damages.”  As such, if a breach of duty of good faith and fair dealing is established, it appears that Third Department would waste little time in awarding extra-contractual damages.

Peiper’s Point – When life gives you lemons…Did the Third Department establish the need for bad faith when seeking consequential damages?  Although the Court appears to acknowledge that the aforementioned losses can, and do, qualify as consequential damages, the decision clearly states that plaintiff must establish a breach of the duty of good faith and fair dealing (i.e., Bad Faith) before it establishes its entitlement to damages.    Under a traditional consequential damages analysis, one only needs to establish a breach of contract and that the consequential damages were foreseeable at the time of the breach. 

10/24/12       Jian-Guo Yu v Greenway Mews Realty, LLC
Appellate Division, First Department
Contractual Indemnity Claim is Timely Even Where the Indemnitee has Not Paid the Loss
Plaintiff appears to have been employed by UAD Group, and was injured in the course of his job duties.  Little Rest, who was named as a main-party defendant in plaintiff’s suit, commenced a third-party against UAD Groups seeking contractual indemnity.  UAD opposed Little Rest’s indemnity claims on the basis that plaintiff, its own employee, was arguably negligent, and as such Little Rest was not entitled to contractual indemnification. 

In affirming the trial court’s decision to grant Little Rest’s motion, the Appellate Division aptly noted that negligence of the plaintiff was irrelevant here, where, the contract in question plainly provided that UAD would indemnify Little Rest for damages caused by the negligence of Little Rest’s employees. 

UAD also argued that the indemnity claim was premature because Little Rest never actually paid the loss.  Wrong, said the Court.  In the interest of judicial economy, courts are instructed to “afford the indemnitee the earliest possible determination as to the extent to which it may expect to be reimbursed.” 

CASSIE’S CAPITAL CONNECTION
Cassandra A. Kazukenus
[email protected]

November 3, 2012 Order Suspending Certain Insurance Law and Banking Law Provisions
An Order from DFS Creating a Moratorium on Renewals and Cancellations
This Order creates a moratorium for 30 days or until further ordered in New York, Bronx, Brooklyn, Richmond, Queens, Nassau, Suffolk, Westchester, Rockland and Orange counties prohibiting the termination, cancelation or non-renewal of any “covered policy” as defined by Insurance Law §3425(a).  Insurance Law §3425(a) includes as “covered policies” personal automobile policies, homeowners policies covering not more than four dwelling units, personal property insurance policies not including business personal property, personal umbrella liability policies and any other insurance covering liabilities for loss of, damage to, or injury to persons or property not arising from the conduct of a business.

The Order also states that any automatic renewal provision contained within the above referenced policies will not be effective during the Moratorium.  However, an owner of any of the policies may voluntarily terminate the policy during the Moratorium. 

November 5, 2012 Order Suspending Certain Insurance Law and Banking Law Provisions
An Order from DFS Temporarily Suspending/Modifying the Insurance Law
This Order stems from the extensive power outages, loss of life and property as well as the ongoing public harm to public health and safety arising out of Sandy.  The Order explains that under Insurance law §3425(p), the Superintendent of DFS is able to modify or suspend certain provisions of the Insurance Law for a limited period for any area of the State declared by the Governor to be in a state of emergency due to disaster or catastrophe.  (Governor Cuomo issued Executive Order 47 on 10/26/12 declaring all 62 counties in NY a state of disaster.

The Order further states that in the wake of Storm Sandy, certain variations and modifications to the Insurance Law are necessary to protect storm affected customers and “to safeguard the efficient operations of the insurance…industries regulated by NY.” 
The Order then goes on to restate the parameters of the Moratorium set forth in the previous Order and also specifically states that the Moratorium will NOT apply when the headquarters or principal base of operations of the policyholder is NOT located in one of the counties listed above. 

This Order was basically a prelude to Circular Letter 8 (2012).

Circular Letter 8 (2012) – November 5, 2012
Circular Letter Temporarily Barring Insurers From Barring Insureds From Disposing of Damaged Property Before Inspection Because of Health Concerns
DFS issued Circular Letter 8 excluding insurers from enforcing policy provision that bar disposal of damaged property before the insurer has inspected it because the storm has created debris and other hazards that “pose an ongoing threat to public health and safety and that need to be discarded as promptly as possible in order to preserve health and safety.”

The Circular Letter requires insurers to accept homeowners’ documentation of losses rather than requiring an inspection where “an immediate cleanup is reasonably necessary to protect health and safety, or protect further damage to property.”  If dwelling debris must be removed before an adjuster is able to examine it, the insurer must accept as proof of loss documentation “such as photographs, videos, material samples and inventories prepared by policyholders as alternatives to formal inspection.”

DFS notes that this only applies to homeowners’ claims and FEMA is expected to issue guidance on this as well. 

Failure to comply with the above will result in an insurer being subject to liability for engaging in an unfair claim settlement practice.

 

Governor Cuomo Issues Press Release Stating Hurricane Deductibles Are NOT Applicable

In a press release issued by Governor Cuomo on November 1, 2012, the Governor informed homeowners and insurers alike that homeowners will not have to pay a hurricane deductible which is typically a deductible that is a percentage of the value of the home.  Benjamin M. Lawsky, Superintendent of Financial Services, said, “We have informed the insurance industry that hurricane deductibles are not triggered because Sandy did not have sustained hurricane-force winds when it made land in New York. We will be working with insurers to help them respond as quickly as possible to homeowners who need to file claims. And we will be sending our mobile command center to hard hit areas to help consumers with insurance questions and problems.”

 

FIJAL’S FEDERAL FOCUS
Katherine A. Fijal
[email protected]

11/07/12       VAM Check Cashing Corp. v. Federal Insurance Co.
Second Circuit Court of Appeals – New York
The Term “Robbery” in Crime Insurance Policy was Ambiguous
VAM Check Cashing Corp. [“VAM”] operates a number of check cashing stores in the New York City area, including Pine Check Cashing [“Pine”] in Brooklyn, New York. 

VAM purchased a crime insurance policy [“Policy”] from Federal Insurance Company [“Federal”].  While the Policy was in effect, a group of criminals successfully tricked a Pine employee, into turning over $120,000 in cash.  The scheme began when an individual telephoned the VAM employee identifying herself as the wife of VAM’s owner advising that her husband was opening three new check cashing stores, including one in Manhattan on that day.  While on that call the employee received another call from a woman claiming to be the manager of the new store and needed cash because a government official arrived to collect a tax bill and because they just opened she did not have enough cash on hand.  The employee gave this information to the woman claiming to be the owner’s wife and was advised that a man would come to Pine to collect $100,000 (later changed to $120,000), and she would be able to identify him by the use of a code number.  When the man came to the store he gave the employee the code number and she handed him a box with $120,000 and he left.

After the loss, VAM made a claim under the Policy, asserting that the crime was covered under the Policy’s definition of “robbery”.  Federal denied coverage.

The Policy states in relevant part that [Federal] shall be liable for direct losses . . . Within the Premises for money and other property received from sources other than the sale of Food Stamps but only when such loss is caused by: . . . (2) Robbery or attempt thereat.”  “Robbery” is defined in the policy as “the unlawful taking of insured property from an insured, a partner, an employee or any other person authorized by the insured to have custody of the property by violence, threat of violence or other overt felonious act committed in the presence and cognizance of such person, except any person acting as a watchman, porter or janitor.” 

For purposes of its analysis the Court simplified the definition to:  “[R]obbery means the unlawful taking from  . . . an employee . . . by  . . . overt felonious act committed in the presence and cognizance of such person . . .” 

The only dispute was about the final phrase in the shortened definition:  whether the unlawful taking was an “[1] overt felonious act [2] committed in the presence and cognizance of” the Pine employee.   After analyzing the arguments of the parties the court determined that either the reading of the Policy by VAM or the reading by Federal was definitive.  The Court held that the meaning of the phrase “overt felonious act” was ambiguous standing alone and went on to examine whether it could be clarified by the second contested phrase, “committed in the presence and cognizance of such person”, or by the remaining textual context.

The Court found that discussion of phrase [2] added little to its analysis of phrase [1].  Federal argued that phrase [1] means the act’s criminal character must be possible to observe, and that phrase [2] means the act’s criminal character must be actually noticed.  VAM argued that phrase [1] means the act must be observable, and that phrase [2] means the act must be in fact observed.  The Court determined that under either party’s interpretation [1] and [2] differ in the same manner: [1] is about what is observable (possible), and [2] is about what is observed (actual) – and, neither reading of [2] clarified the Court’s understanding of [1] or was independently preferable to the other.

The Court held that because the plain text of the Policy did not resolve the case, VAM must prevail because it provided a reasonable reading of the policy thereby, permitting recovery. 

11/02/12       The Saint Consulting Group, Inc. v. Endurance Am. Spec. Ins. Co. 
First Circuit Court of Appeals – Massachusetts Law Applied
Interpreting “Arising Out of” in Policy Exclusion
The Saint Consulting Group [“Saint”] is a consulting company that advises and advocates for its clients in land use disputes.  Saint had a niche practices acting on behalf of rival grocery store chains to block or delay Wal-Mart stores from opening in a rival’s territory.

This declaratory judgment action arises out of Endurance American Specialty Insurance Company’s [“Endurance”] denial of coverage refusing to defend Saint in an action initiated in Mundelein, Illinois – The Rubloff Action.  The Rubloff action centers on Saint’s alleged efforts to block two Wal-Mart stores in the Chicago area on behalf of its client SuperValue, Inc. [“SuperValue”].

To carry out the mission of halting the development of a Wal-Mart store in Mundelein, Illinois and New Lenox, Illinois, Saint’s representative organized local landowners to oppose the two developments and using a false pseudonym he told a false story of his parents supposedly being evicted from their home to make room for a Wal-Mart store and retained a lawyer to represent them, never explaining that the Saint representative and lawyer were being paid by Saint, and ultimately by SuperValue. 

After the Saint representative left his employment with Saint he contacted Rubloff and, in exchange for payment, turned over thousands of Saint documents detailing Saint’s scheme to block the developments.

In June 2010, Rubloff sued Saint and SuperValue in federal district court in Illinois.  The initial complaint, amended a day later, focused on the documents the Saint representative turned over to Rubloff, which Saint demanded back.

Rubloff then sought a declaratory judgment that the documents were not privileged and that it need not return them and made a claim for negligent spoliation of evidence against Saint and SuperValue, and sought injunctive relief to foreclose further destruction of documents.

In September 2010, the district court judge dismissed most of the claims but retained the declaratory relief against Saint alone.  Next, the Rubloff plaintiffs moved for leave to file a proposed Second Amended Complaint and before acting on it the judge resolved the retained declaratory relief claim, holding that most of Saint’s documents were not privileged.

The judge then allowed the Second Amended Complaint which joined McVickers Development [“McVickers”] as a co-plaintiff, greatly expanding the suit.  In the new complaint Rubloff and McVickers charged Saint and SuperValue with causes of action based on RICO violations, conspiracy and restraint of trade under the Sherman Act; and, tortious interference with prospective economic advantage.  In addition, Rubloff made a separate claim alleging abuse of process and reiterated their document related claims for declaratory relief. 

Finally, Saint itself filed counterclaims in the Rubloff action against Rubloff and these claims were directed to the documents that its representative turned over to Rubloff, and included inducement of breach of fiduciary duty, conversion, replevin, tortious interference with contractual relations, and misappropriation pursuant to the Illinois Trade Secrets Act.

The district court dismissed in full all of the Rubloff plaintiffs’ claims and Rubloff then filed a Third Amended Complaint aiming to cure deficiencies identified by the court.

Because Endurance denied coverage, Saint filed suit against Endurance in state court.  Endurance then sought removal to the United States District Court for the District of Massachusetts.  The policy was a “Premier Professional Liability Insurance Policy” [“E & O” policy].

The policy in question required Endurance to defend Saint, and provide indemnification of liability found, as to any claim for any “wrongful act” committed within the policy period.  “Wrongful Act” was defined as “an actual or alleged act, error or omission committed or attempted solely in the performance of or failure to perform Professional Services by an Insured.”  Saint’s “Professional Services” were listed as “[a]dvocacy consulting services including:  analysis, strategic planning, research, recommendations, recruiting, organizing, support management and media communication.”

The district court granted Endurance’s motion for summary judgment holding that the antitrust claims in the Rubloff Action were expressly excluded by Exclusion N and that the policy coverage was precluded as to the other claims because they arose out of Saint’s alleged restraint of trade.  An appeal ensued.

In affirming the district court’s decision the Court looked at Exclusion N which explicitly stated that the policy “shall not apply  . . . to any claim based upon or arising out of any  . . . actual or alleged violations of the Sherman Anti-Trust Act  . . . or any similar provision of any state . . . law . . . “. 

The Court noted that it was clear that the counts based on the Sherman Act and the counterpart Illinois statute cannot trigger coverage; however, the more interesting question for the Court was whether Exclusion N also reaches counts of the Second Amended complaint that rely upon the same facts but charge violations of statutes or common law theories that are not limited to and do not expressly identify their target as restraints of trade.

The Court pointed out that Exclusion N, in addition to including counts denominated as violations of the Sherman Act and like statutes, extends by its terms to any claim “based upon or arising out of any actual or alleged . . . restraint of trade.”  Further noting, that Massachusetts case law construes “arising out of” as looking at the character of the behavior alleged in the count and, if it fits the terms of the exclusion governs even though the statute or tort is denominated in different or broader terms.

In analyzing the Second Amended Complaint in the Rubloff Action the Court found there could be no dispute that the factual allegation of the complaint alleges a conspiracy to forestall competition through misuse of legal proceedings and through deception. Stating also that every count in the Rubloff Action that is not itself described as an antitrust claim depends centrally on the alleged existence of such a scheme. It was the opinion of the Court that Exclusion N depends not on whether conduct occurred or, if so, whether it was unlawful, but on what the complaint alleged.  The Court held that what was alleged in no uncertain terms was an anti-competitive scheme and, where the pertinent counts arise out of that alleged scheme, Exclusion N negates coverage. 

 

KEEPING THE FAITH WITH JEN’S GEMS
Jennifer A. Ehman
[email protected] 

11/07/12       Stein, LLC v Lawyers Tit. Ins. Corp.
New York Appellate Division, Fourth Department
New York Court Dismisses Claim for Consequential Damages
Plaintiff commenced this action to recover damages for breach of an insurance contract against the defendant, a title insurance company.   The plaintiff sought, inter alia, an award of an attorney's fee.  Defendant moved to dismiss the complaint.  The trial court granted the motion, and plaintiff appeals from so much of the order as granted that branch which was to dismiss the claim for attorney's fees.

In reliance on Bi-Economy, plaintiff argued that it was entitled to seek consequential damages, including the recoupment of an attorney's fee, in an action it commences against its insurer.

It appears that the portion of the argument plaintiff missed was that consequential damages result from a breach of the covenant of good faith and fair dealing.   Here, apparently, there was no such allegation.  In turn, the court held “nothing in Bi-Economy or Panasia alters the common-law rule that, absent a contractual or policy provision permitting the recovery of an attorney's fee, an insured may not recover the expenses incurred in bringing an affirmative action against an insurer to settle its rights under the policy.”

Take Away:  Based on my reading of this decision, it appears that the Court is reminding insureds that in order to argue any entitlement to consequential damages, which may include attorneys’ fees, they must first establish a breach of the agreement, that the damages flowing from the breach should have been foreseen by the carrier, and that the breach giving rise to the damages qualifies as a breach of the covenant of good faith and fair dealing.  Without all three, there is no claim.

11/07/12       West American Ins. Co. v. RLI Ins. Co.
United States Court of Appeals, Eighth Circuit
Kansas Law Finds that Excess Carrier May Assert Refusal-to-Settle Claim against Primary Carrier as a Subrogee of Insured
This is a situation in which Stanley Miller, a Kansas resident, was involved in a motor vehicle accident in Missouri.  At the time of the loss, Miller was insured under an automobile policy issued by plaintiff, West American Ins. Co.  The auto policy had limits of $250,000 per person/$500,000 per occurrence. 

Eventually, a claim was brought by two individuals as a result of the accident.  During litigation, the injured parties made multiple offers to settle for $117,000 in October 2001, and later for $250,000 per-person in January 2003, April 2004 and August 2004.  West rejected each settlement.  After all of these settlements were rejected Miller disclosed the existence of a $1 million excess policy issued by RLI.

Ultimately, this case went to binding high/low arbitration were an arbitrator awarded damages totaling $1.35 million. 

The interesting issue in this decision related to a counterclaim made by RLI against West alleging bad faith refusal to settle.  Under Kansas law, which the Court determined governed, there is no independent duty of care owed by a primary insurer to an excess insurer.  Accordingly, RLI’s counterclaim turned on whether it may assert a refusal-to-settle claim as a subrogee of Miller. 

In opposition, West argued that RLI had no claim because the high/low agreement fully protected Miller, its insured.  In other words, RLI could only be subrogated to the rights of the insured, Miller.  As Miller suffered no loss, there was no claim to subrogate. 

The Court held that the core of this argument was inconsistent with prior case law.  The fact that the high/low agreement left Miller with no risk of personal liability was irrelevant as Kansas courts have held that “an action against an insurer whose negligent or bad faith refusal to settle within its policy limits results in an excess judgment against the insured lies, whether or not the insured has paid or can pay an excess judgment.”  In the Court’s opinion, Miller, not West, protected himself against most of the risk by purchasing excess coverage.  Thus, the fact that Miller was not personally at risk because he protected himself with excess insurance would not bar RLI as subrogee from asserting this claim. 

Lastly, in an interesting discussion by the Court, it notes that the conflict-of-interest concerns underlying the duty of primary insurers to exercise good faith and due care in evaluating settlement offers are not diminished when the insured is also protected by excess insurance.  When the primary insurer is faced with a settlement offer at or near its policy limits, it has the same incentive to gamble with someone else’s money, either the insured’s or the excess insurer’s. 

Take Away:  In New York, this sentiment was articulated by the Court of Appeals as early as 1984, in Hartford Accident & Indemnity Co. v. Michigan Mutual Insurance Co.  There the Court found that a primary insurer acts as a fiduciary, and is obligated to extend the “utmost good faith” toward the excess insurer.  By violating this duty and placing its own interest above that of the excess insurer, the primary insurer exposed the excess insurer to liability beyond its policy limits.

 

MARC’S REMARKS
Marc A. Schulz
[email protected]
11/02/12       Sportsfield Specialties, Inc. v. Twin City Fire Ins. Co. and Castlepoint Ins. Co.
Supreme Court, Delaware County
Where Insured Provided First Notice of Claim or Suit to Umbrella Carrier after Verdict Entered, Irrebutable Presumption of Prejudice Applied
In a decision that we have personal knowledge about, since we represented the umbrella carrier, ABT, Inc. (“ABT”) filed an action in North Carolina against Sportsfield Specialties (“Sportsfield”).  The complaint alleged that a former employee of ABT copied confidential information and provided it to Sportsfield.  The causes of action against Sportsfield included tortious interference with contract and business relations, unfair and deceptive trade practices, misappropriation of trade secrets.  Ultimately, a jury found Sportsfield liable and awarded damages in ABT’s favor.

Sportsfield brought this action against its primary and umbrella carriers seeking coverage for the award, and immediately moved for summary judgment on the defense obligation.  Twin City, the primary carrier, denied coverage for the claim asserting that the loss did not qualify as “bodily injury,” “property damage” or “personal and advertising injury.”  Likewise, it pointed to exclusions in its policy for injury arising out of an offense committed by the insured with the expectation of inflicting injury, breach of contract and any violation of intellectual property rights. 

Sportsfield countered by arguing that it qualified as “[o]ral, written or electronic publication of material that violates a person’s right of privacy,” a recognized category under the definition of “personal injury.”  The court dismissed this claim for two reasons.  First, it noted that the provision was limited to a “person.”  ABT was not a person as the policy distinguished between a person and an organization in five instances.  Second, the underlying claim did not involve a “right of privacy.”  The court found that it could not find sufficient case law to support Sportsfield’s claim that the allegations of misappropriation of trade secrete were analogous to a violation of a right of privacy.  Lastly, with respect to the primary policy, it found that no claim would exist against Sportsfield, but for the alleged intentional conduct.  Thus, this exclusion was also triggered. 

The Court then considered whether coverage was triggered under the umbrella policy.  The umbrella carrier likewise denied coverage based on the fact that the claim did not qualify as “personal and advertising injury.”  It also asserted a late notice defense.  For the same reasons as discussed above, the court held that coverage under the umbrella policy was not triggered. 

It also found that the insured had breached the policy’s notice provision.  Specifically, Sportsfield’s first notice to the umbrella carrier occurred after the jury award in the underlying case.  Under New York law, with regard to notice to an umbrella carrier, the focus is on when the insured could reasonably have known that the claim might exhaust the primary coverage and triggered the excess coverage.  In this case, the court adopted the umbrella carrier’s argument that when the primary carrier denied coverage, Sportsfield had no other possibility of insurance coverage except its policy.  Yet, even facing this situation it failed to provide the notice until after a verdict was entered.  

Although this policy was issued after the “prejudice rule” was enacted, Insurance Law 3420(c)(2)(b) provides that “an irrebutable presumption of prejudice shall apply, if prior to notice, the insured’s liability has been determined by a court of competent jurisdiction or by binding arbitration.”  As the verdict has been rendered prior to notice in this case, the court agreed that the presumption of prejudice applied. Thus, the court agreed that Sportsfield had violated a condition precedent to coverage by failing to provide timely notice of claim or suit.   

In light of these findings, the court denied Sportsfield’s motion and granted the carriers’ cross-motions. 

10/26/12       Matter of Gherghi v Hereford Ins. Co.
Supreme Court, Queens County
Workers’ Comp. Carrier Not Compelled to Consent, Nunc Pro Tunc, to Settlement of Third-Party Claims Without Commencement of Third-Party Action
Plaintiff allegedly sustained injuries during the course of his employment as a result of a motor vehicle accident.  Plaintiff filed a claim for workers’ compensation benefits.  Plaintiff received benefits from Hereford, the carrier for Plaintiff’s employer, for medical expenses in the amount of $8,000.45.  Plaintiff reached a settlement with the alleged tortfeasors’ insurer, Continental Casualty Co., in the amount of $17,500.

Hereford did not learn of the settlement until a workers’ comp. hearing.  At no time during that hearing or at any time thereafter did Hereford consent to the settlement.  Pursuant to a decision of the Workers’ Comp. Board, Plaintiff’s case was closed pending submission of a consent letter. 

Plaintiff obtained an order to show cause seeking to compel Hereford to grant him permission nunc pro tunc to settle his claim against the alleged tortfeasors, as a means of preserving his entitlement to any future Workers’ Comp. benefits.  Hereford refused to consent.  In support of his application, Plaintiff submitted an attorney affirmation, various exhibits and his own affidavit.

The court held that no petition has been submitted pursuant to CPLR 304.  Moreover, Plaintiff papers failed to provide the court with any authority to compel a carrier to consent, nunc pro tunc, to a settlement of a third-party claim.  Assuming arguendo that mandamus is an available remedy to Plaintiff, it is well-settled that mandamus is not available to compel an act in respect to which a judgment or discretion may be exercised. 

Therefore, the court held Plaintiff failed to demonstrate that the granting of consent by Hereford is mandatory and nondiscretionary.  Additionally, the court is without authority to grant Plaintiff’s application pursuant to Workers’ Comp. § 29(5) because Plaintiff failed to demonstrate that a third-party action has been commenced.  Consequently, the court denied Plaintiff’s application.   

 

EARL’S PEARLS
Earl K. Cantwell
[email protected]

IT REALLY TAKES A COMPUTER…LIMITATION OF LIABILITY REDUX

The scope of limitation of liability clauses got quite a cleaning and exam in the recent case of Blaisdell v Dentrix Dental Systems, 2012 Utah Lexis 71 (June 26, 2012).  The plaintiff was a dentist who purchased dental practice management software from Dentrix.  The Purchase Contract stated that Dentrix would not be liable for indirect, incidental, consequential, special, or exemplary damages arising out of or connection with the use, or inability to use, the software, breach of any express or implied warranty, or otherwise connected with the software.  The clause further claimed that Dentrix’ liability for damages in connection with the software could not exceed the license fees paid by the dentist, Blaisdell.

As unluck would have it, one of the dentist’s employees installed a software upgrade while on the phone with Dentrix tech support.  After a first unsuccessful attempt to install the upgrade, the installation erased the dental office’s electronic patient files, appointment book, treatment plans, and insurance information.  As unluck would further have it, the dentist’s backup system was not working correctly and virtually all the data was lost and had to be re-created.

The dentist sued Dentrix under numerous theories of liability, and Dentrix moved for summary judgment largely on the basis of the limitation of liability language.  The trial court granted the motion for summary judgment, Blaisdell appealed, but the limitation of liability language and the trial court ruling was upheld on appeal.

The dentist first cited a Utah anti-indemnity statute, but the court ruled that the disputed contractual language was not an indemnification provision, but rather one where the parties agreed to assign the risk of loss between themselves, and limit the damages recoverable.

The appellate court also concluded that the limitation of liability clause was not unconscionable, and barred a strict products liability claim. 

The next argument was that the limitation of liability clause could not shield Dentrix from its own “gross negligence”.  However, the tech support employee had apparently received confirmation from Blaisdell’s employee that the office had current backup for the data, so the court held that it could not be asserted that Dentrix showed “utter indifference” to the possibility that installing the upgrade might erase the data.

This case is another example of a rather severe limitation of liability clause being enforced by the courts in a commercial setting.  These clauses are often distinguished from and held not subject to state anti-indemnity statutes.  Particularly in a commercial context, it is more difficult to argue that they are void or unconscionable as a matter of public policy.  It is also a lesson of the fact that, in the modern world, if our lives are on the computer, it had better be backed up.   

 

ACROSS BORDERS
Courtesy of the FDCC Website
www.thefederation.org

11/01/02       Munich v. Stagit Emergency Communications Center
Washington State Supreme Court
The Special Relationship Exception to the Public Duty Doctrine Requires an Express Assurance by the Defendant but Includes No Falsity Requirement. Munich was at his property in rural Skagit County when a property dispute arose with a neighbor. The neighbor shot at but missed Munich. After the shot, Munich called 911 and hid in his garage. The operator mis-categorized the call and consequently the responding officer did not activate his lights and responded at a slower rate. In the meantime, Munich was again confronted and ran down the highway while being shot at. As Munich ran he made a second 911 call that prompted the code to be upgraded and the officer to activate his lights.

Munich was shot and killed 2 minutes before the officer arrived at his location.

The plaintiff in this case alleges a 911 operator negligently responded to an emergency call by coding and prioritizing it incorrectly and thereby causing a delayed response. While the operator did inform the caller that there was help coming, the operator did not give them an estimate of response time or reference the call’s priority. The court found that where an express assurance involves a promise of future action, a plaintiff does not need to show the assurance was false or inaccurate to establish a special relationship. The dissent asserts that detriment arises when one relies on faulty information and therefore makes choices that are different from those the person would have made with accurate information. Because the operator made no assurance of time, there was no express assurance and no false information, both necessary for the exception to apply.

 

REPORTED DECISIONS

Friedman v. Progressive Direct Insurance Company

Adams, Hanson, Finder, Hughes, Kaplan & Fishbein, Yonkers,
N.Y. (Michael A. Zarkower of counsel), for appellant-respondent.
Lester B. Herzog, Brooklyn, N.Y., for respondents-appellants.

 

DECISION & ORDER
In an action pursuant to Insurance Law § 3420(a)(2) to recover the amount of an unsatisfied judgment in favor of the plaintiff Judith H. Friedman and against the defendant's insured, the defendant appeals, as limited by its brief, from so much of a judgment of the Supreme Court, Kings County (Bayne, J.), entered December 7, 2010, as awarded the plaintiff Judith H. Friedman interest on the principal sum of the unsatisfied judgment from October 1, 2009, and the plaintiffs cross-appeal from so much of the same judgment as, upon an order of the same court dated September 16, 2010, granting their motion for summary judgment only to the extent of awarding the plaintiff Judith H. Friedman the principal sum of $25,000, is in favor of the plaintiff Judith H. Friedman and against the defendant in the principal sum of only $25,000.

ORDERED that the judgment is affirmed insofar as appealed and cross-appealed from, without costs or disbursements.

The plaintiffs commenced this action pursuant to Insurance Law § 3420(a)(2) to recover the amount of an unsatisfied judgment in favor of the plaintiff Judith H. Friedman in the principal sum of $175,000, entered October 1, 2009, in an underlying action brought by the plaintiffs against the defendant's insured. Insurance Law § 3420(a)(2) provides that recovery in such actions should not exceed "the applicable limit of coverage" under the insurance policy at issue.

In his affirmation submitted in support of the plaintiffs' motion for summary judgment in the instant action, the plaintiffs' attorney noted that the defendant insurance carrier, by letter from a claims representative dated April 2, 2008, indicated that the policy at issue "had policy limits [of] 25,000/50,000," and annexed a copy of that letter to the motion papers. The Supreme Court determined that the plaintiff Judith H. Friedman was entitled to recover the policy limits of $25,000 for one person injured in one accident. In the judgment appealed from, the Supreme Court awarded the plaintiff Judith H. Friedman the principal sum of $25,000, plus interest from October 1, 2009, the date that the underlying judgment for the principal sum of $175,000 was entered. [*2]

While, in an action pursuant to Insurance Law § 3420(a)(2), the insurance carrier generally bears the ultimate burden of establishing the policy limits (see Kleynshvag v GAN Ins. Co., 21 AD3d 999, 1004; cf. Creinis v Hanover Ins. Co., 59 AD3d 371), here, the plaintiffs, as the proponents of a motion for summary judgment, failed to meet their initial burden of establishing that they were entitled to the full amount of the unsatisfied judgment. They submitted only the letter from the defendant's claims representative, stating that the limits of the subject policy were "25,000/50,000." That letter was properly considered by the Supreme Court since it was submitted by the plaintiffs and was not contested by the defendant (see Pech v Yael Tax Corp., 303 AD2d 733). Under these circumstances, the Supreme Court properly granted the plaintiffs' motion for summary judgment only to the extent of awarding the plaintiff Judith H. Friedman the principal sum of $25,000.

Contrary to the defendant's contention, it was required to pay interest on the $25,000 which accrued since the entry of the underlying judgment (see Dingle v Prudential Prop. & Cas. Ins. Co., 85 NY2d 657, 660; Shnarch v Empire Mut. Ins. Co., 144 AD2d 795, 796; 11 NYCRR 60-1.1[b]). Further, since the evidence indicated that the defendant had notice of the underlying action, and an opportunity to defend its insured, the defendant cannot claim that it was absolved from paying interest because it had no opportunity to defend (cf. Alejandro v Liberty Mut. Ins. Co., 84 AD3d 1132, 1133).

The parties' remaining contentions either are without merit or need not be addressed in light of our determination.

McDonald v. Shore

Morrison Mahoney LLP, New York, N.Y. (Shanna R. Torgerson
and Brian P. Heermance of counsel), nonparty-appellant pro se.
Albert W. Chianese, Rockville Centre, N.Y. (Thomas P. Reilly
of counsel), for plaintiff-respondent.
Ahmuty, Demers & McManus, Albertson, N.Y. (Glenn A.
Kaminska and Nicholas M. Cardascia
of counsel), for defendant-respondent.

 

DECISION & ORDER
In an action, inter alia, to recover damages for dental malpractice, nonparty Morrison Mahoney LLP appeals from an order of the Supreme Court, Suffolk County (Baisley, Jr., J.), dated January 10, 2012, which denied its motion for leave to withdraw as counsel of record for the defendant Stephen I. Shore.

ORDERED that the order is affirmed, with one bill of costs.

In June 2009 the plaintiff commenced this action, among other things, to recover damages for dental malpractice. At the inception of the action, a nonparty insurer, Eastern Dental Insurance Company (hereinafter EDIC), retained the nonparty law firm Morrison Mahoney LLP (hereinafter the appellant) to represent its insured, the defendant Stephen I. Shore. After the completion of discovery, a note of issue was filed in October 2010, and the matter was adjourned for trial several times. On September 20, 2011, EDIC issued a letter disclaiming coverage. On October 13, 2011, and again on December 23, 2011, the appellant moved for leave to withdraw as counsel of record for Shore, contending, inter alia, that neither EDIC nor Shore had agreed to continue to pay for its services. At the time the appellant initially moved for leave to withdraw as Shore's counsel, jury selection was scheduled to commence on October 19, 2011. The Supreme Court denied the motion, concluding that the appellant's withdrawal on the eve of trial would prejudice the parties and that the validity of EDIC's disclaimer of coverage must be determined in a then-pending separate declaratory judgment action commenced by Shore.

" The decision to grant or deny permission for counsel to withdraw lies within the discretion of the trial court, and the court's decision should not be overturned absent a showing of an improvident exercise of discretion'" (Alvarado-Vargas v 6422 Holding Corp., 85 AD3d 829, 830, [*2]quoting Cashdan v Cashdan, 243 AD2d 598, 598; see Brothers v Burt, 27 NY2d 905, 906). Generally, where the insurer of a defendant in a personal injury action issues a contested disclaimer of coverage in the midst of litigation, it is inappropriate to grant a motion to withdraw by the attorney the insurer has provided for that defendant (see Iacobellis v A-1 Tool Rental, Inc., 65 AD3d 1015; Seye v Sibbio, 33 AD3d 608; Pryer v DeMatteis Orgs., 259 AD2d 476, 477; Garcia v Zito, 242 AD2d 258, 259). An action for a declaratory judgment as to the rights of the insured vis-à-vis his or her insurance carrier is the appropriate means of resolving a coverage dispute (see Iacobellis v A-1 Tool Rental, Inc., 65 AD3d at 1015). Here, granting the appellant's motion to withdraw would, in effect, validate EDIC's disclaimer without affording Shore the opportunity to be heard (see Laura Accessories v A.P.A. Warehouses, 140 AD2d 182; Monaghan v Meade, 91 AD2d 1014, 1015). Moreover, the appellant's withdrawal on the eve of trial would have caused substantial prejudice to the parties in the conduct of the litigation (see George v George, 217 AD2d 913; Haskell v Haskell, 185 AD2d 333; see also Holloman v Manginelli Realty Co., Inc., 81 AD3d 413). Accordingly, the Supreme Court providently exercised its discretion in denying the appellant's motion.

 

GAUTHIER v COUNTRYWAY INSURANCE COMPANY

Calendar Date: September 6, 2012
Before: Lahtinen, J.P., Malone Jr., Stein, McCarthy and Garry, JJ.


Mura & Storm, PLLC, Buffalo (Scott D. Storm of
counsel), for appellant.
Law Office of John A. Piasecki, Malone (John A.
Piasecki of counsel), for respondents.
MEMORANDUM AND ORDER

Malone Jr., J.

Appeal from an order of the Supreme Court (Muller, J.), entered July 12, 2011 in Clinton County, which denied defendant's motion for, among other things, partial summary judgment.

Plaintiffs commenced this action seeking to recover damages based upon defendant's alleged breach of contract and bad faith in settling plaintiffs' insurance claim for fire damage to their house. Following joinder of issue and discovery, defendant moved for partial summary judgment dismissing certain claims, including plaintiffs' claim for consequential damages, and also sought to preclude plaintiffs' expert from testifying at trial. Supreme Court denied the motion in its entirety. Defendant now appeals.

Initially, we note that defendant's statute of limitations argument was waived by defendant's failure to raise it in the answer or amended answer, or in a pre-answer motion to dismiss (see CPLR 3211 [e]; Dougherty v City of Rye, 63 NY2d 989, 991-992 [1984]).

As to the merits, we are unpersuaded by defendant's argument that plaintiffs' claims for consequential damages, replacement cost damages for personal property, damages to the residence, and additional living costs should be dismissed because they failed to comply with defendant's discovery demands and with a November 24, 2010 discovery order issued by Supreme Court. We note that Supreme Court implicitly rejected that argument and, instead, in the order presently on appeal, enlarged the time for plaintiffs to itemize and particularize all damages alleged. "Trial courts have broad discretion in supervising the discovery process" (Mary Imogene Bassett Hosp. v Cannon Design, 84 AD3d 1543, 1544 [2011]), and we find no abuse of discretion here.[FN1]

With respect to defendant's claim that plaintiffs are precluded from recovering the replacement cost of their residence, defendant first contends that the replacement cost terms of the insurance contract do not apply when the insured residence is replaced by a mobile home, as was done in this case. We do not agree. As relevant here, the loss settlement provisions specify that replacement cost terms apply to a "building[] covered under Coverage[] A . . . that [has] a permanent foundation and roof," but not to a mobile home whether or not it has a permanent foundation. Importantly, Coverage A describes the insured residence located on the premises, not the replacement residence. Because the insured residence at issue here was not a mobile home, defendant's argument fails.

With respect to defendant's further contention that replacement cost is unavailable because plaintiffs did not repair or replace the residence within 180 days — which they concededly did not — we agree with Supreme Court that fact questions exist regarding whether Charles Mason, defendant's claims adjustor, directed plaintiffs to leave the premises and their personal property untouched until further notice and, if so, whether they justifiably relied to their detriment on that purported directive (see Fundamental Portfolio Advisors, Inc. v Tocqueville Asset Mgt., L.P., 7 NY3d 96, 106 [2006]; Nassau Trust Co. v Montrose Concrete Prods. Corp., 56 NY2d 175, 184 [1982]).

Similarly, fact questions exist regarding plaintiffs' claim for consequential damages. "[C]onsequential damages resulting from a breach of the covenant of good faith and fair dealing may be asserted in an insurance contract context, so long as the damages were within the contemplation of the parties" (Panasia Estates, Inc. v Hudson Ins. Co., 10 NY3d 200, 203 [2008] [internal quotation marks and citations omitted]; see Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of N.Y., 10 NY3d 187, 192 [2008]; Gruenspecht v Balboa Ins. Co., 93 AD3d 482, 482 [2012]). Here, plaintiffs allege that defendant failed to investigate and pay their claim in a timely and good faith manner, which resulted in increased damage to the insured property, necessary code upgrades, their purchase of the double-wide mobile home so they would have a place to live, and counsel fees. Such additional damages should be considered to be within contemplation of the parties as foreseeable consequences of an insurer's bad faith delay in performing its obligations under the contract. With respect to whether defendant did, in fact, act in bad faith, plaintiffs have submitted the affidavit of insurance adjuster William Hathaway, which opines that the actions and manner of defendant's adjuster in handling plaintiffs' insurance claim deviated from accepted adjusting practices and standards in numerous respects. Although defendant's expert submitted a contrary affidavit, the question of defendant's bad faith in settling the insurance claim remains open, as does the issue of whether plaintiffs can, upon completion of discovery, prove damages resulting from defendant's alleged injurious conduct.

Finally, we find no abuse of discretion in Supreme Court's denial, at this stage in the action, of defendant's request to preclude Hathaway from testifying (see Robinson v Bartlett, 95 AD3d 1531, 1536 [2012]).

Lahtinen, J.P., Stein, McCarthy and Garry, JJ., concur.

ORDERED that the order is affirmed, with costs.
Footnotes


Footnote 1: Insofar as defendant contends that plaintiffs have failed to comply with the order presently on appeal, that issue is not properly before us. Moreover, because any material submitted by plaintiffs in response to that order is de hors the record, it will not be considered on this appeal.

Yu v Greenway Mews Realty LLC

DLA Piper LLP (US), New York (Aidan M. McCormack of
counsel), for appellant.
Clausen Miller PC, New York (Melinda S. Kollross of counsel),
for respondent.

Order, Supreme Court, New York County (Martin Shulman, J.), entered September 19, 2011, which denied defendant/third-party plaintiff Little Rest Twelve, Inc.'s motion for summary judgment on its contractual indemnification claim against third-party defendant UAD Group, unanimously reversed, on the law, without costs, and the motion granted. Appeal from order, same court and Justice, entered February 8, 2012, to the extent that, upon reargument, it adhered to the original determination, unanimously dismissed, without costs, as academic in light of the foregoing.

The contract between Little Rest and UAD Group provided that UAD Group would indemnify Little Rest against claims, damages, losses and expenses to the extent caused by the negligence of UAD Group or anyone directly or indirectly employed by it. Little Rest established prima facie that UAD Group was negligent in connection with the accident in which plaintiff, an employee of UAD Group, was injured, and that Little Rest was completely free from negligence. Plaintiff's testimony, read as a whole, makes clear that only UAD Group personnel ever directed his work and that UAD employees routinely climbed on top of glass skylights, without harnesses, to install glass panels. In opposition, UAD group failed to raise an issue of fact as to how the accident happened. Its contention that plaintiff was arguably negligent in the performance of his work is insufficient to defeat summary judgment, since the contract provided that UAD Group would indemnify Little Rest for losses caused by the negligence of its (UAD Group's) employees (see e.g. 385 Third Ave. Assoc., L.P. v Metropolitan Metals Corp., 81 AD3d 475, 476-477 [1st Dept 2011], lv denied 17 NY3d 702 [2011]).

UAD Group's argument that Little Rest is not entitled to contractual indemnification because it has not paid plaintiff any money and therefore has not sustained a loss mistakes the award of summary judgment for the execution of judgment. "[I]t serves the interest of justice and judicial economy [to] afford[] the indemnitee the earliest possible determination as to the extent to which [it] may expect to be reimbursed" (Lowe v Dollar Tree Stores, Inc., 40 AD3d 264, 265 [1st Dept 2007] [internal quotation marks omitted], lv dismissed 9 NY3d 891 [2007]).

 

In re American Transit Ins. Co. v. Hossain

Bruno, Gerbino & Soriano, LLP, Melville (Mitchell L.
Kaufman of counsel), for appellant.
Marjorie E. Bornes, Brooklyn, for American Transit Insurance
Company, respondent.

Order, Supreme Court, New York County (Marilyn T. Sugarman, Special Referee), entered on or about August 17, 2011, which found that proposed additional respondent State Farm is obligated to insure proposed additional respondent Stokely Braithwaite in connection with the claims made against Braithwaite by respondent, Mohammad S. Hossain, unanimously modified, on the law, to grant the petition to stay the uninsured motorist arbitration, and otherwise affirmed, without costs.

The default judgment in State Farm's favor issued in Nassau County Supreme Court did not have collateral estoppel effect precluding the determination by the Special Referee (see Kaufman v Eli Lilly & Co., 65 NY2d 449, 456-457 [1985]; Stumpf AG v Dynegy Inc., 32 AD3d 232, 233 [1st Dept 2006]).

The evidence at the framed-issue hearing was insufficient to establish lack of cooperation (see Matter of Empire Mut. Is. Co. [Stroud-Boston Old Colony Ins. Co.], 36 NY2d 719, 721 [1975]; Thrasher v United States Liab. Ins. Co., 19 NY2d 159, 168-170 [1967]). Although State Farm sent letters and investigators to three different addresses for Braithwaite, the record does not establish that Braithwaite received the letters or had actual notice of State Farm's attempts to contact him. Further, State Farm never attempted to contact Braithwaite at various other addresses in its file or at a possible work location (see Matter of Liberty Mut. Ins. Co. v Roland-Staine, 21 AD3d 771, 773 [1st Dept 2005]; Matter of New York Cent. Mut. Fire Ins. Co. [Salomon], 11 AD3d 315, 316-317 [1st Dept 2004]).

 

GEICO v. Torres

O'Conner, McGuinness, Conte, Doyle, Oleson, Watson &
Loftus, LLP, White Plains (Montgomery L. Effinger of
counsel), for appellant.
Ryan & Conlon, LLP, New York (Jacob A. Goins of counsel),
for proposed additional respondents-respondents.

Order, Supreme Court, Bronx County (Norma Ruiz, J.), entered April 20, 2012, which denied petitioner GEICO's petition to permanently stay the uninsured motorist arbitration commenced by respondents, its insured, unanimously affirmed, without costs.

GEICO's argument regarding the right of respondents, the injured parties, to provide separate notice of the claim under Insurance Law § 3420(a)(3) was improperly raised for the first time in its reply brief in further support of its petition.

Accordingly, the IAS court was under no obligation to consider this fact-based argument (see e.g. Lumbermens Mut. Cas. Co. v Morse Shoe Co., 218 AD2d 624, 625 [1st Dept 1995]). In any event, the argument is unavailing, as there is no evidence in the record that respondents were diligent in ascertaining the identity of proposed additional respondent Mhbahfarma's insurer or in notifying the insurer of the claim (see Tower Ins. Co. of N.Y. v Lin Hsin Long Co., 50 AD3d 305, 308 [1st Dept 2008]; Ringel v Blue Ridge Ins. Co., 293 AD2d 460, 461-462 [2d Dept 2002]). Indeed, although the police accident report prepared the night of the accident contained proposed additional respondent Praetorian's policy number, respondents waited eight months to inform Praetorian of the accident (see Ringel, 293 AD2d at 461-462).

We have considered GEICO's remaining arguments and find them unavailing.
Hermitage Insurance Company v LaFleur

Pearlman, Apat, Futterman, Sirotkin & Seinfeld, LLP, Kew Gardens (Gilbert J. Serrano of counsel), for appellants.
Max W. Gershweir, New York, for respondent.
Judgment, Supreme Court, New York County (Eileen A. Rakower, J.), entered July 14, 2011, declaring that plaintiff is not obligated to defend or indemnify defendants LaFleur and Naraine (defendants) in the underlying personal injury action, unanimously affirmed, without costs.
Defendants do not deny that the building they described as a two-family dwelling in their application for commercial general liability insurance contains three apartments. In response to plaintiff's claim of a material misrepresentation entitling it to disclaim coverage, defendants point to the certificate of occupancy issued in 1967, which permits use and occupancy by two families, and the New York City tax assessment roll for the last five years, which indicates that the building is a "two family converted from one family." Defendants argue that "most people" would understand the question "# Families" on the insurance application to be asking whether the premises is "a legal two family, which it is."
Contrary to defendants' argument, the only reasonable interpretation of the question "# Families" is that it seeks the number of separate dwelling units in the building (see Multiple Dwelling Law § 4[6], [7]). The import of the 1967 certificate of occupancy and the tax assessment roll submitted by defendants is that the third apartment was constructed without a proper certificate of occupancy and was never reported to the Department of Buildings. However, while the third apartment may have been constructed illegally, the building is nevertheless a three-family dwelling.

Contrary to defendants' contention, plaintiff demonstrated that defendants' misrepresentation was material by submitting competent evidence that it would not have written the policy had it known that the premises contained a third apartment (see Interested Underwriters at Lloyd's v H.D.I. III Assoc., 213 AD2d 246, 247 [1st Dept 1995]).