Coverage Pointers - Volume XIV, No. 22

Dear Coverage Pointers Subscribers:

What a sorrowful two week’s it’s been in our nation, with the horrors in Boston and Texas.  We send our hopes and prayers for strength and reconciliation to those who have suffered so much.


Do you have a situation?  We love situations.  By my count, one of every two calls I receive from clients and friends with coverage issues begins with some variety of “I have a situation…”  Those are our favorite.  Call, don’t be shy.   Call us here or call us in our Long Island office. 

This is an unusually long cover letter (perhaps longer than the issue attached).  We have so many things on which to report.  Let’s start out with some great news for our firm.


Peiper Promotion to Partner!:

Please join in congratulating Steve Peiper on his well-deserved election to partnership in the firm.  We are so proud of his accomplishments – a great lawyer, a fine teacher, a superb strategist, a terrific leader, a lawyer with a national reputation and a great guy, to boot.



Special Thanks:

Steve was down on Long Island this week, participating in yet another continuing education program.

A special thanks to Mike Hutter and Jonathan Dachs who were particularly generous with their comments about this newsletter in a recent downstate program in which Steve Peiper participated.  We are honored and delighted to have so many lawyers subscribing and those two are among the best and the brightest.


We’re So Social --  H&F Social Media:


If you like us here, we’re available in other social media locales:


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.

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LinkedIn: New York Insurance Group: We founded it and continue to manage it, managed by Steve, Cassie, Beth and your editor.


Jen’s Gems:

As I walked outside today, the sun was shining, the breeze was not too cold and for the first time I thought to myself, you know what, “spring is in the air.”  Well, as it turns out this week, bad faith claims are also in the proverbial air.  This week the newest Estee Lauder v OneBeacon decision was issued by Judge Carol R. Edmead, New York County Supreme Court.  The decision really highlights the danger of expanded discovery that is often associated with bad faith claims. 

The case involves coverage for claims against Estee Lauder arising out of its alleged dumping of hazardous materials in two Long Island landfills.  Estee Lauder was previously permitted to amend its complaint to assert a bad faith claim based on OneBeacon’s failure to timely pay defense costs, which the Appellate Division decided in 2009 it owed.  The issue in this decision was the scope of discovery Estee Lauder was entitled to in order to support its claim, and whether categorical privileges applied to the documents.  Sticky issues especially as all the documentation sought to be produced was generated after the commencement of litigation, which would traditionally be the cut-off date for discovery.  Definitely an interesting read, and one (assuming this decision follows suit) that we can expect the Appellate Division to weigh in on. 

Till next issue.

Jennifer Ehman

[email protected]


Thousands Flee:

I haven’t ranted (or raved) since my February 15 critique of the “caused by” v. “arising out of” decision of the First Department in National Union Fire Ins. Co. of Pittsburgh, PA v Greenwich Ins. Co.  The First Department has inspired me again.

Regular readers know that we use the catch-phrase, “Thousands Flee” when we see an opinion we consider way off the mark.  We have one in today’s issue, handed down by the First Department on Thursday April 25.

The insurer, AIG, issues a worker’s compensation/employer’s liability policy to two related companies, Amoco and Amost.  It certainly is not unusual for a policy to include as insureds two companies with similar or common ownership, even though they are separate and distinct entities.

Estrada was employed by one of those companies, Amost.  He was not employed by the other company, Amoco.  He was injured in the course of his employment with Amost and brought an action against another company, Rent-a-Unit.  Rent-a-Unit, not aware of which of the two companies employed Estrada, commenced third-party actions against them both alleging employment,  The papers were turned over to AIG, who provided them both with a defense (we assume, without knowing, that a “grave injury” was alleged).

When it became clear that Amoco was not Estrada’s employer, and therefore was not permitted to claim the exclusivity of worker compensation, Estrada brought a direct claim against Amoco, alleging its negligence.  That was certainly an appropriate thing to do.

AIG then takes the position, understandably so, that it no longer has an obligation to defend Amoco since Amoco was no longer alleged to be Estrada’s employer.  While we disagree with AIG from time to time on coverage positions taken, on this one it was surely correct.  After all, Amoco had CGL coverage which would be (and was) available for the claim, since the employee and workers compensation exclusions were no longer available.

Why in heaven’s name would AIG still have a duty to defend the non-employer, Amoco, under an employer’s liability policy?

Here’s the rub.  The First Department held that AIG, the employer’s liability carrier, had such a duty  with this rather unique explanation:

We reject [AIG’s] contention that because Amoco is not Estrada's direct employer, it need not provide coverage to Amoco under the policy. Defendants Amoco and Amost Drywall Inc. jointly purchased insurance for a joint work site, and the two companies have the same owner and management, and worked together on the same covered location where Estrada was injured. Further, the plain and ordinary meaning of the provisions of the insurance contract clearly cover Amoco with respect to Estrada's claims because the policy combines Amoco and Amost for purposes of coverage (see generally White v Continental Cas. Co., 9 NY3d 264, 267 [2007]).

Now that makes no sense.  Because Amoco and Amost were both insureds and had common ownership doesn’t make Amoco an employer (and nobody contended it was any longer) and if Amoco wasn’t the employer, Amoco does not deserve coverage under the employer’s liability policy.  The citation to the White case is interesting but of little consequence to the discussion. It merely indicates that policies should be read to give words their meaning.

No doubt Amoco was an insured and would have had coverage if it were the employer.  It was not and therefore was not entitled to THAT coverage under THAT policy.


Beth’s Banter and Fitz’ Bits

This is the inaugural column of Beth’s Banter on Coverage B and, which will include some Fitz’ Bits thrown in for good measure. As there is not an abundance of New York law addressing Coverage B issues, I will be surveying decisions from across the country. This week, I also include a decision from New York’s 2nd Department decided earlier this year. You can expect Fitz’s Bits to focus on issues involving the use of social media in the law, as well as other decisions that aren’t covered elsewhere in CP. 

This has been a challenging time for our country and our hearts go out to all those in Boston directly affected by yet another act of terrorism against our country.  We are, of course, all affected, as Americans, by the recent events and social media clearly played a role in the investigation and ultimate capture of one of the terrorists. Social media continues to play a role in personal injury litigation as well and I discuss a recent New Jersey decision addressing discovery of a plaintiff’s Facebook page.  In a related vein, just this month, New Mexico joined the handful of states that have enacted laws which prohibit an employer from requiring a prospective employee to provide their password for password protected social media sites.  New Mexico joins Maryland, Illinois, California, Michigan and Utah.

We reference some out of state cases in the column and they are available upon request.

Beth Fitzpatrick
[email protected]


One Hundred Years Ago:

Oakland Tribune
April 26, 1913
Page 1

Girl Burglar Evidences No Desire to Steal
Attired in Men’s Clothing

Los Angeles:  Mrs. Jean Thurnherr, who gained much publicity two years ago by undergoing an operation in Berkeley in the hope that it would cure her of a tendency towards kleptomania and who again broke the law by purchasing diamonds from a Pasadena jeweler, was committed to the insane asylum at Patton today.

Physicians who examined her testified before the lunacy commission declared Mrs. Thurnherr had inherited her tendency toward kleptomania but admitted they were puzzled by her liking for wearing masculine clothing, in which garb it was said she devoted herself to athletics and exhibited no desire to take what was not hers.


Death and Anti-Semitism in the South


On April 26, 1913, 13-year old Mary Phagan was found dead in Atlanta GA.  Her death was blamed on Leo Max Frank (April 17, 1884 – August 17, 1915).  Frank was a Jewish-American factory superintendent whose murder conviction, extrajudicial hanging in 1915 by a lynch mob planned and led by prominent citizens in Marietta, Georgia drew attention to antisemitism in the United States. He was posthumously pardoned in 1986.

An engineer and superintendent of the National Pencil Company in Atlanta, Frank was convicted for Mary’s murder on August 25, 1913. She had been strangled on April 26 and was found dead in the factory cellar the next day. Frank was the last person known to have seen her alive, and there were allegations that he had flirted with her before. His trial became the focus of powerful class, regional, and political interests. Raised in New York, he was cast as a representative of Yankee capitalism, a rich northern Jew lording it over vulnerable working women, as the historian Albert Lindemann put it.

Former U.S. Representative Thomas E. Watson used the sensational coverage of the case in his own publications to push for a revival of the Ku Klux Klan, calling Frank a member of the Jewish aristocracy who had pursued "Our Little Girl" to a hideous death. Frank and his lawyers resorted to stereotypes too, accusing another suspect — Jim Conley, a black factory worker who testified against Frank — of being especially disposed to lying and murdering because of his race.

There was jubilation in the streets when Frank was convicted and sentenced to death. By June 1915 his appeals had failed, but Governor John M. Slaton believed there had been a miscarriage of justice, so he commuted the sentence to life imprisonment—to great local outrage. A crowd of 1,200 marched on Slaton's home in protest, and two months later Frank was kidnapped from prison by a lynch mob of 25 armed men who called themselves "Knights of Mary Phagan". Frank was driven 150 miles to Frey's Gin, near Phagan's home in Marietta, and murdered. A crowd gathered after the hanging; one man repeatedly stomped on Frank's face, while others took photographs, pieces of his nightshirt, and bits of the rope to sell as souvenirs.

On March 11, 1986, the Georgia State Board of Pardons and Paroles granted Frank a pardon, citing the state's failure to protect him or prosecute his killers, though they stopped short of exonerating him. The names of Frank's murderers were well-known locally but were not made public until January 7, 2000, when Stephen Goldfarb, an Atlanta librarian and former history professor, published the Phagan-Kean list on his website. The Washington Post noted that the list includes several prominent citizens — a former governor, the son of a senator, a Methodist minister, a state legislator, and a former state Superior Court judge — their names matching those on Marietta's street signs, office buildings, shopping centers, and law offices today.


Peiper’s  Public Prognostications

After a good couple of months, this week’s column offers a total air ball for property decisions.  That said, we would point you to a case that, once again, upholds the proposition that a contractual indemnity obligation executed after a loss does not retroactively apply.  There is also an interesting case on privity that, admittedly, introduced your writer to a new theory of liability.  Check it out below.   

H&F in HD

A hearty thanks to those of you who joined us at the Nassau County Bar Association CLE on Tuesday Night, and a special thanks to Jonathan Dachs and Professor Hutter for permitting me to join them in an interesting discussion of all things coverage.  To those of you just joining the Coverage Pointers list, welcome.  We hope you enjoy. 


Although we are light on cases this week, we still have a bit more to say.  To prove that we are super-nerds here, we are intrigued by a whole new batch of ISO forms that became effective on April 1st.  In the coming issues, we will be reviewing several of the new forms, including multiple changes to the additional insured options, that will be popping up in the near future.  For now, however, we start at the logical beginning.  In addition to new and altered AI endorsements, ISO has produced an update to the venerable CG 00 01.  The new version, aptly denoted as CG 00 01 04 13, makes subtle, yet significant changes.

  • The first change is the liquor liability exclusion were ISO both gives and takes away.  In expanding coverage, the new form creates a clear exception for BYO establishments which exempts them from the reaches of the liquor exclusion.  However, in reducing the scope of coverage, the exclusion now precludes all coverage for “negligence or other wrongdoing in: (a) The supervision, hiring, employment, training, or monitoring of others by that insured; or (b) Providing or failing to provide transportation with respect to any person that may be under the influence of alcohol


  • The second alteration makes a subtle change to the auto, aircraft or watercraft exclusion.  Particularly, at subsection 5(a) of the exclusion which applies to mobile equipment attached to a registered vehicle, ISO has removed the reference to “any state.”  The change was meant to ensure that the exclusion would still be applicable to vehicles registered in the District of Columbia, Puerto Rico, Guam, etc. which, as you know, are not states.
  • The third change addresses Exclusion “P” – Electronic Data.  To clear up any confusion, the exclusion now provides a clear exception which states that it does not apply to bodily injuries that are caused by the loss of electronic data.  Think emotional distress claims, for instance. 


  • The fourth change, amends Exclusion “Q” – Recording and Distribution of Material in Violation of Law.  Under the new form, Exclusion “Q” is expanded to include violations of The Fair Credit Reporting Act (FCRA), the Fair and Accurate Credit Transactions Act (FACTA), or any other statute, regulation or ordinance that “addresses, prohibits, or limits the printing, dissemination, disposal, collecting, recording, sending, transmitting, communicating, or distribution of material or information.”
  • In staying in touch with our digital age, the fifth change insures that publication under Coverage “B” includes both electronic and cyber publications.


  • Finally, the sixth change addresses the Other Insurance subsection which deals with excess insurance.  You will recall that the 10 01 form created excess coverage where the named insured had been added as an additional insured under any other policy.  That endorsement, however, required that the additional insured status be conferred by way of an endorsement.  The new 04 13 form has stricken the need for AI status to have been conferred by endorsement.  Now, so long as a party can establish additional insured status (regardless of how), the excess clause will be triggered. 

As we stated, ISO has introduced new additional insured forms that we will be reviewing in coming issues.  In the meantime, we look forward to any thoughts you have on the CG 00 01 04 13 we reviewed above.

SOS reaches cruiser stage

On another note, Monday, April 29th, marks the 6 month anniversary of Hurricane Sandy slamming into to the coasts of New Jersey, New York and Connecticut.  If you’ve been living with these claims every day since then (as we have), it is an interesting time to look back at what has occurred, and to look forward to what is yet to come.  Of the many observations I have made over the past several months, a great kudos goes out to the industry as a whole.   Despite what the Executive Branch of New York State may think, having learned from its mistakes in Hurricanes Katrina and Irene, and others, carriers responded amazingly fast given the breadth and severity of the losses at issue.  If a private carrier reacted as slowly as FEMA has over the past several months, we might all be looking for new jobs in Siberia.  That, of course, hasn’t been the case. 

Carriers, by and large, mobilized CAT units at breakneck speed.  Claims professionals, engineers and the like were literally boots on the ground within hours of the passage of the storm.  The vast majority of claims were adjusted, professionally, quickly and without incident.  Through all of this, the industry absorbed draconian changes to reporting requirements, investigation requirements, and the outlines of a massive mediation program which is just now getting underway. 

Don’t take too much time patting your collective selves on the back, however, as new challenges await. We are moving, we propose, into the next stage of this process.  Those claims that have not yet been resolved, we would suggest are likely to end up in litigation.  Fraud, to the extent it hasn’t yet appeared, will continue to grow as claimants “adjust” previously pending claims.  Carriers are also faced with the unenviable task of determining when it is appropriate to cut off ALE payments, discontinue Extra Expense Claims, and determine if ACV is sufficient to close a file that remains pending. 

While litigation cannot be avoided on all claims, we note that the next best thing is to begin to prepare those files for the very real possibility of a lawsuit.  With this, we remind you to document the claims file, retain and protect expert reports, and keep open lines of communication with the assured to insure good faith communications.  The last thing you want is to have your claims handling used a weapon against you at a deposition or trial.

Steven E. Peiper
[email protected]


One Hundred Years Ago:

The Syracuse Herald
April 26, 1913
Page 1

Analysis of Bill is Made by Its Author, Representative Hull
Not Class Legislation
The Tax, He Said, Is Fair, Productive, Responsive to Changes and Rates
And Cheap of Collection

Washington April 26 – A comprehensive analysis of the income tax by Representative Hull of Tennessee, its author, feature in today’s general debate on the tariff in the House.  Other speakers were on the program for discussion of the tariff itself.
* * *
The tax, he said, is fair, productive, responsive to changes and cheap of collection.  No honest taxpayer had anything to fear, he said.  Against the assertion that the tax was upon thrift, industry and profits, Mr. Hull responded that the tariff was a tax upon consumption, want and even poverty and misery, and added that the proposed income tax was measured by net profits or gains and not imposed upon gross income or capital or other property…
Editor’s Note:  The 16th Amendment to the Constitution, adopted in 1913, allowed for the imposition of an income tax. No honest person has ever feared the power of the federal government to audit …. Not.


Mike’s Missive:

The longer I write this column, the more interesting the cases get.  This week Luetto and Coley are practically mandatory reading for those of you interested in serious injuries.  Luetto gives some great analysis that may clear some cobwebs.  Coley shows a dangerous conflict brewing for defendants. 

The Court in Coley dukes it out over whether, for the purpose of 90/180-day claims only, a physician’s statement that is based on medical records and tests from the 180 days after the accident are sufficient to carry a party’s burden where the physician’s examination of the plaintiff was conducted long after those 180 days are over.

How often does a plaintiff’s expert get to examine the plaintiff within the 180 days after an accident?  Defendants’ experts are forced to rely on medical records from that period when commenting on a plaintiff’s 90/180-day injuries for that reason.  A strong portion of the Court in Coley, however, says too bad, so sad, you lose.  If the defendant’s expert didn’t examine the plaintiff shortly after the accident, then that expert’s report won’t be enough for defendants to meet their burden.  Although this rule would apply to both plaintiffs and defendants, it would weigh heavily on defendants.  Thankfully, the majority of the Court disagrees.  Keep reading here.  We’ll keep an eye out for any new developments.

Michael Scott-Kristansen
[email protected]


A Century Ago:


Middletown (NY) Times Press
April 26, 1913
Page 1

Executive Is Working Hard For His State
Wide Primary

Albany, April 26—Governor Sulzer today, renewed his efforts to bring about the enactment of a state-wide direct primary bill.

He conferred at noon with Democratic County Chairman whom he urged to assist the cause. 

The Governor reiterated his declaration that Democrats who opposed the bill were against the party platform and were therefore not true Democrats.
Editor’s Note:  On April 30, 1913, the bill to create a direct primary was overwhelmingly defeated in the New York State Senate by a vote of 42-8.  However, a direct primary was adopted in New York that year.

By the way, Governor Sulzer, who many say was railroaded for turning away from Tammany Hall after his election, was impeached and convicted and removed from office later on that fall.


Headlines in Today’s Issue:

Dan D. Kohane
[email protected]

  • Non-Employer Provided Coverage Under Employer’s Liability Policy Even though Policy Only Covered Employers; Thousands Flee
  • “Same or Related Claims Provision in Claims Made Policy Considered; Inapplicable Where Professional Has Provided Separate Services to Multiple Clients
  • Liability Policy Properly Rescinded So Untimely Disclaimer Cannot Create Coverage
  • Sufficient Proof of Residency Provided in Response to Application to Stay SUM Arbitration to Justify a Framed Issue Hearing
  • Late Notice By Both Insured and Injured Party Leads to Coverage Denial.  When the Injured Party Receives a Notice Indicating that a Policy Was Renewed Five Months After an Accident, It Should Be Enough to Investigate Whether That There Was a Policy With the Same Company Five Months Earlier
  • Policyholder’s Decision Not to Read Notice of Change in Policy Coverage Doesn’t Preclude Claim Against Insurance Agent
  • In Unusual Decision, First Department Finds (a) Disclaimer Letter was Late and Ineffective as to Two Parties Thus Precluding Reliance on Exclusions but (b) Effective as to Insurer Seeking Reimbursement of Defense Costs
  • Freezer Malfunction Leads to Lawsuit and Split Court Contemplates Whether Product Defect Results in “Occurrence” and “Property Damage” in Case Destined for High Court Review


Michael P. Scott-Kristansen

[email protected] 

  • Later-Dated Expert’s Reports Must Address Any Inconsistencies With Previous Expert’s Reports, Even if the Previous Reports Were Prepared for the Opposing Party
  • Defendants Are in Danger of Losing Important Ground on 90/180-day Injuries
  • Even if the Plaintiffs Had Competent Medical Evidence of Spinal Bulge or Herniation, More Is Needed to Establish a Serious Injury
  • For 90/180-Day Claims, Even if the Plaintiff Only Works a Reduced Schedule the Defendant Will Prevail
  • Fractured Teeth Meet the Serious Injury Threshold


Margo M. Lagueras

[email protected]


  • Failure to Question Prescription for Custom Fit Brace Results in Award
  • Letter of Medical Necessity Is Boilerplate and Non-Patient Specific and Does Not Refute the Peer Review Report
  • Reimbursement for MRIs Denied Where EIP Was Elderly and Had Recently Commenced Chiropractic Treatment
  • Reimbursement for LSO Brace Prescribed Three Days After Accident Is Denied
  • Claim Denied as There Was no Conservative Treatment Prior to Surgery



  • Peer Review Asserting That Voluminous Medical File Lacks Useful/Supportive Information Fails
  • No Reimbursement for Unlicensed or Fraudulently Licensed Providers


Steven E. Peiper

[email protected]

  • Contractual Indemnification Cannot Apply Retroactively Without Evidence of Intent
  • No Contract, No Problem…Plaintiff’s Claims against its Trust’s Accountants and Actuaries Proceeds on a Theory of “Near-Privity”
  • Indemnity Obligations Were Limited to Scope of Services Provided by the Contractor


Elizabeth A. Fitzpatrick
[email protected]

  • Product Disparagement and Coverage
  • Conspiracy Claims Not Covered in Illinois Case
  • Spoliation of Facebook Page Leads to Adverse Inference in New Jersey


Cassandra A. Kazukenus
[email protected]

  • Taking care of the baby.


Katherine A. Fijal

[email protected]

  • Does New York Ins. Law §5106 Require that Plaintiff’s Claims Be Arbitrated?
  • Eleventh Circuit Certifies 3 Questions to Florida Supreme Court


Jennifer A. Ehman
[email protected]

  • Injured Party Failed To Demonstrate Diligence in Attempting to Ascertain Identity of Insurer
  • Defense Obligation Triggered under Two Consecutive Policies Issued by Different Carriers
  • Court Denies Motion to Dismiss Action Seeking to Challenge an Insurer’s Cancellation of Certain Life Insurance Policies
  • Occupying Means Occupying
  • No Coverage for Newly Acquired Auto where Vehicle was not Listed on Declarations Page and Insured Did Not Provide Carrier Notice of Its Acquisition with 365 Days of Purchase


Bad Faith

  • Where Plaintiff Could not set forth Facts to Establish Merit of Fraud and Deceptive Business Practices Claims, Complaint was dismissed
  • Bad Faith Claim Leads to Expansive Discovery
  • Plaintiff Not Permitted to Amend Complaint to Add Bad Faith Cause of Action; Failure to Anticipate Court’s Decision on Coverage Was Not Bad Faith


Earl K. Cantwell

[email protected]



Well, that’s all (and surely enough).  Again, congrats to Steve Peiper.  We welcome Beth’s column and her participation.  We thank YOU for your support and keep those great notes coming in.

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:



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

Peiper on Property and Potpourri
Beth’s Banter on Coverage Band Fitz’ Bits
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]

04/25/13       American Home Assurance Co. v Rent A Unit NY, Inc.
Appellate Division, First Department
Non-Employer Provided Coverage Under Employer’s Liability Policy Even though Policy Only Covered Employers; Thousands Flee
Estrada was employed by Amost Dry Wall, Inc. and he was hurt in the course of his employment.  He sued Amoco who asked American Home for coverage.  The policy provided coverage where the insured in the employer of the injured worker.  The policy defines provides coverage where the insured is the employer of the injured worker. The policy defines the insured, "you," as both Amost and Amoco.

The Court rejects American’s contention that because Amoco is not Estrada's direct employer, it need not provide coverage to Amoco under the policy. Defendants Amoco and Amost Drywall Inc. jointly purchased insurance for a joint work site, and the two companies have the same owner and management, and worked together on the same covered location where Estrada was injured.

Further, the court held that the plain and ordinary meaning of the provisions of the insurance contract clearly covers Amoco with respect to Estrada's claims because the policy combines Amoco and Amost for purposes of coverage.
Editor’s Note:  Combining the two for purposes of coverage does not change the status of the employer.   This is an employers’ liability policy. This decision is just wrong.  Amoco had CGL policies. An employer is an employer. 

04/25/13       American Guar. and Liab. Ins. Co. v Chicago Ins. Co.
Appellate Division, First Department
“Same or Related Claims Provision in Claims Made Policy Considered; Inapplicable Where Professional Has Provided Separate Services to Multiple Clients

American Guarantee (“American”) sought to hold Chicago Ins. Co. (“Chicago”) liable for claims made against their mutual insured, Giuliani. Giuliani, a lawyer, had engaged in a mass market mail campaign targeting senior citizens for estate planning legal services. Once the offer for legal services was accepted, Giuliani also offered to refer his clients to financial services representatives (“FSR’s”). Four of his clients became the victim of theft and fraud by the FSR’s financial services representatives.

When they sued Giuliani the FSR’s they claimed the lawyer failed to oversee the FSR’s. Two victims filed suit during the professional liability policy period covered by Chicago and two during the period covered by American, the later period.  Both were claims made policies.

American claimed that the latter two claims were the "same and/or related" to the first two claims and that defendant should have provided coverage to Giuliani and therefore should reimburse it.

Courts interpreting "same or related" claims provisions in the context of lawyer's professional liability policies have declined to find that the claims were the same or related where an attorney has provided separate services to multiple clients. Here, there are substantial differences between the victims, including the amounts of their claims and the fact that the financial services professional who
allegedly committed the fraud was not the same in each circumstance.

04/24/13       Meah v A. Aleem Construction Co., Inc.
Appellate Division, Second Department

Liability Policy Properly Rescinded So Untimely Disclaimer Cannot Create Coverage
On August 18, 2005, the Meah, an employee Liberty Contracting (“Liberty”) was working at a job site owned by Garden.  Aleem was the general contractor or construction manager. Meah was allegedly was cut by a saw and sustained injuries.

Mea sued Aleem and Garden and Aleem started a third-party action against Liberty seeking common law and contractual indemnification.  Alleem also sued Rutgers Casualty Insurance Company (“Rutgers”), Liberty’s insurer, claiming additional insured status.

Rutgers sought rescission of its policy and was successful in securing it.  To establish the right to rescind an insurance policy, an insurer must show that its insured made a material misrepresentation of fact when he or she secured the policy. A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented.

To secure rescission, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks that show that it would not have issued the same policy if the correct information had been disclosed in the application.

In support of its cross motion, Rutgers established, prima facie, that Liberty made material misrepresentations in its application for the subject insurance policy. On the application, Liberty represented that it would perform no "roofing" work during the period of coverage, and that it would perform no work at heights above two stories. It is undisputed that, at the time of the subject accident, Liberty's employees were performing work on a roof six stories above ground. Additionally, the evidence demonstrated that Liberty had performed similar work at prior projects during the policy year. Rutgers also established, prima facie, that these misrepresentations were material by demonstrating, through, inter alia, its underwriting guidelines and evidence of its past practices, that, had it been properly advised as to the type of work performed by Liberty, it would not have issued the subject policy.

Moreover, since Rutgers has sought rescission and it has been determined that the policy was void ab initio, contrary to the appellants' contention, Aleem cannot be an additional insured, as there was no valid existing policy. Additionally, since the policy issued by Rutgers was void ab initio, the issue of whether the disclaimers issued by Rutgers were untimely is rendered academic, as a claimant cannot create coverage that did not otherwise exist by relying on the failure to provide timely notice of disclaimer.

04/24/13       In the Matter of A. Central Insurance Company v Williams
Appellate Division, Second Department
Sufficient Proof of Residency Provided in Response to Application to Stay SUM Arbitration to Justify a Framed Issue Hearing
This was an application to permanently stay arbitration for SUM (underinsured) coverage. 

The issue before the lower court was whether or not an individual was an insured under a SUM endorsement in her brother’s policy and that issue involved a question of residency.  The endorsement defines an insured as, inter alia, any relative of the named insured while a resident of the same household as the named insured.  While an individual can have more than one residence, residence generally entails something more than mere temporary or physical presence, and requires some degree of permanence and intention to remain.

The respondent provided enough proof to the court to at least raise a question of fact that should be decided in a framed issue hearing.
Editor’s Note:  As always, readers are reminded that issues of arbitrability cannot be resolved by an arbitrator, but must be the subject of a motion to stay arbitration, filed within 20 days of the arbitration demand.

04/18/13       Tower Insurance Co. v Rong Rong Sun
Appellate Division, First Department
Late Notice By Both Insured and Injured Party Leads to Coverage Denial.  When the Injured Party Receives a Notice Indicating that a Policy Was Renewed Five Months After an Accident, It Should Be Enough to Investigate Whether That There Was a Policy With the Same Company Five Months Earlier
Yet another pre-prejudice late notice victory for Tower.

The insured tortfeasor, Xu, never gave Tower notice of the May 2007 incident giving rise to the claim or of the underlying lawsuit, in which Gomez, the injured party sued Xu and the school district on whose premises the incident occurred. That one was easy.

On or about October 29, 2008, Xu served on counsel for the other parties to the underlying action an amended discovery response to which was attached a "Homeowners Policy Renewal Certificate" representing that Xu had been covered by a Tower renewal homeowners policy for the year commencing October 8, 2007 — five months after the subject accident.  Yet, Gomez did not contact Tower to investigate whether a Tower policy had been in effect on the date of the incident. The school district, based on the same notice, did notify Tower of the matter, by letter dated November 13, 2008 and Tower denied coverage five weeks later.

Gomez is not charged vicariously with Xu's failure to provide notice to Tower during the period of nearly a year and a half from May 3, 2007, the date of the incident, to October 29, 2008, the date of Xu's amended discovery response providing to Gomez the Tower "Homeowners Policy Renewal Certificate".  However, when Gomez learned that the policy was renewed five months after the accident, it should have given him reason to consider that there may have been a policy in place five months earlier with the same company.

Gomez took no action after his counsel finally received the policy renewal certificate.

The notice given to Tower by the school district, cannot not be imputed to Gomez, the injured party, because Gomez had an independent statutory duty to give Tower notice and is an adversary of the school district in the underlying action.

The dissent argued that the injured party’s failure to give notice was reasonable. Xu’s defense counsel failed to respond diligently to requests for insurance coverage information and, in fact, told Gomez’ counsel that there was no coverage.  After many months of Gomez's attempting to ascertain whether Xu had insurance coverage, Xu produced a certificate for a homeowners policy for the year after the incident occurred (from October 8, 2007 through October 8, 2008). The dissent disagreed that the term “renewal" automatically leads to the conclusion that liability coverage was in effect on May 3, 2007, the date of the incident, or imposed an obligation to investigate further, particularly where multiple discovery requests had been served and Xu's responses thereto were less than forthcoming.  The majority argued that the injured party’s failure to investigate and give notice after it received the renewal notice was inexcusable.
Editor’s Note:  Attaboy Max, yet again.

04/17/13       South Bay Cardiovascular Assoc. P.C. v SCS Agency, Inc.
Appellate Division, Second Department
Policyholder’s Decision Not to Read Notice of Change in Policy Coverage Doesn’t Preclude Claim Against Insurance Agent
South Bay purchased commercial insurance policies covering property and liability coverages through SCS, its insurance agent.  Beginning in 2001, Shmurr, a partner in SCS, handled the South Bay account.  A Travelers policy was acquired. Under the agency agreement between SCS and Travelers included an indemnity provision whereby Travelers agreed to indemnify SCS for liability arising out of the failure of a policyholder to receive notice affecting coverage.

The 2002 – 2005 policies included $250,000 limits for employee dishonesty. However, in 2005, Travelers merged with another insurance company, changed it policy and reduced the employee dishonesty limits to $25,000. When it did so, Travelers sent South Bay an 11-page notice indicating the relevant policy changes. The South Bay employee who admitted receiving the noticed, conceded she never read it and testified that she relied upon SCS to inform her about "anything that I needed to know, any change [or] updated information."

Of course, in 2006, South Bay's discovered that one of its employees had misappropriated funds over the course of several years. It submitted a claim to Travelers and learned that the coverage for employee dishonesty was limited to $25,000.  South Bay agreed to release Travelers in exchange for a $25,000 payment under the policy and then sued SCS and Schmurr alleging negligence, breach of contract, and breach of fiduciary duty, on the ground that the SCS defendants failed to inform South Bay of the change in coverage for employee dishonesty. SCS commenced a third-party action against Travelers seeking contractual and common-law indemnification.

Under the precedent established by recent decision of the Court of Appeals in American Bldg. Supply Corp. v. Petrocelli, the court refused to dismiss the case against SCS.  While it is certainly better practice for an insured to read its policy, an insured should have the right to look to the expertise of its broker with respect to insurance matters. Additionally, where the insured relied on the expertise of the agent, or there was a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on, the agent could be found to have a duty to advise because of a special relationship with the insured.

Travelers was properly dismissed from the lawsuit.  While the agency agreement called for indemnity where the insured failed to receive cancellation notice, here the insured did in fact receive it.
Editor’s Note:  If you don’t recall Petrocelli, and Kathie Fijal’s superb summary of that landmark case, we recommend you review that decision and her analysis.  Find the link here to the review and the decision in  our November 23, 2012 issue.

04/16/13       Greater New York Mutual Ins. Co. v  Chubb Indemnity Co.
Appellate Division, First Department
In Unusual Decision, First Department Finds (a) Disclaimer Letter was Late and Ineffective as to Two Parties Thus Precluding Reliance on Exclusions but (b) Effective as to Insurer Seeking Reimbursement of Defense Costs
Eleven Riverside Garage (“Garage”) sought coverage.  Parra, an employee of Garage, was parking a car owned by Waldron when he ran over Peress.

Garage (and Parra) were insured under a commercial general liability policy issued by Greater New York (“GNY”).  Waldron had an auto policy issued by Chubb.

GNY's policy states that, under circumstances such as those involved here, it is excess to other insurance. Chubb’s policy covers permissive users of the car but excludes those who are in the business of storing or parking vehicles.

Peress sued Garage, Parra, and Waldron. On May 4, 2010, GNY requested that Chubb defend and indemnify the garage and Parra. Defendant did not respond. On July 15, 2011, GNY's lawyer wrote to Chubb, again requesting that it defend and indemnify the garage and Parra. On August 12, 2011, Chubb rejected GNY's tender.

While Chubb was required to give timely notice of disclaimer to the mutual insureds (Parra and the garage) it was not required to give it to GNY (another insurer). Chubb’s more than 15-month delay in disclaiming is untimely as a matter of law insofar as Parra and the garage are concerned.  Therefore, Chubb cannot rely on its exclusion and must defend and indemnify Parra and the garage in the underlying personal injury action.

If the damages in the Peress action exceed $1 million (the limit of Chubb’'s policy), Garage and Parra will benefit by being covered by GNY's policy as well as Chubb’s policy.

Interestingly, the court found that since GNY was not entitled to a copy of the disclaimer letter, the disclaimer was effective as to it.  Therefore, the exclusions applied and GNY could not get reimbursement of defense costs incurred to date.

04/16/13       I.J. White Corp. v Columbia Casualty Co.
Appellate Division, First Department
Freezer Malfunction Leads to Lawsuit and Split Court Contemplates Whether Product Defect Results in “Occurrence” and “Property Damage” in Case Destined for High Court Review
Hill Country Bakery (“Bakery”) made, froze, cut, packaged and distributed baked goods.  It bought a spiral freezer from I.J. White Corp. (“White”) which allowed the freshly baked cakes to be frozen within 150 minutes so they could be ready to cut. The freezer did not cool the products as advertised or requested.

In 2010, Bakery sued White, claiming that for eight months, it was unable to use the $21 million facility it had constructed specifically to house the equipment that it had bought from plaintiff. Instead, Hill Country alleged, it had been obliged to use that period to fix the equipment, and had expended an additional $1.9 million to render the equipment operable.

White’s CGL carrier, Columbia, disclaimed, asserting that there was no “property damage” and no “occurrence.”  "Property damage" was defined as "[p]hysical injury to tangible property, including all resulting loss of use of that property" and "loss of use of tangible property that is not physically injured." The policy also defined "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

In a split decision, the court found that coverage existed. While there are “workmanship” exclusions in the policy, the damages sought were for the loss of use of the plant and therefore covered.

Two judges dissented, including Justice Abdus-Salaam (presently waiting confirmation to the Court of Appeals).  The dissent concluded that there was no "property damage" caused by an "occurrence."

The dissent noted that the policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general conditions." The Hill Country complaint, which sounds in breach of contract, breach of implied and express warranty, and fraudulent inducement, does not allege an "occurrence" as defined by the policy, but rather arises out of a contract dispute where it is alleged that the spiral freezer did not perform as required by the contract, causing Hill Country to spend additional money, including overtime wages to pay employees for extended hours to meet the demand for its products, and money to repair the freezer so that it was operational.
Moreover, the dissent argued, that this was not a claim for ruined cakes but for money paid to repair the freezer and overtime costs. Accordingly, this is not a claim for property damage.
Editor’s Note:  Watch this case.  With two dissenting votes, there is an automatic right of appeal to the Court of Appeals.  This may lead to a very significant decision on the topic at the high court.  Look for a reexamination of the George A. Fuller Co. decision.


Michael P. Scott-Kristansen
[email protected] 

04/24/13       Johnston v. Peluso
Appellate Division, Second Department
Defendants Can Prevail by Challenging Sufficiency of the Injury or Causation
The defendant’s motion for summary judgment was properly denied.  The defendant initially met its burden of demonstrating that the plaintiff’s left should and cervical spine injuries were not serious.  In turn, however, the plaintiff was able to create a question regarding whether her shoulder injury actually was serious.  The defendant also failed to demonstrate that the plaintiff’s shoulder injury lacked causation.

04/18/13       Idemudia Fields
Appellate Division, First Department
Later-Dated Expert’s Reports Must Address Any Inconsistencies With Previous Expert’s Reports, Even if the Previous Reports Were Prepared for the Opposing Party
The defendant was entitled to summary judgment because she met her burden of demonstrating that the plaintiff’s lumbar and wrist injuries were not serious and that the plaintiff did not suffer a 90/180-day injury. 

There was no 90/180-day injury because the plaintiff went back to work days after the accident.  The defendant met her burden regarding the plaintiff’s lumbar injury by submitting an orthopedist’s affirmed report stating that the plaintiff had full range of motion.  The defendant met her burden regarding the plaintiff’s wrist injury by submitting another affirmed report stating that there was no clinical evidence of an injury.

The plaintiff’s expert, in turn opined that the plaintiff had limited range of motion in his lumbar spine and wrist.  The plaintiff’s expert did not address the fact that her opinion was directly contradictory to the defendant’s experts and, therefore, did not create a question to resolve at trial.
04/16/13       Coley v. DeLarosa
Appellate Division, First Department
Defendants Are in Danger of Losing Important Ground on 90/180-day Injuries
The defendants and plaintiff each met their burdens on the issue whether the plaintiff suffered a permanent or substantial limitation of use or 90/180-day injury, so summary judgment was properly denied.  There is, however, a relatively lengthy analysis of and disagreement within the Court over 90/180-day injury.

The Court firsts states the rule that the plaintiff meets its burden for a 90/180-day injury by presenting “objective evidence of a medically determined injury or impairment of a non-permanent nature.”  The defendant, of course, can meet its burden by showing the exact opposite. 

The Court next states the rule that a physician’s report based on an examination of the plaintiff years after the accident cannot be used to meet the defendant’s burden in 90/180-day cases.  This is a logical rule.  How can a physician credibly comment on a plaintiff’s condition at the time of the accident when he or she first examines the plaintiff years later?

The disagreement is over whether defendants can meet their burden by submitting the affirmations or affidavits of physicians written years after the accident, but where they are based on MRI’s and operative reports made right after the accident.  Quite simply, a majority of the Court says yes, and a minority says no.

The entire Court agreed that the plaintiff met its burden on the 90/180-day injury by submitting her physician’s affidavit, stating that he regarded her as unable to perform her job duties; an orthopedic surgeon’s affirmation, stating that she was completely disabled; and a check from the Social Security Administration for disability payments.

The Court disagreed, however, on whether the defendants met their burden on the 90/180-day injury.  The defendants presented the affirmations of an orthopedist and radiologist that state the plaintiff suffered no traumatic injury at the time of the accident.  The affirmations were based upon MRIs taken three weeks after the accident, an operative report from surgery performed before 180 day passed, and a recent examination of the plaintiff.

The minority’s rule would give plaintiffs a distinct advantage on 90/180-day claims that would be circumstantial, but as a result, also unavoidable.

04/16/13       Luetto v. Abreu
Appellate Division, First Department
Even if the Plaintiffs Had Competent Medical Evidence of Spinal Bulge or Herniation, More Is Needed to Establish a Serious Injury
The defendant prevailed on its motion for summary judgment against two plaintiffs.  The defendant met its burden with respect to plaintiff 1 (“p1”) by submitting an orthopedist’s affirmed report, stating that p1 suffered no residual from his arthroscopic knee surgery and no limitations to the range of motion in his knee.  The defendant also submitted the affirmed report of a radiologist, stating that p1’s MRI showed no bulging discs or herniated discs.  P1 failed to submit any evidence to rebut the defendant’s showing.

The defendant met its burden with respect to plaintiff 2 (“p2”) by showing p2 had full range of motion in her cervical and lumbar spine, a normal lumbar spine, and suffered only from a preexisting condition in her cervical spine.  P2’s evidence failed to rebut the defendant’s showing.

The plaintiffs both submitted uncertified and unaffirmed medical reports, which could not meet plaintiffs’ burdens.  Even though no spinal bulge or herniation was demonstrated, the Court is careful to note that bulging and herniated discs, alone, are not serious injuries unless there is objective proof of the existence and duration of some physical limitation as a result.  In a case already crowded with wonderfully useful analysis, the Court notes that the plaintiff’s 90/180-day claim was properly dismissed because the plaintiff alleged that his incapacitation lasted less than two months.

04/16/13       Boateng v. Calle
Appellate Division, First Department
For 90/180-Day Claims, Even if the Plaintiff Only Works a Reduced Schedule the Defendant Will Prevail
All the defendants were entitled to summary judgment even though only one actually appealed.  The appealing defendant met its burden by submitting the affirmed report of an orthopedist that examined the plaintiff and found normal ranges of motion in his shoulder, cervical spine, and lumbar spine.  This alone was enough.  The defendant, however, also submitted the affirmed report of a radiologist who examined the plaintiff and his medical records, stating that the shoulder and thoracic injuries were degenerative.

The plaintiff failed to submit evidence which created a question on the issue of serious injuries.  Because the plaintiff could not meet his burden against the appealing defendant, he could not meet his burden against any defendant, and the court dismissed the plaintiff’s claims against all the defendants.

The plaintiff’s 90/180-day claim was also dismissed because he returned to work two days after the accident on a reduced work schedule.

04/11/13       Chatoorang v. Navarrete-Duque
Appellate Division, First Department
Fractured Teeth Meet the Serious Injury Threshold
The defendant was not entitled to summary judgment.  There was a question as to whether the defendant’s fractured front tooth was a serious injury and whether it was caused by the accident.

Other than stating it was insufficient, the Court did not offer any analysis of the defendant’s evidence.  The plaintiff, however, met its burden.  The plaintiff proved his injuries met the serious injury threshold by submitting his dentist’s affirmation, stating that plaintiff was treated for fractured incisors, the fractures were caused by the accident, and that ongoing dental treatment was required.

Margo M. Lagueras
[email protected]


04/22/13       Renovation Med Surg v Geico Ins. Co.
Erie County, Arbitrator Kent L. Benziger
Failure to Question Prescription for Custom Fit Brace Results in Award
Approximately two weeks after the motor vehicle accident, the EIP was supplied with an interferential stimulator and accessories.  Exactly one month after the accident, she was supplies with an LSO custom-fit brace.  Respondent denied payment based on two peer reviews.  Dr. Stauber found the interferential stimulator was not medically necessary because the EIP was in physical therapy and such use was excessive.  He noted that the relevant literature indicates that for patients already involved in physical therapy, the home use adds no apparent benefit.  Dr. Kritzberg recommended against reimbursement for the LSO brace, again because of the ongoing physical therapy.  He also noted that it could make the EIP worse by causing muscle spasms.  He cited to literature noting that the use of such a brace should be limited to injured parties post-surgery, to support weak muscles or for a deformed spine, none of which circumstances were present in this case.

The Arbitrator found Dr. Stauber’s peer review persuasive and denied reimbursement for the interferential unit as, according to authoritative sources, such prescription was inconsistent with good and accepted practice, particularly because the EIP was undergoing therapy and was still in the acute period following the accident. 

However, the Arbitrator did not find Dr. Kritzberg’s peer review persuasive because the statement that a lumbar brace is controversial is not a definitive finding that it would be inconsistent with generally accepted practice.  Importantly, the carrier failed to question why, on the initial complaint of back pain, the provider would prescribe this very expensive custom-fitted brace, rather than a more generic or adjustable model for trial use.  As such, the Arbitrator awarded reimbursement for the brace.

04/22/13       RS Medical v Farmington Casualty Co.
Erie County, Arbitrator Michelle Murphy-Louden
Letter of Medical Necessity Is Boilerplate and Non-Patient Specific and Does Not Refute the Peer Review Report
The issue here was whether Applicant was entitled to reimbursement for an RS-4i interferential and muscle stimulator dispensed seven days after the accident.  Five days after the accident, the EIP consulted with Dr. Katz with complaints of neck pain, stiffness and spasm.  Dr. Katz found decreased range of motion, positive Spurling and Hoffman tests, 5/5 muscle strength and intact sensation.  He recommended an MRI to rule out an odontoid fracture and possible C5-6 herniation.  He also recommended a cervical collar and medication.  The next day, the EIP started physical therapy, and the day after that she consulted with Teresa Farrugia, D.O.  Dr. Farrugia diagnosed possible cervical spine disease and recommended a cervical MRI and upper EMG/NCV.  The RS-4i was prescribed to “relieve acute pain, relax muscle spasms, re-educate the muscle, maintain or increase range of motion, increase local blood circulation, and decrease pain.”  Three days later, the EIP underwent a cervical MRI which revealed a small herniation at C3-4 and a mild bulge at C5-6.  Over the next two months, the EIP consulted with Dr. Katz, reporting that physical therapy and medication was helping and that her neck felt “a lot better.”
Respondent’s peer review doctor concluded that the RS 4i was not medically necessary because, being a deeper form of TENS, the additional use of the equipment was excessive and concurrent to the treatment already being provided during treatment and there was no documentation that the EIP had not responded favorably to the conservative physical therapy treatment.  Base on the peer reviewer’s report, reimbursement was denied.

The Arbitrator found that the letter of medical necessity submitted by Applicant and allegedly signed by Dr. Farrugia, was completely identical, with the exception of the EIP’s name, claim number and diagnosis, to letters submitted by Applicant in numerous other arbitrations.  The letters were boilerplate, general, and non-patient specific and, as such, did not refute the peer reviewer’s conclusions.  The Arbitrator further found that the EIP reported that her neck pain was greatly improved through the use of physical therapy and medication.  Reimbursement was denied.

04/18/13       Buffalo Diagnostic Imaging v Liberty Mutual Fire Ins. Co.
Erie County, Arbitrator Kent l. Benziger
Reimbursement for MRIs Denied Where EIP Was Elderly and Had Recently Commenced Chiropractic Treatment
The EIP was 72 years old when she was involved in a motor vehicle accident.  Within the week, she began chiropractic treatment and twelve days later, the treating chiropractor prescribed cervical, thoracic and lumbar MRIs.  The MRIs revealed extensive degenerative changes, stenosis, facet arthropathy, foraminal narrowing and a minor protrusion at T7-8.

Respondent denied reimbursement based on a peer review which noted that an examination performed three days before the MRIs indicated that there was improvement.  The reviewer also stated that the MRIs were recommended just twelve days after the EIP commenced chiropractic treatment and that she had a history of degenerative disc disease throughout the spine. 

The Arbitrator found the peer review persuasive as the EIP was an elderly woman with expected degenerative changes and a longer expected recovery time from the accident.  The authority cited by the reviewer found prescription so soon after the accident and commencement of treatment to be inconsistent with good and accepted practice, especially in the absence of progressive neurological deficits.  Applicant failed to rebut the peer review and reimbursement was denied.

04/18/13       RS Medical v Geico Ins. Co.
Erie County, Arbitrator Douglas S. Coppola
Reimbursement for LSO Brace Prescribed Three Days After Accident Is Denied
The injured party was a 15-year old who apparently hyper-extended and flexed her cervical spine while her shoulders were restrained.  The prescription sent to Applicant for the LSO brace was dated only three days after the accident and referenced only low back pain. 

Respondent obtained a peer review from an orthopedist who concluded that medical necessity for the brace was not established.  He noted that the EIP should have undergone a course of physical therapy or chiropractic to resolve the soft tissue injuries documented and that bracing should only be used in the presence of lumbar instability, fracture and post-operative, none of which were the case here.  In addition, he opined that in the case of a 15-year old with no prior history, use of an LSO brace could slow the patient’s recovery by decreasing range of motion.

Reimbursement was denied as no rebuttal was offered and the Arbitrator found the peer reviewer’s opinion to have substantial merit as the prescription of an expensive LSO brace within three days of the accident would appear to not conform with the treatment plans seen in countless no-fault files by the Arbitrator in his capacity as such.

04/12/13       Kaleida Health v Allstate Property and Casualty Ins. Co.
Erie County, Arbitrator Thomas J. McCorry
Claim Denied as There Was no Conservative Treatment Prior to Surgery
Respondent denied payment for a cervical surgery based on a peer review that found that the EIP was recommended to undergo cervical spine surgery before completing a course of conservative treatment.  In this case, the EUP had a long history of cervical and lumbar surgeries.  Six months after the accident, he had his first neurosurgical consult and decompression at C1 and fusion were recommended.  No conservative treatment was received prior to the surgical recommendation and, according to the peer reviewer, MRIs did not reveal any traumatic injury but rather only degenerative changes.  The Arbitrator determined that, in the absence of any rebuttal by the treating surgeon, the peer reviewer’s report was persuasive and he upheld the denial.


04/16/13       Amherst Med. Supply, LLC v New York Cent. Mut. Fire Ins. Co.
Appellate Term, First Department
Peer Review Asserting That Voluminous Medical File Lacks Useful/Supportive Information Fails
Defendant’s peer reviewer’s “bald assertion” that the assignor’s voluminous medical file lacked “useful/supportive information,” but did not explain what records were missing, was insufficient to support defendant’s burden on summary judgment.  In addition, the affidavit of the assignor’s treating chiropractor, which detailed the assignor’s medical conditions and intended benefits of each of the medical supplies prescribed, raised a triable issue of fact to defeat defendant’s motion.

04/11/13       Physical Performance Testing of NY v New York Cent. Mut.
Appellate Term, First Department
No Reimbursement for Unlicensed or Fraudulently Licensed Providers
Nothing new, but a reminder that Insurance Department Regulations, Business Corporation Law and Mallela are still alive and well and require that professional service corporations be owned and controlled only by licensed professionals and that only licensed professionals render the services provided by such corporations.  Any professional corporation that is actually controlled by a management company owned by unlicensed individuals in violation of the Business Corporation Law is not entitled to no-fault reimbursement.  Respondent made a prima facie showing demonstrating that Applicant’s services are not reimbursable under No-Fault.

Steven E. Peiper
[email protected]

04/25/13       Vail v Broadway Assoc., LLC
Appellate Division, First Department
Contractual Indemnification Cannot Apply Retroactively Without Evidence of Intent
Plaintiff sustained injury in the course of his employment with Sherry Hill Painting.  At the time of the incident, Sherry Hill was painting a premises owned by Broadway Associates pursuant to a purchase order.  Importantly, the Purchase Order at issue contained terms which, if applicable, would have required Sherry to indemnify Broadway. 
However, in the current instance the purchase order was not effective until after the incident involving Mr. Vail occurred.  As such, without any intent of retroactivity, the indemnity clause was not applicable to the loss. 

04/24/13       Health Acquisition Corp. v Program Risk Mgt., Inc.
Appellate Division, Second Department
No Contract, No Problem…Plaintiff’s claims against its Trust’s Accountants and Actuaries Proceeds on a Theory of “Near-Privity”
Plaintiffs in this case are comprised of several home health aide companies that entered into a group self-insurance trust under the Workers’ Compensation law.  Essentially, by entering into the trust, the participants each agreed to be joint and severally liable for any claim against the trust.  The trust was managed by Program Risk Management (“PRM”).  The actuarial firm of SGRisk (“actuaries”) and the accounting firm of DeChants, Fuglein & Johnson (“accountants”) also provided services to the trust.

Eventually, when the trust became insolvent in 2009, the Workers’ Compensation Board terminated the program.  The result left the member companies liable for debts that should have fallen within the trust.  As a result, plaintiffs asserted a professional negligence claim against both its former accountants and actuaries.  Both parties subsequently moved to dismiss based documentary evidence which, purportedly, exonerated them.

In denying the motions, the Appellate Division first noted that accountants traditionally were not liable where they were not in contractual privity with the complainants.  Here, however, enough evidence existed to establish that the accountants were aware that their services were being used, and relied upon, by the plaintiff/members of the trust.   The same analysis also implicated the actuaries.  As such, the court ruled that plaintiffs established a “near-privity” which, upon further proof, could establish liability. 

The Appellate Division also rejected the actuaries’ argument that as they were not “professionals” under New York law, the claims for professional negligence must be dismissed.  Although the Court agreed that actuaries are not licensed, and as such not professional, under New York law, the court noted that the possession of “special knowledge” would be sufficient for professional liability to attach.  Here, the Record did conclusively establish the actuaries’ level of knowledge, and accordingly its motion to dismiss was denied.

04/17/13       Quinones v City of New York
Appellate Division, Second Department
Indemnity Obligations Were Limited to Scope of Services Provided by the Contractor
Plaintiff’s decedent was electrocuted while trespassing at New York City public school.  Apparently, the source of decedent’s demise came from an improperly grounded light fixture.  The Estate sued the City of New York, New York Schools, the NYC Construction Authority, and SEN Construction Corp.  SEN then retained Five-Start to complete the electrical renovations at the location.

Thereafter, the SEN and Five-Star commenced a third-party action against an inspection company that, apparently, was retained to visually inspect the premises during the course of the construction.  The third-party action sought contractual indemnification against the inspection company.  The inspection company eventually moved for summary judgment on the basis that it had no duty, under the contract, to perform any work other than visual inspections of the premises.  Locating and/or repairing the improperly grounded fixture were beyond the scope of its contractual obligations, and accordingly, it owed no duty to either the decedent, SEN or Five Star. 

In affirming the summary judgment motion, the court agreed that the allegations made by SEN/Five Star were beyond the scope of the contract.  Moreover, as the inspection company, did not “launch an instrument of harm, nor displace the landowner’s duty to provide safe location, the Court also ruled that no duty was owed to the decedent.


Elizabeth A. Fitzpatrick
[email protected]

Product Disparagement and Coverage
In Natural Organics, Inc v. OneBeacon America Insurance Company , (decided In January 2013), the 2nd Department affirmed a decision of Justice Warshawsky of the Supreme Court, Nassau County which, after discussing well-established principles regarding contract interpretation, held that OneBeacon was obligated to defend and indemnify its insured, finding that allegations against the insured, a manufacturer of health supplement products, fell within the policy’s coverage for personal and advertising injury.

An action was commenced against the insured, Natural Organics, Inc., alleging that Natural Organics, after wrongfully terminating its exclusive distributorship agreement  with Nature’s Plus Nordic, issued a press release announcing the appointment of a competitor of  Nature’s Plus as the exclusive distributor of its products in certain countries.  In the underlying action, unfair competition pursuant to the Lanham Act was alleged, the plaintiff contending that through the issuance of a press release, the insured misrepresented that the competitor was the sole distributor of their goods, when Nature’s Plus Nordic remained the sole distributor for those identified countries.

Natural Organics tendered its defense to OneBeacon pursuant to the personal and advertising injury sections of their policy, which defined personal and advertising injury, as injury arising out of oral or written publication of material that slanders or libels a person or organization or oral or written publication of material that disparages a person or organization’s goods, products or services.   OneBeacon disclaimed on the grounds that the allegations did not fall within the definition as set forth above for personal and advertising injury and that the policy contained an exclusion for personal and advertising injury arising out of breach of contract.

The court began by discussing well-established principles of contract interpretation, which bear repeating as they apply to any policy interpretation discussion, to wit, that the duty to defend arises whenever the allegations of the complaint state a cause of action which give rise to the reasonable possibility of recovery under the policy, that if any of the claims arguably arise from covered events, the insurer is required to defend the entire action, and that in relying upon an exclusion, the burden rests on the insurer to demonstrate that the allegations can be interpreted only to exclude coverage.  Applying these principles, the court held that the claims fell within the policy’s grant of coverage for personal and advertising injury and further, that OneBeacon failed to meet its burden of demonstrating that the allegations of product disparagement fell wholly within the exclusion for injuries arising from breach of contract, noting that the phrase “arising out of” is ordinarily understood to mean originating from, incident to, or having connection with, requiring only that there be some causal relationship between the injury and the risk for which coverage is provided. 

Since the press release was allegedly false, without regard to whether the insured breached its agreement with Nature’s Plus Nordic, the product disparagement claim did not necessarily arise out of the insured’s breach of contract.  Coverage was not excluded and One Beacon was obligated to defend.

Conspiracy Claims Not Covered in Illinois Case

In West American Insurance Company v Midwest Open MRI, Inc. the appellate court in Illinois  found that the allegations of the complaint led to the unavoidable conclusion that the claims of Advanced Physicians that Midwest Open MRI engaged in a conspiracy with certain physicians to illegally monopolize the market for MRIs in certain areas, by accepting a below market flat fee from referring physicians to conduct MRI scans and to submit false billings to the patient and his insurer with the express purpose of driving entities like Advanced Physicians out of business, constituted a violation of the Consumer Fraud Act. The court thus found that the underlying complaints did not allege accidental conduct or consequences and thus, did not constitute an “occurrence” under the policy.  The court rejected Midwest’s claim that that the underlying complaints alleged a discrimination claim that triggered a duty to defend.

Spoliation of Facebook Page Leads to Adverse Inference in New Jersey

In yet another social media decision, The New Jersey District Court in Gatto v United Airlines, Inc. held that a spoliation inference was appropriate where the plaintiff in a bodily injury action deleted his Facebook account after receiving notice that his Facebook account had been accessed from an IP address that he was not familiar with.  Once plaintiff deactivated his account, Facebook permanently deleted the account.

The dispute arose in the context of a bodily injury action commenced by the plaintiff after allegedly sustaining injuries at JFK in the course of his employment.  He claimed that while unloading baggage, an aircraft crashed into him causing bodily injuries which limited his physical and social activities.

The defendants served a demand for documents relating to social media accounts and while plaintiff provided authorizations for the release of information from social medial sites, he did not include a Facebook authorization.  Plaintiff was thereafter directed by the court to provide a Facebook authorization and plaintiff agreed to change his password to allow defendants to access his account. While there is some dispute as to the parties’ agreement with respect to the use of the password, counsel for the defendant accessed the account “to confirm the password was changed” and printed portions of the pages, while allegedly not accessing any portion of plaintiff’s Facebook account.

Interestingly, while Facebook did respond to a subpoena served upon it, they objected to providing certain information due to concerns regarding the Federal Stored Communications Act and instead recommended that the account holder download the entire contents of the account. Discussions ensued and the defendants claim that an agreement was reached whereby the plaintiff would download the pages and provide a copy with the proviso that the plaintiff would certify the pages were not modified or edited.

Thereafter defendants were advised that the account had been deactivated and the data was lost, as following deactivation, Facebook automatically deleted the account.  The defendants contended that comments and photographs contradicted plaintiff’s claims of injury.

After discussing the various options for sanctions regarding spoliation, the court found the plaintiff had a duty to preserve his Facebook account.  The court was not persuaded that the evidence was not intentionally suppressed. Finding the plaintiff failed to preserve relevant evidence, the court found a spoliation inference was appropriate.


Cassandra A. Kazukenus
[email protected]

Taking care of the baby.


Katherine A. Fijal
[email protected]

04/15/12       Government Emp. Ins. Corp. v. Five Boro Psychological Svcs.
United States District Court – Eastern District of New York
Does New York Ins. Law §5106 Require that Plaintiff’s Claims Be Arbitrated?
In this civil action, plaintiff, Government Employees Insurance Corp. [“GEICO”] seeks to recover, before trebling, over $2 million in damages arising from its payment of defendants’ allegedly fraudulent bills for no-fault insurance benefits.  GEICO also seeks a declaration that it is not obligated to pay almost $8 million dollars in what GEICO alleges are “pending fraudulent” no-fault bills for psychological services.

GEICO’S claims fall into three categories:  (1) efforts to recoup money from past no-fault bills that GEICO paid in full; (2) efforts to recoup money from past no-fault bills that GEICO partially paid; (3) a declaration that unpaid no-fault bills, many of which are the subject of pending state court litigation, need not be paid at all.

At the core of GEICO’s complaint are allegations that GEICO paid monies to the defendants in reliance on bills the defendants submitted for reimbursement, which GEICO later discovered were fraudulent.  GEICO alleges that the defendants engaged in a “complex fraudulent scheme” to inflate charges, provide useless and unnecessary services, obtain access to insured persons through kickbacks, and provide services through fraudulent, pre-determined protocols.

Defendants moved pursuant to the Federal Arbitration Act, 9 U.S.C. §1 and New York Insurance Law 5106(b) for an order compelling arbitration of the first two categories of claims.  As to the third category, defendants first asked the court to abstain from resolving GEICO’s declaratory judgment action with respect to unpaid claims that are already being adjudicated in other forums.  In the alternative, they move to compel arbitration of GEICO’s claim for declaratory relief with respect to all other pending claims.

As to defendants motion to compel arbitration of GEICO’s claims for damages based on past fraudulent bills the court looked to past precedent, Allstate Ins. Co. v. Lyons, 843 F.Supp.2d 358 (EDNY 2012), and determined that section (a) of New York Ins. Law §5106 does not govern an affirmative suit by an insurer to recover monies already timely paid.  Further noting that the scope of 5106(b)’s arbitration clause is significantly narrower than defendants suggest.

Although defendants conceded that the holding in Lyons was fatal to their motion to compel arbitration of GEICO’s claims to recoup monies already paid, they argued that the holding in Lyons did not address the canon of statutory interpretation known as the rule of last antecedent. The court disagreed and denied defendants motion to compel arbitration of GEICO’S action to recoup fraudulently obtained monies from paid no-fault bills.

Defendants also argue that Lyons should not apply to GEICO’s efforts to recoup funds paid when GEICO only partially paid a bill.  The court agreed with GEICO that the whether or not the bills were fully paid or partially paid was irrelevant, stating that efforts to recoup money procured by fraud are not disputes about the making of first party benefits and that this reasoning applies whether the amounts to be recovered were part of a bill that was paid in full or part of a bill that was paid in part.  The court held that GEICO’s affirmative claims to recover no-fault benefits that were induced as a result of fraud are outside the scope of §5106(b); accordingly, defendants’ motion to compel arbitration of GEICO’s claims for damages is denied with respect to all claims seeking to recoup fraudulently obtained monies.

GEICO’s final claim is for declaratory judgment to settle its rights with respect to more than $7,800,000 in pending fraudulent billing submitted through the defendants.  On this claim, the defendants initially argued that the court should abstain from adjudicating GEICO’s declaratory claim because there are hundreds of lawsuits defendants have commenced in state court against GEICO seeking payments of unpaid no-fault benefits.  Defendants contend that the advanced progress of many of the state court actions weighs strongly in favor of the court abstaining from adjudicating GEICO’s declaratory judgment claim. 

In order to determine whether to sustain the court looked at several factors enunciated in Niagara Mohawk Power Corp. v. Hudson River-Black River Regulating District., 673 F.3d 84 (2nd Cir. 2012).  In analyzing the factors the court determined that this dispute does not involve a res over which the state court has assumed jurisdiction, nor is the federal forum inconvenient.  Further noting that exercising federal jurisdiction is not likely to lead to piecemeal litigation.

As an alternative to abstention, the defendants argued that the pending cases should be subject to arbitration.  GEICO argued that New York Law (NY Ins. Law §5106) applies, rather than the Federal Arbitration Act, because a State statute, not a privately negotiated contract, is the source of the right to arbitrate.  On the other hand, it was defendants’ position that the Federal Arbitration Act, not State law that governs the question of waiver because the parties voluntarily bargained for the right to arbitrate by choosing to do business in New York State.

In agreeing with prior precedent on the issue the court stated that if New York law applied, the decision to litigate disputes over unpaid claims in state court precludes defendants from now seeking to compel arbitration with respect to those same claims. The court then went on to state that it would reach the same conclusion even if it were to consider the waiver issue under the Federal Arbitration Act.  In reviewing precedent in the 2nd Circuit the court considered several factors, the most important of which was prejudice to GEICO if defendants motion was granted.   See, La. Stadium & Exposition Dist. V. Merrill Lynch, Pierce, Fenner & Smith, Inc., 626 F.3d 156 (2nd Cir. 2010).  Since the court concluded that GEICO presented persuasive evidence of prejudice if arbitration were permitted to proceed, the court denied defendants motion to compel arbitration to any claims which were subject to waiver.  However, for those claims which were not currently the subject of state court litigation the court, the court granted defendants motion to compel arbitration, unless the defendants chose to litigate those matter in either state court or in the context of this case.

04/15/12       Morales v Zenith Ins. Co.
United States Court of Appeals Eleventh Circuit – Florida Law
Eleventh Circuit Certifies 3 Questions to Florida Supreme Court
On December 4, 1997, Santana Morales, Jr., was working as a landscaper for Lawns Nursery and Irrigation Designs, Inc. [“Lawns”], when he was crushed to death by a palm tree as it was being unloaded from a flatbed trailer. 

At the time of Morales death, Lawns maintained a Workers Compensation and Employers Liability Insurance policy with Zenith Insurance Company [“Zenith”].  Because Morales death occurred during the course and scope of his employment, Lawns was required to pay workers’ compensation benefits to the Morales family.  On behalf of Lawns, Zenith began paying workers compensation benefits equal to 66% of Morales’s gross salary to the Morales family in bi-weekly installments.  Zenith also contributed $5,000 to Morales’s funeral expenses.

On December 3, 1999, the Estate filed a wrongful death action against Lawns in Florida circuit court, alleging that Lawns’s negligence caused Morales death. Zenith defended Lawns in the suit but throughout the litigation Lawns was uncooperative and counsel appointed by Zenith eventually moved to withdraw as counsel and the motion was granted. The case proceeded against Lawns (unrepresented) and ultimately to a one-day trial and Lawns did not appear.  The jury awarded the Estate $9.525 million in damages against Lawns. 

While the wrongful death action was on-going Zenith continued to pay workers’ compensation benefits to the Estate. When Zenith made a final lump sum payment of $2,000 in full settlement of the Estate’s workers’ compensation claim against Lawns, the parties entered into a settlement agreement whereby the Estate agreement that the settlement and agreement shall constitute an election of remedies with respect to the employer and the carrier as to the coverage provided to the employer.

Later, the Estate filed an action in Florida circuit court against Zenith asserting that Zenith had breached its insurance policy with Lawns when it did not pay the Estate the $9.525 million tort judgment entered against Lawns.  Zenith removed the case to federal court and the parties filed cross motions for summary judgment.  The district court granted summary judgment to Zenith and denied it as to the Estate, ruling that the workers’ compensation exclusion in Part II of the Zenith policy barred Zenith’s coverage of the employee Estate’s $9.525 million tort judgment against employer, Lawns.   In addition, the district court concluded that Zenith did not waive its affirmative defenses based on policy exclusions by withdrawing from the defense of Lawns in the state court lawsuit.  The district court also rejected the Estate’s argument about Zenith’s purported failure to comply with notice provision of the claims administration statute.

The Estate timely appealed the district court’s decision and after reviewing Florida precedent the Court of Appeals [“Court”] found Florida law to be unsettled and certified the following questions to the Florida Supreme Court:

          [1]      Does the Estate have standing to bring its breach of contract claim                     against Zenith under the Employer Liability policy?

          [2]      If so, does the provision in the Employer Liability policy which                              excludes from coverage “any obligation imposed by workers’                               compensation . . . law” operate to exclude coverage of the Estate’s                               claim against Zenith for the tort judgment?

          [3]      If the Estate’s claim is not barred by the workers’ compensation                          exclusion, does the release in the workers’ compensation                                    settlement agreement otherwise prohibit the Estate’s collection of                        the tort judgment?

As always, we will monitor this case and report any decisions rendered by the Florida Supreme Court.



Jennifer A. Ehman
                                            [email protected]    

04/19/13       Castlepoint Insurance Company v Anlovi Corp.
Supreme Court, New York County
Injured Party Failed To Demonstrate Diligence in Attempting to Ascertain Identity of Insurer
In October 2008, Joshua Oleh was allegedly burned by hot water while he was bathing.  On January 24, 2009, Franklin Oleh, Jr., was allegedly burned in the same manner.  That same day, Franklin Oleh, Sr., telephoned the building superintendent and notified him of that day’s incident (and perhaps of Joshua’s earlier incident as well).  The building superintendent told the building manager, but neither the superintendent nor the manager nor any of its employees notified Castlepoint. 

Within a few days of the January burn, the Olehs retained counsel.  By letter dated January 27, 2009, sent regular and certified mail, to the building owner, manager and superintendent, the attorney provided basic information on the claim and asked that the letter be forwarded to the building’s liability carrier.  A month later a lawsuit was commenced against the owner, and process was served via the Secretary of State.  When no response was received, the attorney made a motion for default.  Upon receipt of default, it likewise provided notice to the building owner.  Apparently, all of the certified letters were returned as undeliverable for reasons unknown.  

At some point, the building manager somehow received notice, on August 28, 2009, of an Order to Show Cause seeking to attach the owner’s bank account.  The Order to Show Cause then led to the injured party’s counsel learning that Castlepoint had insured the building.  Counsel then provided first notice of the claim to Castlepoint.  After notice was received, Castlepoint denied coverage based on late notice.  

As the owner never provided notice, the only notice evaluated by the court was the injured party’s notice.  While counsel for the Olehs wrote letters seeking the identity of the owner’s insurer, the court found that this did not demonstrate any independent effort at all to ascertain the insurer’s identity.  Specifically, while counsel asserted that he checked with the NYC Department of Buildings, the NYC Division of Housing and Community Renewal and the Department of State and they confirmed no database or index would reveal the identity of a liability carrier of a residential building, among other things, counsel never directed his clients to ask around the building to see if anyone else, perhaps as a result of some prior injury or lawsuit, knew the identity of the building’s insurer. 

04/18/13       Village of Morrisville v Alea N. Am. Ins. Co.
Supreme Court, Albany County
Defense Obligation Triggered under Two Consecutive Policies Issued by Different Carriers
ACE Fire Underwriters Insurance Company (“ACE”) issued a CGL policy to G. Devincentis & Son Construction Company (“Devincentis”) for the period September 30, 2002 through September 30, 2003.  ALEA North America Insurance Company (“ALEA”) then issued a similar policy for the following two years. 

The Village of Morrisville was sued by a property owner who alleged that Morrisville’s installation of a sewer line increased erosion.  Morrisville had contracted the installation of the sewer line to Devincentis.  Morrisville then commenced this action seeking a determination that ACE and ALEA owed it a defense.

Morrisville established that pursuant to the 2002 contract it executed with Devincentis for the performance of excavation and construction services on the sewer system, Devincentis agreed to name Morrisville as an additional insured on a general liability policy. 

Although no installation or reconstruction dates were specified in the complaint, the property owner’s bill of particulars clarified Devincentis’ “ongoing operations performed” dates by attaching a July 11, 2003 Resident Property Complaint Form, which indicated that the erosion problem was created in the Spring of 2003.  Thus, Morrisville demonstrated a reasonable possibility of coverage under the ACE policy. 

Similarly, because the complaint alleged that the property owner discovered the erosion in September 2005, and as the bill of particulars indicated that the occurrence took place in 2005, a defense obligation was likewise triggered under the ALEA policies. 

Lastly, with regard to priority of coverage, the ACE and ALEA policies purported to be primary when other insurance was available.  As Morrisville’s own policy’s other insurance clause indicated that was primary, unless there was “any other primary insurance available to you covering liability for damages arising out of the…operations for which you have been added as an addition insured by attachment of an endorsement,” ACE and ALEA were not entitled to contribution. 
Take Away:  Remember, the insured can rely on extrinsic evidence to trigger the duty to defend, but the insurer is limited to the four corners of the complaint in denying coverage. 

04/17/13       Zeligfeld v Phoenix Life Ins. Co.
Supreme Court, Kings County
Court Denies Motion to Dismiss Action Seeking to Challenge an Insurer’s Cancellation of Certain Life Insurance Policies
Plaintiff commenced this action seeking a declaration that defendant’s lapse notices related to certain life insurance policies failed to comply with the requirements of Insurance Law §3211(a).  Defendant in turn moved to dismiss the complaint based on documentary evidence and failure to state a cause of action.   

Plaintiff challenged the notices by alleging that they misstated the premium payment required to prevent a lapse.  Insurance Law §3211(b)(2) provides that the notice shall “state the amount of such payment, the date when due, the place where and the person to whom it is payable.”  As the obvious statutory intent behind requiring that the insurer state the amount of premium due is to inform the insured of the premium payments necessary to prevent a lapse, the insurer was required to state the correct amount.  An erroneous statement of the premium due may constitute grounds for finding a notice ineffective.  As here, the premium listed was significantly higher than the amount actually required, the notice ran the danger of deterring payment.  Thus, plaintiff’s allegations were sufficient to state a cause of action.

Further, plaintiff challenged the timeliness of the notices and whether they clearly identified the place where and to whom the premium was payable.  Specifically, while the notice indicated that payment “must be received by us,” the identity of “us” was not clear.  Likewise, the court found that an affidavit provided by defendant as to the timeliness of the notices was inappropriate for a motion to dismiss as it was not unquestioned documentary proof.  Ultimately, defendant’s motion to dismiss was denied. 

Notably, the court refused to search the record and grant summary judgment in favor of plaintiff indicating that Insurance Law §3211(a)(1) only bars the termination of a policy for non-payment of premiums within the first year from default.  As plaintiff alleged that it was always prepared to pay the premium, defendant might be able to establish entitlement to terminate the policies even if it was found that the notice was improper. 

04/15/13       Matthews v Continental Cas. Co.
Supreme Court, New York County
Occupying Means Occupying
Plaintiff, a Welsbach Electric Corp. employee, was injured while standing on the shoulder of a highway.  Plaintiff and his co-worker each drove a truck to the work site, parked on the highway shoulder, left their respective trucks, walked two or three car lengths to the street lighting equipment needing repair, determined that it needed a fuse, and returned to the co-worker's truck, which contained four storage compartments holding equipment and supplies.  The co-worker opened the hinged door of one of the storage compartments and reached in for a fuse, with plaintiff stood next to him.  Approximately 20 to 30 seconds later plaintiff was struck.  After the tortfeasor’s insurer tendered its policy, plaintiff sought SUM coverage from defendant.

Plaintiff could not be found to have been occupying his own or the co-worker's vehicle at the time of the accident.  Plaintiff had not made a brief pause on his way to an ultimate destination, he was not on his way back to his vehicle, and his work on site would have continued once the co-worker had found a fuse.  Similar to the 2010 Appellate Division, Fourth Department decision in Gallagher v. Republic Franklin Ins. Co., plaintiff’s job brought him to the eventual accident site, plaintiff left his vehicle in order to perform his job duties and the length of his stay was indeterminate (not just a brief pause in a larger mission).
Take Away:  A good decision by the court.  We have been getting more and more questions about the term “occupying,” which is an element of coverage under the SUM policy.

04/11/13       Paulik v Chartis Select Ins. Co.
Supreme Court, Nassau County
No Coverage for Newly Acquired Auto where Vehicle was not Listed on Declarations Page and Insured Did Not Provide Carrier Notice of Its Acquisition with 365 Days of Purchase
On September 6, 2009, Warren Sabloff struck a pedestrian while operating a 2008 BMW he owned.  At the time of the loss, Sabloff had a personal auto policy issued by GIECO and an umbrella policy issued by Chartis.  GEICO acknowledged coverage, but Chartis denied asserting that the 2008 BMW did not appear on the Chartis declarations page (i.e., the policy contained an exclusion for any auto not listed in the declarations).  In the Chartis denial letter, it also cited the “What is Covered” provision, which included “Newly Acquired Auto.”  However, as relevant here, the inclusion of coverage under that section was conditioned on notice to Chartis by the insured within 365 days after the insured became the owner of the vehicle.  Sabloff did not provide this notice. 

The clear terms of the policy provided that if a new vehicle is not listed in the declarations section it is excluded from coverage, unless Chartis is informed of such a vehicle within 365 days of its acquisition.  Had Sabloff informed Chartis, the language of the policy would indicate that coverage would have existed. 

Notably, the court rejected an argument that because the 2008 BMW was added to the 2010 renewal policy, which Sabloff paid a premium for, Chartis ratified coverage. 

Bad Faith

04/24/13       Perez v GEICO Ins. Co.
Appellate Division, Second Department
Where Plaintiff Could not set forth Facts to Establish Merit of Fraud and Deceptive Business Practices Claims, Complaint was dismissed
In a decision with limited facts, plaintiff served a summons without complaint.  Defendant then served a written demand for the complaint.  When the complaint was not provided within the demanded time period, defendant moved to dismiss. 

In order to avoid dismissal, plaintiff was required to demonstrate both a reasonable excuse for the delay and a potentially meritorious cause of action.  While plaintiff was able to comply with the first showing, he failed to set forth a potentially meritorious cause of action.  Plaintiff’s allegations were insufficient to recover damages for breach of contract predicted upon his purported status as a third-party beneficiary to the subject insurance policy.  Further, plaintiff did not allege any material misrepresentation or misleading act or practice on the part of defendant, sufficient to set forth a cause of action sounding in fraud and deceptive business practices. 

04/12/13       Estee Lauder Inc. v One Beacon Ins. Group, LLC
Supreme Court, New York County
Bad Faith Claim Leads to Expansive Discovery
This is a case we have been reporting on for some time.  Estee Lauder commenced this action seeking coverage from One Beacon for claims that it dumped hazardous materials in two Long Island landfills.  Below is our last report on the case:

02/23/12         Estee Lauder Inc. v. OneBeacon Ins. Group, LLC
Supreme Court, New York County
Plaintiff Not Permitted to Amend Complaint to Add Bad Faith Cause of Action; Failure to Anticipate Court’s Decision on Coverage Was Not Bad Faith
This decision arises out of defendants’ opposition to plaintiff’s motion seeking leave to amend its complaint to add a fourth and fifth cause of action alleging bad faith.  In brief, in this action, plaintiff seeks coverage for three administrative and court proceedings in which it was alleged to have discharged, or to have caused to be discharged, toxic wastes in certain landfills located in Long Island.   Defendants had denied coverage for these claims (which appear to have taken place between 1968 and 1971) because they could not locate a policy which was in effect during the time of the alleged pollution.  The earliest policy identified was issued in 1971 and contained a pollution exclusion. 

The proposed fourth cause of action alleged that all disclaimers issued by defendants with regard to the pollution claims were made in bad faith, inasmuch as defendants had in their possession, at the time of the disclaimers, the 1971 policy, which by its terms was a renewal policy, and thus, constituted proof of the one-time existence of an earlier policy.  The court rejected this cause of action.  It considered an earlier decision made in this action by the Appellate Division which found that while there is a presumption of continuity of policy terms, defendants had not met their burden of proving that the lost policy contained a pollution exclusion during the entire policy period.  According to the court, in this decision, defendants’ failure to anticipate this holding by the Appellate Division is not evidence of bad faith, let alone constituting an extraordinary showing of disingenuous or dishonest failure to carry out a contract as required by New York law. 

With regard to the proposed fifth cause of action, it alleged that defendants’ failure to pay any part of its defense costs in the underlying action, despite its grant of summary judgment in this action and an Order from the Appellate Division that they should be paid promptly, was evidence of bad faith.  The court did not dismiss this cause of action due to evidence that defendants received unredacted invoices evidencing plaintiff’s legal expenses in June 2010; yet, to date, nothing had been paid.

This decision addresses discovery on the proposed fifth cause of action (see unlined section above).  First, Estee Lauder sought to unseal documents OneBeacon designated as confidential, including deposition testimony of representatives of OneBeacon and its third-party claims administrator.  The court noted that the party in favor of sealing has the burden to establish good cause.  Where the depositions discussed the claims administrator’s use of a third-party technology vendor, a discussion of the information stored by that vendor, and a discussion of data input, no showing was made that this information was commercially sensitive or a trade secret. 

Next, Estee Lauder sought certain documents related to OneBeacon’s decisions regarding payment of its attorneys’ fees in the period between 2009 and April 2012.  This is the period between the Appellate Division’s finding of coverage, and the ultimate date of payment (“readjustment period”).  Again, Estee Lauder’s bad faith claim was premised on the delay in payment, and it asserted that payment was delayed because OneBeacon was trying to reach a global settlement of all claims relating to the landfills; presumably, something that was in OneBeacon’s benefit as opposed to its insured. 

Thus, Estee Lauder sought the following documents from OneBeacon:  written recommendations; documents available for reference by OneBeacon during the readjustment period; agendas and notes from meetings; correspondence concerning justification for delay; the result of any review of Estee Lauder’s counsel’s invoices; and documents concerning first investigation and process notes.

OneBeacon opposed these demands arguing that because Estee Lauder had access to discovery regarding OneBeacon’s explanation for the delay, it has no substantial need to inquire about its deliberations.  According to the court, while such argument was appropriate on a motion for summary judgment, this was a motion to compel, and in order for Estee Lauder to support its bad faith claim, it needs to show that OneBeacon decided to focus its efforts on a global resolution rather than consider if a very small percentage of the claimed defense costs could be considered undisputed.  The deliberations would go to whether this purpose dominated.

OneBeacon further argued that categorical privileges applied to the documents.  The court found that even though the deliberations took place after suit was filed by Estee Lauder, since the Appellate Division held that Estee Lauder was entitled to maintain a claim based on bad faith for failure to pay these fees timely, the documents could not be categorically protected as material prepared in anticipation of litigation.  The court likewise held that OneBeacon was not entitled to rely on attorney-client privilege for all documents.  It held that the payment of attorneys’ fees was an ordinary part of an insurer’s business.  OneBeacon failed to establish how any of the documents sought were predominately legal in character.  Nevertheless, the court agreed to provide OneBeacon the opportunity to prepare a privilege log. 
Take Away:  This decision highlights the danger with bad faith claims (i.e., expanded discovery).  Here, the court ordered OneBeacon to provide agendas and notes from meetings among other things; documents an insured wouldn’t be entitled to in a regular breach of contract action. 


Earl K. Cantwell
[email protected]


Insurance disputes often result in several different legal actions such as third party liability claims, first party claims, coverage litigation, and subrogation suits.  This multiplicity of lawsuits can often lead to a party, either a claimant or carrier, becoming embroiled in different lawsuits, often in different forums, where they must submit pleadings with respect to their respective positions.  Inconsistencies, and even opposites, asserted in those pleadings can well defeat a claim or defense in another case.  This was the case in O & S Holdings, LLC v. The Fireman’s Fund Insurance Co., 2012 WL 5193783 (Cal. Ct. App. October 22, 2012.)

O&S was a real estate developer who built a hotel-office tower project in Huntsville, Alabama.  O&S later claimed there were problems with the project including leaking windows, bad millwork, and leakage from a pond.  O&S sued the contractors in 2009 in Alabama state court alleging the problems at the Huntsville complex were due to defective work and materials. O&S also made claim against several insurers, including Fireman’s Fund, to cover losses due to the project problems.  The insurers denied coverage based, at least in part, upon construction defect exclusions. 

The next step in line was, of course, O&S’s coverage lawsuit.  The trial court granted summary judgment to the insurers in the coverage lawsuit on the basic grounds that O&S was bound by the “construction defect” allegations made in the Alabama lawsuit.

On appeal, O&S argued that the Alabama state court pleadings were not determinative of the California coverage litigation because those claims had not been proven or established in Alabama, and the various contractor defendants had denied them.  The California appeals court disagreed, arguing that juridical admissions and facts alleged in a pleading are binding admissions, and O&S was bound by those admissions in its complaint in the Alabama lawsuit.  The appellate court affirmed dismissal of the coverage action because O&S had admitted, through its pleadings in the Alabama lawsuit, that its claims were essentially based on excluded construction defects. 

The lesson of the O&S case is that both claimants and insurers need to closely scrutinize pleadings, discovery responses, responses to notices to admit, and other court filings for consistency, and make sure that statements, claims, and defenses are not pleaded, particularly under oath or verification, which are at odds with or defeat other claims and defenses.  A related lesson is that allegations and statements in pleadings are construed as juridical admissions of a party which can bind the party in that litigation or in parallel litigation.

Courtesy of the FDCC Website

04/18/13       Travelers Property Casualty Co. of America v. Superior Court
California Court of Appeal, Second Appellate District       
Vacancy Clause in Property Policy Enforceable
Vacancy clause eliminating coverage when insured property has been vacant for more than 60 days is enforceable when loss occurred in first 60 days of policy period because the 60 day period does not start on the date the policy goes into force. The court also held the insurance broker who acquired the policy owed no duty of care to a possible third party who was not an insured and did not request the coverage.
Submitted by: Andrew B. Downs, Bullivant Houser Bailey PC

04/05/2013                  Strickland v. Medlen
Texas Supreme Court
The Texas Supreme Court Upholds the Long-standing Rule that Pets are Property and Declines to Permit Non-economic Damages Rooted Solely in An Owner’s Subjective Feelings

The Medlens' dog Avery escaped the family's backyard and was picked up by animal control. Before the Medlens could retrieve Avery, a shelter worker mistakenly placed Avery on the euthanasia list, and Avery was put to sleep. The Medlens sued the shelter worker for causing Avery's death and sought damages for Avery's "intrinsic value." The trial court dismissed the suit with prejudice, concluding that Texas law barred such damages based on the 1891 “true rule” that categorized dogs as personal property. In 2011, the court of appeals reversed, becoming the first Texas court to hold that a dog owner may recover intangible loss-of-companionship damages in the form of intrinsic or sentimental-value property damages. At issue before the Supreme Court was whether emotional-injury damages were recoverable for the negligent destruction of a dog. The Supreme Court reversed, holding that under established legal doctrine, recovery in pet-death cases is, barring legislative reclassification, limited to "loss of value, not loss of relationship."
Submitted by: Christie Law Group, PPLC

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