Coverage Pointers - Volume XIV, No. 19

Dear Coverage Pointers Subscribers:

Do you have a situation?  We love situations.   We really do.

Now for the big news for our firm, our clients and our practice: 

Hurwitz & Fine Opens Long Island Office to Serve Metro New York Clients
Elizabeth Fitzpatrick Joins as Resident Partner

Hurwitz & Fine, P.C. is pleased to welcome Elizabeth A. Fitzpatrick as a member of the firm. Ms. Fitzpatrick will be resident partner in the firm’s new Long Island office serving the New York City metropolitan area, where a substantial and expanding portion of the firm’s practice is located. Founded in 1977, Hurwitz & Fine’s headquarters are in Buffalo, New York with several locations across the state, as well as offices in Palm Beach Gardens, Florida and Toronto, Ontario. In response to growing client needs, Hurwitz & Fine most recently opened an office in Albany and is now pleased to be expanding its roots with the centrally located Long Island office to better serve clients in the downstate and New York City area.

Beth concentrates her practice on insurance coverage disputes and civil appeals. She has represented insurers in defending and instituting declaratory judgment actions, regularly assisting clients in analyzing, arbitrating, negotiating and providing coverage opinions on issues arising under a variety of insurance policies, including professional, directors’ and officers’, employment practices, premises, commercial and automobile liability policies, as well as focusing on environmental coverage and social media issues. She also has an extensive appellate practice in both state and federal courts.

A frequent lecturer and author on insurance coverage topics for a wide range of professional groups, Beth regularly provides insurance coverage training for insurers throughout the country. She is a member of the Executive Committee of the Torts, Insurance and Compensation Law section of the New York State Bar Association where she also serves as chair of the Continuing Legal Education Committee, receiving the Chairperson of the Year award for 2012. She has also served as local chair and overall statewide planning chair for various New York State Bar Association seminars, including the Law School for Insurance Professionals.

An adjunct professor of Insurance Law at Touro College, she is a graduate of St. John’s University School of Law and an active member of the highly selective Federation of Defense & Corporate Counsel and DRI, the largest organization of defense attorneys in the country. 

Contact Elizabeth Fitzpatrick at [email protected], and, as of Monday, March 18th:

Hurwitz & Fine, P.C.
535 Broad Hollow Road
Suite B-7
Melville, New York 11747

Our phone number is (631) 465-0700
Our Fax number is (631) 465-0313

PLRB Claims Conference Coming Up:
We hope to see many of you at the Claim Conference in Boston. With Kipper Burke, Division VP and Sr. Claims Counsel at Great American P&C, we’ll be presenting on:
Casualty Campus -- Intermediate Level
Monday 3:30 - 5:00 (MPB1055)
Wednesday 10:30 - 12:00 (WAB1055)


Peiper’s Passing Pontifications:

My musings come to you live from Highway 86 re-revisited.  I will be appearing in Orange County Supreme Court on Friday morning.  If you haven't seen that court house, grab a six pack and a box of Legos.  What you come up with will likely be a close approximation.  

Of the 62 counties in New York, I have had the pleasure of appearing in more than 30 to date.  The uniqueness of Orange County makes it one of my favorites.  In case you're wondering, I'll go with the Otsego County (Cooperstown) as my current #1.  Very neat reuse building, and its three blocks from the Baseball Hall of Fame. 

As you all know, "have case...we will travel." At long last, we have a home to rest our weary bones when on Long Island. Although, by now you all know that Beth Fitzpatrick has joined our crew. Just the same, I extend my own warm welcome to her. Selfishly, I am very much looking forward to sharing ideas and learning from one of the best coverage lawyers out there.

Digressions aside, check out this week's property section.  The Second Department issued a ruling that surface water, which knocks out a basement window and subsequently floods a basement is not, by the terms of the policy, covered.  Why is it that I expect to know that (along with citation) by heart within the next six months?  

The First Department also provides an interesting read on the standards for rescinding a home owner's policy due to material misrepresentation.  Another "w" for our friend Mr. Gershweir. 

I would also encourage you to review Cassie's write up of one legislator's most recent swipe at creating a private cause of action against insurers for unfair trade practices.  No, Chicken Little, the sky is not falling; it merely seems that way.

Finally, for those of you who haven't checked it out.  We remind you, as we've done in past issues, to check out the DRI website for the Sandy Webinar which is scheduled for March 26th.  It is a fabulous presentation, if I must say so myself, and will provide thorough analysis of the ever changing regulatory and legal winds surrounding Sandy and her aftermath.  It's a great follow up to some of the earlier programs, and hits on all of the recent changes and amendments.  You're going to need to know this stuff...I promise.

That's it for now. 

Steve Peiper
[email protected]


Steve’s Talking About Counties?  What Happened One Hundred Years Ago?:
OK, here’s today’s trivia question. You all know that New York has 62 cities and 62 counties (although some counties have more one city and once city, New York has five counties).  The City of Geneva also spreads over two counties, Ontario and Seneca. The trivia question is this:  which was the last county formed in New York State.  The answer?  D’Bronx.

Legislation splitting off Bronx County from New York County was enacted in 1912 with an effective date of January 1, 1914. Prior to 1874 the entire area had been part of Westchester County.  Of course, like many New York State governmental decisions, there was controversy, as reported on the front page of the New York Times 100 years ago today:

ALBANY, – By a vote of 4 to 3 the Court of Appeals decided today that the law creating Bronx County was constitutional.  Judges Hiscock, Miller, Cuddeback, and Hogan signed the majority opinion, the last three being new members of the court.  Judges Gray and Bartlett held that the law was unconstitutional. Chief Judge Cullen said the question of constitutionality did not enter the case, so he did not pass on that question. 

The case was an appeal from the conviction of Joseph J. McKenna on a charge of murder in the first degree.  The conviction was affirmed.  McKenna was tried in General Sessions.  Judge Cullen pointed out that inasmuch as the Bronx County law did not give the new County Court jurisdiction until Jan. 1, 1914, it was proper to conduct the trial in General Sessions at the time, whether the Bronx County law was constitutional or not.

In the majority opinion Judge Hiscock held that the Legislature had the right to provide for the creation of a new county in the future and then submit the bill to the people to decide whether it should become operative.  He regarded it as “eminently just and fair” that the people most affected should be permitted to express approval or disapproval.  In answer to the criticism that the question should have been submitted to the people of the entire County of New York Judge Hiscock concluded that the Legislature had the right to limit the vote to citizens of the proposed county, who, all things considered, would have the greater interest… 

The movement to make the Bronx a separate county was opposed by business men there who saw in the plan merely an opportunity for Tammany to extend its power.  The people voted in favor of the proposition in November last after the bill authorizing the establishment of the county was passed by the Legislature and signed by Gov. Dix.  Opponents of the bill took the ground that it was unconstitutional inasmuch as New York County as a whole had not voted on the issue. 

Editor’s Note:  So you know, and I am sure you were about to ask, of the 62 cities in New York State, the smallest in population is the City of Sherrill, in Oneida County, with a 2010 census population of 3,147,  .000385 the population of NYC, the most populated.  Rye, New York, incorporated in 1942, was the last such city created in New York.  Of the 62 counties, Hamilton, up in the Adirondacks, is the smallest in population – 4,836 (although the fifth largest in size) and Kings County (Brooklyn) is the most populated.


Social Media Update -- Now Tweeting: #kohane

We know that thousands of you sit by the (virtual) mailbox on Thursday evenings or Friday mornings and await the “You’ve Got Mail” voice advising you that Coverage Pointers has reached your mailbox.  And we know, that for many of you, the wait it simply too much of a strain on your quest for instant, up to date, information.

There are other options available, all brought to you by your friends at H&F:

  • Tweets:         I have had a Twitter account for three years but haven’t really tweeted very much. I am beginning to believe that there is value in its proper use.  If you read tweets, follow me at #kohane and you’ll be the first to know of really significant developments in NY insurance law, even before you receive your next issue of CP.  Likewise, I’ll pass along interesting articles or stories that you might find useful in your practice.
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  • Telephone:  The most effective social media tool, call me at 716.849.8942. 


One Hundred Years Ago Today --  Happy Jack Buys Time:

Middletown Times Press
March 15, 1913
Front Page


Ossining, Mar. 15—John Mulraney who is scheduled to be electrocuted Monday for murdering "Paddy, the Priest," a Brooklyn saloon keeper today, sent to Governor Sulzer a letter asking for a reprieve, of sixty days. He says If he is executed, he will die a victim of the "Underworld's Code of Honor," which condemns "squealers as the most contemptible thing on earth." Within sixty days, Mulraney tells the Governor he can produce new evidence which will prove his innocence.

Editor’s Note: According to an article that appeared in the New York Times the following day, Governor Sulzer was so moved by Mulraney’s letter, he granted the 60-day reprieve, to May 19, to allow consideration of the new proof. On May 13, Governor Sulzer reviewed the material submitted, and finding nothing to suggest that an innocent man was being executed, refused to stop the execution.  Known as “Happy Jack” Mulraney, he died in the electric chair on Monday, May 19, 1913.  The news articles covering his execution indicated that he died with a smile on his face.  Always happy.


Jen’s Gem:

I would also like to welcome the newest member of our team, Beth Fitzpatrick.  Welcome and we are excited to have you. 

In terms of my column this week, I am reporting on a notable decision concerning the direct contracting requirement in some additional insured endorsements, which has been a “hot” issue lately.  In Structure Tone, Inc. v. Harleysville Worchester Ins. Co. (New York County), the court held that directing contracting is required where the endorsement defines coverage to include:

“any person or organization with whom you agreed, because of a written contract or agreement or permit, to provide insurance…”  (CG 71 86 08 02)

Remember, the prior appellate level decisions endorsing the direct contracting requirement have all dealt with the “any person or organization for whom you are performing operations when you an such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy” language.  (CG 20 33 10 01)  Something to watch going forward is whether this requirement starts creeping into more and more additional insured endorsements. 

With that said, I am instantly reminded of an interesting article I recently read by Gregory D. Podolak, Esq. and David G. Jordan, Esq. of Saxe, Doernberger & Vita, P.C., Insurance Service Office, Inc. to release new standard Commercial General Liability Forms and Endorsements, in which they reported that the new line standard CGL forms and endorsements are attempting to supersede this very trend and clarify that direct contracting is in fact not required.  “ISO’s newest AI endorsement (CG 20 38 04 13) seeks to remedy this issue by adding an entirely new paragraph…that broadly requires AI 2 status for: ‘Any other person or organization you are required to add as an AI under the contract or agreement described in Paragraph 1. above.’” 

Since the new endorsements rollout April 1, 2013, we will have to wait and see what impact they have in this area.

Jennifer Ehman
[email protected]


One Hundredth Anniversary of First Presidential Press Conference:

On March 15, 1913, newly inaugurated president, Woodrow Wilson, invited members of the press into his office for an opportunity to ask questions. That event was noted as the first presidential press conference ever.  The New York Times reported on the event:

Amazed to Have 125 Call,
He Makes a Hit by His Frank Talk

WASHINGTON, March 15. – President Wilson today received one of the surprises of his career, and made a speech when he had not intended to say a word.  At Secretary Tumulty’s request he agreed to meet the newspaper men in the Executive offices at 12:45 o’clock this afternoon.  It is the first time he had seen them since he came to Washington.

The President did not know what he was up against.  In Trenton, when the newspaper men came in, there were never more than a dozen, and sometimes not more than half a dozen.  he had expected that some twenty or thirty men might come in and that he would have a chance to chat freely and conversationally.

When he took his place at his desk and saw 125 newspaper men stream in, or about half the newspaper correspondents of Washington, the president’s amazement was written on his face.  A series of chats was impossible, and the President , standing back of his desk, made a speech.  He said he had not expected to see any such crowd, and had not intended to anything formal, but the size of the crowd made it necessary.

As he went on talking, the big hit he was making with the crowd became evident.  There was something so unaffected and honest about this way of talking under this unexpected call on him that it won everybody, despite the fact that many of the men there had come prejudiced against him.

He told of some of the difficulties of his Administration; of the fact that when big problems were presented to him he often go only a “few threads and not the whole pattern,” and hence could not see newspaper men about them until he got a better hold on the situation.  The frank way in which he explained his difficulties gave the men who were seeing him for the first time an entirely new line on him.

From that he went on to talk with the utmost freedom about an impression which has been spread all over the country to the effect that he was prejudiced against newspaper men.  It was due, he conceded, to the way in which he had denied a number of newspaper stories, but he said those denials should be taken as referring only to those particular stories, and not as indicating any general distrust or dislike of newspapers.  He said he felt highly honored to be a member of the National Press club, which he has joined since he came to Washington, and he paid a high tribute to the “fine fellows” who had been his newspaper associates at Trenton and during his campaign.

Referring to the fact that this was the first time he had had a chance to see the newspaper men, he said he wanted it understood that there were no doors on his offices, and that he was always willing and ready to see everybody.  He found he could not hold a regular levee, because of the demands on his time, but anybody who had anything to see him about could always get in, and as for general information that did not call for any special interview with him, it could always be obtained from “My Dear Friend Tumulty.”  Tumulty, who was standing behind him, looked startled and immensely pleased at this unprecedented tribute for the President is not given to expressing his friendships in such an open and public fashion.

Then the President shook hands with all the newspaper correspondents, and reiterated to each the expressions had had made in his speech.

It was evident that he had revised his opinion of newspapers.  In fact, he expressed himself as  touched and grateful over the treatment the newspapers had given him since his inauguration.
“I don’t suppose anyone who has entered this office has been as generously treated as I have been,” he said, “more generously than I deserve.” 


Mike’s Mini Missive:

No earth-shattering cases this week.  Instead, at the risk of boring some of you, I want to take the opportunity to explain a technical point that will make these cases easier to understand.  We often talk about plaintiffs’ or defendants’ “burdens” in no-fault serious injury cases.  The lion’s share of these cases involves motions for summary judgment.  A party that seeks summary judgment and wins typically wins the case, or at least comes much closer to it. 

The party that seeks summary judgment has the obligation to support its motion with enough evidence, of a sufficient amount and kind, to prove its point.  If that party accomplishes this feet, then the opposing party must present its own evidence to prevent the court from granting the motion.  To do this, the opposing party has a lesser burden.  Instead of proving its case, the opposing party only has to submit evidence that creates a question in the courts mind about some part of the moving party’s case.  This lighter burden is why so many of defendants’ summary judgment motions are denied.

Speaking of feats and shattering Earth, China’s Three Gorges Dam may have achieved a feat we can all appreciate.  It slowed down time.  Well not really, but it may have actually slowed the rotation of Earth and made each day here on Earth just a little longer.  To understand the idea go a playground and get on something that spins.  I’m trying to resist the urge to insert a legal disclaimer here.  Choose your playground equipment and your speed carefully.  Now pull and push your hands in an out.  You should notice your speed change as your arms move.

If you’re trying desperately to finish your Coverage Pointers article at ten o’clock at night, however, the dam won’t help much.  The dam reservoir holds 39.3 km3 of water, which assuming its 1 g/cm3 density, means the reservoir can hold about 86.5 trillion pounds of water.  Compared to the earth’s mass, which is the weight of the reservoir plus eleven zeros and multiplied by 150%, this is less than the proverbial drop in the bucket.  In other words, I might get an extra hour of sleep if I waited 164 million years.  You know what really doesn’t give you more time, stopping to calculate all this.

Michael P. Scott-Kristansen
[email protected]


This Week’s Highlights:


Dan D. Kohane
[email protected]

  • To Establish Mailing of a Disclaimer Letter, Insurer Must Prove Receipt or Regular Office Practice
  • If Carrier Agreed to Arbitrate No Fault Claim, It Cannot Avoid Arbitration by Claiming it is Cannot be Sued in New York
  • Blanket AI Agreement That Requires the Organization Seeking Coverage to Have Agreement with Party Providing Coverage Means What It Says.  Owner Does Not Win AI Status from Subcontractor’s Carrier, Despite “Incorporation Clause”


Michael P. Scott-Kristansen

[email protected] 

  • The Parties Trade Evidentiary Punches and The Defendant Prevails on Most Issues
  • The Defendant Failed to Support its Motion with Sufficient Evidence
  • A Jury Verdict is Overturned for Irrationality
  • The Jury was Rational.  Case Closed.


Margo M. Lagueras

[email protected]


  • Applicant’s Failure to Submit New Medical Evidence Following IME Results in Dismissal of Claim
  • Applicant’s Claim Denied Where Submission Is Insufficient to Establish Causation in Light of Significant Prior History
  • IME Doctor’s Failure to Review Treatment Notes Showing Improvement Results in Deficient IME Report



  • Failure to Apply for Stay of Arbitration Waives Contention That Arbitrator Exceeded Its Jurisdiction in Making Award
  • Assignment of Benefits Prior to Assignor’s Arbitration of Unassigned Claims Does Not Prevent Assignee’s Litigation of Assigned Claims


Steven E. Peiper

[email protected]
Of Property

  • Damage to Flooded Basements Excluded Via Tidal Waters Exclusion
  • Failure to Comply with Condition Precedent Results in Loss of Coverage
  • To Avoid a Material Misrepresentation  Charge, Insured Must Establish that the Underwriting Manual Affirmatively Contemplated Coverage



  • GOL Prohibition Against Indemnity for One’s Own Negligence Can Apply to Service Contracts
  • Employer’s Obligation to Indemnify for Negligence is Triggered where No Safety Devices were Provided to the Injured Worker


Cassandra A. Kazukenus
[email protected]

  • A 5780 – Proposed Bill
  • Changes to 11 NYCRR 65-3 (Regulation 68-C)


Katherine A. Fijal

[email protected]

  • Policy Language Overrides Drilling Contract.
  • Economic Loss Rule is Limited to Products Liability Cases.


Jennifer A. Ehman
[email protected]

  • Umbrella Carrier Has No Duty to Defend or Indemnity Prior to Exhaustion of Underlying Insurance
  • Where Purported Additional Insured did not Directly Contract with Named Insured, No Coverage


Bad Faith

  • Insured Cannot Seek Insurance Coverage for Punitive Damages
  • Four Stage Approach Applied to Determine Whether Portions of Claims File are Discoverable in First-Party Bad Faith Action


Earl K. Cantwell

[email protected]



Have a great St. Patty’s Day – see some of you in Boston for PLRB.

Dan D. Kohane
Hurwitz & Fine, P
1300 Liberty Building
Buffalo, NY 14202    
Phone: 716.849.8942
Fax:      716.855.0874
E-Mail:  [email protected]
H&F Website:


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

Dan D. Kohane
[email protected]

Audrey A. Seeley
[email protected]

Jennifer A. Ehman
[email protected]  

Dan D. Kohane, Team Leader
[email protected]

Michael F. Perley
Elizabeth A. Fitzpatrick
Katherine A. Fijal
Audrey A. Seeley
Steven E. Peiper
Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

Michael P. Scott-Kristansen
Diane F. Bosse

Andrea Schillaci, Team Leader
[email protected]

Jody E. Briandi
Steven E. Peiper

Audrey A. Seeley, Team Leader
[email protected]

Margo M. Lagueras
Cassandra Kazukenus
Jennifer A. Ehman

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

Dan D. Kohane
[email protected]

03/14/13       Tower Insurance Company v. Ray & Frank Liquor Store, Inc.
Appellate Division, First Department
To Establish Mailing of a Disclaimer Letter, Insurer Must Prove Receipt or Regular Office Practice
While the insured and claimant failed to give timely notice of the claim to the liquor store’s liability carrier, the court found that there no evidence demonstrating that plaintiff timely disclaimed liability and required under Insurance Law § 3420[d][2]. The disclaimer letter, sent by certified mail, was admitted into evidence, but there was no return receipt and the witness who testified did not mail the letter himself was not yet employed by plaintiff on the date of the letter and neither he nor anyone else testified as to plaintiff's regular office mailing practice and procedure.

03/13/13       Matter of Amer. Ind. Ins Co v. Art of Healing Medicine, P.C.
Appellate Division, Second Department
If Carrier Agreed to Arbitrate No Fault Claim, It Cannot Avoid Arbitration by Claiming it is Cannot be Sued in New York
This was an application brought pursuant to CPLR article 75 to permanently stay an arbitration of a claim for no fault benefits, an application rarely seen.

American Independent Insurance Company (“AIIC”) claimed it should not be required to arbitrate because it was not subject to personal jurisdiction in New York.

There is a strong public policy favoring arbitration, and courts interfere as little as possible with the freedom of parties to submit their disputes to arbitration. The court found that AIIC has failed to allege that a valid arbitration agreement was not made or complied with, that the claim sought to be arbitrated was barred by the statute of limitations, or that public policy precluded arbitration of this matter.

This is not a case where the court was asked to add AAIC as a party to a proceeding or lawsuit, it is a question of whether the arbitrator has authority under the terms of the insurance contract to award no-fault benefits to the appellants.  If the parties have agreed to arbitrate, it makes no difference whether or not a court can establish jurisdiction over AAIC.

03/05/13       The City of New York v. Nova Casualty Company
Appellate Division, First Department
Blanket AI Agreement That Requires the Organization Seeking Coverage to Have Agreement with Party Providing Coverage Means What It Says.  Owner Does Not Win AI Status from Subcontractor’s Carrier, Despite “Incorporation Clause
The terms of the additional insured clauses in the Harleysville policies require that the insured, and the organization seeking coverage, have agreed in writing that coverage be provided for that organization.  Here, the owner wanted AI coverage under a policy issued to a subcontractor.  However, the subcontractor’s contractor was with the contractor and not the owner.  Accordingly, the owner does not qualify as an AI.

It makes no difference to AI status that the contract between the general and the subcontractor “incorporated the terms of the prime contract that required the contractor to name the owner as an AI.
Editor’s Note: The right decision for the right reasons although the newer versions of the AI endorsements being issued may change that outcome in future litigation.


Michael P. Scott-Kristansen
[email protected] 

03/14/13       Osborne v. Diaz
Appellate Division, First Department
The parties Trade Evidentiary Punches and The Defendant Prevails on Most Issues
The defendant moved for summary judgment on the issue of serious injuries.  As for plaintiff 1’s injuries, which include her cervical and lumbar spine, the defendants met their burden with an affirmed report of an orthopedic surgeon.  The report included findings that plaintiff 1 had full range of motion and opined that the injuries resolved.  In turn, plaintiff 1 met her burden only for her lumbar spine.  Her neurologist’s affirmed report stated that her lumbar injury was caused by the accident and the report included range of motion findings and a finding based on a straight leg raising test.  The defendants prevailed only on plaintiff 1’s cervical injury.

As for plaintiff 2’s injuries to his cervical and lumbar spine, the defendants met their burden with a radiologist’s affirmed report opining that the injuries were degenerative.  The defendants also submitted an affirmed report of an orthopedic surgeon that included findings that plaintiff 2 had full range of motion and that the injuries resolved.  Plaintiff 2, in turn, failed to meet his burden.  The defendants prevailed on plaintiff 2’s cervical and lumbar injuries.

As for plaintiff 2’s shoulder injury, the Court held the defendants met their burden with a radiologist’s affirmed report opining that the injury was degenerative.  However, plaintiff 2 met his burden with his orthopedic surgeon’s affirmed report, based on a number of objective tests and arthroscopy, which found recent range of motion limitations and opined that the injury was caused by the accident.  The defendants lost on plaintiff 2’s shoulder injury.

Defendants were granted summary judgment on both plaintiffs’ 90/180-day injury claims.  Plaintiff 1 was confined to bed for two months after the accident, and plaintiff 2 was confined to bed for only two weeks after the accident.  Neither period met the 90/180-day category requirement.

03/06/13       Anderson v. Saraceno
Appellate Division, Second Department
The Defendant Failed to Support its Motion with Sufficient Evidence
The Court held in favor of the plaintiff without examining the plaintiff’s evidence because the defendant failed to adequately address the plaintiff’s claim, set out in a verified bill of particulars, that plaintiff sustained a 90/180-day serious injury.  When the defendant moves for summary judgment, it must submit sufficient evidence to support its contentions before the plaintiff is required to produce any evidence at all.

03/06/13       Bacon v. Bostany
Appellate Division, Second Department
A Jury Verdict is Overturned for Irrationality
In an exciting twist, the Appellate Division reviewed a jury verdict on the issue of serious injury.  Seeking to overturn a jury verdict causes the reviewing court to afford the opposing party every favorable inference.  In essence, the reviewing court must find the jury was utterly irrational—no small task for the defendant.

Whether you find it surprising or not, the jury in this case must have been out of its mind.  The jury found that the plaintiff suffered a serious injury to his neck and back under the (1) significant limitation of use, (2) permanent and consequential limitation of use, and (3) 90/180-day categories. 

There was no evidence of (2) because there was no medical evidence based on a recent examination of the plaintiff.  There was also insufficient evidence for (1) or (2) because the plaintiff did not submit objective evidence of the extent or degree of his physical limitations.  Physician testimony was insufficient here because it did not include an explanation of what objective tests were used to determine plaintiff suffered from a limited range of motion.

As for the 90/180-day category, the plaintiff must establish that he had a medically determined temporary injury that prevented him from performing nearly all of his customary daily activities for at least 90 of 180 days immediately after the accident.  Here, the plaintiff himself testified that he only missed five days of work before returning full time.

03/06/13       Caliendo v. Ellington
Appellate Division, Second Department
The jury was Rational.  Case Closed.
The Appellate Division reviewed another jury verdict, but declined to overturn it.  The jury rationally found the plaintiff suffered a significant limitation or permanent consequential limitation because the plaintiff’s physician offered objective, quantified evidence of the plaintiff’s lost range of motion.  The physician compared range of motion findings taken shortly after the accident to those taken three years later.


Margo M. Lagueras
[email protected]


03/07/13       Applicant v State Farm Fire and Casualty Co.
Erie County, Arbitrator Kent L. Benziger
Applicant’s Failure to Submit New Medical Evidence Following IME Results in Dismissal of Claim
A prior arbitration decision in March 2012 had denied Applicant’s claim for wage loss benefits.  Applicant then presented a claim for a subsequent period of wage loss and State Farm argued that the prior decision constituted res judicata/collateral estoppel in the new arbitration. 

While the Arbitrator agreed with Applicant that this new claim did not technically involve the same issue because a subsequent period of lost wages was being contested, he noted that Applicant could have submitted new medical evidence following the second IME, which had found him capable of working, to show that he was not able to work during the later claimed period.  Applicant failed, however, to submit any new evidence and, as a result, the Arbitrator adhered to the reasoning of his prior decision and denied the claim.

03/06/13       Buffalo Neurosurgery Group v Geico Insurance Co.
Erie County, Arbitrator Veronica K. O’Connor
Applicant’s Claim Denied Where Submission Is Insufficient to Establish Causation in Light of Significant Prior History
The carrier denied benefits for a cervical discectomy and fusion allegedly necessitated due to injuries sustained in a motor vehicle accident in May 2010, based on a peer review performed by Dr. Mormino in May 2012.  Dr. Mormino noted that a review of the injured person’s medical records revealed a significant past history for neck pain dating back to 2008 for which he had treated with an orthopedist, a pain management specialist, received trigger point injections, narcotic pain medication, physical therapy and chiropractic care, but still remained symptomatic at the time of the accident.  In addition, a cervical MRI three months after the accident revealed degenerative changes but no acute changes.  As a result, Dr. Mormino determined that the surgery was not causally related to the accident.  The Arbitrator denied Applicant’s claim finding the peer review to be persuasive and Applicant’s submission lacking sufficient proof that the cervical discectomy and fusion was causally related to the accident.

03/05/13       Rochester Chiropractic Assocs., PC v Liberty Mut. Fire Ins. Co.
Erie County, Arbitrator Douglas S. Coppola
IME Doctor’s Failure to Review Treatment Notes Showing Improvement Results in Deficient IME Report
Applicant’s assignor was injured in a high speed rear-end accident in July 2011.  The treating records indicated that by November the chiropractic therapy was beginning to help alleviate the pain and symptoms.  Applicant’s assignor was also seen by a spine surgeon who did not find her to be a surgical candidate but recommended continued chiropractic care.  In addition, an EMG/NCV in February 2012 revealed an acute right S1 radiculopathy and the recommendation was again to continue with chiropractic care.

In December 2011, an IME was performed by Dr. Pignatelli.  Dr. Pignatelli did not, however, review any of applicant’s treatment notes and Applicant argued that the IME was deficient and ignored the injured person’s complaints of pain and the fact that she had been unable to return to work as a nursing assistant.  Applicant argued that, in essence, Dr. Pignatelli, in concluding that no additional chiropractic care was necessary, was stating that the injured person had reached “maximum medical improvement”, an invalid ground for terminating benefits.

With respect to the language “maximum medical improvement” or “end result” used in IME reports or Peer Reviews, generally with fatal results at least until recently, the Arbitrator noted that “more recent decisions have side-stepped the use of such term and held that treatment is no longer necessary where it does not improve or otherwise benefit a claimant.  Treatment that is not providing ‘curative’ or ‘palliative’ benefits may no longer be necessary.” 

Nevertheless, in this case, the Arbitrator found that the IME report was deficient, not because of any terms employed, but because the examiner did not review the treating doctor’s notes and therefore did not know whether or not the injured person was improving.  Furthermore, the treatment notes after the date of the denial did, in fact, continue to show, by objective testing, that the injured person continued improving.  As such, the Arbitrator found in favor of Applicant as the issue did not involve palliative care but rather which reports were more credible.


03/06/13       Allstate Ins. Co. v New York Petroleum Assn. Comp. Trust
Appellate Division, Second Department
Failure to Apply for Stay of Arbitration Waives Contention That Arbitrator Exceeded Its Jurisdiction in Making Award
In a proceeding pursuant to an Article 75 to vacate an arbitration award on the ground that arbitration was not available under Insurance Law 5105 because neither vehicle weighed over 6500 pounds or was used for transportation of persons or property for hire, the court held that the petitioner waived its contention that the arbitrator exceeded its jurisdiction in making the award because petitioner did not apply for a stay prior to the arbitration.  The court held that, in any event, the threshold requirement of the statute “is a condition precedent to ultimate recovery, not a condition precedent to access the arbitral forum.”  As such, on appeal the court affirmed the trial court’s denial of the petition to vacate the award finding that the arbitrator’s award had evidentiary support and was not arbitrary or capricious.

03/05/13       Dayna Physical Therapy, PC v Travelers Ins. Co.
Appellate Term, Second Department
Assignment of Benefits Prior to Assignor’s Arbitration of Unassigned Claims Does Not Prevent Assignee’s Litigation of Assigned Claims
Defendant argued that, pursuant to Roggio v Nationwide Mut. Ins. Co., plaintiff was precluded from litigating assigned claims because the assignor had, prior to this action, arbitrated unassigned claims arising out of the same accident.  As such, defendant argued that arbitration was the only proper forum.  In opposition, plaintiff argued that it was not precluded from litigating the assigned claims as such claims had been assigned prior to the assignor’s commencement of arbitration.  The trial court denied defendant’s motion finding that Roggio was not applicable as the motion papers established that the assignment predated the assignor’s election to arbitrate.

The Appellate Term agreed with the holding of the trial court that Roggio did not apply because, in this case, the assignment of benefits to the medical provider predated the commencement of the assignor’s own arbitration on other claims arising out of the same accident.  However, it found the trial court erred in granting plaintiff’s cross motion as plaintiff’s affidavit from its billing supervisor was missing several paragraphs and did not establish that the documents attached to plaintiff’s motion papers constituted proof of the fact and the amount of loss sustained.
Note:  Roggio (66 NY2d 260 [1985]), held that a claimant that is denied recovery in arbitration as to some medical bills cannot then seek recovery in the courts for later medical bills arising from the same accident.  The Court of Appeals found that the language and background of the statute providing the option to arbitrate [§ 5106(b)] should be read as written and “a claimant disappointed in the pursuit of medical expense reimbursement in arbitration cannot, on the next rejected bill arising from the same accident, then look to the courts.”  As Judge Kaye stated: “In other settings, claimants would not be permitted to flit between forums for the resolution of issues or items of damage arising from a single injury.”


Steven E. Peiper
[email protected]
Of Property

03/06/13         Papadopoulos v Cambridge Fire Mut. Ins. Co.
Appellate Division, Second Department
Damage to Flooded Basements Excluded Via Tidal Waters Exclusion
Plaintiffs’ home sustained damage when surface water knocked out a basement window.  As a result, the home flooded with more than 5 feet of standing water.  Cambridge denied the claim on the basis that coverage for damage caused by “flood, surface water, etc.” was plainly excluded from coverage.

In affirming Cambridge’s denial, the Second Department applied the plain wording of the exclusion.  Plaintiffs’ attempt to point to alternative causation did not trigger enough of a question to raise a question of fact.

03/06/13         Stars Jewelry by A Jeweler Corp. v Hanover Ins. Group, Inc.
Appellate Division, Second Department
Failure to Comply with Condition Precedent Results in Loss of Coverage
Plaintiff submitted the instant claim after sustaining a loss.  Upon investigation, Hanover uncovered that plaintiff did maintain certain record keeping requirements as was required by the terms of the policy.  Specifically, coverage was conditioned upon the insured establishing that it had met standard record keeping protocol .  Where the insured could not establish its reporting, coverage was lost as a result.

03/05/13         Dauria v CastlePoint Ins. Co.
Appellate Division, First Department
To Avoid a Material Misrepresentation  Charge, Insured Must Establish that the Underwriting Manual Affirmatively Contemplated Coverage
Plaintiff submitted the instant claim after a fire loss at the insured premises.  Upon investigation, CastlePoint uncovered that the premises in question was a “three family” dwelling.  Importantly, CastlePoint only writes coverage for “two family” dwellings.  Where, as here, the insured indicated that the home was a two family dwelling at the time of the application, CastlePoint moved to rescind the policy on the basis of a material misrepresentation.

In affirming CastlePoint’s denial, the First Department noted that premises in question was unquestionable a “three family” dwelling.  The premises included three kitchens, three separate entrances, and three separate bathroom facilities.  In so holding, the Court rejected plaintiffs’ argument that all residents of the premises “lived together as one large family or household.” 

In addition, the First Department also rejected plaintiffs’ argument that CastlePoint failed to meet its burden.  Specifically, plaintiffs pointed out that the underwriting manual did not prohibit insuring “three family” dwellings.  However, as noted by the Court, the underwriting manual is a document of inclusion.  Thus, in order for coverage to afforded the underwriting manual had to specifically grant it.  Where, as here, the underwriting manual was silent on “three family” dwellings, it followed that there was no basis for writing that coverage.


03/14/13         Bell v City of New York
Appellate Division, First Department
GOL Prohibition Against Indemnity for One’s Own Negligence Can Apply to Service Contracts
In 2007, NYU closed down its boiler room as part of an ongoing asbestos abatement project.  As an alternative, NYU contracted with Mobile to supply a portable boiler unit for the premises.  The portable boiler was housed in a truck that was to be parked, per NYC Order, on 5th Avenue. 

At the same time, the City of New York was engaged in a milling project on 5th Avenue.  When the subsequent repaving occurred, the mobile boiler was sitting on a milled section of the street.  Accordingly, rather than move the boiler, the City elected to pave around the mobile boiler.  That resulted in a large area of unpaved road that was 2 or 3 inches below grade.

Plaintiff was injured when she tripped over the uneven surfaces, and the instant lawsuit followed as a result.  Mobile’s motion for summary judgment, as a third-party service contractor, was denied on a question of fact.  Specifically, the court was unable to state with certainty that Mobile had not exercised control over the affected area during the abatement project. 

In addition, the Court found a question of fact regarding whether NYU was negligent.  As such, its motion for contractual indemnification against Mobile was likewise denied on a question of fact.
Peiper’s Point – The Court cited to GOL § 5-322.1in support of the conclusion that NYU could not be indemnified for its own negligence.  Because the contract with Mobile involved the repair or maintenance of a building, the GOL prohibition applied.  This was despite the fact that the contract at issue, which was essentially a services contract, did not involve construction, repair, maintenance, etc.

03/12/13         Clavijo v Atlas Terms, LLC
Appellate Division, First Department
Employer’s Obligation to Indemnify for Negligence is Triggered where No Safety Devices were Provided to the Injured Worker
Plaintiff, an employee of Marlite, was injured when he fell through ceiling tiles.   At the time of the incident, plaintiff was in the attic of the premises nailing plywood to beaming.  It was established that Marlite did not provide plaintiff with any safety harness, nor any other safety equipment.

The court also granted Atlas’ motion seeking contractual indemnification against Marlite.  In support of the conclusion, the Court noted that Marlite’s decision to deploy a worker without proper safety equipment amounted to carelessness, negligence or improper conduct. 


Cassandra A. Kazukenus
[email protected]

A 5780 – Proposed Bill
Bill Seeks to Establish Private Right of Action for Insured Suffering Disaster Losses
This proposed legislation in the Assembly which has no corresponding bill in the Senate and seeks to add a new provision to Insurance Law §2601, Unfair Claim Settlement Practices.  This provision would allow any person who has sustained a loss or injury because of any violation of the Unfair Claim Settlement Practices and arising from a claim for property damage in an area affected by an executive order declaring a disaster emergency will have a private right of action.  This private right of action will allow the individual to enjoin the unlawful act/practice and recover his or her actual damages.  This would also allow the court to award punitive damages if the insurer “willfully or knowingly violated this section.”  Lastly, this provision would allow the court to award reasonable attorney’s fees to the prevailing plaintiff/insured.

Changes to 11 NYCRR 65-3 (Regulation 68-C)
Effective April 1, 2013 Previously Proposed Changes to Verification Procedure Will be Effective
Effective April 1st, 65-3 will add two new subdivisions (o) and (p).  Subdivision (o) will require an applicant to submit all verification requested and under the applicant’s control or possess within 120 calendar days from the verification request.  An insurer must advise the applicant that failure to comply may result in an insurer denying the claim.  This subdivision does not apply to any NF-Forms found in Appendix 13, medical examination or EUO requests. 

Subdivision (p) provides that an insurer’s “non-substantive technical or immaterial defect or omission” or an insurer’s failure to comply with a prescribed time frame will NOT negate an applicant’s obligation to comply with a verification request.

This new regulation also amends 65-3.8(b)(3) to allow an insurer to issue a denial if an applicant has not submitted all the verification in the applicant’s control or possession if more than 120 calendar days after the initial request for verification has passed.  This only applies if the verification request informed the applicant that his or her failure to comply could result in a denial of the claim.  Again this does not apply to any NF-Forms found in Appendix 13, medical exam or EUO requests.

Also added as new subdivisions to 65-3.8 are subdivisions (g) and (h).  Subdivision (g) states that proof of the fact and amount of loss is NOT deemed supplied by an applicant to an insurer and the insurer has no payment obligation for such claimed medical services when:

  • The claimed medical services were not provided to an injured party; or
  • For claimed medical service fees that exceed charges allowed under Ins. Law §5108(a) and (b) and any regulations in place under this section of the Insurance Law.


Subdivision (h) states that an insurer’s “non-substantive technical or immaterial defect or omission” WILL NOT affect the validity of a denial/NF-10, and this applies to all medical services rendered and lost earnings and reasonable and necessary expenses incurred on or after April 1, 2013.

In addition to the above changes, the NF-10 has been amended and must be used as of April 1, 2013.


Katherine A. Fijal

[email protected]

03/01/13       Ranger Insurance Limited v. Transocean v. BP P.L.C.
Fifth Circuit Court of Appeals – Texas Law Applied
Policy Language Overrides Drilling Contract.
Transocean Holdings, Inc. [“Transocean”] owned the Deepwater Horizon, a semi-submersible, mobile offshore drilling unit.  In April 2010, the Deepwater Horizon sank into the Gulf of Mexico after burning for two days following an onboard explosion [“Incident”].  At the time of the Incident, the Deepwater Horizon was engage in exploratory drilling activities at the Macondo Well under a Drilling Contract between BP American Production Company’s [“BP”] predecessor and Transocean’s predecessor.  This contract required Transocean to maintain certain minimum insurance coverages for the benefit of BP.  The extent to which these policies covered BP’s pollution related liabilities arising from the Incident is the subject of this appeal.

Transocean held insurance policies with a primary liability insurer, Ranger Insurance Ltd. [“Ranger”], as well as several excess liability insurers led by London Market syndicates.  Transocean’s policy with Ranger provided at least $50 million of general liability coverage, and its policies with the excess insurers formed four layers of excess coverage directly above the Ranger Policy that provided at least $700 million of additional general liability coverage. The Ranger and the excess policies contain materially identical provisions.  The Policy terms important to this dispute are “Insured” and “Insured Contract”.

Following the Incident, BP notified the Insurers of its Deepwater Horizon related losses.  The excess insurers and Ranger each filed a one-count declaratory judgment action against BP.   The insurers requested a declaration that they had no additional insured obligation to BP.  The insurers acknowledged that the Drilling Contract requires additional insured protection in favor of certain BP entities; thus, all parties conceded that the Drilling Contract was an “insured contract” under the policies and that the policies provide some insurance coverage to BP as an additional insured.  The issue in contention is the scope of BP’s insurance coverage.

BP moved for summary judgment relying on Texas and Fifth Circuit precedent as developed in Evanston Ins. Co. v. ATOFINA Petrochems., Inc., 256 S.W.3d 660 (Tex. 2008) and in Aubris Resources LP v. St. Paul Fire & Marine Ins. Co., 566 F.3d 483 (5th Cir. 2009).  BP argued (1) it was an “additional insured” under the insurance policies at issue and (2) the insurance policies alone - and not the indemnities detailed in the Drilling Contract – govern the scope of BP’s coverage rights as an additional insured.

The district court found that the case law cited by BP was distinguishable and denied BP’s motion.  The court read Transocean’s insurance obligation to be to name BP as an “additional insured” in each of Transocean’s policies, for liabilities assumed by Transocean under the terms of the contract.  Reasoning further that this interpretation required Transocean to name BP as an insured only for liabilities Transocean explicitly assumed under the contract. The court then looked to the Drilling Contract to conclude that BP was not covered under Transocean’s policy for the pollution related liabilities deriving from the Incident.  For the following reasons the Fifth Circuit Court of Appeals [“Court”] reversed.

Under Texas law if an insurance coverage provision is susceptible to more than one reasonable interpretation, the court must interpret that provision in favor of the insured, so long as the interpretation is reasonable.  The court must do so even if the insurer’s interpretation is more reasonable than the insured’s – in particular, exceptions or limitations on liability are strictly construed against the insurer and in favor of the insured, and an intent to exclude coverage must be expressed in clear an unambiguous language.

Further, under Texas law, to discern whether a commercial umbrella insurance policy that was purchased to secure the insured’s indemnity obligation is a service contract with a third party also provides direct liability coverage for the third party, the Court must look to the terms of the umbrella insurance policy itself, instead of looking to the indemnity agreement in the underlying service contract.

Initially the Court analyzed whether the umbrella policy between the insurers and Transocean itself limits coverage for any additional insureds, including BP. Using the AUTOFINA case and the Aubris case as guidance, along with the more recent Texas Court of Appeals case Pasadena Refining System, Inc. v. McCraven, 2012 WL 1693697 (Tex.App. May 15, 2012), the Court determined that only the umbrella policy itself may establish limits upon the extent to which an additional insured is covered in situations such as the one before the court.  The Court also pointed out that just as in the AUTOFINA and the Aubris cases, BP was not seeking indemnity from Transocean, but was seeking coverage from its insurers.

The insurers argued that the additional insured provision in the Drilling Contract specifically limited BP’s status as an additional insured to circumstances involving those liabilities Transocean specifically assumes under the contract.  The Court found that given how Texas law has developed this argument was not persuasive.

The Court went on to note that even if the clause was construed as the insurers desired, i.e., that BP is an additional insured under Transocean’s policies only for liabilities Transocean specifically assumed in the Drilling Contract, the clause is materially identical to the additional insured provision in AUTOFINA – and the Texas Supreme Court found that that clause was insufficient to limit coverage.

The Court held that because the umbrella policy’s provision describing an additional insured is substantially similar to the pertinent policy provisions in AUTOFINA, Aubris, and Pasadena Refining, there was no relevant limitation to BP’s coverage under the policy as an additional insured, that is, so long as the insurance provision and the indemnities clauses in the Drilling Contract are separate and independent.

The next question addressed by the Court was whether the Drilling Contract’s additional insured provision is separate from and in addition to the indemnity provisions.  In analyzing this issue the Court determined that to render an additional insured provision separate from and addition to an indemnity clause, Texas law only requires the additional insured provision be a discrete requirement. It need not be an entirely separate provision of the contract, and its independent status is not altered merely by the fact that the contract also includes a provision requirement the relevant party to obtain insurance to cover its liabilities under the contract.

In concluding the Court held that Texas law compelled it to interpret insurance coverage provisions in favor of the insured, so long as that interpretation is reasonable – and even if the insurer’s proffered interpretation denying coverage is more reasonable.  Texas law further establishes that where an additional insured provision is separate from and in addition to an indemnity provision, the scope of the insurance requirement is not limited by the indemnity claims.          

Accordingly, the Court concluded that because it found that the umbrella policies between the insurers and Transocean do not impose any relevant limitation upon the extent to which BP is an additional insured, and because the additional insured provision in the Drilling Contract is separate from and in addition to the indemnity provisions therein, it found that, as a matter of law, BP was entitled to coverage under each of Transocean’s policies as an additional insured.

03/07/13       Tiara Condo. Ass’n v. Marsh & McLennon Companies, Inc.
Certified Question from 11th Circuit to Florida Supreme Court
Economic Loss Rule is Limited to Products Liability Cases.
Tiara Condominium Association [“Tiara”] retained Marsh & McLennan [“Marsh”] as its insurance broker.  One of Marsh’s responsibilities was to secure condominium insurance coverage.  Marsh secured windstorm coverage through Citizens Property Insurance Corporation [“Citizens”], which issued a policy that contained a loss limit in an amount close to $50 million.  In 2004 Tiara’s condominium sustain significant damage caused by hurricanes Frances and Jeanne.  After being assured by Marsh that the loss limits coverage was per occurrence which would result in the availability of liability limits of $100 million, Tiara proceeded with expensive remediation efforts.  However, when Tiara sought payment from Citizens, Citizens claimed that the loss limit was $50 million.

Tiara and Citizens settled for approximately $89 million.

In 2007, Tiara filed suit against Marsh, alleging (1) breach of contract, (2) negligent misrepresentation, (3) breach of the implied covenant of good faith and fair dealing, (4) negligence, and (5) breach of fiduciary duty.  The trial court granted summary judgment in favor of Marsh on all claims and Tiara appealed to the Eleventh Circuit.  The Eleventh Circuit affirmed as to all causes of action except the negligence and breach of fiduciary duty claims.  As to these two claims, the appeals court certified the following question to the Florida Supreme Court:

Does an Insurance Broker provide a “Professional Service” such that the insurance broker is unable to successfully assert the economic loss rule as a bar to tort claims seeking economic damages that arise from the contractual relationship between the insurance broker and the insured?

Because the question certified by the Eleventh Circuit was premises on the continued applicability of the economic loss rule in cases involving contractual privity with one another and the damages sought were purely economic, the Florida Supreme Court restated the questions as follows:

Does the Economic Loss Rule bar an insured’s suit against an insurance broker where the parties are in contractual privity with one another and the damages sought are solely for economic losses?

After extensive analysis of the Court’s precedent addressing the economic loss rule, and what had been described as the unprincipled extension of the rule, the court held that the economic loss rule applies only in the products liability context.  The court determined that its experience with the economic loss rule over time, which led to the creation of the exceptions to the rule, now demonstrates that expansion of the rule beyond its origins was unwise and unworkable in practice. 

There were two dissenting justices who essentially took the position that a party who attempts to circumvent the contractual agreement by making a claim for economic loss in tort is, in effect seeking to obtain a better bargain than originally made. Consequently, when the parties are in privity, contract principles are generally more appropriate for determining remedies for consequential damages that the parties have, or could have, addressed through their contractual agreement.


Jennifer A. Ehman
                                            [email protected]    

03/01/13       Continental Casualty Co. v. Quality King Distributors, Inc.
Supreme Court, County of New York
Umbrella Carrier Has No Duty to Defend or Indemnity Prior to Exhaustion of Underlying Insurance
Quality King, a wholesaler of hair care products, was sued in 2000 by Sebastian International (“Sebastian”).   Sebastian, a manufacturer of “salon only” professional hair products, alleged that Quality King illegally diverted, decoded and sold Sebastian products to pharmacies, distributed and sold counterfeit Sebastian products, and distributed and sold materials that infringed on Sebastian’s copyrights and trademarks. 

Quality King sought coverage for this lawsuit, and a second one also filed by Sebastian, under two commercial general liability policies issued by Continental Casualty and two commercial umbrella policies issued by National Union. 

This decision deals only with a motion for summary judgment brought by National Union.  The National Union policies covered advertising injury which was defined as “injury arising solely out of your advertising activities as a result of one or more of the following offenses:…3.  Misappropriation of advertising ideas or style of doing business; or 4. Infringement of copyright, title or slogan.”  Further, the policies stated that a defense would be provided when (1) the “applicable Limits of Insurance of the underlying policies listed in the Schedule of Underlying Insurance” have been exhausted by payments of claims, or (2) when damages are sought for advertising injury “covered by this policy but not covered by any underlying insurance listed in the Schedule of Underlying Insurance.”

The court addressed the duty to defend and the duty to indemnify separately.  It ultimately found that, based on the language of the policies, National Union demonstrated that it had no duty to defend.  The applicable limits of the Continental policies had not yet been exhausted, and the allegations in the underlying actions, in its opinion, gave rise to Continental, the primary insurer’s duty to defend.  Specifically, the complaints alleged that Quality King, and others, injured Sebastian through copyright infringement, trademark infringement, trademark dilution and trademark counterfeiting, allegations that raised a reasonable possibility of falling within Continental’s coverage (“the use of another’s advertising idea” category within the definition of “personal and advertising injury”).

Next, with regard to indemnity, the court likewise held that National Union had no duty because the underlying actions were settled for $200,000, and there was no evidence that these sums were in excess of the underlying coverage or that the underlying insurance did not cover it.     

02/26/13       Structure Tone, Inc. v. Harleysville Worchester Ins. Co.
Supreme Court, County of New York
Where Purported Additional Insured did not Directly Contract with Named Insured, No Coverage
This is a matter that we have been following for some time now.  We first reported on this case in our August 19, 2011 issue. 

07/27/11         Structure Tone, Inc. v Harleysville Worcester Ins. Co.
Supreme Court, New York County
Right to Rely on Late Notice Defense Waived Where Insurer Mistakenly Accepts Tender
An employee of non-party American Wood Installers, Inc. (“American Wood”) was injured when he was suddenly struck by a door at the Hilton Hotel while installing its hinges.  Approximately two years after the incident, the employee commenced an action against, among other parties, Structure Tone, the project’s general contractor.

Upon receipt of the suit papers, Structure Tone tendered its defense to Tobin Woodworking, Inc. (the subcontractor that retained American Wood).  Harleysville, Tobin’s insurer, denied additional insured status based on late notice of occurrence.  The denial letter also noted that Harleysville would continue to investigate this loss, and review to see if there was a contractual obligation to indemnify and defend Structure Tone.

Thereafter, approximately five months later, Structure Tone received a follow up letter indicating that, based on Harleysville’s investigation, an employee of the Hilton Hotel moved the wooden doors causing them to fall and strike the injured party.  Thus, according to the letter, without active negligence on the part of Tobin, any contractual obligations in favor of Structure Tone were not triggered.

However, ten months after this letter was received by Structure Tone, Harleysville mistakenly sent a third letter.  That letter stated that Harleysville agreed to assume the defense and indemnity of Structure Tone as an additional insured subject to a waiver of past legal costs.  It made no reference to Harleysville’s prior position or its last denial.  When Harleysville never assumed the defense, Structure Tone brought this action.

In considering the parties’ motions for summary judgment, the court held that the parties failed to adequately address how and when Structure Tone learned of the underlying accident; nevertheless, after having accepted the tender, Harleysville’s renewed attempt to disclaim on the ground of late notice was both untimely and unreasonable as a matter of law. 

In the most recent decision, it was the owner, Hilton Hotels, chance to take a shot at Harleysville.  Fortunately, for Harleysville, it was a little more successful this time.  Hilton Hotels argued that it was entitled to additional insured status under the Harleysville policy issued to Tobin, the named insured subcontractor.  Harleysville declined coverage relying on endorsement CG 20 33 10 01, which provides that an insured includes “any person or organization for whom you are performing operations when you an such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.”  Because Tobin did not directly contract with Hilton Hotels, Harleysville took the position that it did not owe additional insured coverage.  In opposition to this argument, Hilton Hotels pointed to another, allegedly broader, endorsement in the policy.  CG 71 86 08 02 provided that an insured included “any person or organization with whom you agreed, because of a written contract or agreement or permit, to provide insurance…” 

In considering the scope of coverage under these endorsements, the court held that the plain terms of both endorsements restrict coverage to entities with whom the insured, Tobin, had a written contract, and here there was no proof that Tobin entered into a written contract with Hilton Hotels. 

The court likewise dismissed Hilton Hotel’s alternative argument that Harleysville did not specifically disclaim coverage to Hilton Hotel when it disclaimed coverage to Structure Tone, thus, any denial was untimely and unspecific.  The court held that where, as here, the denial of coverage was based on a lack of inclusion rather than by reason of exclusion, the insurer was not required to deny coverage where none existed. 

Bad Faith

03/14/13       Seldon v. Allstate Ins. Co.
First Department, Appellate Division
Insured Cannot Seek Insurance Coverage for Punitive Damages
Sheldon brought this action alleged that Allstate acted in bad faith by failing to settle libel and slander claims within policy limits, resulting in a judgment against Shelton for punitive damages.  The court determined that Allstate was entitled to summary judgment based on public policy precluding an insured from recovering the punitive damages portion of any judgment which may have resulted from the insurer’s bad faith failure to settle.  The court further opined that although this public policy argument was advanced for the first time in Allstate's appellate brief, Allstate alleged no new facts, but rather raised pure legal arguments which may be considered for the first time on appeal.

02/21/13       Cedell v. Farmers Ins. Co. of Washington
Supreme Court of Washington
Four Stage Approach Applied to Determine Whether Portions of Claims File are Discoverable in First-Party Bad Faith Action
This is a decision that addresses the discoverability of an insurer’s claims file in a bad faith action brought by its insured.  Bruce Cedell’s home was destroyed in a fire.  After Farmers was unresponsive for seven months, Farmers threatened to deny coverage and made a take it or leave it offer for a quarter of the amount of loss. 

In response, Cedell brought this action alleging bad faith, and immediately sought discovery including a copy of Farmers’ claims file including documents from an attorney hired by Farmers.  The court held that when an insured asserts bad faith against his insurer in the way the insurer handled the insured’s claim, unique considerations arise.  The court noted that first party bad faith claims by insureds against their own insurer are unique and founded upon two important public policy pillars:  that an insurance company has a quasi-fiduciary duty to its insured; and that insurance contracts, practices, and procedures are highly regulated and of substantial public interest. 

Accordingly, the court adopted the following approach, in order to address these concerns:

  • The court started with the presumption that there is no attorney-client privilege relevant between the insured and the insurer in the claims adjusting process, and that the attorney-client and work product privileges are generally irrelevant.


  • However, the insurer may overcome the presumption of discoverability by showing its attorney was not engaged in the quasi-fiduciary tasks of investigating and evaluating or processing the claim, but instead in providing the insurer with counsel as to its own potential liability (e.g., whether or not coverage exists under the law).
  • Upon such a showing, the insurance company is entitled to an in camera review of the claims file, and to the redaction of communication from counsel that reflected the mental impressions of the attorney to the insurance company, unless those mental impressions are directly at issue with its quasi-fiduciary responsibilities to its insured.


  • If the trial judge finds the attorney-client privilege applies, the court should then next address any claims the insured may have to pierce the attorney-client privilege.

As this approach was not applied by the trial judgment in this matter, the court remanded the matter back down for reconsideration.   

Take Away:  While I am not aware of any New York decisions addressing this exact issue, I tend to believe the outcome would be similar in this state.  Initially, in a breach of contract case, courts have held that documents related to the ordinary claims investigation of an insurance company are not privileged.  However, “attorney work product” applies to documents prepared by counsel acting as such, and to materials uniquely the product of the lawyer’s learning and professional skills such as those reflecting an attorney’s legal research, analysis, conclusions, legal theory or strategy.” 

With that said, discovery in a bad faith action is significantly broader than in a breach of contract case.  So, perhaps the Washington Supreme Court’s approach strikes the right balance between these two issues.   

Earl K. Cantwell

[email protected]


Quarter Holdings, LLC v. Axis Surplus Insurance Company, 2012 WL 3879525 (E.D. Louisiana, September 6, 2012)  An insurance company won two out of three motions concerning a breach of contract and bad faith claim filed by an insured for tropical storm damage in the Eastern District of Louisiana.  Plaintiffs owned two properties in the New Orleans French Quarter insured by Axis Surplus.  The plaintiffs filed claims concerning damage from Tropical Storm Lee in September 2011.  The plaintiffs subsequently sued for breach of contract and bad faith with the insurance company contending, among other things, that the properties were damaged as a result of a pre-existing condition.  Axis eventually moved for summary judgment to dismiss the bad faith claim, and to exclude testimony of two potential plaintiff “experts”. 

The insurance company lost the motion seeking to exclude the testimony of plaintiffs’ engineering expert.  Axis argued that his opinion on the cause of alleged roof damage was primarily based on common sense and not technical or scientific knowledge.  The Federal Court disagreed, noting that both sides retained experts to testify on whether wind from the tropical storm caused the damage to the roofs, and wind damage would be covered under the policy.  The insurance company fared better on the next two prongs of the motion.

The insurance company also moved to limit the testimony of a maintenance worker who performed roof repairs on the properties from testifying about the “cause” of the damage; in effect offering “expert testimony”.  The Court agreed with the insurance company and said the worker could not testify on causation because his testimony and experience would fall short of federal evidence requirements.

The Court granted summary judgment in favor of Axis on the bad faith claim.  The insurance company contended that its investigation and expert reports on the properties indicated no wind-related damage.  The Court agreed that the insurer had “legitimate doubt” of coverage, and the fact that the parties and their experts eventually were in dispute on the cause and extent of coverage did not warrant imposition of statutory penalties for bad faith.

One of the first lessons from this case is for an insurance company to not hold back and be transparent in stating and pointing out doubts, reports, facts, and other evidence that may indicate no coverage for a loss.

A second lesson is the need to make appropriate challenge to not only the credentials of opposing experts, but whether the testimony offered is truly technical or scientific and within the realm of “expert witness” testimony.  This is particularly true when one of the parties attempts to use a fact witness, such as the maintenance worker in this case, to offer, in effect, expert opinion on cause of a loss, amount of damage, or other property conditions. 

A third lesson of this case is that the federal courts are often a tighter, more disciplined, and more restrictive environment for claimants to plead and pursue insurance coverage and bad faith claims.


Courtesy of the FDCC Website

03/07/13       National Surety Corp. v. Immunex Corp.
Washington Supreme Court
Washington Supreme Court Refuses To Recognize Insurer’s Reservation of Right To Recoup Defense Costs
A divided Washington Supreme Court has ruled that a liability insurer may not require as a condition to an insurer’s defending under a reservation of rights that the insured agree to reimburse defense costs if the case is later held not to be covered. A majority of the Supreme Court justices agreed with the Court of Appeals and the trial court that National Surety bore responsibility for the insured’s defense costs up until April 2009, when a court ruled that the underlying price fixing claims were not covered, although it could recover a set off for any prejudice resulting from its insured’s untimely notice. While recognizing that a right to recoupment has been recognized in a few states, the court held that the insurer must bear full responsibility for agreeing to defend and could not impose a right of recoupment as a condition of fulfilling its duty to defend. Three of the seven justices dissented (not uncommon for this court), arguing that Washington should align itself with the majority view that insureds are unjustly enriched when they receive a defense that is not owed for non-covered suits.

Submitted by: Michael F. Aylward of Morrison Mahoney

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