Coverage Pointers - Volume XIV, No. 25

Dear Coverage Pointers Subscribers:

Situation?  You have a situation?  We embrace situations.

There is a lot going on this week, it’s hard to know where to start. 

Audrey’s back:

We welcome Audrey Seeley back!  Yay!  You’ll see her column returning shortly.


Super Storm Sandy Legislation Passes the Assembly – Special Edition Attached:

Anybody who has worked in or about Albany during the waning days of a legislative session knows that the final days are called, by many, Silly Season.  This year is no exception.

Despite the resolution of almost 450,000 Sandy-related claims with one percent complaint ratio, the New York State Assembly has passed a series of bills that, if passed by the Senate and signed into law, would fundamentally change the way storm-related coverage litigation is conducted in New York. One of the bills is so broad as to seemingly disallow any excluded causes in business interruption coverage.

Do the legislators really believe that many insurers would write that kind of coverage in this state or, if they did, that any policyholder could afford it?  Another bill establishes a rocket-docket for storm-related claims.

Steve Peiper has reviewed the bills in a bullet-form approach to give our readers an idea of the nature and characteristic of this legislation.  It is attached to this note, along with our regular issue.

The bills are off to the Senate for consideration.  Knowing that the legislators are preparing to adjourn sine die, we can expect a very busy week or two in the Capital District.  Here’s Steve’s note:

Steve on Sandy:

Welcome to June.  Have we got a little treat for all of you who have been following our SOS column!  Go grab a coffee (we’d suggest decaf, trust us), and carve out about 45 minutes.

As always, though, before going to the SOS attachment, we’d also encourage you to peruse the P&P offerings this week.   Which reminds me that a special thanks goes out to Michael Scott-Kristansen for helping me out with my column this week.  Mike tells me there is an interesting Labor Law case in there, so I’d encourage you to take a look.

SOS – Sandy Over Saturated

In our March 15, 2013 issue, yours truly typed the following statement:  “No, Chicken Little, the sky is not falling; it merely appears that way.”

That comment was in response to a note in Cassie Kazukenus’ column which reported on a proposal to amend Section 2601 of the Insurance Law to provide a private cause of action for policyholders affected by a disaster. 

On June 4, 2013, a mere two days ago, that proposal, Assembly Bill A-5780, was passed by the New York Assembly by a vote of 108-34.  Not too bad, right.  Wrong.  Little old Assembly Bill A-5780 was accompanied by 13 other Bills, all of which passed with sweeping majorities, which were aimed a reconfiguring New York’s personal lines insurance markets. 

In deference to our 3/15 note, we now say that indeed, Chicken Little, the sky may in fact be falling. In fact, it may have already.

Naturally, the situation remains fluid.  Although many of the bills passed by the Assembly have companions pending before the New York State Senate, we note that none of them have actually been presented, as of yet, to Governor Cuomo.  However, as evidenced by the vote tallies, the press releases, and the apparent support of DFS and Governor Cuomo it would not be premature to say that momentum appears to be building.

If not checked, the proposals are sweeping enough to have a profound impact on the way personal lines carriers will be able to manage risk, and adjust claims after catastrophic events.  Rest assured that we will continue to monitor the developments as these Bills wind their way through the process.

In the meantime, for your convenient perusal, we have attached our synopsis of the 14 bills currently sitting in Albany.  As with anything we provide, we do so in the spirit of information sharing and discussion.  Naturally, we’d encourage you to review each bill before forming a final conclusion. 

We love to hear feedback, too, so please do not hesitate to drop us a line with any thoughts, questions or frustrations. 

One more caveat, if you do chose to review the synopsis or the proposed bills, we recommend doing so away from sharp objects.  You have been heretofore warned, enjoy! 

Have a great weekend.  See you in two more weeks.

            Steven E. Peiper
            [email protected]


Cat Toolbox Presentation:  Save the Date:

2013 Catastrophe Toolbox Presentation
August 21, 2013
Stamford Connecticut
Save the Date

Hurwitz & Fine, PC was pleased to be invited to join the Catastrophe Toolbox team.  Alford Bolin Dowdy, LLC  of Mobile, AL;  Boehm Brown Harwood, P.A.of Orlando, FL;  Mozley, FInlayson & Loggins, LLP of Atlanta, GA had organized and presented two fantastic conferences held in 2011 in Boston and 2012 in Atlanta.  With the arrival of Sandy, the Northeast states are now included in the program and we were honored to be included on the Catastrophe Toolbox program and presentation team.

This year the program will be presented at the University of Connecticut Extension Campus in Stamford, CT on Wednesday, August 21, 2013.  It will commence at 1 pm and end at 4 pm.  A reception will follow.  Registration will be available beginning at noon.    There is no fee to attend, but we do need a head count and so require a reservation from you.  You can contact one of the below named partners to make your reservation.  A more formal invitation will be issued in July, but there is limited space, so if you wish to be certain of a place, feel free to be an “early bird”. 

We are applying for adjuster continuing education credits in a number of states including Florida, Texas and North Carolina.  When we issue the invitation, we should have the approval information available.  As in the past, outlines for a number of states with guidelines for claims handling, licensure and legal rules that could impact the claim process will be available.  This year we likely will provide them electronically either on a flash drive or through a web portal with password access.

The contacts at each firm are: 

Dan D. Kohane ([email protected]) and Stephen E. Peiper ([email protected])
Helen Alford ([email protected]); 
Janet L. Brown ([email protected]); and
Wayne D. Taylor ([email protected] ). 

The states we plan to include are as follows:  Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Kentucky, Kansas, Louisiana, Massachusetts, Maryland, Missouri, Mississippi, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee and Texas.  The expansion includes many states in the Northeast who experienced issues with Sandy as well as a number of the tornado alley venues.

We chose Stamford CT for its central location among those still dealing with Sandy issues and its ease of access along the Northeast corridor.  It is our hope that the convenient location will allow many of you to attend.  We look forward to seeing you there. 


A Century Ago – Judge Scolds “Selfish Women”: 

The Syracuse Herald
Syracuse, New York
June 7, 1913


New York, June 7. – Mrs. Blanche A. W. Heye was to-day awarded $20,000 a year alimony and $2,900 counsel fees pending the result of her suit for divorce against George G. Heye, the banker and son of a Standard Oil magnate from whose estate he inherited $1,000,000.

In her petition Mrs. Heye asked for $78,000 alimony a year and $15,000 counsel fees.  Her request brought from Justice Aspinwall a stern rebuke for society women who lead extravagant lives.  “I will not allow such alimony,” said the Justice.  “These New York society women live too high.  They go to fashionable hotels, drink highballs and smoke cigarettes, instead of staying at home and trying to make husbands happy.  This woman has been working this man like a gimlet. I find that the husband’s estate has dwindled from $2,000,000 to $300,000 in seven years.  These young women get hold of a rich man and live with him as long as they can get money out of him, but as soon as the man puts on the brake they are done with him.”

In her divorce petition Mrs. Heye charges her husband with neglect and names Myrtle Vincent, a handsome woman, as correspondent. 

The New York Times reported on the same story, in its August 15, 1913 edition, noting that the judge was a bachelor and adding his additional comments about society woman:

“They ride up Fifth Avenue in their fine automobiles with poodle dogs in their laps, and when they are married to a poor man unfortunate enough to have a million dollars, they come into court and say that their social position requires an exorbitant amount of alimony.”

Editor’s Note:

Working this man like a gimlet? 


  1. A small T-shaped tool with a screw tip for boring holes;
  2. A cocktail of gin (or sometimes, vodka) and lime juice.


Was his honor suggesting that he was getting “screwed” and “hammered”?  Just sayin’…

George Gustav Heye (1874 – January 20, 1957) was married several times thereafter and was a collector of Native American artifacts. His collection became the core of the National Museum of the American Indian George Gustav Heye Center.

Sadly for the former Mrs. Heye, although awarded considerable alimony by the standards at the time (at $20,000), her life lasted only nine more years:

San Antonio Light
November 17, 1924

Wealthy New York Woman Found Dead in Bathtub at Home

New York, Nov. 17. – An autopsy yesterday indicated that Mrs. Blanche A. Heye, 50, who had a $20,000 a year alimony income, had fainted and fallen into the bath-tub full of scalding water at her home, No. 100 W. 59th St., Saturday night.  She was dead when a janitor found her.  Death was possibly due to a heart attack.

Mrs. Heye wore a diamond necklace and other jewels worth $20,000 when her body, clad in a silk kimono, was discovered.

The victim of the tragedy obtained a divorce in 1913 from George G. Heye, millionaire broker and collector of American Indian relics.  She was finally awarded $15,000 for herself and $5,000 a year for the children. 


Mike’s Serious Injury Missives

As you know, we cannot expect the Appellate Division to provide analytical gold every two weeks.  After all, the courts must work with what they are given.  Many of the cases this week are very simple, but will provide a very quick and easy review of basic No-Fault serious injury concepts. 

  • Defendants must address every single one of a plaintiff’s alleged serious injuries to prevail on a motion for summary judgment seeking dismissal;
  • Defendants can adequately oppose each injury either by demonstrating a lack of causation or by demonstrating the injury was not serious, or both;
  • If the defendant can show lack of causation and lack of seriousness, the plaintiff will have to rebut both showings with competent medical evidence for at least one injury;
  • Don’t bother with a motion for summary judgment seeking to dismiss the case unless every single injury in the plaintiff’s complaint and bill of particulars is addressed.


Two cases did push past the basics.  The Court in Konstantinov appears to state that a defendant can never prevail on a motion for summary judgment by attempting to prove the plaintiff is faking his or her injuries, but can prevail by showing the plaintiff is exaggerating the seriousness of those injuries so long as there is objective medical evidence supporting that conclusion.  If the Court intended to make that distinction between faking and exaggerating, it is an interesting one, but I doubt its validity.  Lastly, the Court in Herman portrays the physicians as Moe, Larry, and Curly and makes us feel like one of the gang by putting the opinion in puzzle form.  Nonetheless, the opinion reminds us that if your experts’ opinions contain contradictions on any material issue, those experts must address that contradiction or your motion for summary judgment will fail.

Michael Scott-Kristansen
[email protected]


The Mighty Casey (courtesy of Tim Sullivan, NAMICO President Extraordinaire):

June 3, was the 125th anniversary of the first publication of “Casey at the Bat”, the unforgettable tale of arrogance and the celebration of the way America’s game was meant to be played - two outs, tying runners in scoring position, and the losing team’s mightiest hitter coming to the plate.  No walk to an empty first base here; they pitched him and struck him out…. That is why America used to be great, and can again be the shining light upon the hill beckoning to the world, if we would but put an end to designated hitters and the shameful ploy of issuing an intentional walk to an opposing team’s best hitter.  Pitch him, I say, and let the battle of hurler versus hitter be played out as God and Abner intended. Can I get an “AMEN”?

Editor’s Note:  While you’re at it, get rid of interleague play.


Beth’s Bitz:

After suffering through the wrath of Superstorm Sandy, the winter seemed longer than ever and the first beach day was a welcome event, as is seeing the hard hit communities on Long Island’s south shore and elsewhere, recover.  Speaking of Superstorm Sandy, I had the opportunity this week to present as part of a panel on Superstorm Sandy coverage issues at a program sponsored by the Westchester CPCU.  It was a wonderful group and I enjoyed being a part of it.  To any of our readers who were present—thank you for your warm welcome!

For those of you who like to plan ahead and are looking for a great educational and networking program, a quick heads up.  The New York State Bar Association’s  Annual Law School for Insurance Professionals Program, which is held at five venues across New York State, is well on its way and I am delighted to once again serve as co-chair of the event.  More information will follow in the weeks ahead, but mark your calendars.

The program will be held in Albany at the New York State Bar Association on September 12, in Buffalo at the Holiday Inn Amherst on September 16, in Syracuse at the Sheraton Syracuse University on October 10, on Long Island at the Long Island Marriot on October 10, and in New York City at the State Insurance Fund on October 4.  I look forward to seeing you!

Elizabeth A. Fitzpatrick
[email protected]


Speaking of Social Media:

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

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

Apps: There’s an App for this:

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

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


One Hundred Years Ago – Mt. McKinley Summit Reached for First Time on June 7, 1913:

Mount McKinley or Denali is the highest mountain peak in the United States and in North America, with a summit elevation of 20,320 feet (6,194 m) above sea level. At some 18,000 feet (5,486 m), the base to peak rise is considered the largest of any mountain situated entirely above sea level. Measured by topographic prominence, it is the third most prominent peak after Mount Everest and Aconcagua. Located in the Alaska Range in the interior of US state of Alaska, it is the centerpiece of Denali National Park and Preserve.

The first European to document sighting the mountain was George Vancouver in 1794. In 1903, James Wickersham recorded the first attempt at climbing McKinley which was unsuccessful. In 1906, Frederick Cook claimed the first ascent which was later proven to be false. The first verifiable ascent to McKinley's summit was achieved on June 7, 1913 by climbers Hudson Stuck, Harry Karstens, Walter Harper, and Robert Tatum. In 1951, Bradford Washburn pioneered the West Buttress route considered to be the safest and easiest route and therefore the most popular currently in use.

Dubbed the Denali 2013 Centennial Climb, decedents of the four climbers, Dana Wright, Ken Karstens, Ray Schuenemann, Dan Hopkins, and Mark Lattime will begin their ascent on June 7, 2013, a hundred years after their forebears reached Denali’s summit. Denali is the Alaska Native name for McKinley, meaning “The Great One.”


Jen’s Bostonian Gems:

Greetings!  I am currently writing from Boston where I am attending the DRI Insurance Bad-Faith and Extra-Contractual Liability Seminar.  While its only day two of the seminar, we have already had the pleasure of hearing some great speakers address current issues arising in bad faith litigation and new discovery challenges related to these types of claims. 

On this topic, I have a great case to report on this week out of Nassau County, New York.  If you have a moment, I highly recommend reading Vannostrand v New York Cent. Mut. Fire Ins. Co.  The court in that decision found that an attorney who represented an injured party in the underlying personal injury action was disqualified from representing the same client in the bad faith action.  The attorney was an essential witness in the bad faith action, and in turn could not properly prosecute it.  While in line with prior case law in New York, the issue comes up fairly frequently and the decision is a great reminder.

Have a nice weekend.

Jennifer A. Ehman
[email protected]


June 7, 1913 – Come On Over (click for radio commercial):

The world's largest swimming pool, as 133 yards wide and 200 yards long), opened at Palisades Amusement Park on this day 100 years ago. The pool, made of cement, was constructed by park owners Nicholas Schenck and Joseph Schenck.

Palisades Amusement Park was an amusement park located in Bergen County, New Jersey, across the Hudson River from New York City. It was situated atop the New Jersey Palisades lying partly in Cliffside Park and partly in Fort Lee. The park operated from 1898 until September 12, 1971, remaining one of the most visited amusement parks in the country near the end of its existence. Essentially, it became a victim of its own success and of inadequate facilities to deal with the generations of families and children who flocked to its gates. After the park closed, a high-rise luxury apartment complex was built on its site.
Editor’s Note:  I remember the amusement park very well.  It closed, coincidentally, on the very day that I started my first year of college.


In this Week’s Issue:

We remind you that there are two files attached with this cover letter.  The first is our regular bi-weekly issue.  The second is Steve Peiper’s summary of the Super Storm Sandy-inspired legislation that has passed the New York State Assembly and is heading to the Senate in the last few days of the legislative session.


Dan D. Kohane
[email protected]

Court of Appeals

  • Court of Appeals Agrees to Hear Unusual Late Notice/Estoppel Case


Appellate Departments

  • Obligation Existed to Share in Costs of Defense and Indemnity
  • Additional Insured Status Granted Where Allegations Allege Injuries Arose Out of Subcontractor’s Work
  • Release and Trust Agreement Signed by SUM Claimant Does Not Bar His Later Claim for Bad Faith; Thousands Flee
  • Under Forum Non Conveniens principles, Court Dismissed Declaratory Judgment Action, When Related Action Already Pending in Another State
  • Subcontractor Employee Exclusion Effective to Deny Coverage
  • Pre-Prejudice Late Notice, Without Excuse, Results in Loss of Coverage


Michael P. Scott-Kristansen

[email protected]  

  • Defendants Can Prevail by Showing Either the Lack of Serious Injuries or the Lack of Causation
  • Make Sure Every One of Plaintiff’s Claims Are Adequately Addressed
  • If Defendant Establishes the Lack of Causation and the Lack of a Serious Injury, Plaintiff Must Rebut Both Showings to Survive
  • A Distinction Between Malingering and Exaggeration or Just a Rejection of Either as a Basis for Summary Judgment?
  • Conflict Among a Party’s Expert Opinions Is a Basis to Deny Summary Judgment


Margo M. Lagueras

[email protected]


  • Template Rebuttal Letter Lacks Credibility
  • Orthopedic IME Insufficient to Deny Pharmacological Benefits
  • Accident Video Establishes There Was No Mechanism of Injury
  • Prescription for DME on Initial Visit Is Premature and Imprecise Rebuttal Letter Is of No Consequence
  • Respondent’s Failure to Request Relevant Records for Peer Review’s Review Will Not Be Held Against Applicant
  • Wage Loss Claim Is Denied Where Applicant Fails to Establish Continued Disability



  • Where Proof of Claim Is Not on a Prescribed NF-3, the Form Used Must Contain Substantially the Same information


Steven E. Peiper

[email protected]

  • Cause of Action for Negligence and for Breach of Contract Are Viable Against Title Insurer Where Another Deed Is Recorded Before the Insured’s
  • Issue of Fact as to Whether an Agreement With the State Reduced or Improved Value of Land Precludes Summary Judgment Against Title Insurer
  • Third-Party May be Held Liable for an Owner’s Negligence if It Fails to Contend an Indemnification Provision is Unenforceable Under GBL § 5-322.1 Where the Provision Fails to Exempt Such Liability From Indemnification


Elizabeth A. Fitzpatrick
[email protected]

  • Social Media and Discovery
  • Don’t Worry, View Facebook


Cassandra A. Kazukenus
[email protected]

  • Coming Back Soon!


Katherine A. Fijal

[email protected]

  • Excess Policy Not Triggered until Payment Extinguishes Underlying Policy
  • Court Certifies Question to New York Court of Appeals


Jennifer A. Ehman
[email protected]

  • “Plumbing System” includes All Pipes and Fixtures Physically Located on the Insured Premises, while Sewers and Drains have been defined as Pipes Located Off the Insured Premises
  • Additional Insured Has a Recognized Meaning; Provides Third-Party, Not First-Party Coverage


Bad Faith

  • Court Disqualifies Counsel that Represented Plaintiff in Underlying Action from Prosecuting Bad Faith Action on her Behalf
  • Bad Faith Not Actionable Apart from a Wrongful Denial of a Benefit under Connecticut Law


Earl K. Cantwell

[email protected]


That’s all, folks.  We will keep you in the loop, via Twitter and LinkedIn and by special edition, if necessary on legislative developments.


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]


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

Steven E. Peiper, Team Leader
[email protected]

Elizabeth A. Fitzpatrick
Cassandra Kazukenus
Michael P. Scott-Kristansen

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

06/06/13       25 Avenue C New Realty, LLC v. Alea North America Ins. Co.
New York State Court of Appeals
Court of Appeals Agrees to Hear Unusual Late Notice/Estoppel Case

The New York State Court of Appeals granted leave to appeal the First Department’s June 12, 2012 decision in this matter.  This was an unusual case on which we reported in our June 22, 2012 edition:         

06/12/12 Appellate Division, First Department
Insurer Who Defends Because of Allegations of Accident Within Its Policy Is Not Estopped from Later Denying Coverage if Real Date of Accident Was Outside of Policy Period: Carrier Whose Policy Period Was in Play Wins on Late Notice Defense
25 Avenue C (“Owner”) owns property located at 25 Avenue C in New York County. Merrimack insured this property under a liability policy that was in effect on June 27, 2003. Alea insured this property under a liability policy that was in effect on June 27, 2005.

On June 27, 2005, Grimes commenced an action against Owner to recover for injuries sustained on the property. The complaint alleged that the date of the accident was June 27, 2005. Plaintiffs gave timely notice of the summons and complaint to Alea (the same day as the suit was filed) and CAC, Alea's third-party claims administrator, assigned the defense of this action to Samel.

Two years later, in May 2007, CAC discovered, after speaking with Grimes, that the accident actually occurred on June 27, 2003, not June 27, 2005 as stated in the complaint. That date was reaffirmed in August 2007, when Samel received the bill of particulars and hospital records.
It was not until May 15, 2008, that CAC contacted Owner to determine the name of the insurance carrier that insured the premises during 2003 and learned it was Merrimack. CAC promptly notified Merrimack. Merrimack denied coverage based on late notice and Alea denied coverage based on the accident occurring outside of its policy period.

Owners brought this action seeking coverage from one or the other or both. .

The appellate court held that Alea is relieved from any coverage obligations as its policy was not in force on the date of the accident.

As to Merrimack, this was a pre-prejudice case so Merrimack was not required to demonstrate that it was prejudiced by the late report. Surely, it was not notified timely of the incident. Merrimack was first put on notice of this accident by Alea's assigned defense counsel on May 23, 2008, almost five years after the accident occurred, a delay unreasonable as a matter of law. Alea could have given notice earlier on behalf of its insured.

Two concurring justices agreed that the insured’s notice was late but argued that Alea’s notice, through defense counsel, was not notice by the insured.

Editor’s Note: There is a third position (the one we endorse). We agree that that the notice was late but disagree with the majority and the concurring judges as to who actually gave notice. The majority indicates that notice came from Alea, and the concurring judges say notice from Alea is not notice from the insured. We would contend that the defense counsel, by whoever appointed, was acting on behalf of the insured and his notice is the insured’s notice.

In any event, notice was late.

Didn’t anyone get suspicious that there was something fundamentally wrong with an allegation of a June 27, 2005 accident in a lawsuit commenced on June 27, 2005?

Appellate Departments

06/05/13       Philadelphia Indemnity Ins. Co. v. Harleysville Ins. Co.
Appellate Division, Second Department
Obligation Existed to Share in Costs of Defense and Indemnity
Philadelphia established that Harleysville was obligated to share in the defense costs incurred in defending and indemnifying the parties' mutual insured, CDT under identical "other insurance" provisions contained in the parties' general liability insurance policies.  Harleysville’s argument that Philadelphia’s conduct estopped them from seeking contribution was rejected.

06/05/13       Murnane Building Contractors, Inc., v. Zurich American
Appellate Division, Second Department
Additional Insured Status Granted Where Allegations Allege Injuries Arose Out of Subcontractor’s Work
Wal-Mart owned a site where a building was being erectors.  Oakes, an employee of subcontractor J.T. was hurt.  He sued the owner, Wal-Mart, the general contractor, Murnane, and Luck, another subcontractor.

Luck’s carrier, Zurich, refused to defend the owner and GC and Wal-Mart and Murnane sued Zurich, claiming additional insured (“AI”) status.  Zurich commenced a third-party action against Lexington, J.T.’s carrier claiming that Lexington had an obligation to defend and indemnify Murnane on a primary and non-contributory basis. Lexington made the same argument against Zurich.  Since there was no agreement between the owner and the subcontractor, Wal-Mart did not get coverage under the subcontractors’ policies

Where there are multiple policies covering the same risk, and each generally purports to be excess to the other, the excess coverage clauses are held to cancel out each other and each insurer contributes in proportion to its limit amount of insurance.  However, if one party's policy is primary with respect to the other policy, then the party issuing the primary policy must pay up to the limits of its policy before the excess coverage becomes effective.

Here, the allegations in the complaint in the underlying action are that Oakes's accident arose out of Luck's work for Murnane, thereby triggering Zurich's obligation to defend Murnane as an additional insured.  The court did not discuss Lexington’s obligations.

06/05/13       Desiderio v. Geico General Insurance Company
Appellate Division, Second Department
Release and Trust Agreement Signed by SUM Claimant Does Not Bar His Later Claim for Bad Faith; Thousands Flee
On April 19, 20110, a car struck Desiderio’s house, crashed through the bedroom wall and came to rest upon him.  Desiderio was insured by GEICO with a SUM policy.  In June of the same year, he filed a claim seeking SUM payment, the matter went to arbitration in August and he was awarded $100,000, the full amount of the available benefits.

On September 9, 2011, the plaintiff executed a document the Release and Trust Agreement. In April 2012, the plaintiff commenced this action, inter alia, alleging that the defendant breached the insurance contract by failing to investigate, bargain for and settle his claims for SUM benefits in good faith.   GEICO moved to dismiss the lawsuit based on the Release and Trust Agreement.

The Second Department found that the Release and Trust Agreement did not contain broad, all-encompassing language but, in fact, contained language limiting its reach to compensation for personal injuries under the SUM Endorsement. The defendant contends that this action is barred by the Release and Trust Agreement because it arises out of the plaintiff's claim for compensation under the SUM Endorsement. However, it cannot be definitively determined at this juncture whether the scope of the Release and Trust Agreement was intended to cover the allegations in the complaint or whether its purpose was, among other things, to protect the defendant's subrogation rights.
Editor’s Note:  GEICO paid the claim based on the award against it in the arbitration.  That is all that the policyholder is entitled to receive.  End of discussion, as far as we are concerned.

06/04/13       Century Indemnity Company v. Liberty Mutual Ins. Company
Appellate Division, First Department
Under Forum Non Conveniens Principles, Court Dismissed Declaratory Judgment Action, When Related Action Already Pending in Another State
Century brought an action seeking a declaration that Liberty was obligation to defend and indemnify Warren Pumps LLC (“Warren”) under certain pre-1970 policies. Century is an excess carrier who claims to have been exposed to substantial liability by reason of Liberty Mutual's settlement of a large number of asbestos-related claims for a nominal sum.

Warren manufactured asbestos-containing pumps in Massachusetts, where they were located.  In 1972, it became a wholly-owned subsidiary Houdaille Industries, Inc. and then merged into Houdaille in 1979. In 1985, Houdaille sold Warren Pumps' assets to W.P., Inc. which changed its name to Warren Pumps Inc. and converted to what is now defendant Warren, a limited liability company organized under the laws of Delaware.

The complaint in this action calls for a judgment declaring Liberty Mutual's "obligations to pay defense costs and indemnity for the underlying asbestos claims." Warren is currently litigating coverage questions relating to same underlying claim in Delaware. It is inescapable that the issue of Liberty Mutual's indemnity and defense obligations set forth in the instant complaint is inextricably tied to the issue of whether Warren's coverage was exhausted under its policy with Liberty Mutual and it would be burdensome and wasteful to unnecessarily require Warren to litigate intertwined issues in two different fora.

The subject matter of this action - insurance coverage for liability relating to the manufacture of products in Massachusetts - has no substantial connection to New York. When the policies were issued, Warren was a Massachusetts corporation and had its principal place of business in that state. Liberty Mutual, the insurer under the policies at issue, is a Massachusetts corporation that has its principal place of business in that state.


05/29/13       Essex Insurance Company v. Mondone
Appellate Division, Second Department
Subcontractor Employee Exclusion Effective to Deny Coverage
In the underlying action, Mondone seeks to recover damages for personal injuries he allegedly sustained while working as an electrical contractor at a residential property where True Building, a corporation owned by Bevilacqua, also was a contractor.

The Essex CGL policy contained an exclusion:

"[t]his insurance does not apply to . . . damages . . . arising out of, caused or contributed to by . . . any injury sustained by any contractor, self-employed contractor, and/or subcontractor, or any employee, leased worker, temporary worker or volunteer help of same."

The plain language of the exclusion applies to exclude coverage here. The lower court found that the policy was ambiguous.

Mondone's contended that the exclusion did not apply because parts of the exclusionary language did not apply.  However, since the items in the exclusion are listed in the disjunctive, so that if any one of them applies, the exclusion is triggered.


05/28/13       Rivera v. Core Continental Construction 3, LLC
Appellate Division, First Department
Pre-Prejudice Late Notice, Without Excuse, Results in Loss of Coverage
This is another in a dwindling number of pre-2009 late notice cases.  The accident occurred on May 26, 2009 (although the policy was issued before the effective date of the prejudice statute, January 17, 2009).  The insured and the general contractor were immediately aware of the accident and the plaintiff’s injuries.  Notice was not given to Mt. Hawley until November 2009; therefore, notice was untimely as a matter of law.

The claim of a reasonable, good-faith belief that the accident would not result in liability fails given that Core's principal was aware of the accident within two days of its occurrence, it involved an accident at the project site and the injured person had to be transported by ambulance.

Core did not undertake any investigation of the incident, or make inquiry regarding its alleged belief that it was not responsible for the area where the accident occurred. Thus, it could not have formed a reasonable belief of nonliability.

Michael P. Scott-Kristansen
[email protected] 

06/05/13       Chin-Choy v. Baranowski
Appellate Division, Second Department
Defendants Can Prevail by Showing Either the Lack of Serious Injuries or the Lack of Causation
Concededly, it is a very basic point, but the Second Department reminds us there is more than one way to defeat a plaintiff’s case.  Here, the defendant prevailed by demonstrating that the plaintiff’s spinal injuries were not caused by the accident and that the plaintiff’s wrist injuries were not serious injuries under either the permanent consequential limitation of use of significant limitation of use categories.

06/05/13       Meng Ye v Y. Michal Taxi, Inc., AND
06/05/13       Roman-Cabrera v. THJ Transp. Corp.
Appellate Division, Second Department
Make Sure Every One of Plaintiff’s Claims Are Adequately Addressed
These cases involved the exact same issues, analysis, and outcome.  The defendants lost their summary judgment motion because, although presumably they met their burden on the plaintiff’s other injuries, they failed to address the allegation in the plaintiff’s bill of particulars that she sustained a 90/180-day injury: “a medically determined injury or impairment of a nonpermanent nature which prevented her from performing substantially all of the material acts which constituted her usual and customary daily activities for not less than 90 days during the 180 days immediately following the subject accident.”

06/05/13       Puello v Rakowicz
Appellate Division, Second Department
If Defendant Establishes the Lack of Causation and the Lack of a Serious Injury, Plaintiff Must Rebut Both Showings to Survive
Here the defendant demonstrated by competent medical evidence that the plaintiff’s alleged spinal, wrist, elbow, and shoulder injuries were not serious and that they were not causally related to the accident.  In return the plaintiff failed to submit competent medical evidence of a serious injury and causation to rebut the defendant’s showing on any alleged injury.

05/29/13       Konstantinov v. MTLR Corp.
Appellate Division, Second Department
A Distinction Between Malingering and Exaggeration or Just a Rejection of Either as a Basis for Summary Judgment?
The defendants’ motion for summary judgment failed for insufficient evidence.  The plaintiff alleged neurological and psychiatric injury.  In support of their motion, the defendants submitted only affirmed reports or testimony of experts, opining that the plaintiff was malingering and exaggerating his memory loss. 

The court rejected the opinion that plaintiff exaggerated his memory loss because, even though the expert examined the plaintiff and his medical records, there was no objective medical evidence that the plaintiff’s memory loss was exaggerated.  (A simple example of such evidence would have been a notation by the expert that, during the IME, the plaintiff recalled everything he was asked without hesitation.  See my section for February 28, 2013 for more.)  The court also rejected the opinion that plaintiff was malingering because it was essentially an issue of the plaintiff’s credibility, which cannot be resolved on a motion for summary judgment.

05/30/13       Herman v. Moore
Appellate Division, First Department
Conflict Among a Party’s Expert Opinions Is a Basis to Deny Summary Judgment
The defendants moved for summary judgment, but failed to meet their burden.  The defendants submitted the [presumably affirmed] reports of two neurologists and an orthopedist (Physicians A, B, and C), stating that plaintiff suffered from resolved lumbar and cervical sprains/strains.  Physicians A and B, however, still found significant limitations in the range of motion of the plaintiff’s cervical spine.  Physician A stated that the limitations were due to degenerative conditions shown on the plaintiff’s MRI.  Physicians B and C, however, stated that the plaintiff’s injuries were caused by the accident.

If you logically tease this puzzle-like opinion, the real issue is physician B.  He or she stated that the plaintiff’s injuries resolved, but also states that the plaintiff continues to suffer from limited range of motion and that plaintiff’s injuries were caused by the accident.  This is a contradiction on a material issue that, unexplained, necessitates a denial of defendant’s motion for summary judgment.


Margo M. Lagueras
[email protected]


06/03/13       Elite Medical Supply of NY, LLC v Geico Insurance Co.
Erie County, Arbitrator Michelle Murphy-Louden
Template Rebuttal Letter Lacks Credibility
The 63-year old assignor was involved in a motor vehicle accident in April 2012 and began receiving chiropractic treatment.  About a month after, she was prescribed an LSO brace and multi-mode stimulator by the chiropractor who diagnosed muscle spasm and lumbar radiculopathy as the reason for the LSO, and muscle weakness as the reason for the stimulator.  He signed the certification that the equipment had been tried in-office and had provided functional improvement. 

In June 2012, a chiropractic peer review was performed.  The peer reviewer opined that the LSO brace was not medically necessary because, among other reasons, there was no indication in the treating chiropractor’s reports of any instability or significant deformities to warrant a brace.  With respect to the multi-mode stimulator, he opined that there was no documentation to suggest any in-office trial had been performed or that it was part to form part of the treatment.  Based on this report, Respondent denied the claim.  The treating chiropractor issued a rebuttal in which he stated, among other things, that “in-office trial of these units proved immediate pain relief.”  The peer review
Then issued an addendum in which he noted that there was no evidence that the devices had been used in-office, there was no indication of instability, and there was no logic to prescribing stimulation for home use when it was not utilized as part of the in-office program.

The Arbitrator found that Applicant did not proffer any evidence to rebut the peer review and addendum.  Moreover, the Arbitrator noted that the rebuttal letter was, as previously conceded by Applicant in other matters, a template.  The only patient specific information was the name, age, date of accident, prescription date and generalized statement that the injured person had lumbar pain and muscle spasm.  As such, the Arbitrator found that letter to lack credibility.  In addition, the Arbitrator found that the peer review rebuttal did not meaningfully refer to or discuss the opinions of the peer reviewer and, therefore, was insufficient to refute Respondent’s showing of lack of medical necessity for the DME.

06/01/13       Tile Pharmacy v Geico Insurance Co.
Erie County, Arbitrator Douglas S. Coppola
Orthopedic IME Insufficient to Deny Pharmacological Benefits
Applicant’s assignor was involved in an accident and hospitalized for three days where x-rays and CT scans were performed of his head, right hip and leg.  A morphine derivative was prescribed for his severe headaches.  Almost four months later, an orthopedic IME was performed.  The orthopedist did not do any specific examination of the headaches, but rather deferred those complaints to a neurologist as headaches are not within his area of specialty.  He did, however, determine that the assignor did not have any orthopedic disability.  Based on that IME, the carrier denied benefits, including the morphine medication.

The assignor testified at the arbitration and indicated that while his hip was somewhat better at the time of the IME, his headaches were constant and severe, interfering with his sleep and concentration as he could not afford the medication after benefits were terminated.  The Arbitrator found that, as the IME doctor deferred the headache complaints to a neurologist and his report did not mention the necessity for prescription medication for the headaches, his IME was insufficient to deny the pharmacological benefits as it did not provide a factual and medical rational for the lack of medical necessity with respect to the medication provided by Applicant.

06/01/13       Zenith Medical P.C. v NFTA-Metro System, Inc.
Erie County, Arbitrator Douglas S. Coppola
Accident Video Establishes There Was No Mechanism of Injury
The accident involved a bus and a car.  The video of the incident, which was viewed by the IME doctor and during the arbitration hearing, showed virtually no movement to the assignor or any other passenger as a result of the impact.  The IME doctor concluded that the assignor did not “twist her back” as she stated and he diagnosed mild degenerative disease in the lumbar spine, coupled with her morbid obesity.

The Arbitrator agreed that virtually no movement was observed in the video and that it was highly questionable as to whether or not the accident was the cause of the necessity of the assignor’s ongoing treatment.  He indicated that, while he had no doubt that she might have needed to treat due to her history of degenerative conditions and morbid obesity, there was no evidence presented to rebut the IME doctor’s conclusion or the clear video.  Given that there was no evidence of the mechanism of injury, the Arbitrator determined that treatment for the alleged incident was neither reasonable nor necessary.

05/31/13       Elite Medical Supply of NY, LLC v Geico Insurance Company
Erie County, Arbitrator Douglas S. Coppola
Prescription for DME on Initial Visit Is Premature and Imprecise Rebuttal Letter Is of No Consequence
The assignor was involved in a motor vehicle accident in November 2011 but did not begin any treatment for his alleged injuries until January 2012.  At that time he presented to Walden Bailey Chiropractic Center and commenced both chiropractic and massage therapy.  During the very first office visit, he was prescribed an LSO brace and a multi-mode stimulator on Applicant’s letterhead, signed by John Ward, DC.  The DME was ultimately dispensed in late February and in March, Respondent arranged for a peer review with Eric Littman, DC.  Dr. Littman opined that it was premature to prescribe the DME on the very first visit without any trial of chiropractic or massage and recommended against reimbursement.  Dr. Ward then wrote a rebuttal letter in June stating that the assignor was involved in an accident in March 2010. 

The Arbitrator noted that the records indicated that there had been a prior accident but that it was telling that the rebuttal letter did not reference the accident in question.  Therefore, the rebuttal letter was of no consequence if, in fact, the DME was prescribed for the prior accident from which the assignor was also treating with the same provider.  In addition, the rebuttal letter did not address the salient points in the peer review and, as such, the peer review was more persuasive in establishing the lack of medical necessity for the DME.

05/31/13       Proscan Radiology Buffalo v A. Central Insurance Co.
Erie County, Arbitrator Kent L. Benziger
Respondent’s Failure to Request Relevant Records for Peer Review’s Review Will Not Be Held Against Applicant
At issue were MRIs of the cervical, thoracic and lumbar spine.  In September 2010, the 17-year old assignor was involved in a motor vehicle accident.  In March 2011, his chiropractor prescribed MRI studies to rule out herniations.  Respondent issued a denial based on a peer review by Dr. Gaiser who found that the treating chiropractor’s records did not indicated progressive neurological deficits. 

The Arbitrator found the peer review persuasive with respect to the lumbar MRI but found that the cited authoritative articles did not specifically apply to the cervical or thoracic MRIs.  Respondent argued that all the studies should be disallowed because the prescribing chiropractor did not state how the tests or results would alter the treatment protocol.  The Arbitrator disagreed and noted that Respondent should have requested a narrative report for the treating chiropractor addressing the use of the studies.  Respondent’s failure to do so, and provide such additional information to Dr. Gaiser, will not be held against the Applicant.  The Arbitrator additionally noted that Dr. Gaiser’s recitation from authoritative sources had the exact same wording as that of other peer reviewers in other cases which might cause one to question whether such citation was from Dr. Gaiser’s own research or provided to a group of peer reviewers by a third party.  Reimbursement for the lumbar MRI was denied but awarded for the cervical and thoracic MRIs.

05/28/13       Applicant v Kemper Independence Insurance Co.
Erie County, Arbitrator Veronica K. O’Connor
Wage Loss Claim Is Denied Where Applicant Fails to Establish Continued Disability
Applicant, a bus driver, was in a motor vehicle accident in June 2010.  He sought treatment from multiple medical providers.  Respondent requested an orthopedic IME and, at that time, the IME doctor focused only on Applicant’s lumbar spine as Applicant stated to the IME doctor that he did not have any complaints relating to his right shoulder.  The IME doctor found that Applicant’s lumbar disability was unrelated to the accident and Respondent issued a denial.

During the prior wage loss arbitration in 2012, Applicant argued that he was unable to work due to the injuries to his right shoulder.  A different arbitrator found that the IME was insufficient because it had not addressed the shoulder.  A Consent Award was issued.  Applicant then made his current demand, arguing that he is unable to work due to his lumbar injury.  However, the Arbitrator noted that the IME doctor had indicated that the lumbar disability was unrelated to the accident and that, after the report from April 2011, Applicant had not submitted any medical reports showing a continued disability.  Because Applicant failed to establish any disability continuing after the Consent Award, further wage loss benefits were denied.


05/14/13       Ortho Prods. & Equipment, Inc. v. Eveready Insurance Co.
Appellate Term, Second Department
Where Proof of Claim Is Not on a Prescribed NF-3, the Form Used Must Contain Substantially the Same information
The Civil Court granted plaintiff’s motion for summary judgment and denied defendant’s cross-motion which alleged that plaintiff’s action was premature as verification remained outstanding.  In support of its cross motion, defendant submitted an affidavit of its claims examiner establishing that defendant timely mailed its request and follow-up request for verification which sought, among other things, prescribed NF-3 claim forms.  The Appellate Term noted that an insurer must accept proof of claim on a form other than the prescribed NF-3 provided such form contains substantially the same information as the NF-3.  However, the regulation also permits the insurer to require submission of the prescribed form.  The court found that the form submitted by plaintiff did not contain substantially the same information and, therefore, defendant’s verification request remained outstanding and plaintiff’s action was premature.  The Civil Court was reversed and the cross motion to dismiss the complaint was granted.


Steven E. Peiper

[email protected]
06/05/13       Choudhary v First Option Tit. Agency
Appellate Division, Second Department
Cause of Action for Negligence and for Breach of Contract Are Viable Against Title Insurer Where Another Deed Is Recorded Before the Insured’s
The Court denied Chicago Title Insurance Company’s (CTIC) motion to dismiss.  The plaintiffs alleged that they purchased real property in Philadelphia on July 11, 2005 and that they correspondingly purchased title insurance from CTIC on that property.  The plaintiffs also alleged that CTIC did not record the deed until January 18, 2006, which was the policy date.  Meanwhile, another deed to the property was recorded on November 22, 2005.

Under these facts, the Court held the plaintiffs stated a valid cause of action for negligently failing to record the deed, which was independent of any cause of action for breach of a contract of insurance.  The plaintiffs also stated a valid cause of action for breach of contract because the policy covered, among other risks, the risk of defective recording of any document and the risk that someone else owned an interest in the title as of the policy date.  Because the other deed was already recorded as of the policy date, CTIC failed to establish it was entitled to dismissal of the breach of contract cause of action.

05/29/13       Nastasi v County of Suffolk
Appellate Division, Second Department
Issue of Fact as to Whether an Agreement With the State Reduced or Improved Value of Land Precludes Summary Judgment Against Title Insurer
The plaintiffs contracted to purchase property located on Dune Road and at the closing in February 2002, Chicago Title Insurance Company (CTIC) issued a title insurance policy to the plaintiffs.  It was later discovered that there was a defect in title.  In 1984 previous owners of the property and other properties similarly situated commenced a class action against the County and New York State to have the beach areas of those properties maintained and renewed by the state.

To settle the class action, the parties entered into a stipulation of settlement, by which a consent judgment was issued calling for the execution of a boundary line agreement.  The boundary line agreement provided that a government entity would maintain and renew the beach area.  In exchange, New York would take title to a portion of the properties (presumably including that part New York and the County agreed to maintain).  The stipulation and consent judgment were recorded in the Suffolk County Clerk’s Office in 1994 along with a final judgment dismissing the complaint.  The boundary line agreement, however, was not recorded until 2003.

Expectedly, the boundary line agreement was not discovered until after the plaintiffs closed on the property.  In essence, the boundary agreement caused the plaintiffs to acquire title to only half the land for which they had bargained.

The CTIC policy insured against damages from any defect in title unless excluded or excepted.  Exclusion 3(d) for defects attaching or created subsequent to the date of the policy did not apply because, the Court held, the boundary line agreement did not attach until it was recorded in 2003.  CTIC established that exclusion 3(c) applied by submitting the affidavit of its certified real estate appraiser, stating that the boundary line agreement “added significant value” by providing for the maintenance of the beach area.  In turn, the plaintiff resisted CTIC’s motion for summary judgment on the basis of exclusion 3(c) by submitting its own appraiser affidavit, opining that the loss of title to half the land caused a “measurable diminution” in value.

05/28/13       Harasim v Eljin Constr. of N.Y., Inc.
Appellate Division, First Department
Third-Party May be Held Liable for an Owner’s Negligence if It Fails to Contend an Indemnification Provision is Unenforceable Under GBL § 5-322.1 Where the Provision Fails to Exempt Such Liability From Indemnification
In an action brought under § 241(6), § 200, and common law negligence the defendant owner and defendant contractor sued the tenants for breach of contract and contractual indemnification because they failed to procure adequate insurance.  The tenants and the owner/contactor defendants were denied summary judgment against each other on the contractual indemnity claims. 

First, there was an issue of fact as to the adequacy of the insurance because neither party submitted the necessary evidence on this issue.  Secondly, the contractual indemnification provision did not exclude indemnification for the owner’s negligence and there was an issue of fact as to its negligence.  Because the tenants’ did not contend in the lower court that the indemnification provision was unenforceable due to a violation of General Business Law § 5-322.1, they could not seek such a declaration on appeal.



Elizabeth A. Fitzpatrick
[email protected]

Fitz Bits

Social Media and Discovery

In the only case I was able to locate decided since our last issue and involving a defendant’s request for discovery of a plaintiff’s social media websites, the United States District Court in Nevada in a case entitled Taylor v. Aria Resort & Casino ultimately denied defendant’s motion to compel which involved response to various discovery demands, including demands for access to plaintiff’s social media websites, not on substantive grounds, but rather based upon a failure to comply with a local rule requiring the moving party to set forth in full the text of the discovery originally sought and the response thereto.  As a result of this procedural failure, the court did not substantively address the defendant’s motion for plaintiff’s social media activity subsequent to the alleged injuries, including a request to explain what efforts were undertaken in order to respond to the request. Plaintiffs did not provide a privileged log and defendants adamantly argued that the discovery requests were not a fishing expedition and that as an alternative to an order compelling responses, defendants asked that the court compel plaintiff to execute Facebook and My Space waivers.

The case provides no new guidance with respect to the issue of the discoverability of social media accounts. It is worthwhile for the courts citation to a 2013 decision from the district court of Nevada entitled Argarwal v. Oregon Mutual Insurance Company where the court reminded counsel that “judges are not like pigs hunting for truffles buried in briefs” and it is not the responsibility of the judiciary to sift through scattered papers in order to manufacture arguments for parties. Certainly a reminder worth heeding.

Don’t Worry, View Facebook

In an article published in the UK’s Daily Mail, the court referred to a study issued from the University of Wisconsin-Madison which found that scrolling through your own profile on Facebook for just five minutes a day can improve your self-esteem on a deep unconscious level. According to the study leader, an assistant professor of communication arts, the study had people look at their own profiles for five minutes and it found that they experienced a boost in self-esteem arguably because most Facebook users have a very large audience of friends and selectively present the best version of themselves. The downside? A report from IT research company Nucleus Research found that businesses lose about 1.5% in employee productivity by letting staff use Facebook, according to Computer World. Other drawbacks include that it can facilitate narcissism, may negatively impact self-esteem and become a forum for bullying. And as we all know from the plethora of case law regarding potential employees, students, civil and criminal litigants, the ramifications of posting on Facebook can be critical and irreversible.

Cassandra A. Kazukenus
[email protected]

Coming back soon!

Katherine A. Fijal
[email protected]

06/04/13       Mehdi Ali, v. Federal Insurance Company,
United States Court of Appeals Second Circuit – New York Law
Excess Policy Not Triggered until Payment Extinguishes Underlying Policy
Two issues were addressed by the Court.  First, whether the Court had jurisdiction where there has been a voluntary dismissal of a claim following the denial of a motion for summary judgment.  Second, the interpretation of several “excess” liability insurance policies. 

The appellants are the former directors and officers [“Directors”] of Commodore International Limited [“Commodore”], a computer technology company that ceased operations in 1994 and filed for bankruptcy.  Prior to the bankruptcy Commodore purchased a series of insurance policies designed to protect the Directors from potential liability.  The primary policy covered the first $1 million in liability, and each successive “excess” insurance policy provided a discrete level of coverage in excess of the coverage in the “underlying” agreements creating a layered tower of liability protection.  The suit arose because two of the underlying insurers – Reliance Insurance Company [“Reliance”] and Home Insurance Company [“Home”] have ceased operations and liquidated their assets.

Appellee, Federal Insurance Company [“Federal”] is the still-operational provider of the Directors’ second and fifth excess insurance policies. Federal filed a declaratory judgment action against the Directors in the Southern District of New York, seeking a declaration that, under the terms of the relevant insurance policies, Federal is not required to “drop down” to cover liability that would have otherwise been covered by Reliance and Home.  Federal moved for judgment on the pleadings and the district court granted its motion.  The Directors did not appeal this aspect of the district court’s order. 

In the same proceedings the Directors filed a counter-claim against Federal and also sued third-party defendant, Travelers Casualty and Surety Company of America [“Travelers”], the provider of the seventh excess insurance policy in the tower.  With respect to the courter-claim and the third-party suit, and in response to Federal’s declaratory judgment action, the Directors sought a declaration that Federal and Travelers coverage obligations are triggered once the total amount of the Directors’ defense and/or indemnity obligations exceed the limits of any insurance policies underlying their respective policies, regardless of whether such amounts have actually been paid by those underlying insurance companies. The Directors then moved for partial summary judgment. 

The district court denied the Directors’ motion for partial summary judgment holding that in each policy, the excess coverage is not triggered until the underlying insurance is exhausted “solely as a result of payment of losses thereunder”.  The court explained that the “Excess Policies expressly state that coverage does not attach until there is payment of the underlying losses.

Following that decision, the parties submitted a letter to the district court agreement that “all remaining claims and third-party claims should be dismissed with prejudice”.  The Directors then appealed the judgment, contesting only the Court’s denial of their motion for partial summary judgment with respect to their request for declaratory relief.

The first issue addressed by the court was whether it had appellate jurisdiction to review voluntary dismissals of claims or denials of motions for summary judgment.  In analyzing this issue the Second Circuit Court of Appeals [“Court”] noted that when the dismissal is with prejudice plaintiffs have been allowed, in limited circumstances, to appeal from a voluntary dismissal when the plaintiffs’ solicitation of the formal dismissal was designed only to expedite review of a prior order which had in effect dismissed plaintiffs’ complaint.  The Court held that once the district court dismissed all pending claims and counter-claims with prejudice, an appeal became appropriate because (1) the districts court’s order denying the Directors’ motion for summary judgment plainly rejected the legal basis for the Directors’ counter-claim; (2) the district court had disposed of all claims with prejudice; and (3) the Directors’ consent to the final judgment was designed solely to obtain immediate appeal of the prior adverse decision, without pursuing piecemeal appellate review.  The Court concluded that in these circumstances the Court had jurisdiction.

On the substantive issue regarding interpretation of the excess policies the Court looked to the relevant policy language and noted that both Federal policies state that excess liability coverage “shall attach only after all  . . .  Underlying Insurance has been exhausted by payment of claims.   Similarly, the Travelers policy states that excess liability coverage “shall attach only after all such Underlying Insurance has been exhausted,” and that exhaustion occurs solely as a result of payment of losses thereunder.

The Directors sought a declaration that these excess liability coverage obligations are triggered when defense and/or indemnity obligations reach the attachment point.  The Court disagreed and stated that obligations are not synonymous with payments on those obligations.  To hold otherwise would make the “payment of” language in these excess liability contracts superfluous.

The Court held that because the plain language of the contracts specify that the coverage obligation is not triggered until payments reach the respective attachment points, the district court properly denied the Directors’ request for a declaration that coverage obligations are triggered once the Directors’ defense and indemnity obligations reach the relevant attachment point.

05/23/13       Executive Plaza, LLC v. Peerless Ins. Co.
United States Court of Appeals Second Circuit – New York Law
Court Certifies Question to New York Court of Appeals
The issue the court faced in this case was the interplay between two provisions in fire insurance policy.  The first required the insured to file suit on the policy within two years.  The second required the insured, when seeking replacement costs, to replace the damages property before bringing suit.  The question is what happens to insured property that cannot reasonably be replaced within two years?

Executive Plaza, LLC [“Executive”] owns a building insured by Peerless Insurance Company [“Peerless”].  The policy had liability limits of $1,000,000.  On February 23, 2007 a fire destroyed the building, and Executive timely notified Peerless of the damage.  Within days, Executive had retained both an architect and a construction company.  By July 2007, Peerless had paid Executive the actual cash value of the property, $757,812.50, less certain adjustments.

In the years after the building was originally erected, zoning laws had changed.  To rebuild, Executive needed a variance and other forms of consent from local governmental entities.  Despite first submitting its application for review in June 2007, a final building permit was not granted until November 2008.  By October 2010, Executive had “substantially replaced” the property.

On February 23, 2009, before it had completed rebuilding the property but within the two year limitations period, Executive filed suit in New York State Supreme Court, Nassau County, to recover replacement costs under the policy.  Peerless removed the case to the Eastern District of New York on diversity grounds.  Since construction had not yet been completed, the district court dismissed the claim as not yet ripe.  Executive did not appeal.

After having substantially replaced the property, on October 5, 2010, more than two years after the loss, Executive sent Peerless a demand letter to recover an additional $242,087.50.  Peerless rejected the demand and Executive filed suit in New York State Supreme Court, Nassau County, and Peerless again removed the action the Eastern District of the New York on diversity grounds.  The district court dismissed the action as time barred.

In analyzing this matter the Second Circuit Court of Appeals [“Court”] determined that the New York State Court of Appeals has not resolved the issue presented.  The Court of Appeals has interpreted the suit limitations provision alone, but never the replacement cost provision.  Further, the court found no controlling precedent interpreting the suit limitations clause in light of the replacement cost provision.

Although the Court may attempt to predict what the Court of Appeals would do, it concluded that the cases available provided little predictive value as to how the Court of Appeals would resolve the issue.

The Court also pointed out that the question to be certified implicates important matters of state law – including identifying the contours of property insurance policies; and, the state’s strong interest in supervising highly regulated industries. Further pointing out that the policy at issue here insures against fire related losses, and the legislature’s codification of a standard fire insurance policy, which creates a floor for fire insurance coverage throughout New York State, underscores the Legislature’s concern for coverage in this field.  The Court took the position that state courts are better equipped to consider the ramifications of the issues presented here.

Finally, the Court noted that the question certified is purely legal, and an answer would resolve the appeal.

Accordingly, the court certified the following question to the New York Court of Appeals:

If a fire insurance policy contains  :
(1)      a provision allowing reimbursement of replacement costs only after the property was replaced and requiring the property to be replaced “as soon as reasonably possible after the loss”; and
(2)      a provision requiring an insured to bring suit within two years after the loss;

Is an insured covered for replacement costs if the insured property cannot reasonably be replaced within two years?

As always we will monitor this case and report any decision rendered by the Court of Appeals.



Jennifer A. Ehman
                                            [email protected]    

05/23/13       Pichel v Dryden Mut. Ins. Co.
Supreme Court, Tompkins County
“Plumbing system” includes All Pipes and Fixtures Physically Located on the Insured Premises, while Sewers and Drains have been defined as Pipes Located off the Insured Premises
Pichel owned an apartment complex containing four buildings.  Each building contained eighteen apartments.  On October 6, 2009, two of the buildings were damaged by waste water that entered the buildings through toilets, bathtubs, condensation drains and laundry room drains located in the basement level.  It appears the waste water was caused to back up due to a blockage in a pipe through which the waste water from the building was discharged.  The proof was unclear as to whether the blockage occurred on or off the insured premises. 

Dryden Mutual Insurance Company denied coverage under the insurance policy issued to Pichel citing an exclusion for losses caused by “water which backs up through sewers or drains.” 

In relying on cases from other jurisdictions, Pichel argued that the blockage that caused the overflow or discharge occurred within the “plumbing system,” not the sewer or drain, thereby not falling with the exclusion.  It asserted that a “plumbing system” includes all plumbing and pipes located on the insured premises and the phrase “sewer and drains” refers to facilities located off the insured premises. 

The court found that in cases where the applicable policy contained both a sewer and drain exclusion and a clause extending coverage for discharge or overflow of water from a plumbing system, a plumbing system has been consistently defined as including all pipes and fixtures physically located on the insured premises, while sewers and drains have been defined as pipes located off the insured premises.

Since this particular policy contained both the sewer and drain exclusion and the clause providing coverage for overflow or discharge from a plumbing system. The two clauses are not contradictory; rather, they may be read together, in accordance with their plain meaning, to provide coverage for losses caused by blockages occurring on the insured premises, i.e., within the plumbing system, and to exclude coverage for losses caused by blockages located off the insured premises, i.e., within a sewer or drain.  Thus, Dryden had the burden of proving the blockage occurred off site.  The court determined that the insured failed to meet this burden, and granted Pichel’s motion for summary judgment denying the cross-motion.   A statement made by the insured that the loss occurred when the “main sewer line clogged” contained in the insurer’s report was deemed to be inadmissible hearsay. 

05/22/13       Cog-Net Bldg. Corp. v Travelers Indemnity Co.
Supreme Court, Richmond County
Additional Insured has a Recognized Meaning; Provides Third-Party, Not First-Party Coverage
Travelers issued a policy of general liability insurance to Motorvations Inc.  Pursuant to Motorvations leased commercial premises from plaintiff, Cog-Net.  Pursuant to the lease, agreement, Motorvation was required to name its landlord, Cog-Net, as an additional insured.  On February 17, 2009, the commercial premises were destroyed by fire.  After the fire, Cog-Net submitted a claim to Travelers; however, when it was discovered that Motorvations owner had hired an arsonist to burn down the building, Travelers denied the claim on the ground that the act was intentional. 

Cog-Net then brought this action alleging breach of contract against Travelers and negligence against Motorvations’ insurance agent for its failure to procure proper insurance coverage.  Cog-Net asserted that had it been named as an additional insured for property damage, as the lease required, it would have been able to recover under the Travelers’ policy notwithstanding the tenants’ arson. 

Cog-Net’s owner testified that he had twice initiated telephone calls to agent seeking confirmation that his company was covered by Motorvations’ policy for both liability and fire.  However, he did acknowledge that he never spoke to anyone at Travelers about insurance coverage, and had never seen or received a copy of the insurance policy. 

A representative of the insurance agency also provided testimony.  He testified that the terminology additional insured always refers to general liability coverage, and that he has never seen additional insured status grated by any insurance company for any risk on the property portion of a policy.  This was confirmed by Travelers who provided evidence that a building owner with a tenant would not be named as an additional insured under the property section of an insurance policy, particularly with regard to the underwriting guidelines for a small commercial business.  In fact, if such a request was made, it would be denied as outside Travelers’ guidelines. 

The court granted Travelers and the agents’ motions for summary judgment.  With regard to the agent, it found that the agent demonstrated that they procured the specific insurance coverage requested by the insured, and that neither it nor Cog-Net ever request that Cog-Net be named as an additional insured in the property damage endorsement.  Further, with regard to Travelers’ it established that it does not insured building owners as additional insureds under a tenant’s policy covering property losses, and, consequently could not have intended to provide such coverage to Cog-Net. 

Bad Faith

05/31/13       Vannostrand v New York Cent. Mut. Fire Ins. Co.
Supreme Court, Nassau County
Court Disqualifies Counsel that Represented Plaintiff in Underlying Action from Prosecuting Bad Faith Action on her Behalf
Karen Van Nostrand commenced a personal injury action against Mario Froehlich.  She retained Sanders, Sanders, Block, Woycik, Viener & Grossman (“Sanders”’) to prosecute the action.  New York Central likewise assigned counsel to represent Froehlich under the terms of a policy issued to him.  The policy had limits of $100,000. 

Sanders eventually made a policy demand.  In response, New York Central offered $3,000.  The matter eventually when to trial, and a verdict was entered in favor of Nostrand in excess of the policy limits.  In exchange for a release of liability, Froehlich assigned his right to bring a bad faith claim against New York Central to Nostrand. 

This issue addressed in this decision was a non-party witness subpoena served by New York Central on Nostrand’s counsel at Sanders.  The same attorney that represented Nostrand in the underlying action was retained to prosecute the bad faith action.  Counsel moved to quash the subpoena.

In line with prior case law on this issue, the court found that Nostrand’s counsel was an essential witness, and ought to be called as a witness.  He was expected to provide testimony as to settlement negotiations, or lack of settlement negotiations, that transpired during the personal injury action.  The court, in turn, denied the motion to quash and disqualified counsel from further representation in this action. 

06/11/13       Capstone Bldg. Corp. v American Motorists Ins. Co.
Supreme Court of Connecticut
Bad faith Not Actionable Apart from a Wrongful Denial of a Benefit under Connecticut Law
Plaintiffs were retained to act as general contractor and project manager for the construction of a new student housing project at the University of Connecticut (“UConn”).  UConn obtained an owner controlled insurance program CGL policy from defendant’s predecessor.  Three years after completion of the project, UConn sent a letter to plaintiffs concerning project defects.  According to UConn’s investigation, carbon monoxide was leaking into the building.  The source of the leak was individual hot water heaters serving the residential units.  Plaintiffs tendered the claim to defendant.  Defendant concluded that UConn’s claims were not covered under the policy as the liability at issue arose out of plaintiffs’ own work, including its role as general contractor and heating and plumbing installation.  Plaintiffs then brought this action alleging, among other things, breach of contract and bad faith. 

With regard to the allegation of bad faith, in applying Connecticut law, the Court declined to recognize a cause of action based solely on the insurer’s alleged failure to investigate.  Although the Court recognized that a discretionary investigation is often necessary to assess the duty to defend or indemnify under the policy, a bad faith action is properly addressed to the insurer's conduct depriving the insured of these contractual benefits, rather than the precedent, investigatory step. 

In justifying its opinion, the Court noted that imposing liability for bad faith investigation, even in the absence of any duty to defend or indemnify, would open a new avenue for the litigation of claims that, by definition, are outside of the policy's coverage, and burden our courts with litigation on peripheral issues.



Earl K. Cantwell

[email protected]

Since the question of “bad faith” often involves mixed questions of law and fact, issues arise as to what extent experts can testify on the ultimate question of whether a claim was processed, handled, and denied in “bad faith”.  Versai Management Corp. v. Landmark American Insurance Corp., 2013 WL 681902 (E.D. Louisiana, February 22, 2013). 

This case involved a housing complex in New Orleans damaged by Hurricane Katrina and vacant since 2005.  On three separate dates in 2010, fires damaged buildings in the apartment complex.  The claims were submitted to Landmark American Insurance under an all-risk commercial property insurance policy.  The claimant filed three actions against Landmark, one for each fire, in state court accusing the insurer of failing to adjust the losses in a timely manner and failing to pay the full amount of the claim value under state law.  Landmark removed the cases to Federal Court based upon diversity jurisdiction, and the cases were later consolidated.  Among other things, the insurance company alleged that the claimant failed to comply with a “protective safeguard endorsement” in the policy which required the property to be fenced in and have adequate security protection.

The claimant’s expert concluded that the relevant state statute applied to the policy, that the “safeguards endorsement” was ambiguous, and that the insurance company acted in “bad faith” in adjusting the losses. The insurance company moved to exclude the expert’s testimony.  That motion was granted in large part.

First, the court agreed that the expert’s opinion on the applicability of the state statute was a legal conclusion as to which expert testimony was inappropriate.  Second, the court also agreed that the alleged ambiguity of the “property safeguards endorsement” was also a question of law for the court, and again expert testimony was inappropriate. 

With respect to the “bad faith” claim, the court said that the expert could testify on industry standards and practices for adjusting property damage claims because that testimony would be “helpful to the jury” in such a complex lawsuit.  The expert could also testify as to whether the facts upon which the plaintiff relied to establish bad faith violated generally accepted practices in the insurance industry.  However, the expert was precluded from testifying whether the insurance company showed “bad faith” because, again, these were primarily conclusions of law in the first instance and perhaps jury questions in the ultimate determination.

The first lesson of this case is that, while common and prevalent, expert testimony does have its limits.  Motions to exclude or limit expert testimony may be successful to a significant degree.  This case further establishes the general proposition that federal courts are generally a better and more neutral form to contest first party property damage claims involving a local property owner.
Whether language in an insurance policy is “ambiguous” may not be strictly a “legal” interpretation.  The policy may be “ambiguous” because of language which may involve as much linguistic or common sense application as legal precedent.  In addition, there may be some ambiguity because certain policy terms and background may be “terms of art” within the industry, or have to be understood within an insurance context, which could require factual development and perhaps even expert testimony in an appropriate case.  For example, even in this case the court said that the expert could testify whether the claimant’s compliance efforts satisfied the property protection endorsement requirement under generally accepted practices in the insurance industry.

Courts may cut off expert testimony on the one hand if it intrudes upon and involves questions or conclusions of law.  They may also exclude expert testimony when it attempts to define or opine on ultimate issues in the case such as whether there was “bad faith”. 

Courtesy of the FDCC Website

Newsletter Sign Up