Coverage Pointers - Volume XIV, No. 23

Dear Coverage Pointers Subscribers:

You have a situation?  We live for situations.


Special Congratulations to Mike Perley and Tama Crowell on the upcoming nuptials of their daughter Casey Perley to Major Neil Hollenbeck.  The wedding is taking place next weekend at West Point and we couldn’t be happier for this wonderful young couple.

What a whirlwind it has been over the last couple of weeks.  Between New York and Chicago trips, we’ve been rocking and rolling around the country.  You know you’ve been in the airport too many times, when the TSA fellow laughs when I approach security and the JetBlue folks give me that Déjà vu all over again comment.  I was honored to attend the inaugural meeting of the American College of Coveraqe and Extracontractual Counsel where I participated as a panelist on a very interesting and timely topic:A Common Interest - Attacks on the Privilege and Work Product Protections When an Insured Shares Litigation Assessments and Settlement Evaluations with Insurers


DRI Insurance Bad Faith and Extra-Contractual Liability Conference
Wednesday, June 5, 2013
Westin Boston Waterfront
425 Summer Street
Boston, MA 02210

Bad faith claims against insurance companies are filled with risks and traps for the unwary. It is crucial that insurance professionals at all levels know what it takes not only to defend against these claims successfully once they are brought, but also to avoid them in the first place. DRI’s Insurance Bad Faith and Extra-Contractual Liability Seminar will provide attendees with valuable insight into a variety of issues that confront practitioners and claims professionals in the bad faith arena. Learn how to handle discovery relating to claims manuals and training materials, receive an overview discussion of cutting-edge judicial decisions, and hear a lively panel discuss how to develop and maintain a winning relationship among all members of the defense and insurance team. Experienced professionals will present these and other topics across the entire spectrum of bad faith law.   Click here for a brochure and registration material.


Roman Catholic Diocese of Brooklyn v National Union Fire Ins.:

This week’s issue has a wide variety of interesting appellate decisions, the most important of which was released on Wednesday by our high court, the Court of Appeals.  In a case involving sexual molestation by a priest, the Court issues a monumental decision on the number of occurrences and the application of self-insured retentions in a case involving sex abuse over a number of years on an underage victim.  The Court also renders an opinion on the allocation of policies over multiple years.  See the Roman Catholic Diocese case in my column in the attached issue.


Social Media:

Had you followed me on Twitter @kohane you would have received a summary of that decision within hours of its release.  We are using Twitter to tweet the most important of these decisions, between issues.  Apps: There’s an App for this:

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


Partner Peiper’s Pontification:

We’ve got a little bit of everything in this week’s issue.  The Court of Appeals spent the early portion of May “down on the farm.”  We’d encourage you to take a quick perusal of the Hastings decision reviewed below.  In addition, we would also point you toward the Fourth Department’s decision in McCarter that addresses speaking authorizations in personal injury actions. As you will recall, the Court of Appeals has already approved speaking authorizations for treating healthcare providers.  The dispute in McCarter focuses on whether speaking authorizations for academic personal (teachers, counselors, etc.) must also be provided. 


ISO-back to the future?!?!?

Last issue we walked through the changes to the CG 00 01 form. As promised, we’re back again with additional changes and updates to the Endorsements that we review every day.  The most significant update, we would propose, is the new CG 20 38.  This form is aimed to solve the quandary created by the “such party” conundrum. 

As most of us already know, the current in vogue additional insured endorsement limits AI status to:

any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy to any person.

The operative clause, of course, is the “such person” language.  Seizing on that language, Courts have held that unless the party seeking coverage is in contractual privity with the named insured, additional insured coverage would not attach. 

Under previous machinations of the AI endorsement, if an agreement between a contractor and subcontractor provided that an owner was to be as an additional insured, the owner could make a direct claim against the carrier for AI status. 

Given the “such person” language, the owner was often out of luck.  In the same circumstance, the owner seeking AI status under a subcontractor’s policy would be denied because the owner did not enter into the contract.  In common parlance, they did not qualify as a “such person.”  Thus, AI status was secured only for those parties who were signatories to the contract. That, invariably, was the general contractor. 

Where only the GC qualified as “any such person”, the GC’s carrier was often left to assume the defense of the owner by itself.  The GC’s carrier, then, was left to try to shift exposure from the owner to the subcontractor through indemnity only. 

This has resulted in a myriad of problems, not the least of which is increased third-party litigation.  In addition, it often created awkward alliances seeking to trigger coverage that ultimately destroyed any ability for all defendants to put up a “unified front” against the plaintiff/injured party. 

Not so fast, sayeth ISO.  With the CG 20 38 endorsement, the “any such person” language is gone.  Now, so long as the named insured agrees to provide coverage, all named parties, regardless of contractual privity, will qualify as additional insureds.  Of course, this is the way it used to be. 

Finally, it’s May, it’s getting warmer, and golfers are shading out of the office earlier and earlier for evening rounds.  With this in mind, we note that ISO has provided an Endorsement, which has updated the definition of golf carts.  Under the new form, CG 20 08 to be exact, a Golf Mobile is defined as a motorized land conveyance which can carry up to four people, and which is primarily designed for use at a golf course, and finally which is not designed to travel more than 25 mph. 

I am not sure I’ve ever seen a golf cart that can exceed 25 mph.  As a veteran of many a Summertime Charity Scramble, I am not sure I’d want to see a golf cart that can travel that fast.  If so, we’d all need fire suits, head restraints, and helmets. 

H&F in HD

If you’re not signed up for the NYSBA Coverage Update in Albany or Buffalo, you’re too late.  You’ve already missed us. In fact, as most of you are reading this, I am somewhere between a discussion of what is a “dominant and efficient cause of loss” and what constitutes a “period of restoration.”  If you’re a Downstater, fear not, you still have time to sign up.    Do yourself a favor, and sign up for the Melville version on May 17th.  You can’t avoid us, though, as Dan and Beth will both be speaking. 

Aww Shucks, Thanks!

Finally, a sincere thank you to all of you who sent me so many kind congratulations last week.  Suffice it to say, I am extremely humbled by the promotion to Member, and keenly aware of the responsibility to live up to the long standing, and sterling reputation of this firm.  It is a distinct honor, and decidedly intimidating, to be associated with so many well-respected, wonderful lawyers.  All of whom, I might add are even better people. 

Steven E. Peiper
[email protected]


One Hundred Years Ago – You Wish You Knew and Loved Roscoe Goose:

On May 10, 1913, with Roscoe Goose riding a 91-1 shot, Donerail won the 39th Kentucky Derby in 2:04.8.  Horses Prince Hermis, Sam Hirsch, Flying Tom, and Floral Park scratched before the race. The winning time of 2.04.8 set a new Derby record. Paying $184.90 on a $2 bet, Donerail set the speed record at the time and is the longest odds winner in Kentucky Derby history.

Secretariat set and owns the speed record with 1:59.4 in the 1973 Derby.


Beth’s Banter, Fitz’ Bits and News from Long Island:

While Steve continues to cover insurance related issues arising from Super Storm Sandy, in other news, Newsday recently reported that additional subpoenas have been issued in Suffolk County on Long Island, seeking information regarding the manner that lucrative clean-up contracts were awarded and whether they were given to favored contractors.  Since Governor Cuomo had declared a national emergency, town supervisors and executives were able to issue local state of emergency declarations enabling them to suspend laws relating to competitive bidding requirements, according to the article published in the May 7, 2013 issue of Newsday.

In another report, also published in Newsday, it was reported that a tax stabilization plan tapping into federal funds will give tax breaks to those whose homes and businesses were damaged by Sandy.  Property assessments will be frozen at pre-Sandy values, Sandy victims will have taxes lowered to reflect lost values, and part of the funds will allow taxes to remain flat for those whose homes and businesses were not damaged rather than having their levies increased to make up for the loss in property taxes because of lowered assessment resulting from Sandy damage. Good news for all affected by Sandy.

Appearing in this week’s column are a pair of decisions addressing coverage under the Personal and Advertising section of the insureds’ policies and some Fitz’ Bits on social media.

  • Coverage for Condominium Board Members
  • Court Addresses Coverage for Allegedly Slanderous Comments
  • Increasing Mobility for Social Media
  • Employer’s Use of Social Media for Hiring (and Firing)


Elizabeth A. Fitzpatrick
[email protected]


A Century Ago – This May Be a Yankee Record:

On May 10, 1913, the New York Yankees committed eight errors and still beat Tigers 10-9 in 10 innings. The record for most errors in a Major League game is 12, held jointly by the Detroit (AL) and Chicago (AL). The Detroit team made a mess with handling the ball 12 times in a game versus Chicago in May 1901. Chicago also tied the record against Detroit in May 1903.

Search as we may, we have not been able to find a Yankee game with more than eight errors in the history of the team.  The Yankee website has all kinds of interesting statistics, but no reference to this one.


Mike’s Mini-Missives on Serious Injury:

I was going to begin this issue with another exclamation of how excited the past two week's cases were, but I began to wonder whether you would all doubt my credibility on what qualifies as exciting. I suppose it's inevitable when you live and breathe this stuff.

This week brings a new disagreement, this time in the Fourth Department.  Once again, there is danger lurking in Appellate Division decisions.  One judge wrote his own opinion to set forth this defendant-squashing precedent.

A majority of the Court held that the plaintiff not only failed to establish the 90/180-day claim, the plaintiff also failed to provide any qualitative or quantitative evidence of a significant or permanent consequential limitation of use. The plaintiff's 90/180-day claim failed because the defendant demonstrated that the plaintiff returned to work within the required period.

The judge who disagreed with the majority of the Court stated that the defendant should not have prevailed on the plaintiff's 90/180-day claim because the defendant failed to show all the plaintiff's usual and customary daily activities before the accident.  The purpose of doing so would be to show the plaintiff could perform substantially all of those activities within the required period.

This might seem analogous at first to the defendant's burden for other types of serious injuries upon making a motion for summary judgment-only it's not.  This would be analogous to requiring the defendant, to carry its burden, to show that the plaintiff did not suffer any significant limitation, not just the one's the plaintiff alleges.  

Clearly, it should be up to the plaintiff to indicate the limitations or injuries from which he or she suffers.   It is then the defendant's burden to address those specific limitations or injuries to prevail.  This information is uniquely in the hands of the plaintiff, and it should be up to him or her to put it at issue.  Hopefully this dies on the vine.

Michael Scott-Kristansen
[email protected]


Flying Low – One Hundred Years Ago:


New York Times
May 10, 1913

Two Navy Officers Fly from Washington to Annapolis

WASHINGTON, Lieut. John H. Towers and Ensign Godfrey De C. Chevalier flew from Washington to Annapolis to-day over an all-water course, a distance of 169 miles, in a Curtis Flying boat.  The actual flying time was 3 hours and 5 minutes, and the average speed was nearly fifty miles an hour.  An average altitude of 1,700 feet was maintained, and at no time did the aviators find it necessary to take to the water.

The course was from the Washington Navy Yard, down the Potomac to its mouth, and then northward over Chesapeake Bay to Annapolis.  The water boat left the Navy Yard at 7:40 o’clock A.M., and landed at the Naval Academy at 10:45 o’clock A.M.
Editor’s Note: These early aviators were real heroes.  John Henry Towers remained in the military for all of his working life, serving as a Vice Admiral during World War II and being promoted, by President Truman, to Commander in Chief, Pacific Fleet and Commander in Chief, Pacific Command following the end of the war. Chevalier was killed in an aircraft accident in 1922 at age 33.


Jen’s Gems:

Announced in last issue was Steve Peiper’s election to partnership in the firm.  I just wanted to second Dan’s sentiments that this was truly well-deserved.  Steve is a great lawyer and has always been a selfless mentor to many of us at Hurwitz & Fine.  Congrats! 

Each week I report on Supreme Court decisions or “gems” as I like to call them.  Again, for non-New Yorkers, Supreme Court = trial level court; Court of Appeals = highest level court.  While perhaps these decisions do not have the glamour of those issued by the Appellate Divisions or the prestige of those from the Court of Appeals, but I like to look at them as being straight from the “front lines.”  The predictors of what is to come.  The road all must travel.  In this vein, I am always trying to spot developing trends.  Interestingly, this week I was struck by the number of decisions on CPLR 3211 motions to dismiss, primarily based on documentary evidence.   On these motions, while declining to consider affidavits, courts were willing to review insurance policies and deposition transcripts from the underlying action.  A motion to dismiss may often be a reasonable first step that perhaps we as practitioners “dismiss” all too quickly.  Just something to consider.

Well, till next issue.  Have a safe and enjoyable weekend. 

Jennifer A. Ehman
[email protected]


A Fight for Equal Rights – a Century Ago:

The New York Times
May 10, 1913

The Housewife’s Earnings

To the Editor of The New York Times:

Commenting on Mrs. La Follette’s statement that women do most of the buying for the family and spend 90 per cent of the money laid out for household necessities, an anti-suffrage correspondence of THE TIMES contemptuously remarks that most of this money “was earned by the men, and the women in spending it acted only as men’s agents.”

The average house-mother has no money of her own to spend simply because she has chosen to invest her life in the making of a home and the rearing of a family—a business of enormous value in the aggregate to the country, but not bringing any cash to her separate account.  This is cited by your correspondent as a reason why women are unworthy of a vote.  This systematic undervaluing of women’s part in the world’s work simply intensifies the desire for the ballot in the minds of thoughtful women.

                                                                                    ETHEL C. AVERY.
                                                                                    Boston, Mass., May 9, 1913.


Highlights of this week’s issue, attached: 

Dan D. Kohane
[email protected]


Court of Appeals

  • Separate Acts of Sexual Abuse are Separate Occurrences and Subject to Separate Self-Insured Retention; Allocation of Losses to the Pro-rated Among Policy Periods


Appellate Departments

  • In Pre-Prejudice Case, Seven Months Delay in Giving Notice of Accident Was Unexcused; Coverage Lost
  • “Danger Invites Rescue” Doctrine Held to Apply to Claim for Underinsured Motorists Benefits; First Responder May Be Entitled to SUM Benefits for Injuries Received When Removing Victim from Car After Accident
  • One Insured’s Loss of a Declaratory Judgment Action Does Not Bar Another Insured’s Claim When Parties are Not in Privity
  • When Underlying Complaint Amended to Allege Accident Date Outside of Policy Period, Obligation to Defend Extinguished
  • Sexual Assault Claims Cannot Be Negligent, No Matter How Labeled.  No Duty to Defend Under Homeowners Policy
  • Contractor Held Liable for Breach of Contract to Procure Insurance
  • Questions of Fact Whether Insurer’s Year’s Late Disclaimer in a Property Damage Case Caused Prejudice to the Insured
  • No Coverage Under GL Policy for Mismanaging Self-Insurance Trust
  • New Jersey Vehicle Insured by Company Under Common Ownership with Carrier Authorized to Do Business in NY was Required to Provide Minimum Liability Limits and Was Therefore Not Uninsured Motor Vehicle
  • Policy Not Properly Canceled so Carrier Had Obligation to Defend Insured
  • Insurer is Not Bound by Negligence Finding in Underlying Lawsuit When It Had No Opportunity to Present Proof of Intentional Nature of Conduct, the Basis for Its Partial Disclaimer
  • Sublimit Endorsement Applies to Additional Insureds; No Prejudice, No Estoppel


Michael P. Scott-Kristansen

[email protected] 

  • Qualitative Descriptions of a Moderate Overall Permanent Disability Are Sufficient to Demonstrate a Serious Injury
  • Plaintiffs Can Rebut Evidence of Degenerative Changes by Showing They Were Asymptomatic Before the Accident
  • Quantitative or Qualitative Evidence Can Be Sufficient
  • A Medical Expert’s Opinion on Causation Based Upon a Review of Medical Records Cannot Be Rebutted by Another Medical Expert’s Opinion on Causation Based Upon the Plaintiff’s Self-Reporting
  • MRI Reports Showing Bulging and Herniated Discs Are Not Sufficient to Meet Plaintiff’s Burden Without Evidence of Duration and Qualitative or Quantitative Limitations


Margo M. Lagueras

[email protected]


  • Denial Based on Late Notice Invalid Where Carrier Had Notice Comparable to NF-2 Form Within 30 Day Period
  • Serious Issues With Both Submissions Results in Denial of Claim
  • Lifetime Use Denied as Applicant Fails to Substantiate Necessity



  • Plaintiff’s Bald Denial of Receipt of Verification Requests Fails to Raise Triable Issue of Fact


Steven E. Peiper

[email protected]
Court of Appeals

  • High Court “Moo-ves” on Domestic Livestock Liability
  • No Liability against Horse Owner Where the Horse was Acting…Like a Horse


Appellate Departments

  • Participant in a Workers’ Comp. Trust Permitted to Seek Common Law Indemnity against Plan Trustees
  • Waiver of Subrogation = Subro Claim Dismissal
  • Unsealing of Previous Settlements Permitted to Assist Settlement Preparation of Subsequent Claims
  • Speaking Authorizations – Ok for Healthcare Providers; Not Ok for Educators


Elizabeth A. Fitzpatrick
[email protected]

  • First, the Banter





Cassandra A. Kazukenus
[email protected]

  • New York State Senate Take Stand on Fraud


Katherine A. Fijal

[email protected]

  • Terms of Trade Contract and Policy Require Harleysville to Indemnify



Jennifer A. Ehman
[email protected]

From the Lower Courts:

  • No Evidence that Property Damage was the Result of “Ensuing Loss” as Opposed to the Initial Inadequate and Defective Workmanship


Bad Faith

  • Insurer Breached No Duties Owed to Insured or Beneficiary of Life Insurance Policy Where Default Payout Option was a Retained Asset Account


Earl K. Cantwell

[email protected]



We hope to see some of you today in the NYS Bar program here in Buffalo and others in Long Island next week.

And until next issue, we bid you adieu.  Keep those emails and 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

Steve on Sandy, 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]

Court of Appeals

05/07/13       Roman Catholic Diocese of Brooklyn v National Union Fire Ins.
Court of Appeals
Separate Acts of Sexual Abuse are Separate Occurrences and Subject to Separate Self-Insured Retention; Allocation of Losses to the Pro-rated Among Policy Periods
This is an ongoing coverage dispute between the Roman Catholic Diocese of Brooklyn (“Diocese”) and its insurers over the apportionment of liability for a settlement on one minor plaintiff and the Diocese because of a civil action charging sexual molestation by a priest.

Only five judges took part in the decision, with a three judge majority finding that each incident of sexual abuse constituted a separate occurrence and that any potential liability should be apportioned among the several insurance policies, pro rata.

We reported on the Second Department’s decision in this matter in our 9/30/11 newsletter.

In November 2003, Alexandra, under the age of 18, through her mother, sued the Diocese and one of its priests alleging sexually abuse on several occasions from August 10, 1996 through May 2002 in a variety of geographical locations.

The Diocese settled the action for $2 million plus.  National Union was one of the insurance carriers for the Diocese, providing three consecutive one-year CGL policies from August 31, 1995 – 1996, 1996-1997 and 1997-1998.   For each occurrence, the National Union policy was endorsed with a $250,000 self-insured retention (“SIR”) and the liability limit of each policy was $750,000.  Thus, for each occurrence, National Union’s coverage would trigger after $250,000 was paid and cap at $750,000.

National Union disclaimed coverage based on, inter alia, two exclusionary provisions referring to sexual abuse, and also asserted that the "policies have $750,000 policy limits over a $250,000 self-insured retention," and coverage is applicable only if the "bodily injury" occurred during the policy period.  

When the Diocese sued for declaratory relief, seeking coverage under the 1995-1996 and 1996-1997 policies, National Union claimed that the individual occurrences were subject to multiple self-insured retentions under the Policies and limited by the availability of other “valid and collectible” insurance.  The Diocese claimed that the sexual abuse was one occurrence and allocation of liability should be pursuant to a joint and several allocation methods, so that the entire amount could be paid out of the two policies.  The Diocese also cross-moved for partial summary judgment, seeking a declaration that National Union waived the two affirmative defenses by failing to timely include those bases in their notices of disclaimer of coverage.

Failure to Raise SIR or Multiple Occurrences in Disclaimer Letter Does Not Waive Those Defenses
The Diocese contended that the failure of the insurer to raise the coverage limitations, including the SIR and number of occurrence issue constituted a waiver of those defenses under Insurance Law Section 3420(d)(2).  The Court of Appeals rejected that argument.  Coverage limitations are not exclusions that are waived by not citing them in a coverage position letter.

Each Act of Sexual Abuse is a Separate Occurrence

The National Union policies at issue on this appeal define an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." They define "bodily injury" to mean "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time," and limit liability to bodily injury that "occurs during the policy period".

Under the “unfortunate event” test, absent policy language indicating an intent to aggregate separate incidents into a single occurrence, separate incidents are separate occurrences. This approach requires consideration of "whether there is a close temporal and spatial relationship between the incidents giving rise to injury or loss, and whether the incidents can be viewed as part of the same causal continuum, without intervening agents or factors".  The Court found that nothing in the language of the policies, or the definition of "occurrence," evinces intent to aggregate the incidents of sexual abuse into a single occurrence.  The incidents of sexual abuse within the underlying action constituted multiple occurrences over six years in multiple locations.

They are not part of a singular causal continuum, like a chain reaction auto accident.

The Diocese argued that the policies define occurrence as including "continuous or repeated exposure to substantially the same general harmful conditions."  Sexual abuse does not fit neatly into the policies' definition of "continuous or repeated exposure" to "conditions" like asbestos or lead-based paint on walls.  A priest is not a 'condition' but a sentient being".

The Court compared the language in the policy to that in a California case where multiple occasions of sexual abuse were considered a single occurrence.  In that case, the policy language was different: "[a]ll bodily injury and property damage resulting from any one accident or from continuous or repeated exposure to substantially the same general conditions shall be considered to be the result of one occurrence". No such language existed in this case. Secondly, the parties in the California case "agree[d] that the number of occurrences depends on the cause of injury rather than the number of injurious effects"

Separate SIR’s for Each Occurrence

Consequently, the Diocese must exhaust the SIR for each occurrence that transpires within an implicated policy from which it seeks coverage.  When multiple policies are triggered and liability is allocated to each, each policy's deductible is applicable.

Allocation is to be Pro-rated, Not Joint and Several

A joint and several allocation permits the insured to "collect its total liability . . . under a policy in effect during" the periods that the damage occurred whereas a pro rata allocation "limits an insurer's liability to all sums incurred by the insured during the policy period".

A pro rata allocation is consistent with the language of the policies at issue here. By example, there is no indication that the parties intended that the Diocese's total liability for bodily injuries sustained from 1996 to 2002 would be assumed by a single insurer.

A joint and several allocation is not applicable, as the Diocese cannot precisely identify the sexual abuse incidents to particular policy periods. The minor plaintiff in the underlying action could only give a broad time-frame in which the sexual abuse was perpetrated and conceded in her complaint that she was "unable in good faith . . . to state the exact date (s), time (s), [and] place (s) of each and every assault".  Proration of liability among the insurers acknowledges the fact that there is uncertainty as to what actually transpired during any particular policy period.


Concurring, Judge Smith would have found one occurrence with one retention applied to each year’s injury.

He opined:   [I]magine a case where a priest committed twenty acts of abuse of one victim over five years, and five one-year policies were successively in force, each with a self-insured retention. How many retentions are to be applied? The plurality's logic gives the answer twenty. Judge Graffeo would say one. The Ninth and Fifth Circuits would say five, and I think they are correct.

Concurring in Part, Dissenting in Part, Judge Graffeo did not believe that application of the "unfortunate event" test results in a finding that the continuous course of sexual abuse of a single child by the same negligently hired and supervised priest amounted to multiple occurrences

She concludes that there was one occurrence. First, the claim for which the Diocese seeks coverage arose from the bodily injury of one party. Her view as that although the abuse incidents continued for more than six years, there were no substantial periods of intervening time when there was no abuse. Thus, there is no question that the sexual abuse incidents were sufficiently frequent and connected (i.e., temporally close to one another) to meet the requirements of the unfortunate event test.


Appellate Departments


05/09/10       310 East 74 LLC v Fireman's Fund Insurance Co.
Appellate Division, First Department
In Pre-Prejudice Case, Seven Months Delay in Giving Notice of Accident Was Unexcused; Coverage Lost
The insured waited seven months to notify the insurer of the accident and that was too late. There was no proof of reasonable, good-faith belief in their non-liability.

The underlying personal injury plaintiff fell off a ladder doing insulation work and the building superintendent found the plaintiff in pain. He watched the worker being placed into a taxi, likely for medical attention.

The insured’s later communications with the worker's boss, in which the boss made statements to the effect that he was going to take care of the worker, did not constitute an adequate inquiry, in the absence of any evidence that plaintiffs diligently sought to learn of the extent of the worker's.  Later, an investigator showed up to take photographs of the premises, and the superintendent understood that he was there on the worker's behalf. 

This was a policy issued prior to the imposition of the prejudice rules.


05/09/13       Kesick v New York Central Mutual
Appellate Division, Third Department
“Danger Invites Rescue” Doctrine Held to Apply to Claim for Underinsured Motorists Benefits; First Responder May Be Entitled to SUM Benefits for Injuries Received When Removing Victim from Car after Accident
In June 2007, Kesick, a State Trooper, licensed registered nurse and paramedic, responded to a 911 call for assistance following a two-vehicle accident that occurred when Prindle's vehicle struck Williams' vehicle from behind, causing Williams' vehicle to flip over.  Williams was trapped inside his vehicle and complained of pain in his chest, hip and neck.  Once the fire department arrived and removed the roof of the vehicle with the Jaws of Life, Kesick entered the vehicle and stabilized Williams' neck.  While he and two other individuals were lifting Williams out of the vehicle, he injured his right shoulder.

Kesick sued Williams and Prindle. The Williams action was dismissed based upon an absence of his negligence, and Prindle settled the claim against him for the $25,000 limit of his automobile insurance policy.

Kesick then sought underinsured benefits (hereinafter SUM) under a policy which he held with New York Central Mutual (“NYCM”).  The insurer denied coverage on two grounds, first, that plaintiff was not injured as a result of a motor vehicle accident and, second, that the SUM policy prohibited duplicative awards and plaintiff had received benefits under the Workers' Compensation Law.

The court ruled that there were questions of fact as to whether Kesick’s injury was not caused by the use of Prindle's underinsured vehicle. It rejected NYCM’s view that that the insured's injuries must be directly caused by an accident that arose out of the use of a vehicle and defendant's related assertion that the accident complained of here occurred only at the time of plaintiff's injury.

In the instant matter, plaintiff's claims that Williams was injured as a result of the accident caused by Prindle's negligent operation of his vehicle and that plaintiff was injured in the process of rescuing him are uncontroverted.  Plaintiff's affidavit established that he was directed to respond to the accident and was the first responder on the scene with medical training.  When plaintiff spoke to Williams, he complained of extreme pain in his hip, chest and neck.  Based upon his medical training, plaintiff knew the importance of stabilizing Williams' neck to prevent further injury. Following the long-recognized TORT theory that “danger invites rescue,” the court held that if the facts here warrant application of the danger invites rescue doctrine, plaintiff's injuries were not so remote in either time or space to the use of Prindle's automobile as to preclude a finding of proximate cause as a matter of law.

We also conclude that defendant failed to establish its entitlement to judgment based upon the non-duplication provision in the SUM policy. The record here does not reflect how much plaintiff received in workers' compensation benefits and such benefits would not compensate plaintiff for any noneconomic damages he suffered, defendant has not demonstrated that recovery would necessarily be duplicative of the benefits he received.

05/09/13       State of New York v Zurich American Insurance Company
Appellate Division, Third Department
One Insured’s Loss of a Declaratory Judgment Action Does Not Bar Another Insured’s Claim When Parties are Not in Privity
Northport Land Corp. (“Northport”) owned land in Suffolk County used to operate a gas station and repair shop.  The NYS Department of Environmental Conservation (“DEC”) designated the property to be a spill site due to the contamination of ground water and soil caused by petroleum discharges and sought almost $125,000 in clean-up costs. Zurich insured Northport with coverage for clean-up costs required by governmental authorities as the result of petroleum discharges from underground storage tank systems.

In an earlier decision brought by Northport, the Second Department had held that the policy did not coverage the petroleum contamination at issue. We reported on previous decisions in this case; the denial of coverage was based on the fact that the tank involved was not at a scheduled location.

In April 2011, plaintiff commenced this action against defendant under Navigation Law § 190 seeking reimbursement of expenses incurred in cleaning up the property. Zurich moved pursuant to dismiss the complaint as barred by the doctrine of res judicata and/or collateral estoppel.

The question before the court was whether the State is bound by the decision involving Northport, i.e., whether it was in privity with Northport. 

The court found that the State’s rights were independent of Northport's contractual right to have its insurance carrier, defendant, cover these costs under the terms of the liability insurance policy. Moreover, Navigation Law § 190 authorizes plaintiff to commence a direct action against defendant, and this right is independent of plaintiff's right of indemnification against Northport. Given that plaintiff's rights are not conditioned upon and do not derive from Northport's, the existence of an indemnitor-indemnitee relationship between Northport and plaintiff does not establish privity between these parties.

05/08/13       American Equity Insurance Company v A&B Roofing
Appellate Division, Second Department
When Underlying Complaint Amended to Allege Accident Date Outside of Policy Period, Obligation to Defend Extinguished
In the underlying action, Harris claimed that he was hurt while working for A&B in or about July 2002. A&B had secured a policy of insurance from American Equity which was in effect from March 7, 2002, through March 7, 2003. The plaintiff provided an initial defense to A & B in the underlying action, but disclaimed coverage based on various provisions of the policy.

At Harris's deposition, he testified that the accident occurred between Halloween 2001 and November 4, 2001. Thereafter, Harris amended the complaint to allege that the accident occurred in or about October or November 2001.

American Equity then brought this action seeking a judgment declaring that it is not obligated to defend or indemnify A & B in the underlying action, outside of its policy period.

An insurance company's duty to indemnify "flows from a contractual relationship" .Here, since the subject accident occurred prior to the effective date of A & B's policy with the plaintiff, there was no contractual relationship between the plaintiff and A & B at the time of the accident and, thus, the plaintiff has no duty to indemnify A & B in the underlying action.
Editor’s Note:  Tough to imagine any other reasonable decision in this one.

05/08/13       State Farm Fire & Casualty Co. v Joseph M. (Anonymous)
Appellate Division, Second Department

Sexual Assault Claims Cannot Be Negligent, No Matter How Labeled.  No Duty to Defend Under Homeowners Policy
State Farm sought judgment declaring that it was not responsible for defending or indemnifying Joseph in an underlying lawsuit.

Joseph was insured under a homeowner's insurance policy issued by the plaintiff to his parents, which provided personal liability coverage for claims made against an insured for damages because of bodily injury caused by an "occurrence."  The policy defined the term "occurrence" as "an accident . . . which result[ed] in . . . bodily injury."

The complaint in the underlying action alleged that the plaintiff in that action sustained bodily injury due to a sexual assault perpetrated by Joseph.  Since the bodily injuries allegedly sustained by the plaintiff in the underlying action were inherent in the conduct that Joseph M. allegedly engaged in, the alleged sexual assault cannot be construed as an accident within the definition of "occurrence" for which the plaintiff's policy affords coverage

Labeling the underlying action as one to “recover damages for negligence" does not change the outcome.
Editor’s Note:  Since the Court of Appeals decision in Mugavero, the courts have had a special spot in their hearts for insurers that are called upon to defend sexual abuse cases.  Almost without fail, no matter how denominated, sexual abuse cases do not impose a defense or indemnity obligation on homeowners’ insurers, even if the outcome of the acts are alleged to be negligent or unexpected.

The courts feel differently about gun-shooting cases where the results of aiming and firing could, in some odd-ball, you-can’t-convince-me-of-this-way, cause an unexpected injury.  See Automobile Insurance Company of Hartford v. Cook.

05/03/13       Mullin v West Management of New York, LLC
Appellate Division, Fourth Department
Contractor Held Liable for Breach of Contract to Procure Insurance
Mullin worked for Riccelli and in the course of his employment fell from a ladder while adjusting a trailer tarp.  The trailer was located at Waste Management’s worksite.  Riccelli was under contract with Waste Management and in that contract, Riccelli was to name Waste Management as an additional insured (“AI”) on liability policies.

When asked to produce policies showing Waste Management’s AI status, Riccelli failed to produce the policies and in fact admitted that it failed to add Waste Management as an AI.  Accordingly, the court granted Waste Management’s motion seeking partial summary judgment on the breach of contract action.

05/02/13       206-208 Main Street Associates, Inc. v Arch Ins. Company
Appellate Division, First Department
Questions of Fact Whether Insurer’s Year’s Late Disclaimer in a Property Damage Case Caused Prejudice to the Insured
206-208 Main Street Associates, Inc. d/b/a 8930 Sutphin Blvd., LLC (“Main”), owned the property at 206-208 Main Street in Queens, New York.  Main hired defendant H & H (“H & H”) to act as construction manager on a project to construct a building.  H & H agreed to procure a commercial general insurance policy and to name Main as additional insured and did so through Arch.  The policy contained an "Earth Movement or Subsidence Exclusion Endorsement," which specified that the policy would not apply to property damage or bodily injury claims arising out of subsidence, falling away, caving in, or other movement of earth.

On August 30, 2007, as excavation was ongoing, the foundation of several buildings began to crack, and there was eventually a collapse.  Arch was notified and reserved its rights to assert "any and all defenses to coverage, including those that may be developed or discovered in the course of our further coverage investigation.

On October 10, 2007, H & H's agent forwarded to Arch a letter from attorneys for another contractor on the project. The letter described the incident as involving "the collapse or partial collapse of several structures."  H & H was later sued.

It was not until dated January 6, 2010, Arch first informed H & H that the incident might fall within the earth movement exclusion in the policy.  Arch reserved its right to disclaim coverage with respect to the lawsuits based on the cited exclusion, but confirmed that it would continue to provide H & H with a defense. 

Since this was a property damage case, Insurance Law Section 3420(d)(2) did not require a prompt disclaimer.  Main commenced a lawsuit alleged that it was prejudiced by Arch’s control over its defense and that under the equitable doctrine of estoppels, Arch could not now deny coverage.

Equitable estoppel will not be found unless "the insurer's control of the defense is such that the character and strategy of the lawsuit can no longer be altered". When Arch issued its reservation of rights based on the earth movement exclusion, the underlying litigation was, by Main's own admission, still in its "early phase."  Accordingly, Main's and H & H's submissions do not establish that they were prejudiced as a matter of law.  Therefore summary judgment was not granted and the matter was remanded for trial.

05/01/13       Morgan Fuel & Heating Co., Inc. v Lexington Ins. Co.
Appellate Division, Second Department
No Coverage Under GL Policy for Mismanaging Self-Insurance Trust
Morgan Fuel is a former member of the Transportation Industry Workers' Compensation Trust (“Trust”). As a member of the Trust, the plaintiff became jointly and severally liable for all workers' compensation obligations of all the members of the Trust. The Trust allegedly was mismanaged resulting in a deficiency of funds. The State of New York Worker's Compensation Board (“Board”) sought to recover from the plaintiff its pro rata share of that deficiency. Morgan sought insurance coverage for the Board's claims.

The insurance applies only to "bodily injury" which "is caused by an occurrence.'" Here, the plaintiff's liability arises from its membership in the Trust, and the alleged subsequent mismanagement of the Trust, not from any "bodily injury" caused by an "occurrence" and not from an “insured contract”.

05/01/13       In the Matter of GEICO v Ally
Appellate Division, Second Department
New Jersey Vehicle Insured by Company Under Common Ownership with Carrier Authorized to Do Business in NY was Required to Provide Minimum Liability Limits and Was Therefore Not Uninsured Motor Vehicle
On 12/12/09, Ally, a New York resident, insured by GEICO was injured when her car collided with one operated by a New Jersey resident, Cabrera, insured by Camden.  Camden is not authorized to do business in NY, but is controlled by AutoOne, a company that is authorized.

Cabrera’s policy with Camden provided liability coverage only for property damage liability insurance and not bodily injury coverage.  That is allowable in NJ but not NY.

After Camden denied coverage for the Ally’s bodily injury claim, Ally made a demand for underinsured coverage from GEICO, its own carrier.  GEICO brought a proceeding to stay arbitration, claiming that under NY’s deeming statute, Insurance Law Section 5107, the Camden policy was deemed to include bodily injury liability insurance since Camden was controlled by a company that was authorized in New York.

After the accident, Ally made a demand for arbitration seeking coverage under the uninsured motorist provision of her own policy. GEICO petitioned to permanently stay arbitration, asserting that Cabrera was not "uninsured"   Therefore, GEICO argued, Cabrera was not uninsured.  Cabrera’s policy, in addition, contained a provision which said that it would comply with minimum requirement of other states.

This one was easy.  Surely, the Camden policy had to provide minimum limits for NY coverage and therefore had $25,000 in liability coverage by virtue of both the deeming provision of the Insurance Law and the policy language.

05/01/13       BRP Construction Group, LLC v Greenwich Ins. Co.
Appellate Division, Second Department
Policy Not Properly Canceled so Carrier Had Obligation to Defend Insured
The issue was whether Greenwich had an obligation to defend the insured after a purported policy cancellation.  The insured established that the notice of cancellation produced by Greenwich did not comply with the terms of the insurance policy requiring that a notice of cancellation be mailed at least 10 days before the effective date of cancellation.  Greenwich did not rebut that proof.
Enough said.

05/01/13       Dreyer v. New York Central Mutual Fire Insurance Company
Appellate Division, Second Department
Insurer is Not Bound by Negligence Finding in Underlying Lawsuit When It Had No Opportunity to Present Proof of Intentional Nature of Conduct, the Basis for Its Partial Disclaimer
The underlying personal injury action arose out of an incident in which a vehicle driven by Walter Dreyer, and owned by Patricia Dreyer, was struck in the rear by a vehicle driven by Schwartz.  A fracas ensued.

After the collision, Schwartz exited his car; Walter intentionally drove into him, hollered at him and then left the scene.  Walter was charged with assault, leaving the scene of an accident and eventually pled guilty to disorderly conduct and leaving the scene.

Schwartz then sued Walter and Patricia, asserting negligence and assault causes of action against Walter Dreyer and Patricia Dreyer, and asserting intentional tort causes of action against Walter Dreyer alone.

The Dreyers’ insurer, NY Central, denied coverage for the intentional claims and agreed to provide a defense based on the allegations. Not happy with that decision, the Dreyers then commenced the instant action for a judgment declaring that the insurer was bound to defend and indemnify them in the underlying action.

At the conclusion of the trial of the underlying action, only the negligence cause of action was submitted to the jury. The jury determined that Walter Dreyer and Schwartz were both equally negligent, and that Schwartz had sustained damages for pain and suffering in the amount of $50,000.

The Dreyers established their prima facie entitlement to judgment as a matter of law on their causes of action for indemnification with evidence including, inter alia, the insurance policy provision covering damages for bodily injury or property damage sustained in an automobile accident for which Walter Dreyer became "legally responsible," and a copy of the jury verdict in the underlying action, finding Walter Dreyer to have been negligent and apportioning $25,000 of the damages to him premised upon his degree of comparative fault.

The court in the declaratory judgment action recognized, as it should have, that NY Central was not bound by the underlying verdict of negligence since it did not have its day in court on the issue of intentional. The insurer provided a defense but could not provide proof of intentional conduct through its defense counsel.
Editor’s Note:  An excellent decision and a great teaching case.  Nobody in the underlying lawsuit was there, on behalf of the insurer, to present the proof of intentional conduct and therefore the carrier should not be bound by the verdict.

04/30/13       Citizens Insurance Co. v Illinois Union Ins. Co.
Appellate Division, First Department
Sublimit Endorsement Applies to Additional Insureds; No Prejudice, No Estoppel
The underlying policy had a sublimit endorsement, imposing conditions upon the named insured, yet it provided that coverage for "any such loss" will be reduced to $100,000 if the "named insured" breaches any of the conditions.  In other words, if the named insured breached policy conditions, additional insureds would also have reduced policy limits.

The sub-limit endorsement language still applies to all insureds, named or additional.

Citizens argued that under Insurance Law § 3420(d), Illinois Union is estopped from relying on its sub-limit endorsement because of a purported delay in asserting same, is unavailing because there is no showing of prejudice to the insured by reason of the sub-limit.  However, Illinois Union provided Northside with a full defense in the underlying action and full payment of the sub-limit coverage, and there was no excess exposure to the insured because the Citizens coverage applied as excess and paid the balance of the settlement.

There is no prejudice to additional insured Northside on these facts, and thus no basis for an estoppel.
Editor’s Note:  A sublimit endorsement is not an exclusion, per se, and it’s a fair argument that failing to raise it does not automatically waive the insurer’s right to rely upon it.  The court, we submit, was correct in thereby requiring a demonstration of prejudice.


Michael P. Scott-Kristansen
[email protected] 

05/02/13       Hyatt v Maguire
Appellate Division, Third Department
Qualitative Descriptions of a Moderate Overall Permanent Disability Are Sufficient to Demonstrate a Serious Injury
The defendant met his burden, but the plaintiff also met her burden, so the Court denied the defendant’s motion for summary judgment.

The treating physician’s letter failed to carry the plaintiff’s burden because it was not affirmed.  As a brief side note, a physician’s statement is affirmed when it is signed and contains a statement stating that it was submitted under penalty of perjury.  The plaintiff still managed to demonstrate both a potential permanent consequential limitation of use and a significant limitation of use in her left shoulder, however, by submitting a qualitative assessment that compared her present, post-accident limitations with her pre-accident abilities. 

We are most familiar with the circumstance where a physician examines the plaintiff and measures the range of motion of the joint in degrees.  Here, the Court relied on the plaintiff’s other (and copious) evidence of limitations.  The Court relied on the plaintiff’s physician’s opinion (he must have submitted another statement that was affirmed) that the plaintiff suffered from a “moderate overall permanent disability” that was caused by the accident.  The physician further noted that the injury caused the plaintiff to suffer consistent pain, made it difficult to use her arm overhead, restricted her ability to either lift more than twenty pounds, and limited her ability to use her arm repetitively. 

The Court also relied on the plaintiff’s own testimony that she could no longer work as an early education teacher because she could not lift children and that she could only perform some household chores.  She could not vacuum, dust, or lift objects for instance.

The Court held that the plaintiff’s injuries were not as minor, mild, or slight as to be considered insignificant within the meaning of 5102(d). 

04/30/13       McIntosh v Sisters Servants of Mary
Appellate Division, First Department
Plaintiffs Can Rebut Evidence of Degenerative Changes by Showing They Were Asymptomatic Before the Accident
Again, although the defendant met its burden, the plaintiff also met her burden and summary judgment was denied.

The defendant submitted the affirmation of a radiologist, concluding that the plaintiff only suffered from degenerative disc disease.  The plaintiff’s medical records also showed that she was diagnosed with degenerative changes before the accident.  Her medical records demonstrated, however, that she was asymptomatic for four years before the accident.  The plaintiff’s chiropractor and neurologist also stated that the plaintiff had significant limitations in her range of motion immediately after the accident and that such limitations still existed six years later.  Both doctors also found causation.

The gap in treatment was not fatal to plaintiff’s claim because the chiropractor opined that the plaintiff had reached her maximum therapeutic benefit.  The plaintiff’s 90/180-day claim also survived because the plaintiff submitted her chiropractor’s affidavit stating that he recommended she not work even one year after the accident.

04/26/13       Malesa v Burg
Appellate Division, Fourth Department
Quantitative or Qualitative Evidence Can Be Sufficient
The Court held the defendants met their burden on the soft tissue serious injuries and the plaintiff, in turn, did not.

Without discussing the specific evidentiary submissions, the Fourth Department noted that even if the plaintiff had established the accident caused his injuries, he failed to submit any quantitative or qualitative proof that the injuries were in fact serious and not just mild or moderate injuries.

04/26/13       Kwitek v Seier
Appellate Division, Fourth Department
A Medical Expert’s Opinion on Causation Based Upon a Review of Medical Records Cannot Be Rebutted by Another Medical Expert’s Opinion on Causation Based Upon the Plaintiff’s Self-Reporting
The Appellate Division in this case did not agree on the outcome.  One judge wrote his own opinion to note his disagreement with the majority of the Court.

The defendants met their burden on the permanent consequential limitation of use, significant limitation or use, and 90/180-day injuries by offering evidence that the plaintiff’s lumbar and cervical spine injuries were preexisting.  The defendant offered evidence that plaintiff had suffered from back and neck complaints since injuring herself by lifting her 7-year-old brother in 1995.  The plaintiff had treated with a chiropractor since that incident and through two other previous car accidents.  A neurosurgeon also opined that the medical findings all related to her pre-existing condition.  The neurosurgeon described the plaintiff’s L5-S1 disc herniation as “small” and not causally related.  The only causally related injury found was a “very mild flare up of myofascial pain and musculoskeletal strain from a preexisting condition.”

The plaintiff failed to meet her burden because her expert, the treating chiropractor, based his conclusion on causation on the plaintiff’s own self-reported medical history and not on a review of her pre-accident medical records.  This was especially insufficient in light of the fact that some of plaintiff’s reporting was contradicted by her medical history.

The dissenting judge held the plaintiff failed to meet its burden on the 90/180-day claim. Although the defendants established that the plaintiff returned to work within that period, they did not establish that she returned to her other customary daily activities because they failed to establish what those activities were.  This is an odd statement of the defendant’s burden.  Clearly, the majority must take the view (correct in my opinion) that the defendant only has to address those activities that the plaintiff first places at issue.  The dissenting judge would create an insurmountable burden on defendants to reconstruct a plaintiff’s entire daily life before the accident and then prove that every aspect returned to normal within the required period. 

The dissenting judge also, at first, seems to find a logical hole.  He states that there was no pre-accident diagnosis of an injury, and that there were only her complaints of neck and lower back pain, so defendants also failed to meet their burden on the soft tissue injuries.  Upon closer inspection, this is not a logical hole at all.  The defendant’s expert’s opinions were based not only on an examination of the plaintiff, but also an examination of the plaintiff’s medical records.  Therefore, the expert could give a competent opinion on causation.  The plaintiff lacked competent medical evidence of causation because, as we have discussed here many times before, the plaintiff’s expert’s opinion was not based upon a review of medical records, but the plaintiff’s bare complaints.

04/25/13       Levinson v Mollah
Appellate Division, First Department
MRI Reports Showing Bulging and Herniated Discs Are Not Sufficient to Meet Plaintiff’s Burden Without Evidence of Duration and Qualitative or Quantitative Limitations
The Court held that the defendants met their burden while the plaintiff failed to meet his.  The defendants submitted the affirmation of a neurologist that was based upon an examination of the plaintiff.  The neurologist found a full range of motion in every body part in question.  The Court rejected plaintiff’s contention that the expert had to address the diagnostic findings in his medical records.

The plaintiff submitted only the affidavit of a chiropractor, who also found full ranges of motion, and unaffirmed medical records.  The chiropractor failed to offer any qualitative assessment of plaintiff’s limitations.  The Court also noted that medical reports, consisting of MRI reports indicating bulging and herniated discs, even if they were affirmed, were not sufficient anyway.  Bulging and herniated discs are not evidence of serious injury without competent objective evidence of the duration of such injuries and the resulting limitations.

Margo M. Lagueras
[email protected]


04/30/13       Applicant v NFTA-Metro System Inc.
Erie County, Arbitrator Douglas S. Coppola
Denial Based on Late Notice Invalid Where Carrier Had Notice Comparable to NF-2 Form Within 30 Day Period
Applicant was a passenger on a bus that hit a parked car.  The bus driver promptly notified the Respondent and had all the passengers fill out NFTA courtesy cards with their names and addresses.  Five days later, Applicant called Respondent and advised the Claims Department that he was injured.  An examination under oath was scheduled but Applicant failed to appear.  At some point, Respondent sent a no-fault application to the address provided on the courtesy card, although it is unclear when this occurred as the application was not sent by priority or certified mail, and Applicant later claimed that he had changed to a “temporary address. 

Thirty-three days after the accident, an appointment to discuss the accident was scheduled and Applicant appeared at Respondent’s headquarters to provide his statement under oath.  He claimed injury to his left knee and acknowledged a prior injury, although he declined on advice of counsel to provide details at that time.  It was undisputed that statement was after the 30-day period within which to submit the signed no-fault application.  Applicant was again given a no-fault application which he then had completed by his doctor and returned to Respondent ten days later.  Three days after receiving the completed application, Respondent issued an NF-10 denying coverage base on “lateness of the application” and failure to answer questions regarding the prior knee injury.

The Arbitrator found that, although the no-fault application was received more than 30 days after the date of the accident, there was no question that Respondent was aware of Applicant’s name, address, telephone number and particulars concerning the injury, and had contact with Applicant more than once during the 30 day period.  Therefore, Applicant did not violate a condition to coverage in that Respondent had written notice of the accident and, in fact, of the claim as the written claims notes constituted a “Notice of Claim” even though a specific NF-2 had not been timely submitted.  In addition, Respondent could obtain information on the extent of the prior injury as part of the claim but could not deny establishment of the claim in the first instance due to Applicant’s refusal to provide details when the initial statement was taken.  As such, the Arbitrator determined that the denial should be vacated and the claims processed accordingly.

04/29/13       RS Medical v Allstate Insurance Co.
Erie County, Arbitrator Thomas J. McCorry
Serious Issues With Both Submissions Results in Denial of Claim
Ten days after the accident, the EIP was referred to a physiatric examination.  The treatment plan called for starting physical therapy and, on a separate RS Medical order form, an RS-4 interferential unit, an LSO and an Extender Conductive garment were ordered.  Three months later, on a separate RS Medical order form, the RS-4 was then prescribed for “life time use.”  Based on a Peer Review, Respondent denied payment for the purchase of the RS-4 unit even though it appears that the Peer Reviewer did not have a copy of the prescription form for his review.  Nevertheless, he opined that it was not medically necessary as there was no documentation establishing that the EIP was instructed in its use. 

In a Second Peer Review, the Reviewer determined that the conductive garment, LSO and other equipment were not medically necessary.  In reaching that conclusion, he reviewed the physiatric evaluation, which did not mention the durable medical equipment.  According to the Reviewer, the EIP was undergoing physical therapy which included the same modalities and therefore, she did not need such equipment for home use.  Again, in addition to not being provided the prescription for his review, the Peer Reviewer also noted that no records were provided that would show that the EIP was instructed in the proper use of the equipment. 

The Arbitrator found serious issues with both Applicant’s and Respondent’s submissions.  While he noted that Respondent could have used the verification process to ensure that the Peer Reviewer would have the necessary documentation, he found even more troubling the fact that Applicant did not include any mention of why the equipment was being prescribed in any of the treatment plan portion of the reports from the prescribing physician.  The Arbitrator therefore denied the claim, even though Respondent’s burden was “minimally met.”

04/29/13       RS Medical v Geico Insurance Co.
Erie County, Arbitrator Kent L. Benziger
Lifetime Use Denied as Applicant Fails to Substantiate Necessity
In April 2011, Applicant’s assignor was injured in a motor vehicle accident.  She was prescribed an RS interferential stimulator, conductive garment and electrodes for a three month period in June.  In October, the unit was prescribed for lifetime use. 

In September, the assignor was examined at Respondent’s request by an orthopedic, a chiropractor and an acupuncturist.  The impression of all three was of normal range of motion and resolved cervical, thoracic and lumbar sprains.  Respondent then issued a denial terminating benefits, and a specific denial for the disputed equipment. 

The Arbitrator found the examinations persuasive in terminating the need for the durable medical equipment as the examiners found the sprains resolved and noted essentially no positive findings.  The three month period initially prescribed was reimbursed.  However, Applicant submitted no records or reports documenting positive findings at the time the equipment was prescribed for lifetime use to substantiate its necessity.  As such, the Arbitrator denied Applicant’s claim for the purchase price.


04/18/13       Utica Acupuncture, P.C. v Interboro Insurance Co.
Appellate Term, First Department
Plaintiff’s Bald Denial of Receipt of Verification Requests Fails to Raise Triable Issue of Fact
On appeal, the trial court was reversed and defendant’s motion granted as the court found that the affidavit of plaintiff’s principal, which only explained in general terms the office procedure followed in logging verification requests into its billing program, failed to show the results of any search that might have been made for verification letters that defendant’s proof established had been sent.  This bald denial of receipt of defendant’s verification requests was insufficient to raise a triable issue of fact. 


Steven E. Peiper
[email protected]
Court of Appeals

05/02/13       Hastings v Sauve
Court of Appeals
High Court “Moo-ves” on Domestic Livestock Liability
Every dog has its one bite.  As of May 2nd, however, a cow is no longer permitted one single free “moo.”  In this case, defendant’s bovine wandered onto a public roadway where it was subsequently struck by a motorist.  Defendant argued that as the cow had never shown propensities to leave the farm before he could not be held liable for the incident. 
The Court of Appeals, however, refused to apply the vicious propensities standard to this case.  Rather, the court noted that defendant’s conduct should be judged under the traditional tort/negligence theories prevalent in all other personal injury cases.  Accordingly, if defendant was negligent in the care/control of his livestock, liability would attach.

In so holding, the Court specifically warned that the decision was limited to domestic animals as defined by the Agriculture and Markets Law.  Any question as to this standard’s applicability to a cat, dog or other household pet was specifically reserved for another case.   

05/02/13       Bloomer v Shauger
Court of Appeals
No Liability against Horse Owner Where the Horse was Acting…Like a Horse
Plaintiff sought recovery for damages sustained to her hand when defendant’s horse jerked away as plaintiff was attempting to connect a “leader line.”  In affirming the Appellate Division’s denial of this claim, the Court of Appeals noted that plaintiff needed to establish that the horse had exhibited the propensity to perform an act that might lead to a dangerous situation.  However, where, as here, the act complained of was a normal or typical trait of the animal in question.  Horses, reasoned the Court, often jerk back when someone approaches their throat or face. 

Appellate Departments

05/09/13       Murray Bresky Consultants v NY Compensation Managers, Inc.
Appellate Division, Third Department
Participant in a Workers’ Comp. Trust Permitted to Seek Common Law Indemnity against Plan Trustees
In 2001, plaintiff joined a Manufacturing Self Insurance Trust as its means of providing workers’ compensation benefits.  To join, however, plaintiff had to agree to be jointly and severally liable for any and all other liabilities of the trust.  In 2006, the Trust was discovered to be underfunded.  Then, in 2007, the Workers’ Compensation Board moved to dissolve the trust.  The Board subsequently sued plaintiff for contribution, per the Trust Agreement.  Plaintiff eventually resolved that claim for $1,200,000.00.  

In 2011, plaintiff commenced the instant action against three trustees (Trombino, Jaquith and Ransom) therein asserting claims for breach of contract, breach of fiduciary duties and common law indemnification.  Mssrs. Trombino and Jaquith moved to dismiss on the basis that the statute of limitations had expired. 

The Appellate Division affirmed the trial court’s dismissal of the breaches of contract and fiduciary duty claims against Mr. Trombino and Mr. Jaquith due to the expired statute of limitations.  The common law indemnity claim, however, survived.

In denying the defendants’ respective motions, the Court noted that each of three owed a duty to Trust members to ensure that the Trust remained adequately funded.  Because plaintiff incurred a loss, it was conceivable that the loss was occasioned out of the negligence of the three aforementioned trustees.  Under principles of equity and fairness, where a non-negligent party is obligated to pay a loss that is occasioned out of the negligence of a third-party, the non-negligent party is permitted to recover against the party actually responsible.  Here, again, conceivably that could be Mssrs. Trombino, Jaquity and/or Ransom. 

05/08/13       Travelers Indemn. Co. v AA Kitchen Cabinet & Stone Supply, Inc.
Appellate Division, Second Department
Waiver of Subrogation = Subro Claim Dismissal
Plaintiff, Travelers, paid a first party property loss, and then immediately sought to recover from AA Kitchen in the instant subrogation action.  However, upon a review of the lease between Travelers’ assured and AA Kitchen, it was revealed that any subrogation right was waived by the terms of the agreement.  Accordingly, Travelers’ claim was summarily dismissed. 

In so holding, the Court noted that waiver of subrogation clauses must be strictly construed, and thus limited to the anticipated scope of the parties. Here, the loss at issue fell squarely within the anticipate scope of the clause and the overall agreement.

05/09/13       Matter of East 51st Street Crane Collapse Litigation
Appellate Division, First Department
Unsealing of Previous Settlements Permitted to Assist Settlement Preparation of Subsequent Claims
More crane collapse litigation.  On July 6, 2011, the trial court issued an Order that sealed all documents related to the settlement of a particular wrongful death action.  On December 23, 2011, the same trial court reversed its position and issued a second order which unsealed all documents and records related to the earlier settlement. In reaching this conclusion, the court noted that defendant had not presented a compelling reason for continuing to hold the records under seal.

Defendant had argued that unsealing the records, and thereby permitting the remaining plaintiffs access, would create an artificial threshold on which all future settlements would be based.  In response, the plaintiffs argued that the documents should be accessible because it would assist plaintiffs in developing settlement demands.  Particularly, understanding how much insurance proceeds were left would assist the plaintiffs in valuing their respective cases.

In affirming the trial court’s decision to unseal the documents, the Appellate Division noted that unsealing the documents was appropriate.  By keeping the records unavailable, the Court noted that defendants would have an unfair advantage as the litigation progressed.

Peiper’s Point – We wonder, aloud, how knowing how much the same defendant paid to settle a similar loss, arising out of the same incident, would not be an unfair advantage for the plaintiffs.  Should cases not be what they are worth?  Regardless of how much insurance money is left on exposed policies. Just sayin’.  

05/03/13       McCarter v Woods
Appellate Division, Fourth Department
Speaking Authorizations – Ok for Healthcare Providers; Not Ok for Educators
Another interesting lead paint decision leads to more interesting decisions related to discovery practice.  In this case, defendant sought to preclude plaintiff from relying upon certain medical records that were not produced until after the IME was conducted.  In addition, defendant also sought total preclusion of all medical/developmental issues when plaintiff refused to provide speaking authorizations for healthcare providers, as well as teachers and administrators that worked with plaintiff. 

Initially, in addressing the medical records dispute, the Court held that the trial court did not abuse its discretion where it refused to preclude plaintiff from offering the records at trial.  The court then addressed the issues related to the speaking authorizations.  The Appellate Division, in relying upon the well-known Court of Appeals decision in Arons v. Jutkowitz, ruled that defendants were unquestionably entitled to speaking authorizations for medical providers. 

However, because the Arons decision did not address speaking authorizations to educators the Court was reluctant to expand the privilege beyond its express scope.  As such, defendant’s requests for speaking authorizations of educators were denied.

In a well-reasoned dissent, Justices Peradotto and Martoche argued that Arons should not be read to limit the availability of non-party discovery.  The dissent noted that nothing in the CPLR, or anywhere else, limited a party’s ability to speak with relevant non-party witnesses.  Accordingly, the dissent did not see a reason why the theory behind the Court of Appeals’ previous rulings should not be expanded to include all non-party witnesses. 



Elizabeth A. Fitzpatrick
[email protected]

First, the Banter

In a pair of decisions handed down on April 23, 2013, the Courts in Mississippi and Illinois addressed coverage under the Advertising and Personal Injury Sections of policies issued to their insureds. 

In State Farm Fire and Casualty Company v. Anderson, the United States District Court, Southern District of Mississippi, addressed claims against condominium board members arising from Hurricane Katrina.  Plaintiffs/ property owners in the Harbor House neighborhood alleged that one of the board members used his position on the Board of Directors of a condominium association to delay rebuilding after Hurricane Katrina by, among other things, encouraging an amendment to the neighborhood’s covenants, which required that the Board of Directors approve all plans to rebuild.  As a result, some of the association’s members allegedly grew frustrated with the delay and sold their lots to board member Joffe and an associate, who then sold them to Diamond Head Real Estate, providing Diamond Head with the majority ownership of the neighborhood and control of the Board of Directors.  Newly appointed representatives then argued that the Harbor House neighborhood was blighted and that it should be re-zoned and a casino built there.  Although the re-zoning effort eventually failed and the casino was never constructed, the property owners alleged that the takeover of the Board of Directors constituted a plan to build a casino on or near the property and sought money damages against the Board members, alleging that they engaged in self-dealing, breached the neighborhood covenants and breached their fiduciary duties as members of the Board of Directors.

The Court analyzed coverage under a comprehensive business liability policy, a directors’ and officers’ policy, as well as an umbrella policy, ultimately concluding that no duty to defend or indemnify was alleged, as the damages did not constitute bodily injury, property damage or personal injury under the liability policy, and that, under the directors’ and officers’ policy, the claims were precluded through application of an exclusion for any dishonest, fraudulent, criminal or malicious act and for an exclusion for damages arising out of any transaction of the insured from which the insured will gain any personal profit or  advantage.  The Court also concluded that the claims did not include allegations of a loss, as defined by one of the board members’ personal liability umbrella policy. 

In American Economy Insurance Company v. Haley Mansion, Inc., the Appellate Court of Illinois affirmed an Order of the Trial Court, finding that American Economy had a duty to defend the insureds against a counterclaim, alleging defamation per se, defamation per quod and false light, as well as sexual harassment, retaliatory discharge, retaliation and a violation of the Illinois Consumer Fraud and Deceptive Trade Practices Act.  American Economy issued a policy to Haley Mansion, Inc., Jeffrey Bussean and Bussean Catering, Inc.  Molburg was a former employee of the Mansion and Bussean, who was hired to be the general manager of the mansion. According to the underlying Complaint, Molburg told other employees that Bussean installed hidden surveillance cameras and was secretly taping employees and female guests undressing in the bridal suite of the Mansion and also allegedly told employees that Bussean repeatedly made sexually graphic statements to Molburg about them.  The employees, thereafter, abruptly quit, leaving the Mansion unable to host several previously scheduled events. 

The Mansion and Bussean filed a seven-count Complaint against Molburg and, in response; Molburg filed a seven-count counterclaim. 

In the policy issued by American Economy, American Economy was obligated to defend its insureds against any lawsuits seeking damages for a personal and advertising injury, defined as including any oral or written publication that slandered or libeled a person’s goods, products or services, or violated a person’s right to privacy.  The policy, however, also included several exclusions, including an employment-related practices exclusion, which excluded coverage for claims of any person arising out of termination of that person’s employment or employment-related practices, policies, acts or omissions such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination or malicious prosecution directed at that person.  There were also exclusions for Knowing Violation of Rights of Another, excluding coverage for claims arising out of personal and advertising injury, caused by the insured with knowledge that the act would violate the rights of another and would inflict personal and advertising injury.  The third exclusion was entitled Material Published with Knowledge of Falsity and excluded coverage for personal and advertising injury arising out of oral or written publication of material, if done by or at the direction of the insured, with knowledge of its falsity. 

Molburg alleged that, after the employees had quit, the police wanted to search the premises and, although she told them she did not have the authority to permit their request, she was later terminated. After that date, Bussean allegedly made numerous comments about her being incompetent, untrustworthy and other derogatory terms.  The Court ultimately focused upon the employment-related practices of exclusion, and after analyzing the nature of the comments and case law within the state, found the salient question was whether the alleged defamatory statements were made in the context of employment and related to the employment performance of the employee.  Ultimately, they concluded that they were not and, thus, the employment-related exclusion did not preclude coverage.  They also found that the other exclusions were not applicable as, in order for either exclusion to apply, the insured had to cause the injury, in this case defamation, with knowledge of its falsity.



In an article which appeared in Time Business and Money last week, it was reported that 30% of Facebook’s ad revenue came from mobile devices last quarter, up from 23% during the previous quarter and 14%  the quarter before that.  Late in 2012, the number of daily Facebook users on mobile devices surpassed the number who accessed the site on desktop computers. With the prevalence of smartphones and tablets, the trend is certainly not surprising.

The number of people accessing social media platforms is incredible, with Facebook claiming to have more than 1 billion users, while Linked In claims to have more than 200 million registered users as of December 31, 2012.  Facebook, Linked In and Twitter are being used by job seekers to find work and, according to a study done by social media monitoring service, Reppler, more than 90% of recruiters and hiring managers have visited a potential candidate’s profile on a social network, as part of the screening process.  While employers and colleges routinely search social media sites to obtain information about applicants and current employees, small businesses continue to experience the perils of social media.

Many of you remember the story that surfaced last year regarding the server who posted a photograph of the generous tip left by Payton Manning, which included Manning’s credit card information.  I am sure that server was glad it was a big tip since he was fired for posting a photograph of the bill.  Well recently, a receipt from a customer complete with derogatory comments and racial slurs was posted on the Instagram account of a restaurant manager in Delaware causing the manager and the restaurant big problems.  One of the posts derided a customer for ordering takeout to avoid a tip, and, then eating it at the bar.  The post showed a photo of a receipt indicating the customer left no tip.  There were other derogatory postings about customers on the restaurant’s Facebook page.  This prompted an apology from the restaurant owner, who admitted to not really understanding Facebook or Instagram.  The restaurant’s Facebook page was deleted shortly thereafter and one would expect the manager is no longer posting such comments on his Instagram account.


Cassandra A. Kazukenus
[email protected]

From our friends at NYIA, the New York Insurance Association:

10 Year Anniversary of Alice Ross’s Death Stark Reminder of the Need to Stop Fraud

ALBANY, N.Y., May 9, 2013—The New York State Senate took a stand against auto insurance fraud today with the passage of three bills that would help stop a multi-million dollar illegal enterprise in the state.

“Auto insurance fraud is a serious public safety issue in New York that puts New York families at personal and financial risk,” Ellen Melchionni, president of NYIA said. “Criminal fraud rings stage and cause accidents, making our roadways more dangerous, diminishing the quality of health care in our state, and adding financial burdens to hardworking New Yorkers. The measures passed by the Senate today would be helpful in combating fraud and protecting innocent victims.”

This year marks the 10 year anniversary of the death of auto insurance fraud victim, Alice Ross. Alice was a 71-year-old grandmother driving to visit her daughter on March 22, 2003 when she was intentionally struck from behind, forcing her to swerve off the road and hit a tree, which resulted in her death. The individuals who deliberately hit her car caused the accident to create phony injuries to rack up bogus medical bills and submit fraudulent claims to auto insurers.

The Senate passed the following reforms:

  • S1959A/A3774A would allow for retroactive cancellation of a new auto policy if fraudulent payment is used.
  • S3547 would make it a felony to commit the crime of staging an auto accident for purposes of committing auto insurance fraud.
  • S3033/A4597 criminalizes the offense of recruiting individuals to commit fraud by taking part in staged accidents or submitting fraudulent injury claims to collect auto insurance benefits.


S1959A would help prevent fraud from ever occurring. Criminal rings often rely on being able to pay for auto insurance policies fraudulently to carry out their no-fault fraud schemes. This law also allows victims of a caused accident to be able to receive benefits from their own auto insurer. New York statutes do not currently provide any benefits to a victim or a victim's family if the accident is a result of an intentional act. S1685 and S2004 will provide law enforcement with necessary tools to investigate no-fault fraud crimes and prosecute the perpetrators.

“The Legislature needs to put an end to criminals blatantly exploiting the auto insurance system for their personal gain at the expense of the welfare and livelihood of our state's citizens,” Melchionni said. “We commend Senate Majority Coalition Co-Leader Skelos, Sen. Seward and Sen. Golden for their leadership on these reforms and the Senate for taking a stand on this important issue.”

“Auto insurance fraud is an easy target for criminals,” Melchionni said. “The issue can no longer be ignored. We urge the Assembly to act now and take a zero tolerance stance on fraud. New Yorkers deserve meaningful auto insurance fraud reform that puts the citizens of our state first.”

The New York Insurance Association (NYIA®) is a state trade association that has represented the property and casualty insurance industry for more than 130 years. For more information on NYIA, visit


Katherine A. Fijal
[email protected]

05/03/13       Harleysville Ins. Co. v Physical Distribution Services, Inc.
United States Court of Appeals Eighth Circuit – Minnesota Law
Terms of Trade Contract and Policy Require Harleysville to Indemnify
In 1989, Physical Distribution Services, Inc. [“PDSI”], a Minnesota company which provides employees under lease agreements with transportation firm, entered into an employee leasing agreement with Miller Transportation, Inc. [“Miller”], a Mississippi based trucking company.

On September 6, 2007, a PDSI employee, Jonathan Hughes fell approximately 10 feet while working on a tank washer at a Miller truck maintenance facility in West Virginia.  On the day of the accident PDSI’s lead man at the facility, Edward Chapman, was one of Hughes’ supervisors.  Although supervisory authority overlapped between Chapman and Miller in some respects, PDSI directed Hughes’ and its other employees’ daily activities based on decisions by Miller employees.  On the date of the accident Chapman was considered to be in charge.  Hughes testified that Chapman was the person who instructed Chapman to clean resin out of a chemical tanker. The mechanic’s bay where the fall occurred did not have fall protection or a stationary stairway to provide access to the tankers. 

Hughes sued Miller in West Virginia state court and on April 12, 2011 Miller notified PDSI that it had reached an agreement with Hughes to settle all claims for $300,000 plus $104,377 in legal fees.  On April 14, 2011, Miller notified Harleysville, as the insurer for PDSI, of the settlement and demanded indemnification.

Prior to the inception of the personal injury action, Harleysville filed suit in the District of Minnesota against PDSI.  Harleysville sought judgment declaring (1) PDSI was not obligated to indemnify Miller for Hughes’ injuries, and (2) PDSI’s general commercial liability insurance policy did not cover PDSI’s indemnification liability to Miller.  Miller counterclaimed, asking the district court to declare PDSI was obligated to indemnify Miller and Harleysville was obligated to cover the indemnification.

The disagreement between the parties centered on two sets of contractual language – the trade contract between PDSI and Miller and the Harleysville policy.   After discovery the district court granted PDSI’s motion and denied Harleysville’s motion.  First, the district court found Hughes’ lawsuit fell squarely within the indemnify provision of the Agreement between PDSI and Miller.  Second, the district court interpreted the insurance policy as requiring Harleysville to cover costs arising from Hughes’ lawsuit because the policy’s “insured contract” clause required no more than “but for” causation.  For the following reason the Eight Circuit [“Court”] agreed with the district court and affirmed.

On the issue of indemnification under the trade contract the Court analyzed the law in Minnesota and determined that the plain meaning of the provision in this case was “clear and unequivocal” enough to put PDSI on notice of its obligation to indemnify Miller for bodily injury to PDSI’s employees, even if Miller’s own negligence caused the bodily injury. In relevant part the indemnification clause provides that “PDSI hereby indemnifies and saves Miller harmless from any and all claims, actions, or causes of action in any way relating to personnel assigned to Miller, including, but not limited to, personal injury workers compensation, third party claims, Social Security, unemployment compensation, and exes or other required withholding or whatever nature.  PDSI shall obtain insurance against any and all of the above mentioned risks and shall name Miller as an additional insured . . .” The Court pointed out that the language of the indemnification provision broadly encompasses and specifically includes Hughes’ personal injury claims.  Unless “any” does not mean any or “personal injury” does not mean personal injury, the Court found nothing equivocal about this provision.

The Court held that the indemnification provision is enforceable under Minnesota law and requires PDSI to indemnify Miller for Hughes settlement.

Next, the Court analyzed the Harleysville insurance policy.  Harleysville challenges causation under the clause covering PDSI’s assumption of Miller’s tort liability to a third person or organization.  The policy limits Harleysville’s coverage to “bodily injury”, caused, in whole or in part, by PDSI or by those acting on PDSI’s behalf. Harleysville argued that the phrase “caused, in whole or in part” requires some form of direct proximate causation.

At the time of oral argument there was a case pending before the Minnesota Supreme Court, Engineering Construction Innovations, Inc. v. L.H. Bolduc Co., Inc., 825 N.W.2d 695 (2013).  After the Bolduc decision was rendered the court noted two strands in Minnesota’s interpretation of causal language in insurance contracts.  First, under Minnesota law, the phrase “arising out of” requires “but for” causation.  Second, under Minnesota law, the phrase “caused by acts or omissions” contains a fault requirement.  However, the Court found that because the policy provision at issue here contained “caused, in whole or in part” language and did not contain the words “arising out of” or the word “caused by acts or omissions”, the Bolduc case does not directly answer the issue presented in this case.  The Court then went on to predict how the Minnesota Supreme Court would interpret the precise contractual language at issue here.

In analyzing the policy language the court relied on fundamental principles of Minnesota law:  (1) to give unambiguous words their plain, ordinary and popular meaning; (2) to read and study provisions of an insurance contract independently and in context with all other relevant provision and language of the policy as a whole; and, (3) to not abandon common sense. 

Applying these principles to this case, the Court concluded that the undisputed facts establish as a matter of law that PDSI or “those acting on its behalf” at least partly “caused” Hughes’ bodily injury.

There was one dissenting opinion.  The dissent was based on analysis of a 2005 Minnesota Supreme Court case, Yang v. Voyagaire Houseboats, Inc., 701 N.W.2d 783 (2005), which held that in order for contractual indemnification to be effective, the clause must refer to negligence and must state expressly that the contracting party will indemnify the other party for its own negligent.  It was the dissenting Judge’s opinion that those elements were absent here and that PDSI was therefore, not required to indemnify miller for personal injuries caused by Miller’s own negligence.



Jennifer A. Ehman
                                            [email protected]    

04/29/13       Copacabana Realty LLC v Fireman’s Fund
Supreme Court, Suffolk County
No Evidence that Property Damage was the Result of “Ensuing Loss” as Opposed to the Initial Inadequate and Defective Workmanship
American Automobile Insurance Company (“AAIC”) issued a “Prestige Home” insurance policy to J. Darius and Jill Bikoff covering a residential property.  Plaintiff as an alleged assignee of the Bikoffs submitted a proof of loss regarding damages incurred as a result of faulty renovation made to the subject premises.  AAIC denied coverage citing an exclusion for damage to a premises caused by faulty construction and defective workmanship.

Plaintiff brought this declaratory judgment action attempting to challenge the disclaimer.  It contended, inter alia, that questions existed as to the application of the exception to the faulty workmanship exclusion contained in the AAIC policy for ensuing losses which arose from the effects of such work.  Further, it argued that the damage was attributable to a collapse, which would be covered under the policy.

The motion court found that the plain words of the agreement specifically excluded property damage caused by “faulty, inadequate or defective workmanship,” and the testimony established that the damage resulted from inadequate and defective workmanship by contractors who were hired to make major repairs and renovations to the premises.  Further, the court disagreed that the exception to the exclusion for “ensuing loss” applied.  It noted that although application of the exception maybe appropriate where the initial defect caused wholly separate damage to another portion of the building’s structure, here, there was no such collateral or subsequent damage. 

The court also rejected the secondary argument that the policy’s additional coverage for damage resulting from a “collapse caused by…use of defective material or methods in construction, remodeling or renovation if the collapse occurs during the course of construction, remodeling or renovation” applied.  The unambiguous language of this policy limited a collapse to an “abrupt falling.”  No such situation occurred here.  

Bad Faith

05/06/13       Phillips v Prudential Ins. Co. of America
United States Court of Appeals, Seventh Circuit
Insurer Breached No Duties Owed to Insured or Beneficiary of Life Insurance Policy Under Illinois Law Where Default Payout Option was a Retained Asset Account
Prudential issued a life insurance policy to plaintiff’s fiancé.  Following a death, Prudential’s default method for paying a claim was the “Alliance Account settlement option.”  The Alliance Account is a retained asset account, under which the insurer, instead of paying a lump-sum death benefit, creates an interest-bearing account for the beneficiary and sends him/her a checkbook that can be used to draw down the funds, in part or in whole, at any time.  The funds are held in Prudential’s general investment account, which allows it to profit from the spread (if any) between its investment returns and the interest paid to the beneficiary. 

Plaintiff claimed that establishing a retained asset account as the default payment method resulted in a breach of contract, unreasonably delayed the payment of insurance benefits, and breached a fiduciary duty.

Breach of Contract

The Prudential policy authorized the insured and the beneficiary to choose among several payment options listed in the policy and any other options that became available in the future.  The insured never elected a payment option.  When he died, a claim form was sent to plaintiff stating that the preferred method of payment was the Alliance Account.  The form touted the option as “an easy, no cost option that gives you great flexibility.”  Plaintiff did not make an election and in turn the default option was applied. 

The establishment of the Alliance Account as the default option and its enrolling of plaintiff in an Alliance Account rather than providing her a lump-sum benefit payment, did not breach the insurance policy.  Lump-sum payment was clearly not the default in the policy.  Further, while neither the claim form nor the Settlement Options brochure explicitly mentioned the lump-sum option, based on the terms of this particular policy, nothing in it required Prudential to make explicit reference to the lump-sum option or ensure that plaintiff was subjectively aware of that option when she made her selection.  The contract merely required Prudential to allow plaintiff to choose lump-sum payment, and it did offer that choice by permitting her to select “another payment option allowed in the policy.”  Further, while an Illinois Insurance Bulletin was issued stating that a beneficiary “can only be deemed to have consented to a retained asset account when there is full disclosure in the notification of the terms of the Retained Asset Account at the time of the claim,” such bulletin was issued only after the events in this case. 

Vexatious and Unreasonable Delay

Prudential did not subject plaintiff to an unreasonable and vexatious delay in paying the claim.  Paying benefits via an Alliance Account checkbook rather than a check is not any kind of delay, and even if it were, plaintiff could hardly complain as she chose that option. 

Breach of Fiduciary Duty

In Illinois, it is well established that no fiduciary relationship exists between an insurer and an insured as a matter of law.  Prudential did not become plaintiff’s investment manager for the Alliance Account funds.  The relationship was no different than that of a savings bank and a depositor. 

Earl K. Cantwell
[email protected]


New cases and decisions occur regularly on the topic of “Spoliation of Evidence”, and a major recent case was Miner Dederick Construction, LLP v. Gulf Chemical & Metullurgical Corp. 2012 Tex. App. LEXIS 10129 (December 6, 2012).  Gulf Chemical hired Miner to pour a new concrete foundation which involved a large “expansion joint” between the existing and new foundation.  After construction, Gulf discovered a leak in the joint, and requested Miner to make repairs under a one year contractor’s warranty.  Miner said the leak was due to faulty design and refused to do further work without a new contract and additional price.  Gulf had another contractor perform the work, and then sued Miner for breach of contract and warranty.  Miner claimed that Gulf spoliated the evidence and thwarted the contractor’s ability to defend itself.  The Trial Court awarded Gulf some $730,000 in damages, $80,000 in interest, and almost $1 Million in attorneys’ fees.  However, this verdict was reversed on appeal.

Generally spoliation cases require there to be (a) a duty to preserve evidence, (b) breach of that duty, and (c) prejudice to the other party’s ability to present a claim or defense.  The appeals court found that Gulf had a duty to preserve evidence - the expansion joint’s as-built state - because it knew, or should have known, that litigation would be forthcoming.  In addition, Miner had requested (three times) in writing an opportunity to review the work in its “as is” condition to show that work done at the joint had been performed according to the original specifications.
Gulf next argued that there was really no spoliation because the defective expansion joint remained in place even after the repairs and could be seen and tested.  However, the appeals court found that Gulf intentionally altered the condition and integrity of the expansion joint without affording Miner an opportunity to inspect it.  Gulf’s testing and repairs destroyed evidence by altering the joint as installed by Miner.

Gulf then claimed that Miner waived any right to complain about spoliation because it never asked permission to conduct its own tests prior to the litigation, and did not file a discovery request to inspect the joint even after the lawsuit was filed.  However, the appeals court found that Miner had submitted immediate and repeated requests to inspect the joint, but by the time litigation was commenced the joint was already altered.  A custodial party who has legitimate need to repair or destroy a condition may discharge its duty of preservation by giving the opponent notice of the claim, and a “full and fair opportunity” to inspect evidence, before its alteration or destruction.  Even photographs and video taken of the joint, and its testing and repairs, were not a full substitute for the opportunity to inspect and test the pre-repair joint. 

The appeals court, however, despite finding a valid claim of spoliation, did not on its own, impose any definite sanction.  The appellate court remanded the case to the Trial Court for “an appropriate remedy” without further guidance.  The Trial Court will have to use its discretion to fashion an appropriate remedy such as vacating the verdict, possibly dismissing the claim, imposing a monetary sanction or offset, imposing negative findings of fact and jury inferences against Gulf, or perhaps barring or precluding certain claims or evidence. 

The lessons of this case are the basic, core doctrine of spoliation which requires a duty to preserve evidence, breach of that duty, and demonstrated prejudice to the other party’s rights or defenses.  A second lesson is that remedies for spoliation are generally left to the discretion of the Trial Court, at least in the first instance, which here led the appeals court to remand the case back to the Trial Court for an “appropriate” (but yet to be determined) remedy.

Courtesy of the FDCC Website

04/24/13                 Brown v. Mid-Century Insurance Company
California Court of Appeal, Second Appellate Department
“Sudden” Means Sudden for Exception to Water Damage Exclusion in Property Insurance Policy
Homeowners policy excluding water damage except for that resulting from a sudden and accidental discharge of water from a plumbing system does not cover a leak from a pipe which continued for months. The court also rejected the policyholder’s attempt to apply the efficient proximate cause doctrine, concluding there was only one cause of loss. Finally, the court found the water damage provisions to be clear and conspicuous.
Submitted by: Andrew B. Downs, Bullivant Houser Bailey PC

04/18/13       Travelers Property Casualty Co. 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

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