Coverage Pointers - Volume XIV, No. 20

Dear Coverage Pointers Subscribers:

Do you have a situation?  We love situations.   It’s what we do best.  As Calvin Coolidge once said (and I’m in the midst of reading his biography), “if you see ten troubles coming down the road, you can be sure that nine of them will run into a ditch before they reach you” .  We try to help ditch those troubles.

From our house to yours, we wish you a Joyous Passover and Happy Easter. 

It is springtime, or the calendar so indicates.  I’m terribly disappointed in Punxsutawney Phil for his erroneous prediction of an early spring.  You’ve probably heard that the groundhog faced a faux-indictment from an Ohio prosecutor over his "prediction" of an early spring.  The charges were dropped when his handlers took the rap for “misinterpreting” the rodent’s report.  

There are some really interesting cases reported in the attached issue, including a couple in my column on the need for proper documentation and a Fourth Department decision in the continuing battle royale between the Town of Amherst and the State Insurance Fund over reimbursement for the multi-million dollar Bissell verdict. 

Steve and Cassie have some updates on SuperStorm Sandy developments.  Mike Scott-Kristansen offers sound advice on Serious Injury summary judgment motions, and Earl talks of the collision between the worlds of Internet and insurance.  Plenty more indeed.  Steve and Ken Carter, from Merchants, were part of a panel of three from around the country, to participate in a national DRI webinar on Superstorm Sandy issues.  It was, not surprisingly, by all reports, well received.

And, oh yes, the Court of Appeals rejected the final attempt by plaintiff’s counsel to seek review of the Fourth Department’s decision in our case, Day v. OneBeacon,  dealing with the rights of a SUM carrier to subrogate against a non-auto defendant.

Kudos to Jen Ehman who scored big on a Quadrella, winning four no fault arbitrations on the same day this week.


OH BABY -- Cassie’s Capital Contentment:
We welcome Ethan John Kazukenus into the world, son of Cassandra and John Kazukenus. Ethan was born on March 27, 2013, weighed in at 7 lbs 14 oz. and everyone is doing well.  Attamama!

With Audrey having delivered Aston, Cassie now bringing along Ethan and two sets of twins in “progress” in our office, we have contacted the Water Department for a thorough check of the system.


PLRB/LIRB Claims Conference:
I was so pleased to meet a number of long-term subscribers (and added a few new ones) at the PLRB/LIRB Claims Conference in Boston.  For those who have joined our ranks in the last two weeks, welcome.  You’ll find running commentary in this cover letter and detailed summaries of the cases highlighted at the end of this letter, in the issue attached.  Past issues, 13+ years of them, are available on the H&F Website,


Long Island Office is Up and Running – Elizabeth Fitzpatrick at the Helm:
In our previous issue, we were delighted to announce the opening of our Long Island office, with Beth Fitzpatrick as our resident partner.  You can contact Beth in Melville:


Hurwitz & Fine, P.C.
535 Broad Hollow Road
Suite B-7
Melville, New York 11747
Phone:  (631) 465-0700
Fax: (631) 465-0313

Elizabeth Fitzpatrick
[email protected]


With our offices spread throughout the State of New York, our team can assist you in legal matters in any county where there is a vowel in the county name.

Beth will be crafting a Coverage Pointers column in the weeks ahead.  In the meantime, she sends her first felicitation:

Greetings subscribers: 

I write to you for the first time, not as a guest author or recipient of one of Dan’s coveted attalawyers, but as a proud member of the Hurwitz & Fine family.  In my short tenure as the resident partner of the newly opened Hurwitz & Fine Long Island office, I have grown to respect the members of the firm and its staff even more that I did before, when I knew only that they maintained an excellent reputation in the industry and employed some of the best lawyers I knew.

Now I know that they are also fabulous people, who have welcomed me into their family with great kindness and enthusiasm.  I look forward to continuing in the wonderful Hurwitz & Fine tradition, joining in their service to our Metro New York clients.  Reach out to me, call me, e-mail me, visit me, invite me to do some training. I am here for you.

And yes, soon you’ll be reading my contribution to CP as well. . .

Beth Fitzpatrick
[email protected]


H&F Social Media:

Twitter:          @kohane
Had you been following me on Twitter @kohane over the past two weeks, you would have seen links to a few of the cases in this week’s issue earlier in time and other insurance-related tweets. 

Apps:             There’s an App for this:
The COVERAGE POINTERS APP is available in the iPhone App Store and the Android Marketplace, for free, of course. Search for it there or for iPhone or iPad users, click here. Join hundreds of your friends and colleagues who wait patiently by their devices until our issue is pushed right to their device.

LinkedIn:      New York Insurance GroupWe founded it and continue to manage it.


Steve’s Super StormSandy Sentinel and Property Prognostications:
Another two weeks of change.  Whence last we talked, the Assembly was in the process of re-writing the Insurance Law, the New York mediation program was still awaiting an administrator (as was NJ’s), and the weather was awful.  Well, the weather is still awful, but we now have a brand spanking new protocol for mediations at AAA (in NY, at least).  We also have an interesting batch of decisions this week.

First things first.  For the next several months, we have a Capital Dis-Connection as Ethan Kazukenus joined the world yesterday afternoon.  Cassie already has the poor child adorned in Iowa Hawkeye gear.  Maybe it’s just me, but should we not give the poor kid a few days, at least, before we subject him to a life time of rooting for 5th place…in the Big 10! 

In her place, I have taken yet another opportunity to hijack her column with an update on Sandy regulations.  This time we review, and provide a basic primer on, the AAA mediation protocol that was released on March 15th (just after Coverage Pointers dropped in your mailbox and/or mobile devices).  At your leisure, we’d encourage you to review, compare and contrast  the subtle differences between the proposed program and DFS’ implementing regulations from the end of February.

Speaking of Sandy, I had the distinct pleasure of working with Ken Carter of Merchants Mutual and Max Cohen of the Lowe Stein firm in New Orleans on what I believe to be the definitive webcast on Sandy Regulatory Compliance.  If you missed it, you shouldn’t have….we’ve been advertising it for weeks.  Despite my inclusion, Max and Ken were able to carry the program home to a successful conclusion. 

If you did miss us, but are still interested in a little spring training, don’t hesitate to give us a call.  Although you’ll lose Ken’s perspective as one of the brightest minds in the industry, and Max’s extensive perspective in dealing with post-catastrophe litigation, we can still put together what I believe is a pretty darn good training.  If Sandy is not your thing, we’ve got many, many other programs to choose from on both the first and third-party sides of the aisle. 

Oh yeah, we also review a couple of interesting cases this week too.  The Arch Insurance case is definitely worth taking a look at.  In that case, the First Department answers, unequivocally, that a carrier may rescind a policy where it can establish that although it would have issued a policy despite a misrepresentation in the underwriting process, said policy would have been issued with a higher premium.    The remaining question, which I will pose to you all is…when is the premium difference between what was charged and what would have been charged MATERIAL?  Is it $1.00 or $100.00 or something else entirely? 

Talk amongst  yourselves.

If you got a thought, please drop us a note.  Or better yet, join us over at the NY Insurance Group on LinkedIn.  Start a thread and see what happens.

That’s it for now.  See you in April.

Steven E. Peiper
[email protected]

DRI Insurance Coverage and Claim Institute:
Be there or miss a great program.  Hope to see you in Chicago, April 10 – 12 for the DRI ICCI.  I’ll be speaking on the Ethical Use of Social Media in Claim Investigationsduring the Friday presentations.


Terrible Floods a Century Ago – Few Remember Hearing of One of Our Nation’s Worst Natural Disasters:

Olean Evening Times
March 29, 1913
Total Number of Dead in Flood
Zone Estimated From 500 to
2000 — Six Hundred Thousand
Refugees Homeless
Property Loss in the Eleven States Swept by Floods Will
Aggregate Nearly $250,000,000 — Thousands of Sufferers.
Ill From Exposure — Relief is Being Rushed at Top Speed to Sufferers in all Parts of the Flood Zone
US Army in Charge of Relief Work

Flood conditions throughout Ohio, Indiana, West Virginia, Eastern Kentucky, Western Pennsylvania, Southern Illinois, New York, Virginia, New Jersey, Massachusetts and Vermont showed improvement today except in the Ohio and Mississippi Valley.  The total death list is estimated from 500 to 2000 but these figures are necessarily subject to revision …
Editor’s Note:  Although mostly forgotten, over a two day period in late March 1913, the equivalent of two months of rain fell over two days in the Ohio Valley leading to what was called the most widespread natural disaster that had ever befallen the United States, with some 1,000 killed, a quarter of a million left homeless and hundreds of millions of dollars in property damage.  Click here for a review of that horrific tragedy whose aftermath was on the front page of very newspaper that week.


Mike’s Serious (Injury) Cover Note:
“Competent medical evidence” is a phrase the Appellate Division uses often, see Fitzgerald, but often does not explain.  It is a phrase the courts use when referring to whether evidence has met (or not) some evidentiary requirement, such as form, materiality, or probative value.  Understanding the phrase is important to an understanding of no fault serious injury cases, but Coverage Pointers readers might benefit more from some examples as opposed to a treatise on all the legal concepts at issue.

A report by a physician where the physician has never examined the plaintiff or his or her medical records would not meet this standard.  This kind of report would not be particularly helpful to the court because it would not address the plaintiff’s particular condition.  An affirmed report by someone without recognized medical training, experience, or education would also clearly not meet this standard.  A court could not rely on such a report to answer medical questions.  Unaffirmed reports (or medical records) are also not competent medical evidence.  A physician’s statement must be in the form of an affidavit or affirmation and medical records should be certified.

You should always ensure your evidence is competent medical evidence; however, as always, there are nuances.  For instance, unaffirmed reports and medical records may still be used by a party to oppose a motion for summary judgment, especially where it is not the only evidence submitted.  See Pietropinto and Clemmer.  Therefore, although reliance on incompetent evidence is ill advised, it should not be discarded or disregarded because it may be useful to short-circuit a motion for summary judgment.

Michael P. Scott-Kristansen
[email protected]


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  • Designed for claims and litigation management professionals with 5 - 15 years claim or litigation management experience


One Hundred Years Ago Today:  Passing the Hat?:

New York Times
March 29, 1913
Front Page

Kingsley Swan Denies She Had Need
Of Five New Hats in One Week

Kingsley Swan, the Brooklyn society man, against whom his wife Mrs. Mabel Swan is bringing a divorce action, is also being sued by Ralph Wilson, a Manhattan importer, for a millinery bill of $325 incurred by Mrs. Swan.  Judgment in this suit has been awarded against  Mr. Swan; but yesterday he obtained an order from Judge Fawcett in the Brooklyn County Court enjoining the supplementary proceedings brought by the judgment creditor pending an appeal.
Editor’s Note:  I’ve always wanted to be known as a “Brooklyn Society Man,” but alas, it is not to be. Mr. Swan, I’ve discovered from his 1918 obituary, was a “sportsman and breeder of horses”.  Dying at age 34 of heart disease, he had been twice married, once to the ever-hatted Mabel Lorraine (nee Miller) who secured a Reno divorce from him in 1914 (the NY judge found the earlier divorce proceeding collusive and refused to grant it) and the second time to a Miss Julia Murray, two years before his death.  His father was Samuel Swan, a well-known real estate broker.  His grandfather was William C. Kingsley, who was in charge of the construction of the Brooklyn Bridge.

According to a story in the January 29, 1929 Hamilton (Ohio) Evening Journal and one in the Washington Post, Lorraine Miller married wealthy wall paper manufacturer Robert Graves a mere 12 days after the Reno divorce was granted. That marriage was officiated by the same reverend who married her off to Swan.  Graves was himself thrice married.  After divorcing Graves, she then married Benjamin Wood (twice wedded himself) and in 1934, married Killiean Van Rensslaer.  One wealthy guy after another.  Was he the last? 


Jen’s Gems:
By now most of you know Steve Peiper has become our own resident expert on all things Sandy related.  So, if it has not been done yet, I would like to make a pitch for viewing the webinar he recently participated in for DRI entitled “Catastrophe Cleanup:  Regulatory and Legal Challenges After [don’t call it a] Hurricane Sandy.”

In terms of my column this week, I report on a decision out of the Supreme Court, Onondaga County regarding a bad faith and GBL § 349 claim.  To point out before anyone gets nervous, in New York the Supreme Court is our version of the trial court, not the highest court in the state.  In the decision, which is worth reading, the court denies the insurer’s motion for summary judgment on the insured’s first-party bad faith and GBL § 349 claims.  The foundation of these claims rested on the credentials of the authors of the insurer’s “Investigative Engineering Analysis Report.”  The report had two authors, one was not an engineer and the other not licensed in New York.  In rejecting the insurer’s request for summary judgment on these claims, the court made two findings that are trouble for the insurer going forward:  one, that its use of the engineering report by a non-engineer was materially misleading; and two, that the insured suffered injury as a result.  As we are always watching for cases that could impact the decisional law in this area, we will continue to monitor this one. 

Hope everyone has a nice holiday weekend.

Jennifer A. Ehman
[email protected]


One Hundred Years Ago Today – Judge Dies in the Course of Duty:


New York Times
March 29, 1913
Front Page


Jurist, Returning to His Chambers,
Falls 150 Feet Down an Elevator Shaft.


Panic-Stricken Operator Unable to Tell
Clear Story – Twenty-two Years on Bench.

Supreme Court Justice Henry Bischoff was instantly killed by a fall of nearly 150 feet down an elevator shaft of the Emigrant Industrial Savings Bank Building, 51 Chambers Street, yesterday afternoon a few minutes after 2 o’clock.  The justice had dined at the lunchroom in the County Court House and was returning to his chambers on the thirteenth floor of the bank building when the accident occurred.  His body, torn and crushed almost beyond recognition, was found in the elevator pit, two floors below the street level.

The only other person in the elevator at the time was Henry Pearl, the operator, and he was so badly frightened that he was not able to tell a connected story.  Coroner Winterbottom, after a thorough investigation, came to the conclusion that Justice Bischoff, whose eyesight was poor, had left the car at the twelfth floor, thinking that he had reached his chambers and then realizing that he had made a mistake, attempted to board the elevator again just as Pearl was closing the door. 

In a panic because of what had happened, the elevator operator let his car shoot up to the thirteenth floor and stumbled into the chambers where Howard Sands, Justice Bischoff’s chief clerk, was talking with some friends.  They were discussing the dinner at the Manhattan Club on Thursday night when Justice Bischoff presented Chairman McCall of the Public Service Commission with a loving cup, Sands said afterward.  “I’ve killed him; I tried to prevent it but he fell down,” Pearl exclaimed. 

Then, accompanied by Sands, he hurried to the basement of the building, where Mr. Sands identified the body. 


In this Week’s Headlines:

Dan D. Kohane
[email protected]

Court of Appeals

  • SUM Carrier has Subrogation Rights against Non-Auto Defendant; Court of Appeals Refuses to Review Day Case


Appellate Departments

  • Reformation Not Permitted if Company Would Not Have Issued Policy had It Known the Truth; Non-Dealer Garage Policy Does Not Cover Poultry Store
  • Where Policyholder Avers that Broker Assured Her that Coverage Would be Secured E&O Lawsuit May Proceed, When Coverage was Not Secured
  • Reservation of Rights Did Not Preserve Late Notice Defense
  • Another Late Notice Waiver Case; Liberty Achieves Excess Position on Different Policy
  • For Insurance Aficionados, Take Your Time on This One, It’s Worth the Read; State Insurance Fund Wins the Battle but Not the War
  • Document, Document, Document.  Insurer Faulted – and Disclaimer Invalidated – for Failure to Provide Reason for Delay in Denying SUM Claim for 60 Days
  • This One’s Long and a Little Complicated but Important; Here, Underlying Verdict (Secured without Insurer’s Proof of Intentional Acts) was Used to Establish Coverage. Carrier Misses Opportunity to Properly Raise Coverage Defenses in Subsequent Direct Action
  • Coverage Available Under Fiduciary E&O Policy for Failure to Supervise Felon


Michael P. Scott-Kristansen

[email protected]  

  • Plaintiffs Can Recover for All Their Injuries if They Prove At Least One Serious Injury
  • Conflicting Experts Preclude Summary Judgment
  • LaBeef’s Beef is With His Own Evidence; Another 90/180-Day Claim Fails
  • A Rational Jury Can Find for Either Side When Experts Disagree
  • Just like Insurance Law § 5102(d) States, a Fracture is a Serious Injury
  • Defendants Must Address All of Plaintiff’s Serious Injury Allegations to Be Entitled to Dismissal of Plaintiff’s Action
  • Competent Medical Evidence is Important, but Not Always Enough to Prevail on a Motion for Summary Judgment
  • Unaffirmed Medical Records May be Used in Conjunction with Other Evidence to Oppose a Motion for Summary Judgment
  • When Experts Battle the Movant Will Lose


Margo M. Lagueras

[email protected]


  • Respondent Fails to Show That Treatment Was Not Providing Curative or Significant and Quantifiable Palliative Benefits
  • Reimbursement Is Denied for Chiropractic Treatment That No Longer Benefits the Assignor


Steven E. Peiper

[email protected]


  • Dueling Affidavits Create a Question on Origin of Loss
  • Proof of that a Higher Premium Would Have Been Charged Establishes Material Misrepresentation
  • Where Offset was Not Exhausted, Plaintiff’s Lawsuit for Benefits Deemed Premature



  • Agreement to Arbitrate, When Entered Into by Counsel, is Binding
  • Failure to Remove Plates & Registration Means Seller Retains Ownership for Tort Purposes
  • Carrier’s Alleged Involvement with Criminal Investigation Could Lead to Malicious Prosecution Charge


Cassandra A. Kazukenus
[email protected]

  • American Arbitration Association’s Mediation Procedures for Sandy Related Claims


Katherine A. Fijal

[email protected]

  • Court Finds that Faulty Workmanship is an “Occurrence”


Jennifer A. Ehman
[email protected]

  • Question of Fact Existed Concerning Whether Disappearance of Goods was truly Unexplained or Mysterious
  • Court holds that Insurer Has Obligation to Investigate Property Damage Claim to determine whether Personal Injury Claim also Existed; Failure to do so made the Disclaimer Late


Bad Faith

  • Assertion that Insurer Misrepresented the Credentials of the Author of an Engineering Report, Considered Sufficient Basis to Deny Insurer’s Motion for Summary Judgment on Bad Faith and General Business Law §349 Claims


Earl K. Cantwell

[email protected]

Coverage Meets the Internet


Have a lovely two weeks and I hope to see some of you during one of my remotes over the next two weeks:  Columbus, Southfield, Peoria or Chicago.

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:
Twitter: @kohane


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]

 Elizabeth A. Fitzpatrick

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]

Court of Appeals

03/26/13       Day v. OneBeacon Insurance Company
New York State Court of Appeals
SUM Carrier has Subrogation Rights against Non-Auto Defendant; Court of Appeals Refuses to Review Day Case
The Court of Appeals has followed the lead provided by the Fourth Department and has refused to grant discretionary review of Day case.  In sum and substance, the Fourth Department recognized that a SUM carrier has subrogation rights against both auto and non-auto defendants and the policyholder’s settlement with a non-auto carrier that fails to preserve subrogation rights, can lead to a loss of coverage.  Here is a review of the Fourth Department decision.  Our office represented OneBeacon in this matter.

06/29/12 Day v. OneBeacon Insurance Company
Appellate Division, Fourth Department
In Case of First Impression, Insured Loses Claim for SUM Benefits Based on Non-Consent Settlement with Products Liability Defendant and Loss of Carrier’s Subrogation Rights
Stick with us on this one. It’s an important decision and requires a close reading.

Day was injured in a car accident while a passenger in a Ford Windstar. The Ford was struck by another car driven by a State Farm insured (“Other Driver”). Day was insured by OneBeacon and had a policy of underinsured motorist’s coverage with limits of $500,000. Other Driver’s policy with State Farm carried liability limits of $100,000. Accordingly, if this was a simple UIM claim, Day would be entitled to up to $400,000 in SUM benefits ($500,000 - $100,000).

Day also brought a claim against Ford, asserting that the seat in which she was sitting in the Windstar detached from the floor of the minivan and became airborne, enhancing her injuries. Ford eventually offered $475,000 in settlement and State Farm offered its $100,000 in liability limits.

OneBeacon was asked to consent to the settlement with the Other Driver. OneBeacon advised that it would not consent but would exercise its rights under Condition 10 of the SUM policy to advance the funds in exchange for Day cooperating in a claim against the Other Driver AND Ford. Day claimed that OneBeacon had no subrogation rights against a non-motor vehicle defendant such as Ford and refused to cooperate.

OneBeacon warned Day that if she settled with Ford and/or Other Driver and gave either a release, she would lose her rights to SUM benefits by virtue of the condition in the SUM policy that forbids an insured from destroying the SUM carrier’s subrogation rights. Since Day claimed that OneBeacon had no subrogation rights, she could settle with Ford. Day also claimed that since 30 days has transpired since she advised of her intention to settle and since OneBeacon had not advanced the $100,000, she could settle with the Other Driver and issue a release.

She did both: issued a release to Ford for $475,000 and to Other Driver for $100,000. She claimed that the injuries involved were worth seven figures so there was no duplication of benefits received.

OneBeacon took the position that issuing the releases and destroying the carrier’s subrogation rights was a breach of the SUM policy and therefore Day lost her rights to SUM benefits. The Fourth Department agreed.
It held that the plain language of the SUM policy gave the UIM insurer a right of subrogation against any responsible party, not just motor vehicle defendants. OneBeacon had a right to pursue the claim against Ford to recover dollars paid under the SUM policy and the issuance of the release to both the Other Driver and Ford destroyed those subrogation rights. SUM coverage was lost.
Editor’s Note: Your editor, with able assists from Diane Bosse and Margo Lagueras, represented OneBeacon in this action.

Appellate Departments

03/28/13       Lee v. Lancer Insurance Company
Appellate Division, First Department
Reformation Not Permitted if Company Would Not Have Issued Policy had It Known the Truth; Non-Dealer Garage Policy Does Not Cover Poultry Store
Lee was not listed on the policy as an insured and brought an action to reform the policy so he was listed.  The policy applications submitted to Lancer listed Jay Family Parking, Inc. as insureds, not Lee.  While a policy can be reformed if there is an “innocent mistake,” there is no proof here of that.  Ownership is not the only issue here because Lancer submitted an affidavit from its VP and GC stating that Lancer would not have issued the policy if it had known that the Lee and not the corporation owned the premises.

As Jay Family Parking, Inc. was not conducting business at the premises and as Lee was leasing the premises as a poultry store and used car dealership, none of these uses are in accordance with the garage non-dealer policy issued by Lancer.

03/27/13       Nunez v. Mohamed
Appellate Division, Second Department
Where Policyholder Avers that Broker Assured Her that Coverage Would be Secured E&O Lawsuit May Proceed, When Coverage was Not Secured
This was an errors and omissions claim against an insurance broker, the defendant having moved to dismiss the lawsuit.

The policyholder alleged that the broker had been her insurance broker for more than 19 years and that she relied on him to maintain the proper insurance for her property.  She also swore that one of the broker’s employees assured her that although one of the insurance companies would be unable to provide general liability coverage for the subject property, the broker would procure the requested coverage from another carrier.

Since the broker did not demonstrate that these allegations were not factual, the action against the broker would not be dismissed on motion.

03/26/13       Long Island Lighting Company v. Allianz Under. Co.
Appellate Division, First Department
Reservation of Rights Did Not Preserve Late Notice Defense
Long Island Lighting Company (“LILCO”) sought coverage for environmental claims arising out of the Bay Shore manufactured gas plant site, due to plaintiffs' failure to provide timely notice under the respective policies, but denied the motions as to the Hempstead site, unanimously modified, on the law, to deny the motions as to the Bay Shore site, vacate the declaration, and otherwise affirmed, without costs.

LILCO failed to satisfy its obligation under the subject policies to give notice upon the happening of an occurrence "reasonably likely" to reach the excess insurance policies involving environmental contamination at both the Bay Shore and Hempstead manufactured gas plant sites.  ‘

However, there are issues of fact whether the insurer’s disclaimer was timely. The reservation of rights, which specifically reserved, among other things, the defense of late notice, did not preclude the finding of waiver due to failure to timely issue a disclaimer. Issues of fact exist as to whether sufficient information was provided to insurers in 1995 such that their subsequent failure to issue a notice of disclaimer on the grounds of late notice, until raising it as a defense in their answers filed in 1997, resulted in a waiver.
Editor’s Note: Again the reminder about that peculiarity in New York law – ROR’s do not preserve late notice defenses.  The question for the court to decide here was whether or not the disclaimer was timely based on the information that the carrier had at the time it did not disclaim. 

03/26/13       Morrisania Towers Housing Co. v. Lexington Ins. Co.
Appellate Division, First Department
Another Late Notice Waiver Case; Liberty Achieves Excess Position on Different Policy

Plaintiff’s counsel notified Morrisania of a claim on June 8, 2005.  The letter stated that the underlying plaintiff sought damages for personal injuries he sustained due to the negligent ownership, operation, and control of Morrisania's premises, which were managed and operated by NHPMN.

The court found that by making specific reference to NHPMN's functions, i.e., operation and control, with respect to the premises, this letter constituted a written claim against NHMPN as well.

Although the notice provisions of the insurance policy issued by defendant were set forth under the caption, "Insuring Agreement," the notice requirement was still considered a condition precedent to coverage, not an element of coverage.

Accordingly the requirement was waivable, and the carrier’s failure to deny coverage for 13 months leads to a loss of coverage defenses.

The excess policy was issued by Liberty. It provided that "[W]e will pay those sums in excess of the Self-Insured Amount' that the insured becomes legally obligated to pay as damages because of personal injury' or property damage' to which this excess insurance applies." Moreover, the Liberty policy "expressly negates contribution with other carriers, [and] manifests that it is intended to be excess over other excess policies". It is thus s excess over all other coverage, including other excess coverage, and the policy was not intended to apply until after the exhaustion of the limits of the policy issued by Lexington.

03/22/13       Town of Amherst v Hilger
Appellate Division, Fourth Department
For Insurance Aficionados, Take Your Time on This One, It’s Worth the Read; State Insurance Fund Wins the Battle But Not the War
The Hilgers were officers and principals of McGonigle and Hill Roofing, Inc. (“M&H”) and M&H was Bissell’s employer.  M&H, now defunct, had a policy of Workers Compensation and Employers Liability Insurance (“WC/EL Policy”) with the State Insurance Fund (“SIF”) which was in force at the time of an accident involving one of its employee’s, Bissell.

In early 2002, Bissell was hurt when he fell from a ladder at a construction site and obtained a multi-million dollar judgment against the Town of Amherst (“Town”), the property owner in the underlying action.

As Bissell had sustained a “grave injury” under the provisions of the Workers Compensation Law, the Town was permitted – as Third Party Plaintiff – to commence a third party action against M&H – as a Third Party Defendant – for common law contribution and did so, with the court in the underlying action eventually granted judgment over in favor of the Town and against M&H.

Under New York law, the Bissell could not recover had no direct claim against M&H, his employer, because of the exclusivity of Workers Compensation.  The Town, on the other hand, had such a claim and, an indicated, secured the judgment against M&H.  The Town paid the judgment (through insurance proceeds and its own cash) and then, of course, wanted to recover, now in its capacity as judgment creditor, wanted to be reimbursed by M&H that had now become a judgment debtor.  M&H had unlimited Employers Liability Coverage through the WC/EL Policy issued by the SIF.  M&H had no contractual liability coverage, by the way.

Now in New York, in most cases where a plaintiff- or third-party plaintiff –turned-judgment creditor like the Town wants to enforce a judgment against an insured defendant-turned-judgment debtor like M&H, the Insurance Law provides a remedy.  Under Section 3420(a)(2) of the NYS Insurance Law, a judgment creditor is given the remedy of commencing a direct action against the judgment debtor’s insurer, if after presentment to the debtor (here, M&H) and its insurer (here, the SIF), the judgment is unsatisfied after 30 days.  However, the statute that creates this “Direct Action” is inapplicable to the State Insurance Fund by apt language in the Insurance Law.

M&H, because of some long-simmering dispute with the Town, apparently did not care that there was a multi-million judgment against it and refused to ask its insurer, the SIF, to reimburse the Town.

So, Bissell was paid, the Town was out tens of millions of dollars, it had a judgment against M&H, insured by the SIF and there was no method apparently available to compel the SIF to satisfy the judgment out of available insurance coverage.

The Town then commenced this action against the Hilgers (again, the principals of defunct M&H) to force them to ensure SIF's compliance with the terms of the SIF policy.  

The Town’s action noted that that the Hilgers dissolved and liquidated M & H without satisfying the Town judgment. The Town argued that the Hilgers breached their fiduciary duties to the Town to take all steps necessary to ensure that the lawful debts of M & H were paid, and the second alleged that the Hilgers unlawfully caused M & H to be liquidated in violation of Business Corporation Law.  It sought a judgment against the Hilgers personally for the amount the Town paid on the judgment Bissell took against it, together with interest.

Eventually, the Town moved for summary judgment against the Hilgers and an order directing the Hilgers to take all necessary actions to ensure that SIF complies with the SIF policy. The Hilgers cross-moved for summary judgment dismissing the complaint.

The lower court granted that part of the cross motion seeking summary judgment dismissing the complaint against Adam Hilger (who had no role in the dissolution) and otherwise denied the cross motion. The lower court also granted plaintiffs' motion insofar as it related to defendants and awarded the Town judgment in the amount of $30,230,533.15.

The Fourth Department vacated the award that the Town secured against Hilger, but the saga is not yet over.

M&H ceased doing business three months after the Bissell accident and was dissolved in 2004.  The insolvency of the company does not relieve SIF of its policy obligations

In 2011, SIF sent a letter to the Hilgers confirming that the SIF will pay for the legal fees and disbursements incurred in [the Hilgers'] defense in [this] lawsuit. In addition, [SIF] will pay for any damages awarded against [the Hilgers] in [this] action except for any damages attributable to activities or actions taken by [any of the Hilgers] as officers and/or employees of [M & H] determined to be in violation of law.

The State Insurance Fund was likely heartened by the first part of the decision. 

First, the Fourth Department found that the Town was not harmed by the M&H’s dissolution and thus its claim that it was injured by the dissolution had no merit.  As the claim was pending at the time of the dissolution it was not barred by the Business Corporation Law.  The provisions of that statute give a creditor who had an unlitigated claim the right to proceed against a dissolved company if it had not received notice of dissolution.

Remember that the alternative argument raised by the Town was that the Hilgers breached a fiduciary duty to the Town in failing to ensure that M & H's obligations were paid upon its dissolution. While the court opined that the Hilgers’ failure to ask the SIF to pay the judgment may in fact constitute a failure to act in good faith, the Business Corporation Law does not provide that such a failure gives rise to the right to secure a money judgment against that officer.  Under the section, the court can order an accounting, the setting aside of an unlawful conveyance, assignment or transfer of corporate assets and the enjoinder of a proposed unlawful conveyance, assignment or transfer of corporate assets.

The Town called the court’s attention to another section of the Business Corporation Law § 1008, which is entitled "[j]urisdiction of supreme court to supervise dissolution and liquidation".  That is a general catch-all section that  vests Supreme Court with broad powers to "make all such orders as it may deem proper in all matters in connection with the dissolution or the winding up of the affairs of the corporation" (§ 1008 [a]). Included in those powers is the authority to "suspend or annul the dissolution or continue the liquidation of the corporation under the supervision of the court" (id.), as well as the ability to determine the validity of the dissolution (see § 1008 [a] [1]); to determine the validity of any claims presented against the corporation (see § 1008 [a] [3]); to determine the liability of an officer for the liabilities of the corporation (see § 1008 [a] [5]); and to make orders with respect to the payment, satisfaction or compromise of claims against the corporation (see § 1008 [a] [6]).

The Fourth Department then decided on its own that M&H was a necessary party to the proceeding and remanded the matter back to the lower court to join it to the lawsuit.  It then suggested that the lower court convert the action to a special proceeding pursuant to Business Corporation Law § 1008 and exercise its authority under that statute, which includes the power to force M & H to seek coverage from SIF with respect to the Town judgment (see Business Corporation Law § 1008 [a] [8]).

03/20/13       Country-Wide Insurance Company v. Ramirez
Appellate Division, Second Department
Document, Document, Document.  Insurer Faulted – and Disclaimer Invalidated – for Failure to Provide Reason for Delay in Denying SUM Claim for 60 Days
This was a proceeding to stay arbitration for a claim for underinsured (SUM) motorist benefits.  Ramirez gave notice of the accident and claim to Country-Wide on June 14 but Country-Wide did not deny coverage until August 15.  The court found that Country-Wide had enough information to deny coverage much more promptly than that.  Even if some investigation was necessary, the burden was on the carrier to demonstrate that its two-month delay in disclaiming was reasonably related to a good faith and prompt investigation.  It submitted only conclusory statements about its investigation.
Editor’s Note:  At every presentation given on NY disclaimers, we remind our insurance partners about the importance of documenting the need for and the company’s investigatory activities when a delay in disclaiming is necessary.

03/15/13       Prave v. New York Central Mutual Ins. Co.
Appellate Division, Fourth Department
This One’s Long and a Little Complicated but Important; Here, Underlying Verdict (Secured without Insurer’s Proof of Intentional Acts) was Used to Establish Coverage. Carrier Misses Opportunity to Properly Raise Coverage Defenses in Subsequent Direct Action
Prave was hurt when Anderson struck him while opening the driver’s side door of a car insured by New York Central Mutual (“NYCM”). Prave had sued Hender but NYCM disclaimed coverage and refused to defend or indemnify Henderson on the ground that the incident was the result of an intentional act by Henderson that was not covered under the policy.

Henderson therefore commenced an action against NYCM in Supreme Court, Oneida County (DJ action), seeking a declaration that NYCM had a duty to defend and indemnify him in the underlying action. In a prior appeal in the declaratory judgment action the Court concluded that NYCM was required to defend Henderson and that the issue of indemnification would depend upon the outcome of the trial in the underlying action, i.e., whether Henderson was found to be negligent. After the trial in the underlying action, it was determined that Henderson was negligent in causing plaintiff's injuries, and a judgment was granted in favor of plaintiff in the amount of $70,000.

Plaintiff then commenced this Insurance Law § 3420 (b) action in Supreme Court, Cayuga County, against NYCM seeking to enforce the judgment in the underlying action. Thereafter Prave moved for summary judgment on the complaint, and NYCM cross-moved to consolidate this matter with the declaratory judgment action

Under Insurance Law § 3420, an injured party has a right to sue the tortfeasor's insurer after obtaining a judgment against the tortfeasor, serve the insurance company with a copy of the judgment and await payment for 30 days (the “Direct Action” statute.

Moreover, as the determinations in the underlying action and in the prior appeal establish that NYCM is required to indemnify Henderson and that, as a result, plaintiff has a right to seek indemnification from NYCM pursuant to section 3420. In the prior appeal, the court concluded that the outcome of the tort action would resolve the indemnity question.  Since Henderson was found to be negligent in the underlying action, NYCM was therefore required to indemnify him.
Here, plaintiff submitted evidence in support of his motion establishing as a matter of law that the judgment in the underlying action included a finding that Henderson was negligent, and NYCM failed to raise a triable issue of fact.
Editor’s Note:  Your editor was about to complain bitterly about this decision but will only complain mildly.

Let’s review what happened and parse this decision.  In the previous appeal, the court rightly found that the duty to defend was based on the allegations in the complaint and the duty to indemnify could only be determined after trial.  The mistake made then was that the court found that the duty to indemnify should be determined in the underlying tort lawsuit.  This editor respectfully disagrees.

In the underlying tort lawsuit, there is nobody who has the incentive to prove that the Henderson’s actions were intentional.  Prave’s counsel wants coverage and therefore wants to prove negligence.  Henderson’s counsel, selected by the insurer or the insured, cannot ethically push the case out of coverage.  NYCM is not a party.

So, imagine there is a witness who heard Henderson say, “I did it on purpose. I wanted to hurt Prave and I’d do it again.”  Who would present that proof in the personal injury trial?  Nobody.  Accordingly, a finding of negligence in that lawsuit should not be binding on the insurer who did not have the opportunity to produce the witness and demonstrate intentional conduct.

So, I reject the court’s holding in the DJ appeal that the findings in the underlying trial will resolve the indemnity issue.

The reason I am not complaining bitterly about the court’s decision is because of the italicized last paragraph of the summary.  When motion for summary judgment was made, NYCM should have presented proof that this was intentional conduct and not negligent.  Here, the court held that NYCM failed to raise a triable issue of fact.  What I do not know is whether NYCM tried to present its coverage defenses when the motion for summary judgment was made and if not, why not?  It should have used that opportunity to offer proof of intentional conduct so that there could be a hearing on the coverage defenses.

The bottom line is this:  a liability insurer is entitled to its day in court on coverage defenses.  The time to litigate those defenses in a direct action is when the motion for summary judgment is made.

03/15/12       Georgetown Capital Group, Inc. v. Everest Nat. Ins.
Appellate Division, Fourth Department
Coverage Available Under Fiduciary E&O Policy for Failure to Supervise Felon
Georgetown brought an action seeking a declaration that Everest was obligated to defend it in two federal securities actions under a broker/dealer professional liability policy issued to Royal. Royal is an SEC-registered broker-dealer Georgetown) is a financial services firm that offers securities and financial advisory services through Royal. Georgetown's investment advisors are all registered representatives of Royal.

The underlying suits claim that Geidel, a former Georgetown employee and registered representative of Royal, offered and sold unregistered and fictitious securities to investors and that Royal and Georgetown failed to supervise Geidel. Geidel ultimately pleaded guilty in federal court to wire fraud and structuring.

Georgetown established that it is a party covered by the policy and had sustained a "Loss" defined by the policy, i.e., "Defense Costs," and that the underlying actions allege that Georgetown failed to supervise Geidel, which is a "Wrongful Act" defined by the policy. Some of the services provided by Geidel and set forth in the amended complaints in the underlying actions "potentially" fall within the policy definitions of "Professional Services" and an "Approved Activity” such as advising clients to sell legitimate investments held by Georgetown and/or Royal and to invest the resulting money in the fictitious "securities."

Everest argued that the policy’s exclusion for "Loss in connection with any Claim made against an Insured . . . arising out of, based upon, or attributable to the committing in fact of: any criminal or deliberately fraudulent act" applied.  However, the underlying actions include allegations that Georgetown and/or Royal failed to supervise Geidel and that Geidel advised investors to sell legitimate securities.
Editor’s Note:  Under an “operative act” theory, the Fourth Department could well have found that “but for” the conduct of Geidel, the damages could not have occurred, ala the Mount Vernon case. 


Michael P. Scott-Kristansen
[email protected] 

03/14/13       Perez-Hernandez v. M. Marte Auto Corp.
Appellate Division, First Department
Plaintiffs Can Recover for All Their Injuries if They Prove At Least One Serious Injury
Plaintiff was a pedestrian struck by the defendants’ vehicle.  Plaintiff’s motion for summary judgment was granted because he submitted certified, contemporaneous hospital records that showed fractures in his left arm.  The defendants failed to rebut this evidence and actually included evidence that supported plaintiff’s allegation that he fractured his arm.

The court held that because the plaintiff established a serious injury, he was entitled to recover for all his injuries causally related to the accident, not just his serious injuries.

03/15/13       Fonseca v. Cronk
Appellate Division, Fourth Department
Conflicting Experts Preclude Summary Judgment
The plaintiff conceded there was no evidence of a permanent loss of use.  As for permanent consequential limitation of use and significant limitation of use categories, however, the defendant was not entitled to summary judgment.

The defendant met her burden by presenting two examining physicians reports.  One physician concluded the plaintiff had a normal range of motion, and another physician concluded the plaintiff’s substantial limitations in rotating and lateral bending were degenerative and not caused by the accident.

The plaintiff, in turn, met his burden by submitting an orthopedist’s affidavit stating that plaintiff’s herniated disc at C6-7 was flattening his spinal cord and caused by the accident, with a reasonable degree of medical certainty.

The court held that conflicting expert opinions will preclude summary judgment.

03/15/13       LaBeef v. Baitsell
Appellate Division, Fourth Department
LaBeef’s Beef is With His Own Evidence; Another 90/180-Day Claim Fails
Defendants prevailed on their motion for summary judgment.  The 90/180-day category of serious injury was at issue.  Defendants met their burden, but plaintiff submitted unsworn medical records that were not in admissible form. 

The admissible evidence plaintiff did submit contradicted his position.  It showed that one month after the accident plaintiff could return to work with slight lifting restrictions and that five months after the accident he had a non-antalgic gait, had no problem getting on and off the examination table, had no problem turning while lying down, and could remove and replace his shoes.

03/22/13       Jaoude v. Hannah
Appellate Division, Fourth Department
A Rational Jury Can Find for Either Side When Experts Disagree
The Appellate Division refused to overturn a jury verdict that found plaintiff did not sustain serious injuries.  The plaintiff’s experts’ testimony and the defendants’ expert’s testimony were conflicting and, in such a case, a rational person could conclude for the defendants.

03/24/13       Madafferi v. Herring
Appellate Division, Fourth Department
Just like Insurance Law § 5102(d) States, a Fracture is a Serious Injury
The Fourth Department granted the plaintiffs’ motion for summary judgment because the plaintiffs met their burden by submitting a sworn report from a medical expert that established their daughter suffered fractures to her sacrum and L3 endplate.  One defendant did not oppose the motion and the other defendant did not submit sufficient evidence to rebut the plaintiffs’ evidence of fracture.

03/27/13       Gonzalez v. Houmita
Appellate Division, Second Department
Defendants Must Address All of Plaintiff’s Serious Injury Allegations to Be Entitled to Dismissal of Plaintiff’s Action
The defendants sought summary judgment to dismiss the plaintiff’s complaint.  The plaintiff alleged serious injuries to his left shoulder and cervical spine and a 90/180-day injury.  The defendants never met his prima facie burden with respect to these injuries, so the court denied their motion.

03/27/13       Fitzgerald v. Czubek
Appellate Division, Second Department
Competent medical evidence is important, but not always enough to prevail on a motion for summary judgment
Although the defendant presented “competent medical evidence” to support its contention that plaintiff’s alleged injuries to her right shoulder, cervical spine, and thoracolumbosacral spine (thoracic, lumbar, and sacral region), the plaintiff submitted enough evidence to create a question of fact.  Defendant’s motion for summary judgment was, therefore, properly denied.

03/28/13       Pietropinto v. Benjamin
Appellate Division, First Department
Unaffirmed Medical Records May be Used in Conjunction with Other Evidence to Oppose a Motion for Summary Judgment
The defendant’s motion for summary judgment, which was originally granted, was denied after the parties reargued.  It was undisputed that the plaintiff had a disc bulge and herniation at L5-S1.  The defendant met his burden by a neurologist’s affirmed report that found no significant limitations and an affirmed report by a radiologist that stated plaintiff’s disc bulge and herniation were degenerative. 

The plaintiff successfully opposed the motion with an orthopedist’s affirmation showing quantified range of motion limitations, positive tests, and permanency and a statement opining that the plaintiff’s disc pathology resulted from trauma.

The plaintiff’s 90/180-day claim did not survive because she testified that the only missed two days of work after the accident.  The court also considered unaffirmed medical records when deciding if plaintiff rebutted the defendant’s showing on causation.

03/28/13       Sylla v. Brickyard Inc.
Appellate Division, First Department
When Experts Battle the Movant Will Lose
Defendants had won summary judgment in the court below, but the Appellate Division reversed on the permanent consequential limitation of use and significant limitation of use categories.

The defendants met their burden by submitting an orthopedic surgeon’s affirmed report stating that the plaintiff’s range of motion limitations was not significant or had resolved.  The plaintiff, however, submitted his own orthopedists and radiologists affirmed reports stating that the bulging cervical disc was causing continuing limitations in multiple planes of movement.


Margo M. Lagueras
[email protected]


03/26/13       Elite Medical Supply of NY, LLC v Geico
Erie County, Arbitrator Michelle Murphy-Louden
Peer Reviewer’s Failure to Address Specific Type of Lumbosacral Orthosis Results in Award to Applicant
The devise at issue was an expander LSO (lumbrosacral orthosis) but the peer review doctor based his report on a traditional LSO.  The Arbitrator noted that the expander LSO is not like a traditional LSO as it contains an air pocket system which expands the vertebrae to as to reduce pressure.  The peer report and the authority cited therein did not address this specific device and therefore did not rebut the Applicant’s prima facie showing of medical necessity.

03/25/13       Elite Medical Supply of NY, LLC v Geico Insurance Co.
Erie County, Arbitrator Michelle Murphy-Louden
Boilerplate Letters of Medical Necessity Provided by Applicant to Medical Providers Are Found Completely Lacking in Credibility
In contrast with the award referenced above, here the Arbitrator reached the same determination in a series of arbitrations with regard to various items supplied by Applicant, including cervical traction units and lumbosacral orthosis, where Applicant conceded that the letters of medical necessity were actually template letters, authored by Applicant, and provided to the treating/prescribing providers.  The providers then simply change the injured person’s name, age, date of accident and a generalized statement that they presented to Dr. X with ongoing moderate to severe neck pain.  The Arbitrator not only found these letters of medical necessity to be completely inadequate, but also found that the treatment notes clearly refuted the statements in the letters, as where the in-office trial during which the device was found to be effective, thus supporting the prescription, was actually days after the device was dispensed.  The Arbitrator found the peer reviews to be persuasive and denied the claims for reimbursement.
Note:  Perhaps supplying the referring medical providers with a couple of slightly different templates to choose from?

03/19/13       Applicant v Geico Insurance Company
Onondaga County, Arbitrator Mary Anne Theiss
Claim Denied Where Injuries Were Sustained While Fleeing the Police
Although not an Erie County award, we could not resist.  The evidence showed that the Claimant drove into a house as he was attempting to elude capture by the police.  At his deposition he testified that he was “not pulling over for the arresting officer.”  The Arbitrator noted that when an intentional act results in injury, there is no coverage.  Therefore, the claim was denied as the injuries sustained would have been an expected or anticipated result of the Claimant’s actions.

03/18/13       Anthony Amabile D.C. v A. Central Insurance Co.
Erie County, Arbitrator Kent L. Benziger
Respondent Fails to Show That Treatment Was Not Providing Curative or Significant and Quantifiable Palliative Benefits
Respondent insurer denied further chiropractic treatment based on the IME of Dr. Sean Higgins.  During the examination, the injured party reported that following treatment his symptoms decreased but then returned after a couple of hours.  The examination also revealed range of motion limitations, positive findings for numerous tests and spasms.  Dr. Higgins concluded that the cervical and thoracic sprains/strains were causally related but, given that the injured party reported only temporary decreased symptom with chiropractic treatment and the objective findings had worsened since the last examination some three months before.  Based on this report, Respondent issued a denial.

In support of his claim, Dr. Amabile submitted his progress notes, as well as an affidavit.  The Arbitrator found that the progress notes and periodic examinations documented both curative and palliative benefits, including continued improvement in range of motion and decreases in positive orthopedic tests.  Therefore, the Arbitrator determined that up to the November 22, 2011 date of service, Applicant’s records were persuasive and Respondent failed to show that the treatment was not providing curative or significant and quantifiable palliative benefit.  However, after November 22, 2011, Applicant failed to submit any comprehensive re-examination so reimbursement after that date was denied.

03/18/13       Nicholas Abramo, D.C. v Redland Insurance Co.
Erie County, Arbitrator Kent L. Benziger
Reimbursement Is Denied for Chiropractic Treatment That No Longer Benefits the Assignor
Applicant sought reimbursement for dates of service from January 6, 2011 through September 8, 2011.  Respondent issued denials based on three different grounds.  The Arbitrator agreed that treatment from August 15, 2011 through September 8, 2011 was properly denied because Applicant’s Assignor breached a condition precedent to coverage by failing to appear for two properly scheduled IMEs.  The Arbitrator also agreed that the bills from January 20, 2011 through January 27, 2011 were properly denied because they were not submitted within 45 days of the date of service.  The Arbitrator found that Applicant’s ledger setting forth a “date billed” was insufficient to document mailing, especially where a copy of the bill indicated a different “date billed” than that shown on the ledger. 

With respect to the remainder of the dates of service in dispute, the Arbitrator found the IME report from Dr. Sean Higgins to be more persuasive that Applicant’s treatment notes.  Dr. Higgins found that orthopedic tests were negative.  There was no objective improvement since the previous examination and the Assignor indicated that he felt no improvement with the treatments, indicating no curative benefit.  As such, Dr. Higgins concluded that the Assignor was not responding to treatment and found that causally related chiropractic treatment was not necessary. 

The Arbitrator found that Applicant’s reports were nothing more than checklist forms containing only conclusory findings.  They failed to objectively detail progress or range of motion measurements noting only that it was worse, unchanged, improved or normal.  The Arbitrator found such evaluations to have little credibility.  In addition, the positive orthopedic findings did not decrease as treatment progressed so there was no showing of any palliative benefit.  Therefore, the Arbitrator agreed that the Assignor was not responding to chiropractic treatment and denied Applicant’s claim.


Steven E. Peiper
[email protected]


03/26/13       Ho v Greenwich Ins. Co.
Appellate Division, First Department
Dueling Affidavits Create a Question on Origin of Loss
The Ho’s homeowners’ policy provided coverage for losses arising from fire losses, along with damage which was a consequential loss as a result of the fire.  In the instant case, however, Greenwich submitted affidavits which raised a question of fact as to the damages sustained to the insured premises.   Apparently, the fire broke out 2 doors away from insured premises.  In light of the unresolved question, the Appellate Division affirmed the trial court’s decision to deny all dispositive motions.

03/26/13       Arch Specialty Ins. Co. v Kam Cheung Constr., Inc.
Appellate Division, First Department
Proof of that a Higher Premium Would Have Been Charged Establishes Material Misrepresentation
In this interesting case, Arch denied Kam’s claim on the basis of a material misrepresentation.  In support of the declaratory judgment which it subsequently filed, Arch argued that although it would have still written the policy had the insured not misrepresented the risk, it would have insisted on a higher premium than was charged. 

In reviewing Arch’s submission, the Court noted that the underwriter and rating guidelines were sufficient proof to establish that a higher premium would have been charged with full disclosure on the application.  Accordingly, the misrepresentation was deemed to be material, and coverage vitiated as a result.

Peiper’s Point – This case provides some answers to the question of what constitutes a material misrepresentation.  In authoring this opinion, the First Department clearly establishes that premium rate is a vital component to establishing materiality.  Previously, it had been argued that the inquiry was only whether the policy would have, or would not have been, issued.  Here, the Court says the issuance of the policy is not, necessarily, dispositive.  If, on the other hand, the policy would have only been issued with a higher premium, coverage may still be voided. 

The case, however, leaves open (or perhaps creates) a looming question.  How much premium discrepancy is necessary before it becomes a “material” breach of the insuring agreement?  Is it $0.01 more in premium?  How about $10.00, $100.00, $1,000.00?  Surely, these questions will be asked as we proceed. 

03/20/13       Kuzma v Protective Ins. Co.
Appellate Division, Second Department
Where Offset was Not Exhausted, Plaintiff’s Lawsuit for Benefits Deemed Premature
Plaintiff was insured under a disability policy issued by Protective when he was struck during the course of his employment.  As result of which, it appears that plaintiff became eligible for disability benefits on or about March 1, 2008. 

When the benefits were denied, plaintiff commenced the instant lawsuit.  Protective appeared, and asserted two affirmative defenses which sought to dismiss the lawsuit as untimely and/or lacking standing.

Apparently, the policy in question contained an “offset” provision which precluded any litigation until after any recover from third-parties had been offset against the disability policy.  Thus, where, as here, the plaintiff received nearly $27,000 from the tortfeasor, his disability policy must receive the same $27,000 in credits prior to being triggered.  Essentially, because plaintiff was entitled to $1,500 in disability benefits every month, he needed to wait 18 months prior to receiving a benefit from his policy ($1,500 x 18 months = $27,000). 

In the instant case, plaintiff commenced the suit 15 months after becoming eligible.  In interpreting Indiana law, per the choice of law provision of the contract, the Court ruled that the issue was not ripe at the time plaintiff commenced the instant lawsuit.  Accordingly, plaintiff’s claim should have been dismissed by the trial court. 


03/27/13       Esposito v Podolsky
Appellate Division, Second Department
Agreement to Arbitrate, When Entered into by Counsel, is Binding
On the eve of trial, the litigants in this automobile accident case agreed to proceed to arbitration.  The agreement provided that the matter would be submitted to NAMS, and would subject to a high/low of $50,000/$0.   However, the day before the arbitration was scheduled; plaintiff’s counsel advised that neither he, nor his client, would be appearing. 

Defendants moved to compel arbitration per the agreement, and the plaintiff’s ultimately participated under court order.  Plaintiff immediately served a notice of appeal of that decision.  During the time to perfect the appeal, counsel appeared at a compliance conference wherein both parties agreed to a stipulation that confirmed the arbitration would proceed without prejudice as to the issue of damages.  On this basis, apparently plaintiff’s counsel decided not to perfect the appeal of the Order to arbitrate. 

Several months later the arbitration finally occurred, and ended up with a liability finding in favor of the plaintiffs.  At that point, plaintiff moved to restore the matter to the trial calendar so that damages could be tried.  In response, defendants moved to strike on the basis of the previously agreed to mediation stipulation which set damages at $50,000/$0.  The trial court denied both requests, and instead ordered that the matter be returned to mediation with plaintiff’s recovery limited to the policy limits of $250,000. 

In overturning the trial court, the Appellate Division noted that it was an abuse of discretion in, sua sponte, increasing the maximum arbitration exposure from $50,000 to $250,000.  The stipulation on damages, which was part of the original arbitration agreement, was binding upon all parties and should not have been disturbed absent a finding of “fraud, overreaching, duress or mistake.’’  None of those factors are present in the instant case. 

03/22/13       Madafferi v Herring
Appellate Division, Fourth Department
Failure to Remove Plates & Registration Means Seller Retains Ownership for Tort Purposes
It appears as though Mr. Myers sold an automobile to Mr. Herring.  Even after the sale had allegedly occurred, Mr. Myers agreed to leave the license plates on the vehicle.  Thereafter, Mr. Herring was involved in a one car accident which left plaintiff’s daughter seriously injured.

Where, as here, the seller did not remove the plates and registration, he is deemed to be an owner of the vehicle at the time of the incident.  Accordingly, although the transaction was completed, Mr. Myers faced liability exposure as a result of Herring’s use of a vehicle still owned by Mr. Myers.

03/20/13       Robles v City of New York
Appellate Division, Second Department
Carrier’s Alleged Involvement with Criminal Investigation Could Lead to Malicious Prosecution Charge
Plaintiffs commenced the instant action against, among others, Allstate Insurance Company for an alleged malicious prosecution.  Apparently, Allstate had provided information to the NYPD which ultimately resulted in charges against Mr. Robles. Upon receipt of the suit, Allstate immediately moved for summary judgment. 

In support of Allstate’s position, the carrier argued that merely furnishing information to law enforcement could not provide the basis for a malicious prosecution charge.  Rather, in order for civil liability to attach, the claimant must establish that the reporting person/entity played an active role to prosecution or, at minimum, “importuned” authorities to proceed with charges. 

In opposition to Allstate’s motion, plaintiff argued that Allstate had, in fact, induced law enforcement officials to act.  In addition, plaintiffs alleged that Allstate had intentionally provided false information, and withheld other information, which contributed to the prosecution.  On this basis, the Court reasoned that an inference of malice was present.  Accordingly, the Court found a question of fact; thereby denying Allstate’s motion for summary judgment.


Cassandra A. Kazukenus
[email protected]

American Arbitration Association’s Mediation Procedures                                                                                  Mediation Program for Sandy Related Claims

By way of Emergency Regulation dated February 27, 2013, the Department of Financial Services created a mediation program to address Hurricane/Post-Tropical Storm Sandy Claims. To manage the program, the Department selected the American Arbitration Association to implement and oversee all mediations covered by the Emergency Regulation. 

Interestingly, the procedures adopted by AAA are slightly different than the adopted regulation.  In relevant part, the highlights of the AAA mediation procedures are set forth below:

1.        Who (Can Request Mediation)

  • Homeowners, renters, business owners and others who have insurance claims against a New York-licensed insurer for loss of, or damage to, real or personal property;
  • 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;
  • There is no need for the damage or loss to be related to Hurricane/Post-Tropical Storm Sandy; and,
  • Exclusions:
    • Motor vehicle claims;
    • Claims where the insurer and insured are less than $1,000 apart in negotiations; or,
    • 45 days from the receipt of a Proof of Loss has not expired.

2.       What (Claims Qualify for Mediation)

  • Any claim for personal or real property loss or damage arising in the aforementioned counties;
    • That was denied in or in part;
    • That remains pending 45 days after a sworn proof of loss; or,
    • Where the dispute between insurer and insured is greater than $1,000
  • Claims for business interruption are deemed, by AAA, to be part of the program;
  • Auto Claims are exempt  from the mediation program;
  • In addition, other claims exempt from the program include Disputes of valuation that have been submitted to appraisal;
    • Claims that have been placed into suit by the insured (no such protection for insurers)
      • Parties may still participate on request by the insured
    • Insurer believes or knows of fraudulent transaction involving the claim
      • Effected insurer must notify the Department of Financial Services for any claim of fraud

3.       Where (is the Mediation Conducted)

  • Mediations may be conducted face-to-face, via video conference or telephonically

4.       When (is the Mediation Conducted)

  • Mediation process begins upon receipt of a demand for mediation from an insured; and,
  • AAA will schedule any demanded mediation with 20 days of receipt of the request

5.       How (is the Mediation Process Set Up)

  • Parties may be represented by an attorney, provided notice of the attorney is provided before the mediation;
  • The insurer is obligated to notify its insured of the mediation;
  • The insurer is obligated to pay the costs of the mediation;
    • Minimum $350.00 fee for filing
    • Minimum $400.00 fee for two hour mediation
    • Minimum $200.00 cancellation fee in certain circumstances
  • The insurer must produce someone with knowledge of the file and decision making authority
  • The insurer must attend any mediation with:
    • Its entire claims file
    • All documents exchanged between the insureds
    • A copy of the policy
  • Both sides must negotiate/participate in good faith (AAA decides)

6.       Other Good Stuff:

  • AAA defines “good faith” as “at a minimum, the insurer shall send a representative to the mediation who is knowledgeable with respect to the particular claim and who has authority to make a binding claims decision and payment on behalf of the insurer.”
  • “Good faith” also requires entire claims file and all relevant communications brought to the mediation
  • Becoming unduly argumentative or adversarial is prohibited


Katherine A. Fijal
[email protected]

03/21/13       Scottsdale Insurance Company v. RI Pools, Inc.
Second Circuit Court of Appeals –Connecticut Law Applied
Court finds that Faulty Workmanship is an “Occurrence”.
R.I. Pools Inc. [“R.I.”] is a Connecticut company in the business of installing swimming pools. Scottsdale Insurance Company [“Scottsdale”] brought this action seeking a declaration that it had no obligation under the policy for damages sustained by purchasers of swimming pools when cracks developed in their pools.  R.I. employed outside companies to supply concrete and to shoot the concrete into the ground.  During the summer of 2006, R.I. obtained its concrete from Paramount Concrete Inc. [“Paramount”] and used Shotcrete USA [“Shotcrete”] and BBA Enterprise [“BBA”] to shoot the concrete.

In 2009 nineteen customers, all of whom had pools installed in the summer of 2006, complained of cracking, flaking, and deteriorating concrete, causing the pools to lose water, and, in some cases, rendering them unusable.

The customers filed suit against R.I. and at first the insurer provided a defense.  In August 2009, the insurer filed this declaratory judgment action seeking a declaration that it had no duty to defend or indemnify because there was not coverage under the policies, and also sought reimbursement for defense costs already expended.

The district court granted the insurer’s motion for summary judgment relying primarily on the case Jakobson Shipyard, Inc. v. Aetna Casualty & Surety Co., 961 F.2d 387 (2nd Cir. 1992).  The district court reasoned that defects in the insured’s workmanship could not be considered “accidents”, therefore were not within the policy definition of “occurrences”, and therefore, not within coverage. In a supplemental opinion the court further ordered the insured to reimburse the insurer for defense costs the insurer had already expended, finding there was no duty to defend because there was no coverage under the policies.

Based on its analysis of the policy insuring clause and the “Your Work” exclusion in R.I.’s policy, the Second Circuit Court of Appeals [“Court”] reversed.  The insuring clause in R.l.’s policy states that this insurance applies . . . only if:  (1) The [injury or damage] is caused by an “occurrence” . . .  In addition, the “Your Work” exclusion provides that this insurance does not apply to Damage to Your Work – “property damage” to “your work” arising out of it or any part of it  . . .  However, there is an exception to the exclusion which states that the exclusion does not apply if the damages work or the work out of which the damage arises was performed on your behalf by a subcontractor.

Initially, the Court stated that the district court’s reliance on Jakobson was misplaced because the policies at issue in this case differ from the policy interpreted in Jakobson.  The Court found that the policies involved in this case, although similarly limiting coverage to an “occurrence”, and similarly defining an “occurrence” as an “accident”, contain additional clauses not present in the Jakobson policy.

Essentially, what the Court appears to have done in this case is read the “your work” exclusion and its exception for work done by subcontractors into the insuring clause.  The Court stated, “[W]hereas, Jakobson held that the insured’s faulty workmanship could not be a covered occurrence under the policy, the present policies expressly provided that in some circumstances the insured’s on work is covered.  As coverage is limited by the policy to “occurrences” and defects in the insured’s own work in some circumstances are covered, these policies, unlike the Jakobson policy, unmistakably include defects in the insured’s own work with the category of an “occurrence”.  The fact that they fall within the category of an occurrence does not mean that they are covered.  There is a further hurdle in the form of the express exclusion for the insured’s work, subject to an exception when that work was performed by a subcontractor.  Thus, the question whether the insured’s liability for defects in its own work is covered turns on whether the subcontractor exception applies.  The district court’s analysis essentially read the subcontractor exception out of the policies.”

The Court held that because the district court erred in ruling that defects in the insured’s work are not within the scope of an “occurrence” and never considered the crucial question whether the defects come within the subcontractor exception to the express exclusion for the insured’s own work, the judgment was vacated and remanded for further proceedings.

On the issue of reimbursement of attorneys’ fees, because the Court found that it was apparent that the damage to the pools was caused by the cracked concrete and “falls . . . possibly within the coverage of the policies, the insurer has a duty to defend; and, because this duty exists up until the point at which it is legally determined that there is no possibility for coverage under the polices, Scottsdale has not shown its entitlement to reimbursement.

Editor’s Note:        As noted above it appears that the court was reading the “your work” exclusion and its exception into the insuring clause in order to find that there was an occurrence and trigger coverage. Not knowing all the facts of the case it is difficult to understand the reasoning of the Court.  We have been advised that there is currently a case pending in the Connecticut Supreme Court on a similar issue and it is possible that the court will render a decision that conflicts with this Second Circuit Opinion. We will keep you posted.

In our opinion the more reasonable analysis in this situation may have been that there was an occurrence not because of the language of the exclusion but because the work was performed by subcontractors and therefore, was an occurrence, i.e., an accident, from the standpoint of the insured, R.I.  Once it was determined that coverage may be triggered under the insuring clause, the next step would be to analyze the exclusion to determine whether coverage was excluded, or whether the exception applied.



Jennifer A. Ehman
                                            [email protected]    

03/13/13       Exquisite Apparel Corp. v National Liab. & Fire Ins. Co.
Supreme Court, New York County
Question of Fact Existed Concerning Whether Disappearance of Goods was truly Unexplained or Mysterious
Goods valued at over one million dollars went missing at a time when plaintiff’s inventory was shifting from one warehouse to another warehouse.  Plaintiff made a claim under a policy issued by defendant for the loss. 

The Warehouse Coverage Endorsement in defendant’s policy provided:

Notwithstanding anything contained elsewhere herein to the contrary, this policy shall not pay for loss of or damage to the goods and merchandise while covered under this endorsement caused by or resulting from:

  • Unexplained or mysterious disappearance, or loss or shortage disclosed upon taking inventory where there is no evidence that loss was occasioned by perils specifically insured against.

As plaintiff had failed to adduce facts that supported its claim that the goods were stolen, defendant denied coverage. 

In considering the facts, the court recited testimony provided by an employee of plaintiff that the warehouse manager gave him a sheet of paper and instructed him to open plaintiff’s boxes and remove “samples” therefrom.  After the “samples” were removed, but before they were transferred to the new warehouse, the employee never saw them again.  The court essentially found a question of fact noting that when the employee’s testimony was considered in light of other testimony provided by plaintiff’s vice-president that plaintiff did not make such a request and, if plaintiff was to be believed, then that loss was not wholly unknown and without explanation.  

03/05/13       Hermitage Ins. Co. v Evans Floor Specialist, Inc.
Supreme Court, New York County
Court holds that Insurer Has Obligation to Investigate Property Damage Claim to determine whether Personal Injury Claim also Existed; Failure to do so made the Disclaimer Late
A fire erupted while employees of Evans Floor Specialist, Inc. (“Evans”) were refinishing floors.  After the fire, Evans placed defendants on notice of the damage; however, it may no mention of any personal injuries sustained in the accident.  Thereafter, the employees refinishing the floors notified defendant of injuries.  Notably, Evans neglected to carry a policy of workers’ compensation insurance so the claim was not barred.

Plaintiff disclaimed coverage approximately four weeks after being notified by the employees’ attorney of the injuries, citing exclusions related to an employer’s liability, among others. 

Initially, on this motion for summary judgment, and cross-motion, plaintiff erred in failing to include a copy of its policy in admissible form in support of the motion.  Without the policy in admissible form, plaintiff did not meet its prima facie claim that it disclaimed liability on the basis of a policy exclusion or limitation that actually applied.

To the contrary, defendants were given a pass on this issue as, in the court’s opinion; they presented a document which was essentially an admission by plaintiff that the policy covered Evans when the employees were injured.  The court then held that when plaintiff was placed on notice of the loss, it triggered the obligation to disclaim timely.  Although plaintiff had not been notified of the personal injuries, the court nevertheless held that the initial notice of the fire imposed on plaintiff a duty to investigate the claimed injury promptly and diligently.  Thus, irrespective of the absence of admissible evidence regarding the policy’s specific contents, the court held that plaintiff’s disclaimer was late, and any exclusion or limitations were waived. 

Take Away:  If an affirmative grant of coverage is to be found, on a cross-motion, the court should at least have the terms of the policy.  Also, the court may have overlooked the fact that there is a difference between investigating the grounds for a disclaimer and investigating the existence of a claim.  The cases cited really go to the disclaimer grounds, not to the investigation of the claim itself. 

Bad Faith

01/24/13       JD&K Assoc., LLC v Selective Ins. Group, Inc.
Supreme Court, Onondaga County
Assertion that Insurer Misrepresented the Credentials of the Author of an Engineering Report, Considered Sufficient Basis to Deny Insurer’s Motion for Summary Judgment on Bad Faith and General Business Law §349 Claims
There is a lot in this one, so bear with me.  Plaintiff made a claim under a policy issued by defendant relative to damage sustained to a concrete floor at a building presumably owned by plaintiff.  As a result of the claim, defendant had an inspection performed by a forensic investigative engineering firm.  In the subsequent report, it was concluded that the cause of the damage to the concrete floor was the settling of the fill at the south end.  A drain pipe at the southeast corner was listed as a possible contributing factor in the report. As a result, defendant disclaimed coverage citing the Earth Movement exclusion, among other grounds. 

Plaintiff then brought this action.  The complaint contained four causes of action.   The first cause of action requested a declaration that defendant was estopped from disclaiming coverage.  The second cause of action alleged breach of contract and sought direct and consequential damages. The third cause of action alleged bad faith, misrepresentation and fraud and sought punitive damages.  The fourth cause of action alleged a violation of General Business Law §349.  Defendant moved for summary judgment on the complaint, and plaintiff cross-moved on the first two claims. 
The court began by considering whether the damage was in fact covered under defendant’s policy.  Section 1.b of the Earth Movement Exclusion excluded loss for damages caused directly or indirectly or in whole or in part from earth movement.
While the court agreed that the exclusion applied, it did not end the analysis there; rather, it next considered an endorsement captioned “Broadened Water – Direct Damage.”  This endorsement purportedly provided additional coverage for: "water that backs up or overflows from a sewer, drain or sump; or (1) water under the ground surface pressing on, or flowing or seeping through: (a) foundations, wall, floors or paved surface; (b) basements, whether paved or not; or (c) doors, windows or other openings."  
According to a contrary report, commissioned by plaintiff, the failure of the concrete floor slab was the result of a void under the slab. The report stated that the void was too large to be caused by ground shrinkage due to drying out or vibration induced settlement. Rather, the sub slab void was the result of subgrade erosion by flowing water.  The roof drain was identified as the primary cause of the erosion beneath the slab.  In light of this report, plaintiff argued that the damage fell within the extension.  
The court agreed and rejected defendant’s contention that the extension did not provide separate coverage but rather modified other coverage forms in the Policy and was still subject to the exclusions from the Policy.
After granting summary judgment in favor of plaintiff on the first two causes of action, the court ordered that damages would be determined at trial.  Notably, no reference was made to the request for consequential damages. 
The court then went on to consider the two remaining causes of action which were primarily premised on defendant’s engineering report, which was signed by two individuals, the first not an engineer and the second not licensed in New York.  Again, remember only defendant moved on these claims.  Plaintiff argued that defendant misrepresented the prior to be an engineer, and that this misrepresentation was material and was relied upon by plaintiff.  Plaintiff further contended that this act constituted bad faith in investigating the claim, in communicating with plaintiff, and in disclaiming coverage.
Defendant sought to dismiss this claim by arguing that whether or not there were misrepresentations made about one author’s qualifications as an expert in the investigative report and disclaimer letter, plaintiff was not harmed by those alleged misrepresentations. 
The court held that the burden was entirely on defendant as the movant to establish plaintiff's lack of reliance and/or damages as a matter of law.  In the court’s opinion, defendant failed to do so here. It merely claimed in a conclusory fashion that plaintiff could not establish any reliance or damages arising from its report.  The court noted that the mere fact that plaintiff disputed the disclaimer letter early on does not establish a lack of reliance.  Thus, the claim was not dismissed. 
Lastly, with regard to the GBL § 349 claim, defendant contended that it had to be dismissed as plaintiff failed to allege that the acts or practices complained of had a broader impact on consumers at large, and therefore failed to state a cause of action.  Plaintiff, to the contrary, argued that it had in fact alleged that the challenged act or practice was consumer oriented, that it was misleading in a material way and that plaintiff was injured as a result of the deceptive act.  The court agreed that the claim was sufficiently pled and held that in order to make a determination as to its merit more discovery was needed. 

Take Away:  It is unclear from this decision what the insurer allegedly did to misrepresent the credentials of its expert.  Also, it leaves unanswered how the insured relied upon those “misleading” credentials to its detriment.  The insured did in fact have an opportunity to retain its own expert. 

With that said, this case is certainly set up to go bad for Selective especially as the court has already found that the use of the engineering report authored by a non-engineer was materially misleading, and that the insured suffered injury as a result. 

Earl K. Cantwell
[email protected]

Coverage Meets the Internet

The intersection of insurance coverage analysis and the Internet was reached in the case of CollegeSource, Inc. v. Travelers Indemnity Co., 2013 WL 492462 (Ninth Circuit, February 11, 2013).  The Ninth Circuit held that the Travelers’ Commercial Liability Policy excluded coverage if the insured used another entity’s name or product in its website domain without authorization. 

Another organization, AcademyOne offers an electronic database of nationwide college courses for students looking to transfer schools, and for transfer administrators.  In 2006, AcademyOne acquired the domain name,  Shortly thereafter, CollegeSource, which promotes similar products and services regarding college transfers, acquired the domain name and linked it directly to its home page,  AcademyOne sued CollegeSource concerning the nearly identical domain name, and further argued that it would likely mislead consumers and the general public.

CollegeSource tendered the claim to Travelers, but coverage was denied.  CollegeSource then filed a Declaratory Judgment action in the Southern District of California.  Travelers filed a motion to dismiss claiming that the policy’s “unauthorized use” exclusion barred coverage for the suit.  CollegeSource filed its own motion denying that the exclusion applied, and also contending that an additional endorsement that amended the policy and covered certain trademark infringement claims was also applicable.

The District Court agreed with Travelers that, even if the additional endorsement provided coverage for some trademark infringement claims, the “unauthorized use” exclusion precluded coverage.  CollegeSource appealed to the Ninth Circuit, but the decision was affirmed.

This case represents a growing trend of insurance policy coverage issues intersecting with the Internet, website use, and social media.  It should be noted that, in this case, coverage was largely precluded by an exclusion which is usually a tougher argument for the insurer.  The courts still ruled that the clear language of the policy exclusion applied to uphold denial of coverage.

Companies and insurers alike should review their practices, policies and endorsements to reflect the risks of Internet claims, intellectual property torts, exposures due to social media, and similar modern litigation in the computer age.  However, it is noteworthy that this case turned on basic reading of policy language compared to the underlying complaint which is a standard, old-fashioned coverage approach.


Courtesy of the FDCC Website

03/20/13       WOS v E.M.A
United States Supreme Court
Supreme Court Sides with Medicaid Claimant in Rejecting North Carolina’s Lien on Claimant’s Tort Settlement
North Carolina’s Medicaid program funds a portion of a child’s medical care for birth defects which require her to receive up to 18 hours of skilled nursing care per day. The child (“E.M.A.”) and her parents filed a medical malpractice suit against the hospital and physician who delivered her. The case was settled for $2.8 million, but the settlement agreement did not allocate money among medical and nonmedical claims. The trial court placed one-third of the recovery into escrow pending a determination of the amount owed by the child to the Medicaid program. Meanwhile, the North Carolina Supreme Court held in an unrelated case that the statutory one-third presumption was a reasonable method for determining the amount due to the state Medicaid program for medical expenses.

The federal district court in E.M.A.’s case agreed when the parents brought sought claiming that the law violated the federal Medicaid statute.

The Fourth Circuit vacated.

In a 6-3 opinion delivered by Justice Kennedy, The United States Supreme Court held that the federal anti-lien provision pre-empts North Carolina’s law to the extent that it allows North Carolina to “take a portion of a Medicaid beneficiary’s tort judgment or settlement not designated for medical care.” The state law was found to be incompatible with the federal Medicaid statute. The Court noted that the state law provided no means for determining whether its allocation of up to one-third of the total settlement is reasonable. Justice Breyer filed a concurring opinion, and Chief Justice Roberts filed a dissenting opinion in which Justice Scalia and Justice Thomas joined.
Submitted by: Kimberly B. Taft and Robert A. Biggs of Biggs, Ingram, Solop & Carlson, PLLC

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