Coverage Pointers - Volume XIV, No. 18

Dear Coverage Pointers Subscribers:

Do you have a situation?  We love situations. The more, the merrier.

There is so much to talk about this issue; it is unclear where to begin.  Steve’s letter below and Cassie’s column on the new Sandy storm regulations, are required reading.

For the first time in any regulation or circular letter (to our recollection), the Department of Financial Services speaks of bad faith, not what it is, but what it is not.

In Cassie’s column, you will find links to the two new regulatory changes and the Circular Letter.  The mediation program established in these regulatory changes creates, in this writer’s opinion, an unfortunate, expensive and a potentially dangerous paradigm for the industry.

 

Big News Coming:

[Watch this space, just can’t tell you yet]

 

Upcoming Program:  DRI Insurance Coverage and Claims Institute:

I hope you’ll join me in Chicago for the DRI Insurance Coverage and Claims Institute (ICCI) being held on April 10-12, 2013.  I’ll be presenting on the ethical issues facing claims professionals and attorneys alike in using social media in investigations.

The ICCI is DRI’s flagship conference for coverage counsel and insurance professionals. The conference provides insurance professionals and their attorneys with practical advice and the tools needed to stay on the cutting edge of their specialty. You will hear from industry leaders on the most challenging issues they face this year and what is on the horizon. Speakers will discuss recent court rulings, national claims trends, the regulatory climate, and ethical issues. The presentations will dig down into the complexities of the practice—multiple claimants, tenders of coverage, insurer vs. insurer, mass actions/class actions/multidistrict litigation, Coverage B, claim investigation pitfalls, litigation techniques, and more. The conference will help sharpen your skills and raise your levels of awareness, while networking with senior claims executives and experienced coverage counsel from across the nation.

Please click here for more information, the brochure and registration

Note:  registration is free for insurance company in-house counsel and claims executives who are DRI members.  For insurance company in-house counsel and execs who are not DRI members, with sponsorship, you might also be able to attend for free.  Contact me if interested.

 

Coverage Pointers App? 

Do you have it?  No?  Tsk. Tsk.  You should!  Just go over the iPhone App store or the Android Marketplace where’s it is free for the taking.

 

Steve on Sandy:

How does the old saying about March go?  In like a Lion…out like a Lamb?  If so, we can expect a measured, calm end to the month because we are starting with some significant upheaval.   Under normal circumstances, I would direct you to the Third Department’s interesting decision regarding the discoverability of C&O reports.  Alternatively, maybe, I would spend my time and space discussing the Court of Appeals’ ruling regarding the preclusive effects of WCB determinations. 

These, however, are not normal circumstances.  After a period of relative quiet, the Department of Financial Services has been quite busy over the past few days.  Since Tuesday, Superintendent Lawsky has implemented two amendments to Regulation 216 and issued a directive on issues facing the insurance industry when the moratorium on homeowners’ insurance premiums for Sandy related areas is lifted.  While we provide an overview of the changes in Cassie’s Capital Connection, we will hit the highlights (or lowlights) and potential issue areas here.

Incidentally, Cassie has been kind enough to cede her column to yours truly this week.  If you notice a marked decrease in the quality of writing, at least you’ll know why.

The first amendment creates, for the first time, a mediation program for Sandy related claims.  The amendment appears to require carriers to notify policyholders of a right to mediation even on claims where the carrier has denied coverage.  We are certainly troubled by what appears to be a compulsory mediation program that will exert inordinate pressure on carriers to resolve claims that otherwise may be defensible.  It is also noted that at the mediation, the carrier is required to appear with a representative with authority to settle and with a complete copy of the claims file.  This includes all documentation and communications with the assured. 

“Wonder why,” he asks?  Perhaps because compliance with the various timeliness and substantive requirements could be used for leverage in a mediation proceeding.  Is this stuff discoverable, you ask?  The regulation does not seem to care, but if you are interested in what is discoverable we would, again, invite you to look at this week’s Peiper on Property.

Notwithstanding the above issues that are troubling, we are mostly concerned with the provision that discusses whether a failure to settle can be deemed an act of “bad faith.”  While the regulation says that the carrier who offers a “reasonable explanation” for its position will not be in bad faith, there is no guidance on what constitutes a reasonable explanation  - or -  more importantly who decides if such explanation is, in fact, reasonable. 

Oh yeah, and the carrier appears to be required to pay for the services, too. 

The Second Amendment (to Reg. 216) alters the timeline for corresponding with insureds.  Recall that under the original timelines established by Regulation 216, a carrier was required to take a position with 15 days of receipt of a Proof of Loss.  If the carrier could not reject or accept the claim at that time, correspondence was required to be sent to the insured.  Thereafter, the carrier was required to follow up with its insured every 90 days. 

The follow up time has now been shortened to 30 days, and the carrier is now required to identify why the claim is not ready to be resolved, and how long it will take to resolve.  Moreover, if denying a claim, the carrier is required to provide notice to the insured of any limitations that would impact the policyholder’s ability to proceed with a lawsuit. 

In addition, if the claim is not accepted or denied within the 15 day time period prescribed by the Regulation, the carrier must advise DFS every Tuesday with an explanation of why the claim has not been rejected or denied, how long it has been outstanding, why there was an extension taken, how many extensions have been taken, etc. 

This, along with previous amendments, creates an even heavier regulatory burden on carriers trying to address the needs of their respective insureds.  It does underscore what we’ve been preaching for years…communicate, communicate, communicate.  Carriers have been doing it anyway; now, you’ll just have to do it a little more frequently, and in the shadow of DFS monitoring your every move. 

Finally, Superintendent Lawsky issued the Department’s first circular letter of the year that sets forth a series of “expectations” of carriers as the premium moratorium is set to expire.  We detail the ins and outs of that letter below, and invite you to review it at your leisure.

Obviously, we offer our thoughts on the recent amendments and pronouncements from DFS for your consumption.  It goes without saying, though we remind you again, that one should actually obtain and review the amendments themselves before reaching a final determination on compliance.  After you’ve reviewed them, and kicked your desk, feel free to drop us a line or give us call.  We’d love to hear your thoughts. 

It also is understood, though we continue to say it, that Sandy issues remain front and center.  The landscape, with the help of DFS and case law in the future, continues to change.  With this in mind, the Defense Research Institute has put together a Sandy CleanUp Webinar that we would invite any of you handling first party claims, or internal regulatory compliance, to strongly consider signing up.  The thoughts of those who have been through this in Katrina, etc., as well as those both in carriers and firms unraveling the pitfalls coming to light in Sandy, will be helpful to the everyday challenges facing you.  Take a look at the DRI website, or drop me a line for more information. 

That’s it for now.  See you on the Ides of March. 

            Steven E. Peiper
            [email protected]

 

One Hundred Years Ago: Sixteenth Amendment Adopted; Thousands Flee:

Today is March 1, 2013.  It is the 100th anniversary of the effective date of the 16th Amendment.  No, that didn’t end slavery or guarantee the right of women to vote in elections.  That Amendment allowed the United States government to levy lawfully an income tax.  Introduced by President William Howard Taft on June 16, 1909, the resolution was passed by Congress after a month long debate and sent to the state legislatures for ratification. On August 10, 1909, Alabama became the first state to ratify the Amendment and on February 3, 1913, the last of the requisite number of states ratified it, the 36th (Delaware).  Six more states subsequently voted for it adoption.  Connecticut, Rhode Island, Utah and Virginia voted against ratification without ever subsequently ratifying (Arkansas voted against it before voting for it) and Florida and Pennsylvania never took ratification votes.

 

A Tea Party Fight One Hundred Years Ago? Shades of Things to Come?

So, for you history buffs, let’s take a quick look back at US Presidents about a century and a tad ago.  History can be a great teacher.

After Grover Cleveland completed his second term (as 24th President), the non-consecutive one following the four-year hiatus during which Benjamin Harrison (William Henry Harrison’s grandson) served in the White House, Republican William McKinley (25th) took office as President on March 4, 1897.  His Vice-President was Garret Hobart, a popular New Jersey lawyer and President of that state’s Senate.    Hobart died in office of heart disease in December 1899 and the position remained vacant until the next election, the following year.

In 1900, William McKinley was re-elected, this time with Teddy Roosevelt, recently back from his successful Rough Riders campaign in Cuba during the Spanish American War.  When McKinley was assassinated in Buffalo, at the Pan American Exposition in September 1901, TR assumed the presidency (26th).  He ran for office again in 1904, promising not to run for a third-consecutive term if elected.  He was elected, with Indiana Senator Charles Fairbanks (after whom the Alaskan city was thereafter named) and served until 1908.  Keeping his promise, Roosevelt did not run in 1908, and supported his Secretary of War, William Howard Taft (27th) and Taft coasted to an easy victory over Williams Jennings Bryant, who had twice before been defeated for the office.

Taft and Roosevelt soon parted company, as Roosevelt believed that Taft was not the progressive force that TR expected Taft would be in office.  Interestingly, there are some who suggest that Taft became a Tea Party candidate, keeping tighter reins on the powers of the federal government to interfere with business.  TR had been a “trust buster” during his term and some argue that Taft became too cozy with big business during his administration.

Teddy Roosevelt decided to throw his hat back into the ring for the 1912 election, disappointed in Taft’s administration.  He failed to secure the Republican nomination at the Convention and he and his supporters stalked out, forming their own party, the “Progressive” or “Bull Moose” Party.  The Democrats nominated their own Progressive, in New Jersey Governor and academic Woodrow Wilson and the three-way race was a barnburner. 

In what may well be a pre-cursor to the 2016 presidential election, the Tea Party Republican incumbent William Howard Taft took only two states, Utah and Vermont and their eight electoral votes but garnered 23.2% of the popular vote.  Roosevelt, the third-party candidate, won 88 electoral votes and 27.4% of the popular vote.  The Republican split led to Wilson’s election with 435 electoral votes but only 41.8% of the popular vote.  The Socialist Candidate, Eugene Debs garnered 6% of the popular vote.

Therefore, on March 1, 1912, Woodrow Wilson, the Democrat, was coming to Washington to be sworn in to office as the 28th President, an office he would hold for the next eight years.

Jen’s Gemular Jottings:

Another issue and another greeting from your friends at Hurwitz & Fine.  In the last few months, I have been attempting to report on significant bad faith decisions from across the country.  I have tried to limit my review to those decisions issued by the highest-level courts in each state and the federal circuit courts.  To my initial surprise, these types of cases do not routinely get that high.  However, I guess it makes sense.  These cases are risky, as they are not safeguarded by a policy limit cap.  So, many of the cases, in which the insurer is truly in the wrong, seem to be settled relatively early.  The idea is to resolve the matter before too much “bad” law can be made, a strategy that has definitely been taken in New York where the current atmosphere is favorable to the carrier. 

This got me thinking, when is a battle more important than the war?  Sometimes it seems, at least from the carrier side, that it can be easy to get caught up in a case or an issue and want to defend that position to the end; however, sometimes the better strategy is to step back and consider, what type of precedent will this set?  Even if you are right, and a court agrees, it is case law you want to deal with going forward.  If you win this case, how many will you then lose as a result? 

But anyways, just a thought, this week I bring to you an interesting bad faith case resulting from property damage caused by the release of crude oil after Hurricane Katrina.  The decision contains an interesting discussion of the extent of an insurer’s duty of good and faith dealing under Texas law.  The Fifth Circuit held that the insured’s allegation that its carrier mishandled a third-party claim resulting in an increase in the settlement amount (an amount that would likely have to be paid directly by the insured) did not result in a breach of a recognized duty under common law. 

Jennifer Ehman
[email protected]

 

A Century Ago:  A New President to Take Office:

New York Tribune
March 1, 1913
Page 1
Uncle Horace Predicts Icy Inaugural Tuesday

Middletown, Conn – Uncle Horace Johnson, the aged weather prophet, predicted the storm at President Taft’s inauguration four years ago, when chief Willis Moore and the other government weather sharps promised a fair day, has sent word to Woodrow Wilson advising him to take his fur coat with him to Washington, as in all probability he will have to wear it Tuesday.

Uncle Horace, who is in his eighty-ninth year, has been forecasting weather conditions for seventy-five years and ever since his prediction of the famous blizzard of 1888, farmers througout the state have placed great faith in his predictions.  He has made his home in Middle Haddam, four miles below here, upward of half a century, living in a bungalow on the banks of the Connecticut River.

Editor’s Note:  If Woodrow Wilson paid attention, he would have been warm.  Noontime temperatures on the inaugural day were 55 degrees in Washington, D.C.

According to a May 29, 1907 article in the New York Times, Uncle Horace Johnson had predicted that all of Manhattan Island and much of the adjoining territory would be destroyed by an earthquake in August 1907 with half of Manhattan Island sinking into the East River and the other half into the “North River” which would entail the loss of thousands of lives.  He indicated that he knew of the upcoming calamity for several years but did not want to release the information to the public until he was absolutely certain it would take place. Well, he was zero for two, the next earthquake having been felt in the NYC area was thirty years later in Long Island.

For a history of New York City earthquakes, none of which swallowed up the Big City, click here.

 

Introducing Michael P. Scott-Kristansen:

We introduce Mike, as our newest columnist.  Having clerked for our firm in law school, we are delighted to have him join our legal team as a freshly minted member of the bar.  He will be reviewing the “serious injury” threshold cases as Margo has moved over to author the substantive No Fault column during Audrey’s respite with child.

 

Mike Mini-Missive:

There were several interesting cases this week.  Ms. Anderson’s auto charges through a restaurant window and Ms. Callazo, who was presumably enjoying a bite to eat, escapes with her life, but not without serious injuries.  As if Ms. Anderson’s day wasn’t bad enough, the carrier’s expert accuses her of malingering.  Sad to say, but the courts still aren’t buying it.  In Callazo v. Anderson and Farrah v. Pinos, experts’ opinions that plaintiffs’ limitations are “voluntary” remain unhelpful.  If a defendant’s experts suspect malingering, then they must specifically explain that conclusion.  That explanation must include reference to objective medical evidence.  I promise this is not as difficult as it sounds.  In Constantine, it was sufficient that the examining expert noted that the plaintiff was “able to extend his cervical spine fully when his oral cavity was examined.”

Calcano v. Rodriguez is an important case because it presents a rare opportunity to watch a court’s disagreement over how a plaintiff can resist a defendant’s motion for summary judgment.  The chief issue in Calcano is whether the plaintiff’s injuries were caused by the accident.  The defendant had already met its burden by showing that the injuries were degenerative.  The majority held for the plaintiff, but limited its holding to the facts of the case. 

The concurrence, otherwise agreeing with the result, objected to the majority’s failure to apply the Perl case more mechanistically.  In Perl, the New York Court of appeals held the plaintiff met his burden on the issue of causation by submitting the opinion of his physician, stating that because the plaintiff had no similar injuries or limitations before the accident, the injuries must be causally related.  The concurrence contends that Perl requires all New York courts to deny defendants’ motions for summary judgment on the issue of causation where plaintiffs present some evidence that they are asymptomatic before the accident and an expert’s opinion that causal relation is present. 

If view of the concurrence prevails, this will set a low bar for plaintiffs on the issue of causation.  For context, consider Jeffers, where the plaintiff’s claim that she was previously asymptomatic and a lack of evidence to the contrary was sufficient, combined with a bare expert opinion on causation, to meet her burden on the issue of causation. The Jeffers decision is not actually binding precedent because the defendant in that case did not present any evidence to refute causation, but it shows where the concurrence in Calcano might be headed.

Michael P. Scott-Kristansen
[email protected]

 

One Hundred Years Ago Today, Cat Triumphs Over Wife:

The (New York) Sun
March 1, 1913
Page 1
Dale Served the Cat First
Testimony of Wife’s Parents in Separation Suit Dismissed

The Appellate Division of the Supreme Court yesterday dismissed a suit for separation brought by Mrs. Lillian Patterson Dale against Francis Colgate Dale, who was a Republican candidate for Congress in Manhattan last fall and is a son of the late Chalmers Dale, a banker.

Mrs. Dale and her parents, Dr. and Mrs. Frank N. Patterson, testified that Dale had tried to compel his wife to leave him.  They said that Dale annoyed them by playing the violin and that in carving the meat for dinner, he would serve the family cat first.

Dale has an income of over $25,000 a year from the estate of his father. 
Editor’s Note: In a May 19, 1917 article in the New York Times, entitled, Mrs. Dale Marries Again, it was reported that Mrs. Dale and Mr. Dale had been married on New Year’s Day, 1909.  She left him in 1910, moved to Nevada in late 1913, and secured a divorce from him in 1914.  She married Allen Joy Calloway in 1917.   Mrs. Dale was still fighting with her ex over child support in 1923, according to an article in the Nevada papers.

 

Highlights of This Week’s Issue, Attached:

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

• Extrinsic Evidence Used by One Carrier to Secure Co-Insurance From Another
• The Policy Limits Are What the Policy Limits Are; In a Direct Action, Only the Policy Limits Are At Stake

 

MICHAEL’S MINI-MISSIVES ON SERIOUS INJURY UNDER NO-FAULT LAW
Michael P. Scott-Kristansen
[email protected]  

• Defendants Motion Improperly Granted Where Plaintiff’s Allegation in the Bill of Particulars Was Unaddressed
• Plaintiff Keeps Her Case Alive With One Out of Six Injuries
• Experts Must Explain Their Conclusion That a Limitation is Voluntary
• Defendant Prevails on Motion for Summary Judgment Because Plaintiff Fails to Offer Any Post-Surgery Evidence   
• Denial of Defendant’s Motion for Summary Judgment Upheld
• The Standard for Plaintiff’s Burden on the Issue of Causation May Be in Flux

 

MARGO’S MUSINGS ON NO-FAULT
Margo M. Lagueras
[email protected]

ARBITRATION

• Carrier Is Entitled to Take Payments Made by the Volunteer Firefighters’ Fund as an Offset
• While Applicant Is Required to Make Good Faith Effort to Mitigate Damages, Carrier’s Burden of Proof Is Not Clear
• Denial Based on Injury Sustained While Committing an Act Which Would Constitute a Felony Is Appropriate

.

LITIGATION

• Defendant Is Not Required to Issue EUO Scheduling Letters for Each Claim
• Discovery Demands Relating to Defenses That Defendant Is Precluded from Asserting Are Palpably Improper

 

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

• C&O Reports are Not Protected by Material Prepared in Anticipation of Litigation Exemption
• Insurer Did Not Present Sufficient Proof to Obtain Summary Judgment Demonstrating Loss Fell Outside of Coverage
• Fifth Time is the Charm – Continued Refusal to Comply with Discovery Orders Results in Complaint being Stricken

 

Potpourri

Court of Appeals

• Workers’ Compensation Decision Precludes Re-litigation of the Timeline of Plaintiff’s Disability from Work

 

Appellate Divisions

• Defendants’ Affidavits, Alone, are Insufficient to Create a Question of Fact

 

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

• RED ALERT, NUMBER 1

Unfair Claims Settlement Practices Act (11 NYCRR 216)
Amendment 15 (02/26/13)

• RED ALERT, NUMBER 2

Unfair Claims Settlement Practices Act (11 NYCRR 216)
Amendment 16 (02/26/13)

• RED ALERT, NUMBER 3

Insurance Circular Letter No. 1 (02/27/2013)
Superintendent’s Expectations for Post-Moratorium Treatment of Policyholders

 

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

• Court Finds Pleading Insufficient and Dismisses Claims without Prejudice

 

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

• Insurer Did Not Waive Reliance on Sublimit where it did not Issue Insurance Law 3420(d) Complaint Disclaimer
• In the Underinsured Motorist Context, the Reduction for Comparative Negligence Should be applied before the Set-Off

 

Bad Faith

• Insurer’s Mishandling of Third-Party Claim was not a Breach of the Duty of Good Faith and Fair Dealing

 

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

WATCH OUT FOR WAIVER OF ATTORNEY/CLIENT PRIVILEGE

 

Well, that’s it (if that isn’t enough).  Your editor is off to the FDCC Winter Meeting in San Antonio and some warmer weather.  If all goes as planned, I’ll turn the ripe young age of 60 on the March 5, but the news reports will more likely note the date as the 60th anniversary of Joseph Stalin’s death.  You’ll know better.

 

See you soon. 

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

 

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
Jennifer A. Ehman
[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
Michael P. Scott-Kristansen
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]
 
Diane F. Bosse

Index to Special Columns

Kohane’s Coverage Corner
Michael’s Mini-Missives on Serious Injury
Margo’s Musings on No Fault
Steve on Sandy, Peiper on Property and Potpourri
Cassie’s Capital Connection
Fijal’s Federal Focus
Keeping the Faith with Jen’s Gems
Earl’s Pearls
Across Borders

 

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

02/27/13       4815 Development Corp. v. Harleysville Ins. Co. of New York
Appellate Division, Second Department
Extrinsic Evidence Used by One Carrier to Secure Co-Insurance From Another
4815 Development Corp. (“4815”) leased out space to TLI. As required under the lease, TLI obtained a CGL policy naming 4815 as an additional insured. The policy was issued by United National Specialty Insurance Company (“United”) and provided for a limit of coverage of $1,000,000. In July 2007, TLI assigned the lease to nonparty NTLI.  Harleysville issued a CGL policy to NTLI with the same coverage limits as United's policy, naming 4815 as AI

On October 6, 2007, which was during the term of both policies, Tsering sustained fatal injuries when he fell down stairs at the premises.  A wrongful death case was started against 4815 and NTLI.  Two months later, 4815 requested that United defend and indemnify it in connection with the underlying action, the claim being a defective door caused the accident. 4815 informed United that the allegedly defective door which caused the decedent's accident had been installed by United's named insured, TLI. Some 49 days after receiving 4815 notice, United disclaimed coverage, on two grounds.  It argued that 4815 did not qualify as an additional insured and that 4815 failed to give timely notice of the claim.

4815 brought an action alleging that both United and Harleysville were obligated to provide additional insured coverage to 4815 in the underlying action. Harleysville agreed to defend and indemnify 4815, and cross-moved for summary judgment declaring that United was obligated to contribute equally.

Harleysville made a prima facie showing that United was obligated to contribute equally with it to 4815.  Its AI endorsement provided that “[i]f liability or damage is imposed or sought to be imposed on the additional insured because of: . . . Its acts or omissions and those of the named insured, as to the defense of the additional insured, this insurance will act as coinsurance with any other insurance available to the additional insured, in proportion to the limits of liability of all involved policies.”

Harleysville submitted documents establishing that United had actual knowledge of facts establishing a reasonable possibility that liability was sought to be imposed on 4815 due to its own acts or omissions and TLI's acts or omissions, thereby triggering United's duty to contribute to 4815 Development's defense

United’s secondary argument, that 4815 failed to give notice of the claim "as soon as reasonably practicable," as required by the policy, failed because its disclaimer was late.

02/20/13       Giraldo v. Washington International Insurance Company
Appellate Division, Second Department
The Policy Limits Are What the Policy Limits Are; In a Direct Action, Only the Policy Limits Are At Stake
Giraldo obtained a judgment against Washington International Insurance Company’s (“Washington’s”) insured for some amount in excess of $100,000.  Washington refused to pay it, citing some coverage defense.  Under Insurance Law Section 3420(a)(2), Giraldo then brought a direct action against Washington, after presenting the judgment for payment and waiting 30 days.  That’s the protocol set forth in the statute.

In its answer, Washington did not raised, as a defense, the $100,000 policy limit and Giraldo argued that Washington waived its right to limit its liability to the $100,000 policy limit.

Thankfully, the court rejected that argument, finding, at is should have found, that the statute only permits an action against the carrier up to the amount of its policy limit and no more.

 

MICHAEL’S MINI-MISSIVES ON SERIOUS INJURY UNDER NO-FAULT LAW
Michael P. Scott-Kristansen
[email protected] 

02/27/13       Farrah v. Pinos
Appellate Division, Second Department
Defendants Motion Improperly Granted Where Plaintiff’s Allegation in the Bill of Particulars Was Unaddressed
The Supreme Court improperly granted defendants’ motion for summary judgment.  Plaintiffs both alleged in their bill of particulars that they each sustained “a medically determined injury or impairment of a nonpermanent nature which prevented them from performing substantially all of the material acts which constituted their usual customary daily activities” for the 90/180-day period.  The defendants not only failed to meet their burden on this claim, they also submitted the report of an orthopedist that showed one plaintiff had significant limitations in the range of motion of his shoulder.  The expert rebutted with an unsupported assertion that the limitation was voluntary.

02/27/13       Palumbo v. Forster
Appellate Division, Second Department
Plaintiff Keeps Her Case Alive With One Out of Six Injuries
Although the defendant successfully met his burden of showing the plaintiff did not sustain a permanent consequential or significant limitation of use to her cervical, thoracic, or lumbar spine, her right and left shoulder, or her left knee, the plaintiff raised an issue of fact as to whether she sustained a serious injury to her lumbar spine.  Therefore, summary judgment dismissing the complaint was properly denied.

02/21/13       Collazo v. Anderson
Appellate Division, First Department
Experts Must Explain Their Conclusion That a Limitation is Voluntary
The court upheld judgment for the defendant on the plaintiff’s 90/180-day claim, but otherwise held for the plaintiff.  The defendants established the absence of a permanent consequential or significant limitation in plaintiff’s knees with affirmed reports from an orthopedist and a radiologist, but plaintiff created an issue of fact with evidence she sought treatment shortly after the accident and a surgeon’s findings of range of motion limitations and an operable injury.

The defendants failed to establish absence of permanent consequential or significant limitation to the plaintiff’s lumbar spine.  The defendants’ experts failed to explain their own finding of significant limitation in forward flexion and failed to support a conclusion that plaintiff’s limitation in a leg raise test was “voluntary.”  Additionally, the conclusion by the radiologist that the plaintiff’s lumbar disc herniations were “‘unlikely’ related” to trauma and are common in the asymptomatic population was insufficient as a matter of law to refute causation.

Defendant prevailed on the 90/180-day claim through use of plaintiff’s deposition testimony and the report of the plaintiff’s own orthopedist.  They indicated plaintiff was out of bed within four weeks and back to work within 90 days.

02/21/13       Brand v. Evangelista
Appellate Division, First Department
Defendant Prevails on Motion for Summary Judgment Because Plaintiff Fails to Offer Any Post-Surgery Evidence       
Defendant prevailed on its motion for summary judgment in Supreme Court and the First Department affirmed.  The defendant established his entitlement to judgment by the affirmed reports of an orthopedist and a neurologist.  They opined that the plaintiff suffered no residuals from his back surgery and no deficits in range of motion.  The use of slightly different normal values for one diagnostic test and the finding of a minor limitation in range of motion for plaintiff’s spine in one plane were insignificant.  Defendant’s experts were not required to review plaintiff’s medical records where they made their own examination of the plaintiff.

The plaintiff failed to offer any issues of fact.  His physicians did not present any post-surgery range of motion measurements or qualitative assessments and plaintiff failed to offer any basis to refute defendant’s experts or support his contention that his prior injuries were exacerbated by the accident.

02/20/13       Joseph v. Francois
Appellate Division, Second Department
Denial of Defendant’s Motion for Summary Judgment Upheld
The Second Department affirmed the Supreme Court’s denial of defendants’ motion for summary judgment.  The plaintiff created an issue of fact as to whether he suffered a significant limitation by submitting the affidavit of the surgeon who operated on his shoulder about 11 weeks after the accident, the post-operative report, and diagnostic range of motion testing results.

02/19/13       Calcano v. Rodriguez
Appellate Division, First Department
The Standard for Plaintiff’s Burden on the Issue of Causation May Be in Flux
The entire court agreed that the defendant was not entitled to summary judgment.  The court refused to consider the defendant’s 90/180-day claim argument because it was not raised in his initial motion papers.  The defendant met his prima facie burden of showing plaintiff’s shoulder, lumbar, and cervical injuries were not serious.  The defendant submitted the affirmed reports of a radiologist and orthopedist opining that the injuries were degenerative conditions that preexisted and were not caused by the accident.

The court only diverged on the strength of plaintiff’s position.  The majority stated “it cannot be said on this record, as a matter of law, that plaintiff’s injuries had no causal connection to the accident.”  In other words, the plaintiff created an issue of fact about causation.  Moskowitz and Manzanet-Daniels, JJ., who appear to appreciate double negatives as much as the rest of us, took exception with the majority’s failure to apply the Court of Appeals’ Perl decision to these facts.

The majority focused on the fact that plaintiff’s radiologist opined that a partial tear of the rotator cuff (partial high-grade tear of the supraspinatus musculotendinous junction and a partial intrasubstance tear of the attachment of the infraspinatus tendon) was “post-traumatic with a high degree of certainty.” (Internal quotations and corrections omitted).  The plaintiff’s orthopedic surgeon, who performed arthroscopic surgery on the plaintiff’s shoulder, also opined that the plaintiff had a torn rotator cuff and impingement that was causally related to the accident.  The court also took note of the evidence that the plaintiff “tested positive for an impingement sign test, suffered persistent pain, and continued to exhibit range of motion deficits in his left shoulder” and that plaintiff’s physicians “documented limitations in the cervical and lumbar spines.”

The concurring opinion focused on the fact that even though the plaintiff’s physicians did not directly rebut the defendant’s degenerative injury argument, they attributed the injuries to the accident and there was evidence on the record that plaintiff was asymptomatic before the accident.  According to the concurrence, Perl held that a plaintiff’s expert’s opinion raises an issue of fact as to causation, despite a prima facie case of degeneration by the defendant, where he or she opines that there is causation and the plaintiff was asymptomatic before the accident.

 

MARGO’S MUSINGS ON NO-FAULT
Margo M. Lagueras
[email protected]

ARBITRATION

02/22/13       Applicant v. Kemper Independence Insurance Co.
Onondaga County, Arbitrator Mary Anne Theiss
Carrier Is Entitled to Take Payments Made by the Volunteer Firefighters’ Fund as an Offset
Our own Audrey Seeley appeared for Kemper and successfully argued this novel issue. 

Claimant, a volunteer fireman, was injured in a motor vehicle accident while responding to a fire.  He was awarded Volunteer Fire Department benefits for loss of earning capacity.  He also submitted a claim for wage loss under the PIP and APIP endorsements of his own auto policy issued by Kemper.  In addition, he received NYS disability benefits for which Kemper took the statutory offset.

The dispute concerned whether Kemper was entitled, under Insurance Law § 5102, to offset no-fault wage loss payments by the payments received under the Volunteer Fire Department Benefit Law [VFB Law].  Claimant argued that § 5102(a)(2) makes no reference to the VFB Law or disability benefits.

Kemper asserted that, pursuant to Article 9 of the Workers’ Compensation Law [WC Law], it was entitled to take an offset.  Kemper argued that, because Applicant was covered under the VFB Law, he could not also receive WC benefits.  The history and evolution of the interaction between General Municipal Law § 205 and the WC Law was reviewed in detail and it was noted that the new benefit system [VFB], that was administered by the Workers’ Compensation Board and to which the procedures and administrative provisions of the WC Law applied, requires that payments must correspond with the amounts payable under the WC Law. 

The Arbitrator agreed with Kemper that the VFB Law benefit is an offset against the WC benefits and, as such, is an offset to no-fault wage loss benefits.

02/20/13       Applicant v. Nationwide Ins. Co of Am.
Erie County, Arbitrator Kent L. Benziger
While Applicant Is Required to Make Good Faith Effort to Mitigate Damages, Carrier’s Burden of Proof Is Not Clear
The insurer issued a general denial for orthopedic benefits and lost earnings based on an orthopedic IME.  Prior to the denial, Applicant had been receiving insurer-provided vocational rehab service which, although he did not comply with entirely, he did attend some meetings.  The vocational case manager reported that Applicant did not follow up with job leads, that he was hesitant to return to work, and that he stated that employers would not allow him to work until he had a physician’s release. 

The Arbitrator determined that the reports from the treating providers were more persuasive than the IME as Applicant had no prior history and the reports documented a deterioration of his condition.  Furthermore, the basis for the lost wage denial was the IME and not the reports from the vocational case manager.  The evidence showed that Applicant apparently did not follow through with certain job searches but the vocational specialist himself noted that Applicant was disabled by his physicians and surgery was contemplated.  Therefore, Respondent did not sustain its burden as to Applicant’s failure to mitigate his damages.  Furthermore, and because the denial did not specifically state that it was also based on the vocational counselor’s report, that defense was arguably waived.

02/19/13       Scott Croce, DC v. State Farm Fire and Casualty Co.
Erie County, Arbitrator Thomas J. McCorry
Denial Based on Injury Sustained While Committing an Act Which Would Constitute a Felony Is Appropriate
Base on the documentation submitted, which included an affidavit regarding a police surveillance video and EUO testimony, it was undisputed that the incident involved a bar fight between two groups of women which ultimately spilled into the street.  The EIP was seen in the video striking State Farm’s insured’s vehicle window with a hammer.  Subsequent events were disputed, but the EIP apparently told her treating physician that she was a pedestrian crossing the street when she was struck by the vehicle identified in the video.  However, another bar patron testified at her EUO that the insured’s vehicle crashed into a telephone pole outside the bar but that she did not see it hit anyone.

Although the actual video was not produced at the hearing, and no criminal charges were brought, the Arbitrator found the video evidence to be persuasive.  Because the video apparently clearly showed the EIP breaking the windshield, and such conduct would support a charge of criminal mischief under the NYS Penal Code, the Arbitrator found that it supported the grounds for State Farm’s denial.

LITIGATION

02/19/13       Infinity Health Prods. v. Travelers Ins. Co.
Appellate Term, Second Department
Defendant Is Not Required to Issue EUO Scheduling Letters for Each Claim
At issue were three bills denied by defendant because plaintiff’s assignor failed to appear for scheduled EUOs.  The trial court granted defendant’s motion on the first two bills finding that defendant proved that the EUOs had been properly scheduled and plaintiff’s assignor failed to appear.  The trial court denied defendant’s motion with respect to the third bill because it determined that defendant did not issue two scheduling letters addressing the date of service for that bill.  On appeal, the Appellate Term held that because defendant demonstrated that plaintiff’s assignor failed to comply with a condition precedent to coverage by failing to appear for the twice-scheduled EUO, the claim was timely and properly denied as it is not necessary for defendant to issue new scheduling letters addressing each particular bill.

02/08/13       All Boro Psychological Servs., PC v. Allstate Ins. Co.
Appellate Term, Second Department
Discovery Demands Relating to Defenses That Defendant Is Precluded from Asserting Are Palpably Improper
Plaintiff sought summary judgment and defendant moved to compel discovery which plaintiff had not timely challenged.  As a result, plaintiff was obligated to produce the information demanded, except as to those matters which were palpably improper, such as matters relating to defenses which the defendant was precluded from asserting. 

On its motion, defendant was only required to show that no response to its discovery demands had been received.  On the other hand, to oppose defendant’s motion, plaintiff would have had to show that defendant’s defense of billing fraud was precluded because it was not asserted in a timely NF-10, something plaintiff did not do.  As defendant set forth specific information supporting its belief that plaintiff was not in compliance with licensing laws and was therefore not entitled to recover no-fault benefits, defendant was entitled to discovery of plaintiff’s financial records as well as an EBT of plaintiff’s officer.

 

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

02/21/2013   Madison Mutual Ins. Co. v. Expert Chimney Servs., Inc.
Appellate Division, Third Department
C&O Reports are Not Protected by Material Prepared in Anticipation of Litigation Exemption
Madison commenced the instant action, in subrogation, after absorbing its insured’s extensive fire loss.  It appears that Madison learned of the fire on the date it occurred, and immediately retained a cause and origin investigator to inspect the loss.  Several days after initial notice, Madison retained a second fire investigator to review the loss location.

The claim was eventually paid by Madison, and the instant action followed shortly thereafter.  As part of discovery, Expert sought production of various items through a Notice to Produce.  Madison objected to several of the demands, which resulted in Expert serving a motion to compel production.  The court, in reviewing Expert’s motion, requested that Madison prepare a privilege log detailing each of the 15 items that it continued to withhold from discovery.  These items, apparently, included e-mails to and from the fire investigators that Madison had retained.  In addition, Madison also refused to provide copies of the reports prepared by the fire investigators.

In directing the disclosure of the reports and e-mails, the trial court noted that Madison did not meet its burden of establishing the documents qualified as material prepared in anticipation of litigation.  On appeal, the trial court’s decision was affirmed. 

In so holding, the Third Department initially noted that it was Madison’s burden to establish the documents were material prepared in anticipation of litigation, and not, as asserted by Expert, documents maintained in the ordinary course of business.  Where, as here, Madison only offered attorney affidavits in support of the protection, the Court found there was no evidence by anyone with personal knowledge which would support the preclusion of the reports/emails from disclosure.  

Simply stated, where the carrier cannot establish that the materials were only used for litigation purposes it attempts to avoid disclosure will fail.  Where, as here, the reports were also prepared/used in the ordinary course of business of investigating fire losses the exemption is lost.

02/20/13       L & D Service Station, Inc. v. Utica First Ins. Co.
Appellate Division, Second Department
Insurer Did Not Present Sufficient Proof to Obtain Summary Judgment Demonstrating Loss Fell Outside of Coverage
The insured, generally, has the burden of proving that a loss falls within the scope of coverage.  If established, the insurer has the burden of proving applicable exclusions remove the claims from coverage.

Here, the policy provided that Utica would pay "to extract pollutants from land or water at the described premises if the discharge, dispersal, seepage, migration, release, or escape of the pollutants [was] caused by a peril [that had been] added to coverage." The "Systems Breakdown" endorsement of the policy stated that coverage would be provided for the additional peril of "Mechanical breakdown, including rupture or bursting caused by centrifugal force." The plaintiff claimed coverage under this endorsement following the release of gasoline at the insured premises.

That policy requires not only proof of a leak but proof that the leak was caused by a mechanical breakdown.  However here, the insurer was making a motion for summary judgment so it has the burden of proof.  It failed to make a prima facie showing sufficient to shift the burden to the plaintiff so summary judgment could not be awarded.

02/19/13       Excise Bond Underwriters v. Zurich Am. Ins. Co.
Appellate Division, First Department
Fifth Time is the Charm – Continued Refusal to Comply with Discovery Orders Results in Complaint being Stricken
After three ignored discovery orders, plaintiff was again required to provide discovery responses on or before December 17, 2010.  When that date came to pass, the matter was sent to a special referee who, for some reason, gave plaintiff yet another chance to respond to Zurich’s notice for production of documents. 

After plaintiff ignored the special referee’s report (the fifth Order for discovery production), Zurich requested dismissal of the action.  In opposition, plaintiff, for the first time, offered some initial responses and offered to produce a witness to further explain the basis for the claim.  The trial court rejected these responses as inadequate, and further noted that deposition testimony cannot serve as a substitute for document production.  Accordingly, the matter was, at long last, dismissed. Mercifully, the Appellate Division affirmed by therein stating that the court’s was well within its sound discretion in striking the plaintiff’s pleading. 

Potpourri

Court of Appeals

02/14/13       Auqui v Seven Thirty One Ltd. Partnership
Court of Appeals
Workers’ Compensation Decision Precludes Re-litigation of the Timeline of Plaintiff’s Disability from Work
The instant case involves a work place accident involving Jose Verdugo.  As a result of the incident, Mr. Verdugo sought treatment for head, neck and back injuries, as well as post-traumatic stress disorder.  As it was a work-related incident, Mr. Verdugo filed for, and received, workers’ compensation benefits from 2004 through 2006.  In the interim, Mr. Verdugo also commenced a 2005 personal injury action against the owner of the parcel where the incident occurred.

By way of a January 24, 2006 decision from the Workers’ Compensation Board, it was determined that Mr. Verdugo was no longer disabled from returning to work.  That finding was challenged by Mr. Verdugo, and in February of 2007, the an Administrative Law Judge ruled that Mr. Verdugo’s disability ended on the date of the WCB determination and that no further treatment was necessary. 

As a result of these rulings, defendant moved to preclude plaintiff from re-litigating the duration of the injury.  Where, as here, the party had a full and fair opportunity litigate the case, defendants argued that collateral estoppel precluded any reargument. 

In holding for the defendant, the Court of Appeals noted that determinations of administrative agencies will be given preclusive effect where they address issues of fact.  Here, the duration of plaintiff’s injuries, was, in the Court’s eyes, a question of fact, and collateral estoppel was appropriate.  The decision was bolstered by evidence that plaintiff had presented expert testimony, cross-examined witnesses for the defendant compensation carrier, and submitted a litany of medical reports.  Accordingly, plaintiff was unable to relitigate issues related to Mr. Verdugo’s lost earnings and compensation for medical expenses. 

Judge Pigott penned the only dissent in this matter, and argued that the decision by the WCB (and subsequently the ALJ that presided over the appeal) was, by its very nature, a decision of law and fact.  Accordingly, there should be no preclusive effect given.  Judge Pigott reasoned that the determination as to an injured workers’ compensation benefits should be limited to that proceeding, and should not be permitted to bar the injured party from pursing these claims in subsequent civil litigation.

Appellate Divisions

02/20/13       Gifford v. Consolidated Edison Corp. of NY
Appellate Division, Second Department
Defendants’ Affidavits, Alone, are Insufficient to Create a Question of Fact
Plaintiff commenced the instant lawsuit after the vehicle in which she was traveling was allegedly rear-ended in slow traffic.  The vehicle that allegedly struck plaintiff was owned by Con Ed

In opposition to plaintiff’s motion for summary judgment, Con Ed submitted affidavits of two occupants of the Con Ed truck that averred they did not feel an impact.  However, because Con Ed failed to submit evidence that (a) the impact did not occur or (b) there was a non-negligent reason for the impact, it was unable to overcome the presumption of negligence against it.  Accordingly, plaintiff’s motion for summary judgment was granted. 

 

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

RED ALERT, NUMBER 1

Unfair Claims Settlement Practices Act (11 NYCRR 216)
Amendment 15 (02/26/13)

The Department of Financial Services also offers an Amendment to Regulation 216 which, for the first time, creates a mediation program for Sandy related claims/losses.  The Amended Regulation, which takes effect immediately upon filing with the Secretary of State, creates a series of new claims handling requirements for carriers dealing with Sandy related claims.

Who (Can Request Mediation)

• Policyholders who sustained a property related claim or loss or damage occurring from October 26, 2012-November 15, 2012 in Bronx, Kings, Nassau, New York, Orange, Queens, Richmond, Rockland, Suffolk or Westchester counties, respectively.
• Claims or loss or damage must be to real property and personal property (other than damage to a motor vehicle). 

It would appear that the mediation program is available to both commercial lines, as well as personal lines, policies. 

Note, that motor vehicle claims are excluded.

What (is Required by the Amendment)

• Where coverage or payment is disputed, carriers must provide a notice that informs the policyholder of their right to request mediation
• The notice must include the name, address, phone number and fax number of the designated mediator.
• It appears that American Arbitration Association (AAA) has been selected as the designed mediator

Where (is the Mediation Conducted)

• Mediations may be conducted face-to-face or telephonically

 

When (is the Notice Required)

          There is a Coverage/Payment Dispute:

• Contemporaneously with any denial of coverage;
• Within 10 business days from the date a carrier receives correspondence from the insured disputing a settlement offer;
• Within 2 business days if the carrier has not offered to settle within 45 days of receipt of a properly executed Proof of Loss; and/or,
• Within 10 business days of the effective date of the Regulation if, prior to the effective date of the Regulation:
• The carrier previously denied a claim;
• The policyholder has previously rejected a settlement offer; or,
• The carrier has not issued a coverage decision with 45 days of receipt of a Proof of Loss

The Policyholder Requests Mediation

• Within 3 business days, such mediation request must be forwarded to the designated organization
• Within 5 business days, carriers must pay the designated organization’s mediation fees

 

How (is the Mediation Process Set Up)

• Mediations are conducted under the terms set up by the designated organization
• Mediations may address any portion of a disputed claim, unless:
• The claim has already been submitted to appraisal
• The carrier has a reasonable basis to suspect fraud
• Any portion of a claim is outside the parameters set up by the designated organization

Other Good Stuff:

• Carriers must negotiate in Good Faith
• Failure to settle will not be interpreted as an act of bad faith, provided the carrier has a reasonable explanation for its action
• The mediator, presumably, determines what is “reasonable explanation”
• Carriers must send a representative with authority to settle
• The carrier’s representative must provide a copy of “entire claims file, including relevant documentation and correspondence with the claimant”
• A request for mediation does not preclude a Policyholder from pursing appraisal or litigation

 

RED ALERT, NUMBER 2

Unfair Claims Settlement Practices Act (11 NYCRR 216)
Amendment 16 (02/26/13)

In addition to creating a compulsory mediation program, the Department of Financial Services has also amended the timelines for investigating claims and corresponding with Policyholders.  As outlined below, Amendment 16 effectively shortens the time for a carrier to make a coverage decision, or contact an insured, from 90 days to 30 days.  Moreover, the Amendment also establishes specific content that must be included in any communications with an insured where the carrier is unable to make a final coverage determination.

You may recognize some of the other changes from early Amendments which were promulgated in November of 2012.  These changes, although previously adopted, are again referenced in the latest version.

Who (is Protected)

• Policyholders who sustained a property related claim or loss or damage occurring from October 26, 2012-November 15, 2012 in Bronx, Kings, Nassau, New York, Orange, Queens, Richmond, Rockland, Suffolk or Westchester counties, respectively.
• Claims or loss or damage must be to real property, personal property, or liability for loss of, or damage to, or injury to persons or property.
• With respect to changes to 11 NYCRR 216.5(a), claims covered by the Amendment must have been reported AFTERNovember 29, 2012.

When (is the Notice Required)

• Within 6 business days, carriers must commence its investigation into a claim
• Within 6 business days, carriers must provide all forms, notices and statements to the Policyholder
• Within 15 business days, carriers much reach a coverage determination or indicate that additional investigation is necessary
• Within 30 days of the initial coverage letter, carriers must issue a follow up letter to the insured (the letter must contain specific information addressed below)
• Every 30 days thereafter, carriers must continue to correspond as to the status of the claims investigation

What (is Required in the “30 Day Letters”)

• Carriers must set forth reasons why additional time is needed
• Carriers must provide an anticipated date that a coverage determination will be reached
• Carriers must advise, in writing, what portions of any claim (if any) are not covered by the terms of the policy
• Carriers that deny claims for personal property or real property must notify the Policyholder of any policy provision that limits his or her rights to sue

Other Good Stuff:

• Claims filed with an agent of the carrier are imputed directly to the carrier
• Policyholders may commence immediate repairs to heating systems, hot water systems, necessary electrical repairs, repairs of exterior doors and windows, and minor repairs of exterior walls.
• If a carrier does not accept or deny a claim within 15 days of receipt of the Proof of Loss or receipt of all Statements and Forms, it must disclose to the Superintendent of Insurance:
• The date of the loss;
• The date the claim was filed with the carrier;
• The date a  Proof of Loss or Receipt of all Statements and Forms was received by the carrier;
• The estimated amount of the loss;
• The reason given for the extension of time;
• The anticipated date a determination will be reached;
• The number of extensions previously requested; and,
• The zip code where the loss occurred.

***the notice to DFS must be filed every Tuesday***

 

RED ALERT, NUMBER 3

Insurance Circular Letter No. 1 (02/27/2013)
Superintendent’s Expectations for Post-Moratorium Treatment of Policyholders

As you will recall, by way of Executive Order handed down shortly before “Storm Sandy” slammed into Long Island, the State suspended all homeowner’s premiums for premises located in counties likely to be impacted by the storm.  That moratorium on premium payments has been extended several times over the past four months, but is finally coming to a completion. 

In an effort to streamline the process of withdrawing the moratorium, the Department of Financial Services has advised that it “expects” carriers to institute the following procedures:

• Along with the first notice of payment, carriers are to provide a toll-free telephone number for policy holders to call to discuss “alternative payment arrangements.”
• Provide a “new” notice to policyholders that were issued non-payment cancellations prior to the moratorium. 
• Advise policyholders that carriers have a “willingness to work out reasonable payment plans.”
• Provide multiple payment options for those policyholders that express difficulties in bring their accounts up to present
• Recalculate premiums to allow customers to spread premiums out over an extended period of time
• Send a bill with the total amount of premiums outstanding, but, at the same time, provide a “reasonable amount of time before non-payment cancellation notices are generated.” 

In addition, the Superintendent has also indicated that it is the Department’s expectation that insurers will consider policyholders’ requests for leniency “as circumstances warrant.”  Finally, the Superintendent also reminds carriers that unbilled premiums during the moratorium are not yet “due.”  To that end, carriers are reminded that cancellation notices should not accompany the forthcoming premium notices.  The only exception, of course, is for those non-payment cancellation notices that were outstanding at the time the moratorium took effect.

 

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

02/19/13       Bartlett v. Nationwide Mutual Fire Ins. Co.
United States District Court – Western District of New York
Court Finds Pleading Insufficient and Dismisses Claims without Prejudice
The Bartletts allege that Nationwide Mutual Fire Insurance Company [“Nationwide”] breached the terms of a homeowner’s policy it sold to the Bartletts when it refused to pay losses resulting from a fire on April 22, 2010 that destroyed their residence. 

The Bartletts allege they suffered losses under the policy and consequential damages caused by the defendant of more than $432,000.  More specifically, the Bartletts bring claims against Nationwide for breach of contract for failing to pay $337,563.72 for the lost value of the dwelling and personal property destroyed in the fire.  Nationwide made one payment to plaintiffs of $5,000.  Plaintiffs seek the unpaid $332,563.72, with interest, for property losses on their breach of contract theory.

The Bartletts also allege Nationwide breached an implied covenant of good faith and fair dealing by failing to pay their losses under the policy.  Plaintiffs seek consequential damages of approximately $100,000 for the alleged breach of the covenant of good faith and fair dealing.

Finally, the Bartletts allege that Nationwide engaged in deceptive acts and practices in violation of New York General Business Law §349 by inordinately delaying and denying plaintiffs’ loss payments under the policy.  The alleged damages under the deceptive practices theory include consequential damages and match the more than $432,000 claimed on their theory of a breach of the implied covenant of good faith and fair dealing.

After Nationwide removed the case from State Court to Federal Court it filed a motion to dismiss pursuant to FRCP 12(b)(6).  In general, Nationwide contends that claims asserted by the Bartletts to recover consequential damages for defendants breach of the implied covenant to good faith and fair dealing, and for engaging in deceptive business practices in violation of New York General Business Law §349, are invalid as a matter of law.  For the following reasons the Court granted Nationwide’s motion to dismiss, without prejudice.

In analyzing the motion to dismiss the court noted that a complaint that alleges only “labels and conclusions” or “a formalistic recitation of the elements of a cause of action will not do.”  Plaintiffs must “nudge their claims across the line from conceivable to plausible” or their complaint must be dismissed.

On the issue of Nationwide’s breach of the implied covenant of good faith and fair dealing the court determined that the plaintiffs alleged no distinct facts supporting a cause of action for a breach of the implied covenant of good faith and fair dealing; and, that plaintiffs alleged no facts supporting their theory of extra-contractual liability for consequential damages.  The court noted that under New York law a claim for breach of implied covenant of good faith and fair dealing will be dismissed as redundant where the conduct allegedly violating the implied covenant is also the predicate for breach of covenant of an express provision of the underlying contract.  Further, because the settled law in New York does not ordinarily recognize extra-contractual liability for conduct alleged as a breach of contract, Nationwide’s motion to dismiss this claim was granted. 

The court recognized that New York law does recognize a cause of action for an insurer’s extra-contractual bad faith upon well-pleaded allegations that:  (1) the insurer denied coverage as a result of “gross negligence”; and, (2) the insurer lacked even an “arguable” basis for denying coverage under the standards of a reasonable insurer; however, the Bartletts failed to allege facts to state such a cause of action for bad faith and they alleged no other facts to support a recovery of consequential damages on their breach of contract cause of action.

The Court also dismissed the deceptive acts practices claim under New York Business Law §349.  Nationwide argued that the Bartletts failed to state a cause of action on this claim because they have not alleged sufficient facts from which the existence of a consumer-oriented scheme may be inferred.

In analyzing New York law, the court noted that courts almost uniformly find that disputes between policy holders and insurance companies concerning the scope of coverage are nothing more than private contractual disputes that lack the consumer impact necessary to state a claim under §349.  The court pointed out, however, that courts have found the requirements of allegations of a consumer-oriented practice satisfied where plaintiffs expressly allege the existence of a claim settlement policy designed to deceive certain categories of policyholders. 

The court stated that plaintiff did not successfully plead a cause of action under §349 because the Bartletts allege only Nationwide’s use of standard policy language with conclusory allegations based upon “information and belief”.  The court noted that the plausibility requirement that applies in Federal Court is not akin to a probability requirement but asks for more than a sheer possibility that a defendant has acted unlawfully.  Accordingly, the court held that plaintiffs’ failed to state a claim under §349 of the New York Business Law and granted Nationwide’s motion to dismiss without prejudice.

 

KEEPING THE FAITH WITH JEN’S GEMS

Jennifer A. Ehman
                                            [email protected]                     

02/22/13       Founders Ins. Co. v. DA Shark, Inc.
Supreme Court, New York County
Insurer Did Not Waive Reliance on Sublimit where it did not Issue Insurance Law 3420(d) Complaint Disclaimer
Plaintiffs in the underlying action sustained serious injury after being stabbed multiple times by a drunken patron while on premises owned by DA Shark.  Plaintiffs brought an action against DA Shark alleging negligence, negligent security and violation of the applicable Dram Shop Act. 

Founders issued a CGL policy to DA Shark, which provided $1,000,000 per occurrence, $2,000,000 in aggregate.  The policy also contained separate coverage form for Liquor Liability, which contained a combined single limit of $1,000,000. 

During discovery in the underlying action, DA Shark disclosed the following policy and limits.  However, approximately one year later, DA Shark supplemented its insurance disclosure indicating that the policy had an assault buy-back in the amount of $300,000. 

Founders then brought this action seeking a declaration that the coverage limit amount of the policy to satisfy all bodily injury claims in the underlying action was $300,000 under the assault and battery-buy back form to the Liquor Liability Coverage part.  Further, that the CGL portion of the policy contained a liquor liability exclusion, which was trigged. 

In opposition, DA Shark argued that Founders waived its right to exclude coverage by providing a defense, and failed to timely disclaim on the overage. 

The court held that while Founders violated 3420(d), the section is inapplicable because Founders did not disclaim liability or deny insurance coverage was available for the underlying action.  Rather, because Founders offered the full measure of available insurance for the incident ($300,000), a disclaimer was unnecessary.  Thus, the policy sublimit applied. 

Take Away:  The liquor liability coverage contained and exclusion for assault and battery; however, it appears that the insured brought back some of the coverage for assault and battery, but with a limit of $300,000. 

01/16/13       Flores v. Allstate Ins. Co.
Supreme Court, New York County
In the Underinsured Motorist Context, the Reduction for Comparative Negligence Should be applied before the Set-Off
The issue in this decision was the application of comparative negligence in an optional arbitration.  Petitioner’s child was struck by a car and sustained injury.  The driver’s carrier tendered its entire $50,000 policy.  Thereafter, petitioner submitted a demand for arbitration against Allstate, her own carrier, seeking recovery of the under-insurance policy limits of $100,000.  The SUM Endorsement in the Allstate policy contained a voluntary arbitration clause providing that petitioner had the “option” to resolve the matter through arbitration. 

At arbitration, the arbitrator applied the child’s 50% comparative negligence before the set-off of $50,000.  As damages were found to be $100,000, the petitioner received nothing. 

Asserting that the comparative negligence should have been applied after the set-off, petitioner then brought this action alleging, among other things, that CPLR § 7511 provides that one ground for modification of an arbitration award is the “miscalculation of figures.”  Petitioner pointed to the Court of Appeals decision in Whalen v. Kawasaki Motors Corp., U.S.A., in which it discussed methods of calculation; specifically,  “settlement-first” versus “fault-first.”  In “settlement-first,” the set-off of $50,000 would have been first deducted from the gross award of $100,000 and then the child’s 50% fault would have been applied.  Comparatively, in “fault-first,” the child’s 50% comparative fault would have been applied first and then the $50,000 set-off deducted.  The Court of Appeals adopted the settlement approach. 

Nevertheless, the court found that although it was obligated to follow the findings of the Court of Appeals, and it would be reversible error to calculate the award in a contrary manner, Article 75 did not apply because the arbitration was optional.  Thus, the court held it was not bound by 7511 and, in turn, determined that the arbitrator made a substantive decision to calculate the award using the “fault-first” approach, and the court would not contradict that decision. 

Take Away:  While the ultimate decision was correct, I think the court was misled by the Whalen decision.  Whalen is inapplicable as it involved a trial where parties settled out beforehand, and did not address SUM at all.   Further, Regulation § 60-2.2 speaks directory to this situation.   Title 11 Insurance Regulation § 60-2.2 sets forth an almost identical example.

(4)       Example Four:

Insured’s Bodily Injury Damages              $150,000
Insured’s Liability Limit                              $100,000
Insured’s SUM Limit                                  $100,000
Other Motor Vehicle Liability Limit             $ 25,000

Result:  Suppose the insured and the other motor vehicle owner or operator were each 50 percent at fault for the accident, then the insured’s total recovery would be $75,000, in light of comparative negligence of the parties involved in the accident.  The insured would recovery $25,000 from other negligence motor vehicle owner or operator and $50,000 under the SUM coverage.

In other words, the arbitrator was right.  

Bad Faith

02/22/13       Mid-Continent Casualty Co. v. Eland Energy, Inc.
United States Court of Appeals, Fifth Circuit
Insurer’s Mishandling of Third-Party Claim was not a Breach of the Duty of Good Faith and Fair Dealing
This decision arises out of property damage caused after Hurricane Katrina destroyed the insured’s oil and gas facilities in Louisiana.  Apparently, the hurricane caused tanks of crude oil owned by the insured to spill into Port Sulphur.  As a result, five class action lawsuits were brought by neighboring property owners and commercial fisherman against the insured.  Plaintiff agreed to provide a defense to the class action lawsuits subject to a reservation of rights.

The insured accepted the defense, but asserted that it was entitled to independent counsel due to the ROR, and selected the law firm of Jones Walker.  Plaintiff eventually agreed to the representation.  Thereafter, plaintiff tendered its primary and umbrella policy limits to the insured for relevant cleanup costs.  The insured refused to deposit the checks because it planned to pursue reimbursement for government mandated cleanup costs from a statutory fund and because of concern that, if plaintiff paid for the costs, plaintiff would have no duty to defend the insured in the class action lawsuits. 

As a result, plaintiff commenced this action seeking a declaration that it had no further duty to defend.  The insured cross-claimed for breach of the duty of good faith and fair dealing, among other claims.  The cross-claim was based on a secret settlement offer plaintiff made to one landowner, Chris Leopard, which the insured claimed prejudiced its ability to settle one of the class action suits.  Mr. Leopard was the owner of one of the largest damaged pieces of property near the insured’s facility.  It was alleged that plaintiff’s counsel, not Jones Walker, secretly toured Mr. Leonard’s property, and made him an offer of around $100,000 to settle his claim.  An offer Mr. Leonard rejected.  Supposedly, after rejecting this offer, Mr. Leonard joined a class action and encouraged his neighbors to do the same.  The insured alleged that this action greatly increased the ultimate amount of the settlement for that action.     

In a lengthy history of the action, briefed by the court, some of the insured’s cross-claims were presented to a jury which awarded the insured over eight million in compensatory, penalty and punitive damages.  However, a post-trial motion made by plaintiff was granted and the verdict overturned. 

This decision addresses two points at issue surrounding the verdict: whether plaintiff breached its duty of good faith and fair dealing; and whether plaintiff violated Texas Insurance Code. 

First, the insured argued that plaintiff breached its common law duty of good faith and fair dealing.  To prevail on this claim, the insured was required to initially show that Texas recognized a cause of action for an insurer’s mishandling of third-party claims.  The court refused to make such a leap.  Rather, it held that Texas had no statutory cause of action for breach of the duty of good faith and fair dealing in the context of an insurer’s handling of a third-party claim.  Further, the only previously recognized common law claim was for breach of the duty to settle a third-party claim within policy limits, a situation that did not occur here. 

Next, the court considered the claim premised on violations of Texas insurance code, which was based on plaintiff’s failure to give a prompt and reasonable explanation for the Leopold settlement offer, and plaintiff’s four misrepresentations of material fact made to the insured.  The misrepresentations were identified as:  (1) misstating the law as to whether a conflict of interest was created by the ROR letters; (2) misrepresenting that it would not pay more than $200/hour for the insured’s choice of independent counsel; (3) misstating that there was no coverage for Hurricane Katrina costs at the insured’s facility unless the insured obtained a written order from the Coast Guard; and (4) misstating the law when it indicated to the insured that it had an unavoidable duty to investigate the Leopold claim.

The court ultimately held that none of the unfair settlement practices were a producing cause of the insured’s injury in the amount of the subject settlement.  In the court’s opinion, it was not enough to show that the plaintiff was a bad actor.  It needed to tie one of the representations to the increased settlement amount and establish that it was a producing cause; something the insured did not do.     

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

WATCH OUT FOR WAIVER OF ATTORNEY/CLIENT PRIVILEGE

In today’s changing and turbulent legal world, one of the remaining and best ways to insulate and isolate documents and information from third party discovery is to wrap it in a cloak of attorney-client privilege.  Courts still respect and enforce the privilege, will deny discovery and legal use of privileged documents, and certainly allow for severe editing or redaction of documents based upon the privilege.  However, the privilege can be waived by intentional or inadvertent disclosure in discovery or otherwise, a lesson learned in the case of Fidelity National Financial, Inc. v. National Union Fire Insurance Company of Pittsburgh, 2012 WL 4443993(S.D. California, September 25, 2012).

Victims of a Ponzi scheme sued Chicago Title because a San Diego investment advisor used client money and forged signatures on numerous fraudulent escrows at Chicago Title. Fidelity National, the parent company of Chicago Title, submitted two claims arising out of this affair to its insurer, National Union.  On the first claim, Fidelity had a $15 Million professional liability policy.  On the second claim, Fidelity also had a $15 Million “financial institution bond” to insure against employee dishonesty, forgery, etc. Although the bases for liability were different, these claims obviously arose from a common set of facts and circumstances, and information pertinent to the professional liability claim would also likely be relevant to the first party bond claim and vice versa.

Fidelity prepared a position memo to National Union concerning the professional liability claim wherein Chicago Title’s attorneys discussed, inter alia, the involvement of a company escrow agent in the scheme, noting some “red flags” in audits of her files.  Fidelity sent this memo to National Union, but asked the insurer to set up a “wall” between the professional liability claim and the bond claim.

National Union ultimately agreed to pay defense costs in the Ponzi scheme lawsuits under the professional liability policy.  Fidelity then sought sanctions against National Union in District Court for refusing to return the memo written on the professional liability claim.  Fidelity also asked the Court to bar National Union from using that memo in litigation which continued over the bond claim.  The Federal Court denied the motions.

The Court said that Fidelity had used the memorandum and other documents from investigation of the professional liability claim, which would otherwise be privileged, in support of its claims on the financial institution bond.  The Court ruled that Fidelity could not “selectively use” certain documents from the liability claim file to support its theories of recovery or contest defenses on the bond claim.  The Court ruled that Fidelity waived the attorney-client privilege with regards to the memorandum when it voluntary provided it to National Union.  Since National Union did not “improperly obtain” the memorandum, and the attorney-client privilege was waived, National Union would not be barred from using the memorandum in the litigation wherein, presumably, National Union would use the memorandum, inter alia, to show that Chicago Title knew about but ignored “red flags” in audits of underlying escrow files.

This case represents a good example where investigation of one claim arising from a loss may affect other first party and third party claims.  This case supports the best practice of separating third party and first party claims files since the policies, interests, claims, and information that may go into those claim files may have different purposes, connotations, and results.

The attorney-client privilege is still one of the best ways to prevent and bar disclosure of information and its use at trial, but caution must be taken to avoid intentional or inadvertent disclosure of privileged documents and material.  One possible protection here would have been for Chicago Title to agree to submit a position paper or report to the insurance company (prepared in whole or in part by its attorneys) upon an agreement by the insurance company that it was being submitted for settlement purposes, and not to consider it a waiver or forfeiture of attorney-client privilege but something submitted for informational purposes.  Even if a document or material may be in fact attorney-client privileged, releasing or disclosing that information to third parties, even if helpful for a certain purpose, may result in an inadvertent waiver of the privilege in discovery and other contested legal claims or proceedings down the road.

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

02/11/13       Mitsui Sumitomo Ins. Co. v. Duke Univer. Health System, Inc.
Fourth Circuit Court of Appeals
“Occurrence” Under Insurance Policy Defined as Insured’s Single, Triggering Act, as Opposed to Each Individual-Resulting Injury
Duke University Health Systems, Inc. (“Duke”) engaged Automatic Elevator Company (“Automatic”) to renovate two elevators in a hospital’s parking deck. After completing the repairs, Automatic disposed of hydraulic fluid in used surgical detergent barrels in the hospital storage area. Duke employees mistakenly believed the barrels contained surgical detergents, and used the hydraulic fluid to wash hundreds of surgical instruments. Duke sued Automatic, after which Automatic’s insurer, Mitsui Sumitomo Insurance Company of North America (“Mitsui”), brought this action seeking a declaratory judgment that it owed no further obligation to Automatic. Mitsui argued that Automatic’s negligence in disposing the hydraulic fluid constituted a single “occurrence,” obligating it to pay only $1 million under the applicable insurance policy, which Mitsui had already paid to settle the surgical patients’ claims against Automatic.

Duke argued that the Court should look at the most immediate cause of the injury – each surgery in which the tainted instruments were used – to determine the number of “occurrences” under the policy. The Court applied the proximate cause theory, under which an event constitutes one occurrence when “there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage.” According to the Court, under the proximate cause theory, it is necessary to “focus on the act of the insured that gave rise to their liability.” The Court explained that Automatic did nothing other than place the mislabeled barrels containing hydraulic fluid in the hospital storage area, and did not have any role in washing the surgical instruments or using the instruments during surgery.

Therefore, the Court agreed with Mitsui, and held that Automatic’s action of placing the barrels in the hospital storage area constituted a single “occurrence” under the policy.

Submitted by: Michael Lenhardt of Traub Liebe